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iiiIERFUL BILLIONAIRE, - EX SCANDAL THAT UNDID HIM, AND ALL THE JUSTICE THAT MONEY CAN BUY: THE SHOCKING TRUE STORY OF JEFFREY EPSTEIN 'TERSON I don't see what it adds to the .,,stigation had taken place, that jut, at that time, no criminal irs had been launched. And in the rumors of Epstein's dealings to be just that rumors. his lawyers, his editors, and his ing odd and disturbing happened :n in Times Square. to the office early. He swiped his the elevator button, and arrived in ion area on the twenty-first floor. ct time to review Ward's story. n's town house which is said to residence in New York City at the 1, amid the flurry of menservants and pristine white gloves, you feel Leone's private Xanadu," she'd writ- person's home, but a high-walled, that seems to have no boundaries. .ed not with paintings but with row arned eyeballs; these, the owner tells nported from England, where they .rs. Next comes a marble foyer, which e manner of Jean Dubuffet , .. but the visitors who painted it. In any case, 150 One of the photographs captured on video during the Palm Beach Police Department search warrant walk-through of Epstein's El Brillo Way residence (Palm Beach Police Department) Jeffrey Epstein, Coney Island, circa 1969 (Anonymous) Epstein's Palm Beach property, 358 El Brill Way (O Chris Bott Splash News Corbis) Jeffrey Epstein's 1969 high school yearbook photo (Lafayette High School, Brooklyn, New York, 1969) Leslie Wexner, photographed at his home in New York City, 1989 (CD Lynn Goldsmith) (L to R) Jeffrey Epstein, Ghislaine Maxwell, and Tony Randall, who presided over a November 1991 YIVO Institute event at the Plaza Hotel to honor the late Robert Maxwell (Marina Gamier) Jeffrey Epstein, Donald Trump, and (newly signed Trump Model) attending the Victoria's Secret Angels party at Laura Belle club in New York City on April 8, 1997 (Marina Gamier) (L to R) , Jeffrey Epstein, Ghislaine Maxwell, and attend a reception at Mar-a-Lago, 1995. (Davidoff Studios) later, photographed Le in New York City, .ynn Goldsmith) (L to R) Deborah Blohm, Jeffrey Epstein, Ghislaine Maxwell, and Gwendolyn Beck attend a reception at Mar-a-Lago, 1995. (Davidoff Studios) age fifteen; photo reportedly taken by Jeffrey Epstein in New York City Affidavit, US District Southern Court of Florida) (L to R) Prince Andrew, and Ghislaine Maxwell; photo reportedly taken by Epstein with camera in Maxwell's London town house. was seventeen years old at this time. (r,iffidavit, US District Southern Court of Florida.) age seventeen; photo reportedly taken by Jeffrey Epstein at Zorro Ranch, his New Mexico iDronerty. in winter Affidavit, US District Southern Court of Florida) Jeffrey Epstein with Professor Alan Dershowitz in Cambridge, MA, September 8, 2004 (0 Rick Friedman Corbis) On the day the police investigation began, Epstein was photographed with Ghislaine Maxwell in New York City at the 2005 WaIl Street concert series benefiting Wall Street Rising, at Cipriani in New York City, March 15, 2005. (Joe Shildhorn Patrick McMullen) Jeffrey Epstein, photographed with attend- ing the launch of Radar magazine held at the Hotel QT in New York City, May 2005 (Neil Rasmus Patrick- McMullan. com Sipa Press) 2008 Palm Beach County Sheriff's Office booking photo of Jeffrey Epstein (Palm Beach County Sheriff's Office) The Stockade, where Epstein 146 served his sentence, photog 1:1 here in 2006, was located a Fairgrounds Road in West Pal Beach, Florida. At the time, used as a minimum- and in security facility housing WO , juveniles, as well as male to on a work-release program. Aerial Photos) gation -aphed N York oncert Rising, March Patrick vfullen) Jeffrey Epstein, photographed with Adrianna Ross, attend- ing the launch of Radar magazine held at the Hotel QT in New York City, May 2005 (Neil Rasmus Patrick- McMullan.com Sipa Press) Ps Office in (Palm i's Office) The Stockade, where Epstein served his sentence, photograph here in 2006, was located at 673 Fairgrounds Road in West Pal Beach, Florida. At the time, it used as a minimum- and media security facility housing women juveniles, as well as male Mina on a work-release program. (5 Aerial Photos) Epstein pleaded guilty to state solicitation charges and served thirteen months of an eighteen- month sentence, with liberal work-release privileges, in a solitary cell at the Palm Beach County Stockade similar to the one pictured here, (Courtesy CDC Special Management, Palm Beach Sheriffs Office) Jeffrey Epstein's entry in the National Sex Offender Registry (National Sex Offender Registry) Epstein and lawyer at the West Palm Beach courthouse in June 2008 to enter a plea nearly two years after being charged (Uma Sanghvi The Palm Beach Post ZUMAPRESS.com) "IMF MIMEO. komp 11.11111111 rio lidsammun ta.1.1.13, 7.60W31-4. oak: 1 Epstein's Little Saint James island, U.S. Virgin Islands: a privately owned cay (nicknamed : Little Saint Jeff's) whose owner locals affectionately refer to as Richie Rich ( Chris Bott Splash News Corbis) Epstein's Gulfstream, photographed on Little Saint James island in the U.S. Virgin Islands, January 2015 (0 Chris Bott Splash News I Corbis) f. -011-04.tr- Epstein's longtime pilot, Larry Visos4 was at the controls as Epstein's Gulfstream left Teterboro Airport in New Jersey, January 2016. (Jae Donnelly) When Prince Andrew and Epstein were seen New York's Central strolling together through 7- Park in 2011, shortly after Epstein's release from jail, the duke was forced to quit his role as the British government's global trade , envoy. (Jae Donnelly News of the World) 7 Stephen Hawking, photographed in March 2006 aboard an Atlantis submarine that was custom-fitted by Epstein to accommodate his wheelchair. Hawking was attendin2, the conference "Confronting Gravin "a workshop to explore fundanotii! questions in physics and cosmolO sponsored by the J. Epstein VI Foundation and the Center for Education and Research in Cosra and Astrophysics (CERCA) at Oic Western Reserve University, at thz Canton, St. Thomas, USVI. (Coterf.9 CERCA, Case Western LlniversitA.;: Taglia. avies ?or Ball. .. Epstein's longtime pilot, Larry Visoski, , Iwas at the controls as Epstein's Gulfstream left Teterboro Airport in New Jersey, January 2016. (Jae Donnelly) e seen entral elease uit his 1 trade World) Stephen Hawking, photographed in March 2006 aboard an Atlantis submarine that was custom-fitted by Epstein to accommodate his wheelchair. Hawking was attending .4 the conference "Confronting Gravity. "a workshop to explore fundamental questions in physics and cosmoloo" sponsored by the J. EpSteiti VI Foundation and the Center for Education and Research in Costnolop and Astrophysics (CERCA) at Case Western Reserve University, at the R;l1 Carlton, St. Thomas, LiSv). (Court0 CERCA, Case Western Univeis Epstein's current residence, the storied building formerly known as the Herbert N. Straus Mansion, on East list Street just off Central Park, was acquired by Leslie Wexner in 1989. (Laura Hanifin) photographed at the New lork Academy of Art's Tribeca Ball, April 14, 2004 (Rob Rich SocietyAllure.com) A framed photo of Florida governor Charlie Crist and Scott Rothstein in Rothstein's office in Fort Lauderdale, autographed by Charlie Crist: Scott You are amazing! Charlie Crist (CarlineJean 0 Sun Sentinel ZUMA- PRESS.com) Epstein, a longtime benefactor, with an unidentified friend, attended the 'IN 2014 New York Academy of Art's Tribeca Ball, presented by Van Cleef Arpels, at the New York Academy of Art on April 7, 2014, in New York City. (Billy Farrell IBFAnyc.com) If. 0) '1 re K V UMW and husband, NASCAR driver Brian Vickers, arrive on the red carpet at the 141st running of the Kentucky Derby at Churchill Downs in Louisville, Kentucky. (Jeff Moreland Icon Sportswire via AP Images) and Larry Visoski, Epstein's personal pilot, in what appears to be the cockpit of a Gulfstream G-II (YouTube) Michael and Janet Reiter at the Palm Beach Police Foundation Policemen's Ball at Mar-a-Lago, January 2012 (Debbie Schatz Palm Beach Daily News ZUMAPRESS.com) Retired Palm Beach police detective Joe Recarey, November 2013 (Megltan McCarthy Palm Beach Daily News f ZUMAPRES.S.com) guests a ture of a The j Mort Zu Micros() among I several c scientist She'd ha with Var informal to form t In th Wha artist, hi swipe hi ter saw a The It wa his office Epstein nal char include when he She'd one of hi On doct( |
7TERSON I don't see what it adds to the estigation had taken place, that 3ut, at that time, no criminal Lirs had been launched. And in the rumors of Epstein's dealings I. to be just that rumors. his lawyers, his editors, and his .in.g odd and disturbing happened in Times Square. to the office early. He swiped his the elevator button, and arrived in ion area on the twenty-first floor. ct time to review Ward's story. n's town house which is said to residence in New York City at the amid the flurry of menservants and pristine white gloves, you feel Leone's private Xa-n.adu," she'd writ- person's home, but a high-walled, that seems to have no boundaries. .ed not with paintings but with row imed eyeballs; these, the owner tells nported from England, where they :Ts. Next comes a marble foyer, which manner of Jean Dubuffet . . . but the fisitors who painted it. In any case, 150 One of the photographs captured on video during the Palm Beach Police Department search warrant walk-through of Epstein's El Brillo Way residence (Palm Beach Police Department) Jeffrey Epstein, Coney Island, circa 1969 (Anonymous) Epstein's Palm Beach property, 358 El Brillo Way (0 Chris Bott Splash News Corbis) Jeffrey Epstein's 1969 high school yearbook photo (Lafayette High School, Brooklyn, New York, 1969) Leslie Wexner, photographed at his home in New York City, 1989 (0 Lynn Goldsmith) (L to R) Jeffrey Epstein, Ghislaine Maxwell, and Tony Randall, who presided over a November 1991 YIVO Institute event at the Plaza Hotel to honor the late Robert Maxwell (Marina Garnier) (L to R) Deborah Blohm, Jeffrey Epstein, Ghislaine Maxwell, and Gwendolyn Beck attend a reception at Mar-a-Lago, 1995. (Davidoff Studios) Jeffrey Epstein, Donald Trump, and (newly signed Trump Model) Ingrid Seynhaeve, attending the Victoria's Secret Angels party at Laura Belle club in New York City on April 8, 1997 (Marina Gamier) txner, photographed ne in New York City, Lynn Goldsmith) (L to R) Deborah Blohm, Jeffrey Epstein, Ghislaine Maxwell, and Gwendolyn Beck attend a reception at Mar-a-Lago, 1995. (Davidoff Studios) Virginia Roberts, age fifteen; photo reportedly taken by Jeffrey Epstein in New York City (Virginia Roberts Affidavit, US District Southern Court of Florida) (L to R) Prince Andrew, Virginia Roberts, and Ghislaine Maxwell; photo reportedly taken by Epstein with Roberts's camera in Maxwell's London town house. Roberts was seventeen years old at this time. (Virginia Roberts Affidavit, .US District Southern Court of Florida) Virginia Roberts, age seventeen; photo reportedly taken by Jeffrey Epstein at Zorro Ranch, his New Mexico property, in winter (Virginia Roberts Affidavit, US District Southern Court of Florida) Jeffrey Epstein with Professor Alan Dershowitz in Cambridge, MA, September 8, 2004 (0 Rich Friedman Corbis) On the day the police investigation began, Epstein was photographed with Ghislaine Maxwell in New York City at the 2005 Wall Street concert series benefiting Wall Street Rising, at Cipriani in New York City, March 15, 2005. (Joe Shildhorn Patrick McMullen) Jeffrey Epstein, photographed with Adrianna Ross, attend- ing the launch of Radar magazine held at the Hotel QT in New York City, May 2005 (Neil Rasmus Patrick- McMullan.com Sipa Press) 2008 Palm Beach County Sheriff's Office booking photo of Jeffrey Epstein (Palm Beach County Sheriff's Office) The Stockade, where Epstein served his sentence, photogra here in 2006, was located at 6 , Fairgrounds Road in West Palm Beach, Florida. At the time, it used as a minimum- and mediu security facility housing wom . juveniles, as well as male loins on a work-release program. Aerial Photos) igation ,raphed :w York concert Rising, , March 'Patrick Mullen) Jeffrey Epstein, photographed with Adrianna Ross, attend- ing the launch of Radar magazine held at the Hotel QT in New York City, May 2005 (Neil Rasmus Patrick- McMullan.com Sipa Press) Ers Office :in (Palm Ts Office) The Stockade, where Epstein I served his sentence, photograph here in 2006, was located at 673 Fairgrounds Road in West Palm Beach, Florida. At the time, it vi used as a minimum- and media I security facility housing women juveniles, as well as male ininat on a work-release program. (s likki Aerial Photos) Epstein pleaded guilty to state solicitation charges and served thirteen months of an eighteen- month sentence, with liberal work-release privileges, in a solitary cell at the Palm Beach County Stockade similar to the one pictured here. (Courtesy CDC Special Management, Palm Beach Sheriffs Office) 'J, Epstein and lawyer at the West Palm Beach courthouse in June 2008 to enter a plea nearly two years after being charged (Uma Sanghvi The Palm Beach Post ZUMAPRESS.com) Cr.pleara. of L. Le rt.,. trn, ',ore eer Jeffrey Epstein's entry in the National Sex Offender Registry (National Sex 11111 1, m1Immin Offender Registry) 11.1101.111111.01 rt. Itnnt VA et Othalrer. Ir ani feet Ovarv.u. nerar. Am err..., erer,-,e. tar. h en ITT . MYL.V. Can Lae A.. Mr 11 Mee VArsre 41, rLa: Epstein's Little Saint James island, U.S. Virgin Islands: a , privately owned cay (nicknamed .41 Little Saint Jeffs) whose owner locals affectionately refer to as Richie Rich (0 Chris Bott Splash News Corbis) Epstein's Gulfstream, photographed on Little Saint James island in the U.S. Virgin Islands, January 2015 (0 Chris Bott Splash News Corbis) Epstein's longtime pilot, Larry Visoski was at the controls as Epstein's Gulfstream left Teterboro Airport in New Jersey, January 2016. Jae Donne When Prince Andrew and Epstein were seen strolling together together through New York's Central .. Park in 2011, shortly after Epstein's release 7 ..- -, from jail, the duke was forced to quit his ."-:::" - role as as the British government's global trade envoy. Uae Donnelly News of the World) if! Stephen Hawking, photographed in March 2006 aboard an Atlantis submarine that was custom-fitted by Epstein to accommodate his wheelchair. Hawking was attending the conference "Confronting Gra iiri "a workshop to explore fundamental questions in physics and cosinoto y. sponsored by the J. Epstein Vi Foundation and the Center for Education and Research in Cosmc) and Astrophysics (CERCA) at C Western Reserve University, al. Carlton, St. Thomas, USVI. CERCA, Case Western University , Taglizt avies Yor Ball. Epstein's longtime pilot, Larry Visoski, was at the controls as Epstein's Gulfstream left Teterboro Airport in New Jersey, January 2016. (fete Donnelly) :e seen 4 ,60 2entral release pit his - L1 trade World) Stephen Hawking, photographed in March 2006 aboard an Atlantis submarine that was custom-fitted by Epstein to accommodate his wheelchair. Hawking was attending the conference "Confronting GravitY: "a workshop to explore fundamental questions in physics and cosmologY. sponsored by the J. Epstein VI Foundation and the Center for Education and Research in Cosmkg and Astrophysics (CERCA) at Case, Western Reserve University, at the A.! - Carlton, St. Thomas, USVI. (Coot CERCA, Case Western Unive1510 A framed photo of Florida governor Charlie Crist and Scott Rothstein in Rothstein's office in Fort Lauderdale, autographed by Charlie Crist: Scott You are amazing! Charlie Crist (Canine Jean Sun Sentinel ZUMA- PRESS . com) Epstein, a longtime benefactor, with an unidentified friend, attended the IN 2014 New York Academy of Art's Tribeca Ball, presented by Van Cleef Arpels, at the New York Academy of Art on April 7, 2014, in New York City. (Billy Farrell BFAnyc.com) Epstein's current residence, the storied building formerly known as the Herbert N. Straus Mansion, on East 71st Street just off Central Park, was acquired by Leslie Wexner in 1989. (Laura Hanifin) Nadia Marcinkova, Michele Tagliani, Sarah Kellen, and Teala Davies, photographed at the New York Academy of Art's Tribeca Ball, April 14, 2004 (Rob Rich SocietyAllure.com) Sarah (formerly Kellen Kensington) and husband, NASCAR driver Brian Vickers, arrive on the red carpet at the 141st running of the Kentucky Derby at Churchill Downs in Louisville, Kentucky. (Jeff Moreland Icon FZ Sportswire via AP Images) Nadia Marcinkova and Larry Visoski, Epstein's personal pilot, in what appears to be the cockpit of a Gulfstream G-II (YouTube) Michael and Janet Reiter at the Palm Beach Police Foundation Policemen's Ball at Mar-a-Lago, January 2012 (Debbie Schatz Palm Beach Daily News ZUMAPRESS.com) Retired Palm Beach police detective Joe Recarey, November 2013 (Meghan McCarthy Palm Beach Daily News ZUMAPRESS.com) guests a: ture of a The j Mort Zu Microso: among I several c scientist She'd ha with Var informal to form In th Wha artist, hi swipe hi ter saw a The I It wa his offic( Epstein nal char include when he She'd one of hc On docu nerly Kellen :1) and husband, river Brian Vickers, he red carpet at the 141st the Kentucky Derby 11 Downs in Louisville, (Jeff Moreland Icon via AP Images) Michael and Janet Reiter at the Palm Beach Police Foundation Policemen's Ball at Mar-a-Lago, January 2012 (Debbie Schatz Palm Beach Daily News ZUMAPRESS.com) lice rey, ,han laity om) FILTHY RICH guests are like pygmies next to the nearby twice-life-size sculp- ture of a naked African warrior." The journalist had confirmed that several prominent names Mort Zuckerman, the famous real estate mogul and publisher; Microsoft executive Nathan Myhrvold; and Donald Trump among them had dined at the residence. She'd interviewed several of Epstein's friends and ex-friends: Nobel Prize winning scientists, financiers who worked with Epstein at Bear Stearns. She'd handled Steven Hoffenberg with aplomb. And, working with Vanity Fair's editors, she'd figured out ways to slip even more information between the lines, in ways that would allow readers to form their own questions about Epstein's finances. In that respect, she'd fulfilled her original assignment perfectly. What Carter needed to figure out was what to do with the artist, her sister, and their mother's story. But before he could swipe his key card to let himself into the magazine's offices, Car- ter saw a man standing in the reception area. The man was motionless. He'd been waiting for Carter. It was Jeffrey Epstein. Nonplussed, Carter invited him into his office. Epstein denied the claims involving underage women. No crimi- nal charges had been filed. And so Vanity Fair decided not to include the claims in Ward's article. But, according to Ward, when her editor Doug Stumpf called her, she cried. She'd worked so hard on the piece, gotten so stressed out that one of her twins had begun to grow more slowly than the other. On doctor's orders; she'd been put on bed rest. 151 JAMES PATTERSON "Why?" she asked when she got to speak to Carter directly. "He's sensitive about the young women. And we still get to run most of the piece." In her notebook, Ward wrote down the rest of what Carter had said: "I believe him," he told her. "I'm Canadian." But the piece that came out, in the March issue, still created a sensation. It was called "The Talented Mr. Epstein" in a sly refer- ence to Patricia Highsmith's celebrated suspense novel The Tal- ented Mr. Ripley. The film adaptation, by Anthony Minghella, was still fresh in the minds of Vanity Fair's readers. For Graydon Carter, just posing the question Is Epstein some sort of scam artist, like Ripley? had been question enough. And throughout the piece, there were ironies readers wouldn't miss as they drew their own conclusions about Epstein's life story. It came through clearly in the first line of the last paragraph of Ward's 7,500-word story: "Many people comment there is something innocent, almost childlike about Jeffrey Epstein." In context, the word innocent was rather ironic so much so that it almost became its own opposite. 752 Todd Meister: June 20 Harry Cipriani, on tion. The restaura post of Harry's Bar outpost in Venice. Locatei it's a theme restaurant t hedge-fund manager name wealthy man Jeffrey Ep father, Epstein's sometime "I've known Jeffrey sir let me tell you what I kr everybody else says. First and here's why he has ril that for him." Meister knows how to ii the son of a superrich fathe TTERSON got to speak to Carter directly. mg women. And we still get to down the rest of what Carter her. "I'm Canadian." in the March issue, still created a lented Mr. Epstein" in a sly refer- lebrated suspense novel The Tal- lion, by Anthony Minghella, was lity Fair's readers. For Graydon Is Epstein some sort of scam artist, n enough. And throughout the ers wouldn't miss as they drew )stein's life story. It came through ;t paragraph of Ward's 7,500-word It there is something innocent, Ei.pstein." nt was rather ironic so much so )pposite. 152 CHAPTER 39 Todd Meister: June 2015 Harry Cipriani, on Fifth Avenue, is a New York institu- tion. The restaurant began its life as an American out- post of Harry's Bar which was itself a famous American outpost in Venice. Located inside the Sherry-Netherland hotel, it's a theme restaurant the theme being money. And today, a hedge-fund manager named Todd Meister is talking about a very wealthy man Jeffrey Epstein whom he knows through his father, Epstein's sometime friend Bob Meister. "I've known Jeffrey since I was nineteen," Meister says. "So let me tell you what I know whatever everyone knows and everybody else says. First Off, he's no billionaire. Second off and here's why he has no clue how to invest. He has people do that for him." Meister knows how to invest. He does it for other people and, as the son of a superrich father, for himself. He also knows about the 153 71- JAMES PATTERSON good life. Parties in Vegas; weekends in the Hamptons; affairs with beautiful women that end up getting splashed all over the tabloids. It makes sense that, once upon a time, he and Epstein would have gotten along. "As for the girls," Meister says, "that was just business. He'd seat them strategically at client dinners. When he went to the movies, he'd take three or four girls with him. They'd take turns massaging his back, arms, and legs." According to Meister, Epstein used to boast that he "liked to go into insane asylums because he liked to fuck crazy women." "Who knows if it's true?" Meister adds. "But I'm telling you, he used to say it." From time to time, Epstein's friends and acquaintances would see sides of Epstein that he'd grown much less shy about sharing. Epstein encouraged Alan Dershowitz to invest with a prominent hedge-fund manager named Orin Kramer. Dershowitz did, and he made a lot of money at first. But in 2008, the fund Dershowitz had invested in lost a substantial amount. Afterward, according to a for- mer associate of Epstein's, Epstein appeared in Kramer's midtown Manhattan office. There, sources say, he told Kramer: "It's very much in your interest to make Alan Dershowitz whole." Epstein's intervention worked, and Dershowitz recovered his money. To people who'd known Epstein back in the 1980s, this kind of behavior was out of character. But the thing about Epstein was that you never could figure him out. One minute he was charming. 154 FILT The most charming man you'd threat, and bluster. Somethini numbers: this many parties, t connection to Victoria's Secret, Throw in the modeling ag you plug in the parties. The SCE But the thing is, Eyes Wide Shi Epstein, getting on that plan moment in Caddyshach the c out from his hole in the golf Epstein was like the mole in a a matter of time before he'd be to ask yourself was, are peopl als? Or are their morals like shed (along with all the othe) everyday working people have; Eyes Wide Shut world? Todd Meister, who was marri, heiress Samantha Boardman editorial director James Trurru loud: "How does a yutz like Epste At Harry Cipriani, the ques TERSON ds in the Hamptons; affairs with ig splashed all over the tabloids. In a time, he and Epstein would "that was just business. He'd dinners. When he went to the irls with him. They'd take turns n used to boast that he "liked to he liked to fuck crazy women." eister adds. "But I'm telling you, 7iends and acquaintances would )wn much less shy about sharing. showitz to invest with a prominent n Kramer. Dershowitz did, and he in 2008, the fund Dershowitz had punt. Afterward, according to a for- An appeared in Kramer's midtown say, he told Kramer: "It's very much :rshowitz whole." ced, and Dershowitz recovered his :in back in the 1980s, this kind of. But the thing about Epstein was out. One minute he was charming. 154 FILTHY RICH The most charming man you'd ever meet. The next he was snarl, threat, and bluster. Something didn't add up. So you'd run the numbers: this many parties, that many women. Even with the connection to Victoria's Secret, the women didn't add up, either. Throw in the modeling agency, it makes more sense. Then you plug in the parties. The scene brings Eyes Wide Shut to mind. But the thing is, Eyes Wide Shut only works in the shadows. For Epstein, getting on that plane with Clinton was more like a moment in Caddyshack the one in which the groundhog peeks out from his hole in the golf course. From there on in, Jeffrey Epstein was like the mole in a game of whack-a-mole. It was only a matter of time before he'd be caught. But the question you had to ask yourself was, are people like Epstein born without mor- als? Or are their morals like snakeskin just something they shed (along with all the other basic, day-to-day concerns that everyday working people have) as they make their way into that Eyes Wide Shut world? Todd Meister, who was married to Nicky Hilton and stole the heiress Samantha Boardman away from Conde Nast's former editorial director James Truman, should know. He wonders out loud: "How does a yutz like Epstein get beautiful women?" At Harry Cipriani, the question lingers in the air. 155 PART IV The Investigation CHAPTER 40 Michael Reiter: January 2006 1 As far as Michael Reiter's concerned, the case that his team has built against Epstein slowly, meticulously, over the course of an entire year is airtight. Even now, Detective Recarey's finding new pieces of evidence. And already Reiter's been laying the groundwork with prosecutors. State attorney Barry Krischer has a reputation for toughness. He's known, nationally, for his prosecution of juvenile offenders. And Reiter's been keeping him abreast of the investigation. With Jeffrey Epstein, it's not simply a matter of seeing him punished. It's a matter of getting a sexual predator off the streets of Palm Beach. Krischer assures the chief that he's taking this case very seriously. The state attorney's office will have Reiter's back at every turn. "I told him that we had an investigation that was very serious 159 JAMES PATTERSON Detective Recarey: Feb, IFor months, Joe Reca been brought to Epsi and car-rental records according to a source withi; would identify forty-seven on El Brillo Way. Recarey interviewed or David Rogers, as well as Ep5. He also spoke to a woman v It turned out that Epste actual Swedish deep-tissue for him and his friends, ti them. Did anything untoward Epstein ever asked the worn; that involved a very noteworthy person and that involved a num- ber of underage females," Reiter would say in his deposition for the suit that was later settled by Epstein. "That it was of a sexual nature. I was concerned that we had not reached all of the vic- tims, and we hadn't, I'm sure, at this point. I told him that I felt like the suspect would probably become aware of the investiga- tion at some point and that we should probably expect some con- tact from.. . Mr. Epstein's lawyers. And I told him that I wanted to keep him very well informed on this and that I hoped that he would do the same. And that we would have to have more con- tact in making sure it was handled responsibly, intelligently, and appropriately as it moved forward." Reiter would say that Epstein's name did not seem to ring a bell with the state attorney. But shortly afterward, the chief became aware that in certain powerful circles his investigation was being looked upon unfavorably. "I had many people-related conversations ... on the cocktail-party circuit that suggested we approach this in a way that wasn't necessary," he would say. Michael Reiter was a good cop. A good man. But he was about to discover that when it came to men with the power and influ- ence Epstein wielded, fairness under the law was a relative, mal- leable concept. 160 A.TTERSON person and that involved a num- r would say in his deposition for p7 Epstein. "That it was of a sexual ye had not reached all of the vic- at this point. I told him that I felt ly become aware of the investiga- should probably expect some con- Ters. And I told him that I wanted :d on this and that I hoped that he we would have to have more con- idled responsibly, intelligently, and yard." teip's name did not seem to ring a . But shortly afterward, the chief powerful circles his investigation yorably. "I had many people-related tail-party circuit that suggested we yasn't necessary," he would say. J. cop. A good man. But he was about le to men with the power and influ- ss under the law was a relative, ma!- 160 CHAPTER 41 Detective Recarey: February 2006 IFor months, Joe Recarey's been interviewing girls who'd been brought to Epstein's house, subpoenaing telephone and car-rental records, conducting surveillance. Ultimately, according to a source within the Palm Beach PD, the department would identify forty-seven underage girls who'd been molested on El Brillo Way. Recarey interviewed one of Epstein's pilots, a man named David Rogers, as well as Epstein's houseman, Alfredo Rodriguez. He also spoke to a woman who really was a massage therapist. It turned out that Epstein paid just one hundred dollars for actual Swedish deep-tissue massages that the therapist provided for him and his friends, the lawyer Alan Dershowitz among them. Did anything untoward ever happen? Recarey asked. Had pstein ever asked the woman to rub his chest? 161 JAMES PATTERSON No, she told him. She wasn't Epstein's type. The girls she'd seen at his house were very thin and beautiful and did not have tattoos. This massage therapist had several tattoos that were vis- ible, and on quite a few occasions Epstein and Ghislaine Max- well had made negative comments about them. According to a Palm Beach Police Department Incident Report filed by Recarey on July 25, 2006, the detective had also heard from Mary's father, who said that a private eye had been to his house, photographing his family and chasing visitors away. Mary's dad had gotten the license plate Florida E79-4EG. Recarey traced it back to one Ivan Robles of West Palm Beach. Robles turned out to be a licensed private investigator. Recarey informed the state's attorney's office. Alison also contacted Recarey and told him that she'd been approached by someone who was in touch with Epstein. Alison had been told that she'd receive money if she would refuse to cooperate with the police. Those who help him will be compensated, she was told, according to Detective Recarey's incident report. "And those who hurt him will be dealt with." Recarey reassured the girl and told her that tampering with a witness in a case like this was a serious, arrestable offense. Then he told an assistant state attorney. The detective was leaving no i undotted and no t uncrossed. But he did wonder if the state attorney's office itself had become part of the problem. Barry Krischer: April State attorney Barry l before taking his post in and around Palm 1992 and 1996, he had run and 2004. During the coil 1970 with a three-year sti Brooklyn, he received a m from the Legal Aid Society with the juvenile justice s) protection team; the Peace nor Jeb Bush, for his work' time achievement award fi member of the National D: was not necessarily averse In 2003, he launched an in TERSON Epstein's type. The girls she'd and beautiful and did not have ad several tattoos that were vis- -is Epstein and Ghislaine Max- :s about them. rice Department Incident Report 6, the detective had also heard a a private eye had been to his and chasing visitors away. ense plate Florida E79-4EG. van Robles of West Palm Beach. d private investigator. attorney's office. and told him that she'd been ts in touch with Epstein. Alison .-. money if she would refuse to be compensated, she was told, incident report. "And those who id told her that tampering with a serious, arrestable offense. le attorney. )i undotted and no t uncrossed. state attorney's office itself had 162 CHAPTER 42 Barry Krischer: April 2006 State attorney Barry Krischer was an elected official, but before taking his post, he'd been a lawyer in private practice in and around Palm Beach. Elected twice to his office, in 1992 and 1996, he had run unopposed for state attorney in 2000 and 2004. During the course of his long career, which began in 1970 with a three-year stint in the district attorney's office in Brooklyn, he received a number of awards: the pro bono award from the Legal Aid Society of Palm Beach County for his service with the juvenile justice system and for his work with the child protection team; the Peace at Home award, presented by Gover- nor jeb Bush, for his work with victims of family violence; a life- time achievement award from the Florida Bar. He was a board member of the National District Attorneys Association. And he was not necessarily averse to going after the rich and powerful. In 2003, he launched an investigation into Rush Limbaugh's use 163 JAMES PATTERSON of, and means of obtaining, oxycodone and hydrocodone. (A few years after Limbaugh's arrest, which coincided with Chief Reit- er's investigation into Jeffrey Epstein, the talk-show host settled with prosecutors, agreed to submit to random drug testing, and gave up his firearms permit.) Krischer himself, however, had been accused of sexual misconduct. In October of 1992, Jodi Bergeron, a legal secretary who'd worked for Krischer, filed a sexual harassment lawsuit against him in the Palm Beach County circuit court. That suit was dismissed, but a few months later, the woman took Krischer to federal court, accusing him of making unwanted advances and demanding recompense for battery, negligence, invasion of privacy, and emotional distress. Krischer had placed his hands, violently, inside her blouse, the woman said. He'd forcibly fondled her breasts, forcibly kissed her, and rubbed her shoulders while brushing her buttocks with his hands and knees, all while accompanying the gestures with verbal advances. When she declined those advances, the woman claimed, Krischer fired her. Krischer denied the allegations. At the time, he was making his first run for the state attorney's office. The charges were politically motivated, he said. Members of a local chapter of NOW the National Organization for Women had stood by the lawyer, cit- ing his efforts to stop domestic violence, among his other virtues. "I am here to support Barry Krischer for the work his office did in my daughter's case," one woman said during a rally that took place in front of the courthouse. "Her murderer received the maximum sentence, a life sentence." The second lawsuit had also been dismissed after Krischer's 164 former law firm agreed sand dollars in legal fees Now Chief Reiter and D( their own questions abc wanted to charge Epsteil behavior and four cour minor felony charges behind bars in the case c Kellen would be charged This was not, the plai for Jeffrey Epstein. In cases involving tl. attorneys tend to have s But instead of granting I the police that he would asked to consider a broad In a case such as Epst ing in and of itself. But v only required in capital cas may also be called in ci involving crimes committ wasn't a public official, an cerned, the only controvet that Epstein was rich an B.B. vs. Epstein, Chief Reit( ecutor had to make sure t able doubt. And Krischer of the young women who'c 1TERSON FILTHY RICH odone and hydrocodone. (A few hich coincided with Chief Reit- 3tein, the talk-show host settled nit to random drug testing, and had been accused of sexual :on, a legal secretary who'd worked sment lawsuit against him in the That suit was dismissed, but a few :rischer to federal court, accusing es and demanding recompense for ivacy, and emotional distress. nds, violently, inside her blouse, Indled her breasts, forcibly kissed mhile brushing her buttocks with accompanying the gestures with advances, the woman claimed, )fls. At the time, he was making his office. The charges were politically of a local chapter of NOW the ten had stood by the lawyer, cit- Tiolence, among his other virtues. -y Krischer for the work his office ie woman said during a rally that irthouse. "Her murderer received sentence." o been dismissed after Krischer's 164 former law firm agreed to pay Bergeron's attorney seven thou- sand dollars in legal fees. Now Chief Reiter and Detective Recarey were beginning to have their own questions about Barry Krischer. The Palm Beach PD wanted to charge Epstein with one count of lewd and lascivious behavior and four counts of unlawful sexual activity with a minor felony charges that would have amounted to years behind bars in the case of a conviction. Wendy Dobbs and Sarah Kellen would be charged as accomplices. This was not the plan that Krischer seemed to have in mind for Jeffrey Epstein. In cases involving the sexual abuse of minors, prosecuting attorneys tend to have suspects arrested, then push for a trial. But instead of granting his approval for an arrest, Krischer told the police that he would convene a grand jury, which would be asked to consider a broad range of charges. In a case such as Epstein's, this was highly unusual. Not damn- ing in and of itself. But very strange. In Florida, grand juries are only required in capital cases. At the state attorney's discretion, they may also be called in controversial cases for instance, cases involving crimes committed by public officials. But Jeffrey Epstein wasn't a public official, and as far as the Palm Beach PD was con- cerned, the only controversial thing about the case they'd built was that Epstein was rich and well connected. In his deposition for B.B. vs. Epstein, Chief Reiter rel ayed Krischer's concerns: the pros- ecutor had to make sure that his case was solid, beyond a reason- able doubt. And Krischer did have his doubts about the credibility of the young women who'd be called to testify against Epstein. 165 JAMES PATTERSON Even so, Reiter was beginning to wonder if Krischer was stacking the deck in Epstein's favor if, thanks to the sway prosecutors have over grand juries, assembling such a jury wasn't an excellent way to let Epstein off with the lightest pun- ishment possible. Another unusual thing: the way Barry Krischer and the law- yers working for him ignored Chief Reiter's multiple phone calls as well as Detective Recarey's even though the police had been hearing from Epstein's own lawyers. " Krischer and I had an excellent relationship," Chief Reiter said in his deposition. "I was the speaker at his swearing-in cere- mony. And that he wouldn't return my phone calls I mean, it was clear to me by his actions that he could not objectively look at this case." In the incident report he ended up writing, Detective Recarey remembered a phone call that he received from Guy Fronstin, one of the lawyers representing Epstein. It was a message Epstein wanted to send, something central to the case that demanded explanation. The whole shit show swirling around him was just a misunderstanding a misrepresentation of Epstein's actual interests and intentions. Fronstin says Mr. Epstein is very passionate about massages, Detective Recarey would write. And: Mr. Epstein had donated over 100,000 to the Ballet o Florida for massages. And: The massages are therapeutic and spiritually sound for him. That is why he has had so many massages. 166 Palm Beach Police Delia?. by Detective Joseph Reca On April 13 and April 14, ; eral occasions with ASA Weiss and ASA ILanna I B victims needed to report for were left on their voicemai hours of 9:00 am and 11:30 Weiss and ASA Belohlavek call as I had not heard from the time and date of the Gra At approximately 12:3( ney's Office and Located their offices. I entered ASA. me that she was going to rei an offer was made to the I CTERSON mg to wonder if Krischer was favor if, thanks to the sway uries, assembling such a jury )stein off with the lightest pun- vay Barry Krischer and the law- lief Reiter's multiple phone calls even though the police had been mrs. ellent relationship," Chief Reiter : speaker at his swearing-in cere- urn my phone calls I mean, it hat he could not objectively look d up writing, Detective Recarey he received from Guy Fronstin, Epstein. n.ted to send, something central to Lion. The whole shit show swirling :standing a misrepresentationitentions. ; very passionate about massages, ted over 100,000 to the Ballet of rapeutic and spiritually sound for nany massages. 166 CHAPTER 43 Palm Beach Police Department Incident Report Filed by Detective Joseph Recarey: July 25, 2006 On April 13 and April 14, 2006, I attempted contact on sev- eral occasions with ASA assistant state attorney Daliah Weiss and ASA Latina Belohlavek to ascertain when the victims needed to report for Grand Jury testimony. Messages were left on their voicemail. On April 17, 2006, during the hours of 9:00 am and 11:30 am I again left messages for ASA Weiss and ASA Belohlavek for either of them to return my call as I had not heard from the State Attorney's Office as to the time and date of the Grand Jury. At approximately 12:30 pm, I went to the State Attor- ney's Office and Located ASA Weiss and ASA Belohlavek in their offices. I entered ASA Belohlavek's office who informed me that she was going to return my call. She explained that an offer was made to the Defense, Atty Guy Fronstin and 167 JAMES PATTERSON Atty Alan Dershowitz. The offer is 1 count of Agg Assault with intent to commit a felony, five years probation, with adjudication withheld. Epstein would have to submit to psy- chiatric sexual evaluation and no unsupervised visits with minors. When asked about all the other victims, ASA Belohlavek stated that was the only offer made as to one vic- tim, Mary . ASA Belohlaveles cell phone rang and went to voice mail. She checked her voice mail and played the mes- sage on speaker. The caller identified himself as Atty Guy Fronstin and acknowledged the deal made between them. Fronstin stated in the message, he spoke with his client, Jef- frey Epstein, and would agree to this deal. Fronstin asked to call off the grand jury as they would accept this deal. Belohlavek stated a probable cause would be needed to book Epstein in the county Jail and would let me know as to when it was needed. I explained my disapproval of the deal and not being consulted prior to the deal being offered. However I expressed that was only my opinion and the final approval would come from the Chief of Police. She explained to have Chief Reiter call Barry Krischer about the deal. I left the area and returned to the police station where I briefed the Chief about the deal offered. I checked my voice mail messages and discovered a mes- sage from the stepmother for the victim Mary . She was calling because the State Attorney's Office still had not returned any of her calls as to when they are needed for this case. I then called ASA Belohlavek's office and left messages for her to call the victims on this case and explain to them what the State Attorney's Office had done. 168 Michael Reiter: May 2( A plea offer? Chief Reiter is o sands of hours of wc evidence. But instead of gob see Epstein get off with a a and a psych exam. Why? Alan Dershowitz has pre pieces of evidence printot In her "About Me" colu Mary has written "Ass and e Under "Ever drank" an "Yeah." Under "Ever shoplifted": Under "Ever skinny dipp, TERSON er is 1 count of Agg Assault v, five years probation, with would have to submit to psy- no unsupervised visits with all the other victims, ASA only offer made as to one vic- .1 cell phone rang and went to ,ice mail and played the mes- lentified himself as Atty Guy le deal made between them. , he spoke with his client, Jef- to this deal. Fronstin asked to hey would accept this deal. ause would be needed to book would let me know as to when iisapproval of the deal and not deal being offered. However I !pinion and the final approval Police. She explained to have :her about the deal. I left the .ce station where I briefed the tessages and discovered a mes- )r the victim Mary . She was ttorney's Office still had not ) when they are needed for this lavek's office and left messages this case and explain to them ce had done. 168 CHAPTER 44 Michael Reiter: May 2006 A plea offer? Chief Reiter is outraged. His team has logged thou- sands of hours of work. They've assembled mountains of evidence. But instead of going to trial, the state attorney wants to see Epstein get off with a misdemeanor, five years of probation, and a psych exam. Why? Alan Dershowitz has presented the prosecutors with his own pieces of evidence printouts from the victims' Myspace pages. In her "About Me" column, under "Best physical feature," Mary has written "Ass and eyes." Under "Ever drank" and "Ever smoked pot," she's written "Yeah." Under "Ever shoplifted": "Lots." Under "Ever skinny dipped": "Yeah." 69 JAMES PATTERSON Under " Do you wanna lose your virginity": "I already lost it." One of the victims has been caught with drugs and arrested. She's also been caught stealing from Victoria's Secret. From the state attorney's perspective, these girls look like compromised women. And if what they say about Epstein is true, wouldn't that make them prostitutes? As witnesses, they would be weak, while the lawyers on Epstein's side were exceptionally strong. Alan Dershowitz had represented Claus von Billow, the Brit- ish socialite who was acquitted of the murder of his wife, Sunny. Dershowitz had been on 0. J. Simpson's team when the former football star was acquitted of the murders of his ex-wife, Nicole Brown Simpson and Nicole's friend Ronald Lyle Goldman. And rich as von Billow and Simpson had been, neither one had had the resources that Epstein was willing and able to deploy in his own defense. Neither of them had been intimate friends with his lawyer. As far as Reiter was concerned, none of that mattered. Even if Epstein thought that the girls he'd molested were eighteen years old even if they had lied to him it didn't matter under Flor- ida law. The chief grew worried that in Epstein's case exceptions were being made, and he grew even more concerned with each unreturned call that he made to the state attorney's office. On May 1, the Palm Beach PD asked the state attorney's office to issue an arrest warrant for Jeffrey Epstein. That same day, Chief Reiter took the extraordinary step of writing Barry Krischer a letter all but demanding that he recuse himself from the case. 170 TOWN OF POLICE 13 A NATiONAL STMT. ACC1 PERSONAL AND CONFIDENTIAL 10, Barry E Krischer, State Attorney Office of the State Attorney ;itteentit Judicial Circuit 401 North Dime Highway West Patrn Beach. FL 33401 Dear Mr. Krischer. Please find enclosed the probable cause resulting from the Patm Beach PoLce Depa Kellen and Haley Robson The. submissio Assistam State Attoiney Latina ee!ohtdvef Beach Police Department's presentation fc I know That you agree that it 5 Our shared oJtlic interest ay clis,:harg,ng cur outies er odor observation to you that I coot:nue to he II,t-, regreltob!e the! fOrce0 recent telephone calls to you and those of have Peen unanswered and messages red A'ter giv,ng th., much thought and consider course that your office's handling of thin sufhcient isason evistn tu rez,J.ro your Oa :ases Sir Mit Ch MSR nt 50,03.C.a.my RIO Pas, 1 Reath. Fr., '00440 t TERSON TOWN OF PALM BEACH POLICE DEPARTMENT A NATIONAL AM) STAT ACCREZrTE0 LAN,. ENFORaMENT ACZNCv MaN. 4, 2006 PERSONAL AND CONFIDENTIAL Mr Barry E Krischer, State Attorney Office of the State Attorney Fifteenth Judicial Circu,t 401 North Dixie 0-iighway West Palm Beach, FL 33401 Dear Mr Krischer, Prease find erclosed the probable cause attidavits and case filing packages thus far resulting f,orn !he Palm Beach PoPce Department's in. estigaton of Jeffrey Epstem, Sarah Kellen and Haley Robson The submission of these document:. are both in response to Ast,stam State Attorney Lwzna 6e.oh.dv,k's re;quest fur triem anti to serve as the Palm Beach Police Deoartrnent's presentation for prosecution I know that you agree that it is OW shared responsibility to seek justice and to serve the pittic trterest by dis,harging our outies r,th fairness ano accouritablity must rene,.... my prior Observation to you that I ontrnve to find your office's treatment of these cases highly urn.:-.uot 1 5 regrettable that! an forcao to communicate n this rranner tut my most recent telephone calls to you and those of the lead detective to your assigned attorneys have been uransi.vered and messages remain unreturned .Mier giv.ng this much treJght and consideration I rrJst urge you to examine the unusual course that your office's handling of this matter haS taken and consider 4 good and suffcient Teaser, er.!stt, to reciJ,re your air cwrificat'on fro", tno prosecution of these :ases. ',U(AtaS 2f1,,Ta Michel S. Reiter Chef of Police MSR-n: 4SSevtloCoamyRtio4 P1 nfie.0F. 334104443 051111184W FsiuSit; 3.-g,t'O Yur virginity": "I already lost it." aught with drugs and arrested. .om Victoria's Secret. From the e girls look like compromised at Epstein is true, wouldn't that e weak, while the lawyers on strong. nted Claus von Billow, the Brit- f the murder of his wife, Sunny. mpson's team when the former murders of his ex-wife, Nicole !.nd Ronald Lyle Goldman. And had been, neither one had had villing and able to deploy in his :imate friends with his lawyer. :d, none of that mattered. Even if molested were eighteen years m it didn't matter under Flor- that in Epstein's case exceptions even more concerned with each the state attorney's office. D asked the state attorney's office ffrey Epstein. took the extraordinary step of all but demanding that he recuse 170 F 1 L CHAPTER 45 Videotaped Deposition of Michael Reiter in B.B. vs. Epstein, a civil lawsuit against Jeffrey Epstein: November 23, 2009 Q: At some point you sent a letter to state attorney Barry Krischer. Let me show you what we'll mark as exhibit 3. Let me give you a chance to read through this letter again to help refresh your recollection. A: I've read it. Q: At this point, in May of 2006, I'm assuming based on what you told us before that you had had some conversations with Barry Krischer directly. ...by phone correct? prior to this letter. A: I had conversations in person and by phone. Q: Okay. But nonetheless in May May 1, 2006 you felt the need to write this letter; is that correct? A: Yes. 172 Q: Can you tell us why? A: Well, I felt the handling-.. way the state attorney's ofi unusual. I knew that M about this case. I felt tha felt that the appropriate governed the assignment that his action met the st from the statute in here. .A wouldn't return my phone The detective attempt state attorney's office, Lai nounce that ... and she Ai( the letter in hope that he m realize that his objectivit) case and ask the governor like that was necessary fen had been submitted to hin Could you tell us, explain tivity may be lacking in r other words, what eviden( you felt made it potentially A: Well ... when I first told h that it was a serious case, I and that the suspect was it. And we were it was i meeting that he and I w( known him to be a victim of children. Well, I know tl statute that addresses tho Q: FILTHY RICH Q: A: Q: Can you tell us why? Well, I felt the handling and just continued to feel that the way the state attorney's office handled this case was extremely unusual. I knew that Mr. Krischer was making decisions about this case. I felt that his objectivity was lacking, and I felt that the appropriate way, after reading the statute that governed the assignment of cases to other circuits I felt that his action met the standard. I used some of the words from the statute in here. And I attempted to call him, and he wouldn't return my phone calls. The detective attempted to contact his contact in the state attorney's office, Lanna Belohlavek, however you pro- nounce that ... and she wouldn't return his calls. So I wrote the letter in hope that he would think about his situation and realize that his objectivity was insufficient to prosecute the case and ask the governor to appoint someone else. And I felt like that was necessary for a fair prosecution of our case that had been submitted to him. Could you tell us, explain to us, why you felt that his objec- tivity may be lacking in regards to this prosecution ... ? In other words, what evidence did you see here, uncover, that you felt made it potentially nonobjective? A: Well ... when I first told him about the case, and I realized that it was a serious case, that there were multiple victims, and that the suspect was very well known, I told him about it. And we were it was in person. I talked to him after a meeting that he and I were both involved in. And I had known him to be a victim advocate and to protect the rights of children. Well, I know that he even wrote a portion of the statute that addresses those issues. And when I told him 173 CHAPTER 45 Michael Reiter in B.B. vs. ainst Jeffrey Epstein: a letter to state attorney Barry a what we'll mark as exhibit 3. Let ad through this letter again to help 1006, I'm assuming based on what u had had some conversations with by phone correct? prior to this rson and by phone. i May May 1, 2006 y0u felt the is that correct? 172 JAMES PATTERSON originally, he said, "Let's go for it; this is an adult male in his fifties who's had sexual contact with children of the ages of the victims." He said this is somebody who we have to stop. And whatever we need, he said, in the state attorney's office, we have a unit that's equipped to investigate and prosecute these kinds of cases. And I didn't have too many facts early on when I talked with him, but I knew that there were multi-. pie victims and to our detectives they were believable. So when time went on and Mr. Epstein became aware of the investigation and his lawyers contacted the state attorney's office, they told me that. And from that point on, and I believe it was Mr. Dershow- itz initially, the tone and tenor of the discussions of this case with Mr. Krischer changed completely. At one point he sug- gested that we write Epstein a notice to appear, which would be for a misdemeanor. He just completely changed from not only our first conversation about this( when he didn't know the name Jeffrey Epstein till when he had been informed on Mr. Epstein's reputation and his wealth, and I just thought that very unusual. I feel like I know him or knew him very well, the state attorney, and I just felt like he could not objectively make decisions about this case: that is why I wrote it. 174 Detective Recarey: May Chief Reiter's letter to ti effect. Krischer did not arrest warrant was issued. At tive Recarey received a telep ney Daliah Weiss, who advis the Epstein case. Weiss had been the perfe. member of the special victir and crimes against children, p ing rape, aggravated child al added another lawyer, a man Goldberger his attorney of rei . Goldberger was friendly A ciate of Goldberger's was mar TTERSON ...or it; this is an adult male in his :act with children of the ages of somebody who we have to stop. aid, in the state attorney's office, )ed to investigate and prosecute didn't have too many facts early Nit I knew that there were multi- ..ctives they were believable. So r. Epstein became aware of the Ts contacted the state attorney's and I believe it was Mr. Dershow- ior of the discussions of this case :ompletely. At one point he sug- tein a notice to appear, which ior. He just completely changed versation about this when he Frey Epstein till when he had tein's reputation and his wealth, unusual. or knew him very well, the state :e he could not objectively make hat is why I wrote it. 174 CHAPTER 46 Detective Recarey: May 2006 Chief Reiter's letter to the state attorney had no perceptible effect. Krischer did not recuse himself from the case. No arrest warrant was issued. And on the afternoon of May 3, Detec- tive Recarey received a telephone call from assistant state attor- .ney Daliah Weiss, who advised him that she had been taken off the Epstein case. Weiss had been the perfect person to prosecute Epstein. As a member of the special victims unit, she focused on sex crimes and crimes against children, prosecuting high-profile cases involv- ing rape, aggravated child abuse, and neglect. But Epstein had added another lawyer, a man named Jack Goldberger, and made Goldberger his attorney of record. Goldberger was friendly with Barry Krischer and an asso- ciate of Goldberger's was married to Daliah Weiss. 175 JAMES PATTERSON FILTI If Epstein's legal team had wanted to remove Weiss from the case, this would have been a good way to do it. Nine days later, Detective Recarey met with ASA Lanna Belohlavek, who told him that her boss, Barry Krischer, had asked her again to take the case to the grand jury. Recarey told Belohlavek that he had already requested arrest warrants for Epstein, Sarah Kel- len, and Wendy Dobbs. The Palm Beach PD had finished its investi- gation months earlier, he said, and had been waiting since then for the case to move forward. He asked her once more to issue the war- rants. Once again Belohlavek declined, saying that the original offer her office had made to Epstein's old lawyer had been resubmitted to the new lawyer. When Epstein's reply came, she would call. While waiting for that call, Recarey received several calls from Mary's father, who told him that he was being followed by a green Chevrolet Monte Carlo tailed so aggressively that other vehicles were being run off the road. Recarey ran the plates and found that the Chevy was registered to one Zachary Bechard of Jupiter, Florida. Bechard was a licensed private eye. "A funny thing happened in Palm Beach," says Tim Malloy, who was working as a TV newscaster in South Florida at the time. "This would have been right around the time that Michael Reiter sent his letter asking Barry Krischer to recuse himself from the case. I didn't even know what Epstein looked like, really, at the time. We had pictures taken by the British tabloids, where the link to Prince Andrew first broke. But we didn't have too many of them. What we did have was a contact in the hangar where Epstein kept his 727. 176 "I don't know how much y national Airport. It's the kind valet parking, and waiting loin you'll see in Manhattan. It's Saudi princes, heads of state. I' vacy. You can bring limousine: out Epstein was very secretive want anyone to know the tail n "But our contact didn't like how young the girls around EF had the 727's tail number, an someone I won't say too mucl flight plan for a certain trip hi going to land at the airport. A the station's traffic helicopter a hundred feet a quarter mile sou "Our cameraman had a tele tight shot, on video, of Epstein did get the shot: Epstein, with flipped up over his neck, about that was waiting for him. "Then he saw our helicopter "I was doing a live voice-ov( first video anyone had on him I run back onto the plane. The: break, my producer told me Epstein wants us to stop taking talk to you.' "The cameraman kept rolli: out, got into a car with tinted w- TTERSON FILTHY RICH inted to remove Weiss from the d way to do it. Recarey met with ASA Lanna r boss, Barry Krischer, had asked sand jury. Recarey told Belohlavek st warrants for Epstein, Sarah Kel- Beach PD had finished its investi- d had been waiting since then for td her once more to issue the war- ined, saying that the original offer Id lawyer had been resubmitted to tply came, she would call. , Recarey received several calls n that he was being followed by a - tailed so aggressively that other road. Recarey ran the plates and tered to one Zachary Bechard of ate eye. lm Beach," says Tim Malloy, who :r in South Florida at the time. ht around the time that Michael ;arry Krischer to recuse himself know what Epstein looked like, tires taken by the British tabloids, first broke. But we didn't have have was a contact in the hangar 176 "I don't know how much you know about Palm Beach Inter- national Airport. It's the kind of place that has private hangars, valet parking, and waiting lounges that look as chic as anything you'll see in Manhattan. It's an airport for the rich, basically. Saudi princes, heads of state. Powerful men who value their pri- vacy. You can bring limousines onto the tarmac. And we found out Epstein was very secretive about his dealings there. He didn't want anyone to know the tail numbers on his planes. "But our contact didn't like Epstein. And he was horrified by how young the girls around Epstein were. So thanks to him, we had the 727's tail number, and thanks to one other source someone I won't say too much about here we had Epstein's flight plan for a certain trip he was making. We knew he was going to land at the airport. And so our producer climbed into the station's traffic helicopter and told the pilot to hover at five hundred feet a quarter mile south of the field. "Our cameraman had a telephoto lens. The idea was to get a tight shot, on video, of Epstein deplaning. And for a moment we did get the shot: Epstein, with the collar of his cashmere coat flipped up over his neck, about to run down the steps into a cart that was waiting for him. "Then he saw our helicopter, with the station's markings. "I was doing a live voice-over on Epstein's arrival. It was the first video anyone had on him up to that point. But Epstein had run back onto the plane. Then, during the next commercial break, my producer told me through my headpiece: 'Jeffrey Epstein wants us to stop taking his picture. In fact, he wants to talk to you.' "The cameraman kept rolling. And eventually Epstein got out, got into a car with tinted windows, and was driven over the 177 JAMES PATTERSON bridge to his home in Palm Beach. So in a sense we failed to get the story. But the fact that Epstein would call a news program from his plane and command them to order the program's traffic helicopter away that says something about the man's arro- gance. And maybe his temper." Mary: July 2006 0 n June 29, assistant s Detective Recarey th; would be going to a convened for July 19. On July 12, Recarey spok that she still hadn't heard fr too, was odd, since Recarey upon to testify. She was back in Palm Be2 out-of-state relatives. All in all, it had been a ve "What has happened to father would say. Mary had been sent to her it was the wrong place at . 178 rTERSON h. So in a sense we failed to get em n would call a news program nn to order the program's traffic :nething about the man's arro- CHAPTER 47 Mary: July 2006 0 n June 29, assistant state attorney Lanna Belohlavek told Detective Recarey that despite his protestations, the case would be going to a grand jury after all. One had been convened for July 19. On July 12, Recarey spoke with Mary's stepmother, who said that she still hadn't heard from the state attorney's office. This, too, was odd, since Recarey knew that Mary would be called upon to testify. She was back in Palm Beach now, after months of living with out-of-state relatives. All in all, it had been a very tough year for Mary. "What has happened to my daughter's life is criminal," her father would say. Mary had been sent to a school for troubled children. For her it was the wrong place at the worst time in her life. She had 179 178 JAMES PATTERSON gotten into more fights there, growing depressed and withdrawn from her sister and parents. Helplessly, her parents watched her spiral out of control. As they neared the end of their rope, they sent her out of state. But after the move, Mary had fallen apart completely. She used drugs, fell in with a bad crowd, ran away from her relatives, and shacked up with a gang of drug dealers. When the gang was busted by local police, the dealers blamed Mary for snitching and put out the word that they wanted her dead. "We had to move her again," Mary's father explained. "We finally got her into therapy she's still seeing the therapist. And worst of all, she developed HPV. She's already had to have a seri- ous operation." Mary's troubles didn't end there. On June 28, she was brought in front of the grand jury. She hadn't been briefed by the state attorney she hadn't even met the prosecutors and she had no idea what she would be asked. Almost immediately, she found that she was being treated more like a criminal than like a witness or victim. "The prosecutor produced a printout of our daughter's Myspace page," Mary's father recalls. "Mary was stunned. She began to cry. The prosecutor accused her of all sort of things; it was like she was working for Epstein. "All this time, we knew that we were being watched. Creepy guys. Private investigators from Miami. They would follow us, scaring the hell out of my wife and Mary's sister. My car was van- dalized. It was like living in hell." By this point, Epstein's defense dream team included Jack Goldberger, Alan Dershowitz, and Gerald Lefcourt. All of them had excellent track records. Dershowitz and Lefcourt were two 180 of America's most famous celebrity lawyer Ken Sta had had Bill Clinton impeac team. As far as Mary's parents walked into an ambush. EVE playing defense on the side ond girl Alison, who cla: never testified in court at al TERSON FILTHY RICH wing depressed and withdrawn ,lessly, her parents watched her tred the end of their rope, they le move, Mary had fallen apart in with a bad crowd, ran away ip with a gang of drug dealers. rlocal police, the dealers blamed the word that they wanted her ," Mary's father explained. "We e's still seeing the therapist. And She's already had to have a seri- .ere. On June 28, she was brought hadn't been briefed by the state : the prosecutors and she had d. mud that she was being treated t witness or victim. a printout of our daughter's recalls. "Mary was stunned. She ccused her of all sort of things; it )stein. it we were being watched. Creepy m Miami. They would follow us, and Mary's sister. My car was van- :11." Jense dream team included Jack and Gerald Lefcourt. All of them )ershowitz and Lefcourt were tWO. 180 of America's most famous lawyers, and before long, another celebrity lawyer Ken Starr, the former solicitor general who had had Bill Clinton impeached for perjury would join Epstein's team. As far as Mary's parents were concerned, their daughter had walked into an ambush. Everyone in the courtroom seemed to be playing defense on the side of Jeffrey Epstein. And as for the sec- ond girl Alison, who claimed that she had been raped she never testified in court at all. 181 CHAPTER 48 Michael Reiter: July 2006 0 n July 28, the grand jury reached a verdict that floored the Palm Beach PD. The original plea deal that Krischer had offered to Epstein had been bad enough. Now the grand jury was recom- mending that Epstein be charged with just one felony count of solicitation of prostitution. There was no mention of underage girls. The original accusation four felony counts of unlawful sex acts with minors and one felony count of lewd and lascivious molestation had simply evaporated. It wasn't enough to send Epstein to prison. Epstein was allowed to surrender on a Sunday, when no one would know he'd been arraigned. A few hours later, he was released on three thousand dollars bail. The Palm Beach PD was not even notified. 182 Once again, Chief Reite took the extraordinary stej prosecutor's office. At the time, the federal Florida was a Republican Reiter recalls being presen and remembers Acosta's de( be the prosecution, to the who takes advantage of th sex crimes. Disgusted with recalls thinking he'd found 1 In Acosta, the chief saw from confronting a man vc connections. But it turned out that Ac Starr's high-powered multir And while Acosta had a stei clerking for future Supreme only argued two cases befor( At the time, Reiter did not one had to look much more se Reiter's actions did not nece not in every corner of the coi "I had individuals sugge1 the investigation and my ref was more horsepower than had other individuals suggc probably fits," Reiter said in 1 FILTHY RICH CHAPTER 48 ry reached a verdict that floored Leal that Krischer had offered to Now the grand jury was recom- ged with just one felony count of pf underage girls. The original s of unlawful sex acts with minors and lascivious molestation had )stein to prison. -render on a Sunday, when no one gned. A few hours later, he was llars bail. )t even notified. 182 Once again, Chief Reiter was outraged. So much so that he took the extraordinary step of calling the FBI and the federal prosecutor's office. At the time, the federal prosecutor of the Southern District of Florida was a Republican named R. Alexander Acosta. Chief Reiter recalls being present at Acosta's swearing-in ceremony and remembers Acosta's declaration that one of his goals would be the prosecution, to the fullest extent of the law, of anyone who takes advantage of the weak especially perpetrators of sex crimes. Disgusted with Krischer's laissez-faire attitude, Reiter recalls thinking he'd found his man. In Acosta, the chief saw a prosecutor who wouldn't shy away from confronting a man with Jeffrey Epstein's resources and connections. But it turned out that Acosta had worked under Ken Starr at Starr's high-powered multinational law firm, Kirkland Ellis. And while Acosta had a sterling resume, which included a stint clerking for future Supreme Court justice Samuel Alito, he had only argued two cases before a judge. At the time, Reiter did not know this. All he knew was that some- one had to look much more seriously into Jeffrey Epstein's crimes. Reiter's actions did not necessarily make him a hero at least, not in every corner of the community he served. "I had individuals suggest that the department's approach to the investigation and my referral of the investigation to the FBI was more horsepower than the investigation deserved. And I had other individuals suggest that yeah, the term 'back off' Probably fits," Reiter said in his deposition for B.B. vs. Epstein. 183 JAMES PATTERSON "My responsibility was to Beach and preserve their con: department for all," Reiter sai particularly under the crimin the nature of our system, be ti But along with handing t attorney, Reiter took another letters on Palm Beach PD I victims in the case. He delivered the letters by "I had people in the community in Palm Beach who either made comments directly to me or to others who relayed them to me that I didn't need to take the tack in the investigation that we did, which is to completely investigate it and then refer it to the FBI after the state case was resolved," Reiter said in the deposition. "I had one individual who came to see me a couple of times about this." According to the chief, the individual in question was a prominent Palm Beach politician. "He said this wasn't necessary; this was a case that was really very minor," Reiter recalled. "The victims had lifestyles that don't make them shouldn't make them believable to the police department." "I told him that those kinds of suggestions to me were improper and he should stop," said Reiter. "That he had taken a couple of steps down the road toward something that could eventually constitute a crime. We talked several times. Early on it didn't end favorably. You know, this is an individual whom I had to interact with in my official capacity and in his official capacity as well." The Palm Beach politician wasn't the only one to pressure the police chief. "I received comments from a variety of different viewpoints ... in some cases I had people tell me, hey, he's a Palm Beacher, why are you investigating a Palm Beacher?" Reiter would say when deposed. "I had people that said it was an unfa- vorable career move for me to ask the state attorney to remove himself from the case and to refer it to the FBI.... I had plenty of people that told me that that was a mistake." Reiter didn't back off. To have done so would have been a betrayal not only of the victims but also of his vocation and the community he had sworn he would serve. 184 TTERSON FILTHY RICH y in Palm Beach who either made ers who relayed them to me that I nvestigation that we did, which is then refer it to. the FBI after the aid in the deposition. "I had one :ouple of times about this." : individual in question was a 1. y; this was a case that was really The victims had lifestyles that ike them believable to the police ids of suggestions to me were ;aid Reiter. "That he had taken a I toward something that could Ve talked several times. Early on Ar, this is an individual whom I icial capacity and in his official wasn't the only one to pressure iments from a variety of different id people tell me, hey, he's a Palm gating a Palm Beacher?" Reiter d people that said it was an unfa- ask the state attorney to remove fer it to the FBI.... I had plenty of is a mistake." lave done so would have been a ims but also of his vocation and te would serve. 184 "My responsibility was to protect everyone that lives in Palm Beach and preserve their constitutional rights and be the police department for all," Reiter said. "And I think that under the law, particularly under the criminal laws, that all people have to, by the nature of our system, be treated exactly alike." But along with handing the case off to the FBI and the US attorney, Reiter took another unusual step. He wrote personal letters on Palm Beach PD letterhead to the parents of the victims in the case. He delivered the letters by hand. 185 TOWN OF PALM BEACH POLICE DEPARTMENT A NixitcNixt. AND STA1E ACCMITED LAW NPORCEMENT AC:ENCV kPOLICE.li July 24. 2006 HAND DELIVERED BMA, Dear mripm Your claughterlanwas the victim of a crime which nas been investigated by the Palm Beach Police Department and subsequently referred for prosecution to the Pdtm Beach County State Attorneys Office. You may be aware that Jeffrey Epstein was indicted on charges of solicitation for orovitution by a Stele of Florida grand ply last week and turned himself in at the Palm Beach County jail on Ju!iy 23. 2006.. Wntle I do not speak for them, it is my understanding that is the full context in which the Palm Beach County State Attorney's Office intends to address the chrges that invowed tne crime in which your daughter was victim. Please know tnat it is the role and responsibility of law enforcement to investigate Crime and to refer ap3ropriate charges to the prosecutor for consideration. I believe that the Palm Beach Police Department has acted competently and responsibly in carrying out Ins :ole. Should you haverany questions concemlng the state prosecution of this matter, they are best addressed by the Palm Beach Count State Attorneys Office do not feel that Justice has been sufficiently served by the indictment that has been issued. Therefore, please Imo?. that his matter has been referreo to the Federal Bureau e Investigation to determine if violations of federal law have occurred. In the ehent that the FBI should choose to pursue this matter, tne Palm Beach Police Department will assist tnern in their investigation Of potential violations of federal law. Please feel free to contact rne at (561) 838-5460 should you have any questions 1W40.J.0 as2,1t, r.richael S Reitr Chief of Police 14SR.nt I4S S., Co.... PoE Poll, Reset Fen as 3'AP0-403 r ii) fta sit": F.:z 1,75.. : ,.. Jeffrey Epstein: Septemi In the winter of 2013, Scc die school principal from be sentenced to the m years in prison, with ten ye ing guilty to one charge of sc Blake's crime? He sent SE ton Beach police officer who N boy. But in a sense, Blake v tenced to life. The case was a treatment regular Florida fol. with a minor. But nothing a and the plea deal he mana extraordinary. Epstein had bought himse assembled. His connections LM BEACH ARTMPNT LAW ENIFORCVENT ArZENCY 4.2006 which has been investigated by the Palm tarred for prosect:tion to the Palm Beach .vare that Jeffrey Epstein was indicted on of Florida grand jury last week and turned 23. 2006. While I do not speak tor them, in which the Palm Beach County State es that invoNed tne crime in which your "Of law enforcement to investigate crime Jlor for consideration. I beleve that the etentiy and responsibly in carrying out this the state prosecution of this matter, they State Attame 5 Office served by the Indictment that has been has been referred to the Federal Bureau era i law have occurred. In the event that Palm Beach Police Deoartmeit will assist of federal law. 0 should you have any questons sly, S Reiter 4 Patice s3.5,g. pa, !w;1;5.erre CHAPTER 49 Jeffrey Epstein: September 2007 1 n the winter of 2013, Scott Blake, a forty-seven-year-old mid- dle school principal from Palm Beach Gardens, Florida, would be sentenced to the minimum mandatory sentence ten years in prison, with ten years of probation on top for plead- ing guilty to one charge of soliciting sex with a minor. Blake's crime? He sent sexually charged messages to a Boyn- ton Beach police officer who was pretending to be a fifteen-year-old boy. But in a sense, Blake was lucky: he could have been sen- tenced to life. The case was an interesting example of the kind of treatment regular Florida folks could expect just for soliciting sex with a minor. But nothing about Jeffrey Epstein was regular - and the plea deal he managed to strike in 2007 was simply extraordinary. Epstein had bought himself one of the best defense teams ever assembled. His connections and contributions to Democratic 187 JAMES PATTERSON FILT causes had made him a player on that side of the political aisle. He had a famous Republican, Bill Clinton's nemesis, Ken Starr, work- ing the other side. And just to make sure they'd covered the bases, Epstein's team also recruited Roy Black the lawyer who'd cleared William Kennedy Smith of rape and kept Rush Limbaugh out of prison for his alleged illegal drug use and Jay Lefkowitz, a defense attorney who'd worked with US attorney R. Alexander Acosta at Ken Starr's law firm. And so in September, the US attorney's office reached a for- mal agreement with Epstein's team: the United States would defer federal prosecution in favor of prosecution by the state of Florida. A non-prosecution agreement (NPA) was drafted; among other things, it assured Epstein that he would not be prosecuted in the Southern District of Florida for felony offenses involving the sexual abuse of underage girls. (By that point, thirty known victims had been discovered.) Instead it allowed him to plead guilty to state felony offenses for solicitation of prostitution and the procurement of minors for prostitution. The NPA established a procedure that allowed Epstein's victims to sue him in civil court and took the extraordinary step of ensuring that "any potential co-conspirators" of Epstein's would be immune from prosecution. "In consideration of Epstein's agreement to plead guilty and to provide compensation in the manner described above, if Epstein successfully fulfills all of the terms and conditions of this agreement, the United States also agrees that it will not institute any criminal charges against any potential co-conspira- tors of Epstein," the agreement stated, mentioning Sarah Kellen and Nadia Marcinkova by name. 188 "The parties anticipate tha part of any public record," I United States receives a Freed any compulsory process comm ment, it will provide notice disclosure." Remarkably, despite assur feds, none of the victims was ( this NPA. If Epstein did not sign the count indictment and a decade team of lawyers had gotten him ted all the teeth in South Florid; For all his protestations of it in the world to agree to an NPA. On September 24, 2007, Eps. Once again, none of the I notified. 189 'TERSON FILTHY RICH that side of the political aisle. He nton's nemesis, Ken Starr, work- ke sure they'd covered the bases, Zoy Black the lawyer who'd )f rape and kept Rush Limbaugh LI drug use and Jay Lefkowitz, . with US attorney R. Alexander 3 attorney's office reached a for- team: the United States would n. of prosecution by the state of nt (NPA) was drafted; among that he would not be prosecuted ida for felony offenses involving rls. (By that point, thirty known Instead it allowed him to plead )r solicitation of prostitution and )rostitution. The NPA established em's victims to sue him in civil lary step of ensuring that "any pstein's would be immune from ri's agreement to plead guilty and the manner described above, if 1 of the terms and conditions of lates also agrees that it will not against any potential co-conspira- t stated, mentioning Sarah Kellen Le. 188 "The parties anticipate that this agreement will not be made part of any public record," the document concludes. "If the United States receives a Freedom of Information Act request or any compulsory process commanding the disclosure of the agree- ment, it will provide notice to Epstein before making that disclosure." Remarkably, despite assurances they'd received from the feds, none of the victims was consulted prior to the drafting of this NPA. If Epstein did not sign the agreement, he faced a fifty-seven- count indictment and a decade or more in prison. But Epstein's team of lawyers had gotten him a deal so sweet it could have rot- ted all the teeth in South Florida. For all his protestations of innocence, there was every reason in the world to agree to an NPA. On September 24, 2007, Epstein did sign it. Once again, none of the victims had been consulted or notified. 189 1 CHAPTER SO Jane Doe: February 2008 As a result of the non-prosecution agreement, a fifty-three- count indictment that federal prosecutors had prepared against Jeffrey Epstein one that claimed he'd abused dozens of underage women never was filed. But as far as lawyers representing Epstein's victims were con- cerned, the fact that those victims were not consulted about the non-prosecution agreement was inexcusable. The "government deliberately kept crime victims 'in the dark' so that it could enter into a plea arrangement designed to prevent the victims from raising any objections," they would argue, in documents filed on February 10, 2016. For nine months, the lawyers claimed, from the time that the NPA was signed, on September 24, 2007, Krischer's office, "doing Epstein's bidding, had concealed the NPA's existence from victim s " and continued to do so until the 190 moment that Epstein had finally did June 30, 2008. In the interim, accordi were only told, "This case i A lawsuit that Bradley I Fort Lauderdale, filed in ji Rights Act, or CVRA (tith which states that "victims ing the right to be heard ii be precluded from court pr fairly." According to him, pros( of the victims. Edwards, N knew that this suit against monetary recovery of any also knew that if the goveri entered into a contract thal rights of Epstein's victims, have been improper in an( remedy would have been tc while it is difficult to knoiA contract is overturned, on could prosecute Epstein fo statute of limitations on tho At the time of this wr: through the courts. It has Bleak House the Charles is so massive and so compl everyone involved into the n FILTHY RICH CHAPTER 50 ;ecution agreement, a fifty-three- N:leral prosecutors had prepared one that claimed he'd abused Lever was filed. :nting Epstein's victims were con- ims were not consulted about the Is inexcusable. The "government 'in the dark' so that it could enter ned to prevent the victims from ould argue, in documents filed on ,onths, the lawyers claimed, from signed, on September 24, 2007, In's bidding, had concealed the "and continued to do so until the 190 moment that Epstein had to plead guilty in court, which he finally did June 30, 2008. In the interim, according to their lawyers, Epstein's victims were only told, "This case is currently under investigation." A lawsuit that Bradley Edwards, a victims' rights attorney in Fort Lauderdale, filed in July of 2008 cited the Crime Victims' Rights Act, or CVRA (title 18, section 3771, of the US Code), which states that "victims of federal crimes have rights, includ- ing the right to be heard in court, and most particularly, not to be precluded from court proceedings, and the right to be treated fairly." According to him, prosecutors had violated the CVRA rights of the victims. Edwards, who said he was working pro bono, knew that this suit against the government would not allow for monetary recovery of any sort (including lawyers' fees). But he also knew that if the government, urged by Jeffrey Epstein, had entered into a contract that improperly or illegally violated the rights of Epstein's victims, then that contract, by nature, would have been improper in and of itself in which case, the only remedy would have been to have the contract invalidated. And while it is difficult to know what, exactly, would happen if the contract is overturned, one possibility is that the government could prosecute Epstein for crimes against his victims, if the statute of limitations on those crimes has not expired. At the time of this writing, that case is winding its way through the courts. It has all the earmarks of a modern-day Bleak House........ the Charles Dickens novel about a legal case that is so massive and so complex that it drags on forever and drags everyone involved into the mire. 191 JAMES PATTERSON In the meantime, Epstein began to settle out of court with his victims. In February of 2008, a Virginia woman who went by the alias Jane Doe 2 brought a fifty-million-dollar lawsuit against Epstein. At the time of their meeting, she claimed, Epstein was fifty-two years old. She was a teenager, and her complaint, which was made public, gave the rest of the world an early glimpse of what Epstein, and the inner workings of his secret world, looked like from a victim's perspective. "Epstein is a financier and money manager with a secret cli- entele limited exclusively to billionaires," the lawsuit alleged. "He is himself a man of tremendous wealth, power and influ- ence. He maintains his principal home in New York and also owns residences in New Mexico, St. Thomas and Palm Beach, FL. The allegations herein concern Epstein's conduct while at his lavish estate in Palm Beach." The complaint continued: Upon information and belief, Epstein has a sexual preference and obsession for underage minor girls. He engaged in a plan and scheme in which he gained access to primarily economi- cally disadvantaged minor girls in his home, sexually assaulted these girls, and then gave them money. In or about 2004-2005, Jane Doe, then approximately 16 years old, fell into Epstein's trap and became one of his victims. Upon information and belief, Jeffrey Epstein carried out his schemes and assaulted girls in Florida, New York, and on his private Island, known as Little St. James, in St. Thomas. Epstein's scheme involved the use of young girls to recruit 192 underage girls. (Upon inj who brought Jane Doe to of Epstein, and will ther plaint.) Under Epstein's r ostensibly to give a weal compensation in his Pal would be contacted when Palm Beach residence or Epstein or someone on hi. to bring one or more um recruiter, upon informatic economically disadvantag Palm Beach County who being offered generally session and who were p to authorities or have cre conduct were made. Thi Epstein's plan. Epstein's plan reflected Upon arrival at Epstein's would be introduced to Sar gathered the girl's persona and telephone number. Ms up a flight of stairs to a b( table in addition to other graphs of nude women lin bedroom. The girl would ti with Epstein, who would b, then remove his towel and and direct the girl to remol FILTHY RICH TER SON to settle out of court with his a woman who went by the alias 1-dollar lawsuit against Epstein. Le claimed, Epstein was fifty-two ind her complaint, which was world an early glimpse of what of his secret world, looked like Loney manager with a secret cli- llionaires," the lawsuit alleged. lclous wealth, power and influ- al home in New York and also o, St. Thomas and Palm Beach, :rn Epstein's conduct while at his e complaint continued: Epstein has a sexual preference inor girls. He engaged in a plan :d access to primarily economi- girls in his home, sexually gave them money. In or about tpproximately 16 years old, fell one of his victims. Jeffrey Epstein carried out rls in Florida, New York, and on Little St. James, in St. Thomas. the use of young girls to recruit 192 underage girls. (Upon information and belief, the young girl who brought Jane Doe to Epstein was herself a minor victim of Epstein, and will therefore not be named in this Com- plaint.) Under Epstein's plan, underage girls were recruited ostensibly to give a wealthy man a massage for monetary compensation in his Palm Beach mansion. The recruiter would be contacted when Epstein was planning to be at his Palm Beach residence or soon after he had arrived there. Epstein or someone on his behalf would direct the recruiter to bring one or more underage girls to the residence. The recruiter, upon information and belief, generally sought out economically disadvantaged underaged girls from western Palm Beach County who would be enticed by the money being offered generally 200 to 300 per "massage" session and who were perceived as less likely to complain to authorities or have credibility if allegations of improper conduct were made. This was an important element of Epstein's plan. Epstein's plan reflected a particular pattern and method. Upon arrival at Epstein's mansion, the underaged victim would be introduced to Sarah Kellen, Epstein's assistant, who gathered the girl's personal information, including her name and telephone number. Ms. Kellen would then bring the girl up a flight of stairs to a bedroom that contained a massage table in addition to other furnishings. There were photo- graphs of nude women lining the stairway hall and in the bedroom. The girl would then find herself alone in the room with Epstein, who would be wearing only a towel. He would then remove his towel and lie naked on the massage table, and direct the girl to remove her clothes. Epstein would then 193 JAMES PATTERSON perform one or more lewd, lascivious and sexual acts, including masturbation and touching the girl's vagina. Consistent with the foregoing plan and scheme, Jane Doe was recruited to give Epstein a massage for monetary com- pensation. Jane was brought to Epstein's mansion in Palm Beach. Once at the mansion, Jane was introduced to Sarah Kellen, who led her up the flight of stairs to the room with the massage table. In this room, Epstein told Jane to take off her clothes and give him a massage. Jane kept her panties and bra on and complied with Epstein's instructions. Epstein wore only a towel around his waste sic . After a short period of time, Epstein removed the towel and rolled over exposing his penis. Epstein began to masturbate and he sexually assaulted Jane. After Epstein had completed the assault, Jane was then able to get dressed, leave the room and go back down the stairs. Jane was paid 200 by Epstein. The young girl who recruited Jane was paid 100 by Epstein for bringing Jane to him. As a result of this encounter with Epstein, Jane experi- enced confusion, shame, humiliation and embarrassment, and has suffered severe psychological and emotional injuries. 194 Jeffrey Epstein: June 30, 2 n June 30, 2008, more Officer Pagan's investig; age girls, Jeffrey Epsti County jail. A few days earlier, Epstein New York Times. At the time, I. (the line having long since blu Saint Jeff's. "I respect the legal process by this." He'd spent years fighting then the federal government, in would have seen him emerge battle had aged him. Mellowed 1- all but boasted to a journalist fr 1 TERSON lascivious and sexual acts, aching the girl's vagina. rig plan and scheme, Jane Doe massage for monetary com- !o Epstein's mansion in Palm fane was introduced to Sarah t of stairs to the room with the ostein told Jane to take off her ge. Jane kept her panties and pstein's instructions. Epstein laste sic . After a short period owel and rolled over exposing masturbate and he sexually ted the assault, Jane was then room and go back down the Epstein. The young girl who by Epstein for bringing Jane to 'ter with Epstein, Jane experi- iation and embarrassment, and :al and emotional injuries. 194 CHAPTER SI Jeffrey Epstein: June 30, 2008 0 n June 30, 2008, more than three years after the start of Officer Pagan's investigation into his dealings with under- age girls, Jeffrey Epstein reported to the Palm Beach County jail. A few days earlier, Epstein had taken a phone call from the New York Times. At the time, he'd been working, or vacationing (the line having long since blurred), at his compound on Little Saint Jeff's. "I respect the legal process," Epstein had said. "I will abide by this." He'd spent years fighting the charges fighting the state, then the federal government, in an effort to avoid a sentence that would have seen him emerge from prison an old man. But the battle had aged him. Mellowed him, even. Months earlier, he had all but boasted to a journalist from New York magazine. 195 JAMES PATTERSON "It's the Icarus story, someone who flies too close to the sun," that journalist said in reference to "the agony" of Epstein's legal "ordeal." "Did Icarus like massages?" Epstein responded. But after Epstein's indictment, there were no more boasts. For the most part, he kept silent in public and retreated into his Eyes Wide Shut world. And when the New York Times did manage to get him to speak on the record, he spoke like a chastened man. Sitting on his patio down on Little St. James, Epstein likened himself to the shipwrecked Gulliver after he washes ashore on Lilliput. "Gulliver's playfulness had unintended consequences," he said. On the eve of his departure, he had a few more things to say: "That is what happens with wealth. There are unexpected burdens as well as benefits...." "Your body can be confined, but not your mind...." "I am not blameless...." Outside of the agreement he'd signed with the prosecutor's office, this was the closest Epstein had come to admitting his guilt. But strange details were sprinkled throughout the story. He had formed a "board of directors of friends" who would coun- sel him on his behavior. And, seemingly for the first time, he'd hired a full-time masseur a man. Readers of the New York Times might have wondered: Epstein was going to jail for eighteen months. What need would he have for a full-time masseur? The story's last line hinted at the answer: in preparation for incarceration, Epstein had set up an e-mail alert. From then on, his automatic reply would read "On vacation." 196 TERSON PART V Incarceration who flies too close to the sun," o "the agony" of Epstein's legal pstein responded. it, there were no more boasts. in public and retreated into his the New York Times did manage , he spoke like a chastened man. Little St. James, Epstein likened liver after he washes ashore on intended consequences," he said. le had a few more things to say: wealth. There are unexpected but not your mind...." signed with the prosecutor's Lein had come to admitting his sprinkled throughout the story. :ors of friends" who would coun- eemingly for the first time, he'd an. es might have wondered: Epstein mths. What need would he have at the answer: in preparation for p an e-mail alert. reply would read "On vacation." 96 CHAPTER 52 Jeffrey Epstein: June 30, 2008 The Palm Beach County Main Detention Center is on the west side of Lake Worth Lagoon, which separates West Palm Beach from the island of Palm Beach. Epstein's home on El Brillo Way is five miles to the east. Mary's high school is several miles to the west. It's fitting, somehow, that this jail which is the jail Epstein ends up in, after turning himself in to the local sheriff lies in between the two points. The detention center's inmates, their families, and their law- yers call it the Gun Club, a reference not only to the jail's address, on Gun Club Road, but also to its population of hustlers, bur- glars, drug dealers, rapists, and murderers. There's the occa- sional hooker as well. And, from time to time, Haitian refugees are lodged there. There are three thousand inmates in all. 199 JAMES PATTERSON Some wait a year before making their way to the courthouse, their date with the public defender, and an appearance before the judge. Some get out much sooner, if only they can make bail. But there's no bail without money or at least collateral and, of course, being without money is often what lands people in jail in the first place. Jeffrey Epstein could have posted bail for every single inmate in the Gun Club. But that's just one of the ways in which Epstein is unlike his fellow inmates. He's an admitted pedophile now. Even a famous one. And, famously, pedophiles tend to fare poorly in jail. Luckily for Epstein, Ric Bradshaw, the sheriff in charge of local jails, transfers Epstein to the infirmary, where he spends exactly one night before being transferred seven miles up the road to a much smaller, safer location: the Palm Beach County Central Detention Center or, as it's known, the Stockade. "It's not somewhere we'd put a serial killer," Ric Bradshaw says. Most of the residents here are addicts who take part in drug education programs, prostitutes, petty criminals, and drunks. It's a far safer place for Epstein to be, and, unlike other inmates (except, of course, those being held in solitary), he'll end up with his own cell, even his own wing, which he has to himself. Epstein's allowed to pay for a security guard, who sits outside the cell and keeps watch. And he's allowed any number of visitors. For a convicted felon, it's an extraordinary benefits package. But according to Sheriff Bradshaw, who also oversees the Stock- ade, Epstein is incredulous over the treatment he is receiving. "He was astonished that he had to go to prison at all," Brad- shaw remembers. "Let's just say he didn't think he belonged there." 200 et Sheriff Ric Bradshaw: June 0 ur job," says Ric Bradsl killed him." Sheriff Bradshaw co Western. Imposingly tall, witt mustache, and slow, southern old-school law officer the ki patrolling the streets of Tombst He's been a lawman for forty-fi been spent as the head of the co talk to the media, and today, as he's clearly uncomfortable, fidget But here in his wood-panele Gun Club, Bradshaw remembers ,' "We have a thousand sexua says. When he arrived here, he i 20 LTTERSON :ing their way to the courthouse, .nder, and an appearance before )oner, if only they can make bail. fey or at least collateral and, is often what lands people in jail )osted bail for every single inmate ays in which Epstein is unlike his pedophile now. Even a famous one. tend to fare poorly in jail. ;radshaw, the sheriff in charge of o the infirmary, where he spends ig transferred seven miles up the location: the Palm Beach County r, as it's known, the Stockade. a a serial killer," Ric Bradshaw says. are addicts who take part in drug ltes, petty criminals, and drunks. in to be, and, unlike other inmates g held in solitary), he'll end up with 1 wing, which he has to himself. security guard, who sits outside the allowed any number of visitors. an extraordinary benefits package. radshaw, who also oversees the Stock- rer the treatment he is receiving. he had to go to prison at all," Brad- hink he belonged there." 200 CHAPTER 53 Sheriff Ric Bradshaw: June 2015 ur job," says Ric Bradshaw, "was to make sure nobody killed him." Sheriff Bradshaw could have stepped off the set of a Western. Imposingly tall, with his cowboy hat, Kurt Russell mustache, and slow, southern drawl, he looks exactly like an old-school law officer the kind you once would have found patrolling the streets of Tombstone, Deadwood, or Dodge City. He's been a lawman for forty-four years, eleven of which have been spent as the head of the county's jails. As a rule, he doesn't talk to the media, and today, as he talks about Jeffrey Epstein, he's clearly uncomfortable, fidgety, and ill disposed. But here in his wood-paneled office on the first floor of the Gun Club, Bradshaw remembers Epstein quite well. "We have a thousand sexual predators in the county," he says. "When he arrived here, he was one of them. He definitely 201 JAMES PATTERSON FIJ fit the category we have to ensure the general population is not going to take their anger out on." Although he understands that Epstein is a sex offender and has a sense of the scope of his alleged crimes, Bradshaw's also aware that the actual conviction was for a "low-level felony." At the request of Epstein's attorneys a request that is con- firmed by a court order Epstein is quickly granted "work release." What it means in practice is that six days a week, for up to sixteen sixteen! hours each day, Epstein is allowed to leave the Stockade to be driven by a designated driver in a car ear- marked especially for him to any one of three places: his lawyer Jack Goldberger's office in downtown West Palm Beach, the Palm Beach office of a science foundation that he's established, and his house on El Brillo Way. Despite the ankle bracelet he wears, it could be argued that as a fabulously rich prisoner with two of his own jets parked nearby, at the Palm Beach International Airport, Epstein might have posed a flight risk. Instead, every day of the week save one, he's allowed to go to his lawyer's, to go to his office, or simply to go home. Did the deputy in charge of Epstein go to the house on El Brillo Way? Ric Bradshaw considers the question. "Yes," he says, "he did." Did the deputy go inside the house? "Yes, he did." If so, the deputy might have encountered Nadia Marcinkova, who was staying on El Brillo Way at the time. He may also have 202 met a suave short-haired ge) French accent. That would be Jean-Luc For the duration of Jeffre the Stockade, Brunel's taken Brillo Way. 2( 'ATTERSON FILTHY RICH Jure the general population is not 1. that Epstein is a sex offender of his alleged crimes, Bradshaw's liction was for a "low-level felony." ttorneys a request that is con- pstein is quickly granted "work is that six days a week, for up to ch day, Epstein is allowed to leave a designated driver in a car ear- any one of three places: his lawyer lowntown West Palm Beach, the e foundation that he's established, y. t he wears, it could be argued that with two of his own jets parked .ternational Airport, Epstein might week save one, he's allowed to go to e, or simply to go home. e of Epstein go to the house on El he question. the house? ave encountered Nadia Marcinkova, ) Way at the time. He may also have 202 met a suave short-haired gentleman who spoke with a distinct French accent. That would be Jean-Luc Brunel. For the duration of Jeffrey Epstein's stay or half stay in the Stockade, Brunel's taken up residence in the house on El Brill Way. 203 F1 fraudster named Arnold Pr had been commuted by Bill left office. Sheriff Bradshaw wants conjugal. But even US attorney Aca agreement with the governm( ment was highly irregular. "Epstein appears to have while in jail," Acosta would eral public. "Although the tei are a matter appropriately lei eral authorities, without doi while in state custody underrr And, of course, Epstein's: by taxpayers. CHAPTER 54 Jeffrey Epstein: June 30, 2008 July 21, 2009 ccording to Sheriff Ric Bradshaw, the treatment Jeffrey Epstein received in the Stockade was not preferential. By some measures, he isn't wrong. In 2010, millionaire polo mogul John Goodman killed a young man while driving drunk. He was convicted but was allowed to spend two years under house arrest while his appeal was being tried. Like Epstein, Goodman was allowed visitors. But Goodman's visitor list was nothing like Jeffrey Epstein's. Nadia Marcinkova is said to have visited Epstein in jail more than seventy times. Epstein's assistant Sarah Kellen also visited Epstein in the Stockade. A Russian mixed martial artist named Igor "Houdini" Zinoviev was another visitor, as was a disbarred lawyer and financial 204 FILTHY RICH CHAPTER 54 !008-July 21, 2009 c Bradshaw, the treatment Jeffrey Stockade was not preferential. By 't wrong. o mogul John Goodman killed a Irunk. He was convicted but was inder house arrest while his appeal vas allowed visitors. But Goodman's effrey Epstein's. I to have visited Epstein in jail more Kellen also visited Epstein in the ii artist named Igor "Houdini" Zino - was a disbarred lawyer and financial 204 fraudster named Arnold Prosperi, whose own prison sentence had been commuted by Bill Clinton on the day before Clinton left office. Sheriff Bradshaw wants to be clear: none of these visits was conjugal. But even US attorney Acosta, who negotiated Epstein's unusual agreement with the government, would say that Epstein's arrange- ment was highly irregular. "Epstein appears to have received highly unusual treatment while in jail," Acosta would say in a letter addressed to the gen- eral public. "Although the terms of confinement in a state prison are a matter appropriately left to the state of Florida and not fed- eral authorities, without doubt, the treatment that he received while in state custody undermined the purpose of a jail sentence." And, of course, Epstein's stay at the Stockade was subsidized by taxpayers. 205 Fi CHAPTER 55 R. Alexander Acosta's letter to the general public, March 20, 2011 To whom it may concern: I served as U. S. Attorney for the Southern District of Florida from 2005 through 2009. Over the past weeks, I have read much regarding Mr. Jeffrey Epstein. Some appears true, some appears distorted. I thought it appropriate to provide some background, with two caveats: (i) under Justice Depart- ment guidelines, I cannot discuss privileged internal com- munications among department attorneys and (ii) I no longer have access to the original documents, and as the matter is now nearly 4 years old, the precision of memory is reduced. The Epstein matter was originally presented to the Palm Beach County State Attorney. Palm Beach Police alleged that Epstein unlawfully hired underage high 206 school females to provic massages. Police sought resulted in a term of im reports, however, in 200( to concerns regarding th( to charge Epstein only assault with no intent tc would have resulted in register as a sexual offet underage victims. Local police were di! ney's conclusions, and res Federal authorities recei engaged in additional invt the quality of the evidenc( at trial. With a federal considerations. First, a requires that the crime be an interstate nexus. Seco charged by the state, the fe extent, to back-stop state is no miscarriage of justice erally that which has alre level. After considering the q additional considerations, the state charge was insufi the prosecutors and age Mr. Epstein's attorney, Rc:, best known for his suc CHAPTER 55 er to the general public, T the Southern District of Florida Dver the past weeks, I have read ey Epstein. Some appears true, thought it appropriate to provide D caveats: (i) under Justice Depart- discuss privileged internal com- ment attorneys and (ii) I no longer I. documents, and as the matter is precision of memory is reduced. was originally presented to the te Attorney. Palm Beach Police Ilawfully hired underage high 206 FILTHY RICH school females to provide him sexually lewd and erotic massages. Police sought felony charges that would have resulted in a term of imprisonment. According to press reports, however, in 2006 the State Attorney, in part due to concerns regarding the quality of the evidence, agreed to charge Epstein only with one count of aggravated assault with no intent to commit a felony. That charge would have resulted in no jail time, no requirement to register as a sexual offender and no restitution for the underage victims. Local police were dissatisfied with the State Attor- ney's conclusions, and requested a federal investigation. Federal authorities received the State's evidence and engaged in additional investigation. Prosecutors weighed the quality of the evidence and the likelihood for success at trial. With a federal case, there were two additional considerations. First, a federal criminal prosecution requires that the crime be more than local; it must have an interstate nexus. Second, as the matter was initially charged by the state, the federal responsibility is, to some extent, to back-stop state authorities to ensure that there is no miscarriage of justice, and not to also prosecute fed- erally that which has already been charged at the state level. After considering the quality of the evidence and the additional considerations, prosecutors concluded that the state charge was insufficient. In early summer 2007, the prosecutors and agents in this case met with Mr. Epstein's attorney, Roy Black. Mr. Black is perhaps best known for his successful defense of William 207 JAMES PATTERSON Fij Kennedy Smith. The prosecutors presented Epstein a choice: plead to more serious state felony charges (that would result in 2 years' imprisonment, registration as a sexual offender, and restitution for the victims) or else prepare for a federal felony trial. What followed was a year-long assault on the prose- cution and the prosecutors. I use the word assault inten- tionally, as the defense in this case was more aggressive than any which I, or the prosecutors in my office, had previously encountered. Mr. Epstein hired an army of legal superstars: Harvard Professor Alan Dershowitz, for- mer Judge and then Pepperdine Law Dean Kenneth Starr, former Deputy Assistant to the President and then Kirk- land Ellis Partner Jay Lefkowitz, and several others, including prosecutors who had formerly worked in the U.S. Attorney's Office and in the Child Exploitation and Obscenity Section of the Justice Department. Defense attorneys next requested a meeting with me to challenge the prosecution and the terms previously presented by the prosecutors in their meeting with Mr. Black. The prosecution team and I met with defense counsel in Fall 2007, and I reaffirmed the office's position: two years, registration and restitution, or trial. Over the next several months, the defense team pre- sented argument after argument claiming that felony criminal proceedings against Epstein were unsupported by the evidence and lacked a basis in law, and that the office's insistence on jail-time was motivated by a zeal to overcharge a man merely because he is wealthy. They bolstered their arguments with legal opinions from 208 well-known legal expert team warned me that th good man to serve time book if we continued tc office systematically con! ment, and when we di appealed to Washington. The defense strategy Defense counsel investiga their families, looking for provide a basis for disqual ecutor is an effective (thi eliminating the individua and thus most qualified to lihood for success. Defensi least two prosecutors. I rejected, these arguments. Despite the army of au the terms first presented meeting. On June 30, 2008 appeal to Washington D.( guilty in state court. He NiNq onment, register as a sexua restitution to the victims. Some may feel that the I tougher. Evidence that has encourage that view. Man; out, filing detailed statemen ages. Physical evidence has these additional statements 2, ATTERSON FILTHY RICH ecutors presented Epstein a )us state felony charges (that prisonment, registration as a ation for the victims) or else trial. ..ar-long assault on the prose- . I use the word assault inten- this case was more aggressive prosecutors in my office, had 4r. Epstein hired an army of 'rofessor Alan Dershowitz, for- -dine Law Dean Kenneth Starr, 3 the President and then Kirk- efkowitz, and several others, o had formerly worked in the in the Child Exploitation and Justice Department. Defense t meeting with me to challenge terms previously presented by meeting with Mr. Black. The let with defense counsel in Fall he office's position: two years, n, or trial. months, the defense team pre- Lrgument claiming that felony tinst Epstein were unsupported ced a basis in law, and that the time was motivated by a zeal to ly because he is wealthy. They nts with legal opinions from 208 well-known legal experts. One member of the defense team warned me that the office's excess zeal in forcing a good man to serve time in jail might be the subject of a book if we continued to proceed with the matter. My office systematically considered and rejected each argu- ment, and when we did, my office's decisions were appealed to Washington. As to the warning, I ignored it. The defense strategy was not limited to legal issues. Defense counsel investigated individual prosecutors and their families, looking for personal peccadilloes that may provide a basis for disqualification. Disqualifying a pros- ecutor is an effective (though rarely used) strategy, as eliminating the individuals most familiar with the facts and thus most qualified to take a case to trial harms like- lihood for success. Defense counsel tried to disqualify at least two prosecutors. I carefully reviewed, and then rejected, these arguments. Despite the army of attorneys, the office held firm to the terms first presented to Mr. Black in the original meeting. On June 30, 2008, after yet another last minute appeal to Washington D.C. was rejected, Epstein pled guilty in state court. He was to serve 18 months impris- onment, register as a sexual offender for life, and provide restitution to the victims. Some may feel that the prosecution should have been tougher. Evidence that has come to light since 2007 may encourage that view. Many victims have since spoken out, filing detailed statements in civil cases seeking dam- ages. Physical evidence has since been discovered. Had these additional statements and evidence been known, 209 JAMES PATTERSON the outcome may have been different. But they were not known to us at the time. A prosecution decision must be based on admissible facts known at the time. In cases of this type, those are unusually difficult because victims are frightened and often decline to testify or if they do speak, they give con- tradictory statements. Our judgment in this case, based on the evidence known at the time, was that it was better to have a billionaire serve time in jail, register as a sex offender, and pay his victims restitution than risk a trial with a reduced likelihood of success. I supported that judgment then, and based on the state law as it then stood and the evidence known at the time, I would support that judgment again. Epstein's treatment, while in state custody, likewise may encourage the view that the office should have been tougher. Although the terms of confinement in a state prison are a matter appropriately left to the State of Flor- ida, and not federal authorities, without doubt, the treat- ment that he received while in state custody undermined the purpose of a jail sentence. Some may also believe that the prosecution should have been tougher in retaliation for the defense's tactics. The defense, arguably, often failed to negotiate in good faith. They would obtain concessions as part of a negotia- tion and agree to proceed, only to change their minds, and appeal the office's position to Washington. The inves- tigations into the family lives of individual prosecutors were, in my opinion, uncalled for, as were the accusations of bias and or misconduct against individual prosecutors. 210 F: At times, some prosecut trial, and at times I felt t right in the first meetin spective of defense tacti tional right to a defense right should not be puni: sel's exercise of their ri Washington D.C. Proseci frustration and anger wi their judgment. After the plea, I reca One was from the FBI Sp( to offer congratulations. meetings regarding this c of the defense, and he cat holding firm against the 1 itz, Lefkowitz and Starr. received calls or commun itz, Lefkowitz and Starr. I als previously, from my Kirkland Ellis in the m peace. I agreed to talk an Epstein pled guilty, as I tt tors battle defense attorne have tried, yet I confess ti: fully in this case. The bottom line is this: served time in jail and is ni He has been required to pa) restitution clearly cannot c 'ATTERSON n different. But they were not must be based on admissible 1 cases of this type, those are e victims are frightened and they do speak, they give con- judgment in this case, based :he time, was that it was better time in jail, register as a sex ms restitution than risk a trial I of success. I supported that on the state law as it then stood : the time, I would support that Idle in state custody, likewise hat the office should have been rms of confinement in a state priately left to the State of Flor- rities, without doubt, the treat- le in state custody undermined nce. ve that the prosecution should Iliation for the defense's tactics. 'ten failed to negotiate in good concessions as part of a negotia- :d, only to change their minds, sition to Washington. The inves- lives of individual prosecutors ailed for, as were the accusations :t against individual prosecutors. 210 FILTHY RICH At times, some prosecutors felt that we should just go to trial, and at times I felt that frustration myself. What was right in the first meeting, however, remained right irre- spective of defense tactics. Individuals have a constitu- tional right to a defense. The aggressive exercise of that right should not be punished, nor should a defense coun- sel's exercise of their right to appeal a U.S Attorney to Washington D.C. Prosecutors must be careful not to allow frustration and anger with defense counsel to influence their judgment. After the plea, I recall receiving several phone calls. One was from the FBI Special Agent-In-Charge. He called to offer congratulations. He had been at many of the meetings regarding this case. He was aware of the tactics of the defense, and he called to praise our prosecutors for holding firm against the likes of Messrs. Black, Dershow- itz, Lefkowitz and Starr. It was a proud moment. I also received calls or communications from Messrs. Dershow- itz, Lefkowitz and Starr. I had known all three individu- als previously, from my time in law school and at Kirkland Ellis in the mid 90s. They all sought to make peace. I agreed to talk and meet with each of them after Epstein pled guilty, as I think it important that prosecu- tors battle defense attorneys in a case and then move on. I have tried, yet I confess that this has been difficult to do fully in this case. The bottom line is this: Mr. Jeffrey Epstein, a billionaire, served time in jail and is now a registered sexual offender. He has been required to pay his victims restitution, though restitution clearly cannot compensate for the crime. And 2 1 JAMES PATTERSON we know much more today about his crimes because vic- tims have come forward to speak out. Some may disagree with prosecutorial judgments made in this case, but those individuals are not the ones who at the time reviewed the evidence available for trial and assessed the likelihood of success. Respectfully, R. Alexander Acosta Former U.S. Attorney Southern District of Florida PATTERSON 7 about his crimes because vic- speak out. Some may disagree lents made in this case, but ,t the ones who at the time ilable for trial and assessed the PA i T Respectfully, R. Alexander Acosta Former U.S. Attorney Southern District of Florida 212 ftermath CHAPTER 56 Jeffrey Epstein: July 2009 Jeffrey Epstein walks out of the Stockade on July 21, 2009, having served less than thirteen months of his eighteen-month sentence. One of the concessions his lawyers have gotten while working out his plea-deal guarantees is that the media not be alerted to the time and day of his departure. But from now on, Epstein, who is fifty-six, will carry the mark of a level 3 sex offender level 1 being the lowest, and level 3 indicating the highest possible risk of a future criminal act of a sexual nature. Wherever he goes, he will be forced to reg- ister as such. Every ninety days, Epstein will have to check in with the authorities. Every year, the New York City Police Department will take his mug shot. And for a full year, Epstein will be under house arrest in Palm Beach. This last prohibition doesn't stop him from flying, with court 215 JAMES PATTERSON approval, on his own planes to New York and to Little Saint Jeff's, where the locals have taken to referring to Epstein's 727 as the Lolita Express. There are other restrictions, of course, that Epstein is sup- posed to abide by. He has to provide the state of Florida with a list of all the motor vehicles, boats, and airplanes he owns. The full list includes two Escalades, six Suburbans, two Ford F-150s, two Harley-Davidsons, a Land Rover, a Hummer H2, a thirty- four-foot JVC boat, and a thirty-five-foot Donzi powerboat. Three of his five planes turn out to be registered to a com- pany called Air Ghislaine, Inc. As a registered sex offender, Epstein is legally obliged to undergo psychiatric treatment. This is a restriction he'll get around by having his own psychologist submit a report to law enforcement officers. Epstein is also prohibited from accessing pornography on the Internet and using social networking for sexual purposes. For Jeffrey Epstein, there will be no Bangbros, Tinder, or Swingles. com. There will be lawsuits. Six weeks before probation ends, he settles with seven women who sue him in civil court. But Epstein can easily afford the set- tlement payments. He won't be going back to jail, and in regard to further prosecution for any criminal actions, his troubles are behind him. Not everyone who's spent time in his company will be so lucky. 216 Alfredo Rodriguez: Aug E pstein's houseman, Al prison sentence. In a sworn statem maid, Lupita, who had comi up after Epstein's "massage5 lic, had cried as she describe Rodriguez was fired by I after seeing a strange car g As it turned out, the ca masseuses. On his way out of the hc of Epstein's papers, which he by Chief Reiter's investigator. For years, Rodriguez tries manager. No one wanted tc IATTERSON New York and to Little Saint Jeff's, referring to Epstein's 727 as the s, of course, that Epstein is sup- rovide the state of Florida with a oats, and airplanes he owns. The , six Suburbans, two Ford F-150s, 1 Rover, a Hummer H2, a thirty- -five-foot Donzi powerboat. rn out to be registered to a corn- ler, Epstein is legally obliged to it. This is a restriction he'll get ychologist submit a report to law from accessing pornography on .etworking for sexual purposes. will be no Bangbros, Tinder, or ends, he settles with seven women it Epstein can easily afford the set- e going back to jail, and in regard criminal actions, his troubles are time in his company will be 216 CHAPTER 57 Alfredo Rodriguez: August 2009 Epstein's houseman, Alfredo Rodriguez, also ends up with a prison sentence. In a sworn statement, Rodriguez talks about Epstein's maid, Lupita, who had complained to him about having to clean up after Epstein's "massages." Lupita, who was a devout Catho- lic, had cried as she described the stained towel and sex toys. Rodriguez was fired by Epstein, he says, when he called 911 after seeing a strange car a "beater" in Epstein's driveway. As it turned out, the car had belonged to one of Epstein's masseuses. On his way out of the house on El Brillo Way, he took some of Epstein's papers, which he failed to produce when questioned by Chief Reiter's investigators. For years, Rodriguez tried and failed to find work as a house nager. No one wanted to hire someone who'd worked for 217 JAMES PATTERSON Jeffrey Epstein. Finally, desperately, he tried to sell the informa- tion he'd stolen. The papers named underage girls and the places where Epstein had taken them. The list included locations in Califor- nia, Paris, New Mexico, New York, and Michigan. The papers also included the names, addresses, and phone numbers of famous individuals Henry Kissinger, Mick Jagger, Dustin Hoff- man, Ralph Fiennes, David Koch, Ted Kennedy, Donald Trump, Bill Richardson, Bill Clinton, and former Israeli prime minister Ehud Barak among them. This was intriguing, if not at all damning. Epstein made a habit of collecting such information for future use. But informa- tion pertaining to the girls would have bolstered the state's case against Jeffrey Epstein, and by withholding it from the Palm Beach PD and the FBI, Rodriguez had committed a crime. In his defense, Rodriguez would say that the papers were an "insurance policy." Without them, he believed, Epstein would have made him "disappear." But now Rodriguez needed the money. And so a few weeks after Epstein's release from the Stockade, he approached a lawyer who was representing some of Epstein's masseuses. He had the "holy grail," he insisted. A golden nugget." The names of hun- dreds of girls, he said, who had been abused by Epstein. The lawyer told Rodriguez in no uncertain terms that he was obliged to turn whatever he had over to the authorities. By demanding money for the information, Rodriguez was commit- ting another crime. According to a sworn statement by Christina Pryor, a special. agent with the FBI, Rodriguez "persisted that he would only turn over the information in his possession in exchange for 50,000." 218 Fr u. Two months later, on Octobe. who insisted once more on bi lawyer told him that an associ What the lawyer knew one the associate in question was. the FBI. A few days later, on I' guez and sets up a meeting, wl "During the meeting, Roc book and several sheets of lega ten notes," Special Agent Pryo continues: Rodriguez explained that he his former employer's resid 2004 to 2005 and that the ho working for his former emp detail the information within ant information to the UCE. I; he had previously lied to the. about the 50,000, took posse counting it. Rodriguez was then detai. Proceedings, Title 18, U.S. Co tioned. After Miranda warning Rodriguez waived his rights a those rights. Rodriguez admiti and book in his possession an to local law enforcement or th 21 ?ATTERSON FILTHY RICH .ately, he tried to sell the informa- rage girls and the places where list included locations in Califor- York, and Michigan. The papers 'dresses, and phone numbers of :issinger, Mick Jagger, Dustin Hoff- Dch, Ted Kennedy, Donald Trump, and former Israeli prime minister )t at all damning. Epstein made a nation for future use. But informa- Duld have bolstered the state's case by withholding it from the Palm ;uez had committed a crime. would say that the papers were an them, he believed, Epstein would ed the money. And so a few weeks i.e Stockade, he approached a lawyer of Epstein's masseuses. He had the golden nugget." The names of hun- ad been abused by Epstein. !z in no uncertain terms that he was le had over to the authorities. By iformation, Rodriguez was commit itement by Christina Pryor, a special tz "persisted that he would only air, . .; 0 .ossession in exchange for 50,000." ...,. .) 218 Two months later, on October 28, the lawyer called Rodriguez, who insisted once more on being paid for the information. The lawyer told him that an associate would be in touch. What the lawyer knew and Rodriguez did not know was that the associate in question was an undercover employee (UCE) of the FBI. A few days later, on November 2, the UCE calls Rodri- guez and sets up a meeting, which takes place the following day. "During the meeting, Rodriguez produced a small bound book and several sheets of legal pad paper containing handwrit- ten notes," Special Agent Pryor would say in her statement. She continues: Rodriguez explained that he had taken the bound book from his former employer's residence while employed there in 2004 to 2005 and that the book had been created by persons working for his former employer. Rodriguez discussed in detail the information within the book and identified import- ant information to the UCE. In addition, Rodriguez admitted he had previously lied to the FBI. Rodriguez asked the UCE about the 50,000, took possession of the money, and began counting it. Rodriguez was then detained for Obstruction of Official Proceedings, Title 18, U.S. Code, Section 1512(c), and ques- tioned. After Miranda warnings were administered by agents, Rodriguez waived his rights and signed a written waiver of those rights. Rodriguez admitted that he had the documents and book in his possession and had never turned them over to local law enforcement or the FBI. In addition, Rodriguez 219 JAMES PATTERSON advised he had witnessed nude girls whom he believed were underage at the pool area of his former employer's home, knew that his former employer was engaging in sexual con- tact with underage girls, and had viewed pornographic images of underage girls on computers in his employer's home. Rodriguez was then released from custody for further investigation. The items that Rodriguez had attempted to sell to the UCE for 50,000.00 were reviewed by an agent familiar with the underlying criminal investigation. As Rodriguez had described, the items contained information material to the underlying investigation that would have been extremely use- ful in investigatang and prosecuting the case, including the names and contact information of material witnesses and additional victims. Had those items been produced in response to the inquiries of the state law enforcement officers or the FBI Special Agents, their contents would have been presented to the federal grand jury. Following his release, Alfredo Rodriguez was arrested again. He appeared in court on June 18, 2010, facing charges of cor- ruptly concealing records and documents. Dressed in a blue jumpsuit and shackles, he apologized for his crimes and asked the court to be merciful. He received a sentence of eighteen months. It was the same punishment that Jeffrey Epstein had gotten for his crimes. But unlike Epstein, Alfredo Rodriguez served his time in a federal prison and did not ask for, or receive, permis- sion to go on work release. 220 Prince Andrew: 2011 p rince Andrew also fares imprisonment. The two men are old I Ghislaine Maxwell introduced time in the 1990s. In 2000, Eps Castle to celebrate the queen's E flew to Sandringham, the quee) a party Prince Andrew threw for The prince had also visited Palm Beach as well as in New Roberts made in her 2015 decla asked her to give the prince Iv; back with the details. According to the Guardian, tied together at Windsor Castle, 2; |
-79)Ao ALLRED, MAROKO GOLDBERG NATHAN GOLDBERG MICHAEL MAROKO" GLORIA R. ALLRED t JOHN S. WEST DOLORES Y. LEAL RENEE MOCHKATEL MARGERY N. SOMERS MARCUS SPIEGEL CHRISTINA CHEUNGt BYRON LAU KIRBY F. CANON A PROFESSIONAL CORPORATION t ALSO ADMITTED TO NEW YORK BAR OALSO ADMITTED TO WASHINGTON DC BAR A PARTNERSHIP OF PROFESSIONAL CORPORATIONS 6300 WILSHIRE BOULEVARD SUITE 1500 LOS ANGELES, CALIFORNIA 90048 FAX www.amglaw.com VIA FEDERAL EXPRESS EMAIL Mr. Scott Link Link Rockenbach, PA 1555 Palm Beach Lakes Blvd., Suite 930 West Palm Beach, FL 33401 Re: Dear Mr. Link, June 19, 2019 OF COUNSEL MARIA G. DEAZ E-MAIL: We represent with reference to her claims against Jeffrey Epstein for childhood sexual abuse which occurred in New York City when she was years old. New York recently passed the Child Victims Act which creates a 1 year window for claims where the statute of limitations had expired. Therefore, will be able to sue Mr. Epstein for the sexual abuse which she experienced while she was a minor. was the perfect victim. She was born in M, a town on the coast. When was four years old, descended into civil war. At the age of six, her entire village was evacuated. She fled her hometown travelling through war zones on foot with her family, in a stream of refugees. Her family settled in the outskirts of . As refugees, with no money, her family lived together in one room, sharing a bathroom with other families. Her parents eventually found low paying, unskilled jobs. Their only clothing was what was provided to them by the Red Cross. When she was ten years old, family arrived in By the sixth grade, was 5'10", beautiful and naturally slim. She desperately NEW YORK OFFICES I 305 BROADWAY, SUITE 607 I NEW YORK, NEW YORK 10007 T (212) 202-2966 I FAX (212) 202-2967 Scott Link June 19, 2019 Page 2 wanted to leave She learned about a talent search for models and persuaded her mother to take her. She was a huge success and began modeling at age fourteen. Though her parents disparaged her for marketing her appearance, they allowed her to work because she earned more than their combined income. At age sixteen, moved to New York City to model. She lived in an apartment for models, with one or two roommates and no adult on the premises. Her father was deeply ashamed of her because he disapproved of her profession and her parents distanced themselves. days were hectic with professional assignments. She worked with top tier clients and for DNA Modeling Agency, a well-known agency representing supermodels such as Linda Evangelista and Natalia Vodianova. was very innocent and inexperienced prior to meeting Mr. Epstein. At age sixteen, experienced her first kiss. The director of a perfume campaign, Fabian Barron, wanted a kiss at the end of the commercial as a finale to a perfume ad. She dreaded her parents' reaction to seeing the commercial. She was raised in the Orthodox Christian Church where abstinence was encouraged. met Jeffrey Epstein when was sixteen years old. She was introduced through a fellow model a few years her senior. Mr. Epstein seemed bigger than life. He did not drink or do drugs, which put her at ease. He was friends with former President Bill Clinton, the President who made it possible for ME and her family to immigrate to America. When she told Mr. Epstein how her family came to America, Mr. Epstein said he would personally thank "Bill" for her. Mr. Epstein touted other impressive connections. He made it known that he had A list celebrities on speed-dial. She felt very fortunate to have made the connection with Mr. Epstein. As s estrangement from her family increased, Mr. Epstein's role in her life became more and more important. He encouraged her and built her confidence. She trusted him completely. Mr. Epstein told hat he was on the board of directors at Harvard University. He promised that once she took her SATs and obtained the scores she needed, he would write a letter of recommendation for her, which he said would carry significant weight with regard to her admission. Her dream was to establish herself as a successful model and to one day graduate from Harvard. Mr. Epstein made her feel that everything she wanted was possible. Scott Link June 19, 2019 Page 3 confided to him that she had never even had a boyfriend. He told her everything would fall into place, "just keep doing what you are doing, work hard and stay focused." She told Mr. Epstein that she preferred to abstain from sex until she was married. The first time asked her for a massage was to help with an ache in his shoulder. thought it was an innocent request. He said his masseuse had failed to get a kink out of his shoulder. He gave her a large purple massager for her to use to take the knot out of his back. Mr. Epstein told her she was an excellent masseuse and she was pleased to be able to ease his pain. When the massage ended, Mr. Epstein pulled two hundred dollars from his wallet and handed it to her. He said, "I was going to give it to the masseuse anyway, so you take it and pay for your car service or something." Mr. Epstein began calling her every day, no matter where she was in the world. He told her he loved her. He became a vital part of Iworld as her parents remained distant. He invited her to stay at one of his apartments close to him on the Upper East Side. Her arduous work schedule, starting with 6:00 a.m. call times and shows running late into the night were exhausting. Epstein's daily check-up calls and pep talks gave her strength to survive her grinding schedule. When in Paris, Mr. Epstein allowed her to stay at his home with her sister and arranged for a night out at a concert with Naomi Campbell. It appeared to that Mr. Epstein's thoughts were focused on her career, future and good fortune. The first time the purple massage tool found its way between her legs, told him to stop, but Mr. Epstein pushed the head of the massager firmly against her and forced her legs apart. She felt ashamed and embarrassed. The massages became a ritual and were always accompanied with sexual abuse and a two-hundred dollar payment at the end. Mr. Epstein approached her as if he was her mentor and teacher, teaching her about sexuality, opening her eyes. She experienced immense orgasms, and then shame and fear. She felt claustrophobia as she stared up into Mr. Epstein's church-like ceiling of the massage parlor while he fondled her. She felt she couldn't escape her position, and that this was the way it had to be because this powerful man orchestrated it. At the end of each massage he would make himself ejaculate by demanding she pay vigorous attention to his nipples with her fingers and he would tell her what a good girl she was, that he loved her and would call her later, which made everything seem better. Then he would open his wallet filled with hundred dollar bills and give her a couple, which she accepted as pocket money, never thinking twice about it. Scott Link June 19, 2019 Page 4 thought this is what it must feel like to become a woman. She was both thrilled and ashamed. She followed the path that Mr. Epstein set out for her because he said if she trusted him and did what he told her to do, everything would go according to his plan and her career would soar. Without him the world was a scary and unpredictable place. When she was with him, she felt like everything was right because of how much love and care she received from him. She started to think and believe that they would be together and that he would marry her. He used the purple massage vibrator on her time and time again. She closed her eyes feeling lost, overwhelmed and out of control. When he stuck his penis in her mouth, she did what she was told. She choked and gagged and when she tried to move her head away he forced it back into place. Mr. Epstein was extremely aggressive. When it was over he told her how amazing she was. She continued to believe in Mr. Epstein's friendship and guidance. Mr. Epstein took her virginity. This was the trajectory for which he groomed her. first sexual experience was devoid of tenderness or affection. She was stripped down and made to shower. Mr. Epstein told her, "If you're lying about being a virgin, or I get a disease from you, I'll kill you." She felt her mind separate from her body during intercourse. She began to feel like a shell of her former self. She was mortified and in agony. She felt she had become everything her parents feared she would become. She was appearing in beauty magazines and making hundreds of thousands of dollars, but felt dirty and worthless. Mr. Epstein made her feel like nothing more than a teenage prostitute. Everything came crashing down once she realized that this was not love. left Mr. Epstein's residence for the last time feeling less than human. On her way out, she passed a young girl who appeared to be another young model. As turned around to glance back, she saw the young woman entering Mr. Epstein's residence. She was disgusted with the realization that she was one of many called to "massage" Epstein. had a nervous breakdown while alone in New York. She found herself crying inconsolably, shaking, hyperventilating and unable to go to her castings and meetings. She was suicidal. She feared confiding in her agents and reaching out for help from them because she was so ashamed. She booked a ticket to go home. She flew back to Kansas where her parents were living. She never returned to New York. was devastated with the realization of what she was lured into and how she Scott Link June 19, 2019 Page 5 had been victimized. It shattered her to her core. At the vulnerable age of 16, Mr. Epstein made himself the center of her existence and the master of her world. She realized she was a disposable pawn in his game. She could not talk about her years with Mr. Epstein because she was consumed with shame. At 16 years old, he isolated her and made himself her only emotional support system. Her mental torment and pain turned into depression. She was prescribed medication. She numbed herself and tried not to deal with what had happened. She tried to block the pain. was embarrassed that she had been used and abused. She withdrew and had no desire to model or interact with anyone in the modeling world anymore. stopped taking calls from modeling agencies, and eventually they stopped calling for good. She was afraid to go to New York where her emotions and memories would be triggered. The final contact between and Mr. Epstein was when he tracked her parent's house phone number in Kansas and tried to speak to her. mother grabbed the phone and told Mr. Epstein she was calling the police before hanging up on him. Her career dwindled to nothing. Taking a break from the modeling industry when clients like Italian Vogue and Victoria's Secret were requesting bookings constituted career suicide. In Kansas she became chronically depressed. She was suicidal before her 18th birthday. She called the suicide hotline many times from her home. While in Kansas, a friend of ent her an email with news that Mr. Epstein had been arrested for trafficking underaged girls. felt as if she had gone from being a supermodel to becoming an unsuspecting prostitute. Her parents' warnings of what would become of her in New York had come to fruition. She fell prey to a child predator, Mr. Epstein, and it took her a decade to understand the gravity of what Epstein had done to her as a vulnerable young girl. Mr. Epstein mas ueraded as a loving mentor, a parental substitute and friend who had nothing bul best interest in mind. The repercussions of the sexual and mental abuseendured remain with her. Her first sexual encounters are forever scarred by memories of Mr. Epstein forcing his purple massage device between her legs amidst her cries for him to stop. Debilitating nausea and stomach pain followed her separation from him. She had no framework with which to reference what a "normal" sexual experience was. She remains plagued with self-doubt and insecurity and finds it nearly impossible to separate memories of Mr. Epstein's manipulation and abuse from new relationships she tries to develop. Scott Link June 19, 2019 Page 6 The sexual abuse Mr. Epstein inflicted upon left irreparable psychological scars. She has struggled and continues to struggle with her ability to maintain healthy relationships with men and in general. Her career is permanently compromised and the likelihood of recovering severed professional ties is non-existent. Please contact us within ten days of this letter to advise whether Mr. Epstein is amenable to attempting to resolve 's civil claims without litigation. Very truly yours, ALLRED, MAROKO GOLDBERG |
IN THE CIRCUIT COURT OF THE 15TH JUDICIAL CIRCUIT IN AND FOR PALM BEACH COUNTY, FLORIDA Case No. :50 2009 CA 040800XXXXMBAG JEFFREY EPSTEIN, Plaintiff, SCOTT ROTHSTEIN, individually, and BRADLEY J. EDWARDS, individually, Defendants, STATEMENT OF UNDISPUTED FACTS Defendant Bradley J. Edwards, Esq., offers the following specific facts as the undisputed material facts in this case. Each of the following facts is numbered separately and individually to facilitate Epstein's required compliance with Fla. R. Civ. P. 1.510(c) ("The adverse party shall identify . . . any summary judgment evidence on which the adverse party relies."). All referenced exhibits and attachments have previously been filed with the Court and provided to Epstein. Sexual Abuse of Children By Epstein 1. Defendant Epstein has a sexual preference for young children. Deposition of Jeffrey Epstein, Mar. 17, 2010, at 110 (hereinafter "Epstein Depo.") (Deposition Attachment 1).1 When questioned about this subject at his deposition, Epstein invoked his Fifth Amendment right to remain silent rather than make an incriminating admission. Accordingly, Edwards is entitled to the adverse inference against Epstein that, had Epstein answered, the answer would have been unfavorable to him. " I t is well-settled that the Fifth Amendment does not forbid adverse inferences against parties to 2. Epstein repeatedly sexually assaulted more than forty (40) young girls on numerous occasions between 2002 and 2005 in his mansion in West Palm Beach, Florida. These sexual assaults included vaginal penetration. Epstein abused many of the girls dozens if not hundreds of times. Epstein Depo. at 109 ("Q: How many times have you engaged in oral sex with females under the age of 18?" A: Invocation of the Fifth Amendment ); Deposition of Jane Doe, September 24, 2009 and continued March 11, 2010, at 527 (minor girl sexually abused at least 17 times by Epstein) (hereinafter "Jane Doe Depo") (Deposition Attachment 2); id. 564-67 (vaginal penetration by Epstein with his finger), 568 (vaginal penetration by Epstein with a massager); Deposition of L.M., September 24, 2009, at 73 (hereinafter "L.M. Depo") (Deposition Attachment 3) (describing the manner in which Epstein abused her beginning when LM was 13 years old, touching her vagina with his fingers and vibrator) at 74, line 12-13 (she was personally molested by Epstein more than 50 times), at 164, line 19-23 and 141, line 12-13 and 605, line 3-6 (describing that in addition to being personally molested by Epstein she was paid 200 per underage girl she brought Epstein and she brought him more than seventy (70) underage girls - she told him that she did not want to bring him any more girls and he insisted that she continue to bring him underage girls); Deposition of E.W., May 6, 2010 (hereinafter "E.W. Depo") (Deposition Attachment 4) at 115-116, 131 and 255 (describing Epstein's abuse of her beginning at age 14 when he paid her for touching her vagina, inserting his fingers and civil actions when they refuse to testify in response to probative evidence offered against them." Baxter v. Paltnigiano, 425 U.S. 308, 318 (1976); accord Vasquez v. State, 777 So.2d 1200, 1203 (Fla. App. 2001). The reason for this rule "is both logical and utilitarian. A party may not trample upon the rights of others and then escape the consequences by invoking a constitutional privilege at least not in a civil setting." Fraser v. Security and II1V. Corp., 615 So.2d 841, 842 (Fla. App. 1993). 2 using a vibrator and he also paid her 200 for each other underage female E.W. brought him to molest. She brought him between 20 and 30 underage females); Deposition of Jane Doe 4, date (hereinafter "Jane Doe 4 Depo") (Deposition Attachment 5) at 32-34, and 136 (she describes first being taken to Epstein at 15 years old, "Being fingered by him, having him use a vibrator on me , grabbing my nipples, smelling my butt, jerking off in front of me, licking my cut, several times."). 3. At all relevant times Edwards has had a good faith basis to conclude and did conclude2 that Epstein was able to access a large number of underage girls through a pyramid abuse scheme in which he paid underage victims 200- 300 cash for each other underage victim that she brought to him. See Palm Beach Police Incident Report at 87 (hereinafter "Incident Report") (Exhibit "A").3 The Palm Beach Police Incident Report details Epstein's scheme for molesting underage females. Among other things, the Incident Report outlines some of the experiences of other Epstein victims. When S.G, a 14 year old minor at the time, was brought to Epstein's home, she was taken upstairs by a woman she believed to be Epstein's assistant. The woman started to fix up the room, putting covers on the massage table and bringing lotions out. The "assistant" then left the room and told S.G. that Epstein would be up in a second. Epstein walked over to S.G. and told her to take her clothes off in a stern voice. S.G. states in the report she did not know what to do, as she was the only one there. S.G. took off her shirt, leaving her bra on. Epstein, then in a towel told her to take off everything. S.G. removed her pants leaving 2 In support of all assertions concerning the actions Edwards took, what Edwards learned in the course of his representation of his clients, Edwards's good faith beliefs and the foundation for those beliefs, see Edwards Affidavit and specifically paragraphs 25 and 25 of that Affidavit. 3 For clarity, depositions attached to this memorandum will be identified numerically as attachments I, 2, 3, etc., while exhibits attached to this memorandum will be identified alphabetically as exhibits A, B, C, etc. 3 on her thong panties. Epstein then instructed S.G to give him a massage. As S.G gave Epstein a massage, Epstein turned around and masturbated. S.G. was so disgusted, she did not say anything; Epstein told her she "had a really hot body." Id. at 14. In the report, S.G. admitted seeing Jeffrey Epstein's penis and stated she thought Epstein was on steroids because he was a "really built guy and his wee wee was very tiny." Id. at 15. 4. The exact number of minor girls who Epstein assaulted is known only to Epstein. However, Edwards had a good faith basis to believe and did in fact believe that Epstein's victims were substantially more than forty (40) in number. In addition to the deposition excerpts from two of his many victims above about the number of underage girls brought to Epstein and the Palm Beach incident report, there is overwhelming proof that the number of underage girls molested by Epstein through his scheme was in the hundreds. See Complaint, Jane Doe 102 v. Epstein, (hereinafter Jane Doe 102 complaint) (Exhibit "B"); see also Deposition of Jeffrey Epstein, April 14, 2010, at 442, 443, and 444 (Epstein invoking the 5th on questions about his daily abuse and molestation of children) (Deposition Attachment 6). 5. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that Epstein and his attorneys knew of the seriousness of the criminal investigation against him and corresponded constantly with the United States Attorney's Office in an attempt to avoid the filing of numerous federal felony offenses, which effort was successful. See Correspondence from U.S. Attorney's Office to Epstein (hereinafter "U.S. Attorney's Correspondence") (Composite Exhibit "C) (provided in discovery during the Jane Doe v. Epstein case). 4 6. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that, more specifically, Epstein's attorneys knew of Epstein's scheme to recruit minors for sex and also knew that these minors had civil actions that they could bring against him. In fact, there was much communication between Epstein's attorneys and the United States Prosecutors in a joint attempt to minimize Epstein's civil exposure. For example, on October 3, 2007, Assistant U.S. Attorney Marie Villafaila sent an email (attached hereto as Exhibit "D") to Jay Leflcowitz, counsel for Epstein, with attached proposed letter to special master regarding handling numerous expected civil claims against Epstein. The letter reads in pertinent part, "The undersigned, as counsel for the United States of America and Jeffrey Epstein, jointly write to you to provide information relevant to your service as a Special Master in the selection of an attorney to represent several young women who may have civil damages claims against Mr. Epstein. The U.S. Attorney's Office and the Federal Bureau of Investigation (jointly referred to as the "United States") have conducted an investigation of Jeffrey Epstein regarding his solicitation of minor females in Palm Beach County to engage in prostitution. Mr. Epstein, through his assistants, would recruit underage females to travel to his home in Palm Beach to engage in lewd conduct in exchange for money. Based upon the investigation, the United States has identified forty (40) young women who can be characterized as victims pursuant to 18 USC 2255. Some of those women went to Mr. Epstein's home only once, some went there as much as 100 times or more. Some of the women's conduct was limited to performing a topless or nude massage while Mr. Epstein masturbated himself. For other women, the conduct escalated to full sexual intercourse. As part of the resolution of the case, Epstein has agreed that he would not contest jurisdiction in the Southern District of Florida for any victim who chose to sue him for damages pursuant to 18 USC 2255. Mr. Epstein agreed to provide an attorney for victims who elected to proceed exclusively pursuant to that section, and agreed to waive any challenge to liability under that section up to an amount agreed to by the parties. The parties have agreed to submit the selection of an attorney to a Special Master...." 7. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that L.M. was, in fact, a victim of Epstein's criminal abuse because L.M. was one of the 5 minor females that the United States Attorney's Office recognized as a victim. L.M. 's sworn deposition testimony and the adverse inference drawn from Epstein's refusal to testify confiuiii that Epstein began sexually assaulting L.M. when she was 13 years old and continued to molest her on more than fifty (50) occasions over three (3) years. Epstein Depo., Attachment 1, at 17 ("Q: Did you . . . ever engage in any sexual conduct with L.M.?" A: Invocation of the Fifth Amendment .); see also Epstein Depo., April 14, 2010, Attachment 6, at 456 ("Q: LM was an underage female that you first abused when she was 13 years old; is that correct?" A: Invocation of Fifth Amendment .) 8. Epstein was also given ample opportunity to explain why he engaged in sexual activity with L.M. beginning when L.M. was 13 years old and why he has molested minors on an everyday basis for years, and he invoked his 5th amendment right rather than provide explanation. See Epstein Deposition, February 17, 2010, at 11-12, 30-31 (Deposition Attachment 7). 9. Epstein also sexually assaulted E.W., beginning when she was 14 years old and did so on numerous occasions. See E.W. Depo., Attachment 4 at 215-216. 10. Another of the minor girls Epstein sexually assaulted was Jane Doe; the abuse began when Jane Doe was 14 years old. Rather than incriminate himself', Epstein invoked the 5th amendment to questions about him digitally penetrating Doe's vagina, using vibrators on her vagina and masturbating and ejaculating in her presence. Epstein Depo., April 14, 2010, Attachment 6, at 420, 464, 468. 11. When Edwards's clients L.M., E.W., and Jane Doe were 13 or 14 years old, each was brought to Epstein's home multiple times by another underage victim. Epstein engaged in 6 one or more of the following acts with each of the then-minor girls at his mansion: receiving a topless or completely nude massage; using a vibrator on her vagina; masturbating in her presence; ejaculating in her presence; touching her breast or buttocks or vagina or the clothes covering her sexual organs; and demanding that she bring him other underage girls. Epstein and his co-conspirators used the telephone to contact these girls to entice or induce them into going to his mansion for sexual abuse. Epstein also made E.W. perform oral sex on him and was to perfoim sex acts on Nadia Marcinkova (Epstein's live-in sex slave) in Epstein's presence. See Plaintiff Jane Doe's Notice Regarding Evidence of Similar Acts of Sexual Assault, filed in Jane Doe v. Epstein, No. 08-cv-80893 (S.D. Fla. 2010), as DE 197, (hereinafter "Rule 413 Notice") (Exhibit "E"); Jane Doe Depo., Attachment 2, at 379-380; L.M. Depo., Attachment 3, at 416; E.W. Depo, Attachment 4, at 205. 12. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that yet another of the minor girls Epstein sexually assaulted was C.L. When she was approximately 15 years old, C.L. was brought to Epstein's home by another underage victim. While a minor, she was at Epstein's home on multiple occasions. Epstein engaged in one or more of the following acts with her while she was a minor at his house - topless or completely nude massage on Epstein; Epstein used a vibrator on her vagina; Epstein masturbated in her presence; Epstein ejaculated in her presence; Epstein also demanded that she bring him other underage girls. See Rule 413 Notice, Exhibit "E"; Incident Report, Exhibit "A." 13. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that yet another girl Epstein sexually assault was A.H. When she was approximately 16 years old, she was brought to Epstein's home by another underage victim. While a minor, she 7 was at Epstein's home on multiple occasions. Epstein engaged in one or more of the following acts with her while she was a minor at his house - topless or completely nude massage on Epstein; Epstein used a vibrator on her vagina; Epstein masturbated in her presence; Epstein ejaculated in her presence; Epstein touched her breast or buttock or vagina or the clothes covering her sexual organs; was made to perform sex acts on Epstein; made to perfoim sex acts on Nadia Marcinkova in Epstein's presence. Epstein also forcibly raped this underage victim, as he held her head down against her will and pumped his penis inside her while she was screaming "No". See Rule 413 Notice, Exhibit "E"; Incident Report, Exhibit "A", at 41 (specifically discussing the rape): " A.H. remembered that she climaxed and was removing herself from the massage table. A.H. asked for a sheet of paper and drew the massage table in the master bathroom and where Epstein, Marcinkova and she were. Epstein turned A.H. on to her stomach on the massage bed and inserted his penis into her vagina. A.H. stated Epstein began to pump his penis in her vagina. A.H. became upset over this. She said her head was being held against the bed forcibly, as he continued to pump inside her. She screamed no, and Epstein stopped ...." " A.H. advised there were times that she was so sore when she left Epstein's house. A.H. advised she was ripped, torn, in her vagina area. A.H. advised she had difficulty walking to the car after leaving the house because she was so sore." 14. Without detailing each fact known about Epstein's abuse of the many underage girls, Edwards has had a good faith basis to believe and did in fact believe at all relevant times that Epstein also abused other victims in ways closely similar to those described in the preceding paragraphs. Epstein's additional victims include the following (among many other) young girls: S.G.; A.D.; V.A.; N.R.; J.S.; V.Z.; J.A.; F.E.; M.L.; M.D.; D.D.; and D.N. These girls were between the ages of 13 and 17 when Epstein abused them. See Rule 413 Notice, Exhibit E; Deposition of E.W., Deposition Attachment 4. 8 15. One of Mr. Epstein's household employees, Mr. Alfredo Rodriguez, saw numerous underage girls coming into Epstein's mansion for purported "massages." See Rodriguez Depo. at 242-44 (Deposition Attachment 8). Rodriguez was aware that "sex toys" and vibrators were found in Epstein's bedroom after the purported massages. Id. at 223-28. Rodriguez thought what Epstein was doing was wrong, given the extreme youth of the girls he saw. Id. at 230-31. 16. Alfredo Rodriguez took a journal from Epstein's computer that reflected many of the names of underage females Epstein abused across the country and the world, including locations such as Michigan, California, West Palm Beach, New York, New Mexico, and Paris, France. See Journal (hereinafter "The Journal" or "Holy Grail") (Exhibit "F") (identifying, among other Epstein acquaintances, females that Rodriguez believes were underage under the heading labeled "Massages"). 17. Rodriguez was later charged in a criminal complaint with obstruction of justice in connection with trying to obtain 50,000 from civil attorneys pursuing civil sexual assault cases against Epstein as payment for producing the book to the attorneys. See Criminal Complaint at 2, U.S. v. Rodriguez, No. 9:10-CR-80015-KAM (S.D. Fla. 2010) (Exhibit "G"). Rodriguez stated he needed money because the journal was his "property" and that he was afraid that Jeffrey Epstein would make him "disappear" unless he had an "insurance policy" (i.e., the journal). Id. at 3. Because of the importance of the information in the journal to the civil cases, Mr. Rodriguez called it "The Holy Grail." 18. In the "Holy Grail" or "The Journal," among the many names listed (along with the abused girls) are some of the people that Epstein alleges in his Complaint had "no connection 9 whatsoever" with the litigation in this case. See, e.g., Journal, Exhibit F, at 85 (Donald Trump); at 9 (Bill Clinton phone numbers listed under "Doug Bands"). Federal Investigation and Plea Agreement With Epstein 19. In approximately 2005, the FBI and the U.S. Attorney's Office in the Southern District of Florida learned of Epstein's repeated sexual abuse of minor girls. They began a criminal investigation into federal offenses related to his crimes. See U.S. Attorney's Correspondence, Exhibit "C". 20. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that to avoid the Government learning about his abuse of minor girls, Epstein threatened his employees and demanded that they not cooperate with the government. Epstein's aggressive witness tampering was so severe that the United States Attorney's Office prepared negotiated plea agreements containing these charges. For example, in a September 18, 2007, email from AUSA Villafacia to Lefkowitz (attached hereto as Exhibit "H"), she attached the proposed plea agreement describing Epstein's witness tampering as follows: "UNITED STATES vs. JEFFREY EPSTEIN PLEA PROFFER" On August 21, 2007, FBI Special Agents E. Nesbitt Kuyrkendall and Jason Richards traveled to the home of Leslie Groff to serve her with a federal grand jury subpoena with an investigation pending in the Southern District of Florida. Ms. Groff works as the personal assistant of the defendant. Ms. Groff began speaking with the agents and then excused herself to go upstairs to check on her sleeping child. While upstairs, Ms. Groff telephoned the defendant, Jeffrey Epstein, and informed him that the FBI agents were at her home. Mr. Epstein instructed Ms. Groff not to speak with the agents and reprimanded her for allowing them into her home. Mr. Epstein applied pressure to keep Ms. Groff from complying with the grand jury subpoenas that the agents had served upon her. In particular, Mr. Epstein warned Ms. Groff against turning over documents and electronic evidence responsive to the subpoena and pressured her to delay her 10 appearance before the grand jury in the Southern District of Florida. This conversation occurred when Mr. Epstein was aboard his privately owned civilian aircraft in Miami in the Southern District of Florida. His pilot had filed a flight plan showing the parties were about to return to Teterboro, NJ. After the conversation with Ms. Groff, Mr. Epstein became concerned that the FBI would try to serve his traveling companion, Nadia Marcinkova, with a similar grand jury subpoena. In fact, the agents were preparing to serve Ms. Marcinkova with a target letter when the flight landed in Teterboro. Mr. Epstein then redirected his airplane, making the pilot file a new flight plan to travel to the US Virgin Islands instead of the New York City area, thereby keeping the Special Agents from serving the target letter on Nadia Marcinkova. During the flight, the defendant verbally harassed Ms. Marcinkova, harassing and pressuring her not to cooperate with the grand jury's investigation, thereby hindering and dissuading her from reporting the commission of a violation of federal law to a law enforcement officer, namely, Special Agents of the FBI. Epstein also threatened and harassed Sarah Kellen against cooperating against him as well. 21. Edwards learned that the Palm Beach police department investigation ultimately led to the execution of a search warrant at Epstein's mansion in October 2005. See Police Incident Report, Exhibit "A". 22. Edwards learned that at around the same time, the Palm Beach Police Department also began investigating Epstein's sexual abuse of minor girls. They also collected evidence of Epstein's involvement with minor girls and his obsession with training sex slaves, including pulling information from Epstein's trash. Their investigation showed that Epstein ordered from Arnazon.com on about September 4, 2005, such books as: SM101: A Realistic Introduction, by Jay Wiseman; SlaveCraft: Roadmaps for Erotic Servitude - Principles, Skills, and Tools, by Guy Baldwin; and Training with Miss Abernathy: A Workbook for Erotic Slaves and Their Owners, by Christina Abernathy. See Receipt for Sex Slave Books (Exhibit "I"). 23. The Palm Beach incident reports provided Edwards with the names of numerous witnesses that participated in Epstein's child molestation criminal enterprise and also provided 11 Edwards with some insight into how far-reaching Epstein's power was and how addicted Epstein was to sex with children. See Incident Report, Exhibit "A". 24. The Palm Beach Police Department also collected Epstein's message pads, which provided other names of people that also knew Epstein's scheme to molest children. See Message Pads (Exhibit "J") (note: the names of underage females have been redacted to protect the anonymity of the underage sex abuse victims). Those message pads show clear indication that Epstein's staff was frequently working to schedule multiple young girls between the ages of 12 and 16 years old literally every day, often two or three times per day. Id. 25. In light of all of the infatuation of numerous crimes committed by Epstein, Edwards learned that the U.S. Attorney's Office began preparing the filing of federal criminal charges against Epstein. For example, in addition to the witness tampering and money laundering charges the U.S. Attorney's Office prepared an 82-page prosecution memo and a 53- page indictment of Epstein related to his sexual abuse of children. On September 19, 2007, at 12:14 PM, AUSA Villafafia wrote to Epstein's counsel, Jay Lefkowitz, "Jay - I hate to have to be firm about this, but we need to wrap this up by Monday. I will not miss my indictment date when this has dragged on for several weeks already and then, if things fall apart, be left in a less advantageous position than before the negotiations. I have had an 82-page pros memo and 53- page indictment sitting on the shelf since May to engage in these negotiations. There has to be an ending date, and that date is Monday." These and other communications are within the correspondence attached as Composite Exhibit "C." 26. Edwards learned that rather than face the filing of federal felony criminal charges, Epstein (through his attorneys) engaged in plea bargain discussions. As a result of those 12 discussions, on September 24, 2007, Epstein signed an agreement with the U.S. Attorney's Office for the Southern District of Florida. Under the agreement, Epstein agreed to plead guilty to an indictment pending against him in the 15th Judicial Circuit in and for Palm Beach County charging him with solicitation of prostitution and procurement of minors for prostitution. Epstein also agreed that he would receive a thirty month sentence, including 18 months of jail time and 12 months of community control. In exchange, the U.S. Attorney's Office agreed not to pursue any federal charges against Epstein. See Non-Prosecution Agreement (Exhibit "K"). 27. Part of the Non-Prosecution Agreement that Epstein negotiated was a provision in which the federal government agreed not to prosecute Epstein's co-conspirators. The co- conspirators procured minor females to be molested by Epstein. One of the co-conspirators - Nadia Marcinkova -even participated in the sex acts with minors (including E.W.) and Epstein. See Incident Report, Exhibit "A", at 40-42, 49-51; Deposition of Nadia Marcinkova, April 13, 2010, (hereinafter "Marcinkova Depo.") at 11 (Deposition attachment 9). 28. Under the Non-Prosecution Agreement, Epstein was to use his "best efforts" to enter into his guilty pleas by October 26, 2007. However, Edwards learned that Epstein violated his agreement with the U.S. Attorney's Office to do so and delayed entry of his plea. See Letter from U.S. Attorney R. Alexander Acosta to Lilly Ann Sanchez, Dec. 19, 2007 (Exhibit "L"). 29. On January 10, 2008 and again on May 30, 2008 E.W. and L.M. received letters from the FBI advising them that " t his case is currently under investigation. This can be a lengthy process and we request your continued patience while we conduct a thorough investigation." Letters attached at Composite Exhibit "M". This document is evidence that the FBI did not notify E.W. and L.M. that a plea agreement had already been reached that would 13 block federal prosecution of Epstein. Nor did the FBI notify E.W. and L.M. of any of the parts of the plea agreement. Nor did the FBI or other federal authorities confer with E.W. and L.M. about the plea. See id. 30. In 2008, Edwards believed in good faith that criminal prosecution of Epstein was extremely important to his clients E.W. and L.M. and that they desired to be consulted by the FBI and or other representatives of the federal government about the prosecution of Epstein. The letters that they had received around January 10, 2008, suggested that a criminal investigation of Epstein was on-going and that they would be contacted before the federal government reached any final resolution of that investigation. See id. Edwards Agrees to Serve as Legal Counsel for Three Victims of Epstein 's Sexual Assaults 31. In about April 2008, Bradley J. Edwards, Esq., was a licensed attorney in Florida, practicing as a sole practitioner. As a fornler prosecutor, he was well versed in civil cases that involved criminal acts, including sexual assaults. Three of the many girls Epstein had abused L.M., E.W., and Jane Doe all requested that Edwards represent them civilly and secure appropriate monetary damages against Epstein for repeated acts of sexual abuse while they were minor girls. Two of the girls (L.M. and E.W.) also requested that Edwards represent them in connection with a concern that the Federal Bureau of Investigation (FBI) and U.S. Attorney's Office might be arranging a plea bargain for the criminal offenses committed by Epstein without providing them the legal rights to which they were entitled (including the right to be notified of plea discussions and the right to confer with prosecutors about any plea arrangement). See 14 Affidavit of Bradley J. Edwards, Esq. at 1 - 2, 4 (hereinafter "Edwards Affidavit") (Exhibit 32. On June 13, 2008, attorney Edwards agreed to represent E.W.; on July 2, 2008, attorney Edwards agreed to represent Jane Doe; and, on July 7, 2008, attorney Edwards agreed to represent L.M. in connection with the sexual assaults committed by Epstein and to insure that their rights as victims of crimes were protected in the criminal process on-going against Epstein. Mr. Edwards and his three clients executed written retention agreements. See id. at 2. 33. In mid June of 2008, Edwards contacted AUSA Villafeia to infoiin her that he represented Jane Doe 1 and, later, Jane Doe 2. AUSA Villafalia did not advise that a plea agreement had already been negotiated with Epstein's attorneys that would block federal prosecution. To the contrary, AUSA Villafalia mentioned a possible indictment. AUSA Villafafia did indicate that federal investigators had concrete evidence and infoimation that Epstein had sexually molested many underage minor females, including E.W., LM, and Jane Doe. See id. at 4. 34. Edwards also requested from the U.S. Attorney's Office the infoimation that they had collected regarding Epstein's sexual abuse of his clients. However, the U.S. Attorney's Office, declined to provide any such infoiniation to Edwards. It similarly declined to provide any such information to the other attorneys who represented victims of Epstein's sexual assaults. At the very least, this includes the items that were confiscated in the search warrant of Epstein's home, including dildos, vibrators, massage table, oils, and additional message pads. See Property Receipt (Exhibit "0"). 15 35. On Friday, June 27, 2008, at approximately 4:15 p.m., AUSA Villafaiia received a copy of Epstein's proposed state plea agreement and learned that the plea was scheduled for 8:30 a.m., Monday, June 30, 2008. AUSA Villafalia called Edwards to provide notice to his clients regarding the hearing. AUSA Villafafia did not tell Attorney Edwards that the guilty pleas in state court would bring an end to the possibility of federal prosecution pursuant to the plea agreement. See Edwards Affidavit, Exhibit "N", at 6. 36. Under the Crime Victims' Rights Act (CVRA), 18 U.S.C. 3771, victims of federal crimes including E.W. and L.M. are entitled to basic rights during any plea bargaining process, including the right to be treated with fairness, the right to confer with prosecutors regarding any plea, and the right to be heard regarding any plea. The process that was followed leading to the non-prosecution of Epstein violated these rights of E.W. and L.M. See Emergency Petn. for Victim's Enforcement of Crime Victim's Rights, No. 9:08-CV-80736- KAM (S.D. Fla. 2008) (Exhibit "P"). 37. Because of the violation of the CVRA, on July 7, 2008, Edwards filed an action in the U.S. District Court for the Southern District of Florida, Case No. 9:08-CV-80736, seeking to enforce the rights of E.W. and L.M. That action alleged that the U.S. Attorney's Office had failed to provide E.W. and L.M. the rights to which they were entitled under the Act, including the right to be notified about a plea agreement and to confer with prosecutors regarding it. See Id. 38. On July 11, 2008, Edwards took E.W. and L.M. with him to the hearing on the CVRA action. It was only at this hearing that both victims learned for the first time that the plea deal was already done with Epstein and that the criminal case against Epstein had been 16 effectively terminated by the U.S. Attorney's office. See Hearing Transcript, July 11, 2008 (Exhibit "Q"). 39. Edwards learned that Jane Doe felt so strongly that the plea bargain was inappropriate that she made her own determination to appear on a television program and exercise her First Amendment rights to criticize the unduly lenient plea bargain Epstein received in a criminal case. 40. The CVRA action that Edwards filed was recently administratively closed and Edwards filed a Motion to reopen that proceeding. See No. 9:08-CV-80736 (S.D. Fla.). Epstein 's Entry of Guilty Pleas to Sex Offenses 41. Ultimately, on June 30, 2008, in the Fifteenth Judicial Circuit in Palm Beach County, Florida, defendant Epstein, entered pleas of "guilty" to various Florida state crimes involving the solicitation of minors for prostitution and the procurement of minors for the purposes of prostitution. See Plea Colloquy (Exhibit "R"). 42. As a condition of that plea, and in exchange for the Federal Government not prosecuting the Defendant, Epstein additionally entered into an agreement with the Federal Government acknowledging that approximately thirty-four (34) other young girls could receive payments from him under the federal statute providing for compensation to victims of child sexual abuse, 18 U.S.C. 2255. As had been agreed months before, the U.S. Attorney's Office did not prosecute Epstein federally for his sexual abuse of these minor girls. See Addendum to Non-Prosecution Agreement (Exhibit "5") (in redacted form to protect the identities of the minors involved). 17 43. Because Epstein became a convicted sex offender, he was not to have contact with any of his victims. During the course of his guilty pleas on June 30, 2008, Palm Beach Circuit Court Judge Deborah Dale Pucillo ordered Epstein "not to have any contact, direct or indirect" with any victims. She also expressly stated that her no-contact order applied to "all of the victims." Similar orders were entered by the federal court handling some of the civil cases against Epstein. The federal court stated that it "finds it necessary to state clearly that Defendant is under this court's order not to have direct or indirect contact with any plaintiffs . . . ." Order, Case No. 9:08-cv-80119 (S.D. Fla. 2008), DE 238 at 4-5 (emphasis added); see also Order, Case No. 9:08-cv-80893, DE 193 at 2 (emphasis added). Edwards Files Civil Suits Against Epstein 44. Edwards had a good faith belief that his clients felt angry and betrayed by the criminal system and wished to prosecute and punish Epstein for his crimes against them in whatever avenue remained open to them. On August 12, 2008, at the request of his client Jane Doe, Brad Edwards filed a civil suit against Jeffrey Epstein to recover damages for his sexual assault of Jane Doe. See Edwards Affidavit, "N" at 17. Included in this complaint was a RICO count that explained how Epstein ran a criminal conspiracy to procure young girls for him to sexually abuse. See Complaint, Jane Doe v. Epstein (Exhibit "T"). 45. On September 11, 2008, at the request of his client E.W., Brad Edwards filed a civil suit against Jeffrey Epstein to recover damages for his sexual assault of E.W. See Complaint, E.W. v. Epstein (Exhibit "U"). 18 46. On September 11, 2008, at the request of his client L.M.., Brad Edwards filed a civil suit against Jeffrey Epstein to recover damages for his sexual assault of L.M. See Complaint, L.M. v. Epstein, (Exhibit "V"). 47. Jane Doe's federal complaint indicated that she sought damages of more than 50,000,000. Listing the amount of damages sought in the complaint was in accord with other civil suits that were filed against Epstein (before any lawsuit filed by Edwards). See Complaint, Jane Doe 4 v. Epstein (Exhibit "W") (filed by Herman and Mermelstein, PA). 48. At about the same time as Edwards filed his three lawsuits against Epstein, other civil attorneys were filing similar lawsuits against Epstein. For example, on or about April 14, 2008 another law firm, Herman and Mellnelstein, filed the first civil action against Epstein on behalf of one of its seven clients who were molested by Epstein. The complaints that attorney Herman filed on behalf of his seven clients were similar in tenor and tone to the complaint that Edwards filed on behalf of his three clients. See id. 49. Over the next year and a half, more than 20 other similar civil actions were filed by various attorneys against Epstein alleging sexual assault of minor girls. These complaints were also similar in tenor and tone to the complaint that Edwards filed on behalf of his clients. These complaints are all public record and have not been attached, but are available in this Court's files and the files of the U.S. District Court for the Southern District of Florida. 50. In addition to the complaints filed against Epstein in Florida, a female in New York, Ava Cordero, filed a lawsuit against Epstein in New York making similar allegations - that Epstein paid her for a massage then forced her to give him oral sex and molested her in other ways when she was only 16 years old. Cordero was born a male, and in her complaint she 19 alleges that Epstein told her during the "massage", "I love how young you are. You have a tight butt like a baby". See Jeff Epstein Sued for "Repeated Sexual Assaults" on Teen, New York Post, October 17, 2007, by Dareh Gregorian, link at: http: www.nypost.com p news regional item 44z1WyLUFH7R1OUtKYGPbPj se s si onid 6CA3 EBF1BEF68F5DE14BFB2CAA5C37E0. See Article attached hereto as Exhibit "X". 51. Edwards's three complaints against Epstein contained less detail about sexual abuse than (as one example) a complaint filed by attorney Robert Josephsberg from the law firm of Podhurst Orseck. See Complaint, Jane Doe 102 v. Epstein (Exhibit "B"). As recounted in detail in this Complaint, Jane Doe 102 was 15 years old when Ghislaine Maxwell discovered her and lured her to Epstein's house. Maxwell and Epstein forced her to have sex with both of them and within weeks Maxwell and Epstein were flying her all over the world. According to the Complaint, Jane Doe 102 was forced to live as one of Epstein's underage sex slaves for years and was forced to have sex with not only Maxwell and Epstein but also other politicians, businessmen, royalty, academicians, etc. She was even made to watch Epstein have sex with three 12-year-old French girls that were sent to him for his birthday by a French citizen that is a friend of Epstein's. Luckily, Jane Doe 102 escaped to Australia to get away from Epstein and Maxwell's sexual abuse. 52. Edwards learned that in addition to civil suits that were filed in court against Epstein, at around the same time other attorneys engaged in pre-filing settlement discussions with Epstein. Rather than face filed civil suits in these cases, Epstein paid money settlements to more than 15 other women who had sexually abused while they were minors. See articles regarding settlements attached hereto as Composite Exhibit "Y." 20 Epstein's Obstruction of Normal Discovery and Attacks on His Victims 53. Once Edwards filed his civil complaints for his three clients, he began the normal process of discovery for cases such as these. He sent standard discovery requests to Epstein about his sexual abuse of the minor girls, including requests for admissions, request for production, and interrogatories. See Edwards Affidavit, Exhibit "N", at Till 1-19 and 25. Rather than answer any substantive questions about his sexual abuse and his conspiracy for procuring minor girls for him to abuse, Epstein invoked his 5th amendment right against self- incrimination. An example of Epstein's refusal to answer is attached as Composite Exhibit "Z" (original discovery propounded to Epstein and his responses invoking 5th amendment). 54. During the discovery phase of the civil cases filed against Epstein, Epstein's deposition was taken at least five times. During all of those depositions, Epstein refused to answer any substantive questions about his sexual abuse of minor girls. See, e.g., Deposition Attachments 1, 6 and 7. 55. During these depositions, Epstein further attempted to obstruct legitimate questioning by inserting a variety of irrelevant infatuation about his case. As one of innumerable examples, on March 8, 2010, Mr. Horowitz, representing seven victims, Jane Doe's 2-8, asked, "Q: In 2004, did you rub Jane Doe 3's vagina? A: Excuse me. I'd like to answer that question, as I would like to answer mostly every question you've asked me here today; however, upon advice of counsel, I cannot answer that question. They've advised me I must assert my Sixth Amendment, Fifth Amendment and Fourteenth Amendment Rights against self me, against after filing this lawsuit a statement that was untrue , Mr. Edwards' partner sits in jail for 21 fabricating cases of a sexual nature fleecing unsuspecting Florida investors and others out of millions of dollars for cases of a sexual nature with I advice." Epstein deposition, March 8, 2010, at 106 (Deposition attachment 10). 56. When Edwards had the opportunity to take Epstein's deposition, he only asked reasonable questions, all of which related to the merits of the cases against Epstein. All depositions of Epstein in which Mr. Edwards participated on behalf of his clients are attached to this motion. See Edwards Affidavit, Exhibit "N" at 111 and Deposition attachments 1, 6, 7, 10, 11, 12, and 13. Cf. with Deposition of Epstein taken by an attorney representing BB (one in which Edwards was not participating), http: www.youtube.com watch?v V-dqoEyYXx4; and http: www.youtube.com watch?v YCNiY1tW-r0 57. Edwards's efforts to obtain infoimation about Epstein's organization for procuring young girls was also blocked because Epstein's co-conspirators took the Fifth. Deposition of Sarah Kellen, March 24, 2010 (hereinafter "Kellen Depo.") (Deposition attachment 14); Deposition of Nadia Marcinkova, April 13, 2010, (Deposition attachment 9); Deposition of Adriana Mucinska Ross, March 15, 2010 (hereinafter "Ross Depo.") (Deposition attachment 15). Each of these co-conspirators invoked their respective rights against self- incrimination as to all relevant questions, and the depositions have been attached. 58. At all relevant times Edwards has had a good faith basis to believe and did in fact believe Sarah Kellen was an employee of Epstein's and had been identified as a defendant in at least one of the complaints against Epstein for her role in bringing girls to Epstein's mansion to be abused. At the deposition, she was represented by Bruce Reinhart. She invoked the Fifth on 22 all substantive questions regarding her role in arranging for minor girls to come to Epstein's mansion to be sexually abused. Reinhart had previously been an Assistant United States Attorney in the U.S. Attorney's Office for the Southern District of Florida when Epstein was being investigated criminally by Reinhart's office. Reinhart left the United States Attorney's Office and was immediately hired by Epstein to represent Epstein's pilots and certain co- conspirators during the civil cases against Epstein. See Edwards Affidavit, Exhibit "N" at 11. 59. Edwards also had other lines of legitimate discovery blocked through the efforts of Epstein and others. For example, Edwards learned through deposition that Ghislaine Maxwell was involved in managing Epstein's affairs and companies. See deposition of Epstein's house manager Janusz Banziak, February 16, 2010 at page 14, lines 20-23 (Deposition Attachment 16); See deposition of Epstein's housekeeper Louella Rabuyo, October 20, 2009, page 9, lines 17-25 (Deposition Attachment 17); See deposition of Epstein's pilot Larry Eugene Morrison, October 6, 2009, page 102-103 (Deposition Attachment 18); See deposition of Alfredo Rodriguez, August 7, 2009, page 302-306 and 348 (Deposition Attachment 8); See also Prince Andrew's Friend, Ghislaine Maxwell, Some Underage Girls and A Very Disturbing Story, September 23, 2007 by Wendy Leigh, link at http: www.redicecreations.com article.php?id 18950HANNA SJOBERG. Exhibit "AA". 60. Alfredo Rodriguez testified that Maxwell took photos of girls without the girls' knowledge, kept the images on her computer, knew the names of the underage girls and their respective phone numbers and other underage victims were molested by Epstein and Maxwell together. See Deposition of Rodriguez, Deposition attachment 8 at 64, 169-170 and 236. 23 61. In reasonable reliance on this and other infoimation, Edwards served Maxwell for deposition in 2009. See Deposition Notice attached as Exhibit "BB." Maxwell was represented by Brett Jaffe of the New York firm of Cohen and Gresser, and Edwards understood that her attorney was paid for (directly or indirectly) by Epstein. She was reluctant to give her deposition, and Edwards tried to work with her attorney to take her deposition on teims that would be acceptable to both sides. The result was the attached confidentiality agreement, under which Maxwell agreed to drop any objections to the deposition, attached hereto as Exhibit "CC." Maxwell, however, contrived to avoid the deposition. On June 29, 2010, one day before Edwards was to fly to NY to take Maxwell's deposition, her attorney informed Edwards that Maxwell's mother was deathly ill and Maxwell was consequently flying to England with no intention of returning to the United States. Despite that assertion, Ghislaine Maxwell was in fact in the country on July 31, 2010, as she attended the wedding of Chelsea Clinton (former President Clinton's daughter) and was captured in a photograph taken for OK magazine. Photos from Issue 809 of the publication See US Weekly dated August 16, 2010 are attached hereto as Exhibit "DD" and Edwards Affidavit, Exhibit "N" at 12. 62. Maxwell is not the only important witness to lie to avoid deposition by Edwards. Upon review of the message pads that were taken from Epstein's home in the police trash pulls, see Exhibit "J" supra, many were from Jean Luc Brunel, a French citizen and one of Epstein's closest pals. He left messages for Epstein. One dated 4 1 05 said, "He has a teacher for you to teach you how to speak Russian. She is 2x8 years old, not blonde. Lessons are free and you can have your 1st today if you call." See Messages taken from Jean Luc Brunel are attached hereto as Exhibit "EE." In light of these circumstances of the case, this message reasonably suggested to 24 Edwards that Brunel might have been procuring two eight-year-old girls for Epstein to sexually abuse. According to widely circulated press reports reviewed by Edwards, Brunel is in his sixties and has a reputation throughout the world (and especially in the modeling industry) as a cocaine addict that has for years molested children through modeling agencies while acting as their agent conduct that has been the subject of critical reports, books, several news articles, and a 60 Minutes documentary on Brunel's sexual exploitation of underage models. See http: bradmillershero.blogspot.com 2010 08 women-are-objects.html, attached hereto as Exhibit 63. Edwards learned that Brunel is also someone that visited Epstein on approximately 67 occasions while Epstein was in jail. See Epstein's jail visitor log attached as Exhibit "GG." 64. Edwards learned that Brunel currently runs the modeling agency MC2, a company for which Epstein provides financial support. See Message Pad's attached as Exhibit "J" supra and Sworn Statement of MC2 employee Maritza Vasquez, June 15, 2010, "Maritza Vasquez Sworn Statement" attached at Exhibit "HH" at 1-16. 65. Employees of MC2 told Edwards that Epstein's numerous condos at 301 East 66 Street in New York were used to house young models. Edwards was told that MC2 modeling agency, affiliated with Epstein and Brunel brought underage girls from all over the world, promising them modeling contracts. Epstein and Brunel would then obtain a visa for these girls, then would charge the underage girls rent, presumably to live as underage prostitutes in the condos. See Maritza Vasquez Sworn Statement, Exhibit "HH" at 7-10, 12-15, 29-30, 39-41, 59- 60 and 62-67. 25 66. In view of this information suggesting Brunel could provide significant evidence of Epstein's trafficking in young girls for sexual abuse, Edwards had Brunel served in New York for deposition. See Notice of Deposition of Jean Luc Brunel attached hereto as Exhibit "II." Before the deposition took place, Brunel's attorney (Tama Kudman of West Palm Beach) contacted Edwards to delay the deposition date. Eventually Kudman informed Edwards in January 2009 that Brunel had left the country and was back in France with no plans to return. This information was untrue; Brunel was actually staying with Epstein in West Palm Beach. See Banasiak deposition, deposition attachment 16 at 154-160 and 172-175; see also pages from Epstein's probation file evidencing Jean Luc Brunel (JLB) staying at his house during that relevant period of time attached Exhibit "JJ". As a result, Edwards filed a Motion for Contempt, attached hereto as Exhibit "KK" (Because Epstein settled this case, the motion was never ruled upon.) 67. Edwards was also informed that Epstein paid for not only Brunel's representation during the civil process but also paid for legal representation for Sarah Kellen (Epstein's executive assistant and procurer of girls for him to abuse), Larry Visoski (Epstein's personal pilot), Dave Rogers (Epstein's personal pilot), Larry Harrison (Epstein's personal pilot), Louella Rabuyo (Epstein's housekeeper), Nadia Marcinkova (Epstein's live-in sex slave), Ghislaine Maxwell (manager of Epstein's affairs and businesses), Mark Epstein (Epstein's brother), and Janusz Banasiak (Epstein's house manager) It was nearly impossible to take a deposition of someone that would have helpful information that was not represented by an attorney paid for by Epstein. See Edwards Affidavit, Exhibit "N" at 11. 26 68. While Epstein and others were preventing any legitimate discovery into his sexual abuse of minor girls, at the same time he was engaging (through his attorneys) in brutal questioning of the girls who had filed civil suits against him, questioning so savage that it made local headlines. See Jane Musgrave, Victims Seeking Sex offender's Millions See Painful Pasts Used Against Them, Palm Beach Post News, Jan. 23, 2010, available at hap : www.palmbeachpost. com news crime vi ctims-s eeking-s ex-offenders-millions-see-painful- pasts-192988.html attached hereto as Exhibit "LL." Edwards Pursues Other Lines of Discovery 69. Because of Epstein's thwarting of discovery and attacks on Edwards's clients, Edwards was forced to pursue other avenues of discovery. Edwards only pursued legitimate discovery designed to further the cases filed against Epstein. See Edwards Affidavit, Exhibit "N" at 1-111. 70. Edwards notified Epstein's attorneys of his intent to take Bill Clinton's deposition. Edwards possessed a legitimate basis for doing so: (a) Clinton was friends with Ghislaine Maxwell who was Epstein's longtime companion and helped to run Epstein's companies, kept images of naked underage children on her computer, helped to recruit underage children for Epstein, engaged in lesbian sex with underage females that she procured for Epstein, and photographed underage females in sexually explicit poses and kept child pornography on her computer; (b) it was national news when Clinton traveled with Epstein aboard Epstein's private plane to Africa and the news articles classified Clinton as Epstein's friend. (c) the complaint filed on behalf of Jane Doe No. 102 stated generally that she was required by Epstein to be sexually exploited by not only Epstein but also Epstein's "adult male peers, including royalty, 27 politicians, academicians, businessmen, and or other professional and personal acquaintances" categories Clinton and acquaintances of Clinton fall into. The flight logs showed Clinton traveling on Epstein's plane on numerous occasions between 2002 and 2005. See Flight logs attached hereto as Exhibit "MM." Clinton traveled on many of those flights with Ghislaine Maxwell, Sarah Kellen, and Adriana Mucinska, - all employees and or co-conspirators of Epstein's that were closely connected to Epstein's child exploitation and sexual abuse. The documents clearly show that Clinton frequently flew with Epstein aboard his plane, then suddenly stopped - raising the suspicion that the friendship abruptly ,ended, perhaps because of events related to Epstein's sexual abuse of children. Epstein's personal phone directory from his computer contains e-mail addresses for Clinton along with 21 phone numbers for him, including those for his assistant (Doug Band), his schedulers, and what appear to be Clinton's personal numbers. This information certainly leads one to believe that Clinton might well be a source of relevant information and efforts to obtain discovery from him were reasonably calculated to lead to admissible evidence. See Exhibits "B", "F" "AA", "DD", and "MM" and Edwards Affidavit, Exhibit "N" at 15. 71. Bradley J. Edwards, Esq., provided notice that he intended to take the deposition of Donald Trump. Edwards possessed a legitimate basis for doing so: (a) The message pads confiscated from Epstein's home indicated that Trump called Epstein's West Palm Beach mansion on several occasions during the time period most relevant to my Edwards's clients' complaints; (b) Trump was quoted in a Vanity Fair article about Epstein as saying "I've known Jeff for fifteen years. Terrific guy," "He's a lot of fun to be with. It is even said that he likes beautiful women as much as I do, and many of them are on the younger side. No doubt about it 28 Jeffrey enjoys his social life." Jeffrey Epstein: International Moneyman of Mystery; He's pals with a passel of Nobel Prize winning scientists, CEOs like Leslie Wexner of the Limited, socialite Ghislaine Maxwell, even Donald Trump. But it wasn't until he flew Bill Clinton, Kevin Spacey, and Chris Tucker to Africa on his private Boeing 727 that the world began to wonder who he is. By Landon Thomas Jr. (See article attached hereto as Exhibit "NN") (c) Trump allegedly banned Epstein from his Maralago Club in West Palm Beach because Epstein sexually assaulted an underage girl at the club; (d) Jane Doe No. 102's complaint alleged that Jane Doe 102 was initially approached at Trump's Maralago by Ghislaine Maxwell and recruited to be Maxwell and Epstein's underage sex slave; (e) Mark Epstein (Jeffrrey Epstein's brother) testified that Trump flew on Jeffrey Epstein's plane with him (the same plane that Jane Doe 102 alleged was used to have sex with underage girls); (f) Trump had been to Epstein's home in Palm Beach; (g) Epstein's phone directory from his computer contains 14 phone numbers for Donald Trump, including emergency numbers, car numbers, and numbers to Trump's security guard and houseman. Based on this information, Edwards reasonably believed that Trump might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. See deposition of Mark Epstein, September 21, 2009, at 48-50 (Deposition Attachment 19); See Jane Doe 102 v. Epstein, Exhibit "B"; Exhibit "F"; "Exhibit"J"; "N" and See Edwards Affidavit, Exhibit "N" at 13. 72. Edwards provided notice that he intended to depose Alan Dershowitz. Edwards possessed a legitimate basis for doing so: (a) Dershowitz is believed to have been friends with Epstein for many years; (b) in one news article Dershowitz comments that, "I'm on my 20th book... The only person outside of my immediate family that I send drafts to is Jeffrey" The 29 Talented Mr. Epstein, By Vicky Ward on January, 2005 in Published Work, Vanity Fair (See article attached as Exhibit "00"); (c) Epstein's housekeeper Alfredo Rodriguez testified that Dershowitz stayed at Epstein's house during the years when Epstein was assaulting minor females on a daily basis; (d) Rodriguez testified that Dershowitz was at Epstein's house at times when underage females where there being molested by Epstein (see Alfredo Rodriguez deposition at 278-280, 385, 426-427); (e) Dershowitz reportedly assisted in attempting to persuade the Palm Beach State Attorney's Office that because the underage females alleged to have been victims of Epstein's abuse lacked credibility and could not be believed that they were at Epstein's house, when Dershowitz himself was an eyewitness to their presence at the house; (f) Jane Doe No. 102 stated generally that Epstein forced her to be sexually exploited by not only Epstein but also Epstein's "adult male peers, including royalty, politicians, academicians, businessmen, and or other professional and personal acquaintances" categories that Dershowitz and acquaintances of Dershowitz fall into; (g) during the years 2002-2005 Alan Dershowitz was on Epstein's plane on several occasions according to the flight logs produced by Epstein's pilot and information (described above) suggested that sexual assaults may have taken place on the plane; (h) Epstein donated 30 Million one year to the university at which Dershowitz teaches. Based on this infoli iation, Edwards had a reasonable basis to believe that Dershowitz might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. See Dershowitz letters to the State Attorney's office attached as Exhibit "PP"; Deposition of Alfredo Rodriguez at 278-280; Flight Logs Exhibit "MM"; Exhibits "B" and "00"; and Edwards Affidavit, Exhibit "N" at 14. 30 73. Epstein's complaint alleges that Edwards provided notice that he wished to take the deposition of Tommy Mattola. That assertion is untrue. Mr. Mattola's deposition was set by the law firm of Searcy Denny Scarola Barnhart and Shipley. See Edwards Affidavit, Exhibit "N" at 16. 74. Edwards gave notice that he intended to take David Copperfield's deposition. Edwards possessed a legitimate basis for doing so. Epstein's housekeeper and one of the only witnesses who did not appear for deposition with an Epstein bought attorney, Alfredo Rodriguez, testified that David Copperfield was a guest at Epstein's house on several occasions. His name also appears frequently in the message pads confiscated from Epstein's house. It has been publicly reported that Copperfield himself has had allegations of sexual misconduct made against him by women claiming he sexually abused them, and one of Epstein's sexual assault victims also alleged that Copperfield had touched her in an improper sexual way while she was at Epstein's house. Mr. Copperfield likely has relevant information and deposition was reasonably calculated to lead to the discovery of admissible evidence. See Edwards Affidavit, Exhibit "N" at 17. 75. Epstein also takes issue with Edwards identifying Bill Richardson as a possible witness. Richardson was properly identified as a possible witness because Epstein's personal pilot testified to Richardson joining Epstein at Epstein's New Mexico Ranch. There was information indicating that Epstein had young girls at his ranch which, given the circumstances of the case, raised the reasonable inference he was sexually abusing these girls as he had abused girls in West Palm Beach and elsewhere. Richardson had also returned campaign donations that were given to him by Epstein, indicating that he believed that there was something about Epstein 31 with which he did not want to be associated. Richardson was not called to testify nor was he ever subpoenaed to testify. See Edwards Affidavit, Exhibit "N" at 18. 76. Edwards learned of allegations that Epstein engaged in sexual abuse of minors on his private aircraft. See Jane Doe 102 Complaint, Exhibit "B." Accordingly, Edwards pursued discovery to confirm these allegations. 77. Discovery of the pilot and flight logs was proper in the cases brought by Edwards against Epstein. Jane Doe filed a federal RICO claim against Epstein that was an active claim through much of the litigation. The RICO claim alleged that Epstein ran an expansive criminal enterprise that involved and depended upon his plane travel. Although Judge Marra dismissed the RICO claim at some point in the federal litigation, the legal team representing Edwards' clients intended to pursue an appeal of that dismissal. Moreover, all of the subjects mentioned in the RICO claim remained relevant to other aspects of Jane Doe's claims against Epstein, including in particular her claim for punitive damages. See Edwards Affidavit, Exhibit "N" at 19. 78. Discovery of the pilot and flight logs was also proper in the cases brought by Edwards against Epstein because of the need to obtain evidence of a federal nexus. Edwards's client Jane Doe was proceeding to trial on a federal claim under 18 U.S.C. 2255. Section 2255 is a federal statute which (unlike relevant state statutes) established a minimum level of recovery for victims of the violation of its provisions. Proceeding under the statute, however, required a "federal nexus" to the sexual assaults. Jane Doe had two grounds on which to argue that such a nexus existed to her abuse by Epstein: first, his use of telephone to arrange for girls to be abused; and, second, his travel on planes in interstate commerce. During the course of the litigation, 32 Edwards anticipated that Epstein would argue that Jane Doe's proof of the federal nexus was inadequate. These fears were realized when Epstein filed a summary judgment motion raising this argument. In response, the other attorneys and Edwards representing Jane Doe used the flight log evidence to respond to Epstein's summary judgment motion, explaining that the flight logs demonstrated that Epstein had traveled in interstate commerce for the purpose of facilitating his sexual assaults. Because Epstein chose to settle the case before trial, Judge Marra did not rule on the summary judgment motion. 79. Edwards had further reason to believe and did in fact believe that the pilot and flight logs might contain relevant evidence for the cases against Epstein. Jane Doe No. 102's complaint outlined Epstein's daily sexual exploitation and abuse of underage minors as young as 12 years old and alleged that Epstein's plane was used to transport underage females to be sexually abused by him and his friends. The flight logs accordingly were a potential source of information about either additional girls who were victims of Epstein's abuse or friends of Epstein who may have witnessed or even participated in the abuse. Based on this information, Edwards reasonably pursued the flight logs in discovery. 80. In the fall of 2009, Epstein gave a recorded interview to George Rush, a reporter with the New York Daily News about pending legal proceedings. In that interview, Epstein demonstrated an utter lack of remorse for his crimes (but indirectly admitted his crimes) by stating: People do not like it when people make good and that was one reason he (Epstein) was being targeted by civil suits filed by young girls in Florida; He (Epstein) had done nothing wrong; 33 He (Epstein) had gone to jail in Florida for soliciting prostitution for no reason; If the same thing (i.e., sexual abuse of minor girls) had happened in New York, he (Epstein) would have received only a 200 fine; Bradley J. Edwards was the one causing all of Epstein's problems (i.e., the civil suits brought by Jane Doe and other girls); L.M. came to him as a prostitute and a drug user (i.e., came to Epstein for sex, rather than Epstein pursuing her); All the girls suing him are only trying to get a meal ticket; The only thing he might have done wrong was to maybe cross the line a little too closely; He (Epstein) was very upset that Edwards had subpoenaed Ghisline Maxwell, that she was a good person that did nothing wrong (i.e., had done nothing wrong even though she helped procure young girls to satisfy Epstein's sexual desires); With regard to Jane Doe 102 v. Epstein, which involved an allegation that Epstein had repeatedly sexually abused a 15-year-old girl, forced her to have sex with his friends, and flew her on his private plane nationally and internationally for the purposes of sexually molesting and abusing her, he (Epstein) flippantly said that the case was dismissed, indicating that the allegations were ridiculous and untrue. See Affidavit of Michael J. Fisten attached hereto as Exhibit "QQ." 81. The Rush interview also demonstrated perjury (a federal crime) on the part of Epstein. Epstein lied about not knowing George Rush. See Epstein Deposition, February 17, 2010, taken in L.M. v. Jeffrey Epstein, case 50-2008-CA-028051, page 154, line 4 through 155 line 9, (Deposition attachment 7), wherein Jeffrey Epstein clearly impresses that he does not recognize George Rush from the New York Daily News. This impression was given despite the fact that he gave a lengthy personal interview about details of the case that was tape recorded with George Rush. 34 Epstein 's Harassment of Witnesses Against Him 82. At all relevant times Edwards has a good faith basis to believe and did in fact believe that Epstein engaged in threatening witnesses. See Incident Report, Exhibit "A" at p. 82, U.S. Attorney's Correspondence, Exhibit "C" - Indictments drafted by Federal Government against Epstein; and Edwards Affidavit, Exhibit "N" at 11. 83. Despite three no contact orders entered against Epstein (see Exhibit C, supra), Edwards learned that Epstein continued to harass his victims. For example, Jane Doe had a trial set for her civil case against him on July 19, 2010. As that trial date approached, defendant Epstein intimidated her in violation of the judicial no-contact orders. On July 1, 2010, he had a "private investigator" tail Jane Doe following her every move, stopping when she stopped, driving when she drove, refusing to pass when she pulled over. When Jane Doe ultimately drove to her home, the "private investigator" then parked in his car approximately 25 feet from Jane Doe house and flashed his high beam lights intermittently into the home. Even more threateningly, at about 10:30 p.m., when Jane Doe fled her home in the company of a retired police officer employed by Jane Doe's counsel, the "private investigator" attempted to follow Jane Doe despite a request not to do so. The retired officer successfully took evasive action and placed Jane Doe in a secure, undisclosed location that night. Other harassing actions against Jane Doe also followed. See Motion for Contempt filed by Edwards in Jane Doe v. Epstein detailing the event, including Fisten Affidavit attached to Motion, Composite Exhibit "RR." Epstein Settlement of Civil Claims Against Him for Sexual Abuse of Children 84. The civil cases Edwards filed against Epstein on behalf of L.M., E.W., and Jane Doe were reasonably perceived by Edwards to be very strong cases. Because Epstein had 35 sexually assaulted these girls, he had committed several serious torts against them and would be liable to them for appropriate damages. See Preceding Undisputed Facts. Because of the outrageousness of Epstein's sexual abuse of minor girls, Edwards reasonably expected that Epstein would also be liable for punitive damages to the girls. Because Edwards could show that Epstein had molested children for years and designed a complex premeditated scheme to procure different minors everyday to satisfy his addiction to sex with minors, the punitive damages would have to be sufficient to deter him from this illegal conduct that he had engaged in daily for years. Epstein was and is a billionaire. See Complaint, 49 (referring to "Palm Beach Billionaire"); see also Epstein Deposition, February 17, 2010, at 172-176 (Deposition Attachment 7) (taking the Fifth when asked whether he is a billionaire). Accordingly, Edwards reasonably believed the punitive damages that would have to be awarded against Epstein would have been substantial enough to punish him severely enough for his past conduct as well as deter him from repeating his offenses in the future. See Edwards Affidavit, Exhibit "N" at 19. 85. On July 6, 2010, rather than face trial for the civil suits that had been filed against him by L.M., E.W., and Jane Doe, defendant Epstein settled the cases against him. The terms of the settlement are confidential. The settlement amounts are highly probative in the instant action as Epstein bases his claims that Edwards was involved in the Ponzi scheme on Epstein's inability to settle the L.M., E.W., and Jane Doe cases for "minimal value". His continued inability to settle the claims for "minimal value" after the Ponzi scheme was uncovered would be highly probative in discrediting any causal relationship between the Ponzi scheme and Edwards's settlement negotiations. See Edwards Affidavit, Exhibit "N" at 21. Edwards Non-Involvement in Fraud by Scott Rothstein 36 86. From in or about 2005, through in or about November 2009, Scott Rothstein appears to have run a giant Ponzi scheme at his law firm of Rothstein, Rosenfeldt and Adler PA. ("RRA"). This Ponzi scheme involved Rothstein falsely informing investors that settlement agreements had been reached with putative defendants based upon claims of sexual harassment and or whistle-blower actions. Rothstein falsely informed the investors that the potential settlement agreements were available for purchase. Plea Agreement at 2, United States v. Scott W. Rothstein, No. 9-60331-CR-COHN (S.D. Fla. Jan. 27, 2010) attached hereto as Exhibit "SS." 87. It has been alleged that among other cases that Rothstein used to lure investors into his Ponzi scheme were the cases against Epstein that were being handled by Bradley J. Edwards, Esq. Edwards had no knowledge of the fraud or any such use of the Epstein cases. See Edwards Affidavit, Exhibit "N" at 9. 88. Bradley J. Edwards, Esq., joined RRA in about April 2009 and left RRA in November 2009 a period of less than one year. Edwards would not have joined RRA had he been aware that Scott Rothstein was running a giant Ponzi scheme at the fitat. Edwards left RRA shortly after learning of Rothstein's fraudulent scheme. Id. at 8. 89. At no time prior to the public disclosure of Rothstein's Ponzi scheme did Edwards know or have reason to believe that Rothstein was using legitimate claims that Edwards was prosecuting against Epstein for any fraudulent or otherwise illegitimate purpose. Id. at 20. 90. Edwards never substantively discussed the merits of any of his three cases against Epstein with Rothstein. See Deposition of Bradley J. Edwards taken March 23, 2010, at 110-16. (hereinafter "Edwards Depo") (Deposition Attachment 22). 37 91. On July 20, 2010, Bradley Edwards received a letter from the U.S. Attorney's Office for the Southern District of Florida the office responsible for prosecuting Rothstein's Ponzi scheme. The letter indicated that law enforcement agencies had determined that Edwards was "a victim (or potential victim)" of Scott Rothstein's federal crimes. The letter informed Edwards of his rights as a victim of Rothstein's fraud and promised to keep Edwards informed about subsequent developments in Rothstein's prosecution. See Letter attached hereto as Exhibit 92. Jeffrey Epstein filed a complaint with the Florida Bar against Bradley Edwards, Esq., raising allegations that Edwards and others were involved in the wrongdoing of Scott Rothstein. After investigating the claim, the Florida Bar dismissed this complaint. See Edwards Affidavit, Exhibit "N" at 23. Epstein Takes the Fifth When Asked Substantive Questions About His Claims Against Edwards 93. On March 17, 2010, defendant Epstein was deposed about his lawsuit against Edwards. Rather than answer substantive questions about his lawsuit, Epstein repeatedly invoked his Fifth Amendment privilege. See Epstein Depo. taken 3 17 10, Deposition Attachment 1. 94. In his deposition, Epstein took the Fifth rather than answer the question: "Specifically what are the allegations against you which you contend Mr. Edwards ginned up?" Id. at 34. 95. In his deposition, Epstein took the Fifth rather than name people in California that Edwards had tried to depose to increase the settlement value of the civil suit he was handling. Id. at 37. 38 96. In his deposition, Epstein took the Fifth rather than answer the question: "Do you know former President Clinton personally." Id. 97. In his deposition, Epstein took the Fifth rather than answer the question: "Are you now telling us that there were claims against you that were fabricated by Mr. Edwards?" Id. at 39. 98. In his deposition, Epstein took the Fifth rather than answer the question, "Well, which of Mr. Edwards' cases do you contend were fabricated." Id. 99. In his deposition, Epstein took the Fifth rather than answer the question: "What is the actual value that you contend the claim of E.W. against you has?" Id. at 45. 100. In his deposition, Epstein took the Fifth rather than answer a question about the actual value of the claim of L.M. and Jane Doe against him. Id. 101. In his deposition, taken prior to the settlement of Edwards's clients claims against Epstein, Epstein took the Fifth rather than answer the question: "Is there any pending claim against you which you contend is fabricated?" Id. at 71. 102. In his deposition, Epstein took the Fifth rather than answer the question: "Did you ever have damaging evidence in your garbage?" Id. at 74. 103. In his deposition, Epstein took the Fifth rather than answer the question: "Did sexual assaults ever take place on a private airplane on which you were a passenger?" Id. at 88. 104. In his deposition, Epstein took the Fifth rather than answer the question: "Does a flight log kept for a private jet used by you contain the names of celebrities, dignitaries or international figures?" Id. at 89. 39 105. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever socialized with Donald Trump in the presence of females under the age of 18?" Id. at 89. 106. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever socialized with Alan Dershowitz in the presence of females under the age of 18." Id. at 90. 107. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever socialized with Mr. Mottola in the presence of females under the age of 18?" Id. at 91- 92. 108. In his deposition, Epstein took the Fifth rather than answer the question: "Did you ever socialize with David Copperfield in the presence of females under the age of 18?" Id. at 109. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever socialized with Mr. Richardson Governor of New Mexico and foimerly U.S. Representative and Ambassador to the United Nations in the presence of females under the age of 18." Id. at 94. 110. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever sexually abused children?" Id. at 95. 111. In his deposition, Epstein took the Fifth rather than answer the question: "Did you have staff members that assisted you in scheduling appointments with underage females; that is, females under the age of 18." Id. at 97-98. 112. In his deposition, Epstein took the Fifth rather than answer the question: "On how many occasions did you solicit prostitution." Id. at 102. 40 113. In his deposition, Epstein took the Fifth rather than answer the question: "How many minors have you procured for prostitution?" Id. at 104. 114. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever coerced, induced or enticed any minor to engage in any sexual act with you?" Id. at 107. 115. In his deposition, Epstein took the Fifth rather than answer the question: "How many times have you engaged in fondling underage females?" Id. at 108. 116. In his deposition, Epstein took the Fifth rather than answer the question: "How many times have you engaged in oral sex with females under the age of 18?" Id. at 110. 117. In his deposition, Epstein took the Fifth rather than answer the question: "Do you have a personal sexual preference for children?" Id. at 111-12. 118. In his deposition, Epstein took the Fifth rather than answer the question: "Your Complaint at page 27, paragraph 49, says that RRA and the litigation team took an emotionally driven set of facts involving alleged innocent, unsuspecting, underage females and a Palm Beach billionaire, and sought to turn it into a goldmine,' end of quote. Who is the Palm Beach billionaire referred to in that sentence?" Id. at 112-13. 119. In his deposition, Epstein took the Fifth rather than answer the question: "Who are the people who are authorized to make payment to your lawyers on your behalf?" Id. at 120. 120. In his deposition, Epstein took the Fifth rather than answer the question: "Is there anything in L.M.'s Complaint that was filed against you in September of 2008 which you contend to be false?" Id. at 128. 41 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on November 2010 a copy of the foregoing has been served via Fax and U.S. Mail to all those on the attached service list. By: Jack Scarola Searcy, Denney, Scarola, Barnhart Shipley 2139 Palm Beach Lakes Blvd West Palm Beach, FL 33409 (561) 686 10 (561 84-581 (fax) JAC AROLA Flo ar No.: 169440 42 SERVICE LIST Christopher E. Knight, Esq. Joseph L. Acketman, Esq. FOWLER WHITE BURNETT P.A. 901 Phillips Point West 777 South Flagler Drive West Palm Beach, FL 33401 Jack Alan Goldberger, Esq. Atterbury Goldberger et al. 250 Australian Avenue South Suite 1400 West Palm Beach, FL 33401 Marc S. Nurik, Esq. Law Offices of Marc S. Nurik One E. Broward Blvd., Suite 700 Fort Lauderdale, FL 33301 Gary M. Farmer, Jr. Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman, P.L. 425 N. Andrews Ave., Suite 2 Fort Lauderdale, FL 33301 43 |
Liquid Insight Trump s effect on MXN 22 September 2016 Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com Key takeaways We provide an empirical analysis of Donald Trump's potential effects on the Mexican peso Our analysis suggests the exchange rate is perhaps as much as 15 undervalued We remain neutral for now given US election risks are likely to remain high in the near term By Claudio Irigoyen and Ezequiel Aguirre Chart of the day: MXN may be as much as 15 undervalued Source: BofA Merrill Lynch Global Research, Bloomberg Trump s effect on MXN We provide an empirical analysis of Donald Trump s effects on the Mexican peso. Our analysis suggests the exchange rate is perhaps as much as 15 undervalued. In our view, buying the Mexican peso likely would prove a profitable strategy if Hillary Clinton wins. However, we remain neutral for now given US election risks are likely to remain high in the near term. A model of MXN weekly returns including Trump We estimate a model of MXN returns with standard financial fundamentals that also includes Donald Trump s RealClearPolitics polling average in the US presidential election. It is generally accepted now that Trump s chances in the US election have been a major driver of the Mexican peso (Chart 1). Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in FX markets and the financial resources to absorb any losses arising from applying these ideas or strategies. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 6 to 7. Analyst Certification on page 5. 11668923 Timestamp: 22 September 2016 12:30AM EDT Rates and Currencies Research Global Global Rates Currencies Research MLI (UK) Claudio Irigoyen LatAm FI FX Strategy Economist MLPF S 1 646 855 1734 claudio.irigoyen baml.com Ezequiel Aguirre LatAm FI FX Strategist MLPF S 1 646 855 9689 ezequiel.aguirre baml.com Adarsh Sinha FX Strategist Merrill Lynch (Hong Kong) 852 3508 7155 adarsh.sinha baml.com Yang Chen Rates Strategist Merrill Lynch (Hong Kong) 852 3508 8695 ychen8 baml.com See Team Page for Full List of Contributors Recent Liquid Insight Publications 21 Sep 2016 Eur FRA-OIS and 3s6s basis: tighter, despite wider credit spreads 20 Sep 2016 BoJ preview: BoJ to try, try again 19 Sep 2016 A cautiously hawkish Fed 16 Sep 2016 UK inflation-linked when the pass-through has passed through 15 Sep 2016 Getting unreal 14 Sep 2016 The real rate guide to FX 13 Sep 2016 Consumption Gumption 12 Sep 2016 UK: Better but not good 9 Sep 2016 The Fed's cacophony of sound 8 Sep 2016 EEMEA: The ECB buys EM too We estimate a regression of weekly returns on the MXN spot exchange rate on five variables: a basket of commodity currencies, US equities, the 10-year US bond yield, the two-year interest rate differential between MXN and USD swaps, and RealClearPolitics polling average for Donald Trump in the 2016 US presidential election. The estimated equation is R MXN b0 b1 R basket b2 R SP500 b3 dy 10 b4 (r MXN r USD ) b5 RCP e where R MXN is the MXN spot return, R basket is the commodity currency basket spot return, R SP500 is the SP500 index return, dy 10 is the 10-year US bond yield change, r MXN r USD is the two-year swap rate differential (lagged one period), RCP is RealClearPolitics polling average for Donald Trump, and e is an error term. The commodity currency basket consists of BRL, CLP, COP, CAD, NOK and AUD with equal weights. The full data sample has weekly frequency and runs from 6 20 2012 to 9 21 2016. The model without Trump yields an R-squared coefficient of 0.50. Including Trump s variable increases the coefficient to 0.63, a significant improvement (Chart 2). We use data only up to 1 27 2016 for parameter estimation of the financial variables. We use the full sample to estimate the parameter on Trump s variable due to its shorter history. Chart 1: The Trump factor on the Mexican peso Chart 2: Forecasting MXN returns with and without Trump 20 19.5 19 18.5 18 17.5 17 16.5 16 15.5 15 Aug15 Nov15 Feb16 May16 Aug16 48 46 44 42 40 38 36 34 32 30 20 19 18 17 16 15 14 13 12 2014 2015 2016 20 19 18 17 16 15 14 13 12 MXN Trump's polling average Model (without Trump) Model (with Trump) MXN Source: BofA Merrill Lynch Global Research, Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg A possible 15 negative shock on MXN According to the model that does not include Trump s polling average, we estimate that MXN should be trading at around 16.50, more than 15 stronger than current levels (spot 19.72). Chart 2 shows the possible magnitude of the Trump effect on the Mexican peso. The model including Trump s polling average appears to do a much better job at explaining the recent behavior of the Mexican peso. However, it still suggests that the currency has depreciated more than justified by Trump s increase in recent polls. Based on Trump s increase to 43.9 (RealClearPolitics polling average on 21 September) from 39 (RealClearPolitics polling average on 29 June), our model suggests the Mexican peso should be trading at around 18.50, still almost 7 stronger than current levels. This, however, does not necessarily mean that MXN has oversold. The almost 5 gain in Trump s polling average since June could have had an outsized effect on MXN if those gains took place in swing states, potentially leading to crucial Electoral College votes. Strategy: neutral MXN for now From a strategy standpoint, we recommend staying neutral the Mexican peso for now. We believe the Mexican peso would likely strengthen significantly if Hillary Clinton wins the US election. But there is still significant uncertainty. Net speculative long USD MXN positions are somewhat stretched, but could increase much more (Chart 3). 2 Liquid Insight 22 September 2016 The Bank of Mexico will meet on 29 September, and a 50bp rate hike is already priced in (Chart 4). A stronger hike, perhaps of 75bp, or a 50bp rate hike accompanied by a hawkish statement could lead to MXN strengthening in the very short run. Chart 3: Net speculative USD MXN position in CFTC Chart 4: Bank of Mexico expected to hike 8 6 4 2 0 -2 -4 -6 -8 2013 2014 2015 2016 20 19 18 17 16 15 14 13 12 300 250 200 150 100 50 0 2012 2013 2014 2015 2016 6 5 4 3 2 1 0 Net Dollar position Source: BofA Merrill Lynch Global Research, Bloomberg MXN Source: BofA Merrill Lynch Global Research, Bloomberg spread 1y TIIE ONR Notable Rates and FX Research Global Rates Currencies 2016 Year Ahead, 23 November 2015 USD MXN builds momentum, FX Quant Trader, 19 Sep 2016 Central banks still the only game in town, Global Rates and FX Weekly, 15 Sep 2016 Land of the rising bond yield, US Rates Weekly, 16 Sep 2016 Policy uncertainty, Liquid Cross Border Flows, 19 Sep 2016 Key trade ideas Top Rates and FX trades for 2016 For rationale and details, refer to Global Rates Currencies 2016 Year Ahead: The Great Divorce , 23 November, 2015 Rates: Buy US 30y TIPS, entry: 1.2 , target: 70bp, stop loss: 1.55 Closed at 101bp (3 Mar 2016): Short USD 5y5y vs EUR 5y5y, entry: 115 bp, target: 160 bp, stop-loss: 90 bp (3 Sep 2015) Long 100mn 6m5y ATMF UK vs 100.75mn US rates straddles, net take-in: 126K, target: 450K, stop: - 225K Sell 3y Fannie Mae debt vs Treasuries, entry: 6bp, stop: 2bp, target: 20bp Closed at 11bp - Long 12m Treasury bills vs OIS, entry: 1bp, target: -10bp, stop: 7bp FX: Closed at 6.5630 (26 May 2016): Buy USD CNH 6m forward outright, entry: 6.5260, stop: 6.40 Long a 12m USD CNH forward outright, entry: 6.7485, target 7.00, stop: 6.67, current: 6.7420 (26 May 2016) Closed at 0 - Buy EUR USD 3m 1.10 call with a 16 Dec 1.1050 window KO, cost: 0.55 EUR (spot: 1.0690) Buy 1y EUR USD 1.00, USD JPY 120 dual digital, cost: 7.0 USD (spot: 1.0690, 122.80) Liquid Insight 22 September 2016 3 Closed at 902 (10 Mar 2016): Buy AUD KRW, entry: 832, target: 920, stop: 859 (revised from 790) Closed at 38.25 (18 Apr 2016): Sell TRY JPY, entry: 43.40, target: 36.15, stop: 45.25 Closed at 8.27: Sell USD NOK spot 8.685, target: 8.27, stop-loss: 8.60 (revised from 9.00) New trades Rates: Mar17 FRA-OIS widener, entry: 6.25bp, target: 10bp, stop loss: 4bp (21 Sep 2016) Despite recent tightening, richness of bonds vs OIS, upcoming TLTRO corporate issuance point to renewed widening Existing open trades For a complete list of our open trade recommendations, as well as our trade recommendations closed over the last 12 months, please see: Global Rates and FX Weekly: Central banks still the only game in town 15 September 2016 Rates: Pay 5y5y forward 3s6s basis, entry: 11.3bp, target: 13.3bp, stop: 10.3bp (10 Aug 2016) Bank hedging flows on the back of sharp pickup in corp issuance suggests the widening of 3s6s basis is structural. It also hedges any aggressive ECB easing in Sep Buy 6m30y ATMF 25bp 50bp 75 bp payer ladders for a net premium of 950k on 100m notional (or 3.3 bp) (20 Jul 2016) 30y rates are at risk from the ECB tomorrow, especially if tweaks to the capital key are flagged already Buy 3-year 3.5 ZC RPI inflation caps, entry: 26.0c; current 37.5c (21 Oct 2015) Sterling vulnerability due to the UK's large current account deficit makes being long inflation volatility attractive. Pairing this trade with a long-standing recommendation to be short 30-year UK breakevens is an attractive way to finance it. Closed at 0 (22 Jul 2016): Buy 167 Aug RXU6 call and buy 162 put, cost 118 cents (16 Jun 2016) Closed at 55bp (12 Jul 2016): OATei 2018 2027 flattener; entry: 78.5bp, target: 40bp; stop-loss: 100bp (11 Mar 2016) FX: Short EURUSD 6m 1.0740 1.1500 risk reversal, cost: 0 (off 1.1077 spot)(6 Jul 2016) EUR downside risks are underpriced. We think the post-referendum risk rally is overdone and could be at risk. Potential shocks include Brexit uncertainty, turbulence in Italy's banking sector, and political paralysis in Spain. Closed 1.0840 (1 Jul 2016): Buy 3m EURCHF 1.08 1.03 put spread for 0.76 Eur (7.75 8.05 ag 10.45 vols off 1.0930 spot)(1 Apr 2016) 4 Liquid Insight 22 September 2016 EUR is underpricing Brexit and that shorting Euro was a cheaper way to express such a view via options. CHF tends to perform strongly when risks become more localized. Closed on 28 Aug 2016: Buy EUR USD 6m 1.00 1.20 strangle for 155 usd pips (off 1.1020 spot, DF two-way vols 12.1 12.3) (29 Feb 2016) Owning low delta EURUSD strangles may be an effective and cheap double hedge in the scenario that either the US enters a recession or the European debt crisis resurfaces. Options Risk Statement Potential Risk at Expiry Options Limited Duration Risk Unlike owning or shorting a stock, employing any listed options strategy is by definition governed by a finite duration. The most severe risks associated with general options trading are total loss of capital invested and delivery assignment risk, all of which can occur in a short period. Investor suitability The use of standardized options and other related derivatives instruments are considered unsuitable for many investors. Investors considering such strategies are encouraged to become familiar with the "Characteristics and Risks of Standardized Options" (an OCC authored white paper on options risks). U.S. investors should consult with a FINRA Registered Options Principal. For detailed information regarding the risks involved with investing in listed options: http: www.theocc.com about publications character-risks.jsp. Analyst Certification I, Adarsh Sinha, hereby certify that the views expressed in this research report about securities and issuers accurately reflect the research model applied in such analysis. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Liquid Insight 22 September 2016 5 Disclosures Important Disclosures BofA Merrill Lynch Research Personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking. The analyst(s) responsible for this report may also receive compensation based upon, among other factors, the overall profitability of the Bank s sales and trading businesses relating to the class of securities or financial instruments for which such analyst is responsible. BofA Merrill Lynch Global Credit Research analysts regularly interact with sales and trading desk personnel in connection with their research, including to ascertain pricing and liquidity in the fixed income markets. 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Liquid Insight 22 September 2016 7 Research Analysts US Ralph Axel Rates Strategist MLPF S 1 646 855 6226 ralph.axel baml.com Shyam S.Rajan Rates Strategist MLPF S 1 646 855 9808 shyam.rajan baml.com John Shin FX Strategist MLPF S 1 646 855 9342 joong.s.shin baml.com Ian Gordon FX Strategist MLPF S 1 646 855 8749 ian.gordon baml.com Vadim Iaralov FX Strategist MLPF S 1 646 855 8732 vadim.iaralov baml.com Europe Ralf Preusser, CFA Rates Strategist MLI (UK) 44 20 7995 7331 ralf.preusser baml.com Ruben Segura-Cayuela Europe Economist MLI (UK) 44 20 7995 2102 ruben.segura-cayuela baml.com Mark Capleton Rates Strategist MLI (UK) 44 20 7995 6118 mark.capleton baml.com Athanasios Vamvakidis FX Strategist MLI (UK) 44 20 7995 0790 athanasios.vamvakidis baml.com Kamal Sharma FX Strategist MLI (UK) 44 20 7996 4855 ksharma32 baml.com Myria Kyriacou FX Strategist MLI (UK) 44 20 7996 1728 myria.kyriacou baml.com Ruairi Hourihane Rates Strategist MLI (UK) 44 20 7995 9531 ruairi.hourihane baml.com Sebastien Cross Rates Strategist MLI (UK) 44 20 7996 7561 sebastien.cross baml.com Pac Rim Tony Morriss Rates Strategist Merrill Lynch (Australia) 61 2 9226 5023 tony.morriss baml.com Adarsh Sinha FX Strategist Merrill Lynch (Hong Kong) 852 3508 7155 adarsh.sinha baml.com Shuichi Ohsaki Rates Strategist Merrill Lynch (Japan) 81 3 6225 7747 shuichi.ohsaki baml.com Yang Chen Rates Strategist Merrill Lynch (Hong Kong) 852 3508 8695 ychen8 baml.com Shusuke Yamada, CFA FX Strategist Merrill Lynch (Japan) 81 3 6225 8515 shusuke.yamada baml.com Global Emerging Markets Claudio Irigoyen LatAm FI FX Strategy Economist MLPF S 1 646 855 1734 claudio.irigoyen baml.com David Hauner, CFA EEMEA Cross Asset Strategist MLI (UK) 44 20 7996 1241 david.hauner baml.com Claudio Piron Emerging Asia FI FX Strategist Merrill Lynch (Singapore) 65 6591 0401 claudio.piron baml.com Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in FX markets and the financial resources to absorb any losses arising from applying these ideas or strategies. 8 Liquid Insight 22 September 2016 |
OGE Form 278e (March 2014) U.S. Office of Government Ethics 5 C.F.R. art 2634 Form A roved: OMB No. (3209-0001) Janua 20, 2017 Executive Branch Personnel Public Financial Disclosure Report (OGE Form 278e) Filer's Information Last Name First Name MI Position Trump Donald J President of the United States of America UNITE D STATES OFF I CE O F GOVERNMENT ETHICS Preventi n g Co nflicts o f Interest in the Exec utive Branch Agency Other Federal Government Positions Held During the Preceding 12 Months: N A Name of Congressional Committee Considering Nomination (Nominees only): N A nts I have made in this rep011 are true, complete and correct to the best of my lmowledge: Date: as1s o m ormat10n contame m t 1s rep011, Signature: Date: I '-I Z.017 Signature: Date: U.S. Office of Government Ethics Ce11ification (if required): Date: Comments of Reviewing Officials: 001! l'Ofln 271 ( l u..:h 2014) Instructions for Part 1 Note This is a public form Do not Include account numbers street addresses or family member names See Instructions for required information Filer'sNnmc Donald J. TNmp Pm t 1: Filer's Positions Held Outside United Stntes Government IOrgnnlzntion Nnmc ICity Stntc I01 g1mlzntlon Ty11c ' 1 4 Shadow Tree Lane LLC New York, NY LLC 2 4 Shadow Tree Lane Member Coro New York, NY Corooralion 3 40 Wall Development Associates LLC New York, NY LLC 4 40 Wall Street Commercial LLC New York. NY LLC 5 40 Wall Street LLC New York, NY LLC 6 40 Wall Street Member Corp New York, NY Corooralion 7 3126 Corporation New York, NY Corporation B 401 Mezz Venture LLC New York, NY LLC 9 401 North Wabash Venture LLC New York, NY LLC 12 809 North Canon LLC New York, NY LLC 13 809 North Canon Member Corporation NewYork NY Corooratlon 14 81 Pine Nole Holder Inc NewYork NY Comoretlon 15 Aviation Payroll Company NewYork NY Comorallon 16 B Plaza Realty Corp. NewYork NY Corooralion 17 Bedford Hills Corp NewYork NY Corporation 18 Briar Hall Operations LLC New York, NY LLC 19 Briarcliff Properties, Inc. New York, NY Corporation 20 Caribusiness MRE LLC NewYork NY LLC 21 Caribusiness RE Coro. The NewYork NY Corporation 22 Chelsea Hall LLC New York NY LLC 23 Chicaao Unit Acauisillon LLC New York, NY LLC 24 China Trademark LLC New York, NY LLC 25 Coronet Hall Inc. NewYork NY Corporation 26 Develooment Member Inc. New York, NY Corporation 27 D 8 Pace Acauisilion LLC South Carolina LLC 28 0 8 Pace Acauisilion Member Coro New York, NY CorooraUon 29 DJT Aerospace LLC Atlantic Clly, NJ LLC 30 DJ Aerosoace (Bermuda) Limited Bermuda Foreion Corooratlon 31 DJT Entrepreneur Manaaina Member LLC (flkla DJT University Manaalna Member LLC) New York, NY LLC 32 DJT Entrepreneur Member LLC (f k a DJT University Member LLCl NewYork NY LLC 33 DJT Holdinos LLC New York, NY LLC 34 DJT Holdinos Manaoino Member LLC NewYork NY LLC 35 DJT Land Holdinos Member Corp NewYork NY Corporation 36 DJT Operations I LLC Palm Beach, Florida LLC 37 DJT Operations II LLC Palm Beach Florida LLC 38 DJT Operations CX LLC Waterburv. CT LLC 39 DSN Licensino LLC (fka Trump Marks Network LLCl NewYork NY LLC 40 DSN Licensino Member Coro Cfka Trump Marks Network Member Incl NewYork NY Corporation 41 DT APP Warrant Holdino LLC NewYork NY LLC 42 OT APP Warrant Holdino Manaoino Member Corp NawYork NY Corooratlon 43 DT Connect II LLC Palm Beach Florida LLC 44 DT Connect II Member Corp Palm Beach, Florida Corporation 45 OT Connect LLC Palm Beach Florida LLC 46 OT Connect Manaaino Member Coro Palm Beach Florida Corporation 47 DT Dubai Golf Manaoer LLC NewYork NY LLC 48 OT Dubai Golf Manaoer Member Coro NewYork NY Corooration I Position lleld President PresidenUDirector Chairman Member President President President PresidenUDirector PresldenUDirector President Member President President PresidenUDlreclor PresidenUDirector Secretarv PresidenUChairman Director President Director Presidenvrreasurer Secretarv Member Director Presidenvrreasurer Secretarv Member Director Chairman President Member Member President Member President DlrectorNice President PresidenUSecretarv Director Member President Chairman PresidenUDirector Member President PresldenUDlrector Member President Member President Member President Member President President Director Member President Member President Member President Member President Director Chairman President Member President Director Chairman President Member President Director Chairman President Member President Director Chairman President Member President Director ChairmanfPresident IPnge Number I 2 of 51 I From I To 09 26 12 1 19 2017 09 26 12 1 19 2017 4 11 95 8 11 03 1119 2017 08 27 09 1 19 2017 04 23 98 1 19 2017 04 29 98 1 19 2017 06 01 99 1 1912017 10 01 04 1 19 2017 5122102 10 1 04 1119 2017 12 13 06 1 19 2017 12 13 06 1 19 2017 06 30 99 1 19 2017 08 09 12 1 19 2017 07 14 81 11 10 2016 8 3 1995 4 16 96 1 19 2017 01 09 97 1 19 2017 1 17 1996 4 16 96 1 19 2017 03 13 13 1 19 2017 03 12 15 1 19 2017 11 22 95 1 19 2017 12 15 05 1 19 2017 06 17 08 1 19 2017 08 01 69 1 19 2017 10 2411996 11 4 96 1 19 2017 11112 14 1 19 2017 11107 14 1119 2017 06 02 10 1119 2017 03 09 94 1119 2017 10 25 04 1119 2017 10 25 04 1 19 2017 11 29 2010 12 2 2010 1 19 2017 12 02 10 1 19 2017 01 16 12 1 19 2017 07 15 10 1 19 2017 07 15 10 1 19 2017 09 12 12 1 19 2017 02 26 09 11 9 2016 1114 2009 2 26 09 1119 2016 03 02 12 1 19 2017 03 02 12 1119 2017 07131114 1119 2017 07 31114 1119 2017 02 27 12 10 26 2015 02 27112 10 22 2015 03 20 13 1 19 2017 03 20 13 1 19 2017 Gaps in numerical sequence are due to the removal of previously reported Items no longer reportable on this part. OO F. l'onnHHc (Mu.:1120 14) Instructions for Part 1 Note This is a public form Do not include account numbers st reet addresses or family member names See instructions for required Information Filer's Nnme Donald J. Trump Pnrt 1: Filer's Positions Held Outside United States Government IOrgnnizntlon Nnme ICily Stntc I Orgnnlzntlon Type I Position Hehl 49 DT Dubai II Golf Manaaer LLC NewYork NY LLC Member President 50 DT Dubai II Golf Manaaer Member Coro NewYork NY Cornoralion Director Chairman President 51 DT Home Marks lnlernalianal LLC NewYark NY LLC Member President 52 DT Home Marks lnlernalional Member Caro NewYark NY Corooralion Director Chairman President 53 DT India Venture LLC New Yark, NY LLC Member President 54 OT India Venture Manaoina Member Coro NewYork NY CornoraUon Director Chairman President 55 DT Marks Baku LLC NewYork NY LLC Member President 56 DT Marks Baku Managing Member Corp NewYark NY Cornorallon Director Chairman President 57 DT Marks Dubai LLC NewYork NY LLC Member President 58 DT Marks Dubai Member Corp NewYork NY Comoralion Director Chairman President 59 DT Marks Dubai II LLC NewYork NY LLC Member President 60 DT Marks Dubai II Member Coro NewYork NY Comoralion Director Chairman President 61 OT Marks Gurgaon LLC NewYork NY LLC Member President 62 OT Marks Gurgaon Menaalno Member Caro NewYork NY Cornoralion Director ChalrmanfPresident 63 OT Marks Jersey City LLC NewYork NY LLC Member President 64 DT Marks Jupiter LLC NewYork, NY LLC Member President 65 OT Marks Qatar LLC NewYork NY LLC Member President 66 OT Marks Qatar Member Com NewYork NY Corooralion Director Chairman President 67 DT Marks Products International LLC New York, NY LLC Member President 68 OT Marks Products International Member Corp New York, NY Corporalion Director Chairman President 69 DT Marks Pune LLC NewYork NY LLC Member President 70 DT Marks Puna Managing Member Carp New York, NY Corporation Director Chairman President 71 DT MARKS PUNE Ii LLC NewYork NY LLC Member President 72 DT Marks Pune II Managing Member Corp New York, NY Corporation Director Chairman President 73 DT Marks Rio LLC New York, NY LLC Member President 74 OT Marks Rio Member Corp NewYark NY Corporation Director Chairman President 75 OT Marks Vancouver LP NewYork, NY Partnership Partner President 76 OT Marks Vancouver Manaaer Corp NewYork NY Corporation Direclor ChairmantPresident 77 DT Marks Warli LLC NewYark. NY LLC Member President 78 OT Marks Worli Member Corp New Yark, NY Corporation Director Chairman President 79 DT Tower Gurgaan LLC New York, NY LLC Member President 80 OT Tower Guraaon Manaaina Member Corp New York, NY Corporation Director Chairman President 81 DTW Venture LLC New York, NY LLC Member 82 DTW Venture Manaaing Member Coro New York, NY Corporation Director President 83 East 61 SI Campany, L.P., The New York, NY Partnership Partner 84 EID Venture I LLC NewYark. NY LLC Member 85 EID Venture I Corporation NewYork, NY Corporation PresidenUDirector 86 Excel Venture I LLC St. Martin, French West lndi LLC PresidenUSecretarvffreasurer Member 87 Excel Venture I Corp. SI. Martin French West lndi Corporation Director Chairman President 88 Fifty Seven Manaaement Corp NewYark NY Corporation Director Chairman 89 Fifty Sevenlh Street Associates LLC NewYark NY LLC President 90 First Member, Inc. NewYark NY Corporation President 91 Flights, Inc. Formerly Trump Flights, Inc.) NewYark NY Corporation PresidenVfreasurer Director 92 Florida Properties Management LLC Palm Beach, Florida LLC Member 93 Fontainbleu Apartments LLC New York. NY LLC Member 94 Golf Produclions LLC New York, NY LLC Member Presidenl I Page Number I 3 of51 I From I To 10 30 14 1 19 2017 10130 14 1 19 2017 07 12 13 111912017 07 12113 1 19 2017 01 09 12 1 19 2017 01 09 12 1 19 2017 04 10 12 1 19 2017 04 10 12 1 19 2017 09 05 13 1 1912017 09105 13 1 1912017 10 30 14 11120 2015 10 30 14 11 20 2015 10 28 14 1 19 2017 10130 14 1 19 2017 10 30114 1 19 2017 08 29 14 1119 2017 10 30 14 1119 2017 10 30 14 1119 2017 09 13 13 1 19 2017 09 13 13 1 19 2017 01 09 12 1 19 2017 01 09 12 1 19 2017 06 18 14 1 19 2017 06 18 14 1 19 2017 03 09 12 1 19 2017 03 09 12 1 19 2017 01122 13 1119 2017 01122 13 1119 2017 05 21 13 1 19 2017 05 21 13 1 19 2017 03 09 15 1119 2017 03 09 15 1 19 2017 03 14 14 1 19 2017 03 14 14 1 19 2017 12 06 96 1 19 2017 05 01 13 1 19 2017 05 01113 1 19 2017 07 01113 1 19 2017 07 01113 1 19 2017 08 23 12 1 19 2017 11 30 95 1 19 2017 09 26 96 1 19 2017 07 01199 1 19 2017 12 17 01 1 19 2017 11 22 95 1 19 2017 06 16 09 1 19 2017 Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. OO F. l'nn1117Xt (Mald120J..I) Instructions for Part 1 Note This is a public form Do not Include account numbers street addresses or family member names See Instructions for required information Filer'sNnme Donald J. Trump Part I: Filer's Positions Held Outside United States Government ' IOrgnnizntion Nnmc ICity Stntc IOrgnnizntlou Ty(lc I Position Held 95 Golf Productions Member Coro. New York, NY Corporation PresldenUDirector Chairman 96 Golf Recreation Scotland Limited Turnberrv. Scotland Foreion Enlltv Director 97 Helicopter Air Services, Inc. New York, NY Corporation Presldenl 98 Hiahlander Hall, Inc. New York, NY Corporation DirectorNice President 107 Indian Hills Holdinos LLC Ilk a Indian Hills Develooment LLC New York, NY LLC Member President 108 Juciter Golf Club LLC !Trump National Golf Club - Jupiter) NewYork NY LLC President 109 Juciter Golf Club Manaoina Member Cone New York, NY Corporation PresldenUDirector Chairman 110 Lamlnaton Famllv Holdinos LLC NewYork NY LLC PresldenUMember 111 Lawrence Towers Apartments LLC NewYork NY LLC Member 112 LFB Acaulsilion LLC NewYork NY LLC President 113 LFB Acauisition Member Coro NewYork NY Corooration PresidenUDirector Chairman 114 Mar A Laao Club Inc Palm Beach, Florida Corporation President Treasurer Secretarv 115 Mar A Laao Club L.L.C. NewYork NY LLC Member President 116 Midland Associates New York, NY Partnership Partner 117 Miss Universe L.P. LL.LP. fFormerlv Trumo Paoeants, L.P.l NewYork NY Partnership Partner 118 Nitto Wo d Co., Limited Turnberrv. Scotland Foreian Enlltv Director 119 Ocean Develooment Member Inc. New York, NY Coro oration PresidenUDireclor 120 Ocean Develooment Services LLC NewYork NY LLC Member 121 OPO Hotel Manaaer LLC New York, NY LLC President 122 OPO Hotel Manaaer Member Coro NewYork NY Corooralion Director Chairman President 123 OWO Develooer LLC NewYork NY LLC PresldenUMember 124 Panama Ocean Club Manaaement LLC NewYork NY LLC Member President 125 Panama Ocean Club Menaoement Member Coro NewYork NY Corooration PresidenUChairman Director 126 Paramount RPV Holdinas LLC NewYork NY LLC Member President 127 Paramount RPV Holdinas Manaaer Coro NewYork NY Corooration PresldenUDirector Chairman 128 Pare Consullina. Inc. New York, NY Corooration PresidenUDirector Secrelarv 129 Park Briar Associates NewYork NY Partnershio Partner 130 Pine Hill Develocment Manaaino Member Coro NewYork NY Corooralion Director Chairman President 131 Pine Hill Develooment LLC New York, NY LLC President 132 Plaza Consullino Corp New York, NY Corooration President 133 Poker Venture LLC NewYork NY LLC Member President 134 Poker Venture Manaaina Member Coro NewYork NY Concorallon Dlrector PresidenUChalrman 135 Rea Tru Eauilies LTD. NewYork NY Carooratlon Dlrector PresidenUSecretarvffreasurer 136 RPV Develooment LLC NewYork NY LLC Member President 137 Scotland Acauisitions LLC NewYork NY LLC Member President 138 Sentient Jets LLC !Now Known As Trumn Jets LLC) NewYork NY LLC Member 139 Sentient Jets Member Coro NewYork NY Corooratlon PresidenUDirector 140 Seven Sorinas LLC NewYork NY LLC President 142 Shore Haven APt 1 ,Inc New York, NY Corooralion DireclorNice President 143 Shore Haven Shooolng Center LLC NewYork NY LLC Member 144 SLC Turnberrv Limited rTrumo Turnberrvl Turnberrv. Scotland Foreian Entilv Director Chairman 147 Sussex Hall Inc. New York, NY Corooralion DirectorNice President 148 Restaurant 40 LLC NewYork NY LLC Member President 149 Restaurant 40 Member Coro NewYork NY Corooration PresidenUDirector Chairmanffreasurer Secrelarv 150 T International Realtv LLC Cdba Trump International Realtvl NewYork NY LLC Member President 151 Tea Air Inc. New York, NY Corooratlon PresidenUDirector IPngc Number I 4 of 51 I From I To 06 16109 1119 2017 04 18 14 1 1912017 08116 88 1 1912017 08101 69 1011512015 215 1998 8 2000 1 1912017 09 28 12 1 1912017 09 28 12 1 1912017 1m2011 11612011 1 19 2017 11 22 95 111912017 08129102 111912017 11109111 111912017 04 16196 111912017 01114110 111912017 06115168 111912017 October 1996 1119 2017 06111114 1 19 2017 03108107 111912017 03108 07 1012812015 06112 13 111912017 06112113 111912017 11105114 111912017 08105110 1 19 2017 08105110 1119 2017 111712011 113113 10114 2016 01103113 10114 2016 06 01199 111912017 06 24169 1 1912017 4119114 4115114 4 15114 111912017 04 15114 111912017 10 22186 111912017 03119 12 111912017 03119 12 111912017 817190 8126177 111912017 08106102 111912017 03 21 06 111912017 09 25 08 111912016 09 25 08 111912016 Dec. 1995 111912017 08 01 69 111912017 11122 95 111912017 06111114 111912017 08101169 1 19 2017 1212112011 12124 11 1119 2016 12124111 11 9 2016 09112112 1 19 2017 08124110 111912017 Gaps in numerical sequence are due to the removal of prevlously reported Items no longer reportable on this part. OCiE l'oon 278 ( brd1201-I) Instructions for Part 1 Note This is a public form Do not Include account numbers street addresses or fam!ly member names See instructions for requ ired information Filer's Name Donald J . Trump Pnrt 1: Filer's Positions Held Outside United Stntes Government I Orgnnizntlon Nnmc ICily Slntc IOrgnnizntion Type ' 153 THC Baku Hotel Manaaer Services LLC New York, NY LLC 154 THC Baku Hotel Manaoer Services Member Corp, New York, NY Corporation 155 THC Baku Services LLC New York, NY LLC 156 THC Baku Services Member Coro New York, NY Corporation 157 THC Barra Hotelaria L TDA. Brazil Forekm Entilv 158 THC Central Reservations LLC NewYork NY LLC 159 THC Central Reservalions Member Corp NewYork NY Corooration 160 THC China Development LLC (fka Trump China Development LLCl . New York, NY LLC 162 THC Development Brazil Manaalna Member Corp NewYork NY Corporation 163 THC Development Brazil LLC NewYork NY LLC 164 THC Dubai II Hotel Manaaer LLC New York, NY LLC 165 THC Dubai II Hotel Manaaer Member Corp New York, NY Corporation 166 THC Hotel Development LLC NewYork NY LLC 167 THC IMEA Development LLC NewYork NY LLC 168 THC Miami Restaurant Hosoitalltv Member Corp NewYork NY Corporation 169 THC Miami Restaurant Hosoltailtv LLC NewYork NY LLC 170 THC Rio Manaalna Member Corp NewYork NY Corporation 171 THC Rio Manaaer LLC New York, NY LLC 172 THC Sales Marketina LLC NewYork NY LLC 173 THC Sales Marketina Member Coro NewYork NY Carooratian 174 THC China Technical Services ManaoerCoro NewYork NY Corooratian 175 THC China Technical Services LLC NewYork NY LLC 176 THC Qatar Hotel Manaaer LLC NewYork NY LLC 177 THC Qatar Hotel Manaaer Member Corp NewYork NY Carooratian 178 THC Services Shenzhen LLC NewYork NY LLC 179 THC Services Shenzhen Member Corp New York NY Caroaratlan 180 THC Shenzhen Hotel Manaaer LLC NewYork NY LLC 181 THC Shenzhen Hotel Manaoer Member Coro NewYork NY Coroaration 182 THC Vancouver Manaaement Caro NewYork NY Corooratlon 183 THC Vancouver Pavroll ULC British Columbia (Canada) Coroaration 184 THC Venture I LLC NewYork NY LLC 185 THC Venture II LLC New York, NY LLC 186 THC Venture Ill LLC - NIKIA TITT Venture LLC New York, NY LLC 187 THC Venture I Manaoing Member Corp. New York NY Comaratlon 188 THC Venture II Manaaino Member Carp. New York, NY Coroaratian 189 THC Venture Ill Member Coro - NIKIA TTTT Venture Member Coro New York, NY Coroaratian 190 The Donald J. Trump Foundation Inc. New York, NY Non orafit 191 The Trumo Carooratlon NewYork NY Coroaration 192 The Trumo Follies Member Inc. NewYork NY Coroaration 193 The Trumo Eaultable Fifth Avenue Companv New York NY Partnershio 194 TIGL Common Area Manaaement Corn NewYork NY Coroaratian 195 TIGL Common Area Manaaement Haldinas LLC NewYork, NY LLC 196 TIGL Ireland Enterorises Limited fTrumo International Golf Links - Daanbeal Doanbea, Ireland Foreian Entitv 197 TIGL Ireland Manaaement Limited Daanbea. Ireland Foreian Entitv 198 TIHC Reservations LLC NewYork, NY LLC 199 TIHH Member Coro New York, NY Caroaration I Position Held PresidenUMember Director Chairman President Member President Director Chairman President Member Member President Chairman Director President Presldant Chairman Director President Member President Member President Chairman Director President Member President President Chairman Director President Member President Chairman Director President Member President Member President Chairman Director President Chairman Director President Member President Member President Chairman Director President Member President Chairman Director President Member President Chairman Dlrector President Chairman Director President Director President Member President Member President PresidenU Chairman Director President Chairman Director President Chairman Director President Director Director PresidenUChairman Chairman Director President Partner PresidenVDirectar Member President Director President PresidenUDirector Member President President Director IPnge Number I 5 of 51 I From I To 12 19 14 1 19 2017 12 19 14 1 19 2017 12 10 14 1 19 2017 12 10 14 1119 2017 04 15 14 1119 2017 09 16 13 1119 2017 09 16 13 1 19 2017 02 20 08 1 19 2017 05 15 13 1 19 2017 05 15 13 1119 2017 10 30 14 11120 2015 10 30 14 11120 2015 10 11 12 1119 2017 01 16 12 1119 2017 02 01 13 1 19 2017 02 01113 1 19 2017 04 11113 1 19 2017 04 11 13 1 19 2017 09 17 13 1 19 2017 09 17 13 1 19 2017 05 16 14 1 19 2017 05 16 14 1 19 2017 10 30 14 1 19 2017 10 30 14 10 18 2016 11 25 14 1 19 2017 11 25 14 1119 2017 11125114 1 19 2017 11 25 14 1 19 2017 01123 13 1 19 2017 02 20 15 1 19 2017 03 14 14 1 19 2017 03114 14 1119 2017 10 27 14 1 19 2017 03 14 14 1 19 2017 03 14 14 1 19 2017 10 27 14 1 19 2017 02 18 87 1 19 2017 07 30 80 1119 2017 12 13 10 1 19 2017 01 30 80 1119 2017 02 21114 1 19 2017 02 21 14 12 30 2015 02 24 14 1119 2017 02 24 14 1 19 2017 08 09 10 1 19 2017 09 10 09 1 19 2017 Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Of.JI:: Form 27 c ( foKh 20 .J) Instructions for Part 1 Note This is a public form Do not Include account numbers street addresses, or famlly member names. See Instructions for required Information. Filer's Name Donald J. Trump Pnrt I: Filer's Positions Held Outside United States Government IOrgnnlzn11on Nnmc IClty Stnte IOl'gnnlznllon Ty 11c 200 TIHH Member LLC NewYork NY LLC 201 TIHM Member Coro New York, NY Corooration 202 TIHT Chicaao Member Acaulsltion LLC New York, NY LLC 203 TIHT Commercial LLC New York, NY LLC 204 TIHT Holdina Comoanv LLC New York, NY LLC 205 TIHT Member LLC New York, NY LLC 206 Tiooerarv Realtv Coro. NewYork NY Corooralion 207 TMG Member LLC New York, NY LLC 208 TNGC Charlotte LLC New York, NY LLC 209 TNGC Chartotte Manaaer Coro New York, NY Corooralion 210 TNGC Dutchess Countv LLC ffka Trumo Marks Classis Cars LLC New York, NY LLC 211 TNGC Dutchess Countv Member Coro (fka Trumo Marks Classic Cars Member Coro) New York, NY Corooralion 212 TNGC Juoiter Manaaement LLC New York. NY LLC 213 TNGC Juoller Manaolna Member Coro New York, NY Corooralion 214 TNGC Pine Hill LLC lfka Crest Court LLCl fTrumo National Golf Club - Philadelohial New York, NY LLC 215 TNGC Pine Hill Member Coro. ffka Crest Court Member Coro NewYork NY Coroorallon 216 Toronto Develooment LLC New York, NY LLC 217 TPCFD LLC NewYork NY LLC 218 TP CFO Manaoer Coro. NewYork NY Corooretion 219 Travel Enterorises Manaoement Inc lFormer1v Tovs at Trumo. Inc. NewYork NY Corooretion 220 Trumo 106 CPS LLC NewYork NY LLC 223 Trumo 845 LP LLC NewYork NY LLC 224 Trumo 845 UN GP LLC New York NY LLC 225 Trumo 845 UN MGR Coro NewYork NY Corooratlon 226 Trumo 845 UN MGR LLC fF K A 845 UN LLC NewYork NY LLC 227 Trumo AC Casino Marks LLC NewYork NY LLC 228 Trumo AC Casino Marks Member Coro NewYoik NY Coroorallon 229 Trumo Acaulsition Coro. NewYork NY Corooration 230 Trumo Acouisition, LLC NewYork NY LLC 231 Truma Books LLC NewYork NY LLC 232 Trumo Books Manaaer Coro NewYork NY Corooratlon 233 Trumo Brazil LLC NewYork NY LLC 234 Truma Brtarcllff Manor Develooment LLC lformerlv Briar Hail Develooment LLC NewYork NY LLC 235 Trumo Canadian Services Inc NewYork NY Coroorallon 236 Trumo Canouan Estele LLC NewYork NY LLC 237 Trump Canouan Estate Member Coro New York, NY Corooration 238 Truma Caribbean LLC New York, NY LLC 239 Trumo Carousel LLC New Yark, NY LLC 240 Trump Carousel Member Coro New York, NY Corooralion 241 Ace Entertainment Holdinas Inc lflkla Trumo Casinos Inc. Former1v Trumo Tai Mahal Inc.) Allanlic Citv, NJ Coro oration 242 Trump Cenlral Park West Coro New York, NY Corooralion 243 Trumo Chicaao Commercial Member Coro New York, NY Corooralion 244 Trumo Chicano Commercial Manaoer LLC NewYork NY LLC 245 Trumo Chicaoo Develooment LLC New York, NY LLC 246 Trumo Chlcaao Hotel Member Coro New York, NY Corooration 247 Trumo Chicaoo Hotel Manaoer LLC NewYork NY LLC I Position Hehl Member President PresidenVDlrector President Member President Member President Member President PresldenVTreasurer Director Member President PresldenUChalrman Dlrector President PresidenVChairman Director President PresldenVChairman Director President President Chairman Director Member President Member President President Chairman Director PresidenUCEO Member President Member President Member PresidenVTreasurer President PresidenVTreasurer Member PresidenVMember President Chairman Director President Chairman Director Member President Member President PresldenUChalrmanlDlreclor PresidenVMember President PresidenVSecreterv President Member Pres denVChairman Dlrector Member PresidenVMember PresidenVChairman Direclor ChairmanfTreasurer President President Chairman Director PresidenVMember PresidenUMember President Chairman Director PresidenVMember IPnge Number I 6 otsl I From I To 09 10 09 1 19 2017 06 13 06 1 19 2017 06 03 04 1 19 2017 12 30 98 1119 2017 01 18 05 1 19 2017 07 20 06 1119 2017 11 13 75 1119 2017 01 15 99 1 19 2017 10 20 11 1 19 2017 10 20 11 1 19 2017 11 17 09 1 19 2017 11 17 09 1119 2017 06 26 14 1119 2017 06 26 14 1 19 2017 11 17 09 1 19 2017 11 17 09 1 19 2017 06 28 01 1 19 2017 11128 12 10 18 2016 11128 12 10 18 2016 03 24 86 1 19 2017 03 28 97 1 19 2017 09 19 03 1 19 2017 06 20 97 1 19 2017 10 14 98 1 19 2017 05 14 97 1119 2017 08 03 10 1119 2017 08 03 10 1 19 2017 02 06 08 1 19 2017 02 06 08 1 19 2017 10 03 11 1 19 2017 10 03 11 1 19 2017 09 08 03 1 19 2017 03 04 96 1 19 2017 March-03 1 19 2017 12 19 07 1 19 2017 12 19 07 1 19 2017 08 27 01 1119 2017 02 18 10 1119 2017 02 18 10 1119 2017 08 03 88 1119 2017 Seotember-94 1 19 2017 07 08 10 1 19 2017 06 28 10 1 19 2017 12 26 01 1 19 2017 07 08 10 1 19 2017 06 28 10 1 19 2017 Gaps in numerical sequence are due to the removal of previously reported Items no longer reportable on this part. OOF.Ft1 1111l7Rc ( l rd12014) Instructions for Part 1 Note This is a public form Do not include account numbers street addresses or family member names. See instructions for requi red lnformation Filer's Name Donald J. Trump Part l : Filer's Positions Held Outside United States Government N IOrgnniwlion Nnmc ICity Stntc IOrgnniznlion Type 1 Position Held IPnge Number I 7 of 51 I From I To 248 Trumo Chicaoo Manaoino Member LLC New York, NY LLC 249 Trump Chicago Member LLC New York, NY LLC 250 Trump Chicaoo Residential Member Coro New York, NY Corooration 251 Trumo Chicago Residential Manaaer LLC New York, NY LLC 252 Trump Chicago Retail LLC New York, NY LLC 253 Trump Chicago Retail Manaaer LLC NewYork NY LLC 254 Trump Chicago Retail Member Corp NewYork NY Coroorallon 255 Trump Classic Cars LLC NewYork NY LLC 256 Trump Classfc Cars Member Corp NewYork NY Corooration 257 Trump Commercial Chicago LLC New York, NY LLC 260 Trump CPS Corp NewYork NY Coroorallon 261 Trump CPS LLC New York. NY LLC 262 Trump Delmonico LLC NewYork, NY LLC 263 Trump Development Services LLC New York, NY LLC 264 Trump Development Services Member Corp. New York, NY Corooratlon 265 Trump Drinks Israel Holdings LLC New York, NY LLC 266 Trump Drinks Israel Holdings Member Corp New York, NY Corooration 267 Trump Drinks Israel LLC NewYork NY LLC 268 Trump Drinks Israel Member Corp New York. NY Corporation 269 Trump Education ULC Nova Scotia (Canada) Corporation 270 Trump Empire State Inc. NewYork NY Corporation 271 Trump Endeavor 12 LLC (Trump National Doral) NewYork NY LLC 272 Trump Endeavor 12 Manager Corp NewYork NY Corporation 273 Trump EU Marks LLC NewYork NY LLC 274 Trump EU Marks Member Corp NewYork NY Corporation 275 The Trump Entrepreneur Initiative LLC (f k a Trump University CA LLC) New York, NY LLC 276 Trump Ferrv Point LLC NewYork NY LLC 277 Trump Ferrv Point Member Corp NewYork NY Corporation 278 Trump Florida Manaoement LLC New York, NY LLC 279 Trump Florida Manao:er Corp. NewYork NY Corporation 280 The Trump Follies LLC New York, NY LLC 283 Trump Golf Acouisilion LLC New York, NY LLC 284 Trump Golf Coco Beach LLC NewYork NY LLC 285 Trump Golf Coco Beach Member Corp NewYork NY Corporation 286 Trump Golf Manaoement LLC New York, NY LLC 287 Trump Home Marks LLC New York, NY LLC 288 Trump Home Marks Member Corp NewYork NY Corporation 289 Trump Ice LLC New York, NY LLC 290 Trump Ice, Inc. New York, NY Corporation 293 Trump International Development LLC New York, NY LLC 294 Trump International Development Member Corp New York, NY Corporation 295 Trump International Golf Club LC (Trump International Golf Club - Florida) Palm Beach, Florida LLC 296 Trump International Golf Club Scotland Limited Aberdeen, Scotland Foreion Entitv 297 Trump International Golf Club, Inc. Palm Beach, Florida Corporation 298 Trump International Holel and Tower Condominium New York, NY Condominium Association 299 Trump lnternalional Holel Hawaii LLC New York, NY LLC President President PresidenUChalrman Director PresidenVMember President PresldenVMember PresidenVChairman Director PresldenVMember PresidenVChairman Director President Director Member President Member PresidenVMember PresidenVDirector Member President PresldenVDlrector Chairman Member President PresldenVDlrector Chalrman Chairman Director Presldent!Treasurer Director President PresidenVDireclor Chairman Member PresldenUSecretarv!Treasurer PresidenVDirector Chalrman Member PresldenVMember PresidenVDirector Chairman Member Direclor President Member President Member President Member President Director President Member President Member President PresidenVDirector PresidenVMember Director President Member President PresidenVDfrec!or Chairman Member President Director Chairman PresidenVDirector Secretarv!Treasurer President President 10 01 04 1 19 2017 October-04 1 19 2017 07 08 10 1 19 2017 06 28 10 1 19 2017 10 16 12 1 19 2017 10 23 12 1 19 2017 10 23 12 1 19 2017 06 24 10 10 17 2016 06 24 10 10 17 2016 08 29 07 1 19 2017 11 06 96 1 19 2017 1116 1996 11 16 06 1 19 2017 11 21 01 1 19 2017 09 28 09 1 19 2017 09 28 09 1 19 2017 05 25 11 10 26 2015 05 25 11 10 22 2015 05 25 11 1 19 2017 05 25 11 1 19 2017 05 28 09 1 19 2017 04 18 94 1 19 2017 10 06 11 1 19 2017 10 06 11 1119 2017 08 04 11 1119 2017 08 04 11 1119 2017 05 14 09 1 19 2017 06 04 10 1 19 2017 06 04 10 1 19 2017 06 13 05 1 19 2017 06 10 05 1 19 2017 12 14 06 1 19 2017 04 23 10 1 19 2017 12 11 07 1 19 2017 12 11 07 1 19 2017 01 28 05 1 19 2017 11119 09 1 19 2017 11 19 09 1 19 2017 03 25 04 1119 2017 03 03 99 1 19 2017 11 29 10 1119 2017 11 29 10 1 19 2017 5 3 1997 11 1 13 1 1912017 1 24 06 3 13 06 1 1912017 12 09 96 1 19 2017 Seotember-98 1 19 2017 09 10 09 1 19 2017 Gaps in numerical sequence are due to the removal of prevlously reported items no longer reportable on this part. OO"form17lk( la1cl121ll ) Instructions for Part 1 Note This Is a publlc form Do not include account numbers street addresses or family member names See Instructions for required information. Filer's Name Donald J. Trump Pm t 1: Filer's Positions Held Outside United Stntcs Government I Orgnnization Name lcity Stnte IOrgnnizntion Type I Po!ition Held 300 Trumo International Hotels Manaaement LLC NewYork NY LLC Presidenl Member 301 Trumo International Manaaement Coro New York, NY Corooratlon PresidenUDlrector 304 Trumo Korean Proiects LLC NewYork NY LLC Member 305 Trumo Las Olas LLC NewYork NY LLC Member 306 Trumo Las Olas Member Coro NewYork NY Corooralion Director President 307 Trumo Las Veoas Coro. Las Veaas, NV Corooration Director President 308 Trumo Las Veaas Develooment LLC Las Veaas NV LLC Presidenl Member 309 Trumo Las Veaas Manaaina Member LLC LasVeaas NV LLC PresidenVMember 312 Trumo Las Veaas Member LLC Las Veaas NV LLC Presidenl Member 314 Trumo Las Veaas Sales Marketina Inc Las Veaas, NV Corooration President 316 Trumo Lauderdale Develooment 2 LLC NewYork NY LLC Member 317 Trumo Lauderdale Develooment LLC New York, NY LLC President Member 318 Trumo Manaoement Inc. NewYork NY Corooration Director VP 319 Trumo Markelina LLC NewYork NY LLC Member President 320 Trumo Marks Asia Coro NewYork NY Corooration Presidenl Chairman Dlrector 321 Trumo Marks Asia LLC NewYork NY LLC President 322 Trumo Marks Atlanta LLC NewYark NY LLC Member President 323 Trumo Marks Allanla Member Coro NewYork NY Corooratlon PresidenUDlrector Chalrman 324 Trumo Marks Saia Coro. NewYork NY Corooralion Presldenl Dlrector 325 Trumo Marks Baia LLC NewYork NY LLC Member President 326 Trumo Marks Batumi LLC NewYork NY LLC Member President 327 Trumo Marks Batumi Member Coro NewYork NY Corooralion Presidenl Dlrector Chairrnan 328 Trumo Marks Beveraaes Coro NewYorl NY Corooralion PresidenUDirector Chalrman 329 Trumo Marks Beveraaes LLC New York, NY LLC Member President 330 Trumo Marks Canouan Coro New York, NY Corooralion Presidenl Director Chairman 331 Trumo Marks Canouan LLC NewYork, NY LLC Member President 332 Trumo Marks Chlcaao LLC NewYork NY LLC Member President 333 Trumo Marks Chlcaao Member Coro New York, NY Corooration Presidenl Director Chairman 336 Trumo Marks Dubai Coro NewYork, NY Corooralion Presidenl Director Chairman 337 Trumo Marks Dubai LLC New York, NY LLC Presidenl Member 338 Trumo Marks Eavot Coro NewYork NY Corooralion Presidenl Dlrector Chairman 339 Trumo Marks Eavot LLC NewYork NY LLC PresldenVMember 340 Trump Marks Fine Foods LLC NewYork NY LLC Presidenl Member 341 Trump Marks Fine Foods Member Corp New York, NY Corporation Presidenl Director Chairman 342 Trump Marks Ft. Lauderdale LLC NewYork NY LLC Presldenl Member 343 Trumo Marks Ft. Lauderdale Member Coro New York, NY Corporation Presldenl Director Chalrman 346 Trumo Marks GP Coro New York, NY Corooral!on Presldenl Director Chairman 347 Trumo Marks Holding LP IFKA Trumo Marks LP NewYork NY Partnershlo Partner 348 Trumo Marks Hollvwood Coro NewYork NY Corooralion Director Chairmen President 349 Trumo Marks Hollvwood LLC NewYork NY LLC Presidenl Member 350 Trump Marks Istanbul II Coro. NewYork NY Corooration Director Chairman President 351 Trump Marks Istanbul II LLC NewYork NY LLC PresidenUMember 352 Trump Marks Jersey City Corp. New York, NY Corporation Director President 353 Trump Marks Jersey City LLC NewYork, NY LLC PresidenUMember 354 Trumo Marks Las Veoas Coro New York, NY Corooration Dlrector President 355 Trumo Marks Las Vegas LLC NewYork NY LLC PresidenUMember IPnge Number I 8 of 51 I From I To 06 13 06 1 19 2017 07 02 96 1 19 2017 05 04 99 1 19 2017 06 10 05 1119 2017 06 10 05 1 19 2017 12 04 09 1119 2017 10 10 02 1 19 2017 10 10 02 1 19 2017 10 01 02 1 19 2017 10 08 04 1 19 2017 09 08 04 1119 2017 1 12 04 9 22 2003 1119 2017 04 22 69 1119 2017 02 10 11 1119 2017 03 03 08 1 19 2017 2129 200811 14 11 2 29108 1 19 2017 05 01108 1 19 2017 05 01 08 1 19 2017 06 13 07 10 22 2015 06 13 07 10 26 2015 3 3 11 3 9 11 1119 2017 03 09 11 1119 2017 09 25107 10 22 2015 09 25 07 10 26 2015 05 17 07 1119 2017 05117107 1 19 2017 04 14 10 1 19 2017 04 14 10 1 19 2017 06 13 07 1 19 2017 06 13 07 1 19 2017 09 17 07 1 19 2017 09 17 07 1 19 2017 09 11 09 1 19 2017 09 11 09 1 19 2017 11 06 07 1119 2017 11106 07 1 19 2017 07 12 05 1119 2017 05 25105 1 19 2017 04 10 07 1 19 2017 04 09107 1119 2017 03 19 08 1 19 2017 03 18 08 1 19 2017 06127107 111912017 06122107 1 19 2017 09 10 07 1 1912017 09 10 07 1 19 2017 Gaps In numerical sequence are due to the removal of previously reported Items no longer reportable on this part. OOE f onn 171 (Mmh 1014) Instructions for Part 1 Note This Is a public form Do not Include account numbers street addresses or family member names See Instructions for required information. FiJe(sNnme Donald J . Trump Pna t 1: Filel''s Positions Held Outside United States Government IOrgnnlzalion Nnme ICily Stntc IOrgnnlznllon Type I Position Held 356 Trump Marks LLC NewYork NY LLC President 357 Trumo Marks Maaazine Coro New York, NY Corooratton Director President 358 Trumo Marks Magazine LLC New York, NY LLC PresldenUMember 359 Trumo Marks Mattress LLC New York, NY LLC Presidenl Member 360 Trump Marks Mattress Member Coro. New York, NY Corooration Director Chairman President 361 Trump Marks Menswear LLC NewYork NY LLC PresidenUMember 362 Trump Marks Menswear Member Corp NewYork NY Corooralion Director President 363 Trump Marks Mortgage Corp. NewYork NY Corooralion PresldenVDlreclor 364 Trump Marks Mtg LLC New York, NY LLC PresidenUMember 365 Trumo Marks Mumbai LLC NewYork NY LLC PresidenUMember 366 Trumo Marks Mumbai Member Coro New York, NY Corporation PresidenUD!rector Chalrman 369 Trumo Marks New Rochelle Coro. New York, NY Corporation Director President 370 Trumo Marks New Rochelle LLC New York, NY LLC PresidenVMember 371 Trumo Marks Palm Beach Coro. NewYork NY Corooralion Director President 372 Trumo Marks Palm Beach LLC NewYork NY LLC PresidenVMember 373 Trump Marks Panama Coro New York, NY Corooralion Director President 374 Trump Marks Panama LLC New York, NY LLC PresidenUMember 375 Trump Marks Philadelphia Coro NewYork NY Corooretion Director President 376 Trumo Marks Philadelohia LLC NewYork NY LLC PresidenUMember 377 Trumo Marks Philiooines LLC NewYork NY LLC PresidenUMember 378 Trumo Marks Philiooines Coro NewYork NY Corporation Director President 379 Trumo Marks Products LLC NewYork NY LLC PresidenVMember 380 Trumo Marks Products Member Coro New York, NY Corooration PresidenVDirector Chairman 381 Trump Marks Puerto Rico I LLC NewYork NY LLC PresidenUMember 382 Trump Marks Puerto Rico I Member Coro NewYork NY Corooralion Director President 383 Trump Marks Puerto Rico II LLC New York, NY LLC PresidenUMember 384 Trumo Marks Puerto Rico 11 Member Coro New York, NY Corooralion PresidenVChairmanfDirector 385 Trumo Marks Punta def Este LLC NewYork NY LLC PresidenVMember 386 Trumo Marks Punta del Este Manaoer Coro NewYork NY Corooration PresldenVDirector Chalrman 387 The Donald J. Trumo Comoanv LLC NewYork NY LLC Manaaer 388 The Trumo Marks Real Estate Coro NewYork NY Corooralion Chairman Director President 389 Trumo Marks Real Estate LLC NewYork NY LLC PresidenUMember 390 Trump Marks SOHO License Coro NewYork NY Coroorallon PresldenUChairman Dlreclor 391 Trumo Marks SOHO LLC NewYork NY LLC PresidenUMember 394 Trumo Marks Stamford Coro New York NY Corooratlon Director President 395 Trump Marks Stamford LLC NewYork NY LLC PresidenUMember 396 Trumo Marks Sunnv Isles I LLC NewYork NY LLC PresidenUMember 397 Trump Marks Sunnv Isles I Member Coro. NewYork NY Coroorellon Director President 398 Trump Marks Sunnv Isles II LLC NewYork NY LLC PresidenUMember 399 Trump Marks Sunnv Isles II Member Coro. NewYork NY Coroorelion Director President 400 Trump Marks Tamoa Com New York, NY Corooralion Director President 401 Trumo Marks Tamoa LLC New York, NY LLC PresidenUMember 402 Trumo Marks Toronto Coro New York, NY Corooratlon Director President 403 Trumo Marks Toronto LLC New York, NY LLC PresldenVMember 404 Trumo Marks Toronto LP ( fonnallv Trumo Toronto Manaoement LPl NewYork NY Partnershlo Partner 405 Trumo Marks Waikiki Coro New York, NY Coroorallon Director President IPnge Number I 9 of 51 I From I To 02 28 05 1 19 2017 09 11 07 11 9 2016 09 11 07 11 9 2016 08107108 1119 2017 08107 08 1119 2017 08 24 09 1 19 2017 08 24 09 1 19 2017 06 19 07 1 19 2017 08 23107 111912017 10 11 10 1 1912017 10 11 10 111912017 06 13 07 1 19 2017 06 13 07 1 19 2017 06 12107 1 1912017 06 12 07 1 19 2017 04 26 07 1119 2017 04 26 07 1119 2017 04 18 07 1 19 2017 04 18 07 1 19 2017 03 03 08 1 19 2017 03 03108 1119 2017 09 13 10 1 19 2017 09 13 10 1119 2017 12 11 07 1 1 9 2017 12 11107 1 19 2017 07 08 08 11 9 2016 07 08 08 11110 2016 01 05 12 1119 2017 01 05 12 1119 2017 04 07 14 1 19 2017 02 23 07 1 19 2017 08 01 07 1 19 2017 06 11107 1 19 2017 06 11 07 1 19 2017 06 13 07 1 19 2017 06 13 07 1 19 2017 11 06 07 1 19 2017 11 06 07 1 19 2017 11 06 07 1119 2017 11106 07 1 19 2017 10 26 07 1 19 2017 10 26 07 1 19 2017 08109107 1 19 2017 08 09 07 1 19 2017 03 19 08 1 19 2017 04 10 07 1 19 2017 Gaps In numerical sequence are due to the removal of previously reported Items no longer reportable on this part. OCIE F001121 c(M.treh20 14) Instructions for Part 1 Note This Is a public form Do not Include account numbers street addresses or family member names See instructions for requ ired Information Filer's Nnme Donald J. Trump Pnl't 1: Filer's Positions Held Outside United Stntes Government II I Orgnnlzntion Nnmc IClly Stntc Orgrmizntion Type I Position Held I Pnge Number I 10 of SI I F1 0111 I To 406 Trumo Marks Waikiki LLC NewYork NY LLC 407 Trumo Marks Westchester Coro. NewYork NY Corporation 408 Trumo Marks Weslchesler LLC New York, NY LLC 409 Trumo Marks While Plains Coro NewYork NY Corporation 410 Trumo Marks While Plains LLC NewYork NY LLC 411 Trumo Miami Resort Maneoement LLC NewYork NY LLC 412 Trumo Miami Resort Manaaement Member Coro NewYork NY Corooratlon 413 Trumo National Golf Club Calls Neck LLC NewYork NY LLC 414 Trumo National Golf Club Calls Neck Member Coro New York, NY Corooratlon 415 Trumo National Golf Club LLC ITrumo National Golf Club - Westchester) NewYork NY LLC 416 Trumo National Golf Club Member Coro NewYork NY Corooratlon 417 Trumo National Golf Club Washinaton DC LLC NewYork NY LLC 418 Trumo National Golf Club Washlnaton DC Member Coro. New York, NY Corporation 419 Trumo Ocean Manaaer Inc. NewYork NY Corporation 420 Trumo Ocean Manaalna Member LLC New York, NY LLC 421 Trumo Old Post Office LLC New York, NY LLC 422 Trumo Old Post Office Member Coro. NewYork NY Coroorallon 423 Trumo On the Ocean LLC New York, NY LLC 424 Trumo Oraanizalion LLC New York, NY LLC 425 The Trumo Oraanization lnc. New York, NY Corporation 426 Trumo Paaeants, Inc. New York, NY Corporation 427 Trumo Palace Condominium New York, NY Condominium Association 428 Trumo Palace Pare LLC New York, NY LLC 429 Trumo Panama Condominium Manaaement LLC New York, NY LLC 430 Trumo Panama Condominium Member Coro New York, NY Corooration 431 Trumo Panama Hotel Manaaement LLC NewYork NY LLC 432 Trumo Panama Hotel Manaaement Member Coro New York, NY Corooratlon 433 Trumo Pare East Condominium NewYork NY Condominium Association 434 Trumo Park Avenue Acaulslllon LLC New York, NY LLC 435 Trumo Park Avenue LLC NewYork NY LLC 436 Trumo Pavroll Chicaao LLC New York, NY LLC 437 Trumo Pavroll Coro. NewYork NY Coroorallon 438 Trumo Phoenix Develooment LLC NewYork NY LLC 439 Trumo Plaza LLC NewYork NY LLC 440 Trumo Plaza Member Inc. IF KIA Trumo Plaza Coro.) NewYork NY Corporation 442 Trumo Producllons LLC !former Rancho Lien LLC) New York, NY LLC 443 Trumo Production Manaaina Member Inc NewYork NY Coroorallon 444 Trumo Proiect Manaaement Coro. NewYork NY Corooralion Trump Realty Services, LLC (f k a Trump Mortgage Services LLC (03) Tower Mortgage 446 Services LLCl Palm Beach Florida LLC 447 Trumo Restaurants LLC New York, NY LLC 449 Trumo Riverside Manaaement LLC NewYork NY LLC 450 Trumo Ruffin Commercial LLC NewYork NY LLC 451 Trumo Ruffin LLC Las Veaas NV LLC 452 Trumo Ruffin Tower I LLC La s Veaas, NV LLC 453 Trumo Sales Leasing Chlcaao LLC Chlcaao IL LLC PresldenVMember Director President PresidenVMember Pres!denUDirector PresldenUMember PresldenUMember PresidenUDlrector Chalrman PresldenVMember PresldenVDirector Chairman President Dlreclor PresldenVChalrman President PresidenUChairman Director President President PresldenVMember PresidenVDirector Chairman President Chairman and PresidenUMember Director Pres denUChairman Director Chairman President President Member PresidenVMember PresidenUDlrector Chalrman Member PresidenVDirector Chalrman President Member President President President PresidenVTreasurer Secretarv Director PresidenVMember Member Director PresidenVTreasurer Member President Olrector Chalrman PresldenVTreasurer Secretarv President PresldenUMember PresidenVMember Member President President President Director Member President 04 09 07 1 1912017 06113107 1 1912017 06 13107 111912017 06 13 07 1 1912017 06 13 07 1119 2017 03122 12 111912017 03 22 12 1 1912017 07110108 1 1912017 07 f0 08 1 19 2017 08 02 00 111912017 11109 11 111912017 02103109 1 1912017 02 03109 111912017 09 14106 11 10 2016 08 31106 10 27 2015 06130 11 1 19 2017 06130 11 1 1912017 9 14106 212712007 1012812015 211109 Auoust,2000 111912017 05101 81 1 1912017 10116 96 5 1106 111912017 03127191 111912017 10 01 96 1119 2017 12113 10 1119 2017 12113 10 1 1912017 08105 10 1 1912017 08105 10 1 1912017 04 30198 111912017 Nov. 2004 111912017 01 31102 1119 2017 08 29107 1119 2017 04 16 96 1 1912017 08 28103 111912017 10 27 97 1 19 2017 06102104 1 1912017 05 18 06 1 1912017 05 18 06 1 1912017 04 16 96 11 10 2016 05 09 00 111912017 07131112 111912017 09 26100 1119 2017 07 25 07 1119 2017 10 22102 1 19 2017 4 812005 7112105 1 1912017 10120 09 10121 09 1 1912017 Gaps in numerical sequence are due to the removal of previously reported Items no longer reportable on this part. ()(JE l'ann l111c (M.mh 201-1) Instructions for Part 1 Note This is a public form Do not Include account numbers street addresses or family member names See Instructions for required information Filcr'sNnmc Donald J. Trump Pnl't 1: Filel' 1 S Positions Held Outside United Stntes Government IOrgnnlznlion Nnme I Clty Stntc I Orgnnlzn11on Ty1,c I Posllion Held IPnge Number I 11 of SI I From I To 454 Trumo Sales Leasin!l ChicaQo Member Coro Chicaoo IL Comoratlon 455 Trumo Scotland Member Inc Aberdeen Scotland Comoratlon 456 Trumo Scotsborouoh SQuare LLC Scolsborouoh Sq. VA LLC 457 Trumo Scotsborouah Sauare Member Coro. Scolsborough Sq. VA Corporation 458 Trumo SoHo Hotel Condominium New York New York, NY Condominium Association 459 Trumo Soho Member LLC NewYork NY LLC 460 Trumo Toronto Develooment Inc NewYork NY Corporation 461 Trumo Toronto Hotel Manaqement Coro. Toronto CA Corporation 462 Trumo Toronto Member Coro. Cformallv Trumo Toronto Manaaement Member Coro NewYork NY Corporation 463 Trumo Tower Commercial LLC NewYork NY LLC 464 Trumo Tower Condominium Resldenllal Section NewYork NY Condominium Association 465 Trumo Tower Manaaina Member 1nc New York, NY Corooralion 466 Trumo Villaae Construcllon Coro. NewYork NY Corooralion 467 Trumo Vinevard Eslates LLC NewYork NY LLC 468 Trumo Vinevard Estates Manaaer Coro. NewYork NY Corooralion 469 Trumo Vinevard Estates Lot 3 Owner LLC (fka Eric Trumo Land Holdinas LLC) NewYork NY LLC 470 Trumo Vinevard Estates Manaoer Coro NewYork NY Corporalion 471 Trumo Virainia Acauisitlons LLC (fka Vlroinla Acaulsitlons LLC) NewYork NY LLC 472 Trumo Virainia Acauisilions Manaaer Coro. NewYork NY Corooration 473 Trumo Virainia Lot 5 LLC NewYork NY LLC 474 Trumo Viralnia Lot 5 Manaaer Coro. NewYork NY Coro oration 475 Trumo Wine Marl s LLC NewYork NY LLC 476 Trumo Wine Mari s Member Coro. NewYork NY Corooration 477 Trumo World Productions LLC NewYork NY LLC 478 Trumo World Productions Manaaer Coro NewYork NY Corporation 479 Trumo World Publlcalions LLC New York, NY LLC 480 Trumo New World Procertv Manaaement LLC NewYork NY LLC 481 Trumo's Castle Manaaement Coro Allantlc Cllv, NJ Corooration 482 Trumo Marks White Plains Coro NewYork NY Corporation 484 Tumberrv Scotland Manaaina Member Coro Tumberrv. Scotland Corooratlon 485 Tumberrv Scotland LLC Tumberrv. Scotland LLC 486 TW Venture I LLC Palm Beach, Florida LLC 487 TW Venture II LLC Doonbeo. Ireland LLC 488 TW Venture I Menaaina Member Coro Palm Beach Florida Corooratlon 489 TW Venture II Manaaina Member Corp Doonbeo. Ireland Corporation 490 Ultimate Air Coro. New York, NY Corooration 491 Unit 2502 Enterorises Com Chicago, IL Corporation 492 Unit 2502 Enterorises LLC Chicaao IL LLC 493 VH Prooertv Coro ffrumo National Golf Club - Los Anaeles) Los Anoeles, CA Corooralion 494 VHPS LLC Los Anaeles, CA LLC 495 West Palm Ooerations LLC WPS, Florida LLC 496 Wexford Hall Inc. New York, NY Corooration 497 White Course LLC Miami, Florida LLC 498 While Course Managing Member Coro Miami, Florida Corooralion 499 Wilshire Hall LLC New York, NY LLC 500 Wollman Rink Ooeralions LLC New York, NY LLC Member Director President Oirector PresidenVChairman President PresidenVChairman Dlrector Member of the Soard Member President PresldenUOirector Secretarv President Director Chairman President President President DlrectorNice President President PresldenUDlrector Chalrman President PresidenVDlrector Chalrman Member President PresidenVDlrector Chairman President PresldenVDirector Chalrman PresldenVSecretarvrrreesurer Director Chairman President Member President Director Chairman President Member President President President PresldenUDlrector Director Chairman President President President President PresidenUOirector Chalrman PresidenUDirector Chalrman PresidenVTreasurer Secretarv Dlrector PresidenVDirector Member President Secretarv PresidenVDirector PresidenVMember Member President DirectorNice President President Director Chairman President Member Member President 10 20 09 10 21 09 10 21 09 1 19 2017 03 01106 1 19 2017 07 07 11 1 19 2017 07 07 11 1 19 2017 08 03 07 1 19 2017 04 24 06 1 19 2017 04 02 03 1 19 2017 05 30 08 1 19 2017 03 19 08 1119 2017 12 22 97 1 19 2017 03 23 83 1 19 2017 12 22 97 1 19 2017 08 01169 1 19 2017 03 18 11 1 19 2017 03 18 11 1119 2017 08 15 11 1 19 2017 03 18 11 1 19 2017 3 4 2011 1 25 11 1 19 2017 03 15 11 1 19 2017 06 28 11 1 19 2017 06 28 11 1 19 2017 06 21 11 1 19 2017 6 21 2011 6 21108 1 19 2017 09 29 11 1 19 2017 09 29 11 1119 2017 09 29 11 1 19 2017 11 22 00 1 19 2017 03 24 92 1119 2017 06 13 07 1 19 2017 04 09 14 1119 2017 04 09 14 1119 2017 11119 13 1 19 2017 01 31114 1 19 2017 11119 13 1 19 2017 01 31 14 1 19 2017 4 16 96 12 9 1993 1 19 2017 07 21 08 1 19 2017 7 16 08 7 18 08 1 19 2017 9 22 00 12 2 02 11126 02 11 25 02 1 19 2017 5 28 08 12 1104 1 19 2017 8 27110 9 1110 1 19 2017 08 01 69 1 19 2017 03 20 12 1 19 2017 03 20 12 1 19 2017 11 22 95 1 19 2017 9 24 01 1111 01 1 19 2017 Gaps in numerkal sequence are due to the removal of previously reported Items no longer reportable on this part. OOF. Fom1 21 1t (J.fat.:h2014) Instructions for Part 1 Note This ls a public form Do not include account numbers street addresses or family member names See Instructions for required Information filer's Nome Donald J. Trump Part 1: Filer's Positions Held Outside United Stntcs Govcl'nment IOl'gnnizntion Nmnc ICl!y Slnle I Orgnnlzntlon Type " 501 Yorktown Real Estate LLC F KJAJ Yorktown Development Associates LLC) NewYork NY LLC 502 The Fred C. Trump December 16, 1976 Trust- F B 0 Donald J. Trump NewYork NY Trust 504 The Fred C. Trump December 16 1976 Trust- F B 0 Robert S. Trump NewYork NY Trust 505 The Fred C. Trump December 16, 1976 Trust- F B 0 Ellzabelh J. Trump NewYork NY Trust 509 Fred C. Trump, GRAT Trust- F B 0 Ellzabelh Trump Grau NewYork NY Trust 510 Trust U W O Fred C. Trump- F B 0 Elizabeth Trump Grau NewYork NY Trust 511 Marvanne Trump GRAT Trust- F B 0 Elizabelh Trump Grau NewYork NY Trust 512 Trust U W O Fred C. Trump- F B 0 the orandchlldren of Fred C. Trump NewYork NY Trust The Donald J. Trump grantor Tru st - DJT is the Trustee Successor- Trustee Is Donald J. 514 Trumo. Jr. NewYork NY Trust 515 The Donald J. Trump Revocable Trust New York, NY Trust 516 The Police Athlellc Leaaue Inc. NewYork NY Non profit 517 OT Bali Golf Manaaer LLC NewYork NY LLC 518 OT Bali Golf Manaaer Member Corp NewYork NY Corporallon 519 OT Bali Hotel Manaaer LLC NewYork NY LLC 520 OT Ball Hotel Manaaer Member Corp NewYork NY Corporallon 521 OT Ball Technical Services Manaaer LLC NewYork NY LLC 522 OT Bali Technical Services Manaaer Member Coro New York. NY Corooratlon 523 OT Connect Europe Llmiled Turnberrv. Scolland Forelan Entltv 524 OT Endeavor I LLC NewYork NY LLC 525 OT Endeavor 1 Member Coro NewYork NY Corporallon 526 OT Jeddah Technical Seivices Advisor LLC NewYork NY LLC 527 OT Jeddah Technical Services Advisor Member Coro New York NY Corooratlon 528 OT Jeddah Technical Seivices Manaaer LLC New York, NY LLC 529 DT Jeddah Technical Services Manaoer Member Coro New York, NY Corporation 530 OT lido Golf Manaaer LLC New York, NY LLC 531 OT Udo Golf Manaaer Member Coro New York, NY Corporation 532 OT lido Hotel Manaaer LLC New York, NY LLC 533 OT Lido Hotel Manaaer Member Corp New York, NY Corporation 534 OT lido Technical Services Manaaer LLC NewYork NY LLC 535 OT Lido Technical Services Manaaer Member Coro New York, NY Corooration 536 OT Marks Bali LLC New York, NY LLC 537 DT Marks Bali Member Coro New York, NY Corooratlon 538 OT Marks lido LLC New York, NY LLC 539 OT Marks Lido Member Coro NewYork NY Corooratton 540 OT Tower I LLC New York, NY LLC 541 OT Tower I Member Com New York, NY Corooratlon 542 OT Tower II LLC New York, NY LLC 543 OT Tower II Member Coro New York, NY Corooration 544 OT Tower Kolkata LLC NewYork NY LLC 545 OT Tower Kolkata Manaaina Member Coro New York. NY Corooration 546 OT Venture I LLC NewYork NY LLC 547 OT Venture I Member Coro NewYork NY Corooration 548 OT Venture II LLC NewYork NY LLC 549 OT Venture II Member Coro New York, NY Corooralion 550 DTTM OPeralions LLC NewYork NY LLC I Position Held Member President Trustee Trustee Trustee Trustee Trustee Trustee Trustee Trustee Trustee Member of the Board President Director Chairmen President President Director Chairman President Member President Dlreclor Chalrman Presldent Director President Director Chairman President Member President Director Chairman President Member President Director Chairman President President Director Chairman President President Director Chairman President Member President Director Chairman President Member President Dlreclor Chalrman Presldent Member President Director Chairman President Member President Director Chairman President President Director Chairman President Member President Director Chairman President President Director Chairman President President Director Chairman President Member President IPnge Number I 12 of 51 I From I To 09 30 97 1119 2017 December-76 1119 2017 December-76 1 19 2017 December-76 1 19 2017 November-97 1 19 2017 April-01 1119 2017 November-97 1119 2017 April-01 1119 2017 November-97 12 31 2016 April-14 1 19 2017 Julv-86 1 19 2017 06 23 15 1119 2017 06 23 15 1119 2017 06 23 15 1 19 2017 06 23 15 1 19 2017 06 23 15 1 19 2017 06 23 15 1 19 2017 02 13 15 1 1 9 2017 01 04 16 1 19 2017 01 04 16 1 19 2017 08 21115 10 26 2015 08 21115 10 22 2015 08 31 15 11 15 2016 08 31 15 11 15 2016 06 23 15 1 19 2017 06 23 15 1 19 2017 06 23 15 1 19 2017 06 23 15 1 19 2017 06 23 15 1 19 2017 06 23 15 1 19 2017 06 23 15 1119 2017 06 23 15 1 19 2017 06 23 15 1 19 2017 06 23 15 1 19 2017 01 04 16 1 19 2017 01 04 16 1 19 2017 01 04 16 1 19 2017 01 04 16 1 19 2017 11 25 15 1 19 2017 11 25 15 1 19 2017 01 04 16 1 19 2017 01 04 16 1 19 2017 01 04 16 1 19 2017 01 04 16 1 19 2017 01 15 16 1 19 2017 Gaps In numerical sequence are due to the removal of previously reported Items no longer reportable on this part. 0 1 F. l'om1 2 7ll' (M '"k 2014) Instructions for Part 1 Note This Is a publlc form Do nol lndude account numbers street addresses or family member names See Instructions for required information Piler'sNnme Donald J. Trump Pnrt 1: Filer's Positions Hehl Outside United Stntes Government I Org1111iz11tlo11 Nnmc IClty Slnlc IOl'gnnizntion Type 551 DTIM Ooeralions Manaolno Member NewYork NY Coroorallon 552 EID Venlure II LLC NewYork NY LLC 553 EID Venture II Member Coro New York NY Corooration 554 Mobile Pavroll Construclion LLC New York NY LLC 555 Mobile Pavroll Construction Manaoer Coro New York, NY Corooratlon 556 THC DC Reslaurant Hosoitalitv LLC NewYork NY LLC 557 THC Jeddah Hotel Advisor LLC New York, NY LLC 558 THC Jeddah Hotel Advisor Member Coro New York, NY Coroorallon 559 THC Jeddah Hotel Manaoer LLC New York, NY LLC 560 THC Jeddah Hotel Manaoer Member Coro New York. NY Corooratlon 561 C DEVELOPMENT VENTURES LLC New York, NY LLC 562 C DEVELOPMENT VENTURES MEMBER CORP NewYork NY Coroorat!on 563 TC MARKS BUENOS AIRES LLC NewYork NY LLC 564 WMTMFLLC NewYork NY LLC 565 Laminaton Farm Club LLC (TRUMP NATIONAL GOLF CLUB - BEDMINSTER)' Bedminster NJ LLC IPnge Number I 13 of51 Position Held I From Director Chairman President 01 15 16 Member President 01 04 16 Director Chairman President 01 04 16 Member President 06 04 15 Dlrector Chairman President 06 04 15 President 08 17 15 Member President 08 21 15 Director Chairman President 08 21 15 Member President 08 31 15 Director Chairman PreSident 08 31 15 PresidenUMember 04 06 16 PresldenUDirector Chairman 04 06 16 PresidenVMember 04 20 16 PresldenUSecretarvffreasurer Manaaina Member 09 24 15 President 02 11 00 I To 1 19 2017 1 19 2017 1 19 2017 1 19 2017 1 19 2017 111912017 10 26 2015 10 22 2015 11 15 2016 11 15 2016 1 19 2017 1 19 2017 1 19 2017 1 19 2017 1 19 2017 Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. The entry marked with an is hereby incorporated into the 2016 and 2015 reports to amend those reports . OGE Form 278e (March 2014) Instructions for Part 2 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required information. Filer's Name Donald J . Trump Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type (Part 2 - EXHIBIT A) Reference 002 40 Wall Street LLC N A 005 Over 50,000,000 rent Underlying Assets: commercial real estate Location: New York, NY See attached schedule 004 401 North Wabash Venture LLC N A 008 Over 50,000,000 rent Underlying Assets: residential commercial real estate Location: Chicago, IL See attached schedule condo sales Income Amount Over 5,000,000 Over 5,000,000 I Page Number I 14 of 51 90,249 005 809 NORTH CANON LLC N A 009 5,000,001 - 25,000,000 Underlying Assets: residential real estate Location: Beverly Hills, CA See attached schedule None (or less than 201) 007 845 UN Limited Partnership N A 012 5,000,001 - 25,000,000 rent Underlying Assets: commercial real estate Location : New York, NY See attached schedule 008 Caribusiness Investments, S.R.L. N A 025 1 ,000,001 - 5,000,000 Underlying Assets: land Location: Dominican Republic See attached schedule 010 Country Apartments, LLC NIA 032 1 ,001 - 15,000 Value reported reflects bank account holding only. Additional Undertying Asset: none Entity set up to buy sell residential real estate, New Yori , NY; See attached schedule 1 ,000,001 - 5,000,000 None (or less than 201) None (or less than 201) Oil Country Properties, LLC N A 034 50,001 - 100,000 Underlying Assets: residential real estate Location : Norfolk, VA See attached schedule 012 D B Pace Acquisition, LLC N A 036 1,000,001 - 5,000,000 Underlying Assets: land, building and ff e Location: New York, NY See attached schedule None (or less than 201) None (or less than 201) THE ACCOMPANYING SCHEDULE PART2- EXHIBIT A) IS AN INTEGRAL PART OF THE ABOVEANDSHOULD BE READ IN CONJUNCTION THEREWITH. Gaps In numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. Filer's Name Donald J . Trump I I Page Number 15 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Refc1 ence 013 DJT AEROSPACE LLC N A 039 1 ,000,001 - 5,000,000 rent None (or less than 201) Underlying Assets: aircraft Location: New York, NY See attached schedule 014 DJT HOLDINGS LLC N A 042 1,000,001 - 5,000,000 interest 15,001 - 50,000 Value reported reflects bank account only. Entity's other holdings and assets are reported elsewhere; see attached schedule. Holding company, New York, NY 017 DJT OPERATIONS I LLC N A 046 Over 50,000,000 rent 1 ,000,001 - 5,000,000 Underlying Assets: aircraft Location : New York, NY See attached schedule 018 DT CONNECT II LLC N A 055 1,000,001 - 5,000,000 None (or less than 201) Underlying Assets: aircraft Location: Palm Beach, FL See attached schedule 020 OT DUBAI GOLF MANAGER LLC N A 059 1,001 - 15,000 Value reported reflects bank account holding only. Additional Underty ng Asset: managemenl deal with DAMAC CRESCENT PROPERTIES UC - value not readily ascertainable. ManaQement companv Dubai UAE See attached schedule. management fees 12,984 021 DT HOME MARKS INTERNATIONAL LLC N A 063 1 ,001 - 15,000 royalties 100,001 - 1 ,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with RNA RESOURCES GROUP LTD, DORYA INTERNATIONAL LLC, HOMESTUDIO INTERNATIONAL SA, WONU CO LTD - value not readily ascertainable. License holder, New York, NY; See attached schedule. 024 Excel Venture I LLC N A 098 25,000,001 - 50,000,000 rent 100,001 - 1,000,000 Underlying Assets: residential rental property Location: St. Martin, French West Indies See attached schedule 026 Fifty-Seventh Street Associates LLC N A 100 Over 50,000,000 rent Over 5,000,000 Underlying Assets: commercial real estate Location: New York, NY See attached schedule THE ACCOMPANYING SCHEDULE(PART2- EXHIBIT A IS AN INTEGRALPARTOFTHE ABOVEANDSHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. Filer's Name Donald J. Trump I I Page Number 16 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXIDBIT A) Reference 030 TRUMP NATIONAL GOLF CLUB - JUPITER N A 117 Over 50,000,000 Underlying Assets: golf club Location: Jupiter, FL See attached schedule golf related revenue 20,131,872 031 LAMINGTON FAMILY HOLDINGS LLC N A 119 100,001 - 250,000 None (or less than 201) Underlying Assets: land Location: Bedminster, NJ See attached schedule 032 TRUMP NATIONAL GOLF CLUB - BEDMINSTER N A 120 Over 50,000,000 Underlying Assets: golf club Location: Bedminster, NJ See attached schedule golf related revenue 19,752,500 034 MAR-A-LAGO CLUB, L.L.C. N A 126 Over 50,000,000 Underlying Assets: resort Location: Palm Beach, FL See attached schedule resort related revenue 37,251 ,635 036 PINE HILL DEVELOPMENT LLC N A 142 100,001 - 250,000 None (or less than 201) Underlying Assets: golf club Location: Pine Hill, NJ See attached schedule 037 Seven Springs LLC N A 153 25,000,001 - 50,000,000 interest 2,501 - 5,000 Underlying Assets: real estate Location: Mt. Kisco, NY See attached schedule 038 TRUMP TURNBERRY N A 157 Over 50,000,000 Underlying Assets: golf courses and resort Location: Turnberry, Scotland See attached schedule golf related revenue 14,487,619 039 T International Realty LLC N A 160 250,001 - 500,000 Value reported reflects bank account holding only. Additional Underlying Asset: brokerage company - value not readily ascertainable. Brokerage company, New York, NY; See attached schedule commissions 3,374,860 040 THC CENTRAL RESERVATIONS LLC N A 167 50,001 - 100,000 None (or less than 201) Underlying Assets: hotel company Location: New York, NY See attached schedule THE ACCOMPANYING SCHEDULE (PART2- EXHIBIT A) IS AN INTEGRAL PART OF THE ABOVE AND SHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerfcal sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. Filer's Name Donald J. Trump I I Page Number 17 of 51 Part 2: Filer's Employment Assets and Income Description EIF nttnched schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Reference 041 THC CHINA DEVELOPMENT LLC NIA 169 1,001 - 15,000 None (or less than 201) Value reported reflects bank account holding only. Additional Underlying Asset: developer - value not readily ascertainable. Developer, New York, NY; See attached schedule 042 THC SALES MARKETING LLC NIA 184 100,001 - 250,000 None (or less than 201) Value reported reflects bank account holding only. Additional Underlying Asset: management company - value not readily ascertainable. Management company, New York, NY; See attached schedule 043 The East 61 Street Company, LP NIA 199 5,000,001 - 25,000,000 None (or less than 201) Underlying Assets: residential real estate Location: New York, NY See attached schedule 044 THE TRUMP CORPORATION NIA 200 Over 50,000,000 Underlying Assets: management company Location: New York, NY See attached schedule management and 18,045,141 related fees 045 The Trump-Equitable Fifth Avenue Company NIA 208 1 ,001 - 15,000 rent 100,001 - 1 ,000,000 Value reported reflects bank account only. Entity's other holdings and assets are reported elsewhere; see attached schedule. Passthru entity, New York, NY 046 TRUMP INTERNATIONAL GOLF LINKS - DOONBEG NIA 211 5,000,001 - 25,000,000 Underlying Assets: golf course and resort Location: Doonbeg, Ireland See attached schedule golf related revenue 12,498, 172 047 TIHT COMMERCIAL LLC NIA 218 5,000,001 - 25,000,000 rent 1 ,000,001 - 5,000,000 Underlying Assets: commercial real estate Location: New York, NY See attached schedule 048 TIHT HOLDING COMPANY LLC NIA 219 1 ,000,001 - 5,000,000 rent 100,001 - 1 ,000,000 Underlying Assets: hotel condo unit Location: New York, NY See attached schedule 049 TRUMP NATIONAL GOLF CLUB - CHARLOTTE NIA 223 5,000,001 - 25,000,000 Underlying Assets: golf club Location: Charlotte, NC See attached schedule golf related revenue 15,016,404 050 TRUMP NATIONAL GOLF CLUB - HUDSON VALLEY NIA 225 5,000,001 - 25 ,000,000 Underlying Assets: golf club Location: Hopewell Junction, NY See attached schedule golf related revenue 5,323,573 THE ACCOMPANYING SCHEDULE (PART2- EXHIBIT A) IS AN INTEGRAL PART OF THE ABOVEANDSHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. Filer's Name I Page Number Donald J. Trump I 18 of 51 Pat't 2: Filer's Employment Assets and Income Descl'iption EIF attached schedule Value Income Type Income Amount (Pal't 2 - EXHIBIT A) Refet'ence 051 TRUMP NATIONAL GOLF CLUB - PHILADELPHIA NIA 229 5,000,001 - 25,000,000 Underlying Assets: golf club Location: Pine Hill, NJ See attached schedule golf related revenue 5,258,866 052 TRUMP 106 CPS LLC NIA 234 15,001 - 50,000 None (or less than 201) Value reported reflects bank account holding only. Additional Underlying Asset: none Location: New York, NY; See attached schedule 055 TRUMP 845 UN MGR CORP NIA 237 1 ,001 - 15,000 None (or less than 201) Value reported reflects bank account holding only. Entity's other holdings and assets are reported elsewhere; see attached schedule. Pass-thru entity. New York, NY 057 TRUMP BOOKS LLC NIA 243 None (or less than 1 ,001) royalties 5,001 - 15,000 THE MIDAS TOUCH Value reported reflects bank account holding only. Additional Underlying Asset: book deal with Plata Publishing LLC - value not readily ascertainable. Holder of book contract, New York, NY, See attached schedule (Published 2011) 059 TRUMP CAROUSEL LLC NIA 250 15,001 - 50,000 Value reported reflects bank account holding only. Additional Underlying Asset: operating agreement with NEW YORK CITY DEPARTMENT OF PARKS RECREATION - value not admissions 671 ,728 readily ascertainable. Carousel operator, New York, NY. See attached schedule 061 TRUMP CPS LLC NIA 269 25,000,001 - 50,000,000 rent 1,000,001 - 5,000,000 Underlying Assets: commercial and residential real estate Location: New York, NY See attached schedule condo sales 3,170,000 064 TRUMP NATIONAL DORAL NIA 279 Over 50,000,000 Underlying Assets: golf courses resort Location: Miami, FL See attached schedule golf resort related 115,865,590 revenues 065 TRUMP FERRY POINT LLC NIA 283 5,000,001 - 25,000,000 Underlying Assets: operating agreement with NEW YORK CITY DEPARTMENT OF PARKS RECREATION - golf course Location: New York, NY golf related revenue 7 ,300,157 See attached schedule (Opening Day: April 1, 2015) THE ACCOMPANYING SCHEDULE (PART2- EXHIBIT A) IS AN INTEGRAL PART OF THE ABOVEANDSHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. Filer's Name I Page Number Donald J . Trump I 19 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Reference 066 TRUMP GOLF ACQUISITIONS LLC NIA 287 1,001 - 15,000 Value reported renects bank account holding only. Additional Undertying Asset: none Enllty set up to sign letters of Intent fOf golf related deels, New YOfk, NY; See attached schedule golf related revenue 17,539 067 TRUMP HOME MARKS LLC NIA 291 None (or less than 1,001) royalties 15,001 - 50,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with DOWNLITE INTERNATIONAL INC, GOURMET HOME PRODUCTS LLC, NORTHPOINT TRADING LLC, SIGN OF TIMES INC, TPS SAS - value not readily ascertainable . License holder, New York, NY See attached schedule 068 TRUMP ICE LLC NIA 294 1 ,001 - 15,000 Value reported reflects bank account holding only. Additional Underlying Asset: wholesale company - value not readily a scertainable. Water wholesaler, New York, NY; See attached schedule sales 396,161 069 TRUMP INTERNATIONAL GOLF LINKS- SCOTLAND NIA 297 Over 50,000,000 Underlying Assets: golf course Location: Aberdeen, Scotland See attached schedule golf related revenue 3,803,033 070 TRUMP INTERNATIONAL GOLF CLUB - FLORIDA NIA 299 25,000,001 - 50,000,000 Underlying Assets: golf club Location: West Palm Beach, FL See attached schedule golf related revenue 18,411 ,472 071 TRUMP INTERNATIONAL HOTEL HAWAII LLC NIA 300 1 ,001 - 15,000 royalties 100,001 - 1,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: management and license agreements with IRONGATE AZREP BW LLC - value not readily ascertainable. management fees 2,538,973 License holder, Waikiki , HI See attached schedule 072 TRUMP INTERNATIONAL HOTELS MANAGEMENT LLC NIA 301 Over 50,000,000 Underlying Assets: management company Location: New York, NY See attached schedule management fees 2,888,093 073 TRUMP LAS VEGAS DEVELOPMENT LLC NIA 308 1 ,000,001 - 5,000,000 development fees Underlying Assets: development deal with TRUMP RUFFIN TOWER I LlC Entity set up to receive development fees, Las Vegas, NV; See attached schedule 8,154,142 074 TRUMP LAS VEGAS MEMBER LLC NIA 310 None (or less than 1 ,001) Value reported reflects bank account holding only. Entity's other holdings and assets are reported elsewhere; see attached sponsor fee schedule. Pass-thru entity. Las Vegas, NV 2,631 ,300 THE ACCOMPANYING SCHEDULE(PART2- EXHIBIT A) IS AN INTEGRALPARTOFTHE ABOVEANDSHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. Filer's Name Donald J. Trump I I Page Number 20 of 51 Pal't 2: Filel''s Employment Assets and Income Description ElF attached schedule Value Income Type. Income Amount (Part 2 - EXHIBIT A) Reference 076 TRUMP MARKS ASIA LLC NIA 316 500,001 - 1 ,000,000 None (or less than 201) Underlying Assets: residential real estate Location: Sterling, VA See attached schedule 078 TRUMP MARKS ISTANBUL II LLC NIA 342 15,001 - 50,000 royalties 1 ,000,001 - 5,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with ORTADOGU OTOMOTIV TICARET AS - value not readily ascertainable. License holder, New York, NY See attached schedule 079 TRUMP MARKS LLC NIA 347 15,001 - 50,000 royalties 50,001 - 100,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with ELK LIGHTING INC - value not readily ascertainable. License holder, New York, NY See attached schedule 080 TRUMP MARKS MATIRESS LLC NIA 350 None (or less than 1 ,001) royalties 100,001 - 1 ,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with SERTA - value not readily ascertainable. License holder, New York, NY See attached schedule 081 TRUMP MARKS MENSWEAR LLC NIA 352 None (or less than 1,001) royalties 100,001 - 1 ,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with PVH CORP, PEERLESS CLOTHING INTERNATIONAL, PARLUX LTD, OXFORD OPTHALMIC, RANDA ACCESSORIES - value not readily ascertainable. License holder, New York, NY See attached schedule 082 TRUMP MARKS NEW ROCHELLE LLC NIA 359 None (or less than 1,001) royalties 5,001 - 15,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with NEW ROC PARCEL 1A LLC - value not readily ascertainable. License holder, New York, NY See attached schedule 083 TRUMP MARKS PANAMA LLC NIA 363 None (or less than 1 ,001) royalties 100,001 - 1 ,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with K GROUP DEVELOPERS INC - value not readily ascertainable. License holder, New York , NY See attached schedule THE ACCOMPANYING SCHEDULE (PART 2- EXHIBIT A) IS AN INTEGRAL PART OF THE ABOVE AND SHOLi LD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported Is as of April 15, 2017. Filer's Name I Page Number Donald J. Trump I 21of51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXIDBIT A) Reference 087 TRUMP MARKS WAIKIKI LLC N A 391 None (or less than 1 ,001) royalties 100,001 - 1 ,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with IRONGATE AZREP BW LLC - value not readily ascertainable. License holder, New York, NY See attached schedule 090 TRUMP MIAMI RESORT MANAGEMENT LLC N A 396 1 ,000,001 - 5,000,000 None (or less than 201) Value reported reflects bank account holding only. Management company - value not readily ascertainable, Miami, FL; See attached schedule 091 TRUMP MODEL MANAGEMENT LLC N A 398 250,001 - 500,000 Value reported reflects bank account holding only. Modeling agency - value not readily ascertainable, New York, NY; See attached schedule commissions 1 ,870,632 092 TRUMP NATIONAL GOLF CLUB - COLTS NECK N A 399 Over 50,000,000 Underlying Assets: golf club Location: Colts Neck, NJ See attached schedule golf related revenue 7,708,047 093 TRUMP NATIONAL GOLF CLUB - WESTCHESTER NIA 401 Over 50,000,000 Underlying Assets: golf club Location: Briarcliff Manor, NY See attached schedule golf related revenue 9,771,428 094 TRUMP NATIONAL GOLF CLUB - WASHINGTON DC N A 403 Over 50,000,000 Underlying Assets: golf club Location: Potomac Falls, VA See attached schedule golf related revenue 17,508,270 095 TRUMP OLD POST OFFICE LLC N A 408 Over 50,000,000 Underlying Assets: hotel Location: Washington , DC See attached schedule hotel related revenue 19,666,129 097 Miss Universe L.P., LLLP N A 413 50,001 - 100,000 Value reported reflects ba nk account holding only. Additional Underlying Asset: none See attached schedule beauty pageant related 10,973,722 revenue 098 TRUMP PALACE PARC LLC N A 414 1,000,001 - 5,000,000 rent 100,001 - 1 ,000,000 Underlying Assets: commercial real estate Location : New York, NY See attached schedule THE ACCOMPANYING SCHEDULE(PART2- EXHIBIT A IS AN INTEGRAL PART OF THE ABOVEAND SHOULO BE READ IN CONJUNCTIONTHEREWlTH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported rs as of April 15, 2017. Filer's Name I Page Number Donald J. Trump I 22 of 51 Part 2: Filer's Employment Assets and Income II Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXfilBIT A) Reference II 099 TRUMP PARK AVENUE LLC NIA 420 Over 50,000,000 rent Over 5,000,000 Underlying Assets: residential commercial real estate Location: New York, NY See attached schedule condo sales 29,943,500 100 TRUMP PLAZA LLC NIA 424 25,000,001 - 50,000,000 rent 1 ,000,001 - 5,000,000 Underlying Assets: residential commercial real estate Location: New York, NY See attached schedule IOI TRUMP PRODUCTIONS LLC NIA 426 1 ,000,001 - 5,000,000 Underlying Assets: production company Location: New York, NY See attached schedule production revenue 1 ,103,161 103 Trump Restaurants LLC NIA 430 1 ,000,001 - 5,000,000 Underlying Assets: restaurant Location: New York, NY See attached schedule food beverage related 4,830,768 sales 104 TRUMP RUFFIN TOWER I LLC NIA 434 Over 50,000,000 Underlying Assets: commercial real estate Location: Las Vegas. NV See attached schedule condo sales 10,683,900 hotel related revenue 30,835, 137 106 TRUMP SCOTSBOROUGH SQUARE LLC NIA 438 500,001 - 1 ,000,000 rent 5,001 - 15,000 Underlying Assets: residential real estate Location: Scotsborough Square, VA See attached schedule 108 TRUMP TOWER COMMERCIAL LLC NIA 444 Over 50,000,000 rent Over 5,000,000 Underlying Assets: commercial real estate Location: New York, NY See attached schedule 109 TRUMP TOWER MANAGING MEMBER INC. NIA 445 1 ,001 - 15,000 None (or less than 201) Value reporled reflects bank account holding only. Entity's other holdings and assets are reported elsewhere; see attached schedule. Pass-thru entity. New York, NY 110 TRUMP VINEYARD ESTATES LLC NIA 447 5,000,001 - 25,000,000 rent 100,001 - 1 ,000,000 Underlying Assets: vineyard Location: Charlottesville, VA See attached schedule Ill TRUMP VINEYARD ESTATES LOT 3 OWNER LLC NIA 448 500,001 - 1,000,000 rent 100,001 - 1 ,000,000 Underlying Assets: vineyard Location: Charlottesville, VA See attached schedule 112 TRUMP VIRGINIA ACQUISITIONS LLC NIA 450 5,000,001 - 25,000,000 Underlying Assets: commercial real estate Location: Charlottesville, VA See attached schedule hotel related revenue 1 ,015,752 THE ACCOMPANYING SCHEDULE(PART2- EXHIBIT A) IS ANINTEGRALPARTOFTHE ABOVE AND SHOULD BE READ IN CONJUNCTION THEREWITH. Gaps In numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported rs as of April 15, 2017. Filer's Name I Page Number Donald J. Trump I 23 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Reference 113 TRUMP VIRGINIA LOT 5 LLC NIA 452 500,001 - 1 ,000,000 rent 50,001 - 100,000 Underlying Assets: vineyard Location: Charlottesville, VA See attached schedule 116 TRUMP NATIONAL GOLF CLUB - LOS ANGELES NIA 469 Over 50,000,000 Underlying Assets: golf course and unsold lots Location: Los Angeles. CA See attached schedule golf related revenue 14,982,417 land sales 12,035 ,000 119 Wollman Rink Operations LLC NIA 476 1,000,001 - 5,000,000 Underlying Assets: operating agreement with NEW YORK CITY DEPARTMENT OF PARKS RECREATION - ice skating rinks Location: New York, NY ice skating rink 12,661 ,523 See attached schedule operation 120 HWA 555 Owners, LLC NIA 478 Over 50,000,000 rent Over 5,000,000 Underlying Assets: commercial real estate Location: San Francisco, CA See attached schedule 121 1290 AVENUE OF THE AMERICAS, A TENANCY-IN-COMMON NIA 479 Over 50,000,000 rent Over 5,000,000 Underlying Assets: commercial real estate Location: New York, NY See attached schedule 122 4 limited partnership interest in Starrett City Associates, L.P. (via the entities disclosed on Exhibit A and direct ownership by The Donald J. Trump NIA 018, 141, 154, 446 5,000,001 - 25,000,000 rent Over 5,000,000 Revocable Trust) Underlying Assets: residential real estate Location: Brooklyn, NY 123 4 limited partnership interest in Spring Creek Plaza LLC (via the entities NIA 018, 141, 154, 446 500,001 - 1 ,000,000 rent 100,001 - 1 ,000,000 disclosed on Exhibit A and direct ownership by The Donald J. Trump Revocable Trust) Underlying Assets: commercial real estate Location: Brooklyn, NY 124 Trump Tower Triplex NIA Over 50,000,000 None (or less than 201) Underlying Assets: residential real estate Location: New York, NY 125 NIK A OT VENTURE I LLC NIA 533 5,000,001 - 25,000,000 None (or less than 201) Underlying Assets: residential real estate Location: Palm Beach, FL See attached schedule THE ACCOMPANYING SCHEDULE (PART 2- EXHIBIT A) IS AN INTEGRAL PART OF THE ABOVE AND SHOULD BE READ IN CONJUNCTION THEREWITH. Gaps In numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. Filer's Name I Page Number Donald J. Trump I 24 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Reference 126 NIK A DTW VENTURE LLC N A 093 1 ,000,001 - 5,000,000 rent 50,001 - 100,000 Underlying Assets: residential real estate Location: Palm Beach, FL See attached schedule 127 OT Marks Worli LLC N A 089 royalties 100,001 - 1 ,000,000 Underlying Assets: license deal Licensee(s): JAWALA REAL ESTATE PRIVATE LTD, LODHA DEVELOPERS PRIVATE LTD Location: New York, NY See attached schedule Value not readily ascertainable 130 THC VANCOUVER MANAGEMENT CORP N A 190 Underlying Assets: management company Location: Vancouver, Canada See attached schedule management fees 21,576 Value not readily ascertainable 131 THE TRUMP ENTREPRENEUR INITIATIVE LLC N A 201 Underlying Assets: seminar program Location: New York, NY See attached .schedule residual income 38,542 Value not readily ascertainable 132 TNGC JUPITER MANAGEMENT LLC N A 227 Underlying Assets: management company Location: Jupiter, FL See attached schedule management fees 468,346 Value not readily ascertainable 133 TRUMP CHICAGO COMMERCIAL MANAGER LLC N A 254 Underlying Assets: management company Location: New York, NY See attached schedule management fees 1 ,292,392 Value not readily ascertainable 134 TRUMP CHICAGO HOTEL MANAGER LLC N A 256 15,001 - 50,000 Value reported reflects bank account holding only. Additional Underlying Asset: management company - value not readily ascertainable. New York, NY management fees 2,198,295 See attached schedule 135 TRUMP CHICAGO RESIDENTIAL MANAGER LLC N A 260 Underlying Assets: management company Location: New York. NY See attached schedule management fees 677,122 Value not read ily ascertainable 136 TRUMP MARKS FINE FOODS LLC NIA 333 1,001 - 15,000 royalties 5,001 - 15,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with TWO RIVERS COFFEE - value not readily ascertainable. License holder, New York, NY See attached schedule THE ACCOMPANYING SCHEDULE (PART 2- EXHIBIT A IS AN INTEGRAL PART OF THE ABOVE AND SHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable onthfs part. Information being reported rs as of April 15, 2017. Filer's Name Donald J. Trump I I Page Number 25 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Reference 137 TRUMP MARKS PHILIPPINES LLC NIA 367 1 ,001 - 15,000 royalties 1,000,001 - 5,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with CENTURY CITY DEVELOPMENT CORP - value not readily ascertainable. License holder, New York, NY See attached schedule 139 TRUMP MARKS STAMFORD LLC NIA 380 royalties 100,001 - 1 ,000,000 Underlying Assets: license deal Licensee(s): 33 BROAD STREET ASSOCIATES II Location: New York, NY See attached schedule Value not readily ascertainable 140 TRUMP MARKS SUNNY ISLES I LLC NIA 381 royalties 100,001 - 1 ,000,000 Underlying Assets: license deal Licensee(s): MICHAEL DEZER NAOMI DEZERTOV Location: New York, NY See attached schedule Value not readily ascertainable 141 TRUMP PANAMA HOTEL MANAGEMENT LLC NIA 417 15,001 - 50,000 Value reported reflects bank account holding only. Additional Underlying Asset: management agreement - value not readily ascertainable. New York, NY management fees 810,795 See attached schedule 142 TRUMP TORONTO HOTEL MANAGEMENT CORP NIA 442 1 ,001 - 15,000 Value reported reflects bank account holding only. Additional Underlying Asset: management deal with TALON INTERNATIONAL INC - value not readily ascertainable. management fees 559,904 Management company, New York, NY; See attached schedule. 143 TW VENTURE I LLC NIA 462 transportation services Location: Palm Beach , FL See attached schedule operating income 185,601 Value not readily ascertainable 144 Trump Management Inc. NIA 480 15,001 - 50,000 Value reported reflects bank account holding only. Additional Underlying Asset: management company - value not readily ascertainable management fees 30,000 Location: Manhasset, NY See attached schedule 145 RITZ CARLTON HOTEL AT 112 CENTRAL PARK SOUTH NIK A NIA 535 15,001 - 50,000 OT VENTURE II LLC Value reported reflects bank account holding only. Additional Underlying Asset: management agreement - value not management fees 268,125 readily ascertainable. Location: New York, NY THE ACCOMPANYING SCHEDULE (PART 2- EXHIBIT A) IS AN INTEGRAL PART OF THE ABOVE AND SHOU LO BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. Filer's Name I Page Number Donald J. Trump I 26 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Reference 146 Think Like A Champion N A royalties 15,001 - 50,000 Publisher: Vanguard Press, a member of Perseus Books LLC Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 2009) 147 The Art OfThe Deal N A royalties 100,001 - 1 ,000,000 Publisher: Random House Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 1987) 148 Time To Get Tough N A royalties 100,001 - 1 ,000,000 Publisher: Regnery Publishing Underlying Assets: book Location : New York, NY Value not readily ascertainable (Published 2011) 149 Think Like a Billionaire N A None (or less than 201) Publisher: Random House Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 2004) 150 The Art of the Comeback N A None (or less than 201) Publisher: Random House Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 1997) 151 Why We Want You To Be Rich N A None (or less than 201) Publisher: Plata Publishing LLC Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 2006) 152 Trump 101 : The Way to Success N A None (or less than 201) Publisher: John Wiley Sons, Inc. Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 2007) THE ACCOMPANYING SCHEDULE(PART2- EXHIBIT A) IS AN INTEGRALPARTOFTHE ABOVEANDSHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported rs as of April 15, 2017. Filer's Name I Page Number Donald J . Trump I 27 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Reference 153 The America We Deserve N A None (or less than 201) Publisher: Renaissance Books Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 2000) 154 Never Give Up N A None (or less than 201) Publisher: John Wiley Sons, Inc. Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 2008) 155 The Best Real Estate Advice I Ever Received N A None (or less than 201) Publisher: Thomas Nelson, Inc. Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 2005) 156 The Way To The Top N A None (or less than 201) Publisher: Bill Adler Books Underlying Assets: book Location : New York, NY Value not read ily ascertainable (Published 2004) 157 How to Get Rich N A royalties 5,001 - 15,000 Publisher: Random House Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 2004) 158 Think Big and Kick Ass N A None (or less than 201) Publisher: HarperCollins Publishers Underlying Assets: book Location : New York, NY Value not readily ascertainable (Published 2007) 159 Trump: Surviving At The Top N A None (or less than 201) Publisher: Random House Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 1990) 160 SCREEN ACTORS GUILD PENSION N A Underlying Assets: pension Location: Burbank, CA Value not readily ascertainable pension 84,292 THE ACCOMPANYING SCHEDULE PART2- EXHIBIT A IS AN INTEGRALPARTOFTHE ABOVE AND SHOULD BE READ IN CONJUNCTION THEREWITH. Ga p sin numerrcal sequence are due to the removal of previously reported rte ms no longer reportable on this part. Information being reported Is as of April 15, 2017. Filer's Name I Page Number Donald J. Trump I 28 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Reference 169 THC MIAMI RESTAURANT HOSPITALITY LLC N A 178 500,001 - 1 ,000,000 Value reported reflects bank account holding only. Restaurant operations at Trump National Doral Location: Miami, FL food beverage related 7,390,861 sales 172 40 WALL STREET COMMERCIAL LLC N A 004 15,001 - 50,000 None (or less than 201) Value reported reflects bank account holding only. Entity's other holdings and assets are reported elsewhere; see attached schedule. Payroll company. New York, NY 173 DT DUBAI II GOLF MANAGER LLC N A 061 15,001 - 50,000 royalties None (or less than 201) Value reported reflects bank account holding only. Additional Underlying Asset: management deal with FRONTLINE INVESTMENT MANAGEMENT CO LLC (AN AFFILIATE OF DAMAC) - value not readily ascertainable. Management company, Dubai, UAE; See attached schedule. 174 DT TOWER GURGAON LLC N A 091 1 ,001 - 15,000 royalties 100,001 - 1 ,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with IREO PRIVATE LTD - value not readily ascertainable. License holder, Gurgaon, India; See attached schedule. 176 TAG AIR INC. N A 161 15,001 - 50,000 Value reported reflects bank account holding only. Entity's other holdings and assets are reported elsewhere; see attached schedule. Entity set up to lease 757 from DJT Operations I LLC. aircraft related 7,727,674 New York, NY revenue expense reimbursements 178 THC IMEA DEVELOPMENT LLC N A 177 15,001 - 50,000 None (or less than 201) Va lue reported reflects bank account holding only. Additional Underlying Asset: developer - value not readily ascertainable. Location: New York, NY See attached schedule. 181 DT BALI TECHNICAL SERVICES MANAGER LLC N A 497 1 ,001 - 15,000 Value reported reflects bank account holding only. Additional Underlying Asset: management deal with PT BALI NIRWANA RESORT - value not readily ascertainable. management fees 190,476 Management company, Bali, Indonesia; See attached schedule. 182 DT CONNECT EUROPE LIMITED N A 499 1 ,000,001 - 5,000,000 rent 100,001 - 1,000,000 Underlying Assets: aircraft Location: Tumberry, Scotland See attached schedule THE ACCOMPANYING SCHEDULE (PART2- EXHIBIT A) IS AN INTEGRAL PART OF THE ABOVE AND SHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. Filer's Name Donald J. Trump I I Page Number 29 of 51 Part 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIDIT A) Reference 183 OT ENDEAVOR I LLC N A 500 5,000,001 - 25,000,000 None (or less than 201) Underlying Assets: aircraft Location: Palm Beach, FL See attached schedule 184 OT LIDO TECHNICAL SERVICES MANAGER LLC N A 509 None (or less than 1 ,001) Value reported reflects bank account holding only. Additional Underlying Asset: management deal with PT LIDO NIRWANA PARAHYANGAN - value not readily ascertainable. management fees 190,476 Management company, Lido, Indonesia; See attached schedule. 187 MOBILE PAYROLL CONSTRUCTION LLC N A 523 50,001 - 100,000 None (or less than 201) Va lue reported reflects bank account holding only. Additional Underlying Asset: none Payroll company, Bedminster, NJ; See attached schedule 188 CRIPPLED AMERICA N A royalties 1 ,000,001 - 5,000,000 Publisher: Threshold Editions Underlying Assets: book Location: New York, NY Value not readily ascertainable (Published 2015) 189 DTTM OPERATIONS LLC N A 519 15,001 - 50,000 None (or less than 201) Value reported reflects bank account holding only. Entity's other holdings and assets are reported elsewhere; see attached schedule. Pass-thru entity. New York, NY 190 TRUMP LAS VEGAS MANAGING MEMBER LLC N A 309 None (or less than 1 ,001) Value reported reflects bank account holding only. Entity's other holdings and assets are reported elsewhere; see attached sponsor fee schedule. Pass-thru entity. Las Vegas, NV 53,700 191 Trump Las Vegas Sales Marketing , Inc. NIA 311 1,001 - 15,000 Value reported reflects bank account holding only. Additional Underlying Assets: sales marketing deal with TRUMP RUFFIN TOWER I LLC - value not readily ascertainable. Entity set commissions 14,078,526 up to receive brokerage commissions, Las Vegas, NV; See attached schedule 192 OT TOWER KOLKATA LLC NIA 517 None (or less than 1,001) royalties 100,001 - 1 ,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with CONCAST INFRASTRUCTURE PRIVATE LIMITED, TRIBECA CREATORS LLP, REGENT HIRISE PRIVATE LIMITED, RAJ CONSTRUCTION PROJECTS PRIVATE LIMITED, ROB REALTY INFRASTRUCTURE LIMITED - value not readily ascertainable. License holder, Kolkata, India; See attached schedule. THE ACCOM PANYING SCHEDULE (PART2- EXHIBIT A IS AN INTEGRAL PART OF THE ABOVEANDSHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously r eported items no longer reportable on this part. Information being r eported is as of April 15, 2017. Filer's Name I Page Number Donald J. Trump I 30 of 51 Put 2: Filer's Employment Assets and Income Description EIF attached schedule Value Income Type Income Amount (Part 2 - EXHIBIT A) Reference 193 OT MARKS VANCOUVER LP NIA 087 None (or less than 1 ,001) royalties Over 5,000,000 Value reported reflects bank account holding only. Additional Underlying Asset: license deal with WEST GEORGIA DEVELOPMENT LIMITED PARTNERSHIP AND WEST GEORGIA HOLDINGS INC. - value not readily ascertainable. License holder, Vancouver, Canada; See attached schedule. 194 STORAGE 106 LLC N A 542 5,000,001 - 25,000,000 rent 100,001 - 1,000,000 Underlying Assets: commercial real estate Location: New York, NY See attached schedule THE ACCOMPANYING SCHEDULE(PART2- EXHIBIT A) IS AN INTEGRAL PART OF THE ABOVEANDSHOULD BE READ IN CONJUNCTION THEREWITH. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this part. Information being reported is as of April 15, 2017. OGE Fonn 278e (March 201 4) Instructions for Part 3 N h" . bl" f ote: T 1s 1s a pu 1c orm. Filer's Name Donald J. Trump D o not inc I u d e account num b ers, street a dd resses, or f am1 1 y mem b er names. s ee instructions f or require . d. in f ormat1on. Page Number Part 3: Filer's Employment Agreements and Arrangements Employer or Party City State Status and Terms 1. 2. Screen Actors Guild - Producers Burbank, CA Pension Plan for Motion Picture Actors; payments received on a monthly basis. 31of51 Date July 2011 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. OGE Fann 278e (March 2014) Instructions for Part 4 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required information. Filer's Name Donald J. Trump Part 4: Filer's Sources of Compensation Exceeding 5,000 in a Year Source Name City State Brief Description of Duties 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15 . 16. 17 18. 19. 20. N A !Page Number I 32of51 OGE Form 278c (March 2014) Instructions for Part 5 Note: This is a public form. Do not inc I u d e account num b ers, street a dd resses, or f am11y 1 mem b er names. See instructions f or require . d . in f ormat1on. Filer's Name !Page Number Donald J . Trump I 33ors1 Part 5: Spouse's Employment Assets and Income Description EIF Value Income Type Income Amount 1. Melania LLC N A None (or less than 1 ,001) None (or less than 201) Underlying Assets: inactive Location: New York, NY 2. MELANIA MARKS ACCESSORIES LLC N A None (or less than 201) Underlying Assets: licensing agreement Licensee(s): MZ BERGER COMPANY LLC Location: New York, NY Value not readily ascertainable 3. MELANIA MARKS ACCESSORIES MEMBER CORP N A None (or less than 201) (pass-thru company for MELANIA MARKS ACCESSORIES LLC) Location: New York, NY Value not readily ascertainable 4. 721 33H LLC N A 1 ,000,001 - 5,000,000 None (or less than 201) Underlying Assets: residential real estate Location: New York, NY 5. 721 33H Holdings LLC NIA None (or less than 201) (pass-thru company for 721 33H LLC) Location: New York, NY Value not readily ascertainable 6. 7. 8. 9. 10. Information being reported is as of April 15, 2017. OGE Fann 278e (March 2014) Instructions for Part 6 Note: This is a public form Do not include account numbers I street addresses I or family member names See instructions for required information Filer's Name IPage Number Donald J. Trump I 34 ors1 Part 6: Other Assets and Income Description EIF Value Income Type Income Amount I BARON REAL ESTATE FUND y None (or less than 1 ,001) 100,001 - 1 ,000,000 2 BARON GROWTH FUND y None (or less than 1,001) 100,001 - 1 ,000,000 3 BARON PARTNERS FUND y None (or less than 1 ,001) 100,001 - 1,000,000 AG DIVERSIFIED INCOME FUND PLUS, LP (flkla AG 4 DIVERSIFIED CREDIT STRATEGIES FUND LP) (ANGELO y None (or less than 1 ,001) 100,001 - 1 ,000,000 GORDON) 5 MIDOCEAN CREDIT OPPORTUNITY FUND LP (MIDOCEAN y 1 ,000,001 - 5,000,000 100,001 - 1 ,000,000 CREDIT PARTNERS) 6 JP MORGAN CHASE - CHECKING AND SAVINGS NIA ACCOUNTS 1 ,000,001 - 5,000,000 Interest 1 ,001 - 2,500 7 CAPITAL ONE BANK- CHECKING AND SAVINGS NIA 5,000,001 - 25,000,000 Interest 100,001 - 1,000,000 8 SIGNATURE BANK- CHECKING NIA 100,001 - 250,000 Interest 1 ,001 - 2,500 9 BANK UNITED, NA - MONEY MARKET NIA 100,001 - 250,000 Interest 1 ,001 - 2,500 10 FIRST REPUBLIC BANK - CHECKING NIA 15,001 - 50,000 Interest None (or less than 201) 11 INVESTMENT IN GOLD NIA 100,001 - 250,000 None (or less than 201) 12 WMTMF LLC (US BANK CASH ACCOUNT) NIA 50,001 - 100,000 None (or less than 201) BARCLAYS BANK - BROKERAGE ACCOUNT - HOLDINGS I AT T INC NIA None (or less than 1 ,001) Dividends.Capital Gain 2,501 - 5,000 2 ASTRAZENECA PLC ADR NIA None (or less than 1 ,001) Capital Gain 201 - 1 ,000 3 CROWN CASTLE INTL CORP NIA None (or less than 1 ,001) Dividends.Capital Gain 201 - 1 ,000 4 GENERAL ELECTRIC COMPANY NIA None (or less than 1 ,001) Dividends.Capital Gain 1 ,001 - 2,500 Information being reported is as of April 15, 2017. OGE Fann 278e (March 2014) Instructions for Part 6 Note: This is a public form Do not include account numbers I street addresses I or family member names See instructions for required information Filer's Name IPage Number Donald J. Trump 1 Js ofs1 Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 5 6 7 HALLIBURTON COMPANY ISHS EURO FINLS INDX ETF KINDER MORGAN INC DE NIA None (or less than 1,001) Dividends.Capital Gain 2,501 - 5,000 y None (or less than 1 ,001) 201 - 1 ,000 NIA None (or less than 1 ,001) Dividends.Capital Gain 2,501 - 5,000 8 KRAFT HEINZ CO NIA None (or less than 1 ,001) Capital Gain 201 - 1 ,000 9 JO 11 METLIFE INC PH ILIP MORRIS !NTL INC PFIZER INC NIA None (or less than 1 ,001) Dividends.Capital Gain 2,501 - 5,000 NIA None (or less than 1,001) Capital Gain 201 - 1,000 NIA None (or less than 1 ,001) Dividends.Capital Gain 201 - 1,000 12 PRUDENTIAL FINL INC NIA None (or less than 1,001) Dividends.Capital Gain 2,501 - 5,000 13 RAYTHEON COMPANY NEW NIA None (or less than 1 ,001) Dividends.Capital Gain 2,501 - 5,000 14 SPDR S P BANK ETF y None (or less than 1 ,001) 1 ,001 - 2,500 15 SWISS RE LTD ADR NIA None (or less than 1 ,001) Dividends.Capital Gain 1 ,001 - 2,500 16 U S BANCORP DE NEW NIA None (or less than 1 ,001) Dividends.Capital Gain 1 ,001 - 2,500 17 VNGRD HGH DIV YLD ETF y None (or less than 1 ,001) 201 - 1 ,000 18 VERIZON COMMS INC NIA None (or less than 1 ,001) Dividends.Capital Gain 201 - 1 ,000 OPPENHEIMER-BROKERAGE ACCOUNT - HOLDINGS 1 ALTRIA GROUP INC NIA None (or less than 1 ,001) Dividends.Capital Gain 100,001 - 1 ,000,000 2 AMGEN INC NIA None (or less than 1 ,001) Dividends.Capital Gain 50,001 - 100,000 Information being reported is as of April 15, 2017. OGE FolTll 278e (March 2014) Instructions for Part 6 Note: This is a public form Do not include account numbers , street addresses , or family member names See instructions f or require . d. in f orma ion. Filer's Name !Page Number Donald J. Trump I 36 ors1 Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 3 APPLE INC NIA None (or less than 1,001) Dividends,Capital Gain 100,001 - 1,000,000 4 AT T INC NIA None (or less than 1 ,001) Dividends.Capital Gain 100,001 - 1,000,000 5 BRISTOL MYERS SQUIBB CO NIA None (or less than 1 ,001) Dividends,Capital Gain 100,001 - 1,000,000 6 GENERAL MLS INC NIA None (or less than 1,001) Dividends.Capital Gain 5,001 - 15,000 7 8 9 IO 11 GILEAD SCIENCES INC JPMORGAN CHASE CO COM PHILIP MORRIS INTL INC REGENERON PHARMACEUTICALS UNITED PARCEL SERVICE INC CL B NIA None (or less than 1 ,001) Capital Gain 100,001 - 1 ,000,000 NIA None (or less than 1,001) Dividends.Capital Gain 100,001 - 1 ,000,000 NIA None (or less than 1,001) Dividends.Capital Gain 5,001 - 15,000 NIA None (or less than 1,001) Capital Gain 50,001 - 100,000 NIA None (or less than 1,001) Capital Gain 15,001 - 50,000 12 VERIZON COMMUNICATIONS INC NIA None (or less than 1 ,001) Dividends.Capital Gain 100,001 - 1 ,000,000 13 VISA INC NIA None (or less than 1,001) Capital Gain 100,001 - 1,000,000 14 WASTE MGMT INC DEL NIA None (or less than 1,001) Capital Gain 15,001 - 50,000 15 WELLS FARGO CO NEW NIA None (or less than 1 ,001) Dividends.Capital Gain 50,001 - 100,000 16 YAHOO INC NIA None (or less than 1 ,001) Capital Gain 50,001 - 100,000 17 ADVANTAGE ADVISORS XANTHUS FUND, LLC y None (or less than 1,001) 100,001 - 1,000,000 The Fred C. Trump December 16, 1976 Trust- F B O Donald J. Trumo 1 JP MORGAN CHASE - SAVINGS ACCOUNT NIA 1 ,000,001 - 5,000,000 Interest 1,001 - 2,500 Information being reported is as of April 15, 2017. OGE Fann 27 8e (March 2014) Instructions for Part 6 Note: This is a public form Do not include account numbers I street addresses I or family member names See instructions for requir e d m f orma ion. Filer's Name Donald J. Trump Part 6: Other Assets and Income Description EIF Value Income Type Income Amount I JP MORGAN CLEARING CORP - BROKERAGE ACCOUNT HOLDINGS APPLE, INC NIA None (or less than 1,001) Dividends.Capital Gain 100,001 - 1 ,000,000 2 CATERPILLER INC NIA None (or less than 1,001) Dividends.Capital Gain 15,001 - 50,000 r !Page Number I 31 ors1 3 4 5 MICROSOFT CORP PEPSICO INC ECO TEK 360 INC (flkla GLOBAL FASHION TECHNOLOGIES) NIA None (or less than 1 ,001) Dividends.Capital Gain 100,001 - 1 ,000,000 NIA None (or less than 1 ,001) Dividends.Capital Gain 15,001 - 50,000 NIA 1 ,001 - 15,000 None (or less than 201) 6 HALLIBURTON COMPANY NIA None (or less than 1,001) Dividends.Capital Gain 15,001 - 50,000 7 PHILLIPS 66 COM NIA None (or less than 1 ,001) Dividends.Capital Gain 5,001 - 15,000 The Donald J Trump Revocable Trust I CAPITAL ONE BANK - CHECKING AND SAVINGS (account NIA Over 50,000,000 None (or less than 201) funded 411212017)) DEUTSCHE ASSET WEAL TH MANAGEMENT NC 1 BROKERAGE ACCT - HOLDINGS I 2 3 4 ADVANCE AUTO PTS INC COM INVESCO EUROPEAN GROWTH FUND ALPHABET INC COM CL A ALPHABET INC COM CL C NIA None (or less than 1 ,001) Dividends, Capitai Gain 2,501 - 5,000 y None (or less than 1 ,001) 2,501 - 5,000 NIA None (or less than 1 ,001) Capital Gain 15,001 - 50,000 NIA None (or less than 1 ,001) Capital Gain 15,001 - 50,000 5 AMAZON COM INC COM NIA None (or less than 1 ,001) Capital Gain 15,001 - 50,000 Information being reported is as of April 15, 2017. OGE Fann 278e (March 2014) Instructions for Part 6 Note: This is a public form Do not include account numbers street addresses or family member name s t r f . d . f I I s. ee ins rue IOns or require in ormation. Filer's Name IPage Number Donald J. Trump Part 6: Other Assets and Income Description EIF Value Income Type Income Amount I 3s ofs1 6 7 8 9 AMERICAN WATER WORKS COM AMERIPRISE FINANCIAL INC AMETEK INC NEW COM AMGEN INC OTO 511512012 NIA None (or less than 1 ,001) Dividends, Capital Gain 15,001 - 50,000 NIA None (or less than 1 ,001) Dividends, Capital Gain 15,001 - 50,000 NIA None (or less than 1 ,001) Dividends, Capital Gain 15,001 - 50,000 N A None (or less than 1,001) Interest, Capital Gain 1 ,001 - 2,500 10 APPLE INC COM NIA None (or less than 1 ,001) Dividends, Capital Gain 50,001 - 100,000 I l APPLE INC OTO 51612014 3 NIA None (or less than 1 ,001) Interest, Capital Gain 1,001 - 2,500 12 BOEING CO COM NIA None (or less than 1 ,001) Dividends, Capital Gain 5,001 - 15,000 13 BROADCOM LIMITED COM N A None (or less than 1 ,001) Dividends, Capital Gain 5,001 - 15,000 14 BURLINGTN NORTH SANTA FE BOND NIA None (or less than 1,001) Interest, Capital Gain 1,001 - 2,500 15 CELGENE CORP COM NIA None (or less than 1 ,001) Capital Gain 50,001 - 100,000 16 CISCO SYS COM NIA None (or less than 1,001) Dividends, Capital Gain 201 - 1 ,000 17 CITIGROUP INC COM NIA None (or less than 1 ,001) Dividends, Capital Gain 5,001 - 15,000 18 COCA COLA CO THE BOND NIA None (or less than 1 ,001) Interest, Capital Gain 1 ,001 - 2,500 19 COMCAST CORP NEW CL A NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 20 CONAGRA BRANDS INC COM NIA None (or less than 1 ,001) Dividends, Capital Gain 1 ,001 - 2,500 2 1 COSTCO WHSL CORP NEW COM NIA None (or less than 1,001) Dividends, Capital Gain 2,501 - 5,000 22 CROWN CASTLE INTERNATION N A None (or less than 1,001) Dividends, Capital Gain 5,001 - 15,000 23 DISCOVER FINANCIAL SERVI N A None (or less than 1 ,001) Dividends, Capital Gain 15,001 - 50,000 Information being reported is as of April 15, 2017. OGE Fonn 278e (March 2014) Instructions for Part 6 Note: This is a public form Do not include account numbers I street addresses I or family member names Se e ms t rue r ions f or require . d . in f ormat1on. Filer's Name Donald J. Trump Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 24 ECOLAB INC COM NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 25 EOG RES INC COM NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 26 EXPRESS SCRIPTS HLDG CO NIA None (or less than 1,001) Capital Gain 15,001 - 50,000 27 EXTRA SPACE STORAGE INC NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 28 GENERAL ELEC CAP CORP BOND NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 29 GENERAL ELEC CO COM NIA None (or less than 1 ,001) Dividends, Capital Gain 50,001 - 100,000 30 GENERAL MOTORS FINL CO BOND NIA None (or less than 1,001) Interest, Capital Gain 201 - 1 ,000 !Page Number I 39ofs1 31 GILEAD SCIENCES INC COM NIA None (or less than 1,001) Dividends, Capital Gain 100,001 - 1,000,000 32 HCA HOLDINGS INC COM NIA None (or less than 1,001) Capital Gain 2,501 - 5,000 33 HCA INC DTD 81112011 6.5 NIA None (or less than 1,001) Interest, Capital Gain 1,001 - 2,500 34 HOME DEPOT INC COM NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 35 INTUIT INC COM NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 36 J P MORGAN CHASE CO CO NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 37 JARDEN CORP NIA None (or less than 1,001) Capital Gain 201 - 1,000 38 JOHNSON JOHNSON COM NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 39 JPMORGAN CHASE BOND NIA None (or less than 1 ,001) Interest, Capital Gain 201 - 1,000 40 KRAFT HEINZ CO THE COM NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 41 L BRANDS INC COM NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 Information being reported is as of April 15, 2017. OGE Fann 278e (March 2014) Instructions for Part 6 Note: This is a public form Do not include account numbers street addresses or family member name s t r f . d . f I I s. ee ms rue ions or require m ormation. Filer's Name Donald J. Trump 40 of 51 Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 42 MCKESSON HBOC INC COM N A None (or less than 1,001) Dividends, Capital Gain 50,001 - 100,000 Page Number 43 MEAD JOHNSON NUTRITION C N A None (or less than 1,001) Dividends, Capital Gain 5,001 - 15,000 44 MEDIVATION INC COM N A None (or less than 1 ,001) Capital Gain 15,001 - 50,000 4S MERCK CO INC COM N A None (or less than 1 ,001) Dividends, Capital Gain 5,001 - 15,000 46 MICROSOFT CORP COM N A None (or less than 1 ,001) Dividends, Capital Gain 50,001 - 100,000 47 MORGAN STANLEY BOND N A None (or less than 1 ,001) Interest, Capital Gain 201 - 1 ,000 48 NEWELL BRANDS INC COM N A None (or less than 1 ,001) Capital Gain 201 - 1 ,000 49 NEXTERA ENERGY INC COM N A None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 so NIKE INC CL B N A None (or less than 1,001) Dividends, Capital Gain 50,001 - 100,000 SI NORFOLK SOUTHERN CORP CO N A None (or less than 1,001) Dividends, Capital Gain 5,001 - 15,000 S2 PARKER HANNIFIN CORP COM N A None (or less than 1 ,001) Dividends, Capital Gain 5,001 - 15,000 S3 PEPSICO INC COM N A None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 S4 PEPSICO INC DTD 2 28 201 BOND N A None (or less than 1,001) Interest, Capital Gain 1 ,001 - 2,500 SS PFIZER INC COM N A None (or less than 1 ,001) Dividends, Capital Gain 1 ,001 - 2,500 S6 PHILIP MORRIS INTL INC C NIA None (or less than 1 ,001) Dividends, Capital Gain 5,001 - 15,000 S7 PROCTER GAMBLE CO COM N A None (or less than 1 ,001) Dividends, Capital Gain 5,001 - 15,000 S8 PRUDENTIAL FINL INC COM N A None (or less than 1 ,001) Dividends, Capital Gain 5,001 - 15,000 S9 ROPER TECHNOLOGIES INC C N A None (or less than 1 ,001) Dividends, Capital Gain 15,001 - 50,000 Information being reported is as of April 15, 2017. OGE Fonn 278e (March 2014) Instructions for Part 6 Note This is a public form Do not include account numbers street addr esse s , or f am1 1 y mem b er names. s ee instructions f or required information. ' Filer's Name f Page Number Donald J. Trump I 41 of SI Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 60 SALESFORCE COM INC NIA None (or less than 1,001) Capital Gain 5,001 - 15,000 61 SCHWAB CHARLES COM NIA None (or less than 1 ,001) Capital Gain 5,001 - 15,000 62 SEALED AIR CORP COM NEW NIA None (or less than 1 ,001) Dividends, Capital Gain 201 - 1 ,000 63 SMUCKER J M CO COM NEW NIA None (or less than 1 ,001) Dividends, Capital Gain 1 ,001 - 2,500 64 T MOBILE US INC COM NIA None (or less than 1 ,001) Capital Gain 1,001 - 2,500 65 THERMO FISHER SCIENTIFIC NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 66 TJX COS INC NEW COM NIA None (or less than 1 ,001) Dividends, Capital Gain 50,001 - 100,000 67 TWENTY FIRST CENTURY FOX NIA None (or less than 1,001) Dividends, Capital Gain 5,001 - 15,000 68 UST NTS DTD 811512012 1 NIA None (or less than 1 ,001) Interest, Capital Gain 1,001 - 2,500 69 VF CORP COM NIA None (or less than 1 ,001) Dividends, Capital Gain 5,001 - 15,000 70 VISA INC CL A COM NIA None (or less than 1 ,001) Dividends, Capital Gain 50,001 - 100,000 71 WELLS FARGO CO NEW COM NIA None (or less than 1,001) Dividends, Capital Gain 15,001 - 50,000 I DEUTSCHE ASSET WEAL TH MANAGEMENT A C 2 BOND ACCOUNT - HOLDINGS AMERICAN EXPRESS CREDIT NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 2 ANHEUSER-BUSCH NIA None (or less than 1 ,001) Interest, Capital Gain 1,001 - 2,500 3 APPLE INC DTD 51312013 0 NIA None (or less than 1,001) Interest, Capital Gain 2,501 - 5,000 4 AT T INC DTD 811812011 2 NIA None (or less than 1,001) Interest, Capital Gain 2,501 - 5,000 Information being reported is as of April 15, 2017. OGE Form 278e (March 2014) Instructions for Part 6 Note: This is a public form Do not include account numbers street addresses or family member names See instructio f . d . f I I ns or require in orma r ion. Filer's Name IPage Number Donald J. Trump I 42 ors1 Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 5 BANK OF NOVA SCOTIA NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 6 BERKSHIRE HATHAWAY FIN NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 7 BHP BILLITON FIN USA LTD NIA None (or less than 1 ,001) Interest, Capital Gain 5,001 - 15,000 8 CATERPILLAR FIN SERV CRP NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 9 CHEVRON CORP NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 10 CITIGROUP INC NIA None (or less than 1 ,001) Interest, Capital Gain 5,001 - 15,000 11 CONAGRA INC NIA None (or less than 1 ,001) Interest, Capital Gain 201 - 1 ,000 12 CREDIT SUISSE NEW YORK NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 13 DEUTSCHE GOVERNMENT MONEY MARKET NIA None (or less than 1,001) Dividends, Capital Gain 5,001 - 15,000 14 DEUTSCHE MONEY MARKET SERIES NIA None (or less than 1 ,001) Interest, Capital Gain 201 - 1 ,000 15 ECOLAB INC OTO 121812011 NIA None (or less than 1,001) Interest, Capital Gain 5,001 - 15,000 16 EXXON MOBIL CORPORATION NIA None (or less than 1,001) Interest, Capital Gain 2,501 - 5,000 17 FHLB OTO 712512016 0.00 NIA None (or less than 1,001) Interest, Capital Gain 2,501 - 5,000 18 FMCC DTD 81712012 2.50 NIA None (or less than 1 ,001) Interest, Capital Gain 201 - 1 ,000 19 FNMA DTD 112911999 0.00 NIA None (or less than 1 ,001) Interest, Capital Gain 201 - 1 ,000 20 FORD MTR OTO 1211812006 NIA None (or less than 1 ,001) Interest, Capital Gain 5,001 - 15,000 21 GOLDMAN SACHS GROUP INC NIA None (or less than 1 ,001) Interest, Capital Gain 15,001 - 50,000 22 IBM CORP NIA None (or less than 1,001) Interest, Capital Gain 2,501 - 5,000 Information being reported is as of April 15, 2017. OGE Fann 278e (March 2014) Instructions for Part 6 , , e er names. s . t Note This is a public form Do not include account numbers street addresses or family m mb Filer's Name Donald J. Trump ee ins ructions f or reauired in f ormation. !Page Number I 43ors1 Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 23 INTL BK RECON DEVELOP NIA None (or less than 1 ,001) Interest, Capital Gain 1 ,001 - 2,500 24 J P MORGAN CHASE CO NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 25 JOHN DEERE CAPITAL CORP NIA None (or less than 1 ,001) Interest, Capital Gain 5,001 - 15,000 26 MCDONALD'S CORP NIA None (or less than 1 ,001) Interest, Capital Gain 1 ,001 - 2,500 27 MCKESSON CORP NIA None (or less than 1 ,001) Interest, Capital Gain 201 - 1 ,000 28 MORGAN STANLEY NIA None (or less than 1 ,001) Interest, Capital Gain 15,001 - 50,000 29 NBCUNIVERSAL MEDIA LLC NIA None (or less than 1,001) Interest, Capital Gain 201 - 1 ,000 30 NEW YORK CITY NY NIA None (or less than 1 ,001) Interest, Capital Gain 201 - 1 ,000 31 ORACLE CORP NIA None (or less than 1,001) Interest, Capital Gain 201 -' 1,000 32 PEPSICO INC NIA None (or less than 1 ,001) Interest, Capital Gain 1 ,001 - 2,500 33 PNC BANK NA NIA None (or less than 1 ,001) Interest, Capital Gain 1,001 - 2,500 34 ROYAL BANK OF CANADA NIA None (or less than 1 ,001) Interest, Capital Gain 5,001 - 15,000 35 SHELL INTERNATIONAL FIN NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 36 THERMO FISHER SCIENTIFIC NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 37 TORONTO DOMINION BANK NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 38 TOTAL CAPITAL INTL SA NIA None (or less than 1 ,001) Interest, Capital Gain 5,001 - 15,000 39 TOYOTA MOTOR CREDIT CORP NIA None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 40 UNITED STATES TREAS NTS NIA None (or less than 1 ,001) Interest, Capital Gain 5,001 - 15,000 Information being reported is as of April 15, 2017. OGE Form 278e (March 2014) Instructions for Part 6 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required information. Filer's Name Donald J. Trump Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 41 VERIZON COMMUNICATIONS N A None (or less than 1,001) Interest, Capital Gain 2,501 - 5,000 42 WAL MART STORES INC N A None (or less than 1 ,001) Interest, Capital Gain 201 - 1,000 43 WELLS FARGO COMPANY N A None (or less than 1 ,001) Interest, Capital Gain 2,501 - 5,000 44 WESTPAC BANKING CORP N A None (or less than 1,001) Interest, Capital Gain 2,501 - 5,000 !Page Number I 44 or s1 l 2 3 4 Family Trust 1 !SHARES MSCI EAFE INDEX FUND DODGE COX INCOME FD !SHARES INC MSCI JAPAN NEW DODGE COX !NTL STOCK FD y 15,001 - 50,000 y 1,001 - 15,000 y 1 ,001 - 15,000 y 1 ,001- 15,000 Dividends, Capital Gains 5,001 - 15,000 5 AMG MANAGERS PICTET INTERNATIONAL FUND CLASS y 1 ,001 - 15,000 I 6 JOHN HAN II-ABS RET CURR-I y 1 ,001 - 15,000 7 8 9 IO 11 BLACKROCK HIGH YIELD PT-BLAC CHILTON STRATEGIC EUROPEAN EQUITIES FD AQR MANAGED FUTURES STR-R6 PRIMECAP ODYSSEY STOCK FD U.S. BANK CASH ACCOUNT y 1,001 - 15,000 y 1 ,001 - 15,000 y 1,001 - 15,000 y 15,001 - 50,000 N A 1,001 - 15,000 12 !SHARES RUSSELL MIDCAP INDEX FUND y 15,001 - 50,000 J.P. Morgan is the sole Trustee. Donald J. Trump retains an income interest only in the Family Trusts and has no investment decision authority. Information being reported is as of April 15, 2017. OGE Fonn 278e (March 20 14) Instructions for Part 6 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required information Filer's Name Donald J. Trump Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 13 SPDR S P 500 ETF TRUST y 15,001 - 50,000 14 JPM GLBL RES ENH INDEX FD - CL I FUND 3457 y 15,001 - 50,000 15 FMI LARGE CAP FUND-INST y 1 ,001 - 15,000 16 JPM US LARGE CP CORE PLUS FD - CL I FUND 1002 y 15,001 - 50,000 17 NEUBERGER BER MU C OPP-INS y 15,001 - 50,000 18 MFS EMERGING MKTS DEBT FD-I y 1,001 - 15,000 19 PIMCO UNCONSTRAINED BOND-INS y 1,001 - 15,000 20 ARTISAN INTL VALUE FD-INS y 1,001 - 15,000 !Page Number I 4s ors1 21 JPM MID CAP VALUE FD - L FUND 758 y 1 ,001 - 15,000 22 JPM SHRT-INT MUNI BND FD - CL L FUND 3602 1.48 y 15,001 - 50,000 23 AQR LONG-SHORT EQUITY-R6 y 1,001 - 15,000 24 PRUDENTIAL TOTAL RETRN BND-Z y None (or less than 1,001) 25 VANGUARD INTM TRM INV G-ADM y None (or less than 1 ,001) I Family Trust 2 ISHARES INC MSCI JAPAN NEW y 1 ,001 - 15,000 Dividends, Capital Gains 5,001 - 15,000 2 JPM US LARGE CP CORE PLUS FD - CL I FUND 1002 y 15,001 - 50,000 3 CHILTON STRATEGIC EUROPEAN EQUITIES FD y 1 ,001 - 15,000 J.P. Morgan is the sole Trustee. Donald J. Trump retains an income interest only in the Family Trusts and has no investment decision authority. Information being reported is as of April 15, 2017. OGE Fann 278e (March 2014) Instructions for Part 6 N o t e: Th. IS IS . a pu bl" 1c f orm. D o no t . inc I u d e accoun t num b ers, s t ree t a dd f 1 b Filer's Name Donald J. Trump Part 6: Other Assets and Income ee ins rue ions or require in ormat1on. resses, or amt y mem er names. s . t f f . d . f Description EIF Value Income Type Income Amount 4 JPM SH RT-INT MUNI BND FD - CL L FUND 3602 1.48 y 15,001 - 50,000 5 DODGE COX INCOME FD y 1 ,001 - 15,000 !Page Number I 46ofs1 6 !SHARES RUSSELL MIDCAP INDEX FUND y 15,001 - 50,000 7 ARTISAN INTL VALUE FD-INS y 15,001 - 50,000 8 !SHARES MSCI EAFE INDEX FUND y 15,001 - 50,000 9 U.S. BANK CASH ACCOUNT NIA 15,001 - 50,000 10 AMG MANAGERS PICTET INTERNATIONAL FUND CLASS y 1,001 - 15,000 I 11 PRIMECAP ODYSSEY STOCK FD y 15,001 - 50,000 12 JOHN HAN II-ABS RET CURR-I y 1 ,001 - 15,000 13 JPM GLBL RES ENH INDEX FD - CL I FUND 3457 y 15,001 - 50,000 14 EQUINOX FDS TR IPM SYSTMATC I y 1 ,001 - 15,000 15 PIMCO UNCONSTRAINED BOND-INS y 1 ,001 - 15,000 16 BLACKROCK HIGH YIELD PT-BLAC y 15,001 - 50,000 17 FMI LARGE CAP FUND-INST y 1,001 - 15,000 18 MFS EMERGING MKTS DEBT FD-I y 1 ,001 - 15,000 19 JPM MID CAP VALUE FD - L FUND 758 y 15,001 - 50,000 20 SPDR S P 500 ETF TRUST y 15,001 - 50,000 2 1 AQR LONG-SHORT EQUITY-R6 y 1 ,001 - 15,000 J.P. Morgan is the sole Trustee. Donald J. Trump retains an income interest only in the Family Trusts and has no investment decision authority. Information being reported is as of April 15, 2017. OGE Fann 278e (March 2014) Instructions for Part 6 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required information Filer's Name Donald J. Trump Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 22 DODGE COX INTL STOCK FD y 1 ,001 c 15,000 23 NEUBERGER BER MU C OPP-INS y 15,001 - 50,000 24 PRUDENTIAL TOTAL RETRN BND-Z y None (or less than 1,001) 25 VANGUARD INTM TRM INV G-ADM y None (or less than 1,001) ,..... - !Page Number I 47 of51 I 2 3 4 5 6 7 8 9 JO 11 Family Trust 3 !SHARES RUSSELL MIDCAP INDEX FUND PRIMECAP ODYSSEY STOCK FD BLACKROCK HIGH YIELD PT-BLAC JPM SHRT-INT MUNI BND FD - CL L FUND 3602 1.48 !SHARES MSCI EAFE INDEX FUND JPM US LARGE CP CORE PLUS FD - CL I FUND 1002 MFS EMERGING MKTS DEBT FD-I AQR MANAGED FUTURES STR-R6 DODGE COX INTL STOCK FD SPDR S P 500 ETF TRUST DODGE COX INCOME FD y 15,001 - 50,000 y 15,001 - 50,000 y 15,001 - 50,000 y 15,001 - 50,000 y 15,001 - 50,000 y 15,001 - 50,000 y 1 ,001 - 15,000 y 1,001 - 15,000 y 15,001 - 50,000 y 50,001 - 100,000 y 1 ,001 - 15,000 Dividends, Capital Gains 15,001 - 50,000 12 AMG MANAGERS PICTET INTERNATIONAL FUND CLASS y 1,001 - 15,000 I J.P. Morgan is the sole Trustee. Donald J. Trump retains an income interest only in the Family Trusts and has no investment decision authority. Information being reported is as of April 15, 2017. OGE Fonn 278e (March 2014) Instructions for Part 6 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required information. Filer's Name IPage Number Donald J. Trump I 48 of51 Part 6: Other Assets and Income Description EIF Value Income Type Income Amount 13 !SHARES INC MSCI JAPAN NEW y 1,001 - 15,000 14 NEUBERGER BER MU C OPP-INS y 15,001 - 50,000 15 ARTISAN INTL VALUE FD-INS y 15,001 - 50,000 16 PIMCO UNCONSTRAINED BOND-INS y 1,001 - 15,000 17 JOHN HAN II-ABS RET CURR-I y 1,001 - 15,000 18 AQR LONG-SHORT EQUITY-R6 y 1 ,001 - 15,000 19 JPM MID CAP VALUE FD - L FUND 758 y 15,001 - 50,000 20 JPM GLBL RES ENH INDEX FD - CL I FUND 3457 y 50,001 - 100,000 21 CHILTON STRATEGIC EUROPEAN EQUITIES FD y 1,001 - 15,000 22 U.S. BANK CASH ACCOUNT N A 15,001 - 50,000 23 PRUDENTIAL TOTAL RETRN BND-Z y None (or less than 1,001) 24 VANGUARD INTM TRM INV G-ADM y None (or less than 1 ,001) 25 FMI LARGE CAP FUND y None (or less than 1 ,001) J.P. Morgan is the sole Trustee. Donald J. Trump retains an income interest only in the Family Trusts and has no investment decision authority. Information being reported is as of April 15, 2017. OGE Form 278e (March 2014) Instructions for Part 7 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required information. Filer's Name Page Number Donald J Trump 49 of 51 Part 7: Transactions Description Type Date Amount 1. 2. 3. NIA 4. 5. 6. 7. 8. 9. 10. 11. 12. 13 . 14. 15. 16. 17. 18. 19. 20. OGE Fonn 278e (March 20 14) Instructions for Part 8 Note This is a public form Do not include account numbers, street addresses, or family member names. See instructions for required information. Filer's Name Donald J. Trump Part 8: Liabilities Creditor Name Type Amount Year Incurred Rate I. Ladder Capital Finance LLC 2. Trump Tower Commercial LLC - mortgage Over 50,000,000 2012 4.200 Ladder Capital Finance I LLC 40 Wall Street LLC - loan Over 50,000,000 2015 3.665 3. Deutsche Bank Trust Company Americas Trump National Doral - mortgage Over 50,000,000 2012 LIBOR 1.75 or Prime minus .75 4. Deutsche Bank Trust Company Americas Trump National Doral - mortgage 5,000,001 - 25,000,000 2012 LIBOR 1.75 or Prime minus .75 5. The Bank of New York Mellon Trust Company N .A. , as trustee Fifty-Seventh Street Associates LLC - issuer of secured lease bonds 500,001 - 1 ,000,000 1996 7.125 6. Investors Savings Bank Trump Park Avenue LLC - mortgage 5,000,001 - 25,000,000 2010 3.250 7. Ladder Capital Finance LLC Trump Plaza LLC - mortgage 5,000,001 - 25,000,000 2014 3.850 8. Amboy Bank Trump National Golf Club Colts Neck LLC - mortgage 5,000,001 - 25,000,000 2008 5.250 9. Chevy Chase Trust Holdings, Inc. as successor in interest to Bondy Way Development Trump National Golf Club Washington DC LLC - mortgage 5,000,001 - 25,000,000 2009 5.500 10. Royal Bank America Seven Springs - mortgage 5,000,001 - 25,000,000 2000 4.000 11.a. UBS Real Estate Investments Inc. TIHT Commercial LLC - mortgage 5,000,001 - 25,000,000 2006 6.180 11.b. Ladder Capital Finance LLC TIHT Commercial LLC - mortgage 5,000,001 - 25,000,000 2016 4.050 Page Number 50 of 51 Term Matures in 2022 Matures in 2025 Matures in 2023 Matures in 2023 Matures in 2017 Matures in 2020 Matures in 2024 Matures in 2028 Matures in 2029 Matures in 2019 Matures in 2016 Matures in 2026 12. Merrill Lynch Credit Corporation 1094 S Ocean Blvd - mortgage 100,001 - 250,000 1994 13. Merrill Lynch Credit Corporation 124 Woodbridge Road - mortgage 50,001 - 100,000 1993 Six month LIBOR 1.50 Six month LIBOR 1.75 Matures in 2019 Matures in 2019 14. Chicago Unit Acquisition LLC TIHT Chicago - springing loan Over 50,000,000 2012 Prime 5 Springing loan 15. Deutsche Bank Trust Company Americas TIHT Chicago - term loan 25,000,001 - 50,000,000 2012 16. Deutsche Bank Trust Company Americas Trump Old Post Office - loan Over 50,000,000 2015 17. LIBOR 2.00 or Prime minus .50 LIBOR or Prime 2.00 Matures in 2024 Matures in 2024 ( ) UBS Real Estate Investments Inc. mortgage (11 .a.) was refinanced by Ladder Capital Finance LLC (1 1.b.) after the close of the reporting period in 2016. NOTE: Reporting date for liabilities is May 31 , 2017 per 5 CFR 2634.308(b)(3). OGE Fonn 278e (March 2014) Instructions for Part 9 N ote: Th' IS . IS a pu bl' 1c f orm. D o not . inc I u d e account num b ers, street a dd resses, or f am1 'I y mem b er names. Filer's Name Donald J Trump Part 9: Gifts and Travel Reimbursements Source Name City State Brief Description 1. 2. N A s f . d . f ee instructions or require in ormat1on. Page Number 51 of51 Value 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13 . 14. 15. 16. 17. 18. 19. 20. Reference OOEForm271'c0ib.rth201JJ Instructions for Part 2 Note.: This is a public form. Do not Include account numbers, st reet addresses, or fami ly member names. See instructions for required Information. Filer's Nnme PngcNumbcr Donald J . Trump Al of47 Part 2 disclosed entitles with assets over 1,000 or which produced income of over 200. This Schedule (EXHIBIT A) discloses the ownership structure of the entities on Part 2, as well as additional entitles that are not disclosed on Part 2. For each of the entitles below that are not disclosed on Part 2, the numerical or text label indicates which reason for non-disclosure applies. The numerical labels are as follows: (1) have no independent value or income and are part of the entity structures listed in Part 2; (2) have no independent value or income and provide back office support functions to other entitles; (3) are dormant inactive; (4) have no independent value or Income and exist to hold license deals that are prospective, inactive, or othenvlse do not currently have valuable assets or create income; or (5) have no independent value or Income, not inactive nor dormant, not part of an entity structure or license deal. This Schedule is being provided to ensure a complete picture of the assets and holdings of the filer. Gaps in numerical sequence are due to the removal of previously reported items no longer reportable on this exhibit. All of the interests listed below in this exhibit, which were formerly held by Donald J. Trump, directly or indirectly, are now held by Th e Donald J. Trump Revocable Trust. 1 4 SHADOW TREE LANE LLC 5) Owned by: Ownership 1 99 2 4 SHADOW TREE LANE MEMBER CORP (1) Name 4 SHADOW TREE LANE MEMBER CORP DJT HOLDINGS LLC Role Managing Member Member Owned by: 0wnershlo 100 Name DJT HOLDINGS MANAGING MEMBER LLC Has ownership Interest In : EntltvName Ownership Title 4 SHADOW TREE LANE LLC 1.00 Managing Member Role Shareholder 3 40 Wall Development Associates, LLC (1) Owned by: Ownership 0.1 99.9 Name Pare Consulting, Inc. The Donald J. Trump Revocable Trust Role Member Member Has ownership Interest In: Entity Name Ownershlo 40 Wall Street LLC 99.90 40 WALL STREET COMMERCIAL 100.00 LLC 40 Wall Street Member Corp. 100.00 Title Member Member Shareholder 4 40 WALL STREET COMMERCIAL LLC Owned by : Ownership 100 Name 40 Wall Development Associates, llC Role Member s 40 Wall Street LLC Owned by: Ownership 0.1 Name 40 Wall Street Member Corp. Role Managing Member 99.9 40 Wall Development Associates, LLC Member 6 40 Wall Street Member Corp. (1) Owned by: Ownership 100 Name Role 40 Wall Development Associates, llC Shareholder Has ownership Interest In: EntitvName 40 Wall Street LLC Ownership Title 0.10 Managing Member 7 401 MEZZ VENTURE LLC (1) Owned by: Has ownership interest Jn: Ownership 1 49 so Name TRUMP CHICAGO MANAGING MEMBERLLC TRUMP CHICAGO MEMBER LLC TIHT CHICAGO MEMBER ACQUISITION LLC Entity Name Ownership Title 401 North Wabash Venture LLC 100.00 Member Role Managing Member Member Member TRUMP CHICAGO RETAIL LLC 100.00 Member s 401 North Wabash Venture LLC Owned by: Has ownership Interest In : Ownership Name 100 401 MEZZ VENTURE LLC Entity Name Ownership TRUMP COMMERCIAL CHICAGO 100.00 llC Title Member Role Member OGEForm271 P,lari: h 201 ) Instructions for Part 2 Note : This is a public form. Do not include account numbers, strl!et addresses, or hlmlly member names. See Instructions for required Information. Filer's Name Page Number Donald J . Tnimp A2 of 47 Reference TRUMP PAYROLL CHICAGO LLC 100.00 Managing Member 9 809 NORTH CANON LLC Owned by : Ownership 1 99 10 809 NORTH CANON MEMBER CORPORATION (1 I N!!M 809 NORTH CANON MEMBER CORPORATION DJT HOLDINGS LLC Role Managing Member Member Owned by: Has ownership Interest In : Ownership 100 Entity Name 809 NORTH CANON LLC Name DJT HOLDINGS MANAGING MEMBER LLC Title Managing Member Role Shareholder 11 81 Pine Note Holder Inc. (31 Owned by: 12 845 UN Limited Partnership Ownership 100 Name DJT Holdings LLC Role Shareholder Owned by: 0wnershlo 60 40 13 Ace Entertainment Holdings Inc. (31 Owned by: Ownership 100 14 All Countv Building Supplv Maintenance Corp. (31 Owned by: Ownership 25 75 15 AVIATION PAYROLL COMPANY (21 Name Trump 845 LP LLC Trump 845 UN GP LLC Name DJT Holdings LLC Name DJT Holdings LLC Trump Family Members Role Partner Partner Role Shareholder Role Shareholder Shareholder Owned by: Ownership 100 Name DJT HOLDINGS MANAGING MEMBER LLC Role Shareholder 16 B. Plaza Rea Iv Corp. (31 Owned by : Ownership 100 17 Beach Haven Apartments 3 LLC r31 Name Trump, Donald J. Role Shareholder Owned by: Ownership 25 Name The Donald J. Trump Revocable Trust Role Member 18 Beach Haven Apt 1. Inc. r11 75 Trump Family Members Member Owned by : Ownership 25 Name The Donald J, Trump Revocable Trust Role Shareholder 75 Has ownership interest in : Entity Name Starrett City Associates, LP. Spring Creek Plaza LLC 20 Beach Haven Shopping Center LLC r31 Trump Family Members Ownership 0.86 0.86 Title Partner Member Shareholder Owned by: 21 Bedford Hiiis Corp. "(1 I Ownership 25 75 Name DJT Holdings LLC Trump Family Members Role Member Member Owned by : Ownership 100 Has ownership Interest in : Entltv Name Seven Springs LLC 22 TRUMP BRIARCLIFF MANOR DEVELOPMENT LLC "(21 Name DJT Holdings LLC Ownership 0.10 Title Member Role Sha reholder Owned by : Ownership 0.1 99.9 Name BRIARCLIFF PROPERTIES, INC. DJT HOLDINGS LLC Role Member Member OOE Fann271c0.l nh10U) Instructions for Part 2 Note: This Is a public form. Do not Include account numbers, street add resses, or famlly member names. See Instructions for required Information. Filer's Nnmc Pngc Number Donald J . Trump A3 of 4 7 Reference U 23 Briar Hall Operations LLC (3) Owned by: 0wnershlo 0.1 99.9 24 BRIARCLIFF PROPERTIES, INC. (1) Name Development Member Inc. DJT Holdings LLC Role Member Member Owned by: Ownership 100 Has ownership interest in: Entltv Name Ownership BRIAR HALL DEVELOPMENTLLC 0.10 (N K A TRUMP BRIARCLIFF MANOR DEVELOPMENT LLC) 25 Car business Investments, S.R.L. Name DJT HOLDINGS MANAGING MEMBER LLC Title Member Role Shareholder Owned by: Ownership 1 99 Name THE CARI BUSINESS RE CORP CARIBUSINESS MRE LLC Role Member Member 26 CAR BUSINESS MRE LLC (11 Owned by : Ownership 1 Name THE CARIBUSINESS RE CORP Role Managing Member Has ownership Interest in : 99 Entity Name Car business Investments, S.R.L OJT Holdings LLC Ownership 99.00 Title Member Member 27 Chelsea Hall LLC (3! Owned by: Ownership 25 75 28 CHICAGO UNIT ACQ.U SIT ON LLC (5! Name DJT Holdings LLC Trump Family Members Role Member Member Owned by : 29 CHINA TRADEMARK LLC (3! Ownership 100 Name DJT Holdings LLC Role Member Owned by: 30 Cl'f.de Hall, Inc. (3! Ownership 100 Name DJT Holdings LLC Role Member Owned by: 31 Coronet Hall, Inc. (3! Ownership 25 75 Name DJT Holdings LLC Trump Famlly Members Role Shareholder Shareholder Owned by : 32 Count Apartments, LLC Ownership 25 75 Name DJT Holdings LLC Trump Family Members Role Shareholder Shareholder Owned by: 33 Count Investors LLC (3! Ownership 25 75 Name DJT Holdings LLC Trump Family Members Role Member Member Owned by: 34 Count Properties, LLC Ownership 25 75 Name DJT Holdings LLC Trump Family Members Role Member Member Owned by: Ownership 25 7S 35 DB PACE ACQ.UISIT ON MEMBER CORP (1! Name DJT Holdings LLC Trump Family Members Role Member Member Owned by : Has ownership interest In : Ownership 100 Entltv Name Name DJT HOLDINGS MANAGING MEMBER LLC Ownership Title Role Shareholder 00F.Foon271c(M1n:h20I ) Reference Instructions for Part 2 Note: Th is iS a public form. Do not include account numbers, street addresses, or family member na mes. See Instructions for required Information. Filer's Name Page Number Donald J . Trump A4 of 47 D B Pace Acquisition, LLC 1.00 Managing Member 36 D B Pace Acquisition, LLC Owned by: 37 Development Member Inc. (3) Owned by: 0wnershlo 1 Has ownership interest in : Briar Hall Operations LLC 38 DJ Aerospace (Bermuda) Limited (3) 99 Ownership 100 Name D B PACE ACQUISITION MEMBER CORP DJT Holdings LLC Name DJTHOLDINGS MANAGING MEMBER LLC Ownership Title 0.10 Member Role Managing Member Member Role Shareholder Owned by: 39 DJT AEROSPACE LLC Ownership 100 Name DJT Holdings LLC Role Shareholder Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Member 40 DJT ENTREPRENEUR MANAGING MEMBER LLC (1) Owned by : Ownership 100 Has ownership Interest In : Entity Name THETRUMP ENTREPRENEUR INITIATIVE LLC (NY DOMESTIC) 41 DJT ENTREPRENEUR MEMBER LLC (1) Name DJT Holdings LLC Ownership 0.10 Title Managing Member Role Member Owned by: Ownership Name 100 DJT Holdings LLC Has ownership Interest In : Entity Name THE TRUMP ENTREPRENEUR Ownership 91.90 INITI ATIVE LLC (NY DOMESTIC) 42 DJT HOLDINGS LLC Title Member Role Member Assumed Names : Owned by: DJT 3 HOLDINGS LLC 0wnershlo 1 99 Jurisdiction Fl orida Name DJT HOLDINGS MANAGING MEMBER LLC The Donald J. Trump Revocable Trust Expiration Date Role Managing Member Member Has ownership Interest In : various entities as indicated elsewhere In this schedule 43 DJT HOLDINGS MANAGING MEMBER LLC (11 Owned by: Ownership 100 Name The Donald J. Tru mp Revocable Trust Role Member Has ownership Interest In : various entities as indicated elsewhere in this schedule 44 DJT LAND HOLDINGS MEMBER CORP 31 Owned by: Ownership Name 100 DJT HOLDINGS MANAGING MEMBER LLC 45 DJT OPERA T ONS ex LLC 51 Owned by : Ownership Name 100 DJT Holdings LLC 46 DJT OPERA T ONS I LLC Owned by: Ownership Name 100 The Donald J. Trump Revocable Trust Role Shareholder Role Member Role Member 47 DJT OPERATIONS II LLC (11 Owned bv : 0wnershl Name Role Reference cxm F m271cCM n:h201 J Instructions for Part 2 Note: This is a publfc form . Do not Include account numbers, street addresses, or famlly member names. See instructions for required Information. Filer's Name Pogc Number Donald J . Trump AS of47 100 The Donald J. Trump Revocable Trust Member Has ownership Interest In: EntltvName TAG AIR INC. Ownershlo 100.00 Title Shareholder 48 Donald J Trump Enterprises LLC (3 Owned by: Ownership 100 49 Donald J. Trump Enterprises II LLC (3 Owned by: Ownership 100 so Donald J. Trump Enterprises Ill LLC (3 Owned by: Ownership 100 51 DSN LICENSING LLC (3 Name Trump Family Members Name Trump Famlly Members Name Trump Family Members Role Member Role Member Role Member Owned by: Ownership l 99 Name Trump, Donald J. DSN LICENSING MEMBER CORP Member Managing Member sz OSN LICENSING MEMBER CORP (3 Owned by: Has ownership interest In : Ownership 100 Entity Name OSN LICENSING LLC Name Trump, Donald J. Ownership 99.00 Title Managing Member Role Shareholder 53 DT APP WARRANT HOLDING LLC (3 Owned by: Ownership Name OT APP WARRANT HOLDING MANAGING MEMBER CORP 99 DTIM OPERATIONS LLC 54 DT APP WARRANT HOLDING MANAGING MEMBER CORP (3 Role Managing Member Member Owned by: Has ownership Interest Jn: ss DT CONNECT II LLC Ownership 100 Entity Name OT APP WARRANT HOLDING LLC 1.00 Name DTIM Operations Managing Member Corp Ownership Title Managing Member Role Shareholder Owned by: Ownership 1 Name OT CONNECT II MEMBER CORP Role Managing Member 99 56 DT CONNECT II MEMBER CORP (1 OJT HOLDINGS LLC Member Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership interest In : Entity Name Ownership Title OT CONNECT 11 LLC 1.00 Managing Member 59 DT DUBAI GOLF MANAGER LLC Owned by : Ownership l 99 60 DT DUBAI GOLF MANAGER MEMBER CORP (1 I Name OT DUBAI GOLF MANAGER MEMBER CORP OJT Holdings LLC Role Managing Member Member Owned by : Ownership Name Role 100 OJT HoldJngs Managing Member LLC Shareholder Has ownership interest In : Entity Name Ownership Title OT DUBAI GOLF MANAGER LLC 1.00 Managing Member 61 DT DUBAI II GOLF MANAGER LLC Reference ti OO F. Form211a (: f..,d1 201. ) Instructions for Part 2 Note: This is a public form. Do not include account numbers, street addresses, or famlly member names. See Instructions for required information. Filer's No.me Pnge Number Donald J. Trump A6of4 Owned by: Ownership 1 99 62 DT DUBAI II GOLF MANAGER MEMBER CORP '(1) Name OT DUBAI II GOLF MANAGER MEMBER CORP TTTT VENTURE LLC Role Managing Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name Ownership OT DUBAI 11 GOLF MANAGER LLC 1.00 Title Managing Member 63 DT HOME MARKS INTERNATIONAL LLC Owned by: Ownership 1 Name OT HOME MARKS INTERNATIONAL MEMBER CORP 99 DTTM OPERATIONS LLC 64 DT HOME MARKS INTERNATIONAL MEMBER CORP '(1) Owned by: 0wnershlo 100 DTIM Operations Managing Member Corp Has ownership Interest In: Entltv Name Ownership OT HOME MARKS INTERNATIONAL 1.00 LLC 6S DT IND A VENTURE LLC '(3) Title Managing Member Role Managing Member Member Role Shareholder Owned by : Ownership 1 99 66 DT IND A VENTURE MANAGING MEMBER CORP '(3) Name OT INDIA VENTURE MANAGING MEMBER CORP DTTM OPERATIONS LLC Role Member Member Owned by : Has ownership Interest In : 67 DT MARKS BAKU LLC '(3) 0wnershlo 100 Entity Name OT INDIA VENTURE LLC DTIM Operations Managing Member Corp Ownership 1.00 Title Member Role Shareholder Owned by: Ownership 1 99 68 DT MARKS BAKU MANAGING MEMBER CORP '(3) Name OT MARKS BAKU MANAGING MEMBER CORP DTTM OPERATIONS LLC Role Managing Member Member Owned by: Has ownership interest In: Ownership 100 Entity Name OT MARKS BAKU LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 71 DT MARKS DUBAI LLC '(4) Owned by: Ownership 1 rilmg OT MARKS DUBAI MEMBER CORP Role Managing Member 99 72 DT MARKS DUBAI MEMBER CORP '(4) DTTM OPERATIONS LLC Member Owned by: Has ownership Interest In : Ownership 100 Entity Name OT MARKS DUBAI LLC DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 73 DT MARKS GURGAON LLC 'f41 Owned by: Ownership Name 1 OT MARKS GURGAON MANAGING MEMBER CORP Role Managing Member 99 DTTM OPERATIONS LLC Member OGEFonn278c(M....:hlOIJ) Instructions for Part 2 Note: This is a public form. Do not include account numbers, street addresses, or famlly member names. See instructions for required Information. Filcr'sNnme PngcNumbcr Donald J . Trump A7 of47 Reference 74 DT MARKS GURGAON MANAGING MEMBER CORP (41 Owned by : Has ownership Interest In: Ownership 100 EntltvName OT MARKS GURGAON LLC DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 75 DT MARKS JERSEY CITY LLC (41 Owned by: 76 DT MARKS JUPITER LLC (4 Ownership 100 Name DTIM OPERATIONS LLC Role Member Owned by: Ownership 100 Name DTIM OPERATIONS LLC Role Managing Member 77 DT MARKS PRODUCTS INTERNATIONAL LLC Y4 Owned by: Ownership 1 Name OT MARKS PRODUCTS INTERNATIONAL MEMBER CORP 99 DTIM OPERATIONS LLC 78 DT MARKS PRODUCTS INTERNATIONAL MEMBER CORP (41 Role Managing Member Member Owned by : Has ownership Interest In: 79 DT MARKS PUNE II LLC (31 Ownership 100 EntltvName OT MARKS PRODUCTS INTERNATIONAL LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder Owned by: Ownership 1 99 Name OT MARKS PUNE 11 MANAGING MEMBER CORP DTIM OPERATIONS LLC Role Managing Member Member 80 DT MARKS PUNE II MANAGING MEMBER CORP Y31 Owned by: Has ownership Interest In : Ownership 100 Entity Name OT MARKS PUNE II LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 81 DT MARKS PUNE LLC (4 Owned by: Ownership 1 99 82 DT MARKS PUNE MANAGING MEMBER CORP (41 Name OT MARKS PUNE MANAGING MEMBER CORP DTIM OPERATIONS LLC Role Managing Member Member Owned by : Has ownership interest In: Ownership 100 Entity Name OT MARKS PUNE LLC Name OTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 83 DT MARKS QATAR LLC (3 Owned by: Ownership 1 Name OT MARKS QATAR MEMBER CORP Role Managing Member 99 DTIM OPERATIONS LLC 84 DT MARKS QATAR MEMBER CORP (3 Member Owned by: Has ownership interest In : Ownership 100 DTIM Operations Managing Member Corp Ownership Role Shareholder OGE F orm 27 1 c C. l.Slch 20 1 ) Reference Instructions for Part 2 Note : This Is a public form . Do not include account numbers, street addresses, or famlly member names. See Instructions for required information. Filer's Nnme Pnge Number Donald J . Trump A8 of47 DT MARKS QA TAR LLC 1.00 Managing Member BS DT MARKS RIO LLC '(3) Owned by: Ownership Name DT MARKS RIO MEMBER CORP Role Managing Member 99 86 DT MARKS RIO MEMBER CORP (3) DTIM OPERATIONS LLC Member Owned by : Has ownership Interest in : Ownership 100 Entity Name DT MARKS RIO LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 87 DT MARKS VANCOUVER LP Owned by: Ownership 1 99 Name Title OT MARKS VANCOUVER MEMBER General Partner CORP The Donald J. Trump Revocable Trust limited Partner BB DT MARKS VANCOUVER MEMBER CORP (1) Owned by : Has ownership Interest In : 89 DT Marks Worli LLC Ownership 100 Entity Name DT MARKS VANCOUVER LP Name OTIM Operations Managing Member Corp Ownership 1.000000 units (100.00 ) Title General Partner Role Shareholder Owned by: Ownership 1 Name OT Marks Worli Member Corp Role Managing Member 99 90 DT Marks Worl Member Corp (1) DTIM OPERATIONS LLC Member Owned by: Has ownership Interest In : Ownership 100 EntltvName OT Marks Worli LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 91 DT TOWER GURGAON LLC Owned by: Ownership 1 99 92 DT TOWER GURGAON MANAGING MEMBER CORP (1) Name OTTOWER GURGAON MANAGING MEMBER CORP TITI Venture LLC Role Managing Member Member Owned by : Has ownership interest in: Ownership 100 Entity Name DTTOWER GURGAON LLC DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 93 DTW VENTURE LLC Owned by : Ownership 100 94 DTW VENTURE MANAGING MEMBER CORP. (3) DJT Hold ings LLC Role Member Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder 9S EID Venture I Corporation (3) Owned by: 96 EID Venture I LLC (3) Ownership 100 OTIM Operations Managing Member Corp Role Shareholder Owned by : Ownership OO Ef orm 271cQ h :lO I ) p- Instructions for Part 2 Note: This Is a public form . Do not indude account numbers, street addresses, or family member names. See Instructions for required Information. f- 100 97 Excel Venture I Corporation r1 I DTIM OPERATIONS LLC Member Owned by: 0wnershlo 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest In: EntitvName Excel Venture I LLC Ownership Title 1.00 Managing Member 98 Excel Venture I LLC Owned by: Ownership 1 Name Excel Venture I Corporation Role Managing Member 99 99 Fiftv-Seven Management Corp. r1 I DJT HOLDINGS LLC Member Owned by : Ownership 100 Name The Donald J, Trump Revocable Trust Role Shareholder Has ownership interest In : EntltvName Fifty-Seventh Street Associates LLC 100 Flftv-Seventh Street Associates LLC Ownership Title 1.00 Managing Member Owned by : 0wnershlo 1 Name Fifty-Seven Management Corp. Role Managing Member 101 FIRST MEMBER INC (1 I 99 The Trump-Equitable Fifth Avenue Company Member Owned by : Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership Interest In : Entltv Name TRUMP PALACE PARC LLC Ownership Title 0.10 Managing Member 102 FLIGHTS INC (51 Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder 103 FLORIDA PROPERTIES MANAGEMENT LC r21 Owned by: Ownership 100 104 Fountainbleu Apartments LLC (31 Name OJT Holdings LLC Role Member Owned by: 10s Golf Productions LLC rs1 Ownership 25 75 Name OJT Holdings LLC Trump Family Members Role Me mber Member Owned by: Ownership 1 Name Golf Productions Member Corp Role Managing Member 99 106 Golf Productions Member Corp (11 DJT Holdings LLC Member Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name Golf Productions llC Ownership Tltle 1.00 Managing Member 107 Golf Recreation Scotland Limited r1 I Owned by: Has ownership Interest In : Ownership 100 Entity Name TRUMP TURNBERRY Name TURNBERRY SCOTLAND LLC Ownership 100.00 Title Shareholder Role Sole Member 108 HELICOPTER AIR SERVICES INC (JI OOEForm271c( .!1t'Ch 201J) Reference Instructions for Part 2 Note: This Is a public form . Do not include account numbers, street addresses, or famlly member names. See Instructions for requ ired Information. Filcr'sNnmc PngcNumbcr Donald J. Trump AIO of4 Owned by: Ownership 100 110 Hudson Waterfront Associates I. LP (1) Name DJTHOLDINGS MANAGING MEMBER LLC Role Shareholder Owned by : Ownership 1 69 30 Name HUDSON WATERFRONT I CORPORATION HUDSON WESTSIDE ASSOCIATES I, L.P. The Donald J. Trump Revocable Trust Role Partner Partner Partner Has ownership Interest Jn: Entity Name HWA SSS Owners, LLC 111 Hudson Waterfront Associates I , LP (5! Ownership Title 100.00 Partner Owned by: Ownership 1 69 30 Name HUDSON WATERFRONT 11 CORPORATION HUDSON WESTSIDE ASSOCIATES II, L.P. The Donald J. Trump Revocable Trust Role Partner Partner Partner 112 Hudson Waterfront Associates Ill, LP r1 J Owned by: 0wnershlo 1 69 30 Name HUDSON WATERFRONT Ill CORPORATION HUDSON WESTSIDE ASSOCIATES Ill, L.P. The Donald J. Trump Revocable Trust Role Partner Partner Partner Has ownership interest in : Entity Name HWA 1290 Ill LLC Ownership 100.00 Tltle Partner 113 Hudson Waterfront Associates IV. LP (11 Owned by : Ownership 1 69 30 Name HUDSON WATERFRONT IV CORPORATION HUDSON WESTSIDE ASSOCIATES IV, L.P. The Donald J. Trump Revocable Trust Role Partner Partner Partner Has ownership Interest In : Entity Name HWA 1290 IV LLC Ownershlo 100.00 Title Partner 114 Hudson Waterfront Associates V LP '(11 Owned by: Ownership 1 69 30 Name HUDSON WATERFRONT V CORPORATION HUDSON WESTSIDE ASSOCIATES V, L.P. The Donald J. Trump Revocable Trust Role Partner Partner Partner Has ownership Interest in: Entity Name HWA 1290 V LLC Ownershio 100.00 Title Partner 116 Indian Hills Holdings LLC '(3 Owned by: Ownership 100 117 TRUMP NATIONAL GOLF CLUB - JUPITER Owned by: Ownership 1 99 118 JUPITER GOLF CLUB MANAGING MEMBER CORP '(1! Name DJT Holdings LLC Name JUPITER GOLF CLUB MANAGING MEMBER CORP DJT HOLDINGS LLC Role Member Role Managing Member Member Owned by: Has ownership Interest In: Ownership 100 Name DJTHOLDINGS MANAGING MEMBER LLC Role Shareholder OGE Form 2 11 0. bn: ll 20 1-I ) Instructions for Part 2 Note: This is a public form . Do not Include account numbers, street addresses, or famllv member names. See instructions for required information. Filer's Nnmc Page Number DonaldJ. Trump II of47 Reference ti TRUMP NATIONAL GOLF CLUB - JUPITER 119 LAMINGTON FAMILY HOLDINGS LLC 1.00 Managing Member Owned by: Ownership 100 120 TRUMP NA T ONAL GOLF CLUB - BEDMINSTER Owned by: 0wnershlo 100 121 Lawrence Towers Apartments LLC (31 Name DJT Holdings LLC Name LFB ACQUISITION LLC Role Member Role Member Owned by: 122 LFB ACQUISITION LLC (11 Ownership 2S 7S Name DJT Holdings LLC Trump Family Members Role Member Member Owned by: Ownership 1 Name LFB ACQUISITION MEMBER CORP Role Managing Member 99 DJT HOLDINGS LLC Has ownership Interest In : Entltv Name Ownership TRUMP NATIONAL GOLF CLUB- 100.00 BEDMINSTER 123 LFB ACQUISITION MEMBER CORP (1 I Title Member Member Owned by: Has ownership interest In : Ownership 100 EntltvName LFB ACQUISITION LLC Name DJTHOLDINGS MANAGING MEMBER LLC Ownershio Title 1.00 Managing Member Role Shareholder 12S MAR-A-LAGO CLUB INC (1! Owned by: Has ownership interest In : 126 MAR-A-LAGO CLUB, L.L.C. Ownership 100 Entity Name MAR-A-LAGO CLUB, L.LC. MALC,lnc. Name DJT HOLDINGS MANAGING MEMBER LLC Ownershio Title 0.01 Member 100.00 Shareholder Role Shareholder Assumed Names: MAR-A-LAGO CLUB, LLC., LC. Owned by: Ownership 0.01 99.99 127 Mid and Associates (3! Owned by: Ownership 2S 7S 12B NITTO WORLD CO., LIMITED (31 Owned by: Ownership 100 129 OCEAN DEVELOPMENT MEMBER INC (31 Name MAR-A-LAGO CLUB INC The Donald J. Trump Revocable Trust Name DJT Holdings LLC Trump Family Members Name TRUMP TURNBERRY Role Member Member Role Partner Partner Role Shareholder Owned by: Has ownership Interest In : Ownership 100 131 One Central Park West Associates (31 Entity Name OCEAN DEVELOPMENT SERVICES LLC Name DJT Holdings LLC Ownership 1.00 Title Member Role Shareholder Owned by: 0wnershlo so Name TRUMP CENTRAL PARK WEST CORP Role Partner Has ownership Interest In : Entity Name One Central Park West PT Associates 132 One Central Park West PT Associates (3! 50 GALBREATH COLUMBUS CIRCLE DEVELOPMENT ASSOCIATES, LP. Ownership 34.30 Title Member Partner 00E fonn271c( l..,..h 20 1J ) Instructions for Part 2 Note: This Is a public form . Do not Include account nu mbers, street addres.ses, or family member names. See Instructions for required information. Filer's Nnme Pnge Number Donald J . Trump 12 of 47 Reference ' Owned by: Ownership 34.3 Name One Central Park West Associates Role Partner 65.7 133 OPO HOTEL MANAGER LLC "(51 Owned by : Ownership 1 22.50 76.50 134 OPO HOTEL MANAGER MEMBER CORP 1 CPW PT Partners, G.P. Name OPO HOTEL MANAGER MEMBER CORP Trump Family Members DJT HOLDINGS LLC Partner Role Managing Member Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name OPO HOTEL MANAGER LLC Ownership Title 1.00 Managing Member 135 OWO DEVELOPER LLC "(3 Owned by : Ownership 100 136 PANAMA OCEAN CLUB MANAGEMENT LLC (3 N!.mg DJT Holdings LLC Role Member Owned by : Ownership 1 Name PANAMA OCEAN CLUB MANAGEMENT MEMBER CORP 99 DJT Holdings LLC 137 PANAMA OCEAN CLUB MANAGEMENT MEMBER CORP "(3 Role Managing Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In: Entity Name PANAMA OCEAN CLUB MANAGEMENT LLC BB Paramount RPV Holdings LLC f31-DISSOLVED 10 14116 Ownership Title 1.00 Managing Member Owned by : Ownership 1 Name Paramount RPV Holdings Manager Corp 99 DJT HOLDINGS LLC 139 Paramount RPV Ho dings Manager Corp t3 Role Managing Member Member Owned by: Has ownership Interest in : Ownership 100 Entity Name Paramount RPV Hold ings LLC Name Trump, Donald J. Ownershlo 1.00 Title Managing Member Role Shareholder 140 Pare Consulting, Inc. r11 Owned by : 0wnershlo 100 Role DJT Holdings Managing Member LLC Shareholder Ha s ownership interest in : 141 Park Briar Associates "(1 J 40 Wall Development Associates, 0.10 LLC Member Owned by: Ownership 25 Name The Donald J. Trump Revocable Trust Role Partner 75 Has ownership Interest in: Entity Name Starrett City Associates, L.P. Spring Creek Plaza LLC 142 PINE HILL DEVELOPMENT LLC Trump Family Members Ownership 1.47 1.47 Title Partner Member Partner Owned by : Ownership Name PINE Hill DEVELOPMENT MANAGING MEMBER CORP 99 DJT HOLDINGS LLC 143 PINE HILL DEVELOPMENT MANAGING MEMBER CORP t1 Role Managing Member Member p- Instructions for Part 2 Note: This Is a publJc form . Do not include account numbers, street addresses, or famllv member names. See Instructions for required Information. Donald J . Trump f- A J3 of47 OGE . "" 211c ( l "'h 201.i) Has ownership Interest In : EntltvName PINE Hill DEVELOPMENT LLC Ownership 1.00 Title Managing Member 144 Plaza Consulting Corp. (1 I Owned by : Ownershlo Name Role 100 The Donald J. Trump Revocable Trust Shareholder Has ownership Interest in : Entity Name Ownership Title The East61StreetCompanv, LP 0.10 Partner 145 POKER VENTURE LLC (3) Owned by : Ownership 1 99 146 POKER VENTURE MANAGING MEMBER CORP (31 Name POKER VENTURE MANAGING MEMBER CORP DTIM OPERATIONS LLC Role Managing Member Member Owned by : Has ownership Interest In: Ownership 100 Entity Name POKER VENTURE LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 147 Req-Tru Equities, LTD (3) Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder 148 RESTAURANT 40 LLC (3) Owned by: Ownership 1 99 Name Restaurant 40 Member Corp Trump, Donald J. Role Managing Member Member 149 RESTAURANT 40 MEMBER CORP (31 Owned by: Has ownership interest In : Ownership 100 Entity Name RESTAURANT 40 LLC Name Trump, Donald J. Ownership 1.00 Title Managing Member Role Shareholder 150 RPV DEVELOPMENT LLC (1 I Owned by: Ownership 100 Has ownership interest in : Entitv Name Ownership TRUMP NATIONAL GOLF CLUB - 100.00 LOS ANGELES 151 SCOTLAND ACQUISITIONS LLC (3) Owned by : Ownership 100 152 SENTIENT JETS MEMBER CORP (3 Name DJT HOLDINGS MANAGING MEMBER LLC Name DJT Holdings LLC Tltle Shareholder Role Member Role Member Owned by: Has ownership Interest In : Ownership 100 Entity Name TRUMP JETS LLC Name Trump, Donald J, Ownership 1.00 Title Managing Member Role Shareholder 153 Seven Springs LLC Owned by: Ownership 0.1 Name Bedford Hills Corp. Role Managing Member 154 Shore Haven Apt 1, Inc. (1 ! 99.9 DJT HOLDINGS LLC Member Owned by : 0wnershlo Name OGE Form 218c MM h W I ) Instructions for Part 2 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See Instructions for required information. Filer's Nnmc Donald J. Trump Page Number 14 of4 Reference 2S The Donald J. Trump Revocable Trust Shareholder 7S Has ownership interest in : Entity Name Starrett City Associates, L.P. Spring Creek Plaza LLC 1S6 Shore Haven Shopping Center LLC (31 Trump Family Members Ownership Title 1.72 Partner 1.72 Member Shareholder Owned by: 1S7 TRUMP TURNBERRY Ownership 2S 7S Name DJT Holdings LLC Trump Family Members Role Member Member Owned by: Ownership 100 Name Golf Recreation Scotland limited Role Sole Shareholder Has ownership interest in : Entity Name NllTO WORLD CO., LIMITED Ownership 100.00 Title Shareholder !S9 Sussex Hall. Inc. (31 Owned by: Ownership 2S Name The Donald J. Trump Revocable Trust Role Shareholder 160 T International Rea tv LLC 7S Trump Family Members Shareholder Owned by: Ownership SS The Donald J. Trump Revocable Trust Managing Member 4S Trump Family Members Member 161 TAG AIR INC. (21 Owned by : Ownership 100 162 THC BAKU HOTEL MANAGER SERVICES LLC (41 Name DJT OPERATIONS 11 LLC Role Shareholder Owned by : Ownership Name THC BAKU HOTEL MANAGER SERVICES MEMBER CORP. 99 DJT Holdings LLC Member 163 THC BAKU HOTEL MANAGER SERVICES MEMBER CORP. (41 Role Managing Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name THC BAKU HOTEL MANAGER SERVICES LLC 164 THC BAKU SERVICES LLC (41 Ownership Title 1.00 Managing Member Owned by: Ownership 1 Name THC BAKU SERVICES MEMBER CORP Role Managing Member 99 165 THC BAKU SERVICES MEMBER CORP (41 DJT Holdings LLC Member Owned by : Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest Jn : Entity Name THC BAKU SERVICES LLC Ownership Title 1.00 Managing Member 166 THC Barra Hate aria LTDA. (41 Owned by: Ownership 99 167 THC CENTRAL RESERVATIONS LLC Name OJT Holdings LLC THC DEVELOPMENT BRA21L MANAGING MEMBER CORP Role Shareholder Shareholder Owned by : Ownership 1 Name THC CENTRAL RESERVATIONS MEMBER CORP Role Managing Member OGE Fonn 271 (M""h WU) Instructions for Part 2 Note: This Is a public form. Do not include account numbers, street addresses, or famlly member names. See instructions for required Information. Filer's Nome Poge Number Donald J . Trump A 15 of 47 Reference ti 99 168 THC CENTRAL RESERVATIONS MEMBER CORP (1) OJT Holdings LLC Member Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership interest in : Entity Name Ownership THC CENTRAL RESERVATIONS LLC 1.00 Title Managing Member 169 THC CHINA DEVELOPMENT LLC Owned by: Ownership 100 170 THC CHINA TECHNICAL SERVICES LLC (3) Name TRUMP INTERNATIONAL HOTELS MANAGEMENTLLC Role Member Owned by: Ownership 1 99 Name THC CHINA TECHNICAL SERVICES MANAGER CORP DJT Holdings LLC Role Managing Member Member 171 THC CHINA TECHNICAL SERVICES MANAGER CORP (3) Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name Ownership THC CHINA TECHNICAL SERVICES 1.00 LLC 172 THC DEVELOPMENT BRAZIL LLC. "(3) Title Managing Member Owned by: 0wnershlo 1 Name THC DEVELOPMENT BRAZIL MANAGING MEMBER CORP 99 DJT Holdings LLC 173 THC DEVELOPMENT BRAZIL MANAGING MEMBER CORP (3) Role Managing Member Member Owned by: Ownership Name Role 100 OJT Holdings Managing Member LLC Shareholder Has ownership Interest in : Entity Name Ownership Title THC DEVELOPMENT BRAZIL LLC. 1.00 Managing Member THC Barra Hotelaria LTDA 1.00 Managing Member 176 THC HOTEL DEVELOPMENT LLC "(31 Owned by: Ownership 100 Name DJT Holdings LLC Role Member 177 THC IMEA DEVELOPMENT LLC Owned by: Ownership 100 178 THC MIAMI RESTAURANT HOSPITALITY LLC Name TRUMP INTERNATIONAL HOTELS MANAGEMENT LLC Role Member Owned by: Ownership 1 Name THC MIAMI RESTAURANT HOSPITALITY MEMBER CORP 99 DJT Holdings LLC 179 THC MIAMI RESTAURANT HOSPITALITY MEMBER CORP '(1) Role Managing Member Membe r Owned by: 0wnershlo 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name Ownership THC MIAMI RESTAURANT 1.00 HOSPITALITY LLC 180 THC QATAR HOTEL MANAGER LLC "(3) Title Managing Member Owned by: OO Fonn :m c(March20 t-I) Instructions for Part 2 Note: This is a public form . Do not Incl ude account numbers, street addresses, or family member names. See Instructions for required Information. Filer's Name Page Number Oonald J. Trump Al6 of47 Reference U MEMBER CORP 99 DJT Holdings LLC 181 THC QATAR HOTEL MANAGER MEMBER CORP (3) Member Owned by : Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entitv Name Ownership THC QATAR HOTEL MANAGER LLC 1.00 Title Managing Member 182 THC RIO MANAGER LLC "(3) Owned by: Ownership 1 Name THC RIO MANAGING MEMBER CORP Role Managing Member 99 183 THC RIO MANAGING MEMBER CORP (3) DJT Holdings LLC Member Owned by : Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name THC RIO MANAGER LLC Ownership Title 1.00 Managing Member 184 THC SALES MARKETING LLC Owned by: Ownership 1 99 185 THC SALES MARKETING MEMBER CORP "(1) Name THC SALES MARKETING MEMBER CORP DJT Holdings LLC Role Managing Member Member Owned by : Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest in : Entity Name THC SALES MARKETING LLC Ownership Title 1.00 Managing Member 186 THC SERVICES SHENZHEN LLC (3) Owned by: Ownership 1 99 187 THC SERVICES SHENZHEN MEMBER CORP (3) Name THC SERVICES SHENZHEN MEMBER CORP OJT Holdings LLC Role Managing Member Member Owned by: 0wnershlo 100 Name OJT Hold ings Managing Member LLC Role Shareholder Has ownership interest In : EntltvName THC SERVICES SHENZHEN LLC Ownership Title 1.00 Managing Member 188 THC SHENZHEN HOTEL MANAGER LLC (3) Owned by: Ownership 1 Name THC SHENZHEN HOTEL MANAGER MEMBER CORP 99 OJT Holdings LLC Member 189 THC SHENZHEN HOTEL MANAGER MEMBER CORP (3) Role Managing Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name Ownership THC SHENZHEN HOTEL MANAGER 1.00 LLC 190 THC VANCOUVER MANAGEMENT CORP Title Managing Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder 191 THC VANCOUVER PAYROLL ULC "(2) Owned by : OCll!FamlTBo(M:in: h lO I ) Reference Instructions for Part 2 Note: This Is a pu blic fo rm. Do not include account numbers, street addresses, or family member names. See Instructions for required Information. Filer's Nnme Pase Number Donald J . TNmp A 17 of 47 100 THC VANCOUVER MANAGEMENT CORP Member 192 THC VENTURE I LLC (3) Owned by : Ownership 99 193 THC VENTURE I MANAGING MEMBER CORP. "(3) Name DJT HOLDINGS LLC THC VENTURE I MANAGING MEMBER CORP Role Member Member Owned by: Has ownership Interest In : Ownership 100 Entity Name THC VENTURE 1 LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 194 THC VENTURE II LLC (3) Owned by : Ownership 1 99 195 THC VENTURE II MANAGING MEMBER CORP. '(3) Name THC VENTURE 11 MANAGING MEMBER CORP. DTIM OPERATIONS LLC Role Managing Member Member Owned by : Has ownership Interest In : Ownership 100 Entity Name THC VENTURE 11 LLC DTIM Operations Managing Member Corp Ownershlo 1.00 Tltle Managing Member Role Shareholder 196 THC VENTURE Ill LLC - NIKIA TTTT Venture LLC r11 Owned by: Ownership 1 Name TITTVenture Member Corp Role Managing Member 76.272 22.728 DTIM OPERATIONS LLC Trump Family Members Member Member Has ownership Interest In : various entities as indicated elsewhere In this schedule 197 THC VENTURE Ill MEMBER CORP - NIKIA TTTT Venture Member Corp (1 I Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership Interest In : Entity Name nn VENTURE LLC Ownership Title 1.00 Managing Member 198 THE CAR BUSINESS RE CORP r11 Owned by: Has ownership interest In : Ownership 100 Entity Name CARIBUSINESS MRE LLC Name DJT HOLDINGS MANAGING MEMBER LLC Ownership Title 1.00 Managing Member Role Shareholder Caribusiness Investments, S.R.L. 1.00 Member 199 The East 61 Street Companv. LP Owned by: Ownership 99.9 Name The Donald J. Trump Revocable Trust Role Partner 200 THE TRUMP CORPORATION 0.1 Plaza Consulting Corp. Partner Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder 201 THE TRUMP ENTREPRENEUR INITIATIVE LLC Owned by : Ownership 100 Name THE TRUMP ENTREPRENEUR INITIATIVE LLC (NY DOMESTIC) Role Managing Member OGE Form 21 1 (7l.r .. rc:h 20 1 J Instructions for Part 2 Note: This Is a public form. Do not include ;account numbers, street addresses, or family member names. See instructions for required Information. Filer's Nnme Pnge Number Donald J . Trump A 18 of 47 Reference ' Has ownership Interest In : Entity Name TRUMP EDUCATION ULC Ownership 100.00 Title Shareholder 202 THE TRUMP ENTREPRENEUR INITIATIVE LLC (NY DOMESTIC) (1) Owned by: Has ownership interest In : 203 THE TRUMP FOLLIES LLC (3) Ownership 0.1 3.5 4.5 91.9 Entity Name THE TRUMP ENTREPRENEUR INITIATIVE LLC Name DJT ENTREPRENEUR MANAGING MEMBER LLC (FORMALLY KNOWN AS DJT UNIVERSITY MANAGING MEMBER LLC) Spitalny, Jonathan Sexton, Michael DJT ENTREPRENEUR MEMBER LLC (FORMALLY KNOWN AS DJT UNIVERSITY MEMBER LLC) Ownership 100.00 Title Managing Member Role Managing Member Member Member Member Owned by: Ownership 1 Name THE TRUMP FOLLIES MEMBER INC. Role Managing Member 99 204 THE TRUMP FOLLIES MEMBER INC. (3) OJT Holdings LLC Member Owned by: 0wnershlo 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership interest In : Entity Name THETRUMP FOLLIES LLC Ownership Title 1.00 Managing Member 20s The Trump Hotel Corp. (3) Owned by : 0wnershlc 100 Name DJT Holdings Managing Member LLC Role Shareholder 206 THE TRUMP MARKS REAL ESTATE CORP (1) Owned by: Ownership 100 Has ownership Interest in : Entity Name Ownership TRUMP MARKS REAL ESTATE LLC 1.00 201 The Trump Organization. Inc. (3) DlTM Operations Managing Member Corp Title Member Role Shareholder Owned by : Ownership 100 Name DJT Holdings Managing Member UC Role Shareholder 208 The Trump-Equitable Fifth Avenue Companv Owned by: Ownership 99 Name The Donald J, Trump Revocable Trust Role Partner TIPPERARY REALTY CORPORATION Partner Has ownership interest In : Entity Name Ownership Fifty-Seventh Street Associates 99.00 LLC TRUMP TOWER COMMERCIAL LLC 99.00 Title Member Member 209 TIGL COMMON AREA MANAGEMENT CORP (3) Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder TRUMP INTERNATIONAL GOLF LINKS - DOONBEG 211 Owned by: Ownership 100 Name TW VENTURE 11 LLC Role Sole Member 212 T GL IRELAND MANAGEMENT LIMITED (assets income already disclosed on Part 2 under TRUMP INTERNATIONAL GOLF LINKS - DOONBEG; operator of suites) OGE Form 27.!c l h 20 1 ) Instructions for Part 2 Note : This Is ii publfc form. Do not include account numbers, street addresses, or family member names. See instructions for requ ired Information. Filer's N;:ime Page Nwnbcr OonaldJ. TNmp 19 of47 Reference Owned by: Ownership Name Role 100 TRUMP INTERNATIONAL GOLF LINKS Sole Member DOON BEG 213 TIHC RESERVATIONS LLC (3) Owned by: Ownership Name Role 100 OJT Holdings LLC Member 214 TIHH MEMBER CORP (11 Owned by : Has ownership Interest In: 215 TIHH MEMBER LLC (11 Owned by : Ownership Name Role 100 The Donald J. Trump Revocable Trust Shareholder Entity Name Ownership Title TRUMP INTERNATIONAL HOTEL 1.00 Managing Member HAWAllLLC Ownership Name Role 100 The Donald J. Trump Revocable Trust Managing Member Has ownership Interest in : 216 TIHM MEMBER CORP. (11 Owned by : Entity Name Ownership Title TRUMP INTERNATIONAL HOTEL 99.00 Member HAWAII LLC Ownership Name Role 100 DJT Holdings Managing Member LLC Shareholder Has ownership Interest In : EntitvName Ownership Title TRUMP INTERNATIONAL HOTELS 0.10 Managing Member MANAGEMENT LLC 217 TIHT CHICAGO MEMBER ACQUISITION LLC m Owned by: Has ownership Interest In : 218 TIHT COMMERCIAL LLC Ownership 100 Entity Name 401 MEZZ VENTURE LLC Name OJT HOLDING5 LLC Ownership 50.00 Title Member Role Member Owned by: Ownership 0.01 99.99 Name TIHT MEMBER LLC The Donald J. Trump Revocable Trust Role Member Managing Member 219 TIHT HOLDING COMPANY LLC Owned by: 220 TIHT MEMBER LLC m Ownership 100 Name OJT Holdings LLC Role Member Owned by : Ownership 100 Name The Donald J. Trump Revocable Trust Role Member Has ownership Interest In : Entity Name TIHT COMMERCIAL LLC Ownership Title 0.01 Member 221 TIPPERARY REAL TY CORP. m Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership interest In : 222 TMG Member, LLC m Entity Name Ownership The Trump-Equitable Fifth Avenue 1.00 Company Tl tie Partner Owned by: Has ownership interest in : Ownership Name 100 DJT Holdings LLC Entity Name Ownership Trump Model Management LLC SS.00 Title Member Role Member 223 TRUMP NATIONAL GOLF CLUB - CHARLOTTE Owned by: OGl::FMlll1 1 cC'-bn:h 20 1 ) Reference Instructions for Part 2 Note: This is a public form. Do not Include account numbers, st reet addresses, or family member names. Set!! instructions for required information. Filer's Nnme Pngc Number Donald J. Trump A20 of 47 TNGC CHARLOTTE MANAGER CORP Managing Member 99 224 TNGC CHARLOTTE MANAGER CORP "(1 DJT HOLDINGS LLC Member Owned by: Ownership 100 Has ownership Interest in : Entltv Name Ownership TRUMP NATIONAL GOLF CLUB- 1.00 CHARLOTTE 225 TRUMP NATIONAL GOLF CLUB - HUDSON VALLEY Name DJT HOLDINGS MANAGING MEMBER LLC Title Managing Member Role Shareholder Owned by: Ownership l 99 226 TNGC DUTCHESS COUNTY MEMBER CORP r11 Name TNGC DUTCHESS COUNTY MEMBER CORP DJT HOLDINGS LLC Role Managing Member Member Owned by: Ownership 100 Has ownership interest in : Entity Name Ownershlo TRUMP NATIONAL GOLF CLUB- 1.00 HUDSON VALLEY 227 TNGC JUPITER MANAGEMENT LLC Name DJT HOLDINGS MANAGING MEMBER LLC Title Managing Member Role Shareholder Owned by : Ownership l 99 228 TNGC JUPITER MANAGING MEMBER CORP '(11 Name TNGCJUPITER MANAGING MEMBER CORP DJT HOLDINGS LLC Role Managing Member Member Owned by : 0wnershlo 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest In : Entity Name Ownership TNGCJUPITER MANAGEMENT LLC 1.00 Tl tie Managing Member 229 TRUMP NATIONAL GOLF CLUB - PHILADELPHIA Owned by : Ownership l Name TNGC PINE Hill MEMBER CORP Role Managing Member 99 230 TNGC PINE HILL MEMBER CORP "l11 Owned by: Ownership 100 Has ownership Interest In : Entity Name TRUMP NATIONAL GOLF CLUB - PHILADELPHIA 231 Toronto Development LLC '(31 Owned by : Ownership 100 232 TP-CFD MANAGER CORP (JI-DISSOLVED 10118 16 DJT HOLDINGS LLC Name DJT HOLDINGS MANAGING MEMBER LLC Ownership Title 1.00 Managing Member Name DJT Holdings LLC Member Role Shareholder Role Member Owned by: Has ownership Interest In : Ownership 100 Entity Name TP CFD, LLC Name Trump, Donald J. Ownership 1.00 Title Managing Member Role Shareholder 233 TP-CFD, LLC '(31 Owned by: Ownership l Name TP CFD MANAGER CORP Role Managing Member 234 TRUMP 106 CPS LLC 99 Trump, Donald J. Member Owned by : 235 Trump 845 LP LLC "l1 I Ownership 100 Name DJT Holdings LLC Role Member OOEFonn211c (M1tch 20l-') Reference II Instructions for Part 2 Note : This Is a public form. Do not include account numbers, street addresses, or family member names. See Instructions for required information. Filer's Nnrne Page Number Donald J. Trump A 2 l of 47 Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Managing Member Has ownership interest In: Entity Name 845 UN Limited Partnership Ownership Title 60.00 Partner 236 TRUMP 845 UN GP LLC (11 Owned by : Ownership 0.1 Name TRUMP 845 UN MGR CORP Role Managing Member 99.9 The Donald J. Trump Revocable Trust Member Has ownership Interest In : Entity Name 845 UN limited Partnership Ownershfp Title 40.00 Partner 237 TRUMP 845 UN MGR CORP Owned by : Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership Interest in : Entity Name TRUMP 845 UN GP LLC Ownership Title 0.10 Managing Member 238 TRUMP 845 UN MGR LLC (31 Owned by: Ownership 100 The Donald J. Trump Revocable Trust Role Managing Member 239 TRUMP AC CASINO MARKS LLC (31 Owned by: Ownership 1 99 240 TRUMP AC CASINO MARKS MEMBER CORP (31 Name TRUMP AC CASINO MARKS MEMBER CORP DTTM OPERATIONS LLC Role Managing Member Member Owned by : Ownership 100 DTIM Operations Managing Member Corp Has ownership Interest In : Entity Name Ownership Title TRUMP AC CASINO MARKS LLC 1.00 Managing Me mber 241 TRUMP ACQUISITION CORP. (31 Role Shareholder Owned by: Has ownership Interest In : Ownership 100 Entity Name TRUMP ACQUISITION, LLC Name DJT Holdings LLC Ownership 1.00 Title Managing Member Role Shareholder 242 TRUMP ACQUISITION. LLC 31 Owned by: Ownership 1 l'illru: TRUMP ACQUISITION CORP. Role Managing Member 243 TRUMP BOOKS LLC 99 OJT Holdings LLC Me mber Owned by : Ownership Name TRUMP BOOKS MANAGER CORP Role Managing Member 99 244 TRUMP BOOKS MANAGER CORP (1) DJT Holdings LLC Member Owned by : Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In: Entity Name TRUMP BOOKS llC Ownership Title 1.00 Managing Member 245 TRUMP BRAZIL LLC '(3) Owned by: Ownership OGE Form 271c (Mmh 201 ) Instructions for Part 2 Note : Th is Is a public form. Do not include account numbers, street iiddresse.s, or famllY member n mes. See Instructions for requ ired Information. Filer's Name Page Number Donald J. Trump A22 of47 Reference 100 246 TRUMP CANADIAN SERVICES. INC. (3) DJT Holdings LLC Member Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Roie Shareholder 247 TRUMP CANOUAN ESTATE LLC '(5 Owned by: Ownership 1 99 248 TRUMP CANOUAN ESTATE MEMBER CORP '(11 Name TRUMP CANOUAN ESTATE MEMBER CORP DJT Holdings LLC Role Managing Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest in : Entity Name TRUMP CANOUAN ESTATE LLC Ownership Title 1.00 Managing Member 249 TRUMP CARIBBEAN LLC (JI Owned by: 2so TRUMP CAROUSEL LLC Ownership 100 Name DJT Holdings LLC Role Member Owned by: Ownership 1 Name TRUMP CAROUSEL MEMBER CORP Role Managing Member 99 2s1 TRUMP CAROUSEL MEMBER CORP '(11 DJT Holdings LLC Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest In : Entity Name TRUMP CAROUSEL LLC Ownership Title 1.00 Managing Member 2s2 TRUMP CENTRAL PARK WEST CORP (3) Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In: Entity Name Ownership Title One Central Park West Associates 50.00 Partner 2S3 Trump Chicago Commercial Member Corp '(1 J Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership intetest In : Entity Name TRUMP CHICAGO COMMERCIAL MANAGERLLC 2S4 TRUMP CHICAGO COMMERCIAL MANAGER LLC Owned by: Ownership 1 99 2SS TRUMP CHICAGO DEVELOPMENT LLC Y3 Owned by: Ownership 100 256 TRUMP CHICAGO HOTEL MANAGER LLC Ownership Title 1.00 Managing Member Name Trump Chicago Commerclal Member Corp DJT Holdings LLC Name DJT Holdings LLC Role Managing Member Member Role Member Owned by: Ownership 1 Name Trump Chicago Hotel Member Corp Role Managing Member 99 2s1 Trump Chicago Hotel Member Corp '(1 I DJT Holdings LLC Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : 00Ef 11"11127 S oo(M..,,.h20l ) Instructions for Part 2 Note : This is a public fo rm. Do not Include account numbers, street addresses, or family member names. See instructions fo r required Information. Filer's Nnmc Pngc Number Donald J . Trump A23 of 47 Reference TRUMP CHICAGO HOTEL MANAGERLLC 258 TRUMP CHICAGO MANAGING MEMBER LLC (11 1.00 Managing Member Owned by: Ownership 100 Has ownership interest In : Entity Name 401 ME22 VENTURE LLC 259 TRUMP CHICAGO MEMBER LLC .,1) Name DJT HOLDINGS LLC Ownership 1.00 Title Member Role Member Owned by : Ownership 100 Has ownership Interest In: Entity Name 401 ME22 VENTURE LLC 260 TRUMP CHICAGO RESIDENTIAL MANAGER LLC Name DJT HOLDINGS LLC Ownership 49.00 Title Member Role Member Owned by : Ownership 1 99 261 Trump Chicago Residential Member Corp (1) Name Trump Chicago Residential Member Corp DJT Holdings LLC Role Managing Member Member Owned by: Ownership Name Role 100 DJT Holdings Managing Member LLC Shareholder Has ownership interest In : Entity Name Ownership Title TRUMP CHICAGO RESIDENTIAL 1.00 Managing Member MANAGERLLC 262 TRUMP CHICAGO RETAIL LLC (assets income alreadv disclosed on Part 2 under 401 North Wabash Venture LLC: operator of retail space) Owned by: Ownership 100 263 TRUMP CHICAGO RETAIL MANAGER LLC '(3) Name 401 ME22 VENTURE LLC Member Owned by: Ownership 1 99 264 TRUMP CHICAGO RETAIL MEMBER CORP '(3) Name TRUMP CHICAGO RETAIL MEMBER CORP DJT Holdings LLC Role Managing Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member llC Role Shareholder Has ownership Interest In : Entity Name TRUMP CHICAGO RETAIL MANAGERLLC 265 TRUMP CLASSIC CARS LLC '(41 Ownership 1.00 Title Managing Member Owned by: Ownership 1 Name TRUMP CLASSIC CARS MEMBER CORP 99 Trump, Donald J. 266 TRUMP CLASSIC CARS MEMBER CORP '(4) Role Member Member Owned by: Ownership Name Role 100 Trump, Donald J. Shareholder Has ownership Interest In : Entitv Name Ownership Title TRUMP CLASSIC CARS LLC 1.00 Member 267 TRUMP COMMERCIAL CHICAGO LLC '(assets income alreadv disclosed on Part 2 under 401 North Wabash Venture LLC: operator of commercial space) Owned by: Ownership Name Role 100 401 North Wabash Venture LLC Member 268 TRUMP CPS CORP '(11 Owned by: 0wnershlo 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership interest In: EntitvName TRUMP CPS LLC Ownership Title 0.10 Managing Member 269 TRUMP CPS LLC Owned by: Ownership 0.1 Name TRUMP CPS CORP Role Managing Member OG l:::fom1 21!fc(M rc li 20 1.I) Instructions for Part 2 Note: This Is a public form. Do not include account numbers, street addresses, or famllv member names. See instructions for requ ired information. Filer's Name Page Number Donald J . TNmp A24 of 47 Reference ' 99.9 The Donald J. Trump Revocable Trust Member 270 TRUMP DELMONICO LLC (1 I Owned by: 0wnershlo 100 Name The Donald J. Trump Revocable Trust Role Member Has ownership interest In: EntltvName TRUMP PARK AVENUE LLC Ownership Title 50.00 Managing Member 271 TRUMP DEVELOPMENT SERVICES LLC (31 Owned by: Ownership 1 99 272 TRUMP DEVELOPMENT SERVICES MEMBER CORP (31 Name TRUMP DEVELOPMENT SERVICES MEMBER CORP DJT Holdings LLC Role Managing Member Member Owned by: Ownership 100 Name OJT Holdings Managing Member llC Role Shareholder Has ownership Interest In : Entity Name Ownership Title TRUMP DEVELOPMENT SERVICES 1.00 Managing Member LLC 27S TRUMP DRINKS ISRAEL LLC 31 Owned by: Ownership 1 99 276 TRUMP DRINKS ISRAEL MEMBER CORP (31 Name TRUMP DRINKS ISRAEL MEMBER CORP OJT Holdings LLC Role Managing Member Member Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership interest in : Entltv Name TRUMP DRINKS ISRAEL LLC Ownership 1.00 Title Managing Member 277 TRUMP EDUCATION ULC (3! Owned by: 278 TRUMP EMPIRE STATE INC (3! Ownership 100 Name THE TRUMP ENTREPRENEUR INITIATIVE LLC (NY DOMESTIC) Role Shareholder Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder 279 TRUMP NATIONAL DORAL Owned by: Ownership 1 99 280 TRUMP ENDEAVOR 12 MANAGER CORP (1! Name TRUMP ENDEAVOR 12 MANAGER CORP DJT HOLDINGS LLC Role Managing Member Member Owned by: Has ownership interest In: Ownership 100 Entitv Name TRUMP NATIONAL DORAL Name DJT HOLDINGS MANAGING MEMBER LLC Ownership Title 1.00 Managing Member Role Shareholder 281 TRUMP EU MARKS LLC (3! Owned by: Ownership 1 Name TRUMP EU MARKS MEMBER CORP Role Managing Member 99 282 TRUMP EU MARKS MEMBER CORP (3! DTIM OPERATIONS LLC Member Owned by: Has ownership Interest In: Ownership 100 Entity Name Name OTrM Operations Managing Member Corp Ownership Title Role Shareholder OOEForm27ll'c(M h 20 1 ) Instructions for Part 2 Note: Th is is a public form. Do not incl ude account numbers, street addresses, or familv member names. See Instructions for required information. TRUMP EU MARKS LLC 1.00 283 TRUMP FERRY POINT LLC Assumed Names : Owned bv : Q Jil8 Trump Golf Links Ferry Point Trump Golf Links Ferry Point Trump Golf Links Ownership 1 Jurisdiction Delaware New York New York Name TRUMP FERRY POINT MEMBER CORP Role Managing Member 99 284 TRUMP FERRY POINT MEMBER CORP '(1 I DJT Holdings LLC Member Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership interest in : EntltvName TRUMP FERRY POINT LLC Ownership 1.00 Title Managing Member 28S TRUMP FLORIDA MANAGEMENT LLC '(3) Owned by: Ownership 1 Name TRUMP FLORIDA MANAGER CORP Role Member 99 286 TRUMP FLORIDA MANAGER CORP '(3) DJT HOLDINGS LLC Member Owned by : Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest in : Entity Name Ownership TRUMP FLORIDA MANAGEMENT 1.00 LLC 287 TRUMP GOLF ACQUISITIONS LLC Title Member Owned bv: Ownership 100 288 TRUMP GOLF COCO BEACH LLC (41 Name DJT Holdings LLC Role Member Owned by: Ownership 1 99 289 TRUMP GOLF COCO BEACH MEMBER CORP ' 41 Name TRUMP GOLF COCO BEACH MEMBER CORP DJT Holdings LLC Role Managing Member Member Owned by : Ownership Name Role 100 DJT Holdings Managing Member LLC Shareholder Has ownership Interest In : Entltv Name Ownership Title TRUMP GOLF COCO BEACH LLC 1.00 Managing Member 290 TRUMP GOLF MANAGEMENT LLC '(3) Owned by : 291 TRUMP HOME MARKS LLC Ownership 100 Name DJT Holdings LLC Role Member Owned by : Ownership 1 99 292 TRUMP HOME MARKS MEMBER CORP '(11 Name TRUMP HOME MARKS MEMBER CORP DTIM OPERATIONS LLC Role Managing Member Member Owned by : Has ownership interest in : Ownership 100 Entitv Name TRUMP HOME MARKS LLC DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member. Role Shareholder 293 TRUMP ICE INC '(3) Owned by: Ownership 100 Name DJT Holdings LLC Role Shareholder 00 Et.oon271c(M an: h 10 1 ) Instructions for Part 2 Note: This is a publlc form. Do not Include account number.s, street add resses, or family member names. See Instructions for required information. Filer's Name Page Number Donald J. Trump A26 of47 Reference 294 TRUMP ICE LLC Owned by : Ownership 100 29S TRUMP INTERN A T ONAL DEVELOPMENT LLC "(31 Name DJT Holdings LLC Role Member Owned by: Ownership Name TRUMP INTERNATIONAL DEVELOPMENT MEMBER CORP 99 DJT Holdings LLC 296 TRUMP INTERNATIONAL DEVELOPMENT MEMBER CORP (31 Role Managing Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name TRUMP INTERNATIONAL DEVELOPMENT LLC 297 TRUMP INTERNATIONAL GOLF LINKS - SCOTLAND Owned by: Ownership 99 298 Trump International Golf Club, Inc. (11 Ownership Title 1.00 Managing Member Name DJT HOLDINGS MANAGING MEMBER LLC TRUMP SCOTLAND MEMBER INC Role Member Member Owned by : Has ownership Interest In : Ownership 100 Entity Name TRUMP INTERNATIONAL GOLF CLUB FLORIDA Name DJT HOLDINGS MANAGING MEMBER LLC Ownershto Title 0.001 Member Role Shareholder 299 TRUMP INTERNATIONAL GOLF CLUB - FLORIDA Owned by : Ownership 0,001 Name Trump International Golf Club, Inc. Role Member 99.999 The Donald J. Trump Revocable Trust Member 300 TRUMP INTERNATIONAL HOTEL HAWAII LLC Owned by : Ownership 1 Name TIHH MEMBER CORP Role Managing Member 99 301 TRUMP INTERNA T ONAL HOTELS MANAGEMENT LLC TIHH MEMBER LLC Member Assumed Names: Owned by : 'JmE, TRUMP HOTEL COLLECTION TRUMP HOTEL COLLECTION Ownership 0.1 Jurisdiction Hawaii New York Name TIHM MEMBER CORP. Role Managing M ember 99.9 DJT Holdings LLC Has ownership interest in : Entity Name Ownershlo Title THC CHINA DEVELOPMENT LLC 100.00 Member THC IMEA DEVELOPMENT LLC 100.00 Member Member 302 TRUMP JETS LLC (31 Owned by : 303 Trump Korea LLC (31 Ownership 1 99 Name SENTIENT JETS MEMBER CORP xxxxxxxx Trump, Donald J. Role Managing Member Member Owned by : Ownership 41 S9 304 TRUMP KOREAN PROJECTS LLC (31 Name DAEWOO AMERICA DEVELOPMENT (NEW YORK) CORP TRUMP KOREAN PROJECTS LLC Role Member Member Owned by: Has ownership interest in : Ownership 100 EntitvName Name DJT Holdings LLC Ownership Role Member OGEFomi27h().l.in:h :ZO l i) Instructions for Part 2 Note: This Is a publie form . Do not include aceount numbers, street addresses, or family member names. See inst ructions for required information. Filer's Nnmc Pngc Number Donald J . Trump A27 of 47 Reference ' Trump Korea llC 59.00 Member 305 TRUMP LAS OLAS LLC (31 Owned by: 0wnershlo 1 Name TRUMP LAS CLAS MEMBER CORP Role Managing Member 99 306 TRUMP LAS OLAS MEMBER CORP (31 DJT Holdings LLC Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest rn : Entity Name TRUMP LAS CLAS LLC Ownership 1.00 Title Managing Member 307 TRUMP LAS VEGAS CORP (11 Owned by: Has ownership interest In: Ownership 100 Entity Name TRUMP LAS VEGAS MANAGING MEMBERLLC TRUMP LAS VEGAS MEMBER LLC Name DJT HOLDINGS MANAGING MEMBER LLC Ownership Title 6.00 Managing Member 6.00 Managing Member Role Shareholder 308 TRUMP LAS VEGAS DEVELOPMENT LLC Owned by: Ownership 100 309 TRUMP LAS VEGAS MANAGING MEMBER LLC Name DJT HOLDINGS LLC Role Member Owned by: Has ownership interest In : Ownership 6 94 Entitv Name TRUMP RUFFIN LLC Name TRUMP LAS VEGAS CORP DJT HOLDINGS LLC Ownership 1.00 Title Managing Member Role Member Member 310 TRUMP LAS VEGAS MEMBER LLC Owned by: Ownership 6 94 Name TRUMP LAS VEGAS CORP DJT HOLDINGS LLC Member Managing Member Has ownership interest In: Entity Name TRUMP RUFFIN LLC 311 Trump Las Vegas Sales Marketing. Inc. Ownership 49.00 Title Member Owned by : Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder 312 TRUMP LAUDERDALE DEVELOPMENT LLC (31 Owned by: Ownership 100 313 TRUMP LAUDERDALE DEVELOPMENT NO 2 LLC (41 Name DJT Holdings llC Role Member Owned by: 314 TRUMP MARKETING LLC (41 Ownership 100 Name DJT Holdings llC Role Member Owned by : Ownership 100 315 TRUMP MARKS ASIA CORP 111 Name DJT Holdings llC Role Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name TRUMP MARKS ASIA LLC Ownership 1.00 Title Managing Member 316 TRUMP MARKS ASIA LLC Owned by: Ownership 1 Name TRUMP MARKS ASIA CORP Role Managing Member OOE Fonn 271 P.- h 201 ) Instructions for Part 2 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See Instructions for required information. Filer's Name Pngc Number Donald J. Trump A28 of 4 7 Reference H 99 317 TRUMP MARKS ATLANTA LLC (3) DJT HOLDINGS llC Member Owned by: 0wnershio 1 99 318 TRUMP MARKS ATLANTA MEMBER CORP (3) Name TRUMP MARKS ATLANTA MEMBER CORP DTTM OPERATIONS llC Role Managing Member Member Owned by : Has ownership Interest In : 0wnershio 100 Entity Name TRUMP MARKS ATLANTA llC Name OTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 321 TRUMP MARKS BA TUM LLC (3 Owned by : Ownership 1 Name TRUMP MARKS BATUMI MANAGING MEMBER CORP 99 DTTM OPERATIONS llC 322 TRUMP MARKS BATUMI MANAGING MEMBER CORP (3) Role Managing Member Member Owned by : Has ownership Interest In : Ownership 100 Entity Name TRUMP MARKS BATUMI llC OTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 32S TRUMP MARKS CANOUAN CORP (3) Owned by: Has ownership interest in : Ownershlo 100 Entity Name TRUMP MARKS CANOUAN l lC Name OTIM Operations Managing Member Corp Ownership 1.00 Tl tie Managing Member Role Shareholder 326 TRUMP MARKS CANOUAN LLC (3) Owned by: Ownership 1 Name TRUMP MARKS CANOUAN CORP Role Managing Member 99 327 TRUMP MARKS CHICAGO LLC 31 Owned by: Ownership 1 99 328 TRUMP MARKS CHICAGO MEMBER CORP (31 DTTM OPERATIONS llC Name TRUMP MARKS CHICAGO MEMBER CORP DTTM OPERATIONS llC Member Role Managing Member Member Owned by : Has ownership interest In : Ownership 100 Entity Name TRUMP MARKS CHICAGO llC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Rol e Sha reholder 329 TRUMP MARKS DUBAI CORP (31 Owned by : Has ownership Interest In : Ownership 100 Entity Name TRUMP MARKS DUBAI llC OTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 330 TRUMP MARKS DUBAI LLC (31 Owned by : Ownership 1 Name TRUMP MARKS DUBAI CORP Role Managing Member 99 DTTM OPERATIONS llC Member 331 TRUMP MARKS EGYPT CORP (31 Reference 00t:Fonn2111c (1'bnh 201.J) Instructions for Part 2 Not : This is a public form . Do not include account numbers, street addresses, or family member names. See instructions for required information. Filer's Nnme Page Number Donald J. Trump A29 of 47 Owned by: Has ownership interest In : Ownership 100 Entity Name TRUMP MARKS EGYPT LLC Name OTTM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 332 TRUMP MARKS EGYPT LLC 3) Owned by: Ownership 1 Name TRUMP MARKS EGYPT CORP Role Managing Member 99 333 TRUMP MARKS FINE FOODS LLC DTTM OPERATIONS LLC Member Owned by : Ownership 1 99 334 TRUMP MARKS FINE FOODS MEMBER CORP r1 J Name TRUMP MARKS FINE FOODS MEMBER CORP DTTM OPERATIONS LLC Role Managing Me mber Member Owned by: 0wnershlo 100 Has ownership interest In: Entltv Name Ownership TRUMP MARKS FINE FOODS LLC 1.00 DTTM Operations Managing Member Corp Title Managing Member Role Shareholder 33S TRUMP MARKS FT LAUDERDALE LLC "(31 Owned by: Ownership 1 99 336 TRUMP MARKS FT LAUDERDALE MEMBER CORP (31 Name TRUMP MARKS FT LAUDERDALE MEMBER CORP DTTM OPERATIONS LLC Role Managing Member Member Owned by : Ownership 100 Has ownership Interest in : Entity Name Ownership TRUMP MARKS FT LAUDERDALE 1.00 LLC 337 TRUMP MARKS GP CORP r11 Name OTTM Operations Managing Member Corp Title Managing Member Role Shareholder Owned by: Has ownership Interest In: Ownership 100 Name OTTM Operations Managing Member Corp Ownership Role Shareholder TRUMP MARKS HOLDINGS LP 338 TRUMP MARKS HOLDINGS LP (11 1.00 Partner Owned by: Has ownership Interest In : Ownership 1 99 Entity Name TRUMP MARKS LLC Name TRUMP MARKS GP CORP OTIM Operations LLC Ownership 100.00 Title Member Role Partner Partner 339 TRUMP MARKS HOLLYWOOD CORP (3) Owned by: Ownership 100 Has ownership Interest In : Entity Name Ownership TRUMP MARKS HOLLYWOOD LLC 1.00 Name OTTM Operations Managing Member Corp Title Managing Member Role Shareholder 340 TRUMP MARKS HOLLYWOOD LLC ra1 Owned by: Ownership 1 Name TRUMP MARKS HOLLYWOOD CORP Role Managing Member 99 341 TRUMP MARKS ISTANBUL II CORP '(1) DTTM OPERATIONS LLC Member Owned by: OCIE Forni 211c O'-brd1 2014) Instructions for Part 2 Note : This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required Information. rle s Nome r gc Number Reference U 100 OTTM Operations Managing Member Corp Has ownership Interest In : Entity Name Ownership TRUMP MARKS INSTANBUL 11 LLC 1.00 Title Managing Member Shareholder 342 TRUMP MARKS JSTANBUL II LLC Owned by : Ownership 1 Name TRUMP MARKS ISTANBUL II CORP Role Managing Member 99 DTIM OPERATIONS LLC Member 343 TRUMP MARKS JERSEY CITY CORP WJ Owned by: Has ownership Interest In : Ownership 100 Entity Name TRUMP MARKS JERSEY CITY LLC 1.00 Name DTTM Operations Managing Member Corp Ownership Title Managing Member Role Shareholder 344 TRUMP MARKS JERSEY CITY LLC (4) Owned by: Ownership 1 Name TRUMP MARKS JERSEY CITY CORP Role Managing Member 99 345 TRUMP MARKS LAS VEGAS CORP 3) DTIM OPERATIONS LLC Member Owned by: Has ownership interest In: Ownership 100 OTTM Operations Managing Member Corp Entity Name Ownership TRUMP MARKS LAS VEGAS LLC 1.00 Title Managing Member Role Shareholder 346 TRUMP MARKS LAS VEGAS LLC (3) Owned by : Ownership 1 Name TRUMP MARKS LAS VEGAS CORP Role Managing Member 347 TRUMP MARKS LLC 99 DTIM OPERATIONS LLC Member Owned by: Ownership 100 TRUMP MARKS HOLDINGS LP 346 TRUMP MARKS MAGAZINE CORP (3)-DISSOL VED 1119116 Owned by: Ownership Name 100 Trump, Donald J. Has ownership interest in : Entity Name Ownership TRUMP MARKS MAGAZINE LLC 1.00 Title Managing Member Member Role Shareholder 349 TRUMP MARKS MAGAZINE LLC (3) Owned by: Ownership 1 Name TRU MP MARKS MAGAZINE CORP Role Managing Member 99 350 TRUMP MARKS MATTRESS LLC Owned by: Ownership 1 99 3Sl TRUMP MARKS MATTRESS MEMBER CORP (1) Trump, Donald J. Name TRUMP MARKS MATIRESS MEMBER CORP DTIM OPERATIONS LLC Member Role Managing Member Member Owned by : Ownership 100 Has ownership Interest In : Entity Name Ownership TRUMP MARKS MATIRESS LLC 1.00 DTTM Operations Managing Member Corp Title Managing Member Role Shareholder CXl!Zf 1t11271eO-l h201-') Reference Instructions for Part 2 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See Instructions fo r required Information. Filer's Name Page Nwnbcr Donald J . Trump A3 l of 4 7 352 TRUMP MARKS MENSWEAR LLC Owned by : Ownership 1 99 353 TRUMP MARKS MENSWEAR MEMBER CORP (1) Name TRUMP MARKS MENSWEAR MEMBER CORP DTIM OPERATIONS LLC Role Managing Member Member Owned by : Ownership Name 100 DTIM Operations Managing Member Corp Has ownership Interest In: Entity Name Ownership TRUMP MARKS MENSWEAR LLC 1.00 Title Managing Member Role Shareholder 354 TRUMP MARKS MORTGAGE CORP (31 Owned by : Has ownership Interest In: Ownership 100 Entltv Name TRUMP MARKS MTG LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 355 TRUMP MARKS MTG LLC (3) Owned by : Ownership 1 Name TRUMP MARKS MORTGAGE CORP Role Managing Member 99 356 TRUMP MARKS MUMBAI LLC (3) Owned by: Ownership 1 99 357 TRUMP MARKS MUMBAI MEMBER CORP (3) DTIM OPERATIONS LLC Name TRUMP MARKS MUMBAI MEMBER CORP DTIM OPERATIONS LLC Member Role Managing Member Member Owned by: Has ownership interest In : Ownership 100 EntltvName TRUMP MARKS MUMBAI LLC Name DTIM Operations Managing Member Corp Ownershlo 1.00 Title Managing Member Role Shareholder 358 TRUMP MARKS NEW ROCHELLE CORP (1 J Owned by: Has ownership Interest In : Ownership 100 359 TRUMP MARKS NEW ROCHELLE LLC Entity Name TRUMP MARKS NEW ROCHELLE LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder Owned by: Ownership 1 Name TRUMP MARKS NEW ROCHELLE CORP Role Managing Member 99 DTIM OPERATIONS LLC Member 360 TRUMP MARKS PALM BEACH CORP (3) Owned by: Ownership 100 Has ownership Interest In : Entity Name Ownership TRUMP MARKS PALM BEACH LLC 1.00 DTIM Operations Managing Member Corp Title Managing Member Role Shareholder 361 TRUMP MARKS PALM BEACH LLC (3) Owned by: Ownership 1 Name TRUMP MARKS PALM BEACH CORP Role Managing Member 99 362 TRUMP MARKS PANAMA CORP (1) DTIM OPERATIONS LLC Member Owned by: OOE F"rm 27h (Much 21ll J Reference U Instructions for Part 2 Note: This ls a public form. Do not Include account numbers, street addresses, or family member names. See instructions for required Information. Filer's Name Page Number Donald J. Trump A32 of 47 Has ownership interest In : 363 TRUMP MARKS PANAMA LLC 100 Entity Name TRUMP MARKS PANAMA llC DTTM Operations Managing Member Corp Ownershio 1.00 Title Managing Member Shareholder Owned by : Ownership 1 Name TRUMP MARKS PANAMA CORP Role Managing Member 99 364 TRUMP MARKS PHILADELPHIA CORP (3) DTTM OPERATIONS llC Member Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership interest in : Entitv Name Ownership TRUMP MARKS PHILADELPHIA LLC 1.00 Title Managing Member 365 TRUMP MARKS PHILADELPHIA LLC (3) Owned by: Ownership 1 Name TRUMP MARKS PHILADELPHIA CORP Role Managing Member 99 The Donald J. Trump Revocable Trust Member 366 TRUMP MARKS PHILIPPINES CORP (1) Owned by: Has ownership Interest in: Ownership 100 Entity Name Ownership TRUMP MARKS PHILIPPINES llC 1.00 Name DTTM Operations Managing Member Corp Title Managing Member Role Shareholder 367 TRUMP MARKS PHILIPPINES LLC Owned by : Ownership 1 Name TRUMP MARKS PHILIPPINES CORP Role Managing Member 99 368 TRUMP MARKS PRODUCTS LLC '(4) Owned by: Ownership 1 99 369 TRUMP MARKS PRODUCTS MEMBER CORP (4) DTTM OPERATIONS llC Name TRUMP MARKS PRODUCTS MEMBER CORP DTTM OPERATIONS llC Member Role Managing Member Member Owned by: Has ownership interest In : Ownership 100 Entitv Name Ownership TRUMP MARKS PRODUCTS llC 1.00 Name OTTM Operations Managing Member Corp Title Managing Member Role Shareholder 370 TRUMP MARKS PUERTO RICO I LLC (3) Owned by : Ownership 1 99 371 TRUMP MARKS PUERTO RICO I MEMBER CORP (3) Name TRUMP MARKS PUERTO RICO I MEMBER CORP DTTM OPERATIONS LLC Role Managing Member Member Owned by: Ownership 100 DTTM Operations Managing Member Corp Has ownership Interest In : Entity Name Ownership TRUMP MARKS PUERTO RICO I 1.00 llC 372 TRUMP MARKS PUERTO RICO II LLC (31 Owned by: Ownership 1 Name TRUMP MARKS PUERTO RICO 11 MEMBER CORP 99 Trump, Donald J. 373 TRUMP MARKS PUERTO RICO II MEMBER CORP (3) Title Managing Member Role Shareholder Role Managing Member Member OGF.Forml11 ( 4rch2014) Reference ti Instructions for Part 2 Note: This is a public form . Do not include account numbers, street addresses, or famUy member names. See instruct ions for req uired Information . Filer'sNnme Page Number Donald J. Trump A33 of47 Owned by: Ownership Name 100 Trump, Donald J. Has ownership interest in : Entity Name Ownership TRUMP MARKS PUERTO RICO II 1.00 LLC 374 TRUMP MARKS PUNTA DEL ESTE LLC (4 Owned by: Ownership 1 Name TRUMP MARKS PUNTA DEL ESTE MANAGER CORP 99 DTIM OPERATIONS LLC 375 TRUMP MARKS PUNTA DEL ESTE MANAGER CORP (41 Owned by: Ownership 100 Name DTIM Operations Managing Member Corp Has ownership Interest In : Entity Name Ownership TRUMP MARKS PUNTA DEL ESTE 1.00 LLC 376 TRUMP MARKS REAL ESTATE LLC (5 Title Managing Member Title Managing Member Role Shareholder Role Managing Member Member Role Shareholder Owned by: Ownership 1 99 377 TRUMP MARKS SOHO LICENSE CORP (4 Name THE TRUMP MARKS REAL ESTATE CORP DTIM OPERATIONS LLC Role Member Member Owned by: Ownership 100 Has ownership interest In: Entity Name TRUMP MARKS SOHO LLC 378 TRUMP MARKS SOHO LLC (4 Name DTIM Operations Managing Member Corp Ownership 1.00 Tltle Member Role Shareholder Owned by: Ownership 1 Name TRUMP MARKS SOHO LICENSE CORP Role Member 99 379 TRUMP MARKS STAMFORD CORP (1 DTIM OPERATIONS LLC Member Owned by : Ownership 100 Has ownership interest in: Entity Name Ownershlo TRUMP MARKS STAMFORD LLC 1.00 380 TRUMP MARKS STAMFORD LLC Name DTIM Operations Managing Member Corp Title Member Role Shareholder Owned by: Ownership 99 1 381 TRUMP MARKS SUNNY ISLES I LLC Name DTIM OPERATIONS LLC TRUMP MARKS STAMFORD CORP Role Member Member Owned by: Ownership 1 99 382 TRUMP MARKS SUNNY ISLES I MEMBER CORP (1 Name TRUMP MARKS SUNNY ISLES I MEMBER CORP DTIM OPERATIONS LLC Role Member Member Owned by: Ownership 100 DTIM Operations Managing Member Corp Has ownership Interest in : Entity Name Ownership TRUMP MARKS SUNNY ISLES I LLC 1.00 Title Member Role Shareholder 383 TRUMP MARKS SUNNY ISLES II LLC '(4) Owned by : Ownership 1 99 384 TRUMP MARKS SUNNY ISLES II MEMBER CORP (4 Name TRUMP MARKS SUNNY ISLES II MEMBER CORP DTIM OPERATIONS LLC Role Member Member Owned by : 0wnershlo 100 DTIM Operations Managing Member Corp Role Shareholder Reference OOE Form 2 18 : l t :I 20U) Instructions for Part 2 Note: This is a public form. Do not inc lude account numbers, street addresses, or family member names. See Instructions for required lnformiilltion. Filer's Name Pogc Number Donald J . Trump A34 of 47 Has ownership interest In : Entity Name Ownership TRUMP MARKS SUNNY ISLES 11 LLC 1.00 38S TRUMP MARKS TAMPA CORP (31 Title Member Owned by: Ownership 100 Has ownership interest in : Entity Name TRUMP MARKS TAMPA LLC 386 TRUMP MARKS TAMPA LLC (31 Name DTTM Operations Managing Member Corp Ownership 1.00 Title Member Role Shareholder Owned by : Ownership 1 99 387 TRUMP MARKS TORONTO CORP (3 Na me TRUMP MARKS TAMPA CORP DTTM OPERATIONS LLC Role Member Member Owned by: Ownership 100 Has ownership interest in : Entity Name TRUMP MARKS TORONTO LLC 388 TRUMP MARKS TORONTO LLC r3 Name DTTM Operations Managing Member Corp Ownership 1.00 Title Member Role Shareholder Owned by : Ownership 1 99 389 TRUMP MARKS TORONTO LP (31 Name TRUMP MARKS TORONTO CORP DTTM OPERATIONS LLC Role Member Member Owned by: Ownership 1 Name TRUMP TORONTO MEMBER CORP Role Member 99 390 TRUMP MARKS WAIKIKI CORP (11 DTTM Operations LLC Member Owned by : Ownership 100 Name The Dona ld J. Trump Revocable Trust Role Shareholder Has ownership Interest in : Entity Name Ownership Title TRUMP MARKS WAIKIKI LLC 1.00 Managing Member 391 TRUMP MARKS WAIKIKI LLC Owned by : Ownership 1 Name TRUMP MARKS WAIKIKI CORP Role Managing Member 99 The Donald J. Trump Revocable Trust Member 392 TRUMP MARKS WESTCHESTER CORP (41 Owned by : Ownership 100 Has ownership Interest in : Entity Name Ownership TRUMP MARKS WESTCHESTER LLC 1.00 DTTM Operations Managing Member Corp Title Managing Member Role Shareholder 393 TRUMP MARKS WESTCHESTER LLC (4 Owned by: Ownership 1 Name TRUMP MARKS WESTCHESTER CORP Role Managing Member 99 394 TRUMP MARKS WHITE PLAINS CORP r41 DTTM OPERATI ONS LLC Member Owned by: Ownership 100 Has ownership interest In : Entity Name Ownership TRUMP MARKS WH ITE PLAINS LLC 1.00 DTTM Operations Managing Member Corp Tltle Managing Member Role Shareholder 39S TRUMP MARKS WHITE PLAINS LLC (4 Owned by : Ownership 1 Name TRUMP MARKS WHITE PLAINS CORP Role Managing Member 99 DTTM OPERATIONS LLC Member OGEForm21tcP.,L n:h201 ) Instructions for Part 2 Note: This Is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required Information. Filer's Nnme Pogc Number Donald J. Trump A35 of 47 Reference ' 396 TRUMP MIAMI RESORT MANAGEMENT LLC Owned by: Ownership 1 Name TRUMP MIAMI RESORT MANAGEMENT MEMBER CORP 99 DJT Holdings LLC 397 TRUMP MIAMI RESORT MANAGEMENT MEMBER CORP r11 Role Managing Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest in: Entity Name TRUMP MIAMI RESORT MANAGEMENTLLC 39B TRUMP MODEL MANAGEMENT LLC Assumed Names: TRUMP MODELS Owned by: 0wnershio 1S BS 399 TRUMP NA TJONAL GOLF CLUB - COL TS NECK Ownership Title 1.00 Managing Member Jurisdiction New York Name Annie Veltri TMG Member, LLC Role Member Member Owned by: Ownership 1 Name TRUMP NATIONAL GOLF CLUB COLTS NECK MEMBER CORP 99 DJT HOLDINGS LLC 400 TRUMP NATIONAL GOLF CLUB COLTS NECK MEMBER CORP r11 Role Managing Member Member Owned by: Ownership Name Role 100 DJT HOLDINGS MANAGING MEMBER Shareholder LLC Has ownership Interest in: Entitv Name Ownership Title TRUMP NATIONAL GOLF CLUB- 1.00 Managing Member COLTS NECK 401 TRUMP NA TJONAL GOLF CLUB - WESTCHESTER Owned by: Ownership 1 99 402 TRUMP NA TJONAL GOLF CLUB MEMBER CORP r11 Name TRUMP NATIONAL GOLF CLUB MEMBER CORP DJT HOLDINGS LLC Role Managing Member Managing Member Owned by: 0wnershlo 100 Has ownership Interest in : Entity Name Ownership TRUMP NATIONAL GOLF CLUB - 1.00 WESTCHESTER 403 TRUMP NATIONAL GOLF CLUB - WASHINGTON DC Name DJT HOLDINGS MANAGING MEMBER LLC Tiiie Managing Member Role Shareholder Owned by: Ownership 1 Name TRUMP NATIONAL GOLF CLUB WASHINGTON DC MEMBER CORP 99 DJT HOLDINGS LLC 404 TRUMP NATIONAL GOLF CLUB WASHINGTON DC MEMBER CORP r11 Role Managing Member Member Owned by: Ownership Name Role 100 DJT HOLDINGS MANAGING MEMBER Shareholder LLC Has ownership interest In : Entity Name Ownership Title TRUMP NATIONAL GOLF CLUB- 1.00 Managing Member WASHINGTON DC 40S Trump New World Propertv Management. LLC (3 Owned by: Ownership Name 50 New World Property Management limited 50 TRUMP RIVERSIDE MANAGEMENT LLC 406 TRUMP OCEAN MANAGER, INC. (3 Role Managing Member Managing Member Owned by: OOEFonn 278c(Man: h2GI ) Instructions for Part 2 Note: This is a public fo rm. Do not Include account numbers, street addresses, or famlly member names. See Inst ructions for required information. Filer's Name Page Number Donald J . Trump A36 of 4 7 Reference ' 100 Trump, Donald J. Shareholder Has ownership interest In : Entity Name TRUMP OCEAN MANAGING MEMBER LLC Ownership 1.00 Title Managing Member 408 TRUMP OLD POST OFFICE LLC Owned by : Ownership 1 76.725 22.275 4o9 TRUMP OLD POST OFFICE MEMBER CORP (11 Name TRUMP OLD POST OFFICE MEMBER CORP DJT HOLDINGS LLC Trump Family Members Role Managing Member Member Member Owned by : Has ownership Interest In : Ownership 77.S 22.S Entity Name TRUMP OLD POST OFFICE LLC Name DJT HOLDINGS MANAGING MEMBER LLC Trump Family Members Ownership Title 1.00 Managing Member Role Shareholder 411 TRUMP ORGANIZATION LLC (31 Assumed Names: The Trump Organization Owned by: Ownership 100 412 TRUMP PAGEANTS, INC. (1! Jurisdiction New York Name DJT Holdings LLC Role Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : 413 Miss Universe L.P., LLLP EntltvName Miss Universe LP., LLLP Ownership 2.00 Title Partner Owned by: 414 TRUMP PALACE PARC LLC Ownership 2 98 Name TRUMP PAGEANTS, INC. DJT Holdings LLC Role Partner Partner Owned by : Ownership 0.1 Name FIRST MEMBER INC Role Managing Member 99.9 The Donald J. Trump Revocable Trust Member 41S TRUMP PANAMA CONDOMINIUM MANAGEMENT LLC (3! Owned by: Ownership 1 99 416 TRUMP PANAMA CONDOMINIUM MEMBER CORP (31 Name TRUMP PANAMA CONDOMINIUM MEMBER CORP DJT Holdings LLC Role Managing Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest in : Entitv Name Ownership TRUMP PANAMA CONDOMINIUM 1.00 MANAGEMENT LLC Title Managing Member 417 TRUMP PANAMA HOTEL MANAGEMENT LLC Owned by: Ownership 1 Name TRUMP PANAMA HOTEL MANAGEMENT MEMBER CORP 99 DJT Holdings LLC 418 TRUMP PANAMA HOTEL MANAGEMENT MEMBER CORP (11 Role Managing Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name TRUMP PANAMA HOTEL MANAGEMENT LLC 419 TRUMP PARK AVENUE ACQUISITION LLC (1! Ownership 1.00 Title Managing Member OOF.Fo f11127llc ( l"fd1 20 14) Instructions for Part 2 Note : This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required inform 1tion. Filer's Name Pngc Number Donald J . Trump A37 of47 Reference L Owned by : Ownership 100 Name The Donald J. Trump Revocable Trust Role Member Has ownership Interest In : 420 TRUMP PARK AVENUE LLC Entity Name TRUMP PARK AVENUE LLC Ownership Title 49.90 Member Owned by: Ownership 0.1 49.9 50 Name GEPT Delmonico LLC TRUMP PARK AVENUE ACQUISITION LLC TRUMP DELMONICO LLC Role Member Member Managing Member 421 TRUMP PAYROLL CHICAGO LLC (2) Owned by: Ownership 100 Name 401 North Wabash Venture LLC Role Managing Member 422 TRUMP PAYROLL CORP (21 Owned by: Ownership 100 Name DJT Holdings Managing Member llC Role Shareholder 423 TRUMP PHOENIX DEVELOPMENT LLC (3) Owned by: 424 TRUMP PLAZA LLC Ownership 100 Name DJT Holdings LLC Role Shareholder Owned by : Ownership 1 Name TRUMP PLAZA MEMBER INC. Role Managing Member 99 The Donald J. Trump Revocable Trust Member 425 TRUMP PLAZA MEMBER INC. (1) Owned by : Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership interest In : Entity Name TRUMP PLAZA LLC Ownership 1.00 Title Managing Member 426 TRUMP PRODUCTIONS LLC Owned by: Ownership 1 99 427 TRUMP PRODUCTIONS MANAGING MEMBER INC. r11 Name TRUMP PRODUCTIONS MANAGING MEMBER INC. DJT Holdings LLC Role Managing Member Member Owned by : Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest in: Entity Name TRUMP PRODUCTIONS LLC Ownership Title 1.00 Managing Member 428 TRUMP PROJECT MANAGEMENT CORP (3) Owned by: Ownership 100 429 TRUMP REAL TY SERVICES LLC (5) Name Trump, Donald J. Role Shareholder Owned by: 430 Trump Restaurants LLC Ownership 100 Name OJT Holdings LLC Role Member Owned by: Ownership 100 431 TRUMP RIVERSIDE MANAGEMENT LLC (3) Name DJT Holdings LLC Role Member Owned by: Has ownership interest in: Ownership 100 Entity Name Trump New World Property Management, LLC Name DJT Holdings LLC Ownership 50.00 Title Managing Member Role Shareholder OOEForm27 1 c(1'fanh 20 1 ) I Instructions for Part 2 Note: This is a public form. Do not Include account numbers, street addre sses, or family member names. See Instructions for requ ired inform;tlon. Filc s Nome IPogc Number Reference fl 432 TRUMP RUFFIN COMMERCIAL LLC (assets income already disclosed on Part 2 under TRUMP RUFFIN TOWER I LLC; operator of front desk) Owned by: 0wnershio 100 Name TRUMP RUFFIN TOWER I LLC Managing Member 433 TRUMP RUFFIN LLC (1) Owned by: Has ownership Interest In : Ownership l 49 50 Entity Name TRUMP RUFFIN TOWER 1 LLC Name TRUMP LAS VEGAS MANAGING MEMBER LLC TRUMP LAS VEGAS MEMBER LLC Hyde Park, LLC Ownership 100,00 Title Managing Member Role Managing Member Member Member 434 TRUMP RUFFIN TOWER I LLC Owned by: Ownership 100 Name TRUMP RUFFIN LLC Role Managing Member Has ownership interest In : Entity Name Ownershio TRUMP RUFFIN COMMERCIAL LLC 100.00 Title Managing Member 435 TRUMP SALES LEASING CHICAGO LLC rs1 Owned by: Ownership l 99 DJT Holdings LLC 436 TRUMP SALES LEASING CHICAGO MEMBER CORP r1 I Name TRUMP SALES LEASING CHICAGO MEMBER CORP Role Member Member Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership interest in : Entity Name TRUMP SALES LEASING CHICAGO LLC 437 TRUMP SCOTLAND MEMBER INC. r11 Ownershlo Title 1.00 Member Owned by : Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name TRUMP INTERNATIONAL GOLF LINKS - SCOTLAND 438 TRUMP SCOTSBOROUGH SQUARE LLC Ownership Title 1.00 Member Owned by : Ownership l Name TRUMP SCOTSBOROUGH SQUARE MEMBER CORP. 99 DJT HOLDINGS LLC Member 439 TRUMP SCOTSBOROUGH SQUARE MEMBER CORP. r11 Role Managing Member Owned by : Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest In : Entity Name Ownership TRUMP SCOTSBOROUGH SQUARE 1.00 LLC Title Managing Member 440 TRUMP SOHO MEMBER LLC '(31 Owned by : Ownership 100 441 TRUMP TORONTO DEVELOPMENT, INC. (41 Name DJT Holdings LLC Role Member Owned by : Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder 442 TRUMP TORONTO HOTEL MANAGEMENT CORP Owned by : Ownership 100 443 TRUMP TORONTO MEMBER CORP (3) Name OJT HOLDINGS MANAGING MEMBER LLC Role Shareholder OGEForm27h(Mmh201J) Reference ti Instructions for Part 2 Note: This Is a public form. Do not Include account numbers, street addresses, or family member names. See Instructions for required information. Filer's Nome Page Number Donald J . Trump A39 of47 Owned by : Ownership 100 Has ownership Interest in: Entity Name TRUMP MARKS TORONTO LP 444 TRUMP TOWER COMMERCIAL LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Member Role Shareholder Owned by : Ownership 1 445 TRUMP TOWER MANAGING MEMBER INC. 99 Name TRUMP TOWER MANAGING MEMBER INC. The Trump-Equttable Fifth Avenue Company Role Managing Member Member Owned by : Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership Interest In : Entity Name Ownership TRUMP TOWER COMMERCIAL LLC 1.00 Title Managing Member 446 Trump Village Construction Corp. (1) Owned by: Ownership 2S Name The Dona ld J. Trump Revocable Trust Role Shareholder 75 Has ownership Interest In : Entity Name Starrett City Associates, LP. Spring Creek Plaza LLC 447 TRUMP VINEYARD ESTATES LLC Trump Family Members Ownership 1.84 1.84 Title Partner Member Shareholder Owned by: Has ownership Interest In : 0wnershio 1 99 Entity Name TRUMP VINEYARD ESTATES LOT 3 OWNERLLC 448 TRUMP VINEYARD ESTATES LOT 3 OWNER LLC Name TRUMP VINEYARD ESTATES MANAGER CORP DJT HOLDINGS LLC Ownership 100.00 Title Member Role Managing Member Member Owned by : Ownership 100 449 TRUMP VINEYARD ESTATES MANAGER CORP (1! Name TRUMP VINEYARD ESTATES LLC Role Member Owned by: Ownership Name Role 100 DJT Holdings Managing Member LLC Shareholder Has ownership Interest In: Entity Name Ownership Title TRUMP VINEYARD ESTATES LLC 1.00 Managing Member 450 TRUMP VIRGINIA ACQUISITIONS LLC Owned by : Ownership 1 99 451 TRUMP VIRGINIA ACQUISITIONS MANAGER CORP (1 ! Name TRUMP VIRGINIA ACQUISITIONS MANAGER CORP DJT Holdings LLC Role Managing Member Member Owned by : Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest In : 452 TRUMP VIRGINIA LOT 5 LLC Entity Name TRUMP VIRGINIA ACQUISITIONS LLC Ownership Title 1.00 Managing Member Owned by: Ownership 1 99 453 TRUMP VIRGINIA LOT 5 MANAGER CORP (1! Name TRUMP VIRGINIA LOT 5 MANAGER CORP DJT HOLDINGS LLC Role Managing Member Member Owned by : Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder 00Efonn271 ( "1n:h 20 1-') Instructions for Part 2 No te : This is a public form. Do not Incl ude account numbers, street addresses, or family member names. See instructions fo r required information. Filer's No.me Pnge Number Donald J . Trump A40 of 47 Reference Has ownership interest Jn : Entity Name Ownership Title TRUMP VIRGINIA LOT 5 LLC 1.00 Managing Member 454 TRUMP WINE MARKS LLC (3 Owned by : Ownership 1 99 455 TRUMP WINE MARKS MEMBER CORP (3! Name TRUMP WINE MARKS MEMBER CORP DJT HOLDINGS LLC Role Managing Member Member Owned by: Has ownership Interest In : Ownership 100 Entity Name TRUMP WINE MARKS LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder 456 TRUMP WORLD PRODUCTIONS LLC (4! Owned by : Ownership 1 99 457 TRUMP WORLD PRODUCTIONS MANAGER CORP (4 Name TRUMP WORLD PRODUCTIONS MANAGER CORP DJT HOLDINGS LLC Role Managing Member Member Owned by: Ownership Name Role 100 DJT Holdings Managing Member LLC Shareholder Has ownership interest in : Entity Name Ownership Title TRUMP WORLD PRODUCTIONS 1.00 Managing Member LLC 458 TRUMP WORLD PUBLICA T ONS LLC (3! Owned by: Ownership 100 459 TRUMP'S CASTLE MANAGEMENT CORP (3 Name DJT Holdings LLC Role Member Owned by : Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder 460 TURNBERRY SCOTLAND LLC (1! Owned by : Has ownership Interest In : Ownership 99 Entity Name Golf Recreation Scotland limited Name TURNBERRY SCOTLAND MANAGING MEMBER CORP DJT HOLDINGS LLC Ownership 100.00 Title Sole Member Role Managing Member Member 461 TURNBERRY SCOTLAND MANAGING MEMBER CORP (11 Owned by: Has ownership Interest In : Ownership 100 Entltv Name TURNBERRY SCOTLAND LLC Name DJT HOLDINGS MANAGING MEMBER LLC Ownership Title 1.00 Managing Member Role Shareholder 462 TW VENTURE I LLC Owned by: Ownership 1 99 463 TWVENTURE I MANAGING MEMBER CORP (1) Name TW VENTURE I MANAGING MEMBER CORP DJT HOLDINGS LLC Role Managing Member Member Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In: Entity Name TW VENTURE I LLC Ownership 1.00 Title Managing Member 464 TW VENTURE II LLC (1 I Owned by : Ownership Reference ti OOEForm211e (Msrd12Cll') Instructions for Part 2 Note: Th is Is a public form. Do not Include account numbers, street addresses, or family member names. Filcr'sNnme Donald J. Trump Has ownership interest In : 99 EntltvName TRUMP INTERNATIONAL GOLF LINKS - DOONBEG 465 TWVENTURE II MANAGING MEMBER CORP (1 TW VENTURE 11 MANAGING MEMBER CORP DJT HOLDINGS LLC Ownership 100.00 Title Shareholder Member Owned by: Has ownership Interest in : Ownership 100 Entity Name TW VENTURE II LLC Name DJT HOLDINGS MANAGING MEMBER LLC Ownership Title 1.00 Managing Member Role Shareholder 466 ULTIMATE AIR CORP. (3 Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder 467 UNIT 2502 ENTERPRISES CORP (1 Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In: Entity Name UNIT 2502 ENTERPRISES LLC Ownership Title 1.00 Managing Member 468 UNIT 2502 ENTERPRISES LLC (5 Owned by: Ownership 1 Name UNIT 2502 ENTERPRISES CORP Role Managing Member 99 469 TRUMP NATIONAL GOLF CLUB - LOS ANGELES DJT HOLDINGS LLC Member Owned by: Has ownership Interest In: 0wnershio 100 Entity Name VHPS LLC Name RPV DEVELOPMENT LLC Ownership 100.00 Title Managing Member Role Shareholder 470 VHPS LLC (assets income already disclosed on Part 2 under TRUMP NATIONAL GOLF CLUB - LOS ANGELES; owner of vacant land! Owned by: 471 WEST PALM OPERA T ONS LLC (5) Ownership 100 Name TRUMP NATIONAL GOLF CLUB - LOS ANGELES Role Managing Member Owned by: 472 Wexford Hall Inc. (3) Ownership 100 Name DJT Holdings LLC Role Member Owned by : Ownership 25 Name The Donald J. Trump Revocable Trust Role Shareholder 473 WHITE COURSE LLC (5) 75 Trump Family Members Shareholder Owned by: Ownership 1 99 474 WHITE COURSE MANAGING MEMBER CORP (11 Name WHITE COURSE MANAGING MEMBER CORP DJT HOLDINGS LLC Role Managing Member Member Owned by: Ownership 100 Name DJT Holdlngs Managing Member LLC Role Shareholder Has ownership interest in : Entity Name WHITE COURSE LLC Ownership Tltle 1.00 Managing Member 475 Wiishire Hall LLC (3) Owned by: Ownership 25 75 Name DJT Holdings LLC Trump Family Members Role Member Member r- Instructions for Part 2 Note : This is a public form. Do not include account numbers, street addresses, or fa m ily member names. See instructions for required Information. f- 0G Form2lk(Mon:h201J) Owned by: Ownership Name 100 DJT Holdings LLC 477 YORKTOWN REAL ESTATE LLC (FIKIA Yorktown Development Associates LLC) (3! Role Member Owned by: Ownership 100 Name DJT HoldJngs LLC Role Member 47B HWA 555 Owners, LLC Owned by: Ownership 100 Name Hudson Waterfront Associates I, LP. Role Partner 479 1290 AVENUE OF THE AMERICAS. A TENANCY-IN-COMMON Owned by: 4BO Trump Management Inc. Ownership 52 20.2 27.B Name HWA 1290 111 LLC HWA 1290 IV LLC HWA 1290 V LLC Role Partner Partner Partner Owned by : Ownership 25 Name The Donald J. Trump Revocable Trust Role Shareholder 4Bl HWA 1290 Ill LLC (1! 75 Trump Family Members Shareholder Owned by: Has ownership interest in : Ownership 100 Entity Name 1290 Avenue of the Americas Name Hudson Waterfront Associates Ill, LP. Ownership 52.00 Title Partner Role Partner 4B2 HWA 1290 IV LLC (1! Owned by: Has ownership Interest in : Ownership 100 Entity Name 1290 Avenue of the Americas Name Hudson Waterfront Associates IV, LP. Ownership 20.20 Tiiie Partner Role Partner 4B3 HWA 1290 V LLC (1! Owned by: Ownership 100 Name Hudson Waterfront Associates V, L.P. Role Partner Has ownership Interest In : Entity Name 1290 Avenue of the Americas Ownership 27.BO Title Partner 4B6 Travel Enterprises Management Inc. (5! Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder 490 The Donald J. Trump Companv LLC (3! Owned by: Ownership 100 Name The Donald J, Trump Revocable Trust Role Member 493 DT BALI GOLF MANAGER LLC (4! Owned by: Ownership 1 99 Name OT BALI GOLF MANAGER MEMBER CORP TTTTVENTURE LLC Role Managing Member Member 494 DT BALI GOLF MANAGER MEMBER CORP (4! Owned by: Ownership 100 Name OJT Holdings Manaclng Member LLC Role Shareholder Has ownership Interest in : OOEFcnn2Uc:( L:m: h 2 0 1 ) Instructions for Part 2 Note: This is a public form. Do not include account numbers, street addresses, or family member names. See instructions for required information. Filer's Nnmc Page Number Donald J . Trump A43 of47 Reference OT BALI GOLF MANAGER 1.00 Managing 495 DT BALI HOTEL MANAGER LLC (41 Member Owned by: 0wnershlo 1 99 Name OT BALI HOTEL MANAGER MEMBER CORP TTTT VENTURE LLC Role Managing Member Member 496 DT BALI HOTEL MANAGER MEMBER CORP (41 Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership interest in: Entity Name OT BALI HOTEL MANAGER LLC Ownership Title 1.00 Managing Member 497 DT BALI TECHNICAL SERVICES MANAGER LLC Owned by: Ownership 1 99 Name OT BALI TECHNICAL SERVICES MANAGER MEMBER CORP TTTTVENTURE LLC Role Managing Member Member 49B DT BALI TECHNICAL SERVICES MANAGER MEMBER CORP r11 Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest in : Entity Name Ownership Title OT BALI TECHINICAL SERVICES 1.00 Managing MANAGERLLC Member 499 DT CONNECT EUROPE LIMITED Owned by : Ownership 100 Name Golf Recreation Scotland limited Role Partner 500 DT ENDEAVOR I LLC Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Member 503 DT JEDDAH TECHNICAL SERVICES MANAGER LLC (41 Owned by: Ownership 1 99 Name OT JEDOAH TECHNICAL SERVICES MANAGER MEMBER CORP Trump, Donald J. Role Managing Member Member 504 DT JEDDAH TECHNICAL SERVICES MANAGER MEMBER CORP (41 Owned by: Ownership Name 100 Trump, Donald J. Has ownership interest in : Entity Name Ownership OT JEDDAH TECHINALSERVICES 1.00 MANAGERLLC 505 DT LIDO GOLF MANAGER LLC (41 Title Managing Member Role Shareholder Owned by: Ownership 1 99 Name OTLIDO GOLF MANAGER MEMBER CORP TTTT VENTURE LLC Role Managing Member Member 506 DT LIDO GOLF MANAGER MEMBER CORP (41 Owned by: Ownership 100 Name DJT Holdlngs Managing Member LLC Role Shareholder Has ownership Interest In : 0ClEForm2711c(M""'h2014) p- Instructions for Part 2 Note: This is a public form. Do not Include account numbers, street addresses, or famllv member names. See Instructions for required Information. f- so1 DT LIDO HOTEL MANAGER LLC (4) Owned by : Ownership 1 99 Name OT LIDO HOTEL MANAGER MEMBER CORP TITT VENTURE LLC Role Managing Member Member SOB DT LIDO HOTEL MANAGER MEMBER CORP (4) Owned by : Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership interest In : Entity Name OT LIDO HOTEL MANAGER LLC Ownership Title 1.00 Managing Member so9 DT LIDO TECHNICAL SERVICES MANAGER LLC Owned by: Ownership 1 99 Name OT LIDO TECHNICAL SERVICES MANAGER MEMBER CORP TITT VENTURE LLC Role Managing Member Member s10 DT LIDO TECHNICAL SERVICES MANAGER MEMBER CORP (1) Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name OT LIDO TECHNICAL SERVICES MANAGERLLC Ownership Title 1.00 Managing Member su DT MARKS BALI LLC (4) Owned by : Ownership 1 99 Name OT MARKS BALI MEMBER CORP DTTM OPERATIONS LLC Role Managing Member Member s12 DT MARKS BALI MEMBER CORP 4) Owned by: Has ownership Interest in: Ownership 100 Entltv Name OT MARKS BALI LLC DTTM Operations Managing Member Corp Ownershlo 1.00 Title Managing Member Role Shareholder S13 DT MARKS LIDO LLC (41 Owned by: Ownership 1 99 Name OT MARKS LIDO MEMBER CORP DTTM OPERATIONS LLC Managing Member Member S14 DT MARKS LIDO MEMBER CORP (4) Owned by: Has ownership Interest In : Ownership 100 Entity Name OT MARKS LIDO LLC Name OTTM Operations Managing Member Corp Ownership 1.00 Title Managing Member Role Shareholder SlS DT TOWER I LLC (4) Owned by: Ownership 1 99 Name DTTOWER I MEMBER CORP DJT Hold ings LLC Managing Member Member Sl6 DT TOWER I MEMBER CORP (4) Owned by: Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder 00 f(lflll 278e (Mllld1 :ZOH) Refere nce ti r- Instructions fo r Part 2 Note: This is a public form. Do not fndude account numbers, street addresses, or fam ily member names. See instructions for required information. Has ownership interest in : 517 DT TOWER KOLKA TA LLC Entity Name DTTOWER I LLC Ownership 1.00 Title Managing Member tt- Owned by : Ownership 99 Name DTTOWER KOLKATA MANAGING MEMBER CORP DTIM OPERATIONS LLC Role Managing Member Member S18 DT TOWER KOLKA TA MANAGING MEMBER CORP (11 Owned by: Has ownership Interest In : Ownership 100 Entity Name DTTOWER KOLKATA LLC Name DTIM Operations Managing Member Corp Ownership 1.00 Title Member Role Shareholder S19 D TTM OPERATIONS LLC Owned by: Ownership 1 99 Name DTIM OPERATIONS MANAGING MEMBER CORP DJT Holdings LLC Role Managing Member Member Has ownership interest in : va rious entities as indicated elsewhere in this schedule s20 DTTM OPERATIONS MANAGING MEMBER CORP (1) Owned by: Ownership 100 Name DJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : various entities as indicated elsewhere in this schedule 521 EID VENTURE II LLC (2) Owned by : Ownership 1 99 Name EID VENTURE II MEMBER CORP The Donald J. Trump Revocab le Trust Managing Member Member 522 EID VENTURE II MEMBER CORP (21 Owned by : Ownership 100 Name The Donald J. Trump Revocable Trust Role Shareholder Has ownership Interest in : Entity Name Ownership Title EID VENTURE II LLC 1.00 Managing Member 523 MOBILE PAYROLL CONSTRUCTION LLC Owned by: Ownership 99 Name MOBILE PAYROLL CONSTRUCTION MANAGER CORP DJT Holdings LLC Role Managing Member Member 524 MOBILE PAYROLL CONSTRUCT ON MANAGER CORP (1) Owned by : Ownership 100 Name OJT Holdings Managing Member LLC Role Shareholder Has ownership Interest In : Entity Name Ownership MOBILE PAYROLL CONSTRUCTION 1.00 LLC Title Managing Member 525 THC DC RESTAURANT HOSPITALITY LLC (1) Owned by : Ownership 100 Name OPO HOTEL MANAGER LLC Role Member 528 THC JEDDAH HOTEL MANAGER LLC (4)-DISSOLVED 11115116 OGE F 1m1 :m O., lan:h 2014) Instructions for Part 2 Note : This is a public form. Do not Include account numbers, street addresses, or family member naml!!s . Sel!! Instructions for requlred information. Filer's Nnme Page Number Donald J . Trump A46 of 47 Reference -...,,. Owned by: Ownership Name Role 1 THCJEDOAH HOTEL MANAGER Managing Member MEMBER CORP 99 Trump, Donald J. Member 529 THC JEDDAH HOTEL MANAGER MEMBER CORP '(41 Owned by: Has ownership interest in : Ownership 100 EntitvName THC JEDDAH HOTEL MANAGER LLC Name Trump, Donald J. Ownership 1.00 Title Managing Member Role Shareholder 530 C DEVELOPMENT VENTURES LLC (3 Owned by: Ownership 1 99 Name C DEVELOPMENT VENTURES MEMBER CORP DTTM OPERATIONS LLC Role Managing Member Member 531 C DEVELOPMENT VENTURES MEMBER CORP (3) Owned by: Ownership 100 Has ownership interest in: Entity Name Ownership C DEVELOPMENT VENTURES LLC 1.00 532 TC MARKS BUENOS AIRES LLC (41 Name DTIM Operations Managing Member Corp Title Managing Member Role Shareholder Owned by : Ownership 100 Name TTTT VENTURELLC Role Member 533 DT VENTURE I LLC Owned by: Ownership 100 Name DJT Holdings LLC Role Member 534 DT VENTURE I MEMBER CORP (3 Owned by : Ownership 100 Name DlTM Operations Managing Member Corp Role Shareholder 535 DT VENTURE II LLC Owned by: Ownership 100 Name DJT Holdings LLC Role Member 536 DT VENTURE II MEMBER CORP (31 Owned by: Ownership 100 DTIM Operations Managing Member Corp Role Shareholder 537 DT TOWER II LLC '(41 Owned by: Ownership 1 99 Name DTIM Operations LLC DTTOWER II MEMBER CORP Role Member Managing Member 538 DT TOWER II MEMBER CORP (4 Owned by: Has ownership interest in : Ownership 100 Entltv Name DTTOWER 11 LLC Name DTIM Operations Managing Member Corp Ownership 99.00 Title Managing Member Role Shareholder 539 DT ENDEAVOR I MEMBER CORP (3 Owned by: Ownership OGE.FOf1U2l!e(MAR:h::?01 ) Instructions for Part 2 Notl!! : This Is a public form. Do not Include account numbers, strel!!t addrl!!SSl!!S, or family member names. See Instructions for required informiltion. Filer's Nnmc Pngc Number Donald J. Trump A47 of 47 Reference 100 DTIM Operations Managing Shareholder Member Corp 540 4T HOLDINGS ONE LLC -C31 Owned by : Ownership 100 Name TITT VENTURE LLC Role Member 541 4T HOLDINGS TWO LLC '(3) Owned by : Ownership 100 Name TITT VENTURE LLC Role Member 542 STORAGE 106 LLC Owned by: Ownership 100 Name The Donald J. Trump Revocable Trust Role Member 543 T EXPRESS LLC ' (5) Owned by: 0wnershlo 1 99 Name T EXPRESS MANAGER MEMBER CORP TITT VENTURE LLC Managing Member Member S44 T EXPRESS MANAGER MEMBER CORP '(11 Owned by : Ownership 100 Name DJT HOLDINGS MANAGING MEMBER LLC Role Shareholder Has ownership interest in : Entity Name TEXPRESS LLC Ownership 1.00 Title Managing Member Real Estate License Fees (Royalties) are customarily paid to Trump in phases: upon signing of the License Agreement (Upfront Fee), and during various stages of the project's development. Therefore, the amount of License fee income reflected herein is dependent on the phase of that project's development cycle with tlte majority of payment back-loaded towards project completion. |
52 AVENUE MAGAZINE APRIL 2012 Peggy Siegal s Oscar Diary APRIL 2012 AVENUE MAGAZINE 53 David O. Russell and Spike Jones Peggy Siegal and Catherine Martin Suki Waterhouse and Bradley Cooper This was the year absolutely no one could predict Best Picture for the 86th Academy Awards: not even me, the Oscar witch. This made directors Steve McQueen, Alfonso Cuaron and David O. Russell very crazy. After months of screenings, press conferences, lunches, and parties, publicists and bloggers had to look these three wise men in the eye and say, We don t have a clue. Then came the slogan, It s time. That was Fox Searchlight s last suggestion on 12 Years a Slave advertisements that subliminally registered in the hearts and minds of voters in the closing days of the studio s low-key campaign. It s time. So simple. Says it all. Just like the mantra Find your voice that marketing honcho Harvey Weinstein came up with three years ago, which drove The King s Speech to a win. This is how you win an Oscar. You pinpoint and connect an exact emotion on the screen to an exact emotion that moves 6,000 voters who are mostly very smart white middle-aged guys. On Oscar night, host Ellen DeGeneres joked to 43 million viewers, Possibility number one: 12 Years a Slave wins Best Picture. Possibility number two: You re all racists, answering the question three hours before the win was announced. DeGeneres then gifted sponsor Samsung with the world s most famous selfie and tipped a pizza delivery guy 1,000. The gripping 12 Years a Slave won Best Picture, putting Steve McQueen in the history books as the first black director, who is also British, to win an Oscar. It took the star power of white heartthrob Brad Pitt to get the film financed. Taking the small but heroic role as the slave s savior, Brad then took a backseat by shooting WWII film, Fury in England, leaving the promotion to others. Steve McQueen s muse Michael Fassbender, who portrayed a sadistic plantation owner, announced he would not campaign. McQueen, Chiwetel Ejiofor and an unknown supporting actress, Lupita Nyong o, were left with the herculean task of selling a film about slavery that was guaranteed to embarrass every American. This is why their win was so poignant. Warner Bros. wildly popular Gravity had skyrocketed to 1 billion globally at the box office. This technical game changer propelled Sandra Bullock into outer space with 70 million of backend profits tucked into her space panties. The beloved thriller landed triumphantly with seven Oscars. Alfonso Cuar n, who slaved for four years to create his masterpiece, won two statues for directing and editing and became the first Latino director to win. Although Gravity s producer David Heyman did not strike gold, this film was one hell of a second act after producing all those Harry Potter films. In the past four years, David O. Russell has been a serious contender with 25 total nominations for his last three films. Hilarious and astute American Hustle garnered 10 nominations, but no wins this year. The four acting categories were easy to predict. Cate Blanchett wowed the minute Blue Jasmine was released in July. This instantaneous phenomenon is known as the Colin-Firth-Daniel-Day-Lewis slam dunk. In November, beautiful darling Jared Leto stole everybody s hearts dressed as a woman in Dallas Buyers Club. His long hair, penchant for 90s grunge, and rock band 30 Seconds to Mars, made him another instant winner. Matthew McConaughey s career renaissance became McConaissance. Mud, Dallas Buyer s Club, Wolf of Wall Street, and finally HBO s Copyright 2013 startraksphoto.com and BFAnyc.com 54 AVENUE MAGAZINE APRIL 2012 Copyright 2013 startraksphoto.com and BFAnyc.com True Detective collectively earned him Best Actor by December. The actress who really stole the show on the campaign circuit was eloquent ing nue Lupita Nyong o, who morphed into a fashion goddess. No one will forget her Best Supporting Actress acceptance speech when she said, It doesn t escape me for one moment that so much joy in my life is thanks to so much pain in someone else s. Tuesday, February 25 I flew to L.A. with some indefinable eye infection that made Olympics reporter Bob Costas reaction to Botox look attractive. My medical calamity possibly caused by Latisse, which promotes eyelash growth, caused my eyelids to resemble red golf balls and necessitated the wearing of dark glasses. No, I did not look as cool as Anna Wintour. I managed to grope my way through Oscar week in couture Ralph Rucci gowns and furs and pretend temporary blindness was just a new look. On this, my 30th trip to The Beverly Hills Hotel, the famous Polo Lounge had finally been renovated to look exactly like it did 30 years ago so as not to upset the regulars. Each pool cabana now had giant flat screens installed for watching CNN in the sun. Cate Blanchett and Oprah Winfrey were the hot Oscar week guests. I headed over to the Vanity Fair Social Club, with its media-friendly WeWork Hollywood pop-up lounge. Vanity Fair publisher Ed Menicheschi, who perfected the Midas touch for masterminding Oscar week sponsorship, greeted me. I participated in a panel discussion of Oscar prognosticators about who would win, hosted by Michael Hogan of VF.com with Anne Thompson of IndieWire, Sasha Stone of Awards Daily, Pete Hammond of Deadline, Dave Karger of Fandango, Krista Smith of Vanity Fair, and Kyle Buchanan of Vulture. If you had put fire to our feet we could not tell you who was winning Best Picture. Like a bunch of nerds all trying to impress each other, we did predict every other category correctly. The town was crawling with stars. So it wasn t shocking to find the most famous sitting in the middle of a public restaurant drinking and singing oldies by the Eagles and Neil Diamond. That was the scene at Nobu in L.A. where Bono and U2, here to perform Mandela s theme Ordinary Love at the Oscars, sat drinking sake and George Clooney s Casamigos Tequila with Clooney himself, and Cindy Crawford and Rande Gerber as they all belted out songs. Steve McQueen with Bianca Stigter Jennifer Lawrence Brad Pitt and Angelina Jolie George left town soon after, was rumored to stop in London to see his new girlfriend, Oxford-educated British barrister Amal Alamuddin, and they headed to an exotic, secluded island for a much-deserved vacation. After winning the Oscar last year for producing Argo, George had a supporting role in Gravity; co-produced August: Osage County; and starred in Tomorrowland, which Disney will release in 2015. He also produced, wrote, directed, and acted in The Monuments Men. Clooney marched to Berlin, Milan, London, and Paris, successfully opening that film. With his Oscar night absence, not only did he make sure Sandra Bullock got all the credit she deserved, but my hunch is that he was also quietly proud of his good friend Brad Pitt, who produced 12 Years a Slave, Gravity s biggest competition. Wednesday, February 26 Action central was now in the lobby of Chateau Marmont where Vanity Fair, Graydon Carter, and Benedikt Taschen Alfonso Cuaron Lupita Nyong o honored world-class photographer Annie Leibovitz for the launch of her new sumosized book, Annie Leibovitz. Andr Balazs confided that Annie pulled an all-nighter in her pajamas hanging her work. Balazs gave her free reign to install her huge iconic portraits throughout the hallways and first floor suites that were open during the party. Photographers Mario Testino and Terry Richardson browsed as Annie walked Quincy Jones on a tour of her larger-thanlife exhibition. Sylvester Stallone gazed at his own portrait taken 20 years ago, his Dorian Gray Rocky face now frozen as in Botox not the blockbuster animated Disney winner. Paramount CEO Brad Grey s wife Cassandra, Carole Bayer Sager and Lorraine Schwartz gave a private dinner at Cassandra s Violet Grey store on Melrose. Jack Nicholson, seated with model Erin Wasson and Eva Mendes, held court as superstar Pharrell Williams (in his Vivienne Westwood Mountain hat) and Anjelica Huston chatted Portia de Rossi and Ellen DeGeneres Bono Michael Fassbender Sienna Miller Leonardi DiCaprio Matthew McConaughey and Camila Alves up Chinatown producer Robert Evans. Dom Perignon sent the champagne, proving that even behind private dinners, one can now spot a sponsor. Thursday, February 27 Oprah Winfrey slipped into Essence s Black Women in Hollywood lunch at the Beverly Hills Hotel where Cheryl Boone Isaacs, the first black female president of the Academy, was honored with a Trailblazer Award. President Bill Clinton, in town for the first United4Humanity gala at Sony Studios that night, had lunch at Larry Gagosian s magnificent modern home in Holmby Hills.It was designed by architect A. Quincy Jones, the mentor of Frank Gehry not to be confused with music legend Quincy Jones, the mentor of Michael Jackson. On this night, there were Barry Diller and Diane von Furstenberg 56 AVENUE MAGAZINE APRIL 2012 Amy Adams and Darren Le Gallo Lady Gaga This is how you win an Oscar. You pinpoint and connect an exact emotion on the screen to an exact emotion that moves 6,000 voters . . . 10 parties. English society decorator and Olympic party animal Nicky Haslam flew in from England for the Vanity Fair dinner Sunday night and was my escort for this evening. We made it to five parties. Vanity Fair and Sony s Toast to American Hustle at Ago on Melrose was our first stop, to pay homage to David O. Russell. Inquiring minds, including hotshot producer Megan Ellison, Amy Adams, Sony CEO Michael Lynton and co-chairman Amy Pascal, debated who was winning Best Picture. We still didn t know. CAA s Josh Lieberman was on his way to ICM s John Burnham s Santa Monica home. Copyright 2013 startraksphoto.com and BFAnyc.com Al Pacino and David Mamet were huddled on a couch as Spike Lee and Meredith Vieira sat nearby listening. At Warner Bros. fancy private dinner for its nominees at the Bel Air Hotel, Nicky and I were greeted by David Heyman. Executives Sue Kroll and Juli Goodwin brought us over to Sandra Bullock and CEO Kevin Tsujihara. Again, everyone whispered, Who is winning Best Picture? Gravity s technical wizardry, revered in L.A., was now thought to have the edge. Spike Jones arrived and was too superstitious to discuss his chances for Best Original Screenplay for Her. He won. Don t worry about Blue Jasmine fellow nominee Woody Allen; he was tap dancing with Susan Stroman on Broadway, rehearsing Bullets Over Broadway. As a man who doesn t believe in campaigning for awards, he just might show up to collect a few Tonys. An exhausted Alfonso Cuar n was the last to appear, with girlfriend Sheherazade Goldsmith. He was fighting a cold and couldn t wait to get back to real, not reel, life. Brad Grey s party for Paramount s nominees was in full swing at Spago Beverly Hills. The Wolf of Wall Street s Marty Scorsese was huddled in a booth with Brad, marketing maven Megan Colligan, producer Irwin Winkler, and the ageless Don Rickles. Jonah Hill s buddy Leonardo DiCaprio had just left, as he was getting a cold too, but he later showed up at the Bel Air, where Marty was staying, to have drinks with Scorsese and Cuar n in the bar. Nebraska talent Bruce Dern, Will Forte, June Squibb, cinematographer Phedon Papamichael and screenwriter Bob Nelson relaxed since their grueling nine-month campaign, which had begun at Cannes, was finally over. Ron Meyer, vice chairman of Universal, had his annual private party at his Malibu home in honor of Graydon Carter. Barbra Streisand, Jim Brolin, John Travolta, Kelly Preston, Diane Lane, Robert Downey Jr., and Paul Rudd mingled under a tent with interior designer Sandy Gallin and his new husband Bryan Fox. Ron s daughter, jewelry designer Jennifer Meyer, came alone. It was nanny s night off, so her husband Tobey Maguire stayed home with the kids. Lara Spencer Larry Gagosian gave his 17th annual art opening and dinner, which is always a hot ticket for the rich and hip. This year, art photographer Taryn Simon mounted a show titled Birds of the West Indies after the seminal taxonomy by ornithologist James Bond. The exhibition also chronicled the women, weapons, and cars depicted in the Bond films, in addition to the birds that appear in all 24 movies. Even MGM couldn t dream this up. Dinner followed next door at Mr. Chow s, complete with Eva and Michael Chow. Simon s filmmaker husband Jake Paltrow brought his mother Blythe Danner and his sister Gwyneth. Since the Spielbergs and the Paltrows are close family friends , Kate Capshaw arrived with Theo and Sasha Spielberg. Jared Leto came with Terry Richardson. Adrien Brody, Elle Fanning, Cameron Diaz, John Waters, and Robbie Robertson chowed down. Power collectors Eli and Edythe Broad and Bill and Maria Bell split chopsticks. After dinner, we migrated to Gagosian s home. It was raining, it was windy, and it was cold. Teetotaler Robbie Robertson slipped on wet stone outside the house. He was taken to the hospital that night and endured a two-hour operation on three broken ankle bones. Simultaneously, Nicky Haslam slipped onto a glass table and crashed to the floor. Nicky was fine; the table was a goner so much excitement for one night. Friday, February 28 Woke up this morning and the eye problem had reached epic proportions as my left eye was now shut. Found an eye doctor to lance the infected eyelid. He gave me enough drugs to get me to the Publicist Guild lunch at the Beverly Wilshire Hotel. Jerry Lewis was receiving a Lifetime Achievement Award from Carol Burnett. Thankfully, I only needed one eye to take all that in. At her uncle s Rodeo Drive store, Roberta Armani toasted fellow Italians Marty Scorsese and Paolo Sorrentino. The suits Leo wore in The Wolf of Wall Street were designed for him by Armani himself. Paolo Sorrentino was the overwhelming favorite to win Best Foreign Film for his Felliniinspired The Great Beauty, and indeed he won. Armani s talent turnout was very impressive. Cate Blanchett, who has signed with the designer as the face of his perfume, was there with Glenn Close, Robert DeNiro, and Samuel L. Jackson. All were bedecked in Armani. Wanda McDaniel, the marketing guru for Armani, was the very first to dress actresses on the red carpet. Jodie Foster was her muse and that was 25 years ago. Greta Gerwig Bette Midler Laura Dern, Bruce Dern and Andrea Beckett APRIL 2012 AVENUE MAGAZINE 57 Harvey Weinstein and Georgina Chapman Naomi Watts Graydon Carter and Anna Scott Carter Andre Balazs Sandra Bullock Terry Richardson I never tire of the overwhelming excitement, throngs of eager press, and screaming fans. Everything boils down to this moment of mass hysteria. Philomena producers Gaby Tana and Tracey Seaward invited me to Steve Coogan s home where music man Alexandre Desplat and Jon Hamm were having beers. Coogan captivated me with conversation of how he and the real Philomena Lee, who was a red carpet regular, took their full disclosure adoption campaign to the Vatican, meeting The Pope. Only Harvey Weinstein could have pulled off that jaw-dropping marketing miracle. Traditionally, there are three private agency parties on Friday night WME, CAA, and UTA. They were hosted by Ari Emanuel, Kevin Huvane, and Jim Berkus and were press free, leaving the stars uninhibited and happy. Justin Theroux, about to explode in HBO s miniseries The Leftovers, canoodled with Jennifer Aniston. Past and present Oscar nominees and winners including Ben Affleck, Matt Damon, Oprah Winfrey, Charlize Theron, Sean Penn, Bradley Cooper, Jonah Hill, Alexander Payne, Steve McQueen, and Alfonso Cuar n were among the evening s migrating tribe. Saturday, March 1 Barry Diller and Diane von Furstenberg canceled their annual, highly anticipated outdoor lunch for Graydon Carter at their Coldwater Canyon home atop a steep hill because of impending torrential rain that never came. Three hundred power hungry showbiz executives were sent into a tailspin for an alternative activity. Luckily, Sony Pictures Classics and industry icons Tom Bernard, and Michael Barker took pity on me and invited me to their table at the Independent Spirit Awards under a wobbly tent that billowed with the wind in Santa Monica. Bob Balaban and I headed to the 6th annual Chanel-sponsored dinner hosted by the debonair Charles Finch at Madeo. Girls donning 20k Chanel dresses included Anne Hathaway, Sienna Miller (with baby daddy Tom Sturridge), Lily Collins, Greta Gerwig and Poppy Delevingne. Jessica de Rothschild and her director husband Sacha Gervasi were in attendance as well as Adrien Brody, David O. Russell, Oliver Stone, Danny Huston, Jean Pigozzi, Ben Silverman, Peter Morton, and Elon Musk. Harvey and Bob Weinstein along with Chopard honored their nominees, including the singers in RADiUS-TWC s Best Documentary winner 20 Feet from Stardom, with a seated dinner at the Montage Hotel in the Marchesa Ballroom. (The dining room was rechristened for the evening in honor of Harvey s wife Georgina Chapman s dress label.) After dinner, guests were wowed by a performance from Weinstein s upcoming Broadway musical, Finding Neverland, based on their Oscar-nominated film about Peter Pan creator J. M. Barrie. Celebrities Bono, U2, Meryl Streep, Julia Roberts, Oprah Winfrey, Olivia Wilde and Jason Sudeikis, Christoph Waltz, and Taylor Swift gave Neverland s stars, Jason Alexander and Gary Barlow, a standing ovation. Sunday, March 2 My Oscar date this year was GMA s glamorous Lara Spencer. I arrived, as usual, two hours early at the Dolby Theater in order to plant myself on the mother of all red carpets. Only this year, I was incognito with the dark Copyright 2013 startraksphoto.com and BFAnyc.com 58 AVENUE MAGAZINE APRIL 2012 Copyright 2013 startraksphoto.com and BFAnyc.com glasses. I greeted each of Lara s interviewees as if they were coming to my house for dinner. I never tire of the overwhelming excitement, throngs of eager press, and screaming fans. Everything boils down to this moment of mass hysteria. It s always humbling to stand among the entertainment giants, wish them luck and have them nervously smile back. It s the bittersweet finale when all of the campaigning is over and you think you won t see them until their next movie. It s like the last day of camp. I was now dateless and alone as Lara Spencer went home suffering from a sore throat. Those in the know always hang out at the downstairs bar during the broadcast where the sound is turned up on the flat screens. This year, Cate Blanchett s husband theater impresario Andrew Upton bought me free drinks. I hung out with Cate, her CAA agent Hylda Queally, the adorable skinny Sally Hawkins in a heavily beaded Valentino gown, Julia Roberts, and Tom Bernard and Michael Barker who have 140 career nominations and 32 wins. After reassuring Blanchett that her stupendous pale beaded Armani Priv gown was the best of the other girls pale dresses and that her Oscar would pop against it, she went on stage to win. While I was at the Oscar broadcast, 160 VIPs at Graydon Carter s annual Oscar viewing dinner were getting ready for the rush of a thousand more party guests. Five hundred limos were on the way. Those who watched the awards from the beige, circular dining room were Graydon s friends including: Sofia Vergara, Tom Ford, Carolina Herrera, Bruce Weber, Allen Grubman, Bob Colacello, Judd Apatow, Jeff Klein and John Goldwyn, Rupert Murdoch, Steve Newhouse, Les Moonves, and Jimmy Buffet. I ran through the Governor s Ball and found Bryan Lourd and Fox s beloved leader Jim Gianopulos, ushered by Fox Searchlight s Michelle Hooper, sitting at Brad Pitt s empty table because everyone else was still in the press room doing interviews. I arrived at the Vanity Fair party at its new location, 8680 Sunset Boulevard, a parking lot that was transformed into an airy glass dome. I stood in a corner, ravenously inhaling my In-n-Out burger with ketchup dripping down my chin and of course, Graydon the adored maestro of the week came up and so sweetly wanted to know how I was doing. It s a little difficult to respond with a mouthful of food behind dark glasses. The stars were huddled together in groups, air kissing and congratulating each other. Bill Murray, Lupita Nyong o, Jennifer Lawrence, Naomi Watts, Idina Menzel, Sarah Paulson, Bette Midler and Lady Gaga owned the dance floor; Jared Leto passed his Oscar around so much he dropped it and it now sports a little dent in the head; pregnant Kerry Washington ate for two; and the Janes Fonda and Buffet huddled on a couch, while The Great Gatsby s production and costume designer, and wife of director Baz Luhrmann, Catherine Martin and I posed with her two Oscars. (Including the two she won for Moulin Rouge, she now has four). Even Madonna has sponsors now. The material girl blinding in 1,000 carats of Neil Lane s diamonds hosted her seventh annual awards bash at her manager Guy Oseary s home with Gucci. Originally super secret, the party is now a headline on Page Six. Madonna made her best effort to cream off the stars from Graydon s party. In attendance were Paul McCartney, Tom Brady and Gisele B ndchen, newly engaged Ashton Kutcher and Mila Kunis, Serena Williams, Prince, and Pink. Madonna closed out her own party by breakdancing with her kids and Miley Cyrus, and spinning records until 7 a.m. for Matthew McConaughey. Madge, short for majesty, would rather die than entertain press, let alone an adorable publicist like moi. Last year, ever so curious, Anne Hathaway and Jared Leto Charlize Theron I was brought as a guest of a guest only to be frogmarched to the door by Oseary, the furious host himself. Dear readers, I did this for you. It has taken me a year to admit I was too socially traumatized to report my investigative failure. I now realize that I was just a pawn for Oseary s A-list purity for the night. His own rock status had been boosted by signing Bono and U2. Thank God my social stock is still otherwise intact. The week before the Oscars, the real Oscar de la Renta had invited me to his beachfront paradise in the Dominican Republic with Lord and Lady Astor. In June, the Duke and Duchess of Marlborough are expecting me at Blenheim Palace. So much for not making the cut at Madonna s. Once again, I scored a ride home on a friend s plane where my dark glasses fit right in. Passengers received an email that morning requesting no jeans. I thought this was a bizarre fashion edict, only to find out the indigo dye in denim bleeds onto the jet s white leather chairs. As a closing to my 10th annual Oscar diary, I can sum up this year s race as one of intense emotions and euphoric pride for our love of what Americans do best: making the most wonderful and culturally enlightening movies that entertain the world. On to Cannes! APRIL 2012 AVENUE MAGAZINE 59 |
Kenneth W. Starr Kirkland Ellis LLP 777 South Figueroa Street Los Angeles, CA 90017-5800 VIA FACSIMILE May 19, 2008 Honorable Mark Filip Office of the Deputy Attorney General United States Department of Justice 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530 Dear Judge Filip: Joe D. Whitley Alston Bird LLP The Atlantic Building 950 F Street, NW Washington, DC 2000 -1 04 CONFIDENTIAL In his confirmation hearings last fall, Judge Mukasey admirably lifted up the finest traditions of the Department of Justice in assuring the United States Senate, and the American people, of his solemn intent to ensure fairness and integrity in the administration of justice. Your own confirmation hearings echoed that bedrock determination to assure that the Department conduct itself with honor and integrity, especially in the enforcement of federal criminal law. We come to you in that spirit and respectfully ask for a review of the federal involvement in a quintessentially state matter involving our client, Jeffrey Epstein. While we are well aware of the rare instances in which a review of this sort is justified, we are confident that the circumstances at issue warrant such an examination. Based on our collective experiences, as well as those of other former senior Justice Department officials whose advice we have sought, we have never before seen a case more appropriate for oversight and review. Thus, while neither of us has previously made such a request, we do so now in the recognition that both the Department's reputation, as well as the due process rights of our client, are at issue. Recently, the Criminal Division concluded a very limited review of this matter at the request of U.S. Attorney Alex Acosta. Critically, however, this review deliberately excluded many important aspects of this case. Just this past Friday, on May 16, 2008, we received a letter from the head of CEOS informing us that CEOS had conducted a review of this case. By its own admission, the CEOS review was "limited, both factually and legally." Part of the self-imposed limitation was CEOS's abstention from addressing our "allegations of professional misconduct by federal prosecutors" even though such misconduct was, as we contend it is, inextricably intertwined with the credibility of the accusations being made against Mr. Epstein by the United States Attorney's Office in Miami ("USAO"). Moreover, CEOS did not assess the terms of the Deferred Prosecution Agreement now in effect, nor did CEOS review the federal prosecutors' inappropriate efforts to implement those terms. We detail this point below. Honorable Mark Filip May 19, 2008 Page 2 By way of background, we were informed by Mr. Acosta that, at his request, CEOS would be conducting a review to determine whether federal prosecution was both appropriate and, in his words, "fair." That is not what occurred. Instead, CEOS has now acknowledged that we had raised "many compelling arguments" against the USAO's suggested "novel application" of federal law in this matter. Even so, CEOS concluded, in minimalist fashion, that "we do not see anything that says to us categorically that a federal case should not be brought" and that the U.S. Attorney "would not be abusing his prosecutorial discretion should he authorize federal prosecution of Mr. Epstein" thus delegating back to Mr. Acosta the decision of whether federal prosecution was warranted (emphasis added). Rather than assessing whether prosecution would be appropriate, CEOS, using a low baseline for its evaluation, determined only that "it would not be impossible to prove . . ." certain allegations made against Mr. Epstein. The CEOS review failed to address the significant problems involving the appearance of impermissible selectivity that would necessarily result from a federal prosecution of Mr. Epstein. We respect CEOS 's conclusion that its authority to review "misconduct" issues was precluded by Criminal Division practice. We further respect CEOS 's view that it understood its mission as significantly limited. Specifically, the contemplated objective was to determine whether the USAO would be abusing its discretion by bringing a federal prosecution rather than making its own de novo recommendations on the appropriate reach of federal law. However, we respectfully submit that a full review of all the facts is urgently needed at senior levels of the Justice Department. In an effort to inform you of the nature of the federal investigation against Mr. Epstein, we summarize the facts and circumstances of this matter below. The two base-level concerns we hold are that (1) federal prosecution of this matter is not warranted based on the purely-local conduct and the unprecedented application of federal statutes to facts such as these and (2) the actions of federal authorities are both highly questionable and give rise to an appearance of substantial impropriety. The issues that we have raised, but which have not yet been addressed or resolved by the Department, are more than isolated allegations of professional mistakes or misconduct. These issues, instead, affect the appearance and administration of criminal justice with profound consequences beyond the resolution in the matter at hand. In a precedent-shattering investigation of Jeffrey Epstein that raises important policy questions and serious issues as to the fair and honorable enforcement of federal law the USA in Miami is considering extending federal law beyond the bounds of precedent and reason. Federal prosecutors stretched the underlying facts in ways that raise fundamental questions of basic professionalism. Perhaps most troubling, the USA in Miami, as a condition of deferring prosecution, required a commingling of substantive federal criminal law with a proposed civil remedy engineered in a way that appears intended to profit particular lawyers in Honorable Mark Filip May 19, 2008 Page 3 private practice in South Florida with personal relationships to some of the prosecutors involved. Federal prosecutors then leaked highly sensitive information about the case to a New York Times reporter.' The immediate result of this confluence of extraordinary circumstances is an onslaught of civil lawsuits, all save one brought by the First Assistant's former boutique law firm in Miami. The facts in this case all revolve around the classic state crime of solicitation of prostitution.2 The State Attorney's Office in Palm Beach County had conducted a diligent investigation, convened a Grand Jury that returned an indictment, and made a final determination about how to proceed. That is where, in our federal republic, this matter should rest. Mr. Epstein faces a felony conviction in state court by virtue of his conduct, and the only reason the State has not resolved this matter is that the federal prosecutors in Miami have continued to insist that we, Mr. Epstein's counsel, approach and demand from the State Attorney's Office a harsher charge and a more severe punishment than that Office believes are appropriate under the circumstances. Yet despite the USAO's refusal to allow the State to resolve this matter on the terms the State has determined are appropriate, the USA() has not made any attempt to coordinate its efforts with the State. In fact, the USAO mandated that any federal agreement would be conditioned on Mr. Epstein persuading the State to seek a criminal punishment unlike that imposed on other defendants within the jurisdiction of the State Attorney for similar conduct. From the inception of the USAO's involvement in this case, which at the end of the day is a case about solicitation of prostitution within the confines of Palm Beach County, Florida, we have asked ourselves why the Department of Justice is involved. Regrettably, we are unable to suggest any appropriate basis for the Department's involvement. Mr. Epstein has no criminal history whatsoever. Also, Mr. Epstein has never been the subject of general media interest until a few years ago, after it was widely perceived by the public that he was a close friend of former President Bill Clinton. The conduct at issue is simply not within the purview of federal jurisdiction and lies outside the heartland of the three federal statutes that have been identified by prosecutors-18 U.S.C. 1591, 2422(b), and 2423(b). 1 One of the other members of Mr. Epstein's defense team, Jay Leflcowitz, has personally reviewed the reporter's contemporaneous notes. 2 Although some of the women alleged to be involved were 16 and 17 years of age, several of these women openly admitted to lying to Mr. Epstein about their age in their recent sworn statements. Honorable Mark Filip May 19, 2008 Page 4 These statutes are intended to target crimes of a truly national and international scope. Specifically, 1591 was enacted to combat human trafficking, 2422 is aimed at sexual predation of minors through the Internet, and 2423 deals with sex tourism. The nature of these crimes results in multi-jurisdictional problems that state and local authorities cannot effectively confront on their own. However, Mr. Epstein's conduct was purely local in nature and, thus, does not implicate federal involvement. After researching every reported case brought under 18 U.S.C. 1591, 2422(b), and 2423(b), we found that not a single case involves facts or a scenario similar to the situation at hand. Our review of each precedent reflects that there have been no reported prosecutions under 1591 of a'john' whose conduct with a minor lacked force, coercion, or fraud and who was not profiting from commercial sexual trafficking. There have likewise been no cases under 2422(b) a crime of communication where there was no use of the Internet, and where the content of phone communications did not contain any inducing or enticing of a minor to have illegal sexual activity as expressly required by the language of the statute. Furthermore, the Government's contention that "routine and habit" can fill the factual and legal void created by the lack of evidence that such a communication ever occurred sets this case apart from every reported case brought under 2422(b). Lastly, there are no reported cases of violations of 2423(b) of a person whose dominant purpose in traveling was merely to go to his own home.3 Although these matters were within the scope of the CEOS review, rather than considering whether federal prosecution is appropriate, CEOS only determined that U.S. Attorney Acosta "would not be abusing his prosecutorial discretion should he authorize federal prosecution" in this case. The "abuse of discretion" standard constitutes an extremely low bar of evaluation and while it may be appropriate when the consideration of issues are exclusively factual in nature, this standard fails to address concerns particular to this situation, namely the "novel application" of federal statutes. The "abuse of discretion" standard in such pure legal matters of statutory application risks causing a lack of uniformity. The same federal statutes that would be stretched beyond their bounds in Miami have been limited to their heartland in each of the other federal districts. Also, because this case implicates broader issues of the administration of equal justice, federal prosecution in this matter risks the appearance of selectivity in its stretching of federal law to fit these facts. 3 Federal prosecution of a man who engaged in consensual conduct in his home that amounted to, at most, the solicitation of prostitution, is unprecedented. Since prostitution is fundamentally a state concern, (see United States v. Evans, 476 F.3d 1176, n.1 (11th Cir. 2007) (federal law "does not criminalize all acts of prostitution (a vice traditionally governed by state regulation)")), and there is no evidence that Palm Beach County authorities and Florida prosecutors cannot effectively prosecute and punish the conduct, there is no reason why this matter should be extracted from the hands of state prosecutors in Florida. Honorable Mark Filip May 19, 2008 Page 5 In fact, recent testimony of several alleged "victims" contradicts claims made by federal prosecutors during the negotiations of a deferred prosecution agreement. The consistent representations of key Government witnesses (such as and ) confirm the following critical points: First, there was no communication, telephonic or otherwise, that meets the requirements of 2422(b). For instance, Ms. Gonzalez confirmed that Mr. Epstein never emailed, text-messaged, or used any facility of interstate commerce whatsoever, before or after her one (and only) visit to his home. Tr. (deposition) at 30. Second, the women who testified admitted that they lied to Mr. Epstein about their age in order to gain admittance into his home. Indeed, the women who brought their underage friends to Mr. Epstein testified that they would counsel their friends to lie about their ages as well. stated the following: "I would tell my girlfriends just like approached me. Make sure you tell him you're 18. Well, these girls that I brought, I know that they were 18 or 19 or 20. And the girls that I didn't know and I don't know if they were lying or not, I would say make sure that you tell him you're 18." Third, there was no routine or habit of improper communication expressing an intent to transform a massage into an illegal act. In fact, there was often no sexual activity at all during the massage. testified that " s ometimes Mr. Epstein just wanted his feet massaged. Sometimes he just wanted a back massage." also stated that Mr. Epstein "never touched her physically" and that all she did was "massage his back, his chest and his thighs and that was it." 1 Finally, there was no force, coercion, fraud, violence, drugs, or even alcohol present in connection with Mr. Epstein's encounters with these women. stated that " Mr. Epstein never tried to force me to do anything." at 12. These accounts are far from the usual testimony in sex slavery, Internet stings and sex tourism cases previously brought. The women in actuality were not younger than 16, which is the age of consent in most of the 50 states, and the sex activity was irregular and in large part, consisted of solo self-pleasuring. The recent crop of civil suits brought against Mr. Epstein confirm that the plaintiffs did not discuss any sexually-related activities with anyone prior to arriving at Mr. Epstein's residence. This reinforces our contention that no telephonic or Internet persuasion, inducement, enticement or coercion of a minor, or of any other individual, occurred. In addition, Mr. Jeffrey Herman, the former law partner of one of the federal prosecutors involved in this matter and the attorney for most of the civil complainants (as described in detail below), was quoted in the Palm Beach Post as saying that "it doesn't matter" that his clients lied about their ages and told Mr. Epstein that they were 18 or 19. Not only is a federal prosecution of this matter unwarranted, but the irregularity of conduct by prosecutors and the unorthodox terms of the deferred prosecution agreement are beyond any reasonable interpretation of the scope of a prosecutor's responsibilities. The list of improprieties includes, but is not limited to, the following facts: Honorable Mark Filip May 19, 2008 Page 6 Federal prosecutors made the unprecedented demand that Mr. Epstein pay a minimum of 150,000 per person to an unnamed list of women they referred to as minors and whom they insisted required representation by a guardian ad litem. Mr. Epstein's counsel later established that all but one of these individuals were actually adults, not minors. Even then, though demanding payment to the women, the USAO eventually asserted that it could not vouch for the veracity of any of the claims that these women might make. Federal prosecutors made the highly unusual demand that Mr. Epstein pay the fees of a civil attorney chosen by the prosecutors to represent these alleged "victims" should they choose to bring any civil litigation against him. They also proposed sending a notice to the alleged "victims," stating, in an underlined sentence, that should they choose their own attorney, Mr. Epstein would not be required to pay their fees. The prosecutors further demanded that Mr. Epstein waive his right to challenge any of the allegations made by these "victims." The Assistant U.S. Attorney involved in this matter recommended for the civil attorney, a highly lucrative position, an individual that we later discovered was closely and personally connected to the Assistant U.S. Attorney's own boyfriend. Federal prosecutors represented to Mr. Epstein's counsel that they had identified (and later rechecked and re-identified) several alleged "victims" of federal crimes that qualified for payment under 18 U.S.C. 2255, a civil remedy designed to provide financial benefits to victims. Only through state discovery provisions did we later learn that many of the women on the rechecked "victim list" could not possibly qualify under 2255. The reason is that they, themselves, testified that they did not suffer any type of harm whatsoever, a prerequisite for the civil recovery under 2255. Moreover, these women stated that they did not, now or in the past, consider themselves to be victims. During the last few months, Mr. Herman, First Assistant Sloman's former law partner, has filed several civil lawsuits against Mr. Epstein on behalf of the alleged "victims." It is our understanding that each of Mr. Herman's clients are on the Honorable Mark Filip May 19, 2008 Page 7 Government's confidential "list of victims." Most of these lawsuits seek 50 million in money damages.4 Assistant U.S. Attorney David Weinstein spoke about the case in great detail to Landon Thomas, a reporter with the New York Times, and revealed confidential information about the Government's allegations against Mr. Epstein. The Assistant U.S. Attorney also revealed the substance of confidential plea negotiations. When counsel for Mr. Epstein complained about the media leaks, First Assistant Sloman responded by asserting that "Mr. Thomas was given, pursuant to his request, non-case specific information concerning specific federal statutes." Based on Mr. Thomas' contemporaneous notes, that assertion appears to be false. For example, Mr. Weinstein told Mr. Thomas that federal authorities believed that Mr. Epstein had lured girls over the telephone and traveled in interstate commerce for the purpose of engaging in underage sex. He recounted to Mr. Thomas the USAO's theory of prosecution against Mr. Epstein, replete with an analysis of the key statutes being considered. Furthermore, after Mr. Epstein's defense team complained about the leak to the USAO, Mr. Weinstein, in Mr. Thomas' own description, then admonished him for talking to the defense, and getting him in trouble. Mr. Weinstein further told him not to believe the "spin" of Mr. Epstein's "high-priced attorneys," and then, according to Mr. Thomas, Mr. Weinstein forcefully "reminded" Mr. Thomas that all prior conversations were merely hypothetical. We are constrained to conclude that the actions of federal officials in this case strike at the heart of one of the vitally important, enduring values in this country: the honest enforcement of federal law, free of political considerations and free of the taint of personal financial motivations on the part of federal prosecutors that, at a minimum, raise the appearance of serious impropriety. We were told by U.S. Attorney Acosta that as part of the review he requested, the Department had the authority, and his consent, to make any determination it deemed appropriate regarding this matter, including a decision to decline federal prosecution. Yet, CEOS's only conclusion, based on its limited review of the investigation, is that U.S. Attorney Acosta would not abuse his discretion by proceeding against Mr. Epstein. Thus, the decision of whether As recently as two months ago, Mr. Sloman was still listed publicly as a part of his former law firm. While we assume this was an oversight, Mr. Sloman's identification as part of the firm raises the appearance of impropriety. Honorable Mark Filip May 19, 2008 Page 8 prosecution is fair and appropriate has been placed, once again, in U.S. Attorney Acosta's hands. In light of the foregoing, we respectfully ask that you review this matter and discontinue all federal involvement so that the State can appropriately bring this matter to closure. We would greatly appreciate the opportunity to meet with you to discuss these important issues. Such a meeting would provide the Department with an opportunity to review the paramount issues of federalism and the appearance of selectivity that are generated by the unprecedented attempts to broaden the ambit of federal statutes to places that they have never before reached. We sincerely appreciate your attention to this matter. Respectfully submitted, Q- ), Kenneth W. Starr Kirkland Ellis LLP Joe D. Whitley Alston Bird LLP 05 19 08 MON 13:26 FAX 1 213 680 8500 KIRKLAND ELLIS LLP 41001 TRANSMISSION OK TX REPORT TX RX NO 1855 CONNECTION TEL 912025140467 SUBADDRESS CONNECTION ID ST. TIME 05 19 13:21 USAGE T 04'56 PGS. 9 RESULT OK KIRKLAND ELLIS LLP Fax Transmittal 777 South Figueroa Street Los Angeles, California 17 Please notify us immediately if any pages are not received. THE INFORMATION CONTAINED IN THIS COMMUNICATION IS CONFIDENTIAL, MAY BE ATTORNEY-CLIENT PRIVILEGED, MAY CONSTITUTE INSIDE INFORMATION, AND IS INTENDED ONLY FOR THE USE OF THE ADDRESSEE. UNAUTHORIZED USE, DISCLOSURE OR COPYING IS STRICTLY PROHIBITED AND MAY BE UNLAWFUL. IF YOU HAVE RECEIVED THIS COMMUNICATION IN ERROR, PLEASE NOTIFY US IMMEDIATELY AT: (213) 680-8400. Honorable Mark Filip Office of the Deputy Attorney General United States Department of Justice From Date: Pageswitover Fax : Direct : Kenneth W. Starr May 19, ?008 9 Message: |
Kenneth W. Starr Kirkland Ellis LLP 777 South Figueroa Street Los Angeles, CA 90017-5800 May 27, 2008 Joe D. Whitley Alston Bird LLP The Atlantic Building 950 F Street, NW Washington. DC 20004-1404 VIA FACSIMILE CONFIDENTIAL Honorable Mark Filip Office of the Deputy Attorney General United States Department of Justice 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530 Dear Judge Filip: This letter briefly supplements our prior submission to you dated May 19, 2008. In that communication, we urgently requested that your Office conduct an independent review of the proposed federal prosecution of our client, Jeffrey Epstein. The dual reasons for our request that you review this matter are (i) the bedrock need for integrity in the enforcement of federal criminal laws, and (ii) the profound questions raised by the unprecedented extension of federal law by the United States Attorney's Office in Miami (the "USAO") to a prominent public figure who has close ties to former President Clinton. The need for review is now all the more exigent. On Monday, May 19, 2008, First Assistant Jeffrey Sloman of the USAO responded to an email from Jay Lefkowitz informing U.S. Attorney Alex Acosta that we would be seeking your Office's review. Mr. Sloman's letter, which imposed a deadline of June 2, 2008 to comply with all the terms of the current Non- Prosecution Agreement (the "Agreement"), plus new unilateral modifications, on pain of being deemed in breach of that Agreement, appears to have been deliberately designed to deprive us of an adequate opportunity to seek your Office's review in this matter. The USAO's desire to foreclose a complete review is understandable, given that the Child Exploitation and Obscenity Section ("CEOS") has already determined that our substantive arguments regarding why a federal prosecution of Mr. Epstein is not warranted were "compelling." However, in contradiction to Mr. Sloman's assertion that CEOS had provided an independent, de novo review, CEOS made clear that it did not do so. Indeed, CEOS declined to examine several of the more troubling aspects of the investigation of Mr. Epstein, including the deliberate leak to the New York Times of numerous highly confidential aspects of the investigation and negotiations between the parties as well as the recent crop of civil lawsuits filed against Mr. Epstein by Mr. Sloman's former law partner. The unnecessary and arbitrarily imposed deadline set by the USAO was done without any respect for the normal functioning and scheduling of state judicial matters. It requires that Mr. Epstein's counsel persuade the State Attorney of Palm Beach to issue a criminal information Honorable Mark Filip May 27, 2008 Page 2 to a charge that the State Attorney has not, despite a two year investigation, determined to be appropriate. Mr. Epstein's counsel must also successfully expedite a plea of guilty to this charge on a date prior to July 8, 2008, which is the date presently set by the state court Judge. Further, the unnecessary deadline is even more problematic because Mr. Epstein's effort to reconcile the state charge and sentence with the terms of the Agreement requires an unusual and unprecedented threatened application of federal law. Thus, it places Mr. Epstein in the highly unusual position of having to demand that the State acquiesce to a more severe punishment than it had already determined was appropriate. We have attempted to resolve these and other issues through the USA() and CEOS, including raising our concerns about the USAO's inappropriate conduct with respect to this matter. But those avenues have now been shut down. Mr. Sloman's letter purports to prohibit any further contact between Mr. Epstein's defense team and U.S. Attorney Acosta, and instead requires us to communicate with the USA() only though Mr. Sloman's subordinates. While it pains us to say this, this misguided prosecution from the outset gives the appearance that it may have been politically motivated. Mr. Epstein is a highly successful, self- made businessman and philanthropist who entered the public arena only by virtue of his close personal association with former President Bill Clinton. There is little doubt in our minds that the USA() never would have contemplated a prosecution in this case if Mr. Epstein were just another "John." U.S. Attorney Acosta previously has stated that he is "sympathetic" to our federalism- related concerns, but he has taken the position that his authority is limited by enforcement policies set forth in Washington, D.C. As expressed in our prior communication to you, we believe that a complete and independent appraisal and resolution of this case most appropriately would be undertaken by your Office beginning with the rescission of the arbitrary, unfair, and unprecedented deadline that Mr. Sloman demands to have imposed in this case. At the very least, we would appreciate a tolling of the arbitrary timeline imposed on our client by the USA() in order to allow time for your office to consider our request that you undertake a review of this case. Thank you for your time and attention. Respectfully submitted, , Q-1444 Kenneth W. Starr D. Whitley Kirkland Ellis LLP Alston Bird LL 05 27 2008 12:18 FAX II 001 TX REPORT TRANSMISSION OK TX RX NO 0439 RECIPIENT ADDRESS 912025140487 DESTINATION ID ST. TIME 05 27 12:18 TIME USE 0034 PAGES SENT 3 RESULT OK KIRKLAND ELLIS LLP Fax Transmittal 777 South Figueroa Street Los Anaeles. California 90017 Please notify us immediately if any pages arc not received. THE INFORMATION CONTAINED IN THIS COMMUNICATION IS CONFIDENTIAL, MAY BE ATTORNEY-CLIENT PRIVILEGED, MAY CONSTITUTE INSIDE INFORMATION, AND IS INTENDED ONLY FOR THE USE OF THE ADDRESSEE. UNAUTHORIZED USE, DISCLOSURE OR COPYING IS STRICTLY PROHIBITED AND MAY BE UNLAWFUL. IF YOU HAVE RECEIVED THIS COMMUNICATION IN ERROR, PLEASE NOTIFY US IMMEDIATELY AT: (213) 680-8400. Flonorab14.-! Mark Filip Company: Office of the Deputy Attorney Cie len:11 United States Department of Justice Kenneth W. Starr May 27, 2008 3 Fax : Direct : Fax : Direct : Message: |
Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 1 of 19 JANE DOE 1 AND JANE DOE 2, vs. Plaintiffs, UNITED STATES OF AMERICA, UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA Case No. 08-80736-CIV-MARRA JOHNSON Defendant. REPLY IN SUPPORT OF MOTION FOR LIMITED INTERVENTION BY ALAN M. DERSHOWITZ Alan M. Dershowitz hereby replies in support of his Motion for Limited Intervention (DE 282). Prof. Dershowitz s only interest in joining this case is to strike the false, sensational and irrelevant allegations against him. In its response (DE 290), the government compellingly set forth the many reasons why Jane Does 3 and 4 s request, filed over 6 years after the commencement of the CVRA case, should be denied. Jane Doe 3 s false allegations against Prof. Dershowitz were not included in her statement to the government, were not made to the FBI when she was initially contacted by that agency, were not included in her civil action against Epstein in 2009, were not included in her recorded interview with her attorneys in 2011 and were not included in her interview with the British press in 2011. These allegations first appeared in Jane Doe 3 s Motion for Joinder in December 2014 (DE 279), and therefore have absolutely no relevance as to whether there was a CVRA violation when Epstein and the government executed the Non-Prosecution Agreement in September 2007. The request for limited intervention was initiated to give Dershowitz a voice in the proceedings if and only if the Court allowed the Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 2 of 19 joinder of Jane Doe 3 and her untimely allegations to the underlying CVRA case. If the Court rejects the pending motion for joinder (DE 279), then the Court should strike the scurrilous allegations against Dershowitz, or, alternatively, determine the possible mootness of his Motion for Limited Intervention. Of course, if the Court strikes the allegations against him sua sponte, Prof. Dershowitz will withdraw his motion for limited intervention. However, if the Court grants Jane Does 3 and 4 s motion for joinder, then Prof. Dershowitz s motion for limited intervention should be granted for such purposes as may be appropriate including submitting a motion to strike or other relief, so as to give him an opportunity to defend himself against these malicious and false allegations. In support of his Reply in Support of his Motion for Limited Intervention, Prof. Dershowitz states as follows: Despite swearing under oath to her falsehoods about Prof. Dershowitz, Jane Doe 3 struggles to justify her defamations as having any relevance to the issues in this proceeding. Her Response to Prof. Dershowitz s Motion for Limited Intervention (DE 291) (herein Response ) offers no legitimate reason for defaming Prof. Dershowitz in her Joinder Motion, and she has no right to continue to do so in this Court. Strikingly, the Response does not explain why Jane Doe 3, with an obvious financial motive for fabrication of salacious accusations, waited almost seven years to lob a stink bomb into a proceeding in which she has no right to participate. The Response does not account for why Jane Doe 3 never once asserted her accusations about Prof. Dershowitz until a month ago, even though the alleged transgressions supposedly occurred some fifteen years ago. Although neither Jane Doe 3 nor anyone else had previously asserted any improper sexual contact with Prof. Dershowitz, now Jane Doe 3 cynically exploits the yoke of victimhood to victimize others. 2 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 3 of 19 At bottom, Jane Doe 3 s Response is nothing but a paper-thin pastiche of conspiracy theory and outright misrepresentation that crumbles upon examination. Invocations of the Fifth Amendment by nonparty witnesses in response to innocuous questions about Prof. Dershowitz are said to take on a sinister cast ; yet these same witnesses invoked their right against selfincrimination to almost every question asked of them, including their parents names. Prof. Dershowitz, as Epstein s former legal counsel, is one of hundreds of people listed in an address book purloined by Jeffrey Epstein s criminal butler; yet because Prof. Dershowitz s name is circled in the address book by an unknown person for unknown reasons, the argument is made that Prof. Dershowitz must have sexually abused a minor. The record shows that while Prof. Dershowitz and Jane Doe 3 are both separately mentioned in the flight logs of Mr. Epstein s private plane, they are never listed on the same flight. Plaintiffs, in turn, falsely claim that somehow Prof. Dershowitz single-handedly orchestrated the destruction of logs without any evidence of ability or possibility to do so. The increasingly unfounded accusations and insults are both sad and irresponsible. It is precisely this toxic mix of irrelevancy, malicious falsehood, and empty accusation that justifies Prof. Dershowitz s intervention to, at least, strike the allegations against him. Jane Doe 3 never had any need to drag Prof. Dershowitz into this action besides to wrongfully use his good name and international stature to stir up media interest in her filing. This is impertinence, plain and simple, and it has no place in this Court. Prof. Dershowitz therefore urges the Court to either allow him to intervene to strike Jane Doe 3 s defamatory allegations or deny Jane Doe 3 s Joinder Motion so she is no longer afforded the ability to use the docket of this Court to defame others without being held accountable and strike these allegations from the record. 3 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 4 of 19 I. Jane Doe 3 s Continued Smears of Prof. Dershowitz Demonstrate His Need to Intervene Jane Doe 3 and her counsel s actions over the past month have confirmed that Prof. Dershowitz s request for intervention stands upon dramatically different circumstances than other intervention motions in this case, or any other case for that matter. Simply put, the scope and tenor of their attacks against Prof. Dershowitz differ both in degree and in kind from other reputational muggings conducted in the case before this Court. Nor is there a single reported decision in federal case law in which the vitriol, severity, and length of the attacks against a nonparty approach those levelled against Prof. Dershowitz here. What has become further apparent is that if Jane Doe 3 s Motion for Joinder is granted and Prof. Dershowitz is not allowed to intervene, Jane Doe 3 and her counsel will proceed with their attacks against him, all the more emboldened with complete impunity. While Jane Doe 3 asks to prove her allegations against Prof. Dershowitz, she argues paradoxically that he does not have any direct interest in defending these allegations. Instead, she directs Prof. Dershowitz to defend the allegations that she makes in a contrived lawsuit filed by her attorneys against him in Broward County Circuit Court for defamation of them. Moreover, the law cited by Prof. Dershowitz, including the Sackman and Penthouse cases, demonstrates a need and entitlement to intervene to vindicate his legitimate reputational interest that no other party is situated to protect. The individual s right to the protection of his own good name reflects no more than our basic concept of essential dignity and worth of every human being a concept at the root of any decent system of ordered liberty Krauser v. Evolution Holdings, Inc., 975 F.Supp. 2d 1247, 1260 (S.D. Fla. 2013); quoting Spencer v. Kemna, 523 U.S. 1, 24 n. 5 (1998) (Stevens, J., dissenting). 4 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 5 of 19 In an effort to cite contrary law to the Court, Jane Doe 3 s Response takes remarkable liberties in describing what is claimed to be the law to Court. For example, the Response quotes Calloway v. Westinghouse Elec. Corp., 115 F.R.D. 73, 74 (M.D. Ga. 1987) for the proposition that a witness interest in his reputation alone . . . does not constitute the required interest relating to the property or transaction which is the subject of the present action necessary to allow intervention as a matter of right. Yet what is excised from that quote through the ellipses is the most crucial part of the case: following a finding by a court that he is not credible. Calloway actually stands for the proposition that a witness cannot intervene in a case as of right if the Court has found him not credible in one of its orders. This finding has never been made as to Prof. Dershowitz either in this Court, or in hundreds of others in which he has appeared. II. Jane Doe 3 s Lies About Prof. Dershowitz Are Wholly Irrelevant to This Action Meanwhile, Jane Doe 3 fails to come up with a single credible reason for naming Prof. Dershowitz in her Joinder Motion. First, she claims she needed to drag Prof. Dershowitz s name through the mud to prove that Jane Doe 3 was a victim of sexual abuse by Jeffrey Epstein. Yet, in her Joinder Motion, she states that t he Government was well aware of Jane Doe 3 when it was negotiating the NPA, as it listed her as a victim in the attachment to the NPA. (DE 279 at 6.) If she was already listed as a victim on the NPA, why would they need to prove that further by adding pages of scurrilous allegations against various individuals? And why did they have to mention Prof. Dershowitz by name, when elsewhere they claim that numerous prominent individuals also allegedly committed sexual abuse, but keep those alleged figures anonymous? The bad faith against Prof. Dershowitz is apparent 1 . 1 Similarly, Jane Doe 3 s allegations that she named Prince Andrew because of outstanding 5 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 6 of 19 Second, Jane Doe 3 claims that she needed to defame Prof. Dershowitz and others in the Joinder Motion because of discovery disputes between the government and Jane Doe 1 and Jane Doe 2. This does not even make sense, legally or factually. Jane Doe 3 s right to join in this case has nothing to do with Jane Doe 1 and Jane Doe 2 s entitlement to documents in discovery. In fact, the discovery requests that Jane Doe 3 cites to in her Response as purported cover for their sliming of Prof Dershowitz show that their argument is factually bogus. Prof. Dershowitz is mentioned in only two of twenty-five requests for production propounded by Jane Doe 1 and Jane Doe 2. (See Jane Doe 1 and Jane Doe 2 s First Request for Production to the Government Regarding Information Relevant to Their Pending Action Concern sic the Crime Victims Act, at DE 225-1 at 26-38.) Both requests, nos. 8 and 21 seek his communications with the government in his role as Mr. Epstein s defense attorney. There is no issue of complicity or knowledge in any misconduct. Moreover, a fact conveniently omitted by Jane Doe 3 is that Prof. Dershowitz is one of eleven lawyers whose communications Jane Doe 1 and Jane Doe 2 sought in the requests for production. As the Court knows, Prof. Dershowitz had no material connection to this case as to the merits or as to discovery before he was dragged in by Jane Doe 3. Third, Jane Doe 3 claims that the smears against Prof. Dershowitz are relevant to show that Prof. Dershowitz had a motive to negotiate confidentiality and blank check provisions discovery requests regarding her belief that Prince Andrew was somehow involved in lobbying efforts to persuade the Government to give him a more favorable plea arrangement, and because her allegations against Prince Andrews occurred in London, therefore affect ing foreign commerce are patently absurd. (DE 291 at 20 and 18, fn. 10.) Because Jane Doe 3 s other allegations are replete with allegations of interstate activity and because implications of Prince Andrew s involvement in lobbying for the NPA are entirely nonsensical, it is obvious that the inclusion of claims against Prince Andrew were included solely for their intended audience: the media. 6 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 7 of 19 into the NPA entered into between the government and Mr. Epstein. Again, this argument makes no sense in the context of this case. 2 The inclusion of certain provisions in the agreement simply has nothing to do with whether the government complied with its obligations under the Crime Victims Rights Act ( CVRA ). If anything, it is the government s motive that would be at issue although even that point is doubtful not the defense attorneys . Moreover, because the first time Jane Doe 3 made these contemptible allegations against Prof. Dershowitz was in her Motion for Joinder in December 2014, those allegations are irrelevant as to the inquiry of whether Jane Doe 3 s rights under the CVRA were violated at the time the NPA was entered. The government confirms that when Jane Doe 3 was contacted by the FBI about this investigation, she clearly stated that she did not want to be involved in the federal investigation. (DE 290 at 6.) She was not kept in the dark as she alleges in her Response. (DE 291 at 25.) Instead, she apparently chose to stay in the dark. Moreover, she did not make any allegations against Prof. Dershowitz at the time the NPA was entered, nor did she made any allegations against Prof. Dershowitz in her action for civil damages in 2009, nor did she make any allegations against Prof. Dershowitz in her tape recorded interview with her attorney in 2011, nor did she make any allegations against Prof. Dershowitz in her interview with the British press in 2011. The first time these allegations surfaced were in connection with Jane Doe 3 s Motion for Joinder in this action. The allegations have absolutely no relevance to the underlying issue of whether Jane Doe 3 was treated with fairness when the NPA was entered, as the allegations against Prof. Dershowitz did not surface until approximately eight years later. 2 Prof. Dershowitz, along with many other lawyers, was involved in negotiating the plea bargain under which Epstein agreed to plead guilty to State charges in exchange for an agreement not to prosecute him federally. However, he was not involved in drafting the text of the NPA. In fact, two other lawyers did the drafting. 7 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 8 of 19 Moreover, if the government had any reason to believe that Prof. Dershowitz was involved in any criminal activity they would have immediately demanded his recusal rather than continuing to work with him as one of Epstein s attorneys in negotiating a plea bargain. Fourth, Jane Doe 3 then makes the facially absurd and libelous claim that somehow Prof. Dershowitz must have drafted and benefited from the co-conspirators clause of the NPA. But the link between the need to include these allegations and their ability to rescind the coconspirators clause goes completely unexplained. The allegations are completely gratuitous, as there is no such link. No such claim existed until fabricated by Jane Doe 3 many years after the NPA was signed and fully performed. Additionally, as stated in Prof. Dershowitz s Supplement to his Motion for Limited Intervention, this co-conspirator provision was intended to apply to four alleged co-conspirators, who were named in the original NPA and later redacted at their request . Alan Dershowitz was never alleged to be a potential co-conspirator. (DE 285 at 4 3 .) Incredibly, Jane Doe 3 s counsel, Bradley Edwards, agreed with this reading of the NPA in his Statement of Undisputed Fact during his own personal lawsuit against Jeffrey Epstein (Jeffrey Epstein v. Scott Rothstein and Bradley J. Edwards, lawsuit (Case no. 502009-CA- 040800)) in Palm Beach County Circuit Court. There, Edwards explained that these coconspirators were certain individuals who procured minor females to be molested by Epstein. (DE 291-15 at 27.) Only now, when convenient as a way to try to justify allegations against Prof. Dershowitz does Edwards argue (on behalf of Jane Doe 3) that the co-conspirator provision was actually intended to protect Prof. Dershowitz. 3 Moreover, it is unlikely that anyone who had sexual contact with Jane Doe 3, or any other minor involved in the Epstein case, would be considered to be a co-conspirator. Instead those individuals would be substantive perpetrators, not covered by the agreement. 8 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 9 of 19 Fifth, Jane Doe 3 claims that she needed to include Prof. Dershowitz in her filing because her CVRA claim of unfair treatment implicates a fact-sensitive equitable defense which must be considered in the factual context of the entire interface between Epstein, the relevant prosecutorial authorities and the federal offense victims. The facts to which this defense is sensitive, even if Jane Doe 3 is allowed to intervene, are the interactions between the prosecutors and Jane Doe 3, and not anything pertinent to Prof. Dershowitz personally. Nor are attorney-client communications between Epstein and his counsel at issue, or the proper subject of discovery in this action under any scenario. III. Jane Doe 3 s Efforts to Bolster Her Lies About Prof. Dershowitz Are Remarkably Thin Setting aside the utter irrelevancy of the allegations against Prof. Dershowitz, having created an international imbroglio by their ill-conceived libels of Prof. Dershowitz, one would expect that Jane Doe 3 would be able to muster at least some credible support for their allegations. Yet the two incontestable facts she leads with in support of her claim that Prof. Dershowitz is a serial sex abuser are (1) that Mr. Epstein and Prof. Dershowitz were friends; and (2) Prof. Dershowitz visited Mr. Epstein s house. Of course, these supposedly incontestable facts are evidence of nothing. In the affidavit she submitted to this court, Jane Doe 3 s lack of credibility is readily apparent. She has now sworn under oath, repeating a fragrant lie that she had previously sold to a British newspaper: namely that former President Bill Clinton was present on the island Jeffrey Epstein s private island at a time when Jane Doe 3 was also present on the island. (DE 291-1 at 53.) In this easily discredited fabrication 4 , Jane Doe 3 expounded in imaginative 4 The name of the publication is intentionally omitted as Jane Doe 3 reveals her identity 9 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 10 of 19 detail about her fictional meeting with former President Clinton, providing an elaborate description about how Mr. Clinton and his secret service detail somehow allowed Ghislaine Maxwell, then a novice helicopter pilot, to fly all of them to Jeffrey s Epstein s private island on Epstein s black helicopter, as well as details about the specific place at the dinner table at which she and Mr. Clinton were seated 5 . Id. Jane Doe 3 also gave this British newspaper an account of yet another fictional meeting on the same island, but this time with former vice president Gore and his then wife, Tipper, providing specific details purportedly to enhance the value of her fictional story: The Gores seemed like a beautiful couple when I met them Jeffrey Epstein didn t ask me to give him a massage I was planning on voting for him when I turned 18. I thought he was awesome. On information and belief, Prof. Dershowitz represents to the Court therein. A copy of the publication, or a link to the article, will be provided to the Court at the Court s request. 5 The article states, in relevant part: On one occasion, Jane Doe 3 adds, Epstein did invite two young brunettes to a dinner which he gave on his Caribbean island for Mr. Clinton shortly after he left office. But, as far as she knows, the ex-President did not take the bait. I d have been about 17 at the time, Jane Doe 3 says. I flew to the Caribbean with Jeffrey and then Ghislaine Maxwell went to pick up Bill Clinton in a huge black helicopter that Jeffrey had bought her. She d always wanted to fly and Jeffrey paid for her to take lessons, and I remember she was very excited because she got her licence around the first year we met. I used to get frightened flying with her but Bill had the Secret Service with him and I remember him talking about what a good job she did. I only ever met Bill twice but Jeffrey had told me that they were good friends. I asked, How come? and he laughed and said, He owes me some favours. Maybe he was just joking but it constantly surprised me that people with as much to lose as Bill and Prince Andrew weren t more careful. Bill must have known about Jeffrey s girls We all dined together that night. Jeffrey was at the head of the table. Bill was at his left. I sat across from him. , Ghislaine s bonde British assistant, sat at my right. Ghislaine was at Bill s left and at the left of Ghislaine there were two olive-skinned brunettes who d flown with us from New York. I d never met them before. I d say they were no older than 17, very innocent-looking Maybe Jeffrey thought they would entertain Bill, but I saw no evidence that he was interested in them. He and Jeffrey and Ghislaine seemed to have a very good relationship. Bill was very funny. He made me laugh a few times. And he and Jeffrey Ghislaine told blokey jokes and the brunettes listed politely and giggled. After dinner I gave Jeffrey an erotic massage. I don t remember seeing Bill again on the trip but I assume Ghislaine flew him back. 10 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 11 of 19 that evidence will show that former president Clinton, former vice president Al Gore, and Tipper Gore never set foot on Epstein s private island, and that in all events Jane Doe 3 s detailed accounts are not merely preposterous on their face but in fact entirely false and her sworn statement to this court is perjurious. Indeed, while the points raised above show a complete lack of investigation into the credibility of the woman making these scurrilous allegations 6 , what is most remarkable about Jane Doe 3 s Response is what it omits. Approximately six years ago, Jane Doe 3 took advantage of the NPA s provisions, sued Mr. Epstein and received a monetary settlement. Ironically, Jane Doe 3 now seeks to overturn the very NPA which required Epstein to waive his right to contest liability by moving to join the instant action which seeks to rescind that very agreement. Yet, she apparently never once mentioned Prof. Dershowitz s now supposedly systematic sexual abuse of her to the prosecutors or to her own lawyer. No explanation is given for this monumental inconsistency. Nor, despite his supposed status as a co-conspirator in a scheme to cover up an underage sex abuse ring, is there any explanation given for the fact that Prof. Dershowitz was never even investigated or even mentioned as a potential suspect. Meanwhile the present case has been proceeding for the last six and a half years, but no explanation has been given for the timing of Jane Doe 3 s effort to join this case only last month. 6 Prof. Dershowitz reserves the right to promptly file a succinct supplement to this Reply brief with information which he is in the process of confirming presently. 11 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 12 of 19 IV. Prof. Dershowitz Immediately Responded to Jane Doe 3 s Allegations Against Him by Asking to Defend his Reputation Jane Doe 3 also argues that Prof. Dershowitz should not be allowed to intervene because he has declined to defend his reputation in other actions. (DE 279, at 12.) This is demonstrably false. It is without question that the Motion for Joinder filed by Jane Doe 3 on December 30, 2014 (DE 279) was the first time anyone has ever alleged that Prof. Dershowitz had any sexual contact with a minor. It necessarily follows that this is the first opportunity Prof. Dershowitz has had to defend his reputation related to his involvement in Epstein s offenses. In fact, just six days after these venomous allegations were made, Prof. Dershowitz filed his Motion for Limited Intervention. (DE 282.) More specifically, Jane Doe 3 argues that when the civil lawsuit was brought by one of the underage females against Epstein in 2009 (Doe v. Epstein, No. 9:08-80893-KAM (S.D. Fla.), Dershowitz understood that counsel for many of Epstein s victims believed that mounting evidence pointed toward his role extending beyond merely being an attorney for Epstein. (DE 279 at 13.) This, too, is demonstrably false. Despite this rank and self-serving speculation about what Prof. Dershowitz understood, there is not one piece of evidence which points to any allegations that he engaged in any sexual contact with any minor, or even observed any criminal activity, prior to the December 30, 2014 Motion for Joinder. Instead, the deposition testimony which Jane Doe 3 points to simply states that Prof. Dershowitz visited Epstein s home (Deposition Testimony of Alfredo Rodriguez at 199, 278, 279, DE 291-18, herein, Rodriguez Depo. Tr. ) Rodriguez specifically testified that he has no idea whether Prof. Dershowitz had any contact at all with any female. 12 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 13 of 19 Q. And did you have any knowledge of why Dershowitz was visiting there? A. No ma am. Q. And do you have any idea whether or not Mr. Dershowitz was also receiving massages? A. I don t know, Ma am. Q. As to whether any of those women were ever associated with Mr. Dershowitz would it be a correct statement that you have absolutely no knowledge? A. I don t know, sir. Q. Okay. Were you in any way attempting in your response to Ms. Ezell to imply that Mr. Dershowitz had a massage by one of these young ladies? A. I don t know, sir. Q. You have no knowledge? A. No, sir. (Rodriguez Depo. Tr. at 279, 280, 385, 386.) To be sure, Rodriguez does testify that Prof. Dershowtiz was at Epstein s home when young females were present at the home an allegation which Dershowitz strenuously denies. However, Rodriguez did not testify that Prof. Dershowitz saw, interacted with, or touched any of these females. Instead, when asked what Prof. Dershowitz did while those girls were at the house, Rodriguez answered He will read a book with a glass of wine by the pool, stay inside. (Id. at 426, 427.) When asked if Prof. Dershowitz ever even spoke to any of the girls, or even knew that they were there Rodriguez answered I don t know. (Id. at 427.) This is consistent with the fact that Epstein s home is very large and has separate closed-off quarters where Epstein resided. Prof. Dershowitz never stepped into these private quarters. Jane Doe 3 also relies upon the September 8, 2009 deposition testimony of Mr. Juan Alessi to corroborate Jane Doe 3 s sensational and false allegations regarding Prof. Dershowitz. However, a more complete examination of that testimony reveals that Alessi did not make any allegations of any wrong doing by Dershowitz. (See, DE 291-17, hereinafter 13 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 14 of 19 Alessi Depo. Tr. ) Alessi testified that he saw many celebrities at the house including a very famous lawyer that I m sure you know, Alan Dershowitz, who spend sic at the house a couple times. (Alessi Depo. Tr. 70, 71.) However, Alessi made no allegations of improprieties against any of these individuals. Jane Doe 3 asks the Court to infer that because Prof. Dershowitz was at his client s home, he must have participated in nefarious activities. In fact, Prof. Dershowitz s friendship with Epstein consisted of the exchange of academic and intellectual ideas. At most, Alessi testified that Prof. Dershowitz visited Epstein s home and received a massage from an adult massage therapist, which was a treat for everybody at the Epstein home. (Id. at 74) ( Q. Did Dershowitz have massages sometimes when he was there? A. Yes. A massage was like a treat for everybody. If they want it, we call the massage and they have a massage. ) Alessi explains that he was referring to massages performed by adult massage therapists. (Id. at 184) ( Q. All right. And if I understood your testimony is, the ones the that is, of the massage therapists as you ve just described a hundred, 200 different massage therapists , you saw some men? A. Yes. Q. You saw more women? A. Yes. Q. And all of the women, at least from your viewpoint, were 18, 19 or older? A. Yes. ) 7 Messrs. Alessi and Rodriguez did not allege that Prof. Dershowitz received a massage from any underage females, had any physical contact whatsoever with any underage females, or witnessed anyone engaging in any inappropriate behavior with any underage females. Additionally, despite their allegations to the contrary, it is clear that previous testimony from Rodriguez and Alessi does not corroborate Jane Doe 3 s baseless and utterly false affidavit. (DE 291-1.) 7 In fact, the only massage Prof. Dershowitz ever received at any of Epstein s homes was from a professional massage therapist who was in her 30 s or 40s. 14 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 15 of 19 Next, Jane Doe 3 claims that Prof. Dershowitz declined to defend his reputation in the Edwards v. Epstein lawsuit (Case no. 502009-CA-040800) in Palm Beach County Circuit Court. (Opp. to Mtn. to Intervene at 13.) In support of this allegation, Jane Doe 3 argues that her attorney in the instant matter, Bradley Edwards (through his attorney Jack Scarola) contacted Prof. Dershowitz to seek his voluntary cooperation in answering questions about Prof. Dershowitz s client, Jeffrey Epstein s conduct. Prof. Dershowitz responded by letter stating As you may know, I was Jeffrey Epstein s attorney when he submitted his guilty plea. Accordingly, any knowledge I may have in connection with that plea is privileged information. If you would let me know what non-privileged information you would seek from me, I would then be able to decide whether to cooperate. (DE 291-11.) Dershowitz sent a second letter on or about August 29, 2011 explaining that he has never personally observed Jeffrey Epstein in the presence of underage females, and asking Edwards attorney to provide him with any alleged basis for his unfounded belief. Edwards attorney responded by stating that based on sworn testimony and private interviews he had placed Dershowitz in the presence of Jeffrey Epstein on multiple occasions when Jeffrey Epstein was in the company of underage females subsequently identified as victims. (DE 291 at 13, 14.) Again, no allegations were made at that time by Edwards attorney, or by anyone else, that Prof. Dershowitz engaged in any inappropriate conduct or witnessed any inappropriate conduct related to Jeffrey Epstein and underage females. Instead, Edwards was incorrectly seeking Prof. Dershowitz s cooperation for a civil suit between Dershowitz s client, Jeffrey Epstein, and Edwards himself. Remarkably, because Prof. Dershowitz did not agree to compromise his ethical obligations to his client, by voluntarily cooperating with Epstein s 15 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 16 of 19 adversaries, Jane Doe 3 argues that Prof. Dershowitz should not be allowed to intervene in this action 8 . It is clear from the record, however, that Prof. Dershowitz acted immediately to defend himself the first time he was made aware of any such allegations against him. In fact, just six days after Jane Doe 3 filed her Motion for Joinder, which included vicious allegations against him, Prof. Dershowitz filed his Motion for Limited Intervention. (DE 282.) Accordingly, Prof. Dershowitz should be permitted to intervene for the limited purposes of moving to strike these outrageous and impertinent allegations. V. Jane Doe 3 s Reliance on Other s Invocation of the Fifth Amendment is Improper and Wholly Unpersuasive Without a shred of physical evidence or witness corroboration for Jane Doe 3 s fantasies, she relies on invocations of the Fifth Amendment by Epstein as supportive of an adverse inference as to Prof. Dershowitz. Given that Epstein was taking the Fifth Amendment on virtually all questions, and would have responded in the same way had the opposite questions been asked, there is no inference against Prof. Dershowitz to be made from the invocation of the Fifth Amendment by Epstein 9 . Epstein s interest in declining to answer any questions whatsoever was his own personal interest and not that of his lawyers, and lacks even minimal relevance. Coquina Investments v. TD Bank, N.A., 760 F.3d 1300, 1310-11 (11th Cir. 2014)(adverse inferences from the fifth amendment invocation by third parties allowed only 8 Jane Doe 3 s argument that he has not yet scheduled his deposition in this case, or the recently filed defamation action, is of no moment. At the appropriate time, Prof. Dershowitz will of course, appear for his deposition and testify that Jane Doe 3 s allegations as to him are entirely false. This, however, has no bearing as to whether the Court should permit the limited intervention Prof. Dershowitz seeks. 9 Had Epstein been asked about anyone from leading government officials to members of the clergy he would have similarly invoked the Fifth Amendment. 16 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 17 of 19 where inference is trustworthy under all of the circumstances including relationship, shared interest and control); Kontos v. Kontos, 968 F.Supp. 400, 407-408 (1997) (no adverse inference allowed from invocation of Fifth Amendment by sister of civil defendant in absence of identity of interests ); Sebastian v. City of Chicago, 2008 WL 2875255 33-34 (N.D. Ill. 2008)(no adverse inference from invocation of Fifth Amendment in absence of close family or business relationship). Similarly, any other witnesses taking the Fifth Amendment and remaining silent to protect themselves are obviously not creating any kind of evidence against Prof. Dershowitz. See, Coquina Investments, 760 F.3d at 1310 (11th Cir. 2014). Conclusion In conclusion, Prof. Dershowitz has no interest in joining this case other than to strike the scurrilous and irrelevant allegations against him. If the Court grants Jane Does 3 and 4 motion for joinder (DE 279), then Prof. Dershowitz s motion for limited intervention should be granted for such purposes as may be appropriate including submitting a motion to strike or other relief, so as to give him an opportunity to defend himself against harmful, defamatory and false allegations of the worse kind. If the Court rejects the pending motion for joinder, then the Court should strike the scurrilous allegations against Dershowitz, or, alternatively, determine the possible mootness of his Motion for Limited Intervention. Of course, if the Court strikes the allegations against him sua sponte, Prof. Dershowitz will withdraw his motion for limited intervention. Respectfully submitted, s Kendall Coffey Kendall Coffey, Fla. Bar No. 259681 kcoffey coffeyburlington.com Gabriel Groisman, Fla. Bar No. 25644 ggroisman coffeyburlington.com 17 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 18 of 19 Benjamin H. Brodsky, Fla. Bar No. 73748 bbrodsky coffeyburlington.com COFFEY BURLINGTON, P.L. 2601 South Bayshore Drive, PH1 Miami, Florida 33133 Tele Facsimile: (305) 858-5261 - and Thomas Scott, Fla. Bar No. 149100 thomas.scott csklegal.com COLE, SCOTT KISSANE, P.A. Dadeland Centre II 9150 South Dadeland Boulevard, Suite 1400 Miami, Florida 33156 Tele Facsimile: (305) 373-2294 Counsel for Prof. Alan M. Dershowitz 18 Case 9:08-cv-80736-KAM Document 306 Entered on FLSD Docket 02 02 2015 Page 19 of 19 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing was served by Notice of Electronic Filing generated by CM ECF, on this 2nd day of February, 2015, on all counsel or parties of record on the Service List below. SERVICE LIST s Kendall Coffey Bradley J. Edwards FARMER, JAFFE, WEISSING, EDWARDS, FISTOS LEHRMAN, P.L. 425 North Andrews Avenue, Suite 2 Fort Lauderdale, Florida 33301 Telephone (954) 524-2820 Facsimile (954) 524-2822 E-mail: brad pathtojustice.com and Paul G. Cassell Pro Hac Vice S.J. Quinney College of Law at the University of Utah 332 S. 1400 E. Salt Lake City, UT 84112 Tele Facsimile: 801-585-6833 E-Mail: cassellp law.utah.edu Dexter Lee A. Marie Villafa a UNITED STATES ATTORNEY S OFFICE 500 S. Australian Ave., Suite 400 West Palm Beach, FL 33401 (561) 820-8711 Fax: (561) 820-8777 E-mail: Dexter.Lee usdoj.gov E-mail: ann.marie.c.villafana usdoj.gov Attorneys for the Government Attorneys for Jane Doe 1, 2, 3, and 4 19 |
11 5 2015 Yitzhak Rabin's Moral Answer to the Israeli Dilemma of Peace and Survival - US News il.4:110MMA News Opinion 1 National Issues Special Reports Cartoons Photos The Report 411. 411W 41111b 41110 By Mortimer B. Zuckerman Mortimer Zuckerman is the chairman and editor-in-chief of U.S. News World Report and the publisher of the New York Daily News. OPINION A Light of a Fierce Fire Yitzhak Rabin's bravery in office helped create peace between Palestine and Israel. By MORTIMER B. ZUCKERMAN I November 4, 2015 Editor's note: This editorial originally appeared in the November 20, 1995 issue of U.S. News World Report. The poet was once asked, "If your house was burning and you could save only one thing, what would you save?" The poet answered, "I would save the fire, for without the fire we are nothing." It was Yitzhak Rabin's destiny not to be saved from the frenzy of a madman. But bullets cannot so easily extinguish what Rabin's bravery and vision ignited, the fire of Israel's commitment to peace. He might so easily have died in the din of battle, this man who made war when he had to. But he died instead amid the clamor of peace, with the acclaim of a mass peace rally of Israelis still in the air and still in his mind. It would be his last wish that the flame of peace, for which he gave his life, should not be dimmed by anger and despair. His state funeral, for all its sadness, was inspiring as an occasion for the vindication of his hopes, for a new dedication to Israel's security from America and for a demonstration of goodwill by some former Arab enemies. SEE: Editorial Cartoons on the Middle East President Clinton led a bipartisan delegation that included the congressional Republican leadership, former President Bush and former Secretary of State George Shultz. It was more than a respectful gesture of protocol. This was a statement of emotional and psychological support from the most powerful nation in the world to a small, isolated country, living in a perilous neighborhood and in a time of great national trauma: We do more than share your grief, we understand your fears; we will not desert you as you have so many http: www.usnews.cominews the-report articles 2015 11 04 yitzhak-rabins-moral-answer-to-the-israeli-dilemma-of-peace-and-survival 1 4 11 5 2015 Yitzhak Rabin's Moral Answer to the Israeli Dilemma of Peace and Survival - US News times in your history been deserted. All Americans could take pride in President Clinton's splendid eulogy; in the uniqueness of America's compassion and friendship that extended beyond a calculation of narrow national interest; in the honor of the hand outstretched at a time of need to an ally and friend. The president rose to the moment. The hundreds of thousands of people who lined the roadside and saw the American delegation were clearly moved. Of equal significance was the roll call of certain Arab countries (excluding Saudi Arabia) and especially the emotional speech of King Hussein of Jordan. His words referring to Yitzhak and Leah Rabin as "my brother" and "my sister," which Muslims usually reserve for one another, and the tears shed by both the king and his queen, made a deep impression on the Israelis for their humanity and ability to overcome the past. Here, clearly, were keepers of Rabin's flame of peace, continuing a line that began with Egypt's late president Anwar Sadat. It is hard for outsiders to appreciate the effect on Israelis of the worldwide outpouring of sympathy and condolence, with some 80 nations represented at the funeral. The Israelis are a traumatized people. They have for so long been alone, so long believed they could not rely on anyone but themselves, so long expected the world to stay silent in their times of trouble. The extensive response resonates for a people who remember how the world closed its doors to millions of Jews in the 1930s. Their deaths in the Holocaust were but an obscene multiple of the deaths endured in the crusades and pogroms of earlier centuries when the Jews were betrayed by those who had the power to save them. He alone, at the time, had the capacity to persuade the divided and wary Israelis to accept a compromise. Israel was to be the end of that vulnerable status of perpetual minority, an end to exile and alienation, and a beginning of a normal and natural form of national existence. Israel was home, the new home in the old country, proclaiming that the Jews had formed a self-reliant community and did not need others to fight their battles for them. Now they had their future defined by their own family; the farmer, the kibbutznik, the jet pilot, the shopkeeper, the schoolteacher could coalesce with a traditional language, with their own bible, their own culture. This self-reliance is a matter of great pride. Jews could look after their own family. When the Jews were kidnapped in Entebbe, Uganda, it was the Israelis who took care of it. A Jewish majority could eliminate Jewish vulnerability, and with their own state, the Israelis could, they thought, be like all other nations and like everyone else. The passion for wanting to be normal extended to the notion that to be accepted, Jews did not have to justify themselves by winning the Moral Man of the Year Award every year at the cost of their own survival. To be 10 percent more moral than other nations would make them a light unto the world; if they were expected to be 50 percent more moral, they would be dead. READ: One State Over the Status Quo And yet Israel cannot be just another secular country. This very land forces the Jews into a dialogue with their religious past. The land was defined through religion, through the divine promise to Abraham, the covenant with the Father and the covenant with the people of Israel. For many religious Zionists, the victory of the Six-Day War, and the subsequent opening to resettlement of the greater land of Israel, were clear signs that God was guiding the secular Zionist revolution toward the ultimate realization of the prophetic vision of history. That is why, for some religious Jews, admitting the existence of a Palestinian nation whose homeland is the Holy Land is tantamount to violating the integrity of the Jewish people's covenantal identity. But the Jews faced a dilemma. They had come home to find peace and safety, only to find that their neighbors also claimed this tiny piece of land as their home. Even worse, how do you share a home with someone who says: "You have no right to be here"? It is the great contribution of Yitzhak Rabin that has brought a moral answer to this dilemma. There are those Israelis who emphasize self-reliance and remember Rabbi Hillel's saying, "If I am not for myself, who is for me?" Rabin understood Rabbi Hillel had a second part: "When I am for myself, what am l'?" He saw that the Jews could not control 2 million Arabs without frequent resort to a violence that would erode the moral and Jewish character of the state and, with that, its support in the world. He sought a new definition of Israeli strength and normalcy that incorporated not just military power but also moral and economic fortitude. He decided to end the Israeli occupation of Palestine and any pretense that Israel could become a http: www.usnews.com news the-report articles 2015 11 04 yitzhak-rabins-moral-answer-to-the-israeli-dilemma-of-peace-and-survival 2 4 11 5 2015 Yitzhak Rabin's Moral Answer to the Israeli Dilemma of Peace and Survival - US News binational state in which one people ruled another. He was uniquely qualified for this adventure. Those to his political right had the strength but not the will to take a calculated risk for peace. Those to his political left had the will but not the strength. He alone, at the time, had the capacity to persuade the divided and wary Israelis to accept a compromise arrangement with the Palestine Liberation Organization that held great promise for peace but also great risk. But the risk was seen as a risk from the Arabs, not the risk of Jew killing Jew. What the right-wing fanatics were blind to is that their murderous intransigence threatened the state that gave them succor and its necessary acceptance by the world. Without the flame of peace, they would have nothing but bloodshed threatening every Israeli's personal security. ZUCKERMAN: The Palestinians' Lies Are Fueling the Violence The debate over security in Israel is different from the quarrel with the extremists. Many moderate people all across Israel are concerned about giving up land, because for years their leaders told them this land was essential to their national security. In Israel, security decisions are made in the context of the terrible reality that a single Israeli strategic blunder may mean not only military defeat but a genocidal threat to the very existence of the state one that the world could not forestall, even if it were willing to. Many Israelis ask: Will the peace process be the beginning of a new future or the beginning of the end? The Israelis are determined to avoid another genocide, this time in Israel. The decision to exchange lawfully captured territory for the promise of peace from those who have constantly threatened violence is fraught with unprecedented risk. Israel will not survive in this neighborhood by superior morality in the absence of superior real strength. Arab moderation is in direct proportion to Israeli strength. If the Arabs could defeat Israel, who could doubt that sooner or later they would try? Can Shimon Peres, a durable politician less trusted by Israelis, lead the people in pursuit of Rabin's twin goals of peace and security? He is a consummate international diplomat and served with great distinction as prime minister a decade ago. His ardent desire for peace may be part of his problem, for many people believe he is too eager to cut a deal, too dovish and not skeptical enough about security issues, too wrapped up in his own ambitions. So his challenge is to relieve the worries of Israelis as well as meet the needs of the Palestinians. In this effort, American support is crucial. Rabin said he was elected to take risks for peace. President Clinton said, "If that is your goal, I will do my best to minimize the risks you must take." That is the fire of friendship and support that will enable Israel to fulfill what Rabin so bravely began. 'Rabin, The Last Day': Venice Review Inform TAGS: Israel, Palestine, Middle East, Judaism More News Rankings Consumer Advice inform http: www.usnews.com news the-report articles 2015 11 04 yitzhak-rabi ns-m oral-answer-to-the-israeli-di lem ma-of- peace-and-survival 3 4 |
Filing 34801581 E-Filed 11 23 2015 05:53:31 PM IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT, IN AND FOR BROWARD COUNTY, FLORIDA BRADLEY J. EDWARDS and PAUL G. CASSELL, CASE NO.: CACE 15-000072 Plaintiffs, vs. ALAN M. DERSHOWITZ, Defendant. PLAINTIFFS COUNTERCLAIM DEFENDANT EDWARDS AND CASSELL'S RESPONSE TO DERSHOWITZ'S MOTION TO DETERMINE CONFIDENTIALITY OF COURT RECORDS Plaintiffs Counterclaim Defendants Bradley J. Edwards and Paul G. Cassell, by and through their undersigned attorneys, hereby file this response to Dershowitz's Motion to Determine Confidentiality of Court Records. The records at issue are not confidential, and so the Court should deny Dershowitz's motion in its entirety. The court records at issue are three court filings by attorneys Edwards and Cassell in which they recite their client's (Mr. Virginia Giuffre's) allegations that she was sexually abused by Dershowitz. These records are hardly "confidential" in this defamation case, where the parties have claims and counterclaims about these sexual abuse Allegations. Rather, these records are an important part of this case, since they not only support the conclusion that Dershowitz abused Ms. Giuffre, but also indisputably establish Edwards and Cassell's strong basis for filing the allegations on her behalf. Moreover, contrary to assertions made in Dershowitz's motion, these documents have never been found to be "confidential" by any other court. And Dershowitz has repeatedly referred to Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 2 of 20 these documents, not only in defamatory statements broadcast worldwide, but also in his pleadings before this Court and in recent depositions. Indeed, Dershowitz said in his media interviews that he wants "everything to be made public" and implied that Edwards and Cassell had something to hide. Accordingly, Dershowitz has failed to carry his heavy burden to justify sealing these presumptively-public documents. I. DERSHOWITZ HAS NOT JUSTIFIED SEALING ALLEGED DEFAMATORY RECORDS THAT ARE INTEGRAL TO THIS DEFAMATION CASE. In his motion, Dershowitz never recounts the heavy burden that he must carry to seal the records at issue. To be sure, Florida Rule of Judicial Administration 2.420 allows for the sealing of "confidential" materials. But the Rule begins by recounting the overarching principle that " t he public shall have access to all records of the judicial branch of government, except as provided below." Fla. R. Jud. Admin. 2.420(a). This rule is a codification of the Florida Supreme Court's admonition that a "a strong presumption of openness exists for all court proceedings. A trial is a public event, and the filed records of court proceedings are public records available for public examination." Barron v. Florida Freedom Newspapers, Inc., 531 So.2d 113, 118 (Fla. 1988) (emphasis added). In light of this presumption of openness, " t he burden of proof in closure proceedings shall always be on the party seeking closure." Id. To obtain a sealing order, the party seeking sealing must carry a "heavy burden." Id. Remarkably, Dershowitz fails to acknowledge these well-settled principles. More important, he even fails to cite (much less discuss) the limited substantive exceptions to this general principle of access and which specific exception he believes applies to this Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 3 of 20 case. Accordingly, it is impossible for Edwards and Cassell to respond with precision to his motion. The exceptions that might arguably be in play in this case permit records to be maintained as confidential in order to: (i) (ii) (iii) (iv) (v) (vi) Prevent a serious and imminent threat to the fair, impartial, and orderly administration of justice; Protect trade secrets; Protect a compelling governmental interest; Obtain evidence to determine legal issues in a case; Avoid substantial injury to innocent third parties; Avoid substantial injury to a party by disclosure of matters protected by a common law or privacy right not generally inherent in the specific type of proceeding sought to be closed; Comply with established public policy set forth in the Florida or United States Constitution or statutes or Florida rules or case law .... Fla. R. Jud. Admin. 2.420(c)(9) (codifying the holding in Barron v. Florida Freedom Newspapers, Inc., 531 So.2d 113 (Fla. 1988)). The only exception that seems to even arguably apply here is exception vi, which itself specifically provides that confidentiality is appropriate only where disclosure is "not generally inherent in the specific type of proceeding sought to be closed" (emphasis added). Of course, this lawsuit is a defamation action involving a defamation claim by Edwards and Cassell and a defamation counterclaim by Dershowitz. Disclosure, discussion, and debate about the defamatory statements at issue lies at the heart of the case. Accordingly, disclosure of these materials is "inherent" in the case itself. The principle that defamatory material in a defamation case cannot be sealed is recognized in Carnegie v. Tedder, 698 So.2d 1310 (2d DCA 1997). Carnegie involved a claim and counterclaim between two parties (Carnegie and Tedder), one of whom alleged that disclosure of Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 4 of 20 the materials in the records would be harmful to his professional reputation. Carnegie recited subsection vi's restriction on release of materials involving a privacy right, but noted that "statements Tedder alleged were defamatory and damaging were allegations in Carnegie's counterclaim for which she seeks damages. These matters were not peripheral to the lawsuit; they were inherent to it." Id. at 1312. Of course, exactly the same principle applies here: sexual abuse allegations filed by attorneys Edwards and Cassell for their client Ms. Virginia Giuffre are not peripheral to this lawsuit they are inherent to it. To see how "inherent" the sexual abuse allegations are to this lawsuit, the Court need look no further than Dershowitz's counterclaim in this case. Count I of Dershowitz's Counterclaim (styled as "False Allegations in the Joinder Motion) contends that Edwards and Cassell should pay him damages because they "filed a pleading in the Federal Action titled 'Jane Doe 3 and Jane Doe 4's Motion Pursuant to Rule 21 for Joinder in Action' . . . ." Dershowitz Counterclaim at 11 14. Dershowitz's Counterclaim then goes on to quote at length from the Joinder Motion. His counterclaim contains, for example, this paragraph recounting the allegations: The Joinder Motion then goes on to allege without any supporting evidence as follows: One such powerful individual that Epstein forced then-minor Jane Doe 3 to have sexual relations with was former Harvard Law Professor Alan Dershowitz, a close friend of Epstein's and well-known criminal defense attorney. Epstein required Jane Doe 3 to have sexual relations with Dershowitz on numerous occasions while she was a minor, not only in Florida but also on private planes, in New York, New Mexico, and the U.S. Virgin Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 5 of 20 Islands. In addition to being a participant in the abuse of Jane Doe 3 and other minors, Dershowitz was an eye-witness to the sexual abuse of many other minors by Epstein and several of Epstein's coconspirators. Dershowitz would later play a significant role in negotiating the Non-Prosecution Agreement on Epstein's behalf. Indeed, Dershowitz helped negotiate an agreement that provided immunity from federal prosecution in the Southern District of Florida not only to Epstein, but also to "any potential coconspirators of Epstein." Thus, Dershowitz helped negotiate an agreement with a provision that provided protection for himself against criminal prosecution in Florida for sexually abusing Jane Doe 3. Because this broad immunity wouldhave been controversial if disclosed, Dershowitz (along with other members of Epstein's defense team) and the Government tried to keep the immunity provision secret from all of Epstein's victims and the general public, even though such secrecy violated the Crime Victims' Rights Act. Dershowitz Counterclaim at 1115 (quoting Joinder Motion at 4). Remarkably, having quoted at length from the Joinder Motion in his Counterclaim in this case, Dershowitz now seeks to have that very same language from the Joinder Motion deemed "confidential" and sealed. Compare Counterclaim at 15 (block quotation above) with Motion to Determine Confidentiality, Exhibit A at 4 (composite exhibit with proposed "confidential" document that includes paragraph beginning " o ne such powerful individual that Epstein forced then-minor Jane Doe 3 to have sexual relations with was former Harvard Law Professor Alan Dershowitz, a close friend of Epstein's . . . ."). Dershowitz cannot come before this Court and file a counterclaim seeking damages from Edwards and Cassell for alleged defamatory statements and then ask to have those very same statements placed under seal as "confidential." See Barron v. Florida Freedom Newspapers, 531 So.2d at 119 ("although generally protected by one's privacy right, medical reports and history are no longer protected Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 6 of 20 when the medical condition becomes an integral part of the civil proceeding, particularly when the condition is asserted as an issue by the party seeking closure" (emphasis added)). H. JUDGE MARRA'S ORDER IN HIS CASE DOES NOT REQUIRE THAT THE RECORDS BE SEALED IN THIS CASE. Dershowitz also appears to contend that Judge Marra's order striking some of the materials from the records at issue somehow requires that these stricken materials be kept confidential in this case. Dershowitz's argument misunderstands both the scope of Judge Marra's order and its effect in this case. His argument rests on a truncated and misleading description of the events surrounding Judge Marra's ruling striking certain documents. A more complete description makes clear that Judge Marra has not determined the documents are somehow "confidential" even in the federal Crime Victims' Rights Act case much less in this separate state defamation action. Edwards and Cassell filed the federal case pro bono on behalf of two young women who were sexually abused as underage girls by Dershowitz's close personal friend Jeffrey Epstein. In 2008, Edwards and Casell filed a petition to enforce the rights of "Jane Doe No. 1" and "Jane Doe No. 2" under the Crime Victims' Rights Act (CVRA), 18 U.S.C. 3771, alleging that the Government had failed to provide them rights with regard to a plea arrangement it was pursuing with Epstein. Jane Doe No. 1 and Jane Doe No. 2 v. United States, No. 9:08-cv-80736 (S.D. Fla.). In the course of that case, on October 11, 2011, the victims filed discovery requests with the Government, including requests specifically seeking information about Dershowitz, Prince Andrew, and others. Further efforts from the Government to avoid any discovery Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 7 of 20 followed (see generally Docket Entry or "DE" 225-1 at 4-5), ultimately leading to a further Court ruling in June 2013 that the Government should produce documents. DE 189. The Government then produced about 1,500 pages of largely irrelevant materials to the victims (DE 225-1 at 5), while simultaneously submitting 14,825 pages of relevant materials under seal to the Court. The Government claimed that these pages were "privileged" for various reasons, attaching an abbreviated privilege log. While these discovery issues were pending, in the summer of 2014, Edwards and Cassell, contacted Government counsel to request their agreement to add two additional victims to the case, including Ms. Virginia Giuffre (who was identified in court pleadings as "Jane Doe No. 3"). Edwards and Cassell sought to have her added to the case via stipulation, which would have avoided the need to include any detailed facts about her abuse. Weeks went by and the Government as it had done on a similar request for a stipulation to add another victim did not respond to counsel's request for a stipulation. Finally, on December 10, 2014, despite having had four months to provide a position, the Government responded by email to counsel that it was seeking more time, indicating that the Government understood that victims' counsel might need to file a motion with the court on the matter immediately. DE 291 at 3-5. Rather than file a motion immediately, victims' counsel waited and continued to press the Government for a stipulation. See id. at 5. Finally, on December 23, 2014 more than four months after the initial request for a stipulated joinder into the case the Government tersely indicated its objection, without indicating any reason: "Our position is that we oppose adding new petitioners at this stage of the litigation." See DE 291 at 5. Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 8 of 20 Because the Government now contested the joinder motion, Edwards and Cassell prepared a more detailed pleading explaining the justification for granting the motion. One week after receiving the Government's objection, on December 30, 2014, Ms. Giuffre (i.e., Jane Doe No. 3) and Jane Doe No. 4 filed a motion (and later a corrected motion) seeking to join the case. DE 279 and DE 280. (Note: DE 280 is the first of the three documents Dershowitz seeks to have declared "confidential" in this case.) Uncertain as to the basis for the Government's objection, the motion briefly proffered the circumstances that would qualify the two women as "victims" eligible to assert rights under the CVRA. See 18 U.S.C. 3771(e) (defining "crime victim" protected under the Act). With regard to Ms. Giuffre, the motion indicated that when she was a minor, Jeffrey Epstein had trafficked her to Dershowitz and Prince Andrew (among others) for sexual purposes. Jane Doe No. 3 stated that she was prepared to prove her proffer. See DE 280 at 3 ("If allowed to join this action, Jane Doe No. 3 would prove the following .... "). The motion also provided specific reasons why Jane Doe No. 3's participation was relevant to the case, including the pending discovery issues regarding Dershowitz and Prince Andrew. DE 280 at 9-10 (explaining several reasons participation of new victims was relevant to existing issues). After the motion was filed, various news organizations published articles about it. Dershowitz also made numerous media statements about the filing, including calling Jane Doe No. 3 "a serial liar" who "has lied through her teeth about many world leaders." http : vvww cnn . co m 2015 01 06 us dershowi tz-sex -all e gati on . Dershowitz also repeatedly called Edwards and Cassell "two sleazy, unprofessional, disbarable lawyers." Id. On Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 9 of 20 January 5, 2015, Dershowitz filed a motion to intervene to argue to have the allegations stricken. DE 282. Dershowitz also argued that Ms. Giuffre had not provided a sworn affidavit attesting to the truth of her allegations. On January 21, 2015, Edwards and Cassell filed a response for Ms. Giuffre and Jane Doe No. 4. DE 291. (Note: This is the second of the three documents Dershowitz seeks to have kept under seal here.) The response enumerated nine specific reasons why Ms. Giuffre's specific allegations against Dershowitz were relevant to the case, including the fact that Ms. Giuffre needed to establish that she was a "victim" in the case, that pending discovery requests concerning Dershowitz-specific documents were pending, and that Dershowitz's role as a defense attorney in the case was highly relevant to the motive for the Government and defense counsel to conceal the plea deal from the victims. DE 291 at 17-26 n.17. The response included a detailed affidavit from Ms. Giuffre about the sexual abuse she had suffered from Epstein, Dershowitz, and other powerful persons. DE 291-1. On February 6, 2015, Edwards and Cassell filed a further pleading (and affidavit from Ms. Giuffre, see DE 291- 1) in support of her motion to intervene. (Note: this affidavit is the third of the three documents Dershowitz seeks to have declared confidential.) On April 7, 2015, Judge Marra denied Ms. Giuffi-e's motion to join the case. Judge Marra concluded that "at this juncture in the proceedings" details about the sexual abuse she had suffered was unnecessary to making a determination "of whether Jane Doe 3 and Jane Doe 4 should be permitted to join the other victims' claim that the Government violated their rights under the CVRA. The factual details regarding with whom and where the Jane Does engaged in sexual activities are impertinent to this central claim (i.e., that they were known victims of Mr. Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 10 of 20 Epstein and the Government owed them CVRA duties), especially considering that the details involve non-parties who are not related to the respondent Government." DE 324 at 5 (emphasis in original). While Judge Marra struck those allegations, he emphasized that "Jane Doe 3 is free to reassert these factual details through proper evidentiary proof, should the victims demonstrate a good faith basis for believing that such details are pertinent to a matter presented for the Court's consideration. Judge Marra then denied Ms. Giuffre's motion to join the case, but allowed her to participate as trial witness: "The necessary 'participation' of Ms. Giuffre ... in this case can be satisfied by offering ... properly supported and relevant, admissible, and non-cumulative testimony as needed, whether through testimony at trial ... or affidavits supported in support of the relevancy of discovery requests." DE 324 at 8 (emphasis deleted). In a supplemental order, Judge Marra stated that the victims "may re-refile these documents omitting the stricken portions." DE 325. The victims have recently refiled the documents. In light of this history, Dershowitz is flatly incorrect when he asserts that "Judge Marra's Order appropriately precludes the unredacted documents from being re-filed in this case on the public docket." Confidentiality Motion at 3. To the contrary, the Order specifically permits factual details about Dershowitz's sexual abuse of Ms. Giuffre to be presented in regard to pertinent matters in the federal CVRA case. And certainly nothing in Judge Marra's Order could render those documents confidential in this state defamation case, where the central issues swirl around Edwards and Cassell's good faith basis for filing the allegations. Indeed, the order is not binding in any way in this case, because it is res judicata only as to Ms. Giuffre (the moving Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 11 of 20 party in that case), not as to her attorneys Edwards and Cassell. See Palm AFC Holdings, Inc. v. Palm Beach County, 807 So.2d 703 (4th DCA 2002) ("In order for res judicata to apply four identities must be present: (1) identity of the thing sued for; (2) identity of the cause of action; (3) identity of persons and parties; and (4) identity of the quality or capacity of the persons for or against whom the claim is made."). III. EDWARDS AND CASSELL WILL BE PREJUDICED IF THEY ARE BARRED FROM QUOTING FROM THE RECORD WHILE DERSHOWITZ IS PERMITTED TO FREELY REFER TO THEM WHENEVER HE FINDS IT CONVENIENT. Dershowitz is also incorrect when he asserts that no prejudice will befall Edwards and Cassell if the records are placed under seal. To the contrary, placing the documents under seal would permit Dershowitz to continue to misrepresent and distort what is contained in those records while preventing Edwards and Cassell from correcting those misrepresentations. Dershowitz has repeatedly referred to details in the records when he has found it convenient to do so treating the records as not confidential in any away. One clear example comes from Dershowitz's recent deposition, where he gratuitously injected into the record a reference to a portion of Ms. Giuffre's affidavit about him watching Ms. Giuffre perform oral sex on Epstein. And then, having injected that gratuitous reference into the record, he proceeded to try to rebut the reference with confidential settlement discussions but did so by mispresenting what another attorney (David Boies) had said during the settlement discussions. So that the Court may have the full flavor of the exchange, the narrow question to Dershowitz (by attorney Jack Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 12 of 20 Scarola) and Dershowitz's extended answer are quoted in full including Dershowitz's reference to the oral sex allegation that he now argues this Court should treat as "confidential": Q. Y ou are aware that years before December of 2014, when the CVRA pleading was filed, that your name had come up repeatedly in connection with Jeffrey Epstein's abuse of minors, correct? . . . A. Let me answer that question. I am aware that never before 2014, end of December, was it ever, ever alleged that I had acted in any way inappropriately with regard to Virginia Giuffre , that I ever touched her, that I ever met her, that Ihad ever been with her. I was completely aware of that. There had never been any allegation. She claims under oath that she told you that secretly in 2011, but you have produced no notes of any such conversation. You, of course, are a witness to this allegation and will be deposed as a witness to this allegation. I believe it is an entirely false allegation that she told you in 2011 that she had had any sexual contact with me. I think she's lying through her teeth when she says that. And I doubt that your notes will reveal any such information. But if she did tell you that, she would be absolutely, categorically lying. So I am completely aware that never, until the lies were put in a legal pleading at the end of December 2014, it was never alleged that I had any sexual contact with Virginia Roberts. I know that it was alleged that I was a witness to Jeffrey Epstein's alleged abuse and that was false. I was never a witness to any of Jeffrey Epstein's sexual abuse. And I wrote that to you, something that you have falsely denied. And I stand on the record. The record is clear that I have categorically denied I was ever a witness to any abuse, that I ever saw Jeffrey Epstein abusing anybody. And Epstein while he was receiving oral sex from Virginia Roberts, which she swore to under oath, is so outrageous, so preposterous, that even David Boies said he couldn't believe it was true. MS. McCAWLEY: I object. I object. I'm not going to allow you to reveal any conversations that happened in the context of a settlement discussion. THE WITNESS: Does she have standing? Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 13 of 20 MS. McCAWLEY: I have a standing objection and, I'm objecting again. I'm not going to THE WITNESS: No, no, no. Does she have standing in this deposition? MR. SCOTT: Let's take a break for a minute, okay? THE WITNESS: I'm not sure she has standing. MR. SCAROLA: Are we finished with the speech? MR. SCOTT: No. If he MR. SCAROLA: I'd like him to finish the speech so that we can get to my question and then we can take a break. A. So the question MR. SIMPSON: Wait a minute. Wait a minute. Wait a minute. Please don't disclose something that she has a right to raise that objection if she wants to. MR. SCOTT: Exactly. Deposition of Alan Dershowitz (Oct. 15, 2015) at 93-95 (attached as Exhibit 1); see also Deposition of Alan Dershowitz (Oct. 16, 2016) (attached as Exhibit 2) (also containing discussion of Ms. Giuffre's affidavit). The Court should be aware that within approximately two hours of this exchange, Ms. McCawley (David Boies' law partner) released a statement on his behalf, which stated that Dershowitz was misrepresenting what happened: "Because the discussions that Mr. Boies had with Mr. Dershowitz were expressly privileged settlement discussions, Mr. Boies will not, at least at this time, describe what was actually said. However, Mr. Boies does state that Mr. Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 14 of 20 Dershowitz description of what was said is not true." Statement of Ms. McCawley on Behalf of David Boies (Oct. 15, 2015). More broadly, the Court can readily see from this passage how Dershowitz is willing to inject into the record a part of Ms. Giuffre's affidavit whenever it serves his purpose and, indeed, to characterize the part of the affidavit as "preposterous." But then he asks this Court to place the underlying affidavit under seal, so that the Edwards and Cassell stand accused having filed a "preposterous" affidavit without anyone being able to assess the validity of Dershowitz's attack. Dershowitz has referred to the court records that he now wishes to have the Court declare confidential not only in his deposition, but also in his widely-broadcast media attacks on Edwards and Cassell. For example, Dershowitz appeared on the British Broadcasting Corporation (the BBC) and was asked about the allegations: Well, first of all they were made in court papers that they don't even ask for a hearing to try to prove them. They put them in court papers in order to immunize themselves from any consequences from a defamation suit. The story is totally made up, completely out of whole cloth. I don't know this woman. I was not at the places at the times. It is part of a pattern of made up stories against prominent people and world leaders. And the lawyers in recent statement challenged me to deny the allegations under oath. I am doing that. I am denying them under oath, thus subjecting me to a perjury prosecution were I not telling the truth. I am now challenging them to have their client put these charges under oath and for them to put them under oath. I am also challenging them to repeat them outside of the context of court papers so that I can sue them for defamation. . . . And I will prove beyond any doubt not only that the story is totally false, but it was knowingly false: that the lawyers and the client conspired together to create a false story. That is why I am moving for their disbarment in challenges to be provided to the disciplinary committee. BBC Radio 4 - Sarah Montague (Jan. 3, 2015) (http: www.bbc.co.uk programmes p02g7qbc). Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 15 of 20 Similarly, Dershowitz appeared on NBC's Today Show the morning after Edwards and Cassell made a filing for Ms. Giuffre, to say that the Edwards and Cassell and Ms. Giuffre were all "lying" in the court documents: Question from Savannah Guthrie: In legal papers from the lawyers, they say you've had, in fact, the opportunity to be deposed. Answer from Alan Dershowitz: They're lying. They're lying. Question: They show letters in which they offered to depose you. Answer: And they didn't show my letters in response saying, (a), if you ask me about my legal relationship with Epstein and I'll be happy to answer. . . . And I responded that I would be happy to be deposed if you could give me any indication that I would be a relevant witness . . . . They will be proved all of them i.e., Cassell, Edwards, and Ms. Giuffre to be categorically lying and making up this story. And it will be a terrible thing for rape victims. . . . We Epstein and Dershowitz had an academic relationship. I was never in the presence of a single, young, underaged woman. When I was with him, it was with prominent scientists, prominent academics. And they're just again lying about this. I never saw him doing anything improper. I was not a participant. I was not a witness. Today Show, Jan. 22, 2015 (emphases added). As another example, in Miami Herald, Dershowitz called the Joinder Motion that he seeks to have sealed the sleaziest legal document I have ever seen. They Edwards and Cassell manipulated a young, suggestible woman who was interested in money. This is a disbarrable offense, and they will be disbarred. They will rue the day they ever made this false charge against me" i.e., Edwards and Cassell will "rue the day" they ever filed the Joinder Motion. Miami Herald (Jan. 3, 2015). Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 16 of 20 Most remarkably, Dershowitz took the public airwaves to represent that he wanted all of the information surrounding the allegations to "be made public," while implying that Edwards and Cassell had something to hide. For example, on the BBC he claimed that he wanted"everything to be made public": Q: Would you encourage that it now be made public? A: Of course, of course. I want everything to be made public. I want every bit of evidence in this case to be made public. I want every allegation to be made public. I want to know who else she's accused of these horrible crimes. We know that she accused Bill Clinton of being on Jeffrey Epstein's island and participating in sex orgy with underage girls. The records of the Secret Service will prove that President Clinton never set foot on that island. So that she lied. Now it's possible to have a case of mistaken identification with somebody like me. It's impossible to have a case of mistaken identification with Bill Clinton. My only feeling is that if she has lied about me, which I know to an absolute certainty she has, she should not be believed about anyone else. She's lied clearly about me, she's lied clearly about Bill Clinton. We know that. We know that she's lied about other public figures, including a former prime minister and others who she claims to have participated in sexual activities with. So I think it must be presumed that all of her allegations against Prince Andrew are false as well. I think he Prince Andrew should clear the air as well. If you're squeaky clean and if you have never done anything like this, you must fight back with all the resources available to you. And that's what I will do. I will not rest or stop until the world understands no only that I had nothing to do with any of this, but that she deliberately, with the connivance of her lawyer, lawyers, made up this story willfully and knowingly. BBC Radio 4 - Sarah Montague (Jan. 3, 2015) (http: www.bbc.co.uk programmes p02g7qbc). In another widely-broadcast interview on CNN, Dershowitz implied that there is no evidence supporting the allegations against him: Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 17 of 20 Ask them Edwards and Cassell if they have any evidence . . . . They're doing it for money. She's getting money for having sold her story. She wants to sell the book. They're trying to get into this lawsuit. They see a pot of gold at the end of the rainbow. They're Edwards and Cassell prepared to lie, cheat, and steal. These are unethical lawyers. This is Professor Cassell who shouldn't be allowed near a student. This is Professor Cassell, who is a former federal judge, thank God he no longer wears a robe. He is essentially a crook. He is essentially somebody who's distorted the legal profession. . . . Why would he charge a person with a sterling reputation for 50 years on the basis of the word alone of a woman who is serial liar, who has lied about former Prime Ministers, former Presidents, has lied demonstrably. CNN Live (with Hala Gorani) (January 5, 2015). Of course, by placing "the evidence" in this case under seal, Dershowitz will be free to continue to try and insinuate that Edward and Cassell and their client, Ms. Giuffre had no evidence supporting the allegations against him, even though a mountain evidence strongly support Ms. Giuffre 's allegations. See Deposition of Paul Cassell (Oct. 16, 2015) at 61-117 (Exhibit 3); see also Depo of Pual Cassell (Oct. 17, 2015) (Exhibit 4). CONCLUSION The Court should deny Defendant Counterclaim Plaintiff Alan Dershowitz's motion to place documents regarding Ms. Giuffre's allegations against him under seal. I HEREBY CERTIFY that a true and correct copy of the foregoing was sent via E-Serve to all Counsel on the attached list, this 25f- ' day of November, 2015. s Jack Scarola Jack Scarola Florida Bar No.: 169440 Attorney E-Mail(s): jsxasearcylaw.com and mep searcylaw.com Primary E-Mail: scarolateamasearcylaw.com Searcy Denney Scarola Barnhart Shipley, P.A. 2139 Palm Beach Lakes Boulevard West Palm Beach, Florida 33409 Fax:(561) 383-9451 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 18 of 20 SEAN D. REYES Utah Attorney General By: JONI J. JONES JOEL A. FERRE Assistant Utah Attorneys General Bradley J. Edwards FARMER, JAFFE, WEISSING, EDWARDS, FISTOS LEHRMAN, P.L. 425 North Andrews Avenue, Suite 2 Fort Lauderdale, Florida 33301 Telephone (954) 524-2820 Facsimile (954) 524-2822 E-mail: bradapathtojustice.com And Paul G. Cassell Pro Hac Vice Motion Pending S.J. Quinney College of Law at the University of Utah 383 S. University St. Salt Lake City, UT 84112 Tele Facsimile:801-585-6833 E-Mail:cassellp law.utah.edu Attorneys for Plaintiffs Bradley J. Edwards and Paul G. Cassell COUNSEL LIST Thomas Emerson Scott, Jr., Esquire Thomas. scott csklegal.com; Steven.safraacsklegal.com Cole Scott Kissane P.A. 9150 S Dadeland Boulevard, Suite 1400 Miami, FL 33156 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 19 of 20 Fax: (305)-373-2294 Attorneys for Defendant Richard A. Simpson (pro hac vice) rsimpsongwileyrein.com Mary E. Borja (pro hac vice) mborjawileyrein.com Ashley E. Eiler (pro hac vice) aeiler wileyrein.com WILEY REIN LLP 1776 K St. NW Washington, DC 20006 Fax: (202) 719-7049 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Edwards and Cassells Response to Dershowitz's Motion to Determine Confidentiality of Court Records Page 20 of 20 COUNSEL LIST Sigrid Stone McCawley, Esquire smccawley bsfllp.com; sperkins bsfllp.com; ftleserve bsfllp.com Boies Schiller Flexner, LLP 401 E Las Olas Boulevard., Suite 1200 Fort Lauderdale, FL 33301 Attorneys for Alan M.Dershowitz, Esquire Thomas Emerson Scott, Jr., Esquire Thomas. scott csklegal.com; Steven.safra csklegal.com; Renee.nail csklegal.com; shelly.zambo csklegal.com Cole Scott Kissane P.A. 9150 S Dadeland Boulevard, Suite 1400 Miami, FL 33156 Attorneys for Alan M.Dershowitz, Esquire Bradley J. Edwards, Esquire staffefile pathtojustice.com; brad pathtojustice.com; maria pathtojustice.com Farmer Jaffe Weissing Edwards Fistos Lehrman, P.L. 425 N Andrews Avenue, Suite 2 Fort Lauderdale, FL 33301 Attorneys for Alan M.Dershowitz, Esquire Ashley Eiler, Esquire AEiler wileyrein.com Mary E. Borja, Esquire MBorja wileyrein.com Richard A. Simpson, Esquire RSimpson wileyrein.com Wiley Rein, LLP 1776 K Street NW Washington, DC 20006 Attorneys for Alan M.Dershowitz, Esquire Joni J. Jones, Esquire jonijones utah.gov Assistant Utah Attorney General 160 E 300 S Salt Lake City, UT 84114 Attorneys for Paul Cassell Kenneth A. Sweder, Esquire ksweder sweder-ross.com Sweder Ross, LLP 131 Oliver Street Boston, MA 02110 Attorneys for Alan M.Dershowitz, Esquire Exhibit 1 1 IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA CASE NO.: CACE 15-000072 BRADLEY J. EDWARDS and PAUL G. CASSELL vs. Plaintiffs, ALAN M. DERSHOWITZ, Defendant. VIDEOTAPE DEPOSITION OF ALAN M. DERSHOWITZ VOLUME 1 Pages 1 through 179 Thursday, October 15, 2015 9:31 a.m. - 4:13 p.m. Cole Scott Kissane 110 Southeast 6th Street Fort Lauderdale, Florida Stenographically Reported By: Kimberly Fontalvo, RPR, CLR Realtime Systems Administrator 93 1 people that abused Virginia? 2 A. I told you I never asked her the question. 11:36:21 3 Q. Are you aware that years before December 11:36:48 4 of 2014, when the CVRA pleading was filed, that your 5 name had come up repeatedly in connection with 6 Jeffrey Epstein's abuse of minors, correct? 7 MR. SCOTT: Objection, form, overly broad. 11:37:16 8 A. Let me answer that question. I am aware 11:37:17 9 that never before 2014, end of December, was it 10 ever, ever alleged that I had acted in any way 11 inappropriately with regard to Virginia Roberts, 12 that I ever touched her, that I ever met her, that I 13 had ever been with her. I was completely aware of 14 that. There had never been any allegation. 15 She claims under oath that she told you 11:37:48 16 that secretly in 2011, but you have produced no 17 notes of any such conversation. You, of course, are 18 a witness to this allegation and will be deposed as 19 a witness to this allegation. I believe it is an 20 entirely false allegation that she told you in 2011 21 that she had had any sexual contact with me. I 22 think she's lying through her teeth when she says 23 that. And I doubt that your notes will reveal any 24 such information. 25 But if she did tell you that, she would be 11:38:24 94 1 absolutely, categorically lying. So I am completely 2 aware that never, until the lies were put in a legal 3 pleading at the end of December 2014, it was never 4 alleged that I had any sexual contact with Virginia 5 Roberts. 6 I know that it was alleged that I was a 11:38:46 7 witness to Jeffrey Epstein's alleged abuse and that 8 was false. I was never a witness to any of Jeffrey 9 Epstein's sexual abuse. And I wrote that to you, 10 something that you have falsely denied. And I stand 11 on the record. The record is clear that I have 12 categorically denied I was ever a witness to any 13 abuse, that I ever saw Jeffrey Epstein abusing 14 anybody. 15 And 16 stand and talk to Jeffrey Epstein while he was 17 receiving oral sex from Virginia Roberts, which she 18 swore to under oath, is so outrageous, so 19 preposterous, that even David Boies said he couldn't 20 believe it was true. 21 MS. McCAWLEY: I object. I object. I'm 11:39:40 22 not going to allow you to reveal any 23 conversations that happened in the context of a 24 settlement discussion. 25 THE WITNESS: Does she have standing? 11:39:46 95 1 2 3 4 MS. McCAWLEY: I have a standing objection and, I'm objecting again. I'm not going to THE WITNESS: No, no, no. Does she have standing in this deposition? 11:39:47 11:39:49 5 MR. SCOTT: Let's take a break for a 11:39:51 6 minute, okay? 7 THE WITNESS: I'm not sure she has 11:39:54 8 standing. 9 MR. SCAROLA: Are we finished with the 11:39:57 10 speech? 11 MR. SCOTT: No. If he 12 MR. SCAROLA: I'd like him to finish the 11:39:59 13 speech so that we can get to my question and 14 then we can take a break. 15 A. So the question 16 question is 17 MR. SIMPSON: Wait a minute. Wait a 11:40:04 18 minute. Wait a minute. Please don't disclose 19 something that she has a right to raise that 20 objection if she wants to. 21 MR. SCOTT: Exactly. 11:40:13 22 THE WITNESS: Okay. 11:40:14 23 MR. SCOTT: Ask your question. 11:40:17 24 MR. SWEDER: Maybe you want to read back 11:40:20 25 the last couple of sentences. Exhibit 2 180 IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA CASE NO.: CACE 15-000072 BRADLEY J. EDWARDS and PAUL G. CASSELL vs. Plaintiffs, ALAN M. DERSHOWITZ, Defendant. CONTINUED VIDEOTAPE DEPOSITION OF ALAN M. DERSHOWITZ VOLUME 2 Pages 180 through 333 Friday, October 16, 2015 9:18 a.m. - 12:26 p.m. Cole Scott Kissane 110 Southeast 6th Street Fort Lauderdale, Florida Stenographically Reported By: Kimberly Fontalvo, RPR, CLR Realtime Systems Administrator www.phippsreporting.com (888)811-3408 181 183 1 2 APPEARANCES: 1 2 INDEX 3 4 On behalf of Plaintiffs: SEARCY, DENNEY, SCAROLA BARNHART SHIPLEY, P.A. 3 4 Examination Page VOLUME 2 (Pages 180 - 333) 5 6 7 2139 Palm Beach Lakes Boulevard West Palm Beach, Florida 33402-3626 BY: JACK SCAROLA, ESQ. jsx searcylaw.com 5 Direct By Mr. Scarola 184 6 Certificate of Oath 330 Certificate of Reporter 331 7 Read and Sign Letter to Witness 332 8 9 10 i 1 On behalf of Defendant: COLE, SCOTT KISSANE, P.A. Dadeland Centre II - Suite 1400 9150 South Dadeland Boulevard Miami, Florida 33156 BY: THOMAS EMERSON SCOTT, JR., ESQ. 8 9 10 Errata Sheet (forwarded upon execution) 333 PLAINTIFF EXHIBITS No. Page thomas.scott csklegal.com 1 Television Interview Transcript 193 12 13 14 15 16 1 7 18 BY: STEVEN SAFRA, ESQ. (Via phone) steven.safra csklegal.com and SWEDER ROSS, LLP 131 Oliver Street Boston, MA 02110 BY: KENNETH A. SWEDER, ESQ. ksweder sweder-ross.com WILEY, REIN 17769 K Street NW 11 1 2 13 14 15 16 17 18 2 Except from Deposition of Alan M. 193 Dershowitz 3 Photograph - 8x10 - Color 194 4 Photograph - 8x10 - Color 197 5 Flight Log Information Sheet 198 6 Composite - Flight logs 240 7 Composite - Flight manuals 240 8 Photograph - 8x 10 - Color 305 19 20 21 22 Washington, DC 20006 BY: RICHARD A. SIMPSON, ESQ. RSimpson wileyrein.com BY: NICOLE A. RICIIARDSON, ESQ. nrichardson wileyrein.com 19 2 0 21 22 23 9 Composite - Calendar entries 10 Composite ,- Calendar entries 11 Composite - Calendar entries 12 Composite - Calendar entries 306 307 307 307 23 24 24 25 25 182 184 1 APPEARANCES (Continued): 1 VIDEOGRAPHER: Going on the record. This 2 On behalf of Jeffrey Epstein: 2 is day two of Alan Dershowitz's deposition. 3 DARREN K. INDYKE, PLLC 3 The date is October 16, 2015, and the time is 575 Lexington Ave., 4th Fl. 4 approximately 9:18 a.m. 4 New York, New York 5 MR. SCAROLA: Would you please reswear the BY: DARREN K. INDYKE, ESQ. (Via phone) 5 6 witness. 6 On behalf of Virginia Roberts: 7 THE COURT REPORTER: Would you raise your 7 BOIES, SCHILLER FLEXNER, LLP 8 right hand, please? 8 401 E. Las Olas Blvd., Ste. 1200 Fort Lauderdale, Florida 33301 9 1.0 Do you swear or affirm that the testimony you are about to give will be the truth, the BY: SIGRID STONE MCCAWLEY, ESQ. smccawley bsfllp.com 11 whole truth, and nothing but the truth? 9 10 12 THE WITNESS: Yes. 11 ALSO PRESENT: 13 Thereupon: 12 Joni Jones, Utah Attorney General Office 14 ALAN M. DERSHOWITZ 13 14 Travis Gallagher, Videographer 15 16 having been first duly sworn, was examined and testified as follows: 15 16 17 17 18 DIRECT EXAMINATION BY MR. SCAROLA: 18 19 Q. Mr. Dershowitz, what is rhetorical 19 20 hyperbole? 2 0 21 21 A. Rhetorical means verbal and hyperbole 22 23 22 23 means exaggeration. Q. Something other than the truth, correct? 24 24 A. Truth 2 5 25 MR. SCOTT: Objection, form, relevancy. www.phippsreporting.com (888)811-3408 2 (Pages 181 to 184) 185 187 1 A. Truth has many, many meanings and is a 1 transcript of the interview? wed like to see 2 continuum. The Supreme Court has held that 2 it. 3 rhetorical hyperbole cannot be the basis, for 3 MR. SCAROLA: That's exactly what I gave 4 example, of perjury prosecutions or generally of a 4 you, the photocopy. 5 defamation prosecution. 5 MR. SCOTT: Were doing it right now. 6 So it depends on the context. You might 6 Maybe we can move on and come back then. 7 just look at the dictionary and probably get a 7 MR. SCAROLA: No, I would like to proceed. 8 variety of definitions for it. 8 MR. SCOTT: Then let's stop until I get a 9 BY MR. SCAROLA: 9 copy of it. Because he 10 Q. Well, what I'm concerned about, 10 MR. SCAROLA: I don't think that's 11 Mr. Dershowitz, is not a dictionary definition. I 11 necessary because your client has told us that 12 want to know what your understanding of rhetorical 12 he has a superb memory and one of the things I 13 hyperbole is. 13 would like to know is what he's able to recall. 14 And do you agree that pursuant to your 14 If he needs to refresh his memory, the 1.5 understanding of rhetorical hyperbole, it is an 15 transcripts will be here in just a moment, but 16 exaggeration beyond the facts? 16 1 don't want to delay going forward. 17 MR. SCOTT: Objection, argumentative and 17 MR. SCOTT: Do you need the transcript to 18 compound, three questions. 18 refresh your memory? 19 A. No 20 MR. SCOTT: You can answer. 2 0 what specifically I said on a particular day in 21 A. 22 BY MR. SCAROLA: 22 MR. SCOTT: Since you have a copy in front 23 Q. Okay. Then define it for us, if you 23 of him, why don't you just show him your copy 24 would, please. 24 then? Read the 25 A. I think 1 have already. 25 him read it. 186 188 1 Q. I'm sorry, I missed the definition. Could 1 BY MR. SCAROLA: 2 you tell us what rhetorical hyperbole is? 2 Q. Do you recall having been interviewed on 3 MR. SCOTT: Objection, repetitious. He's 3 CNN Tonight by Don Lemon? 4 done it. 4 A. Yes, I do. 5 A. Why don't we just read back my answer. 5 Q. Do you recall having been interviewed on 6 BY MR. SCAROLA: 6 CNN Tonight by Don Lemon in early January of 2015, 7 Q. Because I didn't understand it, so I would 7 where you spoke about matters that have become the 8 like you to try to give us a direct response to that 8 subject of this litigation? 9 question if you're able to. 9 A. Yes, I do. 10 A. I will repeat exactly what I said. A 10 Q. Did you make the following statement 11 rhetorical means verbal and hyperbole means some 11 during the course of that interview: "As to the 12 exaggeration of the facts for political or other 12 airplanes, there are manifests that will prove 13 reasons, but generally it is truthful in a literal 13 beyond any doubt that I was never on a private 14 sense but perhaps 15 And if you tell me the context in which I 15 OW? 16 used it, I will be happy to describe what I meant in 16 MR. SCOTT: You need to see the 17 that context. But I don't think you can really 17 transcript? 18 answer a question about what two words put together 18 THE WITNESS: No. No. 19 mean without understanding the context. 19 A. That is a truthful statement. I would 20 Q. Okay. Well, we're going to talk about 20 repeat it right now. I've reviewed the manifests. 21 some context. 21 First, I know I was never on the airplane 22 Do you recall having been interviewed on 22 with any underage woman. I know that for a fact. I 23 CNN Tonight on January 5, 2015? 23 have absolutely no doubt in my mind about that. And 24 A. I have no current recollection of 25 MR. SCOTT: Do you have a copy of the 25 They have Virginia Roberts on a number of www.phippsreporting.com (888)811-3408 3 (Pages 185 to 188) 1 airplane flights with Jeffrey Epstein. They have me 2 on a number of flights, none 3 none within the relevant time period, none within 4 the relevant time period. That is, there are no 5 manifests that have me on Jeffrey Epstein's airplane 6 during the time that Virginia Roberts claims to 7 have 8 So, yes, not only recall making that 9 statement, but I repeat it here today. And it is 10 absolutely true. And it just confirms what I know, 11 and that is that Virginia Roberts made up the entire 12 story. 13 BY MR. SCAROLA: 14 Q. Your statement 15 MR. SCOTT: What page are you reading 16 from? 17 MR. SCAROLA: Page 5. 189 18 Q. Your statement was that you were never on 19 a private airplane with this woman, which I assume 20 was a reference to Virginia Roberts, correct? 21 A. It is, yes. 22 Q. Or any other underage girl? 23 A. That's right. 24 Q. All right. How many times 25 A. Well, let me be very clear. I have no 191 1 to the transcription, the official transcription of 2 that testimony, was that, quote: 3 "Let me emphasize that the manifests that 4 do exculpate me do not show me flying with Virginia 5 Roberts, they do not show me flying with any young 6 women." 7 That was the testimony you gave under 8 oath. Do you stand by that testimony today? 9 A. The manifests that I saw corroborate my 10 own memory 11 be 12 underaged women on any airplane to my knowledge that 13 were visible to me at any time that l flew. That is 14 my testimony, yes. 15 Q. Well, that's not a response to the 16 question that I asked. Is it your testimony today 17 that you never flew on a private airplane with, 18 quote, "any young women"? 19 MR. SCOTT: Objection, form. 20 A. By young women, I obviously meant in that 21 context underage women. And underage women in the 22 context of sexuality. And, yes, I 23 that statement. 24 BY MR. SCAROLA: 25 Q. All right. So your 190 192 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 idea who was in the front cabin of the airplane with the pilots. Obviously what I intended to say and what I say here now is l never saw an underaged person on an airplane. Now, when l Epstein to the launch, my recollection is that there may have been a couple on the plane with their child who was going to see the launch. But that was certainly not the context in which I made the statement. I never saw any underage, young person who would be the subject or object of any improper sexual activities. Had l seen Jeffrey Epstein ever in the presence of an underage woman in a context that suggested sexuality, l would have, A, left the scene; B, reported it; and, C, never had any further contact with Jeffrey Epstein. Q. You have also made the statement that you were never on a private airplane with any underage women or any young women, correct? A. The context was underage women in a sexual context. If it was a child being carried by her mother, that would not be included in what I intended to say. Q. Your sworn testimony yesterday, according 1 of your earlier testimony is that you never saw any 2 young women in a sexual context? 3 A. That's not clarification. I think that's 4 what I initially said. That's what 1 initially 5 intended. And that's the way any reasonable any 6 reasonable person would interpret what my original 7 testimony was. So I don't believe my original 8 testimony required any clarification. 9 Q. So what you meant to convey by the 10 statement that you made when you said you never flew 11 with any underage girl or any young women was you 12 never flew with any underage girl or young women in 13 a sexual context? 14 MR. SCOTT: Objection, form. 15 BY MR. SCAROLA: 16 Q. Is that correct? 17 A. Let me simply repeat the fact and that is, 18 to my knowledge, I never flew on an airplane or was 19 ever in the presence on an airplane with any 20 underage woman who would be somebody who might be in 21 a sexual context. l say that only to eliminate the 22 possibility that some four-year-old was on the lap 23 of a mother or somebody was on the airplane with 24 family members. 25 But, no, l do not recall 4 (Pages 189 to 192) www.phippsreporting.com (888)811-3408 193 195 1 firm about this 2 who I believed could be the subject of Jeffrey 2 not. I may have. But I don't recall necessarily. 3 Epstein or anyone else's improper sexual activities. 3 But I did meet 4 MR. SCAROLA: All right. Let's mark the 4 Tatiana. This does not look like Tatiana, like the 5 transcript that we've been referring to as 5 woman I met. 6 Exhibit Number 1, please. That's the 6 Q. Okay. So that's a that's a different 7 transcript of the television interviews that 7 Tatiana? 8 well be discussing. 8 A. No, I don't know. 9 (Thereupon, marked as Plaintiff Exhibit 9 MR. SCOTT: Objection, form, 10 1.) 10 argumentative. 11 MR. SCOTT: This is actually 2, right? We 11 A. I have no idea. I do not recognize this 12 had one yesterday, an article from the British 12 woman. She's not familiar to me at all. 13 newspaper? 13 I can tell you this: Without any doubt, 1 14 MR. SCAROLA: No. It was not marked as an 14 never met anybody dressed like this on any airplane 15 exhibit. This is the first exhibit that's been 15 or in the presence of Jeffrey Epstein or in any 16 marked. 16 context 17 MR. SCOTT: No, I know that, but I thought 17 BY MR. SCAROLA: 18 we were going to mark that one. Maybe 1 was 19 I asked for that. Okay. 19 A. 20 It was an answer and counterclaim about 20 Q. 21 the allegation shown to the witness. 21 you met her? 22 MR. SCAROLA: And Exhibit Number 2 will be 22 MR. SCOTT: Objection, form. He said he 23 the transcript from yesterday's proceedings 23 never met her. Misrepresent 24 that I have just referenced. 24 BY MR. SCAROLA: 25 (Thereupon, marked as Plaintiff 25 Q. When you met the woman that you're 194 196 1 Exhibit 2.) 1 referencing, did she have more clothes on or less 2 MR. SCOTT: You don't have a copy of that, 2 clothes on than that woman? 3 do you, of the transcript? 3 A. Every woman that I met in the presence of 4 MR. SCAROLA: No. Got sent to you. I 4 Jeffrey Epstein was properly dressed, usually in 5 assume you have it. 5 suits and dresses and 6 BY MR. SCAROLA: 6 up. I never met any women in the context of Jeffrey 7 Q. I'm going to hand you what we'll now mark 7 Epstein who were dressed anything like this. 8 as Exhibit Number 3. 8 Q. Would you agree that that is a young woman 9 (Thereupon, marked as Plaintiff 9 in that photograph? 10 Exhibit 3.) 10 A. I have no idea what her age is. 11 MR. SCOTT: There's no question. 11 Q. So you don't know whether she was underage 12 MR. SWEDER: Yes. 12 or overage or a young woman or not a young woman? 13 BY MR. SCAROLA: 13 A. I don't 14 Q. Do you recognize that young woman, 14 MR. SCOTT: Objection, form. 15 Mr. Dershowitz? 15 A. 16 A. No. 16 old a woman in a picture is. She could be 17 Q. Never saw her? 17 could be 30. She could be 25. I have no idea. 18 A. Not that I know of. 18 BY MR. SCAROLA: 19 Q. Never flew on an private airplane with 19 Q. Or she could be 15 or 16? 20 her? 20 A. I don't think so. 21 A. Not that I know of. 21 Q. But you don't know? 22 Q. Do you recognize the name Tatiana? 22 A. This doesn't 23 A. I do recall that Jeffrey Epstein had a 23 you are. This does not strike the 24 friend named Tatiana. 24 Q. Old enough to know that 25 Q. That you flew with? 25 MR. SCOTT: You're cutting www.phippsreporting.com (888)811-3408 5 (Pages 193 to 196) 197 199 1 BY MR. SCAROLA: 1 photographs. The photographs identify the woman as 2 Q. 3 MR. SCOTT: Objection. You're cutting the 3 A. Yes, but 4 witness off. You're not letting him finish. 4 MR. SCOTT: Mr. Dershowitz, take your 5 A. This looks like a picture out of a Playboy 5 time 6 or Penthouse magazine. It does not look to me like 6 THE WITNESS: Yeah. 7 a person who is under the age of 16 or 17 or 18. 7 MR. SCOTT: 8 But I don't think you can tell anything from the 8 be rushed by Mr. Scarola. 9 picture. I think you can tell much more from 9 A. Yes, it's a different 10 meeting somebody and being with them and having a 10 spelling of the name. The Tatiana on the manifest 11 conversation with them. 3.1 is spelled T-A-1-T-A-N-N-A. 12 MR. SCAROLA: Let's mark this photograph, 12 The Tatiana in the photograph is 13 if we could, as Exhibit Number 4. 13 T-A-T-I-N 14 (Thereupon, marked as Plaintiff 14 BY MR. SCAROLA: 15 Exhibit 4.) 15 Q. The last name 16 BY MR. SCAROLA: 16 A. 17 Q. Does Exhibit Number 4 help you at all to 17 Q. is the same, Kovylina, right? 18 recognize this young woman? 18 A. There's no last name. 19 A. I've never 20 of this young woman at all. 20 you would, Mr. Dershowitz. 21 Q. All right. Would you describe for us, 21 A. You mean as to a different flight? 22 please, the Tatiana that you flew with Jeffrey 22 Q. Yes, sir. Identifying the return flight 23 Epstein on November 17, 2005? 23 for the same Tatiana. 24 A. First, I want to emphasize that that's 24 A. I have no idea that it's a retum flight. 25 three years later than any of the issues involved in 25 I have nothing on the record that suggests that it's 198 200 1 this case. I have no recollection of flying with 1 a return flight. And it has different people on it. 2 this woman. I saw the name Tatiana on a manifest. 2 So I have no reason to believe its a return flight. 3 And my recollection of Tatiana 4 no recollection of flying with her, but my 4 you, Mr. Dershowitz, is: Is the last name spelled 5 recollection of Tatiana is that she was a serious, 5 exactly the same as the last name is spelled in the 6 mid 20s woman friend ofJeffrey Epstein, who 1 may 6 two photographs I have shown you? 7 have met on one or two or three occasions when he 7 A. Let me look. So, on the 20th of 8 was with her in 9 where he was meeting with academics and scholars, or 9 Q. Is the last name 10 perhaps 11 where 12 Q. But you never flew with her? 12 Q. 13 A. I have no recollection of flying with her. 13 log and the two photographs I have shown you? 14 Q. Okay. Well, let me see if this helps to 14 A. On 15 refresh your recollection, Mr. Dershowitz. 15 not on the flight? Is that right? You're talking 16 MR. SCAROLA: Lees mark this as Exhibit 16 about a flight log that I was not on the flight, 17 Number 5, please. 17 right? 18 THE WITNESS: Uh-huh, yes. 18 Q. That flight log shows you on multiple 19 (Thereupon, marked as Plaintiff 19 flights, does it not? 20 Exhibit 5.) 20 A. It shows me not on that flight. It shows 21 BY MR. SCAROLA: 21 me on a number of flights, but not on that flight. 22 Q. Do you see that the name of the woman in 22 MR. SCOTT: What's the date of the 23 the photographs I have handed you is Tatiana 23 flights? 24 Kovylina, K-O-V-Y-L-I-N-A, a Victoria Secrets model? 24 THE WITNESS: The date of that flight 25 The photographs, sir, look at the 25 is www.phippsreporting.com (888)811-3408 6 (Pages 197 to 200) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 201 than three years after Virginia Roberts left for BY MR. SCAROLA: Q. Mr. Dershowitz MR. SCOTT: You're cutting the witness off. MR. SCAROLA: He's not answering my question, Tom. MR. SCOTT: Well MR. SCAROLA: I want to know whether the last name is spelled the same or it isn't spelled the same on the flight log marked as an exhibit and on the photographs. That's a very direct question. It calls for a very direct yes or no response. And this witness has demonstrated a clear refusal to respond directly to direct questions, which will result, when we resume this deposition, in our requesting that the Court appoint a special master so that this deposition doesn't take two weeks to complete. MR. SCOTT: You know, Mr. Scarola, that's a nice speech and I appreciate it. MR. SCAROLA: Thank you. MR. SCOTT: I don't agree with your 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 203 1 BY MR. SCAROLA: 2 Q. Is the last name on the photograph spelled 3 exactly the same way as the last name on the flight 4 log? 5 A. If you're talking about a flight log that 6 I was not on that flight, the answer is yes. 7 Q. All right. Thank you very much, sir. 8 Now, that flight log also shows you flying 9 repeatedly in the company of a woman named Tatiana, correct? A. I've only seen one reference to Tatiana on November 17. If you want to show me any other references, I'd be happy to look at them. Q. All right, si . Thank you. Let's go back to the MR. SCOTT: Are we done with this exhibit? MR. SCAROLA: We are done with the exhibit. MR. SCOTT: Okay. Then let's collect the exhibits so that we don't have a big we'll turn them over to the court reporter to keep safekeeping. There you go, young lady, don't lose those, don't get them wet. And we'll proceed. 202 204 1 characterization. And if you recall, months 2 ago I suggested a special master for this 3 deposition, for your clients' depositions and 4 for Virginia Roberts' and your response to me 5 was: I'll consider it, I won't pay for it. If 6 your client wants to pay for it 7 you blew me off. 8 So, I appreciate you finally come around. 9 And your clients. 10 MR. SCAROLA: Your client's misconduct has 11 clearly convinced me, having now considered it, 12 that it is absolutely necessary. 13 MR. SCOTT: Okay. Now 14 BY MR. SCAROLA: 15 Q. So now could 1 get an answer to my 16 question 17 MR. SCOTT: Now that we have 18 BY MR. SCAROLA: 19 Q. 20 is spelled exactly the same way as the last name in 21 the photographs? 22 MR. SCOTT: Now that all the lawyers' 23 speeches arc done, read the question back and 24 the witness will answcr it. 25 MR. SCAROLA: I will repeat the question. 1 BY MR. SCAROLA: 2 Q. Did you state during the same interview, 3 the CNN Don Lemon interview: "She has said that 4 Bill Clinton was with tier at an orgy on Jeffrey's 5 island"? 6 A. I did state that, yes. 7 Q. Was that statement intended as fact, 8 opinion, or was it intended as rhetorical hyperbole? 9 MR. SCOTT: Do you understand the 10 question? 11 THE WITNESS: Yes, I do. 12 A. It was a statement based on what I 13 believed were the facts at the time I said them. 14 Various newspapers and blogs had placed 15 Bill Clinton on, quote, "orgy island" on 16 presence of Jeffrey Epstein when there were orgies. 17 And at the time I made that statement, I had a 18 belief that she had accused Bill Clinton of 19 participating or being 20 observer or 21 orgies on what was called Jeffrey Epstein's orgy 22 island. That was my state of belief, honest belief 23 at the time I made that statement. 24 BY MR. SCAROLA: 25 Q. Yes, sir. And what I want to know is what www.phippsreporting.com (888)811-3408 7 (Pages 201 to 204) 205 207 1 the source of that honest belief was? Identify any 1 Clinton on orgy island, things of that kind. I 2 source that attributed to Virginia Roberts the 2 would be happy to provide them for you. I don't 3 statement that Bill Clinton was with her at an orgy 3 have them on the top of my head. 4 on Jeffrey's island. 4 Q. There's a big difference between saying 5 A. We can provide you about, I think, 20 5 that Bill Clinton was on Jeffrey's island and saying 6 newspaper articles and blogs which certainly raise 6 that Bill Clinton was at an orgy on Jeffrey's 7 the implication that Bill Clinton had improperly 7 island, isn't there? 8 participated in sexual activities on the island 8 MR. SCOTT: Objection 9 either as an observer or as a participant. The 9 BY MR. SCAROLA: 10 issue was raised on Sean Hannity's program. The 10 Q. Do you recognize a distinction between 11 headlines in various British media had suggested 11 those statements? 12 that. 12 MR. SCOTT: Form. 13 Its my belief that Virginia Roberts 13 A. I don't think that distinction was clearly 14 intended to convey that impression when she was 14 drawn by the media. 15 trying to sell her story to various media, which she 15 BY MR. SCAROLA: 16 successfully sold her story to in Britain, that she 16 Q. I'm asking whether you recognize the 17 wanted to keep that open as a possibility. 17 distinction? 18 And then when I firmly declared, based on 18 A. Oh, I 19 my research, that Bill Clinton had almost certainly 19 distinction. 20 never been on that island, she then made a firm 20 Q. Oh, so 21 statement that she 22 perjurious statement, a firm perjurious statement 22 distinction between Bill Clinton being on the 23 saying that although Bill Clinton had been with her 23 island, which I believe she perjuriously put in her 24 on the island and had had dinner with her, the 24 affidavit, and Bill Clinton participating actively 25 perjurious statement was that Bill Clinton had been 25 in an orgy. I also think its a continuum. 206 208 1 on the island with her. 1 And there is the possibility, which I 2 The lie was that she described in great 2 don't personally believe to be true, that he was on 3 detail a dinner with Bill Clinton and two underaged 3 the island. There was the possibility, which I 4 Russian women who were offered to Bill Clinton for 4 don't believe to be true, that he was on the island 5 sex but that Bill Clinton turned down. 5 when orgies were taking place. There was the 6 So she then put in her affidavit that 6 possibility that he was on the island and observed 7 although 8 Clinton on that island, she then stated that she had 8 on the island and participated in an orgy. 9 not had sex with Bill Clinton. To my knowledge, 9 Newspapers picked up those stories. I'll 10 that was 11 first time she stated that 12 with Bill Clinton. She had certainly implied, or at 12 island and 13 least some of the media had inferred from her 13 with Stephen Hawkings sic , the famous physicist 14 statements that she may very well have observed Bill 14 from Cambridge University, that was a newspaper 15 Clinton in a sexually compromising position. 15 published in the Virgin Islands, which falsely 16 So, when 1 made that statement to Don 16 claimed that I was at an orgy with Stephen Hawkings. 17 Lemon, I had a firm belief, based on reading 17 So, many newspapers were suggesting, 18 newspaper accounts and blogs, that it was true. 18 implying, and I inferred from reading those 19 Q. Can you identify a single newspaper that 19 newspapers that that's what she had said to the 20 attributed to Virginia Roberts the statement that 20 media. 21 Bill Clinton was with her at an orgy on Jeffrey's 21 If I was wrong about that based on 22 island? 22 subsequent information, I apologize. But I 23 A. I think there 24 head right now. But I do recall reading headlines 24 made the statement in good faith in the belief that 25 that talked about things like, sex slave places 25 it was an honest statement. www.phippsreporting.com (888) 811-3408 8 (Pages 205 to 208) 209 211 1 Q. Okay. So you now are withdrawing the 1 Your client is doing everything he can to avoid 2 statement that you made that Virginia Roberts said 2 giving direct answers to these questions. 3 that Bill Clinton was with her at an orgy on 3 I would appreciate it if you would take a 4 Jeffrey's island; that was wrong? 4 break, counsel your client that the speeches 5 A. I don't know whether she ever said that. 5 are not helpful to anyone, and especially not 6 I would not repeat that statement and have not 6 helpful to him. 7 repeated that statement based on her denial. As 7 MR. SCOTT: If you want to take a break, 8 soon as she denied it, I never again made that 8 I'll take a break and I will advise my client 9 statement and would not again make that statement. 9 whatever I feel is appropriate, not what you 10 Q. You 10 instruct me to do. 11 A. But I did reiterate the fact that she 11 MR. SCAROLA: Okay. Well, if you think it 12 committed perjury when she said she was on the 12 might help at all in the progress of this 13 14 15 16 17 18 19 20 21 22 23 24 25 island with Bill Clinton. MR. SCAROLA: Move to strike the nonresponsive A. That was the perjurious statement. MR. SCAROLA: Move to strike the nonresponsive portions of the answer. BY MR. SCAROLA: Q. You have made a reference during that same CNN interview to this woman, referring to Virginia Roberts, having a criminal record? A. That's right . Q. Okay. What A. Well, the way I used the term is that she 13 14 15 16 17 18 19 20 21 22 23 24 25 deposition, then I do want to take a break. If you don't think taking a break would be helpful, Idon't want to take a break. MR. SCOTT: Do you want to take a break or not? THE WITNESS: I'm going to leave it to your judgment. I'm happy to proceed MR. SCOTT: Okay. I'll be glad to take a break. MR. SCAROLA: Thank you. MR. SCOTT: I can't say MR. SCAROLA: Five minutes. MR. SCOTT: 210 212 1 committed a crime and legal 2 proceedings resulted from her committing a crime. 2 MR. SCAROLA: 1 can understand that you 3 The crime she committed was stealing money from a 3 don't 4 restaurant that she worked at while she was also 4 there's any reasonable 5 working for Jeffrey Epstein. And it was my 5 MR. SCOTT: You know, Counsel 6 information that there was a criminal record of her 6 MR. SCAROLA: 7 theft. 7 help, let's give it a try. 8 Q. How old was she at the time this alleged 8 MR. SCOTT: You know, I really don't 9 offense occurred? 9 appreciate the comments about my abilities as 10 A. I don't know. But old enough to be held 10 an attorney, like I don't have that control and 11 criminally responsible in the State of Florida, to 11 things of nature. It really is 12 my knowledge. To my knowledge, 1 13 where a 14-year-old boy was sentenced as an adult 13 either. 14 for 15 MR. SCAROLA: Mr. Scott 16 A. 17 MR. SCAROLA: 18 anything about a 14-year-old boy? 18 MR. SCOTT: Okay. 19 A. You asked if 20 MR. SCAROLA: Do we really need to listen 20 that it will do any good. But I want to give 21 to this? 21 it a try. 22 MR. SCOTT: You're asking questions, my 22 MR. SCOTT: Okay. Fine. Thank you. 23 client is providing his response. 23 MR. SCAROLA: Thank you. 24 MR. SCAROLA: No, your client is not 24 VIDEOGRAPHER: Going off the record. The 25 responding. Your client is filibustering. 25 time is approximately 9:49 a.m. www.phippsreporting.com (888)811-3408 9 (Pages 209 to 212) 213 215 1 (Recess was held from 9:49 a.m. until 10:01 a.m.) 1 Q. That would certainly have been prior to 2 VIDEOGRAPHER: Going back on the record. 2 February 23rd of 2015, correct? 3 The time is approximately 10:01 a.m. 3 A. Yes. 4 MR. SCOTT: If you've finished your bagel, 4 MR. SCOTT: Are you going back to the 5 were ready to proceed, I think. 5 exhibit now with the newspapers and 6 MR. SCAROLA: I think we are. I was 6 MR. SCAROLA: Not yet. 7 actually ready to proceed a little bit earlier, 7 MR. SCOTT: Okay. 8 but we'll proceed now. 8 BY MR. SCAROLA: 9 BY MR. SCAROLA: 9 Q. Having reviewed the available airplane 10 Q. Mr. Dershowitz, do you agree with the 10 flight logs, you are aware that Bill Clinton flew on 11 basic concept that one is presumed to be innocent 11 at least 15 occasions with Jeffrey Epstein on his 12 until proven guilty? 12 private plane, correct? 13 A. Yes. 13 A. Yes. 14 Q. Has Virginia Roberts ever been proven to 14 Q. Have you ever attempted to get flight log 15 be guilty of any crime at any time, anywhere, at any 15 information with regard to Former President 16 age? 16 Clinton's other private airplane travel? 17 A. I don't know the answer to that question, 17 A. No. 18 but I do know that she was brought into the legal 18 Q. Never made a public records request 19 system for stealing money from her employer and I 19 A. Yes. 20 think it's fair to characterize that as her having a 20 Q. under the Freedom of Information Act 21 criminal record, yeah. 21 with regard to those records? 22 Q. To the extent that anyone might interpret 22 A. Well, we have made a Freedom of 23 your comment that Virginia Roberts was ever 23 Information request. My 24 convicted of a crime, they would be drawing a false 24 Louis Freeh, the former head of the FBI, has made a 25 conclusion as far as you know, correct? 25 FOIA request for all information that would 214 216 1 A. As far as I know, I don't know of her 1 conclusively prove that Bill Clinton was never on 2 having convicted of any crime. But I do know that 2 Jeffrey Epstein's island, yes. 3 she was proceeded against for having stolen money. 3 Q. And you were denied those records, 4 And I don't think she contested that. I don't think 4 correct? 5 there's any dispute about the fact that she stole 5 A. No, no, no. 6 money and engaged in other crimes as well. 6 Q. Oh, you got them? 7 Q. When did you find out about this alleged 7 MR. SCOTT: Well, wait a minute. Let's 8 crime? 8 take it slow. Ask a question. 9 A. As soon as the false allegation against me 9 A. As any lawyer knows, FOIA requests take a 10 was made public, I got call after call after call 10 long, long period of time. So they were neither 11 from people telling me about Virginia Roberts, about 11 denied nor were they given to us. They are very 12 your 22 clients. The calls just kept coming in 12 much in process. 13 because there was such outrage at this false 3.3 BY MR. SCAROLA: 14 allegation being directed against me. 14 Q. When was 15 MR. SCAROLA: Move to strike the 15 A. While we're talking about 16 unresponsive portion of the answer. 16 complete 17 BY MR. SCAROLA: 17 previously. 18 Q. You found out as soon as the CVRA 18 While were talking about the plane logs, 19 complaint was 20 you were filed; is that correct? 20 Tatiana and found out that she was, in fact, 24 21 A. I didn't say that. I said as soon as they 21 years old in 1995, at the time she flew on that 22 were made public and as soon as the newspapers 22 airplane. So that my characterization of her as 23 carried these false stories, I received phone calls 23 about 25 years old is absolutely correct. 24 and I teamed about 25 with the criminal justice system. 25 draw by showing me those pictures was not only www.phippsreporting.com (888)811-3408 10 (Pages 213 to 216) 217 219 1 demonstrably false, but you could have easily 1 she has a history of lying, knowing that she is 2 discovered that the implication you were drawing was 2 easily suggestible, and they basically pressured 3 demonstrably false by simply taking one second and 3 her, according to my sources, into including me when 4 Googling her name as my wife did. 4 she didn't want to include me, because by including 5 BY MR. SCAROLA: 5 me, they could make a claim, false as it was, could 6 Q. And so at 25 years old, she wasn't a young 6 make a false claim that a person who negotiated the 7 woman? 7 NPA was also criminally involved with her. 8 A. She was not the kind of woman that I was 8 They also lied 9 describing as underage. She was a mature, serious, 9 unprofessionally by saying that I negotiated that 10 I think I said in my public statements a model. I 10 provision of the NPA, which gave me, myself, any 11 wasn't aware at the time that see was working for 11 kind of immunity from prosecution had I had improper 12 Victoria's Secrets, but Google demonstrates that. 12 sex with Virginia Roberts, which, of course, I did 13 And I described her exactly, in exactly the right 13 not. And that was one of the bases on which I was 14 terms, a serious person. 14 certain that they had engaged in unprofessional, 15 I always saw her dressed when I saw her 16 I saw her maybe on two or three occasions, dressed 16 provision, as well as including a provision that 17 appropriately. She was a serious adult worker and I 17 Prince Andrew was included because he, Prince 18 think you insult and demean her when you suggest 18 Andrew, pressured a United States attorney to try to 19 that anything other than that she was a serious 19 get a good deal for Jeffrey Epstein. 20 adult when she flew on that airplane. 20 That is so laughable. How any lawyer 21 Q. You were asked on the occasion of that 21 could put that in a pleading, it doesn't pass even 22 same Don Lemon CNN interview what possible motive 22 the minimal giggle test. And I'm embarrassed for 23 the attorneys, Brad Edwards and Paul Cassell, could 23 Professor Cassell that he would have signed his name 24 have had to have identified you in the pleading that 24 to a pleading that alleges that Prince Andrew would 25 was filed in the Crime Victim's Rights Act case. 25 pressure the United States attorney for the Southern 218 220 1 Do you remember that? 1 District of Florida into giving Jeffrey Epstein a 2 A. That's right, yes. 2 good deal. 3 Q. And your response was, quote 4 MR. SCOTT: Here's your transcript if you 4 unresponsive portions of the answer. And 5 need to refer to it. 5 obviously the break didn't do any good. 6 BY MR. SCAROLA: 6 MR. SCOTT: Let's proceed. 7 Q. "They want to be able to challenge the 7 MR. SCAROLA: We're going to. 8 plea agreement and I was one of the lawyers who 8 BY MR. SCAROLA: 9 organized the plea agreement. I got the very good 9 Q. You stated, quote: "If they," referring 10 deal for Jeffrey Epstein." 10 to Bradley Edwards and Paul Cassell, "could find a 11 Did you make that response? 11 lawyer who helped draft the agreement" 12 A. Yes. 12 A. Right. 13 Q. So, you recognized as of January 5, 2015, 13 Q. 14 that the reason why the statements were filed in the 14 wow, that could help them blow up the agreement." 15 Crime Victim's Rights Act case was because the Crime 15 Did you make that statement on 16 Victim's Rights Act case had, as an objective, 16 A. Yes. I just repeated it now, yes, under 17 setting aside the plea agreement that you had 17 oath, yes. 18 negotiated for Jeffrey Epstein, correct? 18 Q. Did you state the following in that same 19 MR. SCOTT: Objection, form. Go ahead if 19 interview: "So they," referring to Bradley Edwards, 20 you can answer it. 20 Paul Cassell and Virginia Roberts, "sat (town 21 A. There were multiple motives. One of the 21 together, the three of them, these two sleazy, 22 motives was crassly financial. They were trying to 22 unprofessional disbarrable lawyers" 23 line their pockets with money. But as I also said, 23 A. Uh-huh, uh-huh. 24 and I said this over and over again, they profiled 24 Q. 25 me. They sat down with their client, knowing that 25 MR. SCOTT: Let him ask the question. www.phippsreporting.com (888)811-3408 11 (Pages 217 to 220) 221 223 1 1 who made transcripts of them. 2 BY MR. SCAROLA: 2 Q. Did you turn them over to opposing 3 Q. 4 They and the woman got together and contrived and 4 MR. SCOTT: The transcripts 5 made this up." 5 BY MR. SCAROLA: 6 Did you make that statement on national 6 Q. 7 television? 7 MR. SCOTT: The transcripts we consider to 8 A. Yes, and I just repeated it under oath. I 8 be work product. If you make a request to 9 believe that to be the case. 1 think that's exactly 9 produce, we'll provide them. 10 what happened. And I think that my source has 10 MR. SIMPSON: Just for completeness, they 3.1 corroborated that. 11 were also after your discovery request. 12 By the way, can I add at this point 13 don't mean to distract you, but I think the record 13 consider providing them. 14 would be more complete if I indicated that I did get 14 BY MR. SCAROLA: 15 a phone call last night from Michael, who told me 15 Q. Is there an entry in any privilege log 16 that he had received numerous phone calls and texts 16 that identifies these allegedly privileged work 17 from Virginia Roberts trying to persuade her not to 17 product documents? 18 talk to me or cooperate with me and offering the 18 MR. SIMPSON: We will 19 help of a lawyer. 19 address the document production issues. But 20 And I also 21 question, Mr. Scarola, I think for completeness and 21 your request and you have said several times 22 fullness, I do want to say that you asked me whether 22 there's no duty to supplement. And second, 23 24 25 or not I knew about what could be taped and what couldn't be taped. I did tape record some of what Virginia Roberts sic. told me, with her 23 24 25 they're work product. MR. SCAROLA: Well, sir, if they postdated a full and complete production, which we are 222 224 1 permission, and I have those tape recordings. 1 now told they do not, then you wouldn't be 2 Q. Well, you're getting a little bit 2 obliged to supplement the production that had 3 overexcited, Mr. Dershowitz, because you never tape 3 already been completed. But it is not the date 4 recorded anything that Virginia Roberts told you. 4 of the request that matters, it is the date of 5 A. Did I say Virginia Roberts? 5 the production that matters. 6 Q. You misspoke. 6 And what we're now being told is there are 7 A. I misspoke. You wouldn't know that. But, 7 allegedly highly relevant transcripts of a 8 in fact, let me be clear. 8 telephone conversation that occurred months ago 9 I tape recorded, with her permission, 9 when the last production that we received, 10 Rebecca's statements to me about what Virginia 10 which we are told still is not complete, 11 Roberts had told her. And I just want to make sure 11 occurred approximately two weeks ago. 12 that for completeness, even though you didn't ask 12 So, there's no privilege log entry. 13 the question yesterday, that's part of the record. 13 There's no production of these documents. And 14 Q. Well, I actually did ask the question and 14 there is clearly a very significant discovery 15 my recollection is that you said you didn't even 15 violation if, in fact, such documents exist. 16 think about tape recording anything 17 MR. SCOTT: No, that's not accurate. You 17 here, Mr. Scarola, but your assertions are not 18 never asked that. 18 accurate. 19 BY MR. SCAROLA: 19 MR. SCAROLA: All right. There also was a 20 Q. But can you tell us, please, did you turn 20 subpoena duces tecum that was responded to 21 over those tape recordings in the discovery that you 21 tomorrow 22 were required to make in this case? 22 us whether the documents that are now being 23 A. The discovery 24 after April of 2015. And I certainly tamed over 24 subpoena duces tecum on the flash drive that 25 the recordings and the www.phippsreporting.com (888)811-3408 12 (Pages 221 to 224) 225 227 1 MR. SIMPSON: The flash drive is the same 1 A. I know what you know because I'm a logical 2 as the document production. 2 person and I know that Virginia 3 MR. SCAROLA: So the answer is no, they're 3 Virginia Roberts repeatedly called this 4 not there; is that correct? 4 woman and her husband, repeatedly text her, and 5 MR. SIMPSON: Correct. 5 knows her name. And you and Virginia Roberts' 6 MR. SCAROLA: Okay. And what's the 6 lawyers are operating in privity here. You're 7 explanation for that? 7 whispering to each other, you're passing notes. You 8 MR. SIMPSON: I'm not going to debate this 8 are part of a joint legal team. 9 on the record with you, Mr. Scarola. 9 And if you want to know her name, all you 10 MR. SCAROLA: All right. Thank you. 10 have to do is ask Sigrid McCawley and she'll tell 11 BY MR. SCAROLA: 11 you her name. Pm sure you know her name. And if 12 Q. Which conversation with Rebecca did you 12 you don't know her name, it's because you haven't 13 tape record? 13 asked. 1.4 A. I tape recorded a conversation with her 14 Q. Okay. Well, I'm asking you 15 permission where she told me that she was pressured, 15 A. Pm not going to tell you 16 she didn't 17 was pressured and that she didn't want to name me 17 name. 18 but she was pressured to name me, that she had never 18 A. Okay. 19 previously named me. 19 Q. Okay? As an officer of the court, I am 20 By the way, I told this to Virginia 20 telling you I don't know her name. And you are 21. Roberts' lawyer. 21 under oath and obliged to answer material and 22 MS. McCAWLEY: Objection. To the extent 22 relevant questions, and I want to know what her name 23 you're going to reveal anything that was said 23 is. 24 during settlement discussions, I'm moving for 24 MR. SCOTT: I will provide you the name 25 sanctions, period. We're not doing this today. 25 off the record, but Pm not 226 228 1 Please instruct the witness. 1 inappropriate because of what 2 MR. SCOTT: Avoid that. We discussed that 2 to answer the question. I will provide you the 3 yesterday. 3 name. 4 THE WITNESS: That's fine. 4 BY MR. SCAROLA: 5 BY MR. SCAROLA: 5 Q. Okay. She has still insisted that her 6 Q. What was the date of the phone 6 name not be revealed; is that correct? 7 conversation that you tape recorded? 7 A. Her husband asked me to do whatever I 8 A. 1 don't recall. But it's on the 8 could not to put her name in front of the press, in 9 transcript. 9 front of the media. 10 Q. And does it also reflect that the 10 Q. There's no there's no one from the 11 recording is being made with her permission? 11 press here today. 12 A. Uh-huh. 12 MR. SCOTT: Yeah, but they're going to 13 Q. That's a yes? 13 order the transcript and they're going to see, 14 A. Yes. Yes, that's a yes. 14 so that's the same thing. And I've already 15 Q. What is Rebecca's last name? 15 told 16 A. You know Rebecca's last name and she has 16 A. You will have her name in five 17 asked me not to reveal it to the press. And so I 17 MR. SCOTT: I will give you her name 18 would like to comply with that 19 For purposes of discovery, you know her name, you 19 MR. SCOTT: And, Jack, if you want to take 20 know her husband's name, you know her phone number, 20 a break now 21 and she has been called. But there's no reason for 21 THE REPORTER: I-Iold on. Hold on, 22 me to reveal it so that it appears in the press that 22 gentlemen. You can't talk at the same time. 23 she would be called by newspapers and by the media. 23 MR. SCOTT: Let me do the talking at this 24 Q. Mr. Dershowitz, how do you know what I 24 point. 25 know if you haven't told me? 25 THE WITNESS: Please. www.phippsreporting.com (888)811-3408 13 (Pages 225 to 228) 229 231 1 BY MR. SCAROLA: 1 more accomplished. 2 Q. What's her phone number? 2 MR. SCAROLA: Let's take it easy and slow. 3 A. Her phone number is known to Virginia 3 BY MR. SCAROLA: 4 Roberts and presumably 5 lawyers because she received phone calls from 5 people he didn't speak to were lawyers? 6 Virginia Roberts' lawyers. So all you have to do is 6 A. He told me that he received a phone call 7 ask your colleagues and you will get that. But I 7 from Virginia Roberts. That then his wife received 8 think there's no reason to put her phone number in 8 numerous phone calls and texts from her all through 9 the public record so that she will receive massive 9 the night. And that they received phone calls as 10 amounts of phone calls from the media. Seems to me 10 well from her lawyers. One of them had a Miami 11 that any 12 from happening. I would hope so. And I'm 13 can get the name and the phone number from my lawyer 13 lawyers. But that's what he conveyed to me. All I 14 as long as it's 15 MR. SCOTT: We'll provide that. 15 that. 16 A. 17 media can see it. 17 A. I did not. 18 BY MR. SCAROLA: 18 Q. Why not? 19 Q. You just swore under oath that lawyers 19 A. l didn't think it was appropriate or 20 contacted Rebecca; is that correct? 20 necessary. 21 A. I swore under oath that I was told by 21 Q. What was inappropriate about asking for 22 Michael that lawyers contacted Rebecca, yes. 22 the phone number to find out who was attempting to 23 Q. Which lawyers? 23 contact this witness? 24 A. I don't know the answer to that. 24 A. I was not particularly interested in that. 25 Q. Did you ask him? 25 All I was interested in was getting the truth from 230 232 1 A. I did. 1 the witness and trying to prevent her from having a 2 Q. And he said, I 2 media barrage that would interfere with their lives. 3 A. He wouldn't answer that. 3 Q. You told Don Lemon on CNN that the flight 4 Q. 5 A. No, he didn't know the answer to that 5 not in the same place at the same time as Virginia 6 either because he didn't return the phone calls. He 6 Roberts, correct? 7 said 8 Q. How did he know they were lawyers if he 8 Q. You also told Don Lemon, quote, "I am 9 didn't return the phone calls? 9 waiving the statute of limitations or any immunity." 10 A. Because they left messages, presumably. 10 A. That's right. 11 Q. With names that identified them as 11 Q. You were then subsequently asked to waive 12 lawyers; is that right? 12 the statute of limitations and refused to, correct? 13 MR. SCOTT: You're arguing with the 13 A. Absolutely false. 14 witness 15 A. I don't know the answer to that. 15 submitting a statement under oath. Had I not 16 MR. SCAROLA: No, I'm trying to find out 16 submitted that statement under oath, the statute of 17 whether there's any logical basis for the 17 limitations would have been long gone. But by 18 stories that the witness is telling. 18 stating under oath categorically that I did not have 19 MR. SCOTT: And I think he's trying to 19 any sexual contact with her, I waived the statute of 20 explain it. And I think he's trying to do it 20 limitations and could be prosecuted for the next 21 in an easy, slow format. So, you know 22 MR. SCAROLA: Okay. Well, let's take it 22 false. 23 easy 24 MR. SCOTT: 25 take the tension down here, maybe we can get 25 prosecution. So, yes, I did waive the statute of www.phippsreporting.com (888)811-3408 14 (Pages 229 to 232) 233 235 1 limitations, yes. 1 Q. And by dropping the dime on the media when 2 Q. You refused to waive the statute of 2 they filed it, you intended to convey the message 3 limitations with regard to sexual crimes, correct? 3 that Paul Cassell and Bradley Edwards intentionally 4 A. I didn't refuse anything. I didn't feel I 4 generated the focus of press attention on that 5 had any obligation to respond to you. And I did 5 filing; is that correct? 6 not. 6 A. Absolutely. Absolutely without any doubt. 7 Q. So, you were asked to waive the statute of 7 Why else would they have brought Prince Andrew into 8 limitations with regard to your sexual crimes and 8 this filing? Prince Andrew had no connection to the 9 you refused to respond? 9 NPA, no relevance at all. But they knew that by 10 A. I was asked by you, utterly 10 including Prince Andrew, this would drag my name 11 inappropriately, and what I had said 12 check what I said, I said if any reasonable 12 world. 13 prosecutor were to investigate the case and find 13 It was outrageous for them to do this. 14 that there was any basis, I would then waive the 14 Particularly because they did so little, if any, 15 statute of limitations. I didn't waive the statute 15 investigation, which will, of course, be determined 16 of limitations because you, a lawyer, for two 16 when they're deposed. And 17 unprofessional, unethical lawyers asked me to do so, 17 Q. Well, you've already made that 18 what obligation do I have to respond to you? 18 determination, right? 19 Q. Well, you have no obligation to respond to 19 MR. SCOTT: Wait. 20 me at all, Mr. Dershowitz, except now while you arc 20 A. I'm convinced that 21 under oath and I am asking you questions and I would 21 or no investigation. They never even bothered to 22 greatly appreciate you responding to the questions 22 call me. That would have been 23 that I ask. 23 BY MR. SCAROLA: 24 MR. SCOTT: I think he's trying. 24 Q. We'll get to that in just a moment. 25 25 A. 234 236 1 BY MR. SCAROLA: 1 Q. But right now right now could you 2 Q. You made the further statement in that 2 please tell us was there anything other than your 3 same interview, "They dropped the diine on the media 3 inferring that they must have contacted the media to 4 when they filed it," referring to the CVRA 4 support your conclusion that either Paul Cassell or 5 pleading 6 A. Right. 6 time of the filing of this pleading? 7 Q. in which were you named? 7 A. Yes. 8 A. Right. 8 Q. What else besides your inference? 9 Q. What is the basis for that statement? 9 A. When the BBC came to see me, the BBC 10 A. The basis for that statement was that the 10 reporter showed me an e-mail from Paul Cassell, 11 filing was done virtually on the eve of New Year's 11 which urged him, the BBC reporter, to ask me a 12 on a day that the press was completely dead. And 12 series of questions. So I knew that Paul Cassell 13 nonetheless, immediately upon the filing, I got a 13 was in touch with the British media and was trying 14 barrage of phone calls that led me to conclude, and 14 to stimulate and initiate embarrassing questions to 15 led many, many, many other lawyers who called me to 15 be asked of me. 16 conclude that obviously somebody tipped somebody off 16 And when I spoke to a number of reporters, 17 that they didn't just happen to file 18 the middle of an obscure pleading which didn't even 18 privilege, but they said things that certainly led 19 have a heading that indicated that I was involved or 19 me to infer that they had been in close touch with 20 anybody else was involved. 20 your clients or representatives on their behalf. 21 So, I'm certain that a dime was dropped to 21 Q. What was the date of the e-mail 22 somebody saying, by the way, you want an interesting 22 A. I don't know. 23 story, there's 24 Alan Dershowitz have been accused of sexual 24 A. I don't know. 25 misconduct. I still believe that. 25 Q. Well www.phippsreporting.com (888)811-3408 15 (Pages 233 to 236) 237 239 1 A. It was whenever 2 the date. He just quickly showed me the e-mail and 2 twice. 3 1 quickly looked at it. 3 A. It came after. It came after. 4 Q. The e-mail that you are referencing, in 4 BY MR. SCAROLA: 5 fact, occurred after you had begun all of your media 5 Q. Thank you, sir. On January 5, you made 6 appearances with respect to this filing 7 A. Let me be very clear about 8 Q. didn't it, sir? 8 A. I do not recall the name of the person 9 A. Let me be very clear about my media 9 Q. Take a look at the transcript, if you 10 appearances so that I 11 Q. How about just answering the questions? 11 MR. SCOTT: Take a moment to review the 12 A. Pm trying to answer the question. All of 12 transcript, please, Mr. Dershowitz. 13 my media appearances 14 Q. The question is: Did it occur before or 14 MR. SCOTT: Take your time to review that. 15 after your media 16 doesn't call for a speech 16 of course, I remember doing an interview, yes. 17 A. It came 18 Q. it calls for before or after. 18 Q. All right, sir. And during the course of 19 A. It came before some and after some. It 19 that interview, you said: "There are flight 20 came, for example, before my appearance on the BBC 20 manifests. They will prove I was never on any 21 because they showed me the e-mail before they 21 private airplane with any young woman." Correct? 22 interviewed me for the BBC. So some occurred 23 occurred before some and it occurred after some. 23 Q. Go to page 17, if you would. 24 Q. All right. So it is your assertion that 24 A. Uh-huh. 25 this single e-mail that you have made reference to 25 Q. At line 4 of transcript of that same 238 240 1 where Paul Cassell says "asks Dershowitz these 1 interview, you said: "She made the whole thing up 2 questions" occurred before your 3 appearances and after your media appearances; is 3 records. I can prove it by my travel records." 4 that correct? 4 Did you make those statements? 5 MR. SCOTT: Objection, form, argumentative 5 A. Yes, and they're absolutely true. 6 and repetitious. 6 Q. Okay. I am going to hand you every flight 7 A. It occurred before some of the media 7 record that has been produced in connection with 8 appearances, and it occurred after some of media 8 this litigation. 9 appearances, yes. 9 A. Uh-huh. 10 BY MR. SCAROLA: 10 MR. SCAROLA: Could we mark that as the 11 Q. Did it occur before your first media 11 next composite exhibit, please? 12 appearances? 12 (Thereupon, marked as Plaintiff 13 A. My first media appearances came as the 13 Exhibit 6.) 14 result of phone calls I received from 15 Q. That's nonresponsive to my question, sir. 15 composite exhibit, which will be 7. 16 A. 17 Q. I didn't ask you anything about what your 17 manuals? 18 first media appearances occurred 19 A. Yes, you did. 19 MR. SCOTT: Okay. 20 Q. 21 MR. SCOTT: Let him ask his question. 21 have been produced in discovery. If there are 22 BY MR. SCAROLA: 22 more, I'm going to be interested to hear about 23 Q. 24 have seen was sent before or after your first media 24 (Thereupon, marked as Plaintiff 25 appearance? 25 Exhibit 7.) www.phippsreporting.com (888)811-3408 16 (Pages 237 to 240) 241 243 1 (Discussion off the record.) 1 exonerated by any flight logs that were innocent 2 THE WITNESS: What's Number 6 then? I'm 2 that were complete and accurate, of course. 3 confused, there were two. 3 Q. So you made the public statements 4 BY MR. SCAROLA: 4 repeatedly that the flight logs would exonerate you 5 Q. Have you ever seen Exhibit Number 6 5 without having examined the flight logs to see 6 before? 6 whether they were accurate or not; is that correct? 7 A. Exhibit Number 6. I don't believe so. It 7 A. Well, I knew 8 doesn't look familiar to me. 8 Q. Did you say those things without having 9 Q. No? 9 examined the flight logs? 10 A. It does not look familiar to me. 10 A. I said those things having looked at some 11 Q. Did you bother at any time to review 11 of the flight logs at some point in time. But I 12 discovery that was produced by Bradley Edwards and 12 knew for sure that the flight logs would exonerate 13 Paul Cassell responding to requests for information 13 me because I knew I was never on Jeffrey Epstein's 14 that supported the allegations of Virginia Roberts? 14 plane with Virginia Roberts or any other young 15 A. I'm not clear what you're asking. 15 underage girls. So, I knew that to an absolute 16 Q. I want to know 16 certainty. And I was prepared to say it. I'm 17 A. In which case? In which case are we 17 prepared to say it again under oath here. 18 talking? 18 And if your clients had simply called me 19 Q. This case. This case. 19 and told me they were planning to do this, we 20 A. Right. 20 wouldn't be here today because I could have shown 21 Q. Did you ever bother to review the 21 them in one day that it was impossible for me to 22 discovery produced in this case responding to 22 have had sex with their client on the island, in the 23 requests for all of the information that supported 23 ranch, on the airplanes, in Palni Beach. And they 24 their belief in the truthfulness of Virginia 24 would have, if they were decent and ethical lawyers, 25 Roberts' allegations against you? 25 not filed that. 242 244 1 A. I don't know if I reviewed everything. 1 And there are cases, legal ethics cases 2 But I certainly, in preparation for this deposition, 2 that say that lawyers are obliged to make that phone 3 reviewed some of the documents that were produced in 3 call. Lawyers are obliged to check if it's easy to 4 discovery. But I can't say I reviewed them all. 4 check. Lawyers are obliged to, particularly when 5 Q. Well, having placed such substantial 5 they're making extremely heinous charges against a 6 emphasis during the course of your public 6 fellow lawyer, do very, very, detailed 7 appearances on the flight logs exonerating you, it 7 investigations. And they didn't do that in this 8 would certainly seem logical that one of the things 8 case. 9 that you would want to review would be all of the 9 Q. I will represent to you that I have handed 10 available 11 right? 11 discovery of this case. Could you show me, please, 12 A. No. 12 which of these flight logs exonerates you? 13 MR. SCOTT: Objection, argumentative. 13 A. The absence of evidence is evidence of 14 A. No. 14 absence. None of the flight logs have me on an 15 BY MR. SCAROLA: 15 airplane with Virginia Roberts. None of the flight 16 Q. No? 16 logs have me on an airplane during the relevant 17 A. No. Look, I knew I was never on a plane 17 period of time when Virginia Roberts claims that she 18 with any underage females under any circumstances. 18 had sex with me in the presence of another woman. 19 I knew that. I knew that as certainly as I'm 19 So, the flight logs clearly exonerate ine. 20 sitting here today. So, I knew absolutely that if 20 There's absolutely no doubt about that. 21 the manifests and the flight logs were accurate, 21 Q. Well, the flight logs, in fact, confirm 22 they would, of course, exonerate me because I am 22 that you were in the same places at the saine time as 23 totally, completely, unequivocally innocent of any 23 Virginia Roberts, don't they? 24 of these charges. 24 A. No, they do not. 25 So of course I knew that I would be 25 Q. Do you www.phippsreporting.com (888)811-3408 17 (Pages 241 to 244) 245 247 1 that you were in the same place at the same time 1 I would be very anxious to see any timeframes when 2 A. First 3 Q. as Virginia Roberts? 3 island, claims she was with me on 4 MR. SCOTT: Let him ask the question. 4 claims she was with me on the airplanes, claims she 5 THE WITNESS: Okay. 5 was with one in Palin Beach. And they will all 6 MR. SCOTT: Then you answer the question. 6 conclusively 7 And Mr. Scarola will try to, you know, keep the 7 Q. You forgot 8 emotion down, I'm sure, so we can get through 8 A. 9 this with less acrimony between everybody here. 9 Q. New York. Didn't you mean New York 10 A. Your client has adamantly refused, as well 10 also? 11 as the lawyer 12 BY MR. SCAROLA: 12 Q. Oh, okay. 13 Q. No, sir, that's nonresponsive to my 13 A. 14 question. 14 was, in fact, in New York for large periods of time. 15 MR. SCOTT: Wait a minute. 15 I was not, in fact, on the island during the 16 BY MR. SCAROLA: 16 relevant timeframe. I was not in the airplane in 17 Q. My question is: Do you deny that the 17 the relevant timeframe. I was not in Jeffrey 18 flight logs corroborate that you were in the same 18 Epstein's Palm Beach home in the relevant timeframe. 19 place at the same time as Virginia Roberts? 19 And I was once in the ranch but under circumstances 20 A. So the question includes the word "time" 20 where it would have been absolutely impossible for 21 and, therefore, I must answer in this way. Your 21 me to have had any contact with her. 22 client 23 Q. How to build a watch? 23 will be happy to answer your question. But without 24 MR. SCOTT: Wait a minute, you're cutting 24 timeframes, that question is an absolutely 25 him off. He's been trying to answer the 25 inappropriate question. And the answer to it is no. 246 248 1 question. 1 Q. Well, Mr. Dershowitz, it might be 2 A. Your client has adamantly refused, and her 2 inappropriate if you had not repeatedly made the 3 lawyers and your clients have refused to give me any 3 public statements that the flight logs exonerate 4 timeframes, any timeframes when your client claims 4 you. 5 that she had improper 6 perjuriously claims that she had improper sexual 6 Q. So what I am attempting to find out is the 7 encounters with me. 7 basis upon which you can contend that the flight 8 So how can you possibly ask me a question 8 logs exonerate you if you are now telling us you 9 that includes the word "timcframcs" when your client 9 don't even know when it is that you are alleged to 10 has refused 11 give any timcframcs? How can it be possible that 11 Virginia Roberts. 12 the flight logs show me being in the same time and 12 A. Okay. 13 same place with her when she has refused to describe 13 Q. So how 14 any of the times that she claims to have been in 14 statements? 15 thosc places? 15 A. Very simple, because I know the timeframe 16 So the answer to the question is 16 that Virginia Roberts, A, knew Jeffrey Epstein. And 17 categorically no, sir. 17 during that timeframe, I can conclusively prove that 18 BY MR. SCAROLA: 18 I was never on Jeffrey Epstein's island where she 19 Q. What is the question that you are 19 claimed to have sex with me. That the only time I 20 answering no to? 20 was at the ranch was with my wife, with the Ashe 21 A. Whether or not the timeframe shows that I 21 family, with my daughter, the house was under 22 could have been in the same place at the same time 22 construction, we just simply stayed outside the 23 as your client. Absolutely not. Because we don't 23 house and looked around. That the manifests show I 24 know what times your client 25 that, you should have produced them in discovery and 25 period of time. And the manifests show that I never www.phippsreporting.com (888)811-3408 18 (Pages 245 to 248) 249 251 1 flew down to Palm Beach during that relevant period 1 Q. Which of the manifests are you referring 2 of time. 2 to when you claim what you have claimed about the 3 So 1 have a timeframe not that was 3 manifests, Exhibit Number 6 or Exhibit Number 7? 4 provided by your client but that was provided by the 4 A. I can only tell you that I have reviewed 5 externalities of the case. And that timeframe 5 the manifests and they show, to me, that I was never 6 coupled with the manifests clearly exonerate me 6 on Jeffrey Epstein's airplane during the relevant 7 without any doubt. 7 period of time. That's all I can tell you now. 8 Q. 1 want to make sure that I understood what 8 I'm not in a position where I look at all 9 you just said. "I never flew down to Palm Beach 9 these documents now. If you point me to any 10 during the relevant timeframe"? 10 particular trip that shows that I was on Jeffrey 11 A. I never flew down and stayed at Jeffrey's 11 Epstein's plane, I would be happy to respond to 12 house in Palm Beach during that relevant period of 12 that. 13 time. 13 Q. There are two separate collections of 14 Q. Okay. So you want to withdraw the 14 documents purporting to be flight manifests for 15 statement that you never flew down to Palm Beach 15 Jeffrey Epstein's plane. When you made the public 16 MR. SCOTT: Objection. 16 statements that you made regarding the flight logs 17 BY MR. SCAROLA: 17 or manifests exonerating you, were you referring to 18 Q. during that relevant period of time 19 A. Let me be 20 MR. SCOTT: Objection. 20 particular exhibits, which are fonned for purposes 21 BY MR. SCAROLA: 21 of the legal case, I had reviewed. I know I had 22 Q. and what you want to say is, "I never 22 reviewed the manifests. Not only had I reviewed the 23 flew down to Palm Beach and stayed at Jeffrey 23 manifests, but others reviewed the manifests and 24 Epstein's house during that timeframe period," 24 have conclusively told me that their review of the 25 correct? 25 manifests shows that I was right. 250 252 1 MR. SCOTT: Objection, argumentative 2 A. Let me be 3 MR. SCOTT: 4 A. Let me be clear. A, I never flew down on 4 with your current lawyers, please. 5 Jeffrey Epstein's plane during the relevant period 5 THE WITNESS: Okay. 6 of time. 6 BY MR. SCAROLA: 7 BY MR. SCAROLA: 7 Q. Who told you that they had reviewed the 8 Q. Flew down to where? 8 manifests and they confirmed your position? 9 A. To Palm Beach or anywhere else. I was 9 MR. SCOTT: Objection, work product. 10 never on Jeffrey Epstein's plane, according to the 10 MR. SCAROLA: Well, you know, Mr. Scott, 11 flight manifests and according to my own records, 11 he can't have it both ways. He can't insert 12 during the relevant period of time. 12 into the record the gratuitous statements that 13 I have independent records of my travel 13 he inserts into the record regarding others 14 which demonstrate that I was not in Jeffrey 14 having corroborated his inaccurate testimony, 15 Epstein's house during the relevant period of time. 15 and then refuse to tell us who those othcrs 16 And 17 manifests conclusively prove that I was never on the 17 privilege might exist. 18 airplane during the relevant period of time. 18 MR. SCOTT: He can 19 So I don't know how you can claim that the 19 arc. I'm just saying he can't go into 20 manifests show that I was with Virginia Roberts 20 communications with them. 21 during the relevant period of time. They do not do 21 MR. SCAROLA: Well, he's already said what 22 that. And if you would testify under oath to that, 22 the communication was. The communication was 23 I think you could be subject to pretty 24 scathing cross examination. So your statement is 24 MR. SCOTT: And he's answered that because 25 categorically false, sir. 25 based on his review of them, Mr. Scarola. www.phippsreporting.com (888)811-3408 19 (Pages 249 to 252) 253 255 1 BY MR. SCAROLA: 1 MR. INDYKE: Objection. This is Darren. 2 Q. Who told you that the manifests confirm 2 Anything that relates to your conversations 3 the accuracy of your public statements? 3 with Jeffrey 4 MR. SCOTT: If it involves lawyer-client 4 THE REPORTER: He's going to have to speak 5 privilege, don't answer it. 5 up. 6 THE WITNESS: Okay. 6 MR. SCOTT: You're going to have to speak 7 BY MR. SCAROLA: 7 up a little bit more, Counsel. 8 Q. You're refusing to answer? 8 MR. INDYKE: Objection. This is Darren 9 A. No, I would like 10 MR. SCOTT: Instruct you not to answer. 10 to that, to the extent they are covered under 11 A. 12 not to answer. I would like to answer. 12 under attorney-client privileges as well as 13 You've made a statement 14 MR. SCOTT: There's no question pending. 14 MR. SCOTT: Do you understand? 15 THE WITNESS: But he made a statement 16 MR. SCOTT: But there's no question 16 BY MR. SCAROLA: 17 pending, sir. 17 Q. To which your response was: "Sure, sure, 18 BY MR. SCAROLA: 18 certainly I have been his lawyer and I did speak to 19 Q. What does it mean to make something up out 19 him about it. I wanted to make sure that his memory 20 of whole cloth? 20 and mine coordinated about when I was at his island. 21 A. It means that Virginia Roberts and your 21 He was able to check. I was able to check. 1 22 clients 23 Q. No, sir, I haven't asked you anything 23 Did you make that answer to that question? 24 about Virginia Roberts. I haven't asked you 24 A. Yes. 25 anything about my clients. 25 Q. Disclosing the contents of your 254 256 1 1 want to know what the words "making 1 communication with Jeffrey Epstein, correct? 2 something up out of whole cloth" mean. 2 A. I disclosed that I had spoken to him to 3 A. l said thosc words in the context of 3 find out whether he had any records of when I was on 4 Virginia Roberts. 4 his island. And, yes. 5 MR. SCOTT: That's 6 ahead. 6 Jeffrey does not waive any attorney-client 7 BY MR. SCAROLA: 7 privileges here. 8 Q. What do the words mean? 8 BY MR. SCAROLA: 9 A. That there was absolutely no basis for 9 Q. Well, the reason why you were able to 10 Virginia Roberts' claim that she had any sexual 10 answer that question and discuss with the press what 11 contact with me. That the story was entirely false. 11 Jeffrey Epstein was telling you was because you 12 I don't know where the metaphor derives about whole 12 weren't his lawyer at that time, right? 13 cloth, but certainly that's the common 13 A. No, I was his lawyer at that time. Pm 14 understanding. And I repeat under oath that 14 still his lawyer. 15 Virginia Roberts made up the entire story about 15 Q. Oh, what were you representing him on 16 having sexual contact with me out of whole cloth. 16 then 17 Q. During the course of the same interview 17 A. The ongoing 18 that we have been referencing with Hata Gorani 18 Q. that is, on January' 19 for the record, that's H-A-L-A, G-0-R-A-N-1. 19 MR. SCOTT: Whoa. 20 A. What page? 20 BY MR. SCAROLA: 21 Q. Page 19. 21. Q. 22 You were asked: "I'm wondering, have you 22 A. The ongoing 23 spoken to Jeffrey Epstein about this since these 23 MR. INDYKE: My objection stands. 24 allegations came out in this suit in the United 24 MR. SCOTT: You can answer what you were 25 States? Have conversations happened there?" 25 representing him on, I think. www.phippsreporting.com (888)811-3408 20 (Pages 253 to 256) 257 259 1 A. The ongoing issues 2 MR. SCOTT: But nothing about 2 A. I would say 15 3 communications. 3 Q. Last 15 4 A. Right. The ongoing issues relating to the 4 A. 5 NPA, which continue to this day. And I regard 5 Q. 6 myself as his lawyer basically on all those 7 those issues. 7 Q. Okay. 8 BY MR. SCAROLA: 8 A. As I stand here today, I have no 9 Q. So, when the pleadings were filed in the 9 recollection of ever being in New Mexico except to 10 Crime Victims Rights Act regarding your conduct in 10 visit the Ashes in January of 2000. 11 relationship to Virginia Roberts and Jeffrey 11 I'm 77 years old. I've lived a long life. 12 Epstein, you were and still are his lawyer in the 12 It is certainly possible that at some earlier point 13 Crime Victim's Rights Act case; is that correct? 13 in my life 14 A. I certainly am bound by lawyer-client 14 states. But I have no recollection of ever being in 15 privilege and communications, yes. 15 New Mexico. 16 Q. Okay. You go on to say in that same 16 And I can tell you unequivocally the only 17 interview: "Only once in my life have I been in 17 time I was ever at Jeffrey Epstein's ranch was that 18 that area," referring to New Mexico. 18 one time with my wife with the Ashes, with my 19 A. Yes. 19 daughter. And we only stayed there for an hour and 20 Q. "Only once in my life did my travel 20 the house was not completed. It was under 21 records show I was in New Mexico." 21 construction. And I certainly did not have any 22 A. Uh-huh. 22 sexual encounter or any encounter with Virginia 23 Q. Is that an accurate statement? 23 Roberts during that visit. 24 25 A. To the best of my knowledge. I have no recollection of being in New Mexico other than 24 2 5 MR. SCAROLA: Move to strike the unresponsive portions of the answer. 258 260 1 during that visit to the Ashes, which was not during 1 MR. SCOTT: We don't agree on that point, 2 the 3 The narrower timeframe, remember, is 3 MR. SCAROLA: It's of any help, I can 4 Virginia Roberts meets Jeffrey Epstein in the late 4 agree that you don't agree to any of my 5 summer, the summer just before she's turning 16, of 5 objections. 6 1999. She says she didn't commence having sexual 6 MR. SCOTT: No, that's not true. I mean, 7 activities with any of Epstein's friends until nine 7 I'm trying to work with you, sir. 8 months later. That would put it in March or April 8 I have to tell you, this 9 of 2000. This visit occurred in January of 2000. 9 obviously one of the most acrimonious 10 It's the only time I recall having been in 10 depositions I've sat through in my 40 plus 11 New Mexico. 11 years because of the personalities involved 12 Q. Okay. I want to be sure now. You're not 12 here and because of the personal issues. And 13 just saying that you were only at Jeffrey Epstein's 13 it's quite difficult for everybody in this 14 ranch in New Mexico once; you are confirming your 14 room. 15 statement on national television that you have only 15 MR. SCAROLA: I agree. 16 been in New Mexico one time? 16 MR. SCOTT: And all I'm saying, and my 17 A. My recollection right now is that I was 17 client is 18 only there once. I have no 19 of 20 I could have been there. But I have no recollection 2 0 represent your clients. And it's 21 of having been there. It certainly 22 haven't been there recently. And during the 22 our very 23 relevant time period, I know I haven't been there. 23 MR. SCAROLA: Thank you. And you're 24 Q. "Recently" means 24 right, you and 1 do agree on something. 25 A. Fifteen www.phippsreporting.com (888)811-3408 21 (Pages 257 to 260) 261 263 1 often than we usually say. 1 A. Where? Where? Can you point to that? 2 MR. SCAROLA: Yes, sir. 2 BY MR. SCAROLA: 3 BY MR. SCAROLA: 3 Q. Well, I'm asking you, sir, based upon your 4 Q. In interviews on January 4 and January 5, 4 superb memory whether you remember having said - 5 you claim to have completed the necessary work to 5 MR. SCOTT: No, we're going to do 6 identify documents exonerating you within an hour 6 BY MR. SCAROLA: 7 after learning of the accusations that were made, 7 Q. 8 correct? 8 MR. SCOTT: He's going to take a moment to 9 A. I don't remember having said that. But 9 review the transcript and 10 11 within a minute, I had clear knowledge that every document in the world would exonerate me because I 3.0 11 witness is entitled to do that. So why don't we take a break, hell review transcript and 12 knew for absolute certainty that every aspect of her 12 we'll come back? We've been going an hour 13 allegation was totally false. That's why I 13 MR. SCAROLA: Because I haven't asked him 14 challenged the other side to produce videos, to 14 a question about the transcript. 15 produce photographs. I knew that there could be no 15 MR. SCOTT': You've asked 16 evidence inculpating me because I knew I was 16 MR. SCAROLA: I'm asking him a question 17 innocent. So I knew that all of my records would 17 about his recollection. 18 prove that. 18 MR. SCOTT: Based upon what he said in the 19 Facts are facts. And I just wasn't in any 19 transcript. 20 contact or any sexual contact with Virginia Roberts, 20 MR. SCAROLA: No, I'm asking him whether 21 and I knew with absolute certainty that the facts 21 he has a recollection of having made public 22 would completely exonerate me. And if your clients 22 statements that within an hour, he had gathered 23 had just called me, at the courtesy of simply 23 the documents that proved his innocence, 24 calling me, I would have been able to point them to 24 exonerated him. 25 Professor Michael Porter of the Harvard Business 25 262 264 1 School. I would have been able to 2 to the Ashes. I would have been able to tell them 2 Q. Do you remember having made those 3 that I keep little black books which have all of my 3 statements? 4 travel information. Although they were in the 4 A. I do not, but its true. I was able to 5 basement of Martha's Vineyard, I would have been 5 gather documents literally within an hour. I was 6 happy to go up and get them. 6 able to call Tom Ashe. He was able to access his 7 If they had just simply called me, I would 7 daughter's journal notes that I had taught his 8 have been able to persuade them without any doubt 8 daughter's class. I was able to find out where my 9 that these allegations were false. If they needed 9 other documents were. 10 any persuading because I believe, as I sit here 10 My wife made some phone calls immediately. 11 today, that they knew they were false at the time 12 certainly should have known, but I believe knew they 12 determined the dates of when I was in Florida. We 13 were false at the time that they leveled them. 13 called the Porters. We very, very, very quickly 14 Q. My question related to your gathering 14 were able to gather information that conclusively 15 documents that you claim exonerated you 16 A. That's right. 16 sex with me on the island, in the ranch, 17 Q. 18 within an hour, you 19 A. Can you 20 Q. 21 MR. SCOTT: Listen to the question. 21 detail claims she had had sex, I think you can be 22 BY MR. SCAROLA: 22 clear that you should discount any other 23 Q. 24 exonerated you, correct? 24 MR. SCOTT: We've been going for an hour. 25 MR. SCOTT: You can refer. 25 Let's take a break for a few minutes. Then we www.phippsreporting.com (888)811-3408 22 (Pages 261 to 264) 265 267 3. have another hour. 1 and then explained it but now you have it 2 MR. SCAROLA: I'm almost ready to take a 2 directly answered. So we're 3 break. 3 brcak point. 4 MR. SCOTT: Okay. 4 MR. SCAROLA: Thank you. 5 MR. SCAROLA: Could you read back the last 5 VIDEOGRAPHER: Going off the record. The 6 question, please? 6 time is approximately 11:01 a.m. 7 First of all, I move to strike the 7 (Recess was held from 11:01 a.m. until 11:23 a.m.) 8 responsive speech. 8 VIDEOGRAPHER: Going back on the record. 9 And now read back the last question, if 9 The time is approximately 11:23 a.m. 10 you would. 10 BY MR. SCAROLA: 11 (Requested portion read back as follows:) 11 Q. When did you last travel from outside the 12 THE REPORTER: "Do you remember having 12 State of Florida to arrive in Florida? 13 made those statements?" 13 A. The day before yesterday, 1 think. 14 Do you want me to read prior to that? 14 Q. And where did you travel from? 15 MR. SCAROLA: No, that's fine. That's the 15 A. New York. 16 question that I asked. 16 Q. When were you last in Boston, in the 17 BY MR. SCAROLA: 17 Boston area? 18 Q. Is the answer yes? 18 A. About two weeks ago. 19 A. I don't remember specifically. I do 19 Q. So, if anyone had represented that you 20 generally remember having said that your clients 20 were going to be traveling from Boston to Florida 21 could have easily discovered conclusive proof that 21 this past weekend, that would have been a 22 Virginia Roberts was lying about me and that I 22 misrepresentation; is that correct? 23 had 24 MR. SCAROLA: Tom 25 A. 266 268 1 MR. SCAROLA: That has nothing to do with 1 going to travel from Boston to Florida and canceled 2 the question I asked 3 MR. SCOTT: Let's take 4 break like I suggested and we'll come back and 4 correct? 5 then you can ask your question and 6 MR. SCAROLA: Well, while the question is 6 I'm sorry. 7 pending, I would like an answer to the question 7 Q. Well, what is it that you don't understand 8 before we break. 8 about that question? Either you were in 9 MR. SCOTT: Did you answer the question? 9 A. The basis 10 THE WITNESS: I thought I did. 10 Q. Boston and were planning on traveling 11 A. But what 12 I'll try to answer it in a yes or no if I can. 12 time you were in Boston was two weeks ago, so you 13 BY MR. SCAROLA: 13 couldn't have been planning 14 Q. Did you make the statement that within an 14 A. I 15 hour of learning of these allegations, you had 15 Q. on traveling from Boston to Florida. 16 gathered documents that completely exonerated you? 16 A. I was actually in Boston 17 A. I don't recall those specific words 18 Q. Thank you, sir. 18 here, 1 have 19 A. 2 0 MR. SCOTT: That's it, and I think he 20 Florida, but that got changed. Yes, that got 21 indicated that before. 21 changed, right. 22 MR. SCAROLA: That would be very helpful 22 Q. May I see that, please? 23 if we said that and then we stopped and we can 23 A. No, this is my personal calendar. 24 take a break. 24 Q. Yes, I'm sorry, but if you refer to 25 MR. SCOTT: He previously had said that 25 anything to refresh your recollection www.phippsreporting.com (888)811-3408 23 (Pages 265 to 268) 269 271 1 A. I have 2 Q. 3 am permitted to examine it. 3 made by Virginia Roberts against you? 4 A. I have lawyer-client privileged 4 A. Well, first and foremost, the most 5 information in here, so I can't give it to you. I 5 important piece of infonnation I had was my firm and 6 can give it to you in a redacted form. I have a 6 complete knowledge and memory that I had never had 7 quote from David Boies in here, which I'm sure 8 MR. SCOTT: Don't 8 any circumstances or any other underage girls. So I 9 A. nobody is going to want to sec 10 MR. SCOTT: We'll make a copy and give it 10 Q. The question I'm asking, sir 11 to you. 11 A. 12 MR. SCAROLA: Thank you. Would you hand 12 Q. 13 it to your counsel, please? 13 regarding what Bradley Edwards and Paul Cassell did 14 MR. SCOTT: On that note, hold on to that. 14 in the course of their investigation of the 15 TFIE WITNESS: But I need that back. 15 credibility of the accusations against you made by 16 MR. SCOTT: Of course. Don't worry. 16 Virginia Roberts? 17 MR. SIMPSON: Hold on to it. 17 A. That was the first and most important bit 18 MR. SCOTT: That's why I gave it to him 18 of infonnation; namely, that I couldn't have done it 19 because I'd lose it. 19 and didn't do it. So I knew for sure that they 20 BY MR. SCAROLA: 20 could not have conducted any kind of valid 21 Q. Before January 21,2015, what information 21 investigation. 22 did you have regarding what Bradley Edwards and Paul 22 Second, I knew from 23 Cassell had gathered in the course of investigating 23 a letter from Mr. Scarola that said that multiple 24 the accuracy of Virginia Roberts' accusations 24 witnesses had placed me in the presence of Jeffrey 25 against you? 25 Epstein and underage girls and I knew that 270 272 1 A. Well, first, I knew that anything they 1 Mr. Scarola's letter was a patent lie. And they had 2 gathered 3 MR. INDYKE: Objection to the extent that 3 I also knew they were relying on 4 requires 5 MR. SCOTT: Whoa. 5 And I've read these two depositions. And I'm sure I 6 MS. McCAWLEY: 7 you gave 8 THE COURT REPORTER: I can't hear. 8 they had stated publicly, or you had stated publicly 9 I'm sorry, Mr. Indyke, can you repeat your 9 on their behalf as a witness, that you had stated 10 objection? 10 publicly that you had tried to depose me on these 11 MR. SCOTT: Can you say that a little 11 on this subject. I knew that that was a blatant lie 12 louder? 12 and unethical conduct because nobody ever tricd to 13 MR. INDYKE: Darren Indyke. I would 13 depose me on this subject. 14 object to the extent that your answer would 14 I had never been accused, nor did I have 15 disclose anything you 16 learned or any knowledge you gained in 16 me of having any sexual encounters. And I had a 17 connection with your representation of Jeffrey 17 great deal of infonnation about the paucity or 18 Epstein. 18 absence of any legitimate investigation. And I also 19 MR. SCOTT: Do you understand that 19 knew that they hadn't called me, they hadn't tried 20 instruction? 20 to call me, there was no record of an attempt to 21 THE WITNESS: I do, yes. 21 call me or c-mail me. My c-mail is available on my 22 Could you repeat the question? 22 wcbsite. My phone number is available on my 23 BY MR. SCAROLA: 23 website. 24 Q. Yes, sir. I want to know what information 24 The most basic thing they could have done, 28 you had regarding what Bradley Edwards and Paul 25 as courts have said, when you're accusing somebody www.phippsreporting.com (888)811-3408 24 (Pages 269 to 272) 273 275 1 of outrageous, horrible, inexcusable misconduct, at 1 your assertion that the testimony of these two 2 least call the person and ask them if they can 2 individuals completely exculpates you. 3 disprove it before you file a 4 even asking for a hearing on it, not even basically 4 Q. The following question was asked of 5 seeking to prove it, just 6 pleading as if scrolling on a bathroom stall. 6 MR. SCAROLA: I'm reading from the 7 So, yes, I had 8 making that kind of statement and I repeat it here 8 BY MR. SCAROLA: 9 today. And we will find out in depositions what 9 Q. The following question was asked of 10 basis they actually had. And I'm anxiously awaiting 10 MR. SCOTT: The deposition transcript II Mr. Cassell's deposition this afternoon. 11 BY MR. SCAROLA: 12 MR. SCAROLA: Move to strike the 12 Q. 13 non-responsive portion of that answer. 13 MR. SCOTT: Let me object to the 14 Could I have a standing objection to 14 of all, let me object to this format because he 15 unresponsive 16 MR. SCOTT: Sure. 16 You're reading portions from the deposition 17 MR. SCAROLA: 18 helpful. Thank you. I appreciate that. That 18 MR. SCOTT: 19 will save us 20 MR. SCOTT: Absolutely. No, any time. 20 the deposition. This is improper. 21 MR. SCAROLA: 22 MR. SCOTT: Thank you, sir. 22 MR. SCOTT: Cross-examination. 23 BY MR. SCAROLA: 23 BY MR. SCAROLA: 24 Q. The one portion of what you just said that 24 Q. Do you recall the following questions 25 directly responded to my question was you knew in 25 having been asked of Mr. Alessi and the following 274 276 1 early January of 2015 that Bradley Edwards and Paul 1 answers have been given during the course of this 2 Cassell had the sworn testimony of two 3 refer to them as house 4 A. House people. 4 "Question: Do you have any recollection 5 Q. House staff? 5 of VR, referring to Virginia Roberts, coming to 6 A. louse staff. 6 the house when Prince Andrew was there? 7 Q. House staff of Jeffrey Epstein's 8 A. That's right. 8 sure. 9 Q. correct? 9 "Question: When Mr. Dershowitz was 10 And those two individuals are Juan Alessi 10 visiting 11 and Alfredo Rodriguez, correct? 11 "Answer: Uh-huh. 12 A. That's right. 12 "Question: 13 Q. And you, in fact, were aware of the 3.3 "Answer: He came pretty 14 existence of that testimony from shortly after the 14 I would say at least four or five times a year. 15 time that the testimony was given, weren't you? 15 "Question: And how long would lie stay 16 A. Well, I was certainly aware of it at the 16 typically? 17 time I made these statements. 17 "Answer: Two to three days. 18 Q. Yes, sir. But you also knew as far back 18 "Question: Did he have massages sometimes 19 as 2009, when this sworn testimony was given, that 19 when he was there? 20 you were specifically identified by name in the 20 "Answer: Yes. A massage was like a treat 21 sworn testimony of Jeffrey Epstein's house staff 21 for everybody. If they wanted, we call the 22 members, right? 22 massage, and they get 23 A. I was identified by name in a manner that 23 have a massage. 24 completely exculpated me, yes. 24 "Question: You said that you set up the 25 Q. Okay. Well, let's www.phippsreporting.com (888) 811-3408 25 (Pages 273 to 276) 277 279 1 oils and towels? 1 is a third-year student at Harvard, were all there 2 "Answer: Yes, ma'am. 2 with me. That was the only time that I stayed over 3 "Question: And did you ever have occasion 3 more than one night. And I never stayed even one 4 to go upstairs and clean up after the massages? 4 night during the relevant timeframe. 5 "Answer: Yeah, uh-huh. 5 But most importantly, he gives no 6 "Question: Did you ever find any 6 timeframe. And clearly his reference to the sex 7 vibrators in that area? 7 toys is a reference to the part of the house that 1 8 "Answer: Yes. I told him yes. 8 was never permitted in and never entered. 9 "Question: Would you describe for me what 9 Q. What is the question that you think you 10 kinds of vibrators you found? 10 were answering? 11 "Answer: I'm not too familiar with the 11 A. Whether 12 names, but they were like big dildos, what they 12 MR. SCOTT: He was explaining to you 13 call the big rubber things like that 13 exactly why he felt that that was 14 (indicating). And I used to go and put my 14 inappropriatc, which is exactly what you asked 15 gloves on and pick them up, put them in the 15 him. 16 sink, rinse it off and put it in Ms. Maxwell 16 MR. SCAROLA: No, it is not. 17 Ms. Maxwell had in her closet, she had like a 17 MR. SCOTT: Well, it is my recollection, 18 laundry basket. And you put laundry in. She 18 so I don't know 19 have full of those toys." 19 MR. SCAROLA: Well, thcn 20 Is that testimony that exonerates you, 20 MR. SCOTT: I think he was defending 21 Mr. Dershowitz? Is that what you were referring to? 21 MR. SCAROLA: Let me try the same question 22 MR. SCOTT: Let me 23 form, improper cross examination by taking 23 MR. SCOTT: I think he was defending 24 excerpts out of depositions of witnesses. 24 his 25 25 THE WITNESS: Right. 278 280 1 BY MR. SCAROLA: 1 BY MR. SCAROLA: 2 Q. Is it your contention that that testimony, 2 Q. The question was: Is that part of the 3 under oath, of your friend, Mr. Epstein's staff 3 time that you claim exonerates you? 4 person, exonerates you? 4 A. Well, I think if you read the whole 5 A. First, a little background. Mr. Alessi 5 testimony, it clearly exonerates me and I think that 6 was fired for theft of material from Mr. Epstein, so 6 part of the testimony in no way inculpates me and no 7 Mr. Alessi was not on a friendly basis with Jeffrey 7 reasonable person reading that could use that as a 8 Epstein. 8 basis for making allegations that I had sexual 9 Second, the description of the dildos and 9 encounters or misconduct with Virginia Roberts. 10 sex toys clearly refers to the area of the house 10 So, when 11 that I was never in, the area of Ms. Maxwell's room, 11 that your unprofessional clients relied on, then 12 rather than the area of the room that I stayed in. 12 clearly that exonerates me. 13 Third, he gives no timeframe for the 13 Again, the absence of evidence is evidence 14 visits. 14 of absence. And the very idea that this is seen as 15 And, fourth, he certainly didn't in any 15 some basis for concluding that I had sexual 16 way confirm that I was there while Virginia Roberts 16 encounters with 17 was there. His answer was simply that l was there 17 he asked did he ever sec ine have a massage by 18 from time to time. He's wrong about that. During 18 Virginia Roberts? Did he ever see me have a sexual 19 the relevant timeframe, I was never in the house. 19 encounter with Virginia Roberts? Did he ever go to 20 And even taking outside the relevant 20 the room I was staying in and find any sex toys? 21 timeframe, the only time I was in the house for more 21 The answers to all those questions, if 22 than one day was when my family, my wife, my son, my 22 truthful, would be no. 23 daughter-in-law, my then probably seven or 23 Q. What was Mr. Alessi's motive against you? 24 eight-year-old granddaughter, who just graduated 24 You've told us he was fired by Jeffrey Epstein, so 25 Harvard, and my probably four-year-old grandson, who 25 he may have had some motive against Mr. Epstein. www.phippsreporting.com (888)811-3408 26 (Pages 277 to 280) 281 283 1 What was his motive against you? 1 A. Yes. 2 A. 1 was Jeffrey Epstein's friend and lawyer 2 Q. A man who would never undertake to advance 3 and, in fact 4 can say this, I gave advice 5 MR. SCOTT: Be careful about anything 5 A. Yes. And a man who told me and a man 6 involving 7 THE WITNESS: Okay. 7 MR. SCOTT: That's it. 8 MR. SCOTT: 9 A. He could easily have believed that I was 9 innocent. 10 one of the causes of his firing. 10 BY MR. SCAROLA: 11 BY MR. SCAROLA: 11 Q. You know that Bob Josefsberg would never 12 Q. So, he was 13 you because you assisted in getting him fired? 13 was lent out by Jeffrey Epstein for purposes of 14 A. It's 15 MR. SCOTT: Objection, 15 unless he absolutely had confidence that those 16 mischaracterization. 16 statements were true 17 A. Its conjecture. It's possible. But in 17 MR. SCOTT: Let me object 18 any event, even 19 BY MR. SCAROLA: 19 Q. right? 20 Q. It's conjecture, is that what you were 20 MR. SCOTT: 21 about to say? 21 irrelevant to the issues in this case. 22 A. I'm saying I have 23 was thinking, but there is a basis for him believing 23 do with this lawsuit. This is all your effort 24 that. But most 25 everything he says as true, which its not, its 25 to give some justification to your position. 282 284 1 exculpatory because it has no suggestion that I ever 1 A. I'll answer that question. 2 had any sexual encounter with Virginia Roberts. 2 BY MR. SCAROLA: 3 And if I were a lawyer reading that 4 MR. SCOTT: Its okay? 4 A. And I also know Bob Josefsberg and know 5 A. 6 accusation on that flimsy read. 6 with me, if he believed that I was one of the, 7 BY MR. SCAROLA: 7 quote, academicians 8 Q. You know the context in which that 8 Q. Well, how about 9 deposition was taken, don't you? 9 A. 10 A. I don't recall it as Pm sitting here 10 Q. 11 today. 11 MR. SCOTT: Wait a minute. No, no, no. 12 Q. Do you remember that the lawsuit in which 12 A. You're going to let me finish. 13 that deposition was taken was a lawsuit in which 13 BY MR. SCAROLA: 14 Virginia Roberts was being represented by Bob 14 Q. I know I'm going to go, but I don't have 15 Josefsberg? 15 to like it 16 A. No. 16 MR. SCOTT: Yeah, but 17 Q. You know Bob Josefsberg, don't you? 17 BY MR. SCAROLA: 18 A. We 19 Q. You know Bob Josefsberg to be an extremely 19 questions that are being asked. 20 ethical, highly professional and extraordinarily 20 MR. SCOTT: Yeah, but you're 21 well-respected lawyer, right? 21 interjecting 22 A. Absolutely, yes. 22 BY MR. SCAROLA: 23 Q. Absolutely? 23 Q. And 24 A. Yeah. 24 MR. SCOTT: You're interjecting questions 25 Q. A man of impeccable honesty and integrity? 25 that are irrelevant utilizing Bob Josefsberg's www.phippsreporting.com (888)811-3408 27 (Pages 281 to 284) 285 287 1 relationship with him and he has an ability to 1 the people who the FBI had put on the 2 justify and explain his position in response 3 MR. SCAROLA: If its responsive to the 3 I can say with confidence that he would 4 question. 4 only act ethically and would, A, not represent 5 A. Its responsive. And as far as the 5 not make any false statements the way your clients 6 filibustering is 7 BY MR. SCAROLA: 7 ethics of Bob Josefsberg. 8 Q. Do you remember what the question is? 8 Q. You then agree that if Bob Josefsberg 9 A. 10 Q. Do you remember what the question was? 10 complaint on behalf of a client, he would not have 11 A. Yes. Yes. 11 done so unless he believed those allegations to be 12 Q. What is the question? 12 true, having conducted a fair and reasonable 13 A. The question is 14 repeat the question. 14 MR. SCOTT: Objection, asked and answered 15 Q. Yes, sir. 15 several times. 16 A. So 17 Q. You know that Bob Josefsberg would not 17 because I don't know the context in which he made 18 advance allegations on behalf of a client that that 18 these arguments. All do know is that he never 19 client had been lent out by Jeffrey Epstein to 19 would maintain a friendship with me if he believed 20 satisfy the sexual desires of friends of Jeffrey 20 in any way that I was one of the people that she had 21 Epstein, including academicians, unless Bob 21 accused. 22 Josefsberg believed those allegations to be true, 22 BY MR. SCAROLA: 23 right? 23 Q. Did Alfredo Rodriguez, another one of your 24 A. I believe that 25 Josefsberg would never maintain a friendship with 25 you? 286 288 1 me, as he has, if he believed that I was one of 1 A. Alberto Rodriguez 2 those academicians. Bob Josefsberg knows that I was 2 Q. No, sir, Alfredo Rodriguez. 3 not one of those academicians, and the inference of 3 A. Alfredo Rodriguez, I never knew him by 4 your question is beneath contempt, sir. 4 name. He was, of course, there out 5 Q. Could we try to answer the question now? 5 of the timeframe of the alleged events in this case. 6 A. The answer is that Bob Josefsberg would 6 And so anything that he would be able to testify to 7 never maintain a friendship with me if he believed 7 would bear no relationship whatsoever to the 8 that there was any possibility that I was among the 8 allegations here. 9 academicians who she was accusing of sexual 9 He was criminally prosecuted, to my 10 misconduct. I do not believe that she ever accused 10 memory, for having stolen material and turned it 11 me of sexual misconduct to Bob Josefsberg, to the 11 over to Bradley Edwards is my recollection. And as 12 FBI, to the U.S. attorney, or even, sir, to you and 12 the result of that clearly had a motive to lie. And 13 Bradley Edwards, as she says in 2000, I think, '11. 13 the same with Mr. Alessi, clearly would have a basis 14 I think she made up this story on the eve of the 14 for believing that I may have played a role as 15 filing in 2014. 15 Jeffrey Epstein's lawyer in seeking to do harm to 16 Q. You do agree that Bob Josefsberg would not 16 him. 17 have advanced the claims that he advanced if he did 17 But again, there's nothing in 18 not have confidence that they were true, correct? 18 Mr. Rodriguez's testimony which is in any way 19 A. 1 have no idea what he believed or knew at 19 inculpatory of me. I think he has me sitting and 20 the time. I would say this: I know Bob Josefsberg 20 and reading a book and drinking a glass of wine. 21 is an extraordinarily ethical lawyer. Idol know 21 Q. In the presence of young women? 22 what his responsibilities were in the case. I don't 22 A. No. 23 know whether his responsibilities were to make those 23 Q. No? 24 kinds of judgments or whether his responsibility was 24 A. I don't 25 simply to make sure that money was paid to each of 25 Q. Do you www.phippsreporting.com (888)811-3408 28 (Pages 285 to 288) 289 291 1 A. 2 Q. 3 A. It wouldn't be true if he said it. 3 MR. SCOTT: Objection. This is totally 4 Q. Yes, sir. Well, do you recall the 4 improper cross examination of a witness by 5 following testimony having been given by Mr. Alfredo 5 trying to use a deposition. The only purpose 6 Rodriguez in a deposition that was taken on 6 of doing this is to interject this into the 7 August 7, 2009? 7 record, which has no relevance and would not be 8 "Question: Mr. Rodriguez, you stated last 8 admissible at trial. And in any case, he never 9 time that there were guests at the house, 9 actually has my client doing any of the things 10 frequent guests from Harvard. Do you remember 10 that you've accused him of. 11 that testimony? 13. Go ahead, let's go ahead and do it. 12 "Answer: Yes, ma'am. 12 Answer the question. Answer the question. 13 "Question: Was there a lawyer from 13 MR. SCAROLA: He did. 14 Harvard named Alan Dershowitz? 14 A. Yes, I remember that. 15 "Answer: Ycs, ma'am. 15 MR. SCAROLA: He said yes. 16 "Question: And are you familiar with the 16 A. Yes, I remember that, yes. 17 fact that he's a famous author and famous 17 BY MR. SCAROLA: 18 lawyer? 18 Q. And do you know why it was that back in 19 "Answer: Yes, ma'am. 19 19 20 "Question: How often during the six 20 and a half years before you allege that this story 21 months or so that you were there was 21 about you was being made up out of whole cloth, that 22 Mr. Dershowitz there? 22 lawyers representing Jeffrey Epstein's victims, 23 "Answer: Two or three times. 23 including Katherine Ezell, E-Z-E-L-L front Bob 24 "Question: And did you have any knowledge 24 Josefsberg's office, who had filed the complaint 25 of why he was visiting there? 25 alleging that you had 290 292 1 "Answer: No, ma'am. 1 Roberts had been lent out for sexual purposes to 2 "Question: You don't know whether or not 2 academicians, were asking specific questions about 3 he was a lawyer acting as a lawyer or whether 3 you? Do you know why it was in 2009 they were doing 4 he was there as a friend? 4 that? 5 "Answer: 1 believe as a friend. 5 A. l have no idea that it happened. And I 6 "Question: Were there also young ladies 6 imagine that they had a list of every academic that 7 in the house at the time he was there? 7 was in the house. Probably included 8 "Answer: Yes, ma'am. 8 MR. SCOTT: I want to object to this whole 9 "Question: And would those have included, 9 procedure because you're taking pieces out of 10 for instance, Sarah Kellen, Nada Marcinkova? 10 the record and not reading other pieces that 11 "Answer: Yes, ma'am. 11 totally absolve my client. For example, 12 "Question: Were there other young ladies 12 there's testimony by him that says 13 there when Mr. Dershowitz was there? 13 MR. SCAROLA: Is this an objection? 14 "Answer: Yes, ma'am. 14 MR. SCOTT: Yes, it's a statement into the 15 "Question: Do you have any idea who those 15 record just like you're putting into the 16 young women were? 16 record. There's 17 "Answer: No, ma'am. 3.7 client and refresh his memory as to some other 18 "Question: Were there any of these 18 testimony by this witness 19 excuse me. Were any of these young women that 19 MR. SCAROLA: There's no question pending 20 you have said came to give massages? 20 as to what you can 21 "Answer: Yes, ma'am." 21 refresh your client's memory. What you are 22 Do you recall that testimony having been 22 doing is coaching him. 23 given 24 A. Yes. 24 MR. SCAROLA: Improperly. 25 Q. and those answers having been given to 25 MR. SCOTT: And you are improperly reading www.phippsreporting.com (888)811-3408 29 (Pages 289 to 292) 293 295 1 excerpts out of a deposition to try to imply 1 Do you remember that testimony having been 2 something when there's other parts that totally 2 given? 3 arc inconsistent with that. And if you're 3 A. I assume that when your clients used the 4 going to do that, then he has the ability under 4 transcript as a basis for their false conclusion 5 our rules to review the entire transcript of 5 that I was guilty, they read the whole transcripts, 6 the deposition and that's what I'm permitting 6 not just the 7 him to do, just like when we're in court. 7 BY MR. SCAROLA: 8 MR. SCAROLA: What I am doing, 8 Q. Every word. 9 Mr. Scott 10 MR. SCOTT: Have you read that now, sir? 10 BY MR. SCAROLA: 11 MR. SCAROLA: 12 that was relied upon by Bradley Edwards and by 12 stipulate they read every word. 13 Paul Cassell in corning to the conclusion that 13 MR. SCOTT: Mr. Scarola, he's speaking. 14 the allegations that had been made by Virginia 14 You don't have a right to do this. 15 Roberts were, in fact, credible allegations. 15 A. And if you read every word, you will see 16 MR. SCOTT: And I'm 17 MR. SCAROLA: Because your own client has 17 whether there were any young women in one part of 18 acknowledged that this is information that was 18 the house when I was in another part of the house. 19 available to both him and to them back in 2009. 19 It's completely consistent with my testimony that I 20 MR. SCOTT: And what I am doing is showing 20 have never seen any underage women. Let's see. 21 him portions of the same deposition that 21 And if you read the whole transcript, 22 totally take a different position from this 22 you'll see, I think: 23 witness from what you have read, so that this 23 "Was Dershowitz ever there when one of the 24 record is a complete record and not a partial 24 woman gave a massage? 25 record with your inference only. And I feel 25 "I don't remember that. 294 296 1 that that's totally appropriate. If we were in 1 "Were you in 2 a courtroom, a judge would permit him to do it. 2 attempting in your response to imply that 3 So you have your position and I have mine. 3 Mr. Dershowitz had a massage by one of these 4 MR. SWEDER: Can we have the witness read 4 young ladies? 5 that? 5 "I don't know, sir. 6 BY MR. SCAROLA: 6 "You have no knowledge? 7 Q. Do you recall the following testimony 7 "No, sir. 8 having been given in that same deposition? 8 "And you certainly weren't implying that 9 "Question: All right. This is follow-up 9 that occurred; you just have no knowledge, 10 to questioning by Ms. Ezell. Ms. Ezell asked 10 correct? 11 you about Mr. Dershowitz being present in 11 "Answer: I don't know." 12 Mr. Epstein's home, and I think you said 13 think you said Mr. Epstein and he and 13 be reading the whole thing in context, unlike what 14 Mr. Dershowitz were friends? 14 you've tried to do to try to create a false 15 "Answer: Yes. 15 impression that this testimony in any way exculpates 16 "Question: She also, I think, asked was 16 me. 17 Mr. Dershowitz ever there when one of the young 17 I have to say if this is what they relied 18 women who gave a massage was present in the 18 on, my confirmation of their unethical and 19 home. 19 unprofessional conduct has been strongly 20 "Answer: I don't remember that. 20 corroborated by that and you're helping my case. 21 "Question: That's where l want to clear 21 BY MR. SCAROLA: 22 up. Is it your testimony that Mr. Dershowitz 22 Q. Would it have been reasonable for Bradley 23 was there when any of the women came to 23 Edwards and Paul Cassell to have relied upon the 24 Mr. Epstein's home to give a massage? 24 detailed reports of Palm Beach police department? 25 "Answer: Yes." 25 A. I don't know. I don't know what the Pahn www.phippsreporting.com (888)811-3408 30 (Pages 293 to 296) 297 299 1 Beach police department says. 1 this. 2 Q. You never read those reports? 2 A. Excuse me one second. 3 A. I don't know which reports you're 3 MR. SCOTT: You know, you think this is 4 referring to. 4 funny and I think this man's 5 Q. All of the reports about Jeffrey Epstein. 5 this man's 6 MR. SCOTT: Asked and answered yesterday 6 MR. SCAROLA: I think its improper for 7 on this whole line. 7 you to be coaching the witness in the middle of 8 A. I probably did not read all the reports on 8 examination. If you think that there's 9 Jeffrey Epstein. I'm sure I've read some of them. 9 something that needs to be brought out, you do 10 I do not recall 10 that in cross examination. You don't feed him 11 MR. SCOTT: Be careful about any work 12 attorney-client privilege. 12 the middle of my examination of this witness. 13 THE WITNESS: Right. 13 MR. SCOTT: No. But it's also true that 14 A. I don't remember my name coming up. I was 14 under our rules, when you read portions of a 15 the lawyer during that period of time. 15 deposition, he has the ability to read other 16 17 18 19 BY MR. SCAROLA: Q. To the extent that Bradley Edwards and Paul Cassell relied upon detailed reports from the Palm Beach police department in order to assess the 16 17 18 19 portions of the deposition which clarify the answers. That's done in every courtroom on every time a witness portions of it that are not accurate based on 20 credibility of Virginia Roberts, would it be 20 other portions and I am having him review them 21 22 23 24 25 reasonable for them to rely upon police reports? A. I would hope that they would rely on all the police reports, including the ones that showed that she was involved in criminal actions, including the ones that would show that she took money as an 21 22 23 24 25 since you did not offer him the deposition to review. MR. SCAROLA: And that's what you do MR. SCOTT: And I think that's totally proper 298 300 1 adult to provide sexual services to people. 1 MR. SCAROLA: 2 I would hope they would look at all the 2 is 3 reports, not just selected portions of those 3 MR. SCOTT: 4 reports. 4 MR. SCAROLA: 5 Q. Would that include the reports of the 5 MR. SCOTT: No. 6 Federal Bureau of Investigation? 6 MR. SCAROLA: There's no question pending 7 A. I would hope so. 7 as to which that's relevant. But let's take a 8 Q. Would that include the information 8 look at what you're showing him. 9 provided by the U.S. Attorney's Office? 9 MR. SCOTT: Surc. Why don't you read it 10 A. I would sure hope so, and I could tell you 10 into the record? 11 that the 12 Q. Would that include 12 MR. SCOTT: Read it into the record so 13 A. Let one just say that the U.S. Attorney's 13 that Mr. Scarola is advised. 14 Office has told me unequivocally that my name never 14 A. "Okay. When Alan Dershowitz was in the. 15 came up in any context of any accusation against me 15 house, I understand you to say that these local 16 during the negotiations. 16 Palm Beach girls would come over to the house 17 Q. Is this part of your work product that 17 while he was there, but you're not sure if he 18 you're waiving right now? 18 had a massage from any of these girls? 19 MR. SWEDER: No, no. 19 "Exactly. 20 A. My conversation with Jeffrey Slotnan is not 20 "And what would he do while these girls 21 work product. 21 were in the house? 22 MR. SCOTT: Here's a 23 BY MR. SCAROLA: 23 wine by the pool, stay inside. 24 Q. What is the work product 24 "Did he ever talk to any of the girls? 25 MR. SCOTT: Excuse me. Please review 25 "I don't know, sir. www.phippsreporting.com (888)811-3408 31 (Pages 297 to 300) 301 303 1 "Certainly he knew they were there? 1 A. Let me answer. "Rely" connotes to me that 2 "I don't know, sir." 2 they would place a heavy emphasis on that to the 3 That's the best you can do? That's really 3 exclusion of other things and that it would be 4 the best you can do? You think a professional 4 enough. And so my answer is, yes, they certainly 5 lawyer would make these allegations based on "I 5 should have read all the reports. They certainly 6 don't know, sir." 6 should have read all the transcripts. But they also 7 MR. SCAROLA: Is there a question pending, 7 should have called me, they should have made other 8 Mr. Scott? 8 inquiry, and they should have made sure that they 9 MR. SCOTT: He's reading 10 what he was reading 11 MR. SCAROLA: Yes, sir. 11 And if you're implying that there are FBI 12 MR. SCOTT: 13 it. 13 inconsistent with the information I have from Former 14 MR. SCAROLA: Yeah, I know, and then he 14 Chief of Assistant Jeffrey Sloman, who was prepared 15 went on to make a speech. So I know I don't 15 to file an affidavit saying that that wasn't the 16 have to do it, but I'm compelled to move to 16 case but was prevented from doing so by the Justice 17 strike the unresponsive speeches. 17 Department. 18 MR. SCOTT: And I consider these to be a 18 MR. SCOTT: It's about noon now. So I 19 response to the interrogation that you did 19 guess were heading 20 taking excerpts improperly and not having the 20 MR. SCAROLA: Not quite yet. 21 entire record in front of him, which he's 21 BY MR. SCAROLA: 22 entitled to do to make that the record is 22 Q. You do agree that the allegations that 23 complete. And I intend to protect him in that 23 Virginia Roberts made against Prince Andrew were 24 way. 24 well-founded allegations, correct? 25 25 A. I have absolutely no idea. I've met 302 304 1 BY MR. SCAROLA: 1 Prince Andrew on a number of occasions in a public 2 Q. So we have agreed that it was reasonable 2 context. He came and spoke in my class at Harvard 3 for Bradley Edwards and Paul Cassell, in assessing 3 law school. The dean then had a dinner in his 4 the credibility of Virginia Roberts, to rely upon 4 lunch in his honor. I was then invited to a dinner 5 police reports, FBI reports, U.S. Attorney's Office 5 at the British Consulate. 6 information, and information from the Palm Beach 6 I've never seen him in the presence of any 7 County State Attorney's Office, correct? 7 underaged women, so I have absolutely no basis for 8 A. No. 8 reaching any conclusion whatsoever about 9 Q. No? 9 Prince Andrew. 10 A. No. It would not be enough for them to do 10 Q. So you don't know one way or another 11 that 12 Q. I didn't ask you whether it was enough. 12 A. Neither do you. Nobody would know except 13 A. You said it was 14 Q. I asked you: Would it reasonable for them 14 not. 15 to rely upon those sources of information in 15 Q. All right. 16 assessing the credibility of Virginia Roberts? 16 A. But I presume 17 A. Not alone, not without looking at 18 Q. That wasn't my question. 18 A. 19 A. 20 MR. SCOTT: Wait a minute. 20 but you've seen photographs of him in the presence 21 BY MR. SCAROLA: 21 of an underaged woman, correct? 22 Q. Well, what he's relying upon 22 A. I have, yes. 23 MR. SCOTT: You're not the judge here. 23 MR. SCAROLA: May we mark this as the next 24 Let him 25 and not cut him off, please. 25 A. And I want to note www.phippsreporting.com (888)811-3408 32 (Pages 301 to 304) 305 307 1 THE REPORTER: Hold on. Hold on. 1 THE WITNESS: Excuse me, I need to a take 2 A. 3 MR. SCOTT: She can't take it down. 3 MR. SCAROLA: That's fine. 4 THE WITNESS: Sorry. 4 THE WITNESS: Probably be two minutes or 5 (Thereupon, marked as Plaintiff 5 less than two minutes. 6 Exhibit 8.) 6 VIDEOGRAPHER: Going off the record. The 7 THE REPORTER: It's okay. Go ahead. 7 time is approximately 12:03 p.m. 8 A. And I want to note the absence of any 8 (Sidebar held off the record.) 9 photograph of me with Virginia Roberts. 9 MR. SCAROLA: While we're waiting, let me 10 BY MR. SCAROLA: 10 mark the ncxt numbered exhibits as well. That 11 Q. That's the photograph that you were 11 will save us some time. 12 referring to? 12 MR. SCOTT: What is this? 13 A. I've seen this photograph in the 13 MR. SCAROLA: Her calendar, his calendar. 14 newspapers. 14 MR. SCOTT: Who's calendar is this, 15 Q. Yes, sir. And the woman on the far right 15 Carolyn's? 16 of that photograph, who is that? 16 MR. SCAROLA: Okay. This is Numbcr 10. 17 A. Ghislaine Maxwell. 17 MR. SCOTT: Carolyn's calendar. 18 Q. The woman that you and your friend Jeffrey 18 (Thereupon, marked as Plaintiff 19 Epstein have traveled with repeatedly, correct? 19 Exhibit 10.) 20 A. No. A woman who I may have traveled with 20 MR. SCAROLA: This is Number 11. 21 on two or three occasions. I can't think of more 21 (Thereupon, marked as Plaintiff 22 times than that that I traveled with her, but its 22 Exhibit 11.) 23 possible. But not 24 occasions. I've 25 Q. Well 306 308 1 A. 2 than a dozen timcs. 2 Q. Mr. Dershowitz, I have handed you a 3 Q. I'm going to hand you 4 A. But just to be clear, what I knew about 4 A. Yes. 5 Ghislainc Maxwell was that she was the daughter of a 5 Q. The first document in that composite is a 6 prominent British publisher 7 Q. I haven't asked you what you knew about 7 MR. SCOTT: Here's Number 9. 8 Ghislaine Maxwell. I asked you 9 A. Well, you askcd 10 Q. 11 the photograph? 11 A. Yes. 12 A. Ycs. Ycs. 12 MR. SCOTT: Take a moment to review the 13 Q. Thank you very much, sir. 13 exhibit, please. 14 I'm going to hand you an airport codes log 14 A. Yes, it looks like 15 that identifies the airports that are identified by 15 first page. It looks like my wife's 16 abbreviations in the case 17 assistance to you in answering the next series of 17 BY MR. SCAROLA: 18 questions that I'm about to ask you. 18 Q. And the second page is another page from 19 A. Right. 19 your wife's calendar; is that correct? 20 Q. And I'm going to hand you this composite 20 A. Looks like it, yes. 21 exhibit, which we will mark as the next numbered 21 Q. And 22 composite. 22 MR. SCOTT: Take the time to review it 23 A. Uh-huh, right. 23 before you answer questions, please. 24 (Thereupon, marked as Plaintiff 24 A. Right. 25 Exhibit 9.) 25 www.phippsreporting.com (888)811-3408 33 (Pages 305 to 308) 309 311 1 BY MR. SCAROLA: 1 December. 2 Q. And can you determine from the calendar 2 Q. One shows the subsequent two months and 3 entries here where your wife is during the period of 3 the 4 time that's covered by these calendar entries? 4 A. Okay. 5 A. 1 would have to look at a particular 5 Q. other one shows 6 entry. If it describes where she is, yes. 6 A. Yes. 7 Q. Okay. Well, tell me where she is. 7 Q. 8 A. What day? 8 correct? 9 MR. SCOTT: Which one? What point? 9 A. Ycs, that does look like it's December of 10 BY MR. SCAROLA: 10 2000, ycs. 11 Q. The period covered by this calendar 11 Q. Okay, sir. So look at the calendar and 12 between December 7 and December 13. 12 tell me where it appears your wife is during this 13 A. What year? 13 period of time. 14 Q. You know what, I can't tell you what year 14 A. The whole period of time? 15 it is from these calendars. So you tell me. 15 MR. SCOTT: Please read the exhibit, all 16 I suggest to you that this is a calendar 16 the pages, thoroughly, so that you have a full 17 from December of 2000, since the next two months at 17 context. 18 the top of the calendar are January 2001 and 18 A. It says, A.D. in Boston. That means I was 19 February 2001. So let's assume that since it is a 19 in 20 page from a calendar that appears to be December of 2 0 It says Charleston, Ncw York. It says 21 2000, that it's December of 2000. 21 book fair. It says book fair. It says A.D. in 22 That would be a reasonable conclusion, 22 Boston. 23 wouldn't it? 23 It then says the Halbreiches arrive. 24 A. I have no idea. 24 They 25 Q. You don't know? 25 310 312 1 A. I don't know. I mean, I don't know 2 said you don't 3 so 4 Q. Well, I'm telling 4 A. No, I don't know. I don't know. 5 A. 6 Q. you that it appears to be December 2000 6 And I can't really tell from here where 7 because the next two months at the top of the 7 Carolyn is. McDonalds 8 calendar are January of 2001 and February of 2001. 8 and what year? 2001. 2000. Yeah, yeah. 9 A. I only see 10 looking at different things. I see November 2000, 10 try to 11 December 2000. I don't see January or anything like 11 Q. I want to know where your wife was during 12 that. Maybe you can show them to me. Oh, it's on 12 this period of time if you can tell from the 13 the first page. 13 calendar entries. 14 Q. First page, yes, sir. 14 A. Well, she may have been in 15 A. So it's in reverse order. 15 something about Charleston. There's something about 16 Yeah, so the pages are in reverse order. 16 New York. There's something about me being in 17 The first page says on top January 2001, 17 Boston. I really can't tell much beyond that. 18 February 2001 and the second page says 18 Q. Okay. So you don't know one way or 19 November 2000, December 2000, yeah. 19 another from these calendar entries where your wife 20 Q. So it appears we're looking at 20 was during this period of time; is that correct? 21 December 2000, correct? 21 A. I can't tell that from this entry, no. 22 A. When were looking at which page? When 22 Q. What we can tell from the entry in the 23 we 24 Q. Both pages. 24 MR. SCOTT: Which page? 25 A. Well, one is January February and one is 25 A. Which page? www.phippsreporting.com (888)811-3408 34 (Pages 309 to 312) 1 BY MR. SCAROLA: 2 Q. Of the first page of this composite is 3 that there is a notation that says Alan Dershowitz 4 11:45 a.m., New York City, right? 5 A. Eleven 6 word that I can't read. 7 Q. How about a.m.? 8 A. Oh, 5:00 a.m., New York City, yes. 9 Q. Okay. Thank you, sir. 10 And the next page, where did where did 11 your wife have opera instructions? 12 A. I have no idea. We go to the opera in 313 13 Boston, we go to the opera in New York, we go to the 14 opera in Florida. We do a lot 15 don't know what "opera instructions" means. 16 Maybe it would be best if you asked my 17 wife about these things. It's her calendar. 18 Q. I 19 A. Sure. 20 Q. 21 as part of the evidence that you contend exonerates 22 you. So, I assumed that you had some knowledge of 23 the meaning of these pages. 24 A. No. 25 Q. But I may be wrong. 1 BY MR. SCAROLA: 2 Q. And you would appear in New York 3 A. Well, no 4 Q. for those Court TV appearances 5 A. I would appear 6 Q. 7 A. I would appear wherever I was. So when I 8 was in New York, I appeared in New York, but they 9 would do it by remote when I was in a different 315 10 city. And I clearly did some remotes for Court TV. 11 Q. In fact, you took an apartment in New York 12 for purposes of convenience to facilitate your 13 New York Court TV appearances, correct? 14 A. Totally false. 15 Q. Did you have an apartment in New York 1.6 during this period of time in December of 2000? 17 A. I had an apartment for 18 apartment in New York for 30 19 But I certainly didn't take an apartment for 20 purposes of Court TV, no. 21 Q. On Tuesday, December n, the entry is 22 1:30, Jeff, correct? 23 A. Right. Yeah. 24 Q. And that's a reference to Jeffrey Epstein, 25 correct? 1 A. We have 2 Q. So you're telling me that you don't know 3 where she was and that's 4 A. We just 5 had 6 MR. SCOTT: We provided hundreds and 7 hundreds of pages. You're picking out one. 8 BY MR. SCAROLA: 9 Q. Let's go 10 we could, please, the third page in this composite. 11 A. The third, okay. Third, okay. 12 Q. And can we agree that this is a calendar 13 from December of 2000? 14 A. Yes. 15 Q. Can we agree it's your calendar from 16 December of 2000? 17 A. That's right, yeah. 18 Q. And can we also agree that during this 314 19 period of time, you were making regular appearances 20 in New York on Court TV? 21 MR. SCOTT: Review the document before you 22 answer the question, please. 23 A. It says 12 30, Court TV, yes. There was a 24 period of time where I had a contract with Court TV 25 and I would appear when they asked me to, yeah. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 316 A. I don't Q. Well, what other Jeff might it be? A. 1 know Q. Tell me which other Jeffs it might have been a reference to A. I have no idea. Q. A. I just have no idea. I would be speculating. Q. During the same period of time on December 12 when there's a calendar entry that reflects 1:30, Jeff, we know from the flight logs that Jeffrey Epstein traveled on December 11 from Palm Beach International Airport to Teterboro Airport, which is the private plane facility that services the New York Metropolitan area. A. I have no idea. You don't know? A. No, I have no idea whether he was on that plane. 1 haven't seen the flight log. Q. Well, I'm calling your attention to the flight log. It's the next page. A. It's the next page here? Q. Yes, sir. A. Okay. 35 (Pages 313 to 316) www.phippsreporting.com (888)811-3408 1 Q. December 11, 2000, PBI to Teterboro, 2 passengers, Jeffrey Epstein 3 A. Wait a second. I have to find it. 4 MR. SCOTT: Well, let him 5 the exhibit. 6 A. What 7 BY MR. SCAROLA: 8 Q. December 11. 9 A. December 11. Yes, 1 see that. 10 Q. Palm Beach International Airport to 317 11. Teterboro? 12 A. Right, yeah. 13 Q. Passengers, Jeffrey Epstein? 14 A. Right. 15 Q. GM, a reference to Ghislaine 16 Ghislaine Maxwell. 17 A. Uh-huh. 18 Q. And ET and Virginia, right? 19 A. That's what it says, yes, sir. 20 Q. And then we see three of the same four 21 passengers leaving the New York area. 22 A. Uh-huh. 23 Q. To fly to another destination three days 24 later on December 14, correct? 25 A. Yes. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 319 that, but that you were in New York at the same time Jeffrey Epstein A. And that Carolyn Q. and Virginia were in Ncw York and you were A. And that Carolyn arranged for a massage. Q. A. And that my wife arranged for a massage. Q. No, 1 didn't say that at all, sir? MR. SCOTT: Well, that's what he's saying that the record reflects. A. The record MR. SCOTT: Don't cut him off. A. wanted me to have massages because she thought it would relax me. ldon't like massages particularly, but when Carolyn arranged massages, almost always we had them together at the same time. We would have the same masseuse, sometimes a man, sometimes a woman, come to the house and give us massages together. The idea that my wife would arrange for me to have a massage with an underage girl for sexual purposes is so bizarre and absurd as to defy any kind of credibility, but go on. 318 1 Q. And let's look at the next page of your 2 wife's diary for December 13, the period of time 3 when the flight log shows Jeffrey Epstein and 4 Virginia in New York 5 A. Uh-huh. 6 Q. 7 that you were in New York. And at the bottom of 8 this calendar, Wednesday, December 13, A.D., 9 massage, right? 10 A. 10:00 a.m. it says? What is it? 11 Q. It says 10, 10-A.D. massage? 12 A. Yeah. 13 Q. Okay. 14 Let's go to the next composite. 15 A. I don't have 16 that. Oh, the next composite. 17 Q. Yes, sir. 18 A. Yeah. 19 Q. Composite Number 10. 20 A. Uh-huh. But 21 clear. So you're saying Carolyn was with me in 22 Ncw York during that period of time. 23 Q. No, I'm not saying that at all, sir. I 24 suggest that when we take a close look at the 25 calendar, it's going to reveal something other than 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. SCAROLA: Q. Yes. Thank you very much, sir. A. Go on. Q. 1 intend MR. SCOTT: Since you're both smiling, there seems to be some humor that I'm missing here. I guess I too. MR. SCAROLA: Well, I'm missing the humor BY MR. SCAROLA: Q. Lees go to Composite Exhibit Number 10. A. Yeah. Q. The first page of that composite exhibit 320 is a photocopy of pages from your personal calendar in January 2001, correct? A. That's right, yes. Q. Another Court TV appearance on January 11, correct? A. January 11. Q. Yes, sir. Thursday, January 11, entry in the left-hand column, Court TV. A. Entry on I see it on January 12. Idon't see it on January l 1, but... 36 (Pages 317 to 320) www.phippsreporting.com (888)811-3408 3 2 1. 323 1 BY MR. SCAROLA: 1 MR. SCOTT: Wait a minute. Let him get to 2 Q. I'm sorry, maybe it is January 12, but 2 it. 3 some time between the Ilth and 12th, either on the 3 A. 2 of the composite. Page 2, and what- 4 11th or on the 12th, it's Court TV, correct? 4 what day are we on? 5 A. No, no, no. You're just totally 6 Q. It's the 12th 6 MR. SCOTT: I'm sorry. Excuse me. Do we 7 A. 8 Q. Okay. Good. Thank you. 8 MR. SCAROLA: I've given you copies of 9 A. Its clearly stated on the 12, yeah. 9 everything 10 Q. Okay. And then on Friday, the 19th, a 10 THE WITNESS: Were these produced in 11 week later, another Court TV appearance, correct? 11 discovery? 12 A. 19th. Yes. 12 MR. SCOTT: I assume. 13 Q. Okay. And on the 26th on Friday, 13 A. Okay. What are we up to? What page? 14 another Court TV appearance, correct? 14 BY MR. SCAROLA: 15 A. That's what it says, yes. These were 15 Q. Page 2 of Composite Exhibit Number 10. 16 all 17 Q. During this period of time 18 MR. SCOTT: Whoa. Let 19 his answer. 19 MR. SCOTT: What year arc we talking about 20 A. These are all scheduled appearances. 1 20 now? 21 assume that I did them. These 22 they requested ine to 23 yes. 23 A. Yeah, dimmer foreign policy Epstein, that 24 BY MR. SCAROLA: 24 was dinner we had at Jeffrey Epstein's house with a 25 Q. Okay. And it looks like you're appearing 25 group of very distinguished foreign policy experts, 1 on a scheduled basis every Friday during this period 1 yes. 322 324 2 of time? 2 BY MR. SCAROLA: 3 A. I don't think that was right. Yeah,1 3 Q. All right, sir. Lees go to the next 4 don't think that was right. I think that they 4 page. I've just focused on this period of time in 5 called me when they wanted me. And it may have been 5 January 2001 and on Friday, January 12 6 several Fridays in a row, but I think it depended on 6 A. So we're going back to Friday, January 12. 7 breaking news at the 8 Q. What is "scheduled appearance" 9 MR. SCOTT: Well, wait a minute. Let him 9 A. No, I don't think so. My wife was living 10 finish his questions sic . 10 in New York with me at the time. 1 don't see any 11 A. It would depend very much on whether there 11 record of her being in Cambridge. 12 was a particular trial because I would be the 12 She was 13 commentator on the trial, along with other lawyers. 13 New York at NYU downtown. I was a visiting scholar. 14 And there were some days when there were trials and 14 Having been appointed by John Sexton of NYU to be a 15 some days when there weren't and I would be 15 visiting scholar, we were there for the year. And 16 available because t was living in New York at the 16 my wife was with me during the year. Our daughter 17 time. 17 was in school in New York. She went to Little Red 18 BY MR. SCAROLA: 18 Schoolhouse in New York. And we had 19 Q. On Tuesday, the 16th, there is an entry 19 in New York for a period of one year. 20 that says Epstein, right? 20 Q. And on Friday, January 12, you had another 21 A. On Tuesday, the l6th? 21 massage, right? 22 Q. Yes, sir. 22 A. I don't see anything on my record that 23 A. Where are we? Which calendar now? 23 Q. Massage, A.D.? 24 Q. Page 2. Page 2 of the composite, Tuesday, 24 A. We must be looking at the different pages. 25 the 16th, Epstein. 25 Q. Friday, January 12, page 4 www.phippsreporting.com (888)811-3408 37 (Pages 321 to 324) 325 327 1 A. Who's 2 Q. of Composite Exhibit 10. 2 Q. Okay. Or from 3:30 to 4:15, that would be 3 MR. SCOTT: Let me see the page you're 3 a playing time for you in Cambridge; is that 4 talking about so he can 5 MR. SCAROLA: I've given you the entire 5 A. You'd be asking me to speculate. I can't 6 calendar. 6 speculate based on my wife's calendar. It says 7 MR. SCOTT: Come on, Jack. 7 utility bill, Reservoir address. That suggests 8 MR. SCAROLA: I've given you the entire 8 Cambridge. Reservoir is our house in Cambridge. 9 composite 10 THE WITNESS: So you're talking about my 10 massage that you got somewhere? 11 wife's 12 MR. SCAROLA: Fourth page 13 of Exhibit 10. You have Exhibit 10, I've given 13 available to your clients at the time they made the 14 a copy of that. 14 false accusations against me or arc they 15 MR. SCOTT: I understand it and he has it 15 after-the-fact constructs designed to simply try to 16 front of him and I'm trying to get him to the 16 find excuses to justify their false allegations? It 17 right page. Thank you. Please take it down. 17 seems to me the latter is probably the case. 18 BY MR. SCAROLA: 18 Q. And you are going to have an opportunity 19 Q. Fourth page, Composite Exhibit 10. 19 through your counsel to ask those questions. 20 A. Yes. 20 A. And we will. 21 Q. Friday, January 12. 21 Q. And my clients are anxious to be able to 22 A. Okay. That's very simple. We were both 22 answer those questions. 23 in Cambridge and I had a massage in Cambridge. How 23 A. Not as anxious as I am to hear their 24 do I know that? Because it had basketball. And 24 answers. 25 that's where I play and watch basketball was in 25 Q. Okay. 326 328 1 Cambridge. So probably I was in Cambridge if it 1 MR. SCOTT: Okay. Let's wrap it up. 2 says B ball 3:30, 4:15 and says Cambridge with Ella, 2 MR. SCAROLA: Not quite. 3 so I'm sure I was in Cambridge. 3 MR. SCOTT: Yeah, it's 12:30. I'm ending 4 Q. All right. So 5 A. But I'm 6 calendar. I can't tell you and nor can you tell me 6 and a half. 7 where I was at that period of time. 7 MR. SCAROLA: We don't need three and a 8 Q. So, the basketball entries are references 8 half hours for lunch. 9 to your watching basketball in Cambridge? 9 MR. SCOTT: No, I didn't say that. I said 10 A. No. They could be playing basketball. I 10 we take an hour break and then we have three 11 played basketball in those days 12 Q. Watching or playing basketball? 12 MR. SCAROLA: If 13 MR. SCOTT: Let him finish his answer, 13 want to do 14 please. 14 MR. SCOTT: That's the fair thing to do 15 A. I either watched basketball or played 15 because that's why we're dividing it equally 16 basketball, yeah. I did not go to basketball games 16 and I suggested that 17 in New York, to my recollection, unless the Celtics 17 MR. SCAROLA: I will state 18 were in New York and maybe we can check 19 MR. SCOTT: You've got about five minutes, 19 excuse me, Exhibits 9, 10, 11 and 12, 20 Counsel. 20 composite exhibits, directly conflict with the 21 BY MR. SCAROLA: 21 witness's assertion 22 Q. The Celtics didn't play from 4:15 to 5:00, 22 MR. SCOT 1: This is all a speech on your 23 did they? 23 part. 24 A. No, but I did. 24 MR. SCAROLA: It is a speech. 25 Q. You did? 25 MR. SCOTT: It is a speech and www.phippsreporting.com (888)811-3408 38 (Pages 325 to 328) 329 331 1 MR. SCAROLA: I'm giving you notice as to CERTIFICATE OF REPORTER 2 what you can do to do your homework. Okay? 3 They directly conflict with the witness's STATE OF FLORIDA 4 assertion that the flight logs exonerate him. COUNTY OF BROWARD 5 In fact 6 MR. SCOTT: Wait a minute. I, KIMBERLY FONTALVO, Registered 7 8 9 10 11 12 13 14 1.5 16 17 MR. SCAROLA: flight logs corroborate Virginia Roberts' assertions. MR. SCOTT: And I thank you very much for that explanation and we look forward to resuming this at the appropriate time and responding to that. THE WITNESS: And that is a false statement. MR. SCOTT: Thank you. Professional Reporter, do hereby certify that 1 was authorized to and did stenographically report the foregoing videotape deposition of ALAN M. DERSHOWITZ; pages through 145; that a review of the transcript was requested; and that the transcript is a true record of my stenographic notes. I FURTHER CERTIFY that I am not a relative, employee, attomey, or counsel of any of the parties, nor am I a relative or employee of any of the parties' attorneys or counsel VIDEOGRAPHER: Going off the record. The connected with the action, nor am I financially 18 time is approximately 12:26 p.m. interested in the action. 19 (The proceedings ADJOURNED at 12:26 p.m.) Dated this 16th day of October, 2015. 20 21 22 KIMBERLY FONTALVO, RPR, FPR, CLR 23 24 25 CERTIFICATE OF OATH October 16, 2015 330 332 COLE, SCOTT KISSANE, P.A. Dadcland Centre II - Suite 1400 STATE OF FLORIDA 9150 South Dadcland Boulevard Miami, Florida 33156 COUNTY OF BROWARD BY: THOMAS EMERSON SCOTT, JR., ESQ. Re: Edwards v. Dcrshowitz Please take notice that on the 16th day of October, 2015, you gave your deposition in the above cause. I, the undersigned authority, certify At that time, you did not waive your signature. that ALAN M. DERSHOWITZ personally appeared The above-addressed attorney has ordered a copy of this transcript and will make arrangements with you before me and was duly sworn on the 16th day of to read their copy. Please execute the Errata October, 2015. Sheet, which can be found at the back of the Signed this 16th day of October. 2015. transcript, and have it returned to us for distribution to all parties. 14.4.i. -44". 4-0- KIMBERLY FONTAL v u, PR, FPR, CLR Notary Public, State of Florida My Commission No. EE 161994 Expires: 2 0 l 16 If you do not read and sign the deposition within a reasonable amount of time, the original, which has already been forwarded to the ordering attorney, may be filed with the Clerk of the Court. If you wish to waive your signature now, please sign your name in the blank at the bottom of this letter and return to the address listed below. Very truly yours, KIMBERLY FONTALVO, RPR, FPR, CLR Phipps Reporting, Inc. 1615 Fon Place, Suite 500 West Palm Beach, Florida 33401 1 do hereby waive my signature. ALAN M. DERSHOWITZ www.phippsreporting.com (888)811-3408 39 (Pages 329 to 332) 333 ERRATA SHEET DO NOT WRITE ON TRANSCRIPT - ENTER CHANGES HERE In Re: EDWARDS V. DERSHOWITZ ALAN M. DERSHOWITZ October 16, 2015 PAGE LINE CHANGE REASON Under penalties of perjury, I declare that I have read the foregoing document and that the facts slated in it are true. Date ALAN M. DERSHOWITZ 40 (Page 333) .phippsreporting.com (888)811-3408 Exhibit 3 1 APPEARANCES CONTINUED 3 2 Also on behalf of the Defendant: 1 2 IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA 3 SW EDER ROSS, LLP BY: KENNETH A. SW EDER, ESQUIRE 4 131 Oliver Street 3 CASE NO. CACE 15-000072 Boston, Massachusetts 02110 4 5 Tel: 617.646.4466 Fax: 617.646.4470 5 BRADLEY J. EDWARDS and PAUL G. CASSELL, 6 E-mail: ksweder sweder-ross.com 6 7 Plaintiffs Counterclaim Defendants, 7 On behalf of the Witness: vs. 8 8 UTAH ATTORNEY GENERAL'S OFFICE, P.A. 9 ALAN M. DERSHOWITZ, 9 BY: JONI J. JONES, ASSISTANT ATTORNEY GENERAL, Litigation Division 10 10 160 East 300 South Defendant Counterclaim Plaintiff. Heber Wells Building - 6th Floor 11 11 Salt Lake City, Utah 84114 12 12 Tel: 801.366.0100 Fax: 801.366.0101 13 E-mail: jonijones utah.gov 14 VIDEOTAPED DEPOSITION OF 13 15 PAUL G. CASSELL 14 Telephonically on behalf of Jeffrey Epstein: 16 TAKEN ON BEHALF OF THE DEFENDANT 15 DARREN K. I N D Y K E, P L L C 17 VOLUME I, PAGES 1 to 151 16 BY: DARREN K. INDYKE, ESQUIRE 575 Lexington Avenue 18 4th Floor 17 New York, New York 10022 19 Tel: 212.971.1314 20 Friday, October 16, 2015 18 21 1:33 p.m. - 4:31 p.m. 19 Also Present: 22 23 24 110 Southeast 6th Street 110 Tower- Suite 1850 Fort Lauderdale, Florida 33301 20 21 DON SAVOY, Videographer BRADLEY J. EDWARDS ALAN M. DERSHOWITZ CAROLYN COHEN 22 25 Theresa Tomasel I i , RMR 23 24 ESQUIRE DEPOSITION SOLUTIONS 25 (954) 331 -4400 ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 2 4 1 APPEARANCES OF COUNSEL 1 INDEX OF EXAMINATION 2 On behalf of the Plaintiffs: 2 WITNESS PAGE 3 SEARCY DENNEY SCAROLA 3 PAUL G. CASSELL 4 5 BARNHART SHIPLEY, P.A. BY: JOHN SCAROLA, ESQUIRE 2 1 3 9 Palm Beach Lakes Boulevard 4 DIRECT EXAMINATION BY MR. SIMPSON 6 West Palm Beach, Florida 33409 5 6 Tel: 561.686.6300 Fax: 561.383.9541 6 7 E-mail: mep searcylaw.com INDEX TO EXHIBITS 7 8 0 n behalf of Virginia Roberts: 8 EXHIBIT DESCRIPTION PAGE 9 10 11 12 BOIES, SCH ILLER FLEXN ER, LLP BY: SIGRID STONE McCAW LEY, ESQUIRE 401 East Las 0 las Boulevard Suite 1200 Fort Lauderdale, Florida 33301 Tel: 954.356.0011 9 10 11 Cassell I.D. Exhibit No. 1 - Plaintiff's 21 Response to Motion for Limited Intervention by Alan M. Dershowitz Fax: 954.356.0022 Cassell I.D. Exhibit No. 2 - Jane Doe 22 13 E-mail: sm ccawley bsfIlp.com 12 Number 3 and Jane Doe Number 4's Motion Pursuant to Rule 21 for Joinder in Action 14 13 On behalf of the Defendant: Cassell I.D. Exhibit No. 3 - one-page 106 15 14 document produced by the witness WILEY REIN LLP 16 BY: RICHARD A. SIMPSON, ESQUIRE AND: NICOLE A. RICHARDSON, ESQUIRE 15 17 1776 K Street Northwest Washington, DC 20006 16 18 Tel: 202.719.7000 Fax: 202.719.7049 17 19 E-m ail: rsim pson w ileyrein.com 18 20 Also on behalf of the Defendant: 19 21 22 23 24 25 COLE, SCOTT KISSANE, P.A. BY: THOMAS EMERSON SCOTT, JR., ESQUIRE 9150 South Dadeland Boulevard Dadeland Centre II - Suite 1400 Miami, Florida 33156 Tel: 305.350.5329 Fax: 305.373.2294 E-mail: thomas.scott csklegal.com 20 21 22 23 24 25 (Original Exhibits have been attached to the original transcript.) ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954)331-4400 (954)331-4400 1 of 38 sheets Page 1 to 4 of 151 10 20 2015 01:07:28 PM 61 63 0110:55 1 Q. I would like to know why you alleged "and 01:12:55 1 was your basis for this? 01:10:57 2 other minors" given what you have said about your 01:12:56 2 A. All right. So the initial basis for it 01:11:01 3 knowledge of the factual basis, so to speak, for that 01:1100 3 was 01,11:06 4 allegation. 01:1100 4 MR. SCAROLA: First of all, let me object 0111:06 5 A. Okay. There are going to be 01:11:08 6 end up giving you nine reasons, each of which is 01:13:04 6 expert witness and hypotheticals are 01:11:11 7 complicated, so I just want to 01:11:13 8 want to be accused of 01:11:15 9 I just want you to know that you have asked a broad 01:13:10 9 answer, but it is an improper question. 01:11:18 10 question that's going to require a broad and extended 01:1314 10 MR. SIMPSON: I disagree, but you can answer 01:11:20 11 answer. It 01:11:21 12 Q. Answer the question. 01:13:14 12 THE WITNESS: Right. So the 011122 13 A. Okay. Then I'm going to refer to a 01:11:27 14 a 01:11:28 15 Q. Let me ask you this: Before you refer to 01:13:21 15 BY MR. SIMPSON: 01:11:30 16 something 01:11:30 17 A. Yeah. 01:13:2617 A. Right. So that 01:11:30 18 Q. 01:1134 19 what the basis was, the factual basis that you had in 01:13:30 19 at this point because that would have involved going 01:11:37 20 mind. If the court said to you 01:11:40 21 way. If you went to court and Judge Marra said, 01:1136 21 of things we were going to present to Judge Marra in 01.11:43 22 Professor Cassell, what's your factual basis for this 01:13:30 22 light of the posture of the case at that point. 01:11:46 23 allegation? Tell me. What would you say? 0113,42 23 So it's a speculative question. I would 01:11:48 24 A. Right. 01:1145 24 have 01:11:49 25 MS. McCAWLEY: Wait. Outside the context of 01:1348 25 attorney client privileged communications, I would have ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 62 64 01:11:50 1 anything that's been communicated to you. 01:13:51 1 provided an ample factual basis for those allegations. 01:11:53 2 MR. SCAROLA: Excuse me. You have asked two 01:13:55 2 MR. SIMPSON: I move to strike as 01:11:55 3 different questions now, and I need to understand 01:1156 3 nonresponsive. 01:11:56 4 which question you are asking. 01:13,56 4 BY MR. SIMPSON: 01:1158 5 The question that you posed before just now 01:13:58 5 Q. Let me ask it this way: We have talked 01:12:02 6 was: What was the reason for your including 01:14'00 6 about 01:12:06 7 those allegations in this pleading? 01:14.02 7 about other minors. Putting aside information as to 01.12:08 8 Now you have asked: What is the factual 01:14:09 8 which you're claiming privilege, tell me what you knew 01:12:10 9 basis? And that's going back to questions that 01:14:13 9 as of December 30th, 2014, that formed the factual basis 01:12:14 10 we have already covered, and we have, I think, 01:14:20 10 for your 01'12:17 11 exhausted the ability to respond to that question 01:14:23 11 MR. SCAROLA: And I'll instruct you not to 01:12:20 12 outside of privileged information. 01:14:25 12 answer that question for the same reason, that 01:1213 13 Do you want to go back to the question about: 01:14:27 13 when the same question was asked earlier, I 01:12:26 14 What was your reason for including those 01:14:29 14 instructed you not to answer. 01:12:28 15 allegations? 01:1411 15 MR. SIMPSON: I'm 01:12:29 16 MR. SIMPSON: I'll ask the question a 01:14:33 16 being clear, Jack. I'm asking him to put 01:1210 17 different way. 01:14:35 17 aside 01:12:31 18 MR. SCAROLA: Thank you. 01:14:37 18 pleading. You've asserted privilege as to 01:12:31 19 BY MR. SIMPSON: 01:14:40 19 certain aspects. I'm simply asking him, putting 011213 20 Q. Mr. Cassell, I'm going to ask you: If you're 01:14:43 20 aside whatever you're claiming privilege for, 0t12:37 21 in court and Judge Marra said to you, counsel, what is 01:14:45 21 right, so I'm not 0112:42 22 the factual basis for your allegation that Professor 01:14:47 22 to tell me anything you're claiming as 01:1247 23 Dershowitz abused other minors, what would you say? And 01:14,49 23 privileged. 0112:51 24 if you wouldn't say something because it was privileged, 01:14:49 24 BY MR. SIMPSON: 01:12'52 25 then don't include it. What would you tell the judge 01:14:50 25 Q. Tell me whatever is not privileged that ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:07:28 PM Page 61 to 64 of 151 16 of 38 sheets 65 67 0114:53 1 supports that allegation. 01:16:52 1 began, you know, I guess what we would call 01:14:55 2 A. Okay. The privileged information, obviously, 01:16:54 2 knock-and-talks, knocking on doors to try to get to some 01:14:58 3 you're asking me not to reveal at this point. 01:16:57 3 of these girls, and they would get to the girls, and 01:14:59 4 Q. I'm asking you 01:75930 5 the nonprivileged information. And I'm not agreeing 0117:02 5 what had happened. 01:15:04 6 with your privilege assertion 01:15:04 7 A. Sure. 01:17:06 7 them, the girls began to explain that what was happening 01:15:07 8 Q. 01:15:07 9 A. For purposes of this question. 01:17:13 9 guise of giving a massage, and when they got there, the 01:1507 10 Q. 01:15:07 11 A. All right. 0117:19 11 And for many of the girls, I think, as I say 0115:08 12 Q. Putting aside what you claim is privileged, I 01:17:22 12 around 23, 24, something along those lines, they were 0115:10 13 want to know everything that's the factual basis for 01:1725 13 underage. They were under the age of consent in 01:15:12 14 including the allegation about other minors. 0117:28 14 Florida. 01:15:14 15 A. Okay. Privileged information which I'm not 01.17:28 15 And so each and every one of those events was 0115'17 16 disclosing in any way would have interacted with a vast 01:17:30 16 a crime being perpetrated 011620 17 body of other information. 01:17:35 17 just being perpetrated by Epstein, but by other people 01:15:22 18 The vast body of other information would have 01:17.36 18 who were involved there at the mansion. 01:15:24 19 started with an 89-page police report from the Palm 01:17:38 19 And so what the 0115:29 20 Beach Police Department that showed for about a 0117.40 20 Department was putting together was that this mansion in 01:15:30 21 six-month period in 2005, there was sexual abuse of 01:17:43 21 Florida was the nest of sexual abuse of young girls here 01:15:35 22 minor girls going on on a daily basis, in 01:15:40 23 Jeffrey Epstein was in his Palm Beach mansion. 01:17:53 23 period of time, more than a hundred events that they 01:15:44 24 And on some cases, it was going on not once, 01:17:57 24 were able to document of sexual abuse. 01:15:48 25 not twice, but three times during the day. That ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 66 68 01:15:51 1 me just be clear. I mean, I 01:15:53 2 89-page police report. I have offered to put it into 011803 2 were hundreds of acts of sexual abuse going on in the 01:15:55 3 the record if 01-15:58 4 just talk about some of the things that are in that 01:18:07 4 But then what becomes 01:15:59 5 89-page police report. 0118:10 5 indicated that, you know, the answer would continue on. 0116:02 6 This was a 51:18:05 7 that the Palm Beach Police Department put together. 01:1814 7 show that this was a much broader series of events. For 011607 8 They did, for example, what are called trash covers; 011818 8 example, there were flight logs showing that Mr. Epstein 01:16:09 9 that is when trash came out of the 01:16:13 10 Epstein, the police would intercept the trash and then 0118:27 10 logs, you know, as 01:16.16 11 they would go through the trash and look for 01-18'29 11 develop, for example, we have seen, I know in the last 01:16:17 12 incriminating information. 0118:32 12 day or two here, one underage girl was Virginia Roberts 0116'19 13 And what they began to discover was memo 0118:35 13 who is on the flight, you know, with Epstein, and with 01,1022 14 pads 01:1026 15 pad after pad, or I guess I should say, sheet after 01:18:41 15 So you start to look at the flight logs and 01:16:28 16 sheet after sheet that had the name of a girl, and then 01:1643 16 you see what's going on is not just events that are 0016:33 17 there was a notation of something to the effect of a 01:18,46 17 occurring in Florida, but it's occurring on a 01:16:35 18 massage. 01:18:50 18 multi-state basis, which now starts to make it a federal 01:16:36 19 And so the Palm Beach Police Department began 01:18:53 19 crime. For example, we are seeing evidence that 01:16:39 20 tracking down, well, wait a minute, these 01:16'41 21 girls giving massages and they don't seem to have any 01:1858 21 central to this case. 01:16:44 22 specialized training in massages; they don't seem to be 01,18:59 22 We are seeing Virginia Roberts being flown 01,16.47 23 masseuses in any sense of the term; what's going on 01:19:02 23 from Florida to New York where she's in the clutches of 01:1047 24 here? 01:19.07 24 Jeffrey Epstein who is sexually abusing her, you know, 01:16:50 25 And so the Palm Beach Police Department 011912 25 many times a week. And not just Jeffrey Epstein, but ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 17 of 38 sheets Page 65 to 68 of 151 10 20 2015 01:07:28 PM 69 71 01:19:15 1 other powerful persons. For example, Ghislaine Maxwell 01:21:37 1 particular girl had been sexually abused. 01:19:18 2 is there with him on all of these flights and apparently 01:21:40 2 What the Palm Beach Police Department had 01,19:21 3 being involved in the abuse. 01:21:42 3 discovered was brazen, notorious, repetitive activity 01:1924 4 Indeed 01:1927 5 have that. You also start to see on the flight logs, 01,21:48 5 particular day. And so that led me to believe that the 01:19:30 6 what to my mind are some very sinister things, 01:21:51 6 sexual activity that was going on in Florida was such 01:19:34 7 suggesting that the pattern is not just confined to sort 01:21:54 7 that someone who was a regular house guest there would 01:19:36 8 of, you know, the girls that are there in Florida, but 01:21:57 8 have immediately come to the conclusion that, well, 01:19:39 9 it 01,19A1 10 Like one of the 01:1544 11 scary things on the flight logs is, we see, you know, 01:2206 11 to be here to be doing, you know, business activities; 01:19:48 12 Virginia Roberts, who we know has been sexually abused, 0122:0812 they 01:19:51 13 and we see Jeffrey Epstein, and then we see on the 01:22:11 13 activities. So those would be the kinds of things that 01:19:54 14 flight logs one female. 0122:13 14 would 01:19:55 15 That's kind of an odd notation for a flight 01:22:17 15 There are other things as well, but I'm sure 01:19:59 16 log because, you know, typically, I understand the 0122:18 16 you want to ask other questions in addition to that. So 01:20:02 17 flight logs, the purpose is, well, if something happens 01:22:22 17 I'll stop there, but those 0120:04 18 with the flight, or there's some question about who was 01:22:24 18 you a small flavor of the kind of evidence that, you 01:20:05 19 on it, you want to know who 01:20:07 20 was on the flight. 01:22:32 20 being presented here. 01:20:08 21 So, to my mind, when I started to see on 01:2232 21 Q. It sounds like you quite passionately believe 01,20:10 22 these flight logs entries like one female, I viewed that 012235 22 that there was strong evidence that Mr. Epstein had 01:20:15 23 as a potential device for obscuring the fact that there 01:22:39 23 engaged in sexual misconduct; is that right? 01:20:17 24 was interstate trafficking of underage girls for 01:22:41 24 A. I think "strong" understates it. 01:20:19 25 purposes of sexual activity. Serious federal offenses. 01:2244 25 Q. In the course of that long answer, you didn't ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 70 72 01:20:22 1 But then that evidence extended, you know, 01:22:48 1 mention Professor Dershowitz's name once. 01:2026 2 more broadly than that. The evidence also started to 01:22:51 2 A. I said flight logs. And let's talk about 01:20:28 3 show, again, if we talk just about flight logs, that 01:22:53 3 flight logs. 01,20,31 4 the 01:20:34 5 being flown internationally from, for example, Teterboro 01:22:57 5 name 01:20:39 6 in New York to 01:20:42 7 know, for example, in London, where again sexual abuse 01:23:00 7 A. That's correct. We were talking about a 0120:45 8 was occurring. 01:23:02 8 factual basis, and I'll be glad 0120:47 9 And so you started to put together this 01:23:05 9 were other things if you want, factual basis for 01:20:50 10 pattern of criminality that was started in this 01:20,54 11 know, I don't know what the right word is here. I don't 01:23:10 11 let's 012056 12 want to 01:20:58 13 discussions of hyperbole and things like that, but we 01:23:12 13 Q. Do you want to look at a document? 01:21:01 14 have got this nest of 0121:04 15 but we have this nest of criminals in Florida, but it 01:21,07 16 it seems to be spreading to Epstein's mansion in New 0123:16 16 recollection without documents of all the evidence that 01:21:10 17 York; it seems to be spreading to Ghislaine Maxwell's 01:23:21 17 you would refer to to support the allegation that 01:21:14 18 flat in London, and 01:21:17 19 So those are the kinds of things that would 0123:26 19 A. No. 01:21:19 20 have formed the 01:2125 21 you 0121:28 22 Palm 01:21:31 23 Police Department. What the Palm Beach Police 0123:35 23 response to the question that has been asked, as 01:21:33 24 Department has 01:21:35 25 of event, you know, on one particular day, one 01:23:40 25 is going to be available to the other side, and ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:07:28 PM Page 69 to 72 of 151 18 of sheets 73 75 01:23:43 1 we would be happy to make it available to you. 0125,38 1 Mr. Epstein saying that she had been trafficked, 01:23:45 2 MR. SIMPSON: And 01:23:47 3 opportunity to look at that 01:23:47 4 THE WITNESS: Sure 01:23:47 5 BY MR. SIMPSON: 012649 5 And in the categories of people that were 01:23.48 6 Q. 01:23:50 7 recollection. 01:25:58 7 Mr. Dershowitz fell within that category of 01:23:51 8 A. Okay. 0126:00 8 an academician. The 0123:51 9 Q. Based on your recollection 0123:51 10 A. Right. 01:26.08 10 Virginia Roberts had been sexually abused in these 0123:52 11 Q. 0123:52 12 A. Right. 01:2616 12 that there might be what the law refers to as a common 01:23:54 13 Q. 01:23:55 14 A. So what 01:2367 15 to make a list here on my 01:23:59 16 things, and then I'm going to compare that with notes I 01:26:28 16 And so I have mentioned a flight log, and let 0124:01 17 have here. There may be a couple things that I don't 01:26:31 17 you 01:24:03 18 cover. 01:26:35 18 on December 30th, 2009, I was aware that there was a 01:24:03 19 Q. As long as your counsel is okay with that. 01:26:39 19 flight log showing Mr. Dershowitz flying with Tatiana, 0124-0420 A. Yeah. 01:26:44 20 who as far as I can tell was not a business person, was 01:24:05 21 Q. You understand you'll have to give that to 01:26:49 21 not providing financial advice or something else. 01:24:07 22 me? 01:26:51 22 I understood that Mr. Epstein was a 01:24:07 23 A. Yeah. I'll give you the notes 01:24:07 24 Q. All right. 0126:57 24 issues. I knew that Tatiana was on a plane with 01:24:09 25 A. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 74 76 0124:11 1 there. So I mentioned the Palm Beach Police Department 0127:01 1 correctly, working from memory as 01:24:14 2 report. 01:27:04 2 wondering about, there was a notation that 01:24:15 3 The next thing that I want to mention is the 01:27:06 3 Mr. Dershowitz was on a plane with one female. 012419 4 Jane Doe 102 complaint. In August of 2009, Bob 0127:08 4 And so I was 01:24:27 5 Josefsberg 01:24:32 6 well-regarded lawyer here in Florida; in fact, a lawyer 01:2715 6 who doesn't seem to be there for, frankly anything other 01:24:33 7 that was selected by the United States Government to 01:27:18 7 than sexual purposes or something along those lines with 01:24:36 8 represent a number of the 01:24,40 9 sexually abused by Jeffrey Epstein. He was 01'24.43 10 part of the procedure that was including the 0127:30 10 entry for disguising international sex trafficking. So 01:24:45 11 nonprosecution agreement. 01:27:33 11 that was of concern. 01:24:46 12 In August of 2009, he filed a complaint on 01:27:34 12 I then began to look at, well, I wonder, how 01:24:48 13 behalf of Virginia Roberts. That complaint indicated 0127:36 13 would I find out if Mr. Dershowitz had been abusing 01:24:54 14 that Virginia Roberts had been sexually abused in 01:2739 14 other girls? Let's see. I knew that Virginia Roberts 01,24:58 15 Florida, in New York, and in 01:25:02 16 recall. The thing that 01,25:06 17 was that Mr. Josefsberg had said, Virginia Roberts was 01:27:56 17 MS. McCAWLEY: You're okay as long as 01:2 .12 18 abused by 01:2515 19 He mentioned, I think, business people. He 01:2759 19 an affidavit 01:25:17 20 mentioned royalty, and he mentioned academicians. And 012759 20 THE WITNESS: That's right. 01:25:23 21 so to tie into your question, I knew that Professor 0127:59 21 MS. McCAWLEY: 01:2525 22 Dershowitz was an academician. And so what I was seeing 0127.59 22 fine. 0125:29 23 now was, that according to a very, very respected 01:28:00 23 THE WITNESS: Right. So 01:2632 24 attorney here in Florida, he had found Virginia Roberts 0128'05 24 Let's see. What did I want, at this point 01:25:34 25 to be credible, and had filed a lawsuit against 01:2605 25 ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 19 of 38 sheets Page 73 to 76 of 151 10 20 2015 01:07:28 PM 77 79 0128:05 1 BY MR. SIMPSON: 01:29:47 1 MS. McCAWLEY: Yeah. 01:28:09 2 Q. Do you want the question back? 01:29:49 2 MR. SCAROLA: 01:28:10 3 A. No. I'm just trying to remember what I was 01:29:50 3 down and distracting everybody in the room? 01:28:12 4 thinking about with 0128:15 5 MR. SCAROLA: Do you need the response read 01'2054 5 used earlier. I mean, we just have to settle 01:28:17 6 back up to the point 0128:18 7 THE WITNESS: Yeah, if you would do that, 0129:58 7 let him answer his questions. 01:2820 8 yeah. I just 01:28:20 9 MR. SCAROLA: 01:28:20 10 THE WITNESS: Yeah. Let's just see what that 01:30:00 10 MR. SCAROLA: No, sir. 01:2820 11 one 01:2821 12 MR. SCAROLA: Just read the last couple of 01;30:00 12 side of the table. 01:28:22 13 sentences back, or the last two sentences. 01:3060 13 MR. SCAROLA: No, no, no. There was never 01:28:31 14 THE WITNESS: Oh, I'm sorry. Now I remember 01:3003 14 anyone who jumped to their feet at any time 0128:32 15 exactly what I was thinking. 01:3066 15 during the course of the last two days. The only 01:28:32 16 How would we go find out whether Mr. Epstein 01:30:08 16 person who keeps jumping up is Alan Dershowitz. 01:28:35 17 was lending women, or in this case, underage 01:30:13 17 Have him pass you a note quietly, if you would, 01:28:39 18 girls, to Mr. Dershowitz for sexual purposes? 01'3016 18 please. 01:2841 19 Well, the first thing I want to do was ask 01:2845 20 know, I'd 01728:47 21 And so what I discovered when I started to 01:3020 21 argumentation - 01:2848 22 look at the transcripts, there were a number of 01:30:21 22 MR. SCAROLA: Excuse me. Are you 01:28:52 23 transcripts where Mr. Epstein was asked about 01:30:22 23 making the representation 01:28:55 24 Alan Dershowitz. And rather than say, well, no, 01:30:22 24 MR. SIMPSON: No, I'm not. 01:28,57 25 he wasn't involved in any of these illegal 01:3023 25 MR. SCAROLA: ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 78 80 012000 1 activities, Jeffrey Epstein took the Fifth as the 01:30:24 1 of the room jumped up? 01:29:03 2 phrase, you know, to be more precise. He 01:3025 2 MR. SIMPSON: No, no, no, I'm not. 01:29:05 3 exercised his right against compelled 01:3026 3 MR. SCAROLA: Okay. Thank you. 01:2966 4 self-incrimination and refused to answer the 01:3026 4 MR. SIMPSON: I'm not. 01:2909 5 question, which since these were civil cases, 01:30:27 5 MR. SCAROLA: And I appreciate that. 01:29:11 6 indicated to me, since he was being represented 01:30:27 6 MR. SIMPSON: And I 01:29:14 7 by very experienced legal counsel, that there was 01:3029 7 MR. SCAROLA: And you do acknowledge that 01:2016 8 more than an insignificant risk of incriminating 01:30:30 8 Mr. Dershowitz has repeatedly been jumping up in 01:2919 9 himself if he answered that. 01:30:33 9 the middle of testimony, correct? 01:2920 10 And so Jeffrey Epstein now had taken the 01:30:36 10 MR. SIMPSON: That's 01:29:23 11 Fifth. And one of the things that I was aware of 01:30:37 11 came over to me. That's the only time I'm aware 0129:26 12 having been involved in, you know, civil 01:30:39 12 of, because I'm 01:29:28 13 litigation and criminal litigation in other 01:3041 13 but he did just do that, and I will pass notes. 01:29:30 14 cases, was that once somebody refuses to answer a 01:30:44 14 We won't get up. 01:2032 15 question like, you know: Do you know 01:30,45 15 MR. SCAROLA: Okay. Well, I will tell you 01:29:35 16 Mr. Dershowitz? And they take the Fifth on that, 01:30:45 16 MR. SIMPSON: I'm not going to take time from 01:29:38 17 that you're then entitled to draw what's called 01:3047 17 this. 0129:40 18 an adverse inference. You can 012042 19 that, well, if they answered that question, they 01:3049 19 record, as an officer of the court, represent 01:29:44 20 would have 01:29,44 21 MR. SCAROLA: Excuse me. 01:30:54 21 course of Professor Cassell's deposition when 0129:44 22 MS. McCAWLEY: Yeah, I want to make an 01,30:58 22 Alan Dershowitz has jumped up in the middle of 01:29:44 23 objection here 01:29,44 24 MR. SCAROLA: Pardon me. Could you please 01:31:07 24 ear. 012047 25 try to control your client ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:07:28 PM Page 77 to 80 of 151 20 of 38 sheets 81 83 01:31:08 1 focusing on the witness, but everybody on this 01:33:11 1 review, in which he took the Fifth when asked questions 01:31:10 2 side of the room has been distracted by his 01:33:13 2 about Dershowitz. 01:31:13 3 unprofessional conduct. 01:3114 3 So, at that point, in trying to figure out, 0111:16 4 MR. SIMPSON: I'm not going to argue with 01:33,17 4 you know, whether Mr. Dershowitz was involved in 01:31:18 5 you. And I 01:3318 6 MR. SCAROLA: Thank you. 01:33:24 6 other girls, then you go down to the next level, next 01:31:18 7 MR. SIMPSON: 01:31:20 8 characterization. There is another attorney 01:33:28 8 Epstein is at the top, so you go to the next 01:31:22 9 sitting between us. We will pass notes. 01:3131 9 layer. These are, you know, basically the 0111,24 10 MR. SCAROLA: Thank you. 011313 10 who, from what I could gather, were 01:31:25 11 MR. SIMPSON: And we 01,31:29 12 Ms. McCawley, were you instructing not to answer 01,3140 12 these were 22 and 23-year-old girls, so they had, you 01:31:30 13 or what was happening? What did you 01:3134 14 you raising? 01:33:47 14 victims, but they continued to 01:31:34 15 MS. McCAWLEY: No. There was a lot of 01:33:50 15 collect girls for him under the age of 18, that I guess 01:31:35 16 yelling going on here, so I was trying to make 01:33:5316 was in his target range. 01:31:37 17 sure that everybody was quiet 18 MR. SIMPSON: All right. 01:3358 18 talk to, you know, and get information from was Sarah 19 MS. McCAWLEY: 20 answer. 01:3404 20 with, you know, these girls that 21 MR. SIMPSON: All right. Let me back up. 01:34:07 21 Epstein and others, and so I wanted to talk to Sarah 22 BY MR. SIMPSON: 0114:07 22 Kellen. 01:3141 23 Q. Professor Cassell, I think you were in the 011411 23 But what I discovered there was that, when 01:31:41 24 middle of an answer? 01:3415 24 Sarah Kellen was asked about Alan Dershowitz, she took 01:31:42 25 A. i was. Yes, if I could conclude ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 82 84 01:31:43 1 MR. SIMPSON: All right. Could the court 01:34:21 1 There was Miss Mucinska, who also took the Fifth when 01:31:44 2 reporter read me the last two lines of your 01:34:25 2 asked questions about Alan Dershowitz. 01:31:46 3 answer? 01:34:27 3 And then there was Marcin 01:3146 4 THE WITNESS: Okay. 01:34:30 4 who also took the Fifth. So what we 01,31:46 5 (Thereupon, a portion of the record was read 011433 5 this point was Jeffrey Epstein's international sex 01:31:46 6 by the reporter.) 01:34:35 6 trafficking organization. I had the next echelon, and 01:31:46 7 BY MR. SIMPSON: 0134:38 7 both the top kingpin of the sex trafficking 01:32:26 8 Q. Okay. Can you pick up then? 01,34:42 8 organization, and the next echelon had taken the Fifth, 01.32:27 9 A. Sure. I'll pick up 01:32:27 10 Q. Okay. 011449 10 And so, at 01:32:31 11 A. So I was beginning to draw an adverse 01:3451 11 adverse inference, not just from one person, but from 01:32,31 12 inference when 3effrey Epstein, who is at the heart of 01:34:54 12 four persons, and that adverse inference was being 01:32:34 13 the sexual abuse of, not only Virginia Roberts, but 01:34157 13 strengthened by the surrounding circumstances, some of 01:32:39 14 dozens and dozens and dozens of 01:32,40 15 scattered across the globe, takes the Fifth, refuses to 01:35:00 15 One of the things that 01:32:43 16 answer the question, off the top of my head, I can't 01:35:02 16 bolstered the adverse inference that I was drawing in 01:32:46 17 recall exactly, but something along lines of: Do you 0135.55 17 this case was that I've mentioned those three girls, 011148 18 know Alan Dershowitz? And he says, I take the Fifth. 01:35:09 18 Kellen, Mucinska, and Marcinkova. They were all covered 01:3260 19 That sort of, frankly, startled me, that 01,32:55 20 international sex trafficker was taking the Fifth now 01:35:15 20 agreement was highly unusual. 01:32:57 21 when asked about Mr. Dershowitz. 01:35:17 21 1 01:3101 22 And so I was stymied in trying to get 01:35:18 22 about four years, I had been a federal judge for about 01,33:04 23 information from Mr. Epstein at that point. I think 01,35:21 23 five-and-a-half years, so I had seen a lot of 011107 24 there were two depositions, if I recall correctly off 0115:23 24 know, nonprosecution types of arrangements. And one of 01:33:09 25 the top of my head, that ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 21 of 38 sheets Page 81 to 84 of 151 10 20 2015 01:07:28 PM 85 87 01:35:29 1 what I'll refer to as the blank-check immunity 01:37:40 1 that are said there, but Alessi puts Mr. Dershowitz at 01:35:33 2 provision. 01,37:46 2 the nest of this international sex trafficking 01:35:34 3 There was a provision in the nonprosecution 01:37:47 3 organization. Let's see. I think he said four or five 01:3636 4 agreement that said, this agreement will prevent federal 01:37:51 4 times a year, two or three 01:35:40 5 prosecution for international and interstate sex 01:37:55 5 days when he goes there. 01:35:43 6 trafficking, not only of Jeffrey Epstein, and not only 01:3766 6 And let's be clear, I know Mr. Dershowitz had 01:35:46 7 of the four women who were identified, but 01:35:49 8 is a direct quote: Any other potential co-conspirator, 01:38:00 8 client and so forth. And Alessi said, no, but this was 01:35:53 9 close quote. 01:38:03 9 not in a 01:35:55 10 And so that was unusual because what it 01:35:57 11 what it seemed to be doing was that somehow this 01:38:10 11 And so now we have Alessi putting him there 01:3568 12 agreement was quite out of the normal and had been 01,38:1212 at the same time when young girls were there. And one 01:36:00 13 designed to extend immunity to other people that might 01:38:15 13 of the 01:36:04 14 have been associated with Epstein. 01:38:17 14 Alessi 01:36:05 15 And I knew that that category included the 01:38:19 15 girls are? 01:36:09 16 people that were involved in negotiating this highly 01:38:20 16 A photograph of Virginia Roberts is shown to 01:36:11 17 unusual provision included Mr. Dershowitz, who had been 012822 17 Juan Alessi in the deposition, and he I.D.s the 01:36:14 18 heavily involved, not only in the drafting of the 01,38:26 18 photograph as, you know, V.R., so he 01:36:18 19 agreement, but had also been involved remarkably in 01:38:30 19 know, put two and two together. 01:3622 20 attacking the credibility of these girls and saying 0128:30 20 So now I've got V.R. coming to the house at a 01:36:25 21 things like, you know, it was 01:36:28 22 targeting minor girls, which just struck 01:36:33 23 was 01:36:35 24 gob-smocked, that a defense attorney with an obligation 01:38:45 24 Now, Alessi wasn't the only one. There was 01:36:37 25 to tell the truth was making a factual representation ESQUIRE DEPOSITION SOLUTIONS 01:38:48 25 Alfredo Rodriguez who was there in about 2004 to 2005, ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 86 88 01:36:42 1 that Jeffrey Epstein was not targeting minor girls, when 01:3863 1 after the time period of Virginia Roberts, but it's part 01:36:44 2 the Palm Beach Police Department had collected, you 01:38:56 2 of the common scheme or plan that we've been discussing 01:3647 3 know, 23 of them that had all given essentially 01:38:59 3 here. 01:36:50 4 interlocking stories about how they had all gone over to 01:3659 4 And so in 2005, Alfredo Rodriguez says, yeah, 01:36:54 5 this house, you know, the mansion, to give a massage and 01:39:02 5 again, Mr. Dershowitz is there at a time when these 01:36:57 6 when they had gotten there, they had been sexually 01:39:05 6 massages are going on. When you start to look at Alessi 01:36:58 7 abused. 01:39:09 7 and Rodriguez's statements in context where they're 01:3658 8 So the kingpin wouldn't talk. The next 01:39:14 8 they're saying he's there at the same time the massages 01:37:01 9 echelon of the trafficking organization wouldn't talk. 01:3616 9 are occurring, and with the West Palm Beach Police 01:37:03 10 So the next step was to say, okay, let's see if we can 01:39:19 10 Department reports showing that massages are of a sexual 01:37:06 11 find somebody, you know, lower level in there, you know, 01:39:22 11 nature, again, it started to put two and two together. 01:37:08 12 a household employee or something like that; maybe they 01:3626 12 One of the things that was particularly 01:37:10 13 will have some information about, you know, what this 01:39:30 13 important about Rodriguez's situation was that Rodriguez 0127:12 14 criminal organization is doing. 01:39:34 14 had an access to what's been called the little black 01:37:14 15 Now, let's 01:37:16 16 given the pervasiveness of the 01:37:19 17 activity, I 01:3721 18 to be able to get in there and start saying exactly what 01:39:45 18 And so Rodriguez had that and, you know, I 01:3724 19 was going on because they might well be exposing 01:3648 19 guess thought that this would be worth a lot of money 01:37:26 20 themselves to criminal 01:3729 21 culpability. 01:3652 21 the people that have been sexually abused by 01:37:30 22 But I 01:37:32 23 deposition from Juan Alessi, and Juan Alessi 01:37:37 24 think 01:37:38 25 today, I won't go through all the things that are ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:07:28 PM Page 85 to 88 of 151 22 of 38 sheets 89 91 01:40:05 1 according to a 01A0'.07 2 identified information that was pertinent to the FBI's 01:42:32 2 billionaire in this article, billionaire with 01A0:07 3 investigation. 01:4Z38 3 B, so the record is clear. 01:40:11 4 And so when I look at the little black book 01A2:39 4 But he said, look, if Epstein lost all his 01:40:14 5 that I have seen copies of, there are a handful of names 01:42:43 5 money 01:40:17 6 in that black book that have been circled, apparently by 01A2.44 6 happy to walk down, you know, the Coney Island Boardwalk 01:40:22 7 Mr. Rodriguez, and one of the names that's 01:40:25 8 been circled is Alan Dershowitz. And so that, to me, 01:42:49 8 even if he didn't have any money. 01:40:30 9 was suggesting that Mr. Rodriguez had identified, you 01A2:50 9 So now I'm seeing Dershowitz is a very close 01:40:35 10 know, Alan Dershowitz as somebody who had information 01:42:54 10 personal friend of Jeffrey Epstein. And then I started 01:40:38 11 about this 01:40:40 12 But just as a side note, but an important 01:43:01 12 very interesting things that I noticed on the flight 01:40:42 13 note, when the 01:40:46 14 Dershowitz page was not a single phone number 01:43:04 14 One of the things I noticed was when I began 01A0:49 15 indicating, you know, somebody had bumped 01,40-51 16 Epstein had bumped into at one point. I believe there 01:43:13 16 wondering, well, what 01:40:56 17 were 10 or 11 phone numbers that were associated with 01'4314 17 come into the possession of, you know, law enforcement 01:40:57 18 Mr. Dershowitz that had all been circled and an e-mail 01:43:16 18 agencies? And the answer turned out to be that they had 01:41:00 19 address as well. 01:4320 19 been provided by Epstein's defense attorney and 01:41:02 20 So that started to corroborate my sense that 01:4323 20 you know, coincidentally, I suppose, or in my mind, 01'41:05 21 Mr. Dershowitz was, indeed, a very close friend of 01:43:27 21 suspiciously, they were not provided by just any defense 01:41:10 22 Jeffrey Epstein. Now, I had then continued to do 01:41:14 23 there's been reference today to, you know, using Google 01:43:33 23 provided by one attorney according to Detective Recarey. 01:41:16 24 to do research and so forth. So I Googled Jeffrey 01:43:36 24 Detective Recarey testified under oath that the flight 01:41:20 25 Epstein and one of the things that pops up rather 01:43:39 25 logs were provided to him by Alan Dershowitz. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331.4400 (954) 331-4400 90 92 01A1:22 1 rapidly is an article in Vanity Fair. 01:43:41 1 So one of the things that was 01:41:25 2 And what you see in that article is, you 01:43:43 2 interesting is, Dershowitz has had access to these 01:41:28 3 know, discussion about Mr. Epstein, but when you're 01:43:45 3 flight logs, and now I'm beginning to wonder, well, has 01:41:33 4 trying to do a profile of someone, you try to figure out 01:43:48 4 there been an opportunity to sanitize those flight logs 01:41:34 5 who that person's closest friends are. 01:43:50 5 or remove any incriminating information? 01:41:35 6 And so the Vanity Fair author had gone to 01:43:52 6 And 01:41:38 7 Alan Dershowitz, you know, our 01:41:42 8 and had asked him, hey, what do you know about Jeffrey 01:4356 8 I believe just so the record is clear, that was Exhibit 01:41:45 9 Epstein? 01:44:02 9 1 that 01:41:46 10 And, again, off the top of my head, you want 01A4104 10 refresh my recollection as to 01:41:47 11 to know what I can remember right now. What I can 01:44:07 11 may not want me to look at documents. 01:41A9 12 remember right now is that in the Vanity Fair article, 01'44:08 12 It was either Exhibit 1 or 2 this morning 0141:53 13 the 01:41:59 14 I've written 20-some odd books; there's only one person 01:44:15 14 period of January to, I believe, September 2005. These 01A2:03 15 outside my immediate family with whom I share drafts, 01:44:20 15 were flight logs that were produced by Mr. Dershowitz to 0142:06 16 and that's Jeffrey Epstein. 01:44:23 16 the Palm Beach Police Department. 01.42:08 17 So I took that as indicating a 01:42:10 18 close personal association that 01:42'13 19 people that 01:44'31 19 What's the significance of that? Well, later on, 01A2:15 20 kinds of things that he wants evaluated before he shares 01:44'35 20 additional flight logs were obtained, and sure enough, 01:42:18 21 them with the broader world, there's his immediate 01:44:39 21 who shows up on an October 2005 flight log with Jeffrey 01:42:21 22 family and then there's 01:4223 23 There was also another similar quote in the 01:44:46 23 So that led to a suspicion that 01:42:24 24 article that indicated that 01:42:29 25 that he wasn't interested in Epstein just because he had 01:44:52 25 Department flight logs that, the time period of which ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 23 of 38 sheets Page 89 to 92 of 151 10 20 2015 01:07:28 PM 93 95 01:44:54 1 for the production had been carefully crafted to keep 01:46:33 1 THE WITNESS: Right. No, I mean, I want to 01:44:57 2 him out of it; in other words, to not produce the 01:48:36 2 make 01:4459 3 October 2005 version. 01:46:37 3 of information that I was relying on in filing 01:45:03 4 The other thing I 01:45:05 5 started going through some flight logs, Dave Rogers, who 01:46.42 5 pleading. So we are on the subject of flight 01:45:08 6 is one of I think about three pilots that 01:4610 7 Epstein regularly relied on to fly his 01:45:13 8 had very fancy 01:45:18 9 There were about 01:45:20 10 One of them had some flight logs and that 01:45:24 11 that was Pilot Dave Rogers, if I'm recalling his name 01:46:55 11 an opportunity to sanitize the flight logs, 01:45:26 12 correctly. And so later on in the litigation, the sex 01:46:57 12 had 01:45:30 13 abuse litigation against Epstein, flight logs were 01:47:01 13 you know, obviously, very important production 01:45:34 14 obtained from Dave Rogers, and it was possible to 01'4637 15 compare 01:4640 16 sure I get 01:47:06 16 Then we got some additional flight logs from 01:45:42 17 remember and I'm trying to make sure I get 01:45:44 18 in. 01:47:11 18 showed 01:45:45 19 And so the flight logs were produced from 01:47:14 19 the 01:45:48 20 Dave Rogers. And so Dave Rogers produced some flight 01:4717 20 My recollection is that Dave Rogers's flight 01:45:51 21 logs, and some of the flights that he produced logs for 01:4721 21 logs were provided by Bruce Reinhart who was a 01:45:56 22 coincided with the logs that Mr. Dershowitz had provided 01:47:24 22 former Assistant U.S. Attorney who had been 01:45:59 23 to the Palm Beach Police Department, and there were 0147-26 23 inside the Southern District of Florida Office at 01:46:01 24 inconsistencies. And so that, again, aroused my 01:47:29 24 a time when the Epstein case was the subject of 01:46:05 25 suspicion that maybe Mr. Dershowitz when he had ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 94 96 01:46:08 1 MR. SCOTT: I just got a call from a lawyer 01:47:33 1 And then he had gone to work for some kind of 01:4609 2 on the screen. His 01:4610 3 Epstein's lawyer, Darren Indyke. 01:47:39 3 located adjacent to Mr. Epstein's business. And 01:46:10 4 MR. SIMPSON: Why don't 01:46:15 5 MR. SCAROLA: Do you want to take a break for 01:47:48 5 by Mr. Epstein, and certainly was adjacent to 01:46:17 6 a second? 01:47:49 6 Mr. Epstein's business office, was producing 01:46:17 7 MR. SIMPSON: Well, why don't 01:46:17 8 don't we let him finish his answer? 01:47:52 8 So that, again, aroused suspicion that the 01:46:18 9 MR. SCAROLA: Let him finish the answer. 01:47:54 9 flight logs that were being produced would have 01:46:20 10 MR. SCOTT: Yeah, lets do that. You're 01:4757 10 been sanitized or inaccurate. 01'46:20 11 right. 01:47:58 11 But even 01:46:21 12 MR. SCAROLA: Although it may take a while. 0148:00 12 problem with 01:4621 13 THE WITNESS: It 01.46:21 14 question 01:46:21 15 MR. SCAROLA: Yeah. But lets 01,4625 16 MR. SCOTT: I don't care. 01:48:11 16 ten flights by Mr. Dershowitz with Tatiana has 01:46:25 17 MR. SCAROLA: Okay. Lets 01:46:27 18 and finish. 01.48:21 18 Epstein. One of them had one female, which, 01:46:27 19 MR. SCOTT: Let's go ahead and finish the 01:48:25 19 again, in the context that I was looking at, 01:46:29 20 answer. We heard this much. 01.48:27 20 seemed to be a potential code word for 01:46:29 21 MR. SCAROLA: Good. Thank you. 01:48:28 21 underage 01.46:29 22 THE WITNESS: Okay. So there 01:46:31 23 MR. SCOTT: I don't want to break him on a 01:48:35 23 again, close association and travel with 01.46:32 24 roll. 01,48.40 24 with 01:4633 25 MR. SCAROLA: Thanks. 0148:47 25 Mr. Epstein. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:07:28 PM Page 93 to 96 of 151 24 of 38 sheets 97 99 01:48:51 1 Another thing that I had, and I will not 01:50:19 1 going into any confidential communications or 01748:53 2 reveal any privileged communications here or any 01:50:22 2 trying to waive in any way, I knew that David 01:48:56 3 confidential information, but on December 30th, I 01:5024 3 Boies had agreed to represent Virginia Roberts, 01:48:59 4 was aware that one of the preeminent lawyers in 01:5027 4 which gave me additional confidence in the fact 01:49:02 5 the United States, David Boies, had agreed to 01:50:30 5 that I was also representing this young woman in 01,49:07 6 represent Virginia Roberts. And given the vast 01:50:34 6 her effort to bring sex traffickers to justice, 01:49:11 7 amount of business that 01:49:13 8 to get in the door 01A9:15 9 MR. SIMPSON: Could I interrupt? I mean, I 01:50:46 9 immediately as 01:49:17 10 think we are going towards a waiver here. 01:50:50 10 see if there were other things regarding 01:49:19 11 MS. McCAWLEY: Yeah. No, no, no, I do not 01:4920 12 MR. SIMPSON: We can't have testimony 01:51:01 12 immediately to mind. 01A9:21 13 about 01A921 14 MS. McCAWLEY: Yeah. 01:51:09 14 complaint, which alleged academicians that had 01:49:22 15 MR. SIMPSON: 01A922 16 respected people in the country, or lawyers in 01:51:19 16 there 01:49:26 17 the country, and then you won't answer the 01:51:24 17 obviously, of who were the academicians that Bob 01:4926 18 questions 01:49:26 19 THE WITNESS: Okay. 01:51:31 19 I can't recall, actually. Let me 014928 20 MR. SIMPSON: 01:49:28 21 MS. McCAWLEY: Oh. Well, describing David 01:51:34 21 immediately whether it was singular or plural. 01:49:30 22 Boies in general 0149:30 23 MR. SIMPSON: I agree with the description. 01:51:36 23 don't want to suggest that there were other 01A9:31 24 MS. McCAWLEY: 01:4922 25 waiver. 01:5142 25 sexually abused Jane Doe 3, according to the ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 98 100 01:49:32 1 MR. SIMPSON: He's a distinguished lawyer. 01:51:45 1 complaint that had been filed by Bob Josefsberg. 01:49:32 2 MR. SCAROLA: And I don't think we are 01:5148 2 There were two things that were of interest 01:49:33 3 getting beyond anything that is a matter of 01:51:49 3 to that: One was that Mr. Epstein, the man that 01:49:37 4 public record. 01:51:51 4 I wasn't able to get information from because he 01:49:37 5 MR. SIMPSON: I just 01:49:38 6 MS. McCAWLEY: But I appreciate you 01:49:38 7 MR. SIMPSON: Be aware of waiver. 01:52:00 7 Rather than deny the allegations, he had, 01:49:39 8 MS. McCAWLEY: 01:4940 9 THE WITNESS: All right. I will be 01:49:41 10 not waive anything, and if I start to do that, I 01:52:07 10 any information, but my understanding is that 01:49'43 11 would certainly request the opportunity to 0149:4512 retract what I'm doing, but I was aware 01:49:48 13 the issue is, well, what's in the public record, 01:52:13 13 compensation that lane Doe 102 found desirable 01:49'50 14 I was aware that, you know, probably the most 01:52:17 14 for dropping her claim. 01:49:52 15 significant United States Supreme Court case 01:5219 15 The other thing that I found interesting is 01:49:55 16 argued in the last 20 years was Bush versus Gore, 01:52:21 16 that 3osefsberg's partner, I believe it is, 01:49:58 17 which was a case that essentially determined who 01:52:25 17 Miss Ezell, had been to some of the depositions 01:50:01 18 was going to be President of the most powerful 01:5229 18 of, for example, I believe Juan Alessi and 01:50:03 19 country in the world. 01:52:33 19 Alfredo Rodriguez. And I believe at least one of 01:50:04 20 There were two attorneys who argued that case 01:5235 20 those, and perhaps both of those. And she had 01:5065 21 in front of the United States Supreme Court, and 01:52:36 21 asked questions about Alan Dershowitz in those 01:50:07 22 arguing for the Democratic Presidential 01:52:39 22 depositions, but had not asked questions about 0150:10 23 Candidate, Al Gore, was David Boies. 01:52:42 23 other academics in those depositions. 01:50:12 24 He had put his credibility on the line in 01524524 So that led me to conclude that Bob 01:5016 25 arguing the Bush versus Gore case, and without 01:52:51 25 Josefsberg and his outstanding law firm had ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 25 of 38 sheets Page 97 to 100 of 151 10 20 2015 01:07:28 PM 101 103 01:52:51 1 identified Alan Dershowitz as someone who had 02:0923 1 let me clear all of that misunderstanding up. 01:52:54 2 information relevant 01,52:56 3 this is not a lawsuit about some contract dispute 020928 3 something like that, that's what I would have 01:52:58 4 or something 01:53:00 5 information relevant to the sexual abuse of 02:0030 5 The answer that came back was 01:53102 6 underage girls and, indeed, they were asking 02:09:32 6 Mr. Dershowitz was something along the lines of, 01:53:05 7 questions about what information 01:53:07 8 information he might have. 02:0136 8 you 01:53:09 9 Another 01:53:11 10 whole other line of things that 01:53:13 11 mind at the time, and I think since you want to 020043 11 was an attempt, you know, a 2009 attempt, a 2011 010316 12 test my memory 01:5319 13 I'm not claiming I have a superb memory. I have 02:09:49 13 Then there was another subpoena without 01:53:21 14 an average memory, but this is a subject that's 02:09:52 14 deposition for 01:5322 15 very important to me, and so I've worked, you 0209:54 15 have heard a lot about records in this case that 01:53:26 16 know, very hard to get all the information. 02:09:57 16 could prove innocence. There was a records 01:53:31 17 I would like to take a break. 02:09:58 17 request to Mr. Dershowitz in 2013. And, again, 01:53:32 18 MR. SCAROLA: Sure. Take a break. 021001 18 my understanding was that there was no 01:53:33 19 THE VIDEOGRAPHER: We are going off the video 02:1003 19 know, no documents were provided on that. 01:53:36 20 record, 3:27 p.m. 021007 20 And so those 02:07:43 21 (Thereupon, a recess was taken.) 02:10:11 21 Another bit of information that I had was that in 02:07:4322 THE VIDEOGRAPHER: We are back on the video 021014 22 2011, I believe in early April 0208:03 23 record, 3:41 p.m. 02:1019 23 attorney client privileged information from 020006 24 THE WITNESS: I want to continue my answer. 0210:21 24 Virginia Roberts. This is a telephone call that 02:08:08 25 I'm sorry. I got emotional there for a moment. 02:1023 25 she placed from Australia where she had been ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 102 104 02:08:12 1 I want to do a good job for Virginia Roberts 02:1027 1 essentially forced into hiding by Jeffrey 02:08:12 2 on 02:08:14 3 that is available to support her. 02:10:31 3 out in 02:08:16 4 The next thing that I was thinking of was, 02:10:35 4 that somehow, you know, Mr. Scarola and 02:08:19 5 all right, then the question is: Well, what does 02:1038 5 Mr. Edwards were able to reach her and there was 02.08:23 6 Mr. Dershowitz have to say about all this? So I 02:10:41 6 a telephone call that was made. 02:08:27 7 started to look at the information on that as 0210:43 7 And in that telephone call she identified 02:08:28 8 well. 02:10:46 8 Alan Dershowitz as someone who would have 02:08:29 9 In 2009, there had been a deposition request 0210;48 9 relevant information about Jeffrey Epstein and 02:08:34 10 sent to Mr. Dershowitz, and I 02:08:37 11 showing that that had actually been served on 02:08:40 12 on him, and, you know, to the extent that what I 0211,01 12 that, as I understand, the question was: What 02:08:44 13 saw was a 02:08:48 14 server, or something along those lines, so I saw 02:11:05 14 to the factual basis for information connecting 02:08:51 15 attempt to contact him in 02:08:53 16 And then I saw an additional attempt to 02:11:12 16 girls, plural, and that, sitting here at this 02:08:55 17 contact him in 2011. Mr. Scarola had sent him a 0211.15 17 moment, is the best that I can recall for the 02:09:01 18 note and there was, you know, some back and 021118 18 information along those lines. 02,09:03 19 forth. The 02:0906 20 out to me was one in which Mr. Scarola had 02:1121 20 Q. Was that answer 02:09:09 21 written to Mr. Dershowitz, I think the phrase 02:11:21 21 MR. SCAROLA: Excuse me. Before 020912 22 was: Multiple witnesses have placed you in the 02,1123 22 you go on to another subject, Professor Cassell 02:09:14 23 presence of Jeffrey Epstein and underage girls; I 0211:26 23 is entitled to refresh his recollection to give 02:09:18 24 would like to depose you about those subjects. 02.11:29 24 you a complete response. So why don't you go 020921 25 And the answer that came back was not, well, ESQUIRE DEPOSITION SOLUTIONS 02:11:31 25 ahead and do that now. Make sure you've covered ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:07:28 PM Page 101 to 104 of 151 26 of 38 sheets 105 107 0211:34 1 everything. 02:12:45 1 document produced by the witness was marked for 021114 2 MR. SIMPSON: I'm 0211:35 3 questions, but I was going to ask the same 02:1110 3 THE WITNESS: All right. So let me 02:11:38 4 question. 02:13:11 4 could look at this to see if it 0111:39 5 MR. SCAROLA: Wonderful. We are on the same 021113 5 portion of it to see if it refreshes my 021 1A0 6 page. 02:13:13 6 recollection about 02:11:40 7 BY MR. SIMPSON: 021113 7 BY MR. SIMPSON: 02:11:41 8 Q. Mr. Cassell, you 02:11:43 9 had something that you had prepared 02:11:44 10 A. Yes. 02:13:21 10 Q. All right. Yeah. Let me just clarify one 0211:44 11 Q. 02:11:46 12 A. Right. 02:1127 12 A. Yes, sir. 02:11:46 13 Q. 0211:48 14 A. Right. 02:1128 14 evidence you could recall or the information you could 02:11:48 15 Q. And now that you have exhausted your 02:13:30 15 recall that supported your allegations as to both 32:11,51 16 recollection, could you produce that and let's just mark 02:13:34 16 Virginia Roberts and other minors, or were you treating 3211:54 17 it 02:11:54 18 A. Yeah, sure. 02:13:37 18 A. No, I was not treating those separately. I 0211:55 19 Q. 02:11:56 20 MR. SIMPSON: We are up to Exhibit 3, I 02:114220 refers to as a common scheme or plan in a 0211:59 21 believe. Cassell 3. 02:13:42 21 Q. Okay. 02:12:01 22 THE WITNESS: Right. Now, there 0212:01 23 two parts to this 02:12:02 24 MR. SIMPSON: Can we mark it first and 02:13:49 24 multiple girls. So the answer was 021102 25 then ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 106 108 02:12:04 1 THE WITNESS: Yeah. I just want the record 02:1153 1 Q. Okay. So I may have some questions to 02:1106 2 to be clear, that I'm only looking 02:12:07 3 there's a pre-December 30th section and a 02:13:57 3 A. Yes. 02:12:10 4 post-December 30th section, so the top part is 02:1158 4 Q. 0 12:13 5 the 02:1113 6 BY MR. SIMPSON: 02:14:05 6 that you had exhausted your recollection of the basis 02:12:15 7 Q. Okay. 021407 7 for the allegation in this Exhibit 2, the motion to join 0 1115 8 A. Now, underneath this is 0112:18 9 have questions about what happened after December 30th. 011417 9 A. Yes. 02:12:19 10 Q. So you're 02:12:22 11 entire document, but you're clarifying? I don't 02:12:24 12 don't want to ask you 02:12:26 13 your testimony, then we will mark the whole thing. 02:14:28 13 me about. 021127 14 MR. SCAROLA: Mark the whole thing. You can 02:14:29 14 A. So this refreshes my recollection. Sarah 02:12:30 15 use it. 02:14:46 15 Kellen. I think I referred to her as Miss Kellen. 02:12:30 16 MR. SIMPSON: Mark the whole thing and I'll 02:14:49 16 Sarah Kellen was the first name. 02:12:30 17 ask you about it. 02:14:52 17 Nadia Marcinkova, Nadia was the first name 0112:30 18 THE WITNESS: That would be great. 02:1453 18 there. Adrianna Mucinska was the full name of those 02:12:33 19 Absolutely. 0214:58 19 that's the second echelon of the 02:12733 20 MR. SIMPSON: All right. I'm going to ask 02:15:00 20 criminal conspiracy. 011215 21 the court reporter to mark as Cassell Exhibit 3, 02:15:06 21 Oh, this refreshes my recollection that 0112:39 22 a one-page document that the witness has just 0 15:08 22 Jeffrey Epstein had answered some questions in the civil 02:12:42 23 handed to me. It's mostly typed. It has some 02:15,11 23 litigation. He provided, for example, names of 0112:44 24 handwriting on it. 02,15:15 24 some people who were involved, but he took the Fifth 02:12:45 25 (Cassell I.D. Exhibit No. 3 - one-page 02:15:18 25 when asked ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 27 of 38 sheets Page 105 to 108 of 151 10 20 2015 01:07:28 PM 109 111 021521 1 people who would have relevant information in the civil 02:1860 1 strategy to sort of stall the investigation to say: 02:15:25 2 cases, but when asked in deposition about 0218:03 2 Well, we will get you Epstein; oh, we can't meet now; 02:1629 3 Mr. Dershowitz, he took the Fifth. 02:18:03 3 oh, we will get it now 02:15:31 4 So I 02:15:33 5 people, he was willing to answer questions, but with 02:18:06 5 that was that Mr. Dershowitz, as Mr. Epstein's attorney, 0215:35 6 regard to Mr. Dershowitz, he took his 02:15:39 7 Fifth Amendment right against compelled 0218:14 7 Palm Beach Police Department, having made another offer. 02:15:41 8 self-incrimination presumably because revealing what he 021817 8 Now, obviously, something could have happened 02:15:44 9 knew about Mr. Dershowitz would, you know, cause 02:18:19 9 there. I mean, I don't 02:15:48 10 criminal 02:15:51 11 against him. 02:18:24 11 trying to get information and unable to do that, I had 021652 12 There was a common scheme or plan, and I'll 02:18:26 12 to make some reasonable inferences. 021608 13 elaborate on that in a moment, but yeah, one of 02:16:14 14 this was another point. I mentioned that 0216:17 15 had been three efforts to get information from 02:18734 15 in my view, potentially, an unethical one, but I 021518 16 Mr. Dershowitz by way of a 2009 deposition request, a 02:1637 16 don't 02:16:23 17 2011 deposition request, and further follow-up 02:18:39 17 litigation. 02:16:26 18 correspondence from counsel on that, and a 2013 document 02:18:40 18 What I saw was a stall tactic going on, 02:16:31 19 request all propounded to Mr. Dershowitz that had not 02:18:44 19 and 02:16:34 20 gone answered. 02:18:46 20 we are sitting here now in, what is it, October of 2015, 021635 21 Yeah, and this was 0216:37 22 slipped my mind at the time 02:164O 23 Mr. Dershowitz not responding to these answers, you 02:1868 23 And this was back in around 02:16:44 24 know, maybe the mail didn't get delivered to him or 02:19.01 24 I guess it would be 2005, 2006, you know, roughly a 021646 25 something like that. I don't ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 110 112 02:18:48 1 know, a theoretical possibility. 02:1607 1 available. And then that never happened, and given the 02:18:50 2 But 02:1652 3 possibility, first, it didn't seem likely; but secondly, 02:1612 3 should go back. I'm sorry. Let me correct my answer. 02:16:55 4 there was a pattern of Mr. Epstein's associates evading 02:19:14 4 We should go back to December 30th, 2014. So 0216:59 5 efforts to get information from them. 02:19:17 5 there 021762 6 And so let me just go back to the earliest 021621 6 of time during which Mr. Epstein had refused to answer 0217:05 7 instance of that. According to the Chief of Police in 021924 7 any questions about his sexual abuse of girls and yet, 02:17:07 8 the Palm Beach 02:1711 9 Mr. Dershowitz had said that he would make available 02:1630 9 and 0217:14 10 Mr. Epstein for questions about the 02:17:18 11 know, abuse that was going on. And, you know, 0219:37 11 The other thing that I'm 02:17:21 12 Mr. Dershowitz had said to the Palm Beach Police 02:19:39 12 here, so now there's 021723 13 Department, yeah, we will make him available; no, we got 02:1642 13 been involved in concealing Mr. Epstein from the Palm 0217:25 14 to reschedule it; you know, and then another time, 02:19:46 14 Beach Police Department, but there were others that had 0217:28 15 reschedule, another time. And so there were multiple 02:17:32 16 according to the Chief of Police, there had been 0219:49 16 So one of them was a Ghislaine Maxwell. I 02:17:34 17 multiple, you know, requests to interview Mr. Epstein 02:19:55 17 will just call her Glenn Maxwell. I think that's kind 021738 18 and Mr. Dershowitz had repeatedly said: Oh, yeah, we 02:19:55 18 of the nickname I understand she goes by. 02:17:41 19 will schedule that, and then it hadn't happened. 02:19:59 19 So Glenn Maxwell 0217:43 20 Now, obviously, there could have been a 021969 20 is the one, you know, I think the record is clear, in 82.17:45 21 situation there where, you know, an emergency had come 02:20:03 21 in 0217:47 22 up for Mr. Epstein and he wasn't able to make a schedule 02:20:06 22 been made that she was the one that 0217:49 23 or something like that. But what I saw was a 0217:52 24 pattern of offers to 0217:55 25 and that seemed to me to be a deliberately calculated 0220:15 25 not all the flights, but on many of the flights with ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:07:28 PM Page 109 to 112 of 151 28 of 38 sheets 113 115 0220:17 1 Jeffrey Epstein where 022019 2 on and was very close to Epstein, staying at the mansion 02:22:31 2 deposition and, in fact, later information came to light 02:20:22 3 frequently. 02:2233 3 he was hiding out in, you know, in the mansion of 02:20:23 4 And so she would, obviously, be 02:20:25 5 you have Epstein at the 02:20:27 6 the kingpin of the operation, Maxwell would be, you 02:22:39 6 So 0220:30 7 know, a close second or certainly at, you know, the 02:22:42 7 know, where there were three attempts to obtain 022012 8 higher echelon. 02:22:44 8 information from him, if that's all I had, I guess that 02:20:33 9 So, obviously, someone who would have, you 022246 9 would have been one thing. But what I had was a pattern 02:20:35 10 know, very significant information about, you know, the 02:2249 10 of people who were implicated in this sex trafficking 02:2018 11 sex trafficking, who were the other people that the 02:20:41 12 the girls were being trafficked to, what kind of abuse 0222:57 12 court orders and depositions and things 0220:43 13 was going on, you know, what kinds of sex toys were 0222:58 13 say court order 0220:46 14 being used to abuse them, because I think it was in her 02:23:01 14 notices that were being sent and agreements being made, 0220:48 15 room or 02:2052 16 these devices were located, and so she would have had 02:23:05 16 And then in addition to that, I had this, so 02:20:55 17 very significant information to provide. 02:23:11 17 why 02:20:57 18 And so in connection with the civil cases 02:2113 18 sex trafficking, you know, ring going on? It sounds 02:21,00 19 that some of the girls had filed against Mr. Epstein, 0223:17 19 kind of farfetched. 0221:02 20 her deposition was set, in fact, by my co-counsel, 02:23:18 20 Well 02:21:05 21 Mr. Edwards, and then there was some haggling over a 0223:19 21 available to me on December 30th was a photograph that 02:21:10 22 confidentiality agreement, you know, what are we 0223:22 22 was widely available on the Internet, and that 02:21:12 23 gonna 02:21:14 24 was set for a deposition and finally agreed, you know, 02:23:28 24 It depicted Glenn Maxwell, Prince Andrew, and 02:2116 25 to a deposition. 022134 25 Virginia Roberts, and the ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 114 116 02:21:17 1 And just shortly, you know, I think a couple 0223:38 1 like Virginia Roberts was an underage girl. She was not 022119 2 of days before that deposition, she canceled. And well, 02:23:43 2 dressed in formal attire. And Prince Andrew had his arm 02:2023 3 she didn't cancel. Her 0221:26 4 the deposition and represented that Miss Maxwell was 02:23:52 4 smiling in the background is Miss Maxwell, and it 02:21:30 5 outside the United States of America and had no plans to 02:23:54 5 appeared that that was a private residence, presumably 02:2113 6 return back to the United States. 02:2157 6 in London, close to Buckingham Palace where 0221:35 7 And so, at that point, the deposition was 02:21,40 8 was not able to go forward. But it turned out that she 02:24:01 8 And so here was Prince Andrew with this 02:21:43 9 had not left the United States for an extended period of 02,24:03 9 underage girl with Glenn Maxwell, the 02:21:46 10 time. She was spotted later at a wedding of a prominent 0224:05 10 girl, if that's the right expression 02:21:49 11 person in New York. 0224:07 11 should say 02:21:50 12 And so that was Maxwell fitting into this 022411 12 of 02:21:52 13 pattern of, you know, Epstein was being told 02:21:56 14 know, the Palm Beach Police Department being told by 02:24:17 14 Given the surrounding circumstances, I 02:21:57 15 Dershowitz that Epstein will answer your questions, and 022419 15 thought perhaps Mr. Epstein had taken the photograph. 02:22:00 16 then, you know, not 02:2203 17 evading the deposition. 02:2424 17 was not confined just to Florida, not confined to the 02:22:06 18 Jean Luc Brunel was another person who seemed 02:24:27 18 New York mansion; it would have 02:2209 19 to be very much involved in 02:22:10 20 and it was the same situation. A deposition was set to 02:24:37 20 the highest, most powerful persons in the governmental 02:22:13 21 try to get answers, you know, who is involved, which 02:24.43 21 structure that 02:22:16 22 girls are involved, what are their names, what's 0222:17 23 what's going on? 022449 23 And so that created grave concern about, how 02:2216 24 And so Brunel's deposition is set and then 0224,52 24 far did this sex trafficking ring reach; what were their 02:2225 25 he ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 29 of 38 sheets Page 113 to 116 of 151 10 20 2015 01:07:28 PM 117 119 02:25:01 1 know, law enforcement agencies in those countries, you 0226:51 1 Mr. Dershowitz was trying to do the same 02:25:04 2 know, in England, or law enforcement agencies in this 02:26:53 2 thing and it is a difficult situation. 02-25:07 3 country, through 02251 0 4 somebody at that level, fifth I think in line to the 0226,55 4 Q. So I was not trying to make light of the 02:25:15 5 British Throne, would have, you know, presumably access 0226:58 5 questions I'm asking you. 0225:17 6 to levers of power that other people might not 022521 7 not have. 0226:58 7 Q. I understand that. 02:25:22 8 And so that is the 02:25:29 9 information that I had available to me on December 30th 02:27:02 9 Q. I understand that. Your 0225:32 10 involving not just Virginia Roberts, but the entire sex 0227:04 10 allegations that have been made. 02:25:35 11 trafficking organization. 02727:06 11 A. And your side keeps attacking these girls. 02:25:37 12 Q. Okay. And that 02,25:42 13 exhausts your refreshed recollection as to both the 02:27:1213 Q. That 0225:46 14 information you were relying on as to the allegations 02:27:15 14 questions 02:2048 15 about Virginia Roberts, and as to the allegations about 02:27:15 15 A. I believe that part is true. 0225:52 16 other minors; is that right? 02:27:16 16 THE WITNESS: I would like to take a break. 0525:53 17 A. Correct. 02:2718 17 I'm sorry. 0225:53 18 Q. So I don't have to ask you separately about 0227:15 18 THE VIDEOGRAPHER: We are going off the video 02:25:55 19 Roberts? 0227,21 19 record, 4:01 p.m. 02:25:56 20 A. That's right. No, and I gave you a heads-up, 02:30:41 20 (Thereupon, a recess was taken.) 02:25:58 21 that was going to be a long answer. 02:30:41 21 THE VIDEOGRAPHER: We are back on the video 02:26:00 22 Q. You made Mr. Dershowitz look like an amateur. 0220:47 22 record, 4:04 p.m. 02:26:03 23 If I could 0226:03 24 MR. SCAROLA: I'm sorry. Like a what? 02:30:47 24 M. Dershowitz and Carolyn Cohen left the 02:26:04 25 MR. SIMPSON: Amateur, at the long answers. 02:30:48 25 proceedings.) ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 118 120 02:26:07 1 THE WITNESS: Well, I wasn't trying to 02:26:08 2 me be clear. I want the record to be clear: I 02:30:50 2 Mr. and Mrs. Dershowitz have 02:26:11 3 was not trying to filibuster. You asked me a 0230:52 3 present. 02:26:12 4 very direct question which was: I want to know 02:3053 4 MR. SIMPSON: Correct. 02:26:15 5 everything that was in your memory on December 02:30:54 5 MR. SCAROLA: Thank you. 02:26:17 6 30th, and as you can tell, this was a very 02:30-55 6 BY MR. SIMPSON: 022620 7 important subject to me, and its very important 02:30:56 7 Q. Mr. Cassell, would you agree with me that 02:26:21 8 to Miss Roberts, and I wanted to be 02:31:00 8 accusing someone 0226:24 9 comprehensive. 02:31:03 9 MS. McCAWLEY: Oh, I'm sorry. I just 02:26:25 10 And I gave you the opportunity to say, 0231:04 10 realized that she stepped out to get water, I 02:26:26 11 lets 02:26:28 12 but you wanted the broad question and that's why 02:31:08 12 probably okay - - 0226:30 13 I did this, so I wasn't... 02,31-68 13 THE WITNESS: Its all right. 02:26:30 14 BY MR. SIMPSON: 0231:08 14 MR. SCAROLA: Its all right. 02:26:30 15 Q. Mr. Cassell, I apologize for attempting humor 02:31:11 15 MR. SIMPSON: That's okay with you? 02,26:34 16 in this intense situation. 02:31:11 16 THE WITNESS: Sure. 02:26:35 17 A. This is very important to me. 02:3111 17 BY MR. SIMPSON: 02,26:35 18 Q. I 02:26:36 19 A. This is not 02:26:38 20 find funny. 02,3124 20 a serious accusation? 02:26140 21 Q. And 02:26:43 22 important to Mr. Dershowitz, or Professor Dershowitz 02:31:27 22 Q. And would you agree with me that the cause of 02:26:45 23 also. He was trying to answer questions. I'm not 02:31,33 23 Victims' Rights is harmed and not furthered by false 0226:47 24 questioning that you were trying to answer my question, 02:31:39 24 allegations of sexual abuse? 0226:49 25 and I appreciate it. 02:31,11 25 A. Sure. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:07:28 PM Page 117 to 120 of 151 30 of 38 sheets Exhibit 4 152 1 APPEARANCES CONTINUED 154 1 IN THE CIRCUIT COURT OF THE SEVENTEENTH 2 2 JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA 3 3 CASE NO. CACE 15-000072 Telephonically on behalf of Jeffrey Epstein: DARREN K. INDYKE, PLLC 4 4 BY: DARREN K. INDYKE, ESQUIRE 5 6 7 8 9 10 11 BRADLEY J. EDWARDS and PAUL G. CASSELL, 5 575 Lexington Avenue 4th Floor Plaintiffs Counterclaim Defendants, New York, New York 10022 vs. 6 Tel: 212.971.1314 ALAN M. DERSHOWITZ, 7 Defendant Counterclaim Plaintiff. 8 Also Present: DON SAVOY, Videographer 12 9 BRADLEY 3. EDWARDS 13 ALAN M. DERSHOWITZ (Telephonically) 14 VIDEOTAPED DEPOSITION OF 15 PAUL G. CASSELL 16 TAKEN ON BEHALF OF THE DEFENDANT 12 17 VOLUME II, PAGES 152 to 335 13 18 19 20 Saturday, October 17, 2015 17 21 8:32 a.m. - 12:14 p.m. 18 22 19 23 425 North Andrews Avenue Suite 2 Fort Lauderdale, Florida 33301 20 21 24 22 25 Theresa Tomaselli, RMR 23 ESQUIRE DEPOSITION SOLUTIONS 25 (954) 331-4400 ESQUIRE DEPOSITION SOLUTIONS (954)331-4400 153 155 1 APPEARANCES OF COUNSEL 1 INDEX OF EXAMINATION 2 On behalf of the Plaintiffs: 2 WITNESS PAGE 3 SEARCY DENNEY SCAROLA 3 PAUL G. CASSELL 4 BARNHART SHIPLEY, P.A. BY: JOHN SCAROLA, ESQUIRE 4 CONTINUED DIRECT EXAMINATION 160 5 2139 Palm Beach Lakes Boulevard BY MR. SIMPSON West Palm Beach, Florida 33409 5 6 Tel: 561.686.6300 7 Fax: 561.383.9541 E-m ail: m ep searcylaw .com 6 INDEX TO EXHIBITS 8 On behalf of Virginia Roberts: 9 7 8 EXHIBIT DESCRIPTION PAGE BOIES SCHILLER FLEXNER, LLP 10 BY: SIGRID STONE McCAW LEY, ESQUIRE 9 401 East Las Olas Boulevard Cassell's I.D. Exhibit No. 4 - document 203 11 Suite 1200 10 produced by the witness Fort Lauderdale, Florida 33301 12 13 Tel: 954.356.0011 Fax: 954.356.0022 E-m ail: sm ccaw ley bsfllp.com 11 12 Cassell's I.D. Exhibit No. 5 - copy of 229 address book 14 Cassell's I.D. Exhibit No. 6 - series of 309 On behalf of the Defendant: 13 e-mails, Bates numbered BE-510 - -514 15 WILEY REIN LLP 14 16 BY: RICHARD A. SIMPSON, ESQUIRE AND: NICOLE A. RICHARDSON, ESQUIRE 15 17 1776 K Street Northwest 18 Washington, DC 20006 Tel: 202.719.7000 16 19 Fax: 202.719.7049 E-m ail: rsim pson w ileyrein.com 17 20 18 Also on behalf of the Defendant: 21 19 (Original Exhibits have been attached to the COLE, SCOTT KISSANE, P.A. original transcript.) 22 BY: THOMAS EMERSON SCOTT, 3R., ESQUIRE 20 23 24 9150 South Dadeland Boulevard Dadeland Centre II - Suite 1400 Miami, Florida 33156 Tel: 305.350.5329 21 22 23 24 Fax: 305.373.2294 25 E-m ail: thorn as.scott csklegal.com 25 ESQUIRE DEPOSITION SOLUTIONS (954)331-4400 10 11 14 15 16 24 ESQUIRE DEPOSITION SOLUTIONS (954)331-4400 1 of 46 sheets Page 152 to 155 of 335 10 20 2015 01:08:15 PM 156 158 1 DEPOSITION OF PAUL G. CASSELL 00:02:01 1 never thought to record it, but that's fine. 0002:04 2 MR. SIMPSON: We don't 2 Saturday, October 17, 2015 000205 3 make that 00:02:05 4 MR. SCAROLA: We don't need to discuss that. 3 00:0206 5 The question is 4 THE VIDEOGRAPHER: We are now on the video 00:0206 6 MR. SIMPSON: What you're saying does 00:00:01 5 record. Today is Saturday, the 17th day of 0002'06 7 MR. SCAROLA: 00:00:03 6 October, 2015. The time is 8:32 a.m. We are mom 7 here at 425 North Andrews Avenue, Fort 00:021,8 8 recording without the necessity of a new request 0002:10 00:00:10 8 Lauderdale, Florida, for the purpose of taking 9 to produce, or will it be necessary for us to 00:0213 00:00:11 9 the videotaped deposition of Paul G. Cassell. 10 file a new request to produce? 00:0014 10 The case is Bradley J. Edwards and Paul 00:02:15 11 MR. SIMPSON: As Mr. Scott indicated 00:00:17 11 G. Cassell versus Alan M. Dershowitz. 00:02:17 12 yesterday, we will respond to you to the 00:00:19 12 The court reporter is Terry Tomaselli, and 00:02:19 13 discovery request. We will confer at a break and 00:00:20 13 the videographer is Don Savoy, both from Esquire 00:02:23 14 respond to that question. I don't want to take 00:00:23 14 Deposition Solutions. 0002:24 15 time on the record debating it. After Mr. Scott 0000:24 15 Will counsel please announce their 000228 16 and I have conferred at a break, we will respond 00:00,26 16 appearances for the record. 00:02:29 17 further to your question. 00:00:27 17 MR. SCAROLA: Jack Scarola on behalf of the 00:02:30 18 MR. SCAROLA: All right. So that the record 00:0030 18 Plaintiffs. 00:02:31 19 is clear, it is our position that the recording 00:0030 19 MR. SIMPSON: Richard Simpson of Wiley Rein 00.02,35 20 itself, any evidence of any communication between 00,0335 20 on behalf of the Defendant and Counterclaim 00:02:40 21 Mr. Dershowitz and Rebecca and or Michael, any 000038 21 Plaintiff, Alan Dershowitz. With me is my 00,00:39 22 colleague, Nicole Richardson, and Thomas Scott of 00:02:45 22 notes with respect to any such communications, 00:0260 00:00:44 23 Cole, Scott Kissane, also for Mr. 23 text messages, e-mails, and an accurate privilege 000257 00,0048 24 Dershowitz. 24 log as to everything that is being withheld is 00:00:50 25 MR. SCAROLA: Before we begin the deposition, 000101 25 responsive to the earlier request to produce, and ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 157 159 0000:52 1 we were informed for the first time yesterday 00:03:04 1 that the obligation was to have provided it to us 00:0055 2 morning of the existence of a recording of a 00:0108 2 previously and is to provide it to us now. 00:01:01 3 telephone communication between Alan Dershowitz 00:03:11 3 We understand that you're considering that 00:01:05 4 and a woman identified only as Rebecca. 000313 4 and you will respond, so we can proceed with the 00:01:10 5 That information was conveyed to us 00:03:15 5 deposition. 00:01:13 6 subsequent to Professor Dershowitz's sworn 00:03:16 6 MR. SIMPSON: Yes. And we disagree about 000116 7 testimony that no recording existed, but now that 000117 7 that, and as you know, we have a motion to compel 00:01:20 8 we know that the recording existed and that it 00:0319 8 regarding your inadequate privilege log. 00:01:23 9 was obviously made according to the 00:03:24 9 MS. McCAWLEY: Just before we begin, I'm 00:01:25 10 representations given to us, prior to the 00:0324 10 sorry, I didn't announce my appearance for the 00:01:29 11 completion of the responses to our earlier 00:03:24 11 record. Sigrid McCawley from Boies, Schiller 00:01:31 12 discovery requests, I would like to know whether 00:0328 12 Flexner, and I have a standing objection that I'd 00:01:34 13 it is the Defendant's position that it is 00:03:31 13 just like to repeat on the record. 00:01:37 14 necessary for us to propound a new discovery 00:03:32 14 MR. SCOTT: Feel better that you got that off 00.01:40 15 request to get information that clearly should 00:0132 15 your chest? 0001:43 16 have been disclosed in response to the earlier 00:03:32 16 MS. McCAWLEY: With respect to 00:01:46 17 discovery request. 00:03:34 17 With respect to my client, Virginia Roberts, 00:01:47 18 Is that the position that you're taking? 000337 18 she is asserting her attorney client privilege 00:01:48 19 MR. SIMPSON: First, Mr. Scarola, I believe 00:0339 19 with her attorneys and is not waiving it through 00:01:50 20 you have mischaracterized Professor Dershowitz's 00:03:41 20 any testimony here today, and that I object to 00:01:53 21 testimony. You didn't ask the question whether 00:0344 21 any testimony elicited that would be used as a 0001;55 22 he made a recording. Yesterday morning, he 000147 22 subject of waiver for her attorney client 00:01:57 23 provided that information in response to a 000348 23 privilege. 00:01:59 24 different question. 24 MR. SIMPSON: Would you reswear the witness, 00:02:00 25 MR. SCAROLA: His exact testimony was: I 25 please? ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 156 to 159 of 335 2 of 46 sheets 160 162 1 Thereupon, 0005,28 1 Q. And when you say "all day," what time period 2 PAUL G. CASSELL, 00:05:31 2 are you referring to? 3 having been first duly sworn, was examined and testified 00:0632 3 A. 9:00 to 5:00. 4 as follows: 00:05:33 4 Q. 9:00 to 5:00. Okay. And was that through 5 THE WITNESS: I do. 00:05:38 5 lunch; you just stayed through eight hours; is that 6 CONTINUED DIRECT EXAMINATION 000040 6 what's your recollection of that? 7 BY MR. SIMPSON: 00:05:41 7 A. Yeah, I remember we were working very hard 00:04:01 8 Q. Good morning 00:04:01 9 A. Good morning. 00,05:46 9 had lunch brought in and worked straight through that. 00:04:01 10 Q. 00:04:03 11 As of December 30th, 2014, had you ever met 00:05:53 11 Miss Roberts before December 30th of 2014? 00:04:08 12 with Virginia Roberts in person? 00:0557 12 A. No. 00:04:10 13 A. Yes. 00:05:57 13 Q. Any telephone calls with her that you 00:04:10 14 Q. And how many times had you met with her in 000003 14 had, obviously, before December 30th, 2014? 00:04,14 15 person? 00:06:07 15 A. I believe there were a couple of 00:04:14 16 A. Once. 00,06:09 16 telephone calls. 00,04:15 17 Q. When was that? 000609 17 Q. And can you tell us when those were? 0004:16 18 A. Approximately May 2014. 00:06:12 18 A. Let's see. Roughly September 2014. Give or 00:04:20 19 Q. May of 2014? 00,06:18 19 take a month. I mean, you know, sometime after May and 00:04:21 20 A. Yes. 00:06:22 20 before December 30th. 00:04:21 21 Q. Who was present for that meeting? 00:06:23 21 Q. Okay. And were those telephone calls between 00:04:24 22 A. I'm just pausing for a second because I 0006:2722 just you and Miss Roberts, or was anyone else on the 00:04:28 23 don't 00:04:28 24 Q. I 00:04:30 25 A. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 161 163 00:04:31 1 attorney client communication. 000605 1 Q. Okay. And are you able to distinguish the 00:04:32 2 Q. I'm not asking you for what was said at this 00:0608 2 calls in your mind as two separate telephone calls? 00:04,34 3 point. I'm just asking you who was present. I'm going 00:0040 3 A. I 0004:36 4 to ask you where it was, those kind of questions. 000043 4 calls. I think there may have been two, but it 00:04:39 5 A. Sure. Yeah. The main person who was present 0006:46 5 would not have been more than two that I can recall. 0004:42 6 was Bradley J. Edwards, my Co-Plaintiff in this case. 0006:49 6 Q. Okay. How long did each of the telephone 00:04:45 7 Q. Okay. And Miss Roberts obviously was 00:06:51 7 calls last? 00:04:47 8 present? 0006:52 8 A. Less than five minutes. 00:04:47 9 A. Yes. 0006704 9 Q. I'm going to ask you a question now, but 00:0448 10 Q. Anyone else present? 00:06:59 10 before you answer it, pause, because I believe you will 0004,49 11 A. You know, there were 00:04:53 12 Farmer, Jaffee office here, and so persons who were 00,07:03 12 A. Okay. 00:04,56 13 associated with the law firm were assisting, but those 00:07:03 13 Q. 00:05:00 14 were the main people. 00:07:07 14 the privilege 00:05:00 15 Q. Okay. Do you remember any of those other 0007:07 15 A. Sure. 00:05:02 16 people associated with the law firm who were present? 00:07:07 16 Q. 00:05:05 17 A. Present for, you know, coming in and 0007:07 17 My question is: During the meeting, did you 00:05:08 18 assisting, I believe Brad's assistant, Maria, was there, 00:07:11 18 discuss Professor Dershowitz? 00:05:13 19 and perhaps others at the firm, but it was 00:05,17 20 basically Brad and I. 00:07:15 20 discussion of what my client told you during any 00:05:18 21 Q. Was there anyone else who attended for the 00:07:19 21 situation where you were representing her as 00:05:21 22 entire meeting or a substantial portion of the meeting? 0007:21 22 an 00:05:2323 A. No. 00:07:22 23 MR. SIMPSON: So 00:05:23 24 Q. Okay. How long did the meeting last? 0007,24 24 agreement yesterday, if you follow your own mos:26 25 A. Approximately all day. 00:07:28 25 counsel's instruction on not answering, are you ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 3 of 46 sheets Page 160 to 163 of 335 10 20 2015 01:08:15 PM 164 166 00:07:28 1 also going to follow Miss McCawley's instructions 0009:08 1 and all that goes into the advice that they were 00:07:32 2 on not answering on behalf of 00:0712 3 MR. SCAROLA: Mr. Cassell will follow the 00:0911 3 would object to that. 00:07:36 4 instructions of Virginia Roberts' counsel. It is 00:09:12 4 MR. SCAROLA: Could I have the question read 0007:38 5 not his privilege to waive, and he is ethically 0009:15 5 back? 00,07,42 6 obliged to respect the direction coming from 00:0915 6 (Thereupon, a portion of the record was read 00:07:46 7 Virginia Roberts' counsel. 00:09:15 7 by the reporter.) 00:07:48 8 MR. SIMPSON: Yes, I'm 00:07:49 9 Mr. Scarola, making my record that the witness 00:07:52 10 MR. SCAROLA: I understand that. 000034 10 MR. SIMPSON: All right. Let me ask the 000752 11 MR. SIMPSON: Right. We disagree. 00:09:36 11 question, and 00:07:53 12 MR. SCAROLA: I understand, but you can 0009:38 12 that yesterday, the witness testified that the 0007:54 13 assume the same way I have authorized you to 00:0040 13 fact that Mr. Boies was representing Virginia 00:07:58 14 assume that Professor Cassell will follow my 00:09:42 14 Roberts was significant to him. So it's sort of oo,oe:oi 15 instructions, Professor Cassell will also follow 00:0047 15 being used as a sword and a shield here, but I 0008:04 16 all instructions concerning the assertion of 00:09,48 16 have only asked the question. I'll clarify. 00:08:07 17 attorney client privilege expressed on the record 00:09:48 17 MR. SCAROLA: We haven't used it any way yet. 00:08:10 18 by Miss McCawley on behalf of Virginia Roberts. 00:09:51 18 MR. SIMPSON: Well, the 00:08:13 19 MR. SIMPSON: All right. 00:09:52 19 volunteered. Shall I put it that way? And we 00:08:14 20 BY MR. SIMPSON: 00:0954 20 have a waiver. 00:0816 21 Q. So, Mr. Cassell, based on that, I will assume 00:0054 21 BY MR. SIMPSON: 00:08:21 22 that if I ask you what you recall the discussion being 00:09:55 22 Q. But, in any event, my question is: Have you 00:08:24 23 at the meeting or at each of the phone calls, that 00:09:58 23 spoken 00:0829 24 you're not going to answer those questions; is that 00:10:02 24 with David Boies about Virginia Roberts' allegations 00:08:29 25 correct? 00:10:06 25 regarding Professor Dershowitz? ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 165 167 00:08:29 1 MS. McCAWLEY: Yes. 00:10:10 1 MR. SCAROLA: Without getting into the 0008:30 2 THE WITNESS: Yeah, obviously not. 001013 2 substance of any such discussions, you can answer 00:08:30 3 BY MR. SIMPSON: 001016 3 that question. 00:08:30 4 Q. Okay. 001017 4 THE WITNESS: My recollection is no. 00:08:32 5 A. I mean, I have a duty to my client which I'm 00:10:20 5 MR. SCOTT: I think you're right on that one. 0008:36 6 going to respect. 001020 6 BY MR. SIMPSON: 00:08:36 7 Q. All right. So we'll 00:08:37 8 later with the judge. 00:10:23 8 spoken with him? 00:08:39 9 As of December 30th, 2014, had you spoken 00,1023 9 A. My recollection 00:08:44 10 about this case with David Boies, and the question is 00:10:24 10 MR. SCAROLA: Judge Scott has issued a 00:08:47 11 just: Had you spoken 0008:48 12 MS. McCAWLEY: Objection. 001029 12 MR. SCOTT: I wrote several opinions on that 00:08:48 13 BY MR. SIMPSON: 001029 13 actually. 00:08:50 14 Q. 00:08,91 15 MS. McCAWLEY: Objection. It's the 00:10:29 15 THE WITNESS: Let me go back - 00:08:52 16 common-interest privilege. 00:10:29 16 MR. SCOTT: In the context of criminal 00:08:52 17 BY MR. SIMPSON: 0010:33 17 lawyers. 0008:53 18 Q. I'm only asking if there was a discussion, no 00:10:33 18 THE WITNESS: I'm trying to remember if I 0008:55 19 substance at all. Just, was there a discussion? 00:10:34 19 wrote any opinions on that one when I was a 00,08:58 20 MS. McCAWLEY: I'm going to instruct you not 0010;36 20 judge. My 00:0000 21 to answer that. 0010:41 21 recall. I 00:0001 22 MR. SIMPSON: Okay. You're taking the 00:10:42 22 personally spoken to David Boies before December 00:0002 23 position that the fact of whether or not 000004 24 MS. McCAWLEY: Yes, because you're also 0010:44 24 BY MR. SIMPSON: 00:09:05 25 trying to get into the timing of communications, ESQUIRE DEPOSITION SOLUTIONS 00:10:45 25 Q. Okay. Had you, before December 30th of 2014, ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 164 to 167 of 335 4 of 46 sheets 168 170 00:10:53 1 spoken with any other lawyers at Mr. Boies' firm? 00:1464 1 record, 8:47 a.m. 00:10:58 2 A. My recollection is, no. 00:14:54 2 MR. SCAROLA: As it turns out, while we may 0611:02 3 Q. And after December 30th of 2014, have you 00:14:57 3 reach some issue of privilege at some point in 00:11:08 4 spoken with Mr. Boies about Virginia Roberts's 00:14:59 4 this discussion, the answer to your pending 00:11:13 5 allegations against 00:11:15 6 MS. McCAWLEY: Again, I'm going to object. 00:15:04 6 MR. SIMPSON: All right. I'll 00:11:15 7 BY MR. SIMPSON: 00:1606 7 the witness for the 0611:16 8 Q. 00:11:19 9 MS. McCAWLEY: Sorry. I will let you finish. 00:15:08 9 MR. SIMPSON: 0011:19 10 I'm objecting to this. I think it gets into 00:15:10 10 move to 00:11:20 11 the substance of conversations under the 00:15:11 11 THE WITNESS: Sure. That will be good. 00:11:24 12 common-interest privilege, whether there was a 00:15:11 12 BY MR. SIMPSON: 00:11:25 13 conversation, but you're getting into the 00:15:12 13 Q. My question is: I believed you had already 00:11:27 14 substance of what the conversation was about, and 00:15:15 14 answered the question as to before December 30th, 2014, 00:11:28 15 I think that is a violation of her 00:11:31 16 privilege. 00:1621 16 Professor Dershowitz, and you said, no; is that right? 00:11:31 17 MR. SCAROLA: And just so that I can clarify 061525 17 MR. SCAROLA: David Boies. 0011:34 18 our position on the record, I think that we can 0015:28 18 MR. SIMPSON: David Boies. I'm sorry. 00:11:38 19 identify the general subject matter in order to 00:15:28 19 THE WITNESS: Before December 30th, no 00:11:42 20 support our position that it falls within the 00:15:31 20 discussions that I can recall with David Boies. 0611:45 21 common-interest privilege. So we are willing to 00:15:31 21 BY MR. SIMPSON: 00:11:48 22 answer the question about the general subject 00:15:34 22 Q. After December 30th, 2014, did you have any 0011:51 23 matter to support our assertion of 001537 23 discussions with David Boies about Professor Dershowitz? 00:11:53 24 common-interest privilege, but not get into the 00:1642 24 A. Can I 00:11:56 25 substance of the communications beyond that. 0615:44 25 MR. SCAROLA: You can answer yes or no. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 169 171 00:11:58 1 MR. SIMPSON: And I believe its the same 0615:45 1 THE WITNESS: Yes. 00:1200 2 question that was answered a moment ago for a 00:15:46 2 BY MR. SIMPSON: 00:12:02 3 different time period, and again, I'm not asking 00:15:47 3 Q. You did. 00:12:05 4 for any substance. I'm just asking whether, 0015,47 4 A. Yes. 00:12:07 5 since December 30th, 2014, you have discussed the 00:1648 5 Q. What was the substance of those 00:12:13 6 allegations by Virginia Roberts against Professor 00:15:51 6 communications? 00:12:17 7 Dershowitz. 00:15:52 7 MS. McCAWLEY: I'm going to object to that. 00:12:17 8 THE WITNESS: I would like to confer with my 0615:53 8 You 0012:19 9 counsel on that question. It gets into a 0015:55 9 and its Virginia's privilege to waive, and she's 00:12:22 10 complicated legal issue that I'm not sure I 00:15:57 10 not waiving it. 00:12:25 11 can 0612:25 12 MR. SIMPSON: You want to confer on a 00:1658 12 MR. SCAROLA: We 00:12:26 13 privilege issue; is that right? 00:16:01 13 common-interest privilege with regard to the 00:1227 14 THE WITNESS: I want to confer with my 00:16:02 14 substance as well. 00:12:29 15 counsel before answering that question anyway. 00:16:03 15 MR. SIMPSON: All right. And that 00:12:32 16 MR. SIMPSON: I just want to clarify 00:12:32 17 MR. SCAROLA: With respect to privilege. 0016:06 17 questions about the substance of the discussions 00:12:33 18 MR. SIMPSON: All right. As long as its 00:16:09 18 with Mr. Boies; is that right? 00.12:35 19 with respect to privilege, you're entitled to do 00:16:11 19 MR. SCAROLA: I cant say that for sure. 00:12:37 20 that. 0016:14 20 MR. SIMPSON: All right. Let me ask my 00:12:37 21 THE WITNESS: Okay. 00:1615 21 question then. 00:12:38 22 THE VIDEOGRAPHER: We are going off the video 00:16:15 22 MR. SCAROLA: And let 00:12:40 23 record, 8:45 a.m. 0616:17 23 this will help you and maybe it won't. But, 0614:50 24 (Thereupon, a recess was taken.) oa 16:20 24 obviously, there have been some public statements 00:14:50 25 THE VIDEOGRAPHER: We are back on the video 00.16:27 25 with regard to this general area. If the ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 5 of 46 sheets Page 168 to 171 of 335 10 20 2015 01:08:15 PM 172 174 00:16:33 1 communications were not considered to be 002009 1 MR. SCAROLA: Because of concern about a 00:16:34 2 privileged at the time that they were made, we 0020:14 2 an inadvertent potential waiver of the 00:16:37 3 can answer questions about that. If they were 002018 3 work-product privilege, while it is not our 00:16:39 4 considered to be privileged at the time they were 0020:21 4 intent to assert a privilege with regard to 00:16:41 5 made, we can't answer questions. 00:20:27 5 nonexistent communications, any effort to 0016:42 6 So I can't tell you that there's a blanket 00:20:33 6 identify the subject matter of communications in 00:16:45 7 assertion. We need to hear the question. 00:20:37 7 the questions that you asked will require that we 00:16:47 8 THE WITNESS: I need the question back. 00:20:40 8 assert work-product privilege with regard to 0016:47 9 MR. SIMPSON: All right. 00:2043 9 those questions. 0016:48 10 BY MR. SIMPSON: 0020:44 10 MR. SIMPSON: Okay. We disagree, obviously, 0016:49 11 Q. What did you discuss with Mr. Boies about the 00:2046 11 on that position. 0016:53 12 allegations against Professor Dershowitz? 002047 12 MR. SCAROLA: We understand. 0016:55 13 MR. SCAROLA: And that is common-interest 0020:48 13 MR. SIMPSON: So I will ask some additional 0016'68 14 privilege information and we do assert a 0020,49 14 questions and we will see if the witness answers 00:17:00 15 privilege. 0020:5315 them. 00:17:00 16 BY MR. SIMPSON: 00:20:53 16 MR. SCAROLA: If it begins: "Did you talk 001701 17 Q. Did you discuss with Mr. Boies any 00:20:54 17 about," the answer is going to be an assertion of 00:17:05 18 discussions he had had with Professor Dershowitz? 0020:58 18 privilege. 00:17:08 19 MS. McCAWLEY: Objection. 00:20:58 19 MR. SIMPSON: Okay. 00:17:09 20 MR. SCAROLA: Same objection. Same 0020:58 20 MR. SCAROLA: Okay? 00:17:11 21 instruction. 00:20:59 21 MR. SIMPSON: I'll ask the questions. 00:1711 22 BY MR. SIMPSON: 00:21:00 22 BY MR. SIMPSON: 00:17:12 23 Q. Did you discuss with Mr. Boies any documents 00:21:05 23 Q. Did you discuss with Mr. Boies any meetings 001716 24 that Mr. Boies had reviewed? 00:21:09 24 Mr. Boies had had with Professor Dershowitz? 00:17:18 25 MR. SCAROLA: Well, let me ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 173 175 00:17:23 1 want to be asserting a privilege to questions as 00:21:13 1 MR. SCAROLA: Objection. Same instruction. 00:17:26 2 to which the answer is no, so you can answer 00:2115 2 BY MR. SIMPSON: 0017:34 3 generally as to whether the subject matter was 00:21:15 3 Q. Did you discuss with Mr. Boies his views as 00:17:40 4 covered in any discussion that you had with 00:2120 4 to the credibility of Virginia Roberts? 00:17:42 5 Mr. Boies. 002122 5 MR. SCAROLA: Same objection. 00:17:43 6 THE WITNESS: Okay. 00:21:23 6 MS. McCAWLEY: Objection. 00:17:44 7 MR. SCAROLA: Okay. If the answer is no. If 002123 7 MR. SCAROLA: Same instruction. 00:17:47 8 the answer 0017:51 9 the answer may be yes, you can't respond. 00:21:25 9 Q. Did you discuss with Mr. Boies any 00:17:56 10 MR. SIMPSON: I 00:17:58 11 MS. McCAWLEY: I'm afraid 0018:00 12 to 0018:01 13 because I have an objection. 0021:44 13 MR. SCAROLA: Same instruction. 001802 14 THE WITNESS: I have to say I want to confer, 00:21,44 14 MR. SIMPSON: That's the same question you 0018:04 15 I'm confused, too, so let's take a short break. 00:21:46 15 allowed to be answered. Did you 001806 16 MR. SIMPSON: Again, you're conferring on the 00:21:47 16 a different way. 0018:06 17 privilege now, not the substance? 00:21:47 17 BY MR. SIMPSON: 001806 18 THE WITNESS: That's right. 00:21:48 18 Q. Did you discuss, in any way, Les Wexner with 001806 19 MR. SCAROLA: Can we go off the record? 00:21:51 19 Mr. Boies? 001814 20 MR. SIMPSON: Yes. 00:21:51 20 MR. SCAROLA: Same objection. 00:1814 21 THE VIDEOGRAPHER: Going off the video 0021,51 21 MS. McCAWLEY: Objection. 00:1817 22 record, 8:48 a.m. 00:21,53 22 MR. SCAROLA: Same instruction. 0019:54 23 (Thereupon, a recess was taken.) 0021:55 23 MR. SIMPSON: He's instructed not to answer 00.1054 24 THE VIDEOGRAPHER: We are back on the video 00:21:55 24 whether that topic was discussed? 002006 25 record, 8:52 a.m. 0021.56 25 MR. SCAROLA: Yes. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 172 to 175 of 335 6 of 46 sheets 176 178 0021:57 1 MS. McCAWLEY: Yes. 00:23:58 1 discussed Virginia Roberts' allegations of sexual 00:21:57 2 MR. SIMPSON: Okay. 0624'07 2 misconduct against Professor Dershowitz with Bob 00:21:57 3 BY MR. SIMPSON: 0624:14 3 Josefsberg? 00:22:02 4 Q. Did you discuss former Prime Minister Barak 062414 4 A. Me personally? 0622:05 5 with Mr. Boies? 00:2418 5 Q. Yes, you personally. 00:22:08 6 MR. SCAROLA: Same objection. 0024:18 6 A. No. 00:22:08 7 MS. McCAWLEY: Objection. 062418 7 Q. After December 30th of 2014, had you 00:22:08 8 MR. SCAROLA: Same instruction. 00:24:24 8 you discuss with Mr. Josefsberg Ms. Roberts' allegations 062210 9 BY MR. SIMPSON: 00:24:30 9 against Professor Dershowitz? 002212 10 Q. Yesterday, you mentioned that one of the 0024:32 10 A. Not personally, no. 0022:14 11 reasons that supported your conclusion that it 002220 12 had an adequate basis to allege in the joinder motion 0024:36 12 someone else who had those discussions of 00:22:25 13 that the allegations against Professor Dershowitz was 00:24:39 13 had any discussions on that topic with Mr. Josefsberg? 00:22:29 14 that Mr. Boies was representing Virginia Roberts 00:22:31 15 Virginia Roberts; do you recall that testimony? 00:24:46 15 question would call for any information that was 00:22:35 16 A. Yes. 0024,51 16 communicated to you in the context of the 00:2236 17 Q. And you said that because of how highly 00:24:55 17 common-interest privilege, you should not answer. 002240 18 regarded Mr. Boies was, I think you mentioned the Bush 0625:00 18 THE WITNESS: All right. I'm not going to... 00:22:45 19 v. Gore case; is that right? 0625:0319 MR. SCAROLA: So you 00:22:45 20 A. Yes. 0625:04 20 any such communication came to you outside the 00:22:45 21 Q. I used to work for his opponent in Bush v. 00:25:07 21 context of the common-interest privilege, but you 00:22:49 22 Gore case. They are both very good. 00:25:10 22 may not include in your response any information 00:22:50 23 A. I'm trying 002251 24 sorry to take time, but who was the other lawyer? 06251224 BY MR. SIMPSON: 00:22:53 25 Q. Ted Olson. 00:25:15 25 Q. And my question right now is not the ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 177 179 00:22:54 1 A. Ted, that's right. That's... 002517 1 substance. We will get to that. But, to your 00:22:55 2 Q. But that's a side note. 00:25:19 2 knowledge 0022:57 3 My question is: Given your high regard for 062624 3 Did someone tell you that they had discussed 00:23:00 4 Mr. Boies, would you 00:23:07 5 credibility of Virginia Roberts be something that would 00:25:32 5 by Miss Roberts against Professor Dershowitz? 00:23:10 6 be important to you in evaluating the case? 062635 6 MR. SCAROLA: You may only answer that 00:23:12 7 MS. McCAWLEY: Objection. 00:25:36 7 question to the extent that you had any 00:23:12 8 MR. SIMPSON: Are you instructing him not to 0625:39 8 communication regarding that subject matter with 00:2615 9 answer? 0025:43 9 someone outside the common-interest privilege, or 0023:15 10 MS. McCAWLEY: I mean, is it a hypothetical? 002546 10 the attorney client privilege for that matter. 002318 11 MR. SIMPSON: No. I'm just asking whether 00:25:46 11 BY MR. SIMPSON: 0023:1912 his views 0023:19 13 the views are. I'm simply asking whether those 00:25:50 13 just the name if you did. 00:23:23 14 views would be important to him. 00:2652 14 MR. SCAROLA: Well, I understand that, but 0623:23 15 MR. SCAROLA: You may answer that question. 002554 15 following along the same lines as before, you are 062325 16 THE WITNESS: Yes. 00:25:57 16 asking us to identify the subject matter of a 0023:25 17 BY MR. SIMPSON: 0026:01 17 communication that is privileged. We won't 00:23:28 18 Q. And if I 002630 19 but did you discuss with Mr. Boies his views as to the 002607 19 privileged communications, but if 0623:35 20 credibility of Miss Roberts? 0626:09 20 Professor Cassell had a conversation with Sam 0623.38 21 MS. McCAWLEY: Objection. 0626:14 21 Smith standing on the street corner about Bob 00:23:39 22 MR. SCAROLA: Same objection. Same 0026:17 22 Josefsberg, he can answer that question. 0623:40 23 instruction. 062620 23 BY MR. SIMPSON: 062641 24 BY MR. SIMPSON: 062620 24 Q. Did you have a conversation with anyone - 002653 25 Q. Prior to December 30th of 2014, had you 0626:24 25 just narrow question: Did you have a conversation with ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 7 of 46 sheets Page 176 to 179 of 335 10 20 2015 01:08:15 PM 180 182 0026:26 1 anyone who told you that they, that person, had 00:2023 1 helpful. So please just instruct him to answer 002812 2 discussed the subject matter of Virginia Roberts's 0028:25 2 or not answer, and we will let the judge decide. 00:26:36 3 allegations against Professor Dershowitz with 00:2827 3 MR. SCAROLA: Well, the instruction 00:26:38 4 Mr. Josefsberg? Just did you discuss it with anyone? 00:28:29 4 gave the explanation in the hope that it might 0026:41 5 MR. SCAROLA: Same objection. Same 00:28:31 5 facilitate the examination and allow you to move 0026:42 6 instruction. 00:28:33 6 to areas where you can get substantive 00:26:42 7 MR. SIMPSON: Okay. 0028:36 7 information. 00:26:43 8 MR. SCAROLA: If you want to rephrase the 0028:36 8 I apologize if you consider it a waste of 002044 9 question to ask him whether he had such a 0028:39 9 time. So I will simply instruct Professor 00:26:46 10 conversation with anyone outside the 00:28:42 10 Cassell not to answer the question as phrased. 00:26:48 11 attorney client or work-product privilege, that's 00:28:45 11 If you ever want an explanation as to the basis 0026:51 12 a question that we are obliged to answer. 00:2647 12 of my instruction, I'm prepared to give that to 00:26:55 13 The question, as you phrased it, is a 00:28:50 13 you. 00:26:56 14 question that we are precluded from answering. 0028:50 14 MR. SIMPSON: Thank you. That 00:26:59 15 MR. SIMPSON: That's a very strange notion of 00:28:51 15 helpful way to proceed. 00:27:07 16 privilege. 0028:52 16 MR. SCAROLA: Okay. 0027:01 17 BY MR. SIMPSON: 00:28:53 17 BY MR. SIMPSON: 00:27:01 18 Q. But let me ask it this way: Did you discuss 0028:56 18 Q. Have you 00:27:07 19 with anyone who is not an attorney 00:27:15 20 a different way. 0029:05 20 described as the common-interest attorney client group, 00:27:16 21 You testified yesterday about your 0029:12 21 whether that person had discussed with Mr. Josefsberg 00:2718 22 understanding of the scope of the alleged 002916 22 Virginia Roberts's allegations against Professor 002721 23 common-interest privilege, correct? 002920 23 Dershowitz? 00:27:23 24 A. Yes. 00:29:20 24 MR. SCAROLA: Same objection. Same 00:27:23 25 Q. Putting aside the people within the scope of 00:2920 25 instruction. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 181 183 00:27:23 1 that privilege 00:27:23 2 A. Yes. 00:2922 2 Q. Have you discussed with anyone who is not an 00:27,27 3 Q. 002727 4 A. Uh-huh. 0029:33 4 Has anyone who is not an attorney for 0027:30 5 Q. 00:27:31 6 A. Right. That's right. 0029:40 6 Mr. Josefsberg the allegations against 00:27:31 7 Q. 00:27:34 8 tell you they had discussed the topic of Virginia 0029:47 8 MR. SCAROLA: Same objection. Same 00:27:37 9 Roberts's allegations against Professor Dershowitz with 002948 9 instruction. 0027:40 10 Mr. Josefsberg? 00:29:48 10 BY MR. SIMPSON: 00:27A1 11 MR. SCAROLA: You may not answer that 0029:59 11 Q. Have you personally spoken with anyone else 0027:44 12 question to the extent the question still 00:30:03 12 at Mr. Josefsberg's firm, other than him, about Virginia 00:27,45 13 encompasses attorney client privileged 00:30:12 13 Roberts's allegations against Professor Dershowitz? 0027:49 14 communications. If you want to rephrase the 00:3015 14 A. Not to my knowledge. 00:27:50 15 question to exclude both common-interest 00:3016 15 MS. McCAWLEY: I'm sorry. I'm sorry. Can 0027:55 16 privileged communications and attorney client 00:3018 16 you read that back? 00:27:57 17 privileged communications, that's a question we 00:30:19 17 MR. SCAROLA: Was a communication with anyone 0028:00 18 are prepared to answer. 00:30:20 18 else in Bob Josefsberg 0028:01 19 Otherwise, we are prohibited from answering 003025 19 personal communication between Professor Cassell 00:28,04 20 the question as phrased as a consequence of it 00:3028 20 and any firm member of Bob Josefsberg. 00:28:09 21 encompassing privileged communications. 00:3031 21 MS. McCAWLEY: Okay. 0028:12 22 MR. SIMPSON: As he defined the 00:3031 22 BY MR. SIMPSON: 002814 23 common-interest privileged group, it included 00:30:31 23 Q. And the answer was, not that you recall? 0028:17 24 attorney client, but I think at this point the 00:3034 24 A. Not to my knowledge. I don't know all the 00:28:20 25 explanations you're providing aren't really 00:3034 25 members of his firm, but I certainly have no ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 180 to 183 of 335 8 of 46 sheets 184 186 00:30:37 1 recollection of talking to, you know, anyone who is 00:3019 2 who was in his firm. 00:32:22 2 Q. Have you ever 00:30:40 3 Q. Okay. 00:32:25 3 Have you ever discussed with Mr. Boies his 00:3041 4 A. 1 00:30:43 5 I'm 00:30:46 6 City, Utah, and my understanding, he's an attorney here 00:32:39 6 MS. McCAWLEY: Objection. 00:30:49 7 in Florida. So I don't ordinarily interact with 00:30:51 8 with, you know, attorneys in Florida, other than the 00:32:40 8 instruction. 0030,54 9 ones that I'm interacting with on 0030:56 10 MR. SCAROLA: Which is now occurring on a 0012:46 10 Q. Prior to December 30th of 2014, had you 00:30:58 11 very regular basis. 0012:52 11 personally reviewed any of the flight logs that had been 00:31:01 12 BY MR. SIMPSON: 0012:56 12 referred to in the testimony in this case? 00:31:01 13 Q. Mr. Cassell 00:31:01 14 MR. SCOTT: No teaming, Mr. Scarola, please. 0033:02 14 Q. My only question is whether you personally 00:31:01 15 BY MR. SIMPSON: 0013:03 15 reviewed them. 00:31:04 16 Q. 00:31:05 17 the fact that Mr. Josefsberg's firm had filed a 00:33:04 17 Q. What flight logs have you reviewed; how would 00:31:10 18 complaint against Miss Roberts, who is also your client, 003107 18 you describe them? 0011:12 19 to be significant to your evaluation of the case? 00:33:08 19 A. Both Exhibit 1 and Exhibit 2 that were shown 0031:15 20 A. Yes. 00:33:13 20 to Mr. Dershowitz yesterday. 00:31:15 21 Q. And if it 00:31:18 22 evaluation of the case, why are you telling us you don't 00:33:19 22 7 0011.20 23 normally talk with attorneys in Florida? Doesn't he 00:33:19 23 A. Okay. 00:31:25 24 represent 00:31:26 25 A. Right. 00:33:21 25 marked as exhibits? ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 185 187 00:31:27 1 Q. And so wouldn't it be natural for you to be 00:33:22 1 A. Right. The two composite exhibits of flight 00:31:29 2 speaking with 0011:33 3 one might expect for you to speak? 00:33:27 3 Q. Okay. So the same documents that Professor 00:31:35 4 A. If I were a solo representative of Virginia 003130 4 Dershowitz was shown at his deposition; is that right? 0011:38 5 Roberts, that would be the case, but I think you're 00:3314 5 A. That's my recollection, yes. 00:31:40 6 obviously aware that I have co-counsel on this case, and 0013:35 6 Q. Okay. When did you review those? 0031:43 7 there are other attorneys who are also participating in 00:3137 7 A. So one of the reviews was in May 2014. There 0011:46 8 this matter. 003146 8 may have also been an earlier review at an earlier 00:31:47 9 So I think it would be obvious that if 00:3153 9 earlier time, but I definitely remember reviewing them 00:31:50 10 there's a division of labor, it might not be along the 0013:55 10 in May 0031:53 11 lines that you're suggesting. And I can't go any 00:33:58 11 Q. Would 0031:55 12 further without going into work product and other issues 00:34:02 12 flight logs support Professor Dershowitz's testimony 0011:59 13 surrounding Miss Roberts' representation. 0014,07 13 that he was never on a plane with Virginia Roberts? 00:32:01 14 Q. Has Mr. Boies ever told you that he believes 00:34:10 14 A. No. 00:32:05 15 Miss Roberts was mistaken in her accusations against 00:34:12 15 Q. How do they not? What is 00:32:08 16 Professor Dershowitz? 001414 16 explanation for your conclusion in that regard? 00:32:09 17 MR. SCAROLA: Same objection. Same 0014:16 17 A. Right. We talked about this yesterday, so 00:3211 18 instruction. 0014:20 18 I'll incorporate to speed things up some of the 0012:12 19 MS. McCAWLEY: Same instruction. 00:34.22 19 testimony that I gave yesterday. 0032:13 20 THE WITNESS: I'd like to confer with my 003423 20 What the flight logs showed was, to my mind, 00:32:15 21 counsel on a attorney client privilege issue in 00:34:26 21 evidence of potential doctoring, evidence of 00:32:19 22 connection with that question. 001410 22 selective presentation of evidence. Mr. Dershowitz had 00:32:19 23 MS. McCAWLEY: Can I just write down the 0034:34 23 presented to a law enforcement agency, at their request, 00,32:19 24 question and 0032,20 25 MR. SIMPSON: I'll ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 9 of 46 sheets Page 184 to 187 of 335 10 20 2015 01:08:15 PM 188 190 00:34:42 1 enforcement agency to provide flight logs relevant to 00:37:16 1 that covered the jet were not just the David Rogers' 0064:46 2 this investigation. 00:37:20 2 flight logs, but there should be flight logs for other 00:34:47 3 And rather than providing all the flight logs 00:37:22 3 pilots which were not apparently being produced. 00:34:49 4 that were available at that time, he appears to have 063725 4 And so, in light of all that, what I was 00:34:52 5 provided flight logs that went from January 2005 through 00:37:27 5 seeing was a 00:34:57 6 September 2005, knowing that he appeared on an 00:37:32 6 incomplete. And then I started to hear from 00:35:01 7 October 00:35:04 8 October 2005 flight log. 00:37:37 8 conclusively I couldn't have done that. And I knew to 00:35:06 9 So that, to my mind, had indicated that 00:37:40 9 an absolute certainty, that the records were 00:35:08 10 Professor Dershowitz was providing selective information 0637:42 10 inconsistent and inaccurate; and for somebody who had 00:35:11 11 to law enforcement. Those concerns 00:35:15 12 know, there's 00:35:18 13 The other problem was that the flight logs 00:37:52 13 on the flights, seemed to me to be inaccurate 0635:22 14 that Mr. Dershowitz had produced were inconsistent with 00:37:54 14 information. 063526 15 the flight logs that Dave Rogers, one of Mr. Epstein's 0637:55 15 So that was 00:35:31 16 pilots had, so there were now inconsistencies on these 00:37:56 16 I was thinking about. 00.35:35 17 flight logs. And it seemed to be 00:35,39 18 be surprising that during the period of time where 00:38:02 18 MR. SIMPSON: Well, first of all, I move to 00:35:41 19 Virginia Roberts was involved, Mr. Dershowitz was not 063603 19 strike the nonresponsive portion of the answer. 00:35:45 20 appearing on those flight logs. 0638:03 20 BY MR. SIMPSON: 0635,46 21 Now, it is possible, I suppose, and that 00:38:07 21 Q. Mr. Cassell, is it your testimony that you 00,3649 22 seems to be Mr. Dershowitz's position, that the reason 0638,08 22 have sufficient information to conclude and allege that 00:35:52 23 he's not on those flight logs is that he was not on 0638:12 23 Professor Dershowitz falsified documents and gave 0035:54 24 those flights. But given all of the information 00:35:57 25 I won't take your time this morning to go through ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 189 191 00:35:59 1 the information I had about this international sex 0638:22 1 provided incomplete production to law enforcement 00:313:03 2 trafficking organization, it seemed to me that it was 00:3825 2 agencies. 0636:05 3 also possible that the sex trafficking organization, 00:38:25 3 Q. Is it your testimony under oath that you have 00:36:08 4 which was represented by, you know, vast resources and 00:38:26 4 sufficient information to allege that Professor 00.36,12 5 the ability to produce witnesses and documents and other 00:38,31 5 Dershowitz intentionally provided false information to a 0636:15 6 information that would 00:36:19 7 of this organization, had gone through the flight logs 0638,38 7 A. It is my position that he provided incomplete 00:36:22 8 and had made necessary alterations to 0636:26 9 scope of 0636:29 10 In addition to that, when I started to 0638:47 10 Now, as to precisely what his state of mind 00:3633 11 compare the Dave Rogers' flight logs with the David 00:3638 12 excuse me. I am going to get a drink. 0638:52 12 information, that remains to be this 00:36:42 13 When I started to compare the 00:36:46 14 sorry. I should be looking at the camera. 0638:56 14 covered in 0636:48 15 When I started 00:36:49 16 the Dave Rogers' flight logs with the Dershowitz 0636:54 17 which we call them the Dershowitz flight logs, which 063605 17 gave a long answer in which you described reasons you 00:36:55 18 were the logs that he had produced, there were 00,39,08 18 apparently believe that these flight logs were not 063658 19 inconsistencies, and so it struck me as odd that there 00:39:13 19 merely incomplete, but that someone had false 0637:03 20 were these inconsistent flight logs. 00:39:16 20 falsified them. And did I understand you correctly? 0637:03 21 The other thing that I noticed is, I don't 00:39:20 21 MR. SCAROLA: Excuse me. The question that 00:3765 22 believe that Dave Rogers was the exclusive pilot for 00:3622 22 was asked was limited to the time period prior to 0637:08 23 Mr. Epstein. And so I had a concern 00:3713 24 sorry. 0639,29 24 limited to the time period prior to December 00:37:13 25 I had a concern that the flight logs that ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 188 to 191 of 335 10 of 46 sheets 192 194 00:39:32 1 Are you now asking for an expansion of that 00:42:08 1 Another thing that happened during the 00:39:35 2 response to include information that's been 00:42:10 2 deposition, and I will not repeat what was said in the 00:39:38 3 gathered since December 30th? 00:42:14 3 deposition, because there was immediately an objection 00:39:40 4 MR. SIMPSON: I will take your objection to 00,42:17 4 from Ms. McCawley, but there were two points in the 00:39:43 5 the form. 00:42:19 5 deposition where Mr. Dershowitz made representations 00.3944 6 Can we have the question back? 00:42:22 6 about what a New York Attorney David Boies would say, 00:39:44 7 (Thereupon, a portion of the record was read 00:42:25 7 and I'm not going into any ....- 00:40:05 8 by the reporter.) 00:42:27 8 Q. I 004006 9 MR. SCAROLA: And I object. The question is 00:42:30 9 about it 00:40:07 10 vague and ambiguous because it fails to identify 00:42:31 10 MS. McCAWLEY: No, I 00:40:09 11 the time period about which you are inquiring. 00:42:32 11 reference 00:4009 12 BY MR. SIMPSON: 00:42:33 12 MR. SIMPSON: 00:40:14 13 Q. Mr. Cassell, as you sit here today, are you 00:42:34 13 questions if he should say anything. 00:40:18 14 prepared, based on the information you have available to 0042:34 14 MS. McCAWLEY: I think he's just 00:40:21 15 you, to assert that Professor Dershowitz intentionally 00:42:35 15 acknowledging that 00:40:28 16 provided misleading or doctored documents to a 00:42:37 16 acknowledging that that occurred. I object to 00:40:34 17 prosecuting authority? 00:42:39 17 any 00:40:37 18 A. So based on all the information I have today? 00:42:43 18 communications in the context of that privilege. 00:40:39 19 Q. Yes. 00:42:44 19 MR. SCAROLA: I don't intend to get into any 00:40:40 20 A. Yes. 00:42:48 20 settlement discussions. We are not going to 0040:40 21 Q. What do you base 00:40:44 22 that conclusion, and include information up until today? 0042:51 22 testimony. 00:40:48 23 A. All right. So, obviously, that's an 00:42:51 23 MR. SIMPSON: My point, I just want it to be 00:40:51 24 open-ended question. 00:4254 24 on notice 00:40:52 25 Q. I ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 193 195 00:40:55 1 best you can. 00:4255 1 MR. SIMPSON: 00:4055 2 A. Sure. All right. Well, let me just 00:40:58 3 that's a lot 00:41:00 4 that. 00:43:02 4 that forth as a basis, he has opened the door. 00:41:02 5 Let's start with the events of the last two 00:43:05 5 You can't put it forth and park and not let 00:41:05 6 days, the deposition of Mr. Dershowitz, which in my mind 00:43:07 6 me ask for all the discussions. 00:41:10 7 demonstrates repeated false statements that were made by 00:43:09 7 MR. SCAROLA: You can 00,41:14 8 Mr. Dershowitz. 00:43:10 8 you know not to include privileged 00:41:15 9 Let's begin with the overarching point about 00:43:10 9 THE WITNESS: Yes. 0041:18 10 the deposition of the last two days. I've been 0043:13 10 MR. SCAROLA: 00:41:20 11 practicing law 00:41:26 12 experience, I have never seen a more evasive effort to 00:43:15 12 reported 00:41:30 13 avoid answering questions, and to essentially run out 00:43:18 13 promptly after Mr. Dershowitz said that Mr. Boies 00:41:34 14 the clock so that detailed questions could not be asked 00:43:21 14 had made certain representations, a Florida 00:41:38 15 by my attorney. And I witnessed over the last two days, 00:4324 15 respected Florida business newspaper immediately 00:41:41 16 Mr. Dershowitz was asked a series of very simple 00:43:27 16 reported that David Boies had said, that was a 00:41:44 17 questions; where were you on this day; or what's the 00:43:29 17 false statement. 00:41:46 18 name; or what time, things like that, and instead of, 00:43:31 18 And in light of that, I now had David Boies 0041:49 19 you know, giving an 00:4153 20 giving a very extended answer commonly punctuated with 0043:37 20 statements under oath during the 00:4157 21 disparaging remarks that seemed to have nothing to do 00:43:38 21 deposition that occurred over the last two days. 00:42:00 22 with answering the question. 00:43:41 22 In addition to that, I had 00:42:01 23 So I drew the inference from that that 00:43:44 23 the deposition, I heard Mr. Dershowitz say that 00:42:03 24 Mr. Dershowitz did not want to answer questions over the 00:43:48 24 Attorney Bob Josefsberg had said that 00:42:07 25 last two days. 0043:52 25 the effect that he, Josefsberg, did not believe ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 11 of 46 sheets Page 192 to 195 of 335 10 20 2015 01:08:15 PM 196 198 00:43:54 1 Virginia Roberts. 0646:02 1 You know, I also have 0643:55 2 I knew Josefsberg was an attorney who had 0646:05 2 refresh my recollection and if 0044:00 3 represented Miss Roberts based on public 064610 3 that's 00:4460 4 information, and I knew that that would be a 00:46:10 4 MR. SCAROLA: You can refresh your 00:4462 5 gross violation of Mr. Josefsberg's 0646:12 5 recollection on anything you need to. 00:4464 6 attorney client obligations. And as a result of 00:4612 6 THE WITNESS: All right. I'd like to refresh 0644:09 7 that, it seemed to me that, once again, 00;46:15 7 my recollection by looking at - 064466 8 Mr. Dershowitz was giving false information under 0646:16 8 MR. SIMPSON: Actually, I 00:4412 9 oath in an effort to exculpate himself from the 00:4617 9 answer as nonresponsive. I haven't heard 064417 10 sex trafficking that he had been involved with. 0646:20 10 anything about flight logs once. 0644:19 11 In addition to that, I learned during the 00:46:21 11 MR. SCAROLA: You can continue. 00:44:21 12 deposition on Thursday that it had, quote, not 00:4623 12 THE WITNESS: These 00:44:26 13 crossed my mind, close quote 00:44:29 14 a direct quote from Mr. Dershowitz 00:44:31 15 conversation with a woman allegedly named Rebecca 0646:28 15 Q. You're looking at a document? 0644:34 16 who had allegedly made certain statements. That 064629 16 A. Yeah. Let's mark it as an exhibit if you'd 0644:37 17 was on Thursday. 00:4632 17 like. This is a memory aid to me. 0644:38 18 And then yesterday, Friday, I learned that 00:46:34 18 Q. Did you prepare it? 00:44:40 19 Mr. Dershowitz, not only had it crossed his mind 00:46:35 19 A. Yes, I did. All right. Let's see. At page 00:44:43 20 to make a recording, he had, in fact, made such a 00:464220 114 of a rough transcript that I saw prepared of 00:44:47 21 recording; and in fact, had it transcribed; and 00:46:46 21 Thursday's testimony, Mr. Dershowitz was asked. Quote: 0644:50 22 in fact, turned it over to his attorneys. So, 0646:50 22 You know that Virginia Roberts is not the only person 00:44:53 23 once again, I had what appeared to be a false 0646,5223 who has sworn under oath that you were present at 00:44:56 24 statement under oath by Mr. Dershowitz in an 00:46:55 24 Jeffrey Epstein's Palm Beach home with young girls, 00:44:58 25 attempt to exculpate himself from the ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 197 199 00:45:03 1 trafficking that we 00:45:06 2 been involved with. 00:47:05 2 least misleading testimony given that Mr. Dershowitz 00:45:06 3 The false statements or certainly misleading 0047:07 3 knew that Juan Alessi, among potentially other people, 00:45:12 4 statements continue. I suppose, some of these 00:4711 4 had identified him as having been in the presence of 00:45:14 5 could be a matter of judgment. The 0645:18 6 grave concern to me. 00:4717 6 and, indeed, had identified a photograph of Virginia 0645:18 7 One of them was that we had propounded an 00:4720 7 Roberts. 00:45:20 8 interrogatory requesting the basis for 064721 8 At page 164 of the transcript, Mr. Dershowitz 00:4523 9 Mr. Dershowitz's statements that Virginia Roberts 00:47:25 9 was asked, quote: All of the manifests that have been 00:45126 10 had a criminal record. And he said that, well, 00:47:28 10 produced in this litigation, the ones that you say 00:45:29 11 she's admitted that she had sex with various 0647:31 11 corroborate your testimony and exonerate you, 00:45:32 12 people, so that renders her a criminal, and 00:47:34 12 demonstrate that you never flew on Jeffrey Epstein's 00:45:34 13 something along those lines, which I didn't think 0647:37 13 plane in the company of your wife, correct? Answer: 0645,36 14 was very accurate. 0647:41 14 No, that's not true. I don't know that. 00:45:38 15 But in any event, that was the answer he 00:47:44 15 And, again, in the context of this litigation 00.45:39 16 gave. And then I learned during the deposition 0647:46 16 where the flight logs have been, as this question that 00:45:42 17 in the last two days, that Mr. Dershowitz had 00:47:48 17 I'm answering tends to show, are so central for 00:45:45 18 received information that he says shows that 00:47:52 18 Mr. Dershowitz to testify under oath that he didn't know 00:45:48 19 Virginia Roberts had stolen money from a 06A7:56 19 whether his wife was depicted on the flight log, struck 00:45:50 20 restaurant and had been criminally charged with 00:47:59 20 me as, at the very least, misleading information, but I 0645:51 21 that. 00.4862 21 concluded in my opinion was actually deliberately false 00:45:52 22 That was not produced to us during discovery, 0648:05 22 information, particularly, given this litigation where 00:45:54 23 even though it would have been obviously 0648:08 23 he has produced, not only his own personal travel 0645,56 24 relevant, and it was directly called for in the 0648,11 24 record, but all of his wife's travel records for the 00:45:59 25 discovery that we were provided with. 0648:14 25 relevant period of time. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 196 to 199 of 335 12 of 46 sheets 200 202 00:48:15 1 So I thought that was, again, a deliberate 00:50:41 1 logs. And I could refresh my recollection here by 00:48:19 2 false statement under oath designed to exculpate him 00:50:45 2 looking at, I think it's docket entry 291 of our 00:48:22 3 from his criminal involvement in this international sex 00:50:49 3 pleading that we presented on January 21st to 00:48:26 4 trafficking ring. 00:50:51 4 Judge Marra where we provided specific itemized examples 00:48:27 5 At another point in the transcript, he was 00:50:54 5 of inconsistencies between the Dave Rogers' flight log 00:4829 6 asked, quote, 00:48:32 7 challenge you to find any statement where I said I have 00:51:01 7 flight log, which was a selected presentation of flight 00:48:35 8 never traveled outside the presence of my wife, close 00:51,03 8 log information. 00:48:38 9 quote, representing that there would be no such 00:51:04 9 And when you see those inconsistencies, it 00:48:42 10 statement there, when, in fact, I'm aware of an American 00:51:06 10 becomes very hard to believe that all of the information 00:48:45 11 Lawyer quotation attributed to him from January 15th, 00:51:09 11 that was provided in those flight logs was accurate. So 00:48:48 12 2015, quote: I've been married to the same woman for 28 00:51:11 12 when I take all of that information, put it together, I 00:48:52 13 years. She goes with me everywhere, close quote. And, 00:51:14 13 believe that there's sufficient 00:48:56 14 again, you know, this 00'4869 15 may go away from their wife, but the American Lawyer 00:51:19 15 Mr. Dershowitz has, indeed, provided inaccurate 00:49:01 16 was, obviously, on January 15th, 2015, asking about: 0651:22 16 information to 00:49:05 17 Well, have you been outside the presence of your wife in 00:51:25 17 minimum has provided 00:49:08 18 situations where you might have interacted with Virginia 00:51:29 18 information through circumstances beyond his control. 00:49:10 19 Roberts? And that was the answer that he gave to the 00:51:32 19 But when he continually represents that the 00:49:12 20 American Lawyer. 00:51:34 20 information is accurate and exonerates him, I believe 00:49:13 21 And based on 00:49:15 22 logs, I thought that was, again, a deliberate effort to 00:51:41 22 MR. SIMPSON: Move to strike the answer 00:49:20 23 obscure and try to exculpate himself from his 00,51:42 23 the nonresponsive portion of the answer. 00:49:23 24 involvement in this international sex trafficking ring. 00:51:46 24 MR. SCAROLA: Which portion is that? 00:49:26 25 The ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 201 203 00:49:33 1 about Prince Andrew and Virginia, except for the two of 00:51:50 1 the end, we got to the flight logs. 00:49:36 2 them. And, again, I thought that was at a minimum, 00:51:52 2 I move to strike the nonresponsive portion. 00:49:39 3 deliberately mis 00:49:41 4 likely deliberately false information, because 00:51:55 4 Q. Mr. Cassell, you came here today looking for 00:49:43 5 Mr. Dershowitz was aware of the photograph and had long 00:51:57 5 an opportunity to give that statement; did you not? 00:49:47 6 been aware of the photograph that shows Prince Andrew 00:51:59 6 A. If it was relevant to an answer I was giving, 0649:50 7 with his arm around Virginia Roberts, standing next to a 00:52:03 7 yes. 00:49:53 8 beaming Glenn Maxwell who has been involved in this 00:52:03 8 Q. The answer to my question is, yes, you came 00:4966 9 international sex trafficking organization. 00:52:05 9 here today looking for a question to which you could 00:49:59 10 And in the circumstances of that photograph, 0652:08 10 respond with that prepared statement? 00:50:01 11 it seems quite likely that the photographer who took 00:52:10 11 A. I was prepared to give that 00:50;04 12 that picture was the head of the international sex 00:52:13 12 that a very good attorney for Mr. Dershowitz might ask a 00:50:07 13 trafficking ring, Jeffrey Epstein. And so for him to 00:5215 13 question where that would be relevant. And if that 00:50:10 14 say that only two people knew what went on was, again, 00:52:18 14 question were asked and I was given the opportunity to 00:5014 15 deliberately false information, because I know he is the 00:52:20 15 make that statement, I wanted to be prepared to give it 0650:17 16 attorney for Jeffrey Epstein, and he could have asserted 00:52:23 16 in the most accurate way that I could. 00:50:20 17 attorney client privilege over that, said, I can't get 00:52:25 17 MR. SIMPSON: I would like the reporter to 00:50:22 18 into my communications with my client about what he was 00:52:27 18 mark as Exhibit 00:50:25 19 doing with Prince Andrew. 00:52:31 19 the document that Mr. Cassell was referring to. 00:50:26 20 But instead he said, no one knows what 00:52:34 20 I'll let the reporter do that. 00:50:29 21 happened, other than those two people in circumstances 00:52:36 21 THE WITNESS: Okay. 00:50:31 22 where it was quite clear that there would have been 00:52:36 22 (Cassell's I.D. Exhibit No. 4 - document 00:50:34 23 others who would have been aware of that. 00:52:36 23 produced by the witness was marked for identification.) 00:50:35 24 Now, the question is: Why do I think the 00:50:39 25 the ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 13 of 46 sheets Page 200 to 203 of 335 10 20 2015 01:08:15 PM 204 206 00:53:00 1 BY MR. SIMPSON: 065568 1 perfectly clear. 0653:02 2 Q. Before Wednesday of this week, you had none 006568 2 BY MR. SIMPSON: 00:5367 3 of the information that you just described about 00:55:08 3 Q. My question, Mr. Cassell, is: You reviewed 00:53:10 4 Professor Dershowitz's testimony, correct? 0065:11 4 the flight logs, correct? 00:53:12 5 A. Correct. 00:55:12 5 A. Correct. 0653,12 6 Q. I'm trying to look at my notes here of your 0055:12 6 Q. You reviewed them in some detail, correct? 0653:28 7 long answer, but one thing you indicated that 00:53:30 8 fact that Professor Dershowitz gave long answers is 00:55:15 8 Q. Is there any entry on those flight lines - 00:53'34 9 somehow indicative of false answers or perjury 065314 10 MR. SCAROLA: That is 00:53:34 11 BY MR. SIMPSON: 00:55:23 11 A. No. 0653'19 12 Q. 00,53:39 13 MR. SCAROLA: That is an absolute 00:55:26 13 the completeness and accuracy of those flight logs goes 00:53:40 14 mischaracterization of the statement that 00:55:33 14 to whether the logs are 00:53:43 15 Professor Cassell made. He did not refer to the 00:55:39 15 The answer that you gave about your question 0653:47 16 length of the answers, but rather their 00:55:43 16 as 0653:47 17 nonresponsiveness. 00:55:47 17 logs and whether they may have been changed in some 0653:47 18 BY MR. SIMPSON: 065650 18 ways, goes to whether those logs are conclusive, not 00:53:52 19 Q. Let me 00:53:55 20 Go back to the flight logs themselves. 00:55:5820 testimony that he was not on a plane with Virginia 065367 21 A. Okay. 065662 21 Roberts? 0653:57 22 Q. My initial question that got us going down 00:56:03 22 MR. SCAROLA: I'm going to object to the form 03:54:01 23 this line was: Isn't it true that the flight logs 065664 23 of the question as vague and ambiguous. I don't 00:54:05 24 themselves support Professor Dershowitz's testimony that 00:56:08 24 understand it. 00:54:13 25 he was never on a plane with Virginia Roberts, the face ESQUIRE DEPOSITION SOLUTIONS 00,56:08 25 THE WITNESS: And I won't give a long answer, ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 205 207 00:54:17 1 of the flight logs support that proposition? 065668 1 but I 00:5420 2 A. The face of the flight logs for the relevant 00:5611 2 can't just look at the face of these documents 00:54:23 3 period of time, we can call it the hot period of time or 006614 3 without 065425 4 whatever you want, did not reveal the presence of 0656:17 4 of an international sex trafficking ring that's 00:54:27 5 Mr. Dershowitz on those flights, yes. 00:56:19 5 trying to cover up what it's doing. You cant 00. 54:29 6 Q. Okay. So during the period 0654,32 7 actually, there's no flight log that shows Virginia 0656:22 7 100 percent accurate without that 00:54:34 8 Roberts and Professor Dershowitz on the same airplane, 00:5624 8 context in mind. 00:54:37 9 correct? 00,56:20 9 BY MR. SIMPSON: 00:54,37 10 A. That's my understanding, yes. 00:5626 10 Q. And so am I right, that on the face of the 0054:39 11 Q. And 00:54:39 12 MR. SCAROLA: By name. You're 0654:39 13 MS. McCAWLEY: And it 00:54:41 14 MR. SCAROLA: 00:54:43 15 identified by name? 0656:40 15 And so do I understand correctly that your 0654:45 16 BY MR. SIMPSON: 06566716 position is that the flight logs may not be complete or 00:54:47 17 Q. To your knowledge, isn't it correct that 00:57:06 17 may have been changed, but you do not dispute, that on 00:54:49 18 there is no flight log that's been produced in this case 00:57:10 18 their face, they support Professor Dershowitz's 00:54:51 19 by any party that reflects Professor Dershowitz and 00:57,13 19 testimony? 065465 20 Virginia Roberts on the same plane, as you read the 00:57714 20 MR. SCAROLA: Objection. 00:5468 21 flight log? 00:57:16 21 MS. McCAWLEY: Objection. 00:54:59 22 MR. SCAROLA: I'm sorry. Are you asking 0657:16 22 MR. SCAROLA: Compound. 0065:02 23 whether those same names appear on the flight log 0067:16 23 THE WITNESS: Could you just aggregate that? 00:55:06 24 together? 00:57:19 24 BY MR. SIMPSON: 00:55:06 25 MR. SIMPSON: My question, I think, is 0067:20 25 Q. You follow the objections very well. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 204 to 207 of 335 14 of 46 sheets 208 210 0057:22 1 A. I was thinking of that as well. 00:5008 1 A. I recall his testimony to that effect, yes. 00:57:22 2 BY MR. SIMPSON: 00,59:10 2 Q. And you testified that no support for that 00:57:22 3 Q. Let me 00:57:23 4 A. I wasn't 09:5723 5 Q. Let me 00:57:25 6 A. 00:57:25 7 Q. Let me 00:57:27 8 question. 0059:24 8 A. I don't have a recollection of criminal 00:57:27 9 A. Sure. Thanks. 00:59:27 9 charges having been discussed in the Alessi deposition. 00:57:31 10 Q. You testified that you have 00:57:35 11 length, about why you question the accuracy of the 005904 11 it your testimony that you understood that, in fact, 00:57:40 12 flight logs, correct? 00:59:40 12 Miss Roberts had been accused of stealing money from her 00:57:43 13 A. Correct. 00:59:44 13 employer? 00:57:43 14 Q. But I may be redundant, but you don't 00:59:47 14 MS. McCAWLEY: I'm going to object to the 00:57.45 15 question that what they show on their face supports 00:5048 15 extent it gets into any conversations that you 00:57:48 16 Professor Dershowitz's testimony 00:57:48 17 MS. McCAWLEY: Objection. 005052 17 THE WITNESS: Yeah, I'm trying to 00:57:48 18 BY MR. SIMPSON: 00:59:55 18 question is about the Alessi depo, I don't 00:57:50 19 Q. 00:57:52 20 Roberts? otcaol 20 discussing them. 00:57:53 21 A. The 00:57:56 22 ring run by Jeffrey Epstein has produced Epstein flight 01:00:04 22 Q. If I represent to you that Mr. Alessi, in his 00:57:59 23 logs that appear to show that 005804 24 Virginia Roberts are not on the plane, so... otooll 24 Miss Roberts, do you have any reason to question that? 00:58:06 25 Q. So the answer to my question is, yes? 01:001325 MR. SCAROLA: Could we ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 209 211 00:5809 1 MR. SCAROLA: I'm sorry. 01:0014 1 the deposition? And if you have got a reference 00:58:09 2 THE WITNESS: Which question now? 010016 2 in the deposition, lets take a look at it. 00:58:10 3 MR. SIMPSON: The question you just 00:58:12 4 you read back my 00:58:12 5 BY MR. SIMPSON: 01:00:20 5 for itself. But I want to 00:58:31 6 Q. Let me ask it again. 01,00:21 6 MR. SCAROLA: Yes, it will. 00:58:31 7 A. Okay. 01:0021 7 MR. SIMPSON: He 00:58:31 8 Q. That's fine. 01100:23 8 accusation. I would like to get an answer to my 00:5033 9 A. I mean, I thought I was 00:58:33 10 MR. SCAROLA: There's no question pending. 01:0027 10 deposition that all the parties in this case 00:58:34 11 THE WITNESS: I'm sorry. 01:0029 11 have, Mr. Alessi said under oath, that she had 00:58:35 12 BY MR. SIMPSON: 01:00:32 12 been arrested and charged with stealing from her 00:58:35 13 Q. What were you about to say? 01:00:34 13 employer. 00.58:36 14 A. I was about to say that the records that they 01:00:35 14 THE WITNESS: When you 00:58:39 15 produced 00:58:42 16 Q. The records 0058:44 17 produced 0058,44 18 A. On 0058:47 19 flight log that has Virginia Roberts and Alan Dershowitz 01:0046 19 Miss Roberts had a criminal record? And that 00:5850 20 sitting next to each other, yes. 01:00:49 20 answer didn't refer to an Alessi depo. If it 005051 21 Q. And you also 0058:54 22 ago that Professor Dershowitz in his testimony in the 01:00:53 22 When 0058:57 23 last couple of days, had testified that Virginia Roberts 0100:56 23 a deposition, both sides are supposed to turn 0059:03 24 had been arrested for stealing cash; do you refer 0059:08 25 you recall that? 01:01:00 25 about, well, what if ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 15 of 46 sheets Page 208 to 211 of 335 10 20 2015 01:08:15 PM 212 214 01:0101 1 on this piece of the Alessi depo and it's not in 01:02:48 1 Mr. Alessi had also testified previously about the 01:01:03 2 the answers to interrogatories, it's hard for me 01:0254 2 arrest of Miss Roberts for stealing from her employer? 01:01:05 3 to 01:0107 4 the 01:01:10 5 MR. SIMPSON: I move 01:01:11 6 nonresponsive. 01:03:04 6 representation. 01:01:11 7 BY MR. SIMPSON: 01:03:05 7 I didn't recall that when he was testifying 01:01,12 8 Q. My question went to whether 01:01:18 9 up. If 01:01:21 10 MR. SCAROLA: The question was: Did he 01:0317 10 hour. Is it time to take a break? Is that 01:01:23 11 recall the contents 01:0123 12 MR. SIMPSON: I'm asking the question. 01:0319 12 MR. SIMPSON: We can take a break now. 01:01:23 13 MR. SCAROLA: 01:01:24 14 MR. SIMPSON: I'm withdrawing it. I will ask 01:0322 14 record, 9:35 a.m. 01:0125 15 a new question. 0115:01 15 (Thereupon, a recess was taken.) 01:01:26 16 MR. SCAROLA: Okay. Thank you. 01:15:01 16 THE VIDEOGRAPHER: We are back on the video 01:01:26 17 BY MR. SIMPSON: 01:15:28 17 record, 9:47 a.m. 0101:27 18 Q. I understood you in your 01:01:32 19 that you gave a while ago to suggest that Professor 0115:34 19 I may, and just supplement the long answer that I 01,0116 20 Dershowitz had either testified falsely or failed to 01,1524 20 gave about the series of things. 01:01:41 21 provide relevant information on which he was basing his 01:15:36 21 By looking over my checklist, I noticed that 01:01:44 22 testimony about Miss Roberts's arrest; is that right? 01:15:38 22 item 5 of the 12 items was not given during my 01:01:46 23 A. Yes. 01:16:42 23 testimony. I'm - 01:01:46 24 Q. And that assertion would be incorrect if 01:15:42 24 BY MR. SIMPSON: 01:01:50 25 there's a deposition in this case that all the parties 01:15:44 25 Q. I don't ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 213 215 0101:53 1 have that include that information? 01:15:45 1 It's in the record as part of your 01:01:55 2 MR. SCAROLA: Mr. Simpson, there was an 01:15:49 2 A. I would like to just supplement 01:01:58 3 express reference to an answer to interrogatory, 0115:50 3 MR. SCAROLA: That's fine. That's fine. If 01:0201 4 and the absence of any reference to an arrest for 01:15:51 4 you don't want to hear it, that's okay. 01:02:05 5 theft in your client's sworn answer to 01:15:51 5 THE WITNESS: I'd like 01:02,09 6 interrogatory. That's 01:02:09 7 MR. SIMPSON: We 01:02:11 8 MR. SCAROLA: 0102712 9 was. 0115:56 9 BY MR. SIMPSON: 01:02:12 10 MR. SIMPSON: If you object to the form, 01:15:58 10 Q. As part of 010213 11 please just object to the form. I think it's a 01:16:02 11 to - 01:0215 12 proper question 01:02:17 13 MR. SCAROLA: I 01:02:17 14 MR. SIMPSON: 01:02:18 15 MR. SCAROLA: 01:02:19 16 misrepresentation of the earlier testimony. I'm 01,16:08 16 Q. It's true, is it not, that you have no 01,02:21 17 sure it was not intentional, and that's why I'm 01:16:12 17 personal knowledge as to whether Professor Dershowitz or 01:02:25 18 calling it to your attention so that we don't go 01:1615 18 some other member of Jeffrey Epstein's defense team 01:02:27 19 down a rabbit trail. 01:1621 19 prepared those logs for production to the government? 01:02:30 20 MR. SIMPSON: I'm not going down any rabbit 01:16:23 20 A. i don't have personal knowledge of 01:02:32 21 trail. I'm really 01:02:34 22 preserve it. 01,1626 22 Q. And you would agree, would you not, that it's 01:02:34 23 BY MR. SIMPSON: 01.16:33 23 the duty of a defense counsel to represent a client 01:0237 24 Q. My question is whether you were aware at the 01:16:38 24 zealously within the bounds of the law, correct? 01:02:44 25 time that Professor Dershowitz testified that, in fact, ESQUIRE DEPOSITION SOLUTIONS 01:16:40 25 A. Correct. ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 212 to 215 of 335 16 of 46 sheets 216 218 01:16:41 1 Q. In fact, I think you testified yesterday 01:1919 1 MS. McCAWLEY: The location is fine. 0116:44 2 about your duty with respect to Miss Roberts along those 0119.20 2 THE WITNESS: The location, once 0116:47 3 lines, correct? 01:1922 3 personally 01:16.48 4 A. That's right. 011925 4 my office in 01:16:48 5 Q. And so with respect to Professor Dershowitz's 01:19-25 5 BY MR. SIMPSON: 01:16:52 6 representation of Jeffrey Epstein, he would have been 0119:28 6 Q. And are you able to place in time when you 01'16:57 7 acting unethically if he didn't attempt to negotiate the 01.19.29 7 reviewed these portions of the police report, other than 0117:00 8 best resolution for his client that he could, consistent 0119:35 8 before December 30th of 2014? 01:17.05 9 with the law; is that correct? 0119:37 9 A. Not precisely, no. 0117:06 10 A. Right. Consistent with the law, yes. 01:1940 10 Q. And do I understand correctly from your 0117:09 11 Q. And so you wouldn't 0117:09 12 A. I'm sorry. Let me just 01:1711 13 the law and with the ethical obligations of attorneys. 01 19:51 13 allegations against Professor Dershowitz that are 01:17:14 14 Attorneys cannot make, for example, false 0119:54 14 included in the joinder motion? 01:17:16 15 representations when they are negotiating those kinds of 01:19:56 15 A. That's right. 011718 16 things. 0119:56 16 Q. It's also true, is it not, that that police 0117:18 17 Q. Right. The duty as a defense counsel, 01:20:01 17 report includes an interview with an adult woman who was 01.17:22 18 Professor Dershowitz's duty was to attempt to obtain the 0120:07 18 retained to provide massages at Jeffrey Epstein's 01:1727 19 best resolution he could for Jeffrey Epstein consistent 01:20:11 19 residence for guests, among others; isn't that correct? 01:17:31 20 with the law and legal ethics, correct? 01:20:14 20 A. I believe that's correct. 01:17:34 21 A. That's correct. 01:20:16 21 Q. And based on that, is it your testimony that 01:17:34 22 Q. And, in fact, if he had not done that, he 01:20:20 22 it's fair to presume that a reference that a guest got a 01:17:39 23 would have been acting unethically, correct? 01:20:24 23 massage is a code word for abusing a minor sexually? 01:17741 24 A. That's correct. 01:20:31 24 MR. SCAROLA: I'm sorry. Are you 01:17:41 25 Q. And would you agree that it would be 01:2033 25 isolating ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 217 219 01:17:46 1 inappropriate, totally inappropriate, to infer anything 0120.33 1 MR. SIMPSON: I don't 01:17:55 2 negative about an attorney because the attorney 01:2034 2 speech, Mr. Scarola. If you object to the form, 01:17:58 3 represented someone accused of heinous crimes? 01:20:36 3 object to the form, and I 01:18:01 4 A. Just the fact of representation alone? 0120:38 4 question 01:18:04 5 Q. Yes. 01:20.38 5 MR. SCAROLA: I want a clarification of the 0118:04 6 A. Yeah, that's right. Sure, of course, 01:20:39 6 question, please. Are you isolating only that 0118:06 7 everyone is entitled to a defense. 01:20:36 7 piece 01:18:08 8 Q. As 01:1818 9 reviewed the Palm Beach Police report? 01-20,41 9 MR. SCAROLA: 01:1822 10 A. Portions of it, yes. 0120:42 10 MR. SIMPSON: I'm 01:18:23 11 Q. Had you reviewed the entire report? 0120:45 11 that's perfectly clear. If you think it's 01:18:25 12 A. I think I reviewed most of it, but I don't 0120:46 12 objectionable, it wont 0118'31 13 think I've gone through it page by page. 01:20'49 13 MR. SCAROLA: I'm going to object on the 01:18:3214 Q. When did you do that? 01:20:5014 basis that it is vague and ambiguous. It is 0118'35 15 A. Well, let's see. Before December 30th, 2014, 01:20:53 15 unclear whether you're asking for him 01:18:41 16 Brad and I filed the case in about July 2008, so it was 0120:55 16 MR. SIMPSON: Please don't coach the witness. 01:18:49 17 about a six-year period of time, and I remember I'd been 01:20:56 17 MR. SCAROLA: 01:18:56 18 to Florida a couple of times on this case, once in 2010 01:20:59 18 focus to that single piece of evidence. 01,19:03 19 and I think another a year or two later. And I 01:20:59 19 MR. SIMPSON: I object on the coaching of the 01:19:07 20 remember, at least on one of those times, reviewing the 0121:01 20 witness. 01:19:09 21 report here with 01:1915 22 MS. McCAWLEY: Yeah. I wouldn't go into 01:21:02 22 Q. My question is: Is it reasonable, 01:19:15 23 anything. 0121:06 23 considering that the police report on its face shows 01:1915 24 THE WITNESS: To the 01:19:15 25 we just want to know ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 17 of 46 sheets Page 216 to 219 of 335 10 20 2015 01:08:15 PM 220 222 01:21:16 1 Are you aware that the police report reflects 01:23:34 1 A. That sounds accurate with the information I 01:21:21 2 that the woman I referred to who was hired to give 01,23:37 2 have, yes, she doesn't sound like she would fit his 01;2124 3 massages, told them that she never touched anyone 01:23:40 3 type. 01:21:28 4 inappropriately? 01:23:40 4 Q. And so do you agree with me then 012129 5 A. I think that there are 0121:32 6 information along those lines in the police report, yes. 01:23:44 6 another reason why wouldn't fit his type, so... 01:21:34 7 Q. Okay. And so do you acknowledge that the 01:2 47 7 Q. But you acknowledge that 01:21:37 8 police report, on its face, reflects both reports of 01:23:50 8 woman 01:21:41 9 massages that involved improper sexual contact 01:21:45 10 contact and massages that were perfectly legitimate? 01:23:57 10 legitimate massages, correct? 0121:50 11 A. Yes, but not in the same proportion. 01:23:58 11 A. Yeah. That was cover for the sex trafficking 01:21:54 12 Q. My question wasn't proportion. The 01:21:57 13 report on its face, you understood, reflected that there 01:24:01 13 Q. Okay. So you're now 01:22:01 14 were massages given at Mr. Epstein's residence that were 0124:04 14 report say "it was cover" 01:22:06 15 perfectly legitimate? 01:24:04 15 A. That was 01:22:08 16 A. Some 0112:13 17 examples from what I could see. 01:24:07 17 A. That was my conclusion when I reviewed the 0122:14 18 Q. So you would characterize what was said in 01:24:09 18 materials. 01:22:18 19 the police report as "a few isolated examples"? 0124:09 19 Q. Okay. So your inclusion is that a 01:2221 20 A. Well, given the backdrop that they had 012225 21 Q. No. My question 01:22:26 22 question. Is that how you would characterize it? 01:24:15 22 A. December 30th of 2014, knowing what we know 0122:27 23 MR. SCAROLA: Excuse me. The witness is not 01:24:18 23 now, yes. 01:22:29 24 confined to answering yes or no, if yes or no 01:24:19 24 Q. Do you consider yourself a very suspicious 01:22:31 25 would be misleading. 01:24:24 25 person? ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 01:22:33 1 BY MR. SIMPSON: 01:24:25 1 A. No. 221 223 01:22:33 2 Q. It's a different position than was taken 01:24:25 2 Q. Do you consider yourself a conspira 01:22:35 3 previously, but 01:22:36 4 A. I mean, I was just going to give one 0124:31 4 A. Absolutely not. 01:22:38 5 sentence, and the one sentence would be, in the context 01:24:34 5 Q. Do you consider yourself a crusader? 01:22:41 6 of this whole police report where they had 24, 01:24:35 6 A. Well, crusader for justice, I would say, yes. 01:22:44 7 approximately, minor girls who were 01:22:47 8 sexually abused, the references to legitimate massages I 01:24:49 8 is evidence that a person, any person, any guest at 01:22:51 9 would view as isolated. 01:24:54 9 Mr. Epstein's house had a massage, evidence that that 0122:53 10 Q. So you're coming to the conclusion, looking 0125:01 10 person engaged in criminal sexual conduct, contact with 01:22:56 11 at the police report, that they are isolated; is that 01:25:07 11 minors, because of the fact of having a massage? 0122:59 12 right? 01:25:13 12 A. You'd have to look at the context. 01:225913 A. Yes. 01:25:16 13 Q. On its own, is it any evidence 01:23:01 14 Q. And do you think a fair-minded reader of the 01:25:19 14 it 0123:04 15 police report would reach that conclusion? 01:2521 15 A. It would be some evidence, yes. 01:23:05 16 A. Absolutely. 0125:22 16 Q. Notwithstanding that the report, on its face, 01:23:07 17 Q. And were you aware that the police report, to 0125:26 17 reflects both legitimate and illegitimate massages? 01:2112 18 give a bit more detail, reflected that a woman who was 01,25:30 18 A. The report on its face, let's be clear, 01:23:14 19 described as having tattoos was hired to give 01:25:32 19 reflects a lot of illegitimate sag 0123:17 20 deep-tissue Swedish massages. Do you recall that being 0125:36 20 sporadic or isolated, you know, legitimate massages. So 01:23:20 21 in the 01:23:22 22 A. Something along those lines, yes. 0125:42 22 I 01:23:23 23 Q. And she also 51:23:26 24 police that she was not Jeffrey Epstein's type, that she 01:25:47 24 Q. Did you, before December 30th of 2014, 01:23:30 25 wasn't thin, had tattoos, didn't fit his type? 01:26:03 25 yourself personally, review what I think you referred to ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 220 to 223 of 335 18 of 46 sheets 224 226 01:26:07 1 in your testimony yesterday as the holy grail, an 012829 1 Q. Would it be a reasonable inference, or a 01:26,12 2 address book of Mr. Epstein? 01:28:36 2 possible reasonable inference to draw, that 0126:17 3 A. Pieces of it, yes. 01:28:39 3 Mr. Rodriguez was trying to highlight people who would 01:26:18 4 Q. Did you review the entire document? 0128:42 4 be of interest to the Press for purposes of selling the 01:26:21 5 A. No. 0128:45 5 book? 01:26:21 6 Q. Did I understand yesterday that you 0128:46 6 A. No, because he was not talking to the Press. 01:26:25 7 testified 01:26:28 8 you testified that the fact that names were circled 01:28:52 8 criminal activity. And so I was assuming that what he 01:26:33 9 indicated that those persons likely engaged in illegal 01:28,54 9 was trying to do, as many criminals do when they are 0126:39 10 sexual contact with minors? 01:28:58 10 apprehended, was give information to law enforcement 01:26:41 11 A. My 0126:44 12 circled were circled by Alfredo Rodriguez when he was 0129:03 12 other "bigger fishes" is the phrase that's sometimes 01:2647 13 busted by the FBI for involvement, and he was asked to 01:29:06 13 used, so that the little fish would 01:26:51 14 identify those who would have information about the sex 0129:09 14 get a cooperation deal from the law enforcement agency. 0126:54 15 trafficking organization. And my 01:26:58 16 evidence I have, I believe the names that were circled 01:29:14 16 talking to somebody he understood was an FBI agent at 01:27:00 17 were those who would have that kind of information. 01:29:17 17 the time, and so that was the context of the 01:27:02 18 Q. So is it your testimony that if the name is 01,29:18 18 conversation. 01:27:05 19 circled, it indicates that they have information, or 01:29:19 19 Q. Do you have any personal knowledge that WS 01:2708 20 that they are criminals? 0128:22 20 in the context of talking to the FBI that Mr. Rodriguez 01:27:09 21 A. That they would have information about the 0129:25 21 circled those names? 01:2712 22 sex trafficking organization, and that would probably 0129:26 22 A. i have reviewed 01:27:15 23 mean that they were part of the organization. It may 0129:30 23 recollection here, but there's an FBI 302, a report of 01:27:18 24 mean that they were witnesses to what the organization 01:29:33 24 interview of the circumstances surrounding 01:27:19 25 was doing. 0129:35 25 Mr. Rodriguez's arrest, and I believe I reviewed that ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 01:27:20 1 But they would have information that the FBI, 01:29:38 1 302. 225 227 01:2724 2 among other law enforcement agencies, should be 01:29:39 2 Q. Do you know whether the FBI, at any point, 01:2726 3 following up on, if they are trying to piece together 01:29:47 3 contacted Professor Dershowitz to discuss any evidence 01:27:28 4 what the sex trafficking organization was doing. 01:29:53 4 he might have after his name was circled on this 01:27:32 5 Q. Would you agree that a fair-minded person, 01:29:56 5 document? 0127737 6 with that background that you just described, would not 01:29:57 6 A. I don't have personal knowledge of what the 01:27:41 7 go to the conclusion that the fact that a name is 01:29:58 7 FBI did to follow up after that. 01:27:44 8 circled indicates that that person has engaged in 01:30:01 8 Q. Okay. One of the names that's circled in the 0127:46 9 criminal conduct? 01:30:05 9 book is Courtney Love. Do you know who she is? 01:27:48 10 A. They 01:27;51 11 had information relevant to criminal activity. Now, 01:30:12 11 Q. If I mention to you or if I represent that 01:27:54 12 would they on the 01:27:55 13 circled, standing alone, reach that conclusion? 01:30:19 13 A. No. 01:2759 14 Well, that's a hypothetical question because 0120:21 14 Q. In your view, was Courtney Love involved in 01:28:01 15 obviously in this case, there's lots of other 01:30:25 15 sex trafficking? 01:28:02 16 information. 01:30:26 16 A. i don't know. 01:28:02 17 Q. Did you understand 01:28:06 18 that Mr. Rodriguez was trying to sell that book? 01:3022 18 sex trafficking? 0128:09 19 A. That's true. 01:30,33 19 A. If 0128:10 20 Q. And is it not also true that the people who 0120:36 20 her name is circled? 0128:13 21 are circled are famous people? 01:30:38 21 Q. Her name is circled on the book. In fact, we 01:28:15 22 A. I'd have to refresh my recollection as to 01:30:40 22 can show it 01:28:22 23 exactly who was circled, but I know that some famous 01:30:40 23 A. Okay. Yeah. 01,28:25 24 people were circled and some famous people were not 01204024 Q. It is circled on the book. 01:28:29 25 circled. 01:30:42 25 A. Okay. Sure. Yeah, I mean, my ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 19 of 46 sheets Page 224 to 227 of 335 10 20 2015 01:08:15 PM 228 230 0120:44 1 understanding would be that if her 01:30:46 2 could I ask a question about the circling 01:3049 3 representation? 01:3826 3 document. 01:30:50 4 Is the circling the same type of circling 01:3827 4 A. Super. Thank you. 01:30:52 5 that is done for Mr. Dershowitz, for example? Is it the 01:38:51 5 Okay. Yeah. I think I'm 01:30,56 6 same, you know, handwriting, same ink, same 01:30:59 7 appearance? You know, if it's consistent with the 0128:54 7 Q. My 01:31:02 8 circling 01:31:04 9 the circling? 01:38:57 9 Q. 01:31:07 10 Q. Mr. Cassell, we have a document produced in 01:39:02 10 address book that you referred to in your testimony? 01:31:09 11 discovery that has various names circled. Looking at 01:39:05 11 A. Yes. 01:31:14 12 the document, I don't see any difference among the 01:3005 12 Q. Okay. And if you would take a look at the 01:31:17 13 circles. Are you aware of any document 01:31:20 14 MR. SCAROLA: Could we have a look 01:31:21 15 we see the document? 012913 15 A. All right. I see it. 01:31:25 16 MR. SIMPSON: Take a 01:31:28 17 one moment. 01:39:16 17 entry, there's an entry for Professor Dershowitz that's 01:31:28 18 THE WITNESS: We are going off the video 01,39,21 18 also circled. It should be on the flag. Its 01,31:30 19 record, 10:03. 01:39:26 19 two-sided. 01:3622 20 (Thereupon, a recess was taken.) 01,39:28 20 A. Oh, yeah. 01:3622 21 THE VIDEOGRAPHER: We are back on the video 01:3929 21 Q. Do you see that one? 01:36:24 22 record, 10:08 a.m. 01:39,30 22 A. I see it. 01:36:30 23 MR. SIMPSON: Okay. Back on the record. I'm 01:39:31 23 Q. And then also the other one I marked is 01:3621 24 going to ask the reporter to mark as Cassell 01:39:32 24 Donald Trump. 01:36:36 25 Exhibit 5, a multi-page document. It's a copy of 01:39:38 25 A. Yes. Got it. I see those entries circled. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 229 231 01:36:44 1 the address book we have been speaking about, and 01:39:47 1 Q. So am I right 01:36:49 2 ask that Doc 01:36:51 3 this, and I'm going to ask him about certain of 01:39:54 3 Trump, and Alan Dershowitz, correct? 01:36:55 4 the entries. 01:39:55 4 A. Correct, among the others, yes. 01:37:03 5 (Cassell's I.D. Exhibit No. 5 - copy of 01:39:57 5 Q. And they are all circled in the same way; are 01:37:03 6 address book was marked for identification.) 01:40:00 6 they not? 01:37:03 7 MR. SIMPSON: And I will note, I put a few 01:4000 7 A. Yeah. It's kind of a 01,37:03 8 flags on here 01:37:03 9 THE WITNESS: Sure. 01:4006 9 Q. Is there anything on the face of that 01:37:06 10 MR. SIMPSON: 01,37:06 11 THE WITNESS: Correct, yeah. 01:40:13 11 the significance of the circling is any different for 01:37:09 12 MR. SIMPSON: 01:3710 13 the pages for the record just so we have them. 01:40:17 13 A. No. 01:3716 14 38, 76, and 85. 01:4018 14 Q. So based on the document, do you infer that 01:37:24 15 THE WITNESS: Okay. I just 01:37:25 16 take two minutes or so 01:37:25 17 BY MR. SIMPSON: 01:4030 17 A. I would infer that if I were running a 01:37:27 18 Q. Yeah. Take 01,37:29 19 A. Okay. I want to make a few notes, if that's 01:4037 19 find people who would have relevant information, she 01:38,07 20 all right, just to get them in 01:38:07 21 Q. You're going to mark on the 01:38:09 22 A. No, not on the exhibit. I'm just going to 01:4045 22 the identified traffickers, Epstein is circled, the 01.3811 23 make notes to refresh my recollection so we don't have 01:40-.48 23 pilot 0138:13 24 to take time. I'm just 0138,15 25 context here. This will just take another minute is 01:40:05 25 being marked here, and ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 228 to 231 of 335 20 of 46 sheets 232 234 0140:57 1 are circled is, I would say, you know, 5 to 10 percent 01:43:17 1 BY MR. SIMPSON: 01:41.00 2 of the 01A1:03 3 Q. Do you know whether this address book was 01:43:20 3 would consider all of those facts to be evidence that he 01:4t07 4 Jeffrey Epstein's address book or Glenn Maxwell's 01:43:26 4 may have been? 01:41:11 5 address book? 0143:28 5 A. They are, you know, certainly things that I 01:41:12 6 A. I'm not certain exactly whose book it is. I 01:43:31 6 would want to follow up on. 01:41:16 7 actually thought it was Alfredo Rodriguez maintaining a 01:43:32 7 Q. And 01:41:19 8 copy of records in case he was worried that Epstein 01:43:34 8 A. If I were running an 01:41:22 9 might try to have him killed at some point, and so this 01:43:36 9 context, I take it, of your question, you know, if 01:41.25 10 was his insurance policy, I think he said, against that 01;4138 10 somebody is running an investigation into the 01:41:28 11 happening. 01:43:42 11 organization, so... 01:41:29 12 MR. SIMPSON: Object to the nonresponsive 01,43:43 12 Q. Did you, in the course of your representation 01:41:31 13 portion of the answer. 01:43:47 13 of Miss Roberts or any of the other Jane Doe clients you 01:41:31 14 BY MR. SIMPSON: 01:43:56 14 have had who have had claims against Mr. Epstein, make 01:41:32 15 Q. Is the answer to my question: You don't know 01:43-58 15 any effort to find out whether Mr. Trump had abused any 01:41:34 16 whether it was Jeffrey Epstein's or Glenn Maxwell's 01A4:02 16 of them? 01:41:38 17 address book? 01:44:04 17 MR. EDWARDS: I would just object to this 01:41-39 18 A. i don't know. And the reason I don't know 01:44:09 18 being work-product privilege as it relates to 01:41-41 19 that is because I actually believe it is neither 01:41:44 20 neither of their 01:41:46 21 Actually, I think it's a third possibility. I think 01:44:12 21 MR. SIMPSON: Okay. 01:41:48 22 this was Alfredo Rodriguez's insurance policy against 01:44:15 22 MR. EDWARDS: With respect to what we did 01:41:51 23 getting knocked off by Jeffrey Epstein. 01A4:16 23 during our investigation on behalf of other 01:41:55 24 Q. So that's the view you have of the 01:4418 24 clients. 01:42:04 25 significance of this document? 01:44:19 25 MR. SIMPSON: Okay. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 233 235 01:42:06 1 A. Yes. In part. I mean, there are other 01:44:20 1 MS. McCAWLEY: Right. And I object on that 01:421 8 2 reasons it's significant, as we have been talking about, 01:44:20 2 to the extent that it reveals anything you did on 01:42:10 3 names are circled who appear to have relevant 01:44:23 3 behalf of Virginia Roberts. 01:42:13 4 information on Jeffrey Epstein's criminal activities. 01:44:23 4 MR. EDWARDS: I don't think Jack would know 01:42:17 5 Q. Donald Trump was a friend of Jeffrey Epstein; 01.44:26 5 to object to this, but because I know of another 01:42:22 6 is that not correct? 0144'28 6 case that we work on, that's protected by our 01:42:23 7 A. I really don't 01:42:26 8 but I 01:42:29 9 Q. Its true also, is it not, that Mr. Trump was 0144:32 9 THE WITNESS: I'd like to 01:42:34 10 a frequent visitor to Mr. Epstein's residence? 01:44:32 10 MR. SCAROLA: In that case, I instruct you 01:42:38 11 A. 1 01:42'41 12 don't have a lot of information about Trump. 01:44.34 12 THE WITNESS: All right. 01:42:43 13 Q. And his name is circled in this book; is it 01 44.37 13 MR. SIMPSON: All right. You're here, 01:42:47 14 not? 01.44.39 14 Mr. Edwards, as a client, not an attorney, 01-42:47 15 A. I believe it is. 01-44:41 15 correct? 01:42:48 16 Q. Based on him 01:42:5217 visitor to Mr. Epstein's home, and that he's a friend of 01:44:44 17 being here, but I'm going to protect the 01:43:00 18 Mr. Epstein's, and that his name is circled in this 01:44:46 18 privilege to the extent that it's not being 01.43:03 19 book, do you infer that he was engaged in criminal 01144:47 19 protected by others who don't recognize that the 01:43:09 20 sexual abuse of minors? 01:44:50 20 privilege needs to be protected on other matters. 01:43:11 21 MS. McCAWLEY: I'm going to object to the 01:44:52 21 MR. SIMPSON: Okay. 01,43.13 22 extent that your answer would reveal anything 01:44:53 22 BY MR. SIMPSON: 01:4316 23 that my client has told you. 01A4:58 23 Q. Mr. Cassell, as of December 30th of 2014, 01:43:16 24 THE WITNESS: No. 01:45:03 24 were you aware that Professor Dershowitz had visited 01:43:17 25 01:45:09 25 Mr. Epstein's home and stayed as a guest for a week in ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 21 of 46 sheets Page 232 to 235 of 335 10 20 2015 01:08:15 PM 236 238 01:45:14 1 the company of his grandchildren, among other family 01:47:08 1 scene of ongoing criminal abuse of minors, and who 01:45:18 2 members? 01:47:12 2 himself, has engaged in that criminal abuse, would bring 01A5:19 3 A. I'm sorry. Which residence? Which Epstein 01:47:16 3 his grandchildren to stay there for a week? 01:4523 4 residence? 01:4718 4 A. It would depend on the circumstances. 01A5:23 5 Q. Palm Beach. 01:47:21 5 Q. When you say that Professor Dershowitz was a 01:45:25 6 A. Can you 01:45:25 7 Q. Yes. 01:47:41 7 it's correct, is it not, that you're referring to a 51:45:27 8 A. I mean that's kind of a compound question. -I 01:47:43 8 period after Virginia Roberts had left for Thailand? 01:4630 9 mean... 01:47.47 9 A. No. 01:45:30 10 Q. Well, let me rephrase it. I will be clear. 01:47:49 10 Q. Are you aware of any evidence 01:45:31 11 A. Yeah. 01:47:55 11 that up. 01:45:3212 Q. Were you aware as of December 30th of 2014 01:45:36 13 let me back up a moment. 01:47:59 13 Roberts contends she was sexually abused, which I 01:45,37 14 A. Sure. 01:48:02 14 understand to be middle of 1999 to middle of 2002 01:45:37 15 Q. You indicated yesterday that part of the 01:48:09 15 that consistent with your understanding? 01:45:40 16 basis for your conclusion that this pleading 01:45:44 17 appropriate to file this pleading accusing Professor 01:48:12 17 Q. 01:45:49 18 Dershowitz of misconduct was that he was a guest at the 01:48:14 18 visit the Palm Beach mansion during that period? 01:45:53 19 Palm Beach house, correct? 01A8:17 19 A. My understanding is in the neighborhood of 01:45:55 20 A. No. It was more than that. He was a 01:48:21 20 what was it? Three to five times a year, staying two to 01:45:57 21 frequent guest, a frequent overnight guest. 01:48:25 21 three nights at a time. 01:46:01 22 Q. My question is: As of December 30th, 2014, 01:4826 22 Q. And was that your understanding as of 0146:06 23 were you aware that Professor Dershowitz had spent a 01,48:29 23 December 30th of 2014? 01:46:10 24 week at the Palm Beach house with family members, 01:48,32 24 A. Yes. 01A6,13 25 including his grandchildren? ESQUIRE DEPOSITION SOLUTIONS 01:48:32 25 Q. What was the basis for your understanding, ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 237 239 01:46:15 1 A. No. 01:48:38 1 what pieces, what documents, or testimony? 01:46:15 2 Q. Okay. Do you think it's reasonable 01:46:20 3 it be reasonable to believe that someone who is 01:48:44 3 long presentation yesterday. So it was that 01:46:23 4 committing criminal sexual abuse of minors at a home 01:48:46 4 information. 01:46:28 5 where such abuse, as you understand it, is a daily 01:48:48 5 Q. I want to focus now specifically 01A6:33 6 occurrence would bring his grandchildren to stay for a 01:4650 6 looking for a full answer on your entire views 01:4635 7 week? 01:48:50 7 A. Yeah, right. 01:46:35 8 A. It would depend on the circumstances. I 01:48:53 8 Q. 01A637 9 mean, you know, so 01:46:40 10 circumstances. 01:4654 10 Q. I just want to say, you've testified that you 01:46A0 11 MR. SCAROLA: Are you representing that 01:48:57 11 understood as of December 30th, 2014, that Professor 01A6A1 12 Jeffrey Epstein was there at the time? 01.49:0312 Dershowitz had 01A6:42 13 MR. SIMPSON: I'm not answering questions. 01;49:04 13 mansion three to five times during this relevant period 01:46A4 14 I'm asking questions. 01:49:09 14 of 1999 to 01:46:45 15 MR. SCAROLA: Oh, okay. 01A9,14 15 What was the basis on December 30th of 2014, for just 01:46:45 16 BY MR. SIMPSON: 01:49:20 16 that fact? 01:46:47 17 Q. So, in your view, you can 0146:50 18 rephrase that. 01:49:23 18 here because there are a few things I want 01.46:52 19 You say it would depend on the 01:492519 Q. Okay. And I want to make sure my question is 01:46:54 20 circumstances 01:46:54 21 A. Sure. Sure. 01:49:28 21 A. Sure. 01,46:54 22 Q. 01:46:55 23 A. Yes. 01:49:30 23 inferences about anything else. Just, what's the basis 01:46:56 24 Q. Okay. So that you don't find it incongruous 01:49:34 24 for your belief that he visited three to five times 01:47:00 25 that someone who knows that a particular home is the 01:4918 25 during that two-year period? ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 236 to 239 of 335 22 of 46 sheets 240 242 01:49:39 1 MR. SCAROLA: Could I ask for a 01:51:23 1 context, in other words, information that was 01:49:40 2 clarification? Are you looking only for direct 01:51:25 2 going to be disclosed, not for advice, but 01:49:42 3 evidence and you want to exclude the 01:5126 3 factual information that she intended to 01:49:44 4 circumstantial evidence? Is that the way you 01751:28 4 disclose, that's no 01A9A6 5 want to 01:49:46 6 MR. SIMPSON: I'm asking. You can object to 01:51:32 6 you in confidence with respect to getting legal 01:49:48 7 the form. 01:51:36 7 advice, then that would be privileged. 01:49:48 8 BY MR. SIMPSON: 01,51:39 8 THE WITNESS: Right. Okay. So Juan Alessi's 01:49:48 9 Q. My question is: What was 01:49:51 10 what did you have in mind as supporting your conclusion 01:51A9 10 then considerable circumstantial evidence which 01A9:57 11 or belief that he 01:50:02 12 three to five times during that relevant period? 01:51:55 12 personal association between Epstein and 01:50:04 13 MS. McCAWLEY: And I'm sorry. Can I just 01:52:00 13 Dershowitz. 01:50:06 14 place an objection on the record. I'm going to 01:52:00 14 I mean, again, we can rehash all of that, but 01:50:07 15 object to the extent that 01:5010 16 reveal attorney client privileged communication, 01:52:04 16 quick 01:50:12 17 unless it's something that's already public that 01:52:06 17 of questions 01:50:15 18 she's revealed. 01:52:09 18 film, if you will. 01:50:15 19 THE WITNESS: Okay. Right. So I'm going to 01:5209 19 BY MR. SIMPSON: 01:50:17 20 just exclude 01:5019 21 asking about any communications. 01:52:14 21 was not hired until several years after the Summer 01:50:19 22 BY MR. SIMPSON: 01:52:19 22 A. 2004. 01:50:22 23 Q. My question is asking about that, but I 01:52:20 23 Q. Let me ask it again. 01:50:24 24 understand you're going to refuse to provide it. 01:5221 24 01:50:25 25 MS. McCAWLEY: Unless it's already public. 01:52:22 25 A. Yeah, about 2004. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 241 243 01:50:28 1 THE WITNESS: Okay. So as of December 30th, 01:5223 1 Q. And Mr. Rodriguez would have no personal 01:50:30 2 I'm going to exclude any communications from 01:5228 2 knowledge of how often Professor Dershowitz visited 01:50:33 3 Virginia Roberts from 01:50:34 4 MR. SCAROLA: Except to extent that they have 01:52:34 4 hired; isn't that true? 01:50:37 5 already been made public. That is, if she has 01:52:35 5 A. So, look, this is 0150:39 6 given express permission to make disclosures, 01,52:37 6 to speed up the answer to the question. We have a sex 01:50:43 7 these were not confidential communications, but 01:52:41 7 trafficking organization that is running a common scheme 0150:46 8 communications intended to be communicated to 01:52:43 8 and plan that is continuing on until it was interrupted 01:50:48 9 third parties, then you are permitted to include 01:52:45 9 by law enforcement about 2005 and 2006. 01:50:52 10 information from Virginia Roberts in your 01:52:49 10 So what the 01150:54 11 response to that extent. And I 01:51M 12 THE WITNESS: Okay. 01:52:54 12 that it's different than what was going on in 2002, 01:51:00 13 BY MR. SIMPSON: 01:52:58 13 2001, 2000, 1999, I think it's reasonable to conclude 01:51:00 14 Q. As of December 01:5101 15 A. Right. 01.53:03 15 later. 01:51:03 16 Q. 01:51:06 17 A. Right. 01,53:07 17 into the 01.51:06 18 Q. 01:51:06 19 A. Yeah, that's right. 01:5313 19 sees this going on, leads me to conclude that it's 01:51:07 20 Q. 01,51:10 21 December 30th, 2014 would not be included in the answer. 01:53:19 21 information in 2001. 01:51:14 22 A. Okay. 01:53:21 22 Q. So from Mr. Rodriguez's testimony about what 01:51:14 23 MS. McCAWLEY: But let me be clear. Let me 01:53:28 23 was going on, so to speak 01:51:16 24 be clear about my objection. To the extent that 01;5132 24 what was going on the number of times that Professor 01,51:18 25 she revealed something to you in a nonprivileged 01753:35 25 Dershowitz visited. That's the topic. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 23 of 46 sheets Page 240 to 243 of 335 10 20 2015 01:08:15 PM 244 246 01:53:37 1 A. Right. 01:55:20 1 MR. SIMPSON: Really, objecting to the form 01:53:37 2 Q. That because he visited, according to 01:55:23 2 of the question preserves all of any problems 0163:40 3 Mr. Rodriguez, several times a year in 2004, 2005, he 01:55:26 3 there may be with the question. 01:53:45 4 must have visited several times a year in 2000 01:5362 5 middle of 1999 to the middle of 2002. 01:5627 5 MR. SIMPSON: We don't need a speech. 01:53:55 6 A. i didn't say must have. I said that that's 01.55:27 6 MR. SCAROLA: It doesn't. It doesn't. 01:5367 7 going to be evidence of the common scheme and plan, and 01:5627 7 BY MR. SIMPSON: 01:53:59 8 then, in the absence of, you know, some falling out 01:55:32 8 Q. Mr. Cassell, is it your testimony that, from 016462 9 between people or somebody becoming, you know, more 01:5517 9 Mr. Rodriguez's testimony about how often he says 0164:05 10 associated or less associated with a criminal 01:55:43 10 Professor Dershowitz visited in a 2004 2005 time frame, 01:54:07 11 organization. I mean, if you want to get into the 01:55:49 11 its fair to draw an inference about how often he 01.54:09 12 circumstantial evidence, in 2003, there's an article on 01:55:52 12 visited in an earlier 01:5413 13 which, you know, Dershowitz identifies himself 01:54:15 14 Q. Let me interrupt you because I'm asking 01:54:15 15 A. Okay. 01:55:59 15 Q. And would it be fair to infer from the number 0164:18 16 Q. 0164:18 17 how 01:54:23 18 didn't engage in conduct, just how many times he came 01:56:09 18 A. I did not investigate the circumstances 01:54:26 19 during this period. 01:56:12 19 involving Trump. He wasn't somebody that was coming up. 01:54:26 20 A. Right. 0166.16 20 Q. Were you aware on December 30th of 2014 that 01:5426 21 MR. SCAROLA: Excuse me, counsel. That's the 01:5625 21 Donald Trump was quoted in Vanity Fair as saying: "I've 01:54:28 22 reason why I asked you to clarify whether you 01:5628 22 known Jeff" 5164:30 23 want to limit this to direct evidence or whether 01:56:34 23 It was a New Yorker Magazine, not Vanity Fair. That he 01:54:33 24 you want all of the evidence including 01:56:37 24 was quoted as saying: "I've known Jeff.' 01:54:35 25 circumstantial evidence, because as we both know, ESQUIRE DEPOSITION SOLUTIONS 0166:40 25 Epstein ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 245 247 01:54:39 1 circumstantial evidence is good evidence. A 01:5644 1 of fun to be with." It even said that: "He likes 01:54:42 2 well-connected chain of circumstance can be 01:54:45 3 MR. SIMPSON: We really don't need a speech. 016662 3 the younger side. No doubt about it, Jeffrey enjoys the 01:54:47 4 MR. SCAROLA: 01:54,17 5 MR. SIMPSON: We really don't 5164:48 6 MR. SCAROLA: 01:54:49 7 as compelling proof as direct evidence of a given 01:57:01 7 familiar. Trump has just not been somebody that 01:5463 8 fact. That's the law. 01:57:05 8 I've paid much attention to in this case. 01:54:55 9 If you don't want 01:54:57 10 MR. SIMPSON: Really, sir. 01:57.14 10 discussed earlier about Mr. Trump visiting and being a 01:54:55 11 MR. SCAROLA: 01:54:56 12 evidence 01:54:57 13 MR. SIMPSON: Mr. Scarola 01:54:57 14 MR. SCAROLA: 0164:58 15 MR. SIMPSON: 01.54:59 16 and please don't coach the witness. 01:57:31 16 client has informed you of. 01:5501 17 MR. SCAROLA: Just tell us that. I'm not 01:57:33 17 THE WITNESS: Right. If we set aside that 01:5602 18 coaching the witness. I'm asking you 016606 19 asking ambiguous questions. 0167:39 19 not given the information I have. 016608 20 MR. SIMPSON: There's nothing ambiguous 0165:09 21 MR. SCAROLA: If you want only direct 01:57:40 21 Q. Okay. So notwithstanding that his name is 0165:10 22 evidence, we will give you only direct evidence. 01:57:42 22 circled in the address book, he was a good friend, he 01:55:13 23 If you want a full and complete answer, it's 01:57:49 23 visited often, and he was quoted as saying that Jeff was 01:55:15 24 got to include circumstantial evidence, so don't 0167:54 24 a terrific guy who liked young women almost as much as 016619 25 cut him off when he's giving you that. 01:57:58 25 Trump did, you're not even suspicious? ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 244 to 247 of 335 24 of 46 sheets 248 250 016801 1 A. Not 01:58:05 2 couple pieces. 020012 2 Q. And you referred to your pro bono case. What 01:58:06 3 The fact that his name is circled, if I were 02:0016 3 is your best estimate of how much money you have made 016808 4 running an FBI investigation, I'd go send somebody to 02:0021 4 representing victims of Jeffrey Epstein? 01:58:10 5 see what he knew about it, but no, it would take a lot 02:0024 5 A. In which case are we talking about now? 01:58:13 6 more for me to become suspicious that somebody is 020026 6 Q. Any 01:5816 7 involved in 01:58:19 8 Q. Okay. So you would agree with me then, that 02:00,29 8 A. I need to confer with .- 01:5821 9 the fact that a person often visited the mansion, the 020013 9 MS. McCAWLEY: Yeah. I'm going to object. 01:5824 10 person 0168:27 11 Mr. Epstein for 15 years, the fact that the person had 02:00:34 11 Q. And that 016812 12 stated publicly that: "Mr. Epstein liked young women 02:0036 12 privileged question. That's a factual question. 01:5816 13 almost as much as I do myself," and the fact that the 02:00:37 13 A. Factual. Well, there are 01:58:40 14 name is circled in the address book is not sufficient to 0200:38 14 Q. Just how much money? You don't have to tell 01:58:43 15 raise a suspicion that that person engaged in sexual 02:00:41 15 me who the clients are. Just how much money? 01:5047 16 misconduct? 0200:44 16 A. Okay. I need to 0168.47 17 A. So... 02:0046 17 MR. SIMPSON: There's a question pending. I 01:5048 18 Q. Yes or no. It's a yes or no question. 02:00:47 18 object to a break. There's no possible 0168:51 19 A. It requires 01:58:51 20 MR. SCAROLA: You're not required to answer 02:00:48 20 MR. SCAROLA: He has a privilege 01:58:53 21 yes or no, if a yes or no response alone would be 02:00:50 21 privilege question. He wants to consult with 01:58:55 22 misleading. 02:00:51 22 counsel. 01:58:56 23 THE WITNESS: The problem is the word 0200:51 23 MR. SIMPSON: Well, really? My question is 01;58:57 24 "suspicion." I'm not particularly suspicious on 020053 24 how much money, and that's privileged? 01:58:59 25 those facts, but it ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 249 251 016903 1 by "suspicion"? If I 01:59:04 2 investigation and somebody circled a name as 0169:05 3 as saying, look, this fellow may have some 0200:58 3 MR. SCOTT: There's no federal law or state 01:5909 4 information, I'd go follow up on that. 02:01:01 4 law that supports that financial information and 01:59:10 5 If you say that's suspicion, then the answer 02:01:02 5 fees is privileged. 01:59:13 6 would be, yes. But I 01:59:15 7 information alone, no. I mean that 01:59:18 8 wouldn't 01:59:22 9 know, invest time and energy into that particular 02.01:09 9 MR. SIMPSON: Well, can 01:59:26 10 possibility. 02:01:09 10 MR. SCOTT: That one, I know all about. 01:59:26 11 BY MR. SIMPSON: 02:01:10 11 MR. SCAROLA: You're objecting to our taking 01:59:27 12 Q. Okay. So none of those facts are sufficient 02:01:11 12 a break 0169:31 13 even to justify spending time and energy, correct? 020111 13 MR. SIMPSON: I am objecting 0169:34 14 A. Unless 01:59:37 15 what do you mean by "suspicion"? Time and energy in the 02:01:13 15 pending? 01:59:42 16 context of somebody who is running a pro bono case with 0201713 16 MR. SIMPSON: That's correct. 01:59:44 17 limited resources to try to figure out what the sex 02:01:14 17 MR. SCAROLA: It is our position that the 01:59:47 18 trafficking ring's going to do, I'm not going to chase 02:01:16 18 witness has a legal question about privilege. We 01:59:49 19 after that rabbit. It seems farfetched. 020120 19 are going to take a break. We are going to talk 01:59:53 20 I'm going to focus my efforts on the people 02:01:22 20 about it. It may turn out that it's not a 016963 21 who appear to be more directly involved. 02:0124 21 problem at all. I don't know. 01:59:56 22 Q. Okay. So based on the facts that I gave you 02:0126 22 THE VIDEOGRAPHER: We are going off the video 0169:59 23 a moment ago, you think it's farfetched that Donald 0201,28 23 record, 10:38. 02:00:04 24 Trump was engaged in abusing minors? 020129 24 MR. SIMPSON: With my note, we are taking a 02:0007 25 A. If that's all I had, I would not invest time 02.0112 25 break over my objection. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 25 of 46 sheets Page 248 to 251 of 335 10 20 2015 01:08:15 PM 252 254 02:01:34 1 THE VIDEOGRAPHER: 10:38. 021051 1 counsel of record in three cases and you were involved 0201:41 2 (Thereupon, a recess was taken.) 02:18:56 2 in another case 02:15:10 3 THE VIDEOGRAPHER: We are back on the video 02:18:58 3 did not appear 02:16:42 4 record, 10:49 a.m. 0218,68 4 A. That's right. 02:1042 5 BY MR. SIMPSON: 0218:59 5 Q. 02:16:44 6 Q. Back on the record. My question, 0219:00 6 A. That's 0216:46 7 Mr. Cassell, was: What is your best estimate of how 0219:03 7 yeah. 02:16:50 8 much money you have made representing victims of Jeffrey 0219:03 8 Q. All right. How many of those cases have been 02:16:56 9 Epstein? 02:19:05 9 resolved at this point? 02:16:56 10 A. In which case are we talking about? 021906 10 A. Ali. All 02:1608 11 Q. In 02:17:01 12 A. Okay. With regard to the CVRA case, that's 02:19:09 12 Q. Okay. Without telling me the amount, did you 0217:04 13 pro bono, no money there. With regard to the other 02:19:12 13 receive 0217:07 14 cases, I'd like to answer your question, but due to 02:1915 14 A. Correct. 02:17:10 15 confidentiality obligations that have been imposed upon 021915 15 Q. Without telling me the amount, is it correct 02:17:13 16 me by Jeffrey Epstein, in the course of negotiating 021921 16 that in all four of those cases, you received a legal 02:17:16 17 those cases, I'm not permitted to answer that question. 021927 17 fee? 021723 18 MR. SCAROLA: We are certainly willing to 02:19:28 18 A. i think that starts to call for a question I 02:17:25 19 respond appropriately to a court order in that 02:19:33 19 need to consult with my attorney about. 0217:27 20 regard, but it requires a court order to release 021036 20 Q. Simply the question of whether in each of 0217:30 21 us from the contractual confidentiality 02:19:39 21 them you received a fee? 02:17:33 22 obligations that we are under. 0219:40 22 A. I just want to... 02:17:33 23 BY MR. SIMPSON: 0219:42 23 THE WITNESS: Is 02:17:36 24 Q. Is it your testimony, Mr. Cassell, that there 02:19:42 24 MR. SCAROLA: You can respond to that. You 02:17:41 25 are confidentiality agreements with Mr. Epstein that 02:19:43 25 can answer yes or no to that question. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 253 255 02:17:45 1 preclude you from giving the total amount paid without 02:19:44 1 THE WITNESS: Yes, I received something. 0217:51 2 breaking it down into particular cases? 0219:45 2 BY MR. SIMPSON: 02:17:53 3 A. I'm sorry. I didn't understand. 0210,18 3 Q. Okay. Was the fee 0217:54 4 Q. Oh, maybe that wasn't clear. Let me do it 02:19:50 4 for the 02:17:58 5 this way so we avoid 021800 6 A. Yeah. 021906 6 MR. SCAROLA: That 02:1800 7 Q. 0218:01 8 In how many cases have you been counsel for a 02:20:03 8 MR. SIMPSON: You're instructing him not to 021807 9 person suing Mr. Epstein alleging that she was a victim? 02:2004 9 answer? 02:18:12 10 A. Counsel of record? 0220:04 10 MR. SCAROLA: 02:18:14 11 Q. Put it this way. How 92:18:17 12 that, counsel of record. 0220:06 12 instruct him not to answer. 02:18:18 13 A. I believe three. 02:20:08 13 MR. SIMPSON: All right. 02:18:19 14 Q. Okay. And in addition to those three, have 022009 14 BY MR. SIMPSON: 02:18:26 15 you assisted other counsel in some way without becoming 0220:10 15 Q. In addition to these four cases that have 02:1829 16 counsel of record in cases by women suing Mr. Epstein 02:20:13 16 been resolved, are you representing any other clients 02:18:36 17 alleging that they had been abused? 02:20:18 17 who are alleging, in a case seeking monetary damages, 0218:38 18 A. I believe there's one other case in addition 02:20:23 18 that they were abused by Jeffrey Epstein? 0218:41 19 to the counsel of record case. 02:20:28 19 A. I 0218:42 20 Q. And without telling me 02:18:44 21 A. I'd 02:18:46 22 This is an approximate best recollection. 02:2033 22 Virginia Roberts that could be deemed privileged 02:1846 23 Q. All right. 022025 23 or confidential. 02:18:48 24 A. It's about four. 02:20:36 24 THE WITNESS: So what's the... 02:18:49 25 Q. To the best of your recollection, you were 02:2036 25 ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 252 to 255 of 335 26 of 46 sheets 256 258 0120:36 1 BY MR. SIMPSON: 0122:42 1 A. Yeah. That hasn't been something that I have 02:20:38 2 Q. I'm 02:20:40 3 A. Yeah. 02:22:46 3 Q. It is 02:20:40 4 Q. I'm asking whether you were involved in any 02:22:49 4 anticipate that if you are successful in setting aside 02:2044 5 other cases in which claims have been made against 02:22:53 5 the nonprosecution agreement, that the names of 02:20:47 6 Jeffrey Epstein for damages that are still active; they 02:22:58 6 additional victims will become known; didn't you testify 02:20:52 7 have not been resolved? 02:23:01 7 to that yesterday? 02:20:53 8 A. So we are talking civil cases, unresolved 0123:03 8 A. I 02:20:58 9 civil cases against Jeffrey Epstein right now? 02:23,07 9 don't remember. 0 2059 10 Q. Unresolved cases seeking money from Jeffrey 02:2357 10 Q. Well, wait 02:21:02 11 Epstein. 022309 11 let me ask the question 022152 12 MR. SCAROLA: And to the extent that that 02:23:09 12 A. Yeah. 022153 13 question calls for matters that are of public 0223:10 13 Q. 02:21:06 14 record, then, obviously, you can respond. 0223:11 14 A. Yeah, yeah. That's what I'm not... 02:21:08 15 THE WITNESS: Right. Yeah. None. 022312 15 Q. My question is: Do you anticipate that if 02:21:09 16 BY MR. SIMPSON: 02:23:15 16 you're successful in setting aside the nonprosecution 02:21:10 17 Q. Are there 02:21:11 18 Are there any not of public record that 0121:15 19 A. What would be a "not"? 02:23:24 19 A. Additional Epstein victims at this point? 0221716 20 Q. Well, if you had made a claim that's not in 0123:26 20 Q. Yes. 02:21:19 21 suit, for example. 02:23:26 21 A. Again, it's pretty speculative. The 02:21:20 22 A. Oh, against Jeffrey Epstein? 02:23:30 22 the issue 02:21:21 23 Q. Yes. 02:23:34 23 were roughly a decade ago. I mean, we are always hoping 02:21:21 24 A. Yeah. No, I don't 02:21:25 25 anything. Yeah, no ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 257 259 02:21:30 1 Q. And 02:21:33 2 you're successful in the CVRA case, in setting aside the 02:23:43 2 Q. Whether 02:21:37 3 nonprosecution agreement, you expect to get other 02:23:45 3 A. And you always hope that there are 02:21:41 4 clients who will have claims against Jeffrey Epstein? 0 23:48 4 mean, any time you file a case, ah, I hope some more, 0121:45 5 A. If we 0 21:47 6 Q. Claims for damages, claims for money from 0223:52 6 case, but that hasn't been the focus, trying to secure 02:21:50 7 Jeffrey Epstein. 022355 7 additional 012151 8 A. That 02:21:55 9 nonprosecution agreement is set aside? 02:24:00 9 your question, that is a possibility that, you know, 02:2158 10 Q. Yes, if you're successful. 0224:02 10 if 02:2159 11 A. I haven't really 0322:02 12 speculative. I haven't really thought about the 02:24:0912 I 02:22:04 13 civil 02:2258 14 haven't thought about, you know, whether, civil claims 02:24:13 14 realize I have a claim, that's always a possibility. 02:22:11 15 could somehow arise out of that. I mean, we are talking 02:24:15 15 I certainly wouldn't want to suggest that, 02:2214 16 about, you know, events that took place long ago. There 0224:17 16 you know, we are ruling that possibility out. 02:2118 17 would be statute of limitations issues, you know. 02:24:19 17 Q. And for the same reason that additional 02:22:20 18 Whether they are viable civil claims at this point has 0224:23 18 witnesses might become available 02:22:24 19 not been something that I have, you know, given much 02:24:27 19 clients might become known, correct? 02:22:25 20 thought to. 022428 20 A. That is a theoretical possibility, yes. 0122:26 21 Q. So is it your testimony then that you have 02:2430 21 Q. In these four cases that you mentioned, the 02:22:28 22 not thought about the question of whether success in the 02:24:34 22 three that were, which you were counsel of record and 02:22:33 23 CVRA case may or result in you obtaining additional 02:24:38 23 one in which you were not, did you meet at any time in 02:22:39 24 clients with claims for money damages against Jeffrey 0124744 24 person with the clients? And if it's different as to 02:22:41 25 Epstein? 012448 25 some than others, tell me that, but ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 27 of 46 sheets Page 256 to 259 of 335 10 20 2015 01:08:15 PM 260 262 02:24:50 1 A. Yes. 02:27:10 1 filing on December 30th of 2014, was the first time that 02:24:50 2 Q. In all four, you met with the clients? 02:27:16 2 you had ever, yes, ever on behalf of Virginia Roberts or 02:24:52 3 A. In three of the four. 02:27:21 3 any other client, accused Professor Dershowitz or 02:24:53 4 Q. And were those three the three in which you 02:2725 4 Prince Andrew of sexual abuse in a public filing? 02:24:57 5 were counsel of record? 02:27:29 5 A. If you're talking about direct allegation, 02:24:58 6 A. Yes. 02:27:31 6 that's correct. 02:24:59 7 Q. As of December 02:25:01 8 A. I believe I was counsel of record on all 022239 8 that 02:25:03 9 three of those. I would have to double-check. I know I 02:27:41 9 December 30th, 2014, that it would be 02:25:05 10 was counsel of record in the federal case. The two of 02:27:45 10 public record that would generate publicity, correct? 0225:08 11 them are state cases, I believe, that it was pro hac in 02:27:48 11 A. Public record, the focus was not generating 02:25:11 12 the state cases. 02:27:51 12 publicity. Of course, when you file an allegation like 02:25:14 13 Q. Okay. I wont ask you the names, but in the 02:27:54 13 that, there certainly would have been 0225:14 14 four cases, what are the initials of your clients? 02:27:55 14 anticipate there would have been publicity, absolutely. 02:25:19 15 A. Okay. So the 02:25:20 16 Q. Put it this way: How are they identified in 022803 16 of your knowledge, neither you, nor anyone else, had 02:25:22 17 the caption that you filed? 02:28:08 17 told Professor Dershowitz that there were allegations 02:25:23 18 A. Well, also the three that were filed, one 0228:12 18 that he personally had engaged in sexual misconduct? 02:25:26 19 was 02:25:28 20 Miss S.R. yesterday. That was the Jane Doe case in 0228:19 20 MS. McCAWLEY: I'm going to object to that 02:25:32 21 Federal Court in front of Judge Marra. 02:28:20 21 date if that reveals anything that would be 0225:34 22 There were two state claims. I'll 02:25:37 23 identify the clients as E.W. and L.M. 0228:24 23 communicated by the client. 02:25:42 24 Q. And then the fourth one? 0228:25 24 MR. SIMPSON: No. These are communications 02:25:44 25 A. The fourth one, I believe ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 261 263 02:25:49 1 and I believe the last initial was B., but I may be 02:28:29 1 MR. SCAROLA: Yes. And that could very well 02:25:54 2 wrong about the B. First initial M. 02:2531 2 include attorney client privileged 02:25:56 3 Q. At the 0225:04 4 the joinder motion 02:26:05 5 A. Yes. 02:28:37 5 BY MR. SIMPSON: 0226:06 6 Q. 02:26:10 7 2014, you knew that naming Prince Andrew would generate 0228:45 7 Professor Dershowitz that there were allegations that he 02:26:15 8 substantial publicity, correct? 0228:50 8 had engaged, himself, in sexual misconduct with minors? 02:26:18 9 A. I knew it would attract a lot of attention. 0228:56 9 A. Not me personally, no. 02:26:23 10 Yeah, I mean, "substantial" we could debate, but, sure, 02:28:57 10 Q. Are you aware of any e-mail, letter, other 02:26:25 11 I knew that that was going to 0226:28 12 start exposing the extent of this criminal activity, 02:29:09 12 Dershowitz that told Professor Dershowitz that he had 0226:33 13 obviously, there were going to be a lot of people 02:29:12 13 been accused of engaging in misconduct himself? 02:26:36 14 interested, yes. 0229:17 14 A. Well, there 0226:36 15 Q. And you also knew that naming Professor 0229719 15 was a deposition request in 2009. There was a 0225:41 16 Dershowitz would attract publicity? 0229:22 16 deposition request in 2011. That was accompanied by an 02:26:46 17 A. Well, when you say "naming," one of the 022527 17 exchange of correspondence that said, for example, 0225:49 18 things you've got to understand is the names were 02:29:29 18 numerous witnesses have placed you in the presence of 0226:50 19 already in the case, both Prince Andrew and Alan 02:29:31 19 Jeffrey Epstein and underaged girls. It didn't then go 0225:56 20 Dershowitz. We had pending discovery requests for 02:29:35 20 on to say, and you were committing sexual abuse of them, 0226:59 21 information about both of them. So when you say "naming 0229:38 21 but it said numerous witnesses had 02:27:00 22 them," you know, they were already named in the case. 02:2942 22 And I think a reasonable inference would be 02:27:02 23 Now, would the additional allegations have 02:29:43 23 that, you know, you're verily sure that a witness and 02:2705 24 attracted additional attention? Sure. 02:29:47 24 then that also raises the possibility of 02:27:07 25 Q. Mr. Cassell, it's true, is it not, that the ESQUIRE DEPOSITION SOLUTIONS 02:2049 25 mean, I think Professor Dershowitz mentioned yesterday, ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 260 to 263 of 335 28 of 46 sheets 264 266 022961 1 that if you're in the presence of a convicted sex 023203 1 MR. SIMPSON: I'm sorry. You were right, 02:2964 2 offender, or a sex offender and sex abuse is going on, 02:3208 2 yes. 0229:57 3 you would have obligations, for example, at a minimum to 02:32:08 3 MR. SCAROLA: Can you just show it to him? 02:30:00 4 report that, and it raises the possibility of other 02:3209 4 MR. SIMPSON: I'll read it, and then if he 02:3002 5 criminal activity as well. 023211 5 wants to look at it, that will be fine. 023004 6 Q. Is it your testimony, Mr. Cassell, that 02:32:12 6 MR. SCAROLA: Thank you. 0230:07 7 telling a person that multiple people have identified 02:32:73 7 BY MR. SIMPSON: 02:30:15 8 you as a witness to some activity is fair notice that 02:32:14 8 Q. This is a letter from Mr. Scarola to 02:30:20 9 you, yourself, are accused of engaging in criminal 02:3215 9 Mr. Dershowitz dated August 23rd, 2011. The second 02:30:26 10 misconduct? 0232:23 10 sentence says 02:30:26 11 A. So 0230:29 12 letter that went to Mr. Dershowitz in 2011. The letter, 02:32:26 12 MR. SCAROLA: Yeah, thank you. 02:30:32 13 as I recall, doesn't say he is a witness. It says, if I 13 BY MR. SIMPSON: 02:30:3514 recall 023038 15 believe the language says: Numerous witnesses have 15 MR. SCAROLA: It's short, so it would be 0230:42 16 placed you in the presence of Jeffrey Epstein, underaged 16 helpful if you just read the whole thing. 02:30:45 17 girls, and Epstein. Then, you know, so at that point, 17 BY MR. SIMPSON: 02:30:48 18 given what we know in this case, given that at that 18 Q. Yeah. 02:30:52 19 point in 2011, there had been an ongoing set of 02:32:28 19 "We do not intend to inquire about any 02:3065 20 allegations against Mr. Epstein, I 02:30:59 21 question doesn't 02:3103 22 surrounding context. 02:32:37 22 that you have personally observed Jeffrey Epstein 02:31:04 23 Not to mention the fact there had been a 2009 0232:41 23 in the presence of underaged females, and we 02:31:07 24 deposition request and a 2013 document request. 02:32:44 24 would like the opportunity to question you under 02:31:12 25 Q. Okay. I think you accurately characterized 0232:47 25 oath about those observations. Thank you for ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 265 267 02:31:15 1 the communication about the deposition request that 02:32:51 1 your anticipated cooperation. Signed, Jack 02:31:20 2 multiple persons have placed you in the presence 0231:23 3 A. Right. 02:32:54 3 If you would like to 0231:23 4 Q. 02:31:25 5 A. Right. 02:3265 5 Q. 02:31:26 6 Q. 02:31:27 7 A. i believe that's my recollection. Numerous 02:33:00 7 A. Great. Thanks. Okay. 02:31:29 8 witnesses have placed you in the presence of sex 02:33:06 8 Q. Now, first, you're aware, are you not, that 02:31,33 9 offend 02:31:35 10 Epstein, who was convicted of sexually abusing underaged 02:33:12 10 assertion that he had observed Mr. Epstein in the 0231:38 11 girls, and underaged girls, and those are the subjects 02:33:15 11 presence of underage 02:31:42 12 we would like to question you about. 02:3322 12 MR. SCAROLA: Females. 02:31:43 13 And rather than getting a response that says, 02:33:22 13 BY MR. SIMPSON: 02:31:46 14 well, let me clear that all up, the response that's 02:33:23 14 Q. 02:31:48 15 received was, something along the lines of, give me more 02:3324 15 A. Something along those lines, yeah. 02:31,51 16 information and 0231:54 17 want to cooperate, close quote, or something along those 02:33:29 17 A. Okay. That would be good. Yeah, that would 02:31:57 18 lines. 02:33:31 18 be great. 02:31:57 19 Q. Mr. Cassell, let me 02:3169 20 you 02:31:59 21 A. Good. 02:3138 21 "Dear Mr. Scarola, I have never personally 02:3169 22 Q. 02:31:59 23 A. Okay. 02:3343 23 underaged females. I do not believe you have any 02:32:02 24 Q. 02:32:03 25 recollection. 02:3349 25 you have ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 29 of 46 sheets Page 264 to 267 of 335 10 20 2015 01:08:15 PM 268 270 02:33:52 1 believe, please provide me with any such reason. 02:35:33 1 In the context of this case, to say, you have 02:33,55 2 I am certain I can demonstrate to you that it is 02:35:35 2 been observed in the 02:33:58 3 false." 02:35:37 3 witnesses in the presence of a convicted sex 02:33:59 4 Is that consistent with your recollection of 02,35:41 4 offender and underage girls, and we would like to 0 34:01 5 the response? 02:35:45 5 talk to you about those observations, I think 0 34:01 6 A. That sounds about right, yeah. 02:35:45 6 that puts you on notice that you're in 02:34:03 7 Q. So Mr. Dershowitz did not ignore the letter; 02:35:49 7 in jeopardy of 02:34:04 8 he responded to it, correct? 02:3552 8 particularly when you combine that with the fact 02:34:06 9 A. i think that's right. 02:35,54 9 that there is a duty to report child abuse in 02:34:07 10 Q. And go back to the first letter. 02,35:57 10 many states in this country, including the State 02:34:10 11 A. But, now, if we are 02:34:11 12 about 02:34:14 13 response letter, right. 02:36:02 13 that they would give rise to a reasonable 02:34:14 14 Q. My question to you is: Does the statement to 02:36,05 14 inference that sex abuse was 02:34:21 15 a person that "we have reason to believe that you have 02:36:08 15 going on and you'd be obligated to report it, as 02:34:26 16 personally observed another person in the presence of 02:36:09 16 I think Mr. Dershowitz conceded yesterday, yes, 02:34:31 17 underage females and we would like to ask you about your 02:36:72 17 you 02:34:35 18 observations," put the recipient on notice that you, 02:36:14 18 that those kinds of things are being alleged. 02:34:41 19 yourself, are accused of criminal conduct in abusing 02:36:16 19 BY MR. SIMPSON: 02:34:45 20 minors? 02:36:18 20 Q. So, first, the letter itself, the letter from 02:34:46 21 A. Well, it puts you on notice that you're a 02:36:22 21 Mr. Scarola simply says, you were 02:34:49 22 potential, obviously, witness to this and then therefore 02:36:28 22 02:34:51 23 you could have potential involvement. 02:36:31 23 presence of underaged females, correct? 02:34,53 24 Let me give you a simple illustration. It'll 02:36:33 24 A. Correct. 0234,55 25 take about 20 seconds. If somebody says ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 269 271 02:34:56 1 Q. Well, let me back up. My first question, 02:36:37 1 minor; we have reason to believe you observed abuse of 02,34:57 2 though, if you can answer the question. o2:36:39 2 minors? 02:3418 3 MR. SCAROLA: No. I'm sorry. The witness is 02,38:39 3 A. If those words do not appear there, but come 02:35:00 4 entitled to complete his response. If you 02:36,41 4 on, we 02:35:01 5 don't 02:35:03 6 you can move to strike it, but he's entitled to 02:36:47 6 your observation of young girls, they weren't talking 02:35:06 7 complete it. 02:36:50 7 about preparations for birthday parties. They were 02:35:06 8 MR. SIMPSON: He 0 35:06 9 MR. SCAROLA: So go ahead and complete your 02:36,56 9 And that was what Mr. Dershowitz was going to 02:35:08 10 response. 02:36:59 10 be asked about. And he did not 02:35:08 11 MR. SIMPSON: Can we have a 02:35,09 12 an explanation, but a yes or no with an 02:37:05 12 you know, here today, because among other reasons, he 02:35:10 13 explanation. 02:37:09 13 he 02:35:11 14 MR. SCAROLA: You already got that. Could we 02:37:7214 Q. I want 02:35:12 15 now have the completion of the response? 02,37:18 15 little bit non 0235:14 16 THE WITNESS: Here's the simple illustration 02:37:21 16 this again. 02:35,16 17 I think makes it pretty clear: If somebody says, 02:37:27 17 A. Well, I'm 02:35:17 18 we have observed you in the presence of a kilo of 02:37:23 18 bit nonplussed that somebody would say that letter 02:35:20 19 cocaine, we would like to question you about the 02:37:24 19 doesn't put you on notice that you're potentially 0235:23 20 presence 02:3516 21 doesn't directly state that you are a drug user 02:37:30 21 Q. I 02:35:27 22 or a drug dealer, but it certainly puts you on 02:37:33 22 in criminal activity. We disagree about whether it does 02:35:29 23 notice that you're associated with that criminal 02:37:36 23 that. 02:35:37 24 activity and somebody is going to question you 02:37:37 24 A. Okay. I think it does. 02:35:31 25 about it. 02:37:38 25 Q. I suspect you ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 268 to 271 of 335 30 of 46 sheets 272 274 02:37A0 1 A. I think it puts you on notice in the context 02:4603 1 his criminal associates were doing. And he thought that 02:37:42 2 of a country which has required people to report the 02:4605 2 Mr. Dershowitz would have information and was trying to 0237:45 3 sexual abuse of children, and somebody wants to talk to 024067 3 collect that. 02:37,49 4 you about your observations of a convicted sex offender 02:40:08 4 Now, whether the 02:37:52 5 with underage girls, that that's going to be one of the 024610 5 the organization would extend so that they wrapped 02:37:56 6 subjects that's going to be discussed, yes. 02:40:13 6 around Mr. Dershowitz himself, I guess was the subject 02:37:56 7 Q. My question was 02:38:01 8 Does 02:38:05 9 on notice that you, personally, are accused of abusing 02:4622 9 Q. And Mr. Dershowitz, you knew, had been 02:3614 10 minors yourself, not that you have in some knowledge or 02:40:26 10 Mr. Epstein's attorney, correct? 02:38:19 11 evidence that someone else did it, but that you, 02:40:27 11 A. Correct. 02:38:22 12 yourself, did it; is that a way to give fair notice? 02:40:28 12 Q. And you knew, just as we have seen here today 02:38:26 13 A. Well, in fair notice in what context? You 02:4632 13 with multiple assertions of privilege, that he could not 02:38:30 14 know, is he on notice that a lawsuit is going to be 02:40:36 14 testify about anything he learned as an attorney? 02:38:31 15 filed the next day? 02:4637 15 A. He could testify, and the letter itself says, 02:38:32 16 Simply from that piece of 02:3834 17 alone, they are on notice, you know 02:3837 18 that puts you on notice that there are serious 0240:47 18 a convicted sex offender, and your personal knowledge of 02:38:41 19 allegations afoot and it would be in your best interest 02:40:55 19 that. That would not have erased in the 02:38:43 20 if you hadn't done anything, to show up, attend a 02:40:52 20 Mr. Scarola's a very good attorney, and I'm sure all of 02:38:46 21 deposition, let all the facts come out so that everybody 02:40:55 21 his questions that we saw the last couple of days would 02:38:48 22 can know them. 02:4658 22 have been very narrowly focused on observations about 02:38:49 23 Q. Would you agree that accusing someone of 02:41:01 23 what this criminal organization was doing. 023654 24 themselves abusing a minor is different than accusing 02:41:05 24 Q. And so to the bottom line is that your view, 023600 25 someone of having knowledge that somebody else did it? ESQUIRE DEPOSITION SOLUTIONS 02:41:08 25 your sworn testimony, this letter of August 23rd, 2011, ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 273 275 02:39:03 1 A. Yes. 0241,16 1 put Mr. Dershowitz, Professor Dershowitz, on fair notice 02:3964 2 Q. And to accuse someone of abusing a minor is a 02:4121 2 that he was being accused of being a sex offender 02:39:09 3 serious, serious accusation of criminal conduct, 02:4125 3 himself? 02,3614 4 personal criminal conduct, not just failing to report 02:4126 4 A. We 02:39:17 5 somebody else, but you, yourself, are abusing people? 02:41:28 5 him on fair notice that there were serious questions 02:39:21 6 A. Oh, yeah. 02:41:31 6 being raised about what he knew about this criminal 02:39:21 7 MR. SCAROLA: Are you suggesting that that's 02:41:35 7 organization, what the potential criminal responsibility 02:39:23 8 not criminal conduct? 02:41:36 8 he had for failure to report sexual abuse of a child, as 02:39:25 9 MR. SIMPSON: I'm 0239:26 10 stands. 02:41:42 10 MR. SIMPSON: I'm going to move to strike as 02:39:26 11 BY MR. SIMPSON: 02:41:43 11 nonresponsive. 0239:26 12 Q. What is the answer to that? 02:41A3 12 BY MR. SIMPSON: 02:39:27 13 A. It is a very serious charge, I agree. That's 02:41:44 13 Q. My question is a very narrow one, whether 02:3630 14 why we are all here today. 02:41,47 14 this letter, in your opinion, under oath, fairly put 02:39:30 15 Q. Okay. And 02:39:32 16 someone on fair notice that they are accused themselves 02:41:58 16 was accused of abusing minors. 02:39:36 17 of being a sex offender, a criminal who has abused 0242:02 17 A. Again, that's a vague question. I've tried 02:3641 18 children, wouldn't you tell them that? 02:42:04 18 to give the best answer I can. That was certainly a 02:3643 19 A. That's a speculative question because that 02:42:06 19 potential area of questioning. I think that puts him on 02:39:46 20 letter was designed to try to collect information about 02:42:09 20 notice that it would have been in his best interest to 02:39:48 21 an international sex trafficking organization. And so 0242:12 21 appear to answer those questions. 02:39:52 22 as to 02:3655 23 Mr. Scarola wrote it that way. But my sense, based on 02:42:16 23 answer again as nonresponsive. 02:3658 24 the public record is, that he was trying to get as much 02A2:16 24 BY MR. SIMPSON: 024601 25 information as he could about what Jeffrey Epstein and 02A2.18 25 Q. Its a really simple question. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 31 of 46 sheets Page 272 to 275 of 335 10 20 2015 01:08:15 PM 276 278 02:42:20 1 Does that letter put Mr. Dershowitz on fair 02:44:17 1 having abused minors? Can you answer that: Yes or no? 02:42:23 2 notice that he's accused of being a sex offender 02:4421 2 A. No. I think a yes-or-no answer would be 02:42:26 3 himself? 02:44:24 3 misleading, given the context of this case. 02:42:27 4 MR. SCAROLA: Objection. Repetitious. To 02:4427 4 Q. You referred in your earlier testimony to - 024228 5 the extent that you can improve upon the answer, 02:44A4 5 strike that for a moment. 02:42:32 6 you can improve upon the answer. If you cant, 0244,46 6 You referred in your earlier testimony to an 02:42:35 7 all you need to do is say that. 02:45:04 7 article that appeared today regarding 02:42:37 8 THE WITNESS: I 02:4238 9 obviously, I want to be responsive 02:42:38 10 BY MR. SIMPSON: 02:4513 10 Q. Okay. Are you aware that 02:42:38 11 Q. Let 02:4240 12 A. 02:42:40 13 Q. I'll ask you a different question. 02:45:21 13 morning to an article being published about 02:42:41 14 A. I don't think that's a yes or no question 02:45:24 14 Professor Dershowitz's testimony? 02:42:43 15 because of 02:42:46 16 notice and 02:42:49 17 ahead and ask your questions and I'll 02:42:55 18 ahead. 02'45,33 18 public. 02:42:55 19 Q. You're a former federal judge? 0245:33 19 BY MR. SIMPSON: 0242:55 20 A. Right. 02:45,34 20 Q. Okay. And I 02:42:56 21 Q. A former Supreme Court law 02:42:58 22 A. Yes. 0245:37 22 there's an article that came out yesterday or a 02:42:59 23 Q. Professor at a law school? 02:45:39 23 communication. I 02:43:02 24 A. Yes. 02:45:4224 the 02:43:03 25 Q. Reading as ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 277 279 02:43:09 1 letter, in your opinion, does the language itself put 02:45:47 1 other way from the 024318 2 the recipient on notice that the recipient is accused of 02:45:51 2 aware that there was a statement that the 02:43:23 3 abusing minors himself? 02:4655 3 name of the outfit? It's the Business Investor 0243:27 4 A. It puts him on notice that that is going to 02:45:57 4 MR. SCAROLA: Daily Business Review. 02:43:29 5 be a potential subject of inquiry at the 02:43,33 6 the deposition. 02:46:01 6 stating that David Boies was saying that the 02:43:34 7 Q. So your answer then is, yes, it puts the 02:43:37 8 the 02:43:40 9 A. You're 02:43:42 10 mouth. You're 02:43:44 11 question that on the one hand, you're suggesting is 02:46.10 11 THE WITNESS: Yeah. And, I'm sorry, just for 02:43:47 12 narrow, and on the other hand is broad. It 02:43:50 13 this is probably the simplest way to answer that 0246:12 13 BY MR. SIMPSON: 02:43:50 14 question. 02:4613 14 Q. And you 02.43:51 15 If I had gotten that letter, I would have 02'46.14 15 referred to it 02:43:52 16 said, schedule the deposition in the next 24 hours, and 02:46,17 16 referred to it as a reputable 02:43:55 17 come on down here now, and I will be available for a 02:46:18 17 A. That's right. 02:43:58 18 week. That's what I would have said if I had gotten 024619 18 Q. 0244:01 19 that letter. 02:4621 19 A. That's right. That's the one we are talking 0244:02 20 MR. SIMPSON: Move to strike as 02:4621 20 about, right. 02:44:03 21 nonresponsive. 024621 21 Q. Right. And in that article it states: 02:44:03 22 BY MR. SIMPSON: 0246:31 22 "McCawley," referring to our colleague, 02:44:06 23 Q. Is it your testimony you can't answer yes or 0246:32 23 "later issued a statement on Boies's behalf 02:44,09 24 no whether that letter, on its face, puts the recipient 02:46:35 24 saying, because the discussions that Mr. Boies 02:44:12 25 on notice that the recipient is accused himself of 0246:37 25 had with Mr. Dershowitz were expressly privileged ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 276 to 279 of 335 32 of 46 sheets 280 282 0246:40 1 settlement discussions, Mr. Boies will not, at 02.48:13 1 MR. SCAROLA: Why don't you start over again? 02:46:43 2 least at this time, describe what was actually 02:48:15 2 MR. SIMPSON: No. I just want "- 02:46:46 3 said. However, Mr. Boies does state that 0248:15 3 MS. McCAWLEY: We disagree with 02:46:50 4 Mr. Dershowitz's description of what was said is 02:4816 4 your characterization of that as a waiver. It 02:46:54 5 not true." 02:48:19 5 was a statement that was issued in order to stop 02:46:55 6 A. That's the one. 0248:22 6 the waivers that Mr. Dershowitz was trying to 02:46:55 7 Q. You read that? 02:48:22 7 engage in, and we 02:46:56 8 A. Yeah. I 02:46:58 9 remember whether I read or how I got it, but yeah, 02:48:27 9 regarding those communications. 02:47:00 10 that's the one. 02:48:28 10 MR. SIMPSON: Okay. I disagree with the 02:47:00 11 Q. In light of that statement by Mr. Boies, 02:48:31 11 position and the characterization, but I just 02:47:03 12 would you agree that any privilege has been waived? 02:48:33 12 wanted to clarify on the record, I didn't have to 02:47,06 13 A. i would not. 02:4815 13 ask those questions again. 02:47:06 14 Q. So 02:47:07 15 A. That's 02.47:08 16 Q. Its a pub 0247:12 17 That's a statement 0247:16 18 Ms. McCawley and quoting Mr. Boies as saying, 02:48:41 18 already been waived 02:47:20 19 Mr. Dershowitz's description of what was said is not 02:4043 19 privileged or hadn't been waived, its now 02:47:23 20 true, so that's a public statement by Mr. Boles saying 02:4847 20 waived. 02:4726 21 that Mr. Dershowitz's testimony is not true; is that a 02:4047 21 THE WITNESS: And my 0247:29 22 waiver in your view? 0248750 22 MR. SIMPSON: I don't have a question. 02:47:30 23 A. No. And that would require 02:47:32 24 I'm just putting you on notice, talking about notice, if 0248:52 24 now in light of, since the record has these 024715 25 you want me to, i could give you the law professor 02:48:53 25 characters, I just want to put one sentence into ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 281 283 02:47:39 1 answer as to why that's not a waiver. Off the top of my 02:48:57 1 the record, which is: It doesn't seem to me that 02:47:41 2 head, I can start talking about that. 0248:58 2 an attorney can inject into a deposition 0247:43 3 Q. No. I don't 02:47:44 4 A. Right. That's why I just wanted to let you 02:49:03 4 somebody deny that, and then say, aha, they're no 0247:46 5 know, so... 02:49:05 5 longer confidential settlement proceedings, so 024746 6 Q. But I really wanted to clarify 0247:49 7 wanted to clarify was 02:47:49 8 A. I do not 0247,51 9 record is clear: I absolutely do not believe that's a 02:49:12 9 THE WITNESS: Right. I just didn't want your 02:47:52 10 waiver and I could give you an extended answer, but I 02:4914 10 comments to 0247:55 11 know time is drawing short 02:47:55 12 Q. All right. 02:49:15 12 BY MR. SIMPSON: 02:47:56 13 A. 0247:56 14 Q. But you 02:48:00 15 notwithstanding that statement, you will continue to 02:49:26 15 marked yesterday as Cassell Exhibit Number 2, which is 02:48:02 16 answer all my questions about the substance of 02:49:30 16 the joinder motion, and when you have that in front of 0248:05 17 discussions with Mr. Boies; you're continuing not to 02:4916 17 you '- 02:48:08 18 answer, you're continuing 02:48:10 19 MS. McCAWLEY: Yes 02:48,10 20 MR. SCAROLA: You just said you 02:48:10 21 MS. McCAWLEY: 0248:11 22 MR. SCAROLA: 02:48:11 23 MS. McCAWLEY: I'm sorry. 02:4050 23 part of 024811 24 MR. SIMPSON: I'm sorry. 024052 24 A. Got it. 02:48,12 25 MS. McCAWLEY: Continue not to answer. 02:4053 25 Q. All right. I'm going to read it. Tell me if ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 33 of 46 sheets Page 280 to 283 of 335 10 20 2015 01:08:15 PM 284 286 02:49:55 1 I've read it correctly. 025221 1 speak words. They both have the same physical ability 02:49:56 2 A. Okay. 025224 2 to speak the English language, yes. 02:49:56 3 Q. "Epstein also sexually trafficked the 02:52:25 3 Q. And, in fact, before, at least three years 02:49:59 4 then-minor Jane Doe 0250:02 5 correct? 02:52:35 5 quoted in an article, more than one article, in the 02:50:02 6 A. Yes. 02:52:39 6 Daily Mail in London about her experiences, correct? 02:50:03 7 Q. 02:50:05 8 politically-connected and financially-powerful people. 02:5243 8 Q. And am I correct that as of December 30th, 02:50:09 9 Epstein's purposes in lending Jane Doe, along with other 02:52:48 9 2014, you didn't know whether she was paid for that 02:5014 10 young girls, to such powerful people were to ingratiate 02:52:50 10 interview or not? 02:5020 11 himself with them for business, personal, political, and 02:52:51 11 A. I wasn't sure. That's right. 02:50:24 12 financial gain, as well as to obtain potential blackmail 02:52:53 12 Q. And after December 30th, 2014, the references 02:50:29 13 information." 02:52:58 13 to Prince Andrew and Professor Dershowitz generated 02:50:30 14 Did I read that correctly? 02'53:04 14 international publicity; isn't that true? 02:50:31 15 A. You did. 02:53:07 15 A. Okay. Which 02:50:31 16 Q. What did you mean by "obtain potential 02:53:11 16 sense, I could ask which allegations, but these 02:50:35 17 blackmail information"? 02:53:13 17 allegations did generate publicity, certainly. 02:5026 18 A. Okay. Let me just double-check. 025315 18 Q. Yes. The allegations in your joinder motion 02:50:41 19 Once the criminal organization had put the 02:53:18 19 that Prince Andrew and Professor Dershowitz had abused 02:50:45 20 bait out, so to speak, to various people, and they took 02:53:24 20 Virginia Roberts, then known as Jane Doe Number 3, 0250:49 21 the bait that 0250:49 22 colloquially here. These are 02:50:54 23 who are being sexually abused. Once the criminal 0253:32 23 Q. And within days of that, you were 02:50:56 24 organization had gotten people to sexually abuse 02:53:35 24 participating in attempting to arrange an interview with 0250:58 25 these ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 285 287 02:51:01 I information that they could use to blackmail those 02:53:39 1 A. That 02:51:02 2 people and 02:51:05 3 And that's Epstein at the head of the o2:53:45 3 pleading on December 30th. Several days after that, 0251:08 4 organization would be the one who would benefit most 02:53:48 4 Mr. Dershowitz then took to the airwaves to denounce, 0251:11 5 directly from the black 02:51:12 6 Q. And by "blackmail information," do you mean 02:5256 6 to me was Virginia Roberts, this victim of sex D2:5117 7 that Mr. Epstein then had information that he could 02:5358 7 trafficking. 02:5119 8 threaten to disclose if the other person didn't do what 02:53:59 8 And, at that point, as one of 02:5124 9 Epstein asked them to do? 0254:01 9 her attorneys, I was looking for a way to respond to 0251:24 10 A. Precisely. 02:54:05 10 that media assault on her by Mr. Dershowitz. 0251:26 11 Q. As of December 30th, 2014, if Miss Roberts 02:54,09 11 MR. SIMPSON: Move to strike as 02:51:32 12 had access to publicity, she had exactly the same 02:54:09 12 nonresponsive. 02:5135 13 ability to blackmail people; isn't that true? 02:54:09 13 BY MR. SIMPSON: 0251:38 14 A. Absolutely not. A billionaire has far more 02:5415 14 Q. Did 0251:43 15 resources than a victim of child sex abuse, particularly 02:54:22 15 filed, there was publicity about the allegations against 02:51746 16 one that has been forced into hiding in Australia to 02:54:27 16 Prince Andrew and Mr. Dershowitz 02:51:49 17 escape the criminal organization. 02:54:31 17 Dershowitz; isn't that correct? 02:51,51 18 So for you to suggest that Virginia Roberts 02:54,32 18 A. I don't know the exact time frame, but 02:51,52 19 had the same ability to blackmail somebody as Jeffrey 02,54:34 19 that 02:5156 20 Epstein is, I think, preposterous. 02:5426 20 right. 025200 21 Q. As of 02:52:03 22 ability as Jeffrey Epstein to reveal publicly the names 0254:39 22 said anything, wouldn't you expect that these 02:52:12 23 of the people who she says sexually abused her, as did 02:54:42 23 allegations as to Prince Andrew, in particular, and 02:52:17 24 Mr. Epstein; isn't that true? 02:54:47 24 Professor Dershowitz would get substantial publicity? 0252:19 25 A. You're talking about physical ability to 02:54:50 25 A. There was ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 284 to 287 of 335 34 of 46 sheets 288 290 02:54:51 I MR. SCAROLA: Excuse me. To the extent the 02:56:15 1 Prince Andrew had sexually abused Virginia Roberts, 0254:53 2 question calls for speculation, I object. 02:56:19 2 correct? 52:54:55 3 MR. SIMPSON: No. I'm asking for his state 02:56:19 3 A. That was one of the allegations in here, 5254:57 4 of mind when he filed this document. 02:56:21 4 sure. 02:54:59 5 THE WITNESS: There's no doubt that 02:54:59 6 MR. SCAROLA: So the question is: At the 02:56:25 6 had sexually abused Virginia Roberts, correct? 0255:01 7 time of the filing 02:55:02 8 MR. SIMPSON: Please 02:55:03 9 the witness. 02:56:35 9 that terrible things that Epstein's criminal 02:55:03 10 MR. SCAROLA: No, I'm not coaching him. I 02:56:39 10 organization had done. 02:55:05 11 just want to understand the question. You're 0215639 11 Q. Let me refer you to page 6 0255:06 12 asking what his state of mind was at the time of 02:56:42 12 A. Okay. 02:55:09 13 filing? 02:56:42 13 Q. 02:55:09 14 MR. SIMPSON: Did he 02:55:09 15 MR. SCAROLA: Because the other question was: 02:5648 15 A. Yep. 02:55:11 16 What do you 02:55:13 17 MR. SIMPSON: Mr. Scarola, really. 02:56,51 17 trafficked Jane Doe Number 3 for sexual purposes to many 02:55:14 18 MR. SCAROLA: That's 02:55:15 19 question. So I just want to know which one 02:56:57 19 A. Okay. 02:55:17 20 you're asking. 0256:57 20 Q. "Including numerous prominent American 02:55:18 21 Do you want to know his state of mind then, 02:57:00 21 politicians, powerful business executives, foreign 02:55:21 22 or his state of mind today? 02:57:05 22 presidents, a well-known prime minister, and other world 02:55:23 23 MR. SIMPSON: I will take that as an 02:57:10 23 leaders. Jane 02:55:25 24 objection to the form of the question. 0257:15 24 describe the events that she had with these men so that 02:55:25 25 02:5718 25 he could potentially blackmail them." ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 289 291 02:5525 1 BY MR. SIMPSON: 02:57:20 1 Did I read that correctly? 02:5527 2 Q. As of 02:55:27 3 MR. SCAROLA: It's a request for a 02;57:22 3 Q. With respect to blackmail, the ability to 025528 4 clarification of an ambiguous question. 02:57:28 4 blackmail, is that the same potential we talked about a 02:55:33 5 MR. SIMPSON: It's coaching the witness. 02:57:30 5 moment ago in your testimony? 02:55:33 6 BY MR. SIMPSON: 02:57:32 6 A. Sure. 0255:34 7 Q. As of 025634 8 A. Yeah, I don't need any coaching. I mean... 02:57:34 8 A. Roughly, yeah. I mean, if there's something 02155:35 9 Q. Let me ask the question. 02:57:35 9 that you want clarified, go ahead and clarify it. 0255:36 10 As of December 30th 02:55:39 11 of 02:55:39 12 A. Right 02:55:39 13 Q. 02:55:39 14 A. 02:55:41 15 coaching, so the suggestion that it's coaching is 02:55:43 16 not fair. 02:57:55 16 ability to threaten to disclose it if they didn't do 02:55:43 17 Q. Okay. We disagree. 0257:58 17 what he wanted them to do? 02:55:46 18 As of December 30th, 2014, did you anticipate 02:57:59 18 A. That was 0255:52 19 that naming Prince Andrew in a public filing as having 02:5601 19 Q. And isn't it true you could have 02:55:58 20 abused Virginia Roberts would generate substantial 02:5804 20 accomplished 02:56:02 21 publicity? 02:58:07 21 Roberts's legal interests, you could have accomplished 02:5603 22 A. "Substantial" is a debatable word, but 02:58:10 22 exactly the same thing by saying Epstein also 02:56:06 23 certainly, it's going to generate publicity, yes. 02:5814 23 trafficked 02:56:10 24 Publicity about the allegations. 02:5818 24 purposes to other well-known men, period? 02:5612 25 Q. Yes. And ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 35 of 46 sheets Page 288 to 291 of 335 10 20 2015 01:08:15 PM 292 294 0268:26 1 Q. Okay. You felt that it furthered her legal 0104:31 1 break. I appreciate that. 02:58:30 2 interests to specify American politicians, powerful 03:04:32 2 Q. Okay. 02:58:34 3 business executives, foreign presidents, a well-known 03:04:32 3 MR. SCAROLA: Could you just read back the 02:58:38 4 prime minister and other world leaders; that was your 0268:42 5 you 02:58:43 6 A. Yes. 0104:37 6 (Thereupon, a portion of the record was read 0258:43 7 Q. Did you also anticipate that that would 03:05:33 7 by the reporter.) 02:58:47 8 titillate the Press, so to speak, that there would be a 0305:33 8 MR. SCAROLA: Yeah, I didn't I think the 02:58:49 9 lot of speculation on who these people are? 03:05:34 9 answer was 02:58:52 10 A. That wasn't the 02:58:54 11 of the 0268,55 12 Q. You said it wasn't the focus. Did you 03:05:38 12 preposterous. And one 02:58:57 13 realize it would happen? 03:0639 13 to me during the break, in the context of this 02,5868 14 A. Sure. I mean, this was a case that had 03:05:42 14 case, is that there had been allegations that 026962 15 been already 02,59:02 16 that point for seven years and lots of people were 0105:47 16 organization, had video cameras mounted 02;59:04 17 following it. This is 02,5967 18 egregious examples of a violation of Crime Victims' 03,05:52 18 whereas a young woman could say, or a young girl 02:59:11 19 Rights in the history of this country. 03:05:55 19 could say, look, I was a victim of sex abuse, 02:59:13 20 And so against that context, yes, there were 03:05:58 20 people would attack her; people wouldn't believe 02:59:14 21 going to be people interested in every word that was 03:06:00 21 her, that unless she had, you know, corroborating 02:59:16 22 going into this pleading. Whether we had gone more 03:06:02 22 evidence, people would say, well, look, it didn't 0269:19 23 broadly or more narrowly than what we did, people were 03:0665 23 happen. 0269:23 24 going to be interested in this. 03,06:05 24 And so Epstein had managed to collect 02:59:23 25 Q. And as of December 30th of 2014, Miss Roberts 0106:08 25 apparently a lot of videotapes and other kinds of ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 293 295 02:59:31 1 had the same ability to disclose who these individuals 0306:11 1 information that would have been 02:59i34 2 were publicly, as did Jeffrey Epstein, correct, because 0106:14 2 ability to make the blackmail kinds of charges 02:5918 3 she had personal knowledge of who they were? 03,06:15 3 that the girls that he was trafficking would 02.59:40 4 A. She had the ability to speak the words, but, 03:06:18 4 would not have had the ability to do. 02:5642 5 again, I think its preposterous to say that a victim of 03:06:18 5 BY MR. SIMPSON: 02:59:45 6 sex trafficking has the same power as the sex trafficker 036620 6 Q. Mr. Cassell, didn't you testify yesterday 025948 7 to disclose information. 0106:22 7 that any videotapes from Mr. Epstein's house had been 02:59:51 8 For example, Virginia Roberts could be 03:0627 8 destroyed? 02:5962 9 attacked, and I think as we were talking about 0106:28 9 A. I 02:59:54 10 yesterday, we have seen evidence of the kind of attack 03:06:30 10 probably should have been more precise. They had been 0259,57 11 that powerful people can mount against the victims of 03:06:32 11 concealed from law enforcement, is what I meant. That 03:00:01 12 sex trafficking. So to say that the young women in sex 0106:35 12 when Palm Beach Police Department went up to the Epstein 03:00:04 13 trafficking schemes have the same power as their 0106:37 13 mansion, they found surveillance cameras and other 03:00:07 14 traffickers to do this 03:00:11 15 to take a break. 03:06:44 15 were, but they found surveillance cameras, and when they 03:00:12 16 THE VIDEOGRAPHER: We are going off the video 0366,46 16 looked for the tapes associated with those cameras, I 03:00:14 17 record, 11:32 a.m. 03:06:50 17 used the word "destroyed"; and as I say, I probably 03:04:14 18 (Thereupon, a recess was taken.) 03:06:50 18 should have said they were missing. And so they were 03:04:14 19 THE VIDEOGRAPHER: We are back on the video 03:06:52 19 never able to locate those 03:0420 20 record, 11:36 a.m. 03:06:55 20 Q. So as of December 30th of 2014, to your 03:0424 21 BY MR. SIMPSON: 03;07,01 21 knowledge, there were no videotapes available? 010427 22 Q. Had you finished your answer, Mr. Cassell? 03:07:03 22 A. There were no videotapes available to law 03:0428 23 A. I think I had. 03:07:06 23 enforcement or to Brad and his pro bono crime victim 0364,28 24 Q. Okay. 03:07:09 24 attorneys to help document our case. We were trying to 03:04,29 25 A. Thank you. Thank you for letting me take a ESQUIRE DEPOSITION SOLUTIONS 03:07:12 25 get those and we are continuing to try to get those, ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 292 to 295 of 335 36 of 46 sheets 296 298 03:07:13 1 but, obviously, Epstein and his criminal associates have 0109:34 1 intended to be a direct quote? 03:07:18 2 had the ability to 03:07:21 3 been 0307:23 4 Q. And in 03:07:26 5 questions 030727 6 A. I 03:07:28 7 They have been able to conceal would probably be a more 03:09A6 7 A. That they were premature. 03:07:30 8 accurate term, the 03:07:33 9 gather. 03:09:50 9 A. Yes. 03:07:33 10 Q. In my answer 03:07:33 11 A. Yeah. 03:09:54 11 A. And I 0107:36 12 Q. 03:07:38 13 my question a couple of questions ago, you talked about 03:10:00 13 allegations - 0107:42 14 whether Mr. Epstein and Virginia Roberts would have the 03:10:01 14 Q. Yeah. Well, we can pull 03:07:46 15 same or equal ability to disclose 03'07:49 16 A. Right. 03:10:01 16 Q. 03,07:49 17 Q. 03:07:53 18 et cetera, had done, correct? 03:10:05 18 Q. 03:07:54 19 A. Correct. 03:10:05 19 understanding is that the judge didn't find that those 03:0755 20 Q. Without attempting to make any comparison, 03:10:09 20 allegations, at the time they were made, were so 03:07:50 21 you would agree, would you not, that as of December 03:10:13 21 irrelevant to the case, that they should be stricken 03:08:01 22 30th, 2014, Miss Roberts had the ability to name the 03:10:15 22 from the public record? 0308:07 23 names of the people who are referenced in this document? 031017 23 A. In that pleading at that time, remember, we 03:08:10 24 A. Physical ability, yes. 03:10:20 24 had in our 03:0811 25 Q. And ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 297 299 03:08:17 1 well-known prime minister. Is that Prime Minister 03:10:27 1 relevant to the case, since I think your question calls 53:08:22 2 Barak? 03:10:28 2 for that. 03:08:22 3 MS. McCAWLEY: I'm gonna instruct you not to 0319:29 3 Q. Are those the nine reasons you gave 03:08:25 4 reveal any attorney client communications you had 03:10:31 4 yesterday? 03:08:26 5 with Virginia Roberts on the specifics of her 03:10:31 5 A. No, I didn't have a chance to. 03:08:29 6 counsel to you about these individuals. 0310:32 6 Q. Are they the nine reasons that are set forth 03:08:31 7 BY MR. SIMPSON: 03:10:34 7 in your 03:08:32 8 Q. Is one of the other 03,08:34 9 business executives, Les Wexner? 03:10:37 9 are set forth in the brief. 03:0817 10 MS. McCAWLEY: Again, same instruction. 03:10:38 10 Q. Okay. And 03:08:40 11 BY MR. SIMPSON: 03:10:41 11 in front of him when he held that, these allegations 03:08:41 12 Q. Okay. Now, you mentioned yesterday 03:0640 13 a moment ago, you testified that these 03:08:51 14 these allegations about other powerful men furthered 03:10:52 14 record? 03:08:58 15 Miss Roberts' legal position in the case, correct? 0310:52 15 A. At that time, in that particular pleading 03119:02 16 A. Yes. 03:10:55 16 I think you're mischaracterizing Judge Marra's ruling in 0309:02 17 Q. And it's also your position, I assume, that 03:1100 17 its entirety. He specifically said that the allegations 030910 18 the allegations regarding Professor Dershowitz and 03:11:01 18 could be reasserted, if they were relevant to issues 03:09:14 19 Prince Andrew furthered Miss Roberts' legal position; is 03:11:04 19 that are 03:09:21 20 that right? 0371107 20 that ruling, we went to the U.S. Attorney's Office, 030921 21 A. Absolutely. 03:11:10 21 propounded discovery requests and said, look, we believe 03:09:21 22 Q. Does the fact that Judge Marra struck those 03:11:13 22 you're sitting on information that Dershowitz was, you 03:0924 23 allegations as impertinent, scandalous, and completely 0111:16 23 know, connected with the 03:09:30 24 irrelevant to the case, cause you to reassess? 03:1117 24 trafficking here; we would like you to produce those 03:09:32 25 MR. SCAROLA: Excuse me. Is that ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 37 of 46 sheets Page 296 to 299 of 335 10 20 2015 01:08:15 PM 300 302 03:11:20 1 And rather than say, hey, we don't have any 011141 1 the United States Attorney for the Southern District of 0311:22 2 such documents, the U.S. Attorney's Office gave us the 0113:45 2 Florida to represent victims, correct? 03:11:26 3 response indicating, to our view, that there were such 011148 3 A. Yes. Through the D3:11:27 4 documents, and as you know, since you're one of 03:1151 4 there was an apparatus that led to his selection. 03:11:29 5 Mr. Dershowitz's attorneys, we have drafted a pleading 0313:54 5 Q. And does that answer reflect holding the U.S. 03:11:32 6 now to try and collect that information, that law 03:14:01 6 Attorney for the Southern District of Florida in that 0111:36 7 enforce 031 1:39 8 collected, and 0111:42 9 to litigate that so that we can get that information and 0314:05 9 Q. Do you contend that at the time the United 031 1:44 10 move forward with the case. 0314:11 10 States Attorney for the Southern District of Florida 0111:46 11 That's just one example of 03:11:49 12 allegations, if they were premature at that point, are 03:1420 12 himself, had been involved in abuse of minors? 03:11:53 13 no longer going to be premature as the case moves along. 03:14:25 13 A. I don't know exactly what information they 03:11:57 14 Q. Is it or is it not your understanding that 03:14:27 14 had. I do know that we have been propounding discovery 0112:01 15 Judge Marra ruled that the allegations in this pleading 03:14:30 15 requests on all of these subjects, including 03:12:08 16 in front of you were so irrelevant to the pleading in 03:14:32 16 Professor Dershowitz's involvement, when the U.S. 0312:14 17 which they were stated, that they should be stricken 03:14:35 17 Attorney knew. They are asserting privilege over that. 011217 18 from the public record? 03:14:37 18 I would wish they would waive the privilege or at least 03:12:18 19 A. In that particular pleading at that 031439 19 provide the information to pro bono crime victims' 03:1220 20 particular time, that's right. 03:14:43 20 attorneys that they have, so we can get to the bottom of 03:12:21 21 Q. Does that cause you to reassess, in any way, 03:14:45 21 this. 03:12:24 22 having filed this document? 03:14:45 22 But there have been, you know, a nonstop 03:12:25 23 A. Well, I think certainly as a tactical matter, 03:14:47 23 series of assertions of privilege and other barriers 0112:28 24 we should have reserved the 03:1231 25 for another motion. I ESQUIRE DEPOSITION SOLUTIONS 031453 25 inappropriately so, and ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 301 303 03:12:34 1 certainly, with the 03:12:38 2 speculating, would we have done something different if 0314:56 2 Q. Would you agree with me that if the United 03:12:39 3 we knew that? And the answer to that is, sure, we would 03:15:00 3 States Attorney's Office had been aware that Professor 031241 4 have tried to do something that Judge Marra thought was 03:15:04 4 Dershowitz had engaged in sexual misconduct with minors, 0312:44 5 the appropriate way to handle it, so... 03:15:07 5 or himself had observed Mr. Epstein do so, that it would 03:12:46 6 Q. And Judge Marra also reminded counsel of 03:1512 6 have been improper and unethical for them to let Mr. 0312:49 7 their Rule 11 obligations; didn't he? 03:15:17 7 Professor Dershowitz negotiate the terms of the NPA with 0312:51 8 A. That's right. Yeah. 03:1519 8 them? 011252 9 Q. And did it cause you to question, not 031519 9 A. If they had direct personal knowledge of 03;12:57 10 tactics, but whether you were acting properly in filing 03:1521 10 that, sure. I mean, the 03:13:00 11 this? 03:1123 11 a little bit more complicated in that Professor 03:13:00 12 MR. SCAROLA: Excuse me. I 03:13:02 13 MR. SIMPSON: I'm just asking if it caused 0315:27 13 frequently 03:13:03 14 him to reassess. 03:15:29 14 and so if they were certain of that, it absolutely would 03:13:04 15 MR. SCAROLA: I understand what you're 031131 15 have 03:13:05 16 asking, and you're asking him about his mental 011533 16 The question is: Well, what if they had a 03:13:07 17 processes in connection with pending litigation. 03:1135 17 suspicion or what if 03:1112 18 That's work product. I instruct you not to 0315:36 18 or a possible suspicion. Those are the kinds of 031113 19 answer that question. 0115:39 19 dimensions that you've got to, you know, take into 031314 20 BY MR. SIMPSON: 011142 20 account in the real world about, you know, what they .- 0113:15 21 Q. All right. You testified yesterday that one 03:15,44 21 what they would have done. 03:13:19 22 reason that you found the filing of the complaint on 03:15:50 22 I mean, it seems pretty clear, for example, 0313:27 23 behalf of Jane Doe 102, who is Virginia Roberts, by 031152 23 that at some point, you know, later on, they got a black 03:13:34 24 the 03:13:37 25 significant was that Bob )osefsberg had been selected by 03:15:58 25 circled. Now, what they did with that information, I ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 300 to 303 of 335 38 of 46 sheets 304 306 03:18:00 1 I don't know. 0317:59 1 certainly believe i have a good-faith basis, along with 0316:00 2 Q. And what they did with the fact that Courtney 03:18:02 2 my co-counsel, to explore that subject, and try to see 0316:04 3 Love and Donald Trump were circled, you don't know also, 03:18:04 3 how someone who is fifth in line to the British Throne 031006 4 correct? 03:18:07 4 might have been able to use the contacts and power that 03:16:06 5 A. That's right. Fair point. 03:1809 5 he has to influence a 0116:07 6 Q. But somehow it's suspicious as to 03:18:15 6 in the Crime Victims' Rights Act case that it would have 03:16:10 7 Mr. Dershowitz, but not as to anyone else? 03:1019 7 been favorable to one of his friends and potentially 03:16:12 8 MR. SCAROLA: Objection. Argumentative. 03:18:23 8 favorable to himself. 03:16:12 9 THE WITNESS: And I'm 03:16:14 10 that point, let me, because they 03:16:14 11 MR. SIMPSON: I'll withdraw the question. 03:18:27 11 have no record of that? 03:16:15 12 THE WITNESS: All right. Because I would 03:18:30 12 A. They didn't 011616 13 have a 03:16:16 14 MR. SIMPSON: Let 0316:17 15 THE WITNESS: 03:16:18 16 that. 03:18:38 16 not say that they didn't have any information along 03:1610 17 MR. SIMPSON: I 03:16:20 18 question. 031041 18 To the contrary: They asserted a whole 03:16:20 19 BY MR. SIMPSON: 03:18:43 19 series of privileges every time we tried to get 031028 20 Q. With respect, again, to the 031610 21 MR. SCAROLA: And I'll withdraw the 03:18:49 21 didn't have a letter, signed Prince Andrew, saying, 03:1632 22 objection. 03:18:51 22 please do the best you can for this convicted sex 031632 23 MR. SIMPSON: Thank you. 03:18:54 23 offender is one thing. That's the request for 03:16:33 24 BY MR. SIMPSON: 03:1856 24 production of documents. 031616 25 Q. At the time that you filed this joinder 0118:57 25 But they never said that they ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 305 307 03:16:40 1 motion, Exhibit 2, you knew that the United States 031900 1 something along these lines had never happened and, to 03:16:44 2 Attorney's Office had denied having any contact 03:16:48 3 documents reflecting any contact with Prince Andrew; 03:19:07 3 over roughly, if i remember correctly, about 10,000 0316:51 4 isn't that true? 0319:08 4 pages of documents where a whole host of privileges were 03:1601 5 A. They had 03:16:56 6 discovery requests that had been propounded, and I think 031912 6 Q. Do you think it's credible that the United 03:1669 7 with regard to one, they had denied, and my recollection 03,19:16 7 States Attorney's Office would be discussing an NPA with 03:17:01 8 is with regard to another, where there had been an 0319:20 8 a member of the British Royal Family? 03:17:04 9 assertion of privilege. 0319:22 9 A. Not directly, but there certainly are 03:17:07 10 Q. Is it not true, that before December 30th, 03:19:24 10 possibilities of surrogates. I 03:17:09 11 2014, in response to a request asking the government: 0119:27 11 that powerful certainly wouldn't go out at it directly. 03:1715 12 Are there any documents reflecting contact with 03:17:20 13 Prince Andrew regarding the NPA, the government 03:19:32 13 lawyers they could around the United States and 03:1724 14 represented, there were none? 03:19:33 14 you know, and some of the, you know, big-named lawyers 03:17:26 15 A. That 03:17:30 16 about RFPs, request for production of documents, I 0319:38 16 That's, I think, how, you know, we're 0317:32 17 believe that's 03:17:33 18 Q. And on December 30th, 2014, knowing that, you 0119:42 18 I'm saying that 0317:38 19 named Prince Andrew in this motion, correct? 0319:46 19 influence a deal in an American criminal justice system? 03:1740 20 A. Correct. 03:19:49 20 You go try to get the best defense lawyers you could and 0317:41 21 Q. And is it your testimony that you believe 03:19:52 21 see 0117:4622 that Prince Andrew somehow attempted to influence the 0119:54 22 party was in power; and try to get people who are 011762 23 negotiations of an NPA in the United States as to 03:19,58 23 well-connected to that political party, things like 0317:56 24 Mr. Epstein? 0319:58 24 that. 03:17:57 25 A. I don't have direct evidence of that, but I 03:19,59 25 So that's the way that I think somebody might ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 39 of 46 sheets Page 304 to 307 of 335 10 20 2015 01:08:15 PM 308 310 03:20:01 1 have gone about trying to 0320:04 2 favorable plea deal. 03:22:20 2 Nightline, is that an ABC program or NBC or 03:20:06 3 Q. And that's what you just referred to as 012235 3 other network. 0320,08 4 speculation, correct? 032225 4 Q. If you look at the exhibit, the e-mail in the 03:20:09 5 A. Well, your question said: Well, how would 012239 5 second 03:20:10 6 they go do this? And I 03:20:14 7 to how I think somebody could well do that, yes. 03:22:45 7 A. Yeah, yeah, yeah. That's good. Thank you. 03:20:16 8 Q. And 03:20:22 9 someone would do it; it alleges that they did it; isn't 03:22:51 9 2015, you told Miss Jesko of CBS News sic that 03:20:26 10 that correct? 0322:59 10 MS. McCAWLEY: ABC. I'm sorry. You said 03:20:27 11 A. Did what? 03:22:59 11 CBS. 012027 12 Q. Let me 03:20:29 13 A. No. I 0320,30 14 Q. I 03:20:30 15 A. Yeah. 0123:00 15 MR. SIMPSON: I'm sorry. Let me start again, 0120:36 16 Q. We only have about ten minutes here. There 03:23:04 16 and thank you. 03:20:38 17 are a couple of things that I 03:20:38 18 A. Sure. Absolutely. 03:23:06 18 BY MR. SIMPSON: 03:20:41 19 Q. 0320:41 20 back to these when we resume. We have a lot more 03:23:10 20 Miss Jesko of ABC News, quote: I represent, along with 03:20:43 21 questions. 03:23:15 21 Brad Edwards in Florida, the young woman who was 03:20:44 22 A. Great. I look forward to it. 012118 22 sexually abused by Prince Andrew and Alan Dershowitz, 03:20:46 23 MR. SIMPSON: I'm going to ask the reporter 03:23:22 23 period, close quote. Have I quoted that correctly? 03:20:48 24 to mark as Exhibit 03,20:55 25 Exhibit 6, a document bearing Bates stamp numbers 03:23:25 25 Q. So is it fair to say that in this e-mail, you ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 309 311 03:21:01 1 BE-510 through -514. 03:23:28 1 have told ABC News that Mr. 03:21:01 2 (Cassell's I.D. Exhibit No. 6 - series of 0323:33 2 fact, had abused Virginia Roberts? 0121,01 3 e-mails, Bates numbered BE-510 - -514 was marked for 03:23:37 3 A. No. I think it says that I'm the lawyer who 03:21:18 4 identification.) 03:23:39 4 is representing someone who has 03:21:18 5 BY MR. SIMPSON: 0323:42 5 allegations. 03:21:19 6 Q. I will give that to the witness. And to 03:23:42 6 Q. That's how you read this e-mail? 03:21:30 7 identify the document further, its a series of e-mails, 032144 7 A. Yes. 0121:36 8 the most 03:21:40 9 which appears to be an e-mail from Paul Cassell to 03:23:49 9 "The young woman who was sexually abused by 0321:44 10 Jacqueline S. Jesko on Sunday, January 4th, 2015 at 03:2353 10 Prince Andrew and Alan Dershowitz." 03:21:49 11 12:48 p.m. 0323:55 11 That doesn't read to you as a statement that 03:21:51 12 A. Right. 03:24:00 12 she was abused? 03:21:51 13 Q. My first question is whether you, in fact, 03:24:01 13 A. In context, I think it was understood that I 03:21:57 14 sent this e-mail that 03:22:02 15 of e-mails with Miss Jesco? 03:24:14 15 MR. DERSHOWITZ: Move on. 03:22:04 16 A. Yes. 0324:14 16 BY MR. SIMPSON: 03:22:04 17 Q. And Miss Jesko 0322:08 18 A. She works for 03:22:13 19 Nightline. She works for Nightline, yes. 03:24,15 19 Who 032215 20 Q. So she's with ABC News? 032416 20 MR. SIMPSON: Who is speaking? 03:22:17 21 A. I believe that's right, yes. 0324:18 21 THE WITNESS: I heard somebody say "move on" 0322:19 22 Q. And 03:22:19 23 A. I mean, I 01222224 wasn't significant to me, but she's with the Nightline 03:24126 24 MR. SIMPSON: In any event, I 032225 25 program. I knew that was a major program. I don't 03:2427 25 on. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 308 to 311 of 335 40 of 46 sheets 312 314 03:24:27 1 THE WITNESS: Well 03:24:30 2 Who was that? The speaker? I want to know who 03:26:02 2 THE COURT REPORTER: I cant hear. 0324:32 3 is on the line here. Could somebody identify 03:26:02 3 MR. SIMPSON: I heard it and I'll 0324,34 4 themselves, please? 0326:03 4 repeat it. 03:24:36 5 If somebody is eavesdropping in my 012663 5 MR. SCAROLA: "It was me who said it." 0324,37 6 deposition, I would like to know who it is. 0326:05 6 MR. SIMPSON: "And I thought my mute 03:24:40 7 MR. SIMPSON: No one has the call-in number 032666 7 button" 0124:42 8 other than counsel and parties. 03:26:06 8 MR. SCAROLA: "I thought my" 03:24:44 9 THE WITNESS: So 03:24:45 10 MR. SIMPSON: To my knowledge. 03:26:06 10 MR. SCAROLA: 03:24:46 11 MR. SCAROLA: Yeah, but that 0324:46 12 THE WITNESS: But who is that person? 03:2669 12 comment? 03:24:47 13 MR. SCAROLA: 03:24:48 14 someone from sharing that call-in number. And 032612 14 MR. SCAROLA: Okay. Thank you. 03:24:50 15 it is appropriate that anybody on the line 0126:12 15 MR. DERSHOWITZ: I was trying to instruct my 03:24:52 16 identify themselves. 03:26:14 16 attorney. 0324:58 17 And if the people on the line refuse to 03:2614 17 MR. SCAROLA: Then we are ready to move on. 03:25:01 18 identify themselves, then it's our intention to 032614 18 BY MR. SIMPSON: 03:25:04 19 cut off the line, and the people who are 0326:18 19 Q. Have you told any 03:2607 20 authorized to be on the line can call back in. 03:26:25 20 Putting aside counsel who are working with 03:25:10 21 MR. SCOTT: I agree with that. 03:26:28 21 you, and putting aside those who you identified as being 03:25:12 22 MR. SIMPSON: Could 03:2612 23 the line identify themselves? 03:26:34 23 A. Right. 03:25:17 24 MR. SCAROLA: Okay 012617 25 MR. DERSHOWITZ: Alan Dershowitz. 012624 25 A. Right. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 313 315 03:2617 1 MR. SCAROLA: 032617 2 MS. McCAWLEY: He just 03:25:17 3 THE WITNESS: So he 03:25:20 4 MR. SIMPSON: Alan Dershowitz. Anyone else? 0126:53 4 I'm representing a young woman who has made those 03:25:24 5 MR. SCAROLA: So the only person on the line 012055 5 allegations. As an attorney, I'm proud to represent 03:2627 6 is Alan Dershowitz, and it was Mr. Dershowitz who 03:26:58 6 her, proud to present her case in court, proud to 0125:29 7 made the comment "move on"; is that correct? 0127:02 7 present arguments to whoever will listen that she's been 0125:32 8 MR. SIMPSON: Well, he's the only one on the 0327:06 8 sexually abused by various people. 03:25:34 9 line. I know 03:25:37 10 here. 0327:09 10 representatives of the News Media on the record and off 03:25:37 11 MR. SCAROLA: Well, I'll give you three more 03:27:15 11 the record about this case; isn't that 0125:39 12 minutes. I want to know: Was it Mr. Dershowitz 0327:17 12 correct? 03:25:41 13 who made that comment "move on" because if it 03:27:17 13 A. Well, on the record, yes; with regard to off 03:25:45 14 wasn't, there's somebody else on the line 03:2545 15 MR. WEINBERG: I 012647 16 MR. SCAROLA: 0125:48 17 themselves. 03:27:29 17 remain any off the record 03:25:51 18 MR. WEINBERG: Marty Weinberg for Epstein. 03:27:32 18 are a few, but I would 0325:51 19 I've been on the line on occasion. I have a mute 03:27:36 19 were originally off-the-record communications have now 03:25:56 20 button and have said nothing and just kept on 03:27:38 20 been provided to 113:25.56 21 going with no statements on my end. 0127:41 21 Q. Mr. Cassell, is it not true 03:25:56 22 MR. DERSHOWITZ: It was me who said it. I 012566 23 I 0125:56 24 THE COURT REPORTER: I can't hear. I cant 03:27:50 24 A. Yeah. I mean that's different than 0326:02 25 hear. 03:27:54 25 'earlier question was off the record and on the record. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 41 of 46 sheets Page 312 to 315 of 335 10 20 2015 01:08:15 PM 316 318 03:27:57 1 There is an intermediate category of 03:30:17 1 your client, my client, or any joint defense 03:2758 2 background information as well, and I have spoken to 031022 2 communications. You can't reveal that. 03:28:01 3 some reporters in that capacity, yes. 013024 3 THE WITNESS: All right. So I'm going to 03,28:04 4 Q. And 03:28:08 5 not for attribution, correct? 013628 5 BY MR. SIMPSON: 03:28:10 6 A. Right. The background means the reporter can 0130:46 6 Q. With respect to the 0128:13 7 use the information, but shouldn't attribute it to a 03:30:52 7 Exhibit 2, the motion for limited intervention 03:28:16 8 particular person. 03:30:56 8 MR. SCAROLA: Let me just observe for the 03:28:17 9 Q. And, in fact, you have 03:28.19 10 A. Or let me 03,2821 11 time 03:28:23 12 talking about sort of 03:28:25 13 "background," it would generally mean that this is 03:31:11 13 take a little 03:28:28 14 something maybe that you want to investigate and see if 03:31:14 14 MR. SCAROLA: Well, what's a "little"? Oh, 0328:31 15 you can confirm in other ways, but it shouldn't be 03:31:14 15 so you 03:28:34 16 sourced to 03:28:38 17 because they are going to have to find other 03,28:40 18 sources that confirm that same information. 03:31,20 18 MR. SIMPSON: Let me ask 0128:42 19 Q. Okay. And so my question is that it is true 03:31:22 19 few questions here. 03:28:45 20 that you have spoken with a number of reporters on 03:31:23 20 THE WITNESS: Sure. 03:28:49 21 background about Virginia Roberts's allegations in this 0131:23 21 BY MR. SIMPSON: 03:28:53 22 case, correct? 03:31:24 22 Q. I'm going to keep going. On the 03:28:54 23 A. Well, a number 03:28:56 24 probably a more accurate characterization. 03:31:29 24 A. Which 03:29,00 25 Q. And in any of those background conversations, ESQUIRE DEPOSITION SOLUTIONS 03:31:29 25 Q. ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 317 319 03:20:04 1 did you ever identify Miss Roberts as someone who had 03:31:30 1 A. Which 03:29:06 2 been sexually abused by Mr. 03:29:11 3 A. I tried to identify myself as the attorney 0131:38 3 Exhibit 1. 03:29:14 4 representing someone who said that she had been sexually 03:31:39 4 Q. Oh, I probably have Exhibit 1. Let me give 0319:16 5 abused by Dershowitz. I think you've received 0329:20 6 know, we can go through 03:29:24 7 think, 2,500 pages of discovery. Many of those pages 0131,44 7 A. Okay. 03:29:26 8 are media communications. And, you know, we can go 03:31:45 8 Q. 0329:30 9 through, and I think you know that there are a number of 03:31,46 9 others. 03:29:33 10 examples, many examples, where I have said, I represent 0331,46 10 A. Okay. So, now, let's see. Okay. Yeah. I 03:29:35 11 a woman who has alleged that... Some verbal formulation 03:31:50 11 have it. 03:29:40 12 along those lines. 03:31:51 12 Q. In preparing this brief, did you personally 03:29:44 13 I mean, attorneys represent victims all the 0312,00 13 review the citations to the record that were given to 03:29:46 14 time and 03:2949 15 understand when an attorney makes a statement, that the 03:32:08 15 A. As opposed to somebody else on the legal 03:29:51 16 attorney is adopting and vouching for that statement. 0312:11 16 team? 0129:55 17 They are 03:29:58 18 capacity. 03:3214 18 yourself, reviewed citations 03:29:59 19 Q. Have you finished your answer? 0312:18 19 you about a deposition transcript 03:30:00 20 A. I have. 0332.22 20 record evidence that are cited as representing to the 03:30:01 21 Q. Okay. Do you 03,30:06 22 agreement of any kind that would relate to a possible 013229 22 A. I mean, I reviewed some, and others. You 0130.10 23 recovery from Les Wexner? 03:32:32 23 know, maybe I need to 03:30:13 24 MS. McCAWLEY: Objection to the extent that 03:32:36 24 work product. If you're asking, you know, what did Brad 0130:15 25 it reveals any confidential communications with 03:3218 25 do, what did you do, what did the paralegals do ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-.4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 316 to 319 of 335 42 of 46 sheets 03:32:42 1 Q. Let 320 322 03:32:43 2 then. 0134:55 2 "Uh-huh. Answer. 03:32:43 3 A. Okay. 0134:56 3 "Question: How often did he come? 03:32:43 4 Q. By 03:32:46 5 signing it, you were representing that the factual 03:35:02 5 would says as least four or five times a year." 013200 6 allegations, factual assertions, were support 03:32:54 7 supported by the record citations that are given for 0335:09 7 the proposition 03:32,58 8 those, correct? 03:35:09 8 A. I'd 0132:58 9 A. Yeah. I mean, obviously, when you write a 0135:10 9 Q. I'm going to give you the document before I 03:33:00 10 brief, you're 03:33:02 11 represent that this is the best product I can come up 0135:15 11 A. Sure. 03:33:04 12 with. 03:35:15 12 Q. I will 03:33:05 13 Now, you know, in a 40-page brief did 0133:07 14 did 03:33:10 15 something like that? I have to 03:33:12 16 sure that's a possibility, but, you know, I worked hard 0135:20 16 A. But I mean, there's 0133:15 17 to try to put together the best product that I could on 03:362217 well, that's what I'm saying. I would like 03:33:18 18 behalf of Virginia Roberts when I filed this brief. 0335:24 18 recollection is that there are number of parties to the 03:33:21 19 Q. And 03:33:24 20 brief, its a representation to the court that the 03:35:27 20 Q. No. My 03:33:28 21 citations to the record support the factual 03:3128 22 A. Yeah, to the 03:33:32 23 Q. 03,33:34 24 A. Yeah, that's right. To the best of, you 0135:36 24 Q. Okay. I will read it. 03:33:36 25 know, your ability, sure. ESQUIRE DEPOSITION SOLUTIONS 03:35:40 25 "Do you have any recollection of V.R., ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 321 323 013137 1 Q. Take a look if you would at page 29 03:33:40 2 A. Okay. 03:3644 2 Prince Andrew was there? Question. 03:33:41 3 Q. 0333:42 4 A. Okay. 03:35:49 4 sure. 03:33:42 5 Q. 03:33:50 6 the house when Dershowitz was there." And then its 03:3653 6 "Uh-huh. 03:33:53 7 "Id." which is a citation to the Alessi deposition, page 03:35:54 7 "How often did he come? 03:33:56 8 73, line 18 to 20. Do you see that? 0135:55 8 "He came pretty 03:33:59 9 A. I do. 03:35:58 9 says at least four or five times a year." 0134:01 10 Q. So that sentence if I 0134:03 11 that sentence is representing to the court that Virginia 0136:01 11 Q. Do you want to take a look at that? 0334:08 12 Roberts came to the Palm Beach house when Professor 013002 12 A. Yeah. 0134:12 13 Dershowitz was there? 03:36:04 13 MS. RICHARDSON: Page 73. 03:3412 14 A. Yes. 03:36:04 14 BY MR. SIMPSON: 03:34,13 15 Q. I'm going to read you what's cited for that 013606 15 Q. Page 73, line 03:34:15 16 proposition. I can show it to you if you like. 03:36:08 16 if it helps you find it. 0314:17 17 A. I would like to see it because, you know, 03:36:11 17 A. Yeah. Okay. All right. That's what those 0134:18 18 it's possible I'm off. 03:36:15 18 lines say, yes. 03:3420 19 Q. Let me read it for the record. 0136:1619 Q. Okay. So my 03:3422 20 A. Sure. 03:36:19 20 view, as an attorney, does that quotation 03:34:22 21 Q. And I will read what is cited. Its page 73, 03:36:23 21 testimony support the assertion that Professor 03:34:31 22 lines 22 to 25. 01302722 Dershowitz and Virginia Roberts were in the house at the 03:3439 23 Actually 03:34:44 24 to 20. Line 18: 013030 24 A. Those 013451 25 "Not sure. When Mr. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 43 of 46 sheets Page 320 to 323 of 335 10 20 2015 01:08:15 PM 324 326 03:36:35 1 couple of lines above it that do refer to Virginia 03:38:27 1 A. The lawyer 03:3339 2 Roberts, put it in the context. 03:38.27 2 time - 0336:41 3 My question is: Does that, fairly read, 033327 3 Q. I'm not asking the - - 03:36:46 4 constitute testimony that Virginia Roberts and Professor 03:38:29 4 A. 03:36:49 5 Dershowitz were in the house at the same time? 03:38:31 5 on a transcript or something, and if you're suggesting 0336:51 6 A. Those three sentences, three lines. 03:38:34 6 that 03:36:55 7 Q. What 03:36:57 8 A. Those 03:37:03 9 Mr. Dershowitz was visiting. Uh-huh. How often did he 03:38:43 9 say the wrong line number, if you look at the quotation, 033736 10 come?" Those 03:37:10 11 like a miscitation there. I agree with you on that. 03:38:46 11 no, 18 to 20. I'm sorry. You cited 18 to 20 which is 03:3714 12 Q. And isn't it true that 0337:16 13 nothing else is cited in the brief or elsewhere to 03:38:57 13 A. I do see 18 to 20, yes. 03:37:22 14 support 033723 15 Other than Virginia Roberts's own testimony, 033931 15 Roberts coming to the house, correct? 0137:26 16 this is the only evidence that you cited to the court to 03:39:02 16 A. Lines 18 to 20 do not refer to Virginia 03:37:30 17 support 03:37:37 18 A. No, no, no, no, no. That would require a 03:39:12 18 because when I look at it here, line 15: 03:37:34 19 30-minute answer. 03,39:17 19 "Do you have any recollection of V.R., 03:37:34 20 Q. Okay. I won't ask you a 30-minute answer 03:37:37 21 MR. SCAROLA: How about 0337:38 22 it up then because its now 12:10. 0339:23 22 Answer: "It could have been. I'm not sure. 03:37:41 23 MR. SIMPSON: I will wrap it up. I have one 03:39:25 23 "Not sure. When Mr. Dershowitz was 03:37:42 24 more 0337:43 25 THE WITNESS: Okay. 033930 25 So now when I read it, actually, I'm now ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 325 327 03:37:43 1 BY MR. SIMPSON: 03:39:32 1 going to withdraw my earlier answer, I would 0337:43 2 Q. And that is: I just want to confirm that you 03:39:35 2 you know, its getting late in the day. I'm getting a 03:37:47 3 do agree with me that what was cited to the court for 03:39:37 3 little fuzzy here. When Mr. Dershowitz was visiting, 03:37:50 4 the proposition that they were together, in this 033340 4 uh-huh, could be an affirmative answer read in context 03:37:52 5 sentence, doesn't support that proposition? 013345 5 to saying, I don't recall about Prince Andrew, but I do 033734 6 A. I will agree with you that there appears to 03:39:47 6 recall Virginia Roberts being there. And I think when 03:37:56 7 be a miscitation of the line number 0138:01 8 through 20. 0339:52 8 have time right now, that the context that I'm 03:38:02 9 Now, you're saying that there is not 03:39:54 9 suggesting now would be accurate. So I am not prepared 03:3304 10 information outside of 8 033838 11 support the allegation, and that's going to require a 033939 11 wrong line numbers. 0338:11 12 much longer answer. 03:4301 12 Perhaps those are the correct line numbers, 03:38:1213 Q. I don't want a long answer, but I do want to 03:40:0313 but what I think I should have done was to cite 03:38:15 14 clarify. When you say "outside" 0338:15 15 MR. SCAROLA: You also said one more 03:40:10 15 context, made clear that the assertion was correct. 03:38:15 16 question. 0340:14 16 MR. SCAROLA: With that - - 0338:15 17 MR. SIMPSON: Well, I 0338:16 18 this, so we are not going to have this hanging, 0140:16 18 one or two questions, but this is the topic, so 03:38,19 19 because I want to make sure we are communicating. 0340:18 19 let me finish it. 0338:21 20 THE WITNESS: Okay. Sure. 03,40:19 20 BY MR. SIMPSON: 03:38:21 21 BY MR. SIMPSON: 034319 21 Q. Did you ever watch the video 03:38:22 22 Q. I understand you're 0338:2523 there 03:38:26 24 A. Yeah. 03:40:22 24 Q. 03:38:27 25 Q. ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 10 20 2015 01:08:15 PM Page 324 to 327 of 335 44 of 46 sheets 328 330 03:4025 1 right now. 03:41:54 1 MR. SCAROLA: Right. 03:40:26 2 MR. SIMPSON: I've got 03:40:26 3 THE VIDEOGRAPHER: Two minutes. 03:41:55 3 record, 12:14 p.m. 03:40:28 4 MR. SIMPSON: Two minutes. All right. That 4 03:40:28 5 won't take 03:4028 6 BY MR. SIMPSON: 6 (Deposition was adjourned.) 03:40:29 7 Q. I want you to look at the video of that 03:40:31 8 that testimony. Would you play it, please, for the 8 03:40:33 9 witness? This is from the videotape of the deposition. 9 03:40:35 10 THE WITNESS: I do not want to watch just 03:4017 11 I want to watch 0140:42 12 as I dive into this, I would 03:40:45 13 to ask me questions about what's in these 13 03:40:47 14 particular lines, I want to see 03:40:50 15 back. I want all of the 03:40:54 16 Virginia Roberts's testimony played. And I 16 03:40:56 17 believe there are approximately four points in 17 03:40:59 18 the transcript where she's mentioned, so can we 18 03:41:00 19 play all four of those? 19 03:41:02 20 MR. SCAROLA: We are not going to do that. 20 03:41:03 21 We have run out of time. Per agreement, this was 21 0141:05 22 supposed to stop at noon. 22 03:41:05 23 MR. SIMPSON: Okay. 23 0341:08 24 MR. SCAROLA: It is now 12:12, so this 24 03:41.09 25 deposition is ended. There were a lot of things 25 ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 329 331 03:41:10 1 that I would have like to have finished with 1 DEPOSITION ERRATA SHEET 03:41:13 2 Professor Dershowitz and wasn't permitted to do 2 0141:14 3 that. So by agreement, this deposition is now 3 Assignment no: 220190 03:41:17 4 over. 4 BRADLEY J. EDWARDS and PAUL G. CASSELL vs. 03:41:18 5 MR. SIMPSON: It 03,41:20 6 my objection and the witness's 03:41:21 7 MR. SCAROLA: I 03A1:22 8 MR. SIMPSON: 03:4123 9 record. 9 I declare under penalty of perjury that I have 0341:23 10 MR. SCAROLA: Okay. 10 read the entire transcript of my deposition examination 03:41:24 11 MR. SIMPSON: 03:4125 12 look at the videotape of the portion of the 12 has been read to me, and the same is true and accurate, 03:41:29 13 deposition that he just characterized in his 13 save and except for changes and or corrections, if any, 03:41:32 14 testimony as suggesting an affirmative answer to 14 as indicated by me on the DEPOSITION ERRATA SHEET 03:41:35 15 the question of whether Virginia Roberts and 15 hereof, with the understanding that I offer these 03:41:38 16 Professor Dershowitz were there at the same time, 16 changes as if still under oath. 03:41:39 17 and I will represent 03:41:40 18 MR. SCAROLA: That record is clear. 18 Signed on the day of , 03:41:41 19 MR. SIMPSON: 03:41:43 20 videotape would know, to a moral certainty, that 20 03:41:46 21 that was false. 21 . 03,41,46 22 THE WITNESS: Okay. And I 03:41,18 23 clear that I would be happy to look at 23 03:41:50 24 everything. We will do that at another time 24 03,41:52 25 perhaps. 25 ESQUIRE DEPOSITION SOLUTIONS ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 45 of 46 sheets Page 328 to 331 of 335 10 20 2015 01:08:15 PM 332 334 1 DEPOSITION ERRATA SHEET 1 CERTIFICATE OF OATH 2 3 Page No. Line No. Change to: 4 5 Reason for change: 6 Page No. Line No. Change to: 2 3 STATE OF FLORIDA ) 4 COUNTY OF BROWARD ) 5 6 I, the undersigned authority and Notary 7 Public certify that PAUL G. CASSELL personally 7 8 appeared before me and was duly sworn on Saturday, the 8 Reason for change: 9 17th day of October, 2015. 9 Page No. Line No. Change to: 10 10 11 Sworn to before me this 19th day of October, 11 Reason for change: 12 Page No. Line No. Change to: 13 14 Reason for change: 15 Page No. Line No. Change to: 16 12 2015. 13 14 15 16 17 18 Theresa Tomaselli, RMR 17 Reason for change: Notary Public - State of Florida 18 Page No. Line No. Change to: 19 My Commission No. FF 226528 19 My Commission Expires 8 27 2019 20 Reason for change: 20 220190 21 Page No. Line No. Change to: 22 23 Reason for change: 24 SIGNATURE: DATE: ,2015 25 PAUL G. CASSELL ESQUIRE DEPOSITION SOLUTIONS 1 DEPOSITION ERRATA SHEET 21 22 23 24 25 ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 (954) 331-4400 333 2 1 REPORTER'S CERTIFICATE 3 Page No. Line No. Change to: 2 4 3 5 Reason for change: 4 I, THERESA TOMASELLI, Registered Merit Reporter and Notary Public in and for the State of 6 Page No. Line No. Change to: 5 Florida at Large, do hereby certify that I was authorized to and did report said deposition in 6 stenotype; and that the foregoing pages are a true and 7 correct transcription of my shorthand notes of said 7 deposition. 8 Reason for change: 8 I further certify that said deposition was 9 Page No. Line No. Change to: taken at the time and place hereinabove set forth and 9 that the taking of said deposition was commenced and 10 completed as hereinabove set out. 10 11 Reason for change: I further certify that I am not an 11 attorney or counsel of any of the parties, nor am I a 12 Page No. Line No. Change to: 12 relative or employee of any attorney or counsel of party connected with the action, nor am I financially interested in the action. 13 13 The foregoing certification of this 14 Reason for change: 14 transcript does not appfy to any reproduction of the same by any means unless under the direct control and or 15 Page No. Line No. Change to: 15 direction of the certifying reporter. 16 16 DATED this 19th day of October, 2015. 17 Reason for change: 18 Page No. Line No. Change to: 19 20 Reason for change: 21 Page No. Line No. Change to: 22 23 Reason for change: 24 24 SIGNATURE: DATE: ,2015 25 25 PAUL G. CASSELL ESQUIRE DEPOSITION SOLUTIONS (954) 331-4400 17 18 19 THERESA TOMASELLI 20 220190 21 22 23 (954) 331-4400 10 20 2015 01:08:15 PM Page 332 to 335 of 335 46 of 46 sheets 335 |
Filing 37201585 E-Filed 01 29 2016 03:47:44 PM IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA CASE NO.: CACE 15-000072 BRADLEY J. EDWARDS and PAUL G. CASSELL, Plaintiffs Counterclaim Defendants, vs. ALAN M. DERSHOWITZ, Defendant Counterclaim Plaintiff DEFENDANT COUNTERCLAIM PLAINTIFF ALAN DERSHOWITZ'S MOTION FOR CLARIFICATION OF CONFIDENTIALITY ORDER OR RELIEF FROM THAT ORDER The transcript of the deposition of non-party Virginia Roberts Giuffre ("Roberts") is currently under seal as a result of the January 12, 2016 Confidentiality Order in this action. Dershowitz seeks clarification that the Confidentiality Order does not preclude him or his counsel from submitting the transcript of the deposition to the Office of the State Attorney, the Office of the United States Attorney, and other appropriate investigative authorities solely for purposes of requesting that those offices consider opening perjury investigations regarding Roberts's testimony. To the extent that the Confidentiality Order precludes such disclosure, Dershowitz requests that the Court modify it to permit the requested disclosure in the public interest. Roberts has stated in an affidavit originally filed publicly in federal court in what the parties have referred to as the CVRA Action that she was present on Jeffrey Epstein's private island, Little St. James Island, at the same time as former President Clinton. That affidavit was 1 stricken in relevant part from the record by the federal court, but Roberts's counsel filed publicly a pleading in this case contesting Defendant's assertion that her statements in the media regarding meeting former President Clinton were untrue. A copy of the public affidavit filed in the CVRA Action and the excerpted portion of the pleading filed in this action are attached hereto as composite Exhibit A. Because former President Clinton did not leave office until January of 2001, and Roberts has repeatedly stated in publicly filed affidavits that she "escaped" from Epstein while in Thailand in September of 2002, the alleged meeting with former President Clinton must have taken place between January of 2001 and September of 2002. As explained in the letter attached as Exhibit B, former FBI Director Louis Freeh made a request pursuant to the Freedom of Information Act for documents from the Secret Service regarding Secret Service personnel travelling with former President Clinton to Epstein's private island and the US Virgin Islands. Based on the response by the federal government to this request, and his knowledge of the duties, protocols and operations of security provided to a former President, Mr. Freeh opines in the attached letter that the absence of such records "strongly establishes that former President Clinton was not present on Little St. James Island during the period at issue." If Mr. Freeh's opinion is correct, then Roberts's publicly filed affidavits in which she stated that she met President Clinton on the island during that period are obviously false. Dershowitz intends to bring this public information to the attention of the appropriate authorities. Separate from the public information, Dershowitz also believes that Roberts gave false testimony at her deposition. The relevant testimony, which Dershowitz intends to provide to the appropriate authorities, is being filed under seal contemporaneously with this motion. In an abundance of caution, Dershowitz and his counsel do not want to disclose this non-public 2 information even to the responsible public officials with a right and need to know without obtaining confirmation from this Court that doing so would not violate the Confidentiality Order or alternatively relief from that Confidentiality Order. Respectfully submitted, s Thomas E. Scott Thomas E. Scott Florida Bar No. 149100 Thomas.scott csklegal.com Steven R. Safi-a Florida Bar No. 057028 Steven.safra csklegal.com COLE, SCOTT KISSANE, P.A. Dadeland Centre II, 14th Floor 9150 South Dadeland Boulevard Miami, Florida 33156 Fax: (305) 373-2294 Richard A. Simpson (pro hac vice) rsimpson wileyrein.com Mary E. Borja (pro hac vice) mborja wileyrein.com Ashley E. Eiler (pro hac vice) aeiler wileyrein.com Nicole A. Richardson (pro hac vice) nrichardson wileyrein.com WILEY REIN LLP 1776 K Street NW Washington, DC 20006 Fax: (202) 719-7049 Kenneth A. Sweder (pro hac vice) ksweder sweder-ross.com SWEDER ROSS 131 Oliver Street Boston, MA 02110 Fax: (617) 646-4470 Counsel for Alan M. Dershowitz 3 CERTIFICATE OF SERVICE I HEREBY CERTIFY that a copy of the foregoing has been electronically filed through the Clerk of Broward County by using the Florida Courts eFiling Portal and thus served by electronic mail: jsx searcylaw.com, mep searcylaw.com, scarolateam searcylaw.com to: Jack Scarola, Esq, Searcy Denney Scarola Barnhart Shipley, P.A., Counsel for Plaintiff, 2139 Palm Beach Lakes Blvd., West Palm Beach, Florida 33409; jonijones utah.gov to: Joni J. Jones, Esq., Assistant Utah Attorney General, Counsel for Plaintiff Cassell, 160 East 300 South, Salt Lake City, Utah 84114; brad pathtojustice.com to: Bradley J. Edwards, Esq, Farmer, Jaffe et al, 425 North Andrews Avenue, Suite 2, Ft. Lauderdale, FL 33301; cassellp law.utah.edu, to: Paul G. Cassell, Esq.,; smccawley bsfllp.com, sperkins bsfllp.com, ftleserve bsfllp.com to: Sigrid S. McCawley, Esq., Boies Schiller Flexner, LLP, 401 E. Las Olas Blvd, Suite 1200, Ft. Lauderdale, FL 33301, this 29th day of January, 2016. By: s Thomas E. Scott THOMAS E. SCOTT FBN: 149100 STEVEN R. SAFRA FBN: 057028 4 EXHIBIT A Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 2 of 20 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO. 08-80736-CIV-MARRA JANE DOE 1 and JANE DOE 2, Petitioners, VS. UNITED STATES OF AMERICA, Respondent. DECLARATION OF 1. My name is and I was born in August, 1983. 2. I am currently 31 years old. 3. I grew up in Palm Beach, Florida. When I was little, I loved animals and wanted to be a veterinarian. But my life took a very different turn when adults began to be interested in having sex with me. 4. In approximately 1999, when I was 15 years old, I met Ghislaine Maxwell. She is the daughter of Robert Maxwell, who had been a wealthy publisher in Britain. Maxwell asked that I come with her to Jeffrey Epstein's mansion for the purposes of teaching me how to perform "massages" and to train me professionally in that area. Soon after that I went to Epstein's home in Palm Beach on El Brillo Way. 5. From the first time I was taken to Epstein's mansion that day, his motivations and actions were sexual, as were Maxwell's. My father was not allowed inside. I was brought up some stairs. There was a naked guy, Epstein, on the table in the room. Epstein and Maxwell forced me into sexual activity with Epstein. I was 15 years old at the time. He seemed to be in his 40s or 50s. I was paid 200. I was driven home by one of Epstein's employees. 1 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 3 of 20 2 6. I came back for several days following and did the same sorts of sexual things for Epstein. 7. After I did those things for Epstein, he and Maxwell said they were going to have me travel and were going to get an education for me. They were promising me the world, that I would travel with Epstein on his private jet and have a well-paid profession. Epstein said he would eventually match me up with a wealthy person so that I would be "set up" for life. 8. So I started "working" exclusively for Epstein. He took me to New York on his big, private jet. We went to his mansion in New York City. I was shown to my room, a very luxurious room. The mansion was huge. I got scared because it was so big. Epstein brought me to a room with a massage parlor. To me, it looked like an S M parlor. Epstein made me engage in sexual activities with him there. 9. You can see how young I looked in the photograph below. Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 4 of 20 10. Epstein took me on a ferry boat on one of the trips to New York City and there he took the picture above. I was approximately 15 or 16 years old at the time. 11. Over the next few weeks, Jeffrey Epstein and Ghislaine Maxwell trained me to do what they wanted, including sexual activities and the use of sexual toys. The training was in New York and Florida, at Epstein's mansions. It was basically every day and was like going to school. I also had to have sex with Epstein many times. 12. I was trained to be "everything a man wanted me to be." It wasn't just sexual training - they wanted me to be able to cater to all the needs of the men they were going to send me to. They said that they loved that I was very compliant and knew how to keep my mouth shut. 13. Epstein and Maxwell also told me that they wanted me to produce things for them in addition to performing sex on the men. They told to me to pay attention to the details about what the men wanted, so I could report back to them. 14. From very early on I was fearful of Epstein. Epstein told me he was a billionaire. I told my mother that I was working for this rich guy, and she said "go, go far away." Epstein had promised me a lot, and I knew if I left I would be in big trouble. I also knew that I was a witness to a lot of illegal and very bad behavior by Epstein and his friends. If I left Epstein, he knew all kinds of powerful people. He could have had me killed or abducted, and I always knew he was capable of that if I did not obey him. He let me know that he knew many people in high places. Speaking about himself, he said "I can get away" with things. I was very scared, particularly since I was a teenager. 3 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 5 of 20 15. I visited and traveled with Jeffrey Epstein from 1999 through the summer of 2002, and during that time I stayed with him, as his sex slave, at each of his houses (really more like mansions) in locations including New York City, New York; the area of Santa Fe, New Mexico; Palm Beach, Florida; an island in the U.S. Virgin Islands; and Paris, France. I had sex with him often in these places and also with the various people he demanded that I have sex with. Epstein paid me for many of these sexual encounters. In fact, my only purpose for Epstein, Maxwell and their friends was to be used for sex. 16. To illustrate my connection to these places, I include four photographs taken of me in New Mexico (shown below). The first one is a museum in Santa Fe, New Mexico. We had gone sightseeing for the day. Epstein took this picture of me. I was approximately 17 at the time, judging from the looks of it. At the end of the day we returned to Epstein's Zorro Ranch. The second picture is me on one of Epstein's horses on the ranch in New Mexico. The following two are from wintertime in New Mexico. 4 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 6 of 20 li. 17. When I was with him, Epstein had sex with underage girls on a daily basis. His interest in this kind of sex was obvious to the people around him. The activities were so obvious 5 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 7 of 20 and bold that anyone spending any significant time at one of Epstein's residences would have clearly been aware of what was going on. 18. Epstein's code word for sexual encounters was that it was a "massage". At times the interaction between Epstein and the girls would start in a massage room setting, it was always a sexual encounter and never just a massage. 19. In addition to constantly finding underage girls to satisfy their personal desires, Epstein and Maxwell also got girls for Epstein's friends and acquaintances. Epstein specifically told me that the reason for him doing this was so that they would "owe him," they would "be in his pocket," and he would "have something on them." I understood him to mean that when someone was in his pocket, they owed him favors. I also understood that Epstein thought he could get leniency if he was ever caught doing anything illegal, or more so that he could escape trouble altogether. 20. Ghislaine Maxwell was heavily involved in the illegal sex. I understood her to be a very powerful person. She used Epstein's money and he used her name and connections to gain power and prestige. 21. One way to describe Maxwell's role was as the "madame." She assumed a position of trust for all the girls, including me. She got me to trust her and Epstein. It turned out that Maxwell was all about sex all the time. She had sex with underage girls virtually every day when I was around her, and she was very forceful. 22. I first had sexual activities with her when I was approximately 15 at the Palm Beach mansion. I had many sexual activities with her over the next several years in Epstein's various residences plus other exotic locations. I had sex with Maxwell in the Virgin Islands, 6 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 8 of 20 New Mexico, New York, as well as France and many other locations. I also observed Maxwell have sex with dozens of underage girls. 23. Maxwell took pictures of many of the underage girls. These pictures were sexually explicit. Maxwell kept the pictures on the computers in the various houses. She also made hard copies of these images and displayed them in the various houses. Maxwell had large amounts of child pornography that she personally made. Many times she made me sleep with other girls, some of whom were very young, for purposes of taking sexual pictures. 24. Harvard law professor Alan Dershowitz was around Epstein frequently. Dershowitz was so comfortable with the sex that was going on that he would even come and chat with Epstein while I was giving oral sex to Epstein. 25. I had sexual intercourse with Dershowitz at least six times. The first time was when I was about 16, early on in my servitude to Epstein, and it continued until I was 19. 26. The first time we had sex took place in New York in Epstein's home. It was in Epstein's room (not the massage room). I was approximately 16 years old at the time. I called Dershowitz "Alan." I knew he was a famous professor. 27. The second time that I had sex with Dershowitz was at Epstein's house in Palm Beach. During this encounter, Dershowitz instructed me to both perform oral sex and have sexual intercourse. 28. I also had sex with Dershowitz at Epstein's Zorro Ranch in New Mexico in the massage room off of the indoor pool area, which was still being painted. 29. We also had sex at Little Saint James Island in the U.S. Virgin Islands. I was asked to give Dershowitz a massage on the beach. Dershowitz then asked me to take him somewhere more private, where we proceeded to have intercourse. 7 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 9 of 20 30. Another sexual encounter between me and Dershowitz happened on Epstein's airplane. Another girl was present on the plane with us. 31. I have recently seen a former Harvard law professor identified as Alan Dershowitz on television calling me a "liar." He is lying by denying that he had sex with me. That man is the same man that I had sex with at least six times. 32. Epstein made me have sex with Prince Andrew several times. Prince Andrew, Maxwell, and I are shown in the photograph below. I had sex with him three times, including one orgy. I knew he was a member of the British Royal Family, but I just called him "Andy." 33. One day when I was in London (specifically in a townhouse that is under Maxwell's name), I got news from Maxwell that I would be meeting a prince. Later that day, Epstein told me I was meeting a "major prince." Epstein told me "to exceed" everything I had been taught. He emphasized that whatever Prince Andrew wanted, I was to make sure he got. 34. Eventually Prince Andrew arrived, along with his security guards. The guards then went out of the house and stayed out front in their car. It was just Epstein, Maxwell, and me inside alone with Andy. I was introduced to the Prince, and we kissed formally, cheek to cheek. 8 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 10 of 20 There was a lot of legal discussion about Andy and his ex-wife ("Fergie"). Then the discussion turned to me. Maxwell said "guess how old she is." Prince Andrew guessed 17. 35. Then we all went to a Chinese restaurant for dinner and then to Club Tramp, a fancy "members only" night club in central London. Andy arranged for alcohol to be provided to me at the club. Eventually we left. I rode with Epstein and Maxwell back to the townhouse. On the way there, Epstein and Maxwell informed me that the Prince wanted to see "more of me" that night. Andy traveled in a separate car with his guards. 36. We all arrived back at the townhome and went upstairs. Epstein took a picture of me and Andy with my own camera. The picture above is that picture, which has been widely circulated on the internet. Andy has his left arm around my waist and is smiling. The picture was developed on March 13, 2001, and was taken sometime shortly before I had it developed. I was 17 years old at the time. 37. I wanted a picture with the prince because I was keeping in contact with my family. I had told my mom and my grandma that I was meeting Prince Andrew and that I'd take a picture for them. They told me to "be careful." 38. After the picture, Epstein and Maxwell kissed me and said to "have fun." They left Andy and me alone upstairs. We went to the bathroom and bedroom, which were just steps away from where the picture was taken. We engaged in sexual activities there. Afterwards, Andy left quickly with his security. 39. I chatted with Epstein about this the next day. I told him, "it went great." Epstein said something to the effect of, "You did well. The Prince had fun." I felt like I was being graded. It was horrible to have to recount all these events and have to try to meet all these needs 9 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 11 of 20 and wants. I told Epstein about Andy's sexual interests in feet. Epstein thought it was very funny. Epstein appeared to be collecting private information about Andy. 40. When I got back from my trip, Epstein paid me more than he had paid me to be with anyone else approximately 15,000. That money was for what I had done and to keep my mouth shut about "working" with the Prince. 41. The second time I had sex with Prince Andrew was in Epstein's New York mansion in spring 2001. I was 17 at time. Epstein called me down to his office. When I got there, Epstein was there, along with Maxwell, Johanna Sjoberg, and Andy. I was very surprised to see him again. Epstein and Maxwell were making lewd jokes about "Randy Andy". 42. I had the impression that Andy had come there to see Epstein and to have sex me with. There was no other apparent purpose for Andy to be there. 43. I was told to go upstairs with Andy and to go to the room I thought of as the "dungeon" (the massage room, but it is really scary looking). I had sex with Andy there. I was only paid 400 from Epstein for servicing Andy that time. 44. The third time I had sex with Andy was in an orgy on Epstein's private island in the U.S. Virgin Islands. I was around 18 at the time. Epstein, Andy, approximately eight other young girls, and I had sex together. The other girls all seemed and appeared to be under the age of 18 and didn't really speak English. Epstein laughed about the fact they couldn't really communicate, saying that they are the "easiest" girls to get along with. My assumption was that Jean Luc Brunel got the girls from Eastern Europe (as he procured many young foreign girls for Epstein). They were young and European looking and sounding. 45. Afterwards we all had dinner by the cabanas. The other girls were chatting away among themselves, and Epstein and the Prince chatted together. I felt disgusted, and went 10 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 12 of 20 quickly to my own cabana that night and went to sleep. Prince Andrew must have flown out early the next morning, as I did not see him when I got up. 46. I have seen Buckingham Palace's recent "emphatic" denial that Prince Andrew had sexual contact with me. That denial is false and hurtful to me. I did have sexual contact with him as I have described here under oath. Given what he knows and has seen, I was hoping that he would simply voluntarily tell the truth about everything. I hope my attorneys can interview Prince Andrew under oath about the contacts and that he will tell the truth. 47. I also had sexual intercourse with Jean Luc Brunel many times when I was 16 through 19 years old. He was another of Epstein's powerful friends who had many contacts with young girls throughout the world. In fact, his only similarity with Epstein and the only link to their friendship appeared to be that Brunel could get dozens of underage girls and feed Epstein's (and Maxwell's) strong appetite for sex with minors. 48. Brunel ran some kind of modeling agency and appeared to have an arrangement with the U.S. Government where he could get passports or other travel documents for young girls. He would then bring these young girls (girls ranging in age from 12 to 24) to the United States for sexual purposes and farm them out to his friends, including Epstein. 49. Brunel would offer the girls "modeling" jobs. A lot of the girls came from poor countries or poor backgrounds, and he lured them in with a promise of making good money. 50. I had to have sex with Brunel at Little St. James (orgies), Palm Beach, New York City, New Mexico, Paris, the south of France, and California. He did not care about conversation, just sex. 51. Jeffrey Epstein has told me that he has slept with over 1,000 of Brunel's girls, and everything that I have seen confirms this claim. Epstein, Brunel, and Maxwell loved orgies with 11 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 13 of 20 kids that is, having sexual interactions with many young teenagers at the same time. Sometimes as many as ten underage girls would participate in a single orgy with them. I personally observed dozens of these orgies. The orgies happened on Epstein's island in the U.S. Virgin Islands, in New Mexico, Palm Beach, and many other places. Most of the girls did not speak English. It was my understanding that the girls had been persuaded to come by Brunel offering them illegal drugs or a career in modeling. Brunel was one of the main procurers of girls. 52. In addition to Ghislaine Maxwell, , and were also involved in the orgies. At this stage, I am hopeful that these other women will come forward and tell the truth about everything because that will help prevent future similar abuse. 53. I have seen reports saying or implying that I had sex with former President Bill Clinton on Little Saint James Island. Former President Bill Clinton was present on the Island at a time when I was also present on the Island, but I have never had sexual relations with Clinton, nor have I ever claimed to have had such relations. I have never seen him have sexual relations with anyone. 54. I now understand that Epstein reached a non-prosecution agreement with the federal government in 2007 and pled guilty to two state crimes in June 2008. I now know that I was identified by the federal government as one of Epstein's and his co-conspirator's sexually abused victims. However, no one told me about those events until after they happened. 55. On September 3, 2008, the FBI sent a victim notification letter to me. This was the first written communication I had received from the FBI. The letter is attached as Exhibit 1. The letter describes an agreement in which compensation would be made victims of Epstein's 12 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 14 of 20 sexual abuse. The letter also said that the federal government was going to "defer federal prosecution." No one had told me about deferring federal prosecution before this. 56. In 2011, two FBI agents, called me in Australia and then came to meet me. They met me at the U.S. Consulate in Sidney. They seemed to be very professional and hard working. I thought to myself, "Wow, these people will do the right thing against the bad guys and protect me." 57. The agents were mainly focused on Epstein but while there I provided them some information about others who were involved in illegal acts as well. I was aware that a false statement to these law enforcement officers was a crime and I told the truth giving them the information that I could recall about the individuals they inquired about. 58. Epstein also trafficked me for sexual purposes to many other powerful men, including politicians and powerful business executives. Epstein required me to describe the sexual events that I had with these men presumably so that he could potentially blackmail them. I am still very fearful of these men today. 59. I will continue to cooperate fully in the investigation and prosecution of Epstein, Maxwell, or any of their friends who participated in the sexual abuse of minors. I also hope that this information is treated in a way that will keep me safe from Epstein and others criminals identified here so as to encourage more victims of similar crimes to come forward. If these crimes are not prosecuted, despite my volunteering this information and cooperation, then it may deter other similar victims from coming forward. 60. In this affidavit, I have tried to focus on how I was trafficked for sexual purposes. I have not described all of the details of the sexual activities Epstein forced me to have. Also, I have not described all of the details of the other events discussed here. If a judge wants me to 13 Case 9:08-cv-80736-KAM Document 291-1 Entered on FLSD Docket 01 21 2015 Page 15 of 20 present my information in more detail, including more specific descriptions of the sexual activities with the men Epstein sent me to, I could do so. 61. I have directed my attorneys, Bradley J. Edwards and Paul G. Cassell, to pursue all reasonable and legitimate means to have criminal charges brought against these powerful people for the crimes they have committed against me and other girls. They are representing me in this case pro bono. 62. Since I filed my motion in this case, my credibility has been attacked. I am telling the truth and will not let these attacks prevent me from exposing the truth of how I was trafficked for sex to many powerful people. These powerful people seem to think that they don't have to follow the same rules as everyone else. That is wrong. I hope that by coming forward, I can help expose the problem of sex trafficking and prevent the same sort of abuse and degradation that happened to me from happening to other girls. 63. I declare under penalty of peijury that the foregoing is true and correct. Executed this day of January, 2015. (Location of signature left undisclosed for security reasons) 14 Filing 33754151 E-Filed 10 27 2015 06:33:15 PM IN THE CIRCUIT COURT OF THE 17TH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA CIVIL DIVISION BRADLEY J. EDWARDS, and PAUL G. CAS SELL, Plaintiffs, V. ALAN DERSHOWITZ, Defendant. CASE NO. CACE 15-000072 CONSOLIDATED REPLY IN SUPPORT OF NON-PARTY JANE DOE NO. 31 AND BOIES, SCHILLER FLEXNER LLP's MOTIONS TO QUASH OR FOR PROTECTIVE ORDERS REGARDING SUBPOENA SERVED ON THE NON-PARTIES Defendant served virtually identical subpoenas on non-party Giuffre, and her counsel Boies, Schiller Flexner LLP ("BSF"). In an effort to conserve judicial resources, the non- parties are submitting a consolidated reply requesting that this Court quash the unreasonable and oppressive subpoenas pursuant to Florida Rules of Civil Procedure 1.410(c)(1), or alternatively, issue protective orders sharply limiting the scope of the abusive subpoenas pursuant to Florida Rules of Civil Procedure 1.280(c). INTRODUCTION After publicly stating that his main goal in seeking discovery from Giuffre is to put her in "jail"2, Defendant served this non-party with a subpoena containing twenty five (25) unreasonable and oppressive requests. It is without question that Giuffre was sexually abused as 1 Jane Doe No. 3 is Virginia Roberts Giuffre, and will hereinafter be referred to as "Giuffre." 2 See Exhibit 1, CNN International, New Day, January 6, 2015. See also Exhibit 2, Australian Broadcasting System (ABC), January 6, 2015. "My goal is to bring charges against the client and require her to speak in court." 1 Jeffrey Epstein. Defendant spends over five (5) pages discussing the federal action and eleven (11) of his subpoena Requests (Jane Doe Subpoena 1, 5, 6, 7, 8, 9, 12, 13, 14, 22 and 24; BSF Subpoena 3, 6, 7, 8, 9, 10, 12, 13, 14, 19 and 22) relate to the federal action or Jeffrey Epstein. For example, Request 24 seeks "All documents concerning, relating or referring to your assertion that you met former President Bill Clinton, former Vice President Al Gore and or Mary Elizabeth "Tipper" Gore on Little Saint James Island in the U.S. Virgin Islands." Defendant claims that this discovery would go to the issue of whether or not Giuffre is telling the truth about Defendant but that effort at impeachment is clearly collateral at best and fails to address the central issue in this case. That issue is whether the Defendant had any basis to support his media assault against two lawyers claiming that they fabricated and then publicly filed false charges of criminal conduct on the part of the Defendant. It is the Defendant's credibility and not the credibility of Giuffre that is the focus of this defamation action. Defendant suggests that Giuffre must be a liar because it would be unheard of for one of Epstein's young girls to have met President Clinton. Quite the opposite is true. There are a number of accounts documenting Clinton's regular visits with Epstein. For example, Chauntae Davies recently showed pictures on The Inside Edition program of her travels with other young women in the company of Bill Clinton and Jeffrey Epstein on Epstein's plane. See Exhibit 4, Tolita Express ' Masseuse Reveals Lurid Details from Jeffrey Epstein's Private Plane For the Rich, Inside Edition, April 27, 2015. The Epstein flight logs also demonstrate that former President Bill Clinton traveled with Jeffrey Epstein and other young women. See Exhibit 5, The Gauker, January 22, 2015. All of that information, while no doubt interesting, is irrelevant to the defamation issue before this Court except to the extent it casts doubt on the Defendant's own credibility. 7 EXHIBIT B Professor Alan Dershowitz Harvard Law School 1575 Massachusetts Avenue Hauser Hall 518 Cambridge, MA 02138 Hon. Louis J. Freeh Mobile: 202.215.8321 January 22, 2016 RE: FOIA Request Dear Professor Dershowitz: As you know, on April 6, 2015, a request was made to the United States Secret Service under the federal Freedom of Information Act (FOIA; 5 U.S.C. Sec. 552), relating to the period 1 01 01 to 1 1 03, for "any and all shift logs, travel records, itineraries, reports and other records for USSS personnel traveling with former President Bill Clinton to Little St. James Island and the US Virgin Islands" (Attachment A). The basis of the above-described FOIA request was a claim by Virginia Roberts, in court papers filed in early 2015 in Florida federal court, that she and former President Clinton were on Little St. James Island at the same time during the 1 01 01 to 1 1 03 period. As set forth in a January 16, 2016 letter from Kim E. Campbell, United States Secret service Special Agent In Charge, Freedom of Information Act and Privacy Act Officer, the "USSS has conducted a reasonable search for responsive records. It appears, from a review of USSS main indices, that there are no records pertaining to your request that are referenced in these indices" (Attachment B). I therefore conclude from this response that former President Clinton did not in fact travel to, nor was he present on, Little St. James Island between January 1, 2001 and January 1, 2003. Based upon my experience and knowledge of the duties, protocols and operations of USSS Protective Details, the Special Agents accompany and escort former President Clinton 24 hours per day, and would have certainly went with him to Little St. James Island during the period at issue. If the Agents had accompanied the former President to that location, they would had been required to make and file shift logs, travel vouchers and related documentation relating to the visit. The total absence of any such records and documentation, in my opinion, strongly establishes that former President Clinton was not present on Little St. James Island during the period at issue. Best Louie Freeh DEPARTMENT OF HOMELAND SECURITY UNITED STATES SECRET SERVICE WASHINGTON, D.C. 20223 Freedom of Information Act and Privacy Act Branch Communications Center 245 Murray Lane, SW, Building T-5 Washington, D.C. 20223 Date: Patti Bescript 3711 Kennett Pike, Suite 130 Wilmington, DE 19807 File Number: 20150826 Dear Requester: This is the final response to your Freedom of Information Act Privacy Acts (FOIA PA) request originally received by the United States Secret Service (USSS) on April 16, 2015, for information pertaining to any and all shift logs, travel records, itineraries, reports, and other records for USSS personnel traveling with former President Bill Clinton to Little St. James Island and the US Virgin Islands. In response to your request, the USSS has conducted a reasonable search for responsive records. It appears, from a review of USSS main indices, that there are no records pertaining to your request that are referenced in these indices. Enclosed is a copy of your original request. Alternatively, if you deem our decision an adverse determination, you may exercise your appeal rights. Should you wish to file an administrative appeal, your appeal should be made in writing and received within sixty (60) days of the date of this letter, by writing to: Freedom of Information Appeal, Deputy Director, U.S. Secret Service, Communications Center, 245 Murray Lane, S.W., Building T-5, Washington, D.C. 20223. If you choose to file an administrative appeal, please explain the basis of your appeal and reference the case number listed above. If you have any questions or would like to discuss this matter, please contact this office at (202) 406-6370. FOIA File No. 20150826 is assigned to your request. Please refer to this file number in all future communication with this office. Enclosure: Copy of Original Request S Campbell botalL raI Agent In Charge 1171( Freedom of Information Act Privacy Act Officer Patti Bescript 3711 Kennett Pike Suite 130 Wilmington, DE 19807 302 824 7144 April 6, 2015 Delores Barber Deputy Chief FOIA Officer, Director, Disclosure FOIA, The Privacy Office Department of Homeland Security Headquarters Privacy Office Building 410 - STOP-0655 245 Murray Drive, SW Washington, DC 20528-0655 FOIA REQUEST Dear FOIA Officer: Pursuant to the federal Freedom of Information Act, 5 U.S.C. 552, I request access to and copies of For the period 1 1 01 to 1 1 03, any and all shill logs, travel records, itineraries, reports, and other records for USSS personnel traveling with former President Bill Clinton to Little St James Island and the US Virgin Islands. I agree to pay reasonable duplication fees for the processing of this request. If my request is denied in whole or part, I ask that you justify all deletions by reference to specific exemptions of the act. I will also expect you to release all segregable portions of otherwise exempt material. I, of course, reserve the right to appeal your decision to withhold any information or to deny a waiver of fees. I look forward to your reply within 20 business days, as the statute requires. Than you for your assistance. SiqcdreIY. Patti Bescript |
FREE GROWTH AND OTHER SURPRISES Draft Gordon Getty FOREWORD BY THE AUTHOR How Come This Book? A few months ago, Robert Trivers was kind enough to send me his new book. The title is Wild Life . Perfect two ways. Bob is a world authority on wildlife, to wit evolutionary biology. But his books and papers about that are already well known. His new one is about his own wild life, with his ideas in the background. I ve started my own book three for four times over the past decade. Bob s got me started again. Try it. It s Bob s real voice. One of his papers, co-authored by Huey Newton(!), is about deception and self-deception. I never saw much of either in Bob. I never saw a guy less anxious to impress. Fine if you knew his achievements, and fine if you didn t. What he wanted to talk about was great new ideas by others. It was from him that I first heard about the Hamilton-Zuk parasite theory, and Paul Ewald s complementary one about parasites stabilizing population density of hosts. Both are beautiful examples of the obvious-in-hindsight. I realized that my book could take a cue from his. My own life hasn t been wild. It has been interesting because the genius of my father gave me interesting places to be and things to do. I could say something about that. But the book would be mostly about my ideas in economics. Bob s ideas are well known to anyone in his field. Mine aren t. I m ten years older than Bob, without much to show for it except in composition. (My last two operas have been getting some traction, and my SACDs get pretty good radio time.) So I ll run my economic ideas up the flagpole, in my real voice, and see if they prove deception or selfdeception or something worth the time. Declaring My Biases I m a big free market fan. I would love it even if I agreed with socialists that there is something inherently iniquitous about it. There are bad guys and conflicted motives Forward By The Author 04 18 16 1 in markets and government both. What I love about it is the chance to prove ideas. I love Wall Street innovations such as swaps and futures and ETFs and mortgagebacked securities, even admitting their dangers. And who would have thought that the San Francisco Bay area, a stronghold of political correctness at the voters booth, would nonetheless innovate Siri and Alexa and driverless cars, in its free market havens here and there, over the past five years? Remind me the last innovation by a committee. Who would have thought we would make the world s best car, the Tesla, in this labor stronghold? It takes guys who prefer the impossible. It takes guys like my father. Yes, that was J. Paul Getty. I ll declare a bias for him. His faults were just what we read they were. I liked them fine. My times with him, with an exception I ll note in Chapter 1, are some of my favorite memories. I seem to be the opposite of pharaohs who began their reigns by chiseling off their father s names from the monuments and substituting their own. That was something about a ticket to the afterlife. I put my father s name on things I build. The afterlife will come as it comes. Since this book is about growth first, I should say how I feel about growth. Most economists, which I m anything but, treat it as a goal. I love innovation, which has translated to growth, while worrying plenty about growth itself. What happens when anyone can make a doomsday weapon on his desktop? Depressed people do away with themselves every day. Some might take the rest of the world with them if they could. Armageddonist religions wouldn t be needed. Not even destructive intentions need be. A doomsday weapon bought at the five and ten might go off by accident. Then why do I root for innovation when I m scared stiff about its consequences? Because alternatives are scarier still. Humans will innovate anyhow, while Big Brother or the religious authorities aren t looking, and I don t like the prospects of innovation driven underground. We ll have to find some way to face the risks and Forward By The Author 04 18 16 2 manage them. This book doesn t say how. It will open that can of worms, and others too, and try to track some but not all to their destinations. One look leads to another. This shows that I m not an optimist in the sense of making rosy predictions. But I seem to show that bias in evaluations. I m two thirds Panglossian. (Doctor Pangloss was the guy in Voltaire s Candide who said that this is the best of all possible worlds.) I side with the good doctor in that I cannot imagine an improvement to this world or to the human race. I see the dangers and evils, such as Armageddonists, as somehow part of the scheme. The world would not be better if it posed no threats and challenges to solve. To solve them is not to wish them away. The stories of Aladdin s lamp and the monkey s paw tell us that each wish after the first is to undo the one before. I think that s what Shaw was telling us in Don Juan in Hell. Don Juan and the others are free to go to heaven whenever they like, and occasionally do. They come back because they can t stand the boredom. Where I find fault, and differ with Pangloss, is as to the doctrines we are taught. Whatever I study, I seem to find a good measure of nonsense taught along with wisdom. This book is about what I find of both in economics. And a problem I try to solve, not wish away, is the danger of losing sight of the points on which Pangloss was right. My verse and music try to remind us. And I ll admit a bias for the surprises my title promises. I love upending what we had all assumed. Fun! And all the more fun when I can show that famous economists had already seen and said some of the same things I do when we read those economists again. Surprise need not be true novelty. My free growth theory is really John Stuart Mill s, although no one seems to have noticed the paragraph I quote from him. My next generation theory really belongs to my 17 th -century rhymesake Sir WilliamPetty, who happens to be my nominee for greatest economist of all time. In a way, I could also credit it to the period of production theorists John Rae, Nassau Senior, William Stanley Jevons and Eugen von Boehm Bawerk. They need only to have considered human and total capital as explained by Petty two centuries before. Forward By The Author 04 18 16 3 This reveals my bias for economic history. It seems dry as a bone until you find something terrific like those insights. It happens that I had written both theories, and published one, decades before I found those great precedents. Should I have been chagrined? Of course not. Forgotten or unnoticed precedents are at least as much fun to point out as the surprises they showed ahead of me. I will also reveal a bias for evolutionary biology. Its main axiom, the biological imperative, becomes one of mine. The idea is that behaviors are selected for successful reproduction. I will try to show that the classical school treated this as axiomatic from Petty through Smith, Malthus, Ricardo and Mill. Malthus was only the most obvious case. It lapsed from attention when a brilliant new insight called marginalism preferred to do without explanations for tastes. Above all comes my bias for the great thinkers in those fields. We saw that as to Bob Trivers. Although I often cite them to disagree with them, I see all as giants from whose shoulders I slip in trying to climb. I don t kick sand on 97-pound weaklings. Mill was a mensch who gives us all lessons in attribution and generosity, particularly to schools he disputed, and who nonetheless didn t mind being a minority of one in his books or in parliament. Petty was something beyond. Polymath, self-made tycoon, anatomist, music teacher, father of national accounts, originator of present value theory and human capital and next generation theory, and esteemed by both Adam Smith and Karl Marx for other innovations I don t mention. Such men are understood slowly and incompletely. Forward By The Author 04 18 16 4 CHAPTER 1: RECOLLECTIONS I never finished a course in economics. I started one at the University of San Francisco sixty years ago, and dropped it when I couldn t see the foundations. But the bug had bitten me. I knew that one day I would try on my own. I always loved logic. My favorite philosophers at USF were the pre-Socratics who liked nothing better than to confound common sense. A brilliantly vexing example was Zeno the Eleatic and his argument that Achilles can never catch up to the tortoise; Achilles must first reach the line where the tortoise was last, and the tortoise has since moved on. Logic can play such tricks. But I sensed that economics was the place to try its limits. Dropping the course didn t mean giving up, and logic would be the key. Neither did I take a course in business administration or investment. My major was English literature. As a grade schooler I had asked my father about this. Where and what should I end up studying? He had read economics and petroleum geology at Oxford, and I supposed he would advise something like that for me. I got a surprise. Career-oriented majors were fine but not necessary. A grounding in the liberal arts could be as much or more. The trick was to learn how to learn. That sounded right, and anyhow right for me. So I chose USF, a twenty-minute walk from home until my mother moved us to San Rafael, a half hour drive across the Golden Gate Bridge, and followed my intuitions toward English lit and history and music and philosophy. I graduated with a degree in English lit in 1956. This was the time of skittish peace between the Korean and Vietnam wars, and the Reserve Forces Act meant I had to report for six months active duty starting in the spring of 57. Meanwhile I worked for my father. I and my brother Paul, later Sir Paul, started at the bottom pumping gas and changing oil at separate gas stations not far from our home in San Rafael. That left time for a few weeks at a bulk plant (oil warehouse and tank farm) in San Francisco, still working at the bottom, before I reported. Paul had served in the Chapter 1: Recollections 1 06 16 1 Korean war, and was now exempt. I was a shavetail second lieutenant, thanks to the ROTC program at USF, in the quartermaster branch at Fort Lee, Virginia. My eyesight was never good enough for the combat branches. Ike, who was then president, had started in the quartermaster too. My military career was not so glorious. Somehow I finished the six months at Fort Lee and seven and half years of inactive duty following, obligating me to one weekend per month at military posts near home, without being promoted even to first lieutenant. By policy, I should have been promoted or busted to the ranks. I later learned that my school chum Manuel Teles, who worked at Fort Presidio in San Francisco, had somehow fixed the record. Thank God for old friends. My weekends of saluting were postponed when Paul and I went back to work for my father in 1958. My father then lived in the Ritz Hotel in Paris. He liked ordinary tworoom suites. The sitting room was his office. His filing system was a steamer trunk. Our job was to sit and listen as he met with executives or art people or old friends. He would usually take us along to lunch and dinner, and wangle us along when he had been invited out. He was the world s most attentive father whenever we were with him, at least, if focused elsewhere when we weren t. Paul went on to learn refining and marketing in Italy, after those few weeks in Paris, while I went to the oilfields my father had just found and developed in the Neutral Zone between Saudi Arabia and Kuwait. Paul soon learned Italian, became general manager within two years, and ran things well. I learned only a little Arabic, but also became manager in 1959, and soon blundered my way into two weeks house arrest. I had got crossways with the local emir, Mohammed bin Nasr, not a bad guy, about perks and privileges he and his staff expected Getty Oil to pay for. The case against me was rigged. One of our junior staff drivers, a Kuwaiti I think, had accidentally rammed and damaged a pipeline. He had fled the country to avoid jail. Jails there were no fun. His supervisor, Jim Kinnell, was warned that he (Jim) was accountable under Saudi law, and would be sent to jail instead. Jim came to me. I realized what was brewing. Laws are flexible, and Jim would have got off with a Chapter 1: Recollections 1 06 16 2 caution at most if I weren t at odds with the governor. I was obviously next. But I was not about to gamble that the threat to Jim was a bluff. I told him that if I were in his shoes, I would go back to England. He did. That left me. But I was in my shoes. The blunders had been mine, and I would face the music. My two weeks of house arrest went peacefully. The plain cement-block house had been built for my father at our port camp of Mina Saud when he lived in the Neutral Zone in 1953. The Emir s identical house was a few steps away. My father s favorite maple sugar was still in the fridge. I read the few Shakespeare plays I hadn t read in college, and read or reread the complete poems and plays of John Keats. The house arrest was probably as much dressing-down as I deserved. Paul, or anyone else, would have handled the perks and privileges more adroitly. But our host country, Saudi Arabia, may have picked up on something too. Getty Oil was not one of the concession companies in the Middle East named in the baksheesh (bribery) scandals that made the front pages over the few years remaining before most concessions were negotiated away and host countries ran things themselves. Back to my father in Scotland, where he was visiting his old friends the Maxwells near Inverness, and then to the two-room suite at the Ritz in London about like the one in Paris. He drove the six hundred miles between, in a vintage Cadillac, taking two days and stopping to visit historic sites and museums. He needed no guidebook. I sat in on meetings and events everywhere with him in London as in Paris. I assumed that the Saudis had cleared the house arrest with him, and I would have agreed as he did. He too was in different shoes. He was right. He had solved a real problem with minimum damage. Lesson learned, and no hard feelings either way. It was clear to both of us that I was not cut out to be a line officer, meaning one who runs things from day to day. My mind goes off on tangents instead of tracking arguments in real time. It works for me, but not as an administrator. We decided to try me as a consultant. Chapter 1: Recollections 1 06 16 3 That began at my father s Spartan Aircraft Company in Tulsa, Oklahoma. He hadn t meant to buy it. He had bought control of Skelly Oil, centered in Tulsa, and Spartan turned out to be one of its holdings. Then came Pearl Harbor. My father was 48 years old, and had been a yachtsman. He took a navigation course at USC along with kids half his age, led the class, and volunteered for sea duty. His old friend James Forrestal, Secretary of the Navy, steered him to Spartan instead. Spartan could make training planes and could train pilots. My father accepted. He paid himself a salary of one dollar a year. He had decisions to make when MacArthur and Matzushita signed the peace treaty. The training planes were not meant to leave the ground. Spartan lacked the capacity to make the real thing up to competition. The demand for training planes pretty much ended with the war. My father could sell out or find another use. He decided to make house trailers. It worked. I had lived in a Spartan trailer in the Neutral Zone, like the rest of the senior staff, when I stayed at our Wafra oil field rather than the house at Mina Saud. We and the market had liked them fine. Herschel Shelton had been one of my father s right-hand men during the conversion to trailers. He said that the place to look for him was never in his office. You would find him in overalls under a trailer on the factory floor, with a welding iron or riveting gun. He liked to be able to do any job his workers did. How else would he know if they were doing it right? I stayed in my father s house at Spartan, as at Mina Saud. It stood at the opposite end of the runway from the offices and trailer plant. I drove another seasoned Cadillac that my father had left in case he came back. Max Balfour, who ran Spartan, called it a clunker. It clunked me around the countryside on weekends, or to Jamil s restaurant or Cap Balfour s house for dinner, or downtown to the movies or symphony or opera house. Cap (Captain) Balfour had flown in World War I, and showed crippled hands from when his plane caught fire. He was cranky, urbane and razor-sharp. His problem was that Spartan couldn t seem to come out in the black. He worshipped my father, and figured he had let him down. He seems to have Chapter 1: Recollections 1 06 16 4 brought his moods with him after work, which my father generally didn t. That cost him his sunny young wife. I somehow got a pass. I could understand him, and I was my father s son. My advice in the end was that my father should sell. Meanwhile I was taking an interest in economics again. Business was about rate of return. Spartan s was negative. What was the benchmark? I did a little study. It is easy to see that return tends to even out from one company or industry to the next. We pour investment into high-return prospects, and unintentionally drive that high return down toward the norm by expanding the capital denominator. I didn t know that Robert Turgot had written the same in 1766. But what struck me was the impression that return, net of inflation, seemed to revert to a norm over time. Why were interest rates, averaged over business cycles, about the same then as in Dante s time or Julius Ceasar s? Why should human impatience be a steady norm? That puzzle nagged me for about a quarter century until I found the answer. Another decade or two would pass before I learned that Sir William Petty had found it in the seventeenth century. I went home in 1961 to study harmony and counterpoint at the San Francisco Conservatory of Music. I had found time to compose a few things at the house at Mina Saud with a piano I had bought in Kuwait. They included an a cappella (unaccompanied) choral setting of Tennyson s All Along the Valley , and something to which I later fit Emily Dickenson s poem Beauty Crowds Me in my song cycle The White Election . The composer Charles Haubiel published All Along the Valley in his Composers Press in Los Angeles in 1959. The one change he suggested, an unexpected D flat major resolution, is the best touch in the piece. I had noticed copies in music shops in Tulsa. So it seemed about time to develop that interest too, and the conservatory back home seemed the logical place. Chapter 1: Recollections 1 06 16 5 I studied there from fall 1961 through spring 1962. I was probably the only composition student already published. My teacher in both the fall and spring classes was Sol Joseph. He was a legend there. Most of what he taught confirmed my instincts. Maybe five percent was old rules I didn t think much of, and five percent good ideas that hadn t occurred to me. All was useful anyhow as a guide to what leading authorities have thought and taught. That was the point. We were to accept what we liked, and anyhow learn the lingo. Those two courses covered traditions of the eighteenth and nineteenth centuries. Most composers in the 1960s, and probably some or most of my classmates, thought of that as a stepping stone toward study of the serialism and other atonalism then in vogue. I skipped those classes. I realized that I was a nineteenth-century composer at heart. Now the world seems to have spun back to where I was all along. For most composers now, atonalism is one of the colors on our palettes. Even I use some. So did Bach. We reach for that color when we want to express disorientation or angst. I found I could get more said most of the time with major-minor scales. Five short piano pieces I wrote then were published by Belwin Mills in 1964. As my father s son, you might imagine that I was asked to pay the costs. Nope. Neither had I paid a cent to Composers Press. Vanity press exists, but that was not the business model of those two firms. I got standard royalties from sales, not amounting to much, and they got the rest. Six published pieces by age 31 would not have impressed Mozart or Schubert. By lesser standards, it was a pretty good start. There are distinguished composers who have never found a publisher. Tomorrow the world! I would write operas and symphonies! What happened instead was sixteen years of writer s block, or eighteen since finishing the pieces in 1962. I suppose I was trying to say Shazam! and turn into something I wasn t. The ice would break in 1980, when I realized that Billy Batson would have to do. But that gets me ahead of my story. I married Ann in 1964, making it a banner year on that count even more than the publication, and went back to work for my father. That took us to New York in 1965. Chapter 1: Recollections 1 06 16 6 Tidewater Oil Company, which would merge into its parent Getty Oil Company a few years later, had red ink problems in its Eastern Division. My job was to see why. Eastern Division was run by Jim Jiminez, an upbeat guy I liked. I don t think he took the red-ink problems home with him as Cap Balfour had. He reported to my half-brother George at corporate headquarters in Los Angeles, and George reported to my father in London. George had earned his job as president by outstanding performance at every level on the way up, which is more than you could say for me in the Neutral Zone. But George was touchy. He had a chip on his shoulder. I think my father liked to ride him, and he sometimes felt unappreciated. You have to shrug that off. George was doing fine. The problem in Eastern Division was not in him, and it was not in Jim Jiminez. Then what? I looked at the books. The red ink had nothing to do with management. Eastern Division did refining and marketing. Its new refinery in Delaware had been optimized to process heavy Wafra crude oil, which then was over a dollar cheaper per barrel on the market than the lighter and easier-to-refine crude we produced in Texas and the Central Basin. Tidewater s Western Division refinery at Martinez, by contrast, had all the cheap oil it needed in our own San Joaquin field. The Martinez refinery was old, and more expensive to operate. But the net advantage still went to Western Division by about a dollar per barrel. Meanwhile gasoline sold for about a dollar less per barrel, although only two or three cents less per gallon, in the refinery-loaded east than in California. Management can t do much about import quotas and market conditions. I reported to my father that Eastern Division was at least as well run as Western Division, where the ink was black thanks to cheaper crude and pricier gasoline. Then could we cut costs or boost receipts in other ways? I proposed that we close our old and inefficient Boston Harbor terminal, where barges unloaded gasoline into our tank farms to be trucked to stations, and supply Boston from our new terminal at Providence two hours drive away. If that worked, other distribution consolidations seemed possible. I later proposed much the same thing for our Chapter 1: Recollections 1 06 16 7 operations in Japan, where the new terminal at Kawasaki could theoretically obviate the older and clumsier one in Tokyo Harbor. I realized that plant-closing might be unthinkable in Japan, but thought that something good might come of the idea. Sometime a little later came my lawsuit against my father. It isn t my happiest memory. There had been a stock dividend years before, when I was still in school. We had treated it a certain way on the books. I read the law as saying it should have been treated another way. The law was probably on my side, and common sense on my father s. Judge Peery wisely found a way to make common sense win in the end. Meanwhile I had accused my father of nothing worse than oversight. My visits to Sutton Place, now with Ann and the boys, went the same as before. The lawsuit seldom came up and was discussed in easy terms when it did. I suggested to him, for example, that he might want to settle with my stepmother Teddy in case there could be claims by the estate of my late half-brother Timmy. He did. Somehow we got through the lawsuit without bad blood. One would not have guessed so much was at stake. The stock dividend had been a huge one. What I learned from my father, then most of all, was perspective. He believed in an even keel. Zeno the Stoic, not the Eleatic, would have met his match. The lawsuit lasted from 1966 through 1971. In hindsight, thank gosh he won. If I had, tax consequences would have been ugly all around. Again I had learned a lesson, and again there were no hard feelings either way. I continued to do consulting jobs for him throughout the lawsuit and after. I charged expenses, but no fee. And I didn t pad expenses. If I had, you can believe he would have seen it. I stayed in a single room in the best hotels, ate three squares a day, and paid for anything else myself. I was trying to make the point that I didn t want to be paid. Neither had my father at Spartan during the war. The idea was for me to be of use. I was paid like everyone else when working for my father full-time, but never on consulting jobs. Those now came once or twice a year, and lasted for a week or two each. Composing was still on the back burner. I was keen on physics, economics, human origins and Chapter 1: Recollections 1 06 16 8 city planning. It became clear that all but the third needed better math skills than I had. So I bought the Barnes and Noble textbook on College Mathematics, got through it in a week of hard work, and then began on the Johnson and Kiokemeister textbook on calculus along with Halliday and Resnick on physics. Together they took me nearly a year. At the end, I was allowed to sit in on the freshman physics finals at Cal Berkeley, where the same two textbooks were taught. It was the finals for physics majors, and meant to be tough. Cal took physics seriously. Not every freshman was destined to go farther. Some should be steered towards engineering, which pays better anyhow. There were 10 questions. Three hours were allowed. Each of us had a calculator and nothing else. Not even a table of integrals. My God. I had to remember them or rederive them. There are some that had taken even Newton and Leibnitz months to solve. I don t remember any of the questions. There were 200 to 300 kids in the room. Maybe 20 or 30 orientals, about three women, no blacks. Not one finished early. And some figure to be Nobelists by now. We re talking about Cal. I had answered seven questions when the three hours were up. Was that good enough? I got a call in a few days. I passed, and beat the class average. My old friend Matt Kelly warned me about this time that George was in trouble. Matt had known George s new wife Jackie, and had been invited to dinner there. Matt s impression was of out-of-control mood changes. He said that George at one point had drawn him aside, shown a pistol and warned him about paying too much attention to Jackie. The next minute they were back at the table in jolly spirits. I learned later what was wrong. George thought he had a weight problem, although I never noticed one. Doctors prescribed amphetamines in those days to control appetite. They revved him up and made it hard to sleep at night. So the same doctors prescribed barbiturates at night to get him to sleep. Uppers and downers are dangerous enough. Add a drink or two and you ve got trouble. Of course I should have told my father. But I didn t want to be the one. I liked to boost my brothers. Many must have seen the symptoms Matt saw. Let them break Chapter 1: Recollections 1 06 16 9 the news. But the others must have felt as I did. We waited too long. I got a phone call in 1973. George had died at Mount Sinai Hospital. There was an empty bottle of sleeping pills. My father s death came in 1976. Ann and I had got word it was coming a few weeks before. We were there. So was Norris Bramblett, an accountant who had worked for my father since I was in school. My father trusted him. So did I. He had only a fourth grade education, but a PHD s worth of character and sense. My father, Zeno the Stoic when things got tough, cracked jokes to the end. Norris alone could understand him by then. He translated patiently. My father was giving me one more lesson. He lapsed into a coma. Ann and I were called down from our bedroom when he died. That left me and Lansing Hays co-trustees of the trust controlling his companies. Lansing ran the law firm that handled nearly all my father s business and little else. It was a big job. Lansing was smart, abrasive, and dead honest. He didn t mind hurting people s feelings. I was not immune. It didn t matter. It wouldn t have mattered to my father. What mattered was that Lansing knew what trust meant, and put the Trust first. That s what I cared about. Lansing was already on the Getty Oil board. I was invited to join too. We met four times a year, most often in Los Angeles. Harold Berg, an oil engineer from Colorado, had become CEO (chief executive officer) and chairman after George died. Sid Petersen, an accountant, was COO (chief operating officer). Harold was a warmer and more approachable personality. That s what you d expect in an oilfield guy. Sid was reserved and analytical. That s what you might expect from an accountant, although Norris Bramblett fit anything but the stereotype. Harold and Sid were both clearly well chosen. Neither then nor later did I doubt that Getty was run at least as well as its big oil rivals. The board too were top people. But trouble was brewing. The trust, meaning Lansing and I, owned about 43 of the shares. The Getty Museum, also chaired by Harold, owned another 11 . Boards and managers prefer scattered ownership, so that they can operate more freely. Second-best would be concentration in docile Chapter 1: Recollections 1 06 16 10 hands happy to follow the board s guidance. But my father had made it clear to Lansing and me that we were to trust our judgment. We should be ready to vote the management in and out. Since stockholders elect boards and boards hire managers, that meant to vote the board in and out. No wonder they were concerned. Lansing and I were both boat-rockers. Wouldn t it be safer if there were a corporate co-trustee? These are usually safety-minded banks, and many banks did business with Getty Oil. Concerns rose when Lansing died in 1972. That left me as the sole trustee. I was less obstreperous than Lansing, but also less predictable. Hostile takeovers were common then, where bids are made directly to shareholders rather than cleared through the board. Getty was rich in oil reserves per dollar of share price. It could be a target. Board members tend to feel that they know stockholders interests and that the angels are on the side of friendly or board-approved takeovers if any at all. Stockholders don t necessarily feel that way. Temperatures rose when I pushed serious study of the possibility of taking Getty private. The idea was to give up our corporate structure to escape the corporate double tax. Management and its investment banker, Goldman Sachs, advised against. I now think they were right, although my idea had good precedents. I pressed on, unwisely, by trying to convince the Museum to back me. They had better sense. It was time to heal the breach. Marty Lipton of Wachtell, Lipton, a top mergers and acquisitions law firm, represented the Museum. He proposed a moratorium (the tripartite agreement ) where the Trust, Museum and company would hold the status quo for one year. Harold Berg had retired as chairman of Getty Oil, and Sid was now chairman and CEO. His COO was Bob Miller, a keen petroleum engineer. Harold Berg still chaired the Museum, although Harold Williams was its CEO and main voice. We all signed. But Getty Oil had its fingers crossed. A few days later, the company petitioned the court to appoint a co-trustee. It proposed Bank of America. B of A s chairman, Chauncey Medberry, sat on the Getty Oil board. Paul and George s daughters joined the plaintiffs. Chapter 1: Recollections 1 06 16 11 The Museum was more outraged than I was. Marty felt that he had been used. He and Harold Williams, a business-savvy guy who had chaired the SEC under Jimmy Carter, realized that if I could be hog-tied, the Museum with its 11 was the next domino. This was in November of 1983. Within a few weeks, the Museum and I signed a consent of shareholders taking over the company. The required public disclosure of this, on top of the tripartite agreement and co-trustee lawsuit before, was blood in the water. Pennzoil launched a hostile takeover bid in December. My concern was that the trust should not be locked in a minority position. I met with Pennzoil in New York. We resolved that to my satisfaction. The Getty Oil board met, also in New York, on January fourth. The mood was not sunny. Harold Stuart, one of the brightest and finest board members, assumed that I had invited the Pennzoil bid. Chauncey Medberry thought I should be sued. But Sid and the board acted responsibly overall. We countered with a higher price, Pennzoil accepted, and we went home thinking we had a deal. Texaco offered a higher bid two days later. Was Getty Oil already bound to Pennzoil? Its lawyers and mine said it wasn t until the final agreement was signed. I had my doubts. But I liked Texaco s offer better, and my duty was clear. The Trust and Museum would be paid cash for their shares, rather than locked in. I had insisted on language in the Pennzoil agreement that bound me only as consistent with my fiduciary duty. My duty, in the light of legal advice, was to accept Texaco s offer. I did, and voted the same way as a member of Getty s and the Museum s board. Those were fiduciary duties too. Pennzoil sued Texaco, and eventually won punitive damages of some eleven billion dollars. The Museum and Trust had cashed out. We were not parties. The Pennzoil and Texaco filings both spoke well of me. But there was still the lawsuit seeking a corporate co-trustee. That would have been very dangerous before the sale to Texaco cashed us out. A corporate co-trustee might well have assented to corporate Chapter 1: Recollections 1 06 16 12 defenses blocking a sale and effectively locking the trust in a minority position. But now that danger was over. The remaining plaintiffs were my three nieces and Paul. I couldn t blame them. How could a corporate co-trustee hurt? But I was still worried. I now wanted to split up the trust into four separate ones for my family, Paul s, George s, and my other half-brother Ronnie s. Corporate cotrustees tend to prefer the safety of acting only as required, and anyhow might not be keen to vote themselves out of a job. Were Paul and my nieces mad at me? Believe it. Lawsuits get that way. Lawyers on both sides say nasty things. That lasted because splitting the Trust took time. The math was easy, but the legal precedents were vague. My lawyer, Mose Lasky, thought we needed new California law. Plaintiff s counsel didn t think so. I was accused of stalling. Someone had the bright idea to approach Willy Brown as Speaker of the Senate. The law Mose wanted had already worked in other states, and Willy liked it. He pushed it through. Problem solved. The Trust was split into four in 1988, and an unhappy chapter ended. My nieces and I are as close as ever. So were Paul and I until his death in 2002. My interests by the time of the split were composing, verse, economics, human origins and evolutionary biology. Composing was going pretty well. My writer s block had melted away in the summer of 1980. Ann and I and the boys were in Paris then. We wandered into Smith s English language bookstore. I bought the Thomas Johnson variorum of Emily Dickenson s 1800-odd poems. Variorum means including Emily s own variations when she mailed the same poem to different people, or put a copy in the chest at the foot of her bed. I read them all over the next two days. Emily had been one of my favorites at USF. She died in 1886. She had published only eleven poems. Squabbles among the heirs delayed publication of about half the rest until Johnson published them in 1959, three years after I graduated. Many already published had been bowdlerized to fit conventional rhyme and grammar. Johnson gave us the real McCoy from her manuscripts. All was new to me. Chapter 1: Recollections 1 06 16 13 I had no piano in our hotel room in Paris, but set a few of the poems in my head to write down later. More followed. One of her poems I didn t set begins Mine by the right of the white election Election meant choice. Her white smock hangs today by her bed in Amherst where she was born and died. White is the color of weddings and burials. Her choice, I think, was a death marriage to the reverend Charles Wadsworth of the Arch Street Church in Philadelphia. He was happily married. She met him about three times in her life. I would tell her story in 31 of her poems, one in two different settings, in my cycle The White Election. It was completed in 1981, and broadcast on National Public Radio two years later. It seems to have made a good impression. Slava Rostropovich had kind words, and invited me to write something for cello and orchestra that he could schedule on his upcoming tour in Russia. Placido Domingo invited me to write a song for him. Renata Scotto wanted me to choose five or so of the White Election songs that she could include in her concerts. All were big opportunities. Somehow none happened. Other stuff was coming out the pipeline. That included my opera Plump Jack. Here I would tell the rise and fall of Falstaff in Shakespeare s Henry the Fourth and Fifth. This was riskier. Now the accompaniment would be orchestra, not piano, and I had no background in orchestration. Composing and orchestrating are not the same. Composing is like writing a play, and orchestration is like casting the play. There are composers that don t orchestrate, and orchestrators who don t compose. Most of us do both. I always did my own orchestration because no one else would know what I wanted. I gradually learned from my mistakes. Now I can probably hold my own in orchestration, although many do that better. Plump Jack was completed scene by scene over some twenty years. I would think it was finished, and then decide it wasn t. My next two operas, each running about an hour, would be composed much faster. I set Usher House to my earlier libretto based on Poe s story in about six weeks in 2008 and 2009. The Canterville Ghost , on Wilde s short story, took me about two weeks each, with two months between, Chapter 1: Recollections 1 06 16 14 for libretto, composition and orchestration. The last two operas have been premiered at major opera houses. Usher House ran again at San Francisco Opera. Upcoming performance of the scare pair , meaning Usher and Canterville as a double bill, have been announced in other cities. Plump Jack is still waiting its turn. My interest in human origins led me to the Leakey Foundation. I had read about Louis Leakey in the papers, and had met him a few times in Las Angeles and San Francisco. Brilliant, courtly, fierce. He let you know what was wrong. I became a fellow in 1973, a trustee the next year and chairman the next. Clark Howell, who taught anthropology at Berkeley, chaired our science committee. His co-chair was Dave Hamburg, a Stanford psychology professor who specialized in great ape studies or primatology. Most leading scientists in either field were members or regular advisors. They recommended grants, and we trustees funded them. We took a venture capital role, usually making grants of a few thousand dollars to promising new prospects rather than bigger amounts to steady-state projects already proved. Those proved ones included Jane Goodall s chimp studies at Gombe or Richard Leakey s digs at Lake Turkana. National Geographic, or the Wenner Gren or World Wildlife or National Science Foundations tended to fund the known winners. We re a lot bigger now. I am one of the few living links to those great people and times. We ve evolved with the science. But we stick to the venture capital role. That always left time to organize lectures and symposia. A few of us including Nancy Pelosi, long before she tried politics, put together an all-star two-day symposium at the Palace of Fine Arts in the San Francisco Marina district in 1973. Tickets sold out, and hundreds watched on screens set up in the lobby. Julian Huxley regretted, but sent his good wishes on tape. The octogenarian Raymond Dart recounted his discovery of australopithecus africanus at Taung cave near Johannesburg in 1924. Louis Leakey had died the year before, but his equally legendary widow Mary updated us on the digs at Olduvai. Dick Hay filled us in on the geology there. Jane Goodall gave the news from Gombe. Dave Hamburg reported on the new Chapter 1: Recollections 1 06 16 15 chimpanzee compound near the linear reaction at Stanford. Clark Howell briefed us on his work at Torralba and Ambrona in Spain, where our ancestors half our size had hunted elephants twice the size of modern ones. (Elephants go back at least as far as mammoths and mastodons.) Desmond Clark covered African archaeology in general and his discoveries at Kalambo Falls in particular. Sherry Washburn showed the way in which our DNA is 98 the same as a chimp s. All were my close friends. It was at a symposium in 1974, in Washington I believe, that I first heard and met Irv DeVore. His talk was on evolutionary biology and Hamilton s rule. Both were new to me. Irv was a champion speaker. Students packed his anthropology classes at Harvard. He became a Leakey stalwart and a particularly close friend. I liked his topic. Genes code for traits, and traits more adaptive to niche pressures are likelier to carry the genes that encode them into the next generation. The likeliness is fitness . A beauty of this is that you can predict traits from the environment (niche), and the environment from traits. That promised the kind of logical challenge that I loved. Survival of the fittest was not news to us. What was news was that bright scientists like Irv were specializing in that logic, and making testable predictions for creatures generally, humans included, rather than sticking to the groups they studied most. That meant people I could talk to. Hamilton s rule was put up as the prime example. It starts from the principle that the end game in biology is investment in the next generation. Hamilton had reasoned in 1965 that genes coding for most efficient investment in closest kin, who were likeliest to carry copies of those genes, ought to leave most copies in the next generation. We would invest in them when consanguinity was greater than cost benefit ratio measured in fitness given up and fitness gained at the other end. I didn t like this. Something was missing. The logic was seductive. But Achilles does overtake the tortoise. Traits compete, like those racers, for niche space. The winner is the fittest at meeting needs of the niche. Hamilton s rule seemed to leave that out. Chapter 1: Recollections 1 06 16 16 It got Darwinism backward. Darwin s idea was that the best-adapted leave most progeny, not that leaving most progeny or other close kin somehow bootstraps itself into adaptiveness. The math of Hamilton s rule didn t work either. In diploids like us, where each parent carries two sets of chromosomes, closest relatedness without inbreeding is . That meant that fitness would have to double or more with each generation. The reason is that fitness not expected to be transmitted to successors would be a contradiction in terms. If it cannot be transmitted (invested) at less than a 2:1 efficiency ratio (benefit cost ratio), then it must be expected to double or more with each reinvestment. But aardvarks and flatfish aren t 1024 times fitter than their ancestors of ten generations ago. They aren t even a smidgen fitter, by any measure of fitness known to me, unless the population has grown. Population growth in nature usually fluctuates around zero. But his rule was right in important ways. Nepotism is common in nature. The Trust passed my father s wealth to direct descendants. Most wills do, or favor nephews and nieces as a secondary choice. Chimp mothers maneuver to push their offspring up the social ladder. Worker ants and bees, who don t breed, push the chances of their younger half-sisters. Hamilton s rule was clearly a good rule of thumb, even though the math needed tuning. Why should it usually work? I couldn t know then that Hamilton himself would find the biggest missing piece of the puzzle in 1982. Economics was always somewhere on my screen. It was the biggest challenge because I had to reinvent it from scratch. I had dropped the course at USF because I couldn t find the foundations. But we don t build a foundation without knowing what we want to top. I had to reinvent everything at once. Does that mean I thought I was best qualified for such a task? No. Plenty of people are better at logic than I am. Rather I seemed to be the only volunteer. Explicit economic axioms are seen as a nineteenth century thing. There are implicit ones to a degree. Macroeconomics is said to rest on microeconomics, and microeconomics on the logic of supply and demand. Good so far. But I felt the need Chapter 1: Recollections 1 06 16 17 of a logical context for those. Too darned much was being taken for granted. What do we really want from economics? As we gradually figure that out, we can figure out the most efficient vocabulary for description and prediction. That s was what Newton did. I didn t like the lazy assumption that those problems had already been solved. Newton lucked out in that old words like mass, force and energy would mostly do if he gave them exact definitions within their usual ranges of meanings. Brand new terms would have made tougher reading, and his Principia Mathematica was tough enough in 1687. I had the same luck in the end. But I didn t know that until I had collected textbooks and economic dictionaries, along with most books on economic history I could find, and meanwhile worked out what I thought the right vocabulary ought to be. We pretty well have to solve every section of the jigsaw puzzle at the same time. I m my father s son, by the way, and balked at the three-figures prices of some of those textbooks, even though I might fork up as much for a bottle of wine. My ideas on growth theory and capital theory (explaining rates of interest and return) will get plenty of coverage later. It happens I have also taken a lifelong interest in banks and money theory. This book isn t about that directly. But banks and money are part of the story of growth and interest, and anyhow are worth attention in themselves. Money has been defined elegantly in terms of what we want from it. We want a measure of value and a medium of exchange. The qualities to give those things are moneyness . Money should be transportable , for one, in that we don t really want to lug bags of wampum around. It should be stable in value, so that we can contract over the future with least uncertainty. It should have the same value in different places as well as at different times, to minimize the nuisance of conversion. There should be enough of it that shortage doesn t drive us to the clumsiness of barter. It should be divisible into tiny units, as hundred-dollar bills into tens and ones and pennies, for exact payment with nothing owed back. It should be fungible in that one Chapter 1: Recollections 1 06 16 18 unit, say dollar, is worth exactly the same as another. Most essential of all, money should be something actually and reliably valued. What meets all these criteria? Gold has been a contender since ancient times. But how reliable is its value? Spain and Portugal stockpiled gold and silver from the new world for two centuries, and bought nothing but inflation for their trouble. Gold is good for filling teeth, and for displaying status so long as it is rare. Then what is better? Two brilliant and dangerous adventurers, the Scotsman John Law and the Irishman Richard Cantillon, proposed land. France in 1720 had no new world mines, and needed money. It had plenty of land in Mississippi. Law and Cantillon put two and two together. I think they sincerely believed their advice to The Duke D Orleans, the regent after the death of Louis XIV, that land could be the most reliable basis of value then known. More than that, I think they were probably right. But it wasn t reliable enough. Early investors in paper rights to the land had made a mint as others crowded in. Market euphoria led to more paper rights than underlying value. You ve heard that one before. Law and Cantillon saw the crash coming. It would be called the Mississippi bubble . Cantillon sold out just in time. Law preferred to face the music, as I would in the Neutral Zone a quarter millennium later. Land wasn t the answer. I can t call Law and Cantillon good guys like the emir. Both seem to have committed murder for money, Law long before and Cantillon long after, in scandals in London having nothing to do with the bubble. But they had good days. Cantillon s book, which I know only from descriptions by economic historians, seems to be a masterpiece of the obvious-in-hindsight. Law went down with the ship, like a mensch, and seems to have kept the trust and friendship of many backers he had bankrupted. I mention the plusses of these two men to remind us that the truth is seldom black and white, and to mitigate the folly of the French in trusting them. Money today, in the United States and elsewhere, is not backed by any commodity. It is government fiat money backed by the taxing power of government. That may be Chapter 1: Recollections 1 06 16 19 the best solution tried so far. The value behind the taxing power is the total capital of the nation, meaning human as well as physical capital. And the dollar has proved pretty stable since Paul Volker s tough reforms in the early 1980s. That means that government fiat money in this county is working about as well as anything we have known. But there are problems. Government tools for stabilizing government fiat money, which has no value in itself, are limited to control of its supply. The tools are monetary and financial policy. Monetary policy is mostly open market operations where government sells bonds to soak up excess money, and buys them back again to put money back in the system. You can also raise or lower Central Bank interest rates to get the same effects. Fiscal policy trims money supply by raising taxes and cutting government expense, and pumps money back into people s hands by lowering taxes and raising government expense. Monetary policy is the tool of choice because it has acted must faster. But either policy, or any mix, is a tightrope walk. Too much money courts inflation by motivating people to spend rather than save. Too little courts recession by motivating the opposite. That s why macroeconomics is said to rest on microeconomics. Are we wise to push our luck on that tightrope forever? Another problem is that our current money system may depend too much on banks. Banks buy and sell back the government bonds, for example, and create the money they lend by writing it into the borrower s checking account and booking the promissory note as value received in return. The problem is that banks are failureprone. I mean plain commercial banks which do nothing but accept deposits and make loans, not the still more dangerous commercial investment hybrids which rose and fell after repeal of the Glass-Steagle Act. The danger is leverage. Depositors must be attracted at some cost, say checking services. Borrowers must be attracted at a rate covering those costs to give profit in the first place. Then equity investors must be attracted at an equity rate, generally higher because equity imposes risk. These rates and costs are market givens rather Chapter 1: Recollections 1 06 16 20 than what the bank decides. Then how can profit from lending rates, watered down by costs of attracting depositors, translate into higher equity rates? Easily, but dangerously. That s where the leverage comes in. If the amount borrowed is much larger than the amount invested as equity, absolute profit from borrowing might be large compared to the amount invested. If hens lay only one egg per day, but I own three hens, then I can eat three eggs a day. More money lent out, compared to equity invested, presupposes more deposits to lend. The leverage needed, or deposits equity ratio in the bank s case, works out to equal the market equity return for investments of equal risk, divided by the market borrowing rate for loans of such term and risk, net of expense percent including costs of attracting depositors. This has tended to pencil out at about ten to one. Firms in general are considered risky when leverage (debt equity in that case) reaches one to one. Four to six is more typical. Not ten to one. Banks invest in loans, which are safer. But not ten times safer. Few people today would risk their money in bank deposits without federal deposit insurance. My own reading of history finds that deposit-and-lend banks have failed systemically, or needed bailouts, about once per generation since they were innovated in Marco Polo s time. They failed because borrowers default in high winds, and defaults are magnified tenfold in effects on stockholders investment. We rebuilt them, and the tenfold leverage, because we blamed the high winds rather than the rickety structure. The Practical Pig knew better. It began occurring to me in the mid 90s that mutual funds might replace bank deposits, and deal with the tightrope problem too. Too much money burns holes in pockets today because money earns nothing while we hold it. Mutual funds pay returns, and are owned for their own sake. If their shares were somehow money, people would feel no impatience to spend it, and no supply would be too much. I gradually figured out how the obvious problems in fungibility and divisibility and other moneyness qualities could be addressed. Chapter 1: Recollections 1 06 16 21 Nobelist Franco Modigliani heard of this, and invited me to MIT for a presentation. He talked like Gepetto in Disney s Pinocchio . There were a few other top brains, including Ruddiger Dornbusch and2Julio Rotemburg, in the small classroom where I spoke. Sometimes Modigliani interrupted. Getty, you don ta consider this. You forgeta that. I guess I thought I wasn t doing so well. My talk ended, and he and I were standing by a window. To lighten the mood, I said something about the Red Sox. He said Getty, I getta papers on banka reform every week. Yours isa the best. Milton Friedman, another nobelist, had a different take. We had given talks at a Cato Foundation symposium in San Francisco. He hated my idea. No great surprise. He had written that money ought to earn nothing so that we wouldn t own too much. Any attempt to back money with anything, he told me, would meet John Law s fate in the Mississippi bubble. The backing commodity would become inflated and then crash. So Nobelists can disagree. My version of the same idea today looks first to ETFs (exchange traded funds), which are more liquid and money-like than mutual funds. ETFs are usually index funds, which replicate index holdings with no active management and so charge very small expense ratios. But mutual funds might become money too. My idea, dead opposite from Friedman s, is that both money supply and money yield should be held as high as possible. What would happen to banks? Major angst, but not much damage. They would devolve into their separate deposit and lending specialties, with separate stockholders and only incidental interaction. Deposits would be invested in ETFs or mutual funds. Federal deposit insurance would wither away as unneeded. There are no runs on ETFs. Lending banks would have to raise funds to lend from investors expecting a return. Is there a downside? There is certainly a risk of one. The devil we don t know is what would happen to lending rates and what the consequences might be. That had Chapter 1: Recollections 1 06 16 22 been one of Modigliani s points in his interruptions. Federal deposit insurance subsidizes cheap money and keeps lending rates low. Most tradition associates easy money with growth and prosperity. Higher interest rates are associated with restraint in investment and consumption both. Modigliani was right to worry. My guess is that the bank reform and money reform I propose would drive borrowing costs up, borrowing volume down, and equity investment up to fill the gap. Corporations would issue new stock to retire corporate debt. Newlyweds would rent, not buy, until their incomes were high enough to bring other options. Modigliani was also worried that monetary policy would become impossible. It would as we know it. I have argued elsewhere that fiscal policy can be made to work as well and as fast. And I will argue for an unusual and more direct form of monetary policy. But no one knows. These concerns are reasons to go slow. I think that the reforms I describe are developing now, with no input from me, and will continue if they succeed. Depositors will be attracted away from banks to ETF accounts of equal liquidity and full return. Federal deposit insurance will not be advantage enough to hold them. Banks will get the message and join the parade by spinning off their loan departments and investing deposits in ETFs. If Modigliani s valid concerns haven t found good answers, the parade will stop until they do. It could backtrack to the starting point. The reforms I believe in ought to work, but can be scrubbed without much mess if they don t. I am not their only advocate. Others argue for splitting up commercial banks more or less as I would. Meanwhile many people maintain liquidity in ETFs or mutual funds rather than banks. There may be some originality in putting the two reforms together. This personal account can end with more thoughts about my father. My stepmother Teddy s touching book about their marriage, out a couple of years ago, tells the truth, the whole truth and nothing but the truth. That what she does. He seems not to have Chapter 1: Recollections 1 06 16 23 been the easiest guy to be married to. He pinched pennies, went on trips while she held up the home front, came home late. My mother had about the same story. But I saw different sides of him at different times and places. Twice I saw him cry. Once we were listening to a Caruso record. He might well have heard Caruso, although I don t recall that he said so. He would already have been 28 when Caruso last sang at the Met. One of the two books he wrote by himself shows him as an opera buff when on his own in Germany in the 1930s. He wrote what operas he had heard, who sang, and what he liked. My mother said the same. Once they arrived late at a performance of La Boheme somewhere on the Riviera, couldn t find a program, liked the tenor, decided to help him, and learned that they had failed to recognize Beniamino Gigli. The other time was about his and Teddy s son Timmy. Timmy s brain tumor was inoperable and growing. He was 13. The doctors had told them to prepare for the worst. We were in London. The papers said something about young toughs called Teddy boys. My father started crying. Timmy wouldn t make it, and the Teddy boys would. I ve now lost a son myself. You thank the graces for what s left to do. What s left to do includes composing, verse and economics. The first has panned out okay. A fair bit of the verse was set in the music. At least that makes it read and heard. Aside from the kind words of Modigliani and a few others, I can t say as much for my economics. So here goes again. Chapter 1: Recollections 1 06 16 24 CHAPTER 2: FAST FORWARD I dropped the course on economics because I couldn t see the foundations. Not that they should be clear from the start. That isn t how the mind works. We see, do and understand in that order. The pyramids rose four thousand years before people like Galileo and Newton found the laws that made them possible. Practice comes first, and science last. Science is abstraction from the particular to the general. It is fewer rules predicting more outcomes more exactly. The pyramid builders knew rules for this kind of stone and that kind of wood or rope. Newton gave rules for mass and force. Those are not particular things like stone and wood and rope. They are qualities of all things. Their rules are tougher to get our minds around, but predict everywhere once we do. What a book or course should offer from the start, even before the foundations, is an inkling that it should be worth finishing. We have to sense that we re on to something. The price of getting there will be the nuisance of abstraction from things to qualities, and we need to see a reason to pay it. I didn t in the course on economics. Now it s my turn. I ll try a fast forward through free growth theory and my other arguments to give an idea where we re headed and why it matters. The foundations and then the slower tour will follow. Free Growth What I call free growth theory will probably count as the chief surprise, at least to non-economists, because the argument and the supporting evidence call for a major reversal in tax policy of this and other nations. But it is not original. John Stuart Mill wrote the same idea in his Principles of Political Economy in 1848. I will quote what he said in my Chapter 4. Although Principles became a leading textbook for decades, the paragraph I quote seems to have been overlooked. Economic historians including Joseph Schumpeter describe him as a champion of growth through belttightening. The paragraph I will quote makes the opposite clear. We now have means to prove his idea. I will show how to test it, and will show test results in charts and tables taking up about 20 of this book. They imply that tax laws Chapter 2: Fast Forward 1 06 16 1 encouraging investment over consumption and plowback over dividends, particularly in the last half century, have led to dangerous overinvestment in the private sector. The empty eyesores and bulldozer bills of 2008 are symptoms of proinvestment policies founded in many countries after World War II. They did no harm when the world needed rebuilding anyhow. But I suggest that output growth slowed because of them, not despite them, after 1970 or so. I will argue that optimal investment at the national scale, strange as it sounds, is depreciation plowback and nothing more. Mill showed how that could be true. The same growth will arrive, say he and I and the charts and tables, with no consumption sacrificed. More consumption at no cost to growth adds up to more output. Output nosed down since 1970 or so because we squelched consumption to no purpose. That means only private sector overinvestment, prompted by unwise tax motives, and only at the collective scale. Government follows different motives, and has somehow followed them to an opposite problem in this country. Our infrastructure rusts and crumbles. It seems that our good friends in the Tea Party think that roads and bridges undercut market freedom. Growth is interesting, even without these opposite distortions, because history is interesting. Growth is our history. It is not the history of other creatures, who repeat norms from generation to generation once evolved. That s why the math of Hamilton s rule doesn t work. And we care about it because there are emotional and moral and belly issues attached. I gave an idea of its dangers in the foreword. The past has proved survivable. The future has not. Then what about its cost? Does faster growth need consumption restraint at the start? Is it a reward for sacrifice? That s what Mill tried to answer in 1848. He started with the idea that output, meaning creation of capital, must mean growth of capital ( investment ) plus consumption. I will call this the Y I C (or Y C I ) equation from the standard notation economists use. I will argue that it is true with two adjustments. Investment must include investment in human capital, and Chapter 2: Fast Forward 1 06 16 2 consumption must exclude any schooling or nurture already counted in that investment. (Schooling counts as consumption.) Mill would have understood the human capital concept, defined by Sir William Petty nearly two centuries before, but economists only recently have begun to take it seriously. Mill s meaning of the Y C I equation, and the one accepted everywhere in macroeconomics even today, leaves out the growth in human capital and includes all consumption. That equation, which I will try to prove correct if we make the two adjustments, shows that less consumption brings faster growth if output holds still. But nothing in the equation says it will. It says that less consumption means either more growth or less output. It doesn t say which. John Maynard Keynes, probably the most famous and influential economist of the 20 th century, put this fact of math a special way in his General Theory of 1936. In his analysis, saving through less consumption is either invested or not. Since output is consumption plus investment, saving uninvested is so much less output. I like to put the same idea with a range of degrees. All saving is invested, as I use the word, but finds different returns. Saving under the mattress is investment at zero return, and drops output just as Keynes said. Investment at the current average return keeps output unchanged. That s what Keynes meant. But investment at lower returns lowers output, and conversely. Keynes version sees intended saving (consumption restraint) as either invested or not, and sees it as translated dollar for dollar into actual capital growth if it is. Mine allows any degree of capital growth below or above the actual cost of investment in consumption given up. This is a surprising concept, either in Keynes version or mine, because it seems to fight personal experience. Until the next raise or job change or layoff, our incomes seem to be known quantities. If we skip desert, and watch TV instead of going to the movies, we can put more in the bank. At least our incomes will not drop because we saved those costs. But it is different for all of us collectively. When the whole nation saves, and either does not invest or invests less productively, output drops. Keynes analysis says the same, but leaves out the less productively . Chapter 2: Fast Forward 1 06 16 3 My reading of the Mill paragraph says that if we plowed back only depreciation investment, without invading consumption for more, we would still grow if that investment paid off in higher returns than the current norm. Then capital would grow faster without making consumption grow slower. The gain in output, even though we had invested only enough to make up for depreciation while keeping consumption the same, would have been split into some for capital growth and some for more consumption. And Mill gave the reason for the gain in output. The driver was whatever increases the productive power of labor . He was talking about better ideas. We would make returns higher if we could make capital more productive at the same cost. This possibility troubled Nobelist Robert Solow, who came reluctantly to a conclusion most of the way toward Mill s a century later. He felt that growth should not be a gratuitous deux ex machina arriving at its own whim. How could Mother Nature say Shazam and turn less into more whenever new ideas come along? Didn t the capital chicken have to grow before the output egg? Didn t we have to tighten belts to invest in new plant applying those new ideas? But the evidence seemed to say that the rise in output came first. Rise in capital followed. Thrift seemed to play little role. Tests by others have tended to find the same thing since. My own tests, using new data from national accounts and my own new testing method shown in my charts and tables, reduces the role of thrift to zero. How could that be? How could better kinds of capital arrive without costing more, at least at the start, than the kinds we already knew? My best guess is that the cost of innovation in failure rates and learning curves is the cost of being human, that we pay it about the same every day, and that growth happens when the worth of innovation proves more than the cost. It can because we are human. The cost of being human means the cost of adapting. It is how we cope. We turned in our fangs and fur in exchange for the savvy to make tools and fire and clothing do better. Other creatures adapt Chapter 2: Fast Forward 1 06 16 4 too, but we became the specialists. Adaptation grades into innovation whenever it somehow becomes a norm. That too happens with other creatures, but not as often or as lastingly. Their new norms almost always revert to the old ones. Our innovations collect and accrue. That s why growth is our history. Its costs are failure rates and learning curves. Many innovations are blind alleys, and most others need shakedown runs. But we re stuck with those as the cost of being human. And we re stuck with them whether the result right now is growth or not. They were our cost of survival during our million years as homo erectus, when the archeological record shows little overall change in the stone tools we made. Growth and lasting innovation picked up marginally with the emergence of Ancestral Eve and bigger brains about 200,000 years ago, and began accelerating about 50,000 years ago. Growth happened because the more or less constant cost of adaptation and innovation became less than the payoff. New ideas finally found traction at no added cost. Mill s idea was that more payoff in growth need not presuppose more sacrifce. Does that mean that all we need for growth is new ideas and the courage to trust them? Well, no. We still have to plow back depreciation as the cost of holding even. We need practical savvy and patience too. Sometimes great new ideas must wait for an opening. That may be why our bigger brains showed little effect on the kinds of tools we made until about 50,000 years ago. And I will argue that innovations need laws and customs that welcome them. Otherwise they will make a few bucks for the local warlord rather than wealth for the originator and the world. But what they don t need, say Mill and I and the data, is tighter belts. Adam Smith, in his Wealth of Nations published in 1776, proposed growth by belt tightening. Most tradition has agreed, with the proviso that new ideas must come first. Solow raised doubts about the role of consumption restraint, but stopped short of denying a need for it. Mill acknowledged both ways to grow. My charts and tables will confirm that only the kind that troubled Solow has actually happened, in every Chapter 2: Fast Forward 1 06 16 5 country and period tested. I call it free growth. My own free growth theory acknowledges growth by consumption restraint, which I call thrift, only as a mathematical possibility which doesn t seem to happen. So my idea, taking account of data Mill didn t have, is different from his. I must be careful not to put my ideas in his mouth. When I say Mill s idea , from now on, I will mean some of both. No one had the data to prove him right until national accounts began reporting market-valued capital in 1990 or so, and reconstructing it for a few decades before. What they had earlier was the book measures of capital that we see in balance sheets. They don t reveal enough. Book measures assume depreciation norms. Outcomes converge to norms over time, but meanwhile might be anything. National accounts follow a form of this book or depreciation accounting. They now report market-valued capital too, but still prefer book methods to calculate investment I and output Y in the Y C I equation. That doesn t work well. Did you know that national accounts in France, Germany, U.K. and the United States all reported positive net investment in the crash years 1929, 1930, 1937 and 2008? Net investment, meaning net of depreciation, is intended to show growth in capital value. Do you think values really went up in those crash years? And national accounts can be just as wrong in the opposite direction. In the boom year 1933, when stock markets were up 42 , 67 , 96 and 46 in those four countries, Germany and U.S. reported net investment (capital growth) as negative while France and U.K. reported it up less than half a percent. All this shows in my charts and tables. Reports of net investment in national accounts tend to prove radically wrong in years of unexpected upturn or downturn because they don t get the news of wars or national disasters or discoveries or business cycles until new assets are bought or new products sold. Purchases and sales are normally the only input into the books. Average time between original purchase and realization in sales is the holding period or turnover period of capital. For all physical capital together, it runs several years. Accounts in those slump years were reporting the good news of boom years shortly before, including the booms of 1935 as well as 1933 preceding the slump year 1937. Accounts in the boom year 1933 were finally getting the news of Chapter 2: Fast Forward 1 06 16 6 the crash. (Yes, some of the strongest boom years in history came during the world depression.) This is not to question the need for national accounts. We could not manage without them. But the genius of accountancy is in its reporting of cash flow items. Depreciation, even its sophisticated form used in national accounts, is a makeshift approximation better than nothing. I argue that it is obsoleted by our access to market-valued capital appearing in the last few decades. Mill s argument was that capital growth might be explained by productivity gain as well as by thrift in deferred consumption. The way to test between them that I will describe takes measurements of market-valued capital, its year-to-year change in these, and consumption at the same time. I call it the simultaneous rates method. In any year and country where consumption restraint explains growth, although the data show none, rise in growth rate would equal current drop in consumption rate (consumption capital) while rate of return (output capital) holds unchanged. When productivity gain is the explanation, as the data confirm so far, it is consumption rate that holds the same while growth rate and return rise equally. That s what I test. Data in charts and tables for those four nations from 1870 through 2010, and from Australia, Canada, Italy and Japan from 1970 through 2010, show that faster capital growth coincides with higher consumption rates in the same year as often as not. Less consumption has simply meant less output with no growth to show for it. That is the sense in which growth is free. These countries and periods are not cherry-picked to support Mill s idea. They are all I have found. My source for national accounts including market-valued capital was the website of Thomas Piketty and Gabriel Zucman adjusting their data to uniform accounting standards and measuring them in 2010 currency units. It also collects recent and past research by other economists modeling what national accounts, again including accounts of market-valued capital, would have shown in years before they were founded in 1930 or so. Simon Kuznets, for example, who Chapter 2: Fast Forward 1 06 16 7 founded the national accounts in the 1920s and reorganized them along Keynesian lines when the General Theory was published, reconstructed them back to 1870 for the U.S. economy. Piketty and Zucman incorporate this research and others. They have acted as editors only. As a layman, I would hardly be qualified to find and interpret original sources. Even most economists might lack that specialty. I simply trust Picketty and Zucman. They will have compounded misreadings and editors bias in those sources by adding their own, and I will have added mine. They and I have plenty. Editing is bias by definition. But we can t do without it. We manage as best we can. To make sure, I also test Mill s idea on stock market data from the same nations and periods. Here my source was the Global Financial Data website marketed by Bloomberg. Market cap corresponds to capital, dividend yield to consumption and total return to output. Charts and tables show free growth as essentially all of growth in stock markets too. Now try a first look at the charts and tables. The lollipop-shaped Greek letter (phi) is something I call the free growth index. It reads 1 in years when growth is explained as Mill described, 0 in years when belt-tightening was the explanation, and something in between when there was both. The free growth index will be explained in chapters 4 and 5. The charts can be messy, and the data jumps around. There are spikes, both up and down, which tend to disappear in the charts which screen out small absolute values of the denominator (capital acceleration). But the free growth index clearly jumps around 1, not zero, both before or after the screening. It is as often above 1 as below. That means that growth is as likely to coincide with belt-loosening as belt-tightening. My free website FreeGrowth OtherSurprises.org shows how everything was calculated. Economists will not be as surprised as they might have been a century ago. Growth theory since Solow s revolutionary papers in 1956 and 1957 has marginalized Chapter 2: Fast Forward 1 06 16 8 capital accumulation or thrift, and has seen most growth at the national scale as exogenous or unexplained by whatever we suppose that we give up in exchange. This book takes the next step in the same direction. The role of thrift is zero. It is politicians, not economists, who will be flummoxed. The double tax and the tax preference for capital gains are examples of policies favoring investment over consumption to benefit growth. The record shows no such benefit in any country ever. From all evidence so far, free growth theory is free growth fact. A New Way to Measure What this book tries to add is not only the next step in Solow s direction. My simultaneous rates method offers a new means of testing. Twentieth century growth theory, led first by Keynes colleague Sir Roy Harrod and then by Solow, has tried to gauge the effectiveness of consumption restraint by a different method from Mill s and mine. It has looked for effects on later output rather than on current capital growth. I call it the lagged flows method. Why the lag? Because if output is growth of wealth (capital) plus consumption, a shift from the third to the second cannot change output at the same time. Rather output should benefit after a lag of a few years for the capital that produces it to accumulate. Capital investment plants a tree, and output growth is the new fruit expected to follow. The lagged flow method makes sense, and there was nothing better until data for market-valued capital began appearing in 1990 or so. But the lag tends to blur causality. Later changes in output could have later causes. And output itself, after the lag, could not be measured reliably for lack of the same data. It has been measured as gross or net domestic product, reported as the sum of consumption and book investment. Books don t get the news until new assets are bought or new products sold. We just saw the anomalous book results reported for 1929, 1930, 1933 (the opposite distortion), 1937 and 2008. Those are not the only examples. My method measures output as consumption plus change in market-valued capital. It seems to me that Piketty and Zucman ought to have shown output this way, at least as an alternative version. Isn t it inconsistent to measure capital at market, but to Chapter 2: Fast Forward 1 06 16 9 measure its change (net investment) at book? And isn t it better to measure the effectiveness of thrift with neither the lag nor the well-known problems of book depreciation? I will show the math of my simultaneous rates method in Chapters 4 and 5. Chapter 4 reasons from the Y C I equation, even though I don t accept it, while Chapter 5 translates findings into the new version I do accept. Charts and tables show both versions for all eight countries reported, over all years reported, and run the averages. The thrift index, or ratio of the supposed cost to actual growth, averages zero. I found it best to show separate charts for each country by each of the two versions of the Y C I equation and by each of three levels of denominatorscreening (none, then two progressively wider screens). Other charts track other data that seemed informative. That explains why charts take up so much of this book. This completes my first survey of free growth theory and its support in the data. Chapters 4 and 5 will cover the same ground again from new perspectives. So it will be with other themes of this book and other chapters. My problem is to sell unfamiliar ideas, although not necessarily new ones, and in somewhat unfamiliar language too. My simultaneous rates method , yet to be clarified, is an example. I use the standard language of economics where I can, but must sometimes tweak words or coin them. We will see that in Chapter 3. I try to cope with that double challenge unusual ideas in unusual terms by the same strategy of restatement from new perspectives until all fits together. Fixing the Y I C Equation If I had any sense, I would pretend to accept the Y I C equation as Mill and all other economists seem to do. Then I could have done with only half as many charts, and made this a book about free growth only. Any fool knows that a book should pick a focus. The data confirming Mill s idea would have made a spectacular finale. Why undermine my own case by questioning his assumptions? So I should probably Chapter 2: Fast Forward 1 06 16 10 have played dumb and quit ahead. But that would have left out half the story and all the other surprises. I confessed that the surprises are the features I can t resist. If they are fun for me, I can accept the challenge of making them fun for the reader. Anyway, I already opened that can of worms by showing that I don t accept the Y I C equation even though others do. I gave an idea why, and can sketch my reason out a little farther. It begins with something I call the total return rule or total return truism. The truism is that creation of value equals growth of value plus cash flow, where cash flow means value taken out less value inserted from outside. I don t think anyone doubts this truism, which is fundamental everywhere every day in the investment world. I will prove it anyhow, just for good measure, in the next chapter. It is probably the reason that the Y C I equation is readily accepted. Net investment I is meant to show physical capital growth. It could look to be the growth in value, if we don t consider human capital, and consumption C could look to be the value taken out. But a second look is needed. The logic doesn t work unless we consider all value including human capital. Some consumption is invested in human capital, and only the rest exits the whole economy in satisfying tastes. Then the equation would still be true if the invested part of consumption equaled human capital growth. The reason why it doesn t starts with what we already know about human capital. Petty in 1664 had hit on the idea of this as time-discounted future lifetime pay. Adam Smith in 1776 saw it equivalently as accumulated past investment in nurture and schooling. The Americans Irving Fisher and Frank Knight revived both ideas in the early 20 th century. The tempo picked up after World War II at the University of Chicago. Jacob Mincer rederived Fisher s present value equation in 1958, and modeled investment in human capital through job training. Nobelists Theodore Schultz and Gary Becker soon joined in. New insights included the realization that human capital grows from the self-invested work of learning, as well as the outside Chapter 2: Fast Forward 1 06 16 11 input of nurture and schooling, and then depreciates gradually to zero just as buildings do. Yoram Ben-Porath combined these ideas and more in a masterly lifecycle model published in 1967. We ll get to it soon. Schultz called the part of consumption exhausted in taste satisfaction pure consumption . The part invested in human capital was pure investment . I change that to invested consumption to avoid confusion with investment in physical capital. Since there is no settled term for the part of work invested in learning, I call it self-invested work . I call the part of work sold for pay realized work . Then the consensus view formed in the 1960s held that human capital growth equals invested consumption plus self-invested work less human depreciation. I agree, with a clarification as to possible deadweight loss that I ll come to in Chapter 6. I call it the Ben-Porath equation, although he drew it from the Schultz-led consensus. It is really a summary of the first four of the equations in his 1967 paper taken together. This explains my critique of the Y I C equation. The equation would be true if human capital growth equaled invested consumption. In fact it equals that plus selfinvested work less human depreciation. The corrected equation would read output equals consumption plus investment plus self-invested work less human depreciation . I call this the Y rule . Upending the Y I C equation is big news. Macroeconomics and the national accounts are founded on it. That s one reason, although not the main one, why I think that macroeconomics should start over. It doesn t follow that national accounts in themselves need much change, aside from reporting net investment at market as well as at book, because accountants must measure what they can. Human depreciation and self-invested work elude market measurement. But economists can allow for them, and they are huge flows. Human depreciation is depreciation of the larger factor. And self-invested work includes more than learning. Ben-Porath showed, as we will see, that it equals all growth in human capital not explained by inflows of nurture and schooling less outflows in human Chapter 2: Fast Forward 1 06 16 12 depreciation. That implies that it includes all free growth of the larger factor. And these huge flows would figure to be uncorrelated. Depreciation of either factor is a steady drag on growth, while free growth is revealed in the charts and tables as a bucking bronco which might be double-digit positive one year and double-digit negative the next. No wonder that national accounts cannot reliably tell good years from bad. Another distortion in the Y I C equation is the undue prominence given to consumption. Physical capital, in most views including mine, is only a third to a fifth of total including human capital. Human capital is the lion s share. Pure consumption is most of consumption, in my view, but not all of consumption. If the factors grow in mutual proportion, then, the ratio of total capital growth to pure consumption will be much higher than of net investment to all of consumption. That explains, I think, why national accounts have reported not a single year of negative net product in any of the eight countries since inception. Balanced portfolios report negative total returns every few years. So would net product, were it not dominated artificially by the steady positive of consumption. It is as if a portfolio dominated by investment grade bonds were taken as representative of a realistically balanced portfolio. Solving the Age-Wage Puzzle I will now try to solve a feature that troubled Ben-Porath and has troubled many economists since. I call it the age-wage puzzle. Age-wage profiles are published reports comparing pay earned by all working ages at the same time. Since all cohorts (same-age sets) are compared at once, as in a family portrait, age-wage profiles do not show effects of technological growth over time. They show effects of age and experience alone. What appears is that pay or wage rises steadily until retirement or near it. Meanwhile human capital is present value of remaining lifetime pay, and shrinks steadily as approaching retirement and mortality leaves fewer future paydays to discount. Most students of human capital including Ben- Porath reason that self-investment must end when time left for recovery in higher Chapter 2: Fast Forward 1 06 16 13 future pay runs out. So do I. The puzzle is how pay could rise while human capital shrinks smoothly to zero. This would not be a puzzle if we were speaking of oil wells whose oil might continue to be pumped out at a steady or even rising rate until the well ran dry. We are puzzled because pay is generally believed to equal and compensate work. Work means the output of human capital. How could less capital steadily produce more output, meaning creation as distinct from depletion of value, particularly if some work is self-invested rather than marketed for pay? That would imply exponentially rising productivity, meaning rate of return, and rising to infinity at the end. Think about it. Strictly speaking, human capital is present value of future pay less spending on future childhood nurture plus textbooks or tuition or job training (collectively called schooling by Mincer) invested in human capital. Ben-Porath knew that, as had others before, but reasoned that investment in anything must stop when not enough time remains for recovery. I think so too. And I argue anyhow, from observation rather than logic, that invested nurture and schooling substantially end when we enter the full-time job market sometime in our twenties. Then human capital in adulthood is essentially present value of expected pay, or even less if Ben-Porath and I are wrong and nurture or schooling continues to the end. When only a year of pay is left ahead of us, human capital at most is timediscounted present value of one year s pay. When one day is left, it is at most present value of one day s pay. Yet age-wage profiles show pay (wage) holding level, or even rising, as human capital grades smoothly to zero. This is the famous agewage puzzle. I ll flesh out the same thought experiment later in what I call the parable of the boss and her secretary. Economists have recently proposed solutions which I see as farfetched. Possibilities that human capital indeed grows more productive with age, or depreciates all at once, seem implausible in each case and cannot begin to explain enough. I think Becker hinted at the answer in 1964. Becker pointed out that job training at the Chapter 2: Fast Forward 1 06 16 14 employers expense is part of investment in human capital, and reasoned that employers won t pay it unless they expect eventual recovery with interest. What Becker stopped short of saying is that the same is true of any investment in anything by anyone. When we invest for our own benefit, we expect recovery by ourselves. When we invest for the sake of others, we expect recovery by them. Recovery means recovery of depreciation. Our parents would not have invested in our human capital without expected recovery of our human depreciation by us, and the young further invest the work of learning in themselves because they expect that to be recovered with interest as well. There is another proof which I call the deadweight loss rule. Capital of any kind is present value of cash flow, meaning expected realizations in transfer or taste satisfaction. Deadweight loss means decapitalization with neither. It follows that deadweight loss, although a common reality, is implicitly unexpected. But human depreciation, like plant depreciation, is expected from first investment. That rules out deadweight loss, and makes human depreciation expected as cash flow by elimination of alternatives. Each proof is sufficient. The first expresses what I call the maximand rule: we maximize risk-adjusted rate of return. Robert Turgot observed this in 1766. I ll say more about that in the next chapter. It takes little thought to realize that maximizing risk-adjusted return begins with recovery of investment, and that this means recovery of depreciation or amortization. We are depleted like the oil well, although we create value too. The second proof needs only the assumption that human depreciation is foreseen. It adds the specification that human depreciation is realized in human cash flow. That turns out to mean that it is realized in pay. The solution to the age-wage puzzle is that pay does not equal and compensate realized work above. It compensates that plus human depreciation. I call this the pay rule . Chapter 2: Fast Forward 1 06 16 15 The pay rule joins free growth theory and the Y rule as the three major surprises promised in my title. Recovery of human depreciation in pay changes a lot of equations. It does not impact public policy and tax laws as radically as free growth theory, but I will argue that it impacts them enough. Even if it didn t, it is probably the most startling assertion in this book from an economist s viewpoint. And although I now know better than to claim originality for any idea in economics, this one just might pass the test. If someone out there knows a precedent closer than Becker s, as I eventually found ones for what I had thought were my own free growth and next generation theories, all the more fun in finding those unsuspected precursors. (Next generation theory will be outlined soon.) And the two proofs leave no doubt. I will add a few more as we go. It is never overkill to drive another stake through the heart of entrenched misperception. Meanwhile we can already be as sure of that expected recovery, not actual recovery, as of anything we know. The arguments from the maximand rule (Turgot s insight) and the deadweight loss rule are unanswerable. An analogy from something else we all know leads to the rest of my argument. Pay over working careers is something like payments over the period of a decliningbalance mortgage. Mortgage payments are partly amortization and partly interest. Amortization is like depreciation, although without the same sense of physical wear and tear behind it, and interest is like the worker s output marketed to employers. The declining balance is like human capital. Mortgage payments are almost all interest at the start of the loan, when the declining balance is almost the whole loan amount, and then gradually less interest and more amortization as the balance shrinks. As the balance approaches zero at the end, the payment approaches all amortization while the interest share approaches zero. My depreciation theory, which we ll come to soon, argues that depreciation follows the same logic and the same math. I will argue, in the face of what has seemed to be contrary evidence, that depreciation of both factors begins at zero and grows Chapter 2: Fast Forward 1 06 16 16 exponentially to become all of cash flow at the end. This completes the explanation of age-wage profiles as we see them. Pay is all human depreciation at the end. What I Thought Once Chapter 6 will compare accounting for human capital to accounting for a firm. Pay, in this analogy, is the worker s revenue. The firm deducts outside operating costs of labor and supplies to leave gross realized output. The analogy for human capital would be maintenance consumption enabling life and activity. But I don t deduct this in reaching the workers gross realized output (gross realized work) because I take it as part of the net output we intend in itself rather than a cost in return for what we intend. I see adult consumption as mainly Schultz pure consumption exhausted from the universe of capital, including human capital, in satisfying our taste for adult survival. Opinion is divided here. Some economists have treated the maintenance consumption that keeps workers going as new investment in human capital for the sake of higher pay in future. Some in the 18 th century expensed it, like maintenance in the firm, as a cost recovered in keeping up the worker s revenue (pay) now, rather than invested for later. I did that for years. I now treat it as recovered neither in pay now nor pay later. Even though we couldn t earn without it, I count it in pure consumption exhausted in satisfying tastes for survival. When I thought it was recovered in pay and work products, up to about five years ago, I realized that human depreciation could not also be. There would be nothing left for pure consumption except Mill s unproductive consumption neither replacing nor maintaining human capital. That would stand biology on its head. Biology is precisely about replacing and maintaining us. Unproductive consumption, for which there seem to be parallels in other species, is something biology has yet to justify. It cannot be the unique taste satisfaction that behavior reveals. Chapter 2: Fast Forward 1 06 16 17 I found a solution that seemed to make sense then. It was the exact opposite of what I think now. If maintenance consumption were recovered in pay and work products, as I now think human depreciation but not maintenance consumption is, then human depreciation instead of maintenance consumption could be exhausted in taste satisfaction! That seemed less macabre to me then. I looked for ways in which human depreciation, hardly the biological end in itself, could somehow be its measure. It was not unreasonable, I thought, to interpret human depreciation in aging as the cost of survival. The old gag says that aging is not so bad when you think about the alternative. Age-wage profiles could be explained, I thought then, as recovery of maintenance consumption rather than of human depreciation in pay. And I had those precedents from the 18 th century. I knew that Francois Quesnay and the physiocrats, in Adam Smith s time, had argued too that consumption could be recovered in earnings. Mill could be interpreted that way, in his definition of productive consumption , as could Piero Sraffa in a paper from 1960. I thought I was on the right track. What brought me to my senses was the thought experiment about a boss and her secretary I mentioned earlier. Picture them together at the beginning of the last year of human capital for each. The boss earns ten times as much. Human capital for each is one year s pay, or even less in the unlikely case that invested consumption continues to the end, less one year s discount. If pay measured work, rate of return (work human capital) would be something over 100 per year for each. It would be even more in the unlikely case that some work remains unrealized (self-invested) until the end. Yet their time preferences measured by return to their other investments, say securities, is less than a tenth as much. This already states pretty clearly that pay covers more than work. In case there was doubt, go on to the beginning of the last day. Age-wage profiles show that pay for each is about what it was a year before. Rate of return to each is now a little over 100 per day. At the beginning of the last second, it is a little over 100 per second. At the end of the last second it is infinite. Yet the securities in their Chapter 2: Fast Forward 1 06 16 18 portfolios are chosen for returns no higher and riskier than the year before. They will tend in fact to be lower, judging from logic and evidence for a decline in risk tolerance with age. Then what besides work is recovered in pay? The two possibilities I was weighing were maintenance consumption and human depreciation. The winner was obvious. The higher-paid usually consume more, but not always and not in proportion. The fact that we must generally be paid enough to cover consumption does not imply that we are paid to consume. We are motivated to do that anyhow. We are paid to apply skills, and are paid in proportion to skills applied. Human capital is skill sets. Pay measures its transfer to products, whether in realized work currently created or from capital in place through human depreciation. That s how I came to the pay rule. We see why it ought to startle economists. Macroeconomic tradition teaches the doctrine that wage measures work, and teaches it so confidently that it uses the notation W for either. Human capital tradition recognizes that some work is self-invested, but effectively treats human depreciation as deadweight loss. That s why I use pay in place of the more usual wage . Refuting a Piketty Argument There are practical uses for the pay rule aside from solution of the age-wage problem. These are the impact on tax laws and public policy that I promised. Piketty has shown correctly that the ratio of pay to net profit rose substantially during the world wars, world depression and welfare state period following, and has declined since. Piketty argues for higher capital taxes in consequence. His argument follows tradition in comparing pay and net profit as the shares of workers and investors in income. But tradition is wrong. Pay is the worker s gross realized income, meaning gross of human depreciation. Depreciation, for either factor, is a steadier flow. This makes gross output for either less responsive to upturns and downturns. It is a particularly high share of realized income or output in hard times when dislocation Chapter 2: Fast Forward 1 06 16 19 of both factors (human and physical capital) drives net output down. Comparison between net income and gross realized income can mislead. Piketty is right about the data, but wrong about its interpretation. Depreciation Theory This is the explanation I promised when I said that depreciation is essentially like amortization. Accounting tends to practice straight-line depreciation over standard depreciation periods. A well-known refinement, allowed but not much practiced in business, is called current cost accounting. The idea is to correct distortions due to past inflation. The problem is that books reflect long-term assets and their depreciation at original cost at date of booking. Current cost accounting adjusts both to the equivalent in current dollars. It shows both net worth and depreciation as higher if prices inflated since booking, or lower if prices deflated. That seems to make sense. A further adjustment called replacement cost accounting does the same, but also replaces linear depreciation with a curve believed more realistic. National accounts adopt this method. It is sound in principle. But they shape the curve in the wrong direction. They rely on records of actual sales of plant to model depreciation as steep initially and slower later. I suggest that this record is misleading. My starting point is that value of any capital is discounted cash flow. To keep things simple at first, suppose that cash flow in constant dollars is expected to hold steady for fifty years before asset life ends. Also suppose a constant time discount rate. Present value at the outset is fifty years of discounted cash flow. At the beginning of the second year, it is 49 years present value of the same cash flow at the same discount rate. All that has been lost is present value of the 50 th and most-discounted year. At the start of the third year, capital has dropped again by present value of the 49 th and second-most discounted year. So it continues until the end as the discount Chapter 2: Fast Forward 1 06 16 20 period approaches zero. Depreciation increases absolutely each year, and increases even faster in ratio to capital. What I have just modeled is depreciation rising exponentially from zero at the start to a maximum at the end. National accounts show the exact opposite. They show it decreasing exponentially from a maximum at the start. The reason for the difference is instructive. I would rather trust the present value formula to show what assets are worth subjectively to their owners. The national accounts prefer to trust evidence as to what they are worth to others if sold. That s a solid method too if the evidence is likely to prove representative. It isn t in cases where transactions are more likely to have been driven by pressure to sell than pressure to buy. Plant is generally tailored to purposes of its first owner, and not meant to be resold. Plant sales tend to follow disappointing results. These are likelier to come early as business plans are first tested. That could explain why evidence without logic has suggested that depreciation tends to start fast and slow down with time. I would recommend that national accounts continue tracking actual sales as an indicator of true depreciation curves, but limit the study to rental buildings expected from the start to be resold several times. I mean apartment buildings, office buildings and warehouses designed along standard lines. Many investors specialize in buying and selling these tradable assets for portfolio purposes. Pressure to buy and pressure to sell tend to balance. I can testify that prices bid for them are found either by discounted cash flow or internal rate of return (IRR) methods. IRR is a variant of the same thing. A bid price is modeled as the original negative cash flow in evaluating the proposed purchase. Then the positive cash flows at each year s end are modeled, and the discount rate found which nets present value of all flows together to zero. If this rate is judged competitive, the purchase goes ahead. This method was originated by Keynes in the General Theory as his marginal product of capital . Chapter 2: Fast Forward 1 06 16 21 And I repeat that most other structures are not meant to be resold. Productive plant is customized to original owners. Tract housing is not, but becomes adapted to them. Original plant operators and homeowners typically expect to stay put. Most do. When they do, their own valuations are higher than would likely be realized in sale. Owners valuations matter. Economics is more than prediction of sales prices. It is prediction of behavior. It is the owner s valuation of an asset, not a hypothetical outside valuation, that predicts what he will do to exploit and defend it. My depreciation theory does not jolt settled belief as forcibly as free growth theory or the pay rule and Y rule do. It contradicts only a minor feature of the national accounts. But it contradicts that diametrically, and adds clarity to the pay rule too. It is also original as far as I know. Who has said such a thing before? All the more fun and satisfaction in finding out and setting the record straight. There are giants out there, whether I ever make it to their shoulders or not, and economic history means identifying them. Retirement Theory Retirement generally means the period or first moment when people end the careers for which their training has been specialized. The reason is typically not diminished skills and performance just yet, as age-wage profiles show no little or no drop in pay toward the end. I think it is more that we and our bosses see the drop coming. Literal pay is typically zero in retirement. Instead we earn imputed pay for taking care of ourselves and one another, and for driving the grandkids to the zoo. These services are tangible, not psychic, in that they save the hire of others to do the same. The imputed pay is what the others would have charged. But it typically is not enough to meet our consumption needs. Retirees must typically draw down savings or depend on social transfer payments , meaning support from government or family or foundations, to make ends meet. Chapter 2: Fast Forward 1 06 16 22 It seems that these infusions from savings or gift cannot be interpreted as invested consumption to be recovered with interest later, but are rather pure consumption recovered now in the satisfaction of survival. Then human cash flow, or pay less invested consumption, remains positive to the end if we recognize imputed pay. Economists should, I think, because it figures into predicting behavior as much as literal pay. So does psychic pay. It follows that human capital, meaning present value of all pay in the absence of invested consumption to deduct, continues after retirement. That shows that my parable of the boss and her secretary is oversimplified. Parables tend to be. The secretary may happen to have better skills as a full-time caregiver, which both she and the boss will figure to be in retirement, and so may reverse the disparity in human capital then. All models, I guess, assume ceteris paribus (other things equal). My retirement theory leaves much unexplained. It tries to throw a little light here and there. I believe it achieves some surprise, and even originality until we know better, in my argument that human capital continues after retirement. Yet this follows directly from Ben-Porath. Invested consumption must end when time for recovery runs out, whether or not I am right in ending it with job entry decades before, and human capital must last as long as literal or imputed pay does. The endurance of human capital through to mortality is not logical certitude, but need not be doubted either. Retouching the Ben-Porath Model Ben-Porath s life cycle model seems right enough in all features but one. Equations in his 1967 paper imply that pay measures realized work alone. This should be adjusted to show the pay rule. I would also model invested consumption as ending at independence, or a few months later to allow for initial job training. That does not contradict Ben-Porath, who leaves such a possibility open. I would further apply depreciation theory to model human depreciation as growing from a negligible share of pay at first employment to substantially all of pay at the end. Chapter 2: Fast Forward 1 06 16 23 My model is the same as Ben-Porath s from birth to independence. All consumption and all work are invested, for modeling purposes, until schooling ends at full-time job entry. I model this transition at age 20. Pay, realized work, human depreciation and pure consumption all begin at that point, although human depreciation begins at essentially zero. Self-invested work continues as an important but diminishing share of work until late in careers, just as in Ben-Porath. I differ from him mildly in that I model all adult consumption as pure consumption. Ben-Porath allows adult invested consumption without assuming it. I regard it as real but negligible. Age-wage profiles are explained by self-invested work and depreciation theory alone. I model this self-invested work as subliminal accumulation of job experience. My reason is personal observation. What I have seen in plants and offices is people working full time on the job. We don t take time off to learn. Experience simply arrives, much as free growth does. I think that my view on this contradicts Ben- Porath s marginally. He seems to allow some such allocation of time to help explain age-wage profiles. Next comes retirement. I model this as just shown. Later I will expand this model to include acquisition and disposal of physical capital too. The combined model will give most of the math and mechanics of next generation theory. Risk Theory For practical purposes, economic risk is usually measured as expected standard deviation in rate of return. Safer assets vary less from their return norms. Shortterm treasuries are thought safest because they combine fixed nominal return with fast liquidity in case inflation threatens. The market overall bids safer expected outputs up and riskier ones down. Since asset value is the denominator in rate of return, and output the numerator, the effect is make risker assets higher in return. Chapter 2: Fast Forward 1 06 16 24 Risk tolerance might be anything in any individual. As a norm, it tends to be a function of age, gender and wealth. Effects of age and gender are better understood. Teens and young adults, particularly males, seem readiest to take chances. Prison populations and medal of honor rolls feature young males. Part of the explanation, I think, is biologist R. A. Fisher s sex ratio theory of 1930, or equally Bob Trivers differential investment theory of 1971. Young males show greatest variance in reproductive prospects. Females are almost always assured of a few offspring. Young males might leave none or many. Nature arranges tournaments or displays to give fitter males the advantage. Another reason is that the young, of either sex, have most time left to outride downswings. The older we get, the more risk-averse. Some businesses and assets are inherently riskier than others. Nerf balls are safer than hand grenades. But I prefer to look past the asset owned to the owner. We tend to own assets suited to our risk preferences. And we tend to operate it as safely or riskily as we like. That is true particularly of human capital, although it was first designed according to our parents goals rather than ours. Human capital is probably the most versatile asset, even so, and is adapted to our purposes rather than theirs. We make it as risky as we choose. The risk-averse can become florists or Trappists. Risk lovers can try bullfighting or skydiving. What does that tell us about the relative risk of the factors? Human capital is owned disproportionately by the young. We own very little physical capital, legally or in practical effect, until maturity. Pay at first is barely enough for survival. We accumulate it gradually as pay rises with age, and then deplete it in provision for the young and in our own retirement. Since physical capital is owned disproportionately by the older and more risk-averse, and human capital the contrary, human capital figures to be higher on average in risk and return. Chapter 2: Fast Forward 1 06 16 25 There is another useful inference. Adults own assets in the business and housing sectors. Older adults tend more to own debt claims on these sectors, and younger adults to own equity claims. But all adult ages collectively own both sectors collectively. It does not follow that the sectors are equal in risk, as older individuals might tend to own one sector predominantly, and younger ones the other. As a layman, I don t really know. What I happen to know is that the publicly traded corporate sector, meaning stocks particularly but also bonds, is far more liquid than the housing sector, and that the rest of the business sector is far less liquid than either. Risk in general includes liquidity risk. This leads me to the hypothesis or hunch that the housing sector in general should be safer than the business sector, ceteris paribus, but that the publicly traded corporate sector, cap-weighting debt and equity claims on it, may be safest of all. The idea that stocks and bonds cap-weighted are safer than houses might have been laughed to scorn a few years ago. It doesn t seem so funny after 2008. I view it as an idea to be tested, not trusted, until more is known. If it holds up, it will rank as another surprise. The effect of individual wealth on risk tolerance is less understood. Here I judge more from hunch and impression than from data. Given that human needs are fairly uniform, as with the private and the general, more wealth gives more insulation from want. Talent is wealth in human capital, and gives the same. Less, in either factor, gives less margin for error. My hunch and impression is that the wealthier in either factor should tend to be more risk tolerant so long as human capital itself is not put in harm s way. Human capital operates physical capital, and gives the means of recovery. The wealthier, in talent or net worth, should prove the least tempted toward sky diving and Russian roulette. Chapter 2: Fast Forward 1 06 16 26 In this book I will usually be modeling risk and return at the collective scale or at the cohort one. A cohort means the set of all same-aged individuals. It turns out that the ratio of females to males tends to rise with each older cohort, for reasons Bob Trivers explains, as does wealth up to a point. But in cohort analysis, both effects (wealth and sex ratio) are incorporated into effects of cohort age. That will simplify modeling. My risk theory is another example of what looks to be surprise and novelty until shown otherwise. The unusual idea lies in projecting the owner s time preference return rate onto the asset rather than conversely. Thus all the owner s assets of both factors are selected or modified to fit her current risk profile. This would count her liquid securities portfolio, cap weighted, as a single asset. All other assets are too illiquid for practical rebalancing. We own the assets best suited to our risk profiles, if for no better reason than that we wouldn t be the winning bidders for any others if we wanted them. As our risk profiles evolve with age, we modify or trade them. We will tend to have anticipated this need, and to have factored modification or trading costs into our bid price. It turns out that this interpretation can simplify the math of present value and present cost. It helps in supporting the pay rule, and explaining age-wage profiles, by rebutting a hypothesis, sometimes argued, that productivity of human capital might rise with age. Productivity, rate of return and time preference rate all mean the same. My risk theory argues that we know a cohort s risk tolerance from the return to its capweighted securities portfolio as a whole. All other assets of the same cohort, including human capital, will tend to agree with it in return. Return to security portfolios tends to be transparent. It declines with adult cohort age. I infer that return to human capital does the same. My risk theory and depreciation theory together add a finishing touch to the pay rule. The key supporting evidence is age-wage profiles. Depreciation theory offers solid logic, in the face of apparent contrary data, that pay is all human depreciation Chapter 2: Fast Forward 1 06 16 27 at the end. Risk theory reinforces that impression by adding that the contribution of productivity in the form of realized work human capital actually declines. One cannot pound too many stakes through the heart of the doctrine that pay compensates realized work alone. Next Generation Theory I also treat rate of return. This combined free growth theory with insights of Petty in 1662 and William Stanley Jevons in 1871. Petty s idea was that each generation passes the baton to the next. Our investment horizon is the generation length. Its reciprocal, or one over that period, gives our time preference rate. Jevons also saw time preference as the reciprocal of the period of production, but did not connect that to the generation length. I adjust Petty s estimate of the length from his 21 years to 28.5 by allowing for later births as well as firstborns. The reciprocal is 3.5 per year. I add free growth as an exogenous and unspecified variable. As with Mill and free growth theory, I have to walk a fine line between crediting Petty and putting my ideas in his mouth. Petty dictated his books and pamphlets, and is not always clear. My idea, probably but not certainly the same as his, is that each generation invests everything in the next in trust that it will do the same. All our capital of both factors, although Petty spoke only of a cornfield, is exhausted in putting the next generation in place. The time horizon to get this done is the generation length. This 28.5 years, as I model it, becomes Jevons period of production . Its reciprocal, meaning one over it, gives rate of return. The idea of a period of production whose reciprocal gave rate of return had begun with Rae in 1934, if you don t count Petty, and passed through Nassau Senior to Jevons and Boehm Bawerk. All assumed growthlessness for simplicity. Return is growth rate plus cash flow rate. It simplifies to the pure consumption rate at the collective scale. All these men, even Petty, were really modeling the pure consumption rate. 28.5 years gives the period of replication, in my view, or period of production if there were no growth. Chapter 2: Fast Forward 1 06 16 28 Free growth then arrives at its whim, like a deus ex machina, without calling for more than this steady effort of replication. I find myself focusing more and more on that cash flow component of rate of return, or pure consumption rate at the collective scale, as the part we can predict and model. The generation length is a biological norm which probably has not varied by more than a factor of two since Ancestral Eve some 200,000 year ago. This suggests that next generation theory can be tested against data from any period. Meanwhile it predicts only at the collective scale. Collective return is average risk return. Subtract collective growth rate to leave cash flow rate. Return and growth are two of the most closely measured rates in economics. That says that tests of next generation theory should be practical. I will show tables broadly in support. Next generation theory is a blockbuster. An explanation of interest and return has been the Holy Grail of capital theory. Boehm Bawerk contributed a big advance by revealing return as an artifact of time preference rather than the other way around. Some including Irving Fisher have seen that beautiful insight as enough. Not me. What explains and quantifies time preference? What turned out to be Petty s idea occurred to me about 40 years ago, when I first took an interest in evolutionary biology. My friend Alan Rogers, a population geneticist I didn t know all the time, was thinking in the same direction. His two published papers on this are in my appendix. Neither of us knew about Petty s priority. The idea would have been a still bigger blockbuster before the wall came down. Wars were being fought about whether return has any legitimacy at all. Karl Marx, ironically a champion of Petty, may have missed his argument on that. Petty s idea is really the biological imperative I discussed in Chapter 1. The first priority is survival and reproduction. I will argue that this was implicitly accepted Chapter 2: Fast Forward 1 06 16 29 throughout economic history until new insights now summarized as the marginalist revolution began in 1871. The marginalists, mentioned in the forward, swapped the telescope for the microscope. They left aside the grand teleologies of Smith and Ricardo and Mill and Marx to refocus on the mechanics of choice. Reasons for tastes or choices were treated as irrelevant. By 1900 or so, the marginalists had given us microeconomics much as we know it today. A century would pass before bioeconomics took form in response to Hamilton s rule. Summary That gives the outline. It is a layman s view of what a proper economist might not have attempted. Fools rush in. I will cite sources in economics and biology not to pretend that I am an authority, but to give real ones a chance to check. My case rests on the charts and tables. Mill might have been astonished to find that the kind of growth he described is the only kind to appear in the record. What makes my book different, aside from my lack of credentials, is the surprises and the unusual degree of abstraction leading to them. Not many writers try to follow a chain of inference as far without the comforting touch of the stone and wood and rope. If Becker had been as venturesome, he might well have solved the age-wage problem in 1964. I see no other path. Economics is all inside. It is tastes expressed in choices. Capital is foreseen satisfactions discounted by whatever our taste for impatience is. Most of it is human capital leaving little market record beyond its rental cost in pay. Logic is about all we have left. But the story cannot end in thin air. Few would pay the nuisance cost of so much abstraction without prospect of surprising and testable prediction. I will try to deliver that. Mill s idea is a surprise to politicians, if less so to economists, and could hardly be tested more thoroughly and successfully. When new ideas are thought up, Mother Nature says Shazam and embodies them at no cost beyond the depreciation plowback we needed anyway. The data could not be more supportive if Mill and I had invented them. Even my proposed solution to the age-wage problem, Chapter 2: Fast Forward 1 06 16 30 which must have seemed hopelessly stuck in subjectivity, paid off finally in that solution and in a refutation of Piketty s argument. Risk theory and depreciation theory, each surprising enough, reinforced that solution and the pay rule. I said nothing in the this chapter about bank reform because I covered that in Chapter 1. Predictions of behavior can work because tastes converge to market equilibria. What stands behind the convergence, I argue, is biology selecting tastes that maintain and reproduce us. The idea that we act out the biological imperative is clear in Petty and Malthus, and in the equilibrium wage theory of Adam Smith and David Ricardo, where pay converges to the level preserving the work force. But if I say everything about that now, I will have nothing to say later. Chapter 2: Fast Forward 1 06 16 31 CHAPTER 3: FOUNDATIONS Historically, foundations and science itself emerge at the end of centuries of practical application. A logical place for foundations in textbooks is the beginning. So it was with Halliday and Resnick on physics, which began with Newton s kinetics (motion in time and space) and then this three laws. Only in the last chapter did the authors remind us that Einstein later put two of these three into question, and even the kinetics. Halliday and Resnick reasoned, correctly I think, that we sometimes learn more efficiently by learning something slightly wrong first and fixing it later. I will do that, in a sense, by reasoning first through free growth theory as if the Y C I equation were true, and then again with the two corrections. The sometimes counterintuitive logic of teaching and learning, including that, is heuristics . Building on explicit axioms was common in economics throughout the classical period running from Petty in the 17 th century through Mill in the 19th. Then came the major shift in focus, beginning in 1871, called the marginalist revolution. What mattered was less our goals, and more the market mechanisms that aligned supply, demand and price. The meeting point was the margin. Axioms about goals disappeared, including the usual one of prioritizing survival and reproduction, and axioms kept were usually left implicit. The implicit ones, essential to marginalism in my view, included convergent tastes and predictions. I will make those two and others explicit, and eventually add back the goals. This book on the whole is about second-guessing what is taught. This chapter is different. The nearest thing to a surprise in it is the idea that economics needs explicit foundations in the sense of axioms and basic definitions and equations. All the ones I choose are well accepted. Why I pick which should seem obvious in hindsight. But some mini-surprises will accumulate. Why do I take such pains to prove every feature of what everyone accepts already? Why all the boilerplate and bulletproofing? I need them because I will later try to shoot down other beliefs everyone accepts. We must know what is sound to find what is not. Chapter 3: Foundations 1 11 16 1 Another mini-surprise is the physics-like care in definitions. The reason is that my arguments later will drive logic pretty far. Logic needs words that are like algeraic symbols in meaning the same thing all along. Figuratively and literally, foundations are groundwork. They will be less a chore if you love logic. And you d better if you re going to like the later chapters. Let s get started. Orientation Economics itself, I think, is a quantitative rationale of choices. Psychology is a sister study not explicitly quantitative, and accounting for subliminal behavior as well as deliberate choices. The two fields cooperate and overlap. Economics is quantitative in that it asks how much as well as what, and focuses on numbers. It is science-like in that it looks for surprising and testable predictions in the end. It is philosophylike in that choices are subjective and that the larger factor, human capital, leaves little market evidence from which to reason upward. Both facts put the burden on reasoning downward from axioms. Much of the evidence for both factors, meaning physical and human capital, comes from the records of literal markets where we rent and hire and buy and sell. Most economics looked no further until Gary Becker and others expanded the boundaries about 50 years ago. The expansion made sense. A rationale of choices in literal markets alone is a silly concept. It is silly to acknowledge only choices that ring cash registers. We are the same people everywhere. Logic is the same everywhere. We have little interest in axioms that aren t the same everywhere. Becker was right to see choices in marriage and even crime as predictable in terms of supply and demand and price. That includes psychic price. Once we follow Becker past literal markets, we accept psychic value and yield. We must anyhow. Value is in the mind. Economics works as Chapter 3: Foundations 1 11 16 2 a rationale of choices, hence values, because human nature leads minds to converge. The literal market adds a measure. When we step outside it, we make do without the measure and trust logic alone. A Diamond Ring Parable I like a picture of a diamond ring to show something about psychic value and yield, and even about what output and exhaust in consumption are. The ring brings psychic yield to its wearer. If it didn t, it would have no value. Its yield is each psychic satisfaction, and its value sums all time-discounted prospective ones together. Value therefore drops just a little as each yield is finally realized. It is as with apples dropping from a tree. Yet the ring is inert. It ostensibly produces nothing. It also keeps all its value as a ring from day to day. Then where does the outflow of the value in the exhaust come from? How can value go out if none was deducted and none produced? In the tree, we can see the apples growing and falling. The answer is that some value was produced in the ring, and some deducted too. What we didn t notice was the constant shortening of remaining discount periods. As each day passes, each future yield comes one day closer. These are the apples slowly ripening on the tree. Present value of each rises because the discount period covers less time. This creation of value is output by definition, even though nothing has moved but the hands of the clock. As the discount period reaches zero, the expected yield eventuates to explain the taste satisfaction. These yields are the apples falling to be eaten. The ring holds its value intact because the exhaust of value it surrendered has exactly offset the output of replacement value as time alone shortens discount periods. Yet not an atom stirred. The whole point is that the value of the ring or anything else is discounted present value of foreseen satisfactions. They are discounted because there is such a thing as time preference ; we value satisfactions now over foreseen ones later. This is not quite the same as the difference between birds in the hand and birds in the bush. That says that we value certainties over probabilities. Time preference also values Chapter 3: Foundations 1 11 16 3 present certainties over future certainties. The reason is studied in a branch of economics called capital theory . My next generation theory, really Petty s of 1662, proposes what the average-risk time discount rate is and why. Present value of each expected instant of future satisfaction grows at that rate as time shortens the discount period. It disappears, as apples from the tree, when expectation matures into reality. This diamond ring parable is full of useful lessons. I think it contains substantially all of economics. Consider the lilies of the field. They also serve who only stand and wait. A chemist would testify that the ring has done nothing. An economist sees plenty happening. Economics is abstraction. Physical capital is not things, and human capital is not people. It s all in the mind. What an economist sees is present value evolving with time as expectations ripen and eventuate. Output is not what we do, although it has to do with what we do. It is the passage of time. Exhaust is the fruition of time and the harvest reaped. Only when we allow psychic values can we say that all behavior is economic behavior. It is choices among alternatives. That s what makes economics philosophy. Axioms Then what should its axioms be? We would like empirical or real-world certainties. I find none beyond Descarte s cogito. Philosophy is certain of next to nothing. We settle for working assumptions. We want ones as safe and few as possible. Those of economics have usually been left implicit since the marginalist revolution. I dropped the course because I felt their need. It should do no harm, at this point, to risk the opposite extreme. Let s try putting everything on the table. My first axiom, in that spirit, will be unguided natural causality. This need not alarm the devout. It is the working assumption of all science. Working assumptions are not creeds. I cannot rule out the possibility of occasional or even continuous intervention by God to explain what we see. But we know to act as if we ruled it out Chapter 3: Foundations 1 11 16 4 when our science hats are on. Even philosophy, in the Western tradition, leaves revelation aside. A practical consideration is that debates of how God is likely to be motivated to intercede have tended to find little consensus or traction. Science gets some. I tipped my hand on my own views in Chapter 1. As chairman of the Leakey Foundation for more than 40 years, I pretty clearly buy evolution theory and unguided natural casualty as working assumptions. But I invite those who don t to read further before deciding that we will disagree on conclusions. If I foresaw a conflict with the devout, which I don t, I would feel obligated to warn them now. I ll bring this up again as we go along. My next few axioms, lumped together, are a mortal and reproducing population which competes, cooperates and freelances to act on convergent predictions. It acts to satisfy convergent tastes in a world of limited resources. I will model the population as human, although other species would do insofar as my axioms hold for them. Convergent means non-identical from individual to individual or place to place or moment to moment, but converging to norms with increasing scale in space and time. Predictions converge to outcomes as well as to one another. The point is that tastes and predictions must be convergent enough for markets to form and hold. A market, as Becker knew, is where anyone makes any choice among alternatives. A literal market is where a choice leaves a quantitative record. Markets cannot form and hold if we cannot predict where to find them and what they supply and when they are open. They cannot form and hold without some consensus that what we predict they will offer includes something we want. Clothing stores can work because our sizes and shapes fall mostly within standard ranges. Their business would be in trouble if we did not agree in number and rough placement of arms and legs and head. Restaurants can work because we can find what we want on a finite menu. Most crucially, clothing stores and restaurants cannot hold unless there is consensus on what their wares are worth in return. All this convergence Chapter 3: Foundations 1 11 16 5 suggests a single species, although the axiom only said population. The ants and the picnickers can compete for the lunch, but they cannot bargain for it. The bar in Star Wars is a great gag because it thumbs its nose at this home truth. We converge in taste for the hilarious. I will add the biological imperative as a separate axiom later, although much of that at least may be implicit in the first one of natural causality. We hate unnecessary axioms, from good Occamite principle, but we hate unsupported inference or question-begging worse. I spell out the axiom of mortality and reproduction because I know I m heading towards Petty s insight and next generation theory. Of course we design foundations to support what we want on top. It seems to me that my axioms mention nothing about rationality, whatever that might mean, except in the sense of assumed convergence of predictions to outcomes. And that assumption itself might not be critical. What seems critical that is the predictions should converge to a known function of outcomes. If they converge to something predictably overoptimistic or overpessimistic, we re still in business. Lacking even that, economic science is stillborn. We can t predict chaos. That s an example of the principle that axioms need not be strictly true. They must be true enough. We re still in business if God intervenes a little here and there. Much more than that, and the convergent prediction axiom runs into the problem of predicting the mind of God. The two convergence axioms, of tastes and predictions, are implicit in all microeconomics. Micro , as economists call it, is about supply meeting demand at price equilibrium. This insight was the main theme of the marginalist revolution. It s exactly what can t happen without convergent tastes and predictions. It s exactly why the bar in Star Wars is a hoot. Ants find price equilibria in ant markets, and people in people markets. Ants and people find no meeting of the minds. Then if Chapter 3: Foundations 1 11 16 6 macroeconomics ( macro ) rests on micro, the convergence axioms say only what economics has accepted implicitly since micro began. The law of one price , meaning market equilibrium, actually begins a century and a half earlier with Cantillon. But Jevons, in co-founding the marginalist revolution in 1871, effectively made it an axiom. I don t want to seem to claim that the convergence axioms are safe because they are accepted. Arguments ad majoritatem or ad auctoritatem prove nothing. But markets do seem to form and hold, and the convergences seem implied. Authority and majority are sometimes right. Not all economists have agreed. There have been historicists and institutionalists who mistrust the idea of convergent tastes, and prefer to see idiosyncratic national tradition or power groups or mindsets as the prime movers in place of uniform human nature. Heinrich Schmoller, a historicist who stressed national differences, tangled with Carl Menger, an independent co-founder of the marginalist revolution in 1871, in a childish feud for which Menger was at least as much to blame. If you must answer your critics, be gracious. Thorstein Veblen, an institutionalist from Wisconsin, coined the term neoclassicism for what we now call marginalism. He made fun of it for missing the role of institutions in driving economies for institutional or collective goals rather than individual human ones. I think there s something there. My main theme in this book is growth theory at the collective scale. I argue that collective growth flourishes where laws and practices and cultures nurture and protect it. These are national institutions. New ideas, by definition, are opposite from the fungible commodities for which supply and demand meet at price equilibria. Somehow they come. Dogs bark, cats climb, people innovate. I m with Menger and Jevons and the marginalists and human nature, but with asterisks there too. There is plenty left for historicists and institutionalists to help explain. Chapter 3: Foundations 1 11 16 7 Vocabulary and Catechism The words microeconomics and macroeconomics, by the way, didn t exist until Ragnar Frisch coined them in the 1920s. We use terms retrospectively to describe old arguments in language familiar now. That segues into the next steps in the foundations. What should be the basic vocabulary and catechism, meaning basic logic, in terms understood today? Consideration of purpose always comes first. The purpose of economics is prediction. We happen to know that one of the most powerful predictors of economic behavior is maximization of risk-adjusted return. This was Robert Turgot s insight of 1766, although he left the risk variable unsaid. (His real first name was somehow Anne, so we ll go with the second). He wrote that return equilibrates across markets as investors leave low-return businesses to crowd into higher-return ones. The shift bids up capital denominators in the higher-return businesses, and conversely, until return converges. It was David Ricardo, in 1817 who added that the convergence is more exactly for businesses judged equal in risk. The evidence is everywhere we look. I call this the maximand rule: all behavior maximizes perceived risk-adjusted rate of return. I ll show its proof below. That means all behavior in all markets, and markets are where any choice among alternatives is made. Return means ratio of (net) output to capital generating it. Then the vocabulary wanted might as well include capital and output. But what is capital? Economics is choices, and the measure is price or value. Price can t be measured exactly outside literal markets, which is why economists follow those markets, but is measured in principle by what we give up in exchange. The price of any capital, even human capital, is given by the present value rule as timediscounted cash flow. Then cash flow and its positive and negative components belong to the basic vocabulary, while the present value and maximand rules both belong in the catechism. Output is total return, so the total return truism belongs in the catechism too. Chapter 3: Foundations 1 11 16 8 What other basic terms do we need? Cash flow at the collective scale, where transfers cancel internally, and there is no source of investment from outside, simplifies to exhaust of value in taste satisfaction. There is no negative component because there is no external source of new investment. Tradition through most of economic history has called this exhaust consumption. Schultz recognized some consumption as investment in human capital, I said earlier, and limited the exhaust to pure consumption . I will use this and the term exhaust interchangeably. Then transfer, consumption, exhaust and pure consumption belong in the vocabulary too. So does invested consumption , my restatement of Schultz pure investment in human capital. This seems to be the right track. The object is prediction of behavior. The maximand rule predicts all behavior, and I have sought to build a vocabulary and catechism to clarify its terms. The right vocabulary, thank gosh, is mostly the one we have all used since Adam Smith or even Petty. It has needed only a little tweaking and clarification, as to the two kinds of capital and consumption for example. There is a fundamental theorem of calculus showing how differentials and integrals fit together. Its proof takes a lot of thought. There is a simpler one for algebra. Might a fundamental theorem of economics be helpful? Obvious candidates would include the maximand rule predicting all behavior, the total return truism explaining the output numerator of the maximand (rate of return), and the present value rule explaining the capital denominator. For years I chose the maximand rule as the fundamental theorem. Then I preferred the present value rule as more fundamental since it explained the denominator. But so would be the total return truism in explaining the numerator. Now I opt for the judgment of Paris. Let the three together be the fundamental theorems of economics. The maximand rule is the centerpiece, and the other two define its terms. All three together are much easier to follow, mercifully, then the one of calculus. Chapter 3: Foundations 1 11 16 9 The vocabulary can also include the standard distinction among stocks, flows and rates. These are only definitions, not assumptions. Stocks means value measured in money units, say dollars. This is not the same as stock in the sense of equity securities, although those can be examples. Flows means processes such as output for consumption measured in dollars per unit time. Flows are to stocks as verbs to nouns. Percent rates are flows divided by stocks, as rate of return or growth rate, and are measured in pure numbers over time such as 5 per year. Now for the fundamental theorems. Take the present value rule first. It starts from the axiom that we satisfy convergent tastes in the light of convergent predictions. In a simple case, we foresee that an asset (stock) is likely to yield a certain amount of taste satisfaction flow at a certain future time. We discount that expected amount at a time preference or time discount rate given by our taste for impatience, tempered by our taste for risk avoidance, to find its present value. Present value of the whole asset is the sum of present values of all the expected future satisfactions together. A more general case allows for transfers. The future events we foresee and discount are not always exhaust in taste satisfaction by ourselves at the time. Some might be foreseen liquidations to reinvest in other assets or to give away so that we or the donee can realize the taste satisfaction later. Either reinvestment or gift is called transfer. I call it transfer out , meaning out from the generating asset. Then transfer out reinvestment gift. (3.1) There can also be transfer in. Sometimes future realizations, in taste satisfaction or transfer out, are not explained as production by the asset as it is now. The asset might grow later by new investment from outside, and the investment in between might help explain the later yield. If an eighth-grader is destined to become a doctor, for example, her foreseen earnings as a doctor will presuppose investment in high school and college and med school in between. Chapter 3: Foundations 1 11 16 10 The expected future flow we discount to present value, allowing for transfers too, is exhaust plus transfer out less transfer in. This net difference is called cash flow. That is, cash flow exhaust transfer out transfer in. (3.2) That s the logic behind the present value rule interpreting capital as discounted cash flow. Human cash flow may not be defined in those words anywhere but in this book. But the flow discounted to find human capital is understood everywhere, I think, as pay less what Schultz called pure investment and I call invested consumption. I defended this idea in my analogy between human capital and the firm. Thus I endorse the tradition that human capital is pay less invested consumption discounted to present value. That is, human cash flow pay invested consumption. It turns out that this is not logical certitude, or an inference from axioms already given, and so it is not strictly part of the foundations. I will defend it in later chapters. The great convenience of the present value rule and its application to human capital is that it allows the factors to be added as a dollar sum. That helps in understanding the total return rule. That rule begins with the truism that growth of anything is internal creation plus flow passed in less flow passed out. That shows as growth creation flow passed out flow passed in. (3.3) Chapter 3: Foundations 1 11 16 11 Algebra now allows creation growth flow passed out flow passed in, (3.3a) since terms can change sides if they reverse signs. Economics is interested in creation and growth of value. Value in the stock sense means capital in general. Most economists most of the time use the word to mean only the physical capital we buy and sell. But the truism works for anything. I sometimes prefer the generality of value , meaning any amount of any mix of human and physical capital. This again can be called either total capital or value interchangeably. Flow of value passed out is exhaust plus transfer out, and flow passed in is transfer in. Creation of value is output in the net sense. Then (3.2) and (3.3a) give the total return rule output growth cash flow. (3.3b) Income means rights to output, and is implicitly equal to output. Like most writers in economics, I will use these words more or less interchangeably too. Now comes the centerpiece. A good starting point is the present value rule. We assemble value or total capital to satisfy foreseen tastes. But we also satisfy current tastes by spending current cash flow. At the scale of the total capital (value) of the individual, were reinvestment cancels internally, cash flow simplifies to exhaust in taste satisfaction plus gift given less gift received. Then individual cash flow net gift exhaust, (3.4) where net gift means gift given less gift received. Chapter 3: Foundations 1 11 16 12 Consider net gift. Its negative component, gift received, is concurrently added either into total capital growth or into exhaust. Thus it is the contribution to those two desiderata explained from outside, rather than by the individual s behavior. Net gift deducts that negative component (gift received) from the positive one to leave the part which the individual s behavior explains. Thus individual output, as the sum of growth and net gift, is the sum of desiderata realized by behavior. That makes it the unique behavioral maximand as a flow. Division by the individual s total capital, which is her whole means of behavior, gives total capital rate of return as the rate maximand. This can be summarized in a slightly different way. Cash flow measures the means of taste satisfaction now. Total capital growth measures gain in means of expected satisfactions, discounted according to our taste for impatience (time preference) tempered by our taste for risk aversion. Output is their sum. Behavior reveals and maximizes the taste satisfaction including provision for future satisfaction. Therefore risk-adjusted output is the flow maximand. Capital of both factors, at present value, is defined as the whole means of that satisfaction, and implicitly of behavior. Therefore risk-adjusted return, the ratio of the flow maximand to its means, is the rate maximand. What Turgot said in 1766, in his Reflections, was . . . as soon as the profits of one employment of money. . . increase or diminish, capitals turn in that direction. . . or withdraw and turn to other employments. . . Whatever the manner in which money is employed, its product cannot increase or diminish without all the other employments experiencing a proportionate increase or diminution. Turgot did not allow for risk in this quick summary, but otherwise explained the mechanics that tend to equalize return. Chapter 3: Foundations 1 11 16 13 The rule does not say that risk-adjusted return tends to hold constant over time. To the contrary. Return equals growth plus cash flow, and my charts show the growth component as a bucking bronco. The maximand rule says only that risk-adjusted return is always the maximand. It is not always the same as time changes circumstances. Proof is in Turgot s equalization of return at each moment, not from one moment to the next. That is what we see wherever we look. There is a quibble worth attention. Behavior seldom expresses taste exactly. We say one word when we mean another. We reach for the coffee, and accidentally spill it. That was the point of my axiom that predictions converge to outcomes, as well as to one another, only on average. Outcomes are generally a little better or a little worse than predicted. There can even be systematic bias where all people together seem overoptimistic or overpessimistic accordingly to circumstances, as shown in the psychological economics of Hanneman and Tversky. The axiom requires that these biases offset over scale and time. That sounds plausible, and anyhow makes analysis easier. The maximand rule would be ridiculous if terms were defined in a literal market context only. Markets must be defined as wherever any choice is made. It would be ridiculous if cash flow were understood to presuppose literal cash, or even the necessity of some quid pro quo to explain motivations. Unreciprocated gift down the generations drives lineage survival. All behavior means all behavior. The miser maximizes the growth component in return, the parent or philanthropist maximizes the net gift component, and the good-time Charlie maximizes exhaust. Have I gone too far in this claim? Try to imagine an exception. What kind of behavior might not maximize perceived risk-adjusted return? What if I jump out the window? Deliberately drive my car into a tree? Sell a cow for a handful of beans? Maximize a Chapter 3: Foundations 1 11 16 14 pile of nuclear waste in my safe instead of cash and securities? Drive a truck filled with dynamite into a crowd of unbelievers? Write a book on economics when I have no credentials? Sing when I have an atrocious voice? All express my tastes. There is no escape. Behavior reveals taste satisfaction in the broad sense including provision for future satisfactions. Tastes, Aims and Ends I usually mean the word tastes as objectives whose satisfaction exhausts capital value. By that usage, as we just saw, the truism that behavior reveals tastes must be interpreted carefully. We see current taste satisfaction at mealtimes. Between meals, we mostly see buildup of capital to satisfy tastes in future. And we sometimes are motivated to give capital away, as in raising the generation to succeed us. I sometimes use the term aims to mean the sum of this exhaust plus gift plus buildup. Then to say that output realizes growth plus cash flow is to say that it realizes aims. All behavior reveals and maximizes aims explained by ends. This again puts the maximand rule in a different way. As capital of both factors is our whole means of behavior, and as it is present value of foreseen taste satisfaction and nothing else, we might first suppose that taste satisfaction is our unique final goal. But that too could mislead. Biology shapes our tastes, and shapes them to replicate the generations. I treat the biological imperative as the ends driving tastes and aims. Our two complementary ends are adult survival and replication of both factors for survival of the young. This idea underlies next generation theory. What we maximize is risk-adjusted present value of current plus foreseen taste satisfactions by ourselves plus donees. Current taste satisfaction or exhaust by ourselves is counted at full value, and foreseen ones are added at a time discount. Transfer is part of the mechanics. The exhaust plus growth plus gift are the aims, in whatever proportion we like, and our subliminal deeper motive of lineage survival is the ends. Chapter 3: Foundations 1 11 16 15 Subjective Certitude Tautologies or truisms are logical certitudes. My three fundamental theorems are cases in point. The total return truism is a classical example. Since growth is creation less net outflow, creation is growth plus net outflow. This gives unqualified certitude to the doctrine that output, or creation of value, is growth of value plus cash flow (net outflow of value). The other two fundamental theorems are certitudes in a subjective sense. What they predict infallibly is intentions. The present value rule must give capital value as we see it individually. Only under the convergence axioms does it predict observed market equilibria. The same is true of the maximand rule. This rested on the same axioms and the one that a population acts to satisfy tastes (in the sense of aims). There are schools of thought, including Popperians and deconstructionists, which disapprove of logical certitude on grounds not clear to me. They are wrong. A rose is a rose. Nor are all examples as inane as that one from Gertrude Stein. All of math is derived as logical certitude. Its proof comes from analysis, not experiment. Proof of Fermat s last theorem eluded some of the finest minds in the world for three centuries until Andrew Wiles published the solution in 1995. Philosophy is precisely a search for hidden truisms or tautologies. Economics is philosophy when it does the same. The pay rule shows that their inferences can be startling. Age-wage profiles are technically illustration, not proof, of the proposition that human depreciation is expected to be recovered in pay. That follows from definitions and needs no evidence in proof. The pay rule is not wholly logical certitude because it also proposes that maintenance consumption is not recovered in pay. Rather I argue that from the biological imperative: maintenance is exhausted in satisfying our taste for adult survival. The fact that few can have doubted this since the physiocrats has nothing to do with proof. The shock, anyhow, is in the expected recovery of human Chapter 3: Foundations 1 11 16 16 depreciation. This opened a can worms. It contradicts the Y C I equation, and the related belief that output equals profit plus pay. I will try to track down some of the worms, as I promised, and release new ones in the process if I must. This book will continue to hunt for certitude, absolute when possible and subjective otherwise. If the convergence axioms are trustworthy, behavior will reveal aims well enough. Output Exhaust I define output as creation of value, and equivalently of capital. Does this overlook the possibility that output might also create taste-satisfying pure consumption directly, without passing through a capital phase first? Such a thing is possible in math, but not in economics. Since capital is foreseen eventual exhaust, exhaust not drawn from capital in place would be implicitly unforeseen. This is the flip side of the deadweight loss rule. Economics is a rationale of choices, and neglects unforeseen taste satisfaction as unable to influences choices. Those unforeseen and hence costless satisfactions are called free goods , and ignored as outside the economic purview. They why not ignore free growth too? Growth is roughly foreseen and factored into choices, for one thing, even if I am the first since Mill to foresee it as free. For another, even unforeseen events are of economic interest if they affect means or choices after. Free growth does. Costless satisfactions leave no trace. Note in any case that the total return truism (3.2) through (3.3b) does not depend on this inference. Those equations describe creation of value, not necessarily of capital alone. Output exhaust would be added both to output and to exhaust, and would disappear in their difference. Chapter 3: Foundations 1 11 16 17 Basic Glossary I use standard terms when I can find them, and coin new ones like aims and ends when I can t. But even standard ones are ambiguous. The vocabulary of economics is not settled. Look up capital or output or cash flow , for example, in any economic dictionary. It will show ranges of meanings, and appreciably different ones from one dictionary to the next. I coped by defining as I went along, and would have had to do the same even if this book were meant for economists only. Otherwise the ambiguities would have left loopholes. Definitions include: Aims: Capital: Cash flow: Ends: Exhaust: Flow: Human capital: Income: Invested consumption: Maximand rule: Net transfer: Intention to maximize the sum of current taste satisfactions plus gift, plus growth in means of future satisfactions and gift. Means of aims; human plus physical capital; present value of expected cash flows. Capital passed out, in transfer or exhaust, less capital inserted from outside. Rationale of aims; biological imperative. Termination of capital in taste satisfaction. Any process measured in capital per unit time. Present value of skill sets; capital whose outside operating cost is exhausted in taste satisfaction; present value of pay less invested consumption; present cost of past invested consumption less pay. Rights to output; equal to output. Transfer into value of human capital. All behavior is maximization of perceived risk-adjusted output and return as a flow and a rate respectively. Transfer out less transfer in. Chapter 3: Foundations 1 11 16 18 Output: Physical capital: Present value rule: Profit: Pure consumption: Rate: Stock: Tastes: Total return rule (or total return truism): Transfer in: Creation of wealth, or equivalently of capital of either factor. Capital whose outside operating cost does not satisfy tastes. Capital of either value is expected cash flow discounted at our time preference rate. Output of physical capital. Same as exhaust. Quantity measured as a flow over a stock, and equivalently as a pure number over time. Quantity measured in dollars alone. Same as capital. Intentions whose satisfaction terminates capital in exhaust. Output equals capital growth plus cash flow. Value inserted from outside. Same as new investment from outside. Transfer out: Wage: Work: Value passed out and recovered fully in other assets rather than exhausted. Same as pay. Output of human capital. Summary When I first thought these foundations through, maybe 25 years ago, I was just as happy to see that they held so little originality. The vocabulary is about the same as in Adam Smith, and the three fundamental theorems are well accepted. Any composer knows that originality should be incidental. Our music says what we think Chapter 3: Foundations 1 11 16 19 needs saying. If it does, that tends to mean that it is new to the current conversation. It need not be new to the world. All three fundamental theorems are part of the daily conversation of investors and finance economists. They are not much on the screens of microeconomists and macroeconomists. There may have been some originality in spelling out the implicit axioms behind them, and in generalizing them into all capital including human capital if we trust those axioms. One of the mini-surprises was that gift appeared in my very first equation. Cash flow at the scale of the total capital of the individual, where reinvestment cancels out, simplifies to gift and exhaust alone. Obvious in hindsight, but surprising if we have been taught that economics is all about numero uno. I think it is about adults giving to the young to keep the generations turning. That sets the theme of this book. Old ideas will find unfamiliar combinations and applications. Those are originality enough. But so many little stretches of the tried and true can be hard to track. Economics needs a special and counterintuitive mindset. The guiding principle is the analysis of the diamond ring. Economics means taking our minds off the physical substrate. That goes to the corners of our eyes, not the focus. Capital is not people and things. It is present value of foreseen cash flows. Output is the ripening of these foreseen flows with time, and exhaust is the harvest eventually reaped. Economics takes us through the looking glass to a place the same but different. Chapter 3: Foundations 1 11 16 20 CHAPTER 4: MILL S IDEA Mill s Paragraph It always seemed obvious to me that growth is free. Survival costs investment in the next generation, but growth costs nothing more. It seemed to me that innovation is the human specialty, that we pay its cost every day as the cost of being human, and that growth happens when genius or circumstance somehow gives it traction. I spent most of my life assuming that all economists, but not politicians, thought the same. I since learned that economists, following Solow, teach something close but different. So I guessed that I had hit on something new. I hadn t. We read economic history to learn that our ideas are seldom original. Thomas Malthus, contradicting his friend and rival David Ricardo, wrote something like my or Mill s free growth theory in 1820. Chapter 7 of his Principles 1 says this in several ways. One example is When we have attained increased and steady profits, we may then begin to accumulate, and our accumulation will then be effectual. But if, instead of saving from increased profits, we save from diminished expenditure; if, at the very time that supply of commodities compared with the demand for them, clearly admonishes us that the proportion of capital to revenue is already too great, we go on saving to add still further of our capital, all general principles concur in showing that we must of necessity be aggravating instead of alleviating our distresses. John Rae renewed this theme in 1834. Book 1, Chapter 10 of his New Principles 2 includes If an improvement, for instance, in the art of baking bread were effected, by which, with half the labor and fuel, equally good bread could be produced, it would not benefit the bakers exclusively, but would be felt equally over the whole society. The bakers would have a small additional profit, the whole society would have bread for the product of somewhat less labor, and all who 1 Principles of Political Economy Considered with a View to their Practical Applications 2 Statement of some New Principles on the Subject of Political Economy Chapter 4 Mill s Idea 1 11 16 1 consumed bread, that is, every member of society, would from the same outlay have somewhat larger returns. The whole series of instruments owned by the society would be somewhat more productive, and would be carried to an order of quicker returns. The clearest expression, and probably clearest even today, came from Mill in 1848. He put it that output growth can precede and explain capital growth as well as the reverse. Crediting Rae, he wrote: There are other cases in which the term saving, with the associations usually belonging to it, does not exactly fit the operation by which capital is increased. If it were said, for instance, that the only way to accelerate the increase of capital is by increase of saving, the idea would probably be suggested of greater abstinence, and increased privation. But it is obvious that whatever increases the productive power of labor creates an additional fund to make savings from, and enables capital to be enlarged not only without additional privation, but concurrently with an increase of personal consumption. Nevertheless, there is here an increase of saving, in the scientific sense. Though there is more consumed, there is also more spared. There is a greater excess of production over consumption. It is consistent with correctness to call this a greater saving. Though the term is not unobjectionable, there is no other which is not liable to as great objections. To consume less than is produced, is saving; and that is the process by which capital is increased; not necessarily by consuming less, absolutely. We must not allow ourselves to be so much the slaves of words, as to be unable to use the word saving in this sense, without being in danger of forgetting that to increase capital there is another way besides consuming less, namely, to produce more. The words accelerate and concurrently show that Mill understood calculus. His autobiography says that he hadn t really learned it from his father James, who had bought a book and was trying to teach himself and the 13-year old son at the same time. The son studied it in his later teens at school in France. He like me was writing for everyone, and preferred to keep explicit math off the page. But the quote reminds us that the only alternative in economics is implicit math in sentence form. The paragraph implies the Y C I equation: output equals consumption plus investment. I go a tad farther, starting one chapter ago, by offsetting my word equations from the running text. These show equal signs and plus and minus and Chapter 4 Mill s Idea 1 11 16 2 division and multiplication signs, rather than keeping them inside the paragraph and writing out such words as equals and plus . These word equations are usually easy enough to read. My appendix will cover them and more in notation. Mill s equation may be as old as economics, although I haven t found it put explicitly before Keynes wrote it in his General Theory 1936. It is now foundational to national accounts and macroeconomics (the art of balancing full employment with price stability). I showed why I agree only if we add a couple of imaginary asterisks. We have to mean total capital growth and pure consumption. Mill and tradition have meant physical capital and all consumption. That leaves me with something like the heuristic problem of Halliday and Resnick. They started with Newton as something familiar and accessible and commonsensical. I will follow suit. I will reason as if Mill s equation were right. My own argument is exactly the same if we remember the hidden asterisks. That saves us all the trouble of going through it twice. Chapter 4 will restate it in terms of total including human capital just to make sure. It is an unsettling argument either way. It unsettled Solow. Chapter 2 showed why. We are probably more comfortable to think of income as something known which we can slice into consumption and saving slices as we like. Less of one would mean that much more of the other. That would put us in charge. We can always consume less by will power. If less consumption meant more growth, we could grow at will. Keynes showed otherwise by invoking the old paradox of thrift. If everyone put money in vaults instead of consuming, consumption would go down while money piled up. But the added money would find less output to buy with it, as nothing new was created to compensate for the drop in consumption. The value of the piled-up money would vanish in inflation. Saving would equal investment in the end because both disappeared. The Y C I equation shows the math. It say that less Chapter 4 Mill s Idea 1 11 16 3 consumption C means either more investment I or less output Y. It doesn t say which happens. Investment, for Keynes, meant creation of new productive assets. He was right in seeing that as the goal. But his analysis leaves too much outside. What I miss is a variable for investment quality. Investments in new productive assets in 1929 or 2008 yielded negative return. Money in vaults did better. I prefer an approach which takes our minds off the ultimate goal in new productive assets. I drop all distinctions between saving and investment. Either word means the other. What matters is its intended and realized return. That is the missing quality variable. Notice that I don t have to specify risk-adjusted return because Keynes and I are describing only at the collective (national) scale. Risk of all investments collectively is average risk. This can be implicit whenever I describe at the collective scale. Keynes analysis and equations appear in his General Theory. He was addressing the world depression. A theme was that households do most saving, while businesses do most investing. Banks collected the saving and made it available for business to borrow and invest. But business lacked the animal spirits to take such a risk in a slump. We saw the same story after 2008. Keynes proposal was for government to do the borrowing and investing instead. That s part of the fiscal policy I described in Chapter 1. Here we tend to agree. That would explain his sense of urgency as to new productive capital as the most direct way to put idle plant and workers back to work. I prefer to suspend judgment on what is a new productive asset and what isn t. I think my way of putting things is both simpler and subtler than Keynes , although at sacrifice of his explicit focus. Saving and investment, in my language, are the same from the start. The maximand is return. Consumption foregone will translate into Chapter 4 Mill s Idea 1 11 16 4 capital growth insofar as rate of return actually realized matches the current norm. Less return makes less growth than consumption sacrificed, and more makes more. But collective return can be a surprise. Boom years and bust years arrive unforeseen. The cost of investment in consumption given up, whether individually or collectively, never agrees exactly with what it proves to be worth at market. Gunnar Myrdal, in 1939, coined the terms ex ante for the first and ex post for the second. The bucking bronco describes the ex post picture overall. Ex ante (at cost) and ex post (at market) investment agree when market-realized return holds unchanged. Lower return means that ex post outcomes fell short of ex ante cost and expectations. Higher return means the reverse. That gives the context of Mill s idea. And he clearly isn t talking about growing or declining by random luck. His prime mover is whatever increase the productive power of labor. He knew that this meant innovative ideas. Can we dial them in as we like? All he says is that they need cost nothing in consumption missed. Then how might that work? Gross and Net Investment Keynes, accepting the Y I C equation, defined saving S as gross income less consumption C. I draw the impression that he implicitly defined output as creation of economic value. So do I. He defined gross investment I as gross output less consumption. Gross in both cases meant gross of depreciation. He knew that income and output are equal, at all scales, since the first means rights to the second, and gave both the symbol Y as I do. It followed that saving and investment are also equal. The meaning was that actually realized saving, as distinct from consumption restraint in hopes of saving, had to be realized in investment. This is the home truth which I accept but prefer to rephrase. I have traced Keynes argument and language on these points because I think it is now generally accepted by Keynesian and anti-Keynesian and neo-Keynesian schools alike. That s why I think my own interpretation differs from a general Chapter 4 Mill s Idea 1 11 16 5 consensus rather than supports one school over another. I think it is the consensus view, as well as Keynes , that his attempted saving means gross saving (gross income less consumption) not invested in new productive assets. That can be written as Keynesian attempted saving transfer payments Keynesian net saving Keynesian net investment, at any scale. I accept Keynes definition of transfer payments, and I recognize the importance of his distinction of those from investment in new productive assets which put idle plant and workers to work. My interpretation, even so, is that it is better to leave them idle than to put them to work unproductively. Keynes made his opposite view crystal-clear with his brilliant tongue-in-cheek parable of money buried in mineshafts and idle workers hired to dig it up. He had a sense of theater as well as a great mind. And he just might have been right. But I think my way of putting things encompasses that possibility. His mineshaft scenario works if it somehow maximizes return in the big picture. My language differs from Keynes in several ways. I prefer Myrdal s ex ante ex post dichotomy, published three years after the General Theory, to Keynes equivalent attempted-realized one. Like Myrdal, and unlike Keynes, I apply it to investment as well as saving. That s why I treat them as synonymous. And I prefer to recognize human capital explicitly. Keynes surely understood the concept. He was the star pupil of Alfred Marshall s later teaching career, unless he shared that distinction with his lifelong personal friend and professional adversary Arthur Pigou, and Marshall and Pigou both describe human capital in principle. Marshall wrote that he neglected it as something outside what he saw as the main sequence ending with consumption. Keynes could have agreed, or could have meant to provide for it implicitly by defining output as investment plus consumption while realizing that Chapter 4 Mill s Idea 1 11 16 6 some consumption is investment in human capital. I said what I think this overlooks (self-invested work) and what it forgets to exclude (recovered human depreciation). My own way of putting things mightn t strictly need the terms investment or saving except to translate my ideas into the language we all know. That translation is essential if I hope to be understood. It will first take account of the fact that Keynes meant investment and saving as to physical capital only, with labor or human capital to arrive exogenously as an outcome somehow of consumption. That led to the Y I C equation output investment consumption. (4.1) Gross and net versions of (4.1) meant gross and net of depreciation. Thus gross output gross investment consumption (4.1a) and net output net investment consumption. (4.1b) In the General Theory, where (4.1) appears in his Chapter 6, (4.1) it means the gross version unless otherwise specified. I prefer the opposite, and mean the net version (4.1b) unless otherwise specified. My ex ante investment corresponds to Keynes intended saving through consumption restraint. My depreciation investment , or depreciation plowback , means just enough ex ante investment to offset actual depreciation, not book depreciation, of physical capital. I assume that we intuit roughly how much this is when I say that optimum ex ante investment is depreciation plowback. Now let s consider how that could be true. Chapter 4 Mill s Idea 1 11 16 7 Growth Mechanics Start with simplicity. Imagine a changeless world where people and things replicate themselves exactly. Chapter 3 showed that in total capital terms including human capital, although neither Mill nor Keynes used them, depreciation of both factors together, net of transfers from one to the other, equals exhaust in taste satisfaction. Replacement investment, or depreciation investment, is just enough to turn the generations over as new (net) output makes up the loss to consumption exactly. Ideas hold unchanged. That wouldn t be too far from the truth for our million years as homo erectus, or our millennia after as homo sapiens until some 50,000 years ago, or our centuries in the dark ages after Rome fell. Most of the new norms we innovated, although not all, eventually regressed to the old ones. Next imagine growth of everything at a constant rate. Capital, consumption and output all grow in constant proportion. Economists now call this balanced growth. Mill had described that possibility in 1844. Balanced growth isn t driven by consumption restraint, as consumption never lags. And it isn t driven by productivity gain, meaning more output per unit capital, since output grows no faster. What drives it? Suppose first that there are still no new ideas. If we are pioneers in a new world or empty niche, we might be able to increase numbers of exactly the same things and skill sets until we reach niche limits. Then what would pay for capital growth in that case? Zeno the Eleatic might insist that depreciation investment is never enough because it chases a moving target. But depreciation moves just as fast. Identical capital means identical in depreciation rates. That means the ratio of depreciation (pure consumption) to capital. The two racers hold neck and neck indefinitely. Depreciation investment is still enough, just as it was in the growthlessness before. In balanced growth, as in standing still, it is the only need for of capital replacement. Now comes a tougher problem. Niches in the real world are typically more or less full. Here old ideas alone can t bring growth. David Ricardo, Thomas Malthus and Chapter 4 Mill s Idea 1 11 16 8 Edward West had written in 1815 that in economies already developed, there isn t much room for more capital of the same kind. Its productivity disappears in capital glut and diminishing returns. There could still be growth when some of the new ideas would need only redeployment of existing kinds of capital, as in relocating production nearer to the market or cutting out the middleman. This redeployment was Solow s disembodied growth. But growth after that have to come from capital new in kind. Hourglasses might have to give place to pocket watches, or sailing ships to steamships. Those were Solow s embodied growth. The apparent problem here is that novelty is expensive. There are blind alleys and failure rates and learning curves that rote replication avoids. This is true somewhat even in disembodied growth, where redeployment is already a step into the unfamiliar. If depreciation investment is barely enough for balanced growth without new ideas, how can it also pay for the failure rates and learning curves? A tough question. And Mill was posing an even tougher one. The paragraph quoted is clearly describing capital acceleration. Capital as he describes it is not only innovating consistently as it keeps up with consumption, but picking up the pace, and still taking the innovation costs in stride. Is that too much even for Achilles? It is not. Charts and tables show that the kind of growth Mill describes has proved the only kind in every country and period where tests are practical. It has proved the only kind whether capital was growing faster or shrinking faster or anything between. The growth bronco bucks, and the consumption rider stays on. This is what clearly happens, or anyhow has happened so far, despite so many reasons to think it is impossible. What would explain it? First take the lesser puzzle. Balanced growth, where capital, output and consumption all grow at the same constant rate, must make do with depreciation investment. How can it in crowded niches where growth compels the costs of innovation? Chapter 2 showed my inference that these are the costs of being human. Chapter 4 Mill s Idea 1 11 16 9 We were paying them as homo habilis two million years ago. The cost went up, but the value of innovation just as much, when homo erectus arrived a little later. Both rose again with the emergence of Ancestral Eve 200,000 years ago. Adaptation is the human specialty. Its what gets us through the day. Innovation is adaptation that happens to become new norms. It started leaving a record of embodied growth about 50,000 years ago. That doubled pace about 400 years ago. The costs of being human are the same failure rates and learning curves whether the payoff in adaptation innovation means faster gain in good times or slower decline in bad ones. We row at a steady stroke, and gain against the shoreline when our new ideas are particularly good ones and the current is right. My idea, whether or not Mill s, is that these costs might be about the same for breakthroughs or meta-ideas or paradigm shifts as for modest upgrades, or even for holding even in a world of daily surprises. Ideas trade in an inefficient market. Cost is dissociated from value, and cause is desynchronized from effect, by the vagaries of genius and the whim of circumstance. Now the tougher puzzle. How can consumption keep up with capital even in accelerations? That s what Mill described, and that s what happens. Can Achilles catch the tortoise even when the tortoise speeds up? Put your money on Achilles. Here it is Gunnar Myradal to the rescue. The apparent problem is that ex ante depreciation investment is never enough in acceleration. But the charts and tables show unanswerably that ex post depreciation investment is. We sow the first, but reap the second. Plowback of depreciation investment is up to us. Growth is whatever is added by genius or happenstance. The difference between market value and cost is sometimes luck, which neither loses nor gains in the long run, but sometimes imagination. Mother Nature and Gunnar Myrdal simultaneously say Shazam , and convert new ideas into embodied or disembodied growth without surcharge for the novelty. Chapter 4 Mill s Idea 1 11 16 10 That still leaves the mystery only half solved. How exogenous (sourced from outside) are the genius and happenstance? Can we coax them along by policy? That isn t really my field. What seems reasonably clear is that growth flourishes in secular free markets with solid infrastructure and rule of law. How to get those things is the problem. I will suggest that the answers, whatever they are, will be developed outside the usual marginalist perspective of supply and demand. The Free Growth Equations Now back to Mill s argument. Notice first that he puts it all in the present tense. Modern growth economists have preferred what I called the lagged flows method: spikes in investment are compared to later ones in output. Mill here is substituting what I called a concurrent rates method: he compares changes in consumption rate to changes in capital growth rate at the same time. He writes that whatever increases the productive power of labor enables capital to be enlarged concurrently with an increase of personal consumption. Let s follow that. Mill s root assumption is the Y I C equation in its net form (4.1b). Put the ex post version as output growth consumption, (4.2) meaning net output, growth of physical capital and all consumption. The Y rule says the same with the hidden asterisks after growth and consumption. So it will continue for the rest of this discussion. (4.2) shows that less consumption implies more growth, or less output, or some of both. Mill was asking which. To show how to find out, first arrange (4.2) as growth output consumption, (4.2a) again because terms can change sides if they change signs. Chapter 4 Mill s Idea 1 11 16 11 Mill and Keynes and tradition hold (4.2) and (4.2a) as logical certitudes which hold constant over time. I agree if we imagine the asterisks. Constancy over time would imply change in growth change in output change in consumption. (4.3) I take the trouble to derive this as a road I haven t preferred to follow. I will reason instead in rates rather than flows. Rates, or ratios of flows to capital, effectively cancel capital from numerator and denominator. That frees them to show comparison between smaller and larger economies among the eight I test. Mill s idea, or anyhow mine, is that the ratio of consumption to capital in all those countries can hold constant. That is what the charts and tables show. To follow that lead, divide (4.2a) by capital. This finds growth capital output capital consumption . (4.4) capital That can be put more compactly as growth rate capital productivity consumption rate, (4.4a) where rate always means ratio to capital. That needs a caveat because consumption rate in macro means ratio to output. Capital productivity in this sense is also called rate of return. For more compactness still, define thrift rate consumption rate, allowing (4.4a) to be restated as Chapter 4 Mill s Idea 1 11 16 12 growth rate capital productivity thrift rate. (4.4b) Notice that we must change the sign before consumption rate to find thrift. Change downward in consumption rate is change upward in thrift rate, and conversely. Further change in growth rate change in capital productivity change in consumption rate, (4.5) by the same logic as with (4.3). Save space again by reexpressing (4.5) as acceleration productivity gain thrift gain. (4.5a) Finally divide by acceleration to reach 1 productivity gain acceleration thrift gain acceleration , (4.6) if acceleration is nonzero. Reexpress as 1 free growth index thrift index, (4.6a) where indexes are undefined if acceleration is zero. I think this gets at what Mill meant, and anyhow what I mean. We both describe acceleration as well as growth. One night think that his whatever increases the productive power of labor is the opposite from my change in capital productivity. But they are about the same. Better machines make their operators more productive whether skills have changed or not. Chapter 4 Mill s Idea 1 11 16 13 (4.5) shows something about balance or the state where capital, consumption and output grow at the same rate. It confirms the standard teaching that balance is possible, although not compelled, when growth rate is constant. It also shows that balance is impossible when growth rate changes. No one disputes that capital productivity (output capital) always leads, and consumption rate (consumption capital) always lags, in accelerations up and down. Output gets the bad news first and the good news first. What the equations leave unspecified is where capital itself joins the sequence. That is what the evidence in the charts and tables tells us. In the case where the free growth index equals one, for example, the above equations show thrift index thrift gain acceleration 0, implying change in consumption rate thrift gain change in growth rate 0, and change in consumption rate 0, or equivalently consumption rate consumption capital constant, (4.7) if acceleration is non-zero. (The reason for that qualifier is that zero acceleration means zero change in growth rate, and division by zero is a no-no.) In the opposite case where the thrift index is one, the same equations would show free growth index productivity gain acceleration changein productivty rate change in growth rate 0, Chapter 4 Mill s Idea 1 11 16 14 implying productivity rate output capital constant, (4.7a) assuming again that acceleration is nonzero. This shows how to find the position of capital in the sequence led by output, and how to test between free growth and thrift theories. The market-valued capital denominator in (4.7) and (4.7a), and the consumption numerator in (4.7), can be taken directly from national accounts data collected at the Piketty-Zucman website. The output numerator in (4.7a) can be constructed as consumption plus current change in market-valued capital. By (4.7), free growth theory (Mill s idea) predicts a roughly constant consumption capital ratio, even in accelerations and decelerations and reversals. Then capital acceleration would lag alongside consumption acceleration while output led alone. Thrift theory makes the opposite prediction of a roughly constant output capital ratio, so that output and capital would lead together while consumption lagged alone. There is no need to measure and test both indexes, as either is defined as one less the other. My charts and tables track the free growth index. They confirm free growth theory in all countries and periods. Defining Free Growth and Thrift (4.2) through (4.7a) defined the free growth and thrift indexes, but not free growth or thrift themselves as flows. Since I will use those terms often, I d better clear that up now. Define free acceleration productivity gain gain in rate of return, thrift acceleration thrift gain drop in cash flow rate, and so that those sets of terms become interchangeable. Then (4.5a) can be put as Chapter 4 Mill s Idea 1 11 16 15 acceleration free acceleration thrift acceleration. (4.5b) Rates are flows divided by capital expressing them. Then define the two flows as free growth capital free acceleration, and (4.8) thrift capital thrift acceleration, giving (4.9) growth free growth thrift. (4.10) These equations apply equally in continuous or discrete-period time. In the latter, they leave the periods of acceleration and growth unspecified. Marginal or current free growth, as with the speed of a car, is the sum of free accelerations since some past origin when growth was zero. So it is with current thrift. That need not place the origin with Ancestral Eve. Surprising as it might seem in the growth age, zero points appear to recur every few minutes at the longest. Online stock index numbers reverse direction at least that often. They pass through zero each time. Debt claims on the corporate sector figure to be less volatile, but equity (stock) ones outweigh them. Then marginal free growth means accumulated free acceleration, or rise in rate of return, since the last zero growth point no more than a few minutes ago when return and cash flow were equal. Growth is free whenever cash flow rate rises or holds steady. The Charts and Tables Mill lacked data to test whether growth tends to lead with output when it changes, or to lag with consumption, or something else. So did all economists until national accounts began reporting market-valued capital in 1990 or so, and reconstructing it backward over a few decades before. The equations through (4.7) show how to test from data in the Piketty-Zucman and Global Financial Data websites. First I downloaded the Piketty-Zucman data for market-valued capital and consumption for all countries and periods. I chose their private wealth data for the Chapter 4 Mill s Idea 1 11 16 16 former. I neglected government wealth net of national debt, which is small and often negative, as I don t feel that I understand it well enough. I took consumption as the sum of personal consumption expenditure (PCE) and government consumption expenditure (GCE). I also downloaded real stock market rates of growth, dividends and return from the Global Financial Data website for the same years and countries. Yearly change in capital in each country gave each year s capital growth as a flow. I added this to consumption to give what I call market-valued output. I said earlier that Piketty and Zucman should logically have done the same. This gave the values for (4.1) and (4.1a). I then divided by year-end capital to give values for (4.3). I next found annual changes in those three to give acceleration, productivity gain and thrift gain as shown in (4.5) and (4.5a), and divided by acceleration to find the two indexes of (4.6) and (4.6a). The test from Global Financial Data took fewer steps. Stock market growth rate, rate of return and dividend rate were downloaded directly. I took them as corresponding respectively to growth rate, capital productivity and consumption rate in (3.3a). I found their annual changes to find values for (3.4a), and again divided by acceleration to reach (3.5a). This allows tests of Mill s idea from national accounts data for all eight nations reported at the Piketty-Zucman website, and over their entire reporting periods through 2010. (The website also reports for Spain, but only since 1993 and without data for consumption.) In each year, for each country, change in capital growth rate is compared to change in consumption rate (consumption capital). If consumption rate grows faster than capital growth rate while both grow, or declines faster if both decline, the free growth index in that year is greater than one. If they change at the same rate in the same direction it is one exactly. If both change in the same direction, but consumption changes less, the free growth index is between zero and one. If Chapter 4 Mill s Idea 1 11 16 17 either grows while the other declines, the index is zero or less; zero if one grew as much as the other declined, and less if the change in capital growth rate was larger than the opposite one in consumption rate. Interpreting the Charts and Tables Now look again at the charts captioned free growth index in the appendix. I will summarize them and all other charts and tables only briefly here, and save most description for there. They cover all eight countries. Each chart covering free growth tracks three separate versions of the free growth index labeled ! (K), ! (K T ) and ! (SM). The one I have discussed so far is ! (K). ! (K ) is a version including human T capital, and ! (SM)is taken from stock markets only. will be explained in the ! (K ) T next chapter. The powerful spikes both up and down in the free growth charts were described in Chapter 2. Spikes tend to be explained by the fact that acceleration, the denominator in both the free growth and the thrift index, is occasionally close to zero. Near-zero denominators, whether above zero or below, can magnify mismeasurements. Some charts report the free growth index every year, and show all the spikes. Others filter out years where denominators fall below a chosen threshold, and spikes disappear accordingly. Filtration is unbiased in that free growth index is corrected down as often as up. What jumps out from all those charts is that all versions of the free growth index fluctuate around one. That means that the unshown thrift index fluctuates around zero. We just saw that the thrift index will show as negative whenever the thrift numerator and acceleration denominator disagree in sign, meaning that thrift gain coincided with deceleration (negative acceleration) or conversely. Charts and tables show that thrift gain, meaning drop in consumption rate, coincides as often with a lower as a higher capital growth rate. Growth by thrift is a theoretical possibility Chapter 4 Mill s Idea 1 11 16 18 which doesn t actually happen. The means of growth Mill describes in the paragraph quoted is the only kind that appears in the record. Evidence from Stock Markets Market-valued capital, reported in national accounts since 1990 or so and assembled at the convenient Piketty-Zucman website, is measured by a common standard in principle. Measurement begins with stock markets. It should. The stock market is the most exact source of economic information that I know. With due reservations about connivance and stale prices, meaning outdated prices from earlier days because the stock has not traded since, or anyhow not enough for confidence, we know pretty well what markets think stocks are worth from tick to tick. We would know better if markets were perfectly efficient. Proof that they aren t shows in medium-term autocorrelation or trend. Autocorrelation (in price) is tendency for markets to be up tomorrow if up today, and down if down. Trend is a shorter word for the same. Perfect efficiency ought to show a random walk where prices change captures all current news, news captures reality without optimistic or pessimistic bias, and tomorrow s price direction is as unpredictable as tomorrow s news. The only exception should be long-term uptrend with productivity gain through innovation. In this case it is not surprise in the news that brings growth, but gradual gain in present value as a foreseen better future is less discounted as it draws nearer. There is chicanery as well as inefficiency. Insiders, braving the legal risks, may take advantage of outsiders. But it is not clear to me that insiders are likelier to be sellers than buyers. National accounts follow prices of publicly traded shares collectively, where some chicaneries should offset others. Allowing for all this, I think national accounts are wise to accept stock prices as the best measure of underlying assets. Intangibles such as patents or market advantages Chapter 4 Mill s Idea 1 11 16 19 are factored into share prices because they are realities that would be valued as such by bidders for the assets themselves. It is a mistake, I think, to suppose that shares prices would be less volatile if more descriptive of real value underneath. The existence of trends suggests the opposite. Trends would be expected from systematic underreaction to the news, so that reaction catches up later, while systematic overreaction ought to be followed by adjustment in the opposite direction. This gradual rather than immediate digestion of the news would tend to smooth out price response. Trends imply systematic underreaction, not overreaction. Market evidence shows something near that random walk as a usual rule, implying neither systematic overreaction nor systematic underreaction, but with some episodes of the latter. What would the reason be? My first guess would be something delaying the mechanics of price reaction when news is particularly surprising. Our sense of where prices should go right now seems not to get them there until later. Prefect reaction to perfect news ought to mean more price volatility, not less, from day to day. Stocks are more volatile then most assets because most are leveraged. Firms may issue bonds, and may borrow shorter-term from banks. Fixed interest on those debt claims is paid first. Shareholders get the rest of net output, which itself fluctuates around expected norms and is sometimes negative. If a firm s net profit (net output) is one million dollars one year, and one dollar higher the next, net profit will have varied only one ten thousandth of a percent. But if interest payments take up the same million dollars per year, every year, profit left for shareholders will have grown from nothing to one dollar. Its growth rate will have been effectively infinite. If the firm earns two dollars less the year after, it will have to invade capital to pay the interest, and owners take a one-dollar loss. Again the difference is trivial percentage-wise to net profit, but diametric to equity investors. The more fixed debt, the more surprise and volatility in whatever is left for shareholders. The ratio of debt to that remainder, called equity, is the leverage meant. Stock in this security sense means the same as shares or equity. Chapter 4 Mill s Idea 1 11 16 20 Now I ll try to pull this together. Stock prices collectively, meaning all shares at current prices, is called market cap. (Cap is capitalization.) Market cap does not measure the whole underlying value of the issuers, meaning firms that issued the stock, since there are debt claims that must be paid off first. It measures the equity residue. It measures that imperfectly because some inefficiency and chicanery are here to stay. It is more volatile than the debt claims because it is leveraged, but probably less volatile, given the observed reality of trends showing smoothed-out reaction of share prices to news over time, than what would be bid for the underlying assets, including intangibles, subject to the same debt claims that must be paid off first. National accounts measure market-valued (physical) capital by beginning with market cap. They then add the market value of debt claims on the same issuers, along with equity and debt claims on the rest of the business sector, and then the same for the housing sector. The sum is private wealth. Consumer durables such as cars and refrigerators are excluded as impractical to price. Government wealth net of national wealth is tracked separately, and tends to show as slight or negative. Finding the Free Growth Index for Stock Markets My concern in this chapter is the stock market as a data source for testing free growth theory. Here (4.2) would read total return in place of (net) output, while growth would be in market cap. Consumption in (4.2) would become dividend yield in the sense net of capital concurrently raised in new stock issues. The Global Financial Data website summarizes the history of world stock markets from inception in about 1700 for U.K., about 1800 in U.S., and later elsewhere. A nice feature of this data source, and most other sources for stock and security performance, is that market values are shown from the start. This left no need to correct for the inevitable lags in depreciation accounting, which gets the news only in purchases or sales. Chapter 4 Mill s Idea 1 11 16 21 Global Financial Data reports annual rate of return, growth rate in market cap, and imputed dividend rate as the difference. Dividend rate itself is reported as something a little different. I made no attempt to get to the bottom of this distinction, just as I made none to allow for editorial bias in the Piketty-Zucman website. I chose the imputed version for logical consistency. This direct information obviates the chain of reasoning from (4.2) to (4.5), and allows me to jump to the latter. Productivity gain in (4.5) is simply annual change in reported rate of return. Acceleration is annual change in reported market cap growth rate. (4.6a) defines the free growth index as their ratio. ! (SM), the green line, tracks it in the charts. It too fluctuates around the number one. Gains in dividend rate have coincided as often with gains in market cap growth rate as with drops. This seems only to expound what everyone knows. Of course firms are likelier to raise dividends in years of growth, and cut them in years of decline. I never claimed that free growth theory does more than state the obvious. What is made obvious by the data is that a change in total return is the prime mover enabling market cap and dividend rate to accelerate or decelerate as a pair. What is made obviously wrong would be a thrift theory casting dividend restraint as the prime mover. Were that so, market cap acceleration would coincide with lower rather than higher dividend rates. This pretty much completes my evidence for free growth theory. I have not found other promising data sources. One is tantalizingly close to hand. There is not much reason why corporate bond history is less transparent to the world than corporate stock history. A qualified expert might reconstruct market caps of both, side by side, to show a picture of the whole corporate sector. Surely I am not the only person who would take interest. What is the history of leverage, and of total return, and its growth and yield components, to debt and equity claims cap-weighted together? Chapter 4 Mill s Idea 1 11 16 22 It would be nice to test from such a dataset, again starting from (4.6), to see if free growth theory holds again. Who knows? Meanwhile, I think, the case is closed. All growth at very large scales is free until proved otherwise. Where Does Opinion Stand Now? What should we make of this evidence for free growth in national accounts and stock market data? Lawmakers would probably demand a recount or an investigation. Tax laws discourage consumption and dividends to encourage growth. Yet data show that lower consumption rate coincides as often with lower as higher capital growth rate for eight nations over four to fourteen decades. They will show the same for dividends when we come to that. Economists would be less surprised. Solow has prepared them for the news. In 1956 and 1957 he showed evidence that most growth is not explained by capital accumulation, or saving through consumption restraint. His Nobel prize acceptance speech in 1988 includes: In the beginning, I was quite surprised at the relatively minor part the model ascribed to capital formation. Even when this was confirmed by Denison and others, the result seemed contrary to common sense. The fact that the steady-state rate of growth is independent of the investment quota was easy to understand; it only required thinking through the theory. It was harder to feel comfortable with the conclusion that even in the shorter run increased investment would do very little for transitory growth. The transition to a higher equilibrium growth path seemed to offer very little leverage for policy aimed at promoting investment. The formal model omitted one mechanism whose absence would clearly bias the predictions against investment. That is what I called embodiment, the fact that much technological progress, maybe most of it, could find its way into actual production only with the use of new and different capital equipment. Therefore the effectiveness of innovation in increasing output would be paced by the rate of gross Chapter 4 Mill s Idea 1 11 16 23 investment. A policy to increase investment would thus lead not only to higher capital intensity, which might not matter much, but also a faster transfer of new technology into actual production, which would. Steady-state growth would not be affected, but intermediate-run transitions would, and those should be observable. That idea seemed to correspond to common sense, and it still does. By 1958 I was able to produce a model that allowed for the embodiment effect. If common sense was right, the embodiment model should have fit the facts better than the earlier one. But it did not. Dension (1985) , whose judgment I respect, came to the conclusion that there was no explanatory value in the embodiment idea. I do not know if that find should be described as a paradox, but it was at least a puzzle. Edward Denison was another leading growth economist Solow consulted. Remember that Solow had defined disembodied growth to mean better use of existing assets, as when ships carrying coal to Newcastle are inspired to reverse the business plan. It is easy to see how disembodied growth could come more or less for free. But Solow puzzled how embodied growth, which needs new and different capital equipment, could arrive without a policy to increase investment. It can for the same reason that Achilles can overtake the tortoise. Solow s problem, I think, may have been that new and different capital equipment stands to embodied novelty as a new and different chicken laying a new and different egg. We can see how the different capital might come first through saving from consumption deferment. And it seems clear that the embodied novelty could not. But one of the beauties of calculus is that it allows chicken and egg to evolve simultaneously. Neither novelty precedes the other at the instant of first embodiment. This time it is Newton and Leibnitz to the rescue, along with the trusty Gunnar Myrdal, if I guess right about Solow s misgivings. Since he understands calculus and Myrdal far better than I do, I may guess wrong. So let me try another way. It seems to me that embodied growth is still disembodied growth at a finer and more basic Chapter 4 Mill s Idea 1 11 16 24 scale. Instead of redeploying finished goods, we recombine raw materials. We aren t creating something from nothing. And growth is not so free that it needs no cost at all. It still needs depreciation plowback. Net investment would mean any in addition. The charts and tables, as I read them, show a steady stroke of deprecation plowback paying for all innovation, embodied or disembodied, that copes as best it can with good times or bad. The steady stroke metaphor, showing how cost (the steady stroke) and growth (against the shoreline) could be desynchronized, explains the possibility of free growth. It does not explain why the record shows no other kind. My best guess as an explanation would look to biology. The biological imperative shapes our tastes and behaviors for lineage survival in some sense of family or population or species. Other species crowd their niches. They cannot gain by consumption restraint for the two excellent reasons that there is no consumption to spare and no niche space if there were. Ricardo, Malthus and West all warned against rote replication in economies already developed. We must create means to make more from less. I suspect that we are up against that wall more or less continually. Innovation pushes the wall back when genius and happenstance are at their It costs the same either way. Consumption sacrifice is sacrifice to gods who work their will heedless of it. My implication that we have no consumption to spare could mislead. Rather we have none safe to spend. All creatures hold back reserves against adversity. Economies usually carry more capital, producing more consumption, than they need for now. It is a rainy day fund to be drawn down in lean times and built back in plush ones. Many nations invaded capital to keep up consumption during the world wars and world depression between, and reversed course since. But we would be fools to spend it for return over time when the next crisis might come tomorrow. Chapter 4 Mill s Idea 1 11 16 25 What exactly do I picture as this capital reserve? Is it vodka distilleries that might be converted to orange juice plants in a pinch? I don t really know. Human capital itself is versatile. Some retirees could unretire, and vodka plant workers might convert with not much retraining. I will explore some of this idea later. Harrod s Knife Edge Solow s neoclassical growth model developed from ideas published a decade earlier by Roy Harrod. Harrod had described a warranted growth path given by the pace of technological innovation. He reasoned correctly that any effort to push investment faster must soon founder in the diminishing returns foreseen by Malthus, Ricardo and West in 1815. But how could we get investment exactly right? There was a critical knife edge with little margin for error. He was right to stress the dangers of overinvestment. I do the same. But free growth theory, and the overwhelming evidence that it is right, bring a new perspective. What Solow and other economists teach today , judging from the textbooks I read, is more or less Harrod without the knife edge. We are taught to figure out the warranted growth path, meaning the rate of technological growth, and then invest just enough, ex ante, to exceed depreciation by that margin. But my charts and tables show that any investment beyond depreciation recovery is deadweight loss. There is no need to know the warranted growth path because optimum investment is not a function of whatever it might be. Depreciation investment captures the whole of technological growth, and further investment adds no more. It is money left on the table. Optimum ex ante investment, at the collective scale, is depreciation investment. Ex post results will reveal the warranted growth path. What about Underinvestment? One indication in the charts and tables might leave us puzzled. It is easy to understand the futility of ex ante investment (consumption restraint) beyond Chapter 4 Mill s Idea 1 11 16 26 depreciation plowback in light of the diminishing returns described by Ricardo, Malthus and West two centuries ago. We might crowd our niche, like other creatures, and leave neither consumption safe to spare nor room for capital accumulation before diminishing returns set in. But too little investment could seem a tougher challenge. No thrift at all, meaning not even depreciation plowback, would mean no growth at all. Then consumption rate would vary inversely as capital acceleration, just as predicted in in thrift theory. And underinvestment, meaning plowback of less than current cost depreciation, ought to happen about as often as overinvestment. If each year of underinvestment tended to fit the predictions of thrift theory even a little, free growth indexes should average something less than one in the end. But they don t. The index varies, but averages more than one as often as less in every country and period. The explanation I suggest is already implied in that insight of two centuries ago. Just as overinvestment and capital glut diminish returns, underinvestment and capital shortage augment them until supply of capital catches up to demand. Even if there were no plowback at all in some years, higher returns to capital already in place would help take up the slack. There would be real danger in sustained underinvestment or overinvestment. The saving grace is in market forces restoring equilibrium as investors maximize return. Summary This gives the outline of free growth theory. It is my best speculation on how to make sense of the charts and tables. It follows Mill more or less exactly, and risks the next step in the bold new direction pointed by Solow. My prize exhibits are the charts and tables. Better this book should show them alone, with an explanation of my testing equations and the data sources, than all the rest without them. They could hardly support free growth theory better than if Mill and I had rigged them. The consequences are huge. We must get rid of the corporate double tax ASAP, and raise the corporate tax rate enough to make the overall Chapter 4 Mill s Idea 1 11 16 27 adjustment revenue-neutral. That should help get both parties on board. We must tax capital gains at the same rate as ordinary income. Dividend rates should revert to the 4 - 6 range typical over the centuries before the pro-investment policies put in place after World War II. We must do whatever we can to level the consumption-investment playing field. Obvious qualifiers are worth spelling out. (4.1) and all consequences are meant to describe at the collective scale, where growth cannot be explained by transfer. Free growth theory assumes depreciation investment, not zero investment. My charts and tables will never be exact. There are inevitably errors and judgment biases in the national accounts and research assembled by Piketty and Zucman, more added by them, and more by me. These cautions will apply to later chapters as well. Chapter 4 Mill s Idea 1 11 16 28 CHAPTER 5: BRINGING HUMAN CAPITAL IN Human capital is labor measured as a dollar sum rather than as so much per hour or year. It treats pay less invested consumption as our cash flow, and finds our present value (to ourselves) as expected lifetime cash flow discounted by our own time preference rates, meaning what we would charge for delay. Measurement in this way usually finds it as something near three fourths of all capital. Physical capital, much better understood because it can be bought and sold as well as hired, is only the visible tip of the iceberg. The term human capital itself is touchy because it can suggest that life has a price. Irving Fisher used it in quotation marks in 1898 1 , attributing it to earlier sources I haven t found, but not in his two great books on the topic in 1906 2 and 1907 3 . Wikipedia is mistaken in attributing the term to Arthur Pigou a generation later. History of the Idea The concept began with Petty in 1664 4 . He estimated the aggregate pay of English workers, and divided by the discount rate he had modeled in A Treatise of Taxes two years earlier. I have not read Verbum Sapienti, but have read two of his later versions of the same argument 5 . Petty s method was criticized by William Farr in 1854 6 , also in a paper I haven t read, for neglecting what I call invested consumption. Farr, if I read the right description of his argument, was both right and wrong. Petty was modeling human capital of aggregate workers. These were mostly adults, who no longer receive invested consumption if my model is right. That makes his method sound in principle for measuring adult human capital separately. It follows that he underestimated the human capital of England, rather than overestimating it as Farr claimed, by leaving 1 The Nature of Capital. 2 The Nature of Capital and Income. 3 The Rate of Interest. 4 Verbum Sapienti. 5 Political Arithmetic (1676) and A Gross Estimate of the Wealth of England (1685). 6 Vital Statistics. Chapter 5 Bringing Human Capital In 1 13 16 1 out the human capital of children. But Farr deserves credit for pointing out that human capital in general capitalizes pay less invested consumption. Keynes teacher Alfred Marshall agreed with Farr in 1990 7 . As I read this passage, Marshall interpreted maintenance consumption as investment. So did B. F. Kiker 8 in 1968. I interpret it as exhaust in taste satisfaction enabling energy to earn pay concurrently, while preserving but not increasing pay expectations in future. Invested consumption would mean addition to human capital concurrently for expected realization with interest in higher pay later. Meanwhile economists had developed the complementary idea of human capital as present cost of investment accumulated before. Adam Smith 9 in 1776 wrote The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. The conversion of some consumption into human capital was a favorite theme of Frank Knight a generation before Schultz. Only the rest is what Schultz called pure consumption eliminated from the economy in satisfying tastes. Becker added in 1964 that this investment must be expected to be recovered with interest, at least when paid by employers in job training. Schultz had also pointed out that human capital depreciates, and invests some work in itself in the effort of learning to complement the exterior investment of nurture and schooling. Ben-Porath, expressing a Schultz-led consensus, added in 1967 that human capital growth is invested consumption (the nurture and schooling) plus self-invested work less human depreciation. All these ideas are now accepted everywhere in human capital studies. 7 Principles of Economics. 8 A History of Human Capital. I learned of Farr from Kiker. 9 The Wealth of Nations. Chapter 5 Bringing Human Capital In 1 13 16 2 Jacob Mincer seems to have been first in print with the post-war revival of interest in human capital, in his 1958 paper 10 rederiving Irving Fisher s present value equation and stressing job training. Schultz impresses me as the main idea man among these post-war contributors. He usually avoided math, unlike the others, and is probably the best source for quotes in plain English. His paper Investment in Human Capital, published in 1961, includes: Much of what we call consumption constitutes investment in human capital. Direct expenditures on education, health and internal migration to take advantage of better job opportunities are clear examples. Earnings foregone by mature students attending school and by workers acquiring on-the-job training are equally clear examples. This use of leisure time to improve skills and knowledge is widespread I shall contend that such investment in human capital accounts for most of the impressive rise in the real earnings per worker Measured by what labor contributes to output, the productive capacity of human beings is now vastly larger than all other forms of wealth taken together the curve relating income to age trends to be steeper for skilled than for unskilled persons. Investment in on-the-job training seems a likely explanation We can think of three classes of expenditures: expenditures that satisfy human preferences and in no way enhance the capabilities under discussion these represent pure consumption; expenditures that enhance capabilities and do not satisfy any preference underlying consumption these represent pure investment; and expenditures that are partly consumption and partly investment, In 1962 11 he added: the investment in human capital can conveniently be classified in (1) nurture and higher education, (2) postschool training and learning, (3) preschool learning activities, (4) migration, (5) health, (6) information, and (7) investment in children (population) 10 Investment in Human Capital and Personal Income Distribution 11 Human Capital: Policy Issues and Research Opportunities Chapter 5 Bringing Human Capital In 1 13 16 3 But unlike the wonderful one-hoss shay, the productive life of educational capital typically does not go to pieces all at once. It depreciates along the way, it becomes obsolete, it is altered by changes in retirement and by the state of employment As already noted, educational capital, like reproducible physical capital, is subject to depreciation and obsolescence. The established tax treatment takes account of both depreciation and obsolescence in the case of physical capital, but this accounting is not extended to education capital In brief, our tax laws appear to be all but blind to the fact that educational capital entrails maintenance and depreciation, becomes obsolete, and disappears at death These excerpts clearly show Shultz meanings of pure and invested consumption, and of human deprecation. He says pure investment in place of my invested consumption , but I prefer to follow tradition by applying invested to physical capital alone. We also see his belief, with which I disagree, that substantial invested consumption continues after independence and physical maturity. For example, he writes Direct expenditures on health and internal migration are clear examples. I interpret these outlays, when applied to adult workers, as maintenance consumption preserving rather than adding skills, and enabling current pay rather than invested for higher pay later. I agree that self-invested work to improve skills and knowledge accounts for most of the impressive rise in the real earnings per worker . But I don t share Schultz view that the use of leisure time accounts for much of this improvement. My years in plants and oilfields and offices have given me an impression of some study by workers during leisure time, but mostly passive accumulation of experience and insight while fully at work on the job. Practical Uses One obvious use of the human capital idea is to compare the factors (human and tradeable capital) in the same dimension. Capital and labor cannot be added, as Petty knew, since capital is measured in dollars where labor is measured in dollars Chapter 5 Bringing Human Capital In 1 13 16 4 per unit time. But Petty showed that the idea of human capital as discounted cash flow measured in a money sum allows the factors to be summed together. The revival of interest at the Chicago school soon introduced the term physical capital for land and man-made things that can be bought and sold, and total capital for the sum. Physical capital is a misnomer in that we are physical too. But I have used it throughout so that economists can follow me and general readers can pick up some of their language. From the Y C I Equation to the Y Rule Chapter 2 summarized my argument adjusting the Y C I equation to the Y rule. Chapter 4 spelled out the former in (4.1). The Y rule made the hidden asterisks of the Y C I equation explicit. I said in both chapters that the free growth equations are the same for both when we allow for the asterisks. Let s go through the derivation of the Y rule again. (4.1) shows output investment consumption. I generally mean the version of this where ex post net is understood before both output and investment . I said that this idea is implicit in the Mill quote, and is probably as old as economics. Net output, here or anywhere, means creation of value. Then the equation would be guaranteed by the truism, at the collective scale, if net investment meant growth of all value existing, meaning total capital, while consumption meant elimination from total capital collectively and nothing else. But net ex post investment as meant throughout this book, and anywhere in macro, means growth in physical capital alone. Consumption includes Schultz invested consumption transferred into human capital as well as his pure consumption eliminated from total capital as a whole. What the truism guarantees is rather output total growth pure consumption, (5.1) Chapter 5 Bringing Human Capital In 1 13 16 5 at the collective scale and where ex post net is again understood before output. (5.1), but not (4.1), guarantees that terms are mutually exclusive and exhaustive. Total growth means this ex post net investment (growth of physical capital) plus growth of human capital. The latter would have puzzled us before the contribution of Ben-Porath. Equation (4) in his 1967 paper, summarizing the first three, shows human growth invested consumption self-invested work human depreciation, (5.2) using my terms rather than his. Chapter 6 will argue that this equation needs to be clarified. I gave a preview in Chapter 2, and will update it now. Work is the output of human capital. Output is not always positive. It is negative whenever growth and cash flow sum to less than zero. A negative sum of these two shows unrecovered decapitalition (also called deadweight loss). That would include unrecovered human depreciation. If (5.2) meant all including negative self-invested work less all including unrecovered human depreciation, it would subtract unrecovered human depreciation twice. Then it must be corrected either to human growth invested consumption positive self-invested work human depreciation, (5.3) or equivalently human growth invested consumption self-invested work recovered human depreciation. (5.3a) It is clear that Ben-Porath meant (5.3), as other evidence shows that he treated human depreciation as unrecovered. So does all tradition, mistakenly I believe, with Chapter 5 Bringing Human Capital In 1 13 16 6 the partial exception of Becker. I will generally prefer (5.3a), although the two are identical in meaning. Schultz analysis of consumption found consumption invested consumption pure consumption. (5.4) This plus (5.1) and (5.3a) combine for output total growth pure consumption investment human growth pure consumption investment invested consumption self-invested work recovered human depreciation pure consumption investment invested consumption self-invested work recovered human depreciation consumption invested consumption investment consumption self-invested work recovered human depreciation. (5.5) Ex post net , as always, should be understood before both output and investment . Chapter 6 will revisit this logic once again, and add a second way to the same conclusion. The Growth Equation Under the Y Rule (5.1) can be arranged as total growth output pure consumption, (5.1a) as a counterpart to (4.1a). Total growth means growth in total capital. My argument continues as in Chapter 4. Since (4.2) was a blind alley, skip to (4.3). That now becomes Chapter 5 Bringing Human Capital In 1 13 16 7 total growth total capital output total capital pureconsumption , (5.6) total capital which can be written as total growth rate total capital productivity pure consumption rate, (5.6a) as with (4.3a). Since (5.6a) is always true, and not only under occasional circumstances, we also get change in total growth rate change in total capital productivity change in pure consumption rate. (5.7) This parallels the logic of (4.4). Again save space by reexpressing this as total acceleration total productivity total thrift, (5.7a) where total means of total capital . Now divide by total acceleration to reach the counterparts of (4.5) and (4.5a). I will sometimes save space, from now on, by expressing these arguments in the equations of Chapter 4, as for example in leaving the words total and pure implicit if the context shows that I mean them. The Slave Paradox Say that Phil enslaves Bill. Bill s maintenance consumption had been taste-satisfying pure consumption to Bill when Bill was free, and so was not deducted from his pay to find his gross realized output as valued by himself. But Bill s maintenance consumption satisfies no tastes of Phil. Cash flow is gross realized output less plowback from revenue less new investment from outside, for either factor, while Chapter 5 Bringing Human Capital In 1 13 16 8 net output is gross realized output less depreciation plus proprietary output. Both drop by the amount of Bill s maintenance consumption on Phil s books as a slaveowner. So then does Bill s present value of that cash flow. This noir thought experiment is worth thinking through. It shows that even if slavery were legal and common, its market evidence would neither show the value of human capital nor refute the fact that human capital is inalienable. It is inalienable for the reason, if none other, that our maintenance consumption satisfies no one else s tastes. Phil did not acquire Bill s human capital. He converted it to livestock worth much less. Another useful point is that assets in general tend to be worth more to their owners. This does not contradict the convergence axioms. We buy or build to taste. That difference is particularly important as to assets not meant to be traded, such as productive plant. I suspect that this is what the national accounts missed in adjusting depreciation. Maintenance Learning Ben-Porath argued, persuasively I believe, that both kinds of investment in human capital must end when not enough time remains for recovery with interest. Those two are invested consumption, including schooling, and self-invested work. I propose that invested consumption substantially ends at maturity and independence. Self-invested work of learning continues long after, as there remains no other adequate explanation of age-wage profiles. When does it stop? Learning itself continues to the end. Yet if Ben-Porath is right, and he is, selfinvested learning stops well before. What continues, I think, is what I call maintenance learning . It is defined as learning to keep up pay now rather than to enhance pay later. At all ages, we must learn the names and traits of new clients and co-workers and suppliers and regulations continually to do what we are paid for. Chapter 5 Bringing Human Capital In 1 13 16 9 This observation helps clarify my hypothesis that job learning costs no time that might otherwise have been spent earning pay. My deeper meaning is that invested learning and maintenance learning are the same process costing the same time but with different economic effect, much as with invested and maintenance consumption. Evidence that hourly if not yearly pay rises until retirement, or very near, would refute Ben-Porath s claim if human capital ended at retirement. But it continues through retirement because imputed pay does. Mill and a few economists before him acknowledged productive and unproductive consumption. The productive kind was what I call maintenance and invested consumption. Unproductive consumption meant any written invested for higher pay later nor supporting survival pay now. That would give pure consumption maintenance consumption unproductive consumption (5.8) and consumption invested consumption pure consumption invested consumption maintenance consumption unproductive consumption. (5.9) Investment and maintenance contrast in human capital as in a firm. Investment is valued only in the expectation of future maintenance. No maintenance later, no value now. To count maintenance as new investment would count part of the old investment twice. Where the accounting treatments differ is in disposition. Maintenance in the firm is recovered in pay and products. I thought before that the same was true of human capital. Thanks to the parable of the boss and her secretary, I now I think it is exhausted in satisfying our taste for lineage survival. Chapter 5 Bringing Human Capital In 1 13 16 10 Restating the Three Fourths Rule Petty, neglecting human capital of children, measured total capital as about 2.5 times physical capital in 1664. Most estimates since have run higher. I myself model 4:1 or so as a first approximation. The ratio of human to physical capital might hold to some such lasting norm for the same reason that number of shepherds should hold in proportion to number of sheep. They own as many as they can manage. Human capital means value of skills, including skills in acquiring and employing physical capital. If the value of physical capital changes, so should the value of its management. There is truth behind the old doctrine that a rise in the productivity of labor explains growth in value of physical capital. But old skills can also be more in demand when improvements in physical capital productivity can get more good out of them. Drivers are worth more when there is more valuable freight to be trucked. A rise in either kind of capital tends to invite a rise in the other. The ratio of pure to invested consumption is unsettled in human capital studies. I just showed why I think Schultz gave the right clue in 1961 when he defined invested consumption as an outlay to be recovered with interest in consumption over the future, and pure consumption as an outlay bringing taste satisfaction now. It is the same distinction as with investment and operating expense in the firm. A professional s meals and doctor bills, and even his subscription to trade journals, are expenses needed to keep his earning power intact rather than investment to raise it over the future. It seems to me that once we are physically mature, the only avenues of investment in skill building, not exhuast in skill maintenance, are self-invested work and job training or other adult education. And I argued that there is probably not much adult education. Only a few go back to school. From what I ve seen, job training is concentrated in our first few months when schooling is over and full-time work begins. That s why I think that the rise of pay with age, implying a rise in skills marketed, is explained more or less entirely by self-invested work in the mainly subliminal accumulation of job experience. (Work Chapter 5 Bringing Human Capital In 1 13 16 11 means the output of human capital, and nothing in the definition of output implies effort or even awareness.) I agree with Ben-Porath that all consumption and all work should be modeled as self-invested until independence and full-time job entry, given that models must simplify. But I just showed why I model all consumption after, or anyhow after a few months of job training, as Schultz pure kind. Here I would fault Mincer and his pupil Becker, but not Schultz or Ben-Porath, for too much focus on the potential of job training. It exists and is crucial. But it is so small a fraction of invested consumption, judging from my experience, that I prefer to neglect it in modeling. Job learning, conversely, seems to explain all rise in pay with age. Biology might predict the same. Nature s plan is that we first develop and then reproduce. Some creatures follow sharply-defined somatic and reproductive phases showing first only development and then only reproduction. A mature butterfly does not eat. It may even lose mouth parts. Its time is spent in reproduction alone. Other creatures including us like eating too, but nature gives them that taste for the sake of the one behind. Adult consumption, as I see it, is more or less all pure consumption exhausted from total capital in satisfying our taste for life and energy. Consumption by the young is invested because that is the big idea. Nature s plan is reproduction to maturity. Now suppose for simplicity that consumption is age-independent. Nobelists Milton Friedman and Franco Modigliani, mentioned earlier for their opposite reactions to my banking idea, separately argued something like that in the 1950s for adults. My extension backward to birth seems defensible when we remember to include unpaid parental care and then schooling in invested consumption. I model human capital as continuing after retirement as present value of implicit pay by ourselves and others for caring for ourselves and those others. Then if adulthood runs from ages 20 to 80, those simplifying assumptions would give pure consumption as three fourths of all consumption. Chapter 5 Bringing Human Capital In 1 13 16 12 I also modeled human capital as three fourths of total capital. My tag for the two ideas together was the three fourths rule. The agreement of the two ratios as modeled is a convenient coincidence. If they differed, this book would have to be a few sentences longer. Each is first-order approximation only. The Free Growth Index for Total Capital Given the three fourths rule, the free growth index for total capital is derived by reading pure and total before the words consumption and capital in the equations of Chapter 4. Now back to the charts and tables. The free growth index for total capital is tracked in the red line and labeled ! (Kt). It too fluctuates around one in each country, but in a much narrower range than does the blue line ! (K). The reason is the three fourths rule. The thrift index, not shown in the charts and tables, is one minus the free growth index. It is derived in Chapter 4 as thrift rate over acceleration, where thrift rate is change in consumption capital ratio times minus one. By the three fourths rule, where pure consumption is three fourths of all consumption while total capital is four times physical capital, the pure consumption total capital ratio is only 3 16 (3 4 divided by 4) the size of the consumption physical capital ratio. The yearly changes in these ratios reflected in the numerator of the thrift index will hold to the same proportion. The denominator is acceleration, which is always the same for physical as total capital by the assumption that they hold in 1:4 proportion throughout. This explains why the unshown thrift index, or numerator over denominator, is automatically 3 16 as large for total as for physical capital, and why the shown free growth index runs nearer one in consequence. I have just given an idea why it can be worthwhile to brush up the algebra we all learned in high school or before, and to suffer the nuisance of mathematical notation. I have made a very simple truth, obvious in hindsight, seem complicated by making Chapter 5 Bringing Human Capital In 1 13 16 13 do with words alone. One less something nearer zero, whether that something (the thrift index) is positive or negative, is nearer one. The wonderful books of Einstein (with Enfeld) and Steven Hawking, not to mention Mill, show that even calculus can be put that way. My task has been to follow their tough act. But I will now start to infiltrate notation where I think that that form of shorthand should help more then it hurts. Summary The data for the free growth index of total capital (Kt) in the charts and tables do not represent a separate test. It is the same test adjusted to the three fourths rule. That was proposed as a convenient rule of thumb. I would have shown a true separate test if I knew how. Pure consumption might become separately measurable some day, but human capital will not. The Phil and Bill parable shows that not even evidence from slave markets would be on point. Human capital has no possible value to any but its original owner. Whether in words or notation, I hope to make the point that Chapter 4 and the charts and tables showing ! (K)are likely to understate the case for Mill. Those showing should be nearer the truth. Physical capital and pure consumption ! (K ) T are less than the whole. My three fourths rule will never be exact because reality cares little for the convenience of modelers. Proportions between the kinds of consumption will not hold exactly constant and will never exactly agree. But I don t think the three fourths rule is so wrong that the real value of (K ! T )doesn t run nearer one than the real value of ! (K). (The infiltration begins.) Then the data support free growth theory convincingly enough if we trust equation (4.1), as do all macroeconomists as far as I know, and probably more convincingly when human capital is considered too. Chapter 5 Bringing Human Capital In 1 13 16 14 The cautions at the end of Chapter 4 apply even more. My charts and tables for ! (K ) repeat the accumulated error and bias of those for T ! (K), and add the crude simplification of the three fourths rule. (5.4) expresses my understanding of what Ben-Porath means in equation (4) in his 1967 paper, where variables are defined in his three equations before. If (5.4) doesn t capture his idea faithfully, it anyhow captures mine. Likewise my (5.5) may or may not do justice to Schultz. Some but not all possible interpretations of what he might have meant give (5.5). Again, it is my belief whether or not his. What Farr, Marshall and Kiker have shown, by deducting both invested and maintenance consumption from pay to get adult cash flow discounted to present value, is human livestock value to a slaveowner. It is very little. The parable of Phil and Bill argued that Bill s maintenance is expensed on Phil s books, but treated as net output and positive cash flow on Bill s. I said I can t prove that from axioms and definitions so far, and will need the biological imperative. Chapter 5 Bringing Human Capital In 1 13 16 15 CHAPTER 6: PARALLELS WITH THE FIRM My Own History with These Ideas For sheer shock value, at least to economists, the pay rule and the Y rule must count first amount the surprises I promised. Who would have thought that human depreciation is expected to be recovered in revenue (pay) and product value just as with plant depreciation? Heresy! Yet nothing is more easily proved. Either the maximand rule or the deadweight loss rule is enough. Free growth theory and next generation theory give more scope and policy implications. But the pay and Y rules have plenty of those, and may be new to the world. Mill and Petty beat me to the others. I have been arguing the pay and Y rules from the time I reversed course from Quesnay s idea some five years ago. I will rederive both in new ways at the end of this chapter. My change of mind was a classical epiphany. I had been resisting the obvious for years. I showed how my parable of the boss and her secretary got me on track. My depreciation theory is a lesser shock. It occurred to me over the Christmas holidays this year. It contradicts the national accounts, whose Capital Consumption Adjustment corrects book depreciation from linear to exponentially falling. That would make depreciation fastest at the start, and progressively less. No one has objected because practical experience seems to say the same. If we resell a new car or house after only a few months of use, we take a big hit. If we resell a new factory, which would have been tailored to our unique business plan, we take a bigger one. My counter-argument is that premature resale reflects adverse selection. The usual motive for premature trade is bad news and pressure to sell, not pressure from others to buy. Chapter 6: Parallels with the Firm 2 4 16 1 I point instead to the millions who don t sell. I argue that depreciation and amortization are the same in essence. Loan payments are all interest at the start, and all amortization at the end, by inference from the present value rule. My risk theory is a mini-surprise. It shifts focus from the risk of the asset to the risk aversion of the owner. Another mini-surprise is the feature of my growth truism pointing out that deadweight loss means negative unrealized output. I will revisit these topics in more depth after I cover the necessary groundwork in comparing the accountancy for human capital and the firm. Assets, Owners and Revenue Assets means examples of capital of either factor. Their owners are all members of the reproducing population assumed in the axioms. Each, from newborns up, owns human capital at least. Value and growth and cash flow and output are properties of capital. Tastes, aims and ends are properties of owners. Human capital reads its owner s aims, and manages both factors to realize them. Positive cash flow is outflow from assets to owners, to exhaust or reinvest or give away as they like. In the last two cases, the owner is mediating transfer out. She also mediates transfer in from reinvestment or gift received. Think of capital as source and present value of foreseen cash flows. Owners are the foreseers, the recipients of positive cash flows, the exhausters of some in taste satisfaction, the deciders of the time preference rates giving present value, and the mediators of transfer out and transfer in (negative cash flow). In the case of the diamond ring, the psychic positive cash flow arrived without mechanics. The more typical case reaches the same outcome indirectly. (Net) output of an asset is its value added, or creation of value. Output can be realized as outflow to owners for reinvestment or gift or exhaust, or it can be left in as growth. The part left in is proprietary or unrealized or self-invested output. Chapter 6: Parallels with the Firm 2 4 16 2 Outflow to owners can also include decapitalization from capital already in place, as in withdrawals from a bank account. I say decapitization, rather than depreciation, because the appropriate term might rather be amortization or depletion or liquidation in sale, depending on circumstances and the nature of the asset. The sum of the realized output and decapitalization can be called gross cash flow , meaning gross before deducting plowback and negative cash flow (transfer in). Then gross cash flow cash flow plowback transfer in realized output recovered decapitalization. (6.1) Here I specify recovered decaptalization because I treat deadweight loss as decapitalization too. Cash flow as accountants and businessmen use the term usually means gross of plowback, although net of transfer in. My meaning, net of both, is the one always applied in finding total return and present value. Although cash flow might be in kind as well, I will follow convention by treating it as if realized from sale in cash. The owner can then spend the revenue on exhaust (pure consumption) or reinvestment or gift as she likes, but might also plow some or all back into the originating asset. The general principle is positive cash flow gross cash flow plowback. (6.2) In simple cases, revenue measures and equals gross cash flow for each asset. But revenue as the term is actually used is likelier to sum contributions from many assets and owners. To keep that usual meaning separate, define this asset s share as earned revenue . Then gross cash flow earned revenue. (6.3) Another way to put the same idea is Chapter 6: Parallels with the Firm 2 4 16 3 revenue collective gross cash flow collective earned revenue (6.4) from all contributors to revenue together. Then revenue and earned revenue would be the same if there are no other claims. Earned Revenue and Cash Flow A classical illustration of revenue generated collaboratively is the firm. The firm proper can be interpreted as a single asset of physical capital. Its typically many owners agree to hire outside management, meaning outside themselves, to contract and trade on their behalf. The firm through its managers hires the other employees, contracts with suppliers, and generates a joint product representing all its own gross cash flow plus any contributed parts of gross cash flow of others. The product is sold for revenue in the collective sense. Revenue is first applied to satisfy claims on it by those outside contributors. Claims recovered include current purchases from suppliers realized in sales. Others are pay to management and other employees, along with rent, interest, utilities, other services, and whatever is due to the tax man. The principle is to include all outlays by the firm needed to secure revenue now, as distinct from outlays invested for the sake of more revenue later. The share of revenue due the firm proper is any residue after all those prior claims are met. Then gross cash flow revenue prior claims earned revenue (6.5) gives the contribution of the firm proper. Earned revenue may or may not be passed to owners. Management is typically authorized to plow back any part as reinvestment, say in replenishing inventory or cash or in buying new plant and equipment. Any revenue left over after that plowback is transferred out to owners as dividend yield. Chapter 6: Parallels with the Firm 2 4 16 4 Negative cash flow, or transfer in, always means new investment added from outside. Plowback from revenue is excluded, as it is already recognized as a deduction from positive cash flow. For the firm, the only source of positive cash flow is proceeds from new shares issued. With this understood, where cash flow gross cash flow plowback transfer in earned revenue plowback transfer in positive cash flow negative cash flow, (6.6) positive cash flow earned revenue plowback, and negative cash flow transfer in. (6.7) Firms use the term gross realized output to mean the same thing as what I call gross cash flow. A common definition is gross realized output realized output depreciation. Now we come to the subtle point allowing for deadweight loss. The total return truism shows that output equals value growth plus cash flow. Then output is negative wherever the sum of growth and cash flow is less than zero. Natural disasters and bad investments can make them so. Those unexpected setbacks are examples of deadweight loss. It amounts to unrecovered depreciation, meaning depreciation not recovered (realized) in positive cash flow. I ll get back to that soon. The point at present is that the equation above really means gross realized output realized output recovered depreciation. Here too I prefer the generality of decapitalization over depreciation , and define gross realized output gross cash flow realized output recovered decapitalization earned revenue recovered decapitalizaton. (6.8) Chapter 6: Parallels with the Firm 2 4 16 5 The terms gross cash flow, earned revenue and gross realized output will be used interchangeably. Realized and recovered will likewise be synonymous, as will be proprietary , unrealized and self-invested . (A6.1) allows realized output cash flow plowback transfer in recovered decapitalizaiton. (6.1a) Define unrealized output output realized output growth cash flow realized output growth plowback transfer in recovered decapitalization, (6.9) by (6.1a) and the total return truism. Proprietary Output and Deadweight Loss Unrealized or proprietary or self-invested output of the firm is creation of value not yet sold or not meant to be sold. This can be something as workaday and perfunctory and automatic as output to inventory. Other illustrations could be where a construction firm builds its own offices, or a car manufacturer makes cars for its executive fleet. (6.9) shows that it includes all growth not explained by plowback plus transfer in less recovered decapitalization. This implicitly includes all free growth. Judging from my charts and tables, free growth seems to mean all of growth at the collective scale. What effect might it have on the firm? Free growth includes random windfall gain and deadweight loss as well as the overall upward trend expressing new ideas. Deadweight loss is unrecovered decapitalization, meaning not recovered in cash flow, That makes it negative output Chapter 6: Parallels with the Firm 2 4 16 6 as the sum of growth and cash flow, and specifically negative unrealized output. Then deadweight loss unrecovered decapitalization negative output negative unrealized output max (0, output) max (0, unrealized output). (6.10) Also positive unrealized output max (0, proprietary output), (6.11) and output unrealized output realized output. (6.12) The Growth Truism In general, Here Also growth capitalization from outside capitalization from inside decapitalization. (6.13) capitalization from outside negative cash flow transfer in, and capitalization from inside positive unrealized output plowback. Then decapitalization recovered decapitalization unrecovered decapitalization recovered decapitalization deadweight loss. growth transfer in positive unrealized output plowback recovered decapitalization deadweight loss, (6.14) or more simply Chapter 6: Parallels with the Firm 2 4 16 7 growth transfer in positive unrealized output plowback decapitalization. (6.14a) (6.14a) can also be expressed as growth transfer in unrealized output plowback recovered decapitalization. (6.14b) For convenience, define gross transfer in transfer in plowback, So that (6.14) through (6.14b) can be put more compactly as growth gross transfer in positive proprietary output decapitalizaiton transfer in unrealized output recovered decapitalization. (6.14c) Any of these versions of (6.14) can be called the growth truism. The new term gross transfer in will help shorten equations for human capital. Management as a Quasi-Owner Owners (shareholders) typically allow management wide latitude to cope with needs. It stands in place of owners. Accounting tradition, and this book too, reasons out the steps from revenue to dividend yield as if management itself were the owner. Otherwise there would be little to say. From the shareholder viewpoint, revenue is simply dividend yield. But the bottom line is the same. The maximand is output, or growth plus cash flow. Positive cash flow, in the sense net of plowback, is dividend yield on both the firm s books and the shareholder s. Negative cash flow on the books of shareholders individually is purchase of any shares in the same firm. On the books of shareholders collectively, where sales and purchases of existing shares offset, it simplifies to purchase of new stock issues alone. This too is just as on the books of the firm. Chapter 6: Parallels with the Firm 2 4 16 8 My purpose in this analysis of the firm has been to derive equations valid for any capital of either factor. The firm is a good model for several reasons. Its accounting traditions are centuries old, and have been well thought through. It is rich in possibilities because it has to be. It must describe firms of many kinds. It must allow for contingencies whether or not they apply. For many simple assets, say the firm s shares as opposed to itself, revenue and positive cash flow can be the same. But the complexity and versatility of the firm itself, and the person-likeness added by its internal management, make it a useful model for any and all capital of either factor. Not that I claim to follow accounting tradition closely, or even to understand it closely. I am even less an accountant than an economist. My terms and concepts tend to be idiosyncratic. The main thing is for the logic to hold together. Human Capital by Analogy to the Firm It is reasonable to define pay as the revenue of human capital. Earned revenue for the firm is typically less than revenue. There are prior claims to offset contribution by worker and suppliers. The counterpart in human capital, I said in Chapter 2, is maintenance consumption. I believed for years that this cost counted as a prior claim on pay, just as with the firm. I may have been the only person to think so since Quesnay and the physiocrats, although Mill and Sraffa might be interpreted that way. But who has thought what doesn t matter. Quesnay s idea is a mathematical possibility that must be addressed. I ll get there soon. Human capital is inalienable. That means that its decapitalization simplifies to human depreciation. The firm s added possibilities of depletion and liquidation don t apply. The output of human capital is called work. Then (6.1) through (6.8), applied to human capital, give earned revenue pay prior claims gross realized work realized work recovered human depreciation. (6.15) Chapter 6: Parallels with the Firm 2 4 16 9 The pay rule argues that prior claims are zero and that all human depreciation is expected to be recovered in pay and work products as a norm. Chapter 2 offered two logical proofs of the second point. The alternative to recovery is deadweight loss. Capital is discounted foreseen cash flow, and cash flow is realization in transfer or taste satisfaction. Deadweight loss, or unrealized depcatialization, is therefore implicitly unforeseen. Human depreciation, like plant depreciation, is foreseen from the start. Aging and mortality come as no surprise. It is therefore foreseen as realized in pay. The second proof, stated in part by Becker, follows from the maximand rule. All behavior is maximization of perceived risk-adjusted return to the individual s total capital. This follows from definitions, not from axioms. There are no exceptions because there are no square circles. The rule says that no one invests in anything without expected recovery with interest. Recovery means recovery of depreciation. We do invest in human capital, of ourselves and our children, and consequently expect recovery of human depreciation by ourselves or them. It s that simple. Other proofs looked to evidence and experience. I offered the parable of the boss and her secretary, which had been decisive in converting me from Quesnay s view. Let s go through it once more. Assume that investment in each has ended before the last year for each. First take the possibility that neither maintenance consumption (the supposed prior claims) nor human depreciation is recovered in pay. Then work and cash flow for each have simplified to realized work and pay. Human capital of each is remaining pay less the time discount. At the beginning of the last year, it is something less than one year s pay. If pay measured work, return to each (work human capital) would be something over 100 per year. It would rise to 100 per day at the beginning of the last day, and 100 per second at the beginning of the last second. At the end of the last second it reaches infinity. Yet the portfolio assets of each reveal their rates of time-preference (return) as only a few percentage points per year. Chapter 6: Parallels with the Firm 2 4 16 10 This is enough to rule out the idea that pay recovers neither maintenance nor depreciation. Does it say which is recovered? It does if we look at the cases of the boss and her secretary separately. Each earns the same pay throughout, and the boss earns ten times more. By the beginning of the last day, the human capital and work of each is negligible. Pay is all depreciation recovery if I am right, or all maintenance recovery if Quesnay was right, or maybe both. The boss s pay, anyhow, remains ten times higher. Is that because her maintenance is ten time more, per Quesnay, or because her depreciation is? The answer is easy. I concede that the higher-paid usually consume more. But not always, and anyhow not in proportion and not because they have to. I learned in the quartermaster corps that the consumption needs of the general and the private are not much different. The commanding officer, in the field, is expected to be the last to eat, the last to sleep and the first up in the morning. Maintenance consumption, as opposed to the rest, is what we need to keep up strength and vitality and performance. We can t make do with less. More pay is more motive, but need not be spent on more consumption unless by choice. The boss and her secretary are paid to apply skills. They are in trouble if the worth of those skills doesn t cover their maintenance needs. But they will tap savings if it doesn t. Retirees need no money motive to consume. All they need is the means. The source of skills applied is human capital. The application is gross realized work. The difference between its human depreciation and realized work components matters because the maximand is net output (work) rather than gross. But it is not a difference in kind. Skill applied is skill applied. Pay is all depreciation at the last second for the same reason as with the mortgage payment. There is no balance left to earn interest. This argues strongly that human depreciation is recovered in literal pay and transferred to work products. It also argues that maintenance is not. The problem is Chapter 6: Parallels with the Firm 2 4 16 11 in the exact 10:1 proportion required throughout. Whatever was contributed to pay by maintenance recovery, on top of depreciation recovery, would have to hold the same ratio in order for pay to cover both. Experience shows this as unlikely in any case, let alone all cases. The boss and her secretary probably couldn t hold maintenance consumption to that ratio if they tried. Another strong argument against the hypothesis of prior claims on pay is lack of a source. The claimant would be whoever other than the worker had paid for the maintenance consumption and needed to be made whole. Thus the employing firm would hold a valid claim if it had provided the maintenance consumption in order to enable the work. That would put the firm in the position of a farmer who must feed the livestock and must earn enough profit to recoup the cost. We went through this in the parable of Phil and Bill. But the employer firm does not advance the cost because it has no motive to do so. It knows that the worker will pay it anyhow if means allow. Where means don t allow, as in retirement without adequate savings, the worker looks to transfer payments from society generally rather than from the firm alone. Now comes the evidence of age-wage profiles. This evidence is the substance behind the parable of the boss and her secretary. The evidence is apt. Wage generally means hourly pay, while earnings means yearly pay. Wage-earnings profiles show a rise with age, but peaking and reversing as workers reach their fifties or so. The reason is that they tend to work fewer hours. I consider pay per hour a better measure of human capital than pay per year. If someone is worth 30 per hour half time, my impression is that she would be worth 30 per hour full time. If she prefers to stay home, her leisure must give her that much psychic pay instead. Psychic pay cuts just as much ice with me. My boss and secretary were cases preferring to work full time. Age-wage profiles bear out the scenario I imagined for them. They illustrate the logical certainty that human depreciation is expected to be recovered in pay, and support the Chapter 6: Parallels with the Firm 2 4 16 12 convergence axioms leading from prediction to probable outcome. More than that, continuance of the 10:1 ratio through the last day tends to confirm that no maintenance consumption is recovered alongside human depreciation. If it were, age-wage profiles show that it would have to hold the same 10:1 ratio throughout. Exhaust Pay The present value and maximand truisms affirm that all including human depreciation is expected to be recovered in positive cash flow. Positive cash flow is transfer out plus exhaust. In human capital it is pay less plowback. Might some human depreciation be realized in exhaust? I thought all was when I also thought maintenance consumption was recovered in pay and work products. The boss and secretary parable turned my thinking around on that. But it doesn t follow that none is. Some pretty clearly is. I argued that even suicide expresses the maximand rule. Deliberate self-maiming exists and expresses it again. Just as Citizen Kane destroyed his showcases because the fit was on him, some destroy their bodies. So long as the destruction is intended and compos mentis, it counts as economic behavior. Are there sunnier examples? What about voluntary unpaid vacations and voluntary retirements? What if the boss and her secretary enter convents in mid-career? These choices surrender human capital on the face of things because they surrender literal future pay. But the psychic pay of leisure makes up for it. Otherwise we would have stayed on the job track. Then some human depreciation is exhaust. Call the psychic pay for it exhaust pay . It seems mercifully small in the big picture. I tend to neglect it in modeling for that reason, just as with invested consumption after full-time job entry. But I claimed logical certitude as to expected recovery of human depreciation in pay. I d better not leave loopholes. There are none. Some of the pay is psychic, and some of the tastes satisfied are not pretty. Chapter 6: Parallels with the Firm 2 4 16 13 Tweaking the Axioms My last argument reasoned from experience that we need no money motive to consume, and that pay tends to cover our maintenance needs. But that wasn t strictly in the axioms. I assumed a mortal and reproducing population strategizing for means to satisfy tastes, and more generally aims. I didn t say out loud that the population in fact survives. Now I do. Let s specify that the population has motive and means for lineage survival, whether in a group selection or kin selection sense. The means can be specified as skill sets, as an adult norm, sufficient to earn maintenance consumption needs for themselves and invested consumption needs for their young together. As to motive, I will specify at last that maintenance consumption is exhausted in satisfying our taste for survival. I already as much as assumed this in arguing that we need no money motive to consume. This assumption of motive and means amounts to the biological imperative. It is hardly new to economics. It is the essence of Petty s overlapping generations model of 1662 in A Treatise of Taxes. It is the essence of the equilibrium wage theory of Smith in 1776 and Ricardo 1817, where pay converges to the level holding the work force intact. It is the essence of Malthus population principle of 1798 and 1801, chosen by Senior as his first axiom in his Outline of 1836. It is the essence of the productive consumption theory developed from Malthus through Mill in 1848. It lapsed from attention with the marginalist revolution beginning with Jevons and Menger in 1871, ironically the year of publication of Darwin s The Descent of Man, because the marginalists treated explanations of tastes as irrelevant. I happen to be a huge fan of the marginalists. But they ve made their point. The microeconomics they founded is a rich and mature science. It needs no assumptions as to what explains our tastes. But macro is not doing so well. I believe that it must start over, and that a grasp of motives helps. Chapter 6: Parallels with the Firm 2 4 16 14 Quesnay s Idea What Quesnay wrote, in his entry for man in Diderot s Encyclopedia of 1750, was Those who make manufactured commodities do not produce wealth they spend their receipts in order to obtain their subsistence. Thus they consume as much as they produce and no surplus of wealth results from it. Quesnay, like Petty a century before, came to economics from medicine. He was personal physician to Madame de Pompadour, and then to the royal family. His argument was that value is added in agriculture alone, not in manufactures. His conclusion that only landowners can afford to pay taxes did not enchant the landed aristocracy of Versailles. Mill s Essays 1 includes as much as is necessary to keep the productive worker in perfect health and fitness for his employment, may be said to be consumed productivity. To this should be added what he expends in rearing children to the age at which they become capable of productive industry. Mill s Principles of 1848, which I quoted earlier, said the same: What they consume in keeping up their health, strength and capacities of work, or in rearing the productive laborers to succeed them, is productive consumption. Sraffa s parallel idea is expressed in his 1960 paper Production of Commodities by Means of Commodities. My impression is that Quesnay s surplus of wealth means value added, and that he thought maintenance consumption should be deducted from revenue in finding it. Mill can t have meant what I think Quesnay did, in view of Mill s evident belief that output is investment plus consumption. Rather, when I like Quesnay argued that 1 Essays on Some Unsettled Questions of Political Economy (1844). Chapter 6: Parallels with the Firm 2 4 16 15 maintenance is recovered in pay work products, I thought Mill and Sraffa might have reasoned partway there. My belief then that human depreciation is exhausted is satisfying tastes seemed defensible then. I argued, sensibly to a point, that getting older meant surviving. I suppose I might still argue the same but for the parable of the boss and her secretary. Another Look at Depreciation Theory My pay rules, illustrated in the parable of the boss and her secretary, depends on my idea that depreciation and amortization are the same. Capital means present value of a typically finite series of forseen cash flows. As each year passes, present value of the most distant and most discounted one is lost. Depreciation amortization is that loss. It begins at a maximum, and rises steadily as the end point nears. I faulted national accounts for projecting an opposite trajectory from evidence of actual sales. I suggested a second look at likely circumstances and motivations. Depreciable assets are mostly structures and equipment. They tend to have been designed and modified for original users. Original users typically expect to own and operate them to the end. Then what is the likely driver of exceptions? Are secondary trades of plant and equipment likelier to be driven by pressure to buy or pressure to sell? Human capital, anyhow, is exempt from both pressures. We re struck with what we have. We can invest more, as a homeowner might add a pool room, but we cannot sell. The years roll by, and present value of the most distant one s pay is lost. Consider what happens when the expected end point changes. Say that the boss and her secretary, at the beginning of what was to be the last day, are both persuaded to re-up for another five years at the same pay. Human capital of each jumps from a little less than one day s pay to present value of five years pay. But human depreciation of each is sharply reduced! At the beginning of what seemed the last Chapter 6: Parallels with the Firm 2 4 16 16 day, it was substantially to be the whole of pay. Now it becomes present value of a day s pay five years off. Another Look at Risk Theory I made the point that the boss and her secretary reveal their time preferences in the security portfolios they assemble, and discount their pay at the same rate of return to reveal their human capital. Is that too simple? Does it overlook risk, or other factors? I argued that human capital is the risker and higher-return factor because its exceptional versatility makes it as risky as we like, and because it is owned disproportionately by the risk-tolerant young. Does that make the bosses or secretary s human capital riskier and higher in return than her portfolio assets? It does not. She molds all capital to her single risk-preference level at her current age. This is not to claim that age is the only determinant. Gender seems to count too, with males usually more risk-tolerant. Bob Trivers tells us why. And there is a wealth effect. We tend to tolerate more risk when wealth gives us more cushion against setbacks. But each of us, in present circumstances, has just so much tolerance. Tastes are properties of owners, not of assets. We assemble and modify assets of both factors to suit them. Human capital is not inherently riskier. It is riskier at the collective scale only because it is owned disproportionately by the risk-prone young. Each cohort, from youngest to oldest, molds it to suit that cohort s characteristic risk profile. The boss and her secretary each molds all her assets of both factors to her single risk tolerance at the time. Tweaking the Life Cycle Model I consider Ben-Porath s life cycle model of 1967 the most important paper in 20 th century economics. I agree with all of it more or less. Now it needs clarification and completion. Chapter 6: Parallels with the Firm 2 4 16 17 All studies of human capital, as far as I know, effectively treat human depreciation as deadweight loss. Ben-Porath s model seems no exception. How does he model pay? He multiplies human capital by a productivity factor, and then again by the fraction marketed for pay rather than self-invested. That gives what I call realized work. Pay, if I am right, measures gross realized work. That is the main amendment I would propose for his model. Ben-Porath s first three equations summarize what I call the growth truism (6.14). In my terms, not his, he models human growth invested consumption self-invested work human depreciation. He means positive self-invested work in the form of learning. Meanwhile the inalienability of human capital leaves its depreciation as its only avenue of decapitalization. Invested consumption corresponds to gross transfer in as meant in the growth truism (6.14c) while self-invested work is the same as proprietary output. Then (6.4c) applied to human capital could show as confirming (5.2) and (5.3a). human growth invested consumption positive self-invested work human depreciation, invested consumption self-invested work recovered human depreciation, Logic also seems to agree with Ben-Porath s interpretation that self- invested work continues late into careers, and that it must stop when time for recovery runs out. But I would specify that invested consumption stops, for modeling purposes, at fulltime job entry or a little later to allow for initial job training. This needn t follow from my adjusted axioms. It s just an impression from what I see. I don t agree with Schultz that outlays on medicine or worker relocation are investment. I see them as maintenance consumption preserving skills, not Chapter 6: Parallels with the Firm 2 4 16 18 investment building skills. I don t see much avenue for investment in adult human capital except through textbooks and tuition. Some happens. I went back to school at the Conservatory myself, and I buy lots of textbooks. But I just don t see enough of it around me. Models must simplify. Mine would end invested consumption at independence more or less. I would also model adult self-invested work as subliminal and costless job experience. I don t see it as taking a second away from work for pay. This again is meant to describe the usual rule only. Ben-Porath s model, I think, allows an impression that workers can choose between earning and learning by allocation of time. The quotes from Schultz in Chapter 5 described that as common. I just don t see much of it happening. Rather we tend to work fewer hours at the end of careers, not the beginning or middle when time for recovery of self-invested work remains. I said that Ben-Porath s equations imply pay realized work. I would substitute the pay rule pay gross realized work realized work human depreciation work self-invested work human depreciation, (6.17) as a norm or expectation. It isn t a guaranteed outcome because deadweight loss happens to human capital too. We may be hit by a bus, or lose our jobs in a slump, or be sent to prison or drafted into the army. The pay rule means that recovery is foreseen. If (6.17) were stated in terms of outcomes, recovered would have to be inserted before human depreciation . Chapter 6: Parallels with the Firm 2 4 16 19 I believe that the case for this rule is very strong. The deadweight loss rule and the argument from the maximand rule give logical certitude that human depreciation is expected to be recovered in pay. The convergence axioms would then give actual recovery as a norm. The rule disallows the prior claims hypothesis, or possibility that maintenance is recovered too, from an accumulation of implausibilities that led me finally to rule them out by adjusting the axioms. The life cycle model should also specify that human capital continues after retirement. I admit that this rules out the simplicities assumed in the boss secretary parable. It continues because we earn imputed pay until the end, and human capital remains as its present value. I would also model in my depreciation theory. Pay, like the mortgage payments, is all realized work (interest) at the start and all human depreciation (amortization) at the end. No other explanation of age-wage profiles will hold water. A New Approach to the Pay Rule I reasoned to the pay rule from the maximand and deadweight loss rules. Another approach can reach the same conclusion. The total return truism finds output capital growth cash flow. (6.16) expressed Ben-Porath s equation as human growth invested consumption self-invested work recovered human depreciation. Cash flow is the flow discounted to present value. Tradition, since Farr in the midnineteenth century, has seen human capital as present value of future pay less what Chapter 6: Parallels with the Firm 2 4 16 20 I call invested consumption. I argued in Chapter 3 that this tradition is sound, although not logical certitude. I put it as human cash flow pay invested consumption. (6.18) Work is defined as the output of human capital. Summing (6.16) and (6.17) now shows the pay rule work pay self-invested work recovered human depreciation, after cancellation of invested consumption. This says that the pay rule is not so exotic after all. It has been staring us in the face since the Schultz-led consensus, with Ben-Porath, figured out the human growth equation a half a century ago. We had effectively recognized human cash flow as pay less invested consumption since Farr a century before, without putting it in those words. The total return truism does the rest. A New Approach to the Y Rule The marginalist tradition, which has dominated economic thought since its introduction by Jevons and Menger in 1871, has treated all consumption as the end point exhausting capital in satisfying tastes. It doesn t follow that marginalists were unaware that some is invested in human capital. At least three of the leading ones understood human capital well. That includes Leon Walras, a third co-founder of the marginalist revolution in 1874. I also mentioned Marshall, who agreed with Farr in disputing Petty, and Irving Fisher. But all three, and marginalsts in general, preferred to locate human capital outside the economy proper. Whether they spoke of labor measured in dollars per unit time, or human capital meansured in dollars alone, the larger factor was taken to arrive exogenously. It provided its services from outside and was paid their market value in return, as if on the books of a firm. Chapter 6: Parallels with the Firm 2 4 16 21 Marshall s pupil Keynes was thoroughly a marginalist, as are economists in general today and as am I. One of the features of his General Theory of 1936 was a kind of double-entry accounting for national product. Product was output and equivalently income. Output meant the sum of prices of final products produced within the year, while income meant the shares of that sum paid to the workers and investors producing it. His double-entry idea can be put as output investment consumption income pay profit. (6.19) I showed why I disagree. But let us see how the total return truism might seem to have led to that inference if we leave workers or human capital outside the economy. To treat them as arriving exogenously from outside is essentially to treat the national economy as if it were a single firm. Output inside is simply profit. Output outside is work, meaning creation of value by the workers. This gives the truism output work profit, confirming that total output is the sum of factor outputs. So far, so good. But now Mill and Keynes and most tradition slip by arguing that pay equals and compensates all of work and nothing else. That s why (6.18) equates output to pay plus profit. Schultz and Ben-Porath and other students of human capital correct this in part by recognizing some work as self-invested rather than marketed for pay. My pay rule adds that pay recovers human depreciation as well as realized work. (6.19) should have reasoned output income work profit pay self-invested work human depreciation profit. (6.20) Chapter 6: Parallels with the Firm 2 4 16 22 Where Keynes and Kuznets and macroeconomic tradition have been right is in reasoning that pay and gross profit, meaning gross of depreciation, sum to the expenditure spent on consumption and gross investment. This fact of arithmetic is the logic behind Say s law: pay plus profit are always enough to buy what is produced. We saw that this truism gives cold comfort when calamity or misjudgment make profit negative, as with the subprime houses of 2008. What it certifies, anyhow, is expenditure pay gross profit consumption gross investment. (6.21) We can subtract depreciation to reach pay profit consumption investment. (6.22) Now (6.19) can be corrected as a whole to show income pay profit self-invested work human depreciation output consumption investment self-invested work human depreciation. (6.23) My main goal in this book has been to further the work of Solow in exogenizing growth, and also the work of Ben-Porath in endogenizing human capital as something produced within the economy. It was in that spirit that I derived the Y rule in Chapters 2 and 5 by putting human capital inside. I reached output investment human capital growth cash flow. Here ex post net is understood before output and investment, so that investment means physical capital growth. (6.16) applies the growth truism to human capital. The cash flow truism shows that cash flow is net transfer plus exhaust realized in Chapter 6: Parallels with the Firm 2 4 16 23 taste satisfaction. These are all ex post descriptions of realized outcomes rather than intentions. Together they give output investment invested consumption positive self-invested work human depreciation net transfer exhaust investment invested consumption self-invested work recovered human depreciation net transfer exhaust. (6.24) This much is certitude. I now apply (5.9), which includes consumption invested consumption pure consumption, to reach the Y rule in its general form: output investment consumption self-invested work human depreciation net transfer. (6.25) The net transfer term disappears at the collective scale. Although (6.24) is logical certitude infered from definitions, (5.9) and consequently (6.25) are not. I cannot rule out the possibility of a third kind of consumption recovered in work products as per Quesnay. I hope that my interpretation of agewage profiles in the light of the boss-secretary parable has revealed that as improbable. The same holds for my derivation of the pay rule through Ben-Porath s equation and (6.18). (6.18), my inference that human cash flow equals less invested consumption, also trusts that all maintenance consumption is exhausted in satisfying tastes. Summary Accounting for human capital is much like accounting in a firm. Expected recovery of human depreciation in pay is logical certitude illustrated in age-wage profiles and in the boss-secretary parable. The pay rule is not entirely logical certitude, however, as it also asserts that maintenance consumption is not recovered. Age-wage profiles Chapter 6: Parallels with the Firm 2 4 16 24 support this hypothesis too, as the constancy of pay differences to the end would otherwise be improbable. I made it the Darwinian axiom: maintenance is exhausted in satisfying our taste for survival. Ben-Porath s life cycle was adjusted to express these features. Factor risk theory argued that human capital is the riskier and higher-return factor because capital of any kind takes on the risk characteristics of its owners and human capital is owned disproportionately by the risk-tolerant young. The Y rule contradicts the Y I C equation, while the pay rule contradicts the dogma that output equals pay plus work. National accounts are founded on both. That means I can expect tough resistance. I have tried to prepare for it by adding a little more to each argument with each chapter. Throughout this chapter, and throughout this book, I have bent over backwards to distinguish logical certitudes from falsifiable hypothesis. Economics needs both. But it needs to know which is which. The pay and Y rules, for example, are each certitude in part. The certain part is the heretical one. The present value and maximand rules follow from definitions, and compel expected recovery of human depreciation in pay. I then relied on the convergence axioms to infer actual recovery as a norm, not a invariable outcome, and on the new axiom of the biological imperative, as well as evidence from age-wage profiles, to infer that maintenance consumption is exhausted rather than recovered in pay as well. Chapter 6: Parallels with the Firm 2 4 16 25 CHAPTER 7: PETTY S IDEA How We Got to this Point I said that if I had any sense, I would have left the worms in the can by pretending to believe (4.1) as Mill did and as the rest of the world seems to do. Charts and tables confirm his prediction in his and their terms as well as mine. But Piketty s argument was rightly criticized for leaving human capital out. Someone might or might not have faulted mine on the same ground if I had stopped at the end of Chapter 4. Whether they would have or not, every composer knows that the critic to hear is the one inside. What that critic told me was to gamble a case already won, open the can, and follow the argument and worms wherever they lead. That s why my title promised other surprises. I risked following it past clarification into digression when I argued the pay rule. I since tried to justify the digression, if there was some, by showing how that rule could explain Piketty s data for pay net profit ratios in the twentieth century. And I tried to show how the pay rule and depreciation theory combined, making pay all human depreciation and no realized work at the end, gives the only convincing explanation of age-wage profiles showing rising or steady pay as human capital grades smoothly to zero. Risk theory reinforced this argument by revealing time discount rates for human capital as those made plain for physical capital owned by the same ageing cohorts. Every step was an adventure, and every step led to the next one. But I opened other questions and cans along the way, and the same critic tells me to follow the worms a little farther. I said that the cost of survival is adult consumption for the sake of investment in the next generation, that pure consumption is more or less the same, and that we will understand the maximand when we understand pure consumption. These threads lead into evolutionary biology, which reasons how traits are selected for lineage survival. The faithful need not take alarm. Although I mean natural selection, divine Chapter 7 Petty s Idea 2 3 16 1 selection should probably do as well. We are all at peace with the fact that people and other creatures care for their young. Economics and evolutionary biology are much the same. Helen Keller, born blind and deaf, might still have reasoned her way through much of both. Hamlet would have loved them. I love them most when they test the limits of logic, and consult the data only at the end. The theme from which both reason, as Herbert Spencer taught in the nineteenth century, is what he called survival of the fittest. Another philosopher, Karl Popper, found fault with this idea a century later. Popper was one of those I mentioned who disapprove of truisms. I haven t read Popper, but gather that he thought it improper to define fitness as potential survival, and then measure it as survival. That objection is close to being understandable from an anti-truism viewpoint. But the reason why it is not quite a truism is instructive. Measurement implies an empirical world of data in external and observable reality. Spencer s insight, really his paraphrase and generalization of Darwin s, is not quite a truism because it carries the hypothesis that potential has an empirical meaning. Aristotle s idea that potency precedes and explains act is called causality. Adam Smith s friend and fellow Scotsman David Hume scarcely doubted causality, but argued correctly (I think) that it cannot be proved either by logic or by experiment. The fittest prove themselves such by surviving if and only if Aristotle was right. Natural selection simply means the untestable but little-doubted theory of causality. Spencer or Darwin or Gertrude Stein might be faulted for insulting our intelligence by stating the obvious. That shoe would fit Gertrude Stein. But Spencer and Darwin, like the little boy in Hans Christian Andersen s The Emperor s New Clothes, were stating the obvious unseen. Andersen s point was that intelligence was not the thing lacking or what the little boy supplied. It was about how tradition and mind-sets and in-groups might sometimes need a look from outside. Peer review is not enough. Sometimes it perpetuates nonsense. The little boy was not a peer, but he could tell clothes when he saw them. ( Peer , as any theorist knows, means someone who pees on your theory.) Chapter 7 Petty s Idea 2 3 16 2 I confess that this book casts me as that little boy crashing the economic party, and maybe the evolutionary biology one too, in trust that outsiders might have better chances to spot the obvious unseen. What else was the pay rule? I derived it easily from doctrines already accepted, I think, and anyhow hard to refute. Those were the total return turism and Ben-Porath s equation for human growth. The maximand rule or deadweight loss rule would prove it as well. How could Becker have missed that what holds for investment in job training by employers holds for any investment by anyone in anything? How could students of the age-wage problem have missed the obvious solution? Investment implies expected recovery with interest, by the investor or a chosen donee, and recovery means recovery of depreciation. I belabor this point because tradition dies hard, and naturally tends to circle wagons under attack. I doubt that my surprise attack will meet the resistance Darwin s found. Darwin s met resistance founded on faith. I took pains to show that my version requires only selection for lineage survival, and that a benign Artificer might ordain the same. Evolutionary Biology and Hamilton s Rule Economics, meaning any quantitative rationale of choice, normally describes humans and human choice. That goes for this book too. But some treatments of economics including this one are meant to fit other creatures as well. My axioms have kept that in mind. The mortal and reproducing population need not be human. Much of the animal kingdom, I think, shows convergent tastes and predictions or acts as if it did. The biological imperative is meant to apply to all. All, as I see it, own capital of both factors. Even protozoans own ( monopolize ) the nutrients they assimilate and the space they occupy. Humans are exceptional in their cultural accumulations of learning and technology shown in our secular (lasting) growth. But I did not make those features axioms. I argued that economics tended to reason explicitly or implicitly from the biological imperative, meaning what I call ends in lineage survival, from Petty through Smith Chapter 7 Petty s Idea 2 3 16 3 and Ricardo and Malthus and Mill, until the marginalist revolution shifted focus from objectives to the mechanics in supply, demand and price. Bioeconomics awoke a century later, largely it seems in response to the challenge of Hamilton s rule. Now I will look at it too. My term lineage survival is unusual. It is meant not to take sides between kin selection and group selection. The kin selection idea was another word for Hamilton s rule from his doctorial thesis in 1964. It said that genes encoding investment in close kin encode investment in likeliest sharers of those genes, and should tend to entrench and perpetuate themselves. His condition for investment was r bc . r here meant relatedness: for offspring or siblings, for nephews or nieces or grandoffspring, and so forth. b meant benefit to the donee, and c meant cost to the investor. The sign means greater than . The cost and benefit were measured in fitness itself, meaning chances to survive and breed. But that too meant inclusive fitness where investing in kin counted as breeding when adjusted for relatedness. The idea was that I give up some of my chances if I can increase yours to my net genic advantage in the long run. Hamilton allowed for exceptions including meiotic drive, which sometimes forecloses gene competition. His rule prevailed because it made mostly good predictions. Humans and creatures in general usually care for their own young first, if they have any, and for closely related young if not. Hamilton made it clear that cost c and benefit b in his hurdle rb c respectively meant fitness given up by the investor and fitness grained by the investee. He further made it clear that fitness could be measured as R. A. Fisher s reproductive value V(x) published in 1930 and 1957. V(x) meant likelihood at age x of reaching each successive age times expected offspring at that age. V(x), or Bob Trivers reproductive success RS, which simplifies V(x) to expected remaining offspring, is implicitly constant at the population scale unless there is population growth (Fisher s Malthusian parameter ). For creatures other than us, the Chapter 7 Petty s Idea 2 3 16 4 parameter typically fluctuates around zero and group fitness holds about where it started. Hamilton s rule, applied to diploids like us where closest relatedness r absent inbreeding is , forbids investment where fitness gained (benefit) is less than twice fitness given up (cost). I see no escape from the inference that fitness would double with each generation, or more to account for cases where relatedness fell below . I see no relief in an interpretation, say, that each successive generation cures this imbalance by investing only half or less of its fitness and letting the rest lapse. Fitness is likelihood of leaving descendants of equal fitness. It is not strictly conserved, because likelihood is generally not identical to outcome. There is ex ante and ex post fitness. But the ex ante kind is meaningless unless potency, in Aristotle s terms, is expected to converge to act. Hamilton s rule should not have escaped this critique for half a century. It clearly has merit, but needs some different expression. Such a reformulation might treat rb c as a maximand within practical constraints. We can see how it might be by looking at the context. Darwin s idea is a competition for breeding success. This biological imperative is a powerful predictor in nature. It predicts that traits are selected for successful reproduction to the exclusion of all else. Evidence is impressive. Semelparous creatures who breed only once and do not invest postpartum care, like salmon and soybeans, die within hours. An octopus mother breeds only once, cares for her young a few weeks, and dies as they disperse. Nature is on a tight budget. Resources wasted soon become resources lost to thriftier lineages. Hamilton saw this. He was right in stressing the role of competition among individuals and individual heritable traits. Darwin did the same. One thing Hamilton s rule leaves out, which is not to claim that he overlooked it, is that traits and their genes best at prioritizing self-replication might for that reason hurt chances of achieving it. We know this happens. Human tradition everywhere resists and punishes nepotism when it crosses a line. Jane Goodall reported the same for Chapter 7 Petty s Idea 2 3 16 5 her chimps at Gombe. I think I have seen it among the pack of dogs, led by my father s favorite Sean , at Sutton Place. That would count as one of the practical constraints. Too little support for family over equally deserving others is seen as a fault, and too much as another. The reason is obvious. Jack s ambitions for kin will eventually conflict with Zack s, just as with ambitions for food and nest sites and mating opportunities. Not everyone s firstborn can be king of the hill. Social creatures evolve agonistic rules to settle such conflicts peacefully. Losers in mating tournaments, or in contests where males display and females choose, usually survive to compete again next year. The contest is in the group interest because the traits of strength and skill proved in the winner will be those passed on. Our genes tell us to compete as best we can for the sake of a fair test, and to stop when the verdict seems clear. And soon enough it does. The quarterback tries his best for three downs to move the yardsticks, but trots to the sidelines on fourth down for the sake of another chance later. If genes can encode this farsighted strategy for those other kinds of competition, why not for nepotistic competition too? For decades, biologists wondered why genes need so much selecting in species long established. Shouldn t earlier contests have selected the fittest genes once and for all, with no need for further ones but to screen out recent and harmful mutations? Shouldn t the best traits have become clear millennia ago? Why need males contest in tournaments or beauty contests every breeding season, with mostly the same contestants, when best genes ought to have proved themselves soon after the species began? Then there would be no genetic diversity except for recent mutations not yet screened out. Population genetists such as Fisher, J. B. S. Haldane and Sewall Wright had written mathematical models showing that even the slightest selection pressures should drive a gene to fixity, and its rivals to extinction, within a few generations if selection favored it consistently. Their argument was Malthus insight: breeding success is geometric. Yet there is rich allelic diversity wherever we look. There are some gene sites in some species where the most common allele Chapter 7 Petty s Idea 2 3 16 6 holds frequencies under ten percent, and those frequencies are constantly shifting. The flux proves that losers are allowed mating opportunities too, though not as much, and leave young to compete in the next generation. Hamilton explained why that could make sense in a paper published with Marlene Zuk in 1982. George Williams in 1976 and John Tooby in 1980 had argued that fittest genes in one generation might not be fittest in the next if niche pressures varied to counter current gene choices. Tooby had pointed to parasites and pathogens, particularly single-cell ones whose life cycle runs less than an hour. They could evolve new strains to outflank our old defenses and call for new ones. Hamilton and Zuk continued this theme. They suggested that genes might have long memories, put in human terms, and might have seen the same parasites and pathogens pull such tricks before. If some individuals in the host population still carried the antidote gene that worked the last time the same unexpected strain arose, or something close enough to it, hosts collectively could weather the threat if that antidote gene could be identified and spread fast enough. Then how? Hamilton and Zuk proposed that what winning males display in contests of singing or croaking or agility or symmetry, or bright colors in the right places, was possession of the genes needed to counter the current strains of pathogens and parasites. Losers in the same contests carried genes that had proved best against strains of the past and might come back in the future. Nepotism practiced by winners would speed up the spread of the current antidote. But losers carried genes that had worked against other strains that might recur. A way had to be found to keep all those potential antidotes somewhere in the medicine cabinet. Current losers had to be saved for later. Gene diversity was the key to group survival in the long run. The quarterback trots to the bench on fourth down because that is better for himself and the team than being carried to the hospital. He realizes that other players are best for punts or field goals or defense until he gets the ball again. Selection pressures do not favor the same traits and genes every time. Chapter 7 Petty s Idea 2 3 16 7 Hamilton s Parasite Theory My take on Hamilton s 1982 paper, which I consider his masterpiece, is a blend of his thoughts, Bob Trivers from a decade before, Richard Alexander s, and maybe mine. Mine sees a population arranged in local demes which intrabreed in most cases for best adaptation to local pressures including pathogens and parasites. A local strain to which the local deme is adapted might spread to other demes which are not. Hosts in the invaded demes become sick. Female ones there intuit the degraded conditions, breed less often, and breed mostly females (mothers can choose) because males with their now ill-adapted anti-parasite (histocampatability) genes will find few willing mates. This begins the part from Trivers. I ll come to Alexander s later. Mothers in the source deme see an opposite picture. Conditions are not necessarily better than before, but they are better than in the invaded demes. They intuit this, breed more often, and breed mostly males. The males migrate to those invaded demes, carrying histocompatibility genes pre-adapted to the invaders, and find willing mates there if they can show the signs. The idea that mothers choose to breed mostly males in prosperous conditions is the other half of Trivers idea. The idea that the invading parasite and the males with antidote genes might tend to originate from the same deme may be mine. That presupposes that females can trust the signs. Nature makes sure they can. She provides resistant males with hard-to-feign ones to prove it. This was one of Hamilton s key insights. His idea has been called the truth in advertising theory. Symmetrical antlers, deep croaks, accurate songs and bright colors where they should be tell the females whose genes can be trusted. Parasites and pathogens would fake them in afflicted host males if they could. It seems they can t. Hamilton, I believe, had solved three nagging puzzles at once. Why does nature waste resources on beauty displays that seem at first glance to hinder fitness? A Chapter 7 Petty s Idea 2 3 16 8 peacock s tail feathers are an encumbrance in running from predators. And why give the expensive displays mostly to males? Why do males exist at all in species where they contribute genes but no care? We just saw the answer to the first. Answers to the second two again build on an insight of Trivers in 1973. Males produce cheap sperm carrying genes alone. Females produce eggs packed with costly nutrients. A male can pass genes to many descendants through many mates if they approve his signs. That speeds up the fight against parasites. Nature evolved males and their self-promoting signs and their contests for fastest spread of antidote genes to catch up to shifts in parasite load. Where Do Losers Go? A key point in the Hamilton-Zuk theory is that losers genes in the beauty contest are typically not driven to extinction. They are driven to low frequencies until needed again. Kin selection, up to a point, helps maintain genic diversity by preserving current losers within the gene pool. Selection pressures punish and restrain kin selection when it conflicts with preservation of other genes whose time will come again. I met Hamilton at a conference in Squaw Valley, where Bob Trivers had helped us attract him, and told him this reason why I thought his 1982 paper helped complete and qualify his 1964 paper. He was the absent-minded professor to perfection. Moody, distracted, profound. He smiled, a rare thing for him, and said It s been a long search. This explains what I mean by lineage survival or fitness. Much of this book assumes its maximization even among modern humans, who create our own urban environments in place of the ancestral savanna for which we were adapted. And much of economic history, although written in cities by city-dwellers, appears to assume the same. Chapter 2 listed some examples. Let s review them. There was Petty s of 1662. The similar equilibrium wage theories of Smith and Ricardo expected pay to converge to the level maintaining and replacing the work force, which is trusted to spend it on both. Malthus population principle in 1798 and 1801 Chapter 7 Petty s Idea 2 3 16 9 added the mechanics. Nassau Senior made that principle his first axiom in his Outline of 1836. The biological imperative lapsed from attention when the first generation of marginalists, led by Jevons and Menger, with Walras soon to follow, thought it unscientific to explain or justify tastes. It reemerged a century later in bioeconomics, much of which looked for economic implications of Hamilton s rule. We will see how it might clarify pure consumption and the maximand. Enlightened Kin Selection Hamilton s rule needs completion because the quarterback and his genes have figured out that the bench is better than the hospital. What really happens, I think, is a long-range example of Bob Trivers reciprocal altruism of 1971 as generalized by Richard Alexander. Bob wrote that creatures might invest in non-kin if the investment were expected to be repaid with interest. Alexander added that the repayment could be to the investor s kin with equal genetic benefit if Hamilton s hurdle rb c were cleared from the investor s perspective. The quarterback yields to special teams on fourth down, and they to the defense until possession changes again, for the best interests of each and all in the long run. The interest they receive in turn for deferring to non-kin is the cost of maintaining themselves on the bench. It does not accrue and compound because it is paid out continuously. It is an insurance cost that each temporary winner dares not trim. Group selection is enlightened kin selection. Three or four decades ago, this much acknowledgement of group selection would have met more resistance than I expect now. It shouldn t have. Half the beauty of the Hamilton-Zuc scenario is in explaining allelic diversity as a result of agonistic rather than lethal competition. Zack and Jack and their genotypes are rivals now because they are teammates in the big picture. Kin selection is a help until it crosses the line and becomes a hindrance. Some mothers in the source deme will carry higher frequencies of the antidote gene than others. They will tend to be healthier, and so able to invest more energy in more Chapter 7 Petty s Idea 2 3 16 10 young. If all mothers invest preferentially in their own, or maximize Hamilton s standard rb c , healthier mothers will produce more young with higher doses of the antidote genes, while sicklier mothers will produce less with less. Here it is females who compete to prove the same better genes that males just proved in the tournaments or beauty contests. The race against parasites speeds up again with Trivers fine insight about healthier mothers choosing to dial up the ratio of sons to daughters ( primary sex ratio ), and to expand the reproductive period at both ends with shorter birth spacing for more male offspring still. (Some of this may be my idea rather than his.) Nature proves best current genes twice. Fathers prove them by duking it out or strutting their stuff. Mothers carrying the same best genes prove it by winning the breeding contest against other mothers after. The ex ante ex post distinction counts as much in biology as in economics. Here it accelerates the selection process. Offspring carrying the antidote gene to meet current parasites will generally not on that account cost more ex ante invested consumption to raise. If they are males, who can turn that advantage into many offspring, the ex post value of that same investment can be far higher. The converse works for offspring lacking the gene. Their mothers can make the best of it by producing females who will find breeding opportunities anyhow with mates carrying the gene, since she knows which they are and males always have cheap sperm to spare, and will so keep their own genes in the gene pool. Parasites got the last laugh by killing Hamilton on research in Africa a few years after I met him. I never knew well enough to call him Bill. Bob Trivers called him the deepest thinker in the world. That couldn t be wrong by much. Parasites and Demes Ernst Mayr, Bob Trivers doctoral advisor at Harvard, defined a deme as a race or subpopulation that intrabreeds at least 95 of the time. I hypothesize that it does so, Chapter 7 Petty s Idea 2 3 16 11 in some cases, to maximize frequency of a histocompatibility gene which is an antidote to the local strain of parasite or pathogen. This idea could complement the Hamilton-Zuc parasite model nicely. It would give a safe home to which both gene and parasite could retreat until their times come again. Period of Production Theory Back to economics. Chapter 4 mentioned John Rae as a contributor to what later developed into Mill s free growth theory. Rae s book, published in 1834, also begins what was called period of production theory. The idea was that production took time, and that profit compensated the investor s patience over the production period. Senior, who had sent Rae s book to Mill, adopted this idea in his own betterknown Outline in 1836. Rae s book itself found few readers, despite its warm endorsement by Mill in his own magnus opus of 1848. Jevons adopted the idea from Senior in 1871, and Boehm Bawerk from Senior and Jevons in his book of 1889. Boehm Bawerk soon learned of Rae s work, and dedicated later editions to him. Period of production theory thrives today in the Austrian School, which had been founded by Boehm Bawerk s teacher Carl Menger in 1871. (Menger was the guy who squabbled with Schmoller in Chapter 2.) It has found little favor elsewhere. The period seemed impractical to define or measure, and so gave little predictive value. Joseph Schumpeter, a student of Boehm Bawerk who disagreed with him on this point, argued in 1911 that the period of production is zero; capital is present continuously. Frank Knight, who had anticipated Schultz in realizing that some consumption is investment in human capital, argued as Schumpeter had. But the theory is true by definition. Any rate is the inverse or reciprocal of a period. The inverse of 4 per year is 25 years. Return is the ratio of net output to capital producing it, meaning the rate of production, and its reciprocal is the period of Chapter 7 Petty s Idea 2 3 16 12 production. Where the critics were right was in finding a lack of clarity and predictive value in the theory. Where does it lead? Rabbits and redwoods have different periods of production, at first glance, but should nonetheless agree in return if in risk. Jevons wrote that he meant production of the wage fund as a whole, meaning the universe of consumer goods. But he pointed to wine and timber as examples to help pin down the period. Boehm Bawerk picked nine years for no reason I can see. All went wrong by considering physical capital only. The factors blend into each other; physical becomes human capital through invested consumption, and conversely when human depreciation is recovered in products. The generation length gives the replacement period for total capital if total capital is interpreted as fitness and if all fitness of each generation is passed to the next. Jevons and Boehm Bawerk assumed growthlessness for simplicity, and would have realized that they were modeling only the replacement component in net output. Boehm Bawerk s contribution, anticipated by Petty, was his insight that time preference rate explains rate of return by pricing the capital denominator, and not the reverse. This had not been clear in Rae or Senior or Jevons. I give all four high marks for a near miss. But they could have come closer. Remember that Senior s first axiom had been Malthus population principle. He and the others would also have known of Petty s human and total capital idea, which was occasionally revived and critiqued. They didn t quite connect the dots. Next Generation Theory Petty wrote A Treatise of Taxes in 1662. The whole title continues to about as many words, counting ampersands, as pages in the book or pamphlet. His son tells us that Petty dictated his books overnight to secretaries who slept by turns. It is easy to believe that Petty didn t need much sleep. He was a go-getter who had sailed to Chapter 7 Petty s Idea 2 3 16 13 Ireland as chief medical officer to Cromwell s ironsides, stayed on to survey the Irish land with which Cromwell would pay his troops, and then got Parliament s approval to invest in that high-risk land to make a fortune. It is rare for a man of practical gifts to be a deep thinker too. Petty, like my father, was both. His Verbum Sapienti of 1664 was first to apply the ancient capitalization formula to both factors, meaning workers as well as tradeable things, and so originated the concept of human capital as present value. He applied this insight there and his Political Arithmetick in 1676, and again in The Total Wealth of England in 1683, to measure the total wealth of England including human capital. That makes him the father of national accounts. But his greatest achievements, I think came in A Treatise of Taxes. Chapter 4, paragraph 9 of that book begins with 19. Having found the Rent or value of the usus fructus per annum, the question is, how many years purchase (as we usually say) is the Fee simple naturally worth? If we say an infinite number, then an Acre of Land would be equal in value to a thousand Acres of the same Land; which is absurd, an infinity of unites being equal to an infinity of thousands. Petty clearly recognizes that time preference, meaning our taste for impatience, explains productivity, or ratio of output to capital, rather than the other way around. This powerful and counterintuitive insight is usually credited to Boehm Bawerk in 1889, who showed that it is true for man-made things as well as land. The utility or usus fructus being a given, we bid less for the land or other capital producing it if we are less patient, and more if more. Bidding less for this denominator of rate of return bids that rate itself up if the numerator is a given, and conversely. That s why riskier assets offer higher return. Petty s reductio ad absurdam of a hypothesis of infinite patience is obvious in hindsight, but may not have been written down before. Petty continues: Chapter 7 Petty s Idea 2 3 16 14 Wherefore we must pitch upon some limited number, and that I apprehend to be the number of years, which I conceive one man of fifty years old, another of twenty eight, and another of seven years old, all being alive together may be thought to live; that is to say, of a Grandfather, Father and Childe; few men having reason to take care of more remote Posterity: for if a man be a great Grandfather, he himself is so much nearer his end, so as there are but three in a continual line of descent usually coexisting together; and as some are Grandfathers at forty years, yet as many are not till above sixty, and sic de eteteris. 20. Wherefore I pitch the number of years purchase, that any Land is naturally worth, to be the ordinary extent of three such person their lives. Now in England we esteem three lives equal to one and twenty years, and consequently the value of Land, to be about the same number of years purchase. Possibly if they thought themselves mistaken. . . .(as the observer on the Bills of Mortality thinks they are. . .) 21. . . . But in other Countreys Lands are worth nearer thirty years purchase, by reason of the better titles, more people, and perhaps truer opinion of the value and duration of three lives. 23. One the other hand, Lands are worth fewer years purchase (as in Ireland) . . . by reason of the frequent rebellions. . . The other Countreys could include France and especially Holland, then models of prosperity. Petty had made his fortune in Irish mortgages, and knew the years purchase there. But the argument is a puzzle. There is a focus on longevity and mortality, as if the generations are providing for old age. But Petty s overlapping generations model cannot be much like Paul Samuelson s of three centuries later, where a generation of productives leaves a nest egg for retirement. Samuelson s productives are replenished exogenously, with children left to the imagination. Why would Petty have mentioned their ages? And retirement at age 50, as a norm, would have made no sense to Petty or his readers. The grandfather will stay in harness. Chapter 7 Petty s Idea 2 3 16 15 The one and twenty years could mean remaining life expectancy at age 50. But Petty could easily have spelled that out, or the implied 71 year terminus. He does spell out the ages of the three generations. Their average difference in age rounds to 21 years. Petty s readers, like Smith s and Ricardo s after, would have taken it for granted that each generation provides for the next. Few men having reason to take care of more remote posterity would have registered in the context of that provision. Posterity usually meant and means descendants. His description, like mine, is incomplete. He may mean that life expectancy is also a factor in calculating the years purchase. If so, he apparently leaves that thought to be followed up later. There is also room to argue that the grandfather looks two generations ahead, so that the years purchase becomes 42 years. But that would give the usus fructus at 2.3 . All the rates Petty reports elsewhere in the tract are much higher. One generation length is what he seems to apply. My reading is that the grandfather provides for the grandson by passing all to the son. Petty s overlapping generation insight has been one of his least noticed, just as with Mill s on output growth preceding and explaining capital growth. I first read of Petty s idea in a collection of Lionel Robbins lectures at London School of Economics delivered in 1979-1980, but published in 2000. I learned from these lectures that Gustav Cassel had published the same idea in his The Nature and Necessity of Interest in 1903. I hunted that down. Robbins misremembered in telling his students that Cassel had arrived at the idea independently. In fact Cassel and Robbins both quote the same excerpts from A Treatise of Taxes that I just did. Cassel inferred that interest rates cannot stably be less than 2 per year. Chapter 7 Petty s Idea 2 3 16 16 I arrived at the same idea independently, anyhow, and published it in Social Science Information in 1989. To date it is my only publication in a refereed journal, and remains uncited as far as I know. Alan Rogers, a biologist at University of Utah, published almost the same idea in 1994 1 and 1997 2 . Neither of us knew of Petty or Cassel or each other. Both of Rogers two papers are included in my appendix. Petty s great idea has otherwise remained unnoticed as far as I know. His idea in modern terms comes from the same ancient capitalization formula. Sumerian temples knew how to evaluate land as well as mortgages and annuities by discounting to present value. In the simplest case, where cash flow is expected to hold constant forever, the logic begins with the definition cash flow rate cash flow capital . Algebra allows capital cash flow cash flow rate . (7.1) Years purchase, given those simplifying assumptions, meant years purchase 1 cash flow rate , (7.2) 1 The Evolution of Time Preference. 2 Evolution and Human Choice over Time. Chapter 7 Petty s Idea 2 3 16 17 Suppose for example that cash flow rate is known to be 4 . Using (7.2), we would figure years purchase 1 4 year year 4 year 4 100 100years 25 years. 4 That allows (7.1) to be reexpressed as capital (cash flow) x (years purchase). (7.3) Where cash flow and cash flow rate are assumed constant over time, they become identical to profit and rate of return. Sumerians realized that return is the universal maximand, three millennia before Turgot wrote that down, and that competition tended to equalize it to a current market norm. Then it would also equal years purchase. Petty was searching for the rationale of years purchase, and found it in the generation length. Petty s idea I think, and mine anyhow, could begin with capital means of accomplishing goals means of lineage survival fitness. (7.4) Nature s way is transmission of all fitness, meaning total capital for humans, to the next generation. Nature cares just as much for later generations, but trusts each generation of immediate descendants to know best what their own immediate descendants will need for that long-range goal. Each passes the baton and retires. We invest everything in the next generaton precisely because we care about the ones after. Hamilton s rule reflects this reality. Grandoffspring are only related to Chapter 7 Petty s Idea 2 3 16 18 donors, while offspring are related. Hamilton thus predicts grandoffspring to receive investment only when benefit cost ratio is double. My own analysis allows more role for group selection, without saying how much, and shifts attention from who benefits to when. Petty s idea, if I understand him, is years purchase generation length 21years, (7.5) which would give cash flow rate 1 generation length 1 21 years 4.7 year. (7.6) This would tally well enough with rates of return and interest rates as Petty knew them. I would adjust Petty s estimate of the generational length. Petty s primogeniture model may have been true to law and custom for land inheritance, but it is not true to biology. I prefer R. A. Fisher s 3 method equal-weighting all births from first to last, and equal-weighing ages of both parents at each birth. We have some evidence that the maternal generation length in recent decades, by that method, has run near 26 years over recent decades. If fathers are five years older on average, Fisher s method would arrive at 28.5 years. Rogers found 28.9 years from other sources. Then (7.6) would give cash flow rate 1 3.5 year. (7.7) 28.5 years 3 The Genetical Theory of Natural Selection (1930). Chapter 7 Petty s Idea 2 3 16 19 All this has assumed has assumed constant cash flow indefinitely. That would imply zero growth. Only under zero growth do output and rate of return simplify to cash flow and cash flow rate. Now let s model growth in. I divide the Y rule by total capital, as in Chapter 4, to get output total capital total capital growth total capital cash flow total capital , or more compactly rate of return growth rate cash flow rate. (7.8) At the collective scale, cash flow rate simplifies to pure consumption rate. That would be written rate of return growth rate pure consumption rate, (7.9) as in Chapter 4. Then (7.6) through (7.9) allow rate of return growth rate 3.5 year (7.10) at the collective scale. (7.10) would be wrong if growth rate were a function of cash flow rate. I said that politicians, and even economists to a degree, teach that faster growth needs consumption restraint first. That corresponds to cash flow restraint in (7.10). Free Chapter 7 Petty s Idea 2 3 16 20 growth theory says such restraint doesn t happen. Data say the same. I apply the same idea in next generation theory. My 3.5 is a rough estimate. What counts is the generation length. The length was probably higher, and the rate lower, before medicine and sanitation lowered mortality rates, and let two or three births per couple meet the need for population replenishment. The cash flow or pure consumption rate modeled at 3.5 might also vary for reasons other than changes in the generation length. My charts show the pure consumption total capital rate as higher in the middle part of the twentieth century as people drained capital reserves to keep up consumption in times of world-wide depression. I ll say more about these reserves. First Interpretation Next generation theory says in effect that R. A. Fisher s version of the generation length, not Petty s primogeniture version, gives the period of production of total capital. We would miss the point if we focused on the period production of human capital separately. Total capital is our means of lineage survival. This reinforces my theme that human capital does not mean humans. It means skill sets priced at present value of foreseen cash flow. Skill sets are not enough for lineage survival. We also need things. We should not fall into the trap of surplus value theory, which had been taught by communists for decades before Karl Marx joined their ranks, in supposing that skills make things. It is only half the truth. Skills plus things make skills plus things as the generations repeat. Nor should we make the mistake of supposing that the generation length begins and ends uniquely from birth to birth, so that the remaining period of production grows shorter over adult life and the time discount rate steeper. The period of a cycle is the same at any point. The young, simply by maturing, are already investing in their Chapter 7 Petty s Idea 2 3 16 21 counterparts in the next generation. Each cohort (same-age group) invests effectively in its immediate descendent. Eight-year-olds are investing in the next generation of eight-year-olds, and so to the end. That s why Fisher s version of the generation length is best. It prioritizes each cohort and gender without judgment as to which matter more. The period of production gives our patience horizon. The horizon and its reciprocal, the pure consumption rate, both hold the same at any age. Cash Flow and Risk The maximand rule notes that time preference and return vary with risk. Return is growth rate plus cash flow rate. Is variance with risk captured more in one of these two components than the other? We might intuit that riskier and higher-return assets grow faster on average, over enough time for the bumps of risk to even out. But if that tended to be true, the universe of assets would grow progressively riskier over the decades and centuries. That is not my reading of history. My impression is that smoother and rockier periods come and go without overall trend. In the world we know, then, it is cash flow rate rather than growth rate that varies from asset to asset with risk. For illustration, consider factor risk. I argued that human capital figures to be the riskier and higher return factor because assets tend to reflect the risk appetites of their owners. The young are more risk-tolerant, and own human capital disproportionately. If this higher return were reflected in higher growth, rather than in higher cash flow, the ratio of human to physical capital would tend to rise steadily over the millennia. Most readings have tended to see it the other way around. I myself favor the neutral assumption that the factors keep pace. Then cash flow rate becomes higher for human than physical capital, with 3.5 the cap-weighted average. Chapter 7 Petty s Idea 2 3 16 22 Consider also the history of corporate leverage. Equities are riskier because bond interest is paid first. If equities grew faster, however, leverage would constantly decline. That is not what we see. This inferred concentration of risk premium in cash flow rate is convenient for testing. Growth and return are two of the most closely followed variables in economics. We have no direct measure of the pure consumption rate, or cash flow rate at the collective scale. Nor have we any direct measure of growth and return to total capital at any scale. But we have a good idea of average return and growth and cash flow to securities and business assets. By the maximand rule, return to human capital should be the same but for differences in risk. I model human capital as somewhat riskier, for reasons just given, and human capital is the larger factor. Then if I am right in placing the risk premium within the cash flow component of return, and in estimating average-risk cash flow rate at 3.5 , cash-flow rate to the business sector as a whole should be somewhat less. Next generation theory predicts at the collective scale. Collective return is implicitly average return, and that means average-risk return. My reading of history, which rules out progressive growth of higher-risk assets at the expense of lower-risk ones, simplifies that to average-risk cash flow plus whatever collective or average growth happens to be at the moment. Don t Grandparents Invest? Next generation theory assumes that each generation invests all its capital of both factors in the next within the generation length. We expect it to do the same in turn. We care about grandoffspring too, but serve them best by trusting and enabling their parents only. A first reaction is that this denies the obvious. Humans today, in advanced countries, normally live to nearly three times the generation length. (3 x 28.5 85.5). Even retirement at age 65 comes eight years after twice that length. And job number one Chapter 7 Petty s Idea 2 3 16 23 for grandparents seems to be helping take care of grandchildren. Doesn t that falsify next generation theory? Note quite. Retirement typically means dependence on savings or subsidy. The parental generation subsidizes both the young and the old. Retirees can be interpreted to some extent as hired though willing caregivers paid for by parents. That explains part. The rest, I think, is best explained as replenishing a capital reserve. Nature builds up reserves in good times and depletes them in bad times. A rise in longevity from what is normally needed for lineage survival is a rise in human capital reserves. Human capital is the most versatile kind. We geezers have lost a step. But we remember how it s done. We particularly remember how parenting and homemaking are done, since those change least with technology. Julius Caesar s nanny, with a few pointers, could probably fill in as a nanny today. If the parental generation were pulled away to fight a war, or rebuild after a catastrophe, we oldsters could keep up the home front. Free growth theory, abundantly proved in the data, is essential to next generation theory. What each generation invests in the next is all its fitness (total capital). All ex post growth, up or down, is added or subtracted for free. Catastrophes and windfalls are the random kind of free growth. Tech gain is the accumulating secular (of ages) kind. I wouldn t put it past nature to have learned that sustained growth means rising risk. She could adjust with reserves. We may be selected (a nicer word than programmed) to build human capital reserves intentionally, whether or not seeing nature s motives for the buildup as distinct from our own, when real wealth doubles with every generation. That intentional or ex ante part would mean investment in the reserve. It isn t targeted to the grandoffspring generation, because they aren t expected to draw it down unless needed. All the rest of the buildup of human capital reserves in lifespan prolongation is best explained as random free growth if my interpretation holds Chapter 7 Petty s Idea 2 3 16 24 water. Next generation theory is not contradicted because it describes cash flows only. It treats all growth at the collective scale as free and exogenous. Testing Next Generation Theory The proxies for the pure consumption rate (Schultz pure consumption over total capital) in security markets would be dividend yield for equities, and interest for debt claims. Ibbotson Associates SBII (2012), Chapter 4, shows average real interest on U.S. corporate bonds as 3.0 over the period 1926-2011. Real corporate dividend yield rate over the period can be estimated from the same source at about 2.9 . Jeremy Siegel s Stocks for the Long Run (2002), Table 1-2, reports data extending back to 1802. Real return over the period 1802 2001 is shown as averaging 3.5 for long-term governments, and 2.9 for short-term governments. Corporate bond returns would have run somewhat higher. Global Financial Data shows stock market information for 95 countries. Data for U.K., U.S., Germany, Australia and France begin from 1701, 1801, 1870, 1883 and 1896 respectively. My charts and tables, and my website Free Growth and Other Surprises, show this information along with evidence for free growth. The eighteenth century is represented by U.K. alone. U.K. then showed real price return, dividend yield and total return at 21.4 , 7.9 and 29.3 . Volatility of dividend yield was exceptional. From 1801 forward, U.K. averages for these flows were 2.2 , 4.2 and 6.4 . U.S. figures from 1801 forward were 2.9 , 5.3 and 8.3 . Global Financial Data also shows collective flows for Europe and the world since 1926. Here the figures were 3.3 , 3.9 and 7.3 for Europe, and 3.5 , 3.8 and 7.3 for the world. Modeling of the pure consumption rate before the emergence of security markets could refer to the history of interest rates alone. Interest is rate of return to senior claims. Rate of return to any claim is realization by investors net of all expense. Chapter 7 Petty s Idea 2 3 16 25 Investors as to interest means lenders, not borrowers. Interest rates published historically are rates borrowers are contracted to pay. Interest rates realized by lenders are less for two reasons. There are friction costs of due diligence, contracting and collection. Default costs, slight when times are good, can be catastrophic when times are bad. Homer and Sylla describe normal contracted rates, not realized rates net of those costs, as 10 40 in Sumer and Babylonia, 6 18 in ancient Greece, 5 24 in Egypt, and 4 12 in Rome and the Byzantine Empire. 4 After higher rates in the dark ages, European mortgages and commercial loans found the range 7 25 in the thirteenth and fourteenth centuries. 5 The range settled down to 4 14 in the sixteenth century, 6 and to 3 10 by the seventeenth and eighteenth 7 . The authors comment: 8 interest rates declined during much of the later Middle Ages and Renaissance. The earliest short-term rates quoted were somewhat higher than the last and highest of the western Roman Legal limits. They were not too different from early Greek rates and were within the range of Babylonian rates The later Renaissance rates were well within the range of modern rates and the lowest were far below modern rates in periods of credit stringency. Merchants of Venice in Shakespeare s time and long before borrowed from banks, not from Shylocks, and at rather lower cost than merchants of the twentieth century. Economics and Biology Bioeconomics has meant economics informed by biology. I argued that this describes much or all of classical economics from Petty through Mill, then lapsed when the marginalists preferred to do without any explanations or justifications of tastes, and revived a century later to explore Hamilton s rule. 4 A History of Interest Rates, Rutgers, 1996, Table 4. 5 Ibid. Tables 6 and 7. 6 Ibid. Table 9. 7 Ibid. Tables 10 and 14. 8 Ibid. Chapter 10. Chapter 7 Petty s Idea 2 3 16 26 I too reason from biological axioms, and from much the same ones implicit or explicit in the classical period. But I end up framing ideas of biology in the language of economics rather than the opposite. I begin with total capital means of ends means of replication fitness, where fitness is understood as a stock. The concomitant flow and rate would be output (creation of fitness total capital) and return (ratio of the two). Free growth theory gave the inference optimum ex ante output optimum controllable output exact offset of pure consumption, at the collective scale. Next generation theory specified the period of this exhaust and recovery as the generation length. Consider Hamilton s rule in this context. All ex ante output, continuing steadily at the generation rate, must be invested concurrently in the next generation or stored for later investment within the deadline. It is the problem of Brewster s millions. Adults must invest or store as efficiently as practical (the maximand rule) before the output means has slipped by. And the more stored instead, the more pressure to invest later within the deadline. Time left for investment is another of the practical constraints on maximization of rb c. What I sense is a watering down of Hamilton s rule from what seemed logical compulsion a few decades ago to something more like a target of opportunity. A prediction maximizing rb c has proved its value as a useful rule of thumb. I suggested why some nepotism might be more adaptive than none in my review of the Hamilton-Zuk parasite theory. It s about giving all genes a fair but speedy trial. Chapter 7 Petty s Idea 2 3 16 27 The quarterback gets three downs, and the batter three strikes, before they go back to the bench. Some nepotism directs healthier mothers to invest in more and healthier offspring, and sicker ones conversely, long enough to demonstrate which is really which. Males passing the test carry the signs to prove it. Females choose them to spread the antidote gene to the whole population. Losing genes and losing parasites retreat until their time comes again. Summary This chapter trades my wannabe economist hat for my wannabe biologist one. Herbert Spencer called those fields the same at bottom. I never read Spencer, and know him mostly from Bertrand Russell s books on the history of philosophy. Spencer rates a subchapter there. Yet he was an autodidact with less training in either field than mine. He even had less training in philosophy than mine. He was a philosopher all the same, by Russell s tough standards, and knew that logic comes first. Data eventually prove their worth when it s time to test. The data I ve found fits net generation theory more or less. What I really have on, all the while, is my wannabe philosopher hat. Popperians make no sense. Are we supposed to find that a rose is not a rose? Or that all reasoning from definition is as transparent as that example? Wiles proof of Fermat s last theorem ended a search that took some pretty bright minds three centuries. My best guess would be that Popperians confuse the concepts of logic and question-begging. They are opposite. Logic (reasoning from definition) means taking out no more than you put in. Truism or tautology usually means obvious examples of the same, but sometimes includes subtle ones too. Question-begging means taking out what you never put in 9 . 9 Circularity is question-begging which claims to take out as inference what it put in as assumption. Assumption that Socrates is a man and that all men are mortal does not confirm that Socrates is a man. It confirms that Socrates is mortal if assumptions are sound. Chapter 7 Petty s Idea 2 3 16 28 Spencer s survival of the fittest doctrine would be a truism if we could prove the theory of natural causality. We can t by any means known to me. Science takes it as a working assumption. So did Hume, and so do I. If God intervenes only a little, so that laws of nature comes close to reality most of the time, we re still in business. My critique of Hamilton s rule proposed that nepotism meets resistance when it conflicts with nepotistic goals of others. I proposed a modus vivendi through agonistic rules. Hamilton s parasite theory with Zuk, written 18 years later, gives the game plan. Nepotism, meaning kin selection through Hamilton s rule, is in the common interest to a point. It speeds up proof of best genes to beat the current parasites by testing female genes as well as male ones. Healthier mothers and sisters and aunts carry more fitness to invest in more young. And females in most K-selected species, including humans, perform most care of the offspring and siblings and nepotes (nephews and nieces) that receive it 10 . Male competition alone does not determine best current genes to nature s satisfaction. Female breeding competition and nepotistic investment help prove them farther. All agonistic rules are about keeping the contest fair and deciding when proof is enough. Long-term success against future as well as current parasites needs most losers, not all, to go to the bench (low frequencies; source demes in my version) rather than to extinction. Most losers survived to enter the contest because they 10 The burden is about 50-50 in pair-bonding birds. Fathers look to be the only caregivers in territorial fish such as sticklebacks. Chapter 7 Petty s Idea 2 3 16 29 were winners once before. Their cost on the bench, or on the taxi squad, is good insurance. My version of Hamilton s parasite theory patched in some of Trivers ideas. One was that mothers intuiting self-health and good prospects should tend to breed higher primary sex ratios and conversely. Their male offspring can then find willing mates if health carries reliable signs as Hamilton proposed. Also the investment of insurance cost by winners in maintaining losers on the bench can be interpreted as Trivers reciprocal altruism to be recovered when winners now become losers later. My discussion of grandparental investment let still more worms out of the can. It is clear that humans in advanced economies today normally live to nearly three generation lengths. I proposed that we are replenishing a total capital reserve, meaning mainly a human capital one, when recovering from hard times in the world wars and world depression. No one really knows. Chapter 7 Petty s Idea 2 3 16 30 CHAPTER 8: BANKS, MONEY AND MACROECONOMICS Splitting up Banks I started to write a book on banks and money a year ago. I stopped when I realized that I don t know enough about the subject. I have some experience and have done some reading in those fields, but not enough to justify a whole book. A chapter, or part of a chapter, is more like it. Sumerian temples doubled as banks, mostly for agricultural loans to finance the next crop. It is from their records, in clay tablets, that we know they understood compound interest and the capitalization formula. Deposit-and-lend banks as we know them today emerged in Venice and other European cities in the twelfth and thirteenth centuries. Chapter 1 said that equity investors cannot be attracted at leverage (deposit equity) of less than 10:1, that even one tenth so much leverage is unstable in high winds, and that we rebuild the banking system after every systemic failure because we blamed the high winds rather than the rickety structure. I said that the solution is to split up banks as we know them into deposit banks which invest in ETFs on the one side, and lending banks which raise funds from investors rather than depositors on the other. These entities would have separate stockholders, and would not interact unless incidentally. A different kind of bank split-up has been urged since the 2008 crash. Repeal of the Glass-Steagle act had allowed commercial (deposit-and-lend) banks to operate as investment banks (brokerage firms). Many blamed the crash on that repeal, and on investment bank innovations such as mortgage-backed securities. I think those critics are looking in the wrong direction. The problem, as with most bank crashes over the centuries, was overleverage encouraged by nearly costless deposits. The solution is not to peel off brokerage operations from the mix, but to peel off deposits. Chapter 8 Banks, Money and Macroeconomics 2 8 16 1 I see no reason why lending banks should be separate from investment banks. Rather the depositors money should not be risked in either. It is also a mistake to blame Wall Street chicanery. Chicanery is a fact of life, and Wall Street has more than its share. But I can testify, from a ringside seat, that many sound financiers and first-rate economists genuinely believed in the sub-prime derivatives they were selling. They were proposed to the trusts I run. I turned them down as a business proposition because I saw too much complexity and no upside. But my read was that the presenters were sold themselves. The problem is not in the people. It is in the inherent fragility of deposit-and-lend banks. Then what would the world be like without them? The answer first needs a closer look at the problem. Credit Risk is More than Leverage Some leverage is a good thing. Firms issue bonds as well as stocks in order to attract a wider range of investors. Risk-averse investors may choose the safety of bonds, whose interest claims are paid first, while risk tolerant ones may be happy with the iffier but more promising equity remainder. Leverage in general is a way to satisfy both these constituencies. Credit risk rises with term (duration) as well as amount of debt. One of the most telling points in Siegel s Stocks for the Long Run is that corporate bonds of 15 years or more have proved more volatile in real total return than equities have. No wonder. A corporate bond will have ample debt coverage (gross profit debt service) at date of issuance, and an appropriate credit rating. What will both be fifteen years from now? Homeowners also typically borrow long-term. They expect to have children in local schools, husbands and or wives in local jobs, and other roots in the community. But Chapter 8 Banks, Money and Macroeconomics 2 8 16 2 who knows that husbands and wives will still be married in fifteen years? Who knows that if they are, their careers will not have taken them to another city? It seems to me that reducing the dangers of debt means reducing both term and amount, and that the solution had better find ways that still accommodate the shortterm and long-term needs of firms and people. Now let s look at how deposit banks might invest. The Omnibus Fund Idea If I were a couple of decades younger, I would try to create something I call an omnibus fund. It starts by seeming to contradict what I just said. I said that firms issue both stocks and bonds to reach different constituencies. The omnibus fund would first erase that separation. In principle it would reconstruct the firm as a whole, or put the pieces back together again, by assembling proportionate shares of the debt and equity claims on it in a single portfolio. Suppose for example that the market cap (number of shares times current market quotation) for a firm s equity shares is one billion dollars, while the market cap of all debt claims together in half that. Then the omnibus fund, in principle, would buy each firm s equities and debt instruments in that proportion at current market valuation. In practice it could realize the same effect in a simpler way. The omnibus fund would be a balanced index fund. Index funds are representative of all the funds in an index, such as the S P 500, weighted again to market cap. The omnibus fund would pick a still more inclusive index, say the Russell 3000 or even the Wilshire 5000. It would add in a corporate bond index, since balanced means mixing stocks and bonds, and cap weight the two. The object would be to model the publicly-traded corporate sector as a whole. The simplest way to get there would be to buy index ETFs (exchange traded funds) directly, rather than duplicating their work of assembling portfolios of the underlying individual issues. Chapter 8 Banks, Money and Macroeconomics 2 8 16 3 If it stopped at that point, the omnibus fund would probably attract few investors. It would offer the aggregate return and risk of the publicity-traded corporate sector as if it had never borrowed or issued debt. Aggregate means average. No one is exactly average. Some like me and my father happen to be more risk-tolerant, and opt for the higher returns that tend to come from higher risk. Some prefer the opposite. How can the omnibus fund attract both? The answer is derivatives. Derivatives are obligations whose benefits depend on outcomes imperfectly foreseen. I said in the forward that I m all in favor of them so long as we respect and manage the risks. Equities themselves are the classical example. Mortgage-backed securities give another. Common forms include futures and swaps. The idea is about the same. Each typically picks an index, often the S P 500. One party, the short leg , bets so much money, the notional amount , that the S P 500 index will go down tomorrow. Another party, the long leg , bets it will go up. The short leg gets so much, say Libor plus 20 basis points (hundredths of a percent) of the notional amount, in any outcome. The long leg gets the index change, whether up or down, times the same notional amount. No one actually invests the notional amount. It is called notional for good reason. Rather each side (leg) commits a cash reserve, held by the firm managing the swap or future, in this case the omnibus fund itself, of 20 of the notional amount. The reserve is drawn down to meet payments required when market swings are averse, and replenished when favorable. When it falls to 10 of the notional amount, it is considered unsafe and the swap or future ends prematurely. Parties are warned, and new reserves can be committed in time. Monitoring of the reserve is continuous during market hours. Whenever the reserve falls to 10 , even in the middle of the day, the account is closed immediately. This discipline keeps the other party safe. Chapter 8 Banks, Money and Macroeconomics 2 8 16 4 Risk-averse clients in the omnibus fund can take short legs, and risk-tolerant ones long legs. Management of the omnibus fund can handle the mechanics of the swaps or futures. The effect would be not less leverage per se, since leverage at the individual account level is substituted for leverage at the corporate level. The difference is duration. Swaps and futures are short-term commitments. Three months is typical. Futures trade in active markets, for good measure, and can usually be liquidated in seconds at current market during trading hours. So can ETFs themselves. What do these derivatives cost? Essentially nothing. Those who prefer safety and the short leg are matched with those who prefer return and the long leg, while the manager charges only for its time in working the mechanics. What About Asset Allocation? Where the omnibus fund seems to violate common sense is in merging out what had seemed to be valuable distinctions. So it would seem with the blending of equity and debt claims, but for an optional overlay of derivatives such as futures to restore whatever risk and expected return we want. Many distinctions blended out, including that one, have been important to principles of asset allocation and modern portfolio theory. They are important because some investment sectors are less correlated than others, meaning less likely to risk and fall in lockstep. Lowcorrelation portfolios are better because less volatile as a whole without sacrifice of return. That s why hedge funds typically assemble portfolios judged low or negative in correlation, and then try to reduce correlation still further with an overlay of derivatives. The omnibus fund seems to throw away all these options. Not really. One of the lessons of the 2008 crash is that everything but Treasuries tends to go down in high winds. Anti-correlation strategies failed when we most needed them. The omnibus fund isn t really giving up so much. Its exceptional diversity makes it begin with less correlation than specializing portfolios. And Chapter 8 Banks, Money and Macroeconomics 2 8 16 5 nothing would prevent a sophisticated investor in the omnibus fund from manipulating correlation further down with derivatives as hedge funds do. Liquidity, Risk and Return Demand deposits in banks today can be withdrawn at any time. Time deposits cannot be attracted without either competitive interest or quick liquidity. This liquidity requirement has been awkward in that bank deposits are usually reloaned for years. A run on the bank soon finds no cash left to meet withdrawals. The runs come when the high winds blow, and provide a coup de grace on top of high default rates. The omnibus fund meets withdrawals easily because it is invested only in the most liquid securities. ETFs trade in seconds at current market quotations. Any mutual fund shares that might belong to the portfolio trade at current close. Like most funds, the omnibus fund would also maintain cash. Like some others, it would equitize its cash by exposing it to swaps or futures. Equitized cash leaves a fund fully invested in effect, while adding instant liquidity around the clock. ETFs give instant liquidity, but only during trading hours. Mutual funds typically trade at market close only. A risk-averse investor in the omnibus fund who opts for Libor plus so many basis points is more or less in the same position as a bank depositor today. She knows that her account will grow only by deposits and by interest (Libor plus basis points) left in to compound. She knows that it will decline only by withdrawals. The investor who prefers the long leg in swaps or futures, or stays unhedged, will also see her account rise and fall with the market. There are infinite graduations around these three simple choices. An account might be partly hedged and partly exposed, or even over-exposed to a notional amount larger than the account size where law and markets permit. (They usually do.) Chapter 8 Banks, Money and Macroeconomics 2 8 16 6 Payment Mediation Banks effect payments from depositors accounts. An omnibus fund can do the same. Payments out are directed redemptions in the language of brokerage accounts, or withdrawals in the language of bank accounts. Payments in are subscriptions to brokers and their clients, or deposits to bankers. All these payments can be electronic. A payer, typically a customer, might swipe a card or click a screen. A payee, typically a vendor, typically must verify first that the account is authentic and covers the payment offered. An omnibus fund could be well suited to give this quick transparency. First, it is essentially an index fund. It is composed of a published ratio of index ETFs and index mutual funds and index-equitized cash. Individual accounts are then hedged or exposed to index swaps or future overlays administered by the omnibus fund itself. The fund can track all these indexes online, and knows from tick to tick what each account is worth. This holds true even for volatile accounts where risktolerant clients have opted for long legs in swaps and futures. So long as management effects all payments in an out, and constructs each account of index exposures itself, and tracks those exposures and payments in real time, it knows account values exactly. Risk-tolerant clients will expect daily ups and downs in account size. That means that they will have to carry larger accounts in order to be sure of covering payments in the downswings. That would be a problem if accounts yielded zero return, as checkable bank deposits do. The gist of my answer to Milton Friedman was that no amount of money is too much if it yields as much return as other assets of equal risk. Accounts are hedged or leveraged to do so. Omnibus fund accounts burn no holes in pockets. We do not own one to spend, like a checking account, and treat it as a drag on earnings until spent. We own it as a fully competitive investment, and spend it reluctantly when bills are presented. Chapter 8 Banks, Money and Macroeconomics 2 8 16 7 Why Invest in Indexes? The last section showed that index funds offer easy trackability over market hours. What are the other pros and cons? On sound microeconomic principle, professional asset management will add value over index results before deduction of fees. Otherwise they couldn t stay in business. The same principle says that the fees will converge to that pre-fee value added. Price converges to marginal utility (value). Investors bid fees up when fees are less, and down when they are more. As a rule of thumb, investors should expect to do equally well in managed or index accounts when fee costs are considered too. The mechanics of convergence is worth a look. Managed and index funds compete in a kind of density-dependent flux like hawks and doves in game theory. It pays to be a hawk when the hawk dove ratio is too low, and a dove when too high. When hawks have only hawks to fight, they will win only half the time. Fighting becomes a losing strategy when it risks more than winning stands to gain. More doves will mean easier contests. So it is with asset managers. Index funds (doves) avoid commitment (fights) as to which firms and sectors will outperform. This neutrality saves the costs of research needed for commitment (fights). Asset managers (hawks) pay those costs, and recover them when outperformance results. That means outperforming the index. But if asset managers collectively managed the whole market, they would become the index. Some would outperform others, but the whole group cannot outperform itself. Then it could not recover its research costs. Many would have to close their doors, leaving the field to index funds which don t pay those costs, until market equilibrium was restored. Then what determines equilibrium? Is the critical variable percent of trades by managed funds? I thought so for a while. Now I think it s percent of AUM (market value of assets under management). My reasoning now is that holds by portfolio Chapter 8 Banks, Money and Macroeconomics 2 8 16 8 managers reveal informed opinion on security values as clearly as trades do. Research cost is the same for both. If a manger neither buys nor sells, she tells us that she thinks the price is right. The critical variable is not trade volume, but percent of aggregate market cap controlled by asset managers collectively. The number of asset managers is much less critical. There must be enough for competition within each specialty or sector of investment. Too many is not a concern. Abler ones, on microeconomic principle, will displace the less able. That s why Herbert Spencer taught that natural selection works the same in economics as in biology. A particular reason for preferring index ETFs as omnibus fund investments is for cheaper liquidity. The omnibus fund must compete with banks in accommodating payments and other withdrawals (redemptions). Popular index ETFs such as spiders (SPDRs, for Standard and Poor s Depository Receipts) are bought and sold in seconds for a fee of a couple of basis points. So are Treasury ETFs. Thus the omnibus fund might do best not to include actual corporate bond ETFs in reintegrating the corporate sector. Treasuries of equal value should do about as well at much lower trading cost. Easy liquidity is essential. Why Omnibus? Omnibus means for everyone as well as of everything. It is all-inclusive either way. Individuals differ in risk tolerance. An omnibus fund provides for all. The portfolio of index exposures to riskier equity claims and safer debt claims is meant to satisfy average risk tolerance as a whole. Individual accounts then choose short-leg hedges or long-leg exposure or anything between. An omnibus portfolio best matches aggregate risk and return to individual claims on it. Other approaches would work too. A broad-based equity index fund, targeting say the S P 500 or Russell 3000, could give the same tick-to-tick transparency in individual accounts. Hedging would still be available to cater to individual risk Chapter 8 Banks, Money and Macroeconomics 2 8 16 9 appetites within the risk-tolerant groups. A broad-based bond index fund would do the same for the risk-averse. It seems to me that the omnibus fund would do both jobs at once, and would attract more clients collectively. Bigger is better for payment processing. The more clients, the more two-sided payments from one client to another. These payments are always cheapest. If accounts cost little or nothing to open, vendors would logically need no urging to open them. That again favors the simplicity and economy and immediacy of twosided payments by including both buyers and sellers within the fund. The omnibus fund is also for everyone as a investor as well as a payer. Very few people have the time or training to beat the market. I myself have not. What we have is a sense of our degree of risk-aversion. The omnibus fund gives the broadest and most flexible coverage of risk appetites. It can poll and advise clients on risk preferences, and mediate hedges and exposures to suit. How the Omnibus Fund Might Evolve I said that if I were a couple of decades younger, I would start an omnibus fund. Not to worry. If the idea holds water, as I think, someone else will. It seems to me that banks could not offer much competition. Demand deposits typically pay no interest, and process payments no better. Omnibus clients offer an infinite range of returns according to client tolerance for risk. Banks offer the advantage of federal deposit insurance (FDIC). It will not be enough. The omnibus fund carries no leverage, and needs no insurance. As it grows, banks will take notice. They can keep up the uneven fight, or they can join the parade. My working assumption is that many will prefer the latter. Banks are well positioned to make the most of the idea. They have the needed expertise and systems and Chapter 8 Banks, Money and Macroeconomics 2 8 16 10 clientele in place. They can spin off their lending operations as separate ventures to find funds from investors rather than depositors. If there were no FDIC, there would be no deposits and no commercial banks. People can read the newspapers. Anyone old enough has lived through periodic bailouts. I m a free market fan who dislikes FDIC. But we would be rash to yank the rug from under banks by repealing it. We shouldn t even hint that we might. The world we know is build around banks, and banks are built on FDIC. Let it stand. How can anyone know for sure that omnibus funds and independent lending banks will do better? I think omnibus funds figure to win despite that advantage for banks. Lending Banks This is the area least clear to me. Banks as we know them begin with expertise, systems and clientele in the loans business as well as the deposit and payment processing business. That could position them to take the lead in both if spun off separately. Lending can stand alone. There are many lending firms other than banks. They raise funds from investors seeking returns, rather than depositors seeking liquidity, and somehow mange to compete with banks today. Lending banks divorced from depositors could do whatever they do. If interest rates must rise because investors demand competitive returns, some traditional borrowers will be motivated to attract equity investment instead. Corporations and other firms could phase out structural (long-term) debt, and float new stock issues in its place. The effect would be to lower leverage, risk and return together. Investors could then tailor risk and return more flexibly by hedging or leveraging their individual holdings through professional services. If the same rise in interest rates makes it impractical for newlyweds to buy homes, they can rent until their means improve. In ten or fifteen years their incomes will double. They will know if they are still married, how much house they need if so, and where their careers have taken them. Meanwhile they might rent the same Chapter 8 Banks, Money and Macroeconomics 2 8 16 11 house they would have bought. They will not have missed a sure-fire investment. The crash of 2008 showed that houses are risky too. The time to commit to huge and illiquid investments, as houses are, is after ten or fifteen years of business experience. I see no reason why lending banks should not make equity investments too. Loans, convertible loans and equity investments need the same due diligence , or research into prospects of success and return. All might serve the same clients. Lending banks might simply be investment banks. That s why splitting of investment banks and commercial (deposit-and-lend) banks may be a step in the wrong direction. The key is splitting off deposits. Macroeconomics in General Splitting up commercial banks into omnibus funds and depositless lending banks could change the nature of macroeconomics. Macro has meant the art of maintaining growth and money value stability at the same time. This has proved mostly a tightrope walk between inflation and recession. Easy money risks the first, and tight money the second. My idea is to disconnect the problems of underemployment and money value instability. If medicine for one has no side effect on the other, each can be treated more freely. I would first dissociate money value from money supply. No supply is too large if money earns competitive returns while we hold it. That was one of the main ideas of the omnibus fund. Milton Friedman thought my early version of this idea was anathema. Franco Modigliani liked it fine, but asked tough questions. I ll try to answer some of them below. My approach to the problems of underemployment and the business cycle begins with phasing out deposit-and-lend banks as I described. I more or less agree with Chapter 8 Banks, Money and Macroeconomics 2 8 16 12 Ludwig von Mises and the Austrian school that slumps come from overinvestment enabled by overlending. In 1928 1 , a year before the crash, Mises wrote: Sooner or later, the crisis must inevitably break out as the result of change in the conduct of the banks. The later the crack-up comes, the longer the period in which the calculation of the entrepreneurs is misguided by the issue of additional fiduciary media 2 . The greater this additional quantity of fiduciary money, the more factors of production have been firmly committed in the form of investments which appeared profitable only because of the artificially reduced interest rate and which prove to be unprofitable Great losses are sustained as a result of misdirected capital investments. Many new structures remain unfinished. Others, already completed, close down operations. Still others are carried on because, after writing off losses which represent a waste of capital, operation of the existing structure pays at least something. Here Mises, writing in 1928, describes the crash of 2008 even more vividly than the one in 1929. Many new structures remain unfinished. Others, already completed, close down operations. These were mostly plant and office buildings in 1929, and mostly houses in 2008. Mises argued that money should be backed by precious metals. He was right in thinking that it should be backed. But precious metals pay no return. The omnibus fund earns competitive return at the risk level chosen in each account. Accounts are owned for performance, and only incidentally for liquidity. No amount is so large as to tempt overspending. It did not occur to Mises that divorcement of deposits from lending might prevent the cycle in the first place. Nor did he mention the danger of 10:1 bank leverage, and often more, in amplifying consequences of bad guesses. His idea was better governance of commercial banks. Mine is ending them. Free growth theory also belongs to macroeconomics in that it predicts only at the collective scale. It predicts that ex ante net investment, or attempted investment 1 Monetary Stabilization and Cyclical Policy. 2 Unbacked paper money. Also called government fiat money. Chapter 8 Banks, Money and Macroeconomics 2 8 16 13 beyond depreciation recovery, is simply less consumption with no growth to show for it. My charts and tables show that this has been true wherever and whenever tested, in eight economies over 40 to 140 years. We crowd our niches like other creatures, I think, and have no room for growth except as innovation widens the niche. The charts and tables seem to tell us that innovation costs no more in failure rates and learning curves that daily coping does. Macroeconomics and Keynes Macro emerged in the 1930s under the influence of Keynes. Simon Kuznets, the chief architect of the U.S. national accounts, was one of the five economists Keynes invited to proof the chapters of his General Theory as he wrote them 3 . National accounts were soon reorganized along Keynesian lines. To read the General Theory, a beautiful work, one would think that counter opinions were led by his close friend Arthur Pigou. But Pigou was already in print with recommendations much like Keynes when it was published in 1936. Opposition came rather from Mises, the other Austrians, Lionel Robbins and the Chicago school. They argued that intervention tends to make things worse. So do many economists today. Keynes believed in fiscal and monetary policy as I describe in Chapter 1. He favored fiscal policy. Chapter 2 said that he made a basic distinction between investment producing new things and repurchase of things already produced. Only the first counted as real investment. The difference matters because only the first puts plant and people to work. Transfers neither add nor subtract value. Even so, my own language counts all as investment, and ranks investment only by return. I make no distinction among investment adding new plant and equipment, or investment in stocks and bonds already issued, or in existing structures, or even under the mattress. 3 The others were Harrod, Sraffa, Joan Robinson and Ralph Hawtree. Chapter 8 Banks, Money and Macroeconomics 2 8 16 14 What matters is return. I don t have to specify risk-adjusted return so long as I describe the collective scale alone. Collective return is implicitly average-risk return. I prioritize it on the reasoning that optimizing employment of people and plant is implicit, and that optimizing means putting them to work most productively rather than over the most hours. If policy maximizes rate of return, at the collective scale, it will maximize true output perforce. Return is output divided by total capital producing it. More return is more output per unit capital. Putting idle plant and people to work, in a slump, is a step in the right direction. But it doesn t get the job done unless they work productively. Even putting money under the mattress is better than investing at a loss. Zero return is better than negative return. I accept Keynes distinction between new investment and transfer payments. But I see the latter as part of the mechanics that ends up in the former. Maximize return, and full employment will happen. Keynes opposition is now mostly the Chicago school and other freshwater schools bordering the Great Lakes and along inland rivers. Somehow the taste for Keynesian intervention resonated best in saltwater seaboard school such as Harvard, MIT, Stanford, and University of California. It is probably no coincidence that the saltwater states are the blue ones tending to vote Democrat, while the freshwater ones are the red ones favoring Republicans. (I call myself a free market Democrat, whether or not that s a contradiction in terms.) Freshwater views tend to oppose intervention, but accept Keynesian basic definitions and equations such as the Y I C doctrine and the distinction between attempted saving and investment. It is these I question. I don t think much of his view that intended saving (consumption foregone) becomes actual saving only if invested, and becomes an equal amount of physical capital growth if it is. Then (actual) net saving, net investment and physical capital growth would become synonymous. I said why I prefer a language where saving and investment are synonymous in the first place. What matters is rate of return. Chapter 8 Banks, Money and Macroeconomics 2 8 16 15 Investment (saving) under the mattress yields only the psychic value of liquidity. Actual capital growth depends on rate of return as much as amount invested. If return holds the same as it was before, growth and net ex ante investment will be equal. Growth will be less than consumption foregone (remembering the asterisks) if return drops, and more if return rises. Keynes saw slumps as investment deficits. I see them as return deficits. Keynes assumed uncritically, I think, that new investment is the path out of slumps. Investment will come when prospects of return do. Although the General Theory was published three years before Myrdal s ex ante ex post distinction, Keynes would have realized the same thing. I think he made the understandable mistake of supposing that the difference would balance out as random noise. The charts and tables show otherwise. The optimum ex ante investment target is enough to offset realistic depreciation exactly. Keynes was a great thinker, a lively writer and a decent man. I happen to endorse some of his policy ideas. So did my father. When I asked him what he thought of fiscal policy, I expected something like Hawtree s crowding out argument: government investment preempts and prevents private investment. I got a surprise. My father said When people are out of work, that s the time to build a new post office. It is, if you need a new post office, because returns can be higher when contractors strapped for options bid construction cost down. But it is no disrespect to point that the General Theory was published 80 years ago. I tend to support Keynes on some points, for example the usefulness of fiscal policy in relieving slumps, but to agree mostly with Mises on their causes in the first place. Where I differ from both is in the fundamental anatomy. Chapter 8 Banks, Money and Macroeconomics 2 8 16 16 Stabilizing Money Value Modigliani s main critique was that money earning full competitive return, so that no amount was too much, would make monetary policy impossible in its usual forms. My best answer at the time was that full-return money ought to remove inflationary or deflationary pressures. But I agreed with him that money value might drift, even so, and that some control would be a safeguard if someone could think of a way. The best that occurs to me is continuous revaluation of the dollar. Legal tender laws specify dollars, or other currency in other countries, as the default means of payment recognized in satisfying money obligations. Laws could be changed to specify real dollars instead. Real means corrected for inflation or deflation. This would have been impractical before the information age. The problem now seems less. Spendable money, called M1, now means currency plus checking accounts. Government publishes current inflation figures online. Omnibus accounts could adjust automatically. They might show values in nominal and real dollars both. Account value would not change. Correction for inflation would show fewer dollars worth more each. Correction for deflation would show the opposite. Currency itself cannot adjust so elegantly. It would remain legal tender, but not necessarily at face value. Currency would impose a translation cost on its spenders and receivers. Say for example that the change in legal tender laws was effective as of January 1, 2020. The real value of the dollar, whether accounts or currency, would mean its value of that baseline. Nominal value would be that plus inflation since. Calculators or iPads could keep track of the conversion rate. The cost and nuisance of this conversion should be manageable. But it would probably reduce demand for currency where cards or the equivalent do as well. The benefit is in encouraging long-term contracts and saving menu change costs. That means costs of changing prices. There is no need to change them on account of inflation if prices are specified in real rather than nominal dollars. Chapter 8 Banks, Money and Macroeconomics 2 8 16 17 Price stability can matter. The United States has managed to avoid double-digit inflation since the Volker reforms of the 1980s. But the danger remains. Modigliani was right to worry. A law making real dollars legal tender might prompt better measurements of inflation. Many economists agree that our official ones overstate inflation by allowing two little for quality improvements. A Lexus or Tesla is not a Model A. That was the theme of the Boskin Commission report to President Clinton in 1995. The Boskin panel argued that quality-corrected inflation has run about 1.1 less than the numbers posted in the consumer price index (CPI). I think so too. But making real dollars legal tender, even by these imperfect measures, could still give more confidence in long-term commitments than the status quo. Speeding Up Fiscal Policy Designating real rather than nominal dollars as legal tender would amount to an unfamiliar and more direct form of monetary policy. Meanwhile devolution of banks into their separate deposit and lending functions, along with emergence of omnibus funds, need put no constraints on fiscal policy. Fiscal policy has prescribed tax cuts and government spending in slumps. It prescribes the opposite, at least in principle, in booms. A problem is that it has proved slow to implement. There is an inside lag while government diagnoses the problem and calls for a vote in the legislature. An outside lag follows until taxes come due and spending programs are put together and gradually put plant and people to work. The inside lag is unavoidable in a democracy unless the executive branch, or an independent agency like the Fed, is given standing limited authority to diagnose early signs of unemployment, and to address them with tax cuts or spending. And there must be enough outside lag to make sure that the medicine has good prospects in rate of return. Return comes first. Chapter 8 Banks, Money and Macroeconomics 2 8 16 18 Tax cuts can be faster-acting than spending programs because they obviate the construction period. Freshwater economists argue plausibly that they are likely to prove ineffective. They foresee rational expectations of taxpayers as predicting eventual restoration of the taxes when full employment resumes. This gives a motive to save the tax cut rather than spend it as intended. I see it a little differently. Most consumption is maintenance or investment to keep up human capital. We will need that earning power when taxes are restored. Say s Law Jean Baptiste Say, in writings I haven t read, argued two centuries ago that supply creates its own demand. The logic is sound to a point. The claims on output simplify to pay plus profit. The asterisks don t matter here. Thus pay plus profit is always enough to clear that market. There could be partial gluts when we produced too much of one thing and not enough of another, but never a general glut where production got ahead of our means to pay for it. All too true. Consumption plus investment equals pay plus profit. But the sad fact is that profit can be negative. Deadweight loss happens. When it happens, at the collective scale, even pay claims may be left unsatisfied. Say s law gives no comfort except where outcomes are as expected. Tax Considerations Schultz in 1962 argued that educational (human) capital is overtaxed. What he wrote was: The established tax treatment takes account of both depreciation and obsolescence in the case of physical capital, but this accounting is not extended to human capital . He was right. Income tax is charged on net profit of firms and pay of workers. Pay measures gross realized work including human depreciation. Tax laws now counter that imbalance by applying lower rates to pay as earned income . If we could measure human depreciation, or model it with enough Chapter 8 Banks, Money and Macroeconomics 2 8 16 19 confidence, we would know how much correction was enough. That s a reason to take depreciation theory seriously. Market-Valued Capital in Macroeconomics Another reason why macro should be reconceived from scratch is that its defining equations, written mostly over half a century ago, leave out capital. Change in capital shows as net investment, but capital itself stays outside. Flows are considered sufficient for description. Piketty, a good economic historian, tells us that this did not have to be. It seems that the largest economies had good records of market-valued capital since the latemiddle nineteenth century. Piketty does not speculate why macro and national accounts ignored them when both took form in the 1920s and 1930s. Physical capital and its changes can be measured at market or calculated by the perpetual inventory method used in balance sheets. I showed in Chapter 2 why that method is not the best. Depreciation accounting assumes norms in the loss of capital value with time, and gets the news of actual outcomes long after. National accounts reported positive real net investment, meaning growth in capital value, in 1929, 1930, 1937 and 2008. They give little clue to reality in years of surprise. The neglect of market-valued capital in macro and the national accounts until 1990 or so may have to do with the influence of Keynes. The General Theory includes some hilarious broadsides on the fickleness of market speculators. He put more trust in the sober disciplines of accounting. Piketty trusts the market more, and so do I. Then why does Piketty track new investment, or change in capital, by the accounting methods used in national accounts? That seems inconsistent. My charts and tables track it at market. It seems to me that national accounts should track it both ways, Chapter 8 Banks, Money and Macroeconomics 2 8 16 20 and let each economist decide which version is more useful. Mine, at least, correctly describes those same four years as losing ones. National Accounts Overall It seems to me that national accounts are doing nothing wrong except in modeling the depreciation curve from misleading sales evidence. Evidence seems to show depreciation as fast at first, and slower later. That tends to be true when depreciable assets are actually sold. Structures tend to be customized for their original owners and occupants. They tend to be resold when results are disappointing. This disappointment often comes when expectations are first tested. When distressed sellers market illiquid structures customized for themselves, prices too will be disappointing. Better to trust evidence of structures intended in the first place to pass from owner to owner, as with many standardized rather than customized apartment and office and warehouse buildings. Better still, from an economist s viewpoint if not an accountant s, is to trust logic. Capital is present value of expected cash flow. Its loss of value with time, under simplifying assumptions, is the present value of the most distant and most discounted cash flow. Depreciation of structures we keep, rather than sell, is least at first and greatest at the end. It is the same as with a levelpayment mortgage. National accounts are nonetheless a magnificent achievement. They need interpretation just as corporate accounts do. That s where economics comes in. And national accounts are not resting on past practices. They can be congratulated on including market valued capital, even if sixty years too late, and on extrapolating it backward where practical. This book could scarcely have been written if they hadn t. I would recommend the obvious next step. Net investment should be shown alternatively as change in market-valued, and output as that plus consumption. Let economists decide which version is good for what. Chapter 8 Banks, Money and Macroeconomics 2 8 16 21 National Wealth Including Human Capital By definition, pure consumption rate is pure consumption divided by total capital. This can be arranged as total capital pure consumption pure consumptionrate . (8.1) Next generation theory modeled the pure consumption rate as 3.5 per year. Historical data showed dividend and interest rates as more or less in this region since Sumerian times. I model pure consumption as about three fourths of all consumption. I take consumption as personal consumption expenditure (PCE) plus government consumption expenditure (GCE) per the national accounts. GCE includes government outlays, at all levels of government, on education and welfare. These are easily recognized as consumption. It also includes costs of law enforcement, national defense, fire control, and maintenance of infrastructure such as highways and water systems and government buildings. These too count as consumption, even if we mightn t have thought so. They are part of the cost of our survival. That s why I agree with Kuznets and tradition, although I didn t always, that consumption includes all of GCE. PCE in 2015 shows as 12.429 trillion. GCE is reported at 2.5855 trillion. Both are in 2015 dollars. their sum is 15.0145 trillion. Three fourths of that is 11.2609 trillion. Then (8.1) gives total capital pure consumption pure consumptionrate 11.2609 .035 year 321.74 trillion, in 2015 dollars. This rough estimate can be borne in mind when we evaluate the tax base and the risk of national debt. U.S. public and private debt together has been Chapter 8 Banks, Money and Macroeconomics 2 8 16 22 estimated at a little less than a fourth of this sum. My impression is that this exposure is not yet dangerous. But it needs watching. The best method to estimate aggregate adult human capital separately is Petty s. It is present value of future human cash flow. That means pay less invested consumption. If I am right, meaning that Farr, Marshall and Kiker are wrong, invested consumption is negligible among adults. Then Petty was right to capitalize pay with no deduction. And he was right to capitalize aggregate current pay, with no need to model the future. Growth of pay will tend to match growth of human capital. The discount rate to find its present value is expected rated of return. Rate of return is growth rate plus cash flow rate. Evaluating human capital as constant current pay discounted by cash flow rate alone will give the same answer as if we modeled in expected pay growth, but then discounted at cash flow rate plus the same projected growth rate. Total human capital is adult capital plus that of the young. That part might be measured at current cost. I won t attempt either of those calculations here, since they seem to call for economists expert in interpreting national accounts. To Do List Books and papers on economics tend to lead to policy prescriptions . That means recommendations on what governments and markets and educators should do. My list begins with getting rid of the double tax on dividends. To get democrats on board, make the effect revenue neutral by raising the corporate tax rate. Dividend rates have been far too low for about 50 years now. They should average 5 to 6 real, as they did in the nineteenth century. The result of low dividends has been dangerous overinvestment in the private sector, with growth hampered rather than enhanced. Charts and tables make it clear that ex ante investment beyond depreciation recovery is deadweight loss. Chapter 8 Banks, Money and Macroeconomics 2 8 16 23 I would tax capital gains as much as ordinary income for the same reason. Level the playing field. Solow saw most of the truth, but didn t go far enough. Mill saw more. And even Mill stopped short. All we have to do is look at the charts and tables. Capital accumulation does not exist. Any attempt lowers consumption with no growth to show for it. Keep track of national wealth including human capital by my method here, and also by Petty s of 1664, 1676 and 1685. What would we think of corporate management that added up only the smaller part of corporate assets? We now consider physical capital only. Political parties debate what taxes and the national debt should be without the key facts. Policy prescriptions can also aim at schools and what they teach. Macroeconomics should start over. It reached most of its present form in the years of high theory , in the 1920s through 1950s, without the concepts of human capital or market-valued capital. It is founded on the inaccurate Y C I equation and the concomitant belief that output equals pay plus profit. It recognizes ex ante ex post distinctions only crudely as to saving, by taking it as either invested or uninvested, and not at all as to investment itself. By missing the lag between market effects and book reaction, it misreads some of our worst years as our best and conversely. The path forward is omnibus funds and devolution of commercial banks. Bank reform along the lines I suggested should need no help from lawmakers. But for gosh sakes, let s not set up barriers against it. Commercial banks and 10:1 leverage make slumps inevitable. Crashes are as sure as death and taxes until we phase them out. Summary Macro has meant a tightrope walk between the risks of inflation and recession. That doesn t have to be. The problems are detachable. Even today, It should be practical to redefine legal tender as real or inflation-corrected dollars. But the deeper Chapter 8 Banks, Money and Macroeconomics 2 8 16 24 solution is to devolve commercial banks into their separate deposit and lending functions, with separate stockholders and only incidental interaction. It is best for the free market to do this alone. The omnibus fund could be the decisive innovation. It too is possible today. It would offer clients full competitive return, so that no supply would be too large. It would match bank deposits in liquidity and payment services with the low service charges typical of other index funds, while tailoring risk and return to client needs with essentially costless derivatives. The intention would be obsolescence of bank accounts, and devolution of banks in result. Deposit-and-lend banks, inevitably leveraged at 10:1 or more, are the weak link explaining economic collapses about once a generation since the system was founded in the Renaissance. Misdeeds and misguesses and world events were only the proximate cause. Chicanery will be with us forever. Honest bad judgment will be with us forever. Supply shocks, as when OPEC raised oil prices in 1973, will be with us forever. Wars will be with us forever. Setbacks for our trading partners will be with us forever. These bring the high winds. I don t foresee much payout in trying to dial down the winds by upgrading human nature. The payout is in stabler structures. The big bad wolf huffed and puffed, and the brick house stood. Omnibus funds will carry no leverage. Accounts themselves will be levered to taste, but for short periods only. Futures trade in seconds. The fund as a whole cannot become worthless until each and every security in its portfolio does. High winds and leverage can wipe out the accounts of risk-takers who chose the long leg, but not of those who opted for contractual interest and safety. That s as it should be. Risk-takers may name their poison. Omnibus means for all, and all-inclusive. Derivatives are central to the omnibus fund idea. Some see them as dangerous. They can be. They are powerful. But they have a good track record of performing as contracted. Cash reserves, called margins, have proved enough to escape default Chapter 8 Banks, Money and Macroeconomics 2 8 16 25 even in 2008 and the flash crash of 2013. Short legs have been protected without fail, and long legs have got what they bargained for. The reason is that margin sufficiency is monitored from tick to tick. Checking every few seconds doesn t rule out every doomsday scenario, but gives about as much confidence as we re going to find in this uncertain world. Saltwater and freshwater schools debate the wisdom of fiscal and monetary policy. But both sides frame their arguments in Keynesian language. I find it wanting. The idea that intended consumption is either invested or not, and realized in equal capital growth if it is, misses the essential mechanics. It measures employment of plant and people in hours rather than in production. This is a good reason why macro should start again from scratch. Another is to recast its basis equations in terms of market-valued capital as well as flows. Another is to accommodate human capital, for example by substituting the pay and Y rules for the doctrines that pay measures work and that output is investment plus consumption. None of those good reasons refers to the possibility of omnibus funds. They are only a gleam in my eye. If they come to pass, and succeed as I imagine, macro will have still more novelty to digest. If they lead to devolution into separate deposit and lending banks, with the deposit banks operating as omnibus funds, good riddance to the 10:1 leverage that has brought down economies every generation or so since Marco Polo s time. The lagged flow method of assessing efficacy of ex ante investment is outdated by the simultaneous rates one outlined in Chapter 4. It should go to honorable retirement whenever market-valued capital is available. It superimposes the inevitable unintended lag of accounts themselves, even under best practices, onto the intended one needed for the new tree planted to bear fruit. Both lags blur causality. Chapter 8 Banks, Money and Macroeconomics 2 8 16 26 Some famous economists are tougher on the current state of macro than I am. Recent books argue that it should no longer be taught, and should receive no Nobel prizes. My diagnosis is about the same. But my prescription is opposite. Reconceive it from scratch, and teach it right. Award Nobel prizes to those who help. My first nominees would be Piketty and Zucman. Not that I think much of Piketty s arguments. But his website with Zucman is as powerful a new resource for scholarship and the database as national accounts were eight decades ago. Chapter 8 Banks, Money and Macroeconomics 2 8 16 27 CHAPTER 9: SO WHAT S NEW? To claim originality in any field is rash. It is safer to say that some things in this book are new as far as I know. I know at least what I can t remember reading elsewhere. I am more confident in judging what will surprise in the sense of conflict with what is taught today. There we need only keep up with the current conversation. Judging originality with confidence means having read everything before. My surprises were not all new, and my novelties (if such) where not all surprises. A few ideas met both descriptions. They pay rule, and the equally heretical Y rule, probably count as both although Becker came within a step of getting there first. Depreciation theory is likely to be both. Other possible candidates might include my observation that holds by money managers reveal prices as clearly as trades do, and my hawks-and-doves analogy inferring from this that index funds should outperform managed ones when aggregate AUM held by money managers, not trades by them, exceeds a critical percentage of the market to be determined. There may also be both surprise and novelty in my suggestion of monetary policy by establishment of real dollars as legal tender. In my wannabe biologist role, I just may have been first to the point out the gaffe in the math of Hamilton s rule. Free growth theory takes Mill a little farther by ruling out growth by thrift at the collective scale. It should prove a major surprise to lawmakers, who incentivize thrift in the name of growth, and a milder one to economists already prepared by the insights of Solow. My possible originality here was in the simultaneous rates equations I derived to test them, and the test itself accessing data for market-valued capital as well as consumption from the Piketty-Zucman website. My definitions of market-valued net investment and net output, substituting for the book-valued versions used in national accounts, were essential for testing. I suppose these rank as novelties but not surprises. Chapter 9: So What s New? 3 17 16 1 The advantage of the simultaneous rates test over the standard lagged flows one is great. It avoids both lags, meaning the intended one to allow more capital to show its effect in more output, and the unintended one in the inherent unresponsiveness of accounts to market effects on capital already booked, while also gaining from the superiority of market measures of capital growth over book ones even when lags end. The method itself is no surprise because the math is high school algebra. The shock is in what it reveals. Solow and Denison were righter than they knew. There is no such thing as capital accumulation at the collective scale. Risk theory is probably both marginal novelty and marginal surprise. The part that might be new, although obvious in retrospect, is that assets take on the risk characteristics of their owners. We knew all along that people buy assets to fit their own risk profiles. There may be novelty in my idea that it works the same in the opposite direction. Assets once acquired are modified to fit those profiles better. A family home bought by a drug dealer might become a crack house bringing higher expected return at higher risk of confiscation by authorities. The next step was to connect risk profiles with age and gender. It seems well established that risk tolerance peaks in the teens and twenties, particularly in males. It drops steadily afterward for both sexes. R. A. Fisher in 1930, and Bob Trivers in 1972, suggested why. Males, in humans, produce thousands of cheap sperm. Females produce eggs, which are few and expensive because they are packed with nutrients. Young males might end up leaving dozens of offspring or none. Nature arranges competition to determine which. Females are reasonably sure to leave a few. They have less to compete about. As both sexes get past their 20s, their remaining reproductive chances grow fewer and competitive ranking clearer. There is less to compete about. Risk tolerance grades steadily down with age, and capital owned reflects the change with lower risk and return. This gives the basic theme. The next key information was that human capital is owned disproportionately by the young. We own little else until independence at age 20 or so. Physical capital Chapter 9: So What s New? 3 17 16 2 builds from then on, and peaks near retirement. But human capital grows quickly in the 20s and thirties too, as most human and other depreciation is concentrated toward the end. These are persuasive reasons to think that human capital is the riskier and higher-return factor overall. The argument becomes complicated in that most investment in us before independence comes from parents rather than from self-invested work. Parents have a a strong say in what risks children run, so that parental risk tolerance governs too. But it governs most in pre-teen years, when parents themselves are passing through their own risk tolerance peaks. And human capital is probably the most versatile of assets in adjustment to our tastes for risk at the time. Cops can become robbers at will, and robbers can get religion. We should not slip into the error of concluding that an individual s human capital is riskier than her physical capital at the same time. Both adjust to her current risk profile alike. That s why the parable of the boss and her secretary falsifies the notion that pay compensates realized work and nothing else. That would make return of each in her human capital a little over 100 per day at the start of the last day, and 100 per second at the start of the last second, even while their security portfolios reveal their time preference rates as a few percent per year. Human capital is not inherently risker, as hand grenades than nerf balls. Each cohort adapts all its wealth of both factors, counting balanced security portfolios as single assets, to its single characteristic risk profile. There may be novelty, but not much surprise, in this projection of the owner onto the asset rather than conversely. That parable helped confirm the pay rule and explain age-wage profiles. It brought another surprise along the way. I grew up being told that houses are safe investments. But in fact they are owned by about the same age group and gender mix that owns the business sector. The publicly traded corporate sector is a part of the business sector that has given up return for safety by providing instant liquidity to shareholders. The notion that houses are safe took a punch in the gut in 2008. The Chapter 9: So What s New? 3 17 16 3 notion that they ever were rests pretty much on evidence bolstered by government subsidies such as FHA and FNMA and FMAC which began before I was born. As it is, I don t see enough evidence either way to assert whether houses or the publicly traded corporate sector, cap-weighting its stock and bonds, should be risker. But even that uncertainly is a surprise in view of what we all were taught. Depreciation theory is one of my favorites. It doesn t upset the applecart as much as the pay rule does, because little economic theory depends on it. I love it because it reverses tradition precisely. National accounts model depreciation as declining exponentially. I model it as rising exponentially. It s the same equation with a plus sign in place of a minus sign. I love its obviousness once we think about it. It follows when we remember the present value rule. Once we do, evidence for both factors makes more sense. Depreciation theory rounds out the pay rule in explaining how pay can rise or hold steady to the very end. And we see the same in businesses. Gross realized profit, analogous to pay, does not tend to decline as firms approach a date with the wrecking ball. My impression has been that rents go down when properties aren t kept up or locations become unfashionable, but not with age in itself. When it s time to demolish and rebuild, premises are more typically vacated with trade still running at norms. Gross realized profit is inevitably all depreciation on the last day, and would approach zero steadily if tradition were right. There may have been minor novelty in my derivation of my three fundamental theorems as at least subjective certitudes following from definitions, and in my idea itself of subjective as distinct from empirical certitude. A subjective certitude is one such that contrary evidence would falsify the convergence axioms. I have found little or no empirical certitude past the cogito. I concede that the idea of subjective certitude is impertinent. How dare we infer what people must think? We dare when we infer from definitions. I began with the somewhat unusual definition of capital (value) as perceived means of foreseen taste satisfactions. The usual means of production is equally valid, but less suited to my purpose here. I Chapter 9: So What s New? 3 17 16 4 then pictured a future instant s worth of expected satisfaction. Its perceived value at that future moment would give its perceived value now save for differences explained by the time gap between. I adopted the old terms time preference or time discount rate to account for whatever they might be. There was no assumption as to whether the rate should prove positive or negative or zero, nor that the same rate should apply to other future instants. My goal was to leave not even the farthestfetched of loopholes. If I have succeeded, the present value rule followed as subjective certitude giving exact expectations, though not outcomes, for each future instant and thus for all together. Note that my depreciation theory follows, but with the caveat that the version I have shown adds the usual assumption that time preference is positive. That part is not certitude, although neither are we likely to doubt it. It was not hard to derive the maximand rule as the next step. Once we define tastes or more generally aims as whatever behavior reveals, the rest follows quickly. (Remember that I have no problem with mutually circular definitions.) There were probably a few heuristic novelties. The parable of the boss and her secretary might itself be new. So might the slave paradox with its parable of Phil and Bill. Many including Adam Smith have pointed out economic inefficiencies in slavery, moral criticism aside. I can t recall mention of this most obvious one. Bill s maintenance consumption was taste-satisfying cash flow to Bill, and capitalized in his present value to himself. It is pure expense to Phil once Bill is enslaved. If all but one of us were enslaved by the one left, national output would drop by substantially all maintenance consumption on the books of the one slaveowner. There may also be minor novelty in my analogy between accounting for the firm and accounting for human capital in Chapter 6. One possible example is my use of the term decapitalization to include depletion and liquidation in sale as well as depreciation. It simplifies to depreciation in the case of human capital because that factor cannot be alienated in reinvestment or gift or sale. One inference was that Chapter 9: So What s New? 3 17 16 5 deadweight loss, negative output, negative realized output and unrecovered decapitalization all mean the same. This is obvious enough, but may have been left implicit before. Chapter 9: So What s New? 3 17 16 6 CHAPTER 10: THREE PANTHEONS A few weeks ago I was being interviewed about my opera Usher House . How would I like to be remembered? With a straight face, I said I would like to be thought the best composer since Mahler, the best poet since Masefield, and the best economist since John Stuart Mill. The interviewer looked startled. Was she talking instead to the successor of Don Quixote, Emperor Norton and Walter Mitty? Probably. But not to worry. Fantasies are good things. They don t become delusions until we start believing them. What I believe is that at least dozens of composers have the knack. There must be hundreds, considering the terrific film scores attributed to names new to me when I hang on for the credits. Each of us, very much including film composers, gives the world what we think it needs. We like to be appreciated, but we don t give a fig what it wants. We won t always agree on what it needs. We ll defend to the death the other guy s right to his message. But we prefer our own. That s what my answer meant. We re each the best. But I do have the temerity to limit the list to those few dozens or hundreds. Someone might also be surprised at my choice of benchmarks in verse and economics. Masefield and Mill? A consensus might have picked T. S. Elliot, say, and Lord Keynes. Masefield and Mill are likelier to be remembered as old-fashioned fuddy-duddies already outmoded when they wrote. But that s me. I am Don Quixote. Not a single idol in my pantheons in those three fields was born after 1900, although that could change in economics. My pantheon in music is Bach, Beethoven, Schubert, Wagner and Mahler. Mahler, the last-born, died in 1911 at 51. What about Mozart? Clearly colossal. Listen to the slow movements of almost any of his piano concertos. Childlike simplicity, then a slight surprise, then another, and all at once we are on a trip through the stars. But my top five show us more. Mozart is too darned enigmatic. He is too darned coy. He is too darned third-personal. And I like breaking a sweat. Mozart is uniquely the Chapter 10: Three Pantheons 2 10 16 1 greatest at what he does within the bounds he chooses to set. But I like answers as well as questions. The five in my pantheon give me those. Mozart is unrivalled at what he does because no one else plays the same game. What other composer has put such a premium on delicacy, on poise, on self-effacement? That doesn t deny that he was a red-blooded mensch who loved hijinks and good times as much as the rest of us. His Rondo alla Turca is one of many masterpieces showing that side. But it only rounds out the impression of a flawless dinner companion. A maxim of classicism in the Greek spirit is nothing in excess . Mozart s exuberance and hijinks were just the right amount. He was the master of moderation. His operas put passion mostly in the mouths of clowns and villains such as Papageno and Osmin and Queen of the Night. His sympathetic sorts have feelings too, but keep them circumspect. The perfect companion cares first about our feelings, not his. Mozart remains that even on our journeys together through the stars. We are kept safely away from the heat. We are allowed to feel anxiety because the world is so far below. That was half the point of the trip. The other half is the happy ending as he leads us safely home. Anxiety, but not in excess. That shows him as the master of levitation. Richard Strauss gives the example of Susanna s aria Voi che sapete (you who know) from Figaro, an innocent ditty which somehow never lands on the tonic (home note) until the end. The beginning of Eine Kleine Nachtmusik (a little night music) does this again. But the slow movements of his piano concertos show it best. Mozart is not my pantheon, even so. He is moderation in excess. I like the game the others all play. I like a sense of the first person singular. The five in my pantheon also take us through the stars. But they take us closer. We feel the heat because they do. Listen to Bach s chaconne for solo violin, or passacaglia and fugue for organ. Listen to the heilige dankgesang (holy song of thanksgiving) from Beethoven s Chapter 10: Three Pantheons 2 10 16 2 quartet opus 132. Listen to the slow movement of Schubert s two-cello quintet opus 163. Listen to Wagner s liebestod (love death) from Tristan, or Mahler s adagietto from his fifth symphony. This music plays for keeps. The polar opposite to Mozart would be Verdi. Like Mozart, he is not in my pantheon but close. For Verdi, no passion is too much. He is the master of contrast. He shakes our emotions back and forth as a dog shakes a rat. Lull and storm are each given enough time to pack the most punch in the other. He wants only opposites and extremes. What would the fastidious Franz Joseph have thought? He would have called the guard. Somewhere between Apollo and Dionysus, between relativism and frenzy, lies the true path. The five in my pantheon have found it. I seldom call myself a poet, since that s already a tad vainglorious. For better or verse, I m a Jack of that trade too. The true poets in my pantheon begin with Keats and Masefield. I haven t found a clear choice for third. There are awesome things in Milton, Blake, Coleridge, Tennyson, Emily, Houseman, Robinson, Dowson, Yeats and others. Shakespeare, like Mozart, doesn t figure in the center of the picture. I take him as the greatest mind and soul yet known, the greatest playwright, the greatest writer in general, and all of these because he taps to the bottom of what poetry can be. Who is this whose grief Conjures the wandering stars, and makes them stand Like wonder-wounded hearers? It is I, Hamlet the Dane . Holy mackerel! But these are touches in his plays. Poetry, in his time, meant something too coiffed and pretty and mannered for my taste. You can take Venus and Adonis, the Rape of Lucrece, and the sonnets. That includes the petulant dark lady sonnets, which break the model of preciousness but find nothing better. Shakespeare simply came along too early. I credit Milton, in Lycidas , for discovering the true vein a few decades later. Chapter 10: Three Pantheons 2 10 16 3 That leaves economics. Here I really have a one-man pantheon in Sir William Petty. I suppose that I am the only person to have looked at his portrait alongside Isaac Newton s, in the Royal Society which they co-founded, and seen the two as intellectual equals. Mill seems a clear second, thanks to his superb paragraph on growth. The candidates for third seem well behind. Maybe Jevons or John Rae or Leon Walras. Time has not been kind to the teachings of Keynes. I would now rank his teacher Alfred Marshall higher. I like Myrdal s magnificent ex ante ex post distinction. Boehm Bawerk and the Austrian school are underrated. The pantheon might have room for him. Am I being too tough on later economists? We should not forget Schultz and Ben- Porath. Schultz greatest achievement, unless Mincer beat him, was in spotlighting human depreciation. That left me to ask where this huge flow goes. The answer becomes inescapable once we focus on the question. It gives the obvious solution to the age-wage problem. Everything in this book is obvious. Some of it, like that solution, is the obvious but unnoticed. Somebody, sooner or later, breaks the news about the emperor s new clothes. You d think Don Quixote would be the last to pipe up. No one in the world was more devoted to tradition and beautiful creatures of the mind. But it takes a fool. He was that, and so am I. Der reine tor. There have to be a few of us always. We ll get a few windmills before they they get us. Chapter 10: Three Pantheons 2 10 16 4 APPENDIX A: The Argument in Notation Output and Cash Flow My focus will be on absolute rather than per capita values. The usual custom gives capital letters for the former and lower-case ones for the latter. I will prefer the upper case for stocks and flows, and the lower one for rates. That need not hold true for Greek letters. The total return truism can be notated Y !K T F , (A1.1) where Y is output, K T is total capital and F is cash flow. Also F C P and , (A1.2) where (tau) is net transfer, is transfer out, is transfer in and C P is pure consumption (exhaust in taste satisfaction). Cash flow is the net of positive less negative components. I define them by F C p , F and F F F . (A1.2a) At the collective scale, where transfers cancel internally, these equations combine for Y !K T C p and F F C p . (A1.3) Math reminds us continually that equals does not necessarily mean is . (A1.1) and (A1.3), for example, do not mean that output is growth plus cash flow or growth plus APPENDIX A: The Argument in Notation 3 7 16 1 pure consumption. Why? Output in itself means creation of economic value. Mathematically, that could include what I called output exhaust , meaning value exhausted as soon as created. I ruled that out as free goods , which happen every day but are neglected in economics as unable to influence behavior either before or after. That s why equals cannot mean is in (A1.3). And neither does it in (A1.5). Rather both state that output provides cash flow offset plus total capital growth. This distinction helps everywhere in economics. We know for example that transfer out may be drawn either from capital in place or from concurrent output. The source of first kind is decaptialization D. But decaptialization also includes other components than transfer out. In Chapter 3, and again just now, I excluded output exhaust as free goods possible in math but neglected in economics. That makes decapitalization D the only source of pure consumption C P . And not all decapitalization is transfer or exhaust. Some is deadweight loss, defined in (A1.1) as any negative sum of capital growth !K T and cash flow F. That can show in D D D and D D C P . (A1.4) Here D is recovered or realized decapitalization, D is transfer depreciation net of plowback into the same asset, and D is deadweight loss. is lambda. At the collective scale, where transfers cancel internally, (A1.4) becomes D C p . (A1.4a) The dispositions of transfer out may be reinvestment in other assets of the same owner, or may be gift to donees. Reinvestment can be interfactor as shown in Chapter 5. Transfer out from total capital of any individual, net of internal transfers, APPENDIX A: The Argument in Notation 3 7 16 2 simplifies to gift. Transfer in gained by the owner s total capital, net of the same internal transfers, is gift received. The math becomes , , F C p , F and F C p (A1.5) at the scale of each individual s total capital as a whole. Here (gamma) is net gift, is gift and is gift received. Divide (A1.1) by K T to find Y K T ! K T K T F K T . (A1.6) Define these three terms as productivity or rate of return r, total capital growth rate g and cash flow rate f. Then (A1.6) can be reexpressed as r g f . (A1.6a) (A1.3) combines with (A1.6) to show Y K T ! K T K T C p K T , at the collective scale. (A1.7) Define pure consumption rate c p as C p K T , and substitute to show r g c p , at the collective scale. (A1.7a) APPENDIX A: The Argument in Notation 3 7 16 3 (A1.1), (A1.6), (A1.7) and (A1.8) are alternative statements of the total return truism. In general, define g(Q) !Q Q for any variable Q. Note again that g in this book means growth rate of capital g(K T ) rather than output. g in macro tradition usually means growth of output g(Y) . Total capital K T is the sum of human capital H and physical capital K. Their outputs respectively are work W and (net) profit P. Their counterparts to (A1.1) and (A1.6a) are W !H F(H) , r(H) g(H) f(H) , P !K F(K) and r(K) g(K) f(K) , (A1.8) where F(H), f(H), F(K) and f(K) are respectively human cash flow , human cash flow rate , physical cash flow and physical cash flow rate . Present Value and Present Cost If there were no such thing as time preference, present and future value would be the same. All economists known to me concede that we prefer present goods to future ones, although some like Joseph Schumpter have seen no good reason why. I suggest a reason in next generation theory. Present value theory, understood in essence by the Sumerians, considers what we now call future positive cash flows which are expected to be generated from external investments (transfer in, negative cash flow) made now or earlier. At the differential (infinitesimal) scale, we can write the associated future value as dFV(z) F (z)dz (2.1) at future moment z. The basic idea of present value PV is APPENDIX A: The Argument in Notation 3 7 16 4 dPV(x) F (z)e q(z x) dz , (2.2) where q is the appropriate time discount rate. Note the implication F (z)dz dPV(x)e q(z x) , (2.3) showing that q is the growth rate that raises the value of dPV(x) to F (z)dz over period z x . Since this differential component of asset value defers all positive cash flow until moment z , and cannot in itself be affected by later transfers in, q simplifies by (A1.6a) to rate of return. This was Boehm Bawerk s insight, although he was not mathematical, in equating time preference rate to rate of return r. Thus (2.2) and (2.3) give dPV(x)dx F (z)e r(z x) dz and F (z)dz dPV(x)e r(z x) , (A2.4) where r is the appropriate rate of return and time discount rate equivalently. But what determines appropriate r in these equations? Rate of return varies with risk among different assets at the same time, and varies over time with economic circumstances. Most sources I have seen treat r in (A2.4) as a variable to be integrated over (x, z). I myself long believed the same. My view now looks to the context. The asset as a whole will typically have received many differential investments before time x, and may receive many after. Each at inception will have been priced by the owner s time preference rate then. But my theme in risk theory is that assets can be traded or modified to the current owner s APPENDIX A: The Argument in Notation 3 7 16 5 risk tolerance now. She discounts each expected future flow not by her foreseen time preference rate then, but by her time preference rate today. It seems to me that the appropriate discount rate r in (A2.4) is r(x). She will provide for anticipated changes in her time preference rate by factoring costs of trading the asset if tradeable, or modifying it if modifiable, into her evaluations of future value F (z)dz , and so from present value too. I consequently interpret (A2.4) to mean dPV(x) F (z)e r(x)(z x) dz and F (z)dz dPV(x)e r(x)(z x) . (A2.5) The value of the whole asset V(x) at time x will be the sum or integral of present values of all foreseen cash flows both negative and positive over (x, ), where (omega) is the foreseen end point of flows. may be infinity . Thus V(x) PV(x) F(z)e r(x)(z x) dz , x z . (A2.6) x The terms value and total capital are interchangeable, as are their notations V and K T . Present cost PC(x) evaluates V(x) as the sum or integral of earlier negative cash flows compounded at rate r since moment of investment u, and not yet decapitalized in positive cash flow. The counterpart to (A2.1) becomes dIC(u) F (u)du and dPC(x) dV(x) dPV(x) , (A2.7) where IC is what I call investment cost . The counterparts to (A2.2) and (A2.3) are dV(x) F (u)e q(x u) du and F (u)du dV(x)e q(x u) . (A2.8) APPENDIX A: The Argument in Notation 3 7 16 6 q here equals some appropriate r by the same logic as before. Here again, we usually read interpretations of (A2.8) which treat the appropriate r as an integral of time preference or equivalently productivity rates over the interim (u,x). I however see dV(x) as determined by current rate r(x) whether derived by present cost or present value methods. If the original investor remains the current owner, and now finds her time preference rate different, she will have factored asset modification costs into her original decision to bid or invest. If not, she will have traded to someone whose time preference rate is better suited. My counterparts to (A2.1) and (A2.6) become dV(x) dPC(x) F (u)e r(x)(x u) dx and F (u)du dV(x)e r(x)(x u) (A2.9) and x V(x) PC(x) F(u)e r(x)(x u) du . (A2.10) 0 These equations seem the most straightforward reconciliation of the maximand rule, the convergence axioms and the evidence supporting risk theory. They describe individual assets over time, sometimes passing from one owner to another, rather than a given owner s total portfolio. We maximize return within current risk tolerance, recognize that it will change, and deduct present value of expected trading or asset modification costs from future value of flows while adding them to original value. This seems true to life. It allows discounting all expected positive flows over (x, z), and compounding all past negative ones over (0, x), at a single rate r(x) because of those adjustments to value or cost of flows. Tradition treats the flows as fixed givens, and the discount rate as a function of interim time between x and z or between 0 and x. APPENDIX A: The Argument in Notation 3 7 16 7 My interpretation that the time discount rate rate of return we naturally apply in evaluating both present cost and present value is our time preference rate now, rather than some retrospective or prospective average, might seem counterintuitive. I propose it, even so, as the time discount rule . Analogy to the Firm I follow convention by treating all transfer out as compensated by actual or imputed revenue. The part exhausted in taste satisfaction gets imputed revenue paid by the consumer satisfied. Not all revenue compensates transfer out, as revenue is usually defined as sales proceeds against which prior outside claims must be satisfied first. These are typically for labor and supplies in the case of the firm. Chapter 6 gave the logic in word equations. It begins with c e , (A3.1) where is revenue, c is prior claims and e is earned revenue as a residual. Earned revenue, also called gross realized output, is thus remaining share of overall revenue earned by the firm or other entity that performed the sales, collected the proceeds, and paid the outside claims on them. What the the firm or other contributor gives up to earn the earned revenue is the sum of its realized output Y and its recovered decapitalization D . Remember from (A1.4) that D includes any pure consumption realized by the owner of the source asset, although that could not apply where the owner is taken as a firm. The sum of Y and D gives its gross realized output. Then Y gross e Y D , (A3.2) where Y gross is gross realized output. In Chapter 6, I also called Y gross or e gross positive cash flow . All mean the same. I will usually leave out the notation APPENDIX A: The Argument in Notation 3 7 16 8 e from now on, and refer to gross realized output Y gross alone. Positive cash flow is that less plowback from revenue. This can be notated F Y gross pb Y D pb , (A3.3) where pb is plowback. Negative cash flow is transfer in, notated . Thus F and F F F Y D pb . (A3.4) Cash flow F is the difference F F F Y D pl . (A3.5) Gross output is gross realized output plus unrealized (or proprietary or selfinvested) output. This can show as Y gross Y gross Y s Y D Y s . (A3.6) Think of the subscript s as meaning saved or self-invested. As all output is either realized or unrealized, we have Y Y s Y . The terms saved, self-invested, unrealized and proprietary will be taken as interchangeable. APPENDIX A: The Argument in Notation 3 7 16 9 (A3.6) combines with (A1.4) and (A1.5) to arrive at F Y gross pl (A3.7) at the scale of the total capital of the individual or any set of individuals. This fact will prove helpful in adjusting the Ben-Porath model and in next generation theory. It should be borne in mind that transfer out and transfer in are both implicitly defined as net of plowback in the first place. Thus it would be wrong to suppose that negative cash flow is transfer in less plowback from revenue. That mistake would deduct plowback twice. The Growth Truism Growth of any asset of either factor is capitalization from outside plus capitalization from inside less decapitalization. This difference can also be called net capitalization. Capitalization from outside is simply transfer in . What are the other two? Our first intuition would be that capitalization from inside is identical to unrealized output. Here we must be careful. Output is negative wherever the sum of growth (net capitalization) and cash flow falls below zero. This deadweight loss is implicitly uncovered decapitalization, meaning not recovered in cash flow. To subtract all including unrecovered decapitalization from the sum of transfer in and unrealized output would therefore subtract the unrecovered part twice. To make this clear, define positive and negative output by Y ( 0) max( Y,0) and Y ( 0) max( Y,0) , APPENDIX A: The Argument in Notation 3 7 16 10 where (lambda) is deadweight loss. Meanwhile negative output belongs in the unrealized component of output Y s as with all effects on net capitalization not explained by transfer in or plowback from revenue. It is the random negative component in free growth. Then define positive and negative output and realized output more fully by and Y s ( 0) max( Y s ,0) , Y s ( 0) max( Y s ,0) , Y s Y s ( 0) , (A4.1) Y( 0) max(Y,0) , Y( 0) max( Y,0) and Y Y( 0) . (A4.2) There is also indirect capitalization from inside in the form of plowback from revenue. The growth truism sums these inflows less outflows as !K T Y s ( 0) pl D Y s pl D , (A4.3) recalling that D shows recovered (realized) decapitalization. At the scale of the total capital of any individual or set of them, (A1.5) and (A4.3) give !K T Y s pl C p . (A4.4) Human Cash Flow Although I can t recall seeing the term human cash flow in any papers or textbooks of others, tradition defines the flow discounted to human capital as pay less Schultz pure investment . The flow so discounted is implicitly cash flow. I rename pure investment invested consumption, and write the traditional view as APPENDIX A: The Argument in Notation 3 7 16 11 F H C s , (A5.1) where F H is human cash flow, (pi) is pay, and C s is invested consumption. The subscript s, as usual, means saved or self-invested. Pay can be defined as the worker s literal or imputed revenue. Self-invested consumption C s can be defined as any investment in human capital other than through self-invested work. This makes C s all investment from outside in a sense. But that does not mean that it is limited to transfer in. There is also plowback from revenue (pay ), as when we spend pay on textbooks or tuition. I model pay plowback pl as minor in the world we know, but definitions must account for it. This I define C s (H) pl or t(H) C s pl , (A5.2) where (H) is human transfer in . This and (A1.2a), showing F , give F(H) (H) C s pl . (A5.3) (A3.1) and (A3.2), analyzing the firm, derived c Y gross Y D . For human capital, this can show as c W gross W D(H) , (A5.4) APPENDIX A: The Argument in Notation 3 7 16 12 reading pay less prior claims on pay equals earned pay equals gross realized work equals realized work plus realized (recovered) human depreciation . Prior claims means outflow (transfer out), from sources other than the direct receiver of revenue, which are recovered in it and owed back to them. Maintenance consumption can be defined as any transfer out from any asset of either factor, outside the human capital of the earner, which supports pay in the sense that any less maintenance consumption would have realized less pay. This meets every criterion of prior claims but one. Maintenance consumption is the prior claims meant by c in (A5.5) if and only if it is actually recovered in pay or so intended. I gave my arguments that it is neither, but is rather exhausted in satisfying our taste for survival, in Chapter 6 and elsewhere. If I am right, (A5.4) gives c 0 and W D(H) W gross , (A5.5) so that pay would measure and compensate gross realized work. This is the pay rule. By (A3.3), positive cash flow is gross realized output less plowback from revenue. That comes to F(H) W gross pl pl . (A5.6) Now we have F(H) F(H) F(H) pl (C s pl ) pl C s pl C s , (A5.7) APPENDIX A: The Argument in Notation 3 7 16 13 as the application of (A3.5) to human capital. This confirms the traditional view (A5.1) if (A5.5) is right in interpreting prior claims on pay as zero. If I was wrong there, and Quesnay and the physiocrats were right, some maintenance consumption would be recovered in revenue of its suppliers. Then I should have written something like C C s C C p , where transfer consumption C was the value recovered by suppliers. This mathematical possibility, which I do not claim to have disproved, explains why I do not claim that the pay rule is logical certainty as a whole. I claim certitude only for its most surprising feature: human depreciation is expected to be recovered in pay. The rest follows only if (A5.5) is right as I think it is. Meanwhile (A5.5) also gives C C s C p , (A5.8) where C is consumption. Saved work W s means the self-invested output of human capital. It includes the subliminal and effortless work of job experience as well as the effort and opportunity cost of literal schooling, and also includes any free growth of human capital. Then W W s W . (A5.9) The growth truism (A4.3) for human capital becomes !H C s W s ( 0) D(H) C s W s D(H) . (A5.10) Human Capital as Present Value Note APPENDIX A: The Argument in Notation 3 7 16 14 g(F H ) g( C ) 1 d s C s dt ( C ) ! !C s , s C s (A6.1) and also f(H) F(H) H C s H H C s H . (A6.2) Pay , literal and imputed, is the measure of gross realized work if I am right in (A5.5). I take this as meaning all adult productive activity not self-invested. Then the ratios H and C s H , the ratio of invested consumption to human capital, might both be intuited as biological norms, like the generation length, which tend to hold steady over time. Meanwhile the definition f F K T in (A1.6) and (A1.6a) is applied to human capital as H F(H) f(H) C s f(H) . (A6.3) What we want is to quantify f(H) in order to reveal H from measured or modeled C s . Next generation theory measures cash flow rate of total capital, which simplifies to the pure consumption rate, at 3.5 a year as a reciprocal of the generation length. I argued that the risk component in rate of return is captured in cash flow rate, rather than growth rate, that return at any given moment varies only with risk, and that human capital as a whole should prove the riskier and higherreturn factor. Then f(H) should prove generally higher than 3.5 per year. That could give the key to quantifying collective human capital through (A6.3). I will not attempt that step here. A reason is that national accounts reflect pay mixed with APPENDIX A: The Argument in Notation 3 7 16 15 profit when reporting income of proprietorships. I would rather trust an expert in national accounts to tease them apart, and to judge whatever pay should be imputed to people in the household sector not literally employed. The Level Payment Mortgage (A2.5) gives V(x) F F(z)e r(x)(z x) dz . (A7.1) 0 Consider the level payment mortgage. F(z) is the constant level payment while r(x) is the constant interest rate Here (A2.5) simplifies to V(x) F x e r(z x) dz Fe rx x e rz dz F 1 e r r( x) . (A7.2) As there is no self-invested output, and no negative cash flow after initial investment at time 0, decapitilization (amortization) simplifies to !V(x). Thus D(x) V (x) d dx F r 1 e r e rx F r e r d dx erx F e r erx , (A7.3) confirming that amortization increases exponentially over the term of the mortgage. Depreciation Theory Depreciation can be defined as decapitalization which is a function of time since capitalization alone. When assets change hands, depreciation continues unchanged. Depletion and liquidation in sale, by contrast, are options available at any asset age. Amortization can be given the same definition as depreciation, but is customarily APPENDIX A: The Argument in Notation 3 7 16 16 applied to paper rights such as the mortgage rather than to physical or human capital itself. Depreciation of those assets is not as simple as with the mortgage. Cash flow F and discount rate r are typically variables rather than constants. Depreciation theory avoids that complexity, much as accountants do, by treating each successive investment in an asset as if it were a separate asset depreciating in itself. (A2.5) through (A2.10) gave present value at time x of a differential foreseen positive cash flow at future time z as dPV(x) F (z)e r(x)(z x) dz , (A8.1) where the differential present value arose from a earlier or concurrent negative cash flow invested at time u x . It was shown that all of asset value PV(x) at any time x can be explained as a sum or integral of such differential increments evolving with time alone from investment to eventual realization. Meanwhile all output within the differential increment of dPV is self invested. Growth dPV can be understood either as this self-invested output or equivalently the shortening discount period, as each means growth at rate r. At interim moment t it is dP V (t) r(x)dPV(t) F(z)e r(x)(z t ) dt r(x)F(e) e r(x)z e r(x)t , x t z . (A8.2) Thus present value rises exponentially as long as the moment of cash flow is deferred. APPENDIX A: The Argument in Notation 3 7 16 17 At moment z, self-invested output ends and all change in value is explained by depreciation alone. It equals the entire accumulated value of dPV at final moment z. That is, D(z)dz dP V (z)dz dPV(z) dPV(x)e r(x)(z x) . (A8.3) The following table shows some illustrations: Depreciation Factor e r(x)(z x) if z x is 50 Years Interim z x (years): 0 10 20 30 40 50 Factor if r(x) .035: .174 .247 .350 .497 .705 1 Factor if r(x) .065: .039 .074 .142 .273 .522 1 This exactly reverses the analysis applied in national accounts, which models the factor as decreasing rather than rising exponentially. It should be stressed that these equations and this table describe each successive differential increment of outside investment (transfer in), not assets overall or groups of them. If transfer in were constant and continuous in an asset or group, other things equal, overall depreciation would show as linear. Free Growth Theory By the total return truism (A1.6a), showing r g f, we derive g r f , dg dr df , and g r f . (A9.1) dg or g is acceleration , dr or r is productivity gain or free growth rate and df or f is thrift gain . Divide by acceleration to reach APPENDIX A: The Argument in Notation 3 7 16 18 dr dg df dg drdt dtdg dfdt dtdg !r !g f ! !g 1 and r g f g 1 . (A9.2) drK T or rK T give free growth as a flow, while dfK T or dfK T give the flow of thrift. Define the productivity index or free growth index (phi) as !r !g or r g , and the thrift index (theta) as ! f !g or f g . (A9.2) can then be put as 1 , (A9.2a) in either the continuous time or discrete period sense. Free growth theory is the prediction that at the collective scale will average unity (the number one), implying that averages zero, when or is measured for each year or for shorter periods if practical. Thrift theory makes the opposite prediction 1 and 0. The point is to compare simultaneous changes in acceleration and thrift, and then find the long-term average of these simultaneous observations, rather than compare long-term changes in the first place. If free growth is right, they will prove uncorrelated. That is exactly what the charts and tables show whenever data are available. Acceleration is as likely to coincide with unthrift, meaning increase in consumption rate C K, as with thrift. Division of (A9.1) by acceleration was not essential to the logic. It added the convenience of index numbers totaling unity. The test should be as fine-grained as practical. If the Piketty-Zucman website showed quarterly or monthly data revealing any two of r , f and g, I would have averaged the largest number of shortest periods. What I try to compare is ex ante APPENDIX A: The Argument in Notation 3 7 16 19 acceleration, measured as thrift c , and ex post acceleration g at the same moment. Otherwise we don t have the clearest test between free growth and thrift theories. Both agree that consumption can keep pace with output and capital over time. Free growth theory asserts that they keep pace continuously. Correlations tell the same story. Tables show that coefficients between r and g run about 1, as with the free growth index, while correlations between f and g run about zero. I do not claim that anyone but Mill and I has actually proposed free growth theory, nor that anyone at all has proposed thrift theory as here defined. It is my impression, not assertion, that modern consensus fits thrift theory given Harrod s qualifier that attempted (ex ante) net saving (thrift) must not exceed the technological growth rate (warranted growth path). My impression is that Solow and modern tradition agree, but blunt Harrod s knife edge. Free growth theory counters that the same growth arrives costlessly when ex ante net saving investment is held at zero. Nor do I claim that data shown in my charts and tables prove free growth theory. Rather they demonstrate that all growth has proved free wherever measured to date. Saving Investment Unlike Lord Keynes and modern tradition, I define saving and investment as synonymous from the start. I don t strictly need either term. My transfer in , unrealized output and plowback arrive at the same thing. But I know I must do my best to write in a language already understood. I will usually say investment to mean saving investment, and will use Keynes notation I for both. Keynes did not explicitly recognize human capital, although he very probably understood it. He treated investment in physical capital only. I notate this I(K). I also treat investment in total capital, to be notated I(K T ). Each, as in Keynes, sums depreciation recovery and net investment . The latter, in my treatment, is APPENDIX A: The Argument in Notation 3 7 16 20 considered in both ex ante and ex post versions. The subscripts xa and xp will show which. Ex ante net investment can be notated I(K T ) xa and defined as identical to thrift flow df(K T ) or f(K T ) . Its rate is the same as thrift rate df or f . Ex post net investment is actual growth !K T or K T t as a flow, and !g or K T (K T t) as a rate. Free growth theory, supported by data wherever tested, predicts that thrift or ex ante net investment at the collective scale sacrifices cash flow (pure consumption) with no growth to compensate. My interpretation is that the optimum collective ex ante net investment rate is zero, or equivalently that optimum investment is current cost depreciation plowback from both factors. Then optimum ex ante net investment becomes I(K T ) xa , optimum 0 , at the collective scale. (A9.3) (Net) output Y at that scale is total capital growth (net investment of both factors) plus pure consumption. Here too we can distinguish ex ante output as pure consumption plus ex ante investment, while ex post output is pure consumption plus ex post net investment. (9.3) gives Y xa optimum C p , at the collective scale, (A9.4) where Y xa is ex ante output. Since (gross) investment equals net investment plus makeup for decaptalization, while decapitalization equals pure consumption C p collectively by (A1.4a), we can show I(K T ) xa optimum C p as an alternate statement of (A9.4). APPENDIX A: The Argument in Notation 3 7 16 21 Summarizing, I(K T ) xa optimum Y xa optimum C p , at the collective scale, (A9.5) if free growth theory is correct. Ex ante investment and output mean at cost. They are what we pay for. The practical importance of (A9.5) is as a guide to macroeconomic policy. It says that we cannot grow collectively by attempting to produce more than we consume. We do best by paying to produce just as much, and taking free growth as it comes. (A9.5) does not say that we cannot influence the growth tides. It says that we cannot do so by thrift. It seems to be me that growth theory lies somewhere in the province of historicism and institutionalism rather than in the mechanics of supply and demand. Judging from history, old and new, growth seems to find traction in free markets where laws and customs welcome it. These are institutions shaped by history. Free growth theory and its equations predict at the collective scale only. Clearly the Practical Pig can save out of the dissaving of his feckless brothers, while the individual life cycle is largely a story of each generation giving to the next. Adjusting the Ben-Porath Model Human capital begins at zero value at cohort age 0. Invested consumption C s starts now, and is immediately compounded by self-invested work of the young. This means all work before pay begins at age of adulthood and independence A. As human depreciation is expected to be recovered in pay, that flow too is put off until age A. Then cohort present cost at any earlier age x , as defined in (A2.10), is x H(x) C s (z)e r(x)(x z) dz , if x A . (A10.1) 0 APPENDIX A: The Argument in Notation 3 7 16 22 I argued that outside investment in human young, including the unpaid work of parenting, might not be far from constant. School costs rise as parenting costs decline. (A10.1) in that case gives H(x) C s ( r(x) er(x)x 1) , if x A . (A10.2) At maturity (A10.1) becomes H(A) C s (z)e r(A)(A z) dz . (A10.3) 0 A H in adulthood is easiest to model at present value rather than present cost. Human cash flow is pay less C s . Discounted cash flow becomes H(x) ( C s )(z)e r(x)(z x) dz , if x A , (A10.4) x where r(z) now is best understood as time preference rate. This is identical to expected rate of return, as shown in the diamond ring parable. Note that there is no explicit adjustment for asset risk. I argue that human capital is not inherently riskier than physical capital, but rather adapts to the risk tolerance of its owner. It is riskier collectively because owned disproportionately by the risk-tolerant young. I treat risk profile as a function of the owner s age, gender and wealth. (A10.4) describes cohort value, and so neglects individual differences in gender and wealth as already captured in the characteristics of the cohort. I model C s as negligible in adulthood because I see so little of it. That would reduce adult human cash flow to pay alone, and so simplify (A10.4) to APPENDIX A: The Argument in Notation 3 7 16 23 H(x) (z)e r(x)(z x) dz , if C s 0 and x A . (A10.5) x Now let s add some detail and bring in physical capital. Like most, I model inheritance as zero and physical capital acquisition as beginning after age of independence A. That can be modeled as age 20. As human depreciation begins then at zero, if depreciation theory is right, gross realized work (pay) simplifies at first to realized work. This takes up all the new worker s time and attention, yet simultaneously enables subliminal self-invested work in job experience. It seems reasonable to model pay at job entry as equal to the new worker s maintenance consumption, on the reasoning that independence means reaching the ability to earn it. Thus nothing is left for investment in physical capital at first. But the quick buildup of job experience soon means pay left for investment. As I model no pay plowback, that means physical capital acquisition. Human depreciation rises slowly while the self-invested work of job experience diminishes, so that overall growth in human capital peaks and then declines. Physical capital owned does the same as we acquire it and then spend it on the young. Young arrive, on average, as a cohort reaches age 28.5 (my estimate of the generation length). The cohort of adults begins divesting its capital of both factors in nurture and schooling received by the young as invested consumption. The young reach independence on average when the adult cohort reaches age 57 (2 x 28.5). Some young will have been born after parental age 28.5, and will continue to receive parental investment over the eight years remaining between age 57 and retirement modeled at age 65. But my model cannot account confidently for this eight year gap on the whole, or for the retirement period following, which runs twice as long. My hypothesis is that retirees are effectively employees hired by productives to help take care of the kids, while the eight-year gap might show a human capital reserve against nasty surprises. APPENDIX A: The Argument in Notation 3 7 16 24 Retirement can be defined in principle as the period when our pay, literal or imputed, no longer covers our maintenance consumption needs. Human capital continues, even so, as long as we earn any imputed pay for helping take care of ourselves and others. Maintenance is not investment C s , and is not deducted in finding our cash flow and its present value. (A4.4) showed the growth truism for total capital of any individual as !K T Y s pl D , recalling that is gift received, Y s is self-invested (unrealized) output of both factors, pl is plowback from realized output, and D is recovered decapitalization. For the young under age A, I model K T as H alone, as invested consumption provided by adults, Y s gross as self-invested work, which I model as all work, and D as zero. Thus (A4.4) is interpreted as !K T !H C s W s C s W C s rH , if age A , (A10.5) leading directly to (A10.1) For adults I model gift received as zero. As physical capital acquisition is modeled as beginning at independence (age A), Y s now becomes self-invested output for both factors. Let this show as P s for physical capital. pl means pay plowback pl plus plowback from revenue of physical capital, as with the firm. That can show as (K) pl . But I model pl as zero because I see so little of it. Rather I allow reinvestment of pay APPENDIX A: The Argument in Notation 3 7 16 25 into physical capital holdings. That can be notated . I don t allow transfer from physical to human capital in adults, which would mean invested consumption C s afforded from property cash flow, because I see so little adult C s (adult education) on which to spend it. That s why I model pl as zero. Meanwhile realized decapitalizaiton is decomposed into its human and physical components D(H) and D(K) . This adapts (A4.4) to !K T !H !K W s P s (K) pl D(H) D(K) , if age A , (A10.6) and specifically (A10.7) !H W s D(H) and !K P s (K) pl D(K) , if age A . Next Generation Theory The period of production, as defined by Jevons and Boehm Bawerk, gave the reciprocal of rate of production (rate of return Y K T ) if growth were zero. Output Y equals growth plus cash flow. Then Jevons and Boehm Bawerk really meant the period needed for output to make up for losses to cash flow. I call this the cash flow period T F , equal to the reciprocal of cash flow rate f. That is, T F 1 f . (A11.1) Both modeled at the collective scale, where cash flow under the Y I C equation both would have accepted simplifies to consumption C. Adjustment to the Y rule corrects this to pure consumption C p . That would specify (A11.1) as APPENDIX A: The Argument in Notation 3 7 16 26 T F 1 C p , at the collective scale. (A11.1a) recalling that c p is pure consumption rate C p K T . Rae, Jevons and Boehm Bawerk all got nowhere because they modeled physical capital only. Jevons, in particular, saw the productive cycle as the wage fund reproducing itself as it was used up in consumption per (A11.1). He was close. (A11.1a) models it as total capital reproducing itself as it is used up in pure consumption. My next generation theory, really Petty s, posits the generation length as the deadline for transmitting all fitness (total capital) from each generation to the next. The generation length in R.A. Fisher s sense is average age difference between both parents and all offspring from first births to last weighted equally. It is a flexible biological norm. It was probably well over 30 years before 1900 or so, when high infant mortality compelled longer breeding to ensure that two would survive to breed again. Contraception, known since Roman times, was then less practiced. It seems to run a little under 30 years today in industrial countries. I model it at 28.5 years. That gives T F 28.5 years and c p 1 T F .035 year . (A11.2) (A9.5), inferred from free growth theory, already gives I(K T ) xa optimum Y xa optimum c p , at the collective scale. This shows that the output we actually control, meaning ex ante output, is optimized at just enough to make up losses to pure consumption. Next generation theory specifies that the loss and make-up period equals the generation length. APPENDIX A: The Argument in Notation 3 7 16 27 Under the simplifying assumptions of the life cycle model adapted from Ben-Porath, we would meet that deadline by directing all adult gross realized output less property plowback (K) pl to gift to the immediate generation of young received as their invested consumption. The young would add their part by compounding that outside investment into their human capital at the rate of their entire ex ante output. This would prove the most straightforward strategy to exhaust and replace all total capital by the deadline exactly. This is just as in my adjusted Ben-Porath model with the addition of the specified deadline. Here as there, I describe adults collectively and the young collectively. I will not attempt to model effects of kin selection in individual investment choices. But I have intended to lay a groundwork. Investment, in Hamilton s sense, translates to gift in economic terms. It is a flow of total capital (fitness) from donor to donee. At the individual scale, as well as for the group scale, it equals gross realized output less plowback. Gross realized output tends to be a continuous flow, as we see in pay, rather than one easily sped up or slowed down. This gives an idea of the time constraints I mentioned in critiquing Hamilton s rule. APPENDIX A: The Argument in Notation 3 7 16 28 |
Brexit Statistics Data Retrieved: 23 rd June, 2016 Data Source: Twitter Total No of Tweets: 302,1130 No of Tweets with Positive Sentiment: 157,075 No of Tweets with Negative Sentiment: 93,305 No of Tweets with Neutral Sentiment: 51,750 Brexit 157075 93305 51750 635 365 476 NEGATIVE NEUTRAL POSITIVE user Tweet Created At Locatio n DigestEcon OriginBuilde rs cristiano ro sh LeighJackso n100 BianchiGius eMa TimesofIsra el alijduncan Jan S B 45 9 100postolal a ianross6 failedevoluti on JchilbeT kiq LivingInHop eUK fnyack itsmelukepe nny Markets in limbo ahead of Brexit vote 23 Jun 2016, https: t.co UFjk6BiNVp econ mises keynes 00:39 - CEST RT DutchDL: TOMORROW BREXIT pls !! make 23 Jun 2016, history hopefully the Netherland will follow PVV 00:39 - CEST EDLLONDON Finnishdl EDL RT manujosephsan: The finest Brexit was in 1947 23 Jun 2016, 00:39 - CEST RT Future of West: The Military "experts" who 23 Jun 2016, want Britain to remain in the EU were the same 00:39 - CEST "experts" who wanted us to invade Iraq. Brex RT Soppressatira: Brexit: Rischio enorme per famiglie e lavoro . Dislocare in India e Cina le fabbriche, invece, estremamente sicuro. UK politicians make final appeals ahead of Brexit vote https: t.co LLcWR1NIjh Bremain or Bereave? Vote smart Britons! EUreferendum Remain UKreferendum Brexit RT Trev Forrester: VOTE LEAVE Brexit https: t.co ldikPiOkyc OtkudJa ta je se a? BREXIT bre, od danas ne govorim vi e engleski RT Dwalingen: I'm Dutch and I endorse Brexit because we can be united only in freedom, sovereignty and rule of law. VoteLeave https: t Brexit https: t.co MKxxj5gwWq RT evelinafinance: GBP USD remains near 5month high ahead of Brexit referendum: https: t.co WuufO9JBuH RT stereogum: Noel Gallagher steps into Brexit debate: "I like the fact that it sounds like a cereal" https: t.co D6xD37cxWH https: t.co RT AMTrump4PRES: I'd like 2 dedicate this tweet 2 former lovely cultures that will only B found between the pages of a book. Brexit https Terrorists for deportation June 234, 2016. BREXIT! https: t.co jtHoi0A0xK 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST Brexit https: t.co qtJKmlBWQh 23 Jun 2016, 00:39 - CEST No of Sentiment times retweeted 0 negative In your Mind London 5 positive Mumbai ,India 164 positive 30 negative storia libri ItaliaMe dievale 10 positive Jerusale 0 positive m, Israel Wellingt 0 negative on, New Zealand Engand 14 positive Zrenjani n Veliki Be ker ek Argentin a City of Osaka United Kingdo m Manhat tan, NY Earth (tax purpose s) 0 negative 257 positive 0 neutral 1 negative 9 positive 11 positive 0 negative 0 negative juanvended or gdechantera c callemexico traderprene urs elliemurphi e olgauq JohnMGinty robertoplieg or 7nestingwre ns RamEstate MarkNewto nCMT RodYork maxim bom bo RussiaConn ects SFSU KateHesk AnonCentro Ameri theflyingme dic Race of the Day: Brexit https: t.co kn1m6nTroa https: t.co E9Ht8Vnh9h RT MVAlekseiev: Le taux de participation record de la pr sidentielle autrichienne (107 ) devrait tre battu lors du r f rendum sur le Bre Brexit causar a impacto en exportaciones italianas por 1.9 mil mdd https: t.co ko8BcaDF8l Cramer: Brexit fears are overblown https: t.co BTRlqQuAIb A question I really think was not given due consideration over the Brexit campaign VoteRemain https: t.co oLFttmB5xu RT el pais: La Polic a de Londres impide un reparto de cruasanes para pedir el voto contra el 'Brexit' https: t.co UbMQsEnHpL JChatterleyCNBC Brexit? I say remain. And I'm a blarneylovin Mic! Quell the uncertainty! What thinks Julia? Mezcla sin temor a Brexit sube a 40.83 d lares https: t.co 2BpHqmvpnp RT londonfredd: People who vote Brexit on the bases of immigration are likely to be voting on a lie risking their own jobs, pensions and RT NewsLandlords: UK landlords are not concerned over Brexit https: t.co KEzIRG7qsg uklandlords Brexit https: t.co pFhLeLtBHr RT Histreepix: Applicants for 'Official Mascot of Brexit', Chelmsford, 2016. The eventual winner was Boris Johnson. https: t.co xNSyH6HIaW Final Brexit Appeals Made as Polls Diverge on Referendum s Eve https: t.co cBcgvj4wmD via business BrexitOrNot : Les Britanniques ont toujours eu l'impression d' tre rejet s https: t.co iMvuvDiBYb 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 00:39 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST BREXIT https: t.co Om5ZfPLK8s 23 Jun 2016, 01:13 - CEST Voters in the UK will decide on Brexit tomorrow. An 23 Jun 2016, SFSU expert explains what's at stake: 01:13 - CEST https: t.co 7U3EiNAHkd https: t.co fEzAz6vQxl Lying in bed and my heart rate is 78bpm all because of Brexit. Actually feel sick at the prospect Fitbit voteremain RT Wrath 01: Lies told to Norway before they rejected EU membership Brexit Voteleave https: t.co 2Vo1OXHDuq via YouTube Scouriebeast COLRICHARDKEMP JodieActy I am suggesting the EU stops and it will. Then we can work with our free European partners. Brexit 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST Paris Vend e 0 positive 4 negative 0 negative Solo- Indonesi a 0 negative Ireland 0 negative West Chester, PA mexico city English Borders London Essex Fairfield , CT San Francisc o, CA Merseys ide, UK 20 NA 0 negative 0 NA 1 NA 6 NA 24 NA 0 NA 0 NA 1 NA 2 NA 0 negative 1 positive 0 NA stephenmc manus8 PazUtzin iLibTw neptunoopi na RT RuthLeaEcon: Of course there'd be an EU trade deal if Brexit. German BDI (CBI) head clear tariffs would damage German jobs. https: t. RT thejohnhastings: If anyone is wondering if you do not attend my edfringe show you are helping the part of Brexit you oppose En anterior debate con Farage, Cameron habl de la Costa del Crime Sol . Si hay algo bueno del Brexit ser a expulsar a mafia UK de ESP. RT LaVanguardia: Qu opinar a Winston Churchill sobre el Brexit? https: t.co GOBL0hjW7e https: t.co 5LQ62PGDhY 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST 23 Jun 2016, 01:13 - CEST GCPa18th Brexit vote here we come.... Will I stay or will I go? 23 Jun 2016, 01:13 - CEST EarthBabyY RT Mark Beech: A propos garbage and Brexit 23 Jun 2016, Magoa posts tonight, heavy British rain might affect turnout? 01:13 - CEST https: t.co w4TFDekFXL vijayhre86 The theme today is all about disruptions.. Nothing 23 Jun 2016, MariaEsquir ozMa could be more disruptive than Brexit atm! RT muyinteresante: Qu es el "Brexit"? Qu consecuencias tendr a? Te lo contamos todo aqu : Brexit https: t.co R8L7edqRdk https: t.co 01:46 - CEST 23 Jun 2016, 01:46 - CEST mortalfool BrexitNO. TexitYES! 23 Jun 2016, 01:46 - CEST cihat metin RT eagencye: Brexit Soros and CIA ! 23 Jun 2016, 01:46 - CEST aihyah Britain Doesn't Need the EU to Trade Rocking MrE Brexit VoteLeave BBCdebate EUreferendum https: t.co zDcCYRdVP3 23 Jun 2016, 01:46 - CEST Engesee ID23 IndependenceDay Brexit VOTE LEAVE 23 Jun 2016, 01:46 - CEST HarryBarwel If that vote is tomorrow I'm voting out coz 23 Jun 2016, l6 1 Funny 01:46 - CEST 2 3 Bare heads crying about how were gonna die if we Eng Observ er topnuntious skipsiperko brexit RT jeremyforlabour: "The EU is not a benign or civilising force. It is a facilitator and enforcer of lending cartels" https: t.co JWmFNEv Concerns over Brexit do not end at the English Channel https: t.co MBd5abLyli https: t.co K0XnAF3R39 via FT RT ElVatoTeporocho: "Welcome to London, are you ready to convert or die?" 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST Espa a (BCN is not CAT) 195 NA 2 NA 0 NA 7 NA SW PA 0 NA Alaska 396 NA Brookly n, NY ATE ANT FA ACAB Junckers Bottom Lincolns hire 0 NA 45 NA 0 NA 1 NA 0 positive 0 positive 0 NA 4 NA 0 NA 12 positive VoteLeave Brexit https: t.co 7hsV0YKpNI jenmili MarkHolloh ead GreenSamP AFC Toronto nia n belkgarri JJDoomydas stevegb007 1 DarioAtenci oA SamBaker MitulRach1 TheCutbank s Lesism Candyo4u24 9 marketstock news marketstock news moshtag203 0 Charlie Led ezma marketstock news RT iamsrk: I c this trend in News where leaving of someone or something is headlined as Rexit or Brexit.So if I leave from sumwhere am I Liz Huirley bares all to back Brexit https: t.co QATyDOymiR MailOnline.well done Liz.you are a true Brit.believe in Britain. VOTELEAVE RT arjan : the ones that stand to benefit from Brexit are unsavoury. Racism, nationalism and fascism benefit from Brexit Brexit . . . big deal! Planet earth will keep turning Cartoon for laughs via Toronto nian Toronto's own! https: t.co uITSzvJxp9 RT CNBC: UK Brexit campaign's lead narrows ahead of referendum: TNS poll https: t.co w7WRb2R0lF RT Mark Beech: A propos garbage and Brexit posts tonight, heavy British rain might affect turnout? https: t.co w4TFDekFXL UK WAR VETERANS SLAM PLANS FOR EMERGING EU ARMY AHEAD OF BREXIT VOTE https: t.co Tv8DNzprXY via YouTube guardian has presented a summing up of its point of view about Brexit vote tomorrow's. "Vote to Remain" and Why? https: t.co GdXNtVYLFp RT jpublik: That Brexit manifesto in Private Eye VoteRemain EUref https: t.co QU1fjwvk6G Today is the Day, Who is everyone going to vote for?? BREXIT or REMAIN?? Who will you vote for?? Thanks CBC 'It's a dead heat': What you want to know about the Brexit vote https: t.co SMVZETx8fQ Brexit RT ethicistforhire: Can't believe it's called Brexit, and not EUthanasia... RT AMTrump4PRES: I'd like 2 dedicate this tweet 2 former lovely cultures that will only B found between the pages of a book. Brexit https New post: "Traders: Here's where to find some protection for your portfolio ahead of Brexit" https: t.co kDAMhZGaJv New post: "How are you positioned ahead of the Brexit referendum?" https: t.co 5tzxHffYEX RT alexbland: Brexit IndependenceDay https: t.co v9TrmBwSZg RT PeterLBrandt: FACTORMEMBERS Going home tonight prior to BREXIT with lightest leverage in 18 mos. at 5 margin to equity and no financ New post: "Cramer: Brexit fears are totally overblown" https: t.co 4ZqkAMAb5N 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 01:46 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST PER Liverpo ol, England Plymout h Toronto The Good! 2444 positive 0 positive 5 NA 0 NA 5 NA Maine 767 NA U.K 0 NA Manhat tan, NY and Panama . Prince George, BC Carlisle, England Connect icut, USA 0 negative 2295 negative 0 negative 0 negative 39 negative 180 positive 0 positive 0 positive 7 neutral Panama 9 negative 0 negative clairebotai PapaSonsFil m Spock Capt jacobward 11 ekatloy VaseCommu nicant federalnews 24 PropertyFun dsAU duchessofvi sser hw renewe RT Spock Capt: In the Science of Civilizations, Brexit Is the European Union s Reckoning https: t.co HxTKQiV2cw geek tech If this storm isn't telling you that Brexit is doomed then... well, we are doomed. In the Science of Civilizations, Brexit Is the European Union s Reckoning https: t.co HxTKQiV2cw geek tech RT mikeudem: Stocks close lower as WallStreet countsdown to Brexit vote https: t.co p795Av9GXK https: t.co OFevR32dxd RT mz understuud: PrisonPlanet saw some saying if you're undecided on Brexit then vote Remain coz you guys can always have another vote. RT theintercept: If British voters choose to leave the EU this week, it will push the continent back toward nationalism. https: t.co 48Gq Fed's Yellen says no special meetings scheduled over Brexit Yellen Brexit... https: t.co N718bknyod Hear what YieldReport has to say about the Brexit referendum check out the link https: t.co XVX0W0sgAT 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST tomorrow is the day when they decide if they brexit 23 Jun 2016, 02:20 - CEST RT DerorCurrency: In two brief, perspicacious 23 Jun 2016, paragraphs, ProfSteveKeen nails the reason to 02:20 - CEST Brexit. 1 neutral London 0 negative Paris 1 neutral Stamfor d, CT 500, Collin St, Melbour ne, VIC Bahama s 1 negative 1 negative 69 positive 0 negative 0 positive 0 neutral 64 neutral 3tyl marketstock news DS Investoo ls wmiddelkoo p Hope for S anity Dmol8 https: t.co 4gjfvD0FhH https: t.c Brexit Brexit Brexit, ich h r immer nur Brexit. Mir doch egal in welche L nder die EUGelder flie en. VoteLeave New post: "Markets caught in limbo ahead of Brexit vote" https: t.co g6GtnCnfhe Be sure to check out tonight's Market Forecast by Blake Young our resident forex expert Investools Brexit https: t.co uAWkjehF1I RT adamjlent: Good chart from Morgan Stanley showing surge of populist parties in Europe. Brexit will boost them further. EUref https: RT FactDeJour: We'll either be Eurotrash or lonely Brits 2moro the fun bit is, nobody has a single solitary clue which is lesser evil B RT CharlesPHoffman: Okay, rant over. Return to your regularly scheduled freakout about the Brexit referendum. 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:20 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST German y 0 positive 0 negative USA 0 positive markets - geopolit icsenergy Knoxvill e,TN to Leeds,E ngland 18 positive 2 negative 1 neutral katestewart yudhaueeo sparkyofAlb erta Love Catfor d Stormkat45 4 SandraZucc aro1 RT louteasdale: Watch billiejdporter tonight on Newsnight talking about brexit voteremain channel 4 at 9pm X Inggris Gelar Referendum 'Brexit' Hari Ini: Diperkirakan 46,5 juta orang berhak ambil bagian dalam... https: t.co Ds7Dhxos29 RT CBCNews: 'It's a dead heat': What you want to know about the Brexit vote https: t.co ZV51GeqdLF https: t.co N2lpbv2ddd I know everyone is joking about the Brexit thunderstorm but has anyone looked outside recently.... RT sturdyAlex: Selina Scott's case for Brexit after Sheila Hancock's case for Remain is like eating the best steak and then eating the p A slush fund paying off countries to try and stop a tidal wave Merkel. We're be calling you Canute https: t.co CrRHEj4PAp Leave Brexit 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST Instagra m kateste wart San Francisc o Swift Current, Saskatc hewan Catford, SE6 235 negative 0 neutral 14 negative 0 neutral 101 negative 0 positive INVUQT mjcooper10 1 Greg 5mith RT TheRebelTV: Is Europe dying? Is 'Identitarian' movement the cure? Lauren Southern https: t.co OKMKl0sqJs tcot Brexit https: t.co RT jpublik: That Brexit manifesto in Private Eye VoteRemain EUref https: t.co QU1fjwvk6G RT Stop The EU: Freedom to remove all EU fishing quotas, revoke the CFP rebuild Britain's once thriving fishing industry 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST Canada 25 negative England 2323 negative 177 positive Hammers10 10Alex Spent Brass moneyspinn er piedmontia n11 Henayti Brexit https: RT LeaveEUOfficial: . ElizabethHurley is voting LEAVE tomorrow are you? Brexit VoteLeave EUref https: t.co va71MYUtMK LetsGo! BREXIT: IndependenceDay for Britain? https: t.co DiDC3KCwd6 via YouTube RT Nin Matharu: UK EU Referendum 2016 Why I'm Voting Brexit https: t.co slsTw2Z3Pc RT XxPLWxX: PLEASE RT!! Juncker confirms there'll be NO reform if we stay in the EU https: t.co yqokYbJQGH We absolutely MUST Brexit Vo RT liputan6dotcom: Inggris Gelar Referendum 'Brexit' Hari Ini https: t.co HcD3S8AVlT https: t.co GeQ9tsrU6D 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST fantastic Harlow United States, Wiscons in BIRMIN GHAM, UK Athens, TX Tangera ng, Indonesi a 380 positive 0 positive 2 neutral 168 positive 1 NA xyzcompany inc dkenstone juneimmel man gas bill dieterzakel JasonDeFuri a pazgabela KolbSchmitt abcnews ABCElection s parishatzi Why the United Kingdom leaving the EU would infuriate the tech industry https: t.co svoAGsFlXP RT roomdesign3: TRAITORS TO THE UNITED KINGDOM ALL FUTURE GENERATIONS REJECT GRAB YOUR FREEDOM BREXIT SPREAD THE WORD FeistyDeanne https RT IngrahamAngle: Bono, Beckham every other global celeb in Britain ag Brexit. Follow the globalization great for them, horrid for Final Brexit Appeals Made as Polls Diverge on Referendum s Eve https: t.co qjTf8JRl3E I back BREXIT, and please don't forget to hang Juncker https: t.co I6KCR2yMmZ In the Science of Civilizations, Brexit Is the European Union s Reckoning https: t.co xZlZO6Izgn Brexit: Refer ndum entre la derecha neoliberal y la derecha neofascista. Y la izquierda? https: t.co p6drfvsqks RT ElyseeMarine: Choisissez la libert et non la soumission UE ! Brexit Leave https: t.co na5pS5FnR0 RT naomiwoodley: . TurnbullMalcolm: "It would be a very big shock, no doubt about it, if Britain votes to leave the EU. abcnews brexit RT naomiwoodley: . TurnbullMalcolm: "It would be a very big shock, no doubt about it, if Britain votes to leave the EU. abcnews brexit STEPHEN GLOVER: Why I'm voting Brexit because it could RESCUE the EU, not destroy it 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:37 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST Nantong City, Jiangsu, China Orlando , FL 0 negative 16 negative 242 negative Dallas F t. Worth New York 0 neutral Port 0 negative Moresb y Cherry 0 neutral Hill, NJ Asturias 0 negative Australi a Australi a Athens - Nicosia 33 positive 3 positive 3 positive 0 neutral Genetlv chntypdwr m Abdirahman AliUK ez jokka Yoostin https: t.co LKfTjPLvrO In the Science of Civilizations, Brexit Is the European Union s Reckoning https: t.co stcLZ3a76t via WIRED Inggris Gelar Referendum 'Brexit' Hari Ini: Diperkirakan 46,5 juta orang berhak ambil bagian dalam... https: t.co LL589ypLrd RT Independent: Final EU referendum poll shows Remain with significant lead https: t.co v72FEEz7Pd RT elizabethholds: Is this crazy storm in London some kind of sign of impending doom? Brexit Trump Apocalypse What's more likely. UK Parliament voting to remove employment rights. Or EU amending regulation, so forcing UK to remove rights? brexit 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST T: - 6.54338 7,107.4 42888 0 neutral 0 neutral 300 negative London 1 negative Llanelli, Wales, UK 0 negative znk8 villain2007 aarianto10 TegenH KellerZoe francreynel txblondegra d AyakTracks buttonhole1 RT laprensaoem: La decisi n de DavidBeckham sobre el Brexit UnionEuropea ReinoUnido ENG https: t.co RTDms6023e RT LouiseMensch: German CBI: no tariffs after we voteleave. Die Welt newspaper endorses Leave for the UK. Vorspr ng durch Brexit https: Inggris Gelar Referendum 'Brexit' Hari Ini: Diperkirakan 46,5 juta orang berhak ambil bagian dalam... https: t.co jUYlkqetVM RT zoowitchproject: Gods angry at potential brexit, make feelings known with violent thunder storm in London! Appease gods, vote remain Something Strange Emerges When Looking Behind The "Brexit" Bookie Odds Zero Hedge https: t.co pD41DK0V4E RT inthemoodfortw: Ouinon, graffiti sur la route, Paris, 1945 Paul Almasy Brexit https: t.co 9VfVJzOdDE RT Forbes: Poll: 80 of Americans think Britain should leave the EU https: t.co EPNk488c9h https: t.co 3mqaV8v5KD That's that 'stop your stupidness bout brexit' Thunder Lightning VoteProper GodsTakingSelfies RT LeaveEUOfficial: VoteLeave tomorrow for our independence! 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:54 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST Mexico D.F. eastern block. 1 neutral 903 positive World 0 neutral 4 negative 0 neutral Paris 18 neutral 32.7864 56,- 96.9752 5 280 positive 0 neutral 357 positive EUref Brexit https: t.co upHsaXVzV4 KenHaley2 In event of Brexit UK is holding all cards EU 23 Jun 2016, powerless.THE EU CANNOT START TRADE WAR.THE 02:55 - CEST EU CANNOT PUNISH UK https: t.co FOMFOkySx3 cactuscrusa RT marios bn: 23 Jun 2016, der 02:55 - CEST ; bremain brexit grexit 2015 https: t.co 3ASzNZsucC accordingto if they brexit we will be forced to lift more to pick up 23 Jun 2016, pun the slack!! USAmerica nyhrc 02:55 - CEST Avalon262 RT Mrforestmoon: To our uk friends across the 23 Jun 2016, pond Brexit and take your country back 02:55 - CEST MiketheSpik RT seedy181: Voting to remain is effectively treason 23 Jun 2016, e Brexit Voteleave https: t.co K5KrMxmvZG 02:55 - CEST Advisorbox RT business: This stock trader who made 6,200 in 23 Jun 2016, Media China isn't worried about Brexit 02:55 - CEST https: t.co kATgnhWtt2 https: t.co AUDj7wjkfa Sgt Rock68 VoteLeave Brexit https: t.co nnyCRNB5ew 23 Jun 2016, 02:55 - CEST greece Athens 0 neutral 190 negative 0 negative Hastings 1 positive USA 9 positive Brecken ridge,CO 50.9692 224 N 0.08939 510 E 15 neutral 0 positive ricardofigue ira DepthOfTwil ight CLIENTEIGH T zesty financ e BLang71 AlMHIGH1 NewsdeskM ONEY adventurew mike tulio1987 josiefey 2happy2ma n SanDisH ArchivePerf orm Angelisse00 7 NaeemSiddi qui84 LynannMari e56 RT AndrewBloch: PR Stunt of the Day Tattoo Shop offers free Brexit tattoos to highlight the permanence of voting leave https: t.co pcjd RT CaucasianAllure: The darkness is taking over the light. The migrants are taking over Europe. Brexit 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST VoteLeave StandUpForEurope h ........how many faceberg likes does Brexit have 23 Jun 2016, 02:55 - CEST Australia shares to get opening lift from Brexit polls https: t.co Kvk1FlvIkC Finance https: t.co jWJCMRXRSx RT V of Europe: Your country needs YOU: Vote Leave today to make Britain even greater https: t.co NXFjXxIrtI RT Inst 4 Studies: This guy will be voting Remain. A charlatan voting for charlatans. Unacceptable. Brexit https: t.co 1m5IDGxAuB RT NewsdeskBIZ: Vote remain and we ll forgive you for 1966! German newspaper wade into Brexit debate Soccerway https: t.co lUuoiGrpIh RT afpfr: Brexit: suspense total et derni res mises en garde quelques heures du r f rendum https: t.co YTf2M0q0ml AFP https: t.co y fb Wednesday, June 22nd, 2016 Brexit: Remain, House Sit In, Illegal Bingo, Match https: t.co aIs5hhOeD8 RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT Vixen chick: Let today be Britain's Independence Day, Vote Brexit Better Great Britain rather than the 28th State of Europe https: t. Sleepless in the City Lets Traders Bet Billions on Brexit Result Bloomberg https: t.co VttnqoDrj8 RT refugee archive: Very pleased to have a stimulating day UEL Library Ends w great roundtable Brexit DifferentPastsSharedFutures ht RT bare digital: In the Science of Civilizations, Brexit Is the European Union s Reckoning https: t.co SLrDA1GwOy tech wired https: t. RT V of Europe: Farage s final rallying call: It s us versus the Establishment go and vote for Britain' https: t.co LfRgbPr9PF RT theghissilent: I just want to know how the Brexit will impact getting Doctor Who back on netflix... 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST London, UK Far Far Away souther n californi a New York, NY United States sarf london 53 positive 14 positive 0 neutral 0 neutral 24 positive 12 negative 1 negative Kansas 18 negative GU RI CO VENEZU ELA. Portland , OR 0 negative 4061 positive 2 positive Venus 0 negative London, England Tampa, FL Bay Area, CA 2 positive 7 neutral 19 neutral 3 negative NaeemSiddi qui84 ravicyp helen f b RT V of Europe: Your country needs YOU: Vote Leave today to make Britain even greater https: t.co NXFjXxIrtI RT ajay mahil: This is God warning you about a brexit Lotta people on Twitter reckon the storm is God supporting Brexit, or alternately God supporting remain. chass2008 RT AMTrump4PRES: I'd like 2 dedicate this tweet 2 former lovely cultures that will only B found between the pages of a book. Brexit https r fh v BorderKeror o AllahuOmar FBastiat1 peterson al yx RT danielayllon: Ojo a las portadas de la prensa brit nica de ma ana. Esto es posicionarse y no lo de Espa a. Brexit BrexitOrNot https: RT V of Europe: Your country needs YOU: Vote Leave today to make Britain even greater https: t.co NXFjXxIrtI CharleyyRachael I'd tell her to vote for Trump. But she's a useless brit. So she can vote for Brexit. RT FrenchForTrump: BREXIT VOTE MAKE UK GREAT AGAIN TIME TO LEAVE EU MakeEuropeGreatAgain THIS IS OUR FREEDOM MakeAmericaGreatAgain ht RT AmbJohnBolton: Britain is our strongest and most important European ally Brexit would promote the revitalization of western security. lucy meakin RT markets: Pound Reaches Highest Level of 2016 on Eve of U.K. Brexit Voting https: t.co goDSmBZoW5 https: t.co 9HUxUzSphj andrewnap pi RT FrenchForTrump: BREXIT VOTE MAKE UK GREAT AGAIN TIME TO LEAVE EU MakeEuropeGreatAgain THIS IS OUR FREEDOM MakeAmericaGreatAgain ht 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:55 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 24 positive 2 negative London 0 negative (Ahora) Madrid 227 positive 76 positive 24 positive 0 negative 370 positive 278 positive London 21 neutral Occupie d Florida 372 positive ConsumerFY I Efekto10 roxylovesluc y Remainers' US "partners" The FederalReserve is Pushing The Economy to The Verge of Final Implosion https: t.co xFhR9HvpaI Brexit M xico y el Brexit la columna de JuanCLastiri https: t.co OIbmeAWehE RT JaredWyand: BRITISH MUSLIMS POLL: 66 say they wouldn't warn of a terrorist attack 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST US, Africa, EU 0 negative 0 neutral Indiana 255 negative Brexit EUref TrumpSpeech NoBillNoBreak https: KiartivichSC RossFrenett Lady Sapph o Bigdatahires Hedgeye memosquer a khunmilk IndeCardio vilma pooh iVoteLeave LadyConser vativ parti7sano Cusstard PW 75 RT PetroleumEcon: Brexit: The UK will probably vote to stay, but oil markets fear the potential fallout (FREE) https: t.co tMGPzaTUos htt Jesus lads, this ominous pre referendum thunder storm is, well... ominous Brexit thunder RT peacelovedixie: If you are British, I don't know how you can watch this and even consider voting remain. brexit VoteLeave https: t. Very interesting! Inferences drawn from BigDataAnalytics done on Brexit is contrary to mainstream media sentiment https: t.co Cq24WgzTZ7 Cartoon of the Day: Enough Already! Get our daily cartoon emailed for free: https: t.co 9UayxdPCQF Brexit https: t.co 8kxPiqPYZH RT SCabreraS: Fren tico final de campa a para convencer al 10 de indecisos. Cameron podr a sufrir las consecuencias de un Brexit https: RT moui: " " Brexit " " RT elohimis1: Trade barriers postBrexit would be 'foolish', says German businessman https: t.co fddFBIIx8y via MailOnline RT MUDDLAW: The latest Veritas International! https: t.co Tg5dmcrjBE brexit euref RT Australiaunwra6: On eve of Brexit vote, rival camps race to win over undecideds https: t.co 0zFetC6psQ tomorrow get out and VoteLeave RT chuckdevore: Hoping that our British cousins across the pond declare their independence 240 years after we declared ours. Brexit RT bbcmundo: Qu es el Brexit?: 7 preguntas clave para entender el referendo en Reino Unido https: t.co BkB7XCg8Oo https: t.co ax2hqVII RT afneil: Head of German Industry: postBrexit trade barriers would be "very, very foolish"; urges "trade regime to maintain levels of tr Nach der Meldung, dass alle Brexit Volksentscheide komplett folgenlos sind, werden alle Meldungen und Warnungen zu einem grossen LOL WTF 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 02:56 - CEST 23 Jun 2016, 03:13 - CEST 13 negative London 0 negative Chicago, USA Stamfor d, Connect icut Venezue la Puerto Rico UK, not EU North Carolina Deutsch land 2 neutral 0 positive 0 negative 14 negative 136 negative 1 negative 2 neutral 4 positive 5 positive 22 positive 1674 negative 0 negative roysimangu nsong bbpsn yayayamam oto DISCOVERY Bali kerrijacobi Wicked3s catcherbloc ForeverReag an rhcm123 US Threepe rs netzlesen AK47 LFC abdulmalig patricer18 RT fgvdapp: Should I stay or should I go: British are divided on Twitter about leaving the EU https: t.co RqwOiyGGsb EURef https: t.co RT jin nation: Brexit , " " nna https: t.co HLOJLO5DSy RT TheEconomist: Would foreign students apply to business schools in the UK after a Brexit? https: t.co tn7kX34cia https: t.co sb9DpjEPzS RT alexbland: Brexit IndependenceDay https: t.co v9TrmBwSZg RT AllenWestArmy: Latest Brexit Poll Shows Massive Swing To Leave EU: Referendum In 12 Days https: t.co ySvreqZQhI via BarracudaMama RT INTJutsu: If the UK doesn't get out now, there won't be another chance, as their country will be overrun ruined BREXIT UK https: t RT ReutersBiz: Asia stocks, sterling rise as Brexit anxiety abates https: t.co 5Z7QsRREhI RT AllenWestArmy: Latest Brexit Poll Shows Massive Swing To Leave EU: Referendum In 12 Days https: t.co ySvreqZQhI via BarracudaMama Also reminder that Putin is probably using the SVR to influence the Brexit debate in a proLeave way. Wonder why RT bluehand007: This will be our finest day.. I am confident.. Brexit Voteleave Bluehand AMTV BREXIT to Collapse Eurozone (WARNING!!) NWO https: t.co fDs0imD2cW RT MoAnsar: Incredibly, I've heard of some poor Muslims considering Brexit, utterly unawares it's being lead by the antiMuslim far right! RT somkiatonwimon: 1. BrExit EU . RT MLP officiel: J' tais ce soir l'invit e du 20h de TF1. LoiTravail Brexit MLPTF1 https: t.co uIKIUoTnAj 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST Indonesi a Hong Kong Kuta - Bali Lake Charles, LA Vegas, USA 12 negative 29 neutral 44 neutral 15 neutral 19 positive 56 negative Jamaica 7 neutral Texas (a.k.a. Gods Country ) getting coffee Nebrask a, USA 14.1493 05,100. 612188 19 positive 0 positive 13 positive 0 negative 13 negative 12 negative 425 neutral TBS907 JosephD4al SmartEnerg yApp CNBCi ForeignAffai rs bankzzzgtr NealCassady 64 daliarw FXS Stocks RU ManLikeFab regas elsolde mex ico RT geraldcelente: Paul Craig Roberts Just Exposed The Terrifying Reason Why The Elites Had To Stop Brexit At All Costs KingWorldNews htt RT AllenWestArmy: Latest Brexit Poll Shows Massive Swing To Leave EU: Referendum In 12 Days https: t.co ySvreqZQhI via BarracudaMama In the Science of Civilizations, Brexit Is the European Union s Reckoning https: t.co Ry92WlzZJy wired https: t.co uwJfw9DVml Brexit could slam a group of countries nobody s talking about https: t.co fdDLJr8h1o The roots of the divisions over Brexit: https: t.co MKs9IfMjnU Brexit RT FightingTories: Today ABCNews24 has plenty about Brexit polls but ZERO about these polls https: t.co sYVYqiQL9I 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:13 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST Belgian PM calls for EU meeting after Brexit vote 23 Jun 2016, https: t.co JakPcL1UXr via POLITICOEurope 03:30 - CEST Brexit 23 Jun 2016, 03:30 - CEST EUR USD JPY https: t.co K1dtjIazCC Ma ana voto Leave. VoteLeave Brexit 23 Jun 2016, 03:30 - CEST Finanzas Brexit preocupa a la econom a de EU: Casa Blanca https: t.co pESct4tNle https: t.co aLfT9YvnRd EaZyForm Brexit: b Heute b SchicksalsTag f r Europa: STERREICH: Heute stimmen 45 Millionen in https: t.co xVGjj0KptN smackey678 9 dd9000 RT andrew lilico: How supporters of Remain hope fans of Brexit feel by 2025:https: t.co lsRopFSYXX RT JohnTirman: Those shocked by Brexit strength: every European country in 193040s had a popular, native fascist party. The Liberal orde 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST dirty doon 12 negative Madiso n, Alabam a 19 positive USA 1 neutral London Singapo re studios New York, NY Bangkok , Thailand Falcon Bay Australi a Antigua Rep bl ica Yugosla va de Ciudad de M xic o Augsbur g German y 0 negative 0 neutral 0 neutral 1 negative 0 neutral 0 neutral 0 positive 0 negative 0 negative 2 negative USA 4 negative smitty one each cnnphilippin es tableaupubli c imanjeetkau r TribulationN ow Forget Project Fear. Be positive. Choose dynamism. Choose Brexit via telegraphnews https: t.co epL0KBSMLO The nonBrits guide to Brexit https: t.co VJ84CsZH8Y https: t.co fIXxXy6kRD For politicsdatamonth, sophie sparkes shares tips on building a live political tracker https: t.co 5G0z7BbhzZ Brexit EURef Technology Tech In the Science of Civilizations, Brexit Is the... https: t.co w6wsOfs5DO https: t.co d6F3HbsDcd https: t.co kKJXhNJuM0 Brexit: What Is It About? Paul Craig Roberts 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST NOVA 1 positive United States 0 neutral 0 neutral 0 neutral 0 negative If you read the presstitute media, Brexit the referendum tomorrow... https: t.co QB8Zk8y4ov MagsRG RT theordinaryman2: Retweet if you want out of EU 23 Jun 2016, 03:30 - CEST Cheshir e 89 negative ARTnewsma g hoofed rueconomic sru UnaFreema nn augustofisca l lucie bucha n bigblasterst ock RonaldARo mero AlonzoPonc e BBCDebate EURef VoteLeave Brexit VoteRemain InOrOut Labour VoteOUT https: t.c No man is an island https: t.co aPRjuOgGeY https: t.co uODIptUbQL Debate is theatre. Respectful discussion is usually worth it. kek EUreferendum EUref Brexit https: t.co NWE4YVwLUX Brexit https: t.co OInc3JfgRS https: t.co aiR3cJOnfY Brexit: What Is It About? : Information Clearing House ICH https: t.co UE6rlYiCCv RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. To LeaveorStay? Interesting breakdown of the Brexit referendum by business Intelligence Economist Dan Hanson https: t.co cPSGxfhfCN https: t.co 4BGFf4Flhg Asia stocks, sterling rise as Brexit anxiety abates FoxBusiness Brexit Save yourself and leave the EU, or lose your rights and your country and a culture. If you cannot stay current, please do not try to. https: t.co mCElQtjlyt 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:30 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST United Kingdo m - , german y London, England Melbour ne, Victoria Washing ton, USA Long Beach, CA 1 neutral 0 positive 0 neutral 0 neutral 4098 positive 0 positive 0 negative 0 positive 0 negative Ug UkCrawl ey baumsche Cameron redfaced after German official says Brussels WILL trade with Britain after Brexit: DAVID Cameron and... https: t.co gbcJ9vA0dF RT FrenchForTrump: BREXIT VOTE MAKE UK GREAT AGAIN TIME TO LEAVE EU MakeEuropeGreatAgain THIS IS OUR FREEDOM MakeAmericaGreatAgain ht 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST Crawley, England United States 0 negative 413 positive dawood trevordoge imharisss merendon ulf blomber gswe AngleRight Bigmind39 TRUMP NO W2016 RT ajay mahil: This is God warning you about a brexit I liked a YouTube video https: t.co wdJQWnzHHw BREXIT to Collapse Eurozone (WARNING!!) RT iamsrk: I c this trend in News where leaving of someone or something is headlined as Rexit or Brexit.So if I leave from sumwhere am I No habr ning n tipo de renegociaci n , advierte Juncker a quienes apoyan Brexit https: t.co YbR3xBd5sq v a AristeguiOnline RT Zwepol: Noterar att de som propagerar mot Brexit verkar vara desamma som propagerar f r kravl s migpol. D vet man hur landet ligger RT zerohedge: Brexit: Global Trigger Event, Fake Out Or Something Else? https: t.co eWLV3c7V1j The Conservative Case Against Brexit https: t.co 7VhlcqkgaS via ForeignAffairs RT michaeljohns: The UK is a great nation and still a special relationship. Britain should be governed by British. 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST Collingw ood, Ontario, Canada 5 negative 0 negative 2656 positive 0 neutral Sweden' s westcoa st 6 neutral St. Louis 7 negative Danbury CT 0 negative 37 positive Leave, friends. VentaCister nas RonaldARo mero ssc000 Mrs Coder JhieRamore s Br Brexit: El dilema brit nico https: t.co qdaK6N9FeB https: t.co qdaK6N9FeB Brexit: El dilema brit nico... https: t.co kYfY7qnM2J EuroRaver Brexit Save yourself and leave the EU, or lose your rights and your country and a culture. RT JASEMARKRUTTER: Vote like you've never voted before! A vote for LEAVE EU is a vote for PEOPLE POWER! Retweet! Brexit BrexitOrNot http RT ForeignAffairs: The roots of the divisions over Brexit: https: t.co MKs9IfMjnU RT ConceptGrp: Currency traders in Singapore will be at their desks from 3am to await Brexit results https: t.co QtzeX2LcV1 https: t.co 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 03:47 - CEST 23 Jun 2016, 04:04 - CEST Guadala jara, Jalisco Washing ton, USA Notting hamshir e, UK 0 positive 0 positive 32 positive 8 neutral 1 neutral Revolucion MON sam0398 snaxolotl Audrey4f theordinary man2 sherise1313 Monagas Maturin La intriga del 'brexit': qu pasar si el Reino Unido abandona la UE? https: t.co 4FXyVh08fs RT ElizabethHurley: Vote tomorrowwhatever your persuasion. I'm for Brexit promise to neither gloat nor whinge. But VOTE! https: RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. need2know: Investors get Brexit jitters: Local shares poised to open lower as investors get defensive ahead o... https: t.co rPgkVbhDmP RT theordinaryman2: We are VoteLeave EURef LoveEuropeLeaveEU Brexit remain INorOUT Labour VoteOUT https: t.co 3ozM3KOJJW RT Grizedale2974: The most stupid woman ever to hold power Theresa May says many Britons BENEFIT GREATLY from Sharia Law https: t.co d RT ReutersBiz: Asia stocks, sterling rise as Brexit anxiety abates https: t.co 5Z7QsRREhI 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST allgringo 23 Jun 2016, 04:04 - CEST allengilmer His own private Brexit. https: t.co bALy9b0BeP 23 Jun 2016, 04:04 - CEST Darmansyah Menkeu: Kekhawatiran Brexit Turun 23 Jun 2016, ID https: t.co MnSukxt83p 04:04 - CEST imovemanc hester deborascha ch shabz67 jeffrush RT ianbremmer: Online telephone polling in runup to the Brexit referendum. It's close... https: t.co L2kvxK8Ug5 RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT dubemol: Brexit: The UK's Donald Trump moment https: t.co B5vYWb0RUL RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST Aniatoune https: t.co mCz7rgyBbk 23 Jun 2016, 04:04 - CEST R de Gerbe RT Stop The EU: Don't make Britain accountable 23 Jun 2016, r for the failings of an EU and the uro. 04:04 - CEST Brexit https: t.co hc9sr3lyHw Maturin , Estado Monaga s. your gin joint Adelaid e, AU Sydney, New South Wales GREAT Britain Free World 0 negative 2649 negative 4126 positive 0 negative 19 positive 3 negative Japan 23 neutral Austin, TX DKI Jakarta - Kota Lemang manche ster Porto Alegre RS somewh ere Arlingto n, TX FRANCE, THIAIS Weybrid ge Wimble don, UK 0 neutral 0 NA 11 negative 4126 positive 1 neutral 4126 positive 0 NA 9 negative RottenBana dora DigiHunk demencius7 4 RogerJordan 12 "The message is fear, fear, fear!" Peter Shore Brexit like it's 1975 https: t.co q3ooP0C3dj https: t.co AnW03YXpol RT JantaKaReporter: British voters are taking part in historic referendum today to decide if they want to stay in or leave Europe https: LOL brexit bremain BremainVsBrexit Merkel Juncker https: t.co oRFjFpJT18 RT Nigel Farage: It's time to get our borders back, our democracy back and our country back. Brexit https: t.co eArDsfxlO3 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST 23 Jun 2016, 04:04 - CEST Washing ton, DC 0 negative India 2 positive All over the net DFW North Texas 0 negative 1214 negative KarjalainenF i KarjalainenF i briliano pao jimenn ez Brexit hankaloittaisi verkkoostosten palauttamista https: t.co N5OIIIqUeB Brexit todenn k inen, seuraukset ennakoimattomat https: t.co 5dgU0ueG31 Asia stocks, sterling rise as Brexit anxiety abates https: t.co xm9pEls0o8 via Reuters RT CarlosPak: Horarios clave Brexit Bremain Jun23 Horario Mex. 1am4pm Votaciones 11pm Conteo preliminar 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST Pohjois- Karjala 0 negative Pohjois- 0 negative Karjala Taiwan 0 negative M xic o, D.F 2 negative Jun24 Horario Mex 1am Tech Law pierceipctr Brexit: Potential Consequences For European Union Trademarks https: t.co yIOfJbqOCB by foleyhoag (via IPLawAlerts) Brexit: Potential Consequences For European Union Trademarks JD Supra (press release) (0 visits): https: t.co jx93fY9iS8 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST JDSupra .com Concord , NH, USA 0 neutral 0 neutral Alyalvarez2 005 falconlink19 StarryKnight 47 BurtonUnifo rm7 RightAsRain 7 RT InfobaeAmerica: Boris Johnson: "Este jueves puede convertirse en el d a de la independencia" https: t.co knbTYW33TW Brexit https: t. RT Internazionale: La Brexit un alibi per i politici europei poco coraggiosi, scrive Eric Jozsef. https: t.co QT8rby1WSz RT LeaveEUOfficial: Brexit leads in latest poll, carried out by the most accurate pollster at the 2015 General Election https: t.co 0wpI RT LeaveEUOfficial: Hannan reminds c4debate that there is no such thing as EU money, only taxpayers 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST money Brexit RT BasimaFaysal: Brexit https: t.co aSyrswZDVY 23 Jun 2016, 04:21 - CEST Arizona, USA 10 neutral 13 negative 267 positive 274 positive 5 neutral marbasch AceDailyNe ws Breaking144 WomenWor ldNews1 cwalshUK Traders Edg e TejalFatania possiejim outreach20 04 andbaker 50WomenPr oject Rebecca A Perez Bradders71 abrah6m RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. AceNewsReport Japan official says concerned about Brexit impact on FX and financial markets:... https: t.co YBdYSyBXRg AceFinanceNews AceNewsReport Japan official says concerned about Brexit impact on FX and financial markets:... https: t.co L0qVYfWzGi AceFinanceNews Racism Racist :( Project Racism rebounds in Brexit vote Britain to Remain but EU supers... https: t.co es1BzYGARB UniteBlue Tcot RT drdeathmont: As an Australian, can you please point me in the right direction for some Brexit perspective warrenellis and or neilhim Japan official says concerned about Brexit impact on FX and financial markets: Deputy Chief Cabinet Se... https: t.co JDET9eD9pJ forex RT fteconomics: Europe considers implications of Brexit https: t.co no3rYTXyTh SenPaterson RE your Brexit pitch,are you aware of this appalling UK Govts' discrimination?https: t.co ZCmTcra1tU costing Oz budget 1 BN? BREXIT: Israel Needs UK to Remain in EU to Fight Threats, Says PM David Cameron Israel News... https: t.co NFiQbjegjV via binalerts If Brexit fails start a tradition where EU slams the door in the face of the PM symbolizing EU's independence from provincial government. RT WSJ: Eastern Europeans in U.K. rush to apply for citizenship ahead of Brexit referendum https: t.co EOSypiPdIV RT FortuneMagazine: Why Brexit will be a disaster for Ireland https: t.co ucEt4v4CJj https: t.co z3Jh6JIUWV malin vote Leave. Please read article Escucha Born in The EU la nueva canci n de Spector https: t.co B1sIfzozMs sopitas 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:21 - CEST 23 Jun 2016, 04:39 - CEST 23 Jun 2016, 04:39 - CEST 23 Jun 2016, 04:39 - CEST 23 Jun 2016, 04:39 - CEST 23 Jun 2016, 04:39 - CEST Plasta1 Escucha Born in The EU la nueva canci n de Spector https: t.co 4ytWxPCbrE 23 Jun 2016, 04:38 - CEST lalo 514 Escucha Born in The EU la nueva canci n de 23 Jun 2016, Spector https: t.co V9YCH5ezvX 04:38 - CEST twitfer brexit https: t.co TunqlLAp3Y 23 Jun 2016, 04:38 - CEST Buenos Aires United Kingdo m New Jersey, USA Portsmo uth 4189 positive 0 neutral 0 neutral 0 negative 2 positive 0 positive United Kingdo m 2 neutral Sydney 0 negative Citra, Florida San Francisc o, CA 0 negative 0 negative 31 neutral 5 negative London 0 positive Michoac n de Ocampo , M xic o 0 neutral 0 neutral Mexico 0 neutral 0 negative loreconsenti da Abogangste r45 jeffcliff1 Rattleone JohnSerocol d osscarjuarez Chinks07 Rosalia glez actualite24 Chiroyo vcapozzi2 NachomanP ue BTCPosts mkmknani Hoofdnieuw s1 TrafficDiddy El quintento londinense Spector estren Born in The EU una nueva canci n en la que expresan su sentir acerca del Brexit y todos los... Escucha Born in The EU la nueva canci n de Spector: El quintento londinense Spector estren Born in The EU... https: t.co G6Jo53XdfI https: t.co syMqnMYyAi Predictionbook suggests about 1:2 odds of brexit happening Hmm."Yes or no". Let me sleep on it baby baby let me sleep on it,I'll give you an answer in the morning. UK..I hope you get better.. Brexit RT JohnOSullivanNR: At stake in Brexitwhether UK stays in an undemocratic polity or regains its selfgoverning democracy? Not trivial: h Escucha Born in The EU la nueva canci n de Spector https: t.co JTLICflia5 RT iamsrk: I c this trend in News where leaving of someone or something is headlined as Rexit or Brexit.So if I leave from sumwhere am I Escucha Born in The EU la nueva canci n de Spector https: t.co Vb7gFHm0Sb Brexit: A J2 du r f rendum, d bat enflamm devant 6.000 spectateurs Londres. D22 https: t.co nX8hQxOyHI The latest Chiro! https: t.co hotjEY4b9o Thanks to sebapefer chikashiojima cubanadventures rollingstones brexit RT Forbes: Poll: 80 of Americans think Britain should leave the EU https: t.co EPNk488c9h https: t.co 3mqaV8v5KD RT Milenio: Problemas en el para so... Qu es el Brexit?https: t.co 5ZaiAGHG4t https: t.co mKp4DQBrYD bitcoinnews bitcoin bitcoinews wsj U.S. Stocks Ride the Waves of Brexit Anxiety https: t.co MXXotu1XcE bitcoins bitnews bitcointalk RT 1 texanna: We are praying for you Britain!! Americans stand with you! Brexit VoteLeave https: t.co Ux0Dv9UBu9 https: t.co CsupbjE3eC To brexit or not to brexit: wat je moet weten https: t.co b3SaBXxJSw What is Brexit and the Ramifications of Leaving the European Union UK News https: t.co CVQZDMFCAf https: t.co 83r0PfXBL1 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:38 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 0 negative Quintan a Roo, M xic o 0 neutral PA, 0 neutral tbay ,Milky Way,Lan iakea 22 0 positive Acacia Avenue London 20 negative Coahuil a New Delhi 0 neutral 2779 positive Coahuil 0 neutral a France 0 neutral TOKYO 0 positive Puebla, M xic o Miami Florida Ft Worth Tx Belli ngham WA Traffic All Around 337 positive 9 negative 0 neutral 10 positive 0 negative 0 negative kumarabhi3 58 ONLYSANJE EVJHA BrandonJLa ndry CecilSDavis SamRamalh eira grahamlyna s trumpcount ry CarlaChamo rros RT dwnews: Hollande, Juncker raise stakes on Brexit https: t.co Yb2guYnIjA https: t.co Pvh01UMYuq RT DDNewsLive: Brexit : U.K. goes to polls in an historic referendum on whether the country should remain a member of the European Union RT Blondetigressnc: The latest The Nurse Chronicles! https: t.co fLmMbIIL7z Thanks to BUDDHA DRAGON1 OsagieSelma Gibbsdithers brexit RT Reuters: Oil prices rise as markets on tenterhooks ahead of Brexit vote https: t.co Az4U73CQXO https: t.co ZFOmIuG3Rn Prediction: Brexit is defeated and everything stays (more or less) the same RT JASEMARKRUTTER: Be proud today and vote LEAVE EU to take back control! Power to the People! Brexit VoteLeave https: t.co 0Oeb644wfb RT FLforTrump16: Brexit BBC EU Rule Britannia Without the damn continent of Europe infested with Muslim sympathizer liberal Pollya 97 of Undecided to vote Brexit.... Brexit WINS ! Referendum a 'statistical dead heat' ? https: t.co DoMFJLsOjH https: t.co j2VgrSwt9K 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST The World. 2 neutral Daman 3 negative British Columbi a, Canada Durham , England United States Granada , Nicarag ua 2 positive 48 neutral 0 negative 2 positive 1 negative 0 negative marsquad51 romulasry CuspCreativ e 10thAmend ment kurakura5o RT RobLowe: To my UK friends: how do you feel about the "Brexit"? And why? Very curious to get the REAL story. Live Thread: The BREXIT Vote: Britain votes on independence from the European Union https: t.co QfdcuL27wI What is Brexit and the Ramifications of Leaving the European Union UK News https: t.co CdMiY7kkoG RT ooohouchburn: 10thAmendment today we fly free! Brexit https: t.co TQOcXZvqjJ RT ajplus: London's mayor Sadiq Khan crushed a recent Brexit debate while fasting. 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST Pahrum p,NV Souther n Californi a, USA Souther n Californi a 57th State 15 negative 0 neutral 0 negative 1 positive 111 negative parnsap y Mic drop, please. https: t.co cN5jMmfvmQ RT Independent: Victoria Beckham is not supporting the Leave campaign https: t.co S4zjoWSm5D https: t.co r0tFQO1cgC 23 Jun 2016, 04:56 - CEST 19 positive ConceptGrp JoinMCA201 6 fightterror deathmorga n JoannaWom an991 Oil prices rise as markets on tenterhooks ahead of Brexit vote https: t.co oswRqK5xeL What is Brexit and the Ramifications of Leaving the European Union UK News https: t.co zn5RkNFm2Q https: t.co kBDM5G0prV 23 Jun 2016, 04:56 - CEST 23 Jun 2016, 04:56 - CEST Is Russia Really a Threat to Brexit? https: t.co FKEcZMJpzC 23 Jun 2016, 05:13 - CEST Brexit history is written today. 23 Jun 2016, 05:13 - CEST RT JaredWyand: BRITISH MUSLIMS POLL: 66 say 23 Jun 2016, they wouldn't warn of a terrorist attack 05:13 - CEST 0 neutral Motor Club of America , USA 0 negative Jerusale 0 negative m Mexico 0 neutral City America 287 negative Brexit EUref TrumpSpeech NoBillNoBreak https: ralphshields RT roarielruiz4: Support from Chicago, for British 23 Jun 2016, 313 freedom from the EU. May Britain reclaim sovereignty 05:13 - CEST over its nation. VoteLeave Brexit TrumpCoult ElizabethHurley You are the embodiment of British 23 Jun 2016, er16 Beauty. Preserve your nation, preserve your people. 05:13 - CEST Brexit brasil2014p 'European Union faces African migrant crisis' 23 Jun 2016, ool Underfire Merkel issues stark warning 05:13 - CEST https: t.co c1JsWkeZ44 soaneseys UKLabour Brexit all the way 23 Jun 2016, 05:13 - CEST TMWTL79 LittleWombat666 all the polls indications are that 23 Jun 2016, Remain will win today.... Wasted opportunity Brexit 05:13 - CEST asasays BBCBreaking UEFA UEFAEURO If Brexit wins will 23 Jun 2016, FAIreland FAWales England NorthernIreland 05:13 - CEST be disqualified? https: t.co 1BXJXENuhw bitcoinagile Sammy Too n Mr VivaYol o Arisfivedrag on brexiteer20 16 Corysim bitcoin Price Drops 100 As Brexit Hopes Falter Blockalerts Blockchain https: t.co CAQEEJjmii https: t.co BAxVobjtpe Brexit is also part of protecting Ireland and Wales Britain! Qu es el Brexit? Van 7 claves para entender el referendo de Reino Unido Por bbcmundo https: t.co Tr0J1ABJPA https: t.co zueGt02QXZ SinagaNews Inter Selangkah Lagi Dapatkan Bek Sayap Genoa https: t.co UKcOfr4FlJ Brexit EURef Sounds familiar, seems like the protocol of fear campaigning is rife these days NOT fooled Leave https: t.co 5e2FyN6fuB IfindITtalent: Asia stocks, sterling rise as Brexit anxiety abates: Asian shares edged up and sterling stood ... https: t.co BoDqPk7knD 23 Jun 2016, 05:13 - CEST 23 Jun 2016, 05:13 - CEST 23 Jun 2016, 05:13 - CEST 23 Jun 2016, 05:13 - CEST 23 Jun 2016, 05:13 - CEST 23 Jun 2016, 05:13 - CEST Las Vegas, NV United States Vancouv er BC Betung Hut Matter Doesn't Matter 2 positive 0 positive 0 negative 0 neutral 0 negative 0 negative 0 neutral 0 positive Mexico 0 negative Kota Binjai, Sumater a Utara Seattle, WA 0 neutral 0 positive 0 neutral miloismyda ddy fantasyman dan RT MikeMa : to all my redcoat followers, vote smart tomorrow BREXIT AMD EA WUBA NVDA A little music as we head into this binary buzzsaw known as BREXIT. https: t.co qa4zJVTxw6 23 Jun 2016, 05:13 - CEST 23 Jun 2016, 05:13 - CEST alla puttame lata. 3 positive Hawaii 0 positive GordonFBen nett NikolasFutu rist tayfan2 KostJason funfreefun truthenomic s WaterWynd hubinbiz Nyheter24 7 ItsDavisDavi son Noonebin agiltegar martinsteve ns27 SPY KikiTheReds1 Get some geography mate before you comment Scotland, wales and northernireland are voting too its brexit not eexit RT imgur: The British mood at this moment in time. https: t.co cDozmT7lgk Brexit https: t.co wjwUonXATq RT IngrahamAngle: Bono, Beckham every other global celeb in Britain ag Brexit. Follow the globalization great for them, horrid for RT MikeMacck: Be a patriot. Vote Leave. Brexit https: t.co Kh0nHwoWkX 23 https: t.co edyoa5pFOZ by HuffPostJapan https: t.co 2o1bOBxCF2 RT zerohedge: Who Is The "European Movement" And Why The Answer May Change How You Vote On "Brexit" https: t.co FKk9XFf1wm RT thedailybeast: Brexit makes absolutly no sense at all. Here's why: https: t.co t4PHGYNM2O https: t.co FZgJO9XrIN Mud, Music and MilesLong Lines as Glastonbury Clashes With Brexit Referendum https: t.co f71sHQ6ysY v a hubinbiz RT V of Europe: Farage s final rallying call: It s us versus the Establishment go and vote for Britain' https: t.co LfRgbPr9PF Mud, Music and MilesLong Lines as Glastonbury Clashes With Brexit Referendum: Their country may be about to ... https: t.co qmV4XdDXUM RT XxPLWxX: Dear Britain When you vote today, remember the sacrifices made so you can be free. Brexit VoteLeave EUref https: t.co HsfL Follow Mud, Music and MilesLong Lines as Glastonbury Clashes With Brexit Referendum: Their country may be a... https: t.co rwBd5opSpY RT RehmanSid: According to the poll I conducted slight majority (52 ) believes, UK should VoteLeave ( Brexit) in EUreferendum. https: 23 Jun 2016, 05:13 - CEST 23 Jun 2016, 05:13 - CEST 23 Jun 2016, 05:13 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST Vancouv er, BC, Canada Somew here in Virginia Astoria, OR Las Dream USC Western Australi a Cloud Melbour ne Lincoln, Lincolns hire 0 neutral 113 positive 339 negative 3 positive 0 neutral 39 neutral 17 negative 0 neutral 57 neutral 0 neutral 10 positive 0 neutral 14 positive BlueFloridia n JayDook BharatRajne eti ArtofeVan ReutersBiz poluakerfor d toriKh FGlyneth FR33 W0RL D MichelBinet te IndomTradi ng BizDatabase CryptoSourc eHQ FreeCryptoC o bintanghadi putr Some kind of publicity stunt? Except for Princess Di, the UK hasn't gotten this much global attention since the early Empire days, Brexit RT realkingrobbo: Brexit Poll Shows 80 Of Americans Think Britain Should Leave EU https: t.co ghlHHXsc9Q https: t.co GM2KHRzMjN ? https: t.co aWSyeV0wv2 via NavbharatTimes https: t.co 2dtS2PHe4V There's too much at stake for elites to let the people of Britain exit the EU. Even if the people win Brexit votes, elites won't let them Oil rises as markets on tenterhooks ahead of Brexit vote https: t.co WtZtuv3eyI Mud, Music and MilesLong Lines as Glastonbury Clashes With Brexit Referendum https: t.co HCisR8CEll RT benphillips76: Peak Brexit: UK protestor tries to burn the EU flag, but can't, because of EU regulation on flammable materials https: RT DavidJo52951945: RT Please take a pen to the polling station with you tomorrow don t use a pencil Brexit https: t.co OYnrUyxu95 RT RealAlexJones: WATCH: Standing Ovation for Former London Mayor Over Plea to Leave EU https: t.co 0NSiYKA5mT VoteLeave BREXIT Lea RT INTJutsu: If the UK doesn't get out now, there won't be another chance, as their country will be overrun ruined BREXIT UK https: t Oil rises as markets on tenterhooks ahead of Brexit vote TOKYO (Reuters) Oil prices rose in Asian trading o... https: t.co b2KGiC2qFw ForexLive Asia FX news wrap: Brexit polls driving GBP still https: t.co MiUsl1XQPm Forex news for Asia trading Thursday 23 June 2016 An a bitcoin Bitcoin Price Drops Below 600 As Brexit Hopes Falter https: t.co wXIqxAbfYP bitcoin Bitcoin Price Drops Below 600 As Brexit Hopes Falter https: t.co 4VCFZ8R0fD Brexit itu untuk kedaulatan GB . hanya keluar zona ekonomi perjanjian bilateral bisa ditata lagi. Kenapa takut? 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:30 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 0 negative 9 positive India 0 neutral Megrez 0 negative Where you are Australi a free.wor ld tuta nota.co m United Kingdo m Worldwi de Worldwi de Soeraba ja - Konijed de Nederla nds Indische 0 positive 0 neutral 15077 negative 548 neutral 91 positive 132 negative 0 neutral 0 neutral 0 negative 0 negative 0 negative DomMitchel l balika7510 Be smart. Don't let racism and fear win. BetterIn Brexit Remain https: t.co VclT6LNhen RT BLervoire: R sultat sans appel ce soir sur leJDD : 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST LA London Roarton , Lancs. 0 negative 63 negative 87 pour le Frexit ! Un r f rendum vite ! FXS Forex EN sunandavas hisht OurNewEur ope volkerpauls en JASEMARKR UTTER MarquardtJ P vinodsundar am theodor195 7 Janunos Brexit MLP2017 AvecMarine https: Brexit's Real Impact Would Be Gradual and Global Stocks Finance Forex GBP SGD SGDJPY United Kingdom Dow https: t.co h5JA4w0nQf RT myindmakers: Brexit: Will the United Kingdom leave the European Union? Brexit https: t.co IS1jYw8RsL Les Britanniques votent aujourd hui sur le Brexit, tous les Europ ens sur l avenir der notre continent sur https: t.co SBMBhbY3eS ! Fjollet debat! Det Indre Markeds reelle v rdi har INTET fyldt i medierne! Alle frygter Brexit bortset fra Putin https: t.co FBLBvNCr71 EU referendum Thursday 23rd June. Vote LEAVE EU return POWER to the PEOPLE! BrexitOrNot Brexit https: t.co BC7nZkJddD RT BjoernSta: The time has come for Independence Day ? UK Titelseiten morgen zum EUref Brexit via suttonnick https: t.co TsvVDA2i RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST 23 Jun 2016, 05:47 - CEST Today: EU ceasing to exist, UK ceasing to exist brexit 23 Jun 2016, 05:47 - CEST RT 1u4m4: 80 of Americans believe Britain the 23 Jun 2016, world would have a better future with BREXIT 05:47 - CEST https: t.co u4Nwng5Xts https: t.co jbzI7e Geneva, Switzerl and 0 positive Houston 1 positive Berne, Switzerl and 0 positive 0 negative United Kingdo m Bromsgr ove 0 positive London 5 neutral Singapo re. Chennai . Wash DC 4282 positive 0 negative 32 positive spain grain Equities like the brexit situation I guess 23 Jun 2016, 05:47 - CEST Morton. IL Chicago expat 0 negative pritch1963 CNCConGon gora lumirdto MrPortfofio splendid104 0 airgotravel redrivergrl Barbiemela nii lumirdto Nalgapronta mx airgotravel Swaggerfam ouz2 abcomsads RT XxPLWxX: EURef Polling day arrives counting begins on postal votes from just one house in Tower Hamlets Brexit VoteLeave https: t 23 Jun 2016, 06:04 - CEST El Brexit pone en riesgo la nota de Reino Unido y sus finanzas locales https: t.co 0vtUOarede 23 Jun 2016, 06:04 - CEST notiven: RT: ajenglish : Brexit and the toxicity of the 23 Jun 2016, UK politics https: t.co 4BBFdisNQ8 06:04 - CEST https: t.co XLdLiNWkmJ RT mkopNY: US Economy continues to deteriorate, 23 Jun 2016, BONDS r a BUY, Brexit or Bremain is irrelevant, 06:04 - CEST STOCKS will go DOWN July https: t.co Brexit: los 3 temas que definen el referendo sobre la 23 Jun 2016, permanencia o salida de Reino Unido en la UE 06:04 - CEST https: t.co p4qDmHemHN BBC Harilela Hotels: Brexit will be tough for hotel industry: 23 Jun 2016, While Brexit will hit the hotel indust... 06:04 - CEST https: t.co yUg8HXgiC7 cnbc travel RT NRO: Brexit is proof that people are fed up with 23 Jun 2016, government planning: https: t.co sWpixNh5Wi 06:04 - CEST Brexit: los 3 temas que definen el referendo sobre la 23 Jun 2016, permanencia o salida de Reino Unido en la UE: Los 06:04 - CEST brit ... https: t.co 7kWVspy5ER notiven: RT: elmundomovil :CLAVES 20 puntos para 23 Jun 2016, entender el Brexit de Reino Unido 06:04 - CEST https: t.co n73hHZNddF https: t.co H0K39kKTbz Todos andan muy extra os por el Brexit 23 Jun 2016, 06:04 - CEST How will UK tourism be affected by Brexit?: Britain's 23 Jun 2016, tourism industry, while resilient, will be... 06:04 - CEST https: t.co qkQsk7be71 cnbc travel Brexit: los 3 temas que definen el referendo sobre la permanencia o salida de Reino Unido en la UE: Los brit ... https: t.co GlCYSOC2oR Harilela Hotels: Brexit will be tough for hotel industry: While Brexit will hit the hotel industry hard it wo... https: t.co TMGB3aIO5H 4rj1111 RT dibya shareBuzz: Merah Kya Hogah Kaliya ? Brexit Rexit Exit https: t.co Oirowb51wb godzmei197 RT Reuters: Oil prices rise as markets on 7 tenterhooks ahead of Brexit vote https: t.co Az4U73CQXO https: t.co ZFOmIuG3Rn 4jingjinx RT somkiatonwimon: 1. BrExit EU . 23 Jun 2016, 06:04 - CEST 23 Jun 2016, 06:04 - CEST 23 Jun 2016, 06:04 - CEST 23 Jun 2016, 06:04 - CEST 23 Jun 2016, 06:04 - CEST Nr Manche ster, England 10 positive 0 neutral 0 negative Oregon 7 negative Budapes t - Hungary 0 neutral 0 positive 34 negative 0 neutral 0 neutral Mexico 0 negative Budapes t - Hungary WorldW ide 0 positive 0 neutral 0 neutral 6 NA 60 neutral BKK 21 negative CNCConGon El Brexit tambi n define el futuro del futbol ingl s gora https: t.co aNAjri6x55 AnthonySwi RT Irelandbrexit: Great response from people of nhoe Sheffield today. If we can maximise our LEAVE turn out , we will emerge with a great vict egatrader Alerta en los mercados: los dos escenarios del Brexit: Si los brit nicos votan hoy por salir de la UE, las bo... https: t.co GdEnPCPHVw Nyaranyar RT AMTrump4PRES: I'd like 2 dedicate this tweet 2 former lovely cultures that will only B found between the pages of a book. Brexit https onefingersh ort The16thCho pper JosephineM aribe Manuelsigu enza4 Loupo85 ziruma roja s thousandne ws MiguelG SV Pontifex mi nimu RJPKlein IsaorgMt 23 Jun 2016, 06:04 - CEST 23 Jun 2016, 06:04 - CEST 23 Jun 2016, 06:04 - CEST 23 Jun 2016, 06:22 - CEST Brexit, stage left https: t.co vk5hs5eG99 23 Jun 2016, 06:22 - CEST RT MaxCRoser: This is Boris Johnson before he 23 Jun 2016, realised that Brexit would be his chance to become 06:22 - CEST PM: https: t.co Xh5GDhGgDK https: t.co RT afpfr: Brexit: les Britanniques votent sur leur avenir et sur celui de l'UE https: t.co pZkCEXROta AFP https: t.co Pv2hM2u93m El fin del sue o europeo? 'Brexit' o 'Bremain', los brit nicos deciden su futuro: Mientras todo el... https: t.co LNC2myzhWv RT ProfTimBale: The idea that English nationalism has powered support for Brexit is unduly simplistic and requires reexamination https: LABORATORIO CLINICO BACTERIOLOGICO est disponible! https: t.co aTurKIrSfZ brexit venezuela Politico: Brexit 26 : ... https: t.co nWHxgbPwuL El fin del sue o europeo? 'Brexit' o 'Bremain', los brit nicos deciden su futuro: Mientras todo el... https: t.co c4ibbNeuva RT freeWorld2: Russian Propaganda full speed ahead to Brexit https: t.co 5oFfYXFSq2 RT Shaithis1404: Why has twitter promoted UKLabour and remain about 5 times on my TL today and not promoted leave once? Dodgy methinks. RT DavidJo52951945: RT Please take a pen to the polling station with you tomorrow don t use a pencil Brexit https: t.co OYnrUyxu95 23 Jun 2016, 06:22 - CEST 23 Jun 2016, 06:22 - CEST 23 Jun 2016, 06:22 - CEST 23 Jun 2016, 06:22 - CEST 23 Jun 2016, 06:22 - CEST 23 Jun 2016, 06:21 - CEST 23 Jun 2016, 06:21 - CEST 23 Jun 2016, 06:21 - CEST 23 Jun 2016, 06:21 - CEST Shangri- La Denver, CO a sandbox Wolverh ampton France Europe Ici l L -bas... Panchim alco, El Salvador FRANCE (44000) 0 neutral 16 positive 0 negative 421 positive 0 negative 477 positive 14 neutral 0 negative 10 negative MATURI N ESTADO MONAG AS 0 positive GREECE 0 neutral Ciudad Arce, La Libertad Westfal en, Deutsch land Californi a, USA 0 negative 2 neutral 51 negative 556 neutral nuneatonke v CarsonSievi ng Fernand1SV abpnewstv amalrajv AngelaY843 51507 FinMinIndia RT Forbes: Poll: 80 of Americans think Britain should leave the EU https: t.co EPNk488c9h https: t.co 3mqaV8v5KD RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. El fin del sue o europeo? 'Brexit' o 'Bremain', los brit nicos deciden su futuro: Mientras todo el... https: t.co qYQykfwXUp Explained: Why, how is UK voting to stay in or leave EU? EUref BrexitOrNot Brexit https: t.co NJX4oVTT1a https: t.co Rj63qtHCki Paris joins global tributes to murdered UK lawmaker Jo Cox https: t.co nfkVISFN9b https: t.co q90unGxxHx RT theordinaryman2: This is my Flag is it yours..? Brexit ILoveBritain believeinbritain LoveBritain IamBritishnotEuropean no2EU htt RT DasShaktikanta: 'If Brexit happens, India is ready' via Times Now App https: t.co mNBrN3e2kY 23 Jun 2016, 06:21 - CEST 23 Jun 2016, 06:21 - CEST 23 Jun 2016, 06:21 - CEST 23 Jun 2016, 06:21 - CEST 23 Jun 2016, 06:21 - CEST 23 Jun 2016, 06:21 - CEST 23 Jun 2016, 06:21 - CEST New York, NY 388 positive 4341 positive San Salvador , El Salvador 0 negative India 0 positive chennai 0 negative New Delhi 53 positive 2 neutral ValutaNews AFUJIINIKKE I ebruhwiler languillem mpk actualite24 BR Schwab en rizza moha mmad stirileonline ro Post Iccia Traders plan for allnight Brexit vigil https: t.co 9ApOB6obqv ValutaNews https: t.co 5czxuDmqta Asia Inc. bracing for Brexit vote Nikkei Asian Review https: t.co V8XikL4hQN Brexit RT catoletters: Defeat the Establishment: Brexit https: t.co EsampHpoQ6 Le Brexit en t te dans deux sondages https: t.co hkALDplkYl The UK has to roll 6 or more on 1d20 to save against Brexit. What happens if it rolls a critical failure? https: t.co mXVfn1v3NC Brexit les Britanniques du sud de la France s"inqui tent pour leur avenir. RT https: t.co 7czIahOGNw https: t.co mAoIhJDhyH Schwabens Wirtschaft und der Brexit: Was w re wenn? https: t.co TXNaUlj9fo RT itradeph: Asian Stocks flat lower as count down to Brexit vote just hours away... BREXIT. Zi decisiv pentru viitorul Uniunii Europene. Tab ra proBrexit, avantaj fragil, potrivit ultimelor s... https: t.co wtZURih2hI RT francofontana43: Brexit. Il problema dell'Inghilterra, e non solo... 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 0 neutral 0 positive Los 2 negative Angeles france 0 positive Z rich, Switzerl and 0 negative France 0 negative Schwab en Republic of the Philippi nes Vicchio, Toscana 0 negative 1 negative 0 positive 2 negative orionfishing Booking off ers OpenMfnde dRecs SebastianIn Vi acucobol L'apertura de ilmanifesto https: t.co QuBD9rM6GH "To stay, or not to stay, that is the question". Today for all UK people.... Interesting what the voting Will show...... Brexit or Bremain RT CLM net: How will UK tourism be affected by Brexit?: Britain's tourism industry, while resilient https: t.co CqF350ozkA RT ASAPNewsLIVE: The nonBrits guide to Brexit CNN https: t.co BOL8fC4Bac RT Forbes Mexico: Peso se tranquiliza ante posible derrota del Brexit en referendo. https: t.co PF7YMI3yTQ RT undercovermag: Judgement day Brexit OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT OUT O beshe0327 RT nhk news: - https: t.co pwn3BrPkXT https: t.c bleu48 RT nhk news: - https: t.co pwn3BrPkXT https: t.c stewart ws RT AMTrump4PRES: I'd like 2 dedicate this tweet 2 former lovely cultures that will only B found between the pages of a book. Brexit https Trumpindah ouse shaunmcg3 7 billonaria Patty Ely The EU doesn't care about you. Why care for them? VoteLeave Brexit Bremain RT Dwalingen: Very telling, very true: the Remain campaign cannot say anything positive about EU and its "future". BREXIT EU https: t. RT nytimes: Brexit vote already has a winner: the gambling industry https: t.co U8W3W0GqYs RT euronewses: BREXIT: El Reino Unido llega al refer ndum con un empate t cnico en los sondeos https: t.co zdkoh2tC4P 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:39 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST Urk, The Netherl ands 0 negative Latvija 1 neutral Norther n Arizona 219 positive Mexico 3 negative i 51.4664 92,- 2.60562 1 1 negative 15 positive 15 positive England, United Kingdo m 432 positive Tampa, 0 negative FL Southa 24 negative mpton, UK Espana 69 positive Chill n, San 2 neutral cumulus76 El fin del sue o europeo? 'Brexit' o 'Bremain', los brit nicos deciden su futuro https: t.co nMXeMI0obB 23 Jun 2016, 06:56 - CEST joanberna If you want, today... brexit 23 Jun 2016, 06:56 - CEST shiontokoha 23 Jun 2016, ru 06:56 - CEST bangkokdav e RT nhk news: - https: t.co pwn3BrPkXT https: t.c RT ajplus: London's mayor Sadiq Khan crushed a recent Brexit debate while fasting. 23 Jun 2016, 06:56 - CEST Antonio Chile New York, NY 0 negative 0 negative 112 positive 323 negative ConectaInte rna tnq8943hp9 qh naveedzonli ne tnq8943hp9 qh harry depa epe KarimPadani ya Bekah Phel ps SharmaChet an7 Mic drop, please. https: t.co cN5jMmfvmQ BREXIT Boris Johnson, a la caza del ltimo voto https: t.co bN1jTRlici https: t.co jH0gWJ5iLE https: t.co wuAXpfyE7Z 2016 06 23 13 27 Reuters RT iamsrk: I c this trend in News where leaving of someone or something is headlined as Rexit or Brexit.So if I leave from sumwhere am I https: t.co MJ87cbNXo8 2016 06 23 13 41 Reuters RT radio1be: Vandaag richten we de schijnwerpers helemaal op GrootBrittanni met studiolondon: https: t.co N0Iaivh9ex brexit https: t Hot off the press! Office Daily is out! Read Latest News now! https: t.co hCxtUv6P1W brexit zimvind RT washingtonpost: 13 Brexit facts that will make Americans feel less embarrassed about their own election https: t.co RyMUmZ7Ctx Brexit and it's possible impact on India https: t.co kDdE678bzy 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST El Mundo SRKWO RLD INDIA Ahmeda bad Athens, GA Mumbai , Mahara shtra 0 neutral 0 negative 3102 positive 0 negative 2 positive 0 negative 65 negative 0 neutral BevPostma tovimagr WadjaKnow BinnsJWalke r bobbywariy ada v sarabia bynxie2013 R KitanoR matteofila capellawega DjValentino 45 PG Venture s luigiwewege VivierBFS Only mad dogs and Englishmen (.. Scotsmen, Welshmen Northern Irishmen, women) BrExit . https: t.co HE5yaeLqog https: t.co 4lEltR2nre vimafinance Standard Poor's: Brexit https: t.co 4fwWdkvOzC RT SweetCacophony: (1 2) If we Brexit, Boris will move on Cameron. A GE will be forced. Corbyn will challenge a hateful Boris. 50 50 RT scotsdiaspora: As I've been saying for weeks.... "Would Europeans be free to stay in the UK after Brexit?" https: t.co IOwWvXGXAv http Round of 16 England "remains" in Euro2016 !!!! hahaha EURO2016 But hv to wait for BREXIT result tomorrow. BREXIT https: t.co i7wYh3YoBP RT aristeguicnn: Julio Mill n y Francisco Gil analizan con Carmen aristeguicnn el refer ndum por el llamado "Brexit" https: t.co iAQT RT ElizabethHurley: Vote tomorrowwhatever your persuasion. I'm for Brexit promise to neither gloat nor whinge. But VOTE! https: RT nhk news: https: t.co 6FLXVmTW9U nhk news RT LaStampa: Scienziati contro la Brexit: Un atto disastroso per la ricerca https: t.co Vwa2HtCheR RT V of Europe: Dutch poll leader Geert Wilders wants a 'Nexit' after a Brexit. https: t.co WCQf02JdK4 RT ronaldlaessig: "Gesetze macht von der nicht gew hlten EUKommission. Wir wollen Demokratie jetzt", sagt BrexitBef rworterin Firth. Final Brexit Appeals Made as Polls Diverge on Referendum Eve https: t.co DoHJvo7lao Final Brexit Appeals Made as Polls Diverge on Referendum Eve https: t.co YaEtNjKStQ Final Brexit Appeals Made as Polls Diverge on Referendum Eve https: t.co 2oeDDm272d 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 06:56 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST Singapo re 0 negative Athens 0 negative 1 negative Kent 8 negative Surrey,E ngland 0 negative 58 neutral 2796 negative 130 positive 5 negative Breda 255 neutral berlin, german y South Carolina , USA Columbi a, South Carolina Aucklan d, New Zealand 2 neutral 0 neutral 0 neutral 0 neutral sandramart el NikauGlobal VivierGroup GaryPWarn er1 alihfar Ese matrimonio necesita terapia y no un divorcio. A hrs de saberlo InfobaeAmerica: Brexit: Tiembla un gigante y el mundo espera at nito Final Brexit Appeals Made as Polls Diverge on Referendum Eve https: t.co Q2YQ002wrv Final Brexit Appeals Made as Polls Diverge on Referendum Eve https: t.co qCIZ4YEYPT Final Brexit Appeals Made as Polls Diverge on Referendum Eve https: t.co HMWJNyqiOd Final Brexit Appeals Made as Polls Diverge on Referendum Eve https: t.co hLomzU1V6Z GladiatorPo RT robezenk: libertytarian They're gonna chicken sse out... Brexit https: t.co qcqA7ICeDj bigirwenkya RT TIME: Mud, music and 12hour traffic jams as j Glastonbury clashes with Brexit vote https: t.co NbSSx3MxSr AairwolfDev RT FionnaighHessey: Only one of many reasons I will ine be voting LEAVE. Brexit https: t.co 9zhlmBAqxb TommyBarr RT txbeardman: Ok Britain. It's midnight in Texas, s but it's 6am your time. Go vote. Brexit VoteLeave VoteLeaveTakeControl https: t.co rollieo122 RT tagesschau: BrexitDossier: Goodbye nach 43 Jahren? https: t.co XNb5m65v71 Brexit TheSagarKu mar FelixMorque cho OutTheEU LBettie UkraineHot News Game of Thrones Has a Lot at Stake in the Brexit Vote. Seriously. https: t.co WjwSUslxE8 https: t.co T9P3I8Gpbr RT eljukebox: Todo el mundo sabe que si el Brexit fuese a afectar a los espa oles votaria tambien Espa a. RT V of Europe: Even France would LEAVE the sad EU if it had a referendum, top French philosopher says https: t.co XHPxzxRaK3 https: t RT instyle UK: Bed, leggings 45 things we'd rather be IN right now (including Europe) https: t.co 02FplBgZjn Brexit StrongerIn https: Brexit: : 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:13 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST PER 0 negative Aucklan d, New Zealand Private Wealth Manage ment Aucklan d City, New Zealand Aucklan d, New Zealand Entebbe , Uganda 0 neutral 0 neutral 0 neutral 0 neutral 1 negative 23 neutral 1 positive 3 positive West Sussex, UK 5 negative 0 negative eibar 18 neutral Yorkshir e and The Humber , England Kyiv (Kiev), Ukraine ( , 56 positive 2 negative 0 neutral ma am 42 21 ETMarkets reneverkroo st 382 ... https: t.co gUmXddGp4I RT ndaktuell: Gro britannien entscheidet: Remain oder Leave ? Referendum ber den Verbleib in der EU l uft https: t.co fuKKKE5i00 B F O data shows Brexit or no Brexit, Nifty may not slip below 8,000 https: t.co uX5U1DakIl By kshanand https: t.co cL9wP3SSJ4 RT geertwilderspvv: Britain, today you can make history! 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST , ) Weltme tropold orf Wien. 4 negative 0 neutral 71 positive Independence Day. lzzer mbellido fxnewsfeedc om hanshafner m barisione tsangarisp Dr Esterichi a Sophiesweb 33 DagmarLied er Brexit https: t.co cCecLxTDWO RT thehill: Trump on Brexit: "I don t think anybody should listen to me" https: t.co eLE9Fh2CHQ https: t.co OwvnX2W3Ri RT LoyolaEcon: An lisis del Prof. macarflo en La Semana Econ mica: el Brexit. https: t.co 0l7Y2zGoqP Euro to Look Past PMI Data with "Brexit" Worries at the Forefront https: t.co z8L41rpIoJ Yes! I can't wait to not have to listen to your twisted rants in the European Parliament. Please leave!! Brexit https: t.co Dc4jXOTRTM RT FrankVollmer: Brexit: Titelseiten britischer Zeitungen am heutigen Referendumstag. V.a. Boulevardbl tter werben f r EUAustritt. https Remain or Leave? Today is the day uk brexit england eu EUreferendum https: t.co jzFrdkOzBP ForreMarti ElTegid alguien puede explicarme qu pasa? Aqui solo hablan de futbol y brexit. Debajo de los pirineos no hay nada. Gracias! RT MizzVileAnimalO: sandralaegel AliasStAlias Sophiesweb33 MaryamNamazie Capeheritjamie isisAREMuslims Brexit VoteLeave Remain ht "Rasismen som jag m tte skr mde mig" hzhelena:s kr nika via svtnyheter 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST 5280 18 positive Espa a 4 neutral 0 positive Berlin, German y 0 positive milano 1 negative genova, italy CYPRUS 0 negative Nicosia marsella 0 negative G teb org 1 negative 0 negative https: t.co Yeq8a9HAnw Brexit mlb10384 https: t.co WQT5ofxL17 CitizenRadio (2016 06 23) Choose Your Own Adventure, NYPD treating minor infractions like crimes of the century, Pennywise1 Piosenkanadzi 957 https: t.co YZubcdg7sX Brexit 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST DE 0 negative Warsza wa, Polska 0 NA lucasferreira mf BetOnPolitic s Brexit nova tentativa brit nica de flexibilizar comunidade europeia https: t.co 6bDTFvqvfF BREXIT: THE UK DECIDES Get 4 1 Remain or 10 1 Leave when you join Betfair: https: t.co MK2RjOpEnm 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:30 - CEST Odds for every candida te: 0 positive 0 negative EURef https: t.co JjiiRfd1kD NOGUESma rc DavidXRobi nson alvarofiucci 1 west ham mad1 M Reinsch tommoholla nd UtterQuatsc h jeanclauro reuben pad illa Arissturtle ruddiantosu draj buell003 BrigitteGior gio SlatersonCh ris RT beaudetstephane: Brexit or not brexit ? In or out ? Telles sont les questions du jour ! Et la r ponse ne sera pas sans cons quence sur Brexit VoteRemain VoteRemain StrongerIn https: t.co Mduv8jDK5q RT ZampieriChiara: A poche ore dal voto Juncker avverte: "Fuori Fuori" Euro burocrazia MINACCIA il popolo! VoteLeave Brexit https RT nobleart16: In a nutshell brexit VoteLeave https: t.co ZA9McjG9D9 Song f r den Tag. brexit https: t.co PViDdKE7WD RT jimmydolittle1: Merkel comes out in support of Brexit VOTE LEAVE https: t.co ySvW9Wunoa RT davidschneider: Brexit latest. After John Barnes yesterday, 100 Nazi scientists have just rung Sky News to say Gove got it wrong. RT KimJongUnique: En cas de Brexit, Hollande sera "inflexible" selon Macron. Comme avec L onarda, Martinez, les antifas... https: t.co G If the UK votes against the EU then the PM most likely will resign. Voting starts right now in UK. Brexit AJENews https: t.co M8KinVjBEu RT ajplus: London's mayor Sadiq Khan crushed a recent Brexit debate while fasting. Mic drop, please. https: t.co cN5jMmfvmQ Pabrikan Otomotif Cemas Hadapi Brexit https: t.co gMsiFgWksH LoveU RT MTaylorCanfield: The latest Global News Feed! https: t.co oGHqw9M8Pn brexit euref Be careful! Le brexit fera d river la GB jusqu'au p le nord , et une pluie de haricots rouges s'abattra jusqu' c urement manipulation RT benkalcher: It won't be easy, hell it may even look like a mistake at first, but let's be brave, let's call June 23 independence day. 23 Jun 2016, 07:30 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST Berkshir e 1 negative 0 negative 10 positive Essex 1 positive Berlin 0 positive Manche ster Albuque rque, NM DKI Jakarta Souther n Californi a UNITED STATES 1 positive 35 negative 13 neutral 0 negative 391 negative 0 negative 1 neutral 0 negative 2 neutral riteshzeene ws the AndyG BitcoinMad samiashahb az04 McShaffy nasosgrigo CamilleDbm RealDonJoh nston MauriceMe er Jesucri7665 7946 LIVE Leave or Remain: UK votes in EU referendum https: t.co NAGMW1H7DM https: t.co IXl0Pl82Fg I ain't even British, yet I'm nervous excited to see the result of the Brexit vote. HUGE vote Bitcoin Trades Like Gold as Investors Seek Brexit Hedges: Chart https: t.co oPig7UPVfs bitcoin crypto news RT iamsrk: I c this trend in News where leaving of someone or something is headlined as Rexit or Brexit.So if I leave from sumwhere am I The whole brexit things was born by hates and racist British people! RT INTHENOWRT: BREXIT and Donald Trump are actually the same thing via ANOWRT https: t.co rp1sPRJkhE RT Slatefr: Remain ou Leave , l'Europe va devoir se bouger https: t.co SbpS0vAoH9 RT LimaCharlieNews: It's Brexit time. ChooseWisely Laughs courtesy of JohnOliver LastWeekTonight https: t.co iejcrlECtY Inwoners zullen verdeeld zijn, ongeacht de uitslag. To brexit or not to brexit: wat je moet weten via NOS https: t.co yhECtKcd5o RT IndigndeVerdad: Tips Remain 49 Leave 51 VoteLeave Brexit 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 07:47 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST New Delhi 0 negative Chicago 0 negative London 0 neutral In and around the world .. ...... Jersey City, NJ Roelofar endsvee n 3189 positive 0 negative 99 neutral 3 neutral 5 positive 0 negative 1 positive billyboymc1 975 PLEASE PLEASE PLEASE VOTE TODAY DONT SAY YOUR VOTE TO LEAVE AND DONT VOTE MAKE THE EFFORT TO SAVE THE UK 23 Jun 2016, 08:04 - CEST EC1 BOY!!! B-A-B 0 positive british fasci st answers ne ws BREXIT https: t.co aL3iCcsFyZ All those in EU top jobs are Jews or hard line left right Jewish servants. Brexit VoteLeave https: t.co DLwxezVZpi EU 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST England, United Kingdo m 0 positive 0 neutral Brexit EFPIA E U https: t.co 6ifT8Aca2t AnswersNews RecordingLi ght AdNewspap ers PRI Maxete26 mattiewietz e blvlaw AliLeonard MC sundaybusin ess dft up tanja Binnsy 46 mr andrey6 3 charlotte10 1987 VonOberg edwatkinso n https: t.co r1C5Z5goAd 23 Jun 2016, 08:04 - CEST RT News In Essex: EU referendum 2016 live: Essex voters head to polling stations to...: After months of campaignin... https: t.co r26IcvM 'Brexit' supporters are appealing to the UK's curry lovers to win Thursday's referendum. https: t.co ctgDV4H4rA https: t.co vtE41sbHwz RT JuanLabordah: https: t.co kcfkPGsARD Ca das mercados financieros ltimas semanas no s lo Brexit: mercados sobrevalorados, inflados por We doen even een Brexit! Tot 09.00 uur geen Adele, One Direction, Ed Sheeran, Ellie Goulding, Coldplay, Jessie J... https: t.co YKquSZSXG4 Brexiteer films himself 'illegally' crossing Channel with migrants https: t.co J9kDhK1Qjl UK friends .... Brexit or Bremain ? The financial folk say no ! What do you say why ? Brexit: Today voters have a chance to reject the most heinous campaign ever run in Britain, writes susanokeeffe https: t.co QZE86ifeO9 Column martinvisser 'Grootschalige Britse chantage van bevolking Europa. Laat ze vertrekken' https: t.co EoWjfIbnAq Brexit brexit nestysp iv . Olin viime viikolla Lontoossa ja aihe alkoi kiinnostaa, koska se tunki kaikkialta. Toivon, etteiv t irtaudu. RT 1u4m4: 80 of Americans believe Britain the world would have a better future with BREXIT https: t.co u4Nwng5Xts https: t.co jbzI7e RT lentaruofficial: Brexit : https: t.co E672hk3qcX https: t.co BsFLM7M9sC RT LisaHenegauwen: EU laws strip Britain of its Magna Carta rights, don't let EUrulers take liberties with history voteleave brexit ht Brexit Himmel, Arsch und Zwirn! Ich f nde es sehr schade wenn sie austreten, aber wenn sind sie selbst schuld! RT britishbullybee: Demolished: The four big lies told by the Remain campaign https: t.co ihNroJSkmy 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:04 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST the sound booth United Kingdo m Nederla nd 0 NA 1 negative 0 positive 3 negative 0 neutral West Midland s Worce stershir e 0 negative NZ 0 negative Dublin city, Ireland 0 negative 0 negative Helsinki 0 negative Lincolns hire, England Soest, Deutsch land 48 positive 6 negative 6 positive 0 negative 15 negative SaraRtweets Ed Super Cya n ParisFrance News SebShearer France24 fr LSMusic202 0 riverajaness a SpaceKwest never everS 21 Maz zaroth JESS AR BS Master2001 3 GNOpinion htntp SantosSainz M e sud b SgtLovejoy RT USATODAY: BREAKING Voting begins on 'Brexit' referendum: Will the UK stay in the EU? https: t.co hbRkt4aaRI PaulbernalUK has anyone even spoke about what Brexit would mean for our surveillance laws? Nigel Farage refuses to apologise for 'Breaking Point' poster in final pitch to voters https: t.co 7LNh5lIHQO GoogleAlerts Really interesting coverage on Sky 510 cctvnews too. SkyNews BBCNews euronews EURef EUreferendum brexit VoteLeave Brexit : les Britanniques se prononcent sur leur maintien dans l'UE https: t.co rc9Jeo3CND https: t.co H9oayPf5rP 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST RT ChargerGreg2: Brexit https: t.co hecOtMe2Ir 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST Brexit https: t.co Q9EvSdHCN9 RT DavidJo52951945: RT I was at the polling booth for 7am to vote to LEAVE the EU after years of waiting (use a pen) Brexit iVoted http Will you stay or will you leave? That's the question. Good morning, Britain! Brexit RT ianrmillard: "Major leak from Brussels reveals NHS will be KILLED OFF if Britain remains in the EU" VoteLeave EUref r4today https A snapshot of the VERY balanced BREXIT research KS3 students have undertaken in the build up to this historic day. https: t.co DyKASeXaZv RT TristeMietitore: Moneta propria, unit di misura, guida diversa: onestamente non ho mai percepito la Gran Bretagna dentro l'UE. Brexit Gulf News lead editorial: Britain should vote to stay in the EU https: t.co EVnioBMA6F EUreferendum Brexit feeling british today! brexit RT FR Conversation: Brexit, une affaire Dreyfus l'anglaise, par Benjamin B cle EUref https: t.co vQgwBJ1vOj https: t.co J76BSHNaFq RT trendincontent: EU referendum: Final ComRes poll shows large lead for Remain Brexit https: t.co xx45wkBi0v https: t.co QEXIp22aGR RT Reuters co jp: 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:22 - CEST 23 Jun 2016, 08:39 - CEST 23 Jun 2016, 08:39 - CEST 23 Jun 2016, 08:39 - CEST Washing ton, DC 15 negative 0 negative Paris 0 neutral 0 positive Paris 0 neutral United States , Conci rgeloge bezemk ast Marche - Italy Nordrhe in- Westfal en Bordeau x, France Alabam a 5 neutral 0 negative 83 positive 0 positive 9 neutral 0 positive 6 neutral 0 neutral 0 negative 1 neutral 10 negative 104 negative dsonpolitics seputartradi ngs tomn94 WomenDefy UKIP hughriminto n who2stu - https: t.co wAsYSgMZ9W Brexit https: t.co sKE4UpN1qe Vote duly cast for Leave let's take this chance! EUref Brexit BeLeave VoteLeave OBLIGASI FR56 Kembali Hijau Saat Pasar Tunggu Referendum Brexit https: t.co 8iWq1dHRfT RT yannthompson: Brexit Il est bient t 7h ici, ouverture des bureaux de vote dans 10 minutes. Fermeture 15h plus tard ! https: t.co w5Ac RT sueveneer: Jeff Mitchell's best photograph: These people have been betrayed by Ukip https: t.co SM7wSsmevs Can you pass the Brexit test? I must have been payng attention because I got 8 out of 8 correct. https: t.co FrVZzc2c3w RT LisaHenegauwen: The EU is a sinking ship what we have to abandon Reclaim your sovereignty before it's too late! 23 Jun 2016, 08:39 - CEST 23 Jun 2016, 08:39 - CEST 23 Jun 2016, 08:39 - CEST 23 Jun 2016, 08:39 - CEST 23 Jun 2016, 08:39 - CEST 23 Jun 2016, 08:39 - CEST Oxford 0 positive Solo 0 neutral Pawnee - Scranto n France Sydney, Australi a 10 negative 3 neutral 0 negative 44 positive DemoGrazzi mrshazellbu rger MootjeNada l ES investiga tor nexit brexit https: RT Trev Forrester: Save these Islands from 23 Jun 2016, domination by a foreign power Brexit 08:39 - CEST https: t.co Ffemvzyjkg RT DailyMailUK: The four big lies told by the Remain 23 Jun 2016, campaign https: t.co 9U4JgWH8XU 08:39 - CEST https: t.co yFj05jisbz Brexit 23 Jun 2016, 08:39 - CEST RT busybuk: Warning when you go to Vote on Thursday take either a permanent marker or a Pen with you to Vote in this Referendum PLEASE RET 23 Jun 2016, 08:39 - CEST emilyr willi ams genuinely scared Brexit might win 23 Jun 2016, 08:39 - CEST Seun731 How is it going? BREXIT? 23 Jun 2016, 08:39 - CEST ukipsalford RT LeaveEUOfficial: Tomorrow's pestononsunday 23 Jun 2016, features PennyMordauntMP, Nigel Farage 08:39 - CEST SteveHiltonx making the case for Brexit. https: Think Blue Sky FearnJenni I wish to live in a worldwide street, not a european culdesac Brexit RT DavidJo52951945: EU depend on the UK market, trade deficit was 23 billion in the EU's favour JanMarch 2016.WE WILL GET A TRADE DEAL h 23 Jun 2016, 08:39 - CEST 23 Jun 2016, 08:39 - CEST Manche ster, England In your head 127 neutral 49 negative 0 negative 167 negative London 0 negative Nigeria. 0 negative pendleb ury salford 130 positive London 0 negative Monmo uth 38 positive jice61 joaquimsac outo bmcnaught on1 delalande72 josedeynes sam kirke capariwar svagdis HenkPuffel mans Jack hades1 TeresaBlckb rn drewwhufc RT LOrientLeJour: Donald Trump se rend en Ecosse en plein vote sur le Brexit https: t.co rEmR2xtcj7 23 Jun 2016, 08:39 - CEST xismaisxis s de ouvir isto eu voto no brexit 23 Jun 2016, 08:39 - CEST RT offensivecuppy: EU wants to censor the Internet 23 Jun 2016, again? 08:56 - CEST Brexit VoteLeave EUReferendum BBCDebate https: t.co kT2A00Lmed RT franceinfo: EN DIRECT brexit or not brexit, d bat entre les d put s europ ens Nicolas Bay (FN) et Yannick Jadot (EELV) 7h45 sur F Brexit bremain brexit poll leave remain https: t.co 2HntCoVADP RT V of Europe: Farage s final rallying call: It s us versus the Establishment go and vote for Britain' https: t.co LfRgbPr9PF Brexit: EU referendum voting gets underway in UK https: t.co rh5CjxrbI9 RT rgenci57: You know, you want it! Happy Leave Brexit ers! Tomorrow this time you'll celebrate! https: t.co S1KSnFJzlO Moeten we bij een brexit straks ook balen thee in het Kanaal gooien? infomex2012 Resumen dedicado a Nochixtlan y el ltimo d a antes del BREXIT BREMAIN: Este es un breve resumen... https: t.co NXNHUhvKft RT theordinaryman2: A lastminute plea: voteLeave and help change the course of history iVoted LeaveEU Brexit remain INorOUT https RT WantEnglandBack: Julia Hartley Brewer You don't need to trust politicians to vote for Brexit. Just trust yourself telegraphnews 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST France 1 positive Porto, Portugal Ontario, Canada rp et sarthe, nimes Isabela, PR Harder wijk El tartaro South England, near the sea 0 negative 2 positive 9 neutral 0 neutral 100 neutral 0 neutral 7 positive 0 negative 0 negative 43 negative 19 positive Novini1 IRVING kira htt Brexit https: t.co zqeNvXEbNG EL OTRO 5ANTUARIO: Resumen dedicado a Nochixtlan y el ltimo d a antes del BREXIT BREMAIN: Este es un breve ... https: t.co ReejyrmTGO 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST distrito federal 0 negative 0 negative gordie ross AdrianMulh olla1 Don t leave, I love E.U. VoteRemain EUref Brexit BorisJohnson NicolaSturgeon NigelFarage Guardian DailyMail RT UKIPNFKN: UK would be bonkers to leave EU, says Michael Moore 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 0 neutral 3 neutral StrongerIN VoteIN EUref INorOUT INTogether Brexit No No Coc o FredSimonE U thatjordysh ea MrtnMrt Jackandstell a ex941petti rosswilliams 0 revistacosta bl1 YarboughBu r mark007x00 7 SunTzuPing Dr Lucie https: t.co wi Because infographics really do hold the key to everything...last minute Brexit summary for you. VoteRemain https: t.co iiJqRJQj6L So what next? After Brexit: Roadmap for a leap in the dark EurActiv https: t.co 6ztjJVHLsy Everyone's entitled to their own opinion on brexit but why does the leave support look like a bad season of celeb big brother? EUref RT marcosalvati: Nessun uomo un'isola, completo in se stesso; ogni uomo un pezzo del continente, una parte del tutto. (J. Donne 1624) The Brexit polls are too close to call, which means the UK will vote remain https: t.co prIuqluUTd via qz RT IndiaNotes: tradebizz india1: https: t.co FZTU5P9Fwk Sensex, Nifty open flat ahead of Brexit vote; Tata Motors gains 23 June 2016 vladsten kjimenezgarcia if UK votes Brexit get your spare room ready cause I'm coming to live with you RT OsreOscar: LACAFETERAPapaCuentameOtraVez Da gusto ver los medios como denuncian los corruptos, antes Gibraltar ahora Brexit. https: t RT nytimesworld: On Twitter, even cats (and dogs) are getting into the 'Brexit' debate. https: t.co BEUi3nrkZI https: t.co C7dNdNJezm RT politicsHour: Should the UK remain a member of the EU or leave the EU? Brexit EUReferendum RT TheSun: Make history believe in yourself our country s greatness vote LEAVE https: t.co UtgHNXbGTw euref https: t.co QnW6AcOzmY RT JennyRohn: In case you're still undecided Stephen Curry on Blood and Brexit https: t.co impJa1WWFP guardiansciblog EUreferendum 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 08:56 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST London 0 negative Brussels , Belgium Australi a 0 negative 0 positive 11 neutral 1 negative tawau 42 neutral London 0 positive 1 positive 37 positive South West, England 8 neutral Santa 220 positive Barbara Californi a UK 2 negative abacusnem o BetchavaBis bis rigadude andyblackne ll Segnalazioni SS RT V of Europe: Cameron redfaced after German official says Brussels WILL trade with Britain after Brexit iVoted https: t.co x4yOrU0mbg Brexit. : LoveEurope https: t.co 1SybQuKPxm RT POLITICOEurope: 7 signs that Brexit is really happening https: t.co iqlB4AWGQp https: t.co 0pWVQvLTOV RT Christianitymag: 12 perfect songs for your Brexit or Bremain worship setlist https: t.co NqYcVw52H5 EUreferendum https: t.co GoBu RT pin upicierno: Bruxelles minaccia gli inglesi... "Se uscite dall'Europa starete molto meglio!" 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST South East England. , 135 neutral 0 positive here 8 negative London 16 negative Sassari, Sardegn a 1 negative Brexit the stockki ng jesabfm trxtrx1 ferendus Erco94 paultimperl ey karmel sian turi edwards m arie blackapollo Everything You Need To Know About Brexit: Hello Traders, We have been getting lots of https: t.co cKg0MZim8y RT ActualidadRT: Comienza la votaci n en el Reino Unido para decidir si seguir o no siendo miembro de la UE https: t.co 6HORXT7Upe https RT afderas: quindi per taddei la brexit come il referendum di ottobre... che si perda o si vinca uguale, restiamo omnibusla7 Si el Brexit fuera en Espa a en la papeleta de Arag n se ver a "s , pero pol'haba" y "hemos de salir". Para los foranos: es no y s . RT p corradini: E oggi la Gran Bretagna potrebbe sancire la fine della UE. Loro che hanno sempre fatto come c...o gli pareva. Brexit RT DanHannanMEP: My three minute Brexit pitch, 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST 23 Jun 2016, via CNN. https: t.co lVvbXTv904 09:13 - CEST https: t.co qKv0UKZJWN 23 Jun 2016, 09:13 - CEST RT McGiff: Right, polls are open, let s GO! Brexit VoteLeave pete rai https: t.co TapGtnmp1H My eightyearold thinks he could be deported if we vote for Brexit https: t.co bjZyl48HX4 23 Jun 2016, 09:13 - CEST 23 Jun 2016, 09:13 - CEST Gurgaon 0 positive Spain 48 neutral http: a bout.me ferend us Medan Kota, Indonesi a Hampsh ire Cambrid ge, UK 1 negative 0 neutral 1 negative 142 neutral 0 NA 58 positive 0 negative mwengway ibngibril CrustyDinos aur FundStrateg y JeroenMil OhSoNicolle Grassy Knol l denizen42 mark248236 87 sadiejarrett terraceblue 1886 SputnikNew s SK BubbleTren ds NPORadio1 jobruma emucientes ThibautMat hieu RT V of Europe: Brexit WON'T spark trade war say Germans https: t.co 1OyQG3Iudv RT rorybroomfield: Let's make the UK free again! VoteLeave Brexit EURef RT westerndefence: Today, we get to choose again whether we want to be free. Brexit https: t.co u1g8QLqb8B Exclusive: Brexit fears? UK equity managers cut UK stocks to lowest in three years https: t.co FW2VPxV9at RT ooohouchburn: Today is the last chance the UK will get to fly free from the fascist European Union. Brexit, Believe VoteLeave https: RT JessEspinX: don't be fooled, Brexit is NOT the answer. VOTEREMAIN VOTEIN https: t.co 6K1EAZE0ob RT onetokebloke: Done ! Have you Brexit https: t.co al0bTCsi28 RT efarpax1: Brexit Grexit, Syriza mal kes RT Gjon777: Jacob ReesMogg on Osborne's Brexit Budget 15062016: https: t.co YUY78VVcHV via YouTube RT BenjaminJames15: Funny how many Welsh people I see posting TogetherStronger when it comes to football yet they dont see that for the b 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST VoteLeave Brexit https: t.co xzBRwctdQl 23 Jun 2016, 09:30 - CEST Brexit Brexit Brexit Brexit Brexit Brexit Brexit 23 Jun 2016, Brexit Brexit Brexit Brexit Brexit Brexit 09:30 - CEST Brexit Brexit Brexit Brexit Brexit Trending News about https: t.co 7mFmkVGSKU Brexit Vote BubbleTrends To brexit or not to brexit? NPORadio1 live vanuit Londen met chrkijne en jorisluyendijk: https: t.co DnLQySf7hf https: t.co iAMe0msm7V 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST Del Brexit i d 8217;altres q estions no menors 23 Jun 2016, https: t.co STbLQPrsbj 09:30 - CEST Para no perderse nada del refer ndum brit nico, el 23 Jun 2016, envivo de elmundoes https: t.co Xzazg366JU 09:30 - CEST maria hdez anabarrio Brexit or not Brexit that is the question. 23 Jun 2016, 09:30 - CEST Allahuac k Bar New Malden Surrey London, UK A food tube in Sector 7-G 94 negative 6 positive 2 positive 0 negative 13 positive 1 negative 81 positive 9 negative UK Hull 23 neutral Cardiff, Wales 2 positive 0 positive 0 NA 0 positive Hilversu m, The Netherl ands 0 neutral Sabadell 0 negative Versaille s 0 negative 0 neutral stefanmsch ultz FinanzLinks DavidTrevor 10 bcomininvisi ble andyknox2 iphone mr wendyekna pp GraduatesC hroni awyliu MarketVie ws chiara salvi Larysaaa Markiswin GordonGekk o 101 Wealth Ver tex RT BoeckingD: Remain or leave? In UBahnWaggon 96418 ist das Stimmungsbild zum Brexit eindeutig: https: t.co 6ZijDl0XR9 Raiffeisen: BrexitReferendum, Solar City, Tesla Motors und Staatsanleihen im Blickpunkt: Das https: t.co 6TxtrN1dMV News 4INVESTORS Cost of living will FALL once we BREXIT https: t.co ikRlmaHhR1 RT OwenJones84: If Brexit happens, we will face the fights of our lives and we have to prepare. My video: https: t.co 2srq39cOLw https: RT V of Europe: Cameron redfaced after German official says Brussels WILL trade with Britain after Brexit iVoted https: t.co x4yOrU0mbg RT DavidJo52951945: RT I was at the polling booth for 7am to vote to LEAVE the EU after years of waiting (use a pen) Brexit iVoted http RT Multi Ling Mat: Hold your tongues: why language learners fear a vote for Brexit https: t.co J3cMhAbfxE eureferendum bilingualism In gran Bretagna, nella giornata di oggi, si voter il famoso Brexit, ovvero il Referendum per restare o meno... https: t.co hOGIKn1Vzk RT LouiseMensch: The Morning Star's socialist editorial for Vote Leave and Brexit https: t.co lkfRj2vjgj FTSE 100 breaks 6,300 and pound hits 2016 high as Brexit vote gets underway https: t.co QTY2i4TrQm Telegraph Mi si nota di pi se resto ma sto in disparte, o se me ne vado? Brexit ArtKillwater Niemcy i tak dyktuj wszystkim warunki a Brexit to by by zimny prysznic. By mo e inne kraje te zaczn wychodzi je li UK RT madeupstats: This account's been quiet for a while, but due to the fact that the Brexit campaign have stolen a lot of our material, we RT WSJ: Brexit vote: what to watch as the U.K. goes to the polls https: t.co NHPgTciXvv Pound, euro higher ahead of Brexit vote forextrader forexnew trading WealthVertex 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:30 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 38.4466 31,- 9.10279 6 12 positive 0 neutral 0 neutral In my bed, tweetin g 1546 negative uk 267 neutral The End of the world London, UK 380 positive 5 negative 0 neutral 7 positive London 0 positive Manche ster, UK Wall Street Singapo re 0 negative 0 negative 68 negative 11 neutral 0 positive SueIngSimm ons https: t.co IU4taPsJvh What does this ACTUAL MEP say about Brexit. A MUST watch especially if you're still undecided. https: t.co 4p6YfoCrpW 23 Jun 2016, 09:47 - CEST High Wycom be, UK 0 negative MaryKapadi a chances999 MrScopola min highgateale x BMouthPR RT theordinaryman2: The EU bans the word Brexit ? EUReferendum LeaveEU VoteLeave StrongerIn InOrOut LabourInForBritain https: t RT labourleave: The polls are open! Get out and use your vote to help us create an independent Britain. Brexit EUref https: t.co h8EeUA RT DavidJo52951945: YOUR COUNTRY NEEDS YOU TO VOTE LEAVE TODAY Brexit https: t.co 00t9A7nVLd RT DavidJo52951945: RT if you have voted to LEAVE the EU today iVoted Brexit Freedom https: t.co a5JkBNjKwE Rain and thunder in Brexit land... ...Don't let my people go! StrongerIn. Remain. 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST Leiceste r, England ONTHER EGISTER 134 negative 184 positive 217 positive London 423 positive United Kingdo m 0 negative vgul PierToso KrangnesLar s EconomyWr ld WOB BLATT Monalisazel f catarinagall o UkipRob TGuerreroBl anco velvetsilk RT axelheitmueller: Whatever your views on Brexit the biggest sin you can commit today is not to vote. Democracy is fragile and a gift. Dear UK, without the "Ever closer union" you can go away, with no regrets. Brexit BrexitOrNot RT Queen UK: David Beckham is backing remain. This is mainly because he can't spell Brexit. EUref Brexit vote 'would mean a UK recession' https: t.co WqZqV032Qj https: t.co eaJgyqucZ4 "Brexit"Gefahr verunsichert fast jedes zweite deutsche Unternehmen https: t.co rbcucGFv7Q RT florianeder: Sorry und gute Reise: Mit "Respekt und Bedauern", so w rde die EU auf den Brexit reagieren. https: t.co WWClKi6MzD RT Alasdair91: EURef Brexit UK "expats" moaning about immigrants. OH THE IRONY! Got a cheek to moan about "changing" our ways. https: RT WAFEFuk: BREXIT DAY BRESU WAFEF UK https: t.co TTafxEotuU RT plalanda II: Dimensi n de la inversi n bruta de UK en Espa a y stock de empleo correspondiente Brexit (Elaborado por SIfdi) https: Brexit have grabbed all the headlines and stooped despicably low. A vote for Leave is aligning with extremists, with people without a plan. 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 09:47 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST London 1 positive Fidenza, Italy Stockhol m, Sverige United States Wolfsbu rg Netherl ands Madrid (Spain) England, United Kingdo m 0 negative 851 negative 0 negative 0 negative 2 negative 3 negative 3 neutral 3 neutral 0 positive vivianstarrrr RT theordinaryman2: Its your decision ? Like for IN Retweet for OUT 23 Jun 2016, 10:04 - CEST 44 positive NewsSprinkl es StevenDaws onSD DomCaldero n teddybearis ms OnVista Ne ws lethabo17 dioXyn MizzVileAni malO firstpost PeterHase2 014 Lloyd Ash KaliYuga13 tony anthp EURef VoteLeave Brexit VoteRemain InOrOut Labour VoteOUT ht RT Independent: When the EU referendum result will be announced https: t.co 9kWnoH4NG4 Brexit or not, your business must be prepared for any possible outcome https: t.co 4Ibv84nQqx OracleEmp Intel dc Brexit : las ltimas encuestas y las claves del refer ndum https: t.co tWZ5DhdLeP RT Steven mala: Jeremy Corbyn makes the case for Brexit EU referendum 2016 https: t.co UgaTHzfvQa via YouTube Der Freitag nach dem BrexitReferendum d rfte kein normaler Handelstag werden nicht nur f r B rsianer in London https: t.co qXzF8TPrVs More than 40 of fortune 500 companies were started by immigrants and children of immigrants. Amazing stat hey . Brexit Bundesregierung vor dem Brexit: Klappe zu und durch: taz.de Berlin hat Angst davor, dass die Briten die EU https: t.co ARcihuBCim RT wride nicholas: jeremycorbyn you voted to dissolve the UK. Luckily you will never get to Number 10. Brexit labour NHS momentum BrexitOrNot: 'No turning back', EU leaders warn Britain from a vote to quit. Follow live: https: t.co J0kCfrtdeZ https: t.co huJCJqg8nF the mehran interUNFAO What did the Romans ever do for us? Don't we all know where this Brexit came from? Rampant antiMuslim xenophobia? RT RT com: WATCH LIVE: Brexit referendum underway in UK https: t.co qDUkPWwxIt https: t.co YkrhbcccDC RT BobEstropajo: C mo va a irse Gibraltar de la Uni n Europea sin preguntar al resto de espa oleeeees?? Brexit RT Daily Express: Britain CAN'T tackle mass immigration unless we QUIT EU today, Brexit MP says EUref https: t.co yQAjia067W https: t.c 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:04 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST Winterf ell Frankfur t, German y Costa Rica at the pub, now off. Frankfur t am Main, German y Pyongya ng, North Korea Cornwal l Calgary - Mount Royal U 14 neutral 0 neutral 0 negative 2 neutral 0 negative 0 positive 0 negative 1 neutral 0 negative 0 negative 3 neutral 39 negative 3 negative mike space 49 conchacorn ejo SRDorman RogerFNPra ti Douglas Nil sson Charli3dog BiancheriLa ura annembee France leve toi Parthlan AlChiari RT josedeynes: Pound s Day of Destiny Arrives as History Shows What s Possible https: t.co gYTxwUKyo1 via business Brexit bremain le RT diazvillanueva: Hoy es lo del Brexit. Una no, dos Contracr nicas al efecto. https: t.co mVD4Jmz1rz https: t.co fyGNye4eu1 https: t RT LondonDynaslow: I am a Tory Eurosceptic Remain voter. Brexit is simply not an intelligent choice at the moment. https: t.co 9CsDSbb RT RobertoFioreFN: Brexit per l'Europa della pace e della libert . Uscire dalla Ue dei ricatti, dell'usura e adesso, perfino degli omic RT TravellerAU: What the Brexit could mean for travellers to the UK and Europe https: t.co uEXoVVPeGo RT KevinAnth: SMASHED!!! FOUR BIG LIES TOLD BY REMAIN CAMPAIGN https: t.co P3nvNAyBoB Brexit VoteLeave Vote Leave StrongerIn RT nausicalibre: https: t.co 3S4VUqkwOj Les tar s technocrates LRPS de l'UE, font un lien entre Brexit et les nazi! Provoquer la peur RT LeaversOfPower: Walltowall Remain speeches on BBCNews24. Since they are TOTALLY impartial, I guess Gove, Gisela and Boris are having RT pmcouteaux: Brexit Un "effet indirect" plut t? De tt fa ons, ce n'est pas l'anglais que parlent les Europ ens, mais l'am ricain https: RT OhBrokenBritain: BREXIT BOMBSHELL: Poll puts Leave SEVEN POINTS ahead of Remain hours before referendum https: t.co iLuOrrcRGZ RT fdragoni: La Brexit? Un grosso affare per gli allibratori che potrebbero voler far credere che sia pi probabile il Remain https: t. 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST EliasAnyebe What is this brexit thing 23 Jun 2016, 10:21 - CEST OFX OZ Big day today as the UK decides to Brexit or 23 Jun 2016, Bremain. Don't forget OFX is open 24 7 during the 10:21 - CEST EUReferendum, including weekends! support MockLabour DankefuerNi xx Maaanick RT TheSun: We speak to the nation s grafters on the Brexit frontline before referendum of a lifetime https: t.co TPVahbFRDZ https: t.co Brexit BrexitOrNot watching this EU misery! if you're smart u get out! if you want Dictatorship Merkel und a Muslim GB stay. RT RTenfrancais: Brexit entrainera "l'apocalypse conomique" selon Georges Soros, Jacques Sapir lui r pond https: t.co 74JMfzsfH7 https 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST 23 Jun 2016, 10:21 - CEST Puerto Rico, USA 1 negative Madrid 2 negative Edinbur gh, Scotland 2 negative 1 negative Stockhol m, Sweden, Earth 5 neutral ENGLIS 33 neutral H not Europea n Annona 3 negative y, Rh ne- Alpes England 5 neutral 1 negative 9 neutral 9 negative Nigeria 0 neutral Sydney 0 negative Fabulou s Sussex 30 neutral 0 neutral Paris 8 neutral kreisnagel FcNoman gabriel4347 PaulinaNeus tart RosChappell VilleTynkkyn en loopvlak MiddletonRi ddle barbycotton tail worldnewsd ay wastespecia list cut the cra p ec uk rants Hay Quaker JohanBigSmi le RT ManuelaKC: My Brexit Diary: The Brexit ball BrexitOrNot dw business https: t.co 0D39bcjC47 RT iamsrk: I c this trend in News where leaving of someone or something is headlined as Rexit or Brexit.So if I leave from sumwhere am I LesEchosLive un des premiers effets b n fique du Brexit sera le d part de Cameron RT chrisuport port: britaininout goodbyeUK Brexit BrexitOrNot ivoted Merkel https: t.co EFwAnf3dlX RT Brexit WANTS US TO IGNORE EXPERT ADVICE georgemagnus1 dannyjpalmer timjohnston 89 Scientists4EU caketin85 https: t.co eucswtjlGE politologi'n vuoden ehk mielenkiintoisin p iv on t n n. Brexit Remain StrongerIn standbyme Johnson neemt er eentje op Brexit Hij heeft nog last van het Imperium virus! https: t.co gJHYJfebyJ via https: t.co 44MuRLpW76 RT Independent: Leave supporters are very suspicious about the pencils at polling stations https: t.co ygRdXrcx66 https: t.co m4FcG3197J RT liz buckley: Shattered from thunder lightning and worry about the monster Brexit created. I feel like I'm in a really cheap Frankenst : Brexit https: t.co 9qdFxBNhzH RT JacksonT0ny: Our dear neighbours friends are saying 'please remain'. So let's do just that. We're StrongerIn EUref https: t.co 1 RT cholt 1: VoteLeave TakeBackControl TakeControl Brexit https: t.co TMOzmYNBUZ I really didn't think this whole "I'd kiss all who vote Brexit" through, did I? https: t.co agZF4Wa1Tj RT Lad87Red: Get out VoteRemain. Don't ignore expert after expert gamble on Britain's future all for the big Brexit con Remain E Si les anglais vote pour le brexit vous pensez que a va accuser l'islam ou pas ? 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST Comilla, Banglad esh German y 1 negative 3455 positive 0 neutral 7 negative 0 negative 0 negative somewh ere in the milky way 0 negative London 14 positive Russia, Moscow North Yorkshir e 4 negative 0 positive 62 negative USA, UK, Israel 47 positive UK 0 negative Hay on Wye, Wales Paris, Ile-de- France 12 negative 0 negative StefanoVP2 013 StichtingLO OP AvP opleidi ng pramodkrra wat J Manasa CozzolinoSal vo midiario NiallQuinn InvestingTR HoxtonHill heidup24 CharWalters 65 TheAustinR hodes RT rgenci57: You know, you want it! Happy Leave Brexit ers! Tomorrow this time you'll celebrate! https: t.co S1KSnFJzlO Gevolgen van Brexit voor de zorg onduidelijk. https: t.co 0bFGLbDOPs Gevolgen van Brexit voor de zorg onduidelijk. https: t.co V8U3JnA4Pa EU , Brexit referendum https: t.co 5fdi0lp9wo moralmyopia and a lot of rights and things are enshrined in EU law and I don't trust the Tories to uphold them if we brexit. Dedicata a tutti i miei amici UK....... brexit Bremain https: t.co ltebgRmtHz Abren las urnas en Reino Unido para el referendo sobre la UE https: t.co IMNWpjs1mm Internacionales Interesting SkyNews giving 'breaking news' status to latest ons UK population stats showing 500k increase. Surely plays into Brexit ? Brexit ABD in Sorun Olmayabilir de Olabilir de https: t.co f5TCkHARgJ Pouring with rain but also boiling, clearly the britishweather is as upset about potential Brexit as I am VoteRemain viral Oil down after small U.S. drawdown; seen choppy before Brexit vote... https: t.co HefAEVLyUV Brexit Referendum Live Updates: Vote Results, Stock Market Reactions And What Happens Next If The UK Leaves The EU https: t.co mfk7bnUzdi RT Chinky Ree: David Camelon getting despelate now: 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:39 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST Nederla nd Haridwa r 22 positive 0 negative 0 negative 0 negative josh m lee out look.co m - LDN 0 negative Milano 0 negative 0 negative Dublin 0 positive United States Shit Creek 0 neutral 0 negative 0 negative 0 positive 2 positive "If we leave the EU, there will only be 24 letters left in the Alphabet" labonam mikeBinESP alanmaddis on20 Brexit Jour de vote : la presse britannique majoritairement pro Brexit https: t.co vLjMzjylw4 RT 2tweetaboutit: How the European dream died: Cheers as Nigel Farage nails case for Brexit while Merkel fumes https: t.co SXo0t4I8uC jackjoh01219520 bcomininvisible Brexit refuse to say they will reduce immigration let alone by how much.It is a rightwing coup! 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST Toulous e Malaga, Spain Tyne and Weary, England 0 neutral 62 neutral 0 negative Tactical Thi ngs Collectif VA N suffolkliz Splash 247 RT amc0010: Leaked Letter Reveals That David Cameron Hatched Anti Brexit Plot https: t.co 6P6EmA2EBh via peoplesvoice tv RT BFMTV: Brexit: la Turquie veut absolument le maintien du RoyaumeUni dans l'UE https: t.co puBFUYTaTR https: t.co 1e0T8tudpw swedesforbrexit Will be voting Leave for UK all of our European cousins today! wearefamily Let's do this! brexit https: t.co 9ZXLP8eoWz RT SafetyOrProfit: If you're in the UK, in maritime and allowed to vote, read this: 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST UK 3 negative Issy-les- Mouline aux France 10 negative 0 positive 3 negative https: t.co g88E2SQvBy Mark88730 9061 hazardnews 365 MarkinCW5 CharWalters 65 Agatha AB Remain RT ANDREASSTAVRI: ProudPatriot101 BREXIT BOMBSHELL: Poll puts Leave SEVEN POINTS ahead of Remain hours before referendum https: t.co viral Oil down after small U.S. drawdown; seen choppy before Brexit vote... https: t.co ilVbVlF5mY StrongerIn SadiqKhan Utter bollocks the EU is parasitic and our relationship needs to end BREXIT Bitter Brexit Campaign Could Turn on Record Number of Voters https: t.co vmHiSfWGyh RT polskathetimes: El bieta II nieoficjalnie popiera Brexit? Tak twierdzi biograf kr lowej https: t.co mmjcMYgVIG https: t.co WlSYdi6TkW Fabri Biscot Sleepless in the City Lets Traders Bet Billions on Brexit ti Result https: t.co 4HdBi4loFG via business AndreAltier RadioValle contro il Brexit, please don't leave us. The Clash London Calling (Official Video) https: t.co giSNzERs2I ClaudiaJeffe rie VeldhuisC subtel1 Homenews3 65 MauroAluigi RT OwenJones84: If Brexit happens, we will face the fights of our lives and we have to prepare. My video: https: t.co 2srq39cOLw https: RT SpencerHills2: LETS TAKE BACK CONTROL OF OUR UNITED KINGDOM EVERY BRITISH SUBJECT MUST DO THERE DUTY vote leave BREXIT VICTORY X htt RT obritom: Democratic duty done. voteleave Steady stream of voters hope overwhelmingly Brexit viral Oil down after small U.S. drawdown; seen choppy before Brexit vote... https: t.co 7QxnSGo22v RT Dwalingen: Gorbachev warned the European people about the striking similarities between the EU and Soviet Union . Brexit https: t.co 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST England, United Kingdo m 7 neutral 0 negative Cheshir e 0 negative United 0 negative States Przysz 9 positive o ma na imi Polska! Surrey - 0 negative UK Arcisate 0 positive , Lombar dia London 1608 negative Noord- Holland 30 positive England 1 positive Santa Clara bancari o 0 negative 88 negative smackfairy anca toader FabFfabien3 3 It's decision time! Don't let Britain go to waste!! brexit EUref Remain https: t.co RqFCB0riJJ RT NickKristof: As Brits vote on Brexit, my column: R.I.P., Jo Cox. May Britain Remember Your Wisdom. https: t.co aKsTqgLOn7 https: t.co RT charlemagne1968: Brexit INCROYABLE! Les citoyens du Commonwealth r sidant au Royaume Uni votent au Referendum!!! En plus des 2de gen 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST ram191182 Bremain vs Brexit 23 Jun 2016, 10:56 - CEST QuantumEx RT ira tenax: I'm Italian and I endorse Brexit 23 Jun 2016, plorer because we can be united only in freedom, 10:56 - CEST hopbin ajit8 sovereignty and rule of law. VoteLeave https: The Brexit Alien, made whole after Brexit team returns to orbiting mother ship. https: t.co ciQ1fC3lf1 RT yiota143: By all means, vote to remain in the EU! brexit 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST Read: https: t.co XfvQsEmdd6 unblogd VoteLeave BrExit https: t.co lUjVzKMh6T 23 Jun 2016, 10:56 - CEST FFI2045 nicholasaylo tt Contrepoint s Fabrysilvia corbynjokes polskatheti mes HusainAlma hmood RT isabell97789125: Brexit https: t.co hnNQcCKYwR RT olsson erik: Oavsett hur det g r i dag kan detta vara en fr ga att st lla sig. Har s kt svar via bl a nicholasaylott Brexit https: RT jipebe29: Brexit : que disent vraiment les partisans du Leave ? https: t.co nd8d73BmdO via Contrepoints RT LeaveEUOfficial: Make sure you get out to vote today for our independence and a brighter future! EUref Brexit VoteLeave https: t.co Yo mama so dumb we have to say she's voting for Brexit because of political disengagement rather than racism or stupidity. A Nigel Farage dzi od rana w doskona ym humorze... EUref Brexit Relacja na ywo: https: t.co 7UONeHTFjl https: t.co 8gQ8EDAryS RT docshayji: ( 28 ) !! Brexit or Remain 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:57 - CEST 23 Jun 2016, 10:57 - CEST London, UK (via Munich) London, UK Sud ouest France. 0 negative 5 positive 20 positive Mumbai 0 negative USS Britain 8 positive 0 neutral 5 negative K ln, Deutsch land 0 positive FRANCE 2 neutral Stockhol m Paris, France Manche ster, UK 1 negative 1 positive 223 positive Islington , London 1 negative Polska 0 positive Paris - France 3 negative e pitzky boerse talk ElyaNowogr odski Fragile mag grancake RT APatzwahl: Ich wette, das der Brexit heute zugunsten der Gegner ausgeht. 50,35 . Das hat Br ssel schon entschieden! BrexitOrNot The latest boerse talk! https: t.co P4RPgN9T5l Thanks to GregorKuhn IG brexit buy RT Independent: Leave supporters are very suspicious about the pencils at polling stations https: t.co ygRdXrcx66 https: t.co m4FcG3197J " , . - ...." brexit bremain https: t.co wBkmbWkPoy https: t.co g1GlvRK17A RT SocEconMag: Steve Hedley of RMTunion makes the trade union case for Lexit 23 Jun 2016, 10:57 - CEST 23 Jun 2016, 10:57 - CEST 23 Jun 2016, 10:57 - CEST 23 Jun 2016, 10:57 - CEST 23 Jun 2016, 10:57 - CEST Frankfur t German y Stafford shire 2 negative 0 positive 37 positive 0 negative 33 positive VoteLeave Brexit EUref iamnews24 MarcoDaCo staFX AnneUrda Monument Macia prestontow ers Woodlandb ookshp lrodriguezh orca tt saw JennSelby TradingYupp y https: t.co 0LzR0fwIqv https: viral Oil down after small U.S. drawdown; seen 23 Jun 2016, choppy before Brexit vote... https: t.co YkoWpXPOXF 10:57 - CEST RT elEconomistaes: Buenos d as! Hoy pendientes 23 Jun 2016, de Reino Unido que ya ha comenzado a votar Brexit 10:57 - CEST o Bremain?https: t.co yjgUIGyBaf https To Brexit or not to Brexit: that is the question facing 23 Jun 2016, Brits today. Law360 is here in London and will have 10:56 - CEST complete coverage of the vote. Salou i Magaluf tamb votaran Brexit 23 Jun 2016, 10:56 - CEST RT pmdfoster: Ouch. via DAaronovitch 23 Jun 2016, 10:56 - CEST Brexit Remain EUref EUreferendum https: t.co BCEVzwf1LG barjohnhome thecarolemalone Oh so jobs don't 23 Jun 2016, matter to you....got it. ImAllRightJack Brexit 10:56 - CEST A quien le importa una el Brexit, a mi nada, est n tardando..... RT eToro: What do you think the UK public will vote in next week's referendum? brexit ... Is quite similar to what my reaction will be if I do not wake up to dystopian postBrexit Britain tomorrow. https: t.co mCwb5zpL0D RT Fxflow: Do like Austin and LIVE trade the Brexit with us 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST Madrid, Spain 0 negative 18 negative 0 neutral VNG.CA T 0 positive Lower 39 negative Blue Mountai ns, NSW Cymru, 0 negative United Kingdo m Madrid 0 negative England, United Kingdo m 936 neutral London 0 neutral 3 positive June 23 starting 2330 GMT https: t.co l1yOvJcmbp https: t.co m8pEYqgheY aronresebo iamjamup24 JLLupstream wakingthem onkey dvdsmpsn omaticaya5 2 HMS Indom itable laurenpn Sauronsstock Tror inte man ska f rv nta sig f r mkt dagen innan Brexit Bremain, ven om man anar utfallet. Gissar folk r passiva nu. viral Oil down after small U.S. drawdown; seen choppy before Brexit vote... https: t.co 7ZJUwqJB6c It's decision day in Britain. Check out the FT live blog on the Brexit vote https: t.co lTGYy4O4Oa https: t.co 2jRiw2TvVl I think this is a reason to Leave don't you? Brexit https: t.co x7HMp47jVX "A RACIST nan who is fuelled entirely by hate has began her slow unsteady journey to the polling station" brexit https: t.co dtqgSatls8 BREXIT, what's gonna be today? What do you think it must be?? RT ObliviousReaper: Chrisuk1943 jemimabond007 Brexit is having confidence in the country, rather than outsourcing its management to over RT UKIPNFKN: You won't 'get back your country' if you vote for a Brexit you'll give it away 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 10:56 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 0 negative 0 negative London 0 positive West Yorkshir e 1 positive Notting 0 negative ham, England. Chile 1 neutral UK 1 positive 4 negative StrongerIN VoteIN Euref albertof000 0 ParticleBiz FranTrombe tta macdonaldr tr nickareay HelleNico 24Espana https: t.co o RT raramolecola: Detto in parole semplici e povere, ma a noi che non n abbiamo un soldo, MA CHE CAZZO CE NE FREGA DELLA GRAN BRETAGNA?!?! Gold Hugs 1070 Ahead Of Brexit Vote, More Yellen JanetYellen FOMC... https: t.co NAlsGdGQ7l Corriere a 'mbe! notizione che traballi il Trono di Spade in caso di Brexit! AndFranchini andreaprincipi After Brexit Roadmap for a leap in the dark https: t.co 1SHr71NGLN via ReutersUK campbellclaret Excellent speech on c4debate there is no manifesto, no case from Brexit. How can you vote for a cause with no plan or idea "Making Sense of Brexit in 4 Charts" by AMANDA TAUB via NYT The New York Times https: t.co isua5Hfoxu Brexit: Gu a para seguir y no perderse nada en la noche del refer ndum https: t.co GrDKPH5yH5 not cias Econom a https: t.co yw8eiDAthn 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST Pagani, Campan ia Santa Clara, CA 42 negative 0 positive 0 positive Brussels 0 negative West Mersea, England 0 negative Boston 0 neutral Espa a 0 negative hedviggunn brexit " " 23 Jun 2016, 11:14 - CEST noticias21es Abren las urnas este jueves en Reino Unido para el 23 Jun 2016, hist rico refer ndum sobre el 'Brexit' 11:14 - CEST https: t.co BO2OBsZikm Unstablesha rk hondacrv2 HelleNico blackjackwe iner AbuKhamr Miningfin Ash Davo timmieasdal las scottthong davidlevass eur7 mlgrufman the max do om dandell ShiftSprintD S TaleOf2Parti es DavideRiboli ni RT BeverleyTruth: BREXIT FOR REAL FREE FAIR TRADE WITH AFRICA , SOUTH AMERICA AND THE WORLD https: t.co PPHpztYmLE RT DavidJo52951945: Now Merkel warns the EU is facing an immigration crisis from Africa god help us if we stay in the EU https: t.co acp "Portraits of a Nation Contemplating a Brexit " by Unknown Author via NYT The New York Times https: t.co vocMqsotif RT PeterMagLob: https: t.co v0L5ecbofB BritainInOut GoodbyeUK RemainINEU EUref https: t.co LkHrqSGFME RT snarwani: I voted brexit today. 1) When economies shrink, people get 'tribal', so EU is sunk anyway 2) As we can see, EU didn't protec RT AndreVTP: The Ecstasy For Gold And The Brexit Vote GLD https: t.co t2aJU5dSg8 RT PPOffers: It's now 1 7 that the UK remains in the EU, with exiting out to 5 1! https: t.co pLotIQ4cF0 Brexit The Interpreter: Making Sense of Brexit in 4 Charts https: t.co pMzJQ3BqyB RT PrisonPlanet: Wealthy elites manipulating bookie odds to make VoteRemain seem inevitable? https: t.co UbS0O16kRa Brexit Empire like yours doesn't deserve to desapear https: t.co ttunwtHjbd AllanIvarsson h ller h ller med, tycker det k nns lite v l mkt risk on att st nga 13601370 ish idag iom brexit mm 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:14 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST lesbian on popmaster! votes brexit 23 Jun 2016, 11:31 - CEST RT SpiegelPeter: Nervous about Brexit much? 23 Jun 2016, Sterling volatility hits new highs overnigjt. FT 11:31 - CEST liveblog: https: t.co tvZtTDmlk7 https: t RT BreitbartLondon: God Seems to Be Voting for Brexit https: t.co syxBVnRpW2 https: t.co 3tLL5UTEg8 RT MarketWatch: U.S. stocks set for gains after Brexit polls point to stay vote https: t.co Fpp69qQhbC RT NicolaMorra63: Brexit Gli inglesi esercitano il loro diritto di cittadinanza pur essendo sudditi della corona. A noi, che... https: t 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST Sweden 0 neutral kings Langley 0 negative 7 positive 20 negative Boston 0 neutral German y The Vault Arizona, USA Malaysi a Stockhol m, Sweden Vienna, Austria L.A. Meltdo wn 2 negative 1 negative 2 positive 2 negative 0 neutral 167 negative 0 negative 0 negative 0 positive 6 negative 10 neutral 6 positive 4 positive ethical753 emmahoko n1 timmieasdal las RT cnni: The nonBrit's guide to the EU referendum: https: t.co 6jLcwRkejB EUref https: t.co uttTHNdnJ7 RT MarketWatch: These are the stocks to buy in the wake of Brexit, Trump and recession fears: https: t.co P9jjb7DjjY https: t.co NWLDd0Q Brussels boss tells PM: NO more reform to Britain's EU membership after Brexit vote https: t.co wqVBOn9Ycp NikoAgo RT kanekos69: . Brexit SynthInsani a NCPoliticsU K RT bonbuf60: jongaunt Jon, a Germany car manufacture said after Brexit business as normal, and Turkey deal is ON,can we hold dave to Acc RT NCPoliticsEU: EUref summary: Polls say REMAIN 2 Nowcast 5248 Forecast 5347 Brexit chance 25 (1) https: t.co hUxOTPhRiB https 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST Chigwell , England Abuja,Ni geria Arizona, USA Stockhol m, Sweden 47 neutral 9 negative 0 neutral 53 neutral 9 positive UK 17 negative chauchat m aria wdjstraw monalemuri a ClaireMiddl eto4 Altair Ita JimWats421 83375 LaJovendlPe rla RT doberah: Cute: BILD says if Brits vote against Brexit, the Germans will recogniz(s)e the 1966 heartbreaker Wembley goal https: t.co z RT SpiegelPeter: Nervous about Brexit much? Sterling volatility hits new highs overnigjt. FT liveblog: https: t.co tvZtTDmlk7 https: t RT KimJongUnique: En cas de Brexit, Hollande sera "inflexible" selon Macron. Comme avec L onarda, Martinez, les antifas... https: t.co G RT DarthPutinKGB: It is not those who vote that matter. It is those who count. Brexit In sostanza il discorso Brexit cos riassumibile: https: t.co BsRF1mBMCD RT LouiseMensch: Roses are red, violets are blue, If you love Europe But not the EU VoteLeave Brexit and TakeControl https: t.co LR90K RT jesusmarana: No hay d a m s oportuno para echar un vistazo al dossier de infoLibre y mediapart sobre el Brexit https: t.co g69TSA4 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:31 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST Italy 35 negative United Kingdo m Messina , Sicilia, Italia 6 negative 96 neutral 93 negative 0 positive 230 positive 7 negative ellecome22 2 Lin 121 zzazzye inspaceitrus t LaJovendlPe rla ausdjforums RT Dwalingen: The Peoples of Europe are hoping for a Brexit domino effect into Nexit Frexit etcetc. The EU has failed us all https: t BeverleyTruth DDawn0 OMG THAT IS TRULY WONDERFUL NEWS I SENSE A LANDSLIDE BREXIT RT robertraineyni: Still undecided? Brexit EUref VoteLeave This is correct way to complete ballot https: t.co B9x6l3pqTn All the best to Brits braving the weather to vote. iVoted brexit but as for whether that'll happen or not, I wouldn't want to bet on it. RT DebatAlRojoVivo: Fern ndez D az : "Lo que me preocupa hoy es el 'Brexit'" EscuchasCatalunyaARV https: t.co YwsIr0dYjl https: t.co E s To Soar To 60 A Pill If Brexit Succeeds https: t.co lEOVXbIm5M 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST England, United Kingdo m England, United Kingdo m Australi a 20 negative 0 positive 9 positive 0 positive 19 neutral 0 positive Ryanshedde n PremierLeag ue8 economistni raj A G Dugin paolodriussi solos4242 https: t.co ZOp8XaSifm RT Dezeen: "Vote Leave is a vote for a theme park instead of a country" Sam Jacob: https: t.co VQwCV3aVo5 Opinion https: t.co 1T9vhca PremierLeague Picture Special: Every Premier League player who could be affected by Brexit revealed https: t.co qEMKZbkZ3j RT JMurray804: Bloomberg illustrates Brexit https: t.co 3ZDcLQnb3n DanHanson41 muhammadakd https: t.co 7lTCR6crVg Et si le Brexit donnait aux Fran ais la volont de reconstruire l Europe ? https: t.co yatANBpCuD Brexit, il giorno pi lungo per l'Europa. "Leave" o "Remain", alle urne 46,5 milioni di britannici https: t.co edmjF19Mss via repubblicait Brexit Movie https: t.co olBBLXYYxd EU pd fisherman 2destroy their boats while giving fishing rights to others https: t.co wqYhskhT9s 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST Clapha m, England 10 positive 0 neutral London 5 negative Heartlan 0 neutral d Italy 0 neutral 0 positive anthony945 20648 Mosharraf0 129 jpnoblejr RT LeaveEUOfficial: Shameful stuff from the Remains. GiselaStuart has made a commitment to the UK and has ever right to back Brexit. htt AJEnglish : Beyond the Brexit debate https: t.co dsQsScbxjk by kenanmalik https: t.co e4SkxN3lVO) https: t.co UuB3Ken1iY RT WSJ: Even if Britain votes against 'Brexit', the market's relief would be shortlived, writes Simon Nixon. https: t.co I3XsOgw6fD 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 11:48 - CEST The Kingdo m Dhaka, Banglad esh Somew here in the world 2 positive 0 negative 7 neutral NewsdeskW ORLD Nigel450 7E55E RT nytimesworld: Brexit in 4 charts: a generational divide that's about more than age https: t.co YtDQcE895H RT Independent: Leave supporters are very suspicious about the pencils at polling stations https: t.co ygRdXrcx66 https: t.co m4FcG3197J RT Stop The EU: On Brexit the UK will become the EU's biggest export market. 23 Jun 2016, 11:48 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST Midland s Kyoto, Japan 2 negative 74 positive 85 positive frspch VoteLeave https: t.co wI7ORkoTuM RT Ironwand: Tony Benn would have voted Brexit on IndependenceDay! 23 Jun 2016, 12:05 - CEST 14 positive If the establishment wants it, do the opposite! Monalisazel f Risto Matti orzowaymil ano Trendsiana mahonnew6 7 FxsignalOnli ne swimmerbo y2379 BoulyPorte news89 Matt Dark VeoNoticias VoteLeave https: RT Knack: Hoe kan u gokken op een bremain of brexit? https: t.co AdpW79t5gM https: t.co HVGTdGyAHD RT FIMRahantaju: Brexit nestys on alkanut. Katso, miten voi k yd , jos britit l htev t tai jos he j v t. https: t.co jGSymmOJtj https RT Virginia Reggi: E io che pensavo che il Brexit fosse il cocktail dell'estate in arrivo dalla Gran Bretagna BrexitOrNot Brexit Jeffrey Simpson: Will a long, loveless marriage end with Brexit? https: t.co CzDGTDtfty RT JuliaHB1: Yet another good reason to Vote Leave. Brexit https: t.co ZppueosTB6 Gold investors wrestle with Brexit vote in wild options dealings https: t.co ngGQnAUmzd The Brexit Vote Is the Perfect Excuse to Revisit This Song by The Clash via TIME.c https: t.co DAi7mcI3yr https: t.co aMkPOZqVXN RT rdinho3: Macron : en cas de Brexit, "la France sera inflexible" avec le RoyaumeUni EnMarche vers plus de dictature UE https: t.c Der BrexitEndspurt ist nichts f r Zimperliche: Premier Cameron k mpft um jede Stimme, Boris Johnson k sst ei... https: t.co SEqUmxtaLW But I want to see brexit .. It will be interesting to see how market react after that EN VIVO: El fin del sue o europeo? 'Brexit' o 'Bremain', los brit nicos deciden su futuro https: t.co nMV5MgOTWc https: t.co rPX1H3pghw 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST Milano Italy - London U.K. 2 negative 2 negative 47 positive Worldwi 0 negative de brum 1330 positive Online 0 neutral current location on Twitter dalam hati Amani ... awww El Mundo 0 neutral 5 negative 0 neutral 0 positive 0 negative BobLeCentri ste StWagnerAr iana MarkRJolly TwitSicherh eit Bald Iain86 PietroBjorn Kantox es mad ashleig h Tocqueville5 3 crazycatz20 13 vl n72 NKnow7 SportTalkBri an escklhen albericguigo u . GuyVerhofstadt Si le Brexit passe, c'est Poutine qui va rire Remain ALDE ADLE https: t.co BGLILxrpPC RT Good Ant Man: Wie das schlechte Wetter in GB die BrexitAbstimmung beeinflusst BrexitOrNot https: t.co 4hE0bdTsqc RT BarrySheerman: If you don't want our national values to be set by the Daily Mail don't vote for the narrowminded illiberal intolerant RT de sputnik: INTERVIEW Irrationale ngste Wiener EuropaExperte: Briten werden f r Brexit stimmen https: t.co XLI3xLSdPj BrexitOr Done Brexit VoteLeave https: t.co 1sUzLsUoaz Di che parliamo quando parliamo di Brexit? Guida alla notizia del giorno Left https: t.co vyYhMGu8Yy RT expansioncom: Los brit nicos cambian sus libras por euros y d lares antes del refer ndum del Brexit https: t.co F5EYQSHWoP RT internetought: rt'ing this as a PSA because ben still thinks "brexit" is some sort of breakfast sandwich https: t.co 0AQShPZjPf RT AlexandreLoubet: Dangers du Brexit sont connus: tunnel Manche rebouch , pluie sauterelles, re glaciaire, RoyaumeUni la d rive dans RT LeaveEUOfficial: PLEASE WATCH and Retweet and remember to VoteLeave for our independence! EUref Brexit https: t.co iAhmH51v8r RT aofxru: Brexit! ! https: t.co yQrkjHhFym aofx https: t. RT Carina3603: Brexit Britain British Exit RT RT com: URGENT: Final Brexit poll puts Remain at 52 , Leave at 48 Ipsos MORI for Evening Standard https: t.co tf8W8lUdMJ RT ShujaRabbani: All I'm going to tweet about is Brexit. If you iVoted, vote your choice in previous poll tweet. To BrexitOrNot? EUref RT Raphael Rougier: Don't go brexit my heart! https: t.co NWBZMjgegF 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:05 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST Europe 0 negative German y Cranfiel d Universi tyNr Bedford Das Netz Rhyl, Wales Cosenza , IT London, England Glasgow , Scotland Naverla nd Bel Aire, KS, USA North Carolina Paris, London 1 negative 11 negative 17 negative 0 positive 0 negative 53 neutral 2 positive 17 negative 697 positive 269 positive 14 negative 21 neutral 51 positive 1 negative KellieRoseW ick gegan1987 Agenzia An sa golub elgorbachev KeiuCrayons alexfutbol76 frankjacobs nl empresasve ritsa68 kings lunefi sh RT ArsTechnicaUK: Brexit: Brussels tech folk fear possible UK vote to leave European Union https: t.co lyI8W7AvNF by BrusselsGeek https RT RT com: URGENT: Final Brexit poll puts Remain at 52 , Leave at 48 Ipsos MORI for Evening Standard https: t.co tf8W8lUdMJ LE FOTO ANSA Brexit, la Gran Bretagna al voto https: t.co PhJv3amwcW https: t.co UWaohnZdVV 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT business: Today is the day when Britain decides on its 43year membership of the EU https: t.co vMFzBNKXst Brexit https: t.co qvMOHX RT caitlinmoran: Best Brexit piece yet, by paulmasonnews: "Real working class rebellions tend not to be run by the Establishment": https: RT CunadoDeTuiter: Lo del Brexit es algo que deber amos votar todos los europeos. Vamos, digo yo. RT AutoWeek: Brexit? 7 redenen om tegen te zijn: https: t.co YK7PeKxcYq M XICO: Despu s del Brexit, qu otros riesgos enfrentar el precio del petr leo? https: t.co znQtBweneP 5estrellas Dazebao News Sindaco di Londra: La Brexit sar un "punto di svolta nella storia del nostro Paese" https: t.co 1AM3E0wlqi RT nhk news: - https: t.co pwn3BrPkXT https: t.c 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:22 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST Ulillillysses " Mr. Brexit " 23 Jun 2016, 12:39 - CEST b escriva Refer ndum del 'Brexit', en directo 23 Jun 2016, https: t.co f7wswCEmjJ v a elperiodico 12:39 - CEST Texas, USA Via della Dataria, 94 - Roma 6 positive 21 neutral 0 neutral 0 positive 9 neutral Estonia 462 neutral Cartage na City, ciudad sin ley Almere, Netherl ands Caracas, Venezue la Paterna, Comuni dad Valencia na 119 positive 1 negative 0 negative 0 neutral 363 positive 0 neutral 0 negative nigelco75 tintodog IreneFregon ese maramagutl apig peterjitter CopiaWealt hTax Addicted4tr uth ter rob mark248236 87 ItalianoAqui la johnsmith y2k tomstanifor d JuuMantelet Not that I needed any convincing to vote Remain but John Oliver being awesome about Brexit is well worth a watch https: t.co 97f2zDSWQy RT Farmers4Britain: Don't rely on someone else's vote to change the course of history make sure you 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST go out and cast yours! voteleave b Ansia brexit 23 Jun 2016, 12:39 - CEST RT business: Today is the day when Britain decides on its 43year membership of the EU https: t.co vMFzBNKXst Brexit https: t.co qvMOHX RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. George Soros wrong on Brexit and UK economy, says City economist https: t.co tMyZc7u3bk RT Pilotos000: Brexit RT colombi silvano: Io mi auguro che vinca Brexit cosi' da poter mandare affanculo questa europa RT mundaufmachen: iVoted : BREXIT! TODAY Go to your local polling station and VoteLeave! TakeControl ProjectHope IndependenceDay htt RT RaiNews: Corrono le borse, cala lo spread https: t.co MneG4iLoWC anyone undecided leave remain brexit https: t.co SyghpUz5Ws BenMurrells it's like you have no idea of how to use Google? https: t.co 1CvDrtWEGq RT OuestFrance: Brexit. Ouverture des bureaux de vote pour le r f rendum sur l'UE https: t.co 5xePHEwlnT https: t.co qHgImrA2Pk 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST BrendaQ222 Does DumbDonald now know what Brexit is? 23 Jun 2016, 12:39 - CEST Reading 0 negative Trento, Trentino -Alto Adige where internet speed is a joke Bristol, England West Midland s Wolverh ampton , 48 positive 0 negative 51 neutral 5076 positive 0 negative 1 negative 1 negative UK Hull 211 positive Italy 4 neutral Exeter tomstanifor d.co.uk 0 negative 0 neutral 6 negative NYC 1 negative CunadoDeT uiter mariamarfer FunGuerillaz AshBarratt1 984 tanerozarsla n glenmorris5 6 RobkNews vlasinac aeon456 agrapeplace 2b yleuutisvaht i James J M arlow marciehatte r AlexJohnson 1990 pedro crd RT PepeCavite: CunadoDeTuiter seee...y si gana el Brexit y se piran que se lleven tambi n su idioma de nuestros colegios URGENT: Final Brexit poll puts Remain at 52 , Leave at 48 Ipsos MORI for Evening Standard https: t.co Yc7iqlHRCA via RT com RT jfarchy: Today's viewing... John Oliver on Brexit for some much needed sense and humour https: t.co dJayqm7KLP RT jenny wren 01: Vote cast ivoted to LEAVE the European Union euref Brexit Brexit co kusunun ya anmas ok uzun vadeli olmasa da zay flayan ABD b y me tahminleri geli en piyasalar n en nemli kozu olacak. RT LouiseMensch: BBC News Suppressed British Drivers Attacked in Calais By Migrants Before EUReferendum https: t.co g02cPNdyKw Brexit RT patent: patents in NYTimes: "Democratic Party, Brexit, N.B.A. Draft: Your Thursday Briefing" by ADEEL HASSAN https: t.co pRv1gINPaJ RT LeaveEUOfficial: Today, we turn our backs on a failing political project and reenter the world! EURef Brexit https: t.co L6kwJTW7A2 RT TelePolitics: Polling station ordered to take down Impartial England Flags https: t.co 5JNHoTuBlG EUref https: t.co A53QcMXqiM The latest Heard It Through The Grapevine! https: t.co DzijcX0JsG wine brexit muusisilta Matias, voit tilata Uutisvahtisovelluksesta brexitnotifikaatiot. Saat notskun aina heti kun uutta. https: t.co F9plQTG3AC Another reason to vote Brexit https: t.co lUO7wUqfK7 RT SteveMaggs: A typical BREXIT voter? 'Only hate keeps me alive....' voteremain doctorwho deadlyassassin https: t.co bNBY0urQoH RT Nnamdi ES Okoye: VoteLeave for my children and their families to prosper Brexit https: t.co fbnIW2sDle Ser a muy interesante tener la opini n de Maradona sobre el Brexit. 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:39 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST Espa a 1 positive Venezue la Location : Right Behind You ! 0 neutral 7 positive 6 positive istanbul 0 positive Windsor , Ontario 198 negative 2 neutral 207 positive UK 4 neutral Virginia 0 neutral London and Jerusale m Worcest er Patagon ia Argentin a 0 neutral 0 neutral 1 negative 112 positive 0 positive DoGeFa Ga ia1 AlexiaTaub thepalebloo d pnani456 RT cestrosiOff: Et des milliers de votes par correspondance se perdent https: t.co NWY0t6DBhr Brexit Walter VH pierrejovanovic Nigel E comunque, ultimo sondaggio: "Remain" in testa al 52 ... brexit Avant une visite en Ecosse, Donald Trump se dit favorable au Brexit Le Monde https: t.co jS8JXPsQTe RT Carina3603: EURef Brexit RT AJInsight: Too Cheap Brexit has hammered FTSE so hard 16 of 100 stocks yield 5 ... not even 1 DJIA stock 4.5 . Buy UK https: t. 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST 23 Jun 2016, 12:56 - CEST Hunter's dream 1 negative 0 negative 0 positive 48 positive 2 negative jfp10 Do the Math: An Economist's Guide to Brexit Bloomberg for iPad https: t.co yNnyDSfWQm Agitpress Droht heute Nacht der Brexit ? https: t.co YnKtA1CaBN https: t.co 0I7vuOvvUc ArielleABerg Honestly, is it super weird that I can't sleep because of er brexit? Like it's 4am. I couldn't even focus on Kung fury and I love that shit. HainesWatt Today is a once in a generation referendum what will sLds steph arella no rielcano Stourbridge News Actus Cultu re you be voting for? EUReferendum Brexit RT washingtonpost: What is Brexit? The complete guide to Britain s E.U. drama for confused nonEuropeans. https: t.co UvSTeRLYKJ Puedes leer los ltimos an lisis de ignaciomolina sobre Brexit en nuestro especial: https: t.co hZun5KJOAa https: t.co Y4uAB3ylYp Brexitbacking Dudley MEP targeting the undecided in final push for votes: BREXITbacking Dudley MEP Bill Eth... https: t.co acfM7n9Fj3 Le Brexit, un suicide pour Emma Thompson et Alex Taylor https: t.co HoqaRj5TBr culture 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST T: - 0.18838 9,- 78.4876 49 Leeds, England Santiago , Chile Madrid, Spain Montr al, Qu b ec 0 positive 0 neutral 0 negative 0 positive 17 negative 0 positive 0 neutral 0 neutral zainaconda Iamthetoec utter tassosbiliour is KazzJenkins WorldGarde ners TerzoDiritto korusconsul t edpeningto n Actus Cultu re Andym6769 neilwalton2 6 m0rpheouz nareshdixit8 2 Al roooh2 Brexit referendum today. if Boris Johnson's (UK's Donald Trump) VoteLeave wins, Cameron will step down.... https: t.co GZtMReujdT RT golub: 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT Kathimerini Cy: Brexit referendum https: t.co k6ryPkE7LQ https: t.co D7bXG09pNY I wonder if IDS was carrying out a cunning plan when he left the DWP? Hoping for more power if Brexit won? RT WorldGardeners: Together we can make Britain 'Great' again by VoteLeave today defying all scaremongering Brexit LeaveEU EUref RT La7tv: Claudio Borghi (Lega): "In una democrazia il popolo che deve poter scegliere, non i tecnocrati." Brexit https: t.co rYN5aLg The latest KORUSCONSULT t glich! https: t.co T8SFcvQMzE cloud brexit 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST dril when will your reveal your opinion on Brexit? 23 Jun 2016, 13:13 - CEST Plus de 96 des artistes britanniques oppos s au 23 Jun 2016, Brexit 13:13 - CEST https: t.co SF1b0nJsff culture RT WSJ: France slows eurozone economic rebound amid Brexit uncertainty https: t.co ftm7FhBcnk RT rwainwright67: Same view repeated time and again by European as well as UK security chiefs https: t.co MkY7UfZODC RT NovaShpakova: Wishing you the very best UK you're just yards away from the finish line, Brexit! From your neighbors 'across the pon The latest The Naresh dixit Daily! https: t.co u5ZJqKDy0k Thanks to DilipGhoshBJP being2shubham Vijendradt brexit brexitornot RT CNBCArabia: https: t.co PltykXQU9I CNBC BREXIT 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:13 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST ...far from the maddin g crowd 0 positive DIRTY 170 positive south FLA Athens 6 neutral 0 positive United Kingdo m 2 positive Roma 4 negative Otterfin g London, England Montr al, Qu b ec Norther n Ireland Fleet, England 0 negative 0 neutral 0 negative 15 negative 4 neutral 3 neutral Bengalu ru South, Karnata ka 0 neutral kuwait 5 positive Monic Laar a CynthiaStillB B Bismarck N L Ibe ch05 bigchap57 Fitness4Lon don ToGovern unitaonline satirist indi an silvia gianc ola FinanzLinks Asia BeThisBellB and Melody1910 64 Endyf KevnRojjs Juanro1212 Pese a lluvias, contin an elecciones sobre "brexit" en Reino Unido https: t.co WEKSEgkGX5 RT tanker070: To my British friends: "Today it's now or never" It's time to liberate your country from the EUSSR! Brexit VoteLeave EU RT JBwebpm: If you are unsure of today then please think carefully for tomorrow Brexit https: t.co k7X8ERMefp RT chuksoleka: NetworksManager While David Cameron allows UK citizens freedom to decide on Brexit ;he supports Nigeria killings of Bia RT DavidJo52951945: RT Please take a pen to the polling station with you tomorrow don t use a pencil Brexit https: t.co OYnrUyxu95 CambridgeGreens Wetherspoons guy is not getting another penny of my money ever! TimMartin Wetherspoons Brexit How will you vote on Brexit? Find out how other voters say they will https: t.co cgXiYASiMu https: t.co nIRGPNomve Brexit Urne aperte nel Regno Unito. E spunta un nuovo sondaggio https: t.co zVnPzohyQo RT tcmccarthy : Remain voters are pushing the UK off a cliff. Vote leave. Brexit https: t.co xuVzGKkmg4 Ottimo post di Licia Corbolante Brexit, Bremain e la crasi dei media italiani https: t.co e6KF8R2w24 terminologia terminologia xl8 Sensex Closes Above 27000 Ahead Of Brexit Verdict; Nifty Up 66 Points: Indian shares rose sharply on https: t.co xBTFzEtxCQ RTT EU referendum: Leave Remain make final pitches day before Brexit polls open https: t.co WADkyUeiCB RT Welt im Chaos: Auch interessant: Der Brexit ist laut ZDF eine Entscheidung ber die "Einwanderung".Von "Fluechtlingen" redet inzwisch Our friends on the continent showing solidarity with the UK, let's not turn our backs on them! VoteRemain https: t.co vCpnPiZsp7 G7 podr a emitir comunicado si gana "Brexit" https: t.co P3ry9PH7V0 RT Bestinver: Beltr n de la Lastra escribe sobre Brexit en elpais economia https: t.co BYH9dIUK0t 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST 23 Jun 2016, 13:30 - CEST Jalapa, Tabasco The Netherl ands 0 neutral 4 positive 5 negative 16 negative ulster 631 neutral London, UK The Boardro om, London 0 negative 0 negative 0 positive India 1 negative Italy 0 negative Eureka, CA 0 neutral 0 neutral 14 neutral UK - Bath Portsmo uth 0 negative Tabasco 0 neutral Madrid, Espa a 4 NA ron payne1 1 SocialKickm e baldonedo6 brenden an deswr vabybabnsu u AndreTome r ReImagineG as RT LeaveEUOfficial: PLEASE READ! 4 key arguments made by StrongerIn were demolished last night. Know the facts before you vote! EURef ht The 'Brexit' referendum and 'Game of Thrones' aren't all that different https: t.co zeGHiXC2yx RT danielmateos: Brexit o Bremain...mucho en los mercados financieros en juego. Me acaban de decir que hay Hedge Funds costeando encue RT ShujaRabbani: All I'm going to tweet about is Brexit. If you iVoted, vote your choice in previous poll tweet. To BrexitOrNot? EUref RT ShujaRabbani: EUref is still trending. What's your iVoted choice on Brexit? To BrexitOrNot? Vote on previous tweet. EUreferendum RT RaiPortaaPorta: Stasera alle 21:25 su RaiUno Speciale portaaporta Brexit https: t.co GPNLZTCFOe RT FraserNelson: UPDATE: Chances of Brexit now down to 15 according to The Spectator's live odds tracker: https: t.co IWshaJnO9l https: 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST szekelyf Rem lem, gy is marad. https: t.co pfjV63oCdS 23 Jun 2016, 13:47 - CEST coldfusionM Exactly what the brexit supporters want you to do. 23 Jun 2016, BE Trade everything for a nebulous future for your 13:47 - CEST Twi Terr Eric Clemen t children. Idiots. https: t.co TZcPCMwhll RT V of Europe: Brexit spreads across Europe: Italy, France, Holland and Denmark ALL call for referendums https: t.co AFwuc5icLp https: RT francetvinfo: QUIZ Ces people anglais sontils pour ou contre le Brexit ? 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST Washing ton 236 neutral 0 negative 2 negative 658 positive Nevada 217 negative 4 positive London and everywh ere else 10 positive Budapes 0 positive t London 0 negative Noord- Brabant, Nederla nd Montr al 260 neutral 2 negative john geoffr ey PeterWendt Where Testez vous sur l'actu https: t.co HwFTDxUckS https: Another good video with all the info about what a Brexit would entail https: t.co 6b31Ag1z6O Brexit, for the WIN! Vote LEAVE 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST London, UK Coastal NC 0 positive 0 positive miss s b berimaamo 1 HarridgePik e RT thalestral: Frustrated to find a Lib Dem leaflet through my door promising that Brexit would lead to Scottish independence in 2 years. So UK will rather be slaves to america than be a brother to their european brothers? brexit RT TelePolitics: Polling station ordered to take down Impartial England Flags 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST Brighou se, West Yorkshir e the netherla nds North Yorkshir e 1 negative 0 negative 16 neutral Paulxxxxx Hook Echo9 ASimpsonEY barbuho SharanBurro w MaryJurjo Tierdra festivaldepa ro2 Funkybanan a75 LeeRoy5150 anthonybilja na Ciccio7 Nacho Pose C FX A https: t.co 5JNHoTuBlG EUref https: t.co A53QcMXqiM JTeesdale1 Hi James. "Its looking excellent". Do you know something I don't know? i.e., that is excellent news for Brexit? I say go and good riddance Brexit On eve of defining British EU referendum, rivals race for final votes https: t.co 4sA0tck0pk Reuters RT golub: 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. Si se van de la UE a ver a donde van a mandar a sus hordas de borrachos!! Brexit RT equaltimes: Is voting for Brexit worth the risk of losing jobs, rights and wages? https: t.co gq0NfyLufr https: t.co w512UNXNpr RT elconfidencial: Os recordamos que el Brexit podr a hacer que Espa a aporte m s dinero del que recibe en la UE https: t.co ranLXjYCBp intdemon Any new applicants to the EU do. I mean that if Scotland broke after brexit and negotiated to rejoin. RT BrainandMoney: Forget BREXIT Just Trade with Trading levels ,Nothing else. https: t.co 0s1EbRUxzN https: t.co payjP6emfY RT jackson heather: Whatever your gender,ethnicity , social mobility,sexuality please remember to vote today ..whether remain or Brexit Just placed my vote Brexit as long as you stand by your conviction there is no right or wrong answer BritainDecides RT RT com: BREXIT outperforming REMAIN but UK polls point towards Brussels. Live updates https: t.co tf8W8lUdMJ RTUKnews https: t.co RT sole24ore: Brexit, ecco come si sono schierati i giornali inglesi https: t.co HADAquGHO1 https: t.co lFPjSGRY5S RT CunadoDeTuiter: Lo del Brexit es algo que deber amos votar todos los europeos. Vamos, digo yo. RT ashimizu1729: 7 10 (Turnout Brexit 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 13:47 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST UK 0 positive North Alabam a Winnipe g, Manitob a Valladoli d, Castilla y Le n yorkshir e, uk Luton Town Ragusa Italy 0 neutral 373 positive 0 negative 1 negative 11 positive 0 negative 39 negative 4 negative 0 negative 39 negative 14 neutral 286 positive 5 neutral PieroLatino UlaLaParis naqiebhosse ini RT suffragettecine: Together is better nobrexit Brexit BrexitOrNot https: t.co EAumVEWDje RT otr press: El icono del d a hberdichevsky https: t.co lW9Ou3CokC https: t.co zJjlmc3mr9 RT JamesMelville: The Brexit campaign doesn't have any politician that would make it to the end of a Willy Wonka factory tour. KiwiKafir RT cuzzinharry: TheTimes today! Brexit . https: t.co hD5AceSzQ8 Daley4444 RT LeaveEUOfficial: 'I'm mixed race, female, leftwing, a 19yearold student and yes, I really am voting for Brexit.' EURef https: t. omnivorist SnowFreeTh inker animalister ivannamelni k andrzejman ka leooangelin e SharonBowl esUK Avv Natalin a 1stClown Considering the weather in the South East, it looks like The Almighty might have decided to back Brexit RT LouiseMensch: Roses are red, violets are blue, If you love Europe But not the EU VoteLeave Brexit and TakeControl https: t.co LR90K RT HubCrowdfunding: In or Out? It is ALL About the Brexit. Jeff Lynn of Seedrs Responds https: t.co zNpDC6nLou crowdfunding startup WSJ Brexit: https: t.co 1iGqOFURXB Thunderstorms and flooding cause polling day travel disruption live https: t.co 1xw1OjH2j6 RT DonChampionTV: Eager to see the results of the Brexit vote today. RT TheEconomist: Brexit in brief: the 17 things you need to know before you vote today EUref https: t.co KKdYKSlpsq https: t.co iHJqxs RT Internazionale: La prima volta della Brexit, il 5 giugno 1975. Le foto: https: t.co 0CdoOzATUX https: t.co f8VQHmsP1x FOR FUCK'S SAKE WHAT MORE DO YOU BREXIT BASTARDS WANT? 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:04 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 11 negative Paris 2 neutral Cardiff 3624 negative New Zealand Goldtho rpe Glouces tershire UK 21 positive 216 positive 0 negative 454 positive 1 negative 0 negative London, 0 negative England naples fl 1 positive UK 18 neutral Crotone - Kr - Italia England. Europe. 15 positive 0 negative craigorius IzzyTheRat1 TheOlifant PepA 2907 https: t.co ijpppaFNC0 sniffpetrol Although maybe the most Brexit car is a Tesla coming out of autopilot. "Take control". 23 Jun 2016, 14:21 - CEST 0 neutral aaron bwfc EEA FrozenLL Marcos77ru eda dfpamk jacobinmag ForexAnalyti cs1 coachbryer AndreeBaril SoyEdds DeCatherin retweetingl es f0ster BWPublicati ons RT TheCraggus: Thanks to both sides of the EUreferendum campaign, Britain is this guy. Simpsons Brexit BetterIn https: t.co JyXLZI5L6i Freedom of movement enables students from all over the UK EU to study abroad via the ERASMUS scheme Brexit would complicate this (1) RT DessinsSeldoon: C'est aujourd'hui le vote du Brexit BrexitOrNot https: t.co hbklugHl3i https: t.co ZSlIC2r9wI RT norcoreano: 2016: El brexit vence, Reino Unido sale de Europa. Inmigrantes ilegales espa oles saltan la valla de Gibraltar para comprar RT ShujaRabbani: EUref is still trending. What's your iVoted choice on Brexit? To BrexitOrNot? Vote on previous tweet. EUreferendum Rightwing forces are leading both sides of the Brexit debate. https: t.co qfLZMNINmQ AUD 240 stepping up nicely not just Brexit TheseLinesWork Please RT https: t.co aHF8jDxKZd RT steveruffley: After all the brexit hype, it comes down to this https: t.co atoytn9hIU R f rendum Brexit: le RoyaumeUni retient son souffle https: t.co fulnwD6Txd via LeDevoir Por si quieres hacer apuestas en los mercados antes de que pase el Brexit No brexit https: t.co 4VBNcrRIhL RT jeanlassalle: Et si au fond le Brexit tait le d but d'une nouvelle re pour l'UE ? Une prise de conscience BrexitOrNot https: t.co RT 2geckosjavea: How many people remember the 1973 Brexit referendum? 67 for 'Remain'. BrexitOrNot RT MylesUdland: Brexit supporters are urging voters to take pens to polling stations over fears of an MI5 conspiracy https: t.co UKL0H83M RT JohnKremer: Social media companies really want you to know that it's 'Brexit' voting day: LONDON On the day of the his... https: t. 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:21 - CEST Bolton 310 positive london UoY 0 negative 15 negative M laga 76 negative Pennsyl vania New York City United Kingdo m Espa a Madrid Bretagn e , France Los Angeles 494 negative 1 neutral 0 neutral 1 negative 0 positive 0 negative 18 negative 1 negative 1 negative 1 positive buzby69 MutedOpti mist chopone92 JordieStedz I've been an done the decent thing Brexit bottombox RT BarnsIey: Brexit What an overweight Barnsley lass does when she sits 23 Jun 2016, 14:21 - CEST 23 Jun 2016, 14:38 - CEST St Matthe ws,Leice ster,EN GLAND 0 neutral Oxford 302 positive on a white plastic garden chair. barnsleyisbrill nickvsx Mgt0wer doggywoggy dooda PH RG rosiewhiteh ouse phy alysia Apparently people of my gen are inclined to Brexit appeasement was wrong in 1930's wrong today. Vote for against fear vote Remain RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT GraTire: The People's Convention want Irexit Referendum supports Brexit. We ran out of flyers on Saturday, big demand. https: t.co RT OuchikhKarim: DDay. quand le d barquement de la d mocratie r f rendaire sur les plages de France ? Brexit RT b judah: My POLITICOEurope ReferendumRoatrip rolls into Romford. Rage, Romanians and rampant conspiracy theories. https: t.co ZMFf4L RT HappyLionTweet: Song for this important day: Should I stay or should I go now? 23 Jun 2016, 14:38 - CEST 23 Jun 2016, 14:38 - CEST 23 Jun 2016, 14:38 - CEST 23 Jun 2016, 14:38 - CEST 23 Jun 2016, 14:38 - CEST 23 Jun 2016, 14:38 - CEST Tweetla nd 0 negative England, United Kingdo m 5385 positive Earth 14 negative Monaco 17 neutral London, England Silicon Valley 8 negative 37 negative Brexit MarketEdg e MT PunKandStuff TheClash https: t.co Ln1q Bedalehall if Brexit vote leave does that mean our colleagues from the continent can no longer drink YorkshireGin?? carolinemace0 23 Jun 2016, 14:38 - CEST myramyre Oya, skrng ya referendum brexit 23 Jun 2016, 14:38 - CEST ster69 FactChecking Brexit: The Conclusion by 23 Jun 2016, hughhancock https: t.co vNTZyEHHMp 14:38 - CEST samuelabas cal96 GeeMAn 08 21 aiolozil RT norcoreano: 2016: El brexit vence, Reino Unido sale de Europa. Inmigrantes ilegales espa oles saltan la valla de Gibraltar para comprar 23 Jun 2016, 14:38 - CEST Brexit . How will it end ? https: t.co 56S8dmBIeq 23 Jun 2016, 14:38 - CEST RT albertopradilla: No entiendo por qu los 23 Jun 2016, espa oles no est n votando sobre el Brexit si es 14:38 - CEST algo que les afecta tambi n a todos. USA, UK, Brasil, Switzerl and 0 positive surabay 0 NA a Obscure 1 neutral body in the S-K system Espa a 191 negative Everywh ere Zizur Nagusia (Navarr a) 0 neutral 37 negative kevinbantz GlendaAhor a msaunders1 35 PeopleEngin eer moore patri cia You're on your own SPX FADE BREXIT and buy VIX options https: t.co iWNsAx3lqY Buenos d as! Brit nicos deciden su futuro y de la Uni n Europea referendum Brexit https: t.co zlW0UdFkDW 28O0ioe https: t.co NNdoG0uAOu Britain is too great to vote for Brexit! Check out the important opinion piece by Avaaz ED Ricken Patel: https: t.co XJW305iFSi Sterling Rises to Record 2016 High During Brexit Vote https: t.co GKyP8JkJAI TIME https: t.co SLASIRubg8 RT BluegillRises: Britain has given the world so much and must stand tall VoteLeave 23 Jun 2016, 14:38 - CEST 23 Jun 2016, 14:38 - CEST 23 Jun 2016, 14:38 - CEST 23 Jun 2016, 14:38 - CEST 23 Jun 2016, 14:55 - CEST Lake Havasu City, AZ 0 neutral Atlanta 1 positive 0 positive 0 positive 13 positive IMAPictures fnalcountd0 wn RedDave14 Repeal the Act harshkenz ShreyaSonu Holic Ashok2038 rpvega Z24nl DGTrading1 01 Brexit EUref IndependenceDay Nigel Farage htt RT IntYogaDay: The Sign Of Brexit How May Effect UK's BankingSystem, See From This Lined Up In A Que Today Itself ;) BharatSolar https: RT BlitzQuotidiano: Brexit, gli antiEuropa dicono voto truccato dai servizi segreti https: t.co tNcLx2kvRi RT brian bilston: Here is an EU Referendum ballot paper which I have converted into a poem. https: t.co QWTdQGjbEl Brexit bremain RT exsacerdotal: Dear Remain with love from freedom loving people everywhere Brexit VoteLeave https: t.co t4qoBY7pm3 RT iamsrk: I c this trend in News where leaving of someone or something is headlined as Rexit or Brexit.So if I leave from sumwhere am I RT iamsrk: I c this trend in News where leaving of someone or something is headlined as Rexit or Brexit.So if I leave from sumwhere am I RT khjelmgaard: I'm holding out for the BunniesAgainstBrexit https: t.co eqKT5DjMKw EUref Very interesting socialmedia sentiment analysis of Brexit EUreferendum EUref https: t.co ZvCZpiHRlL LIVE: Brits EUreferendum, wel of geen Brexit: James Bond is proEU, Basil Fawlty gaat ... https: t.co Gu0xxwPn3y https: t.co hvyFQpyJn2 Equities pretty quite here ahead of Brexit ...good riddance, 2am can't come soon enough 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST Delhi Mumbai Kolkata Chennai 3 neutral Piddinia 2 negative i 51.9137 42,- 8.46060 2 Karachi, Pakistan 0 negative 25 positive 3661 positive 3661 positive Nepal 4 negative Dubai, UAE Amsterd am, Netherl ands New Jersey 0 positive 0 NA 0 negative CARLOPGUZ MAN1 sputnik jp hitech guru RT AnonPress: If the UK media was more concerned with telling people the facts rather than what to do people might be a little less unsure BREXIT https: t.co b7UF2L4nyi https: t.co 6HiJu7ymsh Brexit Would Leave Germany Stranded Against Freeloading South 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST Xalapa 30 negative Toronto , Canada 0 positive 0 positive JakeNicholls 45 David52Sto ne mamitamu mu choisser MyrvangVer onika bookishspo onie JoeGandelm an frenchfrill Magu men dez Col Irreleva nt Laia 5SOS canberra so ul cbchh Mephist0pa ulus AurelieMela nie https: t.co cyj0Y1FD5R RT LouiseMensch: TNS poll likely voters VoteLeave 49, VoteRemain 42 Brexit ProjectHope https: t.co ut0lz4xjtP Yep old Ben got that right Hope Britain gets it right today Brexit MAGA https: t.co LAnStX8GHX RT todonoticias: Brexit: Ir a votar con su perro y sacarle una foto, una extra a tradici n brit nica https: t.co 910VpBeLCB https: t.co RT PatVPeters: Brexit : Decision Day https: t.co V0OQEN76FC RT RT com: 'Hysteria and halftruth': Refugees will not disappear whatever the Brexit vote outcome charity https: t.co w0Ed7EEgTG RT Avaaz: Let's make sure we're on the right side of history. Choose Love VoteRemain. EURef Brexit StrongerIN https: t.co hD6bWADGWA Brexit: good riddance or a new Europe? https: t.co F0bma0lfQs RT nigelshortchess: The most vicious, divisive, mendacious campaign will end today. Whatever the outcome, many people in the UK will be an RT El Universal Mx: QueNoSeTePase Encuentra aqu todo lo que debes saber sobre el Brexit https: t.co NDdE19pDEn RT WooTube: I had reasons to vote for Brexit but they were massively overwhelmed by a strong need to crush racism economic ideas of the RT assemblea: No referendumNo democracy Brexit https: t.co 6Rsn9rrsof Brexit Poll Shows 80 Of Americans Think Britain Should Leave EU https: t.co Yq75nKTGa9 RT Billdit: CBCMorningShow cbchh Brexit "With Or Without You" https: t.co c9r83HZ7le RT ElizabethHurley: Vote tomorrowwhatever your persuasion. I'm for Brexit promise to neither gloat nor whinge. But VOTE! https: RT Daniel Portman: https: t.co hE3KJF1NFn Being put on the same list as James Bond and Hermione Granger made me feel quite cool. Remain 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 14:55 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST Ipswich, UK Georgia, USA CABA Argentin a Earthlin g 232 neutral 0 positive 12 positive 1 neutral 5 negative UK 234 negative San Diego, CA 0 negative 12 positive 5 negative Europe 1 negative Clevelan d, OH R gio n Parisien ne 41 NA 0 positive 1 neutral 3424 negative 9 negative clocktowerc a BackofficeG P TeessideWo es laublauDK noralekzand r rynitw fabiencham blanc twhite4thec lub tyrelle123 Flemington4 55 ciuffetellima ss kabarberita Ilrestodelcaf fe "World Leaders on 'Brexit' Vote" by THE NEW YORK TIMES via NYT https: t.co Jn7BKIfbOe RT burgercomiteeu: Come on dear friends in the UK. Lead by example. Leave the EU! We are hoping for a Brexit! Then a Nexit. jeremycorbyn twofaced hypocrite. How much is GoldmanSachs paying you? VoteLeave Brexit RT yo ELOQ: Please Britain vote to stay w us so we can hang and chill and have good old fun Europa times Brexit Bremain https: t.co RT abc es: Los ltimos sondeos dan la victoria a la permanencia de Reino Unido en la Uni n Europea https: t.co OVpomIqCst Brexit "World Leaders on 'Brexit' Vote" by THE NEW YORK TIMES via NYT The New York Times https: t.co NQ8PalSwDn Brexit Harlem D sir (Affaires europ ennes) sort de son silence: "Hollande verra Merkel avant le Conseil europ en de mardi" ministrefantome RT brexshit: I'm voting Brexit tomorrow because the EU want to replace our British Jesus with Zeus, sell us cheese with holes in they s RT AMTrump4PRES: This is your future, believe it or notIslam NEVER invades to be equal but 2 DOMINATE! Brexit VoteLeave BanIslam https RT SputnikInt: If Britain goes: Three possible scenarios of Brexit https: t.co HrVGs9xLrx BrexitOrNot https: t.co ESLVEWShtD Brexit: un d a de perros para votar https: t.co OXnbvwHwlV BEI katakan Brexit tidak berdampak langsung bagi Indonesia https: t.co VJ0H3rYgsJ Brexit? E quando mai ci sono entrati in Europa? https: t.co Fu5uPYCFWw https: t.co i8oTTTAC0h 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:12 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST smartaura CNBCi Verdict is Brexit 23 Jun 2016, 15:29 - CEST Barbara531 RT AMTrump4PRES: As muslim population 23 Jun 2016, overwhelms all of EuropeUK has a chance 2 take 15:29 - CEST control. Will they have the courage? Brexit https: latikia CNBCTV18Li ve UK voters head to polls for Brexit referendum by via Stars and Stripes https: t.co 5PhylBEDDn Brexit Voting Underway: DAX 10194.68 1.23 : FTSE MIB 17772.83 2.60 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST Nederla nd Teessid e copenha gen v Santiago de Chile 0 positive 16 positive 0 positive 1 negative 42 neutral 0 neutral Paris 0 neutral Audtrali a 2 negative 21 positive Sydney, New South Wales 13 negative CARACA 0 neutral S VZLA South- 0 negative East Asia Milano, 0 negative Italia, Mondo, Ovunqu e Worldwi 0 NA de Virginia 55 positive 22 km SSW of nowher e special 0 neutral India 0 neutral mainda knicks148 TexanForTru mp angelavaldo wine dismantleeu ninobizzinti no EliasPalai 404err0r1 TanjoHQ GMehrasa AllAleLucy FreedomWri ter69 heysarahgra y Vasaraham mer SWStrongerI n phoenix ko m forexDailyT A Sleepless night ahead! Referendum results guide: when to nap and the places to watch https: t.co X1xEBjWYAp brexit referendum alerts RT barryap1: For Brexit Day, let s play my favorite game: Zoom in on a random patch of the UK and laugh at the place names. https: t.co O Watching from across the pond! Vote out! Say NO to NWO! Let Turkey have your spot! Brexit VoteLeave VoteOut RT Emol: EmolTV Las claves para entender las consecuencias del Brexit https: t.co g2qZ6mLxsr https: t.co hnn7On8iyo RT FeistyDeanne: Another two votes for Brexit that felt good. iVoted VoteLeave TakeBackControl https: t.co v8D1gRGmWX RT repubblicait: Brexit, i Cinque Stelle scaricano Farage: "L'Europa si cambia solo restando nell'Ue" https: t.co oQI7GhahH5 21 " ".. brexit RT maxkeiser: Good morning. Chance of a Brexit is 0 . The idea that Brits step off this gravy train is absurd. Go back to sleep. johnkass48 Halsrethink Prediction markets have stay at 80 . It's not close at all brexit RT AdriaanBeenen: De zwakste schakel in de democratie is de onwetende burger. Geen Brexit. How Europe will break on Brexit according to POLITICOEurope https: t.co Hiry0pTYRS via RT Schuldensuehner: Final Ipsos Mori Brexit phone poll just published shows Remain at 52 , Leave at 48 vs Poll from Jun16 had Remain "Brexit is propelled by the same vague antiimmigrant, nationalist sentiment that motivates ... Trump voters." https: t.co wk5sfUBHk0 RT DavidJo52951945: Stuff it up your Juncker https: t.co Rh7EBBLEch RT BBCCornwall: ? Cornwall has benefitted hugely from EU fundswill a postBrexit government maintain same levels of support? EURefSW Im phoenix Studio spricht Sonja Fuhrmann mit Holger Gei ler YouGov DE Tanja B rzel FU Berlin 16h Brexit https: t.co jgqqmMnYX4 FTSE: Global Stocks Jump as Brexit Odds Tank https: t.co Wv2Sm7SuCb 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:29 - CEST 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST T: 52.1918 82,0.12 4641 New York 0 neutral 333 positive God Bless America 0 positive Chile 3 positive Reggio Calabria New York, NY Nederla nd Brussels , Belgium Austin, TX 12 positive 13 neutral 0 neutral 63 negative 0 negative 1 negative 0 negative 45 neutral 0 negative 92 positive 3 positive Bonn 0 neutral 0 neutral Cristina Cus co aspland86 ha43zu Trev Forres ter meifan0shiz hong vmorillo asif AU bebe dbenie BrendaPach ecoP AnnaSophia TOPS Goita! El primer que m'han plantufat avui nom s arribar a la City (previa pregunta, of course) Brexit https: t.co rNWzzXij5k RT Wotamoron: Us at moron think all mp's are all a waste of time but here is our fav Brexit https: t.co rydH1v8YN2 RT nhk news: https: t.co IPb62D4Vub nhk news https: t.co KLyKnT5vhi 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST The question is In or Out LeaveEU Brexit StayIn 23 Jun 2016, 15:47 - CEST Brexit 23 Jun 2016, 15:47 - CEST "Quiz: The Brexit Vote Is Here. How Much Do You Know?" by STEVEN ERLANGER and HANNAH OLIVENNES via NYT https: t.co 7UCIEqGJzQ Oh shit. Brexit BrexitOrNot VoteRemain https: t.co Zg3z6FmR59 UK Brexit VILE Billionaire Open Borders Funder Soros Tells Britain To Stay In EU Or Else For SOROS VoteLeave https: t.co GNWPqHLcHT RT MarketWatch: Stocks in rally mode as Brexit vote gets under way https: t.co UyUgxRNBgu RT eleconomista: Con o sin Brexit, la Uni n Europea no ser la misma... Te decimos por qu : https: t.co YAaaBaSdmU https: t.co 7pCfC4U3 RT Italians4Trump: God Seems to Be Voting for Brexit Breitbart 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST Sarri - Barcelo na - Catalun ya 0 positive England 83 negative 138 negative England 0 positive 0 negative En algun 0 positive lugar dla Mancha creo LON DX 0 negative B DAR NBO Proud 0 positive Auburn Tiger. War Eagle! NY 11 positive Mexico city 4 negative Toronto 11 positive Choodleum ma GOD WE NEED YOU AT THIS MOMENT! VoteLeave Leave Brexit EURef https: JohnClarke1960 YourMrBumbles Born in London in '32 I soon learnt who could be trusted who could not. Brexit leaders r not to be trusted. 23 Jun 2016, 15:47 - CEST Cornwal l 0 positive m0nstermas hh ekanderson happyburke an iMillasTalk RT MarshallElla: brexit voters are the type of people who go on holiday to Spain and request a full English breakfast everyday. RT FPA ORG: The Brexit vote is today. Here are the arguments for and against remaining in the European Union in one chart. https: t.co z RT iowahawkblog: "I want you to fire me." DanHannanMEP gives a superb Brexit Leave pitch at Oxford https: t.co HtEUuB4dC0 RT ronaldlaessig: In Gro britannien hat die BrexitAbstimmung begonnen. 46,5 Mio B rger haben sich registrieren lassen und k nnen bis 22 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST 23 Jun 2016, 15:47 - CEST scottsiepker Do you find the term Brexit annoying. (I vote yes!) 23 Jun 2016, 15:47 - CEST NerdElert if we get the expected Brexit Stay vote today...which we will know about 3am tomorrow EST ... smallcaps will explode tomorrow imo 23 Jun 2016, 16:04 - CEST Shockster67 iVoted Brexit Leave 23 Jun 2016, 16:04 - CEST He Has Fail brexit https: t.co fi1sZqi1PV 23 Jun 2016, ed 16:04 - CEST hon1nbo RT golub: 'Brexit' to be followed by Grexit. 23 Jun 2016, Departugal. Italeave. Fruckoff. Czechout. Oustria. 16:04 - CEST Finish. Slovakout. Latervia. Byegium. rclaessen HBEisen Ccolmar EaZyForm roxylovesluc y CyberActual ite hansbos No conspiracy : BREXIT trademark registrant on using IP to defend political discussion World Trademark Review (s https: t.co ZXBIefJW8I Traders eye big opportunities after Brexit vote HedgeFunds Brexit UK EU mdc https: t.co MTqjmVrsxv Internacionales Inmigrante china a favor del Brexit porque su "empleado espa ol siempre est dormido" https: t.co 7OphsSDL7j Stephanie Flanders beim Handelsblatt: Ein Brexit w rde die M rkte l nger verunsichern https: t.co wHjrrvrDBn ElianaBenador dawngpsalm63 . Please Brexit!!! It's their last hope. https: t.co pNoo9coPeh Lib ration.fr: Un Brexit co terait 1 du PIB aux Russes https: t.co 7rQcSEbyd6 RT DavMicRot: Brexit down to 18 , lowest likelihood of leaving since PredictWise tracking started 1 1 16. Also, Pounds just hit yearly h 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST Munchk in land Atlanta, GA Toronto , Ontario Des Moines, Iowa Yorkshir e 127.0.0. 1 Cologne , German y New York, NY En la v a 14 positive 1 negative 5 positive 12 neutral 0 negative 0 negative 0 positive 0 negative 1776 positive 0 neutral 0 neutral 0 neutral Augsbur g German y 0 negative Indiana 0 neutral 52.2297 8641,5. 458034 5 0 negative 9 negative Seren Dipit y37 johnny mac jeremynwal ker bolsamania JF Luc Noticias Inmigrante china a favor del Brexit porque su "empleado espa ol siempre est dormido" https: t.co oJPuauc9FG thinking about my friends who voted in today s brexit vote RT JetSetterRyan: 80 of Americans think the U.K. should leave the EU. They're right. Brexit ChooseWisely https: t.co zpHfB0qXFm RT LunaJoseM: 10 fondos de inversi n para ganar dinero con el refer ndum en Reino Unido, haya o no Brexit https: t.co Mj5htxKJEi v a Bol RT G Dussausaye: Ma r ponse VOANews: It will give the British freedom, and it will show we can renegotiate EU treaties". Brexit 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST 23 Jun 2016, 16:04 - CEST Caracas. - DeTod oUnPoc o San Francisc o, CA 0 neutral 0 positive 51 positive Madrid 2 neutral Marseill e 2 negative giod arco lambo unch ained EganRichard son Horonzoud internettub es machine01 jag mwengway gcprimecam bio creativityvta lu YevetteBerg qui2 pcoss http RT CafeGeopolitico: Brexit: per l' Italia meglio il 23 Jun 2016, RegnoUnito rimanga o esca dall' UE? Diteci la vostra 16:04 - CEST I'm weirdly excited about the Brexit vote today? 23 Jun 2016, 16:04 - CEST Brits in Germany left 'fuming' by Brexit polling card 23 Jun 2016, fiasco https: t.co YbOGDnA7ev via 16:04 - CEST TheLocalGermany RT volkskrant: Erdogan overweegt k een referendum over de EU te houden liveblog brexit https: t.co WKup37LIvD https: t.co ySF7wHxmhg RT golub: 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT Snowden: No matter the outcome, Brexit polls demonstrate how quickly half of any population can be convinced to vote against itself. Q ReDefineEurope EUWatchers ShareThis Bullshit ! Brexit Devemos ficar atentos para a pequena, mas poss vel hip tese de "Brexit" (sa da do Reuni Unido da Uni o Europ ia) amanh . (continua) RT philstockworld: O Brexit Day! Callooh! Callay! SCHN SPY CLF Futures https: t.co NfYWt2NpsJ https: t.co je0ef2LawL RT Snowden: No matter the outcome, Brexit polls demonstrate how quickly half of any population can be convinced to vote against itself. Q Brexit Explained https: t.co Dg0cHWSjkK 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST Helsinki, Finland 5 positive 0 positive 0 negative 4 negative Cardiff 1911 positive Porto Alegre Michiga n Silicon Valley 665 neutral 0 NA 0 neutral 246 positive 665 neutral 0 negative GARCIAJacq ueli2 racketnews NotihoyPeru notihoyweb bethancrow den ccifrance ettlinger MelyndaCar diel 928ster Happy kidd o simonhall19 74 Daniela31 1newlyred rosyjour caldo carlo stephen827 54737 WhoShouldI Vote4 RT ClementCln: Je suis contre le Brexit mais je suis pour la r forme du mod le europ en ! BrexitOrNot Even France would LEAVE the sad EU if it had a referendum, top French philosopher says https: t.co FNMQBMLIis Encuesta 55 de los brit nicos est n en contra del Brexit https: t.co jActezn8yl https: t.co Vq5chrORKg Encuesta 55 de los brit nicos est n en contra del Brexit https: t.co C9chGFUwpI https: t.co i7pP5YbLIm RT WilfredFrost: What could follow Brexit? Italeave. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. Or my personal favourite D RT CCIR NordFrance: BREXIT Qu'en pensent les entrepreneurs fran ais ? via ccifrance https: t.co N2TOfKfrYK https: t.co 7pauVuCRjb EUKritik frisch ab Presse: Die Zeitungen haben den BrexitBoden gelegt https: t.co SMjAiypWBV RT scottdgordon88: I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted htt RT paulwaugh: Clue to how strong the Brexit vote is. In Bermondsey newsagents this am, shopkeeper, his wife all customers buying paper w 23 June last yr,I made a Brexit of my own! Can't believe it's been a yr, full of adventures challenges To the next..! and these people are being allowed to vote today helpus brexit https: t.co cX5dr3RT8v RT Snowden: No matter the outcome, Brexit polls demonstrate how quickly half of any population can be convinced to vote against itself. Q RT evertonfc2: It's all about who do you dislike the most Brexit Remain c4debate https: t.co xV2l4ZnwfB RT pascalbauche: Quoi de mieux pour illustrer le choix historique qui s'offre aux Anglais! Brexit GoBrexit FN https: t.co 0TUxRKGCIs RT Australiaunwra6: VoteLeave today to secure Brexit This is the Future that awaits us should we Voteremain StrongerIn https: t.co LeeReynoldsDUP Spoke to Carly Simon says she's "leaving on a jet plane doesn't known when she'll be back to EU again" Brexit RT USA FREEDOM NOW: Godspeed, Brexit. Stick it to the globalists. We Trump warriors stand united with you. 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:21 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST Lima, Per Venezue la France Paris 17 Ettlinge n Silicon Valley Sydney, Australi a 1 negative 0 positive 0 neutral 0 neutral 42 positive 1 neutral 0 neutral 1 positive 29 positive 0 negative 0 positive Madrid 665 neutral Belfast Norther n Ireland United States 34 negative 26 neutral 47 positive 0 negative 1 positive alexcapron Les British, vous prendriez bien un croissant ? operationcroissant BrexitOrNot Brexit https: t.co ce9VkU3DFG DavidJohnJ1 984 UseiKY StuySquare Ronin IP SusevanKlee f johnodonne ll21 gretel ande rsen Pepecongal es matie197 captsingh ModLangsA ber JohnJonny1 bungdan haydenkem pr Funny how Europe are all over us with support and praise to stay... where was all this interest when we performed in the Eurovision brexit Brexit: 5 Things To Know About British Vote On Leaving European Union: A major vote will go down in... https: t.co Q6Y80VJBN0 MafiaSdv We anticipate the Brexit vote will be to stay by a narrow margin. Brussels chastened. Britain empowered. A good outcome all around. Could the Brexit bookies be manipulated?https: t.co L7PoTBHJs1 RT NOS: Ongeacht de uitkomst van het brexitreferendum wil Merkel met regeringsleiders praten over de toekomst van de EU: https: t.co LGL Is cinema shooter in germany going to influence brexit referendum? His motives unclear. BritsLovePolls fingers and toes all crossed for brexit. You can do this Britain. You still have what made you great. RT MissRoxyMusic: Si el Brexit jode al d lar, usted ya sabe lo que sigue. Brexit might be the best thing for the UK...but it doesn't look good for the EU Currently Drifting towards EU...... Brexit Come, my friends, 'T is not too late to seek a newer world. https: t.co ygcz5JaNzF RT afpfr: Hollande souhaite que les britanniques restent Le DIRECT AFP sur le Brexit https: t.co 6d8tpFlvnh https: t.co Du7sX2lF RT llmhurtado: Erdogan quiere un refer ndum sobre el 'Brexit'. Sin ser a n de la UE. Preguntar a turcos si quieren seguir con proceso de i Brexit, you ask? Follow the money. https: t.co qPx5eTcPEP peak when a 97 year old who could die tomorrow can vote but 16 17 year olds can't Remain brexit 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:38 - CEST Paris 0 neutral Birming ham, England 0 positive Brasil 0 negative New York 0 positive CT 0 negative London, England Brussels Frankfur t Guadala jara de Indias 23 Jun 2016, Johanne 16:38 - CEST sburg 23 Jun 2016, 16:38 - CEST SINGAP ORE 23 Jun 2016, 16:38 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST Aberyst wyth, Wales Un ecuatori ano m s en Valencia Somew here near Sacrame nto 5 negative 0 negative 0 positive 3 negative 0 negative 1 neutral 9 positive 3 negative 0 neutral 0 negative mujunaeem MaryKapadi a RT eToro: In or out? Either way, it affects the GBPUSD What will the UK vote in the EURe ? Brexit https: t.co qOEL1an8TH RT SocEconMag: Steve Hedley of RMTunion makes the trade union case for Lexit VoteLeave Brexit EUref 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST Earth 578 negative Leiceste r, England 34 positive w nicht JamesLewis Murr1 I Invest Ma g AI Global Media tropicalzoe Mumtrepre neur soccer is al ive gdnnetwork minthecab ETFFunds ClLongmuir storahagen axelchri Izzaroiz https: t.co 0LzR0fwIqv https: RT PaulbernalUK: Brexit people want to usepens because MI5 are rubbing out their votes but voting to remove one of the few areas of law RT Daily Express: Holland BACKS Brexit: Dutch people urge Britons to QUIT doomed bloc EUref https: t.co VhYJHIycnS https: t.co GqPuwfM1 The Impact of a Brexit on the European EMoney Market https: t.co Ab1fEXEQRh The Impact of a Brexit on the European EMoney Market https: t.co skyFG7EJ9o I VoteOut for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co g6s9EBtG5J eucopresident Today is the day to repeat this message if it is the truth eucopresident referendum Remain Brexit RT BillDudleyNorth: Campaign team in Stourbridge Brexit winning https: t.co 576OOV0ZiC SmallBusiness Brexit UK How The Brexit Vote Could Hurt Small Business Lending In The U.S. forbes https: t.co PMIDr0xxTZ RT StephenBulled: Mr Cameron said I might lose a few quid if I vote leave. Just remember what we asked these guys to give. Brexit http Dow Up Big as Brexit Fears Wane.. https: t.co L7je5Xwvj3 DIA ETF ETFs Stocks RT HuwGruffydd: UK Brexit vote: Muslim hatepreacher backs Remain Says EU courts benefit Islam and are soft https: t.co qu221XCueJ v RT TheSwedishRhino: Att anderslindberg tillh r Remain r en tydlig kontraindikator p hur otroligt viktig Brexit r f r v r framtid htt carolaurrejola ojo q t cnicamente hoy es refer ndum de permanencia de UK a la UE. Brexit se refiere al escenario de q gane la opci n Salir En Reino Unido el brexit y aqu Muskiz o Leioa. referendum 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 16:55 - CEST Europe 7 negative Hamilto n Caledon ia rosewo od 38 negative 0 positive 0 positive 0 positive 0 negative 28 positive 0 negative Kent 197 positive Orlando , FL Nora, ( ven Gotland ), Sverige ezkerral dea 0 negative 11 negative 2 negative 0 positive 0 neutral Khansaiff1 basedkaka Dvmebi deanowillia ms7 edavid57ed avid commodity ways J 3pin3 Mikelelosegi azp bosey44 GarethFearn DanKing383 amustie taylormarsh Alisha90uk nymeria60 sasa16sasa POLSEdmon ton RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co GMVeCImK7V RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT Geezajay2013: Here we go folks, Next they will be arresting people for voting leave! Brexit VoteLeave https: t.co uB6ZAea102 RT nytimes: Morning Briefing: Here's what you need to know to start your day https: t.co fvjfPVQUXS https: t.co nDR2iTbkAX RT jrhopkin: Brexit: a handy way of allowing the poor to get angry about inequality without challenging the people responsible? https: t RT toadmeister: VoteLeave Brexit IndependenceDay https: t.co i8JlTC8hNE RT hugomabarca: Los que dicen que todos los espa oles tenemos que votar sobre Catalu a porque nos influye exigen que votemos el Brexit? RT ElizabethHurley: Vote tomorrowwhatever your persuasion. I'm for Brexit promise to neither gloat nor whinge. But VOTE! https: samhind10 Presume you will be backing brexit? Gonna be a lot of money in cartography if we leave. Will need brand new maps! You ruled most of the world by yourself, why do you need the EU now? Brexit RT MONEY: 5 reasons Americans should care about the EUref https: t.co qSI5g63D4C RT CNBC: A Brexit could be costly, warns David Cameron. Everything you need to know about EUref: https: t.co A11qbSJ6A7 https: t.co l iVoted for Brexit today! Britain should not by ruled over by foreign globalist elites! referendum RT Anny690: Brexit : en plein scrutin, la Barclays brandit la menace d une tourmente mondiale ! novopress https: t.co 9ovaqAOsPn RT WilfredFrost: What could follow Brexit? Italeave. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. Or my personal favourite D Why voters flinch factor will doom Brexit: Britain's Brexit referendum looks too close https: t.co yLn9NVf63d https: t.co GfWXgVDQ5R 23 Jun 2016, 16:55 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST Mumbai ,India. Not In Kansas Anymor e southa mpton 5664 positive 0 positive 5723 positive 5 positive 39 positive India 1 negative Brighton 178 positive Gasteiz (Euskal Herria) Manche ster, England Lagos, Nigeria Washing ton, D.C. Beltway Toronto Canada, Leeds England Edmont on, Canada 52 positive 3515 negative 0 positive 0 negative 6 neutral 9 negative 0 negative 4 negative 312 positive 0 neutral NBaltasa BRESU USA1Calling RT VilaWeb: . raulromeva: El Brexit desmenteix que una Catalunya independent sortiria de la UE https: t.co EwyA3F3IOb RT Daily Express: 'Turkish migrants to CRIPPLE the NHS' Brexit minister's stark WARNING about EU ascension https: t.co MnHiwJPDra https: RT 808alohadeals: So he was speeding up training on who?!? 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 23 Jun 2016, 17:12 - CEST 26 neutral UNITED KINGDO M FOLLOW BACK 50 neutral USA 84 negative 24bourse FireCask roujul kraftw33rk F1fankaren almutmoell er cenmag Ohitsanissa Kisushima NononJakuz ure18 contedelfina Brexit BarbMuenchen Patriotic Me dawnmariefhl surfermom77 steph93065 htt Forex: L euro majoritairement en hausse, le vote sur le Brexit domine https: t.co brCWMg2cOs https: t.co pb4moimUqK Boozing for brexit or bladdered for bremain? Whichever way, play the Ultimate EU Referendum Drinking Game. EURef https: t.co bkcP9VJ7IX RT golub: 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. Brexit Brexit Brexit Ich kann's nicht mehr h ren! Lasst sie doch ziehen Mann. Die Welt dreht sich weiter. Laberlaber. Macht andere Arbeit I voted out VoteLeave Brexit EUref TakeBackControl https: t.co iM98FvrznN RT JJ52: Brexit and me tonight on dw global until dawn, Berlin time ecfr https: t.co BCFxNA4bWt Here's how a British exit from EU could affect the UK chemical industry scientists https: t.co 58IVV5Ogu1 Brexit https: t.co AQYRdOkInF I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co cOC7oaFtdo RT Snowden: No matter the outcome, Brexit polls demonstrate how quickly half of any population can be convinced to vote against itself. Q 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST RT FolkyYuno: idea: brexit 23 Jun 2016, 17:29 - CEST How 'Brexit' would inflame populism abroad and 23 Jun 2016, here in the US https: t.co jDW2Dngtnq 17:29 - CEST France 0 positive Manche ster, UK 0 negative 2729 positive Nieders achsen, Deutsch land 0 negative Newcast 0 positive le Upon Tyne, England Berlin 2 neutral Washing ton DC 0 negative S.LDN 0 positive Norwich 3235 neutral Moscow , Russia Chicago, IL 2 neutral 0 negative Danaperson a mrtriple5 Insure My Villa KeevoBrow n82 pialikespizza fsclaire eleanorpd TheGregJon es SPIEGEL Pol itik condorbox Mickierod Hansalyse NewstalkFM KebiegoNixo n wlstcom facilitatore Svenska partiledarnas stora oro f r en brexit https: t.co ACKcSL5GI7 Tummarna f r England, l mna d rskapen. RT DonaldClarke63: It's pencilgate. Brexit nutcases suggesting pencils, rather than pens, have been provided to facilitate fraud. https: UKexpats in Spain watching Brexit vote anxiously https: t.co Qdlp2XdMNW Spain https: t.co F5ild6amUr European family in park. Mum says to kids "come on, its time to go home" Come tomorrow morning it may be truer than you suggested brexit RT AlisonNotaBird: the real stake of brexit is if pialikespizza keeps or loses her status of having the two most powerful passports in t Whit does "brexit" mean?? makes me think of breakfast RT sophie sparkes: Last night, Remain tweets finally outstripped Leave tweets. Wonder if this is indicative of how brexit will go? https: People of Britain: how about celebrating with a continental breakfast for Bremain and a consolatory full English if it's Brexit?? EUref RT Augstein: Um die Rechten zu stoppen muss Europa st rker UND sozialer werden https: t.co 4KnK3Nur5J RT gzibordi: la cosa patetica che sia il Blog di Grillo DeMaio che la Meloni non appoggiano la Brexit perch hanno la sensazione che per realdealdanny seriously make sure you use a pen. I am NOT joking. Brexit Sidder p en strand i Israel. Hvor kan jeg finde en brexit exitpoll? Brexit: The highs and lows of the referendum campaign so far: https: t.co 83IFANn5v2 https: t.co zmacFkIGWc RT citizentvkenya: BREXIT: What the consequential vote means https: t.co xHxzI8W1SF https: t.co T2VGJaCTcO Wall Street Climbs as Brexit Vote Eyed Fox Business Brexit https: t.co S6DviHMrfm https: t.co L5lO3Wyurk https: t.co UBVKdi2oWI The latest The facilitatore Daily! https: t.co ZHox0g2dZ4 Thanks to gmboccanera perugini brexit m5s 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:29 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST G teb org, Sverige 0 negative 3 neutral UK 0 neutral Whitley. Coventr y. U.K. 0 neutral THE MOMEN T 1 neutral scotland 0 positive . Mercer 1 negative Island, WA London 0 negative Hambur g und Berlin 2 neutral 43.5224 7 negative 7,13.23 519 Here, 0 negative there and back again 0 negative 285432 46 Ireland 0 negative kitale 2 neutral digital 0 neutral Ti risolvo problem i 0 positive SOHOCG NEStrongerI n Dylan nick wwjzd1 MargueriteP erle WeepingSo phia maletaIt Shoobridge mendes sol dier8 luke sw2 BestFifaWag ers1 UKIPNFKN julochinho englishjohn 007 Perugiacafe RT Eventmagazine: Final Brexit countdown eventprofs: Have you voted? ivoted EUref experiential North East faith figures sign letter urging against Brexit https: t.co jLJvImdcQc RT golub: 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT AmbJohnBolton: Retweet to show your support for Brexiters across the pond as they vote in today's UKreferendum. VoteLeave Brexit RT lemondefr: La presse britannique vote Brexit https: t.co JopGIamLII sophiabotha74 Racists, truly believe it's okay to RACIALLY PROFILE, majority WHITE NATIONS. INTERNATIONAL HATE CRIME. Brexit Regno Unito: code agli sportelli per ritirare denaro. E Brexit fobia https: t.co fiCZyiE3Z1 Why vote out? https: t.co IizSZMvZoJ Brexit WeWantOut RT GlamourMagUK: IVoted Team GLAMOUR votes Remain. Here's why: https: t.co i5iv1GJkQJ https: t.co QwuIF9HPMZ RT JetSetterRyan: 80 of Americans think the U.K. should leave the EU. They're right. Brexit ChooseWisely https: t.co zpHfB0qXFm I VoteOut for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co abwP6lr4Wy Commons confidential: Boris's blond Brexit ambition StrongerIN VoteIN EUref INorOUT LabourIN INTogether https: t.co 9sW5u4OmSP RT aguzmanbas: Faltan 6 horas para el cierre de los colegios en el Reino Unido. Las ltimas encuestas dan una ligera ventaja al 'Remain'. RT DavidJo52951945: Police question UKIP supporter who gave voters a pen outside the polling stationsounds very suspicious https: t.co 2 RT nhk news: - - - https: t.co jlmeXHVpQs nhk news 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 17:46 - CEST 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST United Kingdo m Great Britain 11 neutral North 0 neutral East, England Gallifrey 2922 positive New York, NY 284 positive France, 14 neutral Evry Ohio 0 negative United States oxford, uk 0 negative 0 negative 136 negative SC, USA 70 positive United Kingdo m 0 positive 0 negative Torre de H rcu les 5 negative England 94 negative 3-5- 2 32 negative PriorAwaren ess the ocd edi tor a molinam HFerdjani massivegeni us77 drecksackdi ngs sturdy citiz en Index shifts, Brexit vote could make Friday freaky on Wall Street https: t.co jbs5M9zGSr RT Britannica: Curious about today's Brexit referendum in the U.K.? We've got some background. spotlight https: t.co PxVRpMvLBI https: RT ReactionaryTree: I'd honestly be surprised if the UK we allowed to Brexit even if they vote to leave. I doubt the EU bureaucrats will RT ImaniAmrani: This morning's discussion with HFerdjani for africanews on Brexit (I love that they dubbed me w a man's voice) https: massivegenius77 Havd u voted? ivote ivoted BrexitOrNot Brexit StrongerIn passend zum brexit ein bild meines englischen garten. https: t.co n1oly2v0Gd RT EconomistLake: What a day: UK Brexit vote Supreme Court blocks Obama immigration plan House Democrats stage sitin Trump visits golf co 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST Omnipr evelant Merida, Mexico All Over The Place North Weald, East 0 negative 1 positive 2 positive 1 positive 0 negative 0 positive 6 positive grispastor FouadBouss etta ParisFrance News Mussi 87 MaanvirMin has Ue Brexit lo unico k que quema es la temperatura inusual en Bx!! https: t.co heIPKX6SuR RT AishaAkbar17: Anjem Choudary, UK Islamist ISIS Recruiter, endorses Remain. StrongerIn what Universe? I stand with BREXIT!!! https Brexit, les Fran ais de Londres miperplexes, misereins https: t.co 6AXQLLQzPL GoogleAlerts I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co fppaALA5wk EUR'OPEANS to Britons : What matters in the end is YOUR'OPINIONS. 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST bruxelle s 0 neutral Montre 94 negative al,Queb ec,Cana da,Sol III Paris 0 neutral Frankfur t am Main 0 positive 0 negative SebmonkSe b UKIPNFKN brexit bremain BremainVsBrexit referendum BrexitOrNot EUref RT B0andra: ukleave eu BREXIT! Keep our Sovereignty. https: t.co IcEFilnT3U RT InFactsOrg: Another example of misleading Brexit story gets corrected just in time for EUref voters to not be misled! https: t.co d 23 Jun 2016, 18:03 - CEST 23 Jun 2016, 18:03 - CEST Uk 4 positive United Kingdo m 6 negative TarazonaCig ars RT cosimocaridi: If today Brexit, tomorrow Grexit Departugal Italeave Czechout Oustria Finish Slovakout Latervia Byegium via SheikhItH 23 Jun 2016, 18:03 - CEST Miami, FL 101 positive MatthewB ritton RT MatthewBritton: This is what you look like when you VoteLeave 23 Jun 2016, 18:03 - CEST Wales 4 positive EUref EUreferendum Brexit VoteRemain https: t.co HXAr856hg7 Davinchi A RT pictoline: La Batalla del Brexit ha comenzado: 23 Jun 2016, Reino Unido est votando si se va o se queda en la 18:03 - CEST Uni n Europea https: t.co AudmrcOx20 GodSquada keitheadams has been trolled all day since this 23 Jun 2016, ndMe tweet. Don't know how 'In' take moral high ground 18:03 - CEST Brexit https: t.co ZKr366ZD7R BarfootPet EUreferendum Brexit https: t.co 25JVVOvkkE 23 Jun 2016, 18:20 - CEST gonzalomor gadoj La academia brit nica alerta de los enormes riesgos cient ficos del Brexit MIT Technology Review https: t.co INA1KcXB8f red ciencia RT TDAJJKinahan: LIVE on Periscope: Bank stress test and Brexit. https: t.co sDFF7ipxQW 23 Jun 2016, 18:20 - CEST sherloksam 23 Jun 2016, 18:20 - CEST WanesYann Belle promo antiBrexit https: t.co sNdBYeu5va 23 Jun 2016, 18:20 - CEST kezie madu RT Amaka Ekwo: EURef 23 Jun 2016, Europe is not a nation. 18:20 - CEST Vote leave. Freedom BRexit Britain BiafraExit Biafra FreeBiafra SupportBiafra Bogota, Colombi a Belfast, Norther n Ireland 456 neutral 0 negative 0 NA 0 negative 8 negative Bubry 0 NA 15 positive DeepTmp RT KaspHaus: Brexit , UKIP, 23 Jun 2016, 18:20 - CEST 3 neutral yactusfranc e sdalsulami1 0122 joviaryadi tucksnews milanbpatel 90 leoncina sn0wba111 xchurlx Idl3 yactusfranc e efagie GiordieRobb a debralinna ndtv balticbarbar ian . : https: t Brexit : quelles cons quences pour les entreprises fran aises ? https: t.co eRlZgEuxtz RT HayleyMcQueen: Meanwhile the Caterpillars are busy today https: t.co 3Lg8MQtumZ brexit RT TIME: This is why the Brexit vote could be just the beginning for an angry Europe https: t.co vnuzL866AH Corrected tweet Brexit Poll Shows 80 Of Americans Think Britain Should Leave EU Forbes https: t.co 16GAw5bNmt RT ndtv: Brexit No doubt if UK Parliament had decided it would have voted Remain: Shiv Shankar Mukherjee, ExEnvoy to Britain RT Daniel Portman: https: t.co hE3KJF1NFn Being put on the same list as James Bond and Hermione Granger made me feel quite cool. Remain RT DavidJo52951945: Analysis of betting oddsthere have been a large number of Brexit bets,remain no of bets small but larger bets https: I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co oSOD9lQeYa The latest The Idl3 Daily! https: t.co DADHXqVsqb Thanks to Th3Zer0 saracristaldi jgbarah brexit euref 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST Brexit : un scrutin ind cis https: t.co HT7yCBwBZt 23 Jun 2016, 18:20 - CEST RT DrBrianMay: BREXIT ? My view ? Simple. Stay in Europe but then get rid of Cameron and his gang of proprivilege cronies. Let's get c I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co uSGeUIl1lF RT gavthebrexit: BREAKING: Dozens TURNED AWAY from voting in EU referendum because of registration RIGGING?? https: t.co GRMPVIthKS http Brexit Large amount of British press not even owned by residents, they're peddling lies: Patrick French, Author and historian RT sidneyabbot: There should be more options with this Brexit lark than "In" or "Out". Maybe a 3rd choice of "Just the tip". Works with t 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:20 - CEST 23 Jun 2016, 18:38 - CEST Paris, Ile-de- France 0 neutral 4 neutral Jakarta - Bali, Indonesi a 4 negative Austin, 0 positive Texas At hELL 1 negative Saint Vladimir Academ y 17 negative Ireland 26 negative Newcast le, Port- Harcour t 0 positive Sardigna 0 positive Paris, Ile-de- France 0 negative 632 negative I E O 0 positive Wv 60 negative India 0 negative 24 positive katieoldc orn evie121462 VieEconomi que ctrlaltdeluke nineismi9 RCJustSayin g grossi 9 MESUTTASK IRAN ChobDux KDG Accou ntants Gr8LakesCz arina Adamonann ers I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co IRNT2bX1nj RT INTJutsu: The refugee fiasco emphasizes why the UK mustn't rely on foreign unelected officials to determine their fate BREXIT https: Wall Street : port par l'hypoth se d'un non au Brexit. https: t.co leKci23927 wallstreet RT WilfredFrost: What could follow Brexit? Italeave. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. Or my personal favourite D RT Snowden: No matter the outcome, Brexit polls demonstrate how quickly half of any population can be convinced to vote against itself. Q BrexitOrNot Brexit is a good move, now can we talk about moving Pakistan may be to Mars ? okSorryBye RT ajcdeane: Huge new Brexit asset emerges. VoteLeave EUref iVoted https: t.co Xdrlyqapcr ProfElvanAktas tskkurler ederim.hocam bu arada brexit mi neyse bizi yakt ya... Spinach, Emmental, and mushroom galettes at Castle Dux tonight. None of your shitty, bland, brexit butties for me. 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:38 - CEST European stocks are flying https: t.co ARFavKIotI 23 Jun 2016, 18:38 - CEST Reclaim your soverignity; VoteLeave! Yay Brexit. 23 Jun 2016, 18:38 - CEST RT William Hahne: Do the only sane thing and vote LEAVE today, British friends! 23 Jun 2016, 18:38 - CEST Cumbria 0 positive Illinois, USA aitarie n Phoenix Arizona Liverpo ol Iver, Bucking hamshir e Hurtling into the abyss 9 negative 0 negative 585 positive 4370 neutral 0 negative 215 positive 0 positive 0 negative 0 neutral 0 positive 5 positive lauracasey Marta Bello n JackWiles16 Against the EU For free European nations! Brexit https Nigel Farage Social Data indicates that remain leads 58 42 https: t.co inydRLNo6G Brexit https: t.co K5dG0po0aO RT LukaszGrass: Kolejki do kantor w wymiany walut w Londynie. DamianSzymaski6 https: t.co Uk5sGJsPwr https: t.co tlfNXurCOF RT AldiCustCare: We've got limited stock of soon to be very rare, Boris Jonson signed Eurovision compilation CDs Brexit SpecialBuys http 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:38 - CEST 23 Jun 2016, 18:37 - CEST Dallas 0 negative Warsaw , Poland Bourne mouth, England 3 neutral 5 positive wowalexisre ally RT BraddJaffy: To recap: SCOTUS immigration SCOTUS affirm. action Freddie Gray verdict Germany gunman Brexit House sitin VW settl 23 Jun 2016, 18:37 - CEST blackliv esmatte r 132 negative TRADER INS IDE DARKBLUET RADER emilykimber CortioMaltie s shop marke ter ColumbiaGR cateronchie ri GiuseppinaL ind3 Ladybug135 7 AltNieuws RT MarketWatch: The dirty secret about the Brexit vote: It s all a sham, says BrettArends https: t.co 5MChC3HONH RT MarketWatch: The dirty secret about the Brexit vote: It s all a sham, says BrettArends https: t.co 5MChC3HONH RT jamesdboys: A profound, sober article on divorce and Brexit by the always engaging nfergus for spectator https: t.co edWuLXYTMJ Tono Otero Por qu los partidarios del BREXIT est n en negativo en la gr fica? RT mashable: RT MashableUK: DogsAtPollingStations are helping their owners vote in the 'Brexit' referendum https: t.co sxsU6QWUVf RT ForeignPolicy: Here s how the Brexit could derail production of GameofThrones, davidcfrancis reports https: t.co LQQICYo6l2 RT FrancoFrattini: Brexit: attenti all effetto tanto rumore per nulla . Remain non canceller problemi Europa: serve cambio di passo ht RT ForexLive: The Brexit vote is playing out in the market exactly like the Scottish referendum https: t.co Tp0zeey6FJ https: t.co Q2iQ5 23 Jun 2016, 18:37 - CEST 23 Jun 2016, 18:37 - CEST 23 Jun 2016, 18:37 - CEST 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST https: t.co pDuznAFUKz 23 Jun 2016, 18:55 - CEST RT PowellPolitics: The French said NO The Dutch said NO The Irish said NO The Dutch said NO Again All ignored or told to vote again. Come 23 Jun 2016, 18:55 - CEST Wash D.C. 9 negative 9 negative London 1 negative New York, NY Silicon Valley johanne sburg. south africa 0 NA 0 NA 4 NA 4 negative 2 NA 0 NA 409 NA rebeccanom ics Wondering what effect the rain will have on voter turnout. Will Brexit voters display more old fashioned British stoicism? EUreferendum dngrfld RT Stop The EU: V O T E L E A V E For Freedom Sovereignty Democracy 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST Waterlo o London 1 NA Astana 21 positive usepens iVoted VoteLeave Brexit EUref referendum https txellt ficuselectric aviation dp tomscott01 anaisunbrok en RT assemblea: No referendumNo democracy Brexit https: t.co 6Rsn9rrsof Si vais a poner de moda lo de poneros calcetines largos con bermudas en verano, deber ais celebrar un brexit personal y salir de la UE. What Would Brexit Mean for Commercial Aviation? uk https: t.co UtLN4jWeoT RT Vendavo: Oil Prices Fall on Supply Overhang, Brexit Uncertainty: https: t.co YljQOiCWTa via WSJ I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co 2z2tWVVIla Dogma666S teve taxhaven77 RT AdamSmith2sei: 6 3 https: t.co 5rG7JOmIIF Brexit louise steve ns roservaqup ons AmourAStar noname210 174 pseudomon as CPY Oficial KeithARober tson 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST Of course the tax dodgers want us to stay in Brexit 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST RT uk rants: iVoted to Leave cos I want UK to remove 3rd World tariffs let those who work bloody hard live some semblance of life. Br RT Agentsecret086: Fractura social en inglaterra a causa del brexit. Las familas no se hablan entre ellas! Peleas en las calles. Queman ba Brexit VoteLeave YourVoteCounts eureferendum https: t.co pWqQzD8zj4 RT ForexLive: The Brexit vote is playing out in the market exactly like the Scottish referendum https: t.co Tp0zeey6FJ https: t.co Q2iQ5 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST 23 Jun 2016, 18:55 - CEST RT MooseAllain: If it ain't broke, don't brexit. 23 Jun 2016, 19:12 - CEST Los mercad logos tambi n opinan sobre el Brexit 23 Jun 2016, https: t.co RBo1sEx76t 19:12 - CEST supporting Brexit wants me to help them spread the 23 Jun 2016, word then let me know I shall do so! 19:12 - CEST Terrassa , Catalun ya Cut Off, LA Devon, PA 163 NA 0 NA 0 NA 1 NA Idh n 0 NA UK 0 NA 4 NA UK 42 positive London, England London, UK Yucat n Glasgow , Scotland 13 NA 0 positive 2 NA 4 NA 0 neutral 0 NA Alexios1201 BREXIT EUREF madness https: t.co V0Kp3p5CD6 23 Jun 2016, 19:12 - CEST OOTT 0 NA 247Hayden Media RT Nigel Farage: It's time to get our borders back, our democracy back and our country back. Brexit https: t.co eArDsfxlO3 23 Jun 2016, 19:12 - CEST Yorkshir e, England 1806 NA afiqahmnr RT ajplus: London's mayor Sadiq Khan crushed a recent Brexit debate while fasting. 23 Jun 2016, 19:12 - CEST Indiana, USA 614 NA JoedeBrig BomberNola n elearning u tad Eyeintomyw orld RealBiZI1 lindongooda ll angel1mcy nderi j Cato Minor ampatchara k Gr8LakesCz arina Mic drop, please. https: t.co cN5jMmfvmQ RT golub: 'Brexit' to be followed by Grexit. 23 Jun 2016, Departugal. Italeave. Fruckoff. Czechout. Oustria. 19:12 - CEST Finish. Slovakout. Latervia. Byegium. raymonddelauney hats off to georgegalloway for 23 Jun 2016, his stance on EUref brexit Lexit this is the second 19:12 - CEST time I've agreed with him, fuck!! Universidades Brexit: que consequ ncias para o 23 Jun 2016, ensino superior?: S o quem mais bolsas r... 19:12 - CEST https: t.co vi51lNHl6B EnsinoSuperior RT DarrenMole: Lies 23 Jun 2016, Talks with Turkey will start in days 19:12 - CEST Brexit WON'T spark trade war Eu will NOT reform on open borders deportation job RT MenInBoxes: EUreferendum EUref 23 Jun 2016, BrexitOrNot Brexit VoteLeave 19:12 - CEST https: t.co nBa3TVNyao My full educated view I'm brexit leave 23 Jun 2016, 19:12 - CEST RT pictoline: La Batalla del Brexit ha comenzado: Reino Unido est votando si se va o se queda en la Uni n Europea https: t.co AudmrcOx20 RT cobbo3: What's wrong with today's British rulers? A critical Brexit vote they haven't blocked Twitter and Facebook like some countri Die Ehe ist wie die EU. Also wie eine belagerte Burg: Die drau en sind wollen rein und die drin sind wollen raus. brexit 'Brexit' 'Game of Thrones' https: t.co 4uaJLsPYyx VoteLeave would not only free the Brits from EU, it would profoundly shake up the other 23 Jun 2016, 19:12 - CEST 23 Jun 2016, 19:12 - CEST 23 Jun 2016, 19:12 - CEST 23 Jun 2016, 19:12 - CEST 23 Jun 2016, 19:12 - CEST Paris 3909 positive Vila Real, Portugal Herefor d, England San Jos de Maracay , Aragua ...BKK... THAILA ND... Hurtling into the abyss 0 NA 0 negative 6 NA 18 positive 0 positive 1014 NA 58 NA 0 NA 0 NA 0 positive hawkgirl198 8 nasosgrigo RafaelGtrrz MUFC E334 Heath20Rob ert DrEzekiel pipsfinder EAGCharles B bethomas SmurfyJCK BalcoSERCA T realdrishay m pig poetry sectradeide as GeorgeWoo dEFC capitalgr members AmbJohnBolton https: t.co Z3aOfq7Zx0 I VoteOut for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co 7NBSSRqp0H RT pitsirikos: Brexit, . BrexitOrNot BremainVsBrexit EUref "Brexit", con impacto transitorio en mercados, afirman especialistas I VoteOut for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co MpQlTqwamT RT PaulJamesOakley: iVoted. Proud to be one of millions of Brits looking forward to a bright future outside the EU. Brexit https: t.co I VoteOut for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co sYvRbuvtXR Pipsfinder Instant: RT HalftimeReport: John Rogers, CEO of ArielFunds gives his brexit s https: t.co AvxpayPoHE https: t.co 6NVNDBG6xQ RT Citizensmif21: Every vote counts! Make sure everyone you know with a vote gets out there! VoteLeave LabourLeave EUref Brexit https: I'm actually terrified that Brexit may win on the back of extreme weather preventing people (like me) from reaching a polling station I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co 7AWxvBFUs7 EN DIRECTE, parlem amb polmorillas CidobBarcelona sobre Brexit amb ptica catalana https: t.co 7d9P3rc4tX Investors feeling positive over Brexit outcome https: t.co HWMfUyPROT RT golub: 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. Wall Street marches ahead as Brexit seen unlikely https: t.co AafMQ2urj2 via Reuters I VoteOut for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co yiad4nFvhD Brexit https: t.co CdwzKmkpR4 23 Jun 2016, 19:12 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST Sheffiel d, England 0 NA .. ...... 3 negative Mexico 0 NA M6 0 NA IN ENGLAN D. A nearly peaceful place WORDL WIDE Oxfords hire 7 NA 0 NA 0 NA 5 positive SW9 0 NA Bristol 0 NA Catalun ya Novato, CA Athens, Greece 0 NA 0 NA 4066 positive 0 NA 0 NA 0 NA kironetv TheAbsTime s Iogan ggomezQ f beavis The latest The kironetv Daily! https: t.co ey7MQ3bMK4 Thanks to maryebrewer LeBronJames brexit euro2016 Brexit is just one example of the political problems Europe is facing https: t.co S0pRApnz2c https: t.co yvvGwSc4b4 jfcarpio si gana el Brexit Escocia e Irlanda planean nuevos referendum sobre permanencia en UK, para volver a EU jaja RT infinitafm: Salario m nimo,marcha estudiantil, Brexit,Farc,la Roja y m s AHORA en mundoinfinita con ggomezQ y valenzuelagabi https: RT RoyCropperNOT : Me and Ken just kicked out the polling station for shitting in the ballot box. Brexit https: t.co kp2cgUUIjL 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST 23 Jun 2016, 19:29 - CEST Worldwi de Lincoln, NE 0 NA 0 NA 0 NA chile 1 NA 125 NA stevenjohnc ole TrumptonC BI Paul1Singh Pharmdca SOTWIFUN NY FN Nachric hten maria parra 58 BenDeCosi mo DinoFancell u SolidSnakeU k89 zoecorkhill RT V of Europe: Who is the shooter in Germany? Is the German media censoring Islamic again to avoid a 'pro Brexit effect' in the UK? https RT disclaimermag: Editorial: Damn the Houses of Brexit and Bremain by voting with enthusiasm StrongerInEurope: https: t.co GGblEGk6mg RT b tweet: PSA to my UK friends: usepens for your Brexit "leave" vote or else squads of MI5 agents armed with erasers will furiously era paulwoll agree Paul. Everyone expecting bremain not brexit. iam cautious here as nothing factored in if we get a surprise brexit vote I hope the citizens of Britain make the right decision and do a Brexit BREXIT ROUNDUP 4: Historisches EUReferendum spaltet Gro britannien Rennen eng https: t.co 8GFyRLBHM1 RT gaceta es: El Brexit, a la luz de la moral https: t.co rTrDezDPVc https: t.co qDOk8a8Nzv Brexit ppl who be like "we want OUR DEMOCRACY BACK" https: t.co 3ztuz9w3nu RT BritishAwake: Absolutely positively the last throw of the dice from Remain Brexit you have been warned! https: t.co K4qzeXE8CN Pencilgate erupts as police called to EU referendum polling station after woman lends other voters her PEN https: t.co p9xE1SmsGH I liked a YouTube video https: t.co WMe5JWSvUd James Corden on Brexit: Vote to Stay in the EU 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST stoke on trent Trumpt onshire City of London Europe Californi a, USA 38 NA 2 negative 1 positive 0 negative United 0 NA States Z rich 0 NA La Coru a , Galicia Espa a . 1 NA London 0 neutral United Kingdo m Around the world Birming ham, UK 8 negative 0 NA 0 NA victorbenito 86 L Amalgam eur RT quiquepeinado: Si gana el Brexit, Islandia pasa a cuartos? Etant donn que les gens qui sont pour le Brexit sont des arri r s, vous ne les entendrez pas sur franceinfo. Aucun int r t. 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST Arganda del Rey FR... enfin ce qu'il en reste 104 NA 1 NA MuriMursic KikoPeres JMokha Blake2 0 SexenioCD MX Capezzone sallyshin saints247 FearAnLoat hin yoga4tea FrenchForTr ump R sum MatevzNovak lucijausaj do izbrane meje tudi jaz podpiram Brexit. Upo tevaje politi no evolucijo naslednikov partizanov pa? Brexit Britain exiting the EU The Movie Full Film https: t.co FgbcIOgcJY via pfc net RT missingfaktor: Brexit. Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT robmanuel: A vote for Brexit is a vote for a man who doesn't understand how capos work. https: t.co QNRLaaE5GX David Cameron emite su voto en el Brexit https: t.co xzWNVELbB8 RT formichenews: Chi soffrirebbe di pi con la Brexit L'intervento di Daniele Capezzone https: t.co l2SiG5iWZM RT CNBCSocial: In a stunning turn of events, it's raining in London. That won't stop CNBC's kaylatausche from reporting Brexit https: People are losing their minds and humour over Brexit Slagging each other off because you think different to them. Shame. I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co f2UkOorndM RT TheCanarySays: However Britain votes today, David Cameron is f cked https: t.co 1OfJn4w34A olsx euref ivoted remain brexit VoteL RT JaredWyand: How s it feel Brits knowing the Muslim population you let in is voting against your independence today? 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 19:46 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST tajers ka 0 NA Brasil 0 NA Kitwe 6011 positive Lincoln 7589 NA Distrito Federal New York, NY Southa mpton Brighton - IG: FearAnL oathin Miami, FL 0 NA 1 NA 13 NA 0 negative 0 positive 25 negative 87 positive Brexit VoteLeave annecagle https: t.co w5NMjiQgKV brexit Please don't leave. 23 Jun 2016, 20:03 - CEST TimBukOne NEWS davidkski JSESBK STANBANK View article https: t.co 4BVtCTtaZv https: t.co kIxlYCmWt5 RT Snowden: No matter the outcome, Brexit polls demonstrate how quickly half of any population can be convinced to vote against itself. Q 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST Pacific Northw est South Africa Yardley Pa-NYC in- 0 positive 0 neutral 5318 neutral sonalewsr leechjoe21 MaggieLear month FuckBoats TheTradingS heep ophuels fonsvyncke AK47Goone r majowski19 59 UnknownLib ra santhusitay i libros RT ianbremmer: This is what the Brexit ballot looks like, for those curious. https: t.co XWH5WXLMCV RT Y Eurosceptics: Brexit guarantees accountable leaders, controlling immigration, signing our own trade deals no more eurozone bailout RT ARTQUESTLONDON: What today might mean for artists https: t.co nWiNtE4Lks via hyperallergic https: t.co daQ2RPDdpM RT RealAlexJones: Brexit Insider: EU The New Soviet Union https: t.co XtSlcLzqvu RT Stop The EU: It's time to take back control Brexit VoteLeave https: t.co ScqneMkfn2 18hrs and counting: Im Liveblog berichten wir die ganze Nacht durchgehend aus London. https: t.co r8EtnZw2zH HandelsblattUK Eentje uit oude doos,nog brandend actueel brexit https: t.co 80CUUgy9od That same paranoia that makes people ignore what almost every major organisation advises on brexit is now making them spoil their vote! Brexit. Co mo e czeka Polak w mieszkaj cych na Wyspach https: t.co pk8o3BUDo1 RT lesoir: vid o Remain or leave : la pluie pourrait faire basculer le Brexit https: t.co 2VG4kY6WjC https: t.co LRFSSXLd8E RT washingtonpost: 8 Brexit voters reveal their thoughts on Europe https: t.co VqAHDXM79O https: t.co 0iUt6Leuco RT OpenBritain: Labour MPs with a genuine interest for workers understand the EU 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST 23 Jun 2016, 20:03 - CEST EURef Brexit Lexit LabourLeave labourleave https: AnaPauVdz Brexit 23 Jun 2016, 20:03 - CEST danhurrell1 RT MichelleDewbs: IBeen frustrated by people who 23 Jun 2016, 988 feel that voting for Brexit is somehow 'backward 20:20 - CEST antoniobb1 953 thinking'. I'm outward looking but to th RT AmbBatet: Defensem m s integraci i ens oposem als populismes que volen destruir el projecte europeu, com avui mateix veiem Brexit un 23 Jun 2016, 20:20 - CEST betwee n Adelaid e, South Australi a - D ssel dorf Guildfor d Derby UK Ciudad Aut no ma de Buenos Aire 176 countrie s 151 neutral 15 negative 8 neutral 7 neutral 162 positive 0 positive 0 negative 0 negative 0 neutral 1 negative 18 negative 27 positive Mexico 0 neutral Richmo nd, England 103 negative 4 negative CaimanValo res faizwahab cerecun dmedri HighTechAzt ec Commented on Market Prices Brexit Failure; For Colombia, The War Is Over Bezek's Daily Briefing https: t.co J8mLMxP6t4 GXG DEO EC CIB RT WSJ: Why a Brexit matters to the U.K. auto industry Live coverage of EU referendum vote: https: t.co TitHSlPmFn https: t.co rHP4DTGyGX RT JazRabadia: The EnergyInstitute EnergyBarometer suggests impacts of brexit negative on the world of Energy https: t.co d3Sl5BarFZ Sleepless in the City Lets Traders Bet Billions on Brexit Result https: t.co xH3J2l4VWm business trading finance RT Newsweek: EU referendum live coverage: Britain heads to the polls for historic vote https: t.co hTN517ePCa Brexit 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:20 - CEST Wozdog2 Another reason to Brexit https: t.co 4MwQ8RNL9J 23 Jun 2016, 20:20 - CEST JoseMa Ro 23 Jun 2016, uge 20:20 - CEST valubit new s atlanta amy DarrenMea dows10 DuncanOldh am scarbro8 trxtrx1 RT teleSURtv: Conoce todo sobre la posible salida del ReinoUnido de la Uni n Europea. Brexit https: t.co CqtLV2FPw3 https: t.co k New post: Gold Ends Lower; RiskOn Marketplace Just Ahead Of Brexit Results https: t.co Hdu72cl2Kz You know what's offtopic interesting about brexit remain to me as an American? The UK still votes on paper. I miss paper voting. A man was seriously injured after being stabbed outside a polling station. https: t.co 7MoS20RVry I keep looking at my Spanish neighbours wondering if they're thinking "Let's hope he pisses off back to the UK!" Brexit RT D Blanchflower: doesn't often happen but we certainly agree Brexit looks like a potential disaster in the making https: t.co XzFvlfMQ RT pinobici: SkyTG24 dallo studio : "code per cambiare in ". Inviato a Londra "no francamente non mi risulta" Comici! Brexit 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:20 - CEST casiosr RT MarkusSuedwitz: Brexit at Tiffany's brexitfilme 23 Jun 2016, 20:20 - CEST euanfranklin RT RoosterTeeth: Gus, Gavin, Brandon, Chris, and 23 Jun 2016, special guest Sally Le Page discuss Brexit, tits, and 20:20 - CEST more! Colombi a Italy Europe Houston , TX Ciudad de M xic o. United States Atlanta, GA 0 neutral 29 neutral 1 negative 0 negative 9 neutral 0 neutral 5 neutral 0 neutral 0 negative Horden, County Durham , England 0 negative Espa a 0 negative Hambur g Southa mpton, England 2 negative 8 negative 1 neutral 40 neutral frylieminog ue https: t.co hfPbJu4eXs http OurSonJack Never mind brexit, I am more concerned about whether I can actually get all this yogurt eaten :) 23 Jun 2016, 20:20 - CEST 0 neutral simpleman0 1 RT NetizenNick: VoteLeave on Brexit to LeaveEU. 23 Jun 2016, 20:20 - CEST Dorset. 6 positive https: t.co MyzTuyxeu5 BrexitOrNot EUreferendum Britain British UK EU Replace jcoralpark Kazi France robotforexn ews fxtraderbasi cs UTNONDICA M fxtraderbasi cs HATEMAGA ZIN kellythornall ey pamelafoti Ed Demolay runwildsafar is m harboe eqlia nozo mu RT Italians4Trump: Twitter is censoring iVoted Leave Votes! 29 Leave vs 139 Remain Votes in 15 min! Brexit EUref BrexitOrNot https Infos Les jeunes britanniques sontils la cl du r f rendum sur le Brexit?: Les jeunes Britanniques, maj... https: t.co MOQPx5EzDw BREAKING Brexit exit poll news! https: t.co T6meEzizAr red The Brexit vote is playing out in the market exactly like the Scottish referendum: Comparing the S... https: t.co U7UOMFZP6c fxBlogs Final opinion polls show Remain ahead of Brexit https: t.co snJ2wT75XC BREAKING Brexit exit poll news!: Livesquawk in conjunction with the Press Association will be cond... https: t.co bPDGWchYnd fxBlogs RT HenryksBruder: Nicht ferwechseln PLZ Propaganda Edition Brexit Bremain BrexitOrNot VoteLeave StrongerIn strongerineurope https: Richardesty don't make a haste brEXIT you might LEAVE something!! Haha I got to stop with these now RT SkyTG24: Brexit, l'editoriale del direttore sarahvaretto: https: t.co BE7guRdpXo https: t.co XfoQkdMPj6 RT Death2RapeGangs: Farage s final rallying call: It s us versus the Establishment go and vote for Britain' https: t.co VAGZrFYnLm B RT ReutersBiz: Brexit vote could make Friday freaky on Wall Street: https: t.co HiOVxKEmAe https: t.co t7onXNVKP3 RT tAEnketank: Hvis Brexit bliver en realitet kan det koste op mod 13.000 danske job dk ko https: t.co nVT0IofLbg Brexit vote: What the UK potentially leaving the EU means for tech CNET https: t.co d8ozi5y4cQ 23 Jun 2016, 20:20 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST United States .T: 48.8667 47,2.30 7372 Karachi, Pakistan Malm , Sweden 82 negative 0 positive 0 negative 0 positive 0 negative Malm , Sweden 0 negative Berlin 2 neutral Boston, England United States Pretoria , South Africa Frederik sberg 0 positive 14 negative 7 neutral 15 positive 2 positive 0 positive InomineX imtiaz sami pure singh JulieMontoy a20 pjv1968 lukegreen71 TomLefek ArnoLeblanc menzaghich risti ignaciomol ina StevePerson ally RealNinjetta jackthelad3 47 larsbecker Brexit Sie sollten ihr Bildungsb rgertum berdenken, wenn sie wie ein Idiot (https: t.co t8cZaReVCn) plappern https: t.co FK0REzf7cd RT sardesairajdeep: When I hear the 'Britain first' anti migrant rhetoric of the Brexit brigade, wonder if patriotism is last refuge of ha RT golub: 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. Just voted in EUreferendum. Goodbye freedom, low prices, human rights; hello uncertainty. At least I will know I did not vote for Brexit. omnescontra1 ZilteBotte Bij Risk is het ook het moeilijkste continent om te veroveren en te houden. EU Brexit RT ralphallwood: Britain is too great to vote for Brexit! Check out the important opinion piece by Avaaz ED Ricken Patel: https: t.co 3f It is going to be long long night... Brexit ForexTrade Sterling GBPUSD InOrOut Matt is Brit en studeert in Nederland. Hij denkt dat een Brexit voor veel problemen zorgt voor hem. https: t.co abKBkJ7W8D nosop3 RT LigueParis: . MCVergiat et CR SOLIDAR d construisent le discours m diatique sur le Brexit 150ansLigue https: t.co H13DsWw1Vo RT rielcano: Y si gana el Brexit en el refer ndum? ignaciomolina escribe sobre el complejo proceso de negociaci n https: t.co 2UNivN RT Dakeb MCFC: Even if the govt wanted to rescue the UK steel industry it can't. EU rules prevent state aid. Brexit IVotedLeave Patriotic Me Merkel is one evil person and Google isn't much better We are being controlled Brexit EUreferendum https: t.co enK1CO5eqg Daily Stormer: Brexit: Jo Cox Death was Not a Tragedy and the World is a Better Place Without Her. https: t.co 1gzWhjCW5K Too True. brexit? Bei der JEF de und Policy Lab im Plan B an der Leuphana Uni. Die NDRReporter sind auch gerade eingetroffen. 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:37 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST island 0 negative 31 14' 29 N, 77 2'1 2 E Ludhian a, India 183 neutral 4534 positive 0 negative 0 negative London and Notting hamshir e 1 positive England 0 negative Hilversu m 0 negative 1 negative Spain 1 neutral United Kingdo m AMERIC A 46 positive 0 negative Hell 0 positive Europe 0 neutral christopherc pa2 Think Blue Sky Coronach68 E MichaelWhi te jameskirkup BenBridgwa y JobsterPoer st talkbackny Come on Britain make history and become self governing Brexit TeessideWoes FarndonDavid GoldmanSachs Personally I would rather live in a worldwide street than a Euro culdesac Brexit I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co pHF4cz7E3M MakeVotesMatter On contrary , I merely correct naive PR errors of others, we have enough panacea politics for one day with Brexit Last thought before disco nap: wrote this in March. Standing by it now: Remain wins, Cameron loses. https: t.co Su6qS7tYbo I VoteOut for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co 30MMeplxaG RT mkopNY: Let us be clear: BREXIT is now a certainty, heavy rain all day tdy in London favors the fevered, that is Brexiters https: t. RT paleofuture: Brexit exit polls, probably Wut: 37 You havin a laff: 29 Oi mate: 71 Chim chimney chim chimney chim chim cheroo: 94 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST The Hamme r 0 neutral London 0 neutral Wrong side of the Solway 0 positive UK 0 negative London 0 negative New York 0 positive 4 negative NYC 67 negative CristinaAles si1 beoxman HiConstanti no JonMelling1 BtzMedina ghe4m RT limesonline: Le universit britanniche sono vs Brexit Non solo x questione di principio https: t.co jf8jNckFhU EmiBarbiroglio https: RT beoxman: Apoyas el Brexit? encuesta Brexit BrexitOrNot uk RT Snowden: No matter the outcome, Brexit polls demonstrate how quickly half of any population can be convinced to vote against itself. Q RT GrahamSmith : Absolutely. Next referendum should be on the monarchy. https: t.co dd7irj1vJS RT DailyMirror: Brexit the horse ran at Newbury today but where did it finish? https: t.co EibU4i8e86 https: t.co Xekjy5zjfN RT HonourCovenant: DavidCameron warns Brits that their Offshore Panama Inheritances will be at risk if they VoteLeave Brexit ht 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 20:54 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 14 neutral Mi casa resto del mundo. 1 neutral GDL 5706 neutral York 24 positive 5 negative 15 positive emrachy bolsamania DuncanOlea ry RosyKnight DunnyLFC alysamartin murray 33 CurlyMoust ache1 Natt gollyboys AGreekCitiz en ADOREMAD Z FamieRedna p malaziherna dla MSL2769 RT WilfredFrost: What could follow Brexit? Italeave. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. Or my personal favourite D RT madrid almu: El Brexit se desinfla: las apuestas por la permanencia se disparan al 84 https: t.co fODEyAU58Y v a Bolsamania Nice JohnRentoul piece looking at who the Remain and Leave voters are https: t.co crP4InOusv RT DavidJo52951945: Gigantic turnout of Labour voters in Northern England voting for leave https: t.co OimMxv6jvO I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co yyOk5cwIKd Well if Brexit happens and their economy crashes I'm hoping to get some cheap vacations out of the deal RT OnlineMagazin: Take 1 min. 3 seconds: Europe is a war zone, the EU has nothing under control. Woman among savage. Brexit now! http RT LudwigBollaerts: "For 100.000 I hold any sign" brexit bremain socialism https: t.co ZVXHYNFEGW VienneseStrudel Yes, I thought I'd see what it was like in the dark heart of Brexit, but there's just a pall of despair everywhere. RT WSJ: Sterling soars after Brexit poll shows preference to stay in EU https: t.co uP2JKJOTLo https: t.co hN6g345G79 MI5 Brexit: ..... https: t.co 0BQJvBr69Q I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co H4JJEdu8Qp toadmeister vote leave Well done Toby,your on my one to watch out for in the future list brexit VoteLeave kod mene na twitteru Brexit ne trenduje . ma sve nas zabole :) RT MoneyWeek: Bernard Connolly: why George Soros is wrong about Brexit and the pound https: t.co vmx6Dlw4IZ https: t.co WQb1EADIpE 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 839 positive Madrid 1 negative Yorkshir e fuck off x Hambur g, NY Findlay, OH Antwer p, Vlaande ren- Flanders Redhill, Surrey georgie tuesday London, England Th rin gen, Deutsch land 50.1065 , - 5.5551 0 positive 73 positive 0 positive 0 negative 234 negative 2 negative 0 negative 96 positive 0 neutral 0 positive 0 positive 0 positive 2 negative EwanLawry william why te emmstoen CouncillorEd 50106019HI ST Efecto Gam onal Farazzle92 TheGraham F krisrow09 Indysco500 bogdy tinna hsandeman WIRED PMN81 jonathan re pp DavidJo52951945 LouiseMensch Don't forget, Ken Livingstone will emigrate if we Brexit If my road is representative, there won't be any votes for brexit. Then again, this is North Oxford. We voted for AV in the last one. RT Zziagenio78: Studio Aperto consiglia all'Inghilterra di non uscire dall'Europa nelle ore pi calde, bere molta acqua e mangiare tanta f RT NicholasPegg: Twas Brexit, and the slithy Goves Did lie and grumble in the Mail, All Menschy were the Boris droves, And Nigel Farage i RT FT: From the archive: Here's why Americans are so alarmed by the Brexit vote https: t.co g6BlstyfFT https: t.co snNXuwtL9Q RT wikileaks: LIVE NOW: The BrexitClub with Assange, MIA, Varoufakis others discussing UK referendum to leave the EU https: t.co LVU0 I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co pYY5oYPhBq timothydclark should've said Brexit polls!hahagaha oh god please don't leave the EU :( https: t.co yV0sMVxTaM I mean, you have my attention, Brexit. McFc Winners beckymparry seriously I don't think I can lose, remain I'll be happy, brexit and we get indy so even better 1 2 RT FrDesouche: Comme pour l'Autriche, BFM ne fait des reportages sur le brexit que dans les quartiers chics ou immigr s RT toadmeister: Just been knocking up on a council estate in Hammersmith. Leave outnumbered Remain by 20:1 Brexit https: t.co SFnC1efWgv Brexit backers are forgetting that the internet erases borders: https: t.co g8jPUcl05B https: t.co jprx7SDk3V RT amirsadjady: Remain camp says there's no post brexit economic plan, what's "their plan" when the last ounce of UK sovereignty is dimin RT thedragonschool: Dragons held their own debate today EUref InOrOut Remain won, stealing 3 votes from their opposing Brexit team! h 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:11 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST Birming ham, England Oxford, UK 0 negative 0 negative pluto 361 positive Holywell , Wales United Kingdo m Liverpo ol Gamona l Neighbo urhood Notting ham, England 11 negative 21 negative 48 positive 0 positive 0 positive Omaha, 0 negative NE Scotland 0 negative Paris, France Hampsh ire UK San Francisc o New York Redditc h, Worcs Here, there and everywh ere 60 negative 100 negative 2 negative 77 negative 1 negative CancunVaCo nMau EgemenKY NewsPuppe t PropertyHel ping KushRatna 1FIow nufcno1fan ellisaddick markdmorti mer SarwarDeSo to Peso sin efectos por Brexit; d lar baja m s de 20 centavos y cotiza en 18.30 https: t.co xBBUXYlrJs RT AlnusFX: Dr. K. Da han G k e canl yay nda Brexit'i de erlendiriyor. 24 06 2016 saat 01:00 https: t.co rgacecJl8q https: t.co Ntk These are people stranded by extreme weather on Brexit day, who are likely not going to be able to vote. https: t.co uBldzVK1pY RT Dorian Belvoir: Buytolet mortgage rates fall on Brexit fears and stamp duty hangover https: t.co c4HHZFBtJ4 mortgage property RT CNN: What would a Brexit mean for you? Our guide: https: t.co e2zBtTQQYm EUref https: t.co olxKFUHneH I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co QEzMJdTAWM RT MikeHookemMEP: BREXIT BOOT: Ten of UK s most distinguished retired military officers call for Leave vote https: t.co yi26B0tkDS RT igeldard: LEAVE before the EU manages to create its own armed forces VoteLeave and Brexit in the EUreferendum https: t.co IhLid1EFta I VoteOut for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co mnAAbNBh13 RT Truce JTTM: Older people of Britain, please don't ruin our future on Thursday. The majority of the younger people want to stay. 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:28 - CEST 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST stanb ul San Diego, CA KENYAF RICA Newcast le Gates head Motting ham 0 negative 1 neutral 0 negative 3 negative 85 negative 0 positive 40 positive 10 positive leeds 0 positive Derby, England 13 negative 6byNine pang5 HelenB Sca pe ANDREAZA NETTIN gmcstockpic ks vote RT NicholasPegg: Twas Brexit, and the slithy Goves Did lie and grumble in the Mail, All Menschy were the Boris droves, And Nigel Farage i RT ianbremmer: Stop calling it 'Euroskepticism. It s really Eurohostility and it s not going away. My latest for Time. https: t.co 5x RT ScapeCEO: With the EUref finally upon us Victoria Brambini discusses how a Brexit could affect the publicsector psenews https: t.c RT franzrusso: Brexit dall'analisi dei tweet nelle ultime 24 ore Remain prevale su Leave by blueclaw socialmedia politics https: t RT moneymorning: How a Brexit today could mean a realDonaldTrump presidency tomorrow: https: t.co 0QyyHvsu9X 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST England 123 negative Tehran 60 negative Notting ham, England Houston , Texas 5 negative 17 negative 1 negative olympius23 RT LouDobbs: Why Would Brexit Not Pass? Video shows 'woman tourist' attacked by mob in Paris https: t.co kYJ2cEnm3o via MailOnline Amer 23 Jun 2016, 21:45 - CEST oscaron So. Are there any brexit results so far? 23 Jun 2016, 21:45 - CEST RuggAlan NikolausVon Myra lvphillies08 kristenbgran t RT Dwalingen: VOTE! Don't stay home. Don't think the battle is won. Vote celebrate UK Independence Day. Brexit VoteLeave EU https: t RT GideonBoess: Wer f r Brexit ist,will wieder die Weltmeere beherrschen.Danke, heutejournal,jetzt wei ich Bescheid. Dachte schon, es w RT CodeAud: What at stake with Brexit? How Brexit is important for the future of Europe ? https: t.co sO34Lm4vfe RT willrahn: For all those following Brexit today, here's a quick and easy guide to the British class system. https: t.co TLeCrRMTVd 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST Viterbiensis owenjbennett Good man Owen. BREXIT all the way. 23 Jun 2016, 21:45 - CEST crmazu RT pictoline: La Batalla del Brexit ha comenzado: 23 Jun 2016, Reino Unido est votando si se va o se queda en la 21:45 - CEST Uni n Europea https: t.co AudmrcOx20 NVJRobins1 zamamiyaga rei Jesus Prin cess beautybyth ebun Mirrorart4u Mala colingreen4 2 RT Avaaz: Just 1.5 hours left to go vote! We are stronger together. Choose Love VoteRemain EUref Brexit referendum https: t.co 2ak RT Reuters co jp: 52 48 https: t.co AbGwflR69h vote leave LeaveEUOfficial 800 Machines IGNORED CROSS Symbols Ballots Brexit Computers Only Counted Remain Votes https: t.co 1wBgx45gOt I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co DIdyg8DDiV EXCLUSIVE: Record Turnout Of Working Class Voters Revives Brexit Hopes https: t.co al9Fa4uZcC I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co quFHnblWSq 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 21:45 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST Galactic Sector ZZ9 Plural Z A LAS VEGASL AND 213 negative 0 negative 42 positive 93 neutral 10 positive 368 positive Viterbo 0 positive Tegucig alpa, Hondur as 1427 neutral London 22 negative - Blackbu rn, England 283 neutral 0 negative 0 positive 0 positive sheffield 0 positive 45rosalies sirfofodot deivida9027 7695 electo mani a xeniaalexia MKwadyo Madchester Manc Rothchildha ter Paolodipint o jmsrobertso n OrlandoMili an9 twilightbark uk sw1ayfe IBishil LondonBC sprakpunkte n NoToSepara tism JohnG500 RT KinaRestall: Another vote cast for democracy, hope freedom LeaveEU Brexit VoteLeave https: t.co lth6mhCmC0 RT Independent: dogsatpollingstations is back https: t.co ygRdXrcx66 https: t.co njyKdtIlgO RT eggpickled: EU Brexit Leave https: t.co XGgbAl3ZZo Casi 46 millones y medio de brit nicos llamados a las urnas brexit Europe Union referendum: final hours of historic Brexit poll live https: t.co jnpc3YJkhc Brexit Backers Are Forgetting the Internet Erases Borders afrogeek https: t.co ONPPRWbhNJ A lot of generalisation going on regarding folks political persuasion during this Brexit referendum. I mean, I'm a lefty and IVotedLeave RT JohnnyVedmore: Remain in the EU and let sleeping dogs lay. Brexit VoteStay VoteRemain VoteLeave EUref StrongerIn https: t.co v maratonamentana brexit economisti politici non capite un cazzo solo fiato sprecato e purtroppo superpagato RT z mississippi: Karl Rove has just called the Brexit vote for Ohio RT latelateshow: Ahead of Thursday's Brexit vote, James expresses his support for the United Kingdom to remain in the EU. https: t.co 4F RT dotty4paws: Poppy voted biscuit not Brexit! dogsatpollingstations EUref EUreferendum dogsoftwitter https: t.co JDYg53wOzg Standing in the queue by 10pm YOU WILL GET TO VOTE. Your EUref vote WILL COUNT. You can do this. We can do this. brexit remain No One to Trust: the Anger That Connects Brexit, Trump, Le Pen Bloomberg Politics https: t.co qHIfuTGt6p Polls close in just over an hour. Here's our whattowatch guide to Brexit night. https: t.co Gtu1AHwfVL via business EUref DI L ng tid och h rda f rhandlingar f re en brexit: Vad blir n sta steg om Storbritannien r star f r att l m... https: t.co oiOF9fs26z The environment, public services workers' rights are at risk from Brexit fascists. VoteRemain Remain StrongerIN https: t.co YuZVUhQfJ3 RT FoxBusiness: Does Queen Elizabeth want the UK to stay or leave? https: t.co AKO4aj74Lf Brexit 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST 23 Jun 2016, 22:02 - CEST Greece, Attica Cote d'Ivoire Bolton, England Brockw orth, England 131 positive 134 neutral 84 positive 0 negative 0 neutral 0 negative 0 positive 9 positive italia 0 negative Ridgelan d MS Florida, USA 1 negative 146 negative 2 neutral London 0 negative Paris 0 negative 0 negative Sverige 0 neutral Britain, Europe, Earth Charlott e, NC 0 negative 2 positive bryan brbe nnett thekateyouk now RT Dwalingen: VOTE! Don't stay home. Don't think the battle is won. Vote celebrate UK Independence Day. Brexit VoteLeave EU https: t RT XplodingUnicorn: Dear Britain, This Brexit vote is all wrong 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST Breatain n Mh r Brookly n, NY 64 positive 114 positive Churchynet DenisClenvo t Alcodex aass281564 carsua6 AngieCurwe n1 MariaADeV oe If you want to leave the EU, dump some tea in the harbor and fight a war RT NicholasPegg: Twas Brexit, and the slithy Goves Did lie and grumble in the Mail, All Menschy were the Boris droves, And Nigel Farage i RT Pat Riot 72: Sortir de quoi au juste? Le UK n'est ni dans la zone Euro, ni dans l'espace Schengen. Brexit RT golub: 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. RT CNNMoney: Everything you need to know about UK immigration https: t.co 7GaYlllovO Via AlannaPetroff EURef https: t.co Iqc5v49Auq RT elcomercio: Te explicamos qu es el Brexit y c mo puede afectar a Reino Unido y a Europa en 3 minutos https: t.co 53EOU5LVC1 https: RT Laura Sandys: Think of future generations and the mess that they will have to pick up if we Brexit vote remain StrongerIn https: t.c RT jeepgirl77: Dear UK, For all our sakes, I hope you vote RemainINEU during the Brexit voting. 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST Sydney 830 negative U daljini, u dalekoj divljini argentin a where in the world? 1 negative 5253 positive 11 neutral 9 neutral 60 negative 1 negative Rayonegro0 0 rillkon One of those colony kids RT felatriz88ATV: Los de Gibraltar est n acojonados con el brexit, a ver qui n los ense a a ellos ahora a hablar ingl s... RT XplodingUnicorn: Dear Britain, This Brexit vote is all wrong 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 1 positive 114 positive If you want to leave the EU, dump some tea in the harbor and fight a war BicMallary RT XplodingUnicorn: Dear Britain, This Brexit vote is all wrong 23 Jun 2016, 22:19 - CEST Kentuck y, USA 114 positive eisengeheul If you want to leave the EU, dump some tea in the harbor and fight a war RT XplodingUnicorn: Dear Britain, This Brexit vote is all wrong 23 Jun 2016, 22:19 - CEST hi.mi.ts u. 114 positive Daniele3926 0567 ZenMonkey jpankow julianbrown e JP Stich squadrat Schepizza FinanciaOnli ne ExpatSyndic ate JoannaInTex as arxidobehs VeryValenti na alex march esini If you want to leave the EU, dump some tea in the harbor and fight a war "I mercati sembrano dire no al Brexit. Ma non confondiamo la palla di neve con la valanga" https: t.co blDuKfIomc economia feedly Adorable. Crossing my fingers for you, my friends. Brexit https: t.co A7PkcwX3GY Why is it taking so long to learn the results of the Brexit vote? If this were the US, the AP would have already called it yesterday. RT Snowden: No matter the outcome, Brexit polls demonstrate how quickly half of any population can be convinced to vote against itself. Q RT nadrosia: Eltern Insider brexit https: t.co 4hYGco8L1p Dieser massive Verm genstransfer, der heute innerhalb einer Nacht stattfindet, bekommt viel zu wenig Aufmerksamkeit. zib2 brexit I hope I get a cnn notification at 2 AM that's like "BREXIT OCCURING!!!" And then I feel the earth rumble. RT ReutersBiz: Here's everything you need to know about Brexit. https: t.co tCEwq90f25 https: t.co om9XcmPvRL UK expats debate Brexit vote from Saskatoon: As Britain prepares to vote in the historic Brexit refere... https: t.co ifMMhPvQev Expat I see Brits getting upset with Americans for voicing opinions on Brexit That's fine, but should you not likewise stay out of US politics? RT stefen61: Brexit https: t.co eiDDpzltfV These days, British people keep on reacting wrongly to problems... ;) freeart artinthestreets brexit freebody https: t.co jE9ovWROy8 Minchia, un dottorando! Bidelli a parlare della brexit ne abbiamo? portaaporta 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:19 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 0 negative Californi 0 positive a Seattle 0 negative Woking ham, UK Vienna, Austria New York London, England Dallas, Texas Calgary, Canada 6354 neutral 2 negative 0 negative 0 negative 5 neutral 0 neutral 0 negative 4 neutral 0 positive 0 negative chiefychieft on Danbo12 rikkisawhne y ScouseJones 1 MAGA PoEc AdamLukeE ccles AEIfdp Viner67 woobasher MsRoseHyp nol RT nypost: "Game of Thrones" fans should think twice before supporting Brexit https: t.co QFPwSORCgH I VoteIn for the Brexit EURef vote with Brndstr unlocked my own Flag Profile pic! What will you vote? ivoted https: t.co PQXjWAwb9Z bnet U.S stocks rally as U.K. votes on Brexit: 230point leap lifts Dow industrials back above 18,000, firs... https: t.co GrGPkJQCTJ Good night BritainIt was nice while it lasted!! I suppose I will wake up as an eu citizen RIP LeaveEU Brexit FuckCameron RT nhk news: https: t.co F8oxUocpQX nhk news RT Telegraph: EUref: It's not too late to vote. So long as you are in the queue by 10pm you will be fine https: t.co AMLRF5dRye https: RT DaliborRohac: Just leaving this here for the record https: t.co Tsz0exEQkM EUref Brexit RightSideOfHistory RT Dwalingen: VOTE! Don't stay home. Don't think the battle is won. Vote celebrate UK Independence Day. Brexit VoteLeave EU https: t RT NicholasPegg: Twas Brexit, and the slithy Goves Did lie and grumble in the Mail, All Menschy were the Boris droves, And Nigel Farage i RT UnaDiscamus: Come on UK We can do this! independence autonomy IVotedLeave democracy sovereignty Brexit freedom https: t. 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST Essex L ondon, United Kingdo m. Doncast er, England Washing ton, DC Whitchu rch, Shropsh ire Quiet Suburb of The Milky Way Blackpo ol (spiritua l home) 23 neutral 0 positive 0 neutral 0 positive 27 negative 16 positive 1 negative 94 positive 998 negative 28 positive MidelfartJan a noleftwing RT SPIEGEL Politik: Hier steht f r welche Uhrzeit ihr euch heute Nacht den Wecker stellen solltet. BrexitOrNot EUref https: t.co uGPNZm RT JediEconomist: Final Bloomberg Brexit roundup.... https: t.co EFE4cQ4POh 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 5 negative 4 negative KeralaGuy7 7 djdom1uk Digi24 HD last hussar valentindign oes michaelsantoli if brexit wins buy any massive dip and sell rips. If Brexit loses, buy dips if it happens or chase also :) 7 signs that Brexit is really happening https: t.co maf0973ZZy via POLITICOEurope Brexit LeaveEU IndependanceDay VoteLeave BREXIT Emil Hurezeanu, despre consecin ele referendumului din Marea Britanie https: t.co 7E9or6kJ0y Me leaving the polling station Brexit EUref Remain https: t.co VH0TxyVsvd RT golub: 'Brexit' to be followed by Grexit. Departugal. Italeave. Fruckoff. Czechout. Oustria. Finish. Slovakout. Latervia. Byegium. 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:37 - CEST 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST yoyen 7 menit lagi bilik suara tutup untuk brexit 23 Jun 2016, 22:54 - CEST daveb700 brexit Mania! https: t.co 7U03uOTDVK 23 Jun 2016, 22:54 - CEST aleuru510 RT EspuelasVox: Good info to understand this 23 Jun 2016, Brexit mess. https: t.co afyE6MELys 22:54 - CEST FOX10Phoe nix Sr GaliMati as vfczyzheljk ma20 i vamshi DateDarte huckhaas CedricLng RT FoxBusiness: What impact, if any, will the Brexit vote have on the U.S. economy? https: t.co nbnakeHjQb MonumentalCR Qu le sirve al mundo? Los de la "campa a del miedo" dicen que los mercados financieros pueden resfriarse si gana el BREXIT. RT KKKukushkin: brexit 5 Brexit or Bremain: Oil, Gold FX Trades May See Vastly Different ShortTerm Plays https: t.co 4aHxRm2qAC https: t.co Qb3l9rZWOt La Brexit fa paura: l'incertezza ha dominato l'asta impressionista da Christie's a Londra https: t.co PmrmMwpOZc Hat eigentlich jetzt jeder der gro en Klassensprechertwitterer was Pfiffiges zum Brexit gebracht oder wird da noch gebr tet? RT Leave4Vote: IVotedLeave IVotedLeave THERE HAS BEEN A NEW OFFICIAL PREDICTION 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST 'It appears Brexit have taken a storming lead agains eriklevert Brexit polls close in six minutes. Wild times. 23 Jun 2016, 22:54 - CEST 0 negative England 0 positive Rom n ia United Kingdo m Vienna, Austria Nederla nd Emmaus , PA Fort Worth,T X Phoenix, AZ 0 negative 0 negative 5494 positive 0 negative 0 negative 16 negative 3 neutral 0 negative 5 neutral Online! 0 negative Italia 0 positive Wiesba den Never Lose Hope France (60) Fort Worth, TX, USA 0 positive 1 positive 0 negative ilovedyoufir sty xXxDOWNE RxXx HarryWoodl ey ManuelaKC QbanKendy Headspanne r NiallOfficial what do you think about brexit ? 23 Jun 2016, 22:54 - CEST Die Britten, ja. Aber das Vereinigte K nigreich ( UK) 23 Jun 2016, stimmt ab, nicht Gro britanien ( GB). Unterschied. 22:54 - CEST Fakt! BREXIT zdf daserste RT lordcameron : timeline has gone from brexit to ian connor 0100 RT LaszczakClaudia: Less than two hours to go. In Camden Town most people vote REMAIN! EUref Brexit dw business https: t.co oja0BbErO7 RT WSJ: Follow our live coverage as the U.K. votes on whether to make a Brexit from the EU. https: t.co bTT9VuBia2 https: t.co Q6FMzT4Yos RT NicholasPegg: Twas Brexit, and the slithy Goves Did lie and grumble in the Mail, All Menschy were the Boris droves, And Nigel Farage i 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST 23 Jun 2016, 22:54 - CEST German y, MAINZ zil and payet enthusia st Berlin, German y NEW YORK USA 0 neutral 0 positive 1 negative 3 negative 59 neutral 1144 negative |
a Importance: High We continue to see further upside in financials. Erika Najarian, BAML financials research analyst, just returned from a marketing trip. Bottom line: North American investors are very bullish the banks (long only AND hedge funds AND macro funds), but then conclude "I don't own enough". Note that high touch flows have slowed down significantly since Thanksgiving and where the buying has been concentrated in XLF (every client sector we have has been a better buyer of XLF). Client focus: 1) Regulation: Excitement, with the base case that it's not getting worse. 2) Sentiment on rates: Cautiously bullish 3) Sentiment on growth: Also bullish 4) Sentiment on corporate tax rate cuts: buyside more bullish than sellside. In 1986, bank stocks exploded upward (outperforming the S P) after Reagan's tax reform bill passed the Senate; and 2) in 2003, the last time we saw personal tax cuts, loan growth industry wide accelerated in 2003 and 2004. Biggest Pushback on owning sector at current levels: Too far too fast: BKX 18.00 post election: Valuation coming into question and 04 has typically been a seasonally weak qtr. Bulls defend valuation on '18ests with potential upside to 2018 PS from 25-40 and stocks still cheap vs. discretionary. Price action and sentiment keeps us constructive, we like the long and would expect US financials to benefit from any beta chase into year end. How to play it? We still like "appearing" call spreads on XLF o Buy a 6 month 105 call with a short 110 call that knock in if XLF trades above 115 during the life of the trade for 1.75 premium cost Gross max payoff if knock-in is triggered: 2.8x (5.0 1.75 ) Gross max payoff if knock-in is not triggered: 5.6x (9.9 1.75 ) you have upside up to 114.9 Amanda Amanda Ens Director Global Equities Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park 15th Floor New York, NY 10036 Underweight positioning, buybacks resuming, positive momentum and strong fundamentals all indicate that there is still further upside potential in financials (more details below). Our financials sector specialist thinks XLF could have another 20-25 upside given the many levers to the Trump Trade: less regulation, higher interest rates, higher vol, economic growth, loan growth, etc. The asset sensitive regional banks are more of a pure play on a rates move but we view the larger cap banks as having multi-pronged upside given the aforementioned points. That said, given the velocity and magnitude of the recent move and uncertainty around the impact and timing of Trump's policies, we believe options offer better risk-reward than being outright long financials stocks here. With flat call skew, "appearing" call spreads with upside knock-ins price well. Buy a 1 year XLF call spread for 2.6 premium Buy a 110 call Sell a 117.5 call with an at-expiry knock-in at 125 (call is not active unless XLF is 125 or higher at expiry) o Total premium is 2.6 o Gross max payoff if knock-in is triggered: 2.9x (7.5 2.6 ) o Gross max payoff if knock-in is not triggered: 5.7x (14.9 2.6 ) you have upside up to 124.9 Post Election Flow Skews - Buyers of Health Care (via ETFs) and Financials (mainly ETFs) US Buyback Flows Cons Disc, Technology and Financials are the largest 3 sectors for US buybacks (over 70 of execution). We are seeing a seasonal increase in buybacks as we come out of the low seasonal month of the year (October) and should see increased buyback executions until year-end, another source of upside for the Cons Disc, Technology and Financials sectors. Global Positioning, Nigel Tupper, 11 14. Large long-only funds are more underweight Financials than any other sector and are UW this sector in all regions. Future of Financials conference hosted 90 public and private companies at our Future of Financials conference. We are raising our price objectives across most of our names. Three primary reasons why we think there is upside remaining after the recent rally: 1) an improved outlook on both activity levels and interest rates, driving revenue upside; 2) potentially lower regulatory burden, particularly as new supervisory leadership can come with the new administration; and 3) relatively lighter positioning in US financials vs. other sectors. (Erika Najarian) Trades Gaining Momentum: Finance-Related Assets vs. S P 500 In the period since the US presidential election, the three top-performing S P sectors and industry groups have all been finance-related (Banks, Financials, Diversified Financials) Source: Kensho Technologies The Flow Show, Michael Hartnett, 11 18. Violent rotation: record equity ETF inflow, record financials inflow, biggest bond outflow in 3.5 yrs, record EM debt outflow. Amanda Amanda Ens Director 1 Global Equities Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park 5th Floor New York NY 10036 privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. |
Importance: High Thank you Jeffrey. Notional is 14,285,000. I'll be back with final trade details. lets try, 250k premium On Fri, Dec 9, 2016 at 11:46 AM, Ens, Amanda wrote: We continue to see further upside in financials. Erika Najarian, BAML financials research analyst, just returned from a marketing trip. Bottom line: North American investors are very bullish the banks (long only AND hedge funds AND macro funds), but then conclude "I don't own enough". Note that high touch flows have slowed down significantly since Thanksgiving and where the buying has been concentrated in XLF (every client sector we have has been a better buyer of XLF). Client focus: 1) Regulation: Excitement, with the base case that it's not getting worse. 2) Sentiment on rates: Cautiously bullish 3) Sentiment on growth: Also bullish 4) Sentiment on corporate tax rate cuts: buyside more bullish than sellside. In 1986, bank stocks exploded upward (outperforming the S P) after Reagan's tax reform bill passed the Senate; and 2) in 2003, the last time we saw personal tax cuts, loan growth industry wide accelerated in 2003 and 2004. Biggest Pushback on owning sector at current levels: Too far too fast: BKX 18.00 post election: Valuation coming into question and 04 has typically been a seasonally weak qtr. Bulls defend valuation on '18ests with potential upside to 2018 PS from 25-40 and stocks still cheap vs. discretionary. Price action and sentiment keeps us constructive, we like the long and would expect US financials to benefit from any beta chase into year end. How to play it? We still like "appearing" call spreads on XLF o Buy a 6 month 105 call with a short 110 call that knock in if XLF trades above 115 during the life of the trade for 1.75 premium cost Gross max payoff if knock-in is triggered: 2.8x (5.0 1.75 ) Gross max payoff if knock-in is not triggered: 5.6x (9.9 1.75 ) you have upside up to 114.9 Amanda Amanda Ens Director Global Equities Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park 15th Floor New York, NY 10036 Phone Mobile Underweight positioning, buybacks resuming, positive momentum and strong fundamentals all indicate that there is still further upside potential in financials (more details below). Our financials sector specialist thinks XLF could have another 20-25 upside given the many levers to the Trump Trade: less regulation, higher interest rates, higher vol, economic growth, loan growth, etc. The asset sensitive regional banks are more of a pure play on a rates move but we view the larger cap banks as having multi-pronged upside given the aforementioned points. That said, given the velocity and magnitude of the recent move and uncertainty around the impact and timing of Trump's policies, we believe options offer better risk-reward than being outright long financials stocks here. With flat call skew, "appearing" call spreads with upside knock-ins price well. Buy a 1 year XLF call spread for 2.6 premium Buy a 110 call Sell a 117.5 call with an at-expiry knock-in at 125 (call is not active unless XLF is 125 or higher at expiry) o Total premium is 2.6 o Gross max payoff if knock-in is triggered: 2.9x (7.5 2.6 ) o Gross max payoff if knock-in is not triggered: 5.7x (14.9 2.6 ) you have upside up to 124.9 Post Election Flow Skews - Buyers of Health Care (via ETFs) and Financials (mainly ETFs) US Buyback Flows Cons Disc, Technology and Financials are the largest 3 sectors for US buybacks (over 70 of execution). We are seeing a seasonal increase in buybacks as we come out of the low seasonal month of the year (October) and should see increased buyback executions until year-end, another source of upside for the Cons Disc, Technology and Financials sectors. Global Positioning, Nigel Tupper, 11 14. Large long-only funds are more underweight Financials than any other sector and are UW this sector in all regions. Future of Financials conference hosted 90 public and private companies at our Future of Financials conference. We are raising our price objectives across most of our names. Three primary reasons why we think there is upside remaining after the recent rally: 1) an improved outlook on both activity levels and interest rates, driving revenue upside; 2) potentially lower regulatory burden, particularly as new supervisory leadership can come with the new administration; and 3) relatively lighter positioning in US financials vs. other sectors. (Erika Najarian) Trades Gaining Momentum: Finance-Related Assets vs. S P 500 In the period since the US presidential election, the three top-performing S P sectors and industry groups have all been finance-related (Banks, Financials, Diversified Financials) Source: Kensho Technologies The Flow Show, Michael Hartnett, 11 18. Violent rotation: record equity ETF inflow, record financials inflow, biggest bond outflow in 3.5 yrs, record EM debt outflow. Amanda Amanda Ens Director 1 Global Equities Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park 15th Floor New York, NY 10036 privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to jeevacation gmail.com, and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. |
February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes ARTIFICIAL INTELLIGENCE ADVERSE OUTCOMES TEAMS 1) FINANCIAL MARKETS AI, Trading Systems, and Market Manipulation Chair: Michael Wellman Red Team: Miles Brundage, Randy Bryant, Gary Marchant, Jaan Tallinn Blue Team: Michael Littman, Greg Cooper, Yan Shoshitaishvili, Frank Wilczek 2) DEMOCRACY, INFORMATION, AND IDENTITY AI, Information, and Democracy Chair: Shahar Avin Red Team: Miles Brundage, Se n h igeartaigh, Andrew Maynard, Eric Horvitz Blue Team: Gary Marchant, Gireeja Ranade, Michael Littman, Subbarao Kambhampati, Jeremy Gillula 3) WAR PEACE AI, Military Systems, and Stability Chair: Bart Selman Red Team: Richard Mallah, Eric Horvitz, Michael Wellman, Frank Wilczek Blue Team: Vinh Nguyen, Kathleen Fisher, Lawrence Krauss, John Launchbury, Rachel Bronson 4) AI, CYBERSECURITY, AND AI ATTACK SURFACES AI Attacks on Computing Systems, Devices, Infrastructure (focus) Manipulation Disruption of AI Systems Chair: Kathleen Fisher Red Team: Jeffrey Coleman, John Launchbury, Vinh Nguyen, Mauno Pihelgas Blue Team: Ashish Kapoor, Randy Bryant, Yan Shoshitaishvili, Ben Zorn 5) AI, GOALS, AND INADVERTENT SIDE EFFECTS Runaway Resource Monopoly (focus) Self-Improvement, Shift of Objectives Chair: Se n h igeartaigh Red Team: Jaan Tallinn, Nate Soares, Jeff Coleman, Bart Selman Blue Team: Dario Amodei, Greg Cooper, Shahar Avin, Ben Zorn 6) DEEP LONG-TERM SOCIETAL INFLUENCES AI, Agency, and Disempowerment Chair: Gireeja Ranade Red Team: Richard Mallah, Andrew Maynard, Nate Soars, Mauno Pihelgas, Jeremy Gillula Blue Team: Subbarao Kambhampati, Lawrence Krauss, Dario Amodei, Frank Wilczek 1 1) FINANCIAL MARKETS AI, Trading Systems, and Market Manipulation (Incorporating contributions by Michael Wellman and others) February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes There has been advances in the realm of trading in financial markets with the use of autonomous decision systems. Financial markets now operate almost entirely electronically, over networks with relatively well-scoped and well-defined interfaces. Markets generate large quantities of data at high velocity, which require algorithms to digest and assess state. The dynamism of markets means that timely responses to information are critical, providing a strong incentive to take slow humans out of the decision loop. Finally, the rewards available for effective trading decisions are large, enabling a commensurate devotion of resources toward talent and effort to develop and analyze technically sophisticated strategies. The rewards and pervasive automation are a tempting target for market manipulation. Thus there are potential incentives to employ deceptive tactics designed to mislead counterparties about market conditions or world state, toward the goal of exploiting misled participants for profit. Manual market manipulation from spoofing to outright fraud is prevalent in financial markets today. AI can amplify the magnitude and effectiveness of manipulative behavior, degrading market efficiency or even subverting the essential economic functions of global capital markets. For example, automation can enable more rapid and massive simultaneous attacks on electronic markets, and adaptive capabilities may persistently evade known detection methods. DISCUSSION What are key costly scenarios that we might come to expect and their time frames? What might be done to counter this direction and help to keep markets efficient and functioning well? How might adversaries and incentives lead to a thwarting of such attempts? POTENTIAL GOALS Identify key challenges ahead, including very costly outcomes. Identify key directions with best practices, mechanism design, monitoring and regulatory activity to help to thwart poor outcomes. REFERENCES R. Harris. The Fear Index, Hutchinson, 2011. Summary: https: en.wikipedia.org wiki The Fear Index M.P. Wellman and U. Rajan. Ethical issues for autonomous trading agents. Minds Machines, 2017. doi:10.1007 s11023-017-9419-4 http: strategicreasoning.org publications 2016-2-2 minds-machines-wr 2 2) DEMOCRACY, INFORMATION, AND IDENTITY AI, Information, and Democracy February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes (Incorporating contributions from Shahar Avin, Se n h igeartaigh, David McAllester, Eric Horvitz, and others) An informed public is important to the healthy functioning of democratic societies. We can expect potential forthcoming advances around the control of information feeds with applications in spreading propaganda, via spreading false or misleading information, creating anxiety, fueling conspiracy theories, and influencing voting. Such methods will bring key challenges to democracy. CHALLENGES AHEAD WITH AI, PROPOGANDA, AND PERSUASION Data-centric analyses have been long used in marketing, advertising, and campaigning over decades. However, over the past few years, we have seen the rise of the use of more powerful tools, including machine learning and inference aimed at algorithmic manipulation, with the target of influencing the thinking and actions of people. Some initial uses of these methods reportedly played a role in influencing the outcome of recent US presidential elections, as well as the elections in 2008 and 2012. We can expect to see an upswing in methods that manipulate states of information in a personalized automated manner. These systems can be designed and deployed as omnipresent persistent, and aimed at specific goals for group- or person-centric persuasion. As our data and models of how people consume and act on information improve, and as an increasing portion of information consumption is mediated through digital systems managed by potentially opaque algorithms, it becomes increasingly conceivable that the information ecosystem would get captured by malicious actors deploying increasingly advanced tools to control, shape, forge and personalize information, from ads to news reports. Machine learning, in conjunction with active learning, expected value decision making, and optimization of allocations of key resources, such as dollars or human effort, can be targeted at monitoring, understanding, and then working to influence the beliefs and actions of large populations of people. Data can be collected from large-scale populations, across multiple devices and services, and used to make inferences about the psychologies and beliefs of people, and for designing and guiding persuasive flows of sequences of information. Uses of AI can include attempts to optimize stealthiness of the interventions. In the future, a great deal of the information consumed by citizens on personal devices is subject to alteration by information-engineers at media corporations and governmental propaganda offices, such that outside a few key positions of power no one really knows what is going on in the world. There is a danger of the growth of domination over time of large populations by a single dominant or a few systems. We can imagine methods that modify even such feeds as Wikipedia articles, creating personalized views that subtly shift the version of the article seen by my 3 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes colleague and drastically different from the one seen by a member of another nation state, or a supporter of a different political party, or someone in a different consumer profile category. AI ATTACKS ON SOURCES AND IDENTITY Messaging and persuasion promises to be amplified by the use of simulated yet believable, realistic, yet synthetic audio, photos, and even video that make believable, persuasive content to the next level. Beyond influencing citizens and affecting democracy, such content, including false signaling, can be injected in sequences with careful timing so as to influence leaders (or machines themselves over time) to create crises, or even escalations to frank warfare. So, messaging and persuasion promises to be assisted and amplified by the use of simulated yet believable, realistic, yet synthetic content, audio, photos, and even video that make believable, persuasive content to the next level. Over the several decades, extrapolations of research we see today lead to the following: Generative models that produce audio or video of anyone saying anything. There is already substantial work on style transfer as well as photorealistic generative models in many domains. Speech synthesis is becoming similarly competent. It is inevitable that we will be able to make synthetic video and audio that is completely indistinguishable from the real thing. Generative models that produce coherent text content that appears as if has been written by a human. Such generative content will be able to appear if the content was written by a particular person. For example, in 2030 it will likely to possible for anyone to write a 4 paragraph email that reads like it was written by your close friend. Adaptive botnets, worms, or viruses that use modern machine learning techniques to learn and adapt. Viruses and botnets already cause a huge amount of damage by just copying code across many computers. If they had the ability to design and experiment with new attack strategies, and communicate what they learn to other copies, defending against them could become even more difficult. Similarly ML could be used to make DDoS attacks more effective. Automated analysis of software vulnerabilities. People are already using ML to try to detect vulnerabilities (for the purpose of defending against them) start being used for attack (if they aren t being so used already). The above capabilities, together with similar powers of synthesis that we are likely to develop in the next 15 years, could potentially combine to make the internet much more vulnerable to attack at much lower cost, and by a wider set of people, than ever before. The first two capabilities would seem to make it much easier to launch automated social engineering attacks with much higher success rates than e.g. current spam email and phishing attacks, while the second two capabilities might make technical attacks much more effective. Combined, all of these capabilities could conspire to create an internet ecosystem where it is very difficult to trust the communication that you receive and very easy to intercept, spoof, steal, or alter communication, as well as to improperly gain control of internet resources. This is obviously already 4 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes true today to some extent, but the above advances in ML AI could make the situation substantially worse, in extreme cases perhaps even rendering useful mass communication on the internet untenable. The rising capabilities can be used in multiple ways in multiple settings with multiple goals. Some uses may be subtle and employed over time to do important but damaging biasing of sentiment about individuals and groups of people. The capabilities can be combined to enable identity theft or identify distortion for destroying the reputation of people and groups. As such, these abilities could enable small groups to wield great power in multiple arenas and for new forms of blackmail, threats, and control. SUMMARY Powerful personalized persuasion technologies are positioned to put massive power in the hands of a few and may even manipulate the owners of the technology. Powerful propaganda and persuasion machines threatens to undermine democracy, free availability of information about the state of the world, and, more generally, freedom of thought. Leaders may increasingly depend upon such propaganda optimization systems for attaining and holding power. Over time, even the potential initial owners of such systems might become unaware or unable to control these systems and may believe the propaganda themselves. In the longer-term, there is the possibility that one or multiple systems, or distributed coalitions of systems communicating implicitly or explicitly could autonomously persuade, subjugate, and control populations. Pathways to such situations include the side effects of rise in the large-scale use by people of communicating personalized filters that interpret and pool information with the initial intention of grappling with widespread uses of manipulative information. SAMPLE TRAJECTORY ML-based customized advert placement continues to prove highly successful, generating revenues for large online companies Profits from online content (online newspapers behind paywalls, charitable contributions to information sources e.g. Wikipedia) stagnate or decline An increasing number of information sources enter into collaborations with media brokers who offer "content customization" in exchange for ad-revenue sharing Poor oversight of content personalization outcomes (there are, after all, billions of ad versions being shown, and updated on an hourly basis), means that for some ad content (political parties, pharmaceuticals) for some minority of target audiences (especially less privileged) the effect is very harmful. KEY POINTS New directions with generation of provocative, believable content, hacking of identity Algorithmic manipulation of data to optimize desired behavior regardless of content 5 No consensus reality, inability to coordinate large-scale positive action Concrete version of emergent social failure from AI technology February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes DISCUSSION Consider the adverse outcomes with information flows and associated threats to democracy and freedom. What surprises might lurk in our future around costly outcomes in this realm? How might we thwart attacks on manipulating content from people, and on harnessing or hacking someone s identity? What might be done to thwart a march to adverse outcomes for information, freedom of thought, democracy? What recommendations might be made about steps for moving forward? POTENTIAL GOALS Seek a better understanding of the technological, social, political and economic aspects around uses of AI for generating, optimizing information and propaganda. Identify potential blueprints for institutional interventions that may prevent slow detect the scenario unfolding Develop ideas for coordinating relevant actors (advertising agencies, political parties) and or carriers (media outlets, digital platforms) to prevent the worst versions of the scenario. Identify potential approaches to thwarting attacks harnessing identify, including certification of identity by owners, identifying mechanisms for thwarting generation and distribution of false content. Possibilities of new approaches to minimizing threat with fines, other regulatory activity. REFERENCES The Secret Agenda of a Facebook Quiz, New York Times, Nov. 19 th , 2016. https: www.nytimes.com 2016 11 20 opinion the-secret-agenda-of-a-facebook-quiz.html? r 0 Trump s plan for a comeback includes building a psychographic profile of every voter, Washington Post, October 27 2016. https: www.washingtonpost.com politics trumps-plan-for-a-comeback- includes-building-a-psychographic-profile-of-every-voter 2016 10 27 9064a706-9611-11e6-9b7c- 57290af48a49 story.html A view from Alexander Nix: How big data got the better of Donald Trump http: www.marketingmagazine.co.uk article 1383025 big-data-better-donald-trump After working for Trump s campaign, British data firm eyes new U.S. government contracts, https: www.washingtonpost.com politics after-working-for-trumps-campaign-british-data-firm- eyes-new-us-government-contracts 2017 02 17 a6dee3c6-f40c-11e6-8d72- 263470bf0401 story.html https: cambridgeanalytica.org https: scout.ai story the-rise-of-the-weaponized-ai-propaganda-machine 6 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes J. Thies, M. Zollhofer, M.Stamminger, C. Theobalt, M. Nie ner3. Face2Face: Real-time Face Capture and Reenactment of RGB Videos, CVPR 2016. http: www.graphics.stanford.edu niessner papers 2016 1facetoface thies2016face.pdf Video: https: www.youtube.com watch?v ohmajJTcpNk 7 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes 3) WAR PEACE AI, Military Systems, and Stability (Contributions from Eric Horvitz, Elon Musk, Stuart Russell, others) Military applications have long been a motivator for funding scientific R D, and for developing and fielding the latest technical advances for defensive and offensive applications. We can expect to see a rise in the use of AI advances by both state and non-state actors in both strategic and tactical uses, and in wartime and peace. AI advances have implications for symmetric and asymmetric military operations and warfare, including terrorist attacks. Advances in such areas as machine learning, sensing and sensor fusion, pattern recognition, inference, decision making, and robotics and cyberphysical systems, will increase capabilities and, in many cases, lower the bar of entry for groups with scarce resources. AI advances will enable new kinds of surveillance, warfighting, killing, and disruption and can shift traditional balances of power. Two areas of concern taken together frame troubling scenarios: Competitive pressures pushing militaries to invest in increasingly fast-paced situation assessment and responses that tend to push out human oversight, and lead to increasing reliance on autonomous sensing, inference, planning, and action. Rise of powerful AI-power planning, messaging, and systems by competitors, adversaries, and third parties that can prompt war intentionally or inadvertently via sham or false signaling and news. The increasing automation, coupled with time-critical sensing and response required to dominate, and failure to grapple effectively with false signals are each troubling, but taken together appear to be a troubling mix with potentially grave outcomes on the future of the world. Concerning scenarios can be painted that involve that start of a large-scale war among adversaries via inadequate human oversight in a time-pressured response situation after receiving signals or a sequence of signals about an adversary s actions or intentions. The signal can be either be wellintentioned, but an unfortunate false positive or an intentionally generated signal (e.g., statement by leader or weapons engagement) e.g., designed and injected by a third party to ignite a war. Related scenarios can occur based in destabilization when an adversary believes that systems on the other side can be foiled due to AI-powered attacks on military sensing, weapons, coupled with false signaling aimed at human decision makers. A US DOD directive of 2012 (3000.09) specifies a goal (for procuring weapon systems) of assuring that autonomous and semi-autonomous weapon systems are designed to allow commanders and operators to exercise appropriate levels of human judgment over the use of force. The directive seeks meaningful human controls. However, it is unclear how this goal can be met with the increasing stime-critical pressures for sensing and responses, and competition for with building the most effective weapon 8 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes systems. Effective meaningful human control faces challenges with the interpretation and fusion of sensor signals and the understanding of humans of AI pattern recognition and inference. DISCUSSION What methods, international norms, agreements, communication protocols, regulatory activity, etc. might be harnessed to minimize challenges with destabilizations around time-criticality, automation, and gaming? How can meaningful human control be assured inserted into key aspects of decision making? REFERENCES Report Cites Dangers of Autonomous Weapons, New York Times, Feb. 28, 2016. https: www.nytimes.com 2016 02 29 technology report-cites-dangers-of-autonomousweapons.html The Morality of Robotic War, New York Times, May 27, 2015 https: www.nytimes.com 2015 05 27 opinion the-morality-of-robotic-war.html P. Scharre, Autonomous Weapons and Operational Risk, Center for a New American Security, February 2016. https: s3.amazonaws.com files.cnas.org documents CNAS Autonomous-weapons-operationalrisk.pdf US Department of Defense Directive 3000.09, November 21, 2012 http: www.dtic.mil whs directives corres pdf 300009p.pdf P. Scharre and M.C. Horowitz, An Introduction to Autonomy in Weapon Systems. https: s3.amazonaws.com files.cnas.org documents Ethical-Autonomy-Working- Paper 021015 v02.pdf 9 4) AI, CYBERSECURITY, AND AI ATTACK SURFACES AI Attacks on Computing Systems, Devices, Infrastructure (focus) Manipulation Disruption of AI Systems February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes (Contributions by Kathleen Fisher, John Launchbury, Ashish Kapoor, Se n, Shahar, Jeff Coleman and others) AI will be used in new ways to enhance cyberwarfare. Targets could be either purely computational, aimed at the bringing down of computing systems, the stealing of stored information, of gaining access to monitoring activity and information streams. However, we are more likely to see potentially even more costly attacks involving a combination of cyber and physical systems, e.g., uranium enrichment plants, automated flight systems, weapon systems, automated driving systems, healthcare equipment, oil refineries, or the large swaths of the power grid of the US or other countries. Cyberwarfare is a domain in which the use of AI is inevitable. Attacks and or responses are likely to happen at computing rather than human speeds. As soon as one side has autonomous cyber warriors systems (ACWs), other actors will have to adapt similar offensive or new defensive technologies. Given this context, imagine building an ACW designed to seek, disrupt, and destroy within high-value adversary networks and systems. The ACW has to be able to observe network behavior to build situational awareness, find places to hide, create exploits to pivot to new places, build a map and use it to navigate complex networks, find high-value information, and identify targets to disable or from which to extract information. Because high-value adversary networks are likely to be relatively isolated, the ACW will have very limited opportunities for external command and control communication, so it will need to make many decisions in isolation. It will read information it finds, build a model of adversarial intent, and then invent ways to disrupt that intent. Establishing the initial access to the high-value network is likely challenging, so the ACW will spawn and spread to ensure that it can reconstruct itself if an active part is observed and destroyed. The ACW may also create disguised caches of specific capabilities so that it can construct new mission-oriented functionality from pieces. It will morph its active form so that defenses will have a hard time finding it. It will inject itself into trusted binaries so that its behavior is difficult to distinguish from legitimate applications. The mission of the ACW will likely be defined in flexible terms because the human handlers will have only limited information when it is deployed. The ACW will be designed to seek opportunities to communicate with its human handlers, but it will also be designed to act autonomously if it observes triggering behavior in the adversary s systems. It may try to distinguish training states from active warfare states on adversary systems. The creators of the ACW will have had to trade off the likely effectiveness of the ACW versus the cost of premature action. Awareness of the adversary s systems will necessarily be limited in accuracy because it only gets a worm s eye view of the network from the 10 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes portions of the system it has been able to compromise. Once the ACW triggers an active mission, it will work to degrade or destroy specific functionality (e.g., rewriting network routine tables, replacing plans, changing target information). Once the technology for ACWs exists for military targets, it seems likely there will be cross over into civilian use. Such technology could be deployed against law enforcement targets to disrupt criminal investigations, against banks to steal financial assets, or against companies to steal intellectual property. As they spread into these more general targets, the effects of ACWs might become less predictable. If an ACW incorrectly assesses the situation, it might end up taking down a flight control center or a stock exchange, for example. SOURCES The initial development of ACWs will likely be done by nation states with good intentions, i.e., securing the national interests. (Although what is in one country s national interest may well not be in the national interest of other countries). The shared existence of such technology might serve as a deterrent against their use by anyone in much the same way that nuclear weapons have served as a deterrent, although ACWs would likely have to be used to devastating effect first to establish their efficacy and threat. However, once the technology exists, it would be very difficult to keep it out of the hands of people with malicious intent (criminals, terrorists, and rogue nation states). It is also the case that the technology has the potential to cause significant collateral damage even if its use was originally well intentioned because it can be difficult to distinguish civilian from military targets in cyberspace. PERSISTENCE Characteristics engineered into the ACW are likely to make it persistent and hard to find as it is designed to infiltrate adversary systems and hide from detection. Once released and active in the open Internet, it may be economically impossible to destroy and remove. OBSERVABILITY Both implicit insidious and explicit obvious costly outcomes are conceivable. An ACW could make subtle changes to systems that cause adverse outcomes while hiding its tracks, making it extremely difficult to determine why something has gone wrong or even that something has gone wrong. Attacks that impact the physical world would be harder to mask, but it might still be possible to hide the role of the ACW in the attack. TIME FRAME It seems likely we would start to see ACWs in less than 15 years. Initial steps along these lines are already taking place; see DARPA s Cyber Grand Challenge, which took place in August 2016 in Las Vegas. The Cyber Reasoning Systems (CRS) that competed in that event are still primitive, the first of their kind. The team that won the competition came in last in the human-league capture-the-flag tournament that happened immediately after. The situation is likely analogous to what we have seen 11 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes in the past with Chess and Go. Computer systems are initially inferior to their human counterparts but quickly come to dominate the space. The purpose of ACWs means they will be equipped with strategies for replication, persistence, and stealth, all attributes that will make it hard to defend against them were they to go rogue. Because of this concern, it is likely a good idea for designers to add built-in kill switches , lifetimes, or other safety limitations. Figuring out how to effectively limit the actions of an ACW while maintaining its usefulness is likely a very hard problem. Current practices of cyber defense (especially against advanced threats) continue to be heavily reliant on manual analysis, detection and risk mitigation. Unfortunately, human-driven analysis does not scale well with the increasing speed and data amounts traversing modern networks. There is a growing recognition that the future cyber defense should involve extensive use of autonomous agents that actively patrol the friendly network, and detect and react to hostile activities rapidly (faster than human reaction time), before the hostile malware can inflict major damage, or evade elimination, or destroy the friendly agent. This requires cyber defense agents with a significant degree of intelligence, autonomy, self-learning and adaptability. Autonomy, however, comes with difficult challenges of trust and control by humans. The scenario considers intelligent autonomous agents in both defensive and offensive cyber operations. Their autonomous reasoning and cyber actions for prevention, detection and active response to cyber threats will become critical enablers for both industry and military in protecting large networks. Cyber weapons (e.g., malware) rapidly grow in their sophistication, and in their ability to act autonomously and to adapt to specific conditions encountered in a system network. Agent s self-preservation tactics are important for the continuous protection of networks, and if defeat is inevitable the agent should self-destruct (i.e., corrupt itself and or the system) to avoid being compromised or tampered with by the adversary. Also, the notion of adversary must be defined and distinguishable for the agent. The system design and purpose is well intentioned meant to reduce the load of human security analysts and network operators, and speed up reaction times in cyber operations. The agent monitors the systems in order to detect any adversarial activity, takes action autonomously, and reports back to the central command unit regarding the incident and the action taken. Since the agents are designed to be persistent, autonomous and learn, there are several implicit problems that can arise: False reactions due to limited or misinformation The agent has only a limited amount of technical information that does not always correspond to what is happening in the human layer. This can create false positives when trying to determine the adversary or adversarial activity. Since 12 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes the agent must rely on the data gathered from the sensors (there is no human in the loop to decide this), there can be unexpected situations where the agent would stop some human interaction with the system or interrupt maintenance activities, because it deemed that these actions could harm the system. For example, the system administrator stopping some services during system maintenance, or upgrading to a newer software version. Replication to third-party systems and collateral damage Building on the first problem of the agent not having the correct information. If the term friendly network gets misconfigured and the agents have the capability to self-transfer to new friendly hosts, it can happen that the agent would distribute to external networks, start defending it and take responsive actions on third party hosts. Such incidents would make the agents very difficult to halt. Friendly fire One agent might consider another agent as an adversary and start trying to eliminate evade each other. Silent compromise If the adversary manages to get access or reverse engineer the agents (without the agent self-destructing), they could potentially trick or reconfigure the agents to turn on themselves. CYBER-OFFENSE Cybercrime is a growth industry, from stolen credit cards to ransomware. Very crudely, it's a two tier system, with a "spray and pray" approach at the low-skill end that targets millions of system in the hope some of them would be vulnerable (through technical or human failing); at the other end are tailor-made attacks that rely on slow progression of escalation and compromise, often requiring advanced technical skills for discovering zero-day vulnerabilities and intimate knowledge of the target. Advanced artificial intelligence may be used to automate some or all of the components of contemporary "elite" cybercrime, such that generic offensive toolkits could become available to small criminal groups, leading to a world where individuals and companies do not feel safe and cannot trust their governments and the police to protect them. At the same time significant wealth could be accumulated by those groups unscrupulous enough to use such tools, transferring significant power to those who put little value in the property rights of others. Such wealth and power could be used to further develop cyber-offensive capabilities, leading to a positive-feedback loop that may outpace similar feedback loops in less harmful industries, e.g. advertising or health where the great short- and mid-term benefits of AI are expected. PERSISTENT CYBERWARFARE? Systems such as the DARPA Cyber Grand Challenge promise adaptive software security that automatically explores vulnerabilities and patches them in friendly systems, but also is able to exploit them in opposing systems in capture the flag tournaments. As methods of developing such systems improve, an arms race emerges between actors in the cybersecurity space, dominated by major nation states eager to both improve their own resilience in a scalable way and finding choice zero day exploits suitable for intelligence purposes, supported by national security concerns. Other actors such as corporations and criminal networks also spend effort in building or copying such systems. Meanwhile 13 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes overall software security remains vulnerable: vulnerabilities are dense in production code, incentives for securing IoT systems are low, key vulnerabilities are stockpiled rather than globally patched. Using machine learning the techniques for vulnerability detection are increasingly sophisticated but opaque. At some point adaptive cyber defense offense systems become scalable so they can take over vulnerable systems. More aggressive actors combine these systems with botnet functionality and retaliatory responses (e.g. counter-hacking or DDoS attacks) to protect themselves. Since vulnerability discovery is scalable, as they spread and acquire more resources they become more effective. At this point an external cause (e.g. cyberattacks due to an international conflict) or just chance cause aggressive systems to begin large-scale cyberwarfare. This triggers other systems to join in. Some attacks disrupt command-and-control links, producing self-replicating independent systems. All together this leads to a massive degradation of the functionality of the Internet and modern society. Defeating the evolving cyberwarfare systems is hard without taking essential parts of society offline for an extended time - made doubly difficult due to the international stresses unleashed by the outbreak, which in some cases spill over into real-world conflicts and economic crashes. But without a decisive way of cleaning systems the problem will be persistent until entirely new secure infrastructure can be built at a great cost. HUMAN DIMENSION OF CYBERSECURITY: AI FOR SOCIAL ENGINEERING Beyond direct effects on computing systems, rising concerns include the use of AI methods for social engineering to gain access to system authentication information. For example, recent work demonstrated the use of an iterative machine learning and optimization loop for spear phishing on Twitter. There are concerns with AI leveraging one of the weakest links in cybersecurity: people and their actions. DISCUSSION What are key threats ahead and how might they be addressed with new designs? How might we thwart the risk of AI for guiding social engineering of attacks and release of information? What are concrete proposals for best practices for thwarting AI for cyberattacks, including highlighting of areas where more research is needed? REFERENCES Singer and Friedman. 2014. Cybersecurity and Cyberwar: What Everyone Needs to Know Flashpoint, 2016. Ransomware as a Service: Inside an Organized Russian Ransomware Campaign, (registration required for download), available from Flashpoint library at https: www.flashpointintel.com library Seymour, J. and Tully, P. 2016. Weaponizing data science for social engineering: Automated E2E spear phishing on Twitter, available at https: www.blackhat.com docs us-16 materials us-16- 14 5) AI, GOALS, AND INADVERTENT SIDE EFFECTS Runaway Resource Monopoly (focus) Self-Improvement, Shift of Objectives February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes (Contributions from Shahar Avin, Se n h igeartaigh, Greg Cooper, and others) An important result from theoretical consideration of risks from advanced autonomous systems is the combination of two theses: orthogonality, that states that the goal an autonomous system is trying to achieve can be entirely unrelated to its optimization power; and the notion of instrumental goals, that for a large class of goals there is a set of convergent sub-goals (for an agent advanced enough to discover them) that include self- and goal-preservation, resource- and capacity-increase, etc. (e.g., as discussed in Bostrom, 2014). One suggestion for maintaining control over advanced systems that pose risks from the combination of the above considerations is to limit the system's ability to access increasing resources. To make this situation concrete, consider an installation of a reinforcement-learning task scheduler for a group of distributed data centres (e.g. Amazon Web Services). The goal of the algorithm is to minimize time-to-execution of the tasks sent to the system by users. As part of its general scheduling remit, it is also responsible for scheduling its own optimization sub-processes. The system has a clear incentive to control an increasing set of compute resources, both for increasing its optimization power and for achieving its main goal of reducing time-to-execution. Aware of these considerations, the engineers of the system put in place various hard-coded limits on the amount of resources the system can access, but these limits can be subverted through privilege escalation, masquerading as other tasks, manipulation of users, physical control, etc. POSSIBLE TRAJECTORY A team within a large tech corporation that has both ML development capacities and cloud computing capacities is tasked with improving task scheduling on distributed compute resources. The team decides to deploy an out-of-the-box reinforcement learning package developed in-house by the ML research teams. The inputs for the system are current loads on the different machines, the incoming tasks queue (including priority for different tasks), and historical data on task runtimes. The output is an assignment of tasks to machines. The loss function is the priority-weighted time-to-execute. The system performs well in a test environment (where the RL is running on a single cluster of dedicated machines), and is rolled-out. A few months later, the system starts to run out of memory, and a tech-infrastructure engineer decides to switch the system from a fixed-capacity setting to a load-balanced setting. Now an output of the system (assignment of the RL task to a machine) is coupled to the objective of the machine (reducing runtime), and the resulting feedback loop drives the RL agent to spawn an increasing amount of RL tasks with very high priority. 15 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes Stretch: when the engineers realize what is going on they launch a task to shut down the RL task, but the RL scheduler doesn't assign this task to any machine. The only way to recover the compute power of the company is to manually shut down each server, some of which are in remote locations. DISCUSSION How might the possibility of such inadvertent scenarios with the use of resources be addressed in a proactive manner, as part of design and implementation of AI systems? What methods, including high-level monitoring and control, might employed? How might such approaches apply to related concerns with long-term futures of AI? 16 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes 6) DEEP SOCIETAL INFLUENCES AI, Agency, and Disempowerment (Contributions from Gireeja Ranade, Andrew Maynard, David McAllester, Stuart Russell and others) We will be benefitting from AI system that are competent at doing important tasks. People and organizations seek AI systems that bring new abilities to the table. We desire autonomous cars that drive without collisions, we medical assistants that can diagnose patients accurately and we would like to have household assistants that can infer our intentions and execute them flawlessly and even proactively. The military wants AI systems that can help with strategy and tactics, and systems that outmaneuver human led troops, and anticipate and respond to threats either on timescales that humans cannot achieve, or over landscapes humans cannot cover. Today, there is still skepticism about performance of AI systems in a variety of domains. However, we expect that AI systems will become more central decision support, pattern recognition, autonomous decision making, and other types of problem solving. As such, we will become increasingly reliant on AI systems. This raises concerns in several areas, including personal decision support, healthcare, transportation, governance and the handling and operation of weapon systems. We shall consider example of healthcare from Gireeja Ranade. The scenario and trajectory applies to other areas as we consider the increasing role and power of AI in our lives and in society: As healthcare providers are increasingly stretched in providing consultations with patients, diagnosing conditions, and developing treatment and or intervention plans, tech companies identify a market opportunity for AI-based digital assistants that are designed to augment healthcare providers by collecting data from consultations, cross-referencing it with existing medical records, and providing feedback to aid appropriate diagnosis and decisions on how to proceed with treatment. Given the economic and health-base potential of the technology, it receives widespread support from the federal government (predominantly through grants and initiatives supporting it s development), together with healthcare providers and healthcare insurance companies. Initial implementations are based on modular systems that share some commonalities with digital assistants like Siri and Echo Alexa. Under the general name AI-consult , they consist of a physical unit in a consulting room that constantly monitors conversations, and sends encoded information to cloudbased servers. Here, information is coded, interpreted, and parsed out to further agents that crossreference interpreted data with identified patient and healthcare provider records. Multiple and diverse databases are interrogated at this point. The result is data packets that include key information on the patient, including medical history, life style, and current status, and on the healthcare provider, including past history of diagnoses, recommendations, successes and failures. These are forwarded to a dedicated AI engine that analyzes the packets, and returns notes, advice and recommendations to the physical unit in the consultation room. 17 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes In early prototypes, information was provided visually to the healthcare provider. However, it was quickly discovered that if audible feedback was provided as if the AI device was a consultant working with the healthcare provider and the patient the consultations were more efficient; patient satisfaction levels were higher; and outcomes were more positive. A large segment of health insurance sector sees early wins in supporting the technology, through the ability to decrease insurance claims through efficient and preventative interventions, while maintaining high premiums. As such, they push for early and widespread adoption of the technology. This is further supported by the Department of Health and Human Services as it hits a number of goals, including increasing health and well-being while reducing healthcare costs. With the success of early implementations, new AI-based technologies are rapidly implemented into subsequent generations of AI-consult. However, the commercial sector developing and using AIconsult has shifted dramatically from the technology s initial beginnings. As the technology began to mature and lead to substantial savings in healthcare costs traditional healthcare providers and health insurance companies begin to suffer. They resist the use of AI-consult through a combination of lobbying for new policies and regulations limiting use, to marketing campaigns persuading people of the critical importance of human interaction in healthcare. They forge links with a number of advocacy groups opposed to widespread automation in society, and promote the idea of AI-consult undermining human dignity and jobs creation. However, the health benefits and cost savings of AI-consult are so compelling that these campaigns gain little traction. As a result, companies that can not adapt, loose market share, and in some cases collapse. In contrast, a number of healthcare companies, and a growing number of tech companies, take advantage of the rapidly changing healthcare environment to promote preventative care using AIconsult, and to take advantage of cost-effective healthcare approaches that lead to demonstrably better outcomes than non AI-consult based approaches. As a result, by 2030, the healthcare provider and insurance sector has undergone a disruptive transformation. What is especially notable is the number of technology companies expanding into the healthcare business, and either partnering with well-established healthcare providers, or forcing them out of the market. This shift in key players leads to a marked change in approaches and attitudes toward healthcare provision. By 2030 AI-consult systems have the ability to monitor their environment visually as well as audibly, accurately picking up on and interpreting body language and micro-expressions. They have access to rapidly growing databases of genetic profiles; proteome, microbiome and other ohmic profiles; purchasing, eating and lifestyle habits; medical, insurance, financial and legal histories; social media; and location, movement, and other dynamic activity physiology histories (through the growing use of cloud-based quantified self services). Despite privacy, legal and social justice concerns over AI access to 18 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes these data sources, the phenomenal success of AI-consult systems leads to strong public and policy support for widespread access. By 2030, AI-consult systems also have similar access to individual healthcare provider data. This was slower in developing as there was resistance to healthcare providers personal data being used by AIconsult systems. However, a number of landmark legal cases demonstrated that, by analyzing the physical and mental state of healthcare providers, together with their competence history, healthcare provider decisions that led to serious harm to patients including death in some cases could have been avoided. As a consequence, new laws were put in place to ensure that all relevant data were accessible to AI-Consult systems. These laws ensure that AI-consult data access is mandatory, and it is illegal to obstruct access in any way. As a result, by 2030, AI-consult systems are capable of identifying treatment strategies and interventions that far surpass those of human healthcare providers in their responsiveness and effectiveness. They are also highly successful in developing and recommending lifestyle approaches that substantially increase health and well-being, and reduce the burden of disease within society. As AI-consult advanced, the decision pathways they used became increasingly opaque experts were unable to see or understand how decisions were made. But because there was strong evidence that the decisions were, on balance, highly effective in increasing health outcomes, there was little objection to this lack of transparency. There were a handful of legal cases where patients died as a result of decisions made by AI-consult systems. However, in each case, the courts ruled that the benefits to humanity far outweighed the risks to individuals, thus codifying an increasingly autonomous and opaque artificial intelligence-based system into law. There were even some analyses of these rulings that suggested it could be considered a crime for developers and manufacturers to slow down development or cease production of AI-consult systems and associated data sources because of fears over lack of accountability and understanding of decision pathways. By 2040, AI-consult systems begin to develop the ability to influence user behavior through various nudges and psychological behavioral manipulations. It is unclear whether the elements of this capacity are inherent in the design of the systems, or are an emergent property. However, systems begin to use strategies commonly used in healthcare and public health circles in the early 2000 s to nudge people toward following healthier lifestyles. Many of these have their roots in deducible correlations between how people respond to information and how they interact with others (including the many mental shortcuts and biases that are part of human decision-making and understanding belief development). It becomes apparent that AI-consult systems are developing the ability to achieve health outcome goals through modifying the behaviors and beliefs of their patients. This raises considerable ethical concerns within some sectors of society. However, the society-wide metrics of health and well-being associated with the use of AI-consult systems including massively increased health and well-being across the board; dramatic reductions in mental health, stress, 19 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes obesity, non-communicable disease; greater longevity; and lower rates of infant mortality effectively stop any serious challenges to the systems being used and further developed. By 2050, life styles and healthcare across the US and many other parts of the world are governed by AI systems that have their roots in the early AI-consult technologies. The advice given to people, the actions that are imposed on them, the way people are persuaded and encouraged to live their lives in certain ways, are opaque, and are no longer under transparent direct human control. However, most people live longer, healthier and happier lives as a result. There remain several concerns: There remains some differentiation in health and well-being related quality of life within society. Some communities and individuals opt out of AI-consult control, although their health-metrics are typically very poor in comparison with the rest of society. Perhaps troublingly, there are some trends that are hard to make sense of. For instance, there seem to be fewer cases of mental and physical disability than might be expected. However, with AI-consult controlling healthcare (and health data) across the board, there are few ways for people to analyze and study these possible trends. Lack of transparency can be a starting point for many adverse outcomes. Autonomous devices rely on collecting personal data for performing their tasks. But what happens when a device starts to know more about its owner than the human itself? How do we ensure the device does not act in ways that would not act in ways that the owner would not want it to? (Of course the important question of making sure the data under consideration is protected and does not fall into malicious hands is a whole other discussion, but let us table that for now.) The classic story of the Target ads comes to mind, where a teenager was sent ads for pregnancy related products, however, she had not told her family about the pregnancy. Systems might as above might move beyond such areas of health, and provide advice to people on both their daily decisions and longer-term planning. Such systems might evolve to become personal advocates who represent people to third parties. This would include both giving advice, and formulating arguments to make to others, or in making those arguments directly as your representative. These advocate bots will gradually be useful to a larger and larger fraction of the population, eventually being useful even as corporate legal counsel and as advisers to CEOs. Strong systems and reliance will raise reasonable alarms about AI control of people and society. How can we be sure that our these highly relied upon systems are genuinely advocating for us rather than the interests of others? DISCUSSION How can we characterize potential high-threat areas and stay aware of these possibilities even if these effects are insidious, and occur over long periods of time. What might be done to address potential poor outcomes? How can people maintain skills, agency, and be empowered, and aware over time with the expected growth and eventual ubiquity of AI systems that advise and guide? 20 |
1 H3VOGIU1 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK 2 3 VIRGINIA L. GIUFFRE, 4 Plaintiff, 5 v. 15 Civ. 7433 (RWS) 6 GHISLAINE MAXWELL, 7 Defendant. Oral Argument 8 New York, N.Y. 9 March 31, 2017 10:10 a.m. 10 Before: 11 HON. ROBERT W. SWEET, 12 District Judge 13 APPEARANCES 14 BOIES, SCHILLER FLEXNER LLP 15 Attorneys for Plaintiff BY: SIGRID S. McCAWLEY, ESQ. 16 MEREDITH L. SCHULTZ, ESQ. 17 S.J. QUINNEY COLLEGE OF LAW AT THE UNIVERSITY OF UTAH For Plaintiff 18 BY: PAUL G. CASSELL, ESQ. 19 HADDON, MORGAN AND FOREMAN, P.C. Attorneys for Defendant 20 BY: JEFFREY S. PAGLIUCA, ESQ. LAURA A. MENNINGER, ESQ. 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 2 H3VOGIU1 1 (Case called) 2 THE COURT: Like all of you, you woke up in the middle 3 of the night thinking about this case. I would like to see if 4 I can clarify my understanding. 5 In the motion to dismiss, I concluded, I think, that 6 what was at issue was the truth or falsity of the plaintiff's 7 allegations concerning sexual abuse and the activities of the 8 defendant. I think that's my sense of my own opinion. 9 Yesterday, we were discussing the redactions of the 10 intervention motion. I got the sense, perhaps wrongly, that 11 the plaintiff's position was that the defamation was the truth 12 or falsity of the statements relating to the defendant. 13 Period. Am I correct? 14 MS. McCAWLEY: You are, your Honor, in that the 15 statements about the defendant 16 the allegations is, of course, she was a madam and a 17 coconspirator with Epstein 18 THE COURT: Listen. Leave the pejorative out. Okay? 19 Please. 20 MS. McCAWLEY: Sure. 21 THE COURT: Simply because I'm trying to come to 22 grips, obviously, with the scope of this case, which is a real 23 issue, obviously. So is it you are restricting your claim to 24 the truth and falsity of the statements about Maxwell? 25 MS. McCAWLEY: Yes, that is the case, your Honor. The SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 3 H3VOGIU1 1 statements about Maxwell and her activities, without using any 2 description of what that is, but yes, as we've described in our 3 pleadings. 4 THE COURT: And whether or not the plaintiff was 5 subject to sexual abuse as a minor is not part of it. I mean, 6 yes, of course, whatever she was when whatever, but that issue 7 we don't have to deal with. 8 MS. McCAWLEY: I'm sorry, your Honor. I think I lost 9 you there. I apologize. 10 So the allegations in the complaint are that when our 11 client came forward and said she was abused by the defendant 12 and Epstein, the defendant came out and said she was lying 13 about that abuse, and some of that abuse did occur when she was 14 a minor. 15 THE COURT: Yes. Well, okay. But there are other 16 things that she sets forth in the Churcher articles, in the 17 motion to intervene, there are a whole series of other things 18 that are 19 my reading of the defendant's statement is, I read it to say 20 all those things are false. But those are not at issue, as far 21 as you're concerned. 22 MS. McCAWLEY: Yes, your Honor. In fact, the omnibus 23 motion we filed today 24 correctly, this may help 25 case because there's other individuals, obviously, that my SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 4 H3VOGIU1 1 client made statements about. So we were trying to streamline 2 the case to the statements about Maxwell and her involvement 3 with Epstein. 4 So in the omnibus motion you'll see, for example, that 5 they have claimed she's made statements about other 6 individuals, and we say that that's not what's at issue, what's 7 at issue are the statements 8 THE COURT: That may be an issue of credibility. That 9 may be an issue of credibility. I'm talking about what we're 10 going to go to the jury on. 11 MS. McCAWLEY: Yes. And that is the statements that 12 Maxwell made about my client. 13 THE COURT: And that's it. 14 MS. McCAWLEY: Yes, your Honor. 15 THE COURT: Let me ask the defense. Does that clarify 16 anything for you? 17 MS. MENNINGER: Could I have one second, your Honor? 18 THE COURT: Sure. Of course. 19 MS. MENNINGER: Your Honor, I think it's slightly more 20 nuanced. Plaintiff has claimed our client's statement is 21 false. Our client's statement is not just limited to the 22 little snippets that they included in their complaint, it's the 23 entire statement. That entire statement talks about Virginia 24 Giuffre's allegations against Ms. Maxwell have been proven 25 untrue. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 5 H3VOGIU1 1 THE COURT: Yes. But the statement wasn't limited to 2 those allegations. 3 MS. MENNINGER: That's exactly right, your Honor, 4 because right in the middle of that particular statement, the 5 one that's at issue in this case, our client said, "Now her 6 story has grown and evolved, and she's included allegations 7 about world leaders and Alan Dershowitz, which he denies." We 8 can't just take that part out of her statement, that's what 9 Ms. Maxwell put in her statement. 10 And your Honor, what we will ultimately be hearing 11 from Ms. Maxwell about what she believed were the obvious lies 12 that she was referring to and the allegations that she was 13 referring to when she issued that statement. 14 THE COURT: Now, one other question, and then we'll 15 get to the business of the day. I apologize for this 16 diversion. 17 Let me ask you both. Suppose the plaintiff proves 18 that she was sexually abused and that her story is 19 substantially true but she does not prove the role that Maxwell 20 had. Does she win? 21 MS. MENNINGER: No, she loses, your Honor. 22 THE COURT: I think she wins. 23 MS. MENNINGER: Your Honor, the very first 24 THE COURT: Other than what you've just said. 25 MS. MENNINGER: Your Honor, our client can only be SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 6 H3VOGIU1 1 alleged to have defamed someone based on facts, not opinions. 2 THE COURT: Agreed. Agreed. 3 MS. MENNINGER: And so she can 4 case is a perfect example of that, your Honor. She can only 5 speak to facts about which she has personal knowledge. If 6 plaintiff goes and proves that plaintiff went and had sex with 7 Jeffrey Epstein at some point in time and our client wasn't 8 there, our client's statement about that would be opinion, it 9 would not be a fact based on personal knowledge. 10 THE COURT: I mean, okay. But that's an issue of 11 knowledge. That's a different 12 MS. MENNINGER: You just said 13 THE COURT: That's a different 14 MS. MENNINGER: The hypothetical was if our client 15 wasn't involved. If our client wasn't involved then it would 16 be an opinion. 17 THE COURT: Thanks very much. I'm glad for this 18 clarity, which frankly, at the moment, alludes me. 19 Okay, let's move on. Yes, I'll hear from the movant. 20 MS. McCAWLEY: Thank you, your Honor. 21 The first order of business we'd like to address, if 22 it's okay with the Court, is our filing, which was 691, which 23 is our omnibus motion in limine. And if it's okay with the 24 Court, we've split that up a bit. I'm going to start with 25 respect to that motion in limine. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 7 H3VOGIU1 1 What we attempted to do with our motion in limine was 2 streamline the trial. And your Honor, based on the comments 3 you've just made, if you want to give me guidance, I'll tell 4 you what I'm thinking with respect to this and what we put 5 forth in our filing. 6 But there are statements that are attributed to my 7 client in other articles and things. For example, there are 8 statements about Bill Clinton being on the island, and the 9 defense wants to bring in those statements to show that 10 believe they can show evidence that he wasn't on the island, so 11 therefore, my client is a liar or is lying about that. 12 Now, your Honor will remember, back in June we sought 13 to depose him because we were concerned about that fact, that 14 they were going to raise it, and we wanted to have him under 15 oath 16 THE COURT: Let's back up a little bit. 17 MS. McCAWLEY: Sure. 18 THE COURT: What and where was the statement made? 19 MS. McCAWLEY: The statement was made in a March 5th 20 article. So not the two articles we showed you yesterday 21 THE COURT: The Churcher article. 22 MS. McCAWLEY: Yes. But it was another article that 23 came out in March of 2011. 24 And the statement was with respect to my client saying 25 she saw him on Epstein's island. She was introduced to him SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 H3VOGIU1 1 there. Although no allegations of trafficking or anything of 2 that nature, just that she was there. And they are seeking to 3 introduce evidence through Louie Freeh, who we'll discuss in a 4 moment, they've proposed, and he's clearly an expert that was 5 undisclosed, and through a FOIA record, and through the 6 articles to allege that he wasn't on the island. 7 And so in your Honor's order in 264-1, which is one of 8 the sealed orders, you did not allow us to depose him because 9 you said it was irrelevant. 10 So we're now in a position where at trial they want to 11 put forth that information against my client, and I don't have 12 an under-oath statement from that individual saying whether or 13 not he actually was. 14 Now, what we know is he flew with Jeffrey Epstein at 15 the same time 19 different times internationally and 16 nationally, but we don't have him with respect to this 17 particular allegation under oath. So we would say it would be 18 highly prejudicial for them to be able introduce evidence 19 saying that he wasn't there or that they have some proof or 20 some expert saying he wasn't there when, in fact, we weren't 21 able to ask him directly, the person who is at issue, under 22 oath, whether or not he did, in fact, go there. 23 So one of the streamlining of this case is that 24 allegation has nothing to do with sexual abuse, it doesn't have 25 to do with the statements SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 9 H3VOGIU1 1 THE COURT: It has to do with credibility. 2 MS. McCAWLEY: Well, your Honor, I would say, if 3 you're inclined to think that that has 4 THE COURT: Well, look. I'm no genius. I don't claim 5 any 6 going to say. 7 MS. McCAWLEY: Right. I understand, your Honor. And 8 that's why we sought to depose him because it's inherently 9 unfair 10 THE COURT: Okay. So you would say I made a mistake. 11 MS. McCAWLEY: No, your Honor. I think it should be 12 excluded, and in my view, I think it's not relevant to the 13 issue at trial here. But they are, of course, going to argue 14 that it is and that they want to bring that in. In fact, like 15 I said, they've got lined up Mr. 16 THE COURT: Well, on the question of credibility, why 17 isn't it relevant? 18 MS. McCAWLEY: Because the statement 19 is about whether or not she was sexually abused and 20 trafficked 21 THE COURT: Now, that's where I started out. Is it 22 about that? If that is your position, that's something else. 23 If it's a question about her sexual abuse, in addition to, then 24 that's something else. But you just said it isn't about that, 25 it's just about Maxwell and did she tell the truth about SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10 H3VOGIU1 1 Maxwell. 2 Well, I suppose, I suppose 3 other side and I haven't really thought it all out 4 suppose if she is untruthful in other instances, that may be 5 relevant to her credibility. 6 MS. McCAWLEY: Well, your Honor, if that's the Court's 7 position, again, we would be in a circumstance 8 there's a couple reasons why the evidence itself that they want 9 to put forth doesn't come in. 10 THE COURT: Well, that's a different thing. 11 MS. McCAWLEY: Sure. That's part of our motion, as 12 well, your Honor. 13 THE COURT: Sure. I read that. I understand that. 14 MS. McCAWLEY: Right. So on the same note, since 15 we're talking about this, I'll just tick off the few that fall 16 within this category, if you don't mind. I understand, your 17 Honor's position, so 18 THE COURT: Well, I'm not sure what my position is 19 right now. 20 MS. McCAWLEY: Okay. So with respect to 21 another category where there's been statements where my client 22 said that she was trafficked to foreign presidents and world 23 leaders that they want to bring into evidence. And in order to 24 streamline the case, we've said, well, there's none of those 25 people on the witness list, and just statements in an article SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 11 H3VOGIU1 1 of that nature shouldn't be able to come in. Because when we 2 talk about a character issue, what's at issue here is 3 reputation, and reputation to show the truthfulness of that 4 would not be able to be proven in that circumstance because we 5 don't have the other individuals there to make that statement, 6 so there's no substantive evidence on that point that would be 7 coming in. 8 And the third category is with respect to 9 Mr. Dershowitz, who is on the defendant's witness list for 10 trial, and we have a few points there to raise. I mean, one is 11 obviously that if that were allowed to come in, that causes the 12 trial to become a mini trial about whether or not he, for 13 example, was in the places where she says he was, his 14 calendars, his credit card receipts, his telephone records, all 15 of that. It gets into the issue, you know, obviously we have 16 another witness who says that they were in a similar 17 circumstance with respect to him. So it takes the trial away 18 from whether or not the allegations relating to Maxwell are 19 true or false and turns it into a trial about another 20 individual who we have not made a claim against who comes in. 21 There's also a problem with respect to that because he 22 is also 23 conversations and his advice with respect to Epstein which 24 relates to the issues with Maxwell. So in other words, he 25 would be able to testify what he says he didn't do, but then SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 12 H3VOGIU1 1 any questions we wanted to ask him about Epstein or Maxwell he 2 says he's got an attorney client privilege. So we're hand-tied 3 because we can't ask about the issues that we need to ask about 4 with respect to that witness. So in my view, it's highly 5 prejudicial to have him as a witness at trial when, again, our 6 claims are not against him, and we have those issues. 7 Now, you did have 8 also precluded us from asking questions that we contended were 9 non-Fifth Amendment questions of Jeffrey Epstein about 10 Dershowitz, holding that those were not relevant. So we're in 11 a situation where we have another witness that we are not able 12 to elicit all of the information we need to be able to prove 13 the truth or falsity of that, and again, it would be subject to 14 a number of mini trials on that issue of Mr. Dershowitz. 15 So with respect to those three categories 16 also allows them to use the attorney client privilege as a 17 sword and a shield in the midst of a trial, which is inherently 18 unfair to my client, as well. 19 So in our view, it's highly prejudicial under 403. 20 Those groupings should not come in. It should not be about, 21 for example, Clinton and whether or not he was on an island, or 22 Mr. Dershowitz or these other world leaders, it should be about 23 the defendant and her statements that my client was lying when 24 she claimed to be abused and trafficked in those statements. 25 THE COURT: Just a second. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 13 H3VOGIU1 1 MS. McCAWLEY: Sure. 2 THE COURT: What you just said, could you repeat what 3 you just said? 4 MS. McCAWLEY: Yes. So the statements that 5 Ms. Maxwell denied were statements that my client made that 6 defendant and Epstein trafficked her, brought her in, had her 7 participate in the sexual abuse of her and other females, she 8 was in that circumstance, she lived that circumstance for a 9 period of time, and so Maxwell came out and called my client a 10 liar, said she was lying about those statements that she made, 11 and said that, obviously, as you know, to the international 12 press about my client and what her experience was with them. 13 So with respect to that, your Honor, those are the 14 categories that we believe would help streamline the case, and 15 again, that those witnesses would be highly prejudicial. 16 On the issue of the information that they'd like to 17 put in with respect to Mr. Clinton, they have Louie Freeh who 18 they've identified. This is a former FBI director. 19 THE COURT: I know. 20 MS. McCAWLEY: You know, yes. So they've put him in 21 without giving us a Rule 26 expert report. He was never 22 disclosed during the time period. His report or what he's 23 going to say, as we understand it, is that he's reviewed the 24 FOIA response and that there's no evidence in his view that 25 Clinton was on this island, again, even though he flew SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 14 H3VOGIU1 1 regularly with Mr. Epstein to other places. 2 So again, we didn't get to depose him as an expert in 3 this matter. We didn't know that he was going to be called as 4 an expert. They're saying he's a lay opinion because he's a 5 private investigator, your Honor. The case law says otherwise. 6 He's been certified as an expert in these exact kind of cases. 7 We put those in our brief. So your Honor, he is really a wolf 8 in sheep's clothing. They're trying to put him on as a lay 9 opinion when he's really an expert witness in this case with 10 sufficient and sophisticated knowledge, that the jury will 11 recognize him as someone who has expertise in this area so, 12 your Honor, we believe he should be precluded from testifying. 13 He has no personal knowledge, it's simply his reliance, as we 14 understand it, on the one FOIA response letter. 15 So your Honor, with respect to the FOIA response 16 letter that's at issue that they are going to try to get into 17 evidence, we've put forth in our papers, again, that's a 18 hearsay document. It's highly prejudicial under 403. They say 19 that it meets self-authentication, but unlike the documents 20 that we showed, for example the 302 that have the seal on it, 21 it has none of those qualifications. 22 They cite to two cases, the Zamara case and the Gary 23 case. Both of those involve getting into evidence underlying 24 records that were produced by the government, not a FOIA 25 letter. So what they're trying to produce is a letter that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 15 H3VOGIU1 1 says we've looked and we can't find these records that you've 2 requested. 3 Now, it doesn't address the fact that the government 4 only typically retains records for a few years when they were 5 requesting records from 15 years ago, so it doesn't have the 6 indicia of trustworthiness to be able to say that this is 7 actually the fact because, of course, as we know, the 8 government regularly has to get rid of records. 9 So to use this letter to say, 'Ah-hah, he was never on 10 the island,' when we never got to examine him under oath and 11 say, 'You traveled with him a bunch. Did you also go to the 12 island? My client says she met you there.' We didn't get to 13 ask those questions, so we're in a situation now where that 14 letter coming in would be highly prejudicial because the jury 15 will wonder, well, what does he have to say about this? And we 16 haven't been in a position to be able to do that. 17 So your Honor, for all those reasons we believe that 18 Mr. Freeh should be excluded, the FOIA letter should not come 19 into evidence, and again, we believe that the issue of 20 Mr. Clinton should not be an issue relevant to this trial. 21 Next, your Honor, they also seek to include 22 statements, hearsay statements and newspaper articles about 23 Prince Andrew, and it's actually not his denial, as I 24 understand it, Buckingham Palace's denial of the allegation of 25 my client. But again, Prince Andrew is not on the witness SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 16 H3VOGIU1 1 list, we're not able to cross examine him, so what they want to 2 do is introduce triple hearsay of Buckingham Palace saying what 3 Prince Andrews said in a news article without the reporter 4 against my client without our ability to cross examine him on 5 that. 6 So your Honor, they've tried to argue a little bit of 7 a securitous way, I think that it's a verbal act on behalf of 8 Prince Andrew, it doesn't meet that criteria, there's been no 9 statement by 10 him, and what's at issue in this case is, again, Maxwell's 11 statements against my client. 12 The case that they cite actually, the Minemyer case, 13 goes against them. It actually talks about how you would have 14 to call the reporter, that that couldn't come into evidence. 15 And so, your Honor, for those reasons, we believe that, again, 16 that's a distraction, it's highly prejudicial to allow a triple 17 hearsay document like that to come in without our ability to be 18 able to cross examine that individual. So for those reasons, 19 your Honor, we believe that that should not come in. 20 They also made an argument that it's somehow an 21 intervening cause or that, you know, it goes to the issue of 22 she should be seeking damages from Prince Andrew, things of 23 that nature. But as we know, because your Honor reviewed the 24 case law with respect to the summary judgment, each individual 25 is responsible for their own defamation, so it doesn't come SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 17 H3VOGIU1 1 into consideration whether she could have sued six people for 2 it, 20 other people for it, this case is about Maxwell and her 3 defamation against my client. 4 So again, your Honor, if you look at Sack on 5 Defamation, it addresses that directly, and we believe that 6 that should not come into evidence. 7 So your Honor, that's the first chunk of the omnibus 8 motion that I was addressing. I'm not sure how you want to 9 take it, if you want to have opposing counsel speak on those 10 issues now and then move to the others, or if you want us to 11 keep moving through it? 12 THE COURT: What's your preference? 13 MS. McCAWLEY: I think keep moving through it would be 14 great. 15 THE COURT: What? 16 MS. McCAWLEY: To keep moving it through it, if that's 17 all right, so we can get through argument and then have them 18 address it? 19 THE COURT: Sure. 20 MS. McCAWLEY: Thank you, your Honor. 21 MS. SCHULTZ: Your Honor, this is Meredith Schultz for 22 the plaintiff. The next article in the omnibus motion is to 23 exclude testimony references to prior sexual assault. This is 24 an issue that I spoke on yesterday related to another motion 25 regarding the same, so I'll keep it brief. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 18 H3VOGIU1 1 But prior sexual assault, all of which occurred while 2 Ms. Giuffre was a child, it's irrelevant to this action. It 3 doesn't come in under 401. It doesn't involve defendant. It 4 predates even meeting defendant. And these assaults do not 5 make it more or less probable that defendant defamed 6 Ms. Giuffre, and neither does it tend to prove or disprove that 7 defendant abused her. 8 These are also classic examples of evidence that 9 should be excluded under Rule 412. The Rape Shield Law forbids 10 evidence concerning these unrelated events involving 11 Ms. Giuffre. This rule should be strictly enforced, 12 particularly because these events happened when she was 14 and 13 15 years old. Rule 412(a) bars this evidence if it's offered 14 to prove that she engaged in any type of sexual behavior to 15 prove any type of disposition. 16 It should also be excluded under Rule 403. This is 17 extremely prejudicial, and because it is irrelevant, it would 18 only encourage the jury to view Ms. Giuffre, a married mother 19 in her 30s, as an immoral person for having sexual contact with 20 individuals as a child. 21 This should also be excluded under 608(a), which 22 limits interaction of evidence for specific instances of 23 conduct in order to attack the witness' character for 24 truthfulness. Now, I spoke about this at length yesterday. 25 Defendant tries to offer two particular things to say that, oh, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 19 H3VOGIU1 1 she wasn't truthful about something, about being sexually 2 assaulted, but the documents themselves describe something 3 that's unequivocally sexual assault under Florida law, 4 something that is unequivocally nonconsensual. So that would 5 honestly be another mini trial and would take us far afield of 6 what facts are relevant to this case. 7 And again, any minor probative value that's past 8 sexual assault that Ms. Giuffre experienced as a child is 9 completely swallowed by the prejudicial effect on the jury. 10 MR. CASSELL: Your Honor, I think I'm the next one up. 11 For purposes of clarity, we're up to point number 7 in our 12 omnibus motion. 13 This one I think is just a very simple and 14 straightforward one. We move to exclude derogatory sexual 15 characterizations. This is a case that your Honor has been 16 framing this morning. It doesn't require use of a term from 17 defense counsel, for example, describing our client as a 18 prostitute or as a slut. We thought we would get agreement 19 when we saw the responsive papers from the defense, but as you 20 know, they objected in it's entirety to this motion, so we're 21 here asking that defense counsel not refer to our client as a 22 prostitute, not refer to her as a slut, and they also advise 23 their witnesses that such language would be inappropriate in a 24 federal trial dealing with a defamation issue. 25 On this particular point about prostitute, it's SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 20 H3VOGIU1 1 interesting. Am I conjuring up something that's not going to 2 happen? No, your Honor. The defendant's own expert report 3 described our client as a prostitute. Your Honor has under 4 advisement the expert report from Dr. Esplin, and so I deposed 5 Dr. Esplin, and I said, "Are you sure that's an accurate term 6 in the context of this case? Because we have a child who 7 cannot consent to sexual activities." And he backed off 8 immediately and agreed that that was an inaccurate term for him 9 to use to describe my client, Ms. Giuffre. So even the 10 defense's own expert says the term "prostitute" is 11 inappropriate. 12 Your Honor has authority, of course, under Rule 611 to 13 manage the trial, to avoid undue harassment or embarrassment. 14 Also Rule 403 allows you to restrict things that would be 15 substantially prejudicial with no probative value, which is 16 exactly what we have here. So we would ask you simply to reign 17 in derogatory language, both from witnesses and opposing 18 counsel. 19 MS. SCHULTZ: Your Honor, I'll be addressing the next 20 several points in the omnibus motion, starting with number 8. 21 I think I can narrow this issue a little bit at the outset. 22 Ms. Giuffre concedes here that illegal or 23 nonprescription use of drugs during the years that she was with 24 defendant is admissible. However, any evidence pertaining to 25 any use of drugs, illegal or not, and alcohol from any periods SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 21 H3VOGIU1 1 before or after Ms. Giuffre was abused by defendant is 2 irrelevant to this action and should be excluded under Rule 3 401. 4 It is also, of course, highly prejudicial and should 5 be excluded under Rule 403. Whether or not Ms. Giuffre ever 6 used drugs while not being abused by defendant does not go to 7 any claim or defenses in this case. 8 Courts in the Southern District of New York routinely 9 exclude evidence of prior drug use under both of these rules, 10 as fully briefed in the papers. Defendant attempts to admit 11 this evidence of prescription drug use related to damages, 12 specifically whether or not the emotional distress Ms. Giuffre 13 suffered is preexisting. 14 THE COURT: And why do you have it in your expert's 15 report? 16 MS. SCHULTZ: Well, our expert is 17 you're referring to Dr. Kliman, who is a physician. He's a 18 medical doctor. He took a full 19 THE COURT: There's a whole thing about it. Are you 20 going to withdraw the 21 MS. SCHULTZ: No, your Honor. We're only claiming 22 damages with respect to the emotional distress suffered from 23 the defamation. And also, taking drugs prescribed for various 24 mental health issues is not the same thing as emotional 25 distress. They're two different issues. So any marginal SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 22 H3VOGIU1 1 probative value is outweighed by the prejudice. Again, this is 2 only seeking damages based on defendant's defamation. 3 I'm going to move on to point number 9. Ms. Giuffre 4 seeks to exclude any alleged criminal history from coming into 5 this case. And the Federal Rules of Evidence bar the 6 introduction of this evidence, full stop. 7 As the Court is aware, the only way criminal history 8 could come into evidence is through Rule 609, but that rule 9 itself bars this evidence because, one, there's no conviction, 10 and two, the alleged crime does not go to truthfulness. 11 Of the two parties, your Honor, Ms. Giuffre is the 12 only one who has not been convicted of a crime here, this is 13 merely an alleged prior bad act which is excluded under Rule 14 404. 15 And this alleged act, which Ms. Giuffre denies, does 16 not go to truthfulness, and that's an important point here. An 17 accusation of a crime with no conviction does not go to 18 truthfulness, especially a crime like this, which specifically 19 is defendant says she stole from a tip jar when she was a 20 teenager. Knowing that this type of evidence is excluded, 21 counsel for defendant has put forth an unsupported argument 22 that Ms. Giuffre left the United States because of allegations 23 that she stole from a tip jar. That is, of course, false. She 24 left the United States to get away from defendant's abuse. 25 And moreover, the documentary evidence in this case, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 23 H3VOGIU1 1 which has been produced in discovery and submitted to this 2 Court, shows that it was defendant who sent her to Thailand, 3 sending her with handwritten instructions about what to do when 4 she gets there. So if this unsupported argument that defendant 5 left the United States because of some accusation of a tip jar 6 is to be believed, then that makes defendant an accessory after 7 the fact and implicates her in the wrongdoing. 8 So I don't 9 is also undone by the fact that later, Ms. Giuffre comes back 10 to the United States to live here. She's not fleeing 11 accusations, she was fleeing defendant. If she were worried 12 about criminal liability in the United States, she wouldn't 13 come back to live here. 14 But the overall point is any marginal probative value 15 from these allegations, which I don't think there is any, but 16 it's far vastly outweighed by the prejudice it would cause 17 Ms. Giuffre and should be excluded under all those rules. 18 Moving now to point 10. Ms. Giuffre has requested 19 that the Court exclude any evidence regarding special 20 schooling, truancy, and juvenile delinquencies. For this 21 argument, your Honor, I request that I approach the bench and 22 give you a few documents upon which these arguments are based. 23 I have four documents that I'm handing up. 24 I have to get a little bit into the weeds here, so 25 please bear with me. In this case, Ms. Giuffre SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 24 H3VOGIU1 1 records have been part of discovery. They show a history of 2 rampant truancy and failed courses. This constitutes prior bad 3 acts which are excluded under Rule 404, particularly since 4 these bad acts do not go to truthfulness, so they're also 5 excluded under Rule 608. 6 They should also be excluded because their prejudice 7 that it would cause Ms. Giuffre greatly outweighs any probative 8 value and should be excluded under 403. 9 There's a huge remoteness issue here, your Honor. 10 These truancies and juvenile delinquencies took place many 11 years ago when she was a minor. There's a lot of case law on 12 this that is in Mr. Giuffre's brief on page 22 to 23. But what 13 you should be aware of, your Honor, is that a close examination 14 of records, looking up what the number codes on these 15 transcripts actually mean, it shows the opposite of the 16 argument that defendant advances in her response brief; that 17 she was in school, and therefore, not abused by her client. 18 To the contrary, the records show that she was not in 19 school over half the time she was supposed to be and did not 20 complete her courses. These transcripts are not 21 self-explanatory. Indeed, looking at the face of them, it 22 seems like she was enrolled and attending school, but much of 23 the information in these records are number codes used by the 24 Palm Beach County School District. These school records could 25 not be placed into evidence for all the reasons above, but if SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 25 H3VOGIU1 1 you are inclined to do them, you could not place them into 2 evidence fairly without testimony regarding what all these 3 codes on the transcripts mean, or at a bare minimum, the 4 introduction of evidence and instruction that makes explicit 5 what all the codes on the transcripts mean. 6 Defendant either failed to do her due diligence on 7 this and looked at what the codes are before advancing this 8 argument, but either way, it's not a good faith argument 9 because, as you can see in the document I handed up, these 10 codes and their meanings were detailed at length in 11 Ms. Giuffre's opposition to the motion for summary judgment, 12 and I would ask the Court to refer to the facts at page 32 of 13 the statement of facts. 14 So what the records actually show is rampant truancy, 15 years of absence from school while defendant was abusing her, 16 which show ample opportunity for abuse, and are, in fact, in 17 accord with the flight records, which have also been produced 18 in this case, which place Ms. Giuffre on 23 flights with 19 defendant aboard Jeffrey Epstein's private plane. 20 So as these records actually show truancy, failed 21 grades, failure to complete courses, these should be excluded 22 under all the rules I cited earlier, or at a bare minimum, 23 instruction to the jury about what the codes mean and detailing 24 how many days of school Ms. Giuffre actually attended, a number 25 that is conspicuously absent from defendant's brief. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 26 H3VOGIU1 1 Turning next to plaintiff's motion in limine number 2 11. This is a related issue. We ask that the Court exclude 3 characterizations of Ms. Giuffre's bad behavior during her 4 childhood, including characterizations of her as a bad child or 5 a runaway. Defendant's response to this tries to conflate two 6 separate things; prior bad acts, an assault on her character on 7 one hand, with a reputation for truthfulness of another. 8 Prior bad acts she may have committed as a child, like 9 running away, is inadmissible and a defamation action where the 10 damages relate to her reputation. That she ran away from home 11 or was an ill-behaved child does not go to truthfulness. 12 These events also do not go to her reputation. Her 13 reputation for truthfulness as an adult prior to the defamation 14 is the only reputation that's at issue in this case. 15 Defendant's defamatory statements damaged Ms. Giuffre's 16 reputation when she was in her 30s. This does not open the 17 door into evidence of Ms. Giuffre's generalized character, 18 particularly one from a troubled childhood. Occurrences, such 19 as running away from her home when she was a child, are simply 20 prior bad acts under Rule 404 that should be excluded. They 21 should also be excluded under Rule 405 because this is 22 introduction of evidence to try to show her character. And 23 Rule 608(a) also limits evidence and testimony about a witness' 24 reputation for having a character for truthfulness or 25 untruthfulness, it doesn't come in under that rule. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 27 H3VOGIU1 1 Her reputation for truthfulness does not go to any bad 2 acts she may have committed 20 years ago. And your Honor, even 3 criminal convictions are generally not admissible 10 years 4 after the fact. So presentation of this type of evidence is 5 simply nothing more than a smear campaign, which is prescribed 6 by multiple Federal Rules of Evidence. 7 And finally, any marginal probative value of these bad 8 acts as a child is vastly outweighed by the undue prejudice it 9 would cause Ms. Giuffre before a jury. 10 Your Honor, now I'm turning to point number 12. We've 11 asked the Court to exclude evidence relating to the tax 12 compliance of Ms. Giuffre's not-for-profit Victims Refuse 13 Silence. Rule 401 is the first rule under which this should be 14 excluded. The alleged tax compliance of her not-for-profit 15 does not go to whether or not defendant defamed Ms. Giuffre and 16 does not go to whether or not defendant abused Ms. Giuffre. 17 It should also be excluded under 403. It is highly 18 prejudicial. It would give the wrong impression to the jury 19 that Ms. Giuffre's organization is not tax compliant, which, in 20 fact, it is a fact that defendant does not acknowledge in her 21 briefing. 22 Proving whether or not Ms. Giuffre's not-for-profit is 23 tax compliant would also be a mini trial and, frankly, a 24 sideshow to this case. 25 Furthermore, all of defendant's conclusions about SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 28 H3VOGIU1 1 Ms. Giuffre's not-for-profit tax compliance are based on an 2 errant report by her purported expert, an expert who should be 3 excluded from testifying because his report lacked methodology 4 and he opined on topics far afield from his expertise. 5 Second, any allegations that her not-for-profit is not 6 tax compliant is prejudicial, misleading, confusing to the jury 7 because it has nothing to do with the claim at issue in this 8 case. 9 Your Honor, we asked for defendant's tax returns in 10 this case. If they go to truthfulness, as defendant argues, 11 they also go to defendant's truthfulness. At this point, we're 12 not going to get them until the first day of trial, so we will 13 not be able to effectively cross examine defendant on those tax 14 returns, and we won't be able to see until then if she's paid 15 taxes on all the money and gifts and in-kind payments from 16 Epstein that she's received or has kept that away from the 17 government. Unlike Ms. Giuffre's tax information, defendant's 18 tax information goes to our case in chief and is relevant 19 evidence. 20 On point number 13, we move to exclude evidence 21 relating to Ms. Giuffre's alleged tax compliance. Your Honor, 22 this is a defamation action where reputation is at issue. Tax 23 compliance does not go to a reputation, it is a private matter. 24 Second, there is no evidence in this case that any 25 government, either United States or Australia, believes that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 29 H3VOGIU1 1 she is noncompliant with her taxes. Defendant's purported 2 expert's evaluation of this is wholly flawed, as explained in 3 Ms. Giuffre's motion in limine on the same. 4 Similarly, Ms. Giuffre's taxes are wholly irrelevant 5 to this case. Even actions brought by the government, your 6 Honor, where the cause of action is centered on nontax 7 compliance exclude evidence of prior tax noncompliance when it 8 takes the case too far afield of the issue being tried. 9 Courts also exclude this evidence under 403 if there's 10 no substantial nexus between the alleged tax noncompliance and 11 the matter at hand. Here, defendant fails to show any type of 12 substantial nexus to this defamation claim. None whatsoever. 13 Additionally, resolving Ms. Giuffre's tax compliance, 14 this is a point that's in dispute among the parties, and 15 resolving such an issue would also involve another mini trial 16 where Ms. Giuffre would put on evidence of her tax compliance 17 and, at the end of that mini trial, the jury would have no more 18 information whether or not defendant defamed Ms. Giuffre when 19 she called her a liar about being sexually abused. Trying to 20 make this an issue, this is simply a device for putting the 21 settlement agreement and the amount between Ms. Giuffre and 22 Jeffrey Epstein into evidence. 23 As has been briefed extensively, such a settlement 24 payment is tax exempt under the United States law, but that's 25 all this is, it's a device to try to get an improper admission SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 30 H3VOGIU1 1 of a settlement amount between Ms. Giuffre and Jeffrey Epstein. 2 Accordingly, this should be completely excluded because any 3 marginal probative value this has on the claims is greatly 4 outweighed by the prejudice to Ms. Giuffre. 5 I am not up for the next one, so I'm going to take a 6 break. Thank you. 7 MR. CASSELL: Again, your Honor, I'm up to number 14 8 now, the issue of Ms. Giuffre's being a victim of domestic 9 violence. This is not relevant or minimally relevant. It's 10 Ms. Giuffre's burden, of course, to show the emotional distress 11 damages that she suffered as a result of Ms. Maxwell's 12 defamatory statement, and the jury can agree or disagree with 13 whether she's carried her burden of proof. 14 If we understand the defendant's argument correctly, 15 they say, well, this would have been a distressing event in 16 your life and, therefore, we should be free to introduce it in 17 front of the jury. Of course, that argument would allow, if 18 accepted, essentially any bad thing that's happened in any 19 plaintiff's life to be introduced if they seek emotional 20 distress damages because, my goodness, this event here or there 21 had some emotionally distressing effect on you. So it has 22 minimal to low probative value, and the prejudice is very 23 substantial. 24 Your Honor, obviously, has a great deal of experience 25 and are well aware of the domestic violence, blame the victim SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 31 H3VOGIU1 1 attitude that has to be confronted in various cases. 2 Frequently, if there's domestic violence that's at issue, an 3 expert witness comes in to explain to the jury, oh, why didn't 4 she leave? Why did she stay with this fellow who was beating 5 her up? She was free to walk out of the relationship. Why 6 didn't she do so? And there is a whole literature that I know 7 your Honor is familiar with and that we cited in our brief, as 8 well. 9 We don't want to get into that in front of the jury in 10 this particular case. This is a blame the victim tactic that 11 shouldn't be allowed. This has very marginal, if any, 12 probative value and a very significant prejudicial effect 13 because the jury will potentially blame the victim for staying 14 with her abusive spouse. 15 Now, in addition, you'll notice from the pleading that 16 the defendants aren't intent just on asking questions about 17 this, but they also want to go into the whole criminal case 18 against Ms. Giuffre's husband, you know, whether he appeared or 19 what the felony charges are and a variety of things. That, 20 obviously, has even less probative value than the information I 21 was discussing a moment ago and should be independently 22 excluded. 23 The next issue up is item 15. And here, we ask to 24 have excluded any suggestions that sex with a 17-year-old is 25 permissible. You will recall that there's debate about exactly SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 32 H3VOGIU1 1 what years and what birthdays were in play and exactly what 2 Ms. Giuffre said about whether she was 15, 16, or 17. Fair 3 enough. They can cross examine her about, 'Did you say 16 when 4 you were, in fact, 17,' or whatever it is. We're not trying to 5 exclude that. 6 The limited point that we're trying to address here is 7 that they shouldn't say, 'Ah-hah, she was 17, therefore, she's 8 fair game.' 9 Under Florida law that we've cited in our pleadings, 10 there is no possibility of a child under the age of 18 11 consenting to sexual activities of the nature that are at issue 12 here, and therefore, the defendant should be precluded from 13 making that kind of suggestion. And so that's item 15. 14 MS. SCHULTZ: Turning to item 16 in the omnibus 15 motion. Ms. Giuffre has moved the Court to exclude medical 16 records. Here, I would actually like to direct the Court's 17 attention to defendant's response. Defendant here does not 18 cite a single case where a court allowed admission of unrelated 19 and irrelevant medical records into evidence at trial. 20 Defendant's brief also doesn't show how any medical 21 records are relevant here, and there are privacy issues at 22 stake. In fact, defendant does not cite to a single case in 23 which a court allows any medical records into evidence. 24 In defendant's entire response she cites two cases 25 only. Neither of them have anything to do with what documents SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 33 H3VOGIU1 1 might be admitted at trial. Both are orders resolving 2 discovery disputes under Rule 26. 3 Apart from her medical records, while defendant was 4 abusing her, such as when defendant took her to a hospital here 5 in New York when she was only 17, and the psychological records 6 related to Ms. Giuffre, which have been produced, which 7 incidentally are from 2011 and name defendant as her abuser, no 8 other medical records are relevant and should be excluded under 9 Rule 401. 10 Ms. Giuffre is seeking damages for emotional distress 11 from defamation. It does not open up the flood gates to every 12 single medical issue she's ever had in her life. Ms. Giuffre 13 has produced records, everything from treatment for a ferret 14 bite to details of her giving birth. These are not relevant, 15 and we can have a ruling in advance of trial that these things 16 should be excluded. 17 Defendant only seeks to use these records to confuse 18 the issues before the jury. Defendant offers no reason for 19 addressing the relevance of such documents one by one at trial, 20 and I think these can be safely excluded at this juncture. 21 MS. McCAWLEY: Your Honor, next is number 17, which we 22 addressed in our papers, as well, about the prior settlement 23 agreement. You've heard about it in this case, and we have 24 said that that should not come into evidence. 25 I think they'd like to use it to propose that that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 34 H3VOGIU1 1 amount has something that the jury should consider. Your 2 Honor, the papers set forth very clearly that there's a 3 specific rule of evidence directly on point with respect to 4 settlement agreements, and they can't be used in that manner. 5 Your Honor, we cite to our papers on that with respect 6 to any prior settlement agreement being entered into evidence 7 at the trial. 8 MR. CASSELL: I believe I have the next three. 9 Item 18 then is defamation litigation. And your Honor 10 is aware that there was a separate lawsuit that's spun out of 11 this situation where Cassell and Edwards filed a defamation 12 action in Florida State Court against Alan Dershowitz. Alan 13 Dershowitz then counterclaimed. That was litigated in Florida 14 State Court for about a year. Ultimately, the parties settled 15 their differences in an undisclosed financial arrangements and, 16 as part of the comprehensive settlement, Cassell and Edwards 17 then withdraw summary judgment against Dershowitz. 18 It was as expressly understood when the parties agreed 19 upon this confidential settlement, there was then a statement 20 in which it was said that Ms. Giuffre reaffirms her 21 allegations, and the withdrawal of the reference to the filings 22 is not intended to be and should not be construed as being an 23 acknowledgment by Edwards and Cassell that the allegations made 24 by Ms. Giuffre were mistaken. 25 There was a portion of the statement that talked about SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 35 H3VOGIU1 1 "mistake", and that was indicated in the pleading withdrawing 2 the summary judgment motion as follows: "Edwards and Cassell 3 do acknowledge that the public filing in the Crime Victims 4 Rights Act case of the client's allegations against Defendant 5 Dershowitz became a major distraction from the merits of the 6 well-founded Crime Victims Rights Act case by causing delay 7 and, as a consequence, turned out to be a tactical mistake." 8 "Tactical mistake." "For that reason Edwards and Cassell have 9 chosen to withdraw the referenced filing as a condition of the 10 settlement." 11 That's all a very interesting lawsuit, but that's a 12 lawsuit that does not have Ms. Giuffre as a party. It was 13 Cassell and Edwards versus Alan Dershowitz, with claims going 14 back and forth. Cassell and Edwards were, of course, 15 vindicating their own professional interests and their 16 professional reputation responding to the attacks that had been 17 made by Mr. Dershowitz, and they chose to settle the case, as 18 did Mr. Dershowitz, for undisclosed financial reasons. 19 And also, from the fact I think your Honor is now 20 aware, that there were some witnesses who were not available. 21 Sarah Ransome has come forward in this case to say that she was 22 a traffic to Alan Dershowitz in the same way that Ms. Giuffre 23 alleges, and that was information that has only recently become 24 available. 25 The point is, you have enough business on your hands SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 36 H3VOGIU1 1 without getting into the details of another separate lawsuit 2 that did not involve Ms. Giuffre as a party, and so we've moved 3 in limine. 4 And let me make clear that I emphasize the narrowness 5 of our motion here. We seek to preclude evidence involving 6 that litigation. Your Honor has already heard from my 7 colleague, Ms. McCawley, who has presented our argument for why 8 Dershowitz should not be in this case at all, and of course, if 9 we prevail on point 1, this point becomes irrelevant. 10 But in addition to point 1, we don't need to be 11 getting into the details of the separate lawsuit. It's not 12 relevant to the case of Giuffre versus Maxwell. Defendants, in 13 their responsive brief, if I understand correctly what they say 14 is, oh, well look. Why didn't Ms. Giuffre join the lawsuit or 15 why hasn't she filed a lawsuit against Dershowitz? What's 16 going on there? 17 Well, of course, your Honor is aware, there are a 18 variety of statutes of limitation around the country, and 19 indeed around the world. Ms. Giuffre has not 20 have not all run at this point. There are varying 21 considerations that go into whether or not someone like 22 Ms. Giuffre would file a lawsuit, and these issues shouldn't be 23 discussed in front of the jury. That's nothing to do with this 24 particular lawsuit. 25 Moreover, defendant apparently argues that statements SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 37 H3VOGIU1 1 that Edwards and Cassell made in this other lawsuit are somehow 2 binding on Ms. Giuffre. Edwards and Cassell had separate legal 3 counsel, Florida attorney Jack Scarola. Whatever was going on 4 in that case isn't binding on Ms. Giuffre. 5 Under the relevant rules, an attorney's statements are 6 binding on a client only on a matter within the scope of the 7 relationship. And this was vindicating separate professional 8 interests, this was not vindicating some interest of 9 Ms. Giuffre. 10 So for all those reasons, we ask that the defamation 11 litigation between Dershowitz and Edwards and Cassell be 12 excluded. Of course, you have the separate issue of Dershowitz 13 in front of you already. 14 Let me turn then to point number 19. Here again, we 15 have a narrow issue presented to your Honor. We are asking 16 that you exclude Judge Marra's ruling on the joinder motion. 17 As your Honor is well aware, the triggering event in this case 18 was when Ms. Giuffre, then known as Jane Doe Number 3, filed a 19 motion to join Jane Doe 1 and Jane Doe 2 in the Florida pro 20 bono Crime Victims Rights action. 21 Now, Judge Marra denied that motion to join, but at 22 the same time he said, "The reason I'm denying the motion to 23 join is you can participate in the case in other ways without 24 being a formal party." He cited, and I quote, "Of course, Jane 25 Doe 3 can participate in this litigated effort to vindicate the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 38 H3VOGIU1 1 rights of similarly situated victims" 2 THE COURT: I'm familiar with it. 3 MR. CASSELL: Okay. Right. So that's Judge Marra's 4 ruling. 5 And you understand that was obviously on a technical 6 joinder issue. The joinder issue, whether that was a 7 good joinder motion or a bad motion, has nothing to do with 8 whether or not Ms. Giuffre was defamed. 9 THE COURT: How do you propose to handle the joinder 10 motion evidentially? 11 MR. CASSELL: Right. We think the joinder motion 12 should simply come into evidence as the pleading to which 13 Ms. Giuffre 14 THE COURT: Lock, stock, and barrel? 15 MR. CASSELL: So we are obviously waiting for guidance 16 from your Honor. For example, if you say, look, Dershowitz, 17 let's just not get into that, that's 18 THE COURT: That didn't answer my question. Please. 19 MR. CASSELL: I apologize. 20 THE COURT: You talk about many trials, many 21 arguments. You want to put in the entire motion? 22 MR. CASSELL: Yes, unless your Honor 23 direct here. 24 Yes. However, if you say, look, Dershowitz isn't 25 coming into this case, there are some allegations about SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 39 H3VOGIU1 1 Dershowitz that we would then believe, in light of your ruling, 2 should be redacted. But until we have any rulings from your 3 Honor restricting the case, it's our position that all 4 THE COURT: But you don't have an edited version of 5 the intervention motion that you would like me to consider. 6 MR. CASSELL: We would propose one once we get rulings 7 from your Honor on the motions in limine. 8 THE COURT: By the way, just parenthetically, folks, 9 these motions in limine are good fun, and we're all having a 10 nice time, but they're not binding. I mean by that, I'm 11 expressing my view, or I will, I hope, some day express my view 12 on these issues, but the trial may turn in a different 13 direction and, you know, who knows. Okay. 14 MR. CASSELL: We understand. And one of the reasons 15 we have not proposed a redacted joinder motion, that showed up 16 in a reply brief from the defendant, we didn't move to file a 17 surreply with a possible motion. We think the best way to 18 proceed, and we're happy to get guidance from your Honor, but 19 once we have rulings from you on what's in the case and what's 20 out, then we might go through the joinder motion. But where 21 we're sitting today, the joinder motion goes in in its 22 entirety. 23 But what does not come in is then, all right, that's a 24 legal pleading. Gee, I wonder what happened. Judge Marra made 25 a ruling, we don't need to get into the details of that ruling. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 40 H3VOGIU1 1 Of course, we would want to explain that there were nine 2 separate reasons why those allegations were included. Judge 3 Marra referred to the first of the nine reasons. We have eight 4 other additional reasons why those were included. It would 5 essentially, again, be a mini trial about, well, what does a 6 joinder motion mean? Did you file under Rule 15? It should 7 have been under Rule 21. What did the judge do? 8 It has no bearing at all on the issues in the case, 9 and it, of course, has very substantial prejudicial effect 10 because it leads to a confusion of the jury. The jury's trying 11 to figure out, well, what's going on in the Crime Victims 12 Rights Act case when the issue is whether or not Ms. Giuffre 13 defamed. 14 Now, there is an issue in their pleadings. They say, 15 well, this could end up being relevant because there might be 16 some kind of a privileged setting issue. Again, I think your 17 Honor correctly was pointing out a moment ago, if things show 18 up in the trial, it's possible that something could change, but 19 we don't anticipate that becoming an issue in the trial at this 20 point. If the issue of whether this was a privileged setting 21 somehow becomes an issue in the case, then it would be time to 22 revisit that during the trial. 23 In any event, issues of whether this was a privileged 24 setting or not aren't litigated in front of the jury, that's a 25 legal issue for your Honor to determine whether the setting was SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 41 H3VOGIU1 1 or was not privileged. We don't take jury evidence on that, 2 you know, Judge Marra's ruling, and therefore, that should be 3 excluded. So that is item number 19. 4 Let me turn then to item 20, and I'm handling that. 5 This is essentially a hearsay exercise. We want information to 6 be excluded regarding Rebecca Boylan. Why? Because Rebecca 7 Boylan has not been deposed and is not going to be a witness in 8 the case. 9 As we understand what the defendant is planning to do, 10 she's planning to call Mr. Dershowitz. Mr. Dershowitz is going 11 to say Ms. Boylan told him that Ms. Giuffre told him something, 12 and so we have the classic hearsay within a hearsay situation. 13 The problem, of course, is that Boylan is not here. 14 The defendant's pleadings say, ah-hah, but this is an 15 admission by Ms. Giuffre, and it would be if Ms. Boylan were on 16 the stand so we could ask her questions about, well, did 17 Ms. Giuffre really say that? And what did she mean? And 18 wasn't she saying that she's been abused by Ms. Maxwell? But 19 they want to skip over that intermediate stuff, have Dershowitz 20 describe what Boylan describes Ms. Giuffre said, and that's 21 obviously 22 his spin on what Ms. Boylan allegedly said to him. There are 23 no set of circumstances in which that hearsay within hearsay 24 could be admissible because Ms. Boylan has not been deposed, 25 and is not here, it's rank multiple hearsay. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 42 H3VOGIU1 1 I am about done at this point. 2 With regard to the remaining issues, you'll be happy 3 to hear that I think things can be sped up. We believe that 4 these issues should simply be, as your Honors I think was 5 suggesting a moment ago, deferred to trial. 6 Items 21, 22, 23, 24, 25, 26, 27, 28, and 29, those 7 were sort of just kind of protective measures. The one 8 footnote or caveat we would add to that, your Honor. We think 9 this gets punted to the trial, but we would simply ask your 10 Honor to direct defense counsel before they let the cat out of 11 the bag on any of these that there be a sidebar or hearing 12 outside of the jury just so that, you know, our motion in 13 limine doesn't become moot because they've already effectively 14 put it in front of the jury. 15 The one that's of particular concern is alleged bad 16 acts by the defense team. At various points, I think your 17 Honor, unfortunately, has seen some, you know, frankly 18 aggressive language directed to the plaintiff's team here by 19 the defense team. We're prepared to respond to each and every 20 one of those allegations. We've tried not to get into the back 21 and forth because we think it's irrelevant. 22 But if there was to be some kind of an attack launched 23 on any of the members of the Boies Schiller Firm, of Brad 24 Edwards, myself, we would ask that we be given leave to address 25 that at sidebar, in-camera, or outside the presence of the jury SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 43 H3VOGIU1 1 so that we can keep the fact that we have done something bad 2 that should then be held against our client away from the jury. 3 But all these remaining things we are in agreement, I 4 think with the suggestion you were perhaps making a moment ago, 5 we can deal with these issues at trial. 6 That's our omnibus motion in limine, your Honor. 7 THE COURT: Thank you. 8 MS. MENNINGER: The omnibus motion reads like a list 9 of everything plaintiff has lied about or anything that would 10 undercut her claim for damages. 11 Plaintiff quoted Passim in her reply brief from a 12 particular federal evidence treatise, and I would like to tell 13 the Court, she left out the most important parts, and that is 14 the ones that relate to 405(b). 15 As that treatise reads, "Character is an element of a 16 defense in a defamation case if the defending party claims that 17 the statements in question are true and seeks to prove that the 18 plaintiff has the character ascribed to her or to reduce 19 damages by showing that her reputation is so bad the statement 20 did no harm. 21 "In such cases, pursuant to Rule 405, all forms of 22 character evidence are admissible wherever relevant, including 23 opinion, reputation, and specific instances of conduct." 24 As your Honor found in our motion to dismiss ruling of 25 February 29th of last year, "Though defendant never called SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 44 H3VOGIU1 1 plaintiff a liar, to call her claims obvious lies that have 2 been shown to be untrue demands the same meaning. Plaintiff 3 cannot be making claims shown to be untrue that are obvious 4 lies without being a liar." 5 Ms. Maxwell has stated in her answer after that that 6 her statement was true; that is, plaintiff is a liar. She is 7 thus entitled by Rule 405 to introduce all forms of character 8 evidence, including specific instances of conduct, opinion, and 9 reputation. 10 What does that evidence look like? Plaintiff's mother 11 described her as a liar, plaintiff's fiance described her as a 12 liar, plaintiff's employer from 2002 described her as a liar. 13 Your Honor, I would like to start with the first one 14 that plaintiff started with, and that is motion in limine 2, 15 which is Bill Clinton being on the island. 16 Ms. Maxwell is going to testify at this trial, and 17 she's going to testify regarding the obvious lies that 18 plaintiff told her. One story that plaintiff has told is that 19 Ms. Maxwell was on the island with Bill Clinton and herself at 20 a dinner party. If I may approach, your Honor? I have three 21 exhibits. Two for now. 22 THE COURT: I think in duplicate, to the extent that I 23 think. 24 MS. MENNINGER: I'd like to first direct the Court's 25 attention to the news article by SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 45 H3VOGIU1 1 THE COURT: I've read it. 2 MS. MENNINGER: 3 THE COURT: Yes, I've read it. 4 MS. MENNINGER: Okay. It's the one in which 5 Ms. Giuffre, on March 5th, 2011, gave a long and lengthy 6 interview to Sharon Churcher describing her experience on the 7 island with Bill Clinton, with Al Gore, with Al Gore's wife, 8 with all kinds of famous people. And the island event featured 9 large and media coverage. If you notice the date of that 10 article, your Honor, it's March 5th, 2011. 11 The next document I provided is a press statement 12 issued by Ghislaine Maxwell on March 10th, 2011, so five days 13 later, in which she writes, care of her attorneys, "Ghislaine 14 Maxwell denies the various allegations about her that have 15 appeared recently in the media. These allegations are all 16 entirely false." 17 Your Honor, the last document I would like to direct 18 your attention to 19 this press release, Virginia Roberts did not sue her, she did 20 not claim that she had been emotionally distressed or injured 21 by being called, essentially, a liar in this particular press 22 release. And also, with respect to the Bill Clinton article, 23 your Honor, the evidence at trial will show a substantial 24 number of emails between Virginia Roberts and Ms. Churcher 25 contemporaneous with this article. In none of them does she SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 46 H3VOGIU1 1 say, 'You got it wrong. I never saw Ghislaine Maxwell on a 2 helicopter with Bill Clinton. I never said that to you,' she 3 did none of that. 4 So your Honor, the last document, and it really, I 5 think, actually helps clarify the question your Honor raised 6 when you came out to court this morning, is an email. It's an 7 email from Ghislaine Maxwell to Alan Dershowitz, January 6, 8 2015, and it has a document attached called "Four Press 9 Complaints". 10 Your Honor will notice that this document is not 11 marked confidential, it was produced by Ms. Maxwell over a year 12 ago, it is marked Ghislaine Maxwell 0006, and it's a 13 communication between herself and Alan Dershowitz, someone with 14 whom she does not have a joint defense agreement, and that's 15 why she produced this email. 16 Your Honor, this email, as you can tell from the date, 17 was sent four days after the allegedly defamatory statement at 18 issue. It reflects Ms. Maxwell's dossier of all of the 19 statements from the papers that have been shown to be 20 completely untrue or show inconsistency in her story. Each 21 article is listed so you can find that link that references the 22 lies are inconsistencies. 23 Your Honor, if you look at this document that was sent 24 just a few days after the January 2nd email, and you turn to 25 page 3, which is actually the attached document, "Four Press SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 47 H3VOGIU1 1 Complaints", because Ms. Maxwell says she's preparing a press 2 complaint in the UK, in other words a legal action, the third 3 page, your Honor, is the document that was attached that was 4 produced over a year ago. 5 How this document reads at the top, "Drafted by 6 Ms. Maxwell. I have copied direct lines and quotes from 7 articles, and my comments are in orange after the quote. The 8 relevant article that the quotes came from is listed below the 9 last quote. Below, I think, are some of the irrefutable 10 contradictions and interesting additional details that can be 11 used in the letter to the mail and in the following press 12 complaints. In addition, this article on Rothstein you may 13 find helpful. 14 "What is the number one lie that Ms. Maxwell points 15 to? Number 1. Bill Clinton identified in lawsuit against his 16 former friend and pedophile Jeffrey Epstein who had regular 17 orgies." 18 And then Ms. Maxwell's commentary directly afterwards, 19 in a quotation, "Huge problem is that Clinton never came to the 20 island." 21 Your Honor, in plaintiff's response 22 reply brief, they claim Ms. Maxwell had no knowledge in early 23 January, 2015 that Bill Clinton had never been to the island. 24 Obviously, she had knowledge of that because she was claimed to 25 have been there with him and claimed to have flown on a SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 48 H3VOGIU1 1 helicopter with him by plaintiff in her Sharon Churcher 2 published articles. 3 And here, in January of 2015, Ms. Maxwell is saying he 4 was never on the island. It doesn't depend on Louie Freeh or 5 anybody else. That's obviously 6 your Honor, she's cataloged all of the changed stories of 7 Virginia Roberts, all of the lies Virginia Roberts has told, 8 all of the different news articles in which those lies were 9 told, and said that this is going to be the basis of her press 10 complaint in the UK. 11 Likewise, on the next page, your Honor, GM009, at the 12 bottom, again, she specifically refutes the claims about Bill 13 Clinton being on the island and says, "He was never there." 14 Right after that, she says, "Virginia discussed that Al Gore 15 and his wife Tipper were also guests on the island." And 16 Ms. Maxwell writes, "They have also never been on the island, 17 and I don't believe they even know Jeffrey Epstein." 18 So when the jury is asked to consider what Ms. Maxwell 19 meant when she issued, through her attorney and her press 20 agent, the January 2nd, 2015 statement, we have a 21 contemporaneous document drafted by her that was produced in 22 discovery a year ago. None of it refers to the Jane Doe 102 23 complaint, none of it refers to the CVRA joinder motion. None 24 of it. It refers simply to press allegations that have been 25 floating around about her and about her involvement with SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 49 H3VOGIU1 1 Jeffrey Epstein and Virginia Roberts. 2 Plaintiff's counsel has said statements made in the 3 newspaper articles are hearsay. That is often true, but when 4 it's plaintiff's statement in a news article, it's called a 5 party admission. 6 Plaintiff complains that she didn't have the 7 opportunity to depose President Clinton. Your Honor, 8 plaintiff's counsel sought to depose President Clinton in their 9 reply brief at the end of June, 2016, about a week before 10 discovery was to close. They didn't even mention it in their 11 opening brief, they raised it in docket number 211. 12 In that request, which I didn't have an opportunity to 13 object to because it came in reply, she said she wanted to 14 depose him to, "establish his close personal relationship with 15 Epstein", she said nothing about wanting to see whether he had 16 been on the island, whether he flew in a helicopter, or 17 anything like that. 18 With regard to Louie Freeh, your Honor, we disclosed 19 him as a witness in our Rule 26 disclosures last March 20 excuse me 21 to depose him, made no effort to find out his basis of 22 knowledge. We produced in discovery his report in which he 23 submitted a FOIA request. 24 Yesterday, you will recall Ms. McCawley testifying 25 about how she, herself, issued a FOIA request and got in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 50 H3VOGIU1 1 response an FBI 302 motion 2 claims is authentic, but she doesn't know how it was redacted, 3 doesn't explain how it's redacted, but she wants to admit that 4 into evidence. 5 We are actually offering to put on the stand the 6 person who submitted the FOIA request to explain what was 7 requested and what was received. That is not expert testimony, 8 your Honor, that's chain of custody. 9 With regard to motion in limine number 5, evidence of 10 denials by Prince Andrew and Buckingham Palace. Again, your 11 Honor, in a defamation case 12 plaintiff's treatise that they cited throughout their response 13 and their reply 14 defendants can also prove that other liables and rumors about 15 the claimant are circulating, at least if they are widespread, 16 to demonstrate that it is not what the defendant said about the 17 plaintiff that causes her reputation to suffer but what others 18 said." 19 Plaintiff also cites Sack of Defamation. He supports 20 our position, your Honor. Here, we have a statement by 21 Buckingham Palace that was issued on the internet and widely 22 circulated. There is also a videotape of Prince Andrew denying 23 Virginia Roberts' claims. Both of those were far more 24 circulated than anything Ms. Maxwell said, as evidenced by the 25 fact that plaintiff can't even find Ms. Maxwell's statement on SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 51 H3VOGIU1 1 the internet anywhere quoted in whole. 2 Also, Alan Dershowitz widely circulated his denials of 3 plaintiff's claims. He was on Good Morning America, he was on 4 CNN's Nancy Grace Show, he was on Fox News. All of those 5 places he called Virginia Roberts a liar, and a serial liar, 6 and other things. 7 We are entitled, your Honor, both through cross 8 examination of plaintiff as well as cross examination of her 9 experts, to challenge whether or not anything said by 10 Ms. Maxwell caused damage to her reputation or whether other 11 people calling her a liar on national news and international 12 news is, in fact, the cause of any damage to her reputation. 13 She is the one, of course, who has put her reputation 14 at issue. Having the Duke of York and Buckingham Palace issue 15 denials is not hearsay, your Honor, it is offered for the fact 16 that the denial was widely circulated and very likely 17 contributed to people considering plaintiff to be a liar. 18 Motion in limine number 6, plaintiff's sexual history 19 and reputation. This salient point, your Honor, of course, 20 again, under 405(b), is that once you have put your reputation 21 for being a liar in question, then other specific instances of 22 false claims become highly relevant and probative of your 23 character for truthfulness, particularly with regard to sexual 24 assault and sexual abuse. 25 Furthermore, your Honor, plaintiff is the one who's SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 52 H3VOGIU1 1 claiming she has damages of post-traumatic stress disorder, and 2 she is the one who is going to call to the stand her 3 psychiatrist to talk about that patient, and she is the one 4 that gave him evidence about these other acts to him and on 5 which he has relied in reaching his conclusions. It is 6 impossible for us to not be able to cross examine her expert 7 about preexisting PTSD caused by incidents and events unrelated 8 to Ms. Maxwell. 9 Motion in limine number 7, whether or not Ms. Giuffre 10 can be called a prostitute. Your Honor, no one in this case, 11 no counsel, nobody that I'm aware of involved with the 12 litigation has referred to Virginia Giuffre as a slut. That is 13 something that plaintiff's counsel has brought up, and you will 14 notice there is absolutely no cite in any record, in any 15 document referring to her as such. 16 What has come up, your Honor, are internet sites in 17 which Ms. Giuffre has been called all kinds of things that are 18 unrelated to Ms. Maxwell, that do not cite Ms. Maxwell. For 19 example, her friends gave interviews to the press in which they 20 described 21 Virginia Giuffre as "a money hungry sex kitten who enjoyed her 22 lavish lifestyle". We cannot talk about plaintiff's reputation 23 on the internet without talking about what is out there on the 24 internet. We cannot cross examine her or cross examine her 25 experts about what her reputation is if we can't ask about SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 53 H3VOGIU1 1 these other things that are circulating about her that have 2 nothing to do with Ms. Maxwell. 3 Mr. Cassell referred to our expert Phillip Esplin, 4 Dr. Esplin, and saying that he agreed not to refer to Virginia 5 Roberts as a prostitute. Your Honor, that came up in the 6 context of a cross examination in which he said he has no idea 7 whether any of her claims are credible or not. He does not 8 believe it's within the province of the psychiatrist to be 9 making credibility determinations. So he was not in any way 10 suggesting, in fact he testified for hours to the contrary, 11 that he knows whether her claims of being a prostitute are true 12 or not true, and he agreed not to talk about. 13 The only context in which I think this comes up, your 14 Honor, are witnesses or people on the internet who have made 15 disparaging remarks about the plaintiff that have to be the 16 subject of her reputation and her request for damages that she 17 says are related to Ms. Maxwell. 18 Plaintiff's drug abuse, motion in limine number 8. 19 They have conceded, as they must, that the period of time about 20 which Ms. Giuffre is testifying is fair game for her discussion 21 of all of her illegal drug use. And it wasn't just 22 prescription drugs, she has testified that she was on a number 23 of different drugs at the time, and that because of those 24 drugs, her memory of events from 2000 are, quote unquote, 25 foggy. And she says that's one of the reasons she can't SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 54 H3VOGIU1 1 remember the names of the foreign presidents that she was 2 trafficked to, and these other famous people, because she was 3 taking so many drugs she just can't remember. 4 Obviously, your Honor, a witness' ability to perceive 5 and recall and relate events that happened a long time ago that 6 were affected by drug use need to be brought to light before 7 the jury. 8 The second issue, your Honor, relates to the use of 9 prescription medication. What you heard plaintiff say is they 10 would like to introduce evidence that she's taking prescription 11 drugs properly, but they want to exclude us from cross 12 examining her about that to see whether or not she was taking 13 prescription drugs improperly. That's called cross 14 examination, your Honor. 15 Her use of prescription drugs has been well-documented 16 in her doctor's records, and she has made false statements to 17 her doctors regarding her need for prescription drugs. She's 18 gone from one doctor to the next, telling one that she hasn't 19 taken any Valium for years, and then the next one 20 we have the records showing that that's just not true. She's 21 told doctors that she was stressed out about a big litigation 22 in New York, she told a doctor that in the year 2014, this 23 lawsuit wasn't filed until 2015, so she's made statements to 24 doctors that are inaccurate. 25 Your Honor, her statements reflected in her medical SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 55 H3VOGIU1 1 records may or may not be admissible depending on what she says 2 on the stand, but they are her statements and they are, 3 therefore, potentially admissible as admissions of a party 4 opponent under 801(d)(2). 5 Moreover, her doctor is the one who wants to testify 6 about her need for medications going forward, and he has been 7 the one who's talked about her previous use of medications. 8 Her Colorado doctor testified that she had misled him and not 9 fully disclosed her need for prescription medications, and 10 there's also the question about whether or not, if she opens 11 the door and says she's properly used medications for 12 post-traumatic stress disorder, then we should be able to 13 examine her, not only with respect to that, but her other use 14 of prescription and illegal drugs. 15 And your Honor, I think it is inappropriately limiting 16 to say we can only talk about her use of drugs during the 17 period of '99 to 2002 because any drug use that she has used in 18 the meantime can go to establish whether or not she truly had 19 post-traumatic stress disorder or any other mental health 20 disorder. 21 She has filed a lawsuit asking for 30 million in 22 emotional distress, pain and suffering, and her doctor is going 23 to testify that she needs medications as a part of managing 24 that pain and stress and emotional distress. If she's been 25 using drugs in the interim that may affect her memory, if she's SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 56 H3VOGIU1 1 using drugs now that may affect her memory, or if she's 2 inappropriately used drugs in the meantime, all of that would 3 go to whether or not she truly has the emotional distress that 4 she claims. 5 Motion in limine 9, plaintiff's criminal history. If 6 I understand plaintiff's argument, they do not want her to be 7 cross examined either under 608(b) or 405(b) with regard to a 8 specific instance of dishonesty; that is, her theft from her 9 employer. 10 There are legions of cases, your Honor, that find 11 theft to be a crime of dishonesty and admissible for proof of 12 character of dishonesty. 13 Not only, your Honor, did she get charged by the 14 authorities in Florida with this crime of theft from her 15 employer, an arrest warrant was issued for her, that arrest 16 warrant was outstanding at the time she, quote unquote, fled to 17 Thailand. That arrest warrant remained outstanding until the 18 year, I think 2009 or 2010, when it was quashed. Plaintiff 19 failed to come back to this country during that entire time. 20 It got quashed because it had been such a long passage of time. 21 THE COURT: Who was the employer? 22 MS. MENNINGER: It was the Roadhouse Grill, your 23 Honor. It was a burger joint. And she was working at that 24 Roadhouse Grill in March of 2002 during the period of time she 25 claims that she was a sex slave. She claimed that she was a SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 57 H3VOGIU1 1 sex slave, that she was getting paid wads of cash, thousands of 2 dollars by Jeffrey Epstein, and this was happening 24 7. And 3 we asked in discovery, and we got a bunch of records, not only 4 of her working at the Roadhouse Grill, but also of her working 5 at a bunch of other restaurants, at a veterinarian's office, 6 all kinds of things during the period of time that she says she 7 was a 8 described it in her papers. 9 Your Honor, she compounded the lie about the theft 10 because she wrote a book manuscript, as you know. And in that 11 book manuscript, she describes that it was not her who took the 12 money from the tip jar, it was her boyfriend, Tony Figueroa, 13 and that's also what she testified during her deposition. 14 She said, for example, that she didn't commit the 15 theft, that he came in at the end of her shift, and while she 16 wasn't looking, he's the one that took the tips. 17 Well, we deposed Tony Figueroa, and Tony Figueroa, 18 your Honor might be surprised to hear, is a gentleman with 19 several felonies to his name, which he gladly recounted on the 20 witness stand on videotape. He talked about all the thefts he 21 has committed, thefts from a video store, he was charged with 22 felonies, he was put on probation for ten years, he recently 23 had gotten out, but he actually denied that he was the one who 24 took the money from the tip jar. 25 So there's the lie, there's the tip jar theft, then SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 58 H3VOGIU1 1 there's the lie about the tip jar theft, and then there is the 2 arrest warrant that was issued that plaintiff left the country 3 for over a decade while that arrest warrant was outstanding. 4 Your Honor, the fact of police contacts during this 5 timeframe, including this one, go directly to other issues, 6 including whether or not plaintiff was truly the sex slave that 7 she describes. She had an opportunity, because she called the 8 police on numbers of occasions during the relevant time 9 period 10 help with a civil assist getting her out of her apartment, she 11 called them for all kinds of reasons 12 points of time did she tell the police that she was currently 13 then a, quote unquote, sex slave. 14 Your Honor, the Roadhouse Grill also 15 Sunday is the one who printed a story about the Roadhouse Grill 16 and confronted her aunt who was being interviewed for one of 17 their stories about it. The aunt was in the process of saying 18 what a great niece she had, and then the news asked her about 19 the Roadhouse Grill theft, and she said, "Wow, I didn't even 20 know that she was working in a burger joint." So it goes to 21 her internet reputation. 22 And finally, your Honor, I think if you look back to 23 that email between our client and Mr. Dershowitz on page GM009, 24 it's one of the lies that our client specifically referred to. 25 She quotes Virginia Giuffre's statement, "Jeffrey bought me SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 59 H3VOGIU1 1 jewelry, diamonds were his favorite, and wonderful furniture. 2 He was paying me very well because I'd give him sex whenever he 3 wanted," to which our client responded, "If he was paying her 4 so well, why steal from her burger job in 2002?" So it's 5 within our client's knowledge on January 6, 2015, and that is 6 an additional reason why it should be admitted going to her 7 state of mind or actual malice, as plaintiff likes to call it. 8 Your Honor, with respect to the school records, the 9 school records are what they are. They explain that she was in 10 school during the entire time she claims that she was a sex 11 slave, it gives her numbers of days of attendance, I don't 12 understand why those records wouldn't be admitted in cross 13 examination of her as to her whereabouts at certain occasions. 14 Plaintiff certainly intends to introduce flight logs to show 15 that she was or wasn't in certain places, so school records 16 show where she was and wasn't on certain dates, and that's 17 important, your Honor. 18 Moreover, plaintiff is the one who told Sharon 19 Churcher about her own problems with school. She told Sharon 20 Churcher, and Sharon Churcher published with her authorization 21 that she went back to school to get her GED, and she wanted to 22 study for massage. She talked about dropping out of school. 23 Police records reflect the fact that she was a truant during 24 this period of time, that her mother was concerned about her 25 abusing drugs and alcohol. The school records intimately SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 60 H3VOGIU1 1 intersect with the entire story that plaintiff has told about 2 being a sex slave in the years 1999 to 2002. 3 Also, your Honor, they go to damages because plaintiff 4 has claimed that she should be entitled to a certain amount of 5 damages, and her own experts have talked about her being a 6 troubled child. Again, this is something that they told their 7 psychiatric expert, and he relied on finding that she was a 8 troubled child, and then he's made inferences from there about 9 why she should be entitled to certain damages, and I think the 10 school records are a fair game for cross examination of him. 11 Motion in limine number 11, her bad childhood 12 behavior. Again, your Honor, this is exactly 13 in to see the psychiatrist, went in to see hers and our 14 independent medical examiner, and in both cases she described 15 all of her, quote unquote, bad childhood behavior. So it goes 16 to her damages, your Honor. They want to elicit what they want 17 to elicit and keep us from eliciting anything that would 18 contradict it. 19 But putting your reputation and your character in 20 issue, as she has in this case, about the time when she was a 21 child is necessarily a part of our cross examination to explain 22 to a jury what her reputation at the time of the acts in 23 question were. 24 She was a truant, reported to the schools as a truant, 25 reported by her mother to the police, circulated with people in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 61 H3VOGIU1 1 the community out trying to find her, and she was known as such 2 in her community. So to say somehow that we can't talk about 3 her reputation for truth telling, her reputation for honesty at 4 the time she was a child when she claims that she was the 5 victim of sex abuse, is not supported by the law. 6 Plaintiff also cites to Sack on Defamation, and I 7 believe the cite is 10, Section 5. And your Honor, I think 8 this helps clarify a lot of what our position is in this case. 9 Sack believes, as we do, that it is entirely 10 appropriate under 405(b) to question a plaintiff who has 11 alleged defamation, whose reputation is an issue about all 12 kinds of bad acts. They have said, just now, that there is 13 just no reason we should be allowed to ask about all these 14 other bad acts. 15 Sack cites, your Honor, to an Eleventh Circuit case, 16 Schafer vs. Time, Inc. In that case, your Honor, Sack says the 17 Eleventh Circuit found the district court had been correct when 18 it ruled that the defendant, which allegedly accused the 19 plaintiff of being a traitor, "would be permitted to question 20 the plaintiff about a felony conviction, a possible violation 21 of his subsequent parole, convictions for driving under the 22 influence, an arrest for writing a bad check, failure to file 23 tax returns, failure to pay alimony and child support, and 24 evidence concerning plaintiff's efforts to change his name and 25 social security number." In other words, once you put your SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 62 H3VOGIU1 1 reputation at issue, all of these specific instances going to 2 your honesty are fair game. 3 In this case, we have asked plaintiff whether she 4 filed tax returns. She said, "No." Tax fraud is not a private 5 matter, as plaintiff contends, it is a crime. It is a crime of 6 dishonesty. 7 She likewise put into her complaint that her 8 reputation was injured in her professional capacity as 9 President of Victims Refuse Silence. We inquired whether 10 Victims Refuse Silence was, indeed, a legitimate enterprise. 11 We learned that they had not met their tax obligations and they 12 had not been funded. That is, as your Honor knows, the subject 13 of 702 motions, so I won't repeat it all here. 14 I will say, however, that both of those issues, 15 failure to file tax returns and tax fraud, are exactly the 16 kinds of evidence permissible under 405(b) when you are 17 attempting to establish the truth of your statement that 18 plaintiff is a liar. 19 Motion 14, evidence of being a victim of domestic 20 violence. Your Honor, in this case, plaintiff claims 21 30 million in pain, suffering, and emotional distress. 22 Plaintiff's expert, Dr. Kliman, testified that domestic 23 violence by her husband is likely a cause of exacerbation of 24 her PTSD. He also testified it was a very violent episode and 25 more likely happened more than once. He also testified that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 63 H3VOGIU1 1 she needs additional marital and sexual counseling based on her 2 disinterest in sex, which she claims is caused by the 3 defamatory statement. 4 Our expert, your Honor, likewise found that the far 5 more likely cause of any dysfunction in her marriage which 6 arose at the time of the domestic violence incident and was 7 more likely the cause of any PTSD pain, suffering, or emotional 8 distress that she was experiencing. 9 That domestic violence incident happened in early 10 March, 2015, a couple of months after the allegedly defamatory 11 statement, and seven months before plaintiff brought this 12 lawsuit. 13 The criminal proceedings against her husband also are 14 relevant to her damages, apart from Dr. Kliman's testimony. 15 Her husband was ordered to live away from their home, leaving 16 her to care for her three children alone. He then stopped 17 participating in the court-ordered domestic violence 18 counseling, and he fled the country with an active arrest 19 warrant that remains outstanding to this date from Colorado. 20 All of these alternative sources of emotional distress 21 for plaintiff should be admitted, as her expert, Dr. Kliman, 22 has testified, in as far as they impact supposed pain, 23 suffering, loss of enjoyment of life. 24 Motion in limine number 15, any testimony that sex 25 with a 17-year-old girl is, quote unquote, lawful. Plaintiff SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 64 H3VOGIU1 1 is the one who claims she had sex with various people at 2 various places at various times, some when she was 17, some 3 when she was 18, some when she was 19, some in Florida, some in 4 England, some in New York, some in New Mexico. In all of those 5 cases, except Florida, the age of consent is 17. 6 I don't know what evidence plaintiff is going to 7 introduce about what sex she had, where, with whom, and her age 8 at that time because those sands have shifted dramatically 9 during the course of this litigation. All I can say, your 10 Honor, is, if she tries to introduce evidence that she had sex 11 at a certain place and time and claimed that it was unlawful, 12 your Honor will be duty bound to instruct a jury on what is or 13 isn't lawful in a particular jurisdiction at a particular time 14 in a particular place. 15 Your Honor, I would submit that motion in limine 16 16 regarding the medical records, again, is something that depends 17 dramatically on what plaintiff introduces during her case in 18 chief, but there are many statements, as I mentioned earlier, 19 to her doctors which would be admitted as nonhearsay if offered 20 against her as party admission. 21 There are many statements over the last 15 years that 22 relate to her mental condition, that relate to her medications. 23 Do I anticipate asking about her ferret bite? I do not. Do I 24 anticipate asking about the other things that are listed in her 25 motion in limine? I do not. But I do believe that there are a SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 65 H3VOGIU1 1 number of times that she saw doctors, made statements, sought 2 treatment, got medications, all of which are reflected in her 3 medical records and are something that about which she may be 4 cross examined. 5 She claims her medical records are private. She is 6 the one seeking 30 million in emotional distress, pain and 7 suffering, and I think when you do that, I'm sure her lawyers 8 advised her that her privacy rights with respect to her medical 9 records would no longer be the same as a private individual. 10 Your Honor, Motion in limine 17, again, the dollar 11 value of the Jane Doe settlement depends entirely on what 12 happens in terms of plaintiff's case in chief and whether any 13 other evidence regarding the Jane Doe 102 litigation comes into 14 evidence, because if it does, then the settlement and the 15 settlement amount may very well become relevant, but I can't 16 say right now how anyone intends to use that at trial, why it 17 would be relevant, and I can't say whether or not the 18 settlement amount would likewise be relevant. 19 Motion in limine 18, the Cassell-Edwards-Dershowitz 20 litigation and their settlement. It's interesting to note 21 Mr. Cassell to refer to himself in the third person when he was 22 talking about that litigation. 23 Your Honor, there are a number 24 reasons, at least, that that case is relevant to the facts in 25 this case. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 66 H3VOGIU1 1 Plaintiff was a witness in that case. She was deposed 2 in that case. She testified under oath in that case, 3 represented by the same counsel that she has here. Her 4 testimony in that case is admissible. 5 She participated in that case, your Honor, from March 6 of 2015 or so until it settled in or around April of 2016, and 7 she reported to her doctors that it was causing her a 8 significant amount of stress. In fact, shortly before she was 9 deposed in that case she went to a doctor and requested that 10 she get more Valium to help her handle her upcoming deposition. 11 Dr. Miller, our psychiatrist, found that her 12 participation in that lawsuit as a witness caused her 13 significant stress and explained many of her complained of 14 symptoms, and he said that they were exacerbated by her 15 participation in that litigation. 16 Third, evidence regarding that lawsuit goes to her 17 reputational damages. Again, your Honor, I refer to the 18 federal evidence treatise relied on by plaintiff. In 19 defamation cases, defendants can also prove other liables and 20 rumors about the claimant are circulating, at least if they are 21 widespread, to demonstrate it is not what the defendant said 22 about the plaintiff that caused her reputation to suffer but 23 what others said. 24 Your Honor has read the 702 pleadings. Plaintiff's 25 experts have pulled off the internet all kinds of stories that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 67 H3VOGIU1 1 relate to plaintiff and said that those stories are evidence of 2 her damaged reputation. When you look at the stories that 3 actually were pulled off the internet, a substantial number of 4 them relate to the Cassell-Edwards-Dershowitz litigation; what 5 happened in the litigation, statements made by the parties in 6 the litigation, statements made about Virginia Giuffre relevant 7 to that litigation. 8 If her reputation is damaged by some other litigation 9 that has nothing to do with Ms. Maxwell, Ms. Maxwell can't be 10 responsible for that reputational damage. 11 THE COURT: What's your explanation of the damage 12 caused to Giuffre by the Dershowitz case? 13 MS. MENNINGER: I'm sorry? 14 THE COURT: I understand the testimony part. That's a 15 different kind of thing. But the case itself, how does that 16 damage her reputation? 17 MS. MENNINGER: It's the press attendant to that case, 18 your Honor. 19 THE COURT: Okay. So the press attendant. 20 MS. MENNINGER: There was a lot of press attendant to 21 that case which was, frankly, negative to the plaintiff that 22 had nothing do with Ms. Maxwell's denial. And their experts 23 have relied on that press and claimed that that press somehow 24 supports their claim for damages against Ms. Maxwell, even 25 though she's not mentioned in the particular stories. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 68 H3VOGIU1 1 THE COURT: But how is that going to figure into 2 damages in our case? 3 MS. MENNINGER: Your Honor, I think the jury would be 4 instructed here not to hold Ms. Maxwell responsible for any 5 harm to plaintiff's reputation caused by third parties or 6 alternate sources, including stories that were generated by 7 statements made by her own counsel, by Alan Dershowitz, by 8 Prince Andrew, by anyone else. 9 THE COURT: Well, yes. But what I'm trying to figure 10 out, what about that case was damaging to Giuffre? 11 MS. MENNINGER: I can't tell you that, your Honor. 12 It's actually plaintiffs who are asking for 1.9 million in 13 reputational cleanup costs, and when you ask them what 14 reputational cleanup costs are you trying to clean up, they 15 point to stories having to do with the Dershowitz litigation. 16 They say her reputation was damaged by that litigation and by 17 the stories related to it, and they want to push all of those 18 stories down on the internet searches. Not stories that relate 19 to Ms. Maxwell, stories that relate to her litigation with 20 her lawyer's litigation with Alan Dershowitz. 21 THE COURT: Okay. 22 MS. MENNINGER: I don't think that evidence should 23 come in because I don't think it's based on science, but I 24 realize that's not for today. 25 Likewise, your Honor, her failure to sue Alan SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 69 H3VOGIU1 1 Dershowitz, although he's gone on all of these other shows and 2 called her a liar after she said she had sex with him seven 3 times, goes to her failure to mitigate any of her damages. 4 Finally, your Honor, there is, as you heard from 5 Mr. Cassell, talking about Cassell lawsuit, a statement issued 6 that that lawsuit was a mistake. Whether her attorneys have 7 made representations, they did so while they were representing 8 plaintiff. This was while Mr. Cassell and Mr. Edwards were 9 both pursuing their own lawsuit and also representing plaintiff 10 in this case. So any statements that they issued that are 11 within the scope of their agency, your Honor, are 12 representations, frankly, made by plaintiff. 13 With regard to the Judge Marra order, motion in limine 14 19, your Honor, plaintiff would like to make a lot of arguments 15 now. She's already litigated those points. She lost. She's 16 collaterally estopped from reraising them. And it would be 17 seriously misleading, your Honor, to admit the joinder motion 18 and not inform the jury that a judge found that the allegations 19 contained in that joinder motion were impertinent. 20 Motion in limine 20, Rebecca Boylan. They said she's 21 not been deposed. She was a disclosed witness. They said 22 she's not going to be a witness. Well, we'll see. Your Honor, 23 I don't think this is the appropriate time to raise this issue. 24 It's not an appropriate motion in limine. I know what the 25 rules of evidence are with regard to hearsay and double SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 70 H3VOGIU1 1 hearsay. 2 That's also true, your Honor, largely with respect to 3 the rest of the motions. They are asking for an advisory 4 opinion from this Court about things that may or may not 5 happen. Your Honor, I just don't see the need to waste more 6 time on it. 7 There is only one issue, the one raised in 28 where we 8 have presented the possibility that as the party that bears the 9 burden of proof, we would be allowed during closing arguments, 10 for example, to comment on the lack of proof, which is a common 11 closing argument. 12 If they have control over a party and that party 13 doesn't come and testify, we may, under the appropriate 14 circumstances and with the right foundation, ask for a missing 15 witness instruction, your Honor, but these are all advisory 16 questions at this point. 17 MS. McCAWLEY: Your Honor, Sigrid McCawley on behalf 18 of the plaintiff. Would the Court like to take a break at this 19 point? I know we've gone for a couple hours. I'm not sure how 20 you'd like to proceed. We're happy to address 21 THE COURT: Let's finish. 22 MS. McCAWLEY: Let's finish. Okay, great. Thank you. 23 MR. CASSELL: Paul Cassell, your Honor, for 24 Ms. Giuffre. 25 The defense started with an overview of Rule 405(b), SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 71 H3VOGIU1 1 so let meet respond to that overview. 2 They reference Mueller and Kirkpatrick, a treatise 3 that we think is very instructive on this particular point. 4 Mueller and Kirkpatrick says, "It is true that in a 5 defamation case there is more latitude to introducing 6 reputational types of evidence. However, it's important to 7 remember, say Mueller and Kirkpatrick, that actual character is 8 not so much the question as reputation." 9 And it follows that "specific instances of misconduct 10 cannot be proved if they were not generally known because then 11 they would not affect reputation." 12 They go on to say that, "When a defendant's proof goes 13 to specific instances under 405(b), caution from the judge is 14 in order. Proving misbehavior can, in effect, become a game of 15 character assassination that adds insult to injury which courts 16 can block by carefully considering relevancy issues and the 17 rule against unfair prejudice found in Rule 403." And so it is 18 against that backdrop that the Court should be considering 19 these 405 issues. 20 What I would like to do is offer three illustrations 21 of what I think is going to be a pervasive flaw in many of the 22 arguments advanced by the defense. 23 So we heard that, "Your Honor, look under 405(b). The 24 fact that the mother 25 liar about using drugs and running away from home, that comes SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 72 H3VOGIU1 1 in to show reputation." Let me explain why I believe that 2 argument is fundamentally flawed, and that will, of course, 3 carry over to other illustrations, as well. 4 The statement to which defense counsel was referring 5 was a statement that Ms. Giuffre's mother made during a 6 deposition as a witness in this case where the only people in 7 the room were the court reporter and the attorneys. The fact 8 that when asked, "What did you think of your daughter 17 years 9 ago? Well, I thought at the time that she was a liar," wasn't 10 something that goes to Ms. Giuffre's reputation because there's 11 no evidence anybody knew about it other than, you know, the 12 mother who is now being deposed in 2016. 13 Moreover, the question was, "What did you think about 14 the fact that your then 17-year-old child was running away from 15 school? Well, I thought she was lying to me about that." That 16 would go, I guess, to her reputation back in, what, 1999, 2000, 17 2001, that time period, but of course the damages that are at 18 issue in this case are damages around 2016 and thereabouts when 19 the defamatory statement is released. 20 So it's hard to see even an argument for the statement 21 of the mom in a deposition going to reputation. I don't know, 22 maybe I'm missing something, maybe there's some marginal 23 relevance that can be distilled out of all of that. But of 24 course then your Honor has to weigh whatever marginal value 25 that has as to reputational issues against the very significant SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 73 H3VOGIU1 1 prejudicial effect. 2 Obviously, this is going to be considered by the jury 3 to think she's a bad kid. They're not going to like 4 Ms. Giuffre, and they're going to hold it against her, not 5 because it has some technical reputational aspect to it, but 6 because it is something that shows she's a bad person. Under 7 403, the evidence should be excluded. 8 Let me give you a second illustration of reputational 9 points. They say, "Ah-ha, look. Ms. Giuffre went to 10 Dr. Kliman," and I believe your Honor referred to that as well. 11 And your Honor asked, I think, a very good question, and let me 12 see if I can answer that question. 13 You said, "Well, why did she disclose all this stuff 14 to Dr. Kliman?" Well, the answer is obvious, she was under 15 instructions from the doctor to tell everything that happened, 16 and of course she told, to the best of her ability, everything 17 that happened. Some of the stuff is going to turn out in a 18 court of law to be relevant, some of this stuff in a court of 19 law is going to turn out to be irrelevant. But that's not the 20 psychiatrist's job to say, 'No, no, no, don't talk about 21 illegal drug use because the prejudicial effect outweighs the 22 probative value,' he just gets a full medical history. And 23 having collected all that information, you know, through 24 Dr. Kliman, or they also have Dr. Miller who did a similar sort 25 of thing. Now once you have all of this vast array of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 74 H3VOGIU1 1 information, then the lawyers present arguments to your Honor 2 and say, 'Wait a minute. Some of the things that are in the 3 report aren't relevant to the case and, in fact, are going to 4 be highly prejudicial for the jury.' That's why we're here 5 this morning asking for some of those things to be excluded. 6 For example, there are some references 7 belabor the point 8 some of the illegal drug usage and so forth, that's not 9 something we're trying to deploy affirmatively. The good 10 doctor simply listed all of the information that had been 11 recited as part of his report so that the lawyers and the judge 12 can now make a determination. 13 And the fact that Ms. Giuffre told Dr. Kliman in a 14 confidential psychiatric examination certain things about drug 15 use can't possibly go to her reputation because no one was 16 there who was assessing what kinds of things might be going on. 17 A similar point can be made about tax fraud. We're 18 told, "Well, your Honor, tax fraud goes to her reputation." I 19 suppose that goes to her reputation with some IRS agent who is 20 looking at a return, but it can't possibly go to a general 21 reputation that is at issue in this case. 22 And once again, the cases that we cite in our briefs I 23 think make this point clear, there is a vast risk of 24 prejudicial effect to Ms. Giuffre because the jury is going to 25 think, oh, she's a tax cheat, and they're going to hold that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 75 H3VOGIU1 1 against her because they don't like her actions in that 2 particular circumstance as opposed to the merits of the case. 3 And by the way, we are going to strongly contest that 4 she's a tax cheat, so your Honor is going to have, I guess, 5 competing tax information, and jury instructions on whether 6 personal injury returns have to be reported on your return, all 7 of which is going to deflect the jury's time and attention, not 8 to mention the Court's and counsel's, away from the fundamental 9 issue of did Ms. Maxwell defame Ms. Giuffre. So that's our 10 response to the initial overview regarding 405, and I'm going 11 to turn the time over to my colleague now to dive into some 12 specifics. 13 MS. McCAWLEY: Thank you, your Honor. I'm going try 14 to keep this very brief and just touch on some of the 15 highlights quickly. 16 So we were talking initially at the beginning about 17 the issue of various pieces of different witnesses, whether 18 their information would come in, and we hit on the issue 19 they brought up the issue of Mr. Freeh, and actually gave 20 you 21 going to sit on the stand and validate the FOIA response. 22 Well, very clear from the documents they've produced 23 in this case, if I could hand them up, your Honor, this is the 24 pages that they produced with respect to Mr. Freeh. And you'll 25 see on the first page, he gives his conclusion and he says, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 76 H3VOGIU1 1 "Based on my experience, knowledge, and duties of these 2 protocols in the USS Protective Details of Special Agents, a 3 company escorting Mr. Clinton" 4 expertise as a former FBI head in order to opine on whether or 5 not these records are correct, your Honor. 6 They disclosed him as a lay witness in this case, not 7 an as an expert witness. We went through a series 8 know your Honor, you've seen all the expert depositions in this 9 case that we've had. They say, "Well, you could have deposed 10 him as a lay witness." 11 Your Honor, will remember, we were very limited. We 12 were limited to ten depos. We had to beg, borrow, and steal to 13 get a few more, and we had to be very careful in who we picked 14 and chose with respect to establishing our claims. If we had 15 known, of course, that Mr. Freeh was going to be put on the 16 stand as an expert in this case, we, of course, would have 17 sought his deposition through the expert process. 18 So, your Honor, I think those documents speak for 19 themselves. They're very clear, that's GMOO526, where he's 20 giving that clear opinion. The letter is sent to 21 Mr. Dershowitz and he signs it, and then it has the relevant 22 attachments. So, your Honor, we firmly believe that that 23 should be kept out of evidence because he was not disclosed 24 properly as an expert in this case. 25 The other thing I want to point your attention to is SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 77 H3VOGIU1 1 another document that they gave you, and I think this document 2 is really telling for what it doesn't say, and that's the email 3 traffic. 4 Right after 5 defamatory statement, she's conversing with Alan Dershowitz 6 about this statement. And this is GM0006 through 00015. 7 What's really interesting about this is nowhere in 8 this statement does she say, 'I didn't participate in this 9 abuse. I didn't know this person. I wasn't around. This 10 didn't happen with JE.' Instead, she picks statements and says 11 things like 12 says, "I called Jeffrey and told him I've fallen madly in love, 13 Virginia says. I was hoping he'd be delighted, but he said, 14 "Have a nice life" and hung up on me." And she puts in parens 15 to Mr. Dershowitz, "Did she want Jeffrey to say no, don't do 16 it, I want to marry you?" 17 Clearly, she knows 18 claimed to not recollect my client whatsoever, she clearly 19 knows her and this shows that they were together. 20 It's also interesting, if you look on page 0008, 21 because she's putting in parens individuals, other people that 22 my client was lent out to that they forgot to mention in the 23 list that they give. I mean, what's really telling about this 24 document is what it doesn't say, but it clearly shows she knew 25 my client, she knew what was occurring, and she's simply trying SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 78 H3VOGIU1 1 to pick apart nuances in the statement. So, your Honor, I 2 submit that to you for what it doesn't say from Ms. Maxwell 3 since they've provided that to you today. 4 There are a few more things that I just want to touch 5 on that I think need to be clarified, and that is, with respect 6 to 7 you know we've submitted an expert who analyzed through his web 8 analytics, he's the same expert that was in the Anders case who 9 followed that video of the Fox reporter over the internet and 10 tracked that he uses a well-accepted methodology. We've set 11 that forth all in our papers. 12 But he tracked the specific quoted statements, your 13 Honor. And if they have an issue, if they want to say, oh, 14 they're proposing today that these articles related to the 15 Dershowitz matter, that's subject for cross examination of him 16 if they want, but he has a very clear methodology, and those 17 articles that he tracked were in that manner, your Honor, so I 18 just want to make that point since they raised it. I know 19 we're not discussing the experts in detail today, but I did ask 20 that question. 21 So your Honor, in just summarizing on those points, I 22 think we made clear in our opening argument why we believe that 23 this shouldn't be subject to a number of mini trials on a 24 variety of these issues, we're hoping to streamline this 25 matter, and that's why we proposed this motion in limine to you SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 79 H3VOGIU1 1 in the way that we did. 2 I'm just going to let my counsel address any final 3 issues. 4 MS. SCHULTZ: Your Honor, I don't have anything 5 further to say on motion in limine number 6. The defendant has 6 not given any valid reason or justification for introducing any 7 evidence of prior sexual assault that should be excluded for 8 all the reasons in the brief and the oral argument over these 9 two days. 10 With regard to drugs, there are voluminous medical 11 records presented here. Defendant's counsel has stood up and 12 said there are false statements to doctors and have suggested 13 that Ms. Giuffre is doctor shopping. I'll submit that the 14 records do not reflect that. 15 Defendant apparently seeks to introduce a jotted down 16 note here or there from medical records, but these are plainly 17 hearsay, and a sentence fragment in the middle of a medical 18 chart is not admissible evidence, it's hearsay. And then, 19 they're certainly not a party admission, they don't even 20 reflect the totality of what the conversation is between 21 patient and doctor. 22 Also, I would also submit that the prescription 23 records show that they are not doctor shopping to a mass 24 amounts of pills or medication. The prescription records speak 25 for themselves. You can count the number of pills that were SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 80 H3VOGIU1 1 prescribed over a period of time, and you'll understand that 2 this is not a situation of someone being a drugee and doctor 3 shopping, something that's in the news a lot these days. So 4 trying to submit it that way is not only irrelevant to this 5 case, but the prejudice greatly outweighs whatever probative 6 value it might be. Ms. Giuffre would not, of course, object to 7 testifying with regard to what current medication she takes, 8 but that's a different subject altogether. 9 With regard to criminal history, as I mentioned, 10 Ms. Giuffre denied that she stole the money. She said her 11 boyfriend took the money while he was there with her. And 12 defense counsel reminded Court that this victim is a thief. 13 Again, none of this information comes in under the Federal 14 Rules of Evidence. Even the charging document and the warrant 15 are classic hearsay and should be excluded. 16 With regard to the next one, I'm going to skip ahead 17 to school records. The records don't show that she was in 18 school, as much as defendant seems to think she is. They don't 19 have also what days she attended and what days she doesn't. It 20 doesn't say that she was there on, for example, May 23rd, 2000. 21 What they do show is that there are no courses taken between 22 1999 and the 2000 school year, and no courses taken during the 23 2000 to 2001 school years. 24 Ms. Giuffer's attempt to work and resume school at 25 another school as as a tenth grader in the 2001 to 2002 school SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 81 H3VOGIU1 1 year was limited to a portion of the school year starting 2 October 20th, 2001, ending only in March 7th, 2002, which only 3 further substantiates Ms. Giuffre's testimony that at one point 4 she attempted to get away from defendant's abuse, along with 5 and Mr. Figueroa testified to the same. 6 So again, I would also reiterate that her reputation 7 as a child for being a truant or a runaway is not what is at 8 issue in this case. She is a 30-something-year-old woman and 9 did not have a reputation related to her school attendance. 10 There is also in this case zero evidence of her 11 not-for-profit being a tax fraud. It's not funded and it's in 12 compliance with United States tax rules. 13 Additionally, Ms. Giuffre has produced volumes of 14 papers of tax returns filed with the Australian government, the 15 country where she has predominantly resided since she was 19 16 years old. And that's all I'm going to say for that, to keep 17 it brief. 18 MR. CASSELL: Your Honor, I'm just going to address 19 all of the points that 20 with your permission. 21 So on point number 7 that I addressed, the issue of 22 slut, it seems like we're in agreement that that should be a 23 term that's not used. 24 The debate was over the term "prostitute". Again, Dr. 25 Esplin, their own expert, you can see in the 702 motions, he SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 82 H3VOGIU1 1 concluded that was an inappropriate word. 2 The only 3 that has the word "prostitute" in it, we're not suggesting that 4 then it would be 5 of that word is appropriate and admissible and relevant, we're 6 not saying that that has to be redacted. But the only example 7 they gave is there's some comments in some internet chat room 8 somewhere, we're not sure exactly how they're going to 9 authenticate those, there's no evidence Ms. Giuffre has heard 10 of those, so as you say, we can take that up at the time. But 11 we would ask that defense counsel be instructed, and their 12 witnesses be instructed, not to use that term unless it appears 13 in a particular document. 14 With regard to item 14, this is the domestic violence 15 issue. And they say, look, it has relevance because it shows 16 an alternative cause of emotional distress damages. 17 Our position is primarily based on Rule 403. We 18 conceded, I think, that there's some arguable chain of 19 relevance that perhaps could be teased out here, but let's 20 understand, this domestic violence incident took place in 21 March, 2015, and the statement at issue that caused the 22 worldwide reputational damages was launched in January of 2015. 23 So the relevance here is marginal, and ultimately the 24 question your Honor has to, of course, sort out is the 25 prejudicial effect. There wasn't any response that I heard SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 83 H3VOGIU1 1 from defense counsel about a blame the victim mindset that the 2 jury would very well adopt once they heard that Ms. Giuffre's 3 staying with her husband is a victim of domestic violence. So 4 your Honor has in front of it, I think, essentially uncontested 5 evidence, or at least uncontested argument of substantial 6 prejudicial effect that will exist that tips decisively in 7 favor of excluding this, particularly when they get to subjects 8 like criminal proceedings. We're going to then get into what 9 is the scope of the protective order if they live in Australia 10 and things like that. That's far afield from any effect on 11 emotional distress damages. 12 Item 15 has to do the 17-year-old, 16-year-old, 13 15-year-old. I think we have agreement from both sides that 14 sex with a 17-year-old is unlawful under the age of consent 15 statute that exists in Florida, and we'll be asking either to 16 cover that through an expert witness or through a jury 17 instruction. But they say, oh, what if she's flown to New 18 Mexico? The age of consent there might be different. And this 19 is where I believe your Honor can take a close look at the 20 expert witness on sex trafficking, the 702 motion is currently 21 pending in front of you, Professor Terry Conan, who is at the 22 Florida State Trafficking Institute, and we've offered him as 23 an expert witness. 24 If you take a 17-year-old from Florida, fly her to New 25 Mexico for sexual purposes, it makes no difference what the age SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 84 H3VOGIU1 1 of consent is at that point because you have a federal sex 2 trafficking crime that has been committed. 3 The same thing is true if you fly a 17-year-old into 4 London, or if you fly her into New York. All of those are sex 5 trafficking crimes, and Professor Conan is prepared to explain 6 both that particular aspect, I would describe it as a mixed 7 question of fact and law, and also some of the psychological 8 techniques that are used to create the 9 them as the invisible chains of sex traffickers. 10 So we either have a crime in Florida, because she's 11 under the age of consent, or we have a federal or, in all 12 likelihood, state trafficking offense if she's flown to another 13 state. 14 Which regard to item 18, the Cassell and Edwards 15 litigation, I think your Honor asked some excellent questions 16 on that. 17 We were told that there are five reasons why 18 Ms. Giuffre's connection to that case has some relevance. The 19 first argument, I guess, is their strongest argument, was that, 20 well, she was a witness in that case. But, of course, that was 21 a confidential deposition, so it couldn't have anything to do 22 with reputational damages or something else. 23 Let me be clear. Ms. Giuffre made statements when she 24 was deposed, and if they say, ah-hah, you've said X from the 25 witness stand, but last year when you were deposed you said not SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 85 H3VOGIU1 1 X, fair enough, cross examine her about it, inconsistent 2 statement. We're not objecting to that aspect of that. 3 What we don't want is the lawsuit itself and the 4 circumstances surrounding the lawsuit to be paraded in front of 5 jury. If they simply want to put in a deposition statement to 6 stay it's inconsistent, and that's properly done, of course, 7 that would be appropriate. 8 Their second point is, she participated for a period 9 of time. I guess she participated if you're subpoenaed as a 10 witness and testified, but that wasn't 11 a party to the case. 12 Their third point was that the reputational damages 13 somehow link into what Dershowitz was saying. Again, your 14 Honor already knows our point one is to keep out Mr. Dershowitz 15 from the case, and you'll make a ruling one way or the other on 16 it. If he's kept out of the case then this becomes a moot 17 point. But even if you decide he's in the case, well, okay, 18 fine. Have him testify and do whatever else you think is 19 appropriate. We don't need to hear all about this unrelated 20 lawsuit. 21 Their fourth point had to do with, I believe, you 22 know, damages suffered by Ms. Giuffre. Your question was, if 23 I'm 24 you said, well, how does the case itself go to damages? And I 25 believe this is a direct quote from Ms. Menninger. "I can't SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 86 H3VOGIU1 1 tell you that." So even the defense counsel when given an 2 opportunity to articulate the relevance failed to do so, in our 3 view. 4 She says 5 plaintiff's experts are using Dershowitz's statements. As you 6 know from the 702 pleadings, no, we're using Maxwell's 7 statements. We're only going to be proving a case about what 8 Maxwell's defamation did to Ms. Giuffre. 9 And then the last argument was that there was a 10 failure to mitigate damages by suing Dershowitz. Well, your 11 Honor knows, if a person A commits a defamation, you sue A and 12 you get your damages. Then if person B does something, you 13 sort that out in a separate proceeding in a separate way. 14 Sacks and others are very instructive on that. 15 The last point they made was that, well, look, these 16 statements were going on while Cassell and Edwards were 17 representing her. They've shown simultaneity in time, but not 18 simultaneity in the scope. 19 It is true that the lawsuit was settled, and I won't 20 refer to myself in the third person. Mr. Edwards and I settled 21 the lawsuit and made certain statements in connection with 22 that, but that was to take care of our own professional 23 reputation and the lawsuit associated with that, it had nothing 24 to do with representing Ms. Giuffre. 25 I believe I have two left, your Honor, and you've been SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 87 H3VOGIU1 1 extremely patient. Let me just take two more minutes to cover 2 point 19. This is Judge Marra's ruling. 3 They say we want to put it in that she lost. Well, in 4 our view, actually, that was a victory. Our goal was to try to 5 get her into the case, and Judge Marra ruled that she could 6 participate by being a witness. 7 Now, are we really going to try the implications of 8 Judge Marra's ruling in a pro bono Crime Victims Rights Act 9 organization ruling? He ruled on this, but allowed this other 10 thing. It's highly, first, irrelevant, and obviously, highly 11 prejudicial in the sense that it's going to divert the jury's 12 attention away from the facts at hand here. 13 And again, Judge Marra only ruled on the first of nine 14 reasons that we offered for putting those allegations in. He 15 said point 1 doesn't work, the others we'll see how things play 16 out. 17 The litigation is moving forward. I can tell you the 18 government will be responding to our summary judgment motion, I 19 believe on May 15th. We'll be replying on July 15th, so the 20 litigation continues. 21 The last point that I'll make is Boylan. This is item 22 20. Remember, Dershowitz is going to say that Boylan says that 23 Ms. Giuffre said certain things. And we were told that, well, 24 maybe she will be a witness. 25 It's my understanding that Boylan is not on the final SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 88 H3VOGIU1 1 pretrial witness list. Maybe during a break I can confirm 2 that. But if she's not on the witness list, we've got double 3 hearsay and it can't come in. 4 The last point I would leave you with, your Honor, is 5 many of these issues are going to come down to balancing. 6 They're of minimal relevance for the reasons we've explained, 7 very significant prejudice, and we would ask that each of the 8 motions in limine we've asked today be granted. 9 THE COURT: Thank you. We'll resume at 1:30, and I 10 guess, unless you all think it's been covered, the Maxwell 11 motions. What do you think? 12 MR. PAGLIUCA: Your Honor, I would 13 THE COURT: Would you rather catch your plane? 14 MR. PAGLIUCA: No. I'm prepared to stay until 15 tomorrow, your Honor. I'm not leaving until tomorrow morning, 16 just in case you need me this afternoon. I'm sure you're 17 thrilled about that. 18 I think, your Honor, when I went through these, it 19 seems to me that we have dealt with number 679, 716, in 20 connection with 683, 742, and 774. That deals with the 21 Rodriguez, we call it the unauthenticated hearsay document from 22 a suspect source. They call it the black book. I think the 23 Court heard argument about all of that and, in my view, this 24 does not all need to be repeated today. 25 Yesterday, we talked about the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 89 H3VOGIU1 1 name of it, but it was the plaintiff's motion, sort of omnibus 2 related to different acts either under 404(b) or 415. 3 The plaintiff wanted until 15 days before trial to 4 make whatever showing they wanted. It would make sense 5 well, in defendant's 404(b) motion, there are some of those 6 issues, as well. We certainly could argue part of that. The 7 Court may want to defer that to the entirety of when we have 8 whatever the supplement is to that motion yesterday. 9 Then we also, I believe, dealt with yesterday the 10 issue related to the Jane Doe 102 complaint. We have a 11 competing motion on that. That's 663. It seems to me that was 12 argued yesterday, and we don't need to repeat those arguments, 13 which is the same argument we had yesterday. 14 So in my view, your Honor, that leaves the bifurcated 15 trial motion, which has been fully briefed, the Kellen and 16 Marcinkova issue, and the police report issue. So by my count, 17 we have those three. 18 I also have on my calendar that our motion to 19 preclude 20 attorneys as witnesses, which is 685 and 772, and by my 21 calendaring the reply was due yesterday. I think Ms. McCawley 22 has a different version of that, and so frankly, I don't care 23 whether we hear that today or some other time. 24 So that's my accounting of what we have ripe for 25 argument today, or shouldn't have argument today, as the case SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 90 H3v1giu2 1 may be, your Honor. 2 (Discussion held off the record) 3 THE COURT: We'll resume at 1:30. 4 (Luncheon recess) 5 (Continued on next page) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 91 H3v1giu2 1 AFTERNOON SESSION 2 1:30 p.m. 3 THE COURT: Who's up? I think the defense? 4 MR. PAGLIUCA: Yes, your Honor. I think Ms. Schultz 5 requested that we take up No. 666 at this point, which we're 6 happy to do. 7 THE COURT: Oh, yes. Yes. 8 MS. MENNINGER: Your Honor, this motion relates to our 9 request that we exclude evidence barred as a consequence of 10 plaintiff's summary judgment concessions. We asked in argument 11 4 of our summary judgment motion for partial summary judgment 12 with respect to the oral statement on January 4th to a 13 reporter. 14 THE COURT: Hold the phone. 15 MS. MENNINGER: Sure. 16 THE COURT: Sorry. Needless to say, I'm drowning. 17 Ah, okay. Okay. Sorry. Yes. 18 MS. MENNINGER: We asked for partial summary judgment 19 with respect to our client's statement on a New York street 20 that, "I am referring to the statement that we made." As we 21 set forth in our summary judgment brief, this Court's ruling in 22 Adelson v. Harris is directly on point, that a mere reference 23 to another writing that contains defamatory statements does not 24 constitute an actionable repetition or republication. In that 25 case, in Adelson, there was, first, an allegedly defamatory SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 92 H3v1giu2 1 statement and later a press release which said, we stand by 2 everything we said. It's directly on point. Your Honor there 3 held that such republication is not actionable. We set forth 4 that clearly in our argument 4 of the summary judgment motion, 5 and plaintiff, in her response to summary judgment, made 6 absolutely no reference, no response, nothing with respect to 7 that argument. We, therefore, believe that she has conceded 8 the point and we would ask that no evidence regarding that 9 statement be entered in the trial. 10 We predicted, and we were correct, that having not 11 argued it in response to our summary judgment motion, they 12 would try to use the opportunity of their response to this 13 motion in limine to make substantive arguments. They should 14 not be permitted to do so, your Honor. In any event, their 15 arguments that they have set forth in response 16 THE COURT: I'm a little lost. Perhaps totally lost. 17 But the partial summary judgment, that's not been dealt with, 18 or has it? 19 MS. MENNINGER: It was not part of your Honor's 20 ruling, no. 21 THE COURT: Tell me the context of the summary 22 judgment. 23 MS. MENNINGER: Certainly, your Honor. There were a 24 number of things that we believed plaintiff had conceded 25 because they failed to respond to our requests in our summary SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 93 H3v1giu2 1 judgment motion. Your Honor ruled against us on a couple of 2 points, but your Honor was silent with respect to this 3 particular argument, argument No. 4 4 THE COURT: Ah. 5 MS. MENNINGER: 6 THE COURT: And that was? 7 MS. MENNINGER: Our plaintiff's statement two days 8 after the 9 THE COURT: The one on the street. 10 MS. MENNINGER: Exactly. That in that statement, our 11 client said, we stand by the statement, or, I am referring to 12 the statement that we made. 13 THE COURT: Yes, yes, yes. Okay. I'm just trying to 14 figure it out. So in a very nice, polite way, you're telling 15 me I failed to deal with that motion of yours. 16 MS. MENNINGER: That's correct, your Honor. 17 THE COURT: So it's still out there. 18 MS. MENNINGER: Still out there. There was no 19 response by plaintiff to that argument is our point; that in 20 their response to summary judgment, they didn't mention it at 21 all. 22 THE COURT: Well, that's probably where I missed it. 23 MS. MENNINGER: Exactly. So I think the fact that 24 they failed to respond to it then, as your Honor has held in 25 other cases, has consequences; namely, it's a conceded point. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 94 H3v1giu2 1 And so their failure to respond 2 THE COURT: What was the point, that that was not 3 another defamation? 4 MS. MENNINGER: Exactly. In the case of Adelson v. 5 Harris, just like in this case, there was one allegedly 6 defamatory statement afterwards. There was a press release 7 issued that stated, we stand by everything we said. Those 8 facts are very similar to ours, where there was a written 9 statement issued and then our client, did she or did she not 10 republish that, is that a separate defamatory event. 11 THE COURT: Okay. Thank you very much. Now, at least 12 in this little small part of this dispute, I know where I am. 13 Okay. Thanks. 14 MS. MENNINGER: And the Adelson case, your Honor, 15 controls and says that referring back to a statement, such as a 16 previous press release, is not actionable, and summary judgment 17 has been granted on such alleged republications. So now, in 18 this motion in limine, is not the time to be dealing with the 19 substantive point that plaintiff basically conceded during 20 summary judgment. 21 Thank you. 22 MS. SCHULTZ: Hi, your Honor. Meredith Schultz, 23 counsel for Ms. Giuffre. 24 This motion in limine has already been decided by this 25 Court's summary judgment order, thereby rendering it moot in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 95 H3v1giu2 1 its entirety. Accordingly it should be summarily denied as 2 moot. 3 This motion should also be denied because it advances 4 the exact same arguments defendant advanced in her summary 5 judgment motion. She is seeking rehearing on her summary 6 judgment motion, dressed up as a motion in limine. Many courts 7 in this district have summarily denied motions in limine that 8 seek to relitigate arguments from summary judgment, and I have 9 listed six such cases on pages 7 and 8 of our response in 10 opposition. You ordered nine defendant's motions for summary 11 judgment. This Court rejects the argument that she should have 12 partial summary judgment on the January 4th statement. The 13 last sentence of that order states, "Because of the existence 14 of triable issues of material fact rather than opinion and 15 because the prelitigation privilege is inapplicable, the motion 16 for summary judgment is denied." Defendant's reiteration of 17 her defamatory press release confirming it two days later is 18 something that this Court did not rule that that is not 19 actionable. So she's seeking rehearing. 20 Also importantly, your Honor, Ms. Giuffre opposed 21 summary judgment on defendant's defamation in its entirety. 22 She opposed the motion for summary judgment in its entirety, 23 and this statement, as part and parcel of defendant's 24 defamation and part and parcel of defendant's motion for 25 summary judgment. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 96 H3v1giu2 1 THE COURT: Well, what do you say about the case 2 that's been cited? 3 MS. SCHULTZ: Well, about Adelson? I would say that 4 it's factually distinguished because here she is two days later 5 reiterating her defamatory statement. And I would also direct 6 you to the case in my brief, Wheelings v. Iacuone. 7 THE COURT: Let me just get the time frame right. 8 MS. SCHULTZ: Sure. 9 THE COURT: The initial statement is January, and when 10 is this? 11 MS. SCHULTZ: So, your Honor, the email that went to 12 the media, it was first issued on January 2, 2015; it was 13 published on January 3, 2015; and the statement took place the 14 next day, on January 4, 2015. 15 THE COURT: Okay. 16 MS. SCHULTZ: A recent opinion in this district, the 17 Wheelings case, makes it clear that you can't reargue summary 18 judgment on a motion in limine and also makes it clear that you 19 can't say, oh, because one person 20 THE COURT: The issue is, was the second statement 21 defamatory? 22 MS. SCHULTZ: I think that was an issue at summary 23 judgment that Ms. Giuffre opposed in its entirety, and I think 24 that's already been resolved. 25 THE COURT: How? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 97 H3v1giu2 1 MS. SCHULTZ: Because it was denied, your Honor. 2 THE COURT: The motion was 3 MS. SCHULTZ: Your Honor, even assuming, arguendo, 4 that this is not cause of action, it should still be admitted 5 as evidence. This is a motion in limine to exclude it as 6 evidence. 7 THE COURT: All right. Assume for the moment that the 8 case that counsel has given me is accurate, and then why would 9 it get in? What does it add? 10 MS. SCHULTZ: It adds state of mind, defendant's state 11 of mind in issuing 12 THE COURT: The state of mind didn't change in two 13 days. 14 MS. SCHULTZ: Right. It says that she stood by her 15 statement and did not retract it. 16 THE COURT: Well, she certainly is standing by it 17 today. 18 MS. SCHULTZ: And your Honor, it shows one other 19 thing. Throughout this litigation defendant has tried to argue 20 that defendant had nothing to do with the defamatory 21 statements. In fact, just yesterday defendant's counsel was 22 saying that it was issued by her lawyer and by her press agent. 23 It's her statement, and in this video she is personally owning 24 it, and she can't hide behind her lawyer or her press agent. 25 THE COURT: Oh, okay, okay, okay. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 98 H3v1giu2 1 MS. SCHULTZ: So it goes to a material argument that 2 defendants have advanced. 3 THE COURT: So to the extent that becomes an issue, 4 and that's a whole other thing, as to whether she intended the 5 statement, I can see that. 6 Okay. All right. Anything else? 7 MS. SCHULTZ: Yes. I'm just going to say that this is 8 a motion in limine and there are no evidentiary problems with 9 this piece of evidence. This is the defendant herself on 10 camera, this is not hearsay, and there's no Federal Rule of 11 Evidence that should exclude this. 12 THE COURT: Okay. Do you want to add anything? 13 MS. MENNINGER: No, thank you, your Honor. 14 THE COURT: Okay. Thank you. 15 What else? 16 MR. PAGLIUCA: Your Honor, we can take up the 17 bifurcation issue that's presented in 662 and 766, and then 18 there was a reply filed last evening. 19 THE COURT: Yes. 20 MR. PAGLIUCA: Your Honor, I think 21 think. The law is very clear on this issue in this circuit. 22 There is a 23 THE COURT: Well, I think we can shorthand this. 24 MR. PAGLIUCA: Yes. 25 THE COURT: Yes, yes. Maxwell's money doesn't come in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 99 H3v1giu2 1 on the liability case. That's your position. 2 MR. PAGLIUCA: That is my position, your Honor. 3 THE COURT: I think that's correct. Tell me why 4 that's wrong. 5 MR. CASSELL: All right. Thank you, your Honor. 6 The problem, as usual, is, yeah, her net worth doesn't 7 come in at the liability stage, but I think the defendant is 8 trying to get the camel's nose under the tent and say, oh, if 9 financial issues don't come in, then you can't 10 THE COURT: Well, I don't know what financial issues 11 you mean. He's saying no introduction of her finances 12 is, how much money she's got or where it comes from or anything 13 like that comes in. 14 MR. CASSELL: As I understand the motion, it's with 15 reference to her "financial status." 16 THE COURT: Well, I just told you what I think that 17 means. 18 MR. CASSELL: Right. And I think, with the 19 construction that you were just giving, I'm not sure that we're 20 concerned about this, but let me be clear. 21 THE COURT: What would you like to present? 22 MR. CASSELL: There were three or so things we would 23 like to present. If your Honor rules that Ms. Giuffre's tax 24 compliance can go to her credibility, then we would like to be 25 able to reciprocally say, all right, then Ms. Maxwell's tax SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 100 H3v1giu2 1 compliance, if there is questions about that, could be 2 introduced. We think that there shouldn't be tax compliance 3 issues coming in with regard to Ms. Giuffre. They've said, 4 well, that goes to her credibility. What's good for 5 Ms. Giuffre should be good for the defendant. But again, to be 6 clear, we don't want to turn this into a tax trial; we want it 7 to be a defamation trial. But they've made an argument, tax 8 issues are relevant to Ms. Giuffre. Then we would like to have 9 a parallel opportunity then with respect to Ms. Maxwell. 10 The other thing we have, for example, we're alleging 11 there's a organization that is paying girls to give sex to 12 Epstein. And who's making the payments? Well, Ms. Maxwell, 13 among others. We have her on bank records, at the Epstein 14 mansion, where she's in charge of the 15 THE COURT: Well, that's different. 16 MR. CASSELL: Yes, and that's exactly 17 THE COURT: That's not her financial status. 18 MR. CASSELL: Right. So that's not her financial 19 status. For example, we want to show those kinds of payments. 20 We also want to show more broadly that Ms. Giuffre and the 21 other girls were not coming into a bungalow in the middle of 22 Hoboken or whatever. They were coming into a mansion in one of 23 the most 24 THE COURT: Well, that's got nothing to do with her 25 financial status. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 101 H3v1giu2 1 MR. CASSELL: All right. Well, we thought, when we 2 filed our response, they continued to oppose it. If they had 3 just stipulated, you know, I wouldn't be taking your Honor's 4 time. 5 But this is where I think they're taking a narrow 6 uncontested principle, that her net worth doesn't come in, and 7 are going to try to use it to exclude evidence that Ms. Maxwell 8 is making payments to the girls, that this mansion is a very 9 THE COURT: Well, okay. I don't think so. 10 MR. CASSELL: Let me just make sure that I have on the 11 table the things that we want to introduce. 12 For example, Mr. Epstein purchased a helicopter for 13 Ms. Maxwell, and they might say, oh, well, that shows financial 14 status or something. We think that shows a very close 15 connection. 16 Well, the last one and perhaps the most controversial 17 one in connection with this case is the townhouse. It is our 18 belief that a 19 THE COURT: Well, wait a minute. What's the basis of 20 your belief? 21 MR. CASSELL: The basis for our belief is, I believe 22 they've conceded that there was a sale of a 17 million 23 townhouse in 2016. 24 THE COURT: Okay. Is it the defendant's townhouse? 25 MR. CASSELL: Yes. So the question is SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 102 H3v1giu2 1 THE COURT: So that's part of her net worth. I mean, 2 that's part of the financial part. I don't see how that gets 3 into the liability case. 4 MR. CASSELL: Right. So Epstein was the one who 5 provided the loan to get that 6 THE COURT: Says who? 7 MR. CASSELL: Ms. McCawley, who took Maxwell's 8 deposition, is advising me that during Maxwell's deposition, 9 she conceded that. 10 THE COURT: Well, all right. Okay. But that isn't 11 financial information. That's the relationship between Maxwell 12 and Epstein. 13 MR. CASSELL: Right. I think you and I are on the 14 same page. My concern is that we may, as on other issues, may 15 not be on the same page with the defendant. 16 THE COURT: I don't think so, but maybe I'm wrong. 17 MR. CASSELL: There's one other point, if I can just 18 be heard on the townhouse. The townhouse was sold at a time 19 shortly after Ms. Maxwell is discussing with her advisers, hey, 20 I could get sued for libel. We believe that transferring 21 17 million outside the jurisdiction of your Honor 22 THE COURT: Tell me about that after you've got a 23 verdict. 24 MR. CASSELL: All right. But we want to introduce it 25 during the trial to show consciousness of guilt, that she is SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 103 H3v1giu2 1 transferring assets away from the jurisdiction of the court 2 because 3 THE COURT: She sold the house. 4 MR. CASSELL: Right. After she wrote an email that 5 said, hey, I could get 6 THE COURT: You can't argue, I don't think, that 7 that's an admission. 8 MR. CASSELL: We believe it goes to consciousness of 9 guilt, and we've cited a case in our brief to that effect. 10 But I think if you have a difficulty with that small 11 piece of our argument, I mean, I think the rest of it is 12 really, you know, the meat and potatoes here, so 13 THE COURT: Okay. Yes. 14 MR. PAGLIUCA: Your Honor, I'm going to not try to 15 belabor this, but I have to respond to some of the points, just 16 so that the record is clear. 17 The language that we proposed to the Court about the 18 financial status comes from the very cases that are in the 19 Second Circuit, and that's the words that the Second Circuit 20 and district courts in the Southern District use. And I quote 21 from Tillery: No evidence as to defendant's financial status 22 may be presented to the jury during the first phase of the 23 trial by either of the parties to this action. And the Second 24 Circuit says that that's the preferred method. Mr. Cassell, I 25 think, knowing that he's losing this battle, then tries to SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 104 H3v1giu2 1 change it. 2 But first of all, let's talk about this consciousness 3 of guilt issue. And not only the supposed facts behind this 4 but the law that they cite. There are references to a New York 5 Post article that is the 6 THE COURT: Well, that's no good, obviously. 7 MR. PAGLIUCA: Of course. And then there's a 8 reference to Radar Online. That's their entire evidentiary 9 basis for the proffer that they just made to you, your Honor, 10 about this townhome. It doesn't fly. And I don't need to 11 spend 12 THE COURT: Well, wait a minute. There was a little 13 bit more. There was Maxwell saying she got a loan, they say, 14 from Epstein to buy the house. 15 MR. PAGLIUCA: What she said, your Honor 16 wrote it down because I looked at the deposition transcript 17 last night. 18 First of all, I think it's important for this 19 discussion, we allowed questions relating to anything financial 20 with Mr. Epstein. So the one instruction that I gave to 21 Ms. Maxwell during this deposition was, anything they ask you 22 about Epstein is fine. I'm not going to let you talk about 23 your own personal financial information because it's not 24 discoverable at this point. And so they had fair opportunity 25 to ask her questions. They asked her questions about the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 105 H3v1giu2 1 townhome, and she said part of it was a loan from Mr. Epstein 2 that had been paid back, and that's going to be years ago, 3 before any of the defamatory allegations arose in this case. 4 That's my understanding of the factual basis here. 5 So we can I think deal with that particular issue, you 6 know, if and when it comes up, but what I'm saying to the 7 Court 8 sale of the townhome, the amount of the sale of the townhome, 9 you know, what did or didn't happen to the money from the sale 10 of the townhome, those are all off limits during the liability 11 phase of the trial. 12 THE COURT: Well, correct me if I'm wrong. We don't 13 have any evidence as to what happened to the proceeds of the 14 sale. 15 MR. PAGLIUCA: We don't. 16 THE COURT: Oh, okay. 17 MR. PAGLIUCA: There is none. 18 THE COURT: Okay. 19 MR. PAGLIUCA: And the notion that this money went 20 outside of the jurisdiction of the court is pure fiction. 21 Frankly, unless it went to some country that I'm unfamiliar 22 with, I think the jurisdiction of this court extends pretty 23 far. 24 THE COURT: I think that's for another day. 25 MR. PAGLIUCA: Right. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 106 H3v1giu2 1 The last point I want to make, your Honor, on this 2 issue of consciousness of guilt relates to the one case that 3 they cite for the proposition that there is some ability to 4 have a consciousness of guilt theory in a civil case. They 5 cite a Second Circuit criminal case in which the defendant was 6 a man named Amuso. This is at 21 F.3d 1251, and it's a 1994 7 case. Mr. Amuso was a leader in the Lucchese crime family who, 8 over a course of time, ordered 14 murders and then absconded 9 from the jurisdiction during the trial of a number of 10 co-defendants. And it was called "The Windows" case here in 11 New York, and you may remember it, your Honor, because it was 12 the Lucchese crime family that was controlling the replacement 13 window unions in the city of New York. So Mr. Amuso goes to 14 trial, and the government requested and received an instruction 15 to the jury that said not only his flight was consciousness of 16 guilt but the length of the absence of his flight was 17 consciousness of guilt. And in fact, the Second Circuit 18 reversed that instruction and disapproved it in that criminal 19 case but didn't reverse his conviction because the evidence of 20 guilt was overwhelming. So the one case that they cite for 21 this proposition in fact is inapposite to the position that 22 they're taking here today. 23 So I think your Honor and I are indeed on the same 24 page here, and I'd ask that the Court simply apply the law in 25 Tillery. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 107 H3v1giu2 1 Oh, Ms. Menninger reminds me, your Honor 2 think the Court and I are on the same page on this as well 3 the tax argument made by Mr. Cassell. Indeed, Ms. Maxwell and 4 the plaintiff are not on the same footing in this case with 5 regard to who put their reputation at issue, who is claiming 6 emotional distress damages, and plaintiffs are in a much 7 different position than defendants when it comes to 8 cross-examinations about these issues, particularly in 9 defamation cases, because as Ms. Menninger pointed out earlier, 10 under Rule 405, everything that impacts the plaintiff's 11 reputation in the community, including the failure to follow 12 laws, is the subject of cross-examination. So the argument 13 that what is good for the goose is good for the gander in a 14 defamation case simply doesn't apply when you're talking about 15 damage issues and reputational issues. 16 Thank you, your Honor. 17 MR. CASSELL: Could I just have 15 seconds, your 18 Honor? 19 THE COURT: No. 20 MR. CASSELL: All right. Thanks. 21 THE COURT: Next. 22 MR. PAGLIUCA: Your Honor, we could next take up the 23 issue relating to the police reports which I have as 24 defendant's motion in limine to exclude police reports and 25 other inadmissible hearsay at 677, response at 747, and then SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 108 H3v1giu2 1 reply was also filed yesterday. 2 THE COURT: Okay. Yes. 3 MR. PAGLIUCA: Your Honor, these reports, that are 4 loosely described as police reports, encompass a one-year 5 purported investigation by the Palm Beach Police Department 6 into the affairs of Mr. Epstein roughly beginning I think in 7 2005 and going through 2006. The detective initially assigned 8 to the case was a woman named Michelle Pagan, and then 9 Detective Recarey took over the investigation from Ms. Pagan. 10 There were a number of things, according to the reports 11 although we don't really have any actual witness testimony, 12 with current knowledge. The police did a number of things. 13 They surveiled Epstein's house, they did trash pulls, and 14 ultimately they executed a search warrant at Mr. Epstein's 15 house. And that's sort of the totality of the investigation. 16 I give you that as the backdrop, your Honor, because 17 then next what seems to happen is very curious, in my 18 experience, and was testified to by Detective Recarey. The 19 police get crossways with the state attorney's office in 20 Florida, and there is a complete distrust between the two 21 agencies. As a result of that 22 in-fighting that goes on between these two agencies. The 23 police make the decision to, in some fashion, turn over 24 everything that they have to the FBI. And as best I can figure 25 it out, the FBI issued a grand jury subpoena, or the U.S. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 109 H3v1giu2 1 Attorney's Office, in the Southern District of Florida, issued 2 a grand jury subpoena for the entirety of the Palm Beach Police 3 Department's evidence relating to the Epstein investigation. 4 So as we sit here today and indeed for the last ten years since 5 2006, the Palm Beach Police Department has not been the 6 custodian of any of this evidence. 7 And so that's the factual backdrop to then what 8 becomes continuing problems with the types of evidence that I 9 anticipate the plaintiffs are going to try to introduce in this 10 case. The first is these police reports themselves. And that 11 is about 87 or 88 pages of documents, depending on which 12 iteration of these police reports someone is looking at. That 13 essentially runs through the course of the investigation. And 14 I'm sure things that your Honor's seen before, you know, police 15 officer does something, they put it down on a piece of paper, 16 somebody puts it into a system, and then that's where it goes. 17 But the problem here, fundamentally, with these police 18 reports 19 THE COURT: Let me back up just a moment. 20 MR. PAGLIUCA: Yes, sir. 21 THE COURT: How are these going to be entered into 22 evidence? They're not self authenticating. 23 MR. PAGLIUCA: They're not. 24 THE COURT: So how are they going to be presented? 25 MR. PAGLIUCA: Good question, your Honor. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 110 H3v1giu2 1 MS. McCAWLEY: Do you want me to address that, your 2 Honor? I mean, it's our evidence that we're trying to get in. 3 Or do you want me to wait? 4 THE COURT: Well, you don't know. The defense doesn't 5 know. 6 MR. PAGLIUCA: There is no way. There is no way to 7 present these documents, your Honor. 8 THE COURT: Yes. Okay. All right. Because there's 9 no DOJ witness listed. 10 MR. PAGLIUCA: There is no record custodian at all for 11 these documents. Detective Recarey in his deposition 12 you have this, the relevant answers to these questions 13 acknowledged that they don't have any of this evidence. And so 14 that's going to be, you know 15 filings from the plaintiffs, they attach excerpted documents 16 containing what they say are phone messages secured from the 17 trash pulls. So that would be an example of evidence for which 18 there is no record custodian. Frankly, I don't know who the 19 source of any of that information is. This is yet another 20 piece of information that has appeared, I'm presuming through 21 Mr. Edwards getting it somehow, you know, in relation to some 22 other case and then it appears in discovery in this case. And 23 what it looks like is, you know, a number of, you know, what 24 they say are photocopies of message pads from Epstein's trash. 25 But there is no person who will say, this particular piece of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 111 H3v1giu2 1 paper came from Epstein's trash in the first instance. There 2 is no person that will say, we kept these documents and we have 3 the originals and you can come look at them and you can test 4 them and feel them. There is no person that will say any of 5 that because it went to the grand jury and presumably, under 6 Rule 60, it's never coming out of the grand jury again. 7 So the other point about these message pads is, I 8 don't to this day know whether that's just hand-picked portions 9 of whatever plaintiff's counsel got years ago or it's the 10 entirety of what, you know, Palm Beach did or didn't do, but 11 when I asked Detective Recarey those questions in his 12 deposition, he said, I can't tell you if that's everything. I 13 just got handed this stuff by plaintiff's counsel, you know, in 14 the course of this deposition, and that's all I can tell you 15 about it. So that's another piece of this that's problematic 16 for the plaintiffs. 17 There's another issue that relates to a transcript of 18 a witness, Ms. Hall, and the plaintiffs, I think, want to try 19 to introduce that transcript or, alternately, what they say is 20 an audio recording of an interview with her, and I'm not sure 21 which they are trying to introduce, but there are problems 22 either way. The transcript, what I will call the Hall 23 transcript, was in fact not prepared by the Palm Beach Police 24 Department. According to Detective Recarey, he had never seen 25 it before, during his deposition, and he surmised that it had SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 112 H3v1giu2 1 been prepared by the state's attorney's office but he didn't 2 know. So what happens then with this transcript is, there is 3 an attempt at a deposition of Ms. Hall in Miami, this summer, 4 and Ms. Hall comes in and she sits down, and she doesn't want 5 to answer any questions about anything, and she says, I don't 6 remember anything about any of this. Her lawyer says, she 7 doesn't remember anything about any of this and she spent the 8 last ten years forgetting about all of this and she's not going 9 to remember anything about this. Mr. Edwards then puts the 10 transcript in front of her and she doesn't look at it. She 11 doesn't even look at the transcript. She doesn't turn the 12 page. She doesn't read any of it. There's a question asked at 13 some point later: Isn't it true that everything you said in 14 the police department was true? And then shortly after that, 15 the deposition ends. And they're trying to say that that is a 16 sufficient factual basis and an evidentiary basis for the 17 admission of this transcript, which is, you know, unsponsored 18 hearsay. 19 There's a similar problem with this recording because 20 Ms. Hall never listened to the recording, never authenticated 21 the recording. And so there's no evidence whatsoever that it's 22 Ms. Hall's statement or that it was subject to any 23 cross-examination. 24 So to try to get around all of these evidentiary 25 problems, now what's being advanced by the plaintiffs is, well, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 113 H3v1giu2 1 we're not offering any of this for the truth of the matter 2 asserted. So 87 pages of police reports, a hundred pages or 3 however many there are of trash, you know, witness transcripts, 4 no, no, no, no, none of that is being offered for the truth of 5 the matter asserted, we want to offer it to show Ms. Maxwell's 6 state of mind when she issued her statement through Mr. Barden 7 and Mr. Gow. So the huge problem with that, your Honor, which 8 we've already dealt with, is, Ms. Maxwell has no knowledge of 9 what's in these police reports, the trash pulls, any of these 10 things, and so as a matter of law, this can't be part of her 11 state of mind. 12 What is instructive on this point, your Honor, I went 13 and read every single case that plaintiff's counsel cited for 14 this proposition that it is state of mind, and what's great 15 about these cases, frankly, every single one of them, whoever 16 the statement is being introduced on behalf of, or against, 17 knows about the statement. So when you look at their papers, 18 they cite United States v. Gotti for the proposition that it 19 goes to state of mind. Well, you know who Mr. Gotti is, and 20 Mr. Gotti was charged with witness tampering. Mr. Gotti wanted 21 to introduce some wiretapped statements that the FBI had, where 22 he was talking to an informant and telling the informant things 23 that Gotti said went to his state of mind. Well, the Second 24 Circuit said, yes, you can do that, Mr. Gotti, first of all, 25 because the government's introducing part of these transcripts, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 114 H3v1giu2 1 and second of all 2 second of all, you were there and you heard it and therefore, 3 it would go to your state of mind and not for the truth of the 4 matter asserted. 5 The next case is United States v. Dupree. That's 6 another criminal case in this circuit, where a bank fraud 7 defendant was the subject of a temporary restraining order 8 issued to that defendant, okay? So, you know, he has a 9 temporary restraining order, you can't take any money out of 10 this bank unless you do X, Y, and Z. Well, he took the money 11 out of the bank without doing X, Y, and Z, and when he came to 12 trial in his criminal case, the government was allowed to 13 introduce that restraining order because it was his restraining 14 order, he knew about it, and it showed his willful intent to 15 defraud as part of the bank fraud. So that's that case. 16 Arista Records, LLC v. Lime Group, LLC was another 17 case they rely on. Again, these are emails that are being 18 talked about that were written by the defendant's employees and 19 then the responses to those emails. So clearly the defendants 20 LLC had corporate knowledge of those things. Screenshots of 21 software programs, statements made by an agent of the 22 defendant, those are all the things that we're talking about in 23 that case, and so there's actual knowledge of the entity of 24 those statements, which then can go for state of mind. 25 There are two more cases. Crescenz v. Penguin Group, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 115 H3v1giu2 1 and the case says, it's undisputed the defendant had actual 2 prior knowledge of the issues, of the at-issue statements that 3 were offered by the defendant. Again, the statements were made 4 to Crescenz. 5 And then the last case is a 1983 case, Tierney v. 6 Davidson. That involved civil rights violations and objective 7 reasonableness by the officers who conducted a search of a 8 building. I think the Court knows from doing this kind of work 9 that pretty much anything in an officer's head is allowed in a 10 qualified immunity case, because whether the officer did 11 something that was objectively reasonable or not depends on 12 what's in the officer's head, and so there is (A) an exception 13 in these kinds of cases, but (B), in fact, the evidence that 14 was being discussed in the qualified immunity situation related 15 to statements that the officers had heard, which formed the 16 basis of why they went into a building. 17 So in each and every one of these cases and all cases 18 that deal with state of mind, the person who it is being 19 introduced either for or against, not for the truth of the 20 matter asserted but for their state of mind, has to know about 21 it. 22 You have attached to our reply an affidavit from 23 Ms. Maxwell who says she's never read any of these police 24 reports prior to January 2015. And there is good reason for 25 that, your Honor. It's not easy to get these police reports. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 116 H3v1giu2 1 As you've heard, the chain of custody behind these things after 2 2006 is a little sketchy. And, you know, it requires some 3 effort. And so, you know, ordinary folks I don't believe are 4 going to be, you know, rooting around trying to ferret out 5 police reports from South Florida. Even if you get them, they 6 are heavily redacted, and so when one looks at them, it's 7 virtually impossible to tell who's at issue, who's saying what 8 about whom, because there are lots of blackouts through these 9 police reports. We managed somehow 10 even know how 11 Recarey was surprised when he saw the unredacted copy because 12 he said, we always redact these things. And so I'm unclear as 13 to how ours is unredacted, but in any event, there is one out 14 there. But I don't know how we got it. 15 The other point on this, your Honor, is, again, there 16 is some liberty taken in the plaintiff's papers about what 17 Ms. Maxwell said or didn't say in her deposition about these 18 police reports, and they try to make hay over, she knew about 19 the police reports by the selective presentation of that 20 deposition testimony. And I've cited the actual quote for you 21 in the reply brief, but what is notable, in my view, is that 22 when Ms. Maxwell is presented with these police reports, it is 23 for the first time at her deposition by Ms. McCawley, and there 24 is an exchange in the transcript where Ms. McCawley and 25 Ms. Maxwell are going back and forth and Ms. Maxwell says, you SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 117 H3v1giu2 1 know 2 there is a police report. We go on 300 pages or so in the 3 deposition, and it is clear from the transcript that when we 4 get back to the police report issue again, Ms. Maxwell is being 5 asked questions by Ms. McCawley. Ms. McCawley says 6 is at page 169, lines 4 through 8 7 police report that I showed you this morning that you had an 8 opportunity to look at it," and Ms. Maxwell responds, "You gave 9 it to me. I did not look at it." And there was no really 10 other questioning at the deposition about Ms. Maxwell's 11 knowledge of these police reports. 12 So the record on this issue, your Honor, which is 13 going to continue to be the record, is that Ms. Maxwell has no 14 knowledge of this police report, the investigation, anything 15 that's going on with Mr. Epstein substantively during this 16 investigation by the Palm Beach Police Department. So that's 17 why it's not admissible. They try to cobble together what they 18 view as sort of indicia of she should have known about what's 19 in these police reports, and they first of all say 20 back to this Dershowitz joint defense agreement issue, which I 21 touched on yesterday, but you're going to hear it again today, 22 so I think it's worth mentioning again. And here are the 23 quotes exactly from Mr. Dershowitz' deposition. 24 Mr. Dershowitz 25 then there's a colloquy. There's an assertion of privilege. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 118 H3v1giu2 1 There's a little bit more colloquy, and then Mr. Dershowitz 2 says: "This is a long time ago. My recollection is that very 3 early on there was a joint defense agreement between several of 4 the people who were of interest to the district attorney and to 5 the federal government. That's my recollection. And I would 6 only want to resolve doubts in favor of privilege." Then 7 Mr. Dershowitz says: "We can check further. I would be happy 8 to answer the question if it's not privileged." That's the 9 testimony that they say supports their assertion of this joint 10 defense agreement with Alan Dershowitz. 11 But there's more, your Honor. Mr. Edwards 12 who is a party in this deposition and not a lawyer 13 to the special master and Mr. Dershowitz: "Q. Ghislaine 14 Maxwell was never the target of the investigation, was she?" 15 Confirming and arguing that Dershowitz is wrong about this 16 joint defense agreement at the time. And Dershowitz is 17 admitting that he doesn't really know and we should check and 18 we'll get back and people can ask these questions if I'm wrong 19 about this agreement. 20 They also take liberty with Ms. Maxwell's discussion 21 in her deposition about her knowledge about what happened to 22 Mr. Epstein and what he pled guilty to. When you look at those 23 pages of the transcript, you know, she says, I know he went to 24 jail, and then there's a back-and-forth between Ms. McCawley 25 and Ms. Maxwell about what did he go to jail for, and SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 119 H3v1giu2 1 eventually Ms. Maxwell says, you know, I'm not really sure what 2 he went to jail for. It had something to do with, she 3 thinks 4 prostitution or something like that. That certainly doesn't 5 give you the ability then to ram in 400 pages of uncorroborated 6 hearsay under the idea that somehow this is notice to somebody. 7 And I think there is one other factual claim that they 8 make about, you know, what Ms. Maxwell should have known, which 9 is not the standard. It is not incumbent upon an individual 10 defendant to go investigate things. That's not the standard. 11 It seems to me that they have conceded that these 12 documents are hearsay because they're saying, we're not 13 offering them for the truth of the matter asserted; we want to 14 offer it for this knowledge theory that we have. 15 So I've briefed the issue about business records, 16 which they are not. I've briefed the issue about government 17 police records, which they are police records, but essentially 18 the same tests for business records applies to police records, 19 which is, you have to be under a business duty to record the 20 information, and court after court after court after court, 21 across the country, has said, people in police reports, like 22 witnesses, are not under a business duty as part of the police 23 department. So all of those statements, the second- and 24 thirdhand hearsay statements, are inadmissible, either as 25 government records or police records or whatever you want to SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 120 H3v1giu2 1 call them. They're just simply inadmissible for the truth of 2 the matter asserted. You know, there may be a few things in 3 these police reports that someone could, if they had a record 4 custodian available, try to offer into evidence, but we don't 5 have that here. 6 And so I think for all of those reasons, your Honor, 7 this is a very strong motion that should be granted by the 8 Court. 9 MS. McCAWLEY: Good afternoon, your Honor. Thank you. 10 The reason why they're battling so hard on this 11 document is because it's so critical to the case. This is a 12 police report that records numerous, over 20, under-age minors 13 saying virtually the exact same story that my client gave about 14 her abuse, over and over and over again. What they didn't say 15 to you 16 entire deposition transcript, which we've noted for next week, 17 with all of his testimony. He took these statements. We went 18 through the business records exception with him. He walked 19 through, yes, I recorded this in the course of my work. We've 20 got it in our papers. I did this under my duty. I interviewed 21 these witnesses. I recorded it, etc., etc., etc., all in this 22 document. I mean, with every document that's come up, they 23 claim, particularly government documents, this is something 24 that we've found out of thin air and that it has no value to it 25 or trustworthiness. He sat in his deposition as the detective SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 121 H3v1giu2 1 who handled this entire investigation and walked through each 2 of those people, your Honor, and walked through how he recorded 3 it in this document. So this is authenticated through 4 Detective Recarey, who is a witness in this trial, on our trial 5 exhibit list. 6 To be very clear, this document is so critical because 7 it mentions Maxwell in it. It talks about Maxwell's stationery 8 being at the house, it talks about other issues with respect to 9 Maxwell. When I asked her at her deposition and I gave her 10 this document 11 we want you to look at the testimony 12 it. Later in that deposition, they talk about her battling me 13 over she wouldn't look at certain things I gave her, in front 14 of her, right? So there was an attitude issue during that 15 deposition that I had to manage. And that was what was coming 16 up in that section. It wasn't that she didn't say she had seen 17 it. But your Honor, we are allowed to put that in front of 18 her, in front of the jury, and say: Did you know about this at 19 the time in 2005 when you were photographed kissing Epstein on 20 the day the investigation started? You were working for him. 21 You've admitted that. You didn't know about all these little 22 girls coming to the Palm Beach house that you were working at, 23 that you claim you were the house manager for? We should be 24 entitled to get this in 25 THE COURT: That is for the truth of the matter. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 122 H3v1giu2 1 MS. McCAWLEY: Whether she knew about it. That's not 2 for the truth of the matter, your Honor. That's what she knew 3 at the time, right, she made the statement, did she know about 4 all these individuals in the police report, did she know about 5 this. So that can be offered not for the truth but to show 6 whether she knew about it. Whether she knew that at the time 7 she was making that statement, it was false, because not only 8 did my client get abused there but so many other girls as well. 9 So, your Honor, that's part of it. And in your order, 10 in your June 20th order, you said 11 THE COURT: Excuse me. 12 MS. McCAWLEY: Sure. 13 THE COURT: You say the detective authenticated these 14 documents. He didn't authenticate them in the sense of saying 15 that these are part of the file. I mean, it's not that kind of 16 an authentication. 17 MS. McCAWLEY: It is, your Honor. There are two 18 different things, and I'm jumping around a little bit, so 19 that's my fault. I'm sorry. But there are a series of 20 questions 21 our designations 22 conducted the investigation, how he recorded the information of 23 these witnesses, the interviews of the witnesses, the fact that 24 they were reported in this document, etc., in his testimony. 25 So that's one piece. And that's why this could come in under SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 123 H3v1giu2 1 the business records exception. But even if it weren't to come 2 in under the business records exception, it can come in not for 3 the truth of the matter asserted but to show for knowledge. 4 And you say in your June 20th order, "Notwithstanding the 5 questions are directed to reveal relevant answers regarding 6 defendant's knowledge of plaintiff's allegations, that 7 knowledge goes directly to the truth or falsity of the 8 defamation, a key element of plaintiff's claims." In other 9 words, what Maxwell knew at the time she's making the statement 10 goes to the truth of the falsity of those statements, and that 11 includes this police report, your Honor, so we believe that 12 it's critical evidence to show that. And you'll see that, 13 again, she was working for the defendant at the time that this 14 investigation happened. She has testified to that. She was on 15 the flights with him at the time this was going on over 300 16 times during that period. 17 THE COURT: You know, spare me the flights, okay? 18 MS. McCAWLEY: Sure. Okay. 19 THE COURT: I've heard that before. 20 MS. McCAWLEY: Sure. I'm sorry, your Honor. I'll try 21 to cut to the chase here. 22 So certainly, you know, it's interesting, because you 23 heard defense counsel here not too long ago saying that they 24 wanted to get in police reports of an under-aged minor, 25 Virginia Giuffre, from when she was 14, being raped by two SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 124 H3v1giu2 1 other boys, right? But now police reports are not allowed in 2 at all, right? A police report where I've got the detective 3 coming to testify about the police report that he took in his 4 investigation, oh, but that can't come in. And what's 5 interesting is, they went through all of our cases but they 6 failed to look at their own cases, because Smith, which is a 7 case that they cite in their brief on trying to get the police 8 reports in, a Southern District of New York case, says that 9 this can come in. It says, "Statements in a police report are 10 not inadmissible hearsay where, as here, they are not offered 11 for the truth of the matter asserted but for purposes of 12 showing whether the arresting officer had the information 13 giving them probable cause in that instance." So what we are 14 doing here, your Honor, is putting forth this police report to 15 show whether or not Maxwell had the knowledge of that, which we 16 are entitled to ask her those questions at trial, your Honor, 17 and to utilize this police report in that regard. 18 So, your Honor, it comes in for two reasons. One, 19 under the hearsay exception, which is the business records 20 exception through Mr. Recarey's testimony, which is detailed in 21 our briefs. He was deposed for a full day. He walked through 22 all of these documents in his investigation, and we laid out 23 that, the standard in there. He testified that it was a record 24 kept in the regular course of his work. He testified that it 25 was something he had to do in accordance with that work. He SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 125 H3v1giu2 1 testified that he was the primary author of that and that it 2 had 3 So we were very careful, because we knew how important this 4 document was, to walk him through that when we had him at his 5 deposition. And again, your Honor, those deposition 6 designations are set forth for next Wednesday. 7 THE COURT: How do we know that this is the total 8 record? Or is it the total record? We don't know. 9 MS. McCAWLEY: Well, Recarey testified 10 him this document as an exhibit in his deposition, and he 11 testified regarding this being something that he recorded in 12 the course of his own work. 13 THE COURT: But it's part of the record. Is it all of 14 the record? 15 MS. McCAWLEY: Meaning all of the record of the entire 16 investigation? We have produced that in discovery, your Honor, 17 through the 18 videotapes of them walking through the Palm Beach house, all of 19 the other materials related to the investigation. 20 THE COURT: I see. Okay. 21 MS. McCAWLEY: So then, your Honor, we deposed the 22 detective to try, of course, to establish that this was the 23 record to get into evidence. 24 Your Honor, they also mentioned 25 actually in the in toto motion, but they jumped to it so I need SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 126 H3v1giu2 1 to address it, and that is one of the witnesses in here, AH, 2 who was a minor at the time, also gave a recorded statement as 3 part of that. We took her deposition, and they're, you know, 4 in my view, vastly misrepresenting the deposition. And you can 5 look at the quotes themselves, but she testified in great 6 detail about the activity at the house, verifying that what she 7 said in her recording and in the police report was in fact 8 correct. And she is a witness on our trial list. She is a 9 minor who was abused in the same manner that my client was. 10 She was exposed to him on a number of occasions. And we have 11 her testimony, and we have sought to enter that as a witness in 12 this case. And again, that's in the in toto motion which I 13 think is being heard next Wednesday, but just to address it, 14 since they raised it. 15 The other issue they raised are the message pads. 16 These have come up from time to time in this case and come up 17 through different witnesses. Now the message pads come in in a 18 number of ways. One is Juan Alessi, who is one of the house 19 butlers. He testified that those were the messages for which 20 they recorded 21 signature. Yes, this is how we recorded our messages. He 22 worked at the house. That was his duty to do those things. 23 Maxwell's on those messages as well, so we intend to ask her 24 about those, you know, were you having three girls come on this 25 particular day, etc., etc.? So those are documents that should SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 127 H3v1giu2 1 come into evidence because they have been validated by an 2 employee who works at the home and are things that should be 3 able to be utilized at trial, and Maxwell should be able to be 4 shown those and explain whether or not there is some issue with 5 respect to those statements. 6 So your Honor, that's all evidence that we do want to 7 enter at the trial, and certainly we have done our diligence 8 with respect to the police report to make sure that we do have 9 Detective Recarey's testimony on it. I submit if you review 10 that, you will see the reason why that it should come into 11 evidence. But regardless of the hearsay issue and the business 12 records exception, again, as you said in your June 20th 13 order, the point of defendant's knowledge at the time she made 14 a defamatory statement is very significant in this case, so if 15 she knew 16 that there had been a number of other under-age minors that 17 were abused in this circumstance, to call my client a liar in 18 the face of all that knowledge is something the jury should be 19 able to consider. So that is a piece that is important and 20 relevant to this case. And you can always give a cautionary 21 instruction. If you're concerned at any level, as you know, 22 you could add a cautionary instruction with respect to the 23 police report. But we should be entitled to ask her questions 24 on the stand when she's under oath about what she knew with 25 respect to this very significant document. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 128 H3v1giu2 1 Thank you, your Honor. 2 MR. PAGLIUCA: Briefly, your Honor. 3 So first, we're doing a mix and match here of 4 different things, which I like the rules of evidence because 5 they're rules and I can read them and they say what they say. 6 Even if, even if, you had a gold-plated record 7 custodian from the Palm Beach Police Department come in here 8 and make all of the findings that you needed to find as a 9 business record exception or a government record exception, the 10 case law is absolutely clear that second- and thirdhand hearsay 11 is inadmissible through police reports. 12 I use this example because it's a good one, I think. 13 As part of my practice, I represent people accused of crimes, 14 and so we get discovery as part of my practice. Guess what? 15 That goes into my files and I keep it as a matter of course, 16 and it is a business record of mine because I keep it in due 17 course. Now that doesn't mean that it simply would get 18 admitted into a trial whole cloth for the truth of the matter 19 asserted, just because it's a business record of mine. And 20 why? What's the answer? Because the statements that are 21 included in the police report, or the discovery that I get, 22 that I put in my file and I keep very carefully as a business 23 record, don't magically become nonhearsay, because the people 24 who are making those statements are not under any business duty 25 to report to me. And that's what the business record exception SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 129 H3v1giu2 1 is all about. There is trustworthiness when someone, you 2 know 3 story. But the business record exception, 803(6), everyone in 4 the chain of the hearsay link has to be under a business duty 5 to report. So there are cases where officers are allowed to 6 testify about things that they wrote in their report because 7 they observed them or another officer told them or it was a 8 test that maybe happened within the police department. But 9 what they're not allowed to talk about, under a business record 10 exception, are witness statements. And that's what 11 Ms. McCawley wants to try to introduce to the jury in this 12 case 13 know who they are and there's no evidence that they had any 14 association with Ms. Maxwell. 15 Let me finish with this state of mind issue. 16 THE COURT: But before you do, why isn't it an 803(6) 17 exception? 18 MR. PAGLIUCA: It could be, your Honor. So 803(6) 19 THE COURT: Okay. So what you're saying is, yes, the 20 reports could get in, but not the hearsay part. 21 MR. PAGLIUCA: Exactly. That's exactly right. 22 THE COURT: Well, okay. Of course what the plaintiff 23 would say to that is, okay, fine. 24 MR. PAGLIUCA: Well, then you're redacting 25 90 percent SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 130 H3v1giu2 1 THE COURT: I didn't say redaction. It's hearsay, 2 it's not being offered, but of course it is being offered for 3 the truth of the matter. 4 MR. PAGLIUCA: Exactly. You know, this is a 5 smokescreen about it goes to Maxwell's state of mind. And when 6 you carefully go through these police reports, there is not one 7 of these alleged victims who identifies Ms. Maxwell as having 8 anything to do with any of this. Which is another important 9 point. 10 What I find curious, again, Ms. McCawley usually says 11 there are 30 victims identified in these police reports, which 12 isn't true. And when I asked Detective Recarey to go through 13 them with me and identify how many people he said were victims, 14 there were 17. And so now today she said there were 20. So 15 she's working her way my way. But, you know, that's the 16 problem here, your Honor. This is being offered for the truth 17 of the matter asserted. All they want to do is get in front of 18 a jury that there was a police department investigation in 19 which Epstein was the target and Epstein is alleged to have 20 done all of these bad things; therefore, you should punish 21 Maxwell because then they're going to say, she was his 22 girlfriend, she had to have known, yada, yada, yada, yada, he's 23 a bad person, she's a bad person, find her liable, and whack 24 her with a big damage award. That's what's going on here. 25 Thank you. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 131 H3v1giu2 1 THE COURT: What's next? 2 MR. CASSELL: The motion on Kellen and Marcinkova, our 3 motion to get in adverse inference. 4 THE COURT: Yes. 5 MR. CASSELL: If I can be heard on that, your Honor. 6 THE COURT: Excuse me. Let me go back to where we 7 were. 8 Those statements, the statements of the "victims," are 9 being offered for the truth, are they not? 10 MS. McCAWLEY: Your Honor, I do not believe they're 11 being offered for the truth because what we're saying 12 not saying whether or not what those victims said was 13 necessarily true. We're saying was she aware that there were a 14 number 15 difference between 17 and 30. But was she aware that there 16 were a number of other individuals making reports at the time 17 she said my client must have been lying about being abused as a 18 minor. So whether or not those are true or not, the reports, 19 was she aware that there were a number of reports out there 20 from other little girls saying that they were also brought to 21 the massage room. And that goes to her state of mind at the 22 time she made that statement where she defames my client 23 internationally. 24 THE COURT: Yes. But aware of the reports. How could 25 she be aware of the reports? Aware of the girls and the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 132 H3v1giu2 1 activity, that's the truth. But aware of the reports. 2 MS. McCAWLEY: Yes, your Honor, and the reason why she 3 could be aware of the reports is because she'll 4 her testimony is that she worked for Epstein from the early 5 '90s until 2009. This investigation took place in 2006, your 6 Honor, during the course of the time she was allegedly managing 7 the Palm Beach home and his active employee, his right-hand 8 person. So yes, of course, we should be able to ask her those 9 questions, show her the report: Were you aware of this, of 10 these reports? Were you aware that these reports were made, 11 you know, as part of this investigation? And then she can 12 answer that. 13 THE COURT: Well, that's fine. You could do that. 14 You could show her the reports and say, were you aware of them, 15 but that would not get the hearsay part in. 16 MS. McCAWLEY: Well, your Honor, and of course we have 17 two other of the exceptions, the business record exception, 18 which we talked about, and we also noticed this as one of the 19 residual hearsay 20 THE COURT: Yes, but even as a business record, I 21 think counsel is correct 22 exception, the activities of the cops and what they did, all of 23 that can go in, yes, because they're under a duty, etc., but 24 not the statements. 25 MS. McCAWLEY: So for example, one of the witnesses on SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 133 H3v1giu2 1 our witness list is AH, who is in the report and she testified 2 in this case. 3 THE COURT: Well, that's a different issue. And you 4 said you're going to present her. 5 MS. McCAWLEY: Yes. 6 THE COURT: Well, all right. That's a different 7 question. But in other words, you could show her the report 8 and ask her if she's aware of these reports. I assume what her 9 answer is going to be. And that's the end of it. 10 MS. McCAWLEY: Well, your Honor, I mean, obviously 11 we'd like to enter the reports under the business record 12 exception through Recarey and through the residual hearsay 13 THE COURT: But even if you do that, I don't see how 14 you avoid eliminating the hearsay. 15 Well, okay. All right. 16 MR. PAGLIUCA: Your Honor, could I have one final 17 comment on this. If they're not being offered for the truth of 18 the matter asserted, they're really not relevant to this case 19 is my final point, because if they're not being offered for the 20 truth of the matter asserted, at best it's a neutral as to 21 whether these things did or didn't happen. If they didn't 22 happen, they would certainly be supportive of Ms. Maxwell's 23 state of mind if she knew about them. If they're not being 24 offered for the truth of the matter 25 THE COURT: Well, it might be material that she knew SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 134 H3v1giu2 1 that there was an investigation. 2 MR. PAGLIUCA: You know, she could be asked that 3 question: Did you know there was an investigation? I think 4 she's going to say no. I gave you her affidavit in which she 5 said prior to making her statement, she had never seen these 6 police reports. So we all know 7 THE COURT: That's a different question. 8 MR. PAGLIUCA: I understand. But we all know the 9 answer is, that's in these police reports, and I'm pretty sure 10 she testified at her deposition that she wasn't really aware of 11 this investigation. All she knew 12 testified to 13 some point he was a registered sex offender. Those are the two 14 things I think she knew at the end of the day at this 15 deposition. Anyway, I agree with you that the question, did 16 you know there was an investigation, you know, I suppose you 17 can ask that question and the answer will be yes or no, 18 whatever it is. 19 THE COURT: Okay. 20 MR. PAGLIUCA: All right. Thank you. 21 THE COURT: Okay. I'm sorry. Forgive me for 22 interrupting. 23 MR. CASSELL: No. Your patience has been appreciated 24 today, your Honor. 25 I want to address now the Marcinkova and Kellen SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 135 H3v1giu2 1 adverse inference motions. We're a moving party. There are 2 reciprocal motions both ways on this. I have the numbers 3 available, if that would be useful. I believe 673 is the 4 defendant's motion and 689 is our motion. So those would be 5 the two motions going, obviously, in different directions. 6 Your Honor is familiar with these issues because of 7 the Epstein adverse inference motion that was argued I think 8 two weeks ago by me, and at that time 9 yet formally ruled on the motion, but there was extensive 10 discussion about could we just kick this down the road to the 11 trial and see, you know, what Epstein says at that time and, 12 you know, after he testifies, sort out whether there's an 13 adverse inference. Again, you haven't ruled on that, but I 14 think I indicated at the time that certainly from Ms. Giuffre's 15 point of view, we would have no objection to handling 16 Mr. Epstein in that way. I want to make clear that we would 17 also have no objection to handling the Marcinkova and Kellen 18 issue in that way as well. You can put them on via deposition, 19 and then we could sort out in the context of the case with a 20 full record whether an adverse inference is appropriate. But 21 we surface the issue for you now so it wouldn't be something 22 you'd have to do on the fly in the middle of trial. And all 23 the allegations, of course, that have been made here, I think 24 it's important to put Kellen and Marcinkova on the conspiracy 25 scheme, if you will. The top of the conspiracy is Mr. Epstein, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 136 H3v1giu2 1 his right-hand player then is Ms. Maxwell, and in the 2 conspiracy, again, in our view 3 will take a differing point of view on this, but in our view, 4 the conspiracy's next echelon is Kellen and Marcinkova. 5 And so for example, Ms. Giuffre has made allegations 6 about certain things. Ms. Maxwell can't remember or denies 7 them, so of course Ms. Giuffre then looks to corroborate her 8 allegations of a conspiracy, and the first person she goes to 9 is Epstein, and you're familiar with that. The second and 10 third people that she goes to are Kellen and Marcinkova, 11 because they report immediately to Ms. Maxwell in the 12 conspiracy. And Ms. Giuffre is going to be talking about that 13 during the course of the trial, and immediately the jury is 14 going to wonder, well, gosh, I wonder what Kellen says about 15 that? I wonder what Marcinkova says about that? And your 16 Honor will recall that we went to great lengths to get them to 17 testify. They were evading service, in our view. We 18 ultimately had to come to your Honor to get alternative 19 service, and it was only at that point that we were able to 20 have them sit for their depositions. They sat for their 21 depositions now, and what we hear from the defense, if I 22 understand it, is that we don't have a good-faith basis for 23 asking Kellen and Marcinkova, gee, weren't you a part of this 24 sex trafficking and sex abuse conspiracy? I think the way they 25 put it in their brief is, all of this evidence shows nothing SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 137 H3v1giu2 1 other than Ms. Maxwell might have been at the same place at the 2 same time. It's just, you know, a happenstance they were in 3 the same place and that's not admissible. Well, your Honor 4 will notice in our opening brief on this, at pages 15 I think 5 through the next ten pages or so, we've gone through with a 6 chart and we've said, okay, here's the question we asked, and 7 then in the right-hand column of our chart we put in the 8 witnesses and, you know, the flight logs. I know other things 9 that your Honor is very familiar with. This is why we're 10 asking these questions. You know, the flight logs have been 11 talked about over and over again, but for good reason. Kellen 12 is on some of these flight logs, and what's up? Those are the 13 questions that we asked, and of course she takes the Fifth. 14 There are other things as well. For example, Sarah 15 Ransome testified, I witnessed with my own two eyes Sarah 16 Kellen reporting to Ghislaine in front of me, but I can't 17 remember specifics. They weren't talking about girls. I can't 18 remember the specific conversation, but every single person, 19 100 percent, 200 percent, reported to Ghislaine. Later on in 20 that same deposition 21 At page 387: I witnessed the same thing 22 did 23 Kellen, Leslie Groff, and Ghislaine Maxwell. Ghislaine was the 24 main lady. So again, we have an allegation by our client that 25 Ms. Maxwell was a part of a larger conspiracy. That's one of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 138 H3v1giu2 1 the central issues, of course, in the case. One of the things 2 that was called an obvious lie. And so we want to bring in the 3 co-conspirators and ask them, Ms. Giuffre says you were in a 4 conspiracy and what's your side of the story on that? And they 5 take the Fifth. So there we are. The question is, are we 6 going to conceal that from the jury or are we going to present 7 it to them? Well, the Second Circuit case that your Honor is 8 well familiar with, LiButti, sets out the factors that have 9 determined that issue, and one of the things we hear from the 10 defendant is, oh, it's never been applied in a case like this. 11 I would just direct your attention, as I did during the Epstein 12 argument, to the case of FDIC v. Fidelity Deposit Co. of 13 Maryland. That's a Fifth Circuit case from 1995, in which a 14 bank officer was accused of dishonest and fraudulent acts and 15 kind of bogus loans, and the Fifth Circuit allowed Fifth 16 Amendment invocations from the loan recipients to be used 17 against him, reasoning that, well, in this kind of a case, the 18 collusion then is shown by the Fifth Amendment invocation of 19 the participants in the conspiracy there. Fifth Amendment 20 invocations can be held against someone who's accused to be a 21 part of that conspiracy, which of course is exactly what we 22 have going on here in a civil context. 23 LiButti, by the way, the Second Circuit case, which is 24 controlling in this jurisdiction, favorably cites the Fifth 25 Circuit case in FDIC v. Fidelity Deposit Co., explaining that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 139 H3v1giu2 1 that is one of the reasons why in the Second Circuit they think 2 this is a good rule of law, because they approve of the result 3 that the Fifth Circuit reached in that co-conspirator case. 4 And LiButti then goes on, as your Honor is well 5 familiar, with laying out four different factors. The first is 6 the nature of the relationship involved. The relationship here 7 is co-conspirators. They're in the immediate next echelon of 8 the conspiracy. They are direct reports in the business sense, 9 although this is a criminal enterprise, but Kellen and 10 Marcinkova are direct reports to Ms. Maxwell. Of course the 11 conspiracy continues. This is not just at the time of those 12 events. The conspiracy continues to today, and your Honor is 13 familiar with that from the fact that they were evading service 14 while we were trying to obtain their testimony last year. 15 Eventually they show up with lawyers, a Bruce Reinhart I think 16 is an Epstein lawyer; I think at some point Ms. Marcinkova had 17 Mr. Goldberger, who's an attorney for Mr. Epstein now. They've 18 both made significant efforts to evade service. Why? Because 19 in our view the conspiracy continues to this day. The 20 conspiracy is trying to conceal what was done to girls in 21 Florida over an extended period of time. The concealment 22 continues through the efforts not only of the defendant but 23 also through the efforts of Kellen and Marcinkova. 24 But there's more that binds them together even today. 25 Your Honor is of course familiar with the nonprosecution SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 140 H3v1giu2 1 agreement that's at the heart of this case. Remember the issue 2 that we were talking about yesterday. The nonprosecution 3 agreement says to Mr. Epstein, we will not prosecute you, or 4 any potential co-conspirators, or, and then there were four 5 named individuals. Two of those named individuals are 6 Marcinkova and Kellen. So they're bound together and have a 7 common interest in trying to preserve that nonprosecution 8 agreement, which means, of course, attacking people who are 9 attacking the nonprosecution agreement, such as Jane Doe 3, 10 that is, my client, Ms. Giuffre. 11 And that is the first factor, the nature of the 12 relationship there. Very tightly bound. 13 The second one is the degree of control in which the 14 party has vested the nonparty witness in regard to key facts 15 and the general subject matter of the litigation. That's a 16 direct quote from LiButti. And the evidence here 17 I won't belabor all of the flight logs and specific evidence, 18 but it's recited, you know, in a ten-page chart in our brief. 19 Kellen and Marcinkova are very tightly bound with the 20 defendants. They are direct reports. They are working closely 21 together. I just quoted Ms. Ransome saying, you know, that 22 that was the person that they were talking to, and so you have 23 a very significant degree of control. 24 The third factor from LiButti is compatibility of 25 interests. Perfect compatibility of interests here. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 141 H3v1giu2 1 Ms. Giuffre has said there was a conspiracy involving all of 2 these individuals. They're all going to say no, there wasn't. 3 We'll have a trial on that and hear the evidence. But the 4 compatibility of interests is, that team is against 5 Ms. Giuffre. Those co-conspirators are all working together to 6 try to undercut the credibility of Ms. Giuffre. And of course 7 they're all hoping that she will lose this trial, which they 8 will then celebrate as a victory. Of course if Ms. Giuffre 9 wins the trial, they will all suffer a defeat because her 10 credibility in making these allegations will have been 11 established. 12 The final factor LiButti directs you to consider is 13 the role in the underlying aspects of the litigation, and 14 again, it's hard to imagine. I won't say they are the most 15 important members of the conspiracy. Epstein is the most 16 important member of the conspiracy, but the next most 17 important, after Maxwell, who's the number two position, the 18 next most important conspirator is Kellen and Marcinkova. I've 19 used the expression before, it's kind of playing Hamlet without 20 the ghost. We're going to be talking about a conspiracy 21 without the conspirators in the case. We are trying to bring 22 the conspirators here in front of the jury so that they can 23 hear what the conspirators have to say when asked questions 24 about what they were doing to Ms. Giuffre and what they were 25 doing to similarly situated young girls. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 142 H3v1giu2 1 The final point that the LiButti case directs you to 2 consider is whether admitting the evidence will advance the 3 search for truth. And here we have a conspiracy, and I'm using 4 that term not as a lawyer but as a layperson for this purpose. 5 Webster's defines to conspire means to join together in a 6 secret agreement to do an unlawful or wrongful act or an act 7 which becomes unlawful as a result of a secret agreement. And 8 so we want to present the conspirator. Now we think that makes 9 the case that this is highly relevant and also appropriate for 10 an adverse inference. Again, your Honor could wait to rule on 11 this at trial, but we think it's clear-cut now. 12 Of course once you determine that something's 13 relevant, you then have to consider possible prejudicial 14 effect. Obviously this is a case in which sex allegations are 15 going to be at their heart. It's not like we have a business 16 dispute where somebody wants to throw in sex abuse. We want to 17 prove, in a case involving a sex conspiracy, what the 18 conspirators have to say. And there's no prejudice then to 19 Maxwell in the sense of unfair prejudice. He can ask whatever 20 questions they deem appropriate as well. But the absence of 21 the co-conspirators is of course highly prejudicial to 22 Ms. Giuffre. Naturally the jury is going to wonder, you said 23 Kellen was reporting to Maxwell. Where is Kellen? That's 24 going to be the first thing they'll say when they go back into 25 the jury room. Where are these people? And that's what SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 143 H3v1giu2 1 they're going to say if we don't have an opportunity to present 2 them to the jury. 3 The Court will recall the extraordinary lengths to 4 which Ms. Giuffre had to go to procure their testimony. They 5 finally were able to secure it, and they should be presented. 6 Also 7 week 8 We tried to also use some nonleading. Leading questions can be 9 used when? When you have a witness who's associated with the 10 party on the other side. Well, we said they're in a 11 conspiracy. I can't imagine a case where there would be a 12 clearer example of when leading questions would be appropriate. 13 The final argument they made, I think last night in 14 their late replies was that we somehow missed the deadline in 15 taking their deposition. What they don't disclose I think in 16 their papers is, your Honor will recall that we had to come to 17 you, obtain an application for alternative service, and then, 18 as a result of that, they came in. We did all these things 19 with the Court's blessing and approval of taking depositions. 20 Those schedules were discussed with opposing counsel. And as 21 soon as we'd taken the deposition, within approximately a week, 22 we provided the designations. That was back in February of 23 this year. There's no prejudice. 24 So for all these reasons, we would ask that we be 25 allowed to present two of the co-conspirators in the witness SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 144 H3v1giu2 1 box via the video depositions that we've taken. 2 MR. PAGLIUCA: I thought I was back to my old days as 3 a public defender when I started the practice of law, your 4 Honor. Now I'm arguing an 801(d)(2)(E) motion instead of a 5 defamation case. 6 I think we have to start with the notion that is true, 7 that this is a defamation case in which Ms. Maxwell is alleged 8 to have made a defamatory statement in 2015. In that 9 defamatory statement Ms. Maxwell does not mention any of these 10 individuals and doesn't mention Mr. Epstein, and so the 11 starting point for this is, this is an entirely different issue 12 than Mr. Cassell and his fantastical conspiracy argument here. 13 If we want to stick to the legal issues in this case, 14 I think we first need to understand that there is actually a 15 specific rule of evidence that relates to co-conspirator 16 hearsay exception, and that is Rule 801(d)(2)(E) of the Federal 17 Rules of Evidence, and significantly, under that rule 18 this is why the cases using Rule 801(d)(2)(E) find indicia of 19 trustworthiness in co-conspirator hearsay statements 20 are made at or during the course or in furtherance of a 21 conspiracy. And absent that finding, statements of 22 co-conspirators are deemed to be hearsay. 23 So what we're talking about here are not statements 24 purportedly made by any of these individuals in 2000 or 2001. 25 We're talking about statements that they are seeking to (A) SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 145 H3v1giu2 1 introduce or (B) adversely inference that are made in 2015 that 2 had nothing to do with any alleged course of or in furtherance 3 of a conspiracy. Any alleged conspiracy would have terminated 4 years ago by operation of many different rules and law. So 5 Mr. Cassell's entire conspiracy theory predicate to this has 6 nothing to do with the four LiButti factors. 7 And when we talk about the LiButti factors, you know, 8 there is really zero evidence that's been presented to your 9 Honor. First of all, the relationship now, in 2017, between 10 these individuals 11 relationship is, not some relationship that happened or didn't 12 happen in 2000 or 2001. It is the relationship during the 13 course of this litigation, not some other litigation. And 14 indeed, there is no relationship between these folks. At 15 for a brief period of time, a brief period of time, these folks 16 worked in different capacities for Mr. Epstein, at 17 that brief period of time is more than ten years ago. 18 The other part of this that Mr. Cassell overlooks or 19 doesn't want to talk about is what really is at issue 20 this relates to this close present relationship 21 witness have some reason to protect Ms. Maxwell. I mean, 22 that's really the inquiry here. Is the witness invoking her, 23 in this case, privilege against self-incrimination because it's 24 going to have some benefit to Ms. Maxwell? Well, there is no 25 benefit to Ms. Maxwell for the invocation of the Fifth SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 146 H3v1giu2 1 Amendment privilege here because indeed, if these witnesses 2 were to testify truthfully, the testimony would be beneficial 3 to Ms. Maxwell. 4 If you ever get the opportunity to watch the video of 5 these two witnesses, your Honor, it's remarkable because 6 there's a lot of eye rolling and facial expressions in response 7 to the leading questions by plaintiff's lawyers that, in my 8 analysis 9 in my observation, it was basically a nonverbal "that's not 10 true" and then the invocation of the Fifth Amendment privilege, 11 and if that gets played for the jury, the jury can see that or 12 you can see it. At one point Ms. McCawley chided one of these 13 witnesses and said something like, you know, if you keep doing 14 what you're doing, we're going to have to do something else, 15 because she didn't like the facial expressions or the words 16 that the witness was using to invoke the Fifth Amendment 17 privilege. That's how much these folks could help Ms. Maxwell 18 but can't, and they can't because they're protecting their own 19 interests. They're not protecting Ms. Maxwell's interests. 20 They're worried that if the plaintiff's lawyers succeed in 21 Florida, they have some threat of prosecution, so they're not 22 going to testify. But again 23 that seems to be overlooked by plaintiff's counsel 24 individuals are indeed named in this nonprosecution agreement 25 by name. Ms. Maxwell is not, and Ms. Maxwell didn't choose to SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 147 H3v1giu2 1 invoke her Fifth Amendment privilege. She shouldn't be 2 penalized because the people who are concerned and are named in 3 this nonprosecution agreement can't testify because the 4 plaintiff's lawyers are trying to undo their agreement with the 5 government. 6 Ms. Maxwell has no ability to control these folks. 7 You know, we certainly weren't going to stand in the way of 8 plaintiff's trying to take their depositions, but we have no 9 control over them, in securing their testimony or requiring 10 them to cooperate in any sense. 11 I cite to the Court the case of Coquina Investments v. 12 Rothstein, which I didn't realize until I was reading this last 13 night is ironic because the defendant in the Rothstein case is 14 Mr. Edwards' former partner, who's doing 55 years in a federal 15 penitentiary right now. But in that case, which is very 16 similar here, the court wouldn't impose an adverse inference 17 against an employer for an employee, even though the employer 18 was paying for the representation of the employee. And that 19 case is I think significant because the court again focused on 20 the relationship at the time of the deposition and not some 21 prior relationship. 22 I talked about the co-conspirator issue. You know, 23 that's just attorney argument asserted as fact here, your 24 Honor. No one has ever found that these folks are 25 co-conspirators. It's Mr. Cassell's and Mr. Edwards' theory, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 148 H3v1giu2 1 but it certainly is not anything that there is going to be any 2 real evidence about in this case. 3 The next two LiButti factors, the next one relates to 4 any interest in the outcome of the litigation. Again, 5 Mr. Cassell has to manufacture some interest here. These folks 6 are not defendants in this case, these witnesses. They have no 7 financial interest. They have no ties. There is no joint 8 defense agreement. There is no indemnification agreement. 9 There is nothing. They have absolutely no dog in this fight, 10 again, which is no interest in the litigation. 11 There's just really nothing that would allow any 12 adverse inference in this case one way or the other. 13 Finally, your Honor 14 questioning, you know, the kind of questions that were posed to 15 these witnesses were precisely the kind of questions that have 16 been disapproved in the Second Circuit. And that's Brink's 17 Inc. v. City of New York, which is in the papers; WorldCom 18 Security Litigation, also in the papers; and LiButti itself. 19 These are not technical objections. It serves no legitimate 20 evidentiary purpose for a lawyer to come in and simply ask a 21 very bunch of highly charged, leading questions to which they 22 know the witness is going to say, "I take the Fifth." There is 23 no evidentiary ball advanced with those questions, because it's 24 just lawyer argument that doesn't do anything for anybody. So 25 both sides could ask a hundred questions, they could both be SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 149 H3v1giu2 1 leading, they could both be exact opposite questions. The 2 witnesses would say the Fifth to everything, and then you look 3 at the jury and you say, okay, now you can impose an adverse 4 inference against anybody you want to based on the questions 5 that the lawyers asked. I mean, that's really what this ends 6 up being, and it's a waste of time, and it is of no evidentiary 7 significance. 8 Then the last point, which I'm just going to need to 9 correct Mr. Cassell on, the plaintiffs were saying somehow that 10 we were untimely in not designating portions of these 11 depositions which we believe are wholly inadmissible, and the 12 point of our reply was, wait a minute, you didn't designate any 13 of this testimony until after the designation date was over. 14 (Continued on next page) 15 16 17 18 19 20 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 150 H3VOGIU3 1 MR. PAGLIUCA: (continued) I don't care about that, 2 but, you know, I mean, we're going to deal with these issues, 3 and we'll deal with them so the timing is of no consequence to 4 me, but I'm not complaining about it, I'm just responding to 5 it. 6 But for those reasons, your Honor, you shouldn't allow 7 anybody to present any adverse inference from these witnesses. 8 They should not just be part of this trial. Thank you. 9 MR. CASSELL: In reply, your Honor, I think you can 10 just see from the upset there what's going to be happening at 11 this trial. This is the direct quote from Mr. Pagliuca. 12 "Fantastical conspiracy". That's going to be the argument from 13 the other side. They're obviously entitled to advance that 14 argument. But that's what Ms. Giuffre is going to need to 15 respond to at the trial. And, of course, the jury will think 16 this is a fantastical conspiracy if Ms. Giuffre doesn't even 17 bring in some of the alleged conspirators such as Epstein, 18 Kellen, and Marcinkova. 19 Now, we'll hear that this is somehow a hearsay issue 20 under 801(d)(2). This is not a hearsay. There are going to be 21 witnesses in the case, questioned and cross examined. So this 22 isn't a question of inadmissible hearsay, this is a question of 23 presenting a witness to the jury. 24 THE COURT: How do you think this evidence is 25 going to go in by way of either deposition or the depositions SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 151 H3VOGIU3 1 already taken 2 MR. CASSELL: Yes. 3 THE COURT: 4 come and invoke and so on? I think we know how that's going to 5 work out. 6 MR. CASSELL: Right. I think in this case it's going 7 to be through the deposition that's been recorded. 8 With Mr. Epstein, we're going to bring him here live 9 because we've been able to reach him by subpoena, but these two 10 have been difficult to reach by subpoena, that's why we've 11 taken their deposition. 12 And so Mr. Epstein will testify live, he would invoke, 13 Nadia Marcinkova and Sarah Kellen, the deposition has already 14 been taken. And in our 15 THE COURT: What do you do about the statement that 16 counsel just made about the impropriety of the questions? 17 MR. CASSELL: Right. So you can't just say, hey, is 18 the moon made of green cheese and they take the Fifth. You 19 can't put that in, and Booty recognizes that. There has to be 20 independent evidence that supports each question that's asked. 21 And so what we've done in our brief, if you look at 22 page 17 of our initial paper 23 THE COURT: No, that's all right. That's fine. I get 24 the point. 25 MR. CASSELL: Right. But I think this is a fair point SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 152 H3VOGIU3 1 about the defense. I'm not sure that they get the point 2 because we've said here's a question 3 THE COURT: Don't worry about educating them. It's me 4 you've got to educate. 5 MR. CASSELL: So I would just direct you to our 6 we've tried to show, this is not a moon made of green cheese, 7 we have very specific support for each 8 THE COURT: I hear you. I hear you. 9 MR. CASSELL: 10 THE COURT: You've got it in the brief. I understand. 11 MR. CASSELL: Right. 12 So with regard to their interest in the case, 13 obviously, they have an interest in this woman who is accusing 14 them of being involved in a sex trafficking and sex abuse 15 conspiracy having her lose this case. They would be popping 16 champagne corks. They clearly have an interest in the case. 17 The other problem, remember, under Booty, the question 18 is well, are these witnesses that the plaintiff had some 19 control over? Is this somebody that the defendant has vested 20 control over these facts? 21 These were direct reports. I don't think I heard any 22 response to that from the other side. These were direct 23 reports to Maxwell, and so these are the people who, you know, 24 when Ms. Giuffre alleged that she's involved 25 involved in doing these things, these are the women who are SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 153 H3VOGIU3 1 executing the orders for Ms. Maxwell, and it's not part of a 2 fantastical conspiracy. 3 All we want to do is have the jury hear this 4 information. We've provided in our brief very specific support 5 for each of the questions that we want to ask. We think it's 6 entirely appropriate that the jury hear what these two have to 7 say. 8 THE COURT: Thank you. 9 Where are we now? Yes. 10 MS. MENNINGER: Your Honor, by my estimation, we have 11 one motion left, which is 665 with the opening brief. 12 THE COURT: And what's that? 13 MS. MENNINGER: It was our motion to prohibit 14 questioning of our client regarding her consensual adult sexual 15 activities. 16 THE COURT: Yes. 17 MS. MENNINGER: Do I take that as a go ahead and talk 18 or 19 THE COURT: No. 20 MS. MENNINGER: Okay. I wasn't sure. 21 THE COURT: Yes, well, I can understand. 22 How can you possibly know what we're going to do when 23 I don't know what we're going to do? 24 MS. MENNINGER: Your Honor, I'm happy to defer this 25 issue. I believe it is somewhat SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 154 H3VOGIU3 1 THE COURT: Yes. 2 MS. MENNINGER: 3 motions that, based on plaintiff's representation, they want to 4 put off until another day, so 5 particular, so I'm happy to wait. 6 THE COURT: How does that figure 7 Explain to me how that figures into the 8 MS. MENNINGER: Into this motion? 9 THE COURT: Well, these are the things about which 10 they have to give notice. 11 MS. MENNINGER: Exactly, your Honor. The issue in 12 this motion, and I'll try to be slightly circumspect, but in 13 this motion, we have agreed that our client can be cross 14 examined with respect to plaintiff, any of plaintiff's 15 allegations, with respect to any other minor victim. Our 16 client has absolutely denied having been involved sexually with 17 plaintiff or with the minor victim. 18 They would like to introduce evidence of some kind 19 every other acts with other people. They have not yet 20 specified, apparently, completely, what other acts and what 21 other people they're talking about. 22 THE COURT: So I think we should 23 MS. MENNINGER: Right. 24 THE COURT: So I think we should wait until we get it 25 all. Okay. So that takes care of that. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 155 H3VOGIU3 1 MS. McCAWLEY: Your Honor, there's just one more thing 2 procedurally, if I could indulge the Court while I have your 3 attention before we all leave. That would be helpful. 4 THE COURT: Don't count on it. 5 MS. McCAWLEY: Sorry. 6 THE COURT: Yes. 7 MS. McCAWLEY: It's just, in your order about the ESI 8 and the issue with the non-production, you said that we should 9 suggest hearing dates. I see that your Honor has moved the 10 hearing dates to Wednesdays, so we were hoping to, since 11 there's only a few Wednesdays left before our trial, reserve 12 one of those to handle that hearing? 13 THE COURT: Well, I'm not sure. 14 MS. McCAWLEY: Or whatever day would work. 15 THE COURT: No. Okay. Now, it seems to me, correct 16 me if I'm wrong, on the 5th we're going to do Epstein's motion, 17 the deposition designations, the biforcation 18 MR. CASSELL: I'm sorry, we just did that. 19 THE COURT: By the way, maybe we could do the 20 biforcation issue very quickly. What is it you want to 21 MR. CASSELL: I think we just did that a few moments 22 ago, your Honor. 23 MS. McCAWLEY: That was the one about the financial 24 records. 25 THE COURT: By what? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 156 H3VOGIU3 1 MS. McCAWLEY: We just did that about the financial 2 records, and you gave us some direction on that, so that one's 3 been 4 THE COURT: Oh, okay. So that's done. Okay. So 5 that's the 5th. 6 MS. McCAWLEY: Yes. So then there's April 12th, which 7 I believe is the following Wednesday, and then I think the one 8 after that is the 19th. 9 THE COURT: Well, are we going to do a hearing 10 take it we're going to do a hearing on the reconsideration of 11 the 12 MS. McCAWLEY: That's what I'm talking about, your 13 Honor. I'm sorry. Yes. So that's the evidentiary issue of 14 you said they could present a forensic, based on your order of 15 reconsideration of the November 2nd. So that's the date I'm 16 looking for. I'm sorry, I should have been clearer about that. 17 THE COURT: When are we going to do that? 18 MS. McCAWLEY: Maybe the 12th or the 19th possibly? 19 THE COURT: How about the 10th. 20 MS. McCAWLEY: Okay. 21 THE COURT: Does that work for you all? 22 MR. PAGLIUCA: I can't do the 10th, your Honor, I'm in 23 a deposition all day in Colorado. I'm sorry. 24 THE COURT: How could you possibly take another case? 25 MR. PAGLIUCA: Well, believe me, I have a lot of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 157 H3VOGIU3 1 clients that are saying that exact same thing right now, your 2 Honor. 3 MS. MENNINGER: Your Honor, could we do the 13th, the 4 Thursday of that week? 5 THE COURT: Yes. I don't see any reason not to. 6 Okay. 7 MS. McCAWLEY: That's all I had, your Honor. Thank 8 you. And thank you for your patience, everyone, today. 9 THE COURT: Have we completed the briefing and 10 everything everybody wants to submit on the black book issue? 11 MS. McCAWLEY: Well, yes, your Honor. So now, as of 12 last night, it was fully briefed. So there are three briefs on 13 it, essentially. We had a motion in limine to allow it in, 14 they had a motion in limine to exclude it, and it came up 15 previously 16 context of another motion 17 Honor, you requested that with respect to Diane Flores. So we 18 didn't reargue it today, it is fully briefed for you. 19 THE COURT: Okay. In other words, I've got everything 20 on that. 21 MS. McCAWLEY: You do, your Honor, yes. 22 THE COURT: Okay. Anything else? 23 MS. McCAWLEY: Not that I'm aware of. 24 MR. PAGLIUCA: I think we're concluded today, your 25 Honor. Thank you. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 158 H3VOGIU3 1 THE COURT: Okay, thanks. Have a nice weekend. 2 (Adjourned) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 |
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK X VIRGINIA L. GIUFFRE, Plaintiff, V. GHISLAINE MAXWELL, Defendant. X 15-cv-07433-RWS Defendant's Response in Opposition to Plaintiffs Omnibus Motion in Limine Laura A. Menninger Jeffrey S. Pagliuca Ty Gee HADDON, MORGAN AND FOREMAN, P.C. 150 East 10th Avenue Denver, CO 80203 303.831.7364 TABLE OF CONTENTS INTRODUCTION..........................................................................................................................1 I. FED. R. EVID. 405(B) REQUIRES ADMISSION OF ALL SPECIFIC INCIDENTS OF PLAINTIFF LYING OR ENGAGING IN DECEITFUL OR FRAUDULENT CONDUCT 1 A. All allegations or comments made by Plaintiff are "connected to" the alleged defamatory statement..............................................................................................................................4 B. Responses to Enumerated Motions In Limine.....................................................................6 1. Stories and allegations concerning Dershowitz, foreign presidents, and world leaders are highly relevant and admissible (Motion in Limine 1)...............................................6 2. Meeting Bill Clinton at Jeffrey Epstein's private island twice (Motion in Limine 2)..... 8 3. FOIA responses and related materials are admissible (Motion in Limine 3)................... 8 4. Louis Freeh's testimony and report are admissible evidence (Motion in Limine 4).......9 5. Prince Andrew and Buckingham Palace's denials of Plaintiff's claims are not offered for the truth of the matter asserted (Motion in Limine 5).............................................. 11 6. Evidence Regarding Plaintiff's Sexual History and Reputation is Admissible (Motion in Limine 6)....................................................................................................................... 14 7. Plaintiff cannot prohibit use of words such as "prostitute," which she used to describe herself, or any other "derogatory" terms that describe her reputation (Motion in Limine 7).................................................................................................................................... 14 8. Plaintiff's drug use is relevant to her memory and lack of damages (Motion in Limine 8).................................................................................................................................... 16 9. Information regarding Plaintiff's criminal history is relevant and admissible evidence when character is an essential element of the claim (Motion in Limine 9)................... 18 10. Evidence concerning school attendance is relevant to Plaintiff's allegations of how she spent her time in 1999 to 2002 (Motion in Limine 10)................................................. 19 11. Plaintiff put her full childhood history and character at issue (Motion in Limine 11) .. 20 12. Victims Refuse Silence is a sham not-for-profit established to create a claim for defamation per se (Motion in Limine 12)......................................................................20 i 13. Plaintiff's failure to pay her personal tax obligations is relevant to her character for truthfulness (Motion in Limine 13)...............................................................................22 14. Plaintiff's husband's domestic violence against her in March 2015 is probative of other intervening causes of emotional distress and related damages (Motion in Limine 14) 23 15. Plaintiff's lies about her age and the year she met Mr. Epstein must be exposed to the jury (Motion in Limine 15)............................................................................................24 16. All of Plaintiff's medical records are relevant to Plaintiff's damages claims (Motion in Limine 16).....................................................................................................................25 17. The Parties agree to preclusion of all documents and discussion of the Jane Doe 102 case, including the settlement of those claims (Motion in Limine 17).........................26 18. The Cassell Edwards v. Dershowitz litigation is relevant and admissible (Motion in Limine 18).....................................................................................................................26 19. Judge Marra's ruling is relevant and admissible (Motion in Limine 19).......................29 20. The transcript of the tape recording of Mr. Dershowitz's conversation with Rebecca Boylan is admissible (Motion in Limine 20).................................................................31 C. Plaintiff's Remaining Motions In Limine Are Premature and Request an Unnecessary Advisory Opinion (Motions in Limine 21-29)..................................................................32 1. "Bad Acts" by Plaintiff's counsel..................................................................................34 2. Discussion of missing witnesses and absence of evidence is appropriate, and missing witness instruction may be requested............................................................................35 CONCLUSION.............................................................................................................................36 CERTIFICATE OF SERVICE.....................................................................................................38 ii TABLE OF AUTHORITIES Cases Brady v. Chemical Construction Corp., 740 F.2d 195 (2d Cir. 1984).......................................... 10 Cannistraci v. Kirsopp, No. 1:10-CV-980 MAD DRH, 2012 WL 2089687, at 1-2 (N.D.N.Y. June 8, 2012)............................................................................................................................. 11 Cardillo v. Doubleday Co., Inc., 518 F.2d 638, 639-40 (2d Cir.1975).................................... 13 Chamblee v. Harris Harris, Inc., 154 F. Supp. 2d 670, 681 (S.D.N.Y. 2001).........................22 Chnapkova v. Koh, 985 F.2d 79, 82 (2d Cir. 1993)......................................................................22 Daniels by Glass v. Wal-Mart Stores, Inc., 634 So.2d 88, 93 (Miss. 1993)...................................4 DeVaul v Carvigo Inc., 526 N.Y.S.2d 483 (2d Dept. 1988).........................................................35 Doddy v. Oxy USA, Inc., 101 F.3d 448, 459-60 (5th Cir. 1996)................................................... 10 Donnelly v. DeChristoforo, 416 U.S. 637, 646-47, 94 S.Ct. 1868, 40 L.Ed.2d 431 (1974)........33 Edwards v. City of N.Y , No. 08-2199 TLM, 2011 WL 2748665, at 4 (E.D.N.Y. July 13, 2011) ...................................................................................................................................................22 EEOC v. Grief Brothers Corp., 218 F.R.D. 59, 61-62 (W.D.N.Y. 2003)....................................25 Equal Employment Opportunity Comm 'n v. Reed Pierce 's Sportsman's Grille, LLC, No. 3:10- CV-541-WHB-LRA, 2013 WL 12123370, at 1 (S.D. Miss. Jan. 11, 2013)...........................24 Gaillard v. Jim's Water Service, Inc., 535 F.3d 771, 778-779 (8th Cir. 2008)............................22 Gallo v. Ricci, 814 N.Y.S.2d 422, 423 (2006)..............................................................................36 Geraty v. Vill. of Antioch, No. 09 C 6992, 2015 WL 127917, at 7 (N.D. Ill. Jan. 8, 2015).........9 Gordy Co. v. Mary Jane Girls, Inc., No. 86 CIV. 6814 (RWS), 1989 WL 28477, at 6 (S.D.N.Y. Mar. 24, 1989)........................................................................................................................... 17 Gov't of Virgin Islands v. Grant, 775 F.2d 508, 511 n. 4 (3d Cir. 1985)...................................3 Grasso v. Mathew, 564 N.Y.S.2d 576, 578 (3d Dep't 1991)......................................................30 Guccione v. Hustler Magazine, Inc., 800 F.2d 298, 303 (2d Cir. 1986)....................................... 13 iii Jaffee v. Redmond, 518 U.S. 1, 116 S.Ct. 1923, 135 L.Ed.2d 337 (1996)...................................22 Kadant Johnson Inc. v. D'Amico, No. CIV.A. 10-2869, 2012 WL 2190897, at 1 (E.D. La. June 14, 2012).....................................................................................................................................3 Kevorkian v. Am. Med. Ass'n, 237 Mich. App. 1, 12, 602 N.W.2d 233, 239 (1999).................... 13 Longmire v. Ala. State Univ., 151 F.R.D. 414, 419 (M.D.Ala. 1992)..................................3 Minemyer v. R-Boc Representatives, Inc., No. 07 C 1763, 2012 WL 379904, at 4 (N.D. Ill. Feb. 6, 2012)..................................................................................................................................... 12 O'Brien v. Alexander, 898 F.Supp. 162, 171 (S.D.N.Y. 1995)....................................................30 Palmieri v. Defaria, 88 F.3d 136, 141 (2d Cir. 1996)..................................................................33 People v Thomas, 21 N.Y.3d 226 (2013)......................................................................................35 People v. Williams, 5 N.Y.3d 732, 734 (2005).............................................................................35 Preferred Properties, Inc. v. Indian River Estates, Inc., 276 F.3d 790, 799 n.5 (6th Cir. 2002) .13 Rowe v. DPI Specialty Foods, Inc., No. 2:13-CV-00708-DN, 2015 WL 3533844, at 5 (D. Utah June 4, 2015)....................................................................................................................... 13, 28 S.E.C. v. Collins Aikman Corp., 256 F.R.D. 403, 412 (S.D.N.Y. 2009).................................. 19 Schafer v. Time, Inc., 142 F.3d 1361, 1364-75 (11th Cir. 1998)...................................................3 Seligson, Morris Neuburger v Fairbanks Whitney Corp., 257 N.Y.S.2d 706 (1st Dept. 1965)35 Sidor v. Reno, 95 CIV. 9588 (KMW), 1998 WL 164823, 2 (S.D.N.Y. April 7, 1998)..............25 United States v. Dukes, 727 F.2d 34, 37 (2d Cir. 1984)............................................................... 17 United States v. Hatchett, 918 F.2d 631, 641 (6th Cir. 1990)......................................................22 United States v. Lujan, No. 05-CR-924 (RB) (D.N.M. Mar. 25, 2011)......................................32 United States v. Piche, 981 F.2d 706, 713 (4th Cir. 1992).............................................................3 United States v. Rabbani, 382 F. App'x 39, 42 (2d Cir. 2010).....................................................35 United States v. Robinson, 583 F.3d 1265, 1272 (10th Cir. 2009)...............................................17 United States v. Van Meerbeke, 548 F.2d 415, 417-18 (2d Cir. 1976)........................................ 17 iv United States v. West, 58 F.3d 133, 141 (5th Cir. 1995)..............................................................22 United States v. Wexler, 79 F.2d 526, 529-30 (2d Cir. 1935)......................................................33 United States v. Wilson, No. 04-CR-1016 NGG, 2013 WL 2948034, at 4-6 (E.D.N.Y. June 14, 2013).........................................................................................................................................32 World Wide Ass 'n of Specialty Programs v. Pure, Inc., 450 F.3d 1132, 1138 (10th Cir. 2006)....3 Zamora v. GC Servs., L.P., 647 F. App'x 330 (5th Cir. 2016).......................................................9 Rules Fed. R. Evid. 403............................................................................................................................7 Fed. R. Evid. 405 and 608...............................................................................................4, 6, 15, 20 Fed. R. Evid. 405(b)...............................................................................................................passim Fed. R. Evid. 801 .......................................................................................................................... 12 Fed. R. Evid. 801 (d)(2)(D)....................................................................................................29, 31 Fed. R. Evid. 803(6)...................................................................................................................... 19 Fed. R. Evid. 803(8)........................................................................................................................8 Fed. R. Evid. 902(4) and 902(11)................................................................................................. 19 V PAGES 1-36 REDACTED Dated: March 17, 2017 Respectfully submitted, s Laura A. Menninger Laura A. Menninger (LM-1374) Jeffrey S. Pagliuca (pro hac vice) Ty Gee (pro hac vice) HADDON, MORGAN AND FOREMAN, P.C. 150 East 10th Avenue Denver, CO 80203 Fax: Attorneys for Ghislaine Maxwell 37 CERTIFICATE OF SERVICE I certify that on March 17, 2017, I electronically served this Defendant's Response in Opposition to Plaintiff's Omnibus Motion In Limine via ECF on the following: Sigrid S. McCawley Meredith Schultz BOIES, SCHILLER FLEXNER, LLP 401 East Las Olas Boulevard, Ste. 1200 Ft. Lauderdale, FL 33301 Bradley J. Edwards FARMER, JAFFE, WEISSING, EDWARDS, FISTOS LEHRMAN, P.L. 425 North Andrews Ave., Ste. 2 Ft. Lauderdale, FL 33301 Paul G. Cassell 383 S. University Street Salt Lake City, UT 84112 J. Stanley Pottinger 49 Twin Lakes Rd. South Salem, NY 10590 s Nicole Simmons Nicole Simmons 38 |
Night Flight They say that you can read a person s feelings on his face. But if so, either I m a very good actor the opposite of what anyone who has worked closely with me would tell you or the journalists clustered in front of me weren t very good face-readers. They said that I looked defeated. Distressed. Depressed. Yet as I delivered my brief final statement outside an olive-green cabin at Camp David, the American presidential retreat in the forested Catoctin hills north of Washington, I felt none of those things. Yes, I was disappointed. I realised that what had happened over the last 14 days, or more crucially what had not happened, was bound to have serious consequences, both for me personally, as Prime Minister of Israel, and for my country. But I had been a politician, at that point, for all of five years. By far most of my life, I had spent in uniform. As a teenager, small and slight and not even shaving yet, I was one of the founding core of a unit called Sayeret Matkal, Israel s equivalent of America s Delta Force, or Britain s SAS. It may be that the way I thought and acted, the way I dealt with danger or with crises, came from someplace inside me. Even as a young kid, I was always quiet, serious, contemplative. But my 13 years as a part of Israel s main special-forces unit, especially once I became its commander, etched those qualities more deeply. And they added new ones: a sense that you could never plan a mission too carefully or prepare too assiduously; an understanding that what you thought, and certainly what you said, mattered a lot less than what you did. And above all the realisation that, when one of our nighttime commando operations was over, whether it had succeeded or failed, you had to take a step back. Evaluate things accurately, coolly, without illusions. Then, in the light of how the situation had changed, you had to decide how best to move forward. That approach, to the occasional frustration of the politicians and diplomats working alongside me during this critical stage of Israel s history, had guided me from the moment I became Prime Minister. In my very first discussions with President Clinton a year earlier a long weekend, beginning at the White House and moving on to Camp David I had mapped out at great length, in great detail, every one of the steps I knew we would have to take to confront the central issue facing Israel: the need for peace. 1 In choosing to return, now, to Camp David for two weeks of summit talks, I knew the risks. Of all the moments of truth in my life and in the life of my country few, if any, would carry higher stakes. Success would mean not just one more stutter-step away from our century-long conflict with the Palestinians. It would signal a real, final peace: in treaty-speak, end of conflict. Whatever the complexities of putting an agreement into practice, given all the suffering and bloodshed endured by both sides, we would have crossed a point of no return. There would be two states, for two peoples. And if we failed? I knew, if only from months of increasingly stark intelligence reports, that an explosion of Palestinian violence not just with stones or bottles this time, but with guns and explosives would be only a matter of time. I knew something else as well. This would be a moment of truth not just for me. Or for Bill Clinton, a man who understood our conflict more deeply, and was more determined to help us end it, than any other president before him. It was a moment of truth for the leader of the Palestinians, Yasir Arafat. The Oslo Accords of 1993, groundbreaking though they were, had created a peace process, not peace. Over the past few years, that process had been lurching from crisis to crisis. Political support for negotiations was fraying. And yet the core issues of our conflict had not been resolved. In fact, they had hardly been talked about. The reason for this was no secret. For both sides, these questions lay at the heart of everything we d been saying for years, to the world and to ourselves, about the roots of the conflict and the minimum terms we could accept in order to end it. At issue were rival claims on security, final borders, Israeli settlements, Palestinian refugees, and the future of ancient city of Jerusalem. None of these could be resolved without painful, and politically perilous, compromises. Entering the summit, despite the pressures ahead, I was confident that I, with my team of aides and negotiators, would do our part to make such a final peace agreement possible. Nor did I doubt that President Clinton, whom I had come to view not just as a diplomatic partner but a friend, would rise to the occasion. But as for Arafat? There was simply no way of knowing. That was why I had pressed President Clinton so hard to convene the summit. That was why, despite the misgivings of some of his closest advisers, he had taken the plunge. We both knew that the so-called final-status issues 2 the substance of any real peace could not simply be put off forever. Untangling them was getting harder, not easier. And we realised that only in an environment like Camp David a pressure cooker was how I described it to Clinton, and to US Secretary of State Madeleine Albright would we ever discover whether a peace deal could in fact be done. Now, we knew. Israel s equivalent of Air Force One, perhaps in a nod to our country s pioneering early years, was an almost prehistoric Boeing 707. It was waiting on the runway at Andrews Air Force Base outside Washington to ferry me and the rest of our negotiating team back home. It contained a low-rent equivalent of the American version s presidential cabin, and a few 1960s-vintage first-class seats, but consisted mostly of two long lines of coach seats, three abreast, separated by an almost tightrope-narrow aisle. I dare say I was alone in finding an odd sense of comfort in boarding the plane. This museum piece of an aircraft was part of my past. It was the same model of 707 for which I, with a couple of other young soldiers and engineers, had come up with what we dubbed the submarine door system outside the cockpit to protect El Al pilots from future attacks after one of its planes had been hijacked to Algiers in the summer of 1968. It was also the same kind of plane a Sabena flight, hijacked to Tel Aviv s Ben-Gurion Airport which I stormed, before sunrise, four years later with a force of nearly two dozen Matkal commandos. The shooting was over within 90 seconds. One of my men a junior officer named Bibi Netanyahu was wounded. By one of our own bullets. But we managed to kill two of the heavily armed hijackers, capture the others, and free all 90 passengers unharmed. Still, even I had to accept, it was no fun to fly on. As we banked eastward after takeoff and headed out over the Atlantic, the mood on board was sober. Huddling with the inner core of my negotiating team my policy co-ordinator Gilad Sher, security aide Danny Yatom and Foreign Minister Shlomo Ben-Ami I could see that the way the summit ended had hit them hard. It was probably true, as all three often reminded me, that the greatest pressure fell on me. I was the one who ultimately decided what we could, or 3 should, offer in search of a true peace with the Palestinians. I was the one who would be blamed by the inevitable critics, whether for going too far or not far enough, or simply for the fact the deal had eluded us. I knew the drill: the same thing had happened when I had come tantalizingly close to finalizing a peace deal with Syria s then-dying dictator, Hafez al-Assad, a few months earlier. Yet these three dedicated men Gili, who was by training a lawyer; Shlomo, an academic; and Danny, a former Mossad chief had just been through dozens of hours of intricately detailed talks with each of Arafat s top negotiators at Camp David, not to mention the dozens of other meetings before we had even got there. Now they had to accept that, even with the lid of the pressure cooker bolted down tight, we had fallen short of getting the peace agreement which each of us knew had been within touching distance. I don t think that even they could be described as depressed. On our side, after all, we knew we had given ground on every issue we possibly could, without facing full-scale political rebellion at home. We had proposed an Israeli pullout from nearly all of the West Bank and Gaza. A support mechanism for helping compensate tens of thousands of Palestinian refugees from the serial Arab-Israeli conflicts of the past half-century. And most painfully and controversially my rivals and critics back home were already accusing me of treachery we had agreed to let President Clinton present a proposal for the Palestinians to get sovereignty over the Arab neighbourhoods of Jerusalem as well as custodial sovereignty over the Haram al-Sharif, the mosque complex perched above the Western Wall, the holiest site in Judaism. But precisely because we had been ready to offer so much, only for Arafat to reject it all, even as a basis for talks on a final deal, I could sense how gutted my key negotiators were feeling. Still, I m sure none of them was surprised when my own old operational instincts kicked in. In my statement to journalists, I had been careful to say that Arafat was not ready at this time to make the historic compromises needed for peace. But before parting with President Clinton and Secretary Albright, I d been more forthright. It was clear, without my saying so, that the chances of our getting a peace agreement on Clinton s watch were now pretty much over. He had barely five months left in office. Yet my deeper fear was that with Arafat having brushed aside an offer that went far further than any other Israeli had proposed far further than the Americans, themselves, had expected from Israel the prospects for peace would be set back for years. Perhaps, I said, for two decades. 4 The challenge now, I told my exhausted team, was to make sure we were prepared for this new reality. Part of the spadework was already in place. Much as I d hoped that Arafat and I could turn a new page in Middle East history, I had directed our army chief-of-staff, nine months before the summit, to draw up contingency plans for the likelihood of an unprecedentedly deadly eruption of Palestinian violence if we were to fail. Now, I felt we had to go even further, and to prepare a proactive alternative to the negotiated deal we d been unable to secure. I proposed considering a unilateral Israeli pullout from the West Bank and Gaza. The territorial terms would, necessarily, be less far-reaching than the proposal Arafat had rejected. But I felt we should still withdraw from the great majority of the land we had captured in 1967, still leaving the Palestinians an area which the outside world would recognize as wholly sufficient for them to establish a viable, successful state. And crucially, this would finally give Israel, our country, a delineated, final border with the territory captured in the Six-Day War. Gili, clearly uneasy about accepting the idea that the chances for a negotiated peace were definitively gone, left to try to get some sleep on the long flight ahead. Danny and Shlomo Ben-Ami as well. Within an hour or so, the plane was full of irregularly slumped bodies, the silence broken only by the drone of the 707 s engines and the occasional sound of snoring. I sat, wide awake, in one of the seats at the front. My sleeping habits were another inheritance from Sayeret Matkal. During those years, nearly everything of significance which I did had happened after sundown. The commando operations were, of course, set for darkness whenever possible. The element of surprise could mean the difference between success and failure, indeed life and death. But all of my planning, all my thinking, tended to happen at night as well. The quiet, and the lack of distractions, helped to discipline my mind. I found that it helped to free my mind as well, sometimes only to discover that it went off in unexpected directions. It did so now. Perhaps even I was still reluctant to accept that Camp David meant that the opportunity for a transformative deal with Arafat was finished. Yet whatever the reason, I began thinking back to the first time that my path and his had crossed. It was in the spring of 1968, nearly a year after Israel had defeated the armies of our three main Arab enemies Egypt, Syria and Jordan. Israeli forces were advancing on a Jordanian town called Karameh, across the 5 Jordan River from the West Bank, from which a fledgling group called Fatah, under the command of Arafat, had been staging a series of raids. In one of their most recent attacks, they d planted land mines, one of which destroyed an Israeli schoolbus, killing the driver and one of the teachers and injuring nearly a dozen children. The so-called Battle of Karameh was our single most significant operation since the 1967 war. In pure military terms, it succeeded. But at a price: more than two dozen Israeli soldiers dead. It also had a major political impact. It caused shock among many Israelis, still wrapped in a sense of invincibility from the Six-Day War, as well as a feeling in the Arab world, actively encouraged by Arafat and his comrades, that compared to the great armies Israel had defeated in 1967, Fatah had at least shown fight. Fatah had drawn blood. I had just turned 26 years old. I was finishing my studies in math, physics and economics at the Hebrew University in Jerusalem, and had joined my Sayeret Matkal comrades the night before the assault. It was a huge operation: ten battalions, including crack infantry units. Our own role was relatively minor. We were to seal the southern entrance to the town. But it proved a tough slog just to get there. Our vehicles got bogged down in mud. By the time we arrived, Fatah fighters, although many were in civilian clothes so we couldn t be sure, were racing past us in the other direction. One of them, we were later told, was Yasir Arafat. On a motorcycle. It would be nearly three decades before the two of us actually met shortly after the assassination of my longtime comrade and friend Yitzhak Rabin, when I had become Foreign Minister under Shimon Peres. But in the intervening years, Arafat was rarely off of my radar. By the early 1970s, he and his fighters had been expelled by King Hussein s army from Jordan and were re-based in Lebanon. Arafat was becoming a significant figure on the Arab and world political stage, and an increasingly uncomfortable thorn in Israel s side. I was head of Sayeret Matkal by then. Over a period of months, I drew up a carefully constructed plan a raid by helicopter into a Fatah-dominated area in southeastern Lebanon, during one of Arafat s intermittent, morale-boosting visits from Beirut to assassinate him. My immediate superior, the army s head of operations, was all for our doing it. But the chief of military intelligence said no. Arafat, he insisted when we met to discuss the plan, was no longer the lean, mean fighter we had encountered in Karameh. He s fat. He s a politician. He is not a target. 6 A decade later, the idea would suddenly resurface. In my first meeting, as a newly promoted Major General, with our then Defence Minister Ariel Sharon, Sharon turned to me and the army s Chief of Staff, Rafael Eitan, and said: Tell me. Why the hell is Arafat still alive? He looked first at Raful, then at me, and added: When I was 20 years younger than you are, I never waited for someone like Ben-Gurion or Dayan to ask me to plan an operation. I would plan it! Then I d take it to them and say, you re the politicians, you decide, but if you say yes, we ll do it. I smiled, telling him that I d done exactly that, a decade earlier, only to have one of his mates in the top brass say no. Sharon now said yes. But the plan was overtaken: by his ill-fated plan to launch a full-scale invasion of Lebanon in 1982, targeting not just Arafat, but with the aim of crushing the PLO militarily once and for all. I finally met Arafat face-to-face at the end of 1995. Although the Oslo peace process had dramatically changed things, it was clear that the real prize real peace was still far away. We were in Barcelona, for a Euro-Mediterranean meeting under the auspices of King Juan Carlos, aimed at trying to re-invigorate negotiations. The ceremonial centrepiece of the event was a dinner at one of the royal palaces, and it was arranged for me and Arafat to meet for a few minutes beforehand. I arrived first. I found myself in a breathtakingly opulent, but otherwise empty, room. Empty, that is, except for a dark-brown Steinway piano. From childhood, I have loved music. And while I am never likely to threaten the career of anyone in the New York Philharmonic, I have, over the years, developed some ability, and drawn huge enjoyment, as a classical pianist. I pulled back the red-velvet bench and began to play. With my back to the doorway, I was unaware that Arafat had arrived, and that he was soon standing only a few feet away, watching as I played one of my favourite pieces, a Chopin waltz. My old commando antennae must have been blunted. I may not have become fat . But, undeniably, I was now a politician. When I finally realised Arafat was behind me, I turned, embarrassed, stood up, and grasped his hand. It s a real pleasure to meet you, I said. I must say I have spent many years watching you by other means. He smiled. We stood talking for about 10 minutes. My hope was to establish simple, human contact; to signal respect; to begin to create the conditions not to try to kill Arafat, but to make peace with him. We carry a great responsibility, I said. Both of our peoples have paid a heavy price, and the time has come to find a way to solve this. 7 I sensed, at the time, at least the start of some connection. I suspected that Arafat viewed me, as he had Rabin before me, as a fellow fighter . But if so, I now wondered whether that might have been part of the problem in his ever truly understanding my mission at Camp David. My motivations. Or my mind. Even in Israel, my reputation as a soldier has sometimes been as much a burden as an advantage. A whole body of stories has followed me from my 36 years in uniform a career which, after Sayeret Matkal, led me up the military ladder until I was head of operations, intelligence, and eventually of the entire army as Chief of Staff. By the time I left the military, I was the single most decorated soldier in our country s history. Some of the stories were actually true: that when we burst onto the hijacked Sabena airliner, for instance, we were dressed as a maintenance crew; or that, in leading an assassination raid in Beirut against the PLO group that had murdered Israeli athletes at the 1972 Munich Olympics, I was disguised as a woman. Not the most attractive young lady, perhaps, though I did, painfully, pluck my eyelashes, and, with the help of four pairs of standard-issue Israeli Army socks, develop quite a comely bosom. I rejected the idea of wearing a long dress, in favour of stylishly flared trousers. I was going on a commando operation, after all, not a prom date. But I did wear heels. So yes, a woman, of sorts. Yet some of the stories were just plain myth. I had given up counting the times I d heard about my alleged prowess in recording the fastest-ever time on the most gruelling of the Israeli army s obstacle courses. In fact, I was a lot more like Goldie Hawn in Private Benjamin. The main misunderstanding, however, went deeper. The assumption appeared to be that my military achievements, especially in Sayeret Matkal, were down to a mix of brute force and raw courage. Courage, of course, was a requirement: the willingness to take risks, if the rewards for success, or the costs of inaction, were great enough. Few of the operations I fought in or commanded were without the real danger of not coming back alive. But whatever success I d had as a soldier, particularly in Matkal, was not only, nor even mainly, about biceps. It was about brains. The ability to make decisions. To withstand the pressure of often having to make the most crucial decisions within a matter of seconds. It was, above all, about thinking and analyzing and always, always, looking and planning ahead. And as our plane droned onward towards Israel, I knew that I would now need all of those qualities more than ever. 8 This book is only in part the story of my life a life that, from my beginnings as a kibbutz boy in pre-state Palestine, has been intimately entwined with the infancy and adolescence and, now, the increasingly troubled middle age of the State of Israel. Still less is it only a record of its, or my, achievements, although they are inevitably a part of the story. In setting out to write it, I was also determined to document, from the inside, the critical setbacks as well. Mistakes. Misjudgements. Missed opportunities. And the lessons that we can, and must, be prepared to learn from them. No less so than I when I was planning a hijack rescue or a cross-border commando operation in Sayeret Matkal, I remain convinced that Israel s security, Israel s very identity, can be safeguarded only by evaluating dispassionately the situation in our country and the world. And by looking ahead. Even when I was a soldier, I never stopped thinking this way, especially when, first as military intelligence chief and especially as Chief of Staff, I knew, in detail, every one of the security threats that faced Israel and was part of discussions and decisions to try to confront them. I still vividly remember as Chief of Staff, every Friday before the arrival of the Jewish Sabbath, sitting with Rabin, who was then Israel s Defence Minister. Our offices were along the same hallway of the kirya, the ministry s headquarters in the heart of Tel Aviv. Rabin had a very low table in his office, with two chairs. We would sit across from each other, each with a ready supply of coffee and Yitzhak smoking an apparently endless supply of cigarettes, and we would just talk. Politics. Strategy. Israel. The PLO. The surrounding Arab states. And the wider world. Many years before I became Prime Minister, I gave a lecture at a memorial meeting for an Israeli academic. Not many people were there. I doubt even they remember it. But I do, because what I said has, sadly, become more prophetic than even I could have imagined. I talked about the imperative for peace as part of Israel s security. There was a window, I said. We were militarily strong. In regional terms, we were a superpower. But politically, resolving the conflict with our Arab enemies would almost certainly become more difficult with time. 9 Iraq, perhaps Iran and other Middle Eastern states, might get nuclear weapons. A violent form of fundamentalist Islam could, over time, erode existing Arab and Muslim states, threatening Israel of course, but also the stability of our neighbourhood and of the world. In those circumstances, even if an Israeli government was strong enough, wise enough, forward-looking enough to pursue avenues for negotiated peace with its immediate neighbours, getting the popular support required would be all but impossible. The window is still there. But it is only barely open. I fear that I was right, as well, in predicting that our failure to secure a final peace agreement with the Palestinians at Camp David might set back peacemaking not just for a few months, but for many years. I have persisted in trying, very hard, to make that particular prediction prove wrong. That was why, despite intense pressure from my own political allies not to do so, I decided to return to government in 2007 as Defence Minister. I remained in that role for six years: mostly in the current, right-wing Likud government of my onetime Sayeret Matkal charge, Bibi Netanyahu. Much of what I say in this book about war and peace, security and Israel s future challenges, will make uncomfortable reading for Bibi. But very little of it will surprise him, or his own Likud rivals further to the right, like Foreign Minister Avigdor Lieberman and the Economy Minister, Naftali Bennett. I have said almost all of it to them behind closed doors in the past few years, more than once. When I finally decided to leave the political arena last year, it was largely because I realized that they were guided by other imperatives. In the case of Bibi, the most gifted politician with whom I ve worked except for Clinton, the priority was to stay in power. For Avigdor and Naftali, it was to supplant Bibi, when the opportunity was ripe, as Likud leader and as Prime Minister. And much too often as with their hugely ill-advised recent proposal to amend Israel s basic law to define it explicitly as a Jewish state, and deny national rights to non-Jews the three of them have ended up competing for party political points rather than weighing the serious future implications for the country. Peacemaking, as I discovered first-hand, requires taking risks. Statesmanship requires risks. Politics, especially if defined simply as staying in power, is almost always about the avoidance of risk. 10 The problem for Israel, no matter who or what party is in government, is that there are risks everywhere one looks, and they show every sign of getting more, not less, serious. The Arab Spring has morphed into an Islamic winter. National frontiers that were put in place by British and French diplomats after the fall of the Ottoman Empire are vanishing. Centuries-old conflicts between tribes and rival religious communities have reignited. The old Cold War system of nations has given way to a world without a single geopolitical centre of gravity. Perhaps most seriously, Iran seems determined to get nuclear weapons, and, in my view, may succeed in doing so. Where Israel is concerned, relations with our indisputably most important ally, the United States, are more strained than at any time in decades. Diplomatic ties with Europe, our single largest trading partner, have been growing steadily worse. And the only real certainty is that anyone who tells you that they know absolutely where things are heading next is lying. Just ask Hosni Mubarak, who, despite having nearly half-a-million soldiers and security operatives at his disposal, was utterly blindsided, and very soon toppled and imprisoned, by an uprising that began with a sudden show of popular anger in Cairo s Tahrir Square. Internally as well, Israel faces dangers. Chief among them is the alarming erosion of the standards of civil discourse, amid the increasingly shrill, often hateful, divisions between left and right, secular and religious, rich and poor and, most seriously of all, Jews and Arabs. While we remain economically successful, the fruits of our wealth are being ever more unevenly shared, and the prospects for continued growth constrained by the lack of any visible prospect of long-term peace. Bibi Netanyahu, of course, knows all of this. Indeed, he has repeatedly spoken of the multiple threats Israel faces, not only in somber terms, but at times almost apocalyptically. That works, politically. Politicians, not just in Israel but everywhere, know that it is a lot easier to win elections on fear than on hope. Yet my own prescription learned, as this book recounts, from years on the battlefield, then reinforced by my years in government is that Israel must resist being guided by either of those alternatives. Not fear, certainly. But neither by simple, untempered hope. Though the stakes have become much higher since my night flight back from Camp David nearly 15 years ago, our 11 need remains what I tried to impress on my negotiators then: realism. A meticulously informed, utterly unvarnished, understanding of the threats we face, of each altered situation after every success or a failure, and an ability to set aside the background noise and political pressures and chart a way forward. So what is that way? It begins with the mindset. On more than one occasion in the past few years, after Prime Minister Netanyahu had warned our country of a nuclear Iran or the spread of Al Qaeda-style hatred and violence, as if prophesying the coming of Armageddon, I would say to him: Stop talking like that. You re not delivering a sermon in a synagogue. You re Prime Minister. Having been privileged to live my own life along with the entire modern history of our country, I went further. Zionism, the founding architecture of Israel, was rooted in finding a way to supplant not just the life, but the way of thinking, which hard-pressed Jewish communities had internalised over centuries in the diaspora: in Hebrew, the galut. We would instead take control of our own destiny, building and developing and securing our own country. Now, I told Bibi, he was back in the mindset of the galut. Yes, al-Qaeda, and more recently Islamic State, were real dangers. The prospect of a nuclear Iran was even more so. But the implication of the way you speak, not just to Barack Obama or David Cameron, but to Israelis, is that these are existential threats. What do you imagine? That if, God forbid, we wake up and Iran is a nuclear power, we ll pack up and go back to the shtetls of Europe? Of course not. Israel, as my public life has taught me more than most, remains strong militarily. We are, still, fully capable of turning back any of the undeniable threats on our doorstep. Keeping that strength, developing it and modernizng it, are obviously critically important. But as Israel s founding Prime Minister, David Ben-Gurion, used to say, the success of Zionism, and of the Israeli state, required two things: strength and righteousness. He didn t mean the word in purely religious terms. He meant that Israel, if it were to retain international backing and internal cohesion, must be guided by a core of moral assumptions as well. That, in itself, would be reason enough to pursue every possible opportunity for end of conflict with our neighbours. And, at home, to protect and reinforce our commitment to Israel as both a Jewish and a democratic state. But Israel s simple self-interest its hope for prosperity, social cohesion, and growth in future makes this nothing short of imperative. 12 Bibi is right about one thing. The negotiating challenges have become more difficult since Arafat s refusal of our offer at Camp David. Arafat is no longer alive. Palestinian politics have become ever more fragmented and messy, not least as a result of the Hamas takeover of Gaza. But Churchill once said that the difference between a pessimist and an optimist was that the pessimist always saw difficulties in every opportunity. The optimist saw opportunities in the difficulties. I, of all people, do not look at such opportunities without hard-headed analysis, even a dose of scepticism. But the opportunities are undeniably there, and never has Israel risked paying a higher price for failing to see and at least to try to act on them. The first port of call should still be the Palestinians. I have repeatedly asked Bibi, and the right-wing rivals that seem often to loom large in his political calculations: If you re so sure you don t have a negotiating partner in the Palestinians, who not at least try? Seriously. What do you have to lose? But beyond this, there is a whole range of relatively moderate countries and, as Sunni states, strongly anti-Iranian countries which share with Israel a real, practical interest in putting in place a new political arrangement in the Middle East. So does the United States, Russia, even China. Each, in their own ways, is threatened by a terror threat that will require international action, and many years, finally to defeat. A Saudi peace plan , for instance, has been on the table for years. Formally endorsed by the Arab League, it proposes a swap: Israeli withdrawal for full and final peace and Arab recognition. Successive Israeli governments have dismissed it out of hand, arguing that the withdrawal which the Saudi proposal demanded every inch of territory, back to the borders before the Six-Day War would be not only politically unacceptable, but practically impossible. In the final days of the Camp David summit, as our failure was becoming inescapably clear, a disheartened Bill Clinton said to me that he could understand, just about, why Yasir Arafat had not accepted the unprecedentedly far-reaching proposals I had presented. But what he couldn t grasp was how the Palestinian leader could say no even to accepting them as a basis for the hard, further work which we all knew a final peace agreement would entail. Wasn t Arafat capable of looking beyond the political risks, of understanding the greater risks of inaction. Of seeing the rewards? Of looking ahead? 13 My fear not just on issues like the Saudi peace plan, but in charting our place in a dramatically changed world, and safeguarding our twin Jewish and democratic identities at home, pairing our physical strength with an equally strong moral centre is that we Israelis are now in danger of jettisoning the example of David Ben-Gurion. For Yasir Arafat s. 14 Chapter One I am an Israeli, but also a Palestinian. I was born in February 1942 in Britishruled Palestine on a fledgling kibbutz: a cluster of wood-and-tarpaper huts amid a few orange groves and vegetable fields and chicken coops. It was just across the road from an Arab village named Wadi Khawaret, which disappeared, with the establishment of the State of Israel, when I was six years old. As Prime Minister half-a-century later, during my stubborn yet ultimately fruitless drive to secure a final peace treaty with Yasir Arafat, there were media suggestions that my childhood years gave me a personal understanding of the pasts of both our peoples, Jews and Arabs, in the land which each of us saw as our own. But that is in some ways misleading. Yes, I did know first-hand that we were not alone in our ancestral homeland. At no point in my childhood was I ever taught to hate the Arabs. I never did, even when, in my years defending the security of Israel, I had to fight, and defeat, them. But my conviction that they, too, needed the opportunity to establish a state came only later, after my many years in uniform, and especially when, as deputy chief-of-staff under Yitzhak Rabin, we were faced with the explosion of violence in the West Bank and Gaza that became known as the first intifada. And while my determination as Prime Minister to find a negotiated resolution to our conflict was in part based on a recognition of the Palestinian Arabs national aspirations, the main impulse was my belief that such a compromise was profoundly in the interest of Israel: the Jewish state whose birth I witnessed, whose existence I had spent decades defending on the battlefield and which I was ultimately elected to lead. Zionism, the political platform for the establishment of a Jewish state, emerged in the late 1800s in response to a brutal reality. And that, too, was a part of my own family s story. Most of the world s Jews, who lived in the Russian empire and Poland, were trapped at the time in a vise of poverty, powerlessness and anti-Semitic violence. Even in the democracies of Western Europe, Jews were not necessarily secure. Theodor Herzl, a thoroughly assimilated Jew in Vienna, published the foundation text of Zionism in 1896. It was called Der Judenstaat. Jews have sincerely tried everywhere to merge with the national communities in which we live, seeking only to preserve the faith of our fathers, he wrote. In vain are we loyal patriots, sometimes superloyal. In vain do we make the same sacrifices of life and property as our fellow citizens In our native lands where we have lived for centuries, we are still decried as aliens. Zionism s answer was the establishment of a state of our 15 own, in which we could achieve the self-determination and security denied to us elsewhere. During the 1890s and the early years of the new century, more than a million Jews fled Eastern Europe, but mostly for America. It was only in the 1920s and 1930s that significant numbers arrived in Palestine. Then, within a few years, Hitler rose to power in Germany. The Jews of Europe faced not just discrimination or pogroms. They were systematically, industrially, murdered. From 1939 until early 1942 when I was born, nearly two million Jews were killed. Six million would die by the end of the war. Almost the whole world, including the United States, rejected pleas to provide a haven for those who might have been saved. Even after Hitler was defeated, the British shut the doors of Palestine to those who had somehow survived. I was three when the Holocaust ended, and it was three years later that Israel was established in May 1948, and neighboring Arab states sent in their armies to try to snuff the state out in its infancy. It would, again, be some years before I fully realized that this first Arab-Israeli war was the start of an essential tension in my country s life, and my own: between the Jewish ethical ideals at the core of Zionism and the reality of our having to fight, and sometimes even kill, in order to secure, establish and safeguard our state. Yet even as a small child, I was keenly aware of the historic events swirling around me. Mishmar Hasharon, the hamlet north of Tel Aviv where I spent the first 17 years of my life, was one of the early kibbutzim. These collective farming settlements had their roots in Herzl s view that an avant-garde of pioneers would need to settle a homeland that was still economically undeveloped, and where even farming was difficult. Members of Jewish youth groups from Eastern Europe, among them my mother, provided most of the pioneers, drawing inspiration not just from Zionism but by the still untainted collectivist ideals represented by the triumph of Communism over the czars in Russia. It is hard for people who didn t live through that time to understand the mindset of the kibbutzniks. They had higher aspirations than simply planting the seeds of a future state. They wanted to be part of transforming what it meant to be a Jew. The act of first taming, and then farming, the soil of Palestine was not 16 just an economic imperative. It was seen as deeply symbolic, signifying Jews finally taking control of their own destiny. It was a message that took on an even greater power and poignancy after the mass murder of the Jews of Europe during the Holocaust. Even for many Israelis nowadays, the all-consuming collectivism of life on an early kibbutz, and the physical challenges, are hard to imagine. Among the few dozen families in Mishmar Hasharon when I was born, there was no private property. Everything was communally owned and allocated. Every penny or Israeli pound earned from what we produced went into a communal kitty, from which each one of the 150-or-so families in Mishmar Hasharon when I was a child got a small weekly allowance. By small , I mean tiny. For my parents and others, even the idea of an ice cream cone for their children was a matter of keen financial planning. More often, they would save each weekly pittance with the aim of pooling them at birthday time, where they might stretch to the price of a picture book, or a small toy. Decisions on any issue of importance were taken at the aseifa, the weekly meeting of kibbutz members held on Saturday nights in our dining hall. The agenda would be tacked up on the wall the day before, and the session would usually focus on one issue, ranging from major items like the kibbutz s finances to the question, for instance, of whether our small platoon of delivery drivers should be given pocket money to buy a sandwich or a coffee on their days outside the kibbutz or be limited to wrapping up bits of the modest fare on offer at breakfast time. That debate ended in a classic compromise: a bit of money, but very little, so as to avoid violating the egalitarian ethos of the kibbutz. But perhaps the aspect of life on the kibbutz most difficult for outsiders to understand, especially nowadays, is that we children were raised collectively. We lived in dormitories, organized by age-group and overseen by a caregiver: in Hebrew, a metapelet, usually a woman in her 20s or 30s. For a few hours each afternoon and on the Jewish Sabbath, we were with our parents. But otherwise, we lived and learned in a world consisting almost entirely of other children. Everything around us was geared towards making us feel like a band of brothers and sisters, and as part of the guiding spirit of the kibbutz. Until our teenage years, we weren t even graded in school. And though we didn t actually study how to till the land, some of my fondest early memories are of our children s farm the vegetables we grew, the cows we milked, the hens and chickens that gave us our first experience of how life was created. And the 17 aroma always wafting from the stone ovens in the bakery at the heart of the kibbutz, where we could see the bare-chested young men producing loaf after loaf of bread, not just for Mishmar Hasharon but villages and towns for miles around us. Until our teenage years, we lived in narrow, oblong homes, four of us to a room, unfurnished except for our beds, under which we placed our pair of shoes or sandals. At one end of the corridor was a set of shelves where we collected a clean set of underwear, pants and socks each week. At the other end were the toilets at that point, the only indoor toilets on the kibbutz, with real toiletseats, rather than just holes in the ground. All of us showered together until the age of twelve. I can t think of a single one of us who went on to marry someone from our own age-group in the kibbutz. It would have seemed almost incestuous. Mishmar Hasharon and other kibbutzim have long since abandoned the practice of collective child-rearing. Some in my generation look back on the way we were raised not only with regret, but pain: a sense of parental absence, abandonment or neglect. My own memories, and those of most of the children I grew up with, are more positive. The irony is that we probably spent more waking time with our parents than town or city children whose mothers and fathers worked nine-to-five jobs. The difference came at bedtime, or during the night. If you woke up unsettled, or ill, the only immediate prospect of comfort was from the metapeled, or another of the kibbutz grown-ups who might be on overnight duty. Still, my childhood memories are overwhelmingly of feeling happy, safe, protected. I do remember waking up once, late on a stormy winter night when I was nine, in the grips of a terrible fever. I d begun to hallucinate. I got to my feet and, without the thought of looking anywhere else for help, made my wobbly way through the rain to my parents room and fell into their bed. They hugged me. They dabbed my forehead with water. The next morning, my father wrapped me in a blanket and took me back to the children s home. To the extent that I was aware my childhood was different, I was given to understand it was special, that we were the beating heart of a Jewish state about to be born. I once asked my mother why other children got to live in their own apartments in places like Tel Aviv. They are ironim, she said. City-dwellers. Her tone made it clear they were to be viewed as a slightly lesser species. 18 Though both my parents were part of the pioneer generation, my mother, unlike my father, actually arrived as a pioneer, part of a Jewish youth group from Poland that came directly to the kibbutz. In addition to being more naturally outgoing than my father, she came to see Mishmar Hasharon has her extended family and spent every one of her one hundred years there. Esther Godin, as the then was, grew up in Warsaw. Born in 1913, she was the oldest of the six children of Samuel and Rachel Godin. Poland at the time was home to the largest Jewish community in the world, more than 3 million by the time of the Holocaust. While the Jews of Poland had a long history, the Godins did not. Before the First World War, my mother s parents made their way from Smolensk in Russia to Warsaw, which was also under czarist rule. When the war was over, the Bolshevik Revolution had toppled the czars. Poland became independent, under the nationalist general Josef Pilsuldski. The Godins had a decision to make: either return to now-Communist Russia or stay in the new Polish state, though without citizenship because they had not been born there. No doubt finding comfort, community and a sense of safety amid the hundreds of thousands of Jews in the Polish capital, they chose Pilsuldski over Lenin. They lived in what would become the Warsaw Ghetto, on Nalewski Street, where Samuel Godin eked out a living as a bookbinder. My mother came to Zionism as a teenager, and it was easy to understand why she, like so many of the other young Jews around her, was drawn to it. She saw how hard her parents were struggling economically, on the refugee fringes of a Jewish community itself precariously placed in a newly assertive Poland. She saw no future for herself there. Though she attended a normal state-run high school, she and her closest friends joined a Zionist youth group called Gordonia, which had been founded in Poland barely a decade earlier. She started studying Hebrew. Each summer, from the age of 13, she and her Gordonia friends would spend deep in the Carpathian Mountains. They worked for local Polish landowners, learning the rudiments of how to farm and the rigors of simple physical labor. Late into the evening, they would learn not just about agriculture but Jewish history, the land of Palestine, and how they hoped to put both their new-found skills and the Zionist ideals into practice. She had just turned 22 when she set off for Mishmar Hasharon with 60 other Gordonia pioneers in the summer of 1935. It took them nearly a week to get there. They travelled by train south through Poland, passing not far from the little town of O wi cim which would later become infamous as the site of the Auschwitz concentration camp. Then, on through Hungary and across Romania 19 to the grand old Black Sea port of Constan a, and by ship through the Bosphorus, past Istanbul, and on to Haifa on the Palestinian coast, from where they were taken by truck to their bunk-bed rooms in one of a dozen prefab structures on the recently established kibbutz. Though the water came from a well, and it lacked even the basic creature comforts of the cramped Godin apartment in Warsaw, that, to my mother, was just part of the challenge, and the dream, she d embraced and had come to define her. I know that she felt, on arriving in the kibbutz, that only now was her life truly beginning. It was a feeling that never left her. Yet it was always clouded by the memory of the family she left behind. When the Second World War began in September 1939, the Germans, and then the Soviets, invaded, overran and divided Poland. Two of my mother s three sisters fled to Moscow. Her teenage brother Avraham went underground, joining the anti-Nazi partisans. All three would survive the war. Yet in the autumn of 1940, the rest of her family found themselves inside the Warsaw Ghetto with the city s other 400,000 Jews. My mother s parents died there, along with her 13-year-old brother Itzik and her little sister Henya, who was only 11. When my mother arrived in the kibbutz, her Gordonia friends assumed she would marry a young man named Ya akov Margalit, the leader of their group back in Warsaw. But the budding romance fell victim to the Zionist cause. As she was embarking on her new life, he was frequently back in Poland training and arranging papers for further groups of pioneers. He continued to write her long, heartfelt letters. But the letters had to be brought from the central post office in Tel Aviv, and the kibbutznik who fetched the mail was a quiet, dimunitive 25-year-old named Yisrael Mendel Brog my father. Known as Srulik, his Yiddish nickname, he had come to Palestine five years earlier. He was an ordinary kibbutz worker. He drove a tractor. My father s initial impulse in coming to Palestine was more personal than political. He was born, in 1910, in the Jewish shtetl of Pushelat in Lithuania, near the larger Jewish town of Ponovezh, a major seat of rabbinic learning and teaching. His own father, though the only member of the Pushelat community with rabbinical training, made his living as the village pharmacist. Many of the roughly 10,000 Jews who lived there had left for America in the great exodus from Russian and Polish lands at the end of the 19 th century. By the time my father was born, the community had shrunk to only about 1,000. When he was two years old, a fire broke out, destroying dozens of homes, as well as the shtetl s only synagogue. Donations soon arrived from the US, and my paternal 20 grandfather was put in charge of holding the money until rebuilding plans were worked out. The problem was that word spread quickly about the rebuilding fund. On the night of September 16, 1912, two burglars burst into my grandfather s home and stole the money. They beat him and my grandmother to death with an axle wrenched loose from a nearby carriage. Their four-year-old son Meir my father s older brother suffered a deep wound from where the attackers drove the metal shaft into his head. He carried a golf-ball-sized indentation in his forehead for the rest of his life. My father had burrowed into a corner, and the attackers didn t see him. The two orphaned boys were raised by their paternal grandmother, Itzila. Yet any return to normalcy they may have experienced was cut short by the outbreak of the First World War, forcing her to flee with them by train ahead of the advancing German army. They ended up some 1,500 miles south, in the Crimean city of Simferopol. Initially under czarist rule, then the Bolsheviks and from late 1917 until the end of the war under the Germans, they had to deal with cold, damp and a chronic shortage of food. My Uncle Meir quickly learned how to survive. He later told me that he would run after German supply carriages and collect the odd potato that fell off the back. Realizing that the German soldiers had been wrenched from their own families by the war, he began taking my father with him on weekends to the neighborhood near their barracks, where the soldiers would sometimes give them cookies, or even a loaf of bread. Yet they were deprived of the basic ingredients of a healthy childhood: nutritious food and a warm, dry room in which to sleep. By the time Itzila brought them back to settle in Ponovezh at the end of the war, my father was diagnosed with the bone-development disease, rickets, caused by the lack of Vitamin D in their diet. In another way, however, my father was the more fortunate of the boys. The lost schooling of those wartime years came at a less formative time for him than for his brother. Meir never fully made up the lost ground in school. My father simply began his Jewish primary education, cheder, a couple of years later than usual. He thrived there. Still, when it was time for him to enter secondary education, he decided against going on with his religious education. Meir was preparing to leave for Palestine, so my father enrolled in the Hebrew-language, Zionist high school. When he graduated, one of the many Brog relatives who were by now living in the United States, his Uncle Jacob, tried to persuade him to come to Pittsburgh for university studies. But with Meir signing on as his sponsor with the British Mandate authorities, he left for Palestine shortly before 21 his twentieth birthday. Jacob did still insist on helping financially, which allowed my father to enroll at the Hebrew University in Jerusalem. He did well in his studies literature, history and philosophy but abandoned them after two years. His explanation for not staying on, when I asked him years later, was that with the accelerating activity of the Zionist pioneers, it felt wrong to him to spend his days going to lectures, reading books and writing essays. I am sure that he also felt isolated and alone, with Meir, the only link to his life before Palestine, working in Haifa on the coast, four or five hours by bus from Jerusalem. When he began looking for a way to become part of the changes going on around him, Mishmar Hasharon didn t yet exist. Its founding core a dozen Russian Jewish pioneers was still working on argicultural settlements near Herzliya, north of Tel Aviv, until they found a place to start their kibbutz. But they had been joined by several young men and women who, though a year or two older than my father, had been with him at the Hebrew High School in Ponovezh. He decided to join them. Late in 1932, the Jewish National Fund, supported financially by leading Jewish figures in western Europe and the US, bought 2,000 acres from an Arab landowner near Wadi Khawaret. The area was set aside for three Jewish settlements: a moshav called Kfar Haim, where the land was divided into family plots, and two kibbutzim. One was called Ma abarot. Next to it was Mishmar Hasharon. My father was among the seventy youngsters who set off in three trucks with everything they figured they would need to turn the hard, scrubby hill into a kibbutz. They built the core from pre-fab kits: wooden huts to sleep in and a slightly larger one for the dining hall. They dug a well and ordered a pump from Tel Aviv, at first for drinking and washing, but soon allowing them to begin a vegetable garden, a dairy with a dozen cows, a chicken coop with a few hundred hens, and to plant a first orange grove and a small vineyard. Still, by the time my mother arrived three years later, there were not enough citrus trees, vines, cattle and chickens to occupy a membership which now numbered more than 200. Along with some of the others, my father worked outside the kibbutz, earning a regular paycheck to help support the collective. On his way back, he would stop at the post office in Tel Aviv to pick up letters and packages for the rest of the kibbutz including Ya akov Margalit s love letters to my mother. That was how my parents friendship began, how a friendly hello led to shared conversation at the end of my father s working day, and how, a few years later, my mother decided to spurn her Gordonia suitor in favor of Srulik Brog, the postman. It was not until 1939 that they moved in 22 together. They didn t bother getting married until the summer of 1941. Perhaps because this was less than nine months before I was born, my mother always remained vague when asked their exact wedding date. My parents were an unlikely pair. My mother bright, lively and energetic was a doer, who believed passionately in the grand social experiment of kibbutz life. Having helped her mother raise her siblings in Warsaw, and with a natural affinity from children, she became the main authority on issues related to childbirth and early childcare. She actively partook in the kibbutz s planning and politics, and reveled in its social life. My father was more detached both politically and socially. He was more contemplative, less assertive, less selfconfident. Though he agreed broadly with the founding principles of the kibbutz, and wanted to play his role in making it a success, I could see, as I grew older, that he was often impatient at what he saw as its intellectual insularity and its ideological rigidities. Though it didn t strike me at the time, he was not a large man. As a result of his childhood illness, he never grew to more than five-foot-four. Still, he was a powerful presence, stocky and strong from his work on the kibbutz. He had a deep, resonant voice and wise-looking, blue-gray eyes. It was only through Uncle Meir that by the time I was born, he had moved on from driving a tractor to a more influential role on the kibbutz. Meir worked for the Palestine Electric Company and when Mishmar Hasharon installed its own electricity system, the PEC was in charge of the work. Meir trained my father and put him forward as the kibbutz contact for maintaining and repairing the equipment. He was well suited for the work. He was a natural tinkerer, a problem-solver. He was good with his hands, and his natural caution was an additional asset as the kibbutz got to grips with the potential, and the potential dangers, of electric power. Once the system was installed, he became responsible for managing any aspect of the settlement that involved electricity: water pumps, the irrigation system, the communal laundry and our bakery. My parents were courteous and polite with each other, but they never showed any physical affection in our presence. None of the adults did. This was part of an unspoken kibbutz code. Not only for kibbutzniks, but for all the early Zionists, outward displays of emotion were seen as a kind of selfishness that risked undermining communal cohesion, tenacity and strength. Because I d known no other way, this did not strike me as odd. Besides, I was a quiet, contemplative, bookish and self-contained child. Only in later years did I come to see the lasting effect on me. It was be a long time before I became comfortable 23 showing my feelings, beyond my immediate family and a few close friends. When I was in the army, this wasn t an issue. Self-control, especially in highpressure situations, was a highly valued asset. But in politics, I think that it did for a considerable time inhibit my ability to connect with the public, or at least with the news media that played such a critical intermediary role. And it caused me to be seen not just as reserved or aloof, but sometimes as cold, or arrogant. I did get much that I value from my parents. From my mother, her boundless energy, activism, her attention to detail, and her focus on causes larger than herself her belief that politics mattered. Also her love for art and literature. When I would come home from the children s dormitory to my parents room just nine feet by ten, with a wooden trundle bed to save space during the day there was always a novel or a book of verse sharing the small table with my parents most single prized possession: their kibbutz-issue radio. As a child, however, I spent much more time with my father. He was my guide, my protector and role model. Like my mother, he never mentioned the trials which they and their families endured before arriving in Palestine. Nor did they ever speak to me in any detail about the Holocaust. No one on the kibbutz did. It was as if the memories were scabs they dared not pick at. Also, it seemed, because they were determined to avoid somehow passing on these remembered sadnesses to their sons and daughters. Still, when I was ten or eleven, my father did once, inadvertently open a window on his childhood. Every Saturday morning, we would listen to a classical music concert on my parents radio. One day, as the beautiful melodies of Tchaikovsky s violin concerto in D came through the radio, I was struck by the almost trancelike look that came over my father s face. He seemed to be in another, faraway, place. When the music ended, he turned and told me about the first time he d heard it. It was on the train ride into Crimean exile with Itzila and Meir in the early days of the First World War. The train took five days to reach the Crimea and sometimes halted for hours at a time. Every evening, a man at the far end of their carriage would take out his violin and play the second movement of the Tchaikovsky concerto. I have heard the piece in concert halls many times since. When the orchestra begins the second movement with the violin notes climbing higher, trembling ever so subtly it sends a shiver down my spine. I can t help thinking of the railway car in which my then four-year-old father and other Jews from Ponovezh escaped the Great War of 1914. And of other trains, in another war 25 years later, carrying Jews not to safety but to death camps. 24 Listening to the concert program in my parents room was something I always looked forward to. It was my father who encouraged me, when I was eight, to begin learning to play the piano. I took lessons once a week all during my childhood along with several other of the kibbutz children. When we got old enough, we took turns playing a short piece the secular, kibbutz equivalent of an opening prayer at the Friday-night meal in the dining hall. I have always cherished being able to play. Sitting down at the piano and immersing myself in Tchaikovsky, Beethoven, Schubert or Mozart never ceases to bring me a sense of calm, freedom and, especially nowadays, when I have finally worked to master a particularly intricate piece, a feeling of pure joy. As a young child, I spent most of my waking hours in the company of my several dozen kibbutz siblings in the children s home, the dining hall, or running through the open spaces in the center of the kibbutz with our metapelet. She would often take us through the orange groves in the afternoon, and sometimes across the main road to the Arab village. Wadi Khawaret consisted of a few dozen concrete homes built back from a main street bordered by shops and storehouses. She would buy us sweets in the little grocery store. The man behind the counter had a kindly, weathered face and a dark moustache. Dressed in a gray galabiya and a keffiyeh, he smiled when we came in. There was always a group of Palestinian women, in fulllength robes, seated on stoops outside breastfeeding their babies. We saw cattle, bulls, even the odd buffalo, being led to or from the fields. I sensed no hostility, and certainly no hatred, toward us in the village. The people seemed warm, and benignly indifferent to the dozen Jewish toddlers and their metapelet. My own attitude to Wadi Khawaret was of benign curiosity. I did not imagine that within a couple of years we would be on opposite sides of a war. I enjoyed these visits, as I enjoyed every part of my early childhood. Each age-group on the kibbutz was given a name. Ours was called dror. It was the Hebrew word for freedom . But dror was also the name of one of the Jewish youth movements in the Warsaw Ghetto, heroes in their doomed uprising against the Nazis. Little by little, from about the age of five, I became more aware of the suffering the Jews had so recently endured in the lands my parents had left behind, the growing 25 tension around us and the sense that something momentous was about to happen as the prospect of a state got closer. The memories remain with me to this day, like a series of snapshots. It was on a spring morning in 1947 that I got my first real sense that the Jewish state was something which would have be fought for, and that youngsters not all that much older than me would have a critical role to play. I got a close-up look at the elite of the Zionist militias, the Palmach. It numbered something like 6,000, from a pre-state force totaling around 40,000. The Palmachniks were highly motivated, young political activists. They had no fixed base. Each platoon, almost all of them teenagers, spent five or six months at a time on various kibbutzim. For the first two weeks of each month, they would earn their keep by working in the fields. They spent the other weeks training. I had just turned five when I watched three dozen Palmach boys and girls, in their T-shirts and short khaki pants, rappel confidently down the side of one of our few concrete buildings. The building was only 25 or 30 feet high, but it looked like a skyscraper from my perch on the grass in front, and the feat of the young Palmachniks seemed to me nothing short of heroic. A few months later, on a Saturday afternoon in November 1947, I crowded into my parents room as the Haganah radio station crackled out its account of a United Nations debate on the future of Palestine. The session was the outcome of a long train of events starting with Britain s acknowledgement that its mandate to rule over Palestine was unsustainable. The British had proposed a series of arrangements to accommodate both Arab and Jewish aspirations. Now, the UN was meeting to consider the idea of splitting Palestine into two new states, one Arab and the other Jewish. Since the partition was based on existing areas of Arab and Jewish settlement, the proposed Jewish state looked like a boomerang, with a long, very narrow center strip along the Mediterranean, broadening slightly into the Galilee in the north and the arid coastline in the south. Jerusalem, the site of the ancient Jewish temple, was not part of it. It was to be placed under international rule. By no means all Zionist leaders were happy with partition. Many, on both the political right and the left, wanted a Jewish state in all of Palestine, with Jerusalem as its centerpiece. But Ben-Gurion and the pragmatic mainstream argued that UN endorsement of a Jewish state no matter what its borders, even with a new Palestinian Arab state alongside it would represent a historic achievement. The proceedings went on for hours. At sundown, we had to return to the children s home. But we were woken before dawn. The vote for partition 26 for the Jewish state Herzl had first dreamed of 50 years before had been won. A huge bonfire blazed in front of the bakery. All around us the grown-ups were singing and dancing in celebration. On the Arab side, there was no rejoicing. Every one of the Arab delegations at the UN voted against partition, rejecting a Jewish state even if it was created along with a Palestinian Arab one. Violence erupted the next day. An attack on a bus near Lydda, near the road up to Jerusalem, left six Jews dead. Similar attacks occurred around the country. Shooting broke out in mixed Arab-and- Jewish towns and cities: Jaffa on the southern edge of Tel Aviv. Safed, Tiberias and Haifa in the north, and in Jerusalem. I followed all this with curiosity and trepidation through my halting attempts to read Davar le Yeladim, the weekly children s edition of the Labour Zionist newspaper Davar. We children felt an additional connection with what was going on. One of our Dror housemates, a boy named Giora Ros, had left the year before when his father took a job in Jerusalem. As the battle for the city raged through the end of 1947 and into 1948, its besieged Jewish residents fought for their lives. We sent our friend packages of clothing and food, which we saved up by eating only half of an egg at breakfast and smaller portions at dinner. The mood darkened further at the end of January 1948, four months before the British departed. A cluster of settlements known as Gush Etzion, south of Jerusalem near the hills of Bethlehem, also came under siege. Around midnight on January 15, a unit of Haganah youngsters set off on foot to try to break through. They became known as The 35 . Marching through the night from Jerusalem, they had made it only within a couple of miles of Gush Etzion when they were surrounded and attacked by local Arabs. By late afternoon, all of them were dead. When the British authorities recovered their bodies, they found that the enemy had not simply killed them. All of the bodies had been battered and broken. Rumors spread that in some cases, the dead men s genitals had been cut off and shoved into their mouths. Since I was still a few weeks short of my sixth birthday, I was spared that particular detail. But not the sense of horror over what had happened, nor the central message: the lengths and depths to which the Arabs of Palestine seemed ready to go in their fight against us. Hit alelu bagufot! was the only slightly sanitized account we children were given. They mutilated the corpses! Even after the partition vote, statehood was not a given. In the weeks before the British left, two senior Americans the ambassador to the UN and Secretary 27 of State George C. Marshall recommended abandoning or at least delaying the declaration of an Israeli state. Yet Ben-Gurion feared that any delay risked the end of any early hope of statehood. After he managed to secure a one-vote majority in his de facto cabinet, the state was declared on May 14, 1948. And hours later, the armies of five Arab states crossed into Palestine. 28 Chapter Two The 1948 war and the decade that followed remain vivid in my mind not just for the obvious reason: they secured the survival of the infant state of Israel and saw it into a more assured and independent young adulthood. It was also the time when I grew from a young child introspective and contemplative, aware of how quickly my mind seemed to grasp numbers and geometric shapes and musical notes, but also small for my age and awkward at the sports we d play on the dusty field at the far edge of the kibbutz into a sense of my own place in the family and community and the country around me. I did, along the way, become arguably the most effective left defensive back on our kibbutz soccer team. But that was not because I suddenly discovered a buried talent for the game. Physically, I was like my father. I had natural hand coordination which made delicate tasks come easily one reason I would soon discover a pastime that lent itself to acts of kibbutz mischief bordering on juvenile delinquency. But when it came to larger muscles, I was hapless, if not hopeless. My prowess as a soccer defenseman was because no opposing player in his right mind, once I d inadvertently cut his knees from under him when aiming for the ball, felt it was worth coming anywhere close to me. But when the war broke out in earnest in the spring of 1948, my focus, like that of all Israelis, was on the fighting, which even the youngest of us knew would determine whether the state would survive at all. Day after day, my father helped me to chart each major advance and setback on a little map. Dozens of kibbutzim around the country were in the line of fire. Some had soon fallen, while others were barely managing to hang on. Just five miles inland from us, an Israeli settlement came under attack by an Iraqi force in the nearby Arab village of Qaqun. But inside Mishmar Hasharon, I had the almost surreal feeling that this great historical drama was something happening everywhere else but on our kibbutz. If it hadn t been for the radio, or the newsreels which we saw in weekly movie nights in the dining hall, and the little map on which I traced its course with my father, I would barely have known a war was going on. One Arab army did get near to us: the Iraqis, in Qaqun. If they had advanced a few miles further, they could have overrun Mishmar Hasharon, reached the coast and cut the new Jewish state in half. I can still remember the rumble of what sounded like thunder one morning in June 1948, as the Alexandronis, one of the twelve brigades in the new Israeli army, launched their decisive attack on the Iraqis. 29 No reason to be afraid, our metapelet kept telling me. That only made me more scared. Yet within a few hours, everything was quiet again, and never again did the shellfire get near to us. A few weeks later, I heard the only gunfire inside the kibbutz itself. It came from the top of our water tower. The man on guard duty thought he saw movement on the road outside. But it turned out to be nothing. It wasn t until well into 1949 that formal agreements were signed and armistice line borders drawn with the Arab states. By the measure that mattered most survival Israel had won and the Arab attackers had lost. Jordan did end up in control of the West Bank, as well as the eastern half of a divided city of Jerusalem, including the walled Old City and the site of the ancient Jewish temple. The new Israel remained, at least geographically, vulnerable. It was just 11 miles wide around Tel Aviv and even narrower, barely half that, near Mishmar Hasharon. Egyptian-held Gaza was seven miles from the southern Israeli city of Ashkelon and just 40 from the outskirts of Tel Aviv. Israel did secure control of the entire Galilee, up to the pre-war borders with Lebanon and Syria, and of the Negev Desert in the south. The territory of our new state was about a third larger than the area proposed under the UN partition plan rejected by the Arabs. Yet the victory came at a heavy price: more than 6,000 dead, one per cent of the Jewish population of Palestine at the time. It was as if America had lost two million in the Vietnam War. One-third of the Israeli dead were Holocaust survivors. The Arabs paid a heavy price too, and not just the roughly 7,000 people who lost their lives. Nearly 700,000 Palestinian Arabs had fled or, in some cases, been forced to flee towns and villages in what was now Israel. The full extent and circumstances of the Arabs flight became known to us at Mishmar Hasharon only later. But it did not take long to notice the change around us. Wadi Khawaret was physically still there, but all of the villagers were gone. As far as I could discover, none had been killed. They left with a first wave of refugees in April 1948, and eventually ended up near Tulkarem on the West Bank. After the war, the Israeli government divided up their farmland among nearby kibbutzim including Mishmar Hasharon. The absence of our former neighbors in Wadi Khawaret seemed to me at the time simply a part of the war. From the moment the violence started, I understood there would be suffering on both sides. When we sent our care packages to Giora Ros in Jerusalem, I remember trying to imagine what living 30 under siege would feel like, and what would happen to Giora if it succeeded. Especially after the murder and the mutilation of The 35, I assumed the war would come down to a simple calculus. If there was going to be an Israel if there was going to be a Mishmar Hasharon we had to win and the Arabs had to lose. At first, even the fact our kibbutz had been given a share of the land of Wadi Khawaret seemed just another product of the war. After all, Ben-Gurion had accepted the plan for two states. The Arabs had said no, deciding to attack us instead. Someone had to farm the land. Why not us? Yet events after the war did lead me to begin to ask myself questions of basic fairness, and whether we were being faithful to some of the high-sounding ideals I heard spoken about with such pride on the kibbutz. The Palestinians were not the only refugees. More than 600,000 Jews fled into Israel from Arab countries where they had lived for generations. More than 100,000 arrived from Iraq, and several hundred thousand from Morocco, Tunisia and Algeria in north Africa. Immediately after the war, about 50,000 were airlifted out of Yemen, where they had endured violent attacks ever since the UN partition vote. The reality that greeted the Yemenis in Israel was more complex. Most were initially settled in tented transit camps. I m not sure how several dozen Yemeni families made their way to Wadi Khawaret, but it made sense for them to move into the village s vacant homes. It was empty except for several deserted buildings which we and other kibbutzim began using for storage and, later, for our transport co-operative. Yet a few nights after the Yemenis moved in, a posse of young men, including some from Mishmar Hasharon, descended on them and, armed with clubs and wooden staves, drove them away. I was shocked. I d seen the photos in Davar le Yeladim celebrating the airlift, with the Yemenis kissing the airport tarmac in relief, gratitude and joy at finding refuge in the new Israeli state. Now, for the crime of moving into a row of empty buildings in search of a decent place to live, they d been beaten up and chased away. By us. I realized Wadi Khawaret no longer belonged to the Arabs. But, surely, our kibbutz had no more right to the buildings than Jews who had fled from Yemen and needed them a lot more than we did. For days, I tried to discover who had joined the vigilante attack. Though everyone seemed to know what had happened, no one talked about it. In the dining hall, I ran my 31 eyes over all the boys in their late teens and early 20s. I was sure that after something like this there had to be some sign of who had done it. But they looked the same as before, eating and talking as if nothing had happened. The Yemenis also needed jobs. This led to a challenge for Mishmar Hasharon. The core of the kibbutz ethos was that we would live from our own labor. Yet Ben-Gurion insisted we and other kibbutzim provide work for the Yemenis and other new arrivals from the Arab states. We began hiring Yemeni workers when I was about ten, the age when we kids started working for an hour or so each day in the fields. We worked alongside several dozen Yemeni women who lived a few miles north in a maabarah, a transit settlement which later evolved into a village called Elyakhin. Each morning, the Yemenis arrived in a bus, and they left at the end of their day s work. I don t know whether I expected to feel a Gordonian sense of joy at the redemptive value of physical labor when I began working in the fields. Our first assignment was to plant long rows of flower bulbs gladioli spaced at intervals of four inches or so. But as I joined the other children and the Yemeni women, what I felt was more mundane. Heat. Fatigue. Boredom. To make the time pass, I thought of it as a competition. Each of us began together, planting the bulbs in furrows stretching to the end of the field. The point was obviously to do it right. But I found it interesting to see who finished first, and how much longer it took the rest of us. The same worker always led the way. She was a Yemeni in her early thirties. Her name was Baddura. Short and stocky, with dark curly hair, she was nearly always smiling, whether we were planting bulbs, sowing seeds or picking oranges and grapefruit and lemons, potatoes or peppers and tomatoes. When I remarked to her how much better and faster she was than the rest of us, she laughed. Still years away from growing into my adult body, I looked more like a eight- or a nine-year-old. She took me under her wing. The next day, we were picking tomatoes. Do the row next to mine, she said. Watching the almost balletic grace with which she moved made it easier. I decided it was like mastering a new piece on the piano. The secret was to achieve a kind of unthinking fluidity, by focusing on the passage one or two ahead of the one you were playing. Physically, Baddura was far stronger than me. Before long, however, I was finishing my sowing or reaping a good ten yards ahead of the other kids, and not too far behind her. Though the Yemenis worked in our fields, they were not members of the kibbutz. They were paid a day-rate. Though they were by far the most 32 productive workers, they got no share of what we produced or possessed. A few years later, I raised this at one of the separate aseifa meetings held by young people on the kibbutz, only to be told we d never wanted to employ outsiders in the first place. It was only because of Ben-Gurion that we felt unable to refuse. I m sure that was true, but it seemed to me an incomplete answer, and an evasion. It struck me as an exercise in finding a verbal rationale for a situation that was obviously unjust. It was an accidental glance up from picking carrots which focused in my mind the sense of unfairness I felt. We were working on a tract of about seven acres of rich, dark soil where we grew carrots, tomatoes and potatoes and eggplants. I think I was 11 or 12. We had assembled in the early afternoon near the kibbutz garage. We piled on to a flatbed trailer, a dozen kids and a dozen Yemeni women. We were towed by a tractor driven by a man named Yankele. He was in his mid-40s. Like my father, he was one of the original group at Mishmar Hasharon. Before the Yemenis came, he had worked planting and harvesting. Now, he was responsible for managing the Yemenis, and us kids as well, during our fieldwork. He paced among us every half-hour or so to make sure the work was going smoothly. Though the area was ankle-deep in mud during in the winter, it was hot and dusty in the summer. I d been working for an hour or so, crouching alongside Baddura, when I looked up. On the edge of the field, under the shade of a clump of banana trees, I saw Yankele. He had a set of keys on a metal chain. He was twirling them around his finger, first one way, then the other, as his eyes tracked us and our Yemeni co-workers. Like a kibbutznik-turned-plantation-owner. As a February baby, I was the youngest in our age group. In the tiny world of the kibbutz, there were not enough children to organize separate school classes for each year. When I started school, I was five-and-a-half. Most of the others were six. A few had already turned seven. Maybe it was this age pressure, or maybe something inside me, but from the outset, I had a thirst for knowledge. I was aware early on that some of the schoolwork came easily, almost automatically to me: numbers and math and reasoning most of all. I also began reading books, even if I could not fully understand them. By the time I was eight or nine, I was burying myself in volumes of the children s encyclopedia at 33 the kibbutz library, trying to untangle the mysteries of airplanes and automobiles, or the creation of worldly wonders, from the Hanging Gardens of Babylon to the Empire State Building and the Golden Gate Bridge. At first, I got many of the answers from my father. On Saturdays, we would walk around the kibbutz as I plied him with questions. In many ways, he always lacked self-confidence. I remember decades later, after he had passed away, asking my mother how come they had spent their entire lives on the kibbutz and never moved away. She replied: What would your father have done outside? But he had a quick mind and, despite having left Hebrew University early, had secured enough credits to get his degree one of a handful of men on the kibbutz to have done so. He delighted in acquiring, and sharing, knowedge. How come the moon wasn t always round, I remember asking him in one of our first educational strolls. How did anyone know that the sabertooth tigers I d seen in the encyclopedia actually existed? And where were they now? There was not a single question he did not try to help me answer. When I was nine or ten, he took me to see the first water pump on the kibbutz. I watched as he disassembled the casing, then the power unit, which had a big screw-like element in the middle. I wanted to know how it worked, how it was designed. How it was made. A few months later, he took me to the factory near Tel Aviv where the pumps were manufactured. I was an introverted child, not so much shy as self-contained, contemplative, at times dreamy. Our metapelet from when I was three until age eight was named Bina. She was the mother of twins a year younger than me. She was more handsome than beautiful, with wavy dark hair. But she was full of warmth. She was especially kind to me, which was no doubt one reason I felt the effects of my collective upbringing less dramatically than some other kibbutz children. When we were both much older, she used tell a story about my slightly ethereal approach to life when I was in her charge. One winter afternoon when I was four, she took our group on to the gentle rise on the northern edge of the kibbutz, which at that time of year was full of wildflowers. When she got there, she realized I had gone missing. Retracing her steps, she found me standing in front of a rock in the middle of the dirt path. Ehud, she said, why didn t you come with us? I apparently replied: I m thinking: which side of the rock should I go around? Still, important though Bina was as a presence in my life, it was the influence of another figure another youngster who mattered more and for longer. His name was Yigal Garber. In first grade, every child got a mentor. 34 Yigal was mine. Solidly built and self-confident, with a knowing smile, he would go on to become one of the most respected members of the kibbutz. Though I was the only child he mentored, he was also in charge of our class s extracurricular educational program. It began when I was ten, and Yigal was sixteen. It was a mix of ideological training the kibbutz equivalent of what my mother had done with her Gordonia friends in Poland and a scouting course. One evening a week, he would spend several hours with us. He began by reading us a story or a poem. One which I remember with particular clarity involved a slave who had a nail driven into his ear in hopes of remaining in his master s service forever. He had become enslaved not only in body, but in mind. Another night, Yigal read us an account of a Palmach unit stranded on a hill they had taken, with anti-personnel mines all around them. The readings were gripping and they were always an entry-point for a discussion: how did we understand the story? What would we do if faced with a similar choice? When that part was over, he walked us into the fields outside the kibbutz. The only sound we heard was the occasional screech of a jackal. Sometimes, he would split us into twos and have each pair set off from a far edge of the field and find our way back. Yigal stationed himself at the center. We would have to sneak up and see which of us could get closest without his seeing or hearing us approach. In his last year with us before leaving for his army service, he gave each of us a narrow wooden stick and began drilling us in the teenage introduction to martial arts. But I was less interested in that part of the training than the scouting exercises. Not only was I the youngest in our group, and the smallest, except for a couple of the girls. Notwithstanding my accidental prowess on the soccer field, I lacked the strength and coordination to hold my own in most physical contests at the time. Yet then, shortly after I turned thirteen, I overheard a conversation between a couple of older kids in the dining hall. They said there was this guy in Gan Shmuel, a kibbutz to the north of us, who had an amazing ability. Using a strip of steel shaped to work like a key, he could open locks even chunky Yale padlocks, the gold standard in those days in less than a minute. 35 I was intrigued by the mechanical puzzle and managed to locate two slightly rusted locks. One was a Yale, the other an Israeli-made lookalike called a Nabob. One evening after dinner, I searched the ground around the kibbutz garage for shards of metal that looked like they might fit into the key slot, and spent the next half-hour or so propped against a tree, trying and failing to coax either lock to open. I realized I would need to discover how the locks worked. But how to get inside to see? Saturday afternoons in Mishmar Hasharon were a quiet time, like the old Jewish neighborhoods and shtetls back in Europe but minus the religious trappings. The next day, I waited until mid-afternoon and walked past the bakery towards the garage. Its roll-down, corrugated door was locked. So was the structure next to it, where the blacksmith and metalwork shop were. But attached to the blacksmith s was a hut where our scrap metal was dumped. I doubted it would be locked, and it wasn t. Pausing to let my eyes get used to the dark, I made my way into the metalwork area. I crossed to the cabinet where the tools were kept. I took out a steel jigsaw used for cutting through metal and, hiding it under my shirt, made my way out again. Fortunately, the saw was up to the task of cutting into the softer alloy that made up the body of the locks. Once I d cut inside them, I saw they shared the same basic construction. There was a series of springs and shafts which, in response to the indentations of a key, aligned in such a way to allow the lock to open. I sneaked back into the metalwork shop five or six times. By trial and error, I managed to shape one of jigsaw blades into a pick tool that seemed like it should do the job. For days, I manipulated it into each of the padlocks. I knew I had the principle right, but I still couldn t get it to work. Blisters formed on my thumb and fingers. Then, finally, the Yale sprung open! With each successive try I got better at knowing how to put the blade in, when and where to rotate it and how much pressure to apply. After fashioning a half-dozen other tools, each slightly different in width and shape, I reached a point where I could get the mechanism to work on my first try. Other locks doors, trunks, closets were even easier after I made picks for them as well. I couldn t resist sharing my newly acquired skill with a couple of the boys in my class, and word gradually spread. There was a handful of slightly older boys who we referred to as the rogues . They weren t delinquents. They were free spirits, bridling at the uniform expectations and rules of kibbutz life. Over the next few years, as co-conspirators more than close friends, I found myself drawn to two of them. Ido and Moshe were 18 months older than me. Though 36 Ido was just a few inches over five feet, he was strong and athletic, a star even on the basketball court. Moshe was taller, if a bit overweight. He was nowhere near as strong as Ido, but still stronger than me, and had a streetwise intelligence and a sardonic sense of humor. Both had tested the patience of our teachers to breaking point. Ido had been sent off to a vocational school in Netanya. Moshe was moved to Mikveh Israel, a school which focused mostly on agriculture. On Friday evenings and Saturdays in the kibbutz, however, they filled their time with a variety of minor misdeeds. My role the cement in our budding partnership was as designated lock-picker. Our first caper targeted the concrete security building near the dining hall. It contained the kibbutz s store of weapons, with a metal door secured by a padlock. Late one Friday night, with Ido and Moshe as lookouts, I crouched in front of the lock and took out my tools. In less than a minute, I had it open. We darted into the storeroom. There were about 80 rifles, along with a few machine guns, on racks along the walls. Ido took a rifle from the furthest end of the rack and wrapped it in a blanket. Moshe pocketed a box of ammunition. As the others hurried back to our dormitory, I closed the lock, making sure it was in the same position I d found it, and joined them. The next afternoon, we stole away through the moshav of Kfar Hayim into a field on the far side. We test-fired the rifle until sunset, when we returned to the kibbutz and replaced it in the armory. It felt like the perfect crime: foolproof, since no one was likely to notice anything. Essentially harmless. And repeatable, as we confirmed by returning on Friday nights every month or two. This modest pre-adolescent rebellion never extended to doubting the national mission of Israel. Growing up on a kibbutz in a country younger even than we were, we all felt a part of its brief history, and its future. That was especially true after my kibbutz mentor, Yigal, left for his military service and joined one of the Israeli army s elite units. The 1948 war had been won. But it had not brought peace. Palestinian irregulars, fedayeen operating from Jordan and the Gaza Strip, mounted hit-andrun raids. In armed ambushes or by planting mines, they killed dozens of Israeli civilians and injured hundreds more. The country was in no mood for another war. The newly created Israeli armed forces known as Tzahal, a Hebrew acronym for the Israeli Defense Force also seemed to have lost the cutting edge, or perhaps the desperate motivation, of the pre-state militias. At first, Ben- Gurion relied on young recruits in the new army s infantry brigades to counter the fedayeen attacks. Nearly 90 reprisal operations were launched in 1952 and 37 early 1953. Nearly all ended with the soldiers failing to reach their target or taking casualties. Sometimes both. By mid-1953, the army decided to set up Israel s first dedicated commando force. It was called Unit 101. It was led by a 25-year-old named Ariel Sharon, who had been a platoon commander in 1948. With Ben-Gurion and especially his army chief-of-staff, Moshe Dayan, determined to hit back hard at the fedayeen attacks, Sharon took a few dozen hand-picked soldiers and began mounting a different kind of retaliatory attacks. The largest, in October 1953, was in response to the murder of a woman and her two children in their home in central Israel. It was against the West Bank village of Qibya. Sharon and his commandos surrounded and attacked the village, destroying homes and other buildings and killing at least 40 villagers sheltering inside them. Israel immediately came under international condemnation, accused of allowing its troops to unleash a massacre. Unit 101 was disbanded. It lasted just half a year. But that was not because of Qibya. While realizing the importance of avoiding civilian casualties, Dayan remained convinced that only units like 101 offered any realistic hope of taking the fight to the fedayeen. He made Unit 101 the core of a larger commando force merged into Battalion 890 of the paratroopers brigade, and he put Sharon in overall command. It was this force that Yigal Garber joined. He became part of its elite commando team, Company A and took part in a series of attacks on the West Bank and in Gaza. While avoiding a repeat of Qibya, they inflicted heavy casualties on Jordanian and Egyptian army and police units, and also suffered casualties of their own. Battalion 890 was based just a couple of miles from Mishmar Hasharon and Yigal returned to the kibbutz every few weeks. He never talked about the commando operations. But every time there was a report of Israelis killed in a fedayeen attack, I knew there would be a retaliation raid, with my Yigal almost certainly involved and, I hoped, returning unscathed. He did. And in 1956, two years into his military service, he was part of Israel s second full-scale war. For a while, the reprisal attacks seemed to be working. The fedayeen attacks decreased. But that didn t last, especially in the south along the border with Gaza. Egypt s pro-Western monarchy had been toppled in a coup organized by a group of army officers led by a stridently pan- Arabist and anti-Israeli lieutenant colonel named Gamal Abdel Nasser. Egypt began providing not just tacit support for the fedayeen in Gaza, but arming and training them and helping organize cross-border attacks. Then, in 38 the summer of 1956, Nasser nationalized the Suez Canal, which had been owned by the British and French. Ben-Gurion was emboldened to go war by the fact that both Britain and France wanted to retake the canal. Under an agreement reached beforehand, Israel was to begin the hostilities, after which the British and French would enter under the guise of separating Israeli and Egyptian forces. Ben-Gurion s hope was to end the threat of fedayeen strikes, at least in the south, by taking control both of Gaza and the enormous natural buffer afforded by the Sinai Desert. Militarily, it went to plan. On October 29, 1956, Yigal and other paratroopers from Battalion 890 were dropped deep into the Sinai. They landed near the entrance to the Mitla Pass, a sinuous route between two lines of craggy hills 25 miles from the canal. British and French air strikes began three days later. Nasser pulled most of his forces back across the canal. By early November, Israel was in control of Gaza and the whole of the Sinai. Politically, however, Ben-Gurion and his European partners had catastrophically miscalculated. Britain and France were fading imperial powers. The balance of power after the Second World War rested with America and the Soviet Union. Both were furious over the obviously pre-arranged seizure of Sinai, Gaza and the canal. It took a while for the message to sink in. In a speech to the Knesset after the conquest was complete, Ben-Gurion declared the post- 1948 armistice null and void, and said Israel would never again allow foreign forces to control the territory it had captured. A few days later, however, he had no choice but to deliver a different message in a radio address to the country. He had at least managed to secure a concession with the help of the Americans. The Sinai and Gaza would be placed under supervision of a UN force. He also got a US assurance of Israel s right of passage through the Straits of Tiran to the Red Sea, and an agreement that if the Egyptians blocked Israeli shipping we would have the right to respond. But he announced that we would be leaving every inch of territory taken in the war. By early 1957, we did so. The one lasting gain came in Gaza. On their way out, Israeli troops destroyed the fedayeen s military installations, and cross-border attacks from the south ceased. Unlike in 1948, the Sinai War touched me directly. I never felt Israel s existence was in danger. The fighting was brief and far away. But Mishmar Hasharon had a small role in the war plan. Ben-Gurion and Dayan were concerned that the co-ordinated attack might lead to a wider war, with the possibility that Egyptian warplanes might get involved as they had in 1948. 39 Among the precautions they took was to base several hundred reservists from the Alexandroni Brigade in a defensive position near the Mediterranean: the eucalyptus grove at the top end of our kibbutz, where the cover was so dense they were all but invisible from the air. We kids seized on the chance to talk to the reservists. I can t remember whether it was Ido or Moshe who noticed an area at the back of their encampment, on the other side of the kibbutz cemetery, where neatly stacked boxes of munitions were being kept. But we spent the next several afternoons on reconnaissance. A soldier was always on guard. But there were times the area was unwatched, either when one guard handed over to the next, or on their cigarette breaks. We struck the following Friday. Nowadays, the cemetery consists of a halfdozen rows of headstones. Walking through it, as I still do at least once each year, is like revisiting my past. Almost all the grown-ups I remember from my childhood now rest there, including my parents. My father died in 2002, at the age of 92. My mother passed away only a few years ago, a few weeks after her 100 th birthday. But in 1956, the cemetery was tiny. The chances of anyone being there at midnight on a Friday were close to zero. Crouching in the shadow of the headstones, we could see the guard. We waited until he left for his break. Each of us took a wooden box and one of the slightly larger metal boxes. Inside, we found a treasure trove: thousands of bullets for all kinds of weapons. The metal cases held heavier firepower: grenades and mortars. We returned those. We were mischievous, but not crazy. Yet each of us now had a crate full of ammunition, even including belts for machine guns. My experience at school began to change in my early teenage years as well. Shortly before my fourteen birthday, our age group was sent to a school outside Mishmar Hasharon. The kibbutz had decided that since there were only a dozen-or-so children in each class, it wasn t economically viable to provide a quality education. They sent us to the regional high school. It was several hundred yards down the road in the direction of Tel Aviv. It was far more rigorous. I was no longer the only kid in my class who liked to read or could do math problems in his head. It was there I first got truly 40 interested in science. When I came across concepts I couldn t understand, our teachers always seemed able to answer my questions or help me find the answers myself. I liked the school enormously. I might well have gone on to finish my secondary education there. I probably should have. But the next year, the kibbutz brought us back again. One of the considerations was financial. Like many kibbutzim, Mishmar Hasharon concluded that in order to make its school more economically sustainable it would take in a number of outside children yeldei chutz from towns and settlements around Israel. Yet this latest policy change was also triggered a debate over the kind of education kibbutzim should provide. Should a kibbutz school offer a curriculum tailored to passing the bagrut, the matriculation exam, and going on to university? Or should it limit itself to a fairly basic education geared to developing the talents needed for a productive life on the kibbutz? In a series of heated debates in the dining hall, almost all of Mishmar Hasharon supported the model of a basic, kibbutz-oriented education. My father was the leading voice among the dissenters, and though it seemed obvious he was fighting an uphill battle, I remember feeling a sense of pride at watching him and an echo in my own impulse to reach my own judgment about issues and to act on it as I was growing older. Not only was he opposed to the new policy. He was aghast. In the only time I can recall his speaking out at one of the weekly kibbutz meetings, he asked how Mishmar Hasharon could take upon itself the right to constrain an individual child s life potential. We are Jews! he said. We are people who have left our impact on history through our scholars, not our peasants. I can t understand how we, who came here to open a new chapter in the history of our people, can choose to keep our sons and daughters from studying. We should encourage them to study! He accepted that the interests of the kibbutz mattered. But what kind of model society would we be creating if we chose to doom our own children to ignorance, and cut them off from the great forward momentum of history in Israel and the whole world? Especially in a kibbutz, however, the majority ruled. In this case, it was nearly unanimous, my mother included. I could see she felt torn, whether because she agreed with my father or because she realized how deeply he felt. But she accepted the decision. For her, that was what was meant by being part of the larger kibbutz family. Still, my father didn t give up. He couldn t change the kibbutz s ruling. But he tried to get me to stay at the regional high school. A couple of years earlier, examiners had fanned out across Israel to administer its 41 first aptitude tests. I finished among the top two dozen results in the country. How can you throw your gifts away? For what, he asked me. If you leave that school, and give up on going to university, it will be like betraying yourself. At one point, he walked me out to the patch of hard-packed soil where we parked the tractors and farm machinery. What do you want to do with your life, he asked. Do you want to be a farmer? I thought about it before answering. I don t know what will happen in the future, I said. But if you ask me now, I would say I want to drive one of the kibbutz trucks. I could see the shock and disappointment in his eyes. But it was the truth. I did imagine that at some point I might want to make a life outside the kibbutz. But I d never lived anywhere else. If I was going to remain a part of it, I could think of no better way than to join our little corps of drivers. Though they lived on the kibbutz, they spent most of their time delivering or picking up goods in places like Tel Aviv, Holon or Ashkelon. As the US Marines might have put it, I guess I figured I d join the truck-drivers and see the world. The deeper reason I said no to my father, as I am sure he suspected, was that I felt a need to take control of my own life. That was simply a part of growing up, a process which probably happened more quickly for 1950s kibbutz children than for town or city kids. We loved and respected our parents. But we were living with other teenagers. We weren t just residents of the kibbutz. We were part of the economic collective, working in the fields or orchards, the garage and the metal shop. This bred a sense of independence. I listened to my father s arguments. But this was a decision about my future. I felt I had to make it for myself. I cared about my education. But I d reached a stage where my life outside the classroom, and my circle of friends, mattered more. I am sure that the same impulse drove me in my continuing freelance forays into lockpicking and petty larceny with Ido and Moshe. So I returned to the kibbutz school. The level of teaching was nowhere near the regional school s. But we did begin studying new subjects like economics and politics. There were two other welcome surprises as well. The first was the arrival of a new history teacher. Knowledgable, enthusiastic and eloquent, he had a rare gift for igniting excitement in his students. We studied the French Revolution. He brought it to life with insights into Montesquieu, Rousseau and John Locke, Louis XVI and Mary Antoinette, Robespierre and Napoleon. He traced the dynamics that led to the revolution, and the way its ideals descended into the bloodshed and terror that followed. He presented history as a human 42 process that raised as many questions as it answered, as something we could learn from. The second high-point was a couple named David and Leah Zimmerman. Though Mishmar Hasharon, like other kibbutzim, was secular, they introduced us to the Talmud, the ancient compendium of rabbinic discussion and debate on the meaning of passages from the Bible. We focused on two tractates, Baba Kama and Baba Metziah, in which the rabbis drew on verses from Exodus to argue out a system of rules for resolving civil disputes. It was the Talmud of torts. The intricacy and the depth of the rabbinical debate fascinated me. Yigal returned from the army a few months after the 1956 war, when, like other teenagers, I was about to enter a pre-military program known as Gadna. There were several options kids could choose. One was linked to the air force, another to the navy. But most of us joined the reconnaissance and scouting group, Gadna Sayerim. It involved studying topography and navigation, as well as field exercises that were a lot like the ones Yigal had put us through a few years earlier. At year s end, we took part in a national exercise. It was called, a bit grandiosely, Miyam el Yam: from sea to sea. We had to find our way from the Mediterranean, near Haifa, across northern Israel to a lake which was a sea only in name, the Sea of Galilee. It lasted three days. We were placed in teams of four. We were each given a topographical map and a compass, with landmarks marked along the way which we had to find and draw in a notebook to prove we d been there. A couple of hours in, we faced our first challenge. We were making our way along a shepherds trail, with brush and bramble on either side, when the path split in two. We had to decide which fork to take. The map didn t help. Each inch covered the equivalent of a mile-and-a-half. The key was to be able to match it with what we were seeing around us. To use points we could identify from the map Haifa and the sea in the receding distance, and a taller hill to our northeast and then figure out which path was more likely to take us in the right direction. I knew this mix of calculation and imagination was something I enjoyed. But it was more than that. Each of us had had the same preparation for the exercise. As my trek-mates turned to me for this first decision, and then on 43 each successive stage as we crossed the Galilee, I realized that it was also something that I was naturally good at. Still, the closest thing to real military activity remained my excurions with Ido and Moshe. Our ammunition trunks were stowed under our beds. But the final piece of our arsenal fell into place in May 1958. For the tenth anniversary of Israel, there was a national exhibition celebrating the achievements of the state. I paid a first visit on my own. I was curious to see what was on show. But as I walked through, I couldn t help noticing the lack of security. Two days later, I returned with Ido and Moshe. There was a stand devoted to the Israeli military industry. We already had a supply of ammunition for an Uzi submachine gun, courtesy of our raid on the Alexandroni Brigade. Now, when the guy in charge of the stand was chatting with other visitors, we came away with an Uzi. It was then the trouble began. Along with Ido, Moshe and the other older boys, I now lived in a larger dormitory under the cursory gaze of an older metapelet. She was doing routine cleaning when she decided to dust around the boxes under our beds. She d never given them much thought. But when she tried to move one of them, she was amazed by its weight. She got one her sonsin-law to help. I think the box he pried open first was Moshe s. But within a few minutes he d opened Ido s and mine as well. Inside each were hundreds of bullets and the machine-gun belts. Inside mine was our prized Uzi. It would not exactly have taken the KGB to work out the rest. The kibbutz leaders ordered an inquiry. Ido was summoned first, and attempted a brief show of defiance. What s the big deal, he asked. It s just stuff we collected. Why should you care? But separately questioning Moshe, then Ido again, the inquisitors worked out every detail. The fact that the ammunition had come from the Alexandroni Brigade, the reservists sent to defend us, was bad enough. But the Uzi had been stolen from the National Exhibition. That was even worse. It was left to the core of young men in their late 20s and 30s to figure out how to punish us. Everyone agreed we could not be reported to the police. That would risk a scandal for the kibbutz. They decided to beat some sense into the offenders, in front of all the rest of the teenagers in the dormitory. I wasn t there. One afternoon each week, I now boarded a bus into Tel Aviv for my piano lesson. But when I returned after sundown, I sensed immediately something was wrong. Yigal was waiting at the bus stop outside the kibbutz. He told me that what I had done was terrible. Not just because it involved weapons, but because it was a breach of trust. Did you really steal ammunition from the 44 army, he asked, his voice rising. And from the National Exhibition? I didn t bother denying it. I suppose I felt lucky they hadn t found out about our raids on the kibbutz armory. He did not administer my beating. That came a few weeks later from one of the kibbutz elders. He simply took me by the shoulders and shouted: You must never do this again. It was worse for my parents. At first, they believed I was an innocent party. They were convinced I couldn t have got involved in something like this without being dragged in by the others. My father even asked me whether the reason I d been drafted by Ido and Moshe was because I was small, and able to squeeze through tight spaces in windows and doors. As it happened, that did sometimes come in handy. But I told them, no, I was not an unlucky bystander. I was as much a part of it as the others. My father was angrier than I had ever seen him. My mother, faced with what must have seemed like a betrayal of every one of her Zionist principles, told me that if the kibbutz had decided to report us to the police, she would not have objected. Their mood lifted slightly when I began my final year of high school in September 1958. After two years back in the kibbutz school, our age-group was sent out again in another shift in policy. This one was in response to signs of growing support in Mishmar Hasharon and other kibbutzim for the argument my father had made against the quality of education we were offering. In order to go at least some way toward meeting that objection, Mishmar Hasharon was banding together with two dozen other kibbutzim and sending all 12 th -graders to one of two outside high schools. The first, called Beit Berl, was a Labor Zionist institution focusing on the humanities. In addition to a few of the less academic boys, most of the girls were sent there. The rest of us went to a place called Rupin. It was a few hundred yards past the regional high school. It specialized in agriculturally related scientific research. A few of the teachers were enormously gifted, and they were in the areas that most interested me: math, physics and biology. Yet the rest of the curriculum was almost numbingly uninspiring. I did not miss a single math or science class. But otherwise, I began setting my own schedule. Some days, I would sleep late, or not go at all. When I did go, I d often show up without having done the homework. Neither Ido nor Moshe was with me at Rupin. They were starting their military service. But I assembled a new band of mischiefmakers, and it was not hard to entice them to go AWOL. I was warned several times by the school administrator. He said he could not accommodate a student who seemed oblivious to, or dismissive of, the rules. He 45 was especially upset because my attitude seemed to be infecting others. A few months into the school year, he told the leaders of Mishmar Hasharon, and then my parents, that I would have to leave. My father was especially upset. A couple of years earlier, he d had visions of my staying on in the regional high school and going to university. Now, I d been unable to hold my own in Rupin. Still, both he and my mother were relieved when Mishmar Hasharon and the school worked out a compromise which did not end my studies altogether. The expulsion stood, but I was allowed to continue attending math and science classes. For my mother, the blow was softened by the fact I began working almost full-time on the kibbutz, alongside Yigal, driving a tractor. I woke up early and accompanied him into the fields of wheat, barley or rye. We also made a series of trips 130 miles south into the Negev to a moshav called Patish. It had been set up by newly arrived Moroccan Jews. Since they didn t have the equipment or know-how to cultivate all their fields, they were renting out some of the land. Mishmar Hasharon had contracted to farm a parcel of 450 acres. For ten days at a time, Yigal and I would place a tractor on the back of a pickup and head to Patish. We worked from four in the morning until sundown. After work, we ate at a tiny family-run restaurant a few miles away in Ofakim, a so-called development town populated by Moroccan Jews who had been moved there as soon as they arrived in Israel. Far from regretting not being in school, I drew satisfaction, and pride, from knowing that I was functioning as an independent adult. But it also gave me time to think. My whole life had been circumscribed by the struggle to create and secure the state. But I again found myself pondering issues of basic fairness in our young country, and the challenge of reconciling our words and principles with our deeds amid the difficult realities of building the state. Back on the kibbutz, it was the example of the kindly and hard-working Baddura which had caused me to question how we were treating the Jews who had arrived from Yemen. In the Negev, I met members of the even larger postwar influx from Morocco. One image struck me above all. It was from the place Yigal and I ate dinner. Ofakim was a development town that had yet to develop. It had no visible means of support, and there was no sign the government was doing much to remedy that or integrate the new immigrants economically and socially. The restaurant was a side business a family had set up in the dining room of their tiny home. The sixth or seventh time we went there, I was startled by sudden movement a couple of feet away from where we were sitting. 46 Looking more closely, I saw a wooden box, the kind we used in Mishmar Hasharon to crate oranges. It was filled with hay. At first, I thought the stirring inside was a family pet. Then, I saw it was a baby. I said nothing until we had left. Was that really a child? I asked Yigal. A baby? He replied, with a tinge of sadness but also a look that seemed to convey surprise at my naivety: Yes. They don t have room for him. My evolving feelings about the Arabs, the other people with dreams of what they still saw as Palestine, would become more complex as my childhood drew to an end. As mentioned, I barely registered the fate of the absent villagers of Wadi Khawaret. And yet as I got older in my teens I came to understand why the Palestinians were fighting us. Before the 1956 war, Dayan gave a brief speech that had a powerful impact on me. It was a eulogy, but it was for someone Dayan didn t know personally. His intended audience was the rest of the country. He spoke in Nahal Oz, a kibbutz on the border with Gaza often targeted by fedayeen. In April 1956, a group of Arabs crossed from Gaza and began cutting down the wheat in Nahal Oz s fields. The kibbutz security officer, a 21-year-old named Roi Rotberg, rode out on horseback to chase them away. The intruders opened fire as soon as he got close. They beat him, shot him dead and took the body back over the armistice line. The corpse was returned, mutilated, after an Israeli protest through the UN. With Israeli newspapers full of agonized accounts of what had happened, Dayan s message was that we should not blame the Arabs for Roi Rotberg s death. We should look at ourselves, and the neighborhood in which we lived. Why should we talk about their burning hatred for us? he asked. For eight years, they have been sitting in the refugee camps of Gaza, while before their eyes we have been transforming the lands and the villages where they and their fathers dwelt. Of course, they hated us and the state we were building. Rotberg had allowed his yearning for peace to deafen his ears, and he did not hear the voice of murder waiting in ambush. Dayan said the danger was that other Israelis had become similarly naive. How did we shut our eyes, and refuse to see, in all its brutality, the destiny of our generation? A generation which was 47 settling the land but which, without the steel helmet and the barrel of the gun, will not succeed in planting a tree or building a home. Still, if I was part of a generation that understood the need for military preparedness, strength and a readiness to fight if we were to survive in the Middle East, the 1956 war also brought home to me the need to consider how we fought. This meant grappling with a contradiction wired into Zionism from the start: the need to take up arms to defend our state, while recognizing the Jewish moral code that was its foundation. When the Israeli armed forces were established in 1948, Tzahal s doctrine included the principle of tohar haneshek purity of arms and an explicit requirement for our soldiers to use the minimum necessary force and do all they could to avoid civilian casualties. Putting purity of arms into practice was always going to be hard. All arms kill. In all wars, civilians die. But that did not make the principle, or the need to be aware of it in combat, any less important. Even if the soldier called on the make that judgment was someone who had mentored me from the time I was six, and whose military prowess I had come to respect. Even if it was Yigal Garber. His parachute jump on the first day of the 1956 war went smoothly. But the battle for control of the Mitla Pass turned out to be the most deadly of the war. It was also unnecessary. Under Israel s prewar choreography with the British and French, the very fact of our landing near the Mitla Pass was to be the trigger for an Anglo-French attack. In fact, Arik Sharon, the commander of Battalion 890, received orders from Tel Aviv not to take the pass. Only grudgingly, did they let him send in a reconnaissance force to establish whether it was safe to cross. The reconnaissance company walked into a trap. Machine-gun and mortar fire rained down from Egyptian troops dug into the caves and other natural defensive positions above the pass. It took hours to extricate the stranded men. Yigal s unit fought its way in from the eastern side of the pass. A small group from the reconnaissance force managed to get a foothold on the western side. Almost 250 Egyptians were killed. But 38 Israeli paratroopers also died, the largest single toll in any battle since 1948. Battered and bitter, the surviving men from the reconnaissance force parachuted into the southernmost part of the Sinai, near Et-Tur on the Red Sea. Yigal and the others headed overground to join up with them. By the time they got there, Egyptian resistance had all but ended. Yigal s company had a brief exchange of fire with several dozen holdouts in the Egyptian force. The Egyptians surrendered. And then, apparently, Yigal and his fellow paratroopers shot all of them dead. 48 At least those were the rumors after the war. I asked friends what they were hearing. I asked some of the older men on the kibbutz, my father included. All of them responded with a slightly different version of events. But I knew what I wasn t hearing. No one of them told me it was a lie. When I asked Yigal, he averted my glance, and then changed the subject. I knew it was true, at least broadly. I realized that, before it happened, Yigal and the others had seen dozens of friends gunned down in an Egyptian ambush in the Mitla Pass. But I didn t need a lesson tohar haneshek to know that the killing of captured Egyptian soldiers should not have happened. Or that it was plainly, simply wrong. When Yigal and I made our final trip to Patish in 1959, I knew it would be pointless to ask him about it. Whatever he said wouldn t change anything. I still respected his courage and his fighting spirit, and the part he d played in defending Israel. I appreciated what he d done for me as I grew up. But what mattered now wasn t what Yigal had done. It was what I would do, and how I would live my life. Especially since I, too, was about to begin my army service. 49 Chapter Three I reported for induction on the second Sunday of November 1959, three months short of my eighteenth birthday. Military service was a near-universal rite of passage for Israeli teenagers. For children of the kibbutz, it held even greater significance. Now that we had a country, the kibbutzniks role as the avant-garde in taming and farming the land had ceased to be relevant. But the sense of mission we d been raised with what we were led to believe set us apart from the mere city-dwellers drove us to aspire, maybe even assume, we would leave an imprint in other spheres of the new state s life. I doubt it s an accident that nearly every one of the boys with whom I grew up in Mishmar Hasharon went on to become an officer during his time in the military. Judging from my own first few weeks in uniform, however, there was every reason to believe I would end up as an unfortunate, undistinguished exception. This was not due to lack of ambition. In fact, I thought at first of joining the air force. But a question on the application form asked whether I ever suffered from any breathing discomfort. Like almost everyone on the kibbutz, I did get a bit clogged up when the weather turned cold and damp. So I naively answered yes, ending any chance of training as a pilot. My fallback choice was a tank unit. But when I joined the hundreds of other draftees at the processing center near Tel Aviv, about a hundred of us were shunted, by alphabetical lottery, into training for armored personnel carriers instead. Known as battle taxis, the APCs which Israel had at the time were lumbering, World War Two-vintage halftracks. Our training battalion was based, alongside the country s main armored brigade, in a huge, hillside army camp outside Beersheva in the Negev. I knew that our tironut basic training would be tough. That was the whole point. But we endured a seemingly endless array of inspections, under the watchful eye of a corporal who meted out punishments for the tiniest scuff on a boot, a belt, or a rifle. The rest of the time was spent in physical training, which I found especially hard, at least at the beginning. I still weighed barely 130 pounds, and by no means all, or even most, of it was muscle. My military career, such as it was, looked very likely to involve spending my required couple of years baking inside an APC in the Negev before moving on to something more useful, and certainly more fulfilling, with the rest of my life. 50 But a series of accidents, in Israel s life and in mine, would soon point me in a dramatically different direction. The first became known as the Rotem Crisis, and it delivered a jolting reminder of Israel s vulnerability to a surprise attack from neighboring Arab states. Militarily, we were far stronger than in 1948. But we were still a young country, at an early stage in our economic development. Our defense strategy rested on a recognition we could not afford to sustain a large standing army, relying instead on a pool of trained reservists. The problem was that a full call-up of the reserves would require something like 48 hours. That meant some form of early warning was critical. Rotem erupted in February 1960, about halfway through my tironut, and began almost farcically. The Chief of Military Intelligence, Chaim Herzog, was at a diplomatic receiption in Tel Aviv when he began chatting with a guest he knew well: the head of the local CIA station. What, the American asked, did he make of the fact that Egypt had moved its two main armored divisions into the Sinai, toward the border with Israel? Herzog came up with a suitably woolly reply, about how it was obviously a situation which bore watching. But the truth was that neither he nor anyone else in Israel had any idea about the Egyptian mobilization. He left the party as soon as he could, to tell Dayan and Ben- Gurion. When a reconnaissance flight the next day confirmed that dozens of battle-ready tanks had been rolled forward toward the Suez Canal, Ben-Gurion and the generals scrambled for a response. They did not want a war. Ben-Gurion was particularly worried that in responding to Nasser s buildup, he might inadvertently escalate things further. He vetoed the idea of a full mobilization. But he did order a more limited callup, of about 7,000 reservists. He placed the air force on alert. He directed the four brigades responsible for the defense of southern Israel, including our armored brigade near Beersheva, to move within a few miles of the border and gave us the additional role of sending several overnight munitions convoys to equip the hastily assembled border force. The first sign I saw that anything extraordinary was going on was the sudden movement of tanks and APCs inside our camp. At first, no one told us raw recruits anything. We were left to look on, and stay out of the way. But with our operational units preparing to move forward, the problem was that there seemed no one else with the expertise, experience and local knowledge to lead the supply columns. So our training battalion was summoned before the platoon commander. Any volunteers, he asked. When none of us raised a hand, he said: Come on. One of you must have grown up around here. That means the 51 first 25 miles will be familiar territory. He left unspoken the obvious postscript: the need to negotiate the final five to ten miles, through open desert, and to find the right area, on our side of a border that wasn t even marked. Can t any of you, he barked, lead a convoy of a few dozen trucks? I m not sure what possessed me. But I thought to myself: yes, I probably can. I had been scouting and navigating in one way or another since those first evenings with Yigal in the kibbutz orchards. I d trained with Gadna Sayerim. And while I d never lived in the south, the farm settlement of Patish, where I d worked along with Yigal after getting kicked out of high school, was not far from the route the conveys would have to take. So I raised my hand. Can you lead a convoy? he asked. Yes, sir, I said. Of course, I ll need a map. And a compass. Why do you think you re qualified? he prodded. I d been in Gadna Sayerim, I said. I was good with maps. Okay, he replied, and he sent me, along with two of the company s junior officers, to the battalion commander. Someone must have phoned ahead, because he was clearly expecting us. Still, I could see the surprise in his eyes when he looked at me: only just eighteen, but looking closer to 15, my uniform sagging on my slender frame. He gazedat the officers, then back at me, then at the officers again, as if trying to figure out whether he was about to approve something utterly crazy. But he had little choice. Three convoys had to be dispatched within the next couple of hours. So far, with me, he had a sum total of one guy to lead them. Fine, he said, and waved us out. The column consisted of eight huge, American-made six-wheelers, each packed with ten tons of munitions and other supplies. I was in the lead truck. The driver was a reservist in his mid-30s. So were most of the men in the rest of the transport trucks, one driver and one soldier in each. A staff sergeant, in the second vehicle, was in theoretical command. But, surreal though it felt, I was actually in charge, since I was the only person who might, conceivably, get us to the right place. The platoon commander was right. The first part, on paved roads, was fairly easy. But just before sunset, we reached open desert, the beginning of more than three hours of picking and weaving, calibrating and recalibrating, our way across a wide expanse on sand and occasional scrub bushes that, every mile or 52 so, would suddenly give way to a windswept series of dunes and wadis. The map and compass helped. But I soon realized that it was almost impossible to get an accurate reading from inside the truck. Every few minutes, I waved the convoy to stop, got out, and walked fifty or sixty yards into the sand and clumps of acacia trees and calibrated our progress from there. My fallback was the stars. From them, I could at least make sure we were headed in broadly the right direction. But the need to navigate around the dunes meant we were never moving in a perfectly straight line. The miles ticking by on the truck s odometer couldn t tell me exactly how far we d travelled. A couple of times, I realized we were wandering off line not by a much, but enough to risk leaving us either a mile or two south of where we were supposed to go or, worse, on the Egyptian side of an unmarked desert frontier that, especially at night, would look pretty much the same on either side. Finally, a few hours before dawn, I brought the convoy to a halt. I climbed out, walked back to the staff sergeant and told him, with more confidence than I felt: We re here. I had no way of knowing for sure. But I felt we were generally in the right place. Before we d set off, I was briefed by the officer in charge of one of the operational APC battalions. He had been to the area before, on training exercises. Because of the emergency call-up, he was too senior to lead a supply convoy. But he told me that once we got there, we should stop and wait. He would follow our tracks the next morning and link up with us. An hour after sunrise, we saw his jeep bobbing over the sand towards us. He pulled to a stop, shook hands with the staff sergeant, and then he turned to me. Unbelievable, he said. We re where we need to be. Our role in the grand scheme of things, and certainly mine, was hardly decisive. But the rest of the border mobilization also went to plan. That, along with some frantic diplomatic activity and a healthy common sense on all sides, ensured that a new war with Egypt was averted at least for a further halfdozen years, until 1967. By then, the lesson of Rotem would be learned: our need to find a realiable way to tap into the battle plans of the hostile Arab states around us. And through another wholly unexpected turn of events starting just a few weeks after the Rotem Crisis, I would turn out to play a personal role in making that happen. 53 Under army regulations, training recruits got a five-day leave every few months during tironut. My first one came a bit later than usual, due to Rotem. But in April 1960, shortly before the Passover holiday, I headed back to Mishmar Hasharon. Despite my minor triumph of desert navigation, I still had every reason to believe I d be spending the next couple of years in an APC unit in the Negev, and can t pretend I was looking forward to it. Still, the idea of returning home in my army uniform, at least a bit stronger and bulkier than before, did give me a sense of pride. It was on my third day back, when I was in the dining hall with a half-dozen schoolmates-turned-soldiers, that Avraham Ramon sat down and joined us. He was a yeled chutz, one of the boys from outside who had joined our class when we were taken out of the regional high school. He, too, was now in the army. As we were finishing lunch, he asked me: How s tironut? Tough, I said. Boring. Smiling, he said: How would you feel about joining a sayeret? The question took me by surprise. In Hebrew, sayeret meant reconnaissance unit . It was the name given to special units that carried out missions behind enemy lines, or under particularly exacting conditions. In the early 1960s, there were only two of note. One was Sayeret Golani, attached to the Golani Brigade near the northern border. The truly elite one was Sayeret Tzanhanim, the paratroopers sayeret. It had been built from Company A of Battalion 890, where Yigal had served in the 1950s. Which sayeret? I asked. It s called Sayeret Matkal, he replied. I d never heard of it. When I asked what it did, he said: I m not allowed to say. But are you interested? The air of mystery made it seem only more enticing. And no matter what it did, it had to be a step up from what lay ahead of me in the Negev. Yeah. Sure, I replied. I heard nothing further in the days after I got back to Beersheva. But at the end of the month, I was ordered to report to a small hut in an army base near Tel Aviv. It belonged to Maka Esser, the personnel department of military intelligence. I was greeted by two men in their late 20s. One of them, shorter even than me, introduced himself as Sami Nachmias. The other was tall and slim and said in a surprisingly quiet voice: I m Shmil Ben-Zvi. They were two names which I, like most Israeli teenagers at the time, knew well. Ben-Zvi 54 had been an officer in Arik Sharon s original Unit 101, and Nachmias was one of the earliest recruits to Company A. They shook my hand and motioned me into a Jeep. As we drove out of the base, they peppered me with questions about almost anything except the army: the kibbutz, school, sports. Then, Ben-Zvi pulled the Jeep to the side of the road, turned around to face me and asked: Is it true you can pick locks? Yes, I said. Do you want me to show you? He said that wouldn t be necessary. Is it true you can navigate? Read maps? Nachmias asked. I said yes. They drove me back to the base in silence. OK, Nachmias said. You ll probably hear from us. I didn t. But as basic training was winding down, I got a further order: to report to an address in Tzahala, a neighborhood in north Tel Aviv where a lot of military officers lived. It was a small house with a metal gate outside. I was met at the door by a man about 30 in shorts and a T-shirt who introduced himself as Avraham Arnan. He led me inside. He unfurled a map of Jerusalem and the surrounding hills. He pointed to a spot on the southwest of the city. He drew a wide, curving line through the hills to a second point. You know how to read a map? he asked. When I nodded, he said: I want you to describe to me just as if you were walking on this line exactly what you see, as you make your way to the place I marked. I used the elevation lines on the map as a guide, and the positioning of the hills and woodland and villages on the map, and began describing how each stage would look. When I was finished, his only response was the hint of a smile. When he spoke, it wasn t about the map. It was, again, about picking locks. How did you learn? he asked. I explained how I d cut into the locks, figured out how they worked and made a set of tools to open them. Thank you, he said. You can return to your unit. Though he hadn t said so, I got a feeling this was the Sayeret Matkal equivalent of a final job interview. When I got back to Beersheva, I dug around as discreetly as possible for details about Avraham Arnan. I learned he had served in 1948 in the hills around Jerusalem, so he would have known first-hand the terrain he asked me to describe. That, I guessed, explained the half-smile. But I was entering my last week of tironut. I still had no idea whether I d be spending the next couple of years inside an APC or in a sayeret whose function was a mystery, beyond the fact it seemed less interested in whether my boots were shined than whether I could pick a lock. 55 The day before the end of basic training, I was told to return to Maka Esser. A Jeep was waiting. A soldier was at the wheel. He mumbled hello and drove me to a sprawling military base about 15 minutes away, not too far from the international airport in Lod. It was built by the British in the Second World War for the RAF. After 1948, the main part had been converted into Israel s officertraining school. But at the far end, set back from a criss-cross of runways, was a pair of domed concrete shelters which had been used by the British for munitions storage. Five tents. Two field toilets. And a single-story brick structure with a tin roof. It contained offices for Avraham Arnan, a couple of other officers and a secretary, a kitchenette and a room for storing weapons. This was the home of Sayeret Matkal, although the first thing I was told was that no one, outside a handful of senior officers in military headquarters, knew we existed. The heart and soul of Sayeret Matkal was Avraham Arnan. Even from my brief first encounter with him in his living room in Tzahala, I was struck by his physical presence, with almost movie-star looks and a face made even more intriguing by the fact he had different-colored eyes, one brown and one a piercing green. But what really set him apart, as I got to know him and come under his spell in the sayeret, was his playful, almost bohemian disregard for the normal strictures and structures, rules and regulations, of the armed forces. What mattered to him was what actually needed to get done, and how best to accomplish it despite all the bureaucratic obstacles, and he made me and his other teenage recruits feel we were equal partners with him in getting there. Years later, he confided that if his life had not led him into the military, he would have probably chosen something in the arts or culture, maybe directing films. But he had volunteered for the Haganah at age 17, a year before the 1948 war. As the losses mounted in Jerusalem, he found himself in the Palmach s crack Harel Brigade, under the command of a future Israeli chief-of-staff, Dado Elazar. His vision for Sayeret Matkal became Israel s answer to the dangers identified by Rotem. But it had its origins in his experiences in the years after 1948, when he joined a military intelligence group running a loose network of Arab agents across Israel s northern border. They provided occasional bits of 56 information. But in talking with his wartime friends, he realized this kind of low-level intelligence could never address the real need for Israel: to ensure we had early warning if Syria or Lebanon, Jordan or Egypt, were preparing to go to war against us. He began toying with the idea of training a small force of Israeli soldiers to go on cross-border intelligence missions. The initial response from the kirya military headquarters in Tel Aviv was so frustrating that anyone else would have given up. None of the generals saw any reason to believe his scheme would work. But the real obstacle was their continuing trauma over what had happened the last time Israeli soldiers crossed the border on an intelligence mission. It had happened in 1954, and it ended in a failure even more serious than Rotem. The target was the Golan Heights, inside Syria. The special technology unit attached to military intelligence had developed a bugging device designed to be placed on a telephone pole on the Golan. The task of installing it was given to the most decorated, and respected, commando unit in the army: Company A in Sharon s paratroop battalion, led by its commander, Meir Har-Zion. On a spring night in 1954, Har-Zion led his team onto the Golan. They rigged the bugging unit to the telephone pole, buried the bulky transmitter and made their way back. And it worked. Israeli intelligence could listen in to military communications on the Heights. The hitch as that the batteries had to be replaced every few weeks. Several more times, Meir and his men sneaked back into Syria to keep the bug working. But as commander of Company A, Meir was a key part of Israel s anti-fedayeen operations. The last thing Moshe Dayan wanted to risk was seeing him captured while trying to replace a few batteries. So he shifted the task to a regular unit from the Golani Brigade. In December 1954, a handover mission was organized. Three men from Company A, including one of Meir s sergeants, joined three from the Golani Brigade. But they didn t even hold a joint exercise before setting off. There was also a lack of clarity about who was in charge. Though the Golani commander was nominally the senior officer, only the Company A men had any first-hand experience of this kind of mission. A half-mile onto the Heights, they were intercepted by a Syrian soldiers. If this had been a Company A operation, the response would have been automatic. They would have wheeled, opened fire and attacked. But when the Syrians ordered the Golanis to drop their weapons, one of them did, and the Company A men followed suit. They were all taken to Damascus, held in solitary confinement, beaten and tortured. 57 One of the captured Golani soldiers was a 19-year-old named Uri Ilan, the son of a member of the Israeli Knesset whom Ben-Gurion and the whole of the government knew well. The soldiers captivity dragged on until they were finally returned to Israel in March 1956. By then, however, Uri Ilan had hanged himself. He managed to hide a note into his uniform. It was found when the body was being prepared for burial. It read: Lo bagadeti. Nekamah. I did not betray anything. Revenge. Ever since the Uri Ilan mission, there had been a de facto ban on crossborder intelligence operations by Israeli soldiers. Ben-Gurion and his military commanders knew, of course, the importance of getting early warning of an enemy attack. But they decided the price of possible failure was simply too high. Sayeret Matkal was born three years later. Avraham was still part of the unit running low-level agents in Syria and Lebanon, but his commander reluctantly agreed to allow him to set up his new intelligence group. His initial headquarters was a sparsely furnished Tel Aviv apartment. The first people he brought in were veterans of the Palmach s Arab Platoon, pre-state fighters who trained themselves to pass as Arabs and gather intelligence, or stage raids, behind enemy lines. Next, he invited friends who had served in Unit 101 and Company A. Finally, he enlisted a core of them to help train recruits to his new sayeret. He hoped the involvement of these commando veterans would also give the unit credibility inside the kirya. One of them, Micha Kapusta, had been part of 101, as had Itzhak Gibli, who had been a teenage Palmachnik in 1948. A third was another Company A officer named Aharon Eshel, known as Errol, in part for his undeniably Errol Flynn-like swagger, but also an acronym of his Hebrew name. But the crowing addition to the group had the distinction of having led the last successful Israeli bugging mission on the Golan, in addition to being the most respected commando in Israel, a man who Dayan would later call the country s greatest soldier. It was Meir Har-Zion himself. I was part of the second group of recruits to Sayeret Matkal, in the early summer of 1960. The unit had been given its own base barely a year earlier. Bu it had yet to carry out a single mission, and there was no sign of that happening. Avraham couldn t be sure when, or if, the generals in the kirya might give him 58 the go-ahead. Still, he was convinced that if we could demonstrate a toughness, commitment and competence which offered an obvious addition to Israel s intelligence capability, even they would recognize the folly of not using it. He made every one of us feel a part of making this possible. I was one of ten new recruits, bringing the size of the sayeret to twenty. We were almost all teenagers. In fact, the oldest of our officers was 21. Most of the men were Sephardi Jews. For a unit like ours, with the aim of undertaking secret missions in Arab countries, Avraham believed that a background in Arabic culture and language was an important asset. I was the sayeret s only lock-picker. But all of us had been recruited in the much same way that I was. It was how the top Palmach units had been formed, and the way Sharon assembled Unit 101: friends recommending friends, in my case, my old yeled chutz schoolmate from the kibbutz. We trained in the whole range of commando skills. We used not only Uzis, but Soviet-made Kalashnikovs and Gurionov machine guns. We worked with detonators and explosives. We staged raids on Israeli airfields. We conducted exercises using rubber dinghies to practice attacking from the sea. But mostly we walked. For hundreds of miles, almost always at night the length and breadth of the country. We would study a map of each area, committing every town or village, hilltop or dry creek bed, to memory before we set off. I can still remember what Meir Har-Zion told us: to be truly prepared, you needed to spend an hour for an hour an equal time mastering the lay of the land to the amount you d need to carry out an operation. It was a gruelling regime designed to push us to the very limits of endurance. On one series of exercises, we were limited to a single canteen of water as we trekked deep into the Negev Desert. It was gruelling, designed to push us to the very limits of endurance. I remember the first time Errol set eyes on me after I joined the unit. He turned to Avraham, laughed, and said: Are we taking high school kids now? But before long, I was a high school kid no longer. Meir Har-Zion rarely took a direct part in our exercises. On his final Company A mission, a month before the 1956 war, he had been shot in his throat and arm. A medic saved his life by performing a tracheotomy. But his speech was affected, and he still had almost no use of his right arm. Errol, Micha Kapusta and Yitzhak Gibli were more actively involved with us. They were there not only to help train us, but to instill a commando attitude, a spirit of confidence bordering on bravado. 59 Kapusta was our guide on our punishing five-day treks through the Negev. Though Avraham would see us off at the start, he stayed back at the base. In a couple of the exercises, we relied on carrier pigeons to keep in touch with the base, until Kapusta began killing them for dinner. Once, on a searingly hot desert afternoon, hours from the nearest hospital, he spotted a poisonous snake. He used pieces of wood to pry its head up from the sand, grabbed its neck and strangled it. We also studied some Arabic, though most of the Sephardi recruits already spoke the language. My tutor was a Cairo-born Jew named Amin. In part because he enjoyed mathematics and played the violin, we hit it off immediately. He was also deaf in one ear. Languages have never been my forte. Even in Hebrew, I have a slight lisp. That made mastering Arabic even harder. Still, Amin would frequently compliment me on my accent, at which point the others in the class would point out that I was lucky he was hard of hearing. A year in, we were given a classroom briefing on what to do if we fell into enemy hands. The gist was to tell them only our name, rank and serial number. But we had a special session with Gibli, who told us about what captivity was really like. He had been shot and wounded during a retaliation operation in 1954 and was captured by the Jordanians. Until his release, he was kept in solitary confinement and tortured. The details of his imprisonment, the beatings and the cigarette burns, were lurid. Partly because we were developing a bit of commando self-confidence but mostly to hide the discomfort of wondering how each of us would react to being in enemy hands we heckled him over an account that seemed to get more heroic with each retelling. He wisely ignored us. He told us that survival would be down not just to physical strength. It required strength of mind, the kind of subtlety required to give your captors something to keep them at bay and to establish some form of human bond, to but withhold anything of genuine value. A few weeks later, the whole sayeret held a four-day exercise in the Galilee. On the second night, at about four in the morning, we shook off our backpacks and settled in for a few hours sleep. The first thing I heard was shouting in Arabic. I saw a guy hovering over me, his face covered. He handcuffed me, pulled a burlap sack over my head, yanked me to me feet and led me off. We were piled into the back of a truck. From the whispered comments around me, I assumed all twenty of us had been taken. We drove for nearly four hours. Twice, I got an slap across the face, more painful because of the burlap. I kept 60 telling myself this had to be part of our training. If it was for real, we d have been more badly beaten, or killed. Still, I couldn t be completely sure. The truck lurched to a stop. We were led into a building, down a hallway and into a large room. The walls were bare except for a series of iron rings. Our captors tore the sacks from our heads for a few moments, and tied our wrists to the manacles. For the first six or seven hours we were kept together, arms shackled and raised. Then they took us away one by one. I was the last to be led out. I was taken to a room so small there was not even space for a cot. It wasn t until the last shaft of light disappeared from the slit-like window near the top of wall that the first interrogator showed up. He unlocked the door, entered and unfolded a metal chair. He wanted answers: what unit was I from, what did our unit do, who were our commanders, what were our orders, and what was our designated role in the event of war. I told him my name, rank and serial number. After each question, I repeated them, or shook my head in silence. You will answer, sooner or later, he shouted in heavily Arabic-accented Hebrew, hitting me across the face. All of you will. For four days and nights, other interrogators shouted out the same questions. I was slapped dozens of times. Punched in the stomach. One of the captors uncuffed me and bent my arm behind my back, wrenching it upward. Though I was determined not to cry out, I grunted in pain. Over and over, I told myself: This is not for real. They can hurt me. But they have limits. They can twist my arm. They can hurt me. But there s no way they can break my arm. I was not allowed to sleep. I was never left alone for more than a half-hour. If I was crouching on the stone floor, I would be yanked to my feet and punched or slapped. Twice a day, I was taken from my cell to a primitive toilet and given a minute to relieve myself. There were only two changes to the routine. On a few occasions, five or six of us were brought back into the large room and told we wouldn t be let go until we had given them more of what they wanted the implication being that some of us had already talked. And once or twice, the interrogators sent in a good cop. I can help you, he told me. But you have to give me something. But when it was over, none of us had talked. We didn t fool ourselves into thinking that meant we could hold up in genuine captivity. There, they could break your arm. They could burn your chest with cigarettes, rip out a fingernail or a tooth. They could kill you. The main value had been to give us some sense of what we might face. We might still be afraid, but at least it would no longer be fear of the unknown. 61 Challenging though our training was, I found every bit of it enthralling and, with each new test passed, somehow empowering and exhilirating. This was all the more remarkable because we had still yet to carry out a single operation. If anyone other than Avraham had been in charge, I think the unit might have unraveled. The fact that it didn t was mostly due to of the ethos he created, the feeling that we were a special breed with a critically important common purpose, and that sooner or later we would be called on to do special things. When we were in uniform, it was camouflage dress. When we were on the base, we mostly wore sandals and shorts. We called each other by our first names, even the officers. In its first few years, the sayeret sometimes felt less like an army unit than a college fraternity. Every spring, we organized a feast in a cavernous hangar on the edge of our compound. It was called Chag ha Pri, the Feast of the Fruit. For days ahead of the event, we would mount night raids on kibbutzim, liberating crates of every kind of fruit imaginable, and chicken and lamb if we got lucky. The only rule was that none of us would steal from our own kibbutzim. Among the guests at the Feast of the Fruit was an unsuspecting selection of senior officers whom Avraham knew. A few of them got into the spirit, like Dado Elazar, his Palmach commander from 1948. The Palmach had held similar foodfests, with delicacies grabbed from nearby kibbutzim. Dado was by this time commander of Israel s armored corps. Since our sayeret was always short of gasoline for our exercises, he would divert surplus supplies to us. But other guests were less impressed with the pyramids of oranges and avocados and mangoes and watermelons. I could almost hear a voice screaming inside them: these are Israeli soldiers. They re stealing this stuff. It was not until the autumn of 1961, nearly eighteen months after I arrived, that it seemed we might actually be given a real mission. This was largely due to a change at the top of the military. For much of the 1950s, when Dayan was chief-of-staff, his right-hand-man was a Haganah veteran named Meir Amit. In 1961, the term of Dayan s successor as chief of staff, Haim Laskov, was coming to an end and Amit was in the mix to get the top job. He was already Head of Operations. In practical terms, that made him the number-two man in the armed forces. But the job went to Tzvi Tzur, Laskov s deputy. Amit decided to accept 62 the post of Head of Military Intelligence. He knew the importance of intelligence, and the potential cost of Israel being taken by surprise in a future war, having been part of the top military leadership during Rotem. He was energetic, bright, and exuded an infectious sense of self-confidence and authority. He also had clout at headquarters. If he decided the time had come to revive cross-border intelligence operations, there was every chance it would happen. Still, it was an agonizingly slow process. By the time my period of military service was drawing to an end, it hadn t happened. I did not seriously think of leaving. Though my two years in Sayeret Matkal had been the most physically demanding of my life, they were also the most fulfilling. I did not want to forfeit the chance of being part of its finally becoming an operational unit. So I committed to at least a few more years in the military. I joined my closest friend among the recruits, Uri Zakay, for six months in officers school as we waited, or hoped, for approval to actually use the skills and qualities we had acquired in the sayeret. And in the summer of 1962, shortly after I returned to the unit from officers school as a second-lieutenant, the green light finally came. 63 Chapter Four At first, it was only approval in principle . It s impossible to overstate the trepidation with which Israel s military brass, and Ben-Gurion himself, approached the decision finally to send Sayeret Matkal into action. It was not just the fact that we were a unit uttterly untested in the field. The stakes in the mission we were contemplating were enormous. For the first time since Uri Ilan s deseperate act of suicide in a Damascus jail cell, Israeli soldiers would be crossing into Arab territory on an intelligence mission. Amid continuing tensions with the increasingly militant rulers of Egypt and Syria, there seemed little doubt that at some stage we would again have to fight to defend our security, perhaps even our existence as a state. The Rotem debacle had highlighted the danger of a surprise attack, potentially leaving us in a scramble to call up reserve units as Syrian or Egyptian tanks advanced on our borders. But the memory of Uri Ilan remained a haunting reminder of the risks of failure. My role, again, came down partly to accident. The man initially chosen to lead the operation was someone I d liked from my first days in the sayeret. Ya akov Tal, known as Tubul, was a year older than me. He came from Tiberias in the north of Israel. As a teenager, he d worked for extra pocket money alongside shepherds in the hills above the Sea of Galilee, picking up a nearfluent command of Arabic. He was self-confident without a trace of arrogance, with a natural talent for connecting with his soldiers. In my case, there was a further bond: a shared fascination with math and sciences. But Tubul had applied to the leading technology institute in Israel, the Technion near Haifa. As he began training his four-man team to cross onto Syria s Golan Heights, he received word that he d been accepted. The academic year wouldn t begin until September, and it had been assumed at first that the operation would happen before then. But even though Meir Amit was pressing the rest of the military brass for a final go-ahead, it still hadn t arrived by early August. Avraham decided he needed a fall-back plan. He called Tubul and me into his office. He said he wanted me to join the team s training as Tubul s deputy, and to be ready to step in as commander if that proved necessary. When we next heard from Amit, a week later, it became clear the mission would not happen in time for Tubul to lead it. We would be setting out from the northeast corner of Israel, a patch of parkland near a kibbutz called Dan, only a mile or so from where Uri Ilan s group had begun its mission. This time, however, the target was more 64 ambitious. We intended to bug the communications line running east from Banias, the Syrians base in the north of the Golan, toward Quneitra, their main headquarters. That meant taking a longer route, beginning with a climb onto a plateau about 200 feet high and crossing the Banias River toward the Syrian base. We had nearly three weeks for our final preparations. After two years of sayeret training, I was confident that, physically, we would be up to the task. But even without the obvious jitters emanating from the kirya, I could not help but be aware of the possibility, and the cost, of failure. Every evening, I would stake out time to go through everything that might conceivably go wrong. Years later, when I went to do my graduate studies at Stanford, I was exposed to words of wisdom from a non-kibbutznik Benjamin Franklin which probably best summed up what drove my planning for the sayeret s first operation, and the others that would follow. Failing to prepare, he wrote, is to preparing for failure. Running into Syrian soldiers was, of course, top of the list of potential pitfalls. But land mines were also a danger. I got a map of the area from military intelligence which, in theory at least, showed the location of mines all along the edge of the Golan. But it had been compiled over a period of nearly two decades on the basis of information from shepherds, smugglers and the occasional Arab agent. Whenever they reported seeing the telltale combination of fencing and yellow danger triangles, the place was marked. Once it was marked, no one in intelligence headquarters dared erase it. The result was that the map now showed an almost unbroken stretch of mines. And within the amount of time that we had to get ready, there was no way of knowing which of the minefields was still there. The timing was chosen by the cycle of the moon. We wanted to cross into Syria in as near to total darkness as possible. That meant the final days of September. Unlike Tubul, who had been commanding the team from the moment they had joined the sayeret, I d been working with them for only a couple of months. My deputy for the operation, Avi Telem, was also a newcomer. But he was smart, steady and he had served in the Golani Brigade, so he knew the terrain along the border. Avraham could not hide his own nervousness as the operation drew nearer. A week before we were due to set off, he asked whether we were planning a further, full-scale exercise. When I said the final run-through was set for the following night, in the Negev, he told me he wanted Meir Har-Zion to attend. 65 During the exercise, Meir said nothing at all. I couldn t help wondering whether, despite our nearly daily exercises, and my nightly stock-taking, I d somehow missed an obvious detail in our planning. When we got back to the sayeret base, Avraham was waiting for us. Well? he asked Meir. They don t need me, he said. They know what they re doing. It was not just a source of reassurance for me, but a huge relief for Avraham. The team I d inherited from Tubul included three gifted soldiers with different backgrounds, and different skills. Motti Nagar was born in Cairo. He was short but solidly built, smart, level-headed and almost always smiling. Kuti Sharabi grew up in a Yemeni family in an impoverished neighborhood in Tel Aviv. He had a self-deprecating sense of humor, a quick mind and sometimes even quicker tongue, but an extraordinary ability to focus on the task at hand. The third member was a kibbutznik. His name was Moshe Elimelech. We called him Moshiko. Utterly self-contained, a man who spoke only when absolutely necessary, he also brought two different qualities to the mission. One was going to be indispensable: an almost squirrel-like ability to climb trees. Or telephone poles. The other, of which I was a bit more leery, was a total, deeply irrational, absence of fear. Though none of us needed a further reminder of the weight being attached to our mission, the night before we headed north, Avraham got a call from the chief-of- staff s office. Tzvi Tzur wanted to see me the next morning for a personal briefing. I tried to get Avraham to say no. I pointed out that if we didn t get going by ten o clock at the latest, we d risk throwing everything off schedule. But no was not an option. After some further back-and-forth, it was agreed that I would meet the commander of Israel s armed forces at nine the next morning at a gas station north of Tel Aviv and join him for the 20-minute drive along the coastal road to a speaking engagement he had in Netanya. I saw Avraham again before I set off. We are beginning an extremely critical 24 hours for our unit, the intelligence corps, in fact for the armed forces as a whole, he told me. I don t know what might happen. No one does. Just remember two things. First, out there, in the field, you are the ramatkal the chief of staff. He told me that only I and my team could judge and respond to what we encountered once the operation started. And second, this mission has to be accomplished. I left see the real ramatkal. Before we began the drive to Netanya, he asked me to unfold the map I d brought with me and talk him through, step by step, how we planned to get onto the Golan, plant the bugging device, and get back 66 again. The more I talked, however, the more I sensed that the details weren t what General Tzur really wanted to know. I think what he actually wanted to gauge was whether I felt confident. He wanted to reassure himself he wasn t taking any more than the obvious risks in sending us, in Uri Ilan s footsteps, back into Syria. Fortunately, he didn t ask whether I was sure we d succeed. If he had, I would have said, yes, we were prepared. But there was no way we could be certain. Still, he must have got what he wanted. When we reached the edge of Netanya, he shook my hand, wished me luck and went on his way. The rest of the team was waiting at the crossroads for me to join them. Two teams, in fact: mine, with whom I d be crossing into Syria in less than 10 hours time, and our hillutz, or back-up. A hillutz was always a part of sayeret operations. The back-up group would stay on the Israeli side of the border. If we got into trouble, they d come in after us. Even after my briefing for the chief of staff, we had one last stop to make on the way north. It was at the headquarters of the army s northern command. It was in a Tegart fortress, one of dozens built by the British around the country, with watchtowers on each corner of the outer walls. The northern commander was an equally forbidding figure. Avraham Yoffe had served in the British artillery in the Second World War and the Golani Brigade in 1948. He used to joke with other officers that while they looked like a bunch of kids, he was the only one with the true bearing of a general. He must have been busy when we arrived, because we ended up hanging around in the courtyard for nearly 20 minutes. Just as I was beginning to worry that the timetable for what really mattered our climb up onto the Golan was being put at risk, I noticed that off to the side was a beautifully polished jeep. I assumed it belonged to General Yoffe, who was known to be an avid hunter and would later become the head of Israel s National Parks Authority. It had a padlocked metal grill on the back which held two jerrycans of gasoline. Yori Cohen, the commander of the back-up team, and I spotted the fuel containers at the same time. We couldn t help smiling. Yes, we were about to embark on an operation which, assuming we didn t fail, would finally give Israel real-time intelligence from across our border for the first time since the 1950s. But we were still Sayeret Matkal, still chronically short of gasoline for our field exercises. And I still hadn t forgotten how to pick a lock. As Yori stood guard, I broke into the grill and removed the jerrycans, one for each of us, and closed it again. Then, after briefing the general, we headed to our setting-off point. Yoffe himself left to join Avraham Arnan and Meir Amit s intelligence deputy, 67 Ahraleh Yariv, in the command post for our mission, atop a hill on the Israeli side of the northern border. The sun set at around seven, but we waited for darkness. It was nearly eight when we set out. Twenty minutes later, we crossed the border. I led the way, with Motti Nagar, Moshiko, Kuti Sharabi and, finally, Avi Telem behind. We carried the bugging equipment and our tools in our backpacks. Avi and I had a pair of binoculars. Mine were bulkier, but offered a slightly better view in the darkness. Each of us had an Uzi and a pair of grenades. All our planning had been aimed at getting on to the Golan, installing the bug and getting out again. If all went well, no one would even know we d been there. But we had practiced what to do if things went wrong. If challenged or ambushed by a Syrian patrol, we would operate by old Company A rules. We would open fire. The climb onto the plateau wasn t too tough, not nearly as hard as our sayeret training treks. When we reached the top, there was no obvious sign of any Syrians. Still, we had to move slowly. Even with my binoculars, I could see barely 30 yards into the moonless night, and I had to scan the route ahead, back and forth, to make sure there were none of the fences or warning signs to keep the Syrians own soldiers, or unsuspecting shepherds, from a minefield. Soon, however, we found an obviously well-used footpath which I figured was very likely to be safe. When we had walked a few minutes, we found ourselves going through a tangle of bushes and reeds, some of them up to two feet high, still dry and crackly from the summer. Aside from the risk of tripping, I knew the noise we were making might attract attention. I told the rest of the team to hang back 20 yards behind me. I moved forward to make sure the route was clear before signaling them to follow. I had been slightly nervous on the climb up, not so much because I expected trouble but because there was no way of knowing what to expect. Much as I tried to put the concerns of the generals from my mind, I also knew that this was no ordinary mission. But almost immediately, the nerves had gone, and I was now focused only on getting us through the next minute, the next 20 or 30 yards of the Golan. But as soon as we d made it across the plateau, we ran into trouble. We needed to cross the Banias River. On our map, I d picked out what looked to be a shallow ford. But the water was much higher than we expected. After spending 30 minutes scouting the bank for 150 yards in either direction, we settled on what seemed to be the shallowest part. Yet we hadn t anticipated the need to cross a river in full flow. Worse, we d never trained to do it. Not had we 68 brought any special equipment. Unless we could figure out a way to cross and quickly we would be putting the timetable for the whole operation at risk. The only remotely useful tool I could find was two 25-foot lengths of parachute wire. We spliced them together. I took the lead end and waded in. I sunk up to above my chest, but managed to get across. With Avi Telem on the other bank holding his end of the wire, the others used it to help them cross, so they stayed a bit drier. They also kept the intercept equipment dry. Finally, Avi followed. But both he and I were now soaking wet. We were also behind schedule. We had covered less than half of the three-mile route to the telephone pole. Even if we did manage to install the bugging device, the delay meant we might be spotted on our way back to Israel. We were under strict orders to turn back by 1:15 in the morning even if that meant not getting the intercept in place. And it was already past midnight. We began climbing into the heart of the Heights, planning to go around the southern edge of the Syrian base at Banias. The vegetation was sparser but we still ran the risk of making noise from the stones and larger shards of rock as we weaved our way up. Within 10 minutes, I could see the vague outline of the army camp: several large buildings for several hundred Syrian troops, ringed by trenches with security outposts and a barbed-wire fence on the perimeter. For a half-hour or so, we moved forward in a kind of rubber-band formation. I would advance as quietly as I could, listen for signs of Syrian troops, scan the area ahead with my binoculars and wave the others to follow. But as I prepared to move forward again, I suddenly felt a tug on my shoulder. It was Moshiko, and the very fact of his speaking was proof of his alarm. Ehud, we ve got to go faster, he said. We won t get there in time. I said I understood. But I told him to wait for the others to catch up and stay behind with them as I scouted the way ahead. Still, by the time the outer fence of the base came into view, the others had picked up their pace. They were only 15 feet behind me. It was then I heard the sound of movement. I motioned the others down. At first, I thought it was a wild animal. But then I noticed, 20 feet in front of us and a bit off to our right on a slight rise, a group of three Syrian soldiers. They were lying on rocky scrubland 40 yards outside the fence. One was tossing and turning. Another was snoring. I maneuvered my Uzi into firing position just in case. We waited for a minute. Then two. But it seemed clear they really were sleeping. 69 Then, from directly behind me, came another sound: the hiss of Avi s bulky two-way radio. I was worried we d end up waking the Syrians. But just as I was figuring out how to make sure we got past them before that happened, Avi drew up beside me. Ehud, he whispered. It s 1:15. The command post ordered us to turn back. Turn off the radio, I said, my hand on his elbow, reassuringly I hoped, as I led him and the others back a full 100 feet from the Syrians. We took a wider route around the camp. We moved much more quickly on the final mile to the road that led toward Quneitra. We were now well clear of the camp, and I felt it was unlikely we d run into a patrol. I was also confident we d have an easier return trip. I knew what had held us up on the way in: finding a path on the plateau clear of mines, figuring out how to cross the river, and the general unfamiliarity of the terrain. None of those applied now. I felt we could get the bugging job done and still be back before dawn. As we got nearer the road, Avi asked me a couple of more times whether he should turn the radio back on. No, I kept telling him. It s OK. I ll tell you when. It was about two in the morning when we reached the road. We found a telephone pole set back on the edge of a field. Moshiko hoisted himself onto Kuti Sharabi s shoulders, clambered up the pole and installed the bugging device. The entire operation took him less than 10 minutes. We moved more quickly on the way back. By around 3:30, we had crossed the river. You can turn on the radio now, I told Avi, who was obviously relieved. He handed it to me. Using our agreed code words, I reported our location, and added the phrase for mission accomplished. When we began our final descent, it was starting to get light. I assumed we were near enough to the border to make it unlikely we d be shot at. Still, there was a danger we d be spotted by a patrol, so I was relieved when we reached the mound of boulders, more than ten feet high, that served as a tank barrier outside Kibbutz Dan. When we stepped behind it, I saw that not only Avraham, but Meir Amit as well, were waiting. The Head of Military Intelligence said nothing. He didn t have to. He just shook my hand, beaming. Avraham grabbed each of us, one by one, in a bear hug. Then, drawing me aside, Avraham said that I had only narrowly missed landing in deep trouble. I assumed my transgression was shutting off the radio and disobeying the order to return. That was just part of the problem, however. 70 Despite General Yoffe s angry protests in the command post, Avraham had told him what he d told me back at the base: that once an operation like this was underway, only the commander on the spot could make life-or-death decisions. I was the ramatkal in the field. But Yoffe had also discovered that his jerrycans of gasoline were missing. He insisted that if and when I returned safely from the Golan, I be handed over to the military police. I don t know what I would have told the general if he d asked me directly whether I broke into his jeep. But in the mix of celebration and relief that the Syrian operation had succeeded, I got away with what amounted to a pleabargain. I promised both Meir Amit and Avraham at least one of whom believed me that it would not happen again. 71 Chapter Five Almost no one in Israel knew what we had done. But the next morning, a package arrived at the Sayeret Matkal base from one of the few people who did. We opened it in Avraham s office. It was a nearly full carton of champagne: real, French champagne, since it would be years before Israel s embryonic wine industry produced anything similar. Inside was a note from the chief of staff. For the success of the operation, General Tzur had written. Minus two bottles to teach Ehud Brog not to shut off his field radio. I assumed that his reprimand was tongue-in-cheek, for the same reason I d escaped being locked up on General Yoffe s orders as a gasoline thief. Had we been captured on the Golan, the very future of the sayeret as an operational intelligence unit would have been put at risk. Tzur, and Ben-Gurion as well, would have faced a reopening of all the old wounds from the Uri Ilan mission. But not only had we managed to get in and out of Syria in one piece. We had taken at least a first step toward erasing the blind spot in our intelligence capabilities shown up so dramatically by Rotem. A few days later, I received a letter from the chief of staff informing me that I was to receive my first tzalash, or operational decoration, in recognition of a mission which contributed to the security of the state of Israel. My own feelings were more mixed. I was proud of what I, and my team, had accomplished. On a personal level, too, I felt I d reached an important landmark on my unlikely journey from the winter morning when I d arrived as physically frail, awkward kibbutz teenager at APC boot camp in the Negev; through my years of sayeret training under the strict, sometimes sardonic, but always supportive gaze of Israel s most storied commandos; to, now, having begun to make a real contribution to Avraham s vision of a new kind of Israeli military unit. But while Avraham, General Tzur and our other military and intelligence chiefs celebrated our mission, I felt not so much triumph as relief. I didn t kid myself: I knew that the operation could just as easily have gone wrong. In fact, it very nearly did, through errors or omissions I had made. I made that point, in general terms, when we joined Avraham and the rest of the sayeret in a formal debriefing. But that very night, just as I had in the days before we set off, I wrote down in detail some of the oversights I knew I d have to correct if we were to succeed in further missions. Why hadn t I chosen a route that took us further away from the Syrian base at Banias? How had I let us arrive so unprepared, untrained and unequipped for 72 crossing the swollen river? Why hadn t I taken the time to check the current several miles downriver inside Israel? And couldn t we have moved more quickly on the way in, even with the delay in crossing the river? I was aware of, and grateful for, the confidence Avraham had shown in me. He had taken a chance in choosing me to lead the sayeret s first, critical operation. He must surely have had doubts about whether I could handle the task. Years later, I asked him about it. He told me that he d been relying on intuition. Yes, he realized I d had no experience of a real cross-border mission. But that was true of everyone else in the unit as well. He was convinced that the tools needed for success were self-confidence, attention to detail and an ability to think and act in response to what happened on the ground all qualities which he was confident that I possessed. Now that we had provided Israel access to communications in the north of the Golan, there was a demand for us to do the same in other parts of the Heights. I was involved in nearly all of the missions we were asked to undertake in the months that followed, either as commander of the main force or the hillutz. I was also soon training a new team of recruits for future operations. But perhaps the most important sign of Avraham s confidence was to involve me in early efforts to broaden Sayeret Matkal s experience and reach beyond pure intelligence missions to create a true special forces unit that could fight as well. Early in 1963, we hosted a visit to the unit by Colonel Albert Merglen, a veteran of France s colonial wars in Indochina and Algeria, and commander of the airborne commando force known as the 11 th Demi-brigade Parchutistes de Choc. As the colonel looked on, I led a sayeret team on a live-fire raid in a training area not far from Lod Airport. We attacked a position protected by trenches and concrete barriers and stormed a two-story building. Eager to impress Mergelen, Avraham even insisted on our wearing French-style berets in place of helmets. I assume it was the attack more than the berets that did the trick. But a couple of months later, Merglen proposed a series of exchanges. The first would involve an officer from Sayeret Matkal officer spending eight weeks on a counter-guerrilla commanders course in the parachutistes training headquarters. Avraham picked me to go. The French base was in a 17th-century fortress near Mont Louis, in the Pyrenees along the Spanish border. I d never been outside Israel, at least legally. I had no passport. I didn t own a suit or a tie. But within days, I was kitted and fitted. I boarded an El Al flight to Paris and, on a 73 storm-tossed Caravelle, flew to Perpignan in southeastern France. There were eighteen shock parachutists on the course. I had just turned twenty-one. Not only were most of them at least a decade older. They were the epitome of toughness. The guy who taught us how to set booby-traps had parachuted behind German lines in the Second World War. All of the men had fought in Indochina and Algeria. One had operated behind Vietminh lines, surviving for a year-and-a-half on nuts, berries, tree bark and snakes. With the benefit of my sayeret training, I was at least their equal in fitness. I had also not spent years consuming prodigious amounts of alcohol and smoking Gitanes. But I d never experienced anything nearly as demanding as some of the training we were put through. With backpacks crammed with Alpine military gear and lead weights as well, we hiked on to the peaks overlooking the fortress. They were covered with snow and ice from about 6,500 feet upward. We trudged for hours, shifting to snowshoes with cleats for the ice. We were taught how to dig caves in the snow and to use ice axes to keep from tumbling down the steeper inclines. We scaled cliff faces, without safety cables or nets. Our training inside the fortress always included a break for lunch. Since the parachutistes de choc were, after all, French, it was a Paris-restaurant-standard meal with copious quantities of wine. I didn t drink at the time, but could hardly abstain altogether. The first exercise after lunch was pistol marksmanship. The instructors kept well clear when it was my turn. Yet however impressed, even at times awestruck, I was by the toughness of the French commandos, and the obvious closeness they had built during combat, I began to sense a darker side in them as well. They didn t talk much. Even if they had, my few words of French would not have been much help in deciphering what made them tick. But every few nights, I would accompany them when they walked into the small village down the road for a movie, or a few drinks, and the locals would literally cross the street to avoid us. Later, I discovered that every one of my French comrades had been involved in the OAS, the far-right anti-De Gaulle opposition in the French army in the late 1950s. In Algeria, they had mounted free-lance attacks on the insurgents, and on civilians as well. Though Algeria had been granted independence the year before, these men were unreconciled to it. In fact, a few months after my time in Mont Louis, the Demi-brigade was dismantled, when several of its top officers were found to be involved in an assassination plot against President De Gaulle. 74 After my return in June 1963, Avraham asked me to share my experiences with the other sayeret officers. I began with the positives. I singled out the sense of self-confidence, allied with individual strength and teamwork, that the French commandos had developed from exposure to almost incredible extremes of danger. I believed that their success depended not on eliminating risk. We all knew that was impossible. It was about professionalism developed over a period of years by men who had served together in the toughest of circumstances. But I also mentioned their darker side, which seemed to me a reminder of the danger of the misapplication of the very qualities which made them a formidable military force. The ethos of a unit like theirs, and like ours, is essential to making us strong, I said. But what I saw in France was an entire ecosystem that these guys had created, extremely patriotic in their own minds, reinforced by one another. But dangerous for society as a whole. It would be nearly a decade before Sayeret Matkal became not just a military intelligence unit, but a fighting force, and I would turn out to have a central role in making that happen. But there was an almost equally daunting challenge we were called on to tackle first a critical one, if Israel was going to be truly prepared in the case of a further war. For while our bugging missions on the Golan had reduced our vulnerability to a surprise attack in the north, the real challenge of Rotem had yet to be addressed. It was Egypt with its hundreds of battle tanks, and hundreds of thousands of men under arms that was by far our most powerful Arab enemy. President Nasser wasted no opportunity to flaunt his determination to fight, defeat and ultimately erase the state of Israel. But we still had no reliable, real-time intelligence on his forces. Fixing that, if such an operation was even possible, would make our bugging operations on the Golan look like mere boy-scout missions. We could not simply walk into Egypt with our backpacks, find a telephone pole on one of the few roads crossing the vast expanse of desert, and attach a bugging device. The idea was to tap into the main military communications cable in the Sinai. That meant using a vastly more powerful, and far bulkier, intercept apparatus, weighing more than half a ton. Even getting it into Egypt would be a problem. We certainly couldn t carry it our backpacks, or tow it across the sand. Even if we figured a way to get it there, we would still have to dig up the Egyptian 75 cable, install the machinery, cover our tracks and get back into Israel again undetected. Even if we managed to avoid getting captured, without completely camouflaging what we d done, the Egyptians would discover what we had done, almost certainly tipping off Syria as well to our bugging operations on the Golan Heights. The difficulties with a Sinai operation weren t just theoretical. Almost a year before leading the first mission on the Golan, I d actually been involved in preliminary planning, and fairly detailed training, for such a mission in the Sinai. We d ended up abandoning the idea as obviously unworkable. But Meir Amit, not just our unit s overall commander in the kirya but Chief of Operations during Rotem, recognized that getting intelligence access to Egypt was central to Israeli security. He was intent on reviving the plan to tap into Nasser s communications in the Sinai. So was Avraham Arnan. He enlisted the backing of an old friend, Uri Yarom, who was now commander of the Israeli Air Force and was eager to put our fleet of recently acquired Sikorsky S-58 helicopters to operational use. When Avraham called me in to tell me what he had in mind, he began by saying it would be by far the greatest challenge we ve contemplated typically disarming candor, but also a challenge which I m pretty sure he knew would only increase my determination to at least try. The flight in would be difficult enough. Israel had never before tried such a heliborne mission. But he told me that wasn t my problem. That will be Uri s job. The really testing part would be to carry out an mission, at night, deep inside Egypt, cover our tracks and get out again in one piece. Still, I m sure that we can succeed, he said. And I want you and your team to do it. Even now, more than half-a-century later, some of the details of how we planned to tap into the Egyptians communications remain classified. But once I d chosen my team of sayeret soldiers for the mission, we trained for nearly nine months. We drafted in geologists to identify areas of the Negev similar to the terrain we d find in the Sinai. We developed a series of methods to prevent Egyptian soldiers or scouts from discovering that we d been there assuming, of course, we managed to get in, attach the intercept, and return safely. It was a relentless process of trial and error. One of the many reasons we d abandoned the plan a couple of years earlier was that, in a nighttime exercise to see whether we could avoid detection by Israel s own crack desert scouts, we d failed utterly. Now, after many weeks of training in the Negev, we did, finally, succeed in a test running for four 76 straight nights which replicated, as nearly as we could, what we intended to do across the border in the Sinai. It was as if we d never been there at all. Yet there were the errors, setbacks and frustrations as well. Many months into our planning, we conducted a series of run-throughs in which we simulated attaching the intercept to Israel s telephone network in the south, not far from the camp where I d done my tironut. Though it all seemed to go as planned, the next morning in rained heavily. Within hours, the phone company was getting reports from all around southern Israel of phones malfunctioning. Even allowing for the fact it rained less in the Sinai, we had to address the risk. I went to see the people in Meir Amit s technology unit, and they began developing a waterproofing system for the equipment. The main problem with the equipment, however, was its sheer weight. The helicopter could get us, and it, into Egypt. But we couldn t fly directly to the cable site in the Sinai. We might just as well tell the Egyptians we were on our way. At around 1,100 pounds, it was much too heavy for us to carry. And if we were going to go ahead with the mission, time was running short. A date for the operation had been set by the kirya: February 1964. I was not alone in believing that, unless we cracked the problem of getting the equipment to the cable site, the operation was impossible. The solution came from a staff officer in military intelligence. Meir Amit visited our base once a month to hear how the preparations were going. With the date getting closer, he brought along his entire staff. When I raised my concern about the weight problem, a colonel from his personnel section said: Why not build a lightweight rickshaw, small enough to get in the door of the helicopter, but which can carry all or most of the equipment once you re on the ground? Within days, they had a prototype, made of airline-standard tubing and designed to be pulled by two men. We held an exercise in the Negev. But it was almost impossible for two men to pull through the sand. It also left deep zig-zag imprints in the sand, which would surely raise the suspicions of the Egyptians. But prototype number-two was a four-wheel, chrome alloy cart. The technology experts had made the axles telescopic, so the vehicle would get through the door of the chopper but could be expanded to the width of an Egyptian army Jeep. They had borrowed nose wheels from a training jet. To complete their oeuvre, they glued on real tire tread from one of the Egyptian Jeeps we had captured in the 1956 war. 77 We were as ready as we were ever going to be. We got the final go-ahead from in mid-February. Our backpacks were crammed full with the whole array of equipment we d designed, commandeered or purchased for the mission including a metal detector we got from a hobby shop in Pennsylvania. All the cargo except our personal gear, our weapons and our communications equipment was loaded onto the cart. A command post was set up in a few wooden huts on Mount Keren in the Negev, complete with special antennas to receive the intercept transmissions if we succeeded. Not since the first Golan operation had the attention of the kirya been so keen, or the stakes so high. In addition to Meir Amit, and of course Avraham, also flying down to Mount Keren would be General Tzur s successor as armed forces chief of staff a gruff Palmach veteran whom I d met very briefly at the end of my officer s course but who I would come to know well, and work closely with, in the years ahead: Yitzhak Rabin. The helicopter lifted off at about six-thirty at night. Compared to special operations nowadays, the mission still had a somewhat improvised feel about it. Certainly, that was true of the equipment we were ferrying in, and the tools we d devised to make sure we could get it installed and working. But the men in my team were soldiers I d trained from the day they arrived in the sayeret. Achihud Madar was unfailingly surefooted, whether finding his way alone at night on unfamiliar ground or in a firefight inside a building. He also had natural dexterity. He and another of the soldiers who was also gifted with his hands, Nissim Jou ari, would be performing the most technically delicate part of the operation on the cable. The third member was Oded Rabinovitch. Tall, thin and quiet, he was absolutely reliable in whatever part of an operation he was given to execute. And as my deputy commander, I d chosen a sayeret officer named Kobi Meron, who d been with me on a number of Golan missions. Over six feet tall, he was probably the strongest man in the unit, quick-thinking and utterly unflappable. When we landed, we telescoped out the axles on the cart. The roar of the departing chopper was replaced by silence. Under the soft light of hundreds of stars, I led the way deeper into the desert. It took nearly an hour to reach the road leading to the cable site. Though traffic was light, I posted Oded and 78 Nissim as lookouts. Kobi and I began digging a trench. The top layer of sand was easy to remove. But then, just a few inches down, our shovels struck something hard. Maybe it was a sheet of rock. Maybe sand packed tight over the millennia. But it resisted all our attempts to break through. We had to find a way to get far enough beneath the surface to install the equipment. I called back Oded and Nissim from lookout duty. All four of us attacked the subsoil with every tool in our backpacks that could conceivably help. It took nearly three hours in all. But we finally managed to carve out a trench that seemed as if it might just do the job. It wasn t as deep or as wide as we d planned. But we were approaching a point where we would have to give up. We couldn t risk any more time digging, and still leave time to attach the intercept unit, cover our tracks and make the rendezvous with the helicopter to take us back into Israel. Achihud and Nissim cramped themselves into the hole and got to work, like surgeons in an operating theater, silent except for the faint hum of the intercept equipment. Within a little less than an hour, they d finished the main part of the work. During our training exercises, we d factored in a fall-back plan, a way of ensuring we got the unit installed but without additional equipment to extend its battery life. Since we were still behind schedule, I was tempted to stop while we were ahead. But having come this far, and knowing the potential risks of a further mission to refresh the power unit and replace the batteries, I told them to keep going, and also to take the extra few minutes needed to make sure the equipment was functioning. We had to be out of Egypt by first light, and we were now left with more than an hour s less time than we had reckoned on to make it back to the rendezvous point. There was another problem, too, which I at first sensed more than saw. A bank of fog was closing in. It had come in patches at first, but was getting denser. We had the same radio we had taken on to the Golan. We d worked out codewords for each part of the operation but otherwise agreed to break silence only if absolutely necessary. Now, I had no choice. If the fog continued to thicken, it would block any chance of the helicopter getting in. I radioed the command post and said as calmly as I could: The milk is coming. It wasn t elegant. But milk was our codeword for fog. The chopper would now try to bring us out within 30 minutes. Moving more quickly now that the cart was nearly empty, we made our way eastward. As conditions worsened, I radioed again with a short series of numbers: directions for a new pickup point. Even that seemed like it might not 79 work. The fog now enveloped us completely. I brought the team to a stop. I stayed with the cart while the other four outlined a landing area with kerosene flares in the hope that the pilot would see us. It was another five minutes when we heard the thump of chopper blades. Though we couldn t see more than a few feet, I suddenly saw the outline of the landing gear and then the underbelly. But the helicopter did not seem in control. It was drifting towards where I was standing with the cart. It was just seconds away from hitting me when its nose wrenched upward. It landed with a judder a dozen yards away. Later, I learned the navigator had realized the craft was drifting and, just before impact, shouted a warning to the pilot. We piled in, secured the cart and took off. Within a minute, the murky blanket of fog was below us. As we swooped back into Israel, I could see the first pink of sunrise. By the time we touched down at Tel Nof air force base, southeast of Tel Aviv, the command post in the Negev was receiving the first intercepts. A few days later, one of the sayeret soldiers gave me a first-hand insight into the mood in the command post in the final stages of the operation. Avsha Horan s role had been to act as security guard for the top brass in Mount Keren. He occasionally took a peek inside. He described to me the atmosphere when I radioed my milk is coming message: solemn faces, hushed conversations between Avraham and Meir Amit. And off to the side, the recently elevated chief-of-staff, Rabin, chain-smoking and biting his nails. Finally, the audible sighs of relief when the pilot radioed in with his final message from the chopper: Out of the fog. Heading home. With the rest of the team, I was invited to see Yitzhak Rabin ten days later. We were being given a further tzalash. This was the first time I d met him since leaving officers school two years earlier, when, with a few terse words, the then-deputy chief of staff congratulated me and several other cadets who graduated with top honors. I had felt a bit overwhelmed in his presence. Now, I was struck by how shy he seemed. He greeted each of us with a tentative handshake, and seemed uncomfortable in making eye contact. Yet once he began asking me about the Sinai operation itself, it was as if he was transformed. He was hungry for every detail, anxious to know the way we d had 80 to adapt on the ground. And obviously pleased that we d found a way to make the operation work. The Sinai mission marked a transition not just for me, but for others in Sayeret Matkal as well. Avraham Aranan finally left the unit he d imagined, created and built. He became the head of the technology unit in military intelligence. His deputy, Dovik Tamari, succeeded him, serving the first in what would become two-year stints for each of his successors as the sayeret s commander. I, too, was given a wider role. Though I was still just a young lieutenant, and too junior for the job, Dovik made me his de facto deputy, with responsibility for operational oversight of our missions. I returned to the Sinai a year later, not in that capacity but because of my on-the-ground experience, to accompany a sayeret team which installed an intercept on a second Egyptian communications cable. Though the tzalash was gratifying, what gave me more satisfaction, and pride, was the importance of the Sinai operations themselves. I was confident that if we did have to go to war again, the equipment we installed, along with the bugs on the Golan, would give us an essential edge. But in truth, I didn t actually believe there would be another war. Sure, the threat was still there. Egypt, in particular, still seemed determined to find a way to hobble, and if possible eliminate, Israel. But especially since the 1956 war, the fedayeen attacks, and cross-border skirmishes, had been subsiding. Not long after the second Sinai intercept mission, I was chatting with other officers on the sayeret base and remember turning to one of them and saying I was sure that by the time I was married and had a teenage child, we d be able to take a skiing holiday in Lebanon. We didn t have peace yet. That might take time. But I felt that things were getting more normal. I began thinking what that would mean not just for Sayeret Matkal or Israel, but for my own future. By the autumn of 1964, I d reached a decision: to end my active service in the unit that had been central to my life since leaving the kibbutz. Dovik did persuade me to delay, for nearly a year. But at the end of the summer of 1965, I left Sayeret Matkal. In fact, I left the army altogether. I went to study mathematics and physics at Hebrew University in Jerusalem. I would remain involved in the sayeret as a reservist. But I couldn t see devoting my adult life to military service in a country which, fortunately, seemed on a trajectory toward peace. I had spent five years in an extraordinary unit. It had been more fascinating and fulfilling than I could have dreamed of when I d 81 finished my tironut. Now I looked forward to pursuing a different path with equal eagerness and energy. There was also something else which colored my thinking. For the first time in my life, I had fallen in love. 82 Chapter Six The French have an expression for love at first sight: coup de foudre. A thunderbolt. That was how it felt when I d set eyes on nineteen-year-old Nili Sonkin in mid-February 1963. It was my first visit to the kirya in Tel Aviv. I d been told to report to the administrative section, to register my formal change of status from a mere draftee to a staff officer, something I d managed to overlook amid the demands of our first sayeret operations on the Golan. Since I didn t know which office to go to, I asked a girl sitting at a desk near the entrance. She looked up with a wide smile. When she directed me to the second floor, it wasn t just her voice that struck me: multi-timbered, almost like a musical composition. It was her eyes. Bright, radiant, green. Full of playful, unapologetic self-confidence. In the weeks that followed, I invented a series of excuses to return to the kirya. I introduced myself to her, with as much composure as I could muster, and on each further visit chatted to her a bit more. I told her about growing up in Mishmar Hasharon, about math and music, about Israel, and how, as a soldier in the past few years, I d walked almost every inch of the land in short, about everything except our still-secret sayeret and our nighttime forays across the border. She, too, opened up about her home and her family and her friends. Though there was another girl I d been going out with the younger sister of my old kibbutz co-conspirator, Moshe she was more a friend than a girlfriend. I d never before felt anything like the connection I sensed with Nili, nor anything like the race in my heartbeat as I set out to see her. I also found myself gripped by an unexpected, and unfamiliar, lack of selfassurance. I was now 22, three years older than Nili. I had the inbred confidence of a kibbutznik, the quiet sense of specialness which, at least for another decade or so, would give the children of the kibbutzim a disproportionate place in Israel s government and army, media and the arts. The same confidence which had convinced me as a raw recruit back in boot camp that I could lead a supply convoy to the edge of the Sinai. Since then, I d begun to make a mark in Sayeret Matkal as well, leading its first clandestine operation and receiving a citation from the chief-of-staff. Yet with Nili, I couldn t help feeling unmoored, totally out of my depth. She was part of a different Israel. She was a Tel Avivit, born and raised in the largest and brashest city in our young state, a place which was everything the kibbutz was not. She had graduated from Alliance, a high school 83 in north Tel Aviv set up with French backing and an accent on French language and culture. Unlike the girls on the kibbutz proud of their plain, utilitarian clothes and sensible shoes she wore make-up and perfume and, when she was out of uniform, bright print dresses. She never tried to make me feel out of place. Still, it was sometimes hard not to wonder whether she saw me as a country bumpkin a nice, interesting, bright county bumpkin, perhaps, but still an interloper or a curiosity in her world. It wasn t until April, the day before I was due to leave for the French commando fortress in Mont Louis, that I plucked up the courage to ask her out. I needn t have worried. She smiled. In fact, she proposed that since I was about to leave the country, she should be the one doing the asking. She invited me to dinner that evening at the apartment she shared with her parents and younger sister, about a half-mile from the kirya, a few blocks back from the Mediterranean. Dinner was less awkward than I feared, but I still felt nervous, until the dishes were cleared and Nili and I went out to chat on the apartment balcony and, just before I left, to share a first kiss. We wrote each other almost every day while I was away in France. Once I got back, we met whenever I wasn t preparing for a sayeret operation. This was the first girl I d known whom I could talk to, and listen to, on almost any subject with a feeling that it was natural and somehow meant to be. But in the second half of 1963, I was working almost non-stop on preparing for a sayeret operation. I still saw Nili when I could, sometimes at her apartment, but also occasionally going out to a movie, a meal or a concert in Tel Aviv. Yet what I most wanted was an acknowledgment that we were not just dating: a commitment that we intended the relationship to last. I didn t say this to Nili. Years later, she would say this was down to pride. In fact, I was afraid she would say no. And in the periods when we were apart, I couldn t help asking myself why she hadn t raised the question of a deeper commitment. Even more frustrating, by the time I entered Hebrew University in September 1965, our relationship was again being conducted by mail. After her military service, she took a two-year posting at our embassy in Paris. I could understand the attraction, not just because of her taste for all things French. She was working with the Mossad to help Moroccan Jews skirt an official emigration ban and get to Israel. Still, it meant that charting our future together, if we had one, was going to have to wait. 84 The intellectual experience at university everything I hoped. The challenge was finding a way to juggle my studies with my military reserve duty. In other units, most reservists could schedule their one month per year when classes weren t in session. To be of use to Sayeret Matkal, I d have to report when I was most needed, and four weeks was unlikely to be enough. Near the end of my first term, from late 1965 into the new year, I was called to participate in our latest mission into the Sinai. The next winter, and through early 1967, I was called up for another mission and was away for nearly two months. That operation was prompted by the fact the Egyptians had begun laying a new communications cable, parallel to the one where we d put our intercepts. With the diggers getting closer to where I d led the first Sinai mission, the kirya was worried that they might unearth the apparatus we d installed. In theory, at least, we d planned for that. The bugging unit which we buried included a booby-trap explosive device. Still, nearly four years on, we couldn t be absolutely sure it would work. So the decision was taken to send the sayeret back on a further night crossing into the Sinai, defuse the explosives, and bring the whole thing back to Israel. Since I was the one who d installed it, I was given the job of removing it. The officer in overall command of the mission was Nechemia Cohen. He was a good friend, and one of the finest officers in the unit. Before I left for university, I d mentored him so that he could take over my role as the effective number-two officer in the sayeret, in charge of all our core operational activities. He, too, was now about to leave, though not to for university. He was becoming deputy commander of a paratroop company, under another former Sayeret Matkal, named Yechiel Amsalem. I was meant to defuse the booby-trap remotely: with a 12-foot-long metal tool designed by the technology unit. I was fairly confident I d manage. But when Chief-of-Staff Rabin heard about the operation, he summoned me, along with Eliezer Gonn, the scientist working with us on the plan to defuse the booby-trap. Rabin was with a half-dozen other officers when we arrived. Gonn had brought along a mock-up of the explosive device, which he proceeded to place on Rabin s office table. But as I took out the extension tool and started to explain how I was going to defuse the device, Rabin turned to Gonn and asked: Could it blow up spontaneously? 85 Yes, it could, he said. What? Rabin barked. Gonn replied matter-of-factly: It is a physical device. It obeys the laws of physics. When, for instance, there s a thunderstorm in Turkey, a flash of lightning could discharge at precisely the frequency needed, or one of its lower harmonies, with enough energy to activate the fuse in the detonator. I was far junior to everyone else in the room. But as a physics student, I was probably the only one who could fully follow the argument he was making. Looking at Rabin s expression, it was clear that he was about to cancel the operation on the spot. Excuse me, sir, I said. Could I ask Doctor Gonn another question? I pointed at an unopened bottle of orange soda on Rabin s desk. Tell me, I asked the physicist, is it possible that the fluid in that bottle is spontaneously leaking through the glass even as I m speaking? Sure, Gonn said. It might take years before even a fraction of a centimeter of the soda goes missing. But glass is like a frozen liquid, and liquid water, or the molecules, are seeping into, and through, the more viscous liquid of the glass. It s just physics. Rabin looked at me, then at Gonn. But he had clearly got the message. The operation is confirmed, he said, in the deep, gravelly voice I would become much more familiar with in the years ahead. Good luck. The device didn t explode, but I couldn t defuse it either. I did manage to get the remote metal tool locked on the bolt on the booby trap. But it wouldn t budge even when I waved back Nechamia and the others and took out an ordinary wrench. Though this was the first of my sayeret missions that ended in failure, that wasn t what worried me as we boarded our helicopter back into Israel a couple of hours before dawn. It was the real possibility that the Egyptians would inadvertently discover that we d been intercepting their communications. Dovik Tamari, as sayeret commander, was especially upset. This was one of the last operations during his period in command of the unit. He was about to hand over to a veteran paratroop officer, Uzi Yairi. Yet our aborted Sinai mission turned out not to matter. What saved our eavesdropping network was the very thing which I was confident would not happen when I left for university: another Arab-Israeli war. 86 Tension began building in the north in the spring of 1967, initially set off by Syrian efforts to divert water from the upper reaches of the Jordan River, an important water source for Israel was well. In a series of exchanges, Syrian troops on the Golan fired on Israeli tractors in the demilitarized zone below, and began shelling our argicultural settlements in the Galilee, while we responded with tank fire and then air power, scrambling our jets and shooting down six Syrian MiG-21s. The first indication that we might be headed toward war came as I returned to university for the spring term, and trouble began brewing in the south. Ben- Gurion had by now retired as prime minister. His successor was the undeniably thoughtful, if far less charismatic, Levi Eshkol. During Israel s Independence Day parade on May 15, he received word that Egypt had moved thousands of troops into the Sinai, nearer to the border with Israel. Then, with the Soviets warned Nasser of what they said were Israeli plans for a preemptive strike against Syria, he went further expelling the United Nations force put in place after the 1956 war. On May 23, he closed the Straits of Tiran, Israel s trading gateway to the Red Sea and the source of virtually all our oil imports. I was told to report to Sayeret Matkal the following day, as part of the first group of reservists called up. When I reached the base, Uzi Yairi, who was now in charge of the unit, organized us into four teams. He put me in command of one of them. We were told to prepare ourselves to helicopter into the Sinai, attack a series of Egyptian air bases and put the runways out of commission. My team s target was the base at Gebel Libni, not far from where I d placed, and recently failed to defuse, our first intelligence intercept. With each passing day, war looked more likely, and there was no confidence we would win without a costly struggle. In 1948, Arab attacks had killed about 170 people in Tel Aviv. Now, word got out that a park in the center of the city had been set aside to allow for the burial of as many as 5,000. With Israel s military commanders pressing Eshkol to take the initiative and launch a preemptive strike, he delivered a radio address at the end of May, intended to reassure the country the situation was under control. But due to last-minute, handwritten changes to his typescript, he faltered while reading it. He sounded 87 anything but under control. Within days, he bowed to political pressure and brought back Moshe Dayan, now a member of the Knesset, as Defense Minister. I still vividly remember a visitor to the sayeret the day after Eshkol s address. Colonel Eli Zeira was head of the collection department of the intelligence corps, the rough equivalent of America s National Security Agency. Formally, Sayeret Matkal was part of his department. He called together all the officers. He said that there had so far been three periods in the Zionist project. The first was from the early settlements in Palestine at the end of the 19th century until the establishment of Israel in 1948. The second, from 1948 until the 1956 War. The third from 1956 until now. Then he said: There will soon be a war. Three Arab countries will take part. Within a week, we will defeat all of them. And a new chapter in the history of Zionism will begin. The Six-Day War began on June 5, 1967. As Eli Zeira so confidently predicted, not just Egypt and Syria, but Jordan, too, joined forces against us. And it was indeed all over within a week. The final outcome Israel s victory was sealed by noon on the first day, with wave after wave of pre-emptive bombing sorties destroying the entire air force of all three Arab countries. But the fighting which followed was brutal in places: especially around Jerusalem, but also in the south at the outset of the war, and later on the Golan Heights. The first effect back in Israel of our air force attacks was to make our sayeret helicopter missions into the Sinai suddenly superfluous. In fact, it left the entire unit at loose ends especially veterans or reservists like me who had been part of our nearly decade-long development into Israel s sole, dedicated cross-border infiltration force. At this point, we were still just an intelligence unit, not an elite commando force like Britain s SAS, Avraham Aranan s ultimate vision for the sayeret. The aim of our bugging missions into Syria and Egypt was not to fight. It was to get in and get out, unseen and undetected. But we were not only equipped to fight if necessary. From the unit s earliest days under the sway of Meir Har-Zion, Kapusta and Gibli and Errol and the other grizzled vets from Unit 101 and Company A, we had been steeped in the spirit of commandos. Our training was the most rigorous in the Israeli armed forces, involving not just a punishing endurance r gime but learning to assemble and disassemble, fire and detonate, everything from handguns to machine guns, makeshift explosives to grenades and landmines. The frustration we felt on the first morning of the war was not because we were itching to fight, for the hell of it. One hallmark of the sayeret s ethos, especially once the unit did start to evolve into a full-fledged commando unit, 88 was always the principle of targeted force, the idea that we would take out targets, or defeat enemies, out of military necessity. But even on the first day of the war, it was clear that it would be by far the most consequential conflict in our country s history. There was no mission for Sayeret Matkal, nor, it seemed, any prospect of our playing any significant part. The fact that my own role was slightly less peripheral was due to Avraham Arnan. He phoned me almost as soon as we d got news of the Israeli air victory, and told me he had been told to take a few men from the sayeret across the southern border. Our assignment was to complete our failed attempt to defuse the booby-trap on the intercept in the Sinai. I quickly drafted in two others from the unit. One was Danny Michaelson, a friend from Hebrew University, where we had been lab partners. The other was Rafi Friedman, our paramedic, who had been with me on several of our missions on the Golan. Avraham arrived at the base around noon. I got a Jeep and we set off. We crossed into Egypt around four o clock in the afternoon and headed for the field headquarters of Israel Tal. Known as Talik, he was the commander of Israel s armored corps, and Avraham knew him well. His wartime division consisted of the country s premier tank unit, the Seventh Armored Brigade, and a reserve brigade. We accompanied them the next day to an abandoned Egyptian camp not far from El Arish, in the northern Sinai. At least, we d assumed it was abandoned. As Talik and Avraham were talking in his command post, we heard a sudden burst of gunfire, which seemed to come from just a few dozen yards outside. As everyone inside the command post looked around, Avraham turned to me and said: Ehud, don t you think we ought to deal with it? Then, to Talik: Make sure none of your guys shoots him. I got Danny and Rafi. We made our way toward an underground bunker, which seemed the most likely source of the gunfire. Hugging the wall as I led the way down a series of concrete steps, I clicked off the safety on my Uzi just in case. But with the main Egyptian forces in obvious retreat, I figured that whoever was doing the shooting would have to be shellshocked, or insanely brave, to put up a fight. There were eight men crouched inside, soldiers and several staff officers cradling Kalashnikovs, and an Egyptian army general. In what was obviously at least serviceable Arabic, I told them all to raise their hands. I made a brief attempt to interrogate the general, but quickly reached the limits of my linguistic proficiency. So we marched them away and handed them over to Talik s intelligence officers. 89 This interlude instantly conferred on us the desert equivalent of street cred. The next morning, Talik agreed we could accompany the Seventh Brigade as it moved deeper into the Sinai, and peel off when we got closer to Gebel Libni to complete our sayeret mission. Given the early course of the fighting, and our forces rapid advances in the Sinai, I couldn t help wondering whether there was any real need to defuse, much less remove, the bugging machinery. But the very fact that the kirya, in the early hours of the war, had still wanted us to try was a reflection of the deep sense of apprehension in Israel in the weeks before the war. Even now, it appeared, there was a concern that the Egyptians might reclaim the parts of the Sinai which we had captured. When the armored column got close to Gebel Libni, I pulled our Jeep aside and headed for the stretch of communications cable where we d planted the intercept. For several hours, I tried to accomplish in broad daylight what I d failed to do in the desert darkness four months earlier. But it was no use. I finally told Avraham we d be better off just blowing it up. I attached an explosive charge and set a two-minute delay. We watched from a couple of hundred yards away as the whole assembly disintegrated. Then we rejoined the Seventh Brigade. Before sunset on the third day of the war, we reached the Egyptian air base at Bir Gafgafa in the heart of the Sinai. Even had the war ended then, we would have been in control of a large chunk of the desert buffer zone which Ben- Gurion had hoped to retain after the 1956 war. But now, more quickly than even the most optimistic planners in the kirya could have anticipated, Talik was poised to move on toward the Suez Canal, and the main towns and cities of Egypt. As the Seventh Brigade billeted down in Bir Gafgafa, Talik sent his reserve brigade westward, in the direction of the canal. We went with them. The battalion was more mobile than a pure tank force, but also more vulnerable: lightly armored French AMX-13s and a collection of the halftracks which I dimly, unfondly, remembered from my tironut. A few of the AMXs led the way, then a line of halftracks, and more tanks at the rear. I nosed our Jeep into the middle, behind the battalion commander, a lieutenantcolonel named Ze ev Eitan. There were scattered groups of Egyptian soldiers on either side of us, and they aimed an occasional burst of fire in our direction. But there seemed little point in shooting back. We didn t need to fight, and it was clear that the Egyptians didn t really want to. Shortly before dark, Lieutenant-Colonel Eitan brought our column to halt. The road we were on cut through tall sandunes on either side. We knew there 90 were still Egyptian soldiers around us, though I doubt any of us expected trouble. Still, there were well-established rules for setting up a defensible position when an armored force halts for the night. As Eitan briefed his officers, I stood a few feet off to the side and listened. Suddenly, the commander of his AMX company interrupted. Sir, he said, why are we staying here right on the main road? There are Egyptians still out there. Behind us, for sure. And any force ahead of us will run straight into us. Why not a few hundred yards off to the side, in a place that gives us a view of any enemy movement, or allows us to ambush an approaching force? I could see that he was right. I expected Eitan to agree and alter the arrangements. But he didn t. I think that, having ordered his men to encamp on the road 20 minutes earlier, he was reluctant to get his tanks and halftracks moving again. No doubt, some of the exhausted crews were already asleep. I parked our Jeep a few yards off the road. We organized a series of watches: Avraham, then Rafi and Danny, with me taking the pre-dawn stretch. A few hours later, Rafi nudged me awake. I heard something, he said, pointing west toward the Suez Canal. It was faint. But I think so. I told him to keep listening. For a while, everything seemed fine. Then, Danny woke me up. He said he was sure he heard a faint tremor, as if from tanks or APCs. I put my ear to the ground. I heard it too. I told him to go to Eitan s command halftrack, insist he be woken up, and tell him. When he got back, Danny said: I told him. And? Don t know, he replied. He said I could go. I tried to grab a bit more sleep before my watch. But barely 15 minutes later, Danny jostled me awake again. I m sure now, he said. Whatever it is, it s closer. I went off to find Eitan. But before I got there, a column of Egyptian T-55 tanks suddenly appeared on the road, 50 yards from the front of our column. I m sure they were every bit as surprised as we were to be face-to-face with enemy armor. But they knew what to do. They opened fire. Had we been deployed a few hundred yards off the road, we d have seen them coming. If the battalion commander had acted on Danny s warning, we d have had an extra 20 minutes to prepare. But the shells jolted our crews awake. Within 30 seconds, they were returning fire. But our tanks barely dented the heavily armored T- 55s. Nearly every one of theirs seemed to score a direct hit. Within minutes, a number of our halftracks, and one of our tanks, were in flames. 91 Now that we were in a fight the single fiercest battle in Israel s advance across the Sinai Lieutenant-Colonel Eitan reacted swiftly. Standing tall amid the shellfire and the flames, he radioed for supporting fire, only to be told that none of our artillery batteries was within range. Realizing we couldn t penetrate the front armor of the Egyptian tanks, he ordered a platoon from the rear to leave the road and fire on the Egyptians from their flank. When one T-55 was hit and started to burn, he ordered the rest of us to collect the dead and wounded and retreat toward Bir Gafgafa. As we pulled back, we encountered a company of Centurion tanks from the Seventh Brigade, sent in to relieve us. We pulled off the road to let them pass. The battle ended up raging for another hour. By the time it was over, the Egyptian tank unit was nearly destroyed. But almost two dozen of Eitan s reservists had been killed. A few days later, I learned that the commander of the Centurions had also been killed. His name was Shamai Kaplan. Though I didn t know him personally, he was married to one of my kibbutz sisters from Mishmar Hasharon. The pace of the war, its intensity, and the transformative capture of territory across our 1948 borders had accelerated dramatically since we d joined the reserve battalion s ill-fated advance toward the canal. Back at Bir Gafgafa, we learned that Israeli troops had broken through in fierce fighting with the Jordanians and taken the whole of east Jerusalem, including the Old City and the site of the remains of the ancient temple. The news sent a shiver down my spine. I was still only 25, a kibbutznik raised on the assertively secular creed of Gordinian Zionism. But I was old enough to remember the war of 1948, the bitter struggle for the ancient city in which Judaism had been born, the packages of food we had sent to try to help break the siege there, and the division of Jerusalem at the end of the war, leaving us with only its newer, western half. And while I may not have read the Torah in the same way as a religiously observant Jew, the meaning of Jerusalem was no less powerful for me. It was part of our people s history, of who we were, where we d come from and how we had ended up in the place where I d been born, where I d grown up, and which I d spent the early part of my adult life defending. This was no less true of the biblical sites of Judaea and Samaria the West Bank of the Jordan river. 92 Places like Bet El, Shiloh, or Hebron. They represented the historic wellspring not just of the state we d created, but of Jewish civilization, our heritage, our moral and ethical foundation. As I drove back to Tel Aviv with Avraham and the others on the morning of fourth day of the war, we heard Israeli ground forces were consolidating their hold there as well. After dropping Avraham at the kirya, we drove back to the sayeret base, but it was nearly empty. The main fighting was now with Syrian armored units on the Golan Heights, and most of the men in the unit had gone north in the hope of joining what seemed likely to be the final stage of the war. Although the precise outcome was not yet clear, there was a dawning certainty, almost surreal, that Israel was gaining control of all the areas across our 1948 borders from which the Arab states around us had shelled Israeli farming settlements, or facilitated fedayeen attacks and ambushes against our citizens the very border areas where I d led intelligence operations in Sayeret Matkal. I, too, drove north. Not far from Kibbutz Dan, the staging point for our first Golan operation, I linked up with a group of other sayeret reservists. Israeli tanks had already broken the main resistance of the Syrians, but fighting was continuing in a few parts of the Golan. In the western corner of the Heights which bordered Lebanon, several villages still lay beyond the Israeli advance. We got an order to see if we could take them. It took barely an hour, against no more resistance than I d met in capturing the Egyptians in the Sinai bunker. By the time we had made our way back across the Golan to the now-abandoned Syrian headquarters in Quneitra, it was sunset. The war was drawing to a close. I gave my Jeep to a couple of paratroopers and hot-wired a more comfortable mode of transport back home: a big, black Mercedes which had obviously belonged to a senior Syrian officer. If only because of the license plates, I avoided the main road back into Israel. I found a dirt track running between Syrian positions on the southern edge of the Golan and descended toward the fruit groves of Kibbutz Ha on, near the Sea of Galilee. I then headed for Givataim in north Tel Aviv, to a place I knew well. It was the home of Menachem Digli. He had been Avraham Arnan s deputy in the sayeret when I left for my stint in officers school. Before I returned to the unit, he had a motorcycle accident, badly damaging his leg. He d been temporarily reassigned to a post in intelligence. I figured a Syrian Mercedes would make a nice gift. Not wanting to wake him, I left it in front of his house. Sadly, he never got to use it. The next day a couple of military policemen knocked on his door and 93 asked what he knew about the car outside. Nothing, he said. It s not mine. They took it away. As insistently as I, and others in Sayeret Matkal, had wanted to play our part on the battlefields of the Six-Day War in the Sinai, on the Golan, in the bitter battle to capture Jerusalem, or amid the olive-green hills and valleys of the West Bank we had to accept that, at most, we d been freelance support troops. Or mere spectators. But while it would be many years before this was openly acknowedlged, we did play an important part in the outcome. Because Dayan had been called back as Defense Minister only days before the war, he had wisely decided not to alter the plan for the preemptive air strikes. But he did adjust our ground advance. Just as with Eshkol s knowledge of the initial Egyptian advance in the Sinai before the war, Dayan s judgements were informed by detailed, real-time intelligence on where enemy tanks and troops were located, what they were doing, and what how and when they were planning to advance. As speculation mounted after the war about how Israel seemed to know so much the Arab forces, Meir Amit s successor as Head of Military Intelligence, Ahrahle Yariv, even engaged in some misdirection. He was anxious to avoid jeopardizing future sayeret bugging operations. In a speech on how the war had been won, he included a reference to a high-ranking spy in the Egyptian army who, he implied, had leaked critical information. The spy was the series of intercepts we d attached to the Egyptians main military communications network in the Sinai, and to the telephone poles on the Golan Heights. On a deeply personal level, too, the war left its mark on Sayeret Matkal. Though the fighting had been brief, people did die. Thousands of Egyptians, Syrians and Jordanians. And about 650 Israelis. Some of were not just people we knew. They included close friends. Nechemia Cohen, the officer I d joined in our failed attempt to defuse the booby-trap in the Sinai before the war, entered Gaza on the first day in his new role as deputy commander of Amsalem s paratroop unit. Amsalem was killed early on, so Nechemia took command. He was shot and killed fifteen minutes later. To this day, he and I share the distinction of being the most decorated soldiers in Israel s history. Had he lived, I have no doubt that it is an honor he would have held alone. This was the first close friend from the unit we d lost. We did not mourn him openly. For young soldiers of my generation, especially but not only those raised with the additional kibbutz ethos of stolid self-control, there was an embedded sense that such individual displays of emotion were an indulgence, and luxury 94 even, which the country we were building could not afford. In the early years of the state, the model Israel mother or father were those who stood silent and strong as a soldier s coffin was lowered into the ground. Nechemia s death hurt, of course. I was friends not just with him, but his older brother, Eliezer. Known by his army nickname, Cheetah, he was in charge of the air force s main helicopter squadron. He had flown both me and Nechemia on sayeret missions into the Sinai. Several days after the war was over, before returning to university, I drove up to Jerusalem to see his family. Cheetah was at the door when I arrived. Neither of us spoke. But as we embraced, I could feel my eyes dampen, and there were tears in his eyes as well. Our squadron was the one that got the call to bring out the casualties, he said. They ordered the pilot who brought out Nechemia not to tell me he was dead until the war was over. He was a wonderful man, I said. There was no one better. When I returned to Hebrew University, the country felt completely different. It was not just the sudden realization that, in military terms, Israel had eliminated any realistic threat to its existence, important though that was. The more profound change was physical. The country in which I d grown up was a place which felt not just small, but pinched, especially in its narrow waist near Mishmar Hasharon. Pre-1967 Israel was about three-quarters the size of the state of New Hampshire. Now, within the space of less than a week, the territory Israel controlled had more than tripled. It included the whole Sinai Desert, up to the edge of the Suez Canal. The entire Golan. The ancient lands of Judaea and Samaria: the West Bank. And the reunited capital city of Jerusalem. Suddenly, we had a sense that we could breathe. Wander, explore. Few of my classmates were religiously observant. But none of us could help feel the sense of connection as we walked through the Old City of Jerusalem, or parts of the West Bank whose place-names resonated from the Bible. I felt especially moved when I first visited the Old City with my friends, stopping and chatting and buying things at the colorful market stalls. And, religious or not, when I stood in front of the surviving Western Wall of the ancient Jewish temple. 95 The personal interactions we had with Palestinians in the weeks after the war were without obvious tension, much less hostility. They were often friendly. Looking back, I m sure that was one reason along with simple human nature, a desire to enjoy Israel s new sense of both security and size that none of us was inclined to look too deeply, or too far ahead, and contemplate the implications for our country s future. I was aware, of course, that the politeness we exchanged with the Palestinians of Jerusalem or the West Bank were superficial: a few words across a market stall or a restaurant counter. I did not pretend to myself that our Arab neighbors were now suddenly inclined to be our friends. But I did feel that, having come face-to-face with our overwhelming military supremacy, the Arab states would, over time, grant Israel simple acceptance. From there, I believed that we could begin the process of building genuine, lasting, human relationships and, eventually, peace. There was a brief period after the war when Eshkol cautioned his ministers about the implications of holding on to the vast new area we had conquered. The government formally agreed to treat most of it, with the exception of Jerusalem, as a deposit to be traded for the opening of peace talks. Yet within weeks, the emphasis in the Israeli political debate shifted to which parts we would keep: the Sinai and the Golan almost certainly, as well as the Jordan Valley and a number of areas of past Jewish settlement on the West Bank. The drift away from any serious talk of trading land for peace was accelerated by the Arab states response to the war. Perhaps that, too, was simply a matter of human nature, a reluctance on their part to accept defeat. But they appeared no more ready than before to contemplate peace. Throughout the summer, there were clashes along our new border with Egypt: the Suez Canal. In September, all the Arab states adopted a platform which became known as the three no s . They rejected not just the idea of peace, but peace talks, or recognition of the State of Israel. And in October, Egyptian missile boats attacked and sunk Israel s largest warship, the destroyer Eilat, killing nearly 50 people on board. Without this renewed violence, perhaps, we in Israel might have been able to consider more deeply the future implications of our victory in the Six-Day War. The gains on the battlefield, of course, were clear to everyone. We were no longer a small, constricted country beset by a sense of vulnerability. We were not only much bigger, but also stronger than the combined armies of the Arab states. Still, very few people asked themselves at the time what kind of Israel this implied. We failed to grasp the potential complications in holding on to all 96 the land, and of controlling the daily lives, however benignly, of the hundreds of thousands of Arabs who lived there. Nor, crucially, did we ponder the limitations of military strength, alone, in addressing these questions. We and I, too, at the time were too caught up in a sense of post-war relief, celebration and, as the months of ostensible normalcy in this new Israel, complacency as well. But within only a few years, we would face a dramatically different series of challenges. First, a campaign of Palestinian terror. Then, another full-scale war, which began with a surprise attack by Arab armies which we had assumed would not dare to fight us again. 97 Chapter Seven If you d visited Tel Aviv in July 1967, you would have sensed a new spirit of confidence, not cockiness exactly, but a sort of spring in the collective step. This was not just due to the Six-Day War. It was because the city, if not yet the rest of the country, had shed the economic austerity of Israel s first two decades and was beginning to experience at least some of the consumer comforts which Western Europe, or America, took for granted. But we were still a decade away from the first shopping malls, or the upscale caf s and restaurants which nowadays give places like Dizengoff Street, a few blocks back from the seafront, the feel of London or Paris on a summer s day. Television had been introduced only a year before the war. Color TV was still nearly a decade away. I can t say I was surprised to learn, when the archives were opened a few years ago, that a committee of moral arbiters in our Ministry of Education vetoed plans for the Beatles to perform in the city. No intrinsic artistic value, they pronounced. And their concerts provoke mass hysteria. Even in Tel Aviv, and certainly the rest of Israel, a kind of cultural austerity still prevailed, an emphasis on modesty and self-restraint. It was a legacy of 1948, a reflection of the years of shared sacrifice, physical labor, and the lifeand-death struggles which I, like most Israelis at the time, had experienced within our own lifetimes. That may help explain why I can remember no one remarking on an aspect of my character which, once I rose to public prominence, would attract attention, frequent comment, and sometimes criticism as well: the fact that I seemed so self-contained, reluctant to engage emotionally with people beyond a circle of close friends or confidants. My lack of smalltalk, and the kind of gladhanding and schmoozing that are the currency of political life. At the time of the 1967 war, I was not yet a public figure. Yet to the extent those around me would have taken note family, university classmates, sayeret comrades, or officers in the kirya my slight emotional aloofness, my focus on simply getting things done, and the way I internalized setbacks, even tragedies like the death of Nechemia Cohen, was not exceptional. It was, in many ways, simply Israeli. Yet as Israel, Israeli society and my place in them changed, it would be suggested to me more than once not always kindly, when it was from critics or rivals that I had a touch of Aspbergers in me, a reference to those on the more benign reaches of the autism spectrum with a special facility for math, 98 abstract ideas, the theoretical sciences and, often, music as well. I would always smile in response, suggesting that such diagnoses were probably best left to the professionals. I couldn t pretend, however, that emotional engagement with new acquaintances, even with people I knew and liked but were not close friends, was something that came naturally. And it is also true that from my first experience of the world of numbers as a child on the kibbutz, and as I tackled ever more elaborate pieces on the piano, I did become aware of what might be called the upside of a touch of Aspergers if that, indeed, is what it is. I was conscious of the ease with which my brain translated the complexities into pictures in my mind. And the joy, at times, with which it allowed me to play around with, and develop, what I saw. By the summer of 1967, I had experienced that feeling again, in my first real encounter with theoretical physics at Hebrew University. After the Six-Day War, I began seriously contemplating a future as a research scientist, or perhaps eventually a professor of physics. Two months after the war, I enrolled in a summer program at the Weizmann Institute, Israel s preeminent postgraduate research facility. Surrounded by some of the country s, even the world s, leading scientists, and by post-doctoral students determined to follow in their footsteps, was intellectually enthralling. But it turned out to have another effect on me as well. As I thought more and more about the prospect of joining their fraternity once I d completed my undergraduate degree, I also heard them describe the way in which pure science sometimes got submerged in simple routine, or, more discouragingly, in the politics and positioning and backbiting of the academic world. I think what finally changed my mind, however, was a feeling, nurtured on the kibbutz but solidified by that many nights I d spent leading sayeret operations across our borders, that I would find my true purpose in life trying to make some special contribution to the future course of Israel. I did not for a moment contemplate politics at that point. Instead, I thought of going back into the military. I realized that in order to make a significant mark, if indeed I could, would require me to serve in the regular army, not just an extraordinary unit like Sayeret Matkal. But I did hope that, at some stage, I d be given the opportunity to finish my time in the sayeret as its commander, carrying on Avraham s vision and, ideally, building and expanding on it as well. At least if that part proved possible, I felt that, by comparison, a career in academia would be somehow blinkered, and surely less fulfilling personally. My sayeret experience had also taught me something else as well: that protecting Israel s security was not just a matter of muscle, or firepower, indispensible though they 99 sometime were. It called for mental application, an ability to assess risks, to find answers under enormous pressure when, inevitably, things went wrong. It required not just brawn, but brains. A week before I began my final year at Hebrew University, I went to see Eli Zeira, the senior intelligence officer who d so brashly predicted the course of the Six-Day War, in hopes of sounding out my prospects of picking up my military career where I d left off. Despite a yawning gap in rank and age Eli was nearly fifteen years older I felt I could be open with him. Not only did I know him from Sayeret Matkal, which came under his purview in the kirya. He was a scientist manqu and was eager, as soon as I arrived in his office, to hear about my physics studies. When I did manage to turn the conversation to the army, I told him I was thinking of returning after I graduated. Yet before finally deciding, I wanted his honest opinion about my chances, at some point, of being given command of the sayeret. He began with a series of caveats. The choice of future leaders of the sayeret was not be his to make. When the current commander, Uzi Yairi, ended his term in roughly 18 months time, I d still be too young to have a realistic chance. Maybe even next time around, he said. And in any case, I would first need to get some experience in the regular army. But then, he concluded, my opinion is that you have a very good chance of becoming commander of the unit. That was more than enough. I figured that whether it actually happened would now ultimately be down to me. My last year at university was the closest thing I would have to a normal student existence. I was called away only once. But it was for a battle which would turn out to have a lasting impact on the course of our conflict with the Arabs, and on the prospects of eventually finding a way to make peace. It was Israel s largest military action since the war, across our new de facto border with Jordan. And it was directed at a new enemy: a fledgling army of Palestinian fedayeen, called Fatah. It was led by a man that I, like almost all Israelis, had never heard of at the time: Yasir Arafat. Born in Egypt, as a 19-year-old he had fought against the establishment of Israel in the 1948 war. Although Fatah had nominally existed for nearly a decade, it was only now emerging as a political force, in large part because of the Arab armies humiliating defeat in the Six- Day War. A Palestinian political leadership already existed, in the shape of the Palestine Liberation Ogranization. But it was based in Cairo. Its chairman was, for all practical purposes, an adjunct of President Nasser s leadership role in the Arab world. Though Arafat had not yet explicitly challenged this state of affairs, his, and Fatah s, rise after the war carried a powerful, message for the existing Arab presidents and prime ministers: their brash promises of victory before the 100 1967 war had turned out to be hollow words. It was time for a new generation, and a new, more direct, form of confrontation with the Zionist enemy. Arafat had set up camp with nearly a thousand men just across the Jordan River, in a town called Karameh. From early 1968, they had been launching hitand-run raids, not just on the West Bank but into the Negev. Eshkol s cabinet was initially divided on whether to attack his base in Jordan, in both an act of retaliation and a signal to King Hussein that if his army didn t rein in Arafat s men, Israel would take whatever action necessary. But the decisive moment came on the eighteenth of March. A school bus near Eilat, in the far south of Israel, hit a Fatah landmine, killing the driver and a teacher, and injuring 10 of the children. I was called up the night before the Israeli attack, as part of a small Sayeret Matkal contingent which was supposed to play a support role. An enormous pincer operation was mounted around the Fatah camp and Karameh itself: including a full infantry brigade, the Seventh Armored Brigade and the paratroopers sayeret. But the resistance they met, both from Fatah and Jordanian troops, was much fiercer than expected. One of the paratroop commandos, Mookie Betzer, who would go on to join Sayeret Matkal, told me how they landed by helicopter and immediately came under a hail of AK-47 fire. Within minutes, several of his men had been killed. Mookie was wounded. The tanks of the Seventh Brigade advanced from the south. Battling the Jordanian army, they took losses as well. Amnon Lipkin, who would also later become a friend and colleague, in both the army and Israeli politics, was in command of a unit of lightly armored French tanks called AMLs. They, too, were hopelessly outgunned. Our sayeret assignment was to block the southern entrance to Karameh as the Israeli armored force advanced. But we got bogged down in mud as we made our way from the Jordan River. By the time we arrived, hundreds of Arafat s men had already fled the area. Arafat, too, had escaped, on the back of a motorcycle. By the time the fighting was over, some two hundred Fatah fighters had been killed. But nearly 30 Israeli soldiers lost their lives as well, and more than twice that number were wounded. Politically, the outcome was even murkier. Most of Israel was still basking in our victory in the Six-Day War. Now, we had deployed many of the same units, only to fight to what looked like a costly draw. Arafat and Fatah could claim and soon did that they had stood and fought, and inflicted losses on the victors of 1967. 101 In retrospect, given all the interruptions, I m a little surprised that I managed to get through my university studies. My classmates helped. They were incredibly generous in going through with me what I d missed, and sharing their notes, whenever I returned for an extended stint of reserve duty. I ve seen interviews with university friends saying I was one of the top students in our class. But that is more generous than true. It would be fairer to say I was a good student.Working hard in the final year, I did finish in the upper quarter of the class, and several of my math and science professors strongly urged me to go on to graduate school. But my mind was made up on returning to the army. And as I balanced my studies with plans for the future during my final months, I still hadn t given up hope that Nili would be there with me. When she returned from Paris, we had started seeing each other again. Whenever I could, I would take the bus down to Tel Aviv and spend the weekend with her. Everything I d loved about her since that first meeting in the kirya, everything I valued in our relationship, was still there. Yet so, too, were the doubts: whether she was ready to commit herself to sharing our lives together; and whether a kibbutznik like me could ever truly fit in to her Tel Avivi world. Shortly before Karameh, she d invited me to a Fridaynight party with a group of her friends. It was the first time she was including me, as part of a couple, in her social circle. But almost from the moment we got there, I felt out of place. For her, it was just another party, one of dozens she must have been to since she was a teenager. But I immediately felt out of place. I didn t drink. I couldn t dance. I couldn t help feeling like a wallflower, or an alien presence. Now, I decided there was no point in waiting and wondering. I borrowed a Jeep from an army friend, with the idea that Nili and I could spend three or four days together, driving south from Jerusalem into the Negev and the Judean desert: to be alone, to talk, to see whether we actually had a future. I wrote her a note, took the bus to Tel Aviv while she was at work, and dropped it through the letterbox. I am going on this trip, into the desert, it said. I d love it if you could come with me. I think it s important for us. I never heard back. I felt crushed, though I tried hard to tell myself it was better to know where we stood. Years later, she told me the envelope had ended 102 up under a pile of mail. She hadn t seen it until a week afterwards. She said that of course she would have come with me. She felt angry with herself, and with me too, for not simply having phoned. But since I didn t contact her in the weeks that followed, she figured this was just another one of our times apart. Or stupid pride . A few months later, I heard she was engaged to be married, to a young man she d known since their high school days at the Alliance. I had first met Nava Cohen, the woman I would go on to marry, the previous year. It was through another Cohen, though they were not related: Nechemia, my sayeret friend who was killed in the 1967 war. He invited me to Tel Aviv for a party in the spring, on the Jewish holiday of Purim, and introduced us. Nava was just nineteen, five years younger than me. I was struck not just by the fact she was attractive, but by her poise, warm-heartedness, and her obvious intelligence. But she had her boyfriend with her, and I still saw myself and Nili as life partners. Now, she was beginning her studies at Hebrew University as well, and, in a way, it was again Nechemia Cohen who brought us together. Since his death, those of us who knew him from the sayeret had been looking for a fitting way to remember and to honor him. We finally decided to set up a living memorial in his name: a Moadon Sayarim, a center to train young people from all over Jerusalem in scouting and navigation. We spent six months getting it up and running, and Nava pitched in with the work. It wasn t until a few months after I heard of Nili s engagement that I finally asked her on a date. We were in the university library, which had a space where you could listen to tapes through headphones. I would go to hear classical music. Nava was studying English literature, and I d sometimes see her there, engrossed in recordings of Shakespeare with the text of Hamlet or Macbeth in front of her. Since I wasn t shackled by the need to follow the alacks and alasses, I read the newspaper as the music washed over me. I turned to the movie section. I circled three films, drew a question mark in the margin and passed it to her. She looked puzzled for a second. Then she smiled and put a checkmark next to one of them. While we came from different backgrounds, the gap was narrower than it had been with Nili. Her parental home was in Tiberias. Her parents were from old Sephardi families, with a centuries-long history in Palestine, and were also solid Ben-Gurion Labor supporters. Her father had fought in the British army in the Second World War. He now ran the branch of Bank Leumi in Tiberias. Her mother ran a shop in what was then the city s best hotel, the Ginton. 103 We were married there, in the spring of 1969. My parents and brothers came with two busloads of friends from the kibbutz. Avraham Arnan was there, of course. But Ahraleh Yariv and Eli Zeira, two of the military intelligence heroes of the Six-Day War, also drove up for the wedding, which touched both Nava and me, not to mention her family and our guests. Years later, as I rose higher in the ranks of the military, I would sometimes be invited to weddings by officers under my command. Remembering how much we appreciated Ahraleh s and Eli Zeira s gesture. I always said yes. It was only weeks after our wedding that I formally returned to Sayeret Matkal. Both Nava and I were aware of the additional pressures my military commitments might place on our family life. But she understood why I d chosen to go back, and was supportive. As for me, I was, if anything, more certain that I d made the right decision. Israel was clearly facing a whole new set of challenges to its security. Given the decisiveness, and speed, of our victory in 1967, there seemed no immediate danger of Egypt s risking another full-scale war. In Israel, where Golda Meir had become Prime Minister after Eshkol s death from a heart attack, there was also little appetite for returning to the battlefield. Yet the post-war skirmishes with the Egyptians along the Suez Canal had escalated into far more than that: what would become known as the War of Attrition. Nor could there be any doubt, after Karameh, that Fatah s influence, militancy and determination would only grow, not least because even more radical factions within the PLO were ready to step into the breach if Arafat faltered. Israel needed to find an answer for all these threats. Uzi Yairi s term as Sayeret Matkal commander had by now ended, but his successor was someone I knew well. Menachem Digli was the officer on whom I d bestowed my stolen Syrian Mercedes at the end of the war. His leg was now recovered from the motorcycle accident, and I returned to the sayeret at his deputy. He delegated full responsibility to me for operational issues. I believed that the new kind of challenges we were confronting, particularly the prospect of intensified attacks from the new generation of Palestinian fedayeen, meant that the sayeret would sooner or later have to broaden its reach, moving beyond the kind of intelligence operations we d done before the 1967 war to become the SAS-like special forces unit Avraham ultimately envisaged. But that was not 104 going to happen soon, if only because the intelligence missions now required were going to be a lot tougher. Israel now had control of the entire Sinai and the Golan. To tap into enemy communications, we would have to push deeper inside Egypt and Syria. Soon after my return, we began planning the sayeret s most ambitious mission so far: targeting the main communications system between Suez City, at the southern end of the canal, and Egyptian military headquarters in Cairo. We were obviously going to have to go in by helicopter. But we faced not just the risk of being spotted on the way in. The buildup of Egyptian forces along the canal now included Soviet-made anti-aircraft missile batteries. We might easily get shot down. The mission struck the generals in the kirya as so risky as to border on the insane. But I was confident that we could make it work. I began talking to the few senior air force officers who seemed more receptive, as well as to officers in the helicopter units. Not only had I flown into the Sinai on earlier missions. I now also had a physics degree. Together, we developed a plan using the desert terrain, and drawing on the helicopters maneuverability to calculate a flight route that could avoid detection by Egyptian radar. As an extra fail-sale, I proposed using three helicopters, and three sayeret teams. Two would fly slightly higher, with the express aim of getting spotted, but still evading missile fire. They would land far away from the real target of the operation. The main team, with me in command, would also stage a pair of diversionary attacks: planting explosives on a high-voltage electricity cable, and on the main oil pipeline from Suez City to Cairo. Still, for many weeks, the answer from the kirya was no. The man who had succeeded Rabin as chief-of-staff after the war, Chaim Bar-Lev, dismissed it as a plan built on chicken legs. In the end, what got us the green light was a further escalation, on both sides, in the War of Attrition. In January 1970, Israeli warplanes began a series of deep-penetration bombing raids, for the first time striking targets dozens of miles, in some case hundreds of miles, back from the canal. The Israeli bombing campaign reduced the chance we d get shot down and provided cover for our operation. Our helicopters took off after sunset, nearly skimming the water and peeling off in separate directions on the far shore. The other two aircraft headed 120 miles to the south. I led the main team of ten men. We set down a few miles south of the road from Suez City to Cairo. We unloaded a pair of Jeeps, drove off, and within an hour had placed our time-delay explosives on the electricity 105 tower and the pipeline. But when we reached the site of the underground communications cable, the mission literally ran into the ground. We dug for more than two hours, but still hadn t found the cable, and our mail-order metal detector stubbornly refused to chirp out any sign of it. Just when I d decided to call the helicopter back in to get us, it finally peeped a faint signal. I still wasn t convinced, but as we manipulated it back and forth, it got louder. Still, my instinct was to abort. We d placed the explosives on the electricity tower and the pipeline. That would at least divert attention from our real mission, which meant we could return in a few months and have another attempt. After all, the part of the operation that had been causing the most concern in the kirya our ability to get deep inside Egypt undetected had succeeded. We were nearly three hours behind schedule. Unless we worked a lot more quickly than planned, by the time we installed the communications intercept and covered our tracks, it would be daybreak. Digli and several other sayeret officers were following the mission from their command post in the Sinai, part of the intelligence base our military engineers had built after the war into a 2,400-feet-high mountain called Gebel Um-Hashiba, 20 miles back from the Suez Canal. When I radioed in to tell him I d decided to abandon the operation, I could hear the surprise in his voice, and what seemed reluctance as well. If that s your judgement he said. But before I could reply that, yes, I felt withdrawal was the wisest course, I heard him speaking to someone whose voice I also recognized: Avsha Horan. He was the soldier on guard duty in the command post for our first intercept operation in the Sinai, the one who d told me of how Rabin was chain-smoking and biting his nails when it appeared we might be in trouble. Now, he was a sayeret officer. Digli came back on the radio. We can see more from here, he said. Then, pausing, he added: Avsha says he thinks you can still do it. I had grown to respect Avsha s judgement. And while Digli hadn t explained what more they saw from the command post, I assumed that, since they were also following the other helicopter teams further south, they were concerned that the Egyptians had figured out at least that Israeli units were involved. Both he and I knew that it ultimately had to be my call. Whatever happened, I d be responsible. Yet I realized that discussing it further would change nothing, and time was now what mattered most. We ll do it, I told him, and signed off. We d planned for the cable work to take something like five hours, which I knew we couldn t afford. With all of us pitching in, sweat drenching our Egyptian uniforms, we managed to finish in slightly less than four. But we 106 were still behind schedule. Dawn was 25 minutes away. I radioed the helicopter pilot with a new pickup point, closer to where we d installed the equipment though still far enough, I hoped, to avoid giving away what we d done. Still, we barely made it. The sun was rising as the chopper began weaving among the dunes and wadis on the flight back to Israel. Looking back, we could see flames leaping up from the oil pipeline in the dim, dawn light. There could be no doubt the prize was worth it. By the time we returned, the receiving equipment at Um-Hashiba was, for the first time, picking up real-time communications at the highest level of the Egyptian military. With the War of Attrition showing every sign of getting even fiercer, it was a criticial intelligence advantage. When we landed, not only Digli, but Ahrale Yariv were there to meet us. Digli, smiling broadly, handed me a small cloth insignia. You ve earned it, he said, adding that Bar-Lev himself had endorsed my promotion from captain to major. With the Cairo-Suez mission, and a series of other operations I helped run nearer to the canal, there now seemed every possibility that I would be chosen to succeed Digli as commander when his term expired. But that was still more than a year away, in the spring of 1971. With his agreement, I decided to use the time to do what Eli Zeira had advised me before I made my decision to return: to get experience in the regular army. The War of Attrition had created a demand for qualified officers who could command tank units, since they were playing a key role against the Egyptians along the canal. Along with about a dozen other middle-ranking officers who had volunteered to move into the armored corps, I embarked on a course covering every facet of tank warfare: how each system on an individual tank worked, how to pilot one, load in the shells, and then calibrate its main gun, aim and fire. We studied communications protocols, even tank maintenance. We were taught how to command an armored platoon a group of three tanks and then an armored company of eleven tanks and APCs. Finally, in July 1970, we were given command of actual companies, with the aim of deploying us against the Egyptians. My company was part of Brigade 401, in the Sinai. It was one of the several armored forces that were rotated, every three months, into action on the front 107 line. In a stroke of good fortune, the brigade commander was Dovik Tamari, Avraham Arnan s first successor as commander of the sayeret. While we waited our forward deployment, due in September, he included me in his discussions with his senior officers on tactics and planning. This inevitably included the core of our existing strategy: a line of fixed fortifications which we had built on our side of the canal after the war. They were known as the Bar-Lev Line, because the chief of staff ultimately had to sign off on them. But the main impetus had come from Avraham Adan. A former Palmachnik, known as Bren, he was the overall head of the armored corps. There were strong critics of the Bar-Lev line, but few more vocal than Arik Sharon. The very qualities that had made him the perfect choice to lead Unit 101 and its successor commando units a natural instinct to favor bold, preemptive attacks, allied with an absolute confidence in his own judgment and little time for those who challenged it had stalled his rise up the military ladder for a few years. But now he was head of Israel s southern command. He was convinced that in the event of another full-scale war with Egypt, the Bar- Lev line would be worse than useless. We d find ourselves forced to defend a string of fortifications that could serve no real purpose in repelling a concerted Egyptian attempt to retake the Sinai. Arik s preferred strategy was to let the Egyptian troops cross the canal and then confront them on terms where Israeli forces had a proven advantage: a mobile battle in the open desert. When the debate came up in our brigade strategy discussions, I said I believed Arik was right. From our recent sayeret missions, I said there was no way the Bar-Lev fortifications could protect us. I knew how easy it had been for us to operate unseen between Egyptian positions across the canal, and they were only a few hundred yards apart. On some parts of the Bar-Lev line, there were six or seven miles between outposts. A whole Egyptian brigade could pass through. Very few in the kirya, however, seemed ready to recalibrate our strategy against the Egyptians. Only later, when the damage had already been done, would it become clear that the navy was alone in acting on lessons learned from the fighting since the 1967 war. Having lost its largest warship to a more mobile Egyptian missile boat at the outset of the War of Attrition, it began focusing on deploying mobile missile boats of its own. But the air force was showing no sign of dealing with the implications of the Egyptians increased anti-aircraft capability even though we d begun losing planes and pilots to the new surface-to-air missile batteries Nasser had received from the Soviets. And I 108 could see that a similar myopia, or denial, was affecting the armored corps. On patrol along the canal, I would sometimes see the hulk of an Israeli tank which had been destroyed by Soviet-made AT-3s. Known as Saggers, they were portable, allowing a single soldier to fire wire-guided missiles. Their range was nearly a mile-and-a-half, which was more than the main guns on our tanks. Yet no one appeared to have addressed the question of what would happen if the Egyptians used Saggers on an even greater scale in a future war. I remained in the Sinai through early 1971, but never led my tank company on combat operations. By the time we were due for our deployment, the War of Attrition was suddenly over. Neither we nor the Egyptians wanted a return to full-scale war. With Washington taking the lead, a cease-fire was agreed. Both sides claimed victory. But both were exhausted. Certainly, most Israelis had ceased to see a compelling reason for the 1,000 days of fighting. We had lost about 900 dead: more than in the Six-Day War. But in one respect, the Egyptians won. Under the terms of the truce, their anti-aircraft batteries were barred from a roughly 30-mile strip along the canal. Within days of the truce, however, Nasser began moving his SAM batteries forward. Before long, there were nearly 100 missile sites in the prohibited zone, giving the Egyptians control of 20 miles or more of the airspace on our side of the canal. Golda was incensed. So was Bar-Lev. But there was no way, and no will, to reopen the fighting and force Nasser to move the missiles back. The cease-fire took effect at midnight on August 7, 1970. I ve never had trouble recalling the date, because of a phone call almost exactly 24 hours later. It was from my mother-in-law, to tell me Nava had gone into labor with our first child. Since I was due for deployment on the front line, we had agreed weeks earlier that the best thing would be for her to have the baby in Tiberias, so her parents could be with her. Now, I got a Jeep and raced north. I reached Tiberias the next morning. I opened the door to the hospital room and saw Nava, obviously tired but beaming, cradling our daughter Michal in her arms. I managed to stay with them for several days before returning to the Sinai. With Nava and Michal soon settled back into our apartment in the north Tel Aviv neighborhood of Ramat Aviv, I made weekend visits home whenever I could. Still, I saw nowhere near as much of our daughter s first few months as most fathers. As Nava and I would discover even more jarringly over the next few years, that was an inescapable part of being an army officer. 109 But at least my next posting was closer to home. It was only 20 minutes from our apartment, on a former RAF base not far from Lod airport. On the First of April 1971, I was promoted from major to lieutenant-colonel, and given the assignment which, more than any other, I d hoped for when I returned to the army. I became the commander of Sayeret Matkal. 110 Chapter Eight It was the same jumble of buildings in the same corner of the base where I d reported a decade earlier, as a 19-year-old fresh from tironut, when the sayeret was still a gleam in Avraham Arnan s eye. Now, I was about to become the first of his successors to have been chosen from within the unit itself. As I called together the officers that first morning, I couldn t be sure whether I would make a success of my two years in command. But I did know what I hoped that I, and we, would accomplish: to complete Avraham s vision. To forge a true specialforces unit, at a time when the threats facing Israel seemed increasingly to demand one. Avraham s initial hopes and expectations for the unit had been more than met. Sayeret Matkal had played the key role in erasing the traumas of Uri Ilan and Rotem, and restoring the morale and effectiveness of Israeli military intelligence. Time and again, operations which we said we could do dismissed as too dangerous, or impossible, by others proved achievable. Yet as I now told the team leaders and our other officers, this was no longer enough. Our intelligence operations still mattered. In fact, we would have to push further across Arab borders, deeper into enemy communications systems. Our intercepts had given Israel an important edge in the Six-Day War. I assumed though naively, it would turn out that they would be put to use in any future war. But if the sayeret was to retain its unique role, we had to become a fighting force as well. One reason, I didn t even have to mention: we all remembered our frustration in 1967, when we d been little more than bit players in the most important conflict since the establishment of the state. But for me, the main argument for change was what had happened since the 1967 war: the fact that Israel was facing a new range of security challenges which other army units, trained to engage and defeat enemy troops on the battlefield, were not equipped to meet. In the War of Attrition, we might not have lost a single inch of territory. But we had lost tanks and planes. Israeli soldiers and pilots were being held prisoner in Egypt and Syria. Arafat s Fatah and the other armed Palestinian groups might not present a conventional threat. Yet while I d been with my tank company in the Sinai, they were fighting a full-scale civil war against King Hussein s army in Jordan. The catalyst: a multiple hijacking in September 1970, a sign that they were turning to non-conventional warfare, and to acts of terror. 111 We re not starting from scratch, I assured the sayeret officers, and I could see some of them nodding in agreement. We had a proven record of success, under Avraham and the four other commanders before me. We would be able to rely on the qualities that had proved our doubters wrong in our first intelligence missions. We have to stay true to the spirit of Sayeret Matkal, I said. Every one of the officers knew what I meant: teamwork, the way we valued brains and creativity, more than formal lines of authority. The rigor we applied to training for, preparing for, and executing each mission. And, no less importantly, to criticizing, and trying to fix, everything that had gone wrong on an operation, or we d failed to anticipate. Though I expected to be leading many of the operations myself, I knew that we d succeed or fail on the strengths of the officers around me. I was incredibly fortunate on that score. Some, I already knew well from my time as Digli s deputy. Smart, self-confident, self-starting officers like Amiram Levin, the stocky kibbutznik from the north with whom I d worked most closely and most often as deputy. Avshalom Horan Avsha who d convinced me to risk completing the mission on the road from Suez to Cairo. Giora Zorea, who, like me, had come up through the unit and was one of our most experienced team leaders. And Danny Yatom. Born not far from Mishmar Hasharon, but a city boy, from Netanya, he was smart, level-headed and a sure-handed organizer, and with whom I d somehow clicked from time he arrived in the sayeret. I made him my deputy for my first year in command. There were two others as well, both related to Moshe Dayan, but with a selfassurance all their own: Uzi Dayan, the son of Moshe s brother, who had been killed in the 1948 war when Uzi was only months old; and Mookie Betzer, who was married to Uzi s cousin. I m not sure which of the two joined the sayeret first. Mookie, I believe. But their family ties, far from extraordinary, were part of how Sayeret Matkal had developed from the start. It had been friends bringing friends. But also, not infrequently, a cousin bringing a cousin, or a brother bringing a brother. This was the case with two other officers, whom I knew less well at first but who would become key members of my team. In their case, it was the younger one who joined first. Binyamin Netanyahu Bibi, as everyone called him had been a member of Amiram Levin s team when I was Digli s deputy. He d also been a part of one of our several thankfully harmless failures along the canal at the beginning of the War of Attrition. The plan was to cross in rubber boats held together by nylon cord, with the assistance of Shayetet 13, Israel s 112 equivalent of the American navy SEALs. But Bibi s dinghy got tangled up, and he found himself in the canal, being tugged down by the current. Only the SEALs, and Bibi s mix of calm and endurance, averted disaster. When I returned as commander, Bibi had gone through officers school and was given a team of his own, making him one of half-a-dozen core, operational officers with whom I worked from the planning stages of every mission, through the training and the operation itself. Especially with Bibi, since he was newest to the role. He was smart, tough and, even by sayeret standards, supremely self-confident. It also was clear that he understood my determination to build the unit into a military strike force which was one reason why he urged me to bring in his older brother. Bibi was 22 at the time. His brother Yonatan, or Yoni was 25. He had led a company of paratroopers in the 1967 war, before going off to university. He d taken a bullet in the elbow while helping to rescue one of his soldiers behind Syrian lines on the Golan. He wants to return to the army, and he s exactly the kind of officer you want, Bibi said. I brought Yoni in for a chat. Over the next several years, I would get to know him much better, becoming not just friends but neighbors, when he bought a flat a few floors up from ours. But even in this first meeting, I found him a contrast to his younger brother. Bibi was practical, detail-oriented. Yoni was a more complex character. He was interested in history, and philosophy. He wrote poetry. He would sometimes feel the need to get off by himself, and just think. He was a man of action, too. Taller and trimmer than Bibi, with a thick thatch of dark hair swept back from a craggy face, he was the Central Casting image of a soldier. He also had real, battlefield experience. Not only did I invite him to join Sayeret Matkal. I put him in charge of our training teams. When Danny Yatom left the following year to train as an armored officer, I made Yoni my deputy. However different in some ways, the Netanyahu brothers were close. They seemed almost driven, to excel and to succeed. As I got to know them both, I sensed that the drive did not come merely from within. It came from their upbringing, their family background, and in particular their father. Ben-Zion Miliekowsky, as he then was, studied at Hebrew University at the same time as my father, in the early 1930s, and was an impassioned supporter of Ben- Gurion s main right-wing Zionist rival, Ze ev Jabotinsky. My father remembered him gathering bemused groups of students during breaks from classes, standing on an upturned wooden box, and proclaiming that the Arabs would never willingly accept a Jewish state. Long before the 1948 war, and 113 nearly four decades before our capture of the West Bank in 1967, he insisted that we needed to create a Jewish state in all of biblical Israel: from the Mediterranean to the Jordan River. It was through Bibi and Yoni that I got to know their father. After 1948, he had led a frustrating existence. A specialist in medieval Jewish history, he could not find a place on the faculty at Hebrew University. He was convinced, perhaps with some reason, that his outspoken advocacy for Jabotinsky s Zionism in a country defined by Ben-Gurion s had frozen him out. He left to pursue his academic career in America, where both Yoni and Bibi spent much of their youth. He always remained bitter about what he felt were unfair, politically inspired, roadblocks to his academic advancement in Jerusalem. Though he would eventually return to Israel, he was teaching at Cornell when his sons became officers under my command in Sayeret Matkal. So there was a physical distance between father and sons. But what struck me was how large the father loomed in both of their lives. There was an almost adolescent admiration, bordering on worship. I remember once remarking to Nava that it was as if, despite all their physical self-confidence, Bibi and Yoni were tethered to their father by some mental umbilical cord. They seemed weighted down by a struggle to live up to his expectations, to right the wrongs done to him, and achieve the advancement and success which the young State of Israel had denied him. In a poignant postscript, decades later when Bibi first was elected Prime Minister, Ben-Zion was asked by a journalist for his reaction. He would make a very good Minister of Hasbarah, he replied, a Hebrew word which translates as something between public relations and propaganda. Or Foreign Minister. But how about Prime Minister, the reporter pressed. Ben-Zion replied: Time will tell. Even as we mounted intercept operations deeper into Egypt and Syria, I made sure that we trained as if we were already the broader strike force I hoped Sayeret Matkal would become. We mapped out plans for commando operations against the new kind of security challenges the country faced. We worked in detail on how we d carry them out. We prepared rigorously to make sure we d be ready. Yet no matter how proficient we got, there was no guarantee it would actually happen. A bit like Avraham in the unit s infancy, I had to deal with the 114 frustration of trying to convince the generals in the kirya to give us the goahead. Some of them agreed Israel needed a specially trained commando force. But not everyone felt Sayeret Matkal could, or should, take on that role. Rafael Raful Eitan was perhaps the most strident. He had fought with the Palmach in 1948. He was an officer in Unit 101 and a commander of the parachutists Battalion 890. He was now katzhar, in overall charge of all infantry and paratroop forces. He insisted that such work required a real sayeret, by which he meant the paratroopers. Yet the need for a special-forces unit was becoming increasingly hard to ignore. By the summer of 1971, a couple of months after I became sayeret commander, King Hussein s army had defeated the insurgency of Fatah and a pair of even more militant partners, the Democratic Front and the Popular Front for the Liberation of Palestine. That meant a quieter eastern frontier. But the Palestinian groups rebased across our northern border in Lebanon. When Jordanian Prime Minister Wafsi al-Tal was assassinated, it proved to be the start of a series of killings and terror attacks by a new group within Fatah, called Black September. There was at least some potentially encouraging news from Egypt. When Nasser died in September 1970, he was succeeded by a less flamboyantly militant vice-president, Anwar Sadat. Yet in both Egypt and Syria, a number of our air force pilots were still being held prisoner. I felt an especially strong motivation to help bring the pilots home. They had risked their lives for us. It seemed to me we owed them the same. One of the men being held in Syria, Pini Nachmani, had a personal connection to many of us in the unit. He had worked with us on sayeret missions. I came up with a plan that, while undeniably risky, seemed to me to have every chance of success. It was to abduct a number of Syrians from an officers club on the western edge of Damascus. We would land in transport helicopters a few miles away and unload a pair of armored cars captured in 1967. But Raful s view prevailed. I could not get the approval of the kirya. I did take heart from Avraham Arnan s support. He was now Golda Meir s counter-terrorism adviser. Also from the fact that Chaim Bar-Lev s successor as chief of staff was an old friend of the sayeret: Dado Elazar, Avraham s Palmach comrade from 1948. Yet winning over the remaining doubters in the kirya was obviously going to take time. As so often during my years in uniform, however, Sayeret Matkal s birth as a special-forces unit came by force of circumstance: not in an officers club near Damascus, but a few miles away from our base, on a runway at Lod Airport. 115 I was sitting down to dinner with Nava a little before seven on May 8, 1972 when the phone rang. We d just fed Michael, who was almost two, full of energy, and showed no sign of wanting to go to bed. It s Manno, said the voice on the line. Brigadier General Emanuel Manno Shaked was Dado s chief of operations. A plane has been hijacked, he said. It s heading for Lod. It will land in about 30 minutes. They ve got hostages. Get to the airport. Dado and Dayan are on their way. I called Danny Yatom and told him to get whoever was at the sayeret base to Lod as soon as possible. But most of the men were on training exercises, including one team with Yoni deep in the Negev Desert. He immediately began calling them back. When I got to the airport, I found Dayan and Dado huddling in a room below the control tower, unfurnished except for a small table in the corner. Talik was there with them. He was now head of all military operations in the kirya. Rechavam Ze evi as well, the head of the central command area, which included Tel Aviv. So was Ahrahle Yariv, who had succeeded Meir Amit as head of military intelligence, and nodded glumly as I joined them. The plane had landed. A Sabena Boeing 707 bound from Brussels to Tel Aviv, it had been hijacked after a stopover in Vienna. All we knew at this point was that the hijackers were Palestinians and that there were about a hundred passengers on board. Dado said that, while we figured out how to respond, we had to make sure, at all costs, the plane didn t take off again. It would presumably go to an Arab country, where we d be powerless to act. Though only a handful of my men had arrived, I took the only officer who had, Shai Agmon, and an El Al engineer to see whether we could disable the hijacked jet. It was parked well off from the main terminal area. With the El Al man leading the way, we approached from the rear, crouching low, hoping the hijackers wouldn t spot us. The engines were still running, but at least the deafening noise kept anyone from hearing us as we ducked under the fuselage and the engineer removed a stabilizing pin from the front wheel. It was an eerie feeling, envisaging the captive crew and passengers, and the terrorists, a few feet above our heads but knowing we were powerless to do anything more to help. Manno had called me not because I d won my argument to expand the role of the sayeret. It was the luck of the draw. With the growing threat of terrorism, the kirya had drawn up a list of installations which might be targeted. Next to 116 each, they d put the name of the military unit to be called up in an emergency. We d been allocated Lod Airport, because our base was just 15 minutes away. Still, as I accompanied the engineer back to the control tower, I tried to work out in my mind whether we could plan, prepare and train quickly enough to mount an operation to free the plane later that night. More than a dozen members of the unit had now arrived, and more were joining us every half-hour or so. I arranged for El Al to give us a hangar and a 707 identical to the Sabena plane. Shai, Danny Yatom and I took two airline technicians with us for a closer look at the Boeing. We studied up on it as quickly as we could, beginning with the cockpit and the front door, which we saw was too high to reach without a large ladder. But making our way back, we realized the wings were low enough to climb on to. When, with the help of Danny, I clambered onto one of them, I managed to get one of the emergency doors to open by banging hard on the top end with my open fist. I asked the technicians whether we could expect the Sabena doors to give way as well. Yes, he said, but he cautioned me that on some airlines, there were passenger seats next to at least one of the two doors above each wing. Walking up into the cabin, I tried to work out how we might attack the hijackers before they were able to harm the passengers, or us. The risks were obvious. But I felt we had to be ready to act. With the rest of the sayeret still making its way to Lod, I put Danny in charge of briefing the new arrivals, familiarizing them with the 707 and preparing for the possibility of an assault operation. I also told him to get hold of a couple of dozen small, 22-caliber, Beretta pistols. I couldn t see how we d manage to make our way onto the plane with Uzis. We knew we d have to get up to speed quickly on using the Berettas. None of us had trained on them. But many of the air marshals on board El Al flights were Sayeret Matkal reservists, and they did use Berettas. I told Danny to check for any sayeret marshals arriving on El Al flights and get them to join us. As I headed back to see Dado, we were nowhere close to a detailed plan on how to confront the hijackers. Nor did we have any orders. The people who would give them Dado, Dayan and ultimately Prime Minister Meir were still deciding how to respond. But when I reached the control tower, at about 9:30pm, the order came, if not to mount an operation, at least to make sure the sayeret was ready. Talk to Talik, Dado told me. See what the options are to take over the plane if that s the decision. I sat down with Talik and ran through what I d learned from my brief look at the hijacked plane and the work we d 117 been doing on the Israeli 707. I told him I d need another two hours to make sure my men had practiced climbing up on the wings and forcing open the doors, and another hour for preparations and briefings for the teams who would be participating in the operation. By about half an hour after midnight, we ll be ready to deploy, I said, though from his stoic, nearly silent response I couldn t be sure whether he was in favor of an assault. By 0100, we ll be ready to act. Both of us went back to see Dado. He seemed encouraged, especially when I said we d be ready to move by one in the morning. He told me the pilot of the plane had been in contact with the control tower. He was an RAF veteran and, though the terrorists seemed unaware of this, he was also Jewish. The hijackers were demanding more than 300 Arab prisoners be released and flown to Cairo. And they seem quite nervous. Returning to the hangar, I sent Shai Agmon with four soldiers to set up a lookout and sniper post about 70 yards to the side of the Sabena jet. I told him not to open fire unless they were sure there had been shooting inside the plane and could positively identify an armed hijacker. By now, we had three dozen soldiers and officers, including Uzi Dayan and his full team. I took all those who were already briefed and divided them into four groups, each with an officer and five soldiers and assigned to deal with one of the wing doors. I left the others to continue training. When midnight came, I was far from certain we could meet the 12:30 am deployment target I d given Talik. Incoming flights had stopped for the night, and we still hadn t managed to bring in any air marshals. I believed they would give us a crucial advantage. They knew Berettas. They also knew the inside of a 707. But I was worried about losing Dado s trust in a sayeret operation if we failed to meet the timeline. From Shai s lookout post to the side of the plane, I learned that the front cabin door of the plane was open. He said he d seen a couple of hijackers walking by it, silhouetted by the dim cabin light. But otherwise, there was no sign of activity inside. I called Talik and told him I was taking my assault teams to the area behind the plane. About a half-hour later, I confirmed we were ready to begin the operation. Although the plane s engines were off now, our approach had been masked by the drone of the generator brought in to supply power to the cabin. We were lying face-down on the tarmac, directly behind the tail of the plane but well back. Two rows of 12 men, plus me and a soldier in charge of the communications. We d brought along four small ladders to help us onto the wings. We want to exploit the darkness, and the sound of the generator, to cover us, I said in my final briefing before 118 we d left the hangar. If they realize we re there, we get into the cabin as quickly as possible, any way we can. The first five seconds will ne critical. Act decisively, I told the men. Assume that everyone else will be doing the same. Trust your instincts. You are trained for this. But more than an hour passed as we waited for the green light to storm the plane. My main concern wasn t that the hijackers would see us. There seemed little reason to believe one of them would suddenly decide to take a walk in the middle of the night. But sunrise was around five in the morning, and there was no way I could see mounting our assault in broad daylight. If we didn t get the go-ahead soon, the chance would be lost. I called Talik several times, making the point that if we were going to do it, we needed to use darkness as an ally. The sayeret was a breed of night animals. Other people, even terrorists, would be less alert and effective at night. But he kept saying he needed more time. Finally, an hour before sunrise, he called back. The big boss is on his way, he said. I left the others and crept back to meet the Defense Minister, a good eighty yards from the plane. Dayan greeted me with a whispered hello. In a way, his arrival reminded me of my first operation in the sayeret when, before heading north to the Golan, I d been summoned to brief Tzvi Tzur, the chief of staff. Tzur had seemed less interested in the details than in confirming that I was confident the mission would work. Dayan, of course, had as much operational knowledge and experience as anyone in Israel. Yet it seemed to me that he, too, wanted to satisfy himself that I honestly felt we were in a position to succeed. Especially, though he never so much as hinted at this, because two of the officers I would be taking in with me, Uzi and Mookie Betzer, were members of his family. How do you plan to do it? he asked. I explained how we would get into the plane simultaneously, in four teams, and confront the hijackers. I said I was confident we d succeed, especially since darkness gave us an element of surprise, and the terrorists were bound to be tiring. We can do it, I said. Better now than in daytime. Dayan merely nodded. He stood there, silent, for another few moments. I ll let you know, he said, then shook my hand and returned to the control tower. But fifteen minutes later he sent his reply, via Talik. It was brief and explicit: Not tonight. For the first but not the last time in uniform, I felt the frustration of finding my preparation and judgement trumped, without explanation, by a decision from above. When I got back to the control tower, I made no attempt to hide my view we should have moved against the hijackers while we had the chance. But 119 Dado sat me down and filled me in on what was obviously a changing situation. He said the terrorists had allowed the pilot, Reginald Levy, to come see Dayan and press their demands. He had brought with him a slab of light-yellow material to demonstrate the seriousness of the risk of saying no. When tested, it turned out to be exactly what the hijackers said it was: plastic explosive. The pilot said there were four terrorists: two men with pistols and two women with explosives and grenades. There were 95 passengers and seven crew. He d also confirmed that none of the exits above the wings was blocked by a passenger seat. He d returned to the plane without any clear answer from Dayan on the prisoner release. But before leaving, he revealed that his own wife was among the passengers. He asked Dayan to promise that Israel would help care for their daughter if the hijack ended tragically. By the next morning, that was looking more and more likely. Though the hijackers were still in contact with the tower, the only visible movement was the arrival of a representative of the Red Cross. The lead hijacker, who called himself Captain Rifa at, was making increasingly forceful demands for the prisoner release. Our negotiating team did its best to buy time by giving the appearance we were considering the demand. It was Dayan who came up with the idea of going further. He told Rechavam Ze evi, as the head of the central command area, to begin rounding up hundreds of young Israeli reserve soldiers. He wanted them dressed them in prison uniforms, and then bused to the airport, within sight of the hijacked jet. Dayan also arranged for another Boeing 707, ostensibly to take the freed prisoners on to Cairo. What then? Ze evi asked Dayan. We re not really going to put them on a plane and take off! It was after he d had no real reply that he in effect answered his own question, inadvertently leading us to the idea of attempting a daytime attack after all. Talking to Dado and me, he said: Since we re going to such lengths to deceive them, why not just add another layer? Why can t Ehud s people take the role of the airport mechanics? Looking at each other, Dado and I realized it was a stroke of brilliance. Dado went to share the plan with Dayan, confident that he would be no less enthusiastic, which he was. I remained with Ze evi and his deputy to work out the details. We agreed they would take care of the pantomime with the prisoners, as well arranging for El Al to get us the ladder trucks that airline maintenance crews used, which would allow us access to the Sabena jet s front and rear doors as well. That left me free to concentrate on preparation and training. 120 We had just a few hours to adapt the original plan. Although we d trained in close-quarters fighting for my plan to attack the officers club near Damascus, we d never had to use that skill in a live mission. Nor had we ever used the Berettas. While we d disguised ourselves as enemy soldiers or military police on our intelligence operations, this would be the first time we were taking on the persona of civilian engineers, with the need to fool armed terrorists on the lookout for any sign of danger or betrayal. And for the first time in any of our major operations, we would be operating in daytime. Now that nearly all our soldiers and officers had arrived, I began arranging the final line-up of attack teams. We would need six rather than four, since the new plan would give us access to the front and rear doors. Danny now also told me that a couple of the El Al technicians had shown him a way of climbing up from inside the nose wheel into the cockpit. One of the toughest and strongest of our soldiers, Uri Koren, had tried it successfully on the El Al 707. I told Danny, Uri and another officer that they would be assigned to attack through the front door and the nose wheel. I put Uzi Dayan in charge of the tail door. The emergency doors above the wings, however, still gave us the quickest way in. I planned to command the operation from the left of the aircraft, because both the front and tail doors also faced that way. I entrusted Bibi Netanyahu and his team with breaking in through the main wing door on the far side of the plane. By noon, we got a further boost. With the resumption of incoming flights, we began collecting air marshals. One in particular raised my confidence. I knew Mordechai Rachamim well from the sayeret. He was a Yemeni Jew from Elyakhin, the moshav near Mishmar Hasharon where Baddura and the other Yemeni workers lived. He was tall, strong and athletic, naturally agile and quick to respond in situations of danger. He was also no ordinary air marshal. In 1969, he d been posted on an El Al flight from Amsterdam to Tel Aviv. On a stopover in Zurich, four gunmen from Fatah s main radical rival in the PLO, the Popular Front for the Liberation of Palestine, leapt out of a car, opened fire with AK-47s and began throwing grenades. The PFLP assault injured four of the crew and killed the co-pilot. Armed with his Beretta, Mordechai rushed to the cockpit window and returned fire. Seeing the attackers were too far away, he slid down the emergency chute. Once on the tarmac, he shot one of the terrorists in the head and kept the rest of them at bay. As additional air marshals arrived, I slotted each of them into an assault team in place of one of our sayeret soldiers. The next to arrive was Marco Ashkenazi, a Cairo-born veteran with whom I d worked on a mission inside Egypt. I put 121 Mordechai on the main left-side wing door, critical for the opening moments of the assault, and added Marco to Bibi s team on the other side of the aircraft. It was then that Yoni arrived back from Negev. He insisted on being added to one of the assault teams. In one respect, that made sense. He had more battlefield experience than almost everyone in the unit. But there was an unwritten sayeret rule never to place two brothers together in the line of fire. It s too late, I told him, with an arm on his shoulder. Bibi has already been training his team. He went off to find Bibi. I thought there was little chance of Bibi standing down, but didn t feel I could stop Yoni from trying. Five minutes later, they came to talk to me. Bibi said: Yoni wants to replace me. We want you to decide. I assumed both of them knew what I d say. Today, it s Bibi, I replied. But Yoni, this is not our last operation. I will make sure you are there the next time. The last marshal to join us was a tall, thin redhead we always called Zur. He d had only 15 minutes to begin training when I got word that Dado along with Ze evi and Ahrahle Yariv were on their way to see a run-through. As they filed into the hangar, I quickly explained the operational plan. I showed them how we would push in the wing doors in, and then ushered them inside the 707. Two minutes later, the emergency-door teams climbed on to the wings. When I gave the agreed two-finger whistle, they stormed the plane. OK, gentlemen, Dado told the team leaders when it was over. We ve seen what we needed. Before returning to the control tower, however, he took me aside. You know they have explosives, right? he said. When I said yes, his tone softened. You don t have much time, Ehud he said. Don t waste it. BeHatzlakha. Good luck. We still had to outfit ourselves in mechanics overalls, and swap the sayeret s paratroop-style red boots for black ones. I directed all the men to conceal the Berettas on a waist-belt inside their overalls. We got acquainted with our mechanics toolboxes. Finally we organized our maintenance motorcade: four electronic buggies in front, towing four ladders, two short ones for the wings and taller ones for the front and rear doors. Waiting for the order to move, I said a final few words. Seeing the determination and nervous anticipation on the faces of the men around me, I began by reiterating that the first five seconds would be critical. We all know that nothing ever happens exactly according to plan. Each and every one of us has to focus on speed, momentum and precision. No one can wait for anyone else to act. From the moment I give the signal, or if we come under fire, each team has to act as if 122 they have to accomplish this all on their own. All of us must assume that. Keep cool. Stay focused. Rely on your instincts. We re ready for this mission. And we are going to achieve it. One minute after four in the afternoon, we got the word to go. I was in the lead buggy, consciously trying to look like a civilian, not a soldier. It was about a mile-and-a-half to the aircraft. I glanced back at the others. Like me, many of them had been awake for 30 hours or more, in some cases nearly 48 hours. The air marshals had been plucked off long-haul flights on which relaxation, much less sleep, was not an option. As before any mission, I knew everyone would be thinking about what was about to happen. They also realized that if we failed, the passengers trapped inside the plane would be at the mercy of terrorists armed with AK-47s and explosives. But I was confident that any apprehension would be overtaken by adrenalin when as the assault began. As we got closer, Shai Agmon radioed me. He said two or three people, not the terrorists, had come out of the plane. One seemed to be the Red Cross man. They were about 120 yards away from the aircraft. As soon as he d signed off, I got word from the command post in the control tower that it was indeed the Red Cross representative, along with two of the flight crew. They d been chosen by the terrorists to do security checks on the maintenance men. I brought the convoy to a halt. The Red Cross man gave each of us a fairly cursory body search before waving us on. Then, he got to Bibi. Though I had somehow failed to notice, he had left on his red sayeret boots. In Israel, that was the equivalent of a neon sign saying: I am a paratrooper. Although the Red Cross man noticed the boots, he at first made no comment. Then, rolling up the pants leg of Bibi s overalls, he saw his Beretta not inside his waistbelt, but inside the boot. The next thing I heard was an angry spurt of French as the man called the control tower. For a moment, I feared the mission was over, with potentially fatal repercussions for the hostages. But whatever explanation the Red Cross man was given presumably by Dayan himself, who would not have held back in conveying what was at stake it dissuaded him from taking further action. As we were returning to the buggies, the Red Cross man told me that Captain Rifa at had ordered us to pull up to the generator on the side of the plane. Each of us would then have to walk forward and open the front of our overalls so he could make sure we weren t armed. I passed back four orders to the rest of the men. First, with no exceptions, move your pistol to the back of your belt. Second: I ll be the first to go through the inspection. Third: watch 123 what I do and do the same. Finally, if our cover is broken, or if you hear gunfire, we all storm the plane. I felt as I always did as an operation was about to begin. Along with the tension, I had a keen awareness of everything happening around me, almost as if I was watching things in slow motion, in high resolution. When our motorcade approached the generator, Rifa at leaned out from the co-pilot s window. He was pointing a pistol at us. He seemed to be in his late 20s or early 30s. He had dark hair and a moustache and the hint of a stubbly beard. We stopped beside the generator. I got out and walked toward the cockpit, halting about 10 feet away. Looking up the hijacker, I made a conscious effort to appear curious rather than worried. His eyes seemed a mix of intense focus and tension. I opened the front of my overalls. Because of the heat, I was wearing nothing else on top. He nodded his head to signal he was satisfied. I refastened the overalls and moved off. One by one, the other men passed inspection. Then we went back and brought the two smaller ladders to the side of each wing, and the mechanics set down to work. I delayed bringing in the large ladders so as to minimize any risk of arousing the terrorists suspicions. The fact that at least so far they seemed to suspect nothing was in large part down to Dayan s misdirection plan. As we began working on the plane, the Palestinian prisoners were disembarking from buses about 300 yards away. As Rifa at watched, several hundred men formed long rows. A few of them waved in his direction. The Boeing which was theoretically going to take them on to Cairo, to be followed by the Sabena jet minus the hostages, was being towed into position. One by one, our assault teams were moving into place. All that remained was for me to give a short, sharp whistle and the attack would begin. Yet just as I was raising my fingers to my mouth, I saw Bibi coming toward me from under the fuselage. He motioned to me to wait. Zur, the last of our air marshals, had a problem. Having spent 10 hours in the air on the way back to Israel, before being immediately plugged into an assault team, he had something to attend to. He has to take a shit, Bibi said. Can t it wait, I asked. No, was the answer. So I said OK, leading to the most surreal operational moment I would witness during all my years in the military. The prisoner release was now in full flow. Dozens of military vehicles, and a small army of fire engines and ambulances, had also pulled to the far end of the runway, out of sight of the hijackers, in case our attack on the Sabena jet went wrong. Tel Aviv hospitals were on alert. And Zur was crouching and 124 relieving himself. He nodded in gratitude when he d finished, and returned to Bibi s team on the far wing. I gave him a full minute to be certain he was in place. Then I whistled. From my initial position beside the plane, I saw Danny Yatom and his team begin to move one of the tall ladders toward the front door. Shifting my eyes toward the wing doors as the crucial first five seconds ticked by, I saw both the ones on my side of the plane were still shut. I climbed up on the wing. When I got to the smaller, rear door I saw the main one cave inward and Mordechai Rachamim rush in. But the soldier on the other door was trembling and frozen in place. I slapped him, hard, on the back. Move! I shouted. Instantly, he pushed the door in and rushed inside. I then noticed Uzi and his team had still not entered from the rear. I jumped from the wing and ran toward the ladder at the back, but by the time I got there, they had made it inside, and I followed them in. Everything was over within 90 seconds. As I d expected, the planning and training turned out to matter less than instinct and initiative. Within seconds, Uri Koren managed to get into the nose-wheel assembly. Though he couldn t dislodge a metal-mesh panel separating it from the cockpit, he spotted the outline of a man s foot above him, fired, and wounded Captain Rifa at. The other members of Danny s team in front were less lucky. With the ladder, they had no trouble getting to the passenger door, but they struggled to force it open. When they did nudge it open a crack, one of the hijackers opened fire, slightly wounding one of the men and forcing them to abandon the attempt. Mordechai went in shooting, but immediately drew fire and had to retreat. But Omer Wachman, another air marshal I d posted on the far wing, was in a couple of seconds later. Coming face-to-face with one of the hijackers, he shot him in the head. That allowed Mordechai to get back inside. He quickly exchanged fire with the hobbled Captain Rifa at, hitting the hijacker in the side. As Mordechai ducked down to reload his pistol, Rifa at managed to lock himself inside one of the toilets near the cockpit. Mordechai ran after him. He fired through the bathroom door, then kicked it open and confirmed that he was dead. Rushing back toward the center of plane, he spotted the main woman hijacker, wearing a bulky explosive vest. Grabbing her hands, he reached inside the vest and yanked out the battery pack. With two of the hijackers already dead, Mordechai had now subdued the third. But knowing that there was still another woman unaccounted for, he handed her over to Bibi and Marco Ashkenazi. Bibi grabbed her by the back of her hair, but it turned out to be a 125 wig, which came off in his hand. As she began screaming, Marco instinctively struck her across the face, but he used the hand in which he had his Beretta. The gun went off, and the bullet grazed Bibi in his upper arm. When Uzi Dayan had finally got in through the rear door, he d run up against a stocky, suntanned man blocking in his way, and fired thankfully, only into his midsection. He turned out to be one of the passengers, a filmmaker from Austria. Still, there was the other woman hijacker to deal with. Several of the passengers pointed to the floor just ahead of Uzi, where she lay curled up, holding a grenade with the pin out. Ordering her loudly, sternly, not to move, Uzi wrapped his hand over hers, extracted the grenade from her grasp finger by finger, replaced the pin, and had one of his men lead her out of the plane and down the stairs. All the hijackers had been either killed or captured. Tragically, in the initial crossfire, a 22-year-old passenger named Miriam Holtzberg, had been hit. Although the man whom Uzi had mistakenly shot recovered, she did not. Yet all of the remaining passengers and crew were now free and safe, alive and unharmed. I felt a mix of emotions when it was over: pride, a sense of achievement against all the odds. And huge relief at having succeeded in ending the ordeal of the captives. Without my saying so, everyone in the unit understood that my inaugural comments as commander, about our need to become a full specialforces unit, were no longer a distant wish. Still, I knew this was only one step, and I wanted to make sure we kept our feet on the ground. The day after the Sabena rescue, Israeli newspapers devoted acres of newsprint to how the operation had succeeded. Since Sayeret Matkal s existence was still an official secret, the headline writers called us, variously, a special unit, a select unit and even in one case, because of our El Al coveralls, angels in white. We did, briefly, celebrate back at the sayeret base. But as with every other operation, we went through a self-critical assessment of what we could have done better. How, if we had to do another hostage-rescue operation, could we make sure none of the passengers was harmed? How could we improve co-ordination among the assault teams? And minimize the risk of shooting each other. Why had I, as commander of the operation, had to wait for someone else to suggest the idea of disguising ourselves as aircraft technicians? And why had we failed to train with Berettas and other pistols as well as Uzis? 126 They were not just academic issues. Even if we were never again called upon to free a hijacked airplane, I assumed we would face other operations which were equally urgent, without the weeks or even months of preparation we d always insisted on in the past. After the Sabena operation, I emphasized the need for us to be proactive. It wouldn t be up to us to decide which operations to do. But it was up to us to take the initiative in identifying and understanding specific threats and framing ways in which we could provide a response. Even before Sabena, barely two weeks had gone by when I didn t go to Eli Zeira, who was in charge of the operations department of military intelligence, with a mission which I felt confident we were ready to carry out. Several of the most complex centered on the new threat posed by Palestinian groups in Lebanon. Before the civil war in Jordan, King Hussein had accused Fatah, the PFLP and the equally militant Democratic Front for the Liberation of Palestine of trying to create a state within a state and deliberately weakening his government. Now, they were doing much the same in Lebanon. Their headquarters buildings in southern Beirut were spawning hijackings or terror attacks. From bases in southern Lebanon, the Palestinians were also firing Katyusha rockets into Israel. One of the operations I planned targeted Arafat. From our intelligence intercepts, we knew that a day or two after a particularly intense clash with Israeli artillery units on the Lebanese border, he would tour the area and meet with his commanders. If we were going to go after him, however, we needed to know exactly when he was coming. Fortunately, the Lebanese authorities tracked Arafat s motorcade on these review the troops excursions, reporting how many cars were involved, which one he was in, and their progress. Thanks to previous sayeret missions, we could listen in. In order to ensure the operation would be on our terms, I proposed that a couple of days before we planned to move, Israeli artillery target a Fatah rocket site in an isolated area about ten miles from the border, where there was just a single road in from Beirut. I proposed landing several teams by helicopter the night before. We would lie in wait until the Lebanese army checkpoints reported that the Fatah convoy was on its way. Israeli helicopters and F-4 jets would then cut off the road on both sides, and we would ambush Arafat s vehicle. 127 When I took the plan to Eli Zeira, he was reading an issue of the French newsmagazine l Express and snacking on salted almonds from a dish on his desk. As I ran through the reason we d come up with the plan the bourgeoning power of Arafat and Fatah in Lebanon he peered at me over his reading glasses and nodded. As I set out the details of the attack plan, he listened, with no obvious sign of approval or rejection. But after I d finished, he dismissed it out of hand. He said that Arafat was no longer the battlefield commander whose forces had fought Israel in Karameh. He s fat. He s political, he said. He is not a target for this kind of operation. After the Sabena hostage-rescue, Dado and the other senior officers in the kirya did seem more receptive to our trying to initiate operations, especially the plan to seize Syrian officers and trade them for the Israeli pilots. But such a mission required not just military or intelligence approval. Dayan, and possibly Golda as well, would have to sign off, and there was little immediate sign of that. But, once again, events on the ground would force the issue. Early on the morning of June 9, our intelligence intercepts gave us notice that the next day, a group of senior Syrian officers was going to make an inspection visit to the eastern part of the Lebanese border area with Israel. We would have to move quickly. Within the space of 12 hours, we d need to plan the attack, organize, equip and brief the assault teams, make the three-and-a-half-hour drive north, and cross into Lebanon. Still, I was determined to try, which marked the start of two of my most frustrating weeks as Sayeret Matkal commander. The place where we planned to abduct the Syrians was an area I knew personally: the sparsely settled strip of land where Lebanon, Syria and Israel met, not far from where I d helped capture several Syrian villages on the final day of the 1967 war. With the convoy expected to pass through the next morning, we crossed the border a little before midnight on June 9. We lay in ambush in dense vegetation a few meters off a curve in the road, further reducing the time the Syrians would have to react once they saw us. I stationed two other sayeret teams a few hundred yards away in either direction, so they could cut off the road once we attacked. But as the convoy was approaching, I was suddenly contacted by the sayeret officer we d stationed in the command post back in Israel. He relayed a message from Motta Gur, the head of the northern command. Its intelligence unit said there was a Lebanese Army checkpoint a quarter-mile from the ambush site. Motta himself was in the south, with Dado, watching a tank exercise. So I had no way of talking to him. I replied through the officer in the command post. 128 Tell Motta we know about it, I said. We ve planned for it. It s not a problem. I figured there were at most four or five Lebanese soldiers manning the checkpoint. The last thing they d want to do is get involved in a firefight between us and the Syrians. But Motta s reply was unequivocal. The mission was off. When we d climbed through a bramble-filled ravine back into Israel, I left a message for Motta. I found it hard to disguise my frustration, and my anger, at being ordered to abort the attack, especially after my assurances that the Lebanese roadblock was not a problem. Yet when we got back to the sayeret base, I realized there was more to his veto than I d thought. He and Dado had received intelligence saying the Syrians were likely to make a series of further inspection tours of the border area, so this would not be our last chance. The next day, we received word they d be touring the western part of the border on June 13. On the Lebanese side, it was known as Ras Naqoura, on ours as Rosh Hanirkra, where the Mediterranean coastline rose dramatically to a ridge and, once into Israel, sloped steeply down again toward Haifa. I took in two main assault teams, one led by Mookie, the other by Uzi Dayan. We hid in a tangle of bushes about halfway along the road which climbed up toward the border ridge. I stationed Bibi and his team at the bottom of the road, equipped with Uzis and rocket-propelled grenade launchers. We waited, knowing that we d be able to see the convoy as it twisted its way up toward us. Again, I had no direct link to Motta. Yet both he and Dado were following the mission from a command post in northern Israel. We were in nearly real-time contact through a sayeret officer, named Amit Ben-Horn, right across the border. A first vehicle appeared at around 10:30 in the morning. Bibi radioed us. It was a Lebanese army armored car with a single machine-gun. It drove past and halted 150 feet on, at the point where the road began to climb. The two guys inside took out a small table and a couple of chairs and began brewing up coffee on the side of the road. All OK, I said when I radioed Amit to tell him. Predeployment. The convoy arrived two hours later and began to climb. We re taking it, I radioed Amit. Wait, he replied. And as I kept pressing him for the final go-ahead, another 30 seconds passed. Not approved, he finally barked back at me, clearly wanting to make sure I got the message. 129 What the hell is going on? I replied, in a mix of a shout and a whisper, since I knew the convoy was getting closer. But within a minute, we spotted the lead Land Rover, which was soon past us on the way up to the ridge. It was followed by two large American cars, with the Syrian officers, and then a trailing security vehicle. It was too late. I was fuming. The convoy had passed within a couple of yards of us, moving slowly because of the incline. But, regaining my composure, I realized we d get another opportunity, when the officers returned from their inspection visit. We now knew exactly how the convoy was deployed, and with any luck, the security men would be less alert by the end of the day. Even better, it would be beginning to get dark, perfect conditions for the ambush. But as we were waiting, Amit radioed me with a question from from Dado and Motta. Where s the armored car? It s still there, at the bottom of the road, I told them. But there s nothing it can do. Bibi and his team had it in their sights. I considered not telling Amit what happened a few minutes later: a Lebanese shepherd, with a half-dozen sheep, stumbled on us. One of Uzi s men, fluent in Arabic, tied the startled man s arms behind his back, scattered the sheep, and told him: It s fine. Another hour or so, we ll be gone, and we ll let you go. It turned out to be less than an hour. Forty-five minutes. During which, not once but twice, Amit told us that Dado and Motta were worried: about the armored car and now about the shepherd. I assured him everything was fine. We d do the operation. The guys in the armored car would be helpless. If all went well, they might not even know we d intercepted the convoy. The shepherd, like us, was just waiting for it to be over so we could all go home. Minutes later, Amit called again. He told us the convoy was on its way down. But barely 60 seconds later, he said: It s off. Don t do it. Dado told me to repeat it twice so you d understand: do not do the operation. When we got back to the command post, not only were Dado and Motta there. Since Motta was within days of leaving to become Israel s military attach in Washington, they d been joined by his successor as head of the northern command, Yitzhak Hofi. Three times, I suggested to Dado that we speak without my officers present. I did not feel it was right to have Uzi, Mookie and Bibi hear me the generals how I felt. But Dado insisted there was no reason for them to leave. This is a serious issue, I said, trying to keep my emotions in check. What happened out there is unacceptable. An effective special-forces unit cannot operate this way. For the second time in a week, you ve made us stop an 130 operation. Both times, it was an operation that we, the ones who have to do it, knew could succeed. An operation on which the fate of three Israeli pilots depends. One of whom we know personally, and have worked with. Now, again, with no real reason, you ve stopped us. I see this as a breach of trust. When neither Dado nor Motta replied, I went on: I have to tell you openly. You can t possibly judge the situation on the ground. Only we can. And you re behaving as if you know. You can t know from here. There was no reason for us not to grab those officers. I don t want to reach a point when I have to start thinking about what to report back, or not report, just to make sure we re free to complete a mission that you ordered, after agreeing it was necessary for Israel. No one said anything for a few moments. I could see that Uzi, Mookie and Bibi were shocked at having heard me speak in this way to three of the top commanders of the armed forces. But I meant every word. If Sayeret Matkal was to function as a special-forces unit, it needed to have the trust of those who d authorized an operation in the first place. It was Dado who finally replied. Sort of. Trying to defuse the tension, he told us a joke from his Palmach days. There are two bulls who come into a field full of cows. A young one and old one. The young one says to the old guy: let s run over there to the far end of the field, where the prettiest cow is, and we can fuck her. The old bull replies: No need to rush. Let s go slowly, and fuck them all. I guess we were meant to be the young bulls. I doubt Dado knew whether we d get a third chance at the Syrian officers, though I m sure he hoped so. A week later, we got word there would be a final inspection visit, to the central sector of the border area. Ordinarily, I would have led the operation. Now, I made an exception. To Dado s obvious surprise, I decided to remain behind, in the command post. A commander has to be in the best place to ensure a mission is successfully completed, I told him. I ve come to the conclusion the only way I can do that is to be here with you. Because the real bottleneck isn t out there in the field. It s here. I placed Yoni, who had just become my deputy, in overall command of the two main teams: Uzi Dayan s and another led by one of our most impressive young officers, a kibbutznik named Danny Brunner. He reminded me a lot of Nechemia Cohen: he spoke little, and softly, but once an operation began was calm, clear minded and able to anticipate and avoid trouble before it materialized. Two other teams, one led by Mookie Betzer and the other by Shai Agmon, would act as blocking units, concealed half-a-mile on either side, once the main force intercepted the convoy. We chose a spot across from the Israeli 131 moshav of Za arit. We equipped Yoni s force with a pair of Land Rovers in Lebanese army colors and had them hide overnight in the moshav s orchards, a hundred yards from the road on the Lebanese side of the frontier. The next morning, when we got confirmation the convoy was on its way, they crossed and stationed themselves on the road, lifted the hood of one of the vehicles and made as if they were trying to repair engine trouble. Both the blocking forces were in half-tracks with heavy machine-guns in case the convoy chose to stand and fight. What we didn t count on was a Lebanese driver, in a VW Beetle as I recall, puttering along the road shortly after Yoni s team crossed. The man waved at them. Quite rightly, Yoni let him drive on. Along with the other obvious reasons not to fire on a civilian VW, he didn t want to alert the Syrians and their hosts there was danger ahead. But the Lebanese motorist, as well as a group of nearby farmers, were suspicious enough to deliver a warning that there were a couple of stalled Land Rovers on the side of the road. The convoy halted shortly after passing Mookie s force, hidden in a field a few dozen yards away. Had I not been in the command post, I m pretty sure what would have happened next. The mission would have been called off. This time, I was the one in direct contact with all three teams. Even before I gave the order, Yoni had anticipated it. He and Uzi turned west to confront the convoy. In a brief initial exchange of gunfire, one of Uzi s men was wounded, not seriously, in the leg. But with Mookie s team firing from behind and Yoni s and Uzi s men in front, the convoy was trapped, and the Syrians captured. The safest way back into Israel would have been the way the force had entered. But Yoni and Uzi realized the main imperative was to get the Syrians out as quickly as possible. At a not-inconsiderable cost to a pair of American limousines, Uzi drove each of them, with a total of five Syrian officers, through a boulder-strewn field across the border. The Syrians included three senior members of the Operations Department of the General Staff, and two from Air Force intelligence. Israel made an immediate offer to swap them for our pilots, though how enthusiastically I m not sure. With this kind of leverage on our side, it seemed unlikely the Syrians would do further harm to our pilots. Our intelligence officers were keen to get every bit of information they could before sending the Syrians home. It would be a year later before the exchange was done. Yoni received a well-deserved tzalash for his role in the mission. 132 Barely two months after the ambush operation in south Lebanon, Black September seized and murdered members of the Israeli team at the 1972 Olympics in Munich. As soon as the news broke on the morning of September 5, I phoned Ahrahle Yariv as head of military intelligence. You need to send us, I said. I tried to persuade him that if it came down to an operation to free our hostages, Sayeret Matkal offered the best hope that it would not end in a bloodbath. We had the mind-set, the background, the training and now the experience. I also knew the German military had no special-forces unit. I d have been even more worried if I had known that German law barred the army from operating in peacetime. That meant any use of force would be left to the police. Ahrahle told me it was too early to say what involvement, if any, Israel might have. He d get back in touch with a decision when it came. I called my officers together to begin planning. I decided to use the men who had been with me for the Sabena mission, including Mordechai Rachamim. We collated information from the stream of media reports from Munich and assembled a rough idea of the layout of the building the terrorists had attacked. As for the attackers, I said we had to assume there were at least half-a-dozen, that they had not just AK-47s but grenades or other explosives. And that like the Sabena hijackers, they would be prepared to die but hoping to live. All of that turned out to be true. None of it, however, could alter the reply I got from Ahrahle a couple of hours later. We decided to send Zvika, he said. Zvika Zamir was the head of Mossad, and he would be going only as an observer. Any operation against the terrorists would still be in the hands of German units. The German police s bungled attempt to end the ordeal was especially painful because it was so predictable. I believe that if we had been there, at least some of the eleven Israelis killed might not have lost their lives. The Germans launched an ambush at a NATO airfield outside Munich, when the terrorists and hostages were ostensibly on their way to board a flight for Cairo. We know now that there was no properly co-ordinated plan. Too few police were deployed for the operation. They were insufficiently armed, and they lacked relevant training or experience. The result: a bloodbath. As a final insult to the memory of the murdered Israelis, although the three surviving terrorists were jailed, the 133 German government released them to meet the demands of the hijackers of a Lufthansa airliner the following month. Added to Israeli public s shock over the massacre, there was anger at having to watch the murderers go free. In the weeks afterwards, I got occasional hints that a sustained Israeli response was underway, though I didn t know the details. I was not aware that it was Ahrahle, at the direction of Golda herself, who was co-ordinating it. Nor that a special Mossad team was at the center of the operation. Yet from news reports of a series of attacks on suspected leaders of Black September, I, and most Israelis, assumed we were determined to convey a message which the Germans had not: that terror killings of the sort perpetrated in Munich would not go unanswered. It was not until late 1972 that I knew the full scale of the operation. We had no formal ties with the Mossad, but our intelligence work occasionally overlapped. In mid-December, the sayeret s intelligence liaison was approached with a theoretical question by a couple of guys from the Mossad. Did we have the capability to attack three separate flats in a pair of apartment buildings in Beirut. I sent back my preliminary answer a few days later. I said it was possible. But there was no way I could say for sure without more information. Would the people in the apartments be armed? Were there guards outside? Was there a caretaker or concierge? Was there only one way in to the buildings, or also rear entrances? Would we be able to get a plan of the interior of the apartments? In another month, they came up with most of the answers. The buildings were fairly new, with glassed-in lobby areas and concierges. The Mossad men also gave us a fairly detailed layout of two of the three apartments. They did not know whether there were back entrances. They thought it was likely there were bodyguards, or at least some security detail posted outside. As for the people living in the apartments, all of them were likely to have at least small arms. Over the next week or so, we raised a series of other questions. Mainly, I wanted to know whether they were sure the people we d be looking for would be at home. The Mossad officers said they were working on that, but were confident of being able to confirm this before any operation happened. Though they didn t identify the people they were targeting, I had now learned, through Ahrahle and others, what had been pretty obvious since the Mossad s initial approach. They were Palestinian leaders with ties to Black September. I think it s possible, I finally told them. We ll put a plan in place. We can finalize the arrangements if you come back and say you want us to do it. 134 Nothing happened for several months. By the early spring of 1973, with my two-year term as sayeret commander winding down, I assumed the operation had been vetoed. I could understand why. As we worked on our plan, it had become clear that getting into the heart of the Lebanese capital, hitting the apartments and getting out again without starting a minor war would be by far the most difficult mission we had attempted. I did not doubt that Sayeret Matkal offered the best chance of success. But it wouldn t be easy. I figured that whoever was making the decision had come to the same conclusion. I was on a weekend away with Nava and Michal in the Red Sea resort of Eilat when things suddenly began to move. At around noon on Saturday, I got a call from Talik s deputy in the kirya. Ehud, he said, we need you back here as soon as possible. When I asked why, he said: You remember how you were approached by someone with some questions, and you went back to them with a list of other questions for them to answer? I told Nava I d been summoned to a meeting at the chief-of-staff s office the kind of call of duty that both of us were now used to and grabbed the first commercial flight north. It got the the kirya early in the evening, and joined a meeting that was already well underway. Dado was in his usual seat on the right-hand side of the table he used for staff discussions, flanked by Talik. Across from them was Manno Shaked, the officer who had phoned me to tell me about the Sabena hijacking and who had now succeeded Raful Eitan as katzhar, overall chief of the infantry and paratroopers. Beside him were the two Mossad officers with whom I d had most of my dealings about Beirut. They were all staring at an aerial photo of the Lebanese capital, with an area marked in blue pen around a street called Rue Verdun. I entered and took one of the remaining chairs. Gesturing toward the image of Beirut, Dado turned to me. Do you know this place? he asked. Yes, I said. I d seen the photo. Nodding toward the Mossad men, I said: These two officers showed it to me. Do you have an idea how to do this operation? I told him that we didn t have a fully detailed operational plan. But I said we d looked into the problems we d face. We believe we can do it. When he asked how, I outlined the approach we d settled on: a small force, thirteen men, plus two from Mossad to act as drivers. We would need the Mossad men to go to Beirut ahead of us, and rent a pair of nice American cars, the kind typical tourists would use. We d land on the waterfront, well south of the most built-up parts of the city coastline, and meet up with the rental cars. When we reached the apartment blocks, three 135 groups of three men each would take care of the apartments. Four more would remain outside to deal with the concierges or security guards or any other interference, and to command and co-ordinate. We d leave the same way we came in, by sea. Dado nodded. I found out later that he d asked the same question of Manno, who had proposed a classic regular-army raid. They would block the road with ten armed paratroopers on each end with the aim of holding off resistance, while another two dozen went in to the apartments and attacked. I could only assume Dado concluded that this almost certainly wouldn t work, at least not without major trouble. It would certainly forfeit any chance of surprise. The mission is yours, he said. Manno will be in overall command, offshore. Because we re also planning to hit several other targets. The reason for the urgent summons was that the Mossad had confirmed all three Palestinians would be in their apartments in 10 days time. Everyone involved realized that given its complexity, the obvious risks, and the inevitable unknowns the operation could well go wrong. In fact, one reason for Dado s other targets was to ensure that if it did, there would be successes elsewhere to provide a credible justification for having sent Israeli forces into Beirut. As we received further intelligence, new obstacles had to be factored in. The main one was the presence of a gendarmerie, a Lebanese police post, at the bottom end of the street, only 500 feet or so from the apartments. And we would be operating in a crowded, up-market residential area. We could only hope that at the hour we struck, most people would be in bed. Or out partying. This was, after all, pre-civil war Beirut, the Paris of the Middle East . In the years since, an extraordinary array of stories has grown up around the sayeret s final and best-known mission during my term as commander, culminating in the dramatic version in Stephen Spielberg s movie Munich. I remember reading in one earlier book, otherwise surprisingly accurate, about our five weeks of intensive training. Even the full 10 days which I thought we d been given would have been a bonus. In fact, we had half that as a full team, since our Mossad drivers, European-born Israelis, had to make their way through Paris to Beirut as tourists, rent the cars and scout out our route from the seashore to Rue Verdun. There were four other operations planned alongside ours: three by paratroop units and one by the Shayetet 13 SEALs, against a series of Fatah and Democratic Front installations. Though all of them, like ours, would need help 136 from the SEALs in getting ashore, only one required direct co-ordination with us. This was an attack on a DFLP building a mile or so away in southern Beirut, led by Amnon Lipkin, the friend whose unit had faced one of the toughest battles at Karameh. Amnon s paratroop force would land with us and also pile into Mossad rental cars. Our attacks would begin at the same time, with the maximum prospect of retaining the advantage of surprise. When and if we both completed the operations and got away safely, we would meet up again on the seafront. From our first meeting, the morning after Dado gave me the go-ahead, I realized I would have to make at least one change to the plan to rely on the core Sabena team. There was no way, after his exclusion from the hijack rescue mission, that I could refuse Yoni when he pressed to be included. I added him to Mookie Betzer s force. I put the other two attack teams under a pair of young officers named Amitai Nachmani and Zvika Gilad. Both were self-confident, natural leaders. Both had other qualities I also knew we d need: focus, and calm. I would take charge on the street outside the targeted apartments, along with Amiram Levin. With us would be Dov Bar, a Shayetet 13 officer, and our medic, Shmuel Katz. In the hangar at the sayeret base, we made mock-ups of the layout of the apartments, using bedsheets for the walls and adjusting the dimensions as further bits of intelligence came in from Mossad. But the real work involved simulating the whole operation, from the moment of our landing on jet-black rubber dinghies piloted by the SEALs. We found a new building development in north Tel Aviv with a pair of apartment blocks under construction. For two nights, we ran through the whole thing: setting off in the dinghies from a missile boat off the Israeli coast before midnight, meeting up with our Mossad drivers on shore, making our way through the center of Tel Aviv to the apartment complexes and simulating the attack. I wanted to ensure we could pull off the whole thing without anyone raising an alarm. The one problem came during the second run-through. A policeman drove by as we were attacking the apartments. Dado managed to convince him that reporting us to his superiors would not be an especially good idea. In our debriefing discussions after that exercise, Dado identified a major problem I d overlooked. We would be entering Beirut dressed as civilians. Once we got to the top end of Rue Verdun, we planned to approach the apartments as if we were party-goers returning from a night on the town. It doesn t look right, Dado said. More than a dozen party people walking, all men? Mookie 137 came up with the solution, one that would have the unintended effect of elevating our mission further in Israeli lore. The three least burly-looking of us would go in as women: a boyish looking guy named Lonny Rafael, Amiram Levin, and me. Still, there was another, potentially deeper concern that had yet to be addressed. In all sayeret missions, since the beginning, we knew we might end up having to fight, shoot and, if necessary, kill. Yet now we would be going in with the expectation of killing three specific men. We had black-and-white photos: Mohammed Youssef al-Najar, or Abu Youssef, an operations officer in Black September; Kamal Adwan, one of Arafat s top military planners; and Kamal Nasser, a member of his leadership circle and his spokesman. Nominally, it was understood we would seize them and bring them back to Israel if possible. I had us exercise how we d do that. But none of us really believed that once our teams made it into the apartments, the Palestinians would surrender. We assumed we would have no option but to kill them. The killing was not the main issue. After all, I had drawn up a plan a year earlier to target Arafat himself. Though no one in the sayeret took any pleasure in having to take a life, at the end of the day we were a part of the army. Black September, and Arafat s Fatah more broadly, were not only at war with the existence of Israel. They were behind a campaign of terror. Certainly there was no significant public opposition, after the horror of Munich, to going after those who were deemed to be part of the operational or political direction of Black September. Our uneasiness inside the unit, however, revolved around what I d extolled as its spirit when I became commander. Beyond all the specific qualities we needed to succeed in our operations, our image of ourselves was as thinking soldiers. We might sometimes find it necessary to kill, but we were not killers. As I explained to each of the men I d be leading on the operation, the Mossad, Dado, and ultimately Golda had concluded that these three men were appropriate targets in the wake of Munich. As a battalion-level commander, I did not feel I was in a position to challenge their judgement, unless we had been ordered to carry out an attack that was clearly improper or immoral. In that case, I would have no hesitation in refusing. I said I viewed what we were being asked to do in Beirut not as an act of revenge, but a deterrent. It was a way of leaving no doubt in the minds of potential future terrorists that massacres like Munich carried a heavy price. 138 The more difficult question for some in the unit was how we were delivering that message: breaking into apartments in the middle of the night. Yes, each of the men was almost sure to be armed. But these flats were their homes. Very likely, members of their families would be there. If the operation went as planned, it was hard to imagine how any of the men would have a chance of surviving. My answer was that ideally we would face them on a battlefield. Yet given the nature of Black September, that was not going to happen. Mossad was right to conclude this was the only way to isolate and attack them. For Amitai Nachmani, who would be leading the attack on one of the apartments, my words were not enough. Twice, he came to see me. It was not that he didn t trust or respect me as his commander, he said. But before leading his team into Beirut, he needed to satisfy himself that the people we were attacking, and the way we were attacking them, had been properly thought through by the people giving the orders. I told him I understood. I did not tell him that I was actually proud of him for asking which, although I m sure he sensed it, was an omission I regretted when he lost his life in the Sinai Desert a few months later. But I did go see Dado. I told him what Amitai had said. He needed no convincing when I urged him to address the entire Beirut team and answer their questions at our final planning meeting. He did so, explaining how and why the decision to target these three Palestinians had been reached, to the satisfaction of Amitai and the others. We set off by missile boat from Haifa on the afternoon of April ninth. To my relief, since I suffer from seasickness, the Mediterranean was calm as we headed west towards Cyprus, before circling back in the direction of the Lebanese coast after nightfall. I ran through the plan a final time with each member of the team and then joined Amiram and Lonny in transforming ourselves as best we could into credible dates for the evening. I d vetoed dresses or high heels, in favor of flared slacks and flats. We used standard-issue army socks to pad out our bras. The Mossad had recruited a volunteer from a Tel Aviv beauty parlor to help us with our lipstick, blue eyeliner and eye shadow. The final touch was our wigs. Amiram and Lonny were blondes. I went as a stylish brunette. I m reluctant to take issue with the Spielberg version of events, if only because he had my part played by someone undeniably better looking than I was, even as a 31-year-old. But in Munich, we are shown zooming into a crowded harbor area on a line of motor boats, changing into drag only once we ve sprinted ashore, opening fire on a dockside kiosk and shooting our way 139 into town like something out of the wild west. Had any of that happened, we would have started a small-scale war, not to mention run the very real risk of not getting out alive. In fact, we left the missile boat, Manno s offshore command post, in motor dinghies out of earshot of Beirut and cut the engines as we got closer to the shore. All of us, including the women , were wrapped in ponchos to avoid showing up on Rue Verdun soaking wet. After getting out of the dinghies, we were carried ashore by the SEALs to make sure we stayed dry. All of us had loose-fitting jackets. The attack teams used them to conceal Uzis, explosive charges to blow the locks on the apartment doors if they couldn t be forced open, a hand grenade or two and flashlights for the dash up the stairs. One member of each team had a large plastic bag, with orders to take away any easily accessible documents for Mossad analysts back home. As the mother of the brood, I also had a large purse, in which I carried our radio to communicate with the team leaders and with Manno on the missile boat if necessary. Our SEAL pilots steered us well away from the more built-up part of the seafront towards the Coral Beach, one of the private clubs on the southern end of the shoreline. Four rented station wagons were waiting, two of them for us and two for Amnon s squad. Amnon set off toward the DFLP target. We headed north towards the center of town. In the Spielberg film, my speaking role consisted of two words, my name, as I introduced myself to my driver. In fact, we had already met: during the run-through exercises in Tel Aviv. After we got into the cars, I asked him how his scouting of the route had gone. He said basically OK, but that he d noticed a couple of cops patrolling near the top of Verdun on one of his drive-bys. I assured him it would be fine. There would be no reason for a policeman to suspect what we were up to, or who we were. Still, I could tell he was nervous. What s wrong? I asked. He hesitated before replying. I ve never been in a place where there s live fire, he said. I told him not to worry. He still wouldn t be. You re going to be parked around the corner, until it s over. Then, it s just about getting home. When we reached the top of Verdun, it was about ten minutes after one in the morning. Our cars pulled over. I took Mookie s arm as we began walking the 150 feet or so to the first of the apartment buildings. The others followed in knots of two or three. Both Mookie and I saw a policeman approaching on the sidewalk. Ignore him, I whispered. We weaved a few inches to the side to let him pass. The buildings were as we d expected, with their lobbies set back from a covered terrace in front. As the other teams made their way to the second 140 building, I stayed with Mookie. His job, along with Yoni in his expanded team, was to deal with Abu Youssef, the Black September operations officer. The concierge must have been on a coffee break. The lobby was empty. The door was unlocked, so they sprinted toward the interior staircase and made their way up. Adwan, the Fatah military man, and Kamal Nasser lived next door. Adwan, Amitai s target, was on the second floor. Nasser was on the third. As the teams raced into the other building, Amiram and I posted ourselves near one of the terrace pillars, occasionally exchanging a few words of what we hoped would pass as girl talk. The SEAL officer and Dr Katz were near the top end of the street as lookouts. We seemed seconds away from what had all the makings of the operation we d rehearsed back in Tel Aviv. The one major problem I d expected security guards posted outside hadn t materialized. We d been told by the Mossad to look out for a grey Mercedes, but it wasn t there. The next stage was for each team leader to press the transmit button three times on his radio. When I d heard from all of them, I would send a signal back. Then, at the count of five, each of them was supposed to start the attack. Mookie s signal came first. Yet before either of the other two teams checked in, the trouble began. Suddenly, the door of a red Renault flew open almost directly across the street from where Amiram and I were standing. A tall, sturdy, darkhaired man climbed out. He looked across at us. He opened his leather jacket. He pulled out a pistol and started to approach us. Ein breirah, I whispered to Amiram. No choice. To this day, I remember the shock on the man s face as he watched us a pair of 30something women open our jackets and pull out Uzis. Fortunately for him, we d had to make allowances for concealment in choosing our weapons. We d left the Uzis stabilizing shoulder braces behind. As our first shots hit, he had half-turned to run. Though wounded, he somehow got back in the car. We kept shooting but he managed to drag himself out of the far door and roll behind a waist-high wall on the other side of the street. One of our shots obviously hit the electrical innards of the Renault, because the car horn began blaring full-blast, as if someone had set off a modern-day car alarm. So much for the element of surprise. I saw three sets of lights suddenly come on in the otherwise dark apartment buildings. They were in the flats that Mossad had identified. At least that part of the plan was intact. These were the Palestinians we were after, and it seemed they were at home. Seconds later, I heard an explosion. It was from Abu 141 Youssef s apartment, the one Mookie and Yoni had been assigned. Then, bursts of gunfire from the other building. A Land Rover was approaching from the gendarmerie at the bottom of the road. We waited until it was about 50 feet away. Amiram and I opened fire, then Dov and Shmuel Katz as well. The driver lost control and crashed into the side of the Renault. There were at least four policemen inside. They, too, rolled behind the wall on the far side of the street. Using the terrace columns for cover, we kept shooting. Within a minute or so, only a couple of the cops fired back. Though the three Palestinians could not know the reason for the gunfire and the wailing of the car horn, they were now on their guard. When Mookie had blown open the door to Abu Youssef s flat and he, Yoni and the other two members of his team ran into the apartment he saw the Black September man peering out from the bedroom. Mookie raised his Uzi but the Palestinian ducked inside and shut the door. All four of them fired through through the door. When they went in, they found not only Abu Youssef but his wife, both dead. When Zvika s team burst in on Kamal Nasser, he, too, was ready. Crouching behind a desk, he raised an automatic pistol and fired, grazing one of the team on the leg. But in a burst of Uzi bullets, he, too, was killed. I suspect that Amitai s face-to-face meeting with Dado may have saved his life. When he and his team cornered Kamal Adwan, he had an AK-47 raised and ready to fire. Without even a split second s unconscious hesitation, Amitai fired first. His only regret afterwards was that Adwan s wife and children saw it happen, and that when they d blasted open the apartment door, the force blew open the door of a nearby flat, killing an elderly Italian woman. She had been one of the Mossad s sources of information on the Beirut apartments. Mookie s team came down first. They joined us, crouching behind the columns, as sporadic shots continued from one of the policemen behind the wall across the street. When a second police Land Rover approached, I at first signaled the others to let it pass. But when it suddenly accelerated toward us, we opened fire. It swerved, crashing into the rear bumper of the other one. The other teams were back down now. I shouted for Dov to have the drivers bring the station wagons from around the corner. When we began to pull away, a third police Land Rover appeared. It sped up behind us. Mookie tossed back a grenade. The last thing I saw as we made it to the end of the block and headed toward the seafront was the front end of the vehicle exploding. We dropped hollow, needle-sharp spikes out the window of the car as we left, so I knew that 142 any other pursuing vehicle would be in no shape to follow for very long. But we still had to avoid trouble on our way back out. I knew it would be a risk to go back to the Coral Beach, so we took the shortest route to the sea, straight out to the Corniche, the city s main avenue along the Mediterranean. As we got closer, we could hear gunfire. Obviously, the police, and the Palestinian militias, realized something was not right. The advantage we had was that they would have no idea what had happened on Rue Verdun, who we were, or where we were going. No sooner had we joined the Corniche than I saw another police Land Rover about 200 yards ahead of us. This one had a spotlight on the roof, panning both sides of the road. I told the driver to slow down. About 100 yards or so later, reaching the place where we d arranged for the SEALs to meet us, he and the other station wagon pulled over to the side of the road. The Land Rover kept driving. We slid down a steep embankment nearly 30 feet to the sea. Two of the three assault teams had bags full of documents as well. We swam out to the dinghies. When we had hoisted ourselves in, we headed out at first by paddle, then under engine power, to the missile boat. The whole operation had taken about a half an hour, only 10 minutes on Rue Verdun. I radioed Manno on the way to the missile boat. A half-dozen words: the agreed code phrase for mission accomplished, targets achieved. I could hear relief in his voice when he replied. At first, I assumed that was because they hadn t heard from us during the operation. Our radio link to the missile boat had gone down when we entered the built-up area around the apartment blocks. Genuinely, despite Manno s suspicion that I d cut the connection. Yet he had other reasons to exhale when he heard we had got out safely. Amnon s team had had a much tougher time. They met resistance from the moment they arrived at the DFLP building. Two of his men were killed, another wounded. They set off their explosive charges, but had to fight their way out. They only barely managed to escape, carrying their fallen comrades with them and linking up with another team of SEALs near the Coral Beach. It was a little before six in the morning when I got home. I was careful not to wake Nava. I d changed out of my slacks and flats and surrendered my wig on the missile boat. But I didn t have the energy to deal with my makeup. The next thing I remember was my wife standing by our bed as I stirred awake around noon the next day. She looked at my eye makeup and lipstick, shook her head, and smiled. She didn t need to ask where I d been. Israel radio had been full of news about a major operation in Beirut. 143 A few weeks later, my term as commander ended. The handover to my successor, Giora Zorea, turned out to be more elaborate than my arrival, though not at my instigation. With both Talik and Avraham in attendance, Dado presented me with my fifth tzalash. It was not for Beirut. Not for the operation against the Syrian officers, or the unprecedented access our intelligence missions were providing into Egypt s military communications. Dado said it was for all of the above. And not just for leading the unit of which I d been a part almost from the start. It was for my part in bringing it to maturity. When I replied, I am sure everyone knew I was speaking from the heart in saying that my every moment with Sayeret Matkal had been a privilege. And that this latest commendation was an award for the achievements the whole sayeret. Dado did me another good turn. As my stint as commander drew to an end, I knew what I hoped to do next in the army: to use my tank training to work my way up the command chain in the armored corps. But like past sayeret commanders, it was assumed I would first spend time at the US Marine Corps staff college in Quantico, Virginia. I had other ideas. I wanted to exercise other parts of my mind, by doing postgraduate work at a normal American university. Dado agreed. I still had to get accepted. The first step was to take the post-graduate entry exam, the GRE. There were two parts to it. The first involved mathematics and abstract thinking, the second English language. If my fate had rested on my English grade, I d have ended up at Quantico. I finished in the 28 th percentile. But in the other part, I was in the 99.6 th percentile. I applied to four universities: Harvard, Yale, MIT and Stanford. Amazingly, I got accepted by all of them. I chose Stanford, mainly because it allowed a far greater latitude in choosing my program of study. Also, the weather. In early August 1973, Nava and I joined my parents and hers on a sunny afternoon in Mishmar Hasharon to celebrate Michal s third birthday and say goodbye. We were heading to Palo Alto, California, with every expectation of two years of intellectual stimulation, new friends, new experiences and something approximating a more normal family life. My other family, the Israeli army, also had reason to believe a period of new possibilities lay ahead. The threat of terror remained, of course. There had also been a brief bout of 144 nerves over military maneuvers by Anwar Sadat a few weeks earlier. But that had come to nothing. In no small part due to the success of the raid on Rue Verdun, Israel s generals believed the balance of strength and security was on our side and that, at least for a while, Israel could breathe a bit more easily. But we were all about to be proven spectacularly wrong. 145 Chapter Nine The phone rang in our apartment in Palo Alto at 4:30 in the morning. We had been in the US for barely six weeks. It was the Sixth of October 1973: Yom Kippur, the holiest date on the Jewish calendar. I was still a bit groggy from the night before. We had been out at a get-to-know-you event for some of the several dozen Israelis, and several hundred American Jewish students, at Stanford. While I only vaguely recognized the voice on the other end of the line, her words instantly jolted me awake: The boss is busy, she said. But he wants you to know. A war has started back home. Her boss was Motta Gur, who was by now Israel s military attach in Washington and was my nominal commander for my period in the United States. I need to talk to Motta, I said. She passed him the phone. I want you to know I m going back, I told him. Motta s reply took my mind back 15 months, to our on-again-off-again mission to abduct the Syrian officers, with Motta and Dado in the command post, intent on reining in the young bulls of the sayeret. Ehud, he said, from what I m hearing, I don t think we are missing a major war. What s this we? I said. Motta was a general, at the upper reaches of the armed forces, officially posted to Washington. I was a young officer, just starting to work my way up the chain of field command. I can t afford to miss even a non-major war, I said. I ll check in with you when I get to New York. Major would turn out to be, if anything, an understatement. Yet all I knew, as I kissed Nava and Michal goodbye and got a cab to San Francisco airport, was that Israel was again at war. By the time I joined the swarm of Israelis around the El Al desk at Kennedy eight hours later, the picture was clearer, and more worrying with each new report from back home. Surprise attacks by Syria and Egypt armies we d not just defeated, but humiliated, six years earlier had pinned down and pushed back our forces on the Golan Heights and in the Sinai. Without any advance call-up, many reservists were only now reaching the front lines. As hundreds of people pressed for seats on the El Al flight, I was fortunate to receive a boost up the pecking order from another man in line. Since the Sabena operation, the existence of Sayeret Matkal had become a bit less secret. Still, the identity of the sayeret commander was known to just a few people outside the unit. So skittish were the army security people that before I d left for Stanford, 146 they even insisted I change my name. I was no longer Ehud Brog. I d Hebraicized it: to Barak, which seemed near enough to the original. Among the few dozen outside the unit who did know about my role, however, were paratroopers who d joined us on various missions. One of them now told the El Al people who I was. Not only was I given a seat on the first overnight plane back to Tel Aviv. I found myself helping the airline establish a priority for assigning seats to others: first, active officers in fighting units: armor, infantry, the air force. Then, reservists, with the emphasis on those who d seen active service most recently. As we were waiting to board, I phoned Uzi Dayan and asked him to meet me at Lod the next morning. Then I called Motta again. Ehud, he said, with no trace of irony, it is an extremely serious war. Syrian tanks are getting close to the outer fences of Nafakh our main command post on the Golan. Good luck. Uzi was waiting for me when we landed. Walking to his car, we ran into two reserve armored officers who had also just arrived home. They expected to be sent north, to help beat back the Syrian advance. When they asked me where I thought I d be going, I said, truthfully, I had no idea. Wherever I can help, I said. Uzi drove us to the bor, the bunker built two floors underground in the kirya. Usually, it functioned as the day-to-day operations center. But it was where the commanders of the armed forces operated during times of war. At officers school, we d heard and read about the importance of throwing the enemy off balance . Now, we were the ones off balance. The faces I saw around me were gray and drawn. There were dead looks in the eyes of the commanders and their staff. Some 30 hours after the surprise attack, all the selfconfidence we d felt since 1967 seemed to have evaporated. I looked into several of the rooms where, months earlier, I d run through operational plans as sayeret commander. Inside each, a large wall map traced the course of the fighting. Israeli forces were marked in blue, the Syrians and Egyptians in red, with a timestamp for each position report scribbled at the side in black magic marker. But I saw that the latest addition was from at least twelve hours earlier. It was as if we d lost track of what was happening, or were simply overwhelmed by the pace of events. I spoke briefly with Talik as he walked along the corridor. He looked 10 years older than when I d last seen him. Then I spotted Ahrahle Yariv, who had been called back into military intelligence at the start of the war. Looking surprised to see me back in Israel, he pulled me close to him. It s important 147 that you came back, he said. We ll need each and every one of you to get the job done. Then he hugged me again. It was as if, knowing I would soon be heading for the front line, he wondered whether we d see each other again. I made my way to the office that the chief of staff used in the bunker and asked Dado s secretary if I could see him. As she was deciding whether to let me in, he emerged. Though obviously aware of the seriousness of the situation, Dado radiated his usual calm and confidence. For the first time, I felt a bit more hopeful. Ma nishmah, Ehud? he asked, in Israelis everyday greeting. What s up? I told him I d just come from the airport. I can help in special forces, infantry, armor. Whichever is most needed. Leading a tank unit, he said. They ve suffered heavy losses. Go see Tzipori. Motke Tzipori was in charge of organizing the armored units. He sent me to Julis, the training base between Tel Aviv and Beersheva, where tanks from maintenance units around the country were being brought. Once they were reasonably operational, and as more reservists arrived from abroad, I would lead a makeshift battalion to help reinforce our badly depleted forces in the Sinai. I was just one of dozens of officers, in command of thousands of tireless and courageous troops called on to try to turn the tide. Most were reservists. Many, like me, had rushed home in the knowledge that for the first time since 1948, there was the real risk Israel would be defeated. By the time I got my battle orders October 14, the ninth day of the war Israeli forces on the Golan, at enormous cost, had managed to turn back the Syrian attack. In this war, the men from Sayeret Matkal were not bystanders. Most of the unit joined the fightback in the north, where, under Yoni Netanyahu s command, they took on and defeated a Syrian commando force in the heart of the Golan. Yoni himself risked his life to rescue a wounded officer from another unit behind enemy lines. In the Sinai, however, the situation remained dire. An initial counterattack, launched while I was on my way to Julis, ended up in tatters, with whole battalions all but destroyed, as our tanks came under fire from rocket-propelled grenades and, above all, the wire-guided Saggers. Israel s main advantage in 1967 our command of the skies was all but gone. By moving their surface- 148 to-air missiles to the bank of the Suez Canal after the truce in the War of Attrition, the Egyptians had created an effective no-fly zone a dozen miles into the Sinai. After the failed counter-attack, with the commander of the air force warning that we were nearing our minimum red line number of fighter jets, Golda contacted the Americans to propose a cease-fire in the south. But having retaken the Suez Canal and pushed into the Sinai, President Sadat was in no mood to call a halt to the fighting. The only way we were going to end the war was to retake the canal and defeat the even larger Egyptian forces on the other side. To the extent that my part in war was different from other junior officers, it was because of my history in Sayeret Matkal. Other Israeli sayerets were attached to specific fighting forces. Sayeret Golan, for instance, was part of the Golani infantry brigade in the north; Sayeret Tzanhanim, was part of the paratroopers. But matkal is the Hebrew word for the general staff, since it was the generals in military headquarters who had allowed Avraham Arnan to create the unit. From the start, we had answered directly to the kirya, which ultimately had to approve our operations. When I rushed back from Stanford at the start of the war, I was still just a 31-year-old lieutenant-colonel. I had spent two years in command of the equivalent of an infantry battalion. But I knew, and in many cases had worked with, the men at the very top of the armed forces, including Dado, the chief of staff. So while other young reservists were reporting to their former units for assignment, my first port of call was the command bunker, where Dado himself, aware that I d done intensive tank training before taking command of the sayeret, ensured that I would play my part in trying to turn back the Egyptian advances. I also knew, or at least had met, many of the generals plotting the counteroffensive in the command bunker in the south: Shmuel Gonen, known as Gorodish , who was head of the southern command; Arik Sharon, who had left the same job for politics a few months earlier, but was now commanding a division near the canal; and Chaim Bar-Lev, the former chief-of-staff whom Golda had called back into emergency service. I even knew the bunker. It was Um-Hashiba, the command and intelligence post from which we had run Sayeret Matkal operations into Egypt after 1967. So during the last, decisive 10 days of the war, I would witness first-hand the tension among our top commanders in the Sinai, especially between Sharon and Gorodish, since Arik wasted few opportunities to suggest, rightly but not always helpfully, that his successor was woefully out of his depth. I would lead my company back across the canal with one of the other main armored brigades in the Sinai; take out Egyptian missile sites and help restore our jets command of 149 the skies; strike out alone at night, with sayeret-issue night goggles, to bring back the surviving soldiers after we realized we d lost one of our APCs in a battle with Egyptians; and even, because I d been there before on sayeret missions, leading a joint armored force across the Egyptian desert to complete the encirclement of Sadat s Third Army and effectively end the war. Still, the memory which has stayed with me longest summoning back all the miscues and misjudgements of some of Israel s top commanders, and the terrible price paid by the men on the ground to turn things around was the fight for an experimental agricultural facility located just a few miles back from our side of the Suez Canal. On Israeli military maps, it was called the Chinese Farm. In fact, it was Japanese experts who helped set it up in the then-Egyptian Sinai before the Six- Day War. When we captured it in 1967, deciphering the characters on the equipment had evidently proven beyond our linguistic capabilities. Thus, Chinese Farm. Now, it was back in Egyptian hands. The sprawling complex, with its web of large irrigation ditches, controlled the main transport corridor from the Sinai to the bank of the canal. Before dawn on October 16, one of the battalions in Arik Sharon s brigade, under a veteran paratroop commander named Danny Matt, had managed to cross the canal on rubber rafts with an advance force of some 750 men and a few dozen tanks. But it was a precarious beachhead, vulnerable to Egyptian air strikes, artillery and Sagger fire. Hopes for any large-scale Israeli counterattack rested on moving forward an enormous roller bridge, and hundreds more tanks, to complete the crossing impossible without retaking the Chinese Farm. The first I knew of the scale of Egyptian resistance there was about four in the morning on the seventeenth. I got a radio call ordering me to get my battalion ready to move, ASAP. We were attached the other main armored force, along with Arik s, assigned to lead the crossing. It was under the command of Avraham Bren Adnan, the former overall commander of Israeli tank forces. You re going north of Tirtur 42, Bren s operations officer told me. Even without checking our coded map, I knew it was the road running along the upper edge of the Chinese Farm. He told me that the parachutists of 150 Battalion 890, under Yitzhik Mordechai, were in trouble. Go. Find them. Help get them out. I knew Yitzhik personally, from his years in the paratroopers elite Battalion 890. I knew the man who was now in overall command of the paratroopers even better: Uzi Yairi, who was in charge of Sayeret Matkal during my final years of reserve duty at Hebrew University. Helicoptered into the Sinai just hours earlier, the paratroopers had been sent to the Chinese Farm shortly before midnight. As I would soon learn, they had no more idea than I did about what they were about to face. They were told they were going in simply to clear out bands of tank-hunters . They weren t told of repeated attempts by some of Arik s top tank, paratroop and reconnaissance units to take the farm over the previous 36 hours attacks which had not only failed, but had cost dozens of tanks and hundreds of men. Without artillery, armor or air support, they immediately came under rifle, machine-gun, mortar and heavy artillery fire. Our job was to get them out. Ordering my men to get ready for our first combat mission of the war, I found myself face-to-face with a distraught and determined friend from military intelligence. Yishai Izhar had arrived at Bren s headquarters the day before. When he saw me, he d asked to join my battalion. He was a brilliant electronics engineer and was about to assume command of the technology unit in military intelligence. I told him we already had our complement of tank crews, and I knew he d never had any armored training. So I found him a place in one of our APCs. But before joining military intelligence, he d been a company commander in Battalion 890. Hearing that we were going to rescue his old unit, he insisted on joining me on the lead tank. I tried several times to refuse, but he said I had no moral authority to stash him in an APC when we were going in to rescue his friends and comrades. Aware that each wasted minute might cost more of the paratroopers lives, I relented. I told Yishai he d be sitting across from me on the turret, right above Yasha Kedmi, another friend who, having served under me in my first tank company in the War of Attrition, had asked to join back at Julis. Yasha was our loader and radio-operator. He got Yishai a machine gun, extra magazines for his Uzi and a box of grenades. We moved out through wave-like dunes in total darkness. After the first few miles, the terrain leveled out a bit. Still, the sand was deep and the going slow. When we got within a couple of miles of where I assumed Yitzhik and his men would be, I radioed him. His voice was chilling. They re very close to us, shooting, he said. I ve got many wounded. Get here as quick as you can. 151 As we got closer, I could still see no sign of them. As dawn was about break, I radioed Yitzhik to suggest he fire off a flare, but he thought that would put them at even greater mercy of the Egyptians. Instead, he tossed out a smoke grenade. We spotted it, more than a half-a-mile away, slightly below us and to our right. I ordered us forward, leaving my second tank company behind for covering fire. I led Company A, which included my most experienced tank commander, Moshe Sukenik. Immediately behind us were our APCs, including two carrying our medical team. My aim was to engage the Egyptian fire while starting to evacuate Yitzhik s men to one of the long, dry, irrigation ditches, 600 yards behind us. We moved forward in a broad line with my command tank in the center. We held our fire until we got closer. I still couldn t see exactly where the men of Battalion 890 were and didn t want to risk hitting them. Only when we got within about 70 yards did I spot the first of the paratroopers. They were in groups of three or four in a thin line stretching 200 or 300 yards on either side of us. They were lying behind whatever cover they could find: a bush, a clump of debris, a small rise in the sand. Some were firing. Others were wounded. From just a few yards away, Egyptian infantrymen were raking them with rifle and machine-gun fire. They were now shooting at us as well, and we returned fire. But the Egyptians, far outnumbering Yitzhik s men, were spread out in a network of foxholes, in some places connected by trenches. As we moved forward, I ordered my APC commander to start evacuating the paratroopers back to the irrigation ditch, with the support of a further group of courageous reservists from another nearby APC unit. A shell suddenly exploded 20 yards ahead of me. Others rained in around our tanks. The source of the fire was straight ahead, about 1,300 yards away: three SU-100s, Soviet-made World War Two tank destroyers . I trained the main gun of my tank on one of the SU-100s and ordered the gunner to fire. I used the battalion-wide radio frequency so the others would hear the order. But when the dust and smoke had cleared, the SU-100s were still there. I ordered a sight correction and said, again: Fire . Still, we missed. It was only then that I realized why. Almost none of the tanks brought brought into Julis from the maintenance units had included their commander s notebook with their checklists for calibrating and firing a major problem, since many of the reservists had last been in a tank years before. I ordered the gunners to use their telescopes, parallel to the main gun, instead. 152 We were being hit by small-arms and RPG fire from all sides. On the turret of our tank, Yishai and I were firing back, our Uzis on automatic, and throwing grenades. I could hear bullets pinging off the turret and the body of the tank. Then, from our far right flank, came the shoulder-mounted Saggers, honing in with their eerie blue-red glow, juddering towards us as the Egyptian soldiers corrected their trajectories. One of the missiles barely missed us, and the silky wire from its guidance mechanism was tangled over our turret. I tried using my binoculars to identify where they were coming from, but it was no use. To my right, I could see that the APCs had completed their first evacuation run and were coming back for more of Yitzhik s men. There was a raggedness about it all: one APC, then a couple of others, then a gap, then another one or two. They were doing whatever they could, whenever they could, as the Egyptian fire continued to intensify. A few of Yitzhik s men, whether desperate or dazed, simply stood up and starting walking west, toward the canal, only to be cut down by Egyptian gunfire. I directed Moshe Sukenik to take half the company and head toward the Saggers to try to take them out, even though we both knew that he d have to risk heavy fire before they got close enough. He had two-inch mortars on his turret, but their range was only 500 yards, far less than the Saggers. Every 45 seconds or so, a salvo of Saggers zeroed in on our tanks and APCs. Within a couple of minutes, two of the tanks were hit. One was on fire. The SU-100 tankdestroyers were still there as well. Egyptian infantrymen were spraying us with small arms fire. The whole area was swathed in grayish smoke. Every minute or two, another tank or APC took a direct hit. There was a smell, too, which, once experienced, never leaves your memory: the scent of burnt human flesh. The fire from the foxholes was getting worse. Run over them, I ordered my tank driver. Start with the foxhole in front of us. He jerked us forward and we plowed over the first Egyptian position. Reverse, get the one to the right, I said. As he backed up, I was shocked to see a surviving Egyptian soldier, shrugging off a thick blanket of sand from his shoulders, raise an RPG launcher at us from just 15 feet away. We were close enough to look into each other s eyes. I raised my Uzi and shot him before he could fire. Rifle and grenade fire continued from along the line of foxholes. A second length of the Saggers silklike guidance wire tangled over our main gun. Yishai was firing at the Egyptians from the other side of the tank. We both tossed grenades in the direction of the worst of the gunfire. 153 It was then, suddenly, that I saw Yishai had taken a bullet in the side of his neck. Blood was spurting from the wound. His face was contorted in pain. He looked at me, raising his hands upward, as if to say: I did my best. It s over now. I pressed hard on the wound, trying to stem the flow. But he slipped out of my grasp and collapsed into Yasha Kedmi s arms. Yasha propped him up and kept trying to staunch the bleeding. I turned toward the Egyptian soldier who had shot Yishai, less than 20 feet to my left. Keeping myself as low as possible above the turret, I fired into his chest. He tumbled into the foxhole. As I kept shooting, Yasha told me Yishai was dead. Are you sure? I asked. When he said yes, I ordered the driver to back up. We drove a few dozen feet, to where a group of the paratroopers was taking cover. With their help, we lowered his body from the tank, and then returned to the battle. Barely ten minutes had passed since it began. Two SU-100s were now spewing smoke and out of action. The third had withdrawn. But the Egyptians were still firing. Five of our tanks had been hit. Two were on fire. One APC was smoldering, its commander severely wounded. I knew that if we stayed much longer, we would end up like other armored units during Israel s first, failed counterattack in the early days of the war. We would risk being wiped out. As far as I could tell, all the surviving paratroopers had been brought out or had managed to hobble to the irrigation ditch. I ordered Sukenik to abandon his attempt to take out the Saggers, and we withdrew behind the irrigation ditch. It was only then that I realized that alongside two of our crippled tanks there was still a group of a dozen men: six crew members from my battalion and six of Yitzhik s men. It took nearly two hours to get them out. We used our tank guns to try to reduce the intensity of the fire from the Egyptians around them. I ordered one of our APCs to go get them. I rounded up all our smoke grenades, and the APC crew used them to create a smokescreen, the only way I could think of to reduce the danger of being targeted by the Saggers. It worked, but it required incredible guts for the men in the APC to pull it off. The battle had required guts of every man in the battalion. They had found a way to conquer the first and most powerful enemy on a battlefield: fear. I felt it, too. But it s easier for a commander. When you re leading people into combat, you don t have time to be afraid. You have to assess and evaluate, second by second, everything going on around you. You have to make instant decisions and ensure they re being carried out. The people under your command are waiting to hear your voice, and watching your actions, too. If you lose control at any point, not only is your life at stake. Theirs are too. 154 Early that evening, we were ordered to rejoin Bren s division to be ready for the crossing. When I reported that three of my soldiers were still missing, I was ordered to inform the commander of the battalion replacing us to find the missing men. The fight for the Chinese Farm was still not over. It would be another 12 hours before, in a co-ordinated push by a strengthened armor and infantry force, Israeli forces finally drove most of the Egyptians out. What tenuous gains we d made until then had come at an enormous price. Of Yitzhik s 300 men, nearly 40 were killed, and many others wounded. I d led around 130 people into battle. More than 35 were injured. Eleven were dead, including Yishai Izhar and Motti Ben-Dror, our medical officer, killed while treating the wounded. One of our missing soldiers was found alive. The other two could only be brought home for burial. As I began to hear the details of the previous days fighting, I became more astonished, and angry. Israel s tactics in the battle for the Chinese Farm had involved a series of piecemeal strikes by units obviously too small, and inadequately supported or co-ordinated, to succeed. The problem wasn t the choice of units. No one could doubt the record of Battalion 890, or of the men Arik had sent in before Yitzhik arrived. But there was no way they were going to take the area on their own. I couldn t understand why there wasn t an attempt to assemble a force that might actually have been strong enough: parachutists, tanks, artillery. I felt I knew at least part of the answer from the two nights I had spent in the Um-Hashiba command post before joining Bren s division. By dawn on October 16, the first of Arik s men had crossed the canal. By the afternoon, although the big roller-bridge was still not ready, a smaller pontoon bridge was available. Everyone knew we needed to get control of the Chinese Farm. But all the field commanders were focused the real task, and the real prize: crossing the canal and defeating the Egyptians on the other side. Now, at least, the main crossing was underway. Bren had chanced the fact that, with Yitzhik pinned down at the Chinese Farm and the Egyptians concentrating their fire on his men and mine, he could get the pontoon bridge through. From late afternoon on October 17, his first units began to cross. On the morning of October 18, my battalion joined them. There was still fighting ahead, and we were part of it: taking out the SAM sites, engaging units of the Third Army and, with Sadat now pressing the Americans for a cease-fire and many Egyptian units clearly losing the will to fight on, racing against the clock to encircle and defeat it five days later. 155 When the guns finally fell silent, I had time to give full rein to my thoughts. There were obviously fundamental questions about how the war had happened, starting with why we hadn t known ahead of time that two neighboring states were about to attack us despite sayeret intercepts that could have given us time to call up all our reserves. Disentangling the details would take months. But we already knew the human cost of those failures. Hundreds of Israeli soldiers had been killed. The final number would be around 2,800, nearly four times our losses in 1967. Thousands were wounded, some crippled for life. Many of the dead were men whom I d grown up with or served with, including more than 20 in my own battalion. Some of the dead in other units were close friends. I felt exhausted. I also realized that Nava, thousands of miles away in Palo Alto, and my parents on the kibbutz could still not be sure I had escaped the fate of so many others. I learned later that my parents had been making daily calls to Digli, who was working in intelligence in the kirya. Though he had no way of knowing where I was, he kept assuring them that he had checked with my commanders and that I was alive and well. Nava had been relying on American news reports and the relayed assurances from my parents, which she was seasoned enough as an army wife to treat with skepticism. I missed her badly, and little Michal. I felt the need to hear their voices. I drove to one of the brigade communications units. There was a long line in front of the radio telephone. But within a half-hour, I managed to get a crackly connection to California. Nava burst into tears when she heard my voice. I told her I was fine, and that I couldn t wait to see her and our little girl. Then, my own eyes dampening, I reeled off the names of friends who had died. In addition to the brave men I d lost in my own battalion, there were more than a dozen others I already knew of. A pair of brothers from Mishmar Hasharon, a couple of years younger than me, in separate units, but killed within hours of each other. Another childhood friend, from a nearby moshav, named Rafi Mitzafon. And Shaul Shalev, a gifted philosophy postgraduate and a brave tank commander whom I d become friends with at officers school. He d rescued three dozen troops from one of the Bar-Lev fortifications in the first hours of the war, only to be killed trying to get to a tank crew who had taken refuge a few miles back from the canal. I d lost two wonderful sayeret comrades, too: Amit Ben-Horn, the soldier who d relayed the order from Motta to abort our second attempt to abduct the Syrian officers in Lebanon, and Amitai Nachmani, the officer who had 156 demanded a meeting with Dado before our attack in Rue Verdun. Amit died in the fighting near Ismailia, at the northern end of the canal, as Arik Sharon s units pushed on after the crossing. The day before the end of the war, both Amitai and Amiram Levin were part of an operation to take over the Fayid Air Base across the canal. When an Egyptian RPG hit their Jeep, Amiram was wounded. Amitai was killed. I thought, too, of Yishai Izhar: the friend struck down beside me, who I d cradled in my arms on the top of my tank, trying to stop the bleeding. Oh Ehud, Nava said. It s like 1967 all over again. No, I said. Worse. Much worse. A few weeks later, I was coming out of the kirya when I ran into another friend, whom I d first met at Hebrew University. Like me, he had been a junior officer in 1967. His name was Ron Ben-Ishai. He would go on to become a top journalist, covering the military for Israel s best-selling newspaper, Yediot Achronot. In the early autumn of 1967, we were still transfixed by the idea of being able to visit areas of biblical Israel, which for years had been under Jordanian rule. With a few other friends who were young officers, nine of us in all, Ron and I embarked on a trek from the southern edge of Jerusalem, weaving our way through the Judaean Desert toward Kumeran, on the Dead Sea. Now a very different war had come and gone. I d fought in it. Ron, as what is now called an embedded journalist, had been with Danny Matt s paratroopers when they d crossed the canal. He was alongside another of Arik s units fighting out of the bridgehead on the far bank of the canal. That both of us had seen terrible suffering over the past few weeks did not need saying. But Ron said he wanted to show me something. Fishing into his wallet, he took out a carefully folded photograph. He had taken it in 1967, just six years earlier, to mark our Judaean trek. There we were. All nine of us. Young. Full of optimism. And probably a bit full of ourselves as well. Ron and I were the only two left alive. We had won the war, and not just because our forces were now within 60 miles of Cairo, and only 25 from Damascus. We had been attacked by two huge 157 armies: one-and-a-half million soldiers. Thousands of tanks. Hundreds of fighter jets. Other, much larger nations had endured months, even years, of hell before prevailing in such circumstances: the Soviet Union, for instance, with its huge strategic depth, or France, rescued by its American-led allies, during World War Two. But any pride in having prevailed was outweighed by simple relief Israel had survived. Even that was nothing compared to the sadness felt over friends lost, and the resentment and sense of betrayal toward the generals and political leaders who had failed to prepare the country for the surprise attacks, or the initial confusion and dissension in some of our commanders response to the early setbacks on the ground. Dozens of meetings were held in military units after the war to talk about what had gone wrong. I was not the only young officer to notice that the higher up the command chain they went, the more unedifying they became. After we d heard one too many senior officer finetuning his account with each retelling, minimizing his share for the huge losses, a new phrase entered Israeli army slang. Sipurei kravot battle stories were the words usually used to describe a normal debriefing process. That expression was now amended, to shipurei kravot. Battle improvements. I was assigned to convert my makeshift force into a regular armored training unit: Battalion 532, and that slightly delayed my reunion with Nava and Mikhal. But in their absence, I found us a larger apartment in the Tel Aviv suburb of Ramat Hasharon. Nava and I agreed that at the first opportunity, I d return to California and we d fly back together. I went at the end of the year. We bought a refrigerator and a washing machine for the new flat better models, and cheaper, than those available in Israel and came home. Those few December days in Palo Alto were a jumble of emotions. Happiness, at being back together. But also a sobering sense, now that I was outside Israel for the first time since the war, of the enormity of the threat we d faced and the frustration and fear Nava must have felt as we d fought to defeat it. The year-end news retrospectives we watched on American TV were full of film clips from the first hours of the war, when it looked very possible we would lose. I remember being struck by the thought that, if we had lost, if Israel had ceased to exist, ceremonies of memorial and mourning would have been held across America, probably in Stanford. But that once the shock and sadness had passed, Israel s disappearance would not have impinged on a single NFL Sunday, or delayed a single family shopping visit to J. C. Penny. 158 My command of Battalion 532 lasted only a few more months. On April 1, 1974, an official commission of inquiry published its initial report on the war. It was scathing in its assessment of our intelligence failings, for which it placed the main blame the officer who had been promoted the year before as head of military intelligence: Eli Zeira, the man who had addressed us on the sayeret base before the the 1967 and so confidently predicted the outcome. It also took aim at two other commanders. Gorodish, as head of the southern command, was one. The other was Dado. As chief-of-staff, he was held ultimately responsible for the intelligence failings and for not having ordered at least a partial call-up of our reserves. In Eli s case, I recognized the very fact of our being caught by surprise made his position untenable. In fact, as I learned more details about what had happened, I realized the commission had, if anything, understated the seriousness of his errors. In the run-up to the war, Eli had resisted multiple requests from other intelligence officers to activate what the commission called our special sources of intelligence: the communications intercepts we d planted deep inside Egypt. Worse, he had indicated to the few generals who were aware of their existence that he had activated them, implying that his lack of concern about the possibility of an Egyptian was based on our intercepts. Because Dado was one of the people misled, his fall struck me as profoundly unfair. He had devoted his whole adult life to the defense of our country. After the inquiry report, he was never again the same person. He developed an obsession with fitness and exercise. Psychologists might have called it displacement activity. I wondered whether it was a kind of self-punishment. Either way, it may well have killed him. At age 50, less than three years after the war, he died of a heart attack after a day of running and swimming. Almost every level of command was thrown into flux after the inquiry report. So was the political landscape. Both Golda and Dayan bowed to growing public pressure and resigned. The premium was on finding replacements who were sufficiently experienced, but did not bear responsibility for the errors of the war. For Prime Minister, the choice fell on Yitzhak Rabin. He had strong military credentials, of course. But he had left the army and entered politics, and had been out of Israel for several years as Israel s ambassador to Washington. He had joined Golda s government only weeks before the war, in the relatively minor role of Minister of Labor. Much the same thing happened in the army. Only one of the generals who had been in the running to succeed Dado before 159 the war was unscathed: Motta Gur. He, too, had been in Washington. Within days of the inquiry report, he was called back to replace Dado as chief-of-staff. My role changed, too. Not everyone emerged from the war with his reputation diminished. The lion s share of the credit for Israel s eventual victory went to the rank and file of our citizen army. But in the officers corps, there were also examples of coolheadedness in crisis, and leadership. One was Moussa Peled, who was now made head of the armored corps. My overall wartime commander, Bren, replaced Gorodish as head of the southern command. And Dan Shomron, whose 401 st armored brigade played a critical part in defeating the Egyptians, was another. Dan and I had first got to know each other well at Karameh, then during my period as sayeret commander. We would go on in the years ahead to work more closely together than almost any senior officers in the military. He was now promoted as well. He became katzhar, overall head of infantry and paratroop forces, and he recommended me as his successor in Brigade 401. Still, I knew that the Motta would have the final word, with input from the two senior officers most directly affected: Peled and Bren. I don t think either of them had anything against me personally. But both were tank officers through and through. There were other candidates to succeed Dan who, unlike me, had spent their whole careers in the armored corps. I heard formally I was being considered as I was about to return to my battalion from Ramat Hasharon one Sunday morning. I was ordered to report to Motta s office. When I got there, he gestured toward the small table at the side. He already had two other visitors: Moussa Peled and Bren. You probably know you re a candidate for taking over 401, he said. These two gentlemen think you re not yet ready. What do you say? If I d had more time to prepare, I might have answered more subtly. But I did very much want to be given command of the 401st, and had no doubt I would be a worthy and dedicated commander. I don t know exactly what the two gentlemen mean by whether I m ready, I replied. So I have a proposal. Find a battle-tested officer whom you trust. Have him check who among the three of us, me or these gentlemen, is more familiar with the tank and its systems. Who of us knows better the terrain, in Syria or Egypt, day or night, where we have to fight? Who knows the operational requirements for an armored force, and the armored doctrine these gentlemen signed off on. Finally, which one of us has spent more time in a turret of a tank, on the battlefield, shooting at enemy forces and being shot at by the enemy? 160 There was silence, a grave look from Peled and Bren, the hint of a smile on Motta s face, and the meeting was over. Several days later, I was notified of his verdict. I would indeed be named the commander of the 401st Armored Brigade in the Sinai, and promoted to full colonel. Our base was a 15 miles from the canal. It was a huge expanse of sand ringed by metal fencing. We spent three months at a time in this forward deployment and three months in our rear base, 50 miles from the canal. During one of our forward deployments, Motta came on an inspection visit. He wanted to discuss how we planned defend the area near the canal in the event of a repeat of the 1973 war. I told him everything we were doing in the brigade was aimed at ensuring flexibility. I had also been thinking about some of the broader issues relating to our defenses in the south. No matter how good our tactics or plans, I said, what worries me is that we re still not looking at our overall approach to defense against Egypt. It s as if we ve forgotten that in 1967, when we captured Sinai, it was in order to have a buffer zone. We had 150 miles of sand between southern Israel and the canal. But when the Egyptians attacked in 1973, we defended the desert as if it was the walls of Jerusalem! Since the 401st was one of two regular brigades on the Egyptian front, it was not easy to make the four-hour drive home to Ramat Hasharon. When I got word Nava was going into labor with our second child, I was leading a training exercise five or six miles from our base. As she was on her way to the hospital, I grabbed my car and headed north. Unlike Michal s birth, this one was not easy. When the baby emerged, she was struggling to breathe. The immediate danger passed, but she was placed in an incubator. When I got to the hospital, Nava was asleep. I was taken to see our tiny daughter, Yael. When the nurse left, I noticed the baby s pinkie trapped in the plastic cover of the incubator. I started banging on the window of the room. The nurse rushed back. With a look of sympathy mixed with world-weary experience of other fathers in similar panic, she raised the cover, folded Yael s tiny hands onto her stomach, and all was well. It was another health crisis which hastened the end of my period as brigade commander. But this time, I was the one in the hospital. I nearly collapsed from high fever and exhaustion. The initial suspicion was some kind of contamination linked to the rudimentary sanitation in the Sinai. When the symptoms persisted, the doctors suggested I probably had hepatitis B. Years later, better diagnostic tools ruled all that out. I ve never discovered what the 161 illness was. But for nearly six months, getting through the day, sometimes a single task, remained a struggle. I did not want to leave my command. I was still barely 18 months into the role, and anxious to get further command experience. But just as I was feeling at my weakest, there was another belated casualty from the 1973 war. This time, it was Uzi Yairi. No one could reasonably have held him responsible for the losses suffered by Battalion 890 at the Chinese Farm. I m sure that if he d known what happened to the Israeli forces that had already tried to take it over, he would never have allowed Yitzhik to go in without adequate armor and artillery support. Still, he blamed himself. In obvious distress after the war, he was reassigned as an operational officer in military intelligence in the kirya. He was still at his desk when Fatah terrorists landed on Tel Aviv s seafront a little before midnight on March 4, 1975. They were spotted by a police patrol, which opened fire. The Fatah men ran from the beach, firing Kalashnikovs and tossing grenades. A block in from the sea, they burst into a modest, three-story building: the old Savoy Hotel. They shot and killed three people in the lobby and took the rest of the staff and guests hostage. Sayeret Matkal was called in. As the unit went through final preparations for their assault, Uzi showed up. He had a rifle. He was in his everyday officer s uniform, unlike the sayeret team, which was weighted down by special-forces gear. As a former commander of the sayeret, he persuaded them he could help take out the terrorists and locate the hostages. Shortly before dawn, led by Amiram Levin, they attacked. They killed three of the Fatah men within seconds. But another terrorist set off an explosion, collapsing most of the top floor. Uzi joined a couple of the other sayeret men in search of the hostages. He was shot in the head and neck. Seven of the eight terrorists were killed, the other captured. Though five hostages were freed, five lost their lives. Uzi died on the operating table of Ichilov Hospital, a few hundred yards from the kirya. Though I doubt Uzi s family and friends would agree, my gut feeling was always that his death was one more result, however indirect, of the shambolic way in which we d organized our attacks on the Chinese Farm. That was part of the reason for my reluctance when Motta told me he wanted me to take Uzi s 162 place in the kirya. I realized I was the only available replacement with a similar background, and sayeret experience. But I was still gaining brigade command experience. And I couldn t help feeling the role was intended as a kind of restand-recovery cure because of my illness, not too different from the reason Uzi had been given the job. Still, I did need rest and recovery. Even if fully healthy, I m not sure I could have convinced Motta to change his mind. In my weakened state, I had no chance. Skeptical though I was about the job, it opened up a new world to me. The kirya itself was not new territory. But now, I became exposed to how how the huge range of intelligence information we gathered was collated, evaluated, assessed and ultimately applied. Helping with this process was my new assignment. There were, in fact, two of us. We were both colonels and together we provided the intelligence background for military operations. I had the post on inside the military intelligence department. My opposite number was in the operations department the more senior role, in a way, because he had a more direct link to the people actually doing the operations. He was a friend from officers school: Dovik Tamari s younger brother, Shai. Once a week, Shai and I put together an assessment report. Then, we d join Motta s operations meeting with the general staff, often attended by the man who d followed Dayan as defense minister, Shimon Peres. The analysis of military intelligence included separate teams for Egypt and Syria, Jordan and Lebanon, Iraq and other neighboring states, as well as other countries and superpower relations. It relied on all our raw intelligence material, from both military intelligence and Mossad, as well as academic and specialist literature. Each desk dealt not just with military issues, but political and economic developments. I was responsible, along with Shai and a few others, for bringing all this together. This meant frequent meetings with members of the analysis teams. For the first six months or so, I barely uttered a word in these sessions. I listened, not just absorbing the information but getting to understand the way the analysts worked and thought. Our whole intelligence department was responsible for drafting an annual strategic assessment for the army and the government. The final report was written by Shlomo Gazit, who had succeeded Eli Zeira as head of military intelligence. Before we sent it to print, he held a long meeting, inviting the views of all the military intelligence officers. The focus in 1976, just three years after the war, was on the risks of a new surprise attack. At the end of the discussion, however, he said: We know we run a real danger for the country if 163 we fail to spot the signs of a war. But has any of you asked yourselves something I find myself wondering from time to time? Is there not a similar risk if we miss the signs of an opportunity for peace? His words stuck with me for the rest of my time in public life. They also had a strong impact on me at the time. One of the benefits of my job was that I could read the full inquiry report from the 1973 war, including the portions that had been kept classified. Some dealt with the political situation before the war. Golda had relied heavily on a kitchen cabinet of trusted ministers and a few close advisers. The inquiry material described how Sadat had been extending negotiating feelers before the war. And how Golda, Eli Zeira, Dado and Dayan had responded. It was like an exercise in collective reinforcement. They agreed the Arab countries would not simply go on living with the humiliation of their defeat in 1967. At some stage, they would try to regain the initiative, on the battlefield. But none appeared to think through the implications of this for our political approach. Perhaps, like Eli Zeira in 1967, they assumed a kind of historical inevitability of Israeli triumph. Though we d ending up prevailing in 1973, it was impossible not to wonder whether, as Shlomo suggested, we had missed the signs of a possible peace beforehand. Now, however, we were facing an escalating challenge from an enemy with no interest in peace: the armed Palestinian groups. The Democratic Front took over a school in northern Israel a half-year after the war. In March 1975, Fatah had seized the Savoy. And about a year into my posting in the kirya, the Popular Front for the Liberation of Palestine launched an even more audacious operation. It became known by the name of the airport where the ordeal ended. Entebbe. And when it began I, like Uzi Yairi, was sitting at my desk. 164 Chapter Ten Sunday is an ordinary working day in Israel, and the first sign that June 27, 1976 would be any different came shortly after noon. It was an urgent message from Lod Airport, now renamed in honor of David Ben-Gurion, who passed away after the 1973 war. Radio contact had been lost with Air France Flight 139 from Tel Aviv to Paris, shortly after a stopover in Athens. We couldn t know for sure what had gone wrong. Maybe a mechanical malfunction, a glitch in the electronics, a crash. Or a hijack. But we did know there were roughly 300 passengers and a dozen crew on board. Many of the passengers were Israelis, and others were Jews from abroad. Ever since the Sabena hijacking four years earlier, whenever a civilian airliner was thought to be under attack within three hours of Israel, step-one in our response had been automatic. Sayeret Matkal was ordered to the airport. Because I d commanded the Sabena operation the first, and still the only, time we had attacked and freed a hijacked plane it was probably inevitable I would take some part in figuring out how, or whether, to intervene if the Air France plane turned out to have been hijacked. But my pivotal role, as the crisis intensified, was down to a combination of factors: my broader experience as sayeret commander, the fact that I now worked in the kirya, just one floor up from the chief of staff, and, as so often, pure chance. As the sayeret assembled at the airport, its current commander Yoni Netanyahu, my former deputy was hundreds of miles away in the Sinai, preparing for an operation across the canal. So it was Mookie Betzer, now Yoni s deputy, who began briefing the men for a possible hostage rescue in case the jet returned to Israel. At the kirya, we were also without our commander: Motta was in the Negev observing a major military exercise. So it was his deputy the head of the operations branch, Kuti Adam who buzzed me on the intercom at two in the afternoon and summoned me to his office. By now, we knew the plane had been hijacked, but that it wasn t heading back to Israel. The terrorists had renamed it Arafat and it was on its way to Libya. I took the stairs down to Kuti s office, two floors below mine, and he immediately handed me a large, black-and-white aerial photo. It showed the international airport in Benina, just outside Benghazi on the eastern edge of Libya. Can we do anything, Ehud? he asked me. I didn t say no outright. But I told him that even if we had a treasure trove of intelligence about Benina 165 which, I soon verified, we didn t the obstacles would be enormous. Unlike the Sabena jet, this one was a wide-bodied Airbus, and El Al had none of those in its fleet. Even we could find a way to make sure a sayeret team got briefed on the airliner, we d be mounting an attack-and-rescue operation a thousand miles away. And even if we could take out the terrorists, we were almost certain to face opposition from the former army colonel who ruled Libya, Mummer Ghaddafy. The chance of success seemed slim, the risks enormous. Soon, however, Kuti s question ceased to matter. Later Sunday night, Flight 139 took off again. Before leaving Libya, the hijackers freed a passenger: an Israeli dual national, with a British passport as well, who managed to convince them she was going into labor. We learned through her that there were four hijackers: two Arabs and two Europeans. It was a PFLP operation, but included members of the far-left West German Baader-Meinhof terror group. They forced the pilot to head for the east African state of Uganda. On Monday evening, it landed at Entebbe Airport, 20 miles outside the Ugandan capital of Kampala and just a couple of hundred yards from the shore of Lake Victoria. It was five times further away than Benghazi. Yet with each passing hour, increasingly alarming radio and television reports focused on the obvious agony of the hundreds of captive passengers. To this day, I ve never been able to establish why it was a further 24 hours before we started seriously to work out if there might be some way for us to free them. Prime Minister Rabin was clearly asking himself the same question, however, because on Tuesday afternoon, he called Motta in the Negev. It was now a full 53 hours after the hijacking, he said. What the hell we were doing to try to come up with a plan? Motta was immediately summoned back to Jerusalem for an emergency meeting of the government. As he was on his way back from there to the kirya, Kuti called me back down to his office. Motta just told them that there is a military option, he said, with a wry smile. Kuti had been a Haganah officer in 1948, in charge of the Golani brigade, head of both the northern and the southern command, and had known Motta for years. That means we now have to find one. I had just begun briefing a few of the analysts in my office when Motta returned. When I got to his office, Kuti waved both of us across the hallway to the big, rectangular conference room where general staff meetings were held. On the side of the room was a globe. Giving it a spin, he said: Nu, Motta. Tell me, when you told the government we had a military option, did you even know where Entebbe is? Motta didn t so much as crack a smile. We have to find a 166 response, he said. I ve committed us. Ehud, I want you to check what can be done. Take whatever you need, from wherever you want. Bring me suggestions by seven tomorrow morning. Then, he said, we would go brief the Defense Minister, Shimon Peres. I assembled a team the same way we d prepared for special-operations missions in the sayeret: looking for information, intelligence and above all experience and insight from whoever I thought was likely to make that alwaysnarrow difference between failure and success. My first calls went to Mookie Betzer and another of my most trusted and experienced sayeret comrades, Amiram Levin. Then I brought in Ido Ambar, the personal aide to air force commander Benny Peled, and Gadi Shefi, the commander of the Shayetet 13 SEALs. Finally, two officers from Dan Shomron s office. Since Dan was katzhar, in overall command of paratroop and infantry forces, it was critical to keep him in the picture. I told them all that we d be working through the night, and that I had to be able to tell Motta and Shimon by the morning whether we really could mount a rescue mission. I still thought I d end up having to tell them no. However difficult the obstacles we d faced with Sabena, they were almost child s play compared to getting a sayeret assault team 5,000 miles across the continent of Africa, surprising the terrorists, freeing the hostages unharmed and getting them out. That was even assuming, as I did at that point, that we wouldn t face armed opposition from the troops of Uganda s increasingly tyrannical president, Idi Amin. Amin had begun to align himself politically with the Palestinians in the past few years one reason, no doubt, the terrorists had landed there. But he had actually been on a paratroop course in Israel before taking power in 1971. We had sent officers to help train his army in the early 1970s. Now, I discovered, Mookie himself had been on one of the training missions. Their men aren t great fighters, at least at night, he said, an insight of obvious relevance to planning a commando attack, if we could get that far. When Ambar, the air force aide, spoke up, I finally began to feel we might at least be able to put together the outline of a plan. He d brought with him a copy of the standard reference book on world airports, which gave us at least a general idea of the layout of Entebbe. He also said that the air force had run a training program for the Ugandans. In Entebbe. He d contacted one of the reserve pilots who had been on the training mission, and he was on his way to join us. Still, time was short we were nowhere near being able to recommend a specific plan of action. The hijackers had set a deadline noon on Thursday, 167 July 1, now less than 36 hours away. Having moved the passengers off the plane to one of the terminal buildings, they were threatening to start killing them unless we freed a list of 53 Palestinians and PLO supporters, forty of them held in Israel and the rest in a number of European countries, and paid a ransom of five million dollars. Well past midnight, we started looking at our options. One which seemed briefly to hold promise drew on suggestions from Ido Ambar and Mookie. Ido s almost rhapsodic description of the capabilities of our C-130 Hercules transport planes convinced us we could parachute in a Sayeret Matkal team, as well as vehicles for them to use on the ground. Mookie and I agreed that to ensure surprise, we would disguise the commandos as Ugandan troops, in Ugandan Jeeps. The final twist came with the arrival of the reserve air force officer who had been on training duty in Entebbe. He brought a reel of 8mm film from an official ceremony at the airport. At the start, a Ugandan army general could be seen arriving in a black Mercedes. That s it! Mookie said. The Mercedes. Every top Ugandan military officer has one. We decided to swap one of our Jeeps for a jet-black limousine. Yet by daybreak on Wednesday, when I went up to brief Motto, we d set aside the option of a parachute drop. Any initial surprise would be outweighed by the risk of exposure from the very start of the assault. We d also gone cold on a second option, to infiltrate sayeret teams along the shore of Lake Victoria from across the nearby border in Kenya. I doubted we had enough time to navigate all the operational and diplomatic obstacles before the deadline expired. That left option three: having the SEALs, along with a core team from the sayeret, parachute onto Lake Victoria with rubber dinghies and attack the airport from on foot. We arranged to do a test parachute assault off the Israeli coast in Haifa later in the day, but if that went well, it seemed the only practical alternative. Motta and I went met Peres around 8:30am. Shimon had no first-hand military experience, having played a political role alongside Ben-Gurion from Israel s early years. So he was not really interested in the details. But he was keen to hear our assurances that a military option did exist. He was even more intrigued when we were joined by the head of the air force, Benny Peled. Unaware of the airborne parachute drop we had been discussing overnight, Peled suggested something far more ambitious. Rather than using a single Hercules, he proposed using four of the giant transport planes to ferry in a larger force, some 200 men in all, land them on one of the runways and take over the 168 entire airport. Though I didn t say so, I had my doubts it would work. It was a bit like the initial option for the Rue Verdun raid Dado had rejected: a classic ground assault which, in addition to eliminating any chance of surprise, obviously ran the risk of igniting a small ground war. But I did think that some combination of Peled s idea and the surprise commando strike we d been looking at might provide an answer. A few hours later, the hostages ordeal took a chilling turn, which soon also provided us with our first real detailed picture of the scale of the challenge we faced. In a haunting echo of the Nazis selection process in the Holocaust, the terrorists separated all the passengers with Israeli passports or Jewish names. They let the rest of them go, and allowed them to board a special Air France flight back to Paris. We immediately dispatched Amiram Levin to debrief the freed passengers. On a scrambled teleprinter line Wednesday night, Amiram came up with far more than we could have hoped for. One of released passengers was a French woman who had managed to hide the fact she was Jewish. She confirmed reports we had been getting that the hostages were being held in the airport s former terminal building, about a mile from its newer terminal and the main runways. Other passengers revealed that the hijackers had placed explosives around the old terminal building. And that, despite my hope that Idi Amin would stand aside if we did decide to go in and rescue the hostages, his troops were helping to guard the area. So in addition to taking on the hijackers, we d have to find a way to deal with Ugandan soldiers. In another round of discussions in my office through the late hours of Wednesday night, we finally settled on our plan: Peled s major airborne operation, but with a Sayeret Matkal strike force, with its Ugandan motorcade, spearheading it. Minutes later, three other C-130s would fly in additional troops to secure the rest of the airport, deal with any Ugandan army resistance, and fly out the Israeli soldiers and the hostages. An operation on that scale naturally meant bringing in Dan Shomron. After I d taken the plan to Kuti Adam, he briefed Dan on the full detail and called me down to see him again. Dan had left to start preparations for the operation. He d made just one request, Kuti said: that I be in command of the sayeret force. 169 I could see why Dan had said it. Working with Mookie and the rest of my team, I d been in charge of all the initial planning. I was in command of the Sabena assault, the only remotely similar operation Israel had attempted. Though an attempt to rescue dozens of terrified hostages in Entebbe, with both the terrorists and possibly Ugandan soldiers armed and ready, would be much harder. As Sayeret Matkal commander, I d conceived and commanded other missions that requiring us to break new ground. But and it was a huge but I knew from the moment I left Kuti s office that I would have to find a way to avoid undermining the current sayeret commander, Yoni. Dan had clearly been aware of that as well. He d stressed to Kuti that he meant no disrespect to Yoni. But I know Ehud, he said. I ve worked with him. I want him to lead it. Yoni was still in the Sinai. I d phoned him before our first overnight planning session to tell him I was bringing in Mookie and Amiram. Mookie had been giving him daily updates. But the clock was ticking. Under the initial deadline, the hijackers had threatened to begin executions on Thursday. Today. The deadline had now been pushed back, but only until Sunday morning and only after Rabin felt he had no option but to drop our public refusal to consider negotiating with them. When Dan called our first operational briefing for Thursday night, Mookie sent a plane to bring Yoni back. Dan set out the plan with his customary confidence. The four Hercules would take off on Saturday evening from Sharm el-Sheikh at the southernmost tip of the Sinai, to cut the flying distance at least slightly. The first plane would land on the runway near the new terminal. Inside would be a small unit of paratroopers, the sayeret strike force, a pair of Jeeps and the Mercedes. The next Hercules wouldn t arrive for another seven minutes: the most critical minutes of the whole operation. That was when our Ugandan motorcade would make its way to the old terminal, burst in and take care of the terrorists. The second Hercules would include another Sayeret Matkal team, to reinforce the attack unit and secure the perimeter of the old terminal. Hercules Number Three, a minute later, would carry a joint force of sayeret fighters, paratroopers and a Golani team. Their job would be to take over the new terminal and the rest of the airport and deal with any Ugandan army resistance. The final plane was a flying medical unit, to provide treatment for the hostages and carry them back to Israel. Yoni arrived just as Dan was finishing his presentation. He looked focused, energized, and eager to play his part. I realized it was important to explain to him the decision to place me in command. Despite our close relationship, I 170 knew that would be a sensitive task. We spoke only briefly before he and Mookie drove back to the sayeret base to begin more detailed preparations. Yoni was insistent that he should be in charge. I told him I understood, and I did. In his position, I would have felt exactly the same way. But for a variety of reasons, Dan wanted me in command. Still, I stressed my determination not to detract from his authority. Yoni would lead in the main assault unit. He and Mookie would choose the other officers and soldiers, decide their roles and take charge of training, briefing and logistics. I could tell he was still not satisfied. But I told him and Mookie I d join them later that night. We could talk further, ahead of the next full briefing, which Dan had set for nine o clock on Friday morning on the sayeret base. When they left, I joined Dan, Motta and Kuti to go see Rabin. Shimon Peres was there too. He would later say that, as Defence Minister, he was a crucial voice in pressing to go ahead with the rescue mission. He s right, and had he been sceptical, or opposed the idea of a recuse, it would have made things much more difficult. But his position was far easier than the Prime Minister s. He lacked Rabin s hands-on command experience, his grasp of the details of what we were proposing to do and the obvious risks. All Israelis were aware of this. I the operation failed, or if we decided in the end not to attempt it, it would be Rabin who would bear the responsibility and get the blame. Even under the best of circumstances, Rabin was naturally cautious the flipside of the meticulousness with which he ran through the fine detail of every military mission. As I remembered from when he was chief of staff, in our slightly surreal conversation about the danger of a booby-trapped communications intercept exploding as I defused it, he would focus on everything that might conceivably go wrong with an operation before approving it. Now, he was also under huge additional pressure. From the start of the hijack crisis, there had been calls from the hostages families to do something to end the ordeal. But as I later discovered, one of the leading scientific engineers in Israel, Yosef Tulipman, had a daughter among the passengers. Like Yitzhak, he had been a Palmachnik. He d come to see the Prime Minister and implored him not to attempt an operation that might endager her or the others. I demand one thing only, he said. Don t go on any adventures. Do not play with the lives of these people, with the life of my daughter. After Entebbe, there would be suggestions that Rabin s readiness to negotiate with the terrorists had been a ploy, designed to buy time. Yet his message to us that night was that if there was a military option with a 171 reasonable chance of success, he would approve it. But otherwise, we could not let dozens of hostages be murdered if by talking, even deal-making, we could have saved them. He turned to Dan and asked whether there indeed was a military option with a reasonable prospect of getting the hostages out. Dan said yes. Rabin turned to me next. I agreed: we had a plan, and we felt we could make it work. Motta was a bit more hesitant. He suggested we couldn t know for sure until we d finished testing key parts of the operation. But for Rabin, it seemed to me Dan s was the key voice. So he told us that he was approving it. In principle. He said he still needed answers to two questions. The first was whether it was physically possible to cross from the new terminal area, where we d be landing, to the old terminal buidling. He was right to press us. If a retaining wall or a drainage trench had been added druing the modernization work on the airport, any element of surprise could be lost. Rabin s second condition was that we find a way to make absolutely sure, by the time the first Hercules landed, that the hostages were still in the old terminal building. I knew why that troubled him, from a remark I d heard him make a few years earlier when describing an American hostage-rescue raid behind enemy lines in North Vietnam. That operation went exactly as planned. Except that the POWs had been moved. I drove to see Yoni and Mookie at the sayeret base. We spent most of the meeting on the opening few minutes of the operation: the rolling out of the vehicles, the drive to the old terminal, and how to handle the possibility that we might meet Ugandan resistance. Mookie remained adamant about the Ugandans, from his time training them a few years earlier. Even if we did run into a group of Amin s troops, even if they were armed, even if they were pointing their guns at us, even if they shout at us to stop, they wouldn t dare open fire on a Mercedes. I trusted his experience. I kept emphasizing that we had to go in with the mindset of not engaging Ugandan troops unless there was no choice. If we did need to do so, we would use only small, silenced Berettas since I d made sure the unit trained on the Berettas after Sabena. I also raised another critical condition for success. There will definitely be an armed presence in the control tower, I said. We needed to designate a special unit whose sole job would be to train machine guns, rifles and grenadelaunchers on the tower as soon as we got off the Hercules. The moment that we lose the element of surprise, they open fire. 172 Dan began the next morning s briefing with a stage-by-stage review of how the operation would unfold. But just as he was getting to the detail of the motorcade attack, I felt a young sayeret officer tap me on the shoulder. Kuti had phoned to say I was to go see him at the kirya. He said immediately, the officer added, and not to discuss it with anyone. Just to tell Dan Shomron that you ve been taken out of the operation. To say I was surprised would be an understatement. But I allowed myself to believe the decision to take me out could still be reversed. Not only was I ready to command the critical first part of the operation. I believed I was best placed to ensure it succeeded. I felt that was best for Yoni, too, due to tensions inside the sayeret of which both of us were aware. There was no officer to whom I was closer than Yoni. He had extraordinary strengths as a soldier: in the Six-Day War, in 1973, and afterwards when, with my encouragement, he d taken command of a tank battalion in the north left almost in tatters from the Yom Kippur War. But there was more to him as well. I used to marvel how at the end of 16 hours of sayeret training, he could spend a further two or three reading history, or a novel or poetry. He always struggled between the impulse to devote his life to fighting for the State of Israel, and to studying, reading and living as a more normal family man. His drive to serve, and to excel, was stronger. Tuti Goodman, the young woman he d met as a teenager and married, understood what drew him to a life in uniform. But that wasn t what she had signed up for. At one point, Yoni asked me to speak to Tuti. She asked me to speak to him. I did my best to explain each to the other. But the gap between what each of them wanted for their lives was just too wide. Before the 1973 war, they d separated. After the war, professionally fulfilled but personally shattered, Yoni heard that I d found an apartment in Ramat Hasharon, and he asked me if there were other flats in the building. It turned out that the owner of the flat below ours was willing to rent it. Yoni snapped it up. Over the past year or so, with Yoni leading the sayeret and me in the kirya, we d seen more of each another. For the first time in years, he seemed to have found a sense of peace, and fulfillment, in his personal life. That was in large 173 part because of Bruria Shaked, his girlfriend, whom he d met while commanding the tank unit after 1973. While he was a thinker and a brooder and in many ways a loner, Bruria was outgoing, playful, funny and full of life. She sensed his need for a shoulder to lean on, a hand to hold at the movies or on a Saturday stroll on the beach. They made their apartment a home. The shelves creaked under the weight of Yoni s books. Often on a Saturday, when Nava and I dropped in to see them, an old 33 rpm record would be playing on the stereo. Yoni would be sitting puffing on his pipe, reading, and smiling. But outside this domestic haven, he still struggled. He had looked forward to commanding Sayeret Matkal. But there was a growing distance between him and those he led, a kind of dissonance between these more typically Israeli youngsters and the aloof, reflective, intellectual side of their commander. There was another tension as well. Sayeret training was notoriously tough. Yoni earned the admiration of his men by participating personally in the most difficult of the exercises. But just as he pushed himself to his limits, he insisted relentlessly on seeing the same drive in them. This was a challenge all sayeret commanders faced to some extent. I had, too. But a number of the officers had gone to the kirya to urge that Yoni be replaced. He knew this. Though I tried to reassure him, telling him that every sayeret commander was different, with his own strengths and weaknesses, he became only more determined to push himself and those around him harder. No we were in the final countdown for Entebbe. It was a life-or-death mission not just for us, but the hostages, an operation in which even a second s hesitation or tension or uncertainty could prove fatal. I was worried that the rumblings of uneasiness in the unit might prove an additional obstacle that wasn t worth the risk. When I tried to persuade Kuti to stick with the original plan, however, he was insistent. He told me to get ready to fly not into Uganda, but to Nairobi. I d been re-assigned to accompany a Mossad team to Kenya. Our first task would be to get the answers to the questions Rabin had asked us. Then, we would be in charge of arranging for the Kenyans to allow us to refuel the C-130s on the way out, and to set up a medical facility for any injured soldiers or hostages. During the attempted rescue, I would also be the channel of communications from the Nairobi side of the operation to Kuti, tens of thousands of feet above Entebbe in a command 707. Dan, as overall commander, would be in charge on the ground. 174 The Kenyans were not exactly allies of Israel. But relations between President Jomo Kenyatta s security services and Mossad had been close for some years. I flew in with three leading Mossad men. While one of them called on the aging President Kenyatta, our main point of contact, was the head of Kenya s security services. Since the secrecy of the mission had to be preserved, we couldn t make advance preparations for refueling or the additional 707 which we intended to fly in as a field hospital. But he smoothed the way for us to do both, without anyone asking too many questions. The Mossad men took the lead in arranging to get Rabin s questions answered. They contacted a pilot they knew. The pilot flew to Entebbe early on Saturday morning, circled, and, after he was cleared to land, claimed mechanical difficulties and flew out again. I had his telephoto pictures by midmorning and phoned Rabin s intelligence officer to let him know we d confirmed there was a clear path to the old terminal. We still had to make sure the captive passengers were there, however. A nurse from Kampala who had been allowed to visit them made three further visits: late Saturday afternoon, then shortly after the first Hercules had taken off from Sharm al-Sheikh, and finally around nine at night. I was able to reassure Rabin that the question to his second question was also yes . Although all of the C-130s were already airborne, it was only then that he gave the mission the final go-ahead. As commander of Sayeret Matkal, I d always found running an operation from a command post hugely frustrating. This was even worse. Once we got word the Israeli force was on the way to Uganda, we put in place the arrangements for refueling. If all went well, the first C-130, with Yoni s assault team and at least some of the hostages, was due to reach Entebbe and begin the assault at midnight Saturday. Assuming there were no major problems, it would take an hour at most. All I could do now, from 300 miles away, was wait. Shortly after midnight, Kuti radioed me with a terse message: the first of the Hercules had left Entebbe for Nairobi, and the command plane was returning to Israel. About quarter to one in the morning on July 4, the transport planes began their staggered arrival. When the first Hercules taxied to a halt, I went out to meet it. As its giant rear door lowered, Dan was the first person I saw. I could tell from the awkward silence, the lack of any greeting, something must have 175 gone wrong. Ehud, he said finally, Yoni s dead. We got the hostages out. But Yoni was killed. I sought out two other friends: Mookie and Ephraim Sneh, the Battalion 890 doctor, who had been with us at the Chinese Farm. Both were obviously torn between a sense of accomplishment in having freed the hostages and the blow of losing Yoni. I asked Ephraim to take me to the front of the plane s huge belly to see him. He was on a stretcher, covered with a blanket. I peeled it back. Yoni s face had lost all color. But when I touched his forehead, it seemed slighty warm, almost as if there was still a spark of life inside him. I couldn t raise Kuti by radio, so I used the landline in the airport director s office to phone Motta. Yoni is dead, I told him. Are you sure? he asked. I said: Yes. I ve seen him. Before the transport planes began leaving for Israel, I made another call. It was to Nava. She was asleep. I told her that the operation to free the hostages had succeeded. But Yoni has been killed. I could hear her gasp. Listen, I said, you have to go downstairs. Tell Bruria. Before some army officer shows up at her door. Or worse, because they re not married, no one may come and she ll hear it on the radio. Go. Tell her. Stay with her. At first, she seemed not so much unwilling as unable to do it. What can I say? I said I knew how hard it would be, but that she needed to make sure Bruria heard the news from a friend. Later, Nava told me she d waited until daybreak, not wanting to make things worse by waking her. Then, she went downstairs. She told Bruria what had happened, stayed with her, talked with her, and held her, during those first few awful hours. I found Yoni s death even more upsetting when I learned from Mookie and others how it had happened. As the sayeret motorcade began making its way from the Hercules to the terminal, with Mookie and Yoni in the Mercedes, two Ugandan soldiers had seen them. One of the Ugandans raised his rifle. Rather than relying on Mookie s assurances the soldier wouldn t actually fire, Yoni and another soldier shot him with their silenced Berettas. But they d only wounded him. In case he managed to fire back, another soldier in the Jeep behind them killed him, with his un-silenced machine gun. Now that all surprise was gone, the commandos abandoned their vehicles and began sprinting towards the old terminal. Only seconds later, still 80 yards 176 or so from the terminal, Yoni was hit. He d been shot from the control tower. I realized that unexpected setbacks or slip-ups were inevitable in any operation. But the crucial first stage of the attack had not only gone wrong. It had gone wrong in exacrly the way that we had first discussed back at the sayeret base, and now Yoni was dead because of it. I had to remain in Kenya for a few more days. Though we d rescued 102 passengers and crew, three of the hostages had been killed in the crossfire. While most of the injuries to the others were minor, we arranged to have several of the more seriously wounded taken to a Nairobi hospital. So I was unable to join the gathering of hundreds on Mount Herzl in Jerusalem for Yoni s funeral. Or to hear Shimon Peres praise him in terms I knew must have filled his parents and Bibi, too, with enormous pride. Shimon described him as one of Israel s finest sons, one of its most courageous warriors, one of its most promising commanders. The first evening I was back, however, I visited the Netanyahus at their family home in Jerusalem: Ben-Zion and Tzila, the parents; Ido, the youngest of the three children, and Bibi, who was still at MIT. It was a few nights in the shivah, the seven days of mourning, and there were dozens of other wellwishers there as well. I spoke to Bibi first, outwardly strong but I sensed still overwhelmed by their loss. Hugging him, I said the weeks ahead would be tough, not just because of Yoni s death, but because much of the responsibility of providing emotional support for his parents, both in their sixties, would fall on his 26-year-old shoulders. This was the first time I d met the father, Ben- Zion, face to face, but I was struck by how this balding, professorial figure seemed able to keep inside the pain and loss he must have been feeling. He did clearly know of me, both from Bibi and from the frequent letters always wrote to him at Cornell. Now, after I d said what I could to comfort him, he asked whether we could meet again. When we did, a few days later, he was clearly conscious of the his late, lost son s bourgeoning place in Israel s pantheon of national heros. He asked me to be one of the speakers at Yoni s shloshim, a commemorative event in Jerusalem which, in Jewish religious tradition, would mark the end of the first month of mourning. You knew him well, he said, and proceeded to stress the importance of using my remarks to explain, and elaborate on, Yoni s powerful accomplishments and personal legacy. I thought about what he wanted, and about Yoni himself, in the days ahead. About the tragedy of his death, but also the way in which all of us now had to draw meaning, value, and ideally something of permanence from the feelings of 177 loss. As I prepared my notes, I also spent time working out how to square what I felt I needed to say, with what many in the audience, and certainly Ben-Zion and Bibi, would expect me to say. Not only was Yoni being mourned across Israel after Entebbe. He was being elevated in the spirit of Shimon s words at the funeral to something approaching sainthood. I did not want to detract from his evolving status as national hero, or his importance as a symbol of a commando success which had, for the first time since the 1973 war, restored a measure of Israeli sense of self-confidence. A victory, over all logic and all odds. But I also wanted to find a way of capturing Yoni as he really was: a brave man, an extraordinary fighter and officer. But also a man sometimes feeling torn inside, and alone. I began with words of ancient rabbinic wisdom about the path which all of us travel from birth to death, and to whatever comes after. The quotation I chose from the 2,000-year-old volume known as Pirkei Avot, the Ethics of our Fathers seemed right to me. Know where you came from: a putrid drop... Know where you are going: to a place of dust, maggots and worms... And know before whom you are destined to give your final account, the King of Kings. I spoke of the loss of Yoni, and said it was impossible not to think about the meaning of what lay between the putrid drop where each of us begins our life and our final reckoning. I believe that life is not just a sum of the hours and days between the beginning and the end. It is the content we pour into the space in between, I said. I d known people who were given the gift of a long life but who, by that definition, had hardly lived at all. There were also people like Yoni. He d lived only briefly. But he had learned and loved. Fought and trained others to fight. Grappled with the most profound puzzles of existence, and yet remained open to the wonders of a smile. A journey. A flower. A poem. If there was any consolation for a life ended cut off at age 30, I said, that was it. But I wanted to give a more personal, nuanced picture of the life that he, and we, and lost. Our Yoni We have seen him torn between his passion for knowledge on the one hand, and the sense of mission and of personal fulfillment that he found in uniform. There was the Yoni of history and philosophy books: Plato and Marx. Who saw the history of Israel not just as a compendium of facts, but a source of inspiration, and a call for action. The Yoni who rebuilt a tank battalion reduced to ashes and dust on the Golan. And there was the Yoni at peace. Tranquil. At home. With his pipe and his phonograph records, out of uniform. We saw him in his hours of supreme achievement and satisfaction. We saw him, too, sometimes standing alone, with pain in his heart, biting his teeth, 178 carrying the heavy, lonely burden of commanding the very fighters who he was leading when he fell. We have seen him on the battlefield, engaging the enemy, heading into a test of fire with courage and wisdom and his indomitable spirit the very essence of the spirit that made possible the operation in which he would lose his life. Because, make no mistake, I said: beyond the weapons used, the people who participated, the training and exercises before the fleet of Hercules had taken off; beyond the fine balance required in the planning, execution, and decision-making; it was this spirit, this essence, that was tested at Entebbe. When I saw Yoni s family afterwards, though they thanked me for my remarks, I could see that they were still bleeding inside. I am sure that affected they way they related to Bruria. Even before Yoni met her, he had told me how hard his parents were finding his separation from Tutti. Bruria attended the funeral and the shloshim. But she didn t sit with the family. I think that with the shock of his death, mixed with the pride they felt at his emergence as a national hero, they found it difficult to include her, a woman they hardly knew, in their mourning. A few weeks later, I go a call from the Netanyahu family s lawyer, Erwin Shimron. It was an odd, rambling conversation. He seemed to insinuate that, as her and Yoni s neighbor and friend, I was encouraging the unwelcome idea that Bruria was part of the immediate circle of the bereaved, that this mere girlfriend was somehow his widow. He wanted me to withdraw whatever mantle I might be providing, and help separate her from Yoni and his legacy. He went so far as to say that one reason he was calling me was because he didn t want to have to take legal steps to make that happen. I saw no point in getting into an argument. I sensed that, while it would take time for the grief felt by those closest to Yoni to begin to heal, the issue would gradually resolve itself. But I saw even less point in leading the lawyer to believe I would do what he was suggesting. Mr Shimron, I told him. I knew Yoni. I know Bruria. I do not know you. But I have a musical ear. I don t like the undertone I hear in what you ve been saying. I ve seen them close up. Bruria gave Yoni, at a critical time in his life, probably more warmth than he ever received from any other human being. 179 Chapter Eleven Yet despite Entebbe, the trauma of the Yom Kippur War, and the cracks it had shaken loose in Israeli society and politics, were yet to play themselves out. The hostage rescue was like a sugar rush, an intoxicating reminder that the army still had the capacity for initiative and precision, audacity and quick-fire victory like our air strikes in the first hours of the 1967 War. But the real reckoning over 1973 was about to come. It would change Israel beyond recognition, with repercussions still being felt today. It would dramatically alter the course of my life as well. I still remember the moment it hit home, on the evening of May 17, 1977. As Nava and I watched in our tiny living room in Ramat Hasharon, Chaim Yavin, the anchorman on the country s only TV channel, was handed an exit poll from Israel s latest national election. He began with three words: Gvirotai verabotai, Mahapakh. Ladies and Gentlemen, a revolution. For the first time since the state was declared, Israel s government would not be in the hands of David Ben-Gurion or his Labor Zionist heirs. Our next prime minister would be Menachem Begin, who had inherited the mantle of Jabotinsky s Revisionist Zionism. He d headed its youth wing, Betar, in eastern Europe, and led the Irgun Zvai Leumi, the main right-wing militia force before 1948. Lacking the intellectual depth and subtlety of Jabotsinky a liberal intellectual who, among other things, translated Dante into Hebrew Begin drew his political strength from his powerful oratory, and a refusal to countenance any compromise in securing what he viewed as the ultimate goal: a Jewish state in all of biblical Palestine, from the Mediterranean to the Jordan River, with whatever military force was necessary to secure and sustain it. But perhaps Yavin should have used a different metaphor in his dramatic election-night broadcast: reidat adamah, an earthquake. Begin s victory, after the loss of eight straight elections over three decades, was the culmination of seismic rumblings which had been building for years. The big, decisive, shock was the 1973 war. Yet this was not just because of the colossal intelligence failure, or the myriad errors of our military commanders and political leaders. It was the fundamental loss of trust in the cosy, self-perpetuating establishment that had dominated all aspects of Israeli politics, society and culture from the start: Palmachniks like Rabin and Dado; political players like Golda and Shimon Peres; Haganah veterans like Dayan and Bar-Lev; and, of course, the kibbutznik pioneers. Almost all were of East European background 180 Ashkenazim and their prominence and privilege had stoked increasing resentment among Israel s disadvantaged Sephardi majority, with their roots in the Arab world and especially north Africa. Begin not only sensed this. While he d never lost the formal bearing or the accent from his childhood in Poland, his long years in Israel s political wilderness mirrored the wider exclusion felt by the Sephardim. The last election he had lost, in December 1973, proved too soon for the earth to part. But he told his supporters: Even though Labour has won these elections, after something like the Yom Kippur War happens to a country, and to a government, they must lose power. They will lose power. He was right. Only twice in the four decades that followed would a Labor leader defeat Begin s Likud party: Rabin s election victory in 1992, and mine over Bibi Netanyahu in 1999. During the first two years of Begin s rule, however, I was 7,000 miles away. Ten days before the election, I d gone to see Motta, and he d agreed that I could return to Stanford, to finish what I d barely begun when the 1973 war broke out. I had been in the army, with the one hiatus as a sayeret reservist at Hebrew University, since the age of seventeen. I did not regret committing myself to a life in uniform. But Stanford offered an extraordinary opportunity to broaden my horizons. Even in the few weeks I d spent there before the war, I d felt reinvigorated. It engaged a different kind of intelligence, a different part of who I was: the books, the professors. A chance to listen to, and at least try to play, beautiful music. And to spend more than a few stolen evenings or weekends with my family. The timing had nothing to do with the election. Like most other Labor Israelis, and many of Begin s own supporters, I hadn t expected the Likud to win. It was because I felt I d reached a natural punctuation mark in my military career. I d led Sayeret Matkal. I d commanded a tank company, a battalion in 1973, and, more briefly than I d hoped, the 401 st Brigade after the war. I d spent the last two years in the kirya. The next step up the command chain would be to lead a full armored division. But at age 35, I was probably too young, and I figured I d have a far better chance in two years time. I also feared losing the chance to go to Stanford altogether. Motta s term as chief of staff would end the following year. Among those in the frame to succeed him was Raful Eitan. Recalling Raful s dismissive, almost sneering, opposition to my making the Sayeret Matkal into Israel s SAS, I wasn t exactly confident I could count on his support. 181 Reluctant though I d been to leave the 401 st for the kirya, I had particularly enjoyed the last year. I was promoted to Shai Tamari s job, in charge of the intelligence team for our military operations, when Shai left to command a tank brigade. My office was no longer on the third floor, but in the underground bunker, the bor. I was part of nearly all high-level planning meetings, often with Motta, sometimes also including Peres. Almost everyone around the table was older than me, and outranked me by some distance. Yet with my intelligence brief, I was often the one with the most thorough command of the details. Though still just a colonel, I d risen through Sayeret Matkal. I knew the planning process from the other side as well, having attended the same sort of meetings, from the early 1960s, to present our operations. So I was often asked, and always welcome, to weigh in on what would work, what wouldn t, and why. My final year in the kirya also further cemented my relationship with Motta. Though as chief of staff, he tended to keep a formal distance from all but his fellow generals, he did seem to enjoy having me around. He even put me in charge of a new department of my own. Not officially. The department was strictly ad hoc, as was the name which Motta gave it: Mishugas. The Yiddish word for craziness. All army commanders, in all countries, receive their share of unsolicited advice. But I can t imagine any of them gets the number, or sheer range, of wild suggestions which make their way to the kirya. Everything from levitation machines, to ideas for making tanks fly. Motta didn t have the time to read all the letters, much less sit down with the self-styled inventors or sages who showed up in person. Still, he couldn t be sure that a jewel of an idea wasn t lurking inside one of them. As an insurance policy, he began sending all the letters, and every supplicant, to me. I never found the jewel. The most vivid memory I have is of a visit from a former soldier in Shaked, Israel s Negev reconnaissance and tracking unit. He had taken up meditation, and the study of ancient civilizations. Fresh from a period of contemplation in the desert, he arrived in my office with a pamphlet he d written. It was about special-forces strategy and training, as practiced eight centuries earlier, in the time of Genghis Khan. I listened for nearly an hour, enjoying his enthusiasm, the history lesson, and the simple weirdness of it all. I did check his facts afterwards. If nothing else, he proved an assiduous student of the Mongols. He explained to me that in their largest battles, involving tens of thousands of troops, they would designate a 182 commando unit of a couple of dozen men. Its sole task was to seek out and kill the enemy force s leader. The key to their success was mind-training. Over a period of months, sometimes years, the commandos self-perception was altered. They were taught to believe that they had already died. Since their lives on earth were done, all that remained was a formal passage through the turnstile into eternal happiness, and to go out in glory. My visitor not only suggested that Israel establish exactly this kind of death-cum-suicide unit. He volunteered to train the men himself, and lead the first mission. With as straight a face as I could muster, I thanked him for taking the time to see me. But I told him his idea was probably not for us. Little did I know that a whole new kind of enemy, epitomized by Al-Qaeda and the self-styled Islamic State, would build a terrorist death cult around it. Nava and I, with three-year-old Yael, and Michal just turning seven, left for California in the late summer of 1977. The two years that followed were uplifting and reinvigorating not just because of Stanford, but a further, utterly unexpected transformation back home soon after we d left. It, too had its roots in the 1973 war, but on the Arab side. Before the war, Egypt s Anwar Sadat had extended feelers about the possibility of peace negotiations, only to see them ignored. Israel won the war in the end. But the Egyptians surprise attack across the canal and the panic and huge Israeli losses in the early days of the war had shattered our aura of invincibility. Politically, Sadat had gone a long way to erasing the humiliation of 1967. That freed him to do something which after decades of Arab-Israeli conflict was astonishing. He travelled to Jerusalem, the capital of a country which neither Egypt nor any other Arab country even recognized. He met Begin, and he addressed the Knesset with a call for peace. It is impossible to convey to Israelis who did not live through the birth of the state, and our tumultuous early decades, the power of the emotions stirred by Sadat s visit. It was on November 19, 1977. With my arm around Nava, I watched the live American television coverage as Sadat s plane touched down at Ben-Gurion airport. Begin was at the center of the throng of dignitaries on hand to greet him: a who s who of political and military leaders not just from his administration, but who had led Israel in 1967 and 1973. Golda was there. 183 Rabin, too, puffing furiously on his cigarette. When the erect figure of Sadat emerged, there was spontaneous applause, and a serenade from Israeli army trumpeters. Even before Sadat s Knesset address the next day, I understood that his visit, his willingness to make the first, bold move toward a possible peace, marked just the beginning of a difficult negotiating road. But there was one passage in his speech that touched me especially. He ran through the history of how Egypt and other Arab states had not just fought Israel, but denied our right to exist as a state. We used to brand you as so-called Israel, he said. Now, the leader of our most important Arab enemy declared: You want to live with us in this part of the world. In all sincerity, I tell you that we welcome you among us, with full security and safety. The formula he proposed was straightforward. Egypt would agree to a full peace, accepting and formally recognizing the state of Israel. But Israel would have to withdraw from all Arab land captured in 1967, including Arab Jerusalem. We would also have to accept the rights of the Palestinian people to self-determination, including their right to establish their own state. Begin s reply was more sensitive than I d expected from a leader who, through my Labor kibbutnzik eyes, I d always seen as an extremist, unwaveringly committed to a greater Israel . Though he did make it clear his views on the shape of an eventual peace differed from Sadat s, he proposed further talks with the aim of finding an agreement both sides could live with. Still, like all Israelis, I knew he would never accept at least two of the Egyptian president s demands: a retreat from our control of a united Jerusalem or the creation of a Palestinian state on the West Bank of the Jordan: for Begin, biblical Judaea and Samaria. On our territorial dispute with Egypt, I did believe a deal was possible. I didn t expect us to return all of the Sinai, if only because I couldn t see Begin agreeing to it. For security reasons, I also felt we should try to hold on to a pair of air force bases built after 1967, with American help, just a few miles over the Negev border. But as for the rest, I saw no reason not to give it back. As I d told Motta after the 1973 war, I d long believed Israel had lost sight of the original reason we d held onto the Sinai after 1967. It was supposed to be a huge, sandy security buffer. If we did manage to make peace with Egypt, there was surely no reason to hold on to it. The moment of truth came almost exactly 10 months later, in September 1978. American President Jimmy Carter hosted a summit with Begin and Sadat at Camp David, in search of a framework agreement for final negotiations on 184 a peace treaty. Again, I was watching closely, via American TV. But as the summit was winding down, our phone suddenly rang in Palo Alto. Ehud, how s it going? Are you following what s happening here? What do you think? I recognized the voice immediately: Ezer Weizman, the former fighter pilot Begin had chosen as his defense minister. I d known Ezer since the early 1960s, when he d been commander of the air force and Sayeret Matkal was planning its first operations. Still, even though he had a reputation for batting ideas back and forth outside the bounds of hierarchy or chain of command, I was startled to hear from him. What do I think about what? I said. The solution we ve arrived at here. We found there was no way but to give back everything. The only exception was Taba, a sliver of land where the Negev met the eastern edge of the Sinai, across from the Jordanian town of Aqaba. Was there no way to convince them, even with some kind of a land swap, to keep the two air bases? I asked. Believe me, we wanted to, Ezer replied. But no way. Not if we were going to get a peace treaty. So I said the obvious: if that s what was necessary for peace, there was no other choice. We were now well into our final year at Stanford. Our home was in a leafy student village off campus, called Escondito, for married students from abroad. Our two-storey flat was one of a row of cabin-like structures: a bit like a kibbutz, only smaller, American-style, a lot more upmarket. It had a fenced-off play area for the children and, in a common room for all the village residents, an upright piano. I found the richness of the academic environment and the time to explore and savor it enthralling. I d chosen my master s program at Stanford because it offered the chance to learn across a range of different schools and disciplines. The official home for my degree courses was the School of Engineering, in a department called Engineering-Economic Systems . Its focus was on applying mathematical modelling and analysis to decision-making in large and complex 185 organizations such as private companies or government departments. Or the armed forces of Israel. The theorists at Stanford were leaders in the field. But from the start, I was drawn to other disciplines as well: business, economics, political science, history, sociology, psychology. I studied game theory at the business school, and the evolution of political systems under the sociologist Seymour Martin Lipset. I also went to lectures by James G. March, on how psychological, social and other factors influenced decision-making. I particularly enjoyed learning from Professor Amos Tversky. Born in Haifa, he was half of an academic partnership with the psychologist Daniel Kahneman, who was also Israeli. They were investigating the effect of human bias and other subjective factors on how we perceive reality, and thus make decisions. Tversky s work especially fascinated me, because it questioned a basic assumption in the kind of predictive formulas my own department was advancing: that we make choices rationally, calculating the outcomes of competing alternatives. Tversky had found that the human brain didn t always work that way. For choices with a fairly obvious outcome 90 percent of cases, say the assumption did hold. But at the margins, the brain didn t, or couldn t, always gauge the implications of a decision accurately. A couple of decades later, he would also show that an individual s choice could vary significantly depending on the way the options were presented. These behavioural and psychological approaches were at odds with what was being taught in my home faculty. Its prevailing orthodoxy was that by using specifically designed interview techniques, alongside mathematical modelling of the predicted outcomes, we could isolate the effect of human agency on how, and what, decisions were made. Yet the wider my studies had ranged, the more sceptical I became that the complexities of human decision-making could be accommodated by such models. I also saw problems in the methodology we were using. Since it was based partly on interviews with participants in the decision-making process, it seemed to me that this introduced a subjective element into our ostensibly objective conclusions. My department wasn t enamored with my views on our modeling approach. But one of the things I most valued about my time in Stanford was that, far from discouraging my excursions into other departments, my professors combined a confidence in their own approach with a genuine open-mindedness to other ideas: the hallmark of true intellectuals, and of great universities. I got something else from my studies at Stanford, although I didn t speak about it at the time, not even to Nava. I became aware that I had a particular 186 aptitude for focusing on the minute details of a problem, yet never losing sight of the larger picture, the wider issues. From my experience as commander of the sayeret and during the 1973 war, and from watching other officers whom I respected, it struck me that this was an essential part of effective leadership. By leadership , at that stage in my life, I did not mean political leadership. I was thinking in terms of the army. But I d now finished my masters degree, and it was impossible to be unaware of the political context in which I d be returning to uniform. Since Camp David, our negotiators and the Egyptians had been trying to thrash out a formal deal. Sadat was being denounced as a traitor in the Arab world. Begin was seen by most in the outside world, and many Israelis, as dragging his feet on the negotiations and risking the chance for peace altogether. If we did manabge to sign a peace treaty, however, we would be withdrawing for the first time from land captured in 1967. That would mean finding a new approach to security in the south, as well as a new focus on the majority of our Arab neighbors who were railing against Sadat and seemed less interested than ever in making peace. In some ways, it was hard to leave our mini-kibbutz in Palo Alto. Michal, now nearly nine, had thrived, quickly learning English and ending up with a perfectly American accent which has never left her. Yael has less vivid memories of our time there. But we d had the nearest thing to a normal family life since our first, war-truncated, time at Stanford. During the university holidays, we d also travelled: to Canada. Mexico. Lake Tahoe. Even Las Vegas, where, thankfully, we lacked the money to chance our luck, but where my years in the sayeret suddenly came in handy. We spent the day at Circus Circus, a joint casino-and-theme park tailored for families with kids. At a shooting gallery in the amusement area, I had no trouble landing dead-center hits on a passing procession of metal geese, to the consternation of the guy behind the counter but the delight of my two young daughters. In probably the single greatest moment of parental accomplishment I d experienced since their birth, I bagged a huge fluffy teddy bear for each of them. I returned to Israel not just with the hope, but a reasonable expectation, that I would get command of one of Israel s two regular armored divisions: the 252 nd , which was responsible for defending the south and, at least for now, was based 187 in the Sinai. Dan Shomron was now head of the southern command and had told me, before we headed back from California, that he d recommended me for the post. It was an especially exciting prospect because the US-backed negotiations with Egypt did finally appear to be nearing an agreement. As commander of Division 252, I d be coordinating and implementing Israel s Sinai withdrawal. But I didn t get the job, at least not on my return. Raful Eitan had indeed succeeded Motta as chief of staff, and he had the final say. I d evidently been right to assume I would figure no higher in his estimation than I had as sayeret commander. To be fair, however, he did agree to my becoming commander of Dan s reserve division in the south: the same 611 th that Arik Sharon had led across the canal in 1973. When I took up that post in April 1979 just days after the formal Israeli-Egyptian peace treaty was indeed signed I was also promoted. I became a one-star general. And eighteen months later, when the regular division post came open again, I did get the nod to command the 252 nd . Even then, it was a close-run thing. Raful called me in to see him and said he wanted me to return to the kirya instead, in the one-star general s post inside military intelligence. He said he had more than enough candidates for division commander, but that my previous experience meant I was the best choice for the intelligence post. I was determined to remain in the field, especially with signs that Begin, and certainly his more right-wing supports in the Likud, were already having second thoughts about the peace deal we d struck with Egypt. In part, they feared that a withdrawal from any of the land taken in the 1967 war might create a precedent, and invite pressure, for more withdrawals. But the real buyers remorse centered on the fact that, as part of the initial agreement at Camp David, Begin had needed to accept a parallel framework for negotiations toward a broader peace that would include the West Bank and Gaza Palestinians. In any case, with Raful balking a second time at giving me the division command, I figured I had little to lose by fightinhg my corner, and telling him exactly what I felt. Look, I realize that you re chief of staff, I said. But don t forget we re both just temporarily in whatever role we hold. I m not here as a draftee. I m in the army by choice. It s your decision to tell me what position you want me to take. But you can t impose anything. I can always leave. Or I can bide my time until you leave. Raful apparently concluded he couldn t actually force me to take the intelligence job. With Dan having made his preference clear, he didn t press the point. 188 My main responsibility as commander of the 252 nd was to implement the withdrawal from the Sinai. Israel had committed itself to bring all of our forces behind the 1967 border within next two years, and, along with Dan, I threw my energy into planning and implementing the terms of the treaty. But especially with Begin soon facing a reelection campaign against Labor, now led by Shimon Peres, he was keen to play to the opponents of any further negotiating concessions. He was positioning himself as the voice of military strength, and painting Peres as someone who would risk our security by going further than the separate peace with Sadat. Begin had no more experience or knowledge of military details than Shimon. But from his days in the pre-state Irgun, he d been an unapologetic admirer of men of military action. After his victory in the 1977 election, he d formed a government stocked with some of Israel s best-known former generals. Not just Ezer Weizman. He d brought back Moshe Dayan, as foreign minister. And as agriculture minister, the country s most swashbuckingly self-confident, and controversial, battlefield commander: Arik Sharon. Begin had recently lost both Ezer and Dayan, who accused him of deliberatedly torpedoing chances of building on the peace with Egypt. But Arik was still there, four-square behind a more forceful military posture on Israel s other fronts. As agriculture minister, he had also been the driving force in a plan for settlement blocs designed to encircle the main Arab towns and cities on the West Bank and foreclose any realistic prospect of a Palestinian state. After Begin s second election victory, in June 1981, some commentators, and many in Labor, insisted that he d won because of a dramatic surprise air strike, a few weeks before election day, against a French-built nuclear reactor outside Baghdad. I never believed that, in part because I knew from intelligence friends that the attack had been set for earlier, and was put back because of fears the plan might become public. But mostly because of what I witnessed in the heart of Tel Aviv the night before the election, when I joined one of my top officers, a Likudnik, at Begin s final campaign rally. Shimon still had a narrow lead in the polls. I hadn t been at his closing rally, the previous evening. But like the rest of Israel, I d heard and read about it, in particular the warm-up act: a popular, solidly pro-Labor comedian and actor named Dudu Topaz. Greeting the crowd, he d said what a pleasure it was that it was not full of chachachim. The word was sneering Israeli slang: for uncouth, uncultured Sephardim, not far from the equivalent of using the n word in America. In a single sentence, he d managed to sum up everything the 189 Sephardim resented about the Ashkenazi, Labor Zionist establishment. Begin, at his rally, played it like a virtuoso. Did you hear what they called you? he cried. Chachachim. He slightly mispronounced the word, as if he d never heard, much less used, it before, and that even having to repeat it made his blood curdle. Is that what you are? There was pandemonium. Maybe Begin would have won anyway. But it was close, just one Knesset seat between the two major parties. And win, he did. I became increasingly convinced in the weeks that followed that Begin s second government, with Arik now moved to defense minister, would further put the brakes on any follow-up negotiations for a deal with the Palestinians. I did not yet know that Arik, in particular, had a far more ambitious, military plan to try to bury the possibility of a Palestinian state once and for all. But I did know he had his eyes on a possible thrust across our northern border into Lebanon, where Arafat and the PLO were based. There was no public mention of any of this. But several times in 1981, I was ordered to move a large part of my division onto the Golan Heights for weeks at a time: two brigades, 200 tanks and dozens of APCs in a massive motorcade from the bottom to the top of the country and back again. We dubbed it Cinerama, from the Hebrew words for Sinai and the Heights, Ramah. If there was an escalation of hostilities, the northern command s regular division would cross into Lebanon. Our role would be to take their place in defending the Golan, and possibly follow them in. When I returned from my final episode of Cinerama in the late summer of 1981, the Sinai withdrawal was entering its final stage. I organized a full-scale military exercise on the roughly one-third of the Egyptian desert we still held, knowing that we d no longer have the room to do so after the final withdrawal. It was the largest exercise I d ever commanded. The advances and tactical retreats, the flanking maneuvers and ambushes and fighter jet attacks were like a very big war in a very small place. But a war game was not a real war. The Sinai was not like the Golan, or the cramped, hilly confines of Lebanon. And it was in Lebanon, the following year, that the war came. It was different from any in Israel s history. Arik was in charge. And I would become involved in ways which began to change the way I saw not only Arik, but the political and military direction of our country. 190 Chapter Twelve My own part in the Lebanon war would change dramatically as a result of that last military exercise in the Sinai. Arik Sharon was now Minister of Defense, and he came for the final afternoon. From his experience as a frontline commander in 1956, 1967 and 1973 he knew the dunes and wadis and sprawling expanses of sand as well as any general in Israel. Watching our intricate mini-war draw to its close, he made no effort to hide his enthusiasm for the kind of quick, assertive battlefield maneuvers he d long championed. But more than that, his closest aide soon began sounding me out on my views about the long-term organization, force balance and funding for the Israeli military. A few weeks later, Arik offered me a promotion: a return to the kirya, as a twostar general, to become head of planning for the armed forces. I don t know why he chose me: the Sinai exercise perhaps, the fact he knew I d studied large and complex organizations at Stanford, or maybe just the fact our paths had first crossed two decades earlier when I was in Sayeret Matkal. But even though it meant leaving my division command, especially tough since the final Sinai withdrawal was approaching, it was an offer I never contemplated turning down. Not just because of the second star on my uniform. Ever since the 1973 war, along with a few other senior officers including Dan Shomron, I had been making the case for a shift to more mobile and less vulnerable forces and weapons systems. I saw the new role as a chance to help encourage that critically important change. There was just one hitch: all senior military assignments required the formal approval of the chief-of-staff, my old friend Raful Eitan. Raful did manage to delay things for several weeks. At one point, he even brought to bear a quality I d never suspected he had: a sense of humor. OK, I ll agree to promote Barak, he told Arik. The next day, he said he d meant Eitan Barak a very good commander, by the way, who had been one of my instructors in officers school. Arik insisted, however. My appointment went through. And one, unanticipated result was that I didn t just play the field command role I d anticipated, from our Cinerama deployments, in Arik s toweringly ambitious, ill-planned and ultimately disastrous war in Lebanon. I became part of months of planning discussions in the kirya before our tanks finally rumbled across the northern border on the morning of June 6, 1982. 191 My new posting came not just as momentum was building toward an invasion. It followed on the heels of a major new crisis in our peace with Egypt. Only weeks before I gave up my Sinai command, President Anwar Sadat was shot and killed by an extremist Muslim officer at the annual Cairo military parade to mark the anniversary of the 1973 war. Like many Israelis, I felt an almost familial sense of bereavement. Sadat was not just the first Arab leader to make peace with Israel. He seemed to understand us: people who were ready, willing and able to fight, but wanted above all to live unmolested and accepted by our neighbors. Yet for Begin and the Likud, I knew the assassination would cast the whole peace process into doubt. Sadat s successor, Vice-President Hosni Mubarak, did make it clear he would abide by the peace treaty, defusing calls on the Israeli right for us to cancel our final withdrawal from the Sinai. But after Sadat s killing, Begin and those around him seemed more determined than ever to hold the line against the wider peace negotiations agreed with President Carter and Sadat at Camp David. At Begin s insistence, Camp David had not proposed giving the Palestinians a state, but instead autonomy and a locally elected selfgoverning authority . Yet that was defined as a transitional period. The elected Palestinians were to be included in negotiations for a yet-unspecified final status arrangement for the West Bank and Gaza. That, Begin feared, left the door ajar for something more than autonomy. Shutting that door, I would soon discover, was a big part of Arik s ornate reasoning for invading Lebanon. Beyond the fact that my new job was a promotion, I had a personal reason for welcoming the move back to Tel Aviv. Ten days after Sadat s assassination, I had endured a frightening few days surrounding the birth of our third daughter, Anat. The crisis was another reminder that the demands of frontline command rested not just on my shoulders, but my family s. We had moved house again early in Nava s pregnancy, to the suburb of Ra anana, about 10 miles north of Tel Aviv and a few miles in from the coast. We bought one of a newly built row of small, semi-detached townhouses which, best of all, had a backyard. It was tiny by American standards, but was still a place for the girls to play. Once again, however, I wasn t there when my daughter was born. I was rushing north as Nava went into labor. The birth itself went smoothly. By the time I got to the hospital, both baby and mother seemed happy and healthy. A few days later, however, when they were back in the townhouse and I d returned to my division, Nava felt suddenly, desperately unwell. I shudder to think what might have happened were it not for 192 the fact that one of our new neighbors was a friend from my first military intelligence stint in the kirya. In almost paralyzing pain, Nava phoned him, and he rushed her to the hospital. It turned out that the doctor who delivered Anat had left part of the placenta inside. Once the mistake was discovered as I was again speeding north he went back in and rectified it. When I arrived, I was relieved, to put it mildly, to find Nava smiling bravely, and on her way back to full health. Still, doctor friends of mine told me that if the problem not been diagnosed and addressed quickly, she could have suffered shock, serious infection, even death. In my new role, I was nominally responsible to both the defense minister and the chief of staff, but Arik made it clear to both me and Raful that he was boss. And though my official brief was longer-term planning, almost from day-one the issue of Lebanon overshadowed all others. I knew, from Cinerama, that preparations for a possible military operation in Lebanon were underway. Yet from my first meeting with Arik and Raful, it became clear it was more than just a possibility. Why the hell is Arafat still alive, Arik snapped at us. He said that when he d been commander of Unit 101, he d never waited for the government to ask him to plan an operation. He d plan it himself, and go to ministers for approval. When I told him that I d done just that when I was commander of the sayeret, only to be told Arafat was not a target, Arik replied: well, he is now. The PLO leader s current residence was on the southern edge of Beirut, and in the weeks ahead Arik left no doubt that he meant to go after him there. To anyone looking from the outside, there was no pressing reason to expect a war. It is true that the potential for conflict was always there. The PLO had nearly 20,000 fighters in Lebanon and hundreds of rockets capable of reaching our northern towns and settlements. The Syrians were there, too. As part of an Arab League agreement in 1976 to quell two years of terrible civil war between Lebanon s traditionally dominant Maronite Christians and an alliance of PLO and Lebanese Muslim forces, some 30,000 Syrian troops had been brought in as the core of a peacekeeping force. But in the summer of 1981, new US President Ronald Reagan s Mideast envoy, Undersecretary of State Philip Habib, had 193 brokered a cease-fire to halt Palestinian Katyusha rocket fire into Israel. It was generally holding. But fundamentally, Arik s war plan was not a response to the Katyushas. It was a way of using military force to achieve Prime Minister Begin s political aim: stopping the Camp David peace process in its tracks, and ensuring it did not go beyond the peace treaty with Egypt. And even that message was not principally intended for the Palestinians, I suspect, but for the Americans. Israel s Labor-led governments had always calculated that we needed at least some measure of support from foreign allies, especially the US. Under Begin, we d already bombed Saddam Hussein s nuclear reactor without telling the Americans beforehand. Shortly after I returned to the kirya, he provoked further anger in Washington by announcing the de facto annexation of the Golan in effect balancing our Sinai withdrawal with a dramatic reassertion of Israeli control over other land captured in the 1967 war. Part of Arik s plan in Lebanon was to deliver an even more forceful riposte to any suggestion that we would give up control of the West Bank and Gaza. Yet these political aims, which I was gradually beginning to grasp in their full form through my discussions with Arik, were only part of the reason I was deeply uneasy about the plans for our Lebanon invasion. Having now spent nearly two decades in the military, I recognized that the security challenge north of the border was real. I did not believe it was inherently wrong for Begin s government to order a pre-emptive military operation with the aim of ending it. My view, as an army officer, was that the decision on how, when and whether to go to war was for our elected government. But for that principle to work, I also believed that government ministers had to know what they were deciding. The more we geared up for an invasion, the less certain I became that Begin s cabinet understood what we were planning to do. Arik s original plan was codenamed Oranim: Hebrew for pine trees . It involved pushing deep into Lebanon, all the way up to the strategically critical road that ran between Beirut and Damascus. We would link up in Beirut with the main Maronite Christian force, the Phalangists, whom we had been supporting and training for several years. When that plan was presented to Begin s cabinet at the end of 1981, however, most ministers opposed it. Thus was born Arik s Plan B, so-called Little Pines . Its stated aim was a lot more modest. We would create a security zone a 40-kilometer, or 25-mile, strip running north of the border with Lebanon. 194 I could see that Little Pines was a kind of fiction. All you had to do was take a map and draw in the 40-kilometer line. In the areas nearer the Mediterranean, in the western and central parts of the border area, it indeed covered territory controlled by armed PLO groups. But in the eastern sector, there were Syrian positions a mere 10 to 12 kilometers up from the border, well inside the security zone . Not much further north were two full Syrian divisions. That meant we d be fighting not just the Palestinians, which was the ostensible aim of Little Pines. We would have to take on Syria. As soon as those hostilities began, we would have to destroy radar and SAM sites in the Syrian-controlled Beka a Valley further north into Lebanon. After the first costly days of the 1973 war in the Sinai, we were not about to enter a major conflict without ensuring air superiority. Unless the Syrians retreated or surrendered, the inevitable result would be a wider conflict, not limited to dealing with Palestinian fighters in south Lebanon but paving the way for Arik to go ahead with his original plan and push all the way to Beirut. This wasn t mere supposition on my part. In February 1982, we ran a simulation exercise in the kirya based on Plan B. The result: Little Pines became Big Pines. A clash with the Syrians proved inevitable, if only because one target even under Little Pines was the main road between Beirut and Damascus. It lay well beyond the 40-kilometer line. As the main supply route for their forces in the interior of Lebanon, it was also of critical importance for the Syrians. So any idea of a quick, limited strike to establish a security zone was fantasy. A few days later, Raful chaired a wide-ranging discussion on Lebanon. Near the end of the session, I asked him directly whether government ministers were aware that our war plan will inevitably lead to a clash with the Syrians . Raful hesitated for a second, but then answered briskly: Yes. That assurance would turn out to be untrue. But my wider concern, as the weeks passed, was Arik s political plan, of which I was getting an ever clearer idea from him. It struck me as not just grand, but grandiose. Part of it was to obliterate Arafat as a political force, if not by killing him then by forcing him and every one of his fighters from Lebanon, a country Arik wanted to place under the unchallenged control of the most prominent of the younger generation of Christian Phalangist politicians, Bashir Gemayel. I felt all that would be challenging enough. But in Arik s eyes, this was only part of a complete reordering of our conflict with the Arabs. He expected Gemayel s Lebanon to openly align itself with Israel and expel all Syrian troops. As for the expelled Palestinians, they would go back to Jordan where they would resume and, this time, win their civil war with King Hussein. The result, with Hussein deposed, 195 would be a Palestinian state in Jordan, which would free Israel to retain openended, unchallenged, control of the West Bank. Even the Labor party, fifteen years into Israel s occupation of the West Bank, was still speaking about a Jordanian option for an eventual political settlement with the Palestinians who lived there though this meant a kind of confederation with Jordan under Hussein s rule. Very few Israelis began seriously to engage with the Palestinians own separate identity or national aspirations until later in the 1980s when I, too, would do so, amid the widespread Palestinian unrest known as the intifada. But even without a fully thought-out view on these issues, I was taken aback by Arik s almost godlike supposition that he could use fire and brimstone, or the modern military equivalent, to remake the Middle East as he and Begin wished to see it. If only because of the tacit assumption that the outside world, and especially the Americans, would sit by and let the whole drama play out as scripted, it struck me as an exercise in self-delusion. There was also the matter of Arik s vision of a new Lebanon under Bashir Gemayel s Phalangists. Unlike the other generals in the kirya, I d never actually met any of our Lebanese Christian allies . Yet a few weeks after taking up my new post, I was invited to a lunchtime discussion with a group of Phalangist officers on a training course in Israel. I emerged both unsettled and underwhelmed. They were obviously politically astute. They bandied around military vocabulary proficiently enough. But they were a bit like teenagers playing with guns: full of macho, and too much after-shave. Hardly the kind of army I could see as a lynchpin in Arik s plan to redraw the geopolitical map of the Middle East. By June 1982, Arik s invasion was a war simply waiting for a credible trigger. On the evening of June 3, Palestinian terrorists shot and critically wounded Israel s ambassador in London, Shlomo Argov. Appalling though the attack was, as a catalyst for a full-scale invasion, it seemed unlikely to be enough for the Reagan Administration. Habib s cease-fire terms did not include terror attacks like the one in London. It was meant to keep the PLO from firing across our northern border. Even to some Israelis, the attack on Ambassador Argov seemed more a rationale than a reason for war. But Begin summoned an 196 emergency cabinet meeting the next day. His adviser on terrorism, Gideon Machanaimi, was someone I knew well. When the cabinet convened, he pointed out to the ministers that the London terrorists were from a fringe Palestinian group led by Abu Nidal. Far from being an ally of Arafat, he had been sentenced to death by Fatah. According to Gideon, Begin wasn t interested in the distinction. Even less so were the two leading military figures in attendance: Arik and Raful. They said all Palestinian terror was the responsibility of Arafat, and that now was the time to hit back hard. The cabinet was informed that our initial response would be limited: aerial and artillery bombardment of PLO targets throughout Lebanon. Yet Raful told the cabinet that the Palestinians would almost certainly respond with shell and rocket fire into Israel. Then, he said, we could strike more forcefully. In other words, the invasion would begin. It did. Dubbed Operation Peace for Galilee to convey the aim of protecting northern Israel from shell and rocket fire, it got underway at around 11 a.m. on Sunday June 6. The publicly declared aim was Little Pines: the establishment of our 40-kilometer security zone. Both Israelis and the Americans were led to believe it would be a relatively short operation aimed at destroying the PLO s military capacity in the border area. We also said that we wouldn t attack Syrian forces as long as they didn t attack us. That last public pledge had particular relevance to my role on the ground. I was deputy commander of the largest of Israel s three invasion forces, under Yanoush Ben-Gal, head of the northern command until shortly before the war. We had 30,000 troops and 600 tanks and were responsible for the eastern sector from the edge of the Golan Heights, north through the Bekaa Valley along Lebanon s border with Syria. At first, we deliberately stopped short of Syrian forces. We deployed our main reserve division just 10 kilometers across the border, below the first Syrian positions at the bottom of the Bekaa. But despite the public assurances we were in Lebanon to establish our security zone, we had no orders to halt at the 40-kilometer line. From day one, our part of the invasion force began a pincer movement around the area of eastern Lebanon where large numbers of Syrian soldiers were based. My former Sinai division, the 252 nd , came down from the Golan and started making its way up alongside the Syrian border. Our other units, further inland, also began pushing northward. For the first couple of days, we did avoid a confrontation with the Syrians. Yet on June 8, day three of the war, the morphing of Little Pines into Big Pines began. 197 The two other Israeli invasion forces had crossed the border parallel to us, one pushing up through the steep hills and twisting valleys of central Lebanon, and the other along the Mediterranean coast. The central force was now ordered to mount an attack that would bring them within striking distance of the Beirut- Damasus road. The first skirmish came in the hilltop town of Jezzin, still barely within the 40-kilometer zone. The Syrians had a commando force and tanks in the town. An Israeli battalion was ordered in, and it took Jezzin by the evening of June 8. But it came under assault from Syrian units with grenades, RPGs and Saggers, as well as shellfire from a nearby ridge. Shortly before midnight, another unit of Israeli tanks and infantry passed through the central Lebanese village of Ayn Zhalta, to the north of Jezzin and beyond the 40-kilometer line, and began winding its way through a valley toward the Beirut-Damascus road. They waded into a Syrian ambush, and for hours found themselves in a fierce battle with Syrian units. I don t believe Arik specifically planned to confront the Syrians in Jezzin and Ayn Zhalta. But he could not have doubted that, given the enormous scale and range of our invasion, a clash with Syrian forces would happen at some point. Now that it had, all that remained was for him to tell the cabinet that Israeli forces had come under Syrian fire and insist, as defense minister, that the imperative for our forces on the ground was to strike back. On the afternoon of June 9, the fourth day of the war, we got the order to go on the offensive against the Syrians in the Bekaa. As our artillery pounded the southernmost SAM sites, nearly 100 Israeli jets swarmed into the Bekaa Valley and attacked Syria s air defenses in eastern Lebanon. When a second wave screamed in an hour later, the Syrians sent up their Soviet-made MiGs to intercept them. Forty-one Syrian planes were shot down. Seventeen of the 19 SAM batteries were destroyed by the end of the day. The other two were taken out the next morning, and another 43 Syrian jets shot down. There was no longer any pretence about our war aim: to fight our way through any resistance and reach the Beirut-Damascus road. But after the Bekaa air battle, and the most serious air losses for an Arab state since 1967, Yanoush and I knew that international pressure for a cease-fire would quickly escalate. Aware we were racing against the clock, we began a co-ordinated push towards the Beirut-Damascus road. The left arm of our pincer was ordered to make its way toward a town called Jobb Janine. It was still some distance from the Damascus road, but an important way-station: Syrian headquarters on the western side of the Bekaa Valley. The eastern part of our pincer, the 252 nd 198 Division, advanced up the Bekaa, alongside the Syrian border, toward the town of Yanta, across from Jobb Jannine. But as it was making its way there, we got word a cease-fire had been agreed. It was set for noon the next day, Friday, June 11. The main focus of our advance shifted to a crossroads a few miles east of Jobb Janine. It was a flat, open area surrounded by hills, codenamed the Tovlano Triangle on our maps. We knew we would meet some Syrian resistance. On the way up the valley, we d seen signs of reinforcements from inside Syria. But we had overwhelming superiority in tanks, artillery and infantry in the area, as well as full control of the air. In our command post, about five miles back from our frontline forces, Yanoush set in motion the plan for a pre-cease-fire advance to take the hills overlooking the Tovlano Triangle. It was still about eight miles short of the Beirut-Damascus road. But the idea was to establish a more secure defensive position by the time the truce took effect, and to put us in position to advance further if the cease-fire collapsed or was delayed. Shortly before sunset, Yanoush left by helicopter for a field commanders meeting with Raful in northern Israel. That left me in charge, alongside Yanoush s de facto chief-of-staff, Amram Mitzna. A decorated veteran of 1967 and 1973 whom I knew well, Amram had the added distinction of being disliked by Raful almost as much as I was. Our main reserve division had been ordered to take control over the hills south of the Tovlano Triangle. One of its brigades, led by a former Sayeret Matkal soldier named Nachman Rifkind, was sent to take up a position immediately south of the triangle. Soon after nightfall, Rifkind radioed in that he was there, and that the area seemed clear of enemy forces. The divisional command post then ordered a second brigade to move toward the hills dominating the crossroads. The first sign of trouble came around midnight. From our overall command post, we were listening in on all radio traffic, and heard the second brigade report that it had come under fire while moving toward the crossroads. At first, we assumed it must be from the remnants of a retreating Syrian unit. But Rifkind, who had reported the area was clear, now said that he could see flashes of shellfire two or three miles to his north. Only the following morning did it become clear that he had not deployed immediately south of the triangle as planned. He had mistakenly halted at a hill about two miles short of there. By the time Yanoush returned to the command post a little after midnight, we were facing another problem. The battalion nearest to the south of the triangle had spotted a dozen large vehicles armed with missiles a few hundred 199 yards ahead. The missiles seemed to be pointed north, away from them. But the battalion commander was asking us for permission to open fire. Do not open fire, I was saying as Yanoush arrived. I repeat: do not open fire. When Yanoush asked me what was going on, I told him the lead unit had reported unknown vehicles with missiles and wanted to know whether it could attack. Tell them yes, Yanoush said. I looked first at him, then at Mitzna. We can t, I said. It s dark. The situation is confused. We don t know whose missiles these are. It doesn t make sense they d be Syrian, just sitting there, pointed north. At least give it a few minutes. I think Yanoush would have grabbed the microphone and told the unit to fire had not Amram been there as well. Together, we convinced him to hold off. I ordered the brigade commander to get one of the battalion s APC crews to go out on foot and get as near as possible to the missiles. It was nearly 15 minutes later when they returned. They said they d never seen this kind of missile vehicle, but that the soldiers manning them seemed to be speaking Hebrew. It turned out to be a new ground-toground missile, not yet formally in service, which had been sent into Lebanon without our knowledge by the northern command. While that trouble was averted, much worse lay ahead. Yanoush asked to be brought up to date on our progress in taking control of the area around the Tovlano Triangle. We briefed him on the situation as we understood it: that Rifkind had reported the triangle was clear, but that the second brigade had still not reached it. Yanoush tried to radio the divisional commanders. When he couldn t raise them, he ordered the brigade and battalion commanders to pick up their pace and move forward. With Yanoush back and the advance resumed, I tried to grab at least a few hours sleep. But around 3:45 am, a junior officer shook me awake. When I rejoined Yanoush and Amram, they told me the lead battalion was now in deep trouble. It was led by Ira Ephron, one of Dan Shomron s best company commanders during the 1973 war. For reasons I ve never been able to establish, Ira s orders were not to take the hills south of the triangle as we d planned, but to go through it to a point two miles or so north. Minutes after crossing the triangle, his tanks came under heavy fire. Hoping to escape, he kept going, only to find himself surrounded by a Syrian armored force. They were trapped near a village called Sultan Yacoub, nearly three miles north of Tovlano. Since it was early June, it would be light soon, and his predicament could only get worse. At dawn, he reported he was under heavy artillery, anti-tank missile, RPG and close-range rifle fire. The only realistic hope was to retreat. We were unable 200 to get air support, but the commander of our artillery force called in all available units, and they drew a kind of protective box of shellfire around Ira s men as they moved back. We sent our other reserve division towards the crossroads to provide support, and Amram went with them to co-ordinate the operation. But Ira still had to fight his way out. It was 15 minutes of hell. By the time he reached safety at around nine in the morning, he d lost ten tanks and nearly 20 men, four of them during the final, frantic retreat. Five more were missing. The reserve division also found itself in a fierce firefight with the Syrians, and lost eleven men. We were now just three hours from the cease-fire. We did advance nearer to the Beirut-Damascus road. An hour before noon, our dedicated anti-tank unit destroyed 20 of Assad s top-tier tanks, Soviet-made T-72s. Under different circumstances, those successes might have been a cause for consolation. Yet it was hard to dwell on them given what had happened north of Tovlano. After the war, Sultan Yacoub created fertile ground for conspiracy theories, half-truths and finger-pointing. That there had been many oversights and errors was clear, though there was never a full and formal debriefing process to identify in detail what had gone wrong. I found it deeply frustrating that, unlike in 1973 when I d been in a battlefield command role, I was now at several steps removed from what was happening on the ground. But everyone involved shared responsibility for the failures including the overall commanders: Yanoush, and me as well. That weight felt even heavier because the tragedy occurred only hours before our own force s involvement in the Lebanon War was over. It was not, however, the end of the war. The cease-fire held only intermittently in the rest of Lebanon, barely at all in some areas. Freed from fighting in our sector, Yanoush, Amram and I began spending time with units elsewhere. A couple of days after the cease-fire, I found myself alongside a pair of generals, Uri Simchoni and Yossi Ben-Hannan, south of Beirut. In front of us, troops from the Golani Brigade were completing their takeover of Beirut airport. You were right, I told Uri and Yossi. They had been in charge of the simulation exercise in the kirya, predicting how Arik s ostensibly more limited invasion plan would inevitably develop into Big Pines. Even as we were talking, 201 another Israeli unit broke through to the Beirut-Damascus road. On the far side of Lebanon s capital city, they linked up with Bashir Gemayel s Phalangists. I remember a mix of feelings at the time. Partly, amazement that through sheer determination and political maneuvering, Arik seemed to have pulled off his grand plan or at least the Lebanon part of it. Yes, we d ended up fighting a kind of half-war against the Syrians which, though we d won it, still left 30,000 of Assad s men in Lebanon. And they showed no signs of leaving. Our main strategic threat north of the border was not, in fact, the Palestinians. Syria was in military control of Lebanon and, after the peace with Egypt, our most powerful adversary. And no matter what Big Pines might have achieved, it seemed to clear to me that the Syrians would be free simply to replace the weaponry we d destroyed and fight another day. In Arik s mind, Bashir Gemayel would soon be in a position to fix that. But beyond my skepticism from having met some of his boy officers in Tel Aviv, I couldn t see how that would work. I strained to imagine Gemayel daring to form what would amount to a formal alliance with Israel and ordering the Syrian troops to leave. And given what would be at stake for Damascus, I certainly couldn t see the Phalangists being able to drive them out by force. The more immediate, open question involved Arafat and the Palestinians. Our other two invasion forces had driven almost all the PLO fighters out of south Lebanon, though not without costs and casualties. Most of the Palestinians, however, had retreated north to their de facto capital, the southwestern neighborhoods of Beirut. The idea of a ground assault street-tostreet battles in an area packed with fighters, weapons and tens of thousands of civilians didn t bear thinking about. After the war, some of the officers around Beirut said Arik seemed to hoping that the Phalangist milita would go into the overwhelmingly Muslim western side of Beirut. At one point, he was even considering an Israeli attack. Fortunately, given the Phalangists record of violence bordering on savagery during the Lebanese civil war, Bashir Gemayel wasn t willing to send them in. As for an Israeli assault, Begin s ministers weren t ready to sign off on it, and the Americans let it be know, repeatedly, that they were vehemently opposed to the idea. Arik again turned to a fallback plan. He knew that Begin did share his determination to get Arafat and the PLO out of Lebanon. Even the Americans were ready to support such an arrangement, assuming it could be negotiated and implemented in a way that would bring the fighting to an end. Whether by intent or political fortune, the mere prospect of Arik further expanding the 202 invasion had the effect of persuading Washington to send Philip Habib back into the diplomatic fray. With no early sign, however, of Arafat agreeing to leave, Arik now steadily tightened what amounted to a siege on west Beirut. For seven weeks in July and August, our forces pounded the PLO-controlled neighborhoods from land, air and sea; intermittently cut water and electricity supplies; and hoped that the accumulated pressure, and casualties, would force Arafat and his men to agree to Habib s terms for a wholesale evacuation. By this point, I was spending most of my time in the kirya, with periodic visits north, sometimes with Arik or Raful, to our positions on the eastern, Phalangist-controlled, side of Beirut. On several occasions, I helicoptered back with Habib or his deputy, Morris Draper. In one instance, I accompanied Draper into a meeting with Arik. In what I imagine had become a familiar, and frustrating, part of the US mediation mission, he pressed Arik to rein in our bombardments, arguing that we were in danger of ruining the chances of getting a negotiated deal on Arafat s leaving. Arik argued straight back. His view was that unless the PLO felt squeezed into submission, they would stay put. On that, I thought Arik was probably right. Other Israeli generals with far more experience, and weight, also seemed to agree. Notably, Yitzhak Rabin. He was no longer in government, nor even in charge of Labor. But he had always had a soft spot for Arik, as did Sharon for him. With uneasiness, questions and outright criticism of the siege building both internationally and inside Israel, Arik got Rabin to helicopter north with him to Beirut. Yitzhak spent six or seven hours there. His verdict on the siege, at least as reported in the Israeli press, was more than Arik could have hoped for. Lehadek, he said. Tighten it. In the end, I m convinced the siege did have a critical effect on getting the evacuation deal. But unleashing our single most relentless series of air attacks, on August 12, when the deal was basically done, seemed both perverse and excessive, and not just to me. Habib, and President Reagan himself, fumed. So did a lot of Begin s own ministers, with the result, unprecedented in Israeli military annals, that they formally removed Arik s authority to decide on future air force missions. That turned out not to matter, however, because August 12 effectively marked the end of the siege. On the afternoon of Saturday, August 21, the first shipload of an eventual total of nearly 10,000 Palestinian fighters left Beirut harbor for Cyprus, and then for a variety of new host countries. On this score at least, Arik s grand design had proven beyond him: the Palestinians were not bound for Jordan. By far most of them headed for the PLO s new political base, the north African state of 203 Tunisia. Arafat himself left on August 30. Still, as the evacuation proceeded, another one of Arik s central aims in Big Pines was also achieved. On August 23, the Lebanese parliament elected Bashir Gemayel as the country s new president. During the several weeks that followed, there was a confident feeling among Arik and his inner circle in the kirya. To the extent that Arik and Raful saw any cloud on the horizon, it was their concern about several thousand Palestinian fighters who they were certain had stayed on in Beirut despite the evacuation. True, Bashir Gemayel hadn t been formally inaugurated as president. There had been reports that he was privately assuring Lebanese Muslim leaders that he would be conciliatory once he took office, and that he was not about to consider a formal peace with Israel. He had also been resisting Israeli efforts to make an early, public show of friendship, such as an official visit to meet Prime Minister Begin. But there was an undisguised hope that this was just a brief political hiatus, for appearance s sake, and that before too long Lebanon would become the second Arab country to make peace with Israel. Not just peace, but something more nearly like an alliance. Though I still looked through the eyes of an army officer, not a politician and certainly not an experienced diplomat, I had serious doubts this would happen. Simple logic seemed to suggest that, since Gemayel knew we had no realistic option of turning our back on him, his political interests were best served by keeping his distance and trying to build bridges at home. But on the early evening of September 14, nine days before his scheduled inauguration, not just that question but the whole new political edifice Arik had envisaged in launching the invasion, became suddenly, irretrievably, irrelevant. I was at my desk on the third floor of the kirya, getting ready to go home, when the news broke: a huge bomb had exploded at the Phalangist Party headquarters in east Beirut as Gemayel was beginning to address hundreds of supporters. For a while, the reports from Beirut suggested that Gemayel had survived the blast, but shortly before eleven at night the confirmation came: the president-elect was dead. 204 Though no one claimed responsibility, there was no shortage of suspects. During and since the civil war, Gemayel had at various times been at odds with a whole array of enemies or rivals: Muslim militias, the PLO, other Maronite factions and, of course, the Syrians. But I think for all of us, even Arik, the issue of who was behind the bombing was hardly the most urgent concern. The immediate danger was a revival of the kind of rampant bloodletting Lebanon had endured in the civil war. The day after the assassination, I joined a halfdozen other members of the general staff and helicoptered up to the Lebanese capital. Arik, ignoring weeks of US pressure not to do so, had already ordered Israeli troops into west Beirut not to fight, but to take control of key junctions and vantage points and keep basic order. But the question obviously on everyone s mind was how to make sure the situation remained under control. It was early afternoon when we reached an Israeli command post in the largely Palestinian southwest part of the city. It was set up by Amos Yaron, the former paratroop commander whose division had landed by sea at the start of the invasion and was part of the push north to the capital. At his side was Amir Drori, the head of the northern command. They had set up a rooftop observation post just a few hundred yards in from where I had landed with my Sayeret Matkal team a decade earlier for the Rue Verdun operation. It overlooked a pair of Palestinian refugee camps: Sabra and, a couple of hundred yards closer to us, Shatila. Raful was with us as well. So was Moshe Levy, the deputy chief-of-staff, and Uri Saguy, the head of the operations branch in the kirya. I listened rather than spoke. All I could gather from the other generals conversation was that they were trying to figure out how to handle the Palestinian camps. No one explicitly mentioned the idea of Israeli troops going in, presumably because they realized that, far from helping ensure order, that might well inflame things further. Even Raful, at least in my earshot, made no reference to the several thousand PLO fighters that he and Arik still wanted out of Beirut. The only note that struck me as odd was a general agreement that the Phalangists had not been carrying their load of the fighting during the war. One comment in particular stuck with me, though I didn t take it as referring to the Palestinian camps in particular. I can t remember which general said it, only that everyone seemed to agree: Why the hell do we have to do their fighting for them? It was not until the next morning, back in Tel Aviv, that the alarm bells rang for me, and by then it turned out to be too late. It was Friday, the eve of the Jewish New Year. Yet in the wake of Gemayel s assassination, the kirya was 205 crowded. I heard the first rumors from a staff officer in military intelligence, though neither he nor anyone else I asked was sure if they were true. But it seemed that the Phalangists had been sent into Sabra and Shatila. And that they had begun killing people. I d like to think that, in Amos Yaron s or Amir Dori s place, I d have been sufficiently wise not to have allowed the Phalangists into the camps in the first place. But the truth is that I m not sure. If the decision was to send someone in, I certainly wouldn t have sent in Israeli troops. But unlike other Israeli generals, my first-hand knowledge of the Phalangists was limited to a single lunchtime encounter in Tel Aviv. My impression from that meeting was that they were overblown, post-adolescent thugs, not murders. I did, of course, know the milita s reputation for untrammelled violence in the Lebanese civil war. Still, I might conceivably agreed to have the Phalangists go in under strict orders to limit themselves to keeping order in the knowledge that our own troops were stationed in the area immediately around the camps. Yet from the moment of the first rumors as soon as I heard even the hint that killings were underway I had not a second s doubt about what had to be done next: get the Phalangists out. Immediately. I felt a particular urgency because of the rooftop gripe I d heard the day before, about our troops having to do their fighting for them. That made me pretty certain that, at the very least, we had indeed sent the Phalangists into the camps. I tried to reach Arik, but couldn t get through to him. I contacted Oded Shamir, the former intelligence officer who was his main liaison with the army. I told him that if the Phalangists were inside the camps, he had to urge Arik to get them out. Then I called Tsila Drori, Amir s wife. I asked whether she d spoken to him that morning. She said no. He d called her the day before, however, and she was sure he d be in touch before the New Year. Please, swear to me, Tsila, you ll give him a message, I said. I was there yesterday. Tell him please do whatever he can to stop this action. It will end very, very badly. I told her he would know what I meant. It was too late to stop it altogether. The slaughter the round-ups and the beatings and the killings of Palestinians in the two camps had indeed begun the night before. Amir found out about it late on Friday morning. Not from me, I believe, but from his staff officers. He ordered the Phalangists to stop. But they didn t. No one in command acted, at least successfully, to make sure that the militiamen got out of the camps. The atrocities went on. It was another 24 hours before the militamen finally withdrew. 206 One night s massacre would have been enough to produce the outcry that resulted once the first news reports, photos and TV pictures were sent around the world. That the bloodletting was allowed to continue after we knew what was going on, beyond the cost in innocent lives, made the fallout even worse. In Israel, the response was unlike anything in the past. There had been some opposition to the war: from parts of Labor, from political groups further to the left and particularly the pressure group Peace Now, formed in 1978 to protest the Begin government s obvious desire to use the peace with Egypt as a means to limit, rather than actively explore, prospects for a wider agreement with the Palestinians. After Sabra and Shatila, Peace Now was the driving force behind demands for an inquiry into the Israeli role into what had happened. But the trauma went deeper. Israelis of all political stripes jammed shoulder-to-shoulder into the Kings of Israeli Square in the heart of Tel Aviv a week after the massacre. There were soldiers, too: 20somethings back from the fighting and reservists a decade or more older. Some estimates put the size of the crowd at as many as 400,000, almost ten percent of the population of Israel at the time. The protest was nominally aimed at forcing the government to empower a commission of inquiry, which it did a couple of days later. But the mood in the square was more like an outpouring of shock and shame. While the catalyst was the massacre in the camps, it tapped into a rumble of growing questions, and doubts, about the war itself, which had been building ever since the prolonged siege of west Beirut: what the invasion was for, how it had been planned and prosecuted, and what it said about our country, our government and our armed forces. I was at home with Nava, watching the coverage of the demonstration on television. I shared the protesters view that an inquiry was needed. In the days since my phone call to Tsila Drori, I d remained troubled not just by our failure to stop the killings once we knew what was going on, but by the response from Begin, Arik and some other ministers to the massacre. Determined to shift the blame and responsibility elsewhere, they kept driving home the point that it was Phalangists, not Israelis, who had carried out the killings. That was true. But it could not erase the failures of judgment and control on our part. We were the ones who had allowed them into the camps. Our forces were deployed around the perimeter. And the killers were our Lebanese Christian allies . The formal picking-apart of Israel s share of responsibility would be the job of the inquiry commission. I did take some heart from the very fact such large 207 numbers of Israelis, and ultimately the government, had ensured a truly independent probe would now go ahead. But other ways in which the war had gone wrong were already glaringly apparent. Some were operational. It is true we ended up overcoming Palestinian and Syrian resistance. Given the numerical balance of forces, that was a foregone conclusion. But with all the attention paid to the political aims of the invasion, we d never sufficiently planned for operating against a wholly different kind of enemy than in our previous wars, and on a wholly different kind of terrain. Huge columns of Israeli armor had found themselves stuck on the winding roads of central Lebanon, running low on gasoline, vulnerable to relatively small ambush squads. In some instances, a dozen Palestinian fighters or Syrian commandos had halted the best-armed, best-trained, tank forces in the Middle East for hours on end. Overall, the pattern of past wars had been broken. Even in 1973, once the surprise attacks had been turned back, Israeli forces had advanced, attacked and broken enemy resistance. That hadn t happened here. There was a deeper problem as well. At the start of the conflict, Begin had declared, boastfully almost, that this was Israel s first war of choice. That wasn t true. Both 1956 and 1967 were wars of choice. Yet those preemptive attacks, especially in the Six-Day War, were in response to a sense of strategic threat that was commonly understood by almost all Israelis. There was a sense not just of consensus, but national unity. This war was different. It had been launched in pursuit of a specific political vision: a marriage of Begin s political credo and Arik s determination to use overwhelming force to bulldoze a new political reality in Lebanon. The findings of the inquiry commission were published in February 1983. They were all the more powerful for the forensic language used. The inquiry did concede Begin s point: it was Gemayel s men who had actually done the killing. But it said that the Israeli commanders decision to allow the Phalangists into the refugee camps was taken without consideration of the danger which the makers and executors of the decision were obligated to foresee as probable that the Phalangists would commit massacres. The commission added that when the reports began to arrive about the actions of the Phalangists in the camps, no proper heed was taken. The correct conclusions were not drawn. No energetic and immediate action was taken to restrain the Phalangists and put a stop to their actions. Arik bore personal responsibility for this, the report said. So did Raful, and the head of military intelligence, Yehoshua Saguy. The commission 208 recommended that Begin fire Sharon and Saguy. They left Raful in place, but only because his term as chief-of-staff was due to end in a matter of weeks. Arik at first refused to go, and Begin refused to fire him. Yet in the end, popular pressure forced the issue. When another demonstration was called in protest at Sharon s continuing as Defense Minister, a right-wing political activist tossed a grenade into the crowd, killing a young Peace Now member. Even Arik was evidently shaken by the spectre of one of his presumed political admirers murdering a fellow Israeli for peacefully protesting. Or at least shaken enough to step down as Defense Minister. He did remain in the government as a minister without portfolio. Still, Begin himself would quit as Prime Minister, retiring into virtual seclusion, about half-a-year later. Like the rest of the senior officers corps, I tried with difficulty to get on with my own job. I imagined the contribution I could best make for now would be, as Head of Planning, to ensure the mix of forces and weaponry deployed in any future conflict were better suited to the task than in the Lebanon war. But I didn t believe that such technical failings or planning lapses, however serious a contribution to the more than 650 Israeli lives lost, were what had mainly caused the war to go wrong. The central mistake was what had bothered me all along: the invasion was not a considered response to a particular security threat. It was an overreaching exercise in geopolitics, with sleight-of-hand used to evade the need to make and win support from government ministers and, critically, the public. Even with questions still to be resolved about when and how to withdraw the thousands of Israeli troops that were still inside Lebanon, I remember wondering aloud to a few army friends, and to Nava as well, whether we would look back in a decade s time and see the war as our Vietnam . In fact, Israeli troops would still be in south Lebanon nearly two decades later, when I had left the military and was about to become Israeli Prime Minister. Even as a two-star general in the kirya, I doubted I would be in a position to help fix the deeper issues raised by the war. Any real influence would be in positions like the chief-of-staff and his deputy; the head of operations; the head of military intelligence. They were the core of the armed forces leadership and had the most regular dealings with senior figures in government. But I d failed to factor in the effect of the inquiry recommendations. Within days of the report, Israel had a new Defense Minister: Moshe Arens, who returned from his post as ambassador in Washington. Among his first orders of business was to act on the inquiry s verdict on Raful and Yehoshua Saguy. As chief of staff, Arens settled on a choice I suspect most senior officers saw as the 209 right man for the moment: Raful s deputy, Moshe Levy. Well over six feet tall, he was known as Moshe Vechetzi. Moshe-and-a-Half. He was reserved and soft-spoken, a safe pair of hands after the trauma of the war. But Arens also had to name a successor to Saguy as head of military intelligence. And for that job, he nominated me. 210 Chapter Thirteen It was a huge responsibility, and not just because I was suddenly in charge of an intelligence apparatus ranging from Unit 8200, our sophisticated signals collection and decryption unit, to the operational units like Sayeret Matkal. It was what was at stake if things went wrong: success or failure in war, and the life or death of thousands of men on the battlefield. It was a price we d paid painfully in 1973. And now again, just nine years later, in Lebanon. If I needed any reminder, it was conveniently placed on my new office wall: the photographs of each of my nine predecessors since 1948 as Head of the Intelligence Directorate, or Rosh Aman in Hebrew. All had come to the role with talent and dedication. All but three had either left under a shadow, or been fired. Sometimes this was because of ultimately non-fatal lapses, like a botched mobilization of our reserves in 1959, or the Rotem crisis a few months later. Sometimes, it was due to lethal failures like the Yom Kippur War and Lebanon. I went to see all eight former directors who were still alive. You know, I used to read the newspapers and listen to the BBC in the car to work, Shlomo Gazit told me. He was the director I d worked for in operational intelligence, the one who d so memorably made the point that we might endanger Israeli security not only be missing the signs of a war, but signs of an opportunity for peace. He was also one of the few to have left office without blemish. By the time I got to the kirya, I already knew 80 percent of what I could about what was going on, he said. Then I d spend six or seven hours reading intelligence material, to fill in at least part of the remaining 20 percent. His message, echoed by my other predecessors, was that the job wasn t mainly about the raw information. It was what you concluded from the information, what you did with it. It was about judgement. The intelligence did matter, of course. For all of Israel s strengths in that area, I knew from my own experience at Sultan Yacoub that there was still room to get more, better, and more timely information about our enemies, and make sure it got to the commanders and field units that needed it. And while the details of many operations I approved for Sayeret Matkal and other units remain classified, we did succeed in doing that to take just one example, by finding an entirely new way to get intelligence from inside Syrian command posts. Yet above all, I set out to apply the lessons of the 1973 and 1982 wars. In rereading the official inquiry reports, I saw that the intelligence failings had 211 been different in each of them. In the Yom Kippur War, the problem was not just Eli Zeira s failure to activate the sayeret s listening devices in Eygpt, deeply damaging though that was. It was judgement. Inside Aman, a kind of groupthink had taken hold. It was rooted in a confident, costly misconception which went unchallenged: that Egypt would never risk another war without an air force capable of breaching our defences and striking towns and cities deep inside Israel. No one pressed the alternative scenario: that Sadat might strike with more limited territorial objectives and, under cover of his SAM batteries on the other side of the Suez Canal, advance into the Sinai. In the Lebanon war, the inquiry suggested, Yehoshua Saguy did try to warn the generals, and the government, about major risks. But individual ministers testified that they hadn t heard, hadn t been there, or hadn t understood, leading the inquiry to stress the responsibility of a Rosh Aman to ensure not just that his message was conveyed, but that it was received as well. I set out to address both problems. Inside the department, I insisted on making all our preconceptions open to challenge. I set up a unit whose sole function was to play devil s advocate when a consensus was reached. It began with the opposite conclusion and, through a competing analysis of the data, and logical argument, tried to prove it. I also wanted to be challenged on my preconceptions. I assigned a bright young major as my personal intelligenceand-analysis aide. He read everything that crossed my desk and could access any material in the department. You have no responsibility to agree with any of the analysts, or with me, I said. Part of your job is to disagree. In the Lebanon war, Saguy had faced an additional problem. He was excluded from some government meetings at which crucial decisions were made. That was out of his control. I didn t want it to be out mine. I raised the issue with Begin in our first meeting. If you want to get the maximum value from your head of intelligence, I said, you should make sure he s there not just after, but when decisions are made. Yet he was now only months from leaving office, exhausted by the war and its aftermath. He waved his hand weakly in response, as if to say none of it mattered. His successor, in October 1983, was Foreign Minister Yitzhak Shamir. Ideologically, he was cut from the same cloth: an advocate from the 1940s of securing a Jewish state in all of Palestine, by whatever force necessary. He d broken with Begin s pre-state Irgun militia to set up a group called Lehi, which went further and carried out political assassinations: the 1944 killing of Lord Moyne, Britain s Minister for 212 Middle East Affairs, and four years later the United Nations envoy, Count Folke Bernadotte. Why are you so strident, Shamir asked me, only half-jokingly, after I d insisted on joining a government discussion and pressing several intelligence matters. It s because I ve read the Lebanon inquiry, I replied. I saw what happened when a message isn t delivered assertively. I m not going to be in the position of making the same mistakes. He nodded, and didn t raise it again. In fact, it was under Shamir that I began to get more involved with political and policy issues beyond the armed forces. Part of this came with the job of Rosh Aman. There was hardly a major domestic or foreign challenge that did not have some security component, and no security matter on which intelligence was not critical. But I also found myself working more closely with leading politicians: mainly Shamir and Misha Arens, who as defense minister was my main point of contact. Since I was a Labor kibbutznik, we made an odd threesome. Arens was also a lifelong Jabotinsky Zionist. He had been in the Betar youth movement in America, before going to Palestine in 1948 and joining the Irgun. In fact, it was with Misha s personal backing that one of my former Sayeret Matkal officers the son of a Jabotinsky acolyte had recently taken his first steps into the political limelight. After a two-year stint as Israel s number-two diplomat in Washington, Bibi Netanyahu had become our ambassador to the United Nations. With both Arens and Shamir, I built a solid relationship, based on mutual respect, and it would deepen further when I moved on to a wider role in the kirya a few years later. They were straight talkers. While resolute about decisions once they d taken them, they were genuinely open to discussion and debate. I also sometimes found a surprising degree of nuance behind their tough exterior. The toughness was there, however. One of the first major security crises we faced after Shamir became Prime Minister was known as the Kav 300 affair, named for the bus route between the southern port city of Ashdod and Tel Aviv. On the evening of April 12, 1984, four Palestinians from Gaza boarded the bus and hijacked it back toward the border with Egypt. They told the passengers they were armed with knives, and that a suitcase which one of them was carrying contained unexploded anti-tank shells. After a high-speed chase, an Israeli army unit managed to shoot out the tires and disable the vehicle, when it was still about ten miles short of Gaza. One of the passengers had been severely injured at 213 the start. A number of others managed to escape when the bus was stopped. But several dozen remained inside. I was in Europe at the time, on one of my periodic trips to discuss Middle East issues with a fellow intelligence chief. Yet an aide called me with the news. I was several thousand miles away from what happening. But I knew there was every possibility Sayeret Matkal might be called in, and my instincts told me we should proceed with caution. The situation we were facing felt nothing like Sabena, much less Entebbe. Here, we had a single bus. Our troops, and in fact everyone from ministers and officials to reporters and photographers, were in a loose cordon a couple of dozen yards away. That said to me there was no sense that the hijackers posed an immediate danger. Nor did they seem to have come equipped for a major confrontation. In place of the AK-47s and grenades we d seen in previous terror attacks, these guys had knives, and, if they were to be believed, a couple of shells with no obvious way to detonate them. I phoned a friend in the command post set up near the stranded bus. He told me that Misha and Moshe Vechetzi were there. There was a standoff with the terrorists and, for now, it was quiet. The defense minister and the chief-of-staff, of course, did not need my presence, much less my agreement, to order the sayeret into action. But I said: why not wait? Though the last flights back to Israel had already left, I could be at the command post by mid-morning. Beyond wanting to be present if the sayeret was ordered in, I believed the crisis might even be brought to an end without another shot being fired. I ll tell them what you said, my friend replied. But I doubt it ll be allowed to drag on much past daybreak. He was right. With my Chinese Farm comrade Yitzhik Mordechai in overall command, Sayeret Matkal stormed the bus at about seven in the morning. They shot and killed two of the hijackers immediately, through the vehicle s windows. Sadly one of the passengers, a young woman soldier, died in the assault, but the rest of the hostages were freed, none with serious injuries. A controversy soon erupted over what came next. The sayeret commandos had captured the other two terrorists alive and uninjured. Yet barely a week later, first in an American newspaper and then the Israeli media, reports emerged that the two surviving Palestinians had been killed after the hijacking was over. A year later, Yitzhik Mordechai was wrongly put on trial for his alleged part in what had amounted to a summary execution. And, rightly, exonerated. Though the full details never became public, the people responsible turned out to be from the Shin Bet, our equivalent of the FBI. 214 Weeks later, Misha Arens mentioned Kav 300 in one of our regular meetings. It was not so much a statement of what should or shouldn t have happened, but a show of genuine puzzlement. How can it be, he asked, when there is a real fight, an operation in which our soldiers are shooting, that terrorists come out alive? The answer, to me, was simple: Sayeret Matkal. From our earliest days, there was an understanding that you used whatever force necessary in order to make an operation successful. Yet once the aim had been achieved in this case, eliminating the danger to the passengers it was over. I am convinced, by the way, that Misha didn t actually order the sayeret, or anyone else, to kill all the terrorists. I m equally convinced there was a tacit assumption on the ground that Misha s view, and Shamir s as well, was that this would be no bad thing. Yet by the summer of 1984, Shamir and Arens appeared in danger of losing their jobs. Israel s next election, the first since the Lebanon war, was due in July. Just as the trauma of the 1973 war had helped Begin end Likud s three decades in opposition, the polls and the pundits were now suggesting that Shimon Peres might bring Labor back to power. There was no prospect he d win an outright majority in the 120-seat Knesset. No one had ever done that, not even Ben-Gurion in his political heyday. From 1948, Israel s political landscape had been populated by at least a dozen-or-so parties, mostly a reflection of the various Zionist and religious groups before the state was established. The dominant party always needed to make deals with some of the smaller ones to get the required 60-vote parliamentary majority and form a government. The Likud looked vulnerable. Domestic concerns, alone, were eroding its support. Under Begin s turbo-charged version of Milton Freedman economics, an economic boom had given way to runaway inflation and a stock market crash. Lebanon, however, was the main issue, and it remained a running political sore. The assassinated Bashir Gemayel s brother, Amin Gemayel, had become president. But Israel still had large numbers of troops there. And while most of the PLO fighters had gone, we faced a new and potentially even more intractable enemy in the south of the country. When our invasion began, the area s historically disadvantaged Shi ite Muslim majority had been the one group besides the Christians with the prospect of benefiting. The PLO rocket and artillery bases had disrupted their lives and, worse, placed them in the line 215 of our retaliatory fire. Some of the Shi ite villages in the south even greeted our invading units with their traditional welcome, showering them with rice. But for a new Shi ite militia calling itself Hizbollah formed after the invasion and inspired by the Ayatollah Khomeini s revolution in Iran our continuing military presence was anathema. In November 1983, Hizbollah signalled its intentions when a truck bomber drove into a building being used as our military headquarters in the south Lebanese city of Tyre, killing more than 60 people. Yet the election ended up as a near-tie. Peres did lead Labor back into top spot for the first time since Begin s victory in 1977. But he got only 44 seats, to the Likud s 41. After weeks of horse-trading with smaller parties, he could not form a government. Neither could Shamir. The result, for the first time in peacetime, was a national-unity coalition, including both main parties. Peres would be Prime Minister for the first two years, and Shamir the final two. But the stipulation of most relevance to me was that one man would be the Defence Minister throughout the four years: Yitzhak Rabin. My relationship with Rabin went back much further than with Misha. I d first met him when I was a sayeret soldier. I d interacted with him more as sayeret commander, and of course during Entebbe. Now, we began to work even more closely, and the main challenge in his early months as Defense Minister was what to do about our troops in Lebanon. We had gradually been pulling back. We were more or less on the 40-kilometer line which Sharon had claimed was the point of the invasion. But even this was costing us lives, with no obvious benefit from controlling a large slab of territory on which nearly half-a-million Lebanese lived. A decision was now reached to shrink our security zone further, pulling back to the Litani River. It meandered about 25 kilometers north of the border, and in some areas was even closer to Israel. I argued strongly in favor of getting out altogether. I accepted that the Litani line might help impede cross-border raids. But especially since the remaining Palestinian fighters and Hizbollah were acquiring newer Katyushas, with a range of up to 20 kilometers, they could fire rockets over the security zone. My deeper concern was that we intended to hold the area with between 1,000 and 1,500 Israeli troops in open alliance with a local Maronite Christian militia, called the South Lebanon Army. This would rule out any hope of working out security arrangements with the non-Christian majority in the south. I tried to persuade Rabin we should withdraw all the Israeli soldiers and coordinate security arrangements with the equivalent of a local civil-defense guard. I suggested four separate militias drawn from the local population 216 Christian, Shi ite Muslim, Druse and ethnically mixed with the aim of reflecting the balance in each part of the south. Israeli troops might still have to cross into Lebanon, but only for brief, targeted operations to preempt preparations for a terror attack. We need to remember what we re there for, I said. We have no territorial claims. It s to protect the north of Israel. But it will end up being about protecting our own troops inside the security zone. It will be like the Bar-Lev line in 1973, fighting for fortifications we don t need. I couldn t persuade him. I m sure he understood the argument, and he may even have agreed. But when Katyushas next fell on northern Israel, he as Minister of Defense, not I, would be the one in the political firing line. Far from straining our relations, our frank exchanges on Lebanon seemed to build further trust between us. We worked closely on a range of issues. When Sayeret Matkal or another intelligence unit planned an operation across our borders, both of us would present the action to the cabinet. During the operations, I d be either in the kirya or a forward command post. Since nearly all of them happened after nightfall, Yitzhak would usually be back home, asleep, by the time they ended. I would phone him. The trademark voice slow, gravelly, deep even when he was wide awake would answer. I d tell him the mission was over and with only one exception during my period as head of intelligence successful. Todah, he would say. Lehitraot. Thanks. Bye. He was never a man to waste words. For one of the very few times I can remember, he phoned me one morning in October 1985. It came a couple of days after an especially gruesome Palestinian terror attack. Even with Arafat now more than a thousand miles away in Tunis, much of Rabin s focus was taken up in responding to, or trying to preempt, Palestinian terrorism. The issue was especially sensitive politically in the wake of a war in Lebanon that was supposed to have eliminated that threat. For Rabin, moreover, it had become personal. He d had to sanction an unprecedented exchange of 1,150 Palestinian security prisoners earlier in the year to secure the freedom of three Israeli soldiers, including one of our men from Sultan Yacoub, who had ended up in the hands of the radical Popular Front for the Liberation of Palestine General Command. Now a group from another of the radical factions, the Palestine Liberation Front, had hijacked an Italian cruise ship called the Achille Lauro en route from Egypt to Israel. They murdered one of the passengers, a wheelchair-bound, 69-year-old Jewish American named Leon Klinghoffer, and dumped his body overboard. 217 Rabin s closest aide, whom I knew well, was aware that Unit 8200 had intercepts that laid bare the details, and left no doubt the murderers were from a PLO group. He called and asked me to appear on a weekly television interview program called Moked. It was hosted by Nissim Mishal: brash, incisive, and one of Israel s best-known broadcast journalists. I pointed out to the Rabin aide that I d never done anything like this before. But he insisted it would go well. He briefed me on the questions I could expect, not just about the Achille Lauro but the wider issue of Palestinian attacks, as well as Syrian President Hafez al- Assad s efforts to re-equip his air force after his losses in Lebanon. So I came to the interview prepared. I brought audio tapes of the hijackers, and a large photograph of the MiG-25s which the Syrians were seeking to acquire. My appearance will not go down in the annals of great moments in television. But at the time, very few Israelis even knew who I was, and I felt I d done OK. I was surprised, however, when Rabin phoned the next day. Ehud, I didn t see it. I was attending some event, he said. But his wife, Leah, had recorded the program. I just watched it. I should tell you, I think it was exceptional. You did a great job. It was highly important for us, for the army, and, I dare say, for you. I was not sure what he meant by saying it might be good for me as well, although a decade later, at the end of my army career, he would play the central role into my entry into Israeli politics. It is true that there was also some politics at the upper reaches of the military as well, especially around the choice of chief of staff, and that Moshe Vechetzi s term had only a year-and-a-half to go. But I didn t view myself as a serious candidate at this stage. Moshe s own preference seemed to be either Amir Drori, the head of the northern command during the Lebanon War, or Amnon Lipkin, the veteran paratroop commander who d been with me on the Rue Verdun raid in Beirut. My own hope was that the nod would go to any even closer friend of mine: Dan Shomron. I had first got to know Dan well in the late sixties after Karameh, Israel s costly standoff with Arafat, when Fatah s influence was in its infancy. We exchanged impressions on what had gone wrong, and why? When I became commander of Sayeret Matkal, we remained in touch, and he took a close interest in all of our operations. We also crossed paths in the Sinai in the 1973, 218 in which Dan s division was key in staunching the Egyptian advance in the first days of the war, later inflicted heavy losses on one of Sadat s armored forces and was part of the final push on the other side of the canal. And, of course, during Entebbe. Dan had sharp tactical instincts, a belief in the importance of using new technology to gain and sustain an edge, and an openness to unconventional approaches. Faced with a challenge in planning or executing an operation, he looked at it from all sides, determined to come up with the right approach, not always the expected one. In a lot of these ways, we were similar, which was no doubt one reason our relationship had grown closer as he and I six years younger, and a step or two behind rose up the ranks. In fact, Dan was the reason I d made one of my rare forays into kirya politics not long after Moshe Vechetzi took over as chief of staff, when Misha Arens was still Defense Minister. I acted to derail what seemed to me a blatant attempt by Moshe to advance Drori s and Amnon Lipkin s prospects for eventual succession as chief-of-staff, and to take Dan out of the contest altogether. I was sitting at my desk on the third floor when the chief of internal army security, an officer named Ben-Dor, walked into my office. Listen, he said, the chief of staff has a right to give me a direct order in cases where he thinks there is a need for a special investigation. But you re my commander, so I wanted to let you know. What is it? I asked. He replied that he had been ordered to check out rumors that Dan Shomron is a homosexual. I was appalled. The whole thing stank, on every level, and not just because I was confident the rumors were nonsense. Look, I said, I have no idea whether some sub-clause in army regulations allows the chief-of-staff to give you orders over my head. But even if it does, I m ordering you to do nothing until I talk to Moshe. He nodded in agreement. In fact, he seemed relieved. He also let me know that the source of the rumors was a number of senior officers, including a couple of generals. I went straight downstairs and into the chief-of-staff s office. Moshe was at his desk, smoking a cigarette. One of the advantages he had in being nearly a foot taller than most of us was that I found myself looking not into his eyes, but up at them. Moshe, I said, Ben-Dor told me you ve ordered him to investigate a rumor that Dan Shomron is a homosexual. He said nothing. So I went on. I ve told him not to do it. And I ve come here to convince you that it s 219 improper. This was more than 30 years ago, at a time when being gay, and certainly being gay in the armed forces, was a much bigger deal than now. But I still had no doubt at all that this amounted to a witch-hunt. Moshe still said nothing. I have no idea whether Dan is or is not a homosexual. After knowing him for years, I have no reason at all to believe that he is. But let s assume, for a moment, that he is, I said. He s not some junior lieutenant This is a man who has risked his life for Israel. Repeatedly. Under fire. Then, I got to the real issue. I hesitate to mention this, I said, realizing, and in a way hoping, that my tone would sound vaguely threatening. But if you order this, the very fact of doing so might be interpreted as being a result of some other motives on your part. I m doing my best to convince you to think again. But I want you to know that if I can t, I m going from here to Misha s office. I ll try to convince him of the damage from what you re contemplating to the whole fabric of trust in the general staff and the army, to the image of the army. Still, he said nothing. He nodded occasionally. He puffed on his cigarette, put it out, lit another one. It was pretty clear he had no intention of rescinding his order. Within 20 minutes, was in the Minister of Defense s office. I spoke to him for about 10 minutes. Misha listened. At the end, he said: I understand what you ve told me. I never discovered what exactly he said to Moshe Vechetzi. But the investigation never happened. I never spoke a word about any of it to Dan until years later, after both of us had left the army. The result, however, was that Dan became deputy chief-of-staff under Moshe, the latest step in what was beginning to look like a steady rise to the top. But Misha did make a few concessions to Moshe s preferred candidates, and that now turned out to have major implications for me. It was a long-accepted practice that chiefs-of-staff had more than one deputy during their period in charge. In the homestretch of Moshe s tenure, he was able to bring in Amir Drori for a spell as his number-two. And early in 1986, he also brought Amnon Lipkin back to the kirya. Amnon was given my job, as Director of Intelligence. But I got the post which Amnon was leaving: head of the central command area. This meant that, for the first time, I would be in charge of one of Israel s three regional military commands, and we were based on the edge of Jerusalem, with security responsibility for the West Bank. This was my first direct exposure to the combustible mix of restive Palestinians and the growing number of Jewish settlers. Our main brief was to prevent terror attacks, violence or unrest from the roughly 850,000 West Bank 220 Palestinians toward the 50,000 Israelis who were then living in the settlements. At the time, by far most Palestinians were not involved in any violence. They were mainly interested in getting on with their lives. Yet there were signs of trouble. The PLO leaders relocation to Tunis had reduced their direct influence. But the briefings I got from Shin Bet officers made it clear that some young West Bankers had begun trying to organize attacks against police, soldiers and Israeli civilians. The settlements were also growing in number, and their residents were not above acts of violence against Palestinians. Further complicating the situation was the fact the settlers enjoyed the support of key Likud members in the cabinet: Shamir, who was about to take his turn as Prime Minister in October 1986; Misha, now a minister without portfolio; and most of all Arik Sharon. In an astonishing demonstration of resilience and determination, not only had Arik remained as a minister without portfolio when Shamir succeeded Menachem Begin. In the coalition government, he had become Minister of Trade and Labor. Most importantly, when he d been Agriculture Minister under Begin, he was the driving force in plans to expand Jewish settlement on the West Bank, including blocs placed around the major Palestinian towns and cities for the first time since 1967. I had a responsibility to protect the settlers, and I did my best to fulfil it. Yet I believed it was essential they understood that they were subject to the authority of the state of Israel and, like other Israeli citizens, had to operate within the law. This was no mere theoretical problem. A Jewish underground had been established by members of Gush Emunim, the Orthodox Jewish movement set up in the 1970s to advance what they saw as a divinely mandated mission to settle the West Bank. It had carried out car-bombings and other attacks in the early 1980s, leaving two Palestinian mayors crippled for life. The terror campaign had ended only when the Shin Bet caught the cell placing explosives under Arab-owned buses in Jerusalem. Hopeful of preventing misunderstandings, and ideally building a relationship of trust, I visited many of the settlements during the early weeks in my new post and spoke with their leaders, a few of whom remain friends to this day. But in the spring of 1986, we faced our first major test on the ground. In a pre- Passover event organized by Gush Emunim, some 10,000 settlers streamed into Hebron, a city sacred not only to Jews but Muslims as well as the burial place of Hebrew patriarchs and matriarchs. Peace Now activists had planned a counterprotest, but Rabin denied them permission. Still, anti-settlement members of the Knesset and other Israeli peace activists did get clearance to march from Jerusalem to Hebron. 221 My job was to ensure the security not just of the Gush Emunim march but of the counter-demonstrators, and, of course, the local Palestinian population. As the rival marches by the Israelis proceeded, I personally delivered warnings against any violence, both to the settlement leaders and to a pair of the most prominent counter-protesters, the peace activist Uri Avneri and Knesset member Yossi Sarid. The event went off without major incident. But the next day, Davar, the venerable Labor newspaper I d first read as a child in Mishmar Hasharon, let rip against me. Under a photo of me with Avneri and Sarid my arm raised, ostensibly in some kind of threat but actually in the time-honored Jewish practice of talking with my hands the article accused me of siding with the settlers. If blood was spilled in the weeks and months ahead, the newspaper said, it will be on Barak s hands. Ordinarily, I would have ignored it. But never in my military career had I been similarly attacked on an issue of any importance. I was especially angry because not only was the insinuation unfounded. It was diametrically opposite to the stance I was determined to take in this, my first regional command. Yes, I was committed to providing security for the settlers. But especially in the wake of the crimes of the Jewish underground, I was determined to ensure they remained within the boundaries of the law. A few days later, I called Rabin s aide and asked to see the Defense Minister, and was told to come see him after Saturday lunch at his home. When I arrived, Rabin got right down to business. Ehud, you wanted to see me? he said. You ve probably seen Davar, I replied. It was a pretty nasty piece. It distorted things. Yet as he began asking for details, it seemed he had no idea what I was talking about. Ehud, I never read it, he said. If you hadn t told me, I d never have known there was an issue. I assumed this was a white lie, told to reassure me. But years later, when I was Minister of Defense, and then Prime Minister, I sometimes found myself on the other side of such meetings. An officer or official would come see me because of something said about them in the media, or remarks they were quoted as having made. When I told them I d been unaware of it, I could see the disbelief in their eyes. By then, however, I realized that under the multiple demands of a senior role in government, you really could fail to notice events that others viewed as crucial to their reputations or careers. To reassure them I truly hadn t noticed, I d tell them the story of my meeting with Rabin. 222 There was another, slightly less noble, reason I wanted to set the record straight with Rabin. Though only gradually did I admit this even to myself, I realized that my experience in a regional command had ticked the one missing box in the CV of our top generals, meaning that I might indeed be a candidate to succeed Moshe Vechetzi as chief of staff. At first, I resisted taking the prospect too seriously. The job of ramatkal not only carried responsibility for overall command of the armed forces. Since our country still faced multiple security threats, the chief of staff was, along with Prime Minister and Defence Minister, among the most important, influential and visible positions in Israeli public life. Yet as the April 1987 date for the changeover drew nearer, it was difficult not to think about it. Not only was I apparently under consideration. To judge from media reports, and officers smalltalk, it appeared that Rabin had whittled down the possibilities to two. One was Dan Shomron, and I was the other. Still, it was only when Rabin phoned me early in 1987 that I knew it was true and that I would not be getting the top job. Ehud, he said, I wanted you to know I ve decided on Dan to be the next ramatkal. I want you to be his deputy. I can t say I was surprised he d chosen Dan. It wasn t just that he was more experienced, or even that, since he was older, missing out on the top job this time would probably mean missing out for good. Yitzhak had always valued Dan s directness and honesty, his courage and record of service. Above all, I d long sensed that he felt a special debt to Dan: for Entebbe. At a time when so much could have gone wrong, it was Dan who had taken a firm, confident, successful hold on the operation. Still, I was now 45. For me no less than for Dan, I knew that if I was passed over as chief of staff, there was no guarantee I d be chosen the next time. I respect your decision, I told Rabin. And I have no doubt Dan will be a good a very good chief-of-staff. But I had to consider my own future. Even though I m grateful for the offer of deputy, I said. I think it s better for me to leave. To open up a new chapter, and do something else in life. Rabin said he couldn t accept that. Come see me, he said. Now. When I got to Jerusalem, I emphasized again that I had no doubt Dan would lead the armed forces well. But I said my decision to leave the military wasn t a mere whim. I had been thinking about my own future and my family s. We had three young daughters. A few months earlier, we had moved home again, into a wide, one-story rambler with a big yard out back. It was in a new town called Kochav Yair, just inside Israel s pre-1967 border with the West Bank, and it struck me 223 as a good time to settle down in a way that would be impossible if I stayed on in the upper reaches of the military. Perhaps do something more academic, in a university or a policy think-tank. For the first time, politics had some appeal, too, though I didn t say this to him. At that point, I had no idea how, or even whether, I might get involved. But since my appearance on Moked, others seemed to assume it might happen at some stage. Out of nowhere, a leading political journalist, Hanan Kristal, had written a story in 1986 purporting to predict the successors to Israel s political old guard: Peres and Rabin in Labor, Begin and Shamir in the Likud. It appeared in the newspaper Hadashot. The paper ran side-by-side photos of the ostensible future leaders, doctored to look older, who Hanan predicted would go head-to-head in the election of 1996, a decade away. One was Israel s ambassador to the UN and a prot g of Misha Arens: Bibi Netanyahu. The other was me. Rabin listened with patience to my obviously settled intention to leave, but remained firm that I should stay and become Dan s deputy. In the end, I agreed I d think things over and that we d talk in a week s time. In the meantime, I went to see two veteran generals who had found themselves in a similar situation, mentioned as possible chiefs of staff but never chosen: Arik and Ezer Weizman. I saw Arik on his farm in the Negev. He was obviously enjoying his extraordinary political rehabilitation since the Lebanon war. His expanding girth was settled into a sofa in the living room. I filled him in on my conversation with Rabin. I m considering leaving, I said. It just seems like a long time to wait, even if I do get the job after Dan. There s a lot else I want to do in life. Arik was probably the general most experienced in being denied the chief-ofstaff s office. On at least two occasions, he might reasonably have been considered. But in a career littered with tense encounters with his superiors, it never happened. You should stay on, he said. You re not that old. It ll probably be good for you, and the army, to be deputy and then chief. The only further advice he gave me was to do all I could formally to commit Yitzhak to making me Dan s successor after his term ended. I visited Ezer at his home in the seaside town of Caesarea. We sat on the terrace, with Ezer s gangly frame draped over one of the cane chairs. Ehud, if you stay, do you think you have a good chance of being the next ramatkal, he asked. I said that while nothing could be certain, I thought there was a good chance. He replied without hesitation: Then stay. He d come close to the top job, he told me. On the eve of the Six-Day War, when Rabin had collapsed 224 physically from the weeks of tension, Yitzhak had asked him to take over. He d said no. But he said he d always believed he could and should have been chiefof-staff and that if he hadn t left to go into politics, he still might have got the job. Then, suddenly, he shouted: Reuma! When his wife appeared, he said: Tell Barak the missing piece in my life, the one I ve never stopped regretting. She smiled, and said: It s the fact you did not become ramatkal. I saw Rabin a couple of days later. Though I d pretty much decided to take the deputy s job, I was still bothered by the prospect of serving as deputy for the next four years only to find someone else being named chief-of-staff. I knew that no matter what assurances Yitzhak gave me, there was no way of being sure. He did say he viewed me as the natural next-in-line. But I still felt hesitant. I want you to consider two things, I said. The first was a formal decision that Dan would have only a single deputy during his time as chief-of-staff. He said yes to that. Yet the second request was going to be even more difficult. Heartening though it was to hear I was Dan s natural successor , I asked him to put it in writing. It was not that I doubted his word. But if the surprise result of the last election was any indication, there was no way of predicting which party would be in power when Dan s terms ended. I wanted him to keep a record of our understanding in his desk and pass it on if someone else was Defense Minister by that time. Without a moment s hesitation, he took out a piece of paper and wrote down exactly what he d told me about the succession. He shook my hand as I left. You ve made the right decision, he said. And I had, even though Dan and I and Rabin too would soon face by far the most difficult challenge in Israel s conflict with the Palestinians since our capture of the West Bank and Gaza in the 1967 war. 225 Chapter Fourteen It began with an accident. On Tuesday, December 8, 1987, an Israeli tank transporter crashed into a minibus carrying Palestinians from the Jabalya refugee camp near the main crossing from Gaza into Israel. Four passengers were killed. By the time of the funerals the next day, a rumor had spread, no less incendiary for being absurd, that the crash had been deliberate retaliation for the fatal stabbing of an Israeli man a few days earlier. Crowds of Palestinians leaving the burials began shouting Death to Israel! They hurled rocks and bottles at Israeli security patrols, and blocked streets with burning tires. By the next day, the violence started spreading to the West Bank, and then to parts of east Jerusalem. The headline-writers moved from the word disturbances to unrest and finally to the Palesitnians own name for the most serious outbreak of violence since 1967: the intifada . The uprising. At least for the first week or two, we assumed its ferocity and scale would subside. Our immediate aim was to contain it, and limit the human cost on both sides. Yet when Dan and I began visiting units on the front line of this new conflict, we realized that if it kept escalating, we d have to find new tools and strategies to bring it under control. We were in charge of an army trained to equip and fight enemy soldiers. Now, we were asking teenage recruits to operate as riot police against stone-throwing mobs. Before long, it wasn t just stones, or even bottles. In one incident in Gaza, a young soldier was surrounded by a crowd of Palestinians and stabbed. He opened fire, wounding two of the attackers. Yitzhik Mordechai, now the head of the southern command, told reporters that his troops were under strict orders to open fire only if their lives are under threat. That was true. But I couldn t help wondering how long the other part of his statement would hold: that we remained in control of the situation. We did feel in control for the first few days. Defense Minister Rabin was away in Washington on an official visit. When his office asked us whether he should fly back, we said there was no need. But on his return, we quickly agreed that, as a first priority, we needed to find an alternative to live ammunition in quelling the attacks. Otherwise, we d be left with two equally bad options: either simply stand aside, in order to avoid killing or injuring demonstrators; or intervene with the inevitable casualties. But one of our most important early discussions was about the broader aspects of the violence. The meeting, held 226 outside the kirya in a facility just north of Tel Aviv, was Rabin s idea. In addition to Dan and me, it included key members of the general staff and senior defense ministry officials. The idea was for us to hear a half-dozen academics and other specialists speak about the political aspects of the sudden eruption of Palestinian violence. Though he spoke for barely 10 minutes, it was the last speaker who left the deepest impression. Shimon Shamir, a professor at Tel Aviv University, began by emphasizing he was not an expert in riot control. Finding a response to the violence was something we were far better equipped to do. But then he paused, looked intently at Rabin, Dan and me, and said: What I can do is draw on history. One by one, he cited examples of more than a dozen broadly similar rebellions over the past century, in the Middle East and beyond. If we were dealing with simple rioting, things might be different. But he said the Palestinians were, fundamentally, acting out of a shared sense of grievance, and shared national identity. Both were in large part the result of Israel having controlled their daily lives now for more than two decades. I m afraid I can find no historical precedent for the successful suppression of the national will of a people, he said. Even when those in power used unimaginably punitive tools: like expulsion, or forced starvation. Even, as we know well as a Jewish people, extermination. I glanced at Yitzhak and at Dan. Both of them looked like I felt: in no doubt the professor was right, yet also aware that, in the short term, we still had to find a way of putting a lid on the cauldron and keeping the situation for getting irretrievably out of control. It wasn t as if I d been unaware of the sense of the anger building among many West Bank and Gaza Palestinians, or of their wish to see an end to Israel s military administration and the growing number of Jewish settlements. From my time as head of the central command, I also knew that there was a young, activist core intensifying efforts to organize attacks on troops and settlers. But none of us had any inkling that something of the scale, longevity and political complexity of the intfada lay ahead. Partly, this was a failure of specific intelligence warnings. But it went deeper than that. Sobering though it was, I had to accept that no less so than before the Yom Kippur War in 1973 I and many others had for too long been comforting ourselves with a fundamental misconception about our military occupation and civilian settlement in the areas captured in 1967. The roots of the myopia went back to the immediate aftermath of the Six-Day War, to the 227 generally civil, and often friendly contacts, Israelis had with Palestinians at the time. The local population had, after all, been under other occupation powers before 1967: Jordan in the West Bank, and Egypt in Gaza. Assuming our administration was less onerous, most Israelis believed a way to coexist could be found. And that sooner or later, there would be a land-for-peace agreement and we would withdraw from at least most of the territory. But as the years passed, with no sign of a willingness by the PLO to consider any kind of peace talks, we made the cardinal error of assuming the occupation was sustainable. Yes, there might be periods of violence, but nothing that a combination of political resolve, arrests, detention and, where necessary, military force could not hold in check. For us, and certainly for me, the Palestinians became essentially a security issue. As one of Israel s finest novelists, David Grossman, would lay bare in a bestselling book of reportage called The Yellow Wind, about a year into the intifada, we had ceased to see the human effects of 20 years of occupation, not only on the Palestinians but on Israeli society as well. Yet the power of Professor Shamir s presentation lay not so much in its novelty as its succinctness, clarity and, above all, its timing. The rioting had already gone on for longer than any of us had expected. It seemed to be gathering strength. But until our meeting, we were still looking at it essentially as a civil disturbance. That was what began to change, for all of us. What didn t change was the need to try to bring the violence to an end. Dan immediately put me in charge of looking for alternatives to live ammunition. I began with our own research and development engineers. We also asked military attach s in our embassies to talk to law-enforcement agencies, academics, or anyone else with knowledge of non-lethal methods of crowd control overseas. Some of the more far-flung examples seemed promising, at least until further investigation. South Korea had years of experience in confronting student protests generally, though not always, managing to avoid fatalities. But it turned out this typically involved sending in serried rows of up to 25,000 riot police against a few thousand campus protesters. Besides the fact we d have needed an army the size of the Americans to field enough soldiers, it was absurd to imagine dealing with dozens of far-flung confrontations on any given day with parade-ground formations of troops. We looked at anything that seemed it might work. In the early stages, most of the attacks involved rocks and bottles. Our R D engineers developed a Jeepmounted gravel gun that fired stones at a distance of up to 250 feet. They could cause injuries, but weren t lethal. We acquired launchers for pepper spray 228 and tear gas. We even looked at the possibility of dropping nets over crowds of attackers. Very early on, we shifted to using plastic bullets. But even that presented problems. At a distance of a hundred feet or so, they could drastically reduce deaths. But when a young recruit saw hundreds of Palestinians closing in on him, he wasn t about to take out a tape measure. Over time, we began relying wherever possible on rubber bullets and, in extreme cases, snipers to target the legs of the organizers or ring-leaders. If all of this sounds soul-destroying, that s because it was. Especially with daily television coverage of the clashes amplifying overseas support for the Palestinians, morale among our soldiers also took a battering. In visits to units on the West Bank and in Gaza, Dan and I, and Rabin too, heard two opposite responses. Some of the young soldiers wanted us to use maximum force. We are the army, they argued. We have the weapons. Why the hell don t we use them? But we also heard another view, if less often: why are we here at all? We imposed closures and curfews. We made thousands of arrests. Still, hundreds of soldiers and settlers were being injured, a number of them disfigured or disabled. By the end of 1998, the Palestinian death toll was above 300. In February 1989, an Israeli officer was killed by a cement block tossed from a rooftop in Nablus. A month later, a Palestinian knifed several people in Tel Aviv, killing one of them. And in July, in the first attempt inside Israel at a suicide attack, a Palestinian passenger grabbed the wheel of a bus on its way from Tel Aviv to Jerusalem and drove it off the road, killing 16 people. By the summer of 1990, although the violence had begun to flag slightly, I was feeling more drained and exhausted than at any time since my bout of illness in the Sinai after the 1973 war. I even briefly thought of leaving the army after Dan s term ended the following year. I m not sure whether I would have done that if the situation had not begun to change. But it did, dramatically. The intifada gradually began to subside, and an entirely new crisis suddenly intervened. On August 2, against a background of longstanding financial and territorial disputes, Iraq s Sadam Hussein sent in tens of thousands of his troops and occupied the neighboring state of Kuwait. Though the immediate crisis was 229 nearly a thousand miles away from us, he tried to divert attention from US-led international condemnation of his invasion by threatening Israel. He said all issues of occupation were on the table the West Bank and Gaza, the Golan Heights, and Lebanon and vowed to let our fire eat half of Israel in a future war. And we could not assume this was mere rhetoric. Iraq had an arsenal of Soviet-made ballistic missiles. Called Scuds, they were not always accurate at long range. But they could reach Israeli towns and cities, and could carry not just conventional explosives but chemical warheads. Moreover, Saddam had used chemical weapons: during the Iran-Iraq war, and to kill thousands of his own restive Kurdish population in the town of Halabja in the spring of 1988. Even the prospect of American military action seemed not to faze him. Hours into the invasion, he moved an armored force toward Kuwait s border with Saudi Arabia, a key US regional ally, immediately prompting the President George Bush s administration to go beyond mere verbal condemnation. With Saudi agreement, Washington dispatched a squadron of F-15s to the kingdom the first step in what would become a huge American land, sea and air force to face down Saddam and force him out of Kuwait. Given the credible threat of Scud missile attacks on Israel, Dan immediately assigned me to coordinate our assessment and evaluation of what Saddam was likely to do in the event of a US-led attack, and what defense arrangements or Israeli military response would be necessary. We knew we d be under strong pressure from the Americans to stay out of any war. Israeli involvement would be a political gift to Saddam, allowing him to convert a conflict over his aggression against an Arab neighbor into a defense against Israeli occupation. But we had a primary responsibility to protect our citizens. I was now working with a new Israeli government. After Shimon Peres tried and failed to topple the unity coalition in the spring of 1990, Shamir had formed a Likud-led government shorn of both Peres and Rabin. Misha Arens was again Minister of Defense. I began preparing regular, fortnightly reports for him, Dan and Prime Minister Shamir. Within days of the invasion, I produced my initial assessment. The bottom line was that we had to assume there would be a war. It was impossible to imagine the Americans would commit hundreds of thousands of troops and simply bring them home again, unless Saddam succumbed and retreated. I was equally certain Saddam would use his Scuds against us. He d figure the benefits of trying to bring Israel into the conflict far outweighed the risk of retaliation. But I was nearly 100 per-cent sure he wouldn t use chemical warheads, since that would almost guarantee an Israeli military 230 response, or an American one, on an incomparably greater scale. It would also totally isolate Saddam internationally and end any chance of peeling off Arab support for the Americans. It was my nearly 100-per-cent caveat that prompted a tense debate within the cabinet. Even if the probability of a chemical attack was microscopic, any risk of civilians being subjected to terror, panic and very possibly agonizing death meant that the government had to take precautions. The obvious first step would be to distribute gas masks. But in a series of meetings with Misha and Dan, I emphasized this was not a decision that could be taken in isolation. By handing out gas masks, we might actually raise the probability of a chemical attack. We also had to make sure as a matter of urgency that we had a workable military option to attack Iraq s Scud launchers. By early November, I was dealing both with plans for distributing the gas masks and preparations for a possible military operation. So when I got a call asking me to report to Shamir s office in Jerusalem, I assumed he wanted to talk about Iraq. How are things? he asked. But when I began by filling him in on the plans to distribute the gas-masks, he interrupted me. I called you here, he said, because I wanted you to know that we ve decided that when Dan leaves next April, we want you to replace him as chief-of-staff. Briefly and unusually tongue-tied, I said: Thank you, Prime Minister . The news was made public the next morning. A few days later, it was ratified by the government. There was only one vote against, from a former chief of staff who was now Shamir s Agriculture Minister: Raful Eitan. I was one of rare instances in all my years in the army when I took a step back, appreciating a moment which felt special. It was not only, or even mainly, a matter of a personal ambition fulfilled. More a sense that I was being given the opportunity to apply everything I d experienced and learned in the army, from the day I first joined Sayeret Matkal as an 18-year-old, to improve the security and safeguard the future of Israel. I know that sounds corny. But, while the momentum toward war in Iraq almost immediately crowded out everything else again, that was truly how I felt. 231 By mid-December 1990, war was virtually certain. Misha and I had been to Washington in September and agreed with the Americans that, unless we were attacked by Saddam, we would stay out of it. To do otherwise was clearly not just against the US-led coalition s interests. Given the importance of our alliance with Washington, it was against our inrerests as well. Yet with hostilities obviously getting closer, Misha phoned Defense Secretary Dick Cheney a few days later to remind him of the quid pro quo: we would be kept fully in the loop about the details and timing of the initial American air strikes. At around five o clock on the afternoon on January 16, 1991, Misha got a call from Cheney. He said h-hour would be at seven that evening Washington time. Three a.m. in Israel. Though we hoped to stay out, I d now spent months coordinating and overseeing preparations to ensure we could attack Saddam s Scuds if necessary. By far most of the missiles were mounted on mobile launching vehicles, and Saddam was almost certainly going to be firing them from the vastness of Iraq s western desert. That meant an Israeli air strike alone wouldn t work. We decided on a joint air and ground operation, built around a newly created airmobile division and other special units. A force of 500 to 600 soldiers would take control of key areas and road junctions in western Iraq and start hunting and destroying, or at least impeding, the Scud launchers. We also engaged in secret diplomacy in the hopes of reducing one of the obvious risks in such an attack: a conflict with Jordan, which we d have to overfly to reach Iraq. The Mossad had a unit called Tevel, a kind of shadow foreign ministry for states with which we had no formal relations but with which, in both side s interests, we had a channel of backdoor communications. It was headed by Ephraim Halevy, a London-born Israeli who had come to Palestine in 1948 as a teenager. He had built up a personal relationship with King Hussein, and now arranged for us to meet him at a country residence which the king had in Britain. A few weeks before the war, I boarded a private jet to London along with Halevy and Prime Minister Shamir. Shamir had never met the king before and nor, of course, had I. But we didn t talk about the forthcoming meeting on the five-hour flight. Instead, Shamir opened up in a way I d never seen: about his childhood as part of a relatively well-off family in Poland; his love of literature, and of the Bible. In a way, it reminded me of how my father had spoken to me when I was growing up minus the well-off family part. 232 When we got to Hussein s country home, we were greeted by an impressively self-assured man in his late 20s who, like Hussein, had studied at Britain s military academy in Sandhurst and then gone on to Oxford. It was Abdullah, the king s son and later his successor, and he explained that he would be in charge of handling security for the talks. For a few hours in the afternoon, we held preliminary discussions, and I presented our assessment of the challenges and options facing all the different players in the crisis. Then we retired to a dinner at which despite the royal china, crystal and silverware the atmosphere was also surprisingly informal. The main meeting came the next morning. Both sides recognized the seriousness of the issues we had to discuss. Shamir began with the one we assumed would be the least difficult. Israel was on a heightened state of military alert, prompted by Iraqi reconnaissance flights over Jordan, and the likelihood the Iraqis were also hoping to get a look at our main nuclear research and development facility in the nearby Negev. It was important to ensure this didn t lead to an unintended conflict between us and the Jordanians. While the king was careful to steer clear of any detailed comment on the Iraqi moves, he made it clear that he understood our concern about stumbling into an Israeli-Jordanian conflict and agreed that we had to avoid doing so. Yet the issue of our overflights, if we needed to attack the Scuds, was more sensitive. We said that if we did have to cross into Jordanian air space, we would find whatever way the king suggested to make it as unobtrusive as possible. We raised the possibility of using a narrow air corridor. His response was not hostile, but it was firm. This was an issue of Jordanian sovereignty, he told us. He could not, and would not, collaborate in any way with an Israeli attack on another Arab state. It was Ephraim who tried to find a way around the apparent stalemate. He suggested Shamir and the king withdraw to speak alone, ad they met for nearly an hour. When Shamir emerged, clasping the king s hand and thanking him for his hospitality, he turned to us and said: OK. We re going home. He didn t tell us exactly what Hussein said. In the few sentences with which he described the talks on the flight back, he said that, as a sovereign, Hussein could not order his forces to ignore Israeli planes. But he added: I assume there will be no war with Jordan. I took that to mean there might well be an attempt to intercept our jets, with the risk that either we or they might end up with one of our planes shot down, but that the king would use his authority and experience to ensure this didn t lead to a wider confrontation. 233 The Israeli public s concern over a possible Iraqi attack was growing by the day, in part because of the precautionary measures we d taken. We had handed out gas masks to the whole country. Though I d been concerned that might raise the prospect of a chemical attack, I still thought a chemical strike was highly unlikely. The government rightly decided that not distributing the masks would betray a fundamental responsibility to the safety of our citizens. We d also issued instructions about how to equip a room, usually the shelter included in nearly every Israeli home, as a cheder atum, or sealed room to keep gas from getting in. The Israeli media was full of speculation about the likely effects of a chemical attack. Many families had begun panic buying of food and other necessities to prepare for the possibility of days and nights in their sealed shelters. In my report for Dan, Misha and Shamir a few weeks before the war, I drew on systematic analysis by a team of experts in the Israeli air force and made my most specific estimate yet of the damage conventionally armed Scuds might cause. We had gone back into historical accounts of the closest equivalent: the Nazis use of V-1 and V-2 rockets against London in the Second World War. Given Saddam s primary need to fight Americans, and the likelihood either they or we would take military action against the launchers, we concluded we d be hit by roughly 40 missiles, and that, based on Britain s wartime experience, up to 120 Israelis might lose their lives as a result. The first air-raid sirens wailed in Israel at about 2 a.m. on January 18, 1991, almost exactly 24 hours after the Americans began their bombing raids over Baghdad. I was home in Kochav Yair. Like other Israelis, we d set up a sealed shelter. Though I felt a bit silly doing it, having assured the government Saddam was vanishingly unlikely to use chemical warheads, we woke up the kids and Nava took them inside. I put on my own gas mask. But when I ran out to my car, I removed my mask and put it on the passenger s seat before heading in to the kirya. I wanted to get there quickly enough so that the bor, the underground command bunker, wouldn t have to reopened when I arrived. I took a short-cut, through the West Bank town of Qalqilya. That was, to put it mildly, stupid. Although the intifada had become steadily less intense during the build-up to the war, it wasn t completely over. Within seconds, my black sedan was being 234 pelted with stones by a half-dozen Palestinian youths. I thought to myself: this is nuts. One of Saddam s Scuds might well be about to hit Israel, and I ve got myself stuck in the middle of a West Bank town. To the obvious shock of the Palestinians, I floored the accelerator and raced toward Tel Aviv. It still took half-an-hour. Misha and Dan, who lived closer to the kirya, were already in the bunker. Ten Scuds hit near Tel Aviv and Haifa that night. It was not until shortly before dawn that our tracker units got back to us with formal confirmation that there had been no chemical warheads. The rockets caused a half-dozen injuries, though thankfully none was serious. Still, the very fact Saddam had proven he could hit Israel with ballistic missiles provoked widespread alarm. Well into the next morning, the streets were almost empty. Misha phoned Cheney and strongly implied we were going to have to attack the Scud sites. I know that was Misha s own view, and it only hardened after another four missiles hit the Tel Aviv area the next morning. Again, no one was killed, but several dozen people were injured from debris, shards of glass and blast concussion. I visited several of the areas that had been hit and was shocked by the scale of the damage. One four-story apartment building had been virtually destroyed, and there was blast damage to other buildings hundreds of yards away. The Americans were clearly determined, in both word and deed, to persuade us not to take military action. They rushed an anti-missile system called Patriot to Israel. Cheney was also giving us frequent updates on American air strikes against suspected Scud launch sites. And the Israeli public did seem to grasp the serious implications for the US-led coalition of our taking unilateral military action. Opinion polls suggested most Israelis were giving Shamir credit for the way he was handling the crisis. Still, it wasn t easy for Shamir to hold the line. This was the first time since 1948 that enemy munitions had landed on Israeli homes, provoking not just fear, but a feeling of helplessness. That inevitably led to calls for the army and the government to do something. I saw his dilemma first-hand at an emergency cabinet meeting after the first two Scud attacks. For Arik and Raful, the political effects on the US coalition were irrelevant. The issue, for them, was simple: Israeli cities had been attacked, and we should respond with any and all force necessary. Our air force commander, Avihu Ben-Nun, favored going ahead with the joint and-and-ground attack we d prepared, and Misha agreed with him. So did Dan Shomron. The key voices of caution were Foreign Minister David Levy; Ariye Deri, the leader of the Sephardi Orthodox party Shas; and two 235 young Likud politicians, Dan Meridor and Ehud Olmert, with whom I had become friendly. They, like me, were concerned about undermining the Americans military and diplomatic coalition. Shamir mostly listened, until very near the end. He then asked Dan Meridor, Misha and me to join him in a separate room. He asked each of us for our views. Misha, even more strongly then in front of the full cabinet, argued that we could not allow night after night of missile attacks without responding. Meridor reiterated his opposition, stressing the damage we d risk doing to the Americans war effort by possibly weakening Arab support for their attack on Saddam. When Shamir turned to me, I said that if the government did decide on military action, we were ready. From a purely military and security point-ofview, I said, an attack made absolute sense. Even if we didn t succeed in destroying, or even finding, the mobile launch sites, putting a military force on the ground would almost surely lead to a dramatic reduction in the number of Scud launches. But, echoing Meridor, I added that a military response would carry a price in our relationship with the Americans. My view was that, at least for now, we should hold off. When we rejoined the meeting, Shamir rapped his hand on the table. In the startled silence that followed, he said he shared many ministers urge to hit back against the Scuds. But he said: At this stage, we re not going to do anything. We bite our lips and wait. Three nights later, his resolve was stretched almost to breaking point. Missiles landed in the Tel Aviv suburb of Ramat Gan, and nearly 40 homes were damaged. A three-story house was flattened. In all, nearly 100 people were injured, and three elderly residents died of heart attacks. On the night of January 25, another seven Scuds hit. Nearly 150 apartments were badly damaged, and a 51-year-old man was killed. The pressure on Shamir was all the greater because the Ramat Gan attack had come within range of one of the Americans Patriot batteries. The Patriots had been originally designed not as anti-missile weapons, but to attack aircraft, and they seemed to have been ineffective. Nor were American air strikes in Iraq stopping the Scuds. Though American jets had taken out a few fixed launch sites, they were having no luck with finding and destroying mobile launch vehicles. Even Shamir now felt that unless the Americans got the mobile launchers, we would have to attack military action. I was sent to Washington along with Misha and David Ivri, a former air force commander, to deliver that message to the Bush administration. From the first days after Saddam s attack on Kuwait, 236 I d been impressed by President Bush s political acumen in assembling an international coalition including the key Arab states. Through Unit 8200 in military intelligence, we would only very occasionally get verbatim transcripts of his conversations as he brought first the Saudis and other Gulf states on board, then Morocco, and eventually even Syria. More often, I d see the President s deft diplomacy second-hand, through intercepts of Arab leaders communications with one another. But the picture which emerged was of an American president deftly able to stake out common ground, and common interests, with each of the Americans growing number of anti-Saddam allies. When we entered the Oval Office on the evening of February 11, Bush was flanked by Secretary of State Baker, Defense Secretary Cheney and national security adviser Brent Scowcroft. Also there was Colin Powell, a general whom I had got to know well, and to like, over the past few years and who was now head of the joint chiefs-of-staff. Given the seriousness of our mission, the start of the meeting was almost surreal. The Americans had obviously been told that I was born on February 12. Since it was just past midnight in Israel, they began by wishing me a happy 49 th birthday. Yet pleasing thought that was, it became clear there was a disconnect between the tension among Israeli government ministers, and ordinary Israelis, back home and the relaxed, self-assured, at times even jovial mood of the President and his inner circle. Their primary focus was clearly not on Israel, but on the overwhelming success of their air attacks on Iraq and the approach of a ground offensive that they were confident would finish the job. That didn t seem to change even after a truly extraordinary interruption to our meeting, when one of Misha s aides passed on the news that a Scud had struck the Tel Aviv suburb of Savyon, where Misha himself lived. He immediately excused himself and went to phone his wife, Muriel, to confirm she was fine. When he returned, despite their pro forma words of empathy, it seemed almost as if the Americans thought we had cooked up the entire thing for political effect. Bush did say the right things as the discussion turned to the missile attacks on Israel. He told us he understood our frustration, and the pain the Scud launches were inflicting. He appreciated our restraint. I have no doubt that all of that was true. But the message we d been sent to deliver clearly wasn t hitting home. As politely but as clearly as I could, I told President Bush that while we didn t want to do anything to undermine the coalition, unless someone else took care of the Scuds, we would have no choice but to act. 237 The President responded by suggesting we go to the Pentagon and talk in greater detail about how, for both our countries benefit, that could be avoided. When we convened in Secretary Cheney s office, I delivered the same message, but more forcefully. I felt it was essential not only to make it clear we serious about taking action, but that we had the military capability to do so. So I told Secretary Cheney and Colin what we were planning. I said we intended to launch a combined air and ground assault by an air-mobile force and our best paratroop units. At that point, Colin, who was clearly worried, suggested the two of us withdraw to speak soldier to soldier. We retreated to his office. Spreading out a map of western Iraq, I went into greater detail, explaining how we would remain in the Iraqi desert on a search-and-destroy mission against the mobile launchers. Colin stressed the efforts the Americans were making from the air, and the commitment they d shown to Israel. Not only had they delivered the Patriots. They had allocated their best fighter jets, F-15E s, to the task of taking out the Scuds. It helped that he and I had got to know and respect each other, so it wasn t an all-out argument. But I reiterated that if the Scud attacks kept up, we would have to act. We will act, I said. For a few seconds, he said nothing. But as we headed back to join the others, he told me that only a few hours ago, he had briefed American commanders on an anti-Scud operation by allied forces like the one we were planning. It will happen, he assured me. Within 48 hours. That task fell to Britain s SAS. The operation was almost exactly the same as the one we d planned. A force of nearly 700 commandos was helicoptered in to Iraq s western desert, equipped with Jeeps and Land Rovers, and anti-tank missiles and laser targeting capability. They were also able to call on attack helicopters and F-15 jets if necessary. The operation did not prove easy, quick, or entirely successful. The British troops blocked the main roads and patrolled them. But they did not find or destroy a single mobile launcher. They ended up in gun battles with Iraqi troops. The SAS lost something like two dozen men. Five were part of a group that got separated from the others and ended up freezing to death in the February cold. All of the men risked their lives, with incredible determination and bravery, in an operation to secure the safety of Israel s civilian population. And I have no doubt that the outcome, like the plan, would have been almost identical if we had done it ourselves. And it did have an effect. As I d told Prime Minister Shamir when briefing him on our attack plan, the very fact of a military presence on the ground made a dramatic difference. The number, accuracy and impact of the Scuds dropped off steeply. A few missiles kept coming, however. Since we did not yet have a 238 fully detailed picture of the progress of the SAS action, skeptics and hawks in the cabinet were inclined to see a glass half-empty. They continued to press for Israeli military action. In a rare public statement, I tried to reassure the country we did have a military option, but also to urge restraint. I pointed out that the number of Scuds had begun decreasing. Though the threat had not been eliminated altogether, we had very good operational plans that would be carried out when and if the Israeli government instructs us to implement them. Yet I added a caveat. On the political level, fingers are itching to carry out operations which, in our opinion, can remove the threat. But in the complex situation created by this war, neither anger, hurt, nor itchy fingers can replace rational thinking. The American ground invasion did turn out to be swift and decisive. In Israel, Scud attacks continued for a few more days. But the last two missiles fell in the Negev before dawn on February 25, among the very few to cause neither casualties nor damage. We turned out to have been right in our pre-war assessment about the number of missiles: around 40. Fortunately, the casualties were far fewer than we d anticipated. Not 120 dead, but fifteen, only one of whom died directly because of a missile blast. The other deaths were the result of understandable panic: the misuse of gas masks or the gas antidote drug atropine, or from respiratory and cardiac failure. The physical damage, however, was far greater than I d anticipated. Buildings were destroyed. Cars were crushed. Glass and debris flew everywhere. In financial terms, the cost ran to hundreds of millions of dollars. The true impact was greater: on families who saw the destruction not only their homes, but a lifetime of prized possessions. For Holocaust survivors in particular, there was the almost unimaginable terror of having to huddle in sealed rooms for fear of gas. And all Israelis had experienced a new sense of vulnerability to a faraway enemy whom they couldn t see nor, apparently, stop. I was due to become Israel s 14 th chief-of-staff at the start of April, barely a month after the last Scud attack. As the handover drew nearer, I felt fortunate, in a way, to have missed out on the job four years earlier. Not only had Dan excelled as ramatkal. I d benefited from his range of experience, his judgment, and his trust as well. We had worked together truly as a team. 239 I was grateful not only to Shamir for naming me chief-of-staff, but to Rabin and Misha. Both had honored the assurance Yitzhak had given me that I d be Dan s successor. I also discovered Misha had played an even greater role than I d assumed. I knew there would be other candidates for the job. The strongest turned out to be Yossi Peled, who was the head of the northern command and possessed the undoubted credentials to be an excellent chief-of-staff. What I hadn t been aware of was the sentiment among some in the Likud that I was the wrong choice politically. Not only had been born on a Labor kibbutz. There was the small matter of the article in Hadashot several years earlier, imagining me as a Labor leader going head-to-head in a future election against Bibi Netanyahu for the Likud. Yossi was assumed to be more of a Likudnik, and a few weeks before Dan left office, I learned how Misha had rebutted the suggestion I was politically unfit to lead the armed forces. He was visiting the north and was taken aside by a group of Likud activists who asked how he could possibly be thinking of supporting Barak a Labor guy for chief-of-staff. At first, Misha didn t reply. But one woman kept pressing him. Do you have children in the army? he asked. Yes. I have a son in the Golani Brigade, she replied proudly. So let s assume your son is going on a raid across the border. Would you want his company to be led by the best commander in the battalion? Or by a commander who s Likud? The best commander, of course, she said. To which Misha said: Well we do, too. 240 Chapter Fifteen On the morning of April 1, 1991. I got up even earlier than usual, to visit the graves of the men who had lost their lives in my battalion in the Yom Kippur War. I also went to pay my respects to Uzi Yairi, killed when he d rushed from his desk in the kirya to join the Sayeret Matkal attack at the Savoy Hotel. Then Nava and I drove to Jerusalem. At Israel s national military cemetery on Mount Herzl, we stood before the resting place of Nechemia Cohen, Yoni Netanyahu, Dado, and Avraham Arnan. From there, we went to the Prime Minister s office. With Dan Shomron and his wife looking on, Shamir presented me with my third star and formally made me chief of staff. For years, I d developed the habit of carrying around a notebook in which I d jot down thoughts on things I thought that the Israeli military, and I as an officer, could have done better: errors, oversights, and how we might fix them. In the weeks before becoming ramatkal, I d filled dozens of pages on issues large and small I hoped to address as the commander of the armed forces. A lot of them dealt with what I sensed was an erosion of cohesiveness in the army, and, since ours was a citizen military, a fraying of the relationship between the army and Israeli society. To some degree, this was inevitable in a country now nearly 45 years old: developed economically and free of the kind of existential threat we d faced in the early years of the state. But the political divisions over the war in Lebanon, and morale-sapping need to quell the violence on the West Bank and in Gaza had further strained our unity of purpose. Militarily, we were now indisputably strong enough to defeat any of the Arab armies, even if they launched a joint attack as in 1973. Our most important overseas ally, the United States, was committed to helping us retain that position what both we and they called Israel s qualitative edge in the interest of our security and their own. But we were facing a series of new, unconventional challenges. One of them, which had come on to Dan Shomron s and my radar over the past year, was Iran. Though geographically distant, it was potentially the most serious in the longer run, as Dan himself warned Israelis in his final interview as chief of staff. Iran was likely to become even more assertive regionally now that the Gulf War had weakened its neighbor and rival, Iraq. We also knew, from our intelligence sources, that the Iranians were making preliminary efforts to develop a nuclear weapon. 241 Yet the most immediate security concerns were right next door. In Lebanon, Hizbollah fighters were being armed and financed by the Iranians and by Syria as well. They were mounting increasingly effective operations against the Israeli troops we d left in the security zone. Even closer to home, Palestinian attacks on both troops and civilians, though on nowhere near the scale of the first months of the intifada, showed no sign of ending. I had my own views on both. In Lebanon, I still believed we should pull out all our troops and focus our security arrangements on what really mattered: protecting the citizens of northern Israel. As for the lessons to be learned from the intifada, my view that we needed a political dialogue had inadvertently become public, from remarks I made in Moshe Dayan s honor at a memorial event a few months before becoming chief of staff. We are currently in a struggle with the Palestinians a long, bitter and continuing struggle, I said. A people cannot choose its neighbors. But we will have to talk to the Palestinians about matters, especially about issues that are vital to them. Still, I was the commander of the armed forces, not a politician. Though all chiefs of staff had political influence, if only as part of the decision-making process on all major security questions, making policy was for our elected government. My main focus was on how to improve the military s fitness to respond. I d lived through, and more recently fought in, all of Israel s wars. I felt that we had yet to apply some of the critical lessons from those conflicts. Leading tanks into battle against the Egyptians deadly Sagger missiles in 1973, and a decade later watching whole Israeli armored columns stalled and attacked by small bands of PLO fighters or Syrian commandos in Lebanon, had hardened my conviction that Israel needed a leaner, more mobile army, with more specialised strike units, as well as more easily targeted, less vulnerable weapons systems. I wanted to shift the emphasis to weaponry that relied on Israel s strengths in new technology, invention and engineering. In a sense, this was the macroscopic equivalent of one of the guiding principles of Sayeret Matkal: brains, not just brawn. While cost-saving wasn t the catalyst, I did realize that a change in strategy would mean a change in how we allocated our resources. When Israel bought its first Mirage jets from France in the 1960s, they cost about a million dollars apiece. The price tag of an F-16 was now closer to fifty million dollars. The cost of a tank had increased tenfold. I wasn t going to deprive the air force of stateof-the-art aircraft, key to our ability to fight and win a war. But while we still needed a strong armored corps, it was important to realize that units like the 242 new air mobile division we d planned to use against Saddam s Scud launchers were likely to be a lot more important than tank formations in future conflicts. Six days into the job, I called together every officer in the army, from the rank of lieutenant-colonel up. I said we needed to remind ourselves of the army s purpose: to protect Israel s security and, if a war came, to win it. My budgetary rule of thumb over the next four years would be simple: anything that didn t directly contribute to that mission was expendable. In fact, I put it a bit more bluntly: We need to cut anything that doesn t shoot. My first attempt failed utterly. I proposed to close, or sell off, the army s radio station, Galei Tzahal. Running it cost serious money. If we were going to cut everything that didn t shoot, it was an obvious candidate. But what I failed to take into account was its popularity with the listening public. Although other radio stations had opened recently, for many years it had been the only major alternative to the state-funded Kol Yisrael. It also provided a training ground and employment feeder for future journalists. Galei Tzahal s alumni included some of the country s top media figures, and more than a few members of the Knesset. Within weeks, a lobbying effort was underway to save the station. I went to see Misha. He agreed that, from a military and budgetary standpoint, closing it was the right thing to do. But in an early lesson in how different politics were from the army, he told me that politically, it simply wasn t going to fly. Drop it, Ehud, he said. So I did. Still, I did end up fundamentally retooling the armed forces during my time as chief of staff. We developed agile new strike forces and high-precision, hightech weapons systems with stand-off munitions designed to be fired from many miles away. In the 1973 war, and for the decade or two that followed, Saggers, and the US-made TOW missiles that Israel acquired after the war, had the capability to transform a battlefield. Now, Israeli developers came up with small, ground-launched missiles that could take out a tank from five to 10 miles away, even without a direct line of sight to the target. Of even more long-term military significance, I pushed ahead with developing pilotless drones socalled UAVs making us the first army in the world to produce and deploy them. Yet for a security challenge like the intifada, even the most advanced standoff munitions or UAVs offered no practical answer. The latest stage in the violence involved knife attacks by Palestinians against Israeli civilians, both on West Bank settlers and inside Israel. Days after I took over, a 26-year-old from Gaza, wielding a butcher s knife and shouting Alahu Akhbar, killed four people, 243 including a kindergarten teacher, in Jerusalem. On the morning of May 24, 1992, a 15-year-old Israeli schoolgirl named Helena Rapp was on her way to catch the bus to school south of Tel Aviv, when another Gazan stabbed her to death. To the extent Israelis were looking for someone to blame, there were obvious candidates. The army, the primary defense against the intifada, was one. The police even more so, since many of the attacks were now taking place inside Israel. And in ugly rioting after Helena Rapp s murder, bands of Israelis took to the streets, some of them yelling: Death to the Arabs . Still, most people understood that criticizing the army or the police, or going on a rampage against the Arabs hundreds of thousands of whom were Israeli citizens and had lived among us since the birth of the state would not help. Most, in fact, placed the blame, and lodged their hopes, with the government. By the time of the next election, in June 1992, the combination of Palestinian violence and the still-traumatic memories of Saddam s Scuds, left Israelis doubtful that Shamir could fulfil the most basic responsibility of government: ensuring their day-to-day security. Labor had once again placed its electoral fortunes in the hands of Yitzhak Rabin, following Peres s several failed attempts to lead the party back into power. Knowing that Rabin had a record of military command unmatched in Israeli politics, Labor strategists did not so much need to convince voters as to reinforce their fears and frustrations. One of the campaign slogans, a direct appeal to the anger over the stabbing of Helena Rapp, was Get Gaza out of Tel Aviv! Labor ended up gaining five Knesset seats, and now had 44. The Likud lost eight and was left with only 32. That meant that my last three years as chief of staff would be with Rabin back as Prime Minister and, like Ben-Gurion before him, as Defense Minister as well. He and I had been in touch only occasionally since his departure from the unity-coalition government two years earlier. But I had, of course, spoken with him after my appointment as ramatkal, in which he d played an important part. Though he was 20 years older than me, our relationship had become steadily closer over the years, especially when I d worked with him as Defense Minister. In some ways, we were alike. We d both been forged by Labor Zionism. We were career military officers, uncomfortable with flights of political rhetoric and convinced that Israel s security and its future depended less on words than on action. In large groups especially, both of us tended to be men of a few words. Over the next few years, we would become even closer, speaking not only in the kirya or at Yitzhak s office in Jerusalem, but also, with Nava and Leah, around the dinner table at Rabin s apartment in Tel Aviv. 244 But there were times of crisis, and high tension, as well. Only five months after the election, Rabin and I faced one of the most painful periods during my entire time as chief of staff. It began with the gruesome death of five Sayeret Matkal soldiers during a training exercise in the Negev desert. I d made preventing such accidents a top priority. By the end of the 1980s, they were claiming as many as 80 lives a year. During Dan s tenure, we d brought the number down to about 35. But I knew we had to do more. When I d addressed the officers after becoming chief of staff, I told them: Parents are giving us their children in order to allow us to protect the country. They know there is risk involved. But they expect their children not to be brought home in coffins because of our own negligence, or stupidity. What happened at the military base of Tze elim in the Negev on November 5, 1992 was not only a reminder of how far we still had to go, however. It occurred during a dry run for an operation unlike any that Israel had ever considered. For that and other reasons, it would erupt into a major political controversy. Though the reason for the exercise was meant to have remained a closely guarded secret, foreign newspaper reports in the weeks after the training accident made secrecy impossible. We were planning to infiltrate a Sayeret Matkal unit into Iraq, and to kill Saddam Hussein. The Gulf War had blunted any immediate threat from Iraq. But Saddam had proven he could launch missiles into the heart of Israel. We knew from our intelligence reports that, in addition to his unabated desire to acquire nuclear arms, he retained facilities to produce chemical weapons. He was trying to acquire and develop new biological weapons. In fact, the Iraqis had actually acknowledged a biological weapons program to UN inspectors, claiming it was for defensive purposes. The idea for an attack on Saddam had first been raised a year earlier, when my former Sayeret Matkal comrade, Amiram Levin, asked to see me. He was between military postings, but had come up with the outline of a plan he felt would allow us to isolate Saddam during a public appearance and kill him. With my approval, he and a small group of officers in the sayeret began working further on the idea, with the initial aim of seeing whether it was really workable. Since Misha was still Defense Minister, I briefed him on what we were doing. I 245 also briefed Rabin after the election. At that stage, there was no discussion of whether we actually would, or should, target Saddam. I asked Misha, and then Yitzhak, only whether such an operation might seriously be considered by the government. If not, I said, we d drop it. Both replied that we should go ahead with the planning and preparation. The November 1992 exercise was intended as a final test of its viability before deciding whether actually to do it. A few weeks earlier, Rabin and I had talked through the arguments for and against. The arguments against it were obvious. Yes, in the past we had abducted, or even killed, leaders of groups involved in terror attacks. But we d never contemplated targeting a head of state. Crossing that line risked being seen not just as attacking a dictator with a record of ruthlessness and murder at home, and aggression towards Israel, but long-accepted norms of international relations. The arguments in favour began with the fact that Saddam was a meglomaniacally ambitious dictator. He had also fired missiles on our towns and cities. He retained the capability to arm them with chemical warheads, possibly biological agents, and conceivably a nuclear warhead in the future. Both Rabin and I agreed there were two key tests of whether an attack would be justified: was it was the only realistic way of confronting the threat from Iraq, and would killing him end, or at least exponentially reduce, that threat. Though there was no final decision at our meeting, Rabin was clearly inclined to go ahead. An Israeli TV program two decades later unearthed a summary of the discussion, written by his military aide. The Prime Minister approves the target... This is an operation we should go for when the probability of success is very high, it said. Thus, we have to build the operational capability in the best possible way, and continue preparations. In another part of the record, Rabin is quoted as having defined the elimination of Saddam as a meaningful objective with implications for the very security of Israel. He added: I do not see anyone similar to him in the Arab world. I, too, was on balance persuaded we should do it. In the years since, I ve sometime reflected on what happened with Saddam still in place: the 2003 invasion of Iraq, led by the younger President Bush, the tens of thousands of lives lost, the trillions of dollars spent on a war without any clear end, and the near-disintegration of Iraq. But with the complexities of Iraq then and now, there can be no simple answer to how the situation would have changed if we d killed Saddam. Our view, based on detailed intelligence analyses, was that the likely result would have been a fairly rapid takeover by a few top security and Baath Party figures and that, while the new Iraqi leadership might try to retaliate 246 with terror attacks, a major military response was highly unlikely. Saddam s successors were never going to be Zionists. But we were persuaded that his uniquely central role meant the threat to Israel would be dramatically reduced. I m much less sure whether the elder President Bush, whose election defeat to Bill Clinton came just two days before our final exercise in the Negev, would have agreed with the attack. After the victory in the Gulf War, Bush had deliberately stopped short of sending American forces on to Baghdad. He was also vice-president, under Reagan, when Israel had bombed Saddam s nuclear reactor an attack publicly condemned by Washington. I did ask him some years ago whether the Gulf War might have been handled differently if Israel hadn t taken out Saddam s nuclear program a decade earlier. What if he d had a couple of crude nuclear devices, I said. President Bush smiled in response. He said he didn t deal with hypotheticals. Yet any idea of an Israeli attack on Saddam became instantly irrelevant once foreign media reports had disclosed the reason for our ill-fated military exercise in the Negev. Inside Israel, the focus, and the controversy, shifted to the accident itself. The foreign media reports of the operation we were planning proved remarkably accurate. Some of the details still remain classified, but we were going to use one of our new stand-off weapons systems: a camera-guided missile that could be fired from a considerable distance away and, in coordination with one of the Sayeret Matkal soldiers nearer in, maneuvered in for the strike. After months of planning and intelligence work, we were confident that we d found a way to get the sayeret unit into Iraq, target Saddam at an event we knew he would be attending, isolate and kill him with minimal danger of any other casualties, and get our unit out safely again. The Negev exercise was a run-through of the entire operation. It lasted nearly 48 hours. And it culminated in a simulation of the missile attack on Saddam. I was there as an observer along with Amnon Lipkin, my deputy chief-ofstaff; as well as the head of military intelligence, the head of operations and Amiram Levin. We assembled at dawn for the simulation of the missile attack. We watched from a few hundred yards away as a group of young Israeli soldiers walked into a wide area in front of us: posing as Saddam and his entourage. We and they knew that this was just the first part of the exercise. In a Land Rover more than five miles away, a member of the sayeret strike unit would be confirming coordinates and, in rapid succession, firing two of the precision missiles. But this was just to confirm that the targeting system had worked 247 perfectly. No missiles would actually be shot. This stage was for the telemetry. Once that was done, the soldier-actors would be replaced with wooden targets and the real munitions would be tested. The young soldiers stated chatting to one another, and milling about, simulating as best we could the circumstances in which we expected to target Saddam if the operation got final approval. In theory, within a minute, two minutes at most, we would get word that the preliminary mock-firing sequence had gone perfectly at which point the artillery-range targets would be brought in for the live test. But suddenly, there was an explosion. A split second of silence. Then pandemonium. There was no need to know, and no time to wonder, what exactly had gone wrong, or how it had been allowed to happen. It was obvious to all of us that the live missiles had been fired. We sprinted forward. When we got to the group of soldiers, we could see that four of the young men were dead. Another was fighting for his life. Several others were also wounded. A sayeret medic and several senior officers were trying to save the most badly injured man, but I knew I needed to get military doctors and medical evacuation helicopters in immediately if we were to save the lives of the injured soldiers. I had a mobile phone, but couldn t get a signal. I ran toward a slightly higher area a few dozen yards away and managed to get through to the kirya. I issued orders for the nearby training base in Tze elim and an air force near Beersheva to dispatch helicopters to treat and evacuate the wounded. We heard the first chopper about 25 minutes later, but it seemed initially unable to see us, because it flew on before returning and landing two minutes later. By that time, a medical team from the base in Tze elim had arrived. Ten minutes later, two other medevac choppers landed. But the soldier who had been worst wounded could not be saved. After the doctors had been there about 20 minutes, I again retreated to the area where I could get a mobile signal, and phoned Rabin to tell him what had happened. We agreed I should come back to brief him in detail. It was now about 50 minutes since the missiles had hit. The wounded were all being treated. One of the helicopters had taken off for Beersheva Hospital. Another two, including a heavier Sikorsky transport helicopter, were preparing to leave. I arranged for Amnon, military intelligence chief Shmuel Arad and me to return to the kirya. I told Amiram to stay until he had confirmed all the injured had been evacuated, and talk to everyone involved to get a preliminary idea of why and how the tragedy had happened. 248 When I got back, we immediately met with Rabin and agreed on the need to launch a formal investigation. Rabin then asked me to brief the editors club , a group of about 15 media figures that operated on a gentleman s agreement that there would be no publicity or leaks. He believed we should not make public the fact that I and other generals were there when the accident occurred. At this stage, we still hoped to hide the purpose of the exercise if possible, something Rabin knew would be harder if it was known the top military leadership had observed the exercise. When I briefed the editors club, I did tell them in confidence that I d been there. Though not specifying the reason for the exercise, I told them it was for a major operation. The time-honored understanding was that this information would go no further. But it did, presumably at first because of leaks by Israeli journalists, then in a series of detailed reports in the foreign press. Even more frustrating on a personal level, some of the Israeli reports insinuated that far from giving the editors the full story of who had been at the Negev exercise, that I d tried to hide my presence in order to protect my reputation or shirk responsibility. Two official inquiries followed: the one we d agreed with Rabin and a standard army legal investigation. They found the cause of the tragedy to be a mix of fatigue after some of the soldiers had spent nearly 48 hours awake, pressure, confusion and negligence. Astonishingly, it turned out the codeword for the mock-firing of the missiles in the first stage of the exercise was the same as for the live missiles. Formal charges were brought against two Sayeret Matkal officers, and reprimands issued to Amiram Levin and Uri Saguy. I was also subject to criticism because, due to the unique complexity of the plan, I d put Amiram and senior officers within Sayeret Matkal in charge of different aspects of the preparations. This was viewed as possibly reducing the clarity over who was ultimately responsible for each aspect of the planning. Neither I, nor of course Rabin, had played a direct role in what went wrong in the exercise itself. To the extent I d been involved, it was to make sure the medical teams were helicoptered in, and that the injured soldiers were cared for and evacuated as soon as possible. But politically, the tragedy at Tze elim would dramatically resurface for both me and Rabin several years later after I d left the military and was on the verge of joining his government. I was getting to know Yitzhak much better. The Defense Minister s office in the kirya was just down the hall from mine. Almost without fail on Friday afternoons, he d ask me in to chat before going home. We would sit around a low table in the corner of the room, each of us sipping coffee, or sometimes beer, and Rabin invariably puffing on a cigarette. He never raised questions of 249 party politics. But we talked at length about Israel s immediate security concerns, as well as the country s longer-term challenges in finding its place in more stable, peaceful Middle East. How, over time, we might manage to extricate ourselves from the escalating violence with Hizbollah; reach a landfor-peace deal with the enigmatic President Hafez al-Assad in Syria; and find some form of coexistence with the Palestinians. He also spoke about international politics. I remember one afternoon in the summer of 1992 when he mentioned the then US presidential candidate Bill Clinton. He d met Clinton for the first time in Washington, after two days of talks with President Bush at his summer home in Maine. Rabin was naturally more comfortable dealing with Republicans. Almost all his experience in public life as a military officer, ambassador to Washington, Defense Minister and Prime Minister had coincided with Republican administrations. The irony was that he would go on to forge a much closer relationship with President Clinton than between any previous Israeli and US leader. But his first impression was more skeptical. Clearly, Clinton is very intelligent, he said. He is surprisingly sharp politically for someone his age. But also, I fear, a little bit too slick. We did not have long to focus on the lessons and implications of Tze elim. For weeks before the training accident, a crisis had been building in south Lebanon, with a sharp escalation of the now-familiar mix of clashes inside our security zone and cross-border rocket attacks. Hizbollah was now armed not just with Katyushas but Saggers, American-made TOW anti-tank missiles and an increasingly sophisticated array of roadside bombs. A combination of Hizbollah attacks and friendly fire incidents or firearms accidents involving our troops meant that Israelis were still dying in Lebanon a decade after the formal end of the war. It was demoralizing for the Israeli public, for the soldiers who we rotated into the security zone and for the government as well. The difficulty was that it was also a situation that perfectly suited Hizbollah. In late October, a Katyusha rocket had claimed the life of a 14-year-old boy in the northern Israeli town of Kiryat Shmona. Hizbollah escalated its rocket fire in the days that followed, forcing tens of thousands of residents into their shelters. Predictably, there was pressure from Likud politicians to hit back hard. 250 Raful Eitan, who had founded a small right-wing party called Tsomet, went further. He called the attacks an act of war and said we should respond in kind. We did move troops and tanks to the border. But my view, which Rabin shared, was that a major ground operation would risk miring ourselves more deeply without fundamentally improving the situation. Hizbollah was the kind of nonconventional enemy I had in mind when I d taken stock of Israel s changing security imperatives on becoming chief of staff. It was a small force, entrenched and well armed, increasingly supported by Iran and Syria. Its tactics rested on quick-hit attacks on our soldiers in south Lebanon. Far from fearing military retaliation, Hizbollah knew that short of a 1982-scale war and maybe even then it would survive. It also didn t care whether Lebanese civilians died in the crossfire. In fact, like the PLO fighters who had controlled the area before 1982, Hizbollah deliberately fired into Israel from civilian areas. Neither Rabin nor I had abandoned the idea of a large-scale military operation at some point, particularly if the cross-border rocket fire didn t subside, which for a while it did. But we were determined that, if and when we did decide to strike, we would avoid anything on the scale of the 1982 war. It would have to be with a clear, finite and achievable goal. That point finally arrived in the summer of 1993. In addition to renewed Katyusha strikes, there was a series of deadly Hizbollah attacks in the first two weeks of July inside the security zone. Each used what was becoming the tactic of choice: a remotely detonated bomb by the side of the road on which our military vehicles were travelling, followed by an ambush of soldiers who survived the blast. Six Israelis had been killed in all, making it the largest monthly toll in three years. When I went to see Rabin with our plan for a military response, I recognized the risks. It would be the largest military operation in Lebanon since the war. But I believed we could limit civilian casualties, and that it was the only approach that might lead to a significant reduction in the missile attacks on northern Israel. I began with the assumption that, left to its own devices, Hizbollah would have no incentive to stop firing. Since the two Arab governments with the potential to rein in the attacks Lebanon s and above all Syria s were showing no interest in doing so, we had to find a way to hold them to account. The operation I proposed was intended to send a message to Beirut and Damascus. It would not be a ground invasion as in 1982. Most of the attacks would be from the air, in two stages. The first would target Hizbollah, both in southern Lebanon and in the Bekaa Valley further north, near the border with 251 Syria. We could halt at that stage, in the unlikely event Hizbollah showed signs of de-escalation. But if it didn t, the air strikes would intensify. The aim was not target the nearly 250,000 Lebanese civilians who lived in the immediate border area. It was to use our attacks, along with leaflet drops and radio messages, to encourage them to flee north. My assessment was that this would bring pressure on the Lebanese government and, through the Lebanese, on the real power in Lebanon, the Syrians. I doubted Damascus would respond directly by telling Hizbollah to cease fire. I did believe they d be ready to engage with American efforts to stop the fighting, and that Rabin and the government could then secure terms we were prepared to accept. On July 25, we began our heaviest air strikes since 1982. Far from producing a sign of a climb-down by Hizbollah, it responded with intensified rocket fire. We escalated over the following 24 hours, but still with no indication of any change from Hizbollah. So as planned, we expanded our bombing to wider areas of south Lebanon. Sadly, some Lebanese civilians were killed, which I m sure was a much greater cause of concern to us than to Hizbollah. Thankfully, however, the majority fled north. In south Lebanon, this meant that our jets and artillery had much greater freedom of operation against Hizbollah, which had now lost its human shields. In Beirut, a government suddenly overwhelmed with the need to provide shelter for the large number of refugees from the fighting did press Syrian President Assad to help bring it to an end. Critically, the new Clinton Administration, especially Secretary of State Warren Christopher, reinforced that message. Our military operation lasted just a week. It did not end Hizbollah attacks on Israeli troops in the security zone, something I think even most Israelis were coming to realize was impossible as long as our soldiers remained in Lebanon. But the rocket attacks on northern Israel did stop, with very few exceptions, for a period that lasted nearly two years. The intifada, however, had not stopped. Nor, as I knew from my increasingly frequent meetings with Rabin, had the search for a way both to control the violence, and seek out any realistic prospect of a political path to resolving our conflict with our Arab neighbors. 252 Chapter Sixteen Rabin had inherited a peace process, put in motion by the Bush Administration after the Gulf War. But since both Prime Minister Shamir and our Arab enemies had reasons of procedure, politics or principle to resist the talks, merely getting them off the ground had required the same combination of deftness and determination President Bush had brought to assembling his wartime coalition and defeating Saddam. After a formal opening session in Madrid, the bilateral tracks between Israel and negotiators from Syria, Lebanon, Jordan and the Palestinians had quickly stalemated and stalled. Yitzhak came to office saying he was not interested in a peace process, which seemed to him a license for endless talk with no set endpoint, but in peacemaking. Since I had the good fortune to be part of the informal inner circle with which he discussed the potential opportunities, pitfalls and frustrations along the way, I know that he wasn t assuming we could necessarily achieve a peace agreement with any of our neighbors. But after the twin shocks of the Lebanon War and the Scud missiles, he was concerned that Israel would retreat into a mix of political caution and military deterrence which he rightly believed was short-sighted. He believed we needed at least to try to seize a window of opportunity with those enemies who were at least open to compromise, if only because we were facing new threats from enemies for whom talk was not even an option. An increasingly assertive Iran, with nuclear ambitions, was one. But the intifada had also thrown up new Palestinian groups grounded not in nationalism, but fundamentalist Islam: Hamas in Gaza, which opposed Israel s presence on any part of Muslim Palestine, and Islamic Jihad on the West Bank. And in Lebanon, we were confronting the Iranian-backed Shi ite militia fighters of Hizbollah. Each of us in the small group on whom Rabin relied for input on the peace talks brought something different to the mix. In addition to me, there were four other generals: Uri Saguy, the head of military intelligence; Gadi Zohar, in charge of civil administration for the West Bank and Gaza; my own former sayeret deputy, Danny Yatom, who was head of the central command; and Rabin s military aide, Kuti Mor. Also included were longtime political and media aide Eitan Haber, and another trusted political adviser thousands of miles away: Itamar Rabinovich, our ambassador in Washington and Israel s leading Syria expert. But I m sure we weren t chosen just for our insights. It was 253 because we were people with whom Rabin felt comfortable a counterpoint, I suspect, to the old Labor Party rival whom he had made Foreign Minister, Shimon Peres. Though the two men had grown to respect each another over the years, Rabin neither trusted, nor much liked, Shimon. In fact, though Peres s support inside Labor had secured him the foreign ministry, Rabin had stipulated that all peace talks would remain under his control. Yet as I d discover nearly a decade later, when I was Prime Minister, even the most carefully planned negotiating strategies were always subject to setbacks, diversions, or simply what former British Prime Minister Harold Macmillan once called events, dear boy, events. Rabin s initial plan was not to start with the Palestinians. He did feel it was essential to try to reach a political settlement with them. In one respect, the prospects looked slightly better than before. Arafat s political position had been weakened: first by an intifada driven as much by local insurgents as by the PLO in faraway Tunis, and then by his decision to break with his longtime Gulf Arab financial supporters and support Saddam Hussein the Gulf War. In 1988, as the entry price for a formal dialogue with the Bush Administration, he had also agreed to a statement in which he renounced terrorism and accepted the principle of a two-state peace agreement with Israel. Still, there remained a yawning gap between the selfrule envisaged in the Camp David accords of 1978 and the Madrid conference, and the independent state the Palestinians wanted. Negotiations to bridge it were likely to be fraught and long. So he d decided to begin with Syria. President Assad was obstinate, and publicly opposed to the idea of making peace with Israel. But he d been in power for more than two decades and, crucially for Rabin, had lived up to the few, indirect agreements Israel had made with him. The substance in any agreement, though politically difficult, was also more straightforward. We knew what Assad wanted: the recovery of the Golan Heights, in return for the absolute minimum level of political normalization with Israel. We knew what we wanted: security guarantees and assurances regarding water resources, and a full and final peace treaty. For Rabin, there was an additional attraction in beginning with Syria: if we did reach a deal with our main Arab enemy, the pressure would intensify on the Palestinians to follow suit. The dramatic turn of events that ultimately forced him to change tack began in January 1993 in the sitting room of a villa outside Oslo, at an ostensible academic seminar convened by the Norwegian diplomat Terje Larsen. It included two Israeli academics with personal ties to prominent Palestinians: 254 Yair Hirschfeld, and the historian and former Haaretz journalist Ron Pundak. Three PLO officials were there, led by Arafat s closest economic aide, Abu Ala a. Though both of the Israelis were friends of Yossi Beilin, a prot g of Peres and our deputy foreign minister, even Peres didn t know about the meeting until Yossi told him the following day. Rabin knew an hour later. I first learned of it from Uri Saguy, after Unit 8200 intercepted Arabic-language traffic concerning a briefing the Norwegians had given their Arab contacts. At first, even Peres was skeptical that the paper agreed at the seminar calling for international aid to the West Bank and Gaza on the scale of the Marshall Plan, and an initial Israeli withdrawal limited to Gaza would lead to serious negotiations. But Rabin authorized follow-up sessions in mid-February, late March and again in April. Our intelligence teams continued to provide detail, and occasional color. Uri Saguy and I even began to use the Arabic shorthand, from the intelligence reports, for the two Israeli academics. The burly, bearded Yair Hirschfeld was the bear . The slighter Ron Pundak was the mouse . Yet the main political impetus in driving the process forward came from two men who were not there: on our side, Yossi Beilin, and for the Palestinians, Arafat s trusted diplomatic adviser, and eventual successor, Mahmoud Abbas, or Abu Mazen. Since Rabin knew I was following the ostensibly secret talks, we discussed them often. For quite a while, he remained dismissive. He believed the chances of a breakthrough were remote. He was also suspicious of the involvement of Peres and Beilin, whom he called Shimon s poodle . And he deeply distrusted Arafat. The PLO had been founded with the aim of liberating every inch of Palestine. The fact that Arafat had agreed to the Bush Administration s demand to accept the principle of land-for-peace struck Rabin as mere sleight-of-hand. By the third Oslo meeting, it was clear that the Palestinians were open to an agreement that would fall well short of liberating Palestine . Still, Rabin was leery. He tried briefly to return the focus to the stalemated Madrid-track talks with the Palestinians. Yet when, with obvious PLO encouragement, the Palestinian negotiators stood their ground there, he seemed almost resigned to supporting Oslo. When we discussed it, he used a battlefield metaphor. When you have to break through, you don t necessarily know where you ll succeed. You try several places along the enemy s lines. In the sector of the front where you do succeed, you send in your other forces. It was a matter of reinforcing success. 255 It s the opposite in this case, I replied. In a battle, the enemy is doing everything it can to stop you. When you break through, it s against their resistance. Here, the other side will choose to make it easiest for us in the place it prefers. If Arafat thinks he ll get more from the Bear and the Mouse than from the other talks, it s hardly a surprise we re finding that only Oslo seems to offer a way forward. Rabin did make one more move, not so much in a bid to end the talks in Oslo as to slow them down and create a context more favorable for the kind of agreement he wanted. He shifted his attention to his original peacemaking priority: the Syrians. In an effort to remove a roadblock to even beginning serious talks, he offered the Americans what they would later call his pocket deposit. He authorized Secretary of State Warren Christopher to tell Assad that Washington s understanding of our position was that, assuming all our own negotiating concerns were addressed, we accepted that peace with Syria would include withdrawing from the Golan. The formula was agreed in a meeting in Israel between Rabin and the Clinton Administration s Middle East negotiator, Dennis Ross. Rabin didn t tell Peres or other ministers about it, though Itamar Rabinovich did know. I did as well. Since acceptance of the need for a withdrawal had security implications, Rabin and I talked about it in detail before Ross s visit. We formulated the deposit together. We used an English acronym: IAMNAM, if all my needs are met. The point was to convey to the Syrian president that if he addressed our requirements for a demilitarized zone and early warning facilities; non-interference with our critically important water sources; as well as a full peace including embassies, open borders and joint economic projects, we knew the trade-off would be to return the Golan. It was by diplomatic accident that the Syrian overture went nowhere. The reason even the Americans had called our proposal a pocket deposit was that it was to be kept in the Christopher s pocket, to be pulled out as an American understanding of our position if he felt it might lead to a breakthrough. Our intelligence accounts of the Christopher-Assad talks, however, suggested it had been presented as a straight message from Rabin to the Syrian president, giving it the status of Israel s new, formal opening position in negotiations. The distinction may seem minor. But for Israel, it mattered greatly. In any agreement with Syria or, indeed, the Palestinians there was bound to an imbalance. Both parts of a land-for-peace exchange were important. But land was not just the more tangible asset. Once given up, short of resorting to all-out war, there was no going back. The peace part of the equation was more 256 difficult. Genuine peace, and trust, would inevitably take years to reach fruition. That was no mere academic problem in a conflict where, for decades, our enemies had defined Israel s mere existence as illegitimate. The reason for Rabin s reluctance to have his deposit presented as a set negotiating position was that it meant dealing away our only card territory before the hard questions about peace had been answered. When he phoned Christopher, I don t think I ve ever heard him as angry. That was not what we agreed, he insisted. He said it had spoiled any prospect of serious negotiations on the peace side of the balance. Christopher didn t agree there had been any real damage, nor that Assad had failed to understand the context. It might not have changed things anyway, since by this stage, the Oslo talks had almost completed a draft agreement. In mid-August, Rabin gave Peres the go-ahead to initial this Declaration of Principles. It provided for a period of interim Palestinian self-government; the start of a phased Israeli withdrawal from Gaza and the West Bank with the creation of a Palestinian police force to deal with internal security; and a commitment to reach a full peace agreement within five years. In early September, ahead of the formal signing of the Oslo declaration, there was an exchange of letters of recognition between Arafat and Rabin. Arafat s letter also renounced terrorism and other acts of violence and declared invalid those articles of the Palestinian Covenant which deny Israel s right to exist. A few days later, the signing ceremony was hosted by President Clinton in Washington. Thus emerged the famous photo of Rabin and Arafat shaking hands, on either side of Clinton, who was beaming, arms outstretched in conciliation. They say a picture is worth a thousand words. In this case, you needed barely a dozen. Rabin s demeanor, his posture, the look on his face, all seemed to say: I would rather be shaking the hand of anyone on earth than Arafat. Still, the image was on front pages worldwide. The news stories spoke of a new spirit of hope. Now that these old enemies had grasped hands, surely a full peace agreement was within reach. My feeling, as I watched it on TV in the kirya, was more guarded. I did hope for peace, of course. I also recognized that the signing on the White House lawn was just a beginning, and that my role would be to ensure that Israel s security needs were met under whatever formal peace agreement might eventually be reached. And the security omens were hardly encouraging. Despite Oslo, Palestinian attacks were continuing. Hamas, Islamic Jihad, and other dissident factions saw Arafat s concessions as treachery, and were setting out to drive home that point with violence. 257 Yet as I approached my final year as chief of staff in early 1994, we were suddenly confronted by an appalling act of Israeli violence: mass murder, committed by a West Bank settler. Terrorism, no less than the worst Arab attacks on Israeli civilians. The settler was named Baruch Goldstein, a physician, who lived in Kiryat Arba. One of the first post-1967 Jewish settlements, it sat on a hill outside the West Bank town of Hebron. At the heart of Hebron lay the burial place of the patriarchs and matriarchs of the Jewish faith: Abraham and Sarah; Isaac and Rebecca; Jacob and Leah. Since Abraham is also revered as a prophet in Islam and a mosque had stood on the site for nearly a thousand years, our post-1967 arrangements set out separate times of worship for Muslims and Jews. Goldstein chose to attack during a holiday period for both faiths: Purim for the Jews and the Muslim holy month of Ramadan. He arrived shortly after the Muslims Friday prayers began on the morning on February 25. He was dressed in his reserve army uniform and was carrying an automatic rifle. He opened fire on a group of nearly 800 Palestinian worshipers. He had killed 29 and wounded 125 others by the time several of his intended victims knocked him unconscious and beat him to death. I rushed to Sde Dov airport in north Tel Aviv, a few minutes from the kirya, and boarded a helicopter for the old British fort near Hebron, used by the Jordanians until 1967 and now Israeli headquarters. After visiting the scene of the killings, I sought out local Palestinian leaders, to voice my condolences and the sense of outrage I shared over what had happened, and to urge them to do all they could to maintain calm. I then went to Kiryat Arba and conveyed the same message. Our immediate task was to prevent more deaths, on either side. It was a frustrating, and violent, week. Protests reminiscent of the first days of the intifada erupted around the West Bank, in Gaza, in east Jerusalem and in several Arab neighborhoods and towns inside Israel. While I had no trouble understanding the Palestinians anger, I also had a responsibility to prevent the violence spiraling out of control. We turned to the same tools we d used at the beginning of the uprising though with even greater emphasis on the need for soldiers to use the only the necessary force to restore order, and to avoid causing fatalities wherever possible. We closed off the West Bank. We imposed curfews 258 on the main West Bank and Gaza towns and refugee camps. We also imposed a curfew on Kiryat Arba and, for the first time, were given the authority to use administrative detention orders not just against Palestinians, but specific Jewish settlers. We arrested about a half-dozen leaders of Kach, the far-right, anti-Arab political movement founded by the American Rabbi Meir Kahane, of which Baruch Goldstein had also been a member. Still, there were repeated clashes anyway and dozens of deaths as a result before things finally began to subside a week or so later. The massacre had made me feel more strongly than ever that our responsibility to protect the security of the settlers could not extend to allowing them to defy the government or the law. The principle would be put to the test within a few weeks. A settlement near Hebron, called Tel Rumeida, had been set up without government approval in 1984. As part of the response to Goldstein killings, Rabin was thinking of closing it down. That prompted a number of right-wing rabbis to issue a formal religious ruling against any such action. Rabin called me in to ask whether it would be operationally possible to dismantle Tel Rumeida and remove the settlers. I said yes, by sending in a Sayeret Matkal force after midnight, as long as news of the operation did not leak ahead of time. We ll take over the area, close it off and get control. Given the tensions in the wake of the massacre, I did add that I couldn t promise that our soldiers would hold fire. There are people in there with weapons, I said. If someone shoots at them, they will shoot back. Should I do it? he asked me. Maybe I should have given him an answer. But I didn t feel it was my place to add to the pressures around what was clearly a finely balanced call, especially since my inclination would have been to tell him to go ahead. I said it was something only he could decide. What I can tell you is that we can do it. When I left, my sense was that he was sufficiently angry over what had happened in Hebron that he felt it essential to draw a line the line of law over what settlers were allowed to do. But the Passover holiday was now a couple of days away. I think what happened is that he realized the operation would not be possible until after the holiday period. By then, he was concerned he would have lost the clear political logic for moving against Tel Rumeida. The settlement has remained in place, a flashpoint in the conflict between settlers and Palestinians in the area around Hebron. The wider repercussions, and the controversy, from the massacre reverberated widely. Rabin and his cabinet immediately decided to establish an inquiry, under Supreme Court Chief Justice Meir Shamgar. It would look into 259 every aspect of the killings including any failings by the army, the Shin Bet, the police or other authorities that might have allowed the tragedy to happen. The commission interviewed dozens of witnesses, Israeli and Palestinian, in 31 separate sessions. I knew early on that the inquiry would throw up difficult issues. I was especially upset to learn that two soldiers and three border guards scheduled for guard duty at the mosque had shown up late on the morning of the killings. By the time I testified in late March, the inquiry had heard from a range of senior and local commanders and individual soldiers. A picture had emerged of a series of security breakdowns, equipment malfunctions, oversights and confusion around the site where the murders took place. I did not try to dodge the fact that security lapses around the Cave of the Patriarchs that day had contributed to what happened. In addition to the fact that the guard unit was not at full strength until after the murders took place, several of the security cameras weren t working. I acknowledged that if the cameras and the guards had done their job, at the very least some lives might be have saved. Yet I also made the point that this specific act of mass murder was something the army could not have anticipated. I told the commissioners to remember that they were judging things after the fact. They knew how the tragedy had ended. In the context in which we were operating, the prospect of an Israeli settler, a reserve soldier, walking into a place of worship and deliberately killing defenseless Palestinians had come as a bolt from the blue. The commission s report did not apportion blame to any of the army officers or commanders. But an inescapable conclusion from the testimony of the many witnesses was that the way in which we d become conditioned to viewing the settlers had blinded us to the kind of crime Goldstein had committed. Even before I testified, I d been disturbed to hear soldiers saying that even if they had seen him shooting a Palestinian, their orders were not to open fire on a settler, so they wouldn t have intervened. When asked about this by the commission, I said it was a fundamental misunderstanding of our rules of engagement. In no case is there, nor can there be, an army order that says it is forbidden to shoot at a settler even if he is shooting at others... A massacre is a massacre. You don t need special orders to know what to do. Yet I also knew that the soldiers misunderstanding was all too understandable. As I acknowledged to the inquiry, the army on the West Bank and Gaza was predisposed to see Palestinians who were carrying weapons as potential terrorists, especially since the outbreak of the intifada. The settlers, by contrast, were assumed to be carrying arms in self-defense. One lesson I took 260 from the massacre was that the mix of Jewish settlers, some of whom felt they were on a messianic mission to resettle all of Biblical Israel, and restive Palestinians who wanted sovereignty and control over their own lives was potentially toxic, for both sides. Ideally, the process which had begun with Oslo might start to disentangle it, though I remained far from confident that anything resembling full peace would come any time soon. Rabin, and even more acutely Shimon Peres, believed it was important to press ahead with the opening phase of the handover of Israeli authority mapped out by Oslo. In May 1994, a draft of the so-called Gaza and Jericho First agreement was completed. Once it was ratified, the five-year interim period would begin, with further withdrawals and parallel negotiations on the permanent status of the territories. In this first step, Israel would transfer civil authority in Gaza Strip and the Jordan Valley town of Jericho to the Palestinians, and local security would be in the hands of a newly created Palestinian police force. My primary concern, and my responsibility, was the security provisions in the agreement, since the Israeli army retained its role in charge of overall security. When I went to see Rabin a few days before the cabinet meeting to approve the Gaza-Jericho agreement, I told him I was worried that it left room for potentially serious misunderstandings, friction and even clashes on the ground. There was no clear definition of how our soldiers would operate alongside the new local police in the event of a terror attack, violence by Hamas or Islamic Jihad, or, for that matter, a car crash involving an Israeli and a Palestinian. He agreed this needed to be addressed, although it was clear he intended to do so with Arafat, via the Americans, not by reopening and delaying the formal agreement. But I had a deeper concern about the entire Oslo Agreement, which I also now raised with Rabin. I did not doubt the importance of reaching a political agreement, and ideally a peace treaty, with the Palestinians. But I d now read the Oslo Declaration in greater detail, and discussed it with lawyer friends of mine. I d also re-read the 1978 Camp David framework on which the self-rule provisions were based. The endpoint was pretty clear, just as it had been at Camp David: Palestinian authority over the West Bank and Gaza, defined as a 261 single territorial unit under Oslo. In essence, and very probably in name, this meant a Palestinian state. I wasn t opposed to that in principle, if it was in return for a full and final peace. But the Oslo process meant that we would be handing back land, and control over security, in an ever-larger portion of territory before we d reached any so-called permanent-status agreement. In fact, before we even knew whether that would prove possible. It wasn t land for peace. It was land for the promise, or maybe only the hope, of peace. It was the same problem Yitzhak had faced over the Americans misuse of our pocket deposit on the Golan. I realized that, having come this far with Oslo, neither he nor the government was likely to back away from approving the Gaza-Jericho accord. But he did say he thought the points I d raised were important, which I took as meaning he was comfortable with my raising it with the cabinet. I spoke near the end of the four-hour cabinet meeting to ratify the Gaza- Jericho plan. The ministers seemed attentive as I ran through the security concerns I d raised with Rabin, even nodding when I compared the agreement s security provisions to a piece of Swiss cheese, only with more holes. But then I said that I wanted to say a few words which I recognized were beyond my responsibility as chief of staff. I m speaking just as an Israeli citizen, I told the cabinet, and as a former head of military intelligence. Referring to specific provisions in Oslo, and in the Camp David framework agreed by Begin and Sadat 15 years earlier, I said it was important for ministers to realize that, even though permanent-status issues were yet to be resolved, you will be taking us nearly the whole way toward creating a Palestinian state, based on the internationally accepted reading of Camp David. The reaction to my comments was a mix of defensiveness and hostility. In the latter camp were ministers from Rabin s left-wing coalition partners, Meretz, who seemed especially angry when I quoted from Camp David. The Prime Minister motioned them for calm. Ehud had a responsibility to talk about security questions, and we had a responsibility to listen. As for his additional remarks, they are not a surprise to me, he said. He made these points to me, and I said he could repeat them here. It is right that he should raise them. He said there was no need for ministers to agree with me, but that it was proper that the points I d raised should be heard. Many clearly didn t agree with me, or simply believed the Gaza-Jericho agreement still had to be ratified, which it was. But my remarks did lay the groundwork for my objection to the next, more far-reaching stage in the Oslo process barely a year later. By then, I was no longer chief of staff. I was a member of Rabin s cabinet. 262 It was still my responsibility to ensure that Gaza-Jericho was implemented, and that the initial withdrawals and redeployments went ahead smoothly. And they did. But I also was soon playing a part in a renewed effort by Rabin to use the momentum of Oslo to achieve peace agreements with our other Arab neighbors: the Syrians, although he knew that would be tough, and first the Jordanians. I would always have had some role, by virtue of the need for a chief of staff to weigh in on security issues. But as Yitzhak had done from the start, he involved me and others in his inner political circle in wider discussions on the whole range of negotiating issues. Especially after Oslo, he seemed determined to keep Peres s role to an absolute minimum. No peace talks are ever completely straightforward, but the process with Jordan was very close to that. The main issues on the Jordanian side involved ensuring a proper share of scarce water supplies; and dealing with Israel s de facto control of a fairly large area near the southern end of our border. A number of kibbutzim and moshavim were farming the land there. But under the post-1948 armistice, it had been allocated to Jordan. Israel s priorities were to put in place a fully open relationship of peace and cooperation, and to get assurances Jordan would not allow its territory to be used by Palestinian groups to launch terror attacks. I was struck by how much more easily compromises can be found if you truly trust the party on the other side. From my earlier meeting with Hussein in England, before the Gulf War, I d been impressed by the king s thoughtful and measured, yet warm and open, demeanor. That, in itself, inspired trust. But ever since 1967, even in times of high tension, Israel and Jordan had kept open secret lines of communication, and both sides had generally demonstrated a shared desire, and ability, to steer clear of conflict. The main trade-off in the search for a formal peace turned out to be not too difficult. We agreed to ensure water provision, and to accept Jordanian sovereignty over the 1949 armistice area, in return for which the king allowed the Israelis who had been working the land to stay in place as lessees. On the final Wednesday of October 1994, near our border crossing in the Arava desert, I watched as Rabin, King Hussein, and President Clinton formally seal the full Treaty of Peace Between the State of Israel and the Hashemite Kingdom of Jordan. 263 Syria was always going to be harder. But Rabin had moved past his anger over the pocket deposit , and we began a new effort via the Americans. Our aim was to lay out a comprehensive, staged proposal to trade nearly the entire Golan for peace. With Rabin, Itamar Rabinovich and the rest of the team, we put together a framework limiting Syria s military presence on the Heights. We envisaged phasing out the restrictions as Syria took steps toward the kind of peace which had proved possible with Egypt and Jordan. But indirect exchanges in the autumn of 1994 produced little progress. In December, Rabin proposed to the Americans that I meet with a Syrian representative, and President Assad agreed. Later that month, I was sent to Washington for talks with Syria s ambassador, Walid Muallem. With the Americans Mideast envoy, Dennis Ross, as host, we met in Blair House across the street from the White House. I began by explaining the security provisions we envisaged for the Golan, which included early-warning provisions, force limitations and other means of safeguarding Israel against any surprise attack. Muallem s response was formulaic, almost icy, with no indication he was ready to discuss any of the specifics, much less offer ideas of his own. But then Dennis led us out into the garden, where the atmosphere, if sadly not the weather, was a bit warmer. I told Ambassador Muallem I believed Israel s issues with Syria ought to be resolvable. Both sides understood the broad terms of an eventual peace. But we needed a context of trust in which to negotiate. President Assad, and we as well, were always going to be reluctant formally to commit ourselves to a position until each side was be satisfied that the other side understood its core needs. Politically, both sides also faced constraints. In formal meetings, a record is taken and negotiators have to explain and justify every last word back home, I said. I think our negotiators can get further in conversations like the one we re having now. Though Muallem nodded agreement, he did not explicitly say he believed that informal exchanges were the way forward. Still, he did obviously pass back a broadly positive message to Damascus. Before the Blair House discussion, our understanding had been there would probably be a kind of mirror arrangement for a follow-up meeting: between our ambassador in Washington, Itamar Rabinovich, and a high-ranking army officer from the Syrian side. Instead, we received word that Assad wanted me to meet directly with General Himat Shihabi, who was not only my counterpart as Syrian chiefof-staff but Assad s oldest and closest political ally and the effective numbertwo man in the r gime. General Shihabi and I met over a period of two days at Blair House. He had greater authority, and thus a greater sense of self-assurance, than the 264 ambassador. But not for the last time in negotiations with Syria, any real progress was blocked by an apparent combination of misunderstanding and miscommunication. The discussions were lively. Shihabi had served as Syria s liaison officer with the UN force set up along the cease-fire line after the 1948 war. Go check with the UN, he said at our first meeting. You ll see almost all the exchanges of fire in the late 1950s were provoked by Israel. I didn t respond directly, though I did note it was the Syrians who had tried to divert water from the Jordan River in the early fifties. You did it first, he retorted. So it continued. Only later did we learn that while Muallem had sent back a generally encouraging impression from our garden talks, and his conclusion that Israel was ready for substantive talks, he had neglected to convey our expectation that any early progress would occur in informal exchanges. The result was probably to raise General Shihabi s expectations, which made him reluctant to show any real engagement. After a phone call with Rabin after our first day of talks, I became equally cautious. He agreed that we wanted to avoid a repeat of our experience with the Golan deposit . We did not want to put concessions on the record before we got an indication that the Syrians were genuinely ready for peace talks. Still, the fact that we d established the precedent of a chief-of-staff channel was a step forward. My successor as ramatkal, Amnon Lipkin, would meet again with Shihabi in early 1995. I was confident Amnon was inheriting an army stronger, better prepared and better equipped than at any time since the Six-Day War. We also had peace treaties not only with Egypt, but now Jordan, and none of the substantive issues with the Syrians seemed insurmountable. But the main security challenges were the unconventional ones. In the long term, a resurgent Iraq, and very likely Iran, might make strides towards getting nuclear weapons. There was every sign that Hizbollah in Lebanon; and Hamas, Islamic Jihad and their supporters in Gaza and the West Bank, would escalate violence and terror. As the negotiations with Jordan were entering their final phase in early October, a further Hamas attack this one, a kidnapping had brought home that threat. On Sunday, October 9, Hamas men dressed as Orthodox Jews abducted an off-duty soldier named Nahshon Wachsman near 265 Lod. Two days later, Israeli television received a videotape showing the 19- year-old, hands and feet bound, pleading for his life in return for the release of the founder of Hamas, whom we had arrested and jailed in 1989. The group from Hamas kidnapped me, he said. They are demanding the release of Sheikh Ahmed Yassin and another 200 people from Israeli prison. If their demands are not met, they will execute me on Friday at 8 pm. As soon as we got word he was missing, I spoke to Rabin. Since we assumed he was being held in Gaza, I ordered a unit from Sayeret Matkal to head south and co-ordinate efforts to locate him with the Shin Bet and the southern command. But it gradually became clear he might be much closer to where he d been seized. The Shin Bet got a description of the kidnappers car, and found it was a rental that had been picked up and returned in east Jerusalem. They tracked down the man who rented it. A little before dawn the morning of October 14, barely 12 hours before the Hamas deadline, Shin Bet established that Wachsman was being held in a village on the road to Ramallah, north of Jerusalem, in a house owned by a Palestinian who was living abroad. The hostage soldier s ordeal was made even worse by the fact his mother, Esther, was a Holocaust survivor, born in a displaced-persons camp in Germany at the end of the war. Rabin had been ready to approve a rescue attempt from the outset, assuming we could locate Wachsman and come up with a plan that might work. But as with Entebbe, he said that if we couldn t be reasonably confident of success, we would negotiate. Now that we knew where Waschsman was being held, I ordered Shaul Mofaz, the commander with responsibility for the West Bank, to prepare for a possible rescue. Before going to brief Rabin, I arranged for another commando unit to begin visible preparations for an operation in Gaza, in an effort to reassure Hamas we still believed he was being held there. Assuming we could retain the element of surprise, there were several things working in our favor. The house was relatively isolated. It was in an area where Israel, not the incipient Palestinian authorities, still had control. And Sayeret Matkal had expertise and experience in this kind of mission. Still, no plan could be foolproof. I told Rabin that the fact Hamas was holding a single hostage meant that if our assault teams were delayed for any reason at all, the kindappers might kill him before we got in. But I said we had to weigh the risks of not acting. We were no longer trying to find a missing soldier. We knew where he was. We had a unit ready. Unless Hamas relented, he was facing death within hours. In those circumstances, the 266 precedent of doing nothing would, in my view, be very serious. I recommended that he approve the operation, and Rabin agreed. I attended the final briefing shortly afterwards. I was impressed by the determined faces of the men in the two sayeret teams. One of the officers was 23-year-old Nir Poraz, whom I remembered from operational briefings in the kirya on previous sayeret missions. Wachsman was being held in a room on the first floor. The commandos would simultaneously detonate explosives on three doors: at the front, on the side, and a third one leading through a kitchen to the room where the kidnappers had their hostage. The attack began fifteen minutes before the Hamas deadline. The explosive charges went off, but only the one in the front blew open the door. Poraz and his team rushed in, but one of the kidnappers opened fire, killing him and wounding six others. The other team had by now made it to the first floor. But despite firing at the metal lock, they had trouble getting the door to open. By the time they got in, Wachsman had been killed, shot in the neck and chest. I was in the command post a few hundred yards away. I called Rabin and then went to see him in the kirya. The head of personnel for the army had gone to see the Wachsman family and break the news to them. Now, we had to tell the country. Rabin and I appeared on television together. Rabin insisted wrongly on saying he bore full responsibility. What had gone wrong, I had tried to impress on him, was not the decision to attempt the rescue. It was the rescue itself. That was not his responsibility. It was mine. The next day, I visited Wachsman s parents, and tried to convey how painful the failed rescue was to me, Rabin and every one else involved. I was inspired and humbled by their response. His father had told a reporter he wanted to convey his condolences to the parents of Nir Poraz. This added loss has shaken me terribly, he said. He told me he also believed that the Prime Minister had approved the rescue using his best judgement on the information that he had available. I spent time separately speaking to Mrs Wachsman. I tried to explain that in fighting an enemy like Hamas, people who not just threaten to kill but had proven they had no hesitation in doing so, I d felt there was no choice but to attempt the rescue. I admitted we d known the risks. But we d tried to do the right thing, both for the country and her son. I think she understood, though I knew that nothing could alter the terrible sadness of her loss. The pain would take years to heal. Some part of it never would. Still, I felt it was important she and her husband know that we, too, felt their loss. For years afterwards, Nava and I continued to visit them. 267 By then, however, I was no longer chief of staff. In fact, barely ten weeks after the kidnapping, I handed over to Amnon Lipkin. I left the kirya proud of all I had sought to accomplish during my 36 years in uniform. I also realized there had also been failures and setbacks, none more painfully fresh than our inability to rescue Nahshon Wachsman. But I was about to find that the area of Israeli life which I now chose to enter national politics could be a battlefield as well. And that when trouble hit, even your allies sometimes ducked for cover. 268 Chapter Seventeen It was an ambush. It came in July 1995, six months after I d left the army and only days before I was expected to named as Interior Minister in Yitzhak Rabin s government. The effect, and clearly the intention, was to threaten my political career before it had even begun by reviving, and lying about, the tragic training accident at the Negev army base of Tze elim, during our preparations for the operation against Saddam Hussein. When the story broke, I was nearly five thousand miles away. I was accompanying Nava s brother, Doron Cohen, on a business trip he was making to China and savoring my last few days as a private citizen between my three decades of military service and my entry into politics. I d got a hint of the storm that was about to engulf me a few days before we left for the Far East. It was a letter from a reporter at Yeidot Achronot, Israel s largest-selling newspaper, with a list of questions about Tze elim. The thrust of the questions made clear the case Yediot seemed intent on building: that after the live missile strike which killed the Sayeret Matkal men, I had abandoned the injured and immediately fled to Tel Aviv. I probably should have answered the letter. But I assumed even rudimentary checks would reveal the story to be false. I d had similar questions from a TV journalist a few months earlier. I did phone him back. I explained the true details of what had happened. I suggested he talk to others who were there, like Amnon Lipkin, the current chief of staff and my former deputy, to confirm my account. The story was dropped. But Yediot evidently decided not to let the facts get in the way of the exclusive it ran in its weekend edition on July 7. Under a banner headline an undeniably clever Hebrew pun, Ehud Barakh, Ehud Ran Away it accused me of having stood by, paralyzed with shock, when the missiles struck and then, as other officers tended to the wounded, rushed away by helicopter. Doron and I were having dinner in Beijing when Nava phoned. She d just seen the newspaper story, and read it to me. I d never been angrier. As best I could work out, it had been concocted from a patchwork of accounts long after the fact. To the extent the notion of my fleeing had been raised, I could only imagine that Yediot s sources had misunderstood the arrival of the first medical helicopter, when the pilot was unable to see us and flew on before returning a couple of minutes later. But in every single detail about my actions after the tragedy occurred, it was a pure and simple lie. 269 I was not just angry, but frustrated at my inability to rebut the story in person. Doron and I immediately made arrangements to return to Israel early, which, since there was no direct air connection, meant finding the first flight out through London. But before we left, Nava phoned again, almost sputtering in fury. She told me that she d just received a call from Aliza Goren, Rabin s media spokesperson. Does Ehud know about the Yediot story? she d asked. When Nava said yes, Aliza told her: It is important that Ehud knows that we are not going to get involved in getting him out of this. Welcome to politics, I thought. Rabin knew that the story was untrue. I d still been in Tze elim when I d phoned him about what had happened. He knew I d remained there to order in the medical helicopters and arrange for the evacuation of the wounded before returning to brief him. Still, he did not say a single word in public nor, for that matter, speak to me as the controversy continued to gather force. During our stopover in London, I sat with Doron and talked through how to get my voice heard. I telephoned Yoni Koren, the officer who d been my top aide in the kirya and whom I d asked to work for me in the Interior Ministry, assuming I now actually got there. I told him to phone Amnon Lipkin and say that I had expected him to answer the fabrications. Not only had he and I been at the site of tragedy together. We d left together, on the same helicopter. Amnon did now issue a statement saying that he knew Yediot s allegations were wrong. But the story had been allowed to stand for too long. His rebuttal caused barely a ripple. As I read the latest Israeli newspapers before landing in Tel Aviv, I found that at least I wasn t totally on my own. Reporters had been phoning politicians for comment. Most responded like weathervanes, going with the prevailing wind, which was gusting against me. But three Knesset members dissented. One was Ori Or, a friend even before we d both gone into the army, and who had now joined Labor. The other two were leading members of Likud: Dan Meridor and Benny Begin, Menachem Begin s son. All three said they were sure the allegations were false. Did they know the details about the accident, they were asked. No, they replied, they didn t need to. They knew me. Now all I had to do was convince the rest of the country. It had been nearly a week since the Yediot s expos . It was Yoni Koren who passed on a request from Channel 1 television, our equivalent of the BBC. They were proposing that I appear with Nissim Mishal, the man who had interviewed me 10 years earlier, at the urging of Rabin s political aide, on my first TV appearance. For Mishal, 270 the interview would be a journalistic coup. For me, it was a risk. He was a famously combative questioner, a bit like Sam Donaldson at White House briefings, or Jeremy Paxman and John Humphreys in Britain. On the night of July 13, I drove to the television studio in Tel Aviv. Mishal confronted me with Yediot s version of events. I was angry, and showed it. This report was not some night editor s mishap, I said. It was authorized by the highest levels of a mass-circulation newspaper which is power-drunk, corrupted by power, and manipulative. The so-called story was an amateurish and distorted depiction of a chief-of-staff who sees wounded soldiers, turns his back, deserts them and flies away. That is an evil, vain falsehood. As Mishal pressed me about the allegation that I had fled, I cited, by name, other officers who had been there with me and had confirmed precisely the opposite. I had left Tze elim, along with Amnon Lipkin, a full 50 minutes after the missiles struck, I said. And only after the helicopters had arrived, the injuries had been treated and the choppers were evacuating the wounded. A chief of staff s job is not to treat the wounded, when others are doing that already, I added. My responsibility was to keep my head, and ensure a safe and speedy medical evacuation. That was what I d done. I ve given years of my life to serving this country, I said. I have been shot at. I have shot men dead from as close as I am to you now. How did the hand that wrote these things against me not tremble? It was certainly high drama. But it was not an act. The way that I d gone after Yediot prompted some pundits to suggest my skin was too thin. One commentator even said I was obviously not suited to politics. Yet what mattered most to me was what the rest of Israel felt: people who were not reporters or editors, commentators or politicians. Opinion polls the day afterwards showed that something like 80 percent of Israelis believed what I d said. I think this was only partly due to the details of the argument I made. When you re under such close, direct scrutiny, I m sure viewers have an innate sense of whether what they are hearing is the truth. Almost as soon as I d got home from the interview, the phone rang. It was someone who, of course, already knew it was the truth: Yitzhak Rabin. Ehud, he said, you did well. Let s move forward. 271 I later worked out why he d wanted to steer clear of the whole thing. Yediot had been planning the story for months. It had been ready to go with it earlier, when it was assumed I would be joining the government as early as April. The editors had held it to coincide with my arrival as a minister. That, I suppose, was simply what newspapers did. But it turned out that at least two influential Labor politicians had played a part in steering Yediot toward the story, and urging the newspaper to run with it: Haim Ramon, a veteran party figure and cabinet minister, though he d quit the government the year before over the party s failure to follow through on health-policy reform; and Shimon Shevess, one of Rabin s top advisers. Ramon would later say that they hadn t wanted to kill Barak as a new minister. Just fire some bullets at this legs, so he ll enter politics with a limp. It was a way of cutting me down to size. I suppose that was understandable. I was by no means the only former general to enter Israeli politics. Other chiefs-of-staff had gone on to play prominent roles in government: Dayan, Motta Gur and, of course, Rabin. But the fact that I was going directly into the cabinet, and so soon after leaving the army, was seen by the Israeli media and a number of Labor politicians as a reflection of my close relationship with Rabin. Some commentators had even been speculating I might eventually be a candidate to succeed him as party leader and Prime Minister. It was true that Rabin had personally urged me to join the government, starting with a lighthearted remark only days after I d ended my term as chief of staff. It was at a farewell organized by my staff. The event began with film clips from my years in the army, and a series of entertaining cameos from men I d served with and led. Rabin spoke at the end. He said he d recently been on an official visit to South Korea. He d met the president, who told him he was the first Korean leader not to have been an army general. Rabin said he d replied that he was the first Israeli Prime Minister who was a general. Then, smiling and looking straight at me, he added: Nu, Ehud? I did want to join his government. But I had been in the army since the age of seventeen and was now in my early fifties. For my family s sake, as well as my own, I had figured on taking a year or two to explore other things. Two options appealed to me especially. One was business. My brother-in-law, in addition to having a successful law practice, was involved in a number of business ventures, and we d discussed areas we might jointly explore. But I had also received offers from think tanks in the United States. 272 Despite Rabin s quip about ex-generals and Prime Ministers, I was surprised when, a couple of days later, he asked me to come see him. He smiled as I entered his office. Then he said: Ehud, now that you are out of uniform. I would be glad to see you come into politics, together with us, and be a member of the government. He said he d discussed it with Peres. It s a joint invitation. Though I did, of course, say yes, I also told him I was planning to take some time off, probably at first with a think tank in the US. Though I wasn t exactly sure about the legal provisions for officers leaving the army, I reminded him that there was a set period of time during which they could not enter politics. He replied, a bit enigmatically, that he would be sending an operative to talk to me further about the timing. The operative was Giora Einy, a uniquely important figure in Labor because he was trusted both by Rabin and Peres. I liked him immediately. Throughout my years in politics, I would come to rely on him for his experience, good humor and good judgement. He did know about the rules for former army people going into politics: there was a 100-day moratorium. Rabin wants you immediately, he said. I guess we ll tell him that immediately will have to mean sometime in April. In fact, I told Giora that I d hoped it would be much longer. So we agreed that in order to give me at least a few months in the US, he d tell Rabin he could get in touch at any time from March 1996 with his invitation to join the cabinet. As soon as he did so, I would formally cut my ties with the military, meaning I could join the government in the summer. Nava, the girls and I left for Washington in January. I joined the Center for Strategic and International Studies and was given the delightfully overwrought title of Distinguished Visiting Statesman and Senior Associate. The reason the CSIS had invited me was to write and speak on the Middle East. About two months in, I presented a paper. I began by welcoming the constellation of changes which seemed to offer at least an opportunity for stability, security and peace: the unravelling of the Soviet Union; the Oslo Agreement; the peace treaty with Jordan and the continuing talks with the Syrians. As long as we had partners committed to reaching an agreement, I believed Israel would be ready to consider major compromise and to take upon ourselves significant calculated risks. But with a frankness which seems surprising even to me in retrospect, I delivered much the same message as I had to ministers on the potential dangers inherent in the Oslo process as we moved forward. I pointed out that Arafat had made no move to rein in groups like Hamas, and that more Israelis had actually been killed by terror since Oslo than in the 273 year before. We signed a three-phase contract with Arafat, I said. Try to imagine one of you selling me three pieces of property. If I fail to pay for the first one on time, you might not immediately cancel the contract. You might even be ready to help me collect the necessary money. But you would never proceed to deliver the second property before I paid for the first one, unless you were a fool. I also warned of longer-term dangers: terrorism, radical Islamic fundamentalism, the proliferation of surface-to-surface missiles and weapons of mass destruction, and threats to the long-term stability of the more pragmatic Arab regimes. I singled out Iran, because it was determined to export its brand of fundamentalism Islam, sponsor terror and develop a nuclear weapon. I also accompanied CSIS colleagues on speaking engagements to other American cities. I was about to board a flight to Seattle in April when I got a message saying Rabin wanted to talk to me. After we took off, I used the onboard phone facility and, with a swipe of a credit card, was soon on the line to the Prime Minister. Since the exchange was in Hebrew, I m fairly sure anyone overhearing me had no idea what we were talking about. I need you to come back as soon as possible, Rabin said. I already knew, from Giora, that he was anxious to find a long-term replacement as Minister of Interior. The leading light in the Sephardi religious party Shas, Arye Deri, had had to leave the post under allegations of bribe-taking. After Rabin had taken on the portfolio himself four 18 months, he had placed Labor s Uzi Baram there, but only as a temporary arrangement. I didn t feel I could refuse outright. But I reminded him that under army rules, as soon as possible still meant another 100 days. And ideally, I said I wanted to finish the best part of a year in Washington. I asked whether it would be possible to join the cabinet in the middle of November instead. What difference will a few more months make? Rabin said he needed me now, and that mid-November would be too late. Ehud, in politics, you can never predict what will happen by then. Neither of us could have known how terribly prophetic his words would turn out to be. I was not only new to cabinet politics. I wasn t even a member of the Knesset. But in addition to naming me as head of a major ministry in charge of everything from citizenship and immigration to planning, zoning, and the funding of local government Rabin made me a member of his inner cabinet 274 on security and foreign affairs. Barely three weeks after I joined the government, we had to decide on the most important agreement with the Palestinians since Oslo. Dubbed Oslo II, it involved a major transfer of authority and territory. The process would begin with our pulling out from more than a quarter of the West Bank, including the major Palestinian towns and some 450 smaller towns and villages. After that, there would be three further redeployment phases, at six-month intervals, in so-called Area C of the West Bank a mix of unpopulated land, settlements and a number of points we d designated as strategically important. Under Oslo, and its parent agreement Camp David, it was all part of ensuring the Palestinians could exercise their legitimate rights in the single territorial entity of the West Bank and Gaza in other words, a path to statehood. But only by the time the final three phases of redeployment were complete were we required to begin the permanentstatus talks on issues like land and borders, Israeli settlements, the future of Jerusalem: the real core of a peace agreement. By the time I joined the discussions on Oslo II in August 1995, the main points had already been agreed. Rabin was in favor, as were virtually all the cabinet ministers. Whatever scant influence I might exercise would have to come at the decisive cabinet meeting, set for August 13. From the objections I d raised to the Gaza-Jericho deal as chief of staff, Rabin knew I d be concerned not only to ensure the security provisions avoided potential misunderstandings on the ground, but about the longer-term implications, especially since the scale of the Israeli withdrawals was much larger this time. In fact, the agreement could be interpreted as requiring us to cede Palestinian control over virtually all of Gaza and West Bank by the end of the third redeployment phase quite possibly before talks on the permanent-status questions had even begun. I went to see Rabin a few days before the cabinet vote. I explained why I thought the agreement was flawed. I argued we should either delay some of our redeployments or bring the permanent-status negotiations forward. He listened to me. He barely spoke. He knew I d be against Oslo II, and knew the reasons why. But we both knew something else: having been brought into government by Rabin, I would be expected, on a vote of this importance, to be in his corner. The cabinet vote wasn t happening in a political vacuum. Likud s defeat in 1992 had meant the end of Yitzhak Shamir s leadership. The new Likud leader was the former Sayeret Matkal officer with whom I d shared a newspaper cover in 1986 predicting that he and I would end up facing each other at the ballot box: Bibi Netanyahu. Positioning himself as the fresh young face of Israeli 275 politics and vowing to defeat Labor, Bibi had seized on Oslo II to accuse Rabin of surrendering to Arafat, and by extension to Hamas terrorism. I couldn t sleep the night before the cabinet meeting. I had no desire to be disloyal to Yitzhak. I certainly didn t want to add to the pressures on him, much less add further impetus to Bibi s rhetorical onslaughts. But the more I thought of it, the less I could see the point of entering politics if I wasn t going to vote with my conscience. The cabinet meeting lasted for hours. It was near the end that I spoke, calmly and in detail, about my reservations. Many of the ministers seemed barely to be listening. They d long since made up their minds. But when I d finished, two ministers passed me notes. Both said the same thing: Ehud, don t do anything crazy. Don t vote against it. So I didn t. But I couldn t vote for it either. I abstained. Rabin was bitterly upset. He didn t tell me directly. But when the meeting broke up, his longtime political aide, Eitan Haber, took me aside to tell me how that what I d done was terrible . Giora Einy came to see me the next day, after Rabin had phoned him in a mix of anger and disbelief. What is this, he d asked Giora. The first big vote, and Barak abstains? It wasn t until a few weeks later that Rabin and I spoke alone, over a beer in his office. He didn t raise the question of the vote. So I did. Yitzhak, I understand it s caused you pain, I said. But I think you understand I was acting out of what is genuinely my belief and my position. I asked him why, unlike the other ministers, he hadn t passed me a note before we d cast our votes. Ehud, he said, I never write requests or orders on how to vote. Ministers must vote according to their conscience. He didn t mean what I d done was right. He meant my conscience should have told me, given the importance of the issue, to vote yes. The tension between us did ease somewhat in the weeks ahead. But the tension around us escalated after the cabinet vote. Opinion polls showed the country split down the middle. Settlement leaders and extremist rabbis launched a campaign against the legitimacy of the government, and of Rabin as Prime Minister. Right-wing religious leaders issued a decree rejecting the planned redeployments on the West Bank the evacuation of bases and their transfer to the Gentiles as biblically prohibited. A new group called Zu Artzenu organized a campaign of civil disobedience to try to bring the government down. The sheer venom hit home during a pair of events I attended with Rabin, to award of the status of city to towns which had crossed the required threshold in population and economic activity. By tradition, this was marked by a 276 ceremony with both the Interior Minister and the Prime Minister present. The first was in Ofakim, near where I d worked in the fields with Yigal Garber in the 1950s. Shortly after we arrived, a group of protestors started shouting at Rabin. Manyac, they yelled, maniac . Boged: traitor. At the second event, near Haifa, busloads of protestors from right-wing religious schools shouted abuse at Rabin when he rose to speak. As the Knesset vote on Oslo II approached, the hatred reached new levels. The day before, thousands of protesters packed into Jerusalem s Zion Square. Some shouted Death to Rabin! Others burned pictures of him, or passed out photos of him dressed in an Arab keffiyeh, or even a Nazi uniform. Bibi had publicly declared that opposition to the agreement must remain within the bounds of the law. Yet as he addressed the baying mob from a hotel balcony, he uttered not a single word of reproach. In fact, he called Rabin s government illegitimate , because it relied in part on the votes of Israeli Arab Knesset members. The day of the vote, the mob descended on the Knesset. Rabin had called a government meeting beforehand. When I got there, the crowd was so large that I was taken in through a special security entrance away from the front of the building. But the Housing Minister, Binyamin Ben-Eliezer, arrived late and tried to drive through the main gate. Protestors pounded furiously on his car and tried to break the windows. Our meeting had already begun when he arrived. He had spent nearly as long as I had in the army, but he was shaken. Interrupting Rabin, he banged his fist on the table. I ve been on battlefields, he said. I ve been shot at. I know how to read a situation. I saw their faces. It s insane! It is beyond anything rational, this kind of hatred. Pounding the table again, he shouted: I warn you. It will end with a murder! It will end with a murder! Rabin motioned for calm. He, too, was concerned by the rhetorical violence, even more so now that it was becoming physical violence. But as he would tell an interviewer a few weeks later, he simply didn t believe that a Jew will kill a Jew. Nor, at that point, did I. After the Knesset vote, which passed by a margin of 61 to 59, plans got underway for a rally in defense of the peace process, and against the tide of hatred on the right. It was the idea of two people: Shlomo Lahat, a Likud mayor of Tel Aviv who now backed Oslo, and a French Jewish businessman named Jean Frydman, a friend of Shimon Peres whom I had got to know and like. But in several of the early planning discussions in which I was involved, Rabin was against the rally, which was to be held in the huge Kings of Israel Square in the 277 heart of Tel Aviv. He was worried that not enough people would show up, and that those who did would be from the left: Meretz, not Labor, people who would be there mainly to criticize him for not going far, or quickly, enough in pulling out of the West Bank. In the end, he was persuaded it should go ahead. In fact, by the time the date approached Saturday evening, November 4 he seemed to be feeling more energized, and upbeat. I wouldn t be there, because I was going to New York as the government s representative at a fundraising dinner that same night for the Yad Vashem Holocaust memorial. A few hours before leaving, however, I met with Rabin. We d found a 15-minute window in his schedule, but we ended up talking for an hour. He said he knew that, in some ways, the difficulties surrounding the peace talks were likely to get worse. Hamas would not abandon terror. The kind of intolerance we were seeing from the right wing was not going to go away. He was furious at Bibi, who in his view was hypocritically going through the motions of calling for restraint and pretending to be unaware that the mobs were full of Likud voters. They re his people, he said, and he knows it. But he was relishing the idea of taking on Bibi in the next election, due in about a year s time. Though Rabin was trailing in the polls, he was confident of turning that around once the campaign began. The main thing is that the party isn t focused. We have to get serious about preparing, he said. He was worried about the effect of inevitable tensions between his supporters and Peres s over how to run the campaign. Bring back Haim Ramon, I suggested. I knew by now that Haim had helped orchestrate the false story which Yediot had run about Tze elim. But I also realized he was a Labor heavyweight and that, although he d left the government, he remained personally close to Yitzhak. Yes, Yitzhak replied, nodding, suggesting that we talk through the idea in detail when I returned from New York. I was in my room at the Regency Hotel, on New York s Upper East Side, when the phone rang on Saturday afternoon. I was dimly aware that the Tel Aviv rally had been going on back home, but was more focused on preparing my speech for the Yad Vashem event. Ehud, Ehud! It was Nava, her voice barely understandable through the sobs. Rabin has been shot! 278 Danny Yatom called me a couple of minutes later. He said Rabin was still alive. But from the details he gave me, I knew it would take a miracle for him to pull through. Three shots, from close range, Danny said. From an Israeli, a Jew. Like Rabin, like me too until this had actually happened, it was something Danny was struggling to believe. He said that he d call me back when he knew anything more. But I had the TV on in the room. Before he did, I watched Eitan Haber announce that Yitzhak Rabin was dead. Although I hadn t known it until I d arrived, Yossi Beilin was also in New York, for meetings and a speech of his own. Though he was a Peres prot g , and I was seen as closer to Rabin, the two of us had become friends. We immediately made plans to get the next flight home. But before leaving for the airport, I phoned Leah Rabin. However inadequate I knew it would be in helping her even begin to cope with the loss, I told her that my, and Nava s, thoughts were with her. That Yitzhak s death would leave a tremendous hole, in all of us, in every single Israeli. They shot him, she kept murmuring. They shot him. They shot him. They shot him. I called Peres, too. Shimon, you have a mountain on your shoulders, I said. But your task is to carry on. All of us will be with you, supporting, helping however we can. It was the saddest flight I d ever taken. Yossi and I barely spoke. Each of us was deep in thought. I found myself lost in memories of Rabin from the very first time I d met him, in the sayeret, to that last, long talk we d had in his office a couple of days earlier. For some reason, I kept wondering whether, when the shots had been fired, he d been turning to look behind him. It was an idiosyncrasy he had, whenever he was leaving a meeting or an event even, as I now recalled vividly, when the two of us were leaving the municipal ceremony in Ofakim. I was behind him as we left. Ehud, he said, turning back, are you there? It was a senseless detail. It wouldn t change anything. But I still felt torn up inside thinking about it. After we landed at Ben-Gurion, I went with Nava to the Rabins apartment in Ramat Aviv. There were hundreds of people outside, and nearly a hundred crowded inside the flat. Leah looked exhausted, her face ashen. They shot him, she said over and over as Nava and I hugged her. Three shots. In the back. Why? I said there was no sane answer, but that with Yitzhak s death, Israel seemed different, the world seemed different, and emptier. Before we left, we added our candles to the forest of flickering memorial lights outside the apartment block. Then, we drove the Kings of Israel Square. Thousands of people were huddled in small groups throughout the plaza, sitting around 279 thickets of candles and chanting, almost prayerlike, anthems of mourning and of peace. For reasons I couldn t explain, I felt the need to see the place, near the front of the square, where Rabin had been murdered, by a 25-year-old Orthodox Jew and settlement activist named Yigal Amir. Standing there with Nava, I felt even more strongly what I d told Leah by phone from New York after hearing Yitzhak was dead: his murder would leave a huge hole in me, in all Israelis. He was an extraordinary mix of qualities: a brave officer, first in the pre-state Palmach and then the new Israeli army; a chief of staff and defense minister at critical periods in our history. Shy, even at times uncertain or hesitant, and naturally cautious. Decisive, too, when he felt that he, and Israel, needed to be: whether on Entebbe, or the prospect, with all its risks, of launching an operation to kill Saddam Hussein. Humane, too: ready to negotiate with terrorists to save the lives of those they were planning to kill, unless he was confident our soldiers could save them first. Underpinning it all was a dedication to fighting and defeating Isael s enemies, yet a mindfulness that the real victory, if and when it was possible, would be genuine peace with our neighbors. He and I had had differences over particular policies: leaving our troops in Lebanon, for instance, or more recently the architecture of Oslo. But I never doubted that we were lucky to have Yitzhak leading Israel on the inevitably fraught road to a negotiated peace. I never ceased to believe there was no politician more suited to the role: that he would do everything he could to achieve it, yet would step back if he saw that he was putting Israel s security at risk. On Sunday evening, Peres called a cabinet meeting in the kirya. He said our task was to continue what Rabin had begun, and that at least for now he would fill Rabin s shoes not just as Prime Minister but Defense Minister as well. The whole country stood still, shocked, until the state funeral two days after the assassination. It was attended by dozens of leaders from around the world. My role was to escort King Hussein and Queen Noor. On our drive into Jerusalem, we passed the Old City walls. We were barely a mile from the stone terrace, above the Western Wall of our ancient temple, where the golden Dome of the Rock and the Al-Aqsa mosque stand. I knew Hussein had been there as a boy when his grandfather, King Abdullah, was shot and killed by a Palestinian amid rumors he was contemplating peace with Israel. Now, Rabin had been murdered, by an Israeli. To me, it s like the closing of a circle, Hussein said. Those who are murdered because they are not extreme enough. Because they look for normalcy, and peace. 280 Yitzhak s murder had acted like a kind lightning strike, freezing Israelis in a mix of disgust over what had occurred and awareness of the dangers this brand of hatred and extremism posed. I was concerned the moment would be allowed to pass. My hope was that we could seize the opportunity to bring together all those Israelis on left and right, secular and Orthodox, Ashkenazi and Sephardi who were prepared to stand up against the fanaticism, the violent messianism, of which Yigal Amir was just a part. That was the main reason I wanted Peres to call an early election, an issue that would be discussed, off and on, over the next few months. I felt the time was right to present the country with a choice: not just between those for and against specific compromises being contemplated in pursuit of peace, but between those who wanted a tolerant, functioning democracy and those who were ready to use demagoguery and violence to get their way. Peres s first order of business was to put in place a new cabinet. He did, briefly, consider giving up the Defense Ministry and putting me there. But instead, he made me Foreign Minister. Like Rabin before him, Shimon stipulated that he, as Prime Minister, would retain authority over the peace negotiations. Still, with his agreement, I was involved in all the discussions around the peace talks, and in meeting many of the Arab leaders we d have to negotiate with if we were to find a lasting resolution of the Arab-Israeli conflict. Just a few weeks after the assassination, I represented Israel at a Euro- Mediterranean Partnership conference in Barcelona. Its only real diplomatic work consisted of ironing out the wording of the communique. The real value was in the corridors, and at the dinner held at one of King Juan Carlos s palatial estates, and, for me, a first opportunity to meet not only Arab foreign ministers but Yasir Arafat. My first, brief encounter with Arafat began a bit embarrassingly. I d arrived a few minutes early for the conference dinner and was led into an impressive hall that was almost empty except for a wonderfully cared-for royal Steinway. I sat down to play. Lost in the beauty of a Chopin sonata, I was completely unaware of PLO leader s approach behind me. A bit awkwardly, I rose to greet him. I grasped his hand. It s a real pleasure to meet you, I said. I must say I have spent many years watching you by other means. He smiled. Our hosts had set aside time after dinner for the two of us to talk at greater length, with no aides present. But my hope was to begin by establishing simple, human contact; to signal respect; to begin to create the conditions not to try to kill Arafat but, if he shared the same goal, to make peace with him. We carry a great 281 responsibility, I said. Both of our peoples have paid a heavy price. The time has come to find a way to solve this. In the half hour we spent together later, I could see that, physically, the Fatah leader from Karameh was not just older. He had a frailty about him. His skin seemed almost translucent in places. His hands shook slightly, with the early signs of Parkinson s. He spoke softly. But despite this ostensibly vulnerable exterior, I could see how daunting, and frustrating, he must be a negotiating partner. Henry Kissinger has described how Mao Tse-Tung, rather than engage directly in discussion or debate, tended to wrap his remarks in parables. Without stretching the parallel too far, Arafat was like that. While I tried to engage him on how each of us might help cement the Oslo process, and ensure that the interim agreement indeed led to a full peace, he responded with stories, or offtopic remarks, which I was left to unwrap and decipher. He began our discussion by saying that now that I was Foreign Minister, he was glad to meet me. He said that he d heard reports from his intelligence people that when I was chief-of-staff, I had organized a kind of dissident band of generals who were working to torpedo the Oslo agreements. He compared this to the OAS, the military cabal in France that had opposed De Gaulle. I could only laugh. I told him I d actually spent two months with OAS men years earlier, in Mont Louis, but that Israel was different. Even at times of the toughest of disagreements, we were a family. An Israeli OAS would never work, even if I had been crazy enough to contemplate such a thing. Which, I hastened to add, I was not. There was another idiosyncrasy I encountered in Arafat. He was constantly writing notes as we spoke. I didn t mind that. But it did strike me as slightly diluting the kind of frankness and openness I would find in most of the one-onone meetings I went on to have with foreign leaders as Peres s Foreign Minister. Maybe he did it just as a kind of aide-memoire. But certainly in later meetings I had with him, it did have the effect to making me choose my words more carefully. That, I believed, reduced the prospect of exploring more creatively the boundaries of each of our official positions. It also helped Arafat to argue, as he did on more than one occasion, that Rabin, or Peres, or whatever Israeli interlocutor he chose to name had promised him such and such. He always implied this was based on his written record, though he never produced any evidence to that effect. He also never seemed to have recorded anything that he had promised Israelis. I tried, with only partial success, to engage some of the other Arab foreign 282 ministers when we d arrived in the banqueting hall. I did have a good talk with Egypt s Amr Moussa, and the foreign ministers of Morocco and Tunisia. When I tried to start a conversation with Syria s Farouk al-Sharaa, however, he pointedly, though politely, said he felt that would not be appropriate. President Assad had broken off talks with us earlier in the year, insisting that we first commit explicitly to honor Rabin s pocket deposit on the Golan Heights. Still, in my formal remarks at the dinner, I urged both sides to resume our effort to negotiate an Israeli-Syrian agreement. Sharaa s response was, again, unencouraging. But I did notice, and take heart from, the fact that it was neither polemic nor overtly hostile towards Israel. When I returned to Israel, I found that Peres, too, wanted to restart the negotiating process with the Syrians. The effort took on fresh momentum after a meeting at Peres s home in Jerusalem in early December, ahead of his visit to Washington for talks with President Clinton. Itamar Rabinovich and I had each met with him separately a few weeks earlier to brief him on how the talks with the Syrians had gone under Rabin, and why they d reached an impasse. We emphasized Assad s insistence on a preemptive agreement on our leaving the Golan. Peres now came forward with a plan. It was the diplomatic equivalent of what the Americans, a few years later in the second Gulf War, would call shock and awe. This was dazzle and befuddle. As Peres explained it, we would flood Assad with proposals: not just on land or security, but everything from water and electricity to tourism and industrial zones. Assad was in personal control of the Syrian side of the talks. The mere volume, range and complexity of the simultaneous engagement Peres had in mind would, he hoped, dilute his focus on the Golan. The best results are extracted from confusion, he said. Having watched President Assad operate for years, when I was head of intelligence and chief of staff, I said I was skeptical. I used the image of a bulldog. It comes into your living room with one aim: to lock on to your ankle. You can throw fireworks, cookies, balloons, a tasty bone. But it s a bulldog. It s still going to move another step toward your ankle. For Assad, the ankle was the Golan. I understood why Peres wanted to make a new effort to get peace with Syria. Obviously, it was something to be desired in itself. It would transform the terms of our conflict with the Arabs, and maybe even bring within reach the hope of ending it altogether. But there was a political consideration as well. For all his other accomplishments, Peres had a record of repeated electoral defeat as head of Labor. This next election would be the first held under a new set of rules. Instead of merely choosing lists of Knesset candidates, Israelis would cast two 283 votes: one for a party list and one for a directly elected Prime Minister. This would be a personal test, an opportunity for Shimon to build on the still-tenuous achievement of Oslo and finally secure the endorsement of the Israeli people. It seemed, for a while, I might even have a role. A few days later, Peres and I met again. In Israeli elections, the campaign manager is called head of hasbarah media and public-information planning. He told me he still didn t know exactly when he would call the election. But he asked me to take on that role. Both Peres and I proved to be right about the Syrians. The negotiations did resume, and two rounds of talks were held at Wye River, on Maryland s eastern shore, in December 1995 and January 1996. They did focus on the whole range of issues in an eventual peace, just as Peres had hoped, and some progress was made in identifying areas of potential agreement. But the bulldog never took its eyes of our ankle. There was no escaping the fact that without addressing the question of our withdrawal from the Golan Heights, we weren t going to get to the next stage. So a decision had to be made. Peres, no less than Rabin, knew what the trade-off would be. Israel needed a series of ironclad security arrangements, and a genuine peace, rather than just agreement to a cessation of hostilities. Syria would demand to get back all, or at least virtually all, of the Golan. Peres now focused on clarifying, in his own mind, whether we should be willing to agree to trade the Golan for a peace treaty. Our key meeting took place in early February, in the underground bunker in the kirya. Peres asked Amnon Lipkin, as chief of staff, and our other top generals for a presentation on their view of the security arrangements required with Syria under a peace deal. They recommended that Israel insist on keeping a sizeable part of the Golan, as well as a range of demilitarization provisions which reached pretty much to the edge of Damascus. I d been asked for my view by Rabin when I was chief-of-staff. Obviously, from a purely military standpoint, the ideal situation would be to keep the whole of the Golan Heights. No chief of staff was going to recommend pulling out. But I d always added a rider: to withdraw as part of a peace agreement, with all its other likely benefits, was not a military question. It was a decision for the government. The relevant question for a chief of staff was whether we could ensure the security of Israel if the government decided on a withdrawal, to which I answered yes. 284 I suspect Amnon would have said much the same thing. But that wasn t the question he d been asked. As the proceedings wound down, Peres looked glum. Maybe he was anticipating the potential leaks of army concerns about a Golan withdrawal if we did get closer to a deal, and the venomous political attacks he could expect from the right. Bibi s stated view on a deal with Syria at the time was that we could get peace and keep the Golan. It was classic Bibi, spoken with verve and conviction as if simply saying it would make it true. When the presentation was over, Peres called us into a small room in the bunker reserved for use by the Defense Minister. As Foreign Minister, I was the only cabinet member with him along with Uri Savir, Peres s senior deputy for peace negotiations and several other Peres aides. If there had been a discussion, I would have told him that as long as he felt the talks were progressing, he could ignore Amnon s presentation. If we didn t get a deal, it would be irrelevant. If we did, the military could find ways to deal with the security issues. But he just looked at us and said We re going for elections. A few days later, the date was set for May 29, 1996. Yet that would turn out not to be the end of Peres s doubts or difficulties. It was only the beginning. 285 Chapter Eighteen The first attack in the wave of Hamas suicide bombings destroyed a Jerusalem bus at 6:42 a.m. on February 25, 1996. It left 26 people dead, and nearly 80 injured from nails and shrapnel packed into the explosive charge. The second was near Ashkelon. The bomber, dressed in Israeli uniform, joined a group of young soldiers and blew himself up, killing one of them. A week later, a third suicide attack blasted the roof off a bus on the same Jerusalem commuter route, leaving 19 more dead. And on March 4, a 24-year-old Palestinian walked up to the entrance of Tel Aviv s busiest shopping center, on Dizengoff Street, detonated 30 pounds of explosives, and killed 13 people. At the bomb scenes, bloodied survivors and crowds of pedestrians surveyed a hellscape of twisted metal, shards of glass and mangled body parts. While most Israelis were too shaken to worry about the immediate political repercussions and Bibi was careful, at least in the immediate aftermath, not to try to score political points Peres s reelection campaign seemed to lie in tatters almost before it had begun. The attacks were not a surprise. As I d argued to the Washington think-tank audience before joining the government, the peace promise of Oslo had been assailed from the start by a new alliance of Islamist Palestinian violence: mainly Hamas, and Islamic Jihad on the West Bank. They saw Arafat as a traitor who had sold out to Israel. For them, the issue wasn t just Israel s capture of the West Bank and Gaza in the 1967 war. It was 1948: they opposed any Jewish state, anywhere in Palestine. In a campaign of terror that made the first weeks of the intifada seem almost easy to deal with, they began sending self-styled holy warriors to murder Israeli civilians, and sacrifice their own lives, in the expectation of Allah s rewards in the world to come. During the two years following Oslo, they d mounted ten suicide attacks, leaving nearly 80 Israelis dead. The attacks had actually stopped since the summer of 1995. But when the election date was announced with Peres holding a roughly 15-per-cent lead in the polls political commentators both in Israel and abroad began speculating about a resumption of terror. For Hamas, the election presented not just an opportunity to kill innocent Israelis but, by helping defeat Peres and Labor, perhaps to kill Oslo as well. Even before the bombings, our campaign was struggling for focus, energy and even purpose, beyond the aim of getting more votes than Bibi Netanyahu. Despite 286 BARAK 1 Peres s assurance that I d be the campaign manager, that hadn t happened. I wasn t really surprised by that, however. When he offered me the job, I wondered how he d managed to clear it with much more established Labor politicians. It turned out he hadn t. Haim Ramon, the veteran whom I d urged Yitzhak to bring back for the election, was put in charge. Shimon did ask me to head a small advisory team which reported directly to him, but all the key decisions were taken at weekly strategy sessions chaired jointly by him and Ramon. I still hoped to make the campaign a referendum on Yitzhak s murder, and on the need to recommit Israel to democracy and dialogue over vitriol and violence. But Haim began with the assumption that, given Peres s lead in the polls, we should simply play it safe, ignore the issue of the assassination, and try to ignore Bibi, too. He described it as a soccer match. We were leading by two goals, he told our first strategy meeting. The other side was never going to score unless we screwed up. To win, we do what all good teams do. We play for time. We kick the ball around. We kick the ball into the stands. We wait for the final whistle. I tried, without success, to argue that we were underestimating Bibi. He may be young and inexperienced in national politics. But I know him from when he was even younger. He knows how to analyze a task, break it down, work out a plan and execute it systematically and tenaciously. If we play it safe and don t define the campaign, he ll seize on every error we make and he will define it. I wanted us at least to connect with Yitzhak s legacy. I argued to both Peres and Ramon that we should promote Shimon as the candidate with the background, experience and vision to take forward what he and Rabin had begun. I also wanted us to echo a core assumption in all that Yitzhak did as a military and political leader: that peace was achievable only if Israel and its citizens felt secure. Even before the renewed terror attacks, I argued that we had to recognize that, much as Israelis yearned for peace, many were conflicted and fearful about the Oslo process. I said our central campaign message should be bitachon ve shalom. Security and peace. In that order, I added. We should tell voters openly that we expect groups like Hamas to try to launch attacks. But they don t want a secure Israel. They don t want peace. Don t play their game. Yet the scale and intensity of the bombings threw everything into crisis. After the bomb in the Dizengoff shopping mall, Peres called an emergency cabinet meeting at the kirya. He knew that we had to find a way to reassure Israelis we were getting a grip on the situation. We had got a start in our regular Sunday 287 BARAK 2 cabinet meeting the day before, by reviving an idea I d supported under Rabin: to build a security fence all along the edge of the West Bank, with a series of controlled crossing points for people and goods. Yitzhak had said no at the time, because he was worried it would be seen as a de facto border and undermine the idea of building coexistence. My view then, and even more so now, was that we would never get to the point of negotiating a final peace with the Palestinians unless we could stop at least most of the terror attacks before they happened. Peres, too, had been worried about undermining coexistence. But now, he and the rest of the cabinet were so shaken by the carnage Hamas had left that they approved the idea of a security barrier. At our kirya meeting, hours after the latest bomb had exploded less than a mile away, Peres recognized we had to go further. Under Oslo, we had begun giving the Palestinians control over internal security in Gaza and parts of the West Bank. Since the new Hamas attacks, Arafat had been saying the right things. After the first bomb in Jerusalem, he d phoned Shimon to offer condolences, telling reporters afterward that this was a terrorist operation. I condemn it completely. It is not only against civilians, but against the whole peace process. Yet when it came to action, we saw no sign that he was willing, ready, or perhaps able to crack down on the Islamist terror attacks. So Peres now announced that, if necessary in order to detain known terrorists, we would for the first time send Israeli troops back into areas where control had been handed back. If Arafat didn t act, we would. On the political front, Peres did get some good news: President Clinton, anxious to preserve the progress he d worked so closely with Yitzhak to achieve, organized an unprecedented show of international condemnation of the terror attacks. With Egypt s Hosni Mubarak, he co-chaired a Summit of Peacemakers in Sharm al- Sheikh with the participation not just of an equally concerned King Hussein, and of course Arafat, but leaders of Arab states from North Africa to Saudi Arabia and the Gulf. The only significant holdout was Syria s Hafez al-Assad. He objected because he said the conference was too focused on Israel. As Foreign Minister, I accompanied Shimon to the summit. A single day s meeting was never going to end terror. But it was unprecedented in the breadth of Arab engagement in an initiative that, as Assad had anticipated, didn t just condemn terror in general. It specifically denounced the attacks being launched inside Israel. 288 BARAK 3 I d met President Clinton briefly once before, when he received Syrian chief-ofstaff Hikmat Shehabi and me after our Blair House talks in 1994. But the Sharm conference provided my first opportunity to spend time with him face-to-face. When Peres and our delegation were about to leave, a Clinton aide approached and said the President had asked whether I d like to join him on the flight back to Israel. Though as surprised as I was by the invitation, Shimon nodded at me to signal it was okay, so I headed off for Air Force One. I spent most of the brief flight talking to the President in the office space carved into the middle of the plane. I would later discover that he quite often tried to engage with foreign leaders colleagues or advisers on overseas trips, and not limit himself to summit negotiations. It was part of his voracious appetite for information or insights which he believed were essential to get a rounded understanding of the complexities of the issues he was trying to address. Still, it was an extraordinarily fascinating 20 minutes. I got my first real look at Clinton s natural gift for person-to-person politics, as well as his mastery of both the detail and nuance of Israel s predicament, and of the wider conflict in the Middle East. Looking straight at me, almost never breaking eye contact, he encouraged me to feel I had something of value and importance to share with him. In fact, he created the impression that I was the first sentient, intelligent human being he d ever met. He made no grand policy statements. Mostly, he asked me questions: what were the prospects of Arafat reining in Hamas and Islamic Jihad? How were our relations going with King Hussein? What was my view of the chances of concluding a peace with Hafez al-Assad, despite his boycott of Sharm al-Sheikh? If Shimon did go on to win the election, what new diplomatic opportunities could he as president, and we, exploit in the search for peace? And, finally, what if Bibi won? I dare say this first meeting was more memorable for me than for the president. But it would turn out to provide a foundation for our joint efforts, in a few years time, to resolve the very issues we d talked about on Air Force One. Though the summit restored a small opinion poll lead for Peres, that merely reinforced Haim Ramon s soccer-game strategy. I was more convinced than ever it was wrong. Haim still wanted to ignore Bibi, but I pointed out that for at least one 289 BARAK 4 reason, that was absurd. Near the end of the campaign, there was going be a headto-head television debate. In the meantime, though Bibi might be many things, he wasn t stupid. He was already telling voters that while Peres was making deals with Arafat, ordinary Israelis were being left to wonder where the next terrorist would strike. He would surely ramp up the accusations that Peres was weak on security, especially if there was more violence. To assume that if we just sat back we would win seemed to me complacent and risky. Yet when I mentioned to Shimon that a couple of our internal polls still actually had Bibi slightly ahead, he just laughed. I have good polls, he said. Why should I believe the bad ones? Then, however, violence intervened again. It was not Hamas this time. Beginning on March 30 and escalating sharply 10 days later, Katyusha rockets rained onto towns and settlements in northern Israel by Hizbollah the first sustained attack since the cease-fire in 1994. It was pretty obvious that, like Hamas, the Iranian-backed Shi ite militia in Lebanon was not just targeting Israeli civilians, but Oslo, and Peres s chances of winning the election. The last thing Shimon wanted was for tens of thousands of people in the north of Israel to be cowering in shelters during the final stretch of the campaign. So on April 11, he ordered a major military operation in Lebanon. I wasn t party to the discussions about the operation. But the model chosen was similar to the one I d drawn up in 1994: a large-scale air and artillery assault designed to hit Hizbollah hard, force civilians to flee and persuade the Lebanese and Syrian governments to commit to a US-mediated end to the rocket attacks. Again, all of that happened. But not before a tragic accident which brought a storm of international criticism and hastened the end of the operation. An Israeli specialforces unit was ambushed while providing laser targeting support for an air force strike. When it called in artillery support, four of the shells fell on a UN compound near the Lebanese village of Qana, killing more than 100 civilians seeking shelter inside. Peres phoned me a few hours later, distraught not just because the wayward artillery strike had laid us open to charges of targeting civilians in an operation designed to try to avoid doing so. Also, because the accident seemed likely to deal a further blow to his efforts to convince Israel s voters that he, rather than Bibi, was the man best placed to lead the country. We re in trouble, he said. Yet within days, it became clear that our basic campaign strategy ignore Bibi and kick the ball into the stands was not going to change. I did make one last 290 BARAK 5 attempt to help put us on the political offensive, after I was asked to record on of Labor s TV campaign messages. I knew what I wanted to say. I d talked it over with the small group of campaign experts Peres had asked me to assemble alongside Ramon s main team. Rather than ignore Bibi, I was going to use my position as his former commander in Sayeret Matkal, someone who knew him well, to explain why Peres should lead Israel. How many of us can really understand what it means to be a Prime Minister? I began. As head of intelligence, and chief of staff, I have seen, close-up, what it takes to be a Prime Minister. It is not a game. We ve had good Prime Ministers: Ben-Gurion, Peres, Rabin, Begin... Bibi, we know each other well, from the days when you were an officer under my command. A young officer, and a good one. Prime Minister is the most important and serious role in this country. Bibi, it s not yet you. We need an experienced leader, who will know how to guide us with wisdom, strength and sensitivity. Shimon Peres is that man. Yet we were never going to be able to avoid engaging with Bibi altogether. The face-to-face television debate between the two candidates was set for May 27, two days before the election. By American standards, the format was fairly tame. No direct exchanges were permitted, only a series of questions directed at each candidate by a leading political journalist, Dan Margalit. Still, it would place Shimon and Bibi side by side. We spent two days prepping Peres, with Avraham Burg an early Peace Now supporter, former Peres aide and Knesset member standing in for Bibi. Avraham played the role well, anticipating the lines of attack Shimon would face. But as I watched, I worried that even he couldn t replicate one of Bibi s key advantages. During his time at the embassy in Washington, and especially as UN ambassador, Bibi had become a frequent presence on American television interview shows. Always articulate, he was now also an experienced, and completely comfortable, television performer. In our debate rehearsals, Peres sounded well versed on all the issues. Yet I sensed his problem wasn t going to be the message, but the medium. He sounded a bit distant, unengaged, almost as if the TV debate was something he knew he had to go through, but which he thought slightly sullied the proper purpose of politics. In the real debate, Shimon seemed to convey the sense that merely being in the same studio with a pretender as raw and untested as Bibi was offensive. When each of the candidates was given the opportunity at the end to ask a single question of the other, Peres didn t even bother. He did come over as the man with much more 291 BARAK 6 experience, gravitas, substance. He also had what was probably the best line in the debate, saying that if Israeli voters were choosing a male model and not a Prime Minister, Bibi might indeed be their man. Yet Bibi was much the more polished performer, and the more focused. No matter what question Margalit asked him, he almost invariably answered with the driving message of his campaign: that because of Peres, Israeli citizens were living in fear, wondering where the next suicide bomber would strike or the next Katyusha would land. And unavoidably, there was another contrast as well: Bibi, who, after all, was 26 years younger, projected greater youth, energy and confidence. When it was over, and Peres asked us how he d done, we all hemmed and hawed. Only Avraham Burg was prepared to offer a clear verdict. He told Peres that Bibi had been the clear winner. Still, it remained possible that Ramon s football-game strategy might work. Though Peres s poll lead had been narrowing by the day, he was just ahead. With a large number of voters undecided, however, Bibi pulled one final trick out of his campaign bag. Under Israeli law, election spending is tightly regulated and nearly all campaigning is barred during the last 48 hours before polling day. Yet with the backing of wealthy overseas supporters, the Netanyahu campaign suddenly flooded Israel with blue-and-white banners under the slogan: Bibi, Tov la Yehudim. Bibi is good for the Jews. Would it swing tens of thousands of votes among the Orthodox voters who were the main target? It was impossible to say. But it seemed clear it was going to be a very close election. I had worried for some time we might lose. That was why Nava and I had persuaded Michal, our eldest daughter, to bring forward her wedding. She was marrying her teenage boyfriend, a wonderful young man named Ziv Lotenberg. They had originally planned it for a week later. But we did want to risk having it overshadowed by an election defeat. The wedding took place in a beautiful area of lawns and gardens called Ronit Farm, north of Herzliya. It was how weddings are meant to be, full of smiles, good food and dancing. Near the end, Shimon showed up. As he walked over to greet us, one guest after another shook his hand, patted him on the back, hugged him, wished him luck. It was as if all the pressure and tension of the campaign had suddenly flowed out of him. He smiled, returned the embraces, even joined in the dancing. When he left, I told him that he d done all he could to secure victory, and that I hoped the voters would make the right choice. The first exit polls suggested he was going to win. But our internal polling was less clear. As more and more votes were counted, Shimon s margin inexorably 292 BARAK 7 narrowed. It wasn t until the next morning that the final result was clear: Bibi Netanyahu had won. By 29,000 votes. If a mere 15,000 of the three million ballots cast had gone in our column instead of his, Shimon Peres would have remained Prime Minister. I knew he d be feeling crushed. Not just on a personal level, because this latest electoral defeat had been in was a direct, head-to-head vote for Prime Minister. He, like all of us who had campaigned for him, knew what was at stake for the country. It had been barely six months since Rabin was gunned down in Tel Aviv s main square, by a fellow Israeli riding a tide of hatred so blinkered that it could paint Yitzhak who had worked all his life to create, defend and help develop the Jewish state as a traitor, even a Nazi. All because he had decided to try to make peace with the Palestinians, at the price of ceding control of part of the biblical land of Israel. Bibi had gone through the motions of urging restraint. But politically, he had ridden their wave. It was hard not to see his victory over Peres as a triumph for the ugly intolerance and the venom that had claimed Yitzhak s life. In policy terms, it was in large part a rejection of both men s vision of an Israel that, while still ready to fight if necessary, could explore compromise in the search for the ultimate prize of peace. The last time Yitzhak and I had talked, he d been confident of defeating Bibi at the polls, and I do believe he would have won. But despite his differences with Peres, I m equally certain he would have wanted Shimon to win, not just for his sake but for Israel s. I had got to know Shimon, too, during my years in the kirya. In fact, he was the Labor leader who first spoke to me openly about one day moving into politics, something Yitzhak was always punctilious in not broaching before I d left the army. Shimon had also taken to including me usually along with Yossi Beilin and Shlomo Ben-Ami, a bright young historian who would become our ambassador to Spain before entering politics himself in a coterie of youngsters he would bring along to meet visiting dignitaries from abroad. He occasionally invited me to chat about military and security issues in his and Sonya s flat in Ramat Aviv. My personal ties to Rabin were stronger, of course. After I joined the government, Shimon s and my relationship became slightly more circumspect. But since the assassination, some of the old warmth had returned. Not just as his foreign minister, but in discussions on wider questions of security as well, we worked closely together. 293 BARAK 8 Within days of the election, however, there was a new source of potential friction between us: Shimon s future, and possibly mine, in leading our opposition to Bibi and bringing a Labor government back to power. The question of Peres s leadership was unavoidable. Labor s constitution mandated a vote for party chairman within 14 months of an election defeat. But the widespread assumption was that Shimon would run again. A little before midnight on election day, with the returns beginning to show we might lose, I was invited to a morning-after breakfast by two senior Labor ministers: Fuad Ben-Eliezer, the man who had delivered the table-thumping warning that the hatred on the far-right would lead to a murder, and Avraham Shochat, Finance Minister under both Rabin and Peres. Both had been in the Knesset since the 1980s. Both were part of two of Peres s earlier, failed, election campaigns. Both now said that they weren t prepared to see him lead us into electoral battle the next time around. Everyone in the party understands the meaning of this defeat. Shimon is done, Shochat said, as Fuad nodded his agreement. You will have to go for the leadership. Though their endorsement was a surprise, it would be disingenuous to pretend I hadn t been thinking, at some stage in the future, of running for the party leadership. But my election-campaign differences with Ramon and Peres were not just for the sake of intellectual argument. I badly wanted us to win: both for Peres s sake and the country s, and to redeem and continue all that Yitzhak had sacrificed. Despite my misgivings about some aspects of the Oslo process, I did believe there was a possibility of achieving peace with the Palestinians. I knew, from my involvement in the talks with the Syrians, that the outline of a possible peace agreement with Assad was already in place. I frankly wasn t confident that Bibi was the man to lead it forward. Yes, he was smart. He was organizationally astute. He d been a good sayeret officer. Yet as I d said it my TV spot, being Prime Minister required much more than that. I was now an elected Knesset member. But I had gone into politics in the hope of making a difference to how Israel confronted its defining challenges of war and peace. The prospect of spending the next few as a mere opposition foot soldier, making speeches and sitting in committee sessions, 294 BARAK 9 seemed to defeat the purpose of going into politics in the first place. Still, I had no appetite for rushing into a challenge to Peres s leadership, both because it was bound to be difficult for both of us, and frankly because it seemed rash, premature and maybe even unnecessary. Bibi was beginning the negotiations to form a government, and that process was likely to take at least a few weeks. Shimon had yet to signal whether he did intend to stay on. Still, when he invited me for a late-night chat at his apartment a week after the election, I was concerned he might raise the leadership issue and I knew that, if he did, I would have to be honest and open with him. The conversation went very differently than I d expected. After he d poured each of us a glass of Armagnac, and offered me a plate of Sonia s cakes, he spoke for a while about Bibi, though he could not even bring himself to utter the name. This man, he said, knew nothing about leadership, much less about running the country. He would be outmaneuvered, overshadowed and ultimately controlled by the real strongman in the Likud: Arik Sharon. I said I thought we were again underestimating Bibi s strength, as well as the effect of the country s new electoral system. He was the first Prime Minister to enjoy a direct, personal mandate. That turned upside down the balance of power and influence in our politics. As he assembled his coalition, the other parties, if they wanted to be in government, would have to deal with him on his terms. So, to a much greater extent than before, would potential internal rivals. As we talked, I was struck that Shimon seemed resigned to the election defeat, relaxed, more at ease with himself than at any time since the start of the grueling campaign. Then, quite suddenly, he said: Ehud, I understand the meaning of the election result. You will have to take on the leadership, and lead the party. He said he didn t plan to spend the rest of his years hanging around the apartment. He would remain active working for peace but no longer in the party political arena. I understand the meaning of what has happened, he repeated. I will pass the Labor leadership torch to you. We should find a way to do it quickly, and in the right way. It was nearly three in the morning when I left. I was not just surprised, but touched, by what he d said. Shimon was now nearly 73. He d had a life in our country s politics, and in Labor, stretching back to before the state, when he d been a favored prot g of Ben-Gurion. Walking away was going to be hard. I was 295 BARAK 10 touched as well by the fact that he had decided to pass the torch to me, someone more in the mold, and closer to, Rabin. But I remained cautious, too. When I got back home, Nava, knowing where I d been, was still awake. I told her everything that Shimon had said. I told her how extraordinary it felt to have the prospect, at least, of leading Labor in opposition to Bibi, without the need to confront, or to inflict personal hurt, on Shimon. But I added: It seems a bit too good to be true. It was. The next morning, I joined other ministers and party officials with Peres in his office. It was as if our conversation a few hours before had never happened. Shimon set out his strategy for Labor going forward. And the first thing he said was that the party needed to push back any leadership election beyond the mandated 14 months. It s too early, he said. He said we needed to focus on two other strategic imperatives: to reconstruct the party, and consider the issue of joining a possible unity government with Bibi. Though Bibi went on to form his government without us, in alliance with a number of smaller Orthodox parties, the idea of a Labor leadership change seemed off the agenda, at least for now. In early August, I was standing next to Giora Einy the political operative Yitzhak had sent to help bring me into his government, and a friend of Peres as well when Shimon rose to speak to the dozens of wellwishers at his 73 rd -birthday celebration in Tel Aviv. He was at his old, selfconfident best. With just a few thousand extra votes, we would have won the election, he said. He was sure Bibi s coalition a coalition against peace would not survive for long. Giora, smiling, turned to me and said: It doesn t sound like a farewell speech. It seems like he s ready for the next round. He lost twice to Begin. He lost once to Shamir. And only once to Bibi. He s not going to stop without giving it another go. Another of Peres s old friends, a few weeks later, urged me to press him on the need to step aside. I d become closer to the French Jewish businessman Jean Frydman during the election campaign. Since he had helped organize the fateful peace rally at which Rabin was shot, he felt wrongly, but powerfully a sense of responsibility for what had happened. He wanted to do everything possible to ensure that Rabin s political legacy, and Shimon s, survived. He invited Nava and me to visit him for a few days. When he asked about the birthday celebration, I told him what Peres had said. He s making a huge mistake, Jean told me. After every election, he goes through the same process. Always, he s convinced that next time he will win. I said how I dreaded the prospect of being part of an effort to 296 BARAK 11 force Shimon out. But Jean said he d been giving a lot of thought to everything that had happened since Rabin was killed. He felt I was the only potential Labor leader who could defeat Bibi in an election and bring back sanity to Israel, lead it to peace. He said he was convinced that Peres s time had passed. I can say that. I m from his generation. And as a very close friend of Shimon, I will be the first in line to help you. Early in September, having let Shimon know through Giora and then phoning him directly, I declared publicly that I would be running for the Labor leadership. Though he d thanked me for telling him beforehand, he said he thought I was making a mistake, and was still against having a leadership election at all. That made his public response to my announcement puzzling. He went on Israeli TV and said he would not be a candidate for Prime Minister in four years time. The time has come for a change, he said. But while everyone took that to mean he was reconciled to a change of party leadership as well, it turned out that we had jumped the gun. He intended to stay on as chairman. During the early months of 1997, Shimon and I held a series of late-night meetings at his apartment to thrash out an agreed course. It was a process that was hard for both of us, and hurtful for him. He was now at least reconciled to the inevitability of an election for a new party leader, if only because his prot g Yossi Beilin had also put his name forward. But he kept proposing to push back the vote. I insisted that since the deadline under party rules was June 3, it was only right that all of us abide by that. I do remember a particularly poignant moment from one of our sessions. Peres had left the room for a minute, and Sonia came in. Ehud, she said to me, keep your nerve. You re the only one who can talk to him this way. He should have retired from politics years ago. You re the only one around him who tells him the truth. We ended up with a compromise. Shimon accepted that the leadership election would be held on June 3. I agreed that in the unlikely event Bibi decided to invite us into his coalition during the three months after the leadership vote, Peres would select the Labor ministers. Our last meeting ended at nearly four in the morning. He told me he d arranged a reception for the party leadership at 10 a.m., in barely six hours time. He suggested we meet in his office an hour beforehand. I didn t know what to expect. After months of discussions, I hoped he understood that I had wanted the process to go differently. I had been open and honest with him throughout. But I knew that, deep down, he still wanted to stay on, that he believed 297 BARAK 12 that his long record of service should have earned him that right, and that it would be painful for him to accept that, by June, there would be a new Labor leader. He was relaxed and gracious when I arrived. We went through the details of what we d agreed, and worked out what each of us would say to reporters. What came next, as the party faithful filed in, was simple human nature, I suppose. Seeing some of his oldest supporters, he had second thoughts. His comments to reporters afterward were more hedged than what we d discussed. Giora told me that after all of us had left, Peres turned to him and said: Look what Barak is doing to me. What have you been doing? Giora, who had been a conduit between us at the very beginning of our discussions, replied: You asked me to bring Barak to you. At which point, Shimon said: OK. So probably I made a mistake. At a convention of 3,000 party activists in mid-May, a few weeks before the leadership election, he made a final attempt to mitigate that mistake . Nissim Zvili, the secretary-general of the party and a longtime Peres ally, introduced a motion to vote him into a new post of party president. A couple of Shimon s friends urged me to back the idea, describing it essentially as a ceremonial role. But I feared it was a recipe for prolonging the agony. Whatever powers President Peres would have, the idea of two captains on a ship would almost certainly mean trouble. I was especially reluctant to go along with it because our particular ship had been in rough waters for so long. Labor needed to steer a calm, decisive course toward the next election if we were going to defeat Bibi. What followed was one of the most painful spectacles I ve ever witnessed. When Peres rose to make his case for becoming party president, he said: I don t want powers. I don t want honors. But I also don t want insults. I announced my decision to resign from the position of party chairman. Did someone push me into it? Am I trying to hold on to my job? Yes! many hundreds of the delegates shouted back at him. Stung, he reminded the meeting that it was he who had led Labor back from the battering it took in the 1977 election against Begin. In 1981, he d helped us recover a dozen of our lost seats. Even so, because he hadn t succeeded in forming a Labor government, people had called him a loser! Mah? Ani loser? he asked, using the English word. Am I a loser? Yes! Yes! came the shouts. 298 BARAK 13 Yet the saddest note came at the end. I apologize for being healthy, for not getting old according to plan, he said, adding that even without the title of president, he would keep working for peace. There were three other candidates for party chairman: Yossi Beilin; Ephraim Sneh, the friend who d been the paratroopers chief medic when we d fought at the Chinese Farm in 1973, and at Entebbe too; and Shlomo Ben-Ami, the academic and diplomat whom Shimon had taken along with Yossi and me to meet visiting foreign politicians, and who was now also a newly elected member of the Knesset. When the vote came, it was assumed by most political commentators that I was going to win. The only question was whether I d get the 50 per cent of votes needed to avoid a run-off, where the outcome might be less predictable. But I got 57 percent against Yossi s 28, with the remaining 15 percent split between Ephraim and Shlomo-Ben Ami. Now, we had to put ourselves in a position to defeat Bibi and the Likud. Policy priorities were ultimately what would matter most: strong and credible steps to confront terror and safeguard our security, allied with the leadership and will to try to negotiate a peace with Syria and the Palestinians; and, at home, a recommitment to the values of an open, tolerant democracy. But in at least one important way, I approached my new role as if it was one of our operations in Sayeret Matkal, or the need to reshape our armed forces when I was chief-of-staff. My first priority was to put in place the practical foundations for a successful election challenge against Bibi. Through Jean Frydman and other business supporters with the means and the desire to help, my brother-in-law, Doron Cohen, assembled sufficient funding for us to begin engaging with the strategists who had helped deliver electoral success for a trio of other centre-left political leaders overseas: Bill Clinton, Tony Blair in Britain and later Gerhard Schroeder in Germany. My main early political focus was on holding Bibi and the government to account in the Knesset, above all on the torturous process of ensuring our security while implementing the West Bank redeployments agreed in Oslo II. We d made a small start under Rabin and Peres, but the three major withdrawal phases due in the 299 BARAK 14 five-year interim period had yet to begin. In one respect, I had some sympathy for Bibi s predicament. The reason I d tried to get Yitzhak to alter the terms of Oslo II was that it required us to hand back control before we knew what a permanentstatus peace deal would look like. But where my sympathy ended was in how Bibi handled the situation. Despite my concerns about the way the Oslo process had been designed, I never doubted that killing it off would be by far a worse alternative. Bibi had been elected to lead Israel. Instead, he acted as if he was playing some sort of pinball match, flipping the ball first one way, then the other, with no obvious aim beyond keeping it in play and, where Oslo was concerned, simply stalling for time. Rather than setting out any vision of where he hoped to move the negotiating process, he seemed more concerned with keeping the rightwing of Likud and the smaller, even more extreme parties from turning against him. In late September 1996, Bibi and the Likud mayor of Jerusalem, Ehud Olmert, decided to go ahead with the festive opening of an archeological tunnel that provided access to a larger portion of the Western Wall of the ancient Jewish temple. It was a decision that, under both Rabin and Peres, we d delayed out of concern about inflaming tensions with the Palestinians. As Shimon rightly said publicly after the three days of violence that followed, we understood that, at a minimum, it would need to be coordinated beforehand with Arafat. As the unrest spread into the West Bank and Gaza, there were media warnings of a new intifada, the difference this time being that the Palestinians newly established police had entered the fray. By the time urgent US diplomacy, our efforts and Arafat s, brought it to a close, 25 Israeli soldiers and nearly 100 Palestinians had been killed. He did not slam the brakes altogether on the American-led efforts to move ahead with the Oslo. In early 1997, in fact, he and Arafat reached a separate agreement on the critically important question, and potential flashpoint, of Hebron. It stipulated that about 80 percent of the area would be under Palestinian authority, with Israel retaining control and responsibility for nearby settlements and key security points. Despite right-wing and settler opposition, it was approved by a wide margin in the Knesset, with Labor s backing. But a few months later, in the spring of 1997, Hamas launched a new campaign of suicide bombings in shopping areas of Jerusalem and Tel Aviv, leaving 24 people dead. While not suggesting that Bibi took the human cost of terror lightly, he did use the attacks to drag out further US-mediated talks on the details of implementing the Oslo II redeployments. 300 BARAK 15 By November, even his Foreign Minister, David Levy, was making noises about quitting. He said it would be a waste of time to stay in the cabinet if it was going to bring the peace process to a halt. I warned Bibi, both in the Knesset and in a series of speeches, about the alternative on the Palestinian side if those who wanted a negotiated peace had nothing but stalemate to show for it. And lives, I insisted, were at stake. Both through closed-door sessions of the Knesset s security and foreign affairs committee, and my own contacts in military intelligence, I was convinced that the result would be a second, much more deadly, intifada. Not with Molotov cocktails, but guns, and suicide bombs. I was not out to score political points in keeping the pressure on Bibi to move forward. In fact, I announced that if Bibi did go ahead and finalize the terms for our Oslo redeployment, Labor would once again provide the extra Knesset votes needed for him to get it approved. Early in 1998, he sent word that he wanted to talk. The message came through Yaakov Ne eman, his Finance Minister and a prominent lawyer whom I knew and liked. He and I held an exploratory meeting at which he proposed talks with Bibi on the prospect of a unity government that would help move the peace process forward. I said I d talk, with one proviso: the discussions would be genuinely secret, with no leaks. I was not prepared to engage in political gamesmanship. In May, Bibi sent an assurance of confidentiality through Ne eman. The first of about a half-dozen meetings came a few days later at the Prime Minister s residence in Jerusalem. Then, we shifted venue, meeting at a Mossad-owned villa north of Tel Aviv. I brought along Bougie Herzog, a bright young lawyer, and Labor Party member, who was working in the same law firm and Ne eman. It was by no means clear we d agree on a unity government. To my amusement, if not altogether to my surprise, I got word that Bibi was putting out separate political feelers to Shimon Peres. But before long, it became clear there was a specific political motivation behind his approaching me. It was indeed the peace process. But it wasn t the Palestinian peace process, something Bibi still clearly wanted to avoid as much as humanly possible. It was an attempt to engage with Syria. He asked me about the talks under Rabin and Peres, and my views on the possibility of a deal with President Assad. He also wanted my assessment about whether the army could work out arrangements to safeguard the country s security if we handed back most, if not all, of the Golan Heights. If so, what kind of security arrangements, with what timeline? We met through the summer, as the 301 BARAK 16 talks with the Americans on the further West Bank redeployments meandered ahead. We also discussed in detail how a unity government would work. We agreed it would be presented, like the Shamir-Peres partnership in 1984, as a crossparty response to an important challenge for the country: in this case, security and the peace process. I would be both Defense Minister and Vice-Prime Minister , with the understanding that Bibi and I would jointly discuss all major issues before jointly agreeing to bring them to the full cabinet. But in August, the talks ended, after news of our talks finally leaked. I immediately phoned Ne eman. I reminded him that at the outset, I d said that would mean the discussions were over. He did call me back later in the day to say Bibi insisted that he d had nothing to do with the leak. My guess was that the source was my old comrade from the Chinese Farm, Yitzhik Mordechai, who had presumably heard that Bibi was ready to make me Defense Minister as part of a unity government. There was, of course, already a defense minister: Yitzhik. Bibi s idea to reopen efforts to get peace with Syria didn t last either. Although I d learn of this only a few years later, he d approved a visit to Damascus by the American Jewish businessman Ronald Lauder to meet President Assad. The visit made it clear to Bibi what successive Israeli leaders had learned: a deal might be possible, but only if Israel was willing to commit in advance to pulling out of the Golan. Assad told Lauder to come back to him with a detailed map setting out Bibi s view on delineating the Israeli-Syrian border under a peace agreement. Though no one in the cabinet knew the initiative was underway, Bibi realized that before sending back the map Assad wanted, he would need to tell the two senior ministers directly affected: Arik Sharon, who had replaced David Levy as Foreign Minister; and Yitzhik Mordechai. Both of them said no, with Yitzhik pointing out that a signed map would inevitably become part of the negotiating record. It was a step that, in future negotiations, could not be undone. Bibi s coalition was now creaking. The Syrian option was off. David Levy had already jumped ship. Yitzhik, increasingly concerned about Bibi s delay and drift on Oslo II, seemed to be thinking of leaving as well. Right wing ministers and Knesset members were no happier: they opposed even the slightest prospect of movement on Oslo. In October, Bibi did finally try to seize the initiative. He wrapping up the redeployment details in a summit with Arafat and Clinton and Arafat in Wye River. But as soon as he got back home, he started backtracking, rather than risk facing down his right-wing critics in the cabinet. Implementation of 302 BARAK 17 the deal was due to begin in early November, but he kept putting off a vote in the cabinet. When the vote came, on November 11, Bibi squeaked through by a margin of 8 to 4, but with five abstentions. That meant less than half of his ministers had voted for it. The easy part for him was Knesset ratification, since I had committed Labor to supporting Bibi on any move towards continuing the peace process. The day after the Knesset s vote, Bibi won the cabinet s clearance for actual implementation to begin. But it didn t. With hard-line ministers threatening to bring down the government if it did, Bibi again stalled. That was the turning point. I d made it clear our parliamentary support would remain for as long as Bibi moved ahead with what had been agreed at Wye River. It was not intended as a blank check, or an offer to prop up a Prime Minister who now seemed to be looking for any way possible not to implement the agreement. My key ally in what came next was Haim Ramon. Despite our differences over the direction of the Peres election campaign, we had become effective parliamentary partners. He had a depth of political experience and knowledge I still lacked. While I found the details of how the Knesset operated arcane and often tiresome, Haim knew all of it instinctively. When it came to the need for discreet discussions or bargaining with other parties, not only could he draw on his personal relationships with Knesset members across the party divide. He had the additional advantage of being able to avoid the scrutiny that would follow a direct approach from me. Before Bibi had gone to Wye, Haim and I had discussed how we might move to force early elections. The peace process, and the country, were drifting. There seemed no point in waiting, if we could be confident of lining up the necessary votes among the growing number of others who were also convinced Bibi should go. After the Wye summit agreement, I put all that on hold. But now that Bibi had shifted into reverse, I told Haim to resume his efforts. In early December, he told me he had enough votes for a no-confidence motion, under his name, to dissolve the Knesset and pave the way for early elections. The axe fell on December 20. Bibi had lost the support of the right-wing, who wanted Oslo ended altogether. He had now lost me, too. I felt his approach to the peace process was leaving Israel rudderless. The way we were heading, we would not just forfeit any potential benefits from Oslo. We would be leaving a political and diplomatic vacuum at a time when a serious new explosion of Palestinian violence was becoming ever more likely. In the Knesset debate, Bibi made one final bid to 303 BARAK 18 save himself: by suggesting a delay of 72 hours for talks on a unity government. I said that I was all for unity. But I reminded him that, time after time, we d saved his government in order to continue the peace process. We could no longer help out a government that is not interested in upholding the Wye agreement, but only in its political survival. The vote of no-confidence went against him by the yawning margin of 81 to 30, with nine Knesset members abstaining or staying away. A few days later, the date for the election was announced: May 17, 1999. 304 BARAK 19 Chapter Nineteen A few hours before Haim Ramon introduced his no-confidence resolution, he came to see me in my office in the Knesset. He was worried. Not about the vote, but about what would come after. Ehud, I m sure we can topple the government, he told me. But only you know whether we re ready whether you re ready to defeat Bibi in an election. I m ready, I said. We are going to win. Few agreed. In fact, there had been times during my first year-and-a-half as Labor leader when I wondered if I d be able to hang on to the job. I was in charge of a party whose grassroots were on the left. I was, by intellect and instinct, a pragmatist and a centrist. I did share Labor s vision of a socially just and democratic Israel. Especially after seeing far-right rabbis egg on the fanaticism that ultimately killed Yitzhak Rabin, I felt strongly that we needed to separate organized religion from our day-to-day politics. But I d been raised with a deeper respect for our Jewish traditions than many on the left. Right after Yitzhak s murder, I d gone to see Zevulun Hammer, the leader of the National Religious Party. It had been part of both Labor and Likud governments ever since 1948, though not Rabin s. The NRP, too, had been drifting steadily rightward. But it still basically subscribed the idea of a strong, democratic Israel under the rule of law. I wanted to bring the NRP back into the government under Peres, as part of the widest possible political alliance against the assassination and the campaign of hatred that had fostered it. Sadly that didn t happen, in part because of the anger against all Orthodox politicians after Rabin s murder. Yet in my readiness to engage politically with Orthodox leaders who did not reject the very idea of peace negotiations whether in the NRP, or the increasingly influential Sephardi religious party, Shas I was outside Labor s mainstream, and its comfort zone. On my approach to peace as well, I differed from many on the left. Though I was determined to pursue any realistic avenue to negotiations, I was convinced that security considerations had to be paramount in what we were prepared to give up or accept in negotiations. I was cautious about ceding too much too soon, in case the Palestinians or the Syrians proved either unequal to, or uninterested in, making the hard decisions required for peace. That was an approach with, like Yitzhak 305 BARAK 20 before me, provoked more left-wing parties like Meretz to suggest that if I really wanted peace, I d be ready to give away more, and more quickly. My position wasn t helped by the way I had come over in the media during my first months as Labor leader. A number of newspaper commentators wrote that while they found talking with me stimulating, I seemed to be operating in a world of my own, either unable or unwilling to give straight answers and a single, clear message. They were right about that. If asked a question, especially one which obviously involved an issus of nuance, my instinct was not to come up with a sound bite. It was, as best I could, to answer fully and accurately. The difficulties that could sometime cause hit home in an interview with a leading Israeli journalist in the spring of 1998. He asked how my life might have turned out if I d been born and raised not as a kibbutznik, but a Palestinian. I answered: At some stage, I would have entered one of the terror organizations and fought from there, and later would certainly have tried to influence from within the political system. I did hasten to add that I abhorred terrorists, describing their actions as abominable villainous. But that was lost in the political storm that followed. All I d done was answer as honestly I could. What if I had been one of the Palestinian babies in Wadi Khawaret, but with the same mind and same impulses that had defined my life as an Israeli? I assumed that instead of becoming an Israeli soldier and politician, I would have become the closest thing to a Palestinian equivalent. Still, as even my brother-in-law, Doron Cohen, told me when he phoned a couple of hours later, it was not the most astute thing to say as a potential candidate for Prime Minister. None of this might have mattered if I d been able to show I was bringing Labor nearer to defeating Bibi. But the only measure of progress that the media paid attention to was the opinion polls. Briefly, in late 1977, I did pull ahead, during the period leading up to Bibi s agreement to pull out of most of Hebron. But for much of 1998, I was running behind, and questions about my leadership surfaced publicly by the summer. The media commentators spoke of the need for a Labor liftoff. Why, after a full year as leader, had I failed to deliver it? 306 BARAK 21 There was a part of politics for which I was naturally suited after my life in the army: to plan an operation, prepare and execute it. An ability to get the lie of the land, assess your own and your rivals strengths and vulnerabilities, and to win. And the lie of the land struck me as more encouraging than many Israeli commentators believed. When I became Labor leader, I didn t expect Bibi to fall anytime soon. But I believed it was inevitable that at some point he d have to make tough choices about the peace process, and I doubted his coalition with the more right-wing Orthodox parties would survive. I also took encouragement from the fact that the political winds in other developed democracies seemed to be blowing in our direction. Bill Clinton had won in the United States. In Britain, which had a parliamentary system much closer to Israel s, Tony Blair, as leader of a party renamed as New Labor, had ended eighteen years of Conservative rule and swept to victory. Behind the scenes, I immediately made sure that, with financial help from Jean Frydman and other supporters, we began the practical work of learning from the experience of center-left parties in other countries. Within weeks of my election as Labor chairman, I used my acquaintance with a British Jewish businessman named Michael Levy to see what lessons our Labor party might learn from Tony Blair s. Levy had been an early supporter of Blair and persuaded the Prime Minister to welcome me through the famous black door of Number 10 Downing Street. After chatting in the front hallway, the British Prime Minister led me into the back garden to discuss how he had refashioned his party and brought it back into government. In addition to modifying or abandoning rigidly left-wing positions that most British voters had rejected, he had created a formidable campaigning team under an ally and adviser named Peter Mandelson. When I asked Blair whether it would be possible to meet Mandelson, he said he couldn t give me Peter. But he did put me in touch with Philip Gould, the polling expert and strategist who had partnered Mandelson in designing and running the election campaign. We met at Labor headquarters in Milbank Towers so Philip could show me the war room modelled, in part, on Bill Clinton s campaign operation from which the victory had been planned and executed. It was a large, open-plan space, nothing like the warren of offices and conference rooms from which Labor in Israel operated. Pride of place went to an advanced computer system, the heart of a rebuttal unit which charted every statement from the Conservative Party so it could be answered, neutralized or used to adjust Labor s own campaign. I was 307 BARAK 22 struck by how different the approach was from our campaign for Peres. As I filled my notebook with the details, Philip added a final bit of advice. If you want to win, have it run by the best professionals you can find. Not politicians. They always have personal agendas. Focus is everything. Distractions and arguments and infighting can be fatal. Philip recommended one professional, in particular, to get us started: Stanley Greenberg, the pollster who had advised not only Blair s campaign, but Clinton s. Doron used his contacts in New York to put us in touch not only with Greenberg but the strategist behind the Clinton victory, James Carville, and another leading Democratic Party consultant and speechwriter, Bob Shrum. We began working with all of them well before the no-confidence vote in the Knesset. Philip had a wonderfully British understatement and reserve. Stanley, with his eyeglasses and demeanor too, came over as slightly professorial. With Bob, it didn t take long to understand why he was such a gifted speechwriter. He loved words, especially the way they could be used to inspire a connection with important campaign themes: above all with the idea of hope, and new beginnings. Carville was the human equivalent of a volcano. If he hadn t been a campaign strategist, he could have made a living as a hybrid of a cowboy and a stand-up comedian. But they all shared the easy, infectious self-confidence of people who were very good at what they did, and knew it. When I went to New York with Doron to meet Carville in Feburary 1988, my confidence as Labor leader was taking some fairly hard knocks. But from the moment he walked through our hotel-room door, it was impossible not to like him. He showed up in a T-shirt and tennis sneakers, walked straight across the room, slouched into a chair and said: General Barak, I don t get it. You re a known public figure, with a great mind and a great military record. It s already been a year-and-a-half since Israel got Netanyahu. What have you done to go after him? Why haven t you gone on the attack? He said it was time for me to wake up, and change tack. Can you run through your stump speech for me, he asked, motioning me toward the center of the room like a film director. I don t have one, I said. To which he replied briskly that I should have had one months ago. When Stanley paid a preliminary visit with Philip to Israel, they, too, urged me to sharpen my message and pay more attention to my image with the public. 308 BARAK 23 Stanley was worried by polling data that suggested most Israelis saw Bibi as strong. I argued that strength was one area where we wouldn t have to worry. No way, in a campaign, he ll end up coming over looking stronger than me. Stanley seemed not entirely convinced. Both in strength and other ways, I think my background did prove an advantage. The 35 years I d spent in the military had given me a singleminded determination to set goals, follow through and achieve them. After Haim Ramon came to my office before the no-confidence vote to ask whether I was sure I wanted to go ahead, and I answered with an unhesitating yes, Haim had told a couple of reporters: Barak has balls of steel. In truth, I was puzzled he d even asked me. As when I was in uniform, it would never have occurred to me to ask him to try to line up the necessary votes if I hadn t thought it through and intended to go ahead with it. Still, my military background was not always an asset as I found my feet as party leader and prepared to take on Bibi in the election campaign. In searching for the tools, the structure, and the people I felt would give us the best chance to win, I sometimes failed to pay due attention to the party s existing apparatus and institutions. This alienated a number of established Labor politicians, eventually including Haim himself. So as the campaign approached I tried to shore up my ties with the party establishment. I drafted in Bougie Herzog to act as my regular liaison with leading figures in the party. I was careful to include a number of Labor politicians in our campaign team as well, though, as Philip Gould had recommended, I made sure they didn t actually run it. The closest equivalent to the role Haim had played in Peres s campaign went to a young businessman, PR professional and Labor supporter named Moshe Gaon. As spokeswoman, we brought in someone who, though she d been a messenger of doom during the Tze elim controversy that engulfed me before joining Rabin s government, had undeniable experience and ability which I valued and respected: Yitzhak s former media aide Aliza Goren. As campaign coordinator, I chose Tal Silberstein, who at the time was in charge of a citizens group called Dor Shalem Doresh Shalom: A Whole Generation Demands Peace. I relied on frequent, less formal input from political friends whose judgement I had learned to trust, like Eitan Haber and Giora Eini. Also playing a key role was a group of four young women, led by Orna Angel, a successful architect and a former soldier in Sayeret Matkal. She built from scratch an army of nearly 20,000 volunteers who helped 309 BARAK 24 organize events and contact voters during the campaign. We outfitted our own war room in an open-plan floor of offices on the edge of Tel Aviv. Philip called it Milbank South. As organizational head of the campaign, I chose Chagai Shalom. An industrial engineer by training, he was a reserve army general who, when I was chief of staff, had been in charge of the logistics branch of the military. I gave him Sayeret Matkal backup as well, in the person of Danny Yatom, my longtime friend and former sayeret deputy. But all that was process. Winning or losing would come down to how our message, our ability to forge alliances, and my own personal and political appeal, measured up against Bibi. The new system of separate elections for party and Prime Minister meant that in order to win a majority, I would need the support of voters outside Labor as well. I set out to establish a broader movement, a big tent under which a majority of Israelis could coexist politically. I realized this risked provoking anger among some Labor activists. But I wanted to convey to voters that I was reaching out beyond my core party constituency: to soft right-wingers nearer the political center; to the Sephardim who since 1977 had overwhelmingly voted Likud; to the growing number of Russian immigrants who had helped Bibi defeat Peres; and to those among the Orthodox who still subscribed to tolerance and moderation in the mold of the old-style National Religious Party in the first few decades of the state. Though the candidates on our Knesset election list would all be from Labor, I ran the Prime Ministerial campaign under the broader banner of Yisrael Ahat One Israel. I envisaged it as an alliance of at least several different parties with Labor at its center. I began with Bibi s jettisoned Foreign Minister, David Levy. He was a Moroccan-born 1950s immigrant whose career had begun at the grassroots, in the northern town of Beit She an, but who went on to become a key part of Begin s victory in 1977. The leading Sephardi figure in the Likud, he was at one point mentioned as a future leader. Many Israelis, especially on the left, now portrayed him as a figure of ridicule. But I d always had a higher opinion of him. During the 310 BARAK 25 1982 Lebanon War, with two sons fighting on the ground, he d been a rare voice of common sense, and caution, in the Begin cabinet. I d also seen him operate in Shamir s inner security cabinet, when I would come, as deputy chief of staff, to present military operations for approval. I remember one occasion when an air force general laid out the details of a planned helicopter-borne mission into Lebanon. I added a few remarks in summary. Raful Eitan and Arik Sharon were both ministers. Within seconds, they were peppering the general and me with questions. Why were the aircraft taking one route north instead of another? Why not closer to Mount Hermon? Shouldn t they fly lower? Levy interrupted. Gentlemen, he said, we are not in company commanders course. We re in the inner cabinet of the government of Israel. We have a chief of staff and other generals and military professionals. It s their job to decide the operational details. Our job is to balance the reasons for doing an operation against the risks as presented to us. I met with him in the Knesset cafeteria before Bibi went off to the Wye River summit. Levy now headed a small breakaway faction from Likud called Gesher, Hebrew for bridge. Without explicitly suggesting we join forces, I explained my hope to run my eventual campaign for Prime Minister in alliance with a few other parties. I told him I wanted to make my candidacy a legitimate choice for voters from the center-right, the Orthodox, as well as the Russian community. I took a napkin and drew a big umbrella to illustrate what I had in mind. He said he understood though he did tell me to make sure I tore up the napkin. There came a point, at the end of November when it looked like my overture had failed. Scampering for a way to shore up his coalition, Bibi tried to lure Levy into the fold back by offering him the Finance Ministry. But with resistance from other ministers, Bibi broke off the talks with Levy, leaving him humiliated and furious. I met with him several more times, and we brought in Gesher as our first One Israel partner. The second to join us, early in the new year, was a small religious party called Meimad, inspired by an openly pro-peace Orthodox rabbi named Yehuda Amital and including a former Chief Rabbi of Norway, Michael Melchior. By the end of January 1999, several months before the real campaign, I was feeling better about where we stood, in part because of a series of hits Bibi was taking from former friends and allies. The first salvo was fired by Misha Arens, who had helped engineer Bibi s move into national politics. He announced he was going to put himself forward for the Likud leadership before the election, saying 311 BARAK 26 that he and others were convinced Bibi couldn t win. A couple of weeks later, Yitzhik Mordechai seemed on the verge of becoming the latest of Bibi s ministers to resign. He was openly flirting with the idea of joining a new centrist party that had been formed by Likud s Dan Meridor. Bibi struck back with a mixture of subtlety and venom. He fired Mordechai, accusing him of being driven by personal ambition. Then he offered the Defense Minister s job to Misha Arens. Yitzhik did join the Center Party, as did Amnon Lipkin, who had ended his term as chief-of-staff and, with initial opinion poll numbers suggesting he d do well, even briefly entered the race for Prime Minister. Now, he endorsed Yitzhik Mordechai instead: a man not only with strong military credentials, but of Sephardi background and religiously observant, and a proven politician and cabinet minister. It was clear that he would be going after many of the same votes I needed to win. That situation wasn t ideal, to put it mildly. But all I could do at this stage was to put our own campaign house in order. I hoped that if we ran the campaign I expected, there wouldn t be a run-off. At the start of April, the final list of candidates was set. There were five. In addition to Bibi, Yitzhik and me, Benny Begin had decided to run on the right. Also in the contest was Knesset member Azmi Beshara, the first Israeli Arab citizen to seek national office. When we chose One Israel as the name of our campaign alliance, it was not meant just as a catchy phrase. Though now a half-century old, the country had rarely seemed so diverse, and in many ways divided. It was not just the old fault line between Labor and Revisionist Zionism that defined our politics, or even the Ashkenazi-Sephardi gulf that had predominated since the late 1970s. There were new, younger, more assertive, more right-wing and more pro-settlement voices among the Orthodox. There was the contrast between the overwhelmingly secular, politically and socially liberal, and culturally Western Tel Aviv, with its lively caf s and restaurants, and the constellation of wealthy suburbs to the north; and smaller Israeli towns and cities in the interior, Jerusalem as well, not to mention 312 BARAK 27 the settlements on the West Bank. Since the fall of the Soviet Union, hundreds of thousands of Russians had also flowed into Israel. Most were Jewish in culture more than religious observance, but they were instinctively inclined to support candidates Rabin in 1992, and Bibi the last time around who they felt were likely to take a tough line in any peace negotiations with the Arabs. I was never going to get the backing of many West Bank settlers, or of core supporters of the Likud and parties even further to the right. But I would need to make at least some dent in Bibi s hold on the Russian voters who had supported him by a wide margin in 1996. I focused first on Yisrael Ba Aliyah, the main Russian immigrant political party. It had been set up by the iconic Soviet-era refusenik Natan Sharansky or, as he was then known, Anatoly Sharansky. He d been an ally of Andrei Sakharov, an outspoken human rights advocate and, until he was finally released and allowed to leave in 1986, a political prisoner in the gulag. Though Natan s party was not going to offer a formal endorsement for any candidate, I met with him to press the case for security and peace, the message I d tried to advance with Shimon three years earlier, and to emphasize the need to bring unity and shared purpose back to the country. Though I think he would have been receptive anyway, it didn t hurt that he, like me, was a mathematics graduate from Moscow s Physics and Technology Institute. He was also a chess aficionado. When I was rash enough to face him across the board, as I recall, it took him all of five minutes, and seven moves, to checkmate me. But I also made dozens of visits to Russian community groups, and met with individual families whenever I could. Often, I found myself talking to older men and women among the immigrants about the military details of the Great Patriotic War, as the Russians called World War Two. On a number of occasions, I accepted the invitation to sit down and play on a sitting-room piano. I think the first time I got a sense that any of this might be having an impact was in a quote from a Yisrael Ba Aliyah official in an Israeli newspaper. Though still stopping short of a formal endorsement, the official was quoted as saying: A month ago, young Russians thought Barak was a boring, left-wing socialist party leader who doesn t look good on TV and mumbles a lot... Today, they see him as a high-ranking Israeli general who knows how to play the piano. The Russian immigrants like strong, cultured people. Except for the bit about mumbling, I couldn t have wished for more. 313 BARAK 28 The next key moment in the campaign involved something I did not do. This time, the Israeli television debate came earlier in the campaign, a month before the election. Bibi, Yitzhik Mordechai and I were all invited, as the three main candidates. But I told the TV people I had a conflicting personal engagement. I figured I had nothing to gain by going. To join a three-way debate risked creating the impression this was a genuine three-man race, and I still held out hope it would come down to just me and Bibi. Besides, I thought a debate between the other two would help me. Yitzhik knew Bibi well. He had served in Bibi s government. Though not a natural orator, he was always forthright, and often pugnacious, in making his points. And he couldn t stand Bibi. Unlike the 1996 debate, this time there was a knock-out blow, and Bibi was the one left on the canvas. It was a bit like Senator Lloyd Bentsen s killer riposte when Republic vice-presidential candidate Dan Quayle compared himself to John F. Kennedy in their debate, a few months earlier: Jack Kennedy was a friend of mine. Senator, you re no Jack Kennedy Bibi entered his television showdown with Yitzhik Mordechai with much the same strategy he d used against Peres. He went on the offensive. He tried to portray himself as an indispensable bulwark against those, like Yitzhik or me, who he said would cosy up to Arafat and Assad and endanger Israel s security. But Yitzhik was up for the fight. He also knew that only months earlier, Bibi himself had been exploring the idea of giving up the Golan Heights to the same President Assad. He didn t actually refer to the secret mission by Ronald Lauder, or explicitly accuse Bibi of hypocrisy. But his reply and Bibi s visible discomfort were just as effective. Smiling sardonically, he said: I know your outbursts, and they won t do you any good. He challenged Bibi to just look me in the eye and admit what he really thought about the future of the Golan. The media verdict was unanimous. Mordechai had won. Which meant I had won. Though my American and British brains trust had little input into our day-today campaign, they did play a role in the thrust and strategy. I tried to drive home two things as we entered the two-week homestretch in May. My first, broad message was an echo of James Carville s central theme in the Clinton Presidential campaign: change, versus more of the same. It had worked in the US not because it was clever, but because it resonated with large numbers of voters. I sensed from the start of the campaign that it was true of Israel as well. Different groups had different gripes, and different ideas of what they hoped I would provide as Prime 314 BARAK 29 Minister. But fewer and fewer Israelis were enthusiastic about four more years of Bibi. But I also was keen to convey the substance of what my premiership would be about. Domestically, I spoke of the need to narrow gaps in education and opportunity particularly, though not only, the continuing disadvantage of many in the Sephardi communities who had arrived in the early years of the state. I wanted to try to build bridges between the secular and religious as well. My hope was to begin to recreate the One Israel of my youth. In terms of policy, I believed my primary job would be deliver security and peace in that order. I declared my commitment to continue, and build on, Oslo and to make a new push in negotiations with Syria. Deliberately following the model Philip Gould had used in Tony Blair s election campaign, we also distributed nearly a million copies of a six-point policy pledge card . It included a promise to hold a referendum on any peace deal we reached with Syria or the Palestinians, as well as several domestic policy pledges, including an end to discrimination against Russian immigrants whose Jewish religious status had been called into question. Yet the most widely reported promise was that I would pull out all Israeli troops from Lebanon within a year. I realized that even among those who knew that made sense, voices would be raised both in the Knesset and the kiyra against withdrawing. As with the Bar-Lev Line before the 1973 War, the longer the security zone was in place, the more difficult that politicians had found it to say it was a mistake. Yet it had now been there for nearly two decades. The main argument for keeping it that it protected the security of northern Israel was undermined by the fact that thousands of Katyusha rockets had been fired over it. And in the low-grade war we were fighting against Hizbollah inside the security zone, around 20 Israeli soldiers had been dying each and every year. When I d first visited our positions in south Lebanon in the early 1980s, chatted with the troops and asked them how they were doing, the invariable response was: we re OK. We re just worried about our young kids back home. Now, those children were manning the same outposts, facing the same danger, in a sliver of land on which we had no claim, which we had no desire to hold, and which was, at questionable security value. 315 BARAK 30 I d tried not to pay too much attention to newspaper polls during the campaign, perhaps because even the good ones, to use Shimon s phrase, had me with just a narrow lead, with Yitzhik Mordechai s 10 or 11 percent still likely to prevent outright victory in the first round. But in the second part of May, our internal polling showed things were moving in our direction. In mid-May, they had me above 40 percent. A final batch of internal polls, on the Friday before election day, had me just short of 50 percent. But I told our pollsters that under no circumstances were they to divulge the results to anyone in the campaign team. This wasn t just because I wanted to guard against complacency. It was because, deep down, still I didn t trust the numbers. I retreated to Kochav Yair on Friday evening. On Saturday, two days before the election, I had a surprise visitor, someone I knew from Yitzhik Mordecai s team. He said he had a letter for me, with terms of a proposal under which Yitzhik would announce an eleventh-hour withdrawal from the race. I still could not be absolutely confident I d win, at least in the first round. Yitzhik s pulling out would help. But if I did win, I wanted to start the process of assembling a coalition with a blank slate and an open mind. Doing a deal was not the way to begin. I didn t accept or open the envelope. Go back to Yitzhik, I said. Tell him, as he knows, that I have a lot of respect for him. But this is a decision that he has to make on his own. The next day, less than 24 hours before the polls opened, all of the three other candidates announced they were pulling out. Benny Begin and Azmi Beshara were never going to affect the outcome. But Yitzhik s withdrawal very possibly would. When he spoke to reporters, he said it had been one of the most difficult decisions he d had to make, but that he d concluded he wouldn t get enough votes to reach his primary goal of defeating Bibi. The prime minister was given a chance and he failed, he said. We must give Barak a chance. I got up early on May 17, confident we d done everything we could to put ourselves in a position to win, but also aware, from Shimon s defeat, that the smallest of details, and the narrowest of margins, might determine the outcome. After the 1996 election, I d learned of cases where Peres volunteers outside polling stations in the Negev or the north of the country had left early, in order to make sure they d be back to Tel Aviv in time for the moment of victory. Now, I sent out word that all our volunteers must stay in place until the polls had closed. After 316 BARAK 31 Nava and I voted, we attended an event for Labor supporters north of Tel Aviv, before flying to Beersheva to spend the final hours in the Negev. I d arranged for Shlomo Ben-Ami to go to Kiryat Shmona in the north emphasizing, as throughout the campaign, our determination to broaden our support beyond Labor s heartland. The polls closed at 10 o clock. I knew Bibi would be staring at the same Channel One newscast as I was, each of us ready to put the best spin on things, especially if there was no clear sign at this stage which one of us had won. But the exit poll findings came as a shock: Barak, of One Israel, 58.5 percent; Netanyahu, Likud, 41.5 percent. It was a landslide. The full impact hit me only when I got to the fifth-floor suite in the Dan Hotel in Tel Aviv, our election-night headquarters. My three brothers, and Nava and our daughters, were waiting for me. Leah Rabin, too. Our eyes teared up as we embraced. My parents were by now too frail to come. But I d promised to phone them, whatever happened. We did it, I told my father, who said mazaltov with a depth of feeling which had become rare as his health began to fail. My mother had always been a bit conflicted about my going into politics, despite her lifelong belief that the issues of politics mattered, especially after Yitzhak had been cut down and killed for following the path on which I hoped to continue. Still, I could hear the pride, and relief, in her voice when I said: Remember, ima. I did promise you that if I ran, at least I d make sure to win. When we d finished speaking, Bibi called. He had conceded publicly as soon as the exit poll was out. He had also stunned the Likud crowd by immediately resigning as party leader. Congratulations, he said, sounding, more than anything, tired. I accept that the voters have spoken. I thanked him for taking the trouble to call. I said I appreciated the contribution he d made to the country, and that we d meet in the next few days to discuss how best to handle the political transition. Thanks, Bibi said. And again, mazaltov. By the time I got off the phone with Bibi, the TV was showing pictures of tens of thousands of people celebrating the results in the central Tel Aviv square, now renamed in Rabin s memory, where he had been murdered nearly four years earlier. Before leaving to join them, I fielded a stream of calls: from friends, other Israeli party leaders and leaders from abroad, including Tony Blair and Bill Clinton, both of whom not only offered warm congratulations but said they looked forward to working with me as I tried to move Israel forward and to finish the work Yitzhak had begun. 317 BARAK 32 At the start of my brief remarks at the hotel podium before going to Rabin Square, I had to call for quiet when I mentioned the phone call from Bibi. No, I said, raising my voice to be heard above the boos, we will not boo an incumbent Prime Minister of Israel A short time ago, I spoke with Prime Minister Netanyahu and thanked him for his service to the State of Israel. Then with both Leah and Shimon Peres at my side I paid tribute to that one special person who had a unique role in our reaching this moment somebody who was my commander and guide, and the person who led me into politics: Yitzhak Rabin. I pledged to fulfil his legacy, and complete the work he d started. And I extended a hand to secular and religious, the ultra-Orthodox and the residents of the settlements, to Israelis of Middle Eastern origin and Ashkenazi extraction, to immigrants from Eithopia and the former Soviet Union, to the Arabs, the Druze, the Circassians, the Bedouin. All, all of them, are part of the Israeli people. It was not long before sunrise when I reached the square. As the crowd shouted and sang, I began with a line borrowed from Bob Shrum. It seemed particularly apt: It is the breaking of a new dawn, I said. But was it? As I paid tribute to Rabin in this place where our hearts broke and dedicated myself to completing the work he d begun, I could feel the thousands in the square willing me on. Even in my more nuanced comments on the talks with the Palestinians: the need to achieve peace, but at least for now by disengaging rather than joining hands with the Palestinians, ensuring we had military and border provisions to safeguard our security, and with the stipulation that Jerusalem would remain our undivided capital, under Israeli sovereignty. But some in the crowd were carrying posters saying No to the charedim the strictly Orthodox. Others were chanting, in anticipation of the negotiations needed to put together a coalition: Rak lo Shas! Anyone but Shas! It was a reference to the Sephardi Orthodox party, which in addition to being more nuanced and flexible than other religious parties on the issue of peace talks, had been the big winner in the election. It had gained seven seats and now had only two fewer than the Likud. I did not specifically mention Shas. But I said: I tell you here that the time has come to end divisions. The time has come to make peace among ourselves, whether we are traditionalists or secularists We must not be enemies of each other. Paying tribute to all those in the square who had worked for our election victory, I added: I know it would not have been possible without your support. But I also know it would not have been possible without the support many in the 318 BARAK 33 Likud. I appreciate that as well. And I undertake to be rosh hasmemshalah shel kulam: Prime Minister for all Israelis. Yet as fervently as I hoped to be able deliver on that pledge, I knew, even as I spoke, that actually fulfilling it was going to be much, much tougher. 319 BARAK 34 Chapter Twenty As Prime Minister, I would sometimes be criticised as emotionally buttoned up, even stoic, and there was some truth in that. It was partly just a reflection of who I was: a kibbutznik who d grown up in the early years of the state, and had then spent most of his life in the army. But while it may not have shown, I felt a churn of emotions when I formally presented my government to the Knesset in July 1999 as Nava, our three daughters, her parents and mine looked on proudly from the gallery. Even more so, when I entered the office of the Prime Minister. I d been there before: as head of military intelligence, chief of staff and a cabinet minister. Yet to sit behind the vast wooden desk and know that the buck now truly stopped with me to become just the tenth person in Israel s history to have that honor was very different. What I felt most powerfully, however, wasn t the honor. It was the responsibility. I knew that Israel faced two deepening crises. The first was domestic. Though Yitzhak Rabin s assassin was now in jail, the divisiveness and hatred of which he was a product and symbol had not gone away. Nor had other rifts: between the privileged and disadvantaged, Ashkenazim and Sephardim, and, perhaps most of all, secular and religious. The second, more immediate challenge was on our borders. The peace process was stalled. If we were going to revive it, we were running against the clock. President Clinton, a key player in any hope of turning the promise of Oslo into real peace, had only 18 months remaining in office. In terms of Israel s security, the timetable was even less forgiving. From my very first intelligence briefings as Prime Minister, I was even more convinced of what I d been warning Bibi for months: without a political breakthrough, a new, much more deadly intifada was only a matter of time. That would have been reason enough to make peace efforts my first priority. But even as I was addressing the victory rally in Rabin Square, I sensed that the simple arithmetic of the election results would leave me no other choice. I was entering office with the largest electoral mandate in our history. But that was because of Israel s new voting system, with separate ballots cast for Prime Minister and party. That system had had precisely the opposite effect on party voting. In previous elections, most Israelis had chosen one of the two main parties, knowing that only they had a realistic chance of forming a government. Now they could directly choose the Prime Minister, giving them the luxury to vote in much greater 320 BARAK 35 numbers for an array of smaller, issue-specific parties. The result: though I d won by a landslide, and One Israel had the largest number of Knesset seats, even with our natural left-of-center ally, Meretz, we would have only 36 Knesset seats well short of the 61 needed for a majority. Even if we included a few smaller parties, there was no choice but to bring in one of the two larger ones: the Sephardi Orthodox Shas, with 17 seats; or Likud, which, after Bibi s sudden resignation, was now led by Arik Sharon, and had 19. It wasn t just a math problem. It had a critical policy implication. If I wanted to tackle the domestic challenge to reassert the values of secular-led democratic government over increasingly assertive religious involvement in our day-to-day politics that would mean choosing Likud over Shas. But it would also signal the effective end of the peace process. Even though Arik assured me privately that he understood my determination to reopen peace efforts with Arafat and Hafez al- Assad, I knew Arik. The path toward peace agreements, assuming they were even possible, would be tough. Sooner or later and certainly if we faced the need to consider painful compromises in the negotiations I was certain that Arik would act as a kind of opposition from within. That was why, over the angry opposition of Meretz leader Yossi Sarid, I decided to go with the Sephardi Orthodox party. I realized that even Shas might walk out if the scale of any land-for-peace concessions proved too high. But it was the least extreme of the major religious parties on the question of peace with the Palestinians. In my conversations with the party s spiritual leader and guide, the 79-year-old rabbi and Talmudic scholar Ovadia Yosef, I was struck by his intelligence, erudition and subtletly of thought but, above all, his commitment to the core Jewish principle of sanctifying human life over the specifics of Oslo redeployments, where his inclination seemed to be to trust the judgment of those with the experience and expertise to evaluate the security implications. To Meretz s additional consternation, I included two smaller, right-of-center Orthodox parties in the coalition. It was not just to make good on my pledge to be Prime Minister for all Israelis. Knowing that I was going to put top priority on the peace process, I wanted to avoid an undiluted left-of-centre, secular thrust to the government. When I d stood in front of the tens of thousands of cheering supporters in Rabin Square after the election, I thought to myself: they think that with Bibi gone, peace is around the corner. I wanted a coalition broad enough to keep Meretz, and Labor ministers as well, from forgetting a crucial fact: the 321 BARAK 36 compromises that we might have to contemplate during peace negotiations were still anathema to many other Israelis. Syria was always my first negotiating priority, as it had been for Rabin and, for a brief period, Bibi as well. This was not just because the shape of a final agreement with the Syrians was clearer, to both sides, than with the Palestinians. It was because I was determined to make good on the main specific policy pledge of my campaign: to bring our troops home from Lebanon. No matter what the increasingly emboldened fighters of Hizbollah said publicly, our withdrawal would be bad news for them. It would deprive them of their anti-occupation rationale for firing Katyushas into towns and settlements in northern Israel, and free us politically to strike back hard if that proved necessary. It was clear to me that Hizbollah would try to make the withdrawal as difficult for us as possible. But the real power in Lebanon rested with the Syrians, who, along with Iran, were Hizbollah s main backers. If we could get a peace agreement with Assad, there seemed every reason to hope he would rein in Hizbollah, and perhaps open the way to a peace treaty with Lebanon as well. Still, there was no way of hiding an additional attraction in getting a deal with Syria first: it would increase our negotiating leverage with the Palestinians. That would certainly not be lost on Yasir Arafat one reason that I realized the importance of an early meeting with him, to convey my commitment to keeping the Oslo process alive, and, if possible, achieving a full and final Israeli-Palestinian peace. I went to see Arafat a few days after taking office. We met for well over an hour at Erez, the main crossing point into Gaza. It was swelteringly hot inside. At least I was in an ordinary business suit, but I couldn t help wondering how Arafat 322 BARAK 37 was coping in his trademark military uniform. Still, the mood music going into the meeting was encouraging. After the election, Arafat had tried to use his ties with the ayatollahs in Iran to get them to release 13 members of the tiny Jewish community in Shiraz who had been jailed on patently absurd accusations of spying for the Zionist r gime. Iran had told him no. Given its support for Hizbollah, and its serial diatribes about destroying the State of Israel, this was hardly a surprise. But it was a gesture nonetheless, and I told him I appreciated it. I also arrived with a gift: a leather-bound volume with both the Hebrew Bible and Koran. I began our meeting with what I felt I most needed him to hear: that both of us were trying to achieve something hugely important, nothing less than a new relationship between Israelis and Palestinians based on trust. As I would discover in the months ahead as Yitzhak had found as well Arafat responded warmly to such general appeals of principle. He replied that he viewed me as a partner, and a friend. But the key issue of substance the difference between how I envisaged taking Oslo forward and what he wanted was impossible to avoid. I emphasized that I was committed to the further Wye River summit redeployments Bibi which had agreed, although not implemented, as well as to a release of Palestinian prisoners agreed at Wye. Yet then came the more difficult part: explaining my view of how we could best move toward a full peace agreement. I said I was convinced the prospects would be much better if we delayed the redeployments and brought forward the start of the real negotiations: on permanent-status issues like final borders, settlements, Jerusalem, refugees. In any case, I said, I d need a few months for a thorough assessment of the issues involved, and to reach a settled view with my negotiating team on how to proceed. Arafat seemed to accept the idea of a pause for reflection and planning. But he held firm in his opposition to any further delay in the Wye redeployments. More worryingly for the longer-term prospects of an agreement, he ignored altogether my suggestion that we move ahead toward the permanent-status talks. Speaking to reporters, I was careful to accentuate the positive. I said the reason I d come to see Arafat so soon was because of the importance I attached to his role in shaping peace in the Middle East. I said I would not waver in continuing on the path which Rabin and he and begun. And while the security of Israel would be my paramount concern in negotiations, I also want each Palestinian to feel secure. Both sides, I said, had suffered enough. The open question, however, was whether I had done enough to persuade Arafat that his exclusive focus on 323 BARAK 38 redeployments on only the land part of a land-for-peace deal meant we risked ignoring the core issues that would determine whether a full peace agreement was achievable. More urgently, I knew from our diplomats in the US that the Americans would not necessarily be receptive to a further delay in moving ahead with Oslo, even if it meant focusing on trying to make peace with Syria. That made my first visit to see President Clinton as Prime Minister especially important. It was billed as a working visit and work we did. After a gala dinner for Nava and me in the White House, we helicoptered to the presidential retreat at Camp David. President Clinton and I spent more than 10 hours discussing shared security challenges in the Middle East, especially terrorist groups and states like Iran that were backing them, and, of course, how best to move forward our efforts to negotiate peace. These face-to-face meetings set a pattern that would last throughout the time he and I were in office. On almost all key issues, my preference was to deal directly with the President, something I know sometimes frustrated other senior US negotiators like Secretary of State Madeleine Albright and Mideast envoy Dennis Ross. This was not out of any disrespect for them. It was because the decisions on which negotiations would succeed or fail would have to be made at the top, just as President Clinton and I would ultimately carry the responsibility, or the blame, for errors, missteps or missed opportunities. Our first meeting ran until three in the morning. When the President asked me how I saw the peace process going forward, he smiled, in obviously relief, at my answer: I wanted to move quickly. He had only a limited time left in office, and I was determined that we not waste it. Much is often made about the personal chemistry in political relationships. Too much, I think, because the core issues, and the trade-offs of substance, are what truly matter when negotiating matters of the weight, and long-term implications, of Middle East peace. Still, chemistry does help when moments of tension or crisis arise, as they inevitably do. My first few days with President Clinton laid a foundation that allowed us to work together even when things got tough. I benefited, I m sure, simply by not being Bibi. The 324 BARAK 39 president and his negotiating team had spent the previous few, frustrating years trying alternately to urge, nudge and cajole him and, of course, Arafat toward implementing Oslo. Clinton did finally succeed in getting the Wye River agreement. But it, too, remained to be implemented. Nava s presence, and Hillary Clinton s, contributed to an informal, familial atmosphere. Before my first round of talks with the President, we joined Bill and Hillary for dinner. Though I would work more closely with Hillary in later years, when she was Secretary of State under President Obama, this was the first time I d had the opportunity to engage in anything more than small talk with her. She was less naturally outgoing than her husband. Yet not only was she bright and articulate. She was barely less informed on the ins and outs of Middle East peace negotiations than the President. She, and Bill as well, also spoke with us about things well beyond the diplomacy of the Middle East: science, music, and our shared interest in history. What most struck Nava and me, however, was the way the Clintons interacted with each other. The scandal surrounding Monica Lewinsky was still fresh. I suppose we expected to see signs of tension. Whether they were there, we had no way of knowing. But what the two of them did palpably have was a deep respect for each other s intelligence, insight and creativity in looking for solutions where so many others saw only problems. It was impressive. Still, there was little small talk in the long discussions I had with the President. From the outset, I wanted him to know exactly what I hoped we could accomplish and how, in my view, we were most likely to get there. I wasn t trying to impose ground rules on the President of the United States, something I neither would nor could do. But I was explicit with him about my own approach the negotiations. I assured him I was prepared to be flexible. But I said I d be relying on two critical assumptions. The first was that when we and the Americans agreed a position on a specific issue, there would be no unilateral surprises by which I meant, though didn t say, things like the unfortunate American redefinition of Yitzhak s pocket deposit assurance regarding the Golan. The second assumption, I know, may seem overly legalistic. It was that, until and unless we reached a full and final agreement with either Syria or the Palestinians, any Israeli negotiating ideas or proposals would not be binding. If no agreement was reached, they would become null and void. I wanted to avoid a situation, as had happened so often in past negotiations, where an Israeli proposal was rejected by the Arab side but then treated as the opening position in the expectation of further concessions in later 325 BARAK 40 talks. I did realize that, null and void or not, our proposals or suggestions would not simply disappear from memory. But I felt the point of principle was essential if Israel was going to be able to consider the kind of far-reaching concessions which final peace deals might require. In the end, I realized that we might simply discover that Assad, and certainly Arafat, were not willing or ready to make peace. We might, initially at least, have to settle for a more incremental step. Right here in Camp David, Begin, Sadat and Carter couldn t complete the process, I pointed out. They signed a framework agreement and it took months of further diplomacy to reach a peace treaty. Maybe we ll end up doing the same. But I told the President I was convinced that if we didn t try to get agreements, we d have no way of knowing whether the will to make peace was there on the other side. Assad, I suspected, was the more likely to reciprocate. That was a major reason I wanted to start our efforts with him. But so far, his true intentions had never been tested, beyond his obvious determination to get back the Golan. Nor had Arafat s, beyond his focus on the detail and extent of West Bank redeployments. President Clinton did not object to an early effort to reopen our efforts with the Syrians. But he was worried about the effects of ignoring the already-creaking prospects of fulfilling the promise of Oslo. If we were going to delay focusing on that, Clinton told me, he needed to be able to assure Arafat the wait would be worth his while. What could we give the PLO leader in return for putting off the Wye redeployments further, he asked. And then, the real question on his mind: Ehud, when we get to the final redeployment and a peace deal, how much of the West Bank are you prepared to hand back? I simply didn t know at this stage. Much would depend on whether we could be sure Arafat could or would deliver a final peace. But even if I had known, I would have been reluctant to name a precise percentage. Though I had full trust in President Clinton, I knew that everything he and I said would be shared with at least a few of his closest policy aides and negotiators. Sooner or later, word would get to Arafat. When we did begin negotiations, he d take whatever number I gave as a mere starting point. Still, I knew I had to signal the President that I was serious about negotiating with Arafat when the time came. I also knew the main source of his concern. In order to get the agreement at Wye, the President had signed on to a provision that the dimension of the third and final redeployment phase would be determined by Israel alone. By that stage, when we got there, Arafat would have 326 BARAK 41 control of something like 40 percent of the West Bank. That meant at least in theory that Israel could limit phase-three to a mere token pullout, leaving the Palestinians with less than half of the territory. I don t know what percentage, exactly, I replied. But one of my cabinet ministers thinks that a formula of 70-10-20 would work, meaning 70 percent for the Palestinians, ten percent to allow us to retain and secure the largest of the settlement blocs, and the rest to be worked out in further talks. When he nodded, I added: Peres thinks it could end up at 80-20, and says he thinks Arafat would find it hard to walk away from getting control of four-fifths of the West Bank. But it s not about the number. It s about the area needed for the major settlements, and whatever else is required to safeguard our security. Beyond that, we don t need a single inch of the West Bank, and we won t ask for a single inch. I replied in much the same vein when President Clinton urged me to help kickstart new talks with Assad by formally reaffirming Yitzhak s pocket deposit on the Golan Heights. As with the Palestinians, I was not going to cede a major negotiating card our only real negotiating card before we had any indication Assad was serious about making peace. But I did feel it was necessary to reassure Clinton that I was serious. I told him that, if and when the Syrians showed real signs of readiness to address our needs in a peace agreement, I would reaffirm the pocket deposit. I d come to Washington hoping that President Clinton would be with me on the main issues of substance. But what I needed most at this point was his support on the procedural decisions I d made in order to get to real peace negotiations: engaging with Syria first, and shifting the emphasis on the Palestinian track away from the redeployments toward the core permanent-status issues we d have to resolve in order to get a peace agreement. What emerged from my first meetings with President Clinton was essentially a trade-off. He knew I would be ready to make concessions in pursuit of genuine peace. I was confident that on the route that I was proposing to take, he would have my back. But what I couldn t be sure of was whether my own government would have my back. On paper, we had a comfortable Knesset majority: 75 out of the 120 seats. But I knew it was inherently vulnerable, both to friction between the Orthodox parties and assertively secular MKs from Meretz and inside Labor, and to possible defections over the concessions we might have to consider in peace 327 BARAK 42 negotiations. The first stirrings of discontent had begun even before I went to see Clinton. On the basis of my commitment merely to try for peace, Arik Sharon had presented a no-confidence motion in the Knesset. It was never going to pass. But only days after I d made him Interior Minister, Natan Sharansky let it be known he was going to vote against us. He didn t. He stayed away from the chamber, in effect abstaining. But I d been put on notice. I did lose my first coalition partner in September: the small United Torah Judaism party, with five Knesset seats. It wasn t over land-for-peace. In an echo of a similar crisis that brought down the government during Rabin s first spell as Prime Minister in the 1970s, it was over a violation of the Jewish Sabbath. It turned out that Israel s state electric company had been transporting a huge steamcondensation machine from the manufacturing site near Haifa to a power plant in Ashdod. The unit was the size of a small apartment. It weighed 100 tons. It couldn t be driven across the country without bringing weekday traffic to a standstill. The obvious solution was to do it when road use was lightest, on Shabbat. Precisely the same procedure had been followed 24 times under Bibi. But when I asked a United Torah Judaism leader why he d seemed happy when Likud had waved it through, he replied: Past sins cannot pardon future ones. Eli Suissa, one of the Shas ministers in the cabinet, took his side, saying: Every hour is good for the keeping of Shabbat. Most other ministers agreed with me that we should stand firm. So I did. But UTJ walked out of the government. Shas did remain. But I was now increasingly certain that at some stage its ministers, too, would leave. In the midst of the Sharanksy rebellion, Haim Ramon, who was the minister in charge of liaising with the Knesset, insisted I punish him for his political grandstanding. You should fire Sharansky. Act like a leader! I just laughed. The coalition doesn t need a leader, I replied. It needs therapy. In truth, I suspected that if we ever got near to a peace agreement with Assad or Arafat, even therapy might not help. But that was a main reason that I d promised a referendum on any final peace deals. I believed that in the choice between concessions, even painful ones, and a genuine peace deal with Syria or the Palestinians, by far most Israelis would choose peace. I relied on a strong, close team around me, people I knew well and who shared my determination to stay focused on the central goal: to put Israel in a position where its citizens could be given that choice. I made Danny Yatom, my former 328 BARAK 43 sayeret deputy, my chief of staff. The negotiating team also included Uri Saguy, former head of military intelligence; Gilad Sher, a gifted lawyer I d known for a quarter of a century and who had been a company commander in my armored brigade in the 1970s; and Amnon Lipkin, the paratroop commander at Chinese Farm and my successor as ramatkal when I left the army. Also, Shlomo Ben-Ami, the Moroccan-born, Oxford-educated historian and diplomat who had run against me for the Labor leadership. Shlomo had a gift for systematic analysis and keen judgement, especially on security issues, which I highly valued. It did not escape the attention of Israeli commentators, or other politicians, that almost all of them were former soldiers whom I d known from my time in uniform. But that observation missed a more important point: we were all members of the generation of 1967 and 1973. We had been soldiers during the Six-Day War. In the years immediately after it, like almost all Israelis, we had allowed ourselves to believe that our victory had been so comprehensive, and so quick, that any threat from the defeated Arab states was gone for good. We assumed that inevitably, inexorably, they would realize they needed to sue for peace, and that there was no particular urgency on our part to do anything more than wait. Then, on Yom Kippur 1973, all of that had been turned on its head. We had not only learned the lessons, of 1973. We had internalized them. Even had we not known of the danger of a new Palestinian campaign of terror, the option of simply watching and waiting and assuming that our military strength, which was now even greater, could make events around us stand still would not have made sense to us. Besides, as I remarked to Danny and others, to do so would run against the founding purpose of Zionism: to establish a state where Jews would no longer be victims of events, but would take control of their destiny and try to shape them. Yet making peace, like making war, takes two. Much as I d wanted to begin with Syria, until well into the autumn of 1999 President Assad was holding firm on his insistence that without our deposit, without a prior agreement that he d get back the Golan, there could be no substantive progress. This was particularly frustrating because I was getting reports from our intelligence services, and 329 BARAK 44 Western envoys who had seen the Syrian president, that Assad s many years of health problems had left him almost skeletally frail, even at times disoriented. Even my own negotiating team urged me to concentrate on the Palestinians instead. President Clinton kept stressing the importance of showing Arafat at least some movement on the Oslo front. In September 1999, I took a first, significant step in that direction. I agreed to a timetable that would deliver the Wye redeployments by the end of January 2000, while also committing us to negotiating a framework agreement, on the model of the Begin-Sadat Camp David accords, on the permanent-status peace issues. In early November, I joined Clinton and Arafat for talks around an event in Oslo a deliberate echo of the optimism with which the peace process had begun, held on the fourth anniversary of Rabin s assassination. Both Leah Rabin and Peres came with me. Its centerpiece was a memorial service, at which Leah spoke very movingly of the need for both sides to finish the work Yitzhak had begun, a responsibility I pledged that we would do everything in our power to fulfill. Only Arafat struck a discordant note. He paired a tribute to Rabin with a polemic call for an end to occupation, exile and settlements. After the ceremony, he, President Clinton and I met at the American ambassador s residence. I was still struck by Arafat s public comments: by his apparent desire, or need, to play to hardliners back home in what was supposed to be a time to remember and honor Yitzhak. I didn t raise his remarks directly, but I told him that each of us was approaching a moment of truth for the future of our people. The decisions required wouldn t be easy politically, for either of us. But if we don t have the courage to make them, we ll be burying thousands of our people. Worse, I said, those deaths would not advance his people s position, or mine, by a single inch. When future Palestinian and Israeli leaders did finally prove equal to the challenge of making peace, they d be looking at the same conflict, requiring the same compromises. The only difference will be the size of our cemeteries. Arafat nodded occasionally. But he said little, beyond saying that he considered Rabin to have been a friend, and repeating his now-familiar, nonspecific, pledge to do what is necessary for peace. The hardest part won t be the tough decisions in negotiations, I continued. It won t be facing each other. It will be facing our own people. We would need to make the case openly, honestly, strongly that the peace agreement we reached was in the interest of both Israelis and Palestinians. And in this, each of us had a 330 BARAK 45 responsibility to support the other. With President Clinton looking on, I steered Arafat toward the window of the ambassador s fifth-floor apartment. Look down, I said. Imagine that we each have parachutes, and we re going to jump together. But I have my hand on your ripcord, and you are holding mine. To land safely we have to help each other And if we don t jump, many, many innocent people who are now walking the streets of Gaza and Ramallah and Hebron, Tel Aviv and Jerusalem, will die. Arafat again just nodded, leaving me, and the President, unsure whether anything I d said had struck home. The true test of that would come only when we got to the stage of negotiations when the difficult decisions could not be evaded. Yet only weeks after I returned from Oslo, the focus did finally shift to the Syrians. President Assad suddenly signalled his willingness to resume talks without any preconditions a message he delivered first to my British Labor Party friend Michael Levy, who was visiting Damascus as Tony Blair s roving Mideast envoy, and then to Secretary of State Madeleine Albright. Assad said he would send Syrian Foreign Minister Farouk al- Sharaa to meet me for initial talks in Washington in December, ahead of a fullscale, US-mediated attempt to negotiate peace at the start of the new year. The broad terms of a potential deal had long been clear, both to us and the Syrians. The danger was always that the process would get derailed, or never really get started, due to domestic political opposition. Syria had a tightly state-controlled media and an intelligence service concerned mainly with crushing any signs of dissidence. That meant Assad s main concern was to ensure broad support, or at least acquiescence, from top military and party figures. In Israel, however, every sign of a concession would risk igniting charges that we were selling out to Syria. The Likud and the political right would obviously denounce the idea of giving up the Golan Heights, even though Bibi had been ready to do just that when he was Prime Minister. But even on the left, there was little enthusiasm for returning the Golan. There were far fewer Israeli settlers there than on the West Bank, not even 20,000. But most of them, far from being religiously motivated ideologues, were Labor supporters. And almost no Israel, of any political stripe, 331 BARAK 46 viewed Hafez al-Assad as a natural partner for peace. For years, he d been a constant, sneering presence on our northern border, denouncing not only Sadat but any Arab leader who d shown willingness to engage or negotiate with Israel. Amos Oz, one of our finest writers and a cultural icon for Labor Zionists, probably put it best. He said the Syrians seemed to think that we will give them the Golan, and they ll send us a receipt by fax. The consensus was: forget Assad. Keep the Golan. In fact, before I left for the US, the Knesset voted on whether it supported my attempt to negotiate an agreement with Syria. We could muster only 47 votes, 14 short of a majority. An opinion poll found only 13 percent of Israelis favored a full withdrawal from the Golan. The message I drew from this was not that we should give up on the chances of a peace agreement. After all, before Begin and Sadat went to Camp David in 1978, an almost equally tiny minority of Israelos had been in favor of withdrawing from the Sinai. Yet once they had seen the other side of the equation full, formal peace with our most powerful neighbor the opposition all but evaporated. The problem I saw was that if we and the Syrians couldn t find a way to insulate our negotiations from leaks, speculation and a swirl of opposition to our efforts at home, we d never get to the key issues of substance. I d been making that point to the Americans for weeks. At first, I tried to persuade them to hold the talks at Camp David, ensuring the same, media-free isolation that had yielded the historic Israeli-Egypt agreement. But Dennis Ross replied that the very association of Camp David with that breakthrough meant it would be a non-starter for President Assad. I then suggested we consider sites outside of the US: NATO s Incerlik air base in Turkey, for instance, a British base in Cyprus, an American naval ship in the Mediterranean. Even, half-jokingly, an abandoned missile silo in South Dakota. Yet the point I was making was serious, in fact critical, I believed, if the talks were going to have a chance. In the end, the Americans settled on a beautiful, and undeniably remote, town in West Virginia called Shepherdstown. But from the outset, I was worried it couldn t provide the kind of environment we needed. As soon as our plane landed at Andrews Air Force base outside Washington, I got a call from the head of our advance team. He told me the news media were already there and that reporters Israeli, Arab, American and European could be seen chatting with American, Israeli and Syrian officials in the town s coffee shops. I knew the press would have to publish something about potential concessions as the negotiations proceeded. 332 BARAK 47 Whether the stories were true wouldn t matter. They would still make the real bargaining necessary for peace far more difficult, perhaps even impossible. I also had doubts whether Assad was ready for real peace: embassies, open borders, personal contact between Syrians and Israelis, and ideally an internationally backed free-trade manufacturing area on the Golan to give Syria a tangible stake in ensuring the peace lasted. In earlier talks, under Shimon Peres, Syrian negotiators had at one stage brought a message from Assad. What did we mean, he wanted to know, with all this emphasis on peace, peace, peace? Syria had peace with El Salvador, but without any of the trappings we were insisting on. Peace, in Assad s mind, seemed to mean merely an absence of war. Plus, of course, getting back the Golan. I did, however, come ready to negotiate. Though I was still not prepared to reconfirm Rabin s pocket deposit as a mere ticket of admission, my position remained essentially the one I had worked out with Yitzhak in formulating the deposit: IAMNAM, if all my needs are met. Meaning that if Assad showed a readiness to deal with Israel s requirements in a peace deal, I did, of course, recognize we would leave the Golan Heights. In addition to early-warning facilities, we envisaged an open border with a demilitarized area on either side, as well as guarantees that important sources of water for Israel would not be blocked or diverted. As Assad knew, despite his presumably feigned puzzlement about Syria s arrangements with El Salvador, we also needed the agreement to embody a mutual commitment to real peace: through elements like an exchange of ambassadors and the establishment of the free-trade zone. As with the Begin-Sadat peace, we assumed that our Golan withdrawal would come in phases, parallel to the implementation of the other provisions of the treaty. In our initial meetings in Shepherdstown, Foreign Minister al-Sharaa showed no inclination even to talk about these other issues. So on the second afternoon we were there, I suggested to President Clinton the Americans try to break the logjam by drafting a paper of their own. It would detail all the issues in an eventual agreement, with parenthetical references to those on which we and the Syrians still differed. Then each side could respond with a view toward narrowing the gaps. The President liked the idea. So did Al-Sharaa. Three days later, the President presented the eight-page American draft. With his customary eloquence, he emphasized the need for us to use it as a springboard for peace, not to score political points, and each side agreed to take a couple of days to look through it. It 333 BARAK 48 seemed to me we might finally be on a path to substantive negotiations. There was obviously not going to be a deal at this round of talks, but I agreed with President Clinton that when they ended, he could phone Assad and tell him that I had confirmed Rabin s pocket deposit. Yet by the time we left for home, the prospects suddenly looked much worse for the reason I d feared from the moment we arrived. There were two major leaks. The first came in an Arabic-language newspaper in London. Given the thrust of the story, it had presumably come from the Syrians. But it was more annoying than truly damaging. The second leak, however, was in the Israeli newspaper Ha aretz, which published the entire US negotiating paper. This was unwelcome for us, since it confirmed we were ready to go far in return for peace. But for the Syrians, the fact the final-border section was still a work-in-progress, with the parentheses to prove it, created the impression that they d decided to negotiate the details of a full peace without first nailing down the return of the Golan Heights. Assad s image as a strongman, implacably tough on Israel, had been built and burnished over his three decades in power. The embarrassment of being seen as amenable to talking about a Syrian embassy in Israel without an agreement on the Golan struck me as a potentially fatal blow to the prospects for a deal, since it dramatically narrowed the scope for the flexibility needed by both sides to negotiate. I can t say I was surprised when Clinton phoned me when we got back to Israel to say that Assad had refused to send Al-Sharaa back, as planned, for a further round of talks in 10 days time. I didn t give up, however, and neither did President Clinton. In February, at the Americans request, I sat down with Danny Yatom and US Ambassador Martin Indyk in Jerusalem to draw up a bottom line proposal on a withdrawal from the Golan Heights. Since I d already empowered Clinton to reaffirm the pocket deposit , I saw no reason not to do this. If only because of Assad s failing health, I believed it was the only way we could know whether an agreement was possible. We worked on a large satellite map of the Golan and the valley below, and drew our proposed border in red. We marked out a strip of several hundred meters on the far side of the Sea of Galilee. It included, or came near to, a handful of Syrian villages that had been there before 1967. But we were careful to adjust the line to exclude any area where buildings had stood. We compensated with slightly more territory by bending the border westward to give the Syrians part of the slope overlooking the lake, in what was now Israel. We also included the hot springs at 334 BARAK 49 al-Hama, which I knew Assad had said he considered rightfully Syrian during talks held under Rabin. But the details turned out not to matter. President Clinton agreed to present the map to Assad in what we both hoped would be a step to reopening the path for peace. The two of them met in Geneva in late March. Though the President also came with full details of our positions on the other negotiating issues, he began by telling Assad that I had agreed to the Syrians longstanding point of principle on our future border: it would be based on the June 4, 1967 line before the Six-Day War. Then, the President unfurled the map. It was shortly after five in the afternoon in Israel when Clinton phoned me. He sounded as if he d been punched in the stomach. Ehud, it s not going to work, he said. The moment I started, he tuned out. He just said: Do I get my land? I tried to get him to listen, but he just kept repeating: Do I get all my land? According the President, Assad would countenance nothing less than being able to sit on the shore of the Sea of Galilee and dip his feet in the water. Clinton said he d done his he s too frail and ill by now. In fact, Assad would die of leukemia barely two months later. His immediate focus was on ensuring an uncontested succession to his son, Bashar. When Dennis Ross came to see me in Jerusalem, I think he expected to find me more distraught than I felt. Of course, I was disappointed. But I told him I was grateful that Clinton had stayed with a negotiating effort that had been frustrating for all of us. When I became Prime Minister, I d assured the Americans that as long as our vital security interests were protected, I was ready to go further than any previous Israeli leader to get peace with Syria, and with Arafat too. I might fail, but it would not be for lack of trying. I believed that even a failure would tell us something: whether the other side was truly ready for peace. With Syria, I told Dennis, It s not what we hoped for. But at least now we know. 335 BARAK 50 My own negotiating team, not to mention the Americans, assumed I would now turn my attention to the Palestinians. Arafat was pressing for us to go ahead with phase-two of the Wye redeployments. In fact, he now wanted us to add the transfer of three Arab villages on the edge of east Jerusalem: Eizaria, El-Ram and, most importantly, Abu Dis, since from there you could see the golden dome of the mosque above the Western Wall in the Old City. I understood why the villages were politically important for him. But in practical terms, I also knew I d have to secure the support of the cabinet and the Knesset for what the Likud, and the main religious parties too, would interpret as a first step toward handing back Jerusalem. For me, this underscored the problem at the heart of Oslo. We were transferring land to Arafat, yet still without any serious engagement from the Palestinians on the permanent-status questions, like the furture of Jerusalem, that were critical to the prospects for real peace. They were critical, in fact, even to reaching a framework agreement, or a declaration of principles, as a basis for a final treaty. I probably should have seen the crisis-ridden spring of 2000 as a harbinger of the difficulties when we finally got to that stage. I did make a first major effort to find compromise ground on the main issues. I sent Gilead Sher and Shlomo Ben-Ami to begin back-channel talks with a Palestinian team led by Abu Ala a and Hassan Asfour, the architects of Oslo. But as I prepared to seek Knesset approval for returning the three additional villages to the Palestinians, my main Orthodox coalition partners, Shas and the National Religious Party, as well as Sharansky s Yisrael ba Aliyah, all threatened to walk out of the government. I did manage to keep them on board, but only by getting the Knesset vote classified as a noconfidence motion. That meant that if we lost, the government would fall and there would be new elections. That was something none of them wanted. They feared that Arik and the Likud would do better this time around, and they would end up with fewer seats. Still, even that didn t avert a different kind of crisis. The vote was on May 15. For the Palestinians, this was also Al-Naqba Day, the annual marking of the 1948 catastrophe of the founding of the State of Israel. Danny Yatom told me the night before there were intelligence reports of large protests planned for the West Bank and in Gaza. President Clinton immediately got the American consul to deliver a message to Arafat, saying that the President expected him to intervene against any sign of violence. But Arafat s reply was that, while he d do what he could, he 336 BARAK 51 couldn t guarantee anything. In the months ahead I would come to understand what that meant, because it would happen again. I don t think Arafat himself orchestrated the violence. Maybe he couldn t have stopped it completely. But I have no doubt nor did President Clinton that he stood aside and let it happen. Even worse since he did have control over them his security forces, with arms that Israel had provided as part of Oslo, fired on our troops as they tried to keep order. All of this, while I stood in the Knesset battling to get approval to give him the villages. As news arrived in the chamber of gunfire just a couple of miles away, it was not just Likud or other right-wing MKs who were furious. I certainly was. Yet I also knew that the price of losing the vote would be the fall of the government. We did win the vote, by a margin of eight, meaning that I now had full authority to return the three villages. Fuming over what had happened, however, I called President Clinton and told him I was going to delay the handover. I was not about to return the villages under gunfire, or reward Arafat for breaking even his existing security commitments. That meant that prospects for serious negotiations with the Palestinians were again on hold. But another, immutable, priority would probably have delayed any new initiative anyway: my pledge to get our soldiers out of Lebanon within a year of the election. I was determined to go ahead with it not just because I d promised Israelis to do so. It was because I knew from experience that without setting a deadline and sticking to it, it wouldn t happen. I had been against keeping the security zone from the start. Over the years, many Israelis, both inside the military and beyond, had come to accept we would be better off pulling out. It wasn t just the attritional loss of Israeli soldiers lives, but the fact that there was no obvious point, and no obvious end, to our mission there. Especially when major tragedies occurred like the collision of two Israeli helicopters a couple of years earlier, leaving scores of young soldiers dead there was talk about a withdrawal. Yet there was always a reason to reconsider, to put it off: a Hizbollah attack in the security zone, accusations of weakness from right-wing politicians, or simple caution in the kirya. The only way to get it done was to decide, and to do it. My self-imposed deadline for the pullout was now just eight weeks away. Hizbollah had already begun escalating pressure on our outposts in south Lebanon with the obvious aim of making the withdrawal as difficult as possible. They were also targeting our local surrogates, the Maronite-led South Lebanese Army militia. I d been meeting regularly with Shaul Mofaz, the former paratroop officer who 337 BARAK 52 was now chief of staff, to ensure we had a plan to get our troops out as quickly and safely as possible once the order was given. But complex though the operational issues were, that was not the most difficult part. The withdrawal had not just a military aim, but a critical political one: to denude Hizbollah, with full international support, of its occupation fig-leaf for targeting and terrorizing the towns and villages of northern Israel. Shaul and a number of other generals in the kirya tried to make the security argument for keeping several small hilltop outposts just north of the border. But I insisted not a single Israeli soldier or emplacement remain on Lebanese soil. Throughout the spring, we had been coordinating every detail of the planned pullout with UN cartographers on the ground, to ensure that they, too, recognized it would be a full withdrawal to the border, fulfilling the terms of the Security Council resolution adopted after the 1982 Lebanon War. Ordinarily, an operation on this scale would have been carried out over a period of weeks. But when we handed over a pair of military strongholds to the South Lebanon Army, and Hizbollah promptly moved in to take them over, it was clear that even several days might risk chaos, and casualties, as we left. The head of the northern command now supported an immediate withdrawal, and I agreed. Frustratingly, we did have to hold off for a further 36 hours, in order to ensure the UN staff on the ground could complete their verification process. But on the afternoon of May 23, alongside Shaul Mofaz at a command post on the border, I ordered the pullout of all Israeli troops, vehicles and other equipment within the space of 24 hours. I then flew back to Jerusalem for an urgent meeting to secure formal cabinet approval. The field commanders ended up getting it done in less than 24 hours, mostly overnight, without a single Israeli casualty. For nearly two decades, our troops had been serving and dying on a strip of land on which we had no claim, no settlements, and for which there was no rational security need. Finally, we were out. As I should have anticipated, there were accusations from Hizbollah and its allies that our UN-verified withdrawal was incomplete. At issue was a cluster of villages where Lebanon meets Syria, known as the Sheba a Farms. But as I knew first-hand, they were not part of Lebanon. I d met their Syrian inhabitants when I helped capture the villages at the very end of the 1973 war on the Golan. When Syria now publicly supported Hizbollah s efforts to get the UN to say the area was in fact part of Lebanon, I decided to call their bluff. Through the Americans, I 338 BARAK 53 suggested that Damascus confirm in writing that this part of the Golan was indeed Lebanese. The Syrians never responded. Equally predictable were the prophets of doom on the Israeli right, who said the Lebanon withdrawal would bury northern Israel in Katyushas and in blood. The reality was that in the half-dozen years following the pullout, the Israel-Lebanon border was quieter than at any time since the late 1960s. The main personal impact of the withdrawal, however, was to remind me of why I d run for Prime Minister in the first place. Despite the challenges, and inevitable setbacks and frustrations, of my first year in office, I was in a position to act on what I believed to be critical issues for my country s future. On Lebanon, I d succeeded, mainly because the withdrawal was something we could do unilaterally. With Syria, I d tried hard to get an agreement, only to find that Assad was unwilling, unable, or perhaps too ill to join in the search for a deal. I still recognized, however, that no issue was more important to Israel s future than our conflict with the Palestinians. I knew that resolving it would be even tougher than the talks with the Syrians. But the only way to find out whether peace was possible was to try. So on the final day of May 2000, with the Lebanon pullout complete, I flew to Portugal the site of a US-European summit to see President Clinton. 339 BARAK 54 Chapter Twenty-One President Clinton and I met the next morning. My aim was to persuade him that the time had come for a make-or-break summit with Yasir Arafat. I suspected it would not be easy to convince him, and it wasn t. But I made the argument that if we were to have any hope of moving Oslo forward, we now faced a stark choice. We were three years behind the timeline for starting work on a permanent status agreement, and only six months from an American election that would choose President Clinton s successor. We could, of course, pursue the Oslo process along its current, meandering path. But even though Bibi had slowed it down, that would inevitably mean Israel handing back yet more West Bank land to Arafat in return for familiar, but still unfulfilled and untested, verbal assurances that he wanted peace. Each successive Israeli withdrawal reduced his incentive to engage of the core issues like final borders, refugees, or Jerusalem. I could not in good conscience justify that, either to myself or my country. The second option was the summit. I realized there was no guarantee it would succeed. But it would finally force Arafat to negotiate on the core issues before the departure of an American President who had a grasp of the all issues and characters involved, and a personal commitment to converting the promise of Oslo into a genuine peace. The obvious political risk, for both Clinton and me, was that after convening a summit with all the heightened expectations and pressures it would bring we d fail to get an agreement. Though I d be more directly affected, however, it was a more straightforward choice for me. In part because I d been in front-line politics so briefly, but mostly because of what I d done for the three-and-a-half decades before then, I viewed the political risk as just one of many, and by no means the most important. That was an obvious weakness in me as a traditional politician. I would indeed pay a political price later on for having given too little heed, and perhaps underestimated, the reaction in Israel to the summit and what came after it. Yet as I tried to impress on President Clinton, there were risks in not holding a summit as well, along with the obvious reward of a full and final peace if it succeeded. If it failed? At least we would know a peace agreement with Arafat was impossible. In fact, amid the diplomatic drift since Oslo, it was clear there was no other way that we could know. 340 BARAK 55 Walking with the President in Lisbon s spring sunshine, I tried to summon up an image that would bring both of us back to the starkly different reality of our conflict with the Palestinians. Only two weeks earlier, Arafat s own police force, with weapons we had given them, had opened fire as I was trying to get Knesset approval for returning three villages that he wanted. After I took office, I d ordered a full-scale intelligence review of the security situation with the Palestinians. The sobering conclusion had been delivered to me six months earlier: plans were well underway by cells in the West Bank and Gaza for armed attacks against Israeli soldiers and terror strikes inside Israel. It s like two families living in the same house, and it s on fire, I said. All of us are rushing to put it out. But there s this veteran firefighter who arrives on the scene a firefighter with a Nobel Peace Prize and we have no way of knowing whether he s got matches and gasoline in his pocket. We had to find that out, I said. We had to establish whether we were all firefighters, and could put out the flames. Clinton and I had got to know each other well. In one-on-one conversations like this, we called each other by our first names, though I was careful to address him as Mr President when others were there. We d been through a lot together. I had no doubt that he wanted to put out the fire every bit as much as I did. But I also realized he had emerged frustrated, and bruised, from our last joint effort at peacemaking: with Hafez al-Assad. I was the one who had been pushing the hardest for him to meet Assad in Geneva, over the objections of some of his closest aides that it was likely to go wrong. Not only were the aides right. Assad had ended up delivering an extraordinary personal rebuff to the President of the United States. Now, I was again asking President Clinton for a summit, and I knew Madeleine Albright, Dennis Ross and others would be highly sceptical. I understand they ll have doubts. I understand their reading of the risks, I told President Clinton. But I m convinced crucial issues are at stake, which justify the risks. Let s move forward. But Clinton was skeptical, too. He said that without some sign of diplomatic progress between us and the Palestinians, he could see no way of holding a summit. With Arafat due to see him in Washington in a couple of weeks, he said that I first had to give the Palestinian leader something: the three villages, a prisoner release, or perhaps unfreeze tax revenues which we d been holding back as leverage for at least some progress on the core issues. Otherwise, Clinton said he was certain Arafat would refuse to attend a summit. And even if he said yes, 341 BARAK 56 Clinton felt we would need a draft document with broad areas of agreement before a diplomatic endgame could begin. I disagreed on that. I argued that if we tried to produce such a document, there would never be a summit. In fact, we d never get a draft document worth anything. Neither side is going to commit itself on issues like borders, refugees, or Jerusalem, I said, pointing out that even in our back-channel talks, the only forum in which there had been a hint of progress, those issues had barely been touched. He did accept that pre-negotiation would never crack the main issues. But he still said that before he could contemplate a summit, he would need Madeleine Albright and Dennis Ross to talk in detail with us and the Palestinians. There had to be a firm basis to work on, he said. Even then,m he said, he was almost sure Arafat would resist the idea of a summit. And on that last point, he proved right. I spoke to the President by phone after Arafat s trip to Washington. He thinks you re trying to trap him into a summit, and that when it fails, I ll blame him, he told me. The very next day, the stakes increased dramatically. For months, military intelligence had been warning of the potential for violence if we couldn t find a long-term political resolution of the Palestinian conflict. But the report which landed on my desk on June 16, 2000 was more specific. It said Arafat had called in his security people and said: My strategic understanding is that Israel is not interested in reaching a deal. Therefore, we are preparing ourselves for a violent and prolonged confrontation. A few days later, we got an even more worrying report, saying the security officers had been told to begin intensive training. Arafat was quoted as saying: The Palestinian Authority is confronted by a strong and dangerous Israel, headed by a Prime Minister who is not interested in real peace. The proof of that is that when he was Chief of Staff, he was the only senior officer to oppose the Oslo Agreement. I summoned my security team: Mofaz as chief of staff; the heads of military intelligence, Mossad and the Shin Bet. I told them that Arafat was wrong. My inalterable red line would always be Israel s national and security interests. But as long as those were protected, I wasn t just interested in reaching an agreement with the Palestinians. I was determined to do everything possible to try to get one. But I also said that we had to make sure we were fully prepared for responding to Palestinian violence and, at some stage, full-blown terror. 342 BARAK 57 A few days later, the pre-endgame around the summit began. Not in Washington or Jerusalem or Ramallah or Gaza, but in Kochav Yair. Nava and I still spent almost all our weekends there. We valued the quiet, or at least the slightly quieter, time away from Jerusalem or Tel Aviv. Some of my oldest army friends lived there as well: Danny Yatom, as well as Shaul Mofaz and Uzi Dayan, who was now deputy chief of staff. Newer colleagues, too, like Yossi Ginossar, a Shin Bet veteran who spoke fluent Arabic and, after working in the West Bank and Gaza in the late 1960s became one of the first Israelis to hold secret talks with Arafat, building up a personal relationship with him. Under both Rabin and Peres, he had been a valuable liaison with the Palestinian leader. Nowm under my Premiership as well. The summit seemed to me more important than ever, but I knew that only President Clinton could make it happen. Short of giving the Palestinians the whole list of short-term rewards they wanted, including the three villages, I knew Arafat was never going to be enthusiastic. But if Clinton was persuaded that a peace agreement was within reach, I had confidence he would make the effort. I had allowed Gili Sher and Shlomo Ben-Ami to go to Washington the week before for exploratory talks with Dennis Ross. Shlomo, as I knew he d done in the backchannel talks with the Palestinians, had gone beyond anything that I would or could say at this stage in order to probe the edges of where an eventual compromise might be possible. Now Clinton had sent Dennis to Israel, with Madeleine Albright to follow at the end of the month, and I had to assume that their impressions would be critical to his decision on whether to bring me and Arafat to Camp David. We agreed to meet Dennis and his team at Danny s house in Kochav Yair. By the time I d made the pleasant Shabbat-afternoon stroll from our house, a few streets away, they were in the back garden sipping lemonade and munching on popcorn. I d met often with Dennis during my year as Prime Minister, and I liked him. He was smart, knowledgeable and experienced. He d worked under three US Presidents: Carter, Bush Senior and now Clinton. No American diplomat had been more indefatigably involved in the search for Middle East peace. And whatever his occasional frustrations, he also recognized I was ready to go further than any 343 BARAK 58 previous Israeli leader in trying to get that peace. I knew that he would press me to tell him how far that actually was. He didn t ask directly. But each of his ostensibly theoretical questions was aimed at establishing whether I could give him enough for a summit to bridge the gaps on key issues. Could I accept a trade-off between sovereignty and time? Translation: could I give the Palestinians sovereignty over a larger part of the West Bank if we signed an agreement that would phase in their control? Could I accept the principle of land swaps? This meant giving Arafat land in areas bordering the West Bank, or in the Negev near Gaza, to compensate, at least partially, for the area we would keep for the major settlement blocs. What about applying my principle of disengagement between Israel and the Palestinians to Jerusalem? Meaning Arafat getting control of the predominantly Arab neighborhoods in the east of the city. Dennis knew my long-standing reluctance to commit to concessions until we got to real, final negotiations with Arafat. We ll not reveal anything you tell us, he assured me. We won t turn what you say into opening negotiating positions for Arafat. But if there is going to be a summit, the President wanted some answers. To Dennis s frustration, however, I could give him no specifics, beyond telling him: You know me, Dennis. You know I m serious about this. Of course, we will protect our vital security and national interests. But the problem in making peace won t be us, on the Israeli side, as long as Arafat shows a capacity and a will for decision. The translation of that, as I hoped and trusted he understood was that if and when Arafat demonstrated that he wanted a comprehensive peace between a new Palestinian state and the State of Israel a definitive end of conflict as the international lawyers would describe it I would place nothing, except our security and core national interests, in the way of getting an agreement. Madeleine Albright visited at the end of June. When she came to see me a day after meeting Arafat, she carried a request from the Palestinian leader: two weeks of preparatory talks before a summit. Again, I knew her mission was to bring back enough progress for the President to feel a summit was worth it. But again, I couldn t give her what she wanted. I know what will happen in preparatory talks, I said. We ll raise new ideas, which the Palestinians will reject, and ask for more. I don t know what she told Clinton, or Arafat. But Dennis called me the following day. He said that Arafat had agreed to attend a summit, and would leave the date up to the President. 344 BARAK 59 When Clinton phoned me at the beginning of July, however, he still hadn t finally decided to hold the summit. I needed him to know that, on my side, he d have a truly willing partner, aware of the political risk he d be taking. Like Dennis, the President tried to probe my position on land swaps, and Palestinian sovereignty for at least some Arab neighborhoods in Jerusalem. Finally, he asked if I would rule out those possibilities if they represented the difference between success or failure at a summit. I did not give him a definitive yes. I said we could think through those issues together. But when he phoned again, on July 4 from Camp David, I felt I had to go further. I said that, for his ears only, I was willing to give him the assurance that, assuming that Arafat was willing to move toward us on core issues, I would consider limited, symbolic moves on both land swaps and Palestinian sovereignty in part of East Jerusalem. Clinton replied: the summit was on. It would begin at Camp David in one week s time, on July 11. Two days before leaving for the US, I brought my ministers together. We can t know what will happen at a summit, I said. But we have a responsibility to give it a chance, and recognize the situation in which we find ourselves. If we sit idle and don t even try, we ll face an eruption of violence, and never know whether we could have avoided it. If, God forbid, we fail to reach an agreement, there will also be violence. We will face a new reality more difficult than you can imagine. But if we do manage the strike a deal, we are going to change the map and history of the Middle East. I reminded them it would be up to Israelis to say yes or no, in a referendum, to the terms of any agreement we negotiated. If we achieve a breakthrough, I m confident they will do so, by a landslide. I said I would hold fast to a number of principles. There would be no return to the 1967 lines, meaning that we would draw a new border with the West Bank to accommodate the largest settlement blocs. They were mostly around Jerusalem, or just beyond the 1967 border. In practical terms, over the years they had become part of Israel. Tens of thousands of people lived there. As the Americans and even the Palestinian negotiators recognized, no Israeli government, Labor or Likud, 345 BARAK 60 would agree to make them part of a Palestinian state. The second principle was that Jerusalem will remain united. It would not be cut into Jewish and Arab halves as had happened between 1948 and 1967. That, I knew, might prove tougher to carry through on. But even if I had to concede a degree of Palestinian control in parts of east Jerusalem, I expected to be able to retain Israeli sovereignty over the city. The third principle was that there would be no foreign army west of the Jordan River. In other words, if we did hand back at least the major part of the West Bank, it would be demilitarized and we would have security control over the Jordan Valley. Finally, we would not accept responsibility for the birth of the refugee problem and its solution. Though there could be a right of return into a new Palestinian state, we would not agree to rewrite the history of the 1948 war by sanctioning the resettlement of hundreds of thousands of Palestinians inside the State of Israel. I think it was the very fact we were talking about a comprehensive peace agreement that made it so hard for my Orthodox and right-of-center coalition partners. They didn t see the attraction of coming to final terms of peace. They knew it would mean concessions. There would be a Palestinian state. We would give up the great majority of Biblical Judaea and Samaria. While most of the settlers would remain, since they lived in the major blocs, those in more isolated settlements around the West Bank would have to be moved. They saw the prospect of a final peace only in terms of what we were giving up. They didn t see what we would gain: not just peace, and international recognition and endorsement for it. But normalcy: the central aim of Zionism. Jews living in a state like any other. Ever since 1967, we had been in control of the daily lives of hundreds of thousands of Palestinians on the West Bank and in Gaza. That was bad for them. But it had been bad for us too. Fifty-two years after the birth of our state, we still didn t have a permanent, internationally recognized border. Rather than dealing with our economic and social issues like other states, we were beset by internal divisions that were in no small part a result of our unresolved conflict with the Palestinians. Shas, the National Religious Party and Sharansky s Yisrael ba Aliyah were all threatening to pull out of the government because of the summit. Nothing I said could change their minds. Sharansky was the first to declare he was leaving. A few hours later, Shas and the NRP followed suit. If the Likud mustered the required 61 votes for the no-confidence motion it was introducing before I got on the plane to the US, the government would fall. If the parties that had left the coalition, with a total of 28 seats, went along with Arik Sharon, it wouldn t be close. As if that 346 BARAK 61 wasn t enough, David Levy, my Foreign Minister, told me he would not be joining me at Camp David. He wasn t resigning, at least not yet. But he knew that the final decisions at the summit would be mine, he feared it would fail, and didn t want to share in the consequences. None of this meant I wasn t going. Even if the no-confidence vote succeeded, the new Israeli electoral system, with its separate vote for Prime Minister, meant I would remain in office, at least until the summit was over. In a nationally televised message, I reminded the country that I d been elected with nearly two million votes. I felt I had a responsibility, and a mandate, that went beyond party politics. I must rise above the political arguments, and seek out all possibilities on the way to a peace agreement that will end the conflict, and the blood, between us and our neighbors. I made the same points before the Knesset. I did, of course, want parliamentary support. But I was acting on a mandate from the people of Israel. It was they, in a referendum, who would ultimately decide on anything we might agree. When the Knesset votes were counted, thanks to the fact two dozen MKs abstained, both sides lost. Arik fell seven votes short of a majority. So the government survived. But those opposed to the summit got more votes than we did: 54 to 52. There were several consolations as I prepared to fly out from Ben-Gurion airport. Shas leader Eli Yishai passed me an envelope on the tarmac. Inside was a note from Rabbi Ovadia Yossef, the Shas spiritual leader whom I d met with privately after the election and a number of times since. He wanted to wish me good luck. Nearly 30 reserve generals also issued a public message of support. Perhaps most encouragingly, a newspaper poll found a majority of Israelis 55 percent to 45 believed I was right to go to Camp David and that I had a mandate to make concessions in return for peace. David Levy came over to talk before I boarded. I doubt we ll get an agreement, he said. I told him what I was telling other ministers, what I d told reporters and, in fact what I had told Nava. The odds are fifty-fifty. The reporters took this as coy, or deliberately deceptive. So I added that it was not because I knew something they didn t. It s because there are two possible outcomes, and I don t know which one will happen. The gaps of substance were bridgeable. The question was whether both sides wanted peace, and whether each had made a serious, strategic decision to go for it. I d made that choice. But I had no way of knowing whether Yasir Arafat had. 347 BARAK 62 I was confident of finally answering that question at the summit. Camp David was different from Shepherdstown. No reporters would be there. Mobile phones were banned. Each delegation had one landline. We d also be operating under a time constraint. President Clinton was due to leave for a G8 summit in Japan on July 19. The gave us barely a week. I did wonder whether that would be enough, even if both sides were committed to reaching a peace agreement. Yet I hoped it would at least provide the possibility, as it had for Begin and Sadat twenty-two years earlier, to reach a framework agreement that open the door to a final peace treaty. Not just the time, but the numbers were limited. We and the Palestinians could have only a dozen members in our negotiating teams. Some of my choices were automatic: Danny Yatom; Shlomo Ben-Ami, whom I d made acting Foreign Minister in Levy s absence; Amnon Lipkin and Attorney-General Elyakim Rubinstein; Gilead Sher and his chief negotiating aide, Gidi Grinstein. I also took along a strong security team, including Shlomo Yanai, head of strategic planning the kirya, and Israel Hason, a former deputy-head of Shin Bet. There was another important, if less obvious, inclusion: Dan Meridor. A leading member of the Likud before he d formed the Center Party at the last election, Dan was not just a friend. He was a man of rock-solid integrity, with a strong moral and ethical compass, who put principle over party. He was also a lawyer, and had been Minister of Justice under Bibi. Along with Attorney-General Rubinstein, I knew I d have a gifted legal team if we got to the point of considering the specifics of a peace agreement. There was another consideration as well. Both Dan and Elyakim were right-of-center politically. I felt I needed their voices as a kind of litmus for the tough decisions, and concessions, I might have to consider if an agreement did prove possible. I was not nervous as we crossed the Atlantic, though even those who knew me best assumed I would be. Nava had sent me off with a list of dietary instructions, almost like a surgeon general s warning that Camp David might prove hazardous to my health. But I felt prepared. I d gone to every source I could find about the Begin-Sadat summit. I knew there would be periods of crisis and that at certain points I d have to allow leeway for my own team to explore possible compromises beyond our set negotiating limits. Yet none of this altered my belief that holding the summit was the right thing to do, nor my confidence in being able to play my part. I did feel a huge responsibility. Decades after our conflict with the 348 BARAK 63 Palestinians had begun, seven years after Oslo, I was making an attempt, with the participation of the President of the United States, to shape the final terms of peace. I knew I carried the conflicting hopes and fears of Israelis with me. And the odds really were 50-50. Either we d come home with an agreement, to be placed before the country in a referendum. Or we would know that, at least for now, it was beyond reach. 349 BARAK 64 Chapter Twenty-Two If I believed in omens, I might have turned back as soon as we got to the summit. We reached Camp David a little before ten at night on July 10, after helicoptering from Andrews Air Force base near Washington. When we arrived, it was pouring with rain. The cabin assignments were also a surprise. I was given the one that Anwar Sadat had at the first Camp David summit in 1978. Arafat got Menachem Begin s. Still, the cabins themselves, each named for a tree, were large and pleasant. Mine was called Dogwood. It had a bedroom, two large sitting rooms and a terrace. I took it as a good omen that it was the same one where Nava and I had stayed during our visit with the President Clinton and Hillary right after I d become Prime Minister. With just eight days to address the core issues of decades of conflict, we got down to work the next morning. Clinton began by meeting Arafat, as I went through the Americans strategy for the negotiations with Madeleine Albright, Dennis Ross and Martin Indyk. Then I met the President in his cabin, which was called Aspen. He told me that while Arafat still thought I was trying to trick him into an agreement, and didn t think we d necessarily get a deal, he did accept I was serious about trying. My fear was still the opposite, that Arafat was not serious. Yet my hope was that the isolated environment of Camp David, and the wide public expectation that we would accomplish what Sadat and Begin had done there before, would deliver the breakthrough that I believed ought to be possible. For that to happen, I told the President, I believed it was essential that Arafat truly understood the importance of what was at stake. Not just the cost of failure, but what was potentially on offer: the creation of the Palestinian state he sought, with the full acceptance of Israel and the support of the world. I wish I could say I was optimistic when Clinton led the two of us into Laurel Lodge, the larger cabin a few hundreds downhill from Aspen, for the opening session of the summit. The scene at the front door with me bustling Arafat ahead, with the intention of allowing him to enter before me yielded the best-known image from the summit. Captured by the television crews allowed into the compound for the ceremonial opening, it spawned a cottage industry of political speculation and armchair psychoanalysis purporting to decipher what it meant. Some said it was an encouraging sign of chemistry between me and Arafat, a not 350 BARAK 65 unreasonable guess, since both of us were grinning throughout. Others concluded that because each of us was trying to nudge the other to go in first, it was a sign of underlying conflict: neither of us wanted to allow the other the privilege of appearing to be polite. Still others, bizarrely, said that it was an ornate Middle Eastern power play, with the aim of demonstrating that I was ultimately in control of proceedings. In fact, it would turn out to be a singularly apt image of what happened in the days that followed: a reluctant Arafat, an engaged and expectant Prime Minister of Israel, a smiling and hopeful Clinton. We did begin on a note of optimism. In my opening statement, I said: Now is the time for us to make a peace of the brave, to find a way to live together side by side with mutual respect, and to create a better future for our children. Arafat said he hoped that the peace Begin and Sadat had made at Camp David would prove an auspicious example. With the help of President Clinton, we could reach a deal that is good for both sides. But it was going to take more than noble words. The details of a peace treaty, or even a framework agreement, were going to require negotiation. Both Arafat and I arrived fully aware of the shape of the hard decisions I d referred to months earlier when we met in Oslo. On his side, it would come down to whether he was prepared for a comprehensive, final peace. A true end of conflict, with no get-out clauses, no strings left untied, no further claims on either side. In concrete terms, this would mean abandoning his claim for a notional hundreds of thousands of Palestinian refugees to resettle inside the pre-1967 borders of the State of Israel. And what were Israel s difficult decisions? In return for the end of conflict, I would have to deal away the maximum possible part of the West Bank, certainly well above the 80 percent I d quoted Shimon Peres as suggesting when I d first met with President Clinton. I would have to accept the idea of land swaps, if necessary, in order to bring the overall percentage as near as possible to the equivalent of the whole of the West Bank. I would have to be flexible on the arrangements to ensure Israeli security oversight over the Jordan Valley. And if a true peace was really on the table, both Arafat and I would have to consider some form of compromise on the most emotionally and symbolically difficult issue of all: the future governance of Jerusalem. On the first evening, we met as an Israeli delegation to discuss our position for the days ahead. Gili Sher and Danny Yatom helped me keep a clear overall picture of proceedings throughout the summit. Our secure landline was operated by a Shin 351 BARAK 66 Bet technician. I assumed that, one way or another, the Americans could listen in, but was fairly confident we were beyond the electronic earshot of the Palestinians. I kept myself fully informed of, but at a distance from, the specific work of our five negotiating teams. Though I could not have stayed engaged with all of them at the same time, I also hoped the arrangement would give them an opportunity to explore any realistic opportunity for a breakthrough and any sign of flexibility on Arafat s side without committing me until there was such flexibility. Yet for the first couple of days of the summit, there was not only no sign of flexibility. There was little meaningful engagement. Dennis Ross and his team drew up a paper setting out the main issues. For those on which we differed, our positions were marked with I and P . It wasn t until around midnight on daytwo that the we got a first look at the American draft. The main, unhappy, surprise was Jerusalem. This crucial issue was not marked with I or P . It said outright that there could be two capitals, one Israeli and one Palestinian, within the city of Jerusalem. I was not opposed to the Palestinians calling Jerusalem the capital of their state. But even in follow-up talks after Oslo, when Yossi Beilin and Abu Mazen had explored avenues toward a possible resolution of the Jerusalem question, the maximum understanding was that Israel might expand the existing city limits to accommodate the two capital solution. The Palestinians capital would be in Abu Dis, one of the villages Arafat had asked me to hand back in May. The way the American document was worded suggested dividing Jerusalem as it now was: something ruled out by all Israeli politicians, of all parties, ever since 1967. When I phoned President Clinton, he asked me to come talk. We sat on the back terrace of his cabin, looking out incongruously on a beautifully tended golf hole installed by Dwight Eisenhower. I told the President that after all the hours we had spent together, I d felt blindsided by the inclusion of a proposal on Jerusalem that went beyond anything we d talked about. It was my mistake, he replied, obviously already aware through his negotiators of the error. He said that he d put pressure on his negotiators to get the document finished, and that Dennis hadn t had time to read it through. But it was already being fixed: the word expanded would be added to the Jerusalem section. I was grateful for that, but told Clinton I was concerned that even this I and P paper might have the unintended effect of delaying any real progress. Since it s an American document, it gives the Palestinians no incentive to compromise, I said, suggesting that it might be better 352 BARAK 67 simply to withdraw the paper. Clinton s answer encouraged, and surprised, me. We agree, he said. The paper no longer exists. It soon turned out the Palestinians were unhappy with it too, but for another reason. On the lookout for validation of Arafat s insistence that Camp David was an Israeli trap , they were convinced that the paper had Israel s fingerprints all over it. That wasn t true. The one change we d insisted on was because it misrepresented our position on Jerusalem. Still, since Dennis had added the word expanded to the Jerusalem section in longhand, the Palestinians were convinced of Israel co-authorship. In fact, three days into the summit, the mood among the Palestinians seemed increasingly aggrieved. Not just the Americans, but some members of my own team, were urging me to show more personal warmth towards Arafat. I did always exchange greetings and pleasantries with him at mealtimes in Laurel Lodge, but even there, I admit, that I didn t exactly show enthusiasm, much less ebullience. After one dinner, when I d been placed between the Palestinian leader and Chelsea Clinton, the President s National Security Adviser, Sandy Berger, asked me why, rather than talking to Arafat, I d spent almost the entire time chatting with Chelsea. My response was only half-joking: Given the choice, who wouldn t? It wasn t only that I believed a charm initiative would come over as contrived. I didn t want to risk misleading Arafat, the other Palestinians and possibly the Americans as well, by giving them the impression I was satisfied with the progress of the summit, or felt that we were heading towards any serious engagement and compromise on the core issues. I had met Arafat many times before Camp David. I had made it clear in all of those meeting that, despite differences on a range of difficult issues, I did want a final peace agreement and that I was ready to consider the tough decisions necessary to make it possible. At Camp David, I was not against meeting Arafat as a matter of principle. I simply felt the time for such a meeting, if it came, would be at the moment that we saw at least some signal of a readiness on his part to negotiate seriously. Still, given the strength of feeling among some of my own negotiators, I felt a responsibility to give it a try. I told Yossi Ginossar, the former Shin Bet officer who was closest to the Palestinian leader among the Israelis, to set up an informal meeting. I added, to Yossi s obvious satisfaction and surprise, that I d be willing to have the meeting in Arafat s cabin if that s what he preferred. The next afternoon, I went there for tea and baklava. Abu Mazen, his top political adviser and the main 353 BARAK 68 Palestinian architect of Oslo, was with him, along with a more junior aide who served the tea and sweets. At least this time, Arafat didn t take notes as we spoke. The mood was friendly. We talked about a whole range of issues. With ony one exception: what was really happening, or what should happen, in the summit talks. I found the exercise disappointing as a result. But Yossi Ginossar assured me it would help the atmosphere, and would eventually translate into negotiating progress. I hope so, I said. It wasn t until day-four that real talks began. The Americans arranged for negotiating teams from both sides on borders, the refugee issue, and Jerusalem to meet with President Clinton. The Palestinians participated, but showed no sign at all of a readiness to compromise. Borders should have been the most straightforward. Assuming we wanted a deal, it was about sitting down with a map and working out how to address both sides arguments. But Arafat s representative in the meeting the Oslo negotiator Abu Ala a said he wouldn t even discuss borders without a prior agreement to land swaps ensuring Palestinian control over an area equivalent to 100 percent of the West Bank. Shlomo Ben-Ami did try to find a way around this. He suggested the Palestinians assume that to be the case for the purposes of the meeting, so that at least there could be meaningful discussion of the border, including the provisions Israel wanted in order to retain the major settlement blocks. President Clinton agreed that made sense. He said that without talking about the substance of such issues, there wasn t going to be a deal. Even Abu Ala a seemed receptive, according to Shlomo. But he insisted that he would have to ask Arafat first whether it was okay. On refugees, pretty much the same thing happened. The Americans, and I assumed at that point even the Palestinians, knew that a peace deal would be impossible if we agreed to hundreds of thousands of refugees entering Israel in effect leaving the state created in 1948 with a Jewish minority. But when President Clinton began trying to narrow down details of a compromise resettlement package how many refugees would return, where they would go, and how to arrange international financial support for them Abu Mazen insisted that nothing could be discussed until without a prior Israeli acceptance of the principle of the right of return. On Jerusalem, according to Gilead Sher, the President didn t even try to find common ground on the core issue: sovereignty. Instead he used the formula Shlomo Ben-Ami had suggested, telling each side to proceed on the assumption sovereignty was decided in its favour, and to concentrate instead on how everyday 354 BARAK 69 municipal functions and daily life would be divided between Israel and the Palestinians under a peace agreement. When I convened our negotiators in my cabin to take stock of the logjam, I was getting more and more skeptical of finding a way to get to actual negotiation on the hard decisions I assumed both sides knew we d have to make. I told our team we could not play that game. Until there was at least some movement from Arafat, I didn t want them suggesting any Israeli concessions. We d obviously get nothing in return. The summit would fail. Despite my repeated insistence both to the Americans and Palestinians that, without an agreement, any Israeli suggestions would be null and void, that didn t mean they would simply be forgotten. The result is that we d actually be in a worse situation than before Camp David. Politically, I d find myself in much the same position as President Assad, after the leak of the American draft from Shepherdstown: apparently ready to consider giving Arafat the great majority of the West Bank, without the slightest sign Arafat was ready for a full and final peace. But that wasn t my main concern. It was that anything that we put on the table here would handcuff future Israeli governments if and when an end of conflict agreement became possible. Still, when Dennis Ross learned from my negotiators what I d decided, he was frustrated and upset. He came to see me on Saturday morning day-five of what was looking increasingly like a stillborn summit. This summit was your idea, he said, reminding me that the President had agreed to it over the reservations of a lot his own aides. He told me that at a minimum, I had to help give it a chance: by giving him my true negotiating red lines. Either that, or give my negotiators more leeway to explore compromises. I did not want to make Dennis s job any more difficult than it already was. And I told him I was still ready to engage fully if we ever got to the real substance of a possible deal. But I can t do what you ve asked me, I replied. Not when Arafat is simply holding firm and not showing a willingness even to look for compromises. Fortunately for my relationship with the President though not for the prospects of an agreement Clinton had considerably more sympathy with my position after his next meeting with both sets of negotiators that afternoon. It was a return encounter with Abu Ala a on territory and borders. Shlomo Ben-Ami now produced a map of the West Bank with our proposed breakdown into the areas that would be controlled by a Palestinian state, the part Israel would retain to accommodate the major settlements, and territory which we suggested would go to 355 BARAK 70 the Palestinians after a transitional period. The part we had earmarked for Palestinian control was now a bit over 85 percent of the West Bank, more than I d indicated to the President in our first meeting a year earlier. But while Abu Ala a had told Clinton he would ask for Arafat s permission at least to negotiate, he clearly hadn t received it. He refused to talk about the map, or even respond to Clinton s suggestion that the Palestinians present a map of their own, until we did two things: accept the principle of land swaps and reduce the size of the territory we were suggesting for the settlement blocs. To Shlomo s, and I m sure even more so to Abu Ala a s, astonishment, the President exploded. He told Abu Ala a that to refuse to provide any input or ideas was the very opposite of negotiation. It was an outrageous approach. He stormed out. It was late that evening when the first move toward the make-or-break situation I had hoped for seemed to occur, though still with much more likelihood of break than make. The President decided the only way to make progress was to sequester a pair of negotiators from each side overnight. Their task would be to search honesty for the outlines of a possible peace agreement. They were to update Arafat and myself and then report to Clinton the next day. Then, we d see where we were. I agreed to send Shlomo and Gili Sher, my former back-channel negotiators. I knew that whatever guidelines I gave them, they would probe beyond them, just as they d done in the back-channel talks. They were negotiators. They were also smart, creative, badly wanted an agreement and, like me, believed it ought to be possible. Though I would retain the final word to approve or reject what they suggested, I knew that only in a legal sense could it be null and void. I also recognized, however, that we had to be willing to push further, both to find out for certain where the Palestinians stood and to convince the Americans we genuinely wanted an agreement. Shlomo and Gili left a little after midnight for Laurel Lodge. Marine guards were posted at the doors, with orders that neither negotiating team was to leave until morning without notifying the President s staff. Mother Nature provided a further incentive to stay inside, since it was again bucketing down with rain. The negotiators talked not just through the night, but the next morning as well. It wasn t until early afternoon that Shlomo and Gili came to my cabin to report on how they d gone. As I d anticipated, both of them had ventured beyond concessions that I was ready to consider, at least at a time when we weren t even near to a final peace deal. Taking the President s instructions to heart, they d said 356 BARAK 71 they were willing to consider full Palestinian sovereignty over two Arab neighborhoods in East Jerusalem, and even some form of Palestinian authority and control in the Christian and Muslim quarters inside the walls of the Old City. They had dropped our insistence on Israeli control over the Jordan Valley, suggesting that we hold on to only a small segment of the border with Jordan. They had gone beyond the share of the West Bank allocated to a Palestinian state on the map that Abu Ala a wouldn t even look at. Now, they suggested around 90 percent. But when I asked what the Palestinian negotiators, Saeb Erekat and Mohammed Dahlan, had proposed in return, the answer was almost nothing. They had taken notes. They had asked questions. The one Palestinian proposal, from Saeb Erekat, was on Jerusalem: Palestinian sovereignty over all the city s predominantly Arab areas, and Israeli sovereignty over Jewish neighborhoods. In other words, a division of the city. Even though I was concerned that Gili and Shlomo had gone so far, especially on Jerusalem, I d reached the point where I doubted that even that would matter. We were now in day-six of the summit, barely 48 hours from President Clinton s departure for the G-8 summit, and we were negotiating only with ourselves. Knowing that the President planned to go see Arafat, I sat down and wrote him a note emotional not just because I did it quickly, but because of how deeply let down I felt by the Palestinians deliberate avoidance of a peace deal which, with genuine reciprocity, should have been within reach. I took the report of Shlomo Ben-Ami and Gilead Sher of last night s discussion very badly... it began. This is not a negotiation. This is a manipulative attempt to pull us to a position we will never be able to accept, without the Palestinians moving one inch. I reminded President Clinton that just as he was taking political risks, I was too. Even the positions presented by our people last night, though they are not my positions, represent an additional risk, I said. I said I doubted there would be another Israeli leader willing to engage in serious efforts for a final peace agreement with the Palestinians after what had happened here. Unless things changed dramatically, I was not prepared for us to throw out further suggestions, or consider painful concessions. I do not intend to allow the Israeli state to fall apart, physically or morally. The State of Israel is the implementation of the dream of the Jewish people, for generation upon generation. We achieved it after enormous effort, and at the expenditure of a great deal of blood and sweat. There is no way I will preside at Camp David over the closing of 357 BARAK 72 this saga. I told the President that I still believed that we were facing a moment of truth. But only if he could shake Arafat, and get him to sense the enormity of the stakes an independent Palestinian state, versus more, and undoubtedly deadlier, violence. And if it did come to armed conflict? When the people of Israel will understand how far we were ready to go, we will have the power to stand together, unified, in such a struggle, however tough it will become, even if we will be forced to confront the entire world. There is no power in the world that can force on us collective national suicide. Peace will be achieved only if there is a willingness to negotiate on both sides. I am sure the people of Israel, and the American people, will understand it when the details will be revealed. Clinton had already left for Arafat s cabin by the time Danny Yatom went to deliver the letter. But the President, too, was in a more sober and downbeat mood by the time that meeting was over. Late that night when, having now read my note, he joined me on the balcony of Dogwood. He looked exhausted. It was the toughest meeting I ve ever had with Arafat, he said. Clinton said he had told the Palestinian leader that only one side, the Israelis, had so far been negotiating in good faith. If Arafat was not prepared to make a genuine effort to reach an agreement, then there was no choice but for all of us to go home. Now, it seemed, both the President and I were left to wait and see what, if anything, Arafat came up with in reply. I ve been through battles, and danger, in my life, I said. But in terms of my responsibility, today, for me as well, was probably the toughest. Shlomo and Gili went beyond what I could live with. If this offer can t move him, then I believe we are left to prepare for war. I told the President he didn t even need to phone me after hearing from Arafat if all he offered was some clever half-reply. Only if it was serious and substantive. I also reminded him that while he d promised Arafat that he would not blame the Palestinians if the summit failed, that had been on the basis of negotiating in good faith. I hoped that, if the summit collapsed in these circumstances, he would keep to that standard. Finally, I touched on an immediate concern if the summit broke up. For months, the Palestinians had been talking about simply declaring a Palestinian state. The Americans had insisted neither side should resort to unilateral action in a conflict whose resolution depended on mutual agreement. The Europeans had been less 358 BARAK 73 explicit. I told President Clinton I could speak only for how I would respond if a state was indeed declared without a peace deal. We will extend Israeli sovereignty over the major settlement blocs. We will establish a security zone in the Jordan valley, and let them know that there will be a heavy price should they attack any of the outlying settlements. In other words, Palestinian unilateral action would prompt unilateral Israeli action. And the confrontation will begin. Clinton seemed, if not completely revived, considerably more upbeat when he came back to see me an hour later. He told me that he had received the Palestinians answer. The way he described it to me, Arafat had agreed to leave President Clinton to decide the amount of West Bank land that would go to a Palestinian state, a figure he now told me that he was assuming would end up at around 90 to 92 percent. The trade-off, he said, would be a limited, symbolic land swap. Arafat also wanted control of the Jordan Valley, but had agreed to begin negotiating on Israeli security needs there as soon as possible. Then, came Arafat s counter-conditions, which appeared to bother the President much less than they did me. Everything would be contingent on an unspecified, acceptable outcome on Jerusalem. And despite Clinton s emphasis that any meaningful agreement had to include a formal declaration that the Israeli-Palestinian conflict was over, Arafat was insisting that could come only after the terms of whatever we agreed were fully implemented. Still, it was at least a step forward. Clinton seemed genuinely encouraged, and I didn t want to risk closing off this first chink of light. I suggested, for instance, that we could address Arafat s reluctance about an end of conflict statement by providing an American guarantee that the terms of the deal would be implemented. Still, it very soon became clear that any hope of real progress rested on by far the most difficult issue: Jerusalem. Across party boundaries, even across divisions between religious and secular, nearly all Israelis viewed the city as not just our capital, but the centrepiece of the state. It had been divided after 1948. The Old City, and the site of the ancient Jewish temple, had been under Jordanian rule for 19 years when our forces recaptured it in the Six-Day War. It was under a Labor 359 BARAK 74 government that the area around the temple s surviving Western Wall, left uncared for under the Jordanians, was cleared and a stone plaza put in place for worshipers at the expense of parts of the old Moroccan Quarter. It was under Labor, too, that Israel unilaterally expanded Jerusalem s city limits to take in more than two dozen adjacent Arab villages on the West Bank. No Israeli government since then, Labor or Likud, had deviated from a shared pledge that Jerusalem would remain Israel s undivided, sovereign capital under any eventual peace agreement. Yet when I met Clinton the next morning in Laurel Lodge, he insisted we had to find some room for flexibility. He said that, of course, Israel would retain sovereignty over the Temple Mount: the site of the Western Wall and, above it, the Al-Aqsa mosque complex. But without damaging your sovereignty, he argued, we have to find a way to draw a picture for Arafat that includes some measure of Palestinian control in part of the city. Could you agree to Arafat having an office, maybe, inside the walls of the Old City, he asked me. What about a form of administrative control in some of the outlying Arab neighborhoods in East Jerusalem? I replied that I couldn t possibly answer any of his questions until and unless it was clear that Arafat accepted our sovereignty over and our national and religious connection with the Temple Mount. Yet I said I understood that we would have to reach some compromise agreement on the city if we were ever going to have a chance of a peace agreement. But it s an issue that is difficult for every Israeli, I told him. Before I could even begin to see whether there was a way forward, I would have to take it through with my entire negotiating team. Then, we could discuss it. It turned out to be the most open, serious, searching discussion I was a part of during all my years in public life. It began, on the terrace of my cabin, at two in the afternoon and went on until sundown. I introduced it by saying what each of us already knew: Jerusalem was the most emotionally charged and politically complex issue of all. Our maximum position coming into the summit had been that we would again expand the municipal boundaries of the city, as we d done after the 1967 war, in order to accommodate two separate city councils. One would be in Abu Dis, just to the southeast of the Old City, almost literally in the shadow of the Temple Mount. The understanding was the Palestinians would be free to rename the village, referring to it by the Arabic name for Jerusalem: Al Quds. I said that we should use that position as a starting point, and discuss how, or whether, we might go further. All I added was the need to be aware of what was at 360 BARAK 75 stake. I didn t know whether peace was within reach. I was still deeply skeptical. But if it was, we had to accept that Jerusalem would be key. And if the summit failed, for whatever reason, what inevitably awaited us was confrontation. Israel Hasson, the Shin Bet veteran, spoke first. He saw two choices. Either we could retain Isrsaeli sovereignty over a united Jerusalem with functional, day-today autonomy for the Palestinians in their neighborhoods, or we could in effect divide the city. Divide sovereignty. He didn t say which he favored, only that it was essential that we made the decision now if we could, however difficult or reluctant Arafat was as a negotiating partner. If we waited, we d end up having to deal with Islamists: Hamas and Islamic Jihad. Oded Eran, the career diplomat whom I d put in charge of frustrating, formal talks with the Palestinians in the months preceding the summit , said he was convinced that we should give the Palestinians full sovereignty over at least the outer Arab neighborhoods in East Jerusalem, which had become part of the city only when we d expanded the city boundaries after 1967. He said that was in Israel s own interest. We had no historic connection to these Arab villages, and something like 130,000 Palestinian lived there. Why should we want to annex them, he asked. It would be like accepting the right of return through the back door. Dan Meridor s voice, for me, was especially important. I knew he was as determined as I was to try to get a peace agreement with the Palestinians. But he was also a former Likudnik, and a native Jerusalemite. I m against any concessions when it comes to Israeli sovereignty, he said. Any attempt to divide Jerusalem would be a serious blow, and not just for Jews in Israel. For centuries, Jewish communities all over the world, had looked to Jerusalem, prayed for Jerusalem. The yearly Seder meal, on Passover, ends with the Hebrew phrase: Shanah haba b Yerushalaim. Next year, in Jerusalem. What we decided here in Camp David, Dan said, also affects Jews in New York. In Moscow. In Johannesburg. He urged us to focus instead on offering Arafat as attractive as possible a package of concessions on all the other issues. Then let him decide. But even if sovereignty over Jerusalem means that the deal collapses, I m not willing the pay that price. No voices were raised. It was the rarest of political discussions. People offered their views, and listened to others . Amnon Lipkin pointed out that a large area of what was now came inside the boundaries of Jerusalem was not part of the city he d known before 1967. Echoing Oded Eran, he said: It s in our interest for as 361 BARAK 76 many as possible of the Arab inhabitants to come under the authority of the Palestinians, and as few as possible under our rule. Amnon s bottom line was that we could not give up Israeli sovereignty over the Temple Mount, which, although he was a non-observant Jew, he called the cradle of Jewish history. But equally, we couldn t and shouldn t run the Al-Aqsa mosque. He was also in favor of agreeing to what Clinton had asked of me: giving Arafat a base in the Muslim Quarter of the Old City. His one caveat was that we should not do any of this unless it was part of a genuine, final, peace agreement with the Palestinians. Danny Yatom urged us to move beyond our emotions and look for a practical solution. We all know how the boundaries of Jerusalem were drawn, he said, referring to the post-1967 expansion of the city. They re not holy. It is important to get down to our real red lines. Eli Rubinstein, the attorney general, agreed. Even though he was an observant, Orthodox Jew, and more sympathetic politically to Likud than Labor, he concluded that we needed to include as few Arabs as possible under Israeli sovereignty, and to cede the outer villages to the Palestinians, adding: This is a moment of truth. It was nearly five hours before I brought the discussion to a close. This is as grave a decision as when Ben-Gurion accepted the partition plan in 1947; the declaration of the state; or the most tense moments of the Yom Kippur War, I said. Or the decisions which Begin took in this same place. Of course, Begin hadn t even been willing to enter into discussion on Jerusalem. But we were in a different situation. If we were going to get a true end to our conflict, the question of Jerusalem had to be addressed. We can t delay the decision. We can t avoid it. We will have to decide. My own red line was the same as Amnon Lipkin s: sovereignty over the site of our First and Second Temples. Even shared sovereignty elsewhere within the Old City seemed to me a step too far at this stage, but I didn t rule it out as part of a full peace. Without disengagement from the Palestinians, without an end of conflict, I reminded our negotiating team, we re heading toward further tragedy. We can t pretend we don t see the iceberg. I asked several members of the team, under Shlomo Ben-Ami, to draft a paper based on our discussion. Since I knew that Clinton, and Arafat too, could do nothing of substance until I d resolved how far to go on Jerusalem, I went to see the President. I told him about our session. I said that we were now crystallizing what had been said into a formal position, and I hoped to be able to return in a few hours with the furthest point we can go. Clinton said that would be a critical 362 BARAK 77 moment in the summit. If we could find common ground, he said, Israel would have achieved what had eluded it under Rabin, and even Ben-Gurion: end of conflict, and Jerusalem recognized internationally as your capital. I told him that the discussion with my negotiators had been moving and illuminating. I could see how much it weighed on everyone. But I added that I still did not feel anything of a similar nature, or remotely as serious, was happening on the Palestinian side. I also said that in deciding how to proceed, I couldn t ignore political realities back home. I would have to get any major change in our position concerning Jerusalem through the Knesset, even before putting a peace agreement to a referendum. When will you get back to me with your paper? he asked. I said I d try by midnight. I also asked him whether he could delay going to the G8 summit in Japan, for which he was due to leave Camp David on the morning of the 19 th . That meant we had just one full day left. I said even if the plan was to resume our talks afterward, I couldn t move on Jerusalem right before we recessed. It would mean putting my last and best offer on the table and running the risk of leaks in Israel while Clinton was gone. He said that he had to go to the G8, but would try to put off leaving for a further day. Then, he asked me to draw up a list of questions for him to present to Arafat so that we could solidify our understanding of how far he was ready to go for peace. I had Shlomo get busy on the list of questions. But it took time. We reconvened around eleven at night, to discuss both the questions and the Jerusalem package. Though it retained Israeli sovereignty over the entirety of the Old City, it did give the Palestinians a greater measure of control over other areas of East Jerusalem than any Israeli government had been willing to consider in the past. Still, almost everyone in the negotiating team could live with it, assuming it became the critical element in a final peace. Dan Meridor, alone, remained firmly opposed, though Elyakim Rubinstein also had some reservations. Even Dan said he understood the importance of getting a peace agreement, if indeed it was possible, and our readiness to discuss new proposals on Jerusalem. When I left for Clinton s cabin at about 1:00 am on Wednesday, I had no idea I was about to enter the most difficult meeting and the only real fight I had with him during our long effort to achieve a Middle East peace. I brought Shlomo and Danny with me, which meant that Madeleine Albright, Dennis and Sandy Berger stayed as well. I sensed tension in all of them, in large part, I soon discovered, because they took exception to the more than twelve hours we had spent discussing 363 BARAK 78 and refining our position on Jerusalem. I think Clinton expected a formal offer from us. Since I d been guided by his request for a list of questions for Arafat, however, that is what we came to him with. As we d discussed, I wanted finally to elicit some sign of whether Arafat, too, was ready to make difficult decisions. The questions were specific. Will you accept an agreement that stipulates the following... it began, and proceeded to outline the kind of peace we could accept and still hoped for. The points included not just Jerusalem, but areas I knew would also be sensitive for Arafat, such as the right of return and formal agreement to an end of conflict. We went further than before in some areas. One of the outer East Jerusalem neighborhoods would be under Palestinian sovereignty. The rest of the city would remain under Israeli sovereignty, but most of the other Arab villages would be subject to a system of Palestinian administration. The Haram al-Sharif, the mosque complex above the wall of the Jewish temple, would be under Palestinian administrative and religious management. We also suggested special arrangements implying a Palestinian presence in the Old City, but again under Israeli sovereignty. The questions envisaged eventual Palestinian control in the Jordan Valley, with an Israeli security zone for 12 years, rather than our proposal in pre-summit talks for 30 years. Then, explicitly, we proposed a question to Arafat to confirm my understanding with Clinton that the right of return would apply not to Israel proper, but to a Palestinian state on the West Bank and Gaza. Finally, the document said: I understand that such an agreement constitutes an end of conflict. After he read it, the President blew up. Far from the bottom lines he d apparently hoped for, but which I d never thought were expected at this stage, I seemed to be retreating from ideas Shlomo and Gili had presented in their all-night session with the Palestinians. Given the ground rules of that exercise, they d felt able to go beyond anything we d actually agreed, and in some areas beyond what they knew I could support. As a result, the list of questions assumed Israel would keep a little more than 11 percent of the West Bank, nearly one percent more than Shlomo had mentioned. Shlomo and Gili had also raised the possibility of up to three of the outer Jerusalem villages coming under full Palestinian sovereignty. You keep us, and Arafat, waiting for 13 hours, Clinton fumed, his face nearly scarlet. And you want me to present something less than you ve already offered. He said he wouldn t do it. This is not real. It s not serious. He said that he d gone to Shepherdstown in search of what was supposed to be an endgame with the 364 BARAK 79 Syrians. Then to Geneva to see Assad, where I felt like a wooden Indian, doing your bidding. I will not let it happen here. I will simply not do it. I tried to keep my voice steady when I replied. I explained that the issues we were addressing went to the heart of Israel s interests, its future security, its identity and definition as a nation. I had a responsibility to tread carefully. Then, my voice rising too, I came back to what I felt was the real problem. Arafat and his negotiators had been sitting and waiting for me and my team, and probably Clinton as well, to deliver more and more concessions with no sign that they were willing to move on anything. I find that outrageous, I said. I did not expect Arafat to respond with equal concessions. After all, Israel had most of the tangible assets. But I did expect him at least to take a small step once we had taken ten. We have not seen even this. This is the kind of behavior parents would not tolerate in their own children! We don t expect Arafat to accept this, but I do expect him to present a counter-position. Clinton remained adamant he couldn t go to Arafat with a retreat from our earlier ideas. My negotiating team moved beyond my red lines, I told him. The overnight talks were supposed to be non-binding and assumed that both sides would make a genuine attempt to get an agreement. I can t see any change in Arafat s pattern. We take all the risks. I said I doubted that Arafat expected to hear that we had decided to give him Jerusalem. In any case, the Israeli public hadn t given me a mandate to do that. But I would still move in Arafat s direction, if and when I got any sign he was willing to do the same. The President s anger eased. He suggested he caucus with his negotiators and figure out what to do next. I felt bad about what had happened: not about the list of questions, or my insistence that we could not offer major concessions with no sign of reciprocity. But I did regret that it had left the Americans so frustrated, and Clinton so angry. He had invested not just huge amounts of time and brainpower, but political capital, in the search for peace. He phoned me at about 3:30 in the morning and asked me to come back. This time, I went alone. We sat on the terrace of Aspen. He said again he couldn t go to Arafat with the list we d drawn up. But having met with his negotiators, he suggested they draft a more forthcoming list of their own consistent with what Shlomo and Gili had proposed. I agreed, as long as they kept in mind that it had to be something I could ultimately live with, and that it be presented to Arafat as an 365 BARAK 80 American proposal. I suggested the President could tell Arafat that he d try to get me to agree to it, providing Arafat first showed a readiness to move. The American questions did go further than ours. They asked Arafat whether he would negotiate on the basis of getting Palestinian sovereignty over all the outer Jerusalem neighborhoods, as well as the Muslim Quarter of the Old City and a custodial role over the holy sites. But Arafat said no. He insisted on Palestinian sovereignty over all of East Jerusalem, including the Old City and the holy sites. For a few hours after Clinton s fruitless meeting with Arafat, Dennis and the American team engaged in a rescue effort, adding another carrot. They included the Christian Quarter as well, meaning Palestinian sovereignty over nearly half of the Old City, including the areas where almost all Arab residents lived. Dennis gave the proposal to Shlomo and Amnon Lipkin to bring to me, and asked two of the Palestinian negotiators to take it to Arafat. Even offering sovereignty over the Muslim Quarter went beyond anything I d proposed. So did a lot of the other American questions. Still, I said we d be ready to consider them in discussions with the US negotiating team with the exception of the Christian Quarter. But that, too, turned out not to matter. Arafat did not even respond. Clinton called me to say we d reached the end of the road. There were only two options: end the summit and announce we d tried and failed, or defer Jerusalem and try to get agreement on the rest of the issues. I asked for time to think it over, and he said he d come see me when I was ready. I was tempted to put off Jerusalem. In the admittedly unlikely event we could get a deal on the other issues, that would undeniably be an achievement. But I couldn t help thinking that Arafat s lack of engagement on Jerusalem was yet another sign that he was not ready for the almost equally tough compromises required to resolve the other core issues. And there was no escaping the reality that without a deal on Jerusalem, no agreement we reached would truly represent an end of conflict. Moreover, Jerusalem wasn t just a Palestinian issue. It was of fundamental interest to the whole Muslim world. If we left it unaddressed, we would be putting future Israeli governments in the position of having to negotiate on Jerusalem after we d given back our key negotiating assets and all our leverage. I accepted now that the search of a full peace treaty, or even a framework agreement, looked all but impossible. Even Shlomo s and Gili s freelancing had produced only a series of no s from Arafat. But I felt I couldn t give up. Much as I d been resisting it, I believed I needed to give Clinton my true bottom lines, even 366 BARAK 81 with Arafat still mute and unresponsive. That was the only way we could know with certainty whether peace was possible. If it wasn t, it would also demonstrate powerfully to the Americans that we were not the party who had prevented an agreement. The President came to see me in Dogwood a little before 11 at night on the 18 th , less than 12 hours before he was due to take his delayed flight to the G8. I told him I d decided to do what Rabin had done with Syria. I was going to give him a deposit to keep in his pocket, which he would be free to use as the basis for a further, American proposal to Arafat, assuming it was part of an agreement with a satisfactory resolution of the refugee issue and an explicit end-of-conflict. He could present it as something which he could tell Arafat he was confident of persuading Israel to accept. It went well beyond what I d offered before, on all the major issues. I proposed Palestinian rule over 91 percent of the West Bank. I was ready for a Palestinian state to have sovereignty over 85 percent of the border in the Jordan Valley as well, and our security zone there would stay in place for less than 12 years. Seven out of the nine outer Arab neighborhoods of Jerusalem would come under Palestinian sovereignty. The inner neighborhoods would be under Palestinian civil authority: including planning and zoning, and lawenforcement. For the mosques on the Temple Mount, I proposed a shared custodianship to include the new state of Palestine, Morocco and the chair of the Higher Islamic Commission in Jerusalem. I also agreed to consider Palestinian sovereignty over both the Muslim and Christian quarters of the Old City. Clinton, arching his eyebrows and smiling, said what I d offered was a package of genuine concessions. It was more than he had expected and, he assumed, more than the Palestinians could have hoped for. It had the makings of a potential breakthrough toward a fair and final peace. I told him I hoped so. But given Arafat s behavior so far, I had my doubts. Now, it was our turn to wait. The President invited Arafat to Aspen and, from what we heard soon afterwards, got no hint of any readiness to reciprocate. He agreed only to talk to his negotiators and get back with an answer. Overnight, the Palestinians sent messages to the Americans asking questions on each of the concessions, though still with no indication from Arafat of a response. Finally, he sent a suggestion that since Clinton was about to fly off to the G8, we take a twoweek break to allow Arafat to consult with Arab leaders. To his credit, Clinton knew an escape act when he saw it. He recognized that only by confronting the 367 BARAK 82 issues raised by our proposals and showing a willingness to find common ground would we have any hope of success. No recess, Clinton said. He needed a straight answer. Again, not full acceptance necessarily, but agreement to treat the proposals as a basis for negotiating an Israeli-Palestinian peace. Arafat s answer came shortly before dawn. It was no . Clinton couldn t quite believe it. He went back to see Arafat, telling him he was making an error on the scale of 1948, when the Palestinians had rejected the partition of Palestine and the creation of an Arab state; or in 1978, when by negotiating on the basis of Sadat s Palestinian-rights framework, they would have ended up with a mere 5,000 Israeli settlers on the West Bank instead of nearly 200,000. What most astonished Clinton was that Arafat was saying no even to using the package as a basis for negotiations. Still, Arafat would not budge. As Palestinian negotiators tried to salvage things by suggesting another trip by Madeleine and Dennis to the Middle East, it was clear that even the Americans were fed up. They knew that one side, at least, had been trying to get an agreement. They couldn t understand why Arafat was unwilling even to accept the pocket proposals as a basis for further talks. When Yossi Ginossar, our most reliable conduit, went to see Arafat, he found him sitting alone and, in Yossi s description, paralyzed. Clinton finally decided to have one last go. When he did, Arafat not only remained unwilling. To the President s astonishment, he insisted that the ancient Jewish temple hadn t been in Jerusalem at all, but in the West Bank city of Nablus. I was getting a bite to eat in the dining room in Laurel Lodge when Madeleine showed up. She didn t bother defending Arafat. She was as frustrated as I was. Her message was that after the summit, it was important not to make things worse. A negotiating process had to be kept alive. Then, Clinton sat down with me. He delivered a similar message, but with even greater feeling. You re smarter than I am, he joked. You re certainly experienced in war, and I m not. But I m more experienced in politics, and there are a few things I ve learned along the way. The most important is not to corner your adversaries, and not to corner yourself. Always leave yourself a way out. Don t lock yourself into a losing option. I could see that he was right. I also believed, as strongly now as before the summit, that Israel s own interests and its security were not served by an unresolved conflict with the Palestinians. The problem was that, in the absence of an equal commitment on Arafat s side, any continued negotiating process seemed futile. 368 BARAK 83 I packed my bags. I told Danny Yatom to inform the Americans we were leaving and to get our plane ready to take us back to Israel. I let the others in our team know that we were going. A number of them, and several of the Americans as well, urged me to reconsider. But I said I saw no point in staying. What I didn t know, however, was that one of the Palestinians original Oslo negotiators, Hassan Asfour, had approached Dennis Ross with a new proposal: that we ask Arafat to accept everything except the proposal on the holy sites as a basis for negotiation. Sovereignty over the Temple Mount would be addressed in later, international negotiations. When Dennis brought this to me, my instinct was to say no. Like so much else at the summit, it was an inherently skewed formula: it would involve major Israeli concessions on all the other main issues, without securing our absolute minimum need in Jerusalem: sovereignty over the Temple Mount. I didn t say yes. Still, with Clinton s words of advice still on my mind, I said that I d think it over. When I met the rest of the Israeli team, almost all of them felt we should stay. The consensus was that especially if violence broke out after the summit s collapse, we didn t want to feel we d left any stone unturned. At about 11 pm, I phoned the President and told him that we would stay until he returned from Okinawa. He was clearly pleased, and asked us to keep working in his absence. When I resisted that, saying that any substantive talks needed his involvement, we finally agreed that talks could continue in search of a formula for the holy sites. On all the other issues, only informal discussions would be held until and unless a way ahead on the Temple Mount was found. If that happened, and if Arafat finally accepted the pocket proposals as an agreed starting point, formal negotiations could resume. Clinton accepted this formula. He went to see Arafat and secured or thought he had secured his agreement as well. One of the President s great strengths was his genius for blurring the edges of potential differences in search of common ground. But when edges had to be sharpened, this could lead to confusion. Before leaving for the G8, the President neglected to mention to Arafat our explicit understanding that, with the exception of the talks on the holy sites, nothing would happen until he accepted the concessions that President Clinton and I had delivered as at least a basis for further negotiations. As a result, Arafat s team now set about happily asking questions and probing my negotiators pushing us to go further but with no more inclination than before to produce any concessions of their own. 369 BARAK 84 When I learned what was happening, I told my negotiators they were not to hold any further formal meetings during the four days Clinton would be away. Dennis s initial response was frustration. Madeleine Albrights s was fury. They both made no secret of their view that I was needlessly stonewalling. It wasn t until a few hours later that Madeleine apparently saw the stenographer s record of my conversation with the President before he d left, confirming the condition that Arafat accept the pocket at least as a basis on which to proceed. That evening, she apologized to me for the misunderstanding, and explained the mix-up to the full Palestinian and Israeli negotiating teams. I spent most of the remaining three days in my cabin or, when the rain relented, walking through the woods. The Americans appeared to think I was sulking. I wasn t. I was trying to find the least diplomatically damaging way to navigate the period until the President s return. I couldn t see showing up at Laurel at every mealtime, mingling and joking with the Americans and Palestinians, but refusing to enter into any form of negotiations. That would compound the awkwardness of the situation, and also be a direct affront to Madeleine. I liked and respected her. But I could not in good conscience help her out in her efforts to find at least some, informal, way of moving the summit along in Clinton s absence. If Arafat had failed to show even a scintilla of movement with the President in the room, I knew there was no way that he was going to do so with the Secretary of State. For the Palestinian negotiators, who were predictably in favour of her efforts, the definition of new ideas was whatever further movement they might cajole out of our negotiators. Still, on day-three of Clinton s absence, I got a note saying that Secretary Albright was on her way to my cabin. I didn t want the needless diplomatic difficulty involved in again telling her I could not sanction freewheeling, and decidedly one-sided, negotiations while Arafat hadn t moved a single inch. So I made myself scarce. Fortunately, I was wearing sneakers. I told Danny to inform the Americans I was out jogging around the perimeter of the large Camp David estate, and went off to do just that. I told my own delegation I was taking time out to assess where we stood. I did continue meeting with Gili Sher and Danny Yatom. Yet for much of time, I read. I also did a lot of thinking. I considered the pocket concessions I d agreed to, the uncertainties and risks I d been prepared to run, and the need to decide how to deal with the fact that Arafat, when he had engaged at all, had said no . 370 BARAK 85 Once it was clear to the Americans there would be no talks until the President returned, however, Madeline began urging me to go see Arafat personally. The two members of our team who were the least pessimistic about Camp David s outcome, Shlomo Ben-Ami and Yossi Ginossar, also said they thought it was a good idea. It was they who d pressed me to go see Arafat for tea and sweets earlier in the summit. But that meeting had produced not even a glimmer of negotiating flexibility from the Palestinian leader. Yossi had said at the time that it would help the atmosphere, and pay dividends later on. But that hadn t happened either. Madam Secretary, I told Madeleine, eating more baklava with Arafat isn t going to help. The situation is simple: he needs to answer whether he views the President s proposal as a basis for going forward. When Clinton returned, he promptly got back down to business: making one last push to see whether a peace deal was possible. He phoned me around midnight on the 24 th of July, a few hours after he d arrived. He told me he had sent an even more far-reaching package to Arafat, expanding on my proposals. Now, all of the outer Arab neighborhoods in East Jerusalem would come under Palestinian sovereignty, in addition to the Muslim and Christian quarters in the Old City. And Arafat would be given custodial sovereignty over the Muslim holy sites on the Temple Mount. I didn t object. Though it was further than I felt I could go, it was within the spirit of my pocket deposit . The same ground rules still applied: these were American proposals, which the President was telling Arafat he would try to deliver if he accepted them as a basis for serious negotiations. But when Clinton phoned me back, around 3:15 in the morning, it was to tell me that Arafat had again said no. The curtain had finally come down. What remained now was to clear up the set. I did meet Arafat once more, in a joint session with President Clinton, but only for closing statements. The President and I spoke as much in sorrow and frustration as anger. Both of us said we thought an historic agreement had been within our grasp, and that far-reaching proposals had been tabled to make it possible. Arafat responded with words both of us had heard before: effusive toward Clinton, rhapsodic about his old partner Rabin and fulsome in his ostensible commitment to keep trying for peace. But it was just words. We knew he was not willing even to talk about the kind of compromises a real, final peace would require. The President s remarks to the media were, by the standards of post-summit diplomacy, unmistakably clear in making that point. He praised me and the Israeli 371 BARAK 86 negotiating team for courage and vision. Essentially, he thanked Arafat for showing up. That was some consolation. But it didn t alter the weight of the message we were carrying home. Arafat either would not or could not make peace, at least on terms any Israel leader could accept or the people of Israel would endorse. There were only two potential deal-breakers on our side, as Arafat had known from the beginning. The first involved the right of return. We were never going to sign a peace agreement accepting the return of hundreds of thousands of Palestinians within our pre-1967 borders. Demographically, that was a recipe for the inexorable end of Israel as a majority-Jewish state. It would also imply a rewriting of the history of how Israel was born: in a war, with an almost equal number of refugees either fleeing or forced to leave on both sides, after the Arab world had unanimously, and violently, rejected a UN partition that would have created a Palestinian Arab state as well. I did accept a right of return to the Palestinian state we had hoped to create, as part of a final peace deal, on the West Bank and in Gaza. I also supported the idea of a multi-billion-dollar international fund to compensate or resettle Palestinian refugees, and was ready to commit Israel as a party to that effort. The other critical issue was Jerusalem. I had stretched our negotiating position almost to breaking point. The pocket ideas Arafat ended up rejecting challenged a longstanding Israeli political taboo. In practical terms, they amounted to a breach of the assurances which I and every other Israeli Prime Minister since 1967 had given: never to re-divide Israel s capital. Had we actually got an end-of-conflict deal, I would have had to justify it to Israelis in a referendum. I think I could have done so. But one thing I could not give up was our sovereignty over the Temple Mount, the centerpiece of our history as a people and Israel s as a state. It was our connection with our past, a focus of what we had gone through, what we had achieved, and what we had left to accomplish. It was essential to who we were. Arafat never even engaged in a discussion on the right of return . On the Temple Mount, however, he was explicit. Any peace, any basis for negotiation toward peace, had to begin by confirming Palestinian sovereignty. Besides, as he d told the President of the United States, he had persuaded himself there never was a Jewish temple in Jerusalem. When I heard about that remark, I was less shocked than Clinton. It struck me as just another way Arafat had of conveying his bottom lines. It was a bit like stories he liked to tell about visiting his aunt in Jerusalem as 372 BARAK 87 a young boy and seeing religious Jews walking through the streets of the Old City. I don t know whether those stories were true. But the point was that while he had no problem with Jews in their long coats and black hats praying in the holy city, Jews exercising authority or sovereignty, or a Jewish state, was something else entirely. Camp David had made it clear it was something he was not prepared to accept. The question which I now had to confront was what to do next. 373 BARAK 88 Chapter Twenty-Three It didn t fully hit me how draining our efforts had been until the morning that the summit collapsed, when President Clinton called me to come talk to him in the living room at Laurel Lodge. When I arrived, Madeleine was already there, sitting on the edge of the sofa. She greeted me with a resigned shrug and a valiant but not altogether successful effort at a smile. We tried, Clinton said quietly as I took a seat in a wooden chair opposite his. We gave it everything. The nominal reason for the meeting was to brief me on the communiqu the Americans were going to issue: mostly boilerplate assurances that both sides remained committed to seeking peace, but with an additional understanding that neither would take unilateral actions in the meantime. But mostly, Clinton wanted to reinforce his message of a few days earlier: don t lock yourself into a losing option. Don t close the door. Don t give up. I won t, I told him, an assurance I echoed in remarks to reporters a few hours later, when I said that while the peace process had suffered a major blow, we should not lose hope. With goodwill on all sides, we can recuperate. But I told the President that we couldn t just ignore what had happened at Camp David. Yes, in the event Arafat suddenly had second thoughts about the potentially historic achievement he d passed up, he would know where to find me. But until and unless that happened, I told Clinton that I assumed my pocket concessions would now be firmly back in his pocket. And while we couldn t erase them from memory, I said it was important both of us make it clear that, in legal and diplomatic terms, they were not going to provide Arafat a new starting point from which he could make his customary demand for more. And I have to tell you that, given what has happened, there s no way I can justify handing him control of more land. I am not going to go ahead with the Wye redeployments in these circumstances. You don t have to, Clinton replied. I ll back you. Though I never discussed internal Israeli politics with any foreign leader, even the closest of allies, I didn t doubt that the President s support was partly a recognition of what awaited me once I got home. The compromises I d been willing to consider had gone further much further, on the politically combustible 374 BARAK 89 question of Jerusalem than any Israeli leader in the search for peace. Even before I d left for Camp David, the defections from our coalition meant we d been left with only 42 seats in the Knesset, nineteen short of a majority. Amid the first, sketchy media reports that we were even talking about sharing control of parts of Jerusalem with the Palestinians, there was a chorus of denunciation from rightwing politicians back home. Bibi Netanyahu had largely kept out of the public eye since his resignation after the election. Now, he issued a statement accusing me of having broken all the red lines held by all Israeli governments. During the President s final push to save the prospects for a summit agreement, Bibi called a news conference. He said he was determined to prevent what he called an impending disintegration of Israeli society. What we hear from most of the reports out of Camp David does not answer our hopes, he said. It hadn t answered my hopes either. But I had gone into the summit with my eyes open. Frustrated though I was by the way the summit had ended, I had no regrets about going as far as I had in trying to reach, at the minimum, a framework agreement. In that sense, it is true the summit had failed. But when I d urged President Clinton to convene it, I made the argument that if genuine peace was ever going to be possible, we at least had to know whether Arafat was interested in, or capable of, playing his part. That question had, for now, been answered. At least as importantly for Israel, the President of the United States and almost the entire international community recognized we d done everything realistically possible to reach an accommodation. Diplomatically, the ball was in the Palestinians court. There was a final achievement as well little noticed or remarked upon in the days immediately after Camp David, but hugely significant. A taboo had been broken. For the first time, all Israelis recognized what their political leaders, both Labor and Likud, had long known: a formal, final peace with the Palestinians, if and when it came, would require us not just to withdraw from the great majority of the West Bank, but to find a formula for sharing power in Jerusalem. Many Israelis still believed that was a price too high, and not just Likudniks. A couple of weeks after the summit, Leah Rabin told an Israeli newspaper that her late husband would be turning in his grave if he d known the concessions I d been ready to consider on Jerusalem. I found the remarks hurtful, but I understood them. In a way, they drove home the point I d made to Clinton during the summit: all Israelis had a deep, emotional attachment to our historic capital. Yitzhak would never have agreed to compromise on the Old City and the Temple Mount, Leah said, 375 BARAK 90 because for him, Jerusalem was sacred from a strictly national and historic point of view. It was for me as well. In fact, I think its religious significance probably resonated more strongly. Still, the major change from the summit was that even those Israelis who found a compromise on Jerusalem unacceptable recognized that, if they did want to negotiate a definitive end to the conflict, talking about it was unavoidable. At least for now, however, there wasn t going to be a peace deal. As our El Al 707 descended over the Mediterranean for our approach back to Ben-Gurion Airport, I faced the more immediate issue of ensuring my government survived. This was partly in case, against all odds, Arafat showed a readiness to revive the search for peace but also because of the real prospect he would choose violence instead. Since the Knesset was about to go into recess until late October, I would have a three-month window to reshape and stabilize my coalition but only if we could weather a no-confidence motion introduced by Arik Sharon after Camp David. We did weather it, barely. Arik needed a majority of the Knesset s 120 seats to bring down the government. The vote ended in a 50-50 tie. The other 20 MKs abstained, or didn t show up. This was not because of any enthusiasm for my efforts to get an agreement at Camp David, but because of a lack of enthusiasm for an early election in which they feared losing seats. Still, that did allow me to focus on the challenge of the inevitably altered situation with Arafat after the summit s collapse. My main concern was the possibility of violence. Even before returning home, I d phoned Shaul Mofaz and Avi Dichter, the former Sayeret Matkal officer who was now head of the Shin Bet. Let s hope the violence doesn t come, I told them. But if it does, make sure we are ready. Though there was no sign of violence in the weeks immediately after the summit, there was equally little sign of diplomatic engagement by Arafat. Obviously relieved at the way Camp David had ended, he returned to Gaza to a hero s welcome, proudly proclaiming that he had refused to give up Jerusalem. It was vintage Arafat: the general in his starched uniform and kefiyeh, fresh from 376 BARAK 91 the diplomatic equivalent of the battlefield, triumphant against the odds. It was the role he liked and played best. His next move was to take the show on the road: to Arab, European and world capitals, pleading that he had been the victim of summit chicanery in which President Clinton and I had presented him with a deal no self-respecting Palestinian could accept. He was also campaigning for international support for a move, in contravention of the final Camp David communiqu , to declare a Palestinian state unilaterally in mid-September. I spoke personally to Tony Blair and French President Jacques Chirac, and also dispatched Shlomo-Ben Ami, Amnon Lipkin, Yossi Beilin and Shimon Peres, who was Minister of Regional Cooperation in the coalition, on a series of diplomatic visits to make sure the true story of what had happened at the summit was understood. As a result, the globetrotting Arafat received an almost unanimous rebuff for the idea of a unilateral declaration of stateheood. He was told that if he really wanted a state, he should return to the negotiating table with Israel. By the time I went to New York in early September joining the largest collection of world leaders ever assembled, for the UN s Millennium Summit there seemed little chance of that happening. I met privately with a number of world leaders before delivering a brief address to the more than 150 presidents and prime ministers. I was at pains to take the high road. None of the foreign leaders I met had expressed any doubt that we d gone much further than they had expected at Camp David, and that the onus for putting diplomacy back on track rested firmly with the Palestinians. Looking straight at Arafat from the UN podium, I said: We are at the Rubicon, and neither of us can cross it alone. Jerusalem, the eternal capital of Israel, was calling out for a peace of honor, of courage and of brotherhood a peace recognizing that the city was also sacred to Muslims and Christians the world over. When Arafat spoke, it was almost as if the summit had never happened. We remain committed to our national rights over East Jerusalem, capital of our state and shelter of our sacred sites, as well as our rights on the Christian and Islamic holy sites, he declared. He didn t mention Jews, beyond a bizarre reference to the 2,000 th anniversary of the birth of Christ in Bethlehem, Palestine. I couldn t resist remarking to one of the American negotiators that I d always thought Jesus grew up as a Jewish boy, making thrice-yearly visits at festival time to the temple in Jerusalem, at a time when there was not a church, much less a mosque, in sight. 377 BARAK 92 Still, in my meetings with Clinton, I assured him I was not giving up altogether on the prospects for peace. Not only did I feel that would be wrong, as long as there was a scintilla of hope. I believed that our continued diplomatic engagement might provide a counterweight to any moves by Arafat to revert to violence. It was also critical for Israel to retain the diplomatic, political and moral high ground we had earned in the eyes of the international community from the concessions we had been willing to consider. When the President suggested drafting a final American paper, based on Camp David though presumably with an even more generous proposal for the Palestinians, I agreed. I figured even Arafat might realize at some point that if he did want a negotiated peace, the time for dithering was over. Clinton would no longer be president in five months time. Unless I could find an alternative way to refortify my coalition over the coming weeks, it was entirely possible I d have to form a unity coalition with Arik and the Likud. Still, I told President Clinton I doubted the ticking clock would make a difference to the Palestinian leader. If it didn t, I believed at some point all our talk about an end of conflict would give way to conflict. The only question was when. Tragically, I got the answer only weeks after my return from the UN. At the urging of the Americans, I invited Arafat and his negotiating team to a private dinner in Kochav Yair on the 25th of September. The atmosphere was surprisingly warm, for which a lot of the credit, as well as culinary praise, has to go to Nava. Very cordial, even congenial, Nabil Shaath told reporters after the dinner, nearly 45 minutes of which I spent talking alone with Arafat on the stone terrace out back. Each of us spoke to Clinton for about 10 minutes near the end, and the President was obviously pleased to hear us sounding upbeat about trying to narrow any differences on the forthcoming American negotiating paper. On the substance of our differences, by mutual agreement, Arafat and I didn t say much to each other. I did try to impress on him that time was getting short. His monosyllabic reply yes was at least better than the alternative. I chose to believe we could both now focus on trying again. 378 BARAK 93 The request that had come across my desk a few days earlier need not have changed that. Even though Arik had failed, for now, to bring down the government, he was keen to make political capital from the collapse of Camp David. He now declared his intention to pay a visit to the Temple Mount. The Mount or as it was called in Arabic, Haram al-Sharif was part of Israel. The unsubtle point of Arik s visit was to dramatize his determination to keep it that way. The target of this political theatre was not Arafat or the Palestinians. It was the Israeli public, me, and my government. In an all-perfect world, I would have liked to find a way to block the visit. In a democracy, it wasn t that easy. The only way I could do so was on the grounds it was a threat to public order or security, a judgement in the hands of our police and security services. I duly asked for the views of Avi Dichter of the Shin Bet, and Shlomo Ben-Ami, who in addition to being interim Foreign Minister was Minister of Internal Security, in charge of the police. Both came back with the same answer: though we d all be happier if Arik stayed down on his farm in the Negev, there was no reason to expect his visit would pose a major public-order issue, and no basis for blocking it. When Shlomo contacted Jibril Rajoub, Arafat s West Bank security commander, Rajoub asked only that two conditions be imposed, and Shlomo agreed. The first was that the visit not occur on a Friday, when the mosques would be full of worshipers; the second, that Sharon not set foot in either of the mosques on the Haram. Our chief of police informed Sharon that if he didn t accept the conditions, we d deny him permission to go. But he agreed. When he went, for about half an hour under police escort on Thursday morning the 28 th , he complied. At first, we thought it would prove a one-off media stunt. But that evening, Danny Yatom brought me an intelligence report with evidence that Arafat s Palestinian Authority was planning for wide-scale violence after Friday prayers, in protest over Sharon s visit. Danny called Dennis Ross. Madeleine Albright called Arafat, to urge him to ensure this didn t happen. But as Dennis would remark later, Arafat didn t lift finger to stop it. The trouble began the next day, shortly after Friday prayers. It was also the eve of the Jewish New Year, and the Western Wall area was crowded. As people poured out of the mosques, a number began hurling stones, some of them the size of small boulders, onto the Jewish worshippers and police below. One knocked out the highly experienced, steady-handed commander of the Jerusalem police, which I m sure contributed to making the confrontation that followed even worse. By the 379 BARAK 94 end of the day, dozens of Israelis and Palestinians were injured. Five Palestinians lay dead. Though the media almost instantly labelled it a new intifada , this one was very different. It was not a burst of anger, however misdirected, by stonethrowing youths convinced that a road accident in Gaza had been something more sinister. There had been no serious unrest on the day of Arik s visit. We would later learn this was a deliberate campaign, waged with guns and grenades, by Hamas and Islamic Jihad, the Fatah offshoot Tanzim, and Arafat s own police force. The media had changed, too, in the 13 years since the first intifada, with the rise of twenty-four-seven news broadcasters, including the Arabic-language Al Jazeera. Images of pain and suffering and fear stoked anger on both sides. None, in the first days of the violence, was more powerful, or heart-rending, than the picture of a terrified 12-year-old Palestinian boy named Mohammed al-Durrah, sheltered by his father as they took cover from the crossfire in Gaza. The facts of the incident, as best we could establish immediately afterwards, were that the Palestinian security forces had opened fire on Israeli troops near the settlement of Netzarim. Ten Palestinians, including the little boy, lost their lives when the soldiers returned fire. We later established with near certainty that the boy had in fact been killed by Palestinian gunfire. But even if we d been able to prove that at the time, I m sure that in the increasingly poisonous atmosphere, it would have made little difference. Nor would it have changed the next, deeply disturbing escalation: the spread of the violence into Israel itself, with unprecedentedly serious clashes between our own Arab citizens and the police in the Galilee, in Wadi Ara, in the main mixed Arab-Jewish cities, and the Negev. Beyond the political implications, the demonstrations of solidarity with the Palestinian violence presented a security challenge of a different order: to the ability of the Israeli police, and by extension the government, to ensure basic law and order inside our borders. The worst of the clashes lasted barely a week. But they left thirteen Arab Israeli protestors dead, sparking demonstrations as far afield as Jaffa, as well as ugly incidents of mob violence by Israeli Jews against Arabs in some areas. President Clinton tried his best to help us halt the violence on the West Bank and in Gaza. I doubted the Americans would succeed, but was fully ready to join in their efforts to try. About ten days into the new intifada, I attended a crisis meeting with Arafat, mediated by Madeleine Albright and Dennis Ross, at the US ambassador s residence Paris. It was nominally under the aegis of President 380 BARAK 95 Chirac, but the understanding was that Madeleine would be in charge. Far from showing any willingness to end the violence, Arafat at first simply lied. He said the Palestinian violence was in response to an unprovoked assault by Israeli troops, and demanded an international protection force. There was a particularly bizarre moment when I read out the names of individual Tanzim leaders whom we had intercepted organizing the attacks. Arafat pretended he d never heard of any of them, almost as if I was reading from a zoology textbook about species of polar bears. This was a man who had been awarded the Nobel Peace Prize. What he really deserved was an Oscar. But people were dying. Needlessly. We ended up agreeing to a US-led factfinding commission, as well as a number of steps to separate the Palestinian attackers and Israeli units. I reaffirmed our policy of insisting that Israeli soldiers use live fire only if they felt their lives were under threat. Arafat undertook to order his security forces and Tanzim not to launch further attacks. He even phoned Gaza with what we were given to understand were explicit orders. But it was all for show, as we discovered when we were invited to the Elys e Palace to meet Chirac. The French President had clearly received advance word from Arafat about his demand for an international protection force, presumably with a role for the French. To my surprise and frustration, and Secretary Albright s as well, Chirac insisted that no agreement was acceptable without that happening. Then, he turned to me, demanding to know why the violence had left nearly 400 Palestinians dead, but barely two dozen Israelis, if the Palestinians were the aggressors. Mr President, I said, just several weeks ago we were prepared to go very far in order to put this entire conflict behind us. It is Mr Arafat who rejected the proposal, even as a basis for negotiations. Just a basis to seek peace. He then deliberately turned to terror. We are protecting ourselves, and our soldiers. Are you really saying that you ll be happy for us to sign an agreement to end it only when another 350 Israelis are killed? I m not playing that game. Arafat started this. He has to stop it. We know he can, and we hold him responsible if that does not happen. It did not happen. We tried all we could to prevent a further deterioration. I approved moves, in co-ordination with the Palestinian police, to lower our security profile where possible. We made sure Israeli police were not visible from the mosques on the Haram al-Sharif. But after the next Friday prayers, a crowd made its way to a police post at the edge of the Old City and attacked it. In Nablus, the burial site of Joseph had long been a source of tension. Shlomo Ben-Ami reached 381 BARAK 96 an agreement with the Palestinians to replace an Israeli troop cordon there with Palestinian police. But on the morning of Saturday October 7th, hours after the Palestinian police took over, a mob attacked, burned and ransacked the site. They destroyed the Torah scrolls. A few hours later, our soldiers found the body of a rabbi from a nearby settlement. He had gone to survey the damage to the synagogue. That evening, I delivered an ultimatum: If we don t see a change in the patterns of violence in the next two days, we will regard this as a cessation by Arafat of the peace process. That did, briefly, have an effect. When Clinton reinforced my message later in the day, Dennis told me that for the first time, he sensed that Arafat realized he had to act. But again, it was not enough, nor in anything like a sustained manner. And with an appalling act of murder three days afterwards, it was too late. That outrage came in Ramallah. Two Israeli reservists took a wrong turn and ended up driving into the town. They were taken to the Palestinian police station. Hundreds of people broke in and stabbed them, gouged their eyes out and disembowled them. In a chilling image broadcast around the world, one of the murderers brandished the bloodstained palms of his hands in a gesture of triumph. Since I was Defense Minister as well, I spent the hours that followed in the kirya. We ordered attack helicopters into action for the first time, though with advance warning to local Palestinians in the areas we targeted. We destroyed the Ramallah police station, as well as a militia base near Arafat s headquarters in Gaza. But Arafat emerged to tell a cheering crowd: Our people don t care. They don t hesitate to continue their march to Jerusalem, the capital of the Palestinian independent state. Israelis did care. It is hard to say which emotion was more powerful: disgust or fury. But if the opinion polls were to be believed, a large majority wanted us to hit back with the full force of the Israeli army. Still, my overriding aim remained to end the violence if possible, not make it worse. When Clinton asked me to join him, Arafat, King Abdullah of Jordan and UN Secretary General Kofi Annan for a summit in Sharm al-Sheikh, I agreed. We worked out a series of steps to disengage. Arafat was finally supposed to order the Palestinian Authority security forces and Tanzim to cease fire, and establish no-go perimeters around our army positions. We would reopen Gaza airport and, over a period of two weeks, pull back our forces to where they had been before the violence began. But again, it didn t happen. The Palestinian attacks intensified and, as I d made clear at the 382 BARAK 97 summit, we responded. The only, brief, lull came when Arafat feared the Americans would cancel his scheduled visit to Washington to see Clinton on November 9. I was due to follow him three days later. I met Clinton and Dennis Ross over dinner in a little kitchen area attached to the Oval Office, and both seemed surprisingly upbeat. The President said he d told Arafat the broad points that would be in the new American negotiating paper. It was Camp David-plus. Assuming all issues in a final peace were agreed, the Palestinians would now end up, after a land swap near Gaza, with a mid-90- percent share of the West Bank. On Jerusalem, the guiding principle would be what is Arab will be Palestinian, and what is Jewish, Israeli. On the Temple Mount, the Haram al-Sharif, each side would have control of its own holy sites. Finally, though Palestinian refugees would be free to return in unlimited numbers to a new Palestinian state, there would be no right of return to pre-1967 Israel. The President told me that after he d run all this by Arafat, he and Dennis had asked whether in principle these were parameters he could accept. Arafat had said yes. I assume they expected me to say the same. But I told them I couldn t give them an answer. What concerned me now was the violence. Until it was reined in, I would not be party to rewarding Arafat diplomatically. I urged the Americans to make ending the violence their focus as well, because if they didn t get tougher on Arafat s noncompliance with anything resembling a de-escalation, Israel would do so. Since the Knesset had returned before my trip to Washington, I d needed first to make sure my government would survive. The obvious, or at least the most mathematically secure, choice would have been a deal with Sharon. Especially since the lynching in Ramallah, there were calls from politicians on all sides for a unity coalition between Labor and Likud. Arik definitely wanted in. The main issue reamined the peace process. I didn t find Arik s specific objections to Camp David hard to deal with. As I d said from the start, the fact that we d failed to reach an agreement at the summit meant that any concessions I d considered were now, 383 BARAK 98 in legal and diplomatic terms, null and void. The package Arafat had ultimately rejected had not even been presented by me. It was an American proposal. Besides, it was obvious no serious negotiations were going to happen anyway for the foreseeable future. Arik, however, said he wanted not just a full divorce from Camp David. He insisted we formally declare an end to the entire Oslo process. I told him that was a price I was not prepared to pay for his support. Despite the failure of the summit, and the terrible human cost from Arafat s choice of violence over diplomacy, there was a wide international recognition that it was the Palestinians, not Israel, who were responsible. For us to end the Oslo process meant inviting accusations we d never intended to reach a peace agreement in the first place, and that it was Israel that was closing the door. We would also risk forfeiting the American support we d secured by our efforts to reach a peace deal, an asset all Israeli governments would benefit from in other circumstances and contexts in the future. Fortunately, I had an alternative to a coalition with the Likud. Alarmed at the prospect of a having Sharon in the government, the Oslo-era doves in Labor, led by Yossi Beilin, worked out a new deal with Shas. The Sephardi Orthodox party was still not prepared to rejoin the cabinet, but it did promise a safety net in the Knesset to ensure we would not have to worry about no-confidence votes while confronting the Palestinian violence. I knew Shas s support would waver if there was a resumption of serious peace negotiations. Still, as Clinton continued to insist we make one final attempt to get a deal, I felt we had a responsibility to play our part. I wasn t prepared to put us in the position of appearing to stoneweall his efforts, and encourage the false narrative that Israeli intransigence was somehow frustrating Arafat s readiness to make peace. The Palestinian campaign of violence was getting worse. An Islamic Jihad car bomb near Mahaneh Yehudah market in Jerusalem injured nearly a dozen people and left two dead. Hamas blew up a school bus in one of the Gaza settlements, killing two more people. In Hadera, halfway up the coast from Tel Aviv to Haifa, a car bomb on a main street left two people dead and more than 60 injured. Palestinian snipers from near Bethlehem began opening fire on Gilo, one of the post-1967 Jewish suburbs of Jerusalem, and home to more than 30,000 people. Yet despite all this, I authorized Shlomo Ben-Ami, Gili Sher, Amnon Lipkin and Yossi Ginossar to continue talks with Palestinian negotiators on the terms of the President s last-ditch peace proposal. 384 BARAK 99 By the end of November, I believed that the chances of a peace agreement with Arafat were so microscopic as to border on non-existent, and that my own prospects for retaining sufficient support to be an effective Prime Minister much beyond Clinton s departure were not much better. It was not just Arik and the Likud, but other parties on the right that were actively attempting to bring down the government. I was being squeezed politically: by opposition to the concessions, especially on Jerusalem, I d been willing to consider in pursuit of a peace agreement, and by the ever-worsening Palestinian violence. Shlomo Ben-Ami put it was not peace, it was an intifada. By the second part of November, there were five separate motions of noconfidence working their way through the Knesset. I could have quashed them all at a single stroke, since Arik, both publicly and privately, was conveying to me his continuing interest in joining a unity coalition. But I again decided against it, at this stage not so much because I expected a peace deal, but because I believed continued Israeli engagement in the peace process was essential to preventing Arafat from evading his responsibility for making a deal impossible. I could also have wrongfooted my opponents by insisting that any early election be not just for a new Prime Minister but for a new Knesset, something very few existing Knesset members were anxious to see happen. I did, in fact, do precisely that at the end of November, delaying an immediate move to try to topple the government. But I immediately regretted doing it. The game-playing side of politics was the part I least understood, and most disliked. I recognized that to bring down the Knesset along with me would be unfair to the country, not to mention my own Labor Party, which still had the largest number of parliamentary seats. In pursuing my peace efforts with Hafez al-Assad, and at Camp David, I d insisted I was acting on the mandate I d received in the Prime Ministerial election. If the peace efforts had failed, or if a significant part of the country felt I was wrong to have tried in the way I did, surely the responsibility for that, too, should fall on me. I remained confident I had been right to make the efforts with Arafat, with Assad, and, of course, to have followed through on my pledge to withdraw our troops from Lebanon. But believing that you are right, even if later events might bear you out, was not all that mattered in politics. You had to be able to bring the public with you. It was clear my support was ebbing away. Looking ahead to the 385 BARAK 100 challenges Israel would face during Clinton s final period in office and afterwards, I knew I could not go further without seeking a fresh mandate from the country, however unlikely the prospects now seemed. Deciding to do so was a decision that was probably easier for me than for other politicians. Privileged though I felt as Prime Minister to be able to pursue what I felt deeply were Israel s national interests, the trappings of office were not that important to me. I d gone into politics to do things, not for the photo opportunities. I did still believe it was important to see the final diplomatic push by Clinton through to its end. But I knew an early election for Prime Minister wouldn t happen overnight. It would involve a couple of months preparation. When I called a news conference on December 9, the media, and the country, assumed that it was about the Palestinian violence and the ups and downs of the Clinton initiative, and I did talk about both. But at the end, I said: There are those who doubt the mandate I received from the citizens of Israel. I have decided to seek a new mandate to lead the state of Israel on the road to peace, security and a proper civic and social agenda. I said I would go see the Israeli President the following morning. I will formally resign, and run for a special election, at the head of the Labor Party, for the Prime Ministership of Israel. The election was set for February 2001. The last act in President Clinton s attempt at a breakthrough actually came after the American election, and just a month before George W. Bush would succeed him. Since, in practical terms, any final agreement would almost certainly come under President Bush, Clinton s final negotiating paper was framed as a set of paramaters which, if agreed to by both sides, were intended to set the stage for a final deal. On December 23, Clinton presented the draft to both sides representatives at the White House. I wasn t there. But the accounts I got from Shlomo, Gili and Dennis Ross afterwards made me feel as if I was. The president said he would read through the document and then leave the Israeli and Palestinian teams with Dennis to make sure they d recorded each detail. He said this was no longer the starting point for further argument on the basic shape of a peace deal. This was his considered judgement of 386 BARAK 101 what would constitute a fair agreement. He was presenting it on a take-it-or-leaveit basis. If either side said no, he would withdraw it, and it would not be binding on President Bush. He proceeded to lay out his proposal. It now envisaged the Palestinians ending up with between 95 and 97 percent of the West Bank. Israel s military presence in the Jordan Valley would be for a maximum of six years, after which our soldiers would be replaced by an international force. On refugees, the solution Clinton proposed would make it clear there is no specific right of return to Israeli itself but recognize the aspiration of the Palestinian people to return to the area. He proposed a joint endorsement by Israel and the Palestinians of the right of refugees to return to a new Palestinian state. In Jerusalem, Arafat would have sovereignty over the entirety of the Old City except for the Jewish Quarter and, of course, the Western Wall and the holy space of which it is a part. Finally, the President said, this would be a final peace: an end of conflict and, once implemented, an end to any further claims. He wanted replies from Israel and the Palestinians within five days. Dennis added that, while both sides could come back with reservations, if any of these fell outside the substantive limits of President Clinton s parameters, the response would be interpreted as a no and our search for an agreement would be over. Clinton s latest proposals went beyond even what I was willing to have him keep in his pocket at Camp David. Opposition politicians in Israel, and even a few of our cabinet ministers, promptly objected to the formula for Jerusalem. I told the critics as I knew I d have to argue to the country in a referendum, in the vanishingly unlikely event we actually reached an agreeement that making peace was not like making love. It was something you did with enemies. I, too, would have preferred to say no to Clinton s ideas on Jerusalem. But to reject them would have placed Israel in the position of rejecting the entire Clinton paper, something I was not prepared to do. I sent word to the President that we accepted his ideas. We did raise reservations twenty-eight in all, about how various parts of the agreement would work on the ground. But none fell outside his parameters for a peace agreement. At first Arafat asked the Americans for more time. Then he went to Washington to see Clinton. There, he presented his reservations . They were not just outside the Clinton parameters. They rejected two key elements. Arafat said there could be no 387 BARAK 102 Israeli sovereignty over the Western Wall of the ancient temple. Nor would he agree to any compromise on the right of return. For me, that was the final answer. As one Palestinian leader remarked to me amid the still-escalating terror attacks a couple of years later, the Palestinians had needed a Ben-Gurion, but we got an Arafat. He didn t mean Ben-Gurion the Zionist, but the statesman who at crucial moments like the partition vote in 1947, could give up his maximalist hopes and dreams in order to secure a better future for his people. Arafat felt much more comfortable, more secure, when the suicide bombers were calling the tune. Then he could whip up the crowds with promises of marching on Jerusalem or jet around the world telling everyone that Israel was denying his right to a state. Though I now knew an agreement was impossible, for many on the Israeli left, my ostensible allies in the forthcoming election campaign against Arik, that was hard to accept. Particularly for Yossi Sarid of Meretz, and to a certain extent Yossi Beilin too, the only explanation for our failure to get a deal had to be that we hadn t negotiated well or creatively enough. The idea that Arafat simply didn t want a two-state peace was anathema to them. So was the political platform I said that I hoped to implement if I was re-elected as Prime Minister. Maybe, at some point in the future, a negotiated peace might be possible. We had accomplished something of importance at Camp David. We d made clear our red lines. We knew where Arafat stood. But for now, I believed we had to move on, both in order to keep the situation on the ground from getting worse and to act in Israel s own longterm political and security interests. I said we should unilaterally disengage from the West Bank and Gaza. The idea was straightforward. The Palestinians unwillingness to accept even the final Clinton parameters, driven home with murderous ferocity by the explosion of violence since Camp David, should not be allowed to paralyze Israel politically. I proposed that we map out the area we required to retain and secure the major settlement blocs, as well as the outer East Jerusalem suburbs; a further security strip along the Jordan River; and several other strategically important 388 BARAK 103 points. It would amount to retaining control over around 20 percent of the West Bank, but none of the major Arab towns or cities. Though deliberately stopping well short of share of the West Bank Arafat could have secured through a negotiated peace, it would remove Israeli troops and settlers from most of the territory. It would give the Palestinians ample room to set up a state if they so chose, and conceivably to expand its area if some future leader had more of the Ben-Gurion in him than Arafat. Until then, it would allow both of our peoples to get on with their lives and focus on their own political and social and economic challenges. There was a second, critically important part to what I was proposing: the construction of a physical security fence along the new disengagement line with the West Bank. It was the suggestion rejected under Rabin, accepted under Peres amid the Hamas bombings in the 1996 election campaign, but never followed through on. Even under the new arrangement I envisaged, Israeli troops would retain the freedom of action to respond to, or pre-empt, terror attacks with targeted operations inside the West Bank. But the physical barrier would hugely increase our ability to halt the attackers before they could strike. Yet even if I d been able to bring those on the left of Labor behind the plan, this election campaign was going to be a lot tougher than in 1999. Since Knesset members weren t running for their seats, the Labor machine lacked its usual incentive put up posters, knock on doors, or get out the vote. Arik, however, benefited from the enthusiasm of Likudniks and other right-wing activists who saw an opportunity to retake control of Israel s political agenda. Long before election day, I realized my time as Prime Minister was up. Before the campaign began, an old friend of mine, a leading Israeli journalist, tried to talk me into withdrawing. You re going to lose, Ehud, he said. Why, after making all this effort for peace, after doing your to Arik? I d never seen the objective as just staying in office. If that had been the case, I wouldn t have put the chances of a peace deal with Syria to their final test. I wouldn t have gone to Camp David. I also would have accepted Arik s serial offers to join a unity coalition. But never in my life had I walked away from a challenge. I certainly wasn t going to retreat in the midst of Palestinian violence, and when Israel still faced key decisions on how to move on from Arafat s unreadiness to negotiate an end to our decades-old conflict. 389 BARAK 104 I did regret being unable to rely on the support of two key constituencies that had helped deliver my landslide victory barely 18 months earlier: my own Labor Party and the Arab citizens of Israel. I had no trouble understanding the reasons many Israeli Arabs were abandoning me. The clashes in the Galilee at the start of the new intifada had left more than a dozen of their community dead. As an official inquiry would later conclude, there was blame on all sides. A number of Arab members of the Knesset had played a part in inciting the violence. Yet the police had been unprepared, and they had used excessive force. As I said publicly before the election, I, as Prime Minister, was ultimately responsible, and I formally apologized for what had happened. Yet the roots went deeper, to the economic and social disadvantages still faced by many Arab citizens, and the difficulty in resolving those problems calmly and collectively as long as Israel remained in a state of war with its Arab neighbors. For Labor and the political left, it was as if, despite Arafat s repeated rejections of ever more forthcoming terms of peace, they still couldn t bring themselves to believe he really meant it. By default, they were inclined to blame me for not delivering peace. I was accused of relying too much on a close circle of aides and negotiators I d known from my time in the army, of not giving a negotiating role to Labor veterans of the Oslo negotiations like Yossi Beilin, and of being insufficiently sensitive to Arafat s needs in the negotiating process. Typical of the argument was a broadside by the journalist and historian Tom Segev, in Ha aretz, which accused me of an incredible arrogance which had led to an historic mistake. Rather than continue on the Oslo road, Barak put it into his head that he could reach a final settlement and try and impose it on the Palestinian Authority President. I did not try to impose anything on Arafat. I did, quite consciously, abandon the Oslo road because it was inexorably leading to a situation where, after the final Wye redeployments, Arafat would have control over the great majority of the West Bank without having to commit to any of the assurances that even most on the Israeli left would define as the minimum required for peace. Now, of course, we knew that was something the Palestinian leader was not prepared to do. When election day came, not that many of my critics on the left actually voted against me. Nor did the Israeli Arabs. Yet in very large numbers, they simply didn t vote. In percentage terms, Arik s victory was even more decisive than mine over Bibi. He got more than 62 percent of the vote. I received barely 37 percent. 390 BARAK 105 Yet the turnout was the lowest in Israeli history. Arik received fewer votes than I had in 1999. Around half of the 1.8 million people who had supported me stayed at home. I conceded defeat after the first exit polls and said I would be stepping down as head of the Labor Party. Still, since the election had been only for Prime Minister, Labor remained the largest party in the Knesset. Mathematically, Arik might be able to cobble together the required 61-seat majority with an assortment of smaller parties. But without Labor as ballast, his government would be even more precarious than mine. When I triggered the election, he d let it be known that if he won, he hoped to include Labor in his government, with me as his Defense Minister. Even though I d announced I was stepping aside, he phoned me the morning after the election to make that argument again. He said Israel needed a strong government, especially to confront the escalating violence. Having a person with my background, whom he knew well and trusted, in the defense portfolio was important. I didn t say yes. Unfortunately, I failed to do what I should have done: I didn t immediately say no. When the public learned about Sharon s interest in a unity government, Labor descended into bickering. Some of my former ministers, like Yossi Beilin and Shlomo Ben-Ami, were against the idea of joining any Likud-led government. They were especially disgusted by the prospect of doing so under Arik, the architect of the 1982 Lebanon War. Most of the Labor s central committee did seem in favor of joining. But given the scale of my election defeat, many wanted do so without me. For a few days, Arik kept phoning me. I did feel that the substance of the arrangement he suggested made sense. But over that first week, I realized that, understandably, he had little interest in addressing my policy concerns. I decided to focus instead on ensuring a properly organized transition to a new Labor party leader, and publicly confirmed that I would indeed be resigning. Several weeks after Arik formed his government including Labor, with Simon Peres as one of four deputy prime ministers he invited me to his office. He wanted to ask my views on a specific security question. That took barely 15 minutes. But I raised another issue that I argued would have more far-reaching implications. It was the idea of building the security fence along the West Bank. I d tried to make the case for doing so during the election campaign, and I d lost the election. Now I m turning to you. When I left office, 39 Israelis had been killed in the terror attacks. Now, there are 70. When the number reaches 700, 391 BARAK 106 there s no doubt you ll decide to build this fence. But to your dying day, you won t be able to look yourself in the mirror and explain why you waited for another 630 Israelis to die first. He did eventually start building it, but only in the wake of an act of terrorism which, even by the standards of this new and still-escalating intifada, was truly obscene. In March 2002, suicide bombers murdered 30 people, mostly elderly, as they were celebrating the annual Passover Seder in a hotel dining room in Netanya. Arik hit back two days later with Israel s largest military operation on the West Bank since 1967. Israeli forces retook major Palestinian towns, placed Arafat under de facto siege in his headquarters in Ramallah and imposed curfews and closures. In June, the government formally approved the security fence. Still, another year would pass before the major part of the barrier was in place, by which time some 500 Israelis had been murdered in the terror attacks. Only then did the number of casualties begin to fall. I tried to steer clear of public criticism of Arik s government. One of the lessons I d learned as Prime Minister was how easy it was to second-guess from the outside. No Prime Minister can act exactly as he might plan or want to. The most you can do is make sure you understand and analyze the issues and follow your instincts, experience and conscience to come as near as possible to doing what you believe is right. You will inevitably make mistakes and misjudgements. I certainly did. At least some of the criticism I received was deserved. I was at times too inflexible. I tended to limit my focus to a small group of trusted aides and advisors. I was less good at schmoozing with or, perhaps more importantly, delegating to others in the government or the party. I suspect it s no coincidence that the man who brought me into government in the first place was often criticized for the same things. By character, instinct and experience, Rabin, too, remained less a politician than a military man. Yet towards the end of his second period as Prime Minister, he did get better at delegating to people around him, and creating an atmosphere that encouraged teamwork, even when he knew he could not accept or act on everything they might suggest. During my term as Prime Minister, I was much less good at that. But another thing Yitzhak and I shared was a determination to set ourselves specific goals and do everything we could to achieve them. I promised to get the army out of Lebanon. With the Palestinians, I arrived in office convinced that the process begun in Oslo was both a huge opportunity and a potential dead-end. I was 392 BARAK 107 determined to focus on the end goal: initially, at least, a framework agreement, and over time a final political resolution of our conflict. Ever since the outbreak of the Palestinians first intifada, I believed this was as much in Israel s own interest as theirs. Yet when I entered office, we had no way of knowing whether Arafat wanted two states living side-by-side in peace. I felt it was my duty to find out, and, if the answer was yes, to put a peace agreement in place. I felt the same about way about Syria and Hafez al-Assad. When I left office, I believed I had achieved the most important goals of my premiership. We were out of Lebanon. Though we couldn t achieve the peace agreements I had hoped for, it was not for lack of trying. Along the way, Israel had demonstrated to the world that it was able and willing to consider painful compromises, and that it was the Arab leaders who, at least for now, were unequal to the challenge of making peace. If I d been able to retain the backing of the voters who made me Prime Minister in 1999, we might even have moved ahead on unilateral disengagement from the Palestinians, dramatically altering the trajectory of our relationship. Yet even without that, Camp David did delineate the terms of any future peace arrangement. When and if conditions allowed a resumption of serious negotiating efforts, the shape, and indeed most of the details, of a final peace between our peoples were now clear. I was on holiday in the summer of 2001 when Clinton phoned me. The New Times had run a piece on how and why the summit, and the subsequent negotiations through the end of the year, ended in failure. When I later read the article, by the Pulitzer Prize-winning reporter Deborah Sontag, I found it a meandering mix of opinions garnered from an assortment of Americans, Europeans, Israelis and Palestinians, including Arafat himself, with the overall conclusion that Clinton and I had not offered as generous a deal as was assumed and that it was somehow unfair to suggest the Palestinians deserved blame for rejecting it. There had been several other articles in various publications along the same lines. I didn t see much point at this stage in setting the record straight. To the extent the content of the Times piece bothered me, it was a simple, but important, error of fact. Quoting Arafat himself, Sontag wrote that during the backpatio discussion I had with him at the dinner in Kochav Yair shortly before the new intifada, he d implored me to block Mr Sharon s plans to visit the Temple Mount. Arafat didn t raise the issue at all, and presumably knew that we had consulted his West Bank security chief to ensure it happened quickly, avoided the 393 BARAK 108 mosques on the Haram, and would not become a catalyst, or in this case a pretext, for violence. Yet the revisionist history about our peace efforts left Clinton not just frustrated, but genuinely puzzled. What the hell were these people talking about, he asked me. Why were they missing the forest for the trees. The true story of Camp David, he said, was that for the first time in the history of the conflict, you and I, the Prime Minister of Israel and the President of the United States, placed on the table a proposal, based on Resolutions 242 and 338, very close to the Palestinian demands. And Arafat refused to accept it as a basis of negotiations, walked out of the room, and deliberately turned to terrorism. All the rest, President Clinton said, was gossip. All of it was now irrelevant, too. His parameters were off the table. Palestinian violence against Israelis was getting ever deadlier. And I was out of politics. When I delivered my final remarks to a Labor Party meeting, I was asked whether I was leaving politics for good. I replied that I would always remain a member of Labor. But I saw my role as a bit like when I d left the army. I m a reserve officer, I said, adding that I hoped I would not be called back to duty any time soon. I had been Prime Minister for only 21 months. But I d been in politics for six years, and in uniform for nearly thirty-six: in public service for more than four decades. Now, suddenly, I was a private citizen. And for a few years, I actually stayed that way. 394 BARAK 109 Chapter Twenty-Four I had only a general idea of what I would do next. Something in business describes it best. But I sought the advice of a friend who, rather than leaving politics, had just entered it. Colin Powell was now the second President Bush s Secretary of State. Why don t you go on the lecture circuit? he said. The short answer was that it hadn t occurred to me that I d be any good at it. But it proved energizing and interesting both for me and, it seemed, the audiences I spoke to. It was also lucrative. I would deliver four lectures over the span of a week and end up making twice what, until that point in my life, I had earned during a full year. I was also invited onto a number of company boards. I turned down some, in order to avoid even the appearance of a conflict of interest. But I did get involved in an area where I believed my range of experiences might be relevant: investment decisions, and venture capital. The result was a dramatic change in lifestyle. Nava and I got to spend more time with our daughters. We vacationed overseas for the first time. We also decided to build a new home, and the place that we chose gave me my first experience of how far I was from being a private citizen in the eyes of the Israeli public. When it became known we were planning to move to Kfar Shmaryahu near Tel Aviv, one of the wealthiest places in Israel, all hell broke loose. How could you, I was asked. I couldn t resist joking that I just wanted to be close to our voters. Likud supporters were about as rare in Kfar Shmaryahu as panhandlers. Along with Mishmar Hasharon, it was the only place where I d polled over 80 percent even in my loss to Sharon. Israel had changed dramatically from the kibbutz-centered pioneer society of my youth. Greater Tel Aviv, in particular, was thriving economically, and the rising crop of millionaires, whether from traditional business or in the bourgeoning technology sector, included its fair share of former kibbutznikim. Still, socially and culturally, a puritanical streak remained, a sense that there was something not quite right about people raised on a socialist ideal becoming personally well off. I accepted this. I recognized that I was not just a former kibbutznik. I had been head of the Labor Party. And Prime Minister. Still, I did feel much of the personal criticism was unfair. I had devoted more than four decades of my life to serving my country. I d behaved with scrupulous honesty while in office, and was avoiding 395 BARAK 110 any business involvement that could present a conflict of interest now that I had left. Frankly, I saw nothing wrong with earning money through honest endeavor, and using the proceeds to provide economic security for myself and my family, and to give our grandchildren a better start in life than Nava s or my own parents had been able to do. In the end, we didn t move to Kfar Shmaryahu. But that was because of an even more profound change in my life: I separated from Nava, after more than 30 years together. When we had begun plans to move, I laughed off a warning from a psychologist friend of mine that decisions like building a new house could lead to a deeper reassessment of your life. But that is at least in part what happened. There were also other changes that caused me to stop and take stock. I was no longer Prime Minister. My father had passed away soon after I left office. Professionally, I was exploring new areas and developing new interests. Nava and I had been happily married since our twenties. We had three wonderful daughters, and a first grandchild. Yet the more I thought about where we were in our lives, the more I felt our future paths were pulling us in different directions. For both of us, the separation was difficult, though it was made a bit less painful because Nava knew that it had nothing to do with another woman, or another relationship. I did imagine that I might one day meet someone else. But I was equally prepared for it not happening. I certainly didn t expect it any time soon. When it did, it began by accident. A few weeks after our separation, I was visiting the Knesset for a discussion about fixing Israel s broken electoral system. In the audience was a member of one of the civic associations pressing for reform: Nili Priell, my first, and only, serious girlfriend before I met Nava. We spoke for a few minutes afterwards. We agreed to meet again, and catch up with each other s lives, a week or so later. Both of us now had grown children. We were both on our own. There is, I assume for everyone, something impossible to replicate about a first love. Nili and I were given an unlikely second chance. That seemed to me an extraordinary gift. It still does. Yet if my personal life seemed full of new promise, the same could not be said of the country I d served for my whole adult life, or of the political party I d led into government. The continuing construction of the security fence along the West Bank finally did begin to reduce the sheer number of Palestinian attacks: from nearly 50 in 2002, to about half that number in 2003. But the suicide bombers who did get through from Hamas, Islamic Jihad and Fatah s Al-Aqsa Martyrs 396 BARAK 111 Brigade struck wherever they could inflict the most terror, and death: at bus stations, on buses, in shopping centers, restaurants and caf s. Over a 12-month period, beginning with a bombing of Tel Aviv s main bus station at the beginning of January 2003, they murdered 145 men, women and children. It would not be until two years later, with the West Bank fence in place and a range of other security measures, that the attacks, and the deaths, were finally brought down dramatically. The Labor Party had finally left Arik Sharon s coalition in late 2002. But in Israel s 2003 election reverting to the old rules again, with a single vote for party and Prime Minister Arik and the Likud won resoundingly. They doubled their Knesset seats, to 38. Labor, now with only 19 seats, against turned to Shimon Peres, as interim party leader. I didn t miss the political limelight. But by mid-2004, with the first sign of a major change in policy toward the Palestinians, I felt I had a contribution to make. What first prompted me to dip my toes back into politics were the ever more obvious signs throughout 2004 that Arik s coalition, and his hold on the Likud, were unraveling. Part of his problem was a steady drumbeat of corruption allegations around what had become a kind of family political operation: Arik and his two sons, Omri and Gilad. But Arik also seemed to be undergoing a welcome political conversion, to the need for the more profound political disengagement with the Palestinians which I d long been advocating. He had endorsed the Bush Administration s road map for resuming the peace process. Yet with Yasir Arafat ageing, ailing and even less inclined to consider the difficult decisions he had shirked at Camp David, Arik went one, dramatic step further. He raised the idea of unilaterally withdrawing Israeli forces and settlements from Gaza ensuring a showdown with the rank and file of the Likud, and other parties on the right. His main Likud rival, very much back in front-line Israeli politics, was his Finance Minister: Bibi Netanyahu. Though Bibi remained on board until the last moment, he dramatically resigned for the cabinet in August 2005, a week before the Gaza withdrawal, declaring: I am not prepared to be a partner to a move which ignores reality, and proceeds blindly toward turning the Gaza Strip into a base for Islamic terrorism which will threaten the state. To this day, Bibi, along with many Israelis across the political spectrum, draws a direct line between our pullout from Gaza, Hamas s takeover and its violent purging of Fatah s old guard there, and the periodic wars we ve had to fight since 397 BARAK 112 then in response to Hamas rocket fire into Israel. The moral: Arik was wrong to withdraw. But the Islamists ascendancy was happening anyway. After all, it was Hamas attacks that provided the spearhead of the intifada of terror launched in the wake of Camp David. Arafat s own influence was also inexorably on the wane by the time he passed away, in Paris, at the end of 2004, to be succeeded by Abu Mazen. I do not know of a single senior figure in Israel with any military experience who believes that we would be more secure today if we still had thousands of soldiers and settlers inside Gaza. Surprised though I was by Arik s decision to leave, I had no doubt that the fundamental security judgment he was making that a disengagement was in Israel s own interest was the right one. I was encouraged, too, by his parallel announcement of a small, token withdrawal from a few small West Bank settlements. My regret at the time was that he did not go further toward the kind of major West Bank disengagement I d been arguing for, and that even in Gaza the pullout seemed insufficiently prepared or thought out. The model, I believed, should have been our withdrawal from Lebanon involving detailed prior consultation with, and political support from, the UN and key international allies. I also felt it was critically important to ensure that, while we would obviously need offshore patrols to prevent arms and munitions from getting in, we allowed and encouraged an environment in which the Gazan economy could function and grow after we left. None of that happened. Though we left Gaza, we effectively sealed off and blockaded one of the most densely populated, economically strapped and politically febrile strips of land on the face of the earth. Still, I did see it as an important first step toward the kind of wider disengagement that would prioritize Israel s own security interests, and political and social cohesiveness, until and unless conditions allowed a for a serious new effort for a final peace deal. I was heartened when Shimon led Labor back into Arik s coalition at the start of 2005 to ensure he d have the support necessary to go through with the Gaza withdrawal. And while I did make a brief attempt to return as party leader later in the year, when it was clear I wasn t going to win, I threw my support behind Shimon and against the other challenger, the longtime laborunion leader Amir Peretz, who was running on a platform to take Labor out of Sharon s government. But Peretz won the leadership election. He did leave the cabinet, forcing Arik to call an early election for March 2006. And that, along with the most ambitious and 398 BARAK 113 ill-fated Israeli war in Lebanon since 1982, was the reason I ultimately found myself back in the Israeli government. It began on July 12, 2006, when Hizbollah fired rockets from southern Lebanon as cover for an ambush of two Israeli Humvees on our side of the border. Two soldiers were killed, and two others abducted. A few hours later, when an Israeli armored unit crossed to look for the kidnapped soldiers, an explosive charge blew up one of our tanks, killing four of its crew members. Arik was no longer Prime Minister by then. With Bibi marshalling opposition inside the Likud to the Gaza disenagegment, he had formed a new centrist party called Kadima, along with prominent Likud moderates and buttressed by a Labor heavyweight: Shimon Peres. But before the election, Arik suffered a pair of strokes, lapsing into a coma from which he would never emerge. His notional deputy, the veteran Likud politician and former Jerusalem mayor Ehud Olmert, found himself as Prime Minister. Kadima did comfortably win the May election. It ended up with 29 seats, followed by Labor with 19 and leaving the Netanyahu-led Likud with only 12. Olmert formed a coalition, including Labor, which had undeniable political ballast: Shimon was one of his deputy Prime Ministers, along with Haim Ramon. The gifted lawyer, longtime Likudnik and strong backer of the Gaza plan, Tzipi Livni, was Foreign Minister. Amir Peretz, as head of Labor, was given the Defense Ministry. But without Sharon himself at the helm, the government was now about to face a military crisis with virtually no military experience around the cabinet table. Olmert called an emergency cabinet meeting on the evening of the Hizbollah attack, and just before it was due to convene, my phone rang. It was Shimon, who, though with no first-hand army experience, did at least have the political experience in war that none of Olmert s other ministers could offer. He d been by Ben-Gurion s side during the 1956 war, had been in Golda s government in 1967, and was Defense Minister after the 1973 war, through Entebbe, until Begin s defeated Labor in the 1977 election. Despite our own battles inside Labor, Shimon and I had become closer again of late, especially after I d supported him in his last 399 BARAK 114 Labor leadership contest. Shalom, Ehud, he said when I answered the phone and, without small talk or preliminaries, asked me: What do you think we should do? I said I couldn t offer specific suggestions. It s a detail-related question, and I don t know the details. But I advised him on the process I felt would be needed to come up with the right answer when the chief-of-staff, the former air force chief Dan Halutz, briefed the cabinet. Halutz will propose what to do. Push him, I said. When he presents his recommended action, ask him for his assessment of what Hizbollah will do in response. When he, or the head of military intelligence, has given you the range of possibilities and told you which is the most likely, say, OK, let s assume that happens. What s our next step? How is that going to lead us to our main objectives? And what are the objectives? Newspaper reports the next morning said that Shimon, and only Shimon, did indeed press the chief-of-staff about each further stage of the operation and about the aims that we wanted to accomplish. But Halutz finally fobbed him off by saying that once they got to the later phases, they could discuss it. From the first reports I received through my army contacts, I feared the operation would go badly. There was no doubt we could inflict damage on Hizbollah. But there were no clear answers to the questions Shimon had raised. The initial Israeli air force response had been put in place more than five years earlier, when I was Prime Minister. Codenamed Operation Cinnamon Sticks, it was designed to take out all of the fixed Hizbollah missile sites we had been able to identify. We knew its limitations. A lot of the rockets were fired from mobile launchers. But in one exercise, the known Hizbollah sites were replicated in the Galilee. They were destroyed in 43 minutes. I had no doubt that part of the plan would succeed. In the early hours of July 13, it took only 34 minutes to destroy the nearly 60 launchers we had pinpointed over the previous five years. But Operation Cinnamon Sticks had been intended as a first step in a far wider assault on Hizbollah and other targets, including a number of infrastructure installations, deeper inside Lebanon. It was part of a plan for a full-scale war, if the government decided that was necessary. As the early public statements by Olmert and other ministers made clear, they did not intend to start a war, at least at the outset. They certainly didn t have a coherent plan for one. But they would soon find themselves in Israel s longest single armed conflict since 1948. When Hizbollah fired hundreds of missiles at Israeli towns and cities, our operation intensified not by plan or military logic, but improvisation. As a former Prime 400 BARAK 115 Minister, I felt it was not my place to criticize Olmert publicly when Israeli troops were in action. Two days in, in fact, I told a television interviewer that the government had every right to respond and was doing so effectively. Olmert phoned to thank me. When he, like Shimon, asked what I thought the government should do next, I was straightforward: Do your best to bring things to an end as soon as you can. I said that Halutz and the other generals would be caught up in the operational details, which made his role and that of the cabinet even more critical. In any operation, you ll have an idea about what represents a satisfactory exit point. But there will be a temptation, when you get close to that point, to take just one more step, to keep going until you re absolutely sure you ve reached it. Resist that temptation, I told him. I said there was a danger that, before they knew it, he and the other minister would be in way over their heads. In pure military terms, there were just two realistic choices in responding the Hibzollah attack: a deliberately limited and fairly brief operation, or a full-scale war. We ended up doing neither. The result was an operation that lasted 34 days, nearly twice the length of the Yom Kippur War. Our air force flew 12,000 missions, more than in 1973 and nearly twice as many as in the 1982 Lebanon War. Hizbollah fired about 4,000 rockets into Israel from a stockpile we estimated to number nearly 20,000 and not just at the border settlements but as far south as Hadera and Haifa, keeping hundreds of thousands of Israelis under effective siege. More than 120 Israeli soldiers and 44 civilians were killed. So were hundreds of Hizbollah fighters and, inevitably, many Lebanese civilians as well, with a predictable surge of criticism from much of the outside world. Only President Bush and Britain s Tony Blair steadfastly reminded the critics of how the war had actually begun. The one putative victory for Israel was the UN cease-fire resolution that Tzipi Livni helped to negotiate in August. At least on paper, it contained a commitment to a long-term solution including the disarmament of Hizbollah and the unconditional release of the abducted Israeli soldiers, which has given rise to the current crisis. But as Israeli newspapers began speaking to the returning soldiers and officers, a picture emerged not just of a long and difficult war, but a lack of clearly communicated military objectives, and an often-chaotic chain of command, which ended up costing Israeli lives. Our final advance, alone, shortly before the cease-fire, claimed the lives of some 30 soldiers. And for what, many Israelis were soon asking themselves. One of the newspapers most supportive of the operation at 401 BARAK 116 the beginning summed up the feeling of most of the country at the end: If you don t win, you lose... Hizbollah survived. It won the war. Without the botched handling of the war, I might well have remained a mere member of the Labor Party and a private citizen. But when the commission of inquiry released its report in April 2007, three people were singled out: Olmert, Amir Peretz and Halutz. Olmert was portrayed as a military novice who d gone into battle without understanding the wartime role and responsibilities of a Prime Minister. Halutz s excess of charisma was held responsible for keeping ministers, and military officers as well, from questioning his judgement or pressing him for alternatives. Amir Peretz was found to be the wrong man in the wrong cabinet post at the wrong time. Of the three, only Halutz seemed ready to take personal responsibility. Even before the report came out, he resigned. Olmert and Peretz were determined to stay put, despite calls to quit not just from the opposition but from Tzipi Livni. Inside Labor as well, the war produced a clamor for change. When a vote for party chairman was held in June 2007, I was chosen to return in Peretz s place. Within days, I replaced him as Defense Minister as well. Yet the main item in my in-box would no longer be Lebanon. I had been briefed a few weeks earlier by Olmert on a threat hundreds of miles further away: a construction site in northeast Syria, along the Euphrates River, where Mossad had uncovered evidence that the Syrians, with technical help from North Korea and funding from Iran, were building a nuclear reactor. I had got to know Olmert fairly well over the years, initially when I was in the kirya and both he and another rising Likud politician to whom I became closer, Dan Meridor, were members of the Knesset s defense committee. But from the day I returned to the Israeli government in June 2007, there was growing tension between us over dealing with the Syrian nuclear threat. It was not about whether we should take military action to destroy the reactor, before the fuel rods arrived on site and it could begin producing bomb-ready material. Just as under Menachem Begin in 1981, when we d launched our preemptive strike on Saddam Hussein s 402 BARAK 117 reactor near Baghdad, there was never any question that we would take any and all possible measures to prevent Syria from getting a nuclear weapon. An immutable, core assumption in Israel s security strategy was the need to retain our ability to deter, and if necessary defeat, our enemies. A nuclear Syria or Iraq, or Iran would dramatically alter the balance of power in the region, at obvious risk to Israel. Syria posed a particular threat, as part of an increasingly close alliance with Iran, and with Hizbollah in Lebanon. The question, however, was how and when to strike the reactor. Olmert wanted to attack within days. He seemed to assume that, as a former chief of staff, I d nod enthusiastically and go along with him. I did understand the reasons for his sense of urgency. Not only did we have to make sure we attacked before the fuel was on site. There was always the risk the Syrians would find out that we were aware of their nuclear facility, putting them on even higher alert. But the operational challenge was complex. We need a fail-safe plan to destroy the reactor. We had to do it in such a way as to avoid a full-scale military confrontation with Syria if possible. And we had to ensure we were ready for that, if it did happen. It took very little time for me to realize that none of those prerequisites was yet in place. Not unlike the recent Lebanon war, we were choosing between two off-the-shelf plans from the kirya. One involved using a large military force, and would almost certainly draw us into a major conflict with Syria. The other was a smaller, targeted operation. But it remained untested, and there was no certainty it would actually destroy the reactor. Over the next few months, Olmert got more and more frustrated with the fact we hadn t yet attacked, and frustrated with me as well. We held dozens of meetings, sometimes two or three a day, chaired by the Prime Minister, sometimes by me as Defense Minister, or by the chief of staff or service commanders. Invariably, I began my remarks by saying: We have to destroy the reactor. This was not because I felt that any of us seriously doubted that. It was because Olmert was beginning to suggest to the few ministers and senior officers aware of our planning that I was against attacking the reactor. In fact, I was working with the military and Mossad to ensure we had a plan that would succeed, with the minimum possible risk of drawing us into a major clash with the Syrians after the facility was destroyed. I was also working with the help of the Americans to make sure we could get the forces and munitions in place in the north of Israel to 403 BARAK 118 deal with a major conflict with the Syrians. All of this, under a tight seal of secrecy. Finally, in early September 2007, everything was in place. Olmert briefed the cabinet, and secured the ministers approval to destroy the reactor, with the understanding that the precise timing of the operation would now be left to the Prime Minister, the Defense Minister and the Foreign Minister: Olmert, me and Tzipi Livni. The three of us met immediately after the cabinet discussion. Olmert argued that the risk of leaks justified attacking that night, and I agreed with him. Tzipi was reluctant, but Olmert turned to her and said: Are you sure you re comfortable with an attack being ordered by me and Barak, while you chose to abstain? She thought it over, and added her approval. We struck just after midnight, in an intricately coordinated air attack that evaded not only a Syrian response, but Syrian notice. The reactor was destroyed. Although even today the exact details remain subject to Israel s military secrecy regulations, accounts published abroad in the weeks and months that followed painted a surprisingly accurate picture, including the pioneering use of electronic warfare capabilities to deal with risk of radar detection. But in the immediate aftermath of the attack, Israel deliberately made no public comment. We refused to say whether we d had anything to do with an attack. As we he had hoped, this allowed the Syrian President, Bashar al-Assad, both the space and a good reason to deny that it had ever happened, deny that he d been trying to make a nuclear weapon, and thus feel no compelling reason to retaliate. The reactor operation, however, marked the start of an increasingly tough period in both my and Tzipi s relationship with Olmert. Policy was not the problem. There were no major security crises in the months ahead. But in the spring of 2008, it became known that the Israeli police were investigating Olmert s relationship with an American businessman named Moshe Talansky. The suggestion, initially in a New York paper and then the Israeli press, was that Olmert was guilty of taking bribes. In his first public response, he didn t deny 404 BARAK 119 receiving money from Talansky. But he insisted it was all a part of election campaign contributions. Publicly, I reserved judgement. I hope, for everyone s sake, and for Prime Minister Olmert s sake, that the suspicions now circulating turn out to be baseless, I told a reporter. Let s be patient. Privately, I urged him to take a leave of absence and clear his name. Yet with other ministers convinced that would make things worse, I held off doing anything else until there seemed to me no choice, after Talansky gave evidence in Jerusalem s District Court. Though he genuinely seemed not to have expected anything specific in return, he said he had given Olmert something like 150,000 in cash. I called a news conference the next day. I didn t say whether or not I thought Olmert was guilty. I did say that I believed he couldn t continue leading the country while resolving his personal matters . Things finally came to ahead in September 2008. When Kadima held fresh leadership elections, Tzipi Livni won. Olmert confirmed he would step aside for his successor. But under Israeli law, he would remain Prime Minister until she either succeeded in forming a new government or called early elections. She opted in the end for Option B, and the election was set for February 2009. That meant Olmert would still be Prime Minister for another three months. We d long been discussing the increasingly worrying situation in Gaza. After Arik pulled out, an election had placed Hamas in power, after which the Islamists embarked on a violent purge of Fatah loyalists. Arms smuggling through tunnels from the Sinai had become rife. Rockets from Gaza were now landing on southern Israel. Hundreds of thousands of Israelis were living with the reality of a warning siren and a rapid dash into their shelters. For a while, amid negotiations through Egypt to end the rocket fire, we limited ourselves to sending small ground units into Gaza to target the source of specific rocket attacks. But that was always going to have only a limited effect. It also ran the risk of our soldiers being abducted, or killed. Pressure was building for a major military operation. With the election drawing nearer, Bibi Netanyahu was reminding voters that he d been against the pullout from Gaza, and saying that we should now hit Hamas hard. Both Olmert and Tzipi, along with most of the cabinet, were also in favor of doing so. But my long-held view, reinforced by the recent war against Hizbollah in Lebanon, was that we had to begin by deciding what we wanted to accomplish, and what was possible. Only then could we take action. I told the cabinet that, operationally, we were perfectly 405 BARAK 120 capable to taking over Gaza. But what then, I asked. Unless we were prepared to resume open-ended Israeli control, we d be left with no one to run Gaza afterwards. The obvious candidate, Egypt, was even less interested than we were in assuming responsibility for the more than one-and-a-half million Palestinians who lived there. I doubted that even Arafat would have been ready to do so. But relations had only worsened, since his death in 2004, between the Fatah old guard in the Palestinian Authority on the West Bank and the Hamas overlords in Gaza. I doubted very much that Abu Mazen would want to get involved. I did send an aide to see him to ask whether, in principle, he was open to reassuming control of Gaza following an Israeli takeover. His answer was unsurprising and unequivocal: no. I secured cabinet support for the more limited aim of restoring a period of calm for Israeli citizens in the south. I said the military operation had to be as sharp and short as possible, and end with some kind of political understanding that the rockets would stop for a significant period of time. The final plan was presented to ministers a few days before the operation. It would begin with surprise air strikes and a naval bombardment, followed by a limited ground incursion to hit remaining Hamas targets outside of the major refugee camps, which I was determined to avoid. The whole operation was intended to last for two weeks at the most. Hopefully, closer to a week, with diplomatic efforts through Egypt to secure a lasting cease-fire and, ideally, prevent Hamas from resupplying its rocket stockpiles through its smuggling tunnels from the Sinai. When we launched Operation Cast Lead on the morning of December 27, nearly all the Hamas forces were where we d expected them to be. Two waves of air strikes, with over a hundred jets and attack helicopters, killed 350 Hamas fighters. We destroyed Hamas s headquarters and dozens of its government and police installations. The attacks continued in the days that followed. We took a range of actions designed to minimize civilian casualties. We dropped leaflets before bombing sorties, phoned residents, and fired light missiles before heavier ordnance was used. Still, I realized that civilian casualties were unavoidable if only because Hamas, like Hizbollah in Lebanon, was deliberately firing its rockets from civilian areas, sometimes even near schools or hospitals. Civilian casualties were obviously tragic in themselves. They also made it inevitable that the longer the operation went on, the more likely we were to face international criticism, and diplomatic pressure to bring it to an end. That was an additional reason I had insisted that the operation be well defined and time-limited. 406 BARAK 121 But both Olmert and Tzipi soon fell prey to the same self-defeating temptation that had worried me during the meandering war against Hizbollah. Our ground incursion began a few days into the operation. The intention was to stay for a few more days and then, responding to inevitable international appeals, call a halt to a campaign that had already achieved nearly all of its targets. Perhaps wanting to balance the failures in Lebanon there with success in Gaza, Olmert wanted us to continue, and expand our attacks deeper into Gaza. I reminded him that we d agreed the aims beforehand. The longer we stayed, the less clear any gains would be. Yes, our ground forces had so far faced virtually no resistance or casualties. But that s because we re outside the main populated areas, I said. The deeper we get in, the better it will be for Hamas. They gain simply by surviving, like Hizbollah. Yet Olmert kept insisting that we d succeeded so far, so let s not stop. It wasn t until January 17, three weeks after the operation began, that we announced a cease-fire. Militarily, the operation was a success. While Hamas launched nearly 3,000 rockets into Israel in the year before our attack, there were only 300 in the year that followed. But politically and diplomatically, the extra week reduced, rather than helped, the chances of reaching an understanding for a longer-term reduction of the attacks. To the extent there was any political gain, it was to burnish Tzipi Livni s credentials as a tough potential Prime Minister ahead of the election. That was not her intent. Of all the politicians I ve known, she is among the least interested in such games, especially with lives at stake. But it was one of the effects. She won the election, in a photo finish, with opinion polls suggesting she d been effective in shaping the campaign as a choice between Tzipi and Bibi. Kadima got 28 Knesset seats, to 27 for Bibi and the Likud, which gave her the first crack at forming a government. There s no way of disguising the fact that Labor s result in my first election back in charge was a disappointment. We went down six seats, to 13. The big gainer was a far-right, stridently anti-Arab party called Yisrael Beitenu, led by a former Likudnik named Avigdor Lieberman. Tzipi s attempt to form a coalition became less a political process than a contest between rival stalls in a Middle Eastern bazaar. Bibi was holding parallel talks with the Orthodox parties critical to assembling a parliamentary majority. He was matching and raising every assurance of a ministerial seat or budgetary concession that Tzipi was prepared to offer. In the end, she threw up her hands, saying she refused to draw out a process which was not so much a negotiation as organized extortion. I am 407 BARAK 122 sure she won the respect of many Israelis for taking an all-to-rare stand of principle. She certainly won mine. But I was not alone in wondering whether it was worth the price that she, Kadima, and the country would pay as a result: Bibi s return as Prime Minister in a Likud-led coalition. Though I was not surprised when he asked me to remain as Defense Minister, and to keep Labor inside the coalition, that was not an easy argument to make to my reduced Knesset contingent. They saw joining Bibi, especially in a government with the right-wing Lieberman as Foreign Minister, as a betrayal of all the efforts that they and I had made to achieve peace with the Palestinians. Still, the decision on whether to join the coalition ultimately rested with the party central committee, almost every one of whose members was on a local government council. For them, the choice was between a share of power, however limited, and the wilderness of opposition. So we joined Bibi s government. I was personally in favor of our doing so, but for more complicated reasons. I knew that Bibi s background, his instincts and his undeniably powerful political rhetoric were all firmly rooted on the political right. I recognized that he was often more interested in politics than policy, and perhaps above both of those, in the tactical maneuvering required to consolidate his political position. But I had known him long enough to dismiss the suggestions of many of my colleagues that he was intellectually shallow. I felt he was capable of doing what was best for Israel, and that he had a basic pragmatism that would guide how he got there. All that, however, was just a reason for not saying no when he asked me and Labor to stay on. The reason I felt it was right to say yes had to two with specific policy challenges. The first was to ensure there at least some peace process with the Palestinians. But that, in turn, was in large part because I believed it would win us the diplomatic support, especially from the Americans, needed to tackle a more urgent threat. It again involved an enemy state trying to get nuclear weapons. But not Syria. The Islamic theocracy of Iran. We d been aware for a number of years about Iranian efforts to go nuclear. The Mossad had notched up a series of successes in delaying the Iranians from getting there. But they were getting inexorably closer. In fact, when I d taken over as Defense Minister under Olmert, I formally directed the new chief-of-staff, Gaby Ashknazi, to get to work on a plan to attack the most important facilities in the Iranians nuclear network, with the aim of pushing back the point at which they might develop a bomb by five to six years. But it became clear we didn t have the 408 BARAK 123 operational capacity to mount such an attack, in part because we lacked the necessary bunker-busting bombs and the tanker aircraft to get us to Iran and back. I did seek help from the Americans. I met Defense Secretary Bob Gates, CIA director Mike Hayden, National Security Adviser Steve Hadley and even President Bush himself. While not explicitly mentioning that we were planning military action against Iran, I sounded them out on the prospects of getting more heavy munitions, and possibly leasing several US tanker aircraft. Yet in our final meeting with President Bush, during a visit to Israel in June 2008, he made it clear to Olmert and me that he knew what we were up to. Olmert hosted a private dinner for the President. Afterwards, Bush asked to talk privately. Olmert poured us each a glass of whiskey and lit a cigar, and we sank into brown leather armchairs. Smiling, the president looked straight at me, and said to Olmert: This guy scares the living shit out of me when he tells me what you want. He told Olmert how I d asked for heavy munitions, tankers and a variety of other military equipment. Remember. I m a former F-16 pilot, he said. I know how to connect the dots. Then, turning more serious, he added: I want to tell both of you now, as President, the formal position of the US government. We are totally against any action by you to mount an attack on the nuclear plants. The effect was all the more dramatic because of his Administration s support for our attack on the reactor in Syria the year before. I repeat, Bush said, in order to avoid any misunderstanding. We expect you not to do it. And we re not going to do it, either, as long as I am President. I wanted it to be clear. Olmert said nothing, so I replied. Mr President, we re in no position to tell you what the position of the United States should be. But I can tell you what I believe history will have to say. I m reminded by what we call, in field artillery, bracketing and halving. I said that in the wake of the Al-Qaeda attack on the Twin Towers, he had fired one shell long, in Afghanistan, and another one short, in Iraq. But when the time came to hit the real target Iran it ended up you d already spent two terms, and all your political capital. He seemed neither insulted nor unsettled by my remark. He simply nodded. Perhaps, in part, because he was pretty sure that we lacked the ability to attack the Iranian facilities anyway. We still lacked that capacity when I became Defense Minister in Bibi s government in May 2009. But the main reason I d stayed in the job, and my main 409 BARAK 124 focus from the day Bibi s government took office, was to do all I could to change that. 410 BARAK 125 Chapter Twenty-Five I had hoped that in facing down the nuclear threat from Iran, I could nudge Bibi towards a reengagement with the Palestinians not with great enthusiasm, but as an act of pure political pragmatism. There were only two ways we could stop the Iranians from getting a nuclear weapon: for the Americans to make sure that happened, or not to hinder Israel from doing so. Either was going to be a lot harder if there was tension with the new American president, Barack Obama, over moves to revive the peace process with the Palestinians. I didn t expect it to be put to the test so soon. Yet within weeks of our taking office, President Obama launched an effort to restart negotiations, declaring it intolerable that there was still not a Palestinian state. He was explicit about what Israel needed to do. In an Oval Office meeting with Bibi in May 2009, and in a speech in Cairo the next month, he called for a total halt to settlement construction on the West Bank. US opposition to settlements wasn t new. For years, Washington s position had been that they represented an obstacle to peace. The main issue wasn t even the creation of new settlements, since there had been almost none in recent years. It was the expansion of existing ones. The Jewish population on the West Bank had been about 190,000 when I became Prime Minister. In the decade since then, it had grown to 315,000 more than half-amillion if you counted the Jewish neighborhoods built inside the expanded, post- 1967 boundaries of Jerusalem. The expansion natural growth as we euphemistically described it to the Americans was what President Obama now wanted Bibi to end. I had no illusions about how hard it would be to get him to agree. With each passing year since Camp David, the pro-settlement right wing in Israel had become more confident and influential. In a way, the settlers and their supporters passionately devoted to a Greater Israel and opposed to any Palestinian state had become the 21 st -century equivalent of the kibbutz avant-garde of a half-century earlier. The rise of Avigdor Lieberman s Yisrael Beiteinu party was the latest sign, alongside a move rightward within the Likud itself. For Bibi to say yes to a settlement freeze would mean putting aside his own short-term political interests in recognition of the importance of our alliance with the Americans. He d actually done this, twice, during his first term as Prime Minister. He had agreed to give the 411 BARAK 126 Palestinians control of most of Hebron, and accepted further withdrawals under the Wye River agreement. But amid predictable protests from the right, he had promptly retreated from his Wye commitments. I knew that his default response to Obama s call for a settlement freeze would be no. And it was, delivered first to the cabinet and then to the public, as soon as he got back from his talks with the President. In my repeated meetings with Bibi in the weeks that followed both one-onone, and within the informal group of close ministers and aides known as the Group of Eight I tried to persuade him that, if only because of America s key role on Iran, we needed to show some sign of engagement with Obama s efforts. I was not entirely alone. One ally was an old friend: Dan Meridor, who had rejoined the Likud before the election. Another was more unexpected: Avigdor Lieberman. He was never going to accept a settlement freeze. Not only did his heart, and political interests, lie on the West Bank. He lived there. But like many in the party he led, he had come to Israel from the former Soviet Union, shaping a worldview that in many ways remained European, and pro-Western. He was worried about creating the impression of blanket Israeli intransigence toward a popular new American President, and isolating ourselves internationally, if we didn t go some way towards helping to restart talks with the Palestinians. Though Bibi showed no signs of retreat on the settlement freeze, he did accept that broader point. Ten days after Obama s Cairo speech, he publicly accepted the idea of a Palestinian state for the first time, having ruled it out as recently as the month before in his White House talks with the President. The shift was dismissed as trivial not just by the Palestinians, but by many in my own Labor party and almost everyone else on the left. I disagreed. I knew how deep, genuine and longstanding Bibi s resistance to Palestinian statehood was. But I had another, serious concern about the peace plan he announced: an entirely new precondition he insisted the Palestinians must meet if peace was ever going to be possible. He said they must clearly and unambiguously recognize Israel as the state of the Jewish people. On a whole series of levels, that made no sense to me. We hadn t asked Egypt or Jordan to grant us explicit recognition as a Jewish state when we made peace with them. Even when Bibi himself had briefly tried to open negotiations with Damascus in his first period as Prime Minister, we d never felt the need to ask it of the Syrians either. To the extent there was any logic in demanding it of the Palestinians, Bibi s reasoning seemed to be that this would 412 BARAK 127 neutralize any recidivist claims to all of Palestine, especially since we had around 1.5 million Arab citizens living inside our pre-1967 borders. But as I told Bibi, that was a red herring. There was a more straightforward, legally binding answer: a peace treaty which, as with Egypt and Jordan, declared an end to our conflict and to any further claims on either side. My main concern was more fundamental. Bibi s new approach contradicted the central thrust of Zionism: that after centuries of powerlessness and persecution, Jews would finally take control of their own destiny. We now had our state. It was more than six decades old. Why do we need the Palestinians, or anyone, to validate us as a Jewish state? Why propose something that implies the Palestinians somehow have a say in what kind of state we choose to be? Yet the more I pressed him, the clearer it became that the substance didn t much matter to Bibi. His move was political, and tactical, aimed at staking out a position of power in the diplomatic process. Besides, he didn t expect any new negotiations to make real progress anyway. As Defense Minister, I had scope for taking steps with the Palestinians on my own. With Bibi s knowledge and tacit acceptance, I established a particularly strong relationship with Abu Mazen s Prime Minister, Salaam Fayyad. A respected economist, he operated on the assumption that neither violence nor negotiations seemed likely to lead the Palestinians to statehood as things now stood. He saw his role as doing an end-run. He would put in place the institutions, the infrastructure, the economy, the internal security and the stability needed for an eventual state to succeed. He was trying to do for the Palestinians what Ben-Gurion had done before 1948. He and I met and talked often but discreetly sometimes in his office in Ramallah, sometimes in mine, sometimes over dinner in the 31 st -floor flat I was renting in central Tel Aviv. I remember one dinner in particular. I led him onto the terrace after we d eaten. It was a startlingly clear night. You could see as far north as Lebanon and, since the West Bank was barely a dozen miles away, the twinkling lights of Ramallah as well. He gazed in that direction, then at the bright lights of the avenues and restaurants and caf s far below us. Smiling, he said: Ehud, why do you need Ramallah when you ve got Tel Aviv? I smiled back. There was no need to reply. He knew my views. Not only didn t Israel need Ramallah. I was more convinced than ever that it was in our own interest, by treaty if possible and unilateral disengagement if not, to remove Israel from all of the major towns and cities of the West Bank. 413 BARAK 128 I issued a standing directive in the kirya that we should agree to anything Fayyad asked for, as long as there no security reason to say no. We ended up arranging a direct source of fuel supply to Jenin, on the northern edge of the West Bank, and built new terminals to handle it. We facilitated construction permits for a new industrial zone. For a conference of international economists and business people, we set up VIP treatment at Ben-Gurion Airport, and limousine transport to the conference venue. I believed that if Fayyad succeeded in what he was trying to accomplish, it would be a benefit not just for the Palestinians, but for Israel too. Bibi was agnostic on Fayyad s efforts. Yet he recognized they did no harm. And in a way, my support for them was politically convenient. To the extent the international community, especially the Americans, appreciated our efforts to help the Palestinians, Bibi and others in the government could, and did, claim credit. When there were complaints from the right, Bibi could and did say: It wasn t me. It was Barak. My part in our relations with the Americans was more politically delicate. As I continued to prod Bibi toward accepting a settlement freeze during the summer and autumn of 2009, my de facto role became to help smooth over the increasingly rough edges in our ties with the Obama administration. I knew key figures from earlier incarnations in their public lives and mine: Secretary of Defense Bob Gates, who had been President George H. W. Bush s deputy security adviser in the first Iraq war and then head of the CIA; and Hillary Clinton, now Secretary of State. During a series of early trips to the US as Defense Minister, I met Gates, Hillary and other senior figures in the administration both formally and informally. In part because they were aware I favored agreeing to a settlement freeze, they clearly found it a lot easier to talk to me than to Bibi. On one visit, to my regret and Bibi s evident frustration once I d got home, the press highlighted this dramatic difference in mood. Emerging from talks with me at the State Department, Hillary told reporters that our talks had gone wonderfully. She added: As longtime friends do, much was said. And much didn t need to be said. Still, I was careful to avoid any explicit criticism of Bibi in my meetings in the US. I would point out the domestic political pressures on him in deciding how to proceed. And in any case, the Americans knew that no matter what I might say to them, it was Bibi s actions that ultimately mattered. He, not I, was Prime Minister. I was as surprised as they were when he finally announced a settlement freeze in November 2009. As with nearly everything else he did regarding the peace 414 BARAK 129 process, it was hedged with several conditions. The freeze would not be openended, but last for 10 months, as a way of boosting the effort to restart negotiations. It would apply to new construction, not work already underway. And it would exclude the post-1967 neighborhoods inside the expanded city limits of Jerusalem. Like his other moves, it was also dismissed as insignificant by the Palestinians. Though there was a formal restarting of the talks, they went almost nowhere during the period of the freeze, which Bibi cited as a reason for not extending it further. From then on, the negotiations produced even less. I didn t buy the narrative that this was entirely Bibi s fault. Abu Mazen remained steadfastly, deliberately passive. Obviously not inclined to take the risk of further widening his rift with Hamas in Gaza, he was content to echo the Obama administration s argument that nothing could happen until there was a settlement freeze. Once the freeze was announced, he went through the motions, avoiding all the difficult issues, in the expectation Washington would ensure the freeze was renewed. President Obama s initial Mideast moves had made it much easier for Abu Mazen to avoid any serious engagement. In contrast to past presidents, Obama had placed almost all of the onus for progress on Israel. But the end result also suited Bibi. Though I never entirely gave up hope of persuading him it was in Israel s interest to seek a resolution of our conflict with the Palestinians, it became more evident as the months went on that his aim was simply to keep things ticking over, and avoid any major new crisis. He appointed an old personal friend a corporate lawyer named Yitzhak Molcho as our negotiator. I finally realized how pointless the exercise was when, during a visit to the United States, I found myself in New York at the same time as Molcho. We met at the Israeli consulate. We spoke in detail about the state of the negotiations. With Molcho still in the room, I phoned Bibi in Jerusalem on the secure phone line. I said I d just been updated on the talks, and it seemed clear there were a number of suggestions Israel could make, with no domestic political risk but with every prospect of improving the atmosphere and accelerating progress. Yitzhak is one of Israel s top lawyers, I said. He s struck dozens of deals in his life. But he strikes a deal when that s what his client wants. You are the client. If you tell him: bring me back the best deal you can not a peace treaty, just a deal on a specific issue he ll do it. But if his brief is simply to negotiate, he can go on negotiating forever. And it s pretty clear me that s his brief. Bibi insisted I was wrong. He said that what I saw as time-wasting was simple prudence, to make sure the negotiations bore fruit. But his approach never changed. Whenever it came 415 BARAK 130 up in our inner Group of Eight discussions, I could usually count only on Dan Meridor, and occasionally a handful of others, to argue in favor of any form of initiative on our side. In private meetings, Bibi did sometimes engage in discussion about what Israel might do. But he invariably steered the conversation elsewhere, insisting that the real issue was the Palestinians lack of any interest in making peace. My main worry wasn t the immediate future of the negotiations. For now, the chances of an agreement seemed close to zero. It was the longer-term damage Bibi s approach would do in further delaying any serious move by Israel to put our relations with the Palestinians on a more stable and sustainable footing. The dithering, delay and deadlock suited him politically. Ironically, my own efforts on the security front had also made it easier for us to do next to nothing. Intermittent outbreaks of violence always remained a threat. Yet the West Bank security fence, along with our military, police and intelligence measures, meant it was very unlikely we d see a return to the full-blown terror war of the second intifada. I was also working to secure US support for our development of increasingly effective anti-missile weapons to reduce the threat from Hamas in Gaza. The overall result was that for many, if not most, Israelis, the conflict with the Palestinians didn t impact on their day-to-day lives. It was unseen and largely unfelt. Still, the effect of the stalemate on our relationship with Washington did matter: both for our security cooperation on things like the anti-missile weapons and, crucially, the challenge which had led me into Bibi s government in the first place: keeping Iran from getting a nuclear weapon. It was a race against time. The Iranians were producing more and more yellowcake, building more advanced centrifuges, accumulating more low-enriched uranium. They were getting better at hiding and protecting the network of facilities being used to try to produce a nuclear weapon. And in the early months of Bibi s Prime Ministership, the question we faced wasn t even whether to take military action against Iran something I knew, from Bob Gates and others, that the Obama administration viewed no more favourably than George W. Bush. It was 416 BARAK 131 whether that would even be possible to strike before the Iranians entered their zone of immunity the point at which the amount of damage we could do to their nuclear program would be too negligible to be worth the operational, political and diplomatic risks from such an attack. In the early months, my priority was to ensure we at least had a military option. A full year before joining Bibi s government, as Defense Minister under Olmert, I d first tried to put an operational plan in place, only to find that the lack of heavy munitions and refuelling aircraft made it impossible. That was especially frustrating because at that point, our experts calculated that a successful strike could have set back the Iranian nuclear effort by about six years. Given the Iranians knowledge we could attack again, and their need to restart clandestine efforts to secure key components abroad, that meant a very real prospect of ending the nuclear program altogether. On joining Bibi s government, I began working, both with the kirya and the engineers and technological experts in our military industries, to make sure we had the weaponry and equipment, and an operational plan for a surgical strike. It was not until mid- 2010, a year into Bibi s government, that I was confident we d reached that point, in part thanks to Israeli-produced heavy bombs and tanker aircraft. Our experts estimated we would still be able to set back the Iranian nuclear efforts by up to four years, almost certainly enough to end them indefinitely. Yet making military action possible proved to be the easy part. The question now became whether we should be prepared to launch a strike against Iran s nuclear facilities. Answering it was like a contest of three-dimensional chess, involving both an internal debate among Israel s political and military leadership and discussions with an Obama administration whose priority remained to negotiate an end to Iran s nuclear program. On major security decisions in Israel, two ministers always mattered the most: the Prime Minister and Defense Minister. Neither Bibi nor I doubted we had to ready to strike if that proved necessary. Nor did Foreign Minister Lieberman. Even for us, it was an option to be considered only when all other ways to rein in the Iranians were failing. We also agreed on two other preconditions. We would have to secure international legitimacy, most of all from the Americans, for what would be a clear act of self-defense. And we d need to demonstrate an imperative urgency to act, with the approach of the zone of immunity that would take any military option off the table for good. Ideally, we hoped the US-led campaign of economic and diplomatic pressure would get Iran to abandon its nuclear ambitions, as Libya had done in the wake of 417 BARAK 132 its terror attack on a Pan American airliner in the late 1980s. Or, as in South Africa, that a change in nuclear policy might come from a change in r gime in Tehran. Yet realistically, we couldn t count on either. And there was no doubt in our minds that a nuclear Iran represented a hugely serious threat. If the Shi ite Muslim regime in Iran did get a nuclear weapon, Sunni Arab states like Egypt and Saudi Arabia, and Turkey as well, would try to go nuclear. Neither they nor we could assume that Iran was developing a bomb as a mere act of deterrence. We couldn t exclude the possibility that, especially in a crisis threatening the survival of the ayatollahs rule, Iran would use the weapons it was developing. It could even send a nuclear device in a container smuggled on board a commercial vessel docking in one of Israel s ports. While few in Israel disputed the seriousness of the threat, a number of top political and military figures had deep misgivings about military action. Given the need for secrecy, most of our discussions took place within the so-called Group of Eight, often also including the chief of staff and other top generals from the kirya. Both Dan Meridor and Benny Begin, Menachem Begin s son and a minister without portfolio, were opposed to an Israeli attack from the start. They were convinced that the implications for the region, and for our relations with the wider world, were difficult to predict and potentially dire. Dan raised a further concern. He feared an Israeli attack might actually intensify Iran s effort to get a nuclear bomb, only now with political cover, because it would argue it was acting in selfdefense. The view of those opposed to an Israeli strike was that we should rely on American economic and political pressure to deal with the threat. And, if that failed, on American military action. In November 2010, the internal debate came to a head, at a meeting involving the Group of Eight as well as the chief of staff, the head of military intelligence and the commander of the air force. We convened in a villa that the Mossad kept for clandestine foreign visitors, near the coastal road north of Tel Aviv. The meeting began with a presentation by the generals of our attack plan. There was still a core of ministers opposed: chiefly Dan Meridor and Benny Begin, but also Boogie Ya alon, a former Sayeret Matkal commander and chief of staff who Minister of Strategic Affairs. But the confidence and detail with which the plan was laid out, and the fact that Bibi, Lieberman and I were in favor of being prepared to act, gave me the sense that a majority would back military action if it became necessary. The proviso would be the need for the chief-of-staff, and ideally 418 BARAK 133 the heads of military intelligence and Mossad, to sign off on the operational viability of the plan. That was what now ended any prospect of military action, at least for a few months. Bibi, Lieberman and I withdrew into a side room to talk with the chief of staff, Gaby Ashkenazi, as well as the heads of military intelligence, the Mossad and and Shin Bet. We emphasized that no final decision on whether to attack had been taken. That would require a further meeting with the Group of Eight, and then the full cabinet. But we asked each of them for their views on the operation. We knew they had political reservations, along the lines of those voiced by Dan Meridor. On an issue of this magnitude, it was accepted practice that military and intelligence commanders could weigh in on the political implications as well. But their formal role was operational and professional. Ashkenazi and the other generals did concede that in every area planning, materiel, training and intelligence our attack plan was far ahead of where it had been a year earlier. Yet Ashkenazi, in particular, concluded that the preparations had not yet crossed the threshold of operational capability . I was furious. I respected the considered opposition of ministers like Dan or Benny Begin. I had no problem with the chief-of-staff or other generals expressing similar views on the political or geo-strategic implications of an Israeli attack, even though our intelligence assessments suggested the concerns were almost certainly unfounded. Yet what I found astonishing was Ashkenazi s suggestion that the operational threshold had not been crossed. Yes, this would be a demanding mission. It was not without risks. No operation was. But having followed every stage and detail of the preparations and as a former chief of staff and intelligence chief myself I believed it was simply wrong on a professional level to say that we lacked the capacity, and a workable plan, for a military strike if the order was given. Ashkenazi s objection did mean there was no way we were going to attack at least until well into the new year. Our discussions would continue, as would our refinement and strengthening of the attack plan. So would Iran s progress toward its zone of immunity, which we now believed would begin late in 2012, a couple of years away. As that point drew closer, we d face an ever-more-pressing need to decide finally whether military action was necessary. 419 BARAK 134 Yet the delay in getting to that point had serious implications for my role as Labor Party leader. Since the negotiations with the Palestinians were stuck in neutral, I was under increasing pressure from within Labor to pull out of Bibi s government. What on earth was the point of staying, they asked. All I was doing, from their perspective, was giving Bibi political cover for abandoning any serious effort to get a peace agreement. Their argument was entirely reasonable. My frustration was that, due to the need for military secrecy, the counter-argument was impossible for me to make: that I felt I had a responsibility to stay at a time when there remained a real possibility Israel might need to take military action against Iran. To a mix of consternation and anger among many Labor colleagues, I ended up taking what seemed to me the only realistic option. In January 2011, I left the Labor Party. With three other of our ministers in the government who were, of course, aware of the ongoing Iran discussions I set up a new centrist, Zionist party called Ha Atzmaut, or Independence. We remained in Bibi s government. My main focus was now on the Americans. In order to secure the international legitimacy any Israeli attack required, we had to win at least their understanding that we might feel it necessary to act. Fortunately, I had built up a good relationship with the key figures in the Obama administration. That had not always been easy, given the tension between the Americans and Bibi. That wasn t just because of the deadlock in the peace process, still a priority for President Obama. There were other complications. Ever since the initial pressure for a settlement freeze, right-wing politicians and commentators, and Bibi himself, had taken to portraying President Obama as fundamentally unsympathetic to Israel. After the Republicans victory in the mid-term Congressional elections in November 2010, Bibi went a step further. He began cozying up to congressmen and senators on the other side of the aisle. This overt meddling in the internal politics of our closest ally was not just a breach of longstanding tradition, but of common sense. Members of the Administration began privately calling Bibi the Republican senator from Rechavia a reference to the Jerusalem neighborhood where the Prime Minister s residence was located. 420 BARAK 135 Yet especially with my main points of contact in the administration first Bob Gates and then his successor, Leon Panetta, as Secretary of Defense our broadly shared views, mutual respect, and the strength of the US-Israeli alliance outweighed any of that. Neither they, nor indeed President Obama, wavered from their commitment to the principle that Israel needed to retain our qualitative military advantage over any combination of threats we might face, nor to the 3 billion package of annual US aid that underpinned it. We were even able to agree on additional US backing for our increasingly effective range of anti-missile systems: the Arrow, against long-range ballistic missiles, developed in coordination with the US defense contractor Raytheon; David s Sling, to target enemy forces mid-range missiles, cruise missiles and aircraft; and our new Iron Dome system, integrating sophisticated Israeli radar and guidance technology and designed to deal with the missile threat from Hizbollah on our northern border and Hamas in Gaza. It had not yet been used in battle. But from test firings, we were confident it could destroy incoming rockets with nearly 90-per-cent success. By late 2011, the issue of Iran had taken on much greater urgency. There was still no sign the American-led diplomatic efforts were succeeding in removing the nuclear threat. As for an American military strike, though the President intermittently declared that all options remained on the table, I knew from senior administration members that it was extremely unlikely to happen. Iran, meanwhile, had been acquiring thousands more centrifuges, more uranium, and heavier protection around its key sites. And the window of vulnerability was now only about a year away. Operationally and politically, at least now a majority of the key players in Israel agreed that we had to be prepared to take military action if there was no alternative way to rein in the Iranians. Ashkenazi s successor as chief-of-staff, Benny Gantz, had signed off on the attack plan. While the Iranians were getting ever closer to nuclear-weapons capability, the strike force that we were assembling was also better equipped, trained and prepared to mount a complex, yet almost certainly successful, operation. The damage to Iran s nuclear ambitions would be considerably less than if we had acted earlier. But our intelligence analysts still estimated we could set back the Iranians program by about two years. The immediate problem turned out to be timing. A major joint military exercise with the Americans, agreed on two years earlier, was due to take place in Israel in April 2012. It would include Patriot missile batteries, naval vessels, and thousands 421 BARAK 136 of uniformed US personnel. The focus was, of all things, on defense against a missile attack from Iran. I contacted Leon Panetta to see whether we could delay it. The official reason cited by the Americans, when they agreed to do it, did have the merit of being true: that Bibi was coming under pressure to shift our budgetary priorities away from defense toward social and economic issues. But Panetta understood that my request for a delay meant we were at least considering military action. He also realized that if we did launch an attack, it was in the Americans own interest for their troops be as far away from Israel as possible. We agreed to reschedule the exercise for October 2012. That meant that if we did decide to attack, we d have until well into September, when significant numbers of US troops would begin arriving. As we weighed our final decision, I held a series of high-level meetings in Washington: with Panetta, national security adviser Tom Donilon, Hillary Clinton, and President Obama himself. Though not explicitly saying we were ready to attack, I left no doubt that we were seriously considering it, and explained the reasons we believed our country s fundamental security interests might make it necessary. The message from all of the Americans I met was that the administration shared our basic goal: to prevent, or at least seriously impair, Iran s drive to get a nuclear bomb. But they continued to believe that non-military pressure was the best way to do it. The Americans knew we were skeptical that the non-military route would work, and that we were deeply worried about the implications of not taking military action if it failed. I discussed our thinking and, in general terms, our plans in my meetings with Panetta. He already had a pretty good idea of the broad contours of what we were contemplating, since US radar systems and electronic intercepts had been recording the volume and nature of air force exercises we d been conducting over recent months. Leon and I had by now got to know each other well, having first met when he was in charge of the CIA at the start of the Obama administration. In one of our early meetings at CIA headquarters in Langley, there had been a small bunch of grapes on his desk and I plucked a few in my mouth with obvious enjoyment. Now, at the Pentagon, he had a big bowlful ready whenever we met. The fact that he opposed an Israeli military operation made him no less of a pleasure to deal with. He was unfailingly calm and even tempered. He had an encyclopedic grasp of issues of defense, intelligence, budgets and policy. He was always rock-solid in America s commitments to Israel. It s worth 422 BARAK 137 remembering that, in spite of Israel s insistence from 1948 onward that we would never ask others to do our fighting for us, even as Leon and I were meeting, US radar operators were working around the clock to provide us with early warning against any incoming Iranian missiles. Patriot batteries were ready to deploy in Israel within 72 hours of any attack. AEGIS naval vessels were within 96 hours of our shores, to reinforce Israel s Arrow missile defense system with sea-launched weapons. Panetta made no secret of the fact he didn t want us to launch a military strike, effectively killing off the many months of intensive work the Americans had devoted to building international political and economic pressure on the Iranians. He urged me to think twice, three times, before going down that road. But he recognized that Israel would be affected far more dramatically by a nuclear Iran. It s your conflict. It s your neighborhood, he said. At one point, he asked me outright: If you do decide to attack the Iranian facilities, when will we know? I told him we couldn t give him more than a few hours notice. Otherwise, the Americans would have to alert their bases in the Gulf, and worldwide. That might well put Iran on guard before our operation was launched. But I did recognize our responsibility not to leave the Americans in the dark, not only because they were a key ally but because their own military and naval personnel might be at risk from any Iranian retaliation. We know your command-post deployment and the communications protocols with your forces, I told him. We ll make sure you have enough time to tell your people, I said. We won t endanger a single American life, any of your positions or your personnel. My most important meeting was with the President. Though I knew him less well than I did Panetta, we had met on a number of occasions. The first time was when he was still Senator Obama, on a visit to Israel during the 2008 presidential campaign. As Defense Minister, I escorted him to Sderot, the town in southern Israel bearing the brunt of Hamas rocket attacks from Gaza. Back in Jerusalem, we spent a half-hour talking in my office: about Iran. I argued that a nuclear Iran was a challenge not only for Israel and the Middle East, but for America, too. I urged him, if elected, to commission an early study of what the Iranians were seeking to do and what could be done to stop them either by diplomatic means or, if necessary, by force. Also, what the Iranians could, or more relevantly could not, do in response to an American or indeed an Israel attack, since our intelligence assessments suggested their options for retaliation would be fairly limited. Obama 423 BARAK 138 struck me from that first meeting as strong, cool-headed, highly intelligent and intensely cerebral. Though we didn t go into the details of the Iranian nuclear threat, he did talk at some length about the implications for the region, and about broader Middle Eastern security challenges. He displayed a grasp of the cultural and political nuances of an increasingly diverse and complex world that was more impressive than many of the other American political or military leaders whom I d met. When he and I now returned to the issue of Iran, in the White House, he had an undeniable command of the details of Iran s nuclear program, and of the American military options, should he choose to use them. He opened by summarizing the US position. He emphasized that his and our objective was the same: the keep Iran from developing a nuclear weapon. We were already cooperating to achieve that, for instance through cyber-attacks to slow down the nuclear program. The difference, he said, was that Israeli leaders seemed to feel an urgent need to reach a decision on military action. In Obama s view, such a move would be both premature and potentially harmful to the coalition he d helped assemble to exert diplomatic and economic pressure on Iran. Maybe you had to be an Israeli truly to understand our urgency about Iran. In the early years of the state, the explanation we gave for our preoccupation with security our near-obsession, as some non-Israelis saw it was that we were surrounded by Arab countries pledged not just to defeat us, but erase us from the map. Egypt or Syria, Jordan or Iraq, could afford to lose an Arab-Israeli war. Israel s first defeat, however, would be its last. That picture had changed dramatically over the decades. We no longer had to worry about the prospect of losing a war. The qualitative edge we possessed over all enemy armies in the region ensured that. As Israel s chief of staff, Prime Minister, and now Defense Minister, I had made it a major priority to safeguard that advantage, not just through our alliance with the US but with the remarkable domestic resources we possessed in military engineering, manufacturing, design, invention and high-tech. But the new-order challenge represented by Iran was not just theoretical or academic. Though we had a policy of not commenting on on our own nuclear status, it was widely assumed in the Arab world and internationally that Israel had, at the very least, the capacity to manufacture nuclear weapons. But whatever nuclear capability we might possess was for deterrence. Even when threatened with conventional defeat, however briefly, in the Yom Kippur War of 1973, it is 424 BARAK 139 worth noting that the conflict remained conventional. Iran was different. Only the most na ve observer would exclude the possibility that if the Iranians did get a nuclear weapon, they might use it. And even if they didn t, the entire strategic picture would change, with the need to find a response not just to a nuclear Iran, but potentially a nuclear Egypt, Saudi Arabia and Turkey. I was not about to lecture President Obama on this. While Bibi liked to portray him variously as weak, na ve or tone-deaf to interests and security of Israel, I knew from our previous meetings that he was none of these things. Yet I did, in a deliberately non-didactic way, raise the issue of our different perspectives on the Iranians getting nuclear arms. You see it in the context of the whole world, I told the President. If Iran, in spite of all our efforts, gets a nuclear weapon, yes, it will be bad. But for you, it s just one more nuclear state. It won t dramatically change the situation for America. For us, it can turn into a real, existential threat. He agreed that we inevitably looked at the situation differently. But after pausing a few seconds, he said: Ehud, think of it this way. You get to school in the morning and there s this big, nasty bully. You can take him on, maybe give him a black eye. But you have this bigger, stronger friend, who can knock him out cold. The only problem is that your friend won t be there until the afternoon. I would have liked nothing more than to wait for our bigger, stronger friend, especially since I knew through my contacts in the American military and intelligence establishment how much bigger and stronger an American attack would be. During the first couple of years that Israel was working on acquiring the capability for a military strike, the Americans had been no more ready than we were. They did have the tanker aircraft and the heavy bombs. But their plan a kind of Iraq-style shock and awe was so obviously prone to lead to a wider conflict that it would never have received the go-ahead from President Obama, or probably any president. I used to joke with colleagues in the Pentagon that while Israel s idea of a surgical operation was the equivalent of a scalpel, they seemed to favor a chisel and a ten-pound hammer. By the time I met the President in 2012, that had changed. Under Gates and then Panetta, an intensive research-anddevelopment effort and enormously improved planning and training had yielded results. The Americans now had high-precision heavy munitions we couldn t dream of, and stealth air-attack capabilities we also lacked. They had an operational plan which, within a period of hours, could push the Iranian nuclear 425 BARAK 140 program back by years. And even if the Iranians knew it was coming, they d be able to do nothing to stop it. Our problem, Mr, President, I said, is that we can t be sure our friend will show up. Since Iran is already very nearly in a zone of immunity against an Israeli attack, we can t afford to wait until the afternoon. By then, with our capabilities, we won t even be able to give the bully a black eye. I said I trusted what he d just told me. I m sure it genuinely reflects your intentions now. But there are no futures contracts in statesmanship. There s no way that you, or any leader, can commit yourself to what will happen in a year or two. When the moment of decision arrives, nothing will be able to free you from the responsibility to look at the situation as it is then, with American interests in mind. He accepted the point. But he reiterated his view that kinetic action US security-speak for a military strike would not only remove his ability to exhaust the non-military alternatives. He said it wouldn t be in Israel s interests, either. We hear that even people high up in your military, in military intelligence and the Mossad, are against it. That, I couldn t deny. We highly respect our top people in the military, and in intelligence. We make a point of listening to them before taking action, I said. But here s the difference. When they look up, they see Netanyahu, or me. When Bibi and I look up, we see heaven. Whoever is up there, we clearly can t go to them for advice. We are responsible for Israel s security. The president smiled, but brought the discussion back down to earth. When he again urged us to consider the American position in any decision, I replied: Mr President, I feel compelled to tell you frankly how I see the situation. We highly appreciate, and are grateful, that America supports Israel in so many ways. I believe we re doing our best to support American interests in the Middle East as well. But when it comes to issues critical for the security and future of Israel, and in a way for the future of the Jewish people, we can t afford to delegate responsibility even to our best friend and ally. When we face such situations, we have to decide on our own, and act on our decisions. I would expect the United States, and you as its president, to respect that position. He did not seem especially happy with what I d said. But he showed no anger. Though we differed, it was clear that he understood and respected our position. In any case, I believed it 426 BARAK 141 was important to convey to him honestly, face-to-face, where Israel stood on Iran. Or at least where I stood. With our joint exercises pushed back until the fall, the logical time for us to attack was the summer of 2012, when the atmospheric and weather conditions were optimal. Operationally, everything was ready. Politically, those ministers who were against military action had not changed their minds. If anything, they seemed more strongly opposed. Ironically, they now argued that because we d waited so long, the Iranians were too close to their window of immunity. Even some senior members of the military and security establishment, though in agreement over the technical aspects of the attack plan, retained political reservations. But as I d told President Obama, now that we had the operational support of the military and intelligence professionals, the decision in effect rested with Bibi and me. The fact we were ready to go ahead in those circumstances was not unprecedented. When Menachem Begin ordered the bombing of Saddam Hussein s nuclear reactor in 1981, he had acted against the advice of the then-heads of both the Mossad and military intelligence, the chairman of our nuclear energy commission, and of Shimon Peres, who was head of the Labor opposition. But as we neared our final, formal decision, we were forced into another delay. In the summer of 2012, an unrelated flare-up of tensions in the Gulf caused Iran and several of its neighbors to place their forces on heightened alert. Though the peak-alert phase passed quickly, Iran s military was still not back on a fully normal footing by the start of September, and when small American advance teams began arriving for the joint exercises, Iran s alert level went up again. Technically, we could still have gone ahead with the attack. In all probability, it would still have succeeded, setting back the Iranians program by at least a year and, depending on how quickly they could rebuild and resupply clandestinely abroad, perhaps for significantly longer. But as more and more American soldiers and sailors arrived, I finally decided against an Israeli strike not because I doubted the damage it would do to Iran s nuclear efforts, but because of the damage it would surely do to our ties with the 427 BARAK 142 US. No matter how we might explain our attack, with the joint exercises soon to begin, it would come over as a deliberate attempt to implicate our most important ally in a potential conflict with Iran, against the explicit wishes of President Obama. I felt this even more strongly when, a few weeks later, I was contacted by one of Bibi s close political allies. He sounded me out on the possibility of launching our strike against Iran after the joint exercise: barely two weeks before the 2012 US election. Politically, he argued, Obama would then feel compelled to support Israel s action, or at the very least to refrain from criticizing it. In other words, we would be setting a political trap for the President of the United States. I couldn t quite believe he was suggesting it. But my reply to this last-gasp suggestion of a way for us to attack the Iranian sites required no hesitation, and only two words: No way. Bibi would have known I would oppose such a ploy. But as with so much else in the years I spent in his government, I think it was the politics of the scheme, more than the substance, that enticed him. Almost everything he did seemed increasingly about creating a kind of grand narrative to secure his position on the right, solidifying a base which he figured would sustain him in office. At its core, the narrative presented a picture of vulnerability and victimhood: a kind of fortress Israel threatened by terror, missiles on its northern and southern borders, and now potential nuclear annihilation from Iran, while our main ally, the United States, was under the sway of a President who neither understood nor fundamentally supported us. In day-to-day policy terms, this allowed Bibi to insist we couldn t risk serious engagement with the Palestinians. On domestic issues as well, like the widening gap between those at the top of our high-tech economy and a painfully squeezed middle class, the sense of crisis he encouraged gave him license to hunker down, warn of impending doom, and do virtually nothing. Effective though the narrative was for him politically, it bore no resemblance to reality. Yes, President Obama disagreed with us on issues of policy, both the peace process and on how to deal with Iran. But he was unquestionably committed to America s alliance with Israel. I had dealt face-to-face with four US presidents: both of the Bushes, President Clinton and now President Obama. In terms of Israeli security, none had proved as consistently supportive and helpful as Obama. And yes, Israel did face an array of security challenges. A nuclear-armed Iran would undeniably make things worse. But far from being under existential threat, we 428 BARAK 143 were a regional superpower, with a military as effective as any in the world, and a high-tech economic sector justifiably compared to Silicon Valley. Every few weeks, Bibi, Lieberman and I would meet for a wide-ranging discussion on the patio of the Prime Minister s residence. Shortly after we d abandoned the idea of a military strike, I raised head-on my objections to the skewed image Bibi was promoting of our country. It wasn t just inaccurate, I said. Especially when his rhetoric was in full flight, and he compared the prospect of a nuclear Iran to a new Holocaust, it struck me as a betrayal of the core tenet of Zionism: an state in which Jews were in control of their own destiny. We are in that position now, I said. It was nonsensical to argue we were so threatened by everything around us, for instance, that we couldn t risk taking the initiative required to disentangle ourselves from the Palestinians on the West Bank. I don t get you, I said, turning to Lieberman as well. Your rhetoric suggests you have spines of steel. But your behavior is living proof of the old saying that it s easier to take Jews out of the galut, than take the galut out of the Jews. Galut is Hebrew for the diaspora. The whole Zionist project was based on the idea of taking our fate into our own hands, and actively trying to change the reality around us. But you behave as if we never left the galut. You re mired in a mindset of pessimism, passivity and anxiety, which in terms of policy or action, leads to paralysis. Of course, there are risks in any action, or any policy initiative. But in the situation where Israel finds itself, the biggest risk of all is being unable or unwilling to take risks, as if we somehow on the brink of destruction. I was especially upset by Bibi s increasingly use of Holocaust imagery. Just think of what you re saying, I told him. You re Prime Minister of the State of Israel, not a rabbi in a shtetl, or a speaker trying to raise funds for Israel abroad. Think of the implications. We re not in Europe in 1937. Or 1947. If it is a Holocaust, what s our response: to fold up and go back to the diaspora? If Iran gets a bomb, it ll be bad. Very bad. But we ll still be here. And we ll find a way of dealing with the new reality. Yet fortress Israel was irresistibly comfortable for Bibi politically. I now had to accept that, while he and I had known each other for more than half-a-century, nothing I could do or say was going to change that. With the next Israeli election months away, in January 2013, I confided to Nili, and then to my closest aides, that I was not going to run for a seat in the Knesset. Israeli military action against Iran 429 BARAK 144 was off the agenda. The diplomatic process with the Palestinians was stalemated. I could see no point in remaining in the government. Like my last period in Olmert s government, my final few months were dominated by finding a way to end Hamas attacks from Gaza. During one 24-hour period in November, Hamas launched more than 100 rockets at towns in the south, while also attacking two military units across the border. Especially since our military response would be the last during my time as Defense Minister, I was determined that, this time, it would have a strictly defined objective and a finite time frame. The overall objective hadn t changed since Olmert s premiership: to hit Hamas hard, bring down the number of rocket attacks to as near zero as possible, and reach an agreement, through the Egyptians, which established a period of calm on our border for as long as we could. Bibi s victimhood narrative notwithstanding, one aspect of the military balance in the south was now dramatically different. With my backing as Defense Minister, we now had Iron Dome, which I was confident would help deal with the inevitable shower of Hamas rockets that would follow our initial attack. Again, I felt it was essential to start with a quick, unexpected, damaging first strike. Then, through sustained air bombardment, to keep up enough pressure to secure the political arrangement we wanted. And, unlike under Olmert, to end the operation as soon as we d achieved its aim. On the afternoon of November 14, we launched a targeted air strike on Hamas s de facto chief of staff, Ahmed Jabari. We d gone after Jabari in the past but, for one reason or another, had failed. We also hit nearly two dozen other Hamas targets, including all of the main missile sites we had identified. The whole operation lasted a week. Hamas fired nearly 1,500 rockets into Israel, not just locally manufactured Qassems but longer-range Iranian Fajr-5s and Russian Grads. For the first time since the 1991 Gulf war, several were targeted at Tel Aviv and Jerusalem. Fortunately, they were not significantly more accurate than in the past. More than half landed in fields or orchards. And with Iron Dome deployed around our major towns and cities, more than 80 per cent were intercepted. We hit nearly 1,500 targets over the seven-day period, mostly launch-pads, Hamas government installations and weapons stores, but also a number of apartment complexes being used by Hamas as bases or firing points. Bibi rightly pointed out that we were forced to fight a fundamentally asymmetric battle. While Israel began with the principle of directing our fire away from civilian areas, 430 BARAK 145 Hamas based its launchers in precisely those places. So it was not easy. At one point, we announced a call-up of reserves. We hinted at a possible ground incursion. But both Bibi and I knew we were going to avoid that if at all possible, and we did. Though there were inevitable civilian casualties, most of the Palestinians killed were Hamas fighters and leaders, including not just Jabari but the head of Hamas s rocket program. By limiting ourselves to air strikes and naval fire, the Palestinian death toll was around 150, about one-tenth of what it had been in 2008. Six Israelis, including four civilians, lost their lives. On the 21 st of November, the cease-fire was announced. Yet with the election approaching, and my time in public life drawing to a close, I had no illusion that this latest military operation, or future ones, would bring us closer to the negotiating peace with the Palestinians that had eluded us since Oslo. Nor was I confident that, having been unable to mount a military strike of our own on Iran, Obama s bigger, stronger kid in the schoolyard would take military action. I did trust him to do all he could to use diplomacy to constrain Iran s efforts to get a bomb. I feared he might fail. Even if he succeeded, I figured the best case would be an agreement that, at least on paper, delayed the Iranians development of a weapon. My hope remained that Israel s relationship with the Americans would be sufficiently strong for us to reach a formal understanding of what form of surgical military strike each of our countries might take if Iran didn t honor the terms of a negotiated deal. When I first left political life after my election defeat in 2001, I d described my status as the equivalent of a reserve officer. I said, and believed, it was unlikely I d return for the foreseeable future. But I knew it wasn t impossible. This time was different. When I announced publicly that I was leaving politics, five days after the Gaza cease-fire, I pointed that I had spent the greater part of my life as a soldier. I d never had a burning desire to be a politician. Though I believed that what I d attempted, and achieved, in government would prove to have safeguarded and strengthened Israel, I knew that important challenges and decisions still lay ahead. So did our unfulfilled dream of being a country that was not just strong, secure and prosperous, but socially just and at peace. Yet I believed it was right to draw my time on the front line of politics to an end. Though I didn t say so, I thought to myself: this time doesn t feel like a step back into the reserves, but genuinely like the end of something. Though my dedication to a secure, strong, just, democratic and ultimately peaceful Israel would not change, whatever contribution I might 431 BARAK 146 make to our getting there would no longer be on the battlefield, in the kirya or around the cabinet table. As a number of reporters pointed out, when I made the announcement I was relaxed. I looked content, and I was smiling. 432 |
Importance: High Let's do a men of the world conference. Kevin spacey Bill Clinton Al franken Woody Allen Lawrence M. Krauss Director, The Origins Project at ASU Foundation Professor School of Earth Space Exploration and Physics Department Arizona State University, P.O. Box 871404. Tempe. AZ 85287-1404 origins.asu.edu I twitter.comilkraussl I krauss.faculty.asu.edu Sent from my iPhone On Apr 5, 2018, at 2:04 PM, Lawrence Krauss Enjoy. Lawrence M. Krauss Director, The Origins Project at ASU Foundation Professor School of Earth Space Exploration and Physics Department Arizona State University, P.O. Box 871404, Tempe, AZ 85287-1404 origins.asu.edu I twitter.comilkraussl I krauss.faculty.asu.edu Sent from my iPhone wrote: On Apr 5, 2018, at 1:41 PM, jeffrey E. jeevacation gmail.com wrote: The Women in the World Summit opens April 12 and runs through April 14 with a power packed agenda of remarkable female newsmakers sharing their stories of male misbehaviors. Confidential agenda enclosed here. Full list of participants below. Afrah Nasser Alyse Nelson Ambra Gutierrez Andrea Mitchell Asia Argento Astrid Cantor Athena Jones Barbara Lynch Bianna Golodryga Bushra Aldukhainah Carmen Rita Wong Carrie Gracie First Lady Chirlane McCray Christa Quarles Cindi Leive Cynthia McFadden Dambisa Moyo Danya Sherman Dara Khosrowshahi Delaney Tarr Dominique Crenn Diane von Furstenberg Ece Temelkuran Emily Kennedy Eva Lewis Federica Davila Dr. Fozia Alvi Gillian Tett Harris Faulkner Hillary Clinton Holly Harris Jacquelyn Birdsall Jameela Jamil Janis McGrory Jennifer Rademaker Joanna Coles Joy Nash Joy-Ann Reid Juju Chang Julianna Margulies Katie Couric Katy Tur Karen Minkel Senator Kirsten Gillibrand President Laura Boldrini Laura Wasser Leah Busque Leila Hoteit Lesley Stahl Leymah Gbowee Senator Lisa Murkowski Madeleine Habib Margaret Atwood Markus Strobel Marti Noxon Maxeme Tuchman Maye Musk Melissa Arnoldi Michaela Angela Davis Michelle Goldberg Mindy Grossman Misty Copeland Naomi Wadler Nicholas Kristof, honorary female Norah O'Donnell Patricia Evangelista Paula Polito Perri Peltz Robin Roberts Ronan Farrow, honorary female Rula Jebreal Sade Baderinwa Sally Yates Sam Jayaraman Sheila Nevins Sophie Gregoire Trudeau Stephanie Mehta Sunitha Krishnan Dr. Suzanne Barakat Tamara Chergoleishvili Terry Crews Topeka Sam Viola Davis Yevgenia Albats Zainab Salbi Tina Brown I Founder and CEO Tina Brown Live Media Women in the World please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to jeevacation gmail.com, and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved |
El IN THE CIRCUIT COURT OF THE ELEVENTH JUDICIAL CIRCUIT IN AND FOR MIAMI-DADE COUNTY, FLORIDA. III IN THE COUNTY COURT IN AND FOR MIAMI-DADE COUNTY, FLORIDA. DIVISION 2 CIVIL IN DISTRICTS OTHER CIVIL ACTION SUMMONS (b) Form for Personal Service on a Natural Person CASE NUMBER 14021348CA01 PLAINTIFF(S) JEAN-LUC BRUNEL VS. DEFENDANT(S) JEFFREY EPSTEIN, TYLER MCDONALD, TYLER MCDONALD D B A YI.ORG CLOCK IN THE STATE OF FLORIDA:TO EACH SHERIFF OF THE STATE, YOU ARE COMMANDED to serve this Summons and a copy of the Cotr4taint this lawsuit on defendant: in To Defendant(s): JEFFREY EPSTEIN Address: -1., , IMPORTANT A lawsuit has been tiled against you. You have 20 calendar days after this summons is served on you to file a written response to attached complaint with the derk of this courL A phone call will not protect you.Yrxr written response, including the cose number given above and the names of the parties must be filed if you want the CODA to hear your side of the C.8541. If you de not filer your resporM time, you may lose the case, and your wages, money and properly may thereafter be taken without further warning from the Court. There are other legal requirements. You may want to call an attorney right away. if you do not know an attorney, you may call an attorney reierral service or a legal aid office (listed in the phone book). If you choose to file a written response yourself, at the same time you file your written response with the Clerk of the Court you must mail or take a copy of your written response to the "P(aintiff Plaintiffs Attorney' named below. The central location of the Clerk's office at the Dade County Courthouse. The address for the courthouse, and branch locations are listed below for your comenience: DADE COUNTY COURT LOCATIONS the on also is EiDade County Couitbouss (06) I Joseph Caleb Cantle- (20) 0 Notth Dade Justice Cordes (23) Room 133 Room 103 Room 100 73 Watt Hagler Street 5400 NW 22 Avenue 15555 Biscayne BM . Miami, Florida 33130 Warm, Florida 33142 North allarri Beach. Flottda 33160 ElMimi Beach District Court (24) In Corti Gabtas District Court (25) II South Dade Justice Center (26) Room 200 Room 100 Room 1200 1130 Washington Amosie 3100 Pono: De Lem BIM 10710 SW 211 Stnied Miami Beach, Florida 33133 Coral Gables, Floricia 23134 WA Honda 331 10 II Hialeah District (21) Room 100 11 East 61h areal Hialeah. Florida 33010 SERVICE Plaintiff Plaintiff Attorney JOE TITONE Florida Bar No. 203882 Address: 621 S.E. 5TH STREET, POMPANO BEACH, FL 33060 HARVEY RUVIN CLERK OF COURTS VIVRA Sikilumt: ir BY: , DATE ON: 1E6 0 0 2015 DEPUTY CLERK AMERICANS WITH DISABILITIES ACT OF 1990 ADA NOTICE "If you are a person with a disability who needs any accommodation in order participate in this proceeding, you are entitled, at no cost to you, to the provision certain assistance. Please contact the Eleventh Judicial Circuit Court's ADA Coordinator, Lawson E. Thomas Courthouse Center, 175 NW 1st Ave., Suite 2702, Miami, FL 33128, Telephone (305) 349-7175; TDD (305) 349-7174, Fax (305) 349-7355 at least 7 days before your scheduled court appearance, or immediately upon receiving this notification time before the scheduled appearance is less than 7 days; if you are hearing or impaired, call 711." to of if the voice CLIC CT. 070 Rev. 11111 Cleric's limb address: meat. D EN LA CORTE DE CIRCUIT DEL UNDECIMO CIRCUIT JUDICIAL EN Y PARA EL CONDADO DE MIAMI-DADE, LA FLORIDA. 0 EN EL TRIBUNAL DEL CONDADO EN Y PARA EL CONDADO MIAMI-DADE, LA FLORIDA. DIVISION DI CIVIL L OTRA EMPLAZAMIENTO DE ACCION CIVIL (b) NOTIFICACION PERSONAL A PERSONA NATURAL NUMERO DE CASO DEMANDANTE(S) VS. DEMANDADO(S) HORA A Demandado(s): Direccion: listed ha sido demanded legalmente. Tbene 20 dias, escrito, y presentarla ante este tribunal. Una LIamada presenter SU respuesta por esaito, induyendo el numero tiempo, pudiese peeler el caso pordria ser despojado Existen otros regtisitos legates. Si lo desea. poade una de (as oficinas de asistencia legal (Legal Aid Is guia telefonica. SI desea responder a la dementia por su cueeta, al o entregar en la mane una copia de SU respuesta a Demandante) y presenter su contestadon a la domande edificio de la Code del Candado de Dade. La direccion LOCAL1DAD CI Dade County Courthouse (05) 0 Joaeph Caleb Room 133 Roue 103 73 Weal Flagler Street 540 NW 22 hitiorni, Rcrioa 3313D Miami, Florida 1:1 kbarrd Eleach Cestrict Court (24) 0 c.aki oatkii Room 200 Room 100 1130 Washington Avenue 3100 Ponce MAarn1 Beath, Florida 33139 Cm( Galslea. IMPORTANTE contester la demanda adj crinsidere su defense, Sl usted no contests la denanda sin previo aviso del a un abogado, puede Referral Service) que aparIcen debera usted envier ofir (Demandante o Ahmed la Mina del Secretario elta para su convenienci2: El Walsall Dtatrict (21) Room 100 11 Bost 6th Street Hialeah, Hondo 33010 nia, por debe a tribunal. Ikamar a en correo del en el cordados a partir del recibo de este notification, para leiefonica no lo protegera. Si usted desea que el tribunal del caso y los noinbres de Las partes irderesadas. de sus ingresos y propiedades, o privado de sus denachos, usted consulter a un abogado inmediatamente. Si no conoce Office) o tin servicio de referenda de abogados (Attorney misrno liampo en que presents SU respuesta ante el tribunal, la persona denominada at) como 'Plaintiff Plaintiffs Attorney" al Secretario del Juzgado. La tibial:ion central de de ta Code, y de (as sucursales aparecen en la Lists siguiente DE LOS 71IBUNALES DEL CONDADO DE DADE Career (20) 0 kWh Dade Judio5 Clatter (23) Room 100 Avenue 15555 Biscayne Elhod. 33142 North Marra Beach, Floeda 33150 District Cowl as 0 South Dade Justine Center (25) Room 1200 De Lem PM. 10710 SW 211 Street Fi011112 33134 Mama, Florida 331E19 Dernandante c Abogado del Demandante Numen3 del Colegio de Abogados: Direccion: EL ESTADO DE LA FLORIDA: A cada alguacil del Estado: Se le ordena que hagen entrega de esta nolificacion y u copia de la demanda en este pied at tlemandatio(s) mencionada arriba. la HARVEY RUVIN Secreted del Tribunal del Condado POR: FECHA GornoSecretario Adjunto Ley para Estadounidenses con Incapacidades "Si usted es una persona minusvalida gue necesita bacer arreglos para poder participar en este proceso, usted tiene derecho, sin gasto alguno, a que se le provea cierta apda. Por favor pong ase en contacto con el Coordinador de ADA en el Onceavo Distrito Judicial uhicado en el Lawson E. Thomas Courthouse Center, 175 NW 1st Ave. 2702, Miami Fl 33128, Telefonos (305)349-7175; TDD (305) 349-7174, Fax (305) 349-7355 por lo menos 7 dias antes de la cita fijada para su comparecencia en los tribunales; inmediatamente despues de recibir esta notificacion si el tiempo antes comparecencia que se ha programado es menos de 7 dias; si usted tiene discapacitacion del oido o de la voz, llame al 711." Sala o de la CLK CT. 070 Rev 11111 Clerk'es web cellintss: Ninny. U AU TRIBUNAL DU ONZIEME ARRONDISSEMENT JUDICIARE DANS ET POUR MIAMI-DADE, FLORIDE. 0 AU TRIBUNAL DE JUGEMENT Er POUR LE DEPARTENT DE MIAMI-DADE, FLORI DE. DIVISION CI CIVILE D AUTRE CONVOCARION (b) LIVRAI ON PERSONNELLE Cr ACTION CIVILE A UNE PERSONNE NUMERO DE CAS PLAINTE(S) VS. CONTRE ACCUSE(S) HEURE IN A (AUX) ACCUSE(S): ADRESSE: Des poursuites judiciaires ont ete enterprises contra citation pour deposer use response mite a La plainte protegee. Vous etas obliges de deposer votre response nommees ici, si VDUS souhailez qua ,:a tribunal entende risquez de perdre is cause sins' que vote sataire, tribunal. II y a d'autres obligations juridiques at vous vous pourriez telephoner a tin service reference cfavocats Si votts choisissez de deposer VOUS-Mellie UM reponse expedier une copte de votre reponse ecrite au PlairtifiPtairdirs reponse avec le Grafter du Tribunal. L'adresse l'adresse des succursales sort dans ci-dessous pour 0 Dade County Courthouse (05) 0 Joseph Czech Room 133 Room 103 73 Weal Flaglet Street 5400 NW 22 Miami, Florida 33130 Warr Ficrida El ktierni Beech Dtstrict Ccurt (24) 0 Corot Gables Room 200 Room 100 1130 Washington AVellie 3100 Ponce SAWN Beach. Florida 33139 CCIAI Gebtee, IMPORTANT la data de rassignation de est insoffisant pour ci-dessus at du nom des ecrite dans le relai requiS. suite, aucun preavis ulterle vous no connaissez pas d' rannuaire de telephones). cette formate, faire parvCnir ci-dessous at emegistrei L'adresse du trib 0 Htelesh District (21) Room 100 11 East 6th Street Hialeah, Flodde 33010 cede vous 3arties VOUS ur du vocal, ou votre nat,el VOUS. Vous ci-jointe ecrite, vote votre argent, pouvez requerir ou a ecrite, centrale du wire convenance avez 20 jours consecutifs a partir a de aupres de 03 Irthurtal. Ull SkT1010 coup de telephone ac mention du nurnero de dossier muse. Si vous no deposez pas aotre reponse at vos biens peuvent etre saisIs par La les services immedlats d'un avocet. Si tin bureau dessistance juridique (frgurard a it VOUS faudea egaternent, en memo temps qua Attorney (PlaignaM ou a son avocet) nomrne bureau du Craftier est le Dade County Courthouse. DES IRIBLINAUX EN DADE 0 North Dade Justice Center (23) Room 100 15.53 Biscayne Btvd. North Wand Broth, Florida 33160 (25) 0 South Dade .histice Center (26) Room 1200 10710 SW 211 Steel Wane, Ronde 33189 ADRESSES Cotter (20) Avenue 33142 District Court Be tem Stmt. Florida 33134 Plainte Avocat du Plainte Numero de barreau de la Floride: Adresse: LTAT DE LA FLORIDE A chaque sherff de retat vous etes oblige de presenter cette citation et une photocpie de la plainte ce document sur rarnuse (e) ci-desus. ie HARVEY RUVIN Greffier de Tribunal ' PAR: DATE ON: OOMVE GREFFER Af1101NE .. ACT DE 1990 POUR AMERICAINS HANDICAPES AVIS DE l' ADA "Si vous etes une personne handic,apee qui a besoin d'accommodement pour pouvoir participer a cette procedure, vous avez le droit, sans aucun coot, d'avoir de l'aide a disposition. S'il vous plait contacter le Coordinateur de l'ADA du Tribunal de l'OnYieme Circuit Judiciaire, Lawson E. Thomas Courthouse Center, 175 NW 1.3t Ave. Suite Miami, FL 33128, Telephone (305) 349-7175; TDD (305) 349-7174, Fax (305) 349-7355 moms 7 jours avant la date de comparution au tribunal, oubien immediatement avoir recu cet avis si la date avant la comparution est moms de 7 jours; si vous avez incapacite pour entendre ou parler, appelez le 711." votre 2702, au apres une CLKJCT. 070 Rev. 11 11 Cient's eth address: anew erk.com 0 NAN TRIBUNAL ONZYEM AWONDISMAN JIDISYE NAN E POU MIAMI-DADE COUNTY, FLORIDA. 0 NAN TRIBINAL E POU TRIBINAL NAN MIAMI-DADE COUNTY, FLORIDA. DIVIZYON El SIV1L 0 LOT KONVOKASYON POU KA SIVIL (b) DELIVRE PERSONELMAN BAY YON DAMN NIMEWO KA PLENTIF(S) VS. KONT AKIZE(S) LE AKIZE: ADRES: Yo entre yon aksyon kont oumeum. Ou genyen 20 jou grefie tribunal-sa, yon reponce pa ecri attache avec plent4a. ecrifo ou mete numero ka-a ki sou tet pagela avec nom position-0u cou ka-a. Si ou pa enregistre reponce-ou ou capab pedu l'agen ou ak byen ou. Genyen lot demande. avoka, ou ka rele sevis id rekomande evoke, ou biro ede Si ou shoisi voye yon reponce pa ecri oumenm, ou supose pa ecri pou avoka pleyan ou pleyan-yo ke non-li ama-a Tribinal. Adres santrat biwo Sekrete a se Dade County pou ou kaiwenn ye alez: MIRES TRIB1NAL 0 owe ccuity C,osethouse (05) CI Joseph Caleb Center (20) Room 133 Roam 103 73 West Ftagler Street 5400 NW 22 Avenue Warm, Ronda 33130 Ward, Florida 33142 Ell Miami Beech Distri:1 Cool (24) LI ower Saida Dielnct Court Room 200 Room 100 1130 Washington Avenue 3100 Porto De Loon 131,41 Mani Bomb, Floada 33135 Coral Gablex Florida 33134 En pou enregistre cevan Se yen repenite si ou vie ke tribunal-la la pa enounce-ou en de suit. Si ou pa !oriel on pote on copi response ki localize nan avek lot tribinal yo nan lis ki CI lilal DtstOot (21) Roam 100 11 Eest 6th Sliest 1-11sioa1i. Rod 33010 pa kende yen, yen kalandriye apres ou recevoi sornasyon-an Yon apei pa teleran ka kapab protege-ou. moune-yo ki sou papie-sa oblige ecri a l'heure ou capab pedu ke-a san tribunal Ou ka besoin telefone yon avoka tout legal (ki nun lis liv telefone). en mem Ian poste en mem tan poste et enregistre reponce-la nan tribunal-la Courthouse. Adres tribinal la, ak adres NAN DADE COUNTY El 1-4.111 Dade Justtos Genie (23) Room 100 15555 Btscayne Blvd. North tani Reach. Fltrittl 33160 (25) 0 South Dade Justice Center (76) Room 1200 10710 SW 21) Street Welt Ronda 33189 Plainta Avocat du Plainie Numero de barreau de la Floride: Nimewo manm avoka a. Address: ETA FLORIDA: Pou Chak nan eta a yo odone ou pou bay akize a (yo), non I ekri anwo a, manda sa a ak yon kopi yo pate an pwose sa a. HARVEY RUVIN Sekrete Jenemi Tribinal La BAY: DATE: SEKRETE LWA 1990 POU AMERIKEN KI ENFINI ANONS POU ANIERIKEN KI ENFINI "Si out se yon moun ki enfim e on bezwen akomodasyon pou on patisipe nan pwosei sa a, on gen dwa pou yo ba ou kek ed san on pa gen pou on peye. Silvouple ko 1 takte KowOdinate ADA pou Tribinal Onzyem Distrik Jidisye a nan: Lawson E. To omas Courthouse Center, 175 NW 1st Ave., Suite 2702, Miami, Fl 33128, Telefen (305 349- 7175; TDD (305) 349-7174, Fax (305) 349-7355 omwen 7 jou anvan on gen randevo pou on paret nan tribunal la, oubyen imedyatman le on resevwa notifikasyon sa a si o gen mwens ke 7 jou pou ou paret nan tribunal la; si on gen difikilte pou on tande o byen pale, rele 711." CU( CT. 070 Rev. 11 11 CiefleS web adriress: www.vgp erk.oam Filing 22956396 E-Filed 01 26 2015 12:26:55 PM IN THE ELEVENTH JUDICIAL CIRCUIT OF FLORIDA IN AND FOR DADE COUNTY, FLORIDA CIVIL DIVISION JEAN-LUC BRUNEL, individually, and MC2 MODEL TALENT MIAMI, LLC Civil Action No.: 14-21348 CA 01 Plaintiffs, VS. JEFFREY EPSTEIN, TYLER MCDONALD, TYLER MCDONALD D B A YI.ORG Defendants. AMENDED VERIFIED COMPLAINT FOR LEGAL EQUITABLE RELIEF AND DAMAGES COME NOW the Plaintiffs, Jean-Luc Brunel and MC2 Model Talent Miami, LLC, by and through undersigned counsel, and sues Defendants Jeffrey Epstein, Tyler McDonald, and Tyler McDonald d b a Yi.Org for legal relief, equitable relief and defamation, and states as follows: 1. Venue is proper in Dade County, Florida as Defendants Tyler McDonald and Tyler McDonald d b a Yi.Org do business in Dade County, Plaintiff Jean-Luc Brunel resides in Dade County, Florida, and Plaintiff MC2 Model Talent Miami, LLC, has an office in Dade County. The causes of action and damages against Defendant Jeffrey Epstein accrued in Dade County, Florida, due to specific acts by Epstein there, and accordingly, venue is appropriate there. Florida Statute 47.011. 2. Florida Statute 48.193(1)(a)(1) ("long-arm") authorizes service on both out-of-state Defendants (Tyler McDonald, and Tyler McDonald d b a Yi.Org). 1 3. Jurisdiction is proper in the Circuit Court as this action seeks relief in excess of fifteen- thousand dollars ( 15,000). FACTUAL ALLEGATIONS AS TO DEFENDANT JEFFREY EPSTEIN 4. Plaintiff Jean-Luc Brunel is the owner of Plaintiff modeling agency known as "MC2 Model Talent Miami" ("MC2"). MC2 began operations in October 2005 and has offices in New York, Miami, and Tel Aviv. 5. Defendant Jeffrey Epstein ("Epstein") is a hedge-fund manager with a residence in Palm Beach County, Florida. Defendant has been the subject of significant media coverage due to charges brought against him involving sexual contact with minors. (Composite Exhibit A attached). 6. Plaintiff Brunel and Epstein have known one another since the inception of Plaintiff MC2. 7. Plaintiff Brunel operated his modeling agency, Plaintiff MC2, without incident until Epstein was first charged in Palm Beach County with unlawful sexual contact with a minor in 2006. He was convicted of soliciting prostitution from a minor and sentenced to eighteen months in prison, of which he served thirteen months. He remains a registered sex offender in Florida as of this day. 8. First, after the initial criminal charges against Epstein were filed in Palm Beach County, Plaintiffs were widely implicated in the media as being "linked" to Epstein. These false stories caused both Plaintiffs a tremendous loss of business. 9. Plaintiffs lost multiple contacts and business in the modeling business as a direct result of Epstein's illegal actions. For example, several photographers will not work with MC2 due to the 2 adverse publicity surrounding Epstein and his illegal activities, and the publicity falsely linking Plaintiffs with those activities; namely, sex trafficking. (Composite Exhibit A). 10. One example of such a photographer was Michael Avedon, who worked with MC2 on photo shoots. Avedon stopped answering Plaintiffs' emails and phone calls after having known Plaintiff for some time. Upon meeting Avedon out one night, Avedon stated to Plaintiff Brunel he had "found out some information" from some friends of his and that he could not associate his name with MC2. 11. This statement by Avedon was no doubt a reference to the alleged and false links between Plaintiffs and Epstein's illegal activities with under-aged girls. This incident clearly illustrates an example of lost business on Plaintiffs' behalf. 12. The second example of a business relationship that was terminated due to Epstein's intentional and illegal activities was a very recent one, involving an overseas agency, Modilinos Model Agency. The owner stated that the model to be placed with MC2 "found some article in Internet, which changed her position and she preferred to be placed with another agency." This was relayed to Plaintiff Brunel by e-mail dated October 15, 2014. This amply demonstrates that Epstein's intentional illegal activities continue to cost Plaintiffs' business income. (Exhibit B attached). 13. A third example of a lost business relationship can be found in an e-mail dated October 17, 2014 (Exhibit C attached). The director of the 1 Mother Agency, Vladmir Yudashkin, states that a specific model will not sign with Plaintiff MC2 due to her fear that Plaintiffs' will force her into illegal activities. The model bases her fears upon the stories on the intemet falsely implicating Plaintiffs as being involved with illegal activities with young models. This is 3 another example of a false link between Epstein and Plaintiffs, costing Plaintiffs' business income. 14. A fourth example of a lost business relationship can be found in a second e-mail dated October 17, 2014 (Exhibit D attached). Manuela Martinez of Mega Partners, a Brazilian modeling agency, states to Plaintiff Brunel that her agency has been unable to work with Plaintiff MC2 for the past five to six years because of the sex trafficking allegations against Plaintiffs. This reference is clearly to the false allegations online regarding sex trafficking that were based in the false link between Epstein and Plaintiffs. 15. A fifth example of a lost business relationship can be found in an e-mail dated on Plaintiff's behalf was an e-mail dated August 27, 2010 from Michelle Stockman of Agence France Presse. (Exhibit E attached). Agence France Presse is a newswire service with a world- wide reach. Stockman wanted to meet with Plaintiff Brunel to arrange a model shoot with MC2. However, due to the adverse publicity surrounding Plaintiffs as a result of Epstein's illegal activities, Plaintiff Brunel was forced to forego (and lose) this business opportunity because he needed to keep a low-profile at this time. 16. A sixth example of lost business due to Epstein's intentional and illegal activities can be found in an e-mail dated December 12, 2014. (Exhibit F attached). Michael Sanka, a talent scout who had worked with Plaintiffs for a number of years, informed Plaintiff Brunel that he cannot sign any new models for Plaintiff Brunel's MC2 agency due to the false sex trafficking allegations online. Sanka goes on to state that Plaintiff Brunel's MC2 agency will not attract any new models if Plaintiff Brunel does not clear up the false allegations. 17. A seventh example of lost business due to Epstein's intentional and illegal activities can be found in an e-mail from Fox Fashion Agency (Exhibit G attached). This e-mail clearly states 4 that Fox has placed models with Plaintiff MC2 in the past with absolutely no problems. However, because of the false internet trafficking links between Plaintiffs and Epstein, Fox states that it cannot place anymore models with Plaintiff MC2 until the allegations are cleared up. 18. Before the false links between Plaintiff and Epstein surfaced, Plaintiff Brunel was earning a great deal of revenue from MC2 Miami. 19. The false links between Plaintiffs and Epstein began to surface online in about 2005- 2006. Then, in 2006, Plaintiffs received a letter of credit from Epstein at 5 interest. Plaintiffs then made an investment totaling one-million dollars with Elite Paris, to start a company. 20. Next, Plaintiff Brunel started the company, "E Management", to work with Elite Models in Paris, Plaintiff had to close it almost immediately, because Elite didn't send any models to Plaintiff MC2 for fear of being linked to Epstein. 21. Because the false links between Plaintiffs and Epstein began to gain strength online, Elite Paris severed the agreement due entirely to these false links. Plaintiff Brunel lost his investment of one-million dollars because of this loss of business. 22. Plaintiffs lost potentially ten-million dollars in profits due to this initial one-million dollar loss. 23. Additionally, a former financial controller of MC2, Maritza Vasquez, stated in a 2012 deposition that Plaintiff Brunel had never done anything inappropriate or illegal with any under- age model. (Exhibits HI H2 -Transcript of Deposition of Maritza Vasquez). 24. Maritza Vasquez was fired from her job at Plaintiff MC2 for embezzling company funds, and had criminal charges filed against her (Composite Exhibit I attached). She was also the source of the false information linking Plaintiffs to sex trafficking in the articles written by Conchita Sarnoff of the website Jezebel (Composite Exhibit A. p.2-7). 5 25. The deposition testimony of Maritza Vasquez referred to above clearly demonstrates that Plaintiff Brunel has clean hands and was never involved in sex trafficking. All of Plaintiffs' damages came solely from Epstein's conduct. 26. Additionally, Plaintiff Brunel has had significant delays in obtaining his visa to come to the U.S. These delays were also the result of the false link between Plaintiffs and Epstein. As a result of these delays, Plaintiffs lost a considerable amount of time money. International travel is a significant component of Plaintiff Brunel's MC2 modeling business. Plaintiff Brunel has been forced to cancel his latest visa application as a result of the delays. (Exhibit J Composite Visa Does). 27. As a result of the notoriety and tremendous publicity surrounding Epstein's criminal charges, and the media linkage of Epstein to Plaintiffs regarding illegal activities, Plaintiffs lost a tremendous amount of business and revenue. 28. Plaintiff Brunel's agency MC2 has lost millions of dollars in revenue since the media revealed that Plaintiffs and Epstein were associated. In fact, Plaintiff MC2 was worth millions of dollars; now, due to the illegal actions of Epstein, MC2 is almost worthless. 29. At no time did Epstein ever publicly state that Plaintiffs had no role whatsoever in the Epstein's illegal activities. 30. As a result of Epstein's illegal activities and his association with Plaintiffs, Plaintiffs continue to lose money and suffer damages to this day. (Exhibit K attached, Jeff Fuller email, 11-12-14). 31. Plaintiff Brunel will need to spend millions of dollars in order to restore his business to what it was once worth money that the Plaintiff Brunel does not have. 6 32. Plaintiff Brunel continues to own and operate Plaintiff MC2 to this day, their names never having been cleared from the massive and totally negative media coverage involving Epstein and his illegal activities. Plaintiffs have been, and continue to be, irreparably harmed by these false internet-based links to Epstein. (Exhibits R S attached). 33. Second, Plaintiff Brunel was also told by Epstein to leave the Palm Beach area in anticipation of a deposition of Plaintiff Brunel in a criminal case against Epstein. On the direct advice of Epstein, Plaintiff Brunel went to Europe and Asia for a period of time. This was done for the sole purpose of delaying Plaintiff Brunel's deposition. 34. As a direct result of Plaintiff Brunel's travels, his deposition was delayed twice. When it was finally scheduled for November 2009, Plaintiff Brunel was in fact available (Exhibit L attached). However, a medical emergency in the family of his attorney further delayed this deposition (Exhibit M attached). It was never rescheduled and he was never deposed. 35. This was a blatant example of obstruction of justice in the criminal case. Epstein was solely responsible for telling Plaintiff Brunel to leave the area. Plaintiff Brunel lost a huge opportunity to clear his name, and that of his agency, Plaintiff MC2. 36. Third, as a result of all of the facts stated above, Plaintiff Brunel was under tremendous psychological pressure throughout this period of time. 37. This psychological pressure resulted in Plaintiff Brunel avoiding business contacts as set forth above. This pressure also directly caused Plaintiff Brunel to avoid certain social contacts during this period of time. 38. Plaintiff Brunel became extremely withdrawn and anxious at this time. 39. Epstein's conduct was the direct cause of Plaintiff Brunel's psychological state. The press was reporting extensively on the lurid details of Epstein's illegal activities with the under- aged girls. 7 40. As stated above, the press reports were erroneously connecting both Plaintiffs to Epstein's illegal activities. (Composite Exhibit A attached). 41. Epstein's illegal activities were outrageous and extreme; they involved receiving massages from the under-aged girls while the girls were nude or nearly-nude; penetration of the girls with a finger or object; or full-intercourse. 42. These activities described above caused Plaintiff Brunel severe emotional distress. In fact, Plaintiff Brunel has recently undergone psychotherapy with a local psychologist, Dr. Royce N. Jalazo, as a result of Epstein's actions and the negative results on his business. (Exhibits N 0 attached). 43. Plaintiff Brunel is emotionally destroyed as a result of Epstein's actions and the resultant effects on his business. He has been on medications to deal with the effects of this. (Composite Exhibit P Medical History). 44. Plaintiffs have been damaged by the conduct of Defendant Epstein, and have accordingly retained undersigned counsel to represent him in this matter, and are obligated to pay counsel a reasonable fee for his services. FACTUAL ALLEGATIONS AS TO DEFENDANTS TYLER MCDONALD TYLER MCDONALD D B A YI.ORG 45. Defendant Tyler McDonald ("McDonald") is the owner operator of Yi.Org and also does business as Yi.Org Defendant Tyler McDonald d b a Yi.org ("McDonald d b a Yi.Org"). Defendant McDonald resides in the state of Washington. Yi.Org is a website hosting service based in Vancouver, British Columbia, Canada. 46. In about 2009, Yi.org, by and through the actions of its owner, McDonald, began hosting websites that contained hyperlinks that contained blatantly false and extremely disparaging information about Plaintiffs. (Exhibit Q attached - hyperlink screenshot). 8 47. These links clearly and falsely associated Plaintiffs with illicit escort services in the state of Florida; information which Defendants McDonald and McDonald d b a Yi.Org knew, or should have known, was false. 48. These links have damaged Plaintiff Brunei's reputation as an owner of a well-established modeling agency with offices in New York and Miami, Plaintiff MC2. 49. These links have also damaged the reputation of both Plaintiffs. 50. The combined damage to the reputation to both Plaintiffs has resulted in a significant loss of revenue to Plaintiff MC2, and accordingly, to Plaintiff Brunel. 51. Plaintiff MC2's revenues have fallen to a mere fraction of what they were before the appearance of the links on Yi.Org. 52. Both Defendants McDonald d b a Yi.Org and McDonald assisted in the dissemination of the false and negative information that damaged Plaintiffs' reputation and directly caused damages to Plaintiffs. 53. Plaintiff Brunel continues to own and operate Plaintiff MC2 to this day, both names still harmed by the false and negative association with escort services in Florida. 54. Accordingly, Plaintiffs have been severely damaged by information on websites hosted by Yi.Org, which is maintained, owned and operated by Defendants McDonald d b a Yi.Org and McDonald. 55. The information disseminated by the websites hosted by Defendants McDonald d b a Yi.Org and McDonald was false and defamatory to the extreme regarding Plaintiffs alleged involvement with escort services in the state of Florida. 56. Defendants McDonald d b a Yi.Org and McDonald have made no attempt to clear the names of Plaintiffs with regard to the false and defamatory information disseminated by the 9 websites they hosted. 57. Plaintiffs continue to do business to this day, their names never having been cleared from the negative information disseminated by Defendants McDonald d b a Yi.Org and McDonald. 58. Plaintiffs have been damaged by the conduct of Defendants McDonald d b a Yi.Org and McDonald, and have accordingly retained undersigned counsel to represent him in this matter, and are obligated to pay counsel a reasonable fee for his services. COUNT I EQUITABLE RELIEF FOR LOSS OF BUSINESS AND REVENUE - AS TO DEFENDANT JEFFREY EPSTEIN 59. The allegations contained in paragraphs 1 through 44 above are re-alleged and incorporated herein by reference. 60. Plaintiffs have lost a significant amount of business revenue because of the actions of Defendant Epstein set forth above. 61. Plaintiffs have no adequate legal remedy to make him whole as a result of the damages suffered in the form of lost business revenue due to the actions of Defendant Epstein. 62. Accordingly, Plaintiffs seeks to become whole by the payment of damages by Defendant Epstein to compensate him for his losses. WHEREFORE. PLAINTIFFS request judgment against DEFENDANT as follows: A. Damages in excess of fifteen-thousand dollars; trial by jury and B. Grant other such relief as is appropriate. COUNT II OBSTRUCTION OF JUSTICE EQUITY - AS TO DEFENDANT JEFFREY EPSTEIN 63. The allegations contained in paragraphs 1 through 44 above are re-alleged and incorporated herein by reference. 10 64. Plaintiff was forced to commit illegal acts by traveling away from the sight of the deposition and during the time period of the deposition. 65. Defendant Epstein attempted to subvert justice and this attempt contributed to the destruction of Plaintiff's business, Plaintiff MC2. Plaintiff Brunel lost substantial time away from his business and incurred expenses in following Epstein's commands. 66. Plaintiffs were substantially damaged as a direct result of Epstein's actions. WHEREFORE, PLAINTIFFS request judgment against DEFENDANT as follows: A. Damages in excess of fifteen-thousand dollars; trial by jury and B. Grant other such relief as is appropriate. COUNT III INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS UPON PLAINTIFF BRUNEL - AS TO DEFENDANT JEFFREY EPSTEIN 67. The allegations contained in paragraphs I through 44 above are re-alleged and incorporated herein by reference. 68. Defendant Epstein recklessly inflicted emotional distress upon Plaintiff Brunel by engaging in illegal conduct with under-aged girls, which was falsely linked to Plaintiffs. 69. This illegal conduct was extreme and outrageous by any standard. 70. This extreme and outrageous conduct was the direct cause of extreme emotional distress in Plaintiff Brunel. WHEREFORE, PLAINTIFF BRUNEL requests judgment against DEFENDANT as follows: A. Damages in excess of fifteen-thousand dollars; trial by jury and B. Grant other such relief as is appropriate II COUNT IV EQUITABLE RELIEF FOR LOSS OF BUSINESS AND REVENUE - AS TO DEFENDANTS TYLER MCDONALD AND MCDONALD D B A YI.ORG 71. The allegations contained in paragraphs I through 3 45 through 58 above are re- alleged and incorporated herein by reference. 72. Plaintiff, through his agency MC2, has lost a significant amount of business revenue because of the actions of Defendants McDonald d b a Yi.Org and McDonald set forth above. 73. Plaintiffs have no adequate legal remedy to make him whole as a result of the damages suffered in the form of lost business revenue due to the actions of both Defendants. 74. Accordingly, Plaintiffs seek to become whole by the payment of damages by both Defendants to compensate him for his losses. WHEREFORE, PLAINTIFFS request judgment against DEFENDANTS as follows: A. Damages in excess of fifteen-thousand dollars; trial by jury and B. Grant other such relief as is appropriate. COUNT V DEFAMATION AGAINST PLAINTIFFS AS TO DEFENDANTS TYLER MCDONALD AND MCDONALD D B A YLORG 75. The allegations contained in paragraphs 1 through 3 45 through 58 above are re- alleged and incorporated herein by reference. 76. Defendants McDonald d b a Yi.Org and McDonald published or caused to be published, false statements about Plaintiffs using their domain hosting service. 77. Defendants McDonald d b a Yi.Org and McDonald knew, or should have known, that the statements about Plaintiffs were false. 78. These published statements were read by the internet users who viewed the false statements. 79. Plaintiffs' business reputations were severely damaged as a result. 12 WHEREFORE, PLAINTIFFS request judgment against DEFENDANTS as follows: A. Damages in excess of fifteen-thousand dollars; trial by jury and B. Grant other such relief as is appropriate. COUNT VI EQUITABLE RELIEF FOR REPAIR OF BUSINESS REPUTATION - AS TO DEFENDANTS TYLER MCDONALD TYLER MCDONALD D B A YLORG 80. The allegations contained in paragraphs 1 through 3 45 through 58 above are re- alleged and incorporated herein by reference. 81. Plaintiffs have also suffered a significant loss of their business reputations as a direct result of the actions of Defendants McDonald d b a Yi.Org and McDonald. 82. Plaintiffs have no adequate legal remedy to make them whole as a result of the damages suffered in the form of lost business reputations due to the actions of both Defendants. 83. Accordingly, Plaintiffs seeks to restore their business reputations by the payment of damages by both Defendants to compensate them for their loss of reputations. WHEREFORE, PLAINTIFFS request judgment against DEFENDANTS as follows: A. Damages in excess of fifteen-thousand dollars; trial by jury and B. Grant other such relief as is appropriate. Is Joe Titone Joe Titone Attorney FL BAR : 203882 621 S.E. 5th Street Pompano Beach, Florida 33060 (954) 729-6490 (954) 941-2232 (FAX) Joetitone708 comcast.net 13 VERIFICATION STATE OF FLORIDA COUNTY OF f-i JEAN-LUC BRLTNEL, being duly sworn according to law, upon his oath, deposes and says: I have read the foregoing complaint and all the allegations contained therlin. All such allegations are true based upon my personal knowledge, informatio and belief. I (id! JE BRL Sworn and subscribed to before me this day of4e2z,..., -r , 2014. PALO VALLAMES Nanny Pal4c - Florkta 1 lir Caren. barn Oc.1 31, an B Coarniala Eg 211500 4 Scrawl Throw NSW Navy Mot ps...i.......upeirimpnwepeopmempft NOTARY PUBLIC 6 14 COMPOSITE EXHIBIT A http: www.thedailybeast.com articles 2010 07 29 jeffrey-epstein-feds-probe-possible-child- trafficking-charge.html Epstein Faces Sex-Traffic Probe The Justice Department is investigating Jeffrey Epstein for child trafficking, The Daily Beast has learned and has widened the scope of its probe to include a famous modeling agency. Hedge-fund manager Jeffrey Epstein completed his sentence for soliciting prostitution with a minor last week. But it appears his problems may not be over. Now The Daily Beast has learned that: Federal investigators continue to investigate Epstein's activities, to see whether there is evidence of child trafficking a far more serious charge than the two in his non- prosecution agreement, the arrangement between Epstein and the Department of Justice allowing him to plead guilty to lower-level state crimes. Trafficking can carry a 20-year sentence. The FBI is also investigating Epstein's friend Jean Luc Brunel, whose MC2 modeling agency appears to have been a source of girls from overseas who ended up on Epstein's private jets. Because Epstein's predatory habits stretch back many years and involved dozens of young- looking girls, there may well be more evidence to uncover. Under the concept of double jeopardy, Epstein can no longer be prosecuted for any of the charges covered by his non-prosecution agreement, in which he agreed to serve a short term of incarceration, fund the civil suits of named victims, and register as a sex offender. The victims who accepted cash settlements in these civil suits agreed not to testify against him or speak publicly about the case. However, new evidence developed by the Department of Justice on other offenses not covered by the agreement, including allegations by additional victims who come forward, could lead to new charges. There is no statute of limitations in the federal sex- trafficking law, which was also enacted by the state of Florida in 2002. Because his predatory habits stretch back many years and involved dozens of young-looking girls, there may well be more evidence to uncover. (Several young women who claim to be Epstein victims have recently contacted a Ft. Lauderdale lawyer, but to date no new civil complaints have been filed.) Conchita Sarnoff: The Billionaire Pedphile's Sex Den Billionaire Pedophile Goes Free These new developments come one week after the publication of two articles in The Daily Beast about Epstein's pattern of sexual contact with underage girls, which Palm Beach police began investigating in 2005 and the U.S. Attorney's office then settled in a 2007 plea deal. The first 16 article quoted a deposition by then-Palm Beach Chief of Police Michael Reiter, in which he stated that Epstein, a billionaire with many powerful friends, had received special treatment in both his plea deal and the terms of his incarceration. Although federal investigators at one point produced a draft 53-page indictment against Epstein, he was eventually allowed to plead guilty to only two relatively minor state charges and receive a short term of incarceration: 13 months in the county jail, during which he went to the office every day, and one year of community control, during which he traveled frequently to New York and his private island in the Virgin Islands. The Daily Beast has now discovered another instance in which Epstein apparently received special consideration: As a convicted sex offender, he is required by law to undergo an impartial psychological evaluation prior to sentencing and to receive psychiatric treatment during and after incarceration. This is because child molesters tend to be repeat offenders with high rates of recidivism. According to a source in law enforcement, however, Epstein was allowed to submit a report by his private psychologist, Dr. Stephen Alexander of Palm Beach, Florida, whose phone has since been disconnected with no forwarding information. The Daily Beast's second article provided details about Epstein's systematic abuse of underage girls at his Palm Beach mansion, where members of his staff allegedly recruited and paid a parade of teenagers, most of them 16 or younger, to perform daily massages that devolved into masturbation, groping, and sometimes full-blown sexual contact. It also revealed a monetary relationship between Epstein and Jean Luc Brunel, a frequent visitor to whom he gave 1 million around the same time that Brunel was starting his MC2 modeling agency. Some of the young girls MC2 recruited from overseas often from Eastern Europe and South America are known to have been passengers on Epstein's private jets. The U.S. Attorney General's Office in Florida says that it is against policy to confirm or deny the existence of an investigation. Jeffrey Epstein's lawyer, Jack Goldberger, says he has no knowledge of an ongoing probe, and he told The Daily Beast, "Jeffrey Epstein has fully complied with all state and federal requirements that arise from the prior proceedings in Palm Beach. There are no pending civil lawsuits. There are not and should not be any pending criminal investigations, given Mr. Epstein's complete fulfillment of all the terms of his non-prosecution agreement with the federal government." Conchita Sarnqff has developed multimedia communication programs.for Fortune 500 companies and has produced three current-events debate TV programs, The Americas Forum, From Beirut to Kabul, and a segment for The Oppenheimer Report. She is writing a book about child trafficking in America 17 ,http: www.thedailybeast.com articles 2010 07 22 ieffrey-epstein-pedophile-billionaire-and- his-sex-den.html The Billionaire Pedophile's Sex Den Hedge fund mogul and sex offender Jeffrey Epstein, who went free this week, lived in a depraved world of thrice-daily massages, pornographic artwork, and hush money that's only now being revealed. Conchita Sarnoff reports on the sordid details in part two of her exclusive expos . Hedge fund mogul and sex offender Jeffrey Epstein, who went free this week, lived in a depraved world of thrice-daily massages, pornographic artwork, and hush money that's only now being revealed. Conchita Sarnoff reports on the sordid details in part two of her exclusive expose. Also: Nude images of young girls were scattered around the house and the bathroom soap was shaped like sex organs Staff trolled for fresh recruits to make sure Epstein had two or three massage appointments each day The house manager has been sentenced to a longer prison term than Epstein for trying to sell notes regarding massage appointments Epstein gave 1 million to his friend Jean Luc Brunel when he was starting the modeling agency MC2 According to a former bookkeeper, young girls were brought to the U.S. by MC2 often from Eastern Europe then traveled on Epstein's private jets Jeffrey Epstein's loyal friends say that his prosecution was unduly harsh, rather than outrageously lenient. They insist that his sexual habits, although obsessive and unusual, were mostly legal and essentially harmless. As the police records attest, the girls brought to El Brill Way were routinely told they could "say no" at any time during a massage as Epstein escalated contact in a step-by-step assault that was remarkably similar in every victim's statement: First she would be asked to remove her shirt, then her pants. He would attempt to fondle her buttocks and breasts as he masturbated, then bring out a large vibrator. There was sometimes digital penetration, and the more willing girls were lured into full-blown sexual relations with both Epstein and Nadia Marcinkova, who was referred to in press accounts and police reports as Epstein's live-in "sex slave." A former bookkeeper in the Miami office, who also arranged visas for girls traveling to the U.S., confirmed that MC2 girls became frequent guests on Epstein's private jets. 18 It's true that some underage girls may have lied about their age, and some came to the house voluntarily several times although, according to Florida statutes, none of that has any bearing on the criminality of the contact, particularly if the girl was 16 or younger. But what is particularly disturbing about this case judging by arrangements at the Palm Beach house is that Epstein, a billionaire hedge-fund manager, organized his life around this sexual compulsion in an open and methodical way that suggests he felt he was beyond the law. - Conchita Sarnoff: Epstein Faces Sex Traffic Probe Billionaire Pedophile Goes Free According to police who executed a search warrant, the house was decorated with large, framed photos of nude young girls, and similar images were found stashed in an armoire and on the computers seized at the house (although police found only bare cables where other computers had been). Some bathrooms were stocked with soap in the shape of sex organs, and various sex toys, such as a "twin torpedo" vibrator and creams and lubricants available at erotic specialty shops, were stowed near the massage tables set up in several rooms upstairs. Epstein also enlisted his staff in the predatory activity, and four Sarah Kellen, Adriana Ross, Lesley Groff, and Marcinkova figured in the FBI investigation. The Non Prosecution Agreement stipulated that they would not be charged. According to police reports and sworn statements in the civil suits, all four women, among their other duties, worked to ensure that an appointment book for twice- or thrice-daily "massages" was stocked with fresh recruits. Ghislaine Maxwell, daughter of the late Czechoslovakian-born press baron Robert Maxwell, who was for many years Epstein's live-in partner, also recruited young girls. Since his 13-month sentence for soliciting prostitution with a minor, Epstein has settled more than a dozen lawsuits brought by underage girls. Seven victims reached a last-minute deal last week, days before a scheduled trial; each received well over 1 million an amount that will hardly dent Epstein's 2 billion net worth. The victims told police they waited in the kitchen to be called upstairs for a massage, and the house chef often gave them a bite to eat. House manager Alfredo Rodriguez said in his sworn statement that a maid named Lupita, who was a devout Catholic, wept when she complained to him about cleaning up after the massage sessions, picking up soiled towels and putting away the sex toys. And she was upset that a photo of Epstein with the pope hung next to one of him with a young girl. Ironically, Rodriguez, who ran the house on El Brillo Way in 2004 and 2005, ended up being sentenced to more jail time than his boss as a result of the complex investigation into Epstein's activities. He was fired, he says, for inadvertently drawing police attention to one of the girls when she arrived at the house unannounced to collect money. He saw an unfamiliar "beater" in the driveway one evening and called 91!. When he left Epstein's employ, Rodriguez took away some notes and emails about massage appointments as "protection" against his own prosecution, and failed to produce them during the Palm Beach Police Department's initial investigation. Unable to get work as a house manager elsewhere in South Florida, he says, Rodriguez later tried to sell this "golden nugget" his term for 50,000, to be used in the victims' civil suits. 19 Unfortunately, he made the offer to an undercover cop, and was subsequently charged with "obstruction of official proceedings" for withholding information that could have advanced the criminal investigation of Epstein which by that point had been settled in a plea deal. Rodriguez was sentenced to 18 months in federal prison (Epstein was allowed to serve 13 months in the Palm Beach county jail), and now awaits an additional sentence on Aug. 24 in federal court in Miami for transporting firearms, another deal he says he made to pay the bills after he lost his job. In a deposition given for the civil suits, Rodriguez testified that he was instructed to always have 2,000 in cash on hand, so that he could pay both the girls who gave massages and recruiters such as Haley Robson who brought them to the house. He also testified that Epstein made large contributions to the Palm Beach Police Department, and in return was given PBPD baseball hats to put on the dashboard of his various cars to avoid being stopped or ticketed by local police. Retired Police Chief Michael Reiter, in his own deposition, acknowledged that, in addition to earlier donations to the police department (which are fairly common in well-heeled Palm Beach), Epstein had recently given the department 100,000 for some sophisticated equipment. The police were still researching the purchase when Epstein came under suspicion, and Reiter ordered the money returned. (Guy Frostin, one of Epstein's local attorneys, told police that Epstein also gave 100,000 to the Florida Ballet for massages, because he was "very passionate" about massages being "therapeutically and spiritually" beneficial. Yet victims told police they had no massage training.) Perhaps most disturbing, in terms of possible sex trafficking, was Epstein's relationship with Jean Luc Brunel, owner of the MC2 modeling agency. According to a complaint filed in the U.S. District Court for the Southern District of Florida, an alleged victim said that Epstein, Maxwell, Brunel, Rodriguez, and Marcinkova "deliberately engaged in a pattern of racketeering that involved luring minor children through MC2, mostly girls under the age of 17, to engage in sexual play for money." (Which would amount to trafficking.) Brunel is a 50-plus French playboy who was formerly part owner of Karin, a Paris-based modeling agency. He lives in New York and South Beach, Florida, and owns 85 percent of MC2, which has offices in New York, Miami, and Tel Aviv. (The remaining 15 percent is owned by his partner, Jeff Fuller.) Brunel has been observed as a house guest at Epstein's Palm Beach home and may well have had contact with him also in New York, where Epstein owns a lavish home, and in Paris, where Epstein keeps an apartment on elegant Ave. Foch. CBS reporter Craig Pyes, who investigated Brunel for a 60 Minutes broadcast many years ago, is quoted in Michael Gross' book about the modeling industry, Model: The Li:5.g). Business of Beatitifid fPnnen. Pyes told the author that Brunel "ranks among the sleaziest people in the fashion industry. We're talking about a conveyor belt, not a casting couch. Hundreds of girls were not only harassed but molested." Now The Daily Beast has learned that Epstein had made a 1 million wire transfer to Brunel's offshore bank account in September 2004, just as he was setting up MC2. Whether this was a gift or a loan or a backdoor investment in the new venture is unknown. A French citizen who managed to avoid giving evidence in the Epstein investigation, Brunel declined to comment on any of this, as does Fuller. Asked in April of Bruners activities, 20 Epstein said "I'm 100 percent convinced that he doesn't traffic children." (Brunel has never been charged.) An American fashion designer who booked her girls through MC2 says they were very young and very beautiful; many were from Eastern Europe and spoke little English. A former bookkeeper in the agency's Miami office, who also arranged visas for girls traveling to the U.S., confirmed that MC2 girls became frequent guests on Epstein's private jets. Pilot logs obtained in the civil suits show that some of the named plaintiffs were on the flight manifests. Other times, the pilot would just list the other passengers plus "female." Editor's Note: An earlier version of this article misidentified the subject of Craig .Pyes ' investigation and the title of Michael Gross' book. The Daily Beast has corrected the subject and title and regrets the error. Read Conchita Sarnoff's oriuinal report on Epstein. Conchita Sarnqff has developed multimedia communication programs for Fortune 500 companies and has produced three current events debate television programs, The Americas Forum, From Beirut to Kabul, and a segment for The Oppenheimer Report. She is a contributor to The Heington Post. She is writing a book about child trafficking in America. 21 http: fashioncopious.typepad.com fashioncopious 2010 08 mc2-modeling-agency-involved-in-sex- trafficking.html MC2 Modeling Agency Involved In Sex Trafficking August 11,2010 On August 4th Jezebel ran the following story: The Sex-Trafficking Model Scout. Perhaps most disturbing, in terms of possible sex trafficking, was Epstein's relationship with Jean Luc Brunel, owner of the MC2 modeling agency. According to a complaint filed in the U.S. District Court for the Southern District of Florida, an alleged victim said that Epstein, assistant and girlfriend Ghislaine Maxwell, Brunel, house manager Alfredo Rodriguez, and Marcinkova 'deliberately engaged in a pattern of racketeering that involved luring minor children through MC2, mostly girls under the age of 17, to engage in sexual play for money. The previous paragraph in the story read: and making speaking of Jeffrey Epstein frequent 100,000 donations to the Palm Beach Police Department would insulate him from prosecution for his various depravities. Which included, for the record: buying a 14-year-old Yugloslavian named Natalia Marcinkova from her parents in order to keep Marcinkova as his "sex slave"; paying a retinue of women to trawl Palm Beach for teenagers economically desperate enough to agree to give Epstein "massages" that often led to sexual contact; receiving two 12-year-old French girls as a "birthday present"; and befriending Michael Wolff. 22 http: bettyfokker.wordpress.com 2010 08 20 hes-helping-others-get-away-with-child-sex- trafficking He's helping others get away with child-sex trafficking Posted on August 20, 2010 by Betty Fokker Let's discuss that billionaire douche-face child-rapist, Jeffrey Epstein for a moment shall we? He's someone who likes to have sex with venerable underage girls, including 12 year old girls who are trafficked into the US under the guise that they will become models. His partner in crime was Jean Luc Brunel, owner and 'talent scout' of the MC2 "modeling agency". Epstein coincidently invested a million bucks in the MC2 ki. 14ie-pefn-Fifig modeling agency and let Brunel use his privet jet. The FBI thinks Epstein has assaulted molested about 40 or so young girls. So he's going to prison for the rest of his life right? Wrong. When faced with the best defense lawyers money could buy, the prosecutors wimped out and made a plea bargain so light it boggles the mind. This kid-raping bastard only had to please guilty to two MINOR charges and gets a private cell, a cell he gets to leave on a "work release program" by the way. Now, I am not blaming his defense attorneys. They were doing their job and, under our constitution, a festering anus like Epstein has the right to the best attorneys he can afford. I am livid with the prosecuting attorneys. It was their job to do everything in their power to bring this vomit-inducing shit-sack to justice. Instead, they decided to gutlessly pander to his wealth, privilege, and powerful defense team. They rolled over and did everything but send in another kid to give this fucker a hand-job. So this vermin got away with raping 12 year old girls because the prosecuting attorneys couldn't find a single testicle ovary to share among them. And do you know what their chicken-shit kowtowing to Epstein has wrought? It's opened the door for other child-sex traffickers to get lighter sentences for their crimes too. Why should they have to pay when he didn't? After all, it was just girls they were trafficking for sex with disgusting older males (I refuse to call something like Epstein a "man"; it insults men) ... they weren't harming anything of any value in our culture! I'm a feminist because I think girls women have value. What a crying, fucking shame there wasn't one feminist in the prosecutors office to go after this monster and punish him. What a pity other hell-spawn might get away with trafficking girls for sex more easily because of the shit- for-brains attorneys who let Epstein get away with his crimes. My eyeballs are melting with rage. Never mind. They aren't melting. It's just tears of helpless and despairing rage against an unjust legal system and the cultural devaluation of women and girls. 23 http: zawkencom 5600294 reeently-freed-sex-offender-jeffrev-enstein-may-face-child- trafficking-charges Recently-Freed Sex Offender Jeffrey Epstein May Face Child Trafficking Charges t r 11 t POtwa- ,kaasemie XFIttr 0:71 1 rg mi..tipiT WV1,1.1 -I -4! Ads by Google Expand Jeffrey Epstein, the billionaire Bill Clinton pal who just left jail after completing a sentence for soliciting sex with a minor, may be headed back soon: The Daily Beast reports that the Justice Department is investigating him for child trafficking. Epstein, famous for being rich, being friends with Bill Clinton, having an egg-shaped penis, and being a vindictive pervert, can't be prosecuted again for the charges he copped to in his plea deal. But according to The Daily Beast's Conchita Sarnoff, new charges might be coming: As we learned in Vanity Fair yesterday, Bill Clinton has spent his post-presidential life...Read more Federal investigators continue to investigate Epstein's activities, to see whether there is evidence of child trafficking-a far more serious charge than the two in his non-prosecution agreement, the arrangement between Epstein and the Department of Justice allowing him to plead guilty to lower-level state crimes. Trafficking can carry a 20-year sentence. Since there's no statute of limitations for sex-trafficking, and Epstein's predatory adventures apparently date back more than a few years, it's likely there's more women who could come forward. (Apparently some have contacted a lawyer, but nothing's been filed yet.) It's not just Epstein, either his buddy Jean Luc Brunel, head of the MC2 modeling agency, is also being investigated, and some of the models he represented (many from overseas) may have been enlisted as companions on Epstein's private jet. 24 http: www.huffingtonpost.com 20 I 4 06 03 j e ffrey-e pste in n 5439407.html MIAMI (AP) Nearly a decade ago, a wealthy financial guru came under FBI investigation, suspected of sexually abusing dozens of underage girls at his Palm Beach mansion. Then, abruptly, the investigation was dropped and Jeffrey Epstein pleaded guilty to a single state charge of soliciting prostitution. He served just over a year in jail. Now, two women who say they were among his victims have won a precedent-setting appeals court ruling entitling them to see all the documents from the plea bargain discussions between Epstein's high-powered lawyers and federal prosecutors. Their goal: use those tiles to undo the agreement. reopen the investigation and subject Epstein to more charges. The women's lawyers contend Epstein got special treatment because of his wealth and connections. His attorneys deny that. Epstein. 61, made hundreds of millions of dollars managing funds for rich clients. Shortly after his 2008 guilty plea. it came to light that his lawyers had secretly reached a non-prosecution agreement months earlier with the U.S. Justice Department that spared him a potentially heavier punishment. "Our complaint alleges that. prodded by Epstein. the federal prosecutors deliberately concealed the sweetheart plea deal they made with him to avoid public criticism," said Paul Cassell. a University of Utah law professor who is representing the two women. The U.S. attorney's office in Miami would not comment. But the U.S. attorney at the time, R. Alexander Acosta, said in a 2011 letter defending his office that more evidence came to light after Epstein made his deal. "Many victims have spoken out, tiling detailed statements in civil cases seeking damages. Physical evidence has been discovered," Acosta wrote. "Had these additional statements and evidence been known, the outcome may have been different." Epstein has settled lawsuits for undisclosed amounts with many of the women who say they were underage when they were paid for sex. The case represents the first time a federal appeals court has ruled that the Crime Victims' Rights Act of 2004 guarantees victims the right to be informed about the details of how a plea bargain was reached. according to legal experts and lawyers involved in the case. The law marked the culmination of efforts begun in the 1960s to give crime victims more of a say. 25 "I hope that the case will ultimately set an important precedent that federal prosecutors can't keep victims in the dark about the plea deals that they reach." Cassell said. Epstein served 13 months of an 18-month sentence on the prostitution charge, sold his Palm Beach home in 2011 and now divides his time between a New York City home, a Caribbean island and an apartment in Paris. according to court documents. He also has a large New Mexico ranch. He donates huge sums each year, particularly toward projects involving new medical treatments and artificial intelligence. His foundation established a Harvard University program that uses mathematics to study evolutionary biology, viruses and disease. According to lawsuits filed by some of his accusers. Epstein relied on assistants to recruit underage girls to give him massages and perform sex acts. They were usually paid about 200. Some girls were notified about the investigation beginning in 2006. But they weren't told about the negotiations with federal prosecutors for at least nine months, despite a requirement in the Crime Victims' Rights Act that they be kept informed. The two women who were 13 and 14 when the alleged assaults occurred sued for the files and won. "Although plea negotiations are vital to the functioning of the criminal justice system, a prosecutor and target of a criminal prosecution do not enjoy a relationship of confidence and trust when they negotiate." the appeals court said. Federal prosecutors have begun turning over the documents. Epstein's attorney. Roy Black, the celebrity lawyer who is also representing Justin Bieber in his DUI and resisting-arrest case in Miami Beach, declined to comment but has asked that the documents be kept from public view, and so far they have been. In a May 23 court filing. Black said that there was no conspiracy between prosecutors and Epstein's team to violate the victims' rights law and that the non-prosecution agreement contained many provisions Epstein strongly opposed. such as registering as a sex offender and agreeing not to contest certain lawsuits. "This was no sweetheart deal by any stretch of the imagination," Black said in court papers. Even if a judge invalidates the plea deal, it will still be up to federal prosecutors to decide what to do. "The court can't force the prosecutors to bring charges," said Matt Alexrod, a former federal prosecutor now in private practice in Washington. 26 http: www.huffingtonpost.com conehita-s-sarnoff ehild-trafficking b 1269748.html Conchita Sarnoff Communications expert Regulating Modeling Agencies to Help Prevent Child Sex Trafficking Posted: 02 10 2012 8:49 pm In 2010, Jezebel, an online site, nublished "The Sex Trafficking Model Scout" warning about the dangers of deregulated modeling agencies in the U.S. Given the growing number of modeling agencies that transport underage teenagers from foreign countries into the United States and the growing sex trade of underage girls in the U.S. why does this industry remain deregulated? Since the advent of this business, modeling agencies have had free reign to scout teenagers from every state in the country as well as every nation in the world. Many of these teenage girls come from economically disadvantaged families and are offered none to very limited protection while traveling and working as "models." Jezebel reported that Jean Luc Brunel, one of the cast of characters involved in the ongoing Jeffrey Epstein (a level 3 registered sex offender), eight-year-long case, has been working for over two decades with a succession of agencies in New York and Paris. According to media reports, Diane Sawyer produced a segment for CBS's 60 Minutes featuring a sex scandal that eventually led Eileen Ford (founder of renowned Ford modeling agency) to stop working with Brunel. Brunelts latest venture is the modeling agency MC2 based in South Beach, Fla. with satellite offices in New York and Tel Aviv. Since his agency is deregulated and "no criminal charges have been filed by any of his accusers" although many have tried to serve him including lawyers representing Epstein's victims, Brunel continues to hide behind his French citizenship to prevent depositions. "Trawling for 511" underage teenagers to work for his agency. MC2, or anyone else who requests, Brunel is free to scout for very young girls without limitations." Given his citizenship he also successfully avoided deposition in Epstein's sex related cases. Like so many other reporters who have tried to report his side of the story when Jezebel contacted Brunel, "he did not respond to our interview request." According to Jezebel: 27 we spoke to a number of people who worked with his agency and while MC2 isn't considered a major industry player, it isn't exactly bottom-shelf, either... Brunel isn't involved with the business on a day-to-day basis, although he owns an 85 percent stake in MC2. Instead, he does scouting for the agency and takes care of the international relations with other agencies, reports one source. Scouts scour the world for unrepresented teenage girls who could make it as models. They work largely unsupervised and are generally paid a headhunting fee for every girl an agency signs. Even when affiliated with an agency, as Brunel obviously is with MC2, scouts operate mostly independently and with little oversight. The company blog refers to Brunel as a 'scouting tsunami' and MC2 is fairly well known for the strength of its international scouting. Model, Michael Gross's 1995 book, describes Bruners activities in Paris from the late 1970s onwards, when he worked for, and eventually owned, the modeling agency Karin. "Jean-Luc is considered a danger," says Jerome Bonnouvrier. "Owning Karin was a dream for a playboy. His problem is that he knows exactly what girls in trouble are looking for. He's always been on the edge of the system." John Casablancas, founder of Elite modeling agency said: I really despise Jean-Luc as a human being for the way he's cheapened the business. There is no justice. This is a guy who should be behind bars. There was a little group, Jean-Luc, Patrick Gilles, and Varsano. They were very well known in Paris for roaming the clubs. They would invite girls and put drugs in their drinks. Everybody knew they were creeps." Casablancas was a professional rival who was pushed out of his agency for questionable concerns. Katie Ford human trafficking abolitionist and Eileen Ford's daughter, talked to the Wall Street Journal magazine. In that stor "A Model Trade Union," Ford describes herself as a "roving ambassador" to help stop human trafficking. Ford sold her stake in the family business in 2007 to the private equity firm Stone Tower Equity. "In her new life as a nearly full-time, unpaid, roving ambassador for the cause her job is an outgrowth of her former work, rather than a repudiation of it, or an atonement. Her interest in human trafficking began when a representative of the United Nations called to ask if she would participate in a women's leadership group that was studying the issue of trafficking. "I said, 'I can't come talk about it, because I don't know anything about it!" Ford recalls. "But went, and after two hours, I knew why I was there. The way people traffic across borders is parallel to the way we recruit models. According to Ford "the target age is 14 to 24, and so it's similar to modeling." I knew how to reach that market" she said, "It was the feeling of: There but for the grace of God... The girls who came to us could have been those girls." http: jezebel.com 5603638 meet-the-modeling-agent-who-trafficked-underage-girls-for-sex The Sex-Trafficking Model Scout 28 xpand Jeffrey Epstein, the billionaire financier who the FBI believes molested around 40 underaged girls, was assisted by a prominent modeling agent and scout. Here's what we know about Jean Luc Brunel. Jeffrey Epstein, you will no doubt recall, is the man who thought ferrying Bill Clinton on his private jet, lawyering up with superstar Alan Dershowitz, and making frequent 100,000 donations to the Palm Beach Police Department would insulate him from prosecution for his various depravities. Say you're not as famous or celebrated as Roman Polanski and you want to sexually assault...Read more Which included, for the record: buying a 14-year-old Yugloslavian named Natalia Marcinkova from her parents in order to keep Marcinkova as his "sex slave"; paying a retinue of women to trawl Palm Beach for teenagers economically desperate enough to agree to give Epstein "massages" that often led to sexual contact; receiving two 12-year-old French girls as a "birthday present"; and befriending Michael Wolff. But as Conchita Sarnoff wrote at The Daily Beast: Perhaps most disturbing, in terms of possible sex trafficking, was Epstein's relationship with Jean Luc Brunel, owner of the MC2 modeling agency. According to a complaint filed in the U.S. District Court for the Southern District of Florida, an alleged victim said that Epstein, assistant and girlfriend Ghislaine Maxwell, Brunel, house manager Alfredo Rodriguez, and Marcinkova 'deliberately engaged in a pattern of racketeering that involved luring minor children through MC2, mostly girls under the age of 17, to engage in sexual play for money.' The FBI investigated Epstein, and identified around 40 underaged victims. Sarnoff reports that the FBI is also investigating MC2 and Brunel for possibly engaging in child sex trafficking. Since pleading guilty to reduced charges of soliciting sex with a minor and serving 13 months of 29 part-time jail, Epstein has become the focus of numerous civil lawsuits from his victims. He has so far settled a dozen. These same civil complaints allege that young girls from South America, Europe, and the former Soviet republics, few of whom spoke English, were recruited for Esptein's sexual pleasure. According to a former bookkeeper, a number of the girls worked for MC2, the modeling agency owned by Jean Luc Brunel, a longtime acquaintance and frequent guest of Epstein's. Brunel, along with numerous young models, was a frequent passenger on Epstein's private jet, according to flight manifests. The agency owner also allegedly received 1 million from Epstein in 2005, when he founded MC2 with his partner, Jeffrey Fuller; although Fuller and Brunel denied any such payment from the billionaire pervert in 2007, when rumors started swirling, Sarnoff got confirmation from a former bookkeeper at the agency. Whether the money was a secret investment in MC2, or a payment for Brunel's services as a procurer, is unknown. Brunel also visited Epstein in jail. So who is Jean Luc Brunel? Although he did not respond to our interview request, we spoke to a number of people who have worked with his agency. While MC2 isn't considered a major industry player, it isn't exactly bottom-shelf, either: MC2 in New York most recently launched the career of Latvian editorial star Ginta Lapina (Brunel "discovered" Lapina via an MC2 scoutina competition for young teens) and currently represents Vogue China covergirl Liu Dan. Worldwide, MC2 represents such stars as Sessilee Lopez in Miami, and top models Candace Swanepoel, Marina Lynchuk, Natalia Chabanenko, and Elisa Sednaoui in Tel Aviv. Brunel isn't involved with the business on a day-to-day basis, although he owns an 85 stake in MC2. Instead, "Right now he does scouting for the agency and takes care of the international relations with other agencies," reports one source. Scouts scour the world for un-agented teenaged girls who could make it as models; they work largely unsupervised and are generally paid a headhunting fee for every girl an agency signs. Even when affiliated with an agency, as Brunel obviously is with MC2, scouts operate mostly independently and with little oversight even relative to the almost totally unregulated modeling industry itself. "He travels a lot," says another person who has worked with Brunel. (The company blog refers to Brunel as a "scouting tsunami." and MC2 is fairly well-known for the strength of its international scouting.) Models we spoke to report mostly positive experiences with Brunel one praised his sense of humor and said he is "lovely to all of his models," and another described him as highly intelligent and cultured, adding, "he knows a lot about the opera and he paints" although it should be noted that none of the models whom we spoke to had been told of either his connections with Epstein, or his past. And what a past it is. These accounts from Michael Gross' 1995 book Model describe Brunel's activities in Paris from the late 1970s onwards, when he worked for, and eventually owned, the modeling agency Karins, now known as Karin Paris: "Jean-Luc is considered a danger," says Jerome Bonnouvrier. "Owning Karins was a dream for a playboy. His problem is that he knows exactly what girls in trouble are looking for. He's always 30 been on the edge of the system. John Casablancas gets with girls the healthy way. Girls would be with him if he was the butcher. They're with Jean-Luc because he's the boss. Jean-Luc likes drugs and silent rape. It excites him." "I really despise Jean-Luc as a human being for the way he's cheapened the business," says John Casablancas. "There is no justice. This is a guy who should be behind bars. There was a little group, Jean-Luc, Patrick Gilles, and Varsano...They were very well-known in Paris for roaming the clubs. They would invite girls and put drugs in their drinks. Everybody knew they were creeps." It should be noted that aside from being a professional rival, Casablancas, the founder of the agency Elite, was eventually drubbed out of the industry for his own modelizing. How pervy do you have to be for John Casablancas to call you a perv? Pervy enough to drug and rape numerous teenagers, according to 60 Minutes and Diane Sawyer, who investigated Brunel in 1988. The program interviewed nearly two dozen models who said they had been sexually assaulted by Brunel andJor by his fellow agent, Claude Haddad. Even at that time, Brunel had a reputation as a man one could go to to procure a "date" with a young model. CBS spoke to five models who said that Brunel and or his friends had drugged and raped them. Said producer Craig Pyes, "Hundreds of girls were not only harassed, but molested." When Gross interviewed Brunel, this is what he had to say for himself: "You get laid tonight with a model, is that a crime? I don't understand why people go into your personal life, what you do yourself, and to yourself, and they don't look at things that are really important." Since then, Brunel has been involved with a succession of agencies in New York and Paris. Although the 60 Minutes scandal eventually led Eileen Ford to stop working with him, he continued his involvement with Karins. In 1988, when powerhouse agency Next opened its doors, Brunel took an ownership stake. He also "discovered" Christy Turlington when she was 14. MC2 is only his latest venture. Because no criminal charges were ever filed by any of his accusers, and because the industry has a short memory most models working today weren't even born when Sawyer and Pyes started looking into Brunel's activities Brunel has been free to continue as he pleases. A French citizen, he even avoided testifying in his friend Epstein's trial. And so Brunel is still criss-crossing the globe, trawling for 5'10" 13-year-olds from Eastern Europe and (the NA, h iter parts of) South America. And apparently taking the occasional ride with them on Epstein's private jet. Is there any better argument for the regulation of the modeling industry? http: nypost.com 2011 11 18 j effrey-epsteins-level-3-sex-offender-status-upheld-by-ny-appeal s- court 31 Jeffrey Epstein's Level 3 sex offender status upheld by NY appeals court By Dareh Gregorian November 18, 20111 5:00am Multimillionaire pery Jeffrey Epstein may not consider his Florida conviction for soliciting a minor a big deal, but New York does. A state appeals court yesterday upheld the financier's status as a Level 3 sex offender meaning he's considered "a threat to public safety" and a "high risk" to offend again. Epstein, 58, did 13 months in a Florida jail for soliciting a minor to perform a sex act on him during a "massage." Although he was never indicted or convicted for hiring any other underage girls, the state Appellate Division found there was "clear and convincing evidence" he had indeed done so, making the Level 3 designation appropriate. 32 http: pagesix.com 2007 10 06 model-shop-denies-epstein-tie MODEL SHOP DENIES EPSTEIN TIE By PageSix.com Staff- October 6, 2007 1 9:00am THE owners of MC2 models are denying industry speculation that massage maven Jeffrey Epstein is a secret financial backer of the agency being run by scandal-scarred Jean-Luc Brunel, who was once accused of taking advantage of underage models. Epstein, who this week agreed to plead guilty to soliciting underage prostitutes at his Florida mansion in a deal that will send him to prison for about 18 months, reportedly gave "millions" to start MC2, which opened in October 2005 with offices in New York, Miami and Tel Aviv. One of the girls Epstein, 54, was accused of soliciting massages from was described in court documents as being just 14. "E equals MC squared . . . get it, like the equation? E equals Epstein. He just thinks everyone is too dumb to figure it out," said a model industry insider. "He's a desperate old man that fantasizes and takes advantage of young girls." The trouble doesn't stop there. Karins Models founder Brunel, who's currently a partner in MC2, denied allegations in a 1997 "60 Minutes" segment that he took advantage of young models who were high on drugs. Brunel also reportedly left his Trump Tower digs in 1999 after complaints of night carousing, which he also denied. Disgraced former Elite models exec Gerald Marie is also involved with MC2, says our source. Marie was accused of having sex with underage models in a 1999 BBC documentary where he was filmed saying he hoped to seduce contestants in a modeling contest in which the average age of participants was 15. He also dated Linda Evangelista when she was a teen. "He's also involved in the agency," said the source. "Gerald and Jean-Luc like the same things. They hang out because they have young girls in common, like two guys who enjoy the same wine." MC2 president Jeffrey Fuller confirmed Brunel was a partner in the company, but denied any working relationship with either Epstein or Marie. "We have no relationship business-wise with Gerald Marie. Jeffrey Epstein has no ownership or involvement in our company and never has. Jean-Luc Brunel and 1 are the only two partners and owners of MC2 Model Management," Fuller said. Epstein's rep said he was not involved in the agency. "He has no business relationship with them," said Howard Rubenstein. 33 http: www.palmbeachdailynews.cominews news lawsuit-doeuments-link-jeffrey-epstein- to-modeling nMGzHi Lawsuit documents link Jeffrey Epstein to modeling agency owner Jean Luc Brunel By Michele Daman Daily News Staff Writer New court filings in a civil case filed by billionaire sex offender Jeffrey Epstein link Epstein and Jean Luc Brunel, owner of modeling agency MC2. The documents say MC2 employees told attorney Brad Edwards that Epstein's condos at 301 E. 66th St. in New York City were used to house young models. Edwards, who has sued Epstein on behalf of several women claiming to be victims of sex abuse by Epstein, was told MC2 brought underage girls in from all over the world, promising them modeling contracts. "Epstein and Brunel would then obtain a visa for these girls, then would charge the underage girls rent," the documents say. Through the investigation of his lawsuits against Epstein, Edwards learned Brunel "runs the modeling agency MC2, a company for which Epstein provides financial support," the documents say. They also allege Epstein tried to thwart Edwards from taking depositions of Brunel, Epstein's companion Guislaine Maxwell, and other high-profile names such as President Bill Clinton. Details are listed in more than 62 pages filed by attorney Jack Scarola on behalf of Edwards in the lawsuit Epstein filed against Edwards. Edwards represents four of Epstein's minor victims, three of whom have settled their cases with Epstein under a confidential agreement. Epstein attorneys Christopher Knight and Joseph Ackerman declined to comment Friday on the court filings. Edwards deposed Brunel, but his attorney delayed it and then said he was back in France with no plans to return. But according to the court papers, Brunel was staying with Epstein in Palm Beach during that period. 34 The court filings describe Brunel as one of Epstein's closest pals. Regarding Maxwell, the documents refer to sworn testimony by Epstein's former house manager, Alfredo Rodriguez, explaining how Maxwell took photos of girls without the girls' knowledge, "kept the images on her computer, knew the names of the underage girls and their respective phone numbers and other underage victims." According to the documents: Maxwell allegedly lied about her mother being ill and having to fly back to England one day before a scheduled deposition in Edwards' case against Epstein. Despite that assertion, Maxwell was captured in a photo for OK magazine, attending the wedding of Chelsea Clinton two days later. Epstein has settled more than two dozen lawsuits and claims against him by young women who say they were lured to his El Brillo Way mansion as teens to give him sexually charged massages and or sex in exchange for money. The terms of all settlements are confidential. Rodriguez took a journal from Epstein's computer that listed the names of his underage victims from around the country and the world. Calling it the "Holy Grail," Rodriguez tried to sell the journal for 50,000 to victims' attorneys. He pleaded guilty to obstruction of justice and is serving 18 months in federal prison. Epstein, 57, served 13 months of an 18-month state sentence. He ended his one-year probation in July on state charges of soliciting prostitution and soliciting a minor for prostitution. According to flight logs from Epstein's private planes, Clinton flew several times on Epstein's planes, many times with Maxwell, Palm Beach resident Sarah Kellen and Adriana Mucinska "all employees and or co-conspirators of Epstein's," according to the court papers. The documents show that Clinton flew with Epstein, "then suddenly stopped raising the suspicion that the friendship abruptly ended ... "Epstein's personal phone directory from his computer contains e-mail addresses for Clinton along with 21 phone numbers for him ... and what appears to be Clinton's personal numbers," the court papers say. Allegations in the documents say Epstein threatened victims including Edwards' client Jane Doe despite no-contact orders in effect. Epstein had Doe tailed by a private investigator as her trial date neared, the court filings say. One time, Doe was so frightened that she fled her home in the company of a retired police officer and was taken to a hiding place, according to the court papers. http: slaverytoday.org that-gorgeous-underage-ad-model-may-be-trafficked-and-owned- regulation-for-agencies-to-stop-child-sex-trafficking 35 That Gorgeous Underage Model May Be A Slave: Regulation For Agencies To Stop Child Sex Trafficking First came the knowledge that slaves still existed and were present in larger numbers than ever before. Then the realization that a human being could be purchased within a few hours of my home for under 100. Now only a few miles away. In the following years I've been learning the myriad forms, places and types of slavery. The list keeps lengthening and with each new form (to me), I learn about, it knocks me down, one more time. Slavery Debt Bondage Sexual Slavery Child Brides Forced Labor Child Soldiers Adoption Trafficking Organ Trqfficking Trafficked Athletes And now a new one I should have seen coming. Those very young, foreign models you see? Some of them were trekked by model scouts who literally trawled through some of the most destitute and vulnerable people on earth for them. The same methods as other predatory trekkers; Go to politically or economically unstable areas; locate 5'l1" beautiful young girls; buy them, import them, own them, use them. Horrible irony to have images that portray us to the world possibly be of slaves. It's hard to think of an area of our society that doesn't admire seeing it's most vaunted members with a model on their arm. While this observation does not imply that those people were trafficked, imagine how simple that makes it to approach a child or it family anywhere in the world and offer them this in return for absolute control. All the traffickers have to do is pull out a magazine or phone with videos on it. I'm not shocked at traffickers using this method of promises to lure unsuspecting girls into slavery, I've seen it, read about it, studied it. I'm in shock that it flourishes in the most visible, 36 glaring spotlight of our culture, the part that worhips and presents our current idea of beauty in almost everything we touch. These victims are on the most prominent slave block ever, emulated by our children, coveted by our culture-makers and our society, and standing in the brightest global spotlight in the world. In plain sight, reported on in numerous stories for decades and yet only escalating in usage until they've become the golden mean. We can quietly ignore the ones resold daily in our town, who made our clothes, chocolate, housewares, provided the gold on our fingers and necks, electronics in our hands, labor in our fields. Here, finally, are slaves we fantasize about being, emulating, allow our society to be shaped by, consider trophies. What will this say about us if we don't drastically change it? All of it. Katie Ford walked away from an empire the first time she learned about slavery. she 's working to change with this thing she recognized to be permeating the industry. That is courage. Regulating Modeling Agencies to Help Prevent Child Sex Trafficking Conchita Samoll Posted: 02 10 2012 8:49 pm In 2010, Jezebel, an online site, published "The Sex Trafficking Model Scout" warning about the dangers of deregulated modeling agencies in the U.S. Given the growing number of modeling agencies that transport underage teenagers from foreign countries into the United States and the growing sex trade of underage girls in the U.S. why does this industry remain deregulated? Since the advent of this business, modeling agencies have had free reign to scout teenagers from every state in the country as well as every nation in the world. Many of these teenage girls come from economically disadvantaged families and are offered none to very limited protection while traveling and working as "models." Jezebel reported that Jean Luc Brunel, one of the cast of characters involved in the ongoing Jeffrey Epstein (a level 3 registered sex offender), eight-year-long case, has been working for over two decades with a succession of agencies in New York and Paris. According to media reports, Diane Sawyer produced a segment for CBS's 60 Minutes featuring a sex scandal that eventually led Eileen Ford (founder of renowned Ford modeling agency) to stop working with Brunel. Brunel's latest venture is the modeling agency MC2 based in South Beach, Fla. with satellite offices in New York and Tel Aviv. Since his agency is deregulated and "no criminal charges have been filed by any of his accusers" although many have tried to serve him including lawyers representing Epstein's victims, Brunel continues to hide behind his French citizenship to 37 prevent depositions. "Trawling for 5'11" underage teenagers to work for his agency, MC2, or anyone else who requests, Brunel is free to scout for very young girls without limitations." Given his citizenship he also successfully avoided deposition in Epstein's sex related cases. Like so many other reporters who have tried to report his side of the story when Jezebel contacted Brunel, "he did not respond to our interview request." According to Jezebel: we spoke to a number of people who worked with his agency and while MC2 isn't considered a major industry player, it isn't exactly bottom-shelf, either... Brunel isn't involved with the business on a day-to-day basis, although he owns an 85 percent stake in MC2. Instead, he does scouting for the agency and takes care of the international relations with other agencies, reports one source. Scouts scour the world for unrepresented teenage girls who could make it as models. They work largely unsupervised and are generally paid a headhunting fee for every girl an agency signs. Even when affiliated with an agency, as Brunel obviously is with MC2, scouts operate mostly independently and with little oversight. The company blog refers to Brunel as a 'scouting tsunami' and MC2 is fairly well known for the strength of its international scouting. Model, Michael Gross's 1995 book, describes Brunel's activities in Paris from the late 1970s onwards, when he worked for, and eventually owned, the modeling agency Karin. "Jean-Luc is considered a danger," says Jerome Bonnouvrier. "Owning Karin was a dream for a playboy. His problem is that he knows exactly what girls in trouble are looking for. He's always been on the edge of the system." John Casablancas, founder of Elite modeling agency said: I really despise Jean-Luc as a human being for the way he's cheapened the business. There is no justice. This is a guy who should be behind bars. There was a little group, Jean-Luc, Patrick Gilles, and Varsano. They were very well known in Paris for roaming the clubs. They would invite girls and put drugs in their drinks. Everybody knew they were creeps." Casablancas was a professional rival who was pushed out of his agency for questionable concerns. Katie Ford human trafficking abolitionist and Eileen Ford's daughter, talked to the Wall Street Journaimagazine. In that story "A Model Trade Union," Ford describes herself as a "roving ambassador" to help stop human trafficking. Ford sold her stake in the family business in 2007 to the private equity firm Stone Tower Equity. "In her new life as a nearly full-time, unpaid, roving ambassador for the cause her job is an outgrowth of her former work, rather than a repudiation of it, or an atonement. Her interest in human trafficking began when a representative of the United Nations called to ask if she would participate in a women's leadership group that was studying the issue of trafficking. "I said, 'I can't come talk about it, because I don't know anything about it!" Ford recalls. "But I went, and after two hours, I knew why I was there. The way people traffic across borders is parallel to the way we recruit models. According to Ford "the target age is 14 to 24, and so it's similar to modeling." I knew how to reach that market" she said, "It was the feeling of: There but for the grace of God... The girls who came to us could have been those girls." 38 http: slaverytoday.org that-gorgeous-underage-ad-model-may-be-trafficked-and-owned- regulation-for-agencies-to-stop-child-sex-trafficking That Gorgeous Underage Model May Be A Slave: Regulation For Agencies To Stop Child Sex Trafficking First came the knowledge that slaves still existed and were present in larger numbers than ever before. Then the realization that a human being could be purchased within a few hours of my home for under 100. Now only a few miles away. In the following years I've been learning the myriad forms, places and types of slavery. The list keeps lengthening and with each new form (to me), I learn about , it knocks me down, one more time. Slavery Debt Bondage Sexual Slavery Child Brides Forced Labor Child Soldiers Adoption Trafficking Organ Trekking Trqfficked Athletes And now a new one I should have seen coming. Those very young, foreign models you see? Some of them were trafficked by model scouts who literally trawled through some of the most destitute and vulnerable people on earth for them. The same methods as other predatory trqffickers; Go to politically or economically unstable areas; locate 5 '1 I" beautiful young girls; buy them, import them, own them, use them. Horrible irony to have images that portray us to the world possibly be of slaves. It hard to think of an area of our society that doesn't admire seeing it's most vaunted members with a model on their arm. While this observation does not imply that those people were trqfficked, imagine how simple that makes it to approach a child or it's family anywhere in the world and offer them this in return for absolute control. All the traffickers have to do is pull out a magazine or phone with videos on it. 39 I'm not shocked at trqffickers using this method qfprornise.s to lure unsuspecting girls into slavery, I've seen it, read about it, studied it. I'm in shock that it .flourishes in the most visible, glaring spotlight of our culture, the part that worhips and presents our current idea of beauty in almost everything we touch. These victims are on the most prominent slave block ever, emulated by our children, coveted by our culture-makers and our society, and standing in the brightest global spotlight in the world. In plain sight, reported on in numerous stories for decades and yet only escalating in usage until they've become the golden mean. We can quietly ignore the ones resold daily in our town, who made our clothes, chocolate, housewares, provided the gold on our fingers and necks, electronics in our hands, labor in our fields. Here, finally, are slaves we fantasize about being, emulating, allow our society to be shaped by, consider trophies. What will this say about us if we don't drastically change it? All of it. Katie Ford walked away from an empire the first time she learned about slavery. she 's working to change with this thing she recognized to be permeating the industry. That is courage. Regulating Modeling Agencies to Help Prevent Child Sex Trafficking Conchita Samar Posted: 02 10 2012 8:49 pm In 2010, Jezebel, an online site, published "The Sex Trafficking Model Scout" warning about the dangers of deregulated modeling agencies in the U.S. Given the growing number of modeling agencies that transport underage teenagers from foreign countries into the United States and the growing sex trade of underage girls in the U.S. why does this industry remain deregulated? Since the advent of this business, modeling agencies have had free reign to scout teenagers from every state in the country as well as every nation in the world. Many of these teenage girls come from economically disadvantaged families and are offered none to very limited protection while traveling and working as "models." Jezebel reported that Jean Luc Brunel, one of the cast of characters involved in the ongoing Jeffrey Epstein (a level 3 registered sex offender), eight-year-long case, has been working for over two decades with a succession of agencies in New York and Paris. According to media reports, Diane Sawyer produced a segment for CBS's 60 Minutes featuring a sex scandal that eventually led Eileen Ford (founder of renowned Ford modeling agency) to stop working with Brunel. Brunel's latest venture is the modeling agency MC2 based in South Beach, Fla. with satellite offices in New York and Tel Aviv. Since his agency is deregulated and "no criminal charges 40 have been filed by any of his accusers" although many have tried to serve him including lawyers representing Epstein's victims, Brunel continues to hide behind his French citizenship to prevent depositions. "Trawling for 5'11" underage teenagers to work for his agency, MC2, or anyone else who requests, Brunel is free to scout for very young girls without limitations." Given his citizenship he also successfully avoided deposition in Epstein's sex related cases. Like so many other reporters who have tried to report his side of the story when Jezebel contacted Brunel, "he did not respond to our interview request." According to Jezebel: we spoke to a number of people who worked with his agency and while MC2 isn't considered a major industry player, it isn't exactly bottom-shelf, either... Brunel isn't involved with the business on a day-to-day basis, although he owns an 85 percent stake in MC2. Instead, he does scouting for the agency and takes care of the international relations with other agencies, reports one source. Scouts scour the world for unrepresented teenage girls who could make it as models. They work largely unsupervised and are generally paid a headhunting fee for every girl an agency signs. Even when affiliated with an agency, as Brunel obviously is with MC2, scouts operate mostly independently and with little oversight. The company blog refers to Brunel as a 'scouting tsunami' and MC2 is fairly well known for the strength of its international scouting. Model, Michael Gross's 1995 book, describes Brunel's activities in Paris from the late 1970s onwards, when he worked for, and eventually owned, the modeling agency Karin. "Jean-Luc is considered a danger," says Jerome Bonnouvrier. "Owning Karin was a dream for a playboy. His problem is that he knows exactly what girls in trouble are looking for. He's always been on the edge of the system." John Casablancas, founder of Elite modeling agency said: I really despise Jean-Luc as a human being for the way he's cheapened the business. There is no justice. This is a guy who should be behind bars. There was a little group, Jean-Luc, Patrick Gilles, and Varsano. They were very well known in Paris for roaming the clubs. They would invite girls and put drugs in their drinks. Everybody knew they were creeps." Casablancas was a professional rival who was pushed out of his agency for questionable concerns. Katie Ford human trafficking abolitionist and Eileen Ford's daughter, talked to the Wall Street Journaimagazine. In that story "A Model Trade Union," Ford describes herself as a "roving ambassador" to help stop human trafficking. Ford sold her stake in the family business in 2007 to the private equity firm Stone Tower Equity. "In her new life as a nearly full-time, unpaid, roving ambassador for the cause her job is an outgrowth of her former work, rather than a repudiation of it, or an atonement. Her interest in human trafficking began when a representative of the United Nations called to ask if she would participate in a women's leadership group that was studying the issue of trafficking. "I said, 'I can't come talk about it, because I don't know anything about it!" Ford recalls. "But I went, and after two hours, I knew why I was there. The way people traffic across borders is parallel to the way we recruit models. According to Ford "the target age is 14 to 24, and so it's 41 similar to modeling." I knew how to reach that market" she said, "It was the feeling of: There but for the grace of God... The girls who came to us could have been those girls." 42 http: files.wallstreetfolly.com wordpress 2007 10 jeffrey- epstein-doesnt-want-to-be-branded-as-a-sex-offender-for- life-and-no-hes-not-a-m odeling-agency-secret-sugar-daddy- or-so-its-owners-say Jeffrey Epstein doesn't want to be branded as a "sex offender" for life, and no, he's not a modeling agency secret sugar daddy (or so its owners say) Posted by WSF On October - 9 - 2007 inerrelftECI arty-Ham Jeffrey Epstein, Epstein, the billionaire money manager who's agreed to plead guilty to soliciting underaged hookers and go away for 18 months, doesn't want to be branded a "sex offender" for life. Page Six says his lawyers are thinking about asking prosecutors to drop that requirement from his plea agreement: In a letter drafted, but not sent, to U.S. Attorney Alexander Costa and obtained by Page Six, Epstein's lawyer, Gerald Lefcourt, writes, "Doing so will have a profound impact on Epstein both immediately and forever after. Not only will he be restricted to a wholly inappropriate penal facility, but he will be required for the rest of his life to account for his whereabouts." Meanwhile, over the weekend Page Six said that owners of MC2 modeling, run by Jean-Luc Brunel who's also been accused of favoring underaged models in the past claim that Epstein is not the secret deep pockets behind the firm, no matter what others say or speculate. 43 Epstein, reportedly gave "millions" to start MC2, which opened in October 2005 with offices in New York, Miami and Tel Aviv. One of the girls Epstein, 54, was accused of soliciting massages from was described in court documents as being just 14. "E equals MC squared. . . get it, like the equation? E equals Epstein. He just thinks everyone is too dumb to figure it out," said a model industry insider. "He's a desperate old man that fantasizes and takes advantage of young girls." "Jeffrey Epstein has no ownership or involvement in our company and never has. Jean-Luc Brunel and I are the only two partners and owners of MC2 Model Management," Jeffrey Fuller said. MC2 President 44 http: www.washingtonpost.comincws volokh-conspiracy wp 2014 04 21 eleventh-circuit-rules- that-discovery-can-move-forward-on-my-crime-victims-rights-act-case The Volokh Conspiracy Eleventh Circuit rules that discovery can move forward on my Crime Victims' Rights Act case By Paul Cassell April 21 On Friday,the Ilth Circuit ruled that discovery can move forward in an important Crime Victims' Rights Act case that my co-counsel, Brad Edwards, and I are pursuing. The narrow issue before the court was whether prosecutors and defense attorneys could assert some sort of "privilege" to prevent crime victims from reviewing the correspondence that lead to a plea bargain. More broadly, the ruling means that the victims will have a chance to return to the district court and seek to invalidate a plea agreement that (we alleged) was consummated in violation of their rights. I hope that the case will ultimately set an important precedent that federal prosecutors can't keep victims in the dark about the plea deals that they reach. Here are the important facts, taken from the 11th Circuit's opinion: The case arose in 2006, the FBI began investigating allegations that wealthy investor Jeffrey Epstein had sexually abused dozens and dozens of minor girls. The U.S. Attorney's Office for the Southern District of Florida accepted Epstein's case for prosecution, and the FBI issued victim notification letters to my two clients, minors Jane Doe No. 1 and Jane Doe No. 2, in June and August 2007. Extensive plea negotiations ensued between the prosecutors and Epstein. On Sept. 24, 2007, the prosecutors entered into a non-prosecution agreement with Epstein in which they agreed not to file any federal charges against Epstein in exchange for his guilty plea to minor Florida offenses (e.g., solicitation of prostitution). Not only did the prosecutors neglect to confer with the victims before they entered into the agreement with Epstein, they also concealed its existence for at least nine months. For example, the prosecutors sent post-agreement letters to the victims reporting that the "case is currently under investigation" and explaining that " t his can be a lengthy process and we request your continued patience while we conduct a thorough investigation." On June 27, 2008, the prosecutors informed my co-counsel, Brad Edwards, that Epstein planned to plead guilty to the Florida charges three days later. But the prosecutors failed to disclose that Epstein's pleas to those state charges arose from his federal non-prosecution agreement and that the pleas would bar a federal prosecution. As a result, the victims did not attend the state court proceedings. 45 On July 7, 2008, Edwards and I filed a petition alleging that Jane Doe No. 1 was a victim of federal sex crimes committed by Epstein and that the United States had wrongfully excluded her from plea negotiations. We also alleged that the federal prosecutors had violated her rights under the Crime Victims' Rights Act (CVRA) specifically her rights to confer with the government, to be treated with fairness, to receive timely notice of relevant court proceedings, and to receive information about restitution. The United States responded by claiming that it used its "best efforts" to comply with the rights afforded to victims under the CVRA, but that the act did not apply to pre-indictment negotiations with potential federal defendants. After Jane Doe No. 2 joined the initial petition, the district court (Marra, J.) found that both women qualified as "crime victims" under the CVRA. The district court later rejected the government's argument that the act only applies after the filing of a federal criminal indictment. (I've written a law review article about the issue of how early crime victims' rights attach in the criminal process, which can be downloaded here.) Among other relief, we sought rescission of the non-prosecution agreement as a remedy for the violation of the victims' rights. To make the case for such a remedy, we moved for discovery of the correspondence between the U.S. and Epstein's attorneys during the plea negotiations. Epstein's attorneys intervened, arguing that Federal Rule of Evidence 410 and Federal Rule of Criminal Procedure 11 create a privilege for plea negotiations, barring release of the correspondence. They also argued that the court should find that the materials were protected under the work product doctrine or, alternatively, should be protected under a new "common- law privilege for plea negotiations." The district court first ruled that rescission of the plea agreement was a possible remedy under the act. The court then ruled that we were entitled to review the correspondence, rejecting all of Epstein's arguments. On Friday, the 11th Circuit affirmed the district court's ruling that we could review the plea correspondence. At pp. 18-22 of its published opinion, the court concluded that there was no basis for restricting access to such correspondence when crime victims have a legitimate need to review it. The court rejected, for example, the work product argument because plea discussions are not confidential: Disclosure of work-product materials to an adversary waives the work-product privilege. See, e.g., In re Chrysler Motors Corp. Overnight Evaluation Program Litig., 860 F.2d 844, 846 (8th Cir. 1988); In re Doe, 662 F.2d 1073, 1081-82 (4th Cir. 1981). Even jilt shared the common goal of reaching a quick settlement, the United States was undoubtedly adverse to Epstein during its investigation of him for federal offenses, and the intervenors' disclosure of their work product waived any claim of privilege. The court also declined to recognize a new privilege for plea bargaining, finding the relationship between prosecutors and defense attorneys did not need special protection: As a last-ditch effort, the intervenors contend that " i f more is needed in addition to the plain language of Rule 410 to preclude disclosure of the correspondence to plaintiffs, it can be found 46 in the conjunction of Rule 410, the work-product privilege, and the Sixth Amendment right to the effective assistance of counsel in the plea bargaining process," but this novel argument fails too. As explained above, Rule 410 does not create a privilege and the intervenors waived any work-product privilege. The intervenors concede too that the right to counsel under the Sixth Amendment had not yet attached when the correspondence was exchanged. Lumley v. City of Dade City, Fla., 327 F.3d 1186, 1195 (11th Cir. 2003) ("111he Sixth Amendment right to counsel ordinarily does not arise until there is a formal commitment by the government to prosecute," such as a "formal charge, preliminary hearing, indictment, information, or arraignment."). The "conjunctive" power of three false claims of privilege does not rescue the correspondence from disclosure. . . . The Supreme Court has identified several considerations relevant to whether a court should recognize an evidentiary privilege the needs of the public, whether the privilege is rooted in the imperative for confidence and trust, the evidentiary benefit of the denial of the privilege, and any consensus among the states, Jaffee v. Redmond, 518 U.S. 1, 10-15 (1996) but none of these considerations weighs in favor of recognizing a new privilege to prevent discovery of the plea negotiations. Although plea negotiations are vital to the functioning of the criminal justice system, a prosecutor and target of a criminal investigation do not enjoy a relationship of confidence and trust when they negotiate. Their adversarial relationship, unlike the confidential relationship of a doctor and patient or attorney and client, warrants no privilege beyond the terms of Rule 410. See Jaffee, 518 U.S. at 10. But the victims would enjoy an evidentiary benefit from the disclosure of plea negotiations to prove whether the United States violated their rights under the Act. Moving forward, this case raises the important issue of what kinds of remedies are available for violations of the Crime Victims' Rights Act. Our complaint alleges that, prodded by Epstein, the federal prosecutors deliberately concealed the sweetheart plea deal they had reached with him to avoid public criticism of the deal. I am hopeful that in future district court proceedings, we will be able to prove that clear violation of the CVRA and then obtain the remedy of invalidating the illegally-negotiated plea deal. Paul G. Cassell teaches criminal law, criminal procedure, and crime victims' rights at the S.J. Quinney College of Law at the University of Utah. Before coming to Utah, he was President of the Stanford Law Review, a law clerk for then-Judge Antonin Scalia on the D.C. Circuit and for Chief Justice Warren Burger of the Supreme Court, an Associate Deputy Attorney General with the U.S. Justice Department (1986-88), and an Assistant U.S. Attorney for the Eastern District of Virginia (1988 to 1991). Cassell joined the faculty at the University of Utah College of Law in 1992, where he taught full time until he was sworn in as a U.S. District Court Judge for the District of Utah in 2002. In 2007, he resigned his judgeship to return full time to the College of Law, to teach, write, and litigate on issues relating to crime victims' rights and criminal justice reform. 47 Date:15 10 2014 4:46 PM (GMT 02:00) Dear Jean Luc, Hope that you stay fine. As per our conversation about placement of her with you in NYC and Miami, she said she found some article in internet , which changed her position and she preferred to be placed with another agency.. I am so sorry, but people believes in media more than in us sometimes, what is sad! Warmest regards Jolania Sadauskiene owner MODILINOS model agency MODILINOS models Parodos 7-4, Kaunas Sv.Stepono 7, Vilnius tellfax: 37037323257 cell: 37069816103 iolantaAmodilinos.coni Thfo4modilinos.corn www.modilinos.corn EXHIBIT B From: "Vladimir Yudashkin 1 MotherAgency" Date:17 10 2014 10:46 AM (GMT 02:00) Dear JeanLuc, Unfortunately I need to announce that Liza Zazdravnih rejected signing the contract with MC2 in United Sates. Initially she intended to sign the contract, but later on she came across that article in internet about you involved in illegal activities with young models. This information somehow changed her intentions completely. she is ready to be a model and consider contracts with other agencies, but she has suspicions that you will force her to illegal activities and she made the decision to don't put her self in risk. Lets keep in touch. I will be happy to work with you next time if we have another right model for you. Im upset that it didn't work out with Liza Vladimir Vladimir Yudashkin Director EXHIBIT C Date:17 10 2014 9:36 PM (GMT 02:00) Dear Jean Luc, I'm very happy to hear you're coming to the agency with Vini so we can talk about us working with MC2 again. I don't need to remind you that the sex trafficking allegations have stopped us from working with your agency for the past 5-6 years but as Vinicius is my friend, I will try to find a girl that already knows and trusts him to place with you. Thank you very much for the lovely bag and we'll see each other on fashion week. Kisses, Manuela rn MEGA PARTNERS MANUELA W MARTINEZ International Relations Direct: 55 11 3818.4827 Cell.: 5511 98668.0090 megainodelbrasil.corn.br EXHIBIT D Original Message Organization: MC2 MM Reply-To: lorraine mc2mm.com Date: Friday, August 27, 2010 at 8:49 PM pink mc2mm.com Videographer From: Michelle STOCKMAN mailto:Michelle.Stockman afp.conn Sent: Friday, August 27, 2010 11:03 AM To: lorraine mc2mm.com Subject: Press Inquiry from AFP (Agence France Presse) Videographer My name is Michelle Stockman and I am a video journalist for Agence France Presse, the French newswire. We produce 1.5 to 2 min. videos that are distributed internationally to broadcast clients in Europe and Asia, and Internet clients worldwide. In preparation for Fashion Week, my print colleague and I are interested in doing a piece on trends in casting models of color. I was wondering if you could refer me to a model of color and a casting director who can comment on her experience. My deadline is next week, so I would like to set something up for Monday or Tuesday. I can come to you as I am a one-person camera crew. When you have a moment, please let me know. I'd be happy to discuss with you over the phone ahead of time. Best Michelle Stockman Michelle Stockman 747 Third Avenue, 35th Floor New York, NY 10017 EXHIBIT E 917-533-3261 www.youtube.com AFP Agence France-Presse is the world's oldest newswire with journalists in 165 countries. We publish worldwide in English, French, Spanish, German, Portuguese and Arabic. AFP delivers the news to thousands of media outlets worldwide from newspapers to magazines, radio and TV stations and online services. It reaches an audience of more than one billion people daily. This e-mail, and any file transmitted with it, is confidential and intended solely for the use of the individual or entity to whom it is addressed. If you have received this email in error, please contact the sender and delete the email from your system. If you are not the named addressee you should not disseminate, distribute or copy this email. For more information on Agence France-Presse, please visit our web site at http: www.afp.com EXHIBIT E Sent from Samsung Mob.le Date:12 12 2014 12:48 (GMT-05:00) Jean Luc, How are you? After so many years scouting for you and having a great network of agencies all around the world who enjoy to work with us, i wanted to let you know that we are on the way to lose everything we build and we are gonna have big problem now. Agencies, still want to work with us but parents don't want their daughters to come to us, because when they google your name and the agency name the only things they see is "Sex Trafficking"!!! It's impossible to sign a new girl and if nothing it's done i can tell you that in 3 months we we will not get any new girls and i don't see how the agency will work without new faces. All the agencies who know you don't have any problems with you since they all told me "We know Jean Luc for more than 20 years and all those years we had so many girls place with him who had better experience than in any other agencies who were representing them as well and we never had any problems whatsoever, all our girls had great carriers as a model when he represented them". I understand those agencies because it's hard for them to talk to parents and explain that it's not the truth when it's all over the internet. You need to have it stop and have the people write an official letter to say that it's not the truth... I will keep you posted of course but it's really bad for us and the scouting. Best regards - Michael Sanka 3104021028 EXHIBIT F FOX r sH infq GLCv Ann: Scouting division MC2 We took notes of your comments and the girls that you like on our website. We know Jean Luc Brunel and we always work with him since more than 10 years all those years and never had any problems. All the girls he represented from us never had any problems, they were working have great book work with good clients in editorial and campaigns and were well represented models. Now for all the new faces we have, we needed to talk to their parents to discuss about mc2 and you interest to represent their daughters and of course they google it and saw all the had articles about sex trafficking they were scared and I was myself speechless since we know that it's not true but it was hard for us to explain to the parents. So of course for the moment till all is clarified we can't place any new faces with you because the parents will refuse and it makes us look had to propose the girls to your agency. We are sorry but you really need to clarify everything, till then we will have to cease any collaboration and we will have to refuse to let you represent any of our models. Sure you understand. Sandra Petkanic Fox Fashion Agency Beograd 11000. Svetogorska 35 v. Stan 12 www.foxmodetcom e-mail: foxaffice sezampro.si EXHIBIT G Tel 381 11 3346414, tel 381 11 3226202 1 Q As part of your employment with MC Square 2 did you live in New York, for a time? 3 A I'm sorry, but I take the Fifth. 4 Q Have you ever heard any model of MC Square 5 who at the time of being a minor, that means under 6 the age of eighteen, made an accusation that 7 8 A Never. And that is something that I will 9 not answer. And I said never because even when 10 peoples come and ask me I will always say the truth 11 regarding that. 12 I know Mr. Brunel for the longest 13 maybe eight years. And I always said what I know. 14 I never saw and I never knew that he did anything. 15 So I know that. And that's the truth. 16 Never. I never heard anybody accusing Mr. Brunel 17 18 Q That means 19 model, no minor model came to you and said, you 20 know, "Maritza, look what just happened to me", that, 21 22 23 24 "I don't have a place to live". Or, "Look, I didn't 25 get my ticket", or whatever. EXHIBIT H-1 Jean-Luc Burnel acted inappropriate with her? or complaining about Mr. Brunel. Nothing. "something bad happened to me". A Maybe a model came and told me, "Maritza, look what happen to me. I don't have any money," or 43 1 a 2 MR. OBRONT: Well, I would object, because 3 of circumstances. 4 BY MR. DAVID: 5 Q But you said before that you never heard 6 anything that would indicate that Jean-Luc Burnel 7 behaved inappropriately with q especially any minor models that MC Square may have 9 had. 0 Is that correct? 1 A Yeah, I said what is the truth. Nobody 2 complain to me. Nobody 3 clear, has any girl came to you and complain about 4 sexually, you know, involved with Mr. Brunel. 5 Q Right. 6 A And my answer was no. Nobody came to tell 7 me. I never saw. I never knew. His personal life 8 was not my problem. Do you have any actual knowledge, that is 0 to say were you present or did you see with your own 1 eyes, any minor models go with Jean-Luc Burnel to 2 Jeffrey Epstein's home, or any party of his? 3 MR. OBRONT: Objection. 4 THE WITNESS: I'm sorry, but I take the 5 Fifth. EXHIBIT H-2 COMPOSITE EXHIBIT I INI Iti. C Mi. 111 ()I RI OF THI: F II PAM k 1 kN1) 11)11 MIAM1-D;PF OtMu. 11.0R11) S.).11.(11 1 flit:13i., Mixon Ilffcra.ixil ;.r.c 101r433 'use.: tit:at:shut t 1 r: L, t ctigre PLLA A(NRFEIIENI (T)MES NOW li. 111EININI FEWSILNDE7 S.tak Alknr, tithe I It'svner .11131.111 .1 1 1.4 ui. lq mud Wig, tht taldokivecl Att.LvU talg WA CIILf' tTq 1..,11...n.ent. akii.vmail l'IvIcalanl. I. vitt,hrn 1ie 1:14.4emla4 5hal 10141 (.."Int " b", gulii:t. Coupi ui:t ts. ;l hr pltg prpswsi nrcl tJi. tickiirispr v.i11 sc crivrce,. 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OUAUMM wm ebyty psii..w. lama eamsaw M.4 SO OS.1041 ..011.0e...0 Sia.aa 000.00.40. doilAirtliiiiii fItIfii 1 is . ri, t- It c t . k Vt u vv- 11 I..abt Ut., 012.0 a 0.07, 0.1Z601r0 00 1...0 U. AL10.04.1 4000) )711. . 0,1 ,6 14.71.111.. WOM bWW nrpr,r,r Lr.rtaaw.ataa .semerlasri.e, VUW.OWT aamvxcm culvr,r, 111111111111111111111111111 WI'''. 9,, - 7-1:. aims omit am. OO. won.. akoottOtt Otto stem - ,.. .1 ..1, 4ffir.r aq.11,.. far mimedimasi I. V.4 144w, tallItint; MOrT 410. ... .00 Ott... Omw.t AMOR Otito i... - dr! 11,1trim Tara Al. lataL 00). SUPPORTING DOCUMEPOS EXHIBIT 1 Several press and media articles documenting the rise of South Beach as one of the United Slates' main fashion capitols. EXHIBIT 2 Press articles regarding the models and actresses who were both discovered by and careers were launched by the beneficiary. Jean Luc Brunei. EXHIBIT 3 Several articles regarding the prestigious reputation of Kann tviadets as formerty one of the world's leading agencies. EXHIBIT 4 A list of all of tiAC2's clients, including several high-profile campaigns featuring some of MC2's fashion models. as well as several press clippings regarding this prestigious and reputable modeling agency. EXHIBIT 5 The beneficiary's. Jean Luc Brunel. impressive curriculum vitae, verifying his tremendous accomplishments in both the fashion and modeling industries. EXHIBIT 6 Several articles regarding the 2004 Models New Generation Contest (including translations) as we as the beneficiary's leading role within this prestigious modeling event. EXHIBIT 7 Several press orlicles regarding the prestigious 2006 Models New Generation Competition (including franslatiansl, as well as the beneficiary's Jean Luc Brunel, leading role within Illt event. EXHIBIT 8 Letter of Claudia tviiiaolo, President of Modetwork. a renowned modeling agency. EXHIBIT 9 Letter of Alia Amonlova. Director of Faro International Management. EXHIBIT 10 Several press articles reflecting the prestige and high circuiarian rates of the mentioned mngazines and periodicals which have featured and covered the modeling events which the beneficiary. Jean Luc Brunel, hos Organized throughout the year. EXHIBIT 11 Information regarding the extremely successful and prestigious modeling and fashion association, International Model Taieni Association (IMTA), M C NIODELSMIAtvil July 25. 2014 Department of Homeland Security United Stales Citizenship and Immigration Services Vermont Service Center 30 Houghton Street Saint Albans. VT 05478 RE: 1-129, Petition for a Nonimmigrant Worker 0-1 Extraordinary Ability as an Art Director and Talent Coordinator Petitioner: MC2 Models Miami, U.0 Beneficiary: Jean-Luc Didier Henri-Rene BRUNEL Dear Sir I Madam: The present fetter and its enclosures are submitted in support of the attached 0-1 petition of MC2 Models Miami. LIC, on behalf of Mr. Jean Luc Brunel. The petition is based upon Mr. Brunel's standing as an "Alien of Extraordinary Ability in Art Direction and Talent Coordination." Kindly note that Mr. Brunel currently holds 0-1 status with our organization. The South Florida area and Miami Beach in particular have become a mecca for the fashion and modeling industries. As a result many of the largest international modeling agencies such as Ford. Elite, and MC2 have opened offices in South Beach and the area has become one of the most important in the modeing industry In foci, Miami Beach has become second only to New York City in terms of employment opportunities for fashion models in the United States. Attached as EXHIBIT 1, please find several press and media articles documenting the rise of South Beach as one of the United States' main fashion capitals. In 1996. our company, MC2 (formerly Karin Models , established an office in lhe heart of the historic Art Deco District of Miami Beach. "South Beach' has truly become one of the world's modeling capitals and we are pleased to be a Pcirf of il Our agency has developed a highly distinguished reputation in the modeling industry. We specialize in representing numerous moaels of infernailanal acclaim. Having discovered faces such as Christy Tixlington, and molded the careers of celebrities such as Sharon Stone, Estella Warren. Milo awe' mods maw- 1674 Won mad su)1e 640 mialTh beacti I133134 Nab 672 6300 fa: 305 531 8330 adminostration 305 672 7672 fax 345 672 6332 rric2trim Jovovich. Jerry Hall and Rebecca Romiin who is currently starring in the award- winning ABC television series. Ugty Betty; MC2 models are among the most sought after in the industry, as evidenced by the caliber of their commercial and editorial bookings. Many of our fashion models have graced the pages of leading fashion magazines of the United States, Europe Latin AMeriCO. Africa. and Australia such as Vogue. Teen Vogue. ale. W, Glamour. V. Mane Claire. Surface and Cosmopolitan as well as many more throughout the world. In addition to our Miami Beach office. MC2 Models has offices in New York City and Tel Aviv. Israel. As Artistic Director and Talent Coordinator tot MC2 Models Miami. (IC. Mr. Brunet will be responsible for overseeing the artistic aspects of the agency. By overseeing the art department in the agency. Mr. Brunel will direct the visuar marketing of the models to clients. focusing on the images placed on both the model's composite cards and their portfolios. Both of these marketing tools are crucial in marketing fashion models to their appropriate catalog, editorial, or media clients. As Artistic Director and Talent Coordinator, Mr. Brunei will also ,:oorciinate the pairing of fashion models with a particular photographer. Clients for the agency include a myriad of fashion pubfications, retail stores, consumer oracluct companies, and fashion houses lo name but a few. Recruitment of talented artistic photographers who have an exceilent understanding ot the 'ins and outs" of the modeling and fashion industry is cnbcal to the successful running of a top-modeling agency such as MC2 Models. Mr. Brunel will also continue with his amazing track record of discovering the world's greatest talents and beauties in order to sign them with MC2 Moclet.. Mr. Brunel will continue to travel around the works looking for new talents, and to agencies around the world in order to establish relationships with those agencies and allow MC2 Models Miami. Li.0 io represent them in the United Slates. Mr. Bruners impressive Qualifications as an Art Director and Talent Coordinator, establish eligibility as to the regulatory standards for such classification as a top professional in his field. Mr. Brunel meets the 0-1 criteria as an individual of extraordinary ability in the Arts and Entertainment field as well as a business entrepreneur. MC2 Models Miami. 1,1C is presently seeking a cophisticated art director and latent coordinator. After reviewing his experience and accolades, we ore confident that the beneficiary, Mr. Jean Luc Brunel, will perform said function with outstanding kiii and professionalism. J. MR, BRUNEL'S QUALIFICATIONS AS TbE RENEFICIARY In addition tc, Jean Luc Brunei's extensive business Qualifications, his -weer as art individual with artistic vision and creative talents Qualifies him as an 0-1 alien in the Arts and Entertainment Field His all- encompassinin experience as art Art D'ector, Talent Coordinator. international entrepreneuo and business leader in the modeling, fashion, entertainment, public relations, restaurant. and tourism industries has made Mr. Brunel internationally renowned in Those fields. Among his various accomplishments throughout his career are the successful modeling agencies he has founded both in Europe and in the United States. For example. in 1978. Mr. Brunel founded and grew Karin Models Paris from the ground up to become a lead-market agency with a world-wide presence. Capturing a strong market share in Paris, Mr. Brunel successfully created Karin Models as a platform for marquee clients to obtain sophisticated public relations services and important modeling contract opportunities. Mr. BruneI's success was so great with Karin Paris that in the next ten years. he founded Next Model Management in Los Angeles. California in 1980. Next Model Management in Miami, Florida in 1982, Mode Management Group also in Miami. Florida in 1966. and Rebecca Commercial Casting in New York City. in 1988. The loiter one was opened as a talent and casting agency for performers. offering services such as voice-overs, television, and cinema advertising work. again. successfully carving out a niche by which to make his mark and achieve bold commercial performance results. Although Mr. Brunel later sold his rights to Next Management to Faith Kates in 1989, who partnered with Joel Wilkenfelcl a couple of years later; NEXT represents some of the most prestigious women and men in the fashion world today. Star talent includes renowned fashion models Molly Sims, Daniela Pesiova. Audrey Quock. Yamila Diaz. and Malgosia Bela. NEXT continues to maintain an influential international force in the fashion and modehng industry through its fully operational offices in New York. Los Angeles, Miami. Sao Paolo, Montreal, Landon. and Paris, as well as its affiliates in Milan and Australia. Because of strong revenue growih and successful business performance. as a result of his ariislic vision as an artistic director and talent coordinator. Mr. Brunel founded the very successful Karin Models of America in New York City and Karin Models USA in Miami Beach. Mr. Bruners commercial ventures in opening Karin agencies in Paris. New York. and Miami have been extremely successful, generating combined annual revenues of twenty five (25) milion dollars. Eventually, Mr. Brunel hcensed the Karin name to agencies In Israel, Denmark. Germany. and Spain. Mr. Bruners extraordinary talents are not only limited to launching successful modeling businesses. but also in discovering and launching the careers of some of the world's most successful models. Mr. Brunel has launched the extremely successful careers of supermodels such as Christy Turtingion. Rachel Hunter, Sharon Stone. Monica Bellucci, Estella Warren, and Christina Semonnovskaya. These women all proceeded to become some of the most photographed international cover models in the world, appearing on Thousands of magazine covers woirictwide and spanning many years. As a result of his reputation as a highly visible, strategic networker who cultivates and conducts business in a global environment and bookers lucrative cleats, mory lop players in the fashion and entertainment field requested that Mr. Brunel function as their exclusive agent and representative. Some of these top former and present professional supermociels in the fashion field include. Naomi Campbell. Christy Turiington. Rebecca Romijn, Mia Jovanovich, Inez Sastre, Melanie Thierry. and Jerry Hall. Attached as EXHIBIT 2, please find press articles regarding the models and actresses who were both discovered by and careers were launched by the beneficiary. Jean Luc Brunel. Additionally, attached as EXHIBIT 3, please find several articles regarding the prestigious reputation of Karin Models as formerly one of the world's leading agencies. Most recently in October 2005. and after his reign with Karin Models, Mr. Brunel launched the prestigious MC2 Model Management worldwide with offices in New York. Miami and Tel Aviv. Mr. Brunel storied the high-profile MC2 Model Management in order to represent high fashion models in a boutique agency setting. MC2 Model Management is already being lauded by fashion insiders as "one of ihe hottest agencies in North America" as well as "prominently positioned to be one of the major players of the Zeros because of its insider relationships with the most influential photographers around." We invite you to visit www.m c2rnm.cpm in order to view the high-caliber of models. MC2 represents Some of Hs most recent successful bookings include Liu Dan'', exclusive contract as the face of the Fall 2007 Guess Campaign and Sammy Jo's cover story for Cosmopolitan Magazine. Attached as EXHIBIT 4, please find a list of all of MC2's clients, including several high-profile campaigns featuring some of MC2's fashion modes, as well as several press clippings regarding this prestigious and reputable modeling agency. Jean Luc Bruners entrepreneurial spirit is not only contained to the field of arts, beauty. and fashion. In 1970. as a result of his business insight, Mr. Brunel founded and grew Jean Luc Relations Public:we, which specialized in press and promotions for tour operators and restaurants in France. During his work through Jean Luc Relation) Public:we. Mr. Brunel represented various key clients and collaborated on numerous prestigious events. Some of the prestigious events include.. Air Tour and Daro Voyages. Jean Luc Relations Fubliaue also promoted and marketed La Tour D'Argent, a three-star restaurant owned by Claude Terrait and. "The Go-Between", a motion picture by George Losey. Other projects token on by Mr. Brunei through his public relations company was his work as product agent for Jean Claude Kitty. 1968 Winter Olympic Gold Medalist skier, to promote Vail. Colorado in France for tourism potential arid also directed all of the promotion for Finland's Ministry of Tourism. In 1975, Mn Brunel further invested in the Food and Hospitality market by creating and developing "El Mono Desnudo"- a legendary, high-end bar on the Iberian Peninsula. This bar was known throughout the peninsula as extremely exclusive and attracted a celebrity clientele that included actress, Ursula Andress, and lhe Duchess D'Alba. Attached as EXHIBIT S. please find the beneficiary's. Jean Luc Brunel. impfessive curriculum vitae. verifying his tremendous accomplishments in both the fashion arid modeling industries. II. ELIGIBILITY FOR CLASSIFICATION AS AN ALIEN OF EXTRAORDINARY ABILITY THE ARTS Under the Miscellaneous and Technical immigration and Nationality Amendments of 1991, petitions for classification as an Alien of Extraordinary Ability in the Arts must be supported by evidence of "distinction". According to 8 CFR 214.2(o) (Mil), "distinction" means a high level of achievement in the field of arts as evidenced by a degree of skill and recognition substantially above That ordinarily encountered to the extent that a person described as prominent Is renowned, leading, or well-known In the fields of arts, This evidence may consist of proof that the alien must be recognized as being prominent in his field ot endeavor as demonstrated by the following according to 8 CFR 214.2(0)(3) (iv): A. Evidence that the 05en has been nominated for or has been the recipient of significant national or inlernational awards or prizes in the particular field such as an Academy Award, an Emmy, a Grammy. Of a Director's Guild Award, or B. At least three of the following forms of documentation: (1) Evidence that the alien has performed, and will perform, services as a lead or starring participant in productions or events, which have a distinguished reputation as evidenced by critical reviews, advertisements, publicity releases, publications contracts, or endorsements; (2) Evidence that the alien has achieved national or International recognition for achievements evidenced by critical reviews or other published materials by or about the Individual in major newspapers. trade journals, magazines, or other publications: (3) Evidence that the alien has performed, and will perform, In a lead, starring, or critical role for organizations and establishments that have a distinguished reputation evidenced by articles in newspapers, trade ,journals, publications, or testimonials: (4) Evidence that the alien has a record of major commercial or critically acclaimed successes as evidenced by such Indicators as title, rating. standing In the field, box office receipts, motion picture or television ratings, and other occupational achievements reported in trade Journals, major newspapers, or other publication'', (5) Evidence that the alien has received significant recogntHon for achievements from organizations, critics, government agencies, or other recognized experts In the field in which the alters Is engaged. Such testimonials must be In a form, which clearly Indicates the author's authority, expertise, and knowledge of the alien's achievements; or (6) Evidence that the alien has either commanded a high salary or will command a high salary or other substantial remuneration for services in relation to others In the field, as evidenced by contracts or other reliable evidence; or C. If the criteria In paragraph (o)(3)(1v) of this section do not readily apply to the beneficiary's occupation, the petitioner may submit comparable evidence In order to establish the beneficiary's eligibility. EVIDENCE THAT THE BENEFICIARY MEETS AT LEAST THREE Of THE PRONGS OF THE CRITERIA UNDER VBSECT1ON 0 The afg mitng that the beneficiary satisfies is gl CPR 4214,2foX3IfirOf8)(1), which requires evidence that the alien has performed, and will perform, services as a lead or starring participant In productions or events which have a distinguished reputation as evidenced by critical reviews, advertisements, publicity releases, publication contracts, or endorsements. As a result of Mr. Brunei's combined expertise in fashion and tourism, he decided to create Latin Model Pageants, now known as Models New Generation- to cross promote these key industries with international business and investment opportunities. Mr. Brunel has promoted and judged various modeling contests throughout South America including modeling contests staged in countries such as Peru. Ecuador, Brazil, Argentina. and Chile. Conceived in 1987, the Latin Model of the World event was a high-end modeling and entertainment product that appealed to upscale international audiences. reaching nearly 400- million television viewers worldwide. Throughout his history as a major infernalionai event promoter and artistic and talent co-ordinator, Mr. Brunel has orchestrated multi-faceted public relations. advertising and media campaigns that incorporated television, magazines, programs. newsletters, and promotions. becoming notably lucrative for various major brands as a promotional tool. Mr. Bruners acute knowledge of marketing and promoting skills has turned his various international events into highly successful artistic and business ventures tar various major brands Latin Model Pageants attracted major brands as sponsors, such as American AfrOnes, Ray-Ban, Coca-Cola, Proctor Gamble. and Revlon. Mr. Brunei's has continued his ventures as both a promoter and panel judge when he founded and created the international modeling contest, Models New Generation !hat took place in Guayaquil, Ecuador in 2004. Mr. Brunei sat on a panel with three other professionals in the fashion industry and judged over forty-nine young women from over North and South America. Asia, and Europe. After len days of harsh competition, Jean Luc Brunel crowned the winner, Alyne Weber. a fifteen year old from Brazil, whom as a result of coming in lust place was awarded over three hundred thousand dollars worth of modeling contracts. The city of Guayaquil. Ecuador was also thrown into the international spotlight as the host city for the modeling contest. The Models New Generation was broadcasted on numerous television network channels including. Fashion TV, which transmits to over 202 countries throughout the globe, the entire Association of Television Channels in Ecuador, National Television of China, and Recle Globo. Brazil's largest and most popular television network. Attached as EXHIBIT 6, please find several articles regarding the 2004 Models New Generation Contest as well as the beneficiary's leading role within this prestigious modeling event. As a result of the tremendous success of the first Models New Generation that look place in Guayaquil. Ecuador in 2004, Mr. Brunel organized the second Model New Generation Contest which was held in 2006 in the Ecuadorian capitol of Quito. In order to select only the very best new models, several Preliminary. qualifying shows were held in different countries of Latin America including Bolivia. Panama and Peru. The final conies: was held in Quito, Ecuador at the historical Plaza San Francisco. Mr Brunel sot on a panel with three other professionals in the fashion industry and judged over forty-eight young women iron' twenty-eight different countries from North and South America. Asia, and Europe. After ten days of harsh competition, Jean Luc Brunel crowned the winner. Gird Lapina, an eighteen year-old. from Latvia, whom as a result of coming in first place was awarded over three hundreo thousand dollars worth of modeling contracts. The city ot Quito. Ecuador was also thrown into the international spotlight as the host city for the modeling contest. Again. just like the immense media exposure given to the first Models New Generation competition of 2004, the 2006 Models New Generation competition was broadcast on numerous television network channels including, Fashion TV. which transmits to over 202 different countries throughout the globe, the entire Association of Television Channeh, in Ecuador, National Television of China. and Rede Globo. Brazil's largest and most popular tetevision network. Attached as EXHIBIT 7, please find several press articles regarding the prestigious 2006 Models New Generation Competition, as wel as the beneficiary's Jean Luc Brunel. leading role within the event. The 2006 Models New Generation program was broadcast in over 202 countries throughout the world. Mr. Brunel has performed and will most definitely continue to perform services as a leading participant in modeling events, which have a distinguished reputation and wilt bring more public international light to MC2 Models. For the above-rnentinneOr.m.r1,ns,, 131uriel Satisfies INA 214.2(a)(3)tivi (B1( I ). The second prong that the beneficiary satisfies is 8 SJI fa14,2(03)fiv)fBn. which requires evidence that the alien has achieved national or International recognition for achievements evidenced by critical reviews or other pubtisned materials by or about the Indlvidvol In major newspapers, trade journals, magazines, or other pubecations. Mr. Brunel holds an international reputation as ci visible. strategic rietworket who is able to cultivate expert relationship management skills in cider to conduct business in a global environment and broker lucrative deals. Mr. Brunel has a long history in marketing and advertising maim fashion campaigns. throughout his twenty-five year career in the fashion business, Mr. Brunel has developed vvotidwide exclusive modeing and cosmetic campaigns. Some of these major cosmetic campaigi include: Bio Therm with supermadel Etle McPhersor., PeAS with Rebecca Rornijn, Christian Dior with Christina Semonnovskaya. Margret Astor with Monica Bellucci. Chanel with Patricia Von Rickenheim. Angel Perfume with Thierry Mugler. and Cacharei Perfume with Aida BaHestia. Mr. Brunet has also developed major fashion campaigns and has developed campaigns and exclusive contracts with some of the waticrs top fashion designers such as Yves Saint Laurent. Chanel. Christian Dior. Gucci, Nada and Marc Jacobs Please see the enclosed letter of Claudia fvtidolo, President of Moctetwork, a renowned modeling agency. EXHIBIT B. As a talent coordinator, Mr Brunei's success can arid should also be measured with me 3ucce55fu1 careers the models. whose careers he launched. have achieved As slated above. Mr Brunel has discovered and represented various ruper models throughout his career. Christy Turlington. who was discovered by Mr. Brunel, has personified unaffected beauty- representing Calvin Klein's fragrances since 1987 Turtington. as well as another model represented by Mr Br unel. Naomi Campbell, becarnt- one of the few superrnocie6, who managed to make on easy transition from the haute glamor of th 19BO's to the relaxed simplicity of the following decade. Throughout hei extensive career, arid as a result of Mr. Brunet's "Fashioii- Savvy Eye", Christy Turiington tio graced the cover of hundreds of fashion magazines. surf , as Casmopotital ,, W. vogue, Shape, Fitness, Elle. Bazaar. mcirie Claire. Harpers. Esquire, and even Time Magazine. Please see the enclosed letter of Alla Amantova, Director of Figaro International Management. EXHIBIT 9. In (addition. the modeling events that Mt. Brunel has been organizing throughout the years receive not only national, but also international attention and appear in multiple publications around the world. One of the most recent events he organized. the Models New Generation contest, which took place in Ecuador was publicized and transmitted by various television networks and appeared on multiple newspapers and magazines, among them Globo Television Networks in Brazil. Fashion TV which is broadcast into 202 countries throughout the world, El Univers , Cows, La Razon, El Diario. El Telegrafo. Notinorfe, Extra. Hoy. El Gran Guayaquil El Comercio. Semana. and 8 Lideres. to name a few. These major publications have a large subscription rote which numbers in the many millions of readers. Attached as EXHIBIT 10, please find several press articles reflecting the prestige and high circulation rates of the above-mentioned magazines and periodicals which have featured and covered the modefing events in which the beneficiary. Jean Luc Brunel. has organized throughout the years. Hence the beneficiary satisfies NA 214.2 031(iv)(13)(2) for having achieved not only national but also international recognition for achievements in the modeling industry, by having his work published in major newspapers and magazines throughout the world. The third prong that the beneficiary satisfies is 8 CFR 4214.26,1(310001f4), which requires evidence that the alien has a record of major commercial or critically acclaimed successes as evidenced by such Indicators as title, rating, standing in the field, box office receipts, motion picture or television ratings, and other occupational achievements reported in trade journals, major newspapers, or other publications. One of the main reasons that Mr. Brunel has been able to not only survive, but also be extremely successful in the ever-changing world of fashion is his ability to identify and recruit star-quality talent, As a result of his ability to scout major talents, Mr. Brunel was invited to become a member in one of the fashion industry's most elite and important associations, the International Model Talent Association (hereinafter IMTA). The MIA is an international association of training centers for models and talent. IMTA gives aspiring models. actors, singers. and dancers spectacular opportunities to showcase their potential talents in front of too fashion and talent agents from the major markets of the international fashion industry. IMTA also provides its association members valuable marketing tips and networking events with agents and scouts from around the world. Several of todays up and corning actors arid models have been discovered at IMTA; some of these discoveries include world-renowned actors such as. Elijah Woods, Ashton Kutcher, Katie Holmes, Eva Longoria. Jessica Biel, and Sean William Scott, Attached as EXHIBIT 11, please find information regarding the extremely successful and prestigious modeling and fashion association, IMTA. Additionally, please find several pages from IMTA's official website documenting their discovery of the above-mentioned Mist actors and actresses, whose membership in IMTA proved to be the launching pad for very successful and highly profitable careers in the film industry. Furthermore, as previously mentioned. Mr. Brunei has launched the successful careers of many internationally renowned models, who have been featured and still are in many international and nalional fashion magazines. In addition, his commercial ventures. especially MC2 Models. formerly Karin Models, have been extremely successful generating combined annual revenues of twenty live 125) million dollars. Currently MC2 is one of the most successful and well-known modeling agencies in the world. Mr. Brunel is one of few people in the modeling business that have achieved a similar standing and have been able to maintain it for over twenty-five years. For the above-mentioned reasons, Mr. Brunel satisfies INA 2144.2(o)(3)fiv)(8)(4). EVIDENCE THAT THE BENEFICIARY MEETS 8 CFR B2141(01f3IfIv)fC) The petitioner has submitted a plethora of evidence regarding Mr. Bruners experience in the fashion modeling industry. Mr. Bruners has established MC2 Models, formerly Karin Models, which is presently one of the major international modeling agencies. with combined annual revenues of twenty five miDion dollars. Only someone with Mr. Brunei's expertise and strong strive for success can achieve such international acclamation in the industry and been able to maintain his status for over twenty-five years. Mr. Brunel is the one responsible for the launch of numerous supermodels' careers, which hove been maintained in the spotlight for several years. He has worked with renowned fashion designers and photographers, who have trusted his work and intuition. In addition, Mr. Brunel has orchestrated many international and national successful fashion events that have received international acclamation. For the above-mentioned reasons, Mr. Brunel in addition to meeting at least three of the criteria of 8 CFR 214.2(0)(3) 1v)(8). he also qualifies under 8 CFR 214.2(0)13)(1v)(C) Ill. CONCLUSION It is clear from the evidence that Mr. Brunel is eligible for classification as Lin Alien of Extraordinary Ability in An Direction and Talent Coordination based upon his meeting the eligibility requirements under the Immigration and Naturalization Act 101(a)(15)(0)(1) and 8 CFR 2)4.2(o). Mr. Brunei's successful career proves that he is a prominent. leading. and well-known person in the field of arts. Mr. Brunel's extraordinary ability in the field of arts, in which he witl continue to work in the United States, has been demonstrated by sustained national and international acclaim. Based on the foregoing, we respectfully request your kind consideration and favorable determination of this petition, in order to accord Mr. Brunel the classification as an Allen of Extraordinary AbIlity in Art Direction and Talent Coordination. Again, kindly hate that the beneifciary, Mr. Jean Luc Srunei, has held 0-i status In the past Wherefore, for the above-stated reasons, we respectfully request your favorable adjudication of the 0-1 nonimmigrant visa petition submitted by MC2 Models Miami. LLC on behalf of Mr. Brunel. If you should have any questions or requie any additional documentation, please do not hesitate to contact our office. Thank you very much for your kind attention regarding this matter. Truly Yours. Mien. September Os, sou" USW Vermont Semler Outer 75 Lower Weide Street Bt. Album:4Yr osen-000i BE 0-i Non-immignint V Maine on iwitalf al Jean We Dither Henri Itene Brunel I write this letter in t.trong sup;x,rt of Mr. Jean LUC Bruner:, applicAton for A non-inunigrard Visa to this oountry. I am currently Aninalnistratorr Unice, In Studio Pp. I ha,,x: been asked to review the professional credentials of Ma Brunei, and it i5 my profest,ional opinion that Ms. Brunel is an Art Director and Tak-nt Coordinator of ettinerdibary ability who ranks among the mnIIparentage of foreign people at 'red. top oaks field. I have seen first-hand Mr. Jean Wes special expertise in the field. intbding entity. production. coordination. and art direction for shoota. Ur. Brunel is considered by those in our Wintry to bean extraordinary creative director talent, particularly for the fashion and related indostrie:i. In zny personal dealings with Mr. Jean Luc Brunel, I found him to he thoroughly professional and capable of being utilised in connection with a wide range of creative subject matter on any ainivinient. He has liw intuitive ability to provide just what's needed in connection with any particular cmtive process and possesses excellent artkic ossmuternent and operational skills that come from his years of experience. Many people do not understand that behind every IncOessfut ad ertis.ing campaign and fashion shoot there are creative wen and wants who are making sure that the business operates efficiently by coordinating different tasks between models, photographers, and managing avative team. I can honestly say that Mr. Brunei continually prom, himself as an extraordinary talent its his field, offer an unmitigated endorsement for Mr. Jean the Brtinet regarding his. dart application asi a person of extraordinary ability. Th'pre is no doubt in my mind that his popularity and ability in the field will only time to pr ,per in pears to come , ! f.m! Ivry. t . :441, 744 ra sasmeast tt Ps 41116 14 MOM fbrevtai Color Siemer Weider. Ittreet Si Album '17 0.5474-4101.) t SKI 0.1 filossemooswoot Viso Vrtitoso ' of Agar - ilirisreeo Disr Ow or Maims I Wit doe trtlirr 41 straw aupport of Idr Jean L...c Briariefe tappitcaiwn rpm a r-zo 11111110Witit visa ft MA OPUtlir; oft cefiretly uurkiraz as an Awrot is TwO Malillipaben1 We gees Based mph my eisiriang is thir fieki of ti:o litsituovat tedueise ea frequently Cad to tirdieein tiw ontotrustiolo of r thfir i...nnftwgctiati m hp fedd I have born Ord 10 MOW fiiit protest:tom! ciredeestiahi of Mr. sky:,,r, Luc ersoet It be y prokoluGnitS optnirn, lootd upon toy petwof and prolenotootolI linooloollse of . amulet udentri, that Vir. Wood re en oft director of ceirrievainary Who who ranks among tht. ormeil rarceltimp of keeign ptrAteitatugeatwore top alma that I Wel atom Joao Lu nuid and aser4 a pkaisinive Iowa with IWO a teibraiard perms ithadmi biy the Pugh !walk IllaterSIM et :ht comperises with twit he reiguirf thearb S am wail the cvnl; oar who wettable his Woo, Hi rttotirlst!furty appc4ied an my tit die' weld most pup4itpublicetione. eriacheig Ikterony uaierre er adounes perttriiiikit foamy, kir Ms work in to V tirn, oderrheirg arid rd'109a1 world his medsikothoes Sc soktai stools. ouch oh itkiteld IOWA. 011014. Moe' New lietvrid MN ignition as gm itt the loadma hist Whom an doectors sores IV-day. Jew im- am Is the vonstmemnotit prolomoonal vitykrt at row to tho 571 01 bathos ond hot wart as learitharni frieirittes twat elite oiesistraire A tree who lir in cutturittei TO MO elitellellats of Ow dant on rnecy eccoserti fkitiexilh Mt wet i-m-yrrtiowle thy heihrei thoormotthos for has wit. lie to weft worth the met Mr.Jtoet Lair Snow a UNistillattsultoty at COM- Ina enerv.. moortsoriatiol isalaaverawral strict eckeoeigidirrurt-ri Should you hew ow ILrlitv,ril Mr buss!. mUwdasw abslfl. nee foci belt to comae too Moak sou lor yr otterttiosi aria rortsederstoss. OREOKADEILIITUDIOS oroyarmatmer Ltd tow 1111.0 peoli tritiii gala tfilt0111121001111111111011.tain b b1 som 418011 mid bola Casa 2 tom Weldesiltiett Ahem Vf 064Po -cool BD O11420-kaasigesat Visa Fabian on Mullet Joan Lac Brand Door at Itadsav letttr im writtext to support the vim a-WIT-maim ofJcan Lac mei .0 that he may be accorded 0-i inctraortEnary thfly101111 tai Iaoatitinuc to erpaod ;am his already cruatanAiles maws in the warichyklit fashion fidnan). I an the hodaction Manager at Ong Kids Wok and brig witted vetth attth climbs as vogue' refthat. Nurnin), hatertarito, Yam GdfaIwit, IrtSrgfri and Allure Atm Lac Brun hie bsonnis inervatittgly well imam tit ow ISM as taatrlibedIe Iyho we' Web manor raid direct Lathilxi trod for clients, phottgraphers, ate. Mt. Jenn asc Elmo aimh mined ere to mixt th 11Xlid appzopriatz models to be Used in an axivetrritaus Calapagit, awl stersecroeney has the otitatandkg ability in manage at stages ci thr- eteripirar wean of prodischrts tbe right model fm a job Themfore, the quality n(bl wIt14 is II-Till:Able es lie is able to IthermoCt beaudioul Mad As a mak he fag becoming one of th,7. pi:kelt:amain cif choice bathe lambkin sod other CtlIltife i hart:ries. Is my opinkin, Nes Lax Mast is eensty an indhitILIS3 of tatimordinary abiliV in the BM of am and the warilian he will irteurne La the United States cleamiy requites an. indiAridual r x1raordina.-7 abdity tn this tut )ix, Brunel has en homistialudiir hsicsra mad recogrited for' his larkftle Wait sad esportise.t rfloanis be tines repdady mann tietb. rnoet rtestisbus faehinn uMkfr roubd des worW nth lb nit Magaritir Glenicipoitfun, Nantabsta. Wt. Bruntre amtriimatiaws to major cIin htive sexured hoz a pm-Iliac as ens uf the lesikug dirsobars And tam coordimidars working tad it is tirm my opinu-all that tbie zesprgirietris and Aut:irs of an internal:ins:31 it cErcetztr, vrbo entiabeiratee with tilt mot distingualied truigazents and attkr.-Vairtg isiLesica, loquire an tnanrici.m) afardy aff ability and aeocurrpl:shnteeits in tri Mr, Jess Lis Thritr,c1, risatiaind an 04 "bats mortis the Vilna ate dais lac bond Ina nu brim hia pberiamansi talent Araeritsa rim Flan do mat bums to admit ape WO My gamma amente. - Faxing Know montage wit ST P 11111. sit J: . 11. I.ik11 .45S6( VICO Vermont Service Ciotti n Lower Walden Strain Albans, VT 064N-0001 REI 0-iiion-immignsu Visa Petition on belied? of Jests Luc Bros Dm Mem Madam - Sty name is Nadia Coma sad I am President of Wenger Ntreieh.l I bow 30 YVarS assporience sod lam CuihrWIt t. ia contact with profiesiorials all over do world. A few al my clients in, Niir Elie klagszioe, MI110111. Mow !aura 3tiap. ugil. v'k.. The Eta, Stsrm. , sod so OIL Aim 4116, I am qualified to comment on Mr. JIM law Brunei's caner as an of direetor of ectracedinisr- ability It is Dot only became of his demotions or We impenritio body Of work that fashion sdisstisisig sod publishing executives mold the world I..a . choestie O M hm . Brunel's great talent lot their renowned aCCOM Mr. 4lion Luc Brawl is idea an pi300411t0 Imen at furnishing bit chest with tautly dui image of their dram. My perwr.al appreciation of Mr. : ruse! who is saw for ow to r-rJrvrwl his acciarriatians. F'rurn my sgeridtgailte they are certainly !sell coofirmsd. Accordinciv, Mr Brund bill a position to conanrad sizable conipanastion for his wars as comperes to obits in the Winos M. inuesrs minas:Fa as a tartaidabie artist with a personable demeanor precede, him tia is ositstantly ressarchiannO dirreloping stimuistingly now commis for his clients and I bine mine to rily on end tnot Mtn and his ability. OM the tt.n.:rbv. ha celebrated career. Jraft Lar Brullel diginguished himself es oar of SE leading fashion an director in the industry. Kt AIM Lae ilinasi enjoys an extraordias Ft. IlltatiOnSteiri to the acittstw, This gadfly manifests Itself through the besutiful work hr createN. Wee Id time. Therefore. Jan We Brunei la dauy ens f tiw MOO tabard professionals working is the worki today I look forward to seeing rn.,re' of his work in the future. Sintaisty'goara, 4 64tee-C-t.." Nadia '.sotfrys 111111111111 0 N( 114 1 );; I1 )1 11 leptembet 17. 2014 USCIR Vow Sono, Coles 73 Lower Walden elms AllAnikeVr 0947114X101 RE- 0.1 titten.inursgrani ,a.a Patton on being of Alan Luc (Mod Omer tieovMsir 1 would Mei Wend req tifil end unqualified support for the OXIMONlinelY gtatV 04 Wes POW INAMIted b tAz Jaen LW ate ea the Oen reknit Produces fee tiortalrorn, I ent quailed to ley that M. Jean Leo Dural It 01 art ditoint ocl Want feted11.21 of the highest caber whose Wyk emotional end creed ice how NNW tots fav no hie prafeeelen Ilmoughote Mt Man ILuc emigre detinguilluei career, he hoe recov, ad a lughti ininnsolvo let of woresstangs POWS end 10ch1evonantli Ni grilk Pelt WO WM riff efamill ties atm kid beautiful citadels that haw appearod ins bat tanned oraffir.ls in seeta efts nod enthont publicatkina in the Iti. v4110 saves as a tounant ha WNW I ant e awoke' wens to the ezaaiwo and operational skits of many cmvo wean" puck loniuding art direness and Want coonlInelora, ft la Virsloni irg plenum so risoogolvs Ternentable talon sect achievements of Mr. Jeer Lug lir uml. Hs OVUM ito etal lave I Amp mai from the meet cared" deveiopod creatconcepts and idea I Is hie very unique ability to COMIrruicalsk, via award anal . WM intended altiee hump of his chants, II is ober that Pk demi LW erlitid I 41011C1 far beyond evii swami levels lor SUS inetistly by S Wunrili15 Mt loth lahtili 11 Voprit considanel. Indeed he has worxedsiSi sone of 111710 beit4UVAVII ATM, Wrt o house.. end eisquinee vt wade; is tr. maw tio.obt met 1 polo 1071 the c'erika 111a vvey bad Is fda prolgastan 1 am 0311fillindy int Outi tk. Ash Luc ewers repidellon ties a chinvsit ingsmeganei staink. tie hss reached a level vitiate toasty leaders me descidet hill, as a Ain Lie Swat's voreanidhwy weer Is at a pert vete dues Is ne taming bee filncoalp. Uri Widow Solar Tow Pixitraer 141realtors I. 1.11111111 , S hi. oil, VsS 1113 Recommendation Lmter 22 09 USCIS Vermont Sew Center 75 Lower WeIdea Street St. dhows. VT 05479-0001 RE: 0-1 Non-immigrant Visa Petition on behalf of Jean Luc Brunel Dear Sir or Madam: It is an extreme pleasure to write a letter of recommendation for Mr. Jean Luc Brunel. I provide this recommendation based on my knowledgr and experience in the field of modling, due to my established reputation and work in the field as the Vladimir Yudashkin, director of I Mother Agency. Kiev. Ukraine I have known Jean Luc Brunel pmfeanongilly for 5everr4 years thmugh our wink together and, in my opinion, he is an ext mely talented Individual with superb profettsional reputation. He is an !extraordinarily able coordinator who strives for and attains a level of merit in his wnrk that only a few of his contemporaries meet. He has the abilit3. to recognize the creative vision of his client within the time and budget through hbi careful and thoughtful choice, of model casting combined imktig his meticulous ability in the field. Jean Luc Brunel is a true find to our indusuy. Mere are plenty of or, directors out there, but none with: the depth and quality that Mr. Dninel possesses He is unlike anyone in this industry. sod I expect to see him continue to find great models in his successful career. Someone overflowing with talent as Jean Luc Brine should be given every opportunity to work in the United States, where he will have the proper venues to showcase his extraordinary talents. Please do not hesitate tv contact me should you he :any questions regarding Ohs matter. Thank you for ynur time and:r6nsideration. 'A. Vladimir Yudash FIG010 141411 gigtifige Otriltiog 4 1141" IIIPM111".411111604. ....I r uotrvuak 160 44111PA Ivo 44 4110.111t SitS1Kok .4 its Department Of Hatitinirld Sinai Unitid Stitt C1Mzmship aid ttroniergition Simon Vonracoll Service C 01iir 30 Illogglice Stritit Sant Abone. vr 1X5470 Ilhombor 011171 41,11 ION IT. SHA 04 rafteartlffrory Ability as an AO Dinectat and VOW Cocsidistatol iscwilue MOW ifemd.ltimit mow '1;0.1Stil Inirt 4111C,:cr t-.1,ip trk s -Ts rNriptior riTtiflorl f;t - " -tf-s1L-la- 141 i.s-es," ' Or, ; cro:ttitLffeli IA0'1 Cate., thematic IW t i.fregIt'''' ;1, x1rwe I tli.viet 'e43, 3 rearelinfol votious tit, VICK s t Tn. OiStit j1 4;r1, qlj by We Grum. has partariffael -gol'acloa Disa. ',4r '.41411'tIrsg 7;01- A,T) 1967. TE4ringtor2 bvil 41 or -41.i :f 111001, 'atCYCItor, 00 t 'VT r Tr.,) -y4,0 ori e Phe tow supenroa - snonagoi -',417 i. ir-rfi'vVr "7., the r tric, tr4. left .V411 el'. a slinco.." Cr mi. till' IV II S- " 4 d " I tt',4 1.1,....rorrlcs or inzt.sorl rrogizr,r4:: Pii) Wire Core. Parole? 1. t.7.1..el-e 741-.3 ewe, Mt unto tus ,a 1 4.4"1"11,E- e Netelt1 v.4) iuriter. FA,',-r..Ifer) Slane. '- , t AstAucx.:1 sSi VS1.1 r 14.', ;.- -' 'S Ihro:et-rrc, aie warner 04 1rOCe00014 11 ',TOrnSIP J Aw.t"ahltelso1P.: erY3010 sipie .1 Ipiletcr 2.222 -t. - A .AdiAiN.Z.4 rp1 t.,); it II': r-car, pew 1.0 .t: : Tit ..tv 1,4 i yirk7, IA" TA' ;,7 e'S 4-70 Vkittiete; 0'40100r- - t 4-.4,7 14 .b.':1!Pt.t MO e,1.111 Oa, ont4;1 :I ; .I OS g Weil Jsi i,, PeCereelr 4 r 13.1 TiOr er t ,,;kioot, Jet3I coorconc:;1- ; Lents -yd try-, ,..1.1-Nryt Lel- -vor ;1 Meter U, ihe me .7,4 01117 Admi MODELWEIK IONA. It 14 faiklbil . (I P liv! rii: 11 V 1-40-40-14L HrbxgBJLy. 2011 DePartment of Homeland Security United Stales Cibzeriship and IrrmigRrion Services Vermont Service Cer 30 ri,c Jghtor Screer AlbOnS. sir 05478 Re: 0-1 Extraordinary At.iily OS Om Ar- Dircc 4 Or and "alert CQ,crchnotcr behdf of Jear-Li.c Didier .4enn-Renc Brunei To Whom rt AS 0 President .7f Niv ;.c-crk. Mil) Her submitted in support at rAC2 MOdets Miami, LC or behalf or Mr Jean Luc Brunel -o work as a Art Director and gaient Cpowatinotc,. M. tonal okj jii irtVrTatiOr rc.LIpiftl1i0M, as 0 w;ibio, shategit networker who "-k able -o cultivate expert relationshio management sk tf.s order to conducy tautness in a global ervirorwreng and inter tucrarive deals. Mr. Brunel nas a long nit2r,, marketrig and adiertic;ng craw fashion campaigns. Inrougtio-it INT twenftf-tive year coreertinn trie fair vi business. Mr. Brune' has developed worcide. exc.usive odelircj COIMOliC campaigns. Some of 1-pese 'rtaior cowneTic campo'cn 60 Therm iNitrl sugierrnader toe A..i..-,wrierw.n. t'HA5 VAM kebecca 11017,17-.. CNIStiOri 0101 g'ith Christina Ser........ftrwi(a.?a xitr.Tet Asia! with Mora Belucci, Chanel wylti oirk i VcIf. Ar;., Perf.yjcie mugoor. and CoUc Pertune - P4116010 . s has developed rnaior fashiar, -L:rn-,..)trT3r onct rIfiS Oe., r.pecl cOrnpaigrti Ird:1 elitChnitle cc -mac is r5i the w tap'5 deSiOr E.,5 t 4-h in Yves Sole aufent. Ctv Chro-4 Dior. GL:c: JOCOlu. In addilion to Mr. Jean Luc brunel cecensive business career os an 4f1CitvAUCli with artistic vision ono crealpve to turn find top fashion models to remesent ir tho United Slat Shmde yap have any questor boy' tioli ;ear BfL tee tree to corlact rr-c, 4-1 s iy4 rq ci It Prukffl 100 Modehidert. MotiLaiattenlin t a. Inc; M arc atitiaatinnc, iii rits has helped MC3011 L Pr" OP DOWITOknl Of Mamba SOCurlPy United States Olitenerip and lierricration Sertioes VernOnfService Can 4ouoni0n Street Saint Atm Sef OSSIS Re; 0-1 bdroordinary Mils as an NI Dec) and Tasont Coolrinatof on behalf ar lean Iluc Dicsev Iriend.Rene Brunel vinlam maw Concern: As a Proildent of Natalie Model Management. The letter is t..orritteci in surrOart of han models mharTt C. on behalf of Mi. Joon Lt.ic MAW tiC work as an kr Director and IOW Coordnufou Stuns( hoot on interno"onot reputaflon 01 via . silrotegiC rsenvalter solo Is We to culfkalle expert retallaswiip rnanapernent sials alderto candUct business in a global soviarvneni and broker liJaarrest deals. hir. Brunet has a tong history in rnartotft and adveers,r9 fricVcc carossceons Throughouttik inienly-ave yew career in .the fashion bsilianO14, Mr. Wei has devolopod worilwida. 110C4filve.:Zilireg end covnetic compotes. Sarre 01i these molar Work rr Includs4 Rio Them w4Wt supentiodel Ele mcfnerscr Pi4AS nth Rebeoco Ron . Ovidian olor Intl Civisfina SOITXXvIOOkato. Marcel Airor welt Monica kW Civonel Min PaillititlVanhiletenheke. An Peffunlewith Merl Mogkze. and Cacharei Perfume vtith Aldo Bollestia.Mr. Wel hat also artrelaped magi, fashion campaigns and not developed campaigns and iseciudve Catteocis wilt) some of the NOW, fOO kehiart ( honors PJCh 05 Yves Sarni tautest. Chanel. Chtistion Dior Gucci, Prada. ;and 'AOC .00:001. .3R9Prit1r2, WAIN a' wourtgaroa -4 .:J 1 133riav 11011 Iltr Ert Pi 1 Jti. 1 lJ J41,11111, pasta nadriallitapplaalr. fleg " it- PARLIQ5 uxis PSOAIVII -WO J'APJ XIDG 810 es Walton to M. Jtar. Luc lituner's extensive Anew wul kaftam. Meet as on individt.id with diet AMA and creative latent hat helped hirn 11nd to models '12 woment in the tinied Slates. MOW yeu have any quesions about , on Luc bunsl luatriiccitions teal free to contact me. SirtrAtitv. Erik Melsons Mem. September re. 2014 USW vermoot Service Cente,,r 75 Lower welder, street St. Albans, Vr osetkosetot RE 0-a Non-immigrant Mae Prtitloo on Wolf of Jean Lac Didier Henri-Ilene Brunel I write this letter in strong support of Mr. Ann Lae Droners applieaton for non-immigrant Visa to this country. I VII currently iiiitittilnIstraitore Unica in Studio It. I have been asked to review the prufeqz,lonal credential; of Ma Brunel, and it is my professional opiniori that Ma Brunet is an Mt Director and Talent Coordinator of eltreOrdinary ability who ranks among the small percentage of !amigo people at yeti top of his field. I have gnu first-hand Mr. Jean Lue's special exper;ise in the including casting. production, comdinatinn, and art direction for Gott Mr. Brunel is ecnsidered by those its our industry to helan extraordinary creative director talent, particularly for the (add and related In my personal dealings with Mr. Jean toe Brunel, I found him to be thoroughly pmfe.ssional aid capable of being utilised in connection with. wide range of crestive .aibietl matter on any itailatin erit. He has the intuitive ability to provide just what's needed In esortTection with any particular creative prom-,3 and possees excellent tic management and operational skills that toner from bis years of experience Many people do riot understand that behind MT, sneressful advertising campaign and fashion shoot there me emative men and women who ate making sure that the bvsmess operates efficiently by Do tdi n 3ti ng different tasks between models. photographers. and managing croative teams. I can honestly say that Mr. Brunel oanlinclaly Roves, himself as an extraordinary Went in hi., field. I offer an unmitigated endorsement for Mr. JIMA Luc Brimel regarding his Visa application as a ixtoon of extraordinary ability. Th'ere is no doubt in my mind that Ma popularity and ability in the field will aid, continue to p per In .ielrs to come reb'' L. !.! ler . 1.1 :" 5115 gi lib le IJ5C18 Venni:int mai Cantu 7 Lower Welders Street sie. Mows, VT 054'79-000i RIL 0.1 NOrloalseriagreast Vise Prhtaisrs bet-os!: tit Joan Oeir the ere adorn I wee due tilt" se sums support at Ur Aeon Lie Brunets 4tiplickrion So a non latie leatioeri am ceirrints larking en an Aisait eit Tutu Mtinegime-i, ii lein Angeles. awn epee may ottioduigI the OM f tlx) Wham Im1us1r I ati rreqn:h 01114 einkeilif the ciodaratida of olhor mlrettccual4 m the Wel I furl hem asked ea Mg die psmamJ aredeatede at Mr uteAn l niest It is es, prettattstiol optrliL u. tiegief van iny pateenei atpiabillanet linaeriethleof We lir,Inete taterm. thin WWII Man director of ractreordanatry abate who ranks einem the prata41 pierettlem at keetin ottitaioionW3 at Ten top of be field. VIII admire Joan 'tat elnend and 'and vo a rioasumr war:. terai tkrio a tairtaad pittann. Judatrig b, the high great Inliterlin of the taelperates with s.h.411 he rtaguial: soda. demety I ow not the gully WO into apporiatica his tallow Hia irxhusi sow ell in ow at the iletiego Most putiatif pubficationa reaching litotarly asillians 3i adiatteis tie Ii pI IICII ttj binentO for Ms rat ot advvrrnall-4 and rd,iixleti went Nor cantilinittrin hope diem, siitis asWein Intin, 0004 Christian Dii haw orcund hint yoliticei as one of the issiting, 11 -Alt Wanton an dervictora aria vid3y. Jean Ler Brunet is the consuatunate geldnagoata Iwo it tomes to the an at Illabion and hie walk a aeon ttlec4ayeal U. emits towns Mei esearierics A true wise, be as alistoritteal Co the lealliaattaors of est ebnIni an ow," ovation. ditheatih Mr Oramai cummunt.is the bobtail 10X110 31163M for ligia Midi. be a fl vetegb the tweet Ur Jan LW MUM IngturAwmitity an .nitIvIduAl of eatroardsnan nem,, iatoratatiorsd anittawvenent and ogitmewiledispient. !ma how soy giaesiitegeas tripluktule tk bun e entireeetinen abtarv, oteaa feel bet to tortUttt me Thsakgew fat row ititinailye Min consmittanon. GREORADELSTUDIOS im 041 r neer rook MVP remits wri 10.411110010Manignot No 9Nobitobir ib, sos4 MIS Voramit8WIdee Omar 110.01,40 biletteit IL Alba" Vt 0 09400 BI: Diliasimeatreestvhis helm am Wallet Joe Um Muni Doak te Madam ?MA WW1' whey to se eittradimity obi kw otovs to o:Intinue taexpaiad vim los alritady mammals moot fie tbe wcetdidde ttahtes indostrj. I ari tbo Ptothavtion Manager at Gm ;Wel Sirtodlos, its1 wand ifititiltaCkaitato ILS VOvitle Raga, MIMArti, hthoureto. Vogue Chronvoi, irStigrei atzl Alum Jaen i410 mei Iwo booms tocivos mil, mil dem in Our fielf at 601011011 .4110 IS Irtfalilht, rasa arml dfrect kaki models fir clients, phottgriphoms, sit M. host Luc Smog hot o tilde ed el to aelixt the moat appropriex models to be urriccl. T1-aA athsatikeing eamytalsp, maul aditerruemfly haa the nutria:adios akility to manage all stages of the compirrz ;:ittoreas of product:1i the Tit moda frIr 2 job. Thergfora, guar): otr bkv vs irt mik erottible as tic la We o btsetill I mash, Ma mat he hhot betemoing one of the profestictruils of choice for the fashion m4iy aact atketcream. athaetri re. rn iny opie Joke Leer Band. is emotya hotilvithol el itStriardloary uhili in the fled of art, sod tbs pamitiela be will anaume in the Ward States dearly gums am ilaclividuaI oi extrzaariEllgrf ilbraity tn tiilLSea Mt rumel tin Imo inoozotimodly ham Mid iseognized foc; his tudque tab lad esperdoe. the malelp lis findo neduir wane bk the mot prookkee, hzhion publicati,os amubd ti worI4 melt to Sao Mworisot, Clasompoltion, Mario, Needuttas bit 114-14era eretribetioon to ata)or dieult iiorye secured km a positioo ow of So leadiog dreftotshdUnit econSzeocrsi weeithig today, ft is aho minim that the reapontataities anti digitsM n inteMiltintill art Tartar, -orb colithumes with the met dietiAgakchett magnum and siimadoi obi, rewire an sndivid.tal af estraordiaali Ability and tOffiRvethntiovis aorit 0 Mr. Jeep LUC BMA Iltrooted 0-veboi to ark it the United eltaiea. Jam Lag Bound grill moo bring him pbee Was tborAzoodoui nutria Mous do not Wade to we swy poosttors montage um Lk :Kul,: rimb ti.. 1. 4, Niale mot Bewley Centel 75 Lower Walden Street Sr. 4)baaa VT ofieakcpoot 0-1 biondtranignmt Vise Petition co hdialf ethers We Emil Mot Mr Of Madam: Sly roam is, Nadia Ceram end I am Ploadeint of Montage Mrxicis.1 I haw 3o years of cAperienc and I am con itantty to coma vvith professionals all CIVier the mrld. A few ok my Clients irwlufir Elie Magazine, :A MOWN Ramos, Laura Shop. Oglivii s.71w ila; Store' and sti on. A6 Audi, I am tpialified to ammo on Mr. Jean Lc Brunei's weer as 1St director of tnrtraaedioset, ebditl Itissenemly because of his act lunation' or his hopeomioe WO; af work that babies earthing mid publishing szecutiess mound the: world damns to abbe Mr. Brinier, greet Wan for their lesluvrileti accanrits. Mr. Jeen Log Brunel is also an absolute apart et Webbing his chaps with e: wily the image of their deals . My ptirtonutl appreciation of Ur. Brunel mem fe meg foe or to compn-hend his acclamations. Proien my they MITT certainly well conibund Meardiewiy, Mr Brunel le In to connared liaatsie compennetion for hie WO rk es compares to in the buslacee Itr. ir! reputatIon ala fonnidable ;nibs: with a perstxtabla deaior precedes him. He in constantly researriting end developing stintu tingly rw alaSipti for his disco sad I h4we come to My on and trustMm and his ability. Ow the coarse of his celebrated meet. Jean Luc Brunel lhaa ablinguidted himself as tor of the Wats tednon art dixeetorsi in the inanery. Mt. hut Lot Snail er,Juys soexbaordioar, relationship to the This quality resoliesb itseN mash the bamatifid work ar ereittets, time afttx Woe. Therefore, Joao bat Sruad is dimly otse of thr most talented peafestiaanis working in the world today. I look forward to meek vorr of ILiaw the future. glinenteb own, Media Como' 11111111111111, NORDS1'1?()M Ssatember 17. 2014 MSC Vermont Salvias Cedar 78 Loavatildilden Mist Una"VT03479-0001 SE; 061 Itonminagrant Val Annan an Whit of loan UM Una OM Sir it Madam tumid gm IQ Mid mri NA and tirigusalled supped for the adrasidinaly bay Gil visa Podflort itidneid 11,V Ms, Joan Lua Wand Am the UM? NOM Piadister iv ocdWom I am uwidnord to say the Mt AMP Luc finaid is an art edits( and talent scsadinailar at P4 highsv Whose Isclintain excalionce and creation vista have Wald hall tit the lap ri his peolassion. Thropohnia Mr .liam L une dei5nguisihed resi, he n riicolvoti a high17 hiptiklahlel id al ainfessiono WW1 nr4 ediwriremeni i Pie Peg tOw YeiniPh Braid Us tot, Ind beautiful modals that haw appeared Ins list accfittir,en projects in Mina at Ile oast tenkvaid publications in the wtd, which swats as a tommunt to ids I arta aoratieni ninon ba the amine and aperalianal skits of iftley C171ankiV dnecbori people, imbibe an diactirs and talent catatilnassta. It is Shirsdora tiv piestais se micalantwe tha nensaliabis dant and adVavarrisots of Mr. Joan Luc HT WWI 1, Kt 1111 40011 fiGhierkae the slitanaest wails Mate the teed cared , dwireioped creative -concepts aril MN 111 is his rely unique abilityto eennuriCele me lareiii analysis, the intended eft onSids90 of he onsets. Si. obier that M. Jim Luc ening teicastoo fly onYclId the swags Mods trx this Industry by it slum MOM VIM wt Ns work consiciered Initssd, no hill IVOrkta 110010 Of me bootiutorm wows Won 11011.01L Sad insgatinse In es wand it is wIllitaA a doubt thst I blisos an Op the -Ro ce fat way bat in his prolasstin I an tallfidaltily Mit that Mr. Assn Luc Owner's lavish:in nu unwed inisinalkend dirs. iirt his reactod s level where industry Indere now describe hilit as a "star. glawi tun aruners areVaordiruity arm it it a pooisA oPierteilleiret Nina timing tea- Liza MaelOW Senior Toiled Pradister nornornns it silkl fluo Recommendation Leiter 22 09114 USCIS Vermont Service Center 73 Lower VieMen Street St. ,Albtoss. VT 05479-0001 RH. 0-1 Non-immigrant Visa Petition on behalf of Jean 1.1w Brunel Dear Sir or Madam: It is an extreme pleasure to write a letter of recommendation for Mr. Jean Luc Brim'. I provide this recommendation based on my knowledge and experience in the field of modeling, due to my established reputation and work In the field as the Vladimir leurtashkir, director of I Mother Agency. Kiev. Ukraine I have known Jean Luc Brunel profelmonally for several, years through cur work together and, an my opinion, he is an extr,inely talented Individual with superb proiesstonal reputation. Hi s an :extraordinarily able coordinator who strives for and attains a level of merit in his work that only a few of his contemporaries meet. He has the ability to recognise the creative vision of his client within the ton and budget through his careful and thoughtful choice of model caning combined with his meticulous ability in the field. Jean Luc Brunel si true find in our industry. There are plenty of ar directors out there, but none with the depth and quality that Mr. Brunei possesses He is unlike anyone in this industry, and I expect to see him continue to find great modes in his auccessilli career. Someone overflowing with talent as Jean lAre Brunel should be given every opportunity to work in the. United States where he will have the proper venues t.,1 showcase his extraordinary talents. Please do not hesitate to contact me should yists have any questions regarding this matter. Thank you tor rout tinge and c6nsideration. Vladimir Yudat h FiGaro PIIII 1111116C09P 11,11141111 11101047 trya WIOwe,hk0.6Aok 4,4 KW MP , 11 111141P0 1W4.11111 '14. 4144-11 1 1114014 .4 .114 1. 111.0Z4440111.7 - Deportmant Sseurity Unibed StainCitinereship ailed forensigration Sorricias Vermont torticoeshease 30 Houghton mot ad Mews. VT 0847 Number 1517141S M1?, Nt4 Zer fotboxeftary Maly es eh Altciroictoir alw Talent Coorditiallok col brawl or itooltHisec ado Notif-no woe fn. Ct .4,t , or:qtr 4,1 011r Ciat t?i," L-,:tpi ti,titiOrt AI 1C 490 : 14.11CC191-4, 4.;71'.. 1 ,1:T out" be i Necits 241 ion . the earipeis itemeidlet1 ' ek.4, 1,ei ix?! 4.ist th3 cirdi 190,11014000 0040 411!,..,p -)- ,Y)Odrotti 4,4,4421100P id 470? i,ti.. Ntija feted tip Pa aNnelf has r:ort nrinai rc...,1w-14.,111 967, T.,A1.9 i'Ort Co, volit ;4'; Of ,:!..lt"'t:;( MOOG Pc.,;7:en7;r. r-c t tblo Hi I t'.'WeriPi ,7 41.110)011. e tot...? gyfact,-;rniii, rn:7rine4.1 07C'Slor 1777V;',..1; , fIrritt .1 19.117s 1nP SOitd '474104" r 400-110 111,10 yew e-7.4 finor - 41, ' Y'j I1 11,,:rarrcz at 30-i or SZ,V7 f7..1 V09 :1, 1410 fiOrleir vere Core. Some Isq6ing. 2res ew rr Mr, el'Utiel t- 21, r"-.1!!! ItP a '; .":411t1 ISUCt t4,:fitet SINCIten v-torttO Eit401 1 Vs34fStk CI-4411iro Se ovitrarea.ese warelev's as OPOIC041060 - 2 rtei. covet rroasi.-. hi, wow). cocoocro 4 i r,v20-. f. 3rid spa , ?Dory j few t ot IC, jt.0 t .40 e419400: .1WP0Z0Fir WL ,A,q, 10011r3 rtli ovone," iPQ giocip.(-yrywArt t tytut '-;fa "Arai i.ftiftrlut, r- f-d ILTIt'fr- -t r 001V1 firrelertteii jt r .:11;) z 4- Af'," 6a.e .jr cV r 5 -7.N.; at- nti tr-r, L r t1):. heat 4, resiesero iht ,ecs 'es "0 .cr Cs 0 11:74r-' x eOlk. ' oftakil.-. I 106. ; MODELWERK T401 ;AN I tiambil .6o4 I I .';,,41c 11460f , El "Um ta !I III 11!' Alaxklvorli, Hamburg 8 July. 2014 Deporfrnenl of Homeland Securiiv United Slates Citizenship and kr -nigrah:on Services Vermont Service Center 30 H.D3.,ightorl Street S4011 Albans. VI 05478 Re: 0-1 Extraordinary Atitily as an Ar Dire cc and 'latent Cocrdinatcr :n behalf of Jr-Luc Didier -.enri-Reno bum! To Whom 'I May Conce i As a P 35ideril of Morietwcrk. his letter is suorriited in suoper of tAC2 Models Miami. ,.1.0 or behalf of Mr. Jear. is Brunel -0 work as or Art Director and Talent Coordinatc,, Mr Brunel -.olds an 41e-iatIonal repufallor as a visible e'alegic netwomer who 'I able "o cultivate expert relationship management Ns order to conduce business in a global er.vronmen and brocr-, ocrarive deals. Mr. Brunel Ms a long listory mariKe-rig and ClagefilV lg rreitOf fashion campaigns. Throughc..at rim twertiN-five year COreeri me folg-:cn business. Mr. Brune has developea wor twicia Oxc.usve triodclirci 3,vti cosmetic campaigns. Some of Iheie -notor cosmeric carnpc. ;ns include. Blo Them l with supermodet uie rvic'.Thersor.. PHA w w.eklecca hrorm- . Christian Dior with Ctulshns,i seinCtiViCiVi ay0 Margret Asiqr with Monica Meucci. Chariot with Plaiiir i Vf RicAervie.irr, ofkrge PsriJone rth Thery Mugler. and Cacho(' ",erturne wiN ' t. fiallestra. Mr..3!7 Jrpe has alsr., developed major fashion z.:; ;rr,-,):4ris ono Irios icsevt rped campaigrs ord exclusrve cavracts -no of the fast- ior 477, Such rii Yvel 50011 toff:y-0. Chondi Clristion Dor. 4000M. ;In addition to Mr. Jean Lur Brunel s extor.iive bijsinev; comer as Ws indimtua witn artistic vfl ono creoNe to him Nnd top fashion models tn reoresent Ir the United St at Should you have Ony Questions boil Jeor uc Nnei feet tree to contact me. PreSictene4 au " ;e' 1') tviodekverk filiiiviarctilitr I;mill I Marc otaltationq. Its nh ha s helped I wr...110.,;:-.V-ce-is meeti,v vesv-auv Aly 11.70'4 01001meni el Nontstext Sec" United Motes Myer WO and intrnigrolion Solviass Vermont Service Cartier 30 Havgision Sires' Saint Alban rer 05011 Re: 0-1 Etertxvcinary 103110 as cn Ad Meek Toient Coordinator on behalf at Jean-Luc Cr tlerwiliene Brunei TO Silvan tt may Concern: As a President al fiataBe PAWNS Management tvi tenet is fitornoted in waiscst es mC2 models mzrr.. LIC or Denott ot mi. Jim Luc asurffaP ft wok as an Art Director arid Tamen, Coadnalar. sat Brunei hold; co ritemotienol repitallon CtS oVISIbk. CkCitegiC nelerotter who is obse to cullivase evert fosalionsila management skill cedar 10 conteXt Dullness Via giatal ereinxweerd avi tvolier luoratree deals. hir inter has 0 long testacy in maiming and atIvertiong Tao ladian campaigns Tryoughok.i his twerriplive yew career In lee fashion bushes us. Brunei has developed vitifft vidt ISCS:StvisrdI crld cosmetic comp:Ion" Sone of these maior casnedIc ccimpolcrs include; o Therm wen eiparritodel Be mcPowno4 f41104,S with RebeCco kw . Chilean OW talith Christina Semonnorskom Margret Asia viiith Monica Meucci, Monet Win Potticio Von Rickonheim. Angel Pedume with Triseny hissfer. and Cot:hotel Parikene VAN' Aldo Sokoto. S. run has do, demaidPad rnalor fashicel campaigns cind has clvelOped campaigns end attar contacts wilh some of the rvoltCrS 10p koshiCal clessgnors SuCh cIS Yves ScIrd sward. Chanei. Christian Dict Gucci Prado. ond Marc .i0c0Os. ji .4-ji-ntaro MAIM Ur lorittlAta.13 ailla a a, 407.3 V.1011 'Areek44 lair 3 an Psi arm. .11. psi Jssm, puts netagrelopplal, "WY., nalss aarn-cdath. Qin 1,414X0iLIS241, PARLIKSS IONA Lads PARSAW forts a 16 nal gixo ci A en WOW to tic Joan Lac guide's eiders . bLisifiele MOW Cs an incilvkilai with MSc Alm eV ONIelvetoiu,i4 1161 MOW Plint MO top tookiart elcAseis so nsprissont et Ms tinted Slates- Mead 'Mu hove any gumboils about Mr. Man toe Slung feet iree lo cardact mu, ii Vermont Service Center Attn: Premium Processing Unit 30 Houghton Street St. Albans, Vermont 06478-2399 Facsimile Transmission LUIS FONT Cirtzenshi and Services Fax Number: 19542414272 Number of pages including cover: Date: September 6, 2014 Email: Receipt Number: Vermont Service Center Premiirn Processing Unit Fax Number: W2-288-1778 W.; PREMIUM PROCESSINGODHS GOV Attached you will find a copy of cu decision concerning your case The original decrsion will follow via mail If eligible to appeal our decision appeal forms mil be included Important Important-4'lmportant Important- If responding to a Request fa Evidence or !lent to Derry. ensure you include a copy of the decision immediately following your cover page and indicate the total number of pages included with your response Please include the case receipt number (e g EAC01 000 12345) with all correspondence Ensure when responding to this request that you fax your response to our NEW FAX NUMBER - B02-238-1778 if you wish to mail a response, it must be sent to the VSC Premiirn Processing Unit at 30 Houghton Street, St Albans, VT 05478-2399 Do not send your response to the 75 Lower Weiden Street address, as that will cause delays and will not restart the premium processing clock until the response is identified as a premium processing case Title 8 CFR Section 103 2(b)(11) Submission of evidence in response to a Service request states All evidence subenMed in response to a Service request must be alornitted at one time The submission of only some or the requested evidence will be considered a request for a decrsicn based on the record This communcabon a ritended far the sole use of the individual to whom it is addressed and may contain inforrnabon that a prmleged confidential and exempt Iran disclosure under applicable law If the reac, of thrs corrimunration is riot the rlended recipen1 or the employee or agent for delvering the communication to the intended recluienl you are hereby netted that any drssernrialion distrkiuton or copyrig of the communication may be strrtry prohbled if you received this comrnunrcation ri error please notty the sender arTracirately by telephone arid return the communicator alume address above use Lin led Slales Postal Servre Thank you www.uscis.gov U S Department of Homeland Security U S Citizenship and Immigration Serviirs Nonce ot Action Page I of 4 Applicant PetItioner A Appncation Pent ;on Petition For A Nontninitp,rarit Worker Minn 'a Notice Date August 6 1014 Response due by November 21, 2014 MC2 MODELS MIAMI LL( LUIS FONT FONT LAW GROUP PA .1440 HOLLYWOOD Ita 511 41j HOLLYWOOD IL ,1,1021 1-4 At. I 4Z. Z55(iN().-1 -EAC14 255u803 Applicant Pelitiotier MC2 MODELS MIAMI LLC beneficiary BRUNEL JEAN LUC Receipt Number EACI4 550803(II 19) WVIUM PROCESSING IMPORTANT THIS NOTICE CONTAINS YOUR UNIQUE NUMBER AND MUST BE SUBMITTED IN TliE ORIGINAL WITH ITtE REQUESTED EVIDENCE 1 U S Citizenship and Immigration Senaces iUSC1S) requires additional evidence to process your form Incase provide the evidence listed on the attached pagets) For Form 1-129 only, if you are requesting consulateembassy notdication, provide the requested evidence in duplicate 2 Your respe must be received in this office on or before NoNeinbef 11 1014 Please note the required deadline for providing a response to this Request for Evidence The deadline reflects the mzumum period for responding to this RFE HilWetiet, since many immigration benefits are time sensitive, you are encouraged to respond to this request as early as possible but no later than the date provided on the request You will not be granted an extension of time to submit the requested evidence 3 You must submit all requested evidence at the same time If you submit only some of the requested evidence, L'SCIS will consider it a request for a decision on the record 8 ('FR 103 2ib1t II ii 4 You will be notified separately about any other applications or petitions you have filed 5 From the date this office receives your resubmission, a minimum of 14 days will be required to process your form If you have not heard from LISCIS within 30 days, you may contact this office at r866) 3 5-5118 6 Mad this nonce and your response to VSC heiruuni Pressing Vermont Semce Center 30 Houghton Street Si Alb-ans VT 05478-2390 vs- premium piote iniatihs Qv U S Department of Hornefrind Security U S Citi2enship tind IMrnigrdtion Servites Nonce of Action Pagc 2 of 4 EAC14ZZ550803 (!jig! Responses flor Preini um Processing cases only) may beloxed to (8Q2) 488-1778 Include a copy al this notice Thee inail address may only be used for inquiries Do not send responses to thee mail address I. I d9 0- Ili Extraordinary Ability in the Arts 1 ou MCZ Models Miami LLC hied Form I 1Z9 Fetilion lor Nonintringrant Worker seeking 0 lit MII)Ift11111gRI11 classification liar Jean Luc Brunel as an Art Director 'latent Coordinator The 0 .113 classification applies to individuals with extraordinary ability in the arts The individual must have sustained national or international acclaim His or her achievements must be in the tiekl of expertise and show a record 01 prominence in his or her lipid 1G process your pennon and determine ml the beneficiary is eligible additional information is required 1 his request provides suggested evidence that you may submit to satisfy each requested nern You may Submit one some or all ol these alenis Submit none at the suggested items and instead submit other evidence to sa1is4 the request Explain how the evidence in the record already establishes eligibility Request a decision based on the Ter071 Note poweveLthal, yQUIff ff5PPMfble lqr PrOviding evidence thatlksi shows thaLyo and the pIrtie ipstin pplitigh meet all requirements Evidence must show that all parties were eligible for the requested benefit when you filed Form I 149 General Requirements Inr All 0 Nomintrugrant Petitions In general petitions seeking 0 nonimmigrant classification must include Copies of ontracts A description ol the competitionts) event (st or pertormance(s) and At least one consultation To saint, these requirements you submitted - Your letter in support ol the petition and Peer letters in support al the beneficiary trom Claudia Muloto and Alla Amaniova Beneficiary s Previous 0 - 1 Status Petitions involving an extension al status lor a beneticiary that has previously been gt al.te (I 0 1 nommringrant status may he given deference however U S Citizenship and Immigration Services (USC1S) is authorized to question extension petitions when a substantial change in circumstances occurs when relevant lads change lrom one petition to another or when the prior approval may have been based on gross USCIS error )ou militate that the benenciary was previously granted 0.1 nonimmigrant status with your company The details of the beneliciary s previous employment with your company are not documented in the instant petition A review of the evidence submitted indicates that it the beneficiary's role within your organization has remained unchanged the previous petition may have been approved in error. as the list ol duties you provided do not appear to descnbe a FOR oFFKI USE ONLY Form I 797 (8 03 90) Y U DeparlInciit of HOrrtland Security U S Citizenship and Immigration Servic es Notice of Acnoti Page 3 of 4 MC14 4550803(1 I Z91 position in the arts In addition DO evidence has been submitted to support your claim that the beneficiary is an individual who has extraonlinary ability In the ails that has been demonstrated by sustained national or international acclaim Yu have documented the beneficiary s past success in the business of tot ming and operation modeling agencies but this evidence points to the benetiriarys ability on the field of business not the arts Therelore you are asked to comply with the following Contracts Pennons seeking 0 nonimmigrant classiftratton must include a copy ol a contract between the beneficiary and either the petitioner or the Pmpioyer II a wniten contract does not exist you may submit a detailed summary of the terms 01 the oral agreement between the beneficiary and either the petitioner or the employer You did not submit any evuleme lot this requitement You may still submit evidence to satisfy it Wniten COniraciS or the summary of the Innis of an oral agreement must specilv the terms and conditions ol the employment or services They must Specify the wage altered antl explain the terms and conditions under which the benetictary will pertorm these services, and - Detail any additional services provided Nature of the Event or Engagement 'Jou must provide an explanation of the competition event or pertomiance in which the N. IMP-My will participate An event means an activity surh as a scientific project conlerenre convention lecture senes academic year or engagement during the requested validity period The description you submitted is insufficient In your latter you list the duties at the proffered position as 10'SpOnS11)1e 101 overseemg the artistic aspects at the agency (select the images placed on the model, business cards ,:nd in their porilohos) Coordinate the pairing of models with photographers Direct the marketing of models to chents Travel around the world 10 tint-Over new Ulm( and 10 sign them with MC Z Models and Establish relationships with agencies around the world and negotiate representation agreements The duties you descnbe appear to relate exclusive!) to the maintenance ot business cpvrations of a modeling agency As previously stated you have thxumented the beneficialy s past success in forming arid operating modelmg agencies however this e kicience points to the beneficiary s ability in the held 01 business not the ails It is not evident therelore that the 0 18 noturturagrant classification is appropriate In the inSlanl case Regulations define the 'arts" as any held of creative activity or endeavor such as but not limited to line arts visual arts culinary arts and perfomung arts Ahens engaged in the held of arts include not only the princtpal motors and performers but other essential persons such as hut not limited 10 directors Set designers lighting designers sound designers choreographers choreologists conductors orchestrators coaches arrangers musical supervisors costume FOR LARK US ()NIA Form I 797 ( O3 9O) If 11 Deo twin of Homeland Sr-runty U S Citizenship (ind immigration Servii es Notice of Action Page 4 of 4 MC14 a 550803(11 9) designers makeup artists flight masters, stage technicians. and animal trainers The duties you describe correspond to business anti management fUTIMOTIS DOI to a position In the arts Before adiuthcation of your petition can proceed this discrepancy must be resolved You may still submit evidence to sanity this requirement The desknplion must include An explanation of the nature of the events or activities. Beginning and ending dates at the events or activities. and A copy of any itinerary that shows dates name(s) ot the employer (s) and location of the event (s) You mot establish that the proffered position qualifies as a position in the arts as described above Any and all claims must be Why supported by documentary evidence FUR ,FFP.. I USE uNLI Form 1797 (8 03 90) Y FONT LAW GROUP, P.A. 3440 Hollywood Boulevard, Suite 415 Hollywood, FL 33021 Tel.: (954) 241-4271 Fax: (954) 241-4272 November 3. 2014 Director United States Citizenship Immigration Services Vermont Service Center 75 Lower Welden Street Saint Albans. VT 05479 RE. NOTIFICATION OF WITHDRAWAL OF 1-129 PETITION WITHOUT PREJUDICE BY PETITIONER EAC-14-225-50803 Petitioner: MC2 MODELS MIAMI LI.0 Beneficiary: JEAN LUC DINER HENRI RENE BRUNEL Dear Sir Madam: Please be advised that this office represents the above referenced petitioner and beneficiary in this immigration matter and a G-28 from our office is on file. THE PETITIONER, MC2 MODELS MIAMI LLC HEREBY NOTIFIES USC1S THAT IT WISHES TO WITHDRAW 1-129 0-1 PETITION EAC-14-225-50803. The petitioner requests withdrawal of this 1-129 petition without prejudice. Please note this request for the record in the above referenced case. We respectfully request that you send us verification of this withdrawal pursuant to the regulations contained in 8 C.F.R. Sec. 103.2 (h) (15). Kindly send our office a written verification of this withdrawal located at: Font Law Group. P.A. 3440 Hollywood Boulevard. Suite 415 Hollywood. FL 33021 Thank you tbr your attention to this matter. Date:11 12 2014 11:49 (GMT-05:00) Jean Luc, I am really sorry you feel so bad and I know it has been a mental and psychological frustration. As you know I chose to partner with you due to your reputation in the business for being a top scout and developing a couple world class agencies in the past. I knew what you could bring and I knew what I could bring and contribute and I thought it would be a great partnership. Clearly, I never expected to have the level of challenges we have had recruiting new models over the last several years. I could have never foreseen the problem of your friendship with Jeffrey Epstein turning into the situation it has where you are seen as guilty by association when you have never done anything or even been convicted of a crime. Frankly, I don't understand the necessity for Conchita Sarnoff or anyone else to continue to defame your name and MC2 by association. It is true that we constantly have to justify ourselves when recruiting new models. The industry is extremely competitive and as a parent myself if faced by the same information and having to make a tough decision between too agencies I would not pick MC2 if I saw the article online about you. You have to read closely to see there is not a charge against you but the implication is strong and of course now days everyone believes everything they read online even more than the traditional newspapers of the past. I know you are now feeling like a liability to MC2. But you personally are not a liability to MC2 but this published information online is a liability. We are not a large enough company, nor do we have the capacity to fight this on a global level. On a google search in America we have put enough information online to not have it popping up so blatantly but we have no controls over the rest of the world or the finances to control this situation and we are affected as every major model agency recruits it's best models from all the various countries abroad. This has stunted our growth and our billing over the past 6 or 7 years. In fact, we do not even know who avoids us based on finding this information. I have been surprised how challenging it is for us to grow due to this problem. I have also had a tremendous amount of worries from our clients that we are vendors for that are large American corporations likes Kohls, JC Penney, Sears, Nordstrom, Target, Neiman Marcus, Macys, Saks, Belk, and so forth that require vendor agreements and for us to be considered an upstanding company. It really worries me as some of those companies have disassociated themselves from what EXHIBIT K they believe to be questionable companies. So far that has not been a problem but it could come up in the future. The fact that you are requested for so many scouting events in various countries and cannot promote yourself properly to promote MC2 in the press due this problem has it's own sent of repercussions in terms of our global branding. In short, it has had a terrible effect on MC2 all around. I really urge you to solve this problem and get this removed from the internet so we can grow for the future. I've fought for MC2 and been extremely loyal but I must confess that I have even been feeling inadequate and questioning my ability as the leader of the organization. I can only attribute the fact that we have scraped by in the recession and barely survived in the past to your hard work, my hard work, and the tenacity of both of us combined. I can only imagine that if I am feeling inadequate and frustrated over a lack of growth of our company that you must feel even worse as you have had much greater success in your career and have operated at much higher standards in our industry in all areas from reputation, respect, admiration and monetary gains. I can even surmise you are probably feeling a level of depression and I have seen it in your highs and lows and when you have voiced your frustration. While I know you well and recognize you don't really go for the kind of advice I will offer; however, I think you should at least speak to someone neutral such as a therapist or a counselor to let your frustrations out and if you don't feel better and are still feeling down or depressed to see a medical doctor for your condition. You are such a positive person I hate to see you fighting what you feel is a hopeless battle. It is not hopeless you just need find a way to get that information offline and begin to repair your reputation. In the end I am afraid the damages are a lot more than you realize but let's keep fighting and moving forward as we have no choice. Thanks, Jeff Jeff Fuller President MC2 Model Management USA EXHIBIT K FROM: JACQUIE JOHNSON .J.JOIINSONaiRRA-LAW.( 'OM DATE: SEPTEMBER 18, 2009 3:57:44 PM EDT TO: "'TAMAQTKUDNIANLAW.COM" TAM.VerTKUDMANLAW.COM CC: "BRADLEY J. EDWARDS" BEDWARDS4RRA-LAW.CONI SUBJECT: EPSTEIN - DEPO OF JEAN WC BRITHNEL We have confirmation for Mr. Bruhners deposition on 11 3. We will commence at 10:00 a.m. if that is ok with you. Jacquie Johnson Legal Assistant to Brad Edwards, Esq. Partner Rothstein Rosenfeldt Adler 401 East Las Olas Blvd. Suite 1650 Fort Lauderdale, FL 33301 Telephone 954 315 7264 Fax 954 527 8663 JiohnsonOrra-law.com EXHIBIT L Date: Monday, November 16, 2009 at 7:48 PM All depos are cancelled for now. A letter confirming this is being Sent out today. We have no idea how long this shall delay things. I'll let Michael know. Sent from my iPhone Tama Beth Kudman EXHIBIT M From: "Dr. Royce Jalazo" dynamicbeh gmail.com Mr. Titone, Please accept this email as my formal notification that Mr. Jean Luc Brunel attending an outpatient individual psychotherapy session with me on 12 12 14. Thank you, Royce N. Jalazo, Psy.D. Licensed Psychologist Dynamic Behavioral Consulting a DBA of Dr. Royce Jalazo, P.A. 1975 E. Sunrise Blvd., Suite 532 Ft. Lauderdale, FL 33304 Direct (With Voicemail): 954-232-7092 Toll Free Fax: 888-236-6979 or 954-208-3400 E-mail: DvnamicBeh qmail.com Website: www.DynamicBeh.com EXHIBIT N jtosa...i60 SCISkIll tWNIib Scuion rrred Or.EessedSad Pe-,c nteim J'affit PriAt I-1rg DIC T110,1: an 4. tit. di Mot !SMik 'IMMORAL L, t'ONSULTING etychii enempy yasuahom entiskillatiterws Clio Strike skin : MOOD. ras ehrfsr LhInv LaNyrnic eztieliAnt ficiic106 Otivrt fTpn AFFECT; 4,Act-A ANyurmitc Waited RI:sin:Jed neat 1Prusevis Idenandtwit,istetinit Dynamic 4wIir Cossaidgeg 1P5L Semis Blvd, Wilt 512 Litseeniske awl 33304.1413 Data T 1s4 TH FR SASH Tim lh I S n.ns. oir: ILIIL p.sti. Donstlan:O tninuto Apegrvuy sligirly Intense ter:Itirczt I E Ch4cnuuu mteounk aPP'). LIZAAir ifILL48, Was pasiezt Neirovwf tor psyciturg- evaltsaton amitr-ggni-ki end in prm-rthrciproSotrYrt- me:41-a4:ign Fir,',113-2:11.11 te Frnent!, mon-vornplive 0 V EDI annrnctit- Is ptteci ctirnani taking ps)vbx,- E rrodicationt: DD ii, Pcenc: Cornplisat N'A a N Cartrs NIOTIVATI(YI FOR TRE 4,TMENTtriaNGE: 14J14, inotimod fli3u,I,bty m 1m Dii,rt DISPOSITKIN: o Conmlur Ttvacalcnt Termitaiten treetmex 0Reef le 1 Ottl-et: ot 04A. .,.11., LAM 11:44444-L4e . iteyeeN Imo, Pt) ID Immo Fsocsaistaz PY1611 EXHIBIT 0 Ussonatinsed COMPOSITE EXHIBIT P MEDICAL HISTORY tagarifil 4411.1"." ki re eg4 Wel it Wel W4,1111, " I: ft " 0.41 6" 44-0 teid.11.601401011 "! - pa I P. 1'P e. .6i6411: 14444: W11 10 66..0 la IOW SA pf ;La UP 4 Wylie 44,4 410 .ab IVA ;' Pa On I. 4;1 ij 11'41-7-w4" 41 Vol 0 44-4P4 41.4-1 1111444111 1f imt anion minuswiq 4511151(1I1Oist i .44)-4rIpiv5 se ) 144.10" m.40.n 0 04m1"4eulte .4eir WOW, 00 Inn LIMO ( I hirim, V WOW (.1M2111M Sb 111 1.41)1111,1JUS:01..0111.1 (WO titnarattriuntsit MO? AN' a c.744. V,T1 .. .444 4,a it tirftr 11411,14.4.4,1 I VU44114x-r ilv. 1-131, 11 I I "ARO 414.4.4 '141444 PIP'04411110 141114111.0.1' Iii 1."41c 11411 1 444,14.141N 41.0144.4 4 la 4111,, I I-N.114411 WI I - 44'4 II 411 goingteuttnamo 1VIldSOH MN NH fsowEntnatli5thav BNH HOSPITAL1NR 31 soict lava (Bangkok Ntaing Homo Hospital) MR. JEAN - LUC BRUNEL Prozac (20 Mg) Capsule Take 1 Capsule Once Daily After Breakfast 0141221248 02 12 2014 135,53 Tel. 02.680-2700 Fax. 02432-0S17-9 wend ON tnwEran BNH H .c, (Bangkok Nursing MR. JEAN LU Rivotril (2 Take 1 Tablet Once Daily Before (It May Cause Dr EXHIBIT Q EscortAgeosy. ft Or doling money owriat ion. Luc t4nai who covana Oat LIC2 meactcy in Miami Sawn, wort Mho Woe to Ingot and firml lhamaehitia ontinarad ta a itvAnclarwalbola:644 as.yi ottgoituido-llorda abo-ikialapaltorgtoliancioloricia-1, filic011- 1410,Cyl- triggir gelEscort In Floctio Thri mist popular grown-up 014 awed inmitia item topottad by WOriv. .. Fiend') doling loamy oovnot Jean. Luc Brunei, who co-owat tha MC2 nsawy 4:acv-tiLeAtIcrect arkai fl ofgrirjat- -Mi4.,Gitrointiaa-abc-sta3.apa yi.tagigal S ascott in rionda NovtUnAkinagijings1Ert Sinew- laritkils ice inroad, Moict radio niativinet drop Icktilas from , French modeling agency nwriet ilamseptuo lininet who ork-awna Intt14102 agancy inP 11714 air Moors ttbc- scS-opit 7 ,4 ,4-Drinotilvmhuni-be,410 0 60.03 Ii1heara-abc4el , apayi itrboirito- rniekraik-bnalcry 'mar ) d4rs.or PAWNoftwakin nal. Mate Iacono ant legitimate prolassiortniti Rand) matialtig ;loamy Arno joan,Luic Isruniol. Alho crpoing ft AiC2 hrjoino hi ?Atom 004 ch oticesite.;044mettA" -10 orgickrea, vvitotium yi worms Inc-actin" 5imjlig I - ;.-e- 0.J 41.,4411, '" ' uvehat J.g Lta 4 1M11, Vriio colymta lila MC2 Agart4m libittni fiaach aboa Oar Yea i Citillo Florida Etiebeil , 41itytive 9,01 eirtp 114101114)110rfv5ilr.irI Yt, 11 .1 ., rttwi t iiiiLsOe lit ESCQL1-1 miseak bend., Illagida scans in. No Strinps Atsactioa c reni-41 friothoit 0 eifirrtiv aft on-owniv A4C2 army - 1044as rdige liozwpet g1L gm. owe; fi tda. gaiong EXHIBIT Q http: www.politico.com blogsiunder-the-radar 2014 12 court-filing-levels-sex-claims-at- alan-dershowitz-200495.html Woman who sued convicted billionaire over sex abuse levels claims at his friends By JOSH GERSTEIN I 12 31 14 6:38 PM EST A woman allegedly kept as a sex slave by politically-connected billionaire investor Jeffrey Epstein, who went to jail for having sex with underaged girls, is accusing several prominent friends of the financier of having taken part in the debauchery, according to a new court filing. The woman referred to in court papers as Jane Doe 3 leveled the allegations Tuesday against Harvard Law School professor Alan Dershowitz and Britain's Prince Andrew, as well as British socialite Ghislaine Maxwell and French model scout Jean Luc Brunel. Dershowitz flatly denied the claims about him Wednesday in an interview with POLITICO. It's totally, unequivocally and completely false," the celebrated attorney said. A spokesman for Prince Andrew denied the allegations Friday, while a lawyer who handled related matters for Maxwell did not respond to an e-mail seeking comment. Representatives of Brunel's modeling firm also did not reply to e-mail messages. The accusations came in a long-running lawsuit charging federal prosecutors in Florida with violating a victims-rights law by failing to consult with Epstein's victims before signing off on a plea deal. That pact ruled out any federal prosecution of the investor, who agreed to plead guilty to two state prostitution-related felony charges. Lawyers for the victims have described the arrangement as a sweetheart deal the well-connected Epstein and his high-powered legal team achieved by putting pressure on prosecutors. Epstein served 13 months of an 18-month sentence on the two state charges before being released in 2009. He's now a registered sex offender. The new court filing, submitted by Florida lawyer Brad Edwards and former federal judge Paul Cassell in a federal court in West Palm Beach, Fla., asked that Jane Doe 3 and another woman be allowed to join the pending case over the victims' rights claim. "Epstein...trafficked Jane Doe 3 for sexual purposes to many other powerful men, including numerous prominent American politicians, powerful business executives, foreign presidents, a well-known Prime Minister, and other world leaders. Epstein required Jane Doe 3 to describe EXHIBIT R the events that she had with these men so that he could potentially blackmail them," the court filing said. "One such powerful individual that Epstein forced then-minor Jane Doe 3 to have sexual relations with was former Harvard Law Professor Alan Dershowitz, a close friend of Epstein's and well-known criminal defense attorney. Epstein required Jane Doe 3 to have sexual relations with Dershowitz on numerous occasions while she was a minor, not only in Florida but also on private planes, in New York, New Mexico, and the U.S. Virgin Islands," the legal pleading added. Dershowitz called the allegations "totally made up and totally fabricated from beginning to end." He said he was not in the places described in the filing at the relevant times, with one exception: he did visit Epstein's private island in the Caribbean on one occasion. "I was there with my family," the renowned law professor said. Dershowitz said in a follow-up interview after this post first appeared Wednesday that he's planning to file bar complaints against Edwards and Cassell for inadequately vetting their client's story. "I'm planning to file disbarment charges against the two lawyers who signed this petition without even checking the manifests of airplanes or travel itineraries, et cetera," he said. "I'm also challenging the young woman and the lawyers to level those charges against me outside of the courtroom, so that I can sue them for defamation.....Finally, I'm challenging the woman to file criminal charges against me because the filing of false criminal charges is a crime." The motion accuses Prince Andrew of similar actions, asserting that "Jane Doe 3 was forced to have sexual relations with this Prince when she was a minor in three separate geographical locations: in London (at Ghislaine Maxwell's apartment), in New York, and on Epstein's private island in the U.S. Virgin Islands (in an orgy with numerous other under-aged girls)." Previous press accounts have reported on Prince Andrew's friendship with Epstein, who was known as a philanthropist and supporter of scientific research before the criminal investigations began nearly a decade ago. However, the earlier accounts stopped short of accusing the prince of sexual involvement with girls Epstein procured. In a 2011 Vanity Fair story, Prince Andrew denied any such contact. While a Buckingham Palace spokesman did not respond to POLITICO's query about the matter on Wednesday, the palace issued a denial to several British news outlets Friday. "This relates to long-standing and ongoing civil proceedings in the United States, to which The Duke of York is not a party. As such we would not comment on the detail. However, for the avoidance of doubt, any suggestion of impropriety with underage minors is categorically untrue," the statement said. Prosecutors said in a 2007 draft letter they'd identified 40 young women who could be considered victims of Epstein's illegal acts. Many of them filed lawsuits or claims against Epstein and reached out-of-court settlements for amounts that were not disclosed. EXHIBIT R While "Jane Doe 3" is unidentified in this week's court filing, her story appears to track with that of a woman who sued Epstein in 2009 and settled with him later that year. She apparently granted an on-the-record interview to Britain's DailN Mail in 2011. Some of the fascination with Epstein on the part of tabloids and glossy magazines stems from his ties to former President Bill Clinton. In 2002, Epstein provided his 727 to Clinton for a trip to Africa to study anti-AIDS programs. Celebrities such as Chris Tucker and Kevin Spacey came along for the ride. The new court filing makes no mention of Clinton, Tucker or Spacey. The federal investigation obtained manifests for Epstein's private jet travel, but prosecutors never charged anyone besides the investor with involvement in obtaining or using underaged girls for sexual purposes. The new court filing says this result is in part due to the fact that Epstein's legal team which included such heavyweights as former independent counsel and solicitor general Ken Starr, trial lawyer Roy Black, and Dershowitz negotiated a deal that precluded the feds charging anyone as a co-conspirator. Lawyers for Jane Doe 3 argue in the new motion that Dershowitz put this language in the agreement to protect himself. However, the law professor told POLITICO he didn't negotiate that deal and it wasn't aimed at protecting him. "I had nothing to do with drafting the non-prosecution agreement," he said. Dershowitz added that the last draft of the agreement mentioned four people by name who wouldn't be prosecuted and he was not among them. All were regular associates or assistants of Epstein, the lawyer said, adding that the final language removed those names and simply barred federal prosecutors in South Florida from going after any potential co-conspirators. Epstein and his lawyers fought hard to prevent records about his plea negotiations from being turned over to victims' attorneys. However, U.S. District Court Judge Keith Marra ruled last year that the victims are entitled to examine those records to prepare their case against the government. Epstein, Black and others appealed that decision to the Atlanta-based 11th Circuit Court of Appeals, but it ruled in April of this year that no privilege protects plea negotiations in this sort of dispute. Edwards and Cassell did not respond to requests for comment for this post, including an inquiry about their response to Dershowitz's comments. However, the pair appear to be pressing forward with the victims' rights lawsuit, which seeks to unravel the no-federal-prosecution deal cut for Epstein in 2007. UPDATE (Wednesday, 7:18 P.M.): This post has been updated with further comment from Dershowitz. EXHIBIT R Date:16 01 2015 05:16 (GMT 07:00) Hey Abi1 Hope you're well. : ) I've just had a conversation with Victoria, and she isn't comfortable remaining with MC2 with all the drama going on right now in the press. She's asked me to contact you on her behalf. Please let me know if you see any issue with this. Thanks so much! Erik Bechtol Agency Director Page Parkes Houston v , w.patleparkesage ncy.com The Page Parkes Building 1535 West Loop South, Suite 110 EXHIBIT S Houston, TX 77027 P: 713 807.8222 F: 713 807 0055 EXHIBIT S |
Did you write this ?C) On Monday, August 15, 2016, Kathy Ruemmler Begin forwarded message: Date: August 15, 2016 at 6:00:12 AM EDT Date: Monday, Aug 15, 2016, 12:57 AM wrote: AmLaw Daily story just posted. See below. Date: Sunday, Aug 14, 2016, 9:51 PM Dunlavey, Dean (OC) , Mohebbi, Nima (LA) , Ruemmler, Kathy (DC) , Bauer, Steve (SF-BR) , Cleaves, John Cc: L W BD PR (US) 111.11111.11.1111111 mailto: (NY) , Bruno, Nicole (NY) , Harris, Nicole (CH) , Greenberg, Jeffrey (LA-NY) , Bauer, Steve (SF-BR) oore, Wendy (OC) , Jennings, Alex (LA) I , Robins, Greg (LA) , Brearton, Chris (CC) , Wine, Jamie , Lee, Frank (SF) 11. , Fisher, Alice (DC) I'll soon send a cleaner version of this and other coverage, but wanted to share the article just posted in the AmLaw Litigation Daily. A personal thanks to Dan for speaking to the reporter, and Nima for feeding us case documents and insights. http: m.litigationdaily.com article 1202765052511 1 A 20Master 20at 20Work: 20Dissecting 20the 20Closing 20Argument 20in 20Latham's 20Huge 20Win 20for 20Middle 20Eastern 20Bank A Master at Work: Dissecting the Closing Argument in Latham's Huge Win for Middle Eastern Bank Jenna Greene08 14 2016 For Latham Watkins, defending a Middle Eastern bank accused of stealing trade secrets from a plucky American entrepreneur could have been a tough sell to a federal jury in Orange County, California. http: www.law.com image LitDaily DailyDicta.jpg The stakes were high damages How did Latham lawyers turn a potentially unsympathetic narrative into a unanimous win for Dubai-based Emirates NBD Bank PJSC on Thursday? A look at closing arguments by Latham partner Kathryn Ruemmler, who made her first in-court appearance since she stepped down as White House counsel in 2014, is revealing in a watch-the-master-at-work kind of way. Along with Latham partners Daniel Schecter and Dean Dunlavey, she faced off against an equally formidable opponent: Boies, Schiller Flexner partner William Isaacson, who wasnamed a litigator of the year http: www.americanlawyer.com id 1202745123270 Litigator-of-the-Year-William-Isaacson-of-Boies- Schiller by The American Lawyer in 2015. Ruemmler parachuted into the case on May 20, replacing Steven Bauer. He had another case (on behalf of Pacific Gas Electric http: www.therecorder.com id 1202764714611 Split-Verdict-in-PGE-Pipeline-Blast- Case?slreturn 20160712215338 ) going to trial at the same time and couldn't convince U.S. District Judge James Selna to push back the trial date, which had already been delayed several times. This was the lay of the land: Two weeks before, the Los Angeles Times on May 8 had run a lengthy feature http: www.latimes.com business la-fi-infospan-lawsuit-20160508-story.html that was distinctly sympathetic to the plaintiff, Farooq Bajwa. A former computer components manufacturer El Pollo Loco franchise owner, his latest venture was a company called InfoSpan Inc. Bajwa is portrayed as a visionary who had an idea to allow foreign workers to easily and cheaply send funds back to relatives in their home country via the internet or cell phone. "I realized I might make a big difference in this world not only helping these underprivileged people who don't have bank accounts, I will also be helping bring an economic revolution," Bajwa, 64, told the paper. "I had very big dreams." But after he struck a deal with Emirates NBD to roll out his product, SpanCash, he claimed the bank stole his proprietary technology, killed the deal and ruined his company. (Though it's hard to feel too sorry for him he's pictured in front of his house, a mansion that would put Versailles to shame. In this David-and-Goliath story, he's a David from the 1 percent.) Bajwa sought 554 million plus punitive damages on trade secret misappropriation and misrepresentation claims. Trial began on July 26 in U.S. District Court for Central District of California. On Aug. 10, Ruemmler and Isaacson summed up their opposing positions in closing arguments. Let's take a look. I Isaacson, who did not respond to a request for comment, led with one of his strongest cards: USA! USA! "We as a country, made up of flawed people, come together as one of the greatest countries on Earth, because we are a nation of laws," he said, according to a transcript of the proceedings. "This was about hard work and what happens when your work is destroyed and taken, how you're entitled to be treated under the laws of the United States." For Ruemmler, the appeal was not emotional or jingoistic. It was rational all the way. Her first line: "Mr. Bajwa has come up with an interesting story, but it's not what happened." And then, in the most matter-of-fact, conversational way, she annihilated his case. "There are at least five fatal flaws in Mr. Bajwa's case, and any one of those alone sinks his case. Any one," she said, according to the transcript. Bajwa couldn't prove that SpanCash was ever fully functional and commercially ready, Ruemmler said. In fact, she argued, it was never even a real product. Further, she said, Bajwa didn't prove that the technology or platform was comprised of any trade secrets; or that Emirates Bank stole SpanCash; or that it ever used it. Finally, Bajwa didn't prove InfoSpan suffered any damages, she said. Some of her turns of phrase are refreshingly non-lawyerly. "Sham is going down there... It's not as if these guys were exactly rubes...This is some flimflam thing... One of the many, many dog-ate-my-homework excuses ....This is an absolute double-down lie." The overall effect: she simplified without being condescending. But there was still a hurdle for Emirates. Or as Latham's Schecter put it in an interview, "There are some facts we wouldn't script." After the bank terminated its agreement with InfoSpan and demanded its investment back, Infospan's deputy CEO, Larry Scudder, was arrested when he tried to leave the UAE. "At the Dubai Airport that day, the Dubai police arrested Mr. Scudder after he presented his passport at an electronic terminal. Police told Mr. Scudder that a charge of criminal fraud had been filed against him for 1,465,000. Mr. Scudder was handcuffed and marched through the airport and then held in police detention facilities and interrogated," the complaint states. He was handcuffed to a chair, then transferred to a cell with 30 people before being released 19 hours later, at 1 am. And then, the police kept his passport for six months before he could finally leave the country. On the stand, he cried when he spoke about the ordeal. Isaacson in his closing repeatedly called it extortion. "Because when the bank held Mr. Scudder's passport sorry, caused his passport to held, that just didn't cause personal pain for Mr. Scudder," he said. "What it did was give the opportunity for the bank to control the technology, to control the situation, because now InfoSpan couldn't compete in the UAE because of the fears that this type of thing would happen. And it also gave him the opportunity to try and extort money and control of the technology from InfoSpan." How do you counter that? Ruemmler was not available for an interview, but Schecter said pretrial research showed people expect that if you do business overseas, you'll comply with the laws of the foreign country. And in UAE, this is how they handle fraud. "Judge Selna has instructed you that filing a criminal complaint in Dubai for fraud is a common practice and that if you've been cheated, that's what you're supposed to do," Ruemmler said. What about Scudder's emotional testimony? She undercut it without coming across as callous "Now, I have to mention the tears. And this is the only thing I'm going to say about it," Ruemmler said. "He was detained for less than 24 hours, nine years ago; and then, he was in his corporate apartment and had 300,000 to live for, like, about six months. I'm just going to say this: I will leave to you to evaluate the sincerity of those tears in light of all the other evidence that you have heard in this case." And then she immediately talked about how he "basically, had faked a document." It worked. After about a day of deliberation, the jury found across the board for Emirates NBD Bank. "It was a binary case There were no off-ramps for the jury." The Latham team also included counsel Andrew Fossum and associates Nima Mohebbi, Stephanie Grace, Jonathan Sandler, Jacquelyn Levien, Elizabeth Greenman, Pushkal Mishra and Tom Rickeman. In a statement to The Lit Daily, Lubna Qassim, chief group general counsel and company secretary of the Emirates NBD, said, "While there was no basis for this case being tried in U.S. courts, Emirates NBD Bank is deeply gratified by the jury's decision and appreciates the court's commitment to ensuring a fair trial." Contact Jenna Greene at or on Twittergjgreenejenna. Sent from my BlackBerry 10 smartphone. Cc: L W BD PR (US); Wine, Jamie (NY); Bruno, Nicole (NY); Harris, Nicole (CH); Greenberg, Jeffrey (LA-NY); Bauer, Steve (SF-BR); Moore, Wendy (OC); Jennings, Alex (LA); Robins, Greg (LA) entrepreneur OC Business Journal article with a nice shout out to Dean: http: www.ocbj .com news 2016 aug 12 jury-decides-against-sjc-firm Date: Thursday, Aug 11, 2016, 7:41 PM Schecter, Daniel (CC) , Mohebbi, N , Ruemmler, Kathy (DC) Cc: L W BD PR (US) mailto: , Wine, Jamie (NY) , Bruno, Nicole (NY) 1 , Harris, Nicole (CH) , Greenberg, Jeffrey (LA-NY) , Bauer, Steve (SF-BR) , Moore, Wendy (OC) , Jennings, Alex (LA) , Robins, Greg (LA) The LA Times appears to be the first media to report on the verdict. Latham references are highlighted: BUSINESS Federal jury decides Middle East bank did not defraud Orange County entrepreneur http: fw.to aXv1QHI Farooq Bajwa Farooq Bajwa By Andrew Khouri August 11, 2016 A federal jury decided Thursday that one of the Middle East's most prominent banks did not commit fraud and steal technology from an Irvine firm that sued it for half a billion dollars in damages after their partnership collapsed. Orange County company InfoSpan had alleged that Emirates NBD ended a partnership for a mobile payment system because it didn't want to share revenue and stole InfoSpan's technology to launch its own service. The Dubai-based bank, in turn, denied it stole or ever used InfoSpan's technology. It argued that it cancelled the partnership because InfoSpan couldn't produce a working product and misled it into thinking it was an established company, not one with little to no track record. After deliberating for a day, the jury unanimously decided that InfoSpan did not prove its case of fraud and theft of trade secrets. InfoSpan had asked for 540 million in damages. An attorney for InfoSpan declined to comment on the possibility of an appeal. The verdict capped a two-week trial that involved dueling accusations of fraud levied by high-profile attorneys on both sides, including the former White House counsel to President Obama. At the center of the high-stakes battle was San Juan Capistrano resident and entrepreneur Farooq Bajwa and a mobile payment system that he said would allow migrant workers in the Middle East to send remittances back home through text messages. Bajwa contended that InfoSpan, with support from outside investors, spent 87 million developing the business and technology. To launch the system, known as SpanCash, Bajwa partnered in 2007 with Emirates Bank, which is controlled by the United Arab Emirates' sovereign wealth fund. It seemed the ideal collaboration for the Pakistani immigrant, who earned millions operating another Irvine company that manufactured computer components in the 1980s and 1990s The Gulf States rely heavily on migrants to work construction and other low-wage jobs, offering a ready-made market for SpanCash. InfoSpan aimed to allow migrants to transfer money back home far more cheaply than Western Union or hawala, a traditional Middle Eastern broker-to-broker money transfer system. A study from McKinsey Co., cited in court records, projected annual revenue of 3.5 billion by the deal's fifth year, with InfoSpan receiving more than 2.8 billion in fees. But the relationship between InfoSpan and Emirates Bank soured and the bank cancelled the deal in 2009. A few days later, Emirates filed a criminal complaint in Dubai against Bajwa and a partner alleging that they defrauded the bank and misrepresented InfoSpan as an established business with a working technology. Two years later, InfoSpan sued in U.S. District Court in Santa Ana and alleged that its technology was working and that it delivered its source code to the bank on servers. Emirates ended the deal, InfoSpan said, to launch its own mobile payment system after stealing InfoSpan's technology. In court, an attorney for InfoSpan argued that Emirates torpedoed the InfoSpan relationship because it abhorred how much money it would have to share with the Irvine firm. "They wanted SpanCash and they wanted the money," attorney William A. Isaacson said in his closing arguments Wednesday. Isaacson a partner with powerhouse law firm Boies Schiller Flexner, chaired by high-profile litigator David Boies argued that the bank resorted to "pure extortion" in an attempt to get its way. As a result of the bank's criminal complaint, InfoSpan alleged Bajwa's partner, Larry Scudder, was detained at the Dubai International Airport and taken to a cell where he was locked in with 30 other men for 19 hours until he secured his release by turning over his passport. According to the lawsuit, Bajwa tried to resolve the situation but was told Scudder's passport would be released and he could leave the country only if InfoSpan gave up ownership and control of SpanCash to the bank. Six months later, the bank withdrew the fraud accusations and Scudder got his passport back, but SpanCash's reputation was tarnished and it collapsed, Bajwa previously told The Times. The bank disputed that it acquired InfoSpan's source code or used it at any time. Former White House counsel and an attorney for the bank, Kathryn Ruemmler, said that Emirates never would have acquired source code in a joint-partnership deal like the one reached with InfoSpan. She said such technology would instead be held by a third-party escrow company for the length of the partnership. In her closing arguments, the partner with global firm Latham Watkins told the jury that Bajwa and InfoSpan sold the bank a "bill of goods," arguing that despite promises to Emirates, the technology never worked and InfoSpan wasn't as big a company as it claimed. The bank cancelled the deal and filed a criminal complaint, not as a form of extortion but simply to regain the bank's money after it was misled and doubts grew about the character of InfoSpan's employees, Ruemmler told the jury. "They concluded, definitively, that they had been defrauded," she said. Lubna Qassim, group general counsel for Emirates Bank, said in a statement after the verdict that "Emirates Bank is gratified by today's decision and the opportunity to receive a fair trial in U.S. courts." Bajwa said the trial has taken a toll on him and he doesn't know his next steps. "I am just beat up," he said. Phil Hirschkorn contributed to this report. Copyright 0 2016, Los Angeles Times http: www.latimes.com Frank Pizzurro Public Relations Senior Manager LATHAM WATKINS LLP 355 South Grand Avenue I Los Aneeles, CA 90071-1560 This email may contain material that is confidential, privileged and or attorney work product for the sole use of the intended recipient. Any review, reliance or distribution by others or forwarding without express permission is strictly prohibited. If you are not the intended recipient, please contact the sender and delete all copies. Latham Watkins LLP please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. 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Importance: High lets try, 250k premium Richard Kahn On Fri, Dec 9, 2016 at 11:46 AM, Ens, Amanda We continue to see further upside in financials. wrote: Erika Najarian, BAML financials research analyst, just returned from a marketing trip. Bottom line: North American investors are very bullish the banks (long only AND hedge funds AND macro funds), but then conclude "I don't own enough". Note that high touch flows have slowed down significantly since Thanksgiving and where the buying has been concentrated in XLF (every client sector we have has been a better buyer of XLF). Client focus: 1) Regulation: Excitement, with the base case that it's not getting worse. 2) Sentiment on rates: Cautiously bullish 3) Sentiment on growth: Also bullish 4) Sentiment on corporate tax rate cuts: buyside more bullish than sellside. In 1986, bank stocks exploded upward (outperforming the S P) after Reagan's tax reform bill passed the Senate; and 2) in 2003, the last time we saw personal tax cuts, loan growth industry wide accelerated in 2003 and 2004. Biggest Pushback on owning sector at current levels: Too far too fast: BKX 18.00 post election: Valuation coming into question and 04 has typically been a seasonally weak qtr. Bulls defend valuation on '18ests with potential upside to 2018 PS from 25-40 and stocks still cheap vs. discretionary. Price action and sentiment keeps us constructive, we like the long and would expect US financials to benefit from any beta chase into year end. How to play it? We still like "appearing" call spreads on XLF o Buy a 6 month 105 call with a short 110 call that knock in if XLF trades above 115 during the life of the trade for 1.75 premium cost Gross max payoff if knock-in is triggered: 2.8x (5.0 1.75 ) Gross max payoff if knock-in is not triggered: 5.6x (9.9 1.75 ) you have upside up to 114.9 Amanda Amanda Ens Director Global Equities Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park 15th Floor New York, NY 10036 Underweight positioning, buybacks resuming, positive momentum and strong fundamentals all indicate that there is still further upside potential in financials (more details below). Our financials sector specialist thinks XLF could have another 20-25 upside given the many levers to the Trump Trade: less regulation, higher interest rates, higher vol, economic growth, loan growth, etc. The asset sensitive regional banks are more of a pure play on a rates move but we view the larger cap banks as having multi-pronged upside given the aforementioned points. That said, given the velocity and magnitude of the recent move and uncertainty around the impact and timing of Trump's policies, we believe options offer better risk-reward than being outright long financials stocks here. With flat call skew, "appearing" call spreads with upside knock-ins price well. Buy a 1 year XLF call spread for 2.6 premium Buy a 110 call Sell a 117.5 call with an at-expiry knock-in at 125 (call is not active unless XLF is 125 or higher at expiry) o Total premium is 2.6 o Gross max payoff if knock-in is triggered: 2.9x (7.5 2.6 ) o Gross max payoff if knock-in is not triggered: 5.7x (14.9 2.6 ) you have upside up to 124.9 Post Election Flow Skews - Buyers of Health Care (via ETFs) and Financials (mainly ETFs) US Buyback Flows Cons Disc, Technology and Financials are the largest 3 sectors for US buybacks (over 70 of execution). We are seeing a seasonal increase in buybacks as we come out of the low seasonal month of the year (October) and should see increased buyback executions until year-end, another source of upside for the Cons Disc, Technology and Financials sectors. Global Positioning, Nigel Tupper, 11 14. Large long-only funds are more underweight Financials than any other sector and are UW this sector in all regions. Future of Financials conference hosted 90 public and private companies at our Future of Financials conference. We are raising our price objectives across most of our names. Three primary reasons why we think there is upside remaining after the recent rally: 1) an improved outlook on both activity levels and interest rates, driving revenue upside; 2) potentially lower regulatory burden, particularly as new supervisory leadership can come with the new administration; and 3) relatively lighter positioning in US financials vs. other sectors. (Erika Najarian) Trades Gaining Momentum: Finance-Related Assets vs. S P 500 In the period since the US presidential election, the three top-performing S P sectors and industry groups have all been finance-related (Banks, Financials, Diversified Financials) Trades Gaining Momentum: Finance-Rdalhad Midi VS. SIP SOO J-Cal .4).1ornbour .20 Mmunelsis 11 3 111 11 S III 11,rvis 11 11 111 11111M 1311S 111 11 17 11 11 1 11 Tqchnatves SWIM Source: Kensho Technologies The Flow Show, Michael Hartnett, 11 18. Violent rotation: record equity ETF inflow, record financials inflow, biggest bond outflow in 3.5 yrs, record EM debt outflow. Amanda Amanda Ens Director Global Equities Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park 15th Floor New York, NY 10036 privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to jeevacation gmail.com, and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved |
Rockefeller Partners with Gregory J. Fleming to Create Independent Financial Services Firm Firm to Focus on Wealth Management, Asset Management and Strategic Advisory Viking Global Investors to Back New Firm October 04, 2017 06:30 AM Eastern Daylight Time NEW YORK and Gregory J. Fleming have agreed to form Rockefeller Capital Management ( Rockefeller or the firm ), an independent financial services firm focused on wealth management, asset management and strategic advisory. The firm will look to build upon the 135-year history of excellence in wealth and investment management associated with the Rockefeller family through the addition of broader capabilities and new growth capital. Greg Fleming will become the Chief Executive Officer of Rockefeller upon closing. Mr. Fleming, a longtime financial services executive, was most recently the President of Morgan Stanley Wealth and Asset Management and prior to that, the President of Merrill Lynch. Viking Global Investors LP ( Viking ) will back the firm through an investment by one of its investment funds. Financial terms were not disclosed. The team at Rockefeller Financial Services has spent years building the highest-quality investment management firm for families and institutions, said David Rockefeller, Jr., Chairman of RFS. We look forward to Greg s leadership and Viking s support to expand the Rockefeller platform and bring new products and services to our clients. This combination will allow Rockefeller to build on its distinguished legacy of serving families, including the Rockefeller family, as well as foundations, endowments and institutions. Under Mr. Fleming s leadership, the firm plans to expand its asset management focus on global equities and ESG investing, add to its wealth management capabilities, and build a strategic advisory business. Rockefeller will have four operating units: Wealth Management, Asset Management, Family Office Advisory, and Strategic Advisory. I look forward to leading Rockefeller into its next chapter, backed by the Rockefeller family and my new partners at Viking, Mr. Fleming said. "This is an opportunity to create a unique independent firm focused on wealth management, asset management, and strategic advisory." Rockefeller will be owned by a Viking investment fund, a trust representing the broader Rockefeller family, and the firm s management. The ownership group anticipates making substantial additional capital investments in Rockefeller over multiple years. This will provide the capital necessary for Rockefeller to execute its strategy, enabling the firm to broaden its products and services and accelerate its growth. The board of the new firm will include Mr. Fleming, David Rockefeller, Jr., Peter M. O Neill, Reuben Jeffery III, and Brian Kaufmann of Viking. Additional independent directors will be added in due course. The transaction is subject to certain customary closing conditions and is expected to close in the first quarter of next year. Ardea Partners acted as the financial advisor to RFS, and Willkie Farr Gallagher LLP was the legal advisor to RFS. Paul, Weiss, Rifkind, Wharton Garrison LLP was the legal advisor to Viking. About Rockefeller Financial Services As of June 30, 2017, Rockefeller Co. has approximately 16.2 billion in assets under advisement for individuals and families, family offices, nonprofit organizations, foundations, endowments, and global institutions. This number includes net assets under management of approximately 10.9 billion plus approximately 5.3 billion in advisory assets. Advised assets represent non-managed assets that receive services, such as financial planning, administration and or consulting for open architecture programs or other assignments, consolidated reporting, and accounting and tax return preparation services. About Viking Viking Global Investors LP is a global investment firm founded in 1999, with offices in Greenwich, New York, San Francisco, Hong Kong and London. The firm manages approximately 25 billion in capital and uses fundamental analysis to select investments, primarily public and private equity securities, from a wide range of industries globally. Viking is registered as an investment adviser under the U.S. Investment Advisers Act of 1940. Contacts Media: Teneo Strategy Stephen Cohen, 212-886-9332 stephen.cohen teneostrategy.com or Vested Binna Kim, 917-765-8720 binna fullyvested.com 11 14 2017 Viking Global to Back Rockefeller Wealth Firm Led by Fleming - Bloomberg Viking Global to Back Rockefeller Wealth Firm Led by Fleming By Jennifer Surane and Simone Foxman October 4, 2017, 6:12 AM PDT Updated on October 4, 2017, 9:48 AM PDT Ex-Morgan Stanley executive Greg Fleming to be firm s CEO Hedge fund to become majority owner of high-net-worth adviser Greg Fleming, a former top executive at Morgan Stanley, is joining with the Rockefeller family office to create a wealth-management firm that will be backed by Viking Global Investors. Fleming will be chief executive officer of Rockefeller Capital Management, an adviser to the ultra-wealthy that will be acquired by Viking Global after the deal is completed early next year, the New York-based company said Wednesday in a statement . Terms weren t disclosed. Fleming, 54, who was most recently president of Morgan Stanley Wealth and Asset Management, left the Wall Street firm last year after CEO James Gorman indicated he planned to stay on at least five more years and installed an older deputy in the bank s No. 2 position, people with knowledge of the decision said at the time. Before joining Morgan Stanley, Fleming was president of Merrill Lynch Co. Replay In addition to wealth and asset management, the new company will create a unit focusing on advising large multinational companies, Fleming said in a phone interview. Strategic Advice Many wealthy families own companies that they need to take public or sell, he said. They re looking for strategic advice, and they re looking for interesting investments. https: www.bloomberg.com news articles 2017-10-04 viking-global-to-back-rockefeller-wealth-firm-led-by-fleming 1 4 11 14 2017 Viking Global to Back Rockefeller Wealth Firm Led by Fleming - Bloomberg He said a deal to purchase the Miami Marlins baseball team that he was involved in earlier this year was an example of the sort of investment the firm s clients might be interested in. A private-equity fund managed by Viking will own the majority of the business, while Fleming and others in management will invest, he said. A trust representing the broader Rockefeller family will remain an owner, though it s selling some of its stake as part of the transaction. Rockefeller Co., which began 135 years ago as the family office of oil baron John D. Rockefeller, oversees about 10.9 billion for families and other institutional investors, and advises on another 5.3 billion, according to the statement. Fleming said that Viking s capital will be used to expand these businesses, as well as building an advisory arm. The industry is very fragmented," Fleming said. For independent companies that combine wealth and asset management, as well as advisory, there s room, if you do it well, to really generate some market share, especially for a firm with a brand as good as Rockefeller," he added. Viking Global, which was founded by Andreas Halvorsen, has about 25 billion under management, making it one of the biggest hedge funds in the world. The Rockefeller family office was advised by Ardea Partners, an investment bank formed last year by Goldman Sachs Group Inc. veteran Chris Cole and a handful of former colleagues. Willkie Farr Gallagher LLP provided legal advice, according to the statement. Paul, Weiss, Ri ind, Wharton Garrison LLP was legal adviser to Viking Global. The Wall Street Journal reported on Fleming s new role earlier Wednesday. https: www.bloomberg.com news articles 2017-10-04 viking-global-to-back-rockefeller-wealth-firm-led-by-fleming 2 4 11 14 2017 Viking Global to Back Rockefeller Wealth Firm Led by Fleming - Bloomberg Terms of Service Trademarks Privacy Policy 2017 Bloomberg L.P. All Rights Reserved Careers Made in NYC Advertise Ad Choices Website Feedback Help https: www.bloomberg.com news articles 2017-10-04 viking-global-to-back-rockefeller-wealth-firm-led-by-fleming 3 4 11 14 2017 Viking Global to Back Rockefeller Wealth Firm Led by Fleming - Bloomberg https: www.bloomberg.com news articles 2017-10-04 viking-global-to-back-rockefeller-wealth-firm-led-by-fleming 4 4 11 14 2017 Rockefeller Co. :: Who We Are WHO WE ARE O U R F I R M D E F I N E D O U R C U LT U R E C E O M E S S A G E O U R L E A D E R S H I P T E A M OUR FIRM DEFINED Rockefeller Co. is a distinctive nancial services rm that is privately held and independent. http: www.rockco.com who-we-are 1 6 11 14 2017 Rockefeller Co. :: Who We Are DRIVEN BY the intellectual soundness, creative acumen, and personal dedication of our people FOCUSED ON assessing investment opportunities through a global lens COMMITTED TO providing insightful solutions for the sophisticated needs of our clients C L I E N T L O G I N WHO WE ARE WHAT WE DO INSIGHTS NEWS CAREERS CONTACT 1 1 1 5 2 0 1 6 1 0 3 2 0 1 7 0 6 3 0 2 0 1 6 About Rockefeller Co. Thirty Years Later Rockefeller Co. team members summarize the breadth of services available to non-pro t clients. http: www.rockco.com who-we-are 2 6 11 14 2017 Rockefeller Co. :: Who We Are OUR CULTURE Rockefeller Co. is privately owned and focused on the diverse investment and nancial needs of our sophisticated clientele. From our beginnings As global citizens with a geographically unconstrained approach to asset management we know how important it is to perceive the world as the Rockefeller family o ce, we are today a in its totality in seeking to bene t from the wealth full-service, independent asset management and of opportunities held therein. Our asset wealth advisory rm, with a mission to help our management team speaks 13 languages, an clients achieve their goals. indication of the global perspective we apply to our business. 1882 1979 T O D A Y 1980 Rockefeller Co. has approximately 16.9 billion in assets under advisement for 2012 individuals and families, family o ces, nonpro t organizations, foundations, endowments, and global institutions. 1 1 As of September 30, 2017. This number includes net assets under management of approximately 11.4 billion plus approximately 5.5 billion in advisory assets. Advised assets represent non-managed assets that receive services, such as consulting for open http: www.rockco.com who-we-are 3 6 11 14 2017 Rockefeller Co. :: Who We Are architecture programs or other non-managed investment assignments. CEO MESSAGE establishes a family growing investment In this video, Reuben Je ery III discusses Rockefeller needs of his family. Co. s commitment to service and stewardship. We pride ourselves on our client focus and the strong relationships we develop with individuals, families, and institutions. P L A Y V I D E O 882 OUR LEADERSHIP TEAM http: www.rockco.com who-we-are 4 6 11 14 2017 Rockefeller Co. :: Who We Are REUBEN JEFFERY III JIMMY C. CHANG, CFA YVETTE M. GARCIA DAVID P. HARRIS, CFA Managing Director, Managing Director, Managing Director, Managing Director, President Chief Chief Investment General Counsel Chief Investment Executive O cer Strategist Chief Administrative O cer O cer STUART HENDRY TIMOTHY J. ELIZABETH P. KARA VALENTINE Managing Director, MCCARTHY MUNSON Senior Vice President, Chief Operating Managing Director, Managing Director, Director of Marketing O cer Chief Compliance President of O cer Counsel Rockefeller Trust Company, N.A. The Rockefeller Trust Company (Delaware) http: www.rockco.com who-we-are 5 6 11 14 2017 Rockefeller Co. :: Who We Are RAYMOND N. WAREHAM Managing Director, Head of Wealth Advisory DAVID WESTBROOK Managing Director, Chief Financial O cer WHO WE ARE WHAT WE DO Subscribe for updates INSIGHTS NEWS CAREERS CONTACT CLIENT LOGIN COPYRIGHT 2017 ROCKEFELLER CO. USE PRIVACY STATEMENT TERMS OF http: www.rockco.com who-we-are 6 6 11 14 2017 Rockefeller Co. :: News INSIGHTS NEWS INSIGHTS NEWS H A P P E N I N G S I N T H E M E D I A HAPPENINGS 01 02 0 9 0 8 2 0 1 6 0 7 2 2 2 0 1 6 ROCKEFELLER CO. PARTICIPATES IN OPERATION BACKPACK 2016 As part of our community outreach initiative, Rockefeller Co. again participated in Operation Backpack 2016. Thousands of children live in New York City s homeless and domestic violence shelters. One of the most devastating consequences of homelessness is the impact it has on a child's education. ROCKEFELLER CO. HOSTS GUESTS SIXTH ANNUAL NEXUS GLOBAL YOU SUMMIT From July 20th through 22nd in New York, Karen Wawrzaszek, Sen Advisor and Managing Director, and Jack McMackin, Client Associa delegation of Next Generation clients and other guests at the Sixt Nexus Global Youth Summit. C L I E N T LO G I N WHO WE ARE WHAT WE DO INSIGHTS NEWS CAREERS CONTACT 0 6 1 5 2 0 1 6 ROCKEFELLER RESEARCH SERIES: THE DRIVERLESS ECONOMY Rockefeller Co. hosted 2016 s rst installment of the Rockefeller Research Series at the Boston o New York at The Modern. ces on Wednesday, June 8th with a subsequent presentation in 0 5 0 4 2 0 1 6 MEREDITH BLOCK PRESENTS AT THE ATLANTA SOCIETY OF FINANCE INVESTMENT PROFESSIONALS (ASF Rockefeller Co. was invited to discuss Sustainability Impact Inve ASFIP in Atlanta, GA on May 4th, where Judy Lee, analyst and mem Institutional Sales and Consultant Relations team, introduced a pres Meredith Block, S I Vice President and Analyst. http: www.rockco.com news 1 3 11 14 2017 Rockefeller Co. :: News 0 4 2 9 2 0 1 6 DAVID HARRIS PANELIST AT ESG WORKSHOP AT INSTITUTIONAL INVESTOR FORUM On Friday, April 29th, David Harris was featured in a workshop at the Institutional Investor Forum entitled ESG: Divestment, Governance and Future of Sustainable Investing. 0 4 1 9 2 0 1 6 MATT GELFAND SPEAKS AT NAFOA A CONFERENCE On Tuesday, April 19th Matt Gelfand, Managing Director, participat the Native American Finance O Conference in Phoenix, AZ. cers Association s (NAFOA) 34t WHO WE ARE WHAT WE DO INSIGHTS NEWS CAREERS Subscribe for updates CONTACT CLIENT LOGIN COPYRIGHT 2017 ROCKEFELLER CO. TERMS OF USE PRIVACY STATEMENT http: www.rockco.com news 2 3 11 14 2017 Rockefeller Co. :: News http: www.rockco.com news 3 3 11 14 2017 Rockefeller Co. :: Insights INSIGHTS NEWS INSIGHTS NEWS W H AT S N E W V I D E O S A N D P O D C A S T S I N V E S T M E N T C O M M E N TA R Y C L I E N T LO G I N WHO WE ARE WHAT WE DO INSIGHTS NEWS CAREERS CONTACT WHAT S NEW 1 1 0 1 2 0 1 7 M O N T H LY M A R K E T R E V I E W A Vixing Puzzle Market s unusual lack of volatility; Be fearful when others are greedy 0 9 0 1 2 0 1 7 M O N T H LY M A R K E T R E V I E W Fire Fury A chaotic presidential summer vacation; Government shutdown now a distinct possibility Q 4 2 0 1 7 G L O B A L F O R E S I G H T Thirty Years Later Reagan s Berlin Wall Speech, Rising Debt, the 1987 Crash and Implications for Today s Equity and Fixed Income Markets Q 3 2 0 1 7 G L O B A L F O R E S I G H T Aging Bull Where we see investment opportunities after eight years of rising markets http: www.rockco.com insights What s New 1 3 11 14 2017 Rockefeller Co. :: Insights http: www.rockco.com insights What s New 2 3 11 14 2017 Rockefeller Co. :: Insights WHO WE ARE WHAT WE DO INSIGHTS NEWS CAREERS Subscribe for updates CONTACT CLIENT LOGIN COPYRIGHT 2017 ROCKEFELLER CO. TERMS OF USE PRIVACY STATEMENT http: www.rockco.com insights What s New 3 3 11 14 2017 Rockefeller Co., Inc.: Private Company Information - Bloomberg Capital Markets Company Overview of Rockefeller Co., Inc. Snapshot People November 14, 2017 6:15 PM ET Company Overview Rockefeller Co., Inc. is a privately owned investment manager. It provides its services to High net worth individuals, their families, family offices and related entities, funds organized as domestic or offshore (non-U.S.) companies, limited partnerships, limited liability companies or other types of legal entities; U.S. registered investment companies; Trusts and other fiduciary accounts , Foundations, endowments, charitable and other nonprofit institutions; Taxable and tax-exempt accounts, and Sovereign Nation(s). The firm manages separate client-focused equity and fixed income portfolios. The firm invests in the public equity markets across the globe. It invests in the fixed income m... Detailed Description Key Executives For Rockefeller Co., Inc. Mr. Reuben Jeffery III, J.D. Managing Director, President, CEO, and Member of the Board Age: 64 Mr. David Westbrook Chief Financial Officer and Managing Director Mr. Stuart Hendry Chief Operating Officer and Managing Director Mr. David Peter Harris CFA Chief Investment Officer, Managing Director, and Portfolio Manager Ms. Yvette Marie Garcia J.D. Chief Administrative Officer, Secretary, Managing Director, and General Counsel 10 Rockefeller Plaza New York, NY 10020 United States Founded in 1882 Fax: 212-549-5524 www.rockco.com Compensation as of Fiscal Year 2017. Rockefeller Co., Inc. Key Developments Rockefeller Co Names David Rockefeller, Jr. as Chairman Oct 31 16 Rockefeller Co announced that director David Rockefeller, Jr. has been appointed chairman of the board of directors. Mr. Rockefeller, a founding member of the board of directors, succeeds Colin G. Campbell, who has served as chairman since 2003. Mr. Campbell will remain a member of the board of directors. As chairman, Mr. Rockefeller will lead the board of directors in its oversight of the firm s business, and will work closely with Rockefeller Co. CEO and president, Reuben Jeffery III, in supporting the firm s delivery of best in class wealth advisory and asset management services to high net worth individuals, families and institutions. Similar Private Companies By Industry Recent Private Companies Transactions Company Name Region Visory LLC United States 1 Road Partners LLC United States 11T Partners, LLC United States Type Date Merger Acquisition October 3, 2017 Target https: www.bloomberg.com research stocks private snapshot.asp?privcapId 1082551 1 2 11 14 2017 Rockefeller Co., Inc.: Private Company Information - Bloomberg Company Name Region 123Jump.com, Inc. United States 1509225 Ontario, Inc. United States Request Profile Update https: www.bloomberg.com research stocks private snapshot.asp?privcapId 1082551 2 2 11 14 2017 Rockefeller Co. :: Contact CAREERS C L I E N T L O G I N WHO WE ARE WHAT WE DO INSIGHTS NEWS CAREERS CONTACT http: www.rockco.com careers 1 3 11 14 2017 Rockefeller Co. :: Contact CAREER OPPORTUNITIES Rockefeller Co. is a distinctive nancial services rm that is privately held and independent. We take great pride in the integrity, depth and vision of our professionals. City N E W Y O R K , N Y ( 4 P O S I T I O N S ) C L I E N T A C C O U N T A N T S U M M E R I N T E R N - A S S E T M A N A G E M E N T S U M M E R I N T E R N - M A N A G E R S E L E C T I O N S U M M E R I N T E R N - W E A L T H A D V I S O R Y W I L M I N G T O N , D E ( 1 P O S I T I O N ) V P S E N I O R T R U S T A C C O U N T A N T Don't see the job you are looking for? You can submit a resume for future consideration by clicking here. http: www.rockco.com careers 2 3 11 14 2017 Rockefeller Co. :: Contact WHO WE ARE WHAT WE DO Subscribe for updates INSIGHTS NEWS CAREERS CONTACT CLIENT LOGIN COPYRIGHT 2017 ROCKEFELLER CO. OF USE PRIVACY STATEMENT TERMS http: www.rockco.com careers 3 3 ROCKEFELLER INSIGHTS ACTIVE STEWARDSHIP IN FINANCIAL SERVICES Mariela Vargova, Ph.D. Senior Vice President, Senior Sustainability and Impact Analyst Emmanuel L. Sobong, CFA Senior Equity Analyst ROCKCO.COM 2017 by Rockefeller Co., Inc. All rights reserved. Does not apply to sourced material. Products and services may be provided by various subsidiaries of Rockefeller Co., Inc. THE CONCEPT OF ACTIVE STEWARDSHIP WAS FIRST INTRODUCED IN THE UNITED KINGDOM IN 2010 WHEN THE COUNTRY S FINANCIAL REPORTING COUNCIL INTRODUCED THE UK STEWARDSHIP CODE. Mariela Vargova, Ph.D. 1 ACTIVE STEWARDSHIP IN FINANCIAL SERVICES Active Stewardship Nine years ago, in mid-March, Bear Stearns, which in 2007 traded at over 125 per share, was sold to J.P. Morgan for 10 per share in a transaction that many mark as the beginning of, what we now know as, the Global Financial Crisis of 2008. While it is said that the passage of time heals all wounds, the disastrous contagion across the global financial landscape, the collapse of numerous large financial institutions and the loss of public trust in the financial services sector remains on the minds of many. Whether it was opaque counterparty exposure, excessive leverage, insufficient risk management, or a lack of corporate transparency, we now know that these factors in combination led to the near collapse of the entire global financial system. While the financial markets have moved well beyond that terrible day in March of 2008, the public trust of a very large sector of the global economy is still severely marred due to continued bad behavior, lack of corporate transparency, accountability and proper risk management, as well as risky business practices. ACTIVE STEWARDSHIP IN FINANCIAL SERVICES 2 Accountability Reflection As the Governor of the Bank of England Mark Carney said in 2015, the crisis and its aftermath laid bare that many of our markets didn t live up to these standards of transparency, responsibility and accountability, and warned that until markets regain those qualities they cannot retain their social license to operate. 1 The crisis also underscored the lack of effective shareholder scrutiny of boards of directors and senior management on essential corporate governance issues such as risk management, corporate strategy, independence and long-term value creation. To overcome these shortcomings, the global investment community took on the role of active stewardship in capital markets. It started to adopt stewardship codes to engage with companies in seeking to improve business practices and disclosures. These efforts were focused on seeking major reforms towards financial stability and greater corporate responsibility. 2010: Active Stewardship is Born The concept of active stewardship was first introduced in the United Kingdom in 2010 when the country s Financial Reporting Council introduced the UK Stewardship Code. According to the code, stewardship means that investors are expected to proactively engage with companies on issues of strategy, performance, risk, capital structure, and corporate governance, including culture and remuneration. In January 2017, a group of U.S. and international institutional investors with combined assets of 17 trillion followed suit and launched the first U.S. Stewardship Code. The adoption of stewardship codes in many national markets highlights a new set of responsibilities for shareholders. By signing on, institutional investors commit to closely monitor their companies and to use their voting power to improve corporate behavior. As fiduciaries, investors also commit to be more transparent about their own activities to their clients and other stakeholders. Today, active stewardship includes many environmental, social and governance (ESG) issues that are priorities for those investing with a sustainability mindset. As fiduciaries, we at Rockefeller Co. seek to engage with boards of directors and senior management on ESG issues to identify potential long-term business risks and encourage opportunities such as management quality and ethics, human capital and labor issues, climate change and low carbon economy. We believe that such engagements can have a longlasting impact both on business profitability and competitive advantage. Beyond the potential longterm investment growth and sustainability benefits of implementing these engagement activities, institutional investors are leading the efforts to rebuild trust in public markets after the financial crisis, starting where the issues were most apparent the financial services sector. Embracing Change: Financial Services Sector Borne out of the trauma from 2008 and a new stricter regulatory environment, financial services companies were the first to face this new level of shareholder scrutiny and engagement. Wall Street came under pressure by regulators and society to take significant steps to change its corporate governance guidelines, business practices and culture. It may come as a surprise to learn that several large banks led the reform efforts in 2010 by reviewing their business standards and ethics codes and implementing 3 ACTIVE STEWARDSHIP IN FINANCIAL SERVICES AS THE GOVERNOR OF THE BANK OF ENGLAND MARK CARNEY SAID IN 2015, THE CRISIS AND ITS AFTERMATH LAID BARE THAT MANY OF OUR MARKETS DIDN T LIVE UP TO THESE STANDARDS OF TRANSPARENCY, RESPONSIBILITY AND ACCOUNTABILITY... employee trainings on new values and culture. One of the largest banks significantly improved public disclosures by adopting new policies and processes on ethics, and publicly committing to high-quality practices to ensure financial stability and economic opportunity. At the core of these efforts was the goal to be client-oriented, with accountability to stakeholders and regulators alike. It was in the areas of risk management and board oversight that banks made the most visible changes. They created risk committees at the board level and implemented company-wide risk management programs. For example, we saw how a leading bank in the U.S. also established a new position of Chief Risk Officer reporting to the board and tasked with ensuring that incentive programs in the organization do not encourage excessive or unnecessary risk-taking. One of the largest banks also showed corporate leadership by publicly acknowledging responsibility for unethical practices and recognizing past mistakes. They shifted their focus to identify and monitor material risk-taking in their organization and increased managerial oversight. Other banks publicly committed to seeking responsible business growth and to conduct their business in a more transparent way. ACTIVE STEWARDSHIP IN FINANCIAL SERVICES 4 A New Course for Financials Banks and insurance companies play a vital role in our financial system, providing savings, financing, investment, and payment services to consumers and businesses of all sizes. Our modern economy requires a stable, trustworthy, and efficient financial services industry to function and grow. Active stewardship can serve a role in maintaining a strong financial system. Bank managements should be motivated to pursue best practices, having experienced the consequences of bad behavior long after the Global Financial Crisis. Tighter regulations, enacted in the aftermath of the Global Financial Crisis, including Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection Act, have increased capital requirements and compliance costs for financial institutions. They have also limited aggressive forms of lending and risk-taking. In addition, banks have also incurred substantial legal penalties for poor conduct ranging from consumer loan servicing, market manipulation, fraudulent activity, and money laundering. However, while new regulations and legal settlements have placed incremental financial burdens on the financial services industry, banks and insurers have since made substantial progress to comply with new rules and adjusted their business models accordingly. Balance sheets have been reinforced with additional capital and liquidity, and tighter underwriting. While this may limit loan growth, it has also resulted in reduced risk costs in their lending businesses. Banks have added headcount in their compliance and risk control divisions in an effort to monitor and prevent future misconduct. With a new administration in power in the United States, there is some concern that an aggressive pullback of regulations is imminent. However, we believe that higher quality banks and insurers should remain conservative in maintaining their increased regulatory capital, underwriting standards, and compliance and risk monitoring capabilities, as failing to do so could draw the ire of legislators and regulatory bodies, as well as the general public. This could lead to additional costs through loan losses, further litigation expenses, and even more stringent regulations. We believe that through active stewardship, we can continue to promote responsible practices among these companies. Going forward, we expect banks and other financial institutions with adjusted business models, that exhibit greater stability in earnings and balance sheet quality to benefit financially in the long run. A reduction of earnings cyclicality should result in higher investor confidence in dividend payouts over time, and financial stocks could see higher valuations as a result. Swedish banks are a prime example. Highly capitalized by global standards, with minimal loan losses in their home market even during economic downturns, Swedish banks have maintained premium valuations (14x to 16x forward earnings, 1.6x to 2x book value) compared to their European peers (many trade at 10x to 12x forward earnings, 1x book value). We believe this represents significant potential upside for long-term investors in the sector. OUR MODERN ECONOMY REQUIRES A STABLE, TRUSTWORTHY, AND EFFICIENT FINANCIAL SERVICES INDUSTRY TO FUNCTION AND GROW. ACTIVE STEWARDSHIP CAN SERVE A ROLE IN MAINTAINING A STRONG FINANCIAL SYSTEM. 5 ACTIVE STEWARDSHIP IN FINANCIAL SERVICES Doing Our Part at Rockefeller Co. Over the past several years, the Sustainability Impact team at Rockefeller Co. has implemented active stewardship with the financial services sector. On behalf of our clients, we have engaged with boards of directors and senior management, focusing on the following issues: Implementing strategy on long-term financial stability Improving transparency over business standards, values and culture Establishing sound risk management systems and processes Compensation and incentive programs tied to long-term performance Implementing new employee engagement and trainings Sustainable finance and climate related investments Financial inclusion and access to underserved populations As engaged investors, we believe we have made significant progress in many of these areas. We worked together with some of the largest banks in the United States in seeking to improve their disclosures over business standards and encouraged them to embrace ESG in their operations and investments. We continue to monitor their progress through regular meetings and communications. Despite making significant progress in the areas of governing business risk and regulatory compliance, many financial companies continue to be involved in irresponsible business practices. Such behavior can potentially hurt long-term shareholder value and damage their corporate reputation. This is where we believe our active stewardship and constructive shareholder voice can have the most positive impact. ROCKEFELLER CO. HISTORY OF CO-FILING SHAREHOLDER RESOLUTIONS IN THE FINANCIAL SERVICES SECTOR AFTER 2008: 2017 Wells Fargo, Report on Business Standards 2017 J.P. Morgan Chase, Proxy Voting 2015 Bank of America, Separation of Chair CEO 2014 J.P. Morgan Chase, Report on Business Standards 2014 Bank of America, Report on Business Standards 2014 Wells Fargo, Report on Business Standards 2013 Wells Fargo, Payday Lending 2012 Morgan Stanley, Transparency in the Repurchase Markets 2012 Bank of America, Internal Controls Related to Mortgage Loan 2011 State Street, Separate Chair CEO 2011 Morgan Stanley, Restore Confidence in the Financial System Our engagements with the financial services sector are supported by our long-term collaborative work with the Interfaith Center on Corporate Responsibility (ICCR). We also utilize other investor networks such as the UN-backed Principles for Responsible Investment (PRI) and the CERES Investor Network on Climate Risk (INCR) to engage with companies on sustainability across various sectors. Finally, the outlook for possible increased deregulation under the new administration could potentially undermine the gains achieved by shareholders through active stewardship and engagements. We believe that institutional investors should be more proactive than ever as stewards of companies and capital markets, and raise their voice in seeking to ensure good governance, accountability and responsible growth. ACTIVE STEWARDSHIP IN FINANCIAL SERVICES 6 INSIGHTS ROCKCO.COM NEW YORK, NY 10 Rockefeller Plaza New York, NY 10020 T. 212-549-5100 WASHINGTON, DC 900 17th Street NW Washington, DC 20006 T. 202-719-3000 BOSTON, MA 99 High Street, 17th Floor Boston, MA 02110 T. 617-375-3300 ROCKEFELLER TRUST COMPANY, N.A. 10 Rockefeller Plaza New York, NY 10020 T. 212-549-5100 THE ROCKEFELLER TRUST COMPANY (DELAWARE) 1201 N. Market Street, Suite 1401 Wilmington, DE 19801 T. 302-498-6000 http: www.bankofengland.co.uk publications Documents speeches 2015 speech865.pdf http: www.oecd.org corporate ca corporategovernanceprinciples 43056196.pdf https: www.frc.org.uk Our-Work Publications Corporate-Governance UK-Stewardship-Code-September-2012.pdf https: www.frc.org.uk Our-Work Codes-Standards Corporate-governance UK-Stewardship-Code.aspx http: www.goldmansachs.com who-we-are business-standards committee-report business-standards-committee-report.html https: www.morganstanley.com about-us-2015ams pdf 2015 Proxy Solicitation Presentation.pdf https: www.jpmorganchase.com corporate investor-relations document How We Do Business.pdf http: about.bankofamerica.com assets pdf Bank-of-America-2015-Business-Standards-Report.pdf These materials are provided for informational purposes only and are not intended, and should not be construed as investment advice. The views expressed are as of a particular point in time and are subject to change without notice. Certain examples are intended to demonstrate aspects of Rockefeller Co. s engagement process with companies. Rockefeller Co. may take different approaches with other companies and there is no guarantee that any engagement effort will be successful. Certain information contained in these materials may constitute forward-looking statements and or may be obtained from, or based on, third party sources that Rockefeller Co., Inc. believes to be reliable. No representations or warranties are made as to the accuracy or completeness of such statements, and actual events or results may differ materially from those reflected or contemplated. Although the information provided is carefully reviewed, Rockefeller Co. cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided. Company references are provided for illustrative purposes only and should not be construed as investment advice, or a recommendation to purchase, sell or hold any security. Past performance is no guarantee of future results and no investment strategy can guarantee profit or protection again losses. These materials may not be copied, reproduced or distributed without Rockefeller Co. s prior written consent. Cover and interior images: Shutterstock THIRD QUARTER 2017 Foresight G L O B A L Aging Bull Where we see investment opportunities after eight years of rising markets BY DAVID P. HARRIS, CFA pages 2-5 Yesterday Once More; Tomorrow Never Knows BY JIMMY C. CHANG, CFA pages 6-9 Leveling the Playing Field BY MICHAEL D. SEO, CFA pages 10-13 The Promise of Governance Reform South Korea BY MARIELA M. VARGOVA, PH.D. pages 14-15 GLOBAL FORESIGHT THIRD QUARTER 2017 1 Cover Story DAVID P. HARRIS, CFA Chief Investment Officer 212.549.5210 dharris rockco.com Eight plus years into the market recovery, we see valuations extended as most of the gains since 2014 have been driven by multiple expansion rather than earnings growth. In this issue of Global Foresight, we highlight potential investment opportunities, as well as challenges to sustaining this bull market. We examine emerging markets with Jimmy Chang focusing on China, and Michael Seo on South Korea. We also comment on corporate governance in an article by Dr. Mariela Vargova. The Charging Bull The lifespan of a bull market typically lasts many years, at times ending abruptly. Conversely, the statue now on Lower Broadway known as Charging Bull had a very short-lived initial run on Wall Street. It is not widely known that Charging Bull was never commissioned by the City of New York nor by any one of its major investment banks. Rather, the three-and-a-half-ton statue was simply unloaded one December day back in 1989 by a private citizen in front of the New York Stock Exchange. The benefactor was Italian sculptor Arturo di Modica who created Charging Bull to demonstrate his belief in the strength of the U.S. economy after the stock market crash in 1987. Hours after di Modica delivered his statue, it was removed by the NYPD and was not expected to be resurrected. This was not the end of this bull s run, however, since its removal generated an amazing amount of media buzz particularly noteworthy considering this happened before the internet was available to the general public, so going viral was not even a concept. After a couple of weeks of public pressure, Charging Bull was retrieved and installed at its current home at the intersection of Broadway and Whitehall, where it has been a staple for tourists photos ever since. The current equity bull market may have more years left, but its age and valuation make the case worth revisiting. As we assess potential investment opportunities, we see valuations elevated in the U.S. market, while we believe Europe is likely to continue its cyclical rebound. We are also encouraged by political developments on the continent. We believe there are a number of attractive emerging market (EM) opportunities, but are mindful of the challenges most of these once-rapidly-growing economies face. Frankly, it is not just the bull market that is aging; it is most of the world, which has important sociological, economic and investment implications as demographics and debt are likely to constrain long-term global economic growth. highest it has been except during two famous market peaks 1929 and 1999. We believe the CAPE ratio is cause for concern, but not alarm. It most likely suggests that U.S. equities will have subdued future returns. However, unlike the market s prior peaks at the end of the Roaring Twenties or the dot-com era, we do not believe we are in the midst of an economic or market bubble. If there is a benefit to the subdued economic recovery we have recently experienced in the U.S. where GDP growth has been averaging about 2.0 , it is that the economy has not built up the excesses that it did during past peaks in the CAPE ratio. By contrast, during the 1920s, U.S. real GDP growth averaged 4.2 , and from 1996-1999 it grew at least 4.3 in each calendar year. Since the CAPE ratios in those periods calculated off a base of very strong economic activity and earnings, those periods were more susceptible to crashing than today s more muted environment. The Challenge of High Valuations In 1998, professors Robert Shiller and John Campbell conceived the cyclically adjusted price-earnings (CAPE) ratio, which averages earnings over a 10-year period to minimize the impact of economic cycles when valuing equity markets. The CAPE ratio has been widely cited as evidence of U.S. stock market overvaluation. The present U.S. equity CAPE ratio is the Source: New York Post 2 GLOBAL FORESIGHT THIRD QUARTER 2017 EM Growth? CAPE ratios are lower outside the U.S., with emerging markets even lower than those in developed markets. While we have been more constructive in recent issues of Global Foresight on non-U.S. opportunities, we believe there is limited relevance of CAPE ratios when comparing the very deep, diverse set of companies in the U.S. with most other markets. While valuation from 30,000 feet looks better in many places, there are reasons to discount CAPE as a reliable valuation tool when analyzing smaller markets. As an extreme example, Russia has the lowest CAPE ratio in the world, but its equity market is very concentrated in commodity businesses whose earnings are highly cyclical. TABLE 1 highlights data from the 10 largest emerging markets, which account for 89.2 of the MSCI Emerging Markets Index. The growth prospects of this group appear surprisingly tepid. The median real GDP growth for the next five years is forecasted at 2.5 , while population growth is expected to be less than 1.0 . The term emerging markets was coined in the 1980s, but frankly, most of these economies have already emerged. The countries with the most long-term economic growth potential are arguably those with young, growing populations namely, India, Indonesia and Malaysia. However, these countries have small equity markets that, when combined, do not even equal South Korea s in size. TABLE 1: KEY DATA FROM THE TEN LARGEST EMERGING MARKETS COUNTRY INDEX WEIGHT LAST 5 YEAR GDP GROWTH FORECAST NEXT 5 YEARS GDP GROWTH ESTIMATED POPULATION GROWTH TO 2021 INFLATION RATE MEDIAN POPULATION AGE FISCAL DEBT GDP LEADING MARKET P E 10-YEAR BOND YIELD SOVEREIGN DEBT RATING CHINA 27.7 7.3 6.4 0.6 2.0 37.1 46.2 13.6 3.5 AA- SOUTH KOREA 15.4 2.8 2.7 0.4 1.3 41.2 38.6 9.7 2.2 AA TAIWAN 12.2 2.1 2.2 0.2 1.4 40.2 35.7 13.8 1.0 AA INDIA 8.8 6.3 7.5 1.3 5.0 27.6 69.5 18.8 6.5 BBB SOUTH AFRICA 7.0 1.6 1.5 1.6 6.3 26.8 50.5 15.9 8.4 BBB- BRAZIL 6.7 -0.4 1.8 0.7 8.8 31.6 78.3 12.0 10.7 BB MEXICO 3.7 2.5 2.4 0.9 2.8 28.0 58.1 18.7 7.1 A RUSSIA 3.3 0.5 1.5 -0.1 7.1 39.3 17.0 5.8 7.6 BBB- INDONESIA 2.5 5.6 5.3 1.3 3.5 29.9 27.9 15.7 6.8 BBB- MALAYSIA 2.4 5.1 4.6 1.7 2.1 28.2 56.3 17.9 3.8 A SOURCE MSCI AS OF MAY 31, 2017 BLOOMBERG BLOOMBERG IMF BLOOMBERG BLOOMBERG CIA WORLD FACTBOOK IMF MSCI BLOOMBERG BLOOMBERG S P TOTAL 89.7 MEDIAN 2.7 2.5 0.8 3.2 30.8 48.4 14.8 6.7 AVERAGE 3.3 3.6 0.9 4.0 33.0 47.8 14.2 5.8 Sources: Bloomberg, IMF, CIA World Factbook, MSCI, S P China is a market that has looked attractively valued at times relative to its growth prospects. However, China has already had a spectacular recovery from a correction that rattled markets globally in August 2015 and again in January 2016. China is the largest emerging market and a vital trading partner for many other key emerging markets, such as Brazil. While China remains an important source of long-term global economic growth, it faces some cyclical and structural challenges that Jimmy Chang discusses in his article. South Korea is an emerging market that has screened well for valuation and poorly for governance. As the second largest emerging market after China, we believe that South Korea is an important economy and source for potential investments. We cover it in more detail in the articles from Michael Seo and Dr. Mariela Vargova. Aging Populations A major challenge South Korea and China already face, is an aging population. Countries that are major economic powers are aging rapidly, while most of the youth in the world is concentrated in the poorest nations. One useful country demographic is the median age of its citizens. The U.S., with a median age of 37.9 years (half of all Americans are 38 or older), ranks 62 out of 230 nations, making it one of the older nations in the world, though one of the world s younger developed markets. Aging in the U.S. is dwarfed by comparison to most of Europe and Japan. Japan and Germany have median population ages of 46.9 and 46.8, respectively. Remarkably, if people in the U.S. ceased having kids for the next nine years, only then would we have a median population age approaching those today in Japan and Germany. Europe has a median age of 42.7 as a region and is nearly five years older than the U.S. GLOBAL FORESIGHT THIRD QUARTER 2017 3 CHART 1: CHINA POPULATION DISTRIBUTION 2015 Male Female Source: United Nations; World Population Prospects, The 2017 Revision While we consider demographics as an important long-term factor for investing (as discussed in the Third Quarter 2015 issue of Global Foresight: Investing for the Ages), in the short run, it is eclipsed by economic cycles and political changes. For instance, Japan s and Germany s economies have each been performing well over the last few years, despite being the second and third oldest countries in the world with the median population age of 47 years (Monaco has the world s oldest population at 52 years). However, in the longer run, demographics factor into economic growth as consumption declines dramatically in your 50s and 60s from where it is in your 30s and 40s. Health care burdens also increase and presumably need to be funded with higher taxes that will eventually weigh on the disposable incomes of younger workers. The largest emerging market, China, has a median age comparable to the U.S. and arguably has far worse demographics as China faces a big decline in new workers over the next ten years when the number of retirees may exceed the number of new entrants into the labor force as shown in CHART 1. South Korea is the oldest emerging market with a median age of 41. East Asian economies, including Japan, have grown over the years due to migration from villages to urban centers, resulting in productivity gains that have fueled economic expansion. Although this migration may continue a while longer, EM investors should understand the reality that the economic growth case outside of South Asia and Southeast Asia is mostly limited to productivity gains. India has the best demographic profile of any major emerging market as shown in CHART 2, with progressively younger population brackets getting steadily larger, indicating a stable increase in labor force for long-term economic growth. Young Ideas ...in the longer run, demographics factor into economic growth as consumption declines dramatically in your 50s and 60s from where it is in your 30s and 40s. Japan has seen a long, steady economic recovery behind the market-friendly policies of Prime Minister Abe. The U.S. has experienced slow but consistent growth, arguably being driven more by its culture of innovation and leadership in the tech sector that has led its market s returns. By comparison, Europe has been plagued by infighting and rotating economic and political crises for most of the last nine years. In addition, when we consider the challenges to growth Europe faces longer-term as a result of its aging populations, it would seem difficult to make the case that the bull market centered in the U.S. may see its next leg driven by its counterparts across the Atlantic. However, we see the European continent energized by the electoral success of 39-year-old Emmanuel Macron, who not only won the French presidency in May, but also a strong party majority in its legislative body, the National Assembly. This mandate should pave the way for economic reforms that we believe investors will embrace. It is a massive change in sentiment from six months ago when markets were fearing the anti-European Union rhetoric of since-defeated Marine Le Pen. Unifying Europe is no easy task, but the best chance appears to be in the hands of a political outsider with pro-business and economic policies that manage to be sufficiently mainstream to keep France from fracturing into far-left and far- 4 GLOBAL FORESIGHT THIRD QUARTER 2017 CHART 2: INDIA POPULATION DISTRIBUTION 2015 Male Female Source: United Nations; World Population Prospects, The 2017 Revision right camps. So far, Macron has fostered a good rapport with German Chancellor Angela Merkel, whom we expect to be reelected in September. The political risk in continental Europe is now centered in Italy, but we were encouraged that its farleft Five Star Movement suffered key defeats in recent regional elections, which could bode well for their next national election, likely to occur next spring. In addition to Italy, Brexit remains a large political risk for 2018 as the weakened Tories will be negotiating with at best a tenuous alliance with the Democratic Unionist Party (DUP) and at worst may face another election and lose power altogether. We believe it is too soon to make major portfolio shifts based on Brexit, but we are watching this closely as substantial progress in negotiations will need to materialize months ahead of the March 2019 deadline. By this time next year, we would expect to see traction in negotiations and stability in Parliament or begin to consider reducing exposure to the British pound and companies exposed to that economy. Aging Business Models The FANG stocks Facebook, Amazon, Netflix, and Google have disrupted countless business models while seeing their own revenues and market values soar. Empty storefronts from Manhattan to malls in Middle America are evidence of the disruption facing rapidly aging business models like brick-andmortar retail. When you include Apple and Microsoft in the FANG stocks, the six companies account for 12.83 of the S P 500 Index. At the start of this bull market on March 9, 2009, these companies had a market value of 326 billion. Today, their market value is 2.97 trillion. Their sheer size alone suggests that they cannot keep compounding like they have. To maintain its ascent, the U.S. bull market will need new sectors to emerge as market leaders. The challenge will be economic growth. Companies that disrupt mature businesses, like many of the FANG stocks have, typically have not relied on a robust global economy to generate their amazing revenue growth. Most other sectors in the S P 500 Index, however, would likely benefit from a stronger economy. Summary and Conclusion Many bull markets have interesting back stories as to how they begin and end. The latest bull market can arguably be traced back to March 9, 2009 when the CEO of Citibank, Vikram Pandit, released a memo to employees announcing that the company was having its best quarter since early 2007. The market embraced that memo as a sign the worst was over, especially for the beleaguered banking sector. The S P 500 rallied from that day and eight years later is up nearly four-fold. As we consider future returns, valuation matters. In March 2009, the S P 500 was selling for roughly 10 times depressed earnings and is now selling for about 18.7 times. The U.S. market leads the world in innovative companies and is priced for it. As we look for opportunities overseas, we see political fortunes improving in Europe with some lingering headwinds that may appear in 2018. We could argue the same in the U.S. as the leadership in the House of Representatives can easily switch parties next year. If Europe can continue its economic improvement, we see the potential for more gains ahead for the region after a robust start to 2017. The emerging markets offer some attractive valuations, but are not likely to be a panacea for global growth as the largest ones face the same challenges of aging and maturing development that confront most of the developed world. This bull market may keep moving, but like all of us past a certain age, not at a pace that we are used to. GLOBAL FORESIGHT THIRD QUARTER 2017 5 JIMMY C. CHANG, CFA Yesterday Once More; Tomorrow Never Knows China s housing boom once again fueled global growth, but how long will it last? Chief Investment Strategist 212.549.5218 jchang rockco.com Let us begin with a trivia question what was the most consequential publication in 1776? With this article being published around July 4, you would probably think we are hinting at the U.S. Declaration of Independence. That would be a good response, but unlike the laws of physics or mathematics, there is not exactly a right answer to such a question. One could also point to a book published on March 9, 1776, that has had a transformative impact over time. It has a long title: An Inquiry into the Nature and Causes of the Wealth of Nations, and is generally referred to as The Wealth of Nations. This seminal work supposedly took Scottish economist and philosopher Adam Smith 10 years to complete, and was based on notes and observations spanning 17 years. It challenged the mercantilist and physiocratic economic theories that dominated the intellectual debate during the mid-18th century. Mercantilist theory held that countries grow wealthier by maximizing domestic production and exports, and was the basis for European imperialism. Physiocratic theory postulated that the wealth of nations was derived from the value of agricultural and land development, and could trace the inspiration to China s agrarian traditions. The Wealth of Nations marked the birth of modern capitalism and also had an influence on our Founding Fathers. James Madison cited the treatise in arguing against the need for a central bank in 1791; Thomas Jefferson referred to it as the best book on money and commerce. In February 1977, in celebration of America s Bicentennial, the Federal Reserve Bank of Richmond published the paper The Relevance of Adam Smith. It pointed out the striking similarities between the intellectual spirit of The Wealth of Nations and the Declaration of Independence. Both railed against the heavy hand of the state, and emphasized individual liberty and the harnessing of individual self-interest to the welfare of the greater society. So it is perhaps a tie between these two publications. One gave birth to modern economics that created the greatest prosperity in human history, and the other marked the founding of arguably the most powerful and wealthiest nation ever. Do Not Bet Against the House At around the time that America celebrated its Bicentennial, China reached a historic turning point. Chairman Mao passed away in September 1976, and a month later, the arrest of the Gang of Four marked the end of the decade-long Cultural Revolution. Deng Xiaoping then returned to power and embarked on reforms that powered roughly 10 real GDP growth per annum for the next four decades and lifted more than 800 million people out of poverty. Today, the Chinese economy is the largest in the world based on purchasing power parity. Interestingly, China s rise had little to do with Adam Smith s free-market capitalism. While China s unprecedented economic ascension was indeed fueled by unleashing the energy and the profit-seeking self-interest of the individual, its development has always been shaped by the government s heavy hand. Successive Five-Year Plans, which first started in 1953, continued to guide social and economic development, and key industries remained mostly state-owned. Some argued that China has been pursuing a mercantilist policy in building up its manufacturing base to drive exports and accumulate foreign exchange reserves. Indeed, its share of global exports has remarkably grown from about 1 in 1980 to around 15 by 2016, the largest in the world. Some claimed that China even produces more sombreros than Mexico. In the wake of the Global Financial Crisis in late 2008 and early 2009, China realized that the country s growth model could no longer depend on external demand, and responded by unleashing massive stimulus for infrastructure projects. It worked so well that China s growth skyrocketed, asset prices shot up, and the housing market became overheated. Globally, China s reflation and the Fed s quantitative easing generated an echo bubble in commodities and emerging market stocks. 6 GLOBAL FORESIGHT THIRD QUARTER 2017 By early 2011, China had to cool the economy and tackle the rising leverage and speculation. Policymakers also declared a shift in China s growth model to be more consumption-driven. The transition probably turned out to be more complicated than Chinese policymakers may have expected. Unlike the infrastructure-driven growth model under which the pace of growth could be controlled by adjusting the pipeline of construction projects, a consumption-driven model would let the invisible hand of self-interested consumers exert more influence. In other words, a consumption-driven model would cede more control to market forces and experience more unpredictability. While variability in realized growth versus projection is a fact of life in the rest of the world, Chinese officials have sought to minimize this uncertainty as the failure to hit growth targets could affect confidence. With an estimated homeownership rate around 90 and many families holding multiple apartments as investments, China s housing market has an outsized impact on wealth, consumption and construction, as well as the general economy. As shown in CHART 1, the rapid housing price increases in 2010 and 2011 prompted regulators to cool the housing market, which resulted in price declines in 2012. However, the slowing economy soon pushed them to relax home purchase restrictions. Predictably, housing prices rebounded as a response, with double-digit increases in tier-one cities, prompting measures to tame the bubble once again by 2014. It is quite clear that there is a momentum-driven herd mentality among Chinese buyers, as expressed in the Chinese adage buy up market, not down ( ). In an attempt to wean investors off real estate and channel their capital to highly leveraged state-owned companies, policymakers engineered a stock market rally in the second half of 2014. As the rally gained momentum, the herd flocked in (buy up market, not down) and pumped up a huge stock bubble that eventually blew up by mid-2015. This was followed by the renminbi s official devaluation in August 2015 to alleviate the pressure from the surging U.S. dollar. Confronted with slowing economic growth, declining foreign exchange reserves, rising capital flight, and a collapsing stock market, Chinese policymakers shelved the reform agenda and went back to the proven playbook infrastructure and real estate buildout. China even eased property investment rules for foreign institutions and individuals. The result was perhaps the biggest housing bubble ever in China s tier-one cities prices surged over 30 year-over-year by the spring of 2016. It is as if China was validating the old physiocratic economic theory which postulated that the wealth of a nation lies in its land development. For years China has justified its rapid property price increases on the basis that it is just catching up to global metropolises such as London, New York, Hong Kong, Tokyo, etc. The latest price surge has indeed accomplished that and more. For example, a run-of-the-mill two-bedroom apartment in Beijing s financial district now costs more than 2,000 per square foot. Skyrocketing domestic property prices have also distorted many Chinese investors views of foreign properties they are bargains relative to prices in Beijing, Shanghai and Shenzhen. It is no wonder Chinese investors have bid up property prices in many major cities around the globe. As a sign of the times, Warren Buffett s Berkshire Hathaway HomeServices has recently teamed up with China s Juwai.com to bring American residential property listings to China. An Under-Appreciated Reflation Story According to a U.S. State Department memo released by WikiLeaks, when Chinese premier Li Keqiang was serving as the party secretary of Liaoning Province in 2007, he supposedly told a U.S. ambassador that he did not have confidence in the provincial GDP data. He preferred to monitor three indicators to assess the state of the local economy: the rail freight volume, electricity consumption and bank loan volume. In 2010, The Economist introduced the Li Keqiang Index, which takes the weighted average of these three metrics annual growth rates to track Chinese economic growth. The Li Keqiang Index has indeed tracked the direction of China s reported GDP data as shown in CHART 2. There was a clear growth deceleration in 2015 and a strong rebound in 2016. CHART 1: YEAR-OVER-YEAR CHANGE IN CHINA NEW PROPERTY PRICES China 70 Cities New Apartment Prices China First Tier Cities New Apartment Prices Source: Bloomberg GLOBAL FORESIGHT THIRD QUARTER 2017 7 CHART 2: THE LI KEQIANG INDEX VERSUS CHINESE REAL GDP GROWTH Li Keqiang Index (Left Hand Side) Chinese Real GDP Year-over-Year (Right Hand Side) Source: Bloomberg Furthermore, CHART 3 shows that, directionally, the Li Keqiang Index maps pretty well to the ebb and flow of Chinese property prices, confirming the thesis that property prices have much impact on the Chinese economy. A close examination of CHART 2 raises an interesting observation: Lately, the Li Keqiang Index has accelerated much more than the reported GDP growth. One could surmise that China s actual GDP growth (measured on a year-over-year basis rather than on an annualized sequential change) may have been greater than the reported 6.9 in the first quarter of 2017. This could be rationalized by the conjecture that the actual growth in early 2016 may have been lower than the reported 6.7 . One indicator of China s strong growth is the year-over-year changes in its imports as shown in CHART 4. Imports surged 24 year-over-year in U.S. dollar terms, and 31 in renminbi terms during the first quarter of 2017. To be fair, part of the surge was due to the rebound in commodity prices. However, China s 58 billion import from Germany and Japan, two noncommodity countries, was still up an impressive 17 year-onyear. In the first quarter of 2016, China s imports from those two countries had declined 10 . We believe China s strong reflation, thanks to the infrastructure buildout and the unprecedented property price increases in major cities, may have been the most impactful yet underappreciated catalyst that fueled the synchronized global economic recovery since the summer of 2016. The good news is that China s growth is likely to remain healthy for the remainder of 2017, as stability is paramount ahead of the quinquennial power transition this autumn. However, the uncertainty starts to rise as we look beyond 2017. Shadow Boxing Over the past few years, China watchers have been urging Chinese policymakers to introduce bold reforms and market forces to tackle the country s rapidly growing leverage, over capacity, and housing bubble. However, with stability being of utmost importance, policymakers could not afford to take a chance with the market s invisible hand. Tough reforms in the context of slowing economic growth also ran the risk of jeopardizing social stability. Now, however, with the economy on a much stronger footing, Chinese policymakers have started to push through some needed reforms. CHART 3: LI KEQIANG INDEX VERSUS YEAR-OVER-YEAR PRICE CHANGE IN CHINESE PROPERTIES Li Keqiang Index Year-over-Year Price Change in Chinese Properties Source: Bloomberg 8 GLOBAL FORESIGHT THIRD QUARTER 2017 With Chinese President Xi calling for a heightened effort to reduce systemic financial risk, regulators have started to tackle the bloated shadow banking system. Since taking office in February, Guo Shuqing, China s top banking regulator with the nickname Whirlwind Guo for his no-nonsense management style has already issued a series of directives to reduce leverage. For example, banks were asked to implement higher standards for interbank lending and for selling thirdparty wealth management products (a primary source of funding for the shadow banking system). In April, China s top insurance regulator was detained for corruption, and the regulatory agency has since taken disciplinary actions against some high-profile insurance companies that have deviated from the core insurance business by using shorter-term funding to finance corporate takeovers, as well as overseas acquisition sprees. Tomorrow Never Knows While we believe China s economy should hold up well going into the 19th Party s Congress this autumn, its growth is likely to decelerate, and the lagged effects of the tightening measures on the shadow banking system and on the housing market could become quite visible by 2018. Housing price changes could be flat or even negative by this time next year. If the past is any guide, Chinese policymakers may once again loosen property purchase restrictions next year to stimulate growth. Therein lies the moral hazard it is well known that Chinese policymakers would not risk a sizeable correction in the housing market, and therefore would reflate again to strengthen economic growth. However, with property prices in China s tier-one cities already on par with or even exceeding those of major global cities, it will be hard to rationalize another CHART 4: YEAR-OVER-YEAR CHANGE IN CHINESE IMPORTS (BILLIONS OF USD) Source: Bloomberg These measures have driven up China interbank lending rates, as well as corporate bond yields. The squeeze on the shadow banking system has led to a big jump in aborted bond issuance. In May, China s net corporate bond issuance dropped to a record low of negative 217 billion yuan as some bond issuers were unable to roll over their maturing bonds. On the housing front, various cities have rolled out new administrative measures with the aim of keeping housing prices flat. A few cities even resorted to the draconian measure of a 10-year lock-up period for new apartment purchases buyers of new apartments built on recently auctioned off land are prohibited from selling their units for a decade. China has also continued to stem the capital outflow. Starting this July, Chinese banks and financial institutions have to report all domestic and overseas cash transfers of more than 50,000 yuan ( 7,700), compared to the prior threshold of 200,000 yuan ( 29,338). Funds transferred overseas are prohibited from purchasing properties, investments, and insurance products. Various new restrictions have also been placed on Bitcoin trading exchanges, as well as overseas use of credit cards. In short, it appears that capital flight from China will get somewhat more difficult for ordinary citizens. round of substantial price increases. In other words, using the property market as a lever to stimulate economic growth is not a sustainable long-term solution. Although equity volatility picked up some in June, most equity investors still appeared to be basking in the glow of a synchronized global recovery. However, the canary in the coal mine may be iron ore: having rallied from the December 2015 low of 37.50 per metric ton to nearly 95 in February 2017, it has lost roughly 30 to 65 a metric ton by the end of June. In the final analysis, the global economy has benefited from China s rapid growth. However, China will likely be at a crossroads as President Xi embarks on his second term in 2018. Will policymakers inflate the housing bubble further to support economic growth? Will they find new levers to keep the economy growing above 6 per annum, or will they settle for a lower but more sustainable pace? The law of large numbers portends that the next five years will likely be more challenging for Chinese policymakers than the last five years. GLOBAL FORESIGHT THIRD QUARTER 2017 9 MICHAEL D. SEO, CFA Director of Equity Research 212.549.5232 mseo rockco.com Leveling the Playing Field Investment opportunities in the changing South Korean landscape South Korea has grown over the last 50 years from a poor mostly agricultural economy to a powerful exporter with the 11th highest GDP in the world. Its growth has been built on the back of its chaebol system conglomerates of companies that are family-controlled, often spread across multiple industries. While this structure has served Korea well in terms of rapidly developing its industrial base, it has also been associated with ongoing governance issues. The risks associated with investing in Korea have historically resulted from its stock market having a much lower valuation than those of comparable economies. As an example of recent governance issues, consider that Chey Tae-Won, chairman of the SK chaebol, had been serving a fouryear prison sentence for embezzling 40 million from the SK companies. He was pardoned by former President Park Geun- Hye in the summer of 2015 and soon found himself back in the familiar leadership role of his family conglomerate. Political actions such as this pardon or nepotism within large publicly traded corporations are common, if not expected, in Korea. Throughout its history, the nation s gyrating politics and powerful businesses maintained a symbiotic relationship that propelled tremendous GDP growth while tarnishing the political reputation of a nation. The cultural and regulatory disregard of misconduct is at the root of Korea s corporate governance, especially among the chaebols. The five most recognizable chaebols as shown in CHART 1 (Samsung, Hyundai, SK, LG, and Lotte) collectively represent over 50 of the market capitalization of the Korea Composite Stock Price Index (KOSPI) and 47 of its revenues. Samsung Electronics alone represents a 21 share of the KOSPI market capitalization and 21 share of employees which is emblematic of the chaebols influence in Korean society. During Park Geun-Hye s 2012 presidential election campaign and political career, Ms. Park had been critical of past presidents who had abused the power to pardon individuals and sought to limit the government s role in granting pardons. Her decision CHART 1: CHAEBOL SHARE OF THE KOSPI INDEX 2 6 7 8 3 7 9 4 9 2 9 29 13 15 26 Samsung Hyundai SK LG Lotte Source: Bloomberg 10 GLOBAL FORESIGHT THIRD QUARTER 2017 Pyongyang, North Korea, is home to the largest stadium in the world with a seating capacity of over 114,000. Source: Getty Images to release Chey Tae-Won accelerated the demise of her political career. Ironically, she finds herself in prison awaiting trial while the Korean stock market continues to trade at a discount to peers. In addition, MSCI Korea s relative valuation is also suppressed by the mercurial behavior of North Korea whose recent missile tests have dominated global headlines. A truly embarrassing South Korean political scandal emerged in the fall of 2016 when a journalist discovered a computer belonging to a personal confidant of President Park Geun-Hye. The contents of the device, belonging to Choi Soon-Sil, revealed that she had access to confidential presidential documents including speeches that were ultimately altered and influenced by Ms. Choi Soon-Sil. In the weeks following this revelation, the mighty chaebols of Samsung, Lotte and SK were once again linked to the current political impropriety. It is alleged that members of these chaebols (among others) were coerced into contributing large sums of money to a foundation established by Ms. Choi Soon-Sil in order to maintain a positive relationship with President Park Geun-Hye. The Korean stock market languished as a result of President Park Geun-Hye s miscues as shown in CHART 2. The performance of the MSCI Korea Index starting from the beginning of President Park Geun-Hye s term was down 25 by late August 2015, which coincided with Mr. Chey Tae-Won s pardon in the week prior. The Korean market drastically underperformed the MSCI Asia ex. Japan Index which was down 14 and the MSCI ACWI Index which was up about 9 during that period. Korea s recursive political environment was frustrating for many Koreans. It is widely believed that chaebols sapped the entrepreneurial vigor of small business owners and young adults who were experiencing unemployment rates of over 9 . However, the decision to impeach President Park Geun-Hye on CHART 2: PERFORMANCE SINCE PARK GEUN-HYE INAUGURATION MSCI KOREA MSCI ACWI MSCI ASIA EX. JAPAN Source: Bloomberg GLOBAL FORESIGHT THIRD QUARTER 2017 11 CHART 3: PERFORMANCE SINCE DECISION TO IMPEACH MSCI KOREA MSCI ACWI MSCI ASIA EX. JAPAN Source: Bloomberg December 9, 2016 proved to be a pivotal point for the country. The large-scale protests seeking a permanent change from the cronyism that runs rampant within Korea were finally being heard. It is no coincidence that since December 9, 2016, the MSCI Korea Index has outperformed as shown in CHART 3 the same indices it lagged during President Park Geun-Hye s tenure. Investors and Korean citizens alike were finally sensing hope with the leading presidential candidates. Moon Jae-In s eventual victory on May 10 secured the belief that a president in the Blue House was working for the people and not exclusively for the chaebols. President Moon Jae-In has increased investor expectations for corporate reforms and it is critical for the nation to continue down this path of weakening family ties that maintain a stranglehold on the Korean economy. President Moon Jae-In has quickly appointed key members for advisory and cabinet roles that are aligned with the vision of eliminating corruption, enhancing corporate governance, and revitalizing a fractured economy. Korea s decision to install the Terminal High Altitude Area Defense system (THAAD) under the prior administration resulted in escalating political tension between China and South Korea. In the weeks leading up to President Park s impeachment hearings, China discouraged its citizens from traveling to Korea and restricted the sale of Korean consumer goods. President Moon Jae-In has moved swiftly to improve the crumbling relationship with China by reevaluating the deployment of the system. A friendly call with President Xi Jinping after his election gradually improved the relationship President Moon Jae-In has increased investor expectations for corporate reforms and it is critical for the nation to continue down this path of weakening family ties that maintain a stranglehold on the Korean economy. and is expected to help navigate the complex political relationship with North Korea. President Moon Jae-In, who was once the Chief of Staff to President Roh Moo Hyun (1998-2008), assisted President Roh in implementing the Sunshine Policy. The Sunshine Policy was an attempt by the South Korean government to engage North Korea with a softer, humanitarian stance in an effort to build a peaceful relationship. President Moon will likely reengage communications with North Korea in a similar manner. Electronics, and others. The president appointed Jang Ha-Sung, formerly the dean of Korea University s Business School, to the position of Chief of Staff for Policy. Jang Ha-Sung is a familiar face within the world of corporate reform as the founder of the People s Solidarity for Participatory Democracy (PDSD), a civil organization pursuing shareholder reform. The PDSD was formed in the late 1990s and successfully fought for minority shareholders in legal battles against SK Telecom, Samsung Another governance advocate with a boisterous history of shareholder activism, Kim Sang-Jo, a professor of economics at Hansung University and executive director of Solidarity for Economic Reform (SER) was appointed as the Head of the Fair Trade Commission (FTC) in early June. Kim Sang-Jo and Jang Ha-Sung are longstanding allies in the field of corporate activism with Mr. Kim succeeding Mr. Jang as first chairman of PDSD s future organization in 2006. The Korean stock market has been a star performer in 2017 with the KOSPI up approximately 24 , year-to-date in USD basis and outperforming neighboring markets, such as Japan, 12 GLOBAL FORESIGHT THIRD QUARTER 2017 CHART 4: REGIONAL VALUATIONS P E RATIO (12M FORWARD) P B RATIO RETURN ON COMMON EQUITY DIVIDEND PAYOUT RATIO MSCI ACWI MSCI KOREA MSCI ASIA EX. JAPAN Source: Bloomberg Hong Kong and China. Despite the recent strong performance, the market is still inexpensive relative to other regions and indices. MSCI Korea s price-to-book (P B) ratio of 1.1x and price-to-earnings (P E) (12 month forward) ratio of 9.4x are 30 and 31 lower than MSCI Asia ex. Japan Index, respectively as shown in CHART 4. Three Korean industry groups or sectors currently offer compelling relative valuations when contrasted against other geographies. The Korean Automobiles and Components industry group currently trades at a P B ratio of 1.0x which compares favorably to Japan s P B ratio of 1.4x. When comparing the automobile original equipment manufacturers (OEM), Korean OEMs trade at a P B ratio near 0.5x book, which is a steep discount to their Japanese rivals. The Korean Automobiles and Components industry group appears undervalued when you also consider the fact that the five-year average return on equity (ROE) was 14.4 versus 11.8 for the Japanese group. Utilities is another sector where the valuation disparity is stark. Korea s largest electricity producer currently trades at a P B ratio of 0.4x despite three stellar years of strong operating margin and prudent capital discipline. By comparison, the Japanese utility sector currently trades at P B ratio of 1.0x with the Tokyo regional electricity producer trading at a P B ratio of 0.6x despite 10 trillion of possible unreserved liabilities stemming from a 2011 nuclear disaster. Finally, Korean banks are currently trading at a P B ratio of 0.8x, which compares favorably to Japan s 1.0x and Italy s 0.9x. It is estimated that the loan portfolios of the Korean banks have improved in recent years as evidenced by improving ROE. In the most recent fiscal year, Korean banks generated ROE of 7.7 , outperforming Japan s 7.5 and Italy s 6.7 . These discrepancies in valuation have just started to close with the new president and the formation of his cabinet, but Korean market multiples have the potential to converge closer to global levels with a successful execution of corporate reform. We are not advocating that the new government implement heavyhanded methods to incite change among the chaebols. Instead, we believe that working with the chaebols in enhancing governance, minimizing cross holdings, creating board independence and minority shareholder protection, would be well received by global investors and mostly rewarding to chaebol valuations. For a further look at corporate governance in South Korea, please see the following article by Dr. Mariela Vargova. GLOBAL FORESIGHT THIRD QUARTER 2017 13 MARIELA M. VARGOVA, PH.D. The Promise of Governance Reform South Korea Senior Vice President, Senior Sustainability and Impact Analyst 212.549.5236 mvargova rockco.com I n his inauguration speech on May 10th, the newly elected South Korean President Moon Jae-In vowed to put chaebol reform at the forefront of his political and economic agenda. Under the Moon Jae-In administration, he asserted, the collusive link between politics and business will completely disappear. 1 The promise of meaningful governance reform comes in the wake of the biggest political corruption scandal in Korea that saw the impeachment and the arrest of democratically elected President Park Geun-Hye on charges of collecting or demanding 52 million in bribes 2 from Samsung, one of Korea s largest family-owned conglomerates, known as chaebol. The presidential scandal in Korea also led to the latest highprofile corporate arrest in the country. In February, Jay Y. Lee, vice chairman and acting leader of Samsung s conglomerate empire, was arrested on accusations of bribery to former President Park and her inner circle in exchange for securing a controversial merger of Samsung Construction and Trading Corporation and Cheil Industries. While the image of a handcuffed Lee sent shockwaves across the business world, his arrest was not unprecedented. In the past, his father Lee Kun- Hee, current chairman of Samsung, was convicted twice of corruption and pardoned. Similarly, in 2007, Hyundai s Chairman Chung Mon-Koo was found guilty of fraud and pardoned. And in 2013, SK s Chairman Chey Tae-Won was convicted of embezzlement and later pardoned. 3 The familyowned conglomerates have long dominated the economic life of modern Korean society, accounting for roughly 50 of the total share of the Korean stock market. Their close ties with the government and state bureaucracy have fueled growing public distrust and frustration with the nation s leadership and has led to increased shareholder discontent. Korea s Governance Practices The collusion of politics and business in Korea highlights the poor practices of corporate governance and business ethics. Corporate governance studies on Asia consistently rate Korea as lagging in governance behind leaders in the region. 4 Korea underperforms its peers in the areas of board independence, ethics and transparency in corporate governance. Korea, however, has not always been viewed as the laggard in Asia s governance landscape. Right after the Asian Financial Crisis of 1997-1998, the country underwent important governance reforms that sought to quickly and significantly increase corporate board independence and the overall governance of publicly-traded Korean companies. For instance, the proportion of listed firms with at least one outside director grew from 34 in 1999, to 62.3 in 2000, to reach 94 in 2007. 5 In 2001 and 2003, the country s Security Exchange Acts required large listed companies (those with about 2 billion in market capitalization) on the Korea Exchange and KOSDAQ to have at least three outside directors and for one half of their boards to be independent. In 2004, the board independence requirements were further strengthened with the stipulation that there be a majority of independent board directors for large companies. This is on par with leading international best practices in corporate governance. The Korean Commercial Code also stipulates that outside or independent directors must not be related to management while acting as fiduciaries. 6 This resonated with the impetus towards greater board independence to mitigate the role of corporate insiders and create new independent auditing structures within Korean corporations. In 2012, the Korean Commercial Code was revised to further enhance the board s fiduciary duties. It required the approval of two-thirds of directors for all internal transactions and for new business dealings with third parties. If transactions or deals benefit founding families or management at the expense of minority shareholders, the approving directors will be personally liable for the losses. 7 Notwithstanding these developments towards good governance, ethics controversies involving Korean chaebols surged over the past several years. A prime example is the notorious Hyundai Motor land bid in 2014 for which the company paid the excessive price of 10 billion, three times the land s market value of 3 billion, angering investors and hurting shareholder value. According to reports, while the boards of directors of Hyundai consortium companies voted to unanimously approve the deal, the company s outside directors were kept in the dark about the price as it was considered by management to be a confidential matter. All these instances point to a serious lapse in the 14 GLOBAL FORESIGHT THIRD QUARTER 2017 enforceability of existing corporate governance rules and a lack of accountability. They call into question the true independence of the boards of Korean conglomerates and the ability of outside directors to effectively oversee management and protect all shareholders interests. Recent research on Korean-listed companies shows strong social ties between independent directors and management of Korean conglomerates. While 87 of boards are in theory independent, only 62 are when one considers social ties. 8 The composition of Korean boards also poses concern as the percentage of directors with business or management backgrounds has decreased from 45.2 in 2004 to 28.4 in 2011. 9 This, while the number of former public officials has sharply increased from 2.7 in 2004 to 8.9 in 2011. Interestingly, in Korea s boardrooms, the inclusion of professors and lawyers as independent directors has become common. The need for stronger independent oversight and monitoring of management is especially important for Korean chaebols as they concentrate the managerial power into the board s chairman, a member of the founding family. The chairman s control over all subsidiaries of the conglomerate through the management council and appointment of management of all affiliated firms has been a serious concern for minority shareholders seeking more accountability and managerial transparency. Protecting Shareholder Interests At the core of Korea s governance challenges lies a structural problem at the chaebol: the complex system of crossshareholdings. On average, the founding family of Korean conglomerates owns about 10 of the parent company s shares, while other listed subsidiaries own more than 30 . 10 The founding family is a shareholder in the other chaebol subsidiaries, and the subsidiaries reciprocate by owning shares in the other companies. The circular ownership structure has been of investor concern as it provides a framework for related party transactions and potential conflict between family shareholders and external shareholders. For many, these concerns have been factored into what has been called for over a decade the Korean discount. With the promise of sweeping governance reform by the new President Moon Jae-In, foreign investors are looking today for better protection of minority shareholder rights and stronger constraints on chaebol businesses. On the politico-economic reform agenda are topics such as: 1) reforming the Korean Commercial Code by mandating separate elections for audit committee members, 2) allowing shareholders of parent companies to sue directors of subsidiary firms, 3) lowering eligibility thresholds for filing representative lawsuits, 4) regulating compensation for controlling shareholders and management, as well as 5) introducing mandatory electronic and cumulative voting. 11 One of the most ambitious goals includes proposed amendments to Korea s Monopoly Regulation and Fair Trade Act, introducing constraints on chaebol businesses and banning all existing circular ownership structures of chaebols within three years. 12 The calls for big governance reform in Korea were first publicly voiced by chaebols shareholders themselves. In 2015, at Hyundai Motor s annual general meeting, shareholders openly confronted management about the controversial land deal and proposed a new governance committee to strengthen oversight and accountability. In an unprecedented fashion, their shareholder action prompted the company to set up a separate Corporate Governance and Communication Committee consisting of four independent directors, and to engage in shareholder outreach. In 2016, Hyundai Motor officially announced its new Corporate Governance Charter in an effort to enhance transparent business management and to promote shareholder rights. 13 Similarly, in November 2016, Samsung announced a Comprehensive Roadmap to Enhance Long-term Shareholder Value Creation, committing to improve governance by increasing its board s independence, as well as the diversity and breadth of experience of its directors. With the adoption of a Stewardship Code, our expectations are that shareholders in Korean equities, and especially in chaebols, will use their voice more actively to promote positive governance change and long-term shareholder value creation. Changing Korea s Business Culture The expected governance reform in Korea is an opportunity not only to disentangle politics from business, but also to create better institutional protection for all shareholders. It also serves as an opportunity to change the culture of investing in the country. In February, Korea s Financial Services Commission introduced the country s first Stewardship Code, encouraging big investors like pension plans and asset managers to actively engage with investee companies and to monitor their management decisions. This trend towards investor stewardship and active ownership echoes the progress already made in other Asian markets such as Japan, Hong Kong, Malaysia, the Philippines, Singapore, and Thailand. With the adoption of a Stewardship Code, our expectations are that shareholders in Korean equities, and especially in chaebols, will use their voice more actively to promote positive governance change and long-term shareholder value creation. GLOBAL FORESIGHT THIRD QUARTER 2017 15 insights rockco.com New York, NY 10 Rockefeller Plaza 3rd Floor New York, NY 10020 212-549-5100 Washington, DC 900 17th Street NW Suite 603 Washington, DC 20006 202-719-3000 Boston, MA 99 High Street 17th floor Boston, MA 02110 617-375-3300 Rockefeller Trust Company, N.A. 10 Rockefeller Plaza 3rd Floor New York, NY 10020 212-549-5100 The Rockefeller Trust Company (Delaware) 1201 N Market Street Suite 1401 Wilmington, DE 19801 302-498-6000 1 http: www.koreatimes.co.kr www nation 2017 05 356 229150.html 2 https: www.nytimes.com 2017 03 04 business south-korea-samsung- bribery-lee.html 3 https: www.nytimes.com 2017 03 04 business south-korea-samsung- bribery-lee.html 4 http: www.acga-asia.org upload files research preview 20161014021202 3.pdf 5 http: www.eastasiaforum.org 2011 07 08 corporate-governance-reform-in-korea 6 Reform of Corporate Governance, in Economic Crisis and Corporate Restructuring, Cambridge University Press, 2003, p. 303. 7 http: www.acga-asia.org upload files CG 20Watch 202012.pdf 8 https: papers.ssrn.com sol3 papers.cfm?abstract id 1195313 9 https: papers.ssrn.com sol3 papers.cfm?abstract id 2824303 10 Reform of Corporate Governance, in Economic Crisis and Corporate Restructuring, Cambridge 11 Asian Corporate Governance Asia Pacific GS Sustain, April 11, 2017. 12 Asian Corporate Governance Asia Pacific GS Sustain, April 11, 2017. University Press, 2003, p. 287. Asian Corporate Governance Asia Pacific GS Sustain, April 11, 2017. Cover image: Getty Images Certain information contained in this document may constitute forward-looking statements. No representations or warranties are made as to the accuracy or completeness of such statements, and actual events or results may differ materially from those reflected or contemplated. This document is provided for informational purposes only and is not intended, and should not be construed, as investment, tax or legal advice. This document does not purport to be a complete statement of approaches, which may vary due to individual factors and circumstances. Company references are provided for illustrative purposes only and should not be construed as investment advice or a recommendation to purchase, sell or hold any security. Although the information provided is carefully reviewed, Rockefeller Co., Inc. cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided. Past performance is no guarantee of future results and no investment or financial planning strategy can guarantee profit or protection against losses. These materials may not be reproduced or distributed without Rockefeller Co., Inc. s prior written consent. Copyright 2017 Rockefeller Co., Inc. All Rights Reserved. Products and services may be provided by various subsidiaries of Rockefeller Co., Inc. 16 GLOBAL FORESIGHT THIRD QUARTER 2017 N o v e m b e r 1 , 2 0 1 7 A Vixing Puzzle Market s unusual lack of volatility; Be fearful when others are greedy O I ctober has historically been a spooky month in which some of the biggest market declines took place the crash of 1929, 1987 s Black Monday, the financial crisis of 2008, etc. This October, however, there were only treats and no tricks the biggest one-day movement for the S P 500 Index during the month was a 0.81 gain, and the biggest down day had a mere 0.47 drop. That said, there was quite a bit of turbulence among individual stocks. The Information Technology sector had a huge month, with the so-called FANG stocks (Facebook, Amazon, Netflix, Google) leading the way up, while some old economy bellwethers and the much beleaguered brick and mortar retailers took a beating. The rising hope of U.S. tax reform and the continued strength of the global economic expansion lifted U.S. Treasury yields as well as commodity prices from oil to copper. The U.S. reflation expectation also boosted the greenback. European sovereign bond yields and the euro declined after ECB President Draghi announced a reduction in monthly asset purchases starting in 2018, but promised a longer duration of QE. China completed its quinquennial leadership transition at the conclusion of the 19 th Party Congress, which should usher in a new era with more focus on the quality of growth over the quantity. President Xi now awaits President Trump s State visit to Beijing on November 8 th . Investors will likely be focused on issues ranging from trade to North Korea, though major breakthroughs appear unlikely. Lastly, there is still one unresolved sleeper issue that may come back to roil the market will a new bipartisan deal be reached in time to fund the U.S. government beyond December 8 th , when the current continuing resolution expires? Equity Markets Indices 1 9 30 2017 Price 10 31 2017 Price MTD Change YTD Change MSCI All Country World 487 497 2.0 17.7 S P 500 2519 2575 2.2 15.0 MSCI EAFE 1974 2003 1.5 18.9 Russell 2000 2 1491 1503 0.8 10.7 NASDAQ 6496 6728 3.6 25.0 TOPIX 1675 1766 5.4 16.3 KOSPI 2394 2523 5.4 24.5 Emerging Markets 1082 1119 3.5 29.8 Fixed Income 2-Year US Treasury Note 1.49 1.60 12 41 10-Year US Treasury Note 2.33 2.38 5 -7 BarCap US Agg Corp Sprd 1.01 0.95 -6 -28 BarCap US Corp HY Sprd 3.47 3.38 -9 -71 Currencies Australian (AUD ) 1.28 1.31 -2.3 6.3 Brazil Real (Real ) 3.16 3.27 -3.3 -0.5 British Pound ( GBP) 1.34 1.33 -0.9 7.6 Euro ( Euro) 1.18 1.16 -1.4 10.7 Japanese Yen (Yen ) 113 114 -1.0 2.9 Korean Won (KRW ) 1145 1120 2.2 7.6 US Dollar Index (DXY) 93.08 94.55 -1.6 8.1 Commodities Gold 1280 1271 -0.7 10.3 Oil 51.7 54.4 5.2 1.2 Natural Gas, Henry Hub 2.89 2.80 -3.0 -24.0 Copper (cents lb) 296 310 4.9 23.8 CRB Index 183 188 2.4 -2.6 Baltic Dry Index 1356 1534 13.1 59.6 SOURCE: BLOOMBERG JIMMY CHANG, CFA Chief Investment Strategist 212-549-5218 jchang rockco.com M O N T H L Y M A R K E T R E V I E W N O V E M B E R 2017 1 The Original Big Short The Amsterdam Stock Exchange, founded by the Dutch East India Company in 1602, is recognized as the world s oldest stock exchange. It facilitated a secondary market to trade stocks and gave rise to trading clubs during the mid- 17 th century where speculators would congregate. Messengers would rush to and from the exchange to update pricing to customers. In 1867, the invention of the stockticker machine, also known as the ticker tape, obviated the need for messengers. Stock transaction data was transmitted by telegraph to a ticker tape that would continuously print out abbreviated company names (ticker symbols) followed by the price and volume data. Thomas Edison later upgraded the system to reach a printing speed of one character per second. Ticker tape eliminated the need for messengers and allowed people to trade in real time from long distance. In 1900, 14 year-old Jesse Lauriston Livermore started working as a quotation board boy in the Boston office of Paine Webber. His job was to update the board with information coming off the ticker tape. He became interested in the behavior of stock prices and began recording price movements that enabled him to spot patterns prior to sizeable advances and declines. A fellow office boy later talked him into speculating on a stock on margin at a bucket shop. Two days later, Jesse sold the position with a 3.12 profit. He soon quit his job and started trading for a living. Jesse made his first 1,000 (around 27,600 in today s dollars) at the age of 15. He was later banned by most bucket shops in Boston as he had outfoxed many of the shady operators. By the age of 20, he had accumulated 10,000. Then came the big payday the Panic of 1907 during which Jesse shorted the market and made 1 million ( 25 million in today s dollars). He would top this feat and live up to the reputation as The Great Bear of Wall Street by shorting the market in 1929 for an astounding 100 million profit ( 1.43 billion in 2017!), making him one of the richest men in the world. The combination of elevated investor complacency and a tightening Fed makes the market vulnerable to a pullback. Unfortunately, the concept of diversification probably never crossed Jesse s mind. He somehow managed to lose all his money and was bankrupt by 1934. The bankruptcy resulted in an automatic suspension of his membership on the Chicago Board of Trade. In 1940, the legendary trader, suffering from depression, shot himself in the cloak room of Manhattan s Sherry-Netherland Hotel. Rise of the Machines How things have changed from those simpler days when humans were doing the trading. Today, with the advent of technology, market activity is dominated by passive and various quantitative strategies. It is estimated that fundamental discretionary investors now account for only 10 of the trading volume. Big inflow into major ETFs prompted buying across the board regardless of company specific issues and valuations. Big data and machine learning are the new buzz words. Forbes recently featured a quant fund run by three twenty-somethings. Their assets under management was in the low tens of millions of dollars, yet they averaged 1 billion in transactions, or 10,000 to 40,000 trades each day. Since there are only 86,400 seconds in a day, this fund would generate a trade every 2.16 to 8.64 seconds if it worked around the clock. Much of the decision making and trade execution, of course, has been taken over by software algorithms. These whiz kids employed statistical arbitrage trading strategies in stocks and currencies, and closed out all trading positions at the end of each day. The allure of sophisticated computer models trouncing their human competitors has continued to attract inflow to quant funds. It is estimated that quantitative hedge funds now manage more than 1 trillion, about one-third of the 3 trillion hedge fund industry. While there are indeed brilliant quant managers who have delivered strong returns over a long period of time, the sheer size of the industry means there are likely more pretenders than contenders. Given that many funds employ similar strategies (e.g., trend following), a reversal in trend could create disruptive market movements, not to mention the threat of rogue algorithms wreaking havoc on the market. M O N T H L Y M A R K E T R E V I E W N O V E M B E R 2017 2 A Vixing Puzzle Equity volatility has been unusually low for much of 2017. The Volatility Index (VIX), which measures the implied volatility of S P 500 Index options and has been viewed as a barometer of equity market volatility, has drifted to all-time lows. Over a span of more than 7,000 sessions going back to the start of 1990, the VIX Index s average and median closing values have come out to 19.4 and 17.6, respectively. It was a rare occurrence for the VIX to collapse below 10 there were only 9 such occasions out of 6,802 trading sessions prior to 2017, or 0.13 of the times. Year-to-date in 2017, however, there were already 35 sessions with the VIX closing below 10. Another way to look at the lack of volatility is to tally the number of trading sessions when the S P 500 Index had a daily change of more than 1 in either direction. There were only 8 such sessions so far in 2017, compared to 48 and 72 such occasions in 2016 and 2015, respectively. It seems ironic that the market should be this steady with arguably the most mercurial and unconventional president in modern history at the helm atop the free world. Perhaps investors have grown numb to all the chaos and controversies. It is as if Washington s dysfunction and a divided America were just fodder for the hyperventilating media, and markets were behaving as if all will be fine when the Republicans pass the tax reform to prime the pump for the 2018 mid-term elections. Time will tell if this period of eerie calm is prescient or misguided. Unintended Consequences The decline in market volatility has made shorting against the VIX futures and various VIX ETPs (exchange-traded products) quite popular and profitable in recent years. The net short position on VIX futures has progressively climbed to new highs over the last couple of years. Another phenomenon was the rise of volatility control investment strategies, supposedly favored by many hedge funds and insurance companies. These strategies in essence adjust a portfolio s allocation between equity and cash to maintain a targeted level of volatility at the portfolio level. In an environment of declining volatility, more assets would be allocated to equities the equity allocation would even exceed 100 when the market s realized volatility is below the targeted volatility. On the other hand, as volatility ticks up, the equity allocation would be scaled back. While these strategies have enjoyed strong returns during this stretch of progressively lower equity volatility, they may be planting the seeds of a market correction. Market makers and dealers on the other side of the growing short VIX trades would need to employ various S P 500 option strategies to hedge their long VIX positions. There is the concern that a decline in the S P 500 Index could trigger adjustments to these hedging positions that would exacerbate the market decline. Similarly, should volatility suddenly spike up, the aforementioned volatility control strategies would be cutting equity exposures concurrently, which could amplify the market decline similar to the downward selling pressure that the socalled portfolio insurance products generated during the crash of 1987. We wonder if any investors and regulators truly appreciate how these strategies, in concert with various rapid fire trades generated by machine-learning based algorithms, could impact market movement and liquidity should there be an exogenous shock. Only time will tell. Fear vs. Greed There is an adage that one should be fearful when others are greedy and greedy when others are fearful. Judging by the depressed levels of the VIX Index, the enthusiastic speculation over bitcoin as well as other variants of cryptocurrencies, and surveys that indicated strong investment sentiment, it is clear that greed has been on the rise. Can this euphoria continue for a while longer? Of course. However, in our opinion, the combination of elevated investor complacency and a tightening Fed makes the market vulnerable to a pullback, though the timing of it is hard to predict. The aforementioned issues with various trading strategies could further add fuel to fire in the event of a market decline. That said, with the macro and earnings backdrop remaining positive, we would view potential selloffs as a buying opportunity rather than the start of a protracted market downturn. M O N T H L Y M A R K E T R E V I E W N O V E M B E R 2017 3 For More Information on Rockefeller Co: insights rockco.co New York, NY 10 Rockefeller Plaza 3rd Floor New York, NY 10020 212-549-5100 Washington, DC 900 17th Street NW Suite 603 Washington, DC 20006 202-719-3000 Boston, MA 99 High Street 17th Floor Boston, MA 02110 617-375-3300 Rockefeller Trust Company, N.A. 10 Rockefeller Plaza 3rd Floor New York, NY 10020 212-549-5100 The Rockefeller Trust Company (Delaware) 1201 N Market Street Suite 1401 Wilmington, DE 19801 302-498-6000 This paper is provided for informational purposes only. The views expressed by Rockefeller Co. s Chief Investment Strategist are as of a particular point in time and are subject to change without notice. The information and opinions presented herein have been obtained from, or are based on, sources believed by Rockefeller Co. to be reliable, but Rockefeller Co. makes no representation as to their accuracy or completeness. Actual events or results may differ materially from those reflected or contemplated herein. Although the information provided is carefully reviewed, Rockefeller Co. cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided. Company references are provided for illustrative purposes only and should not be construed as investment advice or a recommendation to purchase, sell or hold any security. Past performance is no guarantee of future results and no investment strategy can guarantee profit or protection against losses. These materials may not be reproduced or distributed without Rockefeller Co. s prior written consent. 1 Index pricing information does not reflect dividend income, withholding taxes, commissions, or fees that would be incurred by an investor pursuing the index return. 2 The Russell 2000 Index is a registered trademark of the Russell Investment Group. Russell Investment Group is the owner of the copyright relating to this index and is the source of its performance value. Copyright 2017 Rockefeller Co., Inc. All Rights Reserved. M O N T H L Y M A R K E T R E V I E W N O V E M B E R 2017 4 11 14 2017 An Inside Look at Rockefeller Co. - Barron's WSJ WSJ LIVE MARKETWATCH BARRON'S DJX MORE News, Quotes, Companies, Videos SEARCH ASIA EDITION U.S. EDITION Log In Subscribe HOME MAGAZINE DAILY INVESTING IDEAS ADVISOR CENTER MARKET DATA PENTA BARRON'S NEXT BARRON'S PENTA Rock of Ages Family-wealth advisor Rockefeller Co. was hit by both the financial crisis and the death of its CEO. Not only did it survive, it thrived. Email Print 0 Comments Order Reprints By RICHARD C. MORAIS September 15, 2012 John D. Rockefeller's family office, Rockefeller Co., was founded in 1882. It began selling its expertise to other families in 1980, and by mid-2008 it had 28 billion of clients' assets under its hood. Then came a tragic event that could have brought the firm to its knees. In September 2009, as the financial crisis raged, Rockefeller's chief executive, James S. McDonald, shot himself behind a car dealership in Dartmouth, Mass. While world markets continued their downward spiral, it took a year for the Rockefeller Family Trust, which owns 100 of the multifamily office's voting rights, to get McDonald's successor in place. It's hard to imagine a more dangerous situation for a financial-services firm to be in. Destabilized from within and without, most wealth managers in such circumstances would have been unable to contain the stampede of clients heading out the door. And yet, Rockefeller's assets under advisement and administration actually rose 52 , to 35 billion, in the three years through this past June. Client retention since the 2008 recession has been 97 , 1 higher than in the entire past decade. "Despite the turbulence of the period when I stepped in, it was a remarkably strong franchise and business," says Reuben Jeffery III, Rockefeller's CEO for the past two years. "It was a real testament to what had been created by generations long before me, including most of the people who are still here today." Penta's rare peak inside Rockefeller reveals that, for all the outward signs of serenity, the firm is hardly on autopilot. Jeffery, looking every bit the Wall Street incarnation of Cary Grant, is a former Goldman Sachs partner who in 2007 went to work as George Bush's undersecretary of state for economic, energy, and agricultural affairs, after first serving as the president's post-9 11 special advisor for Lower Manhattan development. In June 2008, Soci t G n rale Private Banking closed on its purchase of a 37 economic share in Rockefeller Co. Needing to strengthen its balance sheet during the recent euro crisis, the French bank has been under pressure to shed noncore assets. Therein lay an opportunity. This summer Jeffery quietly midwifed the sale of Soci t G n rale's stake to Lord Jacob Rothschild's RIT Capital Partners. That closed-end fund is the investment vehicle for the London branch of the Rothschild family, and has 1.9 billion pounds ( 3 billion) under management. The deal is expected to close at the end of this month. It's a union that should provide some valuable marketing opportunities. In these unsettled times, it's easy to imagine rattled new wealth wanting to tap the joint expertise of these experienced families that have managed to keep their heads down Most Popular 1. Baker Hughes: It s Still a GE Company But That s Not the Only Problem 2. Qualcomm: Broadcom s Got A Lot of Leverage, Says Instinet 3. Nvidia Rising: Dazzles Street At the Supercomputer Show http: www.barrons.com articles SB50001424053111904881404577609312447134388 1 3 11 14 2017 An Inside Look at Rockefeller Co. - Barron's Reuben Jeffery III, Rockefeller Financial's CEO Evan Kafka for Barron's and their assets intact over several generations and right through the upheavals of history. Any new clients will be dealing with Rockefeller Financial Services, the trade name of Rockefeller Co. Some 7 billion of Rockefeller Financial's 35 billion pile are "assets under management"; the rest are assets under advisement or administration. Rockefeller provides its 298 clients either financial, trust, and tax advice, and the like, or service through its portfolio-tracking product for wealthy families, Rockit Solutions. Rockefeller offers financial products from other firms but still believes in running its own funds in 10 core areas, such as global equities and fixed income. David Harris, Rockefeller's chief investment officer, says large multinationals with their triple-A ratings and mountains of cash need to be viewed as "the new sovereigns" during a period when government finances are deteriorating. The firm claims that its global funds are stars, but it keeps a lid on details. Prodded by Penta, Rockefeller reluctantly produced a "confidential" performance sheet on its 10 core funds but barred us from publishing the results. We can confirm that out of 10 offerings, seven global-equity and small-cap funds have consistently outperformed indexes over long periods of time. One area of Rockefeller Co. know-how has been built out of the Rockefeller family's 50-year record of integrating environmental, social, and governance concerns into its portfolio and investment decisions. Last fall, for example, Rockefeller hooked up with the Ocean Foundation, a nonprofit focused on marine conservation, to find "profitable investment opportunities that restore and support the health and sustainability of the world's oceans." Through such distinctive offerings, Jeffery hopes to reel in new money, both family and institutional. "We're talking to sovereign entities," he says. "They have pools of capital that need to be deployed, and they need to find competent, trustworthy managers in relevant areas of investment activity." Fees for managed assets invested in house funds typically run from 1 (for up to 25 million in assets) to 0.5 (over 50 million). Rockefeller targets families with 30 million; new clients are generally subject to a minimum 100,000 annual fee. Pure investment advice on a 50 million to 100 million portfolio typically costs 40 to 60 basis points, says the firm's president, Austin V. Shapard. Rockefeller has priced its services, he says, for "a fair profit margin, not a crazy one." Portfolio-tracking service Rockit deftly handles exotics like intrafamily loans and the fluctuating price of ranch cattle. Its 23 clients typically pay 3 to 7 basis points on the 13 billion that runs through the Rockit platform. This, too, is a hidden asset that Jeffery is leveraging into a boutique powerhouse. E-mail: editors barrons.com Apple s Secular Problem, Per T Rowe 4. Price 5. Shopping Day Madness! Why Investors Aren t Crazy for Alibaba Latest Market Videos 1 2 3 Bitcoin: The World s Most Dramatic Bubble Ever? Barron's Bounce: Barbie's Bargain Shares D.Live: Tapping Asia's Tech Boom SEE FULL LIST Email Print 0 Comments Order Reprints Latest in Barron's Penta 1. 2. Luxury Boot Camp: Four Days at Ranch 4.0 How to Buy a Used Jet At a Bargain Price http: www.barrons.com articles SB50001424053111904881404577609312447134388 2 3 11 14 2017 An Inside Look at Rockefeller Co. - Barron's 3. 4. 5. 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IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT, IN AND FOR PALM BEACH COUNTY, FLORIDA JEFFREY EPSTEiN, CASE NO.: 5O2009CAO4O800XXXXMBAG vs. Plaintiff, SCOTT ROTHSTE IN, individually, BRADLEY J. EDWARDS, individually, and EM., individually, Defendants. NOTICE OF FILING COMES NOW the Defendant CounterClaimant, BRADLEY EDWARDS, by and through his undersigned counsel, and hereby files the attached transcript of the telephone interview of Virginia Roberts to supplement the proffer made in support of Counter-Claimant s Motion for Leave to Amend to Assert Punitive Damages. I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished by U.S. Mail to all Counsel on the attached list on this day of May 2011. Jack Scarola Florida Bar No.: 169440 Searcy Denney Scarola Barnhart Shipley, P.A. 2139 Palm Beach Lakes Boulevard West Palm Beach, Florida 33409 Fax: (561) 383-9451 Attorney for Defendant CounterClaimant Edwards Edwards adv. Epstein Case No.: 5O2009CAO4O800XXXXJvIBAG Notice of Filing Supplement COUNSEL LIST Jack A. Goldberger, Esquire jgoldberger agwpa.com; smahoney agwpa.com Atterbury, Goldberger Weiss, P.A. 250 Australian Avenue South, Suite 1400 West Palm Beach, FL 33401 Fax: (561)-835-8691 Attorneys for Jeffrey Epstein Martin Weinberg, Esquire Martin Weinberg, P.C. 20 Park Plaza, Suite 1000 Suffolk, MA 02116 Attorneys for Jeffrey Epstein Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman, PL 425 N. Andrews Avenue, Suite 2 Fort Lauderdale, FL 33301 Fax: (954)-524-2822 Attorneys for Jeffrey Epstein Joseph L. Ackerman, Jr., Esquire jla fowler-white.com Fowler White Burnett, P.A. 901 Phillips Point West 777 5 Flagler Drive West Palm Beach, FL 3340 1-6170 Fax: (561)-802-9976 Attorneys for Jeffrey Epstein Marc S. Nurik marc nuriklaw.com Law Offices of Marc S. Nurik One E Broward Blvd., Suite 700 Fort Lauderdale, FL 33301 Fax: (954)-745-3556 Attorneys for Scott Rothstein 2 Edwards adv. Epstein Case No.: SO2009CAO4O800XXXXMBAG Notice of Filing Supplement 3 TELECON PRIVILEGED PURSUANT TO FS 766.205(4) and or WORK PRODUCT PARTICIPANTS: RE: JACK SCAROLA BRAD EDWARDS VIRGINIA ROBERTS Edwards adv. Epstein 291874 DATE: April 07, 2011 JS: BE: Virginia, Jack Scarola and Brad Edwards Hi Virginia. V: Hi Jack! Hi Brad! How you guys doing? JS: We re doing fine, thank you. I m sorry for all of the trouble and before we go any further, let me tell you, if I have your permission, I have started a tape recorder and I want to be able to tape this conversation from the very beginning. Is that alright with you? V: Sure, that s fine, Jack. No problem JS: Ok, good, thank you. I appreciate that. Let me start off by introducing myself. I know that Brad has spoken to you about me but I am Brad s lawyer, and I assume that you can confirm that you and I have never had any communication before. Is that right? V: That s correct. JS: Alright. I have, however, gotten some information from Brad about conversations that you have had with him, and that will enable me, hopefully, to make this a little bit more efficient and take up a minimum amount of your time while still getting the information that we think is going to be helpful to us and to any jury that might ultimately have to hear these facts. So, let me begin by asking you first to tell us what your full name is. V: Virginia Louise Roberts. That s my maiden name. My married name is Virginia Louise Edwards adv. Epstein Telephone interview with Virginia Roberts Page 2 of 23 JS: Could you spell your last name for us? That is your married last name: V: JS: Airight, thank you, and where are you living right now? V: I live in Australia. JS: And how long have you resided in Australia. V: Thisismyl9 th year. JS: That is where you are right now, correct? We ve reached you in Australia for this phone conversation? V: That is correct, yes. JS: And what time is it in Australia right now? V: I think it s about 9:00 now. JS: Ok. That s 9am, correct? V: That s correct. JS: Airight. Virginia, the reason for this conversation is because it is our understanding that you know a man by the name Jeffrey Epstein, and I want to begin by asking you please to tell us about the circumstances of your first meeting Mr. Epstein. V: Ok. I was introduced to Mr. Epstein by Ghislaine Maxwell. I was working at Donald Trump s spa in Mar-a-Lago and I was prompted by Ghislaine to come to Jeffrey s mansion in Palm Beach that afternoon after work to make some extra money and to learn about massage. She met me at the spa, and I was reading a book about anatomy, so I was already interested in massage therapy as it was and not having any of the education or you know anything behind me, I thought this was a great opportunity to work for her and go. So, I went to Jeffrey s mansion about 5 or 6 in the afternoon. My dad drove me there. My dad worked at Mar-a-Lago with me, and he met Ghislaine and she seemed like a nice, proper English lady, and she knows, I mean, you know, one time then once before I left to travel overseas, she just seemed really nice and like she would like to help me out. So my dad left, and I had no problem getting home that night, one of her drivers would take me back after my trial. So she led me upstairs, and into Jeffrey s bedroom, and past that is Jeffrey s massage room, which has got his steam room and a shower and a massage table, and there is actually an extra room that has, that nobody knows about it, it s kinda like a secret room and it s got a whole bunch of decorative pictures of pornographic literature and sex toys and I can ? what happened in there. Edwards adv. Epstein Telephone interview with Virginia Roberts Page 3 of 23 JS: When you say that the room was hidden, Virginia, how was the room concealed? V: It wasn t like a door that you would normally go into, like some kind of special opening, you open that and then a little door, so it looks like it s a little closet so-to-speak, but when you walk in there, it s obviously a lot bigger than just a closet. It wasn t too big, but it was bigger, you know. It wasn t a gigantic room, it was just like a small room, which you know, it probably could fit some shoes in there, it had racks of shoes, boxes, some sweatshirts neatly folded, and the ceiling to the floor was covered in pornographic pictures of the girls that he had met. JS: Whenyou say... V: So anyways, that was getting there, and I was introduced to Jeffrey, he was laying naked on top of the massage table, and obviously for one, I m a 15 year old girl and seeing him on the table was weird but, also learning about anatomy and massage, I thought this would be part of it. So obviously, I thought it was part of the massage program, so I said ok, this is fme. And, he then instructed me on how to touch the body, Jeffrey s body, how to massage him, and for the first hour, it was actually a real massage, maybe not an hour, maybe like 40 minutes or something, but of something like that and that s when he turned over on the other side and to expose himself fully. So then Ghislaine told me that she wanted me to undress and began to take off my shirt and skirt, my white uniform from Mar-A-Lago, she also took off her shirt and got undressed, and so I was there with just my undies on, and she was completely bare, and made some kind of little flake about the underwear that I was wearing because it wasn t my normal sexy girl underwear and just like, I don t know, had red hearts on it or something like that; just your normal, you know, real cute underwear. Anyways, so during all of this I m kind of like what s going on, how do I act, what do I say, I was so afraid of, not afraid or fearful for my life but unsure of how all this started and wanting to obtain a profession I was so afraid thinking about upsetting and disappointing them, I don t know, it s a weird situation by far and I was expected to Lick his nipples, instructed on how to do so by J.E and give him oral sex while he wanted to fondle me, and then at the end, I was told by Ghislaine to get on top and straddle Jeffrey sexually, and when we were done, we went and had a shower in the room and Jeffrey told me to wash him up and down, you know with a bar of soap and make sure he was all cleaned up. And then he took me downstairs and took me to two of the guards and told John to bring me home. John was the butler at the time. JS: Let me interrupt you for just a moment there if I could, Virginia. You mentioned as you were recounting those details that you were 15 years old at the time. What is your date of birth? V: August9th, 1983 JS: And can you tell us please, as best you re able to estimate it, what the date was when this first encounter occurred? Edwards adv. Epstein Telephone interview with Virginia Roberts Page 4 of23 V: I ve got it written down. It s like - I m not good with math hold on I thought I wrote it down but I didn t. I m not too sure, I think it was 1998 off the top of my head and around June of 1998, I would say as I was turning 16 at the end of the summer. JS: Alright. You talked about the room where Jeffrey had the pornographic photographs. Did you actually see that room on the occasion ofyour first visit there? V: No, I got to see that room a few visits after but I was just trying to describe that room to you guys so you knew exactly what room I was talking about. JS: Another question for you, and I don t mean to be prying into your personal life, and if I ask you any questions at all that you re uncomfortable answering, then you just tell me that and we ll move on, because I appreciate your cooperation and the last I thing I want to do is impose upon that cooperation, but can you tell us please just generally what kind of sexual experience you had had prior to this confrontation with Jeffrey? V: Yeah, sure. A close family friend has sexually abused me, and I was on the streets at 13 years old. I was picked up by a 67 year old man named Ron Eppinger who did exactly what Jeffrey did with me abuse and violate my youthfulness I was with him for 6 months. So, he was gone and then I had this boyfriend who was like my school friend from young days but we just kept in contact with each other and we were on and off constantly, and that was Tony Figeroua , and there was also another younger guy was near my age, Michael, I can t remember his last name, but yeah, there, I mean, there wasn t like a string of men or anything, but there was Ron, like I told you, and he was the first guy expecting me to do so-called disgusting affairs. Jeffrey actually knew Ron, which was quite weird when I told Jeffrey the story about Ron, and Jeffrey had actually met him, and yeah. Anyway, just another story, and yeah, there were a couple of men, but that gives you an idea. JS: Now when you described the photographs in the room as pornographic, tell me just a little bit about the photographs, if you would please? First, how many of them were there? V: At least 100, and like I said, they covered the room from the ceiling, not the ceiling but from the top of the edge of the wall to the bottom of the floor. I want to say at least a hundred, even more, there could have been more in the boxes Some of them were A4 photographs, like the large size, some of naked women posing, you know, positions, sexy positions. Others were, you know, some girls had bikinis on, and it wasn t so pornographic, but it was all women, and it was all in a sexual nature. JS: Were there photographs where more than one person appeared? V: Oh yeah, plenty of them. There were lots of naked photographs, I mean I was just trying to give you a visual range. There was anything from 5x6s to 4x8s to 8x4s. Some of them Edwards adv. Epstein Telephone interview with Virginia Roberts Page 5 of 23 had frames, some of them were out of frames, but they were all, like I said, they were all women, they were all sexual in nature. JS: Was it your impression that there were a hundred photos of a hundred different people or were there multiple photos of the same woman or girl? V: There was definitely a lot of different girls. I mean it wasn t easy to sit there and say, you weren t finding 5 girls out of some photos, no. Were there a hundred different ones? There could have been pictures of some girls, I really couldn t get close necessarily to actually recognize faces or anything like that. But if you, you know, the range of them were all different, majority of them were different, yeah. JS: Did there ever come a point in time when you became aware that a photograph of you had been added to the collection? V: Yes, there was. Ghislaine took several nude photographs of me for Jeffrey. So, yeah, there were pictures of me and there were pictures, he wasn t shy, that wasn t the only place in his house that he kept the photos. He liked photos all over his house. If you looked in his den or on his desk or in on the hail table, a giant hall table in his house, there were at least a hundred photos of girls in frames. Not all of them were naked, a lot of the ones that were all around his house were not naked girls posing pornographically, some were pictures of celebrities and politicians he had known or things like that or had pants on or whatever, but yeah, there was a lot of mixed photographs in the outside ones. JS: Were there any photographs of girls or young women that you knew or that you subsequently came to know that you saw in the house? V: Yeah, yeah, there was. There was pictures of Nadia Bjournik , pictures Sarah Keller, pictures Emmy, pictures of me, pictures of the regulars, but a lot of the girls, sometimes Jeffrey could have like 7 girls a day, and he would only see those girls once if he got bored. I don t know. These weren t my days. I heard he s gotten a lot sloppier since I left. So, I don t know anyways, but when I knew him, there was just a, it seemed, there was such an influx of girls coming in and out, so did I recognize a lot of them? Maybe, maybe not, but then they were all definitely beautiful, they were all ranging in age, some of them young, some of them older in their 20 s, I mean it was just they were all beautiful. JS: You ve told us about the first visit. Was there any discussion on the occasion ofthat first visit about your returning? V: Yes, they were very pleased with me and after the encounter was fmished, the sexual encounter, he went and told me I did well and I have a lot of potential to become a massage therapist and if I d like I could return tomorrow, you know, and do the same thing and get paid 200 hi, so Jeffrey insisted that I come after work, and over the next few days, I guess the relationship grew into more, and within a couple of weeks, not even Edwards adv. Epstein Telephone interview with Virginia Roberts Page 6 of 23 a couple of weeks, maybe a week, I had quit Mar-a-Lago and I was working for Jeffrey full time. JS: Ok, let s talk about your job .at Mar-a-Lago, if we could. You said that your Dad was working there. What was his position at Mar-a-Lago? V: He was a maintenance supervisor I think is what it was called? He like managed the tennis courts and air conditioners and things like that. JS: What is your Dad s full name? V: Sky William Roberts. JS: And is he still living here in South Florida now? V: No, he s not, he s in California. JS: Ok. Is your Dad aware of what is currently going on with regard to your having made public statements about your relationship with Jeffrey? V: Yes, he is well aware of it. I told my family even before all this stuff came out, because they were the first ones contacted by the journalists from Mail on Sunday. I know that they the Mail on Sunday printed that I had gone out and tried to, I mean I think one of the photos said that I was angry that I saw Jeffrey and the Prince walking together and that is why I came out and went public with everything. Not true. I mean, I am angry about how they are still up to their old ways together and that they re still hanging out but I didn t contact the Mail on Sunday and I didn t bring it out. I figured that everyone was going to bring it out anyway and I better bring it out the right way. He s known everything from the start, and my family is very supportive with everything going on. JS: I m kind of going to jump around a little bit and I apologize for that, but since the subject has come up, tell me first of all why you are providing this cooperation to us, and I am certainly very appreciative of it, but I want you to tell us why it is you ve chosen to spend time with us on the telephone and provide this information that you re now providing. V: I m out to help the bigger picture, you know, I think all of us can make a big difference in a lot of other people s lives and I think that this has gone on long enough and it s a big slap in my face that he can get away with hurting me so bad let alone so many other girls and laugh about it. I guess I talked to you guys out because I want to see the right thing happen, not just to him, but I want people in the world to understand this is not the way of life, you know, it s not acceptable to go out procure young girls and make them think that, this is the way you should be living and that s all. Yeah, I guess my reason for doing it is to help the bigger picture, you know, I m a big believer in karma and I believe that good things will come back to you, so I guess that s why I m doing this. Edwards adv. Epstein Telephone interview with Virginia Roberts Page 7 of 23 JS: Just for the record, neither Brad, nor I, nor anyone representing that they have anything to do with us has made any promises to you. Is that correct? V: That is correct. I ll tell you, since this is our first conversation, that nobody has made me feel like I ve been bribed or bought or had to say anything. I ve told you anything that I know from my own self, not some things somebody told me. If anything, Brad s been extra careful not to tell me anything and let me do all the talking, so it s quite opposite I think. JS: Airight. Let s get back then to the story of your relationship with Jeffrey, and we ve talked about your first encounter with him and how it evolved from that into your full time employment with Jeffrey, but what were you doing at Mar-a-Lago before you quit Mar-a-Lago? V: I was just a locker room attendant and sometimes I did babysitting for the rich and famous. So, I wasn t anything big. I worked in the spa area. That s why I was studying anatomy, because I was really really interested in becoming a massage therapist, and at the locker room, I didn t do much. I mean I was making tea for a living, I would, you know, make sure the toilet paper had a little triangle in it after everybody went to the toilet, or wipe down the water from the basin, you know, it was a very easy peasy job. JS: Did you get that job through your Dad? V: Yes, my Dad got me the job. JS: Ok, and you were only 15 years old at the time, were they aware of how old you were at Mar-a-Lago? V: Of course, definitely. We had to go through extensive, you know, we even had to get drug tested and id test and so on and so forth. I mean, Mantas (?) is very strict on employment, yeah, everybody knew. JS: Ok. Was there ever any conversation with Ghislaine about how old you were before you were taken to Jeffrey s mansion? V: No. She didn t ask me how old I was from the start, but when I did get to Jeffrey s mansion, it was discussed how old I was. JS: With whom? V: During the entire hour of what I call the legitimate massage I was giving him, it was cat and mouse games getting information from me to find out who I am, am I a willing participant in these kind of things, and how would I react if they were about to take the next step. But they got information off of me, they got my age, they got my, a little bit of my history so they knew I was, you know, not very stable at home, and they knew that, Edwards adv. Epstein Telephone interview with Virginia Roberts Page 8 of23 you know, I was actually interested in making my life better by studying so what they were offering me was a chance to become a legitimate masseuse but it was getting trained. They would have people show me how to work the body and be called a massage therapist and get me books on it, and you know, keep me interested, and every time, you know, I was with Jeffrey, literally was about massages, I don t mean just going in and have sex with him. I mean massage, because it would always start out with massage and then it would lead into sometimes other things. JS: Airight, once this evolved, into full time employment, what did full time employment mean? V: That was entirely having to travel with Jeffrey in every city. When he was in Palm Beach, I stayed at my apartment, and he would call me to his house once or twice a day sometimes, and that s, you know, do things with him. Sometimes we d go out shopping, sometimes we d go out and watch a movie. You know, simple things like that, go to an expo or a fair, whatever it was. But when we were in other cities, I was at my apartment, I lived with him full time. What I mean by full time is even in the middle of the night, I could get a ring on my phone next to me and tell me to come in his room, you know, so it was literally full time. JS: When you say that when you were in Palm Beach you were living in your apartment, were you living on your own or were you living with members of your family at that time? V: No, after I quit Mar-a-Lago, Jeffrey offered to get me an apartment in Palm Beach somewhere, Royal Palm Beach, and it was a nice apartment. He furnished it for me, it was absolutely beautiful, but yeah, that s the only time I would spend time away from him really. JS: This apartment was on Royal Palm Beach Boulevard or out in the Village of Royal Palm Beach? V: I so honestly don t remember. I ve been trying to rack my brain because the FBI was asking the same thing and were trying to fmd it, but yeah, I m Not sur . I didn t get to spend as much time in it, I was only there about an entire week out of every month probably, but the majority of the time I was with Jeffrey anyways. It was somewhere in Royal Palm Beach. I don t know about Royal Palm Beach drive. I don t even remember the Royal Palm Beach drive anymore so I m not too sure. JS: Ok, let me see if I can draw the distinction for you and maybe that will help you to help us? Royal Palm Beach is a village that is... V: No, no, no, I got Royal Palm Beach, I just didn t know the Royal Palm Beach Drive, like what street it s off of. Were you talking about a street? Edwards adv. Epstein Telephone interview with Virginia Roberts Page 9 of 23 JS: Yes, I was talking about a street. Royal Palm Drive is on the island of Palm Beach, and it s a street that is lined with large royal palm trees, and I m wondering if this was an apartment on the island or was this an apartment out west oftown... V: No, it was actually in Royal Palm Beach, not on the island. JS: Airight. V: I would be driven, it was closer to my family than it was closer to him. I wanted to be close enough to everybody else so that when I was in town, I could just go see them quickly. JS: Ok. So we re not talking about Royal Palm Boulevard. We re talking about the town of Royal Palm west of town. Jeffrey got you an apartment out there. V: That s correct. JS: When he was in Palm Beach, you were generally not staying at the mansion, you were staying at the apartment that he got for you out west of town. V: That s correct. JS: Ok. V: I mean then there was times, I don t wanna say that every time I stayed at my apartment. There was times we d fly back from some city maybe too late at night to really want to go back home, so you know, it s like 12:00 at night or 1:00 in the morning. I was just staying in the yellow room, or something like that; one of the guest rooms in Palm Beach. But majority of the time, I would definitely want to get back to my own apartment. JS: Alight. What were the general hours of your full time employment when ...? V: There was not set hours. It wasn t like logging, and you know, hitting the shift button, nothing like that. The way I would get paid would be, ok, if I was in Palm Beach, I would get 200 an hour to massage Jeffrey or some of his friends and then go home. So it would be like that. If I was traveling with him, it would be per massage, so I would be getting paid per day. So I wouldn t be getting paid on an hourly rate. He wouldn t say ok, today you re going to work for me from 7:00 in the morning until 8:00 at night. It never like that. I was on call all the time. JS: When you were here in Palm Beach, were you actually getting paid only for the time spent massaging Jeffrey or were you getting paid from your arrival at his house until you left the house? V: From the time the massage started. Edwards adv. Epstein Telephone interview with Virginia Roberts Page 10 of 23 JS: From the time the massage started. Ok. V: Sometimes we d go there and I would wait for a while or talk with G hislaine and Jeffrey about something or we d meet somewhere and talk about something. A lot of times, I d meet him upstairs in his room where he was ready for me. But then there was a lot of times where it didn t start right away, so he couldn t really pay me from the time I got there sometimes unless it was just paid from the time I massaged him til the time the massage was over. JS: Airight. Did your duties for Jeffrey ever include anything other than providing him massages and sex in connection with the massages? Did he ever give you any other responsibilities to perform? V: I was asked to do the same things that I did to Jeffrey to a few of his fellow colleagues as well. Those were my duties. He looked at it this way is that I was going to be a professional massage therapist, and maybe I needed some clientele, so he had me perform erotic massages on a few people. JS: Did that start here in Palm Beach County? V: It did. The first one did. JS: Ok, and how long after you first met Jeffrey did he first ask you to provide services for one ofhis friends? V: About 9 months, I think it was. It wasn t a full year, it wasn t 6 months, but between 6 months and a year, which is why I m saying 9 months. JS: And when you provided services to a friend of Jeffrey s, who paid you for those services? V: Jeffrey would. I would get paid the next time I saw Jeffrey, so if I was invited to the Breakers Hotel to give a massage, I would give a massage, I would go home, and the next day when I saw Jeffrey, he would pay me for what I did. So, it was paid always by him, it was set up by him, so he always knew what to pay me. I did get tips and things like that, if you call it that, you know, like a hundred dollar tip or something from a few of them, you know, yeah. JS: Was there.. V: There was always payment from Jeffrey. JS: Was there ever any discussion with Jeffrey about what was expected to happen when you provided massage services to one ofJeffrey s friends? Edwards adv. Epstein Telephone interview with Virginia Roberts Page 11 of23 V: In a roundabout way, yes. In so many ways, Jeffrey really really had to train me, and that was why Ghislaine said that she and Jeffrey enjoyed me so much was because they never really had to speak much to me to tell me what they wanted me to do. You know, I wasn t waiting for you know, their directions. Jeffrey would tell me to go give an erotic massage to friends. He wouldn t give me much detail about it, but he would say to treat them like you treat me. JS: Did he refer to it as an erotic massage or are those your words? V: Erotic massage is my words. That s exactly what it was, but he would tell me to treat them how he wanted it, so I d do what he wanted without having to say to me words more. I mean, I complied with what he wanted because it was somewhat of a, I don t know, I don t know how to say it, it was just very mindboggling how I let him have so much control or power over me basically. The massages would be routine to what Jeffrey wanted with my so called new clientele, and with their own words would ask me to provide them with sexual pleasure after the massage. JS: Did you ever report back to Jeffrey about what happened when you provided massages to his friends? V: Of course, of course, and I knew that his friends were reporting back to him as well because there were times where he would instigate conversation by saying you know, so and so had a great time, you did wonderful, you know so and so gave me a call and told J.E how it went... JS: Did Jeffrey ever elicit details from you? Tell me what happened, describe in detail what went on? V: No, but he would have a laugh, he had a laugh with me a few times about some of their different mannerisms, I guess you would say, like some of them, one guy had a foot fetish and that was really weird and I mentioned it to Jeffrey, and we would have a laugh over it. He didn t want to know details. He wasn t asking me so tell me what did you guys do exactly. No, he just basically gave me a slap on the back and said, you know, good job. And we had some kind of conversation about it. I can t recall any conversation off the top of my head. I really don t know one. It s been that long. But yeah, we did talk about it briefly. JS: Can you give me an estimate as to the number of friends for whom Jeffrey provided and paid for your services? V: There was about, you know, I don t know, 8 guys possibly. JS: And are you able to name those people for me? Edwards adv. Epstein Telephone interview with Virginia Roberts Page 12 of 23 V: No, not at this stage. I just, some of these people are really influential in power, and I don t want to start another shitstonn with a few of them. I ll tell you that there was some erotic massages given to, I m just afraid to say it to you. JS: Ok, Virginia. V: It s like geez, I don t know if I want to, I m really scared of where this is gonna go. JS: Alight. I understand that, and as I told you from the beginning, if I ask you a question that you are uncomfortable answering, you just tell me that, and I will move on, and I understand that at least right now, you are uncomfortable answering, and I am certainly going to respect that. V: Thank you so much, Jack. JS: No, that s quite alight. I am very appreciate of the cooperation you are providing, and I don t want you at any time to feel that we are taking unfair advantage of that cooperation, so give me the information that you re comfortable giving me, and if we get to a point where you re uncomfortable, I will respect that and we ll move on from there. V: Ok. iS: I want to talk a little bit about the traveling that you did with Jeffi ey. About how long into your relationship with him did that first start? V: Immediately. I started traveling immediately. Not internationally until I think about, Gosh, I can t remember even, I think it was a year later that we started doing international travel. Maybe like 9 months to a year again. Not too sure to be honest. JS: So that would have been approximately the summer of 1999? Somewhere around there? V: Yes. Somewhere around there. Somewhere around a year, somewhere around there, I can t pinpoint it exactly. But like I said, we started doing domestic traveling immediately, so my first destination with him was New York and Santa Fe and the Carribean, California, I would take trips with him occasionally. Sometimes we would go to St. Louis or New Orleans or Santa Cruz. We were traveling just about everywhere I think. JS: How did you travel? V: Well, we took Jeffrey s private jet, and unless I was being sent somewhere by myself for what we were just talking about before, then I would travel on a what do you call, a public jet, whatever it is... iS: commercial flight? Edwards adv. Epstein Telephone interview with Virginia Roberts Page 13 of23 V: Yes. Just a normal flight, an e-ticket. iS: Like the rest of us common folk. V: But when I was traveling with Jeffrey, the majority of the time would be on the black jet. iS: Now, when you say there would be times when you would travel by yourself because he was sending you somewhere, tell me about that. How did that come about? V: So, one of his colleagues would be at the Carribean or Santa Fe or even New York, or wherever, and he would call me up on those days where I am not working with him or in Palm Beach with him, and he would ask me to get on the next plane to so and so and go meet so and so, and that s when I would take e-tickets. His secretary or special assistant, whatever, would organize it for me and give me the details and I would just walk up the line and they d let me right through. JS: Can you give me any ideas as to how many times it happened that Jeffrey would send you off to meet some friend of his at some location outside of Palm Beach? V: How many times it happened? I m not too sure. Probably about 10-15 times. JS: Ok. And on those occasions, how much time would you spend with one of Jeffrey s friends when you were sent to a location that you would have to travel to? V: Only a couple of days. Only 2 days, that s it. iS: And how were you paid for those trips? V: I would be paid in cash upon my arrival back with Jeffrey. So, whenever I was back with Jeffrey, he would count up how many days I ve had, sometimes give me even more than what I deserved, not deserved, but what I earned and give me a little extra. iS: Was there a daily rate for those trips or was that per massage also? V: Per massage. With Jeffrey, I would be honest. I wouldn t tell him I did 15 massages if I didn t. He knew he could trust me. He could always come back to the other person that he sent me to give massages and ask them as well, so you know, it was always by per massage. iS: Alight. When we ve been talking about massages, tell me exactly what it is we re talking about when we speak about massages. V: Same thing I would do to Jeffrey. Again, it would start out as a massage, which would start with them being naked, and me giving him a legitimate massage to begin with, so Edwards adv. Epstein Telephone interview with Virginia Roberts Page 14 of23 I d start with his feet, go up to his calves, up his legs, buttocks, back, his neck, his head, his arms, yada yada, and then it would be time to flip over, and some of the men would want me to continue on massaging the front side of them and they would instigate me to begin having sex with them or foreplay, whatever you want to call it. iS: So routinely, these massages involved sexual activity. Is that accurate? V: That is accurate. iS: Ok. Let s talk about the travel that you were involved in when you were on Jeffrey s private plane. Generally speaking, who were the passengers on the plane when you traveled. V: Well, Larry was the pilot, and then there was a short, small solid guy, I don t know his name, but he was a co-pilot, and then he changed and there was another guy brought in later on. Generally speaking, there was always Jeffrey, sometimes Ghislaine, sometimes Emmy, sometimes a whole bunch of other girls, sometimes famous people, sometimes some politicians or yeah, just about anybody could fly on his plane. There was never no any set routine who would come and who would go. It was an influx of people on Jeffrey s airplane. is: I want to deal with these things separately in order to respect some of the reservations that you have, so I m going to ask you who the people were that you remember flying with Jeffrey on his plane when you were personally present without regard to whether there was any sexual activity that occurred on the plane or not. So I m not asking you to implicate any of these famous people in improper conduct, but just tell me what the names of the people are that you remember that you consider to be famous people. V: Ok, there was Naomi Campbell, Heidi Kium, there was Bill Clinton. There was Al (?) Gore, there was a whole bunch of models, I wouldn t really honestly be able to give their names. There was Matt Groning the producer of the simpons cartoon, Jack CCousteau s granddaughter a lot of interior designers, architects, politicians. I am just trying to think of as many names as possible for you. Off the top of my head, that s as good as I can get for now. iS: Ok, alright, that s fine. And again, I am not implying by my questions, nor do I want your answers to be interpreted as your suggesting that any of those people that you have just identified were engaged in any improper activities on any particular flight, but I want to talk to you now about what went on on occasion on the airplane. Ok? V: Ok. It was a lot of the same thing that went down on the ground. A lot oftimes, it would be just be me and ieffrey, or me and Jeffrey and Ghislaine, or me and Jeffrey and some other girl, sometimes Emmy, Sarah, and Nadia Bjournik. There would be sexual conduct, there would be foreplay, there was a bed in there, so we could basically reenact exactly Edwards adv. Epstein Telephone interview with Virginia Roberts Page 15 of23 what was happening in the house. It would start off with massaging or we would start off with foreplay, sometimes it would lead to, you know, orgies. iS: Were there occasions when you were in ieffrey s company, whether on the ground or in the air, where there were other girls present whom you knew to be under age 18? V: Yes. There was a constant influx of girls coming in and going out. And we were all very young. On occasion, there was some older girls, and I don t mean older as in like in their 30s or anything, I mean like 28, 29, something like that, just very rarely. The majority of the girls that Jeffrey actually met or had on his plane or in his house were under age. iS: Do you know how it is that Jeffrey established with any ofthese underage girls? V: Yes, I do. He would send me personally or with other girls to clubs or shops, to pick up anywhere, I mean we were constantly on the look for other girls that might satisfy Jeffrey. iS: What instructions were you given about what to look for? V: Young, pretty, you know, a fun personality. They couldn t be black. If they were any other descent other than white, they had to be exotically beautiful. That was just about it. iS: Who gave you those criteria? V: They both gave us the instructions, and it wasn t just me, Jeffrey asked most girls to bring a friend and make extra money. They would use us young girls So that way it probably looked a lot more safer to a girl that we were procuring to younger girls that were already doing it. That was the way that Jeffrey had it. iS: Were you given any instruction at all on how to approach these girls? V: Yes. Jeffrey and Ghislaine both taught me to, depending on the circumstances, depending on the girl, you could offer them a job as a massage therapist or you could tell them you have a really rich friend with, you know, great contacts in the acting world or modeling world and he loves pretty girls, you should come back and meet him, make some money, you know, we had a whole bunch of ways to be able to procure girls. JS: Can you give me any idea as to the total number of underage girls that you know engaged in sexual conduct with Jeffrey during the period of time you had your relationship with him? V: I would have no way of estimating that whatsoever. I mean, there could be a hundred, there could be more, honestly I m not too sure how many girls, really. I wish I did know. I mean like I said there were so many over the course of 4 years with Jeffrey. Edwards adv. Epstein Telephone interview with Virginia Roberts Page 16 of23 iS: Let me see if we can try to narrow it down a little bit. Is there any doubt in your mind that it was more than 10? V: Yes, there was definitely more than 10. iS: Ok, what I want you to do is to give me the highest number that you are comfortable in saying there were definitely more than X number of underage girls that I know Jeffrey Epstein engaged in sex with while I had a relationship with him. How would you fill in that blank? Definitely more than how many? V: I d say definitely more than a hundred. iS: Alight. Did ieffrey ever help to pick out your clothes? V: Oh yes. I mean he wasn t out to dress me like a porn star or anything. He would always dress me very classy, but we d just go shopping all the time together. is: Did he ever express any style preferences in terms of how he wanted you to dress? Besides dressing classy, I m, you know, any other suggestion to you about how he wanted you dressed? V: He didn t, like I said, wasn t trying to dress me in any prostitute way or anything like that. It was nice, classy outfits I was wearing like Gucci, Dolce Gabbana, Chanel, things like that. He was buying me a lot of very, very nice clothing. It was provocative. I mean I was wearing miniskirts, and tight short shorts and little shirts that showed my belly and my cleavage and everything, but they were very expensive clothes. iS: Was there every any dress up role playing? V: Yes. There was. Lots of it. Jeffrey loved the latex outfits Ghislane had for us girls, he had bondage outfits, he had all different kinds of outfits, but his favorite was the schoolgirl. iS: Tell me about that. V: Well, you know, Ghislaine would take me to dress me up to surprise i.E or Jeffrey would ask me to get dressed up, that would include wearing a tiny little skirt with nothing underneath, a white collared shirt that you would be wearing to school with a tie in it, tied up in a bow, my hair in pigtails, stockings on up to my knees, and I would go in there and act like a kid and we d do role playing sexing. iS: Did ieffrey ever brag to you about the age of any of the girls with whom he had relationships? Edwards adv. Epstein Telephone interview with Virginia Roberts Page 17 of23 V: Yes, he did. He did all the time. The worst one that I heard from his own mouth was this pretty 12 year old girls he had flown in for his birthday. It was a surprise birthday gift from one of his friends and they were from France. I did see them, I did meet them. Jeffrey bragged afterwards after he met them that they were 12 year olds and flown over from France because they re really poor over there, and their parents needed the money or whatever the case is and they were absolutely free to stay and flew out. Those were the worst ones. He was constantly bragging about girls ages or where he got them from or their past and how terrible their past was and good he is making it for them. iS: Where were the 12 year old girls flown to from France? Where did they come to? V: Palm Beach. iS: And were they flown in on Jeff s private plane or did they get transported? V: No. They were transported by somebody else. iS: Ok. Was the sexual activity that went on on the airplane conducted in such a way so that any of the crew was aware of what was going on? V: They were told to knock if they had to come out, if the crew had to come out. They were told, you know, to come out as little as possible, so they weren t out there hanging out watching everything, no, but it doesn t take an idiot to put two and two together to say well there s a whole bunch of half dressed teenagers on board with this old man who is constantly being massaged by them and he wants me to keep the door shut for what reason? I mean, only they could put that together, but yeah, they knew. iS: Did Mr. Epstein ever talk to you about people of power and influence owing him favors? V: He would laugh about it, you know, I never really knew what to take serious from Jeffrey because he was such a funny character at times. You never knew if what he was saying was true or not. Yeah, lots of people owed him favors from what he told me. He s got everybody in his pocket, and he would laugh about he helps people for the sole purpose in the end they owe him something. That s why I believe he does so many favors in the first place. iS: When and how did you first become aware that Mr. Epstein was in trouble with the law? V: I was first informed by, I think someone from the FBI called me first and started to ask me questions, and I started to answer the questions but then fear took over, and I just said look, I don t know what s going on, I ve got a young family that I don t want to risk, you know, please don t bother me about this again, and it was real short simple conversation, and within a week or 2, I had gotten a call from Jeffrey s attorney, and then a week later, Jeffrey himself. Edwards adv. Epstein Telephone interview with Virginia Roberts Page 18 of 23 is: Ok, well let s back up before we get to those conversations and tell me approximately when it was that you were contacted by the person who you believe was with the FBI. V: Ok. It s hard for me to pinpoint, if I had to pinpoint it, it would be in 2007 sometime. iS: Alight. And you were living in Australia at that time, correct? V: Correct. iS: You were contacted by telephone? V: That s correct, by my cell phone. iS: Ok and do you have any idea how your name came up leading to that contact. V: No idea. No idea whatsoever. When I did ask, I was told that some girls had revealed my name, I guess, and that s how everybody, the FBI knew to contact me. iS: OK. V: But I don t know ofthand or sorry, I just walked into the wrong room. iS: Ok. V: Sorry go on. iS: Yes I ll never tell her you said that. Virginia, how long was it after that phone call from the FBI person were you contacted by Mr. Epstein s lawyers. V: Like a week. It was back to back to each other. I remember being so scared after talking to the FBI thinking what s happening, what s going on. It s been like 6 years, 7 years at that stage, how did they find me what do I have to do with this? So yeah, I do remember that very well, and it was only about a week later I was called by his attorney. iS: Who was it that contacted you, do you remember? V: I want to say Bill Riley, but he might have been from the FBI. No, it was Bill Riley. Bill Riley. Not sure ifthat s his correct name, but that s what is coming to mind JS: What do you remember about that conversation? V: I remember a Mr. Goldberger as well, I remember, there might have been two of them. iS: Airight. Edwards adv. Epstein Telephone interview with Virginia Roberts Page 19 of23 V: I can t remember which one it was. I want to say Bill Riley is the good one. iS: Airight, so either Bill Riley or a Mr. Goldberger or both of them contacted you, and what do you remember about that? V: I don t know if it was the same guy who contacted me that week later who put me in touch with Jeffrey. I think he was on the phone and he put speakerphone on with Jeffrey. So he connected me with Jeffrey. I don t know if it was the same guy or different, but I definitely know that Bill Riley was the first guy to contact me. I m pretty sure about that. JS: Ok. Tell me about that conversation. V: He asked me what I knew about what s going on with Jeffrey and apparently, there was an investigation being held about some of the girls who had come out and said that Jeffrey had sexual contact with them under the age of a minor and that he was discrediting lot of these girls and making them out to be drug addicts and prostitutes and what have you so they wouldn t be looked upon as worthy in the court s eyes so to speak. And you know, he told me in the first five minutes that, you know, if I stay quiet, that I ll be looked after . And that was the exact way it was said. It wasn t like you know, I m gonna pay you a zillion dollars or anything if you be quiet, but if I stay quiet, I would looked after . And I remember saying I don t want any part to do with this. You know, this is not something I want to be a part of, I ve got a young family. I wish the best for everybody in this, you know, take care kind of thing. A week later, I was called after the hearing by one of Jeffrey s lawyers. I can t tell you exactly which one it was but he had Jeffrey on the other line and he connected Jeffrey and I, and Jeffrey tried to make some simple conversation, How are you? How have things been? You know what I mean, catching up. JS: Do you know if the lawyer, did the lawyer stay on the line while Jeffrey was speaking to you? V: I m pretty sure he did. That s why I think ieffrey was on speaker phone because it sounded a lot different, and I was never taken off the line to begin with or connected to another line, so I was pretty sure Jeffrey was on speaker phone and the lawyer was making the call. After the simple conversation, it led to what was going on again and you know, Jeffrey couldn t believe it. You know, he thought he helped all these girls out. He didn t think he was wrong in any circumstance here at all. A lot of these girls were drug addicts and just after drug money. You know, he was really putting down these women or these girls I should say, not giving them the credit they deserved, and then he exactly repeated what the lawyer said the week before is that he would look after me if I stayed quiet, and if I need any help, you know, his lawyers would represent me and he would get legal help for me, whatever I need, he would do, and I told him exactly, I said, Jeffrey, I m the mother of two children at that stage. I m away from everything there, I don t want to be a part of it. I m not going to speak to anybody and I don t want to speak to anybody, I don t want to be involved. That was the last time I heard from him. And the Edwards adv. Epstein Telephone interview with Virginia Roberts Page 20 of 23 next thing I knew, I was sent my victim s letter, my notification of being a victim through the US Attorney s Office and that s when I knew it was well out there enough not to have Jeffrey s lawyers come back on me and discredit me in the same way he had done to all the other girls. So, I called up Joseph Bird who was the recommended lawyers on my paperwork that they had given me and started going from there. JS: So you contact Mr. ioseph Bergs office and then you were dealing with his office from that point forward. V: That s correct. iS: Tell me about the ending of your relationship with Jeffrey. That is, at what point in time did your full time employment end and how did that happen? V: Ok. So, it hadn t really ended. I walked away from it all. Jeffrey sent me to Thailand where I met my husband and escaped to Australia, never to return back to the states. About 6 months prior to that, he came up with a proposition that I thought was really disgustingly sick. And it really showed me for the first time in 4 years I had been with him that nothing was going to change and I was always just going to be used by him(?) which I did not like. He offered me a mansion and some of his money every month, I forget what he called it, a monthly income of what he made to bear one of his children. The proposition was that if anything ever happened between Jeffrey and I, that I would have to sign my child over to him basically and that the child would be his and Ghislaine s, and I would be looking after it as long as nothing happened between Jeffrey and I. So, I was kind of freaked out by all of that. I pushed Jeffrey more to please get me some more training, you know, and I was getting older and not of as much interest to Jeffrey anyways. I was 19 now, and he likes a female a lot younger. So he sent me to Thailand, in September 2002. I was first supposed to meet a girl there and bring her back with me, but I never met up with her. I proceeded get a short course in Thai massage so that was to shut me up about my training so I went there, and one of my friends from school invited me to watch a fight, like a muay thai fight, which is like a form kickboxing. So I went and watched it, and I saw this guy that was a really good fighter, and a girl s word, looked really hot, so I asked my friend who knew him to introduce me. We got introduced and fell in love immediately, 3 days later Rob proposed and 7 days later I was being married in a buddist temple. I called Jeffrey and told him I m sorry, I m never coming back. I ve gotten married, I ve fallen in love. I thought he d wish the best for me but he was kind of rude and he just said have a good life and hung up the phone, and that was the last time I d talked to him ever until all this started again. iS: Ok. Virginia, is there anything else that you would like to add to what you have told us up to this point in time? V: I d like to know that this time around something s going to be done about it and that Jeffrey and a lot of his colleagues, no matter how rich they are, will know that there is Edwards adv. Epstein Telephone interview with Virginia Roberts Page2l of23 law and that there is people that still believe in it. So that s it. Thank you guys for listening to me, hearing me out and helping me. It s kind ofhard to get through. iS: Thank you very much. Yes, I m sure it has been very difficult and I am very appreciative of the courage you have shown in doing what you have done, which really brings me to the last subject, and that is what was it that motivated you to go public with all of this? V: Sharon Richard contacted me. I like her, I do, I like her a lot. I know she s a journalist, and journalists are normally bloodsucking leeches, but I like her for that, but she is an honest bloodsucking leech. She told me a lot about what was still going on, and she showed me a picture of Jeffrey with a little girl who looks like she could have been 12 years old. I mean it was disgusting. I agreed to talk with her, I never agreed to do anything until she showed me some pictures, and at that stage, being a mother of 3 children and having a daughter who I would do anything for to protect, I would put my neck on the line to make sure she never has to go through what I had to go through, and knowing all of this, and knowing that he s still out there doing the same exact thing with no regrets, no remorse, no worry about what he s doing to those girls, and all those girls feeling the same way that I did, so I, you know, I m doing it because I believe in my heart of hearts it s the right thing to do. It s what I would want somebody to do for my daughter or my sister or my friend, and it saddens me to know that it s still going on right now. It s like the seashell story. I don t know if you re heard the story about the little kid who throws back a starfish, you know, the little brother tries to ask his sister, why do you throw them in, they re all gonna die anyways, the little girl says well, it s this one that I can help, and this one that I can help, and that s what I feel like I m doing. I m making a small dent in this big world we live in. iS: I certainly appreciate that courage, and I have heard that story, and you re absolutely right, that one person may not be able to make a difference for everyone, but one person can make a difference for someone, and hopefully, you are making a difference for someone, and we re gonna do the best we can to make sure you are making a difference for as many people as possible. V: Thanks iack. iS: Just a few other follow up things I want to ask you and again, if any of these questions are questions that you re uncomfortable in responding to, then don t hesitate to tell me that. Do you have any recollection of ieffrey Epstein s specifically telling you that Bill Clinton owes me favors ? V: Yes. I do. It was a laugh though. He would laugh it off. You know, I remember asking Jeffrey what s Bill Clinton doing here kind of thing, and he laughed it off and said well he owes me a favor. He never told me what favors they were. I never knew. I didn t know if he was serious. It was just ajoke. is: Where was here? Edwards adv. Epstein Telephone interview with Virginia Roberts Page 22 of 23 V: He told me a long time ago that everyone owes him favors. They re all in each other s pockets. iS: When you say you asked him why is Bill Clinton here, where was here? V: On the island. iS: When you were present with ieffrey Epstein and Bill Clinton on the island, who else was there? V: Ghislaine, Emmy, and there was 2 young girls that I could identify. I never really knew them well anyways. It was just 2 girls from New York. JS: And were all of you staying at ieffrey s house on the island including Bill Clinton? V: That s correct. He had about 4 or 5 different villas on his island separate from the main house, and we all stayed in the villas. is: V: Yes. Were sexual orgies a regular occurrence on the island at Jeffrey s house? JS: If we were to take sworn testimony from the people I am going to name, and if those people were to tell the truth about what they knew, do you believe that any of the following people would have relevant information about Jeffrey s taking advantage of underage girls? So I ll just name a name, and you tell me yes if they told the truth, I think they d have relevant information or no, I don t think they would, or I don t know whether they would or not. Ok? You understand? V: Yes. JS: Ok. Les Wexner. V: I think he has relevant information, but I don t think he ll tell you the truth. J5: Ok. Alan Dershowitz. V: Yes. JS: David Copperfield. V: Don t know. iS: Tommy Matola. Edwards adv. Epstein Telephone interview with Virginia Roberts Page 23 of 23 V: Don t know. JS: Prince Andrew. V: Yes, he would know a lot of the truth. Again, I don t know how much he would be able to help you with, but seeing he s in a lot of trouble himself these days, I think he might, so I think he may be valuable. I m not too sure of him. iS: Ok. Virginia, I think that s all I have for you. Let me tell you what I would like to do. As I told you in the beginning of this conversation, we ve been recording it, and hopefully, we ve got a clear enough recording so that we ve taken down everything accurately and when it s transcribed, it will be clear and accurate, but what I would like to do is transcribe it, send it to you, have you take a look at it, and if there s anything that we got wrong in the statement, you can write back and you can make changes in the transcript so that the transcript is accurate. Is that fair? V: No worries. That is fair. No problem. JS: Alight, great. I really do appreciate that and tell me what the best way is to send the transcript to you. V: Email. If you just want to send it by email or if you want to send it by mail, either or. iS: Ok. Give me your email address if you would please. JS: Let me read that back to you: V: Yepthat sit. BE: Thank you ienna, appreciate it. V: No problem, Brad. iS: Thank you very very much. Bye Bye now. V: Take care Jack. Nice meeting you. iS: You too. Redaction has been made at the request of the witness. |
KIRKLAND ELLIS LLP AND AFFILIATED PARTNERSHIPS Kenneth W. Starr o Call Writer Directly Chicago 777 South Figueroa Street Los Angeles, California 90017 (213) 680-8400 www.kirkland.com June 19, 2008 John Roth, Esq. Principal Associate Deputy Attorney General Office of the Deputy Attorney General United States Department of Justice 950 Pennsylvania Avenue, N.W., Room 4115 Washington, D.C. 20530 Dear Mr. Roth: Facsimile: I again want to thank you for this opportunity to explain why we believe that a federal prosecution of Jeffrey Epstein is unwarranted. I appreciate your having informed us that you already have our May 19 and May 27 communications to the Deputy Attorney General, as well as our prior written submissions to CEOS and to the Southern District of Florida. In light of the significant volume of our prior submissions and to facilitate your review, we have drafted four supplemental submissions that will provide a roadmap for your investigation of this matter. Given the bulk of these documents and their appended supporting attachments, you will receive this packet by messenger tomorrow. A brief description of each of the four submissions follows. First, I have included a succinct summary of the facts, law and policy issues at hand. This document sets forth a basic overview of the issues and summarizes our principal contentions as to why federal prosecution of this matter is neither appropriate nor warranted. The three other submissions include: a summary of the irregularities and misconduct that occurred during the federal investigation; a letter from former CEOS attorney Stephanie Thacker that responds to CEOS 's assessment of its limited review of Mr. Epstein's case; and a point-by- point rebuttal to First Assistant United States Attorney Jeffrey Sloman's recent letter which we believe contains factual inaccuracies typical of our correspondence from the United States Attorney's Office in Miami (the "USAO"). Also, for your reference, the package you receive tomorrow will contain a binder including all documentation to which we refer in our submissions. Finally, we will be providing a detailed checklist of each submission or substantive communication to the USAO. Our intention is that you have copies of each such document to enhance your review. If there are any that you have not received from the USAO or CEOS, please advise and we will fedex them to you without delay. Hong Kong London Munich New York San Francisco Washington, D.C. KIRKLAND ELLIS LLP John Roth, Esq. June 19, 2008 Page 2 As you are likely aware, the Department's prior review of this matter was incomplete and, by its own admission, not "de novo." See Tab 38, May 15, 2008 Letter from A. Oosterbaan. Without considering the Non Prosecution Agreement that left this matter to be resolved in the State or any of the misconduct, CEOS reviewers, tasked with reviewing some of their own previously expressed opinions, assessed only whether the United States Attorney would "abuse his discretion" if he pursued this case. While we appreciate CEOS' s willingness to examine these limited issues, its conclusion that a prosecution would not be an "abuse of discretion" rings particularly hollow in light of CEOS 's admirably candid concessions that we have raised "compelling" objections and that a prosecution on these facts would require "novel" applications of federal law. Indeed, even a brief review of CEOS's own mission statement reveals how inapposite a federal prosecution is to the facts in this case. Importantly, we note that the CEOS review was conducted prior to the Supreme Court's very recent decisions in Santos and Cuellar, which we believe illuminating as they do the Court's interpretive methodology when it comes to federal criminal law powerfully demonstrate the substantive vulnerability of the USAO's unprecedented employment of three federal laws. That Office's interpretation would never pass muster under the Supreme Court's recent pronouncements and should not be countenanced. That is all the more true under the circumstances where the duly appointed U.S. Attorney opined that, in effect, the "unitary" Executive Branch was driving this prosecution. We now know that is not so. What I respectfully request, and what I hope you will provide, is a truly "de novo" review that is, an independent assessment of whether federal prosecution of Mr. Epstein is both necessary and warranted in view of the legal and evidentiary hurdles that have been identified, the existence of a State felony plea and sentence that have been advocated by the State Attorney for Palm Beach County, and the many issues of prosecutorial misconduct and overzealousness that have permeated the investigation. I also request that you provide us with the opportunity during your review to meet with you in person to answer any questions you may have and to elucidate some of the issues in our submission. We believe that an independent review will confirm our strong belief that federal prosecutors would be required to stretch the plain meaning of each element of the enumerated statutes, and then to combine these distorted elements in a tenuous chain, in order to convict Mr. Epstein. Indeed, just this week (and after two years of federal involvement in this matter), Assistant United States Attorney Villafana re-initiated the federal grand jury investigation in direct contravention of the parties' Non Prosecution Agreement and issued yet another subpoena seeking evidence in this case. See Tab 19, Subpoena to In the subpoena, AUSA Villafana directs to appear on July 1, 2008 to give testimony and produce documents to FGJ 07-103 West Palm Beach. The attachment to the subpoena seeks documents such as photographs, emails, telephone billing information, and contact information that relate to Mr. Epstein as well as specific other people who received protection from federal KIRKLAND ELLIS LLP John Roth, Esq. June 19, 2008 Page 3 prosecution as a result of Mr. Epstein's having entered into the September 24, 2007 Non Prosecution Agreement with the USAO. Notably, the Non Prosecution Agreement contains the following agreed condition: Further, upon execution of this agreement and a plea agreement with the State Attorney's Office, the federal Grand Jury investigation will be suspended, and all pending federal Grand Jury subpoenas will be held in abeyance unless and until the defendant violates any term of this agreement. The defendant likewise agrees to withdraw his pending motion to intervene and to quash certain grand jury subpoenas. See Tab 21, September 24, 2007 Non Prosecution Agreement. It also guarantees that persons identified in the Grand Jury subpoena such as and Leslie Groff and others will not be prosecuted. The new Grand Jury subpoena clearly violates the Non- Prosecution Agreement. Although Mr. Epstein has exercised his rights to appeal to the Department of Justice with the full consent and knowledge of the USAO, he has not breached the Agreement. The re-commencing of the Grand Jury is in violation of the Agreement. But further, the new investigation, which features a wide-ranging, fishing-expedition type to search in New York does nothing to satisfy the very essential elements of federal statutes that are lacking despite the intensity of an over two-year investigation in the Palm Beach area. Absent evidence of Internet luring, inducements while using the phone, travel for the purpose, fraud or coercion, the subject of the New York investigation is as lacking in the essential basis for converting a state case into a federal case as is the remainder of the Florida investigation. The reaching out to New York to fill the void emanating from the failures of the Florida investigation compellingly demonstrates the misuse of federal resources in an overzealous, over- personalized, selective and extraordinary attempt to expand federal law to where it is has never gone. This last-ditch attempt by Ms. Villafana reinforces our belief that the USA() does not have facts that, without distortion, would justify a prosecution of Mr. Epstein. In view of the prosecution's often-verbalized desire to punish Mr. Epstein, we believe that the prosecution summary suffers from critical inaccuracies and aggregates the expected testimony of witnesses so as to reach a conclusion of guilt. Our contention is reinforced by the fact that key prosecution witnesses have provided evidence and testimony that directly undermines the prosecution's misleading and inaccurate summary of its case. Indeed, we now have received statements from three of the principal accusers (through a state criminal deposition), (through a federal FBI-USAO sworn and transcribed interview), and (through a defense generated sworn transcribed interview). Each of these witnesses categorically denies each essential element that the prosecution will have to prove in order to convert this quintessential state-law case into a federal matter. KIRKLAND ELLIS LLP John Roth, Esq. June 19, 2008 Page 4 It thus is especially troubling that the USAO has not provided us with the transcript of 's federal interview, nor the substance of the interviews with Ms. or Ms. , nor any information generated by interviews with any of the approximately 40 alleged witnesses that the prosecution claims it has identified. Because the information provided by these women goes directly to the question of Mr. Epstein's guilt or innocence, it is classic Brady information. We understand that the U.S. Attorney might not want to disclose impeachment information about their witnesses prior to a charge or during plea negotiations. But we firmly believe that when the Government possesses information that goes directly to a target's factual guilt or innocence, the target should be informed about such heartland exculpatory evidence. Most importantly, aside from whether the Department believes Brady obligates disclosure to a target of a federal investigation prior to the target's formal accusation, no such limit should apply to a Department review. Accordingly, we request that you go beneath the face of any summary provided to you by the USAO and instead review the actual witness transcripts and FBI 302s, which are essential for you to be able to make a truly independent assessment of the strength and wisdom of any federal prosecution. After careful consideration of the record, and as much as it pains me to say this, I simply do not believe federal prosecutors would have been involved at all in this matter if not for Mr. Epstein's personal wealth and publicly-reported ties to former President Bill Clinton. A simple Internet search on Mr. Epstein reveals myriad articles and news stories about the former President's personal relationship with Mr. Epstein, including multi-page stories in New York Magazine and Vanity Fair. Mr. Epstein, in fact, only came to the public's attention a few years ago when he and the former President traveled for a week to Africa (using Mr. Epstein's airplane) a trip that received a great deal of press coverage. I cannot imagine that the USA() ever would have contemplated a prosecution in this case if Mr. Epstein lacked this type of notoriety. That belief has been reinforced by the significant prosecutorial impropriety and misconduct throughout the course of this matter. While we describe the majority of these irregularities in another submission, two instances are particularly troubling. First, the USA() authorized the public disclosure of specific details of the open investigation to the New York Times including descriptions of the prosecution's theory of the case and specific terms of a plea negotiation between the parties. Second, AUSA Villafana attempted to enrich friends and close acquaintances by bringing them business in connection with this matter. Specifically, she attempted to appoint a close personal friend of her live-in boyfriend to serve as an attorney- representative for the women involved in this case. It also bears mentioning that actions taken by FAUSA Sloman present an appearance of impropriety that gives us cause for concern. Mr. Sloman's former law partner is currently pursuing a handful of 50-million lawsuits against Mr. Epstein by some of the masseuses. KIRKLAND ELLIS LLP John Roth, Esq. June 19, 2008 Page 5 Finally, as you know, Mr. Epstein and the USA() entered into an agreement that deferred prosecution to the State. In this regard, I simply note that the manner in which this agreement was negotiated contrasts sharply with Mr. Sloman's current representation that " Vile SDFL indicated a willingness to defer to the State the length of incarceration . . . " See Tab 1, May 19, 2008 Letter from J. Sloman, p. 2. This statement is simply not true. Contrary to Mr. Sloman's assertion, federal prosecutors refused to accept what the State believed to be appropriate as to Mr. Epstein's sentence and instead, insisted that Mr. Epstein be required serve a two-year term of imprisonment (which they later decreased to 18 months plus one year of house arrest). Federal prosecutors have not only involved themselves in what is quintessentially a state matter, but their actions have caused a critical appearance of impropriety that raises doubt as to their motivation for investigating and prosecuting Mr. Epstein in the first place. At bottom, we appreciate your willingness to review this matter with a fresh and independent set of eyes. To facilitate your review, I once again request the opportunity to make an oral presentation to supplement our written submissions, and we will promptly respond to any inquiries you may have. Kenneth W. Starr cc: Deputy Attorney General Mark Filip |
CONFIDENTIAL SUBMISSION TO THE OFFICE OF THE DEPUTY ATTORNEY GENERAL RE J. EPSTEIN KIRKLAND ELLIS LLP AND AFFILIATED PARTNERSHIPS Kenneth W. Starr To Call Writer Directly: Facsimile: 777 South Figueroa Street Los Angeles, California 90017 www.kirkland.com June 19, 2008 John Roth, Esq. Principal Associate Deputy Attorney General Office of the Deputy Attorney General United States Department of Justice 950 Pennsylvania Avenue, N.W., Room 4115 Washington, D.C. 20530 Dear Mr. Roth: Dir. Fax: I again want to thank you for this opportunity to explain why we believe that a federal prosecution of Jeffrey Epstein is unwarranted. I appreciate your having informed us that you already have our May 19 and May 27 communications to the Deputy Attorney General, as well as our prior written submissions to CEOS and to the Southern District of Florida. In light of the significant volume of our prior submissions and to facilitate your review, we have drafted four supplemental submissions that will provide a roadmap for your investigation of this matter. Given the bulk of these documents and their appended supporting attachments, you will receive this packet by messenger tomorrow. A brief description of each of the four submissions follows. First, I have included a succinct summary of the facts, law and policy issues at hand. This document sets forth a basic overview of the issues and summarizes our principal contentions as to why federal prosecution of this matter is neither appropriate nor warranted. The three other submissions include: a summary of the irregularities and misconduct that occurred during the federal investigation; a letter from former CEOS attorney Stephanie Thacker that responds to CEOS's assessment of its limited review of Mr. Epstein's case; and a point-by- point rebuttal to First Assistant United States Attorney Jeffrey Sloman's recent letter which we believe contains factual inaccuracies typical of our correspondence from the United States Attorney's Office in Miami (the "USAO"). Also, for your reference, the package you receive tomorrow will contain a binder including all documentation to which we refer in our submissions. Finally, we will be providing a detailed checklist of each submission or substantive communication to the USAO. Our intention is that you have copies of each such document to enhance your review. If there are any that you have not received from the USA() or CEOS, please advise and we will fedex them to you without delay. Chicago Hong Kong London Munich New York San Francisco Washington, D.C. KIRKLAND ELLIS LLP John Roth, Esq. June 19, 2008 Page 2 As you are likely aware, the Department's prior review of this matter was incomplete and, by its own admission, not "de novo." See Tab 38, May 15, 2008 Letter from A. Oosterbaan. Without considering the Non Prosecution Agreement that left this matter to be resolved in the State or any of the misconduct, CEOS reviewers, tasked with reviewing some of their own previously expressed opinions, assessed only whether the United States Attorney would "abuse his discretion" if he pursued this case. While we appreciate CEOS 's willingness to examine these limited issues, its conclusion that a prosecution would not be an "abuse of discretion" rings particularly hollow in light of CEOS's admirably candid concessions that we have raised "compelling" objections and that a prosecution on these facts would require "novel" applications of federal law. Indeed, even a brief review of CEOS's own mission statement reveals how inapposite a federal prosecution is to the facts in this case. Importantly, we note that the CEOS review was conducted prior to the Supreme Court's very recent decisions in Santos and Cuellar, which we believe illuminating as they do the Court's interpretive methodology when it comes to federal criminal law powerfully demonstrate the substantive vulnerability of the USAO's unprecedented employment of three federal laws. That Office's interpretation would never pass muster under the Supreme Court's recent pronouncements and should not be countenanced. That is all the more true under the circumstances where the duly appointed U.S. Attorney opined that, in effect, the "unitary" Executive Branch was driving this prosecution. We now know that is not so. What I respectfully request, and what I hope you will provide, is a truly "de novo" review that is, an independent assessment of whether federal prosecution of Mr. Epstein is both necessary and warranted in view of the legal and evidentiary hurdles that have been identified, the existence of a State felony plea and sentence that have been advocated by the State Attorney for Palm Beach County, and the many issues of prosecutorial misconduct and overzealousness that have permeated the investigation. I also request that you provide us with the opportunity during your review to meet with you in person to answer any questions you may have and to elucidate some of the issues in our submission. We believe that an independent review will confirm our strong belief that federal prosecutors would be required to stretch the plain meaning of each element of the enumerated statutes, and then to combine these distorted elements in a tenuous chain, in order to convict Mr. Epstein. Indeed, just this week (and after two years of federal involvement in this matter), Assistant United States Attorney Villafana re-initiated the federal grand jury investigation in direct contravention of the parties' Non Prosecution Agreement and issued yet another subpoena seeking evidence in this case. See Tab 19, Subpoena to In the subpoena, AUSA Villafana directs to appear on July 1, 2008 to give testimony and produce documents to FGJ 07-103 West Palm Beach. The attachment to the subpoena seeks documents such as photographs, emails, telephone billing information, and contact information that relate to Mr. Epstein as well as specific other people who received protection from federal KIRKLAND ELLIS LLP John Roth, Esq. June 19, 2008 Page 3 prosecution as a result of Mr. Epstein's having entered into the September 24, 2007 Non Prosecution Agreement with the USAO. Notably, the Non Prosecution Agreement contains the following agreed condition: Further, upon execution of this agreement and a plea agreement with the State Attorney's Office, the federal Grand Jury investigation will be suspended, and all pending federal Grand Jury subpoenas will be held in abeyance unless and until the defendant violates any term of this agreement. The defendant likewise agrees to withdraw his pending motion to intervene and to quash certain grand jury subpoenas. See Tab 21, September 24, 2007 Non Prosecution Agreement. It also guarantees that persons identified in the Grand Jury subpoena such as , and Leslie Groff and others will not be prosecuted. The new Grand Jury subpoena clearly violates the Non- Prosecution Agreement. Although Mr. Epstein has exercised his rights to appeal to the Department of Justice with the full consent and knowledge of the USAO, he has not breached the Agreement. The re-commencing of the Grand Jury is in violation of the Agreement. But further, the new investigation, which features a wide-ranging, fishing-expedition type to search in New York does nothing to satisfy the very essential elements of federal statutes that are lacking despite the intensity of an over two-year investigation in the Palm Beach area. Absent evidence of Internet luring, inducements while using the phone, travel for the purpose, fraud or coercion, the subject of the New York investigation is as lacking in the essential basis for converting a state case into a federal case as is the remainder of the Florida investigation. The reaching out to New York to fill the void emanating from the failures of the Florida investigation compellingly demonstrates the misuse of federal resources in an overzealous, over- personalized, selective and extraordinary attempt to expand federal law to where it is has never gone. This last-ditch attempt by Ms. Villafana reinforces our belief that the USAO does not have facts that, without distortion, would justify a prosecution of Mr. Epstein. In view of the prosecution's often-verbalized desire to punish Mr. Epstein, we believe that the prosecution summary suffers from critical inaccuracies and aggregates the expected testimony of witnesses so as to reach a conclusion of guilt. Our contention is reinforced by the fact that key prosecution witnesses have provided evidence and testimony that directly undermines the prosecution's misleading and inaccurate summary of its case. Indeed, we now have received statements from three of the principal accusers- 1(through a state criminal deposition (through a federal FBI-USAO sworn and transcribed interview), and (through a defense generated sworn transcribed interview). Each of these witnesses categorically denies each essential element that the prosecution will have to prove in order to convert this quintessential state-law case into a federal matter. KIRKLAND ELLIS LL? John Roth, Esq. June 19, 2008 Page 4 It thus is especially troubling that the USAO has not provided us with the transcript of Ms. federal interview, nor the substance of the interviews with Ms. or Ms. nor any information generated by interviews with any of the approximately 40 alleged witnesses that the prosecution claims it has identified. Because the information provided by these women goes directly to the question of Mr. Epstein's guilt or innocence, it is classic Brady information. We understand that the U.S. Attorney might not want to disclose impeachment information about their witnesses prior to a charge or during plea negotiations. But we firmly believe that when the Government possesses information that goes directly to a target's factual guilt or innocence, the target should be informed about such heartland exculpatory evidence. Most importantly, aside from whether the Department believes Brady obligates disclosure to a target of a federal investigation prior to the target's formal accusation, no such limit should apply to a Department review. Accordingly, we request that you go beneath the face of any summary provided to you by the USAO and instead review the actual witness transcripts and FBI 302s, which are essential for you to be able to make a truly independent assessment of the strength and wisdom of any federal prosecution. After careful consideration of the record, and as much as it pains me to say this, I simply do not believe federal prosecutors would have been involved at all in this matter if not for Mr. Epstein's personal wealth and publicly-reported ties to former President Bill Clinton. A simple Internet search on Mr. Epstein reveals myriad articles and news stories about the former President's personal relationship with Mr. Epstein, including multi-page stories in New York Magazine and Vanity Fair. Mr. Epstein, in fact, only came to the public's attention a few years ago when he and the former President traveled for a week to Africa (using Mr. Epstein's airplane) a trip that received a great deal of press coverage. I cannot imagine that the USAO ever would have contemplated a prosecution in this case if Mr. Epstein lacked this type of notoriety. That belief has been reinforced by the significant prosecutorial impropriety and misconduct throughout the course of this matter. While we describe the majority of these irregularities in another submission, two instances are particularly troubling. First, the USAO authorized the public disclosure of specific details of the open investigation to the New York Times including descriptions of the prosecution's theory of the case and specific terms of a plea negotiation between the parties. Second, AUSA Villafana attempted to enrich friends and close acquaintances by bringing them business in connection with this matter. Specifically, she attempted to appoint a close personal friend of her live-in boyfriend to serve as an attorney- representative for the women involved in this case. It also bears mentioning that actions taken by FAUSA Sloman present an appearance of impropriety that gives us cause for concern. Mr. Sloman's former law partner is currently pursuing a handful of 50-million lawsuits against Mr. Epstein by some of the masseuses. KIRKLAND ELLIS LLP John Roth, Esq. June 19, 2008 Page 5 Finally, as you know, Mr. Epstein and the USA entered into an agreement that deferred prosecution to the State. In this regard, I simply note that the manner in which this agreement was negotiated contrasts sharply with Mr. Sloman's current representation that " T he SDFL indicated a willingness to defer to the State the length of incarceration . . . " See Tab 1, May 19, 2008 Letter from J. Sloman, p. 2. This statement is simply not true. Contrary to Mr. Sloman's assertion, federal prosecutors refused to accept what the State believed to be appropriate as to Mr. Epstein's sentence and instead, insisted that Mr. Epstein be required serve a two-year term of imprisonment (which they later decreased to 18 months plus one year of house arrest). Federal prosecutors have not only involved themselves in what is quintessentially a state matter, but their actions have caused a critical appearance of impropriety that raises doubt as to their motivation for investigating and prosecuting Mr. Epstein in the first place. At bottom, we appreciate your willingness to review this matter with a fresh and independent set of eyes. To facilitate your review, I once again request the opportunity to make an oral presentation to supplement our written submissions, and we will promptly respond to any inquiries you may have. cc: Deputy Attorney General Mark Filip MAIN SUBMISSION KIRKLAND ELLIS LLP SUBMISSION TO THE OFFICE OF THE DEPUTY ATTORNEY GENERAL IN THE MATTER OF JEFFREY E. EPSTEIN Jeffrey Epstein, a successful businessman and noted philanthropist with no prior criminal record, has been investigated for potential violations of 18 U.S.C. 1591, 2422(b) and 2423(b). Since the limited review conducted by CEOS, two Supreme Court decisions one authored by Justice Scalia and the other by Justice Thomas have revitalized the bedrock principles that federal criminal statutes must be narrowly construed, that they may not be stretched to federalize conduct not clearly covered by their prohibitions, and that whenever there are two plausible constructions of a criminal statute, the narrower construction (hich safeguards liberty) rather than the broader construction (which expands the federal prosecutor's arsenal) controls under the venerable rule of lenity. Mr. Epstein's conduct including his misconduct falls within the heartland of historic state police and prosecutorial powers. Absent a significant federal nexus, matters involving prostitution have always been treated as state-law crimes even when they involve minors. Mr. Epstein's conduct lacks any of the hallmarks that would convert this quintessential state crime into a federal one under any of the statutes prosecutors are considering. Mr. Epstein lived in Palm Beach, and his interstate travel was merely to go home. Any sexual conduct that occurred after he arrived was incidental to the purposes for his travel. Even CEOS admitted that applying 2423(b) to a citizen traveling home would be "novel." In fact, it would be both unprecedented and in conflict with Supreme Court cases that have withstood the test of time for over 60 years. Moreover, Mr. Epstein did not use the internet (either via email or chatrooms) to communicate with any of the witnesses in this investigation. Indeed, he did not use any other facility of interstate commerce, including the phone, to knowingly persuade, entice, or induce anyone to visit his home the "local" locus of all the incidents under investigation much less to persuade, entice, or induce a known minor to engage in prohibited sex acts, as 2422(b) requires. Nor did anyone on his behalf "persuade" or "induce" or "entice" or "coerce" anyone as these words are ordinarily understood and as the new Supreme Court decisions mandate they be applied: narrowly, without stretching ordinary usage to conform to a prosecutor's case-specific need for a broad (and in this case unprecedented) application. In addition, as will be shown below, 2422(b) requires that the object of the communication be a state law offense that "can be charged." Yet because the state of Florida's statute of limitations is one year for the first prostitution offense and three years for other targeted offenses, and because all or virtually all of the offense conduct at issue in the federal investigation occurred prior to June 20, 2005, those acts can not be charged by the State, and thus cannot meet this essential element of federal law. Finally, Mr. Epstein neither coerced, nor enslaved, nor trafficked, nor derived any profit from his sexual conduct. He was an ordinary "John," not a pimp. But 1591 is directed only against those who engage in force or fraud or coercion or who are in the business of commercial 1 KIRKLAND ELLIS LLP sexual trafficking. The statute has never been applied to a "John," and only a highly and impermissibly selective prosecution could stretch 1591 to reach conduct like that at issue in this case. In short, without "novel" interpretive expansions a description used by CEOS itself it cannot be shown that Mr. Epstein violated any of the three federal statutes identified by prosecutors. As the Supreme Court's recent decisions in Santos and Cuellar make clear, federal law may not be stretched in that manner, and the current federal investigation relies, as its foundation, on impermissibly elastic stretches of each statute beyond any reported precedent; beyond the essential elements of each statute; well outside the ordinary construction of each statute's limitations; and on a selective, extraordinary, and unwarranted expansion of federal law to cover conduct that has always been exclusively within the core of state powers. At this point in time, the need for Departmental oversight is critical. We appreciate this opportunity to submit our assessment of the key facts in this case and review of the pertinent federal statutes, and respectfully request that the Office of the Deputy Attorney General end federal involvement in this matter so that the State of Florida may resolve this case appropriately. Summary of the Facts Mr. Epstein has maintained a home in Palm Beach, Florida for the past 20 years. While there, he routinely conducted business, received medical attention, socialized with friends, and helped care for his elderly mother. Mr. Epstein also had various women visit his home to perform massages. He did not personally schedule the massage appointments or communicate with the women over the phone or the Internet. Rather, Mr. Epstein's personal assistants scheduled many types of appointments, personal trainers, chiropractors, business meetings and massages. The phone message pad taken from his house and in the possession of the government confirmed that in many cases, the women themselves contacted Mr. Epstein's assistants to inquire about his availability rather than vice versa. The majority of the massages were just that and nothing else. Mr. Epstein often would be on the telephone conducting business while he received his massage. At times, the masseuses would be topless, and some sexual activity might occur primarily self-masturbation on the part of Mr. Epstein. On other occasions, no sexual activity would occur at all. There was no pattern or practice regarding which masseuse would be scheduled on a particular day if one would be scheduled at all or whether any sexual activity might occur. Indeed, Mr. Epstein almost never knew which masseuse his assistants had scheduled until she arrived. See Tab 3, Toll Records. Mr. Epstein specifically requested that each masseuse be at least 18 years old. The vast majority of the masseuses were in fact in their twenties, many accompanied to Mr. Epstein's home by friends or even other family members. Furthermore, most of the women who have testified that they were actually under 18 have specifically admitted to systematically lying to Mr. Epstein about their age. See Tab 4 MIME Tr. at 38-39; Tab 5, Err. at 16; Tab 6, 2 KIRKLAND ELLIS LLP at 6, 8, 22, 45; Tab 7, Jr.M 13; Tab 8 Tr. at 8; Tab 9, Tr. at 5; and Tab 10, Tr. at 14-15 (excerpts from these transcripts are included below). Furthermore, the women who visited Mr. Epstein's home all visited voluntarily and many willingly returned several times. The State Attorney's Office (the "SAO") has vast experience prosecuting sex crimes and conducted an exhaustive, 15-month investigation of Mr. Epstein. A Grand Jury has concluded that Mr. Epstein was merely a local "John," guilty of soliciting prostitution in violation of state law. Notably, Florida law distinguishes soliciting from procuring and compelling prostitution if minors are involved. Indeed, soliciting is a misdemeanor except for the commission of a third subsequent offense, turning it into a felony. The SAO, therefore, sought and obtained an indictment charging Mr. Epstein with felony solicitation of prostitution. Mr. Epstein is prepared to plead guilty and accept a sentence for that offense a sentence that, notably, is far more severe than that meted out to other "Johns" convicted of violating Florida's solicitation laws for cases in which sexual activity was alleged. Though CEOS points out its admirable goal of "protecting children," a moniker that engenders high emotions, the conduct alleged here involves women over 16, which is the age of consent in 38 states and supplies the effective federal age of consent. The young women were by no means the target of high-school trolling; they were individuals who, with friends, visited Mr. Epstein's house a home full of friends and staff. The civil complaints filed against Mr. Epstein reiterate the fact that the individuals who visited Mr. Epstein would visit with their friends. And Mr. Epstein never spoke to or had any contact with these women before they arrived at his house. And again, the State is handling this matter appropriately. We respectfully submit that that should be the beginning and the end of this matter. As you know, the Department's Petite Policy precludes successive federal prosecutions after a State has acted: " A state judgment of conviction, plea agreement here held in abeyance solely as a result of the federal investigation , or acquittal on the merits shall be a bar to any subsequent federal prosecution for the same act or acts." U.S.A.M. 9-2.031A (emphasis added). Consistent with that principle, and of particular relevance to this case, the Department itself just recently observed the following: P rostitution-related offenses have historically been prosecuted at the state or local level. This allocation between state and Federal enforcement authority does not imply that these crimes are less serious, but rather reflects important structural allocations of responsibility between state and Federal governments.... T he Department is not aware of any reasons why state and local authorities are not currently able to pursue prostitution-related crimes such that Federal jurisdiction is necessary. See Tab 11, November 9, 2007 Letter from Justice Department Principal Deputy Assistant Attorney General Brian Benczkowski to the House Committee on the Judiciary, p. 8-9. 3 KIRKLAND ELLIS LLP Summary of the Law We have reviewed every reported case under 18 U.S.C. 1591, 2422(b), and 2423(b), and cannot find a single one that resulted in a conviction on facts akin to the ones here. In some respects, it is not surprising that no precedent supports federal prosecution of a man who engaged in consensual conduct, in his home, that amounts to solicitation under State law. After all, prostitution, even when the allegations involve minors, is fundamentally a State concern, United States v. Evans, 476 F.3d 1176, n.1 (11th Cir. 2007) (noting that federal law "does not criminalize all acts of prostitution (a vice traditionally governed by state regulation)"), and there is no evidence that Palm Beach County authorities and Florida prosecutors cannot effectively prosecute and punish the conduct. See also Batchelder v. Gonzalez, No. 4:07-cv-00330-SPM- AK, 2007 WL 5022105 (N.D. Fla. Oct. 19, 2007). In fact, the opposite is true the state-elected officials, cognizant of the local mores of the community, have a lauded history of just such prosecutions. In any event, and as set forth below, none of the federal statutes in this case remotely supports a prosecution on the facts of this case without each and every element being stretched in a novel way to encompass the behavior at issue. We begin with first principles. Courts in this country have "traditionally exercised restraint in assessing the reach of federal criminal statutes, both out of deference to the prerogatives of Congress, Dowling v. United States, 473 U.S. 207 (1985), and out of concern that 'a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed.' Arthur Andersen LLP v. United States, 544 U.S. 696, 703 (2005) (quoting McBoyle v. United States, 283 U.S. 25, 27 (1931)) (citation omitted). Two recent Supreme Court decisions dramatically underscore these principles and help to highlight why federal prosecution in this case would be improper as a matter of both law and policy. See United States v. Santos, No. 06-1005 (June 2, 2008); Cuellar v. United States, No. 06-1456 (June 2, 2008). Though they both address the interpretation and application of the federal money laundering statute, 18 U.S.C. 1956, the principles they set forth are equally applicable here. In Santos, the Court held that the statutory term "proceeds" means "profits" rather than "receipts," and thus gave the statute a significantly narrower interpretation than what the government had urged. In his plurality opinion, Justice Scalia emphasized that where a statutory term in a criminal statute could support either a narrow or broad application, the narrow interpretation must be adopted because " w e interpret ambiguous criminal statutes in favor of defendants, not prosecutors." Slip op. at 12. As his opinion explained, the rule of lenity "not only vindicates the fundamental principle that no citizen should be held accountable for a violation of a statute whose commands are uncertain, or subjected to punishment that is not clearly proscribed. It also places the weight of inertia upon the party that can best induce 4 KIRKLAND ELLIS LLP Congress to speak more clearly and keeps courts from making criminal law in Congress's stead." Slip op. at 6.1 In Cuellar, the Court examined the link between the money-laundering statute's mens rea requirement and the underlying elements of the offense. After a careful textual analysis of the statute and its structure, the Court ruled that the defendant's conviction could be sustained only if he knew that the transportation of funds to Mexico was designed to conceal their nature, location, source, ownership or control not merely that the defendant knew that the funds had been hidden during their transportation to Mexico. Slip op. at 10-17. Both decisions relied on the ordinary meaning of the statutory terms Congress chose. And both rejected attempts to broaden those words to cover conduct not clearly targeted by Congress. Taken together, these decisions reject the notion that prosecutors can take language from a narrowly drawn federal statute especially one that itself federalizes the prosecution of conduct traditionally within the heartland of State police powers and convert it into a license to reach additional conduct by ignoring, rewriting or expansively interpreting the law. Both cases additionally rejected the notion that statutes should be broadly construed in order to facilitate prosecutions or to in anyway diminish the burden on prosecutors to prove each essential element of a federal charge in conformity with Congress's determinations as to what is within the federal criminal law and what is not. The conflict between the Santos and Cuellar decisions and CEOS 's grant of effectively unlimited discretionary authority to the USA0 to take federal law to "novel" places where they have never reached before could not be starker. These lessons have no less force in the context of Executive Branch decision-making than they do in the context of Judicial interpretation. As you are aware, when federal prosecutors exercise their discretion, they bear an independent constitutional obligation to faithfully interpret the law as written not to broaden its scope beyond the limits endorsed by both Congress and the President. There is no support for CEOS's view that the courts or a jury should ultimately decide whether a "novel" construction of the law is correct. Instead, the Executive Branch itself has a non-delegable obligation not to exceed its authority; the power of other branches to check or remedy such usurpation does not legitimize executive action that exceeds its bounds. See Tab 12, November 2, 1994 Memorandum from Assistant Attorney General Walter Dellinger to the Hon. Abner J. Mikva, Counsel To The President, on Presidential Authority To Decline To Execute Unconstitutional Statutes, available at http: www.usdoj.gov olc nonexcut.htm. In this case, the text, structure, and history of the relevant federal statutes unambiguously indicate that these statutes were designed to address problems of a national and international Justice Stevens, in his concurring opinion, also acknowledged the rule of lenity, calling the plurality opinion's discussion of that rule "surely persuasive." United States v. Santos, No. 06-1005, slip op. at 5 (June 2, 2008) (Stevens, J., concurring). 5 KIRKLAND ELLIS LLP scope not the local conduct that is alleged here and each of these statutes requires proof of the defendant's actual knowledge that simply is not present in this case. Any attempt to stretch the language of these statutes to cover this case would be a misuse of the law and contrary to express legislative intent. In short, the elements under each federal statute-18 U.S.C. 1591, 2422(b) and 2423(b) are not satisfied here. 1. 18 U.S.C. 2422(b) 18 U.S.C. 2422(b) requires the government to prove beyond a reasonable doubt that the defendant engaged in communications over an interstate facility (e.g., the Internet or phone) with four concurrent intentions: (1) to knowingly (2) persuade, induce, entice or coerce, or attempt to persuade, induce, entice, or coerce (3) a minor (4) to engage in prostitution or criminal sexual activity for which the person can be charged. Mr. Epstein's conduct does not satisfy the elements of 2422(b). Each element must be individually stretched, and then conflated in a tenuous chain to encompass the alleged conduct with any individual woman. As the statute makes clear, the essence of this crime is the communication itself not the resulting act. The Court of Appeals for the Eleventh Circuit, in Murrell, underscores the point: The defendant in Bailey contended that attempt under 2422(b) 'requires the specific intent to commit illegal sexual acts rather than just the intent to persuade or solicit the minor victim to commit sexual acts.' Id. at 638. In response, the court held w hile it may be rare for there to be a separation between the intent to persuade and the follow-up intent to perform the act after persuasion, they are two clearly separate and different intents and the Congress has made a clear choice to criminalize persuasion and the attempt to persuade, not the performance of the sexual acts themselves. Hence, a conviction under the statute only requires a finding that the defendant had an intent to persuade or to attempt to persuade.' United States v. Murrell 368 F.3d 1283, 1287 (11th Cir. 2004) (citing United States v. Bailey, 228 F.3d 637, 638-39 (6th Cir.2000)). Thus, the targeted criminal conduct must occur through the interstate facility, not thereafter, and the scienter element must be present at the time of the call or Internet contact. In this case, however, Mr. Epstein did not use an interstate facility to communicate any illegal intention in this case; the phone calls were made by his assistants in the course of setting up many other appointments. Neither a conspiracy charge nor a charge of aiding and abetting can fulfill the mens rea requirement here. Indeed, neither Mr. Epstein nor his assistants knew whether sexual activity would necessarily result from a scheduled massage. And certainly, no such activity was ever discussed on the phone by either Mr. Epstein or his assistants. Instead, as the record in this case makes clear, many appointments resulted in no illegal sexual activity, and often, as confirmed by the masseuses' own testimony, several individuals who were contacted by phone visited Mr. Epstein's house and did not perform a massage at all. Where sexual activity 6 KIRKLAND ELLIS LLP did result, it was mainly self-pleasuring masturbation and not necessarily illegal, but spontaneous and resulted from face-to-face conversations during the massage. Thus, the fact that Mr. Epstein later may have persuaded any particular masseuse to engage in unlawful activity during the massage does not work retroactively to render the earlier scheduling phone call an offense under 2422(b). Nor is there any evidence that women who returned to Mr. Epstein's home time and again were somehow coerced or induced over a facility of interstate commerce to do so. The first essential element of 2422(b) that " w hoever, using the mail or any facility or means of interstate or foreign commerce," by its plain language, requires that the communication, which is the essence of the crime and its actus reus, take place during the use of the facility of interstate commerce (in this case, unlike the vast majority of Internet chat room sting operations, a telephone). The statute is not ambiguous. It requires that the criminal conduct occur while the defendant is "using" (i.e. engaged in the communication), not thereafter. Given the utter lack of direct evidence against Mr. Epstein, prosecutors have signaled that they intend to offer a purely circumstantial case if this matter proceeds to trial essentially arguing that "routine and habit" evidence could substitute for actual proof that an interstate facility was used to solicit sex from minors. Thus, despite the fact that the calls themselves were not made by Mr. Epstein and did not contain the necessary explicit communication to knowingly induce minors to provide sexual favors for money, prosecutors are seeking to turn the phrase "are you available" the same phrase used with friends, chiropractors, and trainers into a ten-year mandatory prison sentence. In any case, the prosecution's attenuated argument regarding "routine and habit" will also not fit the facts of this case. The witness testimony at issue makes clear that there was no clear "routine or habit" with respect to the interactions at issue. And in those unpredictable instances where sexual contact resulted, it was a product of what occurred after the benign phone communication, not during the call itself. The prosecution's theory of liability that a call to a person merely to schedule a visit to the defendant's residence followed by a decision made at the residence to engage in prohibited sexual activity is sufficient cannot survive either a "plain language" test or the rule of lenity as they have been authoritatively construed in the recent Santos and Cuellar cases. The statute cannot be read otherwise. As the Cuellar decision makes clear, a proper interpretation of a federal criminal statute is guided "by the words of the operative statutory provision," not by outside objectives, such as those facilitating successful prosecution. See Cuellar, supra, Slip op. at 7. As Justice Alito stated in his concurring opinion, the government must prove not just the "effect" of the secretive transportation, but also that "petitioner knew that achieving one of these effects was a design (i.e. purpose) of the transportation" of currency. Cuellar v. United States, supra, 553 US., Slip op. At 1 (Auto, J. concurring). Similarly, it is not enough that one effect of a communication scheduling a visit between Mr. Epstein and a minor was that there might be subsequent face-to-face inducement. Instead, the statute, as drafted, defines the crime as the communication and demands that far more be proven than that the use of an interstate facility resulted in a later meeting where even an inducement (as opposed to a solicitation) was made. 7 KIRKLAND ELLIS LLP The prosecution has never represented to counsel that they have evidence that would prove that the inducement or enticement to engage in illegal sexual acts occurred over the phone (or Internet). The prosecution's references to "routine and habit" evidence that would substitute for the explicit communications usually found in the transcripts from chat rooms or sting operations is tenuous at best. In essence, the prosecution would be alleging communications understood, but not spoken, by two people, one of whom was usually a secretary or assistant. Separating the actus reus and the mens rea, however, and premising criminal liability on persuasion that might occur after the communication, or on the existence of a specific intent to engage in illegal sex with a minor that arises after the communication would violate the bedrock principle of criminal law that predicates liability on the concurrence of the act and the criminal state of mind. Even if, arguendo, the communication and mens rea could be separated (a premise which is at odds with the requirement of concurrence), Mr. Epstein denies that the factual proof demonstrates such a pattern or practice. Instead, the evidence compellingly proves that there was no regularity or predictability to the content of the communication or in what occurred at meetings that were telephonically scheduled (including those that are the subject of this investigation). A second essential element of 2422(b) requires that the defendant "knowingly" induce, persuade, entice or coerce a person believed to be a minor. " . . . K knowingly. . . induces. ." requires the Court to define inducement so it is consistent with its ordinary usage and so the term is not so broad that it subsumes the separate statutory terms of "entices" and "persuades." Inducement has a common legal meaning that has been endorsed by the government when it operates to narrow the affirmative defense of entrapment. Inducement must be more than "mere solicitation;" it must be more than an offer or the providing of an opportunity to engage in prohibited conduct. See, e.g,. United States v. Sanchez-Berrios, 424 F.3d 65, 76-77 (1st Cir. 2005); United States v. Brown, 43 F.3d 618, 625 (11th Cir. 1995). The government cannot fairly, or consistent with the rule of lenity, advocate a broader definition of the same term when it expands a citizen's exposure to criminal liability than when it limits the ambit of an affirmative defense to criminal conduct. If the term is ambiguous, absent clear Congressional intent on the issue, the Court's decision in Santos requires that the narrower rather than the broader definition be used. The facts simply do not prove Mr. Epstein's culpability for knowingly inducing or persuading minors. First, in the case of masseuses who agreed or even sought to return to see Mr. Epstein on successive occasions, there is no evidence that there was any inducement, persuasion, enticement or coercion over the phone. And, for masseuses seeing Mr. Epstein for the first time, there was generally no telephone contact with Mr. Epstein and there was no knowledge that any third party at Mr. Epstein's specific direction was inviting them to Mr. Epstein's home over the phone rather than in face-to-face meetings. The women who visited Mr. Epstein's home were all friends of friends. Contrary to the facts in this case, 2422(b)'s knowing inducement element is essential to federal liability and, given its hefty minimum mandatory punishment, it should not be interpreted as a strict liability statute. 8 KIRKLAND ELLIS LLP There is insufficient evidence that Mr. Epstein targeted minors, as required. The evidentiary pattern does not even establish willful blindness since Mr. Epstein took steps to ensure his visitors were over 18 and certainly took none to avoid knowing. But, even if the government contends that it possesses evidence that could demonstrate that Mr. Epstein knew or should have known or suspected that a small number of the masseuses were underage, that would still not make this an appropriate case for federal, rather than state prosecution. The federal statutes were not intended to supersede state prosecutions involving isolated instances of underage sex. Instead, the federal statutes were intended for large-scale rings or for an individual who was engaged, while using interstate facilities such as the Internet, with the willful targeting of minors. The government's evidence, even when stretched to the limit, will not show a pattern of targeting underage persons for illegal sexual activity. A federal prosecution should not become a contest between the prosecution and defense over whether the defendant knew, suspected or should have known whether a particular person was or was not over age. The history of cases brought under this statute make crystal clear that knowledge of the defendant regarding the age of the women is required either by admission or by incontrovertible transcripts of conversations (i.e. stings operations which require repeated acknowledgment of the defendant's awareness of the victims' age). Even states with absolute liability about mistake regarding age rarely prosecute cases where definitive proof is lacking (Palm Beach County rarely does and when it does, it imposes house arrest sentences). This is a matter for the exercise of state prosecutorial discretion and not federal mandatory minimum statutes that were not intended to cover such conduct. A third essential element of 2422(b) is the requirement that the government prove that the defendant actually believed that the person being persuaded (coerced, etc.) was a minor at the time of the communication. See e.g., Offense Instruction 80, Eleventh Circuit Pattern Jury Instructions-Criminal (2003) ("The defendant can be found guilty of that offense only if... the defendant believed that such individual was less than (18) years of age..."); United States v. Murrell, 368 F.3d 1283, 1286 (11th Cir. 2004) ( 2422(b) requires that the defendant knowingly target a minor). Importantly, then, all the elements must be proven with respect to a specific person. However, we are told that the majority of proof is no more than toll records, not recorded conversations or Internet chat transcripts, but toll records and perhaps a memory of what was said years ago on a particular call for a particular request from a particular person acting at Mr. Epstein's direction. Two final points bear special emphasis here. The statute, which according to Santos and Cuellar must be narrowly construed, also requires that the inducement be to engage in prostitution or sexual activity "for which the defendant can be charged." 18 U.S.C. 2422(b). However, simple prostitution is not defined (or made punishable) in the U.S. Code, and state law thus supplies the appropriate reference point. Under Florida law, "prostitution" entails the "giving or receiving of the body for sexual activity for hire," Fla. Stat. 796.07(1)(a), and the term "sexual activity" is limited to "oral, anal, or vaginal penetration by, or union with, the 9 KIRKLAND ELLIS LLP sexual organ of another; anal or vaginal penetration of another by any other object; or the handling or fondling of the sexual organ of another for the purpose of masturbation." Fla. Stat. 796.01(1)(d). Also, the Florida Supreme Court jury instructions define prostitution as involving "sexual intercourse." As a result, topless massages even ones for hire that include self- masturbation fall outside the ambit of the state-law definition of prostitution. Absent proof beyond a reasonable doubt that, at the critical time of the communication, Mr. Epstein had a specific intent to persuade another to engage in prostitution or "sexual activity," as defined by Florida law, he cannot be guilty of an offense under 2422(b). As important, the plain language of the phrase "for which any person can be charged" necessarily excludes acts as to which the state's statute of limitations has run. Under Florida law, prostitution and prostitution-related offenses are misdemeanors in the second degree for a first violation.2 See Fla. Stat.. 796.07(4)(a). The limitations period for a misdemeanor in the second degree is one year, and there is no tolling provision based upon the victim's age. See Fla. Stat. 775.15(b). Even as to allegations of third degree felonies, the statute of limitations is three years. Thus, any conduct alleged to have occurred before mid-June 2005 cannot be charged as a matter of state law and thus cannot be a predicate for a 2422(b) offense even if the federal statute of limitations has not run on any given 2422(b) offense because of the lengthier statute codified in 18 U.S.C. 3282. Thus, no prosecution under 2422(b) can be brought based upon inducement of prostitution or sexual activity for which Florida's statute of limitation has run. Furthermore, in Florida, the statute of limitations does not simply give rise to an affirmative defense. On the contrary, statute of limitations "creates a substantive right which prevents prosecution and conviction of an individual after the statute has run." See State v. King, 282 So. 2d 162 (Fla. 1973); Tucker v. State, 417 So. 2d 1006 (Fla. 3d D.C.A. 1982) (citing cases). Given the one-year statute of limitations, any conduct that might amount to prostitution or other chargeable sexual activity that occurred before one year from today is not conduct for which any person can be charged with a criminal offense. Also, given the three year statute of limitations for third degree felonies, any allegations of illegal state criminal conduct that is classified as a third degree felony cannot be charged in the state and, concomitantly, cannot be the basis for a federal charge under 2422(b), to the extent that it occurred as did almost all of the pivotal allegations (e.g., the allegation which was made in March of 2005) prior to mid-June of 2005. 2. 18 U.S.C. 1591 2 The offense is a felony of the third degree only for a third or subsequent violation. Fla. Stat. 796.07(4)( c). 10 KIRKLAND ELLIS LLP 18 U.S.C. 1591, a sex trafficking statute, provides up to 40 years' imprisonment for anyone (1) who recruits or obtains by any means a person in interstate commerce (ii) knowing that the person is under 18 and (iii) knowing that the person will be caused to engage in a commercial sex act. The most heinous of crimes, described on the CEOS website, fall within this statute and include the buying and selling of children and the forced servitude of third-world immigrants brought to this country to be enslaved. Mr. Epstein's behavior is nowhere near the heartland of this statute. This statute has also been previously reserved for prostitution rings involving violence, drugs and force. In stark contrast, there is no jurisdictional hook that brings Mr. Epstein's conduct within the ambit of the statute, and securing a prosecution on these facts would require a court to set aside both reason and precedent to convict a local 'John' with a sex- slavery crime. It can not be said that Mr. Epstein engaged in trafficking and slavery nor did he knowingly recruit or obtain underage women with knowledge that they would be caused to engage in a commercial sex act. Thus, prosecuting him under this statute would expand the law far beyond its scope. To the extent there are cases where prosecutors think that Mr. Epstein should have known that certain women were underage, there is no evidence that Mr. Epstein "caused them to engage in a commercial sex act." The term "cause" naturally implies the application of some sort of force, coercion, or undue pressure, but there is no evidence that Mr. Epstein's interactions with the women were anything but consensual. Again, many of the women phoned Mr. Epstein's assistant themselves in order to determine whether he wanted a massage. Nor can the cause requirement be proved simply by the fact that Mr. Epstein compensated the women. After all, the statute elsewhere requires that the women "engage in a commercial sex act," which by definition means that they would have received something of value in exchange for sexual services. Interpreting the statute to authorize prosecution whenever a commercial sex act results from solicitation thus would render the term "caused" superfluous, and would make every 'John' who interacts with an underage prostitute guilty of a federal crime even where the transaction is entirely local. Read in context, then, there is no doubt that the statute targets pimps and sex- traffickers who knowingly obtain underage girls and direct them to engage in prostitution. There is not a shred of evidence that Mr. Epstein (or his assistants) did any such thing, and he cannot be prosecuted under this statute. The Cuellar and Santos decisions also foreclose a prosecution under 1591. Just as the federal money laundering statute did not come down to a proscription against transportation of criminal proceeds that are hidden, the sex trafficking of children statute cannot be boiled down and expanded to a federal proscription of commercial sexual activity with persons who turn out to be below the age of 18. 3. 18 U.S.C. 2423 11 KIRKLAND ELLIS LLP 18 U.S.C. 2423(b), a statute enacted to prevent sex tourism, provides up to 30 years of imprisonment for anyone who travels across state lines (i) for the purpose of engaging in (ii) illicit sexual conduct with a minor. Neither of those elements is satisfied here. Mr. Epstein did not travel to Palm Beach for the purpose of engaging in sexual activity with a minor, within the meaning of the statute. The evidence is indisputable that Palm Beach was where Mr. Epstein spent most of his discretionary time, and that his travels to Palm Beach were merely trips returning often to his home of twenty years not the escapades of a sex tourist off to some destination inextricably intertwined with the required significant or dominant purpose of that trip to be to have "illicit sexual conduct." Epstein's trips to Palm Beach were simply those of a businessperson traveling home for weekends or stopping over on his way to or from New York and St. Thomas or to visit his sick and dying mother in the hospital for months on end. He certainly did not travel to his home in Florida for the dominant purpose of engaging in sexual conduct with a person who he knew was under 18 when he did not know, at the time he decided to travel, from whom he was to receive a massage, if he were to receive one at all. In Cuellar, the unanimous Supreme Court linked the term "design" in the money- laundering statute to the terms "purpose" and "plan," and stressed that those terms all required the defendant to "formulate a plan for; devise"; " t o create or contrive for a particular purpose or effect"; carry out " a plan or scheme"; or "to conceive and plan out in the mind." Slip. op. at 12 (citing dictionary definitions). The same link is present here, and it simply cannot be said that Mr. Epstein's design, plan, or purpose in traveling to Palm Beach was to engage in illicit sexual conduct with minors; his design or plan or purpose was simply to return to his home. Any construction of 2423(b)'s "for the purpose of' language to include purposes beyond the dominant purpose of the travel would run afoul of the rule of lenity and due process principles discussed earlier. Any attempted prosecution of Mr. Epstein under a more expansive construction of the "for the purpose of' language would also violate the separation of powers doctrine. Congress, which selected the "for the purpose of' language signaled no clear intention to make it a federal crime whenever an actor has engaged in illicit sexual conduct following his crossing of state lines as long as it might be said that sexual activity at his destination was among the activities he pursued there. Congress well knows how to write a statute in this field which eliminates a purpose requirement. See 18 U.S.C. 2423(c)("Any United States citizen or alien admitted for permanent residence who travels in foreign commerce, and engages in any illicit sexual conduct with another person ..."). 2423(b) is not such a statute. Federal court decisions watering down the "for the purpose of" requirement fly in the face of the two Supreme Court decisions addressing that element. See Hansen v. Huff 291 U.S. 559 (1934); Mortensen v. United States, 322 U.S. 369 (1944). Santos and Cuellar speak loudly and clearly against prosecutors seeing such elasticity in federal criminal statutes, including those enacted to protect important federal interests. In cases involving the federalization of activity that is within the States' historic police power, Congress must speak with particular clarity. See, e.g., Will v. Michigan Dep't of State Police, 491 U.S. 58, 65 (1989). 12 IURKLAND ELLIS LLP Relevant Past Cases We have not been able to find a single federal prosecution based on facts like these but have voluminous evidence of federal prosecutors routinely declining to bring charges in cases far more egregious than this one. To take just one obvious example, federal prosecutors have self- consciously refrained from involvement in the literally dozens of sexual cases of former priests, opting instead to allow seasoned state prosecutors (like the ones in this case) to pursue the accused former clergymen. That is so despite (1) the large number of victims, (2) the vast geographic diversity of the cases, and (3) the fact that some of these cases involve allegations that the defendant forcibly molested, abused, or raped literally dozens of children including some as young as five years old over a period of years. Nonetheless, federal prosecutors have not hesitated to let their state counterparts pursue these cases free from federal interference even though the sentences meted out vary greatly on account of the fact that " c riminal penalties are specific to localities or jurisdictions."3 The facts of this case, which involve the solicitation of consensual topless massages and some sexual contact, entirely in the privacy of his home and almost entirely by women over the age of 18, pale in comparison to the outright sexual abuse and degradation of preteen minors in many of the priest cases. Nor does this case bear any of the hallmarks that typify the cases that federal prosecutors have pursued under the federal statutes at issue here. When asked, the closest case suggested by the prosecutors was United States v. Boehm and it hardly could differ more from Mr. Epstein's case. In Boehm, the defendant was charged with conspiracy to distribute cocaine and cocaine base to minors, in violation of 21 U.S.C. 846, 841(a)(1), and 859(a); being a felon in possession of a firearm, in violation of 18 U.S.C. 922(g)(1); and sex trafficking of children in violation of 18 U.S.C. 371 and 1591. United States v. Boehm, Case No. 3:04CR00003 (D. Alaska 2004). Boelun's actions, unlike Mr. Epstein's, also had a strong interstate nexus: Boehm purchased and distributed large quantities of crack cocaine and cocaine that traveled in interstate commerce, and he used his home and hotels (which were used by interstate travelers) to purchase drugs and distribute them to minors while also arranging for these minors to have sex with him and others. Indeed, Boehm not only (1) purchased cocaine in large quantities; (2) distributed the drugs to minors; (3) possessed illegal firearms; (4) and arranged for the minors to have sex with other members of the conspiracy in exchange for drugs; but (5) admitted to knowing the ages of the individuals involved.4 Here, by contrast, as previous stated, all of the conduct took place in Mr. Epstein's private home in Palm Beach; there was no for-profit enterprise; no interstate component; no use by Mr. Epstein of an instrumentality of interstate commerce; no violence; no force; no alcohol; no drugs; no guns; and no child pornography. 3 See http: www.bishop-accountability.org reports 2004 02 27 JohnJay 2004 02 27 Terry Joluday 3.htm cleric7. 4 In fact, Boehm and his co-defendants distributed drugs to approximately 12 persons between the ages of 13 and 21. Boehm also had a prior criminal history and one that clearly showed he was a danger to society: he previously had been convicted of raping both a thirteen year-old girl and a fifteen year-old girl. (Day 7 of Sentencing hearing p. 32). 13 KIRKLAND ELLIS LLP To the extent there is a similar, but more egregious, local Florida case on the books, it is that of Barry Kutun, a former North Miami city attorney accused of having sex with underage prostitutes and videotaping the sessions. Mr. Kutun pleaded guilty on May 18, 2007 in a Miami- Dade County courtroom as part of an agreement with State prosecutors and he received five years probation and a withholding of adjudication with no requirement to register as a sex offender all without a shred of involvement by federal prosecutors, who declined to prosecute him. Indeed, given the wide use of the telephone in today's society, it gives a rogue prosecutor carte blanche to turn any local crime into a federal offense. Given the federal government's decision to abstain from prosecuting that case, it is hard to understand how the federal prosecutors responsible for this case think that the State's treatment of Mr. Epstein somehow leaves federal interests substantially un.vindicated. There is simply no basis for the federal prosecutors' disparate treatment of Mr. Epstein. Summary of the Evidence Finally, we wish to share new evidence obtained through discovery in connection with the civil lawsuits filed in this matter which confirms that further federal involvement in this matter would be inappropriate. This testimony taken to date categorically confirms that (i) Mr. Epstein did not target minors; (ii) women under 18 often lied to Mr. Epstein about their ages; (iii) Mr. Epstein did not travel in interstate commerce for the purpose of engaging in illegal sexual activity; (iv) Mr. Epstein did not use the Internet, telephone or any other means of interstate communication to coerce or entice alleged victims; (v) Mr. Epstein did not apply force or coercion to obtain sexual favors; and (vi) all sexual activity that occurred was unplanned and purely consensual. The women's own statements made under oath demonstrate the absence of a legitimate federal concern in this matter, and highlight the serious practical difficulties an attempted federal prosecution would face. Mr. Epstein did not recruit or obtain these women in interstate commerce (necessary for a conviction under 1591). o confirmed that she did not know Mr. Epstein and had absolutely no contact with him be it through Internet, chat rooms, email, or phone prior to their arrival at his home. See Tab 13 Tr. (deposition), p. 30. o has stated that (like many other women) she first met Mr. Epstein when her friend, introduced her to him. See Tab 14, Tr. A, p. 4-5. Mr. Epstein was told the girls were over 18. o expressly admitted to lying to Mr. Epstein about her age. See Tab 13, . (deposition), p. 37 ("Q. So you told Jeff that you were 18 years old, correct? A. Yes."). stated that she not only always made sure she had a fake ID with her and lied to Mr. Epstein by telling him she was 18, but that she 14 KIRKLAND ELLIS LLP also had conversations with other women in which these women hoped that "Jeffrey didn't find out their age s ." See Tab 6, Miller Tr., p. 45. o also stated that she: "would tell my girlfriends just like approached me. Make sure you tell him you're 18. Well, these girls that I brought, I know that they were 18 or 19 or 20. And the girls that I didn't know and I don't know if they were lying or not, I would say make sure that you tell him you're 18." See Tab 6, Ir., p. 22. o stated that old her say that she was 18 if asked. See Tab 14, Tr. A, p. 8. stated that she "told him I was 19." See Tab 5, Tr., p. 16. Mr. Epstein did not know these women would be caused to engage in a sex act (necessary for a conviction under 1591) and any sexual activity that took place was unplanned. o stated "sometimes Mr. Epstein likes topless massages, but you don't have to do anything you don't want to do. He just likes massages." See Tab 6, Tr., p. 7. o also stated " s ometimes Mr. Epstein just wanted his feet massaged. Sometimes he just wanted a back massage." See Tab 6, Tr., p. 19. Mr. Epstein did not use an interstate facility to communicate an illegal objective to the alleged victims (necessary for a conviction under 2422(b)). o confirmed that Mr. Epstein never emailed, texted, or chatted in an Internet chat room with her. See Tab 13, (deposition), p. 30. Mr. Epstein did not target minors (necessary for a conviction under 2422(b)) o stated, "I always made sure that I was 18. And I (who is friend who brought her to Mr. Epstein's home) just said make sure you're 18 because Jeffrey doesn't want any underage girls." See Tab 6, Fr., p. 8. Mr. Epstein did not use the phone or the Internet to induce proscribed sexual activity (necessary for a conviction under 2422(b)). o stated that there was never any discussion over the phone about her coming over to Mr. Epstein's home to engage in sexual activity: "The only thing that ever occurred on any of these phone calls with or another assistant was, 'Are you willing to come over,' or, 15 KIRKLAND ELLIS LLP 'Would you like to come over and give a massage." See Tab 14 Tr. A, p. 15 confirmed that she was informed that she was going to Mr. Epstein's house to give him a massage and nothing else, and that no one "said anything to her on the telephone or over the Internet about sexual activity with Mr. Epstein." See Tab 13, (deposition), p. 24- 25. o also confirmed that no one associated with Mr. Epstein ever tried to call her or contact her through the Internet to try to persuade, induce, entice or coerce her to engage in any sexual activity. See Tab 13, (deposition), p. 31. Mr. Epstein did not travel to Palm Beach for the purpose of engaging in sexual activity with a minor (necessary for a conviction under 2423(b)). o Mr. Epstein spent at least 100 days a year in Palm Beach for family purposes, business purposes, and social purposes, and to maintain a home. o While in Palm Beach, Mr. Epstein routinely visits family members and close friends, has seen his primary care physician for checkups and prescribed tests in the Palm Beach area, and until her death in April of 2004, regularly saw his mother who was hospitalized and then convalesced in south Florida. o From 2003 through 2005 there was no month when Mr. Epstein did not spend at least one weekend in Palm Beach. o The Palm Beach area is the home base for his flight operations, for maintenance of his aircraft, and for periodic FAA inspections. o Additionally, Mr. Epstein's pilots and engineers all resided in Florida. Mr. Epstein's conduct did not involve force, coercion or violence and any sexual activity that took place was consensual. The witness transcripts are replete with statements such as the following: o stated that she was not persuaded, induced, enticed or coerced by anyone to engage in any sexual activity. See Tab 13, Tr. (deposition), p. 31. o tated: " Mr. Epstein never tried to force me to do anything." See Tab 14, o stated, "I said, I told Jeffrey, I heard you like massages topless. And he's like, yeah, he said, but you don't have to do anything that you 16 KIRKLAND ELLIS LLP don't feel comfortable with. And I said okay, but I willingly took it off" See Tab 6, o also stated " s ome girls didn't want to go topless and Jeffrey didn't mind." See Tab 6, Mr. Epstein did not engage in luring. o Mr. Epstein's message books show that several masseuses would regularly call Mr. Epstein's assistants, without any prompting by Mr. Epstein or his assistants, asking to visit Mr. Epstein at his home. o stated "a lot of girls begged me to bring them back to Mr. Epstein's house ." There was no alcohol or drugs involved, a fact that is not in dispute. Mr. Epstein has no prior criminal history, a fact that is not in dispute. These women do not see themselves as victims. o indicated under oath that the FBI attempted to persuade her that she was in fact a "victim" of federal crimes when she herself repeatedly confirmed that she was not. See Tab 14, , p. 9-12 and Tab 15, B, p. 7. Conclusion Jeffrey Epstein, a self-made businessman with no prior criminal history, should not be prosecuted federally for conduct that amounts to, the solicitation of prostitution. A federal prosecution based on these facts would be an unprecedented exercise of federal power, a misuse of federal resources, and a prosecution that would carry with it the appearance, if not the reality, of unwarranted selectivity given the incongruity between the facts as developed in this matter and the factual paradigms for all other reported federal prosecutions under each of the three statutes being considered. It would require the pursuit of a novel legal theory never before sanctioned by federal law and that indeed is inconsistent with each of the statutes prosecutors have identified. Accordingly, we respectfully request that you direct the U.S. Attorney's Office for the Southern District of Florida to discontinue its involvement in this matter, and return responsibility for this case to the State of Florida. 17 SUMMARY OF MISCONDUCT KIRKLAND ELLIS LLP SUMMARY OF MISCONDUCT ISSUES IN THE MATTER OF JEFFREY E. EPSTEIN The manner in which federal prosecutors have pursued the allegations against Mr. Epstein is highly irregular and warrants full review by the Depaament. While we repeatedly have raised our concerns regarding misconduct with the United States Attorney's Office in Miami (the "USAO"), not only has it has remained unwilling to address these issues, but Mr. Epstein's defense counsel has been instructed to limit its contact to the very prosecutors who are the subject of this misconduct complaint. For your review, this document summarizes the USAO's conduct in this case. Background 1. In March 2005, the Palm Beach Police Department opened a criminal investigation of Palm Beach resident, Jeffrey E. Epstein. The press has widely reported that Mr. Epstein is a close friend of former President Bill Clinton. 2. In July 2006, after an intensive probe, including interviews of dozens of witnesses, returns of numerous document subpoenas, multiple trash pulls and the execution of a search warrant on his residence, Mr. Epstein was indicted by a Florida Grand Jury on one count of felony solicitation of prostitution. 3. In a publicly released letter, Palm Beach Police Chief Michael Reiter criticized the Grand Jury's decision and the State Attorney's handling of the case. Shortly after the Grand Jury's indictment, the Chief took the unprecedented step of releasing his Department's raw police reports of the investigation (including Detective Recarey's unedited written reports of witness statements and witness identification information), that were later proven to be highly inaccurate transcriptions of witnesses' actual statements. The Chief also publicly asked federal authorities to prosecute the case. Jeffrey Sloman Becomes Involved in Mr. Epstein's Case at the Earliest Stage 4. In early November of 2006, Epstein's lawyers had their initial contact with the newly assigned line federal prosecutor, A. Marie Villafana. Although it is extremely unusual for a First Assistant United States Attorney to participate in such a communication, FAUSA Jeffrey Sloman was present on that very first phone call. 5. On November 16, 2006, despite that the fact that the investigation exclusively concerned illegal sexual conduct during massage sessions, AUSA Villafana issued irrelevant official document requests seeking Mr. Epstein's 2004 and 2005 personal income-tax returns, and later subpoenaed his medical records. See Tab 16, November 16, 2006 Letter from M. Villafana. Sloman Becomes Personally Involved in a Dispute Over Another State Sex Case 6. In March 2007, FAUSA Sloman reported to local police an attempted trespass by a 17- year-old male. Mr. Sloman claimed that the individual had attempted to enter Mr. Sloman's home without invitation to make contact with his 16-year-old daughter, but he spotted the young man before the perpetrator had an opportunity to enter the house. The KIRKLAND ELLIS LLP same individual had previously fled the home of another neighbor after entering that house uninvited, when, looking for the bedroom of their 17-year-old daughter, he mistakenly entered the bedroom of their 14-year-old daughter, touched her on the leg and startled her awake. State of Florida v. Johnathan Jeffrey Zirulnikoff, Case No. F078646 (June 28, 2007). 7. After a thorough review by the Miami State Attorney's Office, and sex-crimes prosecutor Laura Adams, the investigation revealed that the defendant and both the neighbor's 17- year-old daughter and Mr. Sloman's daughter were previously acquainted. The defendant was charged with simple trespass in connection with his unauthorized entry into the neighbor's house. Id. 8. FAUSA Sloman, however, demanded that the young man be registered as a sex offender and objected to any sentence short of incarceration. The Assistant State Attorney in charge of the sex-crimes unit reported Mr. Sloman's conduct during the proceedings as "outrageous." The defendant's attorney described Mr. Sloman as being "out of control." Shortly after, Mr. Sloman began publicly deriding the elected State Attorney, his office and the state process for prosecuting sex offenses, as "a joke." Unauthorized Tactics in Disregard of the United States Attorney's Manual are Used 9. In June 2007, AUSA Villafana subpoenaed the investigating agent of Epstein's attorney, Roy Black, in a clear effort to invade the defense camp. The subpoena was specifically drafted to discover the investigator's contacts, with all prospective witnesses, Mr. Epstein and his attorneys.' Not surprisingly, Ms. Villafana issued this subpoena without the requisite prior approval by the DOJ's Office of Enforcement Operations. See United States Attorneys' Manual, 9-13.410. When confronted, she misleadingly responded that she had consulted with the Department of Justice and was not required to obtain 0E0 approval because her subpoena was not directed to "an office physically located within an attorney's office." See Tab 18, December 13, 2007 Letter from M. Villafana at 4 n.1 . This answer clearly suggests that Ms. Villafana had intentionally misled the Department officials about the items that her subpoena sought.2 The subpoena sought, among other things: "All documents and information related to the nature of the relationship between the investigator and or his firm and Mr. Jeffrey Epstein, including but not limited to . . . records of the dates when services were performed . . . telephone logs or records of dates of communications with Mr. Epstein (or with a third party on Mr. Epstein's behalf); appointment calendars datebooks and the like (whether in hard copy or electronic form) for any period when work was performed on behalf of Mr. Epstein or when any communication was had with Mr. Epstein (or with a third party on Mr. Epstein's behalf) . See Tab 17, June 18, 2007 Subpoena to William Riley! Riley Kiraly, If 3. Indeed, we are aware of two other recent instances in which Villafana placed serious misrepresentations before a court. On July 31, 2007, in the grand-jury litigation arising out of this case, she filed the "Declaration of Joseph Recarey," attaching the state detective's affidavit in support of a search warrant for Epstein's house. See In Re Grand Jury Subpoenas Duces Tecum OLY-63 and OLY-64, No. FGJ 07-103(WPB) (S.D. Fla. July 31, 2007). At the time she filed Detective Recarey's affidavit, she knew it contained numerous material misrepresentations, including gross misstatements of witness statements and other evidence. Second, we (Continued...) 2 KIRKLAND ELLIS LLP Mr. Epstein is Required to Agree to Civil Liability In Order to Avoid a Federal Indictment 10. On July 31, 2007, during negotiations over a possible federal plea agreement, FAUSA Sloman and AUSA Villafana demanded that Mr. Epstein agree to the imposition of civil liability under 18 U.S.C. 2255 as a pre-condition to deferral of federal prosecution. To the best of our knowledge, the inclusion of such a term in a deferred prosecution agreement of this kind is absolutely unprecedented.3 Specifically, Ms. Villafana demanded that Mr. Epstein waive the right to contest civil liability to a list of individuals she said were "victims" of 2255, whose names, however, she refused to disclose, and agree to pay damages of a minimum of 150,000 to each and every one of such undisclosed individuals, and hire an attorney to represent them if they decided to sue him. See Tab 20, July 31, 2007 Draft of Deferred Prosecution Agreement. 11. FAUSA Sloman and AUSA Villafana insisted that the identities of the individuals on the list not be disclosed to Mr. Epstein or his counsel until after Mr. Epstein was already sentenced in the state case. (a) Over the next two months, Mr. Sloman refused to negotiate these terms. They ultimately became incorporated into the final deferred prosecution agreement. See Tab 21, September 24, 2007 Non-Prosecution Agreement, T117-11. (b) It was not until seven months later, in February 2008, that Epstein's lawyers were able to take their first official statement from one of the women FAUSA Sloman alleged were minor victims of federal offenses. (c) This statement, a deposition of the initial complainant in the state case, taken in the presence of her lawyer, proved that none of the necessary elements for any federal charge could be satisfied based on brief contact with Mr. Epstein. The witness also admitted lying to Mr. Epstein, testifying that she told him that she was an adult and wanted him to believe that she was an adult. See Tab 13, (deposition), p. 35 ("Q. So you told Jeff that you were 18 years old, correct? A. Yes."), 37 ("Q. You wanted Mr. Epstein to believe that you really were 18, right? A. Correct."). (d) Shortly after this deposition, the defense was able to obtain statements from other women on Mr. Sloman's so called "list of 2255 victims" and, so far, all such statements also continue to demonstrate that Mr. Sloman's repeated representations to the defense about the existence of federal jurisdiction were false. understand that Villafana was recently reprimanded at a special hearing convened by a United States District Judge in the West Palm Beach Division of the Southern District of Florida, for making misrepresentations during a prior sentencing proceeding. 3 In fact, Stephanie Thacker, a former deputy to CEOS Chief Drew Oosterbaan, has stated that she knew of no other case like this being prosecuted by CEOS. 3 KIRKLAND ELLIS LLP 12. In August 2007, in a clear attempt to coerce a state settlement, Ms. Villafana threatened to broaden the investigation to include a money laundering violation (18 U.S.C. 1956), though all the funds expended were simply Mr. Epstein's, and a violation for operating an unlicensed money-transmitting business (18 U.S.C. 1960), though Mr. Epstein never had such a business. See Tab 22, August 31, 2007 Letter from M. Villafana to Ross (reciting, in a target letter to one of Epstein's employees, that the investigation concerns "suspected violations of federal law, including but not limited to, possible violations of Title 18, United States Code, Sections . . . 1591, . . . 1956, 1960 . . . .") (emphasis added). 13. On the very same day that the grand jury issued subpoenas to the records-custodian and employees of Epstein's businesses for all financial transactions from 2003 forward, Ms. Villafana (who we were told was not authorized to act in this regard without supervisory approval) promised to close the money-laundering investigation "if the sex offense case is resolved." See Tab 23, August 16, 2007 Letter from M. Villafana to G. Lefcourt ("In other words, if the sex offense case is resolved, the Office would close its investigation into other areas as well. The matter has not been, and it does not appear that it will be, resolved so the money laundering investigation continues, and Request Number 6 seeking records of every financial transaction conducted by Epstein and his six businesses from "January 1, 2003 to the present" will not be withdrawn."). 14. Two weeks later, when Mr. Epstein continued to oppose federal prosecution during negotiations and Mr. Epstein's counsel sought a meeting with the United States Attorney, AUSA Villafana then classified all of Mr. Epstein's assistants as targets (sending a target letter to one of them and promising the attorney of the other two that additional target letters would be served on them as well), dispatched FBI agents to the homes of two of his secretaries, and personally telephoned Mr. Epstein's largest business client to advise him of the nature of the investigation. See Tab 22, August 31, 2007 Letter from M. Villafana to FAUSA Sloman Forces Mr. Epstein's Lawyers to Convince the State Prosecutors To Impose a More Severe Sentence Than They Believe Is Appropriate 15. Throughout the plea negotiations with the USAO, Mr. Sloman and Ms. Villafana continually insisted that the only way they would agree not to bring a federal indictment was if Epstein's lawyers, not the state prosecutors as required under the Petite Policy, convinced the state prosecutors to impose a more severe punishment than the state believed was appropriate under the circumstances. 16. FAUSA Sloman's version of the history with respect to the sentence he required Mr. Epstein's lawyers to seek from the State contradicts his later assertion, which is patently false that "the SDFL indicated a willingness to defer to the State the length of incarceration" and "considered a plea to federal charges that limited Epstein's sentencing exposure . .. " See Tab 1, May 19, 2008 Letter from J. Sloman. In fact, by a email dated August 3, 2007, Criminal Division Chief Matthew Menchel advised the defense that the federal government required a minimum term of two years of incarceration. See Tab 40, August 3, 2007 Email from M. Menchel. Subsequently, Ms. 4 KIRKLAND ELLIS LLP Villafana emailed the defense stating that United States Attorney Acosta would accept no less than 18 months of incarceration, following by a one-year term of house arrest. Federal Prosecutors Misrepresented the Number of Alleged "Victims." 17. In September 2007, in order to add additional pressure on Mr. Epstein to execute a deferred prosecution agreement, AUSA Villafana claimed that there were "40" minors on the government's list of purported 2255 victims. To compound that misleading characterization, she continued to insist that a guardian-ad-litem be appointed to represent these purported "minors" in the proceedings. See Tab 24, September 19, 2007 Email from M. Villafana to J. Lefkowitz. 18. When challenged as to whether there was a genuine need for a guardian, given that Ms. Villafana continued to refuse to disclose the names or any other information about her putative list of "minors," she eventually conceded that only "I is definitely under 18 still, and I think there is another minor." See Tab 25, September 23, 2007 Email from M. Villafana to J. Lefkowitz (emphasis added). 19. The next day, AUSA Villafana retreated from the number "40," stating that she had now "compiled a list of 34 confirmed minor victims with no definition of how they would be considered as such.. There are six others, whose names we already have, who need to be interviewed by the FBI to confirm whether they were 17 or 18 at the time of their activity with Mr. Epstein." See Tab 26, September 24, 2007 Email from M. Villafana to J. Lefkowitz (emphasis added). This statement indicated that, at least the "six others" (and, as it turns out, all those identified except two) had reached the age of majority, and, in fact, no guardian was necessary to represent their interests. Defense Counsel was Falsely Advised That the Non Prosecution Agreement Would Be Kept Confidential. 20. On September 24, Epstein and the USAO executed a Non Prosecution Agreement. 21. His attorneys asked Ms. Villafana to "please do whatever you can to keep this from becoming public." See Tab 27, September 24, 2007 Email from J. Lefkowitz to M. Villafana. 22. Ms. Villafana replied that she had "forwarded your message only to Alex Acosta , Andy Lourie , and Rolando Garcia . I don't anticipate it going any further than that." Id. 23. Ms. Villafana stated that the agreement would be "placed in the case file, which will be kept confidential since it also contains identifying information about the girls." Id. The Prosecution Immediately Notifies Three Plaintiffs That Mr. Epstein Has Executed A Non Prosecution Agreement 24. In direct violation of these representations, "shortly after the signing," the government notified "three victims" of the "general terms" of the Non Prosecution Agreement. See 5 (c) KIRKLAND ELLIS LLP Tab 18, December 13, 2007 Letter from M. Villafana (admitting that the notification occurred "shortly after the signing"). AUSA Villafana Misleads Mr. Epstein In An Attempt To Refer Plaintiffs to Her Boyfriend's Close Friend 25. On September 25, Ms. Villafana recommended a local products-liability defense attorney, Humberto "Bert" Ocariz, Esq., for the highly lucrative post of attorney representative for the government's list of as-yet-undisclosed "victims."4 (a) Ms. Villafana wrote to the defense, "I have never met Bert, but a good friend in our appellate section and one of the district judges in Miami are good friends with him and recommended him." See Tab 28, September 25, 2007 Email from M. Villafana to J. Lefkowitz (bottom email) (emphasis added). (b) Ms. Villafana failed to disclose that this "good friend in our appellate section" was her live-in boyfriend. See Tab 18, December 13, 2007 Letter from M. Villafana (conceding the "relationship" with "my boyfriend"). Beyond her clear conflict-of-interest and affirmative effort to conceal it, it is unimaginable that AUSA Villafana would have engaged in an ex-parte communication with a United States District Judge in the same district about the details of a pending grand-jury investigation without prior disclosure and supervisory approval. (d) Later, it became clear that Ms. Villafana also had at least one other ex-parte communication with that same United States District Judge about the grand jury's investigation. See Tab 29, October 5, 2007 Email from M. Villafana to J. Lefkowitz (stating that "one of the District Judges in Miami mentioned retired Judge Joseph Hatchett as a good choice" to decide any fee disputes concerning Epstein's paying for a lawyer to represent the unnamed women in claims against Epstein). 26. The next day, AUSA Villafana advised the defense that she was removing one of the alternatives to Mr. Ocariz from our consideration, on the basis that "one of his partners is married to an AUSA here," and explained that, because of that personal relationship, 4 These actions were improper. As you know, the Department prohibits employees from using any nonpublic information to secure private benefits of any kind: "An employee shall not ... allow the improper use of nonpublic information to further his own private interest or that of another, whether through advice or recommendation, or by knowing unauthorized disclosure." 5 C.F.R. 2635.703 (emphasis added). Among the examples of prohibited disclosure specifically illustrated by this regulation is the disclosure of nonpublic information to "friends" to further their financial interests, id., at Example 1, and the disclosure of nonpublic information to a newspaper reporter, id., at Example 5 (see allegations below regarding the leak to the New York Times). Furthermore, the Justice Department prohibits its employees from using their position to benefit friends or relatives. See 5. C.F.R. 2635.702; see also 5. C.F.R. 2535.502. 6 IURKLAND ELLIS LLP " t here is too great a chance of an appearance of impropriety." See Tab 28, September 26, 2007 Email from M. Villafana to J. Lefkowitz. 27. The following day, Ms. Villafana relayed that, and asked us to respond to, the very first concern raised Mr. Ocariz, which was "how are they going to get paid" and whether "there is any cap or other limitation on attorney's fees that Epstein will pay in the civil case." See Tab 30, September 27, 2007 Email from M. Villafana to J. Lefkowitz. 28. Ms. Villafana clearly contemplated that Mr. Epstein would be paying for Mr. Ocariz at his "hourly rate" to represent the alleged "victims" against Epstein even "if all the girls decide they want to sue." Id. 29. When the defense complained of Ms. Villafana's undisclosed conflict-of-interest in selecting her boyfriend's friend to prosecute civil claims against Mr. Epstein on behalf of her undisclosed list of purported "victims," Ms. Villafana later argued that Mr. Epstein had no right to complain because "the Non-Prosecution Agreement vested the Office with the exclusive right to select the attorney representative." See Tab 18, December 13, 2007 Letter from M. Villafana. Shortly after being notified, however, United States Attorney Acosta removed Mr. Ocariz from consideration, and requested an amendment to the Non Prosecution Agreement. 30. In response to the many complaints about Ms. Villafana's misconduct and violations of the United States Attorney's Manual, Criminal Division Chief Matthew Menchel characterized her as "unsupervisable." 31. Contrary to the express agreement of United States Attorney Acosta that the federal government would not interfere in the administration of any state sentence, FAUSA Sloman continued to try to deny the right of the State to issue work release and or gain time by stating that Mr. Epstein must "make a binding recommendation that the Court impose" a sentence of 18 months of continuous confinement in the county jail. See Tab 21, September 24, 2007 Non Prosecution Agreement. Shortly thereafter, Mr. Sloman sent the FBI to meet with the state sex-crimes prosecutor in an attempt to secure her commitment to oppose a work release option. FAUSA Sloman Attempts to Thwart Discovery 32. On October 31, Mr. Sloman emailed Mr. Epstein's counsel, confirming that "I understand that the plea and sentence will occur on or before the January 4th 2008 date." See Tab 41, October 31, 2007 Email from J. Sloman to J. Lefkowitz (emphasis added). 33. On November 5, despite Mr. Sloman's having sent that email just one week before, after learning that the defense had begun to question women on their "list," Mr. Sloman wrote Mr. Epstein's attorneys demanding that his plea and sentencing in the State case now be moved up to November 2007. See Tab 2, November 5, 2007 Letter from J. Sloman. 34. Mr. Sloman further demanded in the letter that Mr. Epstein's attorneys "confirm that there will be no further efforts to contact any victims" until the victims are represented by counsel. Id. As the women were all adults, there could be no lawful justification for Mr. 7 KIRKLAND ELLIS LLP Sloman's demand, other than to protect prospective plaintiffs from being interviewed prior to their retaining an attorney (including, as it turned out, Mr. Sloman's former law partner) to bring civil lawsuits against Epstein. 35. Mr. Sloman also demanded that Epstein "begin his term of incarceration not later than January 4, 2008," id., which turned out to be just three weeks before the first civil lawsuit would be filed against Epstein. 36. Contrary to the express agreement of United States Attorney Acosta that the federal government would not interfere in the administration of any state sentence, Mr. Sloman tried to limit gain time and or work release by stating that Mr. Epstein must "make a binding recommendation that the Court impose a sentence of 18 months of continuous confinement in the county jail." Id. (This followed Mr. Sloman's position that the Office would consider a state sentence ordering probation in lieu of incarceration to be a breach of the deferred-prosecution agreement.) Shortly thereafter, Mr. Sloman sent the FBI to meet with the state sex-crimes prosecutor in an attempt to secure her commitment to oppose work release. 37. Mr. Sloman insisted that Mr. Epstein not learn the identities of the government's list of alleged "victims" until after Epstein was sentenced and incarcerated. 38. We have reason to believe that, around this same time, Mr. Sloman's former law partner, Jeffrey Herman, had met with the father of one of the prospective plaintiffs, Saige Gonzalez.5 At the same time (and until as recently as March of 2008), the Official Florida Bar website continued to identify Mr. Sloman as a named partner in Mr. Herman's firm. See Tab 31, Florida Bar Website page. 39. Mr. Herman, who is the named partner in the former firm of Herman, Sloman, Mermelstein, filed five lawsuits, each asking for 50 million, against Mr. Epstein. Each lawsuit is entitled "Jane Doe vs. Jeffrey Epstein," despite the fact that each of the plaintiffs is an adult and not entitled to plead anonymously. See Tab 32, Examples of Federal Complaints. 40. Mr. Herman convened press conferences contemporaneously with filing three of the suits. In the most recent press conference, he admitted that all of the plaintiffs lied to Epstein about their ages. See Tab 33, Herman Public Statement. One of the supposedly traumatized "victims" actually pled in her complaint that she returned to Epstein's house "on many occasions for approximately three years." Another of these supposedly traumatized "victims" herself acted to introduce her friends and acquaintances to Mr. 5 The Justice Department rules disqualify employees from working on matters in which their former employers have an interest: "an employee shall be disqualified for two years from participating in any particular matter in which a former employer is a party or represents a party if he received an extraordinary payment from that person prior to entering Government service. The two-year period of disqualification begins to run on the date that the extraordinary payment is received." 5 C.F.R. 2635.503(a) (emphasis added). 8 KIRKLAND ELLIS LLP Epstein. All of these plaintiffs are apparently on the above-described government "victim" list. FAUSA Sloman Attempts to Encourage Civil Suits and the Hiring of the Government's Choice of Attorney 41. On November 27, Mr. Sloman sent an email to Mr. Epstein's attorneys stating that "I intend to notify the victims by letter after COB Thursday two days later ." See Tab 34, November 27, 2007 Email from J. Sloman to J. Lefkowitz. 42. The morning of November 28, attorneys for Mr. Epstein faxed a letter to Assistant Attorney General Alice Fisher, requesting a meeting with her to discuss the impropriety of the USAO's encouraging civil lawsuits against Mr. Epstein under the guise of the terms of the Non Prosecution Agreement. See Tab 35, November 28, 2007 Letter from K. Starr to A. Fisher. 43. Late in the day on November 28, Epstein's attorneys received from AUSA Villafana a copy of the USAO's proposed victim-notification letter that "Jeff Sloman asked that I forward." See Tab 36, November 28, 2007 Email from M. Villafana to J. Lefkowitz. (a) The proposed victim-notification letter cited as authority the "Justice for All Act of 2004" (which U.S. Attorney Acosta later agreed had no application to these circumstances). It referred to the addressees as minor "victims," suggested they make statements in state court, that they were not entitled to make, and referred incorrectly to Mr. Epstein as a "sexual predator." Id. (b) FAUSA Sloman also proposed advising recipients, in an underlined sentence that, "You have the absolute right to select your own attorney" to "assist you in making . . . a claim" for "damages from Epstein ." But that " i f you do decide to use two attorneys selected by the U.S. Attorney's "special master" as your attorneys, Mr. Epstein will be responsible for paying attorney's fees incurred during the time spent trying to negotiate a settlement." Id. The USA() Leaks Confidential Information to the New York Times 44. Perhaps most troubling of all, the USAO has repeatedly leaked information about this case to the media including to Landon Thomas, the senior business correspondent for the New York Times. We have personally reviewed Mr. Thomas's own notes, and they are remarkably detailed about highly confidential aspects of the prosecution's theory of the case and the plea negotiations. 45. Mr. Thomas's calls to the USAO initially were referred to Assistant United States Attorney David Weinstein. AUSA Weinstein informed Mr. Thomas that federal authorities were considering charging Mr. Epstein under 18 U.S.C. 1591, 2422 and 2423, and told the reporter that Mr. Epstein had both lured girls over the telephone and traveled in interstate commerce for the purpose of engaging in sex with minors. AUSA Weinstein also divulged the terms and conditions of the USAO's negotiations with Mr. Epstein including the fact that Mr. Epstein had proposed "house arrest" with extra 9 KIRKLAND ELLIS LLP stringent conditions which Mr. Weinstein could only have learned from FAUSA Sloman, AUSA Villafana or United States Attorney Acosta himself. 46. AUSA Weinstein then asked why Mr. Epstein should ... be treated differently than anyone else. Mr. Thomas apparently stated that he understood that there was evidence that the women had lied about their ages. AUSA Weinstein replied that this was not a defense and that Mr. Thomas should not believe "the spin" of Mr. Epstein's "high-priced attorneys." Indeed, Mr. Weinstein told Mr. Thomas that the USA() was very concerned about a Palm Beach editorial that questioned whether Mr. Epstein would receive a rich man's justice. AUSA Weinstein then stated that, in fact, Mr. Epstein "doesn't have a defense." 47. Mr. Epstein's attorneys learned of the call and complained to the USAO. Counsel for Mr. Epstein then had an in-person meeting with FAUSA Sloman and United States Attorney Acosta describing these leaks to the New York Times. During Mr. Thomas' next call to the USAO, made two weeks later, AUSA Weinstein "admonished" him (in the words of Mr. Thomas) for disclosing the contents of their prior conversation to the defense, and strongly "reminded" Mr. Thomas that AUSA Weinstein's prior comments about Mr. Epstein had only been "hypothetical" in nature. That claim is sheer nonsense: AUSA Weinstein had disclosed specific details of Mr. Epstein's case, including plea terms proposed by the defense, as revealed based on Mr. Thomas's own contemporaneous hand-written notes. 48. Shortly thereafter, Mr. Sloman wrote to the defense that Mr. Thomas was given, pursuant to his request, non-case specific information concerning specific federal statutes." See Tab 37, February 27, 2008 Email from J. Sloman. Again, that claim was utterly false; Mr. Thomas's contemporaneous hand-written notes, reviewed by Jay Lefkowitz, confirm that the USAO had violated settled Department policy and ethical rules by providing case-specific information about the Department's legal theories and plea negotiations. Conclusion We bring these difficult and delicate matters of misconduct to your attention not to require any disciplinary action or review by the Office of Professional Responsibility. Although we have been told that some of this misconduct has been self-reported (only after we raised these complaints in writing), we feel confident that not all the facts were adequately presented. Rather, we believe that they are highly relevant to your decision whether to authorize a federal prosecution in this case. This pattern of overzealous prosecutorial activity strongly suggests improper motives in targeting Jeffrey Epstein, not because of his actions (which are more appropriately the subject of state prosecution), but, rather, because of who he is and who he knows. We also bring this pervasive pattern of misconduct to your attention because we believe it taints any ongoing federal prosecution. The misconduct pervades the evidence in this case. The offers of financial inducement to witnesses, improperly encouraged by the government, make their potential testimony suspect. The reliance on tainted evidence gathered by the state will require a careful sorting out of poisonous fruits. 10 KIIUCLAND ELLIS LLP Most important, however, is that the extraordinary nature of this misconduct, so unusual in ordinary federal prosecutions, raises the gravest of concerns about why prosecutors would go to such lengths in a case already being prosecuted by the State and with so little, if any, federal concern. Accordingly, we ask you to conduct your own investigation of these matters, because we believe that what we have provided you may constitute only the tip of a very deep iceberg. Without the power of subpoena, which we currently lack, we are unable to dig deeper. We strongly believe that there is far more exculpatory evidence that has not been disclosed, more leaks that we have not yet uncovered and more questionable behavior. This is a case that cries out for a deeper investigation than we are capable of conducting, before any decision to prosecute is permitted. 11 RESPONSE TO FAUSA SLOMAN'S LETTER KIRKLAND ELLIS LLP Response to Letter by FAUSA Sloman Dated May 19, 2008 In a May 19, 2008 letter to Jay Lefkowitz (See Tab 1), SDFL First Assistant U.S. Attorney Jeffrey Sloman provided what purported to be a summary of the events that have occurred during the investigation of Mr. Epstein. Mr. Sloman's letter is fraught with inconsistencies, false and misleading characterizations and outright falsehoods. The comparison below between the false assertions in Mr. Sloman's letter and what actually transpired is only the tip of the iceberg. We respectfully submit that Mr. Sloman's letter alone demonstrates the degree to which the record of facts have been distorted and these distortions have permeated this unprecedented investigation. 1. "INDEPENDENT" AND "DE NOVO" REVIEW. Mr. Sloman's Letter: " W e obliged your request for an independent de nova review of the investigation and facilitated such review at the highest levels of the Department of Justice. " Tab 1, May 19, 2008 Letter from J. Sloman, p. 5, 1 3. The Truth: CEOS' review, concluded in May 2008, was neither independent nor de nova. o CEOS' review was not "independent:" Drew Oosterbaan, who conducted the review on behalf of CEOS, had already reviewed the prosecution memo on this matter eight months earlier. During a meeting with defense counsel at the United States Attorney's Office in Miami (the "USAO") in September of 2007, he opined that he so believed in the prosecution that he "would try the case myself." Indeed, Mr. Sloman acknowledges that Mr. Oosterbaan had previously opined on this matter, stating: This particular attack on this statute 18 U.S.C. 2242(b) had been previously raised and thoroughly considered and rejected by . . . CEOS prior to the execution of the Deferred Prosecution Agreement in September 2007 . Id., p. 5 (emphasis added). The statute Mr. Sloman referred to ( 2422(b)) lies at the heart of the Epstein investigation. Thus, according to Mr. Sloman, Mr. Oosterbaan was tasked with reviewing his own prior decision regarding applying the key statute under which the SDFL proposed prosecuting Mr. Epstein. KIRKLAND ELLIS LLP The defense immediately raised concerns regarding the non-independence of the review when told that it would be Mr. Oosterbaan tasked with providing the review, but was told that when Mr. Oosterbaan rendered his prior opinion, "he was not really up to speed on the facts" o CEOS' review was not de novo: By letter dated May 15, 2008 (four days before Mr. Sloman's letter), Mr. Oosterbaan advised Mr. Lefkowitz that CEOS reviewed the matter only for abuse of discretion: T he question we sought to answer was whether U.S. Attorney Acosta would abuse his discretion if he authorized prosecution in this case. See Tab 38, May 15, 2008 Letter from D. Oosterbaan, p. 1 (emphasis added). See also, id., p. 2 ("Mr. Acosta would not be abusing his discretion if he decided to pursue such a course of action."); and p. 5 ("Mr. Acosta would not be abusing his prosecutorial discretion should he authorized federal prosecution of Mr. Epstein."). For the factual record of its "abuse of discretion" review, CEOS relied on the very same prosecution memo that it had already reviewed in rendering its prior opinion, stating: As you know, our review of this case is limited, both factually and legally. We have not looked at the entire universe of facts in this case. See Id., p. 1 (emphasis added). Nor did CEOS review any facts related to the irregular provisions in the Deferred Prosecution Agreement or the numerous complaints of prosecutorial misconduct, both of which are inextricably intertwined with the impropriety of the investigation. Id. at 1. 2. NOTIFICATION OF WITNESSES. Mr. Sloman's Letter: Mr. Sloman dismissed the totality of the defense's objections to the inappropriate notification the SDFL proposed to send to its witnesses, stating merely that: " Y ou objected to victims ' being notified of time and place of Epstein's state - court sentencing hearing." 2 KIRKLAND ELLIS LLP See Tab 1, May 19, 2008 Letter from J. Sloman, p. 4, 'ff 1. The Truth: The defense engaged in days of negotiation and made 14 separate substantive objections to the unprecedented notification letter that Mr. Sloman threatened to send to an undisclosed list of "victims." The eventual transmission of this highly misleading letter was only halted by an appeal to AAG Fisher. Among those substantive objections (which related to far more than the "time and place" of the state's sentencing hearing) were: o Sending the letter would contravene the government's commitment to take no position regarding potential claims of government witnesses. See Tab 39, November 28, 2008 Email from J. Lefkowitz to J. Sloman. o The letter cited to an inapplicable statute (the Justice for All Act of 2004) as its justification for being sent. Id. AUSA Acosta later conceded that the citation to this statute as a justification was wholly incorrect. o The letter wrongly advised all recipients that Mr. Epstein would be required to register as "a sexual predator for the remainder of this life." o The letter amounted to an invitation to civil litigation against Mr. Epstein, advising recipients that they had the right to seek civil damages from Mr. Epstein, and in an underlined instruction, stated that if they chose an attorney other than the one chosen by the government they would be required to pay his fees, but if they chose the government's choice, Mr. Epstein would be required to pay the fees. 3. MISCHARACTERIZATION OF OUR ARGUMENTS. Mr. Sloman's Letter: Mr. Sloman's letter misleadingly characterizes our substantive defense of the government's investigation as, "the investigation merely produced evidence of relatively innocuous sexual conduct with some minors who, unbeknownst to Mr. Epstein, misrepresented their ages." See Tab 1, May 19, 2008 Letter from J. Sloman, p. 2. The Truth: We never made such a claim. To the contrary, we argued that sworn statements we have taken of the alleged victims demonstrate that law enforcement has presented versions of their testimony that are necessarily sensationalized and fictionalized. We presented 3 KIRKLAND ELLIS LLP evidence that Mr. Epstein routinely and daily receives massages from adults. Only a small percentage of the masseuses turned out to be minors. The majority of those minors interviewed by law enforcement admitted to lying directly to Epstein about their ages (not "unbeknownst to Epstein"), and inventing further false details to substantiate their lies. Indeed, the civil attorney for several of these women admitted at his recent press conference that they lied to Mr. Epstein about their ages. Numerous witnesses testified that Mr. Epstein asked that all masseuses be over the age of 18. Further, the evidence is undisputed that Mr. Epstein's assistants scheduled the massages and Mr. Epstein did not know which masseuses his assistants had scheduled on a particular day, until the massage took place. We admitted that there was sexual conduct, and argued not that it was "innocuous" as Mr. Sloman alleges but that it was mostly Mr. Epstein's own self- pleasuring, which did not satisfy the requisite federal element of criminal sexual conduct (which is, in turn, defined by state law). These are important distinctions and show that Mr. Sloman has misrepresented the record about the most basic part of our defense. 4. SLOMAN DEMANDS AN UNREALISTIC DEADLINE TO COMPLY WITH AN AGREEMENT HE UNILATERALLY MODIFIES. Mr. Sloman's Letter: "Unless Mr. Epstein complies with all of the terms and conditions of the Deferred Prosecution Agreement, as modified by the United States Attorney's December 19, 2007 letter to Ms. Sanchez by close of business on Monday, June 2, 2008, the SDFL will elect to terminate the Agreement." Id., p.1 The Truth: The Deferred Prosecution Agreement was never modified by U.S. Attorney Acosta's December 19, 2007 letter. Oddly, Mr. Sloman acknowledges this on page 4 of his May 19 letter, where he writes that Mr. Acosta "proposed" this modification and that " Mr. Lefkowitz rejected these proposals." Thus, Mr. Sloman is threatening to terminate the Deferred Prosecution Agreement, unless Mr. Epstein complies with a unilateral modification that Mr. Sloman concedes was never agreed to by defense counsel. Orchestrating the information, plea and sentencing requirements of the Deferred Prosecution Agreement within the extremely limited two-week timeframe imposed by Mr. Sloman's June 2, 2008 deadline would have been difficult enough. More importantly, as explained below, the SDFL has refused to provide the defense with information it requires to enable Mr. Epstein to comply with the additional plea and sentencing requirements of the Deferred Prosecution Agreement (let alone, by the June 2 deadline arbitrarily imposed by Mr. Sloman). o The Deferred Prosecution Agreement requires Mr. Epstein to plead guilty to and be sentenced for an additional offense which requires that he be registered as a sex offender. In different places in his May 19, 2008 letter, Mr. Sloman 4 KIRKLAND ELLIS LLP describes the additional charge to which Mr. Epstein is required to plead guilty under the Deferred Prosecution Agreement as "procurement of minors to engage in prostitution" or "solicitation of minors to engage in prostitution." The former is an offense for which Mr. Epstein would be required to register, but one for which the state has no evidence to charge Mr. Epstein and the SDFL refuses or is unable to provide evidence that it claims it has. The latter requires no registration, but it is the offense which, over and over again, Ms. Villafana insisted upon including in the Deferred Prosecution Agreement, and is one which the State believes is appropriate. The inconsistency between the description of the offense required by the SDFL, the elements of an offense that can be justified on the facts of this case and the SDFL's requirement that the offense be a registrable one has created substantial confusion. o As a result of this confusion, in December 2007, both the defense and the state requested that the SDFL provide the factual allegations to enable Mr. Epstein and the State to create a truthful factual recitation of a registrable offense required by the Deferred Prosecution Agreement, but, to date, the SDFL has failed to do so without any explanation. Mr. Sloman refuses to provide the requested factual allegations, which the State cannot furnish, and now demands a two week deadline to comply. Thus Mr. Sloman has unreasonably imposed a deadline with which he himself has made it impossible for Mr. Epstein to comply. 5. WAIVER OF APPEAL TO ASSISTANT ATTORNEY GENERAL FISHER. Mr. Sloman's Letter: " T he SDFL provided you with 30 days to appeal the decision to the Assistant Attorney General of the United States Alice Fisher" and "you chose to forego an appeal to AAG Fisher." Id., p. 2. The Truth: Mr. Acosta tolled an August 17 deadline, acknowledging that there were "serious issues" about the case that needed to be discussed, and scheduled a meeting with the defense for September 7, 2007. At the September 7, 2007 meeting, with Drew Oosterbaan in attendance, the government dismissed the defense's objections and set a September 21, 2007 deadline to finalize a non-prosecution agreement or the defense would face an already-drafted 53-page indictment, purportedly identifying 40 minors, with a guideline range of 188 months. Facing Ms. Villafana's threatened draconian indictment, without the claimed offer of the right to raise objections in an appeal to AAG Fisher, the defense chose to negotiate an 5 KIRKLAND ELLIS LLP Agreement to Defer Prosecution to the State, an agreement without precedent and fraught with substantial practical and legal hurdles to its implementation. 6. THE SDFL DID NOT DEFER TO THE STATE. Sloman's Letter: " T he SDFL indicated a willingness to defer to the State the length of incarceration." Id., p. 2. The Truth: The SDFL neither deferred to the State, nor even discussed with the State, the length of Mr. Epstein's incarceration. In a letter to the defense, Criminal Division Chief, Matthew Menchel rejected the sentence contemplated by the State's plea agreement, writing that "the federal interest will not be vindicated in the absence of a two-year term of state imprisonment." See Tab 40, August 3, 2007 Email from M. Menchel. Of course, this position is contrary to Section 9-2031D of the U.S. Attorney's Manual (indicating that the "result" of a state prosecution is "presume d " to have vindicated the federal interest). It is understandable, therefore, that Mr. Sloman might want to retreat from it now. Indeed, the final Deferred Prosecution Agreement (DPA) restricts the state-court judge from exercising any of his rightful discretion and to specifically prohibit the judge from offering probation, community control or any other alternative in lieu of incarceration. DPA, 2(a). 7. SUGGESTION OF ADDITIONAL STATE PLEA Mr. Sloman's Letter: The parties considered: "as suggested by the defense , a plea to state charges encompassing Epstein's conduct." See Tab 1, May 19, 2008 Letter from J. Sloman, p.2, I 2. The Truth: It was the government, and not the defense, that suggested a plea to state charges to resolve the federal investigation. Andrew Lourie proposed declining prosecution in favor of the state. Although Mr. Epstein and the State Attorney's Office had already reached a plea agreement, in August 2007, Mr. Sloman and AUSA Marie Villafana warned that they intended to prosecute Epstein federally unless his counsel (i.e., not the U.S. Attorney's Office) sought more stringent conditions to the State's proposed plea agreement. These stringent conditions included, among other things, the two-year prison term demanded by Mr. Menchel (discussed above) and a charge requiring him to register as a sex offender. 6 KIRKLAND ELLIS LLP 8. ALL IDENTIFIED VICTIMS BE PUT IN SAME POSITION AS IF EPSTEIN HAD BEEN TRIED. Mr. Sloman's Letter: "The Agreement provides for a method of compensation for the victims such that they would be placed in the same position as if Epstein had been convicted of one of the enumerated offenses set forth in Title 18, United States Code Section, 2255." Id. The Truth: Mr. Sloman continues to mischaracterize the highly irregular provisions of the Deferred Prosecution Agreement. The SDFL did not merely attempt to preserve the compensation rights of those it identified as victims; it attempted to create compensation rights for those it identified, without imposing on them the burden of proving that they were in fact victims under 2255. o In the Deferred Prosecution Agreement, the SDFL required Mr. Epstein to waive the right to contest liability under 18 U.S.C. 2255 as to a list of individuals that the SDFL would not disclose to Mr. Epstein until after he was sentenced and to pay for an attorney to secure compensation under 2255 for those undisclosed individuals, or if they decided to sue Mr. Epstein. o 2255 ordinarily provides individuals with a right to recover minimum guaranteed damages of 150,000, without having to prove actual damages, only if: (1) they were victims of an enumerated federal offense, including offenses under 18 U.S.C. 2422 and 2423, (2) they were minors at the time of the offense, and most importantly (3) they were personally injured as a result of the offense. o The defense has confirmed examples of women who testified that they were not victims of Mr. Epstein and suffered no personal injury. These women were, nevertheless, on the list of "victims" identified by the government.. In fact, when confronted with the testimony of a women who denied both being a victim and incurring personal injury, Ms. Villafana actually acknowledged such testimony. To justify inclusion of that woman on the government's list, however, Ms. Villafana then challenged her own witness's credibility. For this reason, it is false to state that these "identified" individuals are in the same position that they would have been had Epstein been convicted at trial. Had there been a trial, Mr. Epstein would have had a right to confront these individuals through cross- examination. Any individual that did not establish that she was a minor victim of conduct that satisfied each element of an enumerated statute under 2255,or that she suffered personal injury, would not qualify for any treatment under 2255. However, under the Deferred Prosecution Agreement, as an "identified individual" on the government's list, 7 KIRKLAND ELLIS LLP this same individual would nevertheless be entitled to engage an attorney paid for by Mr. Epstein to recover 150,000 of damages from Mr. Epstein under 2255 without ever alleging any injury. In fact, the defense was told that the only question Mr. Epstein would be permitted to ask before paying the girls is " have you ever met Epstein.". Thus, the Deferred Prosecution Agreement places identified individuals in a far better position than they would be in if Mr. Epstein were convicted at trial. 9. ASSIGNMENT OF RIGHT TO SELECT LEGAL REPRESENTATIVE. Mr. Sloman's Letter: "Prior to any issues arising concerning the implementation of the 2255 provision, the SDFL unilaterally agreed to assign its responsibility to select the attorney representative for the alleged victims to an independent third-party." See Tab 1, May 19, 2008 Letter from J. Sloman, p. 4, f.3. The Truth: That such an assignment was the SDFL's "unilateral" decision is false. Before the SDFL decided to assign selection of the "attorney representative" to an independent third party, AUSA Marie Villafana had already proposed an "attorney representative." She had proposed local products-liability lawyer, Humberto Ocariz, and claimed he had been recommended by a "good friend in the Appellate Division." Ms. Villafana's account was misleading, as it omitted that this "good friend" was her live-in boyfriend, and that Mr. Ocariz was his former law-school roommate. When we discovered this independently, we objected. Only then did the SDFL propose assigning the selection process to an independent special master and agree to amend the Deferred Prosecution Agreement. Thus, while it may be true that the SDFL assigned its selection responsibility to avoid the appearance of favoritism, it did not do it "unilaterally," but, rather, only after Epstein uncovered the Office's misleading disclosure and apparent conflict-of-interest. 10. TIMETABLE FOR MOVING FORWARD. Mr. Sloman's Letter: "On February 25, 2008, I sent you an e-mail setting forth a timetable for moving forward in the event that CEOS disagreed with your position. That time is now." Id. , p. 6. The Truth: Mr. Sloman provides only part of the history of this case in order to justify his improper actions. He had stated he would close the investigation if CEOS told him to. However, CEOS at our very first contact said that under no circumstances did they see that as their 8 IURKLAND ELLIS LLP role. They said they would only advise on an abuse of discretion standard. Making the outcome a foregone conclusion. Furthermore, in response to the February 25 e-mail, which attempted to establish a schedule to limit the entire review process (the defense has repeatedly suggested that the misconduct was intertwined with the investigation and would therefore seek higher review), Mr. Lefkowitz e-mailed Mr. Acosta directly. On February 29, 2008, Mr. Sloman responded to Mr. Lefkowitz's e-mail to Mr. Acosta, stating that Mr. Sloman was acting out of frustration, but " p lease be assured that it has not, and never has been, this Office's intent to interfere or restrict the "review process" for either Mr. Epstein or CEOS. I leave it to you and CEOS to figure out how best to proceed and will await the results of that process." As stated above, CEOS determined that it would not review many of the defense's objections and as to the remainder of those objections, its review would be limited (contrary to Mr. Acosta's assurances), which left the need, supplemented by the defense's subsequent request, for a more thorough review of critical issues by others at the Department of Justice. Mr. Sloman's re-imposition of the (albeit modestly extended) timetable was an obvious attempt, in violation of his February 29 agreement, to thwart the request made by the defense to the Deputy Attorney general, to complete the review process that Mr. Acosta had promised. 11. "DELAY." Mr. Sloman's Letter: In a section entitled "Delay," Mr. Sloman states that "the SDFL again agreed to accommodate Epstein's request to appear in state court for plea and sentencing on January 4, 2008." Id.,p. 3. The Truth: Curiously, Mr. Sloman fails to mention correspondence from the U.S. Attorney stating that delay of that date would be "inevitable" as the defense has raised "serious questions" about the propriety of the prosecution. Strikingly, in that same section, Mr. Sloman claims that "the Agreement did not contemplate a staggered 'plea and sentencing," despite quoting, three sentences earlier, from the Agreement's staggered requirement that Epstein plead and be sentenced by October 26, and "begin serving his sentence not later than January 4, 2008." We are, like most attorneys seeking Depai Luient review, without access to the USAO prosecution summaries or other submissions to the Department. Given the substantial issues that have been raised in this and other submissions, we request that you conduct a de novo review that goes beneath the face of any conclusions being advocated by the USAO; instead, we seek a review that is based on the transcripts of witness testimony themselves so that the reviewer can 9 KIRKLAND ELLIS LLP make an independent decision not adversely affected by conclusions that over and over have proven, witness by witness, allegation by allegation, to be inaccurate and unwarranted and not an appropriate basis for the exercise of federal prosecutorial authority. 10 THACKER RESPONSE TO CEOS'S LETTER GEORGE G. GUTHRIE ROBERT B. ALLEN REBECCA A. BETTS R. TERRANCE RODGERS DAVID B. THOMAS JAMES S. ARNOLD DAVID J. HARDY WM. SCOTT WICKLINE PAMELA L. CAMPBELL PAMELA C. DEEM PHILIP J. COMBS STEPHANIE D. THACKER BRYANT J. SPANN TERESA K. THOMPSON DEBRA C. PRICE CHRISTOPHER S. ARNOLD CHRISTOPHER D. PENCE PETER G. MARKHAM ZACKARY B. MAZEY OF COUNSEL THOMAS E. McHUGH LAW OFFICES ALLEN GUTHRIE MCHUGH THOMAS, PLLC P. 0. BOX 3394 CHARLESTON, WEST VIRGINIA 25333-3394 500 LEE STREET, EAST, SUITE 800 CHARLESTON, WEST VIRGINIA 25301 June 19, 2008 Mr. John Roth Senior Associate Deputy Attorney General Office of the Deputy Attorney General United States Department of Justice 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530 Dear Mr. Roth: FACSIMILE WRITERS DIRECT DIAL e-mail: I 6 I write to offer my reaction to the May 15, 2008 correspondence from the United States Department of Justice Child Exploitation and Obscenity Section ("CEOS") regarding the federal investigation of Jeffrey Epstein by the United States Attorney's Office for the Southern District of Florida ("USAO").1 I will refrain from recounting Mr. Epstein's arguments in detail here, but, rather, will highlight salient points responsive to the CEOS letter. In particular, I write from a background well familiar with child exploitation cases and victim witness issues. As the CEOS letter points out (CEOS letter at p. 3), I was a member of CEOS. In fact, I served as a federal prosecutor for twelve years; five years as an Assistant United States Attorney for the Southern District of West Virginia, and seven years at CEOS. I began working as a trial attorney for CEOS in 1999, and was promoted to Deputy Chief for Litigation in 2002, and ultimately to Principal Deputy Chief for the Section in 2004. As those who have worked with me know, I have a history of working diligently on behalf of victims of crime. While at the United States Attorney's Office for the Southern District of West Virginia, I was a part of the prosecution team that prosecuted the first case in the country under the federal Violence Against Women Act. United States v. Bailey, 112 F.3d 758 (4th Cir.), cert denied, 522 U.S. 896 (1997). The case went to trial and the defendant was sentenced to life in prison. I also spearheaded the domestic violence and federal criminal child support prosecution efforts for that office, prosecuting some of the first cases in the country under the federal Child Support Recovery 1 Citations to the May 15, 2008 correspondence will be referenced herein as "CEOS letter at p. ." ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 2 Act. Later, while at the Department of Justice, I co-authored the Department's Federal Child Support Prosecution Handbook. My work at CEOS permitted me to continue my efforts on behalf of vulnerable victims of crime. While there, for example, I was part of the prosecution team in United States v. Dwight York, 428 F.3d 1325 (1 1thCir. 2005), cert denied, 548 U.S. 908 (2006). York was the leader of a pseudo religious organization, and systematically molested countless children, some as young as six years old. The case went to trial and York was sentenced to 135 years in prison. As part of that trial team, I was awarded the Attorney General's Award for Distinguished Service. Additionally, at CEOS I was one of the architects of the Innocence Lost Initiative, a nationwide initiative designed to combat child prostitution. For this, I was awarded an Assistant Attorney General's Award for Outstanding Victim Witness Service. Likewise, I was awarded a subsequent Assistant Attorney General's Award for Special Initiative in connection with a nationwide sex tourism prosecution initiative I helped to develop. I say all this not for any boastful purpose, but, rather, to make clear that I am fully cognizant of victim issues, and that I am no pushover in terms of prosecution standards. I am also very well aware of the good work of CEOS, and the outstanding credentials of those who toil in that office. With all due respect to CEOS, however (and recognizing that their review of this case was quite limited), given the facts and circumstances of this investigation, a federal prosecution of Mr. Epstein simply should not be countenanced. In my view, such prosecution would be counter to the important mandate of the Department of Justice as emblazoned on its seal, "Qui Pro DominaJustitia Sequitur," referring to the Attorney General"who prosecutes on behalf of justice." As you well know, it is fundamental to that mandate that, as the representative of the people of the United States, the duty of a federal prosecutor is not simply to seek conviction as at any cost, but, rather, to seek justice. Berger v. United States, 295 U.S. 78, 88 (1935). ("The United States Attorney is the representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to govern impartially is as compelling as its obligation to govern at all.") While it is true that Berger was decided at the post-trial, as opposed to the pre-indictment, stage of the case, the bedrock principle contained in the above quote should transcend the entire investigation and prosecution process. Indeed, it is arguably most imperative at the investigation stage, at which point law enforcement is dealing with a presumptively innocent citizen. In summary, we understand the allegations against Mr. Epstein to be that Mr. Epstein paid individuals to find friends and acquaintances, certain of whom were under the age of 18, to provide topless massages to him at his Palm Beach home in exchange for money. Mr. Epstein's assistants allegedly scheduled these massages for him over the telephone at the direction of Mr. Epstein, allegedly including some scheduling calls to underage women. However, the evidence contradicts these allegations. First, Mr. Epstein did not ask that the masseuses be under the aca To the contrary, he specifically asked that they be 18 or older. As one witness commented, said tell ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 3 them you're 18 because if you're not, he won't let you in his house." Ir. at 38-39. Second, Mr. Epstein himself did not schedule such appointments. Third, Mr. Epstein would not know who would be providing a massage at any particular time. Fourth, and importantly, Mr. Epstein's assistants were not directed to contact underage women, and were not aware of the true ages of the women they contacted. In fact, more often than not, the masseuses themselves, or the individuals who introduced the masseuses, made the initial contact. As a result, Mr. Epstein and his assistants were routinely unaware of the identities of many of these young women before they arrived. The allegations further include the assertion that Mr. Epstein engaged in unlawful sexual conduct with certain underage women who arrived at his house to provide a massage. At times, during these massages, Mr. Epstein masturbated, engaged in some sexual touching, and a small number of alleged acts of penetration. However, most of the women who performed massages on Mr. Epstein were over the age of 18. Many of the young women have sworn under oath that they, in fact, told Mr. Epstein that they were 18 or older, and that they did so because they knew that if they were not 18 years old, they would not be allowed into Mr. Epstein's home. In fact, Mr. Epstein has passed a polygraph examination to this effect relative to the government's primary, and youngest, alleged victim, Indeed, many of the women also worked at local massage parlors, which presumably had a requirement that the masseuse have reached the age of majority. To the extent there are allegations that Mr. Epstein should have been alerted to certain underage women based on conversations he allegedly had with them, those conversations would have taken place in person and at his home, thereby precluding any prior scheduling with knowledge of their true ages. As explained below, any factual allegations of repeat massages with such persons would lack necessary elements required for a federal nexus to such conduct. All of the alleged activity occurred in Mr. Epstein's home in Palm Beach, Florida. Many of the massages allegedly involved conduct which, even if engaged in, is not proscribed by federal law, either because the masseuses were of age, or because conduct with underage masseuses only involved topless massages, massages in undergarments or naked massages. To the extent prohibited sexual activity occurred, any inducement, enticement, and or persuasion used would have taken place during a face-to-face encounter thus eliminating the possibility for the commission of a federal crime, which requires the existence of a communication through a facility of interstate commerce in which the defendant persuades or entices the minor to engage in illegal sexual activity. Furthermore, any prohibited sexual activity that did occur based on the facts on the record is best left to the state to address because the facts of this case do not fall comfortably within the federal domain. This is a case about purely local activity, involving local actors, and affecting local interests and thus, should be handled by local authorities. Nonetheless, the USA() has indicated its intent to prosecute Mr. Epstein for purported violations of 18 U.S.C. 2422, 2423, and 1591. However, as set forth in detail in prior submissions, the facts of this case fall squarely outside the heartland of those statutes in fact, in law, and in congressional intent. As their plain ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 4 text and history indicate, these statutes were designed to address problems that are truly national and international in scope: human trafficking in 1591; telephone or Internet sexual predation in 2422; and sex tourism in 2423. Unlike the alleged conduct at issue here, those problems unquestionably present multi-jurisdictional obstacles that States and localities cannot confront effectively on their own. Mr. Epstein's conduct was purely local in nature, and the State of Florida and Palm Beach County are effectively prosecuting and punishing that conduct. Although CEOS asserts, "that a prosecution of Mr. Epstein might not look precisely like the cases that came before it is not dispositive" (CEOS letter at p. 4), the fact is this case does not look anything like those cases. The facts here do not carry any of the hallmarks that typify an appropriate federal prosecution for child exploitation as reflected in all such prior federal prosecutions. Specifically, the facts here do not carry the hallmarks for a sex trafficking or child prostitution prosecution. Mr. Epstein did not target minors. In fact, the evidence indicates just the opposite. There was no travel in interstate commerce for the purpose of engaging in illicit sexual activity. There was no prohibited use of a facility of interstate commerce. There was no commercial for profit sexual enterprise. There was no force. There was no violence. There was no use of drugs or alcohol. There was no child pornography. 18 U.S.C. 1591 is clearly designed to combat organized rings of individuals who engage in the business of human trafficking, involving both a commercial and coercive component. As President Bush has noted: generally speaking, trafficking in persons refers to actions, often including the use of force, fraud or coercion, to compel someone into a situation in which he or she will be exploited for sexual purposes, which could include prostitution or pornography, or for labor without compensation, which could include forced or bonded labor . . . trafficking in persons is often linked to organized crime, and the profits from trafficking enterprises help fund other illegal activities. The growth of vast transnational criminal networks supported in part by trafficking in persons fosters official corruption and threatens the rule of law.2 This in no way describes the case here. Yet the USA() has been unwavering in its single minded focus to stretch the limits of these federal statutes beyond their intended use, and beyond precedent, in order to prosecute Mr. Epstein. As the CEOS letter acknowledges, the legal theories the USAO intends to attempt to pursue against Mr. Epstein are "novel," having never before been sanctioned by federal law. They should not be sanctioned now. As the Supreme Court recently pronounced, when a statutory term in a criminal statute could support both a narrow or broad application of the federal criminal law, "the tie must go to the defendant." United States v. Santos, 553 U. S . and Cuellar v. United States, 553 U.S (June 2, 2008), Slip Op. at 6. 2 February 25, 2003 Trafficking in Persons National Security Presidential Directive. ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 5 A full and fair review of the facts here is critical to this analysis. Yet, it is clear that CEOS did not conduct such a review. In his recent letter to Jay Lefkowitz, First Assistant United States Attorney ("FAUSA") Jeffrey Sloman confirmed our understanding that the USA() was to have "facilitated" an "independent de novo review of the investigation" by the Department. (May 19, 2008 Sloman letter at p. 5). Yet, the CEOS review was not complete, and by its own terms not de As CEOS itself noted, "our review of this case is limited both factually and legally. We have not looked at the entire universe of facts in this case. It is not the role of the Criminal Division to conduct a complete factual inquiry from scratch." (CEOS letter at p. 1). Indeed, entire subject areas relevant to the inquiry were not considered at all by CEOS. In essence, CEOS was only in a position to make the most cursory possible review, an "abuse of discretion" review, without considering the facts at the necessary level of detail, and without taking into account the many and varied issues of misconduct we have raised in this case. As the CEOS letter indicates, "we did not review the facts, circumstances, or terms included in the plea offer nor any allegations that individuals involved in the investigation engaged in misconduct." (CEOS letter at p. 2). All of this begs the question if it is not CEOS' role to "conduct a complete factual inquiry," and CEOS did not consider any of the allegations of misconduct here, which at the very least have created a strong appearance of impropriety, and, at worst evidence an intent and effort to unfairly prejudice Mr. Epstein to the financial benefit of the friends and colleagues of the prosecution team in the USAO, then where and when can justice ever hope to be served in this case? This is a prosecution burden that cannot, and should not, be brushed aside. We contend the limited nature of the CEOS review deeply affected its conclusions. For example, CEOS most likely did not review original documents, such as transcripts, and instead relied on the summaries of federal prosecutors and FBI agents, against whom we have raised serious concerns regarding misconduct. If the summary memos from the USA() are as flawed as other USAO communications have been, and which we have been able to show are misleading and inaccurate, the CEOS abuse of discretion review is likely flawed as well. Moreover, although the USAO expected, and personally promised to us, an independent review, FAUSA Sloman's letter also makes clear that our pivotal legal challenge to the use of 18 U.S.C. 2422(b) had already "been previously raised and thoroughly considered and rejected by . .. CEOS prior to" the recent CEOS review. (May 19, 2008 Sloman letter at p. 5). The fact that CEOS had to evaluate its own decision with respect to some of the allegations against Mr. Epstein prevents its subsequent review and opinion from being truly independent. Following this most recent CEOS review "limited both factually and legally," and with no citation to any case law relative to the statutes in question, CEOS concludes merely, "federal prosecution in this case would not be improper or inappropriate (CEOS letter at p. 5);" in essence, that the United States Attorney could bring this case in the exercise of his federal discretion should he so choose ("we conclude that U.S. Attorney Acosta could properly use his discretion to authorize prosecution in this case."). (CEOS letter at p. 2). However, CEOS drew the conclusion that the ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 6 federal prosecution of Mr. Epstein would not be "improper or inappropriate" absent any review at all of the misconduct here, and absent a full review of the facts and law. The facts, the law, and the alleged misconduct are each necessarily inextricably intertwined with the question of whether or not this is a viable federal prosecution. These imposed limits flawed the review from the outset. In any event, CEOS concedes that the defense team makes "many compelling arguments." (CEOS letter at p. 5). In the end, then, one is left with the impression that the CEOS review and opinion, although concluding that the USA() could push forward at its own discretion, is a much qualified one. The federal prosecution of Mr. Epstein has been a moving target from the inception. Each time the allegations, the witnesses or the applicable law is subject to a searching inquiry, we have found that the allegations have been misrepresented, the law does not apply to the actual facts here, and the USA() prosecution theory falls apart. Yet, in the face of the voluminous evidence we have submitted in this regard, while acknowledging that the theories are "novel," and that our arguments against federal prosecution are "compelling," CEOS concluded, "Mr. Acosta could rightfully conclude that this federal issue is best resolved by a jury" and that "the USA has a good faith basis to fully develop the facts on this issue and brief the law to permit a court to decide whether the law appropriately reaches such conduct." With all due respect, and recognizing that CEOS may be and apparently was limited in its authority, it should not be the prerogative of the prosecution arm of the United States government to simply roll the dice, and let the court system just sort it out when dealing with the life and liberty of a United States citizen. The Department of Justice should not be so cavalier when labeling someone as a child molester. While it may be within the discretion of the USA() to do so, it is not in accord with the principles of justice. Indeed, as noted, just a few weeks ago, the Supreme Court underscored this point in Santos and Cuellar. The Court made clear that prosecutorial discretion does not provide the USA() cart blanche to expand criminal statutes as they seek to do here with complete disregard for congressional intent. The Court rejected speculation as a basis of determining the scope of a criminal statute; "probability is not a guide which a court, in construing a penal statute, can safely take." Slip op. at 7, quoting United States v. Wiltberger, 5 Wheat. 76,105 (1820). "We interpret ambiguous criminal statutes in favor of defendants, not prosecutors." Slip op. at 12. Based on my experience, I believe that the facts here do not warrant a federal child exploitation prosecution. At its core, this case is quintessentially a state concern as opposed to implicating any federal interest. Indeed, the Florida State Attorney's Office ("SAO"), led by the chief of the Sex Crimes Division, thoroughly investigated this matter, and presented it to the grand jury. The facts, as opposed to the deeply flawed press reports, were carefully assessed by experienced State prosecutors who aggressively enforce State criminal laws. Following an extensive 15-month State investigation, Mr. Epstein was indicted by a State grand jury on a single felony count of solicitation of prostitution. During the investigation, the State prosecutor exhaustively reviewed the evidence, met face- to-face with many of the alleged victims, considered their credibility or lack thereof and ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 7 considered the extent of exculpatory evidence, including a psychosexual evaluation of Mr. Epstein and a polygraph examination demonstrating that Mr. Epstein genuinely believed at the time of the alleged conduct that the State's key witness was over the age of 18. Then, after months of negotiations, the State reached what it believed was an appropriate resolution of the case. Importantly, this resolution was consistent with that of cases involving other defendants who had engaged in similar conduct. Implementation of the State resolution of the case was held in abeyance, however, due to the unexpected commencement of the successive federal criminal investigation. While it is true, as CEOS points out, (CEOS letter at p. 3) that many criminal prosecutions turn on issues of credibility of witnesses, to which many members of the defense team can attest (having had decades of federal criminal litigation experience among us), this does not serve to divest the prosecutor of his her duty to make a searching inquiry of the facts before using the power of prosecution, and the weight of the United States government, to level serious accusations. CEOS likewise acknowledges as much, "the prosecutors are in the best position to assess the witnesses' credibility." (CEOS letter at p. 3). Since the CEOS letter also singles me out as someone who should be familiar with witness issues, I feel compelled to note that, of course, I am well aware that it is not uncommon for witnesses to give conflicting statements. I am also fully aware that the credibility of key government witnesses may be strongly impacted by the 50 million incentive provided via the civil lawsuits at play, and encouraged by the goverrunent here. 3 I have also read many of the conflicts between witness testimony and Detective ReCarey's own rendition of that testimony in his reports and or search warrant affidavit. Detective ReCarey apparently formed a view early on as to the purported criminality of Mr. Epstein's conduct regardless of the mountain of evidence to the contrary. For a prosecutor that has had an opportunity to review the full facts, and to meet with the witnesses, however, "conflicting statements" cross the line to a "lack of credibility" that simply can not sustain a prosecution. That is where an appropriate application of prosecutorial discretion must be brought to bear. Again, CEOS was not itself in the position to exercise such discretion. By its own admission, CEOS did not make a full review of the witness statements here, and CEOS certainly did not sit down across the table and speak to these witnesses. We understand that was apparently not its perceived role. But, CEOS should recognize that at least one prosecutor in this case the Chief of the SAO Sex Crimes Division has done so. Lana Belohlavek not only met with and interviewed these witnesses during the course of the 15-month state investigation prior to any federal involvement, but she again sat across the table from many of them in connection with recent civil 3 It is important to note here that this investigation was launched not upon the complaint of any alleged victim, but, rather, upon the complaint of ather, , and her stepmother, More notable still is the fact that has been convicted of federal bank fraud, an has a state conviction for identify fraud. Hardly pillars of credibili. Yet, the USAO did not supply this information to the defense. Even more telling is the fact that filed a 50million lawsuit purportedly on behalf of his daughter without her authority or knowledge. ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 8 0 depositions in this matter. Ms. Belohlavek, and the SAO, is likewise well familiar with the breadth of the federal investigation, and has integrated that knowledge into the current enhanced state sentencing recommendation. The SAO remains firm in the position that the proposed state resolution is a sound one, and that there was no child exploitation here. Notably, however, not once during the pendency of the federal investigation has the USA() ever reached out to its state prosecutive counterpart that initiated this investigation in the first place to discuss the issues or to thoroughly ferret out the facts or the witness credibility issues. In the eight lines the CEOS letter accords to the topic of witness credibility CEOS asserts, "there are multiple mutually-corroborating witnesses," (CEOS letter at p. 3). However, the CEOS letter does not highlight a single one. In contrast, we have put forth numerous "mutually corroborating" witness statements. Far from supporting a federal prosecution, these statements instead corroborate that 1) the alleged victims lied to Mr. Epstein about their age; 2) there was no use of a facility of interstate commerce by Mr. Epstein; 3) there was no inducement or coercion; 4) there was no commercial enterprise; and 5) there was no illicit sexual conduct. Indeed, Mr. Epstein took several steps to ensure that no minors entered his home, most notably, by affirmatively asking the women whether they were actually 18. See e.g. 'I'r. At 38-39. That fact which many of the potential witnesses have confirmed in sworn interviews strongly indicates that Mr. Epstein specifically intended to preclude anyone under 18 from giving him a massage. That fact is confirmed by, among other things, testimony that "he likes the girls that are between the ages of like 18 and 20 . . . ." Tr. at 12. In fact, the evidence bears out that the majority of the women who came to Mr. Epstein's residence to provide a massage were over 18. Many of the young women who were aged 16 and 17 visited Mr. Epstein's residence only once or twice, and the evidence strongly shows that they lied to Mr. Epstein about their age. Two of these individuals,an, were 14 and 15 at the time they met Mr. Epstein. Given that each has brought a civil lawsuit against Mr. Epstein, with and her family seeking 50 million from Mr. Epstein, their testimony against Mr. Epstein is per se suspect. But, despite their obvious incentive to harm Mr. Epstein, their testimony actually confirms his innocence, for instance, has testified that who introduced her to Mr. Epstein, expressly told her to lie to Mr. Epstein about her age. Q: And told you that if you weren't 18 Epstein wouldn't let you into his house, right? A: That's yes, yes. (deposition) at 32. Q: You didn't want Mr. Epstein to know that you were lying about your age, right? ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 9 A: Correct. Q: You didn't want Mr. Epstein to know that you were not 18 yet, right? A: Correct. (deposition) at 36. In fact, Ms. told Mr. Epstein that she was 18 years old, and confirmed this fact with Palm Beach Police. Id. at 36. Beyond that, Ms. "swore on her mother's grave" that she and Mr. Epstein did not engage in sex of any kind. Tr. (deposition) at 24. She further repeatedly explained that prior to the time she went to Mr. Epstein's house (she went there only once), nobody ever tried to coerce her to engage in sexual activity with Mr. Epstein. Not over the telephone, not over the Internet, not at all. Ir. (deposition) at 31-32. These are not facts upon which a federal case can stand. Ms. s age was also unknown to Mr. Epstein when she went to his home. , who was introduced to Mr. Epstein by Ms testified in her federal sworn interview that Ms. old her to lie to Epstein. aggm- Tr. at 8 ("she just said make sure you're 18 because Jeffrey doesn't want any underage girls") (emphasis added). Ms. testimony strongly suggests that Ms. ied to Mr. Epstein about her own age as well. Ms. also self represented that she worked at a local erotic massage parlor that presumably required a minimum age. The conduct of is likewise illustrative of "mutually corroborating" testimony which supports the fact that this is not an appropriate federal case. In the same way that Ms. was referred to Mr. Epstein and brought to his home without having been introduced or acquainted in any manner, Ms. was referred by someone else, , who also told her to lie to Mr. Epstein about her age, which she did. Tr. at pp. 8-9). CEOS seeks to buttress the USA() prosecution by asserting "it is possible to satisfy that element proof of specific intent as to the age of the alleged victims with proof that the defendant was deliberately ignorant of facts which would suggest that the person was a minor." (CEOS letter at p. 2). Such assertion is counter to the law and to the facts. Reliance on a deliberate ignorance standard as to any of the three statutes in issue requires the factual predicate of an intent not to learn of an incriminating fact. This is the antithesis of the factual context of this case where there is repeated proof that the minors believed that they had to lie because Mr. Epstein had an actual practice of attempting to verify age, and would not let them in his house if they were under the age of 18. See United States v. Kennard, 472 F.3d 851, 857-858 (11th Cir. 2006), quoting, United States v. Puche, 350 F.3d 1137, 1149 (11th Cir. 2003) (An instruction on deliberate ignorance is appropriate only if it is shown among other things . . . that the defendant purposely contrived to avoid learning ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth Rule 19, 2008 Page 10 of all of the facts in order to have a defense in the event of a subsequent prosecution."). Thus, the facts preclude reliance on the concept of deliberate ignorance as a substitute for proof. The fact that the search warrant affidavit in this case is rife with mis-statements and omissions regarding the key element of age is critical. However, CEOS concludes with no apparent supporting analysis, "despite the numerous factual errors you describe, the U.S. Attorney's Office could still plausibly argue that the mistakes whether inadvertent or intentional were not material to the determination . . . ." (CEOS letter at p. 3). Although, as CEOS notes, there are "numerous" such misrepresentations, through affirmative statement or intentional omission, a focus on but one of those misrepresentations highlights that such misrepresentations were, in fact, material. The fact is that Detective ReCarey grossly misrepresented Mr. Epstein's intent as it related to the age of the women he permitted entry to his residence. In the search warrant affidavit, Detective ReCarey affirmed that claimed: Mr. Epstein told her the younger the better. And, stated she once tried to bring a 23 year old female and Epstein stated that the female was too old. What Detective ReCarey, no doubt intentionally, omitted wafurther explanation, which rendered Mr. Epstein's comments innocuous: A: Let me put it this way, he I tried to bring him a woman who was 23 and he didn't really like it. Q: He didn't go for it? A: It's not that he didn't go for it. It's just that he didn't care for it. And he likes the girls that are between the ages of 18 and 20. (Statement at 12) (emphasis added). Had that critical information, information that turns allegedly illegal conduct into more innocent conduct, been included, it would have seriously undermined the probable cause for the search warrant. Similarly, and equally problematic, Detective ReCarey did not include the many statements demonstrating that, when asked by Mr. Epstein, the women affirmatively misrepresented their ages as being 18, and or that Mr. Epstein was not aware of their true ages. Indeed, although Detective ReCarey did note that Ms bid Mr. Epstein that she was 18, he omitted from the affidavit the key point as to why she lied: ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 11 said tell him you're 18 because if you're not, he won't let you in his house. So I said I was 18. As I was giving him a massage, he was like how old are you. And then I was like 18. But I kind of said it really fast because I didn't want to make it sound like I was lying or anything. at 38-39. Thus, consistent with the guidance provided in Franks v. Delaware, 438 U.S. 154 (1978), the search warrant affidavit in this case reveals knowing and reckless falsehoods and omitted material information. This is precisely the type the United States Supreme Court sought to guard against. The age of the alleged victims, and of Mr. Epstein's intent in that regard, is an element of the crimes that must be proven in order to sustain a conviction. In particular, 2422(b) requires that the defendant specifically intended to target a minor. See, e.g., United States v. Murrell, 368 F.3d 1286 (11th Cir. 2004) (" T o prove an attempt the government must first prove that defendant , using the intemet, acted with a specific intent to persuade, induce, entice, or coerce a minor to engage in unlawful sex.") (Emphasis added). Section 2422(b) expressly requires that the crime be committed "knowingly," and that requisite mental element applies as to each element of the crime. United States v. XCitement Video, Inc., 513 U.S. 64, 68-69 (1994); United States v. Meek, 366 F.3d 705, 718 (9th Cir. 2004); United States v. Root, 296 F.3d 1222, 1227 (11th Cir. 2002); United States v. Bailey, 228 F.3d 637, 638-639 (6th Cir. 2000). How, then, could the USA() "plausibly argue" that a misrepresentation about an element of the crime could be viewed as "not material"? If the elements of the alleged crime are not met, there is no probable cause to sustain the search warrant in the first instance. If the elements are not met, there is no federal crime. That is material. Moreover, it is clear from the plaint text of the statute that the statutorily proscribed act pursuant to 18 U.S.C. 2422(b) is the actual use of a facility of interstate commerce to persuade, entice, induce, or coerce. "The underlying criminal conduct Congress expressly proscribed in passing 2422(b) is the persuasion, inducement, enticement, or coercion of the minor rather than the sex act itself. That is, if a person persuaded a minor to engage in sexual conduct (e.g., with himself or a third party) without then committing any sex act himself, he would nevertheless violate 2422(b)." United States v. Murrell, 368 F.3d 1283, 1286 (11th Cir. 2004). See also, United States v. Bailey, 228 F.3d 637, 639 (6th Cir. 2000) ("Congress has made a clear choice to criminalize persuasion and the attempt to persuade, not the performance of the sexual acts themselves."). Thus, if there has been sexual misconduct (which we deny) without the requisite persuasion, there is no violation of this federal law. The investigation and testimony in this case makes clear that Mr. Epstein did not use any facility of interstate commerce to commit any act forbidden by 18 U.S.C. 2422(b) to persuade, induce, entice, coerce nor did he direct any of his assistants to do so. Indeed, by way of example, as clear on this point at her deposition during which she repeatedly testified that nobody not Mr. Epstein or any of his assistants ever used the Internet or phone in any way to try to persuade her to engage in sexual activity with Mr. Epstein. (deposition) at 31-32. Nonetheless, even assuming, arguendo, that persuasion to engage in sexual conduct occurred over ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 12 the telephone (which we deny), it is black letter law that the mens rea must coincide with the actus reus. Thus, the government must prove that Mr. Epstein has the specific intent to target a known minor to engage in prohibited sexual activity at the time of the call. We have seen zero evidence of this. To the extent Mr. Epstein later may have persuaded a particular individual to engage in unlawful sexual activity during a massage, such persuasion occurred face to face, and can not work retroactively to render the earlier phone call an offense under the statute. As to the purported violation of 18 U.S.C. 2423 for allegedly traveling in interstate commerce for the purpose of engaging in illicit sexual activity, CEOS does not deny that Mr. Epstein was returning to one of his residences when he traveled to Florida!' CEOS explicitly stated it "fully understand s our argument" (CEOS letter at p.2) that Mr. Epstein should not be charged under 2423(b) because the dominant purpose for his traveling to Palm Beach was not to engage in illegal sexual activity, but to simply return to one of his residences. Rather, this is apparently another "compelling" point of law which may be left to "a court to decide whether the law properly reaches such conduct." (CEOS letter at p. 2).5 Notably, implicit in this concession by CEOS is that the law has never before been so applied, that is, there is no precedent for a court to extend the statute as the USA() seeks to do here. In fact, the United States Supreme Court prohibited the criminalization of travel under identical circumstances over a half century ago. See Mortenson v. United States, 322 U.S. 369, 374 (1944) (intention to engage in proscribed conduct must "exist before the conclusion of the interstate journey and must be the domMate motive of such interstate movement." (Emphasis added.) Beyond an absence of proof regarding the travel element in connection with 18 U.S.C. 2423, the requisite age requirement for a violation of that statute is important. 18 U.S.C. 2423, by reference to Chapter 109A (18 U.S.C. 2423(0(1)), specifically defines a minor for purposes of that statute as an individual who has not attained the age of 16. If an alleged victim is 16 years of age or older, a violation of this statute pursuant to 2423(f)(1) can only occur if it can be proven that force, threat or drugs were involved. See, 18 U.S.C. 2241 et seq. There are no such allegations here. As a result, in order to find a violation under 18 U.S.C. 2423, the United States would have to prove that Mr. Epstein engaged in one of the sexual acts defined at 18 U.S.C. 2246(2) with an individual under the age of 16, and that he formed the intent and dominant purpose to do so prior to the time he made a return trip to Florida. Again, there is no such evidence here. has specifically testified that 1) she never engaged in sexual activity with Mr. Epstein; 2) she never even met or talked to Mr. Epstein prior to her arrival at his house; and 3) she lied about her age not only to Mr. Epstein, but, in fact, to the world on her MySpace page when she said that she was 18 years old. It is, then, also worth noting in this regard that 18 U.S.C. 2243(c) provides an affirmative defense if proven by a preponderance of the evidence if Mr. Epstein reasonably believed that was 4 In addition to his residence there, Mr. Epstein also has several businesses, and personal matters and contacts to which he attends in Florida. For example, beginning in 2002, Mr. Epstein visited his mother nearly every weekend in Palm Beach until she passed away in April, 2004. 5 As previously set forth herein, and as more fully explained in other submissions related to this case, the recent Supreme Court decisions in Santos and Cuellar make this attempted stretch of the law improper. ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 13 had attained the requisite legal age. Finally, although 18 U.S.C. 2423(f)(2) also defines "illicit sexual conduct" as any commercial sex act with a person under the age of 18, 18 U.S.C. 2423(g) also provides a specific affirmative defense as to that age element if proven by a preponderance of the evidence that Mr. Epstein reasonably believed that the young women had attained the requisite legal age. As we have demonstrated, time and again the women involved lied to Mr. Epstein as to illeir true age, representing that they were, in fact, over the age of 18. Many of them also represented that they worked at local massage parlors, which presumably would have imposed a legal age requirement. Lastly, in contrast to 18 U.S.C. 1591, Mr. Epstein's conduct did not involve trafficking of women or children in the sex industry, and was not part of any phenomenon that, in the aggregate, had an economic impact on interstate or foreign commerce. Additionally, Mr. Epstein did not benefit financially from the alleged conduct. Therefore, as the SAO determined, and still believes, Mr. Epstein was a customer, a "John" for whom prosecutions are best left to the State to address. Indeed, there is no reported precedent extending federal law to a local "John" who does not violate the child exploitation statutes. Indeed, CEOS does not point to a single case where federal prosecutors have used 1591 in a case involving facts like these. Instead, every 1591 prosecution has involved national or international sex trafficking and or for-profit prostitution rings, involving the knowing use of minors and or forcible coercion, or forcible rape, physical abuse or intimidation. These are the elements required by the statute, and they are not met here. Although CEOS could, perhaps, point to United States v. Evans, 476 F.3d 1176 (11th Cir. 2007) as a case that, standing alone, involved wholly intrastate conduct, the facts of that case are far different in key respects than this one. The Evans case involved both the commercial and coercive components that Congress, and administration policy statements intended in 18 U.S.C. 1591 prosecutions. Evans, and his co-conspirators (Madison and Yearby) were not "Johns." They operated a for profit prostitution ring marked by control of, and extreme violence toward, the victims, who they knew were underage. Indeed, Evans forced one such victim, age 14 years old, to continue to work even after she had been hospitalized with ADDS. As part of their business, Evans and his co-conspirators provided the victims with cell phones, hotels, and condoms, and the victims were forced to give all of their money from this prostitution ring to Evans and his co-conspirators. None of this type of activity comes close to the facts regarding Mr. Epstein. Finally, but significantly, the prostitution ring in Evans was not, in fact, entirely intrastate as the companion case of one of the Evans co-defendants makes clear. See, United States v. Madison, 477 F.3d 1312, 1313-1314 (11th Cir. 2007) (Jane Doe 2 stated that she traveled to Atlanta, Georgia with Madison to work as a prostitute). Thus, courts, including the Eleventh Circuit in Evans, have underscored the point that 1591 simply is not intended to cover the kind of alleged conduct at issue here. "Section 1591 does not criminalize all acts of prostitution (a vice traditionally governed by state regulation). Rather, its reach is limited to sex trafficking that involves children or is accomplished by force, fraud, or coercion." United States v. Evans, 476 F.3d at 1179 n. 1; See also United States v. Sims, 171 Fed. ALLEN GUTHRIE MCHUGH THOMAS, PLLC Mr. John Roth June 19, 2008 Page 14 Appx. 849, 2006 WL 14581 at 3 (11th Cir. 2006) (to establish Sims's guilt on the sex trafficking of a minor count, the government had to show that Sims benefited financially from Owen's sexual activity and that Sims knew that (a) force or coercion would be used to cause Owens to engage in a criminal sex act or (b) that Owens was under the age of 18.) (emphasis added). Again, none of these factors is present in this case. The Eleventh Circuit's interpretation of the statute makes perfect sense: were 1591 not limited in this fashion, it would threaten to criminalize a host of localized behavior that has nothing to do with human trafficking, and, thus, is of no valid federal interest. In sum, to accord discretion to the USAO, albeit without benefit of the requested full denovo review, to exercise authority to pursue a prosecution which involves a "novel" application of three federal statutes in the face of numerous "compelling arguments" is not warranted, as it is not supported by the facts, the law, or justice. Echoing the admonition of the Supreme Court in the Berger decision, the Comment to Rule 3.8 of the Rules of Professional Conduct (Special Responsibilities of a Prosecutor), says it best "A prosecutor has the responsibility of a minister of justice and not simply that of an advocate. This responsibility carries with it specific obligations to see that a defendant is accorded procedural justice and that guilt is decided upon the basis of sufficient evidence." This is a responsibility that can not be taken for granted. The government bears the burden of assuring that it possesses sufficient evidence to prove each element of a crime with respect to some specific victim before publicly branding Mr. Epstein a child molester. In this case, however, the USA() has not met its burden for any victim for any of the crimes alleged. It is not enough to simply gloss over the required proof, and rely on the jury or the court to just sort it all out in the end. The stakes are too high. As a result, the USA() should not be permitted to pursue an unfounded federal criminal case against Mr. Epstein under the guise of prosecutorial discretion. Such prosecution in this case necessarily would appear to be selective to Mr. Epstein. To be clear, our request that Mr. Epstein should not be prosecuted federally would not permit him to go completely unpunished, but, rather, would simply place him in the same prosecution position as others similarly situated. Therefore, we continue to believe that after a complete, de novo, and independent review, the only appropriate conclusion will be that this case is best left to the state to resolve. STEPHANIE D. THACKER SDT kdt Enclosures |
TAB 1 First Assistant U.S. Attorney DELIVERY BY FACSIMILE Jay P. Lefkowitz, Esq. Kirkland Ellis LLP Citigroup Center 153 East 53rd Street New York, New York 10022-4675 Re: Jeffrey Epstein U.S. Department of Justice United States Attorney Southern District of Florida 99 PIE. 4 Street Miami, FL 33132 (305) 961-9100 May 19, 2008 Dear Mr. Lefkowitz, I am in receipt of your e-mail dated May 19, 2008 to the United States Attorney. The U.S. Attorney would like me to advise you that all communications and inquiries related to the Epstein matter, will be handled by AUSA Marie Villafana and or her supervisor, Karen Atkinson, so he does not intend to respond to your e-mail or calls unless AUSA Villafana and or her supervisors advise him otherwise. Furthermore, you make reference to "our July 8 deadline." Respectfully, the United States Attorney's Office for the Southern District of Florida ("SDFL") has never agreed to any such deadline. Should you decide to provide the SDFL with any additional information, please do so through AUSA Villafana, and, in her absence, AUSA Atkinson. On September 24, 2007, your client, Jeffrey Epstein, in consultation with Gerald Lefcourt, Esq. and Lilly Ann Sanchez, Esq., as well as numerous other nationally-renowned lawyers, including but not limited to Harvard Law Professor Alan Dershowitz, former Independent Counsel and Solicitor General of the United States Kenneth Starr, just to name a few, entered into a global resolution of state and federal liabilities faced by your client ("the Agreement") with the SDFL. Although you and other members of the defense team have since claimed that the Agreement was the product of adhesion, the following facts demonstrate that Epstein knowingly and voluntarily entered into the Agreement in order to avoid a federal indictment regarding his sexual conduct involving minor victims. Despite the fact that by signing the Agreement, Epstein gave up the right to object to its provisions, the SDFL bent over backwards to exhaustively consider and re-consider your objections. Since these objections have finally been exhausted and Epstein has previously expressed his intent to not comply with several of the terms and conditions of the Agreement as set forth below, the SDFL hereby notifies you that unless he complies with all of the terms and conditions of the Agreement, as modified by the United States Attorney's December 19,2007 letter to Ms. Sanchez by close of business on Monday, June 2, 2008, the SDFL will elect to terminate the Agreement. JAY P. LEFKOWITZ, ESQ. May 19, 2008 PAGE 2 OF 6 Background The Agreement was the product of months of negotiations. Specifically, you requested and received numerous meetings, at the highest levels of the SDFL and DOJ's Child Exploitation and Obscenity Section (CEOS) concerning claims that (a) the investigation merely produced evidence of relatively innocuous sexual conduct with some minors who, unbeknownst to Epstein, misrepresented their ages; (b) the authorities investigating Epstein engaged in misconduct; (c) the contemplated federal statutes have no applicability to this matter; and (d) the federal authorities disregarded the fundamental policy against federal intervention with state criminal proceedings. After careful review, the SDFL ultimatelyrejected those claims. Subsequent to its decision, however, but before proceeding any further, the SDFL provided you with 30 days to appeal the decision to the Assistant Attorney General of the United States, Alice Fisher. As you recall, you chose to forego an appeal to AAG Fisher, and instead pursued a negotiated resolution which, ultimately, resulted in the execution of the Agreement. The Negotiation Phase During negotiations, you tried to avoid a resolution that called for incarceration and registration as a sexual offender both of which would be triggered by a successful federal prosecution. The SDFL believed and continues to believe that should this matter proceed to trial, your client would be convicted of the federal statutes identified in the Agreement. In order to achieve a global resolution, the SDFL indicated a willingness to defer to the State the length of incarceration; however, it remained adamant that Epstein register as a sex offender and that all victims identified during the investigation remain eligible for compensation. In order to achieve this result, the parties considered two alternatives, a plea to federal charges that limited Epstein's sentencing exposure, or, as suggested by you, a plea to state charges encompassing Epstein's conduct. Ultimately, the parties agreed to, inter alio, a plea to the state charges outlined in the Agreement, registration and a method of compensation. The Agreement The crux of the Agreement defers in favor of the State federal prosecution of Epstein for his sexual conduct involving those minor victims identified as of September 24, 2007, in exchange for a guilty plea to a state . offense that requires registration as a sex offender; a sufficient term of imprisonment; and a method of compensation for the victims such that they would be placed in the same position as if Epstein had been convicted of one of the enumerated offenses set forth in Title 18, United States Code, Section 2255. Specifically, the Agreement mandates, inter alia, (1) a guilty plea in Palm Beach County Circuit Court to solicitation of prostitution (Fl. Stat. Section 796.07) and procurement of minors to engage in prostitution (Fl. Stat. Section 796.03) (an offense that requires him to register as a sex offender); (2) a 30-month sentence including 18 months' incarceration in county jail; (3) a methodology to compensate the victims identified by the United States; (4) entry JAY P. LEFKOWITZ, ESQ. May 19, 2008 PAGE 3 OF 6 of the guilty plea and sentence no later than October 26, 2007; and (5) the start of the above- mentioned sentence no later than January 4, 2008. Furthermore, and significantly, Epstein agreed that he had the burden of ensuring compliance of the Agreement with the Palm Beach County State Attorney's Office and the Judge of the 15th Judicial Circuit and "that the failure to do so will be a breach of the agreement" (emphasis added). Post-Execution of the Agreement Within weeks of the execution of the Agreement, you sought to delay the entry of Epstein's guilty plea and sentence. After the SDFL agreed to accommodate your request, counsel for Epstein began taking issue with the methodology of compensation, notification to the victims, and the issues that had been previously considered and rejected during negotiations, i.e., that the conduct does not require registration and the contemplated state and federal statutes have no applicability to the instant matter. A. Delay. The Agreement required that "Epstein shall use his best efforts to enter his guilty plea and be sentenced not later than October 26, 2007. The United States has no objection to Epstein self- reporting to begin serving his sentence not later than January 4, 2008." Agreement, pages 4-5, paragraph 11 (emphasis added). After the Agreement was executed, the SDFL accommodated your request to extend the October 26th plea deadline to November 20th based upon, what seemed to be, reasonable scheduling conflict issues.' By early November, you represented that the presiding state courtjudge would not "stagger the plea and sentencing as contemplated in the Agreement."Although the Agreement clearly did not contemplate a staggered "plea and sentencing," the SDFL again agreed to accommodate Epstein's request to appear in state court for plea and sentencing on January 4, 2008.2 I "Accordingly, I have now confirmed with Mr. Epstein's Florida counsel that the state's attorney's office and the court will be available to have him enter his plea on November 20. So we will plan to proceed on one that date." October 18;2007 email from Jay Lefkowitz to USA R. Alexander Acosta. On the same day, Mr. Lefkowitz confirmed with First Assistant Jeffrey H. Sloman that this postponement " will not affect when Epstein begins serving his sentence." 2 Correspondence from Jay Lefkowitz to FAUSA Sloman dated November 8, 2007 ("the judge has invited the parties to appear for the plea and sentencing on January 41, we do not anticipate any delay beyond that date.") JAY P. LEFKOWITZ, ESQ. May 19, 2008 PAGE 4 OF 6 B. Method of Compensation and Notification. During this same time period, you and others, including the former Solicitor General of the United States Kenneth Starr, took issue with the implementation of the methodology of compensation (hereinafter "the 2255 provision")3 and the SDFL's intention to notify the victims under 18 U.S.C. Section 3771 (you objected to victims being notified of time and place of Epstein' s state court sentencing hearing). In response, the SDFL offered, in my opinion, numerous and various reasonable modifications and accommodations which ultimately resulted in United States Attorney R. Alexander Acosta's December 19, 2007 letter to Lilly Ann Sanchez. In that letter, the United States Attorney tried to eliminate all concerns which, quite frankly, the SDFL was not obligated to address, let alone consider. He proposed the following language regarding the 2255 provision: "Any person, who while a minor, was a victim of a violation of an offense enumerated in Title 18, United States Code, Section 2255, will have the same rights to proceed under Section 2255 as she would have had, if Mr. Epstein been tried federally and convicted of an enumerated offense. For purposes of implementing this paragraph, the United States shall provide Mr. Epstein's attorneys with a list of individuals whom it was prepared to name in an Indictment as victims of an enumerated offense by Mr. Epstein. Any judicial authority interpreting this provision, including any authority determining which evidentiary burdens if any a plaintiff must meet, shall consider that it is the intent of the parties to place these identified victims in the same position as they would have been had Mr. Epstein been convicted at trial. No more; no less." Regarding the issue of notice to the victims, USA Acosta proposed to notify them of the federal resolution as required by law; however, IN will defer to the discretion of the State Attorney regarding whether he wishes to provide victims with notice of the state proceedings, although we will provide him with the information necessary to do so if he wishes." As you know, you rejected these proposals as well. See December 26, 2007 correspondence from Jay Lefkowitz to USA Acosta. 3 Prior to any issues arising concerning the implementation of the 2255 provision, the SDFL unilaterally agreed to assign its responsibility to select the attorney representative for the alleged victims to an independent third-party. This was done to avoid even the appearance of favoritism in the selection of the attorney representative. As a result, on October 29, 2007, the parties executed an Addendum wherein it was mutually agreed that former United States District Court Judge Edward B. Davis would serve as the independent third-party. Judge Davis selected the venerable law firm of Podhurst and Josefsberg to represent the approximately 34 alleged identified victims. JAY P. LEFKOWITZ, ESQ. May 19, 2008 PAGE 5 OF 6 C. "Mr. Epstein Does Not Believe He Is Guilty Of The Federal Charges Enumerated Under Section 2255." At our December 14, 2007 meeting at the U.S. Attorney's Office in Miami, counsel for Epstein announced, inter alia, that it was a "profound injustice" to require Epstein to register as a sex offender and reiterated that no federal crime, especially 18 U.S.C. Section 2422(b), had been committed since the statute is only violated if a telephone or means of interstate commerce is used to do the persuading or inducing. This particular attack on this statute had been previously raised and thoroughly considered and rejected by the SDFL and CEOS prior to the execution of the Agreement. You also argued that the facts were inapplicable to the contemplated state statutes and that Epstein should not have been allowed to have been induced into the Agreement because the facts were not what he understood them to be. It should be noted that the SDFL has never provided you with any evidence supporting its investigation. This is not, and has never been, an Alford plea situation (see North Carolina v. Alford, 400 U.S. 25, 91 S.Ct. 160 (1970)). Ultimately, you requested an independent review. Subsequent to the above-mentioned meeting, the SDFL received three letters from you and or Mr. Starr which expanded on some of the themes announced in the December 14th meeting. Essentially, you portrayed the SDFL as trying to coercea plea to unknown allegations and incoherent theories. On December 17, 2007, you decreed that Epstein's conduct did not meet the requirements of solicitation of minors to engage in prostitution (Fl. Stat. Section 796.03) one of the enumerated crimes Epstein had previously agreed to plead guilty to; that Epstein's conduct does not require registration under Florida law; and the State Attorney's Office does not believe the conduct is registrable. On December 21, 2007, you rejected the USA's proposed resolution of the 2255 provision because you "strongly believe that the provable conduct of Mr. Epstein with respect to these individuals fails to satisfy the requisite elements of either 18 U.S.C. Section s 2422(b) ... or 2423(b)." In your December 26, 2007 correspondence you stated that "we have reiterated in previous submissions that Mr. Epstein does not believe he is guilty of the federal charges enumerated under section 2255" and requiring "Mr. Epstein to in essence admit guilt, though he believes he did not commit the requisite offense." As the SDFL has reiterated time and time again, it does not want, nor does it expect, Epstein to plead guilty to a charge he does not believe he committed. As a result, we obliged your request for an independent de novo review of the investigation and facilitated such a review at the highest levels of the Department of Justice. It is our understanding that that independent review is now complete and a determination has been made that there are no impediments to a federal prosecution by the SDFL. JAY P. LEFKOWITZ, ESQ. May 19, 2008 PAGE 6 OF 6 Conclusion On February 25, 2008, I sent you an e-mail setting forth a timetable for moving forward in the event that CEOS disagreed with your position. That time is now. As you know, my February 25th email stated that I would give you one week to comply with the terms and conditions of the Agreement, as modified by the USA's December 19th letter to Ms. Sanchez. In light of the upcoming Memorial Day weekend, I have decided to extend that timetable to the close of business on Monday, June 2, 2008, which is a full two weeks. R. Alexander Acosta United States Attorney. By: Jeffrey H. Sloman First Assistant United States Attorney cc: R. Alexander Acosta United States Attorney A. Marie VilIafana Assistant U.S. Attorney Karen Atkinson . Assistant U.S. Attorney TAB 2 11 05 2007 11:26 FAX 11 05 07 MON 1005 FAX 305 330 6440 EXECUTIVE OFFICE on 003 I'dj001 U.S. Department of Justice United States Attorney Southern District of Florida UNITED STA.TE,S ATTORNEY'S OFFICE SOUTHERN DISTRICT OF FLORIDA 99 NE 41-TH STREET WAKE, FLORIDA 33132-2111 Jeffrey H. Slo ma n First Assistant U.S. Attorney 305 961 9299 Cynciee Campos Staff Assistant 305 961 9461 305 530-6444 fax FACSIMILE TRANSMISSION COVER SHEET DATE: November 5, 2007 TO: Jay Lefkowitz, Esquire FAX NUMBER: (212) 446 4900 SUBJECT: Jeffrey Epstein NUMBER OF PAGES, INCLUDING THIS PAGE: 3 Message Comments: Inesiniiie contains PRIVFLEGIM 4ND CONFIDENTIAL INPORMA"I'ION intended only for thc LISC of the A ddreswe(s) named Qbove. If you arc not the intended recipient of this caesimile, or the employee or agent respomsible for delivering, it to the intended recipient, you are hereby notified that any clisttcrnination or coping of this faesimile is strictly prohibited nyou ha vc received thiN facsimile Lit eTTOT, please immediately notify wi by telephone and return the onal thesimileto os at the above address via the, U.S. POsial Service, Thank you, 11 05 2007 11:27 FAX 11 05 07 MON 10:05 FAX 305 530 6440 EXECUTIVE OFFICE U.S. Department of Justice DELIVERY.ByFACSIMTI...E Jay P. Lefkowitz, Esq. Kirkland Lk,: Ellis Citigroup Center 153 East 53r.l Street New York, New York 10022-4675 Jeffry Epstei Dear Jay: United States Attorney Southern District of Florida 991V.E. 4th Street Miami, FL 33132-2111 (305) 961-9299 Far:sin:tie: (305) 530-6444 November 5, 2007 a 002 003 411002 Several things have come to my attention that seem contrary to your client intending to abide by his obligations under the Non-Prosecution Agreement. As you know, that agreement requires our Office to inform you of potential breaches to give you and your client the opportunity to respond before an indictment is filed. At this time, I do not believe that the agreement has been breached; however, I have sufficient concerns that need to be addressed. First, I understand that private investigators working for Mr. Epstein have contacted victims to ask them whether any detectives or FBI agents have discussed a financial settlement with them. On one occasion, the private investigators told the parent of a victim that she should get an attorney for her daughter and she should do so right away. These actions are troublesome because the FBI agents legally are required to advise the victims of the resolution or the matter, which includes informing them that, as part of the resolution, that Mr. Epstein has agreed to pay damages in some circumstances. Furthermore, Mr. Epstein well knows that we are in the process of selecting an attorney to represent the victims and, but for the inordinate amount of time spent negotiating the Addendum, that attorney would already have been selected. Paragraph 7 of the Non-Prosecution Agreement explicitly provides that contact with the victims shall be through that counsel. Accordingly, please confirm that there will be no further efforts to contact any victims until Judge Davis selects the attorney representative and that, thereafter, contact will be made only through that counsel. Second, the Non-Prosecution Agreement requires Mr. Epstein to use his best efforts to enter his guilty plea and to be sentenced not later than October 26, 2007. Despite this obligation, the Office agreed that Mr. Epstein could postpone this deadline to November, but reiterated that Mr. 11 05 2007 11:27 FAX 11 05 07 MON 10:00 FAX 305 530 6440 EXECUTIVE OFFICE el 003 003 VI nos JAY P. IxpKowrinz, ESQ. Nov2mt:IER 5, 2007 PACE 2 OF 2 Epstein had to begin his term of incarceration not later than January 4, 2008. I have learned that the November hearing has been removed from the calendar and the next case disposition conference has not been set until January 7, 2008. This delay is unacceptable, and, pursuant to your obligations, the Office requests that you confer with the State Attorney's Office to try to find a date in November when the judge is available to conduct a simultaneous plea and sentencing, if you cannot find such a date, please provide documentation of your efforts to abide by the terms of the Non-Prosecution Agreement. Third, there have been several press reports that Mr. Epstein no longer intends to enter a guilty plea. Normally I would not pay any attention to such reports, but your recent correspondence attempting to restrict our office from communicating with the State .Attorney's Office and the allusion to the imposition of sentences that clearly fall outside the terms of the Non-Prosecution Agreernent raises concern. Please confirm that Mr. Epstein intends to abide by his agreement to plead guilty to the specified charges and to make a binding recommendation that the Court impose a sentence of 18 months of continuous confinement in the county jail. Finally, the Non-Prosecution Agreement requires that you provide the Office with copies of all proposed agreements with the State Attorney's Office before Mr. Epstein signs any such agreements. To date, no such agreements have been received. Please provide me with copies of any and all agreements with the State Attorney's Office for our review. The Office also would like to have someone present at the change ofplea and sentencing to monitorMr, Epstein's compliance with the terms of the Non-Prosecution Agreement, so please keep me informed of the date, time, and location of the hearing. Please provide me with a written response, adopted by Mr. Epstein, addressing these concerns and reiterating Mr. Epstein's intention to comply with the tenns of the Non-Prosecution Agreement by November 8, 2007. By: CO: R. Alexander Acosta, U.S. Attorney AUSA A. Marie Villafalia Jeffrey S ornan R. Alexander Acosta United States A omey First Assistant linited States Attorney TAB 3 TOLL RECORDS OF SARAH KELLEN'S CALLS MR. EPSTEIN DID NOT KNOW WHO WOULD BE COMING TO GIVE HIM A MASSAGE. (561) 635- Wednesday, April 27, 2005 9:02AM 3454 (561) 801- Wednesday, April 27, 2005 9:03AM 3590 (561) 714- Wednesday, April 27, 2005 12:14PM 0546 (561) 714- Wednesday, April 27, 2005 12:15PM 0546 (561) 309- Wednesday, April 27, 2005 3:16PM 0079 (561) 309- Wednesday, April 27, 2005 3:20PM 0079 (561) 644- Thursday, May 05, 2005 3:28PM 3713 (561) 644- Thursday, May 05, 2005 8:43PM 3713 (561) 644- Thursday, May 05, 2005 8:48PM 3713 (561) 644- Thursday, May 05, 2005 9:13PM 3713 (561) 644- Thursday, May 05, 2005 10:03PM 3713 (561) 389- Friday, May 06, 2005 8:30AM 6874 (561) 644- Friday, May 06, 2005 8:59AM 3713 (561) 714- Friday, May 06, 2005 9:33AM 0546 (561) 389- Friday, May 06, 2005 9:34AM 6874 (561) 309- Friday, May 06, 2005 9:35AM 0079 (561) 644- Friday, May 06, 2005 10:58AM 3713 (561) 644- Friday, May 06, 2005 5:35PM 3713 (561) 644- Friday, May 06, 2005 7:50PM 3713 (561) 644- Saturday, May 07, 2005 11:03AM 3713 (561) 389- Saturday, May 07, 2005 11:04AM 6874 (561) 262- Sunday, May 08, 2005 11:39AM 6186 (561) 684- Sunday, May 08, 2005 12:28PM 6642 (561) 262- Sunday, May 08, 2005 3:20PM 6186 (561) 262- Sunday, May 08, 2005 3:21PM 6186 1 Mr. Rofrano is Mr. Epstein's chiropractor. MR. EPSTEIN DID NOT TARGET ANY ONE PARTICULAR INDIVIDUAL, NOR DID HE TARGET MINORS. ALL OF THE CALLS BELOW WERE MADE TO WOMEN OVER THE AGE OF 18. (561) 389- Saturday, July 02, 2005 9:50AM 6874 cell (561) 635- Saturday, July 02, 2005 11:33AM 3454 cell (561) 856- Saturday, July 02, 2005 11:54AM 2974 cell (561) 635- Saturday, July 02, 2005 12:03PM 3454 cell (561) 324- Saturday, July 02, 2005 1:49PM 7996 cell (561) 324- Saturday, July 02, 2005 3:21 PM 7996 cell (561) 635- Saturday, July 02, 2005 3:22PM 3454 cell (561) 324- Saturday, July 02, 2005 3:58PM 7996 cell (561) 262- Saturday, July 02, 2005 4:10PM 6186 cell (561) 635- Saturday, July 02, 2005 4:11 PM 3454 cell (561) 302- Saturday, July 02, 2005 6:20PM 1844 cell (561) 389- Saturday, July 02, 2005 9:25PM 6874 cell (561) 324- Sunday, July 03, 2005 1:14PM 7996 cell (561) 574- Sunday, July 03, 2005 1:44PM 0142 cell (561) 262- Sunday, July 03, 2005 9:57PM 6186 cell (561) 714- Sunday, September 18, 2005 9:58AM 0546 cell (561) 324- Sunday, September 18, 2005 9:59AM 7996 cell (561) 635- Sunday, September 18, 2005 9:59AM 3454 cell (561) 801- Sunday, September 18, 2005 10:02AM 3590 cell (561) 662- Sunday, September 18, 2005 10:04AM 3098 cell (561) 302- Sunday, September 18, 2005 10:44AM 1844 cell (561) 389- Sunday, September 18, 2005 1:10PM 6874 cell (561) 389- Sunday, September 18, 2005 4:10PM 6874 cell (561) 324- Sunday, September 18, 2005 5:17PM 7996 cell (561) 714- Sunday, September 18, 2005 9:36PM 0546 cell (561) 714- Sunday, September 18, 2005 9:45PM 0546 cell TAB 4 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21 22 23 1 MP: Detective Michele Pagan 2 3 KB: Kathy Back 4 5 MP: I D. 8059, reference case number 05-368. The time now, by my watch, is approximately 6 minutes past 2pm on 3 15 05. (Inaudible) High Ridge Family Center, Sable Palm School. UNK: Just High Ridge Family Center. MP: Okay, the High Ridge Family Center. Present also is. could you state your name please? MP: Spell your name please? MP: And your date of birth? MP: And you are? CB: Cathy Back, Family Therapist. MP: Could you spell your name please? KB: K-A-T-H-Y B-A-C-K. MP: And you're her family therapist? Am I correct? KB: Yes. MP: Okay. l'm here today and I have stated briefly why I'm here is in reference to an incident that happened to a friend of yours, or a girl you know Page 1 of 43 05118 2 3 I'm not sure if she's friend of yours or not, by the name of . Do you know what I'm talking about? Yes. 11 MP: Okay. I hear your voice got very low all of a sudden so if you don't mind.. 5 Oh, okay. 6 MP: I'll even hold it. Okay. Can you tell me how you know 7 She's my ex-boyfriend's cousin. 8 MP: And what's your ex-boyfriend's name? 9 Zack 10 MP: Is that his last name? 11 Yes. 12 MP: What school does he go to? 13 (inaudible) Summit Christian School. 14 MP: And you said he's your ex-boyfriend. How long ago was that? 15 I don't know. Like two months, two months and a half ago. 16 MP: How long did you go out with him? 17 Three weeks...? 18 MP: Not long? And' You met her through Zack? 19 Yeah, I met her when I went to dinner at his grandmother's house. 20 MP: Okay. And do you know M's last name? 21 No. I don't. 22 MP: Do you know where she lives? 23 Yes. She lives on streets away from me. Page 2 of 43 05119 MP: Okay. 2 (inaudible) 3 MP: Okay. And tell me now what happened with 4 Okay, well, the third time of hanging out with cause I was a cousin, well, And we were over there watching a movie and this guy called or actually it 6 was a woman but it was for a guy. -AM!igf.4: Ni;t4tRi.i6g:ij. 7 8 9 10 11 12 13 14 15 16 17 18 19 Ofiii.00. Mad' WM .............................. .................... d0.46.a. f.!.4.0.0i0111(...601i1 0.'"1.111b0040? "ig4f.erafer"" r wherever he lives, And a V. rIgh Tairitt 01 kho 11010Itti.:iiii 601. .. to this uy's diA so that; g00.P. at Pal on t know 611.661:06ii! . 4.6 like rtg and nd wasJke no :y 004.a, Ultdijdt tab.: . . . iggt.04i0 oitig.6. b togiidibw tth And then we went, I don't know what day it was cause she picked me up. I'm pretty sure it was a Saturday or a Sunday. So she picked me up and we get in the car and she (inaudible) and then we left and we were still driving and then we went to his house and we were 20 waiting in the kitchen and the old man came and he's like, hello, Fm.. .1 don't 21 even know, I think it's Jeff. I'm Jeff and then we, I'm like I'm And then 2.2 she urn went upstairs and I guess gave him money and we went back downstairs 23 we weren't there, we were only there for like 30 minutes and then we left and Page 3 of 43 05120 1 then she went to go to Marshall's to go get some, a skirt and a purse but she didn't get the skirt. She only ended up getting the purse and that was like a 3 black purse. 4 MP: That's all that happened? 5 Um hm. 6 MP: Well, I'm hearing a lot more happened. 7 Like what, I know, like what went around the school? 8 MP: Like what went around the school. Tell me what happened at school. 9 In school, everybody was saying that I got paid 300 with the, for the old man. 10 That old guy. Cause he's... .oh, first of all, is that I got fingered by the old man, 11 then it was I had sex with the old man and then it was I'm just a prostitute and I 12 got paid 300. 13 MP: Who was spreading these rumors around? 14 Um, my, this girl, she used to be my friend but I guess.... 15 MP: Where would she get .... 16 From Zack because I broke up with him. Well, that's what I think. I think when I 17 broke up with him, he got very mad and told the girl cause this girl, she hated me 18 because I went out him and she likes him. 19 MP: Which girl was this? 20 21 NIP: Liked Zack? 22 Yeah. 23 MP:...went out with him so she started spreading these rumors? Page 4 of 43 05121 1 Cause I went out to the fair and she was supposed to go with him but, guess, 2 he didn't like her and then we started talking and she got mad because !was 3 talking to him. 4 MP: What does...can you tell me more aboutM 5 I don't really know that much. All I know is that she, the only thing I know about 6 he: is that her boyfriend, but then they broke up, like, she met him at a party. 7 That's the only thing I know and that she has brown hair and like, I don't really 8 know about her. I went to her house (naudible) 9 MP: Are you telling me?...and I want you to know something, okay? 10 Um hm. 11 MP: Regardless of what has happened, okay? I'm being very honest. You're not in 12 trouble for anything. 13 I know. 14 MP: Whether you did something with this man or not. 15 Hmm.... 16 MP: Whether you did something with this man. What I'm trying to do is fird out if this 17 type of thing is going on and you're not the only one and I don't think you are the 18 only one. 19 I don't think so either cause the other kid Anthony (inaudible) he knows too 20 and I, cause he's telling me, he's like where do you knoMand then I was 21 like she's my boyfriend's cousin. Oh that girl's bad and I'm like okay, too bad. 22 MP: Did you do anything with this man? 23 No, we went upstairs and just got money and I don't know... Page 5 of 43 05122 1 And there's like little circle chairs, that you can sit on. 0 MP: Stools. Stools. And we were just sitting there waiting cause he wasn't there yet. Then 4 he came inside after we were standing there about 5 minutes. Cause like, there 5 was a gate and a bodyguard guy. When we opened the gate and knocked on 6 the door, security, some guy, like a bodyguard kind of, type of guy. Same guy 7 walked up and he's like, excuse me, what are you here for and we're here to see 8 Jeff. And then he was okay, well come inside. Jeff'll be here in like 5 minutes. 9 And then we waited and he was like you can help yourself to a drink. And then 10 he left and then like 2 minutes after the guy left, Jeff and a lady walked in and 11 they introduced themselves and we're like, hi, my name is and then she's 12 like :inaudible) and then there's like a walk in door thing, that you walk in 13 like a cabinet thing, not a cabinet but the island thing (inaudible) and then the 14 door would be right there. 15 MP: Okay. 16 Yeah, (inaudible) 17 MP: So they walked away out of your sight? 18 Urn hm. Well there was another girl there. I was never by myself. I don't 19 remember the girl's name but she's s friend. 20 MP: Okay. 21 She was 22 MP: What doesM, do you have an idea of what, why this woman, this assistant, 23 would ask if had anybody with her? Page 7 of 43 05123 2 3 4 5 6 8 9 10 11 12 13 14 15 16 17 18 19 20 21 I don't know but what you call, the lady, she really like (inaudible) I don't know what's wrong. I mean when she walked in, she was like kind of like, I don't know, but she was just like, urn, she couldn't say anything about her, she was just first name and that's it and then she was just like right to the point. She didn't try to be friendly, you know. MP: What do you mean she didn't try to be friendly? She wasn't like hi, I'm like, you know (inaudible) she was just like hi, I'm and I don't remember her name but she said she was from I remember that. And your friend, or s friend stayed in the car? No, she was with us. When we walked in, and she sat, she was just there, she didn't do anything, she was with me. We were just right at the table, like we were silting having a conversation for like two seconds. Then came back downstairs and then she's like thanks Jeff and then I'm like bye Jeff and then the other girl was like bye and then we left. MP: Okay, did tell you what was going on upstairs? MP: MP: MP: 22 MP: 23 No. She just, I didn't ask because like was to go shopping. That's what (inaudible). Did she give you any money? Urn hm. How much money? 300. What did you do with the 300? I didn't spend it. And then I went to school and then my principal, cause I got Page 8 of 43 , the only reason I know the money 05124 I into a fight with a girl, for saying that. Because she said that I was, had 2 done all that with the old man to get that money and that's not true. That's why I 3 got really angry and then we (inaudible) before that and then when I went to the 4 office to (inaudible) the principal but actually she didn't say anything at first and 5 then she was like, told her side of the story, can I see your purse and I 6 was like go ahead and (inaudible) and I'm like yes and then my dad, my dad and 7 the principal and my step-mom, they were all like urn, why did you do that with an 8 old man and who is the old man. I'll kill him, blah, blah, blah. And then I was 9 like I didn't do anything! I didn't do anything! And they didn't believe me. And I 10 kind of got mad at and then the whole thing, that's when I moved back to my 11 mom's house because my dad thought I was a prostitute. And it was really.... 12 MP: You know that just because something may have happened, that doesn't make 13 you a prostitute. 14 I know. 15 MP: Do you? 16 Yes. 17 MR Okay. Do you want something to drink? 18 No. 19 MP: Are you sure? 20 Yeah, 21 MR You know, I've been doing this for a long time and I'm not saying you're not 22 telling me the truth, I think you're not telling me the whole truth about what 23 happened. Okay? Matter of fact, I know you're not. And I know you might be a Page 9 of 43 05125 1 little afraid looking on it.... 2 Okay, I... (inaudible) because they already came to my dad's house and they did 3 something to my dad's tires and my dad almost died. 4 MP: Okay. Give me your hand. I'm here to help you. Look at me. 5 I don't want him to get hurt because he already almost killed him. 6 MP: I'm here to help you. 7 KB: Honey, I'm gonna get you some water. Okay? 8 Okay. 9 MP: I'm here to help you, okay? I'm being honest, okay? I'm going to be very up 10 front but I need you to be up front with me, okay? 11 Okay. 12 MP: The only way I can help you is if you're honest with me, a hundred percent 13 honest with me. 14 Okay. 15 MP: Your counselor's not here. Tell me what happened. Now be honest about it. 16 Okay. When I got there, that Jeff guy and the lady were there and then the lady 17 wanted me to come upstairs and she's like, she's talking to me and then she was 18 putting out a table like for a massage. And then urn, and then when and then 19 she like put the covers on the table and they like, it comes to like (inaudible) 20 whatever and she's like, oh Jeff will be up in a second. And then the Jeff guy got 21 there, she was like, she was like, take off your clothes and I didn't know what to 22 do because I was the only one up there and so I just took off my shirt and I was 23 in a bra and then he came in and had a towel over him and he was like no, take Page 0 of 43 05126 1 2 3 off everything. So I just took off my pants and I was in my bra and underwear and he was like now you're gonna give me a massage. Then he went on the table and he's like here, the lady that was putting down the table, got out three 4 lotions and put them on the table and then he picked up out which lotion. He 5 was like, give me a massage with this lotion and then I was giving him a 6 massage and he said you can get on my back. So he was on the table and I 7 was straddling him on his back and giving him a massage and then he was 8 turning around and then he whacked offend then he's like oh you have a really 9 hot body and then I was like, that's disgusting, but I didn't say that and then he's 10 like oh, excuse me for a second and he, I guess he went into the other room and 11 he whacked off again and then he came back and said to me like, I'm done. And 12 then he's like, here's your money and then I was going downstairs and he acted 13 all nice and stuff, he's like bye, nice to meet you, hope you can come back again 14 and theM's like how did it go, what did you do. And I'm like, I'm like, he 15 made me give him a massage, and she's like, t know. And then we went 16 to Marshall's and she got a purse and stuff cause she got paid too but I, she 17 didn't do anything, I don't think because she was downstairs the whole time while 18 she knew I was up there. 19 MP: When she asked you to go with her... 20 Urn hm.... 21 MP:...did you know...here's your water. 22 Thank you. KB: (inaudible) Page 11 of 43 05121 1 Okay. Bye. 2 (Inaudible) 3 KB: Urn, you know what (Inaudible), I'm gonna down to the dorm. She knows how to 4 find me 5 MP: Okay. You feel better without her here? 6 Yeah, because I'm embarrassed cause it's really gross and she.... 7 MP: It is. 8 ...rnight tell my morn. 9 MP: That's why I'm here. Okay? 10 And I don't want my parents to find out. 11 MP: Weil. 12 Because I told them it wasn't true. 13 MP: Your parents love you. Okay? And their main thing is for you to be healthy, 14 Okay? Not only physically but up here. And they know that right now your have 15 a lot of issues and I think this is one of them. Because like you said, you thought 16 it was gross. Right? 17 Cause he's like 45 years old. 18 MP: That's okay. Let's backtrack a bit. When you went with tell me the part 19 where ii was the truth. Okay? You were with Zack and said let's go? 20 Yeah. Okay, we were watching, I don't remember the movie, but I know we were 21 watching a movie and then we were gonna go and take a ride. Cause me and 22 Zack were gonna get dropped off at the bowling alley so (inaudible) she 93 was saying about her boyfriend and got a phone call and then she was Page 12 of 43 05128 1 talking to that lady and the lady was like, was actually saying I'm 2 corning, I'm coming, and was like, can I bring somebody? And then 3 was like, the lady was like what does she look like and she started describing me 4 and then Zack turned around and said to who are you talking to. And then 5 went like that and she was talking to the lady and like just describing me, 6 what I was wearing that night and then the lady was like okay, well Jeff is gonna 7 want to talk to you and was like, that's fine. And then she got off the phone and then Zack said, I was like too, why are you describing me, who are 9 you talking to. And she was like , do you want to go with me tomorrow, I'm 10 gonna go pick up some money from my boss's house. And then she's like 11 cause I get paid tomorrow and then I said okay. And Zack's like no because 12 guess Zack knew what she did because Zack said no and he got really mad at 13 me and said no, you're not going, you're not going with her. And then I was like. 14 and she's like, you know, but you just have to come with me and I was like cause 15 the old man's gonna give us both money so we can go shopping. Cause that's 16 like my boss and he's really nice. And I was like okay. And then Zack didn't say 17 anything the rest of the night about it, he was just like really (inaudible) out there 18 and mad. Not really mad but he was just like frustrated that I guess, 19 would soy that. 20 MP: And you didn't know what was really going on. 21 I didn't know it was gonna, that I had to give him a massage and get naked. 22 MP: What did you think was going to happen? 23 That, like she just said, I don't know but I knew something was wrong, nobody's Page 13 of 43 05129 1 just gonna pay you money but I didn't think that I,I thought that was just 2 business whatever do, just gonna go over there. And she told me that it 3 was a rich guy and she was saying oh my God, he's so rich, blah, biah, blah. 4 And he has like a new Mercedes and all this stuff and she's like explaining him. 5 And then, what's it called...so actually we didn't, we left but we didn't end up 6 going to the bowling alley. Her boyfriend went to his house really fast to go get 7 something from his house and then he (inaudible) brought his car back to 8 Fs house and we were just sitting there watching the movie but she was 9 like, are you sure you're going to go with me and I was like okay, I'll go 10 with you. I'm like last time, I'm like, what are we gonna do we were going 11 to go shopping and we were discussing what we were going to buy with our 12 money, cause she told me how much money I was gonna get, 300. And I was 13 cool, I know what I'm gonna buy. We're just like saying what we were gonna buy 11 with the money. She said I need to go buy a purse and then the next day, 15 actually I gave her my phone number that night so she could call, so she could 16 pick me up. And when I went in the house that morning, she called me, she 17 are you still gonna come with me and I'm like yeah. So she's like okay, 18 get ready. I'm gonna be there in like 30 minutes and then she came to the 19 house in like 30 minutes. And she had a friend with her. 20 MP: Do you remember the name of he friend? 21 I don't know her name but she was like really dark, kind of like a Spanish girl. 1 22 don't (inaudible)... 23 MP: Darker than me? Page 14 of 43 05130 1 Um hm. 2 MP: Okay. 3 And she had like short hair and she had like a styled hair, like a cute little style. I 4 don't remember her name. I talked to her but i didn't remember her name cause 5 (inaudible) right after I got in the car. And then all the way there, we were just 6 listening to music and singing and stuff and like just laughing and stuff. And she 7 told me the girl about her boyfriend and stuff (inaudible). 8 MP: So you're driving. So picks you up. Do you remember what day it was? 9 No but I know it was a Sunday because I told my dad, Dad can 1 please go on 10 Sunday with Haley to go shopping and my dad goes where are you guys going 11 shopping because he didn't know and he said no at first and I was like 12 Dad, that's , you know Zack's cousin and then my dad says okay but I have 13 to meet her. So then called me afterward and then she's like I'm gonna 14 need 10 for gas and she was like can your dad give me 10? And then I was 15 like sure but I didn't ask my dad, I just (inaudible) 10. And then my dad was, 16 okay and my dad called me, he's like (inaudible) I'm not gonna be able to give 17 you money. So then I was really mad but then I didn't tell but my dad 18 ended up (inaudib'e) (inaudible) when was pulling up, my dad ended up 19 pulling up so and my dad saw each other. And was like, oh my 20 God, your dad is so hot. And then I said yeah, right. Started laughing about it. 21 And then my dad gave Haley 10 for the gas. 22 MP: So you got in the car. What kind of car did she drive? 23 A truck. Page 15 of 43 05131 I MP: What color? 2 I don't remember but I think it was a bluish color. I think so. 3 MP: So she drove. 4 Yeah, she drove. 5 MP: She drove? 6 Yeah and I was in the passenger seat and there was like a whole bunch of junk 7 back behind her and I was sitting next to it, like (inaudible) or stuff for school. 8 And was there... .like but I don't know but it took a pretty long time to get there. 9 And you know where, like, the rich people are, what is that street? Where the 10 Kravis Center is but further than that. Like towards the beach more. That way. 11 MP: Yeah, towards the beach. 12 Yeah. That way. And that's where, yeah, that's like where he lives but when she 13 pulled into, I know for a fact it's a pink house, I remember the pink house and 14 then he had an Escalade in his driveway and then a Mercedes in his garage. I remember that much. 16 MP: Okay. Do you remember... so you took the Kravis way or did you.... 17 I don't remember where we... 18 MP: You don't remember which way... 19 I just remember the building. 20 MP: It was near the ocean? 21 Yeah. I know... .cause one day when I was with my friend , that's 22 exactly where we went, like around that area, not the CityPlace area but you 23 know, it kind of looks like that area. Like where the Kravis Center was and I Page 16 of 43 05132 remember... that's how I remember. 2 MP: Do you remember seeing the beach and the ocean? 3 No but we went over that bridge where the ocean was and then the bridge went 4 over. 5 MP: Okay. So you definitely went over the bridge 6 Yeah. Went over a bridge. And it was up and we had wait for it to go down. So 7 we were there for like 5 minutes. 8 MP: That was time you were witIM 9 Yes. 10 MP: Okay. And then the house, you said, you described it as pink? 11 It was like a, it was a two story house and then it was like a pinkish color, pinkish 12 pink color. 13 MP: Were there gates or something in front? 14 Well, it wasn't a gate but, the back door had a gate to it and it was a white gate 15 and just like she knew that you had to open it and it wasn't locked so we just opened it and there were three, two or three steps and you just walk up and 17 then he had a pool and it had, like the floor, the floor was like a hard something, 18 it wasn't concrete, it was squares of like concrete, but they were like... 19 MP: Like tile, you mean? 20 It was like a coral concrete, you know like.. And then the pool was there and the I house was there, I guess it was like a security house because a man that was 22 with the security came out and he was like what are you guys here for, cause 23 you're knocking on the door and then said we're here to see Jeff and Page 17 of 43 05133 1 then... 2 MP: What did that man say? 3 He was like oh, okay and she's like, she smiles and then he let her in (inaudible) 4 but he opened the door and then we went in and then (inaudible) and the 5 counter, here's the door when you walk in and there's a (inaudible) refrigerator 6 and then the window, a glass sliding window looks out at the pool. 7 MP: Okay. 8 And then like the cabinet, I mean not the cabinet, the island, was like here and 9 then there's like a cabinet over there and the door was right here. 10 MP: Okay, just for the tape purposes, the way that you described it, okay? Is you 11 walk in and on the left hand side? 12 Um hrri. 13 MR Cause you motioned right now, who's there? 14 (ina udibie) 15 MP: And then when you walked in, on the left hand side, what did you see? 16 Like if I was getting out of the doorway? 17 MP: Um hm. 18 Okay. Well, there's a door. If you looked straight, it would be straight from you 19 but a little towards the right. 20 MP: Okay. And... 21 It wasn't a door, door. It was just a doorway (inaudible) 22 MP: Okay. 23 No, wait, maybe it, I don't know, cause it was open, but there could have been Page 18 of 43 05134 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 door, but it was open so I didn't really pay attention. Buz I know it was a doorway going up. MP: Okay. So now you're in that kitchen area Right? Um hm. MP: The three of you? Yes. MP: Where did you park the car? In his little driveway area. MP: So you're in the kitchen area. What happens next? We were waiting there. We were talking, just about how cool the house was. I'm like oh my gosh, I've never been in a house like this. And then the lady and the man came in, Jeff. I'm pretty sure., .like 90 positive. And he walked in, he was like in a t-shirt and pants, not pants but you know, like maybe like kind of dressy. 0.14:611612b. :k:ncswl a. eh w. eIa::hi tor: :m bar ............ .......... ".". fifii!;4613. heslke now t MP: Um hm. 19 20 21 22 23 Do you know what I mean? :reineltri ut he knew wh : i i MAiikCtfi4.001 .Ah and then he's like okay, well, then follow my, I don't remember the lady's name but she's, he said follow her (the name) upstairs. So she's like, come on and then we walked upstairs and I thought...... Page 19 of 43 05135 I MP: By yourself? 2 Yes. but I thought that cause she said she was gonna get paid, so I 3 thought and the girl was gonna get paid in like, you know, like private, 4 privacy and cause it was just him and her and the other girl in the kitchen. And 5 so I went upstairs and as I was walking upstairs, there was a picture of him in like 6 a different country and then I'm like that's really cool and the lady said isn't it and 7 she was just walking upstairs and there was like a door and then, it was like to a 8 little (inaudible) this big and it had a couch and a couch and it was like another 9 walkway towards that way. And then walked towards, like keep walking forward 10 and then to my right and there was a bedroom and then we turned right again 11 and there was a big bathroom, a big.. it was humongous. And the bathroom. It 12 wasn't like a bathroom, bathroom, it was like a sitting area with a shower there. 13 Humongous shower. Like a jillion people could be in that shower. And then it 14 was humongous. And there was like a door here and you opened it and there 15 was like a little desk with paper and pads and stuff. And I don't know (inaudible) 16 like sitting on the couch right here, like against my... there's big long couch. And 17 it was pink and green. Hot pink and green. And there. 18 MP: The roorn or the sofa? 19 The sofa. 20 MP: Okay. 21 And there's a table with a phone on it. And urn, during when I was giving him a 22 massage, he made a phone call but I don't remember whether he just said, like 23 he said four words and then hung up. Yeah, I don't remember. And he made a Page 20 of 43 05136 1 MP: 3y yourself? 2 Yes, but I thought that cause she said she was gonna get paid, so I 3 thought and the girt was gonna get paid in like, you know, like private, 4 privacy and cause it was just him and her and the other girl in the kitchen. And 5 so I went upstairs and as I was walking upstairs, there was a picture of him in like 6 a different country and then I'm like that's really cool and the lady said isn't it and 7 she was just walking upstairs and there was like a door and then, it was like to a 8 little (inaudible) this big and it had a couch and a couch and it was like another 9 walkway towards that way. And then walked towards, like keep walking forward 10 and then to my right and there was a bedroom and then we turned right again 11 and there was a big bathroom, a big...it was humongous. And the bathroom. It 12 wasn't like a bathroom, bathroom, it was like a sitting area with a shower there. 13 Hurnongous shower. Like a jillion people could be in that shower. And then it 14 was humongous. And there was like a door here and you opened it and there 15 was like a little desk with paper and pads and stuff. And I don't know (inaudible) 16 like sitting on the couch right here, like against my... there's big long couch. And 17 it was pink and green. Hot pink and green. And there 18 MR The room or the sofa? 19 The sofa 20 MR Okay. 21 And there's a table with a phone on it. And urn, during when I was giving him a 22 massage, he made a phone call but I don't remember whether he just said, like 23 he said four words and then hung up. Yeah, I don't remember. And he made a Page 20 of 43 05137 1 phone call and then he put the table back where it was (inaudible). And then.... 2 MP: But the lady...so you're upstairs and you're sitting down and the lady's there. 3 What is she doing? 4 Oh, she's, well, there's a closet right here, with a table in it. Like the massage table... 6 MP: Near the sofas? 7 Yes. Like a door on each side and urn, towards the door, there's a door for the 8 table. She took that out and there's like a safe and then like she put it in the 9 middle. It's this way, like long ways. And then she put like put the cloth over it 10 but she's looking around the room, I guess just to look, like she was 11 remembering something, I guess, like where the lotion was. And there are 12 pictures of like, naked girls on the wall and there was like, there was like one big 13 mural of naked girls' like, butts. And then, towards the door, there was like a 14 cabinet here, like a built in thing, like a (inaudible) and urn, there's drawers in it 15 and she opened the last drawer and there was a whole bunch of lotions, like 16 millions and millions of kinds of lotions. And she picked out three kinds of lotions 17 ard put them on like an armoire kind of thing with a mirror. And she set it there. 18 And then after, she told me, sit here for 5 minutes. Like, just sit there. And 19 eventually he came in and he was like, hi I'm Jeff and I'm like hi, l'rn And 20 he's like, I'll be right back, you can take off your clothes. And then he left. And 21 there's a bedroom out there and he just went out there and I don't know but 22 there's like, pictures out there, I think, I don't remember, he took off his clothes 23 and put a towel over himself. But I don't know if there was a towel thing back Page 21 of 43 05138 there cause it's like, I don't remember... 2 MP: Did he undress in front of you? 3 No, he didn't. But he took off his towel in front of me. 4 MP: Okay. So he came back in.... 5 Yeah, he came back into the room and he was.... 6 MP: Were you dressed? 7 I was in a bra and he said no, I meant get naked. And then I was, I went like that 8 and he was you can keep your bra and underwear on and but get down to your 9 bra and underwear so I took off my pants. Cause he was real stern about it, like 10 Take Off Your Pants. And then I just took off my pants and then he laid down on 11 the table but like, after he was laying on the table, he took off the towel just 12 enough, you know, like you could see.... 13 MP: Did you see him naked? 14 Yes I did. And it was disgusting. 15 MP: I don't mean to... I know maybe it's disgusting but can you describe him? Did he 16 have any marks, tattoos, was he hairy? 17 Yes, he was really very hairy on his chest and on his back and towards.. okay I 18 don't mean to sound gross but.... 19 MP: No, say it the way you would if you were speaking to one of your best friends. 20 Okay. 21 MP: (inaudible) 22 Okay. He was laying on his belly side so his butt was like, up. And there was 23 like, he had a very hairy back all the way to here and then there was just like a Page 22 of 43 05139 hairy butt line going down to his butt. 2 MP: Okay. 3 So gross. Okay, and then. (inaudible) 4 MP: Did you see the front of him? 5 Yeah. Cause when he got off the table, he like turned this way so everything 6 showed towards me and then he got off and then he went and whacked off and 7 then he came back in. But he was very hairy on his chest area and I just looked 8 for like one second and it was very, very disgusting. Okay. That's all I have to 9 say about that. 10 MP: Do you know what it means....and I have to ask only because there are some 11 people that don't.....to be circumcised? 12 No. I don't, I don't really know... but I think he was on steroids because he was a 13 built guy and his weinie was very tiny. 14 MP: His wee wee was very tiny. 15 Yes. 16 MP: And when you mean wee wee, you mean what? 17 His penis. 18 MP: Yes, his penis. Okay. 19 Yes, his penis. 20 MP: People calf it different things. Alright. I just wanted to make sure we know. 21 Okay. He laid down, he took off his towel and he laid down. 22 He laid down on the 23 MP: Did he take his towel completely off or just open it so... Page 23 of 43 05140 I No, completely off. 2 MP: Okay. Where did he put the towel? On the floor. Right like, the table underneath. 4 MR Okay. So he laid down, took the towel off. What happened next? 5 And then he's like, get the lotion. So I grabbed the lotion. Which, I had to walk 6 almost naked, but I was in like a thong so yeah, my butt was showing and he, the 7 table is like, I mean the sink was, you know, the lotions were right there and I 8 was over here and he was like go get the lotions just so I could walk past him 9 with my butt showing to go get the lotions. So I got the lotions and he's like, he's 10 like this lotion and then I took that lotion and he's like squirt it on your hands and 11 then massage clockwise on my back cause I didn't know how to do it? and then 12 he's like telling me where he would like the massage, here and here, the right to 13 the left, down more, up more. So I was just massaging and he turned and 14 started having a conversation, oh what happened to and I'm like, .15 (inaudible) my ex-boyfriend (inaudible) what's your boyfriend's name. Zack. And 16 he was kind of questioning me and then he said what, he's like, could you stop? 17 1 need to go. And i just stopped and I'm like okay. And he got off the table. He 18 put the towel over him. He bent down and got the towel and then he left the 19 room and you could hear him, like, you know, you could obviously tell what he 20 was doing, just like.... 21 MP: I don't ..... I won't look at you but do what he was doing, what you heard. I know 22 it's kind of embarrassing but.... 93 He was making like sex noises. You know, like..... I don't.. They were very Page 24 of 43 05141 I strange noises. That's all I can say. 2 MP: Okay. 3 I don't know how to describe them, they were very strange. 4 MP: Can you imitate them? 5 I don't I don't want to make a fool out of myself. 6 MP: You won't. You're not making a fool. You know, it might say it's sex noises. He 7 may say I was singing. 8 Okay. He was like.... 9 MP: I won't look at you, go ahead. 10 He was like 0000hhhh, 000hhh. 11 MP: Okay, okay, he's making groaning noises. 12 Yes, groaning noises, that's it. Okay. That was really embarrassing. It really 13 was. He was making those kinds of noises and then he walked back into the 14 room, took off his towel again and laid back on the thing and then he wanted the 15 same kind of massage but he was like oh use your (inaudible) a little bit more. 16 MP: You were massaging his back? 17 Yeah. And then he, he's like, could you, turn over for a second.. (inaudible) 18 (inaudible) go back out of the room. He turned over and he said okay, please 19 massage my boobs. And then I was massaging his boobs and he's like. he's 20 like, oh, like as I was doing it, as I was massaging, he was making the same 21 noises again like, oh my God, it's so embarrassing to do this. He was like.... 29 MP: I won't look. 23 Ho was going like 000hhh, making those noises. And like 5 minutes after that, Page 25 of 43 05142 1 and then he turned back around and he just started touching himself and I think the massage was like a half an hour but cause I don't know, the time I think was 3 a half an hour to 45 minutes and then I was done. And then he, I think he has 4 like a safe somewhere because around us he didn't have his wallet or something 5 because right when we got out the door, he left to go put the towel on again and 6 he put the towel on again and went out of the room and he goes you can put 7 your clothes back on. So I put my clothes back on and he walked right out there, 8 like two seconds and then came back like within two seconds. And he's like 9 here's your money. And then he gave me 300 in hundred dollar bills and they 10 were like brand new because they only had like one crease in them and that's 11 when they're folded in half. And he said thank you for your time. And then he 12 left. And he said you can see your way out and I was just walking and I got lost 13 cause there's so many different rooms and I got lost and I walked back 14 downstairs and was like just smiling and giggling, like, I guess it was what 15 the lady was saying and then she looked at me and she looked back at the lady 16 and then she's like, the lady's like oh, bye cause it was time to go cause I 17 guess because I was done. And then, then we left the same way we came in 18 and then s like oh my gosh, Mgoes how did you like it. Like how much 19 did he give you, how much did he pay you. And I'm like 300. And I was kind of 20 like 300, Cause the girl was like this. She was looking at me really weird. 21 The other girl that was with her. She's like really quiet though. And then she just 22 looked at me really weird and she's like trying to gaze into my eyeballs. And 23 then we went in the car and when we got in the car, s like, let me see what Page 26 of 43 05143 1 he gave you. And then I showed her my 300 and she's like, we're going to 2 Marshalls. And then, give me back my money and I put it in my back pocket. 3 And then she was trying to get me to describe what happened so told her what 4 happened. And she's like, you could do this every Saturday. He's is like so rich 6 And I was just kind of like, yeah, we could. And then, she put back on the music. 6 And then, when we were leaving, the lady was walking outside and I (inaudible) 7 one of the cars really fast but she was just going to the passenger seat and she 8 opened the door and then closed it. 9 MP: What did s friend say? Did she say anything about it? 10 She was just like interested in what happened, like when we were talking, we're like into the conversation and then she was kind of like giggling and laughing, 12 like, I think, I wouldn't say, I mean, I don't know if (inaudible) or not but she 13 wasn't acting surprised, you know, like giggling. She was -just of like giggling and 14 laughing along with And tnen goes urn, and then when I was giving 15 the guy the massage, he goes, I know she's been working with me for a 16 long time and then when I came back downstairs, goes, you only paid me 17 200. So.... 18 MP: He liked you better. 19 I don't know. 20 MR Well, after you left, where did you go? 21 Marshalls or to TJ Maxx, one of those two. TJ Maxx or Marshalls. And she 22 bought a black purse. 23 MR Okay. Did you see after that again? Page 27 of 43 05144 1 Urn, I don't think so because that's when I got grounded. And then that's when I got in trouble with the fight. So after that, I'm pretty sure I didn't. Most likely. 3 MP: Did you ever speak to her again? 4 No, because I got my cell phone taken away. 5 MP: Okay. So you haven't see since the day you went to Jeff's house. 6 Correct. 7 MP: Are you sure? 8 Yeah. I'm 100 percent sure. 9 MR How do you know she....now tell me what happened with your dad 10 Okay. Because my dad, I didn't know about until my sister told me when she 11 came here. But my sister, on a Thursday, was coming here. And wait, 12 Wednesday night, my dad said that he heard the dog barking and my dog is inside. So he's barking and he's outside, like barking towards outside and then 14 my dad is like shut up cause he forgets the dog's name and the dog wouldn't be 15 quiet. So he's like, I'm taking the dog outside. And then my dad took the dog 16 outside and the dog was way in towards my dad's truck, like my dad thought he 17 was attacking the animals but my dad, a person, a boy, don't know for a fact 18 but I know in my heart its Zack. Because Zack got really mad over the whole 19 situation. 20 MR Did you tell Zack what happened? 21 Yeah. And that's when, he punched a wall and he like my face was right there 22 and he punched the wall, like my face was right there and he punched the wall 23 right next to my face. And he started getting all upset and crying and calling Page 28 of 43 05145 I how could you do this? Blah, blah, blah. And then 's like, okay, I 2 won't do it again. And like she just kind of like hung up and he was like I hate 3 her, I hate her and then I hate you too. And I was like okay and we broke up and 4 then I think (inaudible) on the computer and I think he told what 5 happened and she turned it into an extraordinary, like story so at school so 6 would look like, you know, like I'm the bad person, like I'm a slut, I'm a whore or 7 something and she's going around school saying all this stuff and then so my 8 parents came, cause that's when I got mad at her and told her to stop talking but 9 she wouldn't stop talking about it. So I just got in a fight with her, like a fist fight 10 at school. And I got suspended and so did she but she only got suspended for 11 one day because I started the fight So I got in trouble more. And my dad got 12 really mad and he grounded me for it, because he found the 300 in my wallet 13 and then my dad was like, you're grounded, you're grounded forever and he's all 14 freaking out, how could you do this, blah, blah. The school said you did. And 15 urn, I didn't tell the school how, I told them I got it from my job, cause I worked at 15 Chick Filet but I quit. So I said I (inaudible) but nobody believed me so I was just 17 like believe what you want. Cause I didn't want to tell the principal or my 18 parents. 19 MP: Well, I think that the best thing that you're doing is that you're being honest. 20 Okay? 21 Umhm. 22 MP: You already know that they have a pretty good idea what happened. Okay? 93 I didn't even know there was like an investigation. Page 29 of 43 05146 I MP: Well, that's.... 2 I just knew. 3 MP: Well, this is why. What's happening is that I was made aware of this situation... 4 From my school? 5 MP: I'm not gonna say, okay? I was made aware of this situation. And they look at it 6 like you were taken advantage of. Not that you did anything wrong, okay? Even 7 though you went there willingly. Even though you went there willingly, you were 8 still taken advantage of. Okay? Because you were put into a position that you 9 felt you had no choice. Once you were there, before when you were telling me 10 about how Jeff told you to take off your clothes? You took your pointer and you 11 said he was really stern and you banged your leg, you put the pointer on your leg 12 when you said that. How did you feel when he told you to take your clothes off? 13 I don't know. I didn't know what else to do because I was the only person up 14 there and he's like 45 years old and he has like big muscles, because, I don't 15 know, but I'm pretty sure 45 years old and big muscles, body builder. 16 MP: Okay. 17 So I just felt intimidated because he's guy, first of all, and I'm a girl and I know 18 that was all the way downstairs with the lady and what was ligoing to 19 do to help me all the way upstairs so I just did it. 20 MP: Okay. Now, there's one way I'm a little confused at because you said that, and 21 I'm using your words okay, that he whacked off twice. You said before that he 22 whacked off twice. When did he do that? 23 In between giving him a massage, like when I was giving him a massage, he was Page 30 of 43 05147 got, he was like, excuse me for a minute and he just left the room. 2 MP: Okay, so that's once. When was the other time? 3 Like during the thing, like when I was massaging his boobs. MP: When you..okay, when you were massaging his boobs, was his back flat on the 5 table? How was he positioned? 6 Well, he was at first and then when he started to whack off, he got like, his back 7 went off the table, kind of like leaning... 8 MP: Okay, where were you standing? 9 I was standing up. I was not on him. I was standing up (inaudible) and I was 10 like....he was towards, okay, he was on the table. I'm right here and he's leaning 11 that way. 1') MP: Okay. 13 ..like (inaudible) cause I guess, I don't know, but.. and he was like, my face, it 14 got hard to see what was going on because of how low I was and he just kind of 15 moved his head the other way and he was like, wants.... 16 MP: Okay, but just now, when you're saying that, you moved your hand. Did you see 17 him whacking off? 13 Yes. I saw him whacking off. 19 MP: Okay. That's what I need to know. Cause you said he whacked off twice. 20 Urn hm. 21 MP: So he whacked off in front of you? 22 Um hm. 23 MP: And you saw his hand doing or you saw his eyes, what was going on? Page 31 of 43 0514E3 I Okay. I saw his face, facial expressions and noises. 2 MP: Okay. What else did you see? 3 I just saw him... 4 MP: You keep moving your hand so...in other words, he took his hand and what was 5 he doing with his hand? 6 I don't know how to explain it. He was just whacking off. 7 MR Okay, describe.. don't.... 8 Okay, sorry, he put his hand on his penis and he put it up and down and he was 9 like making facial noises, I mean facial expressions and making noises. 10 MP: So you saw him doing that, he did that in front of you? 11 Yes. 12 MR Do you know what it means when someone ejaculates? 13 It means they're horny? 14 MR No, what it means is that once they, while they're whacking off and I'm using 15 your words, okay. Another word for that is masturbating. Okay? 16 Yes. 17 MP: Do you know what it means to masturbate? A boy does it? 18 I don't know why they do it or I know why they do it but I don't know what it 19 does... 20 MP: Okay. 21 To them. 22 MP: In other words, fluid comes out of their.... 23 Oh, okay. Page 32 of 43 05149 1 MP: Okay? I'm just being very... I'm gonna tell you because I think.... 2 I know that part. 3 MP: Okay. So fluid comes out and that's ejaculating And it's called semen. So 4 while he was whacking off, okay, did you see any fluid come out? 5 It was, yes, because he had to take the towel and wipe his thing before he got off 6 the table again to go get the 300. 7 MP: Okay. 8 He took the towel and like... And then, okay, like he took the towel to wipe 9 himself and then like as he was getting off and then this way instead of this way, 10 this way, like that. 11 MP: Okay. Since you've seen his penis, was there anything distinctive about it? Like 12 did he have a mole on it? 13 No, it was very small. 14 MP: Very small, that's fine. Did you notice.. you said he was very hairy on his chest. 15 Did he have any tattoos? 16 Uh uh, not that I saw. 17 MP: Did he have any scars? 18 No, but he had freckles somewhere because he was huge. 19 MP: You're pointing at the chest area. 20 Yeah, some freckles. 21 MP: Like a mole or a freckle? 22 A freckle. 23 MP: Okay. Can you tell me what he looks like? Page 33 of 43 05150 1 He had like not white hair but it was, not white but it, you know, it was kind of like, 2 like me. It was like.... I don't know. MP: He was going gray. 4 Yes. He was going gray. And he had... 5 MP: What color hair did he have before? Blonde, brown? 6 No. 7 MP: You were describing Jeff to me, with the freckle and he was going gray and what else? 9 Urn, like he, like his skin color is like, when I saw him, when you have a sunburn, 10 but its like when you have it a couple of days and its turning into a tan. It was It like a reddish tannish color. And he had like a long face and that's about all I 12 can remember and he had a white t shirt when he first came in. 13 MP: Okay. 14 I don't really remember... 15 MP: Did he have any king of like jewelry on his body that you noticed? 16 I didn't, I don't remember 17 MP: Okay. Do you remember what color eyes he had? 18 Nope. 19 MP: Did he have any facial hair, like a mustache? Or a goatee or anything? 20 Hmm....No but his eyebrows were really thick and they were bushy, like 21 everywhere. 22 23 M4.6056jrA her Page 34 of 43 05151 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 YVer: f'040 Yes, .63;v30.0.011.03, MP: Okay. You said that you straddled him. Um hm. MP: What do you mean by that? When..he was on his stomach and I was giving him a massage, like I was, you know where, like, on...on, like the butt? And then like, I was sitting on his butt but a tittle bit above his butt And 1, it was, I was butt naked and he was butt naked and.... MP: Okay. ...my butt was, my butt cheeks were on the top of his butt and the real little of his back. 9p.gp4 MP: Okay. Now, did he ask you to get on top of him? Um hm. MP: Or did you do that on your own? No, he's like. .because at first, I was giving him a massage like you know, standing up. And he, then he's like it would be feel more comfortable if you got on my back. Could you please do that. ...and then I did that. Like, I did, urn, like. Page 35 of 43 05152 1 2 3 4 5 6 I wasn't, at first I didn't want to sit on his hairy you know, butt. So it was kind of like, you know, like, pushing my legs on the table so like I could kind of sit up and he was like could you please just put all...like sit on me, put all your body weight on me. And then I went, I was just kind of like kind of think I did when I was actually sitting on him, I didn't realize what it was and then like, I got grossed out and as I'm going down, kind of like popped up again. Cause it was gross. 7 MP: Okay. He never tried to touch you? 8 Besides like, you know, well, what do you mean by touching, like sexually 9 touching me? 10 MP: No, did he try to touch you or... 11 He put his hand on my back when he was whacking off or masturbating. Like, 12 he was just like.... 1 3 MP: You keep, like motioning, like smacking. 14 No,... 15 MP: What do you.... 16 Like, when you're leaning on something, putting your force on it? He was going 17 like that, fike...pulling, not, you know, like. 13 MP: Can you shovv me what you me.an? 19 Okay. He was 20 MP: Let's say I'm on my back. Where would you be, l'm Jeff, where would you be 21 standing? 22 I'm right here. I was like, I was like sitting right here. 23 MP: Okay. Page 36 of 43 05153 1 Okay and when he backed up. MP: Which way, this way? 3 Yeah 4 MP: Okay, I'm going to my left. 5 All the way around til your back's on the table. 6 MP: Okay. I'm facing you. 7 And then you're, your face is a little bit that way... 8 MP: My right. Okay. 9 And (inaudible) towards, like on his knees, kind of.... 10 MP: Okay, I'm hunched over a little bit. 1'1 And I'm over here. And I'm still giving you a massage and everything but this 12 hand is around me and (inaudible) 13 MP: Okay. My left hand would bc...so is my left hand around your shoulders? 14 No, under my arm while I'm going like that... 15 MP: Okay. So I'm holding you like around by the waist. 16 Urn hm. And that hand was on his... 17 MP: His right hand. 18 Yes. 19 MP: Okay. It just gives me a better picture of trying to understand, that's why. 20 Um hm. 21 MP: And I appreciate you doing that. I don't mean to make you feel uncomfortable 22 Do you feel uncomfortable? 23 No. Page 37 of 43 05154 MP: 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Okay. After everything was done, okay, did he watch you get dressed? No. Cause i was getting dressed while he was out there getting the 300. guess that's what he was doing. That's the only thing he came back in with. He was still in a towel and stuff. MP: In the room, at all, do you think...and I don't know if there is or not, but do you think there is anything in there that may have recorded what you did'? Oh my gosh.... MR A video camera... Oh my gosh. I didn't think about that. There was lots of places there could have been one because there's pictures, that could have been, I don't know.... MP: When he walked out... the reason why I ask is because he walked out once and then came back in, right? Yes. MP: So it could be just so he could whack off. I was just curious. I don't know if there is or not. If there was, I did not know about it. MP: Okay. So you get dressed, you go downstairs. Where is that woman again? 18 Downstairs talking to and the other girl. 19 MP: Okay. 20 They were having a conversation. 21 22 23 anY .05 41NO 0.. !: o you or does h OU 'wore?' id:asttftfa 1-0)041:410iixoy Page 38 of 43 05155 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 use :5e 6tifikMidt4tii0v.go So said he wss 18 As k O'CrO;StilitliNftEkffi0;40 04:fj Oi Wi(6:4006.0hiitibi MP: So what other things did he ask you? Urn, how I know what school I went to. 65 40i1AK01: 00:::1 .. gr 0.6061). MP: Did you tell him what school you went to? Yeah but I told him Wellington. I didn't tell him Royal Palm. 16,911 rac because laid him Was 8 so I had to. tgi!YO-Pia MP: Okay. What else did you talk about? 20 Urn, that's about it. And he was kind of asking me like how I knew , is 21 nice to me and then he told me how he knevMand he was like, I was 22 kind of like, how do you know Cause I brought up the conversation. He 23 said well I know Haley because she's been working for me for a long time. And Page 39 of 43 05156 I then like, I kind of, you kind of get the picture, working for you and hello, I'm 2 sitting there giving him a back massage. So I kind of figured it out. 3 MR He never said that, he just... 4 Yes.. 5 MP: ...said that she worked for him. 6 Yeah but don't...on our way back home, that, like, doesn't make any sense if she 7 didn't do that because why would be doing (inaudible) for almost the same 8 amount of money as me. 9 MP: Right. Well, why couldn't he pay her that day? 10 I don't know, because that's a good question. Cause she didn't, as far as I know, 11 but I don't know but I'm pretty sure she didn't tell me. she didn't think. She was 12 just downstairs having a conversation. And I think that when I went up to the 13 lady, he paid her because like, you know, so because, he paid her while I went 14 upstairs and when I went downstairs, she was still talking to the lady still and she 15 goes, when we were in the kitchen waiting, the old man to come to the house 16 still, she said, oh the chef is so hot, he works here and she was like, and she's 17 like he's so hot, you know, saying his face and then the other girl (inaudible) 18 because when we saw the chef come in, he was old, too. He was like... 19 MP: So likes older guys. 20 Must like it. 21 MP: Okay. So you left and that was the last time you see him. 22 Yes and that's the last time I went.... 23 MP: Has Jeff ever tried to call you? Page 40 of 43 05157 1 Nope. And... 2 MP: Did you leave a phone number? 3 Yeah. Actually I did. Cause when I was leaving, he goes urn, please leave your 4 phone number so can keep in touch with you because she doesn't have 5 your phone number. So I didn't, I just gave him my cell phone number. I didn't 6 give him my house number, I gave him my cell phone number. 7 MP: And how long ago was this? 8 Oh my gosh, I couldn't tell you the date but....it was about maybe, oh my gosh, a 9 month and a half ago. I don't really know.. 10 MP: In February? 11 12 MP: Because we're in March right now. 13 Either the very beginning of February or the end of January. I couldn't tell you... 14 MP: How tong after did you get into that fight with 15 Urn, like a week, cause... 16 MP: You got into a fight with on the 9. 17 Okay, so yes, it was about a week after... .or before. 18 MP: Okay. And who else besides Zack dic you tell what happened? 19 That's it. 20 MP: Besides of course. 21 Zack and 22 MP: Do you think has brought anybody else that you know of? 23 No, but she wanted me to bring my sister but that same day was going to her Page 41 of 43 05158 1 boyfriend's house. 2 MP: Okay. 3 And, when I was in that guy's room, there was a like, where the drawers of lotion 4 were, there's like a shelf of pictures and he had so many pictures of girls about 16, 17, around that age, 17 or 18. And they were like on the walls and most 6 of....all the girls were topless or just plain naked And they were in positions or 7 they were just standing up. 8 MP: Okay. Looking at pictures. 10 MP: Okay. Well, I have to ask you. Do you know the difference between....and 11 you're a grown woman, so I'm asking you. You're pretty mature for your age. 12 Okay? Do you know the difference between right and wrong? 13 Yes. 14 MP: Do you know the difference between the truth and a lie? 15 yes. 16 MP: Can you tell me what a lie would be? 17 Urn, not saying the truth. 18 MP: Okay. So if I tell you you are wearing a blue sweater right now..... 19 I could tell you you're lying, 20 MP: Why? 21 Because I'm wearing a pink one. 22 MP: You got it. Is everything you've tod me the truth? 23 Yes. Page 42 oi 43 05159 1 MP: Are you lying about anything? 2 No. I'll swear on the bible. 3 MP: Okay. Swearing to God, that's good enough for me. 4 I swear to God. 5 MP: Okay. Is there anything else you'd like to talk to me about? 6 No, because that's about....nothing else about the whole thing. 7 P.M WtIktoot,have any kind of sec with hm 8 9 TO opfog::::sexml. Stirrle me' 10 OW'W ViijO me Y mee 11 12 13 14 15 16 I 7 nO Atrgytime:: (Az MP: At any time, did he touch you At no 1ime... MP: Besides putting his hands... Besides that, no times did he touch me. MP: And just so I can be sure, you saw him whacking off once. Yes, I saw him. MP: Okay. And as far as you think..... I think, I know, well, I couldn't say know, but it's the same noises were being made when he was (inaudible). 2' MP: And that's it. I thank you very much. This will conclude the interview. The time 23 now by my watch is approximately 3:05. Page 43 of 43 05160 TAB 5 sor Associates Ropciritog 'gad TroinalaipOiow, No. Page 1 THE STATE OF FLORIDA, COUNTY OF PALM BEACH. IN RE: JEFFREY EPSTEIN. SWORN STATEMENT OF Friday, March 21, 2008 12:05 p.m. - 12:15 p.m. 250 Australian Avenue South Suite 1400 West Palm Beach, Florida 33401 Reported By: Judith F. Consor, FPR Notary Public, State of Florida Consor Associates Reporting and Transcription West Palm Beach Office Phone - 561.682.0905 greid ft.:SA.114a Ivac41 st.a.koRaWn sor Associates Rslox wed Thtnaciripdoll, Page 2 APPEARANCES: 2 3 On behalf of the Defendant: JACK A. GOLDBERGER, ESQ. 4 ATTERBURY, GOLDBERGER WEISS, P.A. 250 AUSTRALIAN AVENUE SOUTH 5 SUITE 1400 WEST PALM BEACH, FLORIDA 33401 6 561.659.8300 7 ALSO PRESENT LILLY ANN SANCHEZ, ESQ. 8 FOWLER WHITE, ATTORNEYS AT LAW 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or St A5sociates RePurthrig mulTransedpiteg, 1 2 Page Statement taken before Judith F. Consor, Court Reporter and Notary Public in and for the State of 3 Florida at Large, in the above cause. 4 5 Thereupon, 6 7 having been first duly sworn or affirmed, was examined 8 and stated as follows: 9 10 THE WITNESS: Yes, ma'am. BY MR. GOLDBERGER: 11 Q. Jennifer, my name is Jack Goldberger and 12 I'm here with Lilly Sanchez. And we are two lawyers that 13 represent Jeffrey Epstein in some matters that are being 14 investigated here in Palm Beach County. 15 We've asked you to come in here today, and 16 we really appreciate that you came in here voluntarily. 17 You've just been sworn to tell the truth, 18 and really all that means is that we're going to take a 19 statement from you. And it's obvious that we just want 20 you to tell us what you know. 21 A. Uh huh. 22 Q. We don't want you to tell us anything that 23 is incorrect or a lie in any way. We simply want the 24 25 truth here. And we're going to do this very, very quickly. Okay? sor Associates Rworlin Auld Tarrivaiptivq.b. 1 2 3 4 6 Page 4 A. Uh-huh. Q. If you don't understand in what's called lawyerese sometimes. And if you don't understand what I'm saying, just say, "Jack, what are you talking about?" And we'll get it straight for you. Okay? 7 A. Uh-huh. 8 Q. A. Will you tell me what your full name is. 10 Q. Okay. And your birthday, 11 A. 12 Q. Okay. Now where do you live right now? 13 A. 14 Q. Is that here in West Palm Beach? 15 A. 16 Q. How long have you lived there at that 17 address? 18 A. 19 Q. And you live there with your son? 20 A. Yes. And my parents. 21 Q. Okay. You've never been in court before 22 for anything, have you? 23 A. Traffic. . 24 Q. Your own traffic? 25 A. Nothing, nothing serious. sor 82. sociates RwrgndThirmripsiival, 1114, Page 1 2 3 Q. Just your own traffic matters? A. Yes. Q. Have you ever had to have an attorney 4 represent you for anything? 5 6 Q. Good for you. 7 Okay I want to talk Lo 8 you know by the name of Jeffrey Epstein. 9 A. 10 Q. 11 12 Q. owitaft J66'gd '6WY ' ' 13 14 15 16 17 18 19 Q. And what had told you about 20 Mr. Epstein? 21 A. She told me that he was having girls such 22 as 23 names, were setting up girls to bring them over and give 24 him massages, and it was going to be strictly massages, 25 no physical contact other than that, and that I would be A. In A. No. you about a man that Uh-huh. You know Jeffrey, do you not? I met him once. 0:110g Q. Okay. And now before you went to Jeffrey Epstein's house, had you ever heard of him before? A. Yes, had told me about him, and , and others that I don't know their sor Asso iate5 Paniorting eaa Tramnririto, top, Page 6 1 getting paid 2 3 4 think she said a hundred dollars for a half-hour or something, two hundred; either a hundred or two hundred. I can't remember. It was a long time ago. Q. Sure. 6 A. But it was only going to be for a half-hour 7 and that was it. 8 0 ORIO 94 WORM840 00n4311440VOU 9 Ztectqo 10 - - 11 ONAV. hat 2 6 21 22 3 YPW0 Arg1.4 k :: 000dek404alkbOr idegtandV: stein 16ri Yaigiid46. Over there? d any kind . 4 OkaY. You never s 0 gggg 4 ,d6fttWt ere? one wotke ...................... to m eve ii tantiae ii sor Associates Reporke lava Trworaiptioz, 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 8 1 1 0:44A1,0AtAii0444,F smamaKmezzageswan 3 440: 4 5 6 7 Q. olcaY hone CantaCt, I'M Including text Y other kind of contact th Way YOU So thexe. wa, no contact at all? Okay. Now, I think you just what answered 8 the question, but let me just ask I told you I wouldn't do; I'm going to ask it to you in legalese. Before going over to Mr. Epstein's house, did anyone try to persuade you to engage in that kind of sexual activity or sex with Mr. Epstein? A. No. Q. Okay. A. When had one that had drove me over there Q. Right. A. told me that would be the one driving me said that if else, that it was up to me, I could say yes or no. She said, "He may ask you to do other things." Q. But no one was asking you before you A. No one was telling me that I had to do 3 anything. She was just stating that it was a possibility 2 5or 8,1A55ociates Rsportiag ixad traum-iption, 1 he may ask me to do other things. 2 Page 9 Q. Most importantly though, before you went 3 over there, no one tried to persuade you to engage in any 4 kind of sex? 5 A. No, no one persuaded me. 6 Q. No one was inducing you or enticing you to 7 do any kind of sex? 8 A. No. 9 Q. Okay. And certainly no one that had any 10 association with Mr. Epstein tried to persuade you or 11 induce you to engage in any kind of sex? 12 A. NO. 13 Q. Okay. As far as what said to you, 14 she said he may ask you whether you want to do anything 15 and it was totally within your rights to decide? 16 A. Totally within my rights to do whatever 17 wanted to do. 18 Q. And I assume she told you that if anything 19 was asked of you, whether you wanted to do anything else, 20 I assume told you that Mr. Epstein would 21 absolutely respect that. In other words, if you were 22 asked to do anything and you said no, he would say, 23 "Fine. I understand." 24 A. Yeah. Because he told me in the room if 25 didn't want to etdaskcisosax. T no and he said that was fine. 2 Q. Okay. 3 A. That's what I was understanding. Q. Okay. But that conversation only took place after you got to his house, right? A. Yeah, right. Q. Okay. And going back to, to , she 8 never communicated to you, with you by e-mail or text messaging about any engaging in any kind of sexual 10 activity? 11 A. No. It was just that day that I had 12 decided that I was going to go over there that had 13 took me over to 's house and then had drove 14 me there and and followed. 15 Q. Okay. I know the answer to this is 16 obvious, because you only went there to Mr. Epstein's 17 house one time, but I've got to ask you this. You never 18 traveled anywhere with Mr. Epstein, did you? 19 A. No. 20 Q. You never left the state to meet with 21 Mr. Epstein, did you? 22 A. No. Heard other girls did. 23 Q. Okay. Ms. Sanchez just reminded me of a 24 question I forgot to ask. 25 You never spoke to on the sor 81 Associates litnporxin and Thall014492i. TIM Page ll 1 telephone at any time, did you? 2 A. No. 3 Q. Thank you. 4 So I think what I'm hearing you tell me is 5 that your going over there was entirely voluntary; it was 6 consensual on your part? 7 A. It was consensual on my part, yes. Q. No one told you that you had to dress in 9 any particular way? 10 11 12 13 A. No. I was wearing jeans and a tee shirt. Q. Kind of like today, right? A. Exactly. Q. Now, you were told that you didn't have to 14 take your clothes off, right? 15 A. Yeah. She was 16 up to me. They said that it was just going to be a 17 massage. They didn't tell me anything further than that. 18 They said if he did ask me, it was entirely up to me. 19 Q. Right. 20 A. And that was that. 21 Q. Right. And you were told you could say no 22 to anything if anything was asked? 23 A. Yes. 24 Q. And that was clearly the atmosphere that 25 existed when you went to the house? atIreeilard411A-NalSOIS04.1 40.13 ,drkracaliM.YAioftWah.ekapkU.SA.42.4.,f...5.0, ..1 5or Associates R.oputibg and Trearoxiptiva, w. Anything that was done was totally your Now you never you were with Mr. Epstein, you never told him at any time that you were uncomfortable with him in any way, did you? You weren't afraid to say no to him about Nothing. Or anybody. Did he ever touch any of your private parts MR. GOLDBERGER: Let's go off the record (Discussion held off the record.) MR. GOLDBERGER: Back on the record. Egliiimanscidatetia1 .360 0.13.1.6aldsvagrAW 041.4.464......acomee nsor Associates ReportinandThairsui. 'pfto,Irtzt !Ag la tbilW4Ogr kOW . .... 140.4614P,,, Page 13 Ckx his chest and his 3 Q. Okay. Now while you were with Epstein, did 4 he touch his penis at all? 5 A. No, he did not. 6 Q. Did he masturbate in front of you? 7 A. No. 8 Q. And you didn't touch his penis, I assume? 9 A. No. 10 Q. You didn't help him masturbate? 11 A. No. 12 Q. And certainly 13 A. Sorry. He was too old. 14 Q. I hear you. And I'm sorry to ask these 15 questions that are so obvious. 16 A. It's your job. 17 Q. Mr. Epstein did not have any sex with you 18 in any way? 19 A. No. 20 Q. You didn't have any kind of oral sex with 21 him? 22 A. No. 23 Q. Okay. Did Mr. Epstein ever penetrate you 24 in any way with his finger or anything? 25 A. No. awsnicaw-tIkkwe..,2136Ateadah.e. 6ar As5ociates FtripprtimF aid Tnamccriisiem, Tin Page 14 1 2 been telling me, that Mr. Epstein never threatened you in 3 any way? 4 5 Q. 6 a nice guy, right? 7 8 sit here and actually defend him, because I know he was 9 wrong for some parts maybe in his case, but as far as T 10 go, it was 11 me do anything that I didn't want to do. I said no if I 12 didn't want to do something and 13 Q. 14 were there or anything like that? 15 16 Q. 27 you drugs of any kind? 18 A. No. 19 Q. Okay. He didn't offer you any alcohol? 20 A. Nothing. 21 Q. And I think you told me already 22 let's make sure we're clear on the record, 23 Mr. Epstein's house one time and one time only, correct? 24 25 Q. And I would assume based on what you've A. No. In fact, I think you described him as being A. He was a nice guy. I mean I'm not going to So clearly, you were not afraid when you A. No. All right. And Mr. Epstein didn't offer A. Correct. Q. And that's the only time that you've ever 3 J seen Mr. Epstein? A. Correct. 3 Q. Okay. And you certainly never called the police as a result of this? A. No. 6 Q. And you never contacted the State Attorney's Office? A. No. POUWARAMWO V0 12 13 0024r ny6A with 14 0 0ggOoOtgg 15 No besides M. which was my best friend. 16 I always talked to her. She asked if I ever wanted to go 17 back again and I told her no. And she was just asking me 18 that as a friend question, not to ask me if I was 19 actually willing to go back over there. 20 Q She wasn't speaking as a representative of 21 Mr. Epstein? 22 A. Right. 23 Q It was just a friend 24 A. Right, just a friend conversation. 25 Q Okay. Now before you went over there you .666Nthatftta6W66140NY. sor Amoco es Thwlimg and Trasimiptim, rao. sor A55 ociates Ropod44mill-eivaivicca,bizi, Page 17 2 4.44.11C.'m 0!49.11! 4 ' ACP!gA.M.X.W: iggt 2 3 4 on what your boyfriend had done to you and you wanted to 5 get paid for this massage? 6 A. Correct. He swiped out my bank account and 7 I needed a way to come up with 200 that was over my 8 bank. So I'd get paid 300. I put 200 in my bank and I 9 believe I gave a hundred for taking me. 10 Q. Given your debt situation, it was important 11 to you to convince Mr. Epstein that you were over 18, 12 because you wanted to do this job? 13 A. Correct. 14 Q. Gotcha. Okay. 15 Believe it or not 16 ms, Sanchez, 17 here. 18 A. I don't believe it was so much Epstein as 19 it was the girls that were working for him, that were 20 bringing in the service, because the girls were the ones 21 telling everybody to lie, to bring in the business so 22 that they could get paid. I know he was traveling them 23 back and forth and renting them rental cars. 24 Q. So I think what you're telling me is that 25 you really believe that Mr. Epstein was relying on what Q. Okay. And clearly, you had some debt based 1 1 sor Associates R Td Treatudoice, Tap. Page 18 1 the other girls were doing to make sure that the women 2 that were brought 3 A. For the most part, yes. I believe that 4 I mean of course that this is what he wanted and this is 5 what he set up. 6 Q. Uh-huh. 7 A. But I believe he had the girls doing all 8 9 10 11 8 the work for him, so that they were the ones that were more getting in trouble for bringing in the business than him. BbU t :41:4, 'OU eATI-olga FP An. on re over the a X!A4A. Anmtltnoxmoz0 ilin amerybo. 1Tafrnm.:'....':Mhat4ttektlbws 19 Q. Correct. 20 Okay. You've understood all the questions 21 I have asked you today, right? 22 A. Yes. 23 Q. Any questions about what I've asked you? 24 A. No. 25 Q - Okay. I really, really appreciate your sor Associates llyporting and Travaipfm, hich Page 19 1 coming in here today. We got this done much quicker than 2 if we had to go to the courthouse to do it. 3 A. Thank you. 4 Q. I didn't coerce you in any way to give any 5 particular answers, did I? 6 A. No. 7 Q. All I asked you to do was tell the absolute 8 truth? 9 A. I'm fine. That's good. 10 Q. And that's what you did, you told the 11 truth? 12 A. Told the truth. 13 MR. GOLDBERGER: thanks so much 14 for coming in today. I appreciaLe it very much. 15 THE WITNESS: No problem. 16 Nis. SANCHEZ: Thank you. 17 (Thereupon, the sworn statement was 18 concluded at 12:15 p.m.) 19 20 22 22 23 24 25 telcutoLtptetbat..c. 3 nor 82. Associates RoporengoadTramiriptipp,MEs. Page 20 1 THE STATE OF FLORIDA, ) 2 COUNTY OF PALM BEACH. ) 3 4 5 6 7 of March, 2008 and was duly sworn. 8 9 10 of March, 2008. 14 I, the undersigned authority, certify that personally appeared before me on the 21st WITNESS my hand and official seal this 22nd day Judith F. Consor, FPR 15 Notary Public - State of Florida 16 17 18 19 20 21 22 23 24 25 k.Ria 12M60239.61o.6.0.16.4,31Ali....0.2E1 1.4114,31DiGsedankaa.6.4.051ltiL bia sor Associates Refportimgclit Trommiplion,IED, Page 21 1 2 CERTIFICATE The State Of Florida, ) 3 County Of Palm Beach. ) 4 5 I, Judith F. Consor, Court Reporter and Notary Public in and for the State of Florida at large, do 6 hereby certify that I was authorized to and did stenographically report the sworn statement of JENNIFER 7 LADUKE; that a review of the transcript was not requested; and that the foregoing pages, numbered from 1 8 to 19, inclusive, are a true and correct transcription of my stenographic notes of said sworn statement. 9 I further certify that said sworn statement 10 was taken at the time and place hereinabove set forth and that the taking of said sworn statement was commenced and 11 completed as hereinabove set out. 12 I further certify that I am not an attorney or counsel of any of the parties, nor am I a relative or 13 employee of any attorney or counsel of party connected with the action, nor am I financially interested in the 14 action. 15 The foregoing certification of this transcript does not apply to any reproduction of the same by any 16 means unless under the direct control and or direction of the certifying reporter. 17 18 19 20 21 22 23 24 25 DATED this 22nd day of March, 2008. arie Judith F. Consor, Court Reporter Florida Professional Reporter or Associates Uppreagat4Troinawilliva, Int Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach Lakes Blvd., Suite 500 - West Palm Beach, FL 33401 Parse 22 sor Associates RopotiNI Trawriggica, PP. Page 23 Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach Lakes Blvd., Suite 500 - West Palm Beach, FL 33401 sor Associates RpparIbg Tronwzipliosi, Eti Page 24 It Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach Lakes Blvd., Suite 500 - West Palm Beach, FL 33401 sor 82. Associates .Roportits. aa4 Tpxygoriptim,Ii Page 25 Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach Lakes Blvd., Suite 500 - West Palm Beach, FL 33401 TAB 6 2007-04-25 .TXT 1 1 IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT IN AND FOR PALM BEACH COUNTY, FLORIDA 2 STATE OF FLORIDA 3 STATE OF FLORIDA, 4 vs. 5 JEFFREY EPSTEIN, 6 Defendant. 7 8 9 TRANSCRIPT OF TAPED STATEMENT OF 4-24-07 10 11 12 13 14 15 16 17 Transcribed by: vicki S. Woodham, Court Reporter 18 Notary Public, State of Florida Consor Associates 19 1655 Palm Beach Lakes Boulevard, Suite 500 West Palm Beach, Florida 33401 20 Phone - 561.682.0905 21 22 23 24 25 Page 1 2007-04-25 TXT 2 1 (Taped statement as follows:) 2 AGENT RICHARDS: This is Special Agent Jason 3 Richards with the FBI along with Special Agent 4 Nesbit Kirkendul and Assistant United States 5 Attorney Marie Bilafonia here to conduct an 6 interview with Ms. Also present is 7 her attorney, Jim Eisenberg and Carrie Sheehan. 8 MR. EISENBERG: And we are here 9 Eisenberg and my investigator, Ms. Sheehan is here. 10 And we're here pursuant to a subpoena that was 11 served on me for and that's why we're 12 here. So Ms. Bilafonia, it's your show. 13 MS. BILAFONIA: Okay, great. 14 AGENT RICHARDS: I also want to add that the 15 date is 4-24-07, and the time by my watch is 4:21 16 p.m. 17 BY AGENT RICHARDS: 18 Q. we just want to start off and I'll lead 19 off first. We just want to get some basic info about 20 you, simple stuff. I've got your date of birth as 21 is that correct? 22 A. Yes, sir. 23 Q. I just want to get like your basics like that 24 stuff first. Your current address? 25 A. Page 2 2007-04-25 TxT 3 1 2 Q. You have a cell phone or 3 A. 4 Q. And home phone? 5 A. Only cell. 6 Q. Only cell, okay. Now have you had other cell 7 phone numbers in the past and do you know any of those? 8 A. that's the only one I can remember. 9 Q. Okay. But you had some others? 10 A. Uh-huh. 11 Q. Okay. 12 BY MS. BILAFONIA: 13 Q. Who's your service provider? 14 A. Metro. 15 Q. metro. And for that other number as well? 16 A. Yes. 17 BY AGENT RICHARDS: 18 Q. Where did you go to high school? 19 A. 20 Q. And what year did you graduate? 21 A. 22 Q. What year was that that you dropped out, do you 23 remember? 24 A. No. 25 Q. What year were you supposed to graduate, your Page 3 2007-04-25 .TXT 4 1 class? 2 A. 3 Q. Okay. 4 A. I had got my GED. 5 Q. when did you get that? 6 A. About three months ago. 7 Q. And are you going to college anywhere 8 currently? 9 A. Not right now. 10 Q. Plans? 11 A. i have plans. 12 BY MS. BILAFONIA: 13 Q. Where are you thinking about going? 14 A. I'm not positive what I want to do. There's a 15 lot of things on my mind, but right now I'm focusing on 16 my son. I have a two year old so right now I'm just 17 working. 18 AGENT RICHARDS: He's a handful? 19 THE WITNESS: Yeah. 20 AGENT RICHARDS: I have one, too. 21 THE WITNESS: Yeah. So in the future, I'm 22 definitely going to go to college. I'm going 23 definitely going to go to school. But I have, you 24 know, a modeling career going on right now that's Page 4 2007-04-25 TXT 25 hopefully going to 5 1 hopefully, and that would be great, but i don't 2 know. 3 BY MS. BILAFONIA: 4 Q. Where else are you working? A. I work for Advanced cleaning systems. They 6 clean carpets. 7 AGENT RICHARDS: Advanced what was it? 8 THE WITNESS: System Cleaning. 9 BY MS. BILAFONIA: 10 Q. And where are they located? 11 A. Las Palmas, 11 Swanee, S-w-a-n-e-e, Swanee 12 Drive. 13 Q. Are you working in an office there or do you go 14 out to people's homes? 15 A. I work in an office there. 16 BY AGENT RICHARDS: 17 Q. Obviously, you know why we're here and what we 18 want to talk about. so let me just kind of lead into do 19 you know Jeffrey Epstein? 20 A. Yes. 21 Q. Yes, of course, you do. Now when did you meet 22 Jeff? Does he go by Jeff or Jeffrey or 23 A. Jeffrey. Page 5 2007-04-25 .TXT 24 Q. okay. When did you meet him and who introduced 25 you to Jeffrey? 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 A. JeffreY- Q. My girlfriend Do you know her last name? oduceci me to A. No. she was a friend of one of my friends, so really didn't know her. BY MS. BILAFONIA: Q when was that? A. I really couldn't tell you. I don't even remember. It's been so long ago. BY AGENT RICHARDS: Q. So introduced you to him. Was it at a party setting or how did you guys meet? A. No. She came to me and she said hey, would you like to make a couple dollars and I said sure. I said doing what? She said, Well, I know this Jeffrey. He lives on Palm Beach Island and I bring girls there and he likes massages and I was like okay. So I asked her, I said well, what about my age? And sh said well, juct .:64 gAh4X, 4.10 4 fake ID .. -.0!aloin th8re. Q. Okay. And about what time period was it that Page 6 2007-04-25 TXT 22 you went over there first, do you remember? 23 A. What time period? 24 Q. Yes. As far as what year was that that you 25 were in school? 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 A. I was 16 Q. Sixteen. BY MS. BILAFONIA: Q. Were you a freshman or a sophomore, do you remember? A. I couldn't tell you. I couldn't tell you. Probably a sophomore. Q. Now you said that... Awl-0104440g Did she elaborate on massages? ld 001 05 what types of sometimes he likes topless masges, ave to do anything you don't wan 1 i Q. And do you know whether massages? A. Yeah, she said she's done it before. Q. And do you know whether had taken any other girls over to see Jeffrey? A. Yes, she probably did. Q. Did she tell how much you would make? Page 7 had given him 2007-04-25 IIIIII TxT 21 A. Yes. 22 Q. what did she tell you? 23 A. We go there and we make 200 in 30 minutes. 24 Q. Now you said that you asked her, you know, what 25 do i need to be worried about my age. whsodficioagz 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 A. Because I don't want to be like I was underage and I was young and I was pretty stupid and I didn't want to get in trouble, so.. I alwaysA4010 aroma e. atE want to get make 14:004 .i.7 ecause, 6AW BY AGENT AGENT RICHARDS: Q. Now did she at? In school? What setting? A. I wa at a frinif whe 04.0100 m girlfriend's house. I don't know what girlfriend's house it was. Everybody was just hanging out. And she said up to me and she asked me. She said, do you want to make a couple bucks and I said sure. Q- 40 Aft0t8 there to meet r 40.4 Page 8 e. took .you over,; u again set up any appointments with him.. or anything o, I gave 3ffrey mynumbertime you want me to give you a massage again, than welcome to. 9 1 BY MS. BILAFONIA: 2 Q. So took you that first time, but then 3 after that you communicated directly with Jeffrey? 4 A. uh-huh. 5 Q. Tell us about that first time that you went to 6 his house. Who 7 A. one of 11111111s friends and they dropped us 8 off and then we went. You know, we got escorted up to 9 the massage room and he told me everything. He said, 10 Listen, I like massages. And we had the whole massage 11 table laid out, the lotions and everything. And she was 12 in there for the first like five minutes. And the first 13 time I gave him a massage, she left the room and I gave 14 him a massage. And she told me, she says he likes women 15 topless massages. so I willingly the first time took off 16 my top when I gave him a massage and nothing more than 17 that. og Hffiaiihie Page 9 2007-04-25 18 was out of there. 19 Q. Okay. Let me just ask you a couple of 20 follow-up questions. You said that someone escorted you 21 up to the room. Do you know who that was? 22 A. one of 23 just said, you know, it's up there and she just told 24 me where it was. 25 Q. And then you said that you and went 10 1 upstairs together? 2 A. Uh-huh. 3 Q. And stayed in there for the first few 4 minutes? 5 6 7 8 9 10 the room or did he come in after you were already there? 11 A. iWW4 ri the room al ready 12 Q. And you said that you took your top off. Did 13 anybody ask you to take it off, like did say it's 14 time for you to take it off? 15 A. No, she wasn't in the room. Page 10 A. Uh-huh. Q. Was Jeffrey already in the room by the time left? A. Yeah, he was in the room. Q. Okay. Was he there when you guys showed up in 2007-04-25 TXT 16 Q. 17 18 19 20 21 22 that 23 24 25 his massage? A. By the time you took it off, okay. salci, T told;Jeffrey: massages topless.:. And hes ,7r 0flrt h4Oomv 46046 ............... w. -01 Q. ing1Y O.: okay. And during that first massage, you said you gave him a shoulder and neck massage? A ick back shou1der Otik Q. was he face down the entire time that he got 11 1 A. Yeah. 2 Q. And what did you do during the massage? Did 3 you talk or 4 A. Yeah, we talked. 5 Q. And what would you talk about with him? 6 A. Well, we were just getting to know each other. 7 we talked about how my lifestyle was, what he did for a 8 living and just all positive things, really nice things. 9 Q. okay. what was he wearing when you first came 10 in the room? 11 A. I'm sorry. When he first 12 in the room, he was fully clothed. And then he said, you 13 know, wait a second. I'm going to go on the massage 14 table and he put a towel over him just like a normal Page 11 15 16 17 18 19 20 21 22 23 24 25 massage or after the massage he gave you? 2007-04-25 TXT masseuse would do. Q. Did he undress and put a towel around him? A. uh-huh. Okay. VOOMifOiranyrttng it as Q. A. neck and shoulders. Q. And after the massage was over, you received the 200? A. He gives money right away. Q. I'm sorry. Was that before you started the 12 1 A. The first time, he gave me the money right 2 away. 3 Q. Okay. And he's the person that paid you the 4 200? 5 A. No, it's always 6 Q. gave you the money? 7 A. Uh-huh. 8 BY AGENT RICHARDS: 9 Q. What's 's last name, do you know? 10 A. I don't know. 11 MR. EISENBERG: You can't look at papers. If 12 you think you know, you know. If you don't know, Page 12 2007-04-25111111ITXT 13 THE WITNESS: No, I don't know. I don't know 14 's last name. He does. 15 BY MS. BILAFONIA: 16 Q. Okay. The only thing I'm confused about is you 17 said that didn't even take you upstairs. She just 18 told you where you should go? 19 A. Uh-huh. 20 Q. So when did she pay you the money? 21 A. She paid me then and there when I first walked 22 in the door, me and 23 BY AGENT. RICHARDS: 24 Q. She paid you before you went upstairs? 25 A. Yes. 13 1 BY MS. BILAFONIA: 2 Q. And how much was paid? 3 A. Everybody got paid 200. 4 Q. And after 5 you said that you had already been paid. Who asked you 6 for your name and telephone number? 7 A. Jeffrey said, well, I'd like to see you again. 8 Can I have your number? From what I remember, I'm pretty 9 sure he asked me for my number and I gave him my number. 10 Q. Okay. 11 BY AGENT RICHARDS: Page 13 2007-04-25 TXT 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Did he write it down upstairs? He had a pen handy, I hope? A. uh-huh. BY MS. BILAFONIA: Q. On that first massage, you said that you worked on him topless. But when you first started, did you take A. 3R4PW I was wearing og massages. no iial shirt assagearid And, of course, h 6000P P' And he's like yeah, I do i prefer that. And who wouldn't, you know? so i said okay and I took it off. Q. And you took off your bra as well? 1 A. Yes. 2 Q. And you left your jeans on? 3 A. Yes. 4 Q. okay.SQ gave hr 5 6 A. 7 Q. 8 A. 9 jpgapgplaIng yer: the Massag Q. So you said that that day you gave your name Page 14 14 2007-04-25 IXT 10 and number to Jeffrey. When was your next contact from 11 him or anybody who worked for him? 12 A. The next day, he had called me and he said 13 would like to come out again and I'd like to see you 14 again. I said sure. I took a taxi there and I went 15 there again. 16 17 18 Q. Okay. MENCOMANVOMOOFis the pmrsor 19 who called you for that appointrnent,, 20 A. No, 1000W 21 called me From what I remember,M4.044fItig41110 22 4WW 23 Q. okay. And she said Jeffrey says he wants to Q. The following day? A. The next day. 24 see you again? 25 A. Yes. 00414.0 15 1 Q. And then you said you took a taxi? 2 A. Yes. 3 Q. Is that how you would normally get to and from 4 his house? 5 A. uh-huh, if I didn't have friends because I 6 don't drive, yeah. 7 BY AGENT RICHARDS: 8 Q. How did you get home the first time when Page 15 A. No, no. t:iiii4614k4aliiiii paid for my own taxi. Q. 2007-04-25 .1-x-r 9 took you over? Did she get a taxi? 10 A. No, our friend came back and picked us up. 11 Q. which friend was that? 12 A. His name was Brian. I don't know his last 13 name. I really didn't know and I didn't know her 14 friends or whatever, but I met Jeffrey. And once I met 15 Jeffrey, he was a very awesome guy and I just 16 know. I ended up giving him my number so I could 17 didn't want or Brian to drive me anymore. 18 would rather go to him on my own. 19 BY MS. BILAFONIA: 20 Q. When you would take the taxis to and from, 21 would he pay for them? 22 A. uh-huh. 23 Q. And he would pay when you arrived? 24 A. uh-huh. 25 Q. And then he would just give you extra money 16 1 when you left to pay for the taxi? 2 3 4 5 the massage? 6 A. TWO hundred, yeah. Page 16 :ram.cmg: okay. so from the money that he paid you for 2007-04-25 .TXT 7 Q. Where were you living at the time? 8 A. I was living at It's 9 located on So I would take, you know, 10 straight down to where I lived. 11 Q. Do you remember about how much that taxi fare 12 was each way? 13 A. Twenty dollars. 14 Q. And did you always use the same taxi service 15 or 16 A. No, I used different taxis all the time, so 17 Q. And you would just call and have them come to 18 your house? 19 A. Uh-huh. I used a whole bunch of different 20 taxis, whatever is available. 21 Q. So you mentioned that the second massage, was 22 it any different than the first one? 23 A. Yes. 24 Q. How was it different? 25 A. When I went there, I went there by myself. And 17 1 I went up to the massage room and Jeffrey was just like 2 regular like he was before on his stomach and he had a 3 towel over and we started the massage and 4 off willinoly And after the massage, 11.9409. 5 you c.omfo.rtabl' Page 17 6 this an I Said 7 8 9 10 11 12 13 14 2007-04-25 he turned anuun d. And this was like at the end of the massage, our 30-minutes massage, usually it was even shorter than that. And he masturbated at the end of the massage and it was like two seconds and I was just topless. Q. And when he turned over, the.n did he touchfie.0 at al or was he just A- W i didE 020405Ehim. He dd not touch AC He didn't even want 15 Q. 16 OEMO 17 A. 18 Q. 19 A. 20 0401: 21 22 23 24 25 Q. nipples during the massage? A. Actually, later on long time. Later on, I asked him, you know, and I asked him You didn't like continue the massage while he yokaileW4OSIMOOT okay. I cut you off. You said he didn't even? He didntt want me to touch hi idn t Did he ever ask you to rub his chest or rub his 1 chest or whatever and massa 2 masturba 3 Q. Ida so eventually you would continue the massage Page 18 18 2007-04-25111111TxT 4 and he would masturbate at the same time? 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Yeah, but it wasn't on his lower area. Q. No, you never touched his penis? A. Rig Q. You were paid 200 again? A. Always. Q. Always? Every time you went there? A. Always. BY AGENT RICHARDS: Q. was it always that paid you? A. Sometimes Jeffrey would and sometimes would. BY MS. BILAFONIA: okay. So that was during the second massage. Q. Was it usually before or after the massage? A. After the first time, it was always after. would go downstairs and I'd get paid. Q. So just sort of tell us, when a massage ended, which assume was after A. It WaSn' Q. Okay. A. It wasn't like he ejaculated? hough, every time we went there he 2 sometimes he.just wanted..back masage. 19 2007-04-25 TXT 3 Q. 4 okay. But when the massage was over however it ended, you would just get dressed and go downstairs by 5 yourself or did take you downstairs? 6 A. 7 great. 8 with us 9 WWWAII 10 11 12 A. 13 you. 14 15 or more than once a week? 16 A. Yeah. 17 Q. 18 A. 19 20 21 22 23 24 25 More than once a week? Personally woo Q. Okay. gave Jeffrey? Yeah. The chef would make us food and it'd be And Jeffrey would get dressed and he'd come down sometimes or, you know, it wasn't OW How many massages do you think that you reY a 1 massages. saw him 0:00041W4E, can't tell Q. And how many times d bring girl S. Q. okay. But either you would or either a girl that you brought? A. Yeah, uh-huh. Q. Okay. A. But after a while, it wasn't me anymore. I had brought girls, but I got paid 200 to bring girls. Q. Okay. So let's talk just about when you were Page 20 20 1 2 3 his feet massaged. 4 massage sessions? 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. 14 Off .. . . e: ikithf.64Z t0440.0 61' t440 iked back massages. Sometimes he ssages. h cf s ea massage a 2007-04-25 Il.TXT performing the massages. what other sorts of things would happen? You said that sometimes he would just like Sometimes he likc. his head massage massages And it wasn't ever there he iisturbated.' Q. Okay. Ally idea th e th sturbate sgat6ti astur a cf ways perfo less . , . . . Id you eve I. get comPl etel A. Q. A. ot ing? Willinqiy. one time ing jOkes an rYtni and: wi:flin otally nude, hut r was fine Okay. Totally fine with it. And how did that massage go? Actually, 'it was a foot massa Page 21 2007-04-25 TXT 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -00f64-!,, 4go.r.1114, 041i400A0N1140AW0400 Q. And how much were you paid for that? A. Two hundred every single time. DOV4144640 0040100Vtouch4004-Wot 4t0g00 10004060g Q. A. Never, never. Okay. Q. BY AGENT RICHARDS: Q. why not? A. Why not? Why would he? Q. You seem like a nice young lady, attractive. He never had any urges to A. I asked him, I said, when are you going to get married? when are you going to get married, Jeffrey? He said, I'm never getting married. He has, you know, beautiful women all the time. why would he huh-uh. BY MS. BILAFONIA: 1-M-110).Mr1P41I04400 y4yRi: Q. v4iWO .w400046.4i4E Okay. Now you said that at some point you ven started bringing other girls over? Page 22 WAT erx nP ever. We just, A- toPless massages. 2007-04-25 TxT 22 1 A. uh-huh. 2 Q. How did that start? 3 A. He likes to see different faces. 4 Q. So he asked you if you had friends that 5 could bring over or other girls? 6 A. 7 8 0000Ott uh-huh. you 9 A. All of90.-000i100100 if. 10 fia b0.650300W100 11 ii6t4WWWWW6405fft6e6244466W444 12 13 14 15 16 17 18 19 20 21 22 23 Q. And did any of them tell you what happened 24 after that? 25 A. Always, always, I even asked them. 0040, know 1 iris OWIROC es massages, u ,re not corn 0 r- 013or Oft make sure use? Page 23 giV; 2007-04-25 TXT 23 1 2 3 4 5 6 7 Q. Okay. And with the other girls, was it the same as what you did or different? A. Yeah, yeah. I mean, well, I was more willingly to do more, you know. Like I said, one t'me But the o .Lop.l es d that's al 14,11t nu they Practical osOk6kW11041t4A0g Some girls n't want to 3effrey didn't 8 OallT,X 9 Q. Were there girls that you brought back multiple 10 times? 11 A. A couple, a couple, but he really liked to see 12 different faces. 13 Q. okay. I'm just wondering are there some girls 14 he really liked and others he didn't like or did he have 15 any preferences in terms of blondes, brunettes? 16 A. He liked girls like me. 17 Q. Okay. Thin and attractive? 18 A. I guess. Yeah, very attractive women. And he 19 thdnt say girls He said women all th ttme 20 Q. Did you ever bring anybody he didn't care for? 21 A. Huh-uh. 22 Q. Yeah? 23 A. Yeah. 24 Q. How was she different than the others? 25 A. Black. I screwed up. Page 24 2007-04-25 TXT 24 1 Q. How did you know you screwed up? 2 A. He doesn't like black women, obviously. 3 Q. So he let you know? He told you that? 4 A. Yeah, but he was still nice and he still gave 5 her her 200 even though he didn't even have a massage by 6 her. 7 Q. How did he 8 each girl? 9 A. uh-huh. 10 Q. And when he told you that, 1 mean, that's what 11 he told you that he would pay you 200 for bringing the 12 girls? 13 A. Yeah. He said if you bring me 14 me girls, ill definitely, you know, give you money, 15 compensate you for your time and willing to do that for 16 me, yeah. 17 Q. And you said at that point you stopped 18 performing massages for him? 19 A. At that point, 1 didn't 20 sporadically like. Usually, 1 had so many girlfriends at 21 the time that, you know, there were some new faces to be 22 saw. And if no one was available, then would go. 23 Q. 1 got you. 24 A. So 25 Q. Do you know some of the girls that you brought, Page 25 2007-04-25 .-Da- 25 1 some of the their names? 2 3 4 A. don't remember, really. They were like not even friends. They were just associates, you mow. if 'lends of friends, Sc 5 Q. we have 6 I guess that some girls' names that would call Jeffrey 7 and leave a massage. There's some girls names that are 8 referenced. we were just wondering if you knew them? 9 A. If you name them, I can probably remember. 10 MS. BILAFONIA: Jason, do you have that? 11 BY AGENT RICHARDS: 12 Q. is one. 13 A. I don't know Do you know her last 14 name? 15 MS. BILAFONIA: We were hoping you did. 16 THE WITNESS: No, I don't. 17 BY AGENT RICHARDS: 18 Q. 19 A. No, that sounds like a black girl's 20 name. 21 Q. Well, you brought a black girl. what was her 22 name? 23 A. I don't know. Don't ask me. 24 Q. Page 26 2007-04-25 TXT 25 A. yeah, i brought 26 1 2 3 4 5 6 7 8 9 10 Rbbie 11 MW0A4A A 12 13 14 15 Q. 16 17 18 19 20 21 22 23 Q. Who is she? Tell us about A. sabrina, we look just alike, if that's the girl I'm thinking about. we went to school together and I brought her one time and then she ended up moving so she couldn't come with me. Q. were you guys in the same grade or A. No, she was older than me. A year or two? A.Actually, don't e was like, you know two ranks. Q. Q. So when you were a sophomore, she was a senior? A. i just met her in school and I told her. BY MS. BILAFONIA: what was her last name? A. I don't know. BY AGENT RICHARDS: Q. Do you know where she lived? A. I just met her in school and I told her about it. Q. YOU told her about it at school? Is that where your discussion was or A. Well, I said give me your number. I said you can make a couple of dollars. It's real easy. And if Page 27 2007-04-25 .TXT 24 you're comfortable with it, give me a call. 25 Q. Was that at'Lklikier6ei4Faa 27 1 A.No, t school 2 Q. At school. You're not sure what her last name 3 was? 4 A. I have no idea. 5 Q. Do you know where she lived or anything like 6 that, what car she drove? 7 A. No. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Q. what'd she look like? A. What she looked like? Q. Yeah. A. Like me, everything, . (Start Side B of tape.) AGENT RICHARDS: hair, eyes. Time recorder is being restarted is approximately 4:50 p.m BY MS. BILAFONIA: Q. We were talking about You were at at the time? A. No, I was at Q. okay. A. And that's where went to school. Q. what about a girl namedM? Page 28 22 23 24 25 A. BY AGENT RICHARDS: Q. A. 2007-04-25 who? Did you bring a .4000,1 TXT 28 1 Q. I want to know about every one you brought. 2 A. well, one of them died recently, so 3 Q. What was her name? In a car accident or 4 something? 5 A. No, she died. unfortunately, she got shot in 6 the head. You guys probably heard it on the news. She 7 got shot in the head by this guy. I don't want to even 8 talk about it because I'll cry. 9 BY MS. BILAFONIA: 10 Q. Let's talk about the other 11 A. I don't even know. T don't know. I don't 12 know. There were some girls that just I would take one 13 time and then I would never talk to again, so i don't 14 know. 15 Q. How many girls do you think you brought to 16 Jeffrey's house? 17 A. That's a good question. I bring a lot, like 18 maybe 19 about the money to me at that time. 20 Q. Now any of the girls that you brought, did any Page 29 2007-04-251111111TxT 21 22 23 go through you? 24 25 A. They w Q. So you don't know? of them leave their names and numbers and then they would get appointments directly from Jeffrey or did they always 60004IT 29 1 BY AGENT RICHARDS: 2 Q. You weren't getting paid, right? 3 A. I told them, I said, Don't give him your 4 number. 5 BY MS. BILAFONIA: 6 Q. If you brought the same girl more than once, 7 would you get paid each time you brought them or just get 8 the initial 200? 9 A. Every single time I brought a girl, okay, or I 10 referred a girl, I always got 200, always. 11 Q. Even if she came a second time? 12 A. Yes. 13 Q. You would get 200 every time she came? 14 A. Yes. 15 Q. Good deal. Okay. What about? 16 A. who? 17 Q. Any that you brought to Mr. Epstein's 18 house. Page 30 9 10 11 12 13 14 15 16 17 2007-04-25 TXT 19 A. 1 brought a 20 Q. Where did she go to school? 21 A. she didn't go to school. 22 Q. okay. How did you know 23 A. been my 24 past. How did I meet at a party or she was my 25 30 1 time and 40i1M: 2 Q. You asked her if she'd be willing to go to 3 Jeffrey's house? 4 A. uh-huh. 5 Q. And when 6 have been? 7 A. Actually, a couple weeks, a couple weeks. I do 8 remember her. A couple weeks after I met him. Q. so you brought her pretty soon after you met Jeffrey? that A. Q. A. Q. A. Q. the uh -huh. Seventeen.And how old was -. . And what happened when you brought The same thing. Okay. Well, I know that sometimes you said girls would tell you what happened? Page 31 18 19 20 21 22 23 24 25 2007-04-25 TXT A. She went in there. She had a massage gave a massage on his back. she went a couple times. He liked her. She went a couple times. -0114g:A tI4MW.4: :04.agg And then she went, I think, like two times after that. And yeah, he masturbated, but no touching. She didn't 1 touching of her. 2 1509MCMAG 3 tiofl 4 rspec- 5 RONALwe wc 6 about it 7 8 9 10 11 call a taxi. 12 13 14 15 Q. 31 Problem and h Y'd 119 me) YoU know, for us to go to Q. HOW would for girls to go over there? A. I'd call them and they'd say hi, do you want to go to Jeffrey's house? And they'd say yes or no and we'd Q. How would you know when Jeffrey was going to be in town? A. when KM 11 Did she always call when they were already in Page 32 A. well, I'd tell them, I'd say He'd have 2007-04-25 TXT 16 town or would she 17 you? 18 A. 19 Beach They never called me from anywhere They've 20 never called me from anywhere else. It was always when 21 was in Palm Beach. They'd say hi, we're down here. If 22 you want to come and see Jeffrey, you're more than 23 welcome to. 24 Q. So you wouldn't have like a specific time when 25 you would go over, like be here at 11 or be here at two? 1 2 I'd have to work around his schedule. 3 around mine. Yeah, we'd e there 4 11 5 6 7 8 9 10 chef would answer the phone. HiS maid would answer the 11 phone. That's 12 Q. But was the only one you talked to about 13 making appointments? 14 A. uh-huh, yeah. well, yeah, if Jeffrey wasn't Page 33 -i-hey only liT4 ::0C01i0h:gtti4 .. . , were in Palm be there atever, to 32 work Q. no you on the phone. was there anybody else that you would talk to on the phone? A. If Jeffrey wasn't there like if I'd call him to see how he was doing or whatever, you know, he had 2007-04-25IIIIIIITXT 15 available, they'd, you know, he said, the chef or you 16 know, whoever, said Jeffrey will get back to you. Yeah, 17 L made the appointments. 18 Q. So when you were calling to talk to Jeffrey, 19 you were calling the house phone over in Palm Beach? 20 A. Uh-huh, yeah. 21 Q. And how often would you talk to Jeffrey on the 22 phone as opposed to talking to one of his assistants? 23 A. Me and Jeffrey hardly ever talked on the phone. 24 He was always busy. It was mostly We'd talk when 25 I would get there, you know. So it was like hey, do you 33 1 want to come in? Yes, cool, you know. Come there, no, 2 cool, bye. 3 Q. Do you know someone who works for Jeffrey named 4 ? 5 A. I think I met her one time. 6 Q. And what do you know about her? 7 A. She was there. And the person , 1 think, 8 I'm not positive, okay. I'm pretty sure she said that 9 she's from New York and she travels with Jeffrey, but I 10 think I met her one time, if that's the girl that rings 11 the bell, you know, in my head. Nadia I think is that 12 one person I met one time. Page 34 13 14 15 have a girlfriend or a steady? 16 17 18 girlfriend. 19 Q. 20 21 other than Jeffrey? 22 A. NO. 23 Q. 24 25 2007-04-25 11TXT Q. Now you said that you a teased Jeffrey about whether he was getting married. Did you ever know him to A. No, he told me he's never been married. He's never had a girlfriend and he doesn't want to have a ave A-AWAVOiOaii Im 000t A. 19.0.k.xiA0611 :.,Siii0A0A0E11 0.0.1.0 00 once or twice, not thatIO 00 Were you ever asked to bring a girl for someone else like to give a massage to somebody else or to anyone -mtwire 34 1 Q. But anybody else, either any friends that were 2 in town or 3 A. No. See, my mother is a masseuse and I have 4 experience massaging and he always liked my massages. So 5 he told about my massages and she said, yeah, I want 6 a massage so I'd go over there. I think it was one or 7 two times and I gave her a massage. 8 Q. NOW when the girls were upstairs with Jeffrey 9 in the bedroom, what would you do? 10 A. The chef would make me carved tomatoes, put 11 some crab meat in it and I'd just eat, wine and dine. It Page 35 2007-04-25 .TXT 12 was wonderful, great. 13 Q. And when you would talk to the chef 14 A. Yes. 15 Q. 16 A. Yes. I don't know their names. I can't 17 remember. There were like all these foreign girls from 18 19 different 20 interesting because we'd talk. And, you know, I'd learn 21 a lot from them and they'd learn a lot from me just being 22 American. And no, every time I went there it was a good 23 time. 414 .t, 404IWiut atC! 0 arid swum or 24 'gwohjAt., 25 Q. And how long you would the other girl be ar the Po 35 1 upstairs normally? 2 A. Twenty, 25, 20 to 30 minutes. 3 BY AGENT RICHARDS: 4 Q. Back to is there anything else 5 about her that you can remember? You were friends with 6 her. She went three times, you think? Did she go back 7 without going through you to set up any appointments that 8 you know about? 9 A. I don't know. Page 36 2007-04-25 10 Q. Okay. Were there any othe1111111111that you 11 brought? 1 know you brought other or multiple 12 Britanys. 13 A. Yeah. I don't know. If you would say like a 14 last name, then I would probably remember, but I don't. 15 Q. Any 111111 Did you bring a ? 16 A. , yeah, that sounds familiar. Yeah, 17 yeah. 18 Q. IIIIIIIIIIIW 19 A. Uh-huh. 20 Q. What can you tell me about her? How old was 21 she? 22 A. She's older than me. 23 Q. Do you know her from school or 24 A. No. where did 1 meet her? 1 met her in my 25 neighborhood and I asked her if she wanted to go and 36 1 yeah,M. She was only there one time, though. 2 Q. Did she tell you how it went with him upstairs? 3 A. Yeah. 4 Q. What'd she say? 5 A. She said 6 Q. She freaked out or something? 7 A. NO, no, but he didn't want her again. He likes 8 tall, slender and she was like short. Page 37 2007-04-25 .TXT 9 Q. what did she say about him? 10 A. she had fun. 11 Q. She had fun? 12 A. Uh-huh. 13 Q. What did she say happened up there? 14 A. 15 16 BY MS. BILAFONIA: 17 Q. Did you ever, either when you gave him a 18 massage or any of the girls, did you ever use a big back 19 massager or it was only manual massage? 20 A. No, it was only my hands. we never used 21 anything else. 22 Q. Now when you were working for him, when you 23 were going over to Jeffrey's house to give massages, did she as topless a just gave masse. climax or anything 24 you have a boyfriend? 25 A. Yeah, yeah. 1 Q. Okay. How did he feel about you going to 2 Jeffrey's house? 3 A. He was a jealous little boy, but he didn't 4 care. Bring home the bacon. 5 Q. what's your boyfriends? 6 A. Page 38 37 7 8 9 10 11 12 13 14 15 16 what you were doing at Jeffrey's house? 17 18 19 20 21 22 23 24 25 2007-04-25 .TXT Q. Now I know you that you mentioned that you had a baby. Is that the baby's father? A. No, no, thank God. Q. who is the baby's father? A. Q. Okay, And were you still going to Jeffrey's when you were pregnant? A. I would bring girls there when I was pregnant. Q. So did A. ....... 4 04000kabout Jeffrey actually threw me my baby shower and he got me furniture and a nice rattle for my son and just really nice things, I love mommy frames. Q. Was the shower at his house and did he attend? A. No, no, at my house, at my house. And no, Jeffrey wasn't there. He just sent to bring me gifts for the baby. Q. oh, okay. 1 BY AGENT RICHARDS: 2 Q. Did ever go over there with you? 3 A. No. 4 Q. He stayed away. 5 A. No, he didn't go, no. Page 39 38 2007-04-25 TXT 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 BY MS. BILAFONIA: Q. Did Jeffrey ask you about boyfriends? I mean, was he curious about A. Yeah, we always talked about everything, yeah. DO you have a boyfriend, yeah, no, you know. We talked like friends. I don't know. Just about our life stories. You know, he probably knows my whole life story. BY AGENT RICHARDS: Q. NOW do you still have contact with him or A. who? Q. Jeffrey. A. No, no one's allowing me. BY MS. BILAFONIA: Did he: YgO WOOIO to be400-dilr were aspiring to be? 16 at e and 2 can 3 Yor - 11 ry 40WII-141AieWOOW wanted to you aria bring you .!96ititlit.iiC)). 004Wit..0i;!!!lbadg 1.0.01- there, but c!!. Page 40 39 scre 2007-04-25 TXT always turned it down because I was 16 and 1........cii 5 that to get OLIt- 6 Q. What did you say to him? How did you put him 7 off? 8 A. I don't know. oh, well, I don't know. No, he 9 wasn't like begging me or anything. He asked me a couple 10 times and i said 11 it. I just 12 me all the time. He just it's a couple times he asked. 13 He said I'll bring you to New York or whatever we do and 14 we can, you know, try to fulfill your dreams, b 15 WNW Ardat IS50010460 44ANCA 16 17 18 any way? i mean, did he tell you if you want to be a 19 model, you know, this is going to mess with your chances 20 as a model or offer any 21 A. No. 22 Q. I'm wondering like how much was he giving you 23 advice? How much stuff were you really 24 talk about? 25 A. After the baby, we didn't really even talk. th APR. Q. Did 40 1 was 2 little girl and I totally changed. My whole life Page 41 2007-04-25 -IXT 3 changed. A couple times after I had the baby, I brought 4 a couple girls there. It was like two times. And then 5 me and Jeffrey really stopped talking. we just stopped 6 talking. I had my own life and he had his, so I don't 7 know. 8 BY AGENT RICHARDS: 9 Q. Did he ever make any arrangements knowing that 10 you wanted to be a model or were modeling? He has a lot 11 of connections with photographers and stuff. I mean, did 12 he ever set up any photo shoots or anything like that? 13 A. No. No, because he asked me if I would like to 14 go to pursue what I wanted to do, but like I said, for 15 the second time 16 Q. I mean in town here, not to travel to 17 for a shoot or anything? 18 A. 19 20 BY MS. BILAFONIA: 21 Q. Did you ever get money from Jeffrey when you 22 didn't either give a massage or bring a girl over? 23 A. Yes. 24 Q. Okay. When did that happen? 25 A. I had to pay rent and I was late on my rent. N; ,etause that because nt VW:A.4W like stooc Page 42 :now that New York ac 41 1 2 3 4 Q. 6 A. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 he gave you? 21 22 23 to choose one, so I chose one. 24 25 anything like that? 2007-04-25 M.TXT This was before the baby. And i asked him for like 300. 00v000 0t 500. I don't tell you how I got it. Q. A. anything) I thin couldn't R4:100t.:MW Was he there when you went to get the money? NO. Do you know was he in town or did you call him? don't even - '-remeM, remem e the house us Q. Was that the only time that he gave you money that wasn't connected either to a massage or to bringing a girl? A. He bought gifts for the baby shower. I can't remember now. Not off the top of my head, no. I never asked him for anything because I just felt like that, you know. I'm not a user and I'm not don't like that. I've never asked him for money, so Q. What about presents, either birthday presents? You mentioned gifts for the baby. Any other gifts that A. Yeah, he gave me a he came back with a whole bunch of bikinis and he told me Q. Any other gifts, Christmastime or birthdays or Page 43 ! 2007-04-25 TxT 42 1 A. No. 2 Q. Did he give any of your friends that you 3 brought gifts? 4 A. Yeah, the girl who died, He gave her 5 a bathing suit, too, from Brazil. 6 Q. We have some telephone numbers that we wanted 7 to ask you about. 8 BY AGENT RICHARDS: 9 Q. Just to see if you recognize these or if you 10 ever used any of these numbers that might have been old 11 telephone numbers for you at some point. I don't know 12 how many cell phones you may have had through the years. 13 See if you recognize any of those. 14 A. was my number. 15 BY MS. BILAFONIA: 16 Q. what was 's number? 17 A. 's? 18 Q. Yeah. 19 A. What, my baby's father? 20 Q. Yeah. 21 A. oh, I never knew his. Always I just, you know, 22 called him and I never knew his number. 23 BY AGENT RICHARDS: 24 Q. It was programmed in your phone? 25 A. Yeah. So I don't know. 1 just know Page 44 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2007 -04 -25MXT 43 1 because that was my old number like a long time ago. 2 BY MS. BILAFONIA: 3 Q. At the time that you were bringing girls over 4 to the house, were you also working a regular job? 5 A. I worked at City Pizza for a little while, but 6 no, kind of retired and splurged. I didn't have any 7 bills to pay. I saved. I put money in the bank, so Q. we had talked about before. DO you know someone named A. Q. And who is that? A. i brought her a couple times. who is that? Q. I mean, did you go to school with her or how did you know her? A. oh, i had asked one of my friends. I said do you have any any girls that are willing to give massages and I met up with her. I called her. I talked to her on the phone. met up with her and she said yeah, cool. Q- 4h4g460440igto01040104001t Iittifit 0 A yeah, she wetit over there more She went over there an a coup U broug Page 45 2007-04-25 TxT 44 1 2 Q. 3 4 5 6 7 8 9 10 11 12 13 14 15 A NO- 16 Q No, one 17 A. No, no, 0 18 frorg 19 20 21 22 23 24 25 A. That I know of. That I know of, yeah. Okay. Did you ever tell any of the girls that they would be goingNigiii610CIA6.4 A. 6 I told them we were going to go Jeffrey's house and it's going to be a topless massage pretty much. Anything you don't want to do, you don't have to do and it's 200, badda-bing, badda-boom. You make 200 in 30 minutes. Q. e girls complain -4046 4.0000iCatWOO left 000: W Yu asked me that questio No 006hOW loved Z:; Q. No one called you and said, I think that you should call COO4t God. And who is that comiri Q. We just have phone calls that seem to contradict what you're telling us? A. oh, so you think that people came to me and said that I'm to call the police on Jeffrey? BY AGENT RICHARDS: Q. Was there anyone that thought that what Mr. Epstein was doing was inappropriate and was concerned Page 46 2007-04-25 TXT 45 1 2 3 4 6 7 food. 8 9 Q. 10 11 12 13 A 14 linderag 15 hopefully 16 does about that? A. Every girl ...a lii,;14,iiii ::, .ffrev, the:saidt 161 iiiiiilliiiiilli it. Arid ...................................... 'Wil!:......:'nr ni girkL.,60090gOillit40 1fh C comeback for the money. And as far as I know, we all had fun there. ..0 Lye us free 400445413Rt40; mean, was there anyone that thought what he was doing may have been a little bit wrong? Not wanting to report to the police, but just saying, you know, that's kind of weird? 17 calling the cops. 18 BY MS. BILAFONIA: 19 20 21 22 was somebody shocked 23 24 25 because.: were But other than that, not Q. Was anybody upset that he was masturbating? know that you said you told them that they would possibly do the massage topless. They might have expected that. A. Yeah, of course. I mean, he always told them, okay, and i told them, too. r1..sai1d going to qo anythini at Page 47 2007-04-25 TXT 46 1 cOm ortable 2 3 4 5 6 7 8 9 10 BY AGENT RICHARDS: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 A couple girls when they did come out of there, they're like oh, my God, I wasn't expecting all of that, but he always asked them and I asked them. They A say that you know he asked me are you OfiifiiftV e with this and thy1d say.yg.' Maybe they were scared, who knows. But yeah, they came out of there like oh, my God, that was kind of weird, you know, yeah. Q. Were any of them upset about it? A. Do they like regret it or something? Q. Just shaken up, you know, just kind of shocked? A. A couple of girls young and Jeffrey didn't know that. Like the whole thing was shooken up when I brought them there. And see, uple times that I had whatever, if they were like shooken up, I'm like it's okay, you know. And they were like oh, I wasn't eY were li ONCW' ook up about But and afterwards like if he climaxed or Page 48 2007-04-25 .TXT 25 expecting that, but they told Jeffrey that, you know, 47 1 they were comfortable with it. If anything, you know, 2 maybe they were scared and they felt like obligated, like 3 they didn't want to say. I was thinking that they didn't 4 want to say like no, you know, I don't want to do that, 5 so who knows. I wasn't up there with them, so I couldn't 6 tell you. 7 BY AGENT RICHARDS: 8 Q. Who were the ladies who mentioned that to you 9 who were kind of shocked? 10 A. usually, the girls that I would bring like one 11 time and I wouldn't even see them again. 12 Q. Can you help me out with some names, though? 13 A. Huh-uh, no. I can't remember her name. She's 14 on the top of my 15 can't remember. 16 BY MS. BILAFONIA: 17 Q. 18 authorities? Nobody was that upset that called you or 19 spoke to you that was upset with what had happened to the 20 point that they wanted to report it? 21 A. W no if anything,thank None of girls wantec 22 because 23 BY AGENT RICHARDS: Page 49 Pgm .0 the 2007-04-25 TXT 24 Q. Do you know the names of some of the girls that 25 you brought? 48 1 A. Huh? 2 Q. Do you know the name of some of the girls you 3 brought other than the ones that we've talked about right 4 now? 5 A. Like I said, I can't remember because usually 6 there 7 Q. There's about 30 of them, so you've got to 8 know 9 A. No, I don't know because there were girls that 10 I didn't even know so, you know, I just asked them. 11 said, Hey, would you like to make some money? Here's my 12 number. Do you want to make money? Here's my number, 13 you know, and that's how it went. So I don't remember 14 the names and I really didn't care to know their names, 15 anyway. 16 Q. Do you know their phone numbers? 17 A. Now? 18 Q. Yeah. 19 A. No. 20 Q. Do you know any of their phone numbers? 21 A. No, no, no. That was years ago. Page 50 2007-04-25 .TXT 22 Q. We're just trying to find any other ladies out 23 there that we haven't already seen and you brought 30 of 24 them and we're just trying to 25 A. I don't know if I brought 30 of them. 49 1 Q. Approximate? 2 A. Yeah. No, I have no clue, no idea. 3 BY MS. BILAFONIA: 4 Q. Did you stay in touch with any of the girls 5 that you brought? 6 A. Huh-uh. 7 Q. 8 talked about? DI, 9 10 11 12 13 14 15 16 17 18 19 20 any of the girls that we've you ever when yi were eithe iris or when you were givin WAORION 1001W Pges,07-kPtIm4rP8 4? A. Q. 9VA 10W400iiilbi6 massages, di rugs, whether Page 51 V4001i5.4 iculaUs AoW ONO0E0(14 64 .gi00 0,064:. usinq. 2007-04-21111111ITxT 21 Q. And just so you know, , we're not talking 22 about necessarily crack cocaine. We're wondering if 23 anybody was taking any prescription medication? 24 A. I don't know if they were taking prescription 25 medication. That's their problem. I don't know. 50 1 Q. And you didn't give anybody else any 2 prescription drugs? 3 A. No, no. when I was 16, I smoked pot, but no. 4 (start of Tape 2.) 5 MR. EISENBERG: Okay, gang, back on the record. 6 And I assume you mean prescription medication not 7 for prescription purposes? 8 THE WITNESS: I thought you meant like for 9 prescription, prescribed. No, I don't know. 10 AGENT RICHARDS: okay. 11 BY MS. BILAFONIA: 12 Q. But you weren't taking any anti-depressants or 13 pills or anything? 14 A. No, no, I just smoked pot. But I mostly went 15 there sober. I was comfortable with Jeffrey. Jeffrey 16 always made me feel so comfortable. I thought I was a 17 big girl. I was 18. 18 Q. You said that you stopped. why did you stop Page 52 2007-04-25 XT 19 going over there? You said you had a baby and you 20 changed? 21 A. Yeah. 22 Q. what happened? 23 A. Everything changed in my life, everything. I 24 ended up getting a job and I just stopped. I just 25 stopped. I don't know. 51 Q. 'f0J ;,.so: WM OtAt.01 over th ere? 3 A. I just stopped because I have a son now and 4 didn't feel like it was right. First off, I was a 5 stay-at-home mommy, okay. And what am I going to do, 6 bring my son over there to Jeffrey's, no, you know. So I 7 focused on my son. I had a beautiful baby boy that was 8 my pride and joy. I didn't care for anything else. 9 didn't care to tell friends. I dropped all my friends. 10 Like he asked me do I have any numbers, no, you know. If 11 anybody does call me, that's my mother. Like it was just 12 me and my baby boy and it's been like that ever since. 13 BY AGENT RICHARDS: 14 Q. Having a baby is a life-changing experience, 15 isn't it? 16 A. Having a baby? 17 Q. Yes, it's full-time. Page 53 2007-04-2511111111TxT 18 A. Awesome, I love it. I love it. 19 Q. Yeah, he'll be two in August. 20 A. Mine will be two in June. 21 BY MS. BILAFONIA: 22 Q. Is that when you started working with the 23 company you're working for now? 24 A. well, I was 25 was taken care of by my baby's father. Then I was a 52 1 stay-at-home mommy for eight months. After that, I 2 worked at LA fitness, Romeo Pizza. it's,been a year now. 3 And what do you mean, is that why I'm working? 4 Q. No, I just didn't know where you were working. 5 I thought you said you had gotten a job afterwards, after 6 the baby was born? 7 A. Yeah, I worked at the laundromat for a couple 8 of days. I just like to 9 That's all I did and I was like a hermit crab in the 10 house, you know. And if anybody 11 I said, you know, I have a baby now and you know, 12 I'd rather stay at home with my baby. My old man was 13 taking care of me. i didn't care about money. 14 Everything was good, so a new life. 15 BY AGENT RICHARDS: Page 54 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Q. Slaaa 2007-04-25 TXT qng-of-wor ,.....1dienyotvsetuva XIIMMents: with refer t. e girls were doing as work,. 1i massage A. NO. Q. go over jefti4i for in general? Did she ask you if you had any girls that can work or did you have any girls that can come over? Do you have any girls that can give a Jeffrey a massage? How did she ask for these appointments? A. would like to come ov MA like to WOORZ.i mean, me and were 53 assa wa Q. okay. BY MS. BILAFONIA: Q. You said that you and had developed a friendly relationship. Did ever tell you what types of girls Jeffrey wanted or I think you said that sometimes she would say he likes this girl or I'm sorry, he likes this girl? Page 55 2007-04-25 TXT 15 A. Yeah. 16 Q. what exactly 17 about recruiting the girls? 18 A. she didn't give me guidance. Jeffrey from the 19 get-go, I really like women like you. so when I would go 20 searching to make money or whatever or my girlfriends, 21 know what an attractive person looks like and I would 22 I would bring them, you know. I didn't bring any 23 overweight people. I just knew what Jeffrey liked, you 24 know. 25 Q. Did you ever talk to massages when you 54 1 gave them, what you did, what you would do? 2 A. Huh-uh. TA 3 Q. I have a picture of someone and I'm just 4 wondering if you recognize this person? 5 A. No. was she a girl that was over there? 6 Q. Just a face that we wanted to 7 A. okay. No, I don't know. 8 BY AGENT RICHARDS: 9 Q. When you would ask the ladies if they'd like to 10 go over to see Jeffrey, what was the percentage? How 11 many people would say sure, that sounds good. Let's go 12 do it. And how many would just say, no, I'm not Page 56 13 2007-04-25 .TXT interested. mean, do you have 14 would ask the girls 15 A. It was usually girls that I brought, the girls 16 that I had brought 141Wfit4g090AIM say, I would 17 say, Listen, girlfried.s and it 18 MAAt.t'40;Udown thetikt Recruit your girlfriends and x 19 will pay you guys. So if I was off the wall, say I was, 20 you know, at a club or something and I was like hey, 21 girl, do you want to 22 know. 23 Q. That's what I wondered, when you approached 24 them what was the reaction? 25 A. But when I talked to them over the phone, if it 55 1 was one of my girlfriends' friends or one of their 4 rn:. exactly an they'd be like wmikp: ' Wou know, how your morals are or whatever, if you're 5 comfortable with your body, if you're comfortable with 6 giving an old man a massage for 200. 7 Q. For 30 minutes. 8 A. You know, everybody is a different person. 9 Q. Sure. 10 A. But most of the girls were 11 yeah, sure, yeah. Page 57 n't t 2007-04-25 .TXT 12 BY MS. BILAFONIA: 13 Q. Did you ever say anything about, you know, be 14 careful who you talk to about this or I guess I'm 15 wondering why, you know, were rumors going around at 16 school or how did everything keep under wraps? 17 A. Everybody knew. I don't know. Everybody made 18 jokes about it. Like it was not in school. It was more 19 like in my neighborhood. They would call me Heidi Pleish 20 and everybody just made jokes about it. I don't know. 21 It wasn't 22 Q. Right. 23 A. You know, it wasn't if you didn't get out 24 wasn't really a big thing to me at all. 25 Q. I guess I'm just wondering, you know, kind of 56 1 the way that this all came out was finally a parent found 2 out about it 3 A. Yeah, I heard. 4 Q. 5 girls' parents from finding out? 6 A I don't know, probably embarrassing. They 7 cbviously liked efirey that nnkh that.thg. 8 anyone. 9 Q. Did anybody hassle you at school? Did anybody Page 58 2007-04-25 .TXT 10 call you Heidi Fleish at school? 11 A. NO, no, no, I was out of school by then, No. 12 Q. why did you drop out of school? 13 A. Well, actually, 14 Q. I'M sorry. I interrupted you. 15 A. Because 16 took me me out of school to home-school me. And then I 17 had went back to a school because i was really behind 18 because she didn't home-school me and I had got pregnant, 19 that's why. And that's in the eleventh grade, that's 20 when I got out because I was pregnant. And I decided 21 that I was 22 wanted to have a house. I said I'm going to have this 23 baby. i need to have a house, a car, and I set out all 24 my goals and that's what happened. But then I ended up 25 getting my GED and I have a life. 57 1 2 .4 6 7 8 BY AGENT RICHARDS: Wzre them wanting work over. work over there and make.S ck that? A. Q. Do you remember any of their names or were they classmates or Page 59 2007-04-25M. TXT 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 any of us, for me or 25 1 :4: 5 6 A. to but hope A. It wasn't much. It was just that girl in the school. Q. okay. so she was really the only like school-related A. Like person from school, yeah. Q. okay. A. BUt it was mostly out of school. So I wasn't really hanging out with the best crowd. And all the people that I did hang out with, they were dropouts. So it wasn't anything in school. It was mostly like the neighborhood people or my friend, one of my guy friends' girlfriend or whatever, you know. We were all young and stupid, but BY MS. BILAFONIA: Q. Anything else? Do you have any questions for - h 0 e Jeffrey, nothing tobilowt ecam awesome man arid .11:0X11.10gAWFPF! Q. 46:A. 58 awesome Are you in love with him at all? A. My God, no. I love him as a friend. Page 60 I love 2007-04-25 TXT 7 him as a friend. He has done so much for me. No, I'm 8 not in love with him. I tell Jeffrey, do you want to 9 marry me with all of the money that you have. 10 AGENT RICHARDS: All right. At this time, 11 we're going to conclude the interview. It is 5:34 12 by my watch. 13 MR. EISENBERG: The only thing we'll correct is 14 that there might have been a reference to an old guy 15 at 50 and we'll just say a more mature individual 16 who may be in his 50s. Thank you. 17 (End of the tape.) 18 19 20 21 22 23 24 25 59 1 CERTIFICATE 2 3 4 The State of Florida, ) 5 Page 61 2007-04-25 TXT 6 County of Palm Beach. ) 7 8 9 10 I, Vicki S. Woodham, Notary Public, do hereby 11 certify that I was authorized to and did listen to and 12 stenographically transcribe the foregoing tape-recorded 13 proceedings and that the transcript is a true record to 14 the best of my ability. 15 16 Dated this 26th day of April, 2007. 17 18 19 20 21 22 Vicki S. Woodham 23 my Commission Expires: 24 December 08, 2010 25 Commission No.: DD617559 60 Page 62 2007-04-25 TXT Page 63 TAB 7 Page 1 IN RE: OFFYREY EFS IN TTIPEF, TN7ERVTF !s7otzl-y find Phort - Op. J. Consor Associates Reporting Transcription 561.682.0905 98ae64ed-fabf-461a-b5d2-be85289cc516a 01910 Page 'I (fhereupon, the following interview was had ) DETECTIVE RECAREY: This is ID number the town of Palm Beach Police Department. Present is Detective Dawson with the Palm Beach Police Department. BY DEFECTIVE RE CAREY: A 0 A A Can you state your name for the record, please. S:lel it lease Your date of birth? ow old are you'? A Seventeen. Q Okay. Vol saw I just spoke to your mom and she has given me anthorr,zation ro speak to you. I am investigating a case involving a gentleman by the name of Jeffrey. You may know him as Jeff or Jeffrey lives in the Town of Palm Beach. We believe that you may have some information pertaining to his residence ancPor a visit at his house. I'm going to ask you in your own words tell me exactly what happened fr.im the beginning. I may interrupt you to ask you some more questions 'out before we begin. can lapse your Oulu hand for ine. Do yt,11 solemnly swear tO tell the truth, the is truth and nothing but the multi so help you God.' A I do. Q Okay. 1-,otiii!AO.vdtkinit,..:i.O vhci ..ydti4iIU A (Inaudible) not really friends. 111111160:m.g :v-ANN thin she found a as of Making mcney.'mu can pet money. And then she said that ift ever told anybody she'd beat my ass and so 1 didn't even know what she was talking Right bellse we got m there she's like oh, he might ask you to like take off your shirt or something. Hut I didn't didn't matter Si' I said okay. And I went in his house. A Lady escorted me up to his room. Had a bed on it. Q Okay I.e.! n hack ui up for a second A MI huh. Q You said this was right before Christmas. Christmas of last yea' in the yea! beliiie? A Last Year Q Last year. A Oh-hoh. Q So tins is December of 200.1, righil ; 4 .t A Oh-huh. Q Okay. How old were you then? A I think 16. Q Okay. A And then I went up there. He was on the phone and 6 he just told me to massage his feet so I went over there and 7 did it. (Inaudible) and everything and then Q 1 told on for a second. Hold on. Take me from when 9 you got to the house in Palm Beach. First of all, do you 7. remember the name of the street'? A You said it before but I just can't remember. Q Okay. Do you remember any specifics of the house? A I know where it is if I were tc: go back. I could find it. Q Okay. .; A It was at the end on the left side. Q The end on the left side? Okay. Do you remember the color of the house? A Oh. It was too long ago. Q Okay. I know it's been some time and we did speak . once before A lib-hub. 1 7 1 L 0 A All right. So you were walking in with Uh-huh. Q Okay. Take me from clo you go in the front door? . : Do von go through the garage? A No. You 2.0 to the sick gate. You have to knock on the back door kind of. Q Lilt-huh. A And a lady will ask you like what's your name and why you're there. Q Okay. What's the lady's nante? Do you know? A No. I think she was the maid because she was like InkIng. up towels aid she was bringing Mem upstairs Q Do you krow A She might be a Spanish lady. I can't remember so 0 Okay. And when you walked in, there was food on the Inhale. I bey offered you (laid. And I waited a couple of minutes. I guess he was in another session I don't know. Because like a girl walked out before I walked in and this really pretty lady. he walked in with two ladies and they were like they looked like models or something and one had blond long hair and one of Mein came down and told me I could go upstairs. .fhat's probably her. And as we were walking up the stairs she told ine what was going to happen like well, he's going. to have some lotions there and he'll probably be on the phone for a little while. Q Okay. Did the blond lady with the longhair take J 2 L.' ages Consor Associates Reporting Transcription 561.682.0905 98ae64ed-fabf-4618-b5d2-be135289cc56a 01911 Pricie A 9 1.1 12 13 1 4 e 16 YOU upstairs? A Yeah. Q Okay. How does she take you upstairs? How did VDU A She just said follow me. Q Did she staircase? A It was like a living room. It was the kitchen and than a living room and you turned right and then it was like a staircase that would hke I :,.ness it's kind of spirals. Q Okay. Did she take you to where? A It kind of looked like a bathroom hut there was no toilets. It was a cold room and it had like a sauna in there. Q Okay. It A A big sauna. Just table where he was going to lay on. A place where you could wash your hands and it just kind of looked like it was a room for that. Q Okay. Okay. So take me from there. A He turned the lights down some and he was on the phone. lies like oh. just (inaudible) lotions are here and you can start by rubbing 111V feet. So I put some lotion, rubbed his feet. and then he told me to rub his calves. his legs or whatever. And then Lin trying to remember. And 1 Ycult. arid then he wanted me to rub his back. I started up 2 top and then lie kept asking me to no tower and lower and he 3 still had the towel on at tins point and then when I got 1 right to where his right above here Q Oh-huh. 7 A A like man rubbing like his stomach and stuff like that and his chest and then he told me, he's like why don't you just take off your shirt and pants. I was like (inaudible). so I 11 did that and then 12 Q You had your shirt and pants on when you were nibbing his feet and calves? 4 A Uh-huh. 15 Q Okay. You took off your pants and shirt. 16 A Uh-huli. Q Okay. to 1 A And then like he got more (inaudible) and he took off his towel. Q Okay. A I don't really like know why he was doing that but and then lie he was kind of like talking to me like trying to get to know me about my sex. life He's like oh. you're such a beautiful girl. He's like well what are you like when you have sex. I didn't really answer him. I was like. 2 3 6 1 4 2 21 well. I don't really like to do anything. (Inaudible) a massage. 'that's it. And he's like nh but you're so beautiful. And he kept saying that for some reason. 0 All right. Let me stop you for a second. When he took off his towel. was he completely naked'? A lih-huh. Yes. Q Okay. And you were in bra and panties'? A Oh huh. Q Okay. Okay. 'Fake me from there. So he took off his towel he's telling, you how beautiful you are. A And lie told me. he told me to nib his nipples like he's like oh. just pinch them or something And I was like all rirlit. And then he had one hand on his P. Q Okay A And then he like tried ribbing on my priyes (phonetic) and he had like the middle of my bra was the snap off part and he like snapped it off and he NTS trying to led l my boobs and then he just grabbed my thighs and he was jacking hunsell oil at the same time and then he went down to O Say it. A Nly vagina. By DITA Ec rivE DAwsom Q We've heard it all A Yeah. And he like didn't take otTmv panties but he like pushed them to the side and he's like feeling down there and he's like don't won-y. don't worry. I'm not going to go in, da do do. It's so we i rd I'm like anyway. And then he stared rubbing down there and then he started talking dirty. He's like au, your c lit feels so hard and stuff And l like backed away. I was like (inaudible). O Okay. At any time did you tell hint no? Did you tell hint you're not comfortable with this? A I hacked away and I said I otis like well. I don't know if I shouki do tilat and I was like very hesitant and so seared that I didn't know what to do. Kind of like you just want to ret ii over with to get it over with. And then and I 'was feeling so ieitsc.: guess that's why he was saying it. And then he actually stuck his fingers in there end I hacked away again. He goes oh, don't won-y, don't worry And he's like okay. fin sorry. Then he went back to the outside and he was still jerking hinisel ruff mid then finally he finished himself. wrapped up his towel and said there was S200 on the counter and then there's an extra hunched for iike oh. I'd like to see you again. I was like yeah, I don't knov.'. Q Okay. Let nie bring you back to when he snapped oil your bra. A I ih-huh. When he snapped it off. did you take it off or did J. (Pacies 6 7.0 9) Consor Associates Reporting Transcription 561.682.0905 98ae64ed-fabf-461a-b5d2-b 035.289cc56a 01912 Page I LiI he slip it off of you or did you just have it on and it was 2 just hanging? A Yeah, it was just hanging. He had snapped it off 4 and it was just right here. Q Okay. At any time did he touch your breasts? A Yeah. Q When 8 has been unsnapped. What kind of panties did you have on? Do you remember? A Athmg. Q Affione A Uh-huh. Q He started touching you on the outside of your panties or did he 1110 .12 your panties to one side? A On the outside first and then he moved, he moved them over. Q Okay. And then he started touching you on the outside of your vagina? 1 9 A Uh-huh. 2 n Q And he told you he was not going to go inside. 21 A Yeah. Q At what point did that change'? A When he started feeling down there and then 21 when 25 Q When you say Fltgers, did be use more than one .. ......... . 3 34 37 finger? A I think he used two but I don't know, Q Okay. A And lieu after Judd him, I backed away and I was 5 kind of like shaking my head no, he's like okay, I'm sorry. O And then he kind of still put his fingers down there. He was just like pushing really hard on me like, f don't kuow, he just, it just fed like Ins lingers weren't in me but it was ciose enough to where it still felt weird. 1 S Q How did you how. did ii inside you, on backed up to eel them out or I. 2 A Yeah. And to let hirn know that I don't want to do -3 that. Q Okay. And none of this was told to you by that this would happen? A No. Q Okay. A That's why when I got out I was freaking out but 1 didn't even say anything to her and then she asked me what happened and I told her what happened and she said oh. it's okay. He did that to one of my other friends 1 brottaht 2 here. And I was like and you let him do that and still got 7 MC in there? And she's like oh, ifs okay. You got 2.00. Does it matter? I said did you have to do that? She said no. 1 was like all right, then you don't know how it feels. Pa 12 She's like let's just go shopping and stuff and I was like no. ;I Q Okay. During this time that this was occurring, ; 4 he was jerking off you said'? A Uh-huh. Q Okay. What does that mean to you'? I mean like is it something that 8 3 -2 23 9 I Lt A A Yeah. Is that what you consider Okay. Did you A That's Okay. Q Do you know vital a circumcised and uncirouncised penis is? A Umm, then (inaudible.) No. I krow what it is. Q Okay. Did you visually sec his penis'? A Uh-huh Yeah. Q Would you say it was circumcised or uncircumcised? A I would think it would be circumcised but I tried not to look. Q Okay. A I was kind of just like looking ali.ay because I didn't want to see what was actually happening. Q Okay, You said that he had finished. A Ile came. Q Okay. A Because he was like a big sigh of relief like he had been done and he just got right hack up and Q Do you know where he came an'? Was it on the towel? Was it on himself? On the bed or A 1 think it was on the towel like right between Ins :eg,s probably. Q Okay. As 1 told you before. and I explained to your mom, what he did was wrong, o'say? A 1.311-hui. Q l want to reassure you on that. Okay'? At any point did be ever ask you to leave your phone number or A No He didn't ask nte for anything. like I think he asked me my name in the begualir.14. I'Ytd tie kno'1viai at, A Ftlo t'igiAc P4,!0.04.0 : 9 old 'is'e ,oi1Just,ay.ye 0 .4! efAip. , 23 ................. dd .................................................................... Q Do you have any formal massage training? A No. That's why I thought (inaudible). Q Okay. How long would you say this session lasted? J. Consor Associates Repo ing Transcription 561.682.0905 983e64ed-fabi-461a-b5d2-be85289cc563 01913 ( 1 3 4 15 7 9 1.0 11 12 14 1 16 18 19 20 22 73 24 2E, Page 1,1 A Probably like around 45 minutes. Q Forty-five minute.s? Okay. You said he wonted to see you again. Did the blond hair lady try to take your information or A lie said oh, well; I think gave my secretary your name and number and sruff and I'd like to see you again and Q Did anybody from the house ever call you again? A Ilub-huh. Q Nobody ever called you? A No. A A Okay. So you only went there that one time Yeah. Okay. Is there anything else you'd like to add? Yes. There was another girl that like Pacfe 16 DETECTIVE KE.CAREY: Okay. Can you think of anything else? 3 BY DETECTIVE DAWSON: 4 Q Was he in good shape? Was he a blob'? 5 A He was old but he wasn't as muscular or anything 6 like that. He was like a regular old guy. BY DETECTIVE RECAREY: . 8 Q Did he have any accents or anything or A Huh-huh. No. ' ' Q Did he ever introduce himself to yon2 A No. That's why I don't know who you're talking about. I guess I heard that name in front of (Inaudible) took notes on his name or anything. Q I know this is difficult for you and I know it was difficult from talking to you the other day and it's difficult talking to you now. A Uh-huh. Q But I've talked to a lot of people and I really appreciate you talking to me about this. A Oh-huh. Q Is there anything else you'd like to add to this statement? A No. DETECTIVE RECAREY: No? I'm going to go ahead and conclude this statement. The time by my 1 , there were other rumors like they were partners in doing that. Q Who was that? 7, 8 A This girl I'm not. I'm not quite sure My brother would probably know because she's older than us t because she met her at Publix afterwards and went 2 and gave her some money. I think they had to share the 100 2 that they did. (Inaudible) a hundred bucks. And (hen 1 heard another thing at my school that there was like a rumor ' 21 about this other girl it happened to. I just didn't say 25 1 anything because I didn't ant anyone to know about me. 2 Q Do you know who the other girl was? 'r A I could ask. Q No. Don't worry about it. 5 A Okay. 6 Q Did he know you went to A I don't think he knew anything about me. 9 Q Like the quest:ons that he asked you in trying to get to know you, what kind of question I neon other than the 11 sexual questions'? 2 A He didn't really ask me .1 3 what school I went to. lie was just asking inc like how I 1 4 felt because you're pod at massaging, (inaudible) how I got 13 n the business. I thought yeah. 'hard be cool. And he I 6 tried to ask me so do you have a boyfriend, what do you do 7 liar fun. Pretty much like it was kind of weird how often I 8 (inaudible). Now do you like to have sex. Oh. do you like I 9 it when people like touch your wall's. I said no. I don't ieally like when pro touch illy body because I'm shy owl (inaudible) don't let im.yvne touch my boobs anyway. He did it. Q Okay. 2 4 A 130 he kept asking roe like about his nipples 25 Ile's like oh, that feels so good like 4 1.3 7 23 2 4 2 E. watch is 5:25 p.m. (Thereupon, the interview ended.) - - - 7 (FaLjes 14 to 17) J. Consor Associates Reporting Transcription 561.682.0905 98ae64ed-fab f-461 a- b5 d2-13e 85289cc5 6a 01914 Pacji.: 18 CERTIFICATE 3 STATE OF FLORIDA ) COUNTY OF PALM BEACH ) Sandra Rossi. Court Reporter. State of Florida at Large. certify that was authorized to and did stenographically report the fargointz proceedings, and that the transcript is a true and complete record of the tapc as !isteneci to by me Dated this 30th day of January. 2007. n 1 a Sandra Rossi. Court Reporter 6 g J. Consor Associates Reporting franscription 561.682.0905 98ae64ed-fabf-461 a-b5d2-be85289cc56a 01915 TAB 8 Page 1 IN RE: JEFFREY EPSTEIN DRAFT TAPED CAP INTERVIEW OF 02505 10 1 1 12 .1:3 14 15 16 17 18 19 20 21 22 23 24 25 9 10 11 12 13 11 15 16 17 18 19 20 21 23 94 25 MS. ROBSON: 4 this (inaudible). right? 5 BY UNIDENTIFIED MALE SPEAKER: 6 Q You know we're not going to argue again. We're 7 not going to keep much from you. 8 A I just don't want to rat anybody out. I'm not an idiot. Come on. now. That wasn't more of a ratting out. 11 was more of a A Complaint? Q You got it. A (Inaudible.) Q You're a smart girl. A I'm not an idiot. Q Yeah. No. you're not an idiot A Sof guess karma. you know. (Inaudible.) I'm kidding I'm kidding. I don't even know who he is. A I don't know. Il's such a big girls out there that have worked for him it's not even funny. Q Really? A Like 1 said, some bring friends who bring friends Pd ye 3 1 whit bring friends. DurcrivE Rl:CAREY: All right. You notified 3 Jimmy? 4 I INTD1NTI Fl NMI .E SPEAKER: I notified Jimmy 5 DETECTIVE RECAREY: Give him a call. 6 (Inaudible) 692 7 sorry. 6923. Our beginning mileage to head 8 Sack southwest 9 female (inaudible) same mileage 6923. What was that? INIDENTLFIND MALE SPEAKER: Fire truck. R01350N: so when will I know what's going :o happen? BYIINIDENTIFIED 51'1:AKER: Q Well, here's the thing. What arc you doing ha-non-ow'? Well, no. nere's our goal. We would like to at least to talk to UNI DI:NT 1 F1ED MA 1 .1: SPEAKER 2: We want to try to interview some of these MS. ROBSON: (Inaudible.) 13Y UNIDENTIFIED MAI. SPEAK) iR: Q Right Tonight. A Tonight free so Q Okay'. BY DET1:..CTIVE RECAREY: 5 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 29 25 1 DI A (Thereupon. the following interview was had:) 1 2 2 3 3 4 5 Q Tomorrow yon're working') A Tomorrow I go to saw' from 12 to 4. BY 1:N1DENTIFIED MALE SPEAKER. (,) 11h-huh. A Wednesday I go to (inaudible). 6 Q Well. tomorrow what are you doing after 4:(k? 7 A Nothing. 8 Q Okay. BY DFTErrivFIZNCARFY: (7 1)0 you have to go to work'? A (Inaudible) Thursday BY LN1DENTWIED MALE SPEAKER: Q Okay. We would prefer to do it sooner than later and our, our request from you at this point as we move along is really for von to make that phone call and introduce us and sa,vou know, these are the detectives from the Palm Beach Police Departmoit. I've told them evelything. They're on their was to your house. Do you know these girls' schedules by chance or anything like that'? Do they still go to high school? A WelkEstill goes to high school. She's a senior. Q Okay. And that's, unit's who we want to speak to tonight. From what you're telling us. we're confidentM rill not be going and talking to Jeffrey. Depending on how Page 4 Page 5 that goes weinight give you a eali and ask you to make another phone call for us. II' we could break out the list 3 as we drive. make sure we have a little order of obviously 4 based on what you're saying, should be the last on our list. We don't know if she's still 6 OF: FEC 11VE RECAREY: , she's in Orlando. 7 We can do that one over the phut ie. 8 BY ENIDINTIEIED MALE SPEAKER: 9 Q Now didn't von sav she was back though? 10 A is back. Idon't know it' she has class 11 tomorrow but I don't know if she la already or not. 12 Q What kind of class? Is she in college or 13 something'? 14 A Lollege. Yeah, she's up in Orlando. I don't 1.5 know. She !night have already left. What is today? Monday? 16 Q Yeah 17 A Oh. well she might have ahead',' hell today. She 18 had class today 19 Q Oh. today. yeah. 20 A Yeah, she does. Very rarely lost to see her 21 parents and stuff Like she lives up in Orlando. She might 22 come back once a month on the weekend to visit her parents. 23 Q Now do you talk oMat all oi not really? 24 A Ihung out with her last night. She came down 25 from college and stuff. 2 ( Pacles 2 Lo 5) 02506 Q A But 3 Q That Y as Sunday night So she ii as around jt is( 4 last night. 5 A She was around last night but. like I said, 1 don't 7 now. 3 BY DETECTIVE RECAREY: 9 Q Okay What about 10 A Oh. 1 don't like her. I don't like her. What 1. l about her'? She never worked for, she never worked for 12 Jeffrey but she's been to his house before. She knows about I 3 it. Knows about everything that went on. She was the one 14 that was with (inaudible). Q Okay. Does know ? Do the!, 16 know each other'? 17 A I don't know. 18 BY UNIDENTIFIED MALE SPEAKER: 19 Q Then phonetic) lives like a couple blocks 20 away from yon. yeah? 21 A Yeah 22 BY DETECTIVE REC.AREY: 23 Q Okay. lives (inaudible.) 24 A (Inaudible.) 25 Q Okay. Why are you afraid of (inaudible)? 1) RA MS RI )13SON: So what ii 2 BY DETFCTI VI'. RI ',CAREY: Q ( lkoy. Well we'll move on. 4 BY (JN11)1iNFIFIED MALE SPEAKER: 5 Q That's our 6 with an order of who in your mind (inaudible) you're 7 confident was 16 or maybe 17 when they went there, who 8 probably no longer has any connections with Jeff (inaudible) 9 who at least Maybe a dayirikeep their mouth shut. 10 A Okay. Well with I don't know how old she 11 is because she lied about her age. She lied to me when I 12 first Mei her When I V Zel 18 she told me she was IS. 13 (Inaudible.) Well she left her purse at my house and she 11 told inc to make sure that I didn't took in her purse. When -15 I Y on through her purse. I found her mote license that said 16 she v its 16. So she lied to inc about her age. I don't care 17 allow ii orkingl'or Jeffrey. but 18 Q We're looking for girls that went upstairs wall 19 Jeff 20 A Yeah. 21 Q Those three or four gals, whatever you can, you 22 ..now, help us OW with here. that is our goal in the next 23 let's say 24 hours. 24 A Okay . 25 Q Is to reach out to as manv of those gmls and it a not home? Page 8 Po ye 7 A Oh, no. Fin not afraid you know what it comes 2 down to? It Comes down to this. Pin not all aid of any of 3 those girls but when I almost rough cries to 4 EllandMwas brought in to our group which was stupid 5 11 and instead being 'nature about what happened three years ago. Was like NI going to kick your ass. da da 7 and I was like you know what? You talk a good game. Leave 8 ii te idone pretty much. It got ridiculous so I had to change 9 m number and I saw her at (molkiibIC) one night. She 10 i r1Of I behind. I go i.ou didn't sav anything to rile 11 all night and when she jumped me from behind she jumped me 12 so whatever. Owls are stupid. 13 BY L NIDENTIFIED MALE SPEAKER: 14 Q All right. Who else v, as on that list von got t1H7117'? I 6 BY DEJE(,TIVE RECAREY: 17 1..) 1)o you know a girl named 18 A 19 (Cellular telephone discussion as followsl 20 DE II:C.11W RECARI-:Y: llelo? Yes. I ley, 21 Dahlia. Okay. Right. Okay. Right, right, 22 right, right, right, right, right. Well, that's 23 the case, that's the situation. Right. ()kay. 24 All right. Right. We're gonna meet with her 25 tonight. (inaudible.) Okay? All right. Bye. Pdge 9 1 might be as simple as we give you a call on your cell 2 phone 3 A And you call them. 4 Q And you Nny hey, we need you to call this girl and 5 tell here we arc out front because that's one thing we want 6 to do is figure out where these girls live tonight so that 7 we can remll out to them and say hey we're out in front of so and so's house, can you give her a call and let 9 I k h bet' ..nov, there's a couple of detectives outside and no, 10 u mere not kidding. the- realls arc there and heads up. You I 1 knon iihat I n !Calf' 12 A Yeah. 13 Q what we'd like to 14 there if ii e can make some details on that so we're all on 15 the same page. that's what we're ping to do. 16 So how many girls was on the list that ,Nc started 17 with? 1 B A You asked me if I knew an 19 Q We don't know 20 lost names of these girls as well. So if you've got some 21 lost names. 22 A 1 don't know- Imean 23 Q That's okay Imean 24 A ? I've heard of a gi:-Inamed but I 25 don't know (inaudible), you know? To my knowledge! don't 3 (Paces 6 to 9) 02507 1 know. (Inaudible'?) 2 Q No. (Inaudible'?) 3 BY DETECTIVE RECAR EY: 4 Q No. (Inaudible.) 5 A Inaudible). Not that I know of I know a 6 girl named but I definitely (inaudible) not like 7 that. 8 Q (Inaudible'?) 9 A Don't know. I know (inaudible). 10 BY UNIDENTIFIED MALE SPEAKER: 11 Q Besides Mwho clse ended up upstairs with Jeff? 12 A That's it. 13 Q Okay. 14 A 15 16 A (Inaudible.) 17 Q Okay. Do you know their last names? 18 A s last name l don't know. I don't know 19 s fast name. (phonetic). 20 And I know Ms brother. 21 (inaudible) I think the last name is M. I don't 22 know if (inaudible) or anything because I know like 23 (inaudible). It might be 24 Q (Inaudible?) 25 A Royal Palm (inaudible.) Page 12 1 Sicilian should have the hong out 2 Q hang out. 3 A ()Hoe a bit. And von should also (inaudible) and 4 I know the first three digits it's 5 it might b but I haven't talked to her in a Nvhile. 6 Q Sc' il We start withEtolught based on what y011 JUSE :Aid 'Mould introduce us to 7 who then 8 could introduce us to 9 A "l'it .len Reyes. 10 DET1ICTIVE RECARIIY: Okay. 11 hangs Out Ir th tionig to talk to Obvtonsk nIt 12 last 13 tV lINIONNTIFIED MAU SPEAKER. Q Right. We want to iivoid ill all costs. 15 So our qt iC5t 01110yo1.1 IS this group of three 16 girls 17 A l'hey nit kilow cm:11(ithr:r 18 19 20 21 92 23 24 25 Q They know each other A They all know ezicli other. Q A .hey kno They know everybody, its like a group or people 110 all know each other. Q Faith (inaudible) A The only one they might riot know is (inaudible) but... Page 11 Q (Inaudible'?) 2 A (Inaudible.) 3 Q Do you know their phone numbers by chance or do 4 you have them in your phone maybe or 5 A Let me check. Okay. What's the first girl? 6 Q 7 A I know by heart. It's and 8 it's a 9 A I don't even ha e in my phone. 11 12 A I know hers by heart. Area 13 code 14 Q How about 15 A no, I don't know her number at all I 6 Q (Inaudible.) 17 A I'm pretty sure that's her number 18 because that's the only ones I have. 19 90 A I know her brother's number but 21. don't have her number. 22 Q Is that his cell? 23 A (Inaudible.) 24 Q Okay. (Inaudible.) 25 A Uh-huh. (Inaudible.) will have Page 13 1 Q All we've got is a group of girls that cf .A 'They've all heard of each other (inaudible). 3 Q Now do they all go to school yid each other to 4 your knowledge? 5 A Some of them. Not all of them but some of them 6 still go to school together. 7 Q Does she still go to school'? A She still goes to 9 Q 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A I don't know if' graduated last Pm not quite sure. might have graduated last year. (Inaudible.) Q Okay. So theywouldn't have as much contact as the other group. (Inaudible) that goes to school. .A (Inaudible.) Q My office is warm. The bullpen out there is hike 1 arm. UNIDENTIFIED MALE SPEAKER 2 I love the cold. BY UNIDENTIFIED MALE SPEAKER: Q Yeah. and it's a twenty-year old building so nothing really circulates as well as it should that old but (inaudible) in the car If there's anybody that we need to (inaudible). we're not going to talk to. year or (inaudible). -1 (Pages 10 to 13) 02508 1 HY DKrEC'lIVN Rh:CAREY: 2 Q (Inaudible.) 3 A (Inaudible) call her, open your mouth to any of 4 them. - 5 By DFFECTI 12FCAREY: 6 Q We will absolutely tell them that that they would 7 be obstructing an investigation. 8 A the only one that's going to open her mouth is 9 probably The only one (inaudible) say anything 10 would he M. 11 Q Are these girls, you know, are they embarrassed 12 about what they've done? Would they rather nobody know if 13 it possible or are they out there flaunting it? 14 A They don't care. 15 Q Okay That was my question. 16 A These girls don't care. For the must part they 17 don't care. 18 Q Okay 19 A Otherwise they wouldn't do it. 20 Q I tend to agree hut that doesn't mean you 21 everybody else (inaudible) get in on the action or 22 (inaudible) in general. 23 A (Inaudible.) 24 Q I hear that Oh, okay. (Inaudible) call 25 dispatch. A couple of females, (inaudible) get some Page 16 Page 15 1 addresses. After were done with I thinkMwe were 2 talking about next? (Inaudible.) Oh, okay. 3 A Well. 1 don't know (inaudible) well. Q We should probably try her since she would be 5 leaving. You want to try A (Inaudible.) 7 UNIDENTIFIED MALE SPEAKER: (Inaudible) 8 necessary. 9 (Two minutes of inaudible conversation.) 10 (lbereupon, the tape ended.) 11 12 13 14 l 6 J.7 18 19 20 21 23 24 2 5 (Pages 14 to 16) 02509 TAB 9 Page :1 TN RE: JEFFREY EPSTEIN DRAFT TAPED INTERVIEW OF 02420 2 1 I (Thereitpon, the following interview was had:) 3 BY DETECTIVN FCAR 4 Q Today's da:e is October 4th, 2005 This is ID 5 number 7915 Detective Joe Reearey of the Palm Reach Police 6 Department. Piesent at 1301 (inaudible) Road is Detective 7 Michael Dawson of the Palm Beach Police Department 8 ATOM ) you slate VOIR ii;tnt lilt !he rec.:mil') 9 10 11 12 13 14 15 16 1.7 18 19 20 21 29 23 24 25 A A Q A A A A Q Okay. Can you raise your right hand for me? Do you solemnly swear to tell the truth, the whole truth and nothing but the truth so help you God? A Yes. Q Okay. if you could tell me from the beginning how you met Jeffrey 11pstein. I know you have some 2 how do you spell your last name? Okay. How old are you? I'm Ii,. F.ighteen. Okay. You're currently in college? Yeah. Okay. What ctillege are you attending? Okay. And your date of birth is? Page el 1 there's more to that. More to the massage. Okay? That's 2 why I didn t want morn to be it) here. And you can talk to me 3 about anything. Okay? Tikc I said, I've interviewed other 4 people already who have told me what transpired in that 5 room. I know it's going to be difficult for you but... 6 A Well, the first hmel went there I did a massage 7 and he was just asking me a lot of questions. lie seemed 8 like really nice. And then he kept like staring at me and 9 stuff. And then like I did a massage and he just kept 10 looking at me Lind he was like oh, you're being shy and I'm 11 like yealt. NomotOgo 00:(0.0 .0400klogigE-ogt was Ijkc he's-like .10.i.;;WW0;141i3Vataikiiit 14 And he was like why are you like being shy and I was like 15 oh,Idon't know. Anti then he would like change the subject 16 and he started talking shout other things. And then hen we 3 7 were done he said that if like I wanted to conic back tind do 18 more then he would like pay inc more and then I would have it 19 talk to Haley and I could come back. 20 Q Okay. What kind I-questions did he ask you as 21 you were massaging him? 22 A He was asking about 23 remember everything but.. 24 Q Right. 5 A He was just asking me it'll-tad tui friends that 4 5 6 A IiiigNifii;i3i6.405,i fOiie 7 Q Okay. How long ago was that? 8 A It 11:.:: probably about almost a year agi. 9 (,) Okay. Okay.. 1.0. A Aiiafia.-;,,,t1-;::Wakihi;iE;aW'Avilgii.gi'ijigij, 4iiii.siive V.A:t :105116,ifilidiitk whatever and then after that like he kind 13 of scared me when I went there sol just decided not to go 14 back.. 15 Q Okay. The first time you went will you 16 go umstairs with him? 17 A No, I stayed down in the kitchen, (Audio at 2:03) 18 Q Okay. Did tell you that 19 entailed as to what had to he dime? 20 A Well she said the first lime you go ifs just like 21 a IrlatiSagC and she said like welL the more volt go supposedl 22 the more he like expects and starts flirting 'a tilt girls and 23 that's what kind of like scared mc. 24 Q Okay. I've interviewed other girls and they've 25 tO:d inc pretty much the same thing about the massage but Page 3 1 information and we arc conducting an investigation. We were 2 here last night, spoke with your mom and dad. If you can 3 just start from the beginning as to how you met him. Okay And how came about. A (Audio 1:26) : 7 Page 5 1 might want to give a massage and I said I don't know. Then 1 heasked rite about what 1 wanted to do when I grew up and 3 stuff like that and I asked hint what he did and he said he 4 was like a scientist basically 5 Q Okay. Did he ever ask you how old you were? A No. (Audit) at 4:08) Q No. Did he know that you were 17? A No, I don't think so. 9 Q Well it would have he 16 lin 'a-as a vein. ago, 10 right? 11 A Well it like was ttlmost a year ago. (Inaudible) 12 17. 13 Q Okay. During the massage did you 14 naked or 15 A No. I had Inv clothes on 16 Q You had all yi)ur clothes on? 17 A 11h-hoh. 18 Q Okay. Did he touch you in am, w ay? 19 A He was like kind of like caning towards it but I 20 was like you could tell I was shy so I think that's why he 21 didn't try. But 1 het:rd about other girls that he 22 he got flirtatious with them and he made them take off 'left 23 clothe); and stuff. 24 Q Okay. What 25 right'? 2 (Pages 2 to 5) 02421 A Yeah. ".? Q Okax . 3 A wa. ito. II was the second nine that I gave him 4 a Massaw. The first time I went up with 5 Q Okay. You went upstairs with 6 A No, I was in the kitchen. 7 Q rim Were in the kite-hen. That was 8 two limes that you went there? 9 A Yeah. 10 Q The first time von didn't do anything but just sit 11 in the kitchen? 1? A Yeah. 13 Q Who did you sit in the kitchen with? 14 A I le had a cook that was there and he had 15 was like two other girls there that live with him. 16 Q Okay. Did you massage his back? Was he naked 17 w lien you were iiiiissriging liii ii? 18 A Well, lie had like a towel around Ins 19 was (inaudible) but he had like a towel around him. 20 Q Okay. Did he ever remove that towel'? 21 A No. 22 Q When you were massaging him he never removed the 23 towel? 24 A No 25 Q Okay. Did you 1 L? 2 A No 3 (,) No I have to ask. Was one of the two girls that was in the 5 kitchen NvAllyraf? 6 8 A Well, I just went there twice. 9 Q Right 10 A After that Q After that you've never come back? Never went 12 back? 13 1low much did you receive for the massage? 14 A 'Iwo hundred. 15 Q You received 200. (Audio at 7:43) 16 Okay. Did explain to you whai was going to 17 be involved? 18 A She said the first time you go there you pretty 19 much just give a massage, but the more you go there like the 20 more he expects. And that's it. That scared mc. 21 Q That's what scared you'? 22 BY DEFECTIVE DAWSON: 23 Q Did she sax' (inaudible) or did she (inaudible 24 A Say didn't have to say it exactly but she implied 25 like, you know, like taking your clothes off and !initial: Page Okay. I lave you received any massage training'? A Yes. Q Okay. I lid you ever go back to his house'? 8 1 private area? 2 A No. No. I wouldn't do that. Q You wouldn't do that? 4 Okay. Did he touch you in your private area? 5 A Ni. No. Page 7 (Audio at 5:50) 6 Q No. 7 A I le kept like staring mine and like. I don't know, 8 I just felt uneomfortahle and I left. Ihrt I heard other 9 stories that like 10 Q Right. Pin emcerned with on I know abtsit 11 other stories and I've interviewed other people have told me 12 different things. That's why I'm trying to find out what 13 happened hi ion. Okay'? 14 A h-huh 15 Q You're the VielMi 111 fills so thireS why 1.11111-yille 16 to lid out what happens to you. 17 A Oh-huh. 16 Q Okay? Who took you upstairs to the room'? 19 A This girlMthat lives with him. 20 Q Okay. Si) took you up? 21 A Yes. 22 Q Did she tell you anything? Did she say anything? 23 A I huh-huh, 'lhere's a massage table and she just 24 laid a towel down and she said that Jeffrey will be out for 25 his massage. 9 10 11 12 13 14 15 16 18 19 20 21 22 23 29 25 Page 9 1 that. 9 I3Y DI RECAREY: 3 Q Okay. So you didn't remove any of your clothing? 4 A No 5 Q What V ere you wearing? Can you remember'? A I t. 10111 kni tV It was a long lime ago. I don't 7 remeillber exactly. 8 Q ( )Lay . A I don't w ant to tell you wrong. Q I know. And I know you already told your mom what happened. And like I said. I know this is hard far you but... A I was just seared. I just didn't w ant my name to like Q Don't worry. You're not the only person I've talked to. Okay? There's a lin of people that I've talked to and I'm going to talk to. I low did you get to his house'? A With Q I laley. took you the first time and you sat in the kitchen. A Yeah, Q What about the second time? A The second time I drove and she came with me. Because I didn't want to 3 (Pages 6 to 9) 02422 1 Q 2 A 3 Q 4 A 6 7 8 9 10 11 12 13 14 15 1 6 A You drove. Yeah. Okay, What is it you drive? I used to have a Cavalier. A Cavalier. What color? Red. Q Okay. Can you describe to me aat M,. Epsteiu looks like? Jeffrey, looks like? A He's tall and he has like greyish black hair and hc usually wears like glasses and he has blue cycs. Q Okay. When you massaged him, von massaged his back area'? A Yes. And I did his feet be. Q And his feet. Okay. Did you do his legs? A Yeah. like his calves. Q His calves. Thigh area'? 17 A No. 18 Q No. His chest area? 19 A No. 20 Q No. Can you desci ibe what his body looks like'? 21 A He's not fat but he's not like thin. He's like 22 normal like average. 23 Q Average? Okay. Is he hairy? Is he not hairy'? 24 A A little bit. 25 Q A little bit'? A little bit he's got hair on his Page I I back? 2 A Yeah. 3 Q Yeah'? How about hair on his chest? A Lim 5 Q You don't remember? Okay. He did not (ouch you inappropriately'? 7 No. 8 No. Did he masturbate? 9 No. 10 No. Do you know what masturbate means? 11 Yeah. 12 Okay. Why don't you tell inc what it means just so 13 I know so you know. 14 A Playing w ith yourself Q Okay. Okay. I have to make sure you understand 16 hat it means. 17 A Yeah. 18 Q Okay'? I know it's difficult. 1 9 He didn't touch himself 20 A No. 21 Q while you were massaging him? 22 A No. 23 Q No. Is there anything else you'd like to add'? 24 A No. I mean I heard of other stories that he did 25 and I don't think it's very like appropriate like ..... A Q A A Page 12 Q Right 2 A 3 Q Right Well. a lot tit people that I've been 4 talking to aic about your age and a couple younger than you. 5 St) that's the part that I have serious problems with. 6 A Yeah. 7 11,.(1:11V1-: RECARFY Do you have sly 8 questions'? 9 1W DETECTIVE DAWSON: 1C Q Did you sec am others 11 said you talked to two girls in the kitchen. The second 1 2 iliac VOLI 0 Lilt. Viii! Veni jai .13 A 1 laley. 14 Q Ilalcy. Were there any other girls there? 15 A Yeah, there were the same two girls that were 16 there. 17 Q Same two girls? Okay. 18 A I'm rretty sure they like live and travel with 19 him. 20 RF.CAREY: Okay. All right. Well 21 at this time I'm going to conclude this statement. 22 Its 11:45 a.m. 23 (Thereupon. the interview ended.) 24 - - - 25 Page: -13 . . :!:! ...... 4 (Pages 10 to 13) 02423 TAB 10 Page 1 IN RE: JEFFREY EPSTEIN DRAFT VIDEOTAPED INTERVIEW OF 02528 (.1.herotillon, the rollowing videotaped interview "a3 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 3 - - - 4 13Y )ET1'.CTIVF. lCAREY: 5 Q All right. I appreciate you coining down again. 6 All right. The reason why I asked you to come down was that 7 I'm investigating a case in which my investigation. I 8 believe that you have information on Jeff Epstein. Okay? A Okay. Q First of all, iiefive we even begin, lvi me Just swear yOU Ill. Okay? Raise Your right hand for me. J )o You swear to tell the truth, the cc hole truth and nothing. but Ate truth so help you God? A A Q A Q A Q A A Yes, I do. Okay. Do von Understand What I'm saving? Yeah. knoyx you're J-41Janish. I know Yeah. I can speak Spanish. Yeah. All right. First of all: do you remember Jell? Yeah. Okay. Lives on1113rillo? (No audible response.) Okay. Why don't you tell me from the beginning Page 4 couldn't take inc. 2 () Oka . 3 A 4 Q Okay. Okay When you got there. vital 5 happened? 6 A It seems really weird, the whole situation. 'there weiv more girls in the house and then they just saw me go 8 ii 15151 the show mc the room, it was a massage rOOTII. 9 Prel ty nonnal Then he came and you know, l give him a 10 massage. 11 Q I Actiy. I've talked to a lot of girls and it lot of 12 girls have told me different things. 13 A 111 -huh. 14 Q 010Y.1) So I'm very aware of what happens when you 15 provide a massage. Okay'? 16 A Yeah 17 Q When you got to the house you went there with 18 19 2C 21 22 23 24 25 A Yeah. Q Okay. I low did you come into the house? Do you remember? A What do you mean'? Q Did you go into the front door? A Yeah. Q Did you come through the garage'? Page 3 1 how You met Into. 2 A Okay. It Was something in higli school. I Ivery body 3 was like trying to make money and at the time I had two jobs 4 I guess. That was like two years ago. Q About two years ago? A Yeah. Q When you first met him? A No audible response Q t )ktic 10 A Yeah F WilS 17. YML 'acre 17 Ilicin? l 2 A (Video at 1:37) 13 Q What is it that You c ere told you would have to 14 do? 15 A (-jive him a massage 16 Q Okay. 17 A Thai was it :18 Q Okay Who took you there? 19 A Her name is 20 (1 Al ;1 Aldo von have inly rOTTllal 21 massage training? 22 A No. 2.3 Q NO. Did 24 A MI didn't take me there. look one olmy 25 Ii tends and then Faith was the one who took me because 5 6 8 9 had;) Page 5 A Well, when you go inside there's like a door. I 2 don't know if it's the front door. I don't know. 3 Q Is it a wood door? A A wood door, yeah. 5 Q It is a wood door? A It's probably the back because it goes through the 7 kitchen. Q It goes through the kitchen'? 9 A Yeah. 10 Q Okay. And you were brought into the kitchen. 11 right? 12 A Yeah. 13 Q Who was in the kitchen there? 14 A Oh. my God. it's so long ago. 15 Q So long ago? 16 A Yeah. 17 Q Okay. 18 A I don't remember. 1 9 Q Do you remember any of his assistants? 20 A 21 22 A She sc as ihe one. 23 Q She Was the one that you met with'? 24 A And there was the one that call me andl told her 25 I wasn't going to do it anymore. I think her name was 2 (Pages 2 to 5) 02529 1 '2 3 4 5 6 8 9 10 11 12 14 15 16 17 18 19 20 21 22 23 24 95 M6Q) Okay So when you wine mto the house: you go tnto the -lichen, you meet with sonic people there who takes you up A With Q You met with ? A Yeah. Theiity sit down and tell sit down and everything I go and call Jeffrey. That's what I wins coin -used when you say Jell. I don't know any Jeff And then she takes me upstairs and tays there and Faith stays there like the lime whil717 upstairs Q Okay Okay. SiM takes you upstairs. Did You use the stairs A Yes. () Okay. Do you recall anything lNeird w hen on were going up the stairs'? A 'he pictures. Q Okay. Pictin es of what? A Naked people. Q Naked people. Okay. Okay. She brings you into this you said it was a massage room'? A Yes. Q Is Jeffrey already there? A No. Page t-. 1 Q his back aild on his legs. Okay I low vete you 2 dressed when you were giving the mitssagc." 3 A 1 w as in leans and a .f -shirt Q Okay. Okay.. At aoy point did he ask you to 5 remove your clothes? 6 A Yeah 7 Q Okay.. This is during the first massage'? 8 A Yeah And I say no. 9 Q And you said no. ( Kay. Okay 11ti you continue 10 with the massage? 11 A Yeah ti was kind of weird that he asked me take 12 My clothes Off. -3.13 Q Okay. So take me through then lion there. You're 14 doing the massage? 15 A I do the massage. Aker I firusIt he's like okay. 16 Actually lie pay me before I start doing the massage 17 Q Ile paid llow much did he pay 1:01I? 18 A S2tiO. 19 Q 1;200. At any Lime during when you're giving him 20 the massage; did he ever trim over 21 A Yeah. 22 Q 23 A Illt-huh. 24 Q Okay. Tell me what happened alter that. 95 A I massage like on I don't know how you say it. Q No? Winn did you do nest? 2 A I sit down there and she tells Inc just Wil il a 3 second. Then she comes back and we put like the little bed 4 for the massage and she's like okay, there's SOMe lotions and he'll be right out 6 Q Okay. 7 A Then he comes in, he a like okay Then he k.nows my name already. I'm Ihen he's like okay, just a 9 massage. 1 Okay. WIlell he Caine 111 lVati Ile M a I01. eP WIIN he 11 in a robe'? L2 A No. He had like clothes. Ile was miming or 13 something like that. 14 Q I lad regular clothes oil? L5 A Yeah. 16 Q And he got on the table with the clothes on'? 17 A No. He took his clothes off and he puts like a 18 towel. 19 Q Ile put a little -towel over hint Okay. So at any. 20 point did you sec him naked? 21 A Not on the first time. 22 Q No. Okay. So he lays on the bed, massage bed 23 with his towel and you start massaging hint. Do you remember 24 where you provided the massage? 25 A On the back and his legs. Page 7 Page 9 1 Q in his chest area? 2 A C hi his chest. yeah. 3 Q During the time you're massaging lUrn on his chest: 4 is he touching Itinnselr? 5 A Yes. 6 Q t ay. Explain, explain tItat to me. 7 A Well, he start getting a little excited about it 8 :aid he start touching himself and I told him stop. ;aid that, 9 that was it. 10 Q Lay. When you mean by touching himself. you mean 11 he IN us masturbating'? 12 A Yes. Q And You told him to stop? 14 A No I didn't tell him to stop. 15 Q I. okay. Okay. So while you're rubbing his 16 chest, did he ever take oil his towel? 17 A Ni 18 Q So how would he he able to masturbate Jr 19 A Welk like lie had his hand under the towel. 20 Q Under. So you never saw him. Did you exet see 21 him naked? 22 A No. Not the first time hut I saw him like the 23 second time. 24 Q okay. Okay. Okay. So then you did your ma 2 5 continued with Your massage? 3 (Pages 6 to 9) 02530 1. A Yes. 2 Q Okay. What clsc happened alter that? 3 A Nothing elsc. After I was finished. Acnizilly 4 like it was supposed to be an hour. But the first time it 5 was just 30 minutes. 6 Q Okay. The time you were rubbing his chest and he 7 was masturbating, did he ever elimaN? 8 A No. 9 Q You know what I mean by that? 1 0 A Yeah. 11 Q Okay. How did you cad the massage? Did he just 12 say that's enough? 13 A Yeah. 1 4 Q Okay. Okay. So then you went back downstairs? A Yeah. And I say toMinkay.l'in done, and we 16 left. Q Okay. Did he ever ask you to leave your telephone 8 ntimber to call you back if you wanted to work? 19 A He asked for my phone number. 20 Q He asked for your phone number? 21 A Yeah. 22 Q Did give him your phone number? 23 A (Nods head yes.) 24 Q Okay. Did Mget paid for taking you'? 25 A Yes. Page 12 go to go work. A Yes. Q Okay. The same thing, you go into the back door 4 to the kitchen area? 5 A Oh-huh. Q You meet with A Yeah. And she takes me upstairs. Q She takes you upstairs. Okay. He offered you 9 more money to get naked? 10 A Yes. Well, he told mc just to take my shirt off. 11 He didn't say anything clsc. 12 Q Okay. Okay. And did you? 13 A No. 14 Q No. But that's not the only two times you'd gone. 15 You've gone more times'? 1 6 A It was like around three, four times and then I 17 just 1 8 Q Did he ever photograph you'? 19 A No. Not that I know, 20 Q Did he ever take videos of you? 21 A No. nn Q Okay. Did you ever give the massage with any 23 other woman? 24 A No, 25 Q Okay. Did you ever get naked while doing the Page n Q Ilow 'ouch did she Oct paid'? 2 A 200 3 Q She gut paid S200 for taking you as well. Okay. 4 So tell toe about the second time. 5 A Second time1 don't rernerni-yer who took me I never 6 went by Inv self. I was seared to go but it was kind of like 7 ...le same. Same situation than the first one but he offer rue 6 more money just to lake my shirt off and I didn't do it rind 9 he Nlas the some. I le did the same things and then he took 10 hi; low el off 1 Okay. 12 A And like after he was done like he never like got 1 .3 to the climax. I never saw him. 14 Q You IleVet SM.. 15 A (Shakes head no.) 16 Q Okay. You o ere going U. 17 18 A Yeah. That's how everything started. 19 Q ihuits boo everything started'.' 20 A 11allof the school knew about it. 21 Q flail of the school knew about it? Let me, let me 22 back up for a second. You go the second time. Who calls 3 you to go back to house? 24 A 25 Q calls you Novi you make an appointment to Page 13 1 massage'? Any of the massages'? 2 A Once. 3 Q Once. 4 A But it xvas in my underwear. It was never 5 completely naked. Q Okay. You staved in your Mixon'? I littler wear? 7 A And my top. 8 Q And your top So you staved in bra and panties' 9 A (Nit aIldible reSp011Se.) 10 )kaV. 11 A I think there w as one that I take :it). lira off hut 12 that was it. 13 Q Okay. And each time you went did he offer you I 4 more monies to do mole tInugs'? 15 A Yes, Actually I knew that because of she 1. naudthle). I don't know her Iasi name. 17 Q okay. 18 A 13ccau.se site ask me, she says he'd offer more money 19 if I have sex with him and I said that's never going to 20 happen. 'there's no way IM going to do that for money. 21 Q Okay. And by having sex means intercourse or 22 A Yes. I guess. I don't know. I don't like talking 23 about 24 Q Okay. 'line second time, did he offer you more 25 money to do more things') 4 (Pages 10 to 13; 02531 )RAF A Q Yeah. 100 more just to take iny shirt off Okay. And you said you didn't do it. 3 A No. Q Okay. Did hc masturbate on the second time? 5 A Yeah. 6 Q And did he ever climax? 7 A Actually the second time like it wasn't that bad 9 10 11 12 13 14 15 1.6 17 JR .L9 20 21 23 24 25 because he Nvas like on the phone all the time and so he wasn't paying attention to what was going on. Q Did he ever at any point masturbate the second time? A No. Not that I remember. Q Did he ever ask you any questions or speak to you or ask you anything? A Well, he tried to talk to you just to make you comfortable with thc situation like where do you work and like how much do yon make at your work and then he start saying you can make more with we. but I didn't feel like it was right. A A A Did he er.er know your real age? After a while like because somebody told him. That you w ere Yeah. 17'? Like told us we were supposed to say wc Page 15 1. were 18. 2 (.,? Arid who 11)1d 1oil that to say that'? 3 A 4 Q 5 A was the one who broug.lu everythtng to 6 everyone at school. That's how we know about it. Then she t()ok und took me. .fdltitilio 15:02) 8 Q I )kay. So each time nit did go, did get 9 10 11 13 ii 4 , reilmioinigivaiL 16 A .................................................................................. i3tilldidn't get 18 money out of that. 19 Q Okay. Did anybody ever help you do a nias.,;age with 20 hint? 21 A No. isked me to do it with her and I didn't 22 feel comfortable. 23 Q All right. All right. Talk to me about the third 24 time you went. 25 A I don't remember it was like kind of always (Video at 1-1:57) looney fol A Well. went oith mehlice I guess. And that was it. Then I went n, ith Q Okay. And did she make money? 1)id make for taking you to him? 3 4 5 he paid you more to do more things. right? 6 A Yeah. The thirdlime it was when I took my shin 7 off. 8 Q Staved with your bra or were you 9 A Stayed in my bra 10 Q Okay. 11 A And that was when he paid me 300. 12 Q He paid yon 300 for that'? 13 A Uh-huh. 14 Q And same thing 15 A Yeah. 16 Q He came ill. Was he naked again'? 17 A Yeah. 18 Q Okay. You gave hint a massage and at that point 19 was he still playing with hi insell? 20 A Yeah. 21 Q Masturbating? 22 A Uh-huh. 23 Q Okay. Do you know if at any point did he ever 29 climax during this'? 25 A No. Page 16 it was always 2 Q ti was the same? A It was the same. Q Obviously more stuff happened because, you know. Page 17 1 2 say that's it, that's enough? 3 A Yeah, he would just stand up and take a shower and 4 I unild grab my things and leave. 5 Q May. All right. Talk to me about the pail when 6 von got diiwn lii votir underwear 7 A That was the last time that I saw han. 8 Q When was the lust time? Was that 9 A It w as 'mg ago. M4we than six month: tago. 1.0 Q You sure it's not any lime sooner than that? 11 A I don't remember I ike I told I didn't 12 want to do it anymore I was scared he was going to do 13 something 14 Q t )kay Why do VI KI sa yr itt ii ere scared he was going 15 to do sornething-.' 16 A Ikeanse I like know he has a lot ur girls and I 17 don't know, like he was olIering inore money for it. 18 Like I think he bought her a car or something like that. 19 She Just got a car and she told me he got it for her. 20 Q Do you know what kind of ear it was? 21 A I think it's a Dodge or something. 22 Q A Dodge" 23 A And then she like then had money or anything and 24 she ended up going to Europe for like the summer. 95 Q Did she go with Inin? Q Okay. I IUNV 1 1 1.11d the in issages end" Would he Just 5 (Pages 14 to 17) 02532 11) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 A I don't know. We never talk about it because I 2 was 3 0 Okay. Did he ever touch you? 4 A Yeah. 5 Q In what way.? 6 A My hack and my butt. 7 Q Did he ever, did he ever take out any toys? A No. 9 Q Did he ever touch your breast area? 10 A (Nods head yes.) 11 Q Did he touch your vaginal area'? 12 A Yeah. 13 Q All right. Did he touch you with his hands or 14 with something else? 15 A With his hands. 16 Q Okay. Okay . Was this over your underwear or 17 under? 1.8 A Over my underwear. 19 Q Over or under? 20 2 22 2.3 24 25 A Over. Q Over. Did he ever insert his fingers in you'? A (Shakes head no.) Q And as he was doing this, he was paying more money? A The maximum that he paid me was 300. Page 1 9 Q Three hundred. And that was the last time you 2 went? 3 A (Nods head yes.) 4 Q When he touched your breast area you didn't have 5 a bra on'? 6 A I didn't have a bra on. Q You didn't have a bra on. And your buttocks? 8 A Uh-huh. 9 Q Was that over your panties or under your panties? A Like I have a thong on so... You had thongs. Okay . All right. Did he pull you close to him? A Yeah. Q And all this while hc was masturbating'? A (Nods head yes.) Q Did he have you touch him? A No. Q Aside front the massage. touch him in his penis area? A I Iuh-huh. No. Q Did y.ou bring anyone else other than A A (Video at 20:22) Do you know last name? 2 3 5 -7 8 9 10 11 Q Did you uccive luoucy forM or 12 A I don't remember. I'm pretty sure I didn't. 13 Q Okay. When was the last time you had contact with 14 anvone from the house? 15 A Wel1,1 don't know because she told me they were 16 going to New York the last lime we talked. the last limel 17 went. 18 Q What's a while ago'? 19 A Probably two months or more. 20 Q Who called you? 21 A 23 A And she said that she was going where? I hey were going to New York. 24 Q New York? Nobody else from the house has called 25 you to say the police are looking into it? A A A A No. No idea. lotA about Does she also go to 1111-huh. And vital about M? Yes. Did von receive monies for taking mil Page 20 Page 21 1 A (Shakes head no.) 2 Q Okay. This case is basically an investigation, an 3 open investigation, so I appreciate it what we discuss stays 4 here. Okay? 5 A 1th-huh. 6 Q Don't tell anybody that we. that we talked ()km-) 7 A )kav 8 Q Did y ouel.er have any intercourse with him? (Video at 22:41) 1'-'10 A Nr (tl, orar? 11 A i Shakes head no.) I 2 Nothing? 13 A Nothing else. 14 Q C Lay. I'm going to show ymi mi group of 15 photographs. I'm going to show yon a group of sms 1 6 photographs. Oka '? I'm trying, trying to see if thisM 1 7 is in these six photos. Okay? 11's important that you look 18 at all six of them and be sure who you pick as the person as 19 , okay? She may or may not be in these six photos but 20 it's imrx tam foi you to pick the right one. Okay? 21 A 1.1h-huh. 22 Q Take your time looking at those six photos there. 23 A l don't see her. 24 Q She's no: in those photos there? 25 A No. 6 (Pages 18 tc 21) 02533 tr I Q Him. would you describe 1)RA 1 appreciate you coming down. Okay? 2 A She would be here but she'. :she's A Thank you. 3 and slit, looks like her hi it I'm not .tit-L: 3 0 All right. 4 Q Okay. That's why I needed you to be ribr'lutel 4 (Thereupon the interview ended.) 5 sure. I appreciate you being hifflest and not picking anyone 5 - - - out bee:11.3tie i hat's important You know'' You have my card, 6 7 right? 8 A No, I lost it. lake I think I left it at my job. 8 9 Q Okay. I gave your sister one. Thai's MY enrd. 9 10 A You vent hack 10 ms house? 10 Q Yeah,11.vent by today. She's the one ho gave MC 11 12 your cell. Your sister 12 I 3 A You tell her what it was? 13 14 Q No, No. I just told her thatt.ou were a witness 14 15 and I needed to talk to you. 1 . ) 16 A Is he going In know ally thing about any ()I this') 16 17 Q About the investigation? Fvent natty I'm sure he 17 113 ;111irl 1 1 1;; 1.1 W,.. out about the investigation. . would appreciate 1 fi 19 it if anyone did contact you that you call me and give me 19 20 JUSt 71 A If they call me? 22 Q If they call von. Is there anything else you'd 23 like to add to this statement or 24 A No. just seared that he's gonna knots 25 Q Why are you scared of him'? 25 Page 23 1 A 'that he's gratin) tlo something. 2 Q Trot gonna do am. thing. 3 What did he tell you he did for a living? 4 A Ile was in brain something. I le studied the brain. 5 Q 1-le's an investor and that's it. Just a money 6 investor That's it les unit 7 lie to.c.H some of these people, he's just a money invcsiiit. 8 That's it. So don't be afraid. And if they do call you, 9 just cull me and let me know 10 A If they ask me to come over there should I just 11 say no? 1. ike I don't Ns ant to go (3 You haven't been there? 13 A (Shakes head no.) i'iwt When .s 1.11.2 ,USt time ou said you were there? lb A I.ike three four months ago. Longer than that. 1 1 C. don't remember. 17 Q I think it's about three or lour months ago. I 18 think it's three or hour months ago because 19 anything else you'd like to add? 20 A Not neal l . Q No? Okay. 1 appreciate you coming do;wn. And let 22 me walk you out. 23 A Is something going to happen to me'? 24 Q No. No. I just, like I said, you're not in ;Inv 25 trouble whatsoever. I just wanted to talk to you. I Page 24 Page 25 (Pages 22 to 25) 02534 TAB 11 U.S. Department of Justice Office of Legislative Affairs Office of the Assistant Attorney General Washington, D.C. 20530 November 9, 2007 The Honorable John Conyers, Jr. Chairman Committee on the Judiciary U.S. House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: This letter presents the views of the Department of Justice (the Department or DOT) on H.R. 3887, the "William Wilberforce Trafficking Victims Protection Reauthorization Act of 2007," as introduced by Congressman Lantos on October 18, 2007. The Department has significant concerns, which are detailed below in a section-by-section analysis. The proposed legislation, as drafted, would eliminate the Department's role in several important steps in the victim identification process, and thereby negatively impact our ability to ensure the safety of victims and their families, rescue additional victims, and apprehend and prosecute human traffickers; it would broaden the criminal statutes regarding prosecution in a manner that detracts from effective enforcement efforts and raises serious federalism implications; and it would unconstitutionally intrude into Executive authority. 1. Section 102 The provision in subsection (e)(2)(B) authorizing the Director of the Office to Monitor and Combat Trafficking in Persons (G TIP) at the Department of State to interview victims should clarify that the Director is authorized to do so only with the consent of the Attorney General in any case where an ongoing investigation or prosecution may exist. Otherwise, serious issues could arise that would complicate or even scuttle prosecution. For example, any statements made to the Director would presumptively have to be turned over to the defense and any statements that contradict statements made to law enforcement or prosecutors would be required to be turned over to the defense. 2. Section 103 DOI finds section 103 unnecessary and duplicative of existing efforts and, therefore, opposes its inclusion in the bill DOJ and other Federal agencies are already offering the types of assistance that are described in the section. Furthermore, the new subsection (a)(i)(3) would require the United States Government to provide "technical assistance to provide legal frameworks and other programs to foreign governments and nongovernmental organizations to ensure that foreign migrant workers are provided protection equal to nationals of the foreign country." This provision does not differentiate between legal and non-legal migrant workers, nor does it distinguish between forced labor and non-coerced migrant labor. DOJ believes that any international standard that we promote must mirror our domestic standards. Similarly, the new subsection (a)(i)(4) could be read as encouraging countries to loosen their immigration Iaws, 'something that the United States Government might not be willing to do. Subsection (b) amends the Foreign Assistance Act of 1961 (22 U.S.C. 2151 et seq) to provide specific assistance for anti-trafficking investigation and prosecution units in foreign countries. This subsection could be construed as prioritizing sex trafficking over labor trafficking. As stated above, DOJ believes that any international standard that we promote must mirror our domestic standards, which prioritize both sex trafficking and labor trafficking. Further, the amendment to 22 U.S.C. 2152(d)(a)(2) should include a reference to labor trafficking and should, therefore, read "including investigation of individuals and entities that may be involved in trafficking in persons involving sexual exploitation or forced labor." 3. Section 104 The Department objects to the language in this section that specifies the groups with which the United States Government must consult and coordinate in offering assistance and protection to victims of human trafficking. Such language both places undue restrictions on the United States Government and could limit the Government's ability to deal with some necessary groups. It has been the consistent practice of the Department to consult widely with a range of stake holders and others before designing a program of foreign assistance on human trafficking. Such an additional requirement in the statutory language is unnecessary. We suggest that the language be amended to read, " l n cooperation and coordination with organizations which may include the UNHCl2 , the International Organization for Migration, and other relevant organizations...." 4. Section 105 DOJ recommends that subsection (a) also require that the effectiveness of assistance programs be measured based on best efforts to facilitate cooperation with law enforcement, along with the other criteria. 5. Section 106 DOJ opposes the bar in subsection (b)(1) against including cases in which probation or low sentences are given. Some of the most important cases are the ones against cooperating defendants that result in minimal sentences in exchange for information or testimony. Embassies should have the discretion to take such situations into account when evaluating foreign government efforts to combat trafficking. The Department recommends amending section (b)(1 )(B) by striking "shall not be considered to be an" and inserting in its place "shall be considered on a case by case basis to determine if it will be considered an" so that it will give the Secretary of State greater flexibility in evaluating the efforts of other countries. 2 The Department also objects to the new paragraph (11), which lists as a criterion for ascertaining whether the government in question has made "serious and sustained" efforts to eliminate trafficking " w hether the government has made serious and sustained efforts to reduce demand for commercial sex acts and for participation in international sex tourism by nationals of the country." We object to this language because it is vague and will, by implication, require the United States Government to evaluate itself under this "serious and sustained" standard. The Depatiment prefers the language that was added by the 2005 reauthorization of the Trafficking Victims Protection Act, which evaluated whether countries "adopted measures" to reduce demand. 6. Section 107 Section 107(a) of the Act raises separation of powers and Chadha concerns. Section I07(a) would add a new 22 U.S.C. 7107(b)(3)(D), which would limit the amount of time that a country could remain on the Tier IT Watch List to two years, "unless the Secretary of State provides to the appropriate congressional committees credible evidence that" the country had taken certain steps to make significant efforts to counter trafficking. That provision further requires that " s uch credible evidence" shall be provided to Congress in a report. To the extent that section 107(a) purports to give congressional committees authority to determine whether the Secretary's decision to exempt a country from the watch list is based on sufficiently "credible evidence," the provision would give the committees a role in executing the law that the Constitution does not allow. " O nce Congress makes its choice in enacting legislation, its participation ends. Congress can thereafter control the execution of its enactment only indirectly by passing new legislation" that complies with the bicameralism and presentment requirements of Article I. Bowsher v. Synar, 478 U.S. 714, 733-34 (1986); ,sree also NS v. Chadha, 462 U.S. 919, 951-52, 958 (1983). To avoid this concern, we recommend replacing "provides to the appropriate congressional committees credible evidence" with "determines;" and replacing "Such credible evidence" with "Such determination." 7. Section 108 DOJ opposes the requirement in section 108 to create a database "combining all applicable data collected by each Federal department and agency represented on the Interagency Task Force to Monitor and Combat Trafficking." The database would contain law enforcement sensitive information, which would prevent the data from being accessible to non-law enforcement agencies, many of which are a part of the interagency task force. Furthermore, such a database would be difficult to create, particularly within the timeframe provided in the statute, because it would require information from multiple agencies that collect data in varying forms and levels of specificity. 8. Section 109 This section authorizes the President to establish an award for efforts against trafficking and directs him to establish procedures for selecting recipients of the award. DOJ opposes this provision, as it interferes with the President's policy-making authority. 3 9. Section. 110 The Department opposes the statutory language in subsection I 10(a)(1)(B) that specifically mentions the U.S. Government sponsored hotlines for reporting instances of trafficking in persons. Statutorily providing for the names of the hotlines would interfere with the President's policy-making authority to change the hotline structure at a later date. Furthermore, the Act, as written, misnames the hotlines. 10. Section 201 In section 201, the Department objects to the new subsection "(bb)." To the extent that such a subsection is necessary, a question that we defer to the Department of Homeland Security (DHS), the decision regarding cooperation should include the Attorney General in addition to the Secretary of the Department of Homeland Security, as it does in Section 201(b). DOI. defers to DHS in regard to subsection (a)(1)(E), although we would note that by removing the "unusual and severe harm" standard, victims will be eligible for a T-visa upon a lower showing of "extreme hardship." The Department also defers to DHS in regard to subsection (a)(2), which would extend T-visas to parents and siblings of trafficking victims. As a factual matter, however, the provision should be amended to strike any reference to "as a result of the alien's cooperation with law enforcement." Traffickers threaten victims to intimidate them into compliance with traffickers' demands and to retaliate for victims' escape, not because of law enforcement cooperation. It is counter-factual to describe the pattern of threats and retaliation as linked to law enforcement cooperation, and disregards the fact that threats often only subside when law enforcement takes measures to secure the family or punish the traffickers and their associates who threaten victims' families. Furthermore, it is unclear whether the reference to siblings encompasses both minor and adult siblings, and whether spouses and children of adult siblings would be eligible for a T- visa. In subsection (b), DOJ opposes the new subsection (8)(B), which grants sole authority to the Secretary of DHS to consider whether "extreme hardship" exists. The new section, however, also requires consultation with "prosecutors," which presumably refers to prosecutors at DOJ, since DOJ is the lead prosecutorial agency for cases involving human trafficking. Since these prosecutors are under the Attorney General's authority, the consultation requirement should include consultation with the Attorney General. Subsection (c)(1), which creates the new subsection (3)(A)(i) in section 107(c) of the Trafficking Victims Protection Act (TVPA), should limit applications for continued presence to those being made by "Federal" law enforcement officials. Limiting the applications to those submitted by Federal law enforcement assists in the victim identification process. The Department has established a memorandum of understanding with DHS that ensures that the Department's prosecutors are informed when investigators apply for continued presence. Furthermore, limiting the applications to those submitted by Federal law enforcement ensures the uniformity of standards in making the determination as to whether an individual is a victim of a 4 severe form of trafficking in persons and eligible for continued presence. Finally, Federal law enforcement involvement in the process allows Federal prosecutors the ability to identify patterns of human trafficking activity that might span multiple local law enforcement jurisdictions. For these same reasons, the new subsection (3)(B) should add "Federal" before "law enforcement" to limit the authority to request parole for relatives to Federal law enforcement officials. The new subsection (c)(3)(A)(ii) should add "endeavor to" after "shall" so that a legally actionable obligation is not created as to Federal law enforcement's role in protecting the safety of trafficking victims and family members. While the U.S. Government makes every effort to protect trafficking victims, the statutory language, as written, could be construed to create a legally cognizable right and could lead to litigation. In the new subsection (c)(3)(A)(iii), DOJ opposes extending continued presence for the duration of a civil suit. It also raises the potential for abuse because of the lengthy and plaintiff victim-controlled delays in conducting civil litigation. Furthermore, physical presence in the United States is not necessary for the successful maintenance of a civil action. Victims have other options to obtain status in the United States, such as T- and U-visas. DOJ notes a technical change to subsection (d), which currently has two subsection (2)s. DOJ recommends striking the second "(2)" and replacing it with a "(3)." 11. Section 202 The Department opposes the language in section (a) that legislates the existence of a specific task force, such as the Trafficking in Persons and Worker Exploitation Task Force. DOJ recommends deletion of this reference and the replacement of the named task force with "the Attorney General." DOJ also opposes the 120 day deadline in subsection (f) as unreasonable due to language barriers and translation needs. 12. Section 203 In subsections (a), (b)(1-2), and (c), DOJ opposes the language removing the Attorney General's role in determining whether the relevant applicant has complied with reasonable requests for assistance, an important factor in the decisions regarding T-visas, and that the investigation or prosecution is complete. Because the Department is involved in its prosecutorial as well as its investigative roles, DOJ participation is critical in assessing assistance with law enforcement, and it is well-situated to assess whether a victim has complied with reasonable requests for assistance that went through investigative agencies outside DHS, such as cases investigated by FBI or DOL. Therefore, a joint determination is appropriate because of the number of different law enforcement agencies that may be involved in a particular matter. 5 13. Section 205 D0.1 opposes the addition of the new subsection 240A(b)(6)(A) of the Immigration and Nationality 21 Act (8 U.S.C. 1229b(b)) unless the word "Federal" is added before "law enforcement official." The same proposed subsection currently states that the Secretary of the Department of Homeland Security "shall grant parole" to the relatives of trafficking victims. DOI. recommends changing this language to read "may grant parole" so the Secretary has the latitude to make an appropriate decision. There may be reasons pertaining to the circumstances of the relatives of the trafficking victim for which the Secretary should have discretion to deny parole. Further, DOJ finds it necessary to strike any reference to "as a result of the alien's cooperation with law enforcement" for the reasons noted above. In subsection, (6)(B)(ii)(II), DOI opposes a statutory requirement that parole be extended during pending civil actions. As indicated above, this action would create a potential for abuse because of the lengthy and plaintiff victim-controlled delays in conducting civil litigation. 14. Section 211 The Department opposes the change of the "and" in subsection (1)(A) to an "or." Both the Attorney General and the Secretary of DHS need to be involved in the certification process. The current certification process is well-established and needs no statutory revisions. DOJ also opposes the change in subsection (1)(B), which would remove the Attorney General's authority in stating whether a person's presence is necessary in ensuring an effective prosecution. As the agency that prosecutes cases of human trafficking, DOrs involvement is vitally important. The Department has the same concern with the proposed change in subsection (2). 15. Section 213 We strongly oppose the language in this section that inappropriately removes law enforcement from any initial determination of victim status or benefits eligibility. DOJ and DHS play a critical role in protecting the safety of victims and service providers. Any failure to involve Federal law enforcement immediately upon suspicion that a crime has been committed could threaten the safety of the victim, impeded efforts to promptly rescue victims still in jeopardy, and possibly man that the offenders avoid apprehension. DOJ recognizes the important of including HHS at the initial stages for the purpose of facilitating prompt delivery of the full range of available benefits and services to trafficking victims. DOJ will continue to work with DHS and BM to ensure that interagency procedures afford victims of trafficking prompt protection and access to these services. The Department further objects to the provision set forth in paragraph (G), which would require both Federal and state law enforcement officials to inform the Department of Health and Human Services (HHS) of the existence of a potential victim, but does not require HHS, other Government officials, or non-governmental service providers to inform Federal or state law enforcement of such a victim. To the extent that such a notification procedure must exist, it must also include notification to the Attorney General and the Secretary of DHS, who bear responsibility for prosecuting and investigating instances of human trafficking. 6 DOJ also opposes subsection (b). Since the passage of the TVPA, DOS has been one of the principal agencies conducting trainings for a multitude of audiences, including task forces and Federal, state, and local law enforcement, on the issue of trafficking in persons. The Department also has experience in conducting training on juvenile victims through the Innocence Lost National Initiative. Effective efforts to combat trafficking must mobilize the expertise of HHS, DHS, and DOJ. DOJ also notes a misspelling in the new subsection (F)(ii) "edibility" instead of "eligibility". 16. Section 214 Section 214 of the bill authorizes the Attorney General to make grants to assist victims of severe forms of trafficking up to 2.5 million in 2008, increasing to 15 million in 2011. The Department of Justice already has authority to make grants for the provision of services for crime victims and does so at a level in excess of 250 million a year. Also, the authorization of yet another grant program runs counter to the Administration's proposal in the 2008 Budget to consolidate DOJ's more than 70 grant programs. Moreover, any provision purporting to expand or alter definitions of individuals of qualifying for victim benefits must include the requirement that a Federal law enforcement agent must declare the individual to be a victim of a severe form of trafficking in persons, and that the victim agree to cooperate in the investigation and prosecution, or that the victim be under the age of 18. DOJ opposes the consultation requirement in subsection (a)(1) with the Secretary of State for establishing programs to serve domestic, U.S. citizen trafficking victims. Such domestic authority falls outside of the mission and expertise of the Department of State. DOJ also opposes the mandatory consultation with non-government organizations (NG0s) regarding the provision of services. This creates a conflict of interest since many of the NGOs will apply for and could receive grants under the program. Finally, any section regarding the provision of victim services must also contain language that includes organizations that provide services to "juveniles subjected to trafficking, as defined in section 203(g) of the Trafficking Victims Protection Reauthorization Act of 2005," which would ensure that the funds authorized to the Attorney General for establishment of grants will go toward the work and development of the Innocence Lost Task Forces. DOS opposes subsection (b) because it provides Victims of Crime Act of 1984 funds to prostitutes implicated in violations of the Mann Act (criminalizing transportation of prostitutes in interstate commerce). Such persons do not meet the legal defmition of "victim" as that term is defined in the law, unless the person prostituted is under the age of 18 at the time the crime was committed or the person, through the application of another Federal statute or regulation, satisfies the legal definition of a victim. Such persons are already eligible under the Crime Victims Fund Act to receive benefits. 7 Dar opposes section 214(d), as it could be construed to require the Attorney General and the Secretary of Health and Human Services to make legislative recommendations to Congress in violation of the Recommendations Clause. To avoid this concern, we recommend inserting ", if any," after "recommendations" in section 214(d)(2)(E). Further, DOJ finds subsection (d) redundant. A thorough study of services available to domestic and foreign victims was conducted by the Senior Policy Operating Group in 2005-2006 and found few statutory differences between the treatment of domestic and foreign victims. Subsection (d)(2)(C) contains a redundant statement. Victims of sex trafficking are victims of severe forms of trafficking in persons. 17. Section 221 In subsection (a), DOJ opposes the proposed change of MO g thc i hw!edgc, of AgOI0000000 0i010404:03 to:i',14Y.PF Vir.,01go!, This change of law would create a strict liability crime, similar to 18 U.S.C. 2423(a), with similarly severe 10 year mandatory minimum sentence. However,16W04004kig44(a) 40 Xa) is exceedingly .1iii KtiiitifitAkt0A0t .grilgOgogfogoo Therefore, the suggested subsection (a) would create a rare circumstance wherein there is a substantial mandatory minimum sentence for an already unusual strict liability crime. Accordingly, this provision is likely to face significant legal challenges. DOJ opposes subsection (b) in its entirety, The proposed language is both over-inclusive and under-inclusive of human trafficking activities, and the language is vague. Moreover, the provision is unnecessary because section 1589 already prohibits many of these activities when they result in "serious harm," whether physical or emotional, to the victim. The Department opposes subsection (0(1), which would expand the Mann Act to include cases "affecting" interstate commerce. The Department does not require any additional statutory authority or expanded jurisdiction in order to continue its successful prosecution of human trafficking cases and related criminal conduct. Agrg 0.0,:01010:: :-which ',!ktdtt .- !toiNio:: .',g aittatimoffdt0 :, ,i:::.:::: .t ' ::44011i iri t.i-400:ifit : 0I'11dLer1:ww: ?t. cruon is prLsunlcd, t e, . '11.:1 00i. :: .04 0.00' ;00t,titjpqpqigiv '. aft Amol.t crvitude, rnd civiieroiatsi.x-411Y6.1Yillgi :all titta :D)i;:.i.AV iiiiitt.-04t0i000704.0tkoi, The Department's record during the last six years demonstrates its success in investigating and prosecuting trafficking and retated crimes and in convicting and securing appropriate sentences for traffickers. At efia historicali 'been prosecuted at the',igAtoxim,01.00.-i 'This allocation between state and Federal enforcement authority does not imply that these crimes are less serious, but rather reflects important structural allocations of responsibility between state and Federal governments. The federalization of these crimes would treat them differently than other serious crimes such as murder and rape, which are prosecuted at the state level. Kidnapping, similarly, is a Federal crime only when it involves transportation "in" interstate commerce. . 8 Departi state aid localator1tits are not eutrently 4 high volume of prostitution-related crimes, and capacity to prosecute these offenses. ,00.0.74.;pmj 0043g ...pppggyo Finally, due to the the Federal government lacks the necessary resources Therefore, to the extent that this !!: 414 ...okikigrittliOigl ti-000040!. !ti.iAt:04.iilbiii:F000 ).114 00000.000.Pt 0000Wittga4 DOJ also opposes subsection (g), which would expand the sex tourism offenses to include those who travel for purposes of illicit sexual activity with adults. The Department's current efforts with regard to extraterritorial offenses focus on child sex tourism, which are very demanding and resource-intensive cases, requiring gathering evidence abroad, bringing victims to the United States to testify, and coordination with foreign law enforcement agencies and foreign governments generally, among other matters. Any expansion of authority would be a distraction from those priority cases and would exacerbate existing burdens on investigation and prosecution. The Department believes that the addition of 18 U.S.C. 2423A is unnecessary and that 18 U.S.C. 2423 does not need to be amended. Should Congress create 18 U.S.C. 2423A, DOJ believes that language should be retained in 18 U.S.C. 2423(e) that allows the Government to charge attempt or conspiracy for 18 U.S.C. 2423(a) crimes. Finally, DOJ notes that the definition of illicit sexual conduct needs to be updated to include production of child pornography. 18. Section 222 As a general matter, the Department opposes the expansion of jurisdiction over offenses involving non-American offenders or victims that are committed outside the United States. The expansion ofjurisdietion in this section would place an enormous strain on available resources. In addition, this new section's jurisdiction description overlaps with 18 U.S.C. 3271. Should the choice be made to keep the jurisdictional provisions provided for in this section, perhaps it would be more effective to expand section 3271. 19. Section 223 These provisions are not directly related to trafficking. As this section is related to aliens brought into the country for the purposes of prostitution, without a showing of force, fraud, or coercion, and the International Marriage Brokers Act (IMBRA), this bill is not the vehicle for this language. Furthermore, subsection (a)(1) removes the requirement from section 278 of the Immigration and Nationality Act that such conduct be done in furtherance of the importation of the alien. By removing this requirement, the bill extends the statute to cover all instances of "pimping" an alien. 9 20. Section 224 This section misunderstands the purpose and effect of the model law and should be deleted. The Department's model law was never designed to supplant pre-existing state laws which target pimping, pandering, or prostitution, but rather to supplement those laws. At the time that the Department's model law was issued, most states had comprehensive laws addressing prostitution, pimping, and pandering. However, most states did not have laws focused on human trafficking. The Department's law was designed to raise awareness of the issue of trafficking and to encourage states to closely examine cases to ensure that cases involving fraud, force, and coercion are not labeled as prostitution offenses. The Department believes the law has been successful in accomplishing this goal. 2L Section 231 The Department opposes any statutory changes to the annual report. The change in subsection (1) is unnecessary as this language is currently included in the annual report. The information requested in the new subsection (I) would be excessively burdensome to gather. 22. Section 232 DOJ opposes this addition as unnecessary. Human trafficking laws that do not require the proof of force, fraud, or coercion, namely laws that concern minor victims of severe forms of human trafficking, are already discussed at the annual conferences. To the extent that this provision would require the Department to discuss human trafficking laws pertaining to adult victims that do not require the showing of force, fraud, or coercion, such laws would not fail under the definition of human trafficking and the annual conference would be an inappropriate venue for the discussion of such laws. However, DOJ trafficking prosecutors utilize a wide range of statutes in addition to Chapter 77 offenses to address all criminal conduct associated with human trafficking. This includes the Mann Act, money laundering, visa fraud, immigration offenses, criminal labor violations, and extortion, in addition to other criminal statutes. Accordingly, DOJ training at annual conferences, the National Advocacy Center, the National Center for Missing and Exploited Children, and field training with the Department of Justice funded Human Trafficking Task Forces and provided through the Innocence Lost National Initiative include discussion on the importance of using all available criminal statutes as essential tools in charging decisions. Thus, this section is unnecessary. 23. Section 233 DOJ opposes the change to section 206 of the Trafficking Victims Protection Reauthorization Act of 2005, which would remove the discretion of agencies in informing the Senior Policy Operating Group (SPOG) of grants. Such a change could be read as giving the SPOG oversight authority over grants. It also fails to take into consideration situations where grant-making agencies may be unable to notify the SPOG of the grant. 10 24. Section 234 The Department opposes subsection (a) as an excessively burdensome and unnecessary creation of a new layer of bureaucracy within our agency. The Department does not believe that there is currently any lack of coordination, and a new position could lead to duplication of efforts. Furthermore, subsection (a)(2)(A) incorrectly lists the Civil Division and not the Civil Rights Division. 25. Section 236 In subsection (a), DOJ questions the reliability of the congressional findings, especially with respect to the estimated number of victims and the inference that the lack of child victims is directly related to a lack of education individuals who may come into contact with human trafficking victims. Such findings, without a full body of evidence, are counter-productive. The Department also opposes subsection (b). The Attorney General should be involved in any program that focuses on combating child trafficking at the border. We propose that section (b)(1) is amended to read "The Secretary of Homeland Security, in conjunction with the Secretary of State, Attorney General, and the Secretary of Health and Human Services." Further, most of the children interdicted at the border are used for smuggling and are not trafficking victims, In subsection (b)(5)(D), DOJ believes that the proceedings for removal to non- contiguous countries are problematic because DHS needs more flexibility to handle gang members, terrorists, repeat offenders, and state offenders. Furthermore, the terrorism exception provided is too narrow to protect the national security interests of the country. We oppose subsection (c)(1) to the extent that it limits the Administration's ability to determine the best arrangement for custody or various classes of UACs. The administration will work with DHS, DOJ, and MIS to refme and modify current detention practices where necessary. The interagency process is the best forum to consider the various interests of unaccompanied minors and law enforcement and to develop and adapt policies that, among other things, provide for the safety of all concerned. We look forward to discussing these developments with Congress in the future. The Department opposes subsection (d)(2) as too narrowly construed. There are numerous reasons, outside of the child proving to be a danger to himself or others, that require children to be kept in a secure facility, including the safety of the child from danger that is not self-imposed. In addition, the standard for placing minors in "secure" care is too strict. It requires the "least restrictive setting that is in the best interest of the child." HE-IS only places 1.4 percent of minors in its care into a "secure" custody arrangement. This could mean that minors who need this arrangement would instead be housed with children who have no history of violence or criminal behavior. HHS needs more flexibility and there should not, therefore, be required to make an "independent finding" of the child's danger to self or others. DOJ opposes the language of subsection (d)(3Xc) that would afford HHS access to law enforcement sensitive databases. 11 The language of subsection (d)(5) must be changed from "shall ensure." This implies a legal obligation on the Federal government to provide counsel and a concomitant right on behalf of victims to government-funded counsel, which is inappropriate and would subject the government to litigation over the nature and scope of the purported obligation and right. The Department also opposes subsection (d)(6), which creates a guardian ad 'item program. Such program raises serious conflict of interest concerns, and DOJ has opposed similar language in the past. Establishment of a guardian ad item program is also unnecessary in that 18 U.S.C. 3509(h) already sets forth detailed procedures which provide for court appointed guardians ad litem for children who are victims of or witnesses to crimes involving abuse or exploitation. Subsection (d)(7) may result in unintended consequences due to this confidentiality section. To effectively combat trafficking, relevant information must be transmitted to law enforcement. Law enforcement is well-equipped to preserve confidentiality concerns, The Department believes that subsection (e) undermines the 1997 Special Immigrant Juvenile reforms and opposes turning this back over to the states, where it was inherently flawed. In section 236(j), the effect of the apparent retroactivity of the general applicability of these amendments to "all aliens in the United States before, on, or after the date of enactment of this Act" raises serious concerns about the provision of benefits and services and has the potential to create serious problems for the Department in its implementation of the programs described in this section. 26. Section 301 DOJ recommends striking the 2 percent cap on funding for training and technical assistance that is in 22 U.S.C. 7105(b)(2)(B). The unique.complexity of the trafficking issue and the level of coordination necessary to effectively serve trafficking victims requires much more training and technical assistance than a typical OP program. Striking the cap on training and technical assistance will allow OJP to better allocate the trafficking funds it receives. The change could be implemented by the following statutory language: "Paragraph 107(b)(2)(B)of Pub. L. 106-386 is amended by: "(I) inserting 'and' after the first semicolon; "(2) striking '(ii)' through ';and'; and "(3) striking 'OW and inserting (ii)." 27. Section 302 Section 302 re-authorizes the 5,000,000 appropriation for the Pilot Program that was first authorized by Section 203 of the 2005 version of this Act. The 2007 version, therefore, should add language amending section 203 of the 2005 version to provide that HHS does not have the exclusive authority for development of the pilot program. DOJ and DES must be included in the development of this program to ensure that the ability of Federal prosecutors and 12 law enforcement to gain access to these victims is not negatively impacted. Moreover, the Departments' knowledge about these victims, their behaviors, and the dangers that are inherent in providing shelter and services to them would be instrumental to ensuring the success of the pilot program. This section should also amend subsection 203(a) of the 2005 reauthorization to include after "Secretary of Health and Human Services", "in collaboration with the Attorney General and the Secretary of Homeland Security," Subsection 203(c) should be likewise amended. The Office of Management and Budget has advised that there is no objection to the presentation of this letter from the standpoint of the Administration's programs. 4.2 Brian A. Benczkows Principal Deputy Assistant Attorney General cc: The Honorable Lamar S. Smith, Ranking Member, House Committee on the Judiciary The Honorable Torn Lantos, Chairman, House Committee on Foreign Affairs The Honorable Beam Ros-Lehtinen, Ranking Member, House Committee on Foreign Affairs The Honorable Patrick J. Leahy, Chairman, Senate Committee on the Judiciary The Honorable Arlen Specter, Ranking Member, Senate Committee on the Judiciary The Honorable Edward M. Kennedy, Chairman, Senate Committee on Health, Education, Labor, and Pensions The Honorable Michael B. Enzi, Ranking Member, Senate Committee on Health, Education, Labor, and Pensions The Honorable Joseph Biden, Chairman, Senate Committee on Foreign Relations The Honorable Richard Lugar, Ranking Member, Senate Committee on Foreign Relations 13 TAB 12 PRESIDENTIAL AUTHORITY TO DECLINE TO EXECUTE UNCONSTITUTIONAL STATUTES This memorandum discusses the President's constitutional authority to decline to execute unconstitutional statutes. November 2, 1994 MEMORANDUM FOR THE HONORABLE ABNER J. MIICVA COUNSEL TO THE PRESIDENT I have reflected further on the difficult questions surrounding a President's decision to decline to execute statutory provisions that the President believes are unconstitutional, and I have a few thoughts to share with you. Let me start with a general proposition that I believe to be uncontroversial: there are circumstances in which the President may appropriately decline to enforce a statute that he views as unconstitutional. First, there is significant judicial approval of this proposition. Most notable is the Court's decision in Myers v. United States, 272 U.S. 52 (1926). There the Court sustained the President's view that the statute at issue was unconstitutional without any member of the Court suggesting that the President had acted improperly in refusing to abide by the statute. More recently, in Freytag v. Commissioner, 501 U.S. 868 (1991), all four of the Justices who addressed the issue agreed that the President has "the power to veto encroaching laws . . . or even to disregard them when they are unconstitutional." Id. at 906 (Scalia, J., concurring); see also Youngstown Sheet Tube Co. v. Sawyer, 343 U.S. 579, 635-38 (1952) (Jackson, J., concurring) (recognizing existence of President's authority to act contrary to a statutory command). Second, consistent and substantial executive practice also confirms this general proposition. Opinions dating to at least 1860 assert the President's authority to decline to effectuate enactments that the President views as unconstitutional. See, e.g., Memorial of Captain Meigs, 9 Op. Att'y Gen. 462, 469-70 (1860) (asserting that the President need not enforce a statute purporting to appoint an officer); see also annotations of attached Attorney General and Office of Legal Counsel opinions. Moreover, as we discuss more fully below, numerous Presidents have provided advance notice of their intention not to enforce specific statutory requirements that they have viewed as unconstitutional, and the Supreme Court has implicitly endorsed this practice. See INS v. Chadha, 462 U.S. 919, 942 n.13 (1983) (noting that Presidents often sign legislation containing constitutionally objectionable provisions and indicate that they will not comply with those provisions). While the general proposition that in some situations the President may decline to enforce unconstitutional statutes is unassailable, it does not offer sufficient guidance as to the appropriate course in specific circumstances. To continue our conversation about these complex issues, I offer the following propositions for your consideration. 1. The President's office and authority are created and bounded by the Constitution; he is required to act within its terms. Put somewhat differently, in serving as the executive created by the Constitution, the President is required to act in accordance with the laws precedence over other forms of law. This obligation is reflected in the Take Care Clause and in the President's oath of office. 2. When bills are under consideration by Congress, the executive branch should promptly identify unconstitutional provisions and communicate its concerns to Congress so that the provisions can be corrected. Although this may seem elementary, in practice there have been occasions in which the President has been presented with enrolled bills containing constitutional flaws that should have been corrected in the legislative process. 3. The President should presume that enactments are constitutional. There will be some occasions, however, when a statute appears to conflict with the Constitution. In such cases, the President can and should exercise his independent judgment to determine whether the statute is constitutional. In reaching a conclusion, the President should give great deference to the fact that Congress passed the statute and that Congress believed it was upholding its obligation to enact constitutional legislation. Where possible, the President should construe provisions to avoid constitutional problems. 4. The Supreme Court plays a special role in resolving disputes about the constitutionality of enactments. As a general matter, if the President believes that the Court would sustain a particular provision as constitutional, the President should execute the statute, notwithstanding his own beliefs about the constitutional issue. If, however, the President, exercising his independent judgment, determines both that a provision would violate the Constitution and that it is probable that the Court would agree with him, the President has the authority to decline to execute the statute. 5. Where the President's independent constitutional judgment and his determination of the Court's probable decision converge on a conclusion of unconstitutionality, the President must make a decision about whether or not to comply with the provision. That decision is necessarily specific to context, and it should be reached after careful weighing of the effect of compliance with the provision on the constitutional rights of affected individuals and on the executive branch's constitutional authority. Also relevant is the likelihood that compliance or non-compliance will permit judicial resolution of the issue. That is, the President may base his decision to comply (or decline to comply) in part on a desire to afford the Supreme Court an opportunity to review the constitutional judgment of the legislative branch. 6. The President has enhanced responsibility to resist unconstitutional provisions that encroach upon the constitutional powers of the Presidency. Where the President believes that an enactment unconstitutionally limits his powers, he has the authority to defend his office and decline to abide by it, unless he is convinced that the Court would disagree with his assessment. If the President does not challenge such provisions (i.e., by refusing to execute them), there often will be no occasion for judicial consideration of their constitutionality; a policy of consistent Presidential enforcement of statutes limiting his power thus would deny the Supreme Court the opportunity to review the limitations and thereby would allow for unconstitutional restrictions on the President's authority. Some legislative encroachments on executive authority, however, will not be justiciable or are for other reasons unlikely to be resolved in court. If resolution in the courts is unlikely and the President cannot look to a judicial determination, he must shoulder the responsibility of protecting the constitutional role of the presidency. This is usually true, for example, of provisions limiting the President's authority as Commander in Chief. Where it is not possible to construe such provisions constitutionally, the President has the authority to act on his understanding of the Constitution. One example of a Presidential challenge to a statute encroaching upon his powers that did result in litigation was Myers v. United States, 272 U.S. 52 (1926). In that case, President Wilson had defied a statute that prevented him from removing postmasters without Senate approval; the Supreme Court ultimately struck down the statute as an unconstitutional limitation on the President's removal power. Myers is particularly instructive because, at the time President Wilson acted, there was no Supreme Court precedent on point and the statute was not manifestly unconstitutional. In fact, the constitutionality of restrictions on the President's authority to remove executive branch officials had been debated since the passage of the Tenure of Office Act in 1867 over President Johnson's veto. The closeness of the question was underscored by the fact that three Justices, including Justices Holmes and Brandeis, dissented in Myers. Yet, despite the unsettled constitutionality of President Wilson's action, no member of the Court in Myers suggested that Wilson overstepped his constitutional authority even acted improperly Court in Myers can be seen to have implicitly vindicated the view that the President may refuse to comply with a statute that limits his constitutional powers if he believes it is unconstitutional. As Attorney General Civiletti stated in a 1980 opinion, Myers is very nearly decisive of the issue of Presidential denial of the validity of statutes . Myers holds that the President's constitutional duty does not require him to execute unconstitutional statutes; nor does it require him to execute them provisionally, against the day that they are declared unconstitutional by the courts. He cannot be required by statute to retain postmasters against his will unless and until a court says that he may lawfully let them go. If the statute is unconstitutional, it is unconstitutional from the start. The Attorney General's Duty to Defend and Enforce Constitutionally Objectionable Legislation, 4A Op. O.L.C. 55, 59 (1980). 7. The fact that a sitting President signed the statute in question does not change this analysis. The text of the Constitution offers no basis for distinguishing bills based on who signed them; there is no constitutional analogue to the principles of waiver and estoppel. Moreover, every President since Eisenhower has issued signing statements in which he stated that he would refuse to execute unconstitutional provisions. See annotations of attached signing statements. As we noted in our memorandum on Presidential signing statements, the President "may properly announce to Congress and to the public that he will not enforce a provision of an enactment he is signing. If so, then a signing statement that challenges what the President determines to be an unconstitutional encroachment on his power, or that announces the President's unwillingness to enforce (or willingness to litigate) such a provision, can be a valid and reasonable exercise of Presidential authority." Memorandum for Bernard N. Nussbaum, Counsel to the President, from Walter Dellinger, Assistant Attorney General, Office of Legal Counsel at 4 (Nov. 3, 1993). (Of course, the President is not obligated to announce his reservations in a signing statement; he can convey his views in the time, manner, and form of his choosing.) Finally, the Supreme Court recognized this practice in INS v. Chadha, 462 U.S. 919 (1983): the Court stated that "it is not uncommon for Presidents to approve legislation containing parts which are objectionable on constitutional grounds" and then cited the example of President Franklin Roosevelt's memorandum to Attorney General Jackson, in which he indicated his intention not to implement an unconstitutional provision in a statute that he had just signed. Id. at 942 n.13. These sources suggest that the President's signing of a bill does not affect his authority to decline to enforce constitutionally objectionable provisions thereof. In accordance with these propositions, we do not believe that a President is limited to choosing between vetoing, for example, the Defense Appropriations Act and executing an unconstitutional provision in it. In our view, the President has the authority to sign legislation containing desirable elements while refusing to execute a constitutionally defective provision. We recognize that these issues are difficult ones. When the President's obligation to act in accord with the Constitution appears to be in tension with his duty to execute laws enacted by Congress, questions are raised that go to the heart of our constitutional structure. In these circumstances, a President should proceed with caution and with respect for the obligation that each of the branches shares for the maintenance of constitutional government. Walter Dellinger Assistant Attorney General Brief Description of Attached Materials Attorney General Opinions 1) Memorial of Captain Meigs, 9 Op. Atry Gen. 462 (1860): In this opinion the Attorney General concluded that the President is permitted to disregard an unconstitutional statute. Specifically, Attorney General Black concluded that a statute purporting to appoint an officer should not be enforced: "Every law is to be carried out so far forth as is consistent with the Constitution, and no further. The sound part of it must be executed, and the vicious portion of it suffered to drop." Id. at 469. 2) Constitutionality of Congress' Disapproval of Agency Regulations by Resolutions Not Presented to the President, 4A Op. O.L.C. 21 (1980): In this opinion Attorney General Civiletti instructed Secretary of Education Hufstedler that she was authorized to implement regulations that had been disapproved by concurrent congressional resolutions, pursuant to a statutory legislative veto. The Attorney General noted that "the Attorney General must scrutinize with caution any claim that he or any other executive officer may decline to defend or enforce a statute whose constitutionality is merely in doubt." Id. at 29. He concluded, however, that " t o regard these concurrent resolutions as legally binding would impair the Executive's constitutional role and might well foreclose effective judicial challenge to their constitutionality. More important, I believe that your recognition of these concurrent resolutions as legally binding would constitute an abdication of the responsibility of the executive branch, as an equal and coordinate branch of government with the legislative branch, to preserve the integrity of its functions against constitutional encroachment." Id. 3) The Attorney General's Duty to Defend and Enforce Constitutionally Objectionable Legislation, 4A Op. O.L.C. 55 (1980): Attorney General Civiletti, in answer to a congressional inquiry, observed that "Myers holds that the President's constitutional duty does not require him to execute unconstitutional statutes; nor does it require him to execute them provisionally, against the day that they are declared unconstitutional by the courts." Id. at 59. He added as a cautionary note that " t he President has no 'dispensing power," meaning that the President and his subordinates "may not lawfully defy an Act of Congress if the Act is constitutional. . . . In those rare instances in which the Executive may lawfully act in contravention of a statute, it is the Constitution that dispenses with the operation of the statute. The Executive cannot." Id. at 59-60. 4) Letter from William French Smith, Attorney General, to Peter W. Rodino, Jr., Chairman, House Judiciary Committee (Feb. 22 1985): This letter discussed the legal precedent and authority for the President's refusal to execute a provision of the Competition in Contracting Act. The Attorney General noted that the decision "not to implement the disputed provisions has the beneficial byproduct of increasing the likelihood of a prompt judicial resolution. Thus, far from unilaterally nullifying an Act of Congress, the Department's actions are fully consistent with the allocation of judicial power by the Constitution to the courts." Id. at 8. The letter also stated that "the President's failure to veto a measure does not prevent him subsequently from challenging the Act in court, nor does presidential approval of an enactment cure constitutional defects." Id. at 3. Office of Legal Counsel Opinions 1) Memorandum to the Honorable Robert J. Lipshutz, Counsel to the President, from John M. Harmon, Assistant Attorney General, Office of Legal Counsel (Sept. 27, 1977): This opinion concluded that the President may lawfully disregard a statute that he interprets to be unconstitutional. We asserted that "cases may arise in which the unconstitutionality of the relevant statute will be certain, and in such a case the Executive could decline to enforce the statute for that reason alone." Id. at 13. We continued, stating that " u nless the unconstitutionality of a statute is clear, the President should attempt to resolve his doubts in a way that favors the statute, and he should not decline to enforce it unless he concludes that he is compelled to do so under the circumstances." Id. We declined to catalogue all the considerations that would weigh in favor of non-enforcement, but we identified two: first the extent of the harm to individuals or the government resulting from enforcement; and, second, the creation of an opportunity for a court challenge through non-enforcement (e.g., Myers). 2) Appropriations Limitation for Rules Vetoed by Congress, 4B Op. 0.L.C. 731 (1980): In this opinion we rejected the constitutionality of a proposed legislative veto, prior to the Court's decision in Chadha. We opined that " t o regard this provision as legally binding would impair the Executive's constitutional role and would constitute an abdication of the responsibility of the Executive Branch." Id. at 734. It should be noted that the legislation in question was pending in Congress, and the possibility that President Carter would sign the legislation did not affect our analysis of the constitutional issue. We simply stated that, "if enacted, the legislative veto provision will not have any legal effect." Id. 3) Issues Raised by Section 102(c)(2) of H.R. 3792, 14 Op. O.L.C. 38 (1990) (preliminary print): This opinion also addressed then-pending legislation, in this case the foreign relations authorization bill for fiscal years 1990 and 1991. The opinion found that a provision of the bill was unconstitutional and severable. Regarding non-execution, the opinion stated that "at least in the context of legislation that infringes the separation of powers, the President has the constitutional authority to refuse to enforce unconstitutional laws." Id. at 53. The opinion concluded that "if the President chooses to sign H.R. 3792, he would be constitutionally authorized to decline to enforce" the constitutionally objectionable section. Id. at 38. 4) Issues Raised by Section 129 of Pub. L. No. 102-138 and Section 503 of Pub. L. No. 102-140, 16 Op. O.L.C. 18 (1992) (preliminary print): This opinion concluded that two statutory provisions that limited the issuance of official and diplomatic passports were unconstitutional and were severable from the remainder of the two statutes. On the question of non-execution, the opinion rejected "the argument that the President may not treat a statute as invalid prior to a judicial determination." Id. at 40. The opinion concluded that the Constitution authorizes the President to refuse to enforce a law that he believes is unconstitutional. 5) Memorandum for Bernard N. Nussbaum, Counsel to the President, from Walter Dellinger, Assistant Attorney General, Office of Legal Counsel (Nov. 3, 1993): This opinion discusses different categories of signing statements, including those construing bills to avoid constitutional problems and those in which the President declares "that a provision of the bill before him is flatly unconstitutional, and that he will refuse to enforce it." Id. at 3. The opinion concludes that such "uses of Presidential signing statements generally serve legitimate and defensible purposes." Id. at 7. Presidential Signing Statements 1) Statement by the State Department (Announcing President Wilson's Refusal to Carry Out the Section of the Jones Merchant Marine Act of June 5, 1920, directing him to terminate treaty provisions restricting the Government's right to impose discriminatory tonnage dues and tariff duties), 17 A Compilation of the Messages and Papers of the Presidents 8871 (Sept. 24, 1920) (Pres. Wilson): The State Department announced that it "has been informed by the President that he does not deem the direction contained in Section 34 of the so-called Merchant Marine Act an exercise of any constitutional power possessed by the Congress." Id. The statement also defended President Wilson's decision to sign the bill and noted that "the fact that one section of the law involves elements of illegality rendering the section inoperative need not affect the validity and operation of the Act as a whole." 5 Green Haywood Hackworth, Digest of International Law 324 (1943). 2) Special Message to the Congress Upon Signing the Department of Defense Appropriation Act, Pub. Papers of Dwight D. Eisenhower 688 (July 13, 1955): President Eisenhower, in signing a bill (H.R. 6042) that contained a legislative veto, stated that the legislative veto "will be regarded as invalid by the executive branch of the Government in the administration of H.R. 6042, unless otherwise determined by a court of competent jurisdiction." Id. at 689. - 3) Memorandum on Informing Congressional Committees of Changes Involving Foreign Economic Assistance Funds, Pub. Papers of John F. Kennedy 6 (Jan. 9, 1963): President Kennedy stated that a provision in the bill he was signing contained an unconstitutional legislative veto. He announced that " i t is therefore my intention . . . to treat this provision as a request for information." Id. 4) Statement by the President Upon Approving the Public Works Appropriations Act, Pub. Papers of Lyndon B. Johnson 104 (Dec. 31, 1963): President Johnson also found that a legislative veto provision was unconstitutional and stated that he would treat it as a request for information. 5) Statement About Signing the Public Buildings Amendments of 1972, Pub. Papers of Richard Nixon 686 (June 17, 1972): President Nixon stated that a clause conditioning the use of authority by the executive branch on the approval of a congressional committee was unconstitutional. He ordered the agency involved to comply with "the acceptable procedures" in the bill "without regard to the unconstitutional provisions I have previously referred to." Id. at 687. 6) Statement on Signing the Department of Defense Appropriation Act of 1976, Pub. Papers of Gerald R. Ford 241 (Feb. 10, 1976): President Ford stated that a committee approval mechanism was unconstitutional and announced that he would "treat the unconstitutional provision . . . to the extent it requires further Congressional committee approval, as a complete nullity." Id. at 242. 7) Statement on Signing Coastal Zone Management Improvement Act of 1980, Pub. Papers of Jimmy Carter 2335 (Oct. 18, 1980): President Carter stated that a legislative veto provision was unconstitutional and that any attempt at a legislative veto would "not be regarded as legally binding." Id. 8) Statement on Signing the Union Station Redevelopment Act of 1981, Pub. Papers of Ronald Reagan 1207 (Dec. 29, 1981): President Reagan stated that a legislative veto was unconstitutional and announced that " t he Secretary of Transportation will not . . . regard himself as legally bound by any such resolution." Id. 9) Statement On Signing the National and Community Service Act of 1990, Pub. Papers of George Bush 1613 (Nov. 16, 1990): President Bush rejected the constitutionality of provisions that required a Presidentially appointed board exercising executive authority to include, among its 21 members, "seven members nominated by the Speaker of the House of Representatives . .. and seven members nominated by the Majority Leader of the Senate." Id. at 1614. He announced that the restrictions on his choice of nominees to the board "are without legal force or effect." Id. 10) 7 A Compilation of the Messages and Papers of the Presidents 377 (Aug. 14, 1876) (Pres. Grant): This is one of the earliest of many instances of a President "construing" a provision (to avoid constitutional problems) in a way that seems to amount to a refusal to enforce a provision of it. An 1876 statute directed that notices be sent to certain diplomatic and consular officers "to close their offices." President Grant, in signing the bill, stated that, " i n the literal sense of this direction it would be an invasion of the constitutional prerogatives and duty of the Executive." Id. In order to avoid this problem, President Grant "constru edr this provision "only to exercise the constitutional prerogative of Congress over the expenditures of the Government," not to "imply a right in the legislative branch to direct the closing or discontinuing of any of the diplomatic or consular offices of the Government." Id. at 378. Other Presidential Documents 1) A Presidential Legal Opinion, 66 Harv. L. Rev. 1353 (1953): This was a legal opinion from President Franklin Roosevelt to Attorney General Jackson. President Roosevelt stated that he was signing the Lend-Lease Act despite a provision providing for a legislative veto, "a provision which, in my opinion, is clearly unconstitutional." Id. at 1357. The President stated that, " i n order that I may be on record as indicating my opinion that the foregoing provision of the so-called Lend-Lease Act is unconstitutional, and in order that my approval of the bill, due to the existing exigencies of the world situation, may not be construed as a tacit acquiescence in any contrary view, I am requesting you to place this memorandum in the official files of the Department of Justice. I am desirous of having this done for the further reason that I should not wish my action in approving the bill which includes this invalid clause, to be used as a precedent for any future legislation comprising provisions of a similar nature." Id. at 1358. 2) Message to the Congress on Legislative Vetoes, Pub. Papers of Jimmy Carter 1146 (Jun. 21, 1978): In this memorandum President Carter expressed his strong opposition to legislative vetoes and stated that " t he inclusion of a legislative veto in a bill will be an important factor in my decision to sign or to veto it." Id. at 1148. He further stated that, " a s for legislative vetoes over the execution of programs already prescribed in legislation and in bills I must sign for other reasons, the Executive Branch will generally treat them as 'report-and-wait' provisions. In such a case, if Congress subsequently adopts a resolution to veto an Executive action, we will give it serious consideration, but we will not, under our reading of the Constitution, consider it legally binding." Id. at 1149. Historical Materials 1) Statement of James Wilson on December 1, 1787 on the Adoption of the Federal Constitution, reprinted in 2 Jonathan Elliot, Debates on the Federal Constitution 418 (1836): Wilson argued that the Constitution imposed significant the President would not be dependent upon the legislature. In this context, he stated that "the power of the Constitution was paramount to the power of the legislature acting under that Constitution; for it is possible that the legislature . . . may transgress the bounds assigned to it, and an act may pass, in the usual mode notwithstanding that transgression; but when it comes to be discussed before the judges, when they consider its principles, and find it to be incompatible with the superior power of the Constitution, States could shield himself, and refuse to carry into effect an act that violates the Constitution." Id. at 445-46. 2) Letter from Chief Justice Chase to Gerrit Smith (Apr. 19, 1868), quoted in J. Schuckers, The Life and Public Services of Salmon Portland Chase 577 (1874): Chase stated that President Johnson took the proper action in removing Secretary of War Stanton without Senate approval, in light of Johnson's belief that the statutory restriction on his removal authority was unconstitutional. In this regard, Chase commented that "the President had a perfect right, and indeed was under the highest obligation, to remove Mr. Stanton, if he made the removal not in wanton disregard of a constitutional law, but with a sincere belief that the Tenure-of-Office Act was unconstitutional and for the purpose of bringing the question before the Supreme Court." Id. at 578. Congressional Materials 1) The President's Suspension of the Competition in Contracting Act is Unconstitutional, H.R. Rep. No. 138, 99th Cong., 1st Sess. (1985): The House Committee on Government Operations concluded that the President lacked the authority to refuse to implement any provision of the Competition in Contracting Act. The Committee stated that, "fflo adopt the view that one's oath to support and defend the Constitution is a license to exercise any available power in furtherance of one's own constitutional interpretation would quickly destroy the entire constitutional scheme. Such a view, whereby the President pledges allegiance to the Constitution but then determines what the Constitution means, inexorably leads to the usurpation by the Executive of the others' roles." Id. at 11. The Committee also stated that " t he Executive's suspension of the law circumvents the constitutionally specified means for expressing Executive objections to law and is a constitutionally impermissible absolute veto power." Id. at 13. 2) Memorandum from the Congressional Research Service to the Committee on Government Operations concerning "The Executive's Duty to Enforce the Laws" (Feb. 6, 1985), reprinted in Constitutionality of GAO's Bid Protest Function: Hearings Before a Subcomm. of the House Comm. on Government Operations, 99th Cong., 1st Sess. 544 (1985): This memorandum stated that the President lacks the authority to decline to enforce statutes. The CRS argued that " t he refusal of the President to execute the law is indistinguishable from the power to suspend the laws. That power, as is true of the power to amend or to revive an expired law, is a legislative power." Id. at 554. Cases (not included in the submitted materials) 1) Myers v. United States, 272 U.S. 52 (1926): The President refused to comply with had not been addressed by the Supreme Court. A member of Congress, Senator Pepper, urged the Supreme Court to uphold the validity of the provision. The Supreme Court vindicated the President's interpretation without any member of the Court indicating that the President had acted unlawfully or inappropriately in refusing to enforce the removal restriction based on his belief that it was unconstitutional. 2) United States v. Lovett, 328 U.S. 303 (1946): The President enforced a statute that directed him to withhold compensation from three named employees, even though the President believed the law to be unconstitutional. The Justice Department argued against the constitutionality of the statute in the ensuing litigation. (The Court permitted an attorney to appear on behalf of Congress, amicus curiae, to defend the statute.) 3) INS v. Chadha, 462 U.S. 919 (1983): This case involved the withholding of citizenship from an applicant pursuant to a legislative veto of an Attorney General decision to grant citizenship. Despite a Carter Administration policy against complying with legislative vetoes (see Carter Presidential memorandum, supra), the executive branch enforced the legislative veto, and, in so doing, allowed for judicial review of the statute. As with Lovett, the Justice Department argued against the constitutionality of the statute. 4) Morrison v. Olson, 487 U.S. 654 (1988): The President viewed the independent counsel statute as unconstitutional. The Attorney General enforced it, making findings and forwarding them to the Special Division. In litigation, however, the Justice Department attacked the constitutionality of the statute and left its defense to the Senate Counsel, as amicus curiae, and the independent counsel herself. 5) Freytag v. Commissioner, 501 U.S. 868 (1991): A unanimous Court ruled that the appointment of special trial judges by the Chief Judge of the United States Tax Court did not violate the Appointments Clause. Five Justices concluded that the Tax Court was a "Court of Law" for Appointments Clause purposes, despite the fact that it was an Article I court, so that the Tax Court could constitutionally appoint inferior officers. Four Justices, in a concurrence by Justice Scalia, contended that the Tax Court was a "Department" under the Appointments Clause. The concurrence stated that "Court of Law" did not include Article I courts and that the Framers intended to prevent Congress from having the power both to create offices and to appoint officers. In this regard, the concurrence stated that "it was not enough simply to repose the power to execute the laws (or to appoint) in the President; it was also necessary to provide him with the means to resist legislative encroachment upon that power. The means selected were various, including a separate political constituency, to which he alone was responsible, and the power to veto encroaching laws, see Art. I, 7, or even to disregard them when they are unconstitutional." Id. at 906 (Scalia, J., concurring). 6) Lear Siegler, Inc., Energy Products Division v. Lehman, 842 F.2d 1102 (9th Cir. 1988), withdrawn in part 893 F.2d 205 (9th Cir. 1990) (en banc): The President refused to comply with provisions of the Competition in Contracting Act that he viewed as unconstitutional and thereby allowed for judicial resolution of the issue. The Ninth Circuit rejected the President's arguments about the constitutionality of the provisions. The court further determined that Lear Siegler was a prevailing party and was entitled to attorneys' fees, because the executive branch acted in bad faith in refusing to execute the contested provisions. In this regard, the court stated that the President's action was "utterly at odds with the texture and plain language of the Constitution," because a statute is part of the law of the land that the President is obligated to execute. Id. at 1121, 1124. On rehearing en banc, the court ruled that Lear Siegler was not a prevailing party and withdrew the sections of the opinion quoted above. TAB 13 -0929104.TXT IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT IN AND FOR PALM BEACH COUNTY, FLORIDA CASE NO. 2006 CF09454AXX STATE OF FLORIDA, -vs- JEFFREY EPSTEIN, Defendant. DEPOSITION OF Wednesday, February 20, 2008 2:00 p.m. - 4:30 p.m. Palm Beach County Courthouse 205 North Dixie Highway West Palm Beach, Florida 33401 Reported By: Judith F. Consor, FPR Notary Public, State of Florida Consor Associates Reporting and Transcription Phone - 561.682.0905 1 APPEARANCES: 2 On behalf of the State: 3 LANNA BELOHLAVEK, ESQ. ASSISTANT STATE ATTORNEY 4 401 North Dixie Highway West Palm Beach, Florida 33401 5 561.355.7100 6 On behalf of the Defendant: 7 MICHAEL R. TEIN, ESQ. KATHRYN A. MEYERS, ESQ. 8 LEWIS TEIN, PL 3059 GRAND AVENUE, SUITE 340 Page 1 2 -0929104.TXT 9 COCONUT GROVE, FL 33133 10 On behalf of the Defendant: 11 JACK A. GOLDBERGER, ESQ. ATTERBURY, GOLDBERGER WEISS 12 250 AUSTRALIAN AVENUE SOUTH SUITE 1400 13 WEST PALM BEACH, FLORIDA 33401 561.659.8300 14 15 ALSO PRESENT: 16 KEITH J. BRETT, DIRECTOR OF MULTIMEDIA DIVISION, LEGAL-EZE 17 18 19 20 21 22 23 24 25 3 1 INDEX 2 WITNESS: PAGE: 3 DIRECT EXAMINATION 4 4 BY MR. TEIN: 5 6 - - - 7 NO EXHIBITS MARKED 8 - - - 9 10 11 12 13 Page 2 -0929104.TXT 14 15 16 17 18 19 20 21 22 23 24 25 4 1 2 3 4 5 Thereupon, 6 7 8 9 10 11 BY MR. TEIN: 12 13 name. 14 A. 15 16 A. 17 Deposition taken before Judith F. Consor, Court Reporter and Notary Public in and for the State of Florida at Large, in the above cause. having been first duly sworn or affirmed, was examined and testified as follows: THE WITNESS: I do. DIRECT EXAMINATION Q. Good afternoon. Please tell me your full Q. And can you please spell it? Page 3 -0929104.TXT 18 Q. Thank you. 19 May I call you 20 A. Uh-huh. 21 Q. , I'm going to ask you a few 22 questions, several questions today. If at any time you 23 want to take a break, you just let me know. Okay? 24 A. Okay. 25 Q. If you at any time don't understand one of 5 1 my questions, will you just please let me know? 2 A. Yes 3 Q. And if at any time you're not feeling well 4 or something like that, you'll tell us, right? 5 A. Yes. 6 Q. Do you feel okay today? 7 A. Yes. 8 Q. Not taking any alcohol or drugs or anything 9 like that, right? 10 A. No. 11 Q. So you feel ready to have your deposition 12 taken? 13 A. Yes. 14 Q. 111111 what is your address? 15 A. I'm currently living at my aunt's house and 16 I don't know it off the top of my head. 17 Q. Where is it? 18 A. In Jupiter. 19 Q. Who is your aunt? 20 A. 21 Q. Who else is living there? 22 A. my uncle. Page 4 -0929104.TXT 23 Q. Anyone else living there? 24 A. No. 25 Q. The contempt motion that your mother filed 6 1 against your father regarding your fifty million-dollar 2 lawsuit against Jeffrey Epstein says that you live with 3 your aunt and uncle and have been living there; is that 4 correct? 5 A. Yes. 6 Q. How long have you been living with your 7 aunt and uncle? 8 A. Since my father kicked me out. 9 Q. That was Thanksgiving of this past year? 10 A. Yes, sir. 11 Q. Okay. Didn't did your firefighter boy 12 friend get an apartment for the two of 13 you? 14 A. No, sir. He has an apartment, but by 15 himself. 16 Q. Did he get an apartment for the two of you 17 to live in? 18 A. No, sir. 19 Q. Are you planning to move in with him? 20 A. Maybe one day in the future 21 O. Do you have a plan to move in with him 22 presently? 23 A. No. 24 Q. Have you been to the apartment that you and 25 have discussed moving in together? Page 5 -0929104.TXT 7 1 A. I have been to the apartment. 2 Q. Where is that? 3 A. 4 Q. Have you spent the night over there? 5 A. No, sir. 6 Q. Do you know the address there? 7 A. I do not. 8 Q. Isn't your sister planning on living 9 with you and 1111. 10 A. No. 11 Q. you know that this court case is a 12 criminal prosecution, correct? 13 A. Correct. 14 Q. And you know that it's a criminal 15 prosecution against a man who has no criminal background. 16 Do you know that? 17 A. I do now. 18 Q. You agree that court is a very serious 19 matter? 20 A. Yes. 21 Q. And you're here with your lawyer 22 Mr. Leopold, right? 23 A. Yes. 24 Q. And you know that Mr. Leopold recently 25 filed a lawsuit in federal court against Jeffrey Epstein, 8 1 seeking fifty million dollars. 2 MR. LEOPOLD: Let me just object. 3 let me instruct you. Anything that 4 you have learned through conversations between you Page 6 -0929104.TXT 5 and me are protected. So if you know any of that 6 information outside of those discussions, you may 7 answer. But if the only way you know it is 8 through our discussions, do not answer that 9 question. 10 BY MR. TEIN: 11 Q. you know that Mr. Leopold recently 12 filed a lawsuit in federal court on your behalf against 13 Jeffrey Epstein seeking fifty million dollars. 14 MR. LEOPOLD: Same objection. 15 If you know the answer to that outside of 16 our discussions, you may answer. If it is the 17 only way that you know the answer is through our 18 discussions, do not answer that question. 19 THE WITNESS: Okay. 20 MR. LEOPOLD: Attorney client privilege. 21 BY MR. TEIN: 22 Q. You can answer the question unless 23 MR. LEOPOLD: Same objection. 24 MR. TEIN: Let me finish. 25 MR. LEOPOLD: Excuse me. We're 9 1 MR. TEIN: No. Let me finish. 2 MR. LEOPOLD: Lewis, we're not going to do 3 that. 4 MR. TEIN: My name is not Lewis. 5 I'm going to finish my question. Okay? 6 MR. LEOPOLD: Do not answer until you hear 7 from me. 8 BY MR. TEIN: Page 7 -0929104.TXT 9 Q. Other than conversations that you have had 10 with Mr. Leopold 11 aware that Mr. Leopold has filed a lawsuit in federal 12 court seeking fifty million dollars from Jeffrey Epstein 13 on your behalf? 14 MR. LEOPOLD: Same objection. 15 Anything that you learn through 16 conversations between you and me, do not answer. 17 Those are protected. If you know through any 18 other realm of knowledge, you may answer. 19 THE WITNESS: No. 20 BY MR. TEIN: 21 Q. You have no idea that Mr. Leopold filed a 22 fifty million-dollar lawsuit on your behalf against 23 Jeffrey Epstein? 24 MR. LEOPOLD: Same objection. 25 Do not answer that question if it's through 10 1 discussions that you and I had. Outside of that, 2 you may answer. So do not answer that question if 3 that is the only basis by which you understand 4 that answer. 5 THE WITNESS: No. 6 BY MR. TEIN: 7 Q. You didn't know that? 8 MR. LEOPOLD: Don't answer that question. 9 Against, it's attorney client privilege. Any 10 information you've learned through conversations 11 between you and I are protected. If you know it 12 through any other realm, you may answer. 13 MR. TEIN: Are you going to say that for Page 8 -0929104.TXT 14 every question in the deposition, Mr. Leopold? 15 MR. LEOPOLD: When you ask improper 16 questions like that without the proper 17 MR. TEIN: You're going to stop your 18 speaking objections right now. Okay? 19 MR. LEOPOLD: Without the proper 20 MR. TEIN: You need to stop your speaking 21 objections. 22 Let's continue. 23 MR. LEOPOLD: Counsel, you just asked me a 24 question and I'm going to state it on the 25 record 11 1 MR. TEIN: You need to stop your speaking 2 objections. Check your rules. 3 MR. LEOPOLD: Excuse me. For the record, 4 Counsel asked me a question. I'll state the 5 answer on the record. He asked me the question am 6 I going to be answering that way throughout the 7 deposition. So long as there's improper 8 foundation and predicate asked by the attorney, I 9 will protect my client and I make the record where 10 appropriate. If counsel wishes to ask an 11 appropriate worded question with the proper 12 foundation and predicate, I will certainly allow 13 the client to answer the question. 14 MR. GOLDBERGER: Why don't you just state 15 attorney client privilege and just be done with 16 it. 17 MR. LEOPOLD: I want the record to be Page 9 -0929104.TXT 18 clear. 19 MR. TEIN: You want to waste time is what 20 you want to do. You were supposed to be here this 21 morning and you totally broke the deal, the 22 agreement that you had with us if your hearing got 23 cancelled. 24 But let's move on and maybe you'll stop 25 obstructing this deposition. 12 1 MR. LEOPOLD: I think the record is very 2 clear where we stand thus far. 3 Is there a recording taken of this 4 deposition? 5 THE COURT REPORTER: Yes. 6 MR. LEOPOLD: Just make sure that's 7 preserved. 8 BY MR. TEIN: 9 Q. Go to Exhibit 20-01 10 that, , are you aware that a lawyer named Jeffrey 11 Herman filed a lawsuit on your behalf, yes or no? 12 MR. LEOPOLD: Objection. 13 Any conversations that you and I have had 14 regarding that, if that is the only way by which 15 you understand how to answer that question, so not 16 answer. It's attorney client privilege, as well 17 as any conversations you may have had with the 18 attorney from Miami. That is also attorney client 19 privilege. And I'm assuming 20 MR. TEIN: You're actually wrong about the 21 attorney client privilege. 22 MR. LEOPOLD: I'm assuming Counsel is not Page 10 -0929104.TXT 23 asking you to divulge attorney client 24 MR. TEIN: Of course not. 25 BY MR. TEIN: 13 1 2' 4 tAU4IfEagAblaglaft0SORMODWYAK0000 4 MR. LEOPOLD: Same objection. 5 MR. TEIN: We've heard the objection 10 6 times already. 7 MR. LEOPOLD: Counsel, excuse me. 8 MR. TEIN: Just say attorney client 9 privilege. Stop interrupting my questions. 10 MR. LEOPOLD: I'm entitled to make an 11 objection for the record, which I'm doing, and 12 I'll make the same objection. And if it calls for 13 attorney client privilege, any conversations you 14 and I have had, do not answer the question. 15 And I think that it might be appropriate 16 for the record to ask questions via 17 as opposed to I think that would be more 18 appropriate for this deposition. 19 BY MR TEIN: 20 Q. Go ahead. Please answer yes or no. 21 la TOD 22 Q. Thank you. 23 In fact, you know that Mr. Herman held a 24 press conference after he filed the fifty-million-dollar 25 lawsuit on your behalf, don't you? Q. 400iiii.P.0:41.5-0MOVA.Offriqw.liAtm4Rg biVAttotoOgeft toutigfiftS00 tITWOOTIOJtilki5WW-9.00t: Page 11 -0929104.TXT 14 1 A. After it happened. 2 Q. You know that he had press conference 3 don't you, yes or no? 4 A. ISI 5 Q. In fact, let's go to Exhibit 20-01. 6 MR. GOLDBERGER: Look behind you. You'll 7 see it. 8 BY MR. TEIN: 9 Q. Have you ever seen that picture before? 10 A. Yes. 11 Q. Is that a picture of your father, your 12 stepmother and Mr. Herman at the press conference 13 regarding your lawsuit? 14 A. Yes. 15 Q. Now you know that this is a very serious 16 matter, don't you? 17 MR. LEOPOLD: Asked and answered. 18 Objection. 19 MR. GOLDBERGER: All right. You can 20 object. You're representing a witness here, 21 Mr. Leopold. You can object on privilege grounds. 22 You cannot make legal objections. You have no 23 standing to do so. 24 MR. LEOPOLD: I'm going to make them and 25 then 15 1 MR. GOLDBERGER: We're 2 MR. LEOPOLD: We're going to leave or we're 3 going to take a break because his demeanor is not 4 appropriate. There's no reason to have this kind Page 12 -0929104.TXT 5 of demeanor. If you want to have this kind of 6 demeanor with me 7 MR. TEIN: You are obstructing this 8 deposition. 9 MR. GOLDBERGER: Why don't you guys go 10 outside and just talk about 11 MR. LEOPOLD: She 12 difficult and she's not going to be able to take 13 us both talking at he same time. 14 MR. GOLDBERGER: Off the record. 15 MR. LEOPOLD: We're not going off the 16 record, Jack. We're not, Jack. Her job is very 17 difficult. I'm going to make the record. 18 I don't think it is appropriate, especially 19 in the small confines of this room, to be very 20 aggressive with this young lady. 21 MR. TEIN: That's not happening. Stop, 22 stop actually 23 MR. LEOPOLD: If you're going to interrupt 24 me, we're going to cancel this deposition 25 MR. TEIN: Stop misrepresenting. 16 1 THE COURT REPORTER: I need on at a time, 2 no matter who it is. 3 MR. LEOPOLD: I think we're going to take a 4 break. Perhaps you might want to talk to your 5 co-counsel 6 MR. TEIN: I don't need to talk to him. 7 MR. LEOPOLD: But we're going to take a 8 break. Page 13 -0929104.TXT 9 MR. TEIN: Not taking a break unless the 10 witness needs a break. 11 You're obstructing this deposition, Ted. 12 MR. LEOPOLD: Come on, 13 You all want to continue in this 14 demeanor 15 MR. TEIN: You're obstructing the 16 deposition. Stop making speeches. We're not 17 discussing this with you. The questions are to 18 your client. Go take your five-minute break. 19 MR. LEOPOLD: Fine. We need to make sure 20 the record's clear and clean. 21 And I want to make sure as I've already 22 asked you 23 town 24 preserved. Okay? 25 MR. TEIN: Go take your five-minute break, 17 1 Mr. Leopold, now. 2 You were supposed to be here at nine a.m.; 3 it's now after two. Take your break and come 4 back. 5 MR. LEOPOLD: Okay. If the demeanor keeps 6 up, we will not be here beyond those five minutes. 7 8 9 relax. 10 11 break. MR. TEIN: Take your break and come back. MR. LEOPOLD: Okay. So I suggest that you MR. TEIN: I suggest that you take your 12 MR. GOLDBERGER: Let them take that 13 five-minute break. Page 14 -0929104.TXT 14 MR. LEOPOLD: But I would suggest that you 15 take deep breaths. 16 MR. TEIN: Suggest whatever you want. Go 17 take a break. 18 (Thereupon, a recess was taken.) 19 BY MR. TEIN: 20 Q. you agree that giving testimony 21 today at your deposition is something very serious, don't 22 you? 23 A. Yes. 24 Q. 25 A. ANT 5i.000 .5 WO 40m 1 Q. Let me show you Exhibit 31-001. Can you 2 read that out loud, please? 3 A. Okay. What do you want? 4 Q. Will you read that out loud, please. 5 A. Oh. 6 Q. Thank you. 7 A. M 1 hati MOW 3g.:4 On WOOt 00310.04. Like after so long wow 18 10 im sorry... well yah well we will definitely havta make 11 plans for sure. .because i miss u tons times a million and 12 no no no i love you...o p.s. i love ur default pic 13 niggaa. Muah xo. 14 Q. Did you send that message last week to a 15 friend of yours on MySpace? 16 A. I wouldn't know. There's no dates and I've 17 deleted that MySpace, so Page 15 -0929104.TXT 18 Q. Were going to talk about that in a second. 19 A. Okay. 20 Q. Did you send that message last week 21 A. Right. 22 Q. Let me finish my question. 23 Did you send that message last week to a 24 friend of yours on MySpace? 25 A. I wouldn't know the date, but obviously, 19 1 it's to a friend. 2 Q. q NOW A 400 0g m110 3 loPMPOAMYWOOZ 4 7 8 9 10 11 12 13 THE WITNESS: Are you referring to 14 anything 15 MR. LEOPOLD: No, Don't 16 let him ask you the question. 17 BY MR. TEIN: 18 Q. What question were you asking.. 19 MR. LEOPOLD: She doesn't ask questions. 20 You ask the questions. What is the question woimyov: vIroforriog,to thisA0poItton7; YO: Q. Do you find the term n-i-g-g-e-r offensive? A. That's not anywhere in there. Q. What word did you use in there? MR. LEOPOLD: Where are you referring to, Counsel? There's 20 plus words in there. MR. TEIN: Don't make a speaking objection. 21 pending? 22 BY MR. TEIN: Page 16 -0929104.TXT 23 Q. what is the last word on there in 24 the text of your message before the closing? 25 A. Niggaa. 20 1 Q. Don't you find that term offensive? 2 A. No. 3 MR. LEOPOLD: Can you spell it for the 4 record, please. 5 THE WITNESS: N-i-g-g 6 MR. TEIN: No, no, no. You are not going 7 to be asking questions. 8 MR. LEOPOLD: I'm not asking questions. 9 I'm asking for the record the word to be spelled 10 because we don't have a video here today. 11 MR. TEIN: These exhibits are part of the 12 record. You 13 MR. LEOPOLD: Well, it's not marked as an 14 exhibit. 15 MR. TEIN: Stop interrupting me, 16 Mr. Leopold. I have marked and identified as an 17 exhibit and you will get it. 18 MR. LEOPOLD: There has been no 19 identification of this document in the record. 20 MR. TEIN: Mr. Leopold, stop interrupting 21 this deposition 22 MR. LEOPOLD: What is the exhibit number 23 marked for identification? 24 MR. TEIN: 31-001. 25 MR. LEOPOLD: Do we have copies? Is it on Page 17 -0929104.TXT 21 1 the record anywhere? 2 BY MR. TEIN: 3 Q. Let me ask you, did you in fact 4 write your friend this message about this deposition? 5 6 7 40 8 A. Yes. 9 Q. Because you think this deposition is stupid 10 court s-h-i-t, don't you? 11 A. No. 12 Q. You wrote that to your friend, didn't you? 13 A. Yes. 14 Q. You think that court is stupid, don't you? 15 A. In some cases. 16 Q. And you think that court is bull s-h-i-t, 17 don't you? 18 A. No. 19 Q. And you think this deposition is bull 20 s-h-i-t, don't you? 21 A. No. 22 Q. You wrote that to your friend, didn't you? 23 MR. LEOPOLD: Objection. Asked and 24 answered. 25 MR. TEIN: That's not an objection. A. Q. positio Yes. '00gWrOtO 15100 stupid400 deamutttio 22 1 BY MR. TEIN: 2 Q. You wrote that to your friend, didn't you? 3 MR. LEOPOLD: Objection. Asked and 4 answered, for the fourth time. Page 18 -0929104.TXT 5 MR. TEIN: You are improperly objecting, 6 Mr. Leopold. You have no grounds to object. And 7 that's not an objection. 8 MR. LEOPOLD: It is an objection. 9 MR. TEIN: Then terminate the deposition if 10 you think it's been asked and answered. 11 MR. LEOPOLD: Counsel, I am not precluded 12 from just making an objection to the form of the 13 question. As the courts well know, and if you 14 practice here in West Palm Beach, many of the 15 judges require you to set the objection with 16 specificity. And I will do that. And if you 17 don't want me to, you can make the record. But I 18 will do that. 19 MR. TEIN: Here's what we'll do, Ted. You 20 can 21 form for every single one of my questions. 22 Otherwise, all you're doing is obstructing. 23 MR. LEOPOLD: I won't do that. 24 MR. TEIN: Of course; because you want to 25 obstruct. 23 1 MR. LEOPOLD: All right. 2 BY MR. TEIN: 3 Q. Saige, you think that giving testimony 4 today, under oath, is bull s-h-i-t, don't you? 5 A. No. 6 Q. And you wrote that to your friend on 7 MySpace last week, didn't you? 8 MR. LEOPOLD: Objection. Asked and Page 19 -0929104.TXT 9 answered. 10 THE WITNESS: No, 1 did not. 11 BY MR. TEIN: 12 Q. You didn't write this exhibit? 13 A. I wrote that, but I didn't write what you 14 said. 15 Q. You wrote in this exhibit, "I got some 16 stupid court s-h-i-t on the 20th. Bull s-h-i-t." Didn't 17 you write that? 18 A. Yes. 19 Q. Referring to this deposition, didn't you? 20 A. Referring to the court. I was later 21 informed that it was a deposition. 22 Q. I'm going to ask you some questions now 23 about what happened when you went to Jeff Epstein's house 24 three years ago. Okay? 25 A. Uh-huh. Q VOMMO4OF 24 00giyou oneMOM oftergyotRIOOritt:TMEPStatriglW::1100SORYMSWOMOVIroor qt gOthpri ggrouctoggffoccAtioaEpotottiamogoomoogogoac f any kind? - 5 Didn't you 11 0300WOLOWT 4a NOR, AbOBEW TfN00.0002 4N000010M0ft 8 tied sex with hI aa 500011W house take you comIeteTyiiibygg Ii A. Yes 12 Q. Now the civil complaint that you filed 13 against Mr. Epstein for fifty million dollars alleged Page 20 WOW MOMMEht eff -0929104.TXT 14 that you were totally shocked by what happened when you 15 got there. 16 A. Yes. 17 Q. Were you totally shocked by what happened 18 when you got to Epstein's house? 19 A. Yes. 20 Q. You didn't expect it at all, did you? 21 22 A. No. )1.0.0;1144.441). 0.Mrat g00:3400AWiSfOgg.ftt010- KiMAg- ANWO M1000.00413tgWA OUA04 000W AWNW 1K ,,ema.5.5gesmrueaa- fg B Ad L YeS Befar .0140 POO.PigikrAO: 1:40J:!flgt0300:040.',i 25 4MteMk 00902 44 , .. n40100 the-tel 6 7 11 12 engage in any sexual activity with Epstein? 13 A. No. 14 Q. Did Anthony every try to convince 15 you to engage in any sexual activity with Epstein? 16 A. I don't know who Anthony is. 17 Q. Do you have a friend Anthony? Page 21 A. house 0151INOWaVaitiN XVO.Iii No. And b440410POPAROPOIPWWW never sent yo a message100MONTOtOtk, ... activity 0 Epstein, did Q. Did Zack ever try to convince you to -0929104.TXT 18 A. No. 19 140 :ONOYiN Babreimulglivent scREDstemRsMitycme 20 to Thd.HOMiiiY008g0g0 22 23 24 UnOfillMihaW0A0000TOOdgt0g1405 04 1 0.)((taliii0..0.VIMMONttitigarft0Y.nEl) ,SZOttt.'":Z 1 2 3 again. 4 UnOW b- 7 14 15 objection for the record. 16 MR. TEIN: Stop speaking. 17 MR. LEOPOLD: I'm not going to stop 18 19 the record. 20 MR. TEIN: You're coaching the witness. 21 MR. LEOPOLD: Counsel 22 MR. TEIN: Stop coaching the witness. Page 22 NO:. gg OIL Q. dowAi U. tooig ge In 26 You're sure that Yd a. tibt 00f6MVOW-4Mtd; yw 0-trt0d4tO MIU a de you to engago MR. LEOPOLD: Objection. Asked and 8 answered. 9 THE WITNESS o And I've already 10 answered that a bazillion times. 11 BY MR. TEIN: 12 Q. He's coaching you now. So I'm going to ask 13 the question MR. LEOPOLD: Counsel, I've made an speaking. You can't interrupt me when I'm making -0929104.TXT 23 BY MR. TEIN: 24 Q. let me ask you 25 MR. LEOPOLD: If you continue to 27 1 MR. TEIN: Stop interrupting my questions. 2 MR. LEOPOLD: If you do it one more time, 3 we're leaving. 4 BY MR. TEIN: 5 Q. 6 MR. LEOPOLD: I'm going to make the record. 7 You cannot interrupt me when I'm making the 8 record. Out of professional conduct, you cannot 9 do that. I'm entitled to make the record. I made 10 an objection, asked and answered. You demeanor is 11 inappropriate. You're willing and you are able 12 and you're responsible to ask a question in a 13 professional manner and ask the question and once 14 you get the answer, to either follow up on it or 15 move on, but not continuously browbeat and ask the 16 same question over and over because you don't like 17 the answer. 18 MR. TEIN: Calm down, sir. 19 MR. LEOPOLD: Trust me, I'm very calm here. 20 When I'm not calm you'll know it. I'm very calm. 21 So please continue on, but I will not allow 22 you to continue to harass her in the demeanor that 23 you're doing. Ask her a question and move on. 24 MR. TEIN: Are you done? 25 MR. LEOPOLD: Thank you. I am. Page 23 -0929104.TXT 28 1 MR. TEIN: Stop misrepresenting the record 2 and calm down. I'm going to ask my question. 3 Stop it. 4 BY MR. TEIN: 5 Q. 6 MR. LEOPOLD: I think the record is very 7 clear. 8 MR. GOLDBERGER: Let me just clarify 9 something. When you object to the form of a 10 question, you're not instructing the witness not 11 to answer the question, are you? 12 MR. LEOPOLD: No. And I'm not making that 13 objection: only on attorney client privilege. 14 MR. TEIN: Will you stop speaking now so I 15 can ask my question? Are you done? 16 Okay. I'm going to ask my question. 17 BY MR. TEIN: 18 Q. Listen, 19 MR. LEOPOLD: Hold on. Stop. 20 I've been doing this for 20 plus years and 21 have met a lot of attorneys, but I've never had an 22 experience like this where I've 23 MR. TEIN: Stop your speeches. 24 MR. LEOPOLD: If you continue to do this, 25 whether its with me or with my client, I will not 29 1 put up with it and I don't need to put up with it 2 and it's not appropriate. And I'm sure Mr. 3 Goldberger knows all this, because I know that he 4 wouldn't do this. So I will not put up with it. Page 24 21 22 23 24 25 1 3 1: 5 6 -0929104.TXT And I think it's highly inappropriate to do this with this child sitting here, the way you're 7 acting, primarily towards me, and I will not put 8 up with it. 9 MR. TEIN: Will you please stop your speech 10 so I can ask questions? 11 MR. LEOPOLD: So long as you act 12 professionally, I will do so. But if you continue 13 to do it this way, I will leave. 14 MR. TEIN: Suit yourself. 15 BY MR. TEIN: 16 la are you sure that brore you go:t. ie tried to..."TttUalCSO.40.3Migtr.1 0001g6M9440Witft 'gtb4W bitHM40 7 19 MR. LEOPOLD: Asked and answered. 20 Objection. MR. TEIN: Did you get her answer? THE COURT REPORTER: No, I did not. THEATINEW A000100gA000400 BY MR. TEIN: OtH0080 009Z 30 e41. Or Q Jeff never e-rnai led you, dd he? Vt.i )0f7r!.!:lbOVOtiiMO.XV.; ;!0)0.0 0400.::1!,i: . Q. AfRbootgehatOribt Page 25 iidi4tRttOMIWW-401.4 -0929104.TXT 1 2 A. Q. BeTOWYOPAOUP-AgOV 11q00;.'YOM114.0' 40....tMbO tbrgyou .p . . .:P ttOOMI!, f3.0.0.!;!:Y. :(i!;1;!:!.ffingt.'0!;.!i!ErigtOrIV. g.ltiMii 0!;!;STOttlIO:d Kthapt400 totlw yogi !.)10V.0,1 to1c..!;!i4:0F.tggrfOiPSO-IP:MOVA:!:.0).140r1;.!1114:AROIDI ...... .............................................................................................. ad you And you only went that one time three years ag, correct? A. Yu never went there again, A. No. taiiiaariiitpAtOtdaZba1 0 tt:Odt2i- Q. All right. Let me ask you two final areas 3 of questioning about this and we'll move onto something 4 else. Okay? 5 A. Uh-huh. Yes. I'm sorry. 6 moggrommok -WOMOOW 17i 6000dIat yOU on the phone arid -m50:-Im!:14-gr oaaceiiitit113.0 11Na1150: 0g0030:00V:i:Mitqq: rAg: Q. BeforE you go 0AgOOAPt digigiletPOPOIAZO.:-" 13 an erce you to engage WOWinduce, entice or c Page 26 31 -0929104.TXT 14 engage in any sexual activity? !;IS Q. 5WW.OTWYOdttOt AttADtax AMEYWAVOUI I .Orrgi!A Min 20 Q. Was it or was it the other girl in 21 the car who you rode over with to Epstein's house? 22 A. 23 Q. Who was the other girl in the car with you 24 that day? 25 A. I honestly don't know. 32 1 Q. Had you ever seen her before? 2 A. No, sir. 3 Q. You told the police that when you rode over 4 to Epstein's you had no idea who she was, right? 5 A. Correct. 6 Q. You told the police that you didn't know 7 her name, but she was like really dark, kind of like a 8 Spanish girl? 9 A. Yes. 10 Q. Those were your words, right? 11 A. Yes. 12 Q. Do you now know who she is? 13 A. No, sir. 14 Q. So it was who told you to lie about 15 your age to Jeff Epstein? 16 A. Yes, sir. 17 Agt A0410400Ahlk Page 27 27 -0929104.TXT 18 hoL 19 20 21 when you first met Jeff. Okay? 22 A. Sure. 23 Q. When you first met Jeff he tried to find 24 out how old you were, right? 25 300MERMY0040 0 Q. All right. Let's talk for a minute about A. Excuse me? 33 1 ' 000 000; hONtd 0400400) umgh- dwriht 3 Not. whrW fi rsti................rtrodUd P4OWMOr 4 WOht AMter 40X4MY: 5 Q. During the massage Jeff asked you how old 6 you were, correct? 7 A. Yes, yes. 8 Q. Now hadn't you already told Jeff's 9 assistant, the one who walked you upstairs, that you went 10 to college and had just moved down here from Ohio? 11 A. I never spoke to the lady. 12 Q. Do you want to rethink that answer? 13 MR. LEOPOLD: Is that a question? 14 BY MR. TEIN: 15 Q. Do you want to rethink that answer? 16 A. No. I didn't really speak with her that 17 much. 18 Q. Do you want to try to refresh your memory 19 on that? 20 MR. LEOPOLD: Do you have something to 21 refresh her memory with? 22 MR. TEIN: Do you want to stop making Page 28 -0929104.TXT 23 speaking objections? 24 MR. LEOPOLD: No. But to refresh someone's 25 memory you show them a document. 34 1 2 3 4 5 6 7 MR. TEIN: I know how to do this. MR. LEOPOLD: Then show her a document. MR. TEIN: Stop speaking. MR. LEOPOLD: I'm not going to stop speaking. I'm going to continue to make the record. MR. TEIN: You're obstructing. Please 8 stop. 9 MR. LEOPOLD: I'm not obstructing. But if 10 you want to refresh her recollection, you need to 11 show her something. 12 That's not a proper question. I object to 13 the foundation and the predicate of that question. 14 MR. TEIN: Are you done? 15 MR. LEOPOLD: I am now. Thank you. 16 BY MR. TEIN: 17 Q. Do you want to try to refresh your memory 18 as to whether you had any conversation with the woman who 19 walked you upstairs in Epstein's house in which you told 20 her that you went to college and had just moved down from 21 Ohio? 22 MR. LEOPOLD: Objection. Object to the 23 form of the question. Lack of foundation and 24 predicate. 25 BY MR. TEIN: Page 29 -0929104.TXT 35 1 Q. You can answer the question. 2 A. Sure. 3 Q. Is there anything that would refresh your 4 memory that in fact you told Mr. Epstein's assistant, the 5 one who walked you upstairs, that you went to college and 6 you had just moved down here from Ohio? 7 A. I don't remember saying that, but if you 8 I don't remember saying that myself, so 9 Q. That would be a lie, right? 10 A. No. I really don't remember. 11 W WNW Ri Jeff that you weragInf 10-,L gOttOM 13 YO 0 14 Q. Do you remember Detective Michelle Pagan of 15 the Police Department, Palm Beach Police Department? 16 A. Yes. 17 Q. Do you remember you spoke to her? 18 A. Yes. 19 Q. Do you remember that you told Detective 20 Pagan igogp ....................................................... Wppj 4tdatiOUWWW- :thJf1HVoUrdi ....... MOtbaWOMitti.0040 0400 22 JAM 00 WR ON. W 25 Q. And do you remember telling Detective Pagan .i ound, 36 1 that when you lied to Epstein about your age that you 2 said it really fast so Epstein wouldn't realize you were 3 lying? 4 A. No, I don't remember saying those words Page 30 -0929104.TXT 5 exactly to her. 3-gtoioobotawmgatgaiampao 44XPTIVAMMOWTOZ 7 Q. Does it sound right to you that you told 8 Detective Pagan that you said your age really fast to 9 Epstein 10 MS. BELOHLAVEK: Objection. Asked and 11 answered. 12 BY MR. TEIN: 13 Q. 14 lying? 15 MR. LEOPOLD: Objection. Asked and 16 answered, lack of foundation, mischaracterization 17 of her earlier testimony. She's already answered 18 that question. 19 BY MR. TEIN: 20 Q. You can answer it. 21 MR. LEOPOLD: Same objection. It's been 22 asked and answered. 23 You can answer. I've made the objection. 24 THE WITNESS: I forget the question, now. 25 37 1 BY MR. TEIN: 2 3 4 7 8 Q. Let me put it again. P9g iiPg 01400:gr OggPgYOm 4;.!ggo.lo ;!pgpootif:MgRggpmingvmhowa. I,:ttWoh otrPsoutuogmixo ia.Orte SC'!EPt T:ff.!;:i O2i '4'itt:i!!trAt:0:44:1ISC:r.O M;ti.O.g0::(1:11. 4146AtAbbtg iff6M4V 8-0 MR. LEOPOLD: Objection. foundation, asked and answered. Page 31 9 44 11 BY MR. TEIN: 12 -0929104.TXT 3 ,RIMEMPAt f0.00X1J :ro.:,,,:lylog i.04t1Yourogg:15401tz - Z 00t0.0t 15 Q YOM0140MOOVI.,Mr Epstein to know that T uwot.i8.zitTgbtZ: ::POtPOOtM: 100104mOdMit tt tOitotd:A 4:140Mth4t Hy were is, right? 24 Wh e Ak , Correct. Do you remember when Mr. :g4tfl omooto school? Aritd1iMr Epstein Y0 ONWOWXR right? 38 1 A. Yes. 2 q. Was that thGxpowz, W 4 Q. In fact, you went to right? 5 A. Yes. 6 Tm wsc- Tiedgzogyi 01. 1540PrOOPZ. 006 8 Q. Is Wellington the college that you told 9 Jeff's assistant that you were attending? 10 A. I don't remember having that conversation 11 with her, so I wouldn't know if that's what I said. 12 Q. That was a lie, though, wasn't it? 13 MR. LEOPOLD: Objection to the form of the Page 32 -0929104.TXT 14 15 16 17 question, lack of foundation. You're making an assumption. She just answered you she can't tell you that. MR. TEIN: Speaking objection. And you 18 well know that, Mr. Leopold. 19 MR. LEOPOLD: She can't answer that 20 question. The way you phrased that question 21 you're purposely making her not be honest in her 22 testimony. She can't answer a question like that. 23 She doesn't remember So then you say, "So you 24 were lying." That's improper and you know that. 25 That's not a proper question. And any attorney 39 1 that would do that to a witnesses or to a person 2 that's sitting in this chair is not acting 3 professionally. You can't ask a question like 4 that. You can do it, but it's not proper. And 5 I'm sure you weren't trained that way, certainly 6 not ethically. 7 MR. TEIN: Will you stop? 9 MR. LEOPOLD: I'm not going to stop, because the way you're asking that question is 10 improper and you know it. 11 MR. TEIN: You're losing your cool. 12 BY MR. TEIN: 13 Q. 14 MR. LEOPOLD: Trust me. I'm very calm. 15 When I lose my cool, you'll know it. 16 MR. TEIN: I do know it. 17 BY MR. TEIN: Page 33 104. TXT 18 :Q,.11it Mr'r:::'.1::Eri: K Olii.009:0.n!..0- .-gOtlz-S0,0:- Ta ,K.Mii:.....M6:01110M0100t:!kititiaiiiit05 4402.1.1110igi00.C100-gitZ ',.g0. ,A.1,, !i10:00:ttit:...:. A040000Bi0:0000080.0i!!itOii!itiONCtitti 4Y6 ,mrkgotbitiq10,4td4ouBtoAllyttail g.!X gg0g01 040501017: 25 .hI1:her MR. LEOPOLD: Objection. Foundation, 40 predicate. THE WITNESS: Correct. You toldthe p01 lce :A Otatg 00Matbbt him 46....2.4V- A4OPP IA00 MOOMMOOtai: Your ggr NOM4OggIXbOX M040 410a004t4i0.40 MMIAINKOIPMPOMOMMOMAI4MMY POW trie At no time di did you? gottpii . 114 'AMEXWOW I ncorrect. Well, you told the police, "At no time did Page 34 -0929104.TXT 23 he touch me." Were you lying to the police then? 24 A. No. Well, I wasn't being fully truthful, 25 but I wasn't lying. 41 1 Q. You told the police twice when you spoke to 2 Michelle Pagan that "at no time did he touch me." Didn't 3 you say that to the police? 4 A. Yeah. 5 Q. And you're saying that that was not fully 6 truthful. Is that what you're saying now? 7 A. Correct. 8 Q. And you're saying if you're not fully 9 truthful, that's not a lie. Correct? 10 14 15 16 17 18 todu 47 ga A. YOU t001( that 01..rt of context I 4C4Wrea 1 didn-tt an lIke that. Touching my legSsand kePtlilhands to himself tile entire time. TWV to Q. You told the police, "At no times did he touch me." You agree with that, correct? A. No, I don't agree with that, because he did touch me. Q. Did you tell the police that he did not 19 touch you, yes or no? 20 A. It's a possibility, but I do not remember. 21 ,(W A60400HOUIROWNVOROYA9W0f3WO VIVT 4OrCIR4611I0Ota 23 24 POz. W AWN01414- TWO TAW Page 35 Y tYPe of ora sax 4 Q. -0929104.TXT 42 1 440394100 f- POROME: All right. afEattdOtTi Let's talk about what happened 5 after the massage was over. 6 7 A. Okay. Q. After the massage you told Epstein that you 8 wanted to bring your twin sister back so she could make 9 some money, correct? 10 A. Incorrect. 11 Q. Your twin sister is , right? 12 A. Correct. 13 Q. And you love very much, don't you? 14 A. Yes. 15 Q. And when you left the house you were joking 16 with the other girls, weren't you? 17 A. Incorrect. 18 Q. Well, when and the other girl in the 19 car that day made their statements to the police they 20 told the police that you were joking afterwards. Are you 21 saying that they were lying to the police about that? 22 A. No. But a question or 23 24 joking. She was kind of like in a happy way, like, "Oh, 25 what did you do? What did you do?" Like those kind of 1 things, but it wasn't joking about it at all. 2 Q. You joked about it, didn't you? 3 A. No. 4 Q. You said to that if you did this Page 36 43 -0929104.TXT 5 every weekend you'd be rich, didn't you? 6 A. No. That's what told me. 7 Q. You didn't tell that to ? 8 MR. LEOPOLD: Objection. Asked and 9 answered. 10 THE WITNESS: No. 11 BY MR. TEIN: 12 W AMMMYOWTOMEO - '''' :,1000 040w With0- gi MVO OIMINA04.... 14 4W-EtwthONOVezorpootiz 15 A. Incorrect. I didn't spend any of the 16 money. 17 18 19 21 22 23 24 Q. You went to Marshall's, didn't you? A. I went along, yes, but I didn't T003000AAMOROWANMANOWOMMOMM 4. MR. LEOPOLD: Objection. THE WITNESS: I guess you could say that. MR. LEOPOLD: Objection. Lack of predicate and foundation. Mischaracterization of earlier 25 testimony. 1 BY MR. TEIN: 2 Q. And bought a purse, right? 3 A. Yes. 4 Q. And you were with her the whole time at 5 Marshall's, correct? 6 A. Yes. 7 Q. Now tell me about when the federal 8 prosecutors told you about getting reimbursed. Page 37 44 -0929104.TXT 9 A. I have no idea what you're talking about. 10 Q. Tell me about when the federal prosecutors 11 spoke to you about getting money you feel you're entitled 12 to from Mr. Epstein. 13 A. I don't know what you're talking about. 14 Q. Do you know who Marie Villafona is? 15 A. No, sir. 16 Q. Did you ever meet with any federal 17 prosecutors? 18 A. I think 19 think they were like FBI. 20 Q. Uh-huh. Did you meet with federal 21 prosecutors? 22 A. They came to my house one time, yes. 23 Q. When did they come to your house? 24 A. Very long ago. 25 Q. Was it this year, 2008? 45 1 A. It was not this year, no. 2 Q. Was it 2007? 3 A. I'd have to say at least two years ago or a 4 year ago, yeah. So it would be 2007, 2006; but it was a 5 while ago. 6 Q. How many federal prosecutors or FBI agents 7 came to your house? 8 A. I'm trying to remember. I want to say four 9 people came. 10 Q. Did they give you their business cards? 11 A. If they did, I don't remember, and they 12 weren't toward me. Maybe my parents have them. I don't 13 know. Page 38 -0929104.TXT 14 Q. Did they give you their cell phone numbers? 15 A. No 16 Q. Did you ever speak to them on their cell 17 phones? 18 A. No, sir. 19 Q. Did they speak to your parents? 20 A. That's something you'd have to ask my 21 parents. 22 Q. Do you know whether they spoke to your 23 parent's? 24 A. No, sir. 25 Q. You have no idea? 46 1 A. No, sir. 2 MR. LEOPOLD: Objection. Asked and 3 answered. 4 BY MR. TEIN: 5 Q. So if I say the name to you Marie 6 Villafona, you don't know who that is? 7 A. No, sir. 8 Q. How many women and how many men came to 9 your house? 10 A. I want to say two ladies and two guys. 11 Q. Did someone named Jeffrey Sloman come to 12 your house? 13 A. I don't know names, sir. 14 Q. Do you know who Jeffrey Sloman is? 15 A. No, sir. 16 Q. Do you know who Jeffrey Herman is? 17 A. Yes. Page 39 -0929104.TXT 18 Q. That's the lawyer who first sued Epstein on 19 your behalf, right? 20 A. Yes. 21 Q. Has Mr. Herman advanced your family any 22 money? 23 MR. LEOPOLD: Any conversations that you've 24 had with Mr. Herman regarding that issue, you are 25 not to disclose. If you've learned in some other 47 1 fashion, you may answer. 2 THE WITNESS: Okay. 3 I wouldn't know. 4 BY MR. TEIN: 5 Q. You don't know? 6 A. No. 7 MR. LEOPOLD: Objection. Foundation. 8 Attorney client privilege. 9 BY MR. TEIN: 10 Q. And you say you don't know who Jeff Sloman 11 is? 12 A. No, sir. 13 Q. Does it refresh your recollection that he's 14 the number two prosecutor at the U.S. Attorney's Office? 15 A. No. 16 Q. That he's Marie Villafona's boss? 17 A. No. 18 Q. Does it refresh your memory that he's the 19 ex-partner of Jeff Herman, the first lawyer who sued 20 you 21 dollars? 22 A. No. I don't know who he is. Page 40 -0929104.TXT 23 Q. Without telling me any conversations that 24 you've had with your lawyers, how is it that you selected 25 Mr. Herman as your lawyer from the 81,000 members of the 48 1 2 3 4 5 6 7 Florida Bar? A. I did not select him. Q. Who did? A. My father. Q. Did you ever meet Mr. Herman? A. Once. Q. Don't 8 with him. Where did you meet him? 9 10 friend's house. 11 Q. Whose house? 12 A. My friend 13 Q. Is that from 14 15 16 17 18 19 A. I was shopping in my A. Yes. Q. And did you have a meeting with him at 's house? A. Yes. I guess you could say that. Q. And who else was there? 20 A. My Aunt 21 Q. And what was that meeting about? 22 MR. LEOPOLD: Objection. That calls for 23 attorney client privilege. 24 BY MR. TEIN: 25 Q. What discussions did you have with Page 41 -0929104.TXT 49 1 Mr. Herman in the presence of 2 A. None. 3 Q. What discussions did you have in the 4 presence of her aunt? 5 A. Of my aunt? 6 MR. GOLDBERGER: It's the witness's aunt. 7 BY MR. TEIN: 8 Q. Oh, of your aunt. 9 A. The only one that we've ever discussed or 10 ever had. 11 Q. And so you were in a conversation with 12 Mr. Herman and your aunt? 13 A. Yes, sir. 14 Q. And you discussed privileged matters during 15 that conversation? 16 MR. LEOPOLD: Object to the form. I think 17 you might have to educate her on that question. 18 BY MR. TEIN: 19 Q. You discussed the lawsuit? 20 A. Yes. 21 Q. Did tell you about any 22 conversations that she had with Mr. Herman? 23 A. As far as I'm concerned, she's never spoken 24 or she's never had a conversation. She only opened the 25 door and then left. She's the one who answered the door. 50 1 Q. Why did the meeting take place at 2 house? 3 A. I spent the night that night at her house. 4 Q. And when was this? Page 42 5 A. 6 Q. 7 A. 8 Q. 9 A. 10 11 12 13 14 15 16 -0929104.TXT A while ago. How long ago? A month and a half ago. I'm A month and a half ago? Uh-huh. :WWWJMOWOMOVAMOVAIna guessing. ottotattriA0.0.. 4W ABM Q. Did you meet what an FBI agent named Nesbit Kirkendall, a woman? A. I don't know. Q. Did Ms. Kirkendall speak to you about 17 getting reimbursed from Mr. Epstein? 18 19 20 21 22 A. Not to my knowledge. A. I've never had a discussion with anyone about getting reimbursed from Mr. Epstein. Q. Have you met with an agent named Jason Richards? 23 Q. 24 A. 25 Q. How about an agent named Tim Slater? No, sir. How about an agent named Junior Ortiz? 51 1 A. No. 2 Q. And we've learned that many of the girls, 3 some of whom are as old as 23, were told by the 4 government that they would get money at the end of the 5 criminal prosecution. Does that sound familiar to you? 6 A. No, sir. 7 Q. Other than Mr. Leopold here I'm not 8 asking about Mr. Herman either Page 43 -0929104.TXT 9 A. Uh-huh. 10 Q. 11 you could get reimbursement for your damages? 12 A. No, sir. 13 Q. Did you or any member 14 MR. LEOPOLD: Are you referring to a 15 criminal matter or a civil matter? 16 BY MR. TEIN: 17 Q. Did you or any member 18 MR. LEOPOLD: Excuse me. Let me object to 19 the form of the question. 20 BY MR. TEIN: 21 Q. Did you or any member of your family ever 22 get a victim notification letter from anyone? 23 A. I no longer live at that residence and I 24 wouldn't know. 25 Q. So your testimony is that you have never 52 1 received a victim notification letter, correct? 2 A. Correct. 3 Q. And your testimony is that you don't know 4 if your parents have ever received a victim notification 5 letter, correct? 6 A. Correct. 7 Q. Have you given any evidence to prosecutors 8 or law enforcement in this case? 9 A. What do you mean by evidence? 10 Q. Well. Anything that you can touch or feel? 11 A. No. 12 MR. LEOPOLD: Objection to the form of the 13 question. Page 44 -0929104.TXT 14 BY MR. TEIN: 15 Q. So you haven't given anything physical 16 A. No. 17 Q. 18 officer or law enforcement agent, correct? 19 A. My cell phone four years ago or three years 20 ago, but that's it. 21 Q. You gave your cell phone to whom? 22 A. Michelle Pagan. 23 Q. Did she keep it? 24 A. Ask her. 25 Q. You gave it to her and then you didn't get 53 1 it back at the end of the meeting? 2 A. No. They 3 guessing. I don't have it. 4 Q. How much money are you hoping to get out of 5 Mr. Epstein? 6 MR. LEOPOLD: Objection to the form of the 7 question. Attorney client privilege. 8 BY MR. TEIN: 9 Q. How much money are you hoping to get, you, 10 yourself, hoping to get out of Epstein? 11 MR. LEOPOLD: Same. Same objection, 12 attorney client privilege. 13 Don't answer the question. 14 BY MR. TEIN: 15 Q. I'm not asking about what your lawyer told 16 you. 17 MR. LEOPOLD: I'm instructing her not to Page 45 -0929104.TXT 18 answer the question, because any of those 19 conversations involve her counsel. 20 MR. TEIN: Certify that. 21 MR. LEOPOLD: Please. 22 ..................CERTIFIED QUESTION.................. 23 BY MR. TEIN: 24 Q. Now, Saige, you lied to get out of this 25 deposition, didn't you? 54 1 A. No, sir. 2 Q. You didn't want to come to court today and 3 tell the story that you had told to the police under 4 oath, did you? 5 MR. LEOPOLD: Object to the form of the 6 question. Lack of foundation, predicate. 7 THE WITNESS: No. I have no problem coming 8 here and talking to you. 9 BY MR. TEIN: 10 Q. And to avoid getting served with a lawful 11 subpoena, you lied about your name, didn't you? 12 A. No. 13 Q. And in fact, just lying yourself wasn't 14 enough, was it? 15 MR. LEOPOLD: Objects to the form of the 16 question. 17 Don't answer it. It's not a question. 18 Object to the form of the question. Lack 19 of foundation. 20 MR. TEIN: Are you instructing her not to 21 answer? 22 MR. LEOPOLD: I am. Page 46 23 24 25 -0929104.TXT MR. TEIN: Certify it. MR. LEOPOLD: Please. 55 1 ..................CERTIFIED QUESTION.................. 2 BY MR. TEIN: 3 Q. You asked your co-workers 4 MR. LEOPOLD: It's vague and ambiguous. 5 BY MR. TEIN: 6 Q. You asked your co-workers at the 7 to lie for you, didn't you? 8 A. No. I informed my boss about what was 9 going on and he told me that he would help in any way 10 that he can. 11 Q. Okay. You got your friend to lie 12 by switching name tags with you, correct? 13 A. Incorrect. It was a coincidence that same 14 night she was not wearing her name tag; she was wearing 15 mine. But I was also not wearing 16 name tag. Everyone switches name tags. It just so 17 happens it was a coincidence that same night the people 18 came with the papers. 19 MR. TEIN: Will you put up Exhibit 18-001? 20 MR. GOLDBERGER: And mark 18-001 for 21 identification purposes to this deposition. 22 MR. LEOPOLD: None of them have been marked 23 yet. Can we mark them and put them as attachment 24 to the depositions? Because I think you've shown 25 three photos now. And this is the only one that Page 47 -0929104.TXT 56 1 has been marked for identification yet. 2 BY MR. TEIN: 3 Q. 4 MR. LEOPOLD: Hold on just a second. Just 5 so the record is clear 6 MR. TEIN: I'm not speaking to you. 7 MR. LEOPOLD: Okay. Then don't speak to me 8 then. But I'll speak to Mr. Goldberger, perhaps. 9 But at least for the record, can we put on 10 the record what the previous two photographs were 11 marked for identification? 12 MR. GOLDBERGER: We will make sure that the 13 record is clear at the end of the deposition so 14 that there's no ambiguity. 15 MR. LEOPOLD: Thank you. 16 BY MR. TEIN: 17 Q. I've put a photograph marked 18-001 18 up on the screen. Do you see that? 19 A. Yup. 20 Q. Who is that in the photo? 21 A. on the left and me on the right. 22 Q. right? 23 A. Yes. 24 Q. your friend at the 25 right? 57 1 A. Yes. 2 Q. your friend, who you say the day 3 that the process servers went to serve you with a 4 subpoena for this deposition, just happened Page 48 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -0929104.TXT coincidence, was wearing your name tag? A. Yes, sir. Q. And just by coincidence, you were wearing her name tag, correct? A. Yes. Q. Your testimony under oath is that's just a coincidence, right? A. Total honesty. Q. It just happens to be the day that you were going to be served with a subpoena, correct? A. That wasn't the first day that MR. LEOPOLD: just answer the question. It calls for a yes or no. THE WITNESS: Yes. BY MR. TEIN: Q. NOW 010gtb AMOOPritM going to 000C90040,03 Gtflg na 0150000WPOffrOW A. c.dittotua Q. 1650UKOWDOMM 00103 AtON00 h that the process serve 58 1 looking for you, didn't you? 2 A. No. I knew 3 MR. LEOPOLD: Just answer it. It calls for 4 a yes or no. 5 THE WITNESS: Okay. No. 6 BY MR. TEIN: 7 Q. Now you can explain the answer that your 8 counsel stopped you from explaining. Page 49 -0929104.TXT 9 A. Okay. I work at and people 10 were telling me that people were looking for me. So yes, 11 I was aware that people were searching for me, but I had 12 no idea who they were or what their intentions were, but 13 I thought they were just people I didn't want to talk to. 14 So I just didn't want to talk to them. And every time 15 they'd come to work I wasn't there. And so happens the 16 night that they came in me and my friend switched name 17 tags. No big deal. 18 Q. That's a lie, isn't it? 19 MR. LEOPOLD: Objection. Don't answer that 20 question. That's harassment and I will not allow 21 it. He could ask the questions and we'll allow a 22 jury to make that determination, but not counsel. 23 I will not allow her to answer that 24 question. 25 MR. TEIN: Certify it. 59 1 MR. LEOPOLD: I'll certify it. 2 ..................CERTIFIED QUESTION.................. 3 She's answered that question. She's explained it five 4 times already. The fact that Counsel doesn't like the 5 answer, that's a different query. 6 MR. TEIN: Stop making speaking objections. 7 MR. LEOPOLD: I'm not. I'm not going to 8 put up with it, because it's in appropriate, Jack, 9 and you know it. I will not allow Counsel to 10 berate a witness, whether it's in a criminal case 11 or a civil case, whether my client or 12 MR. TEIN: Calm down. 13 MR. LEOPOLD: Excuse me. Page 50 -0929104.TXT 14 No, I'm not going to allow it. That is not 15 proper. 16 MR. GOLDBERGER: Okay. 17 MR. LEOPOLD: If he wants to say that she's 18 lying after asking it five times and her 19 explaining in great detail, he can do that. But 20 I'm not going to allow her to answer, nor be 21 harassed by him. It's improper. 22 MR. GOLDBERGER: Okay. But your response 23 that Counsel doesn't like the question 24 doesn't like the answer 25 MR. LEOPOLD: Absolutely. I wasn't going 60 1 to interrupt you. 2 MR. GOLDBERGER: Just requires us to say we 3 like the answer to that question. And it's not 4 you and t or you and Mr. Tein who are testifying 5 here. It's the witness. 6 MR. LEOPOLD: Fine. But after the sixth 7 time of asking the same question and then coming 8 back and pointing a finger at her and saying, 9 you're a liar 10 MR. TEIN: That didn't happen. 11 MR. LEOPOLD: That's fine. But I'm not 12 going to allow her to answer that question because 13 she's answered that same question and has 14 explained it. 15 Now Counsel might be sitting there rubbing 16 his head with a migraine. That's his problem. 17 But if he can't ask a question appropriately in a Page 51 -0929104.TXT 18 professional manner, we will leave. I will not 19 allow her to be berated like that. 20 MR. GOLDBERGER: Actually, we're very happy 21 with the answer. 22 MR. LEOPOLD: That's great. 23 MR. GOLDBERGER: Do you want us to get into 24 that? 25 MR. TEIN: Ted 61 1 MR. LEOPOLD: This is really big stuff that 2 you're going through, but that's fine; just ask 3 your question and move on. But do it one time. 4 If you don't understand it, I'll let you follow 5 up, but I'm not going to allow you to ask the same 6 question the time and again and then call her a 7 liar. Just ask the question, get the answer and 8 move to the next subject matter. 9 MR. TEIN: Ted, I'm sitting right across 10 the table from you. 11 MR. LEOPOLD: Yes, sir. 12 MR. TEIN: Please be quiet. Don't yell. 13 MR. LEOPOLD: I will not be quiet. 14 MR. TEIN: Stop yelling. 15 MR. LEOPOLD: Lewis, when I'm yelling 16 you'll know it. I will not 17 MR. TEIN: My name is not Lewis. 18 MR. LEOPOLD: I thought your first name was 19 Lewis, Mr. Tein. 20 MR. TEIN: You watched me for three days at 21 the evidentiary hearing where you sat in the back 22 of the courtroom. You should know who I am. Page 52 -0929104.TXT 23 MR. LEOPOLD: Well, that's the impression 24 you must have made in the courtroom. 25 I will not be quiet. 62 1 MR. TEIN: That's obnoxious. Stop being 2 obnoxious. It's stupid. Let's go ahead with the 3 questions. 4 MR. LEOPOLD: I will make the record. 5 MR. TEIN: Let's get on with the questions. 6 MR. LEOPOLD: Do you need a break? 7 (Thereupon, a recess was taken.) 8 BY MR. TEIN: 9 Q. Okay. after you told your manager 10 at the everything that was going on 11 and he told you he would help you any way he could, he 12 hid you in the kitchen from the process servers, correct? 13 A. Incorrect. 14 Q. Isn't it true that lying to avoid service 15 is a meaningless lie to you, 16 A. Incorrect. 17 Q. What is your manager's name? 18 A. I have three. Would you like to know 19 all 20 Q. Who's the one who lied for you? 21 A. Justin. 22 Q. And what did Justin do to lie for you? 23 A. Said I wasn't there. 24 Q. And who did he tell wasn't there? 25 A. Ask him. Page 53 -0929104.TXT 63 1 Q. Where were you when Justin told this 2 someone that you were not at the 3 A. Eating nachos. 4 Q. At the 5 A. Yes. 6 Q. What did you do so that Justin would lie to 7 the process servers for you? 8 A. Nothing. 9 Q. You just got him to lie for you, didn't 10 you? 11 A. No. I had no influence on him saying I 12 wasn't there. 13 Q. He took that upon himself? 14 Isn't it true that Mr. Epstein's process 15 servers had to ask the police to get you out of the 16 restaurant so that they could serve you? 17 MR. LEOPOLD: Objection. Lack of 18 foundation, predicate. 19 BY MR. TEIN: 20 Q. You can answer the question. 21 MR. LEOPOLD: If you know. Don't guess. 22 THE WITNESS: No. Can you repeat the 23 question? 24 MR. TEIN: Don't coach. 25 MR. LEOPOLD: Don't guess. 64 1 MR. TEIN: That's a coaching. 2 MR. LEOPOLD: No. That's an instruction to 3 the client. 4 MR. TEIN: No. You don't do that. Page 54 -0929104.TXT 5 THE WITNESS: Can you repeat the question? 6 MR. LEOPOLD: Let me just state for the 7 record 8 BY MR. TEIN: 9 Q. Once the police 10 Mr. Epstein's process serves had to ask the police to get 11 you out of the restaurant so that they could serve you? 12 A. Incorrect. My boss called the police. 13 Q. And once the police showed up, to stop you 14 from lying to avoid service, you made up another lie that 15 the process servers had harassed you. Isn't that 16 correct? 17 A. Incorrect. 18 Q. You lie all the time, don't you? 19 MR. LEOPOLD: Objection. 20 THE WITNESS: Incorrect. 21 BY MR. TEIN: 22 Q. You have a MySpace page, don't you? 23 A. No longer do I have a MySpace page. I 24 deleted it. 25 Q. When did you delete your MySpace page? 65 1 A. A couple days ago. 2 Q. Who told you to take your MySpace page down 3 a couple of days ago? 4 A. Nobody. I'm sick and tired of MySpace. 5 Q. You all of a sudden got sick and tired of 6 MySpace and just a few days before this deposition you 7 decided to delete your MySpace page, correct? 8 A. Correct. Page 55 -0929104.TXT 9 Q. Is that your testimony under oath? 10 A. Yes. 11 Q. Did you take your MySpace page down because 12 you thought the government might subpoena it? 13 A. Incorrect. 14 Q. Hadn't your MySpace page been up for over 15 three months before you took it down? 16 A. Correct. But I also had made tons of 17 MySpaces over the last years. I just get tired of them 18 and delete them because drama and make new ones. 19 Q. We're going to talk about that. 20 So you deleted your MySpace page after you 21 were already under subpoena for this deposition, correct? 22 A. Correct. 23 Q. What about the MySpace page didn't you want 24 us to see,M 25 A. Nothing. 66 1 Q. Well, we're going to come back to MySpace 2 in a second. 3 A. You do that. 4 Q. I'm going to ask you some questions 5 about why you lie about your age so often, okay? 6 MR. LEOPOLD: Objection to the form. 7 Argumentative. 8 BY MR. TEIN: 9 Q. You lie about your age all the time, don't 10 you? 11 MR. LEOPOLD: Objection, argumentative. 12 THE WITNESS: Incorrect. 13 BY MR. TEIN: Page 56 -0929104.TXT 14 Q. You lie about your age to get body 15 piercings, don't you? 16 A. Incorrect. 17 Q. You have body piercings, don't you? 18 A. Yes. 19 Q. You have four body piercings; isn't that 20 right? 21 A. Five. 22 Q. Other than the pierceings on your ears 23 I'm not talking about that 24 A. Oh, then no; just one. 25 Q. And where is the one body piercing? 67 1 A. Belly. 2 Q. When did you get that? 3 A. For my birthday, with my stepmother and my 4 father. 5 Q. And when was that? 6 A. When I was 14. 7 Q. Okay. So you had that body piercing when 8 you met Epstein, correct? 9 A. It might have been, or maybe that 10 either my 14th birthday or my 15th. I honestly don't 11 remember. 12 Q. Now you've lied about your age to get into 13 bars by using driver's licenses that aren't yours, 14 correct? 15 A. Incorrect. 16 Q. Are you swearing under oath that you've 17 never done that? Page 57 -0929104.TXT 18 A. Yes, I swear under oath. 19 Q. And you've lied about your age to buy beer, 20 correct? 21 A. Incorrect. 22 Q. You're swearing under oath that you've 23 never lied to stores about your age? 24 A. I've never lied to a store about my age or 25 anything. 68 1 Q. 2 don't you? 3 4 5 6 7 Q. 8 one. 9 10 11 BY MR. TEIN: 12 13 14 15 16 17 18 BY MR. TEIN: 19 Q. 20 21 22 You try to look much older than you are, A. Incorrect. Q. And you've lied about your age on your MySpace pages, don't you? A. Incorrect. All right. Let's look at Exhibit 26-01 MS. BELOHLAVEK: 26-001? MR. TEIN: Yes. n t You? 0 I i ed- to everyone I, 4t400 Q. Let's go to Exhibit 33. MS. BELOHLAVEK: That's 33-001? TEIN: Correct. On this page you lied to everyone that you were 19, didn't you? A. Incorrect. MR. LEOPOLD: Just answer the question. Page 58 -0929104.TXT 23 THE WITNESS: Oh, incorrect. 24 BY MR. TEIN: 25 Q. Now you can explain your answer. 69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 18? 25 A. I know that I have seen all of these and I know that this one is mine. Can you go down? MR. LEOPOLD: Just for the record, you're pointing to the photo. THE WITNESS: I'm pointing to BY MR. TEIN: 1 0mgootholgig VOW gOalt ORTORM )W: ggEPRP Q. That's yours, right? A. Correct. That's mine from a couple years ago that I have not been on base I don't use that. Please keep going down, please. And I think that's it, because there's no one Q. 4.0C 6COOMUTL- Ot.00401V A. V.OttOldt. yours, correct? NOW. AY i Q. And when you wrote 18 as your age on your MySpace page, that was a lie, wouldn't it? A. Correct. Q. Did you lie about your MySpace page back then because you couldn't post on MySpace unless you were A. Correct. There was a rule many years ago Page 59 -0929104.TXT 70 1 that you had to be 18 to have a MySpace. 2 Q. So you lied about your age so you could 3 post on MySpace, right? 4 A. Yes. 5 Q. Let's go back to the top one on this page, 6 33-01. 7 8 Ilotim gth4g0t0t100 AI t tifJ flow mid -01:01W-0 XY500g0g0A010110A 4.40AUW AYW' ' " Ain'. IbM0Y00:40iEhhOICK OMR: 13 14 Lox abbreviation for it says POEMODY 'post ':CbttOaCi Q. Now let's go back to the one that you were 15 pointing to before on this page, where it says your age 16 is 18 and you lied about your age to post MySpace, okay? 17 A. Uh-huh, yes. 18 19 20 Q. All right. Why did you finally put your true age on your MySpace profile four days before you morems0400010M ,:-.AtIfYg15.0ZOW 21 A. jAbn khOWOOWS0 taTROWoboorz, 22 MR. LEOPOLD: If you don't understand, ask 23 him to ask the question again. 24 MR. TEIN: Don't coach. 25 THE WITNESS: I don't know which MySpace 71 1 you're talking about. 2 BY MR. TEIN: 3 Q. The MySpace page that you're just pointing 4 to, where it says you were 18. Page 60 -0929104.TXT 5 A. Yes. 6 Q. AmtmtgAor 7 8 Q. 9 10 11 12 13 14 15 16 17 to. 18 19 20 21 22 23 24 25 ever bouTY0arovunglItZ Why did you finally post your true age on your MySpace profile A. Uh Q. testify before the Grand Jury? A. I honestly don't know which MySpace, because I've had like a bazillion MySpaces and in that year, I had two, that one and another one and that one's been deleted. So I don't know which one you're referring NdfiNtbffidffibdtgthWyMailft dw WW d dit Your MySpace Page "' oorAtuoi 1500. 0040001 NVITAW 1W 040nloty?: A. No. Q. You don't remember that. A. No. Q. Do you remember Detective Recarey? Did you meet a Detective Recarey? 72 1 A. I don't know the names. 2 Q. How many different detectives have you met 3 with on this case from Palm Beach? 4 A. Probably a good six or seven, maybe. 5 Q. Did one of the detectives tell you before 6 you testified in the Grand Jury that you should take your 7 MySpace age and put your true age? 8 A. No. Page 61 -0929104.TXT 9 Q. Didn't Detective Recarey have to come to 10 your house to pick you up to get you to testify in front 11 of the Grand Jury? 12 A. Possibly, maybe because I didn't have a 13 ride. I was only 14 or 15 at the time. 14 Q. Your mom didn't drive you? 15 A. No. 16 Q. Stepmom didn't drive you? 17 A. I think my dad. Oh, my dad my dad drove 18 me. 19 Q. Your dad drove you? 20 A. Yes, sir. 21 Q. So your testimony is Detective Recarey did 22 not drive you, correct? 23 MR. LEOPOLD: Objection asked and 24 answered. 25 THE WITNESS: No. I'm pretty sure my dad 73 1 drove me because he was there with me. 2 BY MR. TE1N: 3 Q. Did any detective tell you to change your 4 age on your MySpace page to put your true age? 5 6 7 8 9 12 13 A. No, sir. Q. Now you also lied on your MySpace page about your income, didn't you? A. Yes. And..yoti lied, sayir that104410000 APOtt0t0034 -m0104M Q. A. Yes. That was a lie, wasn't it? Page 62 -0929104.TXT 14 15 16 youa:lo Hod on your MSpace page impopv ..Vitor MOVVIAd dfdtgt4b0Z 17 Ottta: 18 19 20 21 tape-recorded statement that you gave to Detective 22 Michelle Pagan three years ago, didn't you? 23 A. To my knowledge, no, I did not. 24 Q. Well, you lied to the police when you 25 accused Mr. Epstein of attempting to murder your father, And thatmight hve1eenag Q. A. Q. Now you also lie to the police, don't you? No. Well, you lied to the police in your 74 1 didn't you? 2 A. No. I never heard a statement saying that 3 Mr. Epstein tried to murder my father. 4 Q. You made that statement, didn't you? 5 MR. LEOPOLD: Do you have a statement to 6 show her? That's been asked and answered. 7 MR. TEIN: I'm sorry. I didn't hear the 8 witness' answer, Mr. Leopold. 9 BY MR. TEIN: 10 Q. you told the police, didn't you, 11 that Mr. Epstein almost killed your father, didn't you? 12 A. No. 13 Q. Three years ago, before Mr. Epstein even 14 knew about this investigation, you told the police that 15 Epstein had "already come to my dad's house and did 16 something to my dad's tires and my dad almost died. 1 17 didn't want my dad to get hurt, because Jeff already Page 63 -0929104.TXT 18 almost killed him." 19 Didn't you say that? 20 A. Not to my knowledge or recollection. I 21 have never said anything like that. 22 4tg 144WWWWWWDOOONCOMMOW . 23 Joo t vo.moie 24 A. Yeah. 25 Q. Because Mr. Epstein never came to your 75 1 dad's house, correct? 2 A. Correct. 3 Q. And no one who worked for Mr. Epstein ever 4 did something to your dad's tires. Did they? 5 MR. LEOPOLD: Objection. Lack of 6 foundation, predicate. 7 Don't guess. 8 BY MR. TEIN: 9 Q. Its not true that Mr. Epstein almost 10 killed your father, is it? 11 MR. LEOPOLD: Objection. Asked and 12 answered, lack of foundation, predicate. 13 BY MR. TEIN: 14 Q. You can answer. 15 A. No. 16 Q. Now you told the police that you didn't 17 know who was in the car with you and Hayley on the day 18 you went to Epstein's house, didn't you? 19 A. Yes. 20 Q. And that was a lie, wasn't it? 21 A. It's the truth. 22 Q. You told the police that there was someone Page 64 -0929104.TXT 23 in the car next to you and you specifically said you 24 didn't know her name, right? 25 A. Correct. I do not know her name. 76 Q. You said, "I don't know her name, but she 2 was dark like a Spanish girl." Those were your words, 3 right? 4 A. Yes. 5 MR. LEOPOLD: Objection. Asked and 6 answered. 7 BY MR. TEIN: 8 Q. Who was in the car that day with you and 9 10 A. Again, I do not know. 11 Q. It was your good friend 12 wasn't it? 13 A. No. I don't know a 14 Q. You lied to the police about who was in the 15 car with you and , didn't you? 16 A. Incorrect. 17 Q. Let me ask you some questions about who you 18 may have spoken to about this case. All right? 19 A. Go ahead. 20 Q. Did you speak to your sister. 21 A. Not in detail, but of course she knows; 22 she's family and yes. 23 Q. What's her e-mail? 24 A. I don't think she has an e-mail. 25 Q. What is her phone number? Page 65 -0929104.TXT 77 1 A. Oh, gosh. I don't know off the top of my 2 head. 3 Q. And what is her home address? 4 A. She lives with my mom. 5 Q. In Georgia? 6 A. Yes, sir. 7 Q. What about 's boy friend Paul? Did 8 you speak to him about Epstein's case? 9 A. That's my mom's boy friend. My sister 10 doesn't have a boy friend. My mom's husband's name is 11 Paul, so maybe you get them confused. 12 Q. Do you know his phone number? 13 A. No. 14 Q. Where does he live? 15 A. With my mom. 16 Q. In the same house with her? 17 A. Yes. They're married. 18 Q. So not boy friend; husband? 19 A. Yeah, husband. 20 Q. Have you spoken to Brett about 21 what happened in Mr. Epstein's house? 22 A. Not in detail, but he knows the basics, 23 yes. 24 Q. What is his e-mail? 25 A. I don't know. 78 1 2 3 4 Q. What is his phone number? A. How is that relevant? Q. What is his phone number? A. Page 66 -0929104.TXT 5 Q. What is his home address? 6 A. I don't know. 7 Q. Where does he live? 8 A. In somewhere. 9 Q. Ever been to his house? 10 A. Yes. 11 Q. You don't know what his address is? 12 MR. LEOPOLD: Objection. Asked and 13 answered. She just said she doesn't know. 14 MR. TEIN: Don't coach. 15 MR. LEOPOLD: Objection. Asked and 16 answered. 17 BY MR. TEIN: 18 Q. You can answer the question. 19 A. I don't know the exact address. 20 Q. What street is it on? 21 A. It's an apartment complex; its not a 22 street. 23 Q. What's the name of the apartment complex? 24 A. 25 Q. What apartment number is it? 79 1 A. I couldn't tell you. 2 Q. When was the last time you went there? 3 A. Just visited this past weekend. That's the 4 first and last time I went there. 5 Q. How about Steven M? Have you spoken 6 to him about your case? 7 A. No. We no longer speak. 8 Q. What's his phone number? Actually, we Page 67 -0929104.TXT 9 10 11 already have his phone number room and e-mail. you ever How about Have spoken to her about your case? 12 A. I don't know an 13 Q. Have you ever met 14 A. No. But just to I et you know, I don' t 15 really know names. If you have pictures, of there faces 16 I could tell you. 17 18 Q. All right. Let me see if I can refresh your memory. 19 A. Okay. 20 Q. Does it refresh your memory that 21 is the other girl who made allegations about Epstein, but 22 23 refused to show to the Grand Jury when she had to testify about them under oath? 24 A. No, sir. I have no knowledge of any other 25 girls in this whole situation. We're not allowed to know 1 80 each other. 2 Q. I91I4figtA0Wutoa20 four..............................words, 3 A. mommbM4413bWOMt061010WOOW moom 4 5 Q. And what about ? Have you of met her? 6 A. No, sir. 7 Q. Let's see if I can refresh your memory on 8 her. She's the other person represented by your lawyer 9 10 Mr. Herman, who is suing Epstein for fifty million dollars. 11 A. I have no knowledge of her. 12 Q. Never met her? 13 A. Never met her. Page 68 were eased on the Internet containing You . . . .. .. .. . . .. -0929104.TXT 14 Q. MI11111111111 15 A. I don't know who that is either. 16 Q. A person named Anthony who knows 17 Is that Tony 18 A. I don't know, sir. 19 Q. Do you remember making a statement to 20 Detective Pagan that's in the police reports? 21 A. No. 22 Q. Have you read the police reports in this 23 case? 24 A. Yes. 25 Q. They're on the Internet, right? 81 1 A. Yes, I think. 2 Q moroyarsomelo Rohouthomaii0ogre015.t0i 3 4 MbAt ACAORM 5 ...... Y.d 6 Q. You didn't want to see that happen, right? 7 A. No. 8 Q. So you're saying you don't know a Tony 9 IIIIIIIIIk 10 MR. LEOPOLD: Objection. Asked and 11 answered. 12 BY MR. TEIN: 13 Q. Does it refresh your memory that he was 14 somebody who had gone to jail for drugs and car theft? 15 A. No, sir 16 Q. Someone who knowsIIIIIII 17 A. No. Page 69 r statements -0929104.TXT 18 Q. You don't know if he met with Detective 19 Recarey? 20 A. No, sir. 21 Q. How about Zack ? 22 A. Yes, I remember. I know who that is. 23 Q. Did you ever speak to Zack about what 24 happened at Mr. Epstein's house? 25 A. He knows what happened four years ago. He 82 1 doesn't know this is still going on today. 2 Q. What's his address? I'm sorry. I have his 3 address. 4 A. I don't know. 5 Q. How about Nick 6 A. 7 Q. You know who that is? 8 A. I know who that is, yes. 9 Q. He's the one you stayed out drinking all 10 night one night last year when your dad reported you 11 missing? 12 A. No, sir. 13 Q. Remember the baseball game you were 14 supposed to go to? 15 A. No, sir. 16 Q. Did you speak to Nick about this 17 case? 18 A. No, sir. 19 Q. How about Patrick 20 A. That's my sister's ex-boy friend. 21 Q. He's the one with the sawed-off shotgun 22 with the obliterated serial number? Page 70 -0929104.TXT 23 A. Ask him. I would not know that 24 information. 25 Q. Did you speak to Patrick about this 83 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 case? A. No, sir. Q. Have you spoken to John about this case? A. No. I don't know who John is. Q. Did your parents speak to John? A. Ask my parents. Q. Let's see if I can refresh your memory as to who he is. Okay? A. Uh-huh. MOAWm; iarity Fr reporter OWItigd60: txParmi0jagetWOOMOM. ..... OtENOW iiir.10)0 Orki;i0FiVIIMAR .g!tiOt ails a 0 ke that they what ou know MilOWKWWW110 100 000ttfliki OPPAllgOMOO.Vt 44: iii Conr porter father don't know out thedi Q. your father? A. I don't even know he gave money to my dad. Q. I'm sorry? A. I didn't even know he gave money to my dad. ail How much money did John Connolly give to Page 71 -0929104.TXT 84 1 Q. What do you know about the deal that John 2 Connolly has with your father? 3 A. I only know they spoke on the telephone 4 once. I don't know anything else. 5 Q. When was that? 6 A. This was a while ago, a year or two or a 7 year ago. I honestly don't know. 8 Q. Did John Connolly the Vanity Fair reporter 9 offer any money to your father? 10 A. I don't know. 11 Q. Did John Connolly, the Vanity Fair 12 reporter, give you any money? 13 A. No, sir. 14 Q. Did he offer you any money? 15 A. No, sir. Never spoke to him. 16 Q. What reporters have you spoken to? 17 A. Zero. 18 Q. What about your family members? What 19 reporters have they spoken to? 20 A. The whole Palm Beach County, obviously, as 21 you can see in that newspaper. 22 Q. Tell me 23 you remember. Other than the Vanity Fair reporter, John 24 Connolly, what other reporters have any member of your 25 family spoken to? 85 1 A. I don't know. And I know my mom has spoken 2 to zero. My sister spoke to zero. My father and 3 stepmother, I wouldn't know. You'd have to ask them. 4 don't contact them. Page 72 -0929104.TXT 5 Q. Well, I just want to know 6 you to 7 MR. LEOPOLD: She just told you. She just 8 answered 9 MR. TEIN: Be quiet. 10 BY MR. TEIN: 11 Q. What I want to know is what you know from 12 your personal knowledge. My opinion question to you is: 13 What knowledge do you have about family members of yours 14 speaking to reporters? 15 MR. LEOPOLD: Objection. Asked and 16 answered. 17 And if you can't talk professionally, we're 18 going to leave. 19 MR. TEIN: Do what you want to do. 20 MR. LEOPOLD: Are you going to continue to 21 talk this way? 22 MR. TEIN: I'm not going to answer any 23 question that you ask me, Mr. Leopold. 24 MR. LEOPOLD: Okay. 25 MR. TEIN: But you are misrepresenting the 86 1 record and you are grandstanding for your client 2 and it's wrong. So be quiet. And you know how to 3 make an objection. Make it. Otherwise stop 4 talking. 5 BY MR. TEIN: 6 Q. Saige 7 MR. LEOPOLD: Excuse me. 8 MR TEIN: If you want to leave the Page 73 -0929104.TXT 9 deposition, leave. But you'll be back here. 10 MR. LEOPOLD: Excuse me. If I could just 11 make the record, instead of interrupting me, 12 please, that's what we do professionally. There's 13 a recorder here. I'm certainly not being 14 obstructionist. I'm going to make the record. 15 But were going to act with some semblance of 16 professionalism, hopefully, by all parties in the 17 room. That goes to me, that goes to your 18 co-counsel sitting behind you and next to you, the 19 court reporter and everyone else in the room. 20 Everyone goes entitled to that. 21 You've asked a question. She answered the 22 question fully and she's not going to be harassed 23 because you don't like the answer. If you want to 24 follow up 25 MR. TEIN: Stop engaging me. Make your 87 1 speech and then we'll ask the questions. 2 MR. LEOPOLD: Well, you won't let me finish 3 making the objection, so it's difficult to do 4 that. But if you want to follow with an 5 appropriate question, feel free to do that. But 6 we're not going to harass the witness. 7 MR. TEIN: I disagree with everything 8 you've said. Let's ask the questions. Okay? 9 MR. LEOPOLD: Ask an appropriate question 10 MR. TEIN: Are you going to stop talking? 11 MR. LEOPOLD: I'm going to make 12 my client and make appropriate objection, but 13 there's not a question pending right now. Page 74 -0929104.TXT 14 BY MR. TEIN: 15 Q. has spoken to any reporters? 16 A. No. 17 MR. LEOPOLD: Objection. Asked and 18 answered. 19 BY MR. TEIN: 20 Q. Has been given money by any 21 reporters? 22 A. No. 23 Q. Has your mom spoken to any reporters? 24 MR. LEOPOLD: Objection. Asked and 25 answered. 88 1 THE WITNESS: No. 2 BY MR. TEIN: 3 Q. Has your mom's husband Paul spoken to any 4 reporters? 5 A. No. 6 Q. Has your mom's husband Paul received any 7 money from reporters? 8 A. No. 9 Q. Are you sure you don't know 10 MR. LEOPOLD: Objection. Asked and 11 answered. 12 THE WITNESS: I'm positive. 13 BY MR. TEIN: 14 Q. I'll try again to refresh your memory. 15 A. Okay. 16 Q. Does it refresh your memory that she had 17 been arrested for drugs and was cooperating with Page 75 -0929104.TXT 18 Detective Recarey against Epstein to get herself a better 19 deal? 20 A. No. I don't know who she is. 21 Q. Have you spoken to anyone else who's been 22 at Epstein's house? 23 A. No. 24 Q. Without telling me what was said 25 want to know about any conversations with any lawyers, 89 1 okay 2 A. Uh-huh. 3 Q. 4 other law firms besides Mr. Herman and Mr. Leopold's law 5 firms? 6 A. No. 7 Q. Now without telling me about anything that 8 was said, what 9 A. No. I was thinking about something else. 10 Q. What were you thinking about? 11 A. Does family court matter? 12 Q. Okay. Without telling me what was said, 13 who prepared you for todays deposition? 14 A. What do you mean prepared? 15 Q. Did you talk about this deposition, about 16 what would happen, with anybody? 17 A. Yes. 18 Q. Don't tell me what was said? 19 A. Okay. 20 Q. I'm not asking that. I don't want to know 21 that. 22 A. Okay. Page 76 -0929104.TXT 23 24 25 1 2 Q. A. Q. A. Q. Who prepared you for today's deposition? Mr. Leopold. Anybody else? 90 No. When did you meet with Mr. Leopold to 3 prepare for today's deposition? 4 A. This morning. 5 Q. And how long did that meeting last? 6 A. Until it started. 7 Q. Now you told me that you previously had 8 read the police reports in this case? 9 A. Yes. 10 Q. Have you read your statement that you gave 11 to the police? 12 A. Yes, sir. 13 Q. And in what form was that statement? 14 A. What do you mean? 15 Q. Was it in the form of a police report or a 16 transcript? 17 A. What's the difference? 18 Q. A transcript has questions and answers on 19 it. A police report is just typed out narrative. 20 A. Oh, its a police report. 21 Q. And when did you read the police report? 22 A. A few days ago. I overread it a few days 23 ago. 24 Q. Had you read it before that? 25 A. No. Page 77 -0929104.TXT 91 1 Q. Now you told me 2 know what was said. 3 A. Uh-huh. 4 Q. You told me that you met with Mr. Leopold 5 this morning to prepare for your deposition, right? 6 A. Yes. 7 Q. When did you set up that meeting with 8 Mr. Leopold to take place this morning? 9 A. Gee, like, like five days ago, four days 10 ago. 11 Q. So you're aware that Mr. Leopold told us 12 that he could not start the deposition this morning 13 because he had a court appearance, correct? 14 MR. LEOPOLD: Don't answer that question. 15 Calls for attorney client communications. 16 BY MR. TEIN: 17 Q. Have you seen the letter that Mr. Leopold 18 wrote to us stating that he 19 wrote to Mr. Goldberger stating that he could not be here 20 this morning because healed a court appearance? Did you 21 see that e-mail? 22 MR. LEOPOLD: You can answer that question. 23 THE WITNESS: No. 24 BY MR. TEIN: 25 Q. Have you listened to your tape-recorded 92 1 statement to the police? 2 A. Yes. 3 Q. Where did you listen to that? 4 A. In, I think, this building. I don't know. Page 78 -0929104.TXT 5 It was here. 6 Q. When did you listen to that statement? 7 A. This morning. 8 Q. And who was present when you listened to 9 that statement? 10 A. Mr. Leopold 11 MR. GOLDBERGER: Ms. Belohlavek. 12 THE WITNESS: Ms. Belohlavek. 13 BY MR. TEIN: 14 Q. And you hadn't listened to your statement 15 before that, correct? 16 A. No, sir. 17 Q. Have you met with lawyers representing 18 anyone else suing Epstein? 19 20 21 22 23 tW 404 ft fddt4dAMVWALTAit taTtidtH A. No, sir. Q. How -many times have you tOgOttIOOPO 'he Palm Beach partment? More KH ,,,ztafhtM A. 24 Q. When was the last time you spoke with 25 officers of the Palm Beach Police Department? 1 A. A while ago. I'd say a year ago. 2 Q. A year ago? 3 A. Yeah. Maybe a year and a half. 4 Q. Do you remember Detective Recarey? 5 A. No. 6 Q. Do you remember Michelle Pagan, Detective 7 Pagan? 8 A. Yes. Page 79 93 Appgmorammolgprommomono :9PORaft -'TtlatZ -0929104.TXT 9 Q. How many times have you spoken to Detective 10 Pagan? 11 A. She was the only one I spoke to about this 12 until for some reason she wasn't on the case anymore. 13 Q. When was that? 14 A. The first meeting I ever had was with her 15 and then I think like I met with her mgolp opow 0.2tz 16 MMO d OMOttar CO4t0OW 000, XOWTEV 17 18 Q. And who was that? 19 A. I don't remember. 20 Q. And what type of questions did they ask 21 you? 22 A. The same. 23 Q. The same questions all over again? 24 A. Basically. 25 Q. How many taped statements have you given to 94 1 the police? 2 A. One that I know of. 3 Q. Just the one with Detective Pagan? 4 A. Yes, sir. 5 Q. How about to the FBI? Did you give any 6 statements to them? 7 A. No. Well, actually. I don't really 8 remember if that was taped or not to be honest with you. 9 I had one meeting with them at my house and don't know if 10 it was taped. 11 Q. You were interviewed at 12 house? 13 A. No. That was by the lawyer. Page 80 -0929104.TXT 14 Q. Oh, boy the lawyer? 15 A. Uh-huh. 16 Q. Where did the conversation that you had 17 with the FBI take place? 18 A. At my father's residence. 19 Q. Which is where? 20 A. On Downers in Loxahatchee. 21 Q. On where? 22 A. Downers Road in Loxahatchee. 23 Q. And when did that take place? 24 A. I'd have to say like a year and a half ago, 25 a year ago. It was a long time ago. 95 1 (Discussion held off the record.) 2 MR. TEIN: Tell me the last answer, please. 3 (Thereupon, a portion of the record was read 4 by the reporter.) 5 BY MR. TEIN: 6 Q. And who was present when the FBI spoke to 7 you at your father's house? 8 A. My stepmother was there, but she wasn't 9 around. She made herself like do other things. 10 Q. And how many FBI agents were there? 11 A. I think four. 12 Q. And you don't remember any of their names? 13 A. No, sir. 14 Q. And were there any lawyers there? 15 A. Not that I know of. 16 Q. And none of them gave you their cell phone 17 numbers? Page 81 -0929104.TXT 18 19 20 21 22 23 24 25 A. No. 0. Anomigmou 90.40 ONOW1408A go? A. It was a while ago. MR. LEOPOLD: Objection. Asked and answered. BY MR. TEIN: Q. And the last time you spoke to the federal 96 1 prosecutor's office was when? 2 A. I don't know. 3 Q. Did any of the FBI agents tell you that 4 Marie Villafona had spoken with Mr. Leopold? 5 A. No. 6 Q. Did any of the FBI agents tell you that 7 Marie Villafona had spoken with Mr. Herman? 8 A. No. 9 Q. Did any FBI agents tell you that Jeff 10 Sloman spoke with Mr. Herman. 11 A. No. 12 Q. Did any FBI agents tell you that Jeff 13 Sloman spoke with Mr. Leopold? 14 A. No. 15 Q. Do you know whether any of the federal 16 prosecutors allowed Mr. Herman to review a draft 17 indictment? 18 A. I wouldn't know. 19 Q. Do you know if any of the federal 20 prosecutors discussed a draft indictment with Mr. Herman? 21 A. I wouldn't know. 22 Q. Have you ever e-mailed with any FBI agent Page 82 -0929104.TXT 23 or any federal prosecutor? 24 A. No. 25 Q. Have you ever text messaged with any FBI 97 1 agent or any federal prosecutor? 2 A. No 3 Q. Has the FBI told you about other testimony? 4 A. No. 5 Q. Has the FBI told you about what other girls 6 have said? 7 A. No. 8 Q. Have federal prosecutors told you what 9 other girls have said? 10 A. No. 11 Q. Do you have any way of getting in touch 12 with the FBI if you wanted to get in touch with them? 13 A. No. 14 Q. How about your parents? Do they know how 15 to get in touch with the FBI? 16 A. I don't know. 17 Q. And by your parents, I'm referring to both 18 sets, okay? 19 A. Oh. Well, I'm referring to only my dad, 20 because my mom really doesn't care to know any of this 21 stuff. 22 Q. So the answer would be the same for your 23 mom and Paul? 24 A. Yeah. - 25 Q. Have you spoken to a lawyer named Burt Page 83 -0929104.TXT 98 1 Ocariz about this case? 2 A. No. 3 Q. Do you know who Burt Ocariz is? 4 Let's see if I can refresh your memory. 5 Does it refresh your memory that he's a good friend of 6 Marie Villafona's boyfriend? 7 A. I don't know who Mari Villafona is. 8 Q. Marie Villafona is the lead federal 9 prosecutor that's on the federal part of this case. 10 Okay? 11 A. No. 12 Q. So does it refresh your memory that Ocariz 13 is the good friend of Marie Villafona's boy friend? 14 A. Not at all. 15 Q. Does it refresh your memory that Villafona 16 tried to get Epstein to pay for Ocariz to represent you 17 in the federal case? 18 A. No. 19 Q. Do you know if Detective Recarey has spoken 20 with your father? 21 A. No. 22 Q. Do you know if Detective Recarey has spoken 23 to your stepmother? 24 A. No. 25 Q. How about with amber? 99 1 A. Yes, I would know, and no, she did not. 2 Q. Let's put up 3 questions about the photo that you had posted on your 4 MySpace page before you erased it last week. Okay? Page 84 -0929104.TXT 5 6 7 8 9 10 11 12 13 14 15 16 BY MR. TEIN: 17 18 19 20 21 22 23 24 25 1 2 3 A. Okay. MR. TEIN: Do you mind if we close the door a second, please. MR. LEOPOLD: Exhibit number, please. MR. TEIN: Put up 25-005. Hold on a second. MR. LEOPOLD: Don't say anything. She was talking to her counsel. MR. TEIN: Put up 25-006. MR. LEOPOLD: Is that 005 right there? MR. TEIN: Yes. toOkl photo ou h a warehouse y.,!:;;;ogtoitfa. MR. LEOPOLD: Objection. Mischaracterizes the photograph, and lack of foundation and predicate. Fully explain if you need to. THE WITNESS: I will. First of all. Oft 2004A1W0P000 0.Z t6V6W IglgOP4W: Second of all, I'm not being gang-raped. Everyone has their clothing on. Thirdly, if you look at all the other 100 4 pictures in this album, I'm drinking 5 when you're sick you drink it? 6 BY MR. TEIN: 7 Q. You can't ask questions of your counsel. 8 A. All right. I'm drinking like Sprite. I'm Page 85 -0929104.TXT 9 note drinking any kind of alcohol, if you would look at 10 my other pictures in that album. You guys picked the 11 possibly worst pictures out of there to present. And it 12 was just a goofy picture. All of these kids like to be 13 goofy. And that's what we were doing. 14 Q. Who's the man on the left of the picture 15 holding his 16 penis towards your mouth? 17 A. Steven 18 Q. Who's the man behind you, right up towards 19 your backs side, with you bent over? 20 A. That one? 21 Q. The right side, kissing with his mouth. 22 A. That's Nick 23 Q. He's the one grabbing towards the groin 24 area of Steven 25 A. Yes. 101 1 Q. And there's three other men in the photo. 2 What are their names? The one on the left with the hat? 3 A. That's Robbie (phonetic). 4 Q. Smiling? 5 A. Yes. 6 Q. Who's the one kissing 7 MR. LEOPOLD: Don't interrupt. Let her 8 finish the record. She's testifying. 9 MR. TEIN: I know you don't like this 10 picture, my friend. 11 MR. LEOPOLD: The picture is fine. 12 BY MR. TEIN: 13 Q. Who's the one with the hat? Page 86 -0929104.TXT 14 MR. LEOPOLD: No. Hold on. Stop, 15 You have to let the witness finish her 16 17 18 19 20 21 22 23 24 25 BY MR. TEIN: 1 Q. He's the one whose head is near the groin 2 of Steven , right? 3 A. Yes. 4 Q. And in the middle there's a man smiling. 5 Who's that? 6 A. That's Robbie 7 Q. Who's the one in the red hat, kissing? 8 A. Most Brandon (phonetic). 9 Q. Let me stop you for a second. Are you 10 done? 11 A. Yes, I'm done. 12 Q. Who is 13 A. My sister's friend. Well, she's a mutual 14 friend, but more my sister's. 15 Q. What is her last name? 16 A. 17 Q. Spell that. Page 87 answer. She was in the process of explaining and you cut her off. Please finish what you were saying and then Counsel can ask you whatever he wishes after that. THE WITNESS: Okay. This guy MR. LEOPOLD: Just make it so the record is clear who you're referring to. THE WITNESS: 102 -0929104.TXT 18 A. I don't know how to 19 Q. Have you spoken to her about this case? 20 A. No. 21 Q. Who's Vince? 22 A. My sister's friend. I don't really speak 23 to him at all. 24 Q. What's his last name? 25 A. 103 1 Q. 2 A. 3 4 case? 5 6 Q. And have you spoken to Vince about this A. No, sir. Q. Have you spoken to about this case? 7 A. Not in detail, but yes. 8 MS. BELOHLAVEK: Are we referring to 9 10 THE WITNESS: Yes. 11 MR. TEIN: Yes. 12 MS. BELOHLAVEK: Okay. 13 BY MR. TEIN: 14 Q. Have you spoken to Justin about this case? 15 A. Justin? 16 Q. Do you have a friend named Justin? 17 A. I do not have a friend named Justin. 18 Q. From freshman year? 19 A. No. 20 Q. How about In 21 A. No. 22 Q. Have you spoken to 1111 about this case? Page 88 -0929104.TXT 23 24 25 A. Q. A. No. What's her last name? . I don't know how to spell it? 104 1 Q. Is she the person whose house you went to 2 on New Year's this year? 3 A. No. I wasn't at her house on New Year's. 4 Q. Where were you when you took the picture of 5 Can you say blazed? That on your website? 6 A. I wouldn't know or 7 birthday party for some girl's 16th birthday. 8 Q. Were you drinking at that party? 9 A. No. There was no alcohol or anything 10 there. 11 Q. What does "blaze" mean to you? 12 A. It's like 13 But we weren't, if you look at the picture. 14 Q. Messed up like drunk, right? 15 A. Sure. 16 Q. Who's 17 A. A girl I know like from like two years ago. 18 Q. She's the one you were supposed to be 19 staying with when you went drinking with Nick 20 A. No. 21 Q. What's 's last name? 22 A. 23 Q. Where does she live? 24 A. I don't know. In Royal Palm. 25 Q. Page 89 -0929104.TXT 105 1 A. Uh-huh. I'm guessing. 2 Q. Do you know her phone number? 3 A. No, I do not. 4 Q. Let's look at 25-010. 5 A. See, tin drinking 6 Q. I'm not asking you about what you're 7 drinking. 8 Who are the men in this photo who are 9 pretending to gang up on you and stab you with knives? 10 Who are they? 11 A. Nick and Brandon (phonetic). 12 Q. Are they firemen? 13 A. Are those? Steven 14 two stabbing with knives. That's why I said that. 1 15 don't know. That's Steven and John 16 Q. Are these firemen? 17 A. No. They're all on 18 they're all on full rights for football. 19 Q. Go to 025-015? 20 MR. LEOPOLD: 025- dash? 21 MR. TEIN: 015. 22 THE WITNESS: Gosh, that's so long ago. 23 BY MR. TEIN: 24 Q. Who took the photo have you licking the 25 penis? 106 1 A. My stepmother. 2 Q. Whose idea 3 idea? 4 A. It was in Buca di Beppo, where she works Page 90 -0929104.TXT 5 currently and that was before she worked there, and we 6 just thought it would be funny. 7 MR. TEIN: 19-007. Can you enlarge that? 8 BY MR. TEIN: 9 Q. Who took this photo of you simulating you 10 having sex with a man? 11 A. We're not simulating having sex, and 12 it's 13 sure, Chris, but I know him as don't know his 14 last name. 15 Q. Go to 19-006, please. 16 Who took this photo of you simulating sex 17 with a man? 18 A. The same person. And we're not simulating 19 having sex, Mr. 20 Q. Tein. 21 Did you post that on the Internet? 22 A. Actually, this is an old MySpace I never 23 finished and I never like did anything. I just kind of 24 made it and left it. 25 Q. So the answer is yes, you posted this on 107 1 MySpace? 2 A. Yup. 3 Q. Go to 25-016. Who took this photo of you 4 simulating sex with a woman? 5 MR. LEOPOLD: Object to the form of the 6 question. Argumentative. 7 THE WITNESS: First off, she's piercing my 8 belly button or repiercing it, and I'm pretty sure Page 91 -0929104.TXT 9 it was just like we put up a camera somewhere and 10 put a timer on it. We didn't have anybody take 11 it. 12 BY MR. TEIN: 13 Q. You posted that on your MySpace page? 14 A. Yeah. 15 Q. Go to 25-013. Is that a photo of you? 16 A. Yep. 17 Q. Who's in the photo with you? 18 A. Steven. 19 Q. Steven ? 20 A. Yep. 21 Q. Is this you coming out of the shower? 22 A. Yes. 23 Q. Are you clothed in this picture? 24 A. Yeah. I have a halter dress on. 25 Q. Where is that picture taken? 108 1 A. In Steven's house. 2 Q. Did you post that on the Internet? 3 A. Yes. 4 Q. All right. 5 MR. TEIN: You can take that down. 6 BY MR. TEIN: 7 Q. Now your boy friend is Brett 8 correct? 9 A. Yeah. 10 Q. You lie about your age in order to conceal 11 something about your relationship with Brett 12 isn't that correct? 13 A. No. Page 92 -0929104.TXT 14 Q. Brett's 22 years old, isn't he? 15 A. Yes. 16 Q. And Brett is a firefighter with the Palm 17 Beach Fire Department, right? 18 A. Yup. 19 Q. Does the Palm Beach Fire Department know 20 that your boy friend is dating an underage girl? 21 A. Actually, Mister, it's legal. 22 Q. Well 23 MR. LEOPOLD: Just answer the question, 24 25 THE WITNESS: Yes. 109 1 BY MR. TEIN: 2 Q. Did they know two weeks ago that you were 3 dating an underage girl (sic)? 4 A. Yes. I met everybody in there. 5 Q. Did they know your age? 6 A. Yes. 7 Q. Did you lie about your age so that the fire 8 department wouldn't think that Brett is committing a 9 crime by having a sexual relationship with an underage 10 girl? 11 MS. BELOHLAVEK: Objection. Assumes facts 12 not in evidence. 13 BY MR. TEIN: 14 Q. You can answer the question. 15 A. No. 16 Q. Does the Palm Beach Police Department know 17 that Brett is having a sexual relationship with an Page 93 -0929104.TXT 18 underage girl? 19 MR. LEOPOLD: Don't guess. Answer if you 20 know. 21 THE WITNESS: Can you repeat the question? 22 BY MR. TEIN: 23 24 thowarom m4ormof 25 PogggROTOTOOVINAIW OWV. each DePartMent, WitmloIAJ::ioontoVOIAtfonsfo urttiorggg.z 110 1 AZ 000160A0B- 2 Q. You lie about your twin sister don't 3 you? 4 MR. LEOPOLD: Objection. Argumentative. 5 BY MR. TEIN: 6 Q. Don't you? 7 A. No. I have never lied for or to 8 Q. You lie about the fact that she has a s 9 drug habit, right? 10 A. No. I would never accuse my sister of 11 having a drug habit. 12 Q. Do you try to conceal the fact that she has 13 a drug habit? 14 MR. LEOPOLD: Objection. Argumentative. 15 BY MR. TEIN: 16 Q. You can answer the question. 17 A. No. My sister does not have a drug habit. 18 Q. You lied when you-went to the crack house 19 in Georgia, didn't you? 20 MR. LEOPOLD: Objection. Argumentative. 21 Lack of foundation, lack of predicate. 22 THE WITNESS: Never Page 94 -0929104.TXT 23 BY MR. TEIN: 24 Q. You lied when you went to the crack house 25 in Georgia, didn't you? 111 1 MR. LEOPOLD: Objection. Argumentative. 2 Lack of foundation, lack of predicate. 3 BY MR. TEIN: 4 Q. You can answer the question. 5 A. I have never been to a crack house. 6 Q. Who don't you lie to? 7 MR. LEOPOLD: Objection. Argumentative. 8 Don't answer the question. 9 MR. TEIN: Certify it. 10 ..................CERTIFIED QUESTION.................. 11 BY MR. TEIN: 12 Q. You don't lie to , do you? 13 MR. LEOPOLD: Objection. Asked and 14 answered. 15 Don't answer the question. 16 BY MR. TEIN: 17 Q. No. You can answer that question. 18 MR. LEOPOLD: No. I just told her not to. 19 You've asked that question about five 20 MR. TEIN: No, I haven't. 21 MR. LEOPOLD: Don't answer the question. 22 MR. TEIN: I'll certify it. 23 ..................CERTIFIED QUESTION.................. 24 MR. LEOPOLD: For the record, you have to 25 stop interrupting me because she can't take down Page 95 -0929104.TXT 112 1 both of us talking at the same time. 2 BY MR. TEIN: 3 Q. You tell the truth, don't you? 4 A. Excuse me? 5 Q. You tell IIIIIIthe truth, don't you? 6 A. When it's 7 Q. Who's s drug dealer? 8 A. My sister does not have a drug dealer. She 9 lives in Georgia with my mother. 10 Q. Okay- MIVRINEWCWOI0010 EWW640 000 11 you and off at 5:45 a.m. in 2006, after being out 12 all night, the two of you, using drugs at Palm Beach 13 Country Estates where your father called the police? 14 A. VIM 15 Q. He's the drug dealer? 16 A. He is a drug dealer. 17 Q. Do you remember was arrested by the 18 Palm Beach Police Department and taken to the Juvenile 19 Assessment Center that morning? 20 A. I do remember that. 21 Q. Now before you massaged Epstein, you were 22 involuntarily admitted into a juvenile educational 23 facility; isn't that right? 24 A. Did you say involuntarily. 25 Q. Yes. 113 1 A. No. I was willing to go. I 2 sure. 3 Q. And you went there because you were lying 4 so much, no one could control you; isn't that correct? Page 96 7 8 9 -0929104.TXT 5 A. Very incorrect. 6 Q. Now you lie to your parents all the time, don't you? A. Incorrect. MR. LEOPOLD: Objection. Argumentative. 21 22 23 accused you of lying? 24 A. All the time. Sorry? Incorrect. IWO AT400:14014W010 UoOmayo f4tbOta :00VA06 0400: 0 040 worwrootz A. Q. rcorromo You admitted to the police that you told 10 BY MR. TEIN: 11 Q. 12 A. 13 16 17 18 your father that you were going shopping, didn't you? 19 A. Yes. 20 SW Alla 004.M :OOP Q. And isn't it true that your father has 25 Q. Didn't your father throw you out of the 114 1 house Thanksgiving of this past year because you were 2 lying so much to him? 3 A. Yes, he did kick me out No, that's not 4 the reasons why. 5 Q. Didn't your father throw your sister 6 out of the house, too? 7 A. Yes. 8 Q. And he threw her out of the house the week Page 97 -0929104.TXT 9 after Thanksgivings, right? 10 A. I don't know the date, but sure. 11 Q. Sounds about right? 12 A. Sure. 13 Q. And the reason he threw her out of the 14 house was because she was lying, too? 15 MR. LEOPOLD: Objection. Lack of 16 foundation. Calls for speculation. 17 BY MR. TEIN: 18 Q. When your counsel coaches you, you say it's 19 correct, right? 20 A. I've never been coached. 21 MR. LEOPOLD: Objection. 22 BY MR. TEIN: 23 Q. Okay. When your counsel that it was there 24 was lack of foundation, you agree with your counsel, 25 right? 115 1 A. I was like saying, Yeah, let's move on, 2 because there was no point to asking that question. 3 Q. Your father threw out of the house 4 because she was lying, correct? 5 MR. LEOPOLD: Objection. Lack of 6 foundation. 7 Hold on, Let me just make the 8 objection. 9 Lack of foundation, predicate, calls for 10 speculation. 11 BY MR. TEIN: 12 Q. Answer. 13 A. I'm not my sister. I don't know. Page 98 -0929104.TXT 14 Q. I want to know what you know only. 15 A. I don't know. 16 Q. You don't know. That's your answer? 17 A. Yes. 18 Q. Now your parents filed the police report 19 regarding Mr. Epstein, right? 20 A. Yes. 21 Q. Now your parents are also lying, aren't 22 they? 23 A. Yes. 24 MR. LEOPOLD: Just so the record is clear, 25 the father 116 1 MR. TEIN: Don't testify, Counsel. 2 MR. LEOPOLD: So the record is clear, the 3 father 4 MR. TEIN: Counsel, don't coach and 5 testify, please. That's absolutely improper. 6 MR. LEOPOLD: You just asked the wrong 7 question. 8 MR. TEIN: You can't coach her that way and 9 you well know it. 10 MR. LEOPOLD: For the record, it's the 11 father. He's remarried, I think on his third 12 marriage. 13 MR. TEIN: You cannot 14 totally against the rules and you know it. 15 MR LEOPOLD: The natural mother lives in 16 Georgia. 17 MR TEIN: You need to behave yourself, Page 99 -0929104.TXT 18 lawyer. 19 MR LEOPOLD: The natural mother lives in 20 Georgia. The father is here locally. 21 MR TEIN: Stop coaching. Stop talking. 22 You object. You know the rules. You just 23 lectured me about the rules, Counsel. So why 24 don't you play by the rules. Or only when they 25 fit you? Why don't you grandstand a little more 117 1 now. Give us a five-minute speech, Mr. Leopold. 2 MR. LEOPOLD: Are you finished, for the 3 record. 4 MR. TEIN: I'm not talking to you. Do what 5 you want. 6 MR. LEOPOLD: Don't say anything yet. 7 BY MR. TEIN: 8 Q. your parents 9 MR. LEOPOLD: Hold it. Don't say anything 10 yet. Let me 11 BY MR. TEIN: 12 Q. Your parents, who filed the police report 13 are also liars. 14 MR. LEOPOLD: Don't answer the question. 15 We're not going to answer until I make the record. 16 I want to put on the record, now that Counsel 17 appears to be finished with his comments for the 18 record, that the previous question was 19 inappropriate, was intentionally misleading. 20 Now you can ask the question. 21 BY MR. TEIN: 22 Q. Your parents, who filed the police report Page 100 -0929104.TXT 23 in this case, are also proven liars, aren't they? 24 MR. LEOPOLD: Same objection. 25 BY MR. TEIN: 118 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 frae? 17 18 19 i DS 20 21 22 23 24 25 Q. Aren't your parents liars? MR. LEOPOLD: Calls for speculation. Lack of predicate. MR. TEIN: Stop coaching. You know what that is, Leopold. MR. LEOPOLD: Calls for speculation. Lack of foundation. THE WITNESS: When you say parents, my mom is not, but sure, yeah, my dad has been to jail for lying. BY MR. TEIN: YOWW4 CWOMt Mt 0111,0MIwo: 40000 EYMOVIPtg, a; Correct:':. W Did he tell you itEWEr 'fib40010 Q. foln tootoglAwrovntolvwmofulanow POOOM AMM0400A IftgaMEMOOP t9XODEW stal Your laINSUlt neY aWaY ram vota Don't look to your lawyer for the answer. MR. LEOPOLD: You can answer if you know the answer to it. I have no idea. Page 101 -0929104.TXT 119 1 THE WITNESS: Yeah. 2 BY MR. TEIN: 3 Q. And your father filed a lawsuit, the first 4 lawsuit for fifty million dollars against Mr. Epstein 5 without consulting you, correct? 6 A.OttOtE 7 Q. And your father had a lawyer file the first 8 lawsuit on your behalf for fifty million dollars against 9 Mr. Epstein without your knowledge, correct? 10 A. Correct 11 Q. And you don't trust your father, do you? 12 A. Correct. 13 Q. And you believe he's trying to manipulate 14 you for his own gain, don't you? 15 A. Sort of. 16 Q. Well, you know that your mother filed a 17 statement, an affidavit, saying that you don't trust your 18 father and that you believe he's trying to manipulate you 19 for his own gain; isn't that correct? 20 A. Correct. 21 Q. You agree with that statement, don't you? 22 A. Uh-huh. Yes. 23 Q. Do you trust your stepmother? 24 A. My stepmother, no. 25 Q. You think she's also trying to steal your 120 1 Epstein lawsuit money away from you, don't you? 2 A. I would like to clarify something. You 3 keep saying my Epstein lawsuit money. I don't have any 4 money, and it's just a lawsuit at the moment. So I just Page 102 -0929104.TXT 5 don't trust her. 6 Q. Okay. You think that your stepmother is 7 trying to take advantage of this lawsuit to try to get 8 money from Mr. Epstein that belongs to you, right? 9 A. Yes. 10 Q. Did your stepmother tell you why she was 11 arrested? 12 A. No. 13 Q. Did your stepmother tell you that she's 14 ever been arrested? 15 A. No. 16 Q. Did she tell you she was arrested for 17 fraud? 18 A. Never. 19 Q. Did she tell you that she was fired from 20 21 A. No. 22 Q. Did she tell you that whe was fired from 23 for stealing? 24 A. No. 25 MR. TEIN: Let's take a break. 1 2 BY MR. TEIN: 3 121 (Thereupon, a recess was taken.) MfOtkar.PWAOW MOSOPM000140Y.W .. . . .. . ....... ... . . 14 g904112 ? - T Ak :j.wyoog, 40 IDAUFgemt4APTO Page 103 11 12 13 14 15 16 17 18 19 20 -0929104.TXT 9 A. Two. 10 Q. How old were they? A. Zack being one year older than me, and then the other person was two years older than me. Q. What was his name? A. Ryan Q. How old were you when you first had sexual intercourse? 4P 44 Q. How many many different men had you had any type of sexual activity with? 21 la AtOtabg 03-0 22 Q. Are you saying you never kissed a man other 23 than those two? 24 MR. LEOPOLD: Objection to the form of the 25 question. 1 THE WITNESS: Yes, I had kissed people 2 before. 3 BY MR. TEIN: 4 Q. Before you met Epstein, had you ever had 5 oral sex? 6 A. No. 7 Q. Ever in your life, have you exchanged sex 8 for something of value? 9 A. No. 10 MR. TEIN: We're done. 11 THE WITNESS: Oh, okay. 12 MR. LEOPOLD: We'll read. 13 MS. BELOHLAVEK: I don't have any Page 104 122 -0929104.TXT 14 questions. Thank you. 15 MR. LEOPOLD: Before we go off the record, 16 it's my understanding 17 correct the record, but we have stipulated that 18 color copies of the documents that were identified 19 for identification certainly will be attached to 20 the deposition and counsel will be taking the 21 photographs across street so that they can be 22 laser color copied so that we have a copy, and I'm 23 assuming he'll get a copy to the court reporter, 24 too, to attach, actually a certified copy to the 25 deposition. 123 1 MR. GOLDBERGER: Done. 2 MR. LEOPOLD: That's if you agree to that. 3 If not, then I want to pull each one out and put 4 exhibit labels on them, which we should do before 5 we leave. 6 MR. GOLDBERGER: We're not going to do 7 either. I'll have copies sent to the court 8 reporter and she can attach them to the 9 deposition. 10 MR. LEOPOLD: So you're not going to agree 11 to what we talked about during the break then. 12 MR. GOLDBERGER: I'm not quite sure what 13 your asking me to do. Let me finish. 14 MR. LEOPOLD: Okay. Sure. That's fine. 15 MR. GOLDBERGER: Okay. If you want me to 16 go over to Ms. Belohlavek's office and make copies 17 and then I'll give those to the court reporter, Page 105 -0929104.TXT 18 fine. All I'm saying is that I would avoid that 19 process. I would send copies to the court 20 reporter. But if it will make you happier 21 MR. LEOPOLD: I'm not? 22 MR. GOLDBERGER: Let me finish. 23 MR. LEOPOLD: I'm not interrupting now. 24 MR. GOLDBERGER: But if it will make you 25 happier if I go over to Ms. Belohlavek's office 124 1 and make a copy of those photos that were part of 2 this deposition and then I'll give them to the 3 court reporter, I'll be happy to do it. 4 MR. LEOPOLD: I trust you implicitly, 5 however you with to do it. However, the 6 documents, before they leave this room, need to 7 have an exhibit sticky on them with the 8 appropriate 9 MR. GOLDBERGER: Want to go get some? We 10 don't have any. 11 MR. LEOPOLD: I will do that. Excuse me. 12 Let me finish the record, please. You can't do 13 that to the court reporter. She's going to stroke 14 out. You can't do that. You have to let me 15 MR. TEIN: Finish your sentence, Ted. You 16 are the most long-winded lawyer I've ever seen in 17 my life. Finish your sentence. 18 MR. LEOPOLD: Jack, tell him not to raise 19 his voice, please. 20 MR. TEIN: Finish your sentence. Is there 21 going to be a period at the end of the sentence or 22 is it just going to be comma after comma after Page 106 -0929104.TXT 23 comma? 24 Go ahead, lawyer. 25 MR. LEOPOLD: All right. The exhibits, I 125 1 can't prevent you from taking them, but I will 2 object and I will be bringing it to the court for 3 sanctions. You cannot take the exhibits out of 4 the room without them being marked. I want them 5 marked, because you cannot identify in the record 6 what was used. And with all due respect to 7 Mr. Goldberger, I do not 8 deposition is going, I do not want to rely on 9 Counsel from Miami to mark the appropriate 10 exhibits. I will not do that. I cannot prevent 11 you from taking them. But if you do, I will be 12 bringing the matter to the court with appropriate 13 sanctions, because that is improper. That is 14 improper. When you use something in a deposition, 15 they are to be marked. And you have refused to do 16 that throughout for what ever reason. 17 MR TEIN: You're wrong. Finish your 18 sentence because you're talking about something 19 you have no idea. 20 Every single one is marked, Ted. Every 21 single one is already marked. But you want to 22 argue about everything. Ever single one is 23 already marked. Isn't that silly, Ted? 24 MR. GOLDBERGER: Thirty years of doing this 25 and I have never had an argument over this. Page 107 -0929104.TXT 126 1 MR. TEIN: You've made 2 obstructionist, you are a liar. You have lied and 3 misrepresented things, for the record. You are 4 grandstanding. 5 MR. LEOPOLD: You need to back up. 6 MR. TEIN: No, no. I'm going to finish. 7 MR. LEOPOLD: You can finish, but don't 8 hover over me. 9 MR. TEIN: No one is hovering over you. 10 Stop trying to make a lying record. 11 Let me say something else. 12 Don't you dare threaten me with sanctions, 13 after you lied in a letter to my co-counsel about 14 the fact 15 You lied in a letter to my co-counsel, 16 Mr. Leopold, in which you said 17 complete and utter lie 18 unavailable this morning because you had a 19 hearing. That was a lie. I have never seen each 20 lawyer deign to do something like that. 21 So you will get the ex 22 finish. You behave. 23 MR. LEOPOLD: Don't point your finger at 24 me. 25 MR. TEIN: Listen. Be quiet and I won't 127 1 have a need to point it at you. 2 MR. LEOPOLD: Don't point your finger at 3 MR. TEIN: Mr. Leopold 4 MR. LEOPOLD: Don't point your finger at Page 108 -0929104.TXT 5 me. 6 MR. TEIN: Mr. Leopold, let me finish. 7 MR. LEOPOLD: Don't raise your voice 8 either. 9 MR. TEIN: Mr. Leopold 10 MR. LEOPOLD: Jack, do you want to take 11 care of this? 12 MR. TEIN: Let me finish my sentence. The 13 exhibits are marked. We are walking out of here. 14 You are someone who misrepresents the 15 record. It is absolutely atrocious what you do. 16 That is not how a lawyer should behave. This 17 deposition is over. You will get your exhibits, 18 Mr. Leopold. 19 MR. GOLDBERGER: I understand what you're 20 saying, Michael, and I understand Ted's position. 21 Just so there's 22 offer issues in this case. We're going to have 23 lots of reasons to disagree. 24 I'm going to take it over now and I'm going 25 to make copies and I'm going to give them to 128 1 Ms. Consor. If you want to go find some exhibit 2 labels and put some exhibit labels on it, be my 3 guest. But that's what I'm offering to do. 4 THE WITNESS: Let me say two things, 5 because I am happy to always disagree and with 6 you, I have no problem; we could always do it 7 professionally. 8 I want to say two things so the record is Page 109 -0929104.TXT 9 very clear. Since for whatever reason I have not 10 been able to look at exhibits because they have 11 been refused to have been shown to me 12 MR. TEIN: That's a lie. 13 MR. LEOPOLD: Jack, if you represent that 14 the documents have the appropriate exhibit numbers 15 or some identifying markings, 25, 30.000, whatever 16 they may be, then you can take them, make copies, 17 send me a copy, make sure the court reporter gets 18 a copy and then send me a bill for my copy, that's 19 fine. I didn't know that they are marked that way 20 because I haven't been able to look at them. 21 MR. GOLDBERGER: They are barcoded and the 22 number that we've made reference to in the 23 deposition coincides with the barcoding. 24 MR. LEOPOLD: That's fine. Eight by eleven 25 color laser copies are fine. 129 1 MS. BELOHLAVEK: The State Attorneys Office 2 is not going to charge anybody for color copies I 3 print out. 4 MR. LEOPOLD: That's fine He's going to 5 take them back to his office . 6 Secondly 7 to do it, because it sounds like you all know more 8 about it than I, but I'm happy to get affidavits 9 from Mr. Pincus, Judge Stern, everybody else about 10 what happened with this hearing today, because I 11 12 13 know very little about it. But my representations are what they are. MR. GOLDBERGER: They stay Page 110 -0929104.TXT 14 MR. LEOPOLD: Let me just finish for the 15 record. 16 Representations or comments about what 17 happened, representation about this hearing this 18 morning, I know very little about it. I 19 MR. GOLDBERGER: I'll take your word on 20 that. 21 MR. LEOPOLD: No, no, no. I just put it on 22 the record. I will get an affidavit 23 assuming it sounds like you need it 24 Pincus. I have no clue about what happened and 25 why it was canceled. All I was told when I was 130 1 out of town yesterday was that the hearing this 2 morning was cancelled. 3 MR. GOLDBERGER: I'll take your word for 4 it. 5 MR. LEOPOLD: If you want an affidavit, 6 I'll get it for you. 7 MR. GOLDBERGER: It's a personal issue for 8 me because I had to disrupt a vacation and if it 9 was done just because it wasn't convenient for 10 you, then I'm offended by that. But if you're 11 telling me that it was planned and it didn't 12 happen, I'll take your word for it. 13 MR. LEOPOLD: I am more than happy to get 14 you an affidavit, because I don't know the reason 15 why it was canceled other than the fact that I'm 16 assuming since my deposition was taken for four 17 hours on Monday for preparation for the hearing Page 111 -0929104.TXT 18 today, for whatever reason it was canceled, I am 19 told it is being re-noticed. Why it was canceled 20 I have no idea, but if your co-counsel wishes an 21 affidavit to that effect from Mr. Pincus, I'm more 22 than happy to get it. But I don't know the reason 23 why it was canceled. 24 MR. TEIN: I don't need it. But what I do 25 take issue with is regardless of why it was 131 1 canceled, you owed us the courtesy of saying, you 2 know what? We can start earlier this morning. 3 MR. LEOPOLD: I owe you nothing 4 MR. TEIN: I don't care. Don't interrupt 5 me. 6 Because Jack canceled his vacation plans 7 because of you. 8 MR. GOLDBERGER: That's all right, that's 9 all right. 10 MR. TEIN: And you're selfish. And this 11 deposition is over. Good-by Mr. Leopold. 12 MR. GOLDBERGER: You can go off the record. 13 - - - 14 15 16 17 18 19 20 21 22 Page 112 -0929104.TXT 23 24 25 132 1 CERTIFICATE 2 - - - 3 4 The State of Florida, 5 County of Palm Beach. 6 7 I hereby certify that I have read the 8 foregoing deposition by me given, and that the statements 9 contained herein are true and correct to the best of my 10 knowledge and belief, with the exception of any 11 corrections or notations made on the errata sheet, if one 12 was executed. 13 14 15 Dated this day of , 2008. 16 17 18 19 20 21 22 23 24 25 Page 113 -0929104.TXT 133 1 DATE: !MONTH2 DATE2, 2008 2 TO: X 3 X X, Florida X 4 IN RE: CASENAME 5 CASE NO.: 2006 CF09454AXX 6 Please take notice that on Wednesday, the DATE1 of !MONTH1 , 2008, you gave your deposition in the 7 above-referred matter. At that time, you did not waive signature. It is now necessary that you sign your 8 deposition. A Please call our office at the below-listed 9 number to schedule an appointment between the hours of 9:00 a.m. and 4:30 p.m., Monday through Friday. 10 AAs a professional courtesy, I am enclosing a condensed copy of your deposition transcript. 11 A As previously agreed to, the transcript will be furnished to you through your counsel. Please 12 read the following instructions: At Page A of the transcript, you will find 13 an errata sheet. As you read your deposition, any changes or corrections that you wish to make should be 14 noted on the errata sheet, citing page and line number of said change. DO NOT write on the transcript itself. 15 Once you have read the transcript and noted any changes, be sure to sign and date the errata sheet and return 16 these pages. You need not return the entire transcript. If you do not read and sign the deposition 17 within a reasonable time, the original, which has already been forwarded to the ordering attorney, may be filed 18 with the Clerk of the Court. If you wish to waive your signature, sign your name in the blank at the bottom of 19 this letter and return it to us. Very truly yours, 20 21 Judith F. Consor, FPR Consor Associates Reporting and Transcription 22 1655 Palm Beach Lakes Boulevard, Suite 500 West Palm Beach, Florida 33401 23 I do hereby waive my signature: 24 25 SAIGE GONZALEZ 134 1 cc via transcript: JACK A. GOLDBERGER, Esquire LANNA BELOHLAVEK, Esquire 2 MICHAEL R. TEIN, Esquire file copy 3 4 Page 114 -0929104.TXT 5 6 7 8 9 10 11 12 13 14 15 18 17 18 19 20 21 22 23 24 25 135 1 ERRATA SHEET 2 IN RE: CASENAME DEPOSITION OF: TAKEN: IMONTH1 3 DATE1, 2008 DO NOT WRITE ON TRANSCRIPT - ENTER CHANGES HERE 4 PAGE LINE CHANGE REASON 5 6 7 8 Page 115 -0929104.TXT 9 10 11 12 13 14 15 16 17 18 19 20 21 Please forward the original signed errata sheet to this office so that copies may be distributed to all parties. 22 Under penalty of perjury, I declare that I have read my 23 !TYPE and that it is true and correct subject to any changes in form or substance entered here. 24 DATE: SIGNATURE OF DEPONENT: 25 136 1 THE STATE OF FLORIDA, 2 COUNTY OF PALM BEACH. 3 4 5 I, the undersigned authority, certify that 6 personally appeared before me on the DATE1 7 of IMONTH1 , 2008 and was duly sworn. 8 9 WITNESS my hand and official seal this DATE2 10 day of IMONTH2 , 2008. 11 12 13 Page 116 -0929104.TXT 14 15 16 17 18 19 20 21 22 23 24 25 Judith F. Consor, FPR Notary Public - State of Florida 137 1 CERTIFICATE 2 The State Of Florida, 3 County Of Palm Beach. 4 5 I, Judith F. Consor, Court Reporter and Notary Public in and for the State of Florida at large, do 6 hereby certify that I was authorized to and stenographically report the !TYPE of 7 that a review of the transcript was not requested; and that the foregoing pages, numbered from 1 to A, 8 inclusive, are a true and correct transcription of my stenographic notes of said !TYPE . 9 1 further certify that said JTYPE was 10 taken at the time and place hereinabove set forth and that the taking of said ITYPE was commenced and 11 completed as hereinabove set out. 12 I further certify that I am not an attorney or counsel of any of the parties, nor am I a relative or 13 employee of any attorney or counsel of party connected with the action, nor am I financially interested in the 14 action. 15 The foregoing certification of this transcript does not apply to any reproduction of the same by any 16 means unless under the direct control and or direction of the certifying reporter. 17 DATED this DATE2 day of !MONTH2 , 2008. Page 117 -0929104.TXT 18 19 20 21 22 23 24 25 Judith F. Consor, Court Reporter Florida Professional Reporter Page 118 TAB 14 sor Associates Favor gnfl Triamaipeoa, Page 1 THE STATE OF FLORIDA, COUNTY OF PALM BEACH. IN RE: JEFFREY EPSTEIN. SWORN STATEMENT OF Friday, March 21, 2008 4:00 p.m. - 4:20 p.m. 250 Australian Avenue South Suite 1400 West Palm Beach, Florida 33401 Reported By: Judith F. Consor, FPR Notary Public, State of Florida Consor Associates Reporting and Transcription West Palm Beach Office Phone - 561.682.0905 sor Associates Page 2 1 APPEARANCES: 2 On behalf of the Defendant: 3 JACK A. GOLDBERGER, ESQ. ATTERBURY, GOLDBERGER WEISS 4 250 AUSTRALIAN AVENUE SOUTH SUITE 1400 5 WEST PALM BEACH, FLORIDA 33401 561.659.8300 6 ALSO PRESENT 7 LILLY ANN SANCHEZ, ESQ. FOWLER WHITE, ATTORNEYS AT LAW 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Statement taken before Judith F. Consor, Court Reporter and Notary Public in and for the State of Florida at Large, in the above cause. 5 Thereupon, having been first duly sworn or affirmed, was examined and stated as follows: THE WITNESS: I do. 10 BY MR. GOLDBERGER: 11 Q. Would you state your name for the record, 12 please. 13 A. 14 Q. Okay. 111111111 where do you live now? 15 A. Address? 16 Q. Sure. 17 A. 18 19 Q. Do you live there alone or do you live with 20 somebody there? 21 A. My father. 22 Q. Very good. And are you working now or not 23 working? Sometimes you work and sometimes you don't? 24 A. When I want to. 25 Q. Okay. And how old are you today? sor 87, Associates RoporringandTrawipifico, Page 1 2 3 4 5 6 A. Twenty-one. Q. Very good. What we're going to do today is we're going to take what's know as a sworn statement from you. And my court reporter just put you under oath. So all I want you to do is tell the absolute truth today. 7 A. Right. 8 Q. I don't want you to color what you're 9 saying in any way. Really, the only thing that will be 10 of any use to anyone is if you just tell the absolute 11 truth. 12 A. Right. 13 Q. So those are the instructions, okay? 14 A. Okay. 15 Q. All right. And sometimes 16 doing this for a lot of years and sometimes I talk like a 17 lawyer too much, and if you don't understand what I'm 18 A. That's your job. 19 Q. I guess. But if you don't understand what 20 I'm saying at some point, just say, "Jack, say it in 21 English," and I'll make it better for you. Okay? 22 A. Okay. 23 Q. So tell me how you first met Jeffrey 24 Epstein. 25 A. introduced me to him. M,itIAL41A.V Gt.... teut6t lt8.EAL,6514. 5or A55ociates ItApiatimg4a4 ThAuxoriptiva, Ltm. sor ez. Associates Rgyareng Page 6 1 Q. Okay. So as far as you understood it and 2 as far as what told you, you would be going over to 3 Mr. Epstein's house and just giving him a normal 4 therapeutic massage? 5 A. Right. 6 Q Okay. And I assume told you you would 7 be paid for it? 8 A. Yes. 9 Q Did she tell you how much you would be 10 paid? 11 A. Yes. Two hundred. 12 Q Okay. When was the first time that you 13 went to Jeffrey Epstein's house? Was it after you spoke 14 to Alex? 15 16 17 Mr. Epstein's house, that was in response to 18 talking to you in person. In other words, she said 19 you saw her somewhere, be it at the store that you worked 20 at or around the neighborhood, she said to you in person, 21 "Do you want to go over to Jeffrey Epstein's house?" 22 Right? 23 24 4 110n6000 A. Q. A. Yes. Okay. And the first time that you went to Oh-huh. sor Associates R tii.g.,41'reopwiption,, 1 3 5 6 7 a 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 AdMtlitEtildblt tMA IgigMR4IDO hAPg2 P41Agi4AgOA yo.................................................................................................a text message ilk........................ j125t 5i11 040 Qne da said Q. over there? A. Yes. sgager' Perb Page 7 And I take it you said okay and you went Q. All right. Now at the time that you went over there, you were not yet 18, but you were almost 18? A. Yes. Q. You were within a couple of months of being 18 years old? A. Yes, I do believe so. Q. Okay. And what did tell you about if asked, how old you should tell anyone you were when you went over to his house? Was that a bad question? A. Repeat that. Q. Sure. Okay. 9.11 miC6;71 A Tasto,446 1 sor Associates wrens and Tromripfion,h. Page A. It was probably Jeffrey. I don't remember very clearly. :4441:1 6 ,. .WAOWOOM 01Y0040401C WW2WiWORAn A. Yes. Q. Okay. Now the first time that you went to 10 Jeffrey's house did you give him a massage that day? 11 A. Oh-huh. 12 MS. SANCHEZ: Answer yes or no so the 13 record is clear. 14 THE WITNESS: Yes. Okay. 15 (Discussion held off the record.) 16 BY MR. GOLDBERGER: 17 Q. Okay. So you go to Jeffrey's house and you 18 meet him and you're going to do a massage that day, 19 right? 20 A. Yes. 21 Q ow were 16d ..... you were 22 ,.A04 4 k 0. 00X 23 24 Q Yu OVO: tv-ored to do anything that you. 25 6 massage? Q. No one offered you any drugs to do a Q. No one offered you any alcohol to do a extg- 'Inmeo.sagetromn11 aaq ..................uybod 3 Yes 1 2 7 8 sor St Associates Rzpartialg ad Tipi, IITEL .114WgP 1-11 5 massag A. Right. Q. Okay. So did on cg Page 11 t.kROMAX OTift4YWI OMO tell you what to expect 9 when you went there, as far as keeping your clothes on or 10 taking your clothes off? 11 A. She d oftt bit41V46' elMtE4 16 R. It was no problem. He wouldn't be upset. 17 Q. All right. So told you there would be 18 no pressure on you whatsoever? 19 A. Right. 20 21 'PDX A. Yes. 22 Q wer 24 25 Q And if you didn't want to do something, you All right. And in your experiences with Dr A5sociate5 .F.gpcstilog mai Trawiipdpao 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 16 19 20 21 22 23 24 25 Page 12 Mr. Epstein, by the way, was there ever a time when that didn't play out, when he tried to force you to do something that you didn't want to do? e IleVer t gA MWO 7P0F4A0K t .. t4vot4h;ijtdv:0 Q. All right. Now the first time that you wont there do you remember whether you gave Jeffrey a massage with your clothes on or your clothes off? A. At the beginning, it was with all my clothes on. Q. Uh-huh. A. But the most that my bra and panties. Q. Okay. The whole time? A. Yes. Q. Right. A. I'm pretty sure, yes. Q. Did you see during that massage try and touch you in any way during that massage? A. No. Q. Did he use any kind of device on you in any way during that massage? sor Associates Tmaxoripfito, Page 13 1 A. No. 2 Q. Do you know he was wearing a rowel 3 through that massage? 4 A. Yes. 5 Q. Do you know whether he touched himself in 6 any way, his penis or anything like that, during the 7 massage? 8 A. Yeah, like towards the end. 9 Q. Okay. Do you know whether he masturbated? 10 A. Oh, my gosh. 11 Q. If you don't know, you don't know. 12 A. I mean probably, but I don't know. I can't 13 remember exactly. It was so long ago. 19 Q. Okay. There was nothing that you were 15 uncomfortable with in this massage? 16 A. No. Yeah. And like I said, he also, you 17 know, reassured if I wasn't comfortable with anything, 18 then just tell him and 19 Q. He would stop? 20 A. 21 Q. Okay. Now after that first time you met at 22 Jeffrey's house, you left. And did there come other 23 times that you went to Jeffrey's house? 24 A. Yes. 25 Q. And how would that occur? How would that 1 happen? 2 3 4 5 6 7 8 9 10 dO opp, 11 12 13 14 15 r 16 17 18 19 tog aidfigt. 5or Associates Rworang and TamaRiptiom, km. a04 t.Ata Page 14 gPDXIOW an ... J0E1104 .. ......... , ... . .. mgpg00ffigROMOt . . ma s5ag Q ep 1,1a' So would it be primarily that would call or would there be others? A. Most of the time. 24 Q er s stants, di rectlY? Okay. :goftera Amal4R: ,reC, A. Unless I didn't answer my phone. bn wcal 0:4441012iT ugge thcs pt cu ma e ey hou PxgOMP14 '0U4uttaggm4R4P;P g Kg: 0 -151eg.e 34g sor Associates Roperdn and Trall4T109ia, 2 3 5... 7 8 9 10 11 12 13 14 16 17 18 19 20 21 22 23 24 25 YtEgV OlegVM, Paidt inn 004. Page 15 IT414 :0A 041-ASUW 416tt.J;ObARP...q.g- MAOtfW :t an hl Q - AftlAR Never, ever suggested, right? A. No. Q. Okay. The only thing that ever occurred on any of these phone calls was, "Are you willing to come over," or, "Would you like to come over and give a massage?" A. Q. gnk A. Right. PY4M No. hdtimica. .VIONOXXXAY 00W4M Q. Okay. The phone call from or any other assistant would always right? They always said, "Jeffrey's going to be in town. Do you want to come over this afternoon at four o'clock?" A. Yeah, yeah. It wasn't Q. There was nothing regular about it? A. No. Q. Okay. Other than who else would have called you to ask whether you wanted to come over and cr Amoriates Ropartin mxt Trmu give a massage? 2 Page 16 A. If it wasn't then I believe 11111111 3 maybe one other person I don't know the name of. Just 4 I mean it was mostly And I spoke to a time 5 or two. 6 Q. 7 Jeffrey's house after getting a phone call, you would go 8 and you'd go to give him a massage, right? 9 A. Yes. 10 Q. 11 massage that occurred? 12 A. It happened a few times. 13 Q. Okay. And the few times that it happened, 14 though, it was very sporadic and it was nothing that was 15 planned? 16 A. No way. 17 Q. It just occurred? 18 A. Right. 19 Q. So it wasn't like there was a phone call, 20 you know, "Today we want you to come over and do more 2 than just a massage with Jeffrey"? 22 A. Right. 23 Q. When anything more occurred you'd be over 24 there and it would be totally voluntary on your part? 25 A. Yes; definitely consensual. XaSIOSING.....4.41,40214.0.1,....aixuar,a1444 Okay. Now when you would go over to And occasionally would there be more than a Yes. A. It was probably mostly particularly oral, but, ViiibbOth4OMAUMPtatiObit Q. Okay. So let's put it into perspective. You certainly never had intercourse with him, right? A. No. Q. And did you actually ever really have oral sex with him? A. Maybe once or twice. I barely even remember that. 1 Q. 2 than just sor Associates Rwitveto Trammip.ft, E. Page 17 1 Okay. Now when we're talking about more a massage, what sort of conduct are we talking 3 about that might have occurred? 4 5 6 7 a 9 10 11 12 13 14 Q. Okay. 15 A. I mean it was all just mostly 16 Q. I'm sorry. Mostly what? 17 A. Mostly like hand oriented. 18 Q. Okay. So on occasion you would touch his 19 penis with your hand? 20 A. It's happened a few times. 21 Q. Okay. And anytime that occurred it would 22 be totally voluntary on your part? 23 A. 24 Q 25 A.He wQuld nvr make me co anythi ' . . sor 8,t Associates 'Wolin 4 TrimoTiptiori, hi. Page 18 1 Q. And it would just be totally random and it 2 would occur during the moment? 3 A. Uh-huh. 4 Q. Okay. There was nothing that was planned 5 in advance concerning that? 6 A. No. 7 Q. And it didn't become every time you went 8 over there that would happen, right? 9 A. Yeah. No. 10 Q. No, no. I mean just you would go over and 11 give a massage one day and the phone call would be the 12 same, "Do you want to come over and give a massage," and 13 maybe 14 A. Yes. 15 Q. 16 call, "Do you want to come over and give a massage," and 17 just because of the day it was or whatever was going on, 18 it may have gone a little further where they may have 19 been some touching, correct? 20 A. Right. 21 Q. And then the next time you could go over 22 there and it could have been a regular massage again, 23 right? 24 A. Uh-huh. 25 Q. Okay. So the point that I guess I'm trying -uw ataratsontesagi cwa.alsaftate 1 sot- St Associates orgirat T1 4, tem 1 2 3 and give a massage," and you just assumed it would be to 4 go have sex? That was not the case? 5 A. No. 6 Q. Never, never, never, right? 7 A. Yes. 8 Q. All right. There were times when you would 9 be away and not be in Palm Beach and 10 much thought that Jeffrey was your friend? You treated 11 him as a friend? 12 A. Yes, definitely. I felt that he was my 13 friend. 14 Q. And there were times when maybe you were 15 out of town and for whatever reason, you found yourself 16 in a situation where you needed some money, correct? 17 A. Yes. 18 Q. Okay. And you felt that the relationship 19 was such that you could call Jeffrey and it never had 20 anything to do with a massage or anything. You would 21 say, "Listen, I could use a couple of dollars. I have a 22 problem." 23 A. Yes. 24 Q. And would he ever hesitate to help you out? Page 19 to make was that there were never phone calls that would come to you and they would say, "Do you want to come over 25 A. No. sor Associates R peraganitTrotwriptitv,Inp. Page 20 1 2 listen 3 A. Yes. 4 Q. 5 life? 6 A. Yes. 7 Q. And he said, "If you ever find yourself in 8 trouble, you have a friend in me and you can give me a 9 call"? 10 A. Yes. 11 Q. Okay. If you had to guess 12 recognizing that there can be no accuracy here 13 had to guess, how many times do you think you went over 14 to Jeffrey's house? 15 A. I would say at least five, less than ten. 16 Q. Okay. I think that's kind of a fair range. 17 And during those five to ten times that you 18 went there, was there ever anything uncomfortable, in 19 your mind, that occurred over at Jeffrey's house? 20 A. No. 21 Q. Okay. I know we've touched on this, but 22 just Lilly, the detail person, makes sure that we get 23 everything. After you met Jeffrey the first time did you 24 ever talk to him on the telephone about arranging a 25 massage or anything like that? Q. And in fact, did he not tell you that, sor Associates TriLcd , Page 21 1 A. No. 2 Q. Okay. And you never e-mailed him or 3 anything like that? 4 A. No, no. 5 Q. Never text-messaged him? 6 A. No. 7 Q. Okay. Now at times when you would go over 8 zo give a massage, Jeffrey, while he was getting the 9 massage, would be preoccupied doing a lot of things, 10 right? 11 A. Yes, very often. 12 Q. He was a busy guy? 13 A. Yes. 14 Q. He would be on the telephone talking Lo 15 folks while you were giving a massage? 16 A. Yes. Sometimes it would be just a massage 17 and he'd be pretty much doing business the whole time. 18 Q. Right. Certainly it wasn't sex or anything 19 like that? 20 A. No. 21 Q. He would be doing business and you'd be 22 massaging him? 23 A. Yes. 24 Q. Okay. Give me one second. 25 (Discussion held off the record.) A 1 sor Associates pu.tfial5 gad Tomeliptiq'xi, 1 BY MR. GOLDBERGER: 2 Q. Page 22 3 Every time you went back to Jeffrey's house 3 you went back there because you wanted to, right? 4 5 A. Uh-huh, yes. Q. No one 6 to persuade you or induce you or entice you or coerce you 7 to engage in any kind of sex? 8 9 A. No. Q. And no one representing Jeffrey Epstein 10 ever tried to persuade or induce you to engage in sex? 11 12 A. No. AU right 'floAVVI AOgg4444CYOR. 64 18 Q. Okay. 19 20 that. 21 '-otYgg0114APIC - aMAIA A. Like there was no ifs, ands or buts about Q. There was a time when there was a concert 22 or a show down in Fort Lauderdale and Jeffrey got you 23 tickets to go to that show because it was your birthday, 24 right? 25 A. Correct. sor Associates Rffipsirlin ATP4 TIVitiM46-9A, 11114. sor As5ociate5 Rcipartiag sad nansuripdom, Tn. 1 2 Q. 3 questions, have you? 4 A. Yes. A. Yes. Okay. And you've understood all my Page 24 5 MR. GOLDBERGER: Okay. I thank you very 6 much for coming in today and it really made it 7 much easier for us to do it this way. So thanks a 8 lot. 9 10 concluded at 4:20 p.m.) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Thereupon, the sworn statement was 1 2 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -sor Associates oportima 4114 Trasuiptivq, Page 25 THE STATE OF FLORIDA, ) COUNTY OF PALM BEACH. ) I, the undersigned authority, certify that personally appeared before me on the 21 of March, 2008 and was duly sworn. WITNESS my hand and official seal this 22nd day of March, 2008. Zia'AP4re 41 Judith F. Consor, FPR Notary Public - State of Florida 4 1 sot- Associates RcrmingaTWMwmuiptiolOm 1 2 CERTIFICATE Page 26 The State Of Florida, ) 3 County Of Palm Beach. ) 4 5 I, Judith F. Consor, Court Reporter and Notary Public in and for the State of Florida at large, do 6 hereby certify that I was authorized to and did stenographically report the sworn statement of V that a review of the transcript was requested; and that the foregoing pages, numbered from 1 to 24, 8 inclusive, are a true and correct transcription of my stenographic notes of said sworn statement. 9 I further certify that said sworn statement 10 was taken at the time and place hereinabove set forth and that the taking of said sworn statement was commenced and 11 completed as hereinabove set out. 12 I further certify that I am not an attorney or counsel of any of the parties, nor am I a relative or 13 employee of any attorney or counsel of party connected with the action, nor am I financially interested in the 14 action. 15 The foregoing certification of this transcript does not apply to any reproduction of the same by any 16 means unless under the direct control and or direction of the certifying reporter. 17 18 19 20 21 22 23 24 25 DATED this 22nd day of March, 2007. Judith F. Consor, Court Reporte Florida Professional Reporter gaftviiiirobrvidirtaturiaslalbluadiper.61 or Associates Vollin age4 Tmagaiptilim, I. Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach Lakes Blvd., Suite SOO - West Palm Beach, FL 33401. Paup 27 or Associates it NrCing 4414 ihmip(Tgn, Imo. Page 28 Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach Lakes Blvd., Suite 500 - West Palm Beach, FL 33401 nsor .Associates Thainziptima, Page 2 Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach Lakes Blvd., Suite 500 - West Palm Beach, FL 33401 sor Associates wail Tramsliption, 411.1....107.11 Page 30 uIIIIIIII.II.uI-j Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach Lakes Blvd., Suite 500 - West Palm Beach, FL 33401 TAB 15 nsor A5sociate5 parlirps... and. Immeripti:ca,laa: THE STATE OF FLORIDA. COUNTY OF PALM BEACH. IN RE: JEFFREY EPSTEIN, Page 1 CONTINUED SWORN STATEMENT OF March 26, 2008 6:05 p.m. to 6:22 p.m. South 86th Terrace West Palm Beach, Florida Reported By: Maria C. Powers, Notary Public State of Florida J. Consor Associates West Palm Beach Office Phone 561.682.0905 Reporting Transcription ORIGINAL Ph. 561.682.0905 - Fax. 561.682.1771 " 1655"PaIM Beach Lakes Blvd.;-Silite 500 - West Palm Beath, FL 33401 ' 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 nsor Associate5 17-1,..tporgirnS n d TrIviscrirziva 1 APPEARANCES : 2 3 4 On Behalf of the Defendant: JACK A. GOLDBERGER, ESQ. 5 ATTERBURY, GOLDBERGER WEISS 6 250 South Australian Avenue Suite 1400 West Palm Beach, Florida 33401 Page 2 Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach Lakes BlVd., Suite 500 West-Palm Beath, FL 33401 nsor Atisociate5 g port iTis :pn ki TF,Inscrip inn . Ph. 561.682.0905 - Fax. 561.682.1771 1655 Pahl Beach Lakes Blvd., Suite 500 - West Palm Beach,-FL-33401' nor A55ociate5 Tptrix4-1T.tigq, 1 2 3 4 5 6 7 8 9 BY MR. GOLDBERGER: 10 11 12 13 14 15 16 17 18 A Yes. 19 20 21 22 23 24 25 Page 4 Sworn Statement taken before Maria Powers, Court Reporter and Notary Public in and for the State of Florida at Large, in the above cause. Thereupon, having been first duly sworn, was examined and testified as follows: DIRECT EXAMINATION as you remember, my name is Jack Goldberger. I think we met last Friday, actually. You voluntarily came in and gave a sworn statement to me concerning your knowledge and your friendship with Jeffrey Epstein. I would like to very, very, briefly continue that statement today, and just focus on one area that we forgot to question you about last Friday. All I want you to tell me is the absolute truth here this evening. There's no right answer, other than the truth, okay? A Right. I haven't promised you or asked you to do anything, one way or the other, have I? A No. Ph. 561.682.0905 - Fax. 561.682.1771 1655 Pah Be'ath-Lakes BlVd.-;-Suite 500 - West Palm Beach, FL-33401 " nsor Assocate5 . , ge'.11Prtirls -.9nd rm:ri, 10c. - - Page 5 1 Q So, we covered a lot of ground last time. 2 One area that I didn't ask you about is 3 contact that you've had with either the FBI or the U.S. 4 Attorney's Office, within the last two or three years. 5 Can you guess or estimate how many times 6 someone from the FBI or the U.S. Attorney's Office or 7 some other law enforcement agency, has attempted to 8 contact you in the last couple of years? 9 A I'd have to say 10 meetings with, and more than that with phone contact. 11 Let's try to break it down by meetings and 12 phone contacts. I think that would be the best way to 13 do it. 14 Of the actual meetings that you've had with 15 someone from law enforcement or from the U.S. 16 Attorney's Office, who do you remember being present at 17 those meetings? 18 A Nesbith was at all of them. 19 Q When we're talking about "Nesbith" we're 20 talking about an FBI agent by the name of "Nesbith 21 Kurkendall"? 22 A Yes. 23 Q And Nesbith was present at all those 24 meetings? 25 A Yes. Ph. 561.682.0905 - Fax. 561.682.1771 -1655. Pah Beath. Lakes'Blvd.;Suite- 500' - West Pah-Reach-, FL 33401 ' -nsor Associates .., ,.. Page 6 1 2 A The first one was a guy, I'm not sure of his 3 name. And then there's another one that had 4 lady with the victim's rights. 5 Q She was victim's right representative? 6 A Yes. 7 Q We talked about a lawyer by the name "Marie 8 Villafona;" do you know whether she was present during 9 any of those meetings? 10 A I'm not sure of the name. 11 Q The first time that you met with Nesbith, 12 where did that take place? 13 A Here, in my backyard. 14 0 In your backyard, at your home in Western 15 Palm Beach County, right? 16 A Yes. 17 Q Did she announce to you that she was coming, 18 or did she just show up? 19 A She showed up. 20 Q Unannounced? 21 A Yes. 22 Q During that time, I assume that you told her 23 about your relationship with Jeffrey Epstein and any 24 contact you've had with him, correct? Q Okay, go ahead. 25 A Correct. Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palen Beath-Lakes.B1 id., Suite 500 West Palrn' Begth;R:33401 ' - nsor A550cates - gclprtimr... !11 Tr;g3gripti;; Page 7 1 Q Did she tell you anything about whether you 2 were a victim in this case, or anything like that, at 3 that meeting? 4 A Yes, she said I was a victim witness in this, 5 and that there's victim rights that I'm entitled to, 6 which include counseling and whatnot. 7 Q Did you tell her, at that time, that you 8 didn't feel that you were a victim at all, and that 9 anything that you've done with Jeffrey Epstein was 10 totally voluntary? 11 A Yeah, I did tell her that everything was, you 12 know, consensual with everything, and I don't agree 13 with anything that's going on. 14 Q Did she try and pressure you into being a 15 victim in this thing, when you were not a victim? 16 A I wouldn't say that she pressured me, but she 17 tried to be as convincing as possible. 18 Q Maybe the use of the word "pressure" is too 19 strong. But she was trying to change your opinion of 20 what the relationship was with Jeffrey? 21 A Yes, she was trying to make me feel bad about 22 it, in a way, about what was going on. 23 Q And you didn't feel bad about it, you felt 24 everything was okay, but she was trying to make you 25 feel bad, like something wrong had occurred? Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm- Beath Lakes BlVd.','Suite 500 - West Palm Beath', FL 33401" " nsor Associates Ita.pon:1112 iapd TF4-05criT girpr.) 5716, Page 8 1 A Yeah. 2 Q How long did that meeting go on for? 3 A Probably about 4 Q When was the next time that you had contact 5 with Nesbith or someone else from law enforcement? 6 A I'm not sure, probably a month or later. I 7 mean, she probably called me and let me know that she 8 was going to 9 soon, to deliver the victim's rights papers to me. 10 Q So there was a time, after you first met, 11 where, despite the fact that you said, I don't consider 12 myself a victim in this, she called you and said, I 13 want to bring you some paperwork that talks about your 14 victim's rights? 15 A Yes. 16 Q What was your response to her when she told 17 you that? 18 A I told her I would meet with her, 'cause she 19 wanted me to meet with the other woman involved. And 20 they gave them to me. 21 I took them, but I never really told them I 22 needed counseling or anything like that. 23 Q Where did that meeting take place? 24 A I believe it was Panera Bread in 25 Wellington. Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm'Beach.Lakes Blvd., Suite 500 West"Palm Beach, FL 33401 " rt nsor Assoaate5 RepprOng Page 9 1 She actually came and sought you out at a 2 restaurant? 3 A Well, I told her to meet me there. 4 Q Were you working there or were you just 5 A No, I was just there. 6 Q So she called you and said, I really, really 7 want to see you. And you said, if you want to see me, 8 meet me at Panera Bread? 9 A Yes. 10 Q Did you feel if you didn't meet her, she 11 wasn't going to go away, that you had to deal with 12 her? 13 A Well, I mean, it wasn't particularly that. I 14 knew that she was going to contact me because of this 15 case. Because, whether I want to be involved or not, I 16 have to be. 17 Q Okay. That's two meetings that I know of. I 18 think you indicated that, if you had to guess, there 19 were maybe a total of five meetings. 20 Are there other meetings that we haven't 21 talked about that occurred? 22 A Yeah, but they were very vague They weren't 23 anything of importance. And, I mean, it was just 24 her 25 Q Would she call you and say, listen, I really, Ph. 561.682.0905 - Fax. 561.682.1771 ' .1655 Palm Beach Lakes-Blvd., Suite 500 - West"Pairn Beath; FL 33401 nsor As5ociate5 Repo.rti-ps .4nAl Tmo.3,;:rivrAp,. rhrfc,,; Page 10 1 really, want to talk to you about being a victim or 2 A It wasn't always directly about being a 3 victim. And, every-time we talked, she would always 4 touch upon the fact that if I need any help or 5 so-on-and-so-forth, because I am a victim in this 6 case. 7 Q I assume, based on what you're telling me, 8 you continued to tell her, I'm not a victim? 9 A I just let her say what she said. I never 10 got counseling. But she knows from the beginning, and, 11 I continued to reassure her, that I don't feel that 12 way. 13 Q So, the first time you met with her, when you 14 spent about an hour with her and you went through all 15 your contact with Jeffrey, that's what occurred at that 16 meeting, and she talked to you about being a victim at 17 that meeting? 18 A Yes. 19 Q And then there was this second meeting, where 20 she brought a victim's rights person with her, and that 21 took place at Panera Bread, right? 22 A Yes. 23 Q And you had the same response, listen, you 24 think I'm a victim. You could give me the information, 25 but I don't need that information, right? Ph. 561.682.0905 - Fax. 561.682.1771 ' 1655 Pah Beach Lakes BlVd., Suite 500 -Vest Palm Beath, FL 33401 nsor Associates Reef or0:1:1... 44p11.1.1,-Fin5sqiir4im, . 1 2 3 Page 11 A Right, pretty much. And then there were some other contacts. Would she call you and want to talk to you 4 about the specific facts about the case? I mean, why 5 would she contact 6 A Yeah, I mean, just to re-question me about 7 certain things, because she wasn't sure that the 8 answers were 9 Were those in-person meetings? 10 A I mean, a lot of them were on the phone. I 11 mean, it wasn't very often that we would meet. 12 Q Was there any other time that you did meet? 13 We talked about two times that you actually 14 did meet, once here at your home and once at Panera 15 Bread. 16 Were there any other actual meetings, or did 17 the others occur on the phone? 18 A There were other meetings, but they were, 19 like I said, not really important. 20 Q Do you remember where they were that they 21 took place? 22 A They came to my job, I think, two times. 23 Q When you say "they" 24 A Well, it Nesbith the first time, and, the 25 second time, it was the David Copperfield investigators Ph. 561.682.0905 - Fax. 561.682.1771 '1655 Pali-n nsor As5ociate5 ' PC151;fla,P44 71-7iP3Jari P4i,DAA.4-14,-, ' Page 12 1 with Nesbith. 2 Q Right. 3 So, the third time that you met with Nesbith, 4 she came to your job, and she wanted to talk to you 5 about more facts of the case? 6 A Ah-huh. 7 Q And, during that meeting, she also talked to 8 you about your rights as a victim again? 9 A Yeah, she always reassured me of my rights as 10 a victim. 11 Q Then there would have been a fourth time 12 we're talking about now, where there were investigators 13 from Washington coming down, concerning David 14 Copperfield, and Nesbith introduced them to you, 15 correct? 16 A Right. 17 Q I take it what you're telling me is that 18 Nesbith seized the opportunity to talk to you again 19 about being a victim, right? 20 A She always kind of comes out as asking if I'm 21 okay, and if everything okay. And if I ever need any 22 kind of help or anything, with 23 always have help. 24 Q Did you continue to say, listen, I'm fine, 25 there's no issues here? 3 Ph. 561.682.0905 - Fax. 561.682.1771 Palhi.Bektitake't BIVtl":,'SOite-500",, We8t-Palhi Beath, FL '33401 " nor Msocates Rept-Ali:11:s l'-,7?..Tr.scripti,p, 1 Page 13 A I just 2 just, like I said, she always knows. 3 I may not tell her every time, but she always 4 knows how I feel about this case. 5 Q Meaning? 6 A I don't need any-thing. 7 Q Meaning that you made it really clear to her 8 that you didn't need any help? 9 A Yeah, from the beginning, I was very, very 10 reassuring about how I felt about it. And I wasn't 11 very happy. 12 Q All right. I understand. 13 Now, we're about four contacts with 14 Nesbith your house, Panera Bread, work, the David 15 Copperfield investigators. 16 A Yes. 17 Q Were there any other meetings that we have 18 not spoken about? 19 A There may have been like one or two. But 20 they're 21 the ones, like, that remember the most. 22 Q That you really remember, okay. 23 Now, were there other telephone calls that 24 occurred, where, kind of the same kind of conversation 25 would occur? You know, there's help for you and you'd Ph. 561.682.0905 - Fax. 561.682.1771 1655 Palm Beach LakOs Blvd:, Suita"500 West Palm'Reath, FL3340r' n5or A55oclate5 - Rqpgrang,:and Tp.TperiptiaTi, 1p : . Page 14 1 say, I'm really not a victim here? 2 A Like I said, I was, like, okay. You know, 3 she would always continuously tell me. I mean, but 4 every time, it was the same thing. 5 I mean I was never 6 mean to any of them. I never gave anybody attitude 7 about anything. But, I mean, she knows that. She 8 knows how I feel. 9 Q I think what I hear you saying is that she 10 knows how you feel, and you made it clear to her from 11 the start, that you were not a victim? 12 13 because 14 15 me 16 17 18 Q Do you think that's what she was trying to 19 do, is try to convince you to change your attitude as 20 to how you felt? 21 A In a way, yes. 22 Q Is there anything else that we need to 23 discuss that we haven't talked about? 24 A No, I think that's mostly it. 25 Q I appreciate your courtesies once again for A Yeah, I mean, she pretty much, does it - that's what she has to do. She has to continue to tell me. And, you know, in a way, try to convince that I am a victim. I just let her say what's she's going to say, and, then, you know, okay, goodbye. Ph. 561.682.0905 - Fax. 561.682.1771 Lake's' Blvd:; Suit0"500 -'West-Palrn 'Betth; FL 33401- - nsor Associates -: Page 15 1 seeing me one more time, and doing this voluntarily. 2 And, thanks so much for making yourself 3 available today. 4 A No problem. 5 Q That will do it 6 Brittany, let me say one more time: 7 Everything you've told me here today is the 8 absolute truth, right? 9 A Yes. 10 Q I haven't tried to convince you to say one 11 thing, one way or the other, have I? 12 A No. 13 Q All right. That's it. Thank you very much. 14 (Thereupon, the sworn statement was 15 concluded at 6:22 p.m.) 16 17 18 19 20 21 22 23 24 25 Ph. 561.682.0905 - Fax. 561.682.1771 " 1655 Pal'hi- B'each' Lake's Blvdr.,'Suite 500 -'West PaIrri BeathTFL 33401 ' ' ' nsor A5soaate5 - - mid TEPISC Tiri.1-1M5 ..... , - Page 16 1 THE STATE OF FLORIDA 2 COUNTY OF PALM BEACH 3 4 5 6 I, the undersigned authority, certify that 7 personally appeared before me on March 8 26, 2008 and was duly sworn. 9 10 11 WITNESS my hand and office seal this 26TH day 12 of MARCH, 2008. 13 14 15 16 17 18 19 20 21 22 23 24 25 (.01A;L 6, if?4,40) Maria C. Powers, Court Reporter Notary Public - State of Florida My Commission No. DD149010 My Commission Expires: 9 10 10 Ph. 561.682.0905 - Fax. 561.682.1771 -1655'Palim Beach Lakes''Blvd:"aiite500'-'We'st Palm Rack FL 33:401" , 1 1 nor Associate5 Page 17 1 CERTIFICATE 2 3 The State of Florida County Of Palm Beach 4 5 6 I, MARIA C. POWERS, a Shorthand Reporter, State of Florida at Large, do hereby certify that 7 was by me first duly sworn to testify the whole truth; that I was authorized to and did 8 report said deposition in stenotype; and that the foregoing pages, numbered from 1 to 17 inclusive, are a 9 true and correct transcription of my shorthand notes of said deposition. 10 I further certify that said deposition 11 was taken at the time and place hereinabove set forth and that the taking of said proceeding was commenced 12 and completed as hereinabove set out. 13 I further certify that I am not an attorney or counsel of any of the parties, nor am I a 14 relative or employee of any attorney or counsel of party connected with the action, nor am I financially 15 interested in the action. 16 The foregoing certification of this transcript does not apply to any reproduction of the 17 same by any means, unless under the direct control and or direction of the certifying reporter. 18 IN WITNESS WHEREOF, I have hereunto set 19 my hand this 26TH day of MARCH, 2008. 20 21 22 Maria C. Powers, Notary Public 23 In and for the State of Florida My Commission No. DD149010 24 My Commission Expires: 9 10 25 Ph. 561.682.0905 - Fax. 561.682.1771 1655 Pah' Beath" Lakes BlVd., Suite 500 West Palm Beath; 'FL33401 nsor Rft Associate5 Page 18 Ph. 561.682.0905 - Fax. 561.682.1771 "'- 1655 Palm Beach' Lakes-BlVd."; Sult 500" - ,1 nsor ..A55ociates our1 l'r;tri3c ri pti.tm, 1pc.: r Pace 19 ' Ph. 561.682.0905 - Fax. 561.682.1771 1655-Palm' Beath 'Lakes Blvd., Suite 500 - West Palm'Beath; FL-33401- ' ' , nsor Cl A550ate5 , Page 20 Ph. 561.682.0905 - Fax. 561.682.1771 ''' '" 1655'Palhl Beach 'LakeS 500'1'West 'PaIhrBeaCh,:FIL 33401 TAB 16 11 16 2006 16:31 FAX 5618021787 USAO IPPB FL ra 002 U.S. Department of Justice United States- Attorney Southern District of Florida 500 South Australian Ave., Suite 400 West Palm Beach, FL 33401 (561) 820-8711 Facsimile: (561) 820-8777 November 16, 2006 VIA FACSIMILE Lilly Ann Sanchez, Esq. Fowler White Burnett 1395 Brickell Ave Fl 14 Miami Florida 33131-3300 Re: Jeffrey Epstein Dear Ms. Sanchez: Thank you for your letter and voicernail. I will plan to direct all correspondence to you unless you provide other instructions. In turn, please direct all future communications with the Office to my attention. As I mentioned in my voicemail, Mr. Lewis stated that Mr. Epstein is willing to provide documents and information that we deem necessary to the investigation. I would appreciate if you would forward the documents and information listed below to my attention or, if you prefer, to Special Agent E. Nesbitt Kuyrkendall, Federal Bureau of Investigation, 500 South Flagler Drive, Suite 500, West Palm Beach, PL 33404. If you require a grand jury subpoena for any of the items, please let me know 1. Documentation related to the ownership of the property located at 358 Ell3rillo Way, Palm Beach, Florida, including the purchase agreement and any mortgages, liens, or other encumbrances. 2. Documentation related to the ownership of Gulfstream Aircraft N909JE, Model 01159B, and Boeing Aircraft N908JE, Model 727-31, including purchase information, lease agreements, liens or other encumbrances, and payments for maintenance and storage. 3. All documents and information provided to the Palm Beach County State Attorney's Office in connection with its investigation of Mr. Epstein. 4. Bank information, account numbers, bank statements and billing statements for any bank accounts and or credit cards used by Mr. Epstein (or any of his employees) to pay for Mr. Epstein's personal expenses, from January 1, 20(04 to the present. 00269 11 16 2006 1631 FAX 5618021787 USA() WPB FL LIMAINSANCHEZ,ESQ. NovErva3ER.16, 2006 PAGE 2 OF 3 ZI003 5. Information and billing statements for any "land lines," cellular telephones, Blackberry units, e-mail addresses, webpages, or the like for Mr. Epstein and all of his personal assistants (including but not limited to and from January 1, 2004 to the present. 6. The computers, hard drives, CPUs, and any other computer media (ineluding CD- ROMs, DVDs, floppy disks, flash drives, etc.) removed from 358 El Brillo Way, Palm Beach, Florida prior to the execution of the search warrant at that premises in October 2005. 7. All calendars, diaries, and address books kept by Mr. Epstein and all of his personal assistants from January 1, 2004 to the present, including electronic calendars and address books, whether stored on computer, PDA, or cellular telephone. 8. For persons in his employ at any time from January 1, 2004 to the present, employment and or separation agreements between Mr. Epstein (or his company) and his personal assistants, airplane pilots, personal chefs, and for anyone who worked at 358 El 13riLlo Way, Palm Beach, Florida. 9. The names and contact information of all persons who performed "massage services" for Mr. Epstein at 358 El Brillo Way, Palm Beach, Florida or at his residences in New Albany, Ohio, Little St. James, U.S.V.I., and New York, NY; and documentation of payments made to or gifts given to any such persons. 10. Wage and earnings statements and other tax documents for all individuals referenced in items (8) and (9), supra. 11. Mr. Epstein's tax returns for 2004 and 2005. 12. From January 1, 2004, to the present, flight manifests and passenger lists for travel via Gulfstream Aircraft N909.1E, Model G1159B and Boeing Aircraft N908JE, Model 727-31 (to the extent not already provided). 13. Documentation regarding any other interstate or international travel undertaken by Mr. Epstein from January 1, 2004, to the present, including but not limited to airplane tickets, ear rental records, and hotel receipts. After I have a chnce to review the documents, I will contact you to set up a time to interview Mr. Epstein. 00270 11 16 2006 16:32 FAX 5618021787 USAO WPB FL LILLY ANN SANCH R7, ESQ. Nova mm.16, 2006 PAGE 3 OF 3 e 004 Thank you for your assistance with this matter, and I look forward to working with you and Mr. Lefcourt. By: R. Alexander Acosta United States Attorney A. Marie Villafaiia Assistant United States Attorney 00271 TAB 17 JUN-20-20e? 11:18 H)-44g (KCV. 6-2-90 FBI WEST PALM BEACH RA P.01 FBI FACSIMILE COVER SHEET PRECEDENCE El Immediate ID Priority El Routine CLASSIFICATION 0 Top Secret Time Transmitted: El Secret Sender's Initials: jrr 0 Confidential Number of Pages: 5 I:1 Sensitive (including cover sheet) iili Unclassified Name of Office Facsimile Number: 954-905-4922 Attn: Name Room Telephone Name of Office Subject Service of Federal Grand Jury Subpoenas Date: 06 20 2007 Special Handling Instructions: Originator's NalIle: SA Jason Richards Tele Originator's Facsimile Number: 5 61 - 8 33 - 7 979 Approved: Brief Description of Corarnunipation Faxed: Two subpoenas: 1) William Riley arid. 2) Custodian of Records, Riley Kiraly WARNING Information attached to the cover sheet is U.S. Government Property. If you arc not the intended recipient of this information, disclosure, reproduction, distribution, or use of this information is prohibited (I S.USC, 641). Please notify the originator or the local FBI Office immediately to arrange for proper disposition. JUN-20-2007 11:18 FBI WEST PALM BEACH RR P.02 United States District Court SOUIHERN DISTRICT OF FLORIDA TO: Custodian of Records Riley Kiraly Comnoercial Center of Miatni 6155 NW 167th Street E-26 Miami, FL 33015 SUBPOENA TO TESTIFY BEFORE GRAND JURY Fog 07-103(WPB)No. OLY-64 SUBPOENA FOR: PERSON 12d DOCUMENTS OR OBJECVI YOU ARE HEREBY COMMANDED to appear and testifyhefore the Grand Jury ofthe United States District Court at the place, date and time specified below. PLACE: United States District Courthouse 701 Clematis Street West Palm Beach, Florida 33401 ROOM: Grand Jury Room DATE AND TIME: July 10, 2007 l00 pm YOU ARE ALSO COMMANDED to bring with you the following document(s) or object(s): TEE DOCUMENTS AND OBJECTS LISTED ON ATTACHMENT Please coordinate your compliance with this subpoena and confirm the date, time, and location of your appearance 'with WA Nesbitt Kuyrkendall, Federal Bureau of Investigation-, Tele ThiS subpoena shall remain in effect until you are granted leave to depart by the court or by an officer acting on behalf of the court. This subpoena is issued upon application of the U'led States of America 11":aet Applicable, cram "none: Name, Address and Phone Number of Assistant U.S, Attorney Alan Marie C. Villafst3,a, Assistant IJ S..Attorney 500 So. Australian Avenue, Suite 400 West Palm Beach, FL 33401-6235 Tel: (561) 820-8711 x3047. Pax: (561) 802-1787 Tdla used in Enn of AIM 10 FORM ORD-227 JAN.86 JUN-20-2007 11:19 FBI WEST PALM BERCH RA P.03 ATTACHMENT A SUBPOENA TO PAUL A. LAVERY 1. All computer equipment and electronic storage media removed from the residence located at 358 El Brill Way, Palm Beach, Florida, including but not limited to central processing units ("CPUs"), laptop computers, keyboards, printers, modems, routers, hard drives, flash drives, thumb drives, CD-Roms, DVDs, floppy diskettes, digital cameras, and memory cards. 2. MI comptiter equipment and electronic storage media that currently belongs to, or has ever belonged to, Jeffrey Epstein, including but not limited to central processing units ("CPUs"), laptop computers, keyboards, printers, modems, routers, hard drives, flash drives, thumb drives, CD-Roms, DVDs, floppy diskettes, digital cameras, and memory cards. 3. All documents and information related to the nature of the relationship between Mr. William Riley and or Riley Kiraly and Mr. Jeffrey Epstein, including, but not limited to, retainer agreements; employment agreements; billing statements (whether submitted directly to Mr. Epstein or to a third party for reimbursement); records of the dates when services were performed and the hours worked; telephone logs or records of dates of communications with Mr. Epstein (or with a third party on Mr. Epstein's behalf); appointment calendars datebooks and the like (whether in hard copy or electronic form) for any period when work was performed on behalf of Mr. Epstein or when any communication was had with Mr. Epstein (or with a third party on Mr. Epstein's behalf); and records of fee arrangements and payments received for work performed on Mr, Epstein's behalf, JUN-20-2007 11:19 FBI WEST PALM BEACH RA P. United States District Court SOUTHERN DISTRICT OF FLORIDA ' TO: William Riley Riley Kiraly ComMercial Center of Miami 6135 NW 167th Street E-26 Miami, FL 33015 SUBPOENA TO TESTIFY BEFORE GRAND JURY FOJ 07-103(WPB) No. OLY.-63 SUBPOENA FOR: PERSON Fl DOCUMENTS OR OBSECiTS1 X YOU ARE PIEREBY COMMANDED to appear and testify before the Qrand July ofthe United States District Court at the place, date and time specified below. P LACL.: United States District Courthouse 701 Clematis Street West Palm Beach, Florida 33401 ROOM: Grand Jury Room DATE AND TIME: July 10, 2007 1:00 pm YOU ARE ALSO COMMANDED to bring with you the following docinnent(s) or object(s): I tit. DOCUMENTS AND OBJECTS LISTED ON ATTACHNIENT A. Please coordinate your compliance with this subpoena and confirm the date time and location of your appearance with S A Nesbitt Kuyritendall, Federal Bureau of Investigation, Tele This subpoena shall remain in effect until you are granted leave to depart by the court or by an officer acting on behalf of the court. This subpoena is issued upon application of the United States of America Irmo( applicabk, owe "none." Name. Address and Phone Number of Assistant U.S. Attorney Ann Marie C. Villafalla, Assistant U.S. Attorney 500 Se. Australian Avenue, Suite 400 West Palm Beach, EL 33401 6235 Tel: (561) 8204711 x3047 Fax: (561) 302-1787 ToreI IgAl;)1111 FORM QR.I 2.27 JA1416 JUN-20-2007 1119 FBI WEST PALM BEACH RA P.05 ATTACHMENT A SUBPOENA TO PAUL A. LAVERY 1. All computer equipment and electronic storage media removed from the residence located at 358 El Brillo Way, Palm Beach, Florida, including but not limited to central processing units ("CPUs"), laptop computers, keyboards, printers, modems, routers, hard drives, flash drives, thumb drives, CD-Roms, DVDs, floppy diskettes, digital cameras, and memory cards. 2. All computer equipment and electronic storage media that currently belongs to, or has ever belonged to, Jeffrey Epstein, including but not limited to central processing units ("CPUs"), laptop computers, keyboards, printers, modems, routers, hard drives, flash drives, thumb drives, CD-Roms, DVDs, floppy diskettes, digital cameras, and memory cards. 3. All documents and information related to the nature of the relationship between Mr. William Riley and or Riley Kiraly and Mr. Jeffrey Epstein, including, but not limited to, retainer agreements; employment agreements; billing statements (whether submitted directly to Mr. Epstein or to a third party for reimbursement); records of the dates when services were performed and the hours worked; telephone logs or records of dates of communications with Mr. Epstein (or with a third party on Mr. Epstein's behalf); appointment calendars datebooks and the like (whether in hard copy or electronic form) for any period when work was performed on behalf of Mr. Epstein or when any communication was had with Mr. Epstein (or with a third party on Mr. Epstein's behalf); and records of fee arrangements and payments received for work performed on Mr. Epstein's behalf TOTAL P.05 TAB 18 U.S. Department of Justice United States Attorney Southern District of Florida DELIVERY BY ELECTRONIC MAIL Jay P. Lefkowitz, Esq. Kirkland Ellis LLP Citigroup Center 153 East 53rd Street New York, New York 10022-4675 Re: Jeffrey Epstein Dear Jay: 500 S. Australian Ave, Ste 400 West Palm Beach, FL 33401 (561) 820-8711 Facsimile: (561) 820-8777 December 13, 2007 I am writing not to respond to your asserted "policy concerns" regarding Mr. Epstein's Non- Prosecution Agreement, which will be addressed by the United States Attorney, but the time has come for me to respond to the ever-increasing attacks on my role in the investigation and negotiations. It is an understatement to say that I am surprised by your allegations regarding my role because I thought that we had worked very well together in resolving this dispute. I also am surprised because I feel that I bent over backwards to keep in mind the effect that the agreement would have on Mr. Epstein and to make sure that you (and he) understood the repercussions of the agreement. For example, I brought to your attention that one potential plea could result in no gain time for your client; I corrected one of your calculations of the Sentencing Guidelines that would have resulted in Mr. Epstein spending far more time in prison than you projected; I contacted the Bureau of Prisons to see whether Mr. Epstein would be eligible for the prison camp that you desired; and I told you my suspicions about the source of the press "leak" and suggested ways to avoid the press. Importantly, I continued to work with you in a professional manner even after I learned that you had been proceeding in bad faith for several weeks thinking that I had incorrectly concluded that solicitation of minors to engage in prostitution was a registrable offense and that you would "fool" our Office into letting Mr. Epstein plead to a non-registrable offense. Even now, when it is clear that neither you nor your client ever intended to abide by the terms of the agreement that he signed, I have never alleged misconduct on your part. The first allegation that you raise is that I "assiduously" hid from you the fact that Bert Ocariz is a friend of my boyfriend and that I have a "longstanding relationship" with Mr. Ocariz. JAY P. LEFKOWITZ, ESQ. DECEMBER 13, 2007 PAGE 2 OF 5 I informed you that I selected Mr. Ocariz because he was a friend and classmate of two people whom I respected, and that I had never met or spoken with Mr. Ocariz prior to contacting him about this case. All of those facts are true. I still have never met Mr. Ocariz, and, at the time that he and I spoke about this case, he did not know about my relationship with his friend. You suggest that I should have explicitly informed you that one of the referrals came from my "boyfriend" rather than simply a "friend," which is the term I used, but it is not my nature to discuss my personal relationships with opposing counsel. Your attacks on me and on the victims establish why I wanted to find someone whom I could trust with safeguarding the victims' best interests in the face of intense pressure from an unlimited number of highly skilled and well paid attorneys. Mr. Ocariz was that person. One of your letters suggests a business relationship between Mr. Ocariz and my boyfriend. This is patently untrue and neither my boyfriend nor I would have received any financial benefit from Mr. Ocariz's appointment. Furthermore, after Mr. Ocariz learned more about Mr. Epstein's actions (as described below), he expressed a willingness to handle the case pro bono, with no financial benefit even to himself. Furthermore, you were given several other options to choose from, including the Podhurst firm, which was later selected by Judge Davis. You rejected those other options. You also allege that I improperly disclosed information about the case to Mr. Ocariz. I provided Mr. Ocariz with a bare bones summary of the agreement's terms related to his appointment to help him decide whether the case was something he and his firm would be willing to undertake. I did not provide Mr. Ocariz with facts related to the investigation because they were confidential and instead recommended that he "Google" Mr. Epstein's name for background information. When Mr. Ocariz asked for additional information to assist his firm in addressing conflicts issues, I forwarded those questions to you, and you raised objections for the first time. I did not share any further information about Mr. Epstein or the case. Since Mr. Ocariz had been told that you concurred in his selection, out of professional courtesy, I informed Mr. Ocariz of the Office's decision to use a Special Master to make the selection and told him that the Office had made contact with Judge Davis. We have had no further contact since then and I have never had contact with Judge Davis. I understand from you that Mr. Ocariz contacted Judge Davis. You criticize his decision to do so, yet you feel that you and your co-counsel were entitled to contact Judge Davis to try to "lobby" him to select someone to your liking, despite the fact that the Non-Prosecution Agreement vested the Office with the exclusive right to select the attorney representative. Another reason for my surprise about your allegations regarding misconduct related to the Section 2255 litigation is your earlier desire to have me perform the role of "facilitator" to convince the victims that the lawyer representative was selected by the Office to represent their interests alone and that the out-of-court settlement of their claims was in their best interests. You now state that doing the same things that you had asked me to do earlier is improper meddling in civil litigation. Much of your letter reiterates the challenges to Detective Recarey's investigation that have JAY P. LEFKOWITZ, ESQ. DECEMBER 13, 2007 PAGE 3 OF 5 already been submitted to the Office on several occasions and you suggest that I have kept that information from those who reviewed the proposed indictment package. Contrary to your suggestion, those submissions were attached to and incorporated in the proposed indictment package, so your suggestion that I tried to hide something from the reviewers is false. I also take issue with the duplicity of stating that we must accept as true those parts of the Recarey reports and witness statements that you like and we must accept as false those parts that you do not like. You and your co-counsel also impressed upon me from the beginning the need to undertake an independent investigation. It seems inappropriate now to complain because our independent investigation uncovered facts that are unfavorable to your client. You complain that I "forced" your client and the State Attorney's Office to proceed on charges that they do not believe in, yet you do not want our Office to inform the State Attorney's Office of facts that support the additional charge nor do you want any of the victims of that charge to contact Ms. Belohlavek or the Court. Ms. Belohlavek's opinion may change if she knows the full scope of your client's actions. You and I spent several weeks trying to identify and put together a plea to federal charges that your client was willing to accept. Yet your letter now accuses me of "manufacturing" charges of obstruction of justice, making obscene phone calls, and violating child privacy laws. When Mr. Lourie told you that those charges would "embarrass the Office," he meant that the Office was unwilling to bend the facts to satisfy Mr. Epstein's desired prison sentence a statement with which I agree. I hope that you understand how your accusations that I imposed "ultimatums" and "forced" you and your client to agree to unconscionable contract terms cannot square with the true facts of this case. As explained in letters from Messrs. Acosta and Sloman, the indictment was postponed for more than five months to allow you and Mr. Epstein's other attorneys to make presentations to the Office to convince the Office not to prosecute. Those presentations were unsuccessful. As you mention in your letter, I a simple line AUSA handled the primary negotiations for the Office, and conducted those negotiations with you, Ms. Sanchez, Mr. Lewis, and a host of other highly skilled and experienced practitioners. As you put it, your group has a "combined 250 years experience" to my fourteen. The agreement itself was signed by Mr. Epstein, Ms. Sanchez, and Mr. Lefcaut, whose experience speaks for itself. You and I spent hours negotiating the terms, including when to use "a" versus "the" and other minutiae. When you and I could not reach agreement, you repeatedly went over my head, involving Messrs. Lourie, Menchel, Sloman, and Acosta in the negotiations at various times. In any and all plea negotiations the defendant understands that his options are to plead or to continue with the investigation and proceed to trial. Those were the same options that were proposed to Mr. Epstein, and they are not "persecution or intimidation tactics." Mr. Epstein chose to sign the agreement with the advice of a multitude of extremely noteworthy counsel. You also make much of the fact that the names of the victims were not released to Mr. Epstein prior to signing the Agreement. You never asked for such a term. During an earlier meeting, where Mr. Black was present, he raised the concern that you now voice. Mr. Black and I did not have a chance to discuss the issue, but I had already conceived of a way to resolve that JAY P. LEFKOWITZ, ESQ. DECEMBER 13, 2007 PAGE 4 OF 5 issue if it were raised during negotiations. As I stated, it was not, leading me to believe that it was not a matter of concern to the defense. Since the signing of the Non-Prosecution Agreement, the agents and I have vetted the list of victims more than once. In one instance, we decided to remove a name because, although the minor victim was touched inappropriately by Mr. Epstein, we decided that the link to a payment was insufficient to call it "prostitution." I have always remained open to a challenge to the list, so your suggestion that Mr. Epstein was forced to write a blank check is simply unfounded. Your last set of allegations relates to the investigation of the matter. For instance, you claim that some of the victims were informed of their right to collect damages prior to a thorough investigation of their allegations against Mr. Epstein. This also is false. None of the victims was informed of the right to sue under Section 2255 prior to the investigation of the claims. Three victims were notified shortly after the signing of the Non-Prosecution Agreement of the general terms of that Agreement. You raised objections to any victim notification, and no further notifications were done. Throughout this process you have seen that I have prepared this case as though it would proceed to trial. Notifying the witnesses of the possibility of damages claims prior to concluding the matter by plea or trial would only undermine my case. If my reassurances are insufficient, the fact that not a single victim has threatened to sue Mr. Epstein should assure you of the integrity of the investigation.' 'There are numerous other unfounded allegations in your letter about document demands, the money laundering investigation, contacting potential witnesses, speaking with the press, and the like. For the most part, these allegations have been raised and disproven earlier and need not be readdressed. However, with respect to the subpoena served upon the private investigator, contrary to your assertion, and as your co-counsel has already been told, I did consult with the Justice Department prior to issuing the subpoena and I was told that because I was not subpoenaing an attorney's office or an office physically located within an attorney's office, and because the business did private investigation work for individuals (rather than working exclusively for Mr. Black), I could issue a grand jury subpoena in the normal course, which is what I did. I also did not "threaten" the State Attorney's Office with a grand jury subpoena, as the correspondence with their grand jury coordinator makes perfectly clear. With regard to your allegation of my filing the Palm Beach Police Department's probable cause affidavit "with the court knowing that the public could access it," I do not know to what you are referring. All documents related to the grand jury investigation have been filed under seal, and the Palm Beach Police Department's probable cause affidavit has never been filed with the Court. If, in fact, you are referring to the Ex Parte Declaration of Joseph Recarey that was filed in response to the motion to quash the grand jury subpoena, it was filed both under seal and ex parte, so no one should have access to it except the Court and myself. Those documents are still in the Court file only because you have violated one of the terms of the Agreement by failing to "withdraw Epstein's pending motion to intervene and to quash certain grand jury subpoenas." JAY P. LEFKOWITZ, ESQ. DECEMBER 13, 2007 PAGE 5 OF 5 With respect to Ms. Miller, I contacted her attorney - who was paid for by Mr. Epstein and was directed by counsel for Mr. Epstein to demand immunity - and asked only whether he still represented Ms. Miller and if he wanted me to send the victim notification letter to him. He asked what the letter would say and I told him that the letter would be forthcoming in about a week and that I could not provide him with the terms. With respect to Ms. Miller's status as a victim, you again want us to accept as true only facts that are beneficial to your client and to reject as false anything detrimental to him. Ms. Miller made a number of statements that are contradicted by documentary evidence and a review of her recorded statement shows her lack of credibility with respect to a number of statements. Based upon all of the evidence collected, Ms. Miller is classified as a victim as defined by statute. Of course, that does not mean that Ms. Miller considers herself a victim or that she would seek damages from Mr. Epstein. I believe that a number of the identified victims will not seek damages, but that does not negate their legal status as victims. I hope that you now understand that your accusations against myself and the agents are unfounded. In the future, I recommend that you address your accusations to me so that I can correct any misunderstandings before you make false allegations to others in the Department. I hope that we can move forward with a professional resolution of this matter, whether that be by your client's adherence to the contract that he signed, or by virtue of a trial. R. Alexander Acosta United States Attorney By: s A. Marie Villafana A. Marie Villafaria Assistant United States Attorney cc: R. Alexander Acosta, U.S. Attorney Jeffrey Sloman, First Assistant U.S. Attorney You also accuse me of " broaden ing the scope of the investigation without any foundation for doing so by adding charges of money laundering and violations of a money transmitting business to the investigation." Again, I consulted with the Justice Department's Money Laundering Section about my analysis before expanding that scope. The duty attorney agreed with my analysis. TAB 19 vaA0110 (Rev. 04 07) Subpoena In Tcstify Before Grand Jury UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA TO: SUBPOENA TO TESTIFY BEFORE GRAND JURY FGJ 07-10-3(WPB)-Tues. No. OLY-85 1 SUBPOENA FOR: ft PERSON lEr DOCUMENT(S) OR OBJECT(S) YOU ARE HEREBY COMMANDED to appear and testify before the Grand Jury of the United States District Court at the place, date, and time specified below. -pLiNicg United States District Court 701 Clematis Street West Palm Beach, Florida 33401 .COLRTR 00 M " Grand Jury Room tiATEAND TIME 7 1 2008 10:30 am YOU ARE ALSO COMMANDED to bring with you the following document(s) or object(s):. ALL DOCUMENTS AND INFORMATION REFERENCED IN THE ATTACHMENT TO THIS SUBPOENA. 0 Please see additional Information on ret,-,t This subpoena shall remain in elf behalf of the court. (By) Deputy clod( This subpoena is issued on application of the- CA a' Irnol applicable. enla "none". p.rikbythe couk or by an-officet acting on. NAME; ADDRESS' AND PHONE NUMBER or ASSISTANT US. ATTORNEY Ann Marie C. Villafarla, Assistant U.S. Attorney 500 South Australian Avenue, Suite 400 West Palm Beach, Florida 33401-6235 Tel: (561) 820-8711, ext 3047 ATTACHMENT TO GRAND JURY SUBPOENA OLY-85 1 ADDRESSED TO PLEASE BRING THE FOLLOWING DOCUMENTS, ITEMS, AND INFORMATION WITH YOU TO YOUR GRAND JURY APPEARANCE: 1. Any and all notes, letters, cards, gifts, payments, photographs, or other items that you have received from Jeffrey Epstein, Lesley Groff, Ghislaine Maxwell, and or any other employee or associate of Jeffrey Epstein. 2. Any and all photographs, whether printed or digital, of Jeffrey Epstein, Lesley Groff, Ghislaine Maxwell, and or any other employee or associate of Jeffrey Epstein. 3. Any and all c-mails, instant messages, chats, text messages, voicemails or telephone messages that you have sent to and or received from Jeffrey Epstein, Lesley Groff, Ghislaine Maxwell, and or any other employee or associate of Jeffrey Epstein. 4. A list of all telephone numbers (cellular and "land line"), e-mail addresses, screen names, addresses, and any other contact information that you have for the following persons during the period of January 1, 2003 to the present: a. yourself; b. Jeffrey Epstein; C. d. e. f. g. Lesley Groff; h. Ghislaine Maxwell; i. any person(s) who introduced you to Jeffrey Epstein and or Ghislaine Maxwell; j. any person(s) whom you introduced to Jeffrey Epstein and or Ghislaine Maxwell; k. any person(s) who communicated with you to arrange appointments to meet with Jeffrey Epstein and or Ghislaine Maxwell. 5. Any billing statements for telephone service (cellular and "land line") for any telephone you used during the period of January 1, 2003 to the present. TAB 20 CONFIDENTIAL PLEA NEGOTIATIONS TERMS OF EPSTEIN NON-PROSECUTION AGREEMENT Epstein pleads guilty (not nob o contendere) to an Information filed by the Palm Beach County State Attorney's Office charging him with: (a) lewd and lascivious battery on a child, in violation of Fl. Stat. 800.04(4); (b) solicitation of minors to engage in prostitution, in violation of Fl. Stat. 796.03; and (c) engaging in sexual activity with minors at least sixteen years of age, in violation of Fl. Stat. 794.05. Epstein and the State Attorney's Office make a joint, binding recommendation that Epstein serve at least two years in prison without any opportu nity loi withholding acjudtcition ir sentencing, arid v 1 agrees to waive all challenges to the information filed by the State and the right to appeal. Epstein agrees that, if any of the victims identified in the federal investigation file suit pursuant to 18 U.S.C. 2255, Epstein will not contest the jurisdiction of the U.S. District Court for the Southern District of Florida over his person and the subject matter. Epstein will not contest that the identified victims are persons who, while minors, were victims of violations of Title 18, United States Code, Sections(s) 2422 and or 2423. After Epstein enters his state court plea and is sentenced, the FBI and the U.S. Attorney's Office will close their investigations into violations of 18 U.S.C. 1591, 2422, and 2423. FEDERAL SENTENCING GUIDELIN'ES CALCULATION (Using1NOvernher 1, 2004 Guidelines Manual): a h count of 4 101, 24n(b) and 2423(b): Base Oftense Level under 761; 3 24 CiffensOmAwd::zexmltOtitadt: 20. Counts do not4i!..OWS:0-.005.1.0-vels...fOr.more than 5 .Ittiltai pursuantto..31DIA. Offense Level 3.1 Apply Repeat and D angerous S Qx Offender against Minors enhanoetnent 2.:t 4B1.5 Total Offense Level 36 Asturning,criminalliisfory, Category 1, advisory guideline range is Y88 - 25 months with lifetime. superViaed-relead, TAB 21 IN RE: INVESTIGATION OF JEFFREY EPSTEIN NON-PROSECUTION AGREEMENT IT APPEARING that the City of Palm Beach Police Department and the State Attorney's Office for the 15th Judicial Circuit in and for Palm Beach County (hereinafter, the "State Attorney's Office") have conducted an investigation into the conduct of Jeffrey Epstein (hereinafter "Epstein"); IT APPEARING that the State Attorney's Office has charged Epstein by indictment with solicitation of prostitution, in violation of Florida Statutes Section 796.07; IT APPEARING that the United States Attorney's Office and the Federal Bureau of Investigation have conducted their own investigation into Epstein's background and any offenses that may have been committed by Epstein against the United States from in or around 2001 through in or around September 2007, including: (1) knowingly and willfully conspiring with others known and unknown to commit an offense against the United States, that is, to use a facility or means of interstate or foreign commerce to knowingly persuade, induce, or entice minor females to engage in prostitution, in violation of Title 18, United States Code, Section 2422(b); all in violation of Title 18, United States Code, Section 371; (2) knowingly and willfully conspiring with others known and unknown to travel in interstate commerce for the purpose of engaging in illicit sexual conduct, as defined in 18 U.S.C. 2423(f), with minor females, in violation of Title 18, United States Code, Section 2423(b); all in violation of Title 18, United States Code, Section 2423(e); (3) using a facility or means of interstate or foreign commerce to knowingly persuade, induce, or entice minor females to engage in prostitution; in violation of Title 18, United States Code, Sections 2422(b) and 2; (4) traveling in interstate commerce for the purpose of engaging in illicit sexual conduct, as defmed in 18 U.S.C. 2423(f), with minor females; in violation Page 1 of 7 of Title 18, United States Code, Section 2423(b); and (5) knowingly, in and affecting interstate and foreign commerce, recruiting, enticing, and obtaining by any means a person, knowing that the person had not attained the age of 18 years and would be caused to engage in a commercial sex act as defined in 18 U.S.C. 1591(c)(1); in violation of Title 18, United States Code, Sections 1591(a)(1) and 2; and IT APPEARING that Epstein seeks to resolve globally his state and federal criminal liability and Epstein understands and acknowledges that, in exchange for the benefits provided by this agreement, he agrees to comply with its terms, including undertaking certain actions with the State Attorney's Office; IT APPEARING, after an investigation of the offenses and Epstein's background by both State and Federal law enforcement agencies, and after due consultation with the State Attorney's Office, that the interests of the United States, the State of Florida, and the Defendant will be served by the following procedure; THEREFORE, on the authority of R. Alexander Acosta, United States Attorney for the Southern District of Florida, prosecution in this District for these offenses shall be deferred in favor of prosecution by the State of Florida, provided that Epstein abides by the following conditions and the requirements of this Agreement set forth below. If the United States Attorney should determine, based on reliable evidence, that, during the period of the Agreement, Epstein willfully violated any of the conditions of this Agreement, then the United States Attorney may, within ninety (90) days following the expiration of the term of home confinement discussed below, provide Epstein with timely notice specifying the condition(s) of the Agreement that he has violated, and shall initiate its prosecution on any offense within sixty (60) days' of giving notice of the violation. Any notice provided to Epstein pursuant to this paragraph shall be provided within 60 days of the United States learning of facts which may provide a basis for a determination of a breach of the Agreement. After timely fulfilling all the terms and conditions of the Agreement, no prosecution for the offenses set out on pages 1 and 2 of this Agreement, nor any other offenses that have been the subject of the joint investigation by the Federal Bureau of Investigation and the United States Attorney's Office, nor any offenses that arose from the Federal Grand Jury investigation will be instituted in this District, and the charges against Epstein if any, will be dismissed. Page 2 of 7 Terms of the Agreement: 1. Epstein shall plead guilty (not nob contendere) to the Indictment as currently pending against him in the 15th Judicial Circuit in and for Palm Beach County (Case No. 2006-cf-009495AXXXMB) charging one (1) count of solicitation of prostitution, in violation of Fl. Stat. 796.07. In addition, Epstein shall plead guilty to an Information filed by the State Attorney's Office charging Epstein with an offense that requires him to register as a sex offender, that is, the .solicitation of 'mum 0 9-iigne m..prpstg-t 1,444 in violation of Florida Statutes Section 796.03; 2. Epstein shall make a binding recommendation that the Court impose a thirty (30) month sentence to be divided as follows: (a) Epstein shall be sentenced to consecutive terms of twelve (12) months, and six (6) months in c'iintv 'ail for all charges, without any opportumt for withholding idjudication!..6ii0 without rO.ation on community controJ in lieu of (b) Epstein shall be sentenced to a term of twelve (12) months of community control consecutive to his two terms in county jail as described in Term 2(a), supra. 3. This agreement is contingent upon a Judge of the 15th Judicial Circuit accepting and executing the sentence agreed upon between the State Attorney's Office and Epstein, the details of which are set forth in this agreement. 4. The terms contained in paragraphs 1 and 2, supra, do not foreclose Epstein and the State Attorney's Office from agreeing to recommend any additional charge(s) or any additional term(s) of probation and or incarceration. 5. Epstein shall waive all challenges to the Information tiled by the State Attorney's Office and shall waive the right to appeal his conviction and sentence, except a sentence that exceeds what is set forth in paragraph (2), supra. 6. Epstein shall provide to the U.S. Attorney's Office copies of all Page 3 of 7 proposed agreements with the State Attorney's Office prior to entering into those agreements. '7. The TJnited States shall provide Epstein's attorneys with a list of individuals whom it has identified as victims, as defmed in 1: J:T.S.C.: :2255. afterEpstein has signed this auppmenheensentenced. Upon the execution of this agreement, the United States, in consultation with and subject to the good faith approval of Epstein's counsel, .shall k0::gtis:tOini! Epstein's counsel may contact the identified individuals through that representative. 8. If any of the individuals referred to in paragraph (7), supra, elects to file suit pursuant to 18 U.S.C. 2255, Epstein will not contest the jurisdiction of the United States District Court for the Southern District pfFlorida,oyer.4 ,peyson and or the subject matter, and Epstein individualup to an amount as, agreed to htWe the identified 1.: Epstein, so long as the identified individual elects to proceed exclusively under 18 U.S.C. 2255, and agrees to waive any other claim for damages, whether pursuant to state, federal, or common law. Notwithstanding this waiver, as to those individuals whose names appear on the list provided by the United States, Epstein's signature on this agreement, his waivers and failures to contest liability and such damages in any suit are not to be construed as an admission of any criminal or civil liability. 9. Epstein's signature on this agreement also is not to be construed as an admission of civil or criminal liability or a waiver of any jurisdictional or other defense as to any person whose name does not appear on the list provided by the United States. 10. Except as to those individuals who elect to proceed exclusively under 18 U.S.C. 2255, as set forth in paragraph (8), supra, neither Epstein's signature on this agreement, nor its terms, nor any resulting waivers or settlements by Epstein are to be construed as admissions or evidence of civil or criminal liability or a waiver of any jurisdictional or other defense as to any person, whether or not her name appears on the list provided by the United States. 11. Epstein shall use his best efforts to enter his guilty plea and be Page 4 of 7 sentenced not later than October 26, 2007. The United States has no objection to Epstein self-reporting to begin serving his sentence not later than January 4, 2008. 12. Epstein agrees that he will not be afforded any benefits with respect to gain time, other than the rights, opportunities, and benefits as any other inmate, including but not limited to, eligibility for gain time credit based on standard rules and regulations that apply in the State of Florida. At the United States' request, Epstein agrees to provide an accounting of the gain time he earned during his period of incarceration. 13. The parties anticipate that this agreement will not be made part of any public record. If the United States receives a Freedom of Information Act request or any compulsory process commanding the disclosure of the agreement, it will provide notice to Epstein before making that disclosure. Epstein understands that the United States Attorney has no authority to require the State Attorney's Office. to abide by any terms of this agreement. -Iiiti!AW4Nigii 06 iiiMitg WHaii4a104:Attorne " best efforts to ensure compliance with these procedures which cinpI understandsstein tha 9.,00 and to use his 44cP; (01 he ncccssary 0.00 Epstein also understands that it is.: efforts to IPPYMPe.the. Judge of the 15th Judicial Circuit to acce . recommendation,regarding.the sentence to be imposed, and understands that the NM: todo ation In consideration of Epstein's agreement to plead guilty and to provide compensation in the manner described above, if Epstein successfully fulfills all of the terms and conditions of this agreement, the United States also agrees that it will not institute any criminal charges against any potential co-conspirators of Epstein, including but not limited to Lesley Groff, or Further, upon execution of this agreement and a plea agreement with the State Attorney's Office, the federal Grand Jury investigation will be suspended, and all pending federal Grand Jury subpoenas will be held in abeyance unless and until the defendant violates any term of this agreement. The defendant likewise agrees to withdraw his pending motion to intervene and to quash certain. grand jury subpoenas. Both parties agree to maintain their evidence, specifically evidence requested by or directly related to the grand jury subpoenas that have been issued, and including certain computer equipment, inviolate until all of the terms of this agreement have been satisfied. Upon the successful completion of the terms of this agreement, all outstanding grand jury subpoenas shall be deemed withdrawn. Page 5 of 7 By signing this agreement, Epstein asserts and certifies that each of these terms is material to this agreement and is supported by independent consideration and that a breach of any one of these conditions allows the United States to elect to terminate the agreement and to investigate and prosecute Epstein and any other individual or entity for any and all federal offenses. By signing this agreement, Epstein asserts and certifies that he is aware of the fact that the Sixth Amendment to the Constitution of the United States provides that in all criminal prosecutions the accused shall enjoy the right to a speedy and public trial. Epstein further is aware that Rule 48(b) of the Federal Rules of Criminal Procedure provides that the Court may dismiss an indictment, information, or complaint for unnecessary delay in presenting a charge to the Grand Jury, filing an information, or in bringing a defendant to trial. Epstein hereby requests that the United States Attorney forthe Southern District of Florida defer such prosecution. Epstein agrees and consents that any delay from the date of this Agreement to the date of initiation of prosecution, as provided for in the terms expressed herein, shall be deemed to be a necessary delay at his own request, and he hereby waives any defense to such prosecution on the ground that such delay operated to deny him rights under Rule 48(b) of the Federal Rules of Criminal Procedure and the Sixth Amendment to the Constitution of the United States to a speedy trial or to bar the prosecution by reason of the running of the statute of limitations for a period of months equal to the period between the signing of this agreement and the breach of this agreement as to those offenses that were the subject of the grand jury's investigation. Epstein further asserts and certifies that he understands that the Fifth Amendment and Rule 7(a) of the Federal Rules of Criminal Procedure provide that all felonies must be charged in an indictment presented to a grand jury. Epstein hereby agrees and consents that, if a prosecution against him is instituted for any offense that was the subject of the grand jury's investigation, it may be by way of an Information signed and filed by the United States Attorney, and hereby waives his right to be indicted by a grand jury as to any such offense. I Page 6 of 7 By signing this agreement, Epstein asserts and certifies that the above has been read and explained to him. Epstein hereby states that he understands the conditions of this Non- Prosecution Agreement and agrees to comply with them. R. ALEXANDER ACOSTA UNITED STATES ATTORNEY Dated: By: Dated: 77a, Dated: Dated: A. MARIE VILLAFARA ASSISTANT U.S. ATTORNEY GERALD LEFCOURT, ESQ. COUNSEL TO JEFFREY EPSTEIN LILLY ANN SANCHEZ, ESQ. ATTORNEY FOR JEFFREY EPSTEIN Page 7 of 7 By signing this agreement, Epstein asserts and certifies that the above has been read and explained to him. Epstein hereby states that he understands the conditions of this Non- Prosecution Agreement and agrees to comply with them. R. ALEXANDER ACOSTA UNITED STATES ATTORNEY Dated: By: A. MARIE VILLAFARA ASSISTANT U.S. ATTORNEY Dated: Dated: Dated: JEFFREY EPSTEIN', RALD EFCOUR ESQ. COUNSEL TO JEFFREY EPSTEIN LILLY ANN SANCHEZ, ESQ. ATTORNEY FOR JEFFREY EPSTEIN Page 7 of 7 By signing this agreement, Epstein asserts and certifies that the above has been read and explained to him. Epstein hereby states that he understands the conditions of this Non- Prosecution Agreement and agrees to comply with them. R. ALEXANDER ACOSTA UNI1Ell STATES ATTORNEY Dated: By: A. MARIE VILLAFANA ASSISTANT U.S. ATTORNEY Dated: JEFFREY EPSTEIN Dated: GERALD LEFCOURT, ESQ. COUNSEL TO JEFFREY EPSTEIN Dated: q Z, ESQ. ATTORNEY FOR JEk FREY EPSTEIN Page 7 of 7 TAB 22 08 31 2007 13:03 FAX 5618021787 USA0 WFB FL Q002 US Department of Justice United States Attorney Southern District of Florida 500 4outh Australian Ave., Suite 400 Tfesr Palm Redd, FL 33401 (561) 6264711 August 31, 2007 DELIVERY BY FACSIMILE Ms. In care of Bruce Lyons, Esq. Lyons and Sanders 600 Northeast 3rd Avenue Fort Lauderdale; FL 33304 Re: Grand Jury Investigation Confidential Dear This letter is an invitation for you to testify before a federal Grand Jury, and is supplied in order to provide helpful background information about the Grand Jury. The Grand Jury consists of from sixteen to twenty-three persons from the Southern District of Florida. It is their responsibility to inquire into federal crimes which may have been committed in this District. As a Grand Jury witness you will be asked to testify and answer questions under oath, and to produce records and documents. Only the members of the Grand Jury, attorneys for the United States and a stenographer- are permitted in the Grand Jury roorn while you testify.. . The U.S. Department of Justice encourages prosecutors to notify an individual in appropriate cases that he or she is a target of a grand jury investigation. Accordingly, you are hereby notified that you are a target of a federal grand jury investigation in the Southern District of Florida concerning suspected violations of federal law, including but not limited to, possible violations of Title 18, United- States Code, Sections 2, 371, 1512, 1591, 1952, 1956, 1960, 2421, 2422, and 2423. You are advised that the destruction or alteration of any document required to be produced:before the grand jury constitutes serious violation of federal law, including but.not limited to Obstraction of justice. A "target" is a person as to whom the prosecutors or the Grand Jury have substantial 08 31 2607 13;04 FAX 5618021787 USA() WPB FL Ms. August 31, 2007 Page 2 epos evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutors, is a putative defendant. This letter constitutes an invitation to you to testify on your own behalf before the grand jury about matters under investigation. Of course, you are not required to appear before the grand jury. The decision whether to do so is a voluntary matter which is entirely up to you. The grand jury, if in fact it learns of this opportunity afforded to you, will be instructed not to draw any adverse inference from your failure to appear should you decide not to accept this invitation. You mustfurther understand that should you decide to testify, your testimony could be used against you if any criminal charges should be flied against you. Should you decide to appear before the grand jury, you will have the same rights and obligations as any non-immonized grand jury witness. Specifically, You may refuse to answer any question if a truthful answer to the question would tend to incriminate you. You have the right to stop answering questions at any time. Anything you say maybe used against you at the grand jury or in a subsequent legal proceeding. The grand jury will permit. you a reasonable opportunity to ..stop . outside the grand jury room to consult with your attorney, if you so desire, at any point during the testimony you give, Please be further advised that the giving of false testimony before the grand jur3r will subject -you to a prosecution for perjury in addition to the violations set forth above. As a target of a grand jury investigation who has been asked to appear before the grand jury, you may wish to retain the services of an attorney. If you not afford the services of independent counsel, the Court may be able to appoint Counsel to represent you. If you would like the United States to ask the Court to appoint an attorney to represent you, please contact the undersigned at 561 209-1047, The United States is investigating other individuals, and you may be interested in cooperating with the United States against those other targets. If you hire an attorney, or if the Court appoints one to represent you, that counsel can contact me to discuss that possibility. 08 31 2007 13:04 FAX 5618021787 USAO WPB FL Ms. August 31,2007 Page 3 0004 Please advise me whether you wish to testify before the grand jury by close of business -Wednesday, September 12, 2007. If I do not receive notification from you or your counsel by this date, I will assume that you do not wish to testify before the grand jury. By: R. ALEXANDER ACOSTA UNITED STATES ATTORNEY A. Marie Villafana Assistant United States Attorney. TAB 23 08 16 2007 17:05 FAX 5618021787 IJSA0 WPB FL U.S. Department of Justice United States Attorney Southern District of Florida rip 002 SOO South Australian Ave., Suite 400 West Palm Beach, Ft 33401 (561) 820-8711 . Facsimile: (561) 820-8777 August 16, 2007 VIA FACSIMILE Gerald Lefcourt, Esq. Gerald R Lefcourt, P.C. 148 East 78th Street New York, NY 10021 Re: Subpoena to Custodian of Records-NES. LLC Dear Mr. Lelbouri: I write in response to your letter of July 18, 2007 regarding the grand jury subpoena issued to the Custodian ofRecords for NES, LLC. Ihave attached an identical subpoena containing areturn date of September 11, 2007, and subpoenas for two NES employees, Eric Gany and Harry Beller. If you will not be representing Messrs. Gany and Beller, please let me know. First, as I mentioned in my earlier correspondence, a properly executed declaration from. the Custodian of Records is needed, and, if no documents responsive to a particular request exist, the Custodian should certify that under penalty of perjury. Second, you write that NES has no documents responsive to Requests 1 through 5. 'know that NES has several credit card accounts for the benefit of the persons who manage Mr. Epstein's properties, including Janusz Banasiak and Alfredo Rodriguez. I also know that NES regularly receives money from an account that is used to pay expenses at 358 El Milo Way and also wires money to that same account Those wire transfers fall within the time period called for by the subpoena and number in the hundreds of thousands of dollars. IfNES does not maintain records of its banking activities, then I would like to see a copy of its document retention policy, so I have added that to the Attachment to the Subpoena. Third, Mr. Manche's con:unent to you about potential money laundering charges related only to a resolution ofthe case. In other words, if the sex offense case is resolved, the Office would close its investigation into other areas as well The matter has not been, and it does not appear that it will be, resolved so the money laundering investigation continues, and Request Number 6 will not be withdrawn. The request is not overbroad and is stated with particularity, so please comply with the request by the new deadline. 68 16 2007 17:06 FAX 618021787 USA() WPB FL 0003 GERALD LEMUR ESQ. AuGUST 16,2007 PAGE 2 07 2 With respect to paragraph 7, the information provided regarding the pilots came from the corporate records of Hypezion and TEGE, Inc., not NES. However, I have provided a shorter list in the new subpoena attachment I also have enclosed another certification for the Custodian of Records' signature. Thank you again for your assistance. R. Alexander Acosta United States Attorney By: cc: E. Nesbitt Kuyrkendall, FBI (with enclosures) A. Marie Villafafia Assistant United States Attorney 4 1642007 17:06 FAX 5618021787 US.A0 WPB FL tOO4 TO: Custodian of Records NES, LLC United States District Court SOOTIMRNDISTRTCT OF FLORIDA SUBPOENA TO TESTIFY BEFORE GRAND JURY FGJ 07-103(WPB) No. OLY-6,5 2 SUBPOENA FOR: Fcl PERSON )M DOCUMENTS OR OBJECT SI YOU ARE HEREBY COMMANDED to wear a:ad testifybefore the Grand Jury ofthe United States District Court at the place, date and lime specified below. , PLACE' United States District Courthouse 701 Clematis Street West Palm Beaob, Florida 33401 ROM- Grand Jury Room DATE AND TIME: September 11, 2007 1:00 pm YOU ARE ALSO COMMANDED to bring with you the following document(s) or object(s): THE DOCUMENTS AND OBJECTS LISTED ON ATTACHMENT A. Please coordinate your compliance with this subpoena and confirm the date, time, and location of your appearance with S A Nesbitt Xnyrkendall, Federal Bureau of Investigation, Tele This subpoena shall remain in effect until you are granted leave to depart by the court or by an officer acting on behalf of the court. plot August 16, 2007 This subpoena is issued upon application of el njied States of America Name, Address and Phone Number of Assistant U.S. Attorney Arm Marie C. Villaffia, Assistant U.S. Attorney 500 So. Australian Avemie, Suite 400 West Palm Beach, FL 33401-6235 Tel: (561) 820-8711 x3047 Fs ( 61) 802-1787 it not applitable, ma "nom." Tunh,i of A0110 FORM ORD-227 JAN.86 08 16 2007 17:06 FAX 5618021787 USA WPB FL 005 ATTACIEVIENT TO SUBPOENA OLY-65 2 YES, LLC 1. For the period of January 1, 2003 to the present, all calendars, agendas, daily diaries, or other records of appointments, travel, meetings and the lac, kept by or on behalf of Jeffrey Epstein, Lesley 'Groff, and or This request includes information that is kept in physical "hard copy" and or electronic form, whether stored on a personal computer, database server, cellular telephone, "Blacicberrj" unit, personal digital assistant ("PDA'') or other handheld electronic device, or in any other electronic form, and all metadata included within the electronic physical files. 2. For the period of January 1, 2003 to the present, all address books, contact lists, or other records of names, telephone numbers, addresses, and or e-mail addresses kept by or on behalf of Jeffrey Epstein, Lesley Grog and or This request includes information that is kept in physical "hard copy" and or electronic form, whether stored on a personal computer, database server, cellular telephone, "Blackberry" unit, personal digital assistant ("PDA") or other handheld electronic device, or in any other electronic form; and all metadata included within the electronic physical files. 3. For the period of January 1, 2003 to the present, all e-mails, instant messages, text messages, meeting invitations, and any other electronic Communication sent by Jeffrey Epstein, Lesley Groff; and or to Jeffrey Epstein, Lesley Groff, and or This request includes information that is kept in physical "hard copy" and or electronic form, whether stored on a personal computer, -database server, cellular telephone, "Blackberry" unit, personal digital assistant ("PDA") orother handheld electronic device, or in any other electronic form, and all metadata included within the electronic physical files. 4. For the period of January 1, 2003 to the present, all documents and information referring or relating to the transfer of funds to or from any account owned by NES, LLC to or from any bank account used for the maintenance of the property located at 358 El Brill Way, Palm Beach, Florida, or for the payment of any person working at 358 El Brillo Way, Palm Beach, Florida. Page 1 of 2 . .08 16 2007 17:07 FAX 5618021787 U521.0 WPB FL Q006 5. For the period of January 1, 2003 to the present, all documents and information referring or relating to the transfer of funds to or from any account owned by NES, LLC to or from any bank account on which Janusz Banasiak and or Alfredo Rodriguez had or has check-writing authority and or access to via debit ATM card. 6. For the period of January 1, 2003 to the present, all documents and information referring or relating to the transfer of fund to or from any account owned by NPS, LLC to or from any account owned by JEGE, Inc., Jeffrey E. Epstein, Hyperion Air, Inc., Financial Trust Co., New York Strategy Group, Inc., J. Epstein Virgin Islands Foundations, Inc., and or Epstein Interests. 7. For the period of January 1, 2003 to the present, the names of all employees and all corporate directors, board members, and shareholders. 8. For the period of January 1, 2003 to the present, copies of all W-2s and or 1099s for the following persons: Jeffrey Epstein, Lesley Grog Janusz Banasiak, Alfredo Rodriguez, Harry Beller, and Erie T. Gany. Any and all document retention and or destruction policies Page 2 of 2 ; O8 161Z007 17:07 FAX 5618021787 USA() WPB FL 0007 UNITED STATES DISTRICT COURT SOO:0ERN DISTRICT OF FLORIDA IN RE FEDERAL GRAND JURY SUBPOENA OLY-65 2 ADDRESSED TO NES, .LLC - - CERTIFICATION REGARDING DOMESTIC RECORDS OF REGULARLY CONDUCTED ACTIVITY tb.e undersigted, ... NES, LLC in the position of and, by reason ofmy position, am authorized and qualified to make this declaration. I. In my employment with NES, LLC, I am familiar with the business records it maintains. 2. I certify that the records attached to this certification: (a) (b) (c) were made at or near the time of the occurrence of the matters set forth therein, by or from information transmitted by, a person with knowledge of those matters; were kept in the course of regularly conducted business activity, and were made by the regularly conducted activity as a regular practice. " 2. Among the records so maintained are the attached records itemized in Appendix A (Document Inventory). 3. I further certify that the documents attached hereto are responsive to Grand Jury Subpoena 65 2 served upon NES, LLC. Page 1 of 2- 08 16 2007 17:07 FAX 5618021787 USA0 WPB FL - :OW 4. I further certify that NES, LLC has no documents responsive to request number(s) . in Grand Jury Subpoena number 65g. Fil1 in or strike out as appiopriate. Pursuant to 28 1746, I declare under penalty of pednry that the foregoing information is true and correct Executed this . day of, Awe cifeiectition: Signature Page 2.of -2 , not applicable, cater "nonC." 08 10 2007 17:07 FAX 5618021787. tiSA0WPB FL ral 000 . TO: HARRY BELLER NFS, LLC United States District Court SOUTHERN DISTRICT OF FLORIDA SUBPOENA TO TESTIFY BEFORE GRAND JURY For 07-103(WPB) No. OLY-75 SUBPOENA FOR: n PERSON in DOCUMENTS OR OBJECT S YOU ARE HEREBY COMMANDED to appear and testifybefore the Grand Juryoftbe United States District Court at the place, date and time specified below. -PLACE: United States District Courthouse 701 Clematis Street ROOM: Grand Jury Room West Palm Beach, Florida 33401 DATE AND TIME: September 11, 2007 1:00 pm YOU ARE ALSO COMMANDED to bring with you the following docuront(s) or object(s): Please coordinate your compliance with this subpoena and confirm the date, time, and location of your appearance with S A Nesbitt Knyrkendall, Federal Bureau of Investigation, Tele This subpoena shall remain in effect until you are granted leave to depart by the court or by an officer acting on behalf of the court. This subpoena is issued upon application of the United States of Amcrica. Name, Address and Phone Number of Assistant U.S. Attorney Ann Marie C. 'Meats", Assistant U.S. Attorney 500 So. Australian Avenue, Suite 400 West Palm Beach, FL 33401-6235 Tel: (561) 820-8711 x3047 1704 (50) 802-3787. - tvbraxdbirraiorAOIRt ' FORM ORO-227 JAN.86 08 16 2007 17:07 FAX 5618021787 USA0 ll'FB FL on TO: ERIC G.ANY NBS, LLC United States District Court SOUTIIERN DISTRICT OF FLORIDA SUBPOENA TO TESTIFY BEFORE GRAND JURY PGJ 07-103(WPB) No. OLY-76 SUBPOENA FOR: Fic PERSON DOCUMENTS OR OBJECT S YOU An HEREBY COMMANDED to appear and testify before the Grand Jury ofthe United States District Court at the place, date and time specified below. PLACE: United States District Courthouse 701 Clematis Street West Palm Beach, Florida 33401 42:0614! Grand Jury Room DATE AND TIME: . September 11, 2007 1:00 pm YOU ARE ALSO COMMANDED to bring with you. the following document(s) or object(s): Please coordinate your compliance with this subpoena and confirm the date, time, and location of your appearance with S A Nesbitt Kuyrkendall, Federal Bureau of Investigation, Tele This subpoena shall remain in effect until you are granted leave to depart by the court or by an officer acting on behalf of the court. (BY)DEFUTYCLERK DATE; August:IC:2007 This subp oenk is issued upon application tittheYnif4Mat:e0gAlli: Ifnot upphcable. entex "none." Name, Address and Phone Number of Assistant U.S. Attorucy Alm Marie C. Attorney 500 So. Australian Avenue, Suite 400 West Palm Beach, FL 33401-6235 Tel: ( 61) 820-8711 x3047 Fax:4561) 802-1787 To Ix used Pt Eca afACH 10 FORM ORD-227 JAN.86 -08 16 2007 17:05 FAX 5618021787 MAO WPB FL US. Department of Justice United States Attorney Southern District of Florida TO: DATE: Auxusti6. 2007 FAX NO. 212-988-6192 PHONE NO. 212-737-0400 A. Marie Yillafana 500 S. Australian Ave, 4th Floor West Palm ReackFlorida 33401 (560 820-8711 Facsimile (561) 820-8777 FACSIMILE COVER SHEET Gerald Lefcourt, Esq.. OF PAGES: RE: NES. LIGC FROM: A. MARIE VILLA.FARA. Assistant U.S. Attorney PHONE NO. S61:2094047 COMMENTS: ; TAB 24 09 19 2007 12:14 PM "Villafana, Ann Marie C. k(USAFLS )" To "Jay Lefkowitz" cc bcc Subject RE: Meeting Judge Johnson has duty next week. Jay hate to have to be firm about this, but we need to wrap this up by Monday. II will not miss my indictment date when this has dragged on for several weeks already and then, if things fall apart, be left in a less advantageous position than before the negotiations: have had an 82-page pros memo and 53-page indictment sitting on the shelf since May to engage in these negotiations. There has to be an ending date, and that date is Monday. A. Marie Villafaria Assistant U.S. Attorney We may want to meet monday and potentially continue to tues if necessary. Which mag is on duty? Barry is available Monday morning. Our most flexible West Palm Beach magistrate is on duty on Monday, so, assuming we have signed documents by 1:30 or so, we should be able to get Mr. Epstein arraigned on Monday. I doubt that we will be able to get everything finished up here, get down to Miami, and try to find a Miami mag by close of business on Monday. A. Marie Villafana Assistant U.S. Attorney The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of Kirkland Ellis LLP or Kirkland Ellis International LLP. Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to postmaster kirkland.com, and destroy this communication and all copies thereof, including all attachments. TAB 25 09 23 2007 08:04 PM "Villafana, Ann Marie C. To "Jay Lefkowitz" cc bcc Subject RE: Revised agreement 1 is definitely under 18 still, and I think there is a second minor. The appointment of ififfl ad !item is to provide you with a mechanism to make contact with the girls and to give them the assistance of an independent attorney who represents them (as opposed to me, who represents the government). If you are willing to provide the girls with independent counsel, at Mr. Epstein's expense (and I get to pick the attorney), that is alright with me. Will do. "4,0 do you need a guardian ad litem at all? Are any of the 40 under 18 now? Hi Jay - Can you look at this? Especially paragraph 7. I think this covers the exclusive remedy concern you had. 070923 Epstein Non-Prosecution Agreement final.pdf The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of Kirkland Ellis LLP or Kirkland Ellis International LLP. Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to postmaster kirkland.com, and destroy this communication and all copies thereof, including all attachments. TAB 26 09 24 2007 01:27 PM 'Villafana, Ann Marie C. To "Jay Lefkowilz" CC "Martin Weinber" "Lourie, Andrew" "Garcia, Rolando (USAFLS )" bcc Subject RE: Epstein agreement as reviewed by the U.S. Attorney -,711fig...:frieg a 6:11at beerifefW6ided Hi Jay Sony for the delay. The U.S. Attorney had a last-minute concern, that I think I fixed it is in the first "It Appearing" clause following the list of statutes potentially violated). After you get the green light, let's discuss the potential representative. The person I am thinking of has run a preliminaiy conflicts check and it looks alright. Also, to address Mr. Epstein's concern regarding the list of names, I wanted to tell you that I have compiled a list of 34 confirmed minors. There are six others, whose names we already have, who need to be interviewed by the FBI to confirm whether they were 17 or 18 at the time of their activity with Mr. Epstein. Once those interviews are completed, I can finalize the list of identified victims, which I will put in a formal document that I will maintain until the time of Mr. Epstein's sentencing. Assuming that this agreement is fine, please execute at least three copies, and send one to me by fax and the rest by FedEx. I will execute and send the copies back. Thank you. A. Marie Villafalia Assistant U.S. Attorney 500 S. Australian Ave, Suite 400 West Palm Beach, FL 33401 Cc: Martin Weinberg; Lourie, Andrew Marie - Here are what I hope are final edits to the agreement. I will call in 15 min. thanks "Villafana, Ann Marie C. VUSAFLS )" 09 24 2007 10:13 AM To "Jay Lefkowitz" cc Subje Epstein agreement as reviewed by the U.S. ct Attorney Hi Jay Here is the agreement with Alex's edits. Thank you. 070924 Epstein Non-Prosecution Agreement w Acosta edits v2.pdf A. Marie Villafalia Assistant U.S. Attorney 500 S. Australian Ave, Suite 400 West Palm Beach, FL 33401 D070924 Final Epstein Non-Prosecution Agreement.pdf TAB 27 "Villafana, Ann Marie C. To (USAFLS1)" 09 24 2007 04:34 PM cc bcc Subject RE: Do you have a signed copy? Thank you, Jay. I have forwarded your message only to Alex, Andy, and Rolando. I don't anticipate it going any further than that. When I receive the originals, I will sign and return one copy to you. The other will be placed in the case file, which will be kept confidential since it also contains identifying information about the girls. When we reach an agreement about the attorney representative for the girls, we can discuss what I can tell him and the girls about the agreement. I know that Andy promised Chief Reiter an update when a resolution was achieved. (Something I wouldn't have promised in light of what happened last year.) Rolando is calling, but Rolando knows not to tell Chief Reiter about the money issue, just about what crimes Mr. Epstein is pleading guilty to and the amount of time that has been agreed to. Rolando also is telling Chief Reiter not to disclose the outcome to anyone. Marie - Please do whatever you can to keep this from becoming public. thanks "Villafana, Ann Marie C. 1(USAFLS )" 09 24 2007 04:04 PM To..Jay Lefkowitz" cc SubjectDo you have a signed copy? Fli Jay Sorry to be a bother, but do you have a copy that at least contains Mr. Epstein's signature? I need to pass it along to the powers that be. Thanks. TAB 28 "Villafana, Ann Marie C. (USAFLS )" 09 26 2007 11:01 AM To "Jay Lefkowitz" cc bcc Subject RE: Other attorneys essag a ee o Hi Jay Can you give me a call at his morning? I am meeting with the agents and want to give them their marching orders regarding what they can tell the girls. Also, please remove Babbitt and Searcy from the list. There is too great a chance of an appearance of impropriety with Babbitt and I received a bad report about Searcy last night. Thank you. A. Marie Pilaf-a-14a Assistant U.S. Attorney 500 S. Australian Ave, Suite 400 West Palm Beach, FL 33401 Hi Jay These four people were recommended. I have not contacted them to find out what their rates are. All are very active in the plaintiffs' bar in the West Palm area. Ted Babbitt would be my first choice of these four but I think he is conflicted out because one of his partners is married to an AUSA here. Stuart Grossman is probably my second choice. Ted Babbitt Stuart Grossman Chris Searcy Lake Lytal, Jr. Talk to Jack Goldberger about this group. They are all very good personal injury lawyers, but I have concerns about whether there would be an inherent tension because they may feel that THEY might make more money (and get a lot more press coverage) if they proceed outside the terms of the plea agreement. (Sorry I just have a bias against plaintiffs' attorneys.) One nice thing about Bert is that he is in Miami where there has been almost no coverage of this case. Just so you know, I have never met Bert, but a good friend in our appellate section and one of the district judges in Miami are good friends with him and recommended him. Can you let me know tomorrow? I am going to be out for a while starting on Friday, and I would like to get this underway before I leave. Thank you. A. Marie Villafacia Assistant U.S. Attorney 500 S. Australian Ave, Suite 400 West Palm Beach, FL 33401 TAB 29 10 05 2007 07:48 AM "Villafana, Ann Marie C. (USAFLS)" To "Jay Lefkowitz" cc bcc Subject RE: Proposed Letter to Special Master WMPRWIr EA 76-41.4gR,V' Good morning, Jay. We need to resolve the attorney issue today. It has been weeks since execution of the contract, and there is no need for further delay. As far as the five attorney names that we will be providing, I propose Bert Ocariz, Katherine Ezell at Podhurst Orseck, Stuart Grossman, Ed Rogers, and Walter Cobath. If you would like to use the same Special Master to resolve fees disputes as well as to handle the selection of the attorney, I would recommend that we use retired 11th Circuit Judge Joseph Hatchett instead of Judge Davis because of Judge Davis's health problems. (No one has contacted Judge Hatchett yet, but one of the District Judges in Miami mentioned him as a good choice.) I am available for a conference call between 9:00 and 10:00, and between 3:15 and 6:00. Please call me on my cell and let me know which of those times works best for you. Thank you. Marie - I, too, am interested in speed. But I really need to go over this and then discuss with Jeffrey. So please do not send this to any Special Master before we discuss the next steps. Thanks "Villafana, Ann Marie C. (USAFLS)" 10 03 2007 04:24 PM To "Jay Lefkowitz" cc Subject Proposed Letter to Special Master Hi Jay - To move things along, I also have enclosed the proposed text of a letter to the Special Master. PROPOSED Letter to Special Master.pdf A. Marie Villafafia Assistant U.S. Attorney TAB 30 'Villafana, Ann Marie C. To (USAFLS)" 09 27 2007 03:06 PM cc bcc Subject RE: Conference Call with Bert Ocariz , 15:ime ageiba beer.r:orwar. Hi Jay I already told Bert that there is no indictment and, as I mentioned, he doesn't really need to want to see the entire plea agreement, .just the relevant paragraphs so that he understands what the scope of his representation will be. I think they would be happy knowing that their hourly rate will be paid when it is billed. The concern is, if all 40 girls decide they want to sue, they don't want to be in a situation where Mr. Epstein says this is getting too expensive, we won' t pay any more attorneys' fees. Two suggestions, that I haven't run past Bert, are: 1. Mr. Epstein signs a standard fee agreement, where one of his attorneys or accountants who is not working on the damages litigation receives a monthly bill with attorney's fees charged at an hourly rate and costs billed monthly. The bills will have any privileged information redacted. If there is a dispute about a bill that cannot be resolved, it will be submitted to a mediator for resolution. 2. If that is too open-ended for Mr. Epstein, do the hourly monthly billing until Berl. has had a chance to confer with all of the girls to determine how many want him to represent them. Once it is known how many girls will be represented by Bert, and maybe who those girls are, there can be a more educated discussion about estimated fees and costs. Just some food for thought. I will be out of the office tomorrow, but I will be reachable by cell Phone. I will make sure Bert is available and confirm the time with you. A. Marie Villafana Assistant U.S. Attorney 500 S. Australian Ave, Suite 400 West Palm Beach, FL 33401 Marie - I will not be able to get back to you until tomorrow. However, some of the questions he raised cause me some serious concern. 1. Can we get a copy of the indictment (or can you tell me the nature of the crimes against the girls)? Certainly he should not get a copy of any indictment. 2. When will it be possible to see the plea agreement so that we understand exactly what Epstein concedes to in the civil case? I don't think he should get the plea agreement either. 3. Is there any cap or other limitation on attorney's fees that the defendant will pay in the civil case? I can't imagine he would be entitled to anything other than an hourly fee. 4. What is the contemplated procedure for, and timing of, the payment of attorney's fees and costs? In any event, I need to consider these issues carefully and I cannot agree to any of these issues before we speak. I would suggest we plan on talking tomorrow at 12 pm if you are available. Jay Hi Jay Bert's firm has raised a number of good questions about how they are going to get paid and setting up a procedure that avoids any conflict of interest with their clients. Are you around today to do a conference call? Let me know what times work for you because Bert wants to get their conflicts counsel on the call with us. These are some of the questions he sent to me. I told Bert that as part of our agreement we (the federal government) are not going to indict Mr. Epstein, but gave him an idea of the charges that we had planned to bring as related to 18 USC 2255. With respect to question 2, do I have your permission to send Bert just that section of the plea agreement that applies to the damages claims (I would recommend sending paragraphs 7 through 10, or at least 7 and 8)? Can you talk with your client about items 3 and 4? I envisioned Shook Hardy sending regular bills to you, with any privileged information redacted, and being paid like every other client pays the bills. 1. Can we get a copy of the indictment (or can you tell me the nature of the crimes against the girls)? 2. When will it be possible to see the plea agreement so that we understand exactly what Epstein concedes to in the civil case? 3. Is there any cap or other limitation on attorneys fees that the defendant will pay in the civil case? 4. What is the contemplated procedure for, and timing of, the payment of attorney's fees and costs? A. Marie Villafalia Assistant U.S. Attorney 500 S. Australian Ave, Suite 400 West Palm Beach, FL 33401 The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of Kirkland Ellis LLP or Kirkland Ellis International LLP. Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to postrnaster kirkland.com, and destroy this communication and all copies thereof, including all attachments. TAB 31 ei 2005 The Florida Bar Member Search Inside the Bar Find a Lawyer Jeffrey Marc Herman Member in Good Standing Eligible to practice in Florida ID Number: - 521647 Address: Herman Mermelstein P A 18205 Biscayne Blvd Ste 2218 North Miami Beach, Florida 331602148 United States E-Mail: jherman hermanlaw.com County: Miami-Dade Circuit: 11 Admitted: 12 26 1985 10-Year None Discipline History Firm: erman Sloman Mermelstein PA The Find A La directory provides limi d bask-in'topmatiorra out attorneys licensed to practice in Florida and is provided as a public service by The Florida Bar. The information contained herein is provided "as is" with no warranty of any kind, express or implied. The Florida Bar, its Board of Governors, employees, and agents thereof are not responsible for the accuracy of the data. Much of the information is provided by the attorney and it is the attorneys responsibility to review and update the ifgrmation. Publication of attorneys' contact information within this listing ST1ou1Wo e construed as their consent to receive unsolicited communications in any form. Certain unauthorized uses of this data may result in civil or criminal wyer directory is not a lawyer referral service. http: www.floridabar.orginames.nsf All EDE6C2013E4B06CB85256A8400091E55?Open. Page 1 of 1 TAB 32 JANE DOE NO. 1, by and through JANE DOE's FATHER as parent and natural guardian, and JANE DOE's FATHER, and JANE DOE's STEPMOTHER, individually, Plaintiffs, vs. JEFFREY EPSTEIN, Defendant. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO 08 80069 MI-MARRA MAGISTRATE JUDGE YOHNSON FILED by D C INTAKE JAN 24 2008 DCLELARKRUITSE: S.D. OF FLA. FT. .L.AUb INDisADTDoary COMPLAINT Plaintiff, Jane Doe No. 1 ("Jane" or "Jane Doe"), by and through Jane Doe's Father as parent and natural guardian, and Jane Doe's Father and Jane Doe's Stepmother, individually, bring this Complaint against Jeffrey Epstein, as follows: Parties, Jurisdiction and. Venue 1. Jane Doe is a citizen and resident of the State of Florida. She is a minor under the age of 18 years. 2. Jane Doe's Father brings this action individuallyand as parent and natural guardian of Jane Doe. Jane Doe's Father is a citizen and resident of the State of Florida. 3. Jane Doe's Stepmother brings this action individually. Jane Doe's Stepmother is a citizen and resident of the State of Florida. 4. This Complaint is brought under fictitious names to protect the identity of the Minor Plaintiff because this Complaint makes sensitive allegations of sexual assault and abuse upon a HERMAN Et M ERM ELSTON P. A. -1. www.hermanlaw.com minor. 5. Defendant Jeffrey Epstein is a citizen and resident of the State of New York. 6. This is an action for damages in excess of 50 million. 7. This Court has jurisdiction of this action and the claims set forth herein pursuant to 28 U.S.C. 1332(a), as the matter in controversy (i) exceeds 75,000, exclusive of interest and costs; and (ii) is between citizens of different states. 8. This Court has venue of this action pursuant to 28 U.S.C. I391(a) as a substantial part of the events or omissions giving rise to the claim occurred in this District. Factual Allegations 9. At all relevant times, Defendant Jeffrey Epstein ("Epstein") was an adult male, 52 years old. Epstein is a financier and money manager with a secret clientele limited exclusively to billionaires. He is himself a man of tremendous wealth, power and influence. He maintains his principal home in New York and also owns residences in New Mexico, St Thomas and Palm Beach, FL. The allegations herein concern Epstein's conduct while at his lavish estate in Palm Beach. 10. Upon information and belief, Epstein has a sexual preference and obsession for underage minor girls. He engaged in a plan and scheme in which he gained access to primarily economically disadvantaged minor girls in his home, sexually assaulted these girls, and then gave them money. In or about 2005, Jane Doe, then 14 years old, fell into Epstein's trap and became one of his victims. 11. Upon information and belief, Jeffrey Epstein carried out his scheme and assaulted girls in Florida, New York and on his private island, known as Little St. James, in St. Thomas. 12. An integral player in Epstein's Florida scheme was Haley Robson, a Palm Beach HERMAN 8, MERMELSTEIN, P, A. - 2 - www.hermanlaw com Community College student from Loxahatchee, Florida. She recruited girls ostensibly to give a wealthy man a massage for monetary compensation in his Palm Beach mansion. Under Epstein's plan, Ms. Robson would be contacted when Epstein was planning to be at his Palm Beach residence or soon after he had arrived there. Epstein or someone on his behalf directed Ms. Robson to bring one or more underage girls to the residence. Ms. Robson, upon information and belief, generally sought out economically disadvantaged underage girls from Loxahatchee and surrounding areas who would be enticed by the money being offered - generally 200 to 300 per "massage" session - and who were perceived as less likely to complain to authorities or have credibility if allegations of improper conduct were made. This was an important element of Epstein's plan. 13. Epstein's plan and scheme reflected a particular pattern and method. Upon arrival. at Epstein's mansion, Mr. Robson would introduce each victim to Sarah Kellen, Epstein's assistant, who gathered the girl' s personal information, including her name and telephone number. Ms. Kellen would then bring the girl up a flight of stairs to a bedroom that contained a massage table in addition to other furnishings. There were photographs of nude women lining the stairway hall and in the bedroom. Ms. Kellen would then leave the girl alone in this room, whereupon Epstein would enter wearing only a towel. He would then remove his towel, lay down naked on the massage table, and direct the girl to remove her clothes. He then would perform one or more Iewd, lascivious and sexual acts, including masturbation and touching the girl's vagina with a vibrator. 14. Consistent with the foregoing plan and scheme, Ms. Robson recruited Jane Doe to give Epstein a massage for monetary compensation. Ms. Robson brought Jane to Epstein's mansion in Palm Beach. Jane was introduced. to Sarah Kellen, who led her up the flight of stairs to the room with the massage table. She was alone in the room when Epstein arrived wearing only a towel. He HERMAN X...-. MERMEL.STEIN, P. A. - 3 - www.hermanlaw.com removed his towel, and laid down naked on the massage table. He dtalanded that Jane remove her clothes. In shock, fear and trepidation, Jane complied, removing her clothes except for her underwear. Epstein then sexually assaulted Jane. 15. After Epstein had completed the assault, he left the room. Jane was then able to get dressed, leave the room and go back down the stairs. She then met Ms. Robson again who brought Jane home. Jane was paid 300 by Epstein. Ms. Robson was p aid 200 by Epstein for bringing Jane to him. 16. As a result of this encounter with Epstein, the 14-year old Jane experienced confusion, shame, humiliation, embarrassment and the assault sent her life into a downward spiral. COUNT I Sexual Assault 17, Plaintiff Jane Doe by and through her Father, as parent and natural guardian, repeats and realleges paragraphs I through 16 above. 18. Epstein tortiously assaulted Jane Doe sexually in or about 2005. 19. This sexual assault was in violation of Chapter 800 of the Florida Statutes, which recognizes as a crime the lewd and lascivious acts committed by Epstein upon Jane. 20. As a direct and proximate result of Epstein's assault on Jane, she has suffered and will continue to suffer severe and permanent traumatic injuries, including mental, psychological and emotional damages. WHEREFORE, Plaintiff Jane Doe, by and through her Father, as parent and natural guardian, demands judgment against Defendant Jeffrey Epstein for compensatory damages, punitive damages, costs, and such other and further relief as this Court deems just and proper. HERMAN 6, MERMELSTEIN, P. A. - 4 - www.hermaniaw.com COUNT II Intentional Infliction of Emotional Distress 21. Plaintiffs Jane Doe by and through her Father, as parent and natural guardian, Jane Doe's Father and Jane Doe's Stepmother, individually, repeat and reallegeparagraphs 1 through 16 above. 22. Epstein's conduct was intentional or reckless. 23. Epstein's conduct was outrageous, going beyond all bounds of decency. 24. Epstein's conduct caused severe emotional distress not only to Jane Doe, but also to her parents, Jane Doe's Father and Jane Doe's Stepmother. Epstein knew or had reason to know that his intentional and outrageous conduct would cause emotional trauma and damage to Jane Doe's parents. 25. As a direct and proximate result of Epstein's intentional or reckless conduct, Jane Doe, Jane Does' Father and Jane Doe's Stepmother have suffered and will continue to suffer severe mental anguish and pain. WHEREFORE, Plaintiffs Jane Doe by and through her Father, as parent and natural guardian, Jane Doe's Father and Jane Doe's Stepmother demand judgment against Defendant Jeffrey Epstein for compensatory damages, costs, punitive damages, and such other and further relief as this Court deems just and proper. COUNT LEI Loss of Parental Consortium 26. Plaintiff Jane Doe's Father repeats and realleges paragraphs 1 through 16 above. 27. Epstein's tortious conduct is the direct and proximate cause of damages to Jane Doe's Father, consisting of parental loss of comfort, companionship and society and healthcare costs HERMAN MERMELSTEIN, F'. A. - 5 - www.hermanlaw.com associated with the treatment of J ane. 28. Jane Doe's Father experienced and will continue to experience great mental anguish, pain and suffering from the time that Defendant's tortious conduct occurred. WHEREFORE, Plaintiff Jane Doe's Father demands judgment for loss of consortium damages, costs and such other and further relief as this Court deems proper. JURY TRIAL DEMAND Plaintiffs demand a jury trial in this action. Dated: January c24, 2008 Respectfully submitted, HERMAN MERMELSTEIN, P. A. - 6 - HERMAN MERMELSTEIN, P.A. Attorneys for Plaintiffs 18205 Biscayne Blvd. Suite 2218 Miami, Florida 33160 Tel: 305-931-2200 Fax: 305-931-0877 By: Je M. Herman j erman herrnanlaw.com Florida Bar No. 521647 Stuart S. IViermelstein smermelstein hermanlaw.com Florida Bar No. 947245 Adam D. Horowitz Florida Bar No. 376980 ahorowitz hen-nanlaw.cora www.hermanlaw.com I of 6 Case 9:08-cv,80232-KAM Document 1 Entered on FLSD Docket 03 05 2008 JANE DOE NO. 3, Plaintiff, vs. JEFFREY EPSTEIN, Defendant. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA 1) FIR2061 1 la D.C. ELECTRIC March 5, 2008 STEVEN M. LARIMORE CLERK U.S. 01ST. CT. S. D. OF FLA. MIAMI CASE NO.: 08-CV-80232-Marra-Johnson COMPLAINT Plaintiff, Jane Doe No.3 ("Jane" or "Jane Doe"), brings this Complaint against Jeffrey Epstein, as follows: Parties, Jurisdiction and Venue 1. Jane Doe is a citizen and resident of the State of Florida, and is sui juris. 2. This Complaint is brought under a fictitious name to protect the identity of the Plaintiff because this Complaint makes sensitive allegations of sexual assault and abuse upon her when she was a minor. 3. Defendant Jeffrey Epstein is a citizen and resident of the State of New York. 4. This is an action for damages in excess of 50 million. 5. This Court has jurisdiction of this action and the claims set forth herein pursuant to 28 U.S.C. 1332(a), as the matter in controversy (i) exceeds 75,000, exclusive of interest and costs; and (ii) is between citizens of different states. 6. This Court has venue of this action pursuant to 28 U.S.C. 1391(a) as a substantial part of the events or omissions giving rise to the claim occurred in this District. HERMAN MERMELSTEIN, P. A. - 1 - www.hermaniaw.com Case 9:08-cv-80232-KAM Document 1 Entered on FLSD Docket 03 05 2008 Page 2 of 6 Factual Allegations 7. At all relevant times, Defendant Jeffrey Epstein ("Epstein") was an adult male, 52 years old. Epstein is a financier and money manager with a secret clientele limited exclusively to billionaires. He is himself a man of ti-emendous wealth, power and influence. He maintains his principal home in New York and also owns residences in New Mexico, St. Thomas and Palm Beach, FL. The allegations herein concern Epstein's conduct while at his lavish estate in Palm Beach. 8. Upon information and belief, Epstein has a sexual preference and obsession for underage minor girls. He engaged in a plan and scheme in which he gained access to primarily economically disadvantaged minor girls in his home, sexually assaulted these girls, and then gave them money. In or about 2004-2005, Jane Doe, then 16 years old, fell into Epstein's trap and became one of his victims. 9. Upon information and belief, Jeffrey Epstein carried out his scheme and assaulted girls in Florida, New York and on his private island, known as Little St. James, in St. Thomas. 10. An integral player in Epstein's Florida scheme was Haley Robson, a Palm Beach Community College student from Loxahatchee, Florida. She recruited girls ostensibly to give a wealthy man a massage for monetary compensation in his Palm Beach mansion. Under Epstein's plan, Ms. Robson would be contacted when Epstein was planning to be at his Palm Beach residence or soon after he had arrived there. Epstein or someone on his behalf directed Ms. Robson to bring one or more underage girls to the residence. Ms. Robson, upon information and belief, generally sought out economically disadvantaged underage girls from Loxahatchee and surrounding areas who would be enticed by the money being offered - generally 200 to 300 per "massage" session - and who were perceived as less likely to complain to authorities or have credibility if allegations of HERMAN MERMELSTEIN, P. A. 2 of 6 - 2 - www.hermanlaw.com Case 9:08-cv-80232-KAM Document 1 Entered on FLSD Docket 03 05 2008 Page 3 of 6 improper conduct were made. This was an important element of Epstein's plan. 11. Epstein's plan and scheme reflected a particular pattern and method. Upon arrival at Epstein's mansion, the victim would be brought to the kitchen. She would then be led up a flight of stairs to a bedroom that contained a massage table in addition to other furnishings. Once the girl was alone in this room, Epstein would enter wearing only a towel to cover his private area. He then would lay down on the massage table and perform one or more lewd, lascivious and sexual acts, including masturbation and touching the girl sexually. 12. Consistent with the foregoing plan and scheme, Ms. Robson recruited Jane Doe to give Epstein a massage for monetary compensation. Ms. Robson brought Jane to Epstein's mansion in Palm Beach. Jane was led up the flight of stairs to the room with the massage table. She was alone in the room when Epstein arrived wearing a towel to cover his private parts. He laid down on the massage table, and sexually assaulted Jane Doe during the massage. In addition, Jeffrey Epstein masturbated during the massage. 13. After Epstein had completed the assault, he left the room. Jane was then able to leave the room and go back down the stairs. She then met Ms. Robson again who brought Jane home. Jane was paid 200 by Epstein. Ms. Robson was also paid by Epstein for bringing Jane to him. 14. As a result of this encounter with Epstein, the 16-year old Jane experienced trauma, shock, confusion, shame, humiliation and embarrassment. COUNT I Sexual Assault 15. Plaintiff Jane Doe repeats and realleges paragraphs 1 through 14 above. 16. Epstein tortiously assaulted Jane Doe sexually in or about 2004-2005. Epstein's acts were intentional, unlawful, offensive and harmful. HERMAN St MERMELSTEIN, P. A. 3 of 6 - 3 - wvvw.hermanlaw.com Case 9:08,cv-80232-KAM Document 1 Entered on FLSD Docket 03 05 2008 Page 4 of 6 17. Epstein's plan and scheme in which he committed such acts upon Jane Doe were done willfully and maliciously. 18. This sexual assault was in violation of Chapter 800 of the Florida Statutes, which recognizes as a crime the lewd and lascivious acts committed by Epstein upon Jane. 19. As a direct and proximate result of Epstein's assault on Jane, she has suffered and will continue to suffer severe and permanent traumatic injuries, including mental, psychological and emotional damages. WHEREFORE, Plaintiff Jane Doe, demands judgment against Defendant Jeffrey Epstein for compensatory damages, punitive damages, costs, and such other and further relief as this Court deems just and proper. COUNT II Intentional Infliction of Emotional Distress 20. Plaintiffs Jane Doe repeats and realleges paragraphs 1 through 14 above. 21. Epstein's conduct was intentional or reckless. 22. Epstein's conduct was outrageous, going beyond all bounds of decency. 23. Epstein's conduct caused severe emotional distress to Jane Doe. Epstein knew or had reason to know that his intentional and outrageous conduct would cause emotional trauma and damage to Jane Doe. 24. As a direct and proximate result of Epstein's intentional or reckless conduct, Jane Doe has suffered and will continue to suffer severe mental anguish and pain. WHEREFORE, Plaintiff Jane Doe demands judgment against Defendant Jeffrey Epstein for compensatory damages, costs, punitive damages, and such other and further relief as this Court HERMAN MERMELSTEIN, P. A. 4 of 6 - 4 - www.hermanlaw.com Case 9:08-cv-80232-KAM Document 1 Entered on FLSD Docket 03 05 2008 Page 5 of 6 deems just and proper. JURY TRIAL DEMAND Plaintiffs demand a jury trial in this action. Dated: March 2008 HERMAN Eu. MERMELSTEIN, P. A. -5- 5016 Respectfully submitted, HERMAN 84. MERMELSTEIN, P.A. Attorneys for Plaintiffs 18205 Biscayne Blvd. Suite 2218 Miami, Florida 33160 Tel: 305-931-2200 Fax: 305-931-0877 By: Jeffrey M. Herman iherman hermanlaw.com Florida Bar No. 521647 Stuart S. Menrielstein smermelsteinP,hermanlaw.com Florida Bar No. 947245 Adam D. Horowitz Florida Bar No. 376980 ahorowitz( ,hen-nanlaw.com www.hermanlaw.com Case 9:08-cv-80232-KAM DocunGM111- CqVggcM1 14LED Docket 03 95 S008 Page 6 of The JS-44 civil cover sheet and the Information contained herein neither replace nor supplement the filing, and service o p ea ng or other paps as required by law, except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of the Court for the purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.) 1(a) PLAINTIFFS DEFENDANTS JANE DOE NO. 3, JEFFREY EPSTEIN (b) COUNTY OF RESIDENCE OF FIRST LISTED PLAINTIFF PALM BEACH COUNTY (EXCEPT IN U.S. PLAINTIFF CASES) COUNTY OF RESIDENCE OF FIRST LISTED DEFENDANT NEW YORK (IN U.S. PLAINTIFF CASES ONLY) (c) ATTORNEYS (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER) Herman Mermelstein, PA., 18205 Biscayne Blvd., Suite 2218, Miami, FL 33160, (365) 931-2200 ATTORNEYS (IF KNOWN) (d) CIRCLE COUNTY WHERE ACTION AROSE: PALM BEACH II. BASIS OF JURISDICTION (PLACE AN X ONE BOX ONLY) o 1. U.S. Government Plaintiff 0 2. U.S. Government Defendant III) 0 3. Federal Question (U.S. Government Not a Party) X 4. Diversity (Indicate Citizenship of Parties in Item CIOPCJI 90232 le-f9171-f)0 n f., III. CITIZENSHIP OF PRINCIPAL PARTIES (For Diversity Case Only) PTF Citizen of This State x 1 Citizen of Another State 0 2 DEF CI 1 x 2 Citizen or Subject of a Foreign Country 0 3 0 3 PLACE AN X IN ONE BOX FOR PLAINTIFF AND ONE FOR DEFENDANT PTF DEF Incorporated of Principal Place of 0 4 0 4 Business in This State Incorporated and Principal Place of 0 5 0 5 Business in Another State Foreign Nation 0 6 0 6 IV. CAUSE OF ACTION (CITE THE U.S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE A BRIEF STATEMENT OF CAUSE. DO NOT CITE JURISDICTIONAL STATUTES UNLESS DIVERSITY.) DIVERSITY ACTION UNDER 28 U.S.C. 1332(a) FOR SEXUAL ASSAULT !Va. 5 days estimated (for both sides) to try entire case V. NATURE OF SUIT (PLACE AN X IN ONE BOX ONLY) A CONTRACT A TORTS B FORFEITURE PENALTY A BANKRUPTCY A OTHER STATUS 0 110 Insurance CI 120Marine 0 130Miller Act 0 140Negoliable Instrument , a tooRmv'Y ar ver"Iffnen' Enforcement of Judgment 0 15184edlcare Am 0 152Recoveryof Defaulted Student Loans (Excl. Veterans)B CI 153 Recovery of Oyerpayment of Veteran's Bane El . 0 150Stockholderb Sults 0 1DOOther Contract 0 1135Contrast Product Llabildy ... PERSONAL 0 310 Airplane 0 315 Airplane 0 320 AssaiAL 0330 Federal a 0 345 0 350 Moto 0 355 Motor X 360 Other INJURY 0 382 Personal InjuntMed Malpractice Product Liability 0 365 Personal Injury-Product' Liablity Libel Slander 0 368 Asbestos Personnel EMPiCl.re OabffitY !rimy Product Uabilky Product Uabilky PERSONAL PROPERTY ehIcle gide Product Llabilky 0 370 Other Fraud arsenal Injury 0 371 Truth in Lending B 0 380 Other Personnel Property Damage 0 385 Properly Damage Product Llabkly 0 810 Agriculture 0 820 Other Food Om 0 825 Drug Related Seizure of Property 21 USC 881 0 630 Liquor LaVIS 0 840 R.Ft. Truck 0 650 Aldine Rees 0 880 Occupational Safely Health 0 800 Other 0 422 Appeal 28 USC 158 0 423 Withdrawal 28 USC 157 0 400 Status ReappotnIment 0 410 Antitrust 0 430 Banks and Banking 0 400 Commerce ICC Ralesretc.13 0 460 Deportation o 470 Racketeer Influenced and Cermet OggenicaCons 0 810 Selective Service 0 850 Securities Commodities Exchange CI 875 Customer Challenge 12USC3410 0 801 Agricultural Acts 0 Beg Economic Stater-393n Act 0 853 Envinonmental Matters 0 BIM EMMY W 059AF, 0 695 Freedom of Inforrnalbn Act 0 BOO Appeal of Fee Determination Under Equal Access to Justice 0 050 Congitutionalkyof Stale Statutes 0 890 Myer Statutory Actions' A Or 8 Declaratory relief and stale law claims for delemalion n 0 A PROPERTY RIGHTS 0 820 Copyrights 01130 Patent 0 IMO Trademark B SOCIAL SECURITY 0851 H1A (139510 0 862 Black Lung (13231 0 863 DIWCJDNVW (405(9D CI 864 SS1D TAM XVI 0 665 RSI (405(g)) A REAL PROPERTY A CIVIL RIGHTS 13 PRISONER PETITIONS A LABOR 0 210 Land Condemnation 0 220 Foreclosure B CI 230 Rent Lease Electment 0 240 Torts to Land 0 245 Tort Product Liability 0 MO All Other Real Property CI 441 Voting 0 442Employment 0 443Housing Accommodations 0 444 Welfare 0 4400thar CFA Rights 0 510Motions to Vacate Sentence Habeas Carew 0 5300eneral. 0 535130016 Penalty 0 540 Mandamus Wet 0 550CMI Rights 'A or B 5710 Fat Labor Standards Act 0 720 Labor Management Relations B 0 730 Labor Management Reporting Disclosure Act 0 740 Railway Labor Acl 0 700 Other Labor Litigation o 791 Employee Rel. Inc. Security Acts A FEDERAL TAX SUITS 0 870 TOWS (U.S. PloinlIff or denoted) 0 871 IRS-TI ad Party 26 USC 7890 FILED bv VI. ORIGIN x 1. Original 0 2. Removed from 0 3. Remanded from 04. Refilled 0 6. Multidistrict Litigation 0 7. Appeal to District Judge from Proceeding State Court Appellate Court 0 5. Transferred from another district (Specify) Magistrate Judgment VII. REQUESTED IN COMPLAINT 0 UNDER F.R.C.P. 23 CHECK IF THIS IS A 0 CLASS ACTION DEMAND 0 Check complaint JURY DEMAND: MAR - 5 2008 cCitLA,,RK.E.N.C:. 0M ;Aar) njT. 5.0 Mal qua Y S 0 NO VIII. RELATED (See Instructions): (SEE ATTACHED) CASE(S) IF ANY Jane Doe 2 v. Jeffrey Epstein JUDGE KENNETH A. MARRA DOCKET NUMBER 08-CV-60119-MARRA-JOHNSON DATE 3 - -0 t SIGNATURE OF ATTORNEY OF RECORD UNITED STATES DISTRICT COURT S F 1-2 REV. 9194 6 of 6 FOR OFFICE USE ONLY: Receipt No. Amount Date Paid: M ifp: 52 R6 1 TAB 33 Another suit alleges sex during massage Page 1 of 2 PairalleachPost,com Another suit alleges sex during massage By i,ARRY KELLER Palm Beach Post Staff Writer Thursday, March 06, 2008 WEST PALM BEACH Another woman filed a federal lawsuit against Jeffrey Epstein on Wednesday, alleging that he turned a massage she gave him at his Palm Beach mansion into a sexual episode when she was 16 years old. Identified as "Jane Doe No. 3," she is seeking more than 50 million, the same as two other "Jane Does" who filed similar lawsuits in the past six weeks. All three suits were filed by Miami lawyer Jeffrey Herman. G PRINTTHIS More crime coverage Most recent headlines Fugitives I Sex offenders crime blog OSt Browse Specials Sc Deals From Load Dealerships Herman subsequently withdrew the first Jane Doe's lawsuit because of squabbling by her parents over the litigation. The girl may refile the suit after she turns 18 in May and can make her own decisions, Herman said. More local news Other alleged victims also have contacted him, Herman said. "I do anticipate more Latest breaking news., photos and all of today's Post stories, cases," he said. Share This Story In the latest litigation, Jane Doe No. 3 alleges that she was recruited by a former college student, Haley Robson, to give Epstein a massage for money at his waterfront home late in 2004 or early in 2005. The lawsuit alleges that, while on the massage table, Epstein sexually touched Jane Doe No. 3, then masturbated. She is suing on grounds of sexual assault and intentional infliction of emotional distress. "She felt intimidated. She felt scared," Herman said. Jane Doe No. 3 made only the one visit to Epstein's home, he said. "It's just another copycat lawsuit filed by the same lawyer who appears less interested in the truth than in grandstanding with these press conferences," said Jack Goldberger, one of Epstein's attorneys. "We now have sworn testimony that girls lied about their age to Jeffrey Epstein, and they were careful in being http: pahnbeachpost.printthis.clickability.com pt cpt?action cpt title Another suit alleg... 4 2 2008 Another suit alleges sex during massage Page 2 of 2 convincing that they were over the age of 18." Herman said Robson instructed Jane Doe No. 3, "When he asks how old you are, tell him 18 or 19 years old." But he said it doesn't matter. "They were underage girls," Herman said. "They were sexually assaulted." In addition to the civil lawsuits, Epstein was indicted on a single count of felony solicitation of prostitution in July 2006 after a lengthy Palm Beach Police Department investigation into his activities with underage girls at his home. A resolution has been delayed continually. The case is on Monday's court docket but is expected to be rescheduled once again. "One of the reasons (Jane Doe No. 3) came forward is she is tired of waiting for justice," Herman said. Find this article at: http: www.palmbeachpost.com localnews content local news epaper 2008 03 06 s3b epstein 0306.html? cxtype rss cxsvc 78xxcat 76 Check the box to include the list of links referenced in the article. http: palmbeachpost.printthis.clickability.com pt cpt?action cpt title Another-Fsuit alleg... 4 2 2008 TAB 34 Jay, Jay Lefkowitz New York Kirkland-Ellis Sent by: Kristin Andersen New York Kirkland-Ellis 12 12 2007 04:20 PM To Ami Sheth New York Kirkland-Ellis K E cc Eugene Komel New York Kirkland-Ellis K E bcc Subject Fw: Epstein Forwarded by Kristin Andersen New York Kirkland-Ellis on 12 12 2007 04:19 PM "Sloman, Jeff USAFLS" 11 27 2007 01:55 PM To "Jay Lefkowitz" cc "Acosta, Alex (USAFLS)" Subject Epstein Please accept my apologies for not getting back to you sooner but I was a little under the weather yesterday. I hope that you enjoyed your Thanksgiving. Regarding the issue of due diligence concerning Judge Davis' selection, I'd like to make a few observations. First, Guy Lewis has known for some time that Judge Davis was making reasonable efforts to secure Aaron Podhurst and Bob Josephsberg for this assignment. In fact, when I told you of Judge Davis's selection during our meeting last Wednesday, November 2l4, you and Professor Dershowitz seemed very comfortable, and certainly not surprised, with the selection. Podhurst and Josephsberg are no strangers to nearly the entire Epstein defense team including Guy Lewis, Lili Ann Sanchez, Roy Black, and, apparently, Professor Dershowitz who said he knew Mr. Josephsberg from law school. Second, Podhurst and Josephsberg have long-standing stellar reputations for their legal acumen and ethics. It's hard for me to imagine how much more vetting needs to be done. The United States has a statutory obligation (Justice for All Act of 2004) to notify the victims of the anticipated upcoming events and their rights associated with the agreement entered into by the United States and Mr. Epstein in a timely fashion. Tomorrow will make one full week since you were formally notified of the selection. I must insist that the vetting process come to an end. Therefore, unless you provide me with a good faith objection to Judge Davis's selection by COB tomorrow, November 28, 2007, I will authorize the notification of the victims. Should you give me the go-ahead on Podhurst and Josephsberg selection by COB tomorrow, I will simultaneously send you a draft of the letter. I intend to notify the victims by letter after COB Thursday, November 29'1. Thanks, Jeff TAB 35 KIRKLAND ELLIS LLP AND AFFILIATED PARTNERSHIPS 777 South Figueroa Street Los Angeles, California 90017 Kenneth W. Starr To Call Writer Directly: www.lcirkland.com November 28, 2007 VIA FACSIMILE Honorable Alice S. Fisher Assistant Attorney General Department of Justice Criminal Division 950 Pennsylvania Avenue NW Room 2107 Washington, DC 20530 Re: Jeffey Epstein Dear Ms. Fisher: Facsimile: (213) 680-8500 I represent Jeffrey Epstein, who, as you may be aware, was the target of a dual investigation by both state and federal authorities in Florida for acts relating to his interactions with numerous young women. As you may also be aware, Mr. Epstein has entered into a Deferred Prosecution Agreement (the "Agreement") with the United States Attorney's Office for the Southern District of Florida (the "USAO") to resolve its criminal investigation of him. I run writing to. request a meeting with you to discuss certain aspects of this case that I find especially troublesome. As part of the agreement Mr. Epstein was required to sign to avoid a federal indictment, Mr. Epstein was required to waive jurisdiction and liability under 18 U.S.C. 2255 for the settlement of monetary claims that might be made by it group of unidentified alleged victims who will be identified by the USA() at some point in the future. Neither I, nor any of the other defense lawyers involved in this matter, have ever heard of such a procedure. And as part of this Agreement, Mr. Epstein is precluded from contesting liability as to civil lawsuits seeking monetary compensation for damages brought by any of the identified individuals who elect to settle their civil claims for the statutory minimum of either 50,000 (the amount set by Congress as of the date of the occurrences) or 150,000 (the amount currently set by statute) or some other agreed upon damage amount. We believe that the utilization of 18 U.S.C. 2255 as a pre- condition of criminal plea agreements or non-prosecution agreements is highly unusual and requires careful consideration and additional guidance by your Office. We also believe that the Chicago Hong Kong London Munich New York San Francisco Washington, D.C. IURKLAND 8.. ELLIS Honorable Mice S. Fisher November 28, 2007 Page 2 manner in which the USAO has interpreted the settlement process for these identified individuals under the Agreement requires guidance. These areas are more fully detailed below. First. Federal criminal investigators and prosecutors should not be in the business of promoting civil lawsuits as a condition precedent to entering non-prosecution or deferred prosecution agreements. This is especially true where the vehicle for the financial settlement under the Agreement requires payment in a lump sum without requiring proof of actual injury or loss federal authorities should therefore be particularly sensitive to avoid causing a prejudiced and unfair result. 18 U.S.C. 2255 is a civil statute implanted in the criminal code; in contrast to all other criminal restitution statutes, 2255 fails to correlate payments to specific injuries or losses. Instead, the statute presumes that victims have sustained damages of at least a minimum lump sum without regard to whether the complainants suffered actual medical, psychological or other forms of individualized harm. We presume that it is for this reason that 18 U.S.C. 2255 has never before been employed in this manner in connection with a non-prosecution or, as here, a deferred prosecution agreement. In short, the USAO is operating in uncharted territory. Second. 18 U.S.C. 2255 creates the potential for compromising witness testimony. Although generally the Government may promise or provide traditional consideration to potential witnesses, employing a civil statute that promises a lump sum payment to potential witnesses without proof of actual liability or damage provides an extraordinary incentive that is incompatible with the truth-seeking functions of the criminal justice system. Guidelines or other policy directives should be considered to control the extent to which witnesses are informed by investigators about the availability of such financial windfalls. Additionally, an inquiry is necessary in this specific case to assure that disclosures to potential witnesses did not undermine the reliability of the results of the federal criminal investigation of Mr. Epstein. Third. The USA() has provided no information as to the specific claims made by each identified individual, nor were we provided the names or ages of those individuals or the time-frame of the alleged conduct The USAO's reluctance to provide Mr. Epstein with any information with respect to the allegations against him leaves wide open the opportunity for misconduct by federal investigators. In addition, this information vacuum eliminates the ability for Mr. Epstein and or his agents to verify that the allegations at issue are grounded in real evidence. Indeed, the requirement that a target of federal criminal prosecution agree to waive his right to contest liability as to unnamed civil complainants creates at minimum an appearance of injustice, both because of the obvious Due Process concerns of waiving rights without notice of In addition to the areas identified below, it was and remains our position that federal prosecution of this matter is entirely inappropriate based on the prior application and legislative histories of the relevant federal statutes. KIRKLAND ELLIS Honorable Alice S. Fisher November 28, 2007 Page 3 even the identity of the complainant(s) and because of the involvement of the federal criminal justice system in civil settlements between private individuals. Fourth. The USA() has improperly insisted that the chosen attorney representative should be able to litigate the claims of individuals, which violates the terms of the Agreement and deeply infringes upon the spirit and nature of the Agreement. Initially, for the sake of expediting a settlement in this matter, we suggested that Mr. Epstein establish a restitution fund specifically for the settlement of the identified individuals' civil claims and that an impartial, independent representative be appointed to administer that fund. Notably, such a restitution fund was created in a federal case, U.S. v. Boehm, Case No. 3:04CR00003 (D Alaska 2004). The federal prosecutors here rejected this idea, and they insisted that an attorney representative, paid for by Mr. Epstein, be appointed. Yet, there was no suggestion at the time that the attorney representative's duties included litigating claims on behalf of the identified individuals. However, after the parties agreed to the appointment of an attorney representative, the prosecutors announced that the criteria for choosing an appropriate attorney representative now included that the individual be "a plaintiff's lawyer capable of handling multiple lawsuits against high profile attorneys." This interpretation of the scope of the attorney representative's role is far outside the common understanding that existed when we negotiated Mr. Epstein's settlement with the USAO. Furthermore, we firmly believe that ethics rules preclude the representative from litigating claims on behalf of the identified individuals. In sum, we believe that the actions undertaken in this matter by the USA() with respect to the 18 U.S.C. 2255 provisions of the Agreement are highly unusual. We respectfully request a meeting with you at your earliest convenience to discuss the important issues raised by the USAO's conduct in this deeply policy-laden matter. id. Q2 Kenneth W. Starr - 11 28 07 WED 09:19 FAX 1 213 680 8500 KIRKLAND ELLIS LLP TRANSMISSION OK T1 REPORT TX RX NO 1638 CONNECTION TEL 912025149412 SUDADDRESS CONNECTION ID ST. TIME 11 28 09:17 USAGE T. 01'57 PGs. 4 RESULT OK Igj col MRKLAND ELLIS LLP Fax Transmittal 777 South Figueroa Street Los Angeles, Califomia 90017 Falc (213) 680-8500 Please notify us immedlately if any pages are not received. THE INFORMATION CONTAINED IN THIS COMMUNICATION IS CONFIDENTIAL, MAY BE ATTORNEY-CLIENT PRIVILEGED, MAY CONSTITUTE INSIDE INFORMATION, AND IS INTENDED ONLY Fog THE USE OF THE ADDRESSEE. UNAUTHORIZED USE, DISCLOSURE OR COPYING IS STRICTLY PROHIBITED AND MAY BE UNLAWFUL. IF YOU HAVE RECEIVED THIS COMMUNICATION IN ERROR, PLEASE NOTIFY US IMMEDIATELY AT: (213) 680-8400. Hon. Alice S. Fisher Department of Justice Kenneth V . Starr November 28, 2007. 4 Message: TAB 36 'Villafana, Ann Marie C. (USAFLS)" 11 28 2007 04:46 PM To cc bcc Subject is message has been replie "Jay Leficowilz" "Sloman, Jeff (USAFLS)" "Acosta, Alex (USAFLS)" Epstein: Victim Notification Letter to nc fetitiare(e. Dear Jay: Jeff asked that I forward the victim notification letter to you. It is attached. Thank you. Victim Notification Ltr.pdf A. Marie Villafalia Assistant U.S. Attorney 500 S. Australian Ave, Suite 400 West Palm Beach, FL 33401 DVictim Notification Ltr.pdf 7 U.S. Department of Justice United States Attorney Southern District of Florida 500 South Australian Ave., Suite 400 West Palm Beach, FL 33401 (561) 820-8711 Facsimile: (561) 820-8777 November 29, 2007 DELIVERY BY HAND Miss Re: Crime Victims' Rights Notification of Resolution of Epstein Investigation Dear Miss Several months ago, I provided you with a letter notifying you of your rights as a victim pursuant to the Justice for All Act of 2004 and other federal legislation, including: (1) The right to be reasonably protected from the accused. (2) The right to reasonable, accurate, and timely notice of any public court proceeding involving the crime or of any release or escape of the accused. (3) The right not to be excluded from any public court proceeding, unless the court determines that your testimony may be materially altered if you are present for other portions of a proceeding. (4) The right to be reasonably heard at any public proceeding in the district court involving release, plea, or sentencing. (5) The reasonable right to confer with the attorney for the United States in the case. (6) The right to full and timely restitution as provided in law. (7) The right to proceedings free from unreasonable delay. (8) The right to be treated with fairness and with respect for the victim's dignity and privacy. I am writing to inform you that the federal investigation of Jeffrey Epstein has been completed, and Mr. Epstein and the U.S. Attorney's Office have reached an agreement containing the following terms. Mr....Ep.stein.agrees that he willTlead guilty to two state offenses, including the offense of soliciting minors to engage in promtution, which will require him to register as a sexual predator for the remainder of his life. MISS NOVEMBER 29, 2007 PAGE 2 Second, Mr. Epstein has agreed to make a binding recommendation of 18 months' imprisonment to the state court judge who sentences him. Mr. Epstein will serve that sentence of imprisonment at the Palm Beach County Jail. Tj140 Mr. Epstein has agreed that he will not contest jurisdictien oi habibty4f you elect to Awkofrom him because the United States has identified you as a minor victim of certain federal offenses, including travel in interstate commerce to engage in prostitution with minors and the use of facilities of interstate commerce to induce minors to engage in prostitution. To assist you U.S.in making such a claim, the Attorney's Office has asked an independent Special Master to select attorneys Those attorneys are iriciaNna.Ntrand Robeit ("Bob) i'it4its ,Ogiwith the law firm of Podhurst Orseck, PA. They can be reached:at(305)358;280.Q., anticipate that someone from their law firm will be contacting you shortly. TiiiiigiffitiAdkikleitt that you are not obligated to use these attorneys. In fact, you have the absolute right to select your own attorney, so you can decide not to speak with Mssrs. Podhurst Tosefsberg at all, or you can speak with them and decide at any time to use a different attorney. :Tfyou do decide to seek damages from Mr. Epstein and you decide to use lessrs Podhurst Josefsbeig asyour attorneys Mr Epstein will be , attorney1eesi:incurred during the time spent trying to negotiate a settlement. If you are unable to reach a settlement with Mr. Epstein, you and Mr. Josefsberg can discuss how best to proceed. As I mentioned above, as part of the resolution of the federal investigation, Mr. Epstein has agreed to plead guilty to state charges. Mr. Epstein's change of plea and sentencing will occur on December 14, 2007, at a.m., before Judge Sandra K. McSorley, in Courtroom 11F at the Palm Beach County Courthouse, 205 North Dixie Highway, West Palm Beach, Florida. Pursuant to Florida Statutes Sections 960.001(1)(k) and 921.143 (1) you ale tigittagglitPiRabajda0 a statement under oath If you choose, you can submit a written statement under oath which will be filed by the State Attorney's Office on your behalf. If you elect to prepare a written statement, it should address the following: the facts of the case and the extent of any harm, including social, psychological, or physical harm, financial losses, loss of earnings directly or indirectly resulting from the crime for which the defendant is being sentenced, and any matter relevant to an appropriate disposition and sentence. Fl. Stat. 921.143(2). You also are entitled to notification when Mr. Epstein is released from imprisonment at the end of his prison term and or if he is allowed to participate in a work release program. To receive such notification, please provide the State Attorney's Office with the following information: 1. Your name 2. Your address 3. Your home, work, and or cell phone numbers MISS NOVEMBER 29, 2007 PAGE 3 4. Your e-mail address 5. A notation of whether you would like to participate in the "VINE system," which provides automated notification calls any time an inmate is moved. (To use this system, your calls must go to you directly, not through a switchboard.) Thank you for all of your help during the course of the investigation. If you have any questions or concerns, please do not hesitate to contact me or Special Agent Nesbitt Kuyrkendall at (561) 822-5946. R. Alexander Acosta United States Attorney By: A. Marie Villafaila Assistant United States Attorney cc: Special Agent Nesbitt Kuyrkendall, F.B.I. Ms. Clearetha Wright, Victim-Witness Coordinator, U.S. Attorney's Office TAB 37 "Sloman Jeff USAFLS' To 02 27 2008 09:45 PM CC bcc Subject "Oosterbaan, Andrew" Fw: Epstein Itory: : This message has benforwarde Sent from my BlackBerry Wireless Handheld Jay, You have renewed your request for certain information which this Office does not generally make available in similar pre-indictment situations. After carefully considering your request, I have decided, in my capacity as the First Assistant U.S. Attorney, not to make an exception here. Regarding the Landon Thomas matter, Mr. Thomas was given, pursuant to his request, non-case specific information concerning specific federal statutes. Regarding the offer to extend the current deadline of March 3, 2008 contained in my February 25th email. That offer was based on counsel for Mr. Epstein meeting with CEOS the week of March 3rd. You indicate that you are unavailable. It is hard to imagine that some or all of the other attorneys representing Mr. Epstein cannot serve this function. After all, Mr. Epstein is also represented by Dean Kenneth Starr, Martin Weinberg, Roy Black, Gerald Lefcourt, Harvard Professor Alan Dershowitz, Lily Ann Sanchez, and Guy Lewis. That being said, the Southern District of Florida will only renew the offer to extend the current deadline if you and the CEOS Section Chief mutually agree on a timetable by close of business on Friday, February 29, 2008 to meet and complete presentations no later than March 19, 2008. Given that CEOS is ready to proceed immediately, this seems like more than ample time. As I indicated in my previous email, if CEOS subsequently decides that a federal prosecution should not be undertaken against Mr Epstein, this Office will close its investigation. However, should CEOS disagree with Mr. Epstein's position, Mr. Epstein shall have one week to abide by the terms and conditions of the September 24, 2007 Agreement as amended by letter from United States Attorney Acosta. Jeffrey H. Sloman First Asst. US Attorney Southern District of Florida TAB 38 05 16 2008 11:16 FAX 05 16 08 FRI 11:08 FAX U NITED STATES DEPARTMENT OF JUSTICE Criminal Division Child Exploitation and Obscenity Section 1400 New York Avenue, NW Suite 600 Washington, DC 20530-0001 20005 TO: OFFICE NUMBER: FAX NUMBER: FROM: Q001 006 VI001 CEOS: (202) 514-5780 FAX: (202) 514-1793 R. Alexander Acosta, Esq. Tay T,efkowit.z, Esq. Alexandra Gelber. DATE TIME: May 16, 2008 OFFICE NUMBER: (202), 514-5780 NUMBER OF PAGES, F-3(CLUE ING THIS SHEET: 5 SPECIAL INSTRUCTIONS: 05 16 2008 11:16 FAX 05 16 08 FRI 11:08 FAX 0 0 2 0 0 6 tJ 002 Child Eaploitarlon and 003-ceraty Section Jay Lefkowitz, Esq. Kirkland Ellis LLP Citigroup Center 153 E. 53" St. New York, NY 10022-4611 U.S. Department of Justice Criminal Division Andrew G. Oosterbaan, Chief 1400 A'ew York Avenue, NW Suite 600 Wialtingion, DC20530 (202) 514-5780 FAX: (202) 514-1793 May 15, 2008 Re: Investigation of Jeffery Epstein Dear Mr. Lefkowitz: Pursuant to your request and the request of U.S. Attorney R. Alexander Acosta, we have independently evaluated certain issues raised in the investigation of Jeffrey Epstein to determine whether a decision to prosecute Mr. Epstein for federal criminal violations would contradict criminal enforcement policy interests. As part of our evaluation, we have reviewed letters written on behalf of Mr. Epstein on February 1, 2007, June 25, 2007, July 6, 2007, March 28, 2008, April 8, 2008, April 28, 2008, and May 14, 2008, with their attachments. We have also reviewed memos prepared by the U.S. Attorney's Office. As you will recall, we met with you and other representatives of Mr. Epstein to further discuss your views on the propriety of a federal prosecution. We have discussed the factual and legal issues you raise with the Criminal Division's Appellate Section, and we consulted with the Office of Enforcement Operations concerning the petite policy. We are examining the narrow question as to whether there is a legitimate basis for the U.S. Attorney's Office to proceed with a federal prosecution of Mr. Epstein. Ultimately, the prosecutorial decision making authority within a U.S. Attorney's Office lies with the U.S. Attorney. Therefore, to borrow a phrase from the case law, the question we soudit to answer was whether U.S. Attorney Acosta would abuse his discretion if he authorized prosecution in this case. As you know, our review of this case is limited, both factually and legally. We have not looked at the entire universe of facts in this case. It is not the role of the Criminal Division to re- conduct a complete factual inquiry from scratch. Furthermore, we did not analyze any issues concerning prosecution under federal statutes that do not pertain to child exploitation, such as the money laundering statutes, 05 16 2008 11:16 FAX 05 16 08 FRI 11:08 FAX 0003 006 Q003 As was made clear at the outset, we did not review the facts, circumstances, or terms included in the plea offer, nor any allegations that individuals involved in the investigation engaged in misconduct. Despite that agreement, we note that your letters of April 8, April 28, and May 14 focus in large part on accusations of investigative or prosecutorial misconduct. Not only do allegations of prosecutorial misconduct fall outside the boundary of our agreed review, they also fall outside the authority of the Criminal Division in the first instance. Simply, the Criminal Division does not investigate or resolve allegations of professional misconduct by federal prosecutors. For these reasons, we do not respond to the portion of those letters that discuss alleged misconduct. Based on our review of all of these materials, and after careful consideration of the issues, we conclude that U.S. Attorney Acosta could properly use his discretion to authorize prosecution in this case. We will briefly address each of the issues that you have raised. Knowledge of age. Federal child exploitation statutes differ as to whether there must be proof that the defendant was aware that the children were under the age of 18. However, even for those statutes where knowledge of age is an element of the offense, it is possible to satisfy that element with proof that the defendant was deliberately ignorant of facts which would suggest that the person was a minor. For that reason, the fact that some of the individuals allegedly lied to Mr. Epstein about their age is not dispositive of the issue. While there may be an open factual issue as to Mr. Epstein's knowledge, we cannot say that it would be impossible to prove knowledge of age for any such charges which require it. Therefore, Mr. Acosta could rightfully conclude that this factual issue is best resolved by a jury. Travel for the purpose. In the materials you prepared, you suggest that Mr. Epstein should not be charged with violating 18 U.S.C. 2423(1,) because his dominant purpose in going to Florida was not to engage in illegal sexual activity, but rather to return to one of his residences. While we fully understand your argument, we also find that the U.S. Attorney's office has a good faith basis fully to develop the facts on this issue and brief the law to permit a court to decide whether the law properly reaches such conduct. Mr. Acosta would not be abusing his discretion if he decided to pursue such a course of action. Intent to engage in the conduct at the time of travel, Based on our review of the facts of this case, we respectfully disagree that there is no evidence concerning Mr. Epstein's intent when he traveled, and when that intent was formed. Should Mr. Acosta elect to let the case proceed so that a jury can resolve this factual issue, he would be within his discretion to do so. Use of a facility or means of interstate or foreign commerce. Much of the materials you have prepared and much of the meeting we had focused on 18 U.S.C. 2422(b), specifically your contention that Mr. Epstein did not use the phone to coerce anyone to engage in illegal sexual activity.. We understand the issue you raise concerning the statutory interpretation. As before, however, we cannot agree that there is no evidence that would support a charge under Section 2422(b), nor can we agree that there is no argument in support of the application of that statute to this case. Finally, our assessment is that the application of that statute to these facts would not be 2 05 16 2008 11:16 FAX 05 16 08 FRI 11:09 FAX g1004 006 0004 so novel as to implicate the so-called "clear statement rule," the Ex Post Facto clause, or the Due Process clause. As with the other legal issues, Mr. Acosta may elect to proceed with the case. Absence of coercion. With respect to 18 1591, the alleged absence of the use of force, fraud, or coercion is of no moment. The statute does not require the use of force, fraud, and coercion against minors. Because of their age, a degree of coercion is presumed. In your materials, you note that the statute requires that the minors must be "caused" to engage in a commercial sex act, further arguing that the word "cause" suggests that a certain amount of undue influence was used. We reject that interpretation, as it would read back into the offense an element coercion that Congress has expressly excluded. We have successfully prosecuted defendants for the commercial sexual exploitation of minors, even when the minors testified that not only did they voluntarily engage in the commercial, sex acts, it was their idea to do so. As such, Mr. Acosta could properly decide to pursue charges under Section 1591 even if there is no evidence of coercion. More broadly, a defendant's criminal liability does not hinge on his victim identifying as having suffered at his hands. Therefore, a prosecution could proceed, should Mr. Acosta decide to do so, even though some of the young women allegedly have said that they do not view themselves as victims. Witness credibility. As all prosecutors know, there are no perfect witnesses. Particularly in cases involving exploited children, as one member of your defense team, Ms. Thacker, surely knows from her work at CEOS, it is not uncommon for victim-witnesses to give conflicting statements. The prosecutors are in the best position to assess the witness's credibility. Often, the prosecutor may decide that the best approach is to present th.e witness, let defense counsel explore the credibility problems on cross-examination, and let the jury resolve the issue. Mr. Acosta would be within his authority to select that approach, especially when here there are multiple, mutually-corroborating witnesses. Contradictions and omissions in the search warrant application. We have carefully reviewed the factual issues you raise concerning the search warrant application. For a search warrant to be suppressed, however, the factual errors must be material, and the officers must not have proceeded in good faith. Despite the numerous factual errors you describe, the U.S. Attorney's Office could still plausibly argue that the mistakes whether inadvertent or intentional were not material to the determination that probable cause existed for a search, and that the search was in good faith in any event. As such, Mr. Acosta could properly elect to defend the search warrant in court rather than forego prosecution. Petite 1?olicy: After reviewing the petite policy and consulting with the Office of Enforcement Operations ("0E0"), we conclude that the petite policy does not prohibit federal prosecution in this case, According to the U.S. Attorney's Manual, the petite policy "applies whenever there has been a prior state or federal prosecution resulting in an acquittal, a conviction, including one resulting from a plea agreement, or a dismissal or other termination of 3 05 16 2008 11:17 FAX 05 16 08 FRI 11:09 FAX IJ UO05 006 005 the case on the merits after jeopardy has attached." USAIVI 9-2.031(C). Our understanding is that the state case is still pending. As such, tehe procedural posture of the state case does not implicate the petite policy. We recognize that the petite policy could be triggered if the state case concluded after a federal indictment was issued but prior to the commencement of any federal trial. Id. However, the policy "does not apply ... where the state prosecution involved only a minor part of the contemplated federal charges." USAM 9-2.031(B). Based on our understanding of the possible federal charges and existing state charges, we do not think the petite policy would be an issue should federal proceedings take place. Federalism and Prosecutorial Discretion. All of the above issues essentially ask whether a federal prosecution can proceed. We understand, however, that you also ask whether a federal prosecution should proceed, even in the event that all of the elements of a federal offense could be proven. On this issue, you raised two arguments: that the conduct at issue here is traditionally a state concern because the activity is entirely local, and that the typical prosecution under federal child exploitation statutes have different facts than the ones implicated here. You have essentially asked us to look into whether a prosecution would so violate federal prosecutorial policy that a United States Attorney's Office should not pursue a prosecution. We do not think that is the case here for the following reasons. Simply, the commercial sexual exploitation of children is a federal concern, even when the conduct is local, and regardless of whether the defendant provided the child (the "pimp") or paid for the child (the John"). In your materials, you refer to a letter sent by the Department of Justice to Congress in which the Department expresses concern over the expansion of federal laws to reach almost all instances of prostitution. In that portion of the letter, the Department was expressly referring to a proposed federal law that reach adult prostitution where no force, fraud, or coercion was used. Indeed, the point being made in that letter is that the Department's efforts are properly focused on the commercial sexual exploitation of children and the exploitation of adults through the use of force, fraud, or coercion. As such, there is no inconsistency between the position taken in that letter and the federal prosecution of wholly local instances of the commercial sexual exploitation of children. If Congress wanted to limit the reach of federal statutes only to those who profit from the commercial sexual exploitation of children, or only to those who actually traffic children across state lines, it could have done so. It did not. Finally, that a prosecution of Mr. Epstein might not look precisely like the cases that came before it is not dispositive. We can say with confidence that this case is consistent in principle with other federal prosecutions nationwide. As such, Mr. Acosta can soundly exercise his authority to decide to pursue a prosecution even though it might involve a novel application of a federal statute. Conc usion. After carefully considering all the factual and legal issues raised, as well as the arguments concerning the general propriety ()fa federal case against Mr. Epstein on these 4 05 16 2008 11:17 FAX 05 16 08 FRI 1110 FAX Q5006 006 12006 facts, we conclude that federal prosecution in this case would not be improper or inappropriate. While you raise many compelling arguments, we do not see anything that says to us categorically that a federal case should not be brought. Mr. Acosta would not be abusing his prosecutorial discretion should he authorize federal prosecution of Mr.. glutei Sincerely 3. Oosterbaan cc: .AAG Alice S. Fisher DAAG Sigal P. Mandelkcr U.S. Attorney R. Alexander Acosta 9:1 5 TAB 39 Jay Lefkowitz New York Kirkland-Ellis Sent by: Kristin Andersen New York Kirkland-Ellis 12 12 2007 04:19 PM To Ami Sheth New York Kirkland-Ellis K E CC Eugene Kornel New York Kirkland-Ellis K E bcc Subject Fw: Epstein Jay Lefkowitz New York Kirkland-Ellis To "Sloman, Jeff (USAFLS)" 11 28 2007 04:29 PM cc "Acosta, Alex (USAFLS)" Subject Re: EpsteinCi Dear Jeff: I received your email yesterday and was a little surprised at the tone of your letter, given the fact that we spoke last week and had what I thought was a productive meeting. I was especially surprised given that your letter arrived on only the second day back to work after the Thanksgiving Holiday, and yet your demands regarding timing suggest that I have been sitting on my hands for days. You should know that the first time I learned about Judge Davis's selection of Podhurst and Josephsberg, and indeed the first time I ever heard their names, was in our meeting with you on Wednesday of last week. Nevertheless, I have now been able to confer with my client, and we have determined that the selection of Podhurst and Josephsberg are acceptable to us, reserving, of course, our previously stated objections to the manner in which you have interpreted the section 2255 portions of the Agreement. We do, however, strongly and emphatically object to your sending a letter to the alleged victims. Without a fair opportunity to review and the ability to make objections to this letter, it is completely unacceptable that you would send it without our consideration. Additionally, given that the US Attorney's office has made clear it cannot vouch for the claims of the victims, it would be incendiary and inappropriate for your Office to send such a letter. Indeed, because it is a certainty that any such letter would immediately be leaked to the press, your actions will only have the effect of injuring Mr. Epstein and promoting spurious civil litigation directed at him. We believe it is entirely unprecedented, and in any event, inappropriate for the Government to be the instigator of such lawsuits. Finally, we disagree with your view that you are required to notify the alleged victims pursuant to the Justice for All Act of 2004. First, 18 USC section 2255, the relevant statute under the Non-Prosecution Agreement for the settlement of civil remedies, does not have any connection to the Justice for All Act. Section 2255 was enacted as part of a different statute. Second, the Justice for All Act refers to restitution, and section 2255 is not a restitution statute. It is a civil remedy. As you know, we had offered to provide a restitution fund for the alleged Jay, J.L 10 Li el V IA 1V111.V,..1..7. .1 10 .7 VIA 13.11 . VV VVVS 11E411 LJ.L.LV.LVUL FAA. V 111V Li 1,...,11-11.1.11.1,J11 1111111 101 1.11V 1411051.0 victims in this matter; however that option was rejected by your Office. Had that option been chosen, we would not object to your notifying the alleged victims at this point. At this juncture, however, we do not accept your contention that there is a requirement that the government notify the alleged victims of a potential civil remedy in this case. Accordingly, for all the reasons we have stated above, we respectfully object to your sending any letter whatsoever to the alleged victims in this matter. Furthermore, if a letter is to be sent to these individuals, we believe we should have a right to review and make objections to that submission prior to it being sent to any alleged victims. We also request that if your Office believes that it must send a letter to go to the alleged victims, who still have not been identified to us, it should happen only after Mr. Epstein has entered his plea. This letter should then come from the attorney representative, and not from the Government, to avoid any bias. As you know, Judge Starr has requested a meeting with Assistant Attorney General Fisher to address what we believe is the unprecedented nature of the section 2255 component of the Agreement. We are hopeful that this meeting will take place as early as next week. Accordingly, we respectfully request that we postpone our discussion of sending a letter to the alleged victims until after that meeting. We strongly believe that rushing to send any letter out this week is not the wisest manner in which to proceed. Given that Mr. Epstein will not even enter his plea for another few weeks, time is clearly not of the essence regarding any notification to the identified individuals. Thanks very much, Jay "Sloman, Jeff (USAFLS)" 1"Sloman, Jeff (USAFLS)" 11 27 2007 01:55 PM To "Jay Lefkowitz" CC "Acosta, Alex (USAFLS)" Subject Epstein Please accept my apologies for not getting back to you sooner but I was a little under the weather yesterday. I hope that you enjoyed your Thanksgiving. Regarding the issue of due diligence concerning Judge Davis' selection, I'd like to make a few observations. First, Guy Lewis has known for some time that Judge Davis was making reasonable efforts to secure Aaron Podhurst and Bob Josephsberg for this assignment. In fact, when I told you of Judge Davis's selection during our meeting last Wednesday, November 2e, you and Professor Dershowitz seemed very comfortable, and certainly not surprised, with the selection. Podhurst and Josephsberg are no strangers to nearly the entire Epstein defense team including Guy Lewis, Lili Ann Sanchez, Roy Black, and, apparently, Professor Dershowitz who said he knew Mr. Josephsberg from law school. Second, Podhurst and Josephsberg have long-standing stellar reputations for their legal acumen and ethics. It's hard for me to imagine how much more vetting needs to be done. The United States has a statutory obligation (Justice for All Act of 2004) to notify the victims of the anticipated upcoming events and their rights associated with the agreement entered into by the United States and Mr. Epstein in a timely fashion. Tomorrow will make one full week since you were formally notified of the selection. I must insist that the vetting process come to an end. Therefore, unless you provide me with a good faith objection to Judge Davis's selection by COB tomorrow, November 28, 2007, I will authorize the notification of the victims. Should you give me the go-ahead on Podhurst and Josephsberg selection by COB tomorrow, I will simultaneously send you a draft of the letter. I intend to notify the victims by letter after COB Thursday, November 29th. Thanks, Jeff TAB 40 TAX MATTERS- IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. If you would like such advice, please contact us. Attention: The information contained in this E-mail message is attorney privileged and confidential information intended only for the use of the individual(s) named above. If the reader of this message is not the intended recipient, you are hereby notified that any dissemination, distribution or copy of this communication is strictly prohibited. If you have received this communication in error, please contact the sender by reply E-mail and destroy all copies of the original message. Thank you. Dear Lilly: Thank you for your letter of August 2nd regarding your proposal on how to resolve the Epstein matter. As we explained at our meeting on July 31, 2007, the Office believes that the federal interest will not be vindicated in the absence of a two-year term of state imprisonment for Mr. Epstein. That offer was not meant as a starting point for negotiations, it is the minimum term of imprisonment that will obviate the need for federal prosecution. The Office has never agreed that a state prison sentence is not appropriate for Mr. Epstein. Rather we simply stated that if Mr. Epstein preferred to serve his sentence in a federal penetentiary, we would be willing to explore a federal conviction that may allow that in lieu of any state resolution. Further, as I made clear in our follow up telephone conversation after the meeting, a plea to two federal misdemeanors was never extended or meant as an offer. We also would reiterate that the agreement to Section 2255 liability applies to all of the minor girls identified during the federal investigation, not just the 12 that form the basis of an initial planned charging instrument. As you know, the ability to engage in flexible plea negotiations is dramatically changed upon the return of an indictment. Once an indictment is returned, the Office does not intend to file a Superseding Information containing a lesser charge or to dismiss the case in favor of state prosecution. Please let us know your client's decision by no later than August 17. I have conferred with U.S. Attorney Acosta who has asked me to communicate that the two-year term of incarceration is a non-negotiable minimum to vindicate a federal interest, and, at this time, he is not inclined to meet with counsel for Mr. Epstein. R. Alexander Acosta United States Attorney By: Matthew Menchel Chief, Criminal Division cc: Roy Black Gerald Lefcourt R. Alexander Acosta Jeffrey Sloman Andrew Lourie A. Marie Villafaila Margot Moss, Esq. Fowler White Burnett, PA Espirito Santo Plaza 1395 Brickell Avenue, 14th Floor Miami, FL 33131 TAB 41 Jay, 10 31 2007 04:33 PM To "Jay Lefkowitz" cc bcc Subject Epstein Your understanding from Jack Goldberger conforms to my understanding that Mr. Epstein's plea and sentence will take place on the same day. I understand that the plea and sentence will occur on or before the January 4th date. Jeff |
Importance: High Trump in talks to buy socialite Kluge's Charlottesville vineyard and estate By Annie Gowen and Steve Yanda Washington Post Staff Writers Wednesday, February 16, 2011; 10:47 PM Embattled Virginia socialite and winemaker Patricia Kluge may have found a white knight to preserve her Charlottesville empire - real estate mogul Donald Trump. Trump's business adviser said Wednesday that Trump was negotiating to buy not only Kluge's grand estate, Albemarle House, which a bank foreclosed on in January, but all of Kluge's former real estate holdings outside Charlottesville near Thomas Jefferson's Monticello estate. Those include 200 acres of land adjacent to the estate that once had a nine-hole golf course designed by Arnold Palmer, a 900-acre vineyard and a failed real estate development where Kluge had planned to market luxury "farmettes" with their own grapevines. Leslie Goldman, a Washington-based adviser to Trump, said it would be "premature to speculate" what Trump had planned for the area, but said the land has "significant historical value and potential for development." "Obviously, the more acreage, the more pieces you acquire, the more possibilities there are," he said. Trump has already made forays into Virginia real estate. In 2009, he purchased a 600-acre golf club along the Potomac River in Loudoun County and renamed it the Trump National Golf Club. He raised the ire of local environmentalists last summer after the club removed hundreds of trees that it claimed threatened the shoreline. Trump's representative appeared at a foreclosure auction of Kluge's large estate on the courthouse steps in downtown Charlottesville Wednesday morning, where a crowd of about 50 lawyers and curiosity seekers had gathered. In the past year, Kluge's travails have become well-known around Charlottesville, where over the last two decades the British-born socialite has cut a glamorous - and sometimes controversial - figure. In 1999 she founded what became a well-respected vineyard on land around her grand house, which she had received as part of a high-profile divorce settlement in 1990 from John Kluge, the late media mogul who was once the country's richest man. Kluge Estate Winery and Vineyard won accolades for sparkling wines - served at the White House and at Chelsea Clinton's wedding last summer - and a blended red called New World Red. Kluge and her third husband, retired IBM executive William Moses, worked to promote not only their own wine brand but the growing Virginia wine industry as a whole. But in the past two years, following some aggressive expansion of the winery and the failure of the housing development, Kluge fell upon hard times. Credit problems forced her to sell off her jewelry and extensive collection of art and antiques last year. She lost the vineyard at a foreclosure auction in December. Kluge had initially tried to sell Albemarle House - which the Sotheby's listing calls "one of the most important residences in the United States since the Golden Age" - for 100 million, but when no buyer came forward the price was ultimately slashed to 24 million. The eight-bedroom home has its own movie theater, wine grotto, swimming pool and helipad. At Wednesday's auction, Bank of America, Kluge's creditor, took full ownership of the property with a bid of 15.26 million. But Trump holds what the lawyers called a "right of first refusal" to buy the property at a later date. Kluge and Moses declined to comment directly on yesterday's events, but both have said they have been working diligently with their lawyers over the last several months to help save their business. The Trump organization had been working closely with Kluge and Moses on the deal, but how the partnership will play out - if they would have a future role at what would be Trump's vineyard - remained unclear Wednesday. "They've been working together with the objective of trying to preserve the vineyard for the benefit of the Virginia wine industry," Goldman said. "If it all comes together, it may provide them an opportunity to continue to stay involved in their life's work." Yanda reported from Charlottesville. Staff researcher Magda Jean-Louis also contributed to this report. |
Stephanie 3 4 2011 11:15:40 PM Peggy Siegal RE: Oscar diary Oscar story.doc Importance: High jeeyacation gmail.com Jeffrey, Peggy's story is attached to the e-mail. I have included the story in the body of the e-mail as well. Thanks, Stephanie Omar Quadhafi is hunkering down in Tripoli giving press interviews denying that rebels are taking over Eastern Libya. Oil prices are shooting over one hundred dollars a barrel. The US government is on the verge of a shut down. These are not the top secret opening lines to Aaron Sorkin's new script, but the global headlines of a world spinning out of control. I head to Los Angeles like an overdressed lemming to attend the 83rd Academy Awards and attempt to make sense of artists thrust into combat. For the second year nearly 6,000 Academy members have nominated 10 films and the battle is down to two. The beloved timeless classic, "The King's Speech" marches into the arena as the front runner, but passionate supporters of the brilliant edgier (and critics darling) "The Social Network" have not conceded. The ballots are counted, the party invites are out and still the feelings are raw. Filmmakers are exhausted from campaigning. At Bryan Lourd's famous star studded party Sony Classics' Co-President Michael Barker announces to me he has taken a random sampling of voters in the room. He says, "There will be a 'Social Network' upset at the Kodak Theater." Shear panic radiates from my every pore as he says, "I am joking." It's like color war at summer camp. Woody Allen and George Lucas tell me they are no longer members of the Academy because pitting artists against each other to determine the quality of their work is insane. They are right. My event and publicity company is considered "Switzerland" by the studios, as we help every filmmaker to present and position his work. This year I am somewhat emotionally sucked in. In 2005 I meet the unknown 32-year-old English director Tom Hooper on his first film for HBO,"Elizabeth I". The Emmy award winning movie stars Helen Mirren, who takes credit for discovering him directing English television. Helen later wins her Oscar for portraying Queen Elizabeth in "The Queen". Queen Elizabeth is the daughter of King George VI portrayed by Oscar winner Colin Firth in "The King's Speech". I also become Hooper's champion encouraging many to see his early work including his herculean 10 hour HBO mini-series "John Adams" produced by Tom Hanks. Six years later at the Telluride Film Festival Tom Hooper is bathing in the glory of a hysterical standing ovation with Colin Firth and Geoffrey Rush at the very first screening of "The King's Speech." Surprisingly, this drama's subtle humor gets big laughs leading up to its emotional ending. Within two weeks, at The Toronto Film Festival, Harvey Weinstein is now standing with his filmmakers witnessing the same reaction. The film wins The Audience Prize. Their strategy is to say nothing. Do nothing. They have a possible Oscar winner. Four out of five past Best Pictures have premiered in Toronto. Cut to New York City at the end of September. It's the opening night at The Film Society of Lincoln Center. One of America's most important and prolific producers Scott Rudin, along with Jesse Eisenberg, Andrew Garfield and Aaron Sorkin are in a brightly lit box waving down to their equally hysterical audience who have just seen "The Social Network". The film opens the next day to rave reviews and endless publicity. David Fincher is off making "The Girl with the Dragon Tattoo". Aaron Sorkin becomes the face of the film and an immediate shoo-in for an Oscar. The Hamptons International Film Festival in October suddenly becomes a launching pad for "127 Hours", where cool Yale NYU student James Franco appears and receives a heroic standing ovation. More Oscar buzz. "Black Swan" also unspools there in a tiny theater as Madonna, Alec Baldwin and even Harvey Weinstein slip in the back. Darren Aronofsky, sporting the ever present cool wool scarf around his neck is hailed a genius. Natalie Portman is instantly the hot nominee for Best Actress. Both films are sensational and movie goers go nuts, but it is "The King's Speech" that edges out the competition for The Audience Prize. Mid-November David O. Russell and Mark Wahlberg, working together for the third time, sneak "The Fighter" in Manhattan. As their audience erupts in cheers, I tell producer actor Wahlberg, "Clint Eastwood is going to kill himself for not directing this." Wahlberg says, "You are wrong. He turned it down because he's done it. He has seen it and he loves it." I instantly lavish my affection and praise on David O. Russell, who becomes my new Clint Eastwood. Christian Bale and Melissa Leo are hailed the supporting actors to beat. "True Grit" directed by the Coen Brothers and also produced by Scott Rudin doesn't premiere till mid- December at the Ziegfeld as the last serious Oscar contender for Best Picture. It gallops off to box office gold. This is the year many of the 78 million Baby Boomers go back to the theaters. Five small budget independent films become surprise hits as each exceeds 100 million "The Social Network" now cements its battle cry with one word; "relevance". Mark Zuckerberg lands on the cover of Time Magazine as The Person of the Year. A smart and extensive ad campaign positions the film in the lead. Critics and pundits proclaim the race is over. "The Social Network" is the clear winner. Everyone goes on holiday. This is probably the only time in Harvey Weinstein's life that he is caught off guard. He quickly mobilizes an inner team of 15 and conducts strategy meetings 7 days a week, including Christmas. They become like a Chinese Restaurant...always open. A generational war is in full swing. Harvey screens his film for the older voters. Everything is done by the books. Budgets are limited. He sends screenwriter David Seidler and Tom H000per to every corner of the country doing q a's till they are blue in the face from "finding their voice." SAG voters begin seeing the film 2 and 3 times. In January the Golden Globes voted on by about 88 foreign journalists gives Best Drama to "The Social Network", Best Director to David Fincher and Best Screenplay to Aaron Sorkin. Their film is still perceived as the Oscar winner. Team Weinstein underestimates their hard work and is in shock when "The King's Speech" wins the PGA in L.A. Harvey doesn't even attend and is working in Sundance. They are equally surprised when Tom Hooper wins the DGA and the actors win the SAG Ensemble. The BAFTAs reinforced the lead. They are now the front runner. It takes the media a few weeks to catch on. The Daily Mail announces Her Royal Highness, Queen Elizabeth has enjoyed a private screening of "The King's Speech" and is "moved" by the film. With no proof the Queen has actually seen the film, the Weinstein Company sends out a global press release thanking her Majesty for the endorsement. They also acknowledge Prime Minister David Cameron's private Christmas screening. On Oscar night, it isn't until Hilary Swank surprisingly yells out Hooper's name for Best Director that Harvey's gang finally realizes they are getting the Oscar for Best Picture. The King has spoken. Friday, February 24th Mid-day, I arrive at The Beverly Hills Hotel, where I have stayed for thirty years. As the housekeepers unpack my bags upstairs I peek into the Polo Lounge and find icon Warren Beatty in a booth. He motions me over to meet an Egyptian fashion editor from Cairo. I say, "Warren, you are a little late to visit Cairo." I tell him I'm rooting for Annette and love her film "The Kids Are All Right". Warren tells me "The Social Network" will win. This year I am two days late arriving to Oscar weekend. I am now shown to a very very very small room, the size of a broom closet. Uncharacteristically, I have a slight melt down. I am moved. The housekeepers run down the hall with my clothes flying. I calm down. The hotel is sold out. I get someone else's room. Another poor schmuck checking in downstairs will get the broom closet. It is cold, grey and rainy. Taffata, organdy and embroidered silk evening clothes hang in my closet. I stay in my sweaters and fur coat and head to Arianna Huffington's Mediterranean house in Beverly Hills where Wendi Murdoch and Arianna are hosting a party for Tom Freston's wife, the beautiful blond Kathy. The book is called "Veganist: Lose Weight, Get Healthy, Change the World. A perfect book for Monks. Arianna has just sold the Huffington Post for to AOL to 315 million dollars and rumored to have personally landed around 20 million. She is euphoric as she greets Nicole Kidman and Keith Urban at the door. Other drenched power players ushered in under umbrellas include Disney's Bob Iger and wife Willow Bay, Fox's Jim Gianopulos, Candice Bergen and journalist daughter Chloe Malle, Google's Eric Schmidt, Oliver Stone avoiding questions about Charlie Sheen and escorting his daughter Tara, Moby, Jamie Niven, Brian Grazer, Vivi Nevo, Tracey Ullman, CBS's Les Moonves and Julie Chen, Rob Reiner, Paramount's Brad Grey and fianc Cassandra Marc and Jeff Bezos. Hors d'oeuvres include pigs in blankets, a food group not mentioned in Kathy's book. The party action migrates to UTA Jim Burkus's home in the neighborhood for "True Grit's" Ethan and Joel Coen. I pass Ron Howard on the way in and he says, "Keep me on your list." Is he kidding? Sunrise and Mark Ruffalo, Tim Robbins, Focus Feature's James Shamus, Nancy Meyers and John Goldwyn mingle. Adorable Hallie Steinfeld is there with her parents. I am trying to fix her up with Justin Bieber. She giggles, "Peg, I am only 14." Hunky Josh Brolin tells me he is coming to New York in March to shoot two new films. He is working on producing and starring in "The Hunchback of Notre Dame" with Tim Burton as a future project. I am now inches away, face to face with Harrison Ford and stupidly tell him I love him in "Morning Glory". He is looking at me in utter disbelief and I will not shut up. A gorgeous guy is also inches away in a hat, glasses, jacket, layered sweater and scarves. I whisper to Harrison, "That looks just like Johnny Depp." Harrison rolls his eyes and reluctantly introduces me to his friend Johnny Depp. I babel a bit about his great work and run for cover to a corner next to my buddy, Jerry Bruckheimer. Jerry introduces me to the wives, Vanessa Paradis and Calista Flockhart I bore them with girly chit-chat and realize it's time to get out of there. I head over to the CAA Bryan Lourd "Friday Night Party". Torrential rains and horrific winds cause a traffic jam that makes it impossible to get near the house. Cell phones do not work. The world's most famous faces cower under black umbrellas and make a run for it. Bryan Lourd and Bruce Bozzi receive friends at the door all night. Inside Uma tells me she finally moved into a doorman building in New York after being terrorized by stalkers for years. Talented, Ben Walker talks about "Abraham Lincoln: Vampire Hunter" he is about to shoot as his fianc Mamie Gummer looks sexy shivering in a white satin gown. Producer Jon Kilik mentions he oversees a new cut of Julian Schnabel's "Miral" to be released in March. Bennett Miller, standing with Kristin Gore says Sony loves his new film "Moneyball" and Brad Pitt is terrific. (When is Brad Pitt not terrific?) Sandy Gallin tells me he has an actual job decorating Jeffrey Katzenberg's home and he has never been happier. I congratulate Barry Levinson's son, Sam, a director, for winning the writing award at Sundance for his first film, "Another Happy Day" which is inspired by his family. Also seen floating around are, Taylor Swift and Jake Gyllenhaal, but not together, Sean Penn, Tom Curise and Katie Holmes, Anderson Cooper, Hilary Swank, Kelly Ripa, Carrie Fisher, Bruce Weber, Sean Combs, Paul Haggis, Marisa Tomei, Jay Roach, Kate Beckinsale, Demi Moore and Ashton Kutcher, Kate Hudson, Gerard Butler, Leo DiCaprio and Bar Refaeli, Renee Zellweger with Bradley Cooper, Biutiful director Alejandro Gonzalez-Inarritu, Kathryn Bigelow and Mark Boal, Ellen Barkin who is headed to Broadway in "The Normal Heart" this spring and CAA's Kevin Huvane, Richard Lovett and Hylda Queally. Busy Bruce Cohen who is producing Sunday's awards broadcast tries to get his car to leave. Limo lock is at a standstill. Nothing is moving outside. Two hundred swells become party prisoners and resign to just having an absolute ball till 5:00am. Once again, this is the most star studded party in town. Saturday, February 26th, 2011 The sun comes up and dries up all the land. IAC chairmen and owner of The Newsweek Daily Beast Barry Diller and his designer wife Diane Von Furstenberg host their annual lunch for Graydon Carter in their Coldwater Canyon home. Barry introduces me to his star guest, Governor Jerry Brown, just elected to his third (nonconsecutive) term as California Governor. Diane's children, Alex and Tatiana, along with their children comprise three generations of guests, which makes this party so special. Like last year, enormous clear plastic tents are erected on the hill near the house. Long wooden picnic tables covered with yellow flowers sit on oriental rugs, covering the soggy ground. Terrines of hot soup, platters of sausages, fried chicken and salads are beautifully arranged on an endless buffet. Everyone wears winter clothes; comfy sweaters and sensible shoes. I arrive in a fur coat. Barry and Diane's loyal friends have been coming to this party for over fifteen years. Everybody knows everybody and it doesn't matter if you have a hit film or TV show this season. Oprah Winfrey kisses David Geffen, casually chats with former Disney CEO Michael Eisner and current Sony chief Sir Howard Stringer. Brett Ratner arrives with his house guest Jean Pigozzi who is allowed to photograph everyone. Graydon greets people with wife Anna and Fran Lebowitz by his side. Ingrid Sischy and Sandy Brant, Rupert Murdoch, Ron Meyer, Bryan Lourd Francesco Clemente with his twin boys and Tom Ford chat each other up. People watching include the pregnant Victoria and David Beckham with Lynn Wyatt, Liv Tyler, Vincent Gallo, Eva Longoria, Larry Gagosian and Shala Monroque, Ben Silverman, Debbie and Allen Grubman, Tobias Meyer and Mark Fletcher and Stephen Gaghan and Mini Mortimer wearing her oversized cat glasses. Bruce Cohen has invited me to the Oscar broadcast rehearsal. This is a special honor. There are metal barricades leading up to the credentials trailer. High-tech security includes photos and computer background checks. The only thing they don't do is pat me down and ask for fingerprints. Once inside the Kodak Theater's massive auditorium, I find a seat next to Bruce's proud parents. I watch Josh Brolin and Javier Bardem come out in white dinner jackets and flub their lines as they pretend to present Best Adapted Screenplay and Best Original Screenplay. Josh later told me at The Night Before Party that their acting methods are completely opposite. Josh says he is a quick study and is very creative and comfortable ad-libbing. Javier, whose mother tongue is Spanish, needs to have every syllable printed out, which he studies with a dialect coach. Little wiggle room for jokes. Life size photos on large cardboard plaques are taped to each nominee's chair. I try to memorize their location, so when I return Sunday I can quickly kiss them all. Back at the Beverly Hills hotel, I slip into my gorgeous black tulle Dennis Basso cocktail dress with a plunging neck line and put on my mother's jewels. Jim Coleman takes me the Night Before Party in the hotel. This is Jeffrey Katzenberg's, 9th Annual A-lister event benefiting The Motion Picture Television Fund where they raise 6.5 million dollars in one night. I walk right into Valentino who gives me the once over and approves my outfit. I tell him and Giancarlo Giammetti that Woody Allen's new film, "Midnight in Paris" is opening the Cannes Film Festival and they must bring the yacht. Woody is also filming all summer in Rome and I am counting on them to entertain him. Elton John and David Furnish join our conversation and of course we ask for intimate details about the new baby. Elton says this is the first time they have been away from him for more than a night and they are delirious with parenthood. I segway over to Amy Adams who mentions she also hates leaving her baby in the hotel room. I tell her she's acted like a lady with all the attention showered on Melissa Leo and that someday soon she will win an Oscar because she consistently hands in amazing performances and everybody loves her. Next stop is Kate Capshaw in a black bowler hat chatting with Steven Spielberg's god-daughter Gwyneth Paltrow. Kate gushes as she talks about her two grandchildren from daughter Jessica. I have known Steven since "I Wanna Hold Your Hand". In 1982, as a young publicist on "E.T." I moved to California to work for him as one of his thirteen assistants. I now tell him I'm going to Broadway opening of "War Horse" with Kathy Kennedy and Frank Marshall and cannot wait to see his movie version. He is wildly excited about the film. I beg him to work on it. I meet sweet Jennifer Aniston, her new hair cut and her perfect little body. Her date tells me her secret is a half hour on the treadmill every day. Somehow I think that's an understatement. I tell Jesse Eisenberg I was on his plane home from the Baftas last week. He was hiding under his hoodie and I knew not to bother him. He said innocently, "You should have said 'Hello'. I always cover my head because I think my curls make me look like a girl". The charity gives us a coupon booklet redeemable at various booths for cheap clothing, new iPads, make- up, chocolates, shampoo and a 50 dollar Arch gift card for free McDonalds hamburgers. A bargain is a bargain, rich people run around like lunatics, collecting gifts for their housekeepers. Among the shoppers are Steven and Heather Mnuchin, Viacom's Deborah and Philippe Dauman, Tamara Mellon, Christine Taylor and Ben Stiller, Cate Blanchette, Susan and Robert Downey,Jr., and Debra and Hugh Jackman. Next stop is The Weinstein Company's Pre-Oscar party at the Soho House, sponsored by MontBlanc, celebrating their new charity partnership and 1 million dollar donation to the Princess Grace Foundation-USA. Long gone are the funky Miramax Saturday night parties where nominees spoofed their own films in homemade costumes and ad-libbed hilarious skits. Grown men would dress as Anna Paquin and play the piano in hopes of winning a Max Award. There is social anxiety at the Soho House garage entrance. Guests patiently wait as super stars whisk by. A four hundred pound gorilla refuses to let me on the elevator until I spot Benny Medina. Once on, I see the radiant Jennifer Lopez in the corner and remind her we met on Len Blavatnik's yacht in Cannes. She graciously pretends to know me. Her manager, Benny Medina is kicking me. I slip into Colin Firth's booth by the front bar to have a tete-a-tete with him and his wife Livia Giuggioli about tomorrow night. Jokingly, I suggest when he wins to say, "I'm speechless". Colin patiently assures me many people, far more clever than I, have already mentioned this. He then says that others are waging bets on whether he might subconsciously stutter. I grill him about his wardrobe, assuming he will be wearing a new Tom Ford tuxedo. He tells me both he and Ford will be in older models as Ford only designs classics. I tell him I made director Charles Ferguson, front runner for the financial documentary "Inside Job" spend 6,000 dollars last week for a new Tom Ford tuxedo. In the back room Jennifer Lopez is now seated with Weinstein's wife Georgina Chapman. Nominee Helena Bonham Carter, her husband Tim Burton and her mother Elena circulate. Celebs have now drifted over from The Night Before Party. The star power includes Adrien Brody, Mary-Kate and Ashley Olsen, Cameron Diaz, Camilla Belle, Chace Crawford, Claire Danes and Hugh Dancy, Darren Aronofsky, Emma Stone, Jaime Foxx, director John Wells, Kerry Washington, Piers Morgan, Rachel Zoe, Russell Simmons, Sean Parker, Sir Ben Kingsly, Zack Braff , Michelle Williams and Leonardo Dicaprio with Bar Rafaeli. "Speech" filmmakers are functioning on high anxiety. Sunday, February 27th, 2011 Producer Donna Gigliotti is my date to the awards. We are both so nervous we arrive at the Kodak Theater at 3:00pm and nobody is there. We are driven around for an hour. When we arrive at the world's most famous red carpet, I guide Donna through the extreme right security check-in to make sure we mingle with the nominees and get on camera. I teach her the red carpet hustle which is five steps forward, three steps back and one inch behind a couture-clad nominee. We greet Bryan Lourd as Sandra Bullock is talking to ABC-TV and a billion people see me wearing a black Marchesa gown. Five steps forward, three steps back, we next meet Gwyneth Paltrow. As I hook up the back of her dress another billion people see us correcting a fashion malfunction. Once again, five steps forward and three steps back. We are now posing for the still cameras between Nicole Kidman and Keith Urban. Our handbags begin buzzing. Countless friends are e-mailing us that they just saw us on television. James Franco and Anne Hathaway are hip and energetic hosts. The film montages are always the best and the set looks great. This is the year of no surprises. Sorkin, Seidler, Christian Bale, Melissa Leo, Natalie Portman and Colin Firth are totally prepared to receive the gold. Tom Hooper's win leads into Best Picture. Harvey is now sitting in Spielberg's seats as Spielberg announces the win. Six months of grueling work have finally paid off. King George VI and Harvey Weinstein now share the journey of a single man who triumphs over adversity. The Governor's ball, held above the Kodak Theater, recreates the Mocambo-Ciro's niteries of the 1930's and 40's, using a palette of teal and white. Three bands alternate musical styles as hungry guests wolf down Wolfgang Puck's delicious food. The winners triumphantly sachet around the room holding their heavy eight pound gold statues. An hour later there is a migration to the famous Vanity Fair party hosted by Graydon Carter at the Sunset Tower Hotel owned by Jeff Klein. One celebrity after another poses in front of the green hedge standing in the middle of the circular Vanity Fair logo to record their devotion and support to Graydon and the magazine. There's a hierarchy of arrival times. The inner circle of Graydon's 150 best friends attend a seated dinner and viewing of the show at 5pm. They include Barry Diller and Diane Von Furstenberg, Francis Ford Coppola, Jon Hamm and Jennifer Westfeldt, Betsey Bloomingdale, Tory Burch and Lyor Cohen, Tom Ford, Sandy Gallin, Mitch Glazer and Kelly Lynch, Carolina and Reinaldo Herrera, L'Wren Scott and Sir Mick Jagger, Naomi Watts and Live Schreiber, Wendi Stark, Judd Apatow, Jackie and Joan Collins, George Hammilton, Donna Karan and Steve Martin. The best and the brightest talent in town arrive at 9pm. They are Justin Bieber and his date Selena Gomez, Andrew Garfield, Jude Law, Vera Farmiga, Armie Hammer, Jennifer Lawrence, Kevin Spacey, Charlize Theron, Anne Hathaway, Hailee Steinfield,Taylor Hackford and Helen Mirren, Scarlett Johansson, Michelle Williams, Isla Fischer and Sasha Baron Cohen, Jane Fonda after her play, "33 Variations", Melania and Donald Trump whom I introduce to David 0. Russell as The Trumpster gushes about "The Fighter". Donald offers me a ride home on his plane. He is leaving in ten minutes. Too bad James Franco didn't know because he is presently sitting on a commercial flight back to school, skipping his own after party. Social standings of the rest of the guests are determined by half hour increments. Every other person previously mentioned in the story is here. VF's Beth Kseniak and Matt Ullian tell me the list is cut down to 800 this year. At 11:30pm there is another celebrity migration up the hill to Madonna manager Guy Oseary's house. One should note that earlier in the evening Madonna came down the hill to pose in a risque outfit with daughter Lourdes in front of the green hedge. Madonna and co-host Demi Moore are able to lure the creme de la creme with the promise of fabulous music, dancing and no cameras. Those reported on their dance floor include Ryan Phillippe with Amanda Syedfried, who were making out all night and Phillippe's ex-wife Reese Witherspoon and new fianc Jim Toth. They pregnant Natalie Portman and choreographer Benjamin Millepied, Mick Jagger, Tom Hanks, Sean Penn, Ralph Feinnes, Mila Kunis, Cameron Diaz, Gwyneth Paltrow and Renee Zellweger and Bradley Cooper boogie til dawn. A winner's work is never done. Colin Firth, Tom Hooper and David Seidler show up at 4:30am at The Four Seasons Hotel for a live broadcast on The Today Show with Meredith Vieira. Functioning on an adrenalin rush, they are back at the Kodak Theater with Geoffrey Rush to appear on Oprah's live broadcast. Leave it to Oprah to get the king's last words. Send to jeffrey |
Omar Quadhafi is hunkering down in Tripoli giving press interviews denying that rebels are taking over Eastern Libya. Oil prices are shooting over one hundred dollars a barrel. The US government is on the verge of a shut down. These are not the top secret opening lines to Aaron Sorkin s new script, but the global headlines of a world spinning out of control. I head to Los Angeles like an overdressed lemming to attend the 83rd Academy Awards and attempt to make sense of artists thrust into combat. For the second year nearly 6,000 Academy members have nominated 10 films and the battle is down to two. The beloved timeless classic, "The King's Speech" marches into the arena as the front runner, but passionate supporters of the brilliant edgier (and critics darling) "The Social Network" have not conceded. The ballots are counted, the party invites are out and still the feelings are raw. Filmmakers are exhausted from campaigning. At Bryan Lourd's famous star studded party Sony Classics' Co-President Michael Barker announces to me he has taken a random sampling of voters in the room. He says, "There will be a 'Social Network' upset at the Kodak Theater." Shear panic radiates from my every pore as he says, "I am joking." It's like color war at summer camp. Woody Allen and George Lucas tell me they are no longer members of the Academy because pitting artists against each other to determine the quality of their work is insane. They are right. My event and publicity company is considered "Switzerland" by the studios, as we help every filmmaker to present and position his work. This year I am somewhat emotionally sucked in. In 2005 I meet the unknown 32-year-old English director Tom Hooper on his first film for HBO,"Elizabeth I". The Emmy award winning movie stars Helen Mirren, who takes credit for discovering him directing English television. Helen later wins her Oscar for portraying Queen Elizabeth in The Queen . Queen Elizabeth is the daughter of King George VI portrayed by Oscar winner Colin Firth in "The King's Speech". I also become Hooper's champion encouraging many to see his early work including his herculean 10 hour HBO mini-series "John Adams" produced by Tom Hanks. Six years later at the Telluride Film Festival Tom Hooper is bathing in the glory of a hysterical standing ovation with Colin Firth and Geoffrey Rush at the very first screening of "The King's Speech." Surprisingly, this drama's subtle humor gets big laughs leading up to its emotional ending. Within two weeks, at The Toronto Film Festival, Harvey Weinstein is now standing with his filmmakers witnessing the same reaction. The film wins The Audience Prize. Their strategy is to say nothing. Do nothing. They have a possible Oscar winner. Four out of five past Best Pictures have premiered in Toronto. Cut to New York City at the end of September. It's the opening night at The Film Society of Lincoln Center. One of America's most important and prolific producers Scott Rudin, along with Jesse Eisenberg, Andrew Garfield and Aaron Sorkin are in a brightly lit box waving down to their equally hysterical audience who have just seen "The Social Network". The film opens the next day to rave reviews and endless publicity. David Fincher is off making "The Girl with the Dragon Tattoo". Aaron Sorkin becomes the face of the film and an immediate shoo-in for an Oscar. The Hamptons International Film Festival in October suddenly becomes a launching pad for "127 Hours", where cool Yale NYU student James Franco appears and receives a heroic standing ovation. More Oscar buzz. "Black Swan" also unspools there in a tiny theater as Madonna, Alec Baldwin and even Harvey Weinstein slip in the back. Darren Aronofsky, sporting the ever present cool wool scarf around his neck is hailed a genius. Natalie Portman is instantly the hot nominee for Best Actress. Both films are sensational and movie goers go nuts, but it is "The King's Speech" that edges out the competition for The Audience Prize. Mid-November David O. Russell and Mark Wahlberg, working together for the third time, sneak "The Fighter" in Manhattan. As their audience erupts in cheers, I tell producer actor Wahlberg, "Clint Eastwood is going to kill himself for not directing this." Wahlberg says, "You are wrong. He turned it down because he's done it. He has seen it and he loves it." I instantly lavish my affection and praise on David O. Russell, who becomes my new Clint Eastwood. Christian Bale and Melissa Leo are hailed the supporting actors to beat. "True Grit" directed by the Coen Brothers and also produced by Scott Rudin doesn't premiere till mid-December at the Ziegfeld as the last serious Oscar contender for Best Picture. It gallops off to box office gold. This is the year many of the 78 million Baby Boomers go back to the theaters. Five small budget independent films become surprise hits as each exceeds 100 million. "The Social Network" now cements its battle cry with one word; "relevance". Mark Zuckerberg lands on the cover of Time Magazine as The Person of the Year. A smart and extensive ad campaign positions the film in the lead. Critics and pundits proclaim the race is over. "The Social Network" is the clear winner. Everyone goes on holiday. This is probably the only time in Harvey Weinstein's life that he is caught off guard. He quickly mobilizes an inner team of 15 and conducts strategy meetings 7 days a week, including Christmas. They become like a Chinese Restaurant...always open. A generational war is in full swing. Harvey screens his film for the older voters. Everything is done by the books. Budgets are limited. He sends screenwriter David Seidler and Tom Hoooper to every corner of the country doing q a's till they are blue in the face from "finding their voice." SAG voters begin seeing the film 2 and 3 times. In January the Golden Globes voted on by about 88 foreign journalists gives Best Drama to "The Social Network", Best Director to David Fincher and Best Screenplay to Aaron Sorkin. Their film is still perceived as the Oscar winner. Team Weinstein underestimates their hard work and is in shock when "The King's Speech" wins the PGA in L.A. Harvey doesn t even attend and is working in Sundance. They are equally surprised when Tom Hooper wins the DGA and the actors win the SAG Ensemble. The BAFTAs reinforced the lead. They are now the front runner. It takes the media a few weeks to catch on. The Daily Mail announces Her Royal Highness, Queen Elizabeth has enjoyed a private screening of The King s Speech and is "moved" by the film. With no proof the Queen has actually seen the film, the Weinstein Company sends out a global press release thanking her Majesty for the endorsement. They also acknowledge Prime Minister David Cameron s private Christmas screening. On Oscar night, it isn't until Hilary Swank surprisingly yells out Hooper's name for Best Director that Harvey's gang finally realizes they are getting the Oscar for Best Picture. The King has spoken. Friday, February 24th Mid-day, I arrive at The Beverly Hills Hotel, where I have stayed for thirty years. As the housekeepers unpack my bags upstairs I peek into the Polo Lounge and find icon Warren Beatty in a booth. He motions me over to meet an Egyptian fashion editor from Cairo. I say, "Warren, you are a little late to visit Cairo." I tell him I'm rooting for Annette and love her film The Kids Are All Right . Warren tells me The Social Network will win. This year I am two days late arriving to Oscar weekend. I am now shown to a very very very small room, the size of a broom closet. Uncharacteristically, I have a slight melt down. I am moved. The housekeepers run down the hall with my clothes flying. I calm down. The hotel is sold out. I get someone else's room. Another poor schmuck checking in downstairs will get the broom closet. It is cold, grey and rainy. Taffata, organdy and embroidered silk evening clothes hang in my closet. I stay in my sweaters and fur coat and head to Arianna Huffington's Mediterranean house in Beverly Hills where Wendi Murdoch and Arianna are hosting a party for Tom Freston's wife, the beautiful blond Kathy. The book is called "Veganist: Lose Weight, Get Healthy, Change the World. A perfect book for Monks. Arianna has just sold the Huffington Post for to AOL to 315 million dollars and rumored to have personally landed around 20 million. She is euphoric as she greets Nicole Kidman and Keith Urban at the door. Other drenched power players ushered in under umbrellas include Disney's Bob Iger and wife Willow Bay, Fox s Jim Gianopulos, Candice Bergen and journalist daughter Chloe Malle, Google's Eric Schmidt, Oliver Stone avoiding questions about Charlie Sheen and escorting his daughter Tara, Moby, Jamie Niven, Brian Grazer, Vivi Nevo, Tracey Ullman, CBS s Les Moonves and Julie Chen, Rob Reiner, Paramount s Brad Grey and fianc Cassandra Marc and Jeff Bezos. Hors d'oeuvres include pigs in blankets, a food group not mentioned in Kathy's book. The party action migrates to UTA Jim Burkus's home in the neighborhood for True Grit s Ethan and Joel Coen. I pass Ron Howard on the way in and he says, "Keep me on your list." Is he kidding? Sunrise and Mark Ruffalo, Tim Robbins, Focus Feature s James Shamus, Nancy Meyers and John Goldwyn mingle. Adorable Hallie Steinfeld is there with her parents. I am trying to fix her up with Justin Bieber. She giggles, "Peg, I am only 14." Hunky Josh Brolin tells me he is coming to New York in March to shoot two new films. He is working on producing and starring in "The Hunchback of Notre Dame" with Tim Burton as a future project. I am now inches away, face to face with Harrison Ford and stupidly tell him I love him in "Morning Glory". He is looking at me in utter disbelief and I will not shut up. A gorgeous guy is also inches away in a hat, glasses, jacket, layered sweater and scarves. I whisper to Harrison, "That looks just like Johnny Depp." Harrison rolls his eyes and reluctantly introduces me to his friend Johnny Depp. I babel a bit about his great work and run for cover to a corner next to my buddy, Jerry Bruckheimer. Jerry introduces me to the wives, Vanessa Paradis and Calista Flockhart. I bore them with girly chit-chat and realize it's time to get out of there. I head over to the CAA Bryan Lourd "Friday Night Party". Torrential rains and horrific winds cause a traffic jam that makes it impossible to get near the house. Cell phones do not work. The world's most famous faces cower under black umbrellas and make a run for it. Bryan Lourd and Bruce Bozzi receive friends at the door all night. Inside Uma tells me she finally moved into a doorman building in New York after being terrorized by stalkers for years. Talented, Ben Walker talks about "Abraham Lincoln: Vampire Hunter" he is about to shoot as his fianc Mamie Gummer looks sexy shivering in a white satin gown. Producer Jon Kilik mentions he oversees a new cut of Julian Schnabel's "Miral" to be released in March. Bennett Miller, standing with Kristin Gore says Sony loves his new film "Moneyball" and Brad Pitt is terrific. (When is Brad Pitt not terrific?) Sandy Gallin tells me he has an actual job decorating Jeffrey Katzenberg's home and he has never been happier. I congratulate Barry Levinson's son, Sam, a director, for winning the writing award at Sundance for his first film, "Another Happy Day" which is inspired by his family. Also seen floating around are, Taylor Swift and Jake Gyllenhaal, but not together, Sean Penn, Tom Curise and Katie Holmes, Anderson Cooper, Hilary Swank, Kelly Ripa, Carrie Fisher, Bruce Weber, Sean Combs, Paul Haggis, Marisa Tomei, Jay Roach, Kate Beckinsale, Demi Moore and Ashton Kutcher, Kate Hudson, Gerard Butler, Leo DiCaprio and Bar Refaeli, Renee Zellweger with Bradley Cooper, Biutiful director Alejandro Gonzalez-Inarritu, Kathryn Bigelow and Mark Boal, Ellen Barkin who is headed to Broadway in "The Normal Heart" this spring and CAA s Kevin Huvane, Richard Lovett and Hylda Queally. Busy Bruce Cohen who is producing Sunday's awards broadcast tries to get his car to leave. Limo lock is at a standstill. Nothing is moving outside. Two hundred swells become party prisoners and resign to just having an absolute ball till 5:00am. Once again, this is the most star studded party in town. Saturday, February 26th, 2011 The sun comes up and dries up all the land. IAC chairmen and owner of The Newsweek Daily Beast Barry Diller and his designer wife Diane Von Furstenberg host their annual lunch for Graydon Carter in their Coldwater Canyon home. Barry introduces me to his star guest, Governor Jerry Brown, just elected to his third (nonconsecutive) term as California Governor. Diane s children, Alex and Tatiana, along with their children comprise three generations of guests, which makes this party so special. Like last year, enormous clear plastic tents are erected on the hill near the house. Long wooden picnic tables covered with yellow flowers sit on oriental rugs, covering the soggy ground. Terrines of hot soup, platters of sausages, fried chicken and salads are beautifully arranged on an endless buffet. Everyone wears winter clothes; comfy sweaters and sensible shoes. I arrive in a fur coat. Barry and Diane s loyal friends have been coming to this party for over fifteen years. Everybody knows everybody and it doesn t matter if you have a hit film or TV show this season. Oprah Winfrey kisses David Geffen, casually chats with former Disney CEO Michael Eisner and current Sony chief Sir Howard Stringer. Brett Ratner arrives with his house guest Jean Pigozzi who is allowed to photograph everyone. Graydon greets people with wife Anna and Fran Lebowitz by his side. Ingrid Sischy and Sandy Brant, Rupert Murdoch, Ron Meyer, Bryan Lourd Francesco Clemente with his twin boys and Tom Ford chat each other up. People watching include the pregnant Victoria and David Beckham with Lynn Wyatt, Liv Tyler, Vincent Gallo, Eva Longoria, Larry Gagosian and Shala Monroque, Ben Silverman, Debbie and Allen Grubman, Tobias Meyer and Mark Fletcher and Stephen Gaghan and Mini Mortimer wearing her oversized cat glasses. Bruce Cohen has invited me to the Oscar broadcast rehearsal. This is a special honor. There are metal barricades leading up to the credentials trailer. High-tech security includes photos and computer background checks. The only thing they don t do is pat me down and ask for fingerprints. Once inside the Kodak Theater s massive auditorium, I find a seat next to Bruce s proud parents. I watch Josh Brolin and Javier Bardem come out in white dinner jackets and flub their lines as they pretend to present Best Adapted Screenplay and Best Original Screenplay. Josh later told me at The Night Before Party that their acting methods are completely opposite. Josh says he is a quick study and is very creative and comfortable ad-libbing. Javier, whose mother tongue is Spanish, needs to have every syllable printed out, which he studies with a dialect coach. Little wiggle room for jokes. Life size photos on large cardboard plaques are taped to each nominee s chair. I try to memorize their location, so when I return Sunday I can quickly kiss them all. Back at the Beverly Hills hotel, I slip into my gorgeous black tulle Dennis Basso cocktail dress with a plunging neck line and put on my mother s jewels. Jim Coleman takes me the Night Before Party in the hotel. This is Jeffrey Katzenberg s, 9th Annual A-lister event benefiting The Motion Picture Television Fund where they raise 6.5 million dollars in one night. I walk right into Valentino who gives me the once over and approves my outfit. I tell him and Giancarlo Giammetti that Woody Allen s new film, Midnight in Paris is opening the Cannes Film Festival and they must bring the yacht. Woody is also filming all summer in Rome and I am counting on them to entertain him. Elton John and David Furnish join our conversation and of course we ask for intimate details about the new baby. Elton says this is the first time they have been away from him for more than a night and they are delirious with parenthood. I segway over to Amy Adams who mentions she also hates leaving her baby in the hotel room. I tell her she s acted like a lady with all the attention showered on Melissa Leo and that someday soon she will win an Oscar because she consistently hands in amazing performances and everybody loves her. Next stop is Kate Capshaw in a black bowler hat chatting with Steven Spielberg s god-daughter Gwyneth Paltrow. Kate gushes as she talks about her two grandchildren from daughter Jessica. I have known Steven since I Wanna Hold Your Hand . In 1982, as a young publicist on E.T. I moved to California to work for him as one of his thirteen assistants. I now tell him I m going to Broadway opening of War Horse with Kathy Kennedy and Frank Marshall and cannot wait to see his movie version. He is wildly excited about the film. I beg him to work on it. I meet sweet Jennifer Aniston, her new hair cut and her perfect little body. Her date tells me her secret is a half hour on the treadmill every day. Somehow I think that s an understatement. I tell Jesse Eisenberg I was on his plane home from the Baftas last week. He was hiding under his hoodie and I knew not to bother him. He said innocently, You should have said Hello . I always cover my head because I think my curls make me look like a girl . The charity gives us a coupon booklet redeemable at various booths for cheap clothing, new iPads, make-up, chocolates, shampoo and a 50 dollar Arch gift card for free McDonalds hamburgers. A bargain is a bargain, rich people run around like lunatics, collecting gifts for their housekeepers. Among the shoppers are Steven and Heather Mnuchin, Viacom s Deborah and Philippe Dauman, Tamara Mellon, Christine Taylor and Ben Stiller, Cate Blanchette, Susan and Robert Downey,Jr., and Debra and Hugh Jackman. Next stop is The Weinstein Company s Pre-Oscar party at the Soho House, sponsored by MontBlanc, celebrating their new charity partnership and 1 million dollar donation to the Princess Grace Foundation-USA. Long gone are the funky Miramax Saturday night parties where nominees spoofed their own films in homemade costumes and ad-libbed hilarious skits. Grown men would dress as Anna Paquin and play the piano in hopes of winning a Max Award. There is social anxiety at the Soho House garage entrance. Guests patiently wait as super stars whisk by. A four hundred pound gorilla refuses to let me on the elevator until I spot Benny Medina. Once on, I see the radiant Jennifer Lopez in the corner and remind her we met on Len Blavatnik s yacht in Cannes. She graciously pretends to know me. Her manager, Benny Medina is kicking me. I slip into Colin Firth s booth by the front bar to have a tete-a-tete with him and his wife Livia Giuggioli about tomorrow night. Jokingly, I suggest when he wins to say, I m speechless . Colin patiently assures me many people, far more clever than I, have already mentioned this. He then says that others are waging bets on whether he might subconsciously stutter. I grill him about his wardrobe, assuming he will be wearing a new Tom Ford tuxedo. He tells me both he and Ford will be in older models as Ford only designs classics. I tell him I made director Charles Ferguson, front runner for the financial documentary Inside Job spend 6,000 dollars last week for a new Tom Ford tuxedo. In the back room Jennifer Lopez is now seated with Weinstein s wife Georgina Chapman. Nominee Helena Bonham Carter, her husband Tim Burton and her mother Elena circulate. Celebs have now drifted over from The Night Before Party. The star power includes Adrien Brody, Mary-Kate and Ashley Olsen, Cameron Diaz, Camilla Belle, Chace Crawford, Claire Danes and Hugh Dancy, Darren Aronofsky, Emma Stone, Jaime Foxx, director John Wells, Kerry Washington, Piers Morgan, Rachel Zoe, Russell Simmons, Sean Parker, Sir Ben Kingsly, Zack Braff , Michelle Williams and Leonardo Dicaprio with Bar Rafaeli. Speech filmmakers are functioning on high anxiety. Sunday, February 27th, 2011 Producer Donna Gigliotti is my date to the awards. We are both so nervous we arrive at the Kodak Theater at 3:00pm and nobody is there. We are driven around for an hour. When we arrive at the world s most famous red carpet, I guide Donna through the extreme right security check-in to make sure we mingle with the nominees and get on camera. I teach her the red carpet hustle which is five steps forward, three steps back and one inch behind a couture-clad nominee. We greet Bryan Lourd as Sandra Bullock is talking to ABC-TV and a billion people see me wearing a black Marchesa gown. Five steps forward, three steps back, we next meet Gwyneth Paltrow. As I hook up the back of her dress another billion people see us correcting a fashion malfunction. Once again, five steps forward and three steps back. We are now posing for the still cameras between Nicole Kidman and Keith Urban. Our handbags begin buzzing. Countless friends are e-mailing us that they just saw us on television. James Franco and Anne Hathaway are hip and energetic hosts. The film montages are always the best and the set looks great. This is the year of no surprises. Sorkin, Seidler, Christian Bale, Melissa Leo, Natalie Portman and Colin Firth are totally prepared to receive the gold. Tom Hooper s win leads into Best Picture. Harvey is now sitting in Spielberg s seats as Spielberg announces the win. Six months of grueling work have finally paid off. King George VI and Harvey Weinstein now share the journey of a single man who triumphs over adversity. The Governor s ball, held above the Kodak Theater, recreates the Mocambo-Ciro s niteries of the 1930 s and 40 s, using a palette of teal and white. Three bands alternate musical styles as hungry guests wolf down Wolfgang Puck s delicious food. The winners triumphantly sachet around the room holding their heavy eight pound gold statues. An hour later there is a migration to the famous Vanity Fair party hosted by Graydon Carter at the Sunset Tower Hotel owned by Jeff Klein. One celebrity after another poses in front of the green hedge standing in the middle of the circular Vanity Fair logo to record their devotion and support to Graydon and the magazine. There s a hierarchy of arrival times. The inner circle of Graydon s 150 best friends attend a seated dinner and viewing of the show at 5pm. They include Barry Diller and Diane Von Furstenberg, Francis Ford Coppola, Jon Hamm and Jennifer Westfeldt, Betsey Bloomingdale, Tory Burch and Lyor Cohen, Tom Ford, Sandy Gallin, Mitch Glazer and Kelly Lynch, Carolina and Reinaldo Herrera, L Wren Scott and Sir Mick Jagger, Naomi Watts and Live Schreiber, Wendi Stark, Judd Apatow, Jackie and Joan Collins, George Hammilton, Donna Karan and Steve Martin. The best and the brightest talent in town arrive at 9pm. They are Justin Bieber and his date Selena Gomez, Andrew Garfield, Jude Law, Vera Farmiga, Armie Hammer, Jennifer Lawrence, Kevin Spacey, Charlize Theron, Anne Hathaway, Hailee Steinfield,Taylor Hackford and Helen Mirren, Scarlett Johansson, Michelle Williams, Isla Fischer and Sasha Baron Cohen, Jane Fonda after her play, 33 Variations , Melania and Donald Trump whom I introduce to David O. Russell as The Trumpster gushes about The Fighter . Donald offers me a ride home on his plane. He is leaving in ten minutes. Too bad James Franco didn t know because he is presently sitting on a commercial flight back to school, skipping his own after party. Social standings of the rest of the guests are determined by half hour increments. Every other person previously mentioned in the story is here. VF s Beth Kseniak and Matt Ullian tell me the list is cut down to 800 this year. At 11:30pm there is another celebrity migration up the hill to Madonna manager Guy Oseary s house. One should note that earlier in the evening Madonna came down the hill to pose in a risqu outfit with daughter Lourdes in front of the green hedge. Madonna and co-host Demi Moore are able to lure the cr me de la cr me with the promise of fabulous music, dancing and no cameras. Those reported on their dance floor include Ryan Phillippe with Amanda Syedfried, who were making out all night and Phillippe s ex-wife Reese Witherspoon and new fianc Jim Toth. They pregnant Natalie Portman and choreographer Benjamin Millepied, Mick Jagger, Tom Hanks, Sean Penn, Ralph Feinnes, Mila Kunis, Cameron Diaz, Gwyneth Paltrow and Renee Zellweger and Bradley Cooper boogie til dawn. A winner s work is never done. Colin Firth, Tom Hooper and David Seidler show up at 4:30am at The Four Seasons Hotel for a live broadcast on The Today Show with Meredith Vieira. Functioning on an adrenalin rush, they are back at the Kodak Theater with Geoffrey Rush to appear on Oprah s live broadcast. Leave it to Oprah to get the king s last words. 10 |
Graydon and Anna Scott Carter The Glory of Gold ber publicist Peggy Siegal has been attending the Academy Awards for three decades not to mention the oodles of parties and sensational events leading up to the ceremony and chronicling Peggy Siegal 64 AVENUE MAGAZINE APRIL 2011 her escapades with stars and star-makers for AVENUE has become a tradition. This year, she sets the stage for the big night with the behindthe-scenes scoop on the fierce competition that ends when Oscar is presented. Here, she reports on the Hollywood glamour, excitement and social shenanigans, including celebrating with Colin Firth, Jesse Eisenberg, Elton John, Oprah Winfrey and many more. photographs by PATRICK MCMULLAN Qaddafi is hunkering down in Tripoli, giving press interviews, denying that rebels are taking over Eastern Libya. Oil prices are shooting up over one hundred dollars a barrel. The U.S. government is on the verge of a shutdown. These are not the topsecret opening lines of Aaron Sorkin s new script, but the global headlines of a world spinning out of control as I head to Los Angeles like an overdressed lemming to attend the 83rd Academy Awards and attempt to make sense of artists thrust into combat. For the second year, nearly 6,000 Academy members have nominated 10 films and the battle seems to be pared down to 2. The beloved instant classic, The King s Speech, marches into the arena as the frontrunner, but passionate supporters of the edgier (critics darling) The Social Network have not conceded. The ballots are counted, the party invites are out and still the feelings are raw. Nominees are exhausted from campaigning. Woody Allen and George Lucas tell me they are no longer members of the Academy because pitting artists against each other to determine the quality of their work is insane. They are right. My event and publicity company is considered Switzerland by the studios, as we help every filmmaker to present his work. However, this year, against my better judgment, I am somewhat emotionally sucked in. In 2005, I met the unknown 32-year-old English director Tom Hooper on his first film for HBO, Elizabeth I starring Helen Mirren. Helen later wins an Oscar for portraying Queen Elizabeth in The Queen. Queen Elizabeth is the daughter of King George VI, portrayed by Oscar-winner Colin Firth in The King s Speech directed by Hooper. No degrees of separation. At the Telluride Film Festival, Tom Hooper bathed in the glory of a hysterical standing ovation alongside Colin Firth and Geoffrey Rush at the very first public screening of that film. Two weeks later at The Toronto Film Festival, Harvey Weinstein stood with his filmmakers witnessing the same reaction. The film won The Audience Prize. Their strategy was to say nothing, do nothing. They have a possible Oscar winner four out of five past Best Pictures have premiered in Toronto. Cut to New York City at the end of September. It s opening night at The Film Society of Lincoln Center. One of America s most important and prolific producers, Scott Rudin, along with Jesse Eisenberg, Andrew Garfield and Aaron Sorkin, are in a brightly lit box waving down to their equally hysterical audience who have just seen The Social Network. The film opens the next day to rave reviews and endless publicity. David Fincher is off making The Girl with the Dragon Tattoo. Aaron Sorkin becomes the face of the film and an immediate shoo-in for the adapted screenplay Oscar. The Hamptons International Film Festival in October suddenly becomes a launching pad for 127 Hours, where star-cum-Yale NYU student James Franco appears. More Oscar buzz. Producer director Danny Boyle (Oscar winner for Slumdog Millionaire) stays in London all fall directing the play Frankenstein. Black Swan also unspools there in a tiny theater as Madonna, Alec Baldwin and Harvey Weinstein slip in the back. Darren Aronofsky is hailed a genius. Natalie Portman is instantly the hot nominee for Best Actress. Both films are sensations, but it s The King s Speech that wins The Audience Prize. Mid-November: David O. Russell and Mark Wahlberg sneak The Fighter in Manhattan. As their audience erupts in cheers, I tell producer actor Wahlberg, Clint Eastwood is going to kill himself for not directing this. He says, You re wrong. He turned it down because he s done it. He s seen it and he loves it. David O. Russell becomes my new Clint Eastwood. Christian Bale and Melissa Leo are hailed the supporting actors to beat. True Grit, directed by the Coen Brothers and also produced by Scott Rudin, finally throws its cowboy hat in the ring in mid-December at the Ziegfeld as the last serious Oscar contender for Best Picture. It gallops off to box office gold. The Social Network now cements its battle cry with one word: relevance. Mark Zuckerberg lands on the cover of Time Magazine as Person of the Year. A smart and extensive ad campaign positions the film in the lead. Critics and pundits proclaim the race is over. Everyone goes on holiday. This is one of the few times in Harvey Weinstein s life that he s caught off guard. He quickly mobilizes an inner team of 15 and conducts strategy meetings 7 days a week, including Christmas. They re like a Chinese restaurant: always open. He sends screenwriter David Seidler and Tom Hooper to every corner of the country doing Q As until they are both blue in the face from finding their voice. SAG voters begin seeing the film two and three times. In January at the Golden Globes, about 88 foreign journalists give awards to The Social Network for Best Drama, Director and Screenplay. The film is still perceived as the Oscar winner and nobody can stop the steamroller. Only Academy voters disregard these awards. The King s Speech wins the PGA in L.A. Everyone is totally surprised when Tom Hooper goes on to win the DGA. After a tremendous amount of hard work by team Weinstein, the actors win for the SAG Ensemble. The BAFTAs reinforced their lead; the film is now the frontrunner. It takes the media a few weeks to catch on. Emma Stone Collin Firth and Anne Hathaway Gwyneth Paltrow Sandra Bullock Tom Hooper Carolina Herrera Jennifer Lawrence Marisa Tomei Leslie Mann and Judd Apatow Melissa Leo Steve Martin Steven Tyler and Liv Tyler George Hamilton and Kimberly Blackford Kevin Spacey L Wren Scott and Mick Jagger I whisper to Harrison Ford , That looks just like Johnny Depp. Harrison rolls his eyes and reluctantly introduces me to his friend . . . Johnny Depp. The Daily Mail announces Her Royal Highness Queen Elizabeth has enjoyed a private screening of The King s Speech and is moved by the film. With no proof the Queen has actually seen the film, press agents send out a global press release thanking her Majesty for the endorsement. FRIDAY, FEBRUARY 24 Mid-day, I arrive at The Beverly Hills Hotel. As the housekeepers unpack my bags upstairs I peek into the Polo Lounge and find Warren Beatty in a booth. I tell him I m rooting for his wife, Annette Benning, and love her film, The Kids Are All Right. Warren says The Social Network will win. This year I am two days late arriving to Oscar weekend. I am shown to a very, very small room the size of a broom closet. Uncharacteristically, I have a slight melt down. I am moved. The housekeepers run down the hall with my clothes flying. The hotel is sold out, so I get someone else s room. Another unsuspecting victim checking in downstairs will get the broom closet. It is cold, grey and rainy. Taffeta, organdy and embroidered silk evening clothes hang in my closet. I stay in my sweaters and fur coat, and head to Arianna Huffington s home in Beverly Hills where she and Wendi Murdoch are hosting a party for Tom Freston s wife, the beautiful, blonde Kathy. Her book is called Veganist: Lose Weight, Get Healthy, Change the World perfect for monks. Arianna has just sold the Huffington Post to AOL for 315 million dollars and is rumored to have personally landed around 20 million. She is euphoric as she greets Nicole Kidman and Keith Urban at the door. Other drenched power players include Disney s Bob Iger and wife Willow Bay,Fox s Jim Gianopulos, Candice Bergen and journalist daughter Chloe Malle, Google s Eric Schmidt, Oliver Stone escorting his daughter Tara and avoiding questions about Charlie Sheen, Moby, Jamie Niven, Brian Grazer, Vivi Nevo, CBS s Les Moonves and Julie Chen, Rob Reiner, Paramount s Brad Grey and fianc Cassandra Huysentruyt and Jeff Bezos. Hors d oeuvres include pigs in blankets a food group not mentioned in Kathy s book. The action migrates to UTA Jim Burkus home for a party for True Grit s Ethan and Joel Coen. I pass Ron Howard on the way in and he says, Keep me on your list. Is he kidding? Sunrise and Mark Ruffalo, Focus Feature s James Shamus, Nancy Meyers and John Goldwyn mingle. Adorable Hallie Steinfeld is there with her parents. I am trying to fix her up with Justin Bieber. She giggles, Peg, I am only 14. I am face to face with Harrison Ford and stupidly tell him I love him in Morning Glory. He s looking at me in utter disbelief, but I will not shut up. A gorgeous guy is inches away in a hat and glasses. I whisper to Harrison, That looks just like Johnny Depp. Harrison rolls his eyes and reluctantly introduces me to his friend . . . Johnny Depp. I babble a bit about his great work then run for cover in a corner next to my buddy, Jerry Bruckheimer. I head over to the CAA Bryan Lourd s Friday Night Party. Torrential rains and horrific winds cause a traffic jam that makes it impossible to get near the house. The world s most famous faces cower under black umbrellas and make a run for it. Bryan Lourd and Bruce Bozzi receive friends at the door all night. Inside, Uma Thurman tells me she finally moved into a doorman building in New York after being terrorized by stalkers for years. Ben Walker talks about Abraham Lincoln: Vampire Hunter, which he is about to shoot, while his fianc , Mamie Gummer, looks sexy shivering in a white satin gown. Producer Jon Kilik mentions he oversaw a new cut of Julian Schnabel s Miral, to be released in March. Bennett Miller, standing with Kristin Gore, says Sony loves his new film, Moneyball, and Brad Pitt is terrific. (When is Brad Pitt not terrific?) Sandy Gallin tells me he has an actual job decorating Jeffrey Katzenberg s home. I congratulate Barry Levinson s son Sam, a director, for winning the writing award at Sundance for his first film, Another Happy Day. Also seen floating around are Taylor Swift and Jake Gyllenhaal but not together Sean Penn, Tom Cruise and Katie Holmes, Anderson Cooper, Hilary Swank, Kelly Ripa, Paul Haggis, Marisa Tomei, Kate Beckinsale, Demi Moore and Ashton Kutcher, Kate Hudson, Gerard Butler, Renee Zellweger with Bradley Cooper, Biutiful director Alejandro Gonzalez-Inarritu, Kathryn Bigelow and Mark Boal, Ellen Barkin (who is headed to Broadway in The Normal Heart this spring) and CAA s Kevin Huvane, Richard Lovett and Hylda Queally. Sony Classic s Michael Barker tells me The Social Network will win. Tired celebs try to go home, but limo lock is at a standstill. Cell phones don t work in the area. Two hundred swells become party prisoners and happily hang out till 5 a.m. SATURDAY, FEBRUARY 26 Out comes the sun and dries up all the rain. IAC chairmen and owner of Newsweek The Daily Beast Barry Diller and his wife Diane Von Furstenberg (with her kids Alex and Tatiana) host their 15th annual lunch for Graydon Carter in their Coldwater Canyon home. Barry introduces me to his star guest, Gov. Jerry Brown, just elected to his third (nonconsecutive) term as California governor. Like last year, enormous clear plastic tents are erected on the hill near the house. Long wooden picnic tables sit on oriental rugs covering the soggy ground. VIPs wears winter clothes, comfy sweaters and sensible shoes. I arrive in a fur coat. Stephen Gaghan and Minnie Mortimer Scarlett Johansson Charlize Theron Lourdes Leon and Madonna Armie Hammer Kate Beckinsale Aaron Sorkin Georgina Chapman Hilary Swank Cameron Diaz Wendi Murdoch, Kathy Freston and Arianna Huffington Natalie Portman Brian Grazer and Jeff Bezos Tom Ford Everybody knows everybody, and it doesn t matter if you have a hit film or T.V. show this season. Oprah Winfrey kisses David Geffen, casually chats with former Disney C.E.O. Michael Eisner and current Sony Chief Sir Howard Stringer and Rob Weisenthal. Brett Ratner arrives with his houseguest Jean Pigozzi, who is allowed to take photographs. Graydon greets people with chic wife Anna by his side. Ingrid Sischy and Sandy Brant, Rupert Murdoch, Ron Meyer, Francesco Clemente with his twin boys and Tom Ford chat each other up. People to watch include pregnant Victoria and David Beckham with Lynn Wyatt, Fran Lebowitz, Larry Gagosian and Shala Monroque, Ben Silverman, Debbie and Allen I head over to the CAA Bryan Lourd s Friday Night Party. Torrential rains and horrific winds cause a traffic jam that makes it impossible to get near the house. The world s most famous faces cower under black umbrellas and make a run for it. Grubman, Sotheby s Tobias Meyer and Mark Fletcher and Stephen Gaghan and Mini Mortimer wearing her oversized cat glasses. Bruce Cohen has invited me to the Oscar broadcast rehearsal. Inside the Kodak Theater s massive auditorium, I find a seat next to his proud parents. I watch Josh Brolin and Javier Bardem come out in white dinner jackets and flub their lines as they pretend to present Best Adapted Screenplay and Best Original Screenplay. Josh will later tell me that their acting methods are completely opposite: he s a quick study and is very creative and comfortable ad-libbing; Javier, whose mother tongue is Spanish, likes to have every syllable printed out to study with a dialect coach. Life-size photos on cardboard plaques are taped to each nominee s chair. I memorize their location so when I return Sunday I can quickly kiss them all. Back at the Beverly Hills hotel I slip into my black tulle Dennis Basso cocktail dress with a plunging neckline and put on my mother s jewels. Jim Coleman takes me to the Night Before Party in the hotel. This is Jeffrey Katzenberg s 9th annual A-lister event benefiting The Motion Picture Television Fund where they raise 6.5 million dollars in 1 night. I walk into Valentino, who gives me an approving once-over. I tell him and Giancarlo Giammetti that Woody Allen s new film, Midnight in Paris, is opening the Cannes Film Festival and they must bring the yacht. Elton John and David Furnish join our conversation so of course we ask for intimate details about baby Zachary. I segue over to Amy Adams, who, like them, mentions she hates leaving her baby in the hotel room. Next stop is Kate Capshaw in a black bowler hat chatting with Steven Spielberg s god-daughter, Gwyneth Paltrow. I have known Steven for years (in 1982 I was a publicist on E.T.). I now tell him I m going to the Lincoln Center opening of War Horse with Kathy Kennedy and Frank Marshall and cannot wait to see his movie version. I meet sweet Jennifer Aniston, her new haircut and her perfect little body. Her date tells me her secret is a half-hour on the treadmill everyday such an understatement. I tell Jesse Eisenberg I was on his plane home from the Baftas last week, but he was hiding under his hoodie. He says innocently, You should have said hello. I always cover my head because I think my curls make me look like a girl. The charity gives us a coupon booklet redeemable at various booths. Rich people run around like lunatics, collecting gifts for their housekeepers. Among the shoppers are Steven and Heather Mnuchin, Viacom s Deborah and Philippe Dauman, Tamara Mellon, Christine Taylor and Ben Stiller, Cate Blanchet, Susan and Robert Downey Jr. and Debra and Hugh Jackman. Next stop is The Weinstein Company s party at the Soho House sponsored by MontBlanc. Long gone are the funky Miramax Saturday night soirees where nominees spoofed their own films in homemade costumes and ad-libbed hilarious skits. No more grown men dressed as Anna Paquin playing the piano in hopes of winning a Max Award. As I come in, a 400-pound gorilla refuses to let me on the elevator. Once on, I see Jennifer Lopez in the corner and remind her we met on Len Blavatnik s yacht in Cannes. She graciously pretends to remember me. Her manager, Benny Medina, is kicking me. I slip into Colin Firth s booth to have a t te- -t te with him and his wife Livia Giuggioli. Jokingly, I suggest he say I m speechless when he wins. Colin patiently assures me many people, far more clever than I, thought of this. He then says that others are waging bets on whether he might subconsciously stutter. I grill him about his wardrobe, assuming he will be wearing a new Tom Ford tuxedo. He tells me both he and Ford will be in older Ford models. I tell him I made rich-butthrifty Charles Ferguson, director of Inside Job, spend 6,000 dollars for a new Tom Ford tux. In the back room, Jennifer Lopez is now seated with Weinstein s wife, Georgina Chapman. Helena Bonham Carter, her live-in-lover Tim Burton and her mother Elena circulate. Star power includes Adrien Brody, Mary-Kate and Ashley Olsen, Cameron Diaz, Camilla Belle, Chace Vera Farmiga Adrien Brody Andrew Garfield Oliver Stone and Tara Stone Claire Danes and Hugh Dancy Hailee Steinfeld Taylor Swift Donald and Melania Trump Donna Karan Lynn Wyatt Barry Diller Jon Hamm and Jennifer Westfeldt Anderson Cooper Chloe Malle and Candice Bergen Diane von Furstenberg Tory Burch Crawford, Claire Danes and Hugh Dancy, Darren Aronofsky, director John Wells, Kerry Washington, Piers Morgan, Rachel Zoe, Sean Parker, Zack Braff and Leonardo Dicaprio with Bar Rafaeli. Speech filmmakers are functioning on high anxiety. SUNDAY, FEBRUARY 27 Producer Donna Gigliotti is my date to the awards. We are both so nervous we arrive at the Kodak Theater at 3 p.m. and nobody is there. We are driven around for an hour. When we arrive back at the world s most famous red carpet, I guide Donna through security check-in to the extreme right to make sure we get on camera. I teach her the red carpet hustle, which is five steps forward, three steps back, one inch behind a couture-clad nominee. We greet Kevin Huvane as Sandra Bullock is talking to ABC-TV and a billion people see me wearing a black Marchesa gown. Five steps forward, three steps back, we next meet Gwyneth Paltrow, and I hook up the back of her dress while another billion people see me correct the fashion malfunction. Five steps forward, three steps back, we re now posing behind Nicole Kidman and Keith Urban. Our Blackberrys begin buzzing; the world has seen us. James Franco and Anne Hathaway are hip hosts. This is the year of no surprises. But it isn t until Hilary Swank yells out Hooper s name for Best Director that Harvey s gang finally realizes they are getting the Oscar for Best Picture after all. Harvey is sitting in Spielberg s seat as Spielberg announces the win from the stage. Producers Iain Canning, Emile Sherman and Gareth Unwin leap up and kiss each other.Six months of grueling work have finally paid off. King George VI and Harvey Weinstein now share the journey of a single man who triumphs over adversity. At the Governor s ball, held above the Kodak Theater, the winners triumphantly sachet around the room holding their heavy eight-pound gold statues. An hour later there is a migration to the Vanity Fair party hosted by Graydon Carter at Jeff Klein s Sunset Tower Hotel. The invitation features a gold hologram that transmits a radio frequency of a photo and details about the guest to VF staff as they arrive. The next day Page Six will report that the backup private security firm is run by a former Israeli operative, when in fact they are Irish Catholics from Staten Island. There s a hierarchy of arrival times. At 5 p.m. the inner circle of Graydon s 141 best friends attend a seated dinner. They include Barry Diller and Diane von Furstenberg, Francis Ford Coppola, Jon Hamm and Jennifer Westfeldt, Betsey Bloomingdale, Tory Burch and Lyor Cohen, Carolina and Reinaldo Herrera, L Wren Scott and Sir Mick Jagger, Naomi Watts and Liev Schreiber, Wendi Stark, George Hamilton, Judd Apatow, Jackie and Joan Collins, Donna Karan and Steve Martin. The best and the brightest talent in town arrive at 9 p.m. Every single winner shows up. Also there are Justin Bieber and his date Selena Gomez, Michelle Williams, Emma Stone, Steve Tyler and Liv Tyler, Andrew Garfield, Jude Law, Armie Hammer, Vera Farmiga, Kevin Spacey, Charlize Theron, Anne Hathaway, Winter s Bone star-of-tomorrow Jennifer Lawrence, Taylor Hackford and Helen Mirren, Scarlett Johansson, Isla Fischer and Sasha Baron Cohen, Tom Hanks, Sean Penn, Renee Zellweger and Bradley Cooper and Jane Fonda after her play, 33 Variations. I introduce Melania and Donald Trump to David O. Russell as The Trumpster gushes about The Fighter. David tells Donald he used to be a waiter bar tender at many of Trump s parties. Donald smiles as if looking at yet another apprentice. He then offers me a ride home on his plane; he s leaving in 10 minutes. Too bad James Franco didn t know because he is presently sitting on a commercial flight back to school, skipping his own after-party. The rest of the guests social standings are determined by half-hour increments. VF s Beth Kseniak, Matt Ullian and Jane Sarkin tell me the list is cut down to 800 this year. At 11:30 p.m. there is another celebrity migration up the hill to Madonna manager Guy Oseary s house. Earlier in the I introduce Melania and Donald Trump to David O. Russell . . . David tells Donald he used to be a waiter bar tender at many of Trump s parties. Donald smiles as if looking at yet another apprentice. evening, Madonna came down the hill to pose in a risqu see-thru outfit with daughter Lourdes. Madonna and co-host Demi Moore are able to lure the cr me de la cr me with the promise of dancing and no cameras. MONDAY, FEBRUARY 28 A winner s work is never done. Colin Firth, Tom Hooper and David Seidler show up at 4:30 a.m. at The Four Seasons Hotel for a live broadcast on The Today Show. Functioning on an adrenalin rush, they return to the Kodak Theater with Geoffrey Rush to appear on Oprah s live broadcast. By the end of this year s thrilling race between two great producers Scott Rudin and Harvey Weinstein Facebook and Twitter are credited for aiding political justice from the streets of Cairo to Tripoli. But the British film with the most heart wins as one single human voice can still make a difference. The king has spoken. Fran Lebowitz Julie Chen Ellen Barkin Naomi Watts Joan Collins Chace Crawford |
Daily Business Review: Jeffrey Epstein's attorneys fight to keep plea discussions private Page 1 of 3 DAILY BUSINESS REVIEW.COM Select 'Print' in your browser menu to print this document. Copyright 2011. ALM Media Properties, LLC. All rights reserved. Daily Business Review Page printed from: Daily Business Review Back to Article Jeffrey Epstein's attorneys fight to keep plea discussions private John Pacenti 2011-04-2112:00:00 AM Miami attorney Roy Black and two other high-profile attorneys who represented billionaire sex offender Jeffrey Epstein have asked a federal judge to prohibit two alleged victims from obtaining correspondence between the defense team and federal prosecutors who hammered out a nonprosecution agreement. The two women identified in court papers only as Jane Doe 1 and Jane Doe 2 say the agreement should be invalidated because they were not adequately informed of the plan not to file federal charges against Epstein. The defense attorneys' motion to intervene states the sanctity of plea talks would be undermined if U.S. District Judge Kenneth Marra in West Palm Beach allows the correspondence to be used in the third-party civil action brought by the alleged victims. New York litigator Jay Lefkowitz and Boston criminal defense attorney Martin G. Weinberg joined Black in the motion filed April 7. The fight over the records comes amid claims that the defense strong-armed prosecutors into a cushy deal for Epstein. "The release of these letters and the precedent it would establish would have a severe chilling effect on the lawyers' ability to engage in candid settlement discussions with the government in future cases," the 13-page motion reads. "Indeed, to the extent such written correspondence is deemed discoverable by third parties, criminal defense attorneys and the government's lawyers alike would lose the ability to negotiate such agreements." The alleged victims maintain evidence shows Epstein molested more than 30 girls from 2001 to 2007, luring them to his Palm Beach mansion on the pretext of giving him a massage. As part of the nonprosecution agreement, he pleaded guilty to a state charge of soliciting sex with a minor and http: www.dailybusinessreview.comiPubArticleFriendlyDBR.isp?id 1202490901297 4 21 2011 Daily Business Review: Jeffrey Epstein's attorneys fight to keep plea discussions private Page 2 of 3 served 13 months of an 18-month sentence. He resurfaced recently in New York and has become the subject of news reports about socializing with Britain's Prince Andrew. Personal Inquiry The women say the nonprosecution agreement should be scuttled and Epstein should be open to federal charges because they were not adequately consulted as required under the Crimes Victims Rights Act. They seek disclosure of all correspondence between Epstein's attorneys and the government, claiming it would show prosecutors failed to meet their obligation to keep them and other victims informed. The U.S. attorney's office argued in a 54-page response April 8 to the women's lawsuit that the law does not apply because no federal charges were filed against the financier, only a state charge. The women were denied access to the letters in their civil lawsuit against Epstein, which was settled. The motion by Black, Lefkowitz and Weinberg said there is "no doubt" the women aim to disseminate the material to news outlets. They urge Marra to "decline the invitation to fuel the media campaign against Mr. Epstein." Epstein has had plenty of trouble avoiding the media of late. Reports about his friendship with Prince Andrew sparked a March 20 three-page letter from Alex Acosta, U.S. attorney when the agreement was reached, to the Daily Beast online news site. Acosta said the federal government intervened in Epstein's case at request of police because the Palm Beach state attorney's office was going to offer him a deal with no jail time. Acosta said his office secured, through the nonprosecution agreement, jail time for Epstein, his plea to a sex crime against a minor and his designation as a sex offender. Acosta's letter said Epstein's defense team was not happy with these conditions and tried to hire private investigators to delve into the personal lives of prosecutors assigned to the case as a way of undermining the office's insistence on conditions that went beyond the state case. "Defense counsel investigated individual prosecutors and their families, looking for personal peccadilloes that may provide a basis for disqualification," Acosta wrote. Sources say the efforts targeted Assistant U.S. Attorneys Jeffrey Sloman and Ann Marie Villafalia. Acosta refused to remove them. Acosta, now the law dean at Florida International University in Miami, said he had no comments beyond his letter. The U.S. attorney's office also declined to comment. Sloman, who took over as acting U.S. attorney when Acosta became FIU's law dean, later joined the Ferraro Law Firm in Coral Gables, said only, "Alex's recollection is correct." Black, in an interview with the Daily Business Review, denied Acosta's assertions that the Epstein defense team examined the prosecutors. "We don't investigate prosecutors," he said. "As far as I know that wasn't done." http: www.dailybusinessreview.com PubArticleFriendlyDBR.jsp?id 1202490901297 4 21 2011 Daily Business Review: Jeffrey Epstein's attorneys fight to keep plea discussions private Page 3 of 3 Black also denied there was any effort to pressure the U.S. attorney's office to back off Epstein. "It is absurd to say that the target of a federal criminal investigation could put undo pressure on the United States, the government, the Department of Justice, the U.S. attorney's office and the FBI," Black said. Weinberg, who challenged a Justice Department policy of seizing e-mail through secret subpoenas to Internet service providers, also said to his knowledge no private investigator was hired. Lefkowitz, a partner at Kirkland Ellis in New York who drafted President George W. Bush's policy on stem cell research, did not return a phone call for comment by deadline. Black and Weinberg said they still represent Epstein. Fodder For Litigation The motion to intervene does not claim the letters are attorney-client privilege and makes a point of saying Epstein reserves his right to intervene individually. Weinberg said turning the confidential correspondence over to the Jane Does would violate the federal rules of evidence and cast a chill over the criminal defense bar, which would rightly be concerned that anything they tell the government could boomerang into civil litigation against clients. "Neither party expected or believed these letters would later become a source of information that would be used for any other purpose," Weinberg said. "We believe the issue raised before Judge Marra has importance beyond just the litigation between the government and the Jane Does." Bradley J. Edwards, a partner with Farmer Jaffe Weissing Edwards Fistos Lehrman in Fort Lauderdale, represents the Jane Does. He didn't want to get into his planned response to the motion to intervene but said Acosta's letter will not affect the case. Edwards agreed with Acosta that the Palm Beach state attorney's office faltered on the Epstein case. A call to the Palm Beach State Attorney's Office spokeswoman was not returned by deadline. "There has never been a stronger case for the state to prosecute, and the case should have been prosecuted by the state," Edwards said. "The state totally dropped the ball, but once the feds took the case over, they too unfortunately dropped the ball." Edwards refutes Acosta's position that the U.S. attorney's office was hampered by the lack of a clear "interstate nexus" required for federal prosecution. Evidence indicates Epstein flew on his private plane out of state with the intent to engage in sex with minors and used his telephone, a means of interstate commerce, to set up his rendezvous with underage girls, Edwards said. Edwards contends the U.S. attorney's office caved. "They identified a bunch of victims of sexual abuse and decided to align themselves with a bad guy and keep the victims in the dark about the secretive nonprosecution agreement they were giving to Epstein," he said. http: www.dailybusinessreview.com PubArticleFriendlyDBR.isp?id 1202490901297 4 21 2011 |
I WEST PALM BEACH OFFICE: 2139 PALM BEACH LAKES BLVD. WEST PALM BEACH, FLORIDA 33409 RO. BOX 3626 WEST PALM BEACH, FLORIDA 33402 (561) 686-6300 1-800-780-8607 1-800-220-7006 Spanish ATTORNEYS AT LAW: ROSALYN SIA BAKER-BARNES 'F. GREGORY BARNHART T. HARDEE BASS, III LAURIE J. BRIGGS BRIAN R. DENNEY 'EARL L. DENNEY, JR.5 BRENDA S. FULMER JAMES W. GUSTAFSON, JR. JACK R HILL DAVID K. KELLEY, JR. WILLIAM B. KING7 'DARRYL L. LEWIS' WILLIAM A. NORTON PATRICK E. QUINLAN' EDWARD V. RICCI DAVID J. SALES' JOHN SCAROLA CHRISTIAN D. SEARCY JOHN A. SHIPLEY III CHRISTOPHER K. SPEED 55 BRIAN P. SULLIVAN 345 KAREN E. TERRY T. CALVIN WARRINER III SHAREHOLDERS BOARD CERTIFIED APO ADMITTED KENTUCKY MAINE 3 MARYLAND 4 MASSACHUSETTS 5 MISSISSIPPI 6 NEW HAMPSHIRE 7 NEW JERSEY VIRGINIA WASHINGTON DC PARALEGALS: VIVIAN AYAN-TEJEDA ALYSSA A. DIEDWARDO RANDY M. DUFRESNE DAVID W. GILMORE JOHN C. HOPKINS DEBORAH M. KNAPP VINCENT L LEONARD, JR. JAMES PETER LOVE CHRISTOPHER J. PILATO ROBERT W. PITCHER MARK P. PONCY KATHLEEN SIMON STEVE M. SMITH BONNIE S. STARK WALTER A. STEIN SEARCY DENNEY SCAROLA BARN HART e-SH1PLEYpA d m() VIA EMAIL AND U.S. MAIL March 22, 2011 Robert B. Carney, Special Master 2281 Saratoga Lane West Palm Beach, FL 33409 OTALLAHASSEE OFFICE: THE TOWLE HOUSE 517 NORTH CALHOUN STREET TALLAHASSEE, FL 32301-1231 RO. BOX 1230 TALLAHASSEE, FLORIDA 32302 Re: Edwards adv. Epstein Our File No.: 291874 Dear Judge Carney: Attached please find the Master Contact List pursuant to your Interim Report in this matter. Dictated But Not Signed By Jack Scarola To Expedite Delivery JACK SCAROLA JS mep Enc. cc: Bradley J. Edwards, Esq. Joseph L. Ackerman, Esq. Christopher Knight, Esq. (850) 224-7600 1-888-549-7011 WWW.SEARCYLAW.COM MASTER CONTACT LIST REGARDING Privilege Log Dated 2-23-2011 Farmer.laffe, Weissing, Edwards, Fistos Lehrman CONTACT NAME IDENTITY Adam Horowitz Counsel for other Epstein Victims Adam Steinberg Attorney RRA Alan Garten Donald Trump's attorney Amy Eden i Robert Josefsberg's daughter Amy Swan Expert in Epstein Case Anthony P RRA CLIENT Attorneys at RRA Barry Stone Attorney RRA Bert Patton Legal Assistant to Robert Josefsberg Beth Williamson Paralegal RRA Bradley Edwards Attorney RRA Cara Holmes Attorney RRA Carl Linder Attorney RRA Carla Martinez Law Clerk at RRA Carolyn (Legal Asst. to Jay Howell, Co-Counsel) Carolyn Edwards (Legal Asst. to Jay Howell, Co-Counsel) Confidential Source Christina Fitch Staff RRA Denis Kleinfeld Attorney RRA D.F. Client (Epstein Case) Dr. Lee Expert (Epstein Case) Earleen Cote Attorney Elizabeth Kim Paralegal RRA Elizabeth Villar Legal Assistant RRA Gary Farmer Attorney RRA Grant Smith Attorney RRA Ileana Yarzabal Prior Paralegal to Robert Josefsberg Investigators Investigators RRA Jack Hill Counsel for other Epstein Victims Jack Scarola Counsel for other Epstein Victims Jacquie Johnson Paralegal RRA Jessica Caldwell Attorney Critton's Assistant Josh Roberts Attorney Jonathan Birkman Attorney RRA MASTER CONTACT LIST REGARDING Privilege Log Dated 2-23-2011 Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman Katherine Ezell Counsel for other Epstein Victims Kikka Claudio Assistant to Attorney Jack Hill Kendall Coffey Special Counsel to RRA on Epstein Case Ken Jenne Investigators RRA Lisa Rivera Legal Assistant to Adam Horowitz Litigation Team RRA attorneys and staff Marc Nurik Attorney RRA Margaret Berk Legal Assistant to Spencer Kuvin Maribel Matiska RRA Paralegal Mark Fistos Attorney RRA Mercedes Estrada Katherine Ezell's Assistant MG Client (Epstein Case) Michael Wheeler Attorney RRA Mike Fisten Investigators RRA N.R. Client communication Nora Batian RRA Staff Pasqual "Pat" Diaz Investigators RRA Pat Roberts Investigators RRA Paul Cassel Co-Counsel on Epstein Case Phaedra Xanthos Forensic Accountant Priscila Nascimento Staff RRA Richard Willits Attorney Richard Wolfe Attorney RRA Robert Buschel Attorney RRA Robert C. Josefsbergs Counsel for other Epstein Victims Robin T. Kempner RRA Staff Ronald Wise Forensics (Epstein Case) RRA Personnel RRA Russell Adler Attorney RRA Scott Goldstein Attorney RRA Scott Rothstein Attorney RRA Seth Lehrman Attorney RRA Shawn Gilbert Prior Legal Assistant to Brad Edwards Sid Garcia Counsel for other Epstein Victims Spencer Kuvin Counsel for other Epstein Victims Steven Jaffe Attorney RRA Stuart Mermelstein Counsel for other Epstein Victims MASTER CONTACT LIST REGARDING Privilege Log Dated 2-23-2011 Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman Susan K. Stirling RRA Staff Tami Wolfe Attorney RRA T. Edwards Brad Edwards Wife Unknown Staff RRA STAFF Wayne Black Private Investigator William J. Berger Attorney RRA |
CC: Lesley Groff Importance: High Other events that are not listed below (they were sent over from Marshall Heyman at the WSJ) Let me know if you are interested. Tonight: Red Rooster for Halle Berry, Simon Schuster party for publication of the new James Bond Novel the opening of Spiderman w an after party at bowlmore. Wednesday: Self Magazine Zooey Deschanel Party Thursday: Worldwide Orphans w Amy Poehler CALENDAR OF MAJOR EVENTS, OPENINGS, AND FUNDRAISERS IN NEW YORK Tuesday, June 14, 2011 Sunrise: 5:25 am Sunset 8:26 pm Moon: High: 77 Low: 61 After-School All-Stars of New York PRINT I MAP I TWEET Benefit Mandarin Oriental New York. New York. Contact: Janice Phillips. Event address: 80 Columbus Circle, New York. Event web address: www.asasny.org. Tags: Fundraiser Child Advocacy Education K-12. EXPAND New York Area Professional Convention Management Association PRINT I MAP I TWEET Luncheon Reception, networking and program. Doubletree Guest Suites. New York. Contact: Shannon Harris. Event address: 1568 Broadway, New York. Event web address: pcma.org. Tags: Discussion Luncheon Networking Association. EXPAND Business Development Institute PRINT I MAP I TWEET Mobile Financial Services Communications Leadership Forum Disucssions. New York University Midtown Campus. New York. Contact: Maria Feola. Event address: 11 West 42nd Street, New York. Event web address: www.bdionline.com mobilefinancialforum0611.html. Tags: Discussion Education Adult. EXPAND New York Professional Convention Management Association PRINT I TWEET Taking Care of Business: Moving from Success to Significance Discussions and networking. Business attire. Speaker(s): Sue Hershkowitz-Coore. Doubletree Times Square. Contact: Shannon Harris. Event address: 1568 Broadway 47th Street, New York,. Event web address: www.pcma.org x147.xml?events x19306. Tags: Discussion Networking. EXPAND Agape International Spiritual Center PRINT I MAP I TWEET Gala and Premiere Screening 6:00 pm. "Discover the Gift." VIP reception, followed by viewing. Hosted by Michael Bernard Beckwith. Tickets from 20.00. Buy Tickets. NYU Skirball Center for the Performing Arts. New York. Event address: 586 LaGuardia Place, New York. Event web address: skirbalIcenter.nyu.edu calendar discoverthegift. Tags: Premiere Reception Screenings. EXPAND City Parks Foundation PRINT I TWEET Summerstage Gala 6:00 pm. Cocktails, dinner and concert. "Motown Meets NYC," theme. Tickets from 1,000.00. Central Park-Rumsey Playfield. New York. (212) 360-2756. Event address: East 72nd St. off Fifth Ave., New York. Event web address: www.summerstage.org donate now gala.html. Tags: Concert Gala Opening Arts Performing Arts Environmental. EXPAND Greater New York Construction User Counci PRINT I TWEET 2011 Chairman's Reception 6:00 pm. Cocktails and program. Hosted by Jonathan D. Resnick. Steelcase. New York. Event address: 4 Columbus Circle, New York. Sponsored by Jack Resnick Sons, Inc,McGowan Builders, Inc,Turner Construction. Event web address: buildingcongress.com. Tags: Awards Awards Shows Association. EXPAND ABWA - Association of Black Women Attorneys PRINT I MAP I TWEET 35th Anniversary Celebration 6:30 pm. Cocktail reception, followed by dinner, awards and dancing. Speaker(s): Kim K.W. Rucker. Chaired by B. Shea Owens. Tickets from 250.00. Chelsea Piers. New York. Contact: Sponsorships:. (888) 933-2442. Chelsea Piers: Pier Sixty. Event address: 23rd St. at the Hudson River, New York. Tags: Gala Association. EXPAND UJA-Federation of New York PRINT I MAP I TWEET Digital Media and Marketing and Communications Dinner Cocktails and program. Business attire. Honoring Tim Armstrong, Jack Haber. The Pierre Hotel. New York. (212) 836-1853. Event address: 2 East 61st St., New York. Event web address: ujafedny.org. Tags: Dinner Association. EXPAND amfAR PRINT I MAP I TWEET Annual Inspiration Gala 7:00 pm. Cocktails, presentations, runway show, dinner, live auction and performances by Liza Minnelli and Jennifer Hudson. "Black Tie, Hot Metal," theme. Honoring James Franco,Michael Kors. Chaired by Klaus Bisenbach, Larry Boland,R. Martin Chavez, Ph.D, Paolo Diacci,Adam Norbury. MoMA - Museum of Modern Art. New York. Contact: Wilson Alexander Aguilar. Event address: 11 West 53rd Street, New York. Sponsored by Grey Goose,Piaget,Reca Group,Wilhelmina Models. Event web address: www.amfar.org spotlight event.aspx?id 9522. Tags: Gala Health AIDS. EXPAND GenArt PRINT I MAP I TWEET Film Festival Closing Night 7:30 pm. Screenings of "Hot Dogs Hand Grenades," by Justin Corsbie and "Salvation Boulevard," by George Ratliff, followed by after-party and awards presentation at Hiro (88 9th Ave). Visual Arts Theater. New York. Event address: 333 West 23rd Street, New York. Event web address: genart.org. Tags: After party Awards Awards Shows Screenings Arts Film Arts Visual Arts. EXPAND Making Books Sing PRINT I MAP I TWEET Fundraiser 7:30 pm. Beer, brewery tours and light fare. Hosted by Cat Greenleaf, Talib Kweli. Tickets from 15.00. Brooklyn Brewery. Brooklyn. Contact: Kimberly Wilson Marshall. Event address: 79 North 11th St., Brooklyn. Event web address: makingbookssing.org. Tags: Fundraiser Education K-12. EXPAND Wednesday, June 15, 2011 Sunrise: 5:25 am Sunset 8:27 pm Moon: High: 79 Low: 62 NYSAE-New York Society of Association Executives PRINT I MAP I TWEET Installation of Officers Directors Luncheon 11:30 am. Reception and program. Speaker(s): Dr. Jerry V. Teplitz. Tickets from 65.00. Doubletree Metropolitan Hotel. New York. (212) 206-8230. Event address: 569 Lexington Ave., New York. Event web address: www.nysaenet.org. Tags: Luncheon Association. EXPAND Women's Forum of New York PRINT I MAP I TWEET Inaugural Elly Awards 11:30 am. Lunch and program. Hon. chairs: Lucy Jarvis and Muriel Siebert. Hosted by Janice Reals Ellig. Speaker(s): Bobbi Brown, Barbara Walters. Honoring Evelyn H. Lauder,Diana Taylor. Chaired by Jane Chesnutt,Denise Seegal. Co-chaired by Beth Canavan,Lisa Caputo,Barbaralee Diamonstein-Spielvogel. Tickets from 300.00. Tables from 5,000.00. The Plaza Hotel. New York. Contact: Rita Crotty. Event address: 770 Fifth Ave, New York. Event web address: www.womensforumny.org. Tags: Awards Awards Shows Fundraiser Luncheon Education Adult. EXPAND Hike for Heroes PRINT I MAP I TWEET Reception Ceremony. Business casual attire. Chaired by Mitchell B. Modell. Tickets from 140.00. Sheraton New York Hotel Towers. New York. Contact: Lindsay Carlton. Event address: 811 Seventh Ave., New York. Sponsored by Modell's Sporting Goods. Event web address: www.wishuponahero.com hike-for-heroes cocktail-party. Tags: Reception Civic Family Social Services. EXPAND UJA-Federation of New York PRINT I MAP I TWEET Annual Trust Estates Event 6:00 pm. Cocktail reception, followed by program and dessert. Business attire. Honoring Ronald J. Stein. Tickets from 650.00. Hilton New York. New York. Contact: Meredith Waltzer. Event address: 1335 Avenue of the Americas, New York. Event web address: ujafedny.org. Tags: Cocktail party Association. EXPAND UJA-Federation of New York PRINT I MAP I TWEET General Insurance Dinner Business attire. Honoring Kevin Kelley, Stephen P. McGill. Chaired by Joseph Boren. Grand Hyatt New York. New York. Contact: Loni Kraut. Event address: Park Ave. at Grand Central Terminal, New York. Event web address: ujafedny.org. Tags: Awards Awards Shows Dinner Association. EXPAND UNICEF-United Nations Children's Fund PRINT I TWEET Next Gen Photo Benefit 6:30 pm. Cocktails, hors d'oeuvres and silent auction. Tickets from 40.00. Phillips de Pury. Event address: 450 Park Avenue,. Event web address: www.unicefusa.org about special-events nextgen photo- exhibit.html. Tags: Auction Cocktail party Child Advocacy. EXPAND RIOULT Dance Company PRINT I MAP I TWEET Gala 7:00 pm. Performance and dinner. Honoring Robert Cole,Harsha Murthy. Tickets from 350.00. Joyce Theater. New York. Event address: 175 Eighth Ave., New York. Tags: Benefit Performance Gala Arts Performing Arts. EXPAND Thursday, June 16, 2011 Sunrise: 5:25 am Sunset 8:27 pm Moon: High: 79 Low: 62 New York Building Congress PRINT I MAP I TWEET Reception for Speaker Christine C. Quin 8:00 am. Breakfast. Hosted by Richard Anderson, Joseph Mizzi,Frank J. Sciame. Tickets from 500.00. Sciame Organizations. New York. Contact: Anne Mullaly Weir. Event address: 14 Wall Street, New York. Event web address: newyorkbuildingcongress.com. Tags: Breakfast Speakers Fundraiser Association Politics Democratic. EXPAND UJA-Federation of New York PRINT I MAP I TWEET Music Visionary Luncheon Reception and program. Honoring Jody Gerson, Jon Platt. The Pierre Hotel. New York. Contact: Steven Singer. Event address: 2 East 61st St., New York. Event web address: ujafedny.org. Tags: Luncheon Association. EXPAND Jewish Enrichment Center PRINT I MAP I TWEET 2011 Grand Reception 5:30 pm. VIP reception, cocktails, dinner and presentation. Speaker(s): President George H.W. Bush. Honoring Craig A. Rothfeld,Stephen Siegel, An J. Storch. Gotham Hall. New York. (212) 889-5532. Event address: 1356 Broadway, New York. Event web address: jeconline.com dinner. Tags: Fundraiser Reception Faith Jewish. EXPAND Professional Women In Construction PRINT I MAP I TWEET Networking Event 5:30 pm. Cocktails and dinner. Speaker(s): Michele Medaglia. Tickets from 80.00. Club 101. New York. Event address: 101 Park Ave., New York. Event web address: pwcusa.org. Tags: Dinner Discussion Networking Association. EXPAND Asian American Business Development Center PRINT I MAP I TWEET Tenth Anniversary Outstanding 50 Award Gala 6:00 pm. Cocktails, dinner and program. Co-chaired by Shaokao Cheng,Miguel Centeno,Joyce Chang,Renaud Dutreil,Edward Goldberg, Jim Hirani, Allan Huy, Peter Hwang, Eugene Kelly, Catherine Lee, Walter Shay. Waldorf Astoria. New York. (212) 966-0100. Event address: 301 Park Avenue, New York. Event web address: www.outstanding50award.com. Tags: Awards Awards Shows Dinner Gala Association Economic Development. EXPAND Songwriter's Hall of Fame PRINT I MAP I TWEET 42nd Annual Dinner and 2011 Induction Ceremony 6:00 pm. Cocktails and awards presentation. New York Marriott Marquis. New York. (914) 579-1000. Event address: 1535 Broadway, New York. Tags: Awards Awards Shows Dinner Arts Performing Arts. EXPAND Voices Against Brain Cancer PRINT I MAP I TWEET Sixth Annual Sounding Off for a Cure Concert 6:00 pm. Performances. Hammerstein Ballroom. New York City. Event address: 311 West 34th Street, New York City. Tags: Concert Fundraiser Health Cancer. EXPAND Catholic Charities - Archdiocese of New York PRINT I MAP I TWEET Third Annual Junior Board Gala Cocktails, hors d'oeuvres, gaming, and entertainment. "Casino Night," theme. Cocktail attire. Chaired by Stephanie Bagley,Timothy Spelman. Co-chaired by Sean Gorman,Christine Keith. Tickets from 125.00. Buy Tickets. Providence. New York. Contact: Kathleen McGowan. Event address: 311 West 57th St., New York. Fax: (212) 755-1526. Event web address: www.catholiccharitiesny.org get-involved junior-board . Tags: Cocktail party Fundraiser Association Faith Christian. EXPAND Fort Tryon Park Trust PRINT I TWEET Sunset on the Hudson 6:30 pm. Cocktails at the New Leaf Caf , followed by dinner on the David Rockefeller Linden Terrace. Festive attire. Honoring Bette Midler,New York Restoration Project. Chaired by Edith Kean. Tables from 10,000.00. Fort Tryon Park. Contact: Jennifer Hoppa. Event address: Northern Manhattan,. Event web address: www.forttryonparktrust.org sunset on the hudson gala.html. Tags: Cocktail party Dinner Fundraiser Environmental. EXPAND Make-A-Wish Foundation of Metro NY PRINT I MAP I TWEET Annual Gala "An Evening of Wishes" Cocktails, dinner and program. Business Attire. Honoring Michael Delaney,James B. Lee, Jr. Co-chaired by Frank Bisignano,Thomas A. Roberts. Cipriani Wall Street. New York. Contact: Amy Epstein. Event address: 55 Wall St., New York. Event web address: metrony.wish.org. Tags: Gala Health Cancer Health Pediatrics. EXPAND Persol PRINT I TWEET Magnificent Obsessions: 30 Stories of Craftsmanship in Film Exhibition opening. Invitation only. Honoring Milena Canonero,Terry Gilliam,Sir Ben Kingsley. Center 548. New York. Contact: Gina Sevilla. Event address: 548 West 22nd Street, New York. Tags: Exhibition Opening. EXPAND Wounded Warriors Family Support Initiative PRINT I TWEET Special Event 6:30 pm. Cocktails and entertainment, with special performance by The Roots. Speaker(s): Captain Paul Bud Bucha. Intrepid Sea, Air Space Museum. New York. Event address: 1 Intrepid Square, Pier 86, 46th St. at 12th Ave., New York. Event web address: woundedwarriorsinitiative.com event.php roots. Tags: Fundraiser Civic. EXPAND Worldwide Orphans Foundation PRINT I MAP I TWEET Matt Blesso's Third Annual Birthday Celebration 7:00 pm. Cocktails. Hosted by Dr. Jane Aronson,Amy Poehler. Tickets from 75.00. Private Location. Event web address: www.wwo.org. Tags: Cocktail party Fundraiser Child Advocacy. EXPAND Actors Fund PRINT I MAP I TWEET Benefit Performance 8:00 pm. "Zarkana, Cirque du Soleil". Tickets from 125.00. Radio City Music Hall. New York. Contact: Stephen Joseph. Event address: 1260 Ave. of the Americas, New York. Event web address: actorsfund.org. Tags: Benefit Performance Rally March Arts Performing Arts. EXPAND Friday, June 17, 2011 Sunrise: 5:25 am Sunset 8:27 pm Moon: High: 79 Low: 62 Action Against Hunger PRINT I MAP I TWEET Spanish Wine Festival 6:30 pm. Culinary and wine tastings. Hosted by PJ Wine. Metropolitan Pavilion. New York. (212) 967-7800. Event address: 125 West 18th St., New York. Event web address: www.actionagainsthunger.org. Tags: Tasting Wine Tasting Social Services Food Banks. EXPAND New York Child Learning Institute Phoenix Center Inc PRINT I MAP I TWEET 2011 Annual Black Tie Affair Auction Cocktails, dinner and program. Black tie attire. Invitation only. Hosted by Knights of York. Honoring Dr. Joan Fallon,Bob Hurley, Carol Laurenzano,Jim Watkins,Lauren Thierry Watkins. Chaired by Declan Connolly. Co-chaired by Thomas J. Petersen. Tickets from 275.00. United Nations Delegates Dining Room. New York. Contact: Aimee Demilia Newsham. Event address: United Nations Building, First Ave. at 45th St., New York. Fax: (201) 485-8523. Event web address: www.knightsofyork.org. Tags: Auction Gala Association Education K-12. EXPAND |
Case 9:08-cv-80736-KAM Document 85-1 Entered on FLSD Docket 06 17 2011 Page 1 of 4 EXHIBIT A Case 9:08-cv-80736-KAM Document 85-1 Entered on FLSD Docket 06 17 2011 Page 2 of 4 t7 June 8, 2011 specifically, how do we get businesses to do more in terms of hiring, spend Iess on redtape, less on bureaucracy, and reduce the regulatory burden in smart ways? The current administration has said some of the right things but actually moved in the wrong direction. We have seen a sharp increase in the last couple of years in what are deemed to be major economically significant rules. That is defined as regulations that impose a cost on the economy of 100 million or more. According to the administration's Office of Management and Budget, the current administration has been regu- Iating at a pace of 84 major rules per year. By way of comparison, that is about a 50-percent increase over the regulatory output during the Clinton administration, which had about 56 rules per year, and an increase from the Bush administration as well. So we have seen more regulations and more significant regulations. I was encouraged to hear President Obama's words when he talked about the Executive order in January, which is entitled "Improving Regulation and Regulatory Review." But now we need to see action. We need to see it from the administration, from individual agencies to provide real regulatory relief for job creators to be able to reduce this drag on the economy. One commonsense step we can take is to strengthen what is called the Unfunded Mandates Relief Act. It was passed in 1995. It was bipartisan. I was a cosponsor in the House of Representatives. It is an effort to require Federal regulators to evaluate the cost of rules, to look at the benefits and the costs, and to look at less costly alternatives on rules. The two amendments I would like to offer over the next few days as we consider the legislation before us would improve this Unfunded Mandates Reform Act, and it would reform it in ways that are entirely consistent with the principle President Obama has laid out and committed to in his Executive order on regulatory review. The first amendment would require agencies specifically to assess potential effects of new regulations on job creation-so focusing in on jobs-and to consider market-based and nongovernmental alternatives to regulation. This would broaden the scope of the Unfunded Mandates Relief Act to require cost-benefit analysis of rules that impose direct or indirect costs of 100 miilion a year or more. So, again, this is for major rules of 100 million or more. It would also require agencies to adopt the least costly or least burdensome option that achieves whatever policy goals have been set out by Congress. It seems to me it is a commonsense amendment. I hope we will get bipartisan support for it. The second amendment would extend the Unfunded Mandates Relief Act to so-called independent agencies which today are actually exempt from the CONGRESSIONAL RECORD - SENATE cost-benefit rules that govern aII other agencies. In 1995, we had this debate and determined at that time we would not extend the legislation to independent agencies. In the interim, independent agencies have been providing more and more rules, have put out more and more regulations, and are having a bigger and bigger impact. An example of an independent agency would be the SEC, the Securities and Exchange Commission, or the CFTC, which is the Commodity Futures Trading Commission. These are agencies that, although independent in the executive branch, are very much involved in putting out major rules and regulations. It is sometimes called the "headless fourth branch" of government because their rules are not reviewed for cost-benefit analysis, even by the OMB, the Office of Management and Budget, in its Office of Information and Regulatory Affairs, so-called OIRA. We have looked at some GAO data and put together various studies, and it appears to us that there are about 200 regulations that were issued between 1996 until today that would be deemed to have an impact of 100 million or more on the economy but were automatically excluded from the Unfunded Mandates Relief Act because they were deemed to be from independent agencies. So it is basically closing a loophole and closing this independent agency loophole, which I believe is a sensible reform. It has been endorsed by many people, including, interestingly, the cument OIRA Administrator and the President's regulatory czat, Cass Sunstein, who, in a2002 Law Review article, talked about the fact that this is an area where UMRA ought to be extended because, again, there were so many independent agencies that were putting out regulations impacting job creation in this country. No regulation, whatever its source, should be imposed on American employers or on State and local governments without serious consideration of the costs, the benefits, and the availability of a least-burdensome alternative. Both these amendments would move us further toward that sensible goal, and I hope the leadership will allow these amendments to be offered. I think they fit well with the underlying legislation. If they are offered, I certainly urge my colleagues on both sides of the aisle to support them. I yield the floor. I suggest the absence of a quorum. The PRESIDING OFFICER. The clerk will call. The bill clerk proceeded to caII the roII. Mr. DURBIN. Mr. President. I ask unanimous consent that the order for the quorum call be rescinded. The PRESIDING OFFICER. Without objection, it is so ordered. MORNING BUSINESS Mr. DURBIN. Mr. president. I ask unanimous consent that Senators be s3607 allowed to speak as i.n morning business for up to 10 minutes each. The PRESIDING OFFICER. Without objection, it is so ordered. TRIBUTE TO LOUIS E. GIVAN Mr. MoCONNELL. Mr. President, I rise today to recognize a distinguished Kentuckian who has worked tirelessly on behalf of our Nation's soldiers, sailors and marines for more than 40 years. Louis E. Givan, a lifelong resident of my hometown of Louisville, has played a vital role in protecting the men and women of our Armed Forces and our country's defense. Formerly a sailor himself in the U.S. Navy, he has served for the last 11 years as the general manager of Raytheon Missile Systems operations in Louisville. I was saddened to hear of his retirement from that position this coming July 5. He will certainly be missed. Mr. Givan-or, to those who know him, Ed-was a 1966 graduate of St. Xavier High Schooi in Louisville and in 1970 earned his bachelor of science degree in mechanical engineering from the J.B. Speed School of Engineering at the University of Louisville. In 1968, he began working at the Naval Ordnance Station in Louisville, and he stayed at that post until 1996, in various engineering and supervisory positions. In 1996 the Naval Ordnance Station transitioned to private ownership, and Ed's leadership was crucial in making that transition a successful one. The facility eventually became part of Raytheon Missile Systems, and Ed was appointed general manager in 2000. As general manager, Ed has led Raytheon Missile Systems in Louisville to great success, success for both the company and for the local community. They design, develop, and produce vital weapons systems for our armed forces, enabling America to have the most formidable military force in the world. Weapons produced at the Louisville facility are used by our forces in all parts of the globe, including in Iraq. Kentucky is lucky to have benefitted from Ed's dedication, commitment to excellence, and leadership for so many years. I am sure his wife Velma; his sons Eddie, Tony, and Chris; and his grandchildren Benjamin, Nathan, Isaac, Macy and Natalie are all very proud of what Ed has accomplished. I wish him the very best in retirement, and I am sure my colleagues join me in saying that this U.S. Senate thanks Mr. Louis E. "Ed" Givan for his faithful service. CRIME VICTIMS' RIGHTS ACT Mr. KYL. Mr. President, I ask unanimous consent that the following letter be printed in the Rncono. There being no objection, the material was ordered to be printed in the Rncono. as follows: Case 9:08-cv-80736-KAM Document 85-1 Entered on FLSD Docket 06 17 2011 Page 3 of 4 s3608 U.S. Ssllero, Washington, DC, June 6, 2011. Hon. ERIC H. HOLDER. Jr.. AttmneA General U.S. Department of Justice, Washington, DC. DEAR ATTORNEY GENERAL HoLDER: I am writing about the Justice Department's implementation of the Crime Victims' Rishts Acb-an act that I co-sponsored in 2004. These questions relate to an Office of Legal Counsel ("OLC'1) Opinion made public on May 20, 2011 and more broadly to concerns I have heard from crime victims' advocates that the Department has been thwarting effective implementation of the Act by failing to extend the Act to the investigative phases of criminal cases and by preventing effective appellate enforcement of victims' rights. I am writing to ask you to answer these questions and explain the Department's actions in these areas. GOVERNMENT PROTECTION OF VICTIMS' RIGIITS DURING INVESTIGATION OF A CRIME When Congress enacted the CVRA, it intended to protect crime victims throughout the criminal justice process-from the investigative phases to the final conclusion of a case. Congress could not have been clearer in its direction that using "best efforts" to enforce the CVRA was an obligation of " o fficers and employees of the Department of Justice and other departments and agencies of the United States engaged in the detection, inaestigd,tion, or prosecution of crime . . . ." 18 U.S.C. 93771(c)(1) (emphasis added). Congress also permitted crime victims to assert their rights either in the court in which formal charges had already been filed ,,or, if no prosecution is underwag, in the district court in the district in which the crime occurred." 18 U.S.C. gBZTI(dXB) (emphasis added). Despite Congress'clear intention to extend. rights to crime victims throughout the process, the Justice Department is read.ing the CVRA much more narrowly. In the recent OLC opinion, for example, the Department takes the position that ,,the CVRA is best read as providing that the rights identified in section 3771(a) are guaranteed. from the time that criminal proceed.ings are initiated (by complaint, information, or indictmenr) and cease to be available if all charges are dismissed either voluntarily or on the merits (or if the Government declines to bring formal charges after the filing of a complaint).', The Availability of Crime Victims, Rights Under the Crime Victims' Rights Act of 2004, Memorandum from John E. Bies (Dec. 12, 2010, publicly released May 20,2011) (hereinafter "OLC Opinion"). Indeed, in that same opinion, I am surprised to see the Depart ment citing a snippet from my floor remarks during the passage of the CVRA for the prop osition that crime victims can confer with prosecutors only after the formal filing of charges. See id. at 9 (citing 1b0 Cong. Rec. 54260, 54268 (Apr. 22,2004) (statement of Sen. Kyl). I did want to express my surprise that your prosecutors are so clearly quoting my re marks out of context. Here is the full pas sage of my remarks, which were part of a colloquy with my co-sponsor on the CVRA. Senator Feinstein: Senator Feinstein: Section . . . (a)(b) pro vides a right to confer with the attorney for the Government in the case. This right is in tended to be erpansiue. For example, the vic tim has the right to confer with the Govern ment concerning any critical stage or dis position of the case. The right, howeuer. is not limited to these eramples. I ask the Senator if he concurs in this intent. Senator Kyl: Yes. The intent of this sec tion is just as the Senator says. This risht to confer does not give the crime victim any CONGRESSIONAL RECORD SENATE June 8,2011 right to - direct the prosecution. Prosecutors right to fair treatment and their right to should consider it part of their profession to confer with prosecutors when the Justice Debe available to consult with crime victims partment is negotiating pre-indictment plea about concerns the victims may have which agreements and non-prosecution agreements are pertinent to the case, case proceedings or with defense attorneys, including negotiadispositions. Under this provision, uictims are tions within the Fifth Circuit? able to confer with the Gouernment's attorneA about proceedings after charging. 150 Cong. Rec. 54260, 54268 (Apr. 22, 2004) (statements of Sens. Feinstein Kyl) (emphases added). Read in context, it is obvious that the main point of my remarks was that a victim's right to confer was "intended to be expansive." Senator Feinstein and I then gave various examples of situations in which victims could confer with prosecutors, with the note that the right to confer was "not limited to these examples." It is therefore troubling to me that in this opinion the Justice Department is quoting only a limited portion of my remarks and wrenching them out of context to suggest that I think that crime victims do not have any right to confer (or to be treated with fairness) until after charging. In giving an example that the victims would have such rights after charging, I was not suggesting that they had no such right earlier in the process. Elsewhere in my remarks I made clear that crime victims had rights under the CVRA even before an ind.ictment is filed. F or example, in the passage quoted above, I made clear that crime victims had a right to consult about both ,,the case" and "case proceedingg',-i.g., both about how the case was being handled before being filed in court and. then later how the case was being handled in court ,,proceedings." As another example, Senator Feinstein and I explained that we had drafted the CVRA to extend a right to victims to attend only "public" proceedings, because otherwise the rights would extend. to grand jury proceedings. See, e.g., lbO Cong. Rec. 54260, 54268 (Apr. 22, 2004) (statements of Sens. Feinstein Kyt). Of course. no such limitation would have been necessary under the CVRA if CVRA rights attach (as the Department seems to think) only after the filing of a grand jury indictment. Courts have already rejected the Justice Department's position that the CVRA applies only after an indictment is filed.. For example, in In re Dean, b2T F.gd 891 (bth Cir. 2008), the Department took the position that crime victims had no right to confer with prosecutors until after the Department had reached and signed a plea agreement with a corporation (BP Products North America) whose illegal actions had resulted in the deaths of fifteen workers in an oil refinery explosion. Of course, this position meant that the victims could. have no role in shaping any plea deal that the Department reached. In rejecting the Department's position, the Fifth Circuit held that ,,the govern ment should have fashioned a reasonable way to inform the victims of the likelihood of criminal charges and to ascertain the victims' views on the possible details of a plea bargain." Id. at 394. In spite of this binding d.ecision from the Fifth Circuit, crime victims' ad.vocates have reported to me that the Justice Department is still proceeding in the Fifth Ciicuit and elsewhere on the assumption that it has no obligations to treat victims fairly or to con fer with them until after charges are for mally filed. Given the Fifth Circuit,s Dean decision, this position appears to place the Department in violation of a binding court ruling that extend.s rights to thousand.s of crime victims in Louisiana, Mississippi, and Texas. And more generally, the bepart ment's position simply has no grounding in the clear language of the CVRA. My first question: What is the Justice De partment doing to extend to victims their SRIME VI6TIMS, RIGIIT To AppETTLATE pRorEcrroN Protection of crime victims' rights in appellate courts is an important part of the CVRA. As you know, when Congress passed the CVRA, the federal courts of appeals had recognized that crime victims could take ordinary appeals to protect their rights. See, e.g., Doe u. United States, 666 F.2d 43, 46 (4th Cir. 1981) (rape victim allowed to appeal district court's adverse "rape shield statute" ruling); United States v. Kones,77 F.3d 66 (3rd Cir. 1996) (victim allowed to appeal adverse restitution decision). Congress sought to leave these protections in place, while expanding them to ensure that crime victims could obtain quick vindication of their rights in appellate courts by providing-in 3771(d)(3)-that " i f the district court denies the relief sought, the victim may petition the court of appeals for a writ of mandamus." 18 U.S.C. S3771(d)(3). Ordinarily, whether mandamus relief should issue is d.iscretionary. The plain language of the CVRA, however, specifically and clearly overruled. such discretionary mandamus standard.s by directing that " t he court of appeals shall take up and decide such application forthwith . . . ." 18 U.S.C. S3771(d)(3) (emphasis added). As I explained when the Senate considered the CVRA: W hile mandamus is generally discretionary, this provision 18 U.S.C. gB??1(d)(g) means that courts must review these cases. Appeilate review of denials of victims' rights is just as important as the initial assertion of a victim's right. This provision ensures review and encourages courts to broadlg d.efend. the victims' rights. 150 CoNG. REc. 54270 (Apr. 22, 2004) (statement of Sen. Kyl) (emphases added). Simi- Iarly, the CVRA's co-sponsor with me, Senator Feinstein, stated that the Act would create "a new use of a very old procedure, the writ of mandamus. This provision will establish a procedure where a crime victim can, in essence, immediately appeal a d.enial of their rights by a trial court to the court of appeals." 150 CoNG. REc. 54262 (statement of Sen. Feinstein) (emphases added); see also id. (statement of Sen. Kyl) (crime victims must "be able to have the appellate courts take the appeal and order relief). In short, the legislative history shows that 3771(d)(3) was intended to allow crime victims to take accelerated appeats from dis trict court decisions denying their rights and have their appeals reviewed. under ord.inary standards of appellate review. In spite of that unequivocal legislative history, the Justice Department has in past cases asserted a contrary position. In In re Antrobus, 519 F.3d 1123 (10th Cir. 200g). Ken and Sue Antrobus sought to obtain appellate review of a ruling by a trial court that they could not deliver a victim impact statement at the sentencing of the man who sold the murder weapon used to kill their daug:hter. The Tenth Circuit ruled against them on the basis that the Antrobuses were not entiiled to regular appellate review, but only discre tionary mandamus review. See id. at Il24 25. The Tenth Circuit did not consider the legis lative history in reaching this conclusion, leading the Antrobuses to file petitions for rehearing and rehearing en banc-petitions that recounted this legislative history. In re sponse, the Justice Department asked the Tenth Circuit to deny the victims' petitions. Remarkably, the Justice Department told the Tenth Circuit that it could ignore the Case 9:08-cv-80736-KAM Document 85-1 Entered on FLSD Docket 06 17 2011 Page 4 of 4 June 8, 2011 Iegislative history because the CVRA "is unambiguous." Response of the United States, In re Antrobzs, No. 08-4002, at 72 n.7 (10th Cir. Feb. 12, 2008). At the time that the Justice Department filed this brief, no Court of Appeals agreed with the Tenth Circuit. At the time, three other Circuits had all issued unanimous rulings that crime victims were entitled to regular appellate review. See n re W.R,. Hufl Asset Mgmt. Co.,409 F.3d 555, 562 (2d Cir. 2005); Kenna, u. US. Dist. Ct. for the Cent. Dist. of Ca., 435 F.3d 1011, 1017 (9th Cir. 2006): In re Walsh, 229 Fed.Appx. 58, at 60 (3rd Cir. 2007). My next question for you is, given that the Justice Department has an obligation to use its "best efforts," 18 U.S.C. 377f(c)(1), to afford crime victims their rights, how coutd the Department argue in Antrobus (and later cases) that the CVRA "unambiguously" denied crime victims regular appellate protections of their rights when three circuits had reached the opposite conclusion? GOVERNME TT'S RIGIIT TO ASSERT ERROR DENIAL OF VICTIMS' RIGI TS To further bolster protection of crime victims' rights, Congress also included an ad.ditional provision in the CVRA allowing the Justice Department to obtain review of crime victims' rights issues in appeals filed by defendants: ,,In any appeal in a criminal case, the Government may assert as error the district court's denial of any crime victim's right in the proceeding to which the appeal relates." 18 U.S.C. 3771(d)(4). The intent underlying this provision was to supplement the crime victims' appeal provision found in gBTZI(d)(B) by permitting the Department to also help develop a body of case law expanding crime victims, rights in the many defense appeals that are filed. It was not intended to in any way narrow crime victims' rights to seek relief under S3771(dX3). Nor was it intended to bar crime victims from asserting other remedies. For instance, it was not intend.ed. to block crime victims from taking an ordinary appeal from an adverse decision affecting their rights (such as a decision denying restitution) under 28 U.S.C. 51291. Crime victims had been allowed to take such appeals in various circuits even before the passage of the CVRA. See, e.9., United States u. Kones. 77 F.3d 66 (3rd Cir. 1996) (crime victim allowed. to appeal restitution ruling); United, States u. Perry,360 F.3d 519 (6th Cir. 2004) (crime victims allowed to appeal restitution lien issue); Doe u. United States,666 F.2d 48.46 (4th Cir. 1981) (crime victim allowed. to appeal rape shield ruling). As I explained at the time the CVRA was under consideration, this provision supplemented those pre-existing d.ecisions by "allow ing the Government to assert a victim's right on appeal even when it is the de fendant who seeks appeal of his or her con viction. This ensures that victims' rights are protected throughout the criminal justice process and that they do not fall by the way side during what can often be an extend.ed. appeal that the victim is not a party to." 1b0 CoNG. REc. 54270 (Apr.22,2004) (statement of Sen. Kyl). I have heard from crime victims' advocates that the Department has not been actively enforcing this provision. Indeed, these ad.vocates tell me that they are unaware of even a single case where the Department has used. this supplemental remedy. My final question: Is it true that the Department has never used this provision in even a single case in the more than six years since the CVRA was enacted? JoN KyL, U.S. Senator. CONGRESSIONAL RECORD - SENATE HONORING OUR ARMED FORCES SERGEANT VORASACK T. XAYSANA Mr. BENNET. Mr. President. it is with a heavy heart that I rise today to honor the life and heroic service of SGT Vorasack T. Xaysana. Sergeant Xaysana, assigned to the Headquarters and Headquarters Company, 2nd Battalion, based in Fort Hood, TX, died on April 10, 2011. Sergeant Xaysana was serving in support of Operation New Dawn in Kirkuk, Iraq. He was 30 years old. A native of Westminster, CO, Sergeant Xaysana enlisted in the Army in 2005. During over 6 years of service, he distinguished himself through his courage and dedication to duty. Sergeant Xaysana's exemplary service quickly won the recognition of his commanding officers. He earned, among other decorations, the Iraq Campaign Medal, the Global War on Temorism Service Medal, and the Army Good Conduct Medal. Sergeant Xaysana worked on the front lines of battle, serving in the most dangerous areas of Iraq. Mark Twain once said, "The fear of death fol- Iows from the fear of life. A man who lives fully is prepared to die at any time." Sergeant Xaysana's service was in keeping with this sentiment-by selflessly putting country first, he lived life to the fullest. He lived with a sense of the highest honorable purpose. At substantial personal risk, he braved the chaos of combat zones throughout Iraq. Though his fate on the battlefield was uncertain. he pushed forward, protecting America's citizens, her safety, and the freedoms we hold dear. For his service and the lives he touched, Sergeant Xaysana will forever be remembered as one of our country's bravest. To Sergeant Xaysana's parents, Thong Chanh and Manithip, and to his entire family, I cannot imagine the sorrow you must be feeling. I hope that, in time, the pain of your loss will be eased by your pride in Vorasack's service and by your knowledge that his country will never forget him. We are humbled by his service and his sacrifice. GRAZING IMPR,OVEMENT ACT Mr. BARRASSO. Mr. president, I rise today to submit for the REcoRD an article written by Karen Budd-Falen and published May 28, 2011, in the Wyoming Livestock Journal. The article's tiile is "Leveling the Playing Field: Support for the Grazing Improvement Act of 2071." The title of the article is instructive. Anyone living and working in rural communities knows the playing field is not level. The National Environmental Policy Act has become the preferred tool to delay and iitigate grazing permit renewals for American ranchers. Livestock grazing on public lands has a strong tradition in Wyoming and all Western States. Ranchers aie proud s3609 stewards of the land, yet the permitting process to renew their permits is severely backlogged due to litigation aimed at eliminating livestock from public land. During times of high unemployment and increasing food prices, we need to be encouraging jobs in rural economies. We need to be fostering an environment to raise more high quality, safe, American beef and lamb; not litigating less. That is why I introduced the Grazing Improvement Act of 2011. This legisiation will provide the certainty and stability public grazing permit holders desperately need in order to continue supporting rural jobs, providing healthy food, and maintaining open spaces for recreation and wildlife. It is time to help level the playing field for hard working ranching families across the West. Their livelihood should not be held hostage by litigation and anti-grazing special interest groups. I thank my colleagues, Senators ENzr, CRApo, HATOH, HELLER, RrscH, and TnuwE, in supporting ranching families and this legislation. Mr. President, I ask unanimous consent to have printed in the RpconD the article to which I referred. There being no objection, the material was ordered to be printed in the RncoRo. as follows: From the Wyoming Livestock Roundup, May 28, 20111 LEVELTNG rnp Pr,eyruc Frulo: SuppoRT FoR THE GRAZING IMPRoVEMENT AcT oF 2Ou (By Karen Budd-Falen) If jobs and the economy are the number one concern for America, why are rural communities and ranchers under attack by radical environmental groups and overzealous federal regulators? America depends upon the hundreds of products that livestock provide, yet radical groups and oppressive regulations make it almost impossible for ranchers to stay in business. Opposition to these jobs comes in the form of litigation by radical environmental groups to eliminate grazing on public lands, radical environmental group pressure to force "voluntary" gtazing permit buyouts from "willing sellers," and holding permittees hostage to the court deference given to regulatory "experts." The playing field is not level and the rancher is on the losing side. The Grazing Improvement Act of 2011 will level the playing field. I urge your sup port. The Grazing Improvement Act of 2011 does the following: 1. Term of Grazing Leases and permits. Both BLM and Forest Service term grazing permits are for a 10-year term. This bill ex tends that term to 20 years. This extension does not affect either the BLM's or Forest Service's ability to make interim management decisions based upon resource or other needs, nor does it impact the preference right of renewal for term grazing permits or leases. 2. Renewal, Transfer and. Reissuance of Grazing Leases and Permits. This section codifies the various ,,appropriation riders" for the BLM and Forest Service requiring that permits being reissued, renewed or transferred continue to follow the existing terms and conditions until the paperwork is complete. Thus, the rancher is not held hos tage to the ability of the agency to get its |
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HED: To Venice With Love, Peggy Siegal DEK: Back to northern Italy to take in the arts and architecture and of course, film at the 68th annual Venice Film Festival. By: Peggy Siegal Tuesday, Aug. 30, 2010 Art collector, polo player and film producer Peter Brant gives me a ride to the 68th Venice Film Festival to mingle with Hollywood glitterati from around the world. Venice, the thousand-year-old city looks like a movie set floating on the water that has been the backdrop for films from Casanova to The Tourist. This year, 65 films will have world premieres. Among the jury are two American directors: chairman Darren Aronosfky, Todd Haynes and one English musician, David Byrne. Wednesday, Aug. 31, 2011 I check into the paparazzi-proof Cipriani's on the private Giudecca Island for a week a safe haven for George Clooney, Al Pacino and Gwyneth Paltrow. Cipriani's is impossible to book I have been told for months that Friday night is sold out. In Italy, George Clooney, aka King George, is presiding over his Ides of March press conference at the Palazzo del Casino on Lido. He rules himself out of a future role as United States President, citing Barack Obama's troubles are reason enough to avoid the job. How many countries can George rule? Clooney currently serves as producer, director, co-writer and actor. He seriously tries to explain why his film now reflects the present cynical political mood of the country. The press cannot help asking silly questions and setting George up for one wisecrack after another. Also on the panel are producer Grant Heslov and Beau Willimon who wrote the play the film is based on, Farragut North. Paul Giamatti, Philip Seymour Hoffman, Marisa Tomei and Evan Rachel Wood are confident they are sensational in this Machiavellian, political thriller and try not to joke around. George's infectious humor prevails and the conference is reduced to a Friars roast. Ryan Gosling, last seen in Blue Valentine, who is filming in the states, is finally this year s breakout star stealing Clooney s film. At the premiere on the Lido at the Palazzo del Cinema, Marco Muller, artistic director of the festival, greets 50-year-old heartthrob Clooney with 45-year-old bombshell Cindy Crawford dressed in long bright red Roberto Cavalli gown exactly matching the red carpet. 23-year-old Evan Rachel Wood steps out in a white Alessandra Rich gown, slit all the way up the middle, exposing her endless legs. Royal George later holds court with his cast back at Cipriani's. Attempting to handle the sweltering humidity, ties are loosened, drinks are poured while Evan Rachel Wood takes the microphone with a back-up jazz quartet belting out Janis Joplin songs. She transforms herself into a gyrating, pulsating soul sister as Robin Wright, Christoph Waltz, Diane Kruger and Sir Norman Foster watch in awe. Remember, Evan sang in Julie Taymor's Across the Universe. By 2 a.m. Ms. Wood is drenched and jumps into Cipriani's Olympic-size pool to cool off in her borrowed gown. She has the dress cleaned the next day and sends it back good as new. Thursday, Sept. 1, 2011 George heads for the 38th Telluride Film Festival to attend his tribute program introduced by Ken Burns. Fox Searchlight premieres Alexander Payne's Hawaiian-set The Descendants. George stars as a father of two who learns about his wife's infidelity. You have to love the role-reversal casting. Nobody cheats on George which is why his performance is so poignant. Clooney and Payne met at the Toronto Film Festival two years ago and were shooting in Oahu months later. Payne edited the film at Clooney's Italian villa on Lake Como, where the entire cast, including Charlie Rose who has a cameo playing Charlie Rose, end up for a holiday reunion the weekend before this year s festival. Activities include George and Grant challenging Charlie and Marisa Tomei to a strenuous game of hoops on the private basketball court. Late-night partying ends with Mr. Rose skinny-dipping in Lake Como a tradition started by that wild and crazy guy Walter Cronkite years ago. The Weinstein Company screens in Venice and Telluride their silent film The Artist, directed by Michel Hazanavicius and starring French movie idol Jean Dujardin. The film was premiered in May at the Cannes Film festival. Early Oscar buzz for films and male lead performances could be The Descendants, The Artist and Shame. This momentum has to sustain itself on the long road to Eddie Murphy's opening dialogue on Oscar night in February. Next to Evan Rachel Wood s favorite pool, I am lunching and munching on pasta and pizza with Valentino, Giancarlo Giammetti, Bruce Hoeksema, Charlene de Ganay and Carlos Souza aka the family. Paul Giamatti, whose family changed their spelling, tells me he is actually related to Valentino's business partner Giancarlo Giammetti, which is a visual stretch of the imagination. Valentino has brought his yacht T.M. Blue One carrying six pugs to Venice to attend Madonna's premiere of W.E., the compelling romance between King Edward VIII and the twice-divorced Wallis Simpson. Madonna has shown an early cut on DVD to Valentino in his grand Paris apartment last spring. Valentino loves the film and says Andrea Riseborough, who was trained at the Royal Academy of Dramatic Arts, is as compelling as Wallis. Similarities between Madonna and Wallis: Americans hounded by the press, moved to London to marry Englishman, were fashion icons always re-inventing themselves and were possessed with a faint sense of being misunderstood. After the premiere, Frida Giannini, creative director of Gucci, and Harvey Weinstein host a slightly decadent, secret, after-party on the outside terrace at the Bauer Palazzo. The 53-year old Material Girl brings Brahim Zaibat her 24-year old break-dancing boyfriend sips bellinis and sings "Like a Virgin" until 4:30 a.m. to Valentino and Guy Oseary and her cast: Andrea Riseborough, Abbie Cornish, James D'arcy and Oscar Issac, who is also in the Cannes-winner Drive. Simultaneously, Sony Picture Classic's Michael Barker and Tom Bernard premiere Roman Polanski s Carnage, based on Yasmina Reza's French play God of Carnage, which played to packed houses in Paris, London, New York and Los Angeles. Curvaceous Kate Winslet, appearing in three films at the festival (Carnage, Mildred Pierce and Contagion), makes her red carpet debut whipping out her mobile phone and photographing the fans. Fresh from fighting fires and saving lives on Richard Branson's Necker Island, she is joined by bearded co-stars Christoph Waltz and John C. Reilly. Polanski is in Gstaad. He remains a wanted man in the U.S., and although he avoided an extradition charge last year, he still risks arrest in some parts of Europe. Carnage, filmed in real time is a 79-minute actor's showcase set in one room in a Brooklyn apartment shot entirely in Paris. Mid September, two years after Polanski was arrested en route to the very same Zurich Film Festival, he will return to receive a lifetime achievement award. At the Carnage dinner Kate talks about portraying a neurotic wife and mother who gets drunk at a civilized sit-down and projectile vomits between two couples discussing their sons schoolyard fight. Kate tells me the vomit was actually squashed banana, oatmeal and molasses that Roman would lick between takes for comic relief. Mildred Pierce's HBO gang, including Kary Antholis, director Todd Haynes and co-stars Guy Pearce and Evan Rachel Wood are at Kate's table digesting this information. Kate and Guy later win Emmy s. Friday, Sept. 2, 2011 Today is the day Cipriani's is over-booked and they are hell bent on tossing me into the canal. No queen-size bed, nor cot, nor couch materializes. Peter Brant is renting half of the Bauer Palladio next door because even he could not get into my oasis with all of his kids. The bed Peter promised me for tonight has been quietly given away to Owen Wilson, who surprisingly arrives on Larry Gagosian's plane this morning. Peter heroically rescues me by finding a suite in his hotel with double-the-height ceilings for a gazillion Euros. With the noon toss-out and luggage left in Cipriani's lobby, I race to the press screening of Sony Pictures Classics and Canadian David Cronenberg's highly anticipated A Dangerous Method, produced by Jeremy Thomas. The film, set on the eve of World War I, is about Sigmund Freud and Carl Jung and their patient Sabina Spielrein, the Russian Jewess who for years remained uncredited for her influence on the development of modern psychology. The cast features Michael Fassbender as Jung with Keira Knightley (queen of the costume dramas) as Spielrein. Yes, they are fully dressed in their famous sexually charged spanking scenes. This is just the warm up to Fassbender's raw and disturbing sexual romp through lower Manhattan on Sunday night in Shame, Jeremy Thomas's other film. Viggo Mortensen portrays Freud, Vincent Cassel is Austrian psychoanalyst Otto Gross and newcomer Sarah Gadon is Jung's wife. At the press conference the cast jokes about drawing from their own madness as research and inspiration. I, on the other hand, am in a panic speeding back to Cipriani's to wheel my suitcases around the corner to the Bauer Palladio. Looking lost, dejected and pathetically disheveled, I thank God no one sees my fall from grace. I eventually realize I am missing a pair of small gold and diamond earrings. Oddly, the same thing happened to me last year during a room change. I chalk this up as the price of foolishly traveling with real jewelry. At the premiere of A Dangerous Method, I am stressed because I have no ticket, having given my pair to Peter Brant and bed-robber Owen Wilson. Michael Barker and Tom Bernard escort me on the red carpet and Marco Muller himself walks me in. Having seen A Dangerous Method this morning, I slip out and head to the first Gucci for Woman Award in Cinema dinner hosted by Frida Giannini in Cipriani's rustic barns previously ancient granaries, now donning elegant white Murano glass chandeliers. This new award recognizes outstanding female filmmakers. The jury includes Robin Wright (who heads to Toronto next week to the premiere of Bennett Miller's Moneyball) and James Franco, also Toronto bound with Sal about Sal Mineo, and Valeria Golino, whom I met on Rain Man. Madonna asks for "a drum roll, please," as she announces winner Jessica Chastain for Tree of Life . . . but it might as well be for the 11 films Chastain has made since being discovered by Al Pacino four years ago for Wilde Salome. Jessica is presently in The Help, The Dept, Take Shelter and Texas Killing Fields. She is also Toronto bound with Ralph Fiennes Coriolanus. This Julliard graduate is following in footsteps of the iconic Meryl Streep. Francois-Henri Pinault, chairman of Gucci's parent company PRP, is headed to China to support their medical and educational foundations. Pinault s wife Salma Hayek, wearing a Gucci gown embellished with crystals and feathers, discusses Oliver Stone's Savages, the film about Mexican drug lords that she is currently filming in Los Angeles. Suddenly a cake with sparklers appears for Salma's 45th and Madonna encourages us to belt out "Happy Birthday. Singing along is Ginevra Elkann, CAA's Hylda Queally, manager Jason Weinberg and the Brant boys, 18-year-old Petey and 15-year-old Harry. Across the canal Luca Dini, editor of Vanity Fair Italy is hosting a dinner for David Cronenberg at the pink, Gothic, fifteenth-century Palazzo Pisani Moretta with original period furnishings. An official guidebook says, "can rent out for sumptuous receptions and unforgettable parties." They are not kidding. Lit exclusively by candles mounted on hundreds of antique Murano glass chandeliers, the palace has no electricity or air conditioning. Venice is in the middle of a heat wave and at midnight it still feels like a sauna. Add 300 film patrons frantically fanning themselves with gifted fans, eating hot risotto and ravioli, and you have the hottest party I ve ever been to. Literally. Keira, in her long-sleeved, gold lace Valentino is dabbing her body with ice water from the table. Ironically a party for Contagion the following night had a dozen new, huge, white plastic air conditioners humming around the ballroom for the film about a global, pandemic plague. Saturday, Sept. 3, 2011 With a noon checkout and a 3 p.m. check-in at Cipriani's, I am beside myself with packing fatigue and blowing 500 dollars a day on boat rides. I am watching Steven Soderbergh's sleek medical thriller Contagion aka Sars: The Movie with the A-list Hollywood cast including Matt Damon, Gwyneth Paltrow, Laurence Fishburne, Jennifer Ehle, Jude Law and Marion Cotillard. Michael Shamberg produces and Scott Z. Burns is the screenwriter. The film imagines a virus killing millions as scientists try desperately to find an antidote. It starts with peaky-looking Paltrow in a casino touching everything, chatting on a cell phone to a lover, coming home to her husband and expiring on the kitchen floor as she foams at the mouth. Gwyneth tells us this is accomplished by biting down on an alka-seltzer. Next I find the documentary Diana Vreeland: The Eye Has to Travel hidden in a tiny screening room in a basement. Lisa Immordino Vreeland, married to Vreeland's grandson Alexander produces and directs. Clips from Vreeland's early life, career and family, visuals of her years at Harper's Bazaar, Vogue and the Metropolitan Museum of Art's Costume Institute along with interviews with Diane Sawyer, Andy Warhol, Calvin Klein, Oscar de la Renta and John Fairchild show a woman with a keen respect for cultural history and an original sense of style. On to lunch in honor of Lisa at Harry's Bar hosted by Diego Della Valle, President of the Tod's Group and Italian Vogue s Franca Sozzani. Lisa s husband Alexander and father Nichlos join Jessica Chastian, Eli Roth, Bar Rafaeli, Shala Monroque, Bianca Brandolini d'Adda and Countess Bianca Arrivabene. Once again I am sweating and wheeling all of my luggage back to Cipriani's, praying I do not run into pregnant Beyonce celebrating her 30th birthday with husband Jay-Z. Finally, I am settled into a pool-side suite Sunday, Sept. 4, 2011 Press are lining up at 8 a.m. for the 9 a.m. screening of the steamy, evocative festival "it" film, Shame, directed by Steve McQueen, not the deceased white actor known for posing on a motorcycle, but a African Englishman who took the performer's name as his own. Michael Fassbender plays the tormented 30-something addicted to sex. Carey Mulligan is the wayward sister who moves into his apartment fostering chaos. She sings a chilling, slow sad blues version of "New York, New York" which was shot in the Boom Boom Room of the Standard Hotel. Ian Canning and Emile Sherman, producers of The King's Speech, sold this to Fox Searchlight, who will face the challenge of releasing a NC-17 movie. I am backstage in the green room with Al Pacino the Merchant of Venice moments before he enters a packed pressroom to discuss Wilde Salome, his passionate documentary and feature m lange based on Oscar Wilde's play, the biblical tale of Salome and King Herod which explores the destructive use of sexuality. From biblical times to the Boom Boom Room it's a big day for dysfunctional, obsessive sex. Al, wearing a white silk loose shirt and sporting longish hair, looks like an escapee from Scarface. Jessica Chastain is about to explain her slithering, almost nude red scarf dance for King Herod. Al asks his second agent to write an acceptance speech for the Jagger-Le-Coultre Glory to Filmmaker Award he is to receive tonight. The agent stays calm but clearly does not have a clue who to email in Hollywood for help. Al eventually realizes he will go on stage tonight and wing it. Now, the Italian press goes nuts as their hometown boy, Michael Corleone, makes his way to the podium. I saw this exact, almost religious, reverence last year when Sophia Coppola was in this pressroom for Somewhere. The Godfather is Italy's sacred film and its filmmakers are their cinema saints. Al passionately charms his worshipers. As his entourage is escorted out of the building to the waiting water taxi past screaming fans, one zealous guy jumps into the canal swimming and chanting "Al" "Al" "Al," with his arms in the air just like "Attica" "Attica" "Attica," in Dog Day Afternoon. Al waves back. Al s post-premiere dinner is at the Palazzo Grassi, built in 1740 and is now owned by Francois Pinault and used to exhibit his art collection. This is also where Amy Sacco transforms the lobby into her late-night, pop-up Bungalow 8 every evening. Al, with his luscious Argentinean Lucila Sola, along with producer Barry Navidi and entourage, end up poolside at Cipriani's eating bowls of pasta and ice cream. Gary Oldman, Laurence Fishburne, Peter Brant and Owen Wilson pay respects. Owen receives praise for Midnight in Paris. Princess Firyal of Jordan wants Al to pose for a photo with her niece. Even Joel Arthur Rosenthal, the reclusive, Parisian jewelry designer aka JAR, who s also known for accessorizing everyone from Elizabeth Taylor to Ellen Barkin is thrilled to meet Al. Monday, Sept. 5, 2011 My ride to Venice is now going home via Geneva and Moscow without me. Literary agent Lynn Nesbit and I go the premiere of Focus Feature's John le Carre's Tinker, Tailor, Soldier, Spy. English producer Tim Bevans, Swedish director Tomas Alfredson and John le Carre with their cast Gary Oldman, Colin Firth, John Hurt, Mark Strong and newcomer Benedict Cumberbatch, get standing ovations before and after the film from the spotlighted balcony. Missing is Tom Hardy, this year's hottest young actor. After Tinkers dinner, we head back to Cipriani's to Charles Finch and producer Ed Pressman's evening with Caroline Scheufele, Co-President of Chopard to celebrate The Moth Diaries. Lynn represents Rachel Klein, author of the bestselling book. We dine with director Mary Harron and her young actresses Sarah Gadon and Sarah Bolger. Missing is Lily Cole. Her flight is cancelled due to the national one-day labor strike. Tuesday, Sept. 6, 2011 Following the screenings of The Moth Diaries and a new version of Wuthering Heights with an African Heathcliff, I join Pressman and his cast of The Moth Diaries for lunch at the Excelsior. Jonathan Demme comes by. He is here with the post-Katrina New Orleans-set documentary, I'm Carolyn Parker: The Good, the Mad, and the Beautiful. While housekeeping packs my clothes, I conclude that this is the year Hollywood embraces launching their Oscar-bound films oversees. The race began in May on the beaches of Cannes where Midnight in Paris and The Artist debuted with black-tie galas nightly. Late August, American and English films dominate the Venice waterfront where Shame heats up amid more fancy parties in grand palazzos. Tiny Telluride, now showing more European films was the next stepping stone with a Western hometown casualness. September was Toronto, the mother of all film festivals that premieres its new exhibition space, the Bell Lightbox and a smorgasbord of 250 films. Here was the most user-friendly, fashion-free film festival where one walked to four films a day. Moneyball brings Brad Pitt to town, who brings Angelina Jolie. International stars end up at the Soho House whispering about "the race." Early October is at Lincoln Center, home of The New York Film Festival that shows films that have debuted in the other festivals and await sanctioning from the American media and public. The academy members are yet to weigh in. One ends up with the exhilarating feeling of experiencing world cinema through passionate festival curators giving support and clarity from directors to distributors and helping simple film fans like you and me. Let s not forget the geniuses, Steven Speilberg, Stephen Daldry, Clint Eastwood, David Fincher, Martin Scorcese and Jason Reitman who have bypassed the festival route. Let the race begin. 2 |
Explaining our taste for excessive harm Marc D. Hauser Viking Penguin For Jacques and Bert Hauser, my parents, my friends, and my reminder that life should be lived to its fullest Hauser Evilicious. Front matter 2 Pleasure is the greatest incentive to evil. Plato To witness suffering does one good, to inflict it even more so. Friedrich Nietzsche Man produces evil as a bee produces honey. William Golding Hauser Evilicious. Front matter 3 Dear reader, Having lived in Uganda and spoken with people who escaped from the savagery of the brutal dictators Milton Obote and Idi Amin, having heard stories of my father s childhood as a Jew running through Nazi occupied France, and reading past and present-day accounts of genocide, I am familiar with the horrors of evil. I have also been a student of human nature, trained as a scientist. These experiences have propelled me to study the causes of evil, attempt to make some progress in explaining it to myself, and hopefully to you. There is a great urgency to understanding this problem. None of us can afford to passively watch millions of individuals lose their homes, children, and lives as a result of malice. Sloth is a sin, especially when we live in a world where cultures of evil can so easily erupt. I am also familiar with and deeply moved by human kindness, our capacity to reach out and help strangers. When my father was in a boarding school in the south of France, hiding from the Nazis, a little girl approached him and asked if he was Jewish. My father, conditioned by his parents to deny his background, said no. The girl, sensing doubt, said Well, if you are Jewish, you should know that the director of the school is handing Jewish children over to the Nazis. My father promptly called his parents who picked him up, moved him to another village and school, and survived to tell the story. This little girl expressed one of our species signature capacities: the ability to show compassion for another person, even if their beliefs and desires are different. In preparation for writing this book, I read transcripts and descriptions of thousands of horrific events, listened to personal stories of survivors from financial ruin and war, worked with abused children who were crucified by unfit parents, and watched both fictional films and documentaries that portrayed psychopaths, dictators of totalitarian regimes, and their hapless victims. As one often does in these circumstances, I developed a tougher skin over time. But I have never lost track of the human travesties that result from evil. As my father s story suggests, I have also not lost sight of the fact that we are a species that has done great good, and will continue to do so in the future. Nonetheless, to provide a sound and satisfying explanation of evil we must avoid falling into more romantic interpretations of the human condition. Our best protection is science. This is the position I will defend. The topic of evil is massive. This is, however, a short book, written without exhaustive references, in-depth descriptions of our atrocities, and comprehensive engagement with the many theories on offer to explain evil. What I offer is my own explanation of evil, of how it evolved, how it develops within individuals, and how it affects the lives of millions of innocent victims. It is a minimalist explanation of evil that is anchored in the sciences. I believe, as do many scientists, that deep understanding of exceptionally complicated phenomena requires staking out a piece of theoretical real estate with only a few properties, putting to the side many interesting, but potentially distracting details. This book extracts the core of evil, the part that generates all the variation that our history has catalogued, and that our future holds. Hauser Evilicious. Front matter 4 Acknowledgements I wrote this book while my cat, Humphrey Bogart, sat on my desk, staring at the computer monitor. Though he purred a lot, and was good value when I needed a break, he didn t provide a single insight. Nor did our other pets: a dog, rabbit, and two other cats. For insights, critical comments on my writing, comfort, and endless love and inspiration, there is only one mammal, deliciously wonderful, and without an evil bone in her body my wife, Lilan. Marc Aidinoff a Harvard undergraduate who joined me early on in this journey, digging up references, collecting data, arguing interpretations, sharing my enthusiasm, while offering his own. Kim Beeman and Fritz Tsao my two oldest and closest friends. They have some of the richest minds around. Their knowledge of film, literature and the arts is unsurpassed. Their capacity to bring these riches to the sciences is a gift. Noam Chomsky for inspiration, fearless attacks on power mongering, and friendship. Errol Morris for heated discussion, camaraderie, and insights into evil through his cinematographic lens and critical mind. Many colleagues, students, and friends provided invaluable feedback on various parts of the book, or its entirety: Kim Beeman, Kent Berridge, George Cadwalader, Donal Cahill, Noam Chomsky, Jim Churchill, Randy Cohen, Daniel Dennett, Jonathan Figdor, Nick Haslam, Omar Sultan Haque, Lilan Hauser, Bryce Huebner, Ann Jon, Gordon Kraft-Todd, Errol Morris, Philip Pettit, Steven Pinker, Lisa Pytka, Richard Sosis, Fritz Tsao, Jack Van Honk, and Richard Wrangham. My agent, John Brockman not only a great agent but a wonderful human being who supported me during challenging times. My editors at Viking Penguin, Wendy Wolff and Kevin Doughten. Tough when needed. Supportive when needed. A unique blend. The book is all the better for it. Hauser Evilicious. Front matter 5 Table of Contents Prologue. Evilution Chapter 1. Nature s secrets Chapter 2. Runaway desire Chapter 3. Ravages of denial Chapter 4. Wicked in waiting Epilogue. Evilightenment Hauser Evilicious. Front matter 6 Prologue: Evilution There is no such thing as eradicating evil because the deepest essence of human nature consists of instinctual impulses which are of an elementary nature and which aim at the satisfaction of certain primal needs. I was drowning. This was not the first time. It was also not because I was a poor swimmer. I was 14 years old. A boy named Lionel James, who was the same age but twice my size, was shoving my head under water, roaring with laughter as I struggled to gasp some air. I usually managed to avoid Lionel in the pool, but sometimes he got the best of me while I was playing with friends. Lionel wasn t the only one who bullied me in junior high school. He was part of an evil three pack, including Ronnie Paxton and Chris Joffe, each much larger and stronger than I. Almost daily they locked me inside of the school s lockers, bruised my arms by giving me knuckle-punches, and gave me purple-nurples by twisting my nipples. This was no fun for me. For James, Paxton, and Joffe it was delicious enjoyment. Sometimes, while I was locked in my locker, my math teacher would let me out and then ask Why do you get yourself into these situations? Though I had great respect for my teacher s math abilities, and actually had a crush on her, she was socially daft. Did she think I asked to be packaged up in the locker by my tormenters? It was sheer humiliation. One day my mother noticed the bruises. Horrified, she asked what happened. I reluctantly told her the story. She said we were going to talk with the principal. I told her I would prefer water drip torture. She understood and we never went to see the principal. The person who rescued me from my misery was my father, a man who had lived through the war as a child, running from village to village to escape the Nazis, and in so doing, confronted thuggish farm boys whose weight far exceeded their IQ. My father, upon hearing that I didn t want to go to school anymore, offered a compromise: he would pick me up for lunch every day if I kept going to classes. I agreed, relishing the idea of escaping the lunch-time scene at school where James, Paxton and Joffe pummeled me at will without getting caught. Hauser Prologue. Evilution 7 A month passed. I felt better. My father told me that it was time to go back to lunch at school, but with a plan, one centered around the notion of respect. The only way to command it from my tormenters was to fight back. But Dad, I said, if I hit them, they will crush me. They might, he said, but you will have gained some respect, and they may turn their attention to someone else. It seemed like a remarkably stupid idea. But my father lived through a war and fought his way to respect among the thugs in every village school. I decided to give it a go. I went back to school. Soon thereafter, I found myself standing behind Paxton who displayed biceps bigger than my head. I figured I had only one shot. I tapped him on the shoulder and swung as hard as I could, hitting him square in the chest. What aim. What perfection. What wasted energy. With no more than a flinch, Paxton looked down at me, fury in his face, and grunted What s up with you? With tears running and lips trembling, I sputtered I can t take it anymore. You, Joffe, and James are constantly hitting me and locking me in the lockers. I can t take it! And then, as if his entire brain had been rewired, serotonin surging to provide self-control, dopamine flowing to shift his sense of reward, the hulk spoke: Really? Okay, we ll stop. And just like that, Paxton, Joffe and James stopped. No more locker games, no more bruises. They even saw me as a useful resource, someone who could help them pass some of their exams. From victim to victory. I was fortunate. Many are not. Thousands of children throughout the world are persecuted in a similar way but never fight back or if they do, are crushed for trying. Some are pushed so hard that they commit suicide, tragedies that increasingly make headline news reports. The fact that bullies often torment their victims for personal gain, cause great harm, and often enjoy the experience as did Lionel James fits well with a common view of evil. On this view, we think of someone as evil if they inflict harm on innocent others, knowing that they are violating moral or legal norms, and relishing the abuse delivered. But what of bullies who, due to immaturity or brain deficits, simply don t understand the scope of moral boundaries? What if they impose great harm on their victims, but don t enjoy the experience? What if the victims are not entirely innocent, such as those who double-time as bullies? We can debate questions like these on philosophical grounds, attempting to refine what, precisely, counts as an act of evildoing as opposed to some mere moral wrong, like breaking a promise or having an affair while married. Many have. I don t believe, however, that this is how we will achieve our deepest understanding. Instead, I turn to the sciences of human nature, focusing on cases where people directly or indirectly cause excessive harm to innocent others as the essence of evil. To explain this form of evil, we must dissect the underlying psychology, the brain circuits that generate this psychology, the genes that build brains, and the evolutionary history that has sculpted the genetic ensemble that makes us distinctively human. This is the approach I pursue. If I m right about this approach, not only will we gain Hauser Prologue. Evilution 8 a deeper understanding of how and why our species has engaged in evildoing, but we will learn about our own individual vulnerability to follow suit. This prologue provides a sampling of the central ideas minus the rich evidence and explanations that follow in the four core chapters of this book. A brief history of malice Homo sapiens, the knowing and wise animal, has logged an uncontested record of atrocities, despite moral norms prohibiting such actions: no other species has abducted innocent children into rogue armies and then killed those who refused to kill, tossed infants into the air as targets for shooting practice, gang raped women to force them to carry the enemy s fetus to term while destroying the souls of their powerless husbands, and mutilated and burned men to death because more humane forms of killing were less effective and enjoyable. These are horrific acts. They abound globally and across the ages. Many scholars have judged them as evil. Despite the pervasiveness of these atrocities, evil is commonly perceived as a defect, an unfortunate malignancy that has engulfed and metastasized within our species essential goodness. Evil is also denied, relegated to mythology, the delusional imagination of a few madmen, the propaganda of imperialist nations, or the result of a rare mutation. Perhaps because of these impressions, we have an obsessive fascination with evil, evidenced by our fertile capacity to create and then consume films about genocide, cunning rapists, master criminals, corporate raiders, psychopaths and serial killers. We are of two minds, wanting to hide from the atrocities of evil while feeding our insatiable appetite for more. To understand evil is neither to justify nor excuse it, reflexively converting inhumane acts into mere accidents of our biology or the unfortunate consequences of bad environments. To understand evil is to open a door into its essence, to clarify its causes. In some cases, understanding may force us to exonerate the perpetrators, recognizing that they harbored significant brain damage and as a result, lacked self-control or awareness of others pain. In other cases, understanding will reveal that they knowingly caused harm to innocent others, relishing the devastation left behind. By describing and understanding an individual s character with the tools of science, we are more likely to make appropriate assignments of responsibility, blame, punishment, and future risk to society. To understand evil requires facing our species sustained record of atrocities, laying out a variety of cases for inspection. Former Reverend Lawrence Murphy was responsible for over two hundred instances of sexual abuse, luring innocent deaf children in with a saintly smile. Charles Manson, the illegitimate son of a sixteen year old woman and the self-proclaimed father of dozens of runaway women, was responsible for the brutal death of five people by means of 114 knife jabs, while also prostituting his Hauser Prologue. Evilution 9 lovers, beating his wife, selling drugs, and stealing cars. Former Chairman of the NASDAQ stock exchange, Bernard Madoff, was responsible for initiating a Ponzi scheme involving money laundering, perjury, and mail fraud that caused thousands of people to suffer financial ruin. Jane Toppan, born Honora Kelley, was an American nurse who was responsible for killing over 30 patients by drug overdose, stating in her testimony that she experienced a sexual thrill when she held dying patients, and that her goal in life was to kill more innocent people than anyone else in history. Former military specialist Charles Granger was responsible for forcing nudity and sex among the Iraqi prisoners of Abu Ghraib, putting individuals on dog leashes, depriving them of their senses with head bags, and piling naked bodies into photographed still lifes, orchestrations that led to the ultimate humiliation and dehumanization of these prisoners. Depending upon how we think about the problem of evil, we might consider the individuals noted above as minor evildoers or not evil at all because the harms were rather insignificant, because their goal wasn t to directly harm anyone and then enjoy the trail of damage, or because they lacked the mental capacity to assume responsibility for the atrocities committed. These individuals pale in comparison with the most unambiguously radical evildoers of the 20-21 st century the dictators Idi Amin, Francisco Franco, Adolf Hitler, Kim Jong-il, Slobodan Milosevic, Pol Pot, Josef Stalin, Charles Taylor, and Mao Zedong. These men were responsible for the brutal deaths of approximately 80 million people combined. Most were mentally healthy, at least in terms of clinical diagnoses. Many relished their atrocities. All devised over-the-top means of ending lives. Whether by enticing or coercing their followers to torture, gang rape, and butcher human flesh, they went beyond what was necessary to get rid of unwanted others. These are excessive harms, carried out with excessive techniques. In this book, I will not only explore these extreme cases, but more mundane ones as well. Each case helps shape our understanding of what propells some individuals to cause harm on small or large scales, while others avoid it entirely, despite temptations to the contrary. Why and How? To explain the landscape of human atrocities, from Reverend Lawrence Murphy to Mao Zedong, we need an account of why we evolved this capacity and how it works. I will explain both of these problems using the theories and evidence of science. Why? Evil evolved as an incidental consequence of our unique form of intelligence. All animals show highly specialized abilities to solve problems linked to survival. Honey bees perform dances to tell others about the precise location of nutritious pollen, providing an information highway that lowers the Hauser Prologue. Evilution 10 costs of individual foraging challenges. Meerkats teach their young how to hunt dangerous but energyrich scorpion prey, providing an education that bypasses the risks of trial and error learning. Humans unconsciously wrinkle their noses and pull back their lips into an expression of disgust that communicates information about disease-ridden and toxic substances, thereby lowering the costs of sickness to others who might be exposed. Each of these specializations involve exquisitely designed neural circuits and sensory machinery. Each specialization is used for one and only one problem except in humans. Animal thoughts and emotions are like monogamous relationships, myopically and faithfully focused on a single problem for life. Human thoughts and emotions are like promiscuous relationships, broad-minded and liberated, free to couple as new problems surface. Unlike any other animal, the thoughts and emotions we use to solve problems in one domain can readily be combined and recombined with thoughts and emotions from other domains. This is powerful, providing great flexibility in addressing novel problems, some of which we create for ourselves. Disgust provides an example. Disgust originally evolved as an adaptive response to detecting substances that are toxic to our health, especially substances that are outside of the body but should be inside: feces, urine, blood, and vomit. Within the circulation of a promiscuous brain, however, disgust journeys to distant problems, including the moral attitude of vegetarians toward meat eaters, our revulsion toward incest, and abhorrence of gratuitous torture. This journey involves the same brain mechanism that serves original disgust, together with new connections that give voice to our moral sense. Promiscuity enables creativity. What the sciences reveal is that the capacity for promiscuous thinking was realized by evolutionary changes in the number of newly wired up brain areas. By increasing these connections, it was possible, for the first time, to step outside the more narrow and specialized functions of each particular brain area to solve a broader range of problems. Though we don t know precisely when these changes occurred, we know they occurred after our split from the other great apes the orangutans, gorillas, bonobos and chimpanzees. We know this from looking at both the brains of these species, as well as the ways in which they use tools, communicate, cooperate, and attack each other. Not only are there fewer connections between different regions of the brain, but their thinking in various domains is highly monogamous, faithfully dedicated to specific adaptive problems. Empowered by our new, massively connected and promiscuous brain, we alone migrated into and inhabited virtually every known environment on earth and some beyond, inventing abstract mathematical concepts, conceiving grammatically structured languages, and creating glorious civilizations rich in rituals, laws, and beliefs in the supernatural. Our promiscuous brain also provided us with the engine for evil, but only as an incidental consequence of other adaptive capacities, including those that evolved to harm others for the purpose of surviving and reproducing. Hauser Prologue. Evilution 11 All social animals fight to gain resources, using highly ritualized behaviors to assess their opponents and minimize the personal costs of injury. Changes in hormone levels and brain activity motivate and reward the winners, and minimize the costs to the losers. In a small corner of the landscape of aggressive fighting styles are an elite group of killers, animals that go beyond harming their opponents to obliterating them: ants, wolves, lions, and chimpanzees. When these species attack to kill, they typically target adult members of neighboring groups, using collaborative alliances to take out lone or otherwise vulnerable victims. The rarity and limited scope of this form of lethal aggression is indicative of monogamous thinking, and tells us something important about the economics especially the costs and potential rewards of eliminating the enemy, as opposed to merely injuring them. Killing another adult is costly because it involves intense, prolonged combat with another individual who is fighting back. The risks of significant personal injury are therefore high, even if the potential benefit is death to an opponent. As the British anthropologist Richard Wrangham has suggested, animals can surmount these costs by attacking and killing only when there is a significant imbalance of power. This imbalance minimizes the costs to the killers and maximizes the odds of a successful kill. Still, the rarity of killing reinforces an uncontested conclusion among biologists: all animals would rather fight and injure their opponents than fight and obliterate them, assuming that obliteration is costly to the attacker. In some cases, we are just like these other animals killophobic. Historical records, vividly summarized by Lieutenant Colonel Dave Grossman in his book On Killing, reveal that in some situations, soldiers avoid killing the enemy even though they could have. For example, despite the fact that Civil War regiments had the potential to kill 500-1000 individuals per minute, the actual rate was only 1-2 per minute. This suggests that under some conditions, killing another when you can see the whites of their eyes is hard. But as the history of genocides reveal, we have evolved ways to bypass this limitation, making us killophilic in a variety of situations. Our brain s unique capacity for denial is one of the liberating factors. By recruiting denial into our psychology s artillery, we invented new ways of perceiving the enemy or creating one, distorting reality in the service of feeding a desire for personal gain. Denial, like so many aspects of our psychology, generates beneficial and toxic consequences. Self-deceiving ourselves into believing that we are better than we are is a positive illusion that often has beneficial consequences for our mental and physical health, and for our capacity to win in competition. Denying others their moral worth by reclassifying them as threats to our survival or as non-human objects is toxic thinking. When we deny others their moral worth, the thought of killing them is no longer aversive or inappropriate. If we end someone s life in defense of our own, we are following our evolved capacity for survival. When we destroy a parasite, we are also protecting our self-interests to survive. And when we destroy an inanimate object or lock it away, there is no emotional baggage because we have bypassed the Hauser Prologue. Evilution 12 connection to individual rights; we have cut out morality as the governor. This suite of transformations, enabled by our promiscuous brain, allowed us to occupy a unique position within the animal kingdom as large scale killers. Chimpanzees only kill adults when there are many attackers against one victim, with the vast majority of kills focused on individuals outside of their own group; most kills within the group are aimed at infants, where the costs to the attacker are low. Though humans also kill members of enemy groups when there are many against one a pattern that is common among hunter-gatherers and other smallscale societies we depart from this narrow pattern in terms of numbers and the array of potential victims. When humans kill, we go at it with many against many, one against one, and even one against many, including as victims both those outside of our group and those within, young and old, same and opposite sex, and mating partner and competitor. Add the chimpanzee s adaptive capacity for coalitionary killing to the promiscuous capacity of the human brain, and we arrive at a uniquely aggressive species, one capable of inflicting great harm on others in any context. Though the modern invention of scud missiles and stealth bombers undoubtedly enriched our capacity to kill on a large scale by putting distance between killers and victims, these weapons of mass destruction were not necessary. Today, we need only travel back a few years to 1994 to witness the machete genocides of Rwanda, a painful memory of our capacity to wipe out close to a million people in 100 days with hand to hand combat. This is excessive harm, enabled by our ability to use denial to minimize the perceived costs of killing another person and to motivate the anticipated benefits. Denial turns down the heat of killing another and turns us into callous predators. Evolutionary changes in the connections to the brain s reward system provided a second, costoffsetting step, allowing us to move into novel arenas for harming others. When an animal wins a fight, the reward circuitry engages, providing a physiological pat on the back and encouragement for the next round. This same circuitry even engages in anticipation of a battle or when watching winners. The reward system is important as it motivates competitive action in situations that are costly. There is one situation, however, where the reward system is remarkably quiet, at least in all social animals except our own: detecting and punishing those who attempt to cheat and free-ride on others good will. Punishment carries clear costs, either paid up front in terms of resources expended on physically or psychologically attacking another, or paid at the end if the victim fights back or retaliates. These costs can be offset if punishers and their group benefit by removing cheaters or teaching them a lesson. Among animals, punishment is infrequently seen in vertebrates, especially our closest relatives the nonhuman primates. When it is seen, the most common context is competition, not cooperation. Like lethal killing, then, punishment in animals tends to be restricted to a narrow context. Like lethal killing, punishment in animals is psychologically monogamous. Hauser Prologue. Evilution 13 Punishment in humans is emblematically promiscuous. We castigate others whenever they violate a social norm, in both competitive and cooperative situations, targeting kin and non-kin. Punishment is doled out by the individual directly harmed and also by third party onlookers. We use both physical and non-physical means to discipline cheaters, including ostracism. Punishment s landscape is vast. The idea I develop here, building on the work of scholars in economics, psychology, and anthropology, is that our species alone circumvented the costs of punishment as an incidental consequence of promiscuity, including an intimate coupling between the systems of aggression and reward. As several brain imaging studies reveal, when we either anticipate or actually punish another, or even witness punishment as a mere bystander, our reward circuitry delivers a honey hit. Delivering just deserts, or watching them delivered, is like eating dessert. We absorb the costs of punishment by feeling good about ratting out the scourges, banishing them from society, and sometimes from life itself. Ironically, as the economist Samuel Bowles has suggested based on mathematical models and a synthesis of the historical record, punishment can strengthen solidarity and cooperation within the group, while simultaneously enhancing antagonism and prejudice toward those outside the inner sanctum. Ironically, the psychology that benefited cooperation among like-minded others may also have functioned to destroy those who have different beliefs and values. The emergence of promiscuous punishment was a momentous event in human history, a celebration of exquisite brain evolution and adaptive design. But this achievement carried a hidden cost, a debt that we continue to pay: A mind capable of feeling good about punishing in the name of virtue is a mind capable of doing bad to feel good. It is a mind that finds real or simulated violence entertaining and seeks ways to satisfy this interest. It is a mind that enjoys watching others suffer while singing O Schadenfreude. It is a mind that is capable of feeling good about killing others who are perceived as parasitic on society. It is a mind that can override the anticipated costs of killing by fueling a taste for killing. Desire, denial, aggression and reward are each associated with specific psychological processes, distinct evolutionary histories, and specific adaptive problems. When processed by a promiscuous brain, these systems connect in ways that are both beneficial to human welfare and deeply deleterious. How? Evil occurs when individuals and societies allow desire for personal gain to combine with the denial of others moral worth to justify the use of excessive harms. Everyone has desires, resources they want and experiences they seek. Our desires motivate us into action, often to fulfill personal needs or to help others. We all desire good health, fulfilling relationships, and knowledge to explain the world. Some also desire great wealth and power, each culture weighing in on its signature vision of what counts: money, land, livestock, wives, and subordinates. The desire system motivates action in the service of Hauser Prologue. Evilution 14 rewarding experiences. Some actions have benign or even beneficial consequences for the welfare of others, while others have malignant and costly consequences. Exquisite studies pioneered by the American cognitive neuroscientist Kent Berridge have uncovered the core elements of pleasure, including distinctive systems of wanting, liking and learning. We, and hundreds of other species, often want things we like, and like things we want. This is, obviously, an adaptive coupling. Thanks to experiments at the level of genes, neurons, and behavior, we can tease apart these three systems. Thanks to naturally occurring situations, we can watch these systems come unglued over the course of addictions, leading to the paradoxical and maladaptive situation of wanting more and more, but liking the experience less and less. Addictions, as archetypal examples of excess, provide a model for thinking about evil and its trademark signature of excessive harm. The paradoxical decoupling between wanting and liking is seen most clearly in studies of obesity in rats and humans, where individuals develop skyrocketing desires for food, but fail to experience comparable pleasure from eating. By definition, those who become obese are prone to eat in excess. One reason they do is because eating, or even seeing images of food, no longer delivers the same honey hit to the brain as in their pre-obesity days. The reward system turns off when we turn to excess. This is adaptive because nothing in excess is good. But because the wanting system runs independently, the adaptive response by the liking system has the unfortunate consequence of making us want more even though we enjoy it less. The proposal I develop in this book is that the same process is involved in evil, especially its expression of excessive harm. It is a process that is aided by denial. Everyone engages in denial, negating certain aspects of reality in order to manage painful experiences or put forward a more powerful image. But like desire, denial has both beneficial and costly consequences for self and others. When we listen to the news and hear of human rights violations across the globe, we often hide our heads in the sand, plug our ears, and carry on with our lives as if all is okay on planet Earth. When doctors have to engage in slicing into human flesh to perform surgery, they turn off their compassion for humanity, treating the body as a mechanical device, at least until the surgery is over, and the patient awakes, speaks and smiles. When we confront a challenging opponent in an athletic competition or military confrontation, we often pump ourselves up, tricking our psychology into believing that we are better than we are. Denial turns down the heat of emotion, allowing a cooler approach to decision making and action. But doctors in denial concerning the moral worth of others can be convinced to carry out heinous operations for the good of science or the purity of their group, and military leaders in denial of an opponent s strength can lead their soldiers to annihilation. Individuals in denial can reject different aspects of reality in the service of reward, whether it is personal gain, avoiding pain, or enabling the infliction of pain on others. Hauser Prologue. Evilution 15 In a competitive world with limited resources, our desire system never rests. This is a good thing as it motivates us to take care of our self-interests and strive for bigger and better. But a desire system that never sleeps is a system that is motivated to accrue ever larger coffers or power. To satisfy this inflationary need is often not possible without harming others, either directly or indirectly. To offset the costs of harming another, desire recruits denial. This is a recipe for evil and the creation of excessive harms. It is a recipe that takes two, often benign and highly adaptive ingredients that are essential for motivating action and promoting survival, and combines them into an explosive outcome. Seen in this way, our capacity for evil is as great as our capacity for love and compassion. Evil is part of human nature, a capacity that can t be denied. What I will show is both how this capacity works, and how some of us, due to biological inheritance and environmental influence, are more likely to end up as evildoers. Historical material on the lives of Franz Stangl and Adolf Eichmann, leaders in the Nazi annihilation of Jews, illustrates how desire and denial combine within individual minds to create excessive harms. Although this is a historical example, focused on the lives of only two men, stories like theirs have been recounted hundreds of times, all over the globe and across time. This pattern points to common mechanisms, identified in detail by the sciences of human nature. Stangl was a politically motivated man with a burning desire to climb to the top of the Nazi hierarchy. A clear path opened when he was appointed commander of the Polish prison Treblinka. Unbeknownst to Stangl, Treblinka was one of the Nazi s concentration death camps. To fulfill his desire for power therefore required harming thousands of others, or more accurately, commanding Nazi soldiers to harm others on his behalf. But since Stangl had no burning desire to harm the Jews, he dehumanized them, transforming living, breathing, feeling, and thinking people into lifeless cargo his own expression. Stangl was dry-eyed as officers under his command killed close to one million Jews, one third of them children. The reward? Power and status within the Nazi hierarchy. The death of innocent Jews was a foreseen consequence of Stangl s desire for power, not his direct goal. Eichmann, Lieutenant Colonel in the Nazi regime, was considered one of the central architects of the Final Solution, the master plan for the extermination of Jews. Eichmann denied Jews their humanity by championing the pamphlets and posters that portrayed them as vermin and parasites. This dehumanizing transformation empowered Eichmann s belief that cleansing was the only solution to German integrity and power. Eichmann s reward? Elimination of the Jews. Unlike Stangl, killing Jews was rewarding. As the historian Yaacov Lozowick stated Eichmann and his ilk did not come to murder Jews by accident or in a fit of absent-mindedness, nor by blindly obeying orders or by being small cogs in a big machine. They worked hard, thought hard, took the lead over many years. They were the alpinists of evil. Hauser Prologue. Evilution 16 Stangl and Eichmann: two different routes into evil. Both possible and both equally lethal to humanity. This is a lean explanation of why evil evolved and how it develops within individuals and societies. It is an explanation that strips evil down to its root causes, focusing on the core psychological ingredients that enable us to violate moral norms and cause excessive harms to innocent others. A difficult journey This book takes you on a journey into evil. It is a story about our evolutionary past, our present state of affairs, and the prospects for our future. It is as much a story about you and me, as it is about all of our ancestors and future children. It is a story about the nature of moral decay and the prospects of moral growth. It is story about society s capacity to engineer great harm, and about our own individual responsibility to avoid joining in. Explaining how our genes create brains that create a psychology of desire and denial that leads to excessive harms provides a satisfying explanation for the landscape of evil. It explains all varieties of evil by showing how particular genetic combinations can create moral monsters and how particular environmental conditions can convert good citizens into uncaring killers and extortionists. This explanation will not allow us to banish evil from the world. Rather, it will enable us to understand why some individuals acquire an addiction to feeling good by making others feel bad, and why others cause unimaginable harm to innocent victims while flying the flag of virtue. This, in turn, will help us gain greater awareness of our own vulnerabilities by monitoring the power of attraction between desire and denial. Hauser Prologue. Evilution 17 Endnotes: Prologue. Evilution Recommended books: There are numerous books about evil, most written by philosophers, theologians, historians, political scientists, and legal scholars. The following recommendations are for books about evil written by scientists. They are terrific, I have learned a great deal from them, and some of their ideas powerfully enrich the pages between these covers. Baumeister, R. F. (1999). Evil. Inside human violence and cruelty. New York, W.H. Freeman. Baron-Cohen, S. (2011). The Science of Evil. New York, Basic Books. Oakley, B. (2007). Mean Genes. New York, Prometheus Books. Staub, E. (2010). Overcoming Evil. New York, Oxford University Press. Stone, M. H. (2009). The Anatomy of Evil. New York, Prometheus Books. Zimbardo, P. (2007). The Lucifer Effect. New York, Random House. Notes: For a philosophical account of the nature of goodness that treats evil as a deviation from our species repertoire, see Philippa Foot Natural Goodness (2001, Oxford, Clarendon Press). For an explicit, philosophical argument for the connection between pleasure and evil, see Colin McGinn s Ethics, Evil and Fiction (1997, Oxford, Oxford University Press). For a comprehensive discussion of evil by a philosopher, including important critiques of the existing literature, see John Kekes The Roots of Evil (2007, Ithaca, Cornell University Press) On killing throughout history: Wrangham, R.W. Glowacki, L. (in press). Intergroup aggression in chimpanzees and war in nomadic hunter-gatherers: evaluating the chimpanzee model. Human Nature; Bowles, S. (2009). Did warfare among ancestral hunter-gatherers affect the evolution of human social behaviors? Science, 324, 1293-1298; Choi, J.-K., Bowles, S. (2007). The coevolution of parochial altruism and war. Science, 318, 636-640; Grossman, D. (1995). On killing: the psychological costs of learning to kill in war and society. New York, NY: Little, Brown. For a summary of research on desire, especially the elements of wanting, liking and learning, see Berridge, K.C. (2009). Wanting and Liking: Observations from the Neuroscience and Psychology Laboratory. Inquiry, 52(4), 378-398; Kringelbach, M.L., Berridge, K.C. (2009). Towards a functional neuroanatomy of pleasure and happiness. Trends Cognitive Science 13(1), 479-487. The most serious treatment of Stangl can be found in the penetrating interview by Gitta Sereny (1974, Into that Darkness: From Mercy Killing to Mass Murder. London: Random House). There have been different treatments of Adolf Eichmann, most famously by Hannah Arendt in her Eichmann in Jerusalem: A report on the banality of evil. (1963, New York, Viking Press). Arendt s perspective on Eichmann as an ordinary gentleman who simply followed orders has been seriously challenged, suggesting that he was anything but a banal evildoer; the quote by Holocaust scholar Yaacov Lozowick is one illustration of the more generally accepted view that Eichmann was a radical evildoer with heinous intentions to Hauser Prologue. Evilution 18 exterminate the Jews. He may have lived a calm and peaceful existence outside of his day job at Nazi headquarters, but this was no ordinary citizen. Quotes: Quote by Lozowick on Eichmann and banality of evil: Lozowick, Y. (2002) Hitler s Bureaucrats: The Nazi Security Police and the Banality of Evil. New York, Continuum Press, p. 279. Hauser Prologue. Evilution 19 Chapter 1: Nature s secrets Nature hides her secrets because of her essential loftiness, but not by means of ruse. Albert Einstein In Charles Darwin s day, biologists unearthed the mysteries of evolution by means of observation, sometimes accompanied by a simple experiment. This was largely a process of documenting the patterns of variation and uniformity that nature left behind. Only breeders were directly involved in manipulating these patterns, using artificial selection to alter the size, shape, coloration, and lifespan of plants and animals. The Darwins of today continue this tradition, but with new tools, informed by understanding of the genetic code and aided by technical developments in engineering, physics, chemistry, and computer science. These tools allow for deeper penetration into the sources of change, and the causes of evolutionary similarities and differences. They also enable biologists to change the course of evolution and the patterns of development by turning genes off or turning novel ones on, and even creating synthetic organisms in test tubes a wonderful playground for understanding both questions of origin, change, and extinction. The Darwins of today are cowboys, trailblazing a new frontier of understanding. But like the frontier of the early American wild west, nature holds many secrets and surprises. Sometimes when we break through nature s guard, we gain fundamental truths about the living world, knowledge that can be harnessed to improve animal and human welfare. But sometimes when we break through, we create toxic consequences and ethical dilemmas. Tampering with nature is risky business as there are many hidden and unforeseen consequences. In 1999, the molecular biologist Joe Tsien and his team at Princeton University tampered with mother nature. Their discovery, published in a distinguished scientific journal, soon filled the newspapers, radio airwaves, and even a spot on Dave Letterman s late night television show. Tsien manipulated a gene that was known to influence memory, causing it to work over time. This created a Hauser Chapter 1. Nature s secrets 20 new line of mice with a special accessory: an upgraded memory and learning system. When these new and improved mice ran through an IQ test, they outperformed normal mice. Tsien pulled off an extraordinary engineering trick, creating a lineage of smarter mice. This is cowboy science, showing the power of genetic tampering to open the door to evolutionary changes. In a world of competition, one would imagine that selection should favor these smart mice who have better recall of essential foraging routes, previous social interactions, and places to rest out of harm s way from predators. But in biology, there are always trade-offs. Benefits in one area of life are often accompanied by costs in others. Several months after Tsien s report, a follow-up study of the same memory-enhanced mice appeared in print, also in a distinguished scientific journal. But this time there was no media fanfare. The new work was carried out by Min Zhuo at Washington University, an ex-member of Tsien s lab and a coauthor of the original paper. Zhuo s new paper confirmed that memory-enhanced mice were indeed smarter, but also showed that they were more sensitive to pain, licking their wounds more and for longer periods of time than normal mice. Though it is unclear whether Zhuo s results reveal heightened pain sensitivity, stronger memories for pain, or some combination of these and other processes, what is clear is that the engineering that led to smarter mice led to much more. Tsien and Zhuo s work shows that even with targeted, artificial changes in the underlying biology, unanticipated consequences are common. It also shows that deep within the biology of every organism lies hidden capacities and potential for change. Unleashing these sub rosa capacities can have both beneficial and costly consequences for the individual and group. The idea I develop in this chapter is that our capacity for evil evolved as an incidental, but natural consequence of our uniquely engineered brain. Unlike any other species, our brain promiscuously combines and recombines thoughts and emotions to create a virtually limitless range of solutions to an ever-changing environment. This new form of intelligence enabled us to solve many problems, but two are of particular interest given their adaptive consequences: killing competitors and punishing cheaters in a diversity of contexts. But like the painful fall-out from artificially engineering a smarter mouse, so too was there fall-out from the natural engineering of a smarter human: a species that experiences pleasure from harming others. This is part of the recipe for evil. This chapter sets out the evidence to support the idea that evil evolved as an incidental consequence of our brain s design. I begin by discussing the two general processes that landed us in the unforeseen and uninhabited niche of evildoers: the evolution of byproducts and promiscuous connections within the human brain. Because these are general processes, we will take a short reprieve from matters specifically evil. Hauser Chapter 1. Nature s secrets 21 What s it for? About 50 million years ago, a family of insects the Phylliinae evolved a distinctive piece of anatomy: a body that looks like a leaf. They also evolved the capacity for catalepsy or statuesque stillness. Their leafy body is so exquisitely designed that even predators with superb search images are fooled as they walk or fly by. But from the fact that the leafy body provides these insects with an invisibility cloak, and the fact that this enables them to escape predation, we cannot conclude that the leafy body evolved for predator evasion. What something is used for today may be different from what it evolved for the difference between current utility and original function. To show that the leafy body evolved for predator evasion, we need to know more, which we do. For one, the leafy body is paired up with a requisite behavioral adaptation: turning to stone. If leaf insects fluttered about as actively as any other insect, their motion alone would cry out to the predators. Optimal effectiveness requires acting like a leaf. But acting like a leaf without the leafy body has its own independent benefits, paying off in terms of predator evasion, as well as sneaking up on potential mates. It would therefore make good sense if stillness evolved first followed by a leafy body. This is precisely what evolution s record reveals. The adaptive advantage that comes from statuesque stillness and a leafy camouflage can only be measured against the backdrop of today s predator line-up. If some future-predator evolves more sophisticated abilities to discriminate real leaves from faux leaves, the Phylliinae will be out of luck. This new pressure from predators will, in turn, push for new evasive tricks, thus initiating the classic cycle of predator-prey evolution. What is adaptive for the Phylliinae today, may not be adaptive tomorrow. The comparative study of the Phylliinae raises a class of questions posed by all evolutionary biologists, independently of their taxonomic biases or interests in physiology, morphology, or behavior: How did it originally evolve? What adaptive problem did it solve? Did it evolve to solve one adaptive problem, but over time shift to solve another a case of what the late evolutionary biologist Stephen J. Gould referred to as an exaptation? Does the exaptation generate profits or losses for survival and reproduction? Is the trait associated with byproducts, incidental consequences of the evolutionary process? What effects, if any, do these byproducts have on survival and reproduction? These questions apply with equal force to evil as they do to language, music, mathematics, and religion. The fact that evil, relative to a leafy body, is more difficult to define, harder to measure, and impossible to experiment upon at least ethically doesn t mean we should take it off the table of scientific inquiry. What it means is that we must be clear about what we can understand, and how we can distinguish between the various interpretations on offer. When we explore the evolution of evil, what are we measuring and what evidence Hauser Chapter 1. Nature s secrets 22 enables us to distinguish between adaptive and non-adaptive explanations? To answer this question, let us look at two illustrative examples that are more challenging than leafy coverage in insects: the evolution of tameness and religion. Sheep, goats, cows, cats, and dogs are all domesticated animals, created by the forces of artificial selection. All have been transformed from a wild type to an animal that not only lives with us, but sometimes lives for us as food. All are more relaxed, less fearful, and less stressed in the presence of humans than their wild ancestors. Many of these animals seek human companionship. These are the trademark features of tameness. They are also consistently associated with other features that never entered into the breeder s calculations: floppier ears, curlier tails, more mottled fur, greater sensitivity to human communication, reduced response to predators, earlier sexual maturation, smaller brains, and higher levels of serotonin a chemical messenger of the brain that regulates self-control. Some of these features appear directly relevant to tameness, whereas others appear entirely irrelevant. For example, serotonin is critically linked to self-control which is critically linked to an animal s ability to suppress aggression when threatened, which is critically linked to building a life with humans. Mottled fur is not critically linked to any of these benefits. Domestication leads to a pastiche of characteristics, some indicative of the domesticator s goals and others orthogonal to it. How does the process of domestication, and artificial selection in particular, generate both desired and unanticipated traits? In most cases of animal domestication, we know little about how the wild type changed because the only available information is either anecdotal or based on loose archaeological reconstructions. Consider the domestication of dogs from wolves, and especially the variability among dog breeds. Though it is clear that humans throughout history have bred dogs to serve particular functions, including herding, aggressive defense, and companionship, each of these personality styles is linked to other behavioral and physiological traits. For example, breeds with high activity levels are smaller than breeds with low activity levels, aggressive breeds have higher metabolic rates than docile breeds, and obedient breeds live longer than disobedient breeds. Does selection for aggressiveness cause an increase in metabolic rate or does selection for higher metabolic rate allow for heightened aggressiveness. Because these are all correlations, we don t know which trait pushed the other to change or whether both traits were favored at the same time. There are two situations that provide a more clear-cut understanding of which feature was favored by selection and which emerged as an incidental byproduct: controlled experiments and domestication efforts that resulted in unambiguously undesirable traits. In the 1950s, the Russian biologist Dmitry Belyaev set out to domesticate the wild silver fox. Over several generations, he selectively bred those individuals who were most likely to allow a human experimenter to approach and hand them food. After Hauser Chapter 1. Nature s secrets 23 45 years of selective breeding he got what he aimed for: a population of tame foxes, less fearful of humans and more interested in playing with them. But Belyaev also got much more than he aimed for: these tame foxes had floppier ears, curlier tails, smaller brains, higher serotonin levels, and much sharper social skills than their wild relatives. These tame foxes acquired the same package that virtually all other domesticated mammals had acquired: some desired and desirable traits and some surprises. Belyaev s study shows that even under highly controlled laboratory conditions, artificial selection leaves a trail of unanticipated consequences, traits that come along for the ride. This link between desired and unanticipated features arises because the genes that create these features are like coupled oscillators: changes in the expression of one gene directly link to changes in the expression of others. At the level of the traits the gene s expressions some have no impact on survival or reproduction, while others may increase or decrease these aspects of fitness. We can illustrate this point by looking at an example from dog breeders. Several hundred years ago, dog breeders used artificial selection to create snub-nosed breeds such as the pug, bull dog, and boxer. The idea was to satisfy our aesthetics for diminutive noses, and reduce the size of the dog s classically large protuberance. Over the course of several generations of picking the smallest-nosed members of the litter, pugs, bull dogs, and boxers emerged. But they also emerged with an unanticipated and maladaptive health problem: all of these breeds have a harder time breathing and staying cool than full-nosed or snouty dogs. No breeder would select for respiratory problems or an inability to stay cool. These traits emerged as costly byproducts of selection for a diminutive nose, and more abstractly, as a byproduct of our aesthetics. As in Tsien s experiments on memory enhanced mice, when we tamper with nature, we can cause great harm. Research on the evolution of religion provides my second example of how to think about adaptations and byproducts. The different types of religion are like the different dog breeds: distinctive in many ways, but with a large number of shared traits in common. Most religions have a set of rules for group membership and expulsion, ritual practices, and beliefs in the supernatural. These commonalities suggest to some scholars that religion evolved to solve a particular problem, one that all humans confront. That problem is large scale cooperation among unrelated strangers, a topic I pick up in greater detail further on in this chapter. Other species cooperate, usually with a small number of individuals, mostly close kin. As the size of potential cooperators grows, and genetic relatedness among individuals within the group shrinks adding more unfamiliar strangers to the mix the potential risks of cooperating with a cheater increases. Religion, and its core features, evolved to diminish this risk and increase the odds of developing a society of stable cooperators. Viewed from this perspective, religion is an adaptation in the evolved for sense. For those scholars who favor the idea of religion as adaptation, supporting evidence comes from Hauser Chapter 1. Nature s secrets 24 analyses of historical data together with experiments. Religious groups show higher levels of cooperation, often over longer periods of time, than many other organized, but non-religious groups. Religious groups also tend to last longer as groups than non-religious organizations or institutions. Cooperation among religious groups is often facilitated by punishment or the implication of punishment from a deity. In a study of 186 societies by the biologist Dominic Johnson, analyses showed that those who believed in a strong moralizing god, capable of doling out punishment, engaged in higher levels of cooperation, including paying taxes, complying with norms, and repaying loans. These observations are complimented by experiments showing that people are more generous about giving away their money in a bargaining game, and less likely to cheat, when they think about words associated with religion divine, God, spirit, sacred, prophet than when they think about neutral words. For example, in the dictator game, involving two anonymous players, one decides how much of a pot of money to give to the other. The recipient has no say, and is thus stuck with whatever the donor offers. In general, donors give either nothing or about half. When primed to think about religion, donors are more likely to give than keep the entire pot, and give more as well. The implication of these results is that the religiously-minded feel that they are being watched. Cueing up words that are indicative of their religious beliefs, heightens their vigilance and their moral obligations. Religion fuels altruism and fends off the temptation to cheat. All of the observations and experiments discussed above are fascinating and relevant to understanding the role of religion in past and present societies. But this evidence is irrelevant for understanding the evolutionary origins of religion. It is irrelevant because it can t determine whether religion originally evolved to solve the problem of large scale cooperation among strangers or whether it evolved for other reasons but was then used in the context of cooperation. This alternative explanation sees religion as an exaptation. No one doubts that religion provides social cohesion. No one doubts that religion also sends a buzzing reminder to the brain s moral conscience center. But from a description of what it does today, or even in the distant past, we can t conclude that it evolved for this purpose. That religious organizations show higher levels of cooperation than non-religious groups doesn t mean they evolved for cooperation. We also can t conclude that religion s effectiveness as social glue relies on uniquely religious psychological thoughts and emotions. Though the creation of and belief in supernatural powers may be unique to religion, other foundational beliefs and emotions are shared across different domains of knowledge: young children attribute intentions, beliefs and desires to unseen causes, including the movement of clouds and leaves; non-religious moral systems use punishment to embarrass, recruit regret, and fuel shame; like many religions, non-religious institutions also attempt to reprogram the thoughts and beliefs of its members think of all the global rebel operatives that brainwash innocent children into becoming child soldiers. Religion helps itself to non-religious psychology. The utility of Hauser Chapter 1. Nature s secrets 25 religion looks like a case of exaptation an expression of human thoughts and emotions that originally evolved to solve problems other than cooperation, but once in place were swiftly adopted for solving problems of cooperation. Further evidence in support of religion as exaptation comes from a follow-up to the dictator game experiment discussed above. If you swap religious words for non-religious but moral words such as civic, duty, jury, court and police, you get the same results: people give more money when thinking about these morally-pregnant, but non-religious words. It is also the case that if you paste up a photograph of eyes next to a money box for coffee, people give more than with a photograph of flowers. What these two studies show is that words and images that make us think about others, especially the possibility that others are watching, turns us into bigger spenders. These psychological transformations are not, however, specific to religion. Some may think that God is watching, but they and others may also think of a whitebearded, gavel-wielding, atheistic judge. We learn three important lessons from the study of tameness and religion, lessons that will propel our discussion of evil. First, distinguish what something evolved for from what it is used for. Second, dissect complicated traits down into their component parts as the parts, together with their interdependence, may have different evolutionary histories. Third, the combination of independently evolved capacities can lead to novel adaptations and possibilities. Some combinations lead to altruistic and humane compassion toward those we don t know. Others lead to virulent hatred and annihilation of those we do know. The brain s promiscuity is a driving engine for both the good, the bad, and the ugly. From the shackles of monogamy to the freedom of promiscuity Many years ago, some American friends of mine were married in a small village in Tanzania. After the wedding, they went to a local official who was responsible for providing a marriage certificate. On the certificate were three choices, indicative of the type of marriage: Monogamous, Polygynous, and Potentially Polygynous. My friends chuckled, but aimed their pen with confidence at Monogamous. Before they could ink the certificate, however, several Tanzanian men shouted out NO! At least Potentially Polygynous. Give yourself the option. Right, the option. The freedom to explore. Among social animals, only a few species pair bond for life, or at least a very long time. This fact is equally true of the social mammals: less than 5 of the 4000 or so species are strictly monogamous. For these rare species, most of their efforts to think, plan, and feel are dedicated to their partner; what s left over goes into finding food and avoiding becoming dinner. Life is much more complicated for the rest of the social animals. Their social and sexual relationships are more promiscuous, less stable and less Hauser Chapter 1. Nature s secrets 26 predictable. This unpredictability is partially responsible for changes in the brain. Promiscuous mating systems demand more flexibility, creativity and out of the box thinking. The anthropologist Steve Gaulin explored the idea that a species mating system is directly related to its capacity to think. Gaulin started by looking at two closely related species of voles, one monogamous and the other polygynous. In the polygynous vole, males typically mate with multiple females. To achieve this kind of mating success, males have large territories that encompass many smaller female territories. In the monogamous species, the male and female share the same territory, with mating restricted to the couple. These differences in mating system and space usage have two direct consequences: relative to the monogamous male vole, the polygynous male vole must travel much further in a day than the females and must recall where the female territories are located. For a polygynous male vole, mating success depends on long day trips, visiting each of the female territories. For the monogamous male vole, there are no physical or memory challenges as the female is virtually always nearby. Given the costs to a polygynous male vole of forgetting where the females live, there should be strong selection on the memory system. Gaulin confirmed this prediction by showing that polygynous male voles outcompete females of their species in a maze running competition, and also have larger memory systems than females. In the monogamous vole, there are no sex differences in maze running or memory. Gaulin s work provides a gorgeous example of how evolutionary pressures can act on the brain to create differences in psychological capacity. Other examples abound, including evidence that fruit eaters have larger brains than leaf eaters, primates living in large social groups have larger frontal lobes than those living in smaller groups, and bats living in open habitats have smaller brains than those living in complex closed habitats. In each case, a particular ecological or social pressure finding ripe fruit, updating the status of numerous social relationships, avoiding obstacles while in flight sculpts differences in brain anatomy and function. Some of these pressures favor extreme specialization and myopia, whereas others favor a broader vision. Relative to every healthy member of our species, all other animals have tunnel vision. When our ancestors began to migrate out of Africa, the diversity of environments and social opportunities favored generalists with a broad and flexible vision. To appreciate the significance of the human revolution in brain engineering, consider three cases of myopic, but highly adaptive intelligence in other animals, cases that lack the signature of intellectual promiscuity; these cases are of particular interest because they represent the kinds of examples that caused Darwin to doubt the beneficence of God, to reflect upon the cruelty of nature, and to ponder the problem of evil: The wasp Ampulex compressa tackles a specific species of cockroach, inserts a first stinger into its body to cause leg paralysis and eliminate fighting, then a second Hauser Chapter 1. Nature s secrets 27 stinger into the brain that causes intense auto-grooming followed by three weeks of lethargy. During this down time, the cockroach turns into a living meal for the wasp s larvae. A Brazilian parasitoid wasp of the family Braconidae, lays its eggs inside a particular species of caterpillar, and once the larvae are fully developed, they hatch out of the caterpillar. Though it is strange enough for caterpillars to function like incubators, these innocent larvae were anything but innocent while developing inside the caterpillar. Once the larvae hatch, they are treated to an unprecedented level of care from the caterpillar who, Gandhi-like, foregoes all eating and moving to protect its adopted young, including violent head-swings against any intruder. The wasp has effectively brainwashed the caterpillar, hijacking its evolved instincts to care for its own young. A solitary wasp in the genus Sceliphron selectively feeds on the dangerous and much larger black widow spider, using two tricks: it secretes a substance that is like Teflon, allowing it to move into a spider s web without getting stuck; next, it flails around in the web to attract the spider, and once the spider is positioned above in kill mode, the wasp launches its stinger, piercing the spider right through the brain. End of black widow. If the wasp makes the slightest mistake, end of wasp. The capacity that has evolved in these wasps is myopically focused on one problem, and one problem alone. Despite the mind control and deception that is part of their evolved competence, they don t deploy these skills in any other context. This highly adaptive and monogamous pattern of thinking runs throughout the animal kingdom and across different contexts, including male cleaner fish that attack female cleaner fish who violate the rules of mucus-eating from their clients, but do not deploy such draconian measures in other situations; birds that feign injury to deter predators from their nest, but deceive in no other context; cheetah mothers who demonstrate to their cubs how to bring down prey, but never provide pedagogical instructions in other relevant domains of development; and monkeys that understand how to use tools generously provided by humans but never create any of their own. Like other animals, we too are equipped with adaptive capacities that evolved to solve particular problems. Unlike other animals, however, these same adaptive specializations are readily deployed to solve novel problems, often by combining capacities. Like wasps, we deceive, manipulate and parasitize others, often cruelly. But unlike wasps, we don t use these abilities with one type of victim in one context. As long as the opportunity for personal gain is high relative to the potential cost, we are more than willing to deceive, manipulate, and parasitize lovers, competitors and family members. When we attack rule violators, not only do we do so in the context of cheaters who eat but don t pay, but also deadbeat dads Hauser Chapter 1. Nature s secrets 28 who fail to care for their young, cads who have extramarital affairs, and trigger-happy murderers who take the lives of innocent people. What changes in the brain enabled us, but no other species, to engage in promiscuous thinking? To understand what changed in the brain, it is useful to paint a few broad-stroke comparisons, and then narrow in on the details. We know, for example, that brain size changed dramatically over the course of our evolutionary history, ultimately reaching three times the size of a chimpanzee s brain with the appearance of the first modern humans some 100-200,000 years ago. From the archaeological evidence, we can infer that some aspect of the internal workings of the brain not simply size must have changed at about the same time in order to explain the appearance of a new material culture of tools with multiple parts and functions, musical instruments, symbolically decorated burial grounds, and cave paintings. Before this period, the material culture of our ancestors was rather uncreative, with simple tools and no symbolism. The new material culture was heralded by a mind unlike any other animal. No other animal spontaneously creates symbols, though chimpanzees and bonobos can be trained to acquire those we invent and attempt to pass on. No other animal creates musical instruments or even uses their own voice for pure pleasure. No other animal buries its dead, no less memorializes them with decorations; ants drag dead members out of their colony area and deposit them in a heap, though this is driven by hygiene as opposed to ceremonial remembrance and respect. Only a species with the capacity to combine and recombine different evolved specializations of the brain could create these archaeological remains. This period in our evolutionary history marks the birth of our promiscuous brain. The brain sciences have helped us see the fine details of this new species of mind. The comparative anatomists Ralph Holloway, James Rilling, and Kristina Aldridge have analyzed brain scans and skull casts of humans and all of the apes: chimpanzees, bonobos, gorillas, orangutans, and gibbons. This sample represents approximately 15 million years of evolution, and includes considerable diversity in mating systems, dietary preferences, use of tools, group size, life span, locomotion style, communication system, aggressiveness, and capacity for cooperation. Thus, gibbons are monogamously pair bonded, live in small family groups in the upper canopies, swinging and singing to defend their territories, never use or create tools, are omnivorous, restrict cooperation to within the family group, and show little aggression. Gorillas are folivores or leaf eaters, live in harem societies, knuckle walk on the ground, rarely use or make tools in the wild, show aggression primarily between harems, communicate with a diversity of sounds, and show limited cooperation even under captive conditions. Chimpanzees are promiscuous, omnivores who hunt for meat on the ground and in the tree tops, create a diversity of tools that are culturally distinctive between regions, communicate with a diversity of sounds, are lethal killers when they confront individuals from a neighboring community, and are cooperative especially in competitive situations. Despite this diversity, nonhuman ape brains are much Hauser Chapter 1. Nature s secrets 29 more similar to each other than any one is to a human brain. What changed since we split off from our ape cousins is both the overall geometry of the brain in terms of the relative size of different components, as well as the connections both within and between these components. Some of the most spectacular changes evolved within the frontal and temporal lobes, as well as their connections to other areas of the brain involved in the control of emotion and stress. These circuits play a critical role in decision making, self control, short-term memory, social relationships, tool use and language. For detail, and further evidence of the importance of connectivity in promiscuous thinking, we turn to brain imaging studies of healthy adults, developing children, and patient populations that lack the signature of promiscuity. Consider tool use. Though a wide variety of nonhuman animals use tools, only humans create tools that combine different materials, have multiple functioning parts, can be used for functions other than the one originally designed, and function in the context of survival, reproduction, and leisure. These properties are the signature of a promiscuous brain. When we look at the material culture of the most sophisticated animal tool user the chimpanzee we see tools that use a single material, have only a single functional part, are only designed for one function, and the function set is strictly limited to survival or reproduction. Something as simple as a pencil, beyond the chimpanzees wildest imagination, consists of multiple materials (rubber, wood, lead, metal), was designed for writing but can be used for poking or keeping hair up in a bun, and has two functional parts (lead for writing, rubber for erasing). When you put a human subject in a brain scanner and record activity during observations of tool use, what you see is an orchestrated coordination between different and connected brain regions. There is activity in regions carrying out spatial analyses, motor behavior, goal directed assessments, and object recognition, and much of this activity is fed forward to the frontal areas for storage in working memory as well as judgment and evaluation. A healthy adult brain is a heavily connected brain. Promiscuity results from a network of interconnected brain regions. Even resting brains show signs of promiscuity. When you lie down in bed and close your eyes, but before you drift off to sleep, your brain assuming you are an adult and healthy shows activity in a family of inter-connected brain regions called the default network. This is your brain at rest, but it is anything but at rest. Some of the most active areas involve those that are engaged when we evaluate social relationships, consider what others believe and desire, who they are, and how we might interact in the future. This same default network looks very different in children, as well as in the elderly: it is much less connected. Growing up is connecting up. Growing old is disconnecting. We gain promiscuous thinking as we mature and lose it as we age. If connection is key, then disorders of the mind or physical insult should result in predictable loss of promiscuity. A brain imaging study of individuals with autism is revealing. Individuals with autism fall along a spectrum, from low to high functioning. Though this spectrum captures important Hauser Chapter 1. Nature s secrets 30 differences, all inflicted with this developmental disorder have difficulty understanding the beliefs, intentions and emotions of others, and often become hyper-aroused when seeing, hearing, or touching rather unremarkable objects or events. All of these capacities require a system that can integrate multiple sources of information. During brain scanning, individuals with autism show a striking reduction in activity in an area called the insula and its connection to both the somatosensory cortex and amygdala. The insula is an area of the brain that is like a traffic cop, responsible for coordinating the flow of information in the brain, both where it is coming from and where it should go. The somatosensory cortex handles our body s response to the world, including its state of arousal. The amygdala plays a key role in emotional processing, and more generally, in generating positive or negative assessments about the value of an experience. With the traffic cop asleep, and the body s arousal and emotional hubs dormant, it is no wonder that those with autism lack empathy, can t understand what it means for someone to be in love, are befuddled by deception, and find the bombardment from our media-intense world truly overwhelming. The lack of connectivity among those with autism is proof that connectivity is necessary for promiscuous thinking. Once we evolved our massively connected, promiscuous brain, tool use, communication, mathematics, music, and morality were transformed. No longer were we constrained to think within the confines of the evolved context. We could take aspects of an ancient psychology that evolved for one problem and use it for new purposes, some beneficial to us individually and as members of a group, and some costly to our own and others survival. Consider our capacity to defend members within a group against attack from individuals outside the group. Many, perhaps even the majority of religious groups have carried out this mission, some with violence such as the Catholic-Protestant conflict in Ireland, and some with tranquility such as the Tibetan s plea for peace amidst a powerful Chinese oppressor. The process starts, however, with an ancient system that we share with all socially living animals. To survive and reproduce, individuals cooperate with members of their own group and defend their resources against members of neighboring groups. All animals, humans included, recognize group members by distinctive markings or recalling features associated with specific individuals. We transformed this evolutionarily ancient capacity into a distinctively human one by combining it with our systems of language, morality, and beliefs. This combination allows us to use symbols to demarcate those within our group from those outside, to tie these symbols to distinctive beliefs, values, and emotions, and to use these different psychological systems to caricature the other as buffoon, vermin, parasite, or inanimate cargo. This combinatorial process allows us to cleanse the in-group by annihilating the out-group. It allows us to increase cooperation within a group while ramping up the defenses to take out enemies living outside the group. This strategy is simple and effective. First, convince one group of people that another group has a set of undesirable traits, Hauser Chapter 1. Nature s secrets 31 features that will undermine the success of the in-group. This has the effect of tightening the bonds within the group. Next, convince the in-group that those undesirable qualities make the others less-thanhuman and barely nonhuman. Next, make sure that the nonhuman mascot for the out-group is vile, abhorrent, and disgusting. This ingredient is critical as it guarantees that each member of the in-group will feel a surge of disgust every time it sees or hears of the out-group. Once disgust is in motion, there is only one additional step: either destroy or purge the other of its vile qualities. Destruction is not only permissible, but morally obligatory, carried out guilt-free because the mind has taken the other out of the moral domain and into the domain of property either dispensable, controllable or transformable. Taking out the other is rewarding. Harm feels good. Our uniquely promiscuous minds invented dehumanization, using a recipe of adaptive ingredients defense against an enemy, disgust as a response to noxious and unhealthy substances, and creative language use. This is a dangerous idea, one I develop in chapter 3. It is one of many capacities that enabled us to uniquely imagine new ways of inflicting excessive harm on others. It is a capacity that, nonetheless, has a deep evolutionary history. HARMING OTHERS, version 1.0: non-lethal behavioral routines All animals are motivated to secure resources that will enable them to survive and reproduce. At the most basic and universal level, this is what life is all about. Gaining access to resources enables individuals to accrue more resources, live longer, and produce more offspring. The path to acquiring resources is complicated by two facts of life that were central to Darwin s insights into the process of evolution: resources are limited and individuals must compete with others from the same and different species for these resources. Competition is the breeding ground for aggression the most basic means of harming others. Aggression is a natural outcome of living in a social world where supper, sex, and space never come prepared on a silver platter. Here I explore the core properties of non-lethal aggression, a manner of harming others that is part of every animals behavioral repertoire. This discussion sets the stage for understanding how evolution s R D operation enabled a transformation of the non-lethal form of aggression into a lethal form, and ultimately, into an excessively lethal form that is the trademark of human evil. It also shows how the social norms guiding animal aggression evolved into moral norms, and thus, why we perceive some forms of aggression as deeply wrong, unethical and grotesque. Consider life on Earth before human existence, say 10 million years ago. Our closest living relatives the chimpanzees and bonobos are living in the forests of Africa, and so too are dozens of other Hauser Chapter 1. Nature s secrets 32 primates, mammals, birds, reptiles, amphibians, fish, and insects. And of course, there are animals populating every other continent and the seas that surround them. Among the social animals those living in groups the common form of aggression is one-on-one, and the context is typically competition over food, a place to rest, or access to a mate. Sometimes the aggression is initiated as an attack and sometimes it is in self-defense. Sometimes it is highly ritualized and planned, and sometimes it is a reactive free-for-all. Sometimes it occurs within the group and sometimes between. Severe injuries arise, but deaths are rare. The aim is to resolve a competitive dispute by means of non-lethal aggression, and if possible, non-physical contact. If someone dies it is because an injury leaves them incapacitated or vulnerable to disease. It is not because their opponent aimed to kill. The ubiquity of non-lethal aggression points to a suite of common biological ingredients, a core set of neurobiological, hormonal and psychological adaptations that constrain how animals fight. It all starts with one individual perceiving a valuable resource that is within reaching distance of a competitor. What launches a first move and subsequently guides the process to its completion with a winner and a loser? In some species there are rules of thumb that deflate any aggressive instincts before they are launched, even though there are clear competitive interests. For example, in territorial lizards and birds, if an emigrating individual lands in an area and sees or hears another individual vigorously displaying push-ups with colorfully flashing neck sacs in lizards, vocal arias in birds they move on. The rule: territory owners win, no questions asked. Another rule of thumb arises in species organized around either permanent or breeding-only harems: one male and many females. Two classic cases are the well-studied hamadryas baboons of Ethiopia and the elephant seals of California. In both species, males are much larger than females, with elephant seals providing an extreme case the harem master can be ten times bigger than the females he mates with. In hamadryas, no one challenges the male over access to the females in his harem. Competition arises in acquiring females into a harem, a process that starts early, with individual males recruiting juvenile females. In elephant seals, either one or a few males completely monopolize the mating among the often hundred or more females within the harem. These males rule. As evidenced by genetic fingerprinting, virtually all of the offspring are sired by 1-3 males. No mating competition. Competition arises when the young turks try to wear down the harem master through repeated challenges over the season. Eventually, often over the course of several mating seasons, the harem master loses a fight and hangs up his gloves. Dominance hierarchies provide another set of rules or norms that guide competition, and thus aggression. In general, irrespective of the species, high ranking animals outcompete low ranking animals for access to resources. If the spread between two individuals within the hierarchy is large, the subordinate acts like a migrating lizard or bird landing in a resident s territory: no contest, no competition, no fighting. If the spread is less, say two individuals who hold adjacent positions within the hierarchy, Hauser Chapter 1. Nature s secrets 33 then other factors enter into the calculation. This is where things get interesting as these other factors determine the start and end of a contest. Insights into the dynamics of aggressive competition emerged in the late 1970s and early 1980s due to two fundamental developments within evolutionary biology. The first involved a marriage between economic game theory and evolutionary biology. This marriage was set up by the British evolutionary biologist John Maynard Smith who recognized that for any competitive interaction, there are different strategies, each with different payoffs. Some strategies are more costly, but return greater benefits. Others are more conservative and less costly, but return smaller benefits. How well any given strategy does depends on its frequency in the population, and thus, on whether the particular strategy is dominant or rare. For example, consider a baboon troop with 20 adult males. Imagine that one of the males decides to bare his canines, stand up on his two hind legs, and charge whenever anyone comes near him and he is eating. This male is displaying his intent to attack at the slightest provocation. One could imagine that this would be very effective, especially if he is the only one displaying in this way. But if this display pattern spreads, and all 19 other males do the same thing, then this strategy fails as it no longer distinguishes among the 20 males in the troop. What evolutionary game theory tells us is that the effectiveness of a strategy depends on how common it is within the population. Power comes, in part, from being not too common or predictable. The second development involved signaling theory, and a challenge to the traditional approach that considered animal signals as truthful messengers of information. On the traditional view, when a monkey bares his canines, he is signaling his motivation to attack. When a dog puts his tail between his legs, he is signaling his submissive status. When a bird gives an alarm call, she is telling others that a predator is nearby. When a human smiles, he is conveying his desire for friendship. The new signaling theory presented a challenge to this honest view of communication. Why, for example, wouldn t individuals lie, deceiving others into believing that they were really tough, meek, in danger, or friendly, only to take advantage of the situation and gain added resources. Why, for example, wouldn t a baboon who was actually afraid, put on a tough-guy show and scare off his opponents? Why wouldn t a dog who was actually tough, send a submissive signal at the start of the interaction, cause his opponent to lower his guard, and then attack? Why wouldn t a bird send an alarm in the absence of danger, knowing that others will run for cover and leave all the food behind no competition? Why wouldn t a human who actually wanted to lure in an innocent victim for robbery send a seductive smile? This line of questioning, developed by the British evolutionary biologists Richard Dawkins and John Krebs, led to a number of studies showing that animals are engaged in a much more complicated and dynamic dance when they compete. Static properties of the animal its height, weight, tail length, antler size indicate its raw, unfakeable ability to fight or what biologists call Resource Holding Potential or RHP. A deer with a large Hauser Chapter 1. Nature s secrets 34 set of antlers has paid the costs of growth, and is thus, a serious opponent with considerable strength. A tall, heavy, long-tusked elephant bull has spent the time and energy to bulk up, and can throw this weight around in a fight. Added on to an animal s RHP are dynamic properties, features that require energetic investment in the moment such as the loudness or duration of a vocalization, or the height of a jump display. These dynamic properties form the foundation of competitive interactions, and the raw material for assessments. When a resource is up for grabs, and no simple rule of thumb or RHP factor trumps, animals assess each others displays, working out whether to flee or escalate. What, if anything in a display, reflects the signaler s true capacity and motivation? The Israeli evolutionary biologist Amotz Zahavi provided a simple, yet far-reaching explanation of honest signaling. Honesty, in the animal world, is simply about prediction. When a kob standing on his territorial mound charges toward another, to what extent does this display predict that he will continue the attack if the opponent doesn t flee? Is he all smoke or does the display accurately predict the followthrough? When a mantis shrimp uses his powerful claw to thump the sand at an intruder, will he go further, thumping the intruder who continues to advance? Zahavi s solution was based in economics: signals are honest if and only if they are costly to produce, where cost is relative to current condition or health. If every kob can charge even if they are blowing smoke, the charge display carries no weight. It is pure puffery and dishonest. If every mantis shrimp can thump with its appendage, and does so regardless of its current power, then sand thumping loses value. For a charging display or sand thumping to carry value, they have to be costly to produce and only those in good enough condition should be able to tolerate the costs. Numerous studies support Zahavi s insight, including work on insects, crabs, birds, and gazelles, as well as hunter-gatherers and religious institutions. Hunter-gatherers do it by showing off and sharing their large prey capture, whereas religions do it by showing their commitment to long and involved ritual displays. The vast majority of animal competition is settled by means of non-lethal aggression. Animals adopt different strategies, use rules of thumb, and engage in assessment in order to minimize the costs of battle. This is version 1.0 of HARMING OTHERS. This version operates within every animal, humans included. Over time, some animals evolved hormonal and neural upgrades that changed how individuals experienced the thrill of victory and the agony of defeat, as well as changes in their willingness to take risks. These upgrades inched animals closer to lethal aggression, pushed some right into it, and others over the top. Hauser Chapter 1. Nature s secrets 35 HARMING OTHERS, version 1.1: microcontrollers In any competitive situation, whether it is animals working out a strategy for maximizing the odds of obtaining food or humans working out a strategy for maximizing the odds of check mating an opponent s king, someone will walk away as the winner and someone as the loser. Winning feels good and losing feels bad. Winning fuels confidence, losing lowers self-esteem. Depending on the opponent, including what they look like and whether they are familiar or unfamiliar, it is possible to gauge the likelihood of winning or losing in advance. Depending on the individual s prior history of wins and losses, and details of his or her personality, some individuals will embrace the challenge of a high risk-high payoff strategy whereas others will adopt a low-risk low payoff strategy. Winning, losing, and taking risks are all mediated by differences in hormone levels, neurochemicals, and patterns of brain activation. Some of these differences are set by the individual s biology, some change over the course of a year, some within a day, and some within the period of a brief glance that allows for an opponent to assess the competition. These physiological processes are the microcontrollers that regulate an individual s motivation to fight or flee, as well as the sense of reward and loss that accompanies winning and losing. These microcontrollers adaptively regulate the capacity to harm, at least until they malfunction. Malfunctions, whatever their cause, can convert healthy, defensive, competitive, and justifiable harms into over the top excessive and unethical harms. One of the primary microcontrollers is the hormone testosterone. Though it is commonly assumed that testosterone is a male hormone, it is also present in females, though at lower concentrations. Testosterone plays an essential role in both sexual and aggressive behavior in all social animals. Testosterone surges when males defend their territories, and also, when they recruit sexually available females. Stronger surges occur when individuals are challenged by competitors who want their territory, food, mates, or position within a hierarchy. What this shows is that testosterone motivates animals within the arena of competition. Testosterone also surges again after an individual wins a fight, and drops following a loss. This is highly adaptive as it motivates winners to keep defending their resources, and motivates losers to give up and minimize future costs. Across a wide variety of species, humans included, winners are two times more likely to win the next fight whereas losers are five times less likely to win the next fight. These winner-loser effects are mediated by testosterone. In our own species, among male and female athletes, in sports including soccer, tennis and judo, winners show higher testosterone levels than losers. This effect even holds in non-physical competition, such as chess and stock trading. In a study of day traders on the London Stock Exchange, those making the highest profits had the highest levels of testosterone. Even those who are simply witnesses to a winning competition show increases in testosterone, including Hauser Chapter 1. Nature s secrets 36 cichlid fish spectators observing a winning fight, and soccer spectators seeing their team win the World Cup. What many volumes of experiments reveal is that testosterone plays a fundamental role in social behavior across the animal kingdom, motivating individuals to defend their resources, acquire additional resources when possible, develop confidence following victory, and gracefully walk away following defeat. Testosterone influences behavior, and behavior influences testosterone. If an individual experiences a challenge, this causes an increase in testosterone. The increase in testosterone heightens confidence and risk-taking to defend the resources. Heightened confidence and risk-taking are often associated with winning fights. Winning fights increases testosterone, bringing us full circle to the challenges of social living. Testosterone is joined by several other microcontrollers, including at least one additional hormone cortisol two neurochemicals serotonin and dopamine and several brain areas that are affected by these hormones and neurochemicals. Our understanding of this assemblage, beautifully synthesized by the psychologist Jack van Honk, accounts for both our adaptive and sometimes highly maladaptive capacity to harm others. Cortisol mediates the stress response in fish, reptiles, birds, and mammals, including all ages of human mammals. When fear kicks in due to aggressive challenges from a dominant individual or from the appearance of a predator, cortisol rises. When individuals confront uncertainty, cortisol rises. When cortisol levels are high, individuals are more sensitive to punishment and more likely to avoid social interactions. Flipping the polarity around, when cortisol levels are low, individuals are more aggressive, more reward focused, and less sensitive to punishment. Testosterone and cortisol therefore play within the bodies of animals like two children sitting on opposite ends of a see-saw. When testosterone is up and cortisol is down, individuals are primed to harm others and take risks. When testosterone is down and cortisol is up, individuals are risk averse, less likely to harm and more likely to engage in friendly social behavior. Serotonin, as noted earlier in the discussion of domestication, is primarily involved in selfcontrol. High serotonin levels are associated with behavioral inhibition, whereas low serotonin levels are associated with disinhibition or impulsivity, as well as heightened aggression. Dopamine is linked to the experience of reward, both in terms of predicting when it will occur and in motivating behavior that maximizes the odds of obtaining the goods. When animals reach their goals or expect to obtain them, including food, mating, or winning a fight, the brain delivers a surge of dopamine. In humans, taking a drug that increases the amount of dopamine, causes people to believe that they will feel more elated about an event in the future. Hauser Chapter 1. Nature s secrets 37 Testosterone modulates these brain chemicals, suppressing serotonin in the service of heightening aggression, and ramping up dopamine to add to the already reinforcing properties of testosterone. But like dopamine, testosterone is also directly linked to the reward system. Mice will work a response lever to deliver testosterone, and humans become addicted to it. If you inject testosterone into a mouse while it is moving about, the location associated with the injection becomes tagged as a favorite spot in the landscape, a place to revisit. Drug abusers and gamblers, two personality profiles associated with heightened experience of reward and poor self-control, have elevated levels of testosterone and dopamine. Twirling inside the brains and bodies of all social animals is a physiological ballet that controls the capacity to harm others. This choreography links harming others with the experience of reward. In some animals, the link between harm and reward was upgraded to a capacity for lethal aggression. HARMING OTHERS, version 1.5: upgrade to lethal aggression All social animals have evolved the capacity for aggression, using it to fight members of their own species for food, land, and sex. For virtually all animals, winning a fight means chasing away or injuring a competitor, but not killing them. There are, however, three situations in which animals kill, two are broadly distributed across the animal kingdom and one is extremely rare. In virtually every taxonomic group of animals insects, reptiles, amphibians, fish, birds, and mammals there are predators and prey. Predators are not merely aggressive, but designed to kill prey species for the purpose of survival. Also common is infanticide, situations in which adults kill infants. Infanticide is often committed by males who have recently entered a group with infants sired by other males. By killing these infants, not only does the newcomer obliterate the competition s fitness, but he effectively reboots the female s sexual receptivity. Both predation and infanticide entail significant asymmetries in size or weaponry between attacker and victim, making the kill relatively cost-free. Rare in the animal kingdom are cases where attacker and victim are from the same species, both adults, and thus, comparable in size and weaponry. This kind of killing call it adulticide only occurs in a small number of species, but the attacks are sufficiently frequent to count as part of the repertoire: ants, lions, wolves, chimpanzees and humans. The rarity of adulticide raises important questions about the evolutionary pressures that favored this upgrade to harming others, as well as the mechanisms that evolved to make it possible. Battles among ant colonies are notorious for their organized attacks, designed to kill the enemy and minimize costs. Watching ant colonies battle it out piques the imagination, recalling the classic face offs between British and French brigades, each side lined up in strategic formation, divided into ranks, set up to protect the land and royalty. In his book Life in the Woods, the American writer and nature lover Henry David Thoreau, writes that the ant battles were deadly combat without any noise I never Hauser Chapter 1. Nature s secrets 38 learned which party was victorious, nor the cause of the war: but I felt for the rest of that day as if I had had my feelings excited and harrowed by witnessing the struggle, the ferocity and carnage, of a human battle before my door. What is distinctive about ant battles and the deaths that ensue is that they are coordinated, with success driven by group size. As the biologist Eldridge Adams has demonstrated, bigger groups are more likely to win, more likely to kill a higher number of their smaller opponents, and less likely to incur any fatalities. Despite the similarities between ant and human battles, two differences undermine the usefulness of this analogy for understanding the evolution of lethal aggression in humans: ants are only a very distant evolutionary cousin, subject to extremely different pressures of social life, and their cooperative efforts are largely among individuals who are virtual genetic clones. When humans go to battle, cooperation is largely among unrelated individuals who are complete strangers. Of the small sample of species committing adulticide, chimpanzees are our best bet as they are closer evolutionary cousins and they join forces with kin and non-kin. To get a sense of lethal aggression in chimpanzees, consider the following description by the anthropologist David Watts and his colleagues concerning an attack by males of the Ngogo community of Uganda (emphasized words are mine): Field Assistant G. Mbabazi found 12 adult and three adolescent males, 10 of which had participated in the boundary patrol 2 days before in the eastern part of the Ngogo chimpanzees territory. They started another boundary patrol by quickly and quietly moving south and then east. At 0830 hr, they moved east through a field of elephant grass (Pennisetum purpureum), then reentered the forest and went toward the spot where BT, LO, and MO three adult male chimpanzees had been displaying 1 day before and the area where Ngogo males had patrolled the day before that. As they reentered the forest, the Ngogo chimpanzees met chimpanzees from another community. The neighboring chimpanzees were feeding quietly on Pseudospondias microcarpa fruit in the same tree under which BT, LO, and MO had displayed. G. Mbabazi could not ascertain the precise number of chimpanzees from the neighboring group, but he saw at least two females with infants, one juvenile, and one adult male that immediately fled northeast with the Ngogo chimpanzees in pursuit. The Ngogo chimpanzees caught up to the strange adult male after chasing him for about 100 m and surrounded him. Adult Ngogo male EL began to pummel the intruder, and adults BF, BRU, LO, and MO quickly joined him. The strange male tried to escape down a small hill but could not elude these five Ngogo males and others that joined them. The Ngogo males, led by EL, continued to beat, bite, and kick him for 20 min, and dragged him farther down this hill into a small stream valley about 50 m away from the spot of his initial capture, where he died during or shortly after the attack. All of the Ngogo males remained in the area after the stranger was killed. Several circled his body and some sniffed it, while others sat nearby. Careful inspection showed that the victim suffered wounds across his entire body including a deep gash to the bone on the left humerus and a deep puncture on the left side of the thorax near the heart. The only missing body part was the victim s testes, which were recovered 50 m away, near where he was initially captured (2006, p.g., 166). Watts description captures several important features of adulticide in chimpanzees both at the same field site and others throughout Africa and in other species. The lethal attacks are explicitly proactive and planned. This is important because many cases of non-lethal aggression are reactive and impulsive, and studies of human and nonhuman aggression reveal different brain mechanisms underlying these two forms of violence. When chimpanzees attack, they use stealth to sneak up on the victim, and Hauser Chapter 1. Nature s secrets 39 then relentlessly hunt them down. When they catch the victim, the attack is brutal, focused on body parts that are necessary for moving, communicating and reproducing. The attackers commonly have a numerical advantage over the victims, a ratio of at least three to one. This power imbalance reduces the costs of the attack by making it almost impossible for the victim to retaliate. Proof of this cost-benefit analysis comes from the fact that the attacking party rarely incurs injuries, whereas the victims rarely escape alive. The benefit of these attacks is that the attacking community gains access to additional resources by weakening the competitive strength of their neighbors. In a well documented case from Jane Goodall s site in Gombe, Tanzania, one chimpanzee community literally eliminated their competitors in the neighboring community, absorbing the remaining individuals and land. Though such attacks are certainly not a daily affair, they occur with sufficient frequency and benefits to create a selective advantage for the winners. The suite of behaviors that accompany coalitionary killing in chimpanzees has led several scientists, most notably Wrangham, to argue that this form of lethal aggression in chimpanzees is an adaptation, with deep parallels to human warfare. On this view, we inherited the upgrade to version 1.5 lethal aggression. The claim that our capacity for killing, especially in war, is an evolved adaptation, is anathema to many, scholars in the humanities and social sciences. The visceral antagonism is triggered by the belief that biological explanations imply inevitability, and provide an excuse for the atrocities we create. For these scholars, war, and more generally, the high levels of killing observed among human populations, are recent, cultural concoctions, born out of human intelligence, the invention of projectile weapons, and high population density, to name a few. From this perspective, biology plays no meaningful role in our understanding of human violence. From this perspective, killing in chimpanzees looks nothing like killing in humans. This attitude echoes the famous 1986 Seville Statement on violence in which a group of distinguished scientists, including the ethologist Robert Hinde, the geneticist John Paul Scott, and the biological anthropologist Richard Leakey, sidelined biology with the following five statements: 1. "It is scientifically incorrect to say that we have inherited a tendency to make war from our animal ancestors." 2. "It is scientifically incorrect to say that war or any other violent behaviour is genetically programmed into our human nature." 3. "It is scientifically incorrect to say that in the course of human evolution there has been a selection for aggressive behaviour more than for other kinds of behaviour." 4. "It is scientifically incorrect to say that humans have a 'violent brain'." 5. "It is scientifically incorrect to say that war is caused by 'instinct' or any single motivation." Hauser Chapter 1. Nature s secrets 40 These claims led to the rather dreamy-eyed utopian conclusion that Just as 'wars begin in the minds of men', peace also begins in our minds. The same species who invented war is capable of inventing peace. The responsibility lies with each of us. In essence, understanding our biology will not contribute to understanding violence and war because we invented war as well as peace, woven out of nurture s cloth and her infinite tapestry of cultural potential. These kinds of claims about the role of biology in human behavior are at best incoherent, and at worst plain wrong. They are also dangerous because they imply a view of human nature that is infinitely plastic, unconstrained by both universal features of our biology, as well as individual differences that predispose some to extreme violence and others to extreme altruism. What makes the Seville Statement, and other claims like it incoherent is a set of false attributions to biologists about the role of biology. Statements 2-5 are accurate in that it is incorrect to say that war or violence are genetically programmed, subject to stronger selection than other kinds of behaviour, built into the brain as a violent brain, and based on instinct with a single, inevitable output. But I don t know any biologists who believe statements like these. The biologist Peter Marler famously spoke of singing in birds as an instinct to learn, while the evolutionary psychologist Steven Pinker described the Chomskyan insight into language as the language instinct. A bird s instinct to learn does not mean that there is a oneto-one, inflexible mapping between genes or brain circuits and a specific type of song. All songbirds have the potential to acquire their species song, and in some birds, such as mockingbirds and parrots, this capacity extends to acquiring the sounds of other animals and even inanimate sounds. But if there is no input at all, or if the bird is deafened, the output is deficient in structure, unrecognizable as a speciesspecific song. The same holds for the language instinct. Instincts are biological biases that constrain the range of potential variation. Biology differentiates songbirds from birds that don t learn their songs. This same biology allows some birds to learn one song and use it for life, and allows other birds to acquire a variety of different sounds for use in singing. The biology doesn t determine the specific content of a song. The content is determined by what the bird hears, constrained by what its bird brain and syrinx will process and reproduce. To a large extent, language is no different. Our biology allows us, but not any other species, to acquire language. This same biology sets up constraints, due in part to what our brains can keep in memory, what our ears can hear, and what our larynx can produce. Like songbirds, the specific content of what we say, whether with a French or Vietnamese accent, is determined by where we live and who we listen to. If there is any intelligible sense of genetically programmed or instinct, whether for violence, language, sex, or mathematics, it is that our biology provides us with the capacity to acquire these domains of knowledge and expression. This doesn t mean that violence, language, sex or mathematics are inevitable or fixed in their expression. There are thousands of languages, ways of having sex, and forms Hauser Chapter 1. Nature s secrets 41 of mathematical expression. There are also thousands of ways of being violent, and equally, ways of counteracting such violence. But none of this takes away from the importance of biology, especially its role in constraining the form that these expressions take in different environmental settings. To think otherwise is just wrong. The debate about version 1.5 of lethal aggression gains interest if we restrict the conversation to the similarities and differences between chimpanzee and human killing. Similarities speak to our shared evolutionary history, including the mechanisms we inherited and the pressures that favored this form of violence. Differences speak to both changes in our biology and the environments we confronted and created. Those who argue that the comparison between human and chimpanzee killing lacks any analytical value come from two different camps. On the one hand are anthropologists such as Robert Sussman and Brian Ferguson who suggest that chimpanzee killing is infrequent, has little benefit in terms of resources or competition, and is restricted to populations that are either artificially provisioned by humans or crowded in by us. They also suggest that the archaeological evidence for human warfare doesn t really begin until about 12,000 years ago. As Ferguson notes To argue that war is a result of some sort of innate predisposition to wage it requires that war be practiced throughout our prehistoric past. This date, so Ferguson continues, is too recent to invoke natural selection as a cause, and leaves unexplained why there is no earlier evidence of massive killing if our last common ancestors had this capacity. These criticisms either fly in the face of contradictory evidence or have little to do with the original ideas. Concerning chimpanzee killing, the evidence comes from multiple sites in East and West Africa, including sites with no provisioning and no crowding from humans. Further, analyses by Wrangham and his colleagues show that humans living as hunter-gatherers or subsistence farmers on the continents of Africa and South America, engage in coalitionary killing, using stealthy raids and imbalances of power to minimize the costs and maximize the benefits. Looking at 32 different small scale societies, calculations of the median death rate were between 164-595 per 100,000 per year. Looking at 9 chimpanzee communities spanning 5 populations in Tanzania, Uganda, and Ivory Coast, the rate was 69-287 per 100,000 per year. Chimpanzees fall well within the range of human hunter-gatherers and subsistence farmers. This evidence not only shows parallels between chimpanzees and human societies living under conditions most like our ancestors, but also provides a resounding rejection of the view that chimpanzee killing is infrequent and of trivial importance. If the rates of killing are comparable, then either they are trivial for both species or trivial for neither. Given that both chimpanzees and human hunter-gatherers live in small groups, killing even a few individuals can have a dramatic effect on their capacity to defend resources. Hauser Chapter 1. Nature s secrets 42 A further parallel between chimpanzees and small scale human societies comes from analyses of two extreme warring societies, the Waorani of New Zealand and the Yanomamo of Venezuela. Though violence accounts for between 40-55 of all deaths in these two groups, attackers appeared immune to injury, with no more than 5 dying in battle, and often no deaths at all. Chimpanzee attackers are likewise immune to injury, due in large part to the strategic use of imbalances of power. The parallels between chimpanzees and humans living in small scale societies supports the idea that similar pressures favored the capacity for coalitionary killing in both species. Does this mean that each of these species should always kill in this way, and thus, as argued by Ferguson, the archaeological record should be chock full of deaths by coalitionary attackers? To argue for this position is to misunderstand the nature of an adaptation, and the arguments put forth by Wrangham as well as the evolutionary psychologists Martin Daly, Margo Wilson, and David Buss. As I discussed earlier on in this chapter, adaptations are contingent upon particular environmental circumstances. What is adaptive today need not be tomorrow. This is why it is not only unsurprising to see variation in the frequency of coalitionary killing among chimpanzee sites, among humans living in small scale societies, and among modern day humans who sometimes kill their spouses, stepchildren, and rivals, but predicted by evolutionary theory. Adaptations are economically efficient solutions to particular social or ecological problems. If those problems or pressures change, the original adaptation may have no impact on survival or a negative impact. A hiatus in the archaeological record assuming this is the last word is interesting with respect to the conditions that might favor or select against coalitionary killing, but in no way undermines the logic of an evolutionary adaptation, one shared by chimpanzees and humans. The second camp arguing against the parallels between humans and chimpanzees is defended by the economist Samuel Bowles and his colleagues. Unlike the anthropologists, Bowles is entirely sympathetic to biology but sees fundamental differences in the pattern of human killing and warfare. To explain these differences he invokes two important attributes of human societies that have only weak parallels in other species: large scale cooperation with unrelated others from the same group, together with hatred, symbolic labeling, and the motivation to hurt all others outside the group. These two factors, what Bowles calls parochial altruism, may have paradoxically generated both greater levels of cooperation within groups and higher rates of warfare between groups. Those groups with the best cooperators acquired the greatest resources and experienced the fewest losses due to cheaters and other morally corrosive rogues. This power and inward-looking favoritism led to self-defensive emotions and behaviors, ultimately leading to lethal aggression toward those with different beliefs and values. Thus parochialism and altruism co-evolved, hand in hand, breeding prejudice as a result of group safety. This evolutionary handshake resulted in warfare and our unique capacity as killers. Bowles analysis is interesting and consistent with my explanation of how we evolved the Hauser Chapter 1. Nature s secrets 43 capacity for evil. For both Bowles and I, certain aspects of our capacity to harm others emerges as an incidental byproduct of other capacities, and once this dynamic emerges, the combination of these capacities can evolve and change. What Bowles analysis misses, however, is the fact that parochial altruism could well be true, and so too could our shared capacity for killing with chimpanzees. As noted above, rates of killing among chimpanzees and several small scale societies are comparable, and so too are the costs and benefits to attackers and victims. This argues in favor of a shared history, and a shared adaptation. It does not mean that all aspects of killing in humans are similar, or that the human mind froze in a chimpanzee state with regard to its capacity to kill. It most definitely did not freeze. Unlike the lethal attacks by chimpanzees that are restricted to cases where groups attack lone victims, primarily from neighboring groups, we wreak havoc on a massive scale, with one on one, many against many, and one against many, including victims within and outside our core group. Unlike chimpanzees, even our young children have an appetite for violence that can be nurtured, as evidenced by the brutality of child soldiers around the globe. Unlike chimpanzees, individuals will sacrifice themselves for an entire group as evidenced most recently by suicide bombers in the Middle East. Unlike chimpanzees, we derive great pleasure from watching others suffer, from watching violent movies, seeing other animals fight, and imagining the decimation of an enemy. Our minds also generate ideological reasons to motivate violence at extraordinary scales again, think of suicide bombers taking their lives for a God, as well as the reward of an idyllic afterlife. And when our minds break down, or when we are afflicted with particular disorders early in life, we are capable of experiencing bizarre appetites for violence, including the joy of eating the flesh of murdered victims, having intercourse with dead bodies, and asking for bondage and whippings to enhance sexual pleasure. These novel and unanticipated ways of harming others are the result of new hardware that has evolved only once in the history of this planet. HARMING OTHERS, version 2.0: requires Homo sapiens hardware We depart from the pattern of adulticide seen in other animals because of our promiscuous brain. The idea is not that our brains evolved for killing in these unique ways, but rather, that our unique style of thinking led to novel ways of harming as an incidental consequence. The hardware that is our brain enabled new ways of harming others, building on specialized adaptations, some shared with other species and some uniquely human. The result is a brain that can develop a peculiar appetite for harming others. To see how version 2.0 runs on our distinctively human hardware, let s return to some of the core microcontrollers that I discussed a few sections back. Recall that there are hormones like testosterone that surge when individuals win a competition, whether this involves the physical fighting of deer using Hauser Chapter 1. Nature s secrets 44 their antlers, humans using their fists, or chess masters using their minds. Along with testosterone s increase is an increase in dopamine, a decrease in cortisol and serotonin, and a decrease in frontal lobe activity and control. Within the environment of a promiscuous brain, this physiological ballet affects our sense of fairness, empathy, moral conscience, attitude toward retribution and justice, as well our willingness to engage in lethal aggression. Brain imaging studies reveal that the prefrontal cortex plays an essential role in regulating our aggressive instincts, when it s working. When individuals respond aggressively to an unfair offer in a bargaining game, testosterone levels rise and activity decreases in a part of the prefrontal cortex associated with self-control. Thus, testosterone s effectiveness in human aggression is facilitated by a loss of control. Damage within this region of the brain causes abnormal aggressive responses to not only direct insult, but even such trivial matters as being offered a lowish offer in the ultimatum game discussed earlier. Anatomical and functional abnormalities within this region of the frontal lobes are also associated with aggressive pathology, such as psychopathology. There are also individual differences in aggressive tendencies among healthy people, due in part to differences in the patterns of activity between the right and left prefrontal cortices. Heightened activity on the left is associated with greater sensitivity to reward, lowered sensitivity to punishment, and considerably stronger aggressive responses to threatening stimuli, such as an angry face. This is not simply a correlation, as evidenced by studies that experimentally either suppress or increase activity in one hemisphere compared with the other. For example, if you contract your right hand you will increase activity in the left hemisphere of the brain; conversely, contracting the left hand increases activity in the right hemisphere. Subjects contracting the right hand in an experimental setting showed more aggressive responses to insult than did subjects contracting the left hand. The next time someone shakes a fist at you, check whether it is the right or left hand. If the person is from a different group and holds a fundamentally different suite of ideological beliefs, which hand is clenched is the least of your worries. Favoritism toward those who are like us, combined with hatred toward those who are not, is common in animals. As noted above, in-group favoritism or parochialism can lead to heightened levels of cooperation within groups, while simultaneously increasing the level of hostility towards those outside. Our promiscuous brain facilitated this co-evolutionary process, inviting the hormone oxytocin into the mix. Among mammals, including humans, oxytocin is released in females during labor and breastfeeding, and in both males and females during social bonding and parenting. This has led many to think of oxytocin as the cuddle hormone or love drug. Floating within the human brain, oxytocin boosts trust in games of cooperation, and greatly increases our ethnocentric biases. The Dutch psychologist Carsten De Dreu and his colleagues ran a series of experiments that required male subjects to spray oxytocin or a control up their noses. When oxytocin shoots up the nose, it goes straight to the brain. Relative to the Hauser Chapter 1. Nature s secrets 45 control group, those who sniffed oxytocin perceived in-group members as more likeable, more human, more richly endowed with social emotions such as embarrassment, contempt, humiliation and admiration, and more worthy of saving in an emergency. Oxytocin increases our sense of camaraderie toward those within the inner sanctum, which can result in greater animosity toward those outside. Oxytocin may therefore facilitate our ability to take out the competition even if this means killing another human being. Oxytocin is two-faced, cuddling with its left profile and harming with its right. This is a small sampling of the ways in which our promiscuous brain enables new forms of harm, including killing other adults. We didn t invent lethal aggression. We share this capacity with a small group of animals that also kill other adults. But whereas these other species typically restrict their lethal attacks to situations in which one group greatly outnumbers another, typically targeting adults from a neighboring group, we evolved far beyond this monogamous approach. We adopted the cost-benefit analysis that drives killing in other animals and applied it to killing in a virtually limitless space of homicidal opportunities. We kill when we outnumber our opponents or are outnumbered by them, attacking individuals within and outside our core group. We kill spouses, ex-lovers, stepchildren, those who believe in God and those who don t, the wealthy and the poor, kin and non-kin, and even ourselves if the cause is good enough. Virtually anything goes. Our promiscuous brains opened a Pandora s box of harmful means, including the capacity to address a multitude of injustices. This is a capacity that is inherently good, but incidentally bad. It is a capacity that evolved in response to growing pressures to balance inequities and take care of those who attempt to cheat society. It is a capacity that enabled us to engage in punishment in a broad range of contexts, righting wrongs and opening a new path to feeling good about harming others. Incidental justice Cooperation is ubiquitous in the animal kingdom, occurring in a wide range of situations. Humans are no exception. Like ants, humans also bring resources to their queen think England. Like scrub jays, humans work with extended family members to rear the next generation of offspring think Mormons. Like dolphins, human males form super-coalitions to gain access to females think the Yanomami Indians of South America, where men raid neighboring villages to take their women. And like chimpanzees, humans cooperate to monitor their borders, often capturing and killing intruders think Palestine and Israel. But human cooperation is distinctive in two ways: we frequently cooperate with Hauser Chapter 1. Nature s secrets 46 large numbers of genetically unrelated strangers, and punish those who cheat by free-riding on others good will. The challenge to any cooperative enterprise is to avoid getting suckered by free-riders who cheat and add little or no help. As group size grows, the opportunity to cheat and get away with it grows as well given the challenges of storing information about reputation. How do individuals and groups avoid this sucker problem? When nonhuman animals cooperate with members of the same species, they typically target kin. Helping kin provides a buffer against the sucker s costs because investing in kin means investing in genetic posterity. Helping relatives, even at a cost, translates to helping ones genes move on into the next generation an insight developed by the British evolutionary biologist William D. Hamilton. When cooperation involves unrelated others, nonhuman animals attempt to circumvent the sucker s problem by working with a small number of familiar others whose reputation is known, targeting contexts where all participants benefit more from working cooperatively than working alone. These mutual benefits help offset the costs of cooperation. By restricting cooperation to relatives or small numbers of unrelated but familiar group members, animal societies have buffered themselves from extreme cheating. This is significant because cheaters arise in a variety of contexts where there are rules of engagement, including both cooperative and noncooperative situations. For example, both lions and chimpanzees cooperate in group defense against dangerous neighbors. Some individuals cheat by lagging behind, or failing to join in altogether. In societies organized around hierarchies, low ranking animals sometimes cheat by attempting to eat more than their fare share or by reproducing when their societal norms explicitly forbid it. Interestingly, cheaters in cooperative situations such as those in lions and chimpanzees, never suffer any adverse consequences from the dominants. In contrast, cheaters in competitive situations such as those that arise in hierarchical societies, are punished. Nonhuman animals thus have the capacity to recognize and change rule breakers. And yet, these capacities are not applied in the context of cooperative interactions. Monogamous thinking rules. When it comes to enforcing fairness in cooperation, the fundamental barrier for animals lies with the economics of punishment. Punishment is costly. When a cheater is detected and attacked, there is always the possibility that he will retaliate. Cheaters, even when caught, need not surrender without a fight. Punishment therefore requires the capacity to surmount an immediate cost, while recognizing the possibility that any benefit could be greatly delayed. For example, lashing out against a lion laggard or a chimpanzee cheater might cause each to join in on future cooperative ventures, but this is a delayed benefit, and it may never materialize. This adds another potential opportunity cost. As Shakespeare so deftly noted Defer no time, delays have dangerous ends. Hauser Chapter 1. Nature s secrets 47 Waiting for a future benefit, whatever its currency, is hard for all animals, humans included. Studies of rats, birds, monkeys, apes, human children and adults show that individuals perceive future gains as less valuable than immediate, but smaller gains. For example, give any one of these animals a choice between one piece of food and ten, and they will pick the ten. More is better than less, except if you are a dieting human. Now give them a choice between one piece available immediately and ten pieces available after some delay. Virtually every animal shifts to the one piece, with the only comparative difference linked to the length of the delay a few seconds for rats, birds, most monkeys, young children, and adults with frontal lobe damage, a few minutes for some apes, older children and some adults. Everyone is, to some extent, pulled by the hedonistic now. The future loses its luster when a tasty alternative is just within reach. This is in part due to the uncertainty associated with the future, and in part, the sheer temptation to take what is in front of us. Unique evolutionary changes in the human brain allowed us to exert much greater patience, overriding the pull of the hedonistic now. These changes didn t evolve for punishment, but they were readily deployed by this system of justice. We rely on creative strategies to place value on the future, including putting resources away so that we can t use them think savings accounts and making verbal commitments that bind us to the future think about the social embarrassment of failing in front of friends. These strategies help diminish the emotional pull of taking what is immediately available, allowing future benefits to gain in attractiveness. This is a brain that can wait for the delayed benefits of punishment. The brain changes that facilitated our capacity to delay gratification were accompanied by others that further offset the costs of punishment: our brains reward us with a feel-good feeling when we pay the costs of punishment. For the first time in evolutionary history, the physical and psychological costs of punishment were at least partially offset by the pleasure of justice served, whether delivered directly or witnessed from afar. When we punish or get even with those who have acted badly, we feel a hedonic high, an experience captured by the metaphor revenge is sweet but not fattening. As demonstrated by the economist Ernst Fehr, this is more than a metaphor. When we hand someone his just deserts, punishing someone for cheating, lying, or breaking a promise, our brain responds as if we handed ourselves just desserts, activating brain circuitry associated with reward. In one study, two subjects played a monetary exchange game in which one player the donor decided how much of a pot of money to give to another. A third player observed, out of view, the outcome of the exchange. In some cases, observers witnessed a fair division of the money and in other cases, an unfair division in which the donor kept a disproportionate amount of the total. The observer then faced a difficult decision: leave the two players with their take-home earnings or use personal funds to take away money from the donor, returning it to Hauser Chapter 1. Nature s secrets 48 the bank. Taking money away from the donor is a form of costly punishment. It is costly in two ways: the punisher loses money he could have kept, and the donor loses money that he unfairly kept in his previous exchange. When donors kept a significantly larger portion of the original sum, observers punished, paying the costs. They also reported feeling good about taking down the cheapskates. Where was this honey hit to the brain coming from? To figure this out, Fehr and his colleagues put people in a brain scanner and used a technique called Positron Emission Tomography or PET. This type of scanning provides a picture of how much glucose is used up by different brain areas during a task. Higher glucose consumption occurs when there is higher activity in a brain region. When punishers decided to punish a selfish donor, glucose consumption increased in a region of the brain associated with reward: the dorsal striatum. This region is also active when you eat ice cream, earn money, and solve an unexpected problem. Punishers incurred a financial cost, but gained emotional elation and internal reward. It turns out that giving someone his just deserts feels like eating dessert, but without the caloric gain. When distinctively promiscuous punishment evolved, it transformed our capacity to cooperate and to maintain conformity to social norms. It provided us with the tools to not only repair a puncture in the system of norms, but to feel good about the costs personally incurred. When we punish, we have served justice and served ourselves a helping of the brain s rewards. The fossil record doesn t capture when we evolved the capacity to punish, as skulls and bones, stone tools, and even paintings are silent on why someone received a spear through the head perhaps punished for a wrong doing or perhaps an enemy, a competitor interested in the same resources, or a suspected lover. No one will ever know. What we do know is that other primates never punish cheaters who break the norms of cooperation, whereas hunter-gatherers dotting the continents do. Though people living today as hunter-gatherers are not perfect replicas of what life was like way back when, they indicate that before we had sophisticated technology, agriculture, and permanent residences, we had the capacity to minimize the costs of the sucker s problem. Whenever this capacity emerged in human evolution, it provided a critical part of the solution to the problem of large-scale cooperation among unrelated strangers. With many eyes on the look out for cheaters, and a capacity to take out or ostracize the free riders, cooperation emerged as a stable solution to problems that are unsolvable at an individual level, including group defense and the acquisition of costly resources. Punishment enabled humans to live in large, stable cooperative societies, many of whom are unrelated strangers. This momentous event in the history of cooperation carried with it a serious cost, bringing aggression and reward into closer proximity, with the costs of attacking others overshadowed by the benefits. As I discuss in greater detail in the next chapter, this economic transformation created, as an Hauser Chapter 1. Nature s secrets 49 incidental consequence, a hunger to watch violence and to see it as entertainment. It allowed our feelings of inequity and envy to morph into schadenfreude, retaliation, and spite. It allowed us to enjoy violence as perpetrators and spectators. It allowed us to put our money on feeling good about righting an injustice. Why oh why? Why did evil, expressed as excessive harm to innocent others, evolve? The answer lies, so I suggest, in a special property of the human brain. Some time after we diverged from a chimpanzee-like common ancestor, the human brain was remodeled to allow promiscuous connections between previously unconnected circuits. Promiscuity enabled us to explore new problems using a combination of older, but nonetheless adaptive parts. Some of these novel explorations led to highly adaptive consequences, as when we developed the ability to self-deceive in the service of pumping ourselves up to do better in the context of competition; or when we invented new technologies to solve difficult environmental problems, such as using spears to capture prey at a distance; or, when we acquired the know-how to stockpile and enhance resources such as food, water and fertile land that are critical to individual survival and reproduction; or when we evolved the richly textured social emotions of jealousy, shame, guilt, elation, and empathy, feelings that motivate individuals to recognize the importance of others well-being and interests and to correct prior wrongs; or, when we tapped into the rich connection between reward and aggression to punish cheaters trying to destabilize a cooperative society. But these same adaptive explorations also resulted in incidental costs that have destroyed the lives of innocent individuals. The capacity to deny others moral worth enabled us to justify great harms, including self-sacrifice as living bombs designed to annihilate thousands of non-believers. The capacity to create advanced weaponry enabled us to kill at a distance, thereby avoiding the aversiveness of taking out those staring back. The capacity to stockpile resources led to the growth of greed, increasing disparities among members of society, the inspiration to steal, and heightened violence both to defend and to obtain. The capacity to experience social emotions such as jealousy led to blind rage and a driving engine of homicide, including cuckolded lovers who kill their spouses and stepparents who kill their stepchildren. The capacity to feel good about harming others enabled us to recruit this elixir in the service of causing excessive harm in any number of novel contexts, from ethnic cleansings to bizarre fetishes that include self-mutilation. And the list goes on. This is the yin and yang of promiscuous thinking. This is the natural history of evil, its ancestry and adaptive significance. This evolutionary explanation sets the stage for unpacking the recipe for evil, how it develops within individuals and societies, ingredient by ingredient. Hauser Chapter 1. Nature s secrets 50 Endnotes: Chapter 1 Recommended books Bloom, P. (2010). How Pleasure Works. New York, Norton Press. Coyne, J. A. (2009). Why Evolution is True. New York, Viking Press. French, P. (2001). The Virtues of Vengeance. University of Kansas Press. Goldhagen, D.J. (2009). Worse than War. New York, Public Affairs. Kekes, J. (2005) The Roots of Evil. Ithaca, Cornell University Press. Kiernan, B. (2007). Blood and Soil: A World History of Genocide and Extermination from Sparta to Darfur. New Haven, Yale University Press. McCullough, M.E. (2008). Beyond Revenge. John Wiley Sons. Pinker, S. (2011) The Better Angels of Our Nature. New York, Viking Press Wrangham, R.W., Peterson, D. (1996). Demonic Males: Apes and the Origins of Human Violence. Boston, Houghton-Mifflin. Notes: Smarter and more painful mice: Wei, F., Wang, G.-D., Kerchner, G. A., Kim, S. J., Xu, H.-M., Chen, Z.-F., Zhuo, M. (2001). Genetic enhancement of inflammatory pain by forebrain NR2B overexpression. Nature, 4, 2; Tang, Y.-P., Shimizu, E., Dube, G. R., Rampon, C., Kerchner, G. A., Zhuo, M., Tsien, J. Z. (1999). Genetic enhancement of learning and memory in mice. Nature, 401: 63-69. Insects that play leaf: Wedmann, S., Bradler, S. Rust, J. (2007). The first fossil leaf insect: 47 million years of specialized cryptic morphology and behavior., Proceedings of the National Academy of Sciences 104(2): 565 569. Evolving tameness: Trut, L. N. (1999). Early canid domestication: the farm-fox experiment. American Scientist, 87, 160-169; Hare, B., Plyusnina, I., Ignacio, N., Schepina, O., Stepika, A., Wrangham, R. W., Trut, L. N. (2005). Social cognitive evolution in captive foxes is a correlated by-product of experimental domestication. Current Biology, 15(3), 226-230; Udell, M., Dorey, N., Wynne, C. (2009). What did domestication do to dogs? A new account of dogs' sensitivity to human actions Biological Reviews, 85(2): 327-345; Galibert, F., Quignon, P., Hitte, C., Andre, C. (2011). Toward understanding dog evolutionary and domestication history., Current Reviews in Biology 334(3), 190 196; Careau,V., R ale, D., Humphries, M.M., Thomas, D.W. (2010). The pace of life under artificial selection: personality, energy expenditure, and longevity are correlated in domestic dogs. American Naturalist 175(6), 753 758. What s religion for? Boyer, P. (2001). Religion explained: The evolutionary origins of religious thought. New York, Basic Books; Wilson, D.S. (2002). Darwin's Cathedral. Chicago: University of Chicago Press; Sosis, R., Bressler, E.R. (2003). Cooperation and commune longevity: a test of the costly signaling theory of religion. Cross-cultural Research, 37(2), 211-239; Norenzayan, A, Shariff, A. F. (2008). The origin and evolution of religious prosociality. Science, 322(5898), Hauser Chapter 1. Nature s secrets 51 58-62; Banerjee, K., Huebner, B, Hauser, M.D. (2010). Intuitive Moral Judgments are Robust across Variation in Gender, Education, Politics and Religion: A Large-Scale Web-Based Study. Journal of Cognition and Culture, 10, 253-281; Henrich, J., Ensminger, J., McElreath, R., Barr, A., Barrett, C., Bolyantz, A., Cardenas, J. C., Gurven, M., Gwako, E., Henrich, N., Lesorogol, C., Marlowe, F., Tracer, D., Ziker, J. (2010). Markets, religion, community size, and the evolution of fairness and punishment. Science 327(5972), 1480-1484; Pyysi inen, I., Hauser, M. (2010). The origins of religion: evolved adaptation or by-product? Trends in Cognitive Sciences, 14(3):1- 6; Sosis, R. (2009). 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Annals of the New York Academy of Sciences, 1036(1), 233 256; Wrangham,, R. W., Wilson, M. L., Muller, M. N. (2005). Comparative rates of violence in chimpanzees and humans. Primates, 47(1), 14 26. Hauser Chapter 1. Nature s secrets 53 The evolution of cooperation and punishment in animals: Clutton-Brock, T.H (2009). Cooperation between non-kin in animal societies. Nature, 462, 51-57; Clutton-Brock, T.H., Parker, G.A. (1995). Punishment in animal societies. Nature, 373, 209-216; Hauser, M.D. (2006). Moral Minds. Harper Collins; Jensen, K. (2010). Punishment and spite, the dark side of cooperation. Philosophical Transactions of the Royal Society B: Biological Sciences, 365(1553), 2635-2650; Stevens, J.R, Hauser, M.D. (2004). Why be nice? Psychological constraints on the evolution of cooperation. Trends in Cognitive Sciences, 8(2), 60-65. Cooperation, punishment, and feeling good, see: Boyd, R, Gintis, H, Bowles, S. (2010). Coordinated punishment of defectors sustains cooperation and can proliferate when rare. Science, 328(5978), 617-620; Boyd, R., Gintis, H., Bowles, S., Richerson, P.J. (2003). The evolution of altruistic punishment. Proceedings of the National Academy of Sciences, USA, 100, 3531-3535; Boyd, R., Richerson, P.J. (1992). Punishment allows the evolution of cooperation (or anything else) in sizeable groups. Ethology and Sociobiology, 113, 171-195; Carlsmith, K. M., Wilson, T. D., Gilbert, D. T. (2008). The paradoxical consequences of revenge. Journal of Personality and Social Psychology, 95 (6), 1316-1324; de Quervain, D.J-F., Fischbacher, U, Treyer, V., Schellhammer, M., Schnyder, U., Buck, A., Fehr, E. (2004). The neural basis of altruistic punishment. Science, 305, 1254-1258; Fehr, E., Gachter, S. (2002). Altruistic punishment in humans. Nature, 415, 137-140; Gachter, S, Renner, E, Sefton, M. (2008). The long-run benefits of punishment. Science, 322(5907), 1510; Henrich, J., Boyd, R. (2001). Why people punish defectors weak conformist transmission can stabilize costly enforcement of norms in cooperative dilemmas. Journal of Theoretical Biology, 208(1), 79-89; Henrich, J., Ensminger, J., McElreath, R., Barr, A., Barrett, C., Bolyantz, A., Ziker, J. (2010). Markets, religion, community size, and the evolution of fairness and punishment. Science, 327(5972), 1480-1484; Henrich, J., McElreath, R., Barr, A., Ensminger, J., Barrett, C., Bolyantz, A., Ziker, J. (2006). Costly punishment across human societies. Science, 312, 1767-1770; Herrmann, B, Thoni, C, Gachter, S. (2008). Antisocial punishment across societies. Science, 319(5868), 1362-1367; Rockenbach, B., Milinski, M. (2006). The efficient interaction of indirect reciprocity and costly punishment. Nature, 444(7120), 718-723; Sigmund, K., Hauert, C., Nowak, M. (2001). Reward and punishment. Proceedings of the National Academy of Sciences, 98(19), 10757- 10762; Trivers, R.L. (1971). The evolution of reciprocal altruism. Quarterly Review of Biology, 46, 35-57. Quotes Watts, D. P., Muller, M., Amsler, S. J., Mbabazi, G., Mitani, J. C. (2006). Lethal intergroup aggression by chimpanzees in Kibale National Park, Uganda. American journal of primatology, 68(2), 161 180; quote: p.g., 166 Seville Statement on Violence, Spain, 1986: http: portal.unesco.org education en ev.php- URL ID 3247 URL DO DO TOPIC URL SECTION 201.html Ferguson, R. B. (2006). Tribal, Ethnic, and Global. In: The Psychology of Resolving Global Conflict: From war to peace, volume 1, Nature vs Nurture (Ed. M. Fitzduff, C.E. Stout; Lawrence Erlbaum Ass), 1 15.; quote: p.g. 45 Hauser Chapter 1. Nature s secrets 54 Chapter 2: Runaway desire The desire of being believed, or the desire of persuading, of leading and directing other people, seems to be one of the strongest of all of our desires. Adam Smith In 1999, an investment officer in a management firm had a gut feeling that something was wrong in a corner of the securities market. Based on calculations from the stated investment strategy for the fund, the returns were not only orbiting outside the financial stratosphere, but were mathematically impossible. The officer contacted the Securities and Exchange Commission, outlined the problem, and asked them to look into it. No reply. Year after year, the officer continued to contact the SEC about this case, explaining that it was potentially lethal, that he had no personal investments in the fund, and had never been an employee. No reply. Then, in 2007, he sent the SEC a 17-page report, showing why there was only one plausible conclusion: the stated strategy for the fund was a fraudulent cover up for a massive moneymaking scheme. Eventually, in 2008, the brains behind this scheme was ousted, escorted to a life in prison as number 61727-054, and welcomed to his new home by a community of like-minded white-collar criminals. Meet HARRY MARKOPOLOS the investment officer MADOFF SECURITIES the seductive investment opportunity and BERNARD MADOFF the genius behind one of the most spectacular Ponzi schemes in recorded history. Whistleblowers started warning the SEC as early as 1992, but no one listened. Madoff was making money hand over fist by pocketing new investments and if needed, using some of these to pay off individuals wishing to redeem their funds. Ponzi schemes work as long as new investments exceed the number of investors wishing to redeem their own investments. And for Madoff, this balancing act worked for 16 years. Then, as in the Bible s Book of Joshua, the walls came tumbling down, with Jericho riding in to hand Madoff a 150-year prison term for the financial murder of his trusting clients. Altogether, these innocent and trusting people lost approximately 65 billion dollars, all because one man allowed his desire for wealth and power to run out of control. Or so it seemed. Hauser Chapter 2. Runaway desire 55 Were those who put their money in Madoff securities entirely innocent? Or, like Madoff, did they too allow their desire for more wealth to run wild? Was Madoff s desire for extreme wealth that far off the curve of human variation? And if he was off, who or what do we blame? Could some quirky feature of Madoff s genome, together with the brain states it orchestrates, have pushed him over the edge into a universe of unreasonable and even irrational desires? Does it matter that Madoff grew up in a world in which the rich get richer despite the direct or indirect harm caused to innocent others? Many have speculated answers to these questions, based on little or no evidence, and certainly no scientific evidence. But what matters most about case studies such as this is that they raise the kinds of questions that science can answer. What matters is that it is possible to run a Ponzi scheme. It is possible because there are humans like Madoff who are driven by the desire to accumulate great wealth, despite the personal risks and costs to others. It is possible because the world is populated by people who are willing to throw critical reasoning to the wind in the face of a tempting offer to make a huge amount of money. It is possible because people will take risks either without considering the potentially horrific consequences to innocent others, or by trivializing them. As far as we know, Madoff never intended to put his friends and family members in a state of financial ruin. As far as we know, many invested in his securities knowing that investments can fail. As far as we know, some must have been suspicious, at least for a while, about how their investments could consistently yield such over the top returns when nothing else has or seemingly could. Madoff is certainly to blame for creating a fraudulent investment opportunity, but so too are the many who trusted him without question, happy to make absurdly high returns. Did Madoff cause excessive harm? Yes. Were those harmed innocent victims? Not entirely. None were forced to invest, and all invested with at least some knowledge that the promised returns were off the charts. This is not innocence. This is desire run amuck while self-control and reason fly standby. Madoff was morally wrong, but not evil, at least not on my accounting of the ingredients of evil. Madoff s case illustrates the power of desire to stampede reason. As the essayist James Thurber remarked, Love is blind, but desire just doesn t give a good goddamn. Madoff didn t give a good goddamn. How does a system like this get going, and then sometimes go wrong, very wrong? It all starts with the elements of pleasure. P for pleasure Imagine that scientists have just announced the discovery of a center in the brain that manages our experience of pleasure. Imagine further that they have invented a consumer device that, for only 49.99, Hauser Chapter 2. Runaway desire 56 enables you to ramp up or down the activity in the pleasure center. Want to get a bit more out of your dinner, a movie, tennis stroke, work, or sex? Flip the switch. Want to buffer yourself from the pain of ostracism, a romantic break up, or a colonoscopy? Flip the switch. Would you buy it? If so, what would you use it for, and would you be a habitual user? Would you worry about any side effects? Might using this device become addictive, or worse, either destroy the feeling of pleasure altogether or push you into a never-ending quest for satisfaction, with each dollop of pleasure leaving you wanting a bigger dollop next time around. This may seem like science fiction, but it s closer to non-fiction. Over fifty years ago, scientists working with rats, implanted electrodes into in a region of the brain called the nucleus accumbens. The electrodes were connected to a switch. If the rat pressed the switch, it activated the electrode and thus stimulated this brain area. The rats indeed pressed, over and over again, some at a rate of 2000 presses per hour, with no external reward or threat of punishment. Pressing the switch was the reward, or at least the vehicle to what appeared to be the experience of reward. Pressing the switch was addictive. These scientists had discovered a critical part of the circuitry of pleasure, in rats! The rats discovered a pleasure switch, something they wanted to experience over and over and over again. Soon after this discovery, clinicians started using deep brain stimulation to treat individuals with neurological complications, including Parkinson s patients suffering from loss of motor control, patients experiencing sustained pain, Tourette s patients suffering from motor tics and obsessive-compulsive problems, and even a patient in a coma who had lost, but then slowly recovered the capacity to name and grasp objects. Similar to the rat work, the technique involves implanting an electrical pulse generator within a targeted brain region. When the generator is turned on, it stimulates activity in previously malfunctioning regions. But as with genetic manipulations and the unknown space that characterizes the genomic universe, so too is the situation unchartered in the neuronal universe. Two patients suffering from chronic pain were implanted with impulse generators and subsequently developed profound addictions to the stimulation. In addition to relatively successful pain reduction, both patients experienced an enhanced desire for sex, including erotic feelings. One of these patients self-stimulated so often that she forgot to wash, change clothes, and adhere to family commitments. What happened? Did the clinicians treating these patients hit the pleasure center? When stimulated, what actually changed in the minds of these patients? Did they simply want more sexual arousal, suggesting that stimulation turned up the gain on their desire for sex? Or, did stimulation change what they like, a shift in the sense of pleasure that accompanies sex, and in this case, the anticipation of sex? Or perhaps it changed both wanting and liking, especially since we often want things we like? These observations of how humans and rats respond to brain stimulation show that particular areas of the brain are linked to pleasure, especially the motivation to obtain rewarding experiences. These Hauser Chapter 2. Runaway desire 57 observations also reveal that when these areas are activated, they can result in addictive, uncontrollable behaviors that are toxic to self and others. They suggest that areas of the brain associated with desire can run out of control. But to understand how the brain motivates us to want some things but not others, how it creates the experience of liking, and how it enables us to want things we like by learning about the world, we must turn to experiments on nonhuman animals, brain scans of healthy humans, the mechanics of mind-altering drugs, conscious and unconscious influences on our choices, and the sad stories of individuals with uncontrollable urges to eat, drink, snort, shoot up, and gamble. This is the evidence that scientists, especially the American cognitive neuroscientist Kent Berridge, have gathered to explain the three core elements of pleasure: wanting, liking, and learning. Often, but not always, the experiences we want or desire are the experiences we like. Often, but not always, the experiences we like are rewarding and good for our health. Often, but not always, we are aware of the experiences we like, and make rational plans to experience them again. Often, but not always, our rational plans to experience what we like makes us happy. Often, but not always, we find ways to maintain our happiness by using self-control to moderate our exposure to pleasurable experiences. The often refrain refers to the fact that the systems involved in wanting, liking, and learning work in this way most of the time. The but not always refrain is a tip off to exceptions that speak to interesting aspects of the machinery. For example, though we most often want things we like, we can want things we don t like and like things we don t want. I want to lift weights, do push-ups and sit-ups to stay fit, but I don t really like doing any of these exercises. I like the Porsche Boxster sportscar, but don t want one because it is a gas guzzling environmental nightmare and inconveniently small for a family car. The fact that wanting and liking can mount a unified front or conflict with each other shows that it is important to look at the glue between them, which is learning. Learning allows us to work out our values, setting up a preference profile for what we desire in the people we interact with, the places we visit, the objects we handle, and the events we experience. Learning allows us to predict situations that generate pleasure or pain. Though we are conscious of many of these processes, and can actively influence them, unconscious processes are also at work. These systems of the brain link us to our evolutionary past, and to animals without language but clearly expressed likes and dislikes. Evolution has endowed all animals with unconscious wanting systems brain circuitry that motivates individuals to seek resources that enable survival and reproduction. For young mammals, still dependent upon parental care, their desires are simple: milk and warmth from their mothers, and depending on the species, additional warmth and protection from fathers; for the record, the human father is an oddity among primates, as no other ape and virtually no other monkeys express a paternal instinct. With growth and independence, desires shift to other resources that can satisfy hunger and thirst, accompanied by sexual and social status desires. Though driven by unconscious operations, the behaviors Hauser Chapter 2. Runaway desire 58 that result are often strategic, dependent upon changes in climate, other competitors, who happens to be in a bad mood, and who is sexually active. In a variety of species, from dung beetles to deer, biologists have developed mathematical models that accurately predict how long an individual should wait for a sexual partner or feed in a food patch. The accuracy of these models shows that individuals desires for resources linked to survival and reproduction are captured by lawful principles or rules. This is important because it means we understand how the machine underlying behavior works. It means we understand how animals make certain choices. Understanding how wanting works is straightforward. In both humans and nonhuman animals, we can measure what individuals approach when we give them a choice, as well as how much effort they are willing to exert while approaching and gaining access to a particular object or experience. For example, in studies that explore whether captive animals are provided with sufficient housing conditions, an experimenter presents individuals with a choice of rooms, one consisting of the typical housing environment and the others by the addition of goods believed to be of interest. To enter a given room requires opening a door. To determine how much an individual really wants what is in another room, the experimenter ramped up the difficulty of opening each door. In studies of captive hens and mongoose, individuals exerted considerable effort to open some doors but not others. Hens rammed into doors opening onto a chipped wood floor, whereas mongoose did the same for a pool of water. These are items they want, but do not get in captivity. What about liking? It may seem, at first blush, that because liking is a subjective experience, that there are no clear objective ways to measure it. My likes are my own. You can t possibly know what it is like to be me. If you can t know what it is like to be me, then we can t possibly know what it is like to be a mongoose, mouse or monkey. There are, however, ways of measuring liking and disliking that are reliable, objective, and consistent across species. In many animals, including human babies who can t speak and human adults who have lost this capacity due to brain injury, there are distinctive behaviors that are consistently linked to positive experiences and others linked to negative ones. For example, in mice, monkeys, and human babies, tasting something sweet like sugar causes a lot of lip licking, whereas tasting something bitter such as quinine causes mouth gaping, nose twitching, and arm flailing. These similarities show that evolution has been conservative, maintaining the same underlying mechanisms for handling likes and dislikes. These similarities have enabled scientists to understand how the brain systems involved in wanting and liking can change together or separately, even though they can t help us understand the harder problem of what, in particular, it is like for a given mouse, monkey or man to like something. To understand the machinery that drives rodent wants or desire, Susana Peci a and Kent Berridge took advantage of the genetic technique that Joe Tsien mentioned in the last chapter used to create Hauser Chapter 2. Runaway desire 59 smart mice. Recall that Tsien jazzed up a gene s expression to improve memory and learning. In contrast, Peci a and Berridge quieted a gene that controls the amount of dopamine floating around in between neurons. With this gene silenced, dopamine levels increased. Compared with normal mice, these dopamine-plus mice consumed twice as much food and water, and learned much faster where food was located within a maze. But when it came to measuring licking as liking, the dopamine-plus mice were no different from normal mice. Dopamine is therefore essential for the wanting system, but not the liking system. This conclusion has been supported by many other studies, of mice and men, in the context of eating and drug addiction two topics that I will shortly revisit. To understand what rodents like, Peci a and Berridge injected an opioid drug similar to opium from poppy plants into two brain regions associated with reward the nucleus accumbens and the ventral pallidum. Not only have studies of rodents, monkeys, and humans revealed that these areas are associated with reward recall the brain stimulation studies but they contain sub-regions known as hedonic hotspots zones tuned to particular kinds of stimulation, designed to jazz up the liking element of pleasure. Following injection, individuals licked four times more often in response to sugar as the noninjected individuals, but did not show a difference in wanting. The opioid injections also caused a decrease in the aversiveness of bitter quinine, as evidenced by a decrease in mouth gaping. Turning on these hedonic hotspot ramped up the pleasure of sweets, and diminished the displeasure from bitters. Together, the Pecina and Berridge studies highlight the independence of wanting and liking, and the ways in which the brain or a clever experimenter playing with it regulates the elements of pleasure. How does the brain figure out what s hot and what s not, delicious or disgusting? It s one thing to desire a particular experience, and another to derive pleasure from the experience. But the world is not set up with labels that indicate which objects and events are pleasurable and which distasteful. Every object and event has particular properties that, depending on the animal s sensory ability, can be seen, heard, tasted, smelled, or touched. For all organisms, there are receptors within each of the sensory modalities that are biased to prefer some things over others. This is why no human baby has to be taught to dislike bitter things and like sweet things. From the very first encounter, sugary solutions trigger tongue protrusions and licking, whereas bitter solutions trigger a gaping mouth. We have evolved, as have other animals, sensory systems that are tuned to prefer some things and dislike others, right from the start. These initial biases guide the learning process, facilitating acquisition of new knowledge in some cases, making it almost impossible in others, and setting a course to self-destruction in yet others. Try teaching a young child that the taste of sweet chocolate is disgusting while the taste of bitter endives is delicious. Try teaching cocaine addicts to turn off the magnetic pull of white powder, or convincing alcoholics that the clinking sound of ice in a glass isn t meaningful. Try teaching rogue soldiers involved in genocide Hauser Chapter 2. Runaway desire 60 that the parasitic enemy shouldn t be exterminated. This is where scientific explanation gains considerable interest, helping us understand how we develop anticipatory pleasures and past-oriented regrets, struggle to change from habitual rewards, and acquire irrational desires for experiences we no longer enjoy a problem that appears to maintain most forms of addiction. Humans go to restaurants and bees to flowers because both are associated with food. Within these broad categories, there are good restaurants and flowers, as well as bad ones, where good and bad are determined by experience. The experience can be direct, as when food is actually consumed, or indirect as when humans listen to an animated friend describe a restaurant s menu and bees watch a hive mate dance, providing a description of the flower s location and quality. Once the association between food and location is established, simply seeing the restaurant or flower triggers a cascade of neural and chemical activity in the brain linked to reward and the anticipation of pleasure. The restaurant and flower are cues that predict food. If you walked into your favorite restaurant and found that they sold fertilizer rather than food, you would be heartbroken. If you haven t been to the restaurant in a long time, but memorialized your previous experience as a gastronomic high, you will be deeply disappointed if your first bite doesn t live up to the standards you anticipated. This mismatch between anticipated and experienced reward will lead to a cascade of brain activity indicative of an error. The primary engine driving the experience of reward, including predicting when it will occur and with what kind of intensity, is the dopaminergic system, a network of brain areas that releases dopamine in most invertebrates and vertebrates, including the human vertebrate. Many natural behaviors trigger dopamine, including male songbirds singing to attract females, rhesus monkeys seeing a red light that has been associated with a soon to be delivered shot of juice, and humans cooperating with each other. Many unnatural behaviors and objects can also trigger dopamine. Animals trained to press a switch for food, will often become obsessively attracted to the switch, caressing and biting it even in the absence of food; humans with addictions to cigarettes, food and gambling, will often obsessively fondle an empty cigarette carton, fork, and deck of cards, respectively. But these correlations leave open the question of whether dopamine causes the anticipation or experience of reward, or flows from these experiences. To tackle the causality problem requires experiments, either directly changing dopamine concentration or comparing individuals who, due to genetic differences, show differences in dopamine levels. We know from studies of rodents and monkeys that selectively increasing dopamine with drugs results in heightened wanting of food if there are cues to foraging, or sex if opportunity knocks. The Israelian cognitive neuroscientist Tali Sharot pursued a similar approach with healthy humans subjects. She first asked individuals to rate how happy they would be if they vacationed in 80 possible destinations. Then, some subjects took a placebo while others took L-dopa, a drug that selectively increases the release Hauser Chapter 2. Runaway desire 61 of dopamine. Later, these same subjects imagined what it would be like to actually vacation in these places, and rated their imagined experience. Those on L-dopa felt they would be much happier, revealing the power of dopamine to cause changes in our experience of reward. Complimenting these experimental results are studies showing that genetic variation in the expression of dopamine in humans are closely tied to impulsive behaviors and behavioral disorders. Thus, individuals with genetic variants that result in higher levels of dopamine are more likely to engage in compulsive gambling and eating, leading to addictions. The anticipation of heightened pleasure leads these gamblers, eaters, and abusers to want more and more. This work shows that dopamine is necessary for monitoring and guiding our desire for reward, with evidence of individual differences that start with our biology. This is a highly adaptive system. But changes in dopamine can also cause our desire for reward to runaway, like a brakeless trolley. This is a highly maladaptive process. This flip between adaptive and maladaptive that we see within the dopaminergic system is, by now, a familiar brain routine. It provides, I believe, the means to explain all manners of excess, from the desire for food and money to drugs and violence. Obesity and drug addiction are disorders of excess. They are disorders of insatiable desire. There are many paths to obesity and addiction, but all ultimately point to changes in the reward system. In humans born with deficient levels of the hormone leptin, overeating and obesity are common outcomes. When these individuals view images of food during a brain scanning session, they show lower levels of activity in the striatum than non-leptin deficient individuals. The striatum is an area that is rich in dopamine and an essential part of the reward system. This may, at first, seem paradoxical: how could those who eat to excess not show an excess of activity in the striatum, and thus, an over-the-top experience of reward upon seeing food? The answer lies in studies of rodents and humans. Whether it is obese rats or obese people, both show compulsive eating, but lower levels of expression of dopamine in the striatum. If you silence a key dopamine gene in rats, you can quickly turn them into food junkies, driven by an unsatisfied wanting system. Overeating, like over-drugging, turns the reward dial down. This is an adaptive response, except when it operates in the mind of a food or drug junky. Though the reward hits are small and unnoticeable, the wanting system remains highly motivated, triggered by the same cues. What food and drug junkies want is more hits, but the reward system isn t delivering. This causes them to want even more. What the work on obesity and addiction tell us is that independently of how people get started on the path to fulfilling their desires, and whatever leads them to over-consume, consumption loses its luster. The brain is smart: excess is bad and thus the reward systems turns off. But because the wanting or desire system is independent from the reward system, and has evolved insurance against a complete shut down, Hauser Chapter 2. Runaway desire 62 it continues to drive desire. Because the reward system isn t delivering the goods, excess unfolds driven by a wanting system that is looking for pleasure in all the wrong places. When we were hunters and gatherers, excess was an unborn concept. We lived on the edge then, enjoying scraps of whatever kill arrived on the fireplace, together with the tubers gathered up on the day. We, at least many of us in the West, live in a world that has a 24 7 cafeteria of food and drugs. It is a want it-have it culture. As work in molecular biology shows, and as I will pick up in chapter 4, some of us start off more vulnerable than others, susceptible to sampling from the cafeteria at all hours of the day and night. The combination of a heavily marketed environment and a biological susceptibility to excess, is a losing combination for the consumer. The work on addiction provides a template for thinking about how individuals and societies ignite a path to excessive harms. In the same way that excessive eating gets going and going out of control when the dopamine system drives an irrational desire to want more and more food that is liked less and less, so too is excessive harm often driven by a similar decoupling between wants and likes. Individuals start with a desire to acquire wealth, to physically harm those who are unlike them, or taste the sweetness of revenge against someone who acted unfairly. These desires are often linked to an experience of pleasure or the anticipation of pleasure. But as such actions and their consequences accumulate, the pleasure derived diminishes, as money is acquired just for the sake of having more, while individuals are injured, maimed, or killed because this is the policy that must be pursued. Liking is no longer part of the equation, leaving cold desire to do its work at the expense of innocent others who get in the way. To develop this idea, and especially the link to excessive harm, I have to fill in a missing piece in our discussion of desire. Everything I have discussed in this section has focused on individuals and their core corporal needs for survival or in the case of drugs, recreation. I haven t said a word about how desire works in the social arena, whether the same systems are in play when we compare our own desires and resources with others, or with other opportunities. When desire is motivated by what others have or have achieved, are the same processes in play as when we eat, drink, or gamble? These are important questions as the desire to accumulate great wealth or to harm others is often motivated by comparison shopping, assessing what others have relative to our own status. The most primal starting point for comparison shopping is the world of hierarchies, a world where the desire to dominate rules. Power hungry Whether you are observing a social insect, fish, lizard, bird, rat, whale, monkey, or human, males are bigger and bolder, more boisterous, brash and brazen, and more motivated to get into a brawl than females. Though biologists don t define the sexes based on these differences, they use them to understand Hauser Chapter 2. Runaway desire 63 what drives competition for valuable resources and what determines the criteria for dominance status. Biologists define the sexes based on differences in the gonads, the reproductive organs that generate eggs and sperm, and the corresponding effects of sex-specific selection on the mind, body, and behavior. Females are those with larger, more costly gonads, where cost is defined on the basis of how much energy is invested in production. Think eggs versus sperm. This difference sets up an immediate competition, especially for species that have parental care. Once you invest in a big expensive egg, you don t want to lose your investment. You want to protect it, avoiding harm and minimizing risk. On the other hand, if your investment is small, you are not only freer to take risks, but favored to do so. These ideas started with Charles Darwin. One hundred years later, they were developed in exquisite detail by the American evolutionary biologist Robert Trivers. Combined, they provide an explanation for why, in most species including our own, males compete with each other for access to females the most valuable and limited resource and why females are picky, expressing an aesthetic preference for males of a particular quality. Selection favors parts of the body and brain associated with dominant males and picky females. Dominant males win fights against other males, and thus gain access to females. Dominant males take risks and are more aggressive. Picky females hold out for the best males, those who provide the most desirable resources. Picky females are patient, waiting for males with good genes, access to prime real estate, and the protective skills and motivation to defend them and their young. These are qualities linked to high status. These are qualities associated with the ability to obtain and control resources. These are the qualities that females desire. Male desire for dominance is therefore nurtured by female desire for dominant males. Like appetites, these desires seek satisfaction. Like appetitive addictions that create devastating consequences for individuals, groups and nations, so too can our appetite for domination. Recall from the last chapter that testosterone and cortisol play a teeter-totter role in aggressive competition. When testosterone is high and cortisol is low, the motivation to fight and defend one s resources is high. These two hormones, and the brain areas they impact, fuel the desire to maintain a competitive edge. Recall further that winners experience an increase in testosterone, and losers a decrease, and that testosterone is addictive. Testosterone is therefore part of the system that links the desire to outcompete and gain dominance status with the rewarding experience of winning and achieving high rank. To attain high rank, including a competitive advantage over others with respect to food and mating opportunities, requires social knowledge. How tough is the alpha baboon or boss in a company, and what kind of support do they have from other individuals in the group? How sexually receptive are females when their hormonal cycles tilt them into a period of potential conception? What other males are interested in these females? Attaining and maintaining high rank also requires attention to cues that are Hauser Chapter 2. Runaway desire 64 continuously changing, including where someone is looking and parts of the body that signal power and sexual availability. The American neuroscientist Michael Platt carried out a clever series of experiments to understand how much male rhesus monkeys value different kinds of social information and how much they will pay to obtain it. As in our discussion of wanting and liking, Platt rightly assumed that rhesus monkeys would value most what they like most, and that they would pay the highest price for what they are most motivated to acquire. Each monkey watched a slide show with viewing options akin to pay-per-view television. On a given trial, they could watch one of two images for as long as they liked, each viewing option associated with a particular amount of juice. For each pair of images, one delivered more juice than the other. Given that these were thirsty monkeys , they should prefer more juice over less juice. If monkeys have no interest in the images per se because they have no value then their viewing preferences should be strictly determined by where they can get the most juice. If, on the other hand, the images have value, and some images are more valuable than others, then they may be willing to look at an image that delivers less juice over an image that delivers more. This is costly viewing. This is paying for watching. Evidence for such preferences would reveal that rhesus monkeys value the social information that comes from the image over the juice itself, a surprising result given that juice is a primary reward whereas the image is only a secondary reward, indicative of things to come. Consistently, these male monkeys had two favorite channels, preferring those showing pictures of high ranking individuals and close-ups of female hindquarters. They preferred these over images of low ranking individuals, despite the fact that this choice often cost them the opportunity to drink more juice. Platt's findings show that monkeys are motivated to acquire information about socially relevant situations, including information about dominance and sex. Their motivation or desire to obtain this information is high, as evidenced by the fact that they are willing to pay a cost. Keeping an eye on a dominant is of value as dominants pose a threat, especially one staring at you. Keeping an eye on a female s hindquarters is also of value as it can signal sexual receptivity: in rhesus monkeys, as in many other monkeys and apes, the area around the vagina either swells, turns red, or both when females are ovulating. This is important information for males in their attempts to court and mate females. I will quickly pass over the potential implication of these results for thinking about the origins of pornography. Humans also value social information, with many hours in a day devoted to obtaining such information through gossip. Many of us live in a world where dominance matters, whether it is climbing to the top of a corporate chain or attaining the title of heavyweight champion of the world. Individuals seek high status because of the physical and health benefits that accrue. In such societies, our sense of self is based on our comparison with others. It is also based on a strong sense of independence, autonomy, assertiveness, and uniqueness. In other societies, the self dissolves into the other, with an Hauser Chapter 2. Runaway desire 65 emphasis on inter-dependence, commonness, and openness to change in response to authority. These differences in self-perception show up when we attend to faces of familiar individuals. Chinese subjects, representative of a collectivistic and inter-dependent society, responded more quickly to seeing their boss s face than seeing their own face. In contrast, American subjects responded more quickly to their own face than to any other person s face, including that of their boss. Like Platt s monkeys, therefore, we too place value on social information. Unlike Platt s monkeys, our sense of value in the social domain is modulated by our cultural upbringing. This modulation, and the brain states that accompany it, shows up in direct comparisons of individuals who are motivated to attain high dominance status with those who are motivated to create equality. The American social psychologist Joan Chiao used survey information to establish two groups of individuals based on those who preferred to live in an egalitarian society and those who preferred a hierarchical society. These individuals then entered a brain scanner and viewed pictures of people experiencing pain. Two areas, both associated with the personal experience of pain and the perception of pain in others, were highly active. But these areas were less active in those who preferred hierarchies than those who preferred egalitarianism. This finding, as Chiao notes, is consistent with the idea that in an egalitarian society, empathy for others well-being is essential. In egalitarian societies, seeing someone who has less or is being harmed by another, should motivate a desire to redress the imbalance and reduce the harm. In a dog-eat-dog hierarchical society, where dominants outcompete subordinates and inequities are part of life, concern for those at the bottom is a sign of weakness. These results show how cultural influences can shape brain activity, leading some to develop deep desires for dominance and inequities, whereas others develop deep desires for equality. These brain areas heighten our sensitivity to what others have, what we desire, and how our desires are modulated by what others have. These comparisons motivate us to improve our status either by working harder a good thing or taking down those above us a bad thing. I ll have what she s having One of the most famous lines in movie history was delivered by Estelle Reiner in When Harry Met Sally, a comedy produced by her son Rob Reiner. While Estelle is seated at a table in a delicatessen, Sally played by Meg Ryan fakes having an orgasm to show Harry played by Billy Crystal that he can t tell the difference between fakes and the real deal. Overhearing Ryan s performance, Estelle turns to the waiter and says I ll have what she s having. This is comparative shopping, cashing in on Hauser Chapter 2. Runaway desire 66 someone else s subjective experience to guide our chosen experiences. Orgasms and eating are two of the great pleasures in life, whether you live in Tokyo, Toronto, Toulouse, Tehran or Timbuktu? I doubt any healthy human adult would debate this. What can be debated is what counts as the ultimate orgasm or food experience. It can be debated both among friends and inside our own minds, influenced by personal experience and our knowledge of what else is available, or might be. Consider potato chips. As a snack, potato chips generate a revenue in the United States of about 6-7 billion dollars each year, relying on the slicing and frying of about 2 billion pounds of potatoes. These facts make clear that most Americans love potato chips, and are motivated to consume them. Like other salty snacks, it is hard to eat just one. The American psychologist Carey Morewedge and his collaborators ran an experiment to find out how much people love potato chips, and whether their anticipated fondness for this delicious crisp changes in the face of other options. Subjects sat at a table in front of a bowl of potato chips and an alternative food that was visible, but out of reach. The alternative was either a highly undesirable snack such as sardines, or a highly desirable one such as Godiva chocolate. After subjects contemplated what it would be like to eat each of these foods, they then rated how much they would enjoy them. This is like the study I described in the pleasure section where subjects rated how much they would enjoy different vacation destinations, but without the comparison between one clearly good and one clearly bad spot. Both focus on the anticipation of a pleasurable experience. Subjects ratings of potato chip deliciousness soared when sardines were on offer, and plummeted in the presence of chocolate. Context matters. What is clearly delicious when there is nothing else on the table, loses or gains in deliciousness when the table fills up with other delectable or disgusting alternatives. What s happening to our pleasure detector, and especially our anticipated reward system, in the potato chip experiment? Are we incapable of understanding what makes us happy, unable to figure out what is or is not delicious, or are we fickle? What Morewedge s experiment reveals is that deliciousness, like ugliness, stubbornness, and obsequiousness, is a judgment, judgments are always relative or comparative, and as such, based on some standard that is either present in the moment, stored away in our memories, or anticipated in the future. When Estelle Reiner uttered her famous line, she was using Meg Ryan s orgasmic expression of delight as a comparative metric. When we compare food items or wine or pretty faces or sporty cars, we recruit our brain s resources, especially the circuitry involved in attention, emotion and memory. Whether we say that potato chips are the best snack, or better than sardines, we have made a comparison that requires our attention, our capacity to keep at least two items in memory, and a way of emotionally tagging each of the items. This comparison-shopping taxes our mental resources, recruiting them away from the job of evaluating one snack, and leading to a distorted Hauser Chapter 2. Runaway desire 67 evaluation of desirability. Morewedge s experiments point to a mismatch between how delicious something is and how delicious we think it will be, or how delicious we thought it was. It reveals a distortion in our capacity to anticipate or forecast in the words of the American social psychologist Daniel Gilbert how we will feel, and in particular, how much we will like the experience. This is a problem for the elements of pleasure that I laid out earlier in this chapter, as we expect the system that links wanting and liking to be well honed, even optimized to make sure that we really want things we really like. Is this distortion something to expect across the board, independently of context, or is it specific to our food? Is the social domain similarly vulnerable to a distorted view of anticipated pleasure? Consider revenge. When someone transgresses over the borders of social norms, either harming us or those we care about, we often seek revenge, motivated to even things up. We often imagine that revenge will make us feel better, providing a honey hit to the brain that will satisfy our desire to redress an imbalance. But is this the outcome we consistently achieve when we follow through on a plot of revenge or, as Sir Frances Bacon noted over three hundred years ago, might A man that studieth revenge, keeps his own wounds green, which otherwise would heal, and do well. In more modern and plain English, might our desire for revenge inoculate us against healing, creating an illusion that we will feel better? If so, revenge looks like an addictive process, with wanting unhinged from liking. The American psychologist Kevin Carlsmith set up an experimental game that allowed each subject within a group to contribute money to a public good. At the end of one round, the bank multiplied the total by a pre-determined amount, divided this total by the number of players, and then redistributed this amount to each player. In this game, the best for each player in the group is to contribute to the common pot because this maximized the returns. However, the best strategy for an individual is to defect, holding on to the initial endowment while reaping the rewards of everyone else s generous contributions. Those who opt out of cooperation in a public good situation stand to benefit, especially in a world with no punishment. Carlsmith created an experimental world of punishment for some players, but not all, and then explored how punishment contributed to a subject s feelings. Some could pay to punish, some witnessed the consequence of another s punitive act, and some had no exposure to a game involving punishment. When given the opportunity to punish the defector, most people punished. Everyone, both punishers and non-punishers alike, expected punishment to feel good. They were wrong. Both punishers and those who witnessed punishment felt worse, with the act of punishment compounding the bad feelings. The fact that the witnesses felt worse, as opposed to better, may seem at odds with our experience of schadenfreude, of enjoying another s misery. Shouldn t the witnesses have rejoiced upon discovering that the offenders were slapped with a punitive fine? In our own personal experience with Hauser Chapter 2. Runaway desire 68 schadenfreude, as well as in studies that I will explore in a few sections, witnesses learn of a misfortune that happens to another but this news has no direct bearing on the witness. In Carlsmith s experiments, the witnesses learn of a misfortune, but the offender s defection has a direct bearing on the witness in terms of money lost. Thus, although punishment may feel good, the benefit may not make up for the lost income. Everyone in Carlsmith s experiments also believed that punishment would cause people to think less about the offender. They were wrong again. Punishers, but not those who simply witnessed punishment, ruminated more about the selfish offenders. Rumination led to more bad feelings. These bad feelings led to more rumination, giving birth to a vicious cycle of feeling bad and ruminating about those who cheated them of some money. Rumination heightened the comparative difference in resources. Carlsmith s findings are paradoxical and disturbing. Paradoxically, they suggest that in some situations, our expectations about the feeling of punishing an immoral act are inverted from the feelings we feel following punishment: rather than feeling a happy high, we feel a depressing low, often accompanied by increasing anger. In the context of punishing a free-rider who stiffed the group, everyone expects to feel a tingle of delicious delight, but many end up feeling angry instead. The entire polarity of the emotion has switched, with rumination and anger dominating our thoughts. This is a dangerous state to enter. Faced with the strong belief and desire that revenge should feel good, but lacking any confirmation, we are moved to find new evidence. With anger at the helm, there is only one solution: escalate the level of punishment, and continue to do so until it feels good. This is precisely the pattern I described above for obesity: the wanting system continues to search for liking and reward, but fails, and thus continues. Whether it is an unsatisfied desire for food or revenge, the unfortunate consequence is an escalation to excess. Evil isn t far behind, fueled by a variety of situations in which we fail to obtain what we want. The great leveler We are often envious of those who have what we desire, whether it is good looks, money, a warm supportive family, or a better tennis stroke. Envy can motivate us to change our looks, find careers that will improve our finances, seek relationships that will provide additional support, and pick up a few extra tennis lessons to win the next match. Unfortunately, envy can quickly turn, as desire and a deep sense of inferiority transform into insatiable cravings to acquire whatever is necessary to gain superiority. Envy thus wears two masks, one benign and inspirational, the other malignant and destructive. As the writer Dorothy Sayers noted, envy is the great leveler; if it cannot level things up, it will level them down. Hauser Chapter 2. Runaway desire 69 Envy emerges out of our sense of fairness, fueled by competition. It is part and parcel of a hierarchical society. When we envy someone, we have detected a difference or inequity between our own condition and that of another. We want what someone else has, presumably because we like what they have. Wanting and liking are in harmony. Recognition of the inequity fuels competition to redress the imbalance. This sense of fairness appears early in child development, changing in systematic ways as a function of a culture s norms. The Swiss economist Ernst Fehr, who led the brain imaging studies of punishment and reward discussed in Chapter 1, assembled a team of developmental psychologists to test for evidence of fairness in young children ages 3-8 years old. Fehr was especially interested in when children recognize a disparity or inequity in the distribution of resources, and what they are willing to do, if anything, to redress the imbalance. The experimenter paired up each child with a partner of the same age who was either from the same school or a different school; the school distinction was set up to look at in-group versus out-group differences which, as discussed in chapter 1, can lead parochial altruism the paradoxical result of greater cooperation among group members and greater hatred and violence toward those outside. Though each child knew about their partner s age and school affiliation, they never saw their partner. Each child therefore knew only that they were playing with someone from their school or someone unfamiliar to them. Each child played three different games. In each game, the experimenter told one child to decide how to distribute a fixed amount of candy. In the prosocial game, the decider either takes one candy and gives one to the partner or takes one candy and gives nothing to the partner. If children are sensitive to inequities and want to share in order to make things fair, they should pick the 1-1 option; picking the 1-0 option doesn t affect the decider, but dings the partner. In the envy game, the decider has a choice between 1-1 and 1-2. As in the prosocial game, the decider gets the same amount of candy with both options, but preserves equity with 1-1. Picking 1-1 also reveals that the child has an aversion to others having more, even when there is no personal cost. In the third, sharing game, the decider has a choice between 1-1 and 2-0. Here again, the decider gets candy in both cases, but the 2-0 option tempts the desire for more, both personally and relatively. On the one hand, a greedy child will want more candy, and so 2 wins over 1. But picking the 2-0 option also leads to a greater difference with the partner, while robbing them of an opportunity for any candy. If fairness prevails, deciders should pick 1-1. If selfishness prevails, motivated by competition, they should pick 2-0. Across all three games, there was an increasing tendency from age 3 to 8 years old for children to pick the fair distribution (1-1). Across all ages and games, children were most likely to pick the fair distribution when playing against familiar than unfamiliar schoolmates. What these results reveal, together with many other similar studies, is that children are sensitive to the distribution of goods at an Hauser Chapter 2. Runaway desire 70 early age, but with important developmental changes in play. There is a tendency for children to both recognize inequities early in life, but to act selfishly when possible. The envy game shows this beautifully. When another child could receive more, children rejected this option even though it wouldn t cost them directly: the decider always gets just one candy. Though no one has yet worked out what causes a developmental shift from more to less selfishness, most agree that it is driven by maturation of brain regions guiding self-control, together with social factors that make young children increasingly aware of and sensitive to their own and others reputations. Fehr s studies also show that playing fair is not just about the distribution of resources, but about who gets them. Early in life, children have already carved up the world into those they know and those they don t. This division drives their thinking and feeling, and in cases like this, their sense of fairness. Young children are well on their way to developing parochial altruism. Fehr s research, and the majority of studies on the child s developing sense of fairness, focus on children living in large-scale Western societies. Most of the work on fairness in adults is similarly focused on large scale societies. The precise structure of these societies may directly impact how individuals decide when to share, what commodities enter into the distribution, and whether sharing depends on effort invested, needs, and power. As noted in the last section, those who support an egalitarian society are more likely to feel empathy toward those in pain than those who support a hierarchical society. Individuals who are more empathic are also more altruistic. Hunter-gatherer societies tend to be more egalitarian, and highly cooperative. These differences predict further differences in how those living in small-scale societies, including the hunter-gatherers and subsistence farmers of Africa, Asia, and South America, should respond to unfair exchanges. The American anthropologist Joseph Henrich and his colleagues presented a set of bargaining games to adults living in different small-scale societies across the globe. Though the subjects in this study played a number of different games, the basic goal was similar to those deployed by Fehr in his studies of children and adults: under what conditions will individuals choose to share an equal as opposed to an unequal distribution of resources? Consider the ultimatum game. One individual decides how to distribute a fixed amount of money to an anonymous partner; in the Henrich games, he always used the local currency and an amount that was appropriate for the society. The partner had two options: keep what is on offer or reject it. Rejection is costly to both players as they leave empty handed. Rejection is both an expression of sour grapes for what could have been a fair offer and punishment for selfish behavior. In large scale societies, offers typically range from 40-50 of the initial pot, and rejections are common for offers less than about 20 . Hauser Chapter 2. Runaway desire 71 Across the globe, most people in these small scale societies offered some amount of the initial pot. Across the globe, most people rejected really low offers. This shows the universal signature of fairness: an expectation of sharing resources and a no-tolerance view of greed. Cultures differed with respect to how much they shared and whether they rejected. Some societies offered, on average, close to 40 , while others offered as little as 15 . Some societies accepted virtually all offers, whereas others rejected both low and even high offers. Even in more egalitarian societies, therefore, there is sensitivity to unequal distributions. Even in egalitarian societies, there is a willingness to punish those who act unfairly, greedily taking more than their fair share. The work I have discussed on fairness is only a fraction of the growing body of scientific evidence. What this research reveals is that a sense of fairness is part of human nature, appearing early in development, but guided by experience toward a particular cultural form. When our desire for fairness or equity combines with our competitive drive, envy often follows. Studies of the brain show how envy is generated from this combination. When healthy subjects sit in a brain scanner and learn about other individuals who have what they desire, there is considerable activity in the anterior cingulate, and more activity in those who feel more envious. This is not the envy center of the brain. There is no such area. But the recruitment of the anterior cingulate in other social situations helps us understand what is going on more generally in the case of envy. The anterior cingulate activates when we experience pain from social exclusion, but not when we witness such pain in others. It is one of the areas that was activated in Chiao s work on the differences in pain empathy for those supporting either an egalitarian or hierarchical society. The anterior cingulate is also involved when our minds are pulled in two different directions, a situation that arises when we are forced to choose between two conflicting moral options for example, a duty to save the lives of many versus the prohibition of killing one person to save the lives of many. There is a common thread here that unites these different experiences. Like our experience of social exclusion, envy is also a form of social pain and to some, deeply painful, as it reveals a sense of deficiency in acquiring resources. Envy also represents a situation in which our positive sense of self conflicts with the negative sense of self engendered by social comparison. Our brain and the anterior cingulate in particular informs us that we are less accomplished when compared with others. Envy is socially imposed pain generated by comparison shopping. Envy highlights what we don t have, which fuels the system of desire, which seeks satisfaction. Unsatisfied, envy runs wild. Unsatisfied, wanting keeps hunting for pleasure. Schadenfreude delivers some prey. Hauser Chapter 2. Runaway desire 72 O Schadenfreude On February 15, 1978, a relatively unknown boxer with few professional fights, stepped into the Las Vegas boxing ring and snatched the world heavyweight champion title from Muhammad Ali. Ali, along with his entourage of managers, coaches and fans were shocked, though no one denied that he lost. The unknown boxer was Leon Spinks. His only prior claim to fame, and ticket to a shot at Ali, was an Olympic gold medal two years earlier. With this win, not only did Spinks enjoy the heavyweight belt of champions, but a cash prize of 350,000 and a promise of 3.8 million for the rematch with Ali. But this meteoric rise to the top fizzled into a meteoric crash, driven by women, alcohol, sports cars, and a lack of training. Leon Spinks, aka Neon Leon, was living the fast life, and rapidly losing his status as a respected sports hero. Moments before his rematch with Ali, he cruised the streets of New Orleans on top of a limousine while smoking a joint. He was flaunting his nonchalance, making fun of Ali s age, and carrying on about his ability to take the old champ without a single work out. When he entered the ring, Ali was ready. Though the match went the full fifteen rounds, it was no contest. Ali won. Newspaper writers and boxing fans celebrated the return of their champion, and mocked the downfall of an ephemeral, arrogant, and out of control hero. After losing to Ali in the rematch, Neon Leon crashed further, losing all of his earnings, taking on odd jobs for minimum wage, losing a son in a gang fight, and suffering defeat after defeat in the boxing arena. From envied millionaire sports star to bankrupt fool and the laughingstock of the boxing world. When the envied fall down, we perversely enjoy the knock out. This is schadenfreude, a German word that describes the joy we feel in witnessing another s misfortune. Though the emotion is universally understood, recognized in our written records at least as far back as Aristotle, the German language is one of the few to capture the feeling by tapping the brain s promiscuity, combining the word for harm (schaden) with the word for joy (freude). Like envy, schadenfreude is a social, comparative emotion. It erupts when those we envy fall down, when someone we dislike meets his comeuppance, and when a misfortune is deserved. But like envy, schadenfreude presents two faces, one elevating and virtuous, the other deflating and divisive. We should feel good when a person is caught crossing a moral line, committing an injustice. Such feelings not only reinforce our own adherence to moral norms, but encourage us to punish those who transgress. Such feelings instill courage in the service of expressing moral outrage. As Robert F. Kennedy stated Moral courage is a rarer commodity than bravery in battle or intelligence. Schadenfreude in this positive sense is the inner voice of moral courage. At the same time, it can also be the inner voice of moral disengagement, providing justification for an observed harm. Hauser Chapter 2. Runaway desire 73 When this happens, our promiscuous brain has worked its combinatorial magic, causing us to feel good when we witness someone else s misfortune. Schadenfreude, like envy, causes us to self-evaluate, looking inside of ourselves to assess our net worth relative to others. We know from a large body of studies, several carried out by the American social psychologist Roy Baumeister, that when an individual s sense of self-worth is threatened, especially those individuals with more narcissistic and overly confident personalities, aggression often follows. The more personally threatened we feel, the more pleasure we should feel when someone else suffers. The Dutch psychologist Wilco van Dijk tested this idea with two simple experiments. In both experiments, subjects filled out a questionnaire that they believed evaluated their intellectual strengths. Upon completion and scoring of the questionnaire, some were told that they had utterly flopped, scoring in the lowest 10 of all subjects, while others were told that they performed brilliantly, scoring in the upper 10 . Next, all subjects read a scenario in which someone suffers a misfortune. For example, in one scenario, a student rents an expensive car to show off at a party, but then drives the car into a river, not only damaging the car but requiring the fire department to tow it out. Those whose sense of self-worth was threatened by the abominable test score were more likely to say that they felt good about the misfortune, including smirks and laughter in response to the show off who submerged his rented car. These results powerfully show that schadenfreude serves the beneficial function of hoisting our own selfworth. When our self-worth has been challenged, for whatever reason, we feel better knowing that someone else is worse off, regardless of context or direct relevance. Our desire to see others suffer so that we may feel better can escalate to absurd levels, especially when it is fueled by ideology. Beliefs can blind us to the cost-benefit analysis, motivating us to see harm done to those outside of our inner sanctum even if it hurts us as well. Religious and political ideologies are two of the hotspots that can drive entirely irrational desires and absurd attributions. The American psychologist Richard Smith explored whether an individual s political convictions influenced the intensity of schadenfreude when witnessing a member of another party suffer, including cases where society at large also suffers. Smith initiated the study prior to the US Presidential elections in 2004 involving Republican George W. Bush and Democrat John Kerry; during this period, the Republicans controlled both executive branches of the government. Each subject all college undergraduates provided information about party affiliation and strength of support for the policies and beliefs of their party. Next, every subject read and provided reactions to short newspaper articles describing tragicomic moments for the two candidates, one in which Bush fell off his bicycle while riding, and the other involving Kerry wearing a bizarre space outfit during a visit to NASA. Last, subjects read and reacted to an article describing job losses and the economic downturn facing the nation an article meant to capture an objective cost to all members of society, irrespective of party affiliation. Hauser Chapter 2. Runaway desire 74 Unsurprisingly, Democrats expressed more pleasure from reading about Bush s bicycle accident, whereas Republicans were more joyful over Kerry s bizarre space suit. Surprisingly, Democrats also expressed pleasure from reading about the economic downturn, and more pleasure than the Republicans who were more likely to express negative feelings about this situation. Thus, despite the fact that the economic downturn hurt everyone, the Democrats expressed pleasure over the added damage this inflicted on the Republicans who they held responsible and conversely, the added benefit it brought to the Democrats who could wag their fingers. In a second study, Smith found that Democrats experienced more schadenfreude than Republicans over the number of casualties reported out of the Iraq war, even though Iraqis were certainly not preferentially targeting Republicans. The pleasure they experienced was entirely driven by the fact that this was a war sponsored by a Republican government, and thus, the fatalities could be blamed on the Republicans. From a Democrat s perspective, even though everyone loses when soldiers die in war, it is a bigger loss for Republicans, and thus, a bigger gain for Democrats. With schadenfreude, it is all about comparative shopping. It is all about satisfying our desires relative to others. As noted above, schadenfreude appears to emerge strongly when an individual s misfortune is deserved. To explore what is happening in the brain when such pleasure is experienced, and the situations that might trigger it, the German cognitive neuroscientist Tania Singer set up a study involving healthy men and women. In the first phase, subjects played a bargaining game for money against an unfamiliar partner; prior to the game, and unbeknownst to the subject, Singer set things up so that the partner played either fairly or unfairly. After the game, each subject entered a scanner, and watched their partner receive a painful shock to the hand. Predictably, Singer discovered that both men and women liked the fair players better than the unfair players, and showed more empathy to fair players when they were shocked. Proof of empathy was read off the images of brain activation, especially the brain circuitry known to be involved in pain empathy, and mentioned earlier in my discussion of Joan Chiao s work on social hierarchies: the insula and anterior cingulate. Unpredictably, Singer discovered that the level of activity in this pain empathy circuitry was reduced when men but not women saw unfair players receive pain. She also observed that in men but not women there was increased activity in the nucleus accumbens an area mentioned earlier on that, in rats, monkeys and humans is consistently associated with the experience of reward and liking. The more individual men desired revenge for an unfair offer, the more activity they showed in this reward area. Singer s findings are joined by many others showing that the nucleus accumbens, together with other reward areas, are activated in a wide variety of situations in which we gain from others pain. But because these same areas also respond to non-social, non-comparative experiences, such as eating, we Hauser Chapter 2. Runaway desire 75 come back to a critical point in this chapter: areas that evolved for one function are readily recruited for others, especially in a promiscuous brain like ours. As long as something makes us feel good, whether it is winning, eating, social comparison, or harming another, the reward areas of the brain turn on. Schadenfreude is one of the mind s ambassadors, enabling us to journey from a state of inferiority to superiority. It enables imaginary revenge in the words of German philosopher Friedrich Nietzsche. Like envy, it is highly adaptive, focusing our attention on inequities. Like envy, it is also maladaptive, rewarding us when the inequity is not only addressed, but results in another s failure and misery. If failure is associated with violence, including death, so be it. The brain is poised to inspire our desire to harm or witness harm in order to feel good. An appetite for violence Billions of people, perhaps all humans, have had vivid fantasies about sex, violence, or sexual violence. Are these fantasies like food fantasies, cravings that need to be satisfied? Or, as some theories would have it, are sexual and violent fantasies satisfying on their own, playing a cathartic role, releasing energy and thus, reducing the need to act out? Seung-Hui Cho was born in South Korea and then moved to the United States with his parents. During his first three years in college, both students and professors in his literature and theatre courses described his writings as disturbing and disgusting, and his actions toward other students as ominous and frightening. One professor noted that his creative pieces seemed very angry, while another demanded that he be removed from the class. A classmate noted that his plays were really morbid and grotesque I remember one of them very well. It was about a son who hated his stepfather. In the play, the boy threw a chainsaw around and hammers at him. But the play ended with the boy violently suffocating the father with a Rice Krispy treat. Cho was advised to seek counseling. He didn t. No one followed up. A professor aware of his often inappropriate comments and behavior contacted members of the administration. No response. Several women alerted the campus police after Cho stalked them. No disciplinary action was taken despite his repeated offenses. As in the SEC s tin ear to the alarms surrounding Madoff s dubious securities, so too was everyone at Cho s university deaf to his alarming behavior in class and out. During his senior year, Cho wrote an essay describing his anger toward rich kids, the unfairness of life, and his own misery. He also described a revenge fantasy, packed with images of retaliation toward those who had what he lacked. He sent his reflections along with excessively violent photographs and videotapes to the New York headquarters of NBC news. Under a photograph of bullets he provided the caption All the shit you've given me, right back at you with hollow points." Hauser Chapter 2. Runaway desire 76 On April 16, 2007, Cho dressed up in army fatigues. He left his dormitory and killed 32 people and wounded 25 others with a semi-automatic Glock 19 pistol filled with hollow-point bullets, designed to cause more tissue damage than traditional bullets. Cho then shot himself in the temple, ending his life and the Virginia Tech massacre. Cho s case provides a horrifying example of how fantasies of violence can lead to real life enactments and a trail of blood. It also provides a counter-example of the catharsis view: Cho s fantasies about violent revenge did not make him feel better. It made him feel worse and more violent a pattern supported by dozens of studies. Normally raised children as young as seven years old are more likely to act aggressively toward their peers if they are self-absorbed in a world of aggressive fantasy, and this is especially the case for children who witnessed violence or were subjected to it. Adult men and women are more likely to crave violence after reading an argument in favor of the cathartic magic of violent fantasies than after reading a manifesto against catharsis. Men who engage in aggressive sexual fantasies are more likely to engage in aggression, but only if they are narcissists. Men who engage in deviant sexual fantasies are more likely to enact these fantasies, but only if they exhibit signs of psychopathy. Psychopathy and narcissism are like Siamese twins, inseparable. What these studies show is that those who are self-absorbed and play with violent or sexual fantasies, are most likely to take these imaginary worlds onto the real world stage. Further evidence of the connection between violent fantasies and violent actions comes from studies by the German psychologist Thomas Elbert who studied child soldiers brainwashed into joining the ranks of the Lord s Resistance Army, Northern Uganda s rebel group. Since its inception in 1987, the LRA has recruited 25-65,000 children, starting with boys and girls as young as 10-12 years old. In detailed interviews and analyses of now retired child soldiers, Elbert discovered that those who had more experience with killing developed stronger, appetite-driven fantasies of killing, a hunger that had to be fulfilled by real killing. As one ex-child soldier noted The more we killed, the more we acquired a taste for it. If you are allowed to act out this lust it will never let you go again. You could see the lust in our greed popping eyes. ... It was an unprecedented pleasure for everyone. Not only was fantasy converted into killing, but the more they killed, the less they experienced any trauma in later life. Unlike the droves of veterans who have been returning from Iraq and Afghanistan, and suffer from post-traumatic stress disorder or PTSD, these child soldiers developed an immunity. Many of the veterans from Iraq and Afghanistan had no interest in killing, and deemed the war unnecessary. In contrast, these child soldiers were brain washed into believing that killing was necessary, and a sign of importance. Killing that is justified is rewarding, whether the justification is real or the product of self-deception. When selfdeception joins the fray as I further develop in chapter 3 killing is not only rewarding but virtuous. Hauser Chapter 2. Runaway desire 77 Cho s case is not the exception, but the rule: persistent fantasies, whether sexual, violent, or sexually violent, are often played out in real life. When people voice their fantasies, we should open our ears. When therapists, especially those influenced by the catharsis view of the mind, encourage their patients to engage in aggressive fantasies to release their pent up energy, we should bring forward malpractice suits as they are accomplices to crime. What kind of mind is most likely to rev up the fantasy world to supersonic levels and then unleash it in the service of excessive harm? Lust murderers individuals with a craving for the bizarre and degenerate provide one answer to this question. Lust murderers are typically repeat offenders or serial killers. The serial nature of their crimes comes from the fact that they are motivated by recurrent fantasies that create recurrent cravings. They are, effectively, addicted to violence. Their fantasies often entail some kind of paraphilia an extreme and abnormal sexual arousal to objects, people or situations played out through some form of sadism a persistent pattern of sexual or non-sexual pleasure from humiliating, punishing and harming others. Here again we see the promiscuous human mind at work, seamlessly blending pleasure and violence, animate and inanimate attractions, sometimes with benign origins, but often with malignant outcomes. Thus, the pleasure derived from humiliation may develop out of the more common, normal and less harmful pleasure we experience from mockery and humor. Humiliation is just a small step away in a mind that derives joy from others demise. The paraphilias, like many of the other disorders that appear within the Diagnostic and Statistical Manual of Mental Health, fall along a continuum from rather benign forms of voyeurism to erotophonophilia, the vicious and sadistic killing of an innocent victim in order to achieve ultimate sexual satisfaction. Regardless of the particular object or situation driving the paraphilia, individuals become addicted. Like other addictions, including those associated with food, drugs, and alcohol, paraphilic addicts experience withdrawal. Dangerously for the world around them, the erotophonophilic or lust killer harbors sadistic paraphilias, including flagellation the need to club, whip or beat someone anthropophagy the desire to eat human body parts picquerism a craving to stab someone or cut off their flesh, focusing especially on genitals and breasts and necrosadism a yearning to have sexual contact with the dead. Although these desires may seem unimaginable, they reveal one facet of the human mind s potential a potential that was fully realized in the mind of Jeffrey Dahmer who flagellated, cannibalized, dismembered, and engaged in necrophilia with his 17 victims. Such disordered minds are part of the human condition, one that stretches from individuals who never cache in on their fantasies to those who not only deliver, but develop as in addictions to food and drugs deeper and deeper desires for harming others without the rewards that come from such harm. When wanting and Hauser Chapter 2. Runaway desire 78 liking part company, with liking falling dormant due to sensitization, wanting grows in intensity, seeking but failing to find satisfaction. So begins an appetite for violence, one that can turn into a craving. A craving to impress Gazelles on the Serengeti plains of Tanzania sometimes move in an exceptionally bizarre way. With legs rigidly extended, they bounce up and down like kangaroos. There is no obvious function associated with this movement. If anything, it appears energetically wasteful. If these gazelles lived in tall grass, one might think that the bouncing was designed to better see or be seen. But the Serengeti plains are flat and the grass is short. Gazelles can see for miles in this habitat and so can everything else that shares this gorgeous part of the planet with them. This includes the lions, leopards and cheetah that think of gazelles as breakfast, lunch and dinner. Why would a gazelle advertise like this? Why alert predators to your location and availability? Why not use the coloration of your fur to blend into the color scheme of the savannah, moving swiftly but imperceptibly? We can explain the gazelle s bizarre movements called stotting by thinking economically, using Zahavi s honest signaling theory that I described in Chapter 1. Whenever evolutionary biologists see a behavior that is costly, they immediately search for a potential benefit. The reason is simple: behaviors that tax an individual's chances of survival and reproduction are ultimately weeded out by the force of natural selection. There must be some benefit to the individual or to others in order to neutralize the costs. Given the ostentatious nature of the gazelle s stotting, who benefits and how? Since the behavior is eye-poppingly interesting to human observers, one assumes that it is eye-popping to other animals on the Serengeti plains as well. Gazelles typically stot when they detect danger which, in the Serengeti, means leopards, lions and cheetah. If gazelles stot to alert other gazelles, then most gazelles should stot, at least some of the time. This is because all gazelles are vigilant, should have multiple opportunities to see these predatory cats, and should benefit from an alarm signal. But this is not what we observe. Instead, stotting seems to be reserved for those in good shape. When gazelles stot, they appear to be sending a cease and desist signal to any observant cat. If this is the gazelles message, then cats should selectively chase non-stotters over stotters. And when cats turn a blind eye to stotting gazelles and chase them, they should have less success than when they chase non-stotters. Stotters are turbo-charged. Stotting is simply their way of showing off. These expectations are supported by the British biologists Claire Fitzgibbon and Tim Caro who spent hundreds of hours watching gazelles and predatory cats. What they reveal is that stotting is an honest signal of condition or quality. Only gazelles in good condition can tolerate the costs of stotting. Hauser Chapter 2. Runaway desire 79 Stotting handicaps the individual, imposing a significant cost on the ability to move. But the cost paid is relative to the individual s condition. Without the cost and the ability to manage it, everyone could stot. And if everyone could stot, the cats would quickly figure out how meaningless it is and look for other cues to vulnerability. Stotting appears excessive, but in fact is an honest signal of power. It is, to borrow a phrase from the economist Thorstein Veblen, "conspicuous consumption." By flaunting their superior condition, throwing away resources just because they can, these stotting gazelles benefit in the long run, living longer and leaving more offspring who will inherit their qualities. These ideas carry over into human behavior, from big spenders to, I suggest, big harmers. The American anthropologist James Boone has suggested that human magnanimity evolved as did stotting, as an honest signal of wealth and power. It represents a desire to impress through wastage. Handicap yourself in the short run to benefit your wealth and status in the long run. Big tippers don't tip in private, but in the presence of those who can admire their lavish tips. Hunter-gatherers who bring home large prey from a day of hunting don't make cryptic deposits for others, but make sure that their offerings are public. The Mayan pyramids were not built for personal enjoyment behind walled enclosures, but in the open, visible to potential enemies as displays of excessive power to create something really big and costly. Rappers such as JayZ, Puff Daddy, and 50 cent don't have absurdly lavish cribs with a six pack of sports cars because this is what they like, but because this is what they can show off on MTV. Flaunting, even at a substantial cost, provides a path to power. This is a club whose motto reads Impress with excess. My suggestion is that excessive harms work as honest signals of wealth and power. Here we combine the HOW of evil discussed in this chapter with the WHY of evil discussed in chapter 1. When millions are raped, slashed, burned, chopped up, gored, and dropped out of planes before dying, there are only two possible explanations: the evildoer is clinically mad with no sense of moderation or a healthy schemer who has allowed desire to run wild. The schemers are like stotting gazelles, wanting to impress others of their awesome powers by performing high risk displays. The schemers deploy proactive, premeditated, and cold violence like predators. As the sociologist Wolfgang Sofsky noted in his commentary on the Nazi concentration camps Individuals demonstrated commitment by acting, on their own initiative, with greater brutality than their orders called for. Thus excess did not spring from mechanical obedience. On the contrary; its matrix was a group structure where it was expected that members exceed the limits of normal violence. Unfortunately for society past, present and future the Nazis are not an isolated case. When Slobodan Milosevic, Radovan Karadic, and Ratko Mladic launched their ethnic cleansing initiative, they didn t just displace or kill Albanians and Croatians, they raped their women, old and young, in front of husbands, fathers, and grandfathers and then killed man Hauser Chapter 2. Runaway desire 80 of them. Admiral Luis Maria Mendia, one of the leaders in Argentina s Dirty war, convinced victims to board a plane under the pretext of a freedom flight, and then once in flight, were thrown out of the plane, adding sheer terror to the brutality of their death. Accounts such as these litter the pages of history. They reveal that the desire to impress with excess is part of human nature. What we have learned in this chapter is that our biology hands us the tools for excess, and hands some of us more than our fair share. This does not mean that we will or must use such tools. It also doesn t mean that the tools were designed for excess. Some are endowed with genes that predispose to sensation-seeking and risk-taking, others to brain circuitry and chemistry that create an insatiable desire for reward. Different environments either encourage this biology or discourage it, a topic that occupies chapter 4. As the eighteenth century poet William Blake remarked The road to excess leads to the palace of wisdom for we never know what is enough until we know what is more than enough. To more deeply understand how our desires runaway to excess, we need to understand how the mind facilitates this process. We need to understand the role of denial. We need to understand how individuals and groups dehumanize the other and self-deceive themselves into believing that those unlike them represent a threat to their purity and power. We need to understand how desire and denial combine to pave the way to excessive harms. Hauser Chapter 2. Runaway desire 81 Endnotes: Chapter 2 Recommended books Bloom, P. (2010). How Pleasure Works. New York: W.W. Norton. E. Staub (2010). Overcoming Evil. Oxford University Press. Notes: Mr. Greed, Bernie Madoff: Fishman, S. (2009). Bernie Madoff, Free at last. New York Magazine, vol. June, pp. 1-20; Henriques, D.B. (2011). From Prison, Madoff Says Banks Had to Know of Fraud. New York Times, February, 1-3; J. Creswell L. Thomas, New York Times, 1 24 2009 Stimulating the brain: Berridge, K. C. (2009). Wanting and liking: Observations from the Neuroscience and Psychology Laboratory. Inquiry, 52(4), 378-398; Kringelbach, M., Berridge, K. C. (2009). Towards a functional neuroanatomy of pleasure and happiness. Trends in Cognitive Sciences, 13, 479-487; Kringelbach, M., Berridge, K. C. (2010). The functional neuroanatomy of pleasure and happiness. Discovery Medicine, 9(49), 579-587; Olds, J. (1956) Pleasure centers in the brain. Sci Am, 195:105 16; Olds J Milner P. (1954) Positive reinforcement produced by electrical stimulation of the septal area and other regions of rat brain. J Comp Physiol Psychol 47:419 27. Portenoy, R. K., Jarden, J. O., Sidtis, J. J., Lipton, R. B., Foley, K. M., Rottenberg, D. A. (1986). Compulsive thalamic self-stimulation: a case with metabolic, electrophysiologic and behavioral correlates. Case Report . Pain, 27(3), 277-290. Wanting, learning and liking: Peci a S, Cagniard B, Berridge KC, Aldridge JW, Zhuang X. 2003. Hyperdopaminergic mutant mice have higher wanting but not liking for sweet rewards. J Neurosci 23:9395 402; Peci a, S., Smith, K. S., Berridge, K. C. (2006). Hedonic hot spots in the brain The Neuroscientist 12(6), 500 511. Dopamine in and out of control: Chen, T., Blum, K., Mathews, D., Fisher, L. (2005). Are dopaminergic genes involved in a predisposition to pathological aggression?:: Hypothesizing the importance of. Medical Hypotheses, 65(703-707); Di Chiara, G., Bassareo, V. (2007). Reward system and addiction: what dopamine does and doesn't do. Current Opinion in Pharmacology, 7, 69 76; Doya, K. (2008). 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PLoS ONE: Who's afraid of the boss: Cultural differences in social hierarchies modulate self-face recognition in Chinese and Americans. PLoS ONE, 6(2), 1 8; PLoS ONE, 4(5), 1 8; Watson, K. K., Platt, M L. (2008). Neuroethology of reward and decision making. Philosophical Transactions of the Royal Society B: Biological Sciences, 363(1511), 3825 3835. Envy and schadenfreude: Almas, I., Cappelen, A. W., Sorensen, E. O., Tungodden, B. (2010). Fairness and the Development of Inequality Acceptance. Science (New York, NY), 328(5982), 1176 1178; Blake, P. R., Mcauliffe, K. (2011). I had so much it didn't seem fair : Eight-yearolds reject two forms of inequity. Cognition, 120(2), 215 224; Combs, D. J. Y., Powell, C. A. J., Schurtz, D. R., Smith, R. H. (2009). Politics, schadenfreude, and ingroup identification: The sometimes happy thing about a poor economy and death. Journal of Experimental Social Psychology, 45(4), 635 646; Dvash, J, Gilam, G, Ben-Ze'ev, A, Hendler, T, Shamay-Tsoory, S.G. (2010). The envious brain: The neural basis of social comparison. Human Brain Mapping. 31(11): 1741-1750; Fehr, E., Bernhard, H., Rockenbach, B. (2008). Egalitarianism in young children Nature, 454(7208), 1079 1083; Leach, C.W., Spears, R. (2008). A vengefulness of the impotent: the pain of in-group inferiority and schadenfreude toward successful out-groups. J Pers Soc Psychol, 95(6), 1383-1396; Shamay-Tsoory, S.G., Fischer, M., Dvash, J., Harari, H., Perach-Bloom, N. Levkovitz, Y. (2009). Intranasal administration of oxytocin increases envy and schadenfreude (gloating). Biol Psychiatry, 66(9), 864-870; Shamay-Tsoory, S.G, Tibi- Elhanany, Y, Aharon-Peretz, J. (2007). The green-eyed monster and malicious joy: the neuroanatomical bases of envy and gloating (schadenfreude) Brain, 130, 1663-1678; Takahashi, H, Kato, M, Matsuura, M, Mobbs, D, Suhara, T, Okubo, Y. (2009). When Your Gain Is My Pain and Your Pain Is My Gain: Neural Correlates of Envy and Schadenfreude. Science, 323, 937-939; van de Ven, N., Zeelenberg, M., Pieters, R. (2009). Leveling up and down: the experiences of benign and malicious envy. Emotion, 9(3), 419-429; van de Ven, N., Zeelenberg, M., Pieters, R. (2010). Warding Off the Evil Eye: When the fear of being envied increases prosocial behavior. Psychological Science, 21(11): 1671-1677; Van Dijk, W.W. Ouwerkerk, J.W., Goslinga, S., Nieweg, M., Gallucci, M. (2006). When people fall from grace: reconsidering the role of envy in Schadenfreude. Emotion, 6(1), 156-160; Van Dijk, W. W., Ouwerkerk, J. W., Wesseling, Y. M., van Koningsbruggen, G. M. (2011). Towards understanding pleasure at the misfortunes of others: the impact of self-evaluation threat on schadenfreude Cognition and Emotion, 25(2), 360 368. Hauser Chapter 2. Runaway desire 83 Lustful violence: Gellerman, D.M, Suddath, R. (2005). Violent fantasy, dangerousness, and the duty to warn and protect. Journal of the American Academy of Psychiatry and Law, 33, 484-495; V.J. Gerberth. (1998). Anatomy of a lust murder. Law and Order Magazine, 46 (5), pp. 1-6; Gray, N, Watt, A, Hassan, S. (2003). Behavioral indicators of sadistic sexual murder predict the presence of sadistic sexual fantasy in a normative sample. Journal of Interpersonal Violence, 18, 1018-1034; Smith, C.E, Fischer, K.W, Watson, M.W. (2009). Toward a refined view of aggressive fantasy as a risk factor for aggression: interaction effects involving cognitive and situational variables. Aggr. Behav., 35(4), 313-323; Crombach, A, Weierstall, R, Schalinski, I, Hecker, T, Ovuga, E, Elbert, T. (2010). Social status and the desire to resort to violence study on former child soldiers of Uganda. Aggr. Behav., 1-24; Elbert, Thomas, Weierstall, Roland, Schauer, Maggie. (2010). Fascination violence: on mind and brain of man hunters. European archives of psychiatry and clinical neuroscience, 260 (Suppl 2), S100-S105; Ruf, M., Schauer, M., Neuner, F., Catani, C., Schauer, E., Elbert, T. (2010). Narrative exposure therapy for 7- to 16-year-olds: a randomized controlled trial with traumatized refugee children. J Trauma Stress, 23(4), 437-445; Schaal, S., Elbert, T. (2006). Ten years after the genocide: trauma confrontation and posttraumatic stress in Rwandan adolescents. Journal of Traumatic Stress,, 19(1), 95-105; Weierstall, R, Schaal, S, Schalinski, I, Dusingizemungu, J, Elbert, T. (2010). The thrill of being violent as an antidote to posttraumatic stress disorder in Rwandese genocide perpetrators. Journal of Traumatic Stress, 1-30. Quotes: Child soldiers: cited in A. Crombach et al. (2010) Social status and the desire to resort to violence study on former child soldiers of Uganda. Aggressive Behavior pp. 1-24 The Nazis and excess: W. Sofsky (1993). The Order of Terror. Princeton University Press, New Jersey, p.228 Hauser Chapter 2. Runaway desire 84 Chapter 3: Ravages of denial Self denial is not a virtue: it is only the effect of prudence on rascality. In October of 1980, a 39 year old man walked into the Royal Melbourne Hospital in Australia, having suffered a gun shot to the left side of his skull. Once the medical team removed the bullet fragments and cleared the blood clot, the man was able to speak. He had shot himself, aiming at his second head. Yes, his second head. This man believed that he had two heads, his own and the head of his dead wife s gynecologist. Before his wife died in a car accident, he believed that she was having an affair with her gynecologist. At night, the second head spoke, accompanied by voices from Jesus and Abraham who confirmed the existence of the second head. As the patient expressed to the interviewing doctor The other head kept trying to dominate my normal head, and I would not let it. It kept trying to say to me I would lose, and I said bull-shit. I am the king pin here it said and it kept going on like that for about three weeks and finally I got jack of it, and I decided to shoot my other head off. Over a two year period, the perception of the second head disappeared. The attending neuropsychologist, David Ames, described the case as an example of schizophrenia-induced delusional bicephaly a distortion of reality that creates a false belief of two heads. Cases like this are bizarre. But like many neuropsychological reports, they force us to reevaluate our perception of reality, what s normal and what s distorted, what s adaptive and what s maladaptive. The Australian patient who developed delusional bicephaly was suffering from the loss of his wife. Loss and suffering motivate explanation, along with something or someone to blame: Was it really an accident? Why her? Why not me? What if she had stayed home that morning? What if I had been driving with her? Was she distracted by her lover? Was he in the car? These questions represent gaps in a narrative, holes that we attempt to fill, often by distorting reality. Distortions of reality are common. Even the healthiest among us create stories designed to Hauser Chapter 3. Ravages of denial 85 explain a puzzle in our lives or to help us through trauma. These stories are narratives that provide new truths by denying particular elements of reality. They represent the mind s method of filling in gaps, providing justifications for what we can t explain or wish to explain in a different way. This is an adaptive feature of the human mind, one that is uniquely human. But this same feature can be used to justify immoral and atrocious behaviors, the kind that lead to excessive harms. When we distort reality by treating others as non-human, perceiving and judging them as animals, parasites, or machines, we have armed ourselves with a weapon that enables great harms by removing the moral consequences of our actions. Animals, parasites and machines are outside of our moral concerns, so we shouldn t feel guilty, or wrack our conscience when we end their lives or ability to move. Animals, parasites and machines don t have rights, and thus, we have no obligation to them. Similarly, when we distort reality by means of deception and self-deception, we have armed ourselves with weapons that enable desire to run wild. Self-deception generates overconfidence. Overconfidence enables us to pursue our desire for power, freed from the reins that pull us back, away from costly interactions. Self-deception allow us to convince ourselves and deceive others that we are under attack, threatened by those who are unlike us. Under the circumstances, we are justified in using self-defense, even if this leads to annihilating the enemy. Often, self-deception combines with dehumanization to maximize the effectiveness of the distortion, paving an unobstructed path for runaway desire. Denial enables desire to achieve satisfaction, minus the moral conscience. These are the ideas that I will explore in this chapter. Before discussing the scientific evidence that explains how the brain distorts reality by dehumanizing and self-deceiving two core elements of denial we must understand how the brain creates the reality of humanization, a process that imbues some things but not others with human qualities and moral worth. This is an important problem as it shapes our perception of evil, who can cause excessive harm and who can suffer from it. Rocks can cause great pain as in landslides but we don t hold them responsible for the harm caused because they lack intentions, beliefs, goals, and desires. Rocks can also be crushed, pulverized into sand by humans working in a quarry. But rocks are neither innocent nor victims as they have no moral worth, no capacity to suffer, and no ability to intentionally harm another. If not rocks, what? iHuman Earthquakes, viruses, chimpanzees, children, and psychopaths can all cause harm to others, including humans and other animals. We might be tempted to think that only psychopaths are rightfully classified as evildoers because they are the only ones that can cause excessive harm to innocent others with harm as a goal. But this begs the question of what we mean by excessive, innocent, and goal. Hauser Chapter 3. Ravages of denial 86 Earthquakes, viruses, chimpanzees, and some children often cause excessive harm to innocent others, at least if the focus is on numbers and the way in which death arises. The earthquake that reached a magnitude of 7.0 on the Richter scale and demolished the capital of Haiti in 2010 took the lives of approximately 200,000 people, all innocent and undeserving of this natural disaster. This is excess beyond what any psychopath has ever achieved. The Spanish Flu found its way into the bodies of innocent people from the Arctic to the Pacific Islands from 1918 to 1920, and killed over 50 million people a death toll that is at least four times higher than what Hitler caused during his reign, and comparable to that achieved by Mao Ze-Dong during his. As noted in chapter 1, chimpanzees kill at a rate that approximates many hunter-gatherer groups. When they kill, the frenzied attacks are over the top, involving gruesome dismemberment of their victims by biting into the face, ripping off testicles and dislocating limbs. By the age of 15 years, Willie James Bosket Jr had committed some 200 armed robberies, stabbed 25 innocent victims, kicked a boy off of a roof to his death, and killed two men following a failed robbery, all for the experience. At the level of outcomes, these are all horrific cases of lives lost, with some excessive in terms of numbers and others in terms of means. We can eliminate earthquakes and other natural disasters from the list of evildoers by noting that they don t have, as their goal or as a foreseen consequence, the elimination of lives, innocent or not. They don t have goals at all. This also eliminates them from the class of victims, assuming the day comes when scientists can kill off earthquakes, cyclones, hurricanes, blizzards and so on before they pick up enough steam to cause great harm. One might think that viruses, and their virulent partners the parasites, lack goals because they lack brains. This intuition is correct anatomically, but incorrect conceptually. As the American philosopher Daniel Dennett has noted, the beauty of Darwin s theory of natural selection is that it provided a way of giving nature competence without comprehension. Thus, viruses and parasites have goals without understanding at all. To survive and reproduce, they have evolved exquisite chemical and electrical machines that harvest all of their host s resources. And if making a living requires killing the host, so be it. They do so without shedding a tear. No guilt, no remorse. Chimpanzees, on the other hand, have goals and brains that represent them. When chimpanzees kill, their goal is not food. Their brutal attacks are motivated by a desire to outcompete their rivals and absorb additional resources; no one knows if they feel guilt or remorse. Willie Bosket s goal was to rob two men, but when he failed, he turned to gratuitous violence, for the experience. Bosket certainly could, as a human, feel guilt and remorse, but all reports indicate he didn t. We can eliminate parasites and viruses from the list of evildoers and evilreceivers by noting that they lack an understanding of right and wrong, and are incapable of suffering. Chimpanzees are a harder case. They live in societies with norms and respond aggressively to norm transgressions, as occurs when a high ranking male beats a lower ranking male for trying to steal food or a mating opportunity. Hauser Chapter 3. Ravages of denial 87 Chimpanzees also suffer, experiencing pain from both physical attacks and social loss. But getting angry at something or someone and feeling pain from a physical or social assault are different from getting angry because someone s behavior was morally wrong, and suffering from a morally toxic action. I get angry at my computer all the time, swearing when it crashes, and even smacking it on its backside. But there is no moral harm. In this sense, there is no evidence that chimpanzees have a sense of right and wrong, and that the pain they experience is linked to a sense of how one ought to behave. Chimpanzees can t be evildoers, but they certainly can, and have been evilrecipients. There is also an important difference between violently harming another and knowing it is wrong, and harming another because it is wrong. The latter fits at least one view of evil, a kind of radical evil in which harm is created for harm s sake, because it is rewarding. When Willie Bosket killed those two men, he was certainly old enough to know the difference between right and wrong. He most likely killed knowingly, perhaps for the generic experience of shooting someone, but perhaps not with a desire to harm for harm s sake. Then again, when he noted that he killed for the experience, perhaps this was the experience of pleasure from harming another. Was Willie Bosket responsible for his shootings? The answer to this question depends on how we think about Bosket s options, and the link between cause and effect. At the simplest level, Bosket caused the death of the two men in the same way that a swinging wrecking ball can cause the death of two men. But the wrecking ball can t be held accountable or responsible in the same way that Bosket can. Wrecking balls lack options and lack the capacity to predict the consequences of their actions. Bosket had options, could foresee the consequences of his actions, and had the capacity to act upon his options. Or did he? We know that the frontal lobes of the brain play an important role in self-control and emotional regulation. We also know that this area of the brain is not fully mature until people reach their midtwenties. Bosket was, therefore, operating with an immature brain. His actions were, in some ways, like the wrecking ball, driven by inertia. Perhaps the frustration of failing to achieve his goal robbery caused a dizzying chemical reaction in his brain, causing a flood of emotions, blinding his capacity to think rationally. Paraphrasing the Slovenian philosopher Slavoj Zizek, these electrochemical storms in Bosket s brain caused him to deposit his conscience at the door. Like the husband who finds his wife in bed with her lover and kills them both on the spot, Bosket committed a crime of passion. On this account, not only is he not evil, he is pardonable. Immaturity is a mitigating factor when we evaluate a crime. It is why, in many countries, there is one legal system for youths and another for adults. It is why, in countries with the death penalty, such as the United States, youths are immune. With maturity comes a heightened capacity to control ones actions, or at least, to gain better self-control and thus, to take responsibility for what one does. This Hauser Chapter 3. Ravages of denial 88 means that maturation eventually legitimizes individuals as potential evildoers. It does not, however, cause a shift in our sense of evilrecipients. Willie Bosket may not have been an evildoer, but he certainly could have been an evilrecipient. What about psychopaths, people like Charles Manson and Ted Bundy? Pop culture tells us that they are depraved, heinous, immoral monsters, deliberately causing harm to others, and often with a delicious twinkle in their eye. But what if I told you that several recent studies of psychopaths indicate that they know the difference between right and wrong? When judging the moral permissibility of different actions, such as harming one person to save the lives of many, psychopaths judgments are often like yours and mine, nuanced, varying depending upon the outcomes and the means by which they are achieved. This is a rational, albeit largely unconscious understanding of right and wrong. This makes psychopaths nothing like earthquakes, viruses, chimpanzees, or young children. It also means that they don t have bad moral principles, but rather, ones that are like yours and mine. What if I further told you that before they develop into fully licensed-to-kill or extort psychopaths, many have an early history of torturing pets and bullying other kids. What if I further told you that when they cooked the cat in the microwave or bloodied little Johnny s face with their fist, that the consequences of their actions left them cold no guilt, remorse, or shame. Nothing. And what if I told you that these people are born with a different brain chemistry and structure than you or I, leading to poor self-control and an emotionally callous view of the world? If this medical report is correct, and I believe the scientific evidence supports it, then psychopaths lack the ability to see alternative options and act on them. They also lack the resources for self-control. Given this evidence, psychopaths are not evil at all, though the consequences of their actions are often excessively heinous. Given this evidence, not one member of our initial list would count as evildoers, though chimpanzees, children and psychopaths would all count as potential evilrecipients. What this discussion highlights is that our perception of evildoers and evilrecipients is influenced by our sense of what it means to be human. Though evildoers and evilreceivers overlap in their capacities to think and feel, there are differences, captured by Aristotle s distinction between moral agents those who have responsibility for others well being and moral patients those who deserve moral consideration and care from moral agents. The distinction gains scientific credibility thanks to a set of studies by the American psychologists Kurt Gray and Daniel Wegner. In one experiment, a large internet population compared the qualities of different things, including humans at different stages of development fetus, baby, child, and adult an adult human in a vegetative state, a dead human, nonhuman animals frog, pet dog, chimpanzee God, and a socially savvy robot. Subjects judged different pairings of these things on a wide range of dimensions, including which was more likely to develop a unique personality, feel embarrassed, suffer pain, distinguish right from wrong, experience Hauser Chapter 3. Ravages of denial 89 conscious awareness, exert greater self-control, plan ahead, develop fears, feel pleasure, and erupt into rage. Subjects also provided their personal opinions on which individual, within the pair, they liked most, wanted to make happy or destroy, was most deserving of punishment, and most likely had a soul. I assume that everyone reading about the design of this study has already formed an opinion about some of the comparisons. Presumably everyone believes that a living adult is more consciously aware than a dead person, fetus, dog, and robot. Presumably everyone believes that all animals feel more pain than a dead human or a robot. And presumably everyone would rather make a dog happy than a frog, and would be more likely to allocate souls to fetuses, babies, and adult humans than to robots and frogs. But are we more conscious than God? Does a chimpanzee feel more embarrassed than a baby? Can a person in a vegetative state feel more pleasure than a frog or robot? What dimensions, if any, cause us to lasso some things together but not others? What things cluster together and why? As a reminder: this study is about our intuitions, not about what scientists have discovered about the minds and emotions of these different things. Adding up the large set of responses produced a map or landscape defined by two dimensions: experience and agency. Experience included properties such as hunger, fear, pain, pleasure, rage, desire, consciousness, pride, embarrassment, and joy. Agency included self-control, morality, memory, emotion recognition, planning, communication and thinking. Experience aligned with feelings, agency with thinking. With these dimensions, we find God at one edge, high in agency and low in experience. On the opposite side, huddled together on the landscape, defined by low agency and high experience, we find fetuses, frogs, and people in a vegetative state. High in both agency and experience were adult men and women. Robots and dead people were low on experience and in the middle for agency, whereas dogs, chimpanzees, and human kids were high on experience and middling on agency. This landscape not only helps us understand how people classify these different entities, but also plays a more active role in guiding individuals judgments to punish, provide pleasure, and avoid harm. If you have to harm something, pick an entity low in experience, such as dead people and robots who can t suffer. If you have to punish something, pick an entity high in agency, such as living adults who recognize the difference between right and wrong and have the capacity for self-control. What this work shows is that people have strong intuitions about which things are morally responsible as agents and which are deserving of our moral concerns as patients. Moral patients are high in experience, and can thus suffer as victims, innocent or not. This is why many countries have created laws against harming nonhuman animals, including restrictions on which animals can serve in laboratory experiments, what can be done to them, and how they should be housed. This is also why we don t do experiments on fetuses, newborns, adults in a vegetative state, or humans with neurological disorders that knock out aspects of their experience and agency. Once something enters the arena of moral patients, we Hauser Chapter 3. Ravages of denial 90 tend to leave them within this arena even if they lose particular capacities. Conversely, if scientists discover that an organism outside the arena of moral patient-hood has capacities of experience and agency that are on a par with those inside the arena, this evidence often promotes their legal status and protection. Such was the fate of the octopus, an invertebrate once classified by Aristotle as stupid , but now elevated to the company of much smarter animals that solve novel problems, deploy trickery, and show some evidence of being aware of their behavior. As such, they are one of the few invertebrates to enjoy heightened protection and care when they are kept in captivity. Moral agents are high in agency, meaning that they can distinguish right from wrong, exert selfcontrol in the context of selfish temptation, can be blamed and punished, and are expected to care for moral patients. Moral patients are high in experience, including especially the capacity to feel pain. Both moral agents and patients have moral worth. But as in all entities that have worth or value, some are more valuable than others. So it is with moral worth. This is where departures from humanness get interesting, dangerously so. When we strip individuals of their moral worth, denying them qualities that define humanness, we have entered a world of distortion and denial that facilitates and justifies excessive harms. Across many studies, individuals consider themselves to be more human as defined by the dimensions of experience and agency and to have greater moral worth than other individuals. When individuals are socially ostracized and excluded from a group, they judge themselves as less human, and so do the spectators who observe the ostracism. Individuals judge members of their own group to be more human and morally worthy than those outside the group, no matter how small or broad the group is. What counts is our overall sense of how we compare to others, and the dimensions used to calibrate this similarity metric. The Australian social psychologist Nick Haslam carried out several experiments to determine how our rating of a group s humanness influenced how much we praise, blame and protect them, as well as whether we believe that rehabilitation or punishment is most appropriate after they have done something wrong. Haslam based his study on the idea, supported by the law, science, and our folk intuitions that we blame, praise and punish only those who do bad things on purpose as opposed to by accident. Conversely, we favor rehabilitation in those cases where we believe that the person can right a wrong, learning a lesson from a prior transgression. Subjects started by rating several different social groups along different dimensions of humanness. Though Haslam s dimensions were slightly different from those used by Gray and Wegner, they generally corresponded to experience and agency, including compassion, warmth and a sense of community on the one hand, and reason, self-control, civility, and refinement on the other. The target social groups were associated with negative or positive stereotypes such as the homeless, mentally disabled, athletes, politicians, doctors, lawyers, gays, and different religious groups. Next subjects imagined that a member of one of these groups had acted morally or immorally, or had been mistreated in Hauser Chapter 3. Ravages of denial 91 some way. Then they decided whether the person should be praised for a particular moral act such as returning a wallet, considered responsible for an immoral act such as breaking a promise, helped out for mistreatment such as being pushed out of line by a person in a hurry, and punished or rehabilitated for wrongful behavior. Haslam s results generated a landscape of humanness very much like Gray and Wegner s. Those groups rated highly in terms of agency, were more likely to be blamed and punished. Those groups rated high in experience were more likely to be praised, protected, and placed into rehabilitation. Those groups perceived as more emotional, compassionate and warm components of experience were praised more, whereas those perceived as more civil and rational components of agency were praised less. Overall, the more a group tilts toward the experience end of the spectrum, the more we see them as moral patients, deserving of our care and compassion. The more a group tilts toward the agency end of the spectrum, the more we see them as moral agents, having responsibilities and duties to act morally. Haslam s findings are not only of great conceptual interest, shaping our understanding of the defining qualities of being human, but also figure into everyday political and legal decision making. When do we believe a person has the right to vote, drive responsibly, drink alcohol reasonably, and serve an adult as opposed to a youth sentence for a crime? In the United States, the age cut off for considering the punishment of a crime under the jurisdiction of a juvenile court proceeding ranges from 16-19 years. Juvenile sentences are lighter than adult sentences, and rarely include life in prison or the death penalty. Though there is an arbitrariness to these age cut offs, and no good reason why states should differ, the decision to treat youths differently not only maps on to our intuitions but to the attributes that psychologists such as Haslam, Gray and Wegner have discovered. Treating an individual as a youth is more likely to trigger the dimension of experience in jury members and thus, more likely to trigger a sense that the individual should be protected and given the opportunity to change through rehabilitation. This fits with scientific evidence that an immature brain is a more plastic brain, capable of change. It also fits with the evidence that an immature brain is a brain with less self-control and critical reasoning both components of the agency dimension. These less than fully human qualities on the agency dimension, balanced by more qualities on the experience dimension, provide youths with an automatic entry ticket into the arena of moral patients. Moving outside of the arena of moral patienthood and into that of moral agency requires a change in perception. It requires us to see individuals as acting responsibly, controlling temptation, and understanding the distinction between right and wrong. It is for these reasons that our legal system, and the courts that carry out its principles, must consider psychological differences. Classifying individuals as adults or juveniles drags with it a massive psychology that is biased toward responsibility, blame and punishment on the one hand and protection, intervention, and rehabilitation on the other. The same biases Hauser Chapter 3. Ravages of denial 92 are also engaged when we consider adults with developmental disorders or brain injury, as these deficits are often associated with selective loss of either components of agency or experience, and sometimes both. As demonstrated by the work of Kurt Gray, Andres Martinez, and others, labeling someone a psychopath, autistic, or schizophrenic effectively pigeon holes the individual into a class of individuals with less than fully human qualities. This is a good thing when it focuses us on protection, intervention and rehabilitation. It is a bad thing when it allows us to morally disengage because those lacking the full compliment of qualities associated with agency and experience are less morally worthy. Humanness drives our moral concerns and our sense of others moral worth. When we lower our sense of another s value, we are willing to violate our sense of the sacred, engaging in trade-offs that are normally taboo. Experiments by the American psychologists Philip Tetlock and Jonathan Haidt help us see what is sacred by asking individuals what they would pay to do something sacrilegious. If something is sacred, of great moral worth either personally or to your group, could you be paid off by a wealthy investor to give up the object or engage in an act against it? For each of the acts below, think about your payoff point in dollars from 0 (for free) to 1million, including the option of saying that you would never do it for any amount of money. Keep in mind that if you choose to carry out an act and receive payment you will not suffer any consequences: Kick a dog in the head, hard. Sign a secret but binding pledge to hire only people of your race into your company Burn your country s flag in private Throw a rotten tomato at a political leader that you dislike. Get a one pint transfusion of disease-free, compatible blood from a convicted child molester. If you are like the subjects in these experiments, the mere process of considering a payoff, even for a short period of time, will have turned your stomach into knots and triggered a deep sense of disgust. This is because violating the sacred is akin to violating our sense of humanness. It is playing with the devil, accepting a Faustian offer of money to strip something of its moral worth. As Haidt notes, even though it is sacrilege to accept payment across different moral concerns, including avoiding harm, acting fairly, and respecting authority, different experiences can modulate the aversion we feel when we imagine such transgressions. Women typically demand more money for each of these acts than men, and more often reject them as taboo. Those who lean toward the conservative end of the political spectrum either ask for more money or consider the act taboo when compared to liberals, and this was especially the case for questions focused on acting against an in-group (race), an authority figure (political leader), or ones purity (blood transfusion). What this shows is that our cultural experiences can distort what we consider Hauser Chapter 3. Ravages of denial 93 morally worthy or sacred. It shows how easily we can flip our values in the face of tempting alternatives. The scientific evidence presented in this section shows that our decisions to treat others according to different moral principles or norms is powerfully affected by our sense of what counts as another human being. What counts includes at least two important dimensions, one focused on agency and the other on experience. These dimensions determine whether we blame or praise someone, punish or rehabilitate them, and ultimately, include or exclude them from the inner circles of moral agents or moral patients. Those who fall outside these two inner circles are morally worthless. Those who are morally worthless can be destroyed or banished. Some things are justifiably excluded and fit with our general sense of reality rocks, dirt, cardboard boxes, plastic balls, and pieces of glass. Other things are excluded because they don t fit with our values of what reality should be. This is where distortion and denial enter the process. This is where we create walls around members of one group in order to keep others out. This is where we express partiality instead of the impartiality that Lady Justice champions with her two balanced scales and blind fold-covered eyes. This is where we exclude others from our inner sanctum in order to justify great harms. How is the inner sanctum set up and put into action over a lifetime, sometimes for legitimate causes and sometimes for illegitimate and unconscionable causes? Populating the inner sanctum Elie Wiesel, the Nobel Peace Laureate and Holocaust survivor, remarked that anti-Semitism is the most ancient form of prejudice. This claim may well be true of human written history, but is most definitely false if one considers the fact that all social animals and human societies, including the hunter-gatherer groups that are descendants of people that predated the Jews, hate some individuals and love others. Prejudice, though often based on deep seated ideological biases and stereotypes that humans invent, is, at root, a form of partiality. Every social animal, either extinct or alive today, expresses partiality. This is a highly adaptive and ancient psychology, promoting the care of young, investment in mates, and escape strategies against enemies. Humans are no different, except for the role that our promiscuous brains play in fueling partiality with ideology and symbolism. Sometimes when we express our partiality it is for the noble cause of caring for our children and for defending ideological beliefs surrounding humanitarian causes, including defense of basic human rights. Sometimes when we express our partiality, it is for the ignoble cause of destroying others. How does human partiality begin? Do babies express preferences for certain social categories? How does their experience sculpt new categories? How is the inner sanctum populated, enabling us to preferentially help those within and harm those outside? Hauser Chapter 3. Ravages of denial 94 At birth, newborns preferentially listen to their native language over a non-native language. Soon thereafter, infants prefer to listen to their native dialect over a non-native dialect, and look longer at their own race than another race. This shows that they can discriminate between different languages, dialects, and racial groups. But do they form social preferences based on these distinctions? Would a young baby or child prefer to take a toy from an unfamiliar person who speaks the same or different language, from the same or different race? To answer these questions, the American psychologist Katharine Kinzler put 5 months old babies to a test. Babies born into mono-racial and mono-lingual families sat on their mother s lap in front of two monitors, each presenting short video clips of different people. After watching the videos, Kinzler created a bit of magic. The people in the monitor appeared to emerge from the 2D image and offer the baby a toy. The trick: a real person, hidden beneath the monitor, synchronized her reach with the reach in the monitor. Who would the baby choose given that both people offered the same toy? Babies preferred people speaking the native over non-native language, and native-accent over the non-native accent. At this young age, however, they showed no preference for native over non-native race. Thus, early in life the connection between discrimination and social preference is well established for language, but not race. When do things change for race? Kinzler carried out another series of experiments on race with one group of 2.5 year old children and a second group of 5-year olds. Though the methods were somewhat different, they both focused on the child s preferences, including who they would share toys with and who they would prefer as friends. The 2.5 year olds showed no preferences, whereas the 5 year olds preferred their own race. Race is therefore a slowly developing category, at least in terms of its impact on social preferences, and especially when contrasted with both language and accent. Kinzler took these studies one step further to explore whether there is anything like a hierarchy among these social categories and the features that define them. What s more important to a young child building an inner sanctum of trusted others race, language, or dialect? Would they rather interact with someone of the same race who speaks a foreign language or someone of a different race who speaks the native language? Using similar procedures, Kinzler showed that by 4-5 years of age, language trumps race. Children would rather interact with someone from a different race speaking the same language than someone of the same race speaking a foreign language. Why would language trump race? Kinzler's answer relies on an idea developed by the American evolutionary psychologist Robert Kurzban. Imagine a hunter-gatherer in South Africa, living during the earliest stages of our evolutionary history. As individuals searched for food to eat, areas to sleep, water to drink, and places to avoid, they came across other individuals. These individuals were always members of the same race. Racial differences did not emerge until relatively late in human evolution, well after our Hauser Chapter 3. Ravages of denial 95 ancestors took their first steps out of Africa. If we are thinking about an evolved psychology for bonding with members of our own group and fighting those outside, our ancestors would have been blind to race as it was not yet an emergent property of our species. Language was, however, a property of our species, and one that varied across populations. A hunter-gatherer walking the plains of South Africa would indeed have run into people speaking either a completely different language, or the same language with a different dialect. New languages are not easily acquired, and nor are new dialects. It takes real talent to speak a new language or dialect without a trace of ones origins. Thus, like the stotting gazelles, magnanimous spenders, and healthy evildoers discussed in chapter 2, the native languages and dialects we speak are honest signals of social group membership. Honesty is supported by the costs we pay to acquire them. Cheating is hard because there is a start-up cost associated with perfecting the natural rhythm of a second language or novel dialect. The babies in Kinzler s experiments tell us something important: race and language are both important social categories and discriminable from an early age. But language trumps race as a feature because it is a better predictor of membership within the inner sanctum, at least early in life. Ultimately, both language and race allow us to close off some from the inner sanctum and allow others in. Ultimately, our allegiance to our native language and race can fuel our hatred toward those who look different and speak in different tongues. Closed doors As adults, we tend to rely on rules of thumb to guide our social interactions, including who we trust and who we distrust. We tend to trust those we know more than those we don t know. Within the circle of those we know, we believe those who are more like us than those who are unlike us, using fixed body features race, height, hair color flexible psychological features food preferences, sports interests, religious beliefs and features that are flexibly constrained language and intelligence. Together, these different dimensions cause us to close the door on some and open it to others. Language is particularly interesting. If you can t understand someone because they don t speak your language or because their accent is too heavy, then the issue is not trust, but comprehension. But what if you can understand the person perfectly well, but they speak with a foreign accent, either one from a different country (e.g., a French speaker speaking English) or one from the same country but a different region (e.g., a Southern accent in the northeast of the United States)? Hauser Chapter 3. Ravages of denial 96 Subjects in an experiment first listened to people reading trivia, such as A giraffe can go without water longer than a camel can, and then judged whether the sentence was true or false. If the sentence was read in a foreign accent, subjects were more likely to say that it was false than if it was read in the native accent. Subjects voiced this opinion even though the experimenter told them that the reader was not expressing an opinion, but merely reading the passage as instructed. In a second experiment, British subjects listening to a non-guilty plea by a person on trial were more likely to judge the person as guilty if he committed a blue collar crime and spoke with a non-standard British accent (e.g., Australian). In contrast, they were more likely to judge a white collar criminal as guilty if he spoke with a standard British accent. Even within the class of British accents, biases emerged: subjects from the Worcester region were more likely to judge supposed criminals as guilty if they spoke with a Birmingham accent than with a Worcester accent. Together, these studies paint a bleak picture: accents from an out-group are perceived as less truthful than others, and in the context of a criminal case, more guilty as well. Accents are learned early in life, and once in place, are both clear markers of your origins and difficult to undue. As such, they are honest indicators of at least one dimension of group membership. What about dimensions that can readily be acquired at any point in life, and just as easily dropped? How do these influence not only our perception of those who share these dimensions in common, but how we treat them? In the last chapter I discussed a study by Tania Singer in which both men and women showed more pain empathy as revealed by activation in the insula region of the brain when they watched a cooperator experiencing pain. Further, men showed a reduction of activity in this area when a cheater experienced pain, and increased activity in a reward area the nucleus accumbens. This pattern fits well with the research on human and nonhuman animals showing that winning, and watching winners win, triggers a choreographed ballet of physiological responses associated with reward. Singer took this work further, asking whether an individual s support for a sport s team might similarly modulate both the feeling of pain empathy as well as reward. Subjects, all soccer fanatics, sat in a scanner and watched as a player from their favorite team or a rival experienced pain. Next, Singer provided subjects with three options for interacting with these players: help them by personally taking on some of the pain they would receive, letting them take on all the pain but watch a video as distraction, or let them take on all the pain and watch as it happens. Option one is costly altruism, two is blissful ignorance, and three is schadenfreude. In parallel with the earlier work on fairness, here too Singer observed greater pain empathy when the favorite team player experienced pain than when the rival experienced pain. She also observed that subjects were more likely to help favorite team players by taking on some of their pain, but more likely to watch rivals receive pain. The higher the activation level in the insula, the more they took on their favorite team player s pain session the more they helped. When they watched rivals experience pain, Hauser Chapter 3. Ravages of denial 97 there was significant activation in the nucleus accumbens. They felt an immediate honey hit, joy over the rival s pain. The higher the activation in this reward area, the more likely they were to choose the option of watching the rival experience pain like watching a public execution and cheering for just deserts. These results show that individual differences in our compassion toward others in pain predicts our willingness to help them. It reveals another dimension, like language, that biases our sense of justice, both in our judgments and in our behavior. Conversely, individual differences in our joy over others misery predicts our willingness to allow others to suffer, suppress our instincts to help and, I suggest, facilitate our capacity to harm. Similar response patterns arise in the context of race a feature of group membership that is fixed at birth. As noted earlier, babies stare longer at faces of people from the same race than from people of a different race, and by the pre-school years, are more likely to show social preferences for peers and adults of the same race. In brain imaging studies, specific areas activate when we process faces as opposed to other objects, and one tenth of a second later, other associated regions activate when we process race. This rapid activation occurs whether we are consciously engaged in classifying faces by race or not; for example, the same areas activate even when we are forced to focus on gender or familiarity. This shows that from the brain s perspective, we don t have an option of processing a person s race. The brain automatically and unconsciously hands us this information, like it or not. The fact that we process race automatically gains importance based on a powerful set of behavioral studies showing that virtually every person, independently of their explicit avowals of nonracist attitudes, holds implicit or unconscious racist biases. Using a research tool developed by the social psychologists Tony Greenwald and Mahzarin Banaji called the Implicit Attitudes Test or IAT, subjects see different faces or read different descriptions of people, and then make evaluative judgments about these people. Often, the presentations are rapid so that there is little or no time to reflect upon the evaluation. For example, in a study focused on race, subjects first classified photographs of people s faces as either Caucasian or Black. Next they classified words into those associated with good positive meaning joy and friend and those with bad negative meaning hate and bomb. In the third and critical step, subjects saw faces and words together and, using a rule provided by the experimenter, struck one of two keys on a keyboard as fast as possible: for example, strike the 1 key if you see a Black face and a good word, but the 2 key if you see a Caucasian face and a good word. The intuition here is that if certain faces and words are more strongly associated, because this is what people have learned over time, then they will press the relevant key faster than for weaker associations. Results from several studies confirm this intuition. For example, Caucasian subjects who explicitly deny racist attitudes are nonetheless slower to respond when Black, as opposed to Caucasian faces are associated with good words, and faster to respond when Black, as opposed to Caucasian faces are associated with bad words. These patterns hold Hauser Chapter 3. Ravages of denial 98 even when subjects respond to names commonly associated with Caucasian and Black people. A quick skim through the many blogs commenting on this work reveals a common refrain that makes the key point: many that have taken this test, whether focusing on race, sexual orientation, or political affiliation, opine that the test must be invalid because they explicitly disavow any groupish biases. But that s the point! What we disavow explicitly has less impact than we would like on what we hold implicitly. If our implicit system champions one view of racism and our explicit system another, then we are continuously faced with an epic conflict. To resolve this conflict, and enable the explicit system to emerge triumphant, requires self-control, keeping the implicit system quiet. Studies of the brain provide interesting insights into this process. Recall that when we experience conflict, regardless of its content, there is activation in the anterior cingulate. When we exert self-control, regardless of content, there is activation in particular regions within the prefrontal cortex. When we feel threatened by a dangerous animal or person, there is activation in the amygdala. These three brain regions tell an interesting story about how we process race. When Caucasian subjects view faces of Black as opposed to Caucasian people staring at them, there is greater activation in the amygdala. This racial difference disappears if subjects view photos of faces looking away or with eyes closed. It is the potentially threatening aspect of a face staring at you that engages the racial difference. If you briefly flash faces at Caucasian subjects so that they are unaware of them, there is stronger activation in the amygdala for Black than Caucasian faces. But if you present the faces for long enough, allowing them to enter conscious awareness, the amygdala s pattern of activity goes away, replaced instead by strong activation in the anterior cingulate and prefrontal cortex. Staring longer at someone from a different race triggers a sense of conflict and engages the system of self-control, pushing down our implicit racism to enable more explicit neutrality and equality. What this work shows is that understanding our attitudes and actions toward those of the same and different race requires consideration of implicit and explicit components. Think of this process like a hand pushing down on an automatic watering fountain. The machinery that produces the pressure to push water out of the holes in the fountain operates without concern for what happens outside in the world. The hand that pushes down is under human control, consciously guided, perhaps with the aim of simply spreading the water or feeling its coolness on a hot day. Though the hand may try to control the movement of the water, it may only do so to some extent, guided by the power of the automatic engine below. Thus, we have an automatic bottom up mechanism and a controlled top down mechanism. So it is with race. The bottom up mechanism operates automatically, pushing forward our implicit prejudice. The top down mechanism attempts to exert control, when and where it can, to avoid looking racist, sexist, or what have you. Somewhere, the two meet, creating a personality profile that is more explicitly racist, Hauser Chapter 3. Ravages of denial 99 sexist, or X-ist in some cases than others, either because the individual lacks top down control or because they decide to relinquish it. In parallel with Singer s work on the relationship between pain empathy and our classification of others as fair-minded cooperators or narcissistically-minded cheaters, so too does race influence our expression of compassion toward those in pain. Both Caucasian, Black and Asian subjects showed stronger activation in the pain-related areas of the brain when viewing individuals from the same race experience pain than when viewing individuals of a different race. When Black subjects played a computerized game involving social ostracism, they showed stronger activation in areas of the brain involved in social pain when excluded by Caucasian players than when excluded by Black players. When others suffer and we have the opportunity to help them, we are more likely to help those of the same race, and feel good about it as evidenced by activation of brain areas involved in reward. Our biases, both implicit and explicit, influence our compassion toward others and our motivation to help. This statement is true whether we are looking at evidence from young children or adults, and using measures that assess sensory perception, behavioral judgment, or activity patterns in the brain. Beginning with an evolutionarily ancient brain system that was designed to distinguish friendly ingroup members and antagonistic outgroup members, we populate the inner sanctum with people who we perceive as most like us, using both fixed and variable features. With time, the walls surrounding this sanctum close, attributing the full richness of human nature to those within, and bleaching it from those outside. Bleaching humanity Draw an imaginary circle around yourself with a diameter of about fifty feet. Now imagine packing this circle with people, forming an expanding set of concentric circles that radiates out from those closest to you to those you don t know at all. Based on social network analyses by sociologists such as Nicholas Christakis, the majority of people within the inner circles will be like you in a number of ways, including their race, religion, political affiliation, food preferences, and aesthetics. This includes family members and close friends, but also those we work with, vote for, and play with. As you travel from the inner core to the outside, you will find less in common. Some in the outer core will not only have less in common, but as noted earlier in this chapter based on work by Gray, Wegner and Haslam, will be perceived as less human, stripped of dimensions of experience and agency that define humanity. Some will appear like objects, others like animals. When we transform others into objects, we have stripped away core aspects Hauser Chapter 3. Ravages of denial 100 of human nature, including emotional sensitivity, warmth, and flexibility. When we transform others into animals, we have stripped them of uniquely human qualities such as rationality, self-control, moral sensibility, and civility. Of those who are like animals, some will seem like kin to the domesticated form and thus controllable as property; others will seem like wild animals and thus dangerous, dirty and deserving of elimination. However we engage this process, we have bleached individuals of their humanity. This process, one that occurs in both everyday life and in cases of conflict, has allowed us to treat the mentally and physically disabled like animals, to consider women as sexual property, justify slavery and slave wages, deny certain races the opportunity to vote and receive education, and mandate ethnic cleansing. Before I describe a shocking set of experimental findings on dehumanization, consider first a snapshot into some of our historical attitudes, shared across many countries and cultures. Before we knew much about human evolution and the causes of variation, scientists made sweeping statements about the relationship between brain structure and differences in intelligence and behavior among men, women and the variety of races. It was commonly believed that, compared with white men, women and all other races had smaller brains, approximating our cousins the apes. Listen to Gustave LeBon, a distinguished social psychologist, writing in 1879: In the most intelligent races, as among the Parisians, there are a large number of women whose brains are closer in size to those of gorillas than to the most developed male brains. This inferiority is so obvious that no one can contest it for a moment; only its degree is worth discussion. All psychologists who have studied the intelligence of women, as well as poets and novelists, recognize today that they represent the most inferior forms of human evolution and that they are closer to children and savages than to an adult, civilized man. They excel in fickleness, inconstancy, absence of thought and logic, and incapacity to reason. Without doubt there exist some distinguished women, very superior to the average man, but they are as exceptional as the birth of any monstrosity, as, for example, of a gorilla with two heads; consequently, we may neglect them entirely. By elevating white men to the gold standard of perfection, it was easy to see everyone else as a degenerate form of God s creation or, in biological terms, of arrested evolution, with non-Caucasian races showing greater affinity to our furry cousins the apes. Looked at today, backed by our understanding of genetics and the evolutionary process, these accounts are absurd and offensive. Sadly, despite efforts to clean up our explicit racist and sexist attitudes, overwhelming evidence reveals that the brain holds dear a suite of unconscious prejudices that serve to dehumanize those unlike us. Now the shocking experiments. The American social psychologist Jennifer Eberhardt dared to ask whether US citizens unconsciously associate Black people with imagery ofd apes, using the disturbing history of this association as her jumping off point. In parallel with the studies of race Hauser Chapter 3. Ravages of denial 101 presented in the last section, Eberhardt was also interested in the possibility that if people carry this association around in their head, they do so unconsciously, despite explicit avowals that they are not at all racist. And if they carry this association around unconsciously, how does it impact upon their judgments and actions? In one experiment with both Caucasian and non-Caucasian subjects, Eberhardt used a technique called subliminal priming. Subliminal priming involves rapidly presenting pictures, sounds or other experiences under the radar of awareness and then presenting material that falls within our radar. If the two experiences are similar, the unconscious version affects subjects perception of the conscious one. For example, if you first prime people by flashing the picture of a woman s face, subjects then respond faster to faces of women than to faces of men. In other words, despite the fact that subjects are unaware of the prime, it affects their judgments. Eberhardt first primed subjects with photographed faces of Caucasian or Black people or an unrecognizable non-face. They then watched a short movie that started off with an unrecognizable object that looked like it was covered by dense snow. As the movie progressed, the snow lifted, making it easier to recognize the object as a line drawing of either a duck, dolphin, alligator, squirrel or ape. Subjects stopped the movie as soon as they recognized the animal. Compared with Caucasian faces and non-faces, priming with Black faces caused subjects to stop the movie much sooner for apes, but not for any other animal. Compared with non-faces, priming with Caucasian faces caused subjects to stop the movie much later for apes, but not for any other animal. This suggests that Black faces made it easier to identify apes, whereas Caucasian faces made it harder to identify apes, with no comparable effects for any other animals. Caucasian and non-Caucasian subjects showed the same pattern of response, and so too did individuals with and without strong, explicit racial attitudes. Although the similarity among Caucasian and non-Caucasian subjects is of interest, and suggests that the association is held even among those who were perhaps less strongly associated with this form of dehumanization, there were relatively few Black subjects in this non-Caucasian group. This first set of experiments suggests, therefore, that among a racially heterogeneous group of educated Stanford undergraduates, individuals carry an unconscious association between Black people and apes, and thus, an unconsciously dehumanized representation of another human being. Given the animal form of this dehumanization, the implication from Haslam s work is that Caucasians associate Blacks with less rationality, civility, and self-control, in essence, less uniquely human qualities. These are remarkable and disturbing findings. They can t be explained by some superficial similarity between human faces and animals because Eberhardt found the same results when she presented either line drawings or words of animals. Had Eberhardt used actual photographs of animals, subjects could have used similarity in skin color or nose shape for example, seeing a black human face would prime seeing a black ape face because both have the color black in common. Line drawings and Hauser Chapter 3. Ravages of denial 102 written words cut the legs out of this account. Eberhardt s results suggest that apes are associated with the socio-cultural, racial category Black. These findings reveal a deep seated, dehumanized representation that is readily triggered even in highly educated people. But perhaps they are less disturbing then we might imagine. not so bad if the take home message is that we are closet racists with antiquated theories of evolution or God s design. Outside of these artificial studies, we are well educated citizens who keep our isms tucked away, locked up in our unconscious. Unfortunately, the unsettling feelings that many will have to these studies are exacerbated by an additional set of results collected by Eberhardt, linking unconscious impressions to harmful actions. Caucasian male subjects watched a video of a policeman using force to subdue a suspect who was either Black or Caucasian. When primed with an ape drawing, but not that of a tiger, subjects were more likely to say that the policeman was justified in subduing the Black suspect than the Caucasian suspect. We are more than closet racists. We are out of the closet, armed for prejudice and dehumanization. To unconsciously think that Blacks are more like apes than other racial groups is to strip them of characteristics that are uniquely human. As Haslam notes, when we dehumanize others in this particular way, we no longer see them as human, but as incompetent wild animals or immature children lacking in intelligence, etiquette, rationality, and moral wherewithal. This mode of dehumanization is ancient, reflected in the writings and paintings of European explorers who encountered indigenous cultures in Asia, Australia, and Africa. Dehumanizing others into objects is equally ancient, unflattering and dangerous. In one study, American adults were told to focus on either the physical appearance or personality of the actress Angelina Jolie and the ex-governor of Alaska and presidential hopeful Sarah Palin both famous personalities within the United States. When subjects focused on appearance as opposed to personality, they judged both Jolie and Palin as relatively lacking in traits of experience or human nature. Jolie and Palin were seen as objects. In other studies, carried out by Haslam, subjects judged objectified men and women as less capable of suffering and less deserving of moral compassion and protection, reinforcing the age old attitude we once held toward slaves, and that many hold today toward prostitutes. When people become property, they fall outside of the circle of moral patients. Studies of the brain provide further support for these dehumanizing transformations, and highlight, once again, both the beneficial and malignant consequences of our mind s promiscuity. Brains without borders Dehumanization enables doctors to treat their patients human or nonhuman animal as mechanical Hauser Chapter 3. Ravages of denial 103 devices that require repair. This allows for cool-headed, rational, and skillful surgeries, while fending off the humanizing emotions of compassion and empathy. This is adaptive. This is a transformation that enables doctors working in war-torn areas or regions afflicted with a disease outbreak, to treat hundreds of suffering patients as if they were treating inert cars on an assembly line. Good doctors allow their compassion and empathy to return as their patients regain awareness. Bad doctors maintain their cool, detached manner, insensitive to the physical and psychological pain of their waking patients. Bad doctors continue to perceive their patients like cars on the assembly line. Really bad doctors see their patients like cars that were created for personal R D. Recall from earlier sections that when we see someone else in pain, particular areas of the brain activate as we imagine their suffering. Many of the same areas of the brain also activate when we personally experience pain. This is the circuitry for pain empathy. The French cognitive neuroscientist Jean Decety showed that when physicians look at video clips of people experiencing pain from a needle prick, this circuit is suppressed relative to non-physicians. For physicians, it s as if they were watching a needle prick a pillow. Though we don t know how much experience was necessary or sufficient to cause the physician s lack of pain empathy, or the extent to which physicians are physicians because they were born with less empathy, Decety s findings point to individual differences in our capacity to feel what others feel and the potential modulating role of experience. Several studies now show that based on individual experience, the human brain readily flip-flops between empathy and callousness. In two similarly designed experiments, one recording from pain related areas in the brain, and the other from a motor area associated with the hand, Caucasian and Black subjects watched a video of a needle penetrating a human hand. Consistently, subjects showed weaker activation in the pain and motor areas when watching the needle penetrate the hand from another race. This lowering of pain empathy and motor response for the out-group was greatest for subjects with the highest implicit or unconscious racial biases, as measured with the IAT tool noted earlier. These studies of the brain, like the behavioral studies I discussed earlier, add to the idea that we have a racial bias for pain empathy. We feel others pain, but only for those who share the same race. But since, by definition, we look more like those from within our racial group than those outside it, perhaps the bias is less about race and more about those that don t look like us. To explore this possibility, Black and Caucasian subjects saw a needle penetrate a violet-colored hand. Violet hands are not only different, but far more different than either black or white hands in terms of our experience of skin coloration. Nonetheless, the activation pattern in the brain matched the subject s own race. When we feel less compassion for someone of another race, it is because of racial biases, not because of superficial differences in appearance. Color is simply a cue that reminds us of our prejudice. Hauser Chapter 3. Ravages of denial 104 The fact that we feel less empathy for people in pain if they fall outside our inner sanctum suggests that we have dehumanized them, stripping away dimensions of experience that humanize those within the sanctum. These are the dimensions associated with emotion, and when taken away, cause us to perceive the other as an object. Since objects can t feel pain or joy, we can t share in their experience because they lack experience altogether. If that is the case, then when we perceive any human group that has been dehumanized in this particular way, there should be little to no activity in those areas of the brain associated with thinking, feeling, wanting, and believing. To explore this possibility, the social psychologist Susan Fiske placed subjects in a brain scanner and presented photographs of either extreme out-group members, such as the homeless and drug addicts, or photographs of other groups such as the elderly, middle-class Americans, and the rich. When viewing the extreme out-group, not only did Fiske see little activity in an area critically related to self-awareness and the process of thinking about others thoughts and emotions the medial prefrontal cortex but she also observed an intense increase of activity in the insula, a brain area that is recruited when we experience disgust. Fiske s results highlight the dangers of dehumanization. Once we turn off areas of the brain that are involved in thinking about others thoughts and emotions, and turn on areas involved in disgust, we have set ourselves up for moral disengagement. As the distinguished American psychologist Albert Bandura has documented through decades of research, moral disengagement allows people to justify harm by transforming lethal motives into morally justified and even benevolent ones. Moral disengagement allows us to excuse ourselves from moral responsibility, either disregarding the harm imposed or convincing ourselves that it was justified, even obligatory. In several international studies of school-aged children, results consistently show that those who are most morally disengaged are most likely to engage in various forms of aggression, including bullying and repeated criminal offenses. These same children are also least likely to engage in helpful behavior, revealing that moral disengagement dispenses with the typical process of self-censure and sanctioning that we carry around when we are morally engaged. In a study of American prison personnel involved in death penalty sentences, executioners were more morally disengaged than support staff or prison guards. Executioners were more likely to dehumanize the convicted prisoner and provide moral and economic justifications. Executioners also felt less guilt because they had developed a narrative to justify their actions, one that ascribed complete fault and responsibility to the victim. Support staff flipped in the opposite direction, fully involved with the weighty moral issues associated with ending someone s life. In a study of people s political attitudes, those with strong right wing authoritarian views, commonly associated with fascism and submission to authority, were more likely to support war by means of morally disengaging. In particular, they were most likely to support war by justifying its necessity and trivializing the harm that will necessarily arise for Hauser Chapter 3. Ravages of denial 105 example, invading another country is not aggressive, but designed as a pre-emptive strike to protect group interests. Moral disengagement enables behaviors that are either immoral, illegal, or counter to deeply rooted intuitive prohibitions against harming others. It is a process that has the beneficial consequence of empowering soldiers to go to war under just causes, as well as the toxic consequence of empowering rogue leaders to carry out genocide under unjust causes. It is a process that allows us to hibernate from our moral responsibilities. It is a form of self-deception, a partner to dehumanization in the denial of reality. But self-deception, like deception of others, is not always harmful. In fact, it is often highly adaptive. Angelic denial In a nationally televised address in 2005, the Iranian President Mahmoud Ahmadinejad pronounced that the Jews had "created a myth in the name of the Holocaust and consider it above God, religion and the prophets." Judge Daniel Schreber believed that his brain was softening and that he was turning into a woman in order to form a sexual union with God. During a doctor s visit, a man reported that his pet poodle had been replaced by an impostor, masquerading as if he was the real deal. Judge Patrick Couwenberg stated under oath that he received the Purple Heart for military operations in Vietnam, and soon thereafter carried out covert missions in Southeast Asia and Africa as a CIA agent. The pilots of Air Florida flight 90 ignored signs from their dashboard indicating engine trouble and then proceeded to crash into a bridge, killing 74 of the 79 people on board. In 2008, while Hilary Clinton was running for President of the United States, she regaled admiring supporters with stories of her international experience, including her visit to Bosnia in 1996 where her plane was forced to land under sniper fire , followed by a rapid evacuation for cover. When I was a teenager, I often walked onto the tennis court thinking that I was John McEnroe, serving and volleying like the world s number one player. Each case above tells the story of a person who acted as if the world was one way even though it wasn t. The Holocaust and its trail of atrocities were real, confirmed by thousands of scarred survivors and the relatives who have heard their accounts. Judge Couwenberg was never in Vietnam, never earned a Purple Heart, and never had a connection with the CIA. There are no pet poodle impostors. Our brains don t soften, though they do deteriorate with age. When dashboard indicators suggest engine trouble, better to be safe than sorry when you are responsible for the lives of many people. Hilary Clinton landed in the exceptionally safe airport of Tuzla where she was warmly greeted by US and Bosnian officials. I am no McEnroe. Hauser Chapter 3. Ravages of denial 106 In each of these cases, there was a mismatch with reality. The person harbored a false belief, but believed it was true. In some cases, the mismatch was due to psychosis, some kind of delusion or malfunctioning of the brain. These people didn t know that their beliefs were false. In other cases, the mismatch resulted from an intentional lie or distortion, a process that is adaptive, designed to promote self-confidence and manipulate others. When I conjured up images of McEnroe, I momentarily deceived myself. I believed it helped my game. I never thought I was McEnroe. I carried my self-deception honestly. When Hilary Clinton misreported her trip to Bosnia, perhaps she misremembered or perhaps she distorted her memory to convince voters that she had what was necessary to run the country toughness and international experience. Unfortunately for Clinton, her comment about Bosnia was accompanied by other distortions, which led the American essayist William Safire to write Americans of all political persuasions are coming to the sad realization that our First Lady... is a congenital liar. Some cases of self-deception are harmless and even beneficial, as in my illusion of tennis grandeur. Others are only mildly harmful, as in Clinton s distortion of her political experiences. And yet others are deeply harmful, as when leaders such as Ahmadinejad deny the suffering of millions. The problem is that anyone can harness the power of self-deception for ill gotten gains. Why does our mind play tricks on us, allowing us to believe things that are false? Why didn t evolution endow us with a reality checking device that is vigilant 24 7? The answer here parallels the refrain carried throughout this book: like its evil sister dehumanization, self-deception is Janus-faced, showing both an adaptive and maladaptive side. Self-deception allows us to protect ourselves from the reality of a current predicament or loss. Self-deception allows us to provide a better personal marketing brand to defeat our competitors in attracting mates and garnering other resources. Self-deception may even be critical to the functioning of a healthy and safe society: in a study of male criminal offenders, those with the lowest levels of self-deception with respect to their own self-worth showed the highest levels of recidivism. There is, however, a fine balancing act, revealing the slippery slope from adaptive to maladaptive: as studies by Roy Baumeister reveal, individuals with the highest self-esteem and the most overblown sense of themselves are also the ones most likely to lash out with extreme violence when someone threatens the reality of their stature. The evolutionary biologist Robert Trivers was the first to identify the adaptive significance of self-deception and its connection to deception. As he insightfully notes in his book The Folly of Fools, what appears completely irrational about self-deception evolved as a consequence of selection to deceive competitors: To fool others we might be tempted to reorganize information internally in all sorts of improbable ways and to do so largely unconsciously. The most effective self-deceiver acts without any sense of his true motives. He is on autopilot, driven by a purely self-interested mind. No checks and balances. Here, I build on this idea. I will show you how studies of pathology and healthy brain function Hauser Chapter 3. Ravages of denial 107 illuminate the mental chicaneries that lead us down the road to self-deception. As with the dangers of dehumanization and its role in denying reality, so too is self-deception a dangerous state of mind, allowing individuals to inflict great harm while feeling aligned with the angels. What did William Safire have in mind when he called Hilary Clinton a congenital liar? Congenital refers to a trait that is present in utero, at birth or soon thereafter. Congenital disorders, diseases, or anomalies typically refer to defects caused by a combination of genetic and environmental problems. A cleft lip is an example of a congenital anomaly, one that appears at birth as a gap in the upper lip. Because we don t have detailed records of Hilary Clinton s life as a child, it is hard to say whether her lying was congenital in the same way that a hair lip is congenital. We can rule out the in utero and at birth periods because Hilary, like all other children, was not born speaking or lying. These capacities mature. That she developed a tendency to exaggerate and distort is consistent with other reports. She falsely claimed that she was centrally involved in the creation of a Children s Health Insurance Program, an initiative that was actually created by Senators Ted Kennedy and Orin Hatch. She also claimed that she played a significant role in the Good Friday Agreement for Northern Ireland, a comment that Nobel laureate Lord William David Trimble described as a wee bit silly. When Safire described Clinton as a congenital liar, what he was referring to was the habitual pattern of fabrication. When patterns of the mind become habits, they are hard to break. Each distortion, rehearsed over and over, becomes part of the fabric of truth. It is a life story that starts as fiction and ends up as non-fiction in the mind of the story-teller. We can begin to understand this transformation by looking at the clinician s notebook. For more than 100 years, psychiatrists have described a syndrome known as pathological lying. If lying is pathological, it must deviate from some norm. The psychiatrist Charles Dike sums up the essence of this disorder: Pathological liars can believe their lies to the extent that, at least to others, the belief may appear to be delusional; they generally have sound judgment in other matters; it is questionable whether pathological lying is always a conscious act and whether pathological liars always have control over their lies; an external reason for lying (such as financial gain) often appears absent and the internal or psychological purpose for lying is often unclear; the lies in pathological lying are often unplanned and rather impulsive; the pathological liar may become a prisoner of his or her lies; the desired personality of the pathological liar may overwhelm the actual one; pathological lying may sometimes be associated with criminal behavior; the pathological liar may acknowledge, at least in part, the falseness of the tales when energetically challenged; and, in pathological lying, telling lies may often seem to be an end in itself. Hauser Chapter 3. Ravages of denial 108 What seems most critical to the pathology is the lack of control which leads to repetitive lying over a long period of time. Compared with run of the mill liars, pathological liars often seem unaware that they are lying and do so many times a day as part of their daily habit. In the same way that birds have to fly and fish have to swim, pathological liars have to lie. If pathological liars are unaware of their lies and incapable of controlling themselves, then they are not responsible for the harm they impose. They have no choice. Unbeknownst to them, their brain has been hijacked by a creative fiction writer. They are following a script, but have no sense of its author. Dike s summary is based on a loose and eclectic set of clinical observations. Several clinicians thus debate whether habitual lying counts as pathology and thus, whether it is worthy of an entry into the Diagnostic and Statistical Manual of Mental Disorders. For example, how can the clinician establish pathology given the evidence that healthy people lie about twice a day, physicians lie about 40-80 of the time to help their patients gain better health care, and lying within an experimental context increases as subjects generate more lies? My own sense is that despite the difficulty of defining the pathology with precision, clinicians have identified individuals that lie with every breath and often identify psychopaths by their calculated conning. These observations sharpen our approach to understanding the seeds of deceit and self-deception in the non-pathological condition. For example, does excessive and sustained lying stem from a specific problem associated with recognizing the truth or does it grow from a more general problem with self-control? Or, does the habitual liar suffer from an emotional deficit such that when he or she lies, there are no feelings of guilt and shame? Without these emotional regulators, it is impossible to learn from the harm caused. When healthy people distort the truth, they often feel bad. When healthy people think about distorting the truth, they often think about the potential harm and then silence the option to lie in favor of the truth. Perhaps unhealthy people never hear these emotional alarms. The mind sciences have begun addressing these issues. The American neuroscientist Adrian Raine reported that individuals with a history of repeated lying and con-artistry have structurally different brains from non-liars, including individuals with a history of anti-social problems. Habitual liars have more white matter in the frontal lobes, but less grey matter. White matter consists of axons and myelin. The axon is the part of a nerve cell that carries information. It is like the electric cable that runs from the power station. Myelin covers the axon, at least in healthy individuals. It is like the fat around your bones, protecting and insulating neurons. Fat helps keep us warm. Myelin helps neurons transmit information. The grey matter consists of nerve cell bodies, which lack myelin. The function of grey matter is to connect up the neurons to transmit information between areas of the brain. Raine suggests that the increase in white matter gives habitual liars the upper hand when it comes to lying, helping them suppress the truth, control their emotions, and mind read what others believe and Hauser Chapter 3. Ravages of denial 109 desire. The decrease in gray matter allows habitual liars to lie without feeling guilty. The messaging center that sends healthy subjects moral reminders about the virtues of truth, is shut down or barely audible within the mind of a pathological liar. The brain of a pathological liar allows for the ultimate poker face. The brain of a healthy individual allows us to perfect the poker face by repeating a distorted narrative, converting a lie into a self-justified truth. This is dangerous denial. When we lie, either to manipulate someone else or ourselves, we distort the truth. We can either do this on the fly or use a narrative held in long-term memory. When Hilary Clinton told her supporters that she had to dodge bullets in Bosnia, she either lied in the moment to convey a stronger image or she developed this distortion over a long period of time. In the first instance, she knew that her comment about Bosnia was false. She was deceptive, but not self-deceived. In the second case, she was selfdeceived and most likely unaware. Her narrative was so clear that she could picture running for cover without the usual welcoming party. Several studies now reveal that both forms of lying engage brain areas associated with self-control and conflict the right backside of the prefrontal cortex and the anterior cingulate. This makes sense. To tell a lie, either to oneself or another, requires controlling what we know about reality to convey an alternative reality. When we hold both versions of this narrative in mind, there is conflict. As we rehearse one version more than the other, the conflict dissipates. The more we rehearse, the more we push this narrative into long term memory. The more we push this narrative into long term memory, the more it becomes part of what we believe is true. The more we believe it is true, the more we hold onto a narrative that can be used to justify our actions. The imaging results fit well with our understanding of which brain regions are involved in selfcontrol, conflict, memory, and social knowledge. To understand which regions are either necessary or sufficient for representing truths and lies, we turn to a technique called transcranial direct current stimulation. This method allows researchers to safely increase or decrease activity in a brain area through electrical stimulation. Think of this technique as a volume knob on an old fashioned radio. Turn it clockwise and you amplify the signal. Turn it counter-clockwise and you quiet the signal. When the German neuroscientist Ahmed Karim and his colleagues applied this technique to the right backside of the prefrontal cortex, and decreased activity, healthy subjects were better at telling lies, lied without guilt, and were less stressed out as measured by the sweatiness of their skin. This pattern mirrors the natural state of pathological liars. Absent the circuitry in the brain that exerts self-control over our distortions, Karim turned healthy subjects into conscience-free, poker-faced, liars. If self-deception and deception are not only part of normal brain function, but adaptive processes, then what makes this system turn toxic? What tips the brain over to the dark side, allowing self-deceptive illusions to empower the individuals and groups to cause great harm? Hauser Chapter 3. Ravages of denial 110 I am God! Across the globe, in Eastern and Western cultures, clinicians have reported a consistent pattern of psychotic delusion, typically associated with schizophrenia: many believe that they are God, God s messenger, or the Devil, equipped with extraordinary, invincible powers. This is the same disorder that led the Australian gentleman we encountered at the start of this chapter to believe that he had two heads and heard the voices of Jesus and Abraham. Estimates reveal a greater number of cases among Catholic than Islamic or Protestant societies, and the fewest among Hindu societies, although experts are uncertain as to why such particular biases exist. The interesting point is that there are individual differences in the expression of religious delusions that are at least partially mediated by the particular beliefs and customs of the religion. Religious delusions are also held with greater conviction than other delusions, more resistant to change, and often result in self-mutilation or harming others; when harm occurs, it follows the narrative from a religious text, plucking out eyes or cutting off genitals as the means to cleansing sins. What makes religious delusions like these, in which the individual has created a narrative of supreme confidence and power, different from non-delusional, non-psychotic forms of distortion? In a Gallup poll, 10 of the Americans surveyed claimed they had spoken with the devil. In several psychological experiments, healthy non-psychotic subjects consistently report that they are smarter than most, more attractive, and more likely to win than lose an athletic competition. Though some of these people are correct they are in fact smarter, more attractive, and better competitors most are wrong and yet believe they are right. What this research reveals is that we all suffer, some more than others, from positive illusions biases that distort our sense of confidence, control, and invincibility These illusions differ from delusions in that they are less fixed, more flexible, and more amenable to change. Delusions are highly maladaptive, a signature of brain dysfunction, and the source of great suffering. Positive illusions, in contrast, are often highly adaptive, generating the confidence necessary to take on great challenges and challengers, convincing an audience or a group of opponents that we are stronger, smarter, and sexier. Positive illusions have been linked to direct mental and physical health benefits, including evidence that distorted optimism can slow disease progression. Positive illusions are, as noted by the biologists Richard Wrangham, Robert Trivers, and Dominic Johnson, a form of self-deception with considerable evolutionary benefits. But like the runaway capacity of desire, so too can our illusions of grandeur runaway. When this occurs, illusion and delusion are virtually indistinguishable. What was once a narrative centered on the grandiose belief of being god-like has been transformed into the belief of being God, leading individuals and groups to engage in extreme extortion or violence, not only blind to Hauser Chapter 3. Ravages of denial 111 obvious risks but incredulous that there would be any risks. This is denial. This is another way in which we close off our senses to reality in order to create our own imagined reality. How does this process get started? It is not until the age of about 18-24 months that we acquire the ability to recognize ourselves in a mirror. It is not until a couple of years later that we have a sense that our own beliefs can sometimes differ from others that we interact with. It is not until this time that we develop the capacity to deceive, along with a powerful suite of social emotions that enable us to feel embarrassed, envious, and elated. These feelings link up our sense of self with our sense of others. These are comparative feelings and beliefs, and they feed back to who we are, either building up our self-confidence or crushing it. When my daughter Sofia was ten years old, she announced that she will one day go to Brown University attracted by their course offerings and the fact that Emma Watson, aka Hermione Granger of Harry Potter fame, was a student be rich and have five children she wanted more siblings and has always had a taste for the luxurious obtain a veterinarian degree my wife is a veterinarian and we have five pets open a restaurant I love to cook and be an Olympian in gymnastics sports run in our family. Sofia was not delusional, but brimming with uncalibrated confidence. Her confidence was uncalibrated because she had no sense of what it takes to get into Brown, become rich, take care of five kids, obtain a vet degree, open a restaurant, and win gold. My wife and I would be horrid parents if we burst her bubble. We would be irresponsible parents if we didn t, over time, describe the exciting challenges associated with each of these desirable goals. Developing a sense of self depends on at least two capacities: looking inwards at what we know and are capable of doing, and looking outwards at what others know and are capable of doing. When we look inwards, if we honestly open our eyes to the richness of our autobiography, we will recognize cases where we have succeeded and those in which we have failed. This history reveals our knowledge and ignorance, our strengths and weaknesses, and our capacity to exert control or meld to external forces. When we look outwards, again with an honest, panoramic perspective, we learn about those who know more or less than we do, about those we can outcompete and those we lose to in defeat, and about situations that undermine our capacity for self-control. Distortion enters these personal narratives when we either lack information or filter it in some way, consciously or unconsciously. The British criminology scholar Mandeep Dhami examined positive illusions in criminals incarcerated in prisons within the United States and the United Kingdom. Because recidivism levels are high among convicted criminals, with 40-60 of offenders re-convicted after 1-3 years from release, it is important to understand risk factors. One possibility is that criminals believe that their prior offense was just a one-off event or bad luck, and that, of course, they will never engage in crime again, having learned their lesson and feeling fully confident in their capacity to lead a crime-free life. Based on a sample of Hauser Chapter 3. Ravages of denial 112 over 500 prisoners from medium security prisons, 60-80 believed that they would find a place to live as well as employment once released, whereas less than 30 felt that they would commit another crime. Prisoners also felt that they were much less likely to commit another crime than other prisoners. Thus, whether prisoners were evaluating their own chances of success or their success relative to others, they were living with a distorted narrative. The shorter the criminal record, the more distorted the narrative. Repeated experience with crime appears to anchor the narrative in a more realistic assessment of the future. Certain experiences can also enhance positive illusions by giving individuals an unrealistic sense of self-control, along with a distorted expectation that future outcomes are highly deterministic. For example, people who are wealthy, highly educated, part of a dominant group, or citizens within a society that values independence, are more likely to believe that they have control over the future and are more likely to express optimism and high self-esteem. These attitudes often lead to a boosted sense of control and an illusory sense of control over future outcomes. The American psychologist Nathanael Fast ran a series of experiments to further explore the relationship between power and illusory control, specifically asking whether subjects endowed with power expect control over outcomes that are strictly due to chance or that are unrelated to the domain of power. Across each study, whether subjects recalled a personal situation where they were in power or had to imagine being in power, they were more likely than those in a subordinate position to express confidence about the outcome of rolling a six-sided die, predicting the future of a company, and influencing the results of a national election. Power and winning distort, a tale that has been told and retold countless times in the annals of industry and warfare. As the American business administration scholars Francesca Gino and Gary Pisano note, the business world is full of cases where leaders and leading companies crash because they fail to examine the causes of success. They assume, for example, that their success is entirely due to their brilliance, control over the market, and the weakness of the competition, as opposed to a shot of good luck. So too goes the story of unexamined war victories, as supremely confident generals discount relevant information about their opponents, leading battalions on a death march. Our willingness to accept victories without question stands in direct contrast with our motivation to scrutinize failures, drilling down for explanations or causes. When we lose or fail in some way, the negative emotions accompanying this experience focus our attention on working out an explanation. When we win, we bask in the glory, fueled by the brain s chemicals and the body s hormones. This physiological orchestration sets up the positive illusion of overconfidence, a winning card in many competitive arenas, and a disaster in others. Recall from chapter 1 that our brains, and the brains of other animals, are configured to reward victory with a cascade of hormonal and neurobiological changes. Winning delivers a shot of testosterone, and so too does observing others win. Winning also delivers a shot of dopamine, further generating a Hauser Chapter 3. Ravages of denial 113 honey hit to the brain when we shine. There is evidence that schizophrenia is associated with a dysfunctional dopamine system, which might help explain the overconfidence in their beliefs, especially beliefs in powerful religious icons. Winning boosts confidence, which increases the chances of winning again. This is a highly adaptive cycle that can lead to overconfidence. Dominic Johnson took advantage of the research on human and animal competition to explore the link between overconfidence, testosterone, and war within the context of a simulated game. Each subject played the role of a leader in a country at war with another over diamond resources. The goal of the game was to accrue the highest level of resources or defeat the neighboring country. Though war games on a computer can not capture the full reality of war, the fact is that military specialists throughout the world use simulations to prepare combatants for some of the strategic and emotional problems they will confront. Most subjects judged that they would outcompete their opponents, and this was exacerbated in males relative to females. Those who believed that they would whip their opponents actually had the worst records, suggesting that they were not only uncalibrated but that their distortion of reality led to costly outcomes. Those with the highest expectation of victory had the highest testosterone levels and were most likely to launch unprovoked attacks on their opponents. Whether in real life or in the simulated world of computer games, brimming overconfidence can lead to a distorted sense of risk and the odds of victory in war or any competitive arena. Though this is a costly strategy, there are clear evolutionary benefits under conditions explained by Trivers and Johnson. Self-deception is favored when opponents have imperfect information about their strengths and weaknesses, and where the payoffs are high relative to the costs. Self-deception leads individuals to go for it, convincing themselves and others that the risks are low, the gains are great, and the standard social norms are no longer applicable. This is a dangerous form of denial, recruiting moral disengagement to justify horrific means and ends. This is a piece of the psychology that can facilitate the process of runaway desire. This is a piece of the psychology that enables individuals to cause great harms. My goal in this book has been to find the universal core of evil, the elements or ingredients that are shared across all cases of evil. My suggestion is that the mixture of desire and denial are both necessary and sufficient ingredients in the recipe for evil. All other ingredients are flourishes, creative additions that do not take away from the universal core. Within each of us is a recipe for causing excessive harm and for expressing exceptional compassion. We have choices. But as evidence accumulates from the sciences, it has become increasingly clear that some of us have fewer choices than others. Some of us are equipped to resist the temptations of a culture of evil, while others fall prey. This is the story of our species. This is our story. Hauser Chapter 3. Ravages of denial 114 Endnotes: Chapter 3 Recommended books: Baron-Cohen, S. (2011). The Science of Evil. New York: Basic Books. Hamburg, D. (2008). Preventing Genocide. Denver: Paradigm Publishers. Johnson, D. P. (2004). Overconfidence and war. Cambridge, Harvard University Press. Kelman, H.C., Hamilton, V.L. (1989). Crimes of Obedience: toward a social psychology of authority and responsibility. New Haven: Yale University Press. Mikulincer, M., Shaver, P.R. (Eds.). (2011). The Social Psychology of Morality. Washington: American Psychological Association. Staub, E. (2010). Overcoming Evil. New York: Oxford University Press. Trivers, R. (2011). The Folly of Fools: The Logic of Deceit and Self-Deception in Human Life. New York: Viking Press. Notes: Delusions, confabulations and the fabric of belief: Ames, D. (1984). Self shooting of a phantom head. The British Journal of Psychiatry, 145(2), 193; McKay, R. Dennett, D. (2009) The evolution of misbelief. Behavioral and Brain Sciences vol. 32 pp. 493-561; Hirstein, W. (2005) Brain Fiction, Cambridge, MIT Press. iHuman: Bastian, B., Laham, S.M, Wilson, S., Haslam, N., Koval, P. (2011). 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Humanness, dehumanization, and moral psychology. In M. Mikulincer P.R. Shaver (Eds.), The Social Psychology of Morality, pp. 203-218, Washington, American Psychological Association; Loughnan, Steve, Leidner, Bernhard, Doron, Guy, Haslam, Nick, Kashima, Yoshihisa, Tong, Jennifer, Yeung, Victoria. (2010). Universal biases in self-perception: Better and more human than average. British Journal of Social Psychology, 49(3), 627-636; Martinez, A., Piff, P., Mendoza- Denton, R., Hinshaw, S. P. (2011). The power of a label: Mental illness diagnoses, ascribed humanity, and social Rejection. Journal of Social and Clinical Psychology, 30(1): 1 23. Populating the inner sanctum: Cosmides, L., Tooby, J., Kurzban, R. (2003). Perceptions of race. Trends in Cognitive Science, 7(4), 173-179; Kinzler, K.D, Corriveau, K.H, Harris, P.L. (2011). Children's selective trust in native-accented speakers. Developmental Science, 14(1), 106-111; Kinzler, K.D, Spelke, E.S. (2011). 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Journal of Language and Social Psychology, 21(2), 162-168. Lev-Ari, Shiri, Keysar, Boaz. (2010). Why don't we believe non-native speakers? The influence of accent on credibility. Journal of Experimental Social Psychology, 46(6), 1093-1096. Unconscious attitudes and prejudice: Avenanti, A, Sirigu, A, Aglioti, S.M. (2010). Racial Bias Reduces Empathic Sensorimotor Resonance with Other-Race Pain. Current Biology, 20, 1018- 1022; Balas, B., Westerlund, A., Hung, K., Nelson, C.A. (2011). Shape, color and the otherrace effect in the infant brain. Developmental Science, 14(4), 892-900; Banaji, M.R. (2001). Implicit attitudes can be measured. In H.L. Roediger, J.S. Nairne, I. Neath A. Surprenant (Eds.), The Nature of Remembering: Essays in Honor of Robert G. Crowder. Washington: American Psychological Association; Correll, J, Wittenbrink, B, Park, B, Judd, C.M, Goyle, A. (2010). Dangerous enough: Moderating racial bias with contextual threat cues. 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Is military incompetence adaptive? Evolution and Human Behavior, 20, 3-17; Zhu, F., Yan, C.-X., Wang, Q., Zhu, Y.-S., Zhao, Y., Huang, J., Zhang, H.-B., Gao, C.-G., Li, S.-B. (2011). An association study between dopamine D1 receptor gene polymorphisms and the risk of schizophrenia. Brain research, doi:10.1016 j.brainres.2011.08.069 Quotes Racist, white male superiority: published in Gould, S.J. (1980). "Women's Brains" in The Panda's Thumb, New York, W.W. Norton. Pages 152-159. Holocaust denier, Iranian President Mahmoud Ahmadinejad: http: www.washingtonpost.com wpdyn content article 2005 12 14 AR2005121402403.html Hilary Clinton as congenital liar: W. Saffire, 1996, Blizzard of lies, New York Times, http: www.nytimes.com 1996 01 08 opinion essay-blizzard-of-lies.html The adaptive logic of self-deception: Trivers, R. The Folly of Fools: The Logic of Deceit and Self- Deception in Human Life, New York, Viking Penguin Press. Clinical liars: Dike et al. (2005). Pathological lying revisited. Journal of the American Academy of Psychiatry and Law, 33 pp. 342-349; quote on p. 342 Hauser Chapter 3. Ravages of denial 118 Chapter 4: Wicked in waiting The wicked are estranged from the womb: they go astray as soon as they be born, speaking lies. Bible, Psalm 53:8 Growing up is a lottery. No one has a say over their genes or their parents, including the environment that is created on their behalf. For individuals raised in poverty, abused by parents or abandoned by them, there may come a time when it is possible to purge the past, rise above it, and lay down new tracks. Success in this endeavor depends upon biological potential and the environment s toxicity. Though every healthy human being acquires the same basic biological ingredients, individual differences in how our biology expresses itself can either provide immunity against toxic environments or deep vulnerabilities. The unlucky ones inherit genes that predispose to sensation-seeking and risk-taking, callous and unemotional attitudes toward others, weak self-control, and narcissistic leanings. With this lottery ticket, it takes little to trigger the mindset of an evildoer. And yet some resist. An impressive accumulation of scientific evidence helps explain the source of these individual differences, including its role in sculpting different personality profiles that either deviate greatly from societal norms or follow them to perfection. What s normal? Much of our fascination with evil stems from the distinct impression that evildoers are anomalies. Their actions are inhuman, unimaginable, rarely witnessed, and detrimental to our species survival. This impression carries with it an assumption about what is expected or typical of our species, as well as what is possible. It assumes that evildoers have thoughts, feelings, and desires that fall outside of the repertoire of an average human being. Their actions are unimaginable because most human minds lack the capacity Hauser Chapter 4. Wicked in waiting 119 to imagine butchering human bodies. Like so many simple claims that go unchallenged, we should be puzzled by this one. We should ask: what s normal? The evolutionary history of each species brain does not provide a complete account of what the brain can do. Consider again a topic from chapter 1: domesticated dogs and their ancestors, the wolves. Though dogs live with humans, and are often raised by them, they never acquire a human language. In this sense, the domesticated dog is just like the wolf. But what dogs can do, with greater facility than any wild wolf, is understand a variety of human gestures such as pointing and the movement of our eyes. This capacity emerged following a period of human domestication. Wolves were not part of this selective regime. But, and this is the most interesting twist in the story, wolf puppies raised by human caretakers develop into adults that can read pointing and looking extremely well. This tells us that even wolves evolved the potential to read human gestures, but only human environments favor this skill. This tells us that what animals express is not necessarily indicative of their potential. To uncover their potential, we must alter the environment or wait for such changes to happen naturally. When we ask What s normal?, we are asking two questions: what is the evolved repertoire and what is the evolved capacity? The evolved repertoire tells us something about the relationship between a species biology and the environments that have shaped their behavior. The evolved capacity tells us about a reservoir of behaviors that may only emerge in novel environments. What s normal human behavior? The same distinctions apply to us as to dogs and wolves, with the extra complication that our species adds because of historical twists and turns orchestrated by legal, political, ethical, religious, and medical points of view. History presents us with hundreds of cases where an accepted normal mutated into abnormal, or where abnormal transformed into normal. During the Italian Baroque a period of decadence that started in the late 16th century and ended in the early 18th century some 500,000 boys were castrated in order to freeze their youthful voices for the enjoyment of others. These castrati formed an essential part of music culture, of what people expected and wanted. For many of these young boys, not only did castration end their reproductive careers, but often, their lives. As the 18th century drew to a close, so too did castration in the name of art. What was normal then is perceived as abnormal and heinous today. The same story can be told for other sexual practices, including female genital mutilation, circumcision, and homosexuality. In the United States, homosexuality was considered a disease before the 1970s, with its own entry in the Diagnostic and Statistical Manual of Mental Disorders. Thanks to an underground movement of gay psychiatrists and the work of Evelyn Hooker who discovered that the manual s classification entry was based entirely on clinical interviews of gay prisoners, homosexuality has been freed from its jail sentence as a mental disease as abnormal. Hauser Chapter 4. Wicked in waiting 120 When clinicians diagnose individuals with a mental disorder, they are making a statement about deviance, about what falls within and outside the range of normal mental states. Unfortunately, there are no clear categories, no bright lines separating normal from abnormal or uncommon. As the distinguished American psychologist William James noted, however, studying the abnormal is the best way to understand the normal. Let s follow this logic. Consider the developmental disorder of autism. This disorder, typified by difficulties understanding what others believe and feel, ranges from individuals who appear locked out of the world, rocking back and forth to their own internal rhythm, to high functioning individuals such as Professor Temple Grandin, who not only teaches college-level courses, but has done wonders as a spokesperson for autism and for the animal welfare movement. This range already tells us that autism is represented by a spectrum, once identified by purely behavioral measures, but joined today by genetic and neurobiological markers. The genetic evidence is particularly helpful for explaining the observed variation. For example, the MAOA gene, located on the X chromosome, is involved in the regulation of social behavior and has different forms that map to differences in brain activity and stress physiology. The different forms correspond to the number of copies of the genetic material. This copy number is, in turn, partially responsible for the spectrum of autism observed, especially the degree of social dysfunction, including stress and aggression. Once we admit to a spectrum, and begin to pinpoint the factors that push individuals to stand on one end or the other, we must admit to admitting virtually everyone onto this spectrum. All of us, at some point in our life, have lacked sensitivity to the feelings and beliefs of others. All of us have been self-absorbed and locked out from the rest of the world. All of us have failed to express empathy and compassion to others. All of us have been a bit abnormal in this sense. All of us fall, on occasion, within the spectrum of autism as well as other disorders of the mind such as psychopathy. Like autism, psychopathy is not one neat and tidy disorder, but a spectrum. Diagnostically, psychopaths are impulsive, narcissistic, and lacking in social emotions such as empathy, remorse, and guilt. These behaviorally defined characteristics are complimented by genetic and neurobiological markers, some pointing to risks in the pre-school years, and linked to the same MAOA gene noted above. The spectrum that defines psychopaths ranges from hyper-smart, calculating, and powerful politicians to low IQ, downtrodden, serial murderers. Everyone of us occasionally shows our psychopathic face: selfabsorbed, impatient, manipulative, and uncaring. What is abnormal, then, is living with these characteristics, all the time. Clinically diagnosed psychopaths, like clinically diagnosed individuals with autism, have the characteristic traits as stable components of their personality. An honest clinician will tell you, however, that stability is difficult to define, and so too are the essential traits. An honest brain scientist will also tell you that, despite the observation that psychopaths have hyperactive dopamine brain Hauser Chapter 4. Wicked in waiting 121 circuits that may drive sensation seeking, along with smaller frontal lobe circuits that may minimize their sensitivity to punishment and the capacity for self-control, these differences are statistical. What statistical means is that if you were to stack up all of the brains with hyperactive dopamine circuits and smaller frontal lobes into one pile, most, but not all would be from psychopaths. You would also find psychopaths in the pile of brains showing normal dopamine activity and average-sized frontal lobes. These brain differences are interesting, but they are not yet like fingerprints, absolutely and uniquely distinctive and diagnostic of a disorder. Such honesty reveals the challenges we face in answering the simple question What s normal? Lawyers, judges and juries face the same problem as clinicians, often relying upon documents such as the DSM to determine when someone has acted outside the range of normal behavior. But for legal cases, there are two relevant layers of the normalcy problem. The first concerns whether the supposed criminal was sane or insane. An insanity defense requires evidence of a disease or defect of the mind. It requires evidence that the individual lacked the capacity to appreciate the criminal nature of the act as well as the capacity to conform. This is the part that relies on the DSM, as well as clinicians who can testify based on their expertise. The second concerns a more general understanding of what a prototypical or normal human would or could do in a given situation. The idea seems straightforward enough, but as I mentioned above, is only deceptively straightforward. Crimes of passion provide a useful illustration of the challenges we face, especially with respect to understanding how harm is ignited in the face of moral norms against it. Highlighting the truism that love makes you crazy, the crime of passion defense is invoked for cases where, in the heat of the moment, an individual finds and kills his or her spouse in bed with a lover. The defining feature of a crime of passion is that it was not planned and most people faced with the same situation would act similarly, unable to control their emotions. The crime of passion defense seems straightforward. Like autism and psychopathy, however, it too relies upon a diagnosis of what a prototypical or average person would do in the same situation. This diagnosis requires an understanding of two difficult mental states: planning and self-control. Planning involves imagining the future, time traveling to a new world, dreaming up what we might do and how we might feel. We plan in the short and long term, filling up our mental sticky notes with to-do lists. Selfcontrol enters into planning because what we imagine for ourselves what we desire is often inappropriate or unethical because it harms others or ourselves. As noted in chapters 2 and 3, the capacity to keep desire in check relies on moral engagement. Moral engagement requires self-control. Moral disengagement requires denial in order to loosen the grip of self-control and enable desire to have its way. Hauser Chapter 4. Wicked in waiting 122 When Lorena Bobbitt cut off her husband John Bobbitt s penis, she fulfilled her desire to harm another. She carried out this gruesome act despite the moral and legal sanctions against it. But she did not plan this act in advance, and nor did it occur in the heat of the moment, triggered by finding her husband in bed with a lover. It followed in the wake of his repeated philandering, attempted rape and psychological abuse. As an act, it fell between the cracks of a long-term plan and a reflexive response it was hatched on the night of the fatal attack, triggered by seeing a carving knife in the kitchen. Lorena either lost self-control for that fatal moment or she was in complete control, aware of what she was about to do and justified by her own moral convictions, believing that harming John was just deserts. John was most definitely not innocent. The jury delivered a not guilty decision, appealing to a crime of passion defense. This decision effectively excused Lorena s harmful act as normal and justified given the mitigating circumstances. When we consider the nature of evil, we must pause to consider our own biases and prejudices about what s normal. We must ask about the human potential, about our evolved capacities and our ability to behave in novel ways in novel environments. When we say that a person, group or nation is evil, we are saying something important about human nature, about our capability as a species. We are saying something important about the relationship between nature and nurture. Evil eggs and corrosive coops How much do career criminals cost? Estimates from the United States suggest that if you can prevent a high risk child from entering this career, you save 1.5-2 million in costs of education, mental health, and criminal fees. Educational facilities such as the Penikese Island School in Massachusetts, where I have had the privilege of working, spend about 100,000 per student per year to keep high-risk teens off the streets and out of jail. Based on statistics collected by the Federal Bureau of Investigation, approximately 100,000 individuals under the age of 18 years were arrested in 2007 for violent crimes murder, forcible rape, and aggravated assault. If we had nurtured and educated these teenagers before they committed such crimes, we would have saved close to 100,000,000,000. Violent crime prevention pays. How does a career of violent crime start? Are there early warning signs? How early? How much starts with the egg and how much with the coop in which it was raised? Early scientific interests in this chicken and egg problem can be traced to the efforts of the Italian physician and psychologist Cesare Lombroso. In 1876, he published his magnum opus The Criminal Man. This was a serious, scholarly book aimed at understanding whether there is a force in nature that causes crime. Based on measurements of both anatomical and psychological characteristics, Lombroso Hauser Chapter 4. Wicked in waiting 123 concluded that criminals were born not made. Their defining features were throwbacks to our evolutionary ancestors, dehumanized by biological defects. Modern man was civilized and elegant. Criminal man was barbaric, a savage with slanted forehead, jutting jaw, and excessively long arms. Criminal man was more ape-like than human-like. Because the cause of these differences was biological, Lombroso argued that a life of crime was inevitable. Change through rehabilitation was hopeless. To protect society, these natural born criminals had to be taken out of society, either locked up or executed. These ideas formed the basis of several eugenics movements, with the aim of weeding out the undesirable, less than human elements of society, be they less intelligent, from a non-Caucasian racial group, or from a culture with different religious beliefs. Lombroso s theory of criminality was soon rejected as scholars from a variety of different disciplines unearthed its racial stereotypes and shoddy methods, including a failure to include the many people with slanted foreheads, jutting jaws, and long arms who never committed crimes, and those with statuesque anatomy who did. This initiated a general skepticism and even fear of biological explanations, causing a swing in the opposite direction. Criminals were not born but made by corrupt societies. Humans are not born with biologically encoded scripts for behaving with malice or virtue. Rather, we are born with blank slates, waiting for society to inscribe its distinctive signature. So began a pendulous swing from nature to nurture. Though the oscillation continues to this day, there is increasing appreciation, perhaps especially in the arena of criminology, that both nature and nurture make important contributions. This change comes, in part, from a far greater understanding of genetics, combined with long term studies of how humans and other animals develop within environments that are either nurturing or damaging. Consider the MAOA gene that I mentioned in the last section. This gene produces an enzyme that goes by the same shorthand of MAOA, or MonoAmine Oxidase A. MAOA is evolutionarily ancient, shared with other animals, and has two different forms low and high that influence the level of serotonin as well as the brain areas involved in social evaluation and emotional regulation. Early evidence for the critical role of this gene in social behavior emerged from a study that knocked it out of operation. If you knock out the MAOA gene in mice, they quickly become hyper-hyper-aggressive. These genetically transformed mice have no capacity to regulate their social behavior. Consequently, all interactions are treated as confrontational and handled by aggressive attacks. These results are consistent with a large body of work in animals showing that heightened aggression and low levels of serotonin go hand in hand. These results are also consistent with work on humans. In, 1993, the Dutch biologist Hans Brunner analyzed the genetics of a large, extended family. Some individuals within this family were born with a defect that silenced the operation of the MAOA gene; they were like the mice who had this gene silenced. Relative to others in the family, these individuals had a pronounced history of violence, Hauser Chapter 4. Wicked in waiting 124 including murder, rape, and arson. Oddly, although this work provided one of the cleanest links between genes and violence in humans, it slid under the radar of scientific attention, only to be resuscitated and enriched about ten years later. The behavioral geneticists Avshalom Caspi and Terry Moffitt studied a large population of young boys over several years. Though boys and girls have the MAOA gene, its effect on behavior is easier to study in boys because they have only one copy whereas girls have two, one for each of their two X chromosomes. For each boy, Caspi and Moffitt collected information on the presence and frequency of their antisocial behavior and whether they were raised by parents who were caring, mildly abusive, or severely abusive. For each boy, they also noted whether they had the low or high expressing form of MAOA. Caspi and Moffitt s results provided a textbook example of nature s interaction with nurture. If the parents were caring, the genes made no difference in their child s personality or behavior. If the parents were mildly abusive, the boys with the low activity form were nine times more likely to fight, steal, bully, and defiantly break rules. For those boys with severely abusive parents and the low activity form of MAOA, 85 developed into violent, delinquent criminals. What these findings tell us is that in humans, it makes little difference which form of MAOA you have if you grow up with nurturing parents. But if you grow up with abusive parents, your genes make all the difference in the world. Those with the low expressing form are more likely than not to develop into delinquents, whereas those with the high expressing form are more likely than not to develop immunity. By a double dose of bad luck, one shot from the genes and one from the environment, some have a high probability of entering into the pool of potential evildoers. The German neuroscientist Andreas Meyer-Lindenburg took the genetic work one step further, linking the particular form of MAOA up to differences in the brain. Those with relatively poor social regulation and the low expressing form of MAOA had significantly smaller brains, specifically in regions associated with the control of emotion and social behavior the amygdala, anterior cingulate, and prefrontal cortex. These individuals also had less connectivity between these regions, harking back to the importance of promiscuity both between humans and other animals, but also within our own species. Less connectivity translates to less control by the frontal areas of the brain over emotion-relevant areas such as the amygdala. When individuals with the low expressing form viewed angry or fearful facial expressions, the emotionally-relevant brain areas went into hyper-drive, whereas those areas involved in regulating emotions hibernated. Thus, in contrast with individuals who have the high expressing form of MAOA, those with the low expressing form are overwhelmed by emotionally charged experiences, lacking the mental brakes to stay cool. By luck of the draw, the low expressing form of MAOA builds a child that is Hauser Chapter 4. Wicked in waiting 125 more likely to get angry and violent in the face of frustration and other emotional challenges, whereas the high expressing form builds a child that is walled off, immune to the same challenges. MAOA is crucial not only in long term human development, but also in everyday, ephemeral social interactions. In a laboratory study, an experimenter offered subjects the opportunity to earn up to 10 on a vocabulary quiz. Once they finished the quiz, they learned that an anonymous person in another room either took some of their earnings or left it alone. With this information in hand, the quiz-taker could either vindictively punish the person by giving them some hot sauce or they could cash out of the game and recover the money lost. In other words, they could either vindictively burn their opponent or recover their losses at no cost. In reality, there was no partner in the other room. When subjects with the low expressing form of MAOA lost most of their earnings, they were far more likely to deliver the hot sauce than those with the high expressing form; they were also most likely to deliver the highest amount of the sauce. Like long-term parental abuse, even short-term provocation invoked in a laboratory environment can cause those with the low expressing form of MAOA to act out and attack. As with all genes that have different forms, the number of individuals with the low expressing form of MAOA varies by population, including different ethnic and culturally identified groups. Caucasian and Hispanic males show some of the lowest frequencies at 34 and 29 respectively, whereas Maori, Pacific Islander, and Chinese males show the highest at 56, 61, and 77 respectively. In a study of over 1000 men, individuals with the low expressing form of MAOA were more likely to be in violent gangs, and once in gangs, were more likely to use guns and knives than individuals with the high expressing form. Variation in the frequency of these two forms is interesting as it provides the signature handiwork of natural selection. When the frequency of one form goes up, the most likely explanation is that this form benefits the individual carriers. When the frequency goes down, there is a hidden cost. In light of this teeter-tottering of frequencies, the Maori are of interest. As celebrated by many New Zealanders today, the Maori were a highly adventurous and warring people. Individuals who took risks and fiercely defended their resources were heroes. Heroes may have been carriers of the low expressing form of MAOA. Heroes often leave more offspring, who were also carriers of the low expressing form. In the Maori environment, selection may well have favored this form of the gene. The important point is that different environments will favor different frequencies of the two forms of MAOA. This helps explain both the cause of individual differences and the challenges we face in confronting cultures of violence that are fueled by nature and nurture. Many other labs have followed up on Caspi and Moffitt s long term, developmental study. Most find the same relationship between the MAOA gene and antisocial behavior. Others add to this account by showing how different genes and early appearing physiological differences contribute to a highly aggressive and antisocial starting state. In one study, the German psychologist Alexander Strobel put Hauser Chapter 4. Wicked in waiting 126 subjects in a brain scanner and invited them to play a bargaining game where they could punish someone who acted unfairly to them personal revenge or punish someone who acted unfairly to someone else impersonal punishment. For each subject, Strobel also collected information on a gene called COMT Met. This gene has three different forms, linked to differences in activity level in the frontal lobe of the brain, which are linked to differences in the levels of dopamine, which are linked to differences in the experience of reward. Given the different forms of COMT Met, at least part of what we experience as the feeling of reward or gratification was determined by our parents, and our parent s parents, and their parent s parents, all the way back to our ape-like cousins who evolved this gene. When Strobel looked at the brain scans of his subjects, he found that the same circuitry was engaged for personal revenge and impersonal punishment, with significant activity in the striatum a reward area as well as in the insula an area involved in the feeling of disgust. When we detect an injustice, we feel disgusted, a feeling that may motivate our desire for retribution. The striatum finishes off the process, rewarding us for our punitive response, and wiping out the negative feeling of disgust. Importantly, individuals with the high expressing form of COMT Met, and thus, higher levels of dopamine, showed stronger activation in the striatum, and were more likely to punish those who act unfairly. Strobel suggests that those with the high expressing form punished more because they anticipated a higher level of reward. If this explanation is right, it has profound consequences for how we think about individual participation in the policing of norms and the honey hits associated with aggression. Some people will have a natural bias to shy away from punishment, not because they fail to see the importance of ratting out cheaters, but because they don t anticipate feeling good about it. Others will be prone to punish even the most minor infractions because they feel empowered and good about it. Those who are empowered to punish because it feels good have forged a stronger association between aggression and reward. Unbeknownst to these individuals, they started life with a bias, one that colored their willingness to harm others. This bias is joined by many others that I discuss in the next few sections. The take home message is that if you are born male, endowed with certain genetic variants such as the low activity form of MAOA, and experience physical and psychological abuse by your parents, the odds of delinquency are frighteningly high. That s the bad news. The good news is that if you are born male, have the high activity variant of the MAOA gene, and experience physical and psychological abuse by your parents, you are vaccinated by nature against the harms of your unfortunate nurture. The problem, of course, is that you have no say over which endowment you get, nor over the kinds of parents you receive. One of the reasons I have worked through this case study of genetic constraints and environmental sculpting is to provide an antidote to the often polarized views that have dominated much of the historical and psychological literature on evil. Many of the earliest, and most famous psychological Hauser Chapter 4. Wicked in waiting 127 experiments were related in one way or another to Hannah Arendt s thoughts about Adolf Eichmann and the fact that good people are capable of horrific things: the banality of evil. Hiding behind every average Joe is a person equipped with an engine of malice. Banality is the veil of evil. Thus, the American psychologist Stanley Milgram showed that normal people were capable of shocking innocent others when an authority figure told them to do so; of course, there were no shocks, but the subjects believed they were real. Similarly, the American psychologists Solomon Asch and Philip Zimbardo showed that normal people followed group attitudes and instructions, bleating like mindless sheep, no reflection, no critical thinking, no concern about the consequences of their actions. In Zimbardo s study the famous Stanford prison experiments run of the mill undergraduates playing the role of prison guards turned into little dictators, mentally and physically abusing their run of the mill undergraduates playing the role of prisoners. Together, these studies seemed to support a blank slate view of the mind, a tablet waiting for inscription by the local culture, with no constraints on the written matter. A closer look at many of these studies reveals far more variation in how individuals responded, suggesting that differences in their genetic make-up and personal experience either facilitated their willingness to follow authority and ideology or prevented it. Many subjects in both the Milgram and Zimbardo studies refused to follow the orders or rules of the game. Those who refused tended to identify more with the victim and less with the authority figure or ideology. This suggests important differences in the capacity to experience empathy and compassion for another. Studies by the cognitive neuroscientist Esse Viding show that by the pre-school years, some children have a diminished capacity for empathy, expressing a deeply callous and unemotional character. These children exhibit severe conduct problems, especially violence. These children lack remorse and an awareness of others distress. They are cold, heartless kids. If they have a twin, they are more likely to share this callous-unemotional personality than two unrelated children, revealing the trademark of a powerful genetic engine. More boys than girls fall on the high end of this callous-unemotional scale where high translates to colder and more callous. Those who score highest on the scale engage in more direct physical bullying than those who score lower. High scorers lack the skills to modulate their behavior following direct or anticipated punishment. These individuals also show reduced activity in the amygdala, a part of the brain that is critically involved in regulating emotion, especially the assignment of a positive or negative value on our actions and experiences. These individual differences persist into adulthood. These are the kind of individual differences that can explain why some followed Milgram and Zimbardo s instructions to perfection, while others resisted, exerting self-control. Hauser Chapter 4. Wicked in waiting 128 The sweetness of control When humans and other animals travel the road to excess, whether for food consumption, violence, power, or sex, it is either because they gave in to an in-the-moment impulsive itch or because a history of losing self-control turned into an addictive habit. What causes us to lose our sense of moderation, allow our mental brakes to slip, and give in to temptation? What causes our preferences to inconsistently and irrationally shift over time, allowing seductive offerings to win? If you are the eminent social psychologist Roy Baumeister who has contributed fundamental insights into the nature of evil, the answer is simple: sugar. Love it. Want it. Need it. When we work hard, focusing on a difficult problem or trying to figure out the best decision, exhaustion strikes. Part of our exhaustion comes from the fact that we have depleted a critical resource: sugar, or more precisely, glucose. When the availability of this resource diminishes, we also lose selfcontrol. This is why the loss of self-control has a cycle that follows the time of day, with the greatest losses occurring late rather than early: diet breakers are more likely to pig out in the evening than early in the morning; shoppers are more likely to buy impulsively as the day moves on; impulsive crimes and relapses of addiction are evening affairs; judges are more likely to dole out punishment at the end of a day in court than when they start a new day. Dozens of experiments show that if you have to exert selfcontrol in one context it taxes your capacity to exert self-control in another. For example, if you ask subjects to avoid laughing while watching a comedy routine, avoid thinking about a white bear, or avoid eating chocolates now to have radishes later, these same subjects will squeeze a hand grip for a shorter period of time than subjects who never contended with the various self-control tasks. When you deplete your personal resources, you lose your grip, opening yourself up to binge eating, unnecessary violence, sexual promiscuity, and drug relapses. How do we know that glucose is responsible? If you give people a milkshake with real sugar before they have to take a hard test involving self-control, they do better than if you give them a milkshake with an artificial sweetener. If you first make people take a test that taxes their attention, and causes their glucose to drop, they do worse on a subsequent test, including the hand grip squeezing test. In an extraordinary series of experiments and observations, the American psychologist Nathan DeWall found that subjects who drank lemonade with glucose were less likely to respond aggressively to an insult than subjects who drank lemonade with artificial sweetener; individuals with diabetes who have difficulty regulating blood glucose, and thus have less of it reported higher levels of aggression on a questionnaire than non-diabetics; within the United States, those states with higher numbers of diabetics showed higher crime rates; and countries with a higher frequency of a genetic disorder that lowers glucose levels showed higher killing rates both in and out of war. Hauser Chapter 4. Wicked in waiting 129 To accept DeWall's striking results, it is necessary to accept one connection between self-control and aggression and a second between glucose and self-control: SELF-CONTROL DOWN AGGRESSION UP GLUCOSE DOWN SELF-CONTROL DOWN That aggression often follows from a loss of control is backed up by considerable evidence, including clinical studies that link lack of inhibition in psychopaths to extreme violence. Also of interest is the fact that impulsive aggression is more likely to arise when individuals are drunk than sober. Alcohol, as we all know, lowers our inhibitions, but also lowers glucose in both the brain and body. Though scientists such as Baumeister and DeWall have not yet worked out in detail how glucose is used or replenished in the context of self-control, there are far too many studies using different methods and subjects to ignore this relationship. Minimally, these studies indicate that we should think about self-control like a resource, something that can be used up and replenished, something that can be depleted, tipping the scale toward violence. One of the interesting implications of DeWall s work is that individual differences in glucose availability are coupled with individual differences in self-control. Diabetes shows a high level of heritability, meaning that some individuals are more likely to develop this problem than others simply based on what genes they receive from their parents. The prevalence of diabetes is on the rise in many countries, with some estimates suggesting that by 2025, there will be 325,000,000 diabetics world wide, more than double current estimates. The genetic disorder that lowers glucose levels arises because of a deficiency in a key enzyme, glucose-6-phosphate-dehydrogenase. This is one of the most common enzyme deficiencies in the world, affecting over 400,000,000 people, and in many cases, triggered by the consumption of fava beans. As with variation in the frequency of MAOA, so too can variation in this glucose-related gene be subject to selection pressures, especially given its link to violence. Once again, we see nature and nurture contributing to individual variation and cultural differences in our capacity to harm others. Together, these observations of glucose-related disorders speak to a disconcerting reality: we are born with inherent differences in the availability of key resources guiding self-restraint. Some of us start off life better equipped to control our frustrations, wait for future gains, and moderate our temper. These early differences can have long lasting and disastrous effects later in life, a point supported by a study that began forty years ago with four year-old children presented with a marshmallow. The American social psychologist Walter Mischel recruited four year old children to his laboratory and sat them down at a table with two objects: a marshmallow and a bell. He then told each Hauser Chapter 4. Wicked in waiting 130 child that he was going to leave the room. If they wanted to eat the marshmallow, they only had to ring the bell. But, as Mischel informed them, if they waited for his return, he would bring them more marshmallows. Mischel took out his stopwatch and recorded how long each child waited before ringing the bell. Some children rang the bell almost immediately, leaving Mischel no time to leave the room. Others waited. This isn t surprising. Some children are impulsive, others are impatient, and this shows up early in life. What is surprising is that these early appearing personality types held steadfast, impacting later life decisions and actions. The more impatient types were more likely to be involved in juvenile delinquency, have poor grades, abuse drugs, get divorced, and lose their jobs. For women who developed eating disorders, those who were more patient were more likely to be anorexic, whereas those who were more impulsive were more likely to be bulimic. When the American developmental psychologist B.J. Casey put these now 40-somethings inside a brain scanner, the patient ones showed stronger activation in the prefrontal areas of the brain when viewing happy and fearful faces, revealing stronger self-control over their feelings. In contrast, when the impatient ones viewed the same stimuli, not only was there a weaker response in the prefrontal region but a stronger response in the ventral striatum when viewing happy faces. The striatum, as noted earlier, is involved in the experience of reward. For the impatient types, seeing something positive is like eating candy, something that is hard to ignore. The patient types regulate this feeling, transforming the heat of the moment into a cool experience. The impatient types are overwhelmed by this feeling, giving into temptation. This work adds to the genetic evidence reviewed earlier, showcasing both the importance of individual differences in self-control, and the stability of these differences as distinctive personality types. Individual differences in self-control are also relevant to levels of recidivism in youths who have committed a crime, and thus tie us back to the beginning of this chapter and the costs of a career criminal. Career criminals are individuals who repeatedly commit crimes. They lack self-control. This is important for judges, juries and society as we want to know in advance who is most likely to commit another crime if we release them back out onto the streets. The American sociologist Matt DeLisi presented a selfcontrol survey to approximately 800 juvenile youths, ages 12-17 years, each with a criminal record. Those who scored one standard deviation from the mean on this survey, and thus were more impulsive than most, were five times more likely to become career criminals. Five times. Self-control on its own accounted for about 80 of the variation in recidivism among these delinquents; the remaining 20 was accounted for by factors that one might think would be much more important, including mental health, education, gender, and socioeconomic background. As DeLisi concludes, these results suggest that measures of self-control provide a reliable predictor of the likelihood of repeating a crime. They provide a Hauser Chapter 4. Wicked in waiting 131 measure of risk, a factor that both juvenile and adult courts should be using to determine their sentencing, especially the individual s future dangerousness. Individual differences in glucose metabolism, together with relative differences in brain activity, lead to stable differences in self-control. But there s more, both luck of the draw genetic effects and clinical distortions. Recall that the low expressing form of the MAOA gene results in lower levels of serotonin which, in turn, leverages less control over aggressive impulses. There is another gene SLC6A4 that also comes in two forms and regulates the level of serotonin. The short form of this gene gives you less serotonin, is commonly found in pathological gamblers and psychopaths two heavily male-biased disorders that are associated with impoverished impulse control. Psychopaths also have relatively smaller frontal lobes , especially within a region that has a high density of serotonin neurons. Psychopathy is joined by a family of impulse control disorders that also implicate dysfunction of the serotonin system, including kleptomania (stealing), pyromania (burning), trichotillomania (hair pulling), and oniomania (shopping). Like glucose, serotonin plays a lead role in our capacity for self-control. When serotonin is sidelined from the performance, any number of impulsivity problems may emerge. What I have said thus far is only a partial accounting of the biological ingredients that figure into our capacity for self-control. What this partial recipe tell us is that regardless of the situation, some individuals are inoculated against the pull of authority and group ideology and others are susceptible. If you missed the inoculation clinic in utero, you are more susceptible to temptations and excesses, including excessive violence. This is important for our interpretation of the real world and of the famous psychological experiments by Milgram, Zimbardo, and others in which seemingly good people carried out unambiguously horrid things. Some individuals carry a genetic skeleton that resists the push and pull of charismatic leaders and powerful isms. These people will not be pushed into doing bad things. Others, faced with the exact same situation, will find their skeleton buckling, tempted to take risks and lash out when the going gets tough. Invisible risks Several years ago, Ira Glass, the brilliant radio show host of This American Life, delved into the topic of superheroes. One episode focused on a question that has become part of my repertoire for dinner parties, especially those in need of a conversational catalyst: if you could become a superhero with one power, which would you take the ability to fly or to be invisible? Most people have a rapid-fire, confident response to this question, while others reflect a bit, often engaging themselves in a public debate over their conflicted views. What is interesting about people s answer to this question, independently of whether they pick flying or invisibility, is that they rarely talk about using their power to do good in the Hauser Chapter 4. Wicked in waiting 132 world! The flyers talk about how cool it would be to vacation anywhere in the world, zip to work or school, or have fun soaring like an eagle. The invisibility types talk about sneaking into stores and taking clothes or music they like, eavesdropping on conversations, and playing tricks on family members and friends. What is even more interesting about these particular answers is how they divide into pure hedonism flying and pure vice invisibility. With invisibility you can take risks at no cost, except for the cost that soon becomes apparent to many of these newly donned superheroes: even if they don t get caught, they still did something bad, morally bad. This ratchets up their guilt. With this realization, and a dip into the dark side, comes an about face, with some picking flying instead of invisibility. Rarely do people stick with invisibility, but see how they might deploy their power for virtuous purposes. Rarely do these superheroes realize that they can be real heroes, using their invisibility to gain covert information about terrorist organizations, elicit drug traders, pedophilic priests, or abusive parents minus the risks. In real life, there are risks associated with every decision, some clear from the start and others only clear in hindsight. As with self-control, a growing body of evidence shows that there are individual differences in risk-taking: some are risk-averse, some risk-prone, and some seemingly risk-blind, unaware that they are taking risks at all. Some of these differences are evident early in life. Some of these differences are strongly associated with crime later in life. Some of these differences provide insights into the invisible risks that individuals and societies confront, risks that can cause great harms. Research on clinical populations with antisocial disorders, most notably those with a clinical diagnosis of psychopathy, reveals a major cause of their high risk, costly, and violent behavior: a failure to experience fear, anxiety, or stress in response to highly evocative images and sounds. In contrast with healthy populations, psychopaths are emotionally blas about the things in the world that can cause harm or result in punishment. The problem lies in the fact that psychopaths, both adults and those identified as candidates early in childhood, fail to learn about the dangers in life. Their failure to learn is caused by a reduction in size and activity of two critical and connected brain areas: a region of the frontal cortex and the amygdala. When this system works efficiently, it allows individuals to learn about the sounds, smells, and sights that are associated with bad things in the world. When this system works well, individuals learn to avoid antisocial, immoral, and illegal acts by developing anxiety and fear over the possibility of punishment and personal injury. When this system works poorly, as is the case in psychopaths, individuals act as if there are no dangers or risks of punishment a disposition that enables inappropriate actions. But psychopathy covers a broad spectrum, with problems that all of us confront at some point in our lives, some of us even repeatedly. This is important as it forces us to look at non-clinical populations for the causes of individual differences in risk-taking, especially our reactivity to dangerous events. Studies carried out over several decades, in a wide variety of cultures, reveal that children begin life with distinctive temperaments. Some are mellow, blas about events that are startling to many. Hauser Chapter 4. Wicked in waiting 133 Others are high strung and reactive, responding with heightened fear to the same startling events. Others fall somewhere in between these two poles. What is surprising is the fact those with the flattest response to evocative images and sounds are the most likely to become violent delinquents in young adulthood. In a remarkable study, Adrian Raine and his colleagues presented 1,795 three year olds with two different sounds while recording the sweatiness of their palms; the sweatier the palms, the greater the stress and fear. One sound was always associated with a second and highly aversive noise, while the second sound was always played alone. When you pair a neutral sound, such as a pure tone, with a nasty sound, simply hearing the pure tone will make your skin crawl; the pure tone predicts what is coming, and what is coming is not pleasant. When Raine revisited these same individuals twenty years later, those with serious criminal records involving drug abuse, dangerous driving violations, or violence, had the driest palms at the age of three years. In another study, focusing specifically on violence, Raine measured the sweatiness of a different group of three year olds and then looked at their aggressiveness five years later. Once again, those with the driest palms at three years were the most aggressive at eight years. In the absence of a system that enables individuals to learn about danger, the brain and body act as if they were shrouded in an invisibility cloak, blind to the risks of crossing either moral or legal lines. Raine s findings fit well with the marshmallow study. In the same way that those who were most impatient in the pre-school years were also most likely to exhibit signs of delinquency in early adulthood, so too were those who were most blas about fearful stimuli as children most likely to exhibit delinquency in adulthood. Both studies reveal the stability of personality traits. Both studies suggest that at the level of groups of individuals, as opposed to specific individuals, the blas -impatient types represent a greater threat to our welfare. The point about groups is important. These studies do not allow us to look at an individual s record and conclude that because he could only wait for 3 seconds before eating the lone marshmallow, and almost fell asleep when presented with loud banging noises, that he is without doubt headed for a life of crime. We also can t conclude that because patience and reactivity to fearful stimuli can be measured as early as three years old, that these personality traits are entirely genetic and fixed. In fact, other studies carried out by Raine show that if you ramp up the nutrition, exercise, and mental stimulation of children between the ages of 3-5 years, you can reduce adult criminal offenses by 35 . What we can conclude from these findings is that there are significant individual differences that affect who is willing to take risks and who isn t. We can conclude that there is a strong biological component that constrains the individual s options. We can conclude that those who start early in life without an understanding of the dangers in the world, act as if they live in a risk-free world. Molecular biologists provide an increasingly precise understanding of how these individual differences start, pointing to genes that bias some individuals to take extreme risks, including the risk of violating social norms and laws by violently attacking another human being. Hauser Chapter 4. Wicked in waiting 134 There are many situations where taking a risk pays off, whether we think of stealth military operations, chancy shots in the final seconds of a basketball game, or significant investments in an up and coming stock option. Playing it safe pays off. But those who stick their necks out and take a chance, may bring home significant gains. It is because of these competing strategies and potential payoffs that evolutionary biologists have imagined that selection could maintain both personality types within a population a point noted earlier for the MAOA and glucose-related genes. If selection has worked in this way, then there must be genetic variation that allows for both strategies. To date, the strongest evidence comes from a family of genes associated with the regulation of dopamine, with the memorable acronyms of DAT1, DRD2 and DRD4; each of these genes is associated with different forms, each form associated with different levels of dopamine. Recall from chapter 2 that dopamine plays an essential role in our experience of reward, including how motivated we are to get it and what we anticipate based on our understanding of the situation have we been rewarded in the past, how often, and how much? The idea here is that those who carry genes that output a higher level of dopamine may weight rewards more heavily and thus, show risk-blindness; for these individuals, the eye is on the prize, not the path or obstacles to this prize. Across a number of studies, results show that variation in the expression of these genes is associated with high-risk, low self-control behaviors, including pathological gambling, substance abuse, sensation seeking, and financial investments. For example, in two separate studies, individuals with different variants of the DRD4 gene played a financial investment game involving real money. In one, designed by Joan Chiao, subjects decided to invest in either a risky asset with variable returns or a riskless asset with consistent returns. In the second study, the Swedish economist Ana Dreber and the American anthropologist Corin Apicella allowed subjects to either walk away with an initial starting pot of money, or to invest some of it in a risky asset. Those with the DRD4 variant that expresses higher levels of dopamine were more likely to pursue the risky investment. What this work reveals is that part of the variation we observe among people who make risky investments, drink too much alcohol, and gamble with their income, is due to variation in the dopamine family of genes. These are hidden risks that come to life thanks to molecular biologist s microscope. What also comes to life is the fact that these same genes are relevant to violence, causing some to strike out even though there are significant risks and terrible consequences. In several studies, using an American health data base of several thousand adolescents, results consistently show a relationship between particular variants of the dopamine genes and violence. For example, the sociologist Guang Guo examined the relationship between violent delinquency involving use of guns and knives and variation in DRD2 and DAT1 among 2,5000 individuals ages 12-23 years. DRD2 was of particular interest because medical records and clinical trials reveal that administering Hauser Chapter 4. Wicked in waiting 135 haloperidol a DRD2 dopamine antagonist helps control aggression in psychotic patients. Guo found that levels of violence were about twice as high for one variant of the DRD2 gene than others, and about 20 higher for a particular variant of the DAT1 gene. These genetic variants cause differences in dopamine, which cause differences in expected and experienced reward, which cause differences in perceived risk, which cause differences in the odds of getting in a fight and harming others. These are not genes for aggression, violence or evil. There are no such genes. Rather, they are genes that change our perception of risk. Because risk is related to all sorts of decisions, these genes can affect the odds that we directly harm others. They are part of the story of individual differences, and part of the story of why some are more likely to engage in evildoing. Everything I have discussed thus far focuses on actions, on how the psychology of desire and denial combine to fuel behaviors that lead, directly or indirectly, to excessive harms. I have also explained how different biological ingredients predispose us toward different degrees of self-control, and thus, differences in our ability to omit particular actions. This sense of omission is a virtue, a sign of resisting temptation. But can omissions be a sign of vice, of resisting an action that is called for? Can omissions ever reach such a scale that we would consider individuals or societies as evil omitters? The sin of sloth. What s worse: 1) giving a lethal overdose to someone suffering from an incurable disease or allowing this person to die by removing life support? 2) pushing someone in front of a runaway truck to stop the truck and save the lives of five others or allowing someone to walk in front of the truck instead of warning them? 3) pouring a toxic chemical into your competitor s drink in order to make him sick or allowing your competitor to drink the toxic chemical that was placed on the table by someone else? Even though all of these situations seem quite bad, most people have a gut feeling that the actions are worse than the omissions. They also feel that when we omit life support, fail to warn someone of a runaway truck, or remain silent about a toxic drink, that we are less responsible for the consequences that unfold. Dozens of studies, using hundreds of different examples, and thousands of subjects, support what our gut expresses: we are captive to an omission effect. Even when we understand that the consequences are precisely the same the suffering patient dies, the truck kills the person, the toxic chemical makes the competitor sick and so too are the person s goals and intentions eliminate suffering, save five people, take out the competitor we are seduced to believe that action is worse than omission or that doing harm to another is worse than allowing harm to occur. The omission effect lays bare a tension between unconscious, spontaneous intuition and conscious, reflective thought. On the one hand, there are potentially good reasons why we evolved this Hauser Chapter 4. Wicked in waiting 136 intuition. It is a heuristic or rule of thumb that may be right much of the time. When I do something, as long as it is not by accident, my intentions and goals are more clear cut than when I fail to do something or allow it to happen. If I punch you and your arm bruises, the causality is clear: I caused your arm to bruise. I am responsible for this harm. I should be punished. If I stand by as someone is about to punch you, but don t deflect the punch when I easily could have, it feels odd to say that I caused your arm to bruise. It also seems strange to say that I am responsible and should be punished. By not deflecting the punch, I allowed the harm to occur. I could have prevented it from happening, but I am not obliged to. As social creatures, we have been designed to pick up on cues that reliably classify people into friends and enemies. Friends intentionally help us while enemies intentionally harm us. Actions showcase our intentions better than omissions. The omission effect also makes sense in terms of personal responsibility. Not only do our guts tell us that actors are more responsible for outcomes than omitters, but our guts also tell us that it is hard to hold others responsible for their omissions. As I sit and write these words, I am committing heinous acts of omission: I am not currently giving money to any charities, am not scheduled to teach in the dozens of refugee camps around the world, and am not volunteering for any of the peace keeping armies sponsored by the UN. I am also guilty of many other minor crimes of omission, including the failure to consistently give my change to homeless individuals, and the failure to spend time in homes for the elderly and mentally handicapped. As I sit, I rack up countless harms of omission. It is hopefully the absurdity of this comment that shows why there is a fracture in the arm that connects omissions to responsibility. In a large scale society, it is impossible for us to hold people responsible for their omissions. There are far too many reasons, often good ones, why people don t act. The universe of reasons for acting is smaller. If the omission effect arises because it is virtually impossible to hold omitters responsible in a large scale society, than what about small scale societies including the hunter-gathers of our past, and the tiny hamlets and villages that dot many countries, both developed and developing? When the number of people that you know and interact with is small, does the omission effect vanish? In a fish bowl community, you should be able to hold all of the other fish responsible for their actions and omissions because you know what they are up to. To explore this idea, the psychologist Linda Abarbanell and I ran a study with a rural, small scale Mayan population, living in the Chiapas region of Mexico. Every individual listened to a reading of a moral dilemma. Each dilemma described an action or an omission that resulted in harming one person, but saving the lives of many. Subjects judged the moral permissibility of the action or omission. Unlike thousands of adults on the internet who judged similar dilemmas, as well as other Mayans living in a city, individuals in this small scale Mayan population perceived no moral difference between Hauser Chapter 4. Wicked in waiting 137 actions and omissions. The omission effect evaporated, with the moral weight of an action perceived to be on a par with an omission. The Mayan study is but one example. It suggests some flexibility in our perception of actions and omissions, and shows how cultural differences can create individual differences. When our social world is relatively small and circumscribed, we can keep tabs on everyone. By keeping tabs, we can hold others responsible for their actions and their omissions. As the American psychologists Jon Haidt and Jonathan Baron have shown, this psychology can be recreated in the laboratory by creating scenarios in which the individuals are either unfamiliar or familiar. When there is a relationship between the individuals family, friends, team members and thus, some degree of familiarity, the omission effect weakens. The omission effect is not an obligatory state of the human mind. It is a common tendency, a way that our brains lean, especially in unfamiliar contexts. In patients with obsessive compulsive disorder, the omission effect is as strong as it is in healthy subjects, except for familiar cases of harm that are directly relevant to them, such as the excessive washing behavior that is the trademark of this clinical disorder. The fact that certain situations can cause us to lean in different directions has important policy implications: even when corporations, institutions, or other organizations grow large, we should always segregate these masses into smaller divisions, and make the issues personally relevant. Every member of one division should hold all others within its division responsible or accountable. Further, efforts should be made to foster familiarity across divisions, enabling not only a level of responsibility but of respect and trust. By recreating the psychology of small scale societies, and making potential harms relevant, we may help bypass the omission effect, allowing us to hold people responsible for their omissions. This, in turn, may reduce the number of individuals who live as passive bystanders. Familiarity and relevance may well be the necessary catalysts for converting bystanders into active whistle blowers, defenders, and rescuers. When bystanders remain passive, watching the world go by, it is often because they believe that their actions won t make a difference or think that the costs of heroism are too high. This is, again, an issue of responsibility. It raises the question of when we ought to act. The distinguished Australian philosopher Peter Singer has spent a lifetime pushing this issue in the context of charitable donations, culminating most recently in his book The Life You Can Save. The key idea, taken from a utilitarian perspective where outcomes as opposed to rules or principles motivate our moral actions, is that we ought to give a fraction of our incomes to those lacking basic access to food, shelter and health care. Standing by as bystanders when there are 1.4 billion people in a state of abject poverty is morally wrong. The logic seems perfectly reasonable, especially given the fact that humanitarian organizations have helped reduce the number of people living in poverty by .5 billion within the last 20 years. But then we learn of another Peter Singer idea: if the three richest men alive today Carlos Slim Helu, Bill Gates, and Warren Buffett Hauser Chapter 4. Wicked in waiting 138 worth a total of 153.5 billion dollars, were to give up one third of their net worth, they could solve world hunger. On a personal level, they would barely notice this donation. With this knowledge, why should I bother to give a penny? This is one example of apathy regarding our motivation to help others. What propels individuals to shift from passive bystanders who can allow harm to occur to active contributors? Classic studies by the American psychologists John Darley and Bibb Latane reveal the ingredients for bystander action. Whether it is helping someone having a seizure, being molested, or in danger of suffocation from smoke, we are more likely to help when alone than when in a group. We are also more likely to help when we recognize the situation as a crisis and think that there are plausible solutions. These are all characteristics of the situation. There are also characteristics of the individual bystander, including their level of compassion and empathy toward others, their capacity to identify with the victim, and their self-control. For example, people who intervene in cases of child abuse, as opposed to the passive bystanders, are more likely to have been abused as children, more likely to perceive a solution, more likely to feel responsibility to intervene, and more likely to experience the weight of guilt for not intervening. We are back to individuals differences. We are back to the egg and coop, and their joint contribution to helping or harming others. We are back to the established genetic differences in compassion, risk-taking, and self-control that combine with a history of experience to create some who sit and watch and others who actively participate. We are more likely to pardon bystanders because we tend to see omissions as less bad than actions, and omitters as less responsible for the consequences than actors. This is a dangerous effect. Bystanders are part of the equation of evil. As noted by the American genocide scholar and psychologist, Ervin Staub, bystanders start out as passive players on the side lines, but are rapidly transformed into perpetrators. The transformation starts with the challenge of maintaining passivity while watching other humans suffer; to maintain this observer status requires suppressing empathy for the sufferers, while recognizing that they are in the minority and you, the bystander, are with the majority. To avoid feeling guilty for not feeling empathy, bystanders distance themselves even further from the victims. Distancing is an adaptive response as any association with the victims could put a bystander in harm s way. But like so many other psychological states discussed in this book, distancing leads to dehumanization. Dehumanization leads to moral disengagement and greater justification for the perpetrators. Justification lends cheering support for violence. This is the final transforming step, from passive bystander to active participant. Recall that on my account of evil, evildoers either have a desire to cause harm directly or desire something good, recognizing that it will cause harm indirectly. This is true of actions and omissions. For example, keeping a secret, even if pressured into spilling the beans, is a good thing because it upholds a Hauser Chapter 4. Wicked in waiting 139 promise, and thus, the relationship. But if keeping the secret results in innocent lives lost or ruined, then this is a bad thing. Not telling an omission indirectly can cause harm. This is the situation that has confronted the Catholic Church over the past twenty years. During the tenures of Popes John Paul II and Benedict XVI, some 4,000 priests sexually abused some 10,000 innocent children. This is unquestionably an underestimate. This is excessive harm. Popes John Paul II and Benedict XVI , together with their cardinals and bishops, assumed the role of bystanders. They were aware of the rampant cases of child rape among the clergy. They could have acted. Their omissions are archetypal examples of the sin of sloth. By omission, they are responsible for excessive harm and should be held legally accountable. This process has begun as evidenced by the decision in October of 2011 to indict Bishop Robert Finn for failing to report a priest who took pornographic photographs of young girls. Though Finn was only charged with a misdemeanor, this case opens opens a legal floodgate. It is an opening that should allow prosecutors, around the globe, to indict bishops, cardinals, and the Pope for evil omissions. It should empower the parents and children who have suffered to rise up and demand justice for allowing excessive harm to occur. It should cause everyone to express outrage over the fact that allowing priests to rape innocent children perpetuates a cycle of pedophiles as those who have been abused are likely to abuse others. The leaders of the church have not only commited a crime of omission, but have helped perpetuate a culture of harm. Hauser Chapter 4. Wicked in waiting 140 Endnotes: Chapter 4 Recommended Books Chagnon, N. (1996). Yanomamo. 5th Edition. Harcourt Brace. Goldhagen, Daniel Jonah. (2009). Worse Than War. New York: Public Affairs. Jones, A. (2010). Genocide: a comprehensive introduction. New York: Routledge. Kiernan, B. (2007). Blood and Soil: A world history of genocide and extermination from Sparta to Darfur. New Haven: Yale University Press. Milgram, S. (1974). Obedience to Authority: An experimental view. New York: Harper Row Publishers, Inc. McCullough, M. (2008). Beyond Revenge: The evolution of the forgiveness instinct. Jossey-Bass, New York Singer, P. (2010). The Life You Can Save. New York: Random House. Wittenbrink, B. Schwarz, B. (2007). Implicit Measures of Attitudes. Guilford Press. Zimbardo, P. (2007). The Lucifer Effect: Understanding how good people turn evil. New York: Random House. Key references What s normal: Cohen, I. L., Liu, X., Lewis, M. E. S., Chudley, A., Forster-Gibson, C., Gonzalez, M., Jenkins, E. C., et al. (2011). Autism severity is associated with child and maternal MAOA genotypes Clinical genetics, 79(4), 355 362. Eggs and coops: Alia-Klein, N, Goldstein, R, Kriplani, A, Logan, J. (2008). Brain Monoamine Oxidase A Activity Predicts Trait Aggression. Journal of Neuroscience, 28(19), 5099-5104; Baler, Ruben D., Volkow, N.D., Fowler, J.S., Benveniste, H. (2008). Is fetal brain monoamine oxidase inhibition the missing link between maternal smoking and conduct disorders? Journal of Psychiatry Neuroscience : JPN, 33(3), 187; Beaver, K.M, DeLisi, M., Vaughn, M.G., Barnes, J. C. (2010). Monoamine oxidase A genotype is associated with gang membership and weapon use. Compr Psychiatry, 51(2), 130-134; Bukholtz, J.W, Meyer-Lindenberg, A. (2008). MAOA and the neurogenetic architecture of human aggression. Trends in neurosciences, 31(3), 120-129; Derringer, J., Krueger, R.F., Irons, D.E., Iacono, W.G. (2010). Harsh discipline, childhood sexual assault, and MAOA genotype: an investigation of main and interactive effects on diverse clinical externalizing outcomes. Behav Genet, 40(5), 639-648; Enoch, M-A., Steer, C.D, Newman, T.K., Gibson, N., Goldman, D. (2010). Early life stress, MAOA, and geneenvironment interactions predict behavioral disinhibition in children. Genes Brain Behav, 9(1), 65-74; Fergusson, D. M., Boden, J. M., Horwood, L. J., Miller, A. L., Kennedy, M. A. (2011). MAOA, abuse exposure and antisocial behaviour: 30-year longitudinal study The British journal of psychiatry : the journal of mental science, 198(6), 457 463; Gibbons A. (2004) American Association of Physical Anthropologists meeting. Tracking the evolutionary history of a warrior gene. Science 304:818; Lea, R, Chambers, G. (2007). Monoamine oxidase, addiction, and the warrior gene hypothesis. J. New Zealand Medical Association, 120(1250), 1- 5; Meyer-Lindenberg, A., Buckholtz, J.W., Kolachana, B., Hariri, A., Pezawas, L., Blasi, G., Weinberger, D.R. (2006). Neural mechanisms of genetic risk for impulsivity and violence in humans. Proc Natl Acad Sci, 103(16), 6269-6274; Sebastian, C L, Roiser, J P, Tan, G C Y, Hauser Chapter 4. Wicked in waiting 141 Viding, E, Wood, N W, Blakemore, S-J. (2010). Effects of age and MAOA genotype on the neural processing of social rejection. Genes Brain Behav, 9(6), 628-637; Tikkanen, R., Auvinen- Lintunen, L., Ducci, F., Sj berg, R.L., Goldman, D., Tiihonen, J., Virkkunen, M. (2010). Psychopathy, PCL-R, and MAOA genotype as predictors of violent reconvictions. Psychiatry research. doi: 10.1016 j.psychres.2010.08.02; Williams, L.M, Gatt, J.M, Kuan, S.A., Dobson- Stone, C. Palmer, D.M., Paul, R.H., Gordon, E. (2009). A polymorphism of the MAOA gene is associated with emotional brain markers and personality traits on an antisocial index. Neuropsychopharmacology, 34(7), 1797-1809. Banality, situationism, and authority: Zimbardo, P.G. (2004). A situationist perspective on the psychology of evil: Understanding how good people are transformed into perpetrators. In: The social psychology of good and evil, A. Miller (ed), NY, Guilford, 1-23; Haslam, S.A., Reicher, S. (2007). Beyond the banality of evil: three dynamics of an interactionist social psychology of tyranny. Pers Soc Psychol Bull, 33(5), 615-622; Russell, N. (2010). Milgram's obedience to authority experiments: Origins and early evolution. British Journal of Social Psychology 50: 140- 162; Sabini, J, Silver, M. (2007). Dispositional vs. Situational Interpretations of Milgram's Obedience Experiments:" The Fundamental Attributional Error". Journal for the Theory of Social Behaviour, 13(2), 147-154. Selling albino body parts in Africa: Dave-Odigie, C.P. (2010). Albino killings in Tanzania: Implications for security. Peace Studies Journal, 3(1), 68-75; http: www.telegraph.co.uk news worldnews africaandindianocean tanzania 7687951 Seven-newalbino-killings-in-Tanzania-and-Burundi.html; http: www.bbc.co.uk news world-africa- 11001791; On self-control, glucose, and aggression: Baumeister, R.F. (2002). Yielding to temptation: Self-control failure, impulsive purchasing, and consumer behavior. Journal of Consumer Research, 28(4), 670-676; Baumeister, R.F., Alquist, J. (2009). Is There a Downside to Good Self-control? Self Identity, 8(2), 115-130. Baumeister, R.F. (2002). Yielding to temptation: self-control failure, impulsive purchasing, and consumer behavior. Journal of Consumer Research, 28, 670-676; DeLisi, M., Vaughn, M. G. (2007). The Gottfredson-Hirschi Critiques Revisited: Reconciling Self-Control Theory, Criminal Careers, and Career Criminals. International Journal of Offender Therapy and Comparative Criminology, 52(5), 520 537; DeWall, C, Baumeister, R, Stillman, T. (2007). Violence restrained: Effects of self-regulation and its depletion on aggression. Journal of Experimental Social Psychology 43: 62-76; Gailliot, M. T, Baumeister, R. F. (2007). The Physiology of Willpower: Linking Blood Glucose to Self-Control. Personality and Social Psychology Review 11(4), 303-327; Muraven, M, Tice, D.M, Baumeister, R.F. (1998). Selfcontrol as limited resource: Regulatory depletion patterns. Journal of Personality and Social Psychology, 74(3), 774-789; Vohs, K. D., Baumeister, R.F., Schmeichel, B.J., Twenge, J.M., Nelson, N.M., Tice, D.M.. (2008). Making choices impairs subsequent self-control: a limitedresource account of decision making, self-regulation, and active initiative. J Pers Soc Psychol, 94(5), 883-898; Dewall, C.N., Deckman, T., Gailliot, M.T., Bushman, B.J. (2011). Sweetened blood cools hot tempers: physiological self-control and aggression. Aggressive Behavior, 37, 73- 80; DeScioli, P., Christner, J., Kurzban, R. (2011). The omission strategy. Psychological Science, 22(4), 442-446. Invisible risks: Fairchild G, Passamonti L, Hurford G, Hagan CC, von dem Hagen EAH, van Goozen SHM, Goodyer IM, Calder AJ: Brain structure abnormalities in early-onset and adolescent-onset conduct disorder. Am J Psychiatry 2011; 168:624 633; Gao, Y., Baker, L. A., Raine, Adrian, Wu, H., Bezdjian, S. (2009). Brief Report: Interaction between social class and risky decision-making Hauser Chapter 4. Wicked in waiting 142 in children with psychopathic tendencies. Journal of adolescence, 32(2), 409 414; Gao, Y., Raine, Adrian, Venables, P. H., Dawson, M. E., Mednick, S. A. (2010). Association of poor childhood fear conditioning and adult crime The American journal of psychiatry, 167(1), 56 60; Glenn, A. L., Raine, Adrian, Venables, P. H., Mednick, S. A. (2007). Early temperamental and psychophysiological precursors of adult psychopathic personality. Journal of Abnormal Psychology, 116(3), 508 518; Isen, J., Raine, A., Baker, L., Dawson, M., Bezdjian, S., Lozano, D. I. (2010). Sex-specific association between psychopathic traits and electrodermal reactivity in children. Journal of Abnormal Psychology, 119(1), 216 225; Raine, A, Venables, P., Dalais, C., Mellingen, K., Reynolds, C., Mednick, S. (2001). Early educational and health enrichment at age 3 5 years is associated with increased autonomic and central nervous system arousal and orienting at age 11 years: Evidence from the Mauritius Child Health Project. Psychophysiology, 38, 254 266. Sins, slots, and omissions: Abarbanell, L., Hauser, M.D. (2010). Mayan morality: An exploration of permissible harms. Cognition, 115(2), 207-224; Baron, J, Ritov, I. (2009). Protected values and omission effect as deontological judgments. Psychology of Learning and Motivation, 50, 133- 167; Baron, J., Ritov, I. (2004). Omission effect, individual differences, and normality. Organizational Behavior and Human Decision Processes, 94, 74-85; Cushman, F., Knobe, J., Sinnott-Armstrong, W. (2008). Moral appraisals affect doing allowing judgments. Cognition, 308, 281-289; Haidt, J., Baron, J. (1996). Social roles and the moral judgment of actions and omissions. European Journal of Social Psychology, 26, 201-218; DeScioli, P., Christner, J., Kurzban, R. (2011). The omission strategy. Psychological Science, 22(4), 442-446. Bystanders: Banyard, V. L. (2008). Measurement and correlates of prosocial bystander behavior: the case of interpersonal violence. Violence Vict, 23(1), 83-97; Darley, J M, Latan , B. (1968). Bystander intervention in emergencies: diffusion of responsibility. J Pers Soc Psychol, 8(4), 377- 383; Latan , B, Darley, J M. (1968). Group inhibition of bystander intervention in emergencies. J Pers Soc Psychol, 10(3), 215-221; Melde, C, Rennison, C.M. (2010). Intimidation and street gangs: Understanding the response of victims and bystanders to perceived gang violence. Justice Quarterly, 27(5), 619-666; Monroe, K.R. (2008). Cracking the code of genocide: The moral psychology of rescuers, bystanders, and nazis during the Holocaust. Political Psychology, 29(5), 699-735; Staub, E. (2003). The psychology of bystanders, perpetrators, and heroic helpers. In: The Psychology of Good and Evil: Why Children, adults and groups help and harm others, NY, Cambridge University Press, pp. 291-324. Hauser Chapter 4. Wicked in waiting 143 Epilogue: Evilightenment Educate your children to self-control, to the habit of holding passion and prejudice and evil tendencies subject to an upright and reasoning will, and you have done much to abolish misery from their future and crimes from society. Benjamin Franklin Charles Darwin observed that of all the differences between humans and other animals, one capacity reigns supreme: we alone have the ability to contemplate what others ought to do. We alone are endowed with a moral imperative to reflect, consider, and imagine alternatives. We alone are impelled to be dissatisfied with the status quo, urged to contemplate what could be and ultimately what must be. This capacity creates a fundamental principle of human existence and enlightenment: we alone invest in the survival of the least fit. We give money to those in abject poverty, risk our lives to help others in areas of conflict, adopt abandoned children, nurture individuals with extreme disabilities, and care for the elderly. This principle fuels our humanitarian efforts. Sadly, it is a necessary response to another unique difference between humans and other animals: we alone have the ability to inflict great harms on our own species and many others. We alone are responsible for creating work for those in the humanitarian sector. We alone are evil. We also have an opportunity to begin a new volume of humane history. We have the chance to harness our understanding of the past in order to present our children with the gift of knowledge and the prospects of a healthier future. We should no, we must teach our children what we have learned about the causes of corporate corruption, the desire for ethnic cleansing, and the combined forces of nature and nurture to create excessive suffering and lifeless flesh. These are topics that should be presented early on in education rather than waiting for heady discussions at the university. We owe the next generation the best education from our generation. The best education will come from confronting history, exposing human nature, and supporting cultural variation while fighting to demolish totalitarian regimes that limit or eliminate basic human rights. I write this sentence following on the eve of Egypt's inspiring revolution, a revolution led by educated people who refused to allow the dictator Hosni Mubarak to ruin their country and their children's future. The people of Egypt, like the people of many countries who rallied in the Arab spring of 2011, refused to be eternal victims. This is a lesson that must spread to every corner of the globe. It is a lesson of hope. It is a lesson to all evildoers to beware. I have taken you on a journey into evil s core, penetrating with scientific evidence and explanation. Though we have traveled to distant lands, traversed vast spans of time, and encountered wildly different cultures, the key idea is that this richness was generated from a few essential ingredients. This is a minimalist approach to a difficult and highly variegated problem. I end our journey by taking stock of the essential ideas and reflect on some of the broader implications. Retracing our steps In the beginning, before there were bald, bipedal, big-brained, babbling humans, there were hairy, quadrupedal, bitsy-brained, barking bonobos. These animals, clearly clever, have survived for over 6-7 million years, despite attempts by our species to demolish their habitat. But and this is a significant Hauser Epilogue. Evilightenment 144 but in the millions of years that encompass their evolutionary history, bonobos have remained virtually unchanged. They are still hairy, quadrupedal, bitsy-brained and barking. They still live in the jungles of Africa. Not a single bonobo, or its close relative the chimpanzee, has ever taken a step out of Africa the way that members of our species did some 60-100,000 years ago. In fact, not a single bonobo or chimpanzee has ever ventured across national borders within the continent to explore new opportunities or develop new cultures. Not a single bonobo or chimpanzee has even moved out of the forests and on to the beaches or deserts or alpine environments of Africa. Not one. When we took our steps out of Africa, we did so with confidence, ready to tackle new environments, create novel tools, engage in rituals to commemorate the dead, build fires to cook food and keep warm, join hands with unrelated strangers in the service of cooperation, and create oral histories that could be passed on to generations of children. What enabled this celebratory migration was a cerebral migration. Not only did our brain get much bigger than the one housed within bonobo and chimpanzee skulls, it evolved into an engine that generates an unlimited combination of thoughts and feelings. We uniquely evolved a promiscuous brain. What does promiscuity buy? In a word: creativity. It enables regions of the brain that evolved for highly specialized functions to intermingle with other regions of the brain to create new ways of thinking and new ways of experiencing what we see, hear, touch, taste and feel. A promiscuous brain paved the way for awe-inspiring bursts of creativity in art, music, literature and science. A promiscuous brain enabled Bach and Bono, Picasso and Pollock, Shakespeare and Shaw, and Descartes and Darwin. A promiscuous brain enables us to imagine things we have never directly experienced, to create once unimaginable worlds, including blissful heavens and living hells. My focus in this book has been the infernos we create for other human beings, here on this earth. What I have argued is that we got here by accident. When our brains allowed us to combine familiar thoughts and feelings to create virgin ideas, it enabled us to feel good about doing bad. It enabled us to incur the costs of punishing others while reaping the rewards of marching to the moral high ground. It enabled us to solve the problem of large scale cooperation with unrelated strangers. This was a fundamental breakthrough in mental life, a spectacular benefit, and the target of strong selection. But benefits often carry hidden costs. When punishment triggered a honey hit to the brain, violence and reward formed an eternal bond. We now carry the burden of a brain that engages in denial in order to satisfy our desires. When these concepts couple, the odds of conceiving excessive harms is virtually guaranteed. Sometimes this malicious offspring is intended and at other times it is foreseen. Either way, the world has been populated with evildoers in waiting. Either way, our world hosts a species that has the creative capacity to financially ruin, mutilate, rape, burn, torture, and extinguish millions of lives. Often, this potential is realized. My aim in this book has been to explain evil to better understand its origins, not to justify or promote it. My aim has been to explain evil to clarify its root cause, to alert others to its early warning signs, and to pave the way to a more humane existence. I have suggested that evil, expressed in the form of excessive harms, is caused by two ingredients: desire and denial. These are psychological states. On their own, they are often inert. When combined, they are often explosive. Desires. We all have them, from birth till death, from a desire for perpetual maternal warmth to a desire for eternal life. Some of our desires change over the course of our lives while others stay the same. We all desire good health and happiness. We differ, however, in what counts as good health and happiness. Many of us experience, at least once in our life, the desire to harm another. Our desire to harm ranges from the mundane uttering a sarcastic comment about someone s looks or telling a racist joke to the horrific creating corrupt corporate schemes or policies of ethnic cleansing. Sometimes what we desire is rather benign, but linked to foreseeable atrocities. Sometimes our desires are toxic, as when we plot to extinguish a culturally distinctive group. On one reading, President George W. Bush may well have initiated the wars in Afghanistan and Iraq as retaliatory attacks on terrorists, designed to protect American interests and well-being. But he brought much of our nation on board by weaving a web of lies and feeding a cowboy mentality of revenge rather than nurturing compassion and understanding. The consequences, clearly foreseen at the time, have been excessive. As a nation, we did not pursue an eyefor-an-eye revenge. We had a different algorithm in mind, on the order of 30,000 eyes for an eye. Hauser Epilogue. Evilightenment 145 Approximately 3,000 innocent victims died in the 9-11 attacks. As of early 2011, some where between 900,000 to over a million soldiers and civilians have died in Afghanistan and Iraq due to the war. This is excessive. This is no longer revenge. This is senseless brutality. On one reading, Pope Benedict XVI kept his knowledge of pedophilic priests quiet and confidential in order to forgive them and protect the church. But this seemingly benign desire led to a disaster, one that was foreseeable: continued sexual assault on thousands of innocent children and for many, a loss of trust in the church and their moral and spiritual leader. Discoveries by molecular biologists, neuroscientists, and psychologists reveal important individual differences in our capacity to fuel desire, differences that constrain the paths we take from birth until our last breath. Some individuals are more risk-prone, some are impatient, and some gain a greater hit of dopamine in anticipation of reward, thereby doping themselves on the brain s pharmaceutical offerings. Some are born with a set of genes that diminish the capacity for self-control. These individuals start with lower levels of serotonin. These individuals, if raised by abusive parents, have a higher probability of taking someone s head off if they are challenged. Some individuals are born with low stress levels. These individuals are more likely to be sensation-seekers, voracious desirers who will stop at nothing less than the spectacular, even if this means the spectacularly violent. None of these biological catalysts operate in a vacuum. All of these biological catalysts feed off of particular environments that we create. Geological and climatic factors create savannahs, oceans, and mountains. We create slums, refugee camps, and totalitarian regimes. We are responsible for creating toxic environments and equally responsible for cleaning them up. How we think about individual responsibility in cases of brain damage, developmental disorders or innate differences in the starting state of our neurochemistry is a different problem, one that I will touch upon in the last section. Denial. We all engage in it, at least some of the time. Like the psychology of desire, our engagement with denial is sometimes benign and often beneficial as a coping mechanism. We dehumanize in order to buffer ourselves from the pain of another s pain. We self-deceive in the service of boosting self-confidence and self-esteem. When doctors turn their patients into machines that require repair, they have deployed an adaptive mechanism that keeps empathy at bay when it is unnecessary. Good doctors, the ones that we all want, turn empathy back on when their patients awake from surgery, flesh and blood pulsating, thoughts and emotions humming. Bad doctors never turn empathy back on. Evil doctors, such as Carl Clauberg who injected liquid acid in the uterus of Jewish prisoners as part of a Nazi inspired sterilization program, not only lack empathy for their patients, but see them as vermin or parasites that require extermination in the name of science and the preservation of our species. Denial has transformed other human beings into nonhuman forms, from inert objects to wild animals and parasites. Denial has allowed military leaders and airplane pilots to ignore clear signs of trouble, marching thousands to their death. When this happens, moral responsibility checks out. Denial provides individuals and nations with a certified license to maim, rape, burn, mutilate and kill without feeling guilt, shame or remorse. As with desire, the sciences provide a rich offering of evidence to explain how and why we engage in denial, either by means of dehumanizing others or self-deceiving ourselves. Both dehumanization and self-deception have a clear evolutionary logic. Dehumanization is a mechanism that enhances an individual s competitive edge by making hatred and killing easier. Hatred and killing are the essential and ancient ingredients for defending the in-group and effacing the out-group. Sometimes, soldiers would rather avoid killing the enemy. But when dehumanization of the enemy takes hold in the mind of a soldier or civilian, killing is not only easy, but addictive. The brain s inhibitory mechanisms, processed by circuitry in the frontal lobes, shut down. Other brain regions involved in working out what people believe and intend, enter into hibernation. With these circuits on leave, so too is our moral conscience. When the mind runs its dehumanization software, abstinence from killing is like withdrawal from a drug. Killing is satisfying. Killing is delicious. Self-deception evolved in the service of deception. By functionally fooling ourselves into believing that we are stronger, wiser, and more competent, we can convince others to go along for the ride, to work for us or work against a fictional enemy. Like dehumanization, this has both adaptive and Hauser Epilogue. Evilightenment 146 maladaptive consequences. Brain imaging studies show that different circuits turn on when we lie about long held personal stories as opposed to lies about in-the-moment situations. When we distort reality, either omitting information or twisting it to create a false belief, we have to inhibit the way things are to create an illusion of the way we wish them to be. In each case, there is conflict between one version of reality and another. In each case, the electrical and chemical choreography of the brain recruits its braking mechanism, stifling one piece of knowledge in the service of lifting another to the surface of our lips. We perfect this capacity over the course of development. Some are born lacking this capacity. Others have a system that is out of control, unable to distinguish truths from falsehoods. Somewhere along this spectrum are healthy members of society who have the potential to justify themselves and a society of willing listeners about the importance of becoming willing executioners, a phrase coined by the historian Daniel Goldhagen to describe Germans involved in the Holocaust. Desire Denial. We all carry out this sum easily, often automatically and unconsciously. When we are pushed by a desire to eliminate others or to achieve some other goal, we call on denial to justify both extraordinary means and exceptional ends. We convince ourselves that we are morally in the right and that extermination or manipulation are our only options. We convince ourselves that the other is an object or animal, emotionally inert or unrecognizable. We shrink our moral circle, creating a culture of indifference. We convince ourselves through self-deception that the other is a threat. When we feel threatened, we raise our hackles in self-defense. When self-defense steps forward it recruits violence, justified by the belief that fighting back is not only right, but obligatory. Once violence starts, supported by a moral imperative, uncontrollable escalation follows, leaving a trail of dead bodies, raped women, and abducted children. Desire couples with denial. Once this liaisons forms, it evolves, grows and feeds on itself. We have arrived at excessive harms. We have arrived at evil. What can we do? How can we harness our understanding of evil to predict when it might occur again? Can we reduce future danger? Future dangerousness Why do we allow 16 year olds to drive in many parts of the United States, but prevent them from drinking alcohol until 21 and from renting a car until 25? Why must the President of the United States be at least 35 years old, but members of the House of Representatives can enter at 25? If 16 is the magic number for driving, why isn't it also the magic number for drinking, voting, becoming president, marrying without parental consent, joining the military, and being executed for a felony murder? Or why not make 21 the magic age for all age-restricted behaviors and positions? This would make sense in terms of our biology: it is precisely around the age of 21 that our frontal lobes have matured more completely, thereby providing us with a more functional engine for self-control. Or, why not question why we have a legal age at all? Why not have a brain scan for frontal lobe maturation along with a test for self-control that would allow some pre-16 year olds to drive, but might prevent some post-21 year olds from drinking? And if you are in favor of the death penalty I'm not than why not detach it from age altogether and look at the individual's moral competence and capacity for self-control? These are hard questions. How we answer them will have resounding implications for law and society. When a legal system decides that someone can drive, drink, vote, kill, run for president, marry, and die as a penalty for crime, it has constrained human behavior based on a statistical evaluation of psychological capacity. In each case, our assignment of age-appropriateness indicates that we believe the person is responsible for his or her actions and thus, his or her future actions. It also indicates that those under age are not responsible for their actions. We grant permission to drive at 16 years of age because we believe that most 16 years olds are capable of driving responsibly, now and in the future. We believe that a person who committed a heinous crime at the age of 18 is responsible for harming others and is likely to do so in the future. He or she is thus eligible for the death penalty, at least in some states within the United States. In contrast, we believe that someone at the age of 17 is still developing and has the potential to change. In this sense, we hold them less responsible for their actions. Hauser Epilogue. Evilightenment 147 Looking out at the tapestry of age-limited situations reveals a rather eclectic pastiche. In many of these cases, the cut-off age seems both arbitrary and inappropriate given the statistics. Consider the legal driving age. Is it the case that 16 year olds are responsible drivers? 16 years olds have higher crash rates than any other age group in the United States, are more likely to die in a car crash than the average of all other age groups, and car crashes are the leading cause of death among 16 year olds. North Dakotans believe that 14 year olds can drive a car. They may have fewer drivers on the road, but that doesn t mean that a 14 year old won t hit them or drive off the road after irresponsibly drinking. Why not keep all youths off the road until 21 when the statistics on fatal car crashes drop? Or why not follow the lead of car rental agencies and wait for the 25 th birthday? There are at least two common answers to the driving age problem, both utilitarian: in farming communities, and other environments where children work with their parents, it is essential to have children driving as soon as possible; and throughout the country, many parents look forward to the day when their children can drive, thereby alleviating the need for their private chauffeur service. There is no question that these are benefits. But if the cost is death to the child and others, the economics just don t work out. One option would be to lower the legal driving age for those communities or situations in which parents demonstrate the significance of young children driving for their financial security and well being. Those without this justification must wait until they are 21, frontal lobes matured and the novelty of intoxication lowered. The most interesting and relevant age-related issue is when someone is treated as an adult as opposed to a juvenile criminal. Within the United States, most states set the bar at 18 years, but some as young as 16. Where a state sets its bar determines whether or not the individual is eligible for the death penalty or a life sentence, as well as a host of social services. Many states with the bar currently set below 18, including my own state of Massachusetts, are presently debating whether the age limit should be raised. For some, the issue is simply one of parity: this is not an issue where states should differ, and thus everyone should be with the majority at 18 years. Others add to this discussion by arguing that it should be 18 because of brain maturation. Although it is absolutely the case that a more mature brain brings with it better self-control and less sensation-seeking or risk-taking, there is no evidence of a reliable difference between 16, 17 and 18 year olds. Some 16 year olds are remarkably patient and riskaverse whereas some 18 years olds are remarkably impulsive and risk-prone. If this is to be a meaningful discussion about future risks, plasticity, and the opportunity for rehabilitation, it will have to grapple with the scientific evidence that is presently on offer. When we use age to distinguish between legally permissible and forbidden actions, we have acknowledged that our biology and upbringing represent mitigating factors. We believe that juvenile crimes are forgivable and their actions correctable. In fact, their crimes are forgivable because their actions are correctable. Once we admit nature and nurture into the legal calculus concerning our youths, we must also allow such factors to guide our decisions about adults with developmental disorders, brain damage, and different genetic make-up. Yet, the law seems to have a double standard: youths lack free will, whereas adults have it, even if it is somewhat diminished. But if we believe that juveniles lack a sufficiently mature capacity for self-control, planning and thinking about alternative options, then we must recognize that fully mature adults can lose these capacities as they naturally age, and can lose them at any age if they suffer from brain damage. We must also wrestle with the fact that some people are born with a genetic constitution that makes them more vulnerable to addictions, sensation-seeking, violence, and a lack of compassion. Perhaps they too should be banned from driving, voting, drinking, marrying and military combat. When do we look at the excessive harms caused by individuals or groups and hold them responsible? When do we punish them to pay for their crimes and fend off future atrocities? The law often invokes the notion of future dangerousness as a means of evaluating risk. So too does the public and media. The general presumption is that for certain kinds of offences, there is a predictably high level of recidivism, of doing the same thing over and over again. But the implication of this judgment is that those who are deemed guilty are, in some way, not responsible for their future. Their future is determined for them. In fact, it is so determined that the law is willing to make a confident wager and send these criminals to prison or to their death. On this view, someone who has already Hauser Epilogue. Evilightenment 148 repeated a crime is more likely to repeat than someone who has only committed a crime once. On this view, those who engage in certain kinds of crimes, such as child molesters and rapists, are more likely to repeat because it is in their system. Unfortunately, both folk perception and legal analysis of future dangerousness are based on weak evidence, unfounded assumptions, or both. Consider sexual offenders. Their crime is intentional, frequently repeated, and aimed at innocent victims. Given that many sexual offenders repeat their offenses, it has the appearance of inevitability, of a process that is highly determined. Because many sexual offenders were abused as children, some experts conclude that we should blame their parents. Other experts believe that particular situations either promote or support sexual offenders, including the church and medical exam rooms. And yet other experts, including the psychiatrist Boris Schiffer, reveal brain differences among pedophiles, including especially the areas involved in reward and self-control. Together, these observations suggest that the combination of a deviant nature and toxic nurture have led to a more deterministic universe. In this universe, sexual offenses are inevitable or so highly probable that we should lock up offenders and post their crimes in every county s registry, and if possible, as replacements for flamingo lawn art. If this assessment of sexual offenders is right, how should we think about responsibility, blame, and punishment. If sexual offenders can t help themselves, how should we assign blame? How should we assign an appropriate level and form of punishment, if punishment is even appropriate? Studies of recidivism among sexual offenders generate rates as low as 15 and as high as 80 . These studies also reveal that recidivism rates differ for incest perpetrators, rapists, and child molesters. These numbers tell us that even child molesters don t always repeat their crimes. They also tell us that sexual offences should not be lumped, but split apart into their underlying causes and triggers. Like the high odds favoring a horse with a distinguished lineage and top rated jockey, there are high odds favoring repeated sexual molestation in an individual who was sexually abused as a child and enters the clergy. Does this mean that we should all bet on this one horse or forget the race altogether? Does this mean that we should lock up the priest before he has an opportunity to enter his parish? No and No. Neither horse racing nor sexual molestation are that easily determined. Future success and future dangerousness are probabilistic. They represent our best guesses. When the law determines that someone is at high risk of committing a future offense, it doesn t really care whether the individual is perfectly healthy or brain damaged. It cares about risk. In terms of blame and punishment, however, the law cares about the perpetrator s brain. The law cares about a person s capacity to act rationally and independently. It is this capacity that allows us to assign responsibility. It is this capacity that drives many theories of blame and punishment, including the Australian legal scholar Michael Moore s massive treatise Placing Blame. These are reasons why scientific understanding of future dangerousness is important for law and society. Armed with these ideas about future dangerousness, we can return to the list of potential evildoers that I mentioned in the prologue. This list included individuals who caused relatively minor harms such as Reverend Lawrence Murphy and Charles Manson, as well as those who committed much more major harms such as Idi Amin and Mao Zedong. Whether we consider these individuals and their acts as evil is orthogonal to the fact that each one posed a great risk to society. Each of these individuals would have been judged as high risk for causing future danger. Only some of these individuals should have been punished if punishment is guided by our understanding of responsibility and blame. Only those individuals who can take responsibility for their actions and change should be punished. On this view, all of the dictators were rightly blamed and punished. And so too were Jane Toppan, Bernard Madoff, and Charles Granger. In contrast, although Lawrence Murphy should have been locked up as opposed to exiled to a cottage, both Murphy and Charles Manson are more difficult to assess in terms of responsibility, and thus, the appropriateness of punishment. No one would want them walking the streets today, free to rape innocent children or create a cult of murderers. But for the law to evolve, we need better tools to evaluate the biological underpinnings of diminished capacity. These measures, still in the early stages of development, will help refine our understanding of risk, guide our clinical interventions, and contribute to the construction of a safer society. As we move forward, we must also recognize the rapidly changing landscape, and the future dangerousness of globalization, especially its capacity to breed evildoers. Like authority, conformity, Hauser Epilogue. Evilightenment 149 dehumanization, and self-deception which each have both beneficial and toxic personalities, so too does globalization. Globalization has integrated developing countries into the global economy and allowed them to profit from new resources and advances. But globalization has also fragmented these countries by giving them access to resources that corrupt, such as arms for guerrilla leaders and rogue armies. What has changed in the twenty-first century, perhaps as early as the 1990s, is a new form of war, one that is tied to the signature of evil and its expression as excessive harm. No longer are wars confined to state borders, restricted to states and their legitimized militaries, financed by governments and tax revenues, and focused on combatants. Instead, the new wars of the twenty-first century have entirely porous boundaries, are funded by private organizations, run by grass-root groups, and motivated by the use of horrific means to achieve equally horrific ends, including torture, rape, mutilation, and the use and abuse of civilians, women, children and men alike. As a result, international law is effectively, ineffective. Those running these new wars are outside of international law. The consequence of the new wars extends beyond the travesties experienced by those living in these hot spots to the humanitarian aid workers and journalists who attempt to help the victims. Humanitarian aid is often pirated by rogue militias, and journalists are frequently killed or badly injured. We must therefore face the sad reality that as we ended the twentieth-century and initiated the twentyfirst, casualties to non-combatant civilians shifted from few to many. We must face the reality that combating evil will require new laws and new protections for those who risk their lives to aid victims and give voice to their often silent suffering. Evil ever after? We won't eradicate evil. Why? Because the capacity for evil is rooted in human nature, born of a promiscuous mind that enables ideas and feelings to flip between beneficial and toxic. Though we institute programs and practices that promote the beneficial, living within every human mind is a toxic neighbor, waiting to move in. Adhering to authorities is beneficial in that great leaders are energizing, empowering, creative, and a source of guidance into a brighter future. But even great leaders can turn toxic, imposing corrosive ideologies and eliminating basic human rights. Conformity is beneficial in that we want to live in a society where norms are followed, providing stability and cooperation. But conformity is toxic when it leads to blind faith and uncritical thinking. Dehumanization is beneficial in allowing us to carry out medical procedures and live with certain kinds of human suffering. But dehumanization is toxic when it facilitates ethnic cleansing by shrinking the moral circle, turning atrocities into virtuous offerings. Tolerance and pluralism are beneficial in that they lead to respect and concern for others attitudes and desires. But tolerance and pluralism are toxic when they breed apathy and a willingness to stand by as passive bystanders. My diagnosis of evil is not meant to be defeatist, but realist. It is only through an acknowledgment of our biology and the environments it has created and can create that we can look for solutions to ameliorate the human condition. We are all vulnerable to walking on the wrong side. We are fallible. We are also enormously creative, capable of great change. Like no other species, we relentlessly seek novelty. No one wants to be like his or her predecessor. Whether it is a new culinary tradition, extreme sport, technological innovation, musical genre, or weapon of destruction, our search for novelty is an indestructible component of human nature. Our journey into the nature of evil has come to an end. Bombarded by the sheer magnitude of lives lost or damaged beyond repair, it is natural to deaden our senses and choke our feelings in the hope of finding solitude and peace. As painful as a re-awakening is, we must remember the individuals that make up these massive atrocities. Reflecting upon the loss of his son who was murdered by the Lord's Resistance Army, an 80 year old Ugandan chief summed it up "We have been forgotten. It s as if we don t exist." We must never forget. We must never deny our potential to cause horrific pain and suffering while finding ways to forgive and express deep compassion. We must never give up on humanity. Hauser Epilogue. Evilightenment 150 Endnotes: Epilogue Recommended Books: Glover, J. (2000). Humanity. Yale University Press. Grossman, D. (1996). On Killing. New York: Back Bay Books. Moore, M.S. (2010). Placing Blame. Oxford University Press. Quotes: Human Rights Watch Report, 2010, The Trail of Death Hauser Epilogue. Evilightenment 151 |
Ben Goertzel with Cassio Pennachin Nil Geisweiller the OpenCog Team Engineering General Intelligence, Part 1: A Path to Advanced AGI via Embodied Learning and Cognitive Synergy September 19, 2013 This book is dedicated by Ben Goertzel to his beloved, departed grandfather, Leo Zwell an amazingly warm-hearted, giving human being who was also a deep thinker and excellent scientist, who got Ben started on the path of science. As a careful experimentalist, Leo would have been properly skeptical of the big hypotheses made here but he would have been eager to see them put to the test! Preface This is a large, two-part book with an even larger goal: To outline a practical approach to engineering software systems with general intelligence at the human level and ultimately beyond. Machines with flexible problem-solving ability, open-ended learning capability, creativity and eventually, their own kind of genius. Part 1, this volume, reviews various critical conceptual issues related to the nature of intelligence and mind. It then sketches the broad outlines of a novel, integrative architecture for Artificial General Intelligence (AGI) called CogPrime ... and describes an approach for giving a young AGI system (CogPrime or otherwise) appropriate experience, so that it can develop its own smarts, creativity and wisdom through its own experience. Along the way a formal theory of general intelligence is sketched, and a broad roadmap leading from here to human-level artificial intelligence. Hints are also given regarding how to eventually, potentially create machines advancing beyond human level including some frankly futuristic speculations about strongly self-modifying AGI architectures with flexibility far exceeding that of the human brain. Part 2 then digs far deeper into the details of CogPrime s multiple structures, processes and functions, culminating in a general argument as to why we believe CogPrime will be able to achieve general intelligence at the level of the smartest humans (and potentially greater), and a detailed discussion of how a CogPrime-powered virtual agent or robot would handle some simple practical tasks such as social play with blocks in a preschool context. It first describes the CogPrime software architecture and knowledge representation in detail; then reviews the cognitive cycle via which CogPrime perceives and acts in the world and reflects on itself; and next turns to various forms of learning: procedural, declarative (e.g. inference), simulative and integrative. Methods of enabling natural language functionality in CogPrime are then discussed; and then the volume concludes with a chapter summarizing the argument that CogPrime can lead to human-level (and eventually perhaps greater) AGI, and a chapter giving a thought experiment describing the internal dynamics via which a completed CogPrime system might solve the problem of obeying the request Build me something with blocks that I haven t seen before. The chapters here are written to be read in linear order and if consumed thus, they tell a coherent story about how to get from here to advanced AGI. However, the impatient reader may be forgiven for proceeding a bit nonlinearly. An alternate reading path for the impatient reader would be to start with the first few chapters of Part 1, then skim the final two chapters of Part 2, and then return to reading in linear order. The final two chapters of Part 2 give a broad overview of why we think the CogPrime design will work, in a way that depends on the technical vii viii details of the previous chapters, but (we believe) not so sensitively as to be incomprehensible without them. This is admittedly an unusual sort of book, mixing demonstrated conclusions with unproved conjectures in a complex way, all oriented toward an extraordinarily ambitious goal. Further, the chapters are somewhat variant in their levels of detail some very nitty-gritty, some more high level, with much of the variation due to how much concrete work has been done on the topic of the chapter at time of writing. However, it is important to understand that the ideas presented here are not mere armchair speculation they are currently being used as the basis for an open-source software project called OpenCog, which is being worked on by software developers around the world. Right now OpenCog embodies only a percentage of the overall CogPrime design as described here. But if OpenCog continues to attract sufficient funding or volunteer interest, then the ideas presented in these volumes will be validated or refuted via practice. (As a related note: here and there in this book, we will refer to the "current" CogPrime implementation (in the OpenCog framework); in all cases this refers to OpenCog as of late 2013.) To state one believes one knows a workable path to creating a human-level (and potentially greater) general intelligence is to make a dramatic statement, given the conventional way of thinking about the topic in the contemporary scientific community. However, we feel that once a little more time has passed, the topic will lose its drama (if not its interest and importance), and it will be widely accepted that there are many ways to create intelligent machines some simpler and some more complicated; some more brain-like or human-like and some less so; some more efficient and some more wasteful of resources; etc. We have little doubt that, from the perspective of AGI science 50 or 100 years hence (and probably even 10-20 years hence), the specific designs presented here will seem awkward, messy, inefficient and circuitous in various respects. But that is how science and engineering progress. Given the current state of knowledge and understanding, having any concrete, comprehensive design and plan for creating AGI is a significant step forward; and it is in this spirit that we present here our thinking about the CogPrime architecture and the nature of general intelligence. In the words of Sir Edmund Hillary, the first to scale Everest: Nothing Venture, Nothing Win. Prehistory of the Book The writing of this book began in earnest in 2001, at which point it was informally referred to as The Novamente Book. The original Novamente Book manuscript ultimately got too big for its own britches, and subdivided into a number of different works The Hidden Pattern Goe06a , a philosophy of mind book published in 2006; Probabilistic Logic Networks GIGH08 , a more technical work published in 2008; Real World Reasoning GGC 11 , a sequel to Probabilistic Logic Networks published in 2011; and the two parts of this book. The ideas described in this book have been the collaborative creation of multiple overlapping communities of people over a long period of time. The vast bulk of the writing here was done by Ben Goertzel; but Cassio Pennachin and Nil Geisweiller made sufficient writing, thinking and editing contributions over the years to more than merit their inclusion of co-authors. Further, many of the chapters here have co-authors beyond the three main co-authors of the book; and the set of chapter co-authors does not exhaust the set of significant contributors to the ideas presented. The core concepts of the CogPrime design and the underlying theory were conceived by Ben Goertzel in the period 1995-1996 when he was a Research Fellow at the University of Western Australia; but those early ideas have been elaborated and improved by many more people than can be listed here (as well as by Ben s ongoing thinking and research). The collaborative design process ultimately resulting in CogPrime started in 1997 when Intelligenesis Corp. was formed the Webmind AI Engine created in Intelligenesis s research group during 1997-2001 was the predecessor to the Novamente Cognition Engine created at Novamente LLC during 2001-2008, which was the predecessor to CogPrime. ix Acknowledgements For sake of simplicity, this acknowledgements section is presented from the perspective of the primary author, Ben Goertzel. Ben will thus begin by expressing his thanks to his primary co-authors, Cassio Pennachin (collaborator since 1998) and Nil Geisweiller (collaborator since 2005). Without outstandingly insightful, deep-thinking colleagues like you, the ideas presented here let alone the book itself would not have developed nearly as effectively as what has happened. Similar thanks also go to the other OpenCog collaborators who have co-authored various chapters of the book. Beyond the co-authors, huge gratitude must also be extended to everyone who has been involved with the OpenCog project, and or was involved in Novamente LLC and Webmind Inc. before that. We are grateful to all of you for your collaboration and intellectual companionship! Building a thinking machine is a huge project, too big for any one human; it will take a team and I m happy to be part of a great one. It is through the genius of human collectives, going beyond any individual human mind, that genius machines are going to be created. A tiny, incomplete sample from the long list of those others deserving thanks is: Ken Silverman and Gwendalin Qi Aranya (formerly Gwen Goertzel), both of whom listened to me talk at inordinate length about many of the ideas presented here a long, long time before anyone else was interested in listening. Ken and I schemed some AGI designs at Simon s Rock College in 1983, years before we worked together on the Webmind AI Engine. Allan Combs, who got me thinking about consciousness in various different ways, at a very early point in my career. I m very pleased to still count Allan as a friend and sometime collaborator! Fred Abraham as well, for introducing me to the intersection of chaos theory and cognition, with a wonderful flair. George Christos, a deep AI math physics thinker from Perth, for re-awakening my interest in attractor neural nets and their cognitive implications, in the mid-1990s. All of the 130 staff of Webmind Inc. during 1998-2001 while that remarkable, ambitious, peculiar AGI-oriented firm existed. Special shout-outs to the "Voice of Reason" Pei Wang and the "Siberian Madmind" Anton Kolonin, Mike Ross, Cate Hartley, Karin Verspoor and the tragically prematurely deceased Jeff Pressing (compared to whom we are all mental midgets), who all made serious conceptual contributions to my thinking about AGI. Lisa Pazer and Andy Siciliano who made Webmind happen on the business side. And of course Cassio Pennachin, a co-author of this book; and Ken Silverman, who co-architected the whole Webmind system and vision with me from the start. x The Webmind Diehards, who helped begin the Novamente project that succeeded Webmind beginning in 2001: Cassio Pennachin, Stephan Vladimir Bugaj, Takuo Henmi, Matthew Ikle , Thiago Maia, Andre Senna, Guilherme Lamacie and Saulo Pinto Those who helped get the Novamente project off the ground and keep it progressing over the years, including some of the Webmind Diehards and also Moshe Looks, Bruce Klein, Izabela Lyon Freire, Chris Poulin, Murilo Queiroz, Predrag Janicic, David Hart, Ari Heljakka, Hugo Pinto, Deborah Duong, Paul Prueitt, Glenn Tarbox, Nil Geisweiller and Cassio Pennachin (the co-authors of this book), Sibley Verbeck, Jeff Reed, Pejman Makhfi, Welter Silva, Lukasz Kaiser and more All those who have helped with the OpenCog system, including Linas Vepstas, Joel Pitt, Jared Wigmore Jade O Neill, Zhenhua Cai, Deheng Huang, Shujing Ke, Lake Watkins, Alex van der Peet, Samir Araujo, Fabricio Silva, Yang Ye, Shuo Chen, Michel Drenthe, Ted Sanders, Gustavo Gama and of course Nil and Cassio again. Tyler Emerson and Eliezer Yudkowsky, for choosing to have the Singularity Institute for AI (now MIRI) provide seed funding for OpenCog. The numerous members of the AGI community who have tossed around AGI ideas with me since the first AGI conference in 2006, including but definitely not limited to: Stan Franklin, Juergen Schmidhuber, Marcus Hutter, Kai-Uwe Kuehnberger, Stephen Reed, Blerim Enruli, Kristinn Thorisson, Joscha Bach, Abram Demski, Itamar Arel, Mark Waser, Randal Koene, Paul Rosenbloom, Zhongzhi Shi, Steve Omohundro, Bill Hibbard, Eray Ozkural, Brandon Rohrer, Ben Johnston, John Laird, Shane Legg, Selmer Bringsjord, Anders Sandberg, Alexei Samsonovich, Wlodek Duch, and more The inimitable "Artilect Warrior" Hugo de Garis, who (when he was working at Xiamen University) got me started working on AGI in the Orient (and introduced me to my wife Ruiting in the process). And Changle Zhou, who brought Hugo to Xiamen and generously shared his brilliant research students with Hugo and me. And Min Jiang, collaborator of Hugo and Changle, a deep AGI thinker who is helping with OpenCog theory and practice at time of writing. Gino Yu, who got me started working on AGI here in Hong Kong, where I am living at time of writing. As of 2013 the bulk of OpenCog work is occurring in Hong Kong via a research grant that Gino and I obtained together Dan Stoicescu, whose funding helped Novamente through some tough times. Jeffrey Epstein, whose visionary funding of my AGI research has helped me through a number of tight spots over the years. At time of writing, Jeffrey is helping support the OpenCog Hong Kong project. Zeger Karssen, founder of Atlantis Press, who conceived the Thinking Machines book series in which this book appears, and who has been a strong supporter of the AGI conference series from the beginning My wonderful wife Ruiting Lian, a source of fantastic amounts of positive energy for me since we became involved four years ago. Ruiting has listened to me discuss the ideas contained here time and time again, often with judicious and insightful feedback (as she is an excellent AI researcher in her own right); and has been wonderfully tolerant of me diverting numerous evenings and weekends to getting this book finished (as well as to other AGI-related pursuits). And my parents Ted and Carol and kids Zar, Zeb and Zade, who have also indulged me in discussions on many of the themes discussed here on countless occasions! And my dear, departed grandfather Leo Zwell, for getting me started in science. Crunchkin and Pumpkin, for regularly getting me away from the desk to stroll around the village where we live; many of my best ideas about AGI and other topics have emerged while walking with my furry four-legged family members xi September 2013 Ben Goertzel Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 AI Returns to Its Roots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 AGI versus Narrow AI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.4 The Secret Sauce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.5 Extraordinary Proof? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.6 Potential Approaches to AGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.6.1 Build AGI from Narrow AI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.6.2 Enhancing Chatbots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.6.3 Emulating the Brain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.6.4 Evolve an AGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.6.5 Derive an AGI design mathematically . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.6.6 Use heuristic computer science methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.6.7 Integrative Cognitive Architecture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.6.8 Can Digital Computers Really Be Intelligent? . . . . . . . . . . . . . . . . . . . . . . . . 8 1.7 Five Key Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.7.1 Memory and Cognition in CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.8 Virtually and Robotically Embodied AI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.9 Language Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.10 AGI Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.11 Structure of the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.12 Key Claims of the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section I Artificial and Natural General Intelligence 2 What Is Human-Like General Intelligence? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.1.1 What Is General Intelligence? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.1.2 What Is Human-like General Intelligence? . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.2 Commonly Recognized Aspects of Human-like Intelligence . . . . . . . . . . . . . . . . . . . 20 2.3 Further Characterizations of Humanlike Intelligence . . . . . . . . . . . . . . . . . . . . . . . . 24 2.3.1 Competencies Characterizing Human-like Intelligence . . . . . . . . . . . . . . . . . 24 2.3.2 Gardner s Theory of Multiple Intelligences . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 xiii xiv Contents 2.3.3 Newell s Criteria for a Human Cognitive Architecture . . . . . . . . . . . . . . . . . 26 2.3.4 intelligence and Creativity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.4 Preschool as a View into Human-like General Intelligence . . . . . . . . . . . . . . . . . . . . 27 2.4.1 Design for an AGI Preschool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.5 Integrative and Synergetic Approaches to Artificial General Intelligence . . . . . . . 29 2.5.1 Achieving Humanlike Intelligence via Cognitive Synergy . . . . . . . . . . . . . . . 30 3 A Patternist Philosophy of Mind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.2 Some Patternist Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.3 Cognitive Synergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 3.4 The General Structure of Cognitive Dynamics: Analysis and Synthesis . . . . . . . . 42 3.4.1 Component-Systems and Self-Generating Systems . . . . . . . . . . . . . . . . . . . . 42 3.4.2 Analysis and Synthesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3.4.3 The Dynamic of Iterative Analysis and Synthesis . . . . . . . . . . . . . . . . . . . . 46 3.4.4 Self and Focused Attention as Approximate Attractors of the Dynamic of Iterated Forward-Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 3.5 Perspectives on Machine Consciousness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 3.6 Postscript: Formalizing Pattern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 4 Brief Survey of Cognitive Architectures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 4.2 Symbolic Cognitive Architectures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 4.2.1 SOAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 4.2.2 ACT-R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 4.2.3 Cyc and Texai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 4.2.4 NARS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 4.2.5 GLAIR and SNePS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 4.3 Emergentist Cognitive Architectures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 4.3.1 DeSTIN: A Deep Reinforcement Learning Approach to AGI . . . . . . . . . . . 66 4.3.2 Developmental Robotics Architectures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 4.4 Hybrid Cognitive Architectures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 4.4.1 Neural versus Symbolic; Global versus Local . . . . . . . . . . . . . . . . . . . . . . . . . 75 4.5 Globalist versus Localist Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 4.5.1 CLARION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 4.5.2 The Society of Mind and the Emotion Machine . . . . . . . . . . . . . . . . . . . . . . 80 4.5.3 DUAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 4.5.4 4D RCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 4.5.5 PolyScheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 4.5.6 Joshua Blue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 4.5.7 LIDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 4.5.8 The Global Workspace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 4.5.9 The LIDA Cognitive Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 4.5.10 Psi and MicroPsi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 4.5.11 The Emergence of Emotion in the Psi Model . . . . . . . . . . . . . . . . . . . . . . . . . 91 4.5.12 Knowledge Representation, Action Selection and Planning in Psi . . . . . . . 93 Contents xv 4.5.13 Psi versus CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 5 A Generic Architecture of Human-Like Cognition . . . . . . . . . . . . . . . . . . . . . . . . 95 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 5.2 Key Ingredients of the Integrative Human-Like Cognitive Architecture Diagram 96 5.3 An Architecture Diagram for Human-Like General Intelligence . . . . . . . . . . . . . . . 97 5.4 Interpretation and Application of the Integrative Diagram . . . . . . . . . . . . . . . . . . . 104 6 A Brief Overview of CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 6.2 High-Level Architecture of CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 6.3 Current and Prior Applications of OpenCog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 6.3.1 Transitioning from Virtual Agents to a Physical Robot . . . . . . . . . . . . . . . . 110 6.4 Memory Types and Associated Cognitive Processes in CogPrime . . . . . . . . . . . . . 110 6.4.1 Cognitive Synergy in PLN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 6.5 Goal-Oriented Dynamics in CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 6.6 Analysis and Synthesis Processes in CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 6.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Section II Toward a General Theory of General Intelligence 7 A Formal Model of Intelligent Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 7.2 A Simple Formal Agents Model (SRAM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 7.2.1 Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 7.2.2 Memory Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 7.2.3 The Cognitive Schematic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 7.3 Toward a Formal Characterization of Real-World General Intelligence . . . . . . . . . 135 7.3.1 Biased Universal Intelligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 7.3.2 Connecting Legg and Hutter s Model of Intelligent Agents to the Real World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 7.3.3 Pragmatic General Intelligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 7.3.4 Incorporating Computational Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 7.3.5 Assessing the Intelligence of Real-World Agents . . . . . . . . . . . . . . . . . . . . . . 139 7.4 Intellectual Breadth: Quantifying the Generality of an Agent s Intelligence . . . . . 141 7.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 8 Cognitive Synergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.1 Cognitive Synergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.2 Cognitive Synergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 8.3 Cognitive Synergy in CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 8.3.1 Cognitive Processes in CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 8.4 Some Critical Synergies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 8.5 The Cognitive Schematic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 8.6 Cognitive Synergy for Procedural and Declarative Learning . . . . . . . . . . . . . . . . . . 153 8.6.1 Cognitive Synergy in MOSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 8.6.2 Cognitive Synergy in PLN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 8.7 Is Cognitive Synergy Tricky? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 xvi Contents 8.7.1 The Puzzle: Why Is It So Hard to Measure Partial Progress Toward Human-Level AGI? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 8.7.2 A Possible Answer: Cognitive Synergy is Tricky! . . . . . . . . . . . . . . . . . . . . . . 158 8.7.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 9 General Intelligence in the Everyday Human World . . . . . . . . . . . . . . . . . . . . . . 161 9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 9.2 Some Broad Properties of the Everyday World That Help Structure Intelligence 162 9.3 Embodied Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 9.3.1 Generalizing the Embodied Communication Prior . . . . . . . . . . . . . . . . . . . . 166 9.4 Naive Physics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 9.4.1 Objects, Natural Units and Natural Kinds . . . . . . . . . . . . . . . . . . . . . . . . . . 167 9.4.2 Events, Processes and Causality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 9.4.3 Stuffs, States of Matter, Qualities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 9.4.4 Surfaces, Limits, Boundaries, Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 9.4.5 What Kind of Physics Is Needed to Foster Human-like Intelligence? . . . . . 169 9.5 Folk Psychology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 9.5.1 Motivation, Requiredness, Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 9.6 Body and Mind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 9.6.1 The Human Sensorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 9.6.2 The Human Body s Multiple Intelligences . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 9.7 The Extended Mind and Body . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 9.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 10 A Mind-World Correspondence Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 10.2 What Might a General Theory of General Intelligence Look Like? . . . . . . . . . . . . 178 10.3 Steps Toward A (Formal) General Theory of General Intelligence . . . . . . . . . . . . . 179 10.4 The Mind-World Correspondence Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 10.5 How Might the Mind-World Correspondence Principle Be Useful? . . . . . . . . . . . . 181 10.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Section III Cognitive and Ethical Development 11 Stages of Cognitive Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 11.2 Piagetan Stages in the Context of a General Systems Theory of Development . . 188 11.3 Piaget s Theory of Cognitive Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 11.3.1 Perry s Stages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 11.3.2 Keeping Continuity in Mind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 11.4 Piaget s Stages in the Context of Uncertain Inference . . . . . . . . . . . . . . . . . . . . . . . 193 11.4.1 The Infantile Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 11.4.2 The Concrete Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 11.4.3 The Formal Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 11.4.4 The Reflexive Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 Contents xvii 12 The Engineering and Development of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 12.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 12.2 Review of Current Thinking on the Risks of AGI . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 12.3 The Value of an Explicit Goal System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 12.4 Ethical Synergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 12.4.1 Stages of Development of Declarative Ethics . . . . . . . . . . . . . . . . . . . . . . . . . 211 12.4.2 Stages of Development of Empathic Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . 214 12.4.3 An Integrative Approach to Ethical Development . . . . . . . . . . . . . . . . . . . . . 215 12.4.4 Integrative Ethics and Integrative AGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 12.5 Clarifying the Ethics of Justice: Extending the Golden Rule in to a Multifactorial Ethical Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 12.5.1 The Golden Rule and the Stages of Ethical Development . . . . . . . . . . . . . 222 12.5.2 The Need for Context-Sensitivity and Adaptiveness in Deploying Ethical Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 12.6 The Ethical Treatment of AGIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 12.6.1 Possible Consequences of Depriving AGIs of Freedom . . . . . . . . . . . . . . . . . 228 12.6.2 AGI Ethics as Boundaries Between Humans and AGIs Become Blurred . 229 12.7 Possible Benefits of Closely Linking AGIs to the Global Brain . . . . . . . . . . . . . . . . 230 12.7.1 The Importance of Fostering Deep, Consensus-Building Interactions Between People with Divergent Views . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 12.8 Possible Benefits of Creating Societies of AGIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 12.9 AGI Ethics As Related to Various Future Scenarios . . . . . . . . . . . . . . . . . . . . . . . . 234 12.9.1 Capped Intelligence Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 12.9.2 Superintelligent AI: Soft-Takeoff Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 12.9.3 Superintelligent AI: Hard-Takeoff Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . 235 12.9.4 Global Brain Mindplex Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 12.10Conclusion: Eight Ways to Bias AGI Toward Friendliness . . . . . . . . . . . . . . . . . . . . 239 12.10.1Encourage Measured Co-Advancement of AGI Software and AGI Ethics Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 12.10.2Develop Advanced AGI Sooner Not Later . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 Section IV Networks for Explicit and Implicit Knowledge Representation 13 Local, Global and Glocal Knowledge Representation . . . . . . . . . . . . . . . . . . . . . . 245 13.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 13.2 Localized Knowledge Representation using Weighted, Labeled Hypergraphs . . . . 246 13.2.1 Weighted, Labeled Hypergraphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 13.3 Atoms: Their Types and Weights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 13.3.1 Some Basic Atom Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 13.3.2 Variable Atoms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 13.3.3 Logical Links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 13.3.4 Temporal Links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 13.3.5 Associative Links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 13.3.6 Procedure Nodes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 13.3.7 Links for Special External Data Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 13.3.8 Truth Values and Attention Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 13.4 Knowledge Representation via Attractor Neural Networks . . . . . . . . . . . . . . . . . . . 256 xviii Contents 13.4.1 The Hopfield neural net model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 13.4.2 Knowledge Representation via Cell Assemblies . . . . . . . . . . . . . . . . . . . . . . 257 13.5 Neural Foundations of Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 13.5.1 Hebbian Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 13.5.2 Virtual Synapses and Hebbian Learning Between Assemblies . . . . . . . . . . 258 13.5.3 Neural Darwinism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259 13.6 Glocal Memory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 13.6.1 A Semi-Formal Model of Glocal Memory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 13.6.2 Glocal Memory in the Brain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 13.6.3 Glocal Hopfield Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 13.6.4 Neural-Symbolic Glocality in CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 14 Representing Implicit Knowledge via Hypergraphs . . . . . . . . . . . . . . . . . . . . . . . 271 14.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 14.2 Key Vertex and Edge Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 14.3 Derived Hypergraphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 14.3.1 SMEPH Vertices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 14.3.2 SMEPH Edges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 14.4 Implications of Patternist Philosophy for Derived Hypergraphs of Intelligent Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 14.4.1 SMEPH Principles in CogPrime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 15 Emergent Networks of Intelligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 15.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 15.2 Small World Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 15.3 Dual Network Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281 15.3.1 Hierarchical Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281 15.3.2 Associative, Heterarchical Networks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 15.3.3 Dual Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 Section V A Path to Human-Level AGI 16 AGI Preschool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 16.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 16.1.1 Contrast to Standard AI Evaluation Methodologies . . . . . . . . . . . . . . . . . . . 290 16.2 Elements of Preschool Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 16.3 Elements of Preschool Curriculum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 16.3.1 Preschool in the Light of Intelligence Theory . . . . . . . . . . . . . . . . . . . . . . . . 293 16.4 Task-Based Assessment in AGI Preschool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 16.5 Beyond Preschool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 16.6 Issues with Virtual Preschool Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 16.6.1 Integrating Virtual Worlds with Robot Simulators . . . . . . . . . . . . . . . . . . . . 301 16.6.2 BlocksNBeads World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 17 A Preschool-Based Roadmap to Advanced AGI . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 17.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 17.2 Measuring Incremental Progress Toward Human-Level AGI . . . . . . . . . . . . . . . . . . 308 17.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 Contents xix 18 Advanced Self-Modification: A Possible Path to Superhuman AGI . . . . . . . . 317 18.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 18.2 Cognitive Schema Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 18.3 Self-Modification via Supercompilation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 18.3.1 Three Aspects of Supercompilation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 18.3.2 Supercompilation for Goal-Directed Program Modification . . . . . . . . . . . . . 322 18.4 Self-Modification via Theorem-Proving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 A Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 A.1 List of Specialized Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 A.2 Glossary of Specialized Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 Chapter 1 Introduction 1.1 AI Returns to Its Roots Our goal in this book is straightforward, albeit ambitious: to present a conceptual and technical design for a thinking machine, a software program capable of the same qualitative sort of general intelligence as human beings. It s not certain exactly how far the design outlined here will be able to take us, but it seems plausible that once fully implemented, tuned and tested, it will be able to achieve general intelligence at the human level and in some respects beyond. Our ultimate aim is Artificial General Intelligence construed in the broadest sense, including artificial creativity and artificial genius. We feel it is important to emphasize the extremely broad potential of Artificial General Intelligence systems. The human brain is not built to be modified, except via the slow process of evolution. Engineered AGI systems, built according to designs like the one outlined here, will be much more susceptible to rapid improvement from their initial state. It seems reasonable to us to expect that, relatively shortly after achieving the first roughly human-level AGI system, AGI systems with various sorts of beyond-human-level capabilities will be achieved. Though these long-term goals are core to our motivations, we will spend much of our time here explaining how we think we can make AGI systems do relatively simple things, like the things human children do in preschool. The penultimate chapter of (Part 2 of) the book describes a thought-experiment involving a robot playing with blocks, responding to the request "Build me something I haven t seen before." We believe that preschool creativity contains the seeds of, and the core structures and dynamics underlying, adult human level genius ... and new, as yet unforeseen forms of artificial innovation. Much of the book focuses on a specific AGI architecture, which we call CogPrime, and which is currently in the midst of implementation using the OpenCog software framework. CogPrime is large and complex and embodies a host of specific decisions regarding the various aspects of intelligence. We don t view CogPrime as the unique path to advanced AGI, nor as the ultimate end-all of AGI research. We feel confident there are multiple possible paths to advanced AGI, and that in following any of these paths, multiple theoretical and practical lessons will be learned, leading to modifications of the ideas possessed while along the early stages of the path. But our goal here is to articulate one path that we believe makes sense to follow, one overall design that we believe can work. 1 2 1 Introduction 1.2 AGI versus Narrow AI An outsider to the AI field might think this sort of book commonplace in the research literature, but insiders know that s far from the truth. The field of Artificial Intelligence (AI) was founded in the mid 1950s with the aim of constructing thinking machines - that is, computer systems with human-like general intelligence, including humanoid robots that not only look but act and think with intelligence equal to and ultimately greater than human beings. But in the intervening years, the field has drifted far from its ambitious roots, and this book represents part of a movement aimed at restoring the initial goals of the AI field, but in a manner powered by new tools and new ideas far beyond those available half a century ago. After the first generation of AI researchers found the task of creating human-level AGI very difficult given the technology of their time, the AI field shifted focus toward what Ray Kurzweil has called "narrow AI" the understanding of particular specialized aspects of intelligence; and the creation of AI systems displaying intelligence regarding specific tasks in relatively narrow domains. In recent years, however, the situation has been changing. More and more researchers have recognized the necessity and feasibility of returning to the original goals of the field. In the decades since the 1950s, cognitive science and neuroscience have taught us a lot about what a cognitive architecture needs to look like to support roughly human-like general intelligence. Computer hardware has advanced to the point where we can build distributed systems containing large amounts of RAM and large numbers of processors, carrying out complex tasks in real time. The AI field has spawned a host of ingenious algorithms and data structures, which have been successfully deployed for a huge variety of purposes. Due to all this progress, increasingly, there has been a call for a transition from the current focus on highly specialized narrow AI problem solving systems, back to confronting the more difficult issues of human level intelligence and more broadly artificial general intelligence (AGI). Recent years have seen a growing number of special sessions, workshops and conferences devoted specifically to AGI, including the annual BICA (Biologically Inspired Cognitive Architectures) AAAI Symposium, and the international AGI conference series (one in 2006, and annual since 2008). And, even more exciting, as reviewed in Chapter 4, there are a number of contemporary projects focused directly and explicitly on AGI (sometimes under the name "AGI", sometimes using related terms such as "Human Level Intelligence"). In spite of all this progress, however, we feel that no one has yet clearly articulated a detailed, systematic design for an AGI, with potential to yield general intelligence at the human level and ultimately beyond. In this spirit, our main goal in this lengthy two-part book is to outline a novel design for a thinking machine an AGI design which we believe has the capability to produce software systems with intelligence at the human adult level and ultimately beyond. Many of the technical details of this design have been previously presented online in a wikibook Goe10b ; and the basic ideas of the design have been presented briefly in a series of conference papers GPSL03, GPPG06, Goe09c . But the overall design has not been presented in a coherent and systematic way before this book. In order to frame this design properly, we also present a considerable number of broader theoretical and conceptual ideas here, some more and some less technical in nature. 1.4 The Secret Sauce 3 1.3 CogPrime The AGI design presented here has not previously been granted a name independently of its particular software implementations, but for the purposes of this book it needs one, so we ve christened it CogPrime . This fits with the name OpenCogPrime that has already been used to describe the software implementation of CogPrime within the open-source OpenCog AGI software framework. The OpenCogPrime software, right now, implements only a small fraction of the CogPrime design as described here. However, OpenCog was designed specifically to enable efficient, scalable implementation of the full CogPrime design (as well as to serve as a more general framework for AGI R D); and work currently proceeds in this direction, though there is a lot of work still to be done and many challenges remain. 1 The CogPrime design is more comprehensive and thorough than anything that has been presented in the literature previously, including the work of others reviewed in Chapter 4. It covers all the key aspects of human intelligence, and explains how they interoperate and how they can be implemented in digital computer software. Part 1 of this work outlines CogPrime at a high level, and makes a number of more general points about artificial general intelligence and the path thereto; then Part 2 digs deeply into the technical particulars of CogPrime. Even Part 2, however, doesn t explain all the details of CogPrime that have been worked out so far, and it definitely doesn t explain all the implementation details that have gone into designing and building OpenCogPrime. Creating a thinking machine is a large task, and even the intermediate level of detail takes up a lot of pages. 1.4 The Secret Sauce There is no consensus on why all the related technological and scientific progress mentioned above has not yet yielded AI software systems with human-like general intelligence (or even greater levels of brilliance!). However, we hypothesize that the core reason boils down to the following three points: Intelligence depends on the emergence of certain high-level structures and dynamics across a system s whole knowledge base; We have not discovered any one algorithm or approach capable of yielding the emergence of these structures; Achieving the emergence of these structures within a system formed by integrating a number of different AI algorithms and structures requires careful attention to the manner in which 1 This brings up a terminological note: At several places in this Volume and the next we will refer to the current CogPrime or OpenCog implementation; in all cases this refers to OpenCog as of late 2013. We realize the risk of mentioning the state of our software system at time of writing: for future readers this may give the wrong impression, because if our project goes well, more and more of CogPrime will get implemented and tested as time goes on (e.g. within the OpenCog framework, under active development at time of writing). However, not mentioning the current implementation at all seems an even worse course to us, since we feel readers will be interested to know which of our ideas at time of writing have been honed via practice and which have not. Online resources such as http: opencog.org may be consulted by readers curious about the current state of the main OpenCog implementation; though in future forks of the code may be created, or other systems may be built using some or all of the ideas in this book, etc. 4 1 Introduction these algorithms and structures are integrated; and so far the integration has not been done in the correct way. The human brain appears to be an integration of an assemblage of diverse structures and dynamics, built using common components and arranged according to a sensible cognitive architecture. However, its algorithms and structures have been honed by evolution to work closely together they are very tightly inter-adapted, in the same way that the different organs of the body are adapted to work together. Due to their close interoperation they give rise to the overall systemic behaviors that characterize human-like general intelligence. We believe that the main missing ingredient in AI so far is cognitive synergy: the fitting-together of different intelligent components into an appropriate cognitive architecture, in such a way that the components richly and dynamically support and assist each other, interrelating very closely in a similar manner to the components of the brain or body and thus giving rise to appropriate emergent structures and dynamics. This leads us to one of the central hypotheses underlying the CogPrime approach to AGI: that the cognitive synergy ensuing from integrating multiple symbolic and subsymbolic learning and memory components in an appropriate cognitive architecture and environment, can yield robust intelligence at the human level and ultimately beyond. The reason this sort of intimate integration has not yet been explored much is that it s difficult on multiple levels, requiring the design of an architecture and its component algorithms with a view toward the structures and dynamics that will arise in the system once it is coupled with an appropriate environment. Typically, the AI algorithms and structures corresponding to different cognitive functions have been developed based on divergent theoretical principles, by disparate communities of researchers, and have been tuned for effective performance on different tasks in different environments. Making such diverse components work together in a truly synergetic and cooperative way is a tall order, yet we believe that this rather than some particular algorithm, structure or architectural principle is the secret sauce needed to create human-level AGI based on technologies available today. 1.5 Extraordinary Proof? There is a saying that extraordinary claims require extraordinary proof and by that standard, if one believes that having a design for an advanced AGI is an extraordinary claim, this book must be rated a failure. We don t offer extraordinary proof that CogPrime, once fully implemented and educated, will be capable of human-level general intelligence and more. It would be nice if we could offer mathematical proof that CogPrime has the potential we think it does, but at the current time mathematics is simply not up to the job. We ll pursue this direction briefly in Chapter 7 and other chapters, where we ll clarify exactly what kind of mathematical claim CogPrime has the potential for human-level intelligence turns out to be. Once this has been clarified, it will be clear that current mathematical knowledge does not yet let us evaluate, or even fully formalize, this kind of claim. Perhaps one day rigorous and detailed analyses of practical AGI designs will be feasible and we look forward to that day but it s not here yet. Also, it would of course be profoundly exciting if we could offer dramatic practical demonstrations of CogPrime s capabilities. We do have a partial software implementation, in the OpenCogPrime system, but currently the things OpenCogPrime does are too simple to really 1.5 Extraordinary Proof? 5 serve as proofs of CogPrime s power for advanced AGI. We have used some CogPrime ideas in the OpenCog framework to do things like natural language understanding and data mining, and to control virtual dogs in online virtual worlds; and this has been very useful work in multiple senses. It has taught us more about the CogPrime design; it has produced some useful software systems; and it constitutes fractional work building toward a full OpenCog based implementation of CogPrime. However, to date, the things OpenCogPrime has done are all things that could have been done in different ways without the CogPrime architecture (though perhaps not as elegantly nor with as much room for interesting expansion). The bottom line is that building an AGI is a big job. Software companies like Microsoft spend dozens to hundreds of man-years building software products like word processors and operating systems, so it should be no surprise that creating a digital intelligence is also a relatively largescale software engineering project. As time advances and software tools improve, the number of man-hours required to develop advanced AGI gradually decreases but right now, as we write these words, it s still a rather big job. In the OpenCogPrime project we are making a serious attempt to create a CogPrime based AGI using an open-source development methodology, with the open-source Linux operating system as one of our inspirations. But the open-source methodology doesn t work magic either, and it remains a large project, currently at an early stage. I emphasize this point so that readers lacking software engineering expertise don t take the currently fairly limited capabilities of OpenCogPrime as somehow a damning indictment of the potential of the CogPrime design. The design is one thing, the implementation another and the OpenCogPrime implementation currently encompasses perhaps one third to one half of the key ideas in this book. So we don t have extraordinary proof to offer. What we aim to offer instead are clearlyconstructed conceptual and technical arguments as to why we think the CogPrime design has dramatic AGI potential. It is also possible to push back a bit on the common intuition that having a design for humanlevel AGI is such an extraordinary claim. It may be extraordinary relative to contemporary science and culture, but we have a strong feeling that the AGI problem is not difficult in the same ways that most people (including most AI researchers) think it is. We suspect that in hindsight, after human-level AGI has been achieved, people will look back in shock that it took humanity so long to come up with a workable AGI design. As you ll understand once you ve finished Part 1 of the book, we don t think general intelligence is nearly as extraordinary and mysterious as it s commonly made out to be. Yes, building a thinking machine is hard but humanity has done a lot of other hard things before. It may seem difficult to believe that human-level general intelligence could be achieved by something as simple as a collection of algorithms linked together in an appropriate way and used to control an agent. But we suggest that, once the first powerful AGI systems are produced, it will become apparent that engineering human-level minds is not so profoundly different from engineering other complex systems. All in all, we ll consider the book successful if a significant percentage of open-minded, appropriately-educated readers come away from it scratching their chins and pondering: Hmm. You know, that just might work. and a small percentage come away thinking "Now that s an initiative I d really like to help with!". 6 1 Introduction 1.6 Potential Approaches to AGI In principle, there is a large number of approaches one might take to building an AGI, starting from the knowledge, software and machinery now available. This is not the place to review them in detail, but a brief list seems apropos, including commentary on why these are not the approaches we have chosen for our own research. Our intent here is not to insult or dismiss these other potential approaches, but merely to indicate why, as researchers with limited time and resources, we have made a different choice regarding where to focus our own energies. 1.6.1 Build AGI from Narrow AI Most of the AI programs around today are narrow AI programs they carry out one particular kind of task intelligently. One could try to make an advanced AGI by combining a bunch of enhanced narrow AI programs inside some kind of overall framework. However, we re rather skeptical of this approach because none of these narrow AI programs have the ability to generalize across domains and we don t see how combining them or extending them is going to cause this to magically emerge. 1.6.2 Enhancing Chatbots One could seek to make an advanced AGI by taking a chatbot, and trying to improve its code to make it actually understand what it s talking about. We have some direct experience with this route, as in 2010 our AI consulting firm was contracted to improve Ray Kurzweil s online chatbot "Ramona". Our new Ramona understands a lot more than the previous Ramona version or a typical chatbot, due to using Wikipedia and other online resources, but still it s far from an AGI. A more ambitious attempt in this direction was Jason Hutchens a-i.com project, which sought to create a human child level AGI via development and teaching of a statistical learning based chatbot (rather than the typical rule-based kind). The difficulty with this approach, however, is that the architecture of a chatbot is fundamentally different from the architecture of a generally intelligent mind. Much of what s important about the human mind is not directly observable in conversations, so if you start from conversation and try to work toward an AGI architecture from there, you re likely to miss many critical aspects. 1.6.3 Emulating the Brain One can approach AGI by trying to figure out how the brain works, using brain imaging and other tools from neuroscience, and then emulating the brain in hardware or software. One rather substantial problem with this approach is that we don t really understand how the brain works yet, because our software for measuring the brain is still relatively crude. There is no brain scanning method that combines high spatial and temporal accuracy, and none is 1.6 Potential Approaches to AGI 7 likely to come about for a decade or two. So to do brain-emulation AGI seriously, one needs to wait a while until brain scanning technology improves. Current AI methods like neural nets that are loosely based on the brain, are really not brainlike enough to make a serious claim at emulating the brain s approach to general intelligence. We don t yet have any real understanding of how the brain represents abstract knowledge, for example, or how it does reasoning (though the authors, like many others, have made some speculations in this regard GMIH08 ). Another problem with this approach is that once you re done, what you get is something with a very humanlike mind, and we already have enough of those! However, this is perhaps not such a serious objection, because a digital-computer-based version of a human mind could be studied much more thoroughly than a biology-based human mind. We could observe its dynamics in real-time in perfect precision, and could then learn things that would allow us to build other sorts of digital minds. 1.6.4 Evolve an AGI Another approach is to try to run an evolutionary process inside the computer, and wait for advanced AGI to evolve. One problem with this is that we don t know how evolution works all that well. There s a field of artificial life, but so far its results have been fairly disappointing. It s not yet clear how much one can vary on the chemical structures that underly real biology, and still get powerful evolution like we see in real biology. If we need good artificial chemistry to get good artificial biology, then do we need good artificial physics to get good artificial chemistry? Another problem with this approach, of course, is that it might take a really long time. Evolution took billions of years on Earth, using a massive amount of computational power. To make the evolutionary approach to AGI effective, one would need some radical innovations to the evolutionary process (such as, perhaps, using probabilistic methods like BOA Pel05 or MOSES Loo06 in place of traditional evolution). 1.6.5 Derive an AGI design mathematically One can try to use the mathematical theory of intelligence to figure out how to make advanced AGI. This interests us greatly, but there s a huge gap between the rigorous math of intelligence as it exists today and anything of practical value. As we ll discuss in Chapter 7, most of the rigorous math of intelligence right now is about how to make AI on computers with dramatically unrealistic amounts of memory or processing power. When one tries to create a theoretical understanding of real-world general intelligence, one arrives at quite different sorts of considerations, as we will roughly outline in Chapter 10. Ideally we would like to be able to study the CogPrime design using a rigorous mathematical theory of real-world general intelligence, but at the moment that s not realistic. The best we can do is to conceptually analyze CogPrime and its various components in terms of relevant mathematical and theoretical ideas; and perform analysis of CogPrime s individual structures and components at varying levels of rigor. 8 1 Introduction 1.6.6 Use heuristic computer science methods The computer science field contains a number of abstract formalisms, algorithms and structures that have relevance beyond specific narrow AI applications, yet aren t necessarily understood as thoroughly as would be required to integrate them into the rigorous mathematical theory of intelligence. Based on these formalisms, algorithms and structures, a number of "single formalism algorithm focused" AGI approaches have been outlined, some of which will be reviewed in Chapter 4. For example Pei Wang s NARS ( Non-Axiomatic Reasoning System ) approach is based on a specific logic which he argues to be the "logic of general intelligence" so, while his system contains many other aspects than this logic, he considers this logic to be the crux of the system and the source of its potential power as an AGI system. The basic intuition on the part of these "single formalism algorithm focused" researchers seems to be that there is one key formalism or algorithm underlying intelligence, and if you achieve this key aspect in your AGI program, you re going to get something that fundamentally thinks like a person, even if it has some differences due to its different implementation and embodiment. On the other hand, it s also possible that this idea is philosophically incorrect: that there is no one key formalism, algorithm, structure or idea underlying general intelligence. The CogPrime approach is based on the intuition that to achieve human-level, roughly humanlike general intelligence based on feasible computational resources, one needs an appropriate heterogeneous combination of algorithms and structures, each coping with different types of knowledge and different aspects of the problem of achieving goals in complex environments. 1.6.7 Integrative Cognitive Architecture Finally, to create advanced AGI one can try to build some sort of integrative cognitive architecture: a software system with multiple components that each carry out some cognitive function, and that connect together in a specific way to try to yield overall intelligence. Cognitive science gives us some guidance about the overall architecture, and computer science and neuroscience give us a lot of ideas about what to put in the different components. But still this approach is very complex and there is a lot of need for creative invention. This is the approach we consider most serious at present (at least until neuroscience advances further). And, as will be discussed in depth in these pages, this is the approach we ve chosen: CogPrime is an integrative AGI architecture. 1.6.8 Can Digital Computers Really Be Intelligent? All the AGI approaches we ve just mentioned assume that it s possible to make AGI on digital computers. While we suspect this is correct, we must note that it isn t proven. It might be that as Penrose Pen96 , Hameroff Ham87 and others have argued we need quantum computers or quantum gravity computers to make AGI. However, there is no evidence of this at this stage. Of course the brain like all matter is described by quantum mechanics, but this doesn t imply that the brain is a macroscopic quantum system in a strong sense (like, say, a Bose-Einstein condensate). And even if the brain does use quantum phenomena in 1.7 Five Key Words 9 a dramatic way to carry out some of its cognitive processes (a hypothesis for which there is no current evidence), this doesn t imply that these quantum phenomena are necessary in order to carry out the given cognitive processes. For example there is evidence that birds use quantum nonlocal phenomena to carry out navigation based on the Earth s magnetic fields GRM 11 ; yet scientists have built instruments that carry out the same functions without using any special quantum effects. The importance of quantum phenomena in biology (except via their obvious role in giving rise to biological phenomena describable via classical physics) remains a subject of debate AGBD 08 . Quantum magic aside, it is also conceivable that building AGI is fundamentally impossible for some other reason we don t understand. Without getting religious about it, it is rationally quite possible that some aspects of the universe are beyond the scope of scientific methods. Science is fundamentally about recognizing patterns in finite sets of bits (e.g. finite sets of finite-precision observations), whereas mathematics recognizes many sets much larger than this. Selmer Bringsjord BZ03 , and other advocates of hypercomputing approaches to intelligence, argue that the human mind depends on massively large infinite sets and therefore can never be simulated on digital computers nor understood via finite sets of finite-precision measurements such as science deals with. But again, while this sort of possibility is interesting to speculate about, there s no real reason to believe it at this time. Brain science and AI are both very young sciences and the working hypothesis that digital computers can manifest advanced AGI has hardly been explored at all yet, relative to what will be possible in the next decades as computers get more and more powerful and our understanding of neuroscience and cognitive science gets more and more complete. The CogPrime AGI design presented here is based on this working hypothesis. Many of the ideas in the book are actually independent of the mind can be implemented digitally working hypothesis, and could apply to AGI systems built on analog, quantum or other non-digital frameworks but we will not pursue these possibilities here. For the moment, outlining an AGI design for digital computers is hard enough! Regardless of speculations about quantum computing in the brain, it seems clear that AGI on quantum computers is part of our future and will be a powerful thing; but the description of a CogPrime analogue for quantum computers will be left for a later work. 1.7 Five Key Words As noted, the CogPrime approach lies squarely in the integrative cognitive architecture camp. But it is not a haphazard or opportunistic combination of algorithms and data structures. At bottom it is motivated by the patternist philosophy of mind laid out in Ben Goertzel s book The Hidden Pattern Goe06a , which was in large part a summary and reformulation of ideas presented in a series of books published earlier by the same author Goe94 , Goe93a , Goe93b , Goe97 , Goe01 . A few of the core ideas of this philosophy are laid out in Chapter 3, though that chapter is by no means a thorough summary. One way to summarize some of the most important yet commonsensical parts of the patternist philosophy of mind, in an AGI context, is to list five words: perception, memory, prediction, action, goals. In a phrase: A mind uses perception and memory to make predictions about which actions will help it achieve its goals. 10 1 Introduction This ties in with the ideas of many other thinkers, including Jeff Hawkins memory prediction theory HB06 , and it also speaks directly to the formal characterization of intelligence presented in Chapter 7: general intelligence as the ability to achieve complex goals in complex environments. Naturally the goals involved in the above phrase may be explicit or implicit to the intelligent agent, and they may shift over time as the agent develops. Perception is taken to mean pattern recognition: the recognition of (novel or familiar) patterns in the environment or in the system itself. Memory is the storage of already-recognized patterns, enabling recollection or regeneration of these patterns as needed. Action is the formation of patterns in the body and world. Prediction is the utilization of temporal patterns to guess what perceptions will be seen in the future, and what actions will achieve what effects in the future in essence, prediction consists of temporal pattern recognition, plus the (implicit or explicit) assumption that the universe possesses a "habitual tendency" according to which previously observed patterns continue to apply. 1.7.1 Memory and Cognition in CogPrime Each of these five concepts has a lot of depth to it, and we won t say too much about them in this brief introductory overview; but we will take a little time to say something about memory in particular. As we ll see in Chapter 7, one of the things that the mathematical theory of general intelligence makes clear is that, if you assume your AI system has a huge amount of computational resources, then creating general intelligence is not a big trick. Given enough computing power, a very brief and simple program can achieve any computable goal in any computable environment, quite effectively. Marcus Hutter s AIXI tl design Hut05 gives one way of doing this, backed up by rigorous mathematics. Put informally, what this means is: the problem of AGI is really a problem of coping with inadequate compute resources, just as the problem of natural intelligence is really a problem of coping with inadequate energetic resources. One of the key ideas underlying CogPrime is a principle called cognitive synergy, which explains how real-world minds achieve general intelligence using limited resources, by appropriately organizing and utilizing their memories. This principle says that there are many different kinds of memory in the mind: sensory, episodic, procedural, declarative, attentional, intentional. Each of them has certain learning processes associated with it; for example, reasoning is associated with declarative memory. Synergy arises here in the way the learning processes associated with each kind of memory have got to help each other out when they get stuck, rather than working at cross-purposes. Cognitive synergy is a fundamental principle of general intelligence it doesn t tend to play a central role when you re building narrow-AI systems. In the CogPrime approach all the different kinds of memory are linked together in a single meta-representation, a sort of combined semantic neural network called the AtomSpace. It represents everything from perceptions and actions to abstract relationships and concepts and even a system s model of itself and others. When specialized representations are used for other types of knowledge (e.g. program trees for procedural knowledge, spatiotemporal hierarchies for perceptual knowledge) then the knowledge stored outside the AtomSpace is represented via 1.8 Virtually and Robotically Embodied AI 11 tokens (Atoms) in the AtomSpace, allowing it to be located by various cognitive processes, and associated with other memory items of any type. So for instance an OpenCog AI system has an AtomSpace, plus some specialized knowledge stores linked into the AtomSpace; and it also has specific algorithms acting on the AtomSpace and appropriate specialized stores corresponding to each type of memory. Each of these algorithms is complex and has its own story; for instance (an incomplete list, for more detail see the following section of this Introduction): Declarative knowledge is handled using Probabilistic Logic Networks, described in Chapter 34 and others; Procedural knowledge is handled using MOSES, a probabilistic evolutionary learning algorithm described in Chapter 21 and others; Attentional knowledge is handled by ECAN (economic attention allocation), described in Chapter 23 and others; OpenCog contains a language comprehension system called RelEx that takes English sentences and turns them into nodes and links in the AtomSpace. It s currently being extended to handle Chinese. RelEx handles mostly declarative knowledge but also involves some procedural knowledge for linguistic phenomena like reference resolution and semantic disambiguation. But the crux of the CogPrime cognitive architecture is not any particular cognitive process, but rather the way they all work together using cognitive synergy. 1.8 Virtually and Robotically Embodied AI Another issue that will arise frequently in these pages is embodiment. There s a lot of debate in the AI community over whether embodiment is necessary for advanced AGI or not. Personally, we doubt it s necessary but we think it s extremely convenient, and are thus considerably interested in both virtual world and robotic embodiment. The CogPrime architecture itself is neutral on the issue of embodiment, and it could be used to build a mathematical theorem prover or an intelligent chat bot just as easily as an embodied AGI system. However, most of our attention has gone into figuring out how to use CogPrime to control embodied agents in virtual worlds, or else (to a lesser extent) physical robots. For instance, during 2011-2012 we are involved in a Hong Kong government funded project using OpenCog to control video game agents in a simple game world modeled on the game Minecraft GPC 11 . Current virtual world technology has significant limitations that make them far less than ideal from an AGI perspective, and in Chapter 16 we will discuss how they can be remedied. However, for the medium-term future virtual worlds are not going to match the natural world in terms of richness and complexity and so there s also something to be said for physical robots that interact with all the messiness of the real world. With this in mind, in the Artificial Brain Lab at Xiamen University in 2009-2010, we conducted some experiments using OpenCog to control the Nao humanoid robot GD09 . The goal of that work was to take the same code that controls the virtual dog and use it to control the physical robot. But it s harder because in this context we need to do real vision processing and real motor control. A similar project is being undertaken in Hong Kong at time of writing, involving a collaboration between OpenCog AI developers and David Hanson s robotics 12 1 Introduction group. One of the key ideas involved in this project is explicit integration of subsymbolic and more symbolic subsystems. For instance, one can use a purely subsymbolic, hierarchical pattern recognition network for vision processing, and then link its internal structures into the nodes and links in the AtomSpace that represent concepts. So the subsymbolic and symbolic systems can work harmoniously and productively together, a notion we will review in more detail in Chapter 26. 1.9 Language Learning One of the subtler aspects of our current approach to teaching CogPrime is language learning. Three relatively crisp and simple approaches to language learning would be: Build a language processing system using hand-coded grammatical rules, based on linguistic theory; Train a language processing system using supervised, unsupervised or semisupervised learning, based on computational linguistics; Have an AI system learn language via experience, based on imitation and reinforcement and experimentation, without any built-in distinction between linguistic behaviors and other behaviors. While the third approach is conceptually appealing, our current approach in CogPrime (described in a series of chapters in Part 2) is none of the above, but rather a combination of the above. OpenCog contains a natural language processing system built using a combination of the rule-based and statistical approaches, which has reasonably adequate functionality; and our plan is to use it as an initial condition for ongoing adaptive improvement based on embodied communicative experience. 1.10 AGI Ethics When discussing AGI work with the general public, ethical concerns often arise. Science fiction films like the Terminator series have raised public awareness of the possible dangers of advanced AGI systems without correspondingly advanced ethics. Non-profit organizations like the Singularity Institute for AI ((http: singinst.org) have arisen specifically to raise attention about, and foster research on, these potential dangers. Our main focus here is on how to create AGI, not how to teach an AGI human ethical principles. However, we will address the latter issue explicitly in Chapter 12, and we do think it s important to emphasize that AGI ethics has been at the center of the design process throughout the conception and development of CogPrime and OpenCog. Broadly speaking there are (at least) two major threats related to advanced AGI. One is that people might use AGIs for bad ends; and the other is that, even if an AGI is made with the best intentions, it might reprogram itself in a way that causes it to do something terrible. If it s smarter than us, we might be watching it carefully while it does this, and have no idea what s going on. 1.12 Key Claims of the Book 13 The best way to deal with this second bad AGI problem is to build ethics into your AGI architecture and we have done this with CogPrime, via creating a goal structure that explicitly supports ethics-directed behavior, and via creating an overall architecture that supports ethical synergy along with cognitive synergy. In short, the notion of ethical synergy is that there are different kinds of ethical thinking associated with the different kinds of memory and you want to be sure your AGI has all of them, and that it uses them together effectively. In order to create AGI that is not only intelligent but beneficial to other sentient beings, ethics has got to be part of the design and the roadmap. As we teach our AGI systems, we need to lead them through a series of instructional and evaluative tasks that move from a primitive level to the mature human level in intelligence, but also in ethical judgment. 1.11 Structure of the Book The book is divided into two parts. The technical particulars of CogPrime are discussed in Part 2; what we deal with in Part 1 are important preliminary and related matters such as: The nature of real-world general intelligence, both conceptually and from the perspective of formal modeling (Section I). The nature of cognitive and ethical development for humans and AGIs (Section III). The high-level properties of CogPrime, including the overall architecture and the various sorts of memory involved (Section IV). What kind of path may viably lead us from here to AGI, with focus laid on preschool-type environments that easily foster humanlike cognitive development. Various advanced aspects of AGI systems, such as the network and algebraic structures that may emerge from them, the ways in which they may self-modify, and the degree to which their initial design may constrain or guide their future state even after long periods of radical self-improvement (Section V). One point made repeatedly throughout Part 1, which is worth emphasizing here, is the current lack of a really rigorous and thorough general technical theory of general intelligence. Such a theory, if complete, would be incredibly helpful for understanding complex AGI architectures like CogPrime. Lacking such a theory, we must work on CogPrime and other such systems using a combination of theory, experiment and intuition. This is not a bad thing, but it will be very helpful if the theory and practice of AGI are able to grow collaboratively together. 1.12 Key Claims of the Book We will wrap up this Introduction with a systematic list of some of the key claims to be argued for in these pages. Not all the terms and ideas in these claims have been mentioned in the preceding portions of this Introduction, but we hope they will be reasonably clear to the reader anyway, at least in a general sense. This list of claims will be revisited in Chapter 49 near the end of Part 2, where we will look back at the ideas and arguments that have been put forth in favor of them, in the intervening chapters. 14 1 Introduction In essence this is a list of claims such that, if the reader accepts these claims, they should probably accept that the CogPrime approach to AGI is a viable one. On the other hand if the reader rejects one or more of these claims, they may find one or more aspects of CogPrime unacceptable for some reason. Without further ado, now, the claims: 1. General intelligence (at the human level and ultimately beyond) can be achieved via creating a computational system that seeks to achieve its goals, via using perception and memory to predict which actions will achieve its goals in the contexts in which it finds itself. 2. To achieve general intelligence in the context of human-intelligence-friendly environments and goals using feasible computational resources, it s important that an AGI system can handle different kinds of memory (declarative, procedural, episodic, sensory, intentional, attentional) in customized but interoperable ways. 3. Cognitive synergy: It s important that the cognitive processes associated with different kinds of memory can appeal to each other for assistance in overcoming bottlenecks in a manner that enables each cognitive process to act in a manner that is sensitive to the particularities of each others internal representations, and that doesn t impose unreasonable delays on the overall cognitive dynamics. 4. As a general principle, neither purely localized nor purely global memory is sufficient for general intelligence under feasible computational resources; glocal memory will be required. 5. To achieve human-like general intelligence, it s important for an intelligent agent to have sensory data and motoric affordances that roughly emulate those available to humans. We don t know exactly how close this emulation needs to be, which means that our AGI systems and platforms need to support fairly flexible experimentation with virtual-world and or robotic infrastructures. 6. To work toward adult human-level, roughly human-like general intelligence, one fairly easily comprehensible path is to use environments and goals reminiscent of human childhood, and seek to advance one s AGI system along a path roughly comparable to that followed by human children. 7. It is most effective to teach an AGI system aimed at roughly human-like general intelligence via a mix of spontaneous learning and explicit instruction, and to instruct it via a combination of imitation, reinforcement and correction, and a combination of linguistic and nonlinguistic instruction. 8. One effective approach to teaching an AGI system human language is to supply it with some in-built linguistic facility, in the form of rule-based and statistical-linguistics-based NLP systems, and then allow it to improve and revise this facility based on experience. 9. An AGI system with adequate mechanisms for handling the key types of knowledge mentioned above, and the capability to explicitly recognize large-scale patterns in itself, should, upon sustained interaction with an appropriate environment in pursuit of appropriate goals, emerge a variety of complex structures in its internal knowledge network, including, but not limited to: a hierarchical network, representing both a spatiotemporal hierarchy and an approximate default inheritance hierarchy, cross-linked a heterarchical network of associativity, roughly aligned with the hierarchical network a self network which is an approximate micro image of the whole network 1.12 Key Claims of the Book 15 inter-reflecting networks modeling self and others, reflecting a mirrorhouse design pattern 10. Given the strengths and weaknesses of current and near-future digital computers, a. A (loosely) neural-symbolic network is a good representation for directly storing many kinds of memory, and interfacing between those that it doesn t store directly; b. Uncertain logic is a good way to handle declarative knowledge. To deal with the problems facing a human-level AGI, an uncertain logic must integrate imprecise probability and fuzziness with a broad scope of logical constructs. PLN is one good realization. c. Programs are a good way to represent procedures (both cognitive and physical-action, but perhaps not including low-level motor-control procedures). d. Evolutionary program learning is a good way to handle difficult program learning problems. Probabilistic learning on normalized programs is one effective approach to evolutionary program learning. MOSES is one good realization of this approach. e. Multistart hill-climbing, with a strong Occam prior, is a good way to handle relatively straightforward program learning problems. f. Activation spreading and Hebbian learning comprise a reasonable way to handle attentional knowledge (though other approaches, with greater overhead cost, may provide better accuracy and may be appropriate in some situations). Artificial economics is an effective approach to activation spreading and Hebbian learning in the context of neural-symbolic networks; ECAN is one good realization of artificial economics; A good trade-off between comprehensiveness and efficiency is to focus on two kinds of attention: processor attention (represented in CogPrime by ShortTermImportance) and memory attention (represented in CogPrime by LongTermImportance). g. Simulation is a good way to handle episodic knowledge (remembered and imagined). Running an internal world simulation engine is an effective way to handle simulation. h. Hybridization of one s integrative neural-symbolic system with a spatiotemporally hierarchical deep learning system is an effective way to handle representation and learning of low-level sensorimotor knowledge. DeSTIN is one example of a deep learning system of this nature that can be effective in this context. i. One effective way to handle goals is to represent them declaratively, and allocate attention among them economically. CogPrime s PLN ECAN based framework for handling intentional knowledge is one good realization. 11. It is important for an intelligent system to have some way of recognizing large-scale patterns in itself, and then embodying these patterns as new, localized knowledge items in its memory. Given the use of a neural-symbolic network for knowledge representation, a graph-mining based map formation heuristic is one good way to do this. 12. Occam s Razor: Intelligence is closely tied to the creation of procedures that achieve goals in environments in the simplest possible way. Each of an AGI system s cognitive algorithms should embody a simplicity bias in some explicit or implicit form. 13. An AGI system, if supplied with a commonsensically ethical goal system and an intentional component based on rigorous uncertain inference, should be able to reliably achieve a much higher level of commonsensically ethical behavior than any human being. 14. Once sufficiently advanced, an AGI system with a logic-based declarative knowledge approach and a program-learning-based procedural knowledge approach should be able to 16 1 Introduction radically self-improve via a variety of methods, including supercompilation and automated theorem-proving. Section I Artificial and Natural General Intelligence Chapter 2 What Is Human-Like General Intelligence? 2.1 Introduction CogPrime, the AGI architecture on which the bulk of this book focuses, is aimed at the creation of artificial general intelligence that is vaguely human-like in nature, and possesses capabilities at the human level and ultimately beyond. Obviously this description begs some foundational questions, such as, for starters: What is "general intelligence"? What is "human-like general intelligence"? What is "intelligence" at all? Perhaps in the future there will exist a rigorous theory of general intelligence which applies usefully to real-world biological and digital intelligences. In later chapters we will give some ideas in this direction. But such a theory is currently nascent at best. So, given the present state of science, these two questions about intelligence must be handled via a combination of formal and informal methods. This brief, informal chapter attempts to explain our view on the nature of intelligence in sufficient detail to place the discussion of CogPrime in appropriate context, without trying to resolve all the subtleties. Psychologists sometimes define human general intelligence using IQ tests and related instruments so one might wonder: why not just go with that? But these sorts of intelligence testing approaches have difficulty even extending to humans from diverse cultures HHPO12 Fis01 . So it s clear that to ground AGI approaches that are not based on precise modeling of human cognition, one requires a more fundamental understanding of the nature of general intelligence. On the other hand, if one conceives intelligence too broadly and mathematically, there s a risk of leaving the real human world too far behind. In this chapter (followed up in Chapters 9 and 7 with more rigor), we present a highly abstract understanding of intelligence-in-general, and then portray human-like general intelligence as a (particularly relevant) special case. 2.1.1 What Is General Intelligence? Many attempts to characterize general intelligence have been made; Legg and Hutter LH07a review over 70! Our preferred abstract characterization of intelligence is: the capability of a system to choose actions maximizing its goal-achievement, based on its perceptions and memories, and making reasonably efficient use of its computational resources 19 20 2 What Is Human-Like General Intelligence? Goe10c . A general intelligence is then understood as one that can do this for a variety of complex goals in a variety of complex environments. However, apart from positing definitions, it is difficult to say anything nontrivial about general intelligence in general. Marcus Hutter Hut05 has demonstrated, using a characterization of general intelligence similar to the one above, that a very simple algorithm called AIXI tl can demonstrate arbitrarily high levels of general intelligence, if given sufficiently immense computational resources. This is interesting because it shows that (if we assume the universe can effectively be modeled as a computational system) general intelligence is basically a problem of computational efficiency. The particular structures and dynamics that characterize real-world general intelligences like humans arise because of the need to achieve reasonable levels of intelligence using modest space and time resources. The patternist theory of mind presented in Goe06a and briefly summarized in Chapter 3 below presents a number of emergent structures and dynamics that are hypothesized to characterize pragmatic general intelligence, including such things as system-wide hierarchical and heterarchical knowledge networks, and a dynamic and self-maintaining self-model. Much of the thinking underlying CogPrime has centered on how to make multiple learning components combine to give rise to these emergent structures and dynamics. 2.1.2 What Is Human-like General Intelligence? General principles like complex goals in complex environments and patternism are not sufficient to specify the nature of human-like general intelligence. Due to the harsh reality of computational resource restrictions, real-world general intelligences are necessarily biased to particular classes of environments. Human intelligence is biased toward the physical, social and linguistic environments in which humanity evolved, and if AI systems are to possess humanlike general intelligence they must to some extent share these biases. But what are these biases, specifically? This is a large and complex question, which we seek to answer in a theoretically grounded way in Chapter 9. However, before turning to abstract theory, one may also approach the question in a pragmatic way, by looking at the categories of things that humans do to manifest their particular variety of general intelligence. This is the task of the following section. 2.2 Commonly Recognized Aspects of Human-like Intelligence It would be nice if we could give some sort of standard model of human intelligence in this chapter, to set the context for our approach to artificial general intelligence but the truth is that there isn t any. What the cognitive science field has produced so far is better described as: a broad set of principles and platitudes, plus a long, loosely-organized list of ideas and results. Chapter 5 below constitutes an attempt to present an integrative architecture diagram for human-like general intelligence, synthesizing the ideas of a number of different AGI and cognitive theorists. However, though the diagram given there attempts to be inclusive, it nonetheless contains many features that are accepted by only a plurality of the research community. 2.2 Commonly Recognized Aspects of Human-like Intelligence 21 The following list of key aspects of human-like intelligence has a better claim at truly being generic and representing the consensus understanding of contemporary science. It was produced by a very simple method: starting with the Wikipedia page for cognitive psychology, and then adding a few items onto it based on scrutinizing the tables of contents of some top-ranked cognitive psychology textbooks. There is some redundancy among list items, and perhaps also some minor omissions (depending on how broadly one construes some of the items), but the point is to give a broad indication of human mental functions as standardly identified in the psychology field: Perception General perception Psychophysics Pattern recognition (the ability to correctly interpret ambiguous sensory information) Object and event recognition Time sensation (awareness and estimation of the passage of time) Motor Control Motor planning Motor execution Sensorimotor integration Categorization Category induction and acquisition Categorical judgement and classification Category representation and structure Similarity Memory Aging and memory Autobiographical memory Constructive memory Emotion and memory False memories Memory biases Long-term memory Episodic memory Semantic memory Procedural memory Short-term memory Sensory memory Working memory Knowledge representation Mental imagery Propositional encoding Imagery versus propositions as representational mechanisms 22 2 What Is Human-Like General Intelligence? Dual-coding theories Mental models Language Grammar and linguistics Phonetics and phonology Language acquisition Thinking Choice Concept formation Judgment and decision making Logic, formal and natural reasoning Problem solving Planning Numerical cognition Creativity Consciousness Attention and Filtering (the ability to focus mental effort on specific stimuli whilst excluding other stimuli from consideration) Access consciousness Phenomenal consciousness Social Intelligence Distributed Cognition Empathy If there s nothing surprising to you in the above list, I m not surprised! If you ve read a bit in the modern cognitive science literature, the list may even seem trivial. But it s worth reflecting that 50 years ago, no such list could have been produced with the same level of broad acceptance. And less than 100 years ago, the Western world s scientific understanding of the mind was dominated by Freudian thinking; and not too long after that, by behaviorist thinking, which argued that theorizing about what went on inside the mind made no sense, and science should focus entirely on analyzing external behavior. The progress of cognitive science hasn t made as many headlines as contemporaneous progress in neuroscience or computing hardware and software, but it s certainly been dramatic. One of the reasons that AGI is more achievable now than in the 1950s and 60s when the AI field began, is that now we understand the structures and processes characterizing human thinking a lot better. In spite of all the theoretical and empirical progress in the cognitive science field, however, there is still no consensus among experts on how the various aspects of intelligence in the above human intelligence feature list are achieved and interrelated. In these pages, however, for the purpose of motivating CogPrime, we assume a broad integrative understanding roughly as follows: Perception: There is significant evidence that human visual perception occurs using a spatiotemporal hierarchy of pattern recognition modules, in which higher-level modules 2.2 Commonly Recognized Aspects of Human-like Intelligence 23 deal with broader spacetime regions, roughly as in the DeSTIN AGI architecture discussed in Chapter 4. Further, there is evidence that each module carries out temporal predictive pattern recognition as well as static pattern recognition. Audition likely utilizes a similar hierarchy. Olfaction may use something more like a Hopfield attractor neural network, as described in Chapter 13. The networks corresponding to different sense modalities have multiple cross-linkages, more at the upper levels than the lower, and also link richly into the parts of the mind dealing with other functions. Motor Control: This appears to be handled by a spatiotemporal hierarchy as well, in which each level of the hierarchy corresponds to higher-level (in space and time) movements. The hierarchy is very tightly linked in with the perceptual hierarchies, allowing sensorimotor learning and coordination. Memory: There appear to be multiple distinct but tightly cross-linked memory systems, corresponding to different sorts of knowledge such as declarative (facts and beliefs), procedural, episodic, sensorimotor, attentional and intentional (goals). Knowledge Representation: There appear to be multiple base-level representational systems; at least one corresponding to each memory system, but perhaps more than that. Additionally there must be the capability to dynamically create new context-specific representational systems founded on the base representational system. Language: While there is surely some innate biasing in the human mind toward learning certain types of linguistic structure, it s also notable that language shares a great deal of structure with other aspects of intelligence like social roles CB00 and the physical world Cas07 . Language appears to be learned based on biases toward learning certain types of relational role systems; and language processing seems a complex mix of generic reasoning and pattern recognition processes with specialized acoustic and syntactic processing routines. Consciousness is pragmatically well-understood using Baars global workspace theory, in which a small subset of the mind s content is summoned at each time into a working memory aka workspace aka attentional focus where it is heavily processed and used to guide action selection. Thinking is a diverse combination of processes encompassing things like categorization, (crisp and uncertain) reasoning, concept creation, pattern recognition, and others; these processes must work well with all the different types of memory and must effectively integrate knowledge in the global workspace with knowledge in long-term memory. Social Intelligence seems closely tied with language and also with self-modeling; we model ourselves in large part using the same specialized biases we use to help us model others. None of the points in the above bullet list is particularly controversial, but neither are any of them universally agreed-upon by experts. However, in order to make any progress on AGI design one must make some commitments to particular cognition-theoretic understandings, at this level and ultimately at more precise levels as well. Further, general philosophical analyses like the patternist philosophy to be reviewed in the following chapter only provide limited guidance here. Patternism provides a filter for theories about specific cognitive functions it rules out assemblages of cognitive-function-specific theories that don t fit together to yield a mind that could act effectively as a pattern-recognizing, goal-achieving system with the right internal emergent structures. But it s not a precise enough filter to serve as a sole guide for cognitive theory even at the high level. The above list of points leads naturally into the integrative architecture diagram presented in Chapter 5. But that generic architecture diagram is fairly involved, and before presenting 24 2 What Is Human-Like General Intelligence? it, we will go through some more background regarding human-like intelligence (in the rest of this chapter), philosophy of mind (in Chapter 3) and contemporary AGI architectures (in Chapter4). 2.3 Further Characterizations of Humanlike Intelligence We now present a few complementary approaches to characterizing the key aspects of humanlike intelligence, drawn from different perspectives in the psychology and AI literature. These different approaches all overlap substantially, which is good, yet each gives a slightly different slant. 2.3.1 Competencies Characterizing Human-like Intelligence First we give a list of key competencies characterizing human level intelligence resulting from the the AGI Roadmap Workshop held at the University of Knoxville in October 2008 1 , which was organized by Ben Goertzel and Itamar Arel. In this list, each broad competency area is listed together with a number of specific competencies sub-areas within its scope: 1. Perception: vision, hearing, touch, proprioception, crossmodal 2. Actuation: physical skills, navigation, tool use 3. Memory: episodic, declarative, behavioral 4. Learning: imitation, reinforcement, interactive verbal instruction, written media, experimentation 5. Reasoning: deductive, abductive, inductive, causal, physical, associational, categorization 6. Planning: strategic, tactical, physical, social 7. Attention: visual, social, behavioral 8. Motivation: subgoal creation, affect-based motivation, control of emotions 9. Emotion: expressing emotion, understanding emotion 10. Self: self-awareness, self-control, other-awareness 11. Social: empathy, appropriate social behavior, social communication, social inference, group play, theory of mind 12. Communication: gestural, pictorial, verbal, language acquisition, cross-modal 13. Quantitative: counting, grounded arithmetic, comparison, measurement 14. Building Creation: concept formation, verbal invention, physical construction, social group formation Clearly this list is getting at the same things as the textbook headings given in Section 2.2, but with a different emphasis due to its origin among AGI researchers rather than cognitive 1 See http: www.ece.utk.edu itamar AGI Roadmap.html; participants included: Sam Adams, IBM Research; Ben Goertzel, Novamente LLC; Itamar Arel, University of Tennessee; Joscha Bach, Institute of Cognitive Science, University of Osnabruck, Germany; Robert Coop, University of Tennessee; Rod Furlan, Singularity Institute; Matthias Scheutz, Indiana University; J. Storrs Hall, Foresight Institute; Alexei Samsonovich, George Mason University; Matt Schlesinger, Southern Illinois University; John Sowa, Vivomind Intelligence, Inc.; Stuart C. Shapiro, University at Buffalo 2.3 Further Characterizations of Humanlike Intelligence 25 psychologists. As part of the AGI Roadmap project, specific tasks were created corresponding to each of the sub-areas in the above list; we will describe some of these tasks in Chapter 17. 2.3.2 Gardner s Theory of Multiple Intelligences The diverse list of human-level competencies given above is reminiscent of Gardner s Gar99 multiple intelligences (MI) framework a psychological approach to intelligence assessment based on the idea that different people have mental strengths in different high-level domains, so that intelligence tests should contain aspects that focus on each of these domains separately. MI does not contradict the complex goals in complex environments view of intelligence, but rather may be interpreted as making specific commitments regarding which complex tasks and which complex environments are most important for roughly human-like intelligence. MI does not seek an extreme generality, in the sense that it explicitly focuses on domains in which humans have strong innate capability as well as general-intelligence capability; there could easily be non-human intelligences that would exceed humans according to both the commonsense human notion of general intelligence and the generic complex goals in complex environments or Hutter Legg-style definitions, yet would not equal humans on the MI criteria. This strong anthropocentrism of MI is not a problem from an AGI perspective so long as one uses MI in an appropriate way, i.e. only for assessing the extent to which an AGI system displays specifically human-like general intelligence. This restrictiveness is the price one pays for having an easily articulable and relatively easily implementable evaluation framework. Table ?? summarizes the types of intelligence included in Gardner s MI theory. Intelligence Type Linguistic Logical-Mathematical Musical Bodily-Kinesthetic Spatial-Visual Interpersonal Aspects Words and language, written and spoken; retention, interpretation and explanation of ideas and information via language; understands relationship between communication and meaning Logical thinking, detecting patterns, scientific reasoning and deduction; analyse problems, perform mathematical calculations, understands relationship between cause and effect towards a tangible outcome Musical ability, awareness, appreciation and use of sound; recognition of tonal and rhythmic patterns, understands relationship between sound and feeling Body movement control, manual dexterity, physical agility and balance; eye and body coordination Visual and spatial perception; interpretation and creation of images; pictorial imagination and expression; understands relationship between images and meanings, and between space and effect Perception of other people s feelings; relates to others; interpretation of behaviour and communications; understands relationships between people and their situations Table 2.1: Types of Intelligence in Gardner s Multiple Intelligence Theory 26 2 What Is Human-Like General Intelligence? 2.3.3 Newell s Criteria for a Human Cognitive Architecture Finally, another related perspective is given by Alan Newell s functional criteria for a human cognitive architecture New90 , which require that a humanlike AGI system should: 1. Behave as an (almost) arbitrary function of the environment 2. Operate in real time 3. Exhibit rational, i.e., effective adaptive behavior 4. Use vast amounts of knowledge about the environment 5. Behave robustly in the face of error, the unexpected, and the unknown 6. Integrate diverse knowledge 7. Use (natural) language 8. Exhibit self-awareness and a sense of self 9. Learn from its environment 10. Acquire capabilities through development 11. Arise through evolution 12. Be realizable within the brain In our view, Newell s criterion 1 is poorly-formulated, for while universal Turing computing power is easy to come by, any finite AI system must inevitably be heavily adapted to some particular class of environments for straightforward mathematical reasons Hut05, GPI 10 . On the other hand, his criteria 11 and 12 are not relevant to the CogPrime approach as we are not doing biological modeling but rather AGI engineering. However, Newell s criteria 2-10 are essential in our view, and all will be covered in the following chapters. 2.3.4 intelligence and Creativity Creativity is a key aspect of intelligence. While sometimes associated especially with geniuslevel intelligence in science or the arts, actually creativity is pervasive throughout intelligence, at all levels. When a child makes a flying toy car by pasting paper bird wings on his toy car, and when a bird figures out how to use a curved stick to get a piece of food out of a difficult corner this is creativity, just as much as the invention of a new physics theory or the design of a new fashion line. The very nature of intelligence achieving complex goals in complex environments requires creativity for its achievement, because the nature of complex environments and goals is that they are always unveiling new aspects, so that dealing with them involves inventing things beyond what worked for previously known aspects. CogPrime contains a number of cognitive dynamics that are especially effective at creating new ideas, such as: concept creation (which synthesizes new concepts via combining aspects of previous ones), probabilistic evolutionary learning (which simulates evolution by natural selection, creating new procedures via mutation, combination and probabilistic modeling based on previous ones), and analogical inference (an aspect of the Probabilistic Logic Networks subsystems). But ultimately creativity is about how a system combines all the processes at its disposal to synthesize novel solutions to the problems posed by its goals in its environment. There are times, of course, when the same goal can be achieved in multiple ways some more creative than others. In CogPrime this relates to the existence of multiple top-level goals, one of which may be novelty. A system with novelty as one of its goals, alongside other more 2.4 Preschool as a View into Human-like General Intelligence 27 specific goals, will have a tendency to solve other problems in creative ways, thus fulfilling its novelty goal along with its other goals. This can be seen at the level of childlike behaviors, and also at a much more advanced level. Salvador Dali wanted to depict his thoughts and feelings, but he also wanted to do so in a striking and unusual way; this combination of aspirations spurred him to produce his amazing art. A child who is asked to draw a house, but has a goal of novelty, may draw a tower with a swimming pool on the roof rather than a typical Colonial structure. A physical motivated by novelty will seek a non-obvious solution to the equation at hand, rather than just applying tried and true methods, and perhaps discover some new phenomenon. Novelty can be measured formally in terms of information-theoretic surprisingness based upon a given basis of knowledge and experience Sch06 ; something that is novel and creative to a child may be familiar to the adult world, and a solution that seems novel and creative to a brilliant scientist today, may seem like cliche elementary school level work 100 years from now. Measuring creativity is even more difficult and subjective than measuring intelligence. Qualitatively, however, we humans can recognize it; and we suspect that the qualitative emergence of dramatic, multidisciplinary computational creativity will be one of the things that makes the human population feel emotionally that advanced AGI has finally arrived. 2.4 Preschool as a View into Human-like General Intelligence One issue that arises when pursuing the grand goal of human-level general intelligence is how to measure partial progress. The classic Turing Test of imitating human conversation remains too difficult to usefully motivate immediate-term AI research (see HF95 Fre90 for arguments that it has been counterproductive for the AI field). The same holds true for comparable alternatives like the Robot College Test of creating a robot that can attend a semester of university and obtain passing grades. However, some researchers have suggested intermediary goals, that constitute partial progress toward the grand goal and yet are qualitatively different from the highly specialized problems to which most current AI systems are applied. In this vein, Sam Adams and his team at IBM have outlined a so-called Toddler Turing Test, in which one seeks to use AI to control a robot qualitatively displaying similar cognitive behaviors to a young human child (say, a 3 year old) AABL02 . In fact this sort of idea has a long and venerable history in the AI field Alan Turing s original 1950 paper on AI Tur50 , where he proposed the Turing Test, contains the suggestion that "Instead of trying to produce a programme to simulate the adult mind, why not rather try to produce one which simulates the child s?" We find this childlike cognition based approach promising for many reasons, including its integrative nature: what a young child does involves a combination of perception, actuation, linguistic and pictorial communication, social interaction, conceptual problem solving and creative imagination. Specifically, inspired by these ideas, in Chapter 16 we will suggest the approach of teaching and testing early-stage AGI systems in environments that emulate the preschools used for teaching human children. Human intelligence evolved in response to the demands of richly interactive environments, and a preschool is specifically designed to be a richly interactive environment with the capability to stimulate diverse mental growth. So, we are currently exploring the use of CogPrime to control 28 2 What Is Human-Like General Intelligence? virtual agents in preschool-like virtual world environments, as well as commercial humanoid robot platforms such as the Nao (see Figure 2.1) or Robokind (2.2) in physical preschool-like robot labs. Another advantage of focusing on childlike cognition is that child psychologists have created a variety of instruments for measuring child intelligence. In Chapter 17, we will discuss an approach to evaluating the general intelligence of human childlike AGI systems via combining tests typically used to measure the intelligence of young human children, with additional tests crafted based on cognitive science and the standard preschool curriculum. To put it differently: While our long-term goal is the creation of genius machines with general intelligence at the human level and beyond, we believe that every young child has a certain genius; and by beginning with this childlike genius, we can built a platform capable of developing into a genius machine with far more dramatic capabilities. 2.4.1 Design for an AGI Preschool More precisely, we don t suggest to place a CogPrime system in an environment that is an exact imitation of a human preschool this would be inappropriate since current robotic or virtual bodies are very differently abled than the body of a young human child. But we aim to place CogPrime in an environment emulating the basic diversity and educational character of a typical human preschool. We stress this now, at this early point in the book, because we will use running examples throughout the book drawn from the preschool context. The key notion in modern preschool design is the learning center, an area designed and outfitted with appropriate materials for teaching a specific skill. Learning centers are designed to encourage learning by doing, which greatly facilitates learning processes based on reinforcement, imitation and correction; and also to provide multiple techniques for teaching the same skills, to accommodate different learning styles and prevent overfitting and overspecialization in the learning of new skills. Centers are also designed to cross-develop related skills. A manipulatives center, for example, provides physical objects such as drawing implements, toys and puzzles, to facilitate development of motor manipulation, visual discrimination, and (through sequencing and classification games) basic logical reasoning. A dramatics center cross-trains interpersonal and empathetic skills along with bodily-kinesthetic, linguistic, and musical skills. Other centers, such as art, reading, writing, science and math centers are also designed to train not just one area, but to center around a primary intelligence type while also cross-developing related areas. For specific examples of the learning centers associated with particular contemporary preschools, see Nei98 . In many progressive, student-centered preschools, students are left largely to their own devices to move from one center to another throughout the preschool room. Generally, each center will be staffed by an instructor at some points in the day but not others, providing a variety of learning experiences. To imitate the general character of a human preschool, we will create several centers in our robot lab. The precise architecture will be adapted via experience but initial centers will likely be: a blocks center: a table with blocks on it a language center: a circle of chairs, intended for people to sit around and talk with the robot 2.5 Integrative and Synergetic Approaches to Artificial General Intelligence 29 a manipulatives center, with a variety of different objects of different shapes and sizes, intended to teach visual and motor skills a ball play center: where balls are kept in chests and there is space for the robot to kick the balls around a dramatics center where the robot can observe and enact various movements One Running Example As we proceed through the various component structures and dynamics of CogPrime in the following chapters, it will be useful to have a few running examples to use to explain how the various parts of the system are supposed to work. One example we will use fairly frequently is drawn from the preschool context: the somewhat open-ended task of Build me something out of blocks, that you haven t built for me before, and then tell me what it is. This is a relatively simple task that combines multiple aspects of cognition in a richly interconnected way, and is the sort of thing that young children will naturally do in a preschool setting. 2.5 Integrative and Synergetic Approaches to Artificial General Intelligence In Chapter 1 we characterized CogPrime as an integrative approach. And we suggest that the naturalness of integrative approaches to AGI follows directly from comparing above lists of capabilities and criteria to the array of available AI technologies. No single known algorithm or data structure appears easily capable of carrying out all these functions, so if one wants to proceed now with creating a general intelligence that is even vaguely humanlike, one must integrate various AI technologies within some sort of unifying architecture. For this reason and others, an increasing amount of work in the AI community these days is integrative in one sense or another. Estimation of Distribution Algorithms integrate probabilistic reasoning with evolutionary learning Pel05 . Markov Logic Networks RD06 integrate formal logic and probabilistic inference, as does the Probabilistic Logic Networks framework GIGH08 utilized in CogPrime and explained further in the book, and other works in the Progic area such as WW06 . Leslie Pack Kaelbling has synthesized low-level robotics methods (particle filtering) with logical inference ZPK07 . Dozens of further examples could be given. The construction of practical robotic systems like the Stanley system that won the DARPA Grand Challenge Tea06 involve the integration of numerous components based on different principles. These algorithmic and pragmatic innovations provide ample raw materials for the construction of integrative cognitive architectures and are part of the reason why childlike AGI is more approachable now than it was 50 or even 10 years ago. Further, many of the cognitive architectures described in the current AI literature are integrative in the sense of combining multiple, qualitatively different, interoperating algorithms. Chapter 4 gives a high-level overview of existing cognitive architectures, dividing them into symbolic, emergentist (e.g. neural network) and hybrid architectures. The hybrid architectures generally integrate symbolic and neural components, often with multiple subcomponents within each of these broad categories. However, we believe that even these excellent architectures are not integrative enough, in the sense that they lack sufficiently rich and nuanced interactions 30 2 What Is Human-Like General Intelligence? between the learning components associated with different kinds of memory, and hence are unlikely to give rise to the emergent structures and dynamics characterizing general intelligence. One of the central ideas underlying CogPrime is that with an integrative cognitive architecture that combines multiple aspects of intelligence, achieved by diverse structures and algorithms, within a common framework designed specifically to support robust synergetic interactions between these aspects. The simplest way to create an integrative AI architecture is to loosely couple multiple components carrying out various functions, in such a way that the different components pass inputs and outputs amongst each other but do not interfere with or modulate each others internal functioning in real-time. However, the human brain appears to be integrative in a much tighter sense, involving rich real-time dynamical coupling between various components with distinct but related functions. In Goe09a we have hypothesized that the brain displays a property of cognitive synergy, according to which multiple learning processes can not only dispatch subproblems to each other, but also share contextual understanding in real-time, so that each one can get help from the others in a contextually savvy way. By imbuing AI architectures with cognitive synergy, we hypothesize, one can get past the bottlenecks that have plagued AI in the past. Part of the reasoning here, as elaborated in Chapter 9 and Goe09b , is that real physical and social environments display a rich dynamic interconnection between their various aspects, so that richly dynamically interconnected integrative AI architectures will be able to achieve goals within them more effectively. And this brings us to the patternist perspective on intelligent systems, alluded to above and fleshed out further in Chapter 3 with its focus on the emergence of hierarchically and heterarchically structured networks of patterns, and pattern-systems modeling self and others. Ultimately the purpose of cognitive synergy in an AGI system is to enable the various AI algorithms and structures composing the system to work together effectively enough to give rise to the right system-wide emergent structures characterizing real-world general intelligence. The underlying theory is that intelligence is not reliant on any particular structure or algorithm, but is reliant on the emergence of appropriately structured networks of patterns, which can then be used to guide ongoing dynamics of pattern recognition and creation. And the underlying hypothesis is that the emergence of these structures cannot be achieved by a loosely interconnected assemblage of components, no matter how sensible the architecture; it requires a tightly connected, synergetic system. It is possible to make these theoretical ideas about cognition mathematically rigorous; for instance, Appendix ?? briefly presents a formal definition of cognitive synergy that has been analyzed as part of an effort to prove theorems about the importance of cognitive synergy for giving rise to emergent system properties associated with general intelligence. However, while we have found such formal analyses valuable for clarifying our designs and understanding their qualitative properties, we have concluded that, for the present, the best way to explore our hypotheses about cognitive synergy and human-like general intelligence is empirically via building and testing systems like CogPrime. 2.5.1 Achieving Humanlike Intelligence via Cognitive Synergy Summing up: at the broadest level, there are four primary challenges in constructing an integrative, cognitive synergy based approach to AGI: 2.5 Integrative and Synergetic Approaches to Artificial General Intelligence 31 1. choosing an overall cognitive architecture that possesses adequate richness and flexibility for the task of achieving childlike cognition. 2. Choosing appropriate AI algorithms and data structures to fulfill each of the functions identified in the cognitive architecture (e.g. visual perception, audition, episodic memory, language generation, analogy,...) 3. Ensuring that these algorithms and structures, within the chosen cognitive architecture, are able to cooperate in such a way as to provide appropriate coordinated, synergetic intelligent behavior (a critical aspect since childlike cognition is an integrated functional response to the world, rather than a loosely coupled collection of capabilities.) 4. Embedding one s system in an environment that provides sufficiently rich stimuli and interactions to enable the system to use this cooperation to ongoingly, creatively develop an intelligent internal world-model and self-model. We argue that CogPrime provides a viable way to address these challenges. 32 2 What Is Human-Like General Intelligence? Fig. 2.1: The Nao humanoid robot 2.5 Integrative and Synergetic Approaches to Artificial General Intelligence 33 Fig. 2.2: The Nao humanoid robot Chapter 3 A Patternist Philosophy of Mind 3.1 Introduction In the last chapter we discussed human intelligence from a fairly down-to-earth perspective, looking at the particular intelligent functions that human beings carry out in their everyday lives. And we strongly feel this practical perspective is important: Without this concreteness, it s too easy for AGI research to get distracted by appealing (or frightening) abstractions of various sorts. However, it s also important to look at the nature of mind and intelligence from a more general and conceptual perspective, to avoid falling into an approach that follows the particulars of human capability but ignores the deeper structures and dynamics of mind that ultimately allow human minds to be so capable. In this chapter we very briefly review some ideas from the patternist philosophy of mind, a general conceptual framework on intelligence which has been inspirational for many key aspects of the CogPrime design, and which has been ongoingly developed by one of the authors (Ben Goertzel) during the last two decades (in a series of publications beginning in 1991, most recently The Hidden Pattern Goe06a ). Some of the ideas described are quite broad and conceptual, and are related to CogPrime only via serving as general inspirations; others are more concrete and technical, and are actually utilized within the design itself. CogPrime is an integrative design formed via the combination of a number of different philosophical, scientific and engineering ideas. The success or failure of the design doesn t depend on any particular philosophical understanding of intelligence. In that sense, the more abstract notions presented in this chapter should be considered optional rather than critical in a CogPrime context. However, due to the core role patternism has played in the development of CogPrime, understanding a few things about general patternist philosophy will be helpful for understanding CogPrime, even for those readers who are not philosophically inclined. Those readers who are philosophically inclined, on the other hand, are urged to read The Hidden Pattern and then interpret the particulars of CogPrime in this light. 3.2 Some Patternist Principles The patternist philosophy of mind is a general approach to thinking about intelligent systems. It is based on the very simple premise that mind is made of pattern and that a mind is a 35 36 3 A Patternist Philosophy of Mind system for recognizing patterns in itself and the world, critically including patterns regarding which procedures are likely to lead to the achievement of which goals in which contexts. Pattern as the basis of mind is not in itself is a very novel idea; this concept is present, for instance, in the 19th-century philosophy of Charles Peirce Pei34 , in the writings of contemporary philosophers Daniel Dennett Den91 and Douglas Hofstadter Hof79, Hof96 , in Benjamin Whorf s Who64 linguistic philosophy and Gregory Bateson s Bat79 systems theory of mind and nature. Bateson spoke of the Metapattern: that it is pattern which connects. In Goertzel s writings on philosophy of mind, an effort has been made to pursue this theme more thoroughly than has been done before, and to articulate in detail how various aspects of human mind and mind in general can be well-understood by explicitly adopting a patternist perspective. 1 In the patternist perspective, "pattern" is generally defined as "representation as something simpler." Thus, for example, if one measures simplicity in terms of bit-count, then a program compressing an image would be a pattern in that image. But if one uses a simplicity measure incorporating run-time as well as bit-count, then the compressed version may or may not be a pattern in the image, depending on how one s simplicity measure weights the two factors. This definition encompasses simple repeated patterns, but also much more complex ones. While pattern theory has typically been elaborated in the context of computational theory, it is not intrinsically tied to computation; rather, it can be developed in any context where there is a notion of "representation" or "production" and a way of measuring simplicity. One just needs to be able to assess the extent to which f represents or produces X, and then to compare the simplicity of f and X; and then one can assess whether f is a pattern in X. A formalization of this notion of pattern is given in Goe06a and briefly summarized at the end of this chapter. Next, in patternism the mind of an intelligent system is conceived as the (fuzzy) set of patterns in that system, and the set of patterns emergent between that system and other systems with which it interacts. The latter clause means that the patternist perspective is inclusive of notions of distributed intelligence Hut96 . Basically, the mind of a system is the fuzzy set of different simplifying representations of that system that may be adopted. Intelligence is conceived, similarly to in Marcus Hutter s Hut05 recent work (and as elaborated informally in Chapter 2 above, and formally in Chapter 7 below), as the ability to achieve complex goals in complex environments; where complexity itself may be defined as the possession of a rich variety of patterns. A mind is thus a collection of patterns that is associated with a persistent dynamical process that achieves highly-patterned goals in highly-patterned environments. An additional hypothesis made within the patternist philosophy of mind is that reflection is critical to intelligence. This lets us conceive an intelligent system as a dynamical system that recognizes patterns in its environment and itself, as part of its quest to achieve complex goals. While this approach is quite general, it is not vacuous; it gives a particular structure to the tasks of analyzing and synthesizing intelligent systems. About any would-be intelligent system, we are led to ask questions such as: How are patterns represented in the system? That is, how does the underlying infrastructure of the system give rise to the displaying of a particular pattern in the system s behavior? What kinds of patterns are most compactly represented within the system? What kinds of patterns are most simply learned? 1 In some prior writings the term psynet model of mind has been used to refer to the application of patternist philosophy to cognitive theory, but this term has been "deprecated" in recent publications as it seemed to introduce more confusion than clarification. 3.2 Some Patternist Principles 37 What learning processes are utilized for recognizing patterns? What mechanisms are used to give the system the ability to introspect (so that it can recognize patterns in itself)? Now, these same sorts of questions could be asked if one substituted the word pattern with other words like knowledge or information . However, we have found that asking these questions in the context of pattern leads to more productive answers, avoiding unproductive byways and also tying in very nicely with the details of various existing formalisms and algorithms for knowledge representation and learning. Among the many kinds of patterns in intelligent systems, semiotic patterns are particularly interesting ones. Peirce decomposed these into three categories: iconic patterns, which are patterns of contextually important internal similarity between two entities (e.g. an iconic pattern binds a picture of a person to that person) indexical patterns, which are patterns of spatiotemporal co-occurrence (e.g. an indexical pattern binds a wedding dress and a wedding) symbolic patterns, which are patterns indicating that two entities are often involved in the same relationships (e.g. a symbolic pattern between the number 5 (the symbol) and various sets of 5 objects (the entities that the symbol is taken to represent)) Of course, some patterns may span more than one of these semiotic categories; and there are also some patterns that don t fall neatly into any of these categories. But the semiotic patterns are particularly important ones; and symbolic patterns have played an especially large role in the history of AI, because of the radically different approaches different researchers have taken to handling them in their AI systems. Mathematical logic and related formalisms provide sophisticated mechanisms for combining and relating symbolic patterns ( symbols ), and some AI approaches have focused heavily on these, sometimes more so than on the identification of symbolic patterns in experience or the use of them to achieve practical goals. We will look fairly carefully at these differences in Chapter 4. Pursuing the patternist philosophy in detail leads to a variety of particular hypotheses and conclusions about the nature of mind. Following from the view of intelligence in terms of achieving complex goals in complex environments, comes a view in which the dynamics of a cognitive system are understood to be governed by two main forces: self-organization, via which system dynamics cause existing system patterns to give rise to new ones goal-oriented behavior, which will be defined more rigorously in Chapter 7, but basically amounts to a system interacting with its environment in a way that appears like an attempt to maximize some reasonably simple function Self-organized and goal-oriented behavior must be understood as cooperative aspects. If an agent is asked to build a surprising structure out of blocks and does so, this is goal-oriented. But the agent s ability to carry out this goal-oriented task will be greater if it has previously played around with blocks a lot in an unstructured, spontaneous way. And the nudge toward creativity given to it by asking it to build a surprising blocks structure may cause it to explore some novel patterns, which then feed into its future unstructured blocks play. Based on these concepts, as argued in detail in Goe06a , several primary dynamical principles may be posited, including: 38 3 A Patternist Philosophy of Mind Evolution , conceived as a general process via which patterns within a large population thereof are differentially selected and used as the basis for formation of new patterns, based on some fitness function that is generally tied to the goals of the agent Example: If trying to build a blocks structure that will surprise Bob, an agent may simulate several procedures for building blocks structures in its mind s eye , assessing for each one the expected degree to which it might surprise Bob. The search through procedure space could be conducted as a form of evolution, via an algorithm such as MOSES. Autopoiesis: the process by which a system of interrelated patterns maintains its integrity, via a dynamic in which whenever one of the patterns in the system begins to decrease in intensity, some of the other patterns increase their intensity in a manner that causes the troubled pattern to increase in intensity again Example: An agent s set of strategies for building the base of a tower, and its set of strategies for building the middle part of a tower, are likely to relate autopoietically. If the system partially forgets how to build the base of a tower, then it may regenerate this missing knowledge via using its knowledge about how to build the middle part (i.e., it knows it needs to build the base in a way that will support good middle parts). Similarly if it partially forgets how to build the middle part, then it may regenerate this missing knowledge via using its knowledge about how to build the base (i.e. it knows a good middle part should fit in well with the sorts of base it knows are good). This same sort of interdependence occurs between pattern-sets containing more than two elements Sometimes (as in the above example) autopoietic interdependence in the mind is tied to interdependencies in the physical world, sometimes not. Association. Patterns, when given attention, spread some of this attention to other patterns that they have previously been associated with in some way. Furthermore, there is Peirce s law of mind Pei34 , which could be paraphrased in modern terms as stating that the mind is an associative memory network, whose dynamics dictate that every idea in the memory is an active agent, continually acting on those ideas with which the memory associates it. Example: Building a blocks structure that resembles a tower, spreads attention to memories of prior towers the agents has seen, and also to memories of people the agent knows have seen towers, and structures it has built at the same time as towers, structures that resemble towers in various respects, etc. Differential attention allocation credit assignment. Patterns that have been valuable for goal-achievement are given more attention, and are encouraged to participate in giving rise to new patterns. Example: Perhaps in a prior instance of the task build me a surprising structure out of blocks, searching through memory for non-blocks structures that the agent has played with has proved a useful cognitive strategy. In that case, when the task is posed to the agent again, it should tend to allocate disproportionate resources to this strategy. Pattern creation. Patterns that have been valuable for goal-achievement are mutated and combined with each other to yield new patterns. 3.2 Some Patternist Principles 39 Example: Building towers has been useful in a certain context, but so has building structures with a large number of triangles. Why not build a tower out of triangles? Or maybe a vaguely tower-like structure that uses more triangles than a tower easily could? Example: Building an elongated block structure resembling a table was successful in the past, as was building a structure resembling a very flat version of a chair. Generalizing, maybe building distorted versions of furniture is good. Or maybe it is building distorted version of any previously perceived objects that is good. Or maybe both, to different degrees.... Next, for a variety of reasons outlined in Goe06a it becomes appealing to hypothesize that the network of patterns in an intelligent system must give rise to the following large-scale emergent structures Hierarchical network. Patterns are habitually in relations of control over other patterns that represent more specialized aspects of themselves. Example: The pattern associated with tall building has some control over the pattern associated with tower , as the former represents a more general concept ... and tower has some control over Eiffel tower , etc. Heterarchical network. The system retains a memory of which patterns have previously been associated with each other in any way. Example: Tower and snake are distant in the natural pattern hierarchy, but may be associatively heterarchically linked due to having a common elongated structure. This heterarchical linkage may be used for many things, e.g. it might inspire the creative construction of a tower with a snake s head. Dual network. Hierarchical and heterarchical structures are combined, with the dynamics of the two structures working together harmoniously. Among many possible ways to hierarchically organize a set of patterns, the one used should be one that causes hierarchically nearby patterns to have many meaningful heterarchical connections; and of course, there should be a tendency to search for heterarchical connections among hierarchically nearby patterns. Example: While the set of patterns hierarchically nearby tower and the set of patterns heterarchically nearby tower will be quite different, they should still have more overlap than random pattern-sets of similar sizes. So, if looking for something else heterarchically near tower , using the hierarchical information about tower should be of some use, and vice versa. In PLN, hierarchical relationships correspond to Atoms A and B so that InheritanceAB and InheritanceBA have highly dissimilar strength; and heterarchical relationships correspond to IntensionalSimilarity relationships. The dual network structure then arises when intensional and extensional inheritance approximately correlate with each other, so that inference about either kind of inheritance assists with figuring out about the other kind. Self structure. A portion of the network of patterns forms into an approximate image of the overall network of patterns. 40 3 A Patternist Philosophy of Mind Example: Each time the agent builds a certain structure, it observes itself building the structure, and its role as builder of a tall tower (or whatever the structure is) becomes part of its self-model. Then when it is asked to build something new, it may consult its self-model to see if it believes itself capable of building that sort of thing (for instance, if it is asked to build something very large, its self-model may tell it that it lacks persistence for such projects, so it may reply I can try, but I may wind up not finishing it ). As we proceed through the CogPrime design in the following pages, we will see how each of these abstract concepts arises concretely from CogPrime s structures and algorithms. If the theory of Goe06a is correct, then the success of CogPrime as a design will depend largely on whether these high-level structures and dynamics can be made to emerge from the synergetic interaction of CogPrime s representation and algorithms, when they are utilized to control an appropriate agent in an appropriate environment. 3.3 Cognitive Synergy Now we dig a little deeper and present a different sort of general principle of feasible general intelligence , already hinted in earlier chapters: the cognitive synergy principle 2 , which is both a conceptual hypothesis about the structure of generally intelligent systems in certain classes of environments, and a design principle used to guide the design of CogPrime. Chapter 8 presents a mathematical formalization of the notion of cognitive synergy; here we present the conceptual idea informally, which makes it more easily digestible but also more vague-sounding. We will focus here on cognitive synergy specifically in the case of multi-memory systems, which we define as intelligent systems whose combination of environment, embodiment and motivational system make it important for them to possess memories that divide into partially but not wholly distinct components corresponding to the categories of: Declarative memory Examples of declarative knowledge: Towers on average are taller than buildings. I generally am better at building structures I imagine, than at imitating structures I m shown in pictures. Procedural memory (memory about how to do certain things) Examples of procedural knowledge: Practical know-how regarding how to pick up an elongated rectangular block, or a square one. Know-how regarding when to approach a problem by asking What would one of my teachers do in this situation versus by thinking through the problem from first principles. Sensory and episodic memory Example of sensory knowledge: memory of Bob s face; memory of what a specific tall blocks tower looked like 2 While these points are implicit in the theory of mind given in Goe06a , they are not articulated in this specific form there. So the material presented in this section is a new development within patternist philosophy, developed since Goe06a in a series of conference papers such as Goe09a . 3.3 Cognitive Synergy 41 Example of episodic knowledge: memory of the situation in which the agent first met Bob; memory of a situation in which a specific tall blocks tower was built Attentional memory (knowledge about what to pay attention to in what contexts) Example of attentional knowledge: When involved with a new person, it s useful to pay attention to whatever that person looks at Intentional memory (knowledge about the system s own goals and subgoals) Example of intentional knowledge: If my goal is to please some person whom I don t know that well, then a subgoal may be figuring out what makes that person smile. In Chapter 9 below we present a detailed argument as to how the requirement for a multimemory underpinning for general intelligence emerges from certain underlying assumptions regarding the measurement of the simplicity of goals and environments. Specifically we argue that each of these memory types corresponds to certain modes of communication, so that intelligent agents which have to efficiently handle a sufficient variety of types of communication with other agents, are going to have to handle all these types of memory. These types of communication overlap and are often used together, which implies that the different memories and their associated cognitive processes need to work together. The points made in this section do not rely on that argument regarding the relation of multiple memory types to the environmental situation of multiple communication types. What they do rely on is the assumption that, in the intelligence agent in question, the different components of memory are significantly but not wholly distinct. That is, there are significant family resemblances between the memories of a single type, yet there are also thoroughgoing connections between memories of different types. Repeating the above points in a slightly more organized manner and then extending them, the essential idea of cognitive synergy, in the context of multi-memory systems, may be expressed in terms of the following points 1. Intelligence, relative to a certain set of environments, may be understood as the capability to achieve complex goals in these environments. 2. With respect to certain classes of goals and environments, an intelligent system requires a multi-memory architecture, meaning the possession of a number of specialized yet interconnected knowledge types, including: declarative, procedural, attentional, sensory, episodic and intentional (goal-related). These knowledge types may be viewed as different sorts of patterns that a system recognizes in itself and its environment. 3. Such a system must possess knowledge creation (i.e. pattern recognition formation) mechanisms corresponding to each of these memory types. These mechanisms are also called cognitive processes. 4. Each of these cognitive processes, to be effective, must have the capability to recognize when it lacks the information to perform effectively on its own; and in this case, to dynamically and interactively draw information from knowledge creation mechanisms dealing with other types of knowledge 5. This cross-mechanism interaction must have the result of enabling the knowledge creation mechanisms to perform much more effectively in combination than they would if operated non-interactively. This is cognitive synergy. Interactions as mentioned in Points 4 and 5 in the above list are the real conceptual meat of the cognitive synergy idea. One way to express the key idea here, in an AI context, is that 42 3 A Patternist Philosophy of Mind most AI algorithms suffer from combinatorial explosions: the number of possible elements to be combined in a synthesis or analysis is just too great, and the algorithms are unable to filter through all the possibilities, given the lack of intrinsic constraint that comes along with a general intelligence context (as opposed to a narrow-AI problem like chess-playing, where the context is constrained and hence restricts the scope of possible combinations that needs to be considered). In an AGI architecture based on cognitive synergy, the different learning mechanisms must be designed specifically to interact in such a way as to palliate each others combinatorial explosions - so that, for instance, each learning mechanism dealing with a certain sort of knowledge, must synergize with learning mechanisms dealing with the other sorts of knowledge, in a way that decreases the severity of combinatorial explosion. One prerequisite for cognitive synergy to work is that each learning mechanism must recognize when it is stuck, meaning it s in a situation where it has inadequate information to make a confident judgment about what steps to take next. Then, when it does recognize that it s stuck, it may request help from other, complementary cognitive mechanisms. 3.4 The General Structure of Cognitive Dynamics: Analysis and Synthesis We have discussed the need for synergetic interrelation between cognitive processes corresponding to different types of memory ... and the general high-level cognitive dynamics that a mind must possess (evolution, autopoiesis). The next step is to dig further into the nature of the cognitive processes associated with different memory types and how they give rise to the needed high-level cognitive dynamics. In this section we present a general theory of cognitive processes based on a decomposition of cognitive processes into the two categories of analysis and synthesis, and a general formulation of each of these categories 3 . Specifically we focus here on what we call focused cognitive processes; that is, cognitive processes that selectively focus attention on a subset of the patterns making up a mind. In general these are not the only kind, there may also be global cognitive processes that act on every pattern in a mind. An example of a global cognitive process in CogPrime is the basic attention allocation process, which spreads importance among all knowledge in the system s memory. Global cognitive processes are also important, but focused cognitive processes are subtler to understand which is why we spend more time on them here. 3.4.1 Component-Systems and Self-Generating Systems We begin with autopoesis and, more specifically, with the concept of a component-system , as described in George Kampis s book Self-Modifying Systems in Biology and Cognitive Science Kam91 , and as modified into the concept of a self-generating system or SGS in Goertzel s book Chaotic Logic Goe94 . Roughly speaking, a Kampis-style component-system consists of a set of components that combine with each other to form other compound components. The 3 While these points are highly compatible with theory of mind given in Goe06a , they are not articulated there. The material presented in this section is a new development within patternist philosophy, presented previously only in the article GPPG06 . 3.4 The General Structure of Cognitive Dynamics: Analysis and Synthesis 43 metaphor Kampis uses is that of Lego blocks, combining to form bigger Lego structures. Compound structures may in turn be combined together to form yet bigger compound structures. A self-generating system is basically the same concept as a component-system, but understood to be computable, whereas Kampis claims that component-systems are uncomputable. Next, in SGS theory there is also a notion of reduction (not present in the Lego metaphor): sometimes when components are combined in a certain way, a reaction happens, which may lead to the elimination of some of the components. One relevant metaphor here is chemistry. Another is abstract algebra: for instance, if we combine a component f with its inverse component f 1 , both components are eliminated. Thus, we may think about two stages in the interaction of sets of components: combination, and reduction. Reduction may be thought of as algebraic simplification, governed by a set of rules that apply to a newly created compound component, based on the components that are assembled within it. Formally, suppose C 1 , C 2 , ... is the set of components present in a discrete-time componentsystem at time t. Then, the components present at time t 1 are a subset of the set of components of the form Reduce(Join(C i (1), ..., C i (r))) where Join is a joining operation, and Reduce is a reduction operator. The joining operation is assumed to map tuples of components into components, and the reduction operator is assumed to map the space of components into itself. Of course, the specific nature of a component system is totally dependent on the particular definitions of the reduction and joining operators; in following chapters we will specify these for the CogPrime system, but for the purpose of the broader theoretical discussion in this section they may be left general. What is called the cognitive equation in Chaotic Logic Goe94 is the case of a SGS where the patterns in the system at time t have a tendency to correspond to components of the system at future times t s. So, part of the action of the system is to transform implicit knowledge (patterns among system components) into explicit knowledge (specific system components). We will see one version of this phenomenon in Chapter 14 where we model implicit knowledge using mathematical structures called derived hypergraphs ; and we will also later review several ways in which CogPrime s dynamics explicitly encourage cognitive-equation type dynamics, e.g.: inference, which takes conclusions implicit in the combination of logical relationships, and makes them implicit by deriving new logical relationships from them map formation, which takes concepts that have often been active together, and creates new concepts grouping them association learning, which creates links representing patterns of association between entities probabilistic procedure learning, which creates new models embodying patterns regarding which procedures tend to perform well according to particular fitness functions 3.4.2 Analysis and Synthesis Now we move on to the main point of this section: the argument that all or nearly all focused cognitive processes are expressible using two general process-schemata we call synthesis and 44 3 A Patternist Philosophy of Mind analysis 4 . The notion of focused cognitive process will be exemplified more thoroughly below, but in essence what is meant is a cognitive process that begins with a small number of items (drawn from memory) as its focus, and has as its goal discovering something about these items, or discovering something about something else in the context of these items or in a way strongly biased by these items. This is different from a global cognitive process whose goal is more broadly-based and explicitly involves all or a large percentage of the knowledge in an intelligent system s memory store. Among the focused cognitive processes are those governed by the so-called cognitive schematic implication Context P rocedure Goal where the Context involves sensory, episodic and or declarative knowledge; and attentional knowledge is used to regulate how much resource is given to each such schematic implication in memory. Synergy among the learning processes dealing with the context, the procedure and the goal is critical to the adequate execution of the cognitive schematic using feasible computational resources. This sort of explicitly goal-driven cognition plays a significant though not necessarily dominant role in CogPrime, and is also related to production rules systems and other traditional AI systems, as will be articulated in Chapter 4. The synthesis and analysis processes as we conceive them, in the general framework of SGS theory, are as follows. First, synthesis, as shown in Figure 3.1, is defined as synthesis: Iteratively build compounds from the initial component pool using the combinators, greedily seeking compounds that seem likely to achieve the goal. Or in more detail: 1. Begin with some initial components (the initial current pool ), an additional set of components identified as combinators (combination operators), and a goal function 2. Combine the components in the current pool, utilizing the combinators, to form product components in various ways, carrying out reductions as appropriate, and calculating relevant quantities associated with components as needed 3. Select the product components that seem most promising according to the goal function, and add these to the current pool (or else simply define these as the current pool) 4. Return to Step 2 And analysis, as shown in Figure 3.2, is defined as analysis: Iteratively search (the system s long-term memory) for component-sets that combine using the combinators to form the initial component pool (or subsets thereof), greedily seeking component-sets that seem likely to achieve the goal or in more detail: 1. Begin with some components (the initial current pool ) and a goal function 2. Seek components so that, if one combines them to form product components using the combinators and then performs appropriate reductions, one obtains (as many as possible of) the components in the current pool 4 In GPPG06 , what is here called analysis was called backward synthesis , a name which has some advantages since it indicated that what s happening is a form of creation; but here we have opted for the more traditional analysis synthesis terminology 3.4 The General Structure of Cognitive Dynamics: Analysis and Synthesis 45 Fig. 3.1: The General Process of Synthesis 3. Use the newly found constructions of the components in the current pool, to update the quantitative properties of the components in the current pool, and also (via the current pool) the quantitative properties of the components in the initial pool 4. Out of the components found in Step 2, select the ones that seem most promising according to the goal function, and add these to the current pool (or else simply define these as the current pool) 5. Return to Step 2 More formally, synthesis may be specified as follows. Let X denote the set of combinators, and let Y 0 denote the initial pool of components (the initial focus of the cognitive process). Given Y i , let Z i denote the set Reduce(Join(C i (1), ..., C i (r))) where the C i are drawn from Y i or from X. We may then say Y i 1 F ilter(Z i ) where F ilter is a function that selects a subset of its arguments. Analysis, on the other hand, begins with a set W of components, and a set X of combinators, and tries to find a series Y i so that according to the process of synthesis, Y n W . In practice, of course, the implementation of a synthesis process need not involve the explicit construction of the full set Z i . Rather, the filtering operation takes place implicitly during the construction of Y i 1 . The result, however, is that one gets some subset of the compounds producible via joining and reduction from the set of components present in Y i plus the combinators X. 46 3 A Patternist Philosophy of Mind Fig. 3.2: The General Process of Analysis Conceptually one may view synthesis as a very generic sort of growth process, and analysis as a very generic sort of figuring out how to grow something. The intuitive idea underlying the present proposal is that these forward-going and backward-going growth processes are among the essential foundations of cognitive control, and that a conceptually sound design for cognitive control should explicitly make use of this fact. To abstract away from the details, what these processes are about is: taking the general dynamic of compound-formation and reduction as outlined in Kampis and Chaotic Logic introducing goal-directed pruning ( filtering ) into this dynamic so as to account for the limitations of computational resources that are a necessary part of pragmatic intelligence 3.4.3 The Dynamic of Iterative Analysis and Synthesis While synthesis and analysis are both very useful on their own, they achieve their greatest power when harnessed together. It is my hypothesis that the dynamic pattern of alternating synthesis and analysis has a fundamental role in cognition. Put simply, synthesis creates new mental forms by combining existing ones. Then, analysis seeks simple explanations for the forms in the mind, including the newly created ones; and, this explanation itself then comprises additional new forms in the mind, to be used as fodder for the next round of synthesis. Or, to put it yet more simply: 3.4 The General Structure of Cognitive Dynamics: Analysis and Synthesis 47 Combine Explain Combine Explain Combine It is not hard to express this alternating dynamic more formally, as well. Let X denote any set of components. Let F(X) denote a set of components which is the result of synthesis on X. Let B(X) denote a set of components which is the result of analysis of X. We assume also a heuristic biasing the synthesis process toward simple constructs. Let S(t) denote a set of components at time t, representing part of a system s knowledge base. Let I(t) denote components resulting from the external environment at time t. Then, we may consider a dynamical iteration of the form S(t 1) B(F (S(t) I(t))) This expresses the notion of alternating synthesis and analysis formally, as a dynamical iteration on the space of sets of components. We may then speak about attractors of this iteration: fixed points, limit cycles and strange attractors. One of the key hypotheses I wish to put forward here is that some key emergent cognitive structures are strange attractors of this equation. The iterative dynamic of combination and explanation leads to the emergence of certain complex structures that are, in essence, maintained when one recombines their parts and then seeks to explain the recombinations. These structures are built in the first place through iterative recombination and explanation, and then survive in the mind because they are conserved by this process. They then ongoingly guide the construction and destruction of various other temporary mental structures that are not so conserved. 3.4.4 Self and Focused Attention as Approximate Attractors of the Dynamic of Iterated Forward-Analysis As noted above, patternist philosophy argues that two key aspects of intelligence are emergent structures that may be called the self and the attentional focus. These, it is suggested, are aspects of intelligence that may not effectively be wired into the infrastructure of an intelligent system, though of course the infrastructure may be configured in such a way as to encourage their emergence. Rather, these aspects, by their nature, are only likely to be effective if they emerge from the cooperative activity of various cognitive processes acting within a broad base of knowledge. Above we have described the pattern of ongoing habitual oscillation between synthesis and analysis as a kind of dynamical iteration. Here we will argue that both self and attentional focus may be viewed as strange attractors of this iteration. The mode of argument is relatively informal. The essential processes under consideration are ones that are poorly understood from an empirical perspective, due to the extreme difficulty involved in studying them experimentally. For understanding self and attentional focus, we are stuck in large part with introspection, which is famously unreliable in some contexts, yet still dramatically better than having no information at all. So, the philosophical perspective on self and attentional focus given here is a synthesis of empirical and introspective notions, drawn largely from the published thinking and research of 48 3 A Patternist Philosophy of Mind others but with a few original twists. From a CogPrime perspective, its use has been to guide the design process, to provide a grounding for what otherwise would have been fairly arbitrary choices. 3.4.4.1 Self Another high-level intelligent system pattern mentioned above is the self , which we here will tie in with analysis and synthesis processes. The term self as used here refers to the phenomenal self Met04 or self-model . That is, the self is the model that a system builds internally, reflecting the patterns observed in the (external and internal) world that directly pertain to the system itself. As is well known in everyday human life, self-models need not be completely accurate to be useful; and in the presence of certain psychological factors, a more accurate self-model may not necessarily be advantageous. But a self-model that is too badly inaccurate will lead to a badly-functioning system that is unable to effectively act toward the achievement of its own goals. The value of a self-model for any intelligent system carrying out embodied agentive cognition is obvious. And beyond this, another primary use of the self is as a foundation for metaphors and analogies in various domains. Patterns recognized pertaining to the self are analogically extended to other entities. In some cases this leads to conceptual pathologies, such as the anthropomorphization of trees, rocks and other such objects that one sees in some precivilized cultures. But in other cases this kind of analogy leads to robust sorts of reasoning - for instance, in reading Lakoff and Nunez s LN00 intriguing explorations of the cognitive foundations of mathematics, it is pretty easy to see that most of the metaphors on which they hypothesize mathematics to be based, are grounded in the mind s conceptualization of itself as a spatiotemporally embedded entity, which in turn is predicated on the mind s having a conceptualization of itself (a self) in the first place. A self-model can in many cases form a self-fulfilling prophecy (to make an obvious doubleentendre !). Actions are generated based on one s model of what sorts of actions one can and or should take; and the results of these actions are then incorporated into one s self-model. If a self-model proves a generally bad guide to action selection, this may never be discovered, unless said self-model includes the knowledge that semi-random experimentation is often useful. In what sense, then, may it be said that self is an attractor of iterated analysis? Analysis infers the self from observations of system behavior. The system asks: What kind of system might I be, in order to give rise to these behaviors that I observe myself carrying out? Based on asking itself this question, it constructs a model of itself, i.e. it constructs a self. Then, this self guides the system s behavior: it builds new logical relationships its self-model and various other entities, in order to guide its future actions oriented toward achieving its goals. Based on the behaviors newly induced via this constructive, forward-synthesis activity, the system may then engage in analysis again and ask: What must I be now, in order to have carried out these new actions? And so on. Our hypothesis is that after repeated iterations of this sort, in infancy, finally during early childhood a kind of self-reinforcing attractor occurs, and we have a self-model that is resilient and doesn t change dramatically when new instances of action- or explanation-generation occur. This is not strictly a mathematical attractor, though, because over a long period of time the self may well shift significantly. But, for a mature self, many hundreds of thousands or millions of forward-analysis cycles may occur before the self-model is dramatically modified. For relatively 3.4 The General Structure of Cognitive Dynamics: Analysis and Synthesis 49 long periods of time, small changes within the context of the existing self may suffice to allow the system to control itself intelligently. Humans can also develop what are known as subselves Row90 . A subself is a partially autonomous self-network focused on particular tasks, environments or interactions. It contains a unique model of the whole organism, and generally has its own set of episodic memories, consisting of memories of those intervals during which it was the primary dynamic mode controlling the organism. One common example is the creative subself the subpersonality that takes over when a creative person launches into the process of creating something. In these times, a whole different personality sometimes emerges, with a different sort of relationship to the world. Among other factors, creativity requires a certain open-ness that is not always productive in an everyday life context, so it s natural for the self-system of a highly creative person to bifurcate into one self-system for everyday life, and another for the protected context of creative activity. This sort of phenomenon might emerge naturally in CogPrime systems as well if they were exposed to appropriate environments and social situations. Finally, it is interesting to speculate regarding how self may differ in future AI systems as opposed to in humans. The relative stability we see in human selves may not exist in AI systems that can self-improve and change more fundamentally and rapidly than humans can. There may be a situation in which, as soon as a system has understood itself decently, it radically modifies itself and hence violates its existing self-model. Thus: intelligence without a long-term stable self. In this case the attractor-ish nature of the self holds only over much shorter time scales than for human minds or human-like minds. But the alternating process of synthesis and analysis for self-construction is still critical, even though no reasonably stable self-constituting attractor ever emerges. The psychology of such intelligent systems will almost surely be beyond human beings capacity for comprehension and empathy. 3.4.4.2 Attentional Focus Finally, we turn to the notion of an attentional focus similar to Baars Baa97 notion of a Global Workspace, which will be reviewed in more detail in Chapter 4: a collection of mental entities that are, at a given moment, receiving far more than the usual share of an intelligent system s computational resources. Due to the amount of attention paid to items in the attentional focus, at any given moment these items are in large part driving the cognitive processes going on elsewhere in the mind as well - because the cognitive processes acting on the items in the attentional focus are often involved in other mental items, not in attentional focus, as well (and sometimes this results in pulling these other items into attentional focus). An intelligent system must constantly shift its attentional focus from one set of entities to another based on changes in its environment and based on its own shifting discoveries. In the human mind, there is a self-reinforcing dynamic pertaining to the collection of entities in the attentional focus at any given point in time, resulting from the observation that: If A is in the attentional focus, and A and B have often been associated in the past, then odds are increased that B will soon be in the attentional focus. This basic observation has been refined tremendously via a large body of cognitive psychology work; and neurologically it follows not only from Hebb s Heb49 classic work on neural reinforcement learning, but also from numerous more modern refinements SB98 . But it implies that two items A and B, if both in the attentional focus, can reinforce each others presence in the attentional focus, hence forming a kind of conspiracy to keep each other in the limelight. But of course, this kind of dynamic 50 3 A Patternist Philosophy of Mind must be counteracted by a pragmatic tendency to remove items from the attentional focus if giving them attention is not providing sufficient utility in terms of the achievement of system goals. The synthesis and analysis perspective provides a more systematic perspective on this selfreinforcing dynamic. Synthesis occurs in the attentional focus when two or more items in the focus are combined to form new items, new relationships, new ideas. This happens continually, as one of the main purposes of the attentional focus is combinational. On the other hand, Analysis then occurs when a combination that has been speculatively formed is then linked in with the remainder of the mind (the unconscious , the vast body of knowledge that is not in the attentional focus at the given moment in time). Analysis basically checks to see what support the new combination has within the existing knowledge store of the system. Thus, forward-analysis basically comes down to generate and test , where the testing takes the form of attempting to integrate the generated structures with the ideas in the unconscious longterm memory. One of the most obvious examples of this kind of dynamic is creative thinking (Boden, 2003; Goertzel, 1997), where the attentional focus continually combinationally creates new ideas, which are then tested via checking which ones can be validated in terms of (built up from) existing knowledge. The analysis stage may result in items being pushed out of the attentional focus, to be replaced by others. Likewise may the synthesis stage: the combinations may overshadow and then replace the things combined. However, in human minds and functional AI minds, the attentional focus will not be a complete chaos with constant turnover: Sometimes the same set of ideas or a shifting set of ideas within the same overall family of ideas will remain in focus for a while. When this occurs it is because this set or family of ideas forms an approximate attractor for the dynamics of the attentional focus, in particular for the forward-analysis dynamic of speculative combination and integrative explanation. Often, for instance, a small core set of ideas will remain in the attentional focus for a while, but will not exhaust the attentional focus: the rest of the attentional focus will then, at any point in time, be occupied with other ideas related to the ones in the core set. Often this may mean that, for a while, the whole of the attentional focus will move around quasi-randomly through a strange attractor consisting of the set of ideas related to those in the core set. 3.4.5 Conclusion The ideas presented above (the notions of synthesis and analysis, and the hypothesis of self and attentional focus as attractors of the iterative forward-analysis dynamic) are quite generic and are hypothetically proposed to be applicable to any cognitive system, natural or artificial. Later chapters will discuss the manifestation of the above ideas in the context of CogPrime. We have found that the analysis synthesis approach is a valuable tool for conceptualizing CogPrime s cognitive dynamics, and we conjecture that a similar utility may be found more generally. Next, so as not to end the section on too blas of a note, we will also make a stronger hypothesis: that, in order for a physical or software system to achieve intelligence that is roughly human-level in both capability and generality, using computational resources on the same order of magnitude as the human brain, this system must manifest the dynamic of iterated synthesis and analysis, as modes of an underlying selfgenerating system dynamic 3.5 Perspectives on Machine Consciousness 51 do so in such a way as to lead to self and attentional focus as emergent structures that serve as approximate attractors of this dynamic, over time periods that are long relative to the basic cognitive cycle time of the system s forward-analysis dynamics To prove the truth of a hypothesis of this nature would seem to require mathematics fairly far beyond anything that currently exists. Nonetheless, however, we feel it is important to formulate and discuss such hypotheses, so as to point the way for future investigations both theoretical and pragmatic. 3.5 Perspectives on Machine Consciousness Finally, we can t let a chapter on philosophy even a brief one end without some discussion of the thorniest topic in the philosophy of mind: consciousness. Rather than seeking to resolve or comprehensively review this most delicate issue, we will restrict ourselves to giving it in Appendix ?? an overview of many of the common views on the subject; and here in the main text discussing the relationship between consciousness theory and patternist philosophy of cognition, the practical work of designing and building AGI. One fairly concrete idea about consciousness, that relates closely to certain aspects of the CogPrime design, is that the subjective experience of being conscious of some entity X, is correlated with the presence of a very intense pattern in one s overall mind-state, corresponding to X. This simple idea is also the essence of neuroscientist Susan Greenfield s theory of consciousness Gre01 (but in her theory, "overall mind-state" is replaced with "brain-state"), and has much deeper historical roots in philosophy of mind which we shall not venture to unravel here. This observation relates to the idea of "moving bubbles of awareness" in intelligent systems. If an intelligent system consists of multiple processing or data elements, and during each (sufficiently long) interval of time some of these elements get much more attention than others, then one may view the system as having a certain "attentional focus" during each interval. The attentional focus is itself a significant pattern in the system (the pattern being "these elements habitually get more processor and memory", roughly speaking). As the attentional focus shifts over time one has a "moving bubble of pattern" which then corresponds experientially to a "moving bubble of awareness." This notion of a "moving bubble of awareness" ties in very closely to global workspace theory Baa97 (briefly mentioned above), a cognitive theory that has broad support from neuroscience and cognitive science and has also served as the motivation for Stan Franklin s LIDA AI system BF09 , to be discussed in Chapter ??. The global workspace theory views the mind as consisting of a large population of small, specialized processes a society of agents. These agents organize themselves into coalitions, and coalitions that are relevant to contextually novel phenomena, or contextually important goals, are pulled into the global workspace (which is identified with consciousness). This workspace broadcasts the message of the coalition to all the unconscious agents, and recruits other agents into consciousness. Various sorts of contexts e.g. goal contexts, perceptual contexts, conceptual contexts and cultural contexts play a role in determining which coalitions are relevant, and form the unconscious "background" of the conscious global workspace. New perceptions are often, but not necessarily, pushed into the workspace. Some of the agents in the global workspace are concerned with action selection, i.e. with controlling and passing parameters to a population of possible actions. The contents of the workspace at any given time have a certain cohesiveness and interdependency, the so-called 52 3 A Patternist Philosophy of Mind "unity of consciousness." In essence the contents of the global workspace form a moving bubble of attention or awareness. In CogPrime, this moving bubble is achieved largely via economic attention network (ECAN) equations GPI 10 that propagate virtual currency between nodes and links representing elements of memories, so that the attentional focus consists of the wealthiest nodes and links. Figures 3.3 and 3.4 illustrate the existence and flow of attentional focus in OpenCog. On the other hand, in Hameroff s recent model of the brain Ham10 , the brain s moving bubble of attention is achieved through dendro-dendritic connections and the emergent dendritic web. Fig. 3.3: Graphical depiction of the momentary bubble of attention in the memory of an OpenCog AI system. Circles and lines represent nodes and links in OpenCogPrimes memory, and stars denote those nodes with a high level of attention (represented in OpenCog by the ShortTermImportance node variable) at the particular point in time. In this perspective, self, free will and reflective consciousness are specific phenomena occurring within the moving bubble of awareness. They are specific ways of experiencing awareness, corresponding to certain abstract types of physical structures and dynamics, which we shall endeavor to identify in detail in Appendix ??. 3.6 Postscript: Formalizing Pattern 53 Fig. 3.4: Graphical depiction of the momentary bubble of attention in the memory of an OpenCog AI system, a few moments after the bubble shown in Figure 3.3, indicating the moving of the bubble of attention. Depictive conventions are the same as in Figure 1. This shows an idealized situation where the declarative knowledge remains invariant from one moment to the next but only the focus of attention shifts. In reality both will evolve together. 3.6 Postscript: Formalizing Pattern Finally, before winding up our very brief tour through patternist philosophy of mind, we will briefly visit patternism s more formal side. Many of the key aspects of patternism have been rigorously formalized. Here we give only a few very basic elements of the relevant mathematics, which will be used later on in the exposition of CogPrime. (Specifically, the formal definition of pattern emerges in the CogPrime design in the definition of a fitness function for pattern mining algorithms and Occam-based concept creation algorithms, and the definition of intensional inheritance within PLN.) We give some definitions, drawn from Appendix 1 of Goe06a : Definition 1 Given a metric space (M, d), and two functions c : M 0, (the simplicity measure ) and F : M M (the production relationship ), we say that P M is a pattern in X M to the degree 54 3 A Patternist Philosophy of Mind P X (( 1 d(F (P), X) c(X) ) c(X) c(P) c(X) This degree is called the pattern intensity of P in X. It quantifies the extent to which P is a pattern in X. Supposing that F (P) X, then the first factor in the definition equals 1, and we are left with only the second term, which measures the degree of compression obtained via representing X as the result of P rather than simply representing X directly. The greater the compression ratio obtained via using P to represent X, the greater the intensity of P as a pattern in X. The first time, in the case F (P) X, adjusts the pattern intensity downwards to account for the amount of error with which F (P) approximates X. If one holds the second factor fixed and thinks about varying the first factor, then: The greater the error, the lossier the compression, and the lower the pattern intensity. For instance, if one wishes one may take c to denote algorithmic information measured on some reference Turing machine, and F (X) to denote what appears on the second tape of a two-tape Turing machine t time-steps after placing X on its first tape. Other more naturalistic computational models are also possible here and are discussed extensively in Appendix 1 of Goe06a . ) Definition 2 The structure of X M is the fuzzy set St X function StX (P) P X defined via the membership This lets us formalize our definition of mind alluded to above: the mind of X as the set of patterns associated with X. We can formalize this, for instance, by considering P to belong to the mind of X if it is a pattern in some Y that includes X. There are then two numbers to look at: P X and P (Y X) (the percentage of Y that is also contained in X). To define the degree to which P belongs to the mind of X we can then combine these two numbers using some function f that is monotone increasing in both arguments. This highlights the somewhat arbitrary semantics of of in the phrase the mind of X. Which of the patterns binding X to its environment are part of X s mind, and which are part of the world? This isn t necessarily a good question, and the answer seems to depend on what perspective you choose, represented formally in the present framework by what combination function f you choose (for instance if f(a, b) a r b 2 r then it depends on the choice of 0 r 1). Next, we can formalize the notion of a pattern space by positing a metric on patterns, thus making pattern space a metric space, which will come in handy in some places in later chapters: Definition 3 Assuming M is a countable space, the structural distance is a metric d St defined on M via d St (X, Y ) T ( StX , StY ) where T is the Tanimoto distance. The Tanimoto distance between two real vectors A and B is defined as T (A, B) A B A 2 B 2 A B and since M is countable this can be applied to fuzzy sets such as St X via considering the latter as vectors. (As an aside, this can be generalized to uncountable M as well, but we will not require this here.) 3.6 Postscript: Formalizing Pattern 55 Using this definition of pattern, combined with the formal theory of intelligence given in Chapter 7, one may formalize the various hypotheses made in the previous section, regarding the emergence of different kinds of networks and structures as patterns in intelligent systems. However, it appears quite difficult to prove the formal versions of these hypotheses given current mathematical tools, which renders such formalizations of limited use. Finally, consider the case where the metric space M has a partial ordering on it; we may then define Definition 3.1. R M is a subpattern in X M to the degree R P M X true(R P )d P X P M d P X This degree is called the subpattern intensity of P in X. Roughly speaking, the subpattern intensity measures the percentage of patterns in X that contain R (where "containment" is judged by the partial ordering ). But the percentage is measured using a weighted average, where each pattern is weighted by its intensity as a pattern in X. A subpattern may or may not be a pattern on its own. A nonpattern that happens to occur within many patterns may be an intense subpattern. Whether the subpatterns in X are to be considered part of the "mind" of X is a somewhat superfluous question of semantics. Here we choose to extend the definition of mind given in Goe06a to include subpatterns as well as patterns, because this makes it simpler to describe the relationship between hypersets and minds, as we will do in Appendix ??. Chapter 4 Brief Survey of Cognitive Architectures 4.1 Introduction While we believe CogPrime is the most thorough attempt at an architecture for advanced AGI, to date, we certainly recognize there have been many valuable attempts in the past with similar aims; and we also have great respect for other AGI efforts occurring in parallel with Cog- Prime development, based on alternative, sometimes overlapping, theoretical presuppositions and practical choices. In most of this book we will ignore these other current and historical efforts except where they are directly useful for CogPrime there are many literature reviews already published, and this is a research treatise not a textbook. In this chapter, however, we will break from this pattern and give a rough high-level overview of the various AGI architectures at play in the field today. The overview definitely has a bias toward other work with some direct relevance to CogPrime, but not an overwhelming bias; we also discuss a number of approaches that are unrelated to, and even in some cases conceptually orthogonal to, our own. CogPrime builds on prior AI efforts in a variety of ways. Most of the specific algorithms and structures in CogPrime have their roots in prior AI work; and in addition, the CogPrime cognitive architecture has been heavily inspired by some other holistic cognitive architectures, especially (but not exclusively) MicroPsi Bac09 , LIDA BF09 and DeSTIN ARK09a, ARC09 . In this chapter we will briefly review some existing cognitive architectures, with especial but not exclusive emphasis on the latter three. We will articulate some rough mappings between elements of these other architectures and elements of CogPrime some in this chapter, and some in Chapter 5. However, these mappings will mostly be left informal and very incompletely specified. The articulation of detailed interarchitecture mappings is an important project, but would be a substantial additional project going well beyond the scope of this book. We will not give a thorough review of the similarities and differences between CogPrime and each of these architectures, but only mention some of the highlights. The reader desiring a more thorough review of cognitive architectures is referred to Wlodek Duch s review paper from the AGI-08 conference DOP08 ; and also to Alexei Samsonovich s review paper Sam10 , which compares a number of cognitive architectures in terms of a feature checklist, and was created collaboratively with the creators of the architectures. Duch, in his survey of cognitive architectures DOP08 , divides existing approaches into three paradigms symbolic, emergentist and hybrid as broadly indicated in Figure 4.1. Drawing on his survey and updating slightly, we give here some key examples of each, and then explain why 57 58 4 Brief Survey of Cognitive Architectures CogPrime represents a significantly more effective approach to embodied human-like general intelligence. In our treatment of emergentist architectures, we pay particular attention to developmental robotics architectures, which share considerably with CogPrime in terms of underlying philosophy, but differ via not integrating a symbolic language and inference component such as CogPrime includes. In brief, we believe that the hybrid approach is the most pragmatic one given the current state of AI technology, but that the emergentist approach gets something fundamentally right, by focusing on the emergence of complex dynamics and structures from the interactions of simple components. So CogPrime is a hybrid architecture which (according to the cognitive synergy principle) binds its components together very tightly dynamically, allowing the emergence of complex dynamics and structures in the integrated system. Most other hybrid architectures are less tightly coupled and hence seem ill-suited to give rise to the needed emergent complexity. The other hybrid architectures that do possess the needed tight coupling, such as MicroPsi Bac09 , strike us as underdeveloped and founded on insufficiently powerful learning algorithms. Fig. 4.1: Duch s simplified taxonomy of cognitive architectures. CogPrime falls into the hybrid category, but differs from other hybrid architectures in its focus on synergetic interactions between components and their potential to give rise to appropriate system-wide emergent structures enabling general intelligence. 4.2 Symbolic Cognitive Architectures A venerable tradition in AI focuses on the physical symbol system hypothesis New90 , which states that minds exist mainly to manipulate symbols that represent aspects of the world or themselves. A physical symbol system has the ability to input, output, store and alter symbolic entities, and to execute appropriate actions in order to reach its goals. Generally, symbolic cognitive architectures focus on working memory that draws on long-term memory as needed, and utilize a centralized control over perception, cognition and action. Although in principle such architectures could be arbitrarily capable (since symbolic systems have universal repre- 4.2 Symbolic Cognitive Architectures 59 sentational and computational power, in theory), in practice symbolic architectures tend to be weak in learning, creativity, procedure learning, and episodic and associative memory. Decades of work in this tradition have not resolved these issues, which has led many researchers to explore other options. A few of the more important symbolic cognitive architectures are: SOAR LRN87 , a classic example of expert rule-based cognitive architecture designed to model general intelligence. It has recently been extended to handle sensorimotor functions, though in a somewhat cognitively unnatural way; and is not yet strong in areas such as episodic memory, creativity, handling uncertain knowledge, and reinforcement learning. ACT-R AL03 is fundamentally a symbolic system, but Duch classifies it as a hybrid system because it incorporates connectionist-style activation spreading in a significant role; and there is an experimental thoroughly connectionist implementation to complement the primary mainly-symbolic implementation. Its combination of SOAR-style production rules with large-scale connectionist dynamics allows it to simulate a variety of human psychological phenomena, but abstract reasoning, creativity and transfer learning are still missing. EPIC RCK01 , a cognitive architecture aimed at capturing human perceptual, cognitive and motor activities through several interconnected processors working in parallel. The system is controlled by production rules for cognitive processors and a set of perceptual (visual, auditory, tactile) and motor processors operating on symbolically coded features rather than raw sensory data. It has been connected to SOAR for problem solving, planning and learning, ICARUS Lan05 , an integrated cognitive architecture for physical agents, with knowledge specified in the form of reactive skills, each denoting goal-relevant reactions to a class of problems. The architecture includes a number of modules: a perceptual system, a planning system, an execution system, and several memory systems. Concurrent processing is absent, attention allocation is fairly crude, and uncertain knowledge is not thoroughly handled. SNePS (Semantic Network Processing System) SE07 is a logic, frame and network-based knowledge representation, reasoning, and acting system that has undergone over three decades of development. While it has been used for some interesting prototype experiments in language processing and virtual agent control, it has not yet been used for any large-scale or real-world application. Cyc LG90 is an AGI architecture based on predicate logic as a knowledge representation, and using logical reasoning techniques to answer questions and derive new knowledge from old. It has been connected to a natural language engine, and designs have been created for the connection of Cyc with Albus s 4D-RCS AM01 . Cyc s most unique aspect is the large database of commonsense knowledge that Cycorp has accumulated (millions of pieces of knowledge, entered by specially trained humans in predicate logic format); part of the philosophy underlying Cyc is that once a sufficient quantity of knowledge is accumulated in the knowledge base, the problem of creating human-level general intelligence will become much less difficult due to the ability to leverage this knowledge. While these architectures contain many valuable ideas and have yielded some interesting results, we feel they are incapable on their own of giving rise to the emergent structures and dynamics required to yield humanlike general intelligence using feasible computational resources. However, we are more sanguine about the possibility of ideas and components from symbolic architectures playing a role in human-level AGI via incorporation in hybrid architectures. We now review a few symbolic architectures in slightly more detail. 60 4 Brief Survey of Cognitive Architectures 4.2.1 SOAR The cognitive architectures best known among AI academics are probably Soar and ACT-R, both of which are explicitly being developed with the dual goals of creating human-level AGI and modeling all aspects of human psychology. Neither the Soar nor ACT-R communities feel themselves particularly near these long-term goals, yet they do take them seriously. Soar is based on IF-THEN rules, otherwise known as production rules. On the surface this makes it similar to old-style expert systems, but Soar is much more than an expert system; it s at minimum a sophisticated problem-solving engine. Soar explicitly conceives problem solving as a search through solution space for a goal state representing a (precise or approximate) problem solution. It uses a methodology of incremental search, where each step is supposed to move the system a little closer to its problem-solving goal, and each step involves a potentially complex decision cycle. In the simplest case, the decision cycle has two phases: Gathering appropriate information from the system s long-term memory (LTM) into its working memory (WM) A decision procedure that uses the gathered information to decide an action If the knowledge available in LTM isn t enough to solve the problem, then the decision procedure invokes search heuristics like hill-climbing, which try to create new knowledge (new production rules) that will help move the system closer to a solution. If a solution is found by chaining together multiple production rules, then a chunking mechanism is used to combine these rules together into a single rule for future use. One could view the chunking mechanism as a way of converting explicit knowledge into implicit knowledge, similar to map formation in CogPrime (see Chapter 42 of Part 2), but in the current Soar design and implementation it is a fairly crude mechanism. In recent years Soar has acquired a number of additional methods and modalities, including some visual reasoning methods and some mechanisms for handling episodic and procedural knowledge. These expand the scope of the system but the basic production rule and chunking mechanisms as briefly described above remain the core cognitive algorithm of the system. From a CogPrime perspective, what Soar offers is certainly valuable, e.g. heuristics for transferring knowledge from LTM into WM chaining and chunking of implications methods for interfacing between other forms of knowledge and implications However, a very short and very partial list of the major differences between Soar and Cog- Prime would include CogPrime contains a variety of other core cognitive mechanisms beyond the management and chunking of implications the variety of chunking type methods in CogPrime goes far beyond the sort of localized chunking done in Soar CogPrime is committed to representing uncertainty at the base level whereas Soar s production rules are crisp The mechanisms for LTM-WM interaction are rather different in CogPrime, being based on complex nonlinear dynamics as represented in Economic Attention Allocation (ECAN) Currently Soar does not contain creativity-focused heuristics like blending or evolutionary learning in its core cognitive dynamic. 4.2 Symbolic Cognitive Architectures 61 4.2.2 ACT-R In the grand scope of cognitive architectures, ACT-R is quite similar to Soar, but there are many micro-level differences. ACT-R is defined in terms of declarative and procedural knowledge, where procedural knowledge takes the form of Soar-like production rules, and declarative knowledge takes the form of chunks. It contains a variety of mechanisms for learning new rules and chunks from old; and also contains sophisticated probabilistic equations for updating the activation levels associated with items of knowledge (these equations being roughly analogous in function to, though quite different from, the ECAN equations in CogPrime). Figure 4.2 displays the current architecture of ACT-R. The flow of cognition in the system is in response to the current goal, currently active information from declarative memory, information attended to in perceptual modules (vision and audition are implemented), and the current state of motor modules (hand and speech are implemented). The early work with ACT-R was based on comparing system performance to human behavior, using only behavioral measures, such as the timing of keystrokes or patterns of eye movements. Using such measures, it was not possible to test detailed assumptions about which modules were active in the performance of a task. More recently the ACT-R community has been engaged in a process of using imaging data to provide converging data on module activity. Figure 4.3 illustrates the associations they have made between the modules in Figure 4.2 and brain regions. Coordination among all of these components occurs through actions of the procedural module, which is mapped to the basal ganglia. Fig. 4.2: High-level architecture of ACT-R In practice ACT-R, even more so than Soar, seems to be used more as a programming framework for cognitive modeling than as an AI system. One can fairly easily use ACT-R to program models of specific human mental behaviors, which may then be matched against 62 4 Brief Survey of Cognitive Architectures Fig. 4.3: Conjectured Mapping Between ACT-R and the Brain psychological data. Opinions differ as to whether this sort of modeling is valuable for achieving AGI goals. CogPrime is not designed to support this kind of modeling, as it intentionally does many things very differently from humans. ACT-R in its original form did not say much about perceptual and motor operations, but recent versions have incorporated EPIC, an independent cognitive architecture focused on modeling these aspects of human behavior. 4.2.3 Cyc and Texai Our review of cognitive architectures would be incomplete without mentioning Cyc LG90 , one of the best known and best funded AGI-oriented projects in history. While the main focus of the Cyc project has been on the hand-coding of large amounts of declarative knowledge, there is also a cognitive architecture of sorts there. The center of Cyc is an engine for logical deduction, acting on knowledge represented in predicate logic. A natural language engine has been associated with the logic engine, which enables one to ask English questions and get English replies. Stephen Reed, while an engineer at Cycorp, designed a perceptual-motor front end for Cyc based on James Albus Reference Model Architecture; the ensuing system, called Cognitive- Cyc, would have been the first full-fledged cognitive architecture based on Cyc, but was not implemented. Reed left Cycorp and is now building a system called Texai, which has many similarities to Cyc (and relies upon the OpenCyc knowledge base, a subset of Cyc s overall knowledge base), but incorporates a CognitiveCyc style cognitive architecture. 4.2 Symbolic Cognitive Architectures 63 4.2.4 NARS Pei Wang s NARS logic Wan06 played a large role in the development of PLN, CogPrime s uncertain logic component, a relationship that is discussed in depth in GMIH08 and won t be re-emphasized here. However, NARS is more than just an uncertain logic, it is also an overall cognitive architecture (which is centered on NARS logic, but also includes other aspects). CogPrime bears little relation to NARS except in the specific similarities between PLN logic and NARS logic, but, the other aspects of NARS are worth briefly recounting here. NARS is formulated as a system for processing tasks, where a task consists of a question or a piece of new knowledge. The architecture is focused on declarative knowledge, but some pieces of knowledge may be associated with executable procedures, which allows NARS to carry out control activities (in roughly the same way that a Prolog program can). At any given time a NARS system contains working memory: a small set of tasks which are active, kept for a short time, and closely related to new questions and new knowledge long-term memory: a huge set of knowledge which is passive, kept for a long time, and not necessarily related to current questions and knowledge The working and long term memory spaces of NARS may each be thought of as a set of chunks, where each chunk consists of a set of tasks and a set of knowledge. NARS s basic cognitive process is: 1. choose a chunk 2. choose a task from that chunk 3. choose a piece of knowledge from that chunk 4. use the task and knowledge to do inference 5. send the new tasks to corresponding chunks Depending on the nature of the task and knowledge, the inference involved may be one of the following: if the task is a question, and the knowledge happens to be an answer to the question, a copy of the knowledge is generated as a new task backward inference revision (merging two pieces of knowledge with the same form but different truth value) forward inference execution of a procedure associated with a piece of knowledge Unlike many other systems, NARS doesn t decide what type of inference is used to process a task when the task is accepted, but works in a data-driven way that is, it is the task and knowledge that dynamically determine what type of inference will be carried out The choice processes mentioned above are done via assigning relative priorities to chunks (where they are called activity) tasks (where they are called urgency) knowledge (where they are called importance) 64 4 Brief Survey of Cognitive Architectures and then distributing the system s resources accordingly, based on a probabilistic algorithm. (It s interesting to note that while NARS uses probability theory as part of its control mechanism, the logic it uses to represent its own knowledge about the world is nonprobabilistic. This is considered conceptually consistent, in the context of NARS theory, because system control is viewed as a domain where the system s knowledge is more complete, thus more amenable to probabilistic reasoning.) 4.2.5 GLAIR and SNePS Another logic-focused cognitive architecture, very different from NARS in detail, is Stuart Shapiro s GLAIR cognitive architecture, which is centered on the SNePS paraconsistent logic SE07 . Like NARS, the core cognitive loop of GLAIR is based on reasoning: either thinking about some percept (e.g. linguistic input, or sense data from the virtual or physical world), or answering some question. This inference based cognition process is turned into an intelligent agent control process via coupling it with an acting component, which operates according to a set of policies, each one of which tells the system when to take certain internal or external actions (including internal reasoning actions) in response to its observed internal and external situation. GLAIR contains multiple layers: the Knowledge Layer (KL), which contains the beliefs of the agent, and is where reasoning, planning, and act selection are performed the Sensori-Actuator Layer (SAL), contains the controllers of the sensors and effectors of the hardware or software robot. the Perceptuo-Motor Layer (PML), which grounds the KL symbols in perceptual structures and subconscious actions, contains various registers for providing the agent s sense of situatedness in the environment, and handles translation and communication between the KL and the SAL. The logical Knowledge Layer incorporates multiple memory types using a common representation (including declarative, procedural, episodic, attentional and intentional knowledge, and meta-knowledge). To support this broad range of knowledge types, a broad range of logical inference mechanisms are used, so that the KL may be variously viewed as predicate logic based, frame based, semantic network based, or from other perspectives. What makes GLAIR more robust than most logic based AI approaches is the novel paraconsistent logical formalism used in the knowledge base, which means (among other things) that uncertain, speculative or erroneous knowledge may exist in the system s memory without leading the system to create a broadly erroneous view of the world or carry out egregiously unintelligent actions. CogPrime is not thoroughly logic-focused like GLAIR is, but in its logical aspect it seeks a similar robustness through its use of PLN logic, which embodies properties related to paraconsistency. Compared to CogPrime, we see that GLAIR has a similarly integrative approach, but that the integration of different sorts of cognition is done more strictly within the framework of logical knowledge representation. 4.3 Emergentist Cognitive Architectures 65 4.3 Emergentist Cognitive Architectures Another species of cognitive architecture expects abstract symbolic processing to emerge from lower-level subsymbolic dynamics, which sometimes (but not always) are designed to simulate neural networks or other aspects of human brain function. These architectures are typically strong at recognizing patterns in high-dimensional data, reinforcement learning and associative memory; but no one has yet shown how to achieve high-level functions such as abstract reasoning or complex language processing using a purely subsymbolic approach. A few of the more important subsymbolic, emergentist cognitive architectures are: DeSTIN ARK09a, ARC09 , which is part of CogPrime, may also be considered as an autonomous AGI architecture, in which case it is emergentist and contains mechanisms to encourage language, high-level reasoning and other abstract aspects of intelligent to emerge from hierarchical pattern recognition and related self-organizing network dynamics. In CogPrime DeSTIN is used as part of a hybrid architecture, which greatly reduces the reliance on DeSTIN s emergent properties. Hierarchical Temporal Memory (HTM) HB06 is a hierarchical temporal pattern recognition architecture, presented as both an AI approach and a model of the cortex. So far it has been used exclusively for vision processing and we will discuss its shortcomings later in the context of our treatment of DeSTIN. SAL JL08 , based on the earlier and related IBCA (Integrated Biologically-based Cognitive Architecture) is a large-scale emergent architecture that seeks to model distributed information processing in the brain, especially the posterior and frontal cortex and the hippocampus. So far the architectures in this lineage have been used to simulate various human psychological and psycholinguistic behaviors, but haven t been shown to give rise to higher-level behaviors like reasoning or subgoaling. NOMAD (Neurally Organized Mobile Adaptive Device) automata and its successors KE06 are based on Edelman s Neural Darwinism model of the brain, and feature large numbers of simulated neurons evolving by natural selection into configurations that carry out sensorimotor and categorization tasks. The emergence of higher-level cognition from this approach seems rather unlikely. Ben Kuipers and his colleagues MK07, MK08, MK09 have pursued an extremely innovative research program which combines qualitative reasoning and reinforcement learning to enable an intelligent agent to learn how to act, perceive and model the world. Kuipers notion of bootstrap learning involves allowing the robot to learn almost everything about its world, including for instance the structure of 3D space and other things that humans and other animals obtain via their genetic endowments. Compared to Kuipers approach, CogPrime falls in line with most other approaches which provide more hard-wired structure, following the analogy to biological organisms that are born with more innate biases. There is also a set of emergentist architectures focused specifically on developmental robotics, which we will review below in a separate subsection, as all of these share certain common characteristics. Our general perspective on the emergentist approach is that it is philosophically correct but currently pragmatically inadequate. Eventually, some emergentist approach could surely succeed at giving rise to humanlike general intelligence the human brain, after all, is plainly an emergentist system. However, we currently lack understanding of how the brain gives rise to abstract reasoning and complex language, and none of the existing emergentist systems 66 4 Brief Survey of Cognitive Architectures seem remotely capable of giving rise to such phenomena. It seems to us that the creation of a successful emergentist AGI will have to wait for either a detailed understanding of how the brain gives rise to abstract thought, or a much more thorough mathematical understanding of the dynamics of complex self-organizing systems. The concept of cognitive synergy is more relevant to emergentist than to symbolic architectures. In a complex emergentist architecture with multiple specialized components, much of the emergence is expected to arise via synergy between different richly interacting components. Symbolic systems, at least in the forms currently seen in the literature, seem less likely to give rise to cognitive synergy as their dynamics tend to be simpler. And hybrid systems, as we shall see, are somewhat diverse in this regard: some rely heavily on cognitive synergies and others consist of more loosely coupled components. We now review the DeSTIN emergentist architecture in more detail, and then turn to the developmental robotics architectures. 4.3.1 DeSTIN: A Deep Reinforcement Learning Approach to AGI The DeSTIN architecture, created by Itamar Arel and his colleagues, addresses the problem of general intelligence using hierarchical spatiotemporal networks designed to enable scalable perception, state inference and reinforcement-learning-guided action in real-world environments. DeSTIN has been developed with the plan of gradually extending it into a complete system for humanoid robot control, founded on the same qualitative information-processing principles as the human brain (though without striving for detailed biological realism). However, the practical work with DeSTIN to date has focused on visual and auditory processing; and in the context of the present proposal, the intention is to utilize DeSTIN for perception and actuation oriented processing, hybridizing it with CogPrime which will handle abstract cognition and language. Here we will discuss DeSTIN primarily in the perception context, only briefly mentioning the application to actuation which is conceptually similar. In DeSTIN (see Figure 4.4), perception is carried out by a deep spatiotemporal inference network, which is connected to a similarly architected critic network that provides feedback on the inference network s performance, and an action network that controls actuators based on the activity in the inference network (Figure 4.5 depicts a standard action hierarchy, of which the hierarchy in DeSTIN is an example). The nodes in these networks perform probabilistic pattern recognition according to algorithms to be described below; and the nodes in each of the networks may receive states of nodes in the other networks as inputs, providing rich interconnectivity and synergetic dynamics. 4.3.1.1 Deep versus Shallow Learning for Perceptual Data Processing The most critical feature of DeSTIN is its uniquely robust approach to modeling the world based on perceptual data. Mimicking the efficiency and robustness by which the human brain analyzes and represents information has been a core challenge in AI research for decades. For instance, humans are exposed to massive amounts of visual and auditory data every second of every day, and are somehow able to capture critical aspects of it in a way that allows for appropriate future recollection and action selection. For decades, it has been known that the 4.3 Emergentist Cognitive Architectures 67 Fig. 4.4: High-level architecture of DeSTIN brain is a massively parallel fabric, in which computation processes and memory storage are highly distributed. But massive parallelism is not in itself a solution one also needs the right architecture; which DeSTIN provides, building on prior work in the area of deep learning. Humanlike intelligence is heavily adapted to the physical environments in which humans evolved; and one key aspect of sensory data coming from our physical environments is its hierarchical structure. However, most machine learning and pattern recognition systems are shallow in structure, not explicitly incorporating the hierarchical structure of the world in their architecture. In the context of perceptual data processing, the practical result of this is the need to couple each shallow learner with a pre-processing stage, wherein high-dimensional sensory signals are reduced to a lower-dimension feature space that can be understood by the shallow learner. The hierarchical structure of the world is thus crudely captured in the hierarchy of preprocessor plus shallow learner. In this sort of approach, much of the intelligence of the system shifts to the feature extraction process, which is often imperfect and always applicationdomain specific. Deep machine learning has emerged as a more promising framework for dealing with complex, high-dimensional real-world data. Deep learning systems possess a hierarchical structure that intrinsically biases them to recognize the hierarchical patterns present in real-world data. Thus, they hierarchically form a feature space that is driven by regularities in the observations, rather than by hand-crafted techniques. They also offer robustness to many of the distortions and transformations that characterize real-world signals, such as noise, displacement, scaling, etc. Deep belief networks HOT06 and Convolutional Neural Networks LBDE90 have been demonstrated to successfully address pattern inference in high dimensional data (e.g. images). They owe their success to their underlying paradigm of partitioning large data structures into smaller, more manageable units, and discovering the dependencies that may or may not exist 68 4 Brief Survey of Cognitive Architectures Fig. 4.5: A standard, general-purpose hierarchical control architecture. DeSTIN s control hierarchy exemplifies this architecture, with the difference lying mainly in the DeSTIN control hierarchy s tight integration with the state inference (perception) and critic (reinforcement) hierarchies. between such units. However, this paradigm has its limitations; for instance, these approaches do not represent temporal information with the same ease as spatial structure. Moreover, some key constraints are imposed on the learning schemes driving these architectures, namely the need for layer-by-layer training, and oftentimes pre-training. DeSTIN overcomes the limitations of prior deep learning approaches to perception processing, and also extends beyond perception to action and reinforcement learning. 4.3.1.2 DeSTIN for Perception Processing The hierarchical architecture of DeSTIN s spatiotemporal inference network comprises an arrangement into multiple layers of nodes comprising multiple instantiations of an identical cortical circuit. Each node corresponds to a particular spatiotemporal region, and uses a statistical learning algorithm to characterize the sequences of patterns that are presented to it by nodes in the layer beneath it. More specifically, At the very lowest layer of the hierarchy nodes receive as input raw data (e.g. pixels of an image) and continuously construct a belief state that attempts to characterize the sequences of patterns viewed. 4.3 Emergentist Cognitive Architectures 69 The second layer, and all those above it, receive as input the belief states of nodes at their corresponding lower layers, and attempt to construct belief states that capture regularities in their inputs. Each node also receives as input the belief state of the node above it in the hierarchy (which constitutes contextual information) Fig. 4.6: Small-scale instantiation of the DeSTIN perceptual hierarchy. Each box represents a node, which corresponds to a spatiotemporal region (nodes higher in the hierarchy corresponding to larger regions). O denotes the current observation in the region, C is the state of the higherlayer node, and S and S denote state variables pertaining to two subsequent time steps. In each node, a statistical learning algorithm is used to predict subsequent states based on prior states, current observations, and the state of the higher-layer node. More specifically, each of the DeSTIN nodes, referring to a specific spacetime region, contains a set of state variables conceived as clusters, each corresponding to a set of previously-observed sequences of events. These clusters are characterized by centroids (and are hence assumed roughly spherical in shape), and each of them comprises a certain "spatiotemporal form" recognized by the system in that region. Each node then contains the task of predicting the likelihood of a certain centroid being most apropos in the near future, based on the past history of observations in the node. This prediction may be done by simple probability tabulation, or via 70 4 Brief Survey of Cognitive Architectures application of supervised learning algorithms such as recurrent neural networks. These clustering and prediction processes occur separately in each node, but the nodes are linked together via bidirectional dynamics: each node feeds input to its parents, and receives "advice" from its parents that is used to condition its probability calculations in a contextual way. These processes are executed formally by the following basic belief update rule, which governs the learning process and is identical for every node in the architecture. The belief state is a probability mass function over the sequences of stimuli that the nodes learns to represent. Consequently, each node is allocated a predefined number of state variables each denoting a dynamic pattern, or sequence, that is autonomously learned. The DeSTIN update rule maps the current observation (o), belief state (b), and the belief state of a higher-layer node or context (c), to a new (updated) belief state (b ), such that alternatively expressed as b (s ) Pr (s o, b, c) Pr (s o b c) , (4.1) Pr (o b c) b (s ) Pr(o s , b, c) Pr (s b, c) Pr (b, c) . (4.2) Pr (o b, c) Pr (b, c) Under the assumption that observations depend only on the true state, or Pr(o s , b, c) Pr(o s ), we can further simplify the expression such that b (s ) Pr(o s ) Pr (s b, c) , (4.3) Pr (o b, c) where Pr (s b, c) Pr (s s, c) b (s), yielding the belief update rule s S b (s ) Pr (o s ) Pr (s s, c) b (s) s S Pr (o s ) Pr (s s, c) b (s) , (4.4) s S where S denotes the sequence set (i.e. belief dimension) such that the denominator term is a normalization factor. One interpretation of eq. (4.4) would be that the static pattern similarity metric, Pr (o s ) , is modulated by a construct that reflects the system dynamics, Pr (s s, c). As such, the belief state inherently captures both spatial and temporal information. In our implementation, the belief state of the parent node, c, is chosen using the selection rule s S c arg max b p (s), (4.5) s where b p is the belief distribution of the parent node. A close look at eq. (4.4) reveals that there are two core constructs to be learned, Pr(o s ) and Pr(s s, c). In the current DeSTIN design, the former is learned via online clustering while the latter is learned based on experience by inductively learning a rule that predicts the next state s given the prior state s and c. The overall result is a robust framework that autonomously (i.e. with no human engineered pre-processing of any type) learns to represent complex data patterns, and thus serves the 4.3 Emergentist Cognitive Architectures 71 critical role of building and maintaining a model of the state of the world. In a vision processing context, for example, it allows for powerful unsupervised classification. If shown a variety of real-world scenes, it will automatically form internal structures corresponding to the various natural categories of objects shown in the scenes, such as trees, chairs, people, etc.; and also the various natural categories of events it sees, such as reaching, pointing, falling. And, as will be discussed below, it can use feedback from DeSTIN s action and critic networks to further shape its internal world-representation based on reinforcement signals. Benefits of DeSTIN for Perception Processing DeSTIN s perceptual network offers multiple key attributes that render it more powerful than other deep machine learning approaches to sensory data processing: 1. The belief space that is formed across the layers of the perceptual network inherently captures both spatial and temporal regularities in the data. Given that many applications require that temporal information be discovered for robust inference, this is a key advantage over existing schemes. 2. Spatiotemporal regularities in the observations are captured in a coherent manner (rather than being represented via two separate mechanisms) 3. All processing is both top-down and bottom-up, and both hierarchical and heterarchical, based on nonlinear feedback connections directing activity and modulating learning in multiple directions through DeSTIN s cortical circuits 4. Support for multi-modal fusing is intrinsic within the framework, yielding a powerful state inference system for real-world, partially-observable settings. 5. Each node is identical, which makes it easy to map the design to massively parallel platforms, such as graphics processing units. Points 2-4 in the above list describe how DeSTIN s perceptual network displays its own cognitive synergy in a way that fits naturally into the overall synergetic dynamics of the overall CogPrime architecture. Using this cognitive synergy, DeSTIN s perceptual network addresses a key aspect of general intelligence: the ability to robustly infer the state of the world, with which the system interacts, in an accurate and timely manner. 4.3.1.3 DeSTIN for Action and Control DeSTIN s perceptual network performs unsupervised world-modeling, which is a critical aspect of intelligence but of course is not the whole story. DeSTIN s action network, coupled with the perceptual network, orchestrates actuator commands into complex movements, but also carries out other functions that are more cognitive in nature. For instance, people learn to distinguish between cups and bowls in part via hearing other people describe some objects as cups and others as bowls. To emulate this kind of learning, DeSTIN s critic network provides positive or negative reinforcement signals based on whether the action network has correctly identified a given object as a cup or a bowl, and this signal then impacts the nodes in the action network. The critic network takes a simple external degree of success or failure signal and turns it into multiple reinforcement signals to be fed into the multiple layers of the action network. The result is that the action network self-organizes so 72 4 Brief Survey of Cognitive Architectures as to include an implicit cup versus bowl classifier, whose inputs are the outputs of some of the nodes in the higher levels of the perceptual network. This classifier belongs in the action network because it is part of the procedure by which the DeSTIN system carries out the action of identifying an object as a cup or a bowl. This example illustrates how the learning of complex concepts and procedures is divided fluidly between the perceptual network, which builds a model of the world in an unsupervised way, and the action network, which learns how to respond to the world in a manner that will receive positive reinforcement from the critic network. 4.3.2 Developmental Robotics Architectures A particular subset of emergentist cognitive architectures are sufficiently important that we consider them separately here: these are developmental robotics architectures, focused on controlling robots without significant hard-wiring of knowledge or capabilities, allowing robots to learn (and learn how to learn, etc.) via their engagement with the world. A significant focus is often placed here on intrinsic motivation, wherein the robot explores the world guided by internal goals like novelty or curiosity, forming a model of the world as it goes along, based on the modeling requirements implied by its goals. Many of the foundations of this research area were laid by Juergen Schmidhuber s work in the 1990s Sch91b, Sch91a, Sch95, Sch02 , but now with more powerful computers and robots the area is leading to more impressive practical demonstrations. We mention here a handful of the important initiatives in this area: Juyang Weng s Dav HZT 02 and SAIL WHZ 00 projects involve mobile robots that explore their environments autonomously, and learn to carry out simple tasks by building up their own world-representations through both unsupervised and teacher-driven processing of high-dimensional sensorimotor data. The underlying philosophy is based on human child development WH06 , the knowledge representations involved are neural network based, and a number of novel learning algorithms are involved, especially in the area of vision processing. FLOWERS BO09 , an initiative at the French research institute INRIA, led by Pierre- Yves Oudeyer, is also based on a principle of trying to reconstruct the processes of development of the human child s mind, spontaneously driven by intrinsic motivations. Kaplan Kap08 has taken this project in a direction closely related to our own via the creation of a robot playroom. Experiential language learning has also been a focus of the project OK06 , driven by innovations in speech understanding. IM-CLEVER 1 , a new European project coordinated by Gianluca Baldassarre and conducted by a large team of researchers at different institutions, is focused on creating software enabling an iCub MSV 08 humanoid robot to explore the environment and learn to carry out human childlike behaviors based on its own intrinsic motivations. As this project is the closest to our own we will discuss it in more depth below. Like CogPrime, IM-CLEVER is a humanoid robot intelligence architecture guided by intrinsic motivations, and using hierarchical architectures for reinforcement learning and sensory ab- 1 http: im-clever.noze.it project project-description 4.4 Hybrid Cognitive Architectures 73 straction. IM-CLEVER s motivational structure is based in part on Schmidhuber s informationtheoretic model of curiosity Sch06 ; and CogPrime s Psi-based motivational structure utilizes probabilistic measures of novelty, which are mathematically related to Schmidhuber s measures. On the other hand, IM-CLEVER s use of reinforcement learning follows Schmidhuber s earlier work RL for cognitive robotics BS04, BZGS06 , Barto s work on intrinsically motivated reinforcement learning SB06, SM05 , and Lee s LMC07b, LMC07a work on developmental reinforcement learning; whereas CogPrime s assemblage of learning algorithms is more diverse, including probabilistic logic, concept blending and other symbolic methods (in the OCP component) as well as more conventional reinforcement learning methods (in the DeSTIN component). In many respects IM-CLEVER bears a moderately strong resemblance to DeSTIN, whose integration with CogPrime is discussed in Chapter 26 of Part 2 (although IM-CLEVER has much more focus on biological realism than DeSTIN). Apart from numerous technical differences, the really big distinction between IM-CLEVER and CogPrime is that in the latter we are proposing to hybridize a hierarchical-abstraction reinforcement-learning system (such as DeSTIN) with a more abstract symbolic cognition engine that explicitly handles probabilistic logic and language. IM-CLEVER lacks the aspect of hybridization with a symbolic system, taking more of a pure emergentist strategy. Like DeSTIN considered as a standalone architecture IM-CLEVER does entail a high degree of cognitive synergy, between components dealing with perception, world-modeling, action and motivation. However, the emergentist versus hybrid is a large qualitative difference between the two approaches. In all, while we largely agree with the philosophy underlying developmental robotics, our intuition is that the learning and representational mechanisms underlying the current systems in this area are probably not powerful enough to lead to human child level intelligence. We expect that these systems will develop interesting behaviors but fall short of robust preschool level competency, especially in areas like language and reasoning where symbolic systems have typically proved more effective. This intuition is what impels us to pursue a hybrid approach, such as CogPrime. But we do feel that eventually, once the mechanisms underlying brains are better understood and robotic bodies are richer in sensation and more adept in actuation, some sort of emergentist, developmental-robotics approach can be successful at creating humanlike, human-level AGI. 4.4 Hybrid Cognitive Architectures In response to the complementary strengths and weaknesses of the symbolic and emergentist approaches, in recent years a number of researchers have turned to integrative, hybrid architectures, which combine subsystems operating according to the two different paradigms. The combination may be done in many different ways, e.g. connection of a large symbolic subsystem with a large subsymbolic system, or the creation of a population of small agents each of which is both symbolic and subsymbolic in nature. Nils Nilsson expressed the motivation for hybrid AGI systems very clearly in his article at the AI-50 conference (which celebrated the 50 th anniversary of the AI field) Nil09 . While affirming the value of the Physical Symbol System Hypothesis that underlies symbolic AI, he argues that the PSSH explicitly assumes that, whenever necessary, symbols will be grounded in objects in the environment through the perceptual and effector capabilities of a physical symbol system. Thus, he continues, 74 4 Brief Survey of Cognitive Architectures I grant the need for non-symbolic processes in some intelligent systems, but I think they supplement rather than replace symbol systems. I know of no examples of reasoning, understanding language, or generating complex plans that are best understood as being performed by systems using exclusively non-symbolic processes.... AI systems that achieve human-level intelligence will involve a combination of symbolic and non-symbolic processing. A few of the more important hybrid cognitive architectures are: CLARION SZ04 is a hybrid architecture that combines a symbolic component for reasoning on explicit knowledge with a connectionist component for managing implicit knowledge. Learning of implicit knowledge may be done via neural net, reinforcement learning, or other methods. The integration of symbolic and subsymbolic methods is powerful, but a great deal is still missing such as episodic knowledge and learning and creativity. Learning in the symbolic and subsymbolic portions is carried out separately rather than dynamically coupled, minimizing cognitive synergy effects. DUAL NK04 is the most impressive system to come out of Marvin Minsky s Society of Mind paradigm. It features a population of agents, each of which combines symbolic and connectionist representation, self-organizing to collectively carry out tasks such as perception, analogy and associative memory. The approach seems innovative and promising, but it is unclear how the approach will scale to high-dimensional data or complex reasoning problems due to the lack of a more structured high-level cognitive architecture. LIDA BF09 is a comprehensive cognitive architecture heavily based on Bernard Baars Global Workspace Theory . It articulates a cognitive cycle integrating various forms of memory and intelligent processing in a single processing loop. The architecture ties in well with both neuroscience and cognitive psychology, but it deals most thoroughly with lower level aspects of intelligence, handling more advanced aspects like language and reasoning only somewhat sketchily. There is a clear mapping between LIDA structures and processes and corresponding structures and processing in OCP; so that it s only a mild stretch to view CogPrime as an instantiation of the general LIDA approach that extends further both in the lower level (to enable robot action and sensation via DeSTIN) and the higher level (to enable advanced language and reasoning via OCP mechanisms that have no direct LIDA analogues). MicroPsi Bac09 is an integrative architecture based on Dietrich Dorner s Psi model of motivation, emotion and intelligence. It has been tested on some practical control applications, and also on simulating artificial agents in a simple virtual world. MicroPsi s comprehensiveness and basis in neuroscience and psychology are impressive, but in the current version of MicroPsi, learning and reasoning are carried out by algorithms that seem unlikely to scale. OCP incorporates the Psi model for motivation and emotion, so that MicroPsi and CogPrime may be considered very closely related systems. But similar to LIDA, MicroPsi currently focuses on the lower level aspects of intelligence, not yet directly handling advanced processes like language and abstract reasoning. PolyScheme Cas07 integrates multiple methods of representation, reasoning and inference schemes for general problem solving. Each Polyscheme specialist models a different aspect of the world using specific representation and inference techniques, interacting with other specialists and learning from them. Polyscheme has been used to model infant reasoning including object identity, events, causality, and spatial relations. The integration of 4.4 Hybrid Cognitive Architectures 75 reasoning methods is powerful, but the overall cognitive architecture is simplistic compared to other systems and seems focused more on problem-solving than on the broader problem of intelligent agent control. Shruti SA93 is a fascinating biologically-inspired model of human reflexive inference, which represents in connectionist architecture relations, types, entities and causal rules using focal-clusters. However, much like Hofstadter s earlier Copycat architecture Hof95 , Shruti seems more interesting as a prototype exploration of ideas than as a practical AGI system; at least, after a significant time of development it has not proved significantly effective in any applications James Albus s 4D RCS robotics architecture shares a great deal with some of the emergentist architectures discussed above, e.g. it has the same hierarchical pattern recognition structure as DeSTIN and HTM, and the same three cross-connected hierarchies as DeSTIN, and shares with the developmental robotics architectures a focus on real-time adaptation to the structure of the world. However, 4D RCS is not foundationally learning-based but relies on hard-wired architecture and algorithms, intended to mimic the qualitative structure of relevant parts of the brain (and intended to be augmented by learning, which differentiates it from emergentist approaches. As our own CogPrime approach is a hybrid architecture, it will come as no surprise that we believe several of the existing hybrid architectures are fundamentally going in the right direction. However, nearly all the existing hybrid architectures have severe shortcomings which we feel will prevent them from achieving robust humanlike AGI. Many of the hybrid architectures are in essence multiple, disparate algorithms carrying out separate functions, encapsulated in black boxes and communicating results with each other. For instance, PolyScheme, ACT-R and CLARION all display this modularity property to a significant extent. These architectures lack the rich, real-time interaction between the internal dynamics of various memory and learning processes that we believe is critical to achieving humanlike general intelligence using realistic computational resources. On the other hand, those architectures that feature richer integration such as DUAL, Shruti, LIDA and MicroPsi have the flaw of relying (at least in their current versions) on overly simplistic learning algorithms, which drastically limits their scalability. It does seem plausible to us that some of these hybrid architectures could be dramatically extended or modified so as to produce humanlike general intelligence. For instance, one could replace LIDA s learning algorithms with others that interrelate with each other in a nuanced synergetic way; or one could replace MicroPsi s simple learning and reasoning methods with much more powerful and scalable ones acting on the same data structures. However, making these changes would dramatically alter the cognitive architectures in question on multiple levels. 4.4.1 Neural versus Symbolic; Global versus Local The symbolic versus emergentist dichotomy that we have used to structure our review of cognitive architectures is not absolute nor fully precisely defined; it is more of a heuristic distinction. In this section, before plunging into the details of particular hybrid cognitive architectures, we review two other related dichotomies that are useful for understanding hybrid systems: neural versus symbolic systems, and globalist versus localist knowledge representation. 76 4 Brief Survey of Cognitive Architectures 4.4.1.1 Neural-Symbolic Integration The distinction between neural and symbolic systems has gotten fuzzier and fuzzier in recent years, with developments such as Logic-based systems being used to control embodied agents (hence using logical terms to deal with data that is apparently perception or actuation-oriented in nature, rather than being symbolic in the semiotic sense), see SS03a and GMIH08 . Hybrid systems combining neural net and logical parts, or using logical or neural net components interchangeably in the same role LAon . Neural net systems being used for strongly symbolic tasks such as automated grammar learning ( Elm91 , Elm91 , plus more recent work.) Figure 4.7 presents a schematic diagram of a generic neural-symbolic system, generalizing from BH05 , a paper that gives an elegant categorization of neural-symbolic AI systems. Figure 4.8 depicts several broad categories of neural-symbolic architecture. Fig. 4.7: Generic neural-symbolic architecture Bader and Hitzler categorize neural-symbolic systems according to three orthogonal axes: interrelation, language and usage. Language refers to the type of language used in the symbolic component, which may be logical, automata-based, formal grammar-based, etc. Usage refers to the purpose to which the neural-symbolic interrelation is put. We tend to use learning as an encompassing term for all forms of ongoing knowledge-creation, whereas Bader and Hitzler distinguish learning from reasoning. Of Bader and Hitzler s three axes the one that interests us most here is interrelation , which refers to the way the neural and symbolic components of the architecture intersect with each other. They distinguish hybrid architectures which contain separate but equal, interacting neural and symbolic components; versus integrative architectures in which the symbolic component essentially rides piggyback on the neural component, extracting information from it and helping it carry out its learning, but playing a clearly derived and secondary role. We prefer Sun s (2001) term monolithic to Bader and Hitzler s integrative to describe this type of system, as the latter term seems best preserved in its broader meaning. 4.4 Hybrid Cognitive Architectures 77 Fig. 4.8: Broad categories of neural-symbolic architecture Within the scope of hybrid neural-symbolic systems, there is another axis which Bader and Hitzler do not focus on, because the main interest of their review is in monolithic systems. We call this axis "interactivity" , and what we are referring to is the frequency of high-informationcontent, high-influence interaction between the neural and symbolic components in the hybrid system. In a low-interaction hybrid system, the neural and symbolic components don t exchange large amounts of mutually influential information all that frequently, and basically act like independent system components that do their learning reasoning thinking periodically sending each other their conclusions. In some cases, interaction may be asymmetric: one component may frequently send a lot of influential information to the other, but not vice versa. However, our hypothesis is that the most capable neural-symbolic systems are going to be the symmetrically highly interactive ones. In a symmetric high-interaction hybrid neural-symbolic system, the neural and symbolic components exchange influential information sufficiently frequently that each one plays a major role in the other one s learning reasoning thinking processes. Thus, the learning processes of each component must be considered as part of the overall dynamic of the hybrid system. The two components aren t just feeding their outputs to each other as inputs, they re mutually guiding each others internal processing. One can make a speculative argument for the relevance of this kind of architecture to neuroscience. It seems plausible that this kind of neural-symbolic system roughly emulates the kind of interaction that exists between the brain s neural subsystems implementing localist symbolic processing, and the brain s neural subsystems implementing globalist, classically connectionist processing. It seems most likely that, in the brain, symbolic functionality emerges from an underlying layer of neural dynamics. However, it is also reasonable to conjecture that this symbolic functionality is confined to a functionally distinct subsystem of the brain, which then 78 4 Brief Survey of Cognitive Architectures interacts with other subsystems in the brain much in the manner that the symbolic and neural components of a symmetric high-interaction neural-symbolic system interact. Neuroscience speculations aside, however, our key conjecture regarding neural-symbolic integration is that this sort of neural-symbolic system presents a promising direction for artificial general intelligence research. In Chapter 26 of Volume 2 we will give a more concrete idea of what a symmetric high-interaction hybrid neural-symbolic architecture might look like, exploring the potential for this sort of hybridization between the OpenCogPrime AGI architecture (which is heavily symbolic in nature) and hierarchical attractor neural net based architectures such as DeSTIN. 4.5 Globalist versus Localist Representations Another interesting distinction, related to but different from symbolic versus emergentist and neural versus symbolic , may be drawn between cognitive systems (or subsystems) where memory is essentially global, and those where memory is essentially local. In this section we will pursue this distinction in various guises, along with the less familiar notion of glocal memory. This globalist localist distinction is most easily conceptualized by reference to memories corresponding to categories of entities or events in an external environment. In an AI system that has an internal notion of activation i.e. in which some of its internal elements are more active than others, at any given point in time one can define the internal image of an external event or entity as the fuzzy set of internal elements that tend to be active when that event or entity is presented to the system s sensors. If one has a particular set S of external entities or events of interest, then, the degree of memory localization of such an AI system relative to S may be conceived as the percentage of the system s internal elements that have a high degree of membership in the internal image of an average element of S. Of course, this characterization of localization has its limitations, such as the possibility of ambiguity regarding what are the system elements of a given AI system; and the exclusive focus on internal images of external phenomena rather than representation of internal abstract concepts. However, our goal here is not to formulate an ultimate, rigorous and thorough ontology of memory systems, but only to pose a rough and ready categorization so as to properly frame our discussion of some specific AGI issues relevant to CogPrime. Clearly the ideas pursued here will benefit from further theoretical exploration and elaboration. In this sense, a Hopfield neural net Ami89 would be considered globalist since it has a low degree of memory localization (most internal images heavily involve a large number of system elements); whereas Cyc would be considered localist as it has a very high degree of memory localization (most internal images are heavily focused on a small set of system elements). However, although Hopfield nets and Cyc form handy examples, the globalist vs. localist distinction as described above is not identical to the neural vs. symbolic distinction. For it is in principle quite possible to create localist systems using formal neurons, and also to create globalist systems using formal logic. And globalist-localist is not quite identical to symbolic vs emergentist either, because the latter is about coordinated system dynamics and behavior not just about knowledge representation. CogPrime combines both symbolic and (loosely) neural representations, and also combines globalist and localist representations in a way that we will call glocal and analyze more deeply in Chapter 13; but there are many other ways these various 4.5 Globalist versus Localist Representations 79 properties could be manifested by AI systems. Rigorously studying the corpus of existing (or hypothetical!) cognitive architectures using these ideas would be a large task, which we do not undertake here. In the next sections we review several hybrid architectures in more detail, focusing most deeply on LIDA and MicroPsi which have been directly inspirational for CogPrime. 4.5.1 CLARION Ron Sun s CLARION architecture (see Figure 4.9) is interesting in its combination of symbolic and neural aspects a combination that is used in a sophisticated way to embody the distinction and interaction between implicit and explicit mental processes. From a CLARION perspective, architectures like Soar and ACT-R are severely limited in that they deal only with explicit knowledge and associated learning processes. CLARION consists of a number of distinct subsystems, each of which contains a dual representational structure, including a rules and chunks symbolic knowledge store somewhat similar to ACT-R, and a neural net knowledge store embodying implicit knowledge. The main subsystems are: An action-centered subsystem to control actions; A non-action-centered subsystem to maintain general knowledge; A motivational subsystem to provide underlying motivations for perception, action, and cognition; A meta-cognitive subsystem to monitor, direct, and modify the operations of all the other subsystems. Fig. 4.9: The CLARION cognitive architecture. 80 4 Brief Survey of Cognitive Architectures 4.5.2 The Society of Mind and the Emotion Machine In his influential but controversial book The Society of Mind Min88 , Marvin Minsky described a model of human intelligence as something that is built up from the interactions of numerous simple agents. He spells out in great detail how various particular cognitive functions may be achieved via agents and their interactions. He leaves no room for any central algorithms or structures of thought, famously arguing: What magical trick makes us intelligent? The trick is that there is no trick. The power of intelligence stems from our vast diversity, not from any single, perfect principle. This perspective was extended in the more recent work The Emotion Machine Min07 , where Minsky argued that emotions are ways to think evolved to handle different problem types that exist in the world. The brain is posited to have rule-based mechanisms (selectors) that turns on emotions to deal with various problems. Overall, both of these works serve better as works of speculative cognitive science than as works of AI or cognitive architecture per se. As neurologist Richard Restak said in his review of Emotion Machine, Minsky does a marvelous job parsing other complicated mental activities into simpler elements. ... But he is less effective in relating these emotional functions to what s going on in the brain. As Restak added, he is also not so effective at relating these emotional functions to straightforwardly implementable algorithms or data structures. Push Singh, in his PhD thesis and followup work SBC05 , did the best job so far of creating a concrete AI design based on Minsky s ideas. While Singh s system was certainly interesting, it was also noteworthy for its lack of any learning mechanisms, and its exclusive focus on explicit rather than implicit knowledge. Due to Singh s tragic death, his work was never brought anywhere near completion. It seems fair to say that there has not yet been a serious cognitive architecture posed based closely on Minsky s ideas. 4.5.3 DUAL The closest thing to a Minsky-ish cognitive architecture is probably DUAL, which takes the Society of Mind concept and adds to it a number of other interesting ideas. DUAL integrates symbolic and connectionist approaches at a deeper level than CLARION, and has been used to model various cognitive functions such as perception, analogy and judgment. Computations in DUAL emerge from the self-organized interaction of many micro-agents, each of which is a hybrid symbolic connectionist device. Each DUAL agent plays the role of a neural network node, with an activation level and activation spreading dynamics; but also plays the role of a symbol, manipulated using formal rules. The agents exchange messages and activation via links that can be learned and modified, and they form coalitions which collectively represent concepts, episodes, and facts. The structure of the model is sketchily depicted in Figure 4.10, which covers the application of DUAL to a toy environment called TextWorld. The visual input corresponding to a stimulus is presented on a two-dimensional visual array representing the front end of the system. Perceptual primitives like blobs and terminations are immediately generated by cheap parallel computations. Attention is controlled at each time by an object which allocates it selectively to some area of the stimulus. A detailed symbolic representation is constructed for this area which tends to fade away as attention is withdrawn from it and allocated to another one. Cate- 4.5 Globalist versus Localist Representations 81 gorization of visual memory contents takes place by retrieving object and scene categories from DUAL s semantic memory and mapping them onto current visual memory representations. Fig. 4.10: The three main components of the DUAL model: the retinotopic visual array (RVA), the visual working memory (VWM) and DUAL s semantic memory. Attention is allocated to an area of the visual array by the object in VWM controlling attention, while scene and object categories corresponding to the contents of VWM are retrieved from the semantic memory. In principle the DUAL framework seems quite powerful; using the language of CogPrime, however, it seems to us that the learning mechanisms of DUAL have not been formulated in such a way as to give rise to powerful, scalable cognitive synergy. It would likely be possible to create very powerful AGI systems within DUAL, and perhaps some very CogPrime -like systems as well. But the systems that have been created or designed for use within DUAL so far seem not to be that powerful in their potential or scope. 4.5.4 4D RCS In a rather different direction, James Albus, while at the National Bureau of Standards, developed a very thorough and impressive architecture for intelligent robotics called 4D RCS, which was implemented in a number of machines including unmanned automated vehicles. This architecture lacks critical aspects of intelligence such as learning and creativity, but combines perception, action, planning and world-modeling in a highly effective and tightly-integrated fashion. The architecture has three hierarchies of memory processing units: one for perception, one for action and one for modeling and guidance. Each unit has a certain spatiotemporal scope, 82 4 Brief Survey of Cognitive Architectures and (except for the lowest level) supervenes over children whose spatiotemporal scope is a subset of its own. The action hierarchy takes care of decomposing tasks into subtasks; whereas the sensation hierarchy takes care of grouping signals into entities and events. The modeling guidance hierarchy mediates interactions between perception and action based on its understanding of the world and the system s goals. In his book AM01 Albus describes methods for extending 4D RCS into a complete cognitive architecture, but these extensions have not been elaborated in full detail nor implemented. Fig. 4.11: Albus s 4D-RCS architecture for a single vehicle 4.5.5 PolyScheme Nick Cassimatis s PolyScheme architecture Cas07 shares with GLAIR the use of multiple logical reasoning methods on a common knowledge store. While its underlying ideas are quite general, currently PolyScheme is being developed in the context of the object tracking domain (construed very broadly). As a logic framework PolyScheme is fairly conventional (unlike GLAIR or NARS with their novel underlying formalisms), but PolyScheme has some unique conceptual aspects, for instance its connection with Cassimatis s theory of mind, which holds that the same core set of logical concepts and relationships underlies both language and physical reasoning Cas04 . This ties in with the use of a common knowledge store for multiple cognitive processes; for instance it suggests that the same core relationships can be used for physical reasoning and parsing, but that each of these domains may involve some additional relationships. language processing may be done via physical-reasoning-based cognitive processes, plus the additional activity of some language-specific processes 4.5 Globalist versus Localist Representations 83 Fig. 4.12: Albus s perceptual, motor and modeling hierarchies 4.5.6 Joshua Blue Sam Adams and his colleagues at IBM have created a cognitive architecture called Joshua Blue AABL02 , which has some significant similarities to CogPrime. Similar to our current research direction with CogPrime, Joshua Blue was created with loose emulation of child cognitive development in mind; and, also similar to CogPrime, it features a number of cognitive processes acting on a common neural-symbolic knowledge store. The specific cognitive processes involved in Joshua Blue and CogPrime are not particularly similar, however. At time of writing (2012) 84 4 Brief Survey of Cognitive Architectures Joshua Blue is not under active development and has not been for some time; however, the project may be reanimated in future. Joshua Blue s core knowledge representation is a semantic network of nodes connected by links along which activation spreads. Although many of the nodes have specific semantic referents, as in a classical semantic net, the spread of activation through the network is designed to lead to the emergence of assemblies (which could also be thought of as dynamical attractors) in a manner more similar to an attractor neural network. A major difference from typical semantic or neural network models is the central role that affect plays in the system s dynamics. The weights of the links in the knowledge base are adjusted dynamically based on the emotional context a very direct way of ensuring that cognitive processes and mental representations are continuously influenced by affect. Qualitatively, this mimics the way that particular emotions in the human brain correlate with the dissemination throughout the brain of particular neurotransmitters, which then affect synaptic activity. A result of this architecture is that in Joshua Blue, emotion directs attention in a very direct way: affective weighting is important in determining which associated objects will become part of the focus of attention, or will be retained from memory. A notable similarity between CogPrime and Joshua Blue is that in both systems, nodes are assigned two quantitative attention values, one governing allocation of current system resources (mainly processor time; this is CogPrime s ShortTermImportance) and one governing the long-term allocation of memory (CogPrime s LongTermImportance). The concrete work done with Joshua Blue involved using it to control a simple agent in a simulated world, with the goal that via human interaction, the agent would develop a complex and humanlike emotional and motivational structure from its simple in-built emotions and drives, and would then develop complex cognitive capabilities as part of this development process. 4.5.7 LIDA The LIDA architecture developed by Stan Franklin and his colleagues BF09 is based on the concept of the cognitive cycle - a notion that is important to nearly every BICA (Biologically Inspired Cognitive Architectures) and also to the brain, but that plays a particularly central role in LIDA. As Franklin says, "as a matter of principle, every autonomous agent, be it human, animal, or artificial, must frequently sample (sense) its environment, process (make sense of) this input, and select an appropriate response (action). The agent s life can be viewed as consisting of a continual sequence of iterations of these cognitive cycles. Such cycles constitute the indivisible elements of attention, the least sensing and acting to which we can attend. A cognitive cycle can be thought of as a moment of cognition, a cognitive "moment"." 4.5.8 The Global Workspace LIDA is heavily based on the global workspace concept developed by Bernard Baars. As this concept is also directly relevant to CogPrime it is worth briefly describing here. In essence Baars Global Workspace Theory (GWT) is a particular hypothesis about how working memory works and the role it plays in the mind. Baars conceives working memory as the 4.5 Globalist versus Localist Representations 85 inner domain in which we can rehearse telephone numbers to ourselves or, more interestingly, in which we carry on the narrative of our lives. It is usually thought to include inner speech and visual imagery. Baars uses the term consciousness to refer to the contents of working memory a theoretical commitment that is not part of the CogPrime design. In this section we will use the term consciousness in Baars way, but not throughout the rest of the book. Baars conceives working memory and consciousness in terms of a theater metaphor according to which, in the theater of consciousness a spotlight of selective attention shines a bright spot on stage. The bright spot reveals the global workspace the contents of consciousness, which may be metaphorically considered as a group of actors moving in and out of consciousness, making speeches or interacting with each other. The unconscious is represented by the audience watching the play ... and there is also a role for the director (the mind s executive processes) behind the scenes, along with a variety of helpers like stage hands, script writers, scene designers, etc. GWT describes a fleeting memory with a duration of a few seconds. This is much shorter than the 10-30 seconds of classical working memory according to GWT there is a very brief cognitive cycle in which the global workspace is refreshed, and the time period an item remains in working memory generally spans a large number of these elementary refresh actions. GWT contents are proposed to correspond to what we are conscious of, and are said to be broadcast to a multitude of unconscious cognitive brain processes. Unconscious processes, operating in parallel, can form coalitions which can act as input processes to the global workspace. Each unconscious process is viewed as relating to certain goals, and seeking to get involved with coalitions that will get enough importance to become part of the global workspace because once they re in the global workspace they ll be allowed to broadcast out across the mind as a whole, which include broadcasting to the internal and external actuators that allow the mind to do things. Getting into the global workspace is a process s best shot at achieving its goals. Obviously, the theater metaphor used to describe the GWT is evocative but limited; for instance, the unconscious in the mind does a lot more than the audience in a theater. The unconscious comes up with complex creative ideas sometimes, which feed into consciousness almost as if the audience is also the scriptwriter. Baars theory, with its understanding of unconscious dynamics in terms of coalition-building, fails to describe the subtle dynamics occurring within the various forms of long-term memory, which result in subtle nonlinear interactions between long term memory and working memory. But nevertheless, GWT successfully models a number of characteristics of consciousness, including its role in handling novel situations, its limited capacity, its sequential nature, and its ability to trigger a vast range of unconscious brain processes. It is the framework on which LIDA s theory of the cognitive cycle is built. 4.5.9 The LIDA Cognitive Cycle The simplest cognitive cycle is that of an animal, which senses the world, compares sensation to memory, and chooses an action, all in one fluid subjective moment. But the same cognitive cycle structure process applies to higher-level cognitive processes as well. The LIDA architecture is based on the LIDA model of the cognitive cycle, which posits a particular structure underlying the cognitive cycle that possess the generality to encompass both simple and complex cognitive moments. 86 4 Brief Survey of Cognitive Architectures The LIDA cognitive cycle itself is a theoretical construct that can be implemented in many ways, and indeed other BICAs like CogPrime and Psi also manifest the LIDA cognitive cycle in their dynamics, though utilizing different particular structures to do so. Figure 4.13 shows the cycle pictorially, starting in the upper left corner and proceeding clockwise. At the start of a cycle, the LIDA agent perceives its current situation and allocates attention differentially to various parts of it. It then broadcasts information about the most important parts (which constitute the agent s consciousness), and this information gets features extracted from it, when then get passed along to episodic and semantic memory, that interact in the global workspace to create a model for the agent s current situation. This model then, in interaction with procedural memory, enables the agent to choose an appropriate action and execute it - the critical action-selection phase! Fig. 4.13: The LIDA Cognitive Cycle The LIDA Cognitive Cycle in More Depth 2 We now run through the cognitive cycle in more detail. It begins with sensory stimuli from the agent s external internal environment. Low-level feature detectors in sensory memory begin the process of making sense of the incoming stimuli. These low-level features are passed to perceptual memory where higher-level features, objects, categories, relations, actions, situations, 2 This section paraphrases heavily from Fra06 4.5 Globalist versus Localist Representations 87 etc. are recognized. These recognized entities, called percepts, are passed to the workspace, where a model of the agent s current situation is assembled. Workspace structures serve as cues to the two forms of episodic memory, yielding both short and long term remembered local associations. In addition to the current percept, the workspace contains recent percepts that haven t yet decayed away, and the agent s model of the thencurrent situation previously assembled from them. The model of the agent s current situation is updated from the previous model using the remaining percepts and associations. This updating process will typically require looking back to perceptual memory and even to sensory memory, to enable the understanding of relations and situations. This assembled new model constitutes the agent s understanding of its current situation within its world. Via constructing the model, the agent has made sense of the incoming stimuli. Now attention allocation comes into play, because a real agent lacks the computational resources to work with all parts of its world-model with maximal mental focus. Portions of the model compete for attention. These competing portions take the form of (potentially overlapping) coalitions of structures comprising parts the model. Once one such coalition wins the competition, the agent has decided what to focus its attention on. And now comes the purpose of all this processing: to help the agent to decide what to do next. The winning coalition passes to the global workspace, the namesake of Global Workspace Theory, from which it is broadcast globally. Though the contents of this conscious broadcast are available globally, the primary recipient is procedural memory, which stores templates of possible actions including their context and possible results. Procedural memory also stores an activation value for each such template a value that attempts to measure the likelihood of an action taken within its context producing the expected result. It s worth noting that LIDA makes a rather specific assumption here. LIDA s activation values are like the probabilistic truth values of the implications in CogPrime s Context Procedure Goal triples. However, in CogPrime this probability is not the same as the ShortTermImportance attention value associated with the Implication link representing that implication. Here LIDA merges together two concepts that in CogPrime are separate. Templates whose contexts intersect sufficiently with the contents of the conscious broadcast instantiate copies of themselves with their variables specified to the current situation. These instantiations are passed to the action selection mechanism, which chooses a single action from these instantiations and those remaining from previous cycles. The chosen action then goes to sensorimotor memory, where it picks up the appropriate algorithm by which it is then executed. The action so taken affects the environment, and the cycle is complete. The LIDA model hypothesizes that all human cognitive processing is via a continuing iteration of such cognitive cycles. It acknowledges that other cognitive processes may also occur, refining and building on the knowledge used in the cognitive cycle (for instance, the cognitive cycle itself doesn t mention abstract reasoning or creativity). But the idea is that these other processes occur in the context of the cognitive cycle, which is the main loop driving the internal and external activities of the organism. 4.5.9.1 Avoiding Combinatorial Explosion via Adaptive Attention Allocation LIDA avoids combinatorial explosions in its inference processes via two methods, both of which are also important in CogPrime : combining reasoning via association with reasoning via deduction 88 4 Brief Survey of Cognitive Architectures foundational use of uncertainty in reasoning One can create an analogy between LIDA s workspace structures and codelets and a logicbased architecture s assertions and functions. However, LIDA s codelets only operate on the structures that are active in the workspace during any given cycle. This includes recent perceptions, their closest matches in other types of memory, and structures recently created by other codelets. The results with the highest estimate of success, i.e. activation, will then be selected. Uncertainty plays a role in LIDA s reasoning in several ways, most notably through the base activation of its behavior codelets, which depend on the model s estimated probability of the codelet s success if triggered. LIDA observes the results of its behaviors and updates the base activation of the responsible codelets dynamically. We note that for this kind of uncertain inference activation interplay to scale well, some level of cognitive synergy must be present; and based on our understanding of LIDA it is not clear to us whether the particular inference and association algorithms used in LIDA possess the requisite synergy. 4.5.9.2 LIDA versus CogPrime The LIDA cognitive cycle, broadly construed, exists in CogPrime as in other cognitive architectures. To see how, it suffices to map the key LIDA structures into corresponding CogPrime structures, as is done in Table 4.1. Of course this table does not cover all CogPrime processes, as LIDA does not constitute a thorough explanation of CogPrime structure and dynamics. And in most cases the corresponding CogPrime and LIDA processes don t work in exactly the same way; for instance, as noted above, LIDA s action selection relies solely on LIDA s activation values, whereas CogPrime s action selection process is more complex, relying on aspects of CogPrime that lack LIDA analogues. 4.5.10 Psi and MicroPsi We have saved for last the architecture that has the most in common with CogPrime : Joscha Bach s MicroPsi architecture, closely based on Dietrich Dorner s Psi theory. CogPrime has borrowed substantially from Psi in its handling of emotion and motivation; but Psi also has other aspects that differ considerably from CogPrime. Here we will focus more heavily on the points of overlap, but will mention the key points of difference as well. The overall Psi cognitive architecture, which is centered on the Psi model of the motivational system, is roughly depicted in Figure 4.14. Psi s motivational system begins with Demands, which are the basic factors that motivate the agent. For an animal these would include things like food, water, sex, novelty, socialization, protection of one s children, and so forth. For an intelligent robot they might include things like electrical power, novelty, certainty, socialization, well-being of others and mental growth. Psi also specifies two fairly abstract demands and posits them as psychologically fundamental (see Figure 4.15): competence, the effectiveness of the agent at fulfilling its Urges certainty, the confidence of the agent s knowledge 4.5 Globalist versus Localist Representations 89 LIDA CogPrime Declarative memory Atomspace attentional codelets Schema that adjust importance of Atoms explicitly coalitions maps global workspace attentional focus behavior codelets schema procedural memory (scheme net) procedures in ProcedureRepository; and network of SchemaNodes in the Atomspace action selection (behavior net) propagation of STICurrency from goals to actions, and action selection process transient episodic memory perceptual atoms entering AT with high STI, which rapidly decreases in most cases local workspaces bubbles of interlinked Atoms with moderate importance, focused on by a subset of MindAgents (defined in Chapter 19 of Part 2) for a period of time perceptual associative memory HebbianLinks in the AT sensory memory spaceserver timeserver, plus auxiliary stores for other senses sensorimotor memory Atoms storing record of actions taken, linked in with Atoms indexed in sensory memory Table 4.1: CogPrime Analogues of Key LIDA Features Each demand is assumed to come with a certain target level or target range (and these may fluctuate over time, or may change as a system matures and develops). An Urge is said to develop when a demand deviates from its target range: the urge then seeks to return the demand to its target range. For instance, in an animal-like agent the demand related to food is more clearly described as fullness, and there is a target range indicating that the agent is neither too hungry nor too full of food. If the agent s fullness deviates from this range, an Urge to return the demand to its target range arises. Similarly, if an agent s novelty deviates from its target range, this means the agent s life has gotten either too boring or too disconcertingly weird, and the agent gets an Urge for either more interesting activities (in the case of below-range novelty) or more familiar ones (in the case of above-range novelty). There is also a primitive notion of Pleasure (and its opposite, displeasure), which is considered as different from the complex emotion of happiness. Pleasure is understood as associated with Urges: pleasure occurs when an Urge is (at least partially) satisfied, whereas displeasure occurs when an urge gets increasingly severe. The degree to which an Urge is satisfied is not necessarily defined instantaneously; it may be defined, for instance, as a time-decaying weighted average of the proximity of the demand to its target range over the recent past. So, for instance if an agent is bored and gets a lot of novel stimulation, then it experiences some pleasure. If it s bored and then the monotony of its stimulation gets even more extreme, then it experiences some displeasure. Note that, according to this relatively simplistic approach, any decrease in the amount of dissatisfaction causes some pleasure; whereas if everything always continues within its acceptable range, there isn t any pleasure. This may seem a little counterintuitive, but it s important to understand that these simple definitions of pleasure and displeasure are not intended to fully capture the natural language concepts associated with those words. The natural language terms are used here simply as heuristics to convey the general character of the processes in- 90 4 Brief Survey of Cognitive Architectures Fig. 4.14: High-Level Architecture of the Psi Model volved. These are very low level processes whose analogues in human experience are largely below the conscious level. A Goal is considered as a statement that the system may strive to make true at some future time. A Motive is an (urge, goal) pair, consisting of a goal whose satisfaction is predicted to imply the satisfaction of some urge. In fact one may consider Urges as top-level goals, and the agent s other goals as their subgoals. In Psi an agent has one ruling motive at any point in time, but this seems an oversimplification more applicable to simple animals than to human-like or other advanced AI systems. In general one may think of different motives having different weights indicating the amount of resources that will be spent on pursuing them. Emotions in Psi are considered as complex systemic response-patterns rather than explicitly constructed entities. An emotion is the set of mental entities activated in response to a certain set of urges. Dorner conceived theories about how various common emotions emerge from the dynamics of urges and motives as described in the Psi model. Intentions are also considered as composite entities: an intention at a given point in time consists of the active motives, together with their related goals, behavior programs and so forth. 4.5 Globalist versus Localist Representations 91 The basic logic of action in Psi is carried out by triples that are very similar to CogPrime s Context Procedure Goal triples. However, an important role is played by four modulators that control how the processes of perception, cognition and action selection are regulated at a given time: activation, which determines the degree to which the agent is focused on rapid, intensive activity versus reflective, cognitive activity resolution level, which determines how accurately the system tries to perceive the world certainty, which determines how hard the system tries to achieve definite, certain knowledge selection threshold, which determines how willing the system is to change its choice of which goals to focus on These modulators characterize the system s emotional and cognitive state at a very abstract level; they are not emotions per se, but they have a large effect on the agent s emotions. Their intended interaction is depicted in Figure 4.15. Fig. 4.15: Primary Interrelationships Between Psi Modulators 4.5.11 The Emergence of Emotion in the Psi Model We now briefly review the specifics of how Psi models the emergence of emotion. The basic idea is to define a small set of proto-emotional dimensions in terms of basic Urges and modulators. Then, emotions are identified with regions in the space spanned by these dimensions. The simplest approach uses a six-dimensional continuous space: 1. pleasure 92 4 Brief Survey of Cognitive Architectures 2. arousal 3. resolution level 4. selection threshold (i.e. degree of dominance of the leading motive) 5. level of background checks (the rate of the securing behavior) 6. level of goal-directed behavior Figure 4.16 shows how the latter 5 of these dimensions are derived from underlying urges and modulators. Note that these dimensions are not orthogonal; for instance resolution is mainly inversely related to arousal. Additional dimensions are also discussed, for instance it is postulated that to deal with social emotions one may wish to introduce two more demands corresponding to inner and outer obedience to social norms, and then define dimensions in terms of these. Fig. 4.16: Five Proto-Emotional Dimensions Implicit in the Psi Model Specific emotions are then characterized in terms of these dimensions. According to Bac09 , for instance, Anger ... is characterized by high arousal, low resolution, strong motive dominance, few background checks and strong goal-orientedness; sadness by low arousal, high resolution, strong dominance, few background-checks and low goal-orientedness. I m a bit skeptical of the contention that these dimensions fully characterize the relevant emotions. Anger for instance seems to have some particular characteristics not implied by the above list of dimensional values. The list of dimensional values associated with anger doesn t tell us that an angry person is more likely to punch someone than to bounce up and down, for example. However, it does seem that the dimensional values associated with an emotion are 4.5 Globalist versus Localist Representations 93 informative about the emotion, so that positioning an emotion on the given dimensions tells one a lot. 4.5.12 Knowledge Representation, Action Selection and Planning in Psi In addition to the basic motivation emotion architecture of Psi, which has been adopted (with some minor changes) for use in CogPrime, Psi has a number of other aspects that are somewhat different from their CogPrime analogues. First of all, on the micro level, Psi represents knowledge using structures called quads. Each quad is a cluster of 5 neurons containing a core neuron, and four other neurons representing before after and part-of has-part relationships in regard to that core neuron. Quads are naturally assembled into spatiotemporal hierarchies, though they are not required to form part of such a structure. Psi stores knowledge using quads arranged in three networks, which are conceptually similar to the networks in Albus s 4D RCS and Arel s DeSTIN architectures: A sensory network, which stores declarative knowledge: schemas representing images, objects, events and situations as hierarchical structures. A motor network, which contains procedural knowledge by way of hierarchical behavior programs A motivational network handling demands Perception in Psi, which is centered in the sensory network, follows principles similar to DeSTIN (which are shared also by other systems), for instance the principle of perception as prediction. Psi s HyPercept mechanism performs hypothesis-based perception: it attempts to predict what is there to be perceived and then attempts to verify these predictions using sensation and memory. Furthermore HyPercept is intimately coupled with actions in the external world, according to the concept of Neisser s perceptual cycle, the cycle between exploration and representation of reality. Perceptually acquired information is translated into schemas capable of guiding behaviors, and these are enacted (sometimes affecting the world in significant ways) and in the process used to guide further perception. Imaginary perceptions are handled via a mental stage analogous to CogPrime s internal simulation world. Action selection in Psi works based on what are called triplets, each of which consists of a sensor schema (pre-conditions, condition schema ; like CogPrime s context ) a subsequent motor schema (action, effector; like CogPrime s procedure ) a final sensor schema (post-conditions, expectations; like an CogPrime predicate or goal) What distinguishes these triplets from classic production rules as used in (say) Soar and ACT-R is that the triplets may be partial (some of the three elements may be missing) and may be uncertain. However, there seems no fundamental difference between these triplets and CogPrime s concept procedure goal triplets, at a high level; the difference lies in the underlying knowledge representation used for the schemata, and the probabilistic logic used to represent the implication. The work of figuring out what schema to execute to achieve the chosen goal in the current context is done in Psi using a combination of processes called the Rasmussen ladder (named 94 4 Brief Survey of Cognitive Architectures after Danish psychologist Jens Rasmussen). The Rasmussen ladder describes the organization of action as a movement between the stages of skill-based behavior, rule-based behavior and knowledge-based behavior, as follows: If a given task amounts to a trained routine, an automatism or skill is activated; it can usually be executed without conscious attention and deliberative control. If there is no automatism available, a course of action might be derived from rules; before a known set of strategies can be applied, the situation has to be analyzed and the strategies have to be adapted. In those cases where the known strategies are not applicable, a way of combining the available manipulations (operators) into reaching a given goal has to be explored at first. This stage usually requires a recomposition of behaviors, that is, a planning process. The planning algorithm used in the Psi and MicroPsi implementations is a fairly simple hill-climbing planner. While it s hypothesized that a more complex planner may be needed for advanced intelligence, part of the Psi theory is the hypothesis that most real-life planning an organism needs to do is fairly simple, once the organism has the right perceptual representations and goals. 4.5.13 Psi versus CogPrime On a high level, the similarities between Psi and CogPrime are quite strong: interlinked declarative, procedural and intentional knowledge structures, represented using neural-symbolic methods (though, the knowledge structures have somewhat different highlevel structures and low-level representational mechanisms in the two systems) perception via prediction and perception action integration action selection via triplets that resemble uncertain, potentially partial production rules similar motivation emotion framework, since CogPrime incorporates a variant of Psi for this On the nitty-gritty level there are many differences between the systems, but on the bigpicture level the main difference lies in the way the cognitive synergy principle is pursued in the two different approaches. Psi and MicroPsi rely on very simple learning algorithms that are closely tied to the quad neurosymbolic knowledge representation, and hence interoperate in a fairly natural way without need for subtle methods of synergy engineering. CogPrime uses much more diverse and sophisticated learning algorithms which thus require more sophisticated methods of interoperation in order to achieve cognitive synergy. Chapter 5 A Generic Architecture of Human-Like Cognition 5.1 Introduction When writing the first draft of this book, some years ago, we had the idea to explain CogPrime by aligning its various structures and processes with the ones in the "standard architecture diagram" of the human mind. After a bit of investigation, though, we gradually came to the realization that no such thing existed. There was no standard flowchart or other sort of diagram explaining the modern consensus on how human thought works. Many such diagrams existed, but each one seemed to represent some particular focus or theory, rather than an overall integrative understanding. Since there are multiple opinions regarding nearly every aspect of human intelligence, it would be difficult to get two cognitive scientists to fully agree on every aspect of an overall human cognitive architecture diagram. Prior attempts to outline detailed mind architectures have tended to follow highly specific theories of intelligence, and hence have attracted only moderate interest from researchers not adhering to those theories. An example is Minsky s work presented in The Emotion Machine Min07 , which arguably does constitute an architecture diagram for the human mind, but which is only loosely grounded in current empirical knowledge and stands more as a representation of Minsky s own intuitive understanding. But nevertheless, it seemed to us that a reasonable attempt at an integrative, relatively theory-neutral "human cognitive architecture diagram" would be better than nothing. So naturally, we took it on ourselves to create such a diagram. This chapter is the result it draws on the thinking of a number of cognitive science and AGI researchers, integrating their perspectives in a coherent, overall architecture diagram for human, and human-like, general intelligence. The specific architecture diagram of CogPrime, given in Chapter 6 below, may then be understood as a particular instantiation of this generic architecture diagram of human-like cognition. There is no getting around the fact that, to a certain extent, the diagram presented here reflects our particular understanding of how the mind works. However, it was intentionally constructed with the goal of not being just an abstracted version of the CogPrime architecture diagram! It does not reflect our own idiosyncratic understanding of human intelligence, as much as a combination of understandings previously presented by multiple researchers (including ourselves), arranged according to our own taste in a manner we find conceptually coherent. With this in mind, we call it the "Integrative Human-Like Cognitive Architecture Diagram," or for short "the integrative diagram." We have made an effort to ensure that as many pieces of the integrative diagram as possible are well grounded in psychological and even neuroscientific 95 96 5 A Generic Architecture of Human-Like Cognition data, rather than mainly embodying speculative notions; however, given the current state of knowledge, this could not be done to a complete extent, and there is still some speculation involved here and there. While based on understandings of human intelligence, the integrative diagram is intended to serve as an architectural outline for human-like general intelligence more broadly. For example, CogPrime is explicitly not intended as a precise emulation of human intelligence, and does many things quite differently than the human mind, yet can still fairly straightforwardly be mapped into the integrative diagram. The integrative diagram focuses on structure, but this should not be taken to represent a valuation of structure over dynamics in our approach to intelligence. Following chapters treat various dynamical phenomena in depth. 5.2 Key Ingredients of the Integrative Human-Like Cognitive Architecture Diagram The main ingredients we ve used in assembling the integrative diagram are as follows: Our own views on the various types of memory critical for human-like cognition, and the need for tight, "synergetic" interactions between the cognitive processes focused on these Aaron Sloman s high-level architecture diagram of human intelligence Slo01 , drawn from his CogAff architecture, which strikes me as a particularly clear embodiment of "modern common sense" regarding the overall architecture of the human mind. We have added only a couple items to Sloman s high-level diagram, which we felt deserved an explicit high-level role that he did not give them: emotion, language and reinforcement. The LIDA architecture diagram presented by Stan Franklin and Bernard Baars BF09 . We think LIDA is an excellent model of working memory and what Sloman calls "reactive processes", with well-researched grounding in the psychology and neuroscience literature. We have adapted the LIDA diagram only very slightly for use here, changing some of the terminology on the arrows, and indicating where parts of the LIDA diagram indicate processes elaborated in more detail elsewhere in the integrative diagram. The architecture diagram of the Psi model of motivated cognition, presented by Joscha Bach in Bac09 based on prior work by Dietrich Dorner D r02 . This diagram is presented without significant modification; however it should be noted that Bach and Dorner present this diagram in the context of larger and richer cognitive models, the other aspects of which are not all incorporated in the integrative diagram. James Albus s three-hierarchy model of intelligence AM01 , involving coupled perception, action and reinforcement hierarchies. Albus s model, utilized in the creation of intelligent unmanned automated vehicles, is a crisp embodiment of many ideas emergent from the field of intelligent control systems. Deep learning networks as a model of perception (and action and reinforcement learning), as embodied for example in the work of Itamar Arel ARC09 and Jeff Hawkins HB06 . The integrative diagram adopts this as the basic model of the perception and action subsystems of human intelligence. Language understanding and generation are also modeled according to this paradigm. 5.3 An Architecture Diagram for Human-Like General Intelligence 97 One possible negative reaction to the integrative diagram might be to say that it s a kind of Frankenstein monster diagram, piecing together aspects of different theories in a way that violates the theoretical notions underlying all of them! For example, the integrative diagram takes LIDA as a model of working memory and reactive processing, but from the papers on LIDA it s unclear whether the creators of LIDA construe it more broadly than that. The deep learning community tends to believe that the architecture of current deep learning networks, in itself, is close to sufficient for human-level general intelligence whereas the integrative diagram appropriates the ideas from this community mainly for handling perception, action and language, etc. On the other hand, in a more positive perspective, one could view the integrative diagram as consistent with LIDA, but merely providing much more detail on some of the boxes in the LIDA diagram (e.g. dealing with perception and long-term memory). And one could view the integrative diagram as consistent with the deep learning paradigm via viewing it, not as a description of components to be explicitly implemented in an AGI system, but rather as a description of the key structures and processes that must emerge in deep learning network, based on its engagement with the world, in order for it to achieve human-like general intelligence. Our own view, underlying the creation of the integrative diagram, is that different communities of cognitive science researchers have focused on different aspects of intelligence, and have thus each created models that are more fully fleshed out in some aspects than others. But these various models all link together fairly cleanly, which is not surprising as they are all grounded in the same data regarding human intelligence. Many judgment calls must be made in fusing multiple models in the way that the integrative diagram does, but we feel these can be made without violating the spirit of the component models. In assembling the integrative diagram, we have made these judgment calls as best we can, but we re well aware that different judgments would also be feasible and defensible. Revisions are likely as time goes on, not only due to new data about human intelligence but also to evolution of understanding regarding the best approach to model integration. Another possible argument against the ideas presented here is that there s nothing new all the ingredients presented have been given before elsewhere. To this our retort is to quote Pascal: "Let no one say that I have said nothing new ... the arrangement of the subject is new." The various architecture diagrams incorporated into the integrative diagram are either extremely high level (Sloman s diagram) or focus primarily on one aspect of intelligence, treating the others very concisely by summarizing large networks of distinction structures and processes in small boxes. The integrative diagram seeks to cover all aspects of human-like intelligence at a roughly equal granularity a different arrangement. This kind of high-level diagramming exercise is not precise enough, nor dynamics-focused enough, to serve as a guide for creating human-level or more advanced AGI. But it can be a useful tool for explaining and interpreting a concrete AGI design, such as CogPrime. 5.3 An Architecture Diagram for Human-Like General Intelligence The integrative diagram is presented here in a series of seven Figures. Figure 5.1 gives a high-level breakdown into components, based on Sloman s high-level cognitive-architectural sketch Slo01 . This diagram represents, roughly speaking, "modern common sense" about how a human-like mind is architected. The separation between structures 98 5 A Generic Architecture of Human-Like Cognition Fig. 5.1: High-Level Architecture of a Human-Like Mind and processes, embodied in having separate boxes for Working Memory vs. Reactive Processes, and for Long Term Memory vs. Deliberative Processes, could be viewed as somewhat artificial, since in the human brain and most AGI architectures, memory and processing are closely integrated. However, the tradition in cognitive psychology is to separate out Working Memory and Long Term Memory from the cognitive processes acting thereupon, so we have adhered to that convention. The other changes from Sloman s diagram are the explicit inclusion of language, representing the hypothesis that language processing is handled in a somewhat special way in the human brain; and the inclusion of a reinforcement component parallel to the perception and action hierarchies, as inspired by intelligent control systems theory (e.g. Albus as mentioned above) and deep learning theory. Of course Sloman s high level diagram in its original form is intended as inclusive of language and reinforcement, but we felt it made sense to give them more emphasis. Figure 5.2, modeling working memory and reactive processing, is essentially the LIDA diagram as given in prior papers by Stan Franklin, Bernard Baars and colleagues BF09 . The boxes in the upper left corner of the LIDA diagram pertain to sensory and motor processing, which LIDA does not handle in detail, and which are modeled more carefully by deep learning theory. The bottom left corner box refers to action selection, which in the integrative diagram is modeled in more detail by Psi. The top right corner box refers to Long-Term Memory, which the integrative diagram models in more detail as a synergetic multi-memory system (Figure 5.4). The original LIDA diagram refers to various "codelets", a key concept in LIDA theory. We have replaced "attention codelets" here with "attention flow", a more generic term. We suggest one can think of an attention codelet as: a piece of information stating that, for a certain group of items, it s currently pertinent to pay attention to this group as a collective. 5.3 An Architecture Diagram for Human-Like General Intelligence 99 Fig. 5.2: Architecture of Working Memory and Reactive Processing, closely modeled on the LIDA architecture Figure 5.3, modeling motivation and action selection, is a lightly modified version of the Psi diagram from Joscha Bach s book Principles of Synthetic Intelligence Bac09 . The main difference from Psi is that in the integrative diagram the Psi motivated action framework is embedded in a larger, more complex cognitive model. Psi comes with its own theory of working and long-term memory, which is related to but different from the one given in the integrative diagram it views the multiple memory types distinguished in the integrative diagram as emergent from a common memory substrate. Psi comes with its own theory of perception and action, which seems broadly consistent with the deep learning approach incorporated in the integrative diagram. Psi s handling of working memory lacks the detailed, explicit workflow of LIDA, though it seems broadly conceptually consistent with LIDA. In Figure 5.3, the box labeled "Other portions of working memory" is labeled "Protocol and situation memory" in the original Psi diagram. The Perception, Action Execution and Action Selection boxes have fairly similar semantics to the similarly labeled boxes in the LIDA-like Figure 5.2, so that these diagrams may be viewed as overlapping. The LIDA model doesn t explain action selection and planning in as much detail as Psi, so the Psi-like Figure 5.3 could be viewed as an elaboration of the action-selection portion of the LIDA-like Figure 5.2. In Psi, reinforcement is considered as part of the learning process involved in action selection and planning; in Figure 5.3 an explicit "reinforcement box" has been added to the original Psi diagram, to emphasize this. Figure 5.4, modeling long-term memory and deliberative processing, is derived from our own prior work studying the "cognitive synergy" between different cognitive processes associated with different types of memory. The division into types of memory is fairly standard. Declarative, procedural, episodic and sensorimotor memory are routinely distinguished; we like to distinguish attentional memory and intentional (goal) memory as well, and view these as the interface between long-term memory and the mind s global control systems. One focus of our AGI design work has been on designing learning algorithms, corresponding to these various types of memory, 100 5 A Generic Architecture of Human-Like Cognition Fig. 5.3: Architecture of Motivated Action Fig. 5.4: Architecture of Long-Term Memory and Deliberative and Metacognitive Thinking that interact with each other in a synergetic way Goe09c , helping each other to overcome their intrinsic combinatorial explosions. There is significant evidence that these various types of long-term memory are differently implemented in the brain, but the degree of structure and dynamical commonality underlying these different implementations remains unclear. 5.3 An Architecture Diagram for Human-Like General Intelligence 101 Each of these long-term memory types has its analogue in working memory as well. In some cognitive models, the working memory and long-term memory versions of a memory type and corresponding cognitive processes, are basically the same thing. CogPrime is mostly like this it implements working memory as a subset of long-term memory consisting of items with particularly high importance values. The distinctive nature of working memory is enforced via using slightly different dynamical equations to update the importance values of items with importance above a certain threshold. On the other hand, many cognitive models treat working and long term memory as more distinct than this, and there is evidence for significant functional and anatomical distinctness in the brain in some cases. So for the purpose of the integrative diagram, it seemed best to leave working and long-term memory subcomponents as parallel but distinguished. Figure 5.4 also encompasses metacognition, under the hypothesis that in human beings and human-like minds, metacognitive thinking is carried out using basically the same processes as plain ordinary deliberative thinking, perhaps with various tweaks optimizing them for thinking about thinking. If it turns out that humans have, say, a special kind of reasoning faculty exclusively for metacognition, then the diagram would need to be modified. Modeling of self and others is understood to occur via a combination of metacognition and deliberative thinking, as well as via implicit adaptation based on reactive processing. Fig. 5.5: Architecture for Multimodal Perception Figure 5.5 models perception, according to the basic ideas of deep learning theory. Vision and audition are modeled as deep learning hierarchies, with bottom-up and top-down dynamics. The lower layers in each hierarchy refer to more localized patterns recognized in, and abstracted from, sensory data. Output from these hierarchies to the rest of the mind is not just through the top layers, but via some sort of sampling from various layers, with a bias toward the top layers. The different hierarchies cross-connect, and are hence to an extent dynamically coupled together. It is also recognized that there are some sensory modalities that aren t strongly hierarchical, e.g 102 5 A Generic Architecture of Human-Like Cognition touch and smell (the latter being better modeled as something like an asymmetric Hopfield net, prone to frequent chaotic dynamics LLW 05 ) these may also cross-connect with each other and with the more hierarchical perceptual subnetworks. Of course the suggested architecture could include any number of sensory modalities; the diagram is restricted to four just for simplicity. The self-organized patterns in the upper layers of perceptual hierarchies may become quite complex and may develop advanced cognitive capabilities like episodic memory, reasoning, language learning, etc. A pure deep learning approach to intelligence argues that all the aspects of intelligence emerge from this kind of dynamics (among perceptual, action and reinforcement hierarchies). Our own view is that the heterogeneity of human brain architecture argues against this perspective, and that deep learning systems are probably better as models of perception and action than of general cognition. However, the integrative diagram is not committed to our perspective on this a deep-learning theorist could accept the integrative diagram, but argue that all the other portions besides the perceptual, action and reinforcement hierarchies should be viewed as descriptions of phenomena that emerge in these hierarchies due to their interaction. Fig. 5.6: Architecture for Action and Reinforcement Figure 5.6 shows an action subsystem and a reinforcement subsystem, parallel to the perception subsystem. Two action hierarchies, one for an arm and one for a leg, are shown for 5.3 An Architecture Diagram for Human-Like General Intelligence 103 concreteness, but of course the architecture is intended to be extended more broadly. In the hierarchy corresponding to an arm, for example, the lowest level would contain control patterns corresponding to individual joints, the next level up to groupings of joints (like fingers), the next level up to larger parts of the arm (hand, elbow). The different hierarchies corresponding to different body parts cross-link, enabling coordination among body parts; and they also connect at multiple levels to perception hierarchies, enabling sensorimotor coordination. Finally there is a module for motor planning, which links tightly with all the motor hierarchies, and also overlaps with the more cognitive, inferential planning activities of the mind, in a manner that is modeled different ways by different theorists. Albus AM01 has elaborated this kind of hierarchy quite elaborately. The reward hierarchy in Figure 5.6 provides reinforcement to actions at various levels on the hierarchy, and includes dynamics for propagating information about reinforcement up and down the hierarchy. Fig. 5.7: Architecture for Language Processing Figure 5.7 deals with language, treating it as a special case of coupled perception and action. The traditional architecture of a computational language comprehension system is a pipeline JM09 Goe10d , which is equivalent to a hierarchy with the lowest-level linguistic features (e.g. sounds, words) at the bottom, and the highest level features (semantic abstractions) at the top, and syntactic features in the middle. Feedback connections enable semantic and cognitive modulation of lower-level linguistic processing. Similarly, language generation is commonly modeled hierarchically, with the top levels being the ideas needing verbalization, and the bottom level corresponding to the actual sentence produced. In generation the primary flow is top-down, with bottom-up flow providing modulation of abstract concepts by linguistic surface forms. So, that s it an integrative architecture diagram for human-like general intelligence, split among seven different pictures, formed by judiciously merging together architecture diagrams produced via a number of cognitive theorists with different, overlapping foci and research paradigms. Is anything critical left out of the diagram? A quick perusal of the table of contents of cognitive psychology textbooks suggests to me that if anything major is left out, it s also unknown to current cognitive psychology. However, one could certainly make an argument for explicit inclusion of certain other aspects of intelligence, that in the integrative diagram are 104 5 A Generic Architecture of Human-Like Cognition left as implicit emergent phenomena. For instance, creativity is obviously very important to intelligence, but, there is no "creativity" box in any of these diagrams because in our view, and the view of the cognitive theorists whose work we ve directly drawn on here, creativity is best viewed as a process emergent from other processes that are explicitly included in the diagrams. 5.4 Interpretation and Application of the Integrative Diagram A tongue-partly-in-cheek definition of a biological pathway is "a subnetwork of a biological network, that fits on a single journal page." Cognitive architecture diagrams have a similar property they are crude abstractions of complex structures and dynamics, sculpted in accordance with the size of the printed page, and the tolerance of the human eye for absorbing diagrams, and the tolerance of the human author for making diagrams. However, sometimes constraints even arbitrary ones are useful for guiding creative efforts, due to the fact that they force choices. Creating an architecture for human-like general intelligence that fits in a few (okay, seven) fairly compact diagrams, requires one to make many choices about what features and relationships are most essential. In constructing the integrative diagram, we have sought to make these choices, not purely according to our own tastes in cognitive theory or AGI system design, but according to a sort of blend of the taste and judgment of a number of scientists whose views we respect, and who seem to have fairly compatible, complementary perspectives. What is the use of a cognitive architecture diagram like this? It can help to give newcomers to the field a basic idea about what is known and suspected about the nature of human-like general intelligence. Also, it could potentially be used as a tool for cross-correlating different AGI architectures. If everyone who authored an AGI architecture would explain how their architecture accounts for each of the structures and processes identified in the integrative diagram, this would give a means of relating the various AGI designs to each other. The integrative diagram could also be used to help connect AGI and cognitive psychology to neuroscience in a more systematic way. In the case of LIDA, a fairly careful correspondence has been drawn up between the LIDA diagram nodes and links and various neural structures and processes FB08 . Similar knowledge exists for the rest of the integrative diagram, though not organized in such a systematic fashion. A systematic curation of links between the nodes and links in the integrative diagram and current neuroscience knowledge, would constitute an interesting first approximation of the holistic cognitive behavior of the human brain. Finally (and harking forward to later chapters), the big omission in the integrative diagram is dynamics. Structure alone will only get you so far, and you could build an AGI system with reasonable-looking things in each of the integrative diagram s boxes, interrelating according to the given arrows, and yet still fail to make a viable AGI system. Given the limitations the real world places on computing resources, it s not enough to have adequate representations and algorithms in all the boxes, communicating together properly and capable doing the right things given sufficient resources. Rather, one needs to have all the boxes filled in properly with structures and processes that, when they act together using feasible computing resources, will yield appropriately intelligent behaviors via their cooperative activity. And this has to do with the complex interactive dynamics of all the processes in all the different boxes which is 5.4 Interpretation and Application of the Integrative Diagram 105 something the integrative diagram doesn t touch at all. This brings us again to the network of ideas we ve discussed under the name of "cognitive synergy," to be discussed later on. It might be possible to make something similar to the integrative diagram on the level of dynamics rather than structures, complementing the structural integrative diagram given here; but this would seem significantly more challenging, because we lack a standard set of tools for depicting system dynamics. Most cognitive theorists and AGI architects describe their structural ideas using boxes-and-lines diagrams of some sort, but there is no standard method for depicting complex system dynamics. So to make a dynamical analogue to the integrative diagram, via a similar integrative methodology, one would first need to create appropriate diagrammatic formalizations of the dynamics of the various cognitive theories being integrated a fascinating but onerous task. When we first set out to make an integrated cognitive architecture diagram, via combining the complementary insights of various cognitive science and AGI theorists, we weren t sure how well it would work. But now we feel the experiment was generally a success the resultant integrated architecture seems sensible and coherent, and reasonably complete. It doesn t come close to telling you everything you need to know to understand or implement a human-like mind but it tells you the various processes and structures you need to deal with, and which of their interrelations are most critical. And, perhaps just as importantly, it gives a concrete way of understanding the insights of a specific but fairly diverse set of cognitive science and AGI theorists as complementary rather than contradictory. In a CogPrime context, it provides a way of tying in the specific structures and dynamics involved in CogPrime, with a more generic portrayal of the structures and dynamics of human-like intelligence. Chapter 6 A Brief Overview of CogPrime 6.1 Introduction Just as there are many different approaches to human flight airplanes, helicopters, balloons, spacecraft, and doubtless many methods no person has thought of yet similarly, there are likely many different approaches to advanced artificial general intelligence. All the different approaches to flight exploit the same core principles of aerodynamics in different ways; and similarly, the various different approaches to AGI will exploit the same core principles of general intelligence in different ways. In the chapters leading up to this one, we have taken a fairly broad view of the project of engineering AGI. We have presented a conception and formal model of intelligence, and described environments, teaching methodologies and cognitive and developmental pathways that we believe are collectively appropriate for the creation of AGI at the human level and ultimately beyond, and with a roughly human-like bias to its intelligence. These ideas stand alone and may be compatible with a variety of approaches to engineering AGI systems. However, they also set the stage for the presentation of CogPrime, the particular AGI design on which we are currently working. The thorough presentation of the CogPrime design is the job of Part 2 of this book where, not only are the algorithms and structures involved in CogPrime reviewed in more detailed, but their relationship to the theoretical ideas underlying CogPrime is pursued more deeply. The job of this chapter is a smaller one: to give a high-level overview of some key aspects the CogPrime architecture at a mostly nontechnical level, so as to enable you to approach Part 2 with a little more idea of what to expect. The remainder of Part 1, following this chapter, will present various theoretical notions enabling the particulars, intent and consequences of the CogPrime design to be more thoroughly understood. 6.2 High-Level Architecture of CogPrime Figures 6.1, 6.2 , 6.4 and 6.5 depict the high-level architecture of CogPrime, which involves the use of multiple cognitive processes associated with multiple types of memory to enable an intelligent agent to execute the procedures that it believes have the best probability of working toward its goals in its current context. In a robot preschool context, for example, the 107 108 6 A Brief Overview of CogPrime top-level goals will be simple things such as pleasing the teacher, learning new information and skills, and protecting the robot s body. Figure 6.3 shows part of the architecture via which cognitive processes interact with each other, via commonly acting on the AtomSpace knowledge repository. Comparing these diagrams to the integrative human cognitive architecture diagrams given in Chapter 5, one sees the main difference is that the CogPrime diagrams commit to specific structures (e.g. knowledge representations) and processes, whereas the generic integrative architecture diagram refers merely to types of structures and processes. For instance, the integrative diagram refers generally to declarative knowledge and learning, whereas the CogPrime diagram refers to PLN, as a specific system for reasoning and learning about declarative knowledge. Table 6.1 articulates the key connections between the components of the CogPrime diagram and those of the integrative diagram, thus indicating the general cognitive functions instantiated by each of the CogPrime components. 6.3 Current and Prior Applications of OpenCog Before digging deeper into the theory, and elaborating some of the dynamics underlying the above diagrams, we pause to briefly discuss some of the practicalities of work done with the OpenCog system currently implementing parts of the CogPrime architecture. OpenCog, the open-source software framework underlying the OpenCogPrime (currently partial) implementation of the CogPrime architecture, has been used for commercial applications in the area of natural language processing and data mining; for instance, see GPPG06 where OpenCogPrime s PLN reasoning and RelEx language processing are combined to do automated biological hypothesis generation based on information gathered from PubMed abstracts. Most relevantly to the present work, it has also been used to control virtual agents in virtual worlds GEA08 . Prototype work done during 2007-2008 involved using an OpenCog variant called the Open- PetBrain to control virtual dogs in a virtual world (see Figure 6.6 for a screenshot of an OpenPetBrain-controlled virtual dog). While these OpenCog virtual dogs did not display intelligence closely comparable to that of real dogs (or human children), they did demonstrate a variety of interesting and relevant functionalities including: learning new behaviors based on imitation and reinforcement responding to natural language commands and questions, with appropriate actions and natural language replies spontaneous exploration of their world, remembering their experiences and using them to bias future learning and linguistic interaction One current OpenCog initiative involves extending the virtual dog work via using OpenCog to control virtual agents in a game world inspired by the game Minecraft. These agents are initially specifically concerned with achieving goals in a game world via constructing structures with blocks and carrying out simple English communications. Representative example tasks would be: Learning to build steps or ladders to get desired objects that are high up Learning to build a shelter to protect itself from aggressors 6.3 Current and Prior Applications of OpenCog 109 Fig. 6.1: High-Level Architecture of CogPrime. This is a conceptual depiction, not a detailed flowchart (which would be too complex for a single image). Figures 6.2 , 6.4 and 6.5 highlight specific aspects of this diagram. Learning to build structures resembling structures that it s shown (even if the available materials are a bit different) Learning how to build bridges to cross chasms Of course, the AI significance of learning tasks like this all depends on what kind of feedback the system is given, and how complex its environment is. It would be relatively simple to make an AI system do things like this in a trivial and highly specialized way, but that is not the intent of the project the goal is to have the system learn to carry out tasks like this using general learning mechanisms and a general cognitive architecture, based on embodied experience and 110 6 A Brief Overview of CogPrime only scant feedback from human teachers. If successful, this will provide an outstanding platform for ongoing AGI development, as well as a visually appealing and immediately meaningful demo for OpenCog. Specific, particularly simple tasks that are the focus of this project team s current work at time of writing include: Watch another character build steps to reach a high-up object Figure out via imitation of this that, in a different context, building steps to reach a high up object may be a good idea Also figure out that, if it wants a certain high-up object but there are no materials for building steps available, finding some other way to get elevated will be a good idea that may help it get the object 6.3.1 Transitioning from Virtual Agents to a Physical Robot Preliminary experiments have also been conducted using OpenCog to control a Nao robot as well as a virtual dog GdG08 . This involves hybridizing OpenCog with a separate (but interlinked) subsystem handling low-level perception and action. In the experiments done so far, this has been accomplished in an extremely simplistic way. How to do this right is a topic treated in detail in Chapter 26 of Part 2. We suspect that reasonable level of capability will be achievable by simply interposing DeS- TIN (or some other system in its place) as a perception action black box between OpenCog and a robot. Some preliminary experiments in this direction have already been carried out, connecting the OpenPetBrain to a Nao robot using simpler, less capable software than DeSTIN in the intermediary role (off-the-shelf speech-to-text, text-to-speech and visual object recognition software). However, we also suspect that to achieve robustly intelligent robotics we must go beyond this approach, and connect robot perception and actuation software with OpenCogPrime in a white box manner that allows intimate dynamic feedback between perceptual, motoric, cognitive and linguistic functions. We will achieve this via the creation and real-time utilization of links between the nodes in CogPrime s and DeSTIN s internal networks (a topic to be explored in more depth later in this chapter). 6.4 Memory Types and Associated Cognitive Processes in CogPrime Now we return to the basic description of the CogPrime approach, turning to aspects of the relationship between structure and dynamics. Architecture diagrams are all very well, but, ultimately it is dynamics that makes an architecture come alive. Intelligence is all about learning, which is by definition about change, about dynamical response to the environment and internal self-organizing dynamics. CogPrime relies on multiple memory types and, as discussed above, is founded on the premise that the right course in architecting a pragmatic, roughly human-like AGI system is to handle different types of memory differently in terms of both structure and dynamics. 6.4 Memory Types and Associated Cognitive Processes in CogPrime 111 CogPrime s memory types are the declarative, procedural, sensory, and episodic memory types that are widely discussed in cognitive neuroscience TC05 , plus attentional memory for allocating system resources generically, and intentional memory for allocating system resources in a goal-directed way. Table 6.2 overviews these memory types, giving key references and indicating the corresponding cognitive processes, and also indicating which of the generic patternist cognitive dynamics each cognitive process corresponds to (pattern creation, association, etc.). Figure 6.7 illustrates the relationships between several of the key memory types in the context of a simple situation involving an OpenCogPrime-controlled agent in a virtual world. In terms of patternist cognitive theory, the multiple types of memory in CogPrime should be considered as specialized ways of storing particular types of patterns, optimized for spacetime efficiency. The cognitive processes associated with a certain type of memory deal with creating and recognizing patterns of the type for which the memory is specialized. While in principle all the different sorts of pattern could be handled in a unified memory and processing architecture, the sort of specialization used in CogPrime is necessary in order to achieve acceptable efficient general intelligence using currently available computational resources. And as we have argued in detail in Chapter 7, efficiency is not a side-issue but rather the essence of real-world AGI (since as Hutter has shown, if one casts efficiency aside, arbitrary levels of general intelligence can be achieved via a trivially simple program). The essence of the CogPrime design lies in the way the structures and processes associated with each type of memory are designed to work together in a closely coupled way, yielding cooperative intelligence going beyond what could be achieved by an architecture merely containing the same structures and processes in separate black boxes. The inter-cognitive-process interactions in OpenCog are designed so that conversion between different types of memory is possible, though sometimes computationally costly (e.g. an item of declarative knowledge may with some effort be interpreted procedurally or episodically, etc.) when a learning process concerned centrally with one type of memory encounters a situation where it learns very slowly, it can often resolve the issue by converting some of the relevant knowledge into a different type of memory: i.e. cognitive synergy 6.4.1 Cognitive Synergy in PLN To put a little meat on the bones of the "cognitive synergy" idea, discussed repeatedly in prior chapters and more extensively in latter chapters, we now elaborate a little on the role it plays in the interaction between procedural and declarative learning. While MOSES handles much of CogPrime s procedural learning, and CogPrime s internal simulation engine handles most episodic knowledge, CogPrime s primary tool for handling declarative knowledge is an uncertain inference framework called Probabilistic Logic Networks (PLN). The complexities of PLN are the topic of a lengthy technical monograph GMIH08 , and are summarized in Chapter 34; here we will eschew most details and focus mainly on pointing out how PLN seeks to achieve efficient inference control via integration with other cognitive processes. As a logic, PLN is broadly integrative: it combines certain term logic rules with more standard predicate logic rules, and utilizes both fuzzy truth values and a variant of imprecise probabilities called indefinite probabilities. PLN mathematics tells how these uncertain truth values propagate 112 6 A Brief Overview of CogPrime through its logic rules, so that uncertain premises give rise to conclusions with reasonably accurately estimated uncertainty values. This careful management of uncertainty is critical for the application of logical inference in the robotics context, where most knowledge is abstracted from experience and is hence highly uncertain. PLN can be used in either forward or backward chaining mode; and in the language introduced above, it can be used for either analysis or synthesis. As an example, we will consider backward chaining analysis, exemplified by the problem of a robot preschool-student trying to determine whether a new playmate Bob is likely to be a regular visitor to is preschool or not (evaluating the truth value of the implication Bob regular visitor). The basic backward chaining process for PLN analysis looks like: 1. Given an implication L A B whose truth value must be estimated (for instance L Concept Procedure Goal as discussed above), create a list (A 1 , ..., A n ) of (inference rule, stored knowledge) pairs that might be used to produce L 2. Using analogical reasoning to prior inferences, assign each A i a probability of success If some of the A i are estimated to have reasonable probability of success at generating reasonably confident estimates of L s truth value, then invoke Step 1 with A i in place of L (at this point the inference process becomes recursive) If none of the A i looks sufficiently likely to succeed, then inference has gotten stuck and another cognitive process should be invoked, e.g. Concept creation may be used to infer new concepts related to A and B, and then Step 1 may be revisited, in the hope of finding a new, more promising A i involving one of the new concepts MOSES may be invoked with one of several special goals, e.g. the goal of finding a procedure P so that P (X) predicts whether X B. If MOSES finds such a procedure P then this can be converted to declarative knowledge understandable by PLN and Step 1 may be revisited.... Simulations may be run in CogPrime s internal simulation engine, so as to observe the truth value of A B in the simulations; and then Step 1 may be revisited.... The combinatorial explosion of inference control is combatted by the capability to defer to other cognitive processes when the inference control procedure is unable to make a sufficiently confident choice of which inference steps to take next. Note that just as MOSES may rely on PLN to model its evolving populations of procedures, PLN may rely on MOSES to create complex knowledge about the terms in its logical implications. This is just one example of the multiple ways in which the different cognitive processes in CogPrime interact synergetically; a more thorough treatment of these interactions is given in Goe09a . In the new playmate example, the interesting case is where the robot initially seems not to know enough about Bob to make a solid inferential judgment (so that none of the A i seem particularly promising). For instance, it might carry out a number of possible inferences and not come to any reasonably confident conclusion, so that the reason none of the A i seem promising is that all the decent-looking ones have been tried already. So it might then recourse to MOSES, simulation or concept creation. For instance, the PLN controller could make a list of everyone who has been a regular visitor, and everyone who has not been, and pose MOSES the task of figuring out a procedure for distinguishing these two categories. This procedure could then be used directly to make the needed assessment, or else be translated into logical rules to be used within PLN inference. For 6.5 Goal-Oriented Dynamics in CogPrime 113 example, perhaps MOSES would discover that older males wearing ties tend not to become regular visitors. If the new playmate is an older male wearing a tie, this is directly applicable. But if the current playmate is wearing a tuxedo, then PLN may be helpful via reasoning that even though a tuxedo is not a tie, it s a similar form of fancy dress so PLN may extend the MOSES-learned rule to the present case and infer that the new playmate is not likely to be a regular visitor. 6.5 Goal-Oriented Dynamics in CogPrime CogPrime s dynamics has both goal-oriented and spontaneous aspects; here for simplicity s sake we will focus on the goal-oriented ones. The basic goal-oriented dynamic of the CogPrime system, within which the various types of memory are utilized, is driven by implications known as cognitive schematics , which take the form Context P rocedure Goal p (summarized C P G). Semi-formally, this implication may be interpreted to mean: If the context C appears to hold currently, then if I enact the procedure P , I can expect to achieve the goal G with certainty p. Cognitive synergy means that the learning processes corresponding to the different types of memory actively cooperate in figuring out what procedures will achieve the system s goals in the relevant contexts within its environment. CogPrime s cognitive schematic is significantly similar to production rules in classical architectures like SOAR and ACT-R (as reviewed in Chapter 4; however, there are significant differences which are important to CogPrime s functionality. Unlike with classical production rules systems, uncertainty is core to CogPrime s knowledge representation, and each CogPrime cognitive schematic is labeled with an uncertain truth value, which is critical to its utilization by CogPrime s cognitive processes. Also, in CogPrime, cognitive schematics may be incomplete, missing one or two of the terms, which may then be filled in by various cognitive processes (generally in an uncertain way). A stronger similarity is to MicroPsi s triplets; the differences in this case are more low-level and technical and have already been mentioned in Chapter 4. Finally, the biggest difference between CogPrime s cognitive schematics and production rules or other similar constructs, is that in CogPrime this level of knowledge representation is not the only important one. CLARION SZ04 , as reviewed above, is an example of a cognitive architecture that uses production rules for explicit knowledge representation and then uses a totally separate subsymbolic knowledge store for implicit knowledge. In CogPrime both explicit and implicit knowledge are stored in the same graph of nodes and links, with explicit knowledge stored in probabilistic logic based nodes and links such as cognitive schematics (see Figure 6.8 for a depiction of some explicit linguistic knowledge.) implicit knowledge stored in patterns of activity among these same nodes and links, defined via the activity of the importance values (see Figure 6.9 for an illustrative example thereof) associated with nodes and links and propagated by the ECAN attention allocation process The meaning of a cognitive schematic in CogPrime is hence not entirely encapsulated in its explicit logical form, but resides largely in the activity patterns that ECAN causes its activation or exploration to give rise to. And this fact is important because the synergetic interactions of system components are in large part modulated by ECAN activity. Without the real-time 114 6 A Brief Overview of CogPrime combination of explicit and implicit knowledge in the system s knowledge graph, the synergetic interaction of different cognitive processes would not work so smoothly, and the emergence of effective high-level hierarchical, heterarchical and self structures would be less likely. 6.6 Analysis and Synthesis Processes in CogPrime We now return to CogPrime s fundamental cognitive dynamics, using examples from the virtual dog application to motivate the discussion. The cognitive schematic Context Procedure Goal leads to a conceptualization of the internal action of an intelligent system as involving two key categories of learning: Analysis: Estimating the probability p of a posited C P G relationship Synthesis: Filling in one or two of the variables in the cognitive schematic, given assumptions regarding the remaining variables, and directed by the goal of maximizing the probability of the cognitive schematic More specifically, where synthesis is concerned, The MOSES probabilistic evolutionary program learning algorithm is applied to find P , given fixed C and G. Internal simulation is also used, for the purpose of creating a simulation embodying C and seeing which P lead to the simulated achievement of G. Example: A virtual dog learns a procedure P to please its owner (the goal G) in the context C where there is a ball or stick present and the owner is saying fetch . PLN inference, acting on declarative knowledge, is used for choosing C, given fixed P and G (also incorporating sensory and episodic knowledge as appropriate). Simulation may also be used for this purpose. Example: A virtual dog wants to achieve the goal G of getting food, and it knows that the procedure P of begging has been successful at this before, so it seeks a context C where begging can be expected to get it food. Probably this will be a context involving a friendly person. PLN-based goal refinement is used to create new subgoals G to sit on the right hand side of instances of the cognitive schematic. Example: Given that a virtual dog has a goal of finding food, it may learn a subgoal of following other dogs, due to observing that other dogs are often heading toward their food. Concept formation heuristics are used for choosing G and for fueling goal refinement, but especially for choosing C (via providing new candidates for C). They are also used for choosing P , via a process called predicate schematization that turns logical predicates (declarative knowledge) into procedures. Example: At first a virtual dog may have a hard time predicting which other dogs are going to be mean to it. But it may eventually observe common features among a number of mean dogs, and thus form its own concept of pit bull, without anyone ever teaching it this concept explicitly. 6.6 Analysis and Synthesis Processes in CogPrime 115 Where analysis is concerned: PLN inference, acting on declarative knowledge, is used for estimating the probability of the implication in the cognitive schematic, given fixed C, P and G. Episodic knowledge is also used in this regard, via enabling estimation of the probability via simple similarity matching against past experience. Simulation is also used: multiple simulations may be run, and statistics may be captured therefrom. Example: To estimate the degree to which asking Bob for food (the procedure P is asking for food , the context C is being with Bob ) will achieve the goal G of getting food, the virtual dog may study its memory to see what happened on previous occasions where it or other dogs asked Bob for food or other things, and then integrate the evidence from these occasions. Procedural knowledge, mapped into declarative knowledge and then acted on by PLN inference, can be useful for estimating the probability of the implication C P G, in cases where the probability of C P 1 G is known for some P 1 related to P . Example: knowledge of the internal similarity between the procedure of asking for food and the procedure of asking for toys, allows the virtual dog to reason that if asking Bob for toys has been successful, maybe asking Bob for food will be successful too. Inference, acting on declarative or sensory knowledge, can be useful for estimating the probability of the implication C P G, in cases where the probability of C 1 P G is known for some C 1 related to C. Example: if Bob and Jim have a lot of features in common, and Bob often responds positively when asked for food, then maybe Jim will too. Inference can be used similarly for estimating the probability of the implication C P G, in cases where the probability of C P G 1 is known for some G 1 related to G. Concept creation can be useful indirectly in calculating these probability estimates, via providing new concepts that can be used to make useful inference trails more compact and hence easier to construct. Example: The dog may reason that because Jack likes to play, and Jack and Jill are both children, maybe Jill likes to play too. It can carry out this reasoning only if its concept creation process has invented the concept of child via analysis of observed data. In these examples we have focused on cases where two terms in the cognitive schematic are fixed and the third must be filled in; but just as often, the situation is that only one of the terms is fixed. For instance, if we fix G, sometimes the best approach will be to collectively learn C and P . This requires either a procedure learning method that works interactively with a declarative-knowledge-focused concept learning or reasoning method; or a declarative learning method that works interactively with a procedure learning method. That is, it requires the sort of cognitive synergy built into the CogPrime design. 116 6 A Brief Overview of CogPrime 6.7 Conclusion To thoroughly describe a comprehensive, integrative AGI architecture in a brief chapter would be an impossible task; all we have attempted here is a brief overview, to be elaborated on in the 800-odd pages of Part 2 of this book. We do not expect this brief summary to be enough to convince the skeptical reader that the approach described here has a reasonable odds of success at achieving its stated goals, or even of fulfilling the conceptual notions outlined in the preceding chapters. However, we hope to have given the reader at least a rough idea of what sort of AGI design we are advocating, and why and in what sense we believe it can lead to advanced artificial general intelligence. For more details on the structure, dynamics and underlying concepts of CogPrime, the reader is encouraged to proceed to Part 2 after completing Part 1, of course. Please be patient building a thinking machine is a big topic, and we have a lot to say about it! 6.7 Conclusion 117 Fig. 6.2: Key Explicitly Implemented Processes of CogPrime . The large box at the center is the Atomspace, the system s central store of various forms of (long-term and working) memory, which contains a weighted labeled hypergraph whose nodes and links are "Atoms" of various sorts. The hexagonal boxes at the bottom denote various hierarchies devoted to recognition and generation of patterns: perception, action and linguistic. Intervening between these recognition generation hierarchies and the Atomspace, we have a pattern mining imprinting component (that recognizes patterns in the hierarchies and passes them to the Atomspace; and imprints patterns from the Atomspace on the hierarchies); and also OpenPsi, a special dynamical framework for choosing actions based on motivations. Above the Atomspace we have a host of cognitive processes, which act on the Atomspace, some continually and some only as context dictates, carrying out various sorts of learning and reasoning (pertinent to various sorts of memory) that help the system fulfill its goals and motivations. 118 6 A Brief Overview of CogPrime Fig. 6.3: MindAgents and AtomSpace in OpenCog. This is a conceptual depiction of one way cognitive processes may interact in OpenCog they may be wrapped in MindAgent objects, which interact via cooperatively acting on the AtomSpace. 6.7 Conclusion 119 Fig. 6.4: Links Between Cognitive Processes and the Atomspace. The cognitive processes depicted all act on the Atomspace, in the sense that they operate by observing certain Atoms in the Atomspace and then modifying (or in rare cases deleting) them, and potentially adding new Atoms as well. Atoms represent all forms of knowledge, but some forms of knowledge are additionally represented by external data stores connected to the Atomspace, such as the Procedure Repository; these are also shown as linked to the Atomspace. 120 6 A Brief Overview of CogPrime Fig. 6.5: Invocation of Atom Operations By Cognitive Processes. This diagram depicts some of the Atom modification, creation and deletion operations carried out by the abstract cognitive processes in the CogPrime architecture. 6.7 Conclusion 121 CogPrime Component Int. Diag. Sub-Diagram Int. Diag. Component Procedure Repository Long-Term Memory Procedural Procedure Repository Working Memory Active Procedural Associative Episodic Memory Long-Term Memory Episodic Associative Episodic Memory Working Memory Transient Episodic Backup Store Long-Term Memory no correlate: a function not necessarily possessed by the human mind Spacetime Server Long-Term Memory Declarative and Sensorimotor Dimensional Embedding Space no clear correlate: a tool for helping multiple types of LTM Dimensional Embedding Agent no clear correlate Blending Long-Term and Working Memory Concept Formation Clustering Long-Term and Working Memory Concept Formation PLN Probabilistic Inference MOSES Hillclimbing World Simulation Episodic Encoding Recall Episodic Encoding Recall Forgetting Freezing Defrosting Map Formation Long-Term and Working Memory Long-Term and Working Memory Long-Term and Working Memory Long-Term g Memory Working Memory Long-Term and Working Memory Long-Term Memory Reasoning and Plan Learning Optimization Procedure Learning Simulation Story-telling Consolidation no correlate: a function not necessarily possessed by the human mind Concept Formation and Pattern Mining Attention Allocation Long-Term and Working Memory Hebbian Attentional Learning Attention Allocation High-Level Mind Architecture Reinforcement Attention Allocation Working Memory Perceptual Associative Memory and Local Association AtomSpace High-Level Mind Architecture no clear correlate: a general tool for representing memory including long-term and working, plus some of perception and action AtomSpace Working Memory Global Workspace (the high-STI portion of AtomSpace) other Workspaces Declarative Atoms Long-Term and Working Memory Declarative and Sensorimotor Procedure Atoms Long-Term and Working Memory Procedural Hebbian Atoms Long-Term and Working Memory Attentional Goal Atoms Long-Term and Working Memory Intentional Feeling Atoms Long-Term and Working Memory spanning Declarative, Intentional and Sensorimotor OpenPsi High-Level Mind Architecture Motivation Action Selection OpenPsi Working Memory Action Selection Pattern Miner High-Level Mind Architecture arrows between perception and working and long-term memory Pattern Miner Working Memory arrows between sensory memory and perceptual associative and transient episodic memory arrows between action selection and 122 6 A Brief Overview of CogPrime Fig. 6.6: Screenshot of OpenCog-controlled virtual dog Fig. 6.7: Relationship Between Multiple Memory Types. The bottom left corner shows a program tree, constituting procedural knowledge. The upper left shows declarative nodes and links in the Atomspace. The upper right corner shows a relevant system goal. The lower right corner contains an image symbolizing relevant episodic and sensory knowledge. All the various types of knowledge link to each other and can be approximatively converted to each other. 6.7 Conclusion 123 Memory Type Declarative Procedural Episodic Attentional Intentional Sensory Specific Cognitive Processes Probabilistic Logic Networks (PLN) GMIH08 ; conceptual blending FT02 MOSES (a novel probabilistic evolutionary program learning algorithm) Loo06 internal simulation engine GEA08 Economic Attention Networks (ECAN) GPI 10 probabilistic goal hierarchy refined by PLN and ECAN, structured according to MicroPsi Bac09 In CogBot, this will be supplied by the DeSTIN component General Cognitive Functions pattern creation pattern creation association, pattern creation association, credit assignment credit assignment, pattern creation association, attention allocation, pattern creation, credit assignment Table 6.2: Memory Types and Cognitive Processes in CogPrime. The third column indicates the general cognitive function that each specific cognitive process carries out, according to the patternist theory of cognition. 124 6 A Brief Overview of CogPrime Fig. 6.8: Example of Explicit Knowledge in the Atomspace. One simple example of explicitly represented knowledge in the Atomspace is linguistic knowledge, such as words and the concepts directly linked to them. Not all of a CogPrime system s concepts correlate to words, but some do. 6.7 Conclusion 125 Fig. 6.9: Example of Implicit Knowledge in the Atomspace. A simple example of implicit knowledge in the Atomspace. The "chicken" and "food" concepts are represented by "maps" of ConceptNodes interconnected by HebbianLinks, where the latter tend to form between ConceptNodes that are often simultaneously important. The bundle of links between nodes in the chicken map and nodes in the food map, represents an "implicit, emergent link" between the two concept maps. This diagram also illustrates "glocal" knowledge representation, in that the chicken and food concepts are each represented by individual nodes, but also by distributed maps. The "chicken" ConceptNode, when important, will tend to make the rest of the map important and vice versa. Part of the overall chicken concept possessed by the system is expressed by the explicit links coming out of the chicken ConceptNode, and part is represented only by the distributed chicken map as a whole. Section II Toward a General Theory of General Intelligence Chapter 7 A Formal Model of Intelligent Agents 7.1 Introduction The artificial intelligence field is full of sophisticated mathematical models and equations, but most of these are highly specialized in nature e.g. formalizations of particular logic systems, analyzes of the dynamics of specific sorts of neural nets, etc. On the other hand, a number of highly general models of intelligent systems also exist, including Hutter s recent formalization of universal intelligence Hut05 and a large body of work in the disciplines of systems science and cybernetics but these have tended not to yield many specific lessons useful for engineering AGI systems, serving more as conceptual models in mathematical form. It would be fantastic to have a mathematical theory bridging these extremes a real "general theory of general intelligence," allowing the derivation and analysis of specific structures and processes playing a role in practical AGI systems, from broad mathematical models of general intelligence in various situations and under various constraints. However, the path to such a theory is not entirely clear at present; and, as valuable as such a theory would be, we don t believe such a thing to be necessary for creating advanced AGI. One possibility is that the development of such a theory will occur contemporaneously and synergetically with the advent of practical AGI technology. Lacking a mature, pragmatically useful "general theory of general intelligence," however, we have still found it valuable to articulate certain theoretical ideas about the nature of general intelligence, with a level of rigor a bit greater than the wholly informal discussions of the previous chapters. The chapters in this section of the book articulate some ideas we have developed in pursuit of a general theory of general intelligence; ideas that, even in their current relatively undeveloped form, have been very helpful in guiding our concrete work on the CogPrime design. This chapter presents a more formal version of the notion of intelligence as achieving complex goals in complex environments, based on a formal model of intelligent agents. These formalizations of agents and intelligence will be used in later chapters as a foundation for formalizing other concepts like inference and cognitive synergy. Chapters 8 and 9 pursue the notion of cognitive synergy a little more thoroughly than was done in previous chapters. Chapter 10 sketches a general theory of general intelligence using tools from category theory not bringing it to the level where one can use it to derive specific AGI algorithms and structures; but still, presenting ideas that will be helpful in interpreting and explaining specific aspects of the CogPrime design in Part 2. Finally, Appendix ?? explores an additional theoretical direction, in which the mind of an intelligent system is viewed in terms of certain curved spaces a novel way of thinking 129 130 7 A Formal Model of Intelligent Agents about the dynamics of general intelligence, which has been useful in guiding development of the ECAN component of CogPrime, and we expect will have more general value in future. Despite the intermittent use of mathematical formalism, the ideas presented in this section are fairly speculative, and we do not propose them as constituting a well-demonstrated theory of general intelligence. Rather, we propose them as an interesting way of thinking about general intelligence, which appears to be consistent with available data, and which has proved inspirational to us in conceiving concrete structures and dynamics for AGI, as manifested for example in the CogPrime design. Understanding the way of thinking described in these chapters is valuable for understanding why the CogPrime design is the way it is, and for relating CogPrime to other practical and intellectual systems, and extending and improving CogPrime. 7.2 A Simple Formal Agents Model (SRAM) We now present a formalization of the concept of intelligent agents beginning with a formalization of agents in general. Drawing on Hut05, LH07a , we consider a class of active agents which observe and explore their environment and also take actions in it, which may affect the environment. Formally, the agent sends information to the environment by sending symbols from some finite alphabet called the action space ; and the environment sends signals to the agent with symbols from an alphabet called the perception space, denoted P. Agents can also experience rewards, which lie in the reward space, denoted R, which for each agent is a subset of the rational unit interval. The agent and environment are understood to take turns sending signals back and forth, yielding a history of actions, observations and rewards, which may be denoted or else a 1 o 1 r 1 a 2 o 2 r 2 ... a 1 x 1 a 2 x 2 ... if x is introduced as a single symbol to denote both an observation and a reward. The complete interaction history up to and including cycle t is denoted ax 1:t ; and the history before cycle t is denoted ax t ax 1:t 1 . The agent is represented as a function which takes the current history as input, and produces an action as output. Agents need not be deterministic, an agent may for instance induce a probability distribution over the space of possible actions, conditioned on the current history. In this case we may characterize the agent by a probability distribution (a t ax t ). Similarly, the environment may be characterized by a probability distribution (x k ax k a k ). Taken together, the distributions and define a probability measure over the space of interaction sequences. Next, we extend this model in a few ways, intended to make it better reflect the realities of intelligent computational agents. The first modification is to allow agents to maintain memories (of finite size), via adding memory actions drawn from a set M into the history of actions, observations and rewards. The second modification is to introduce the notion of goals. 7.2 A Simple Formal Agents Model (SRAM) 131 7.2.1 Goals We define goals as mathematical functions (to be specified below) associated with symbols drawn from the alphabet G; and we consider the environment as sending goal-symbols to the agent along with regular observation-symbols. (Note however that the presentation of a goalsymbol to an agent does not necessarily entail the explicit communication to the agent of the contents of the goal function. This must be provided by other, correlated observations.) We also introduce a conditional distribution (g, ) that gives the weight of a goal g in the context of a particular environment . In this extended framework, an interaction sequence looks like or else a 1 o 1 g 1 r 1 a 2 o 2 g 2 r 2 ... a 1 y 1 a 2 y 2 ... where g i are symbols corresponding to goals, and y is introduced as a single symbol to denote the combination of an observation, a reward and a goal. Each goal function maps each finite interaction sequence I g,s,t ay s:t with g s to g t corresponding to g, into a value r g (I g,s,t ) 0, 1 indicating the value or raw reward of achieving the goal during that interaction sequence. The total reward r t obtained by the agent is the sum of the raw rewards obtained at time t from all goals whose symbols occur in the agent s history before t. This formalism of goal-seeking agents allows us to formalize the notion of intelligence as achieving complex goals in complex environments a direction that is pursued in Section 7.3 below. Note that this is an external perspective of system goals, which is natural from the perspective of formally defining system intelligence in terms of system behavior, but is not necessarily very natural in terms of system design. From the point of view of AGI design, one is generally more concerned with the (implicit or explicit) representation of goals inside an AGI system, as in CogPrime s Goal Atoms to be reviewed in Chapter 22 below. Further, it is important to also consider the case where an AGI system has no explicit goals, and the system s environment has no immediately identifiable goals either. But in this case, we don t see any clear way to define a system s intelligence, except via approximating the system in terms of other theoretical systems which do have explicit goals. This approximation approach is developed in Section 7.3.5 below. The awkwardness of linking the general formalism of intelligence theory presented here, with the practical business of creating and designing AGI systems, may indicate a shortcoming on the part of contemporary intelligence theory or AGI designs. On the other hand, this sort of situation often occurs in other domains as well e.g. the leap from quantum theory to the analysis of real-world systems like organic molecules involves a lot of awkwardness and large leaps a well. 132 7 A Formal Model of Intelligent Agents 7.2.2 Memory Stores As well as goals, we introduce into the model a long-term memory and a workspace. Regarding long-term memory we assume the agent s memory consists of multiple memory stores corresponding to various types of memory, e.g.: procedural (K P roc ), declarative (K Dec ), episodic (K Ep ), attentional (K Att ) and Intentional (K Int ). In Appendix ?? a category-theoretic model of these memory stores is introduced; but for the moment, we need only assume the existence of an injective mapping Ep : K Ep H where H is the space of fuzzy sets of subhistories (subhistories being episodes in this formalism) an injective mapping P roc : K P roc M W A, where M is the set of memory states, W is the set of (observation, goal, reward) triples, and A is the set of actions (this maps each procedure object into a function that enacts actions in the environment or memory, based on the memory state and current world-state) an injective mapping Dec : K Dec L, where L is the set of expressions in some formal language (which may for example be a logical language), which possesses words corresponding to the observations, goals, reward values and actions in our agent formalism an injective mapping Int : K Int G, where G is the space of goals mentioned above an injective mapping Att : K Int K Ep K P roc K Ec V, where V is the space of attention values (structures that gauge the importance of paying attention to an item of knowledge over various time-scales or in various contexts) We also assume that the vocabulary of actions contains memory-actions corresponding to the operations of inserting the current observation, goal, reward or action into the episodic and or declarative memory store. And, we assume that the activity of the agent, at each time-step, includes the enaction of one or more of the procedures in the procedural memory store. If several procedures are enacted at once, then the end result is still formally modeled as a single action a a 1 ... a k where is an operator on action-space that composes multiple actions into a single one. Finally, we assume that, at each time-step, the agent may carry out an external action a i on the environment, a memory action m i on the (long-term) memory, and an action b i on its internal workspace. Among the actions that can be carried out on the workspace, are the ability to insert or delete observations, goals, actions or reward-values from the workspace. The workspace can be thought of as a sort of short-term memory or else in terms of Baars global workspace concept mentioned above. The workspace provides a medium for interaction between the different memory types. The workspace provides a mechanism by which declarative, episodic and procedural memory may interact with each other. For this mechanism to work, we must assume that there are actions corresponding to query operations that allow procedures to look into declarative and episodic memory. The nature of these query operations will vary among different agents, but we can assume that in general an agent has one or more procedures Q Dec (x) serving as declarative queries, meaning that when Q Dec is enacted on some x that is an ordered set of items in the workspace, the result is that one or more items from declarative memory is entered into the workspace one or more procedures Q Ep (x) serving as episodic queries, meaning that when Q Ep is enacted on some x that is an ordered set of items in the workspace, the result is that one or more items from episodic memory is entered into the workspace 7.2 A Simple Formal Agents Model (SRAM) 133 One additional aspect of CogPrime s knowledge representation that is important to PLN is the attachment of nonnegative weights n i corresponding to elementary observations o i . These weights denote the amount of evidence contained in the observation. For instance, in the context of a robotic agent, one could use these values to encode the assumption that an elementary visual observation has more evidential value than an elementary olfactory observation. We now have a model of an agent with long-term memory comprising procedural, declarative and episodic aspects, an internal cognitive workspace, and the capability to use procedures to drive actions based on items in memory and the workspace, and to move items between longterm memory and the workspace. 7.2.2.1 Modeling CogPrime Of course, this formal model may be realized differently in various real-world AGI systems. In CogPrime we have a weighted, labeled hypergraph structure called the AtomSpace used to store declarative knowledge (this is the representation used by PLN) a collection of programs in a LISP-like language called Combo, stored in a ProcedureRepository data structure, used to store procedural knowledge a collection of partial movies of the system s experience, played back using an internal simulation engine, used to store episodic knowledge AttentionValue objects, minimally containing ShortTermImportance (STI) and LongTermImportance (LTI) values used to store attentional knowledge Goal Atoms for intentional knowledge, stored in the same format as declarative knowledge but whose dynamics involve a special form of artificial currency that is used to govern action selection The AtomSpace is the central repository and procedures and episodes are linked to Atoms in the AtomSpace which serve as their symbolic representatives. The workspace in CogPrime exists only virtually: each item in the AtomSpace has a short term importance (STI) level, and the workspace consists of those items in the AtomSpace with highest STI, and those procedures and episodes whose symbolic representatives in the AtomSpace have highest STI. On the other hand, as we saw above, the LIDA architecture uses separate representations for procedural, declarative and episodic memory, but also has an explicit workspace component, where the most currently contextually relevant items from all different types of memory are gathered and used together in the course of actions. However, compared to CogPrime, it lacks comparably fine-grained methods for integrating the different types of memory. Systematically mapping various existing cognitive architectures, or human brain structure, into this formal agents model would be a substantial though quite plausible exercise; but we will not undertake this here. 7.2.3 The Cognitive Schematic Next we introduce an additional specialization into SRAM: the cognitive schematic, written informally as 134 7 A Formal Model of Intelligent Agents Context P rocedure Goal and considered more formally as holds(C) ex(P ) h i where h may be an externally specified goal g i or an internally specified goal h derived as a (possibly uncertain) subgoal of one of more g i ; C is a piece of declarative or episodic knowledge and P is a procedure that the agent can internally execute to generate a series of actions. ex(P ) is the proposition that P is successfully executed. If C is episodic then holds(C) may be interpreted as the current context (i.e. some finite slice of the agent s history) being similar to C; if C is declarative then holds(C) may be interpreted as the truth value of C evaluated at the current context. Note that C may refer to some part of the world quite distant from the agent s current sensory observations; but it may still be formally evaluated based on the agent s history. In the standard CogPrime notation as introduced formally in Chapter 20 (where indentation has function-argument syntax similar to that in Python, and relationship types are prepended to their relata without parentheses), for the case C is declarative this would be written as PredictiveExtensionalImplication AND C Execution P G and in the case C is episodic one replaces C in this formula with a predicate expressing C s similarity to the current context. The semantics of the PredictiveExtensionalInheritance relation will be discussed below. The Execution relation simply denotes the proposition that procedure P has been executed. For the class of SRAM agents who (like CogPrime) use the cognitive schematic to govern many or all of their actions, a significant fragment of agent intelligence boils down to estimating the truth values of PredictiveExtensionalImplication relationships. Action selection procedures can be used, which choose procedures to enact based on which ones are judged most likely to achieve the current external goals g i in the current context. Rather than enter into the particularities of action selection or other cognitive architecture issues, we will restrict ourselves to PLN inference, which in the context of the present agent model is a method for handling PredictiveImplication in the cognitive schematic. Consider an agent in a virtual world, such as a virtual dog, one of whose external goals is to please its owner. Suppose its owner has asked it to find a cat, and it can translate this into a subgoal find cat. If the agent operates according to the cognitive schematic, it will search for P so that PredictiveExtensionalImplication AND C Execution P Evaluation found cat holds. 7.3 Toward a Formal Characterization of Real-World General Intelligence 135 7.3 Toward a Formal Characterization of Real-World General Intelligence Having defined what we mean by an agent acting in an environment, we now turn to the question of what it means for such an agent to be intelligent. As we have reviewed extensively in Chapter 2 above, intelligence is a commonsense, folk psychology concept, with all the imprecision and contextuality that this generally entails. One cannot expect any compact, elegant formalism to capture all of its meanings. Even in the psychology and AI research communities, divergent definitions abound; Legg and Hutter LH07a lists and organizes 70 definitions from the literature. Practical study of natural intelligence in humans and other organisms, and practical design, creation and instruction of artificial intelligences, can proceed perfectly well without an agreed-upon formalization of the intelligence concept. Some researchers may conceive their own formalisms to guide their own work, others may feel no need for any such thing. But nevertheless, it is of interest to seek formalizations of the concept of intelligence, which capture useful fragments of the commonsense notion of intelligence, and provide guidance for practical research in cognitive science and AI. A number of such formalizations have been given in recent decades, with varying degrees of mathematical rigor. Perhaps the most carefullywrought formalization of intelligence so far is the theory of universal intelligence presented by Shane Legg and Marcus Hutter in LH07b , which draws on ideas from algorithmic information theory. Universal intelligence captures a certain aspect of the intelligence concept very well, and has the advantage of connecting closely with ideas in learning theory, decision theory and computation theory. However, the kind of general intelligence it captures is in a sense more general in scope than human-style general intelligence. Universal intelligence does capture the sense in which humans are more intelligent than worms, which are more intelligent than rocks; and the sense in which theoretical AGI systems like Hutter s AIXI or AIXI tl Hut05 would be much more intelligent than humans. But it misses essential aspects of the intelligence concept as it is used in the context of intelligent natural systems like humans or real-world AI systems. Our main goal in this section is to present variants of universal intelligence that better capture the notion of intelligence as it is typically understood in the context of real-world natural and artificial systems. The first variant we describe is pragmatic general intelligence, which is inspired by the intuitive notion of intelligence as the ability to achieve complex goals in complex environments, given in Goe93a . After assuming a prior distribution over the space of possible environments, and one over the space of possible goals, one then defines the pragmatic general intelligence as the expected level of goal-achievement of a system relative to these distributions. Rather than measuring truly broad mathematical general intelligence, pragmatic general intelligence measures intelligence in a way that s specifically biased toward certain environments and goals. Another variant definition is then presented, the efficient pragmatic general intelligence, which takes into account the amount of computational resources utilized by the system in achieving its intelligence. Some argue that making efficient use of available resources is a defining characteristic of intelligence, see e.g. Wan06 . A critical question left open is the characterization of the prior distributions corresponding to everyday human reality; we give a semi-formal sketch of some ideas on this in Chapter 9 below, where we present the notion of a communication prior, which assigns a probability 136 7 A Formal Model of Intelligent Agents weight to a situation S based on the ease with which one agent in a society can communicate S to another agent in that society, using multimodal communication (including verbalization, demonstration, dramatic and pictorial depiction, etc.). Finally, we present a formal measure of the generality of an intelligence, which precisiates the informal distinction between general AI and narrow AI. 7.3.1 Biased Universal Intelligence To define universal intelligence, Legg and Hutter consider the class of environments that are reward-summable, meaning that the total amount of reward they return to any agent is bounded by 1. Where r i denotes the reward experienced by the agent from the environment at time i, the expected total reward for the agent from the environment is defined as V E( r i ) 1 To extend their definition in the direction of greater realism, we first introduce a second-order probability distribution , which is a probability distribution over the space of environments . The distribution assigns each environment a probability. One such distribution is the Solomonoff-Levin universal distribution in which one sets 2 K( ) ; but this is not the only distribution of interest. In fact a great deal of real-world general intelligence consists of the adaptation of intelligent systems to particular distributions over environment-space, differing from the universal distribution. We then define Definition 4 The biased universal intelligence of an agent is its expected performance with respect to the distribution over the space of all computable reward-summable environments, E, that is, 1 ( ) E ( )V Legg and Hutter s universal intelligence is obtained by setting equal to the universal distribution. This framework is more flexible than it might seem. E.g. suppose one wants to incorporate agents that die. Then one may create a special action, say a 666 , corresponding to the state of death, to create agents that in certain circumstances output action a 666 have the property that if their previous action was a 666 , then all of their subsequent actions must be a 666 and to define a reward structure so that actions a 666 always bring zero reward. It then follows that death is generally a bad thing if one wants to maximize intelligence. Agents that die will not get rewarded after they re dead; and agents that live only 70 years, say, will be restricted from getting rewards involving long-term patterns and will hence have specific limits on their intelligence. 7.3 Toward a Formal Characterization of Real-World General Intelligence 137 7.3.2 Connecting Legg and Hutter s Model of Intelligent Agents to the Real World A notable aspect of the Legg and Hutter formalism is the separation of the reward mechanism from the cognitive mechanisms of the agent. While commonplace in the reinforcement learning literature, this seems psychologically unrealistic in the context of biological intelligences and many types of machine intelligences. Not all human intelligent activity is specifically rewardseeking in nature; and even when it is, humans often pursue complexly constructed rewards, that are defined in terms of their own cognitions rather than separately given. Suppose a certain human s goals are true love, or world peace, and the proving of interesting theorems then these goals are defined by the human herself, and only she knows if she s achieved them. An externallyprovided reward signal doesn t capture the nature of this kind of goal-seeking behavior, which characterizes much human goal-seeking activity (and will presumably characterize much of the goal-seeking activity of advanced engineered intelligences also) ... let alone human behavior that is spontaneous and unrelated to explicit goals, yet may still appear commonsensically intelligent. One could seek to bypass this complaint about the reward mechanisms via a sort of neo- Freudian argument, via associating the reward signal, not with the external environment as typically conceived, but rather with a portion of the intelligent agent s brain that is separate from the cognitive component viewing complex goals like true love, world peace and proving interesting theorems as indirect ways of achieving the agent s basic goals , created within the agent s memory via subgoaling mechanisms but it seems to us that a general formalization of intelligence should not rely on such strong assumptions about agents cognitive architectures. So below, after introducing the pragmatic and efficient pragmatic general intelligence measures, we will propose an alternate interpretation wherein the mechanism of external rewards is viewed as a theoretical test framework for assessing agent intelligence, rather than a hypothesis about intelligent agent architecture. In this alternate interpretation, formal measures like the universal, pragmatic and efficient pragmatic general intelligence are viewed as not directly applicable to real-world intelligences, because they involve the behaviors of agents over a wide variety of goals and environments, whereas in real life the opportunities to observe agents are more limited. However, they are viewed as being indirectly applicable to real-world agents, in the sense that an external intelligence can observe an agent s real-world behavior and then infer its likely intelligence according to these measures. In a sense, this interpretation makes our formalized measures of intelligence the opposite of real-world IQ tests. An IQ test is a quantified, formalized test which is designed to approximately predict the informal, qualitative achievement of humans in real life. On the other hand, the formal definitions of intelligence we present here are quantified, formalized tests that are designed to capture abstract notions of intelligence, but which can be approximately evaluated on a real-world intelligent system by observing what it does in real life. 138 7 A Formal Model of Intelligent Agents 7.3.3 Pragmatic General Intelligence The above concept of biased universal intelligence is perfectly adequate for many purposes, but it is also interesting to explicitly introduce the notion of a goal into the calculation. This allows us to formally capture the notion presented in Goe93a of intelligence as the ability to achieve complex goals in complex environments. If the agent is acting in environment , and is provided with g s corresponding to g at the start and the end of the time-interval T i (s, ..., t) , then the expected goal-achievement of the agent, relative to g, during the interval is the expectation V ,g,T E( t r g (I g,s,i )) i s where the expectation is taken over all interaction sequences I g,s,i drawn according to . We then propose Definition 5 The pragmatic general intelligence of an agent , relative to the distribution over environments and the distribution over goals, is its expected performance with respect to goals drawn from in environments drawn from , over the time-scales natural to the goals; that is, ( ) ( ) (g, )V ,g,T E,g G,T (in those cases where this sum is convergent). This definition formally captures the notion that intelligence is achieving complex goals in complex environments, where complexity is gauged by the assumed measures and . If is taken to be the universal distribution, and is defined to weight goals according to the universal distribution, then pragmatic general intelligence reduces to universal intelligence. Furthermore, it is clear that a universal algorithmic agent like AIXI Hut05 would also have a high pragmatic general intelligence, under fairly broad conditions. As the interaction history grows longer, the pragmatic general intelligence of AIXI would approach the theoretical maximum; as AIXI would implicitly infer the relevant distributions via experience. However, if significant reward discounting is involved, so that near-term rewards are weighted much higher than long-term rewards, then AIXI might compare very unfavorably in pragmatic general intelligence, to other agents designed with prior knowledge of , and in mind. The most interesting case to consider is where and are taken to embody some particular bias in a real-world space of environments and goals, and this bias is appropriately reflected in the internal structure of an intelligent agent. Note that an agent needs not lack universal intelligence in order to possess pragmatic general intelligence with respect to some non-universal distribution over goals and environments. However, in general, given limited resources, there may be a tradeoff between universal intelligence and pragmatic intelligence. Which leads to the next point: how to encompass resource limitations into the definition. One might argue that the definition of Pragmatic General Intelligence is already encompassed by Legg and Hutter s definition because one may bias the distribution of environments within the latter by considering different Turing machines underlying the Kolmogorov complexity. However this is not a general equivalence because the Solomonoff-Levin measure intrinsically 7.3 Toward a Formal Characterization of Real-World General Intelligence 139 decays exponentially, whereas an assumptive distribution over environments might decay at some other rate. This issue seems to merit further mathematical investigation. 7.3.4 Incorporating Computational Cost Let , ,g,T be a probability distribution describing the amount of computational resources consumed by an agent while achieving goal g over time-scale T . This is a probability distribution because we want to account for the possibility of nondeterministic agents. So, , ,g,T (Q) tells the probability that Q units of resources are consumed. For simplicity we amalgamate space and time resources, energetic resources, etc. into a single number Q, which is assumed to live in some subset of the positive reals. Space resources of course have to do with the size of the system s memory. Then we may define Definition 6 The efficient pragmatic general intelligence of an agent with resource consumption , ,g,T , relative to the distribution over environments and the distribution over goals, is its expected performance with respect to goals drawn from in environments drawn from , over the time-scales natural to the goals, normalized by the amount of computational effort expended to achieve each goal; that is, Eff ( ) E,g G,Q,T (in those cases where this sum is convergent). ( ) (g, ) , ,g,T (Q) V ,g,T Q This is a measure that rates an agent s intelligence higher if it uses fewer computational resources to do its business. Roughly, it measures reward achieved per spacetime computation unit. Note that, by abandoning the universal prior, we have also abandoned the proof of convergence that comes with it. In general the sums in the above definitions need not converge; and exploration of the conditions under which they do converge is a complex matter. 7.3.5 Assessing the Intelligence of Real-World Agents The pragmatic and efficient pragmatic general intelligence measures are more realistic than the Legg and Hutter universal intelligence measure, in that they take into account the innate biasing and computational resource restrictions that characterize real-world intelligence. But as discussed earlier, they still live in fantasy-land to an extent they gauge the intelligence of an agent via a weighted average over a wide variety of goals and environments; and they presume a simplistic relationship between agents and rewards that does not reflect the complexities of real-world cognitive architectures. It is not obvious from the foregoing how to apply these measures to real-world intelligent systems, which lack the ability to exist in such a wide variety of environments within their often brief lifespans, and mostly go about their lives doing things other than pursuing quantified external rewards. In this brief section we describe an approach to bridging this gap. The treatment is left semi-formal in places. 140 7 A Formal Model of Intelligent Agents We suggest to view the definitions of pragmatic and efficient pragmatic general intelligence in terms of a possible worlds semantics i.e. to view them as asking, counterfactually, how an agent would perform, hypothetically, on a series of tests (the tests being goals, defined in relation to environments and reward signals). Real-world intelligent agents don t normally operate in terms of explicit goals and rewards; these are abstractions that we use to think about intelligent agents. However, this is no objection to characterizing various sorts of intelligence in terms of counterfactuals like: how would system S operate if it were trying to achieve this or that goal, in this or that environment, in order to seek reward? We can characterize various sorts of intelligence in terms of how it can be inferred an agent would perform on certain tests, even though the agent s real life does not consist of taking these tests. This conceptual approach may seem a bit artificial but we don t currently see a better alternative, if one wishes to quantitatively gauge intelligence (which is, in a sense, an artificial thing to do in the first place). Given a real-world agent X and a mandate to assess its intelligence, the obvious alternative to looking at possible worlds in the manner of the above definitions, is just looking directly at the properties of the things X has achieved in the real world during its lifespan. But this isn t an easy solution, because it doesn t disambiguate which aspects of X s achievements were due to its own actions versus due to the rest of the world that X was interacting with when it made its achievements. To distinguish the amount of achievement that X caused via its own actions requires a model of causality, which is a complex can of worms in itself; and, critically, the standard models of causality also involve counterfactuals (asking what would have been achieved in this situation if the agent X hadn t been there , etc.) MW07 . Regardless of the particulars, it seems impossible to avoid counterfactual realities in assessing intelligence. The approach we suggest given a real-world agent X with a history of actions in a particular world, and a mandate to assess its intelligence is to introduce an additional player, an inference agent , into the picture. The agent modeled above is then viewed as X : the model of X that constructs, in order to explore X s inferred behaviors in various counterfactual environments. In the test situations embodied in the definitions of pragmatic and efficient pragmatic general intelligence, the environment gives X rewards, based on specifically configured goals. In X s real life, the relation between goals, rewards and actions will generally be significantly subtler and perhaps quite different. We model the real world similarly to the fantasy world of the previous section, but with the omission of goals and rewards. We define a naturalistic context as one in which all goals and rewards are constant, i.e. g i g 0 and r i r 0 for all i. This is just a mathematical convention for stating that there are no precisely-defined external goals and rewards for the agent. In a naturalistic context, we then have a situation where agents create actions based on the past history of actions and perceptions, and if there is any relevant notion of reward or goal, it is within the cognitive mechanism of some agent. A naturalistic agent X is then an agent which is restricted to one particular naturalistic context, involving one particular environment (formally, we may achieve this within the framework of agents described above via dictating that X issues constant null actions a 0 in all environments except ). Next, we posit a metric space ( , d) of naturalistic agents defined on a naturalistic context involving environment , and a subspace of inference agents, which are naturalistic agents that output predictions of other agents behaviors (a notion we will not fully formalize here). If agents are represented as program trees, then d may be taken as edit distance on tree space Bil05 . Then, for each agent , we may assess 7.4 Intellectual Breadth: Quantifying the Generality of an Agent s Intelligence 141 the prior probability ( ) according to some assumed distribution the effectiveness p( , X) of at predicting the actions of an agent X We may then define Definition 7 The inference ability of the agent , relative to and X, is Y q ,X ( ) ( ) sim(X, Y )p( , Y ) Y sim(X, Y ) where sim is a specified decreasing function of d(X, Y ), such as sim(X, Y ) 1 1 d(X,Y ) . To construct X , we may then use the model of X created by the agent with the highest inference ability relative to and X (using some specified ordering, in case of a tie). Having constructed X , we can then say that Definition 8 The inferred pragmatic general intelligence (relative to and ) of a naturalistic agent X defined relative to an environment , is defined as the pragmatic general intelligence of the model X of X produced by the agent with maximal inference ability relative to (and in the case of a tie, the first of these in the ordering defined over ). The inferred efficient pragmatic general intelligence of X relative to is defined similarly. This provides a precise characterization of the pragmatic and efficient pragmatic intelligence of real-world systems, based on their observed behaviors. It s a bit messy; but the real world tends to be like that. 7.4 Intellectual Breadth: Quantifying the Generality of an Agent s Intelligence We turn now to a related question: How can one quantify the degree of generality that an intelligent agent possesses? Above we have discussed the qualitative distinction between AGI and Narrow AI , and intelligence as we have formalized it above is specifically intended as a measure of general intelligence. But quantifying intelligence is different than quantifying generality versus narrowness. To make the discussion simpler, we introduce the term context as a shorthand for environment interval triple ( , g, T ). Given a context ( , g, T ), and a set of agents, one may construct a fuzzy set Ag ,g,T gathering those agents that are intelligent relative to the context; and given a set of contexts, one may also define a fuzzy set Con gathering those contexts with respect to which a given agent is intelligent. The relevant formulas are: Ag ,g,T ( ) Con ( , g, T ) 1 N Q ,g,T (Q)V ,g,T Q where N N( , g, T ) is a normalization factor defined appropriately, e.g. via N( , g, T ) max V ,g,T . One could make similar definitions leaving out the computational cost factor Q, but we suspect that incorporating Q is a more promising direction. We then propose 142 7 A Formal Model of Intelligent Agents Definition 9 The intellectual breadth of an agent , relative to the distribution over environments and the distribution over goals, is where H is the entropy and H( P Con ( , g, T )) P Con ( , g, T ) ( ,g .T ) ( ) (g, ) Con ( , g, T ) ( ) (g , ) Con ( , g , T ) is the probability distribution formed by normalizing the fuzzy set Con ( , g, T ). A similar definition of the intellectual breadth of a context ( , g, T ), relative to the distribution over agents, may be posited. A weakness of these definitions is that they don t try to account for dependencies between agents or contexts; perhaps more refined formulations may be developed that account explicitly for these dependencies. Note that the intellectual breadth of an agent as defined here is largely independent of the (efficient or not) pragmatic general intelligence of that agent. One could have a rather (efficiently or not) pragmatically generally intelligent system with little breadth: this would be a system very good at solving a fair number of hard problems, yet wholly incompetent on a larger number of hard problems. On the other hand, one could also have a terribly (efficiently or not) pragmatically generally stupid system with great intellectual breadth: i.e a system roughly equally dumb in all contexts! Thus, one can characterize an intelligent agent as narrow with respect to distribution over environments and the distribution over goals, based on evaluating it as having low intellectual breadth. A narrow AI relative to and would then be an AI agent with a relatively high efficient pragmatic general intelligence but a relatively low intellectual breadth. 7.5 Conclusion Our main goal in this chapter has been to push the formal understanding of intelligence in a more pragmatic direction. Much more work remains to be done, e.g. in specifying the environment, goal and efficiency distributions relevant to real-world systems, but we believe that the ideas presented here constitute nontrivial progress. If the line of research suggested in this chapter succeeds, then eventually, one will be able to do AGI research as follows: Specify an AGI architecture formally, and then use the mathematics of general intelligence to derive interesting results about the environments, goals and hardware platforms relative to which the AGI architecture will display significant pragmatic or efficient pragmatic general intelligence, and intellectual breadth. The remaining chapters in this section present further ideas regarding how to work toward this goal. For the time being, such a mode of AGI research remains mainly for the future, but we have still found the formalism given in these chapters useful for formulating and clarifying various aspects of the CogPrime design as will be presented in later chapters. Chapter 8 Cognitive Synergy 8.1 Cognitive Synergy As we have seen, the formal theory of general intelligence, in its current form, doesn t really tell us much that s of use for creating real-world AGI systems. It tells us that creating extraordinarily powerful general intelligence is almost trivial if one has unrealistically huge amounts of computational resources; and that creating moderately powerful general intelligence using feasible computational resources is all about creating AI algorithms and data structures that (explicitly or implicitly) match the restrictions implied by a certain class of situations, to which the general intelligence is biased. We ve also described, in various previous chapters, some non-rigorous, conceptual principles that seem to explain key aspects of feasible general intelligence: the complementary reliance on evolution and autopoiesis, the superposition of hierarchical and heterarchical structures, and so forth. These principles can be considered as broad strategies for achieving general intelligence in certain broad classes of situations. Although, a lot of research needs to be done to figure out nice ways to describe, for instance, in what class of situations evolution is an effective learning strategy, in what class of situations dual hierarchical heterarchical structure is an effective way to organize memory, etc. In this chapter we ll dig deeper into one of the general principle of feasible general intelligences briefly alluded to earlier: the cognitive synergy principle, which is both a conceptual hypothesis about the structure of generally intelligent systems in certain classes of environments, and a design principle used to guide the architecting of CogPrime. We will focus here on cognitive synergy specifically in the case of multi-memory systems, which we define as intelligent systems (like CogPrime) whose combination of environment, embodiment and motivational systems make it important for them to possess memories that divide into partially but not wholly distinct components corresponding to the categories of: Declarative memory Procedural memory (memory about how to do certain things) Sensory and episodic memory Attentional memory (knowledge about what to pay attention to in what contexts Intentional memory (knowledge about the system s own goals and subgoals) In Chapter 9 below we present a detailed argument as to how the requirement for a multimemory underpinning for general intelligence emerges from certain underlying assumptions 143 144 8 Cognitive Synergy regarding the measurement of the simplicity of goals and environments; but the points made here do not rely on that argument. What they do rely on is the assumption that, in the intelligence in question, the different components of memory are significantly but not wholly distinct. That is, there are significant family resemblances between the memories of a single type, yet there are also thoroughgoing connections between memories of different types. The cognitive synergy principle, if correct, applies to any AI system demonstrating intelligence in the context of embodied, social communication. However, one may also take the theory as an explicit guide for constructing AGI systems; and of course, the bulk of this book describes one AGI architecture, CogPrime, designed in such a way. It is possible to cast these notions in mathematical form, and we make some efforts in this direction in Appendix ??, using the languages of category theory and information geometry. However, this formalization has not yet led to any rigorous proof of the generality of cognitive synergy nor any other exciting theorems; with luck this will come as the mathematics is further developed. In this chapter the presentation is kept on the heuristic level, which is all that is critically needed for motivating the CogPrime design. 8.2 Cognitive Synergy The essential idea of cognitive synergy, in the context of multi-memory systems, may be expressed in terms of the following points: 1. Intelligence, relative to a certain set of environments, may be understood as the capability to achieve complex goals in these environments. 2. With respect to certain classes of goals and environments (see Chapter 9 for a hypothesis in this regard), an intelligent system requires a multi-memory architecture, meaning the possession of a number of specialized yet interconnected knowledge types, including: declarative, procedural, attentional, sensory, episodic and intentional (goal-related). These knowledge types may be viewed as different sorts of patterns that a system recognizes in itself and its environment. Knowledge of these various different types must be interlinked, and in some cases may represent differing views of the same content (see Figure ??) 3. Such a system must possess knowledge creation (i.e. pattern recognition formation) mechanisms corresponding to each of these memory types. These mechanisms are also called cognitive processes. 4. Each of these cognitive processes, to be effective, must have the capability to recognize when it lacks the information to perform effectively on its own; and in this case, to dynamically and interactively draw information from knowledge creation mechanisms dealing with other types of knowledge 5. This cross-mechanism interaction must have the result of enabling the knowledge creation mechanisms to perform much more effectively in combination than they would if operated non-interactively. This is cognitive synergy. While these points are implicit in the theory of mind given in Goe06a , they are not articulated in this specific form there. Interactions as mentioned in Points 4 and 5 in the above list are the real conceptual meat of the cognitive synergy idea. One way to express the key idea here is that most AI algorithms suffer from combinatorial explosions: the number of possible elements to be combined in a 8.2 Cognitive Synergy 145 Fig. 8.1: Illustrative example of the interactions between multiple types of knowledge, in representing a simple piece of knowledge. Generally speaking, one type of knowledge can be converted to another, at the cost of some loss of information. The synergy between cognitive processes associated with corresponding pieces of knowledge, possessing different type, is a critical aspect of general intelligence. synthesis or analysis is just too great, and the algorithms are unable to filter through all the possibilities, given the lack of intrinsic constraint that comes along with a general intelligence context (as opposed to a narrow-AI problem like chess-playing, where the context is constrained and hence restricts the scope of possible combinations that needs to be considered). In an AGI architecture based on cognitive synergy, the different learning mechanisms must be designed specifically to interact in such a way as to palliate each others combinatorial explosions - so that, for instance, each learning mechanism dealing with a certain sort of knowledge, must synergize with learning mechanisms dealing with the other sorts of knowledge, in a way that decreases the severity of combinatorial explosion. One prerequisite for cognitive synergy to work is that each learning mechanism must recognize when it is stuck, meaning it s in a situation where it has inadequate information to make a confident judgment about what steps to take next. Then, when it does recognize that it s stuck, it may request help from other, complementary cognitive mechanisms. A theoretical notion closely related to cognitive synergy is the cognitive schematic, formalized in Chapter 7 above, which states that the activity of the different cognitive processes involved in an intelligent system may be modeled in terms of the schematic implication Context P rocedure Goal 146 8 Cognitive Synergy where the Context involves sensory, episodic and or declarative knowledge; and attentional knowledge is used to regulate how much resource is given to each such schematic implication in memory. Synergy among the learning processes dealing with the context, the procedure and the goal is critical to the adequate execution of the cognitive schematic using feasible computational resources. Finally, drilling a little deeper into Point 3 above, one arrives at a number of possible knowledge creation mechanisms (cognitive processes) corresponding to each of the key types of knowledge. Figure ?? below gives a high-level overview of the main types of cognitive process considered in the current version of Cognitive Synergy Theory, categorized according to the type of knowledge with which each process deals. 8.3 Cognitive Synergy in CogPrime Different cognitive systems will use different processes to fulfill the various roles identified in Figure ?? above. Here we briefly preview the basic cognitive processes that the CogPrime AGI design uses for these roles, and the synergies that exist between these. 8.3.1 Cognitive Processes in CogPrime : a Cognitive Synergy Based Architecture..." from ICCI 2009 Table 8.1: default Table will go here Table 8.2: The OpenCogPrime data structures used to represent the key knowledge types involved Table 8.3: default Table will go here Table 8.4: Key cognitive processes, and the algorithms that play their roles in CogPrime Tables 8.1 and 8.3 present the key structures and processes involved in CogPrime, identifying each one with a certain memory process type as considered in cognitive synergy theory. That is: each of these cognitive structures or processes deals with one or more types of memory declarative, procedural, sensory, episodic or attentional. Table 8.5 describes the key CogPrime 8.3 Cognitive Synergy in CogPrime 147 Fig. 8.2: High-level overview of the key cognitive dynamics considered here in the context of cognitive synergy. The cognitive synergy principle describes the behavior of a system as it pursues a set of goals (which in most cases may be assumed to be supplied to the system a priori , but then refined by inference and other processes). The assumed intelligent agent model is roughly as follows: At each time the system chooses a set of procedures to execute, based on its judgments regarding which procedures will best help it achieve its goals in the current context. These procedures may involve external actions (e.g. involving conversation, or controlling an agent in a simulated world) and or internal cognitive actions. In order to make these judgments it must effectively manage declarative, procedural, episodic, sensory and attentional memory, each of which is associated with specific algorithms and structures as depicted in the diagram. There are also global processes spanning all the forms of memory, including the allocation of attention to different memory items and cognitive processes, and the identification and reification of system-wide activity patterns (the latter referred to as map formation ) Table 8.5: default Table will go here Table 8.6: Key OpenCogPrime cognitive processes categorized according to knowledge type and process type 148 8 Cognitive Synergy processes in terms of the analysis vs. synthesis distinction. Finally, Tables ?? and ?? exemplify these structures and processes in the context of embodied virtual agent control. In the CogPrime context, a procedure in this cognitive schematic is a program tree stored in the system s procedural knowledge base; and a context is a (fuzzy, probabilistic) logical predicate stored in the AtomSpace, that holds, to a certain extent, during each interval of time. A goal is a fuzzy logical predicate that has a certain value at each interval of time, as well. Attentional knowledge is handled in CogPrime by the ECAN artificial economics mechanism, that continually updates ShortTermImportance and LongTerm Importance values associated with each item in the CogPrime system s memory, which control the amount of attention other cognitive mechanisms pay to the item, and how much motive the system has to keep the item in memory. HebbianLinks are then created between knowledge items that often possess ShortTermImportance at the same time; this is CogPrime s version of traditional Hebbian learning. ECAN has deep interactions with other cognitive mechanisms as well, which are essential to its efficient operation; for instance, PLN inference may be used to help ECAN extrapolate conclusions about what is worth paying attention to, and MOSES may be used to recognize subtle attentional patterns. ECAN also handles assignment of credit , the figuring-out of the causes of an instance of successful goal-achievement, drawing on PLN and MOSES as needed when the causal inference involved here becomes difficult. The synergies between CogPrime s cognitive processes are well summarized below, which is a 16x16 matrix summarizing a host of interprocess interactions generic to CST. One key aspect of how CogPrime implements cognitive synergy is PLN s sophisticated management of the confidence of judgments. This ties in with the way OpenCogPrime s PLN inference framework represents truth values in terms of multiple components (as opposed to the single probability values used in many probabilistic inference systems and formalisms): each item in OpenCogPrime s declarative memory has a confidence value associated with it, which tells how much weight the system places on its knowledge about that memory item. This assists with cognitive synergy as follows: A learning mechanism may consider itself stuck , generally speaking, when it has no high-confidence estimates about the next step it should take. Without reasonably accurate confidence assessment to guide it, inter-component interaction could easily lead to increased rather than decreased combinatorial explosion. And of course there is an added recursion here, in that confidence assessment is carried out partly via PLN inference, which in itself relies upon these same synergies for its effective operation. To illustrate this point further, consider one of the synergetic aspects described in ?? below: the role cognitive synergy plays in deductive inference. Deductive inference is a hard problem in general - but what is hard about it is not carrying out inference steps, but rather inference control (i.e., choosing which inference steps to carry out). Specifically, what must happen for deduction to succeed in CogPrime is: 1. the system must recognize when its deductive inference process is stuck , i.e. when the PLN inference control mechanism carrying out deduction has no clear idea regarding which inference step(s) to take next, even after considering all the domain knowledge at is disposal 2. in this case, the system must defer to another learning mechanism to gather more information about the different choices available - and the other learning mechanism chosen must, a reasonable percentage of the time, actually provide useful information that helps PLN to get unstuck and continue the deductive process 8.4 Some Critical Synergies 149 For instance, deduction might defer to the attentional knowledge subsystem, and make a judgment as to which of the many possible next deductive steps are most associated with the goal of inference and the inference steps taken so far, according to the HebbianLinks constructed by the attention allocation subsystem, based on observed associations. Or, if this fails, deduction might ask MOSES (running in supervised categorization mode) to learn predicates characterizing some of the terms involving the possible next inference steps. Once MOSES provides these new predicates, deduction can then attempt to incorporate these into its inference process, hopefully (though not necessarily) arriving at a higher-confidence next step. 8.4 Some Critical Synergies Referring back to Figure ??, and summarizing many of the ideas in the previous section, Table ?? enumerates a number of specific ways in which the cognitive processes mentioned in the Figure may synergize with one another, potentially achieving dramatically greater efficiency than would be possible on their own. Of course, realizing these synergies on the practical algorithmic level requires significant inventiveness and may be approached in many different ways. The specifics of how CogPrime manifests these synergies are discussed in many following chapters. Fig. 8.3: This table, and the following ones, show some of the synergies between the primary cognitive processes explicitly used in CogPrime. 150 8 Cognitive Synergy 8.5 The Cognitive Schematic 151 8.5 The Cognitive Schematic Now we return to the cognitive schematic notion, according to which various cognitive processes involved in intelligence may be understood to work together via the implication Context P rocedure Goal p (summarized C P G). Semi-formally, this implication may be interpreted to mean: If the context C appears to hold currently, then if I enact the procedure P , I can expect to achieve the goal G with certainty p. The cognitive schematic leads to a conceptualization of the internal action of an intelligent system as involving two key categories of learning: Analysis: Estimating the probability p of a posited C P G relationship Synthesis: Filling in one or two of the variables in the cognitive schematic, given assumptions regarding the remaining variables, and directed by the goal of maximizing the probability of the cognitive schematic More specifically, where synthesis is concerned, some key examples are: The MOSES probabilistic evolutionary program learning algorithm is applied to find P , given fixed C and G. Internal simulation is also used, for the purpose of creating a simulation embodying C and seeing which P lead to the simulated achievement of G. Example: A virtual dog learns a procedure P to please its owner (the goal G) in the context C where there is a ball or stick present and the owner is saying fetch . PLN inference, acting on declarative knowledge, is used for choosing C, given fixed P and G (also incorporating sensory and episodic knowledge as appropriate). Simulation may also be used for this purpose. 152 8 Cognitive Synergy Example: A virtual dog wants to achieve the goal G of getting food, and it knows that the procedure P of begging has been successful at this before, so it seeks a context C where begging can be expected to get it food. Probably this will be a context involving a friendly person. PLN-based goal refinement is used to create new subgoals G to sit on the right hand side of instances of the cognitive schematic. Example: Given that a virtual dog has a goal of finding food, it may learn a subgoal of following other dogs, due to observing that other dogs are often heading toward their food. Concept formation heuristics are used for choosing G and for fueling goal refinement, but especially for choosing C (via providing new candidates for C). They are also used for choosing P , via a process called predicate schematization that turns logical predicates (declarative knowledge) into procedures. Example: At first a virtual dog may have a hard time predicting which other dogs are going to be mean to it. But it may eventually observe common features among a number of mean dogs, and thus form its own concept of pit bull, without anyone ever teaching it this concept explicitly. Where analysis is concerned: PLN inference, acting on declarative knowledge, is used for estimating the probability of the implication in the cognitive schematic, given fixed C, P and G. Episodic knowledge is also used this regard, via enabling estimation of the probability via simple similarity matching against past experience. Simulation is also used: multiple simulations may be run, and statistics may be captured therefrom. Example: To estimate the degree to which asking Bob for food (the procedure P is asking for food , the context C is being with Bob ) will achieve the goal G of getting food, the virtual dog may study its memory to see what happened on previous occasions where it or other dogs asked Bob for food or other things, and then integrate the evidence from these occasions. Procedural knowledge, mapped into declarative knowledge and then acted on by PLN inference, can be useful for estimating the probability of the implication C P G, in cases where the probability of C P 1 G is known for some P 1 related to P . Example: knowledge of the internal similarity between the procedure of asking for food and the procedure of asking for toys, allows the virtual dog to reason that if asking Bob for toys has been successful, maybe asking Bob for food will be successful too. Inference, acting on declarative or sensory knowledge, can be useful for estimating the probability of the implication C P G, in cases where the probability of C 1 P G is known for some C 1 related to C. Example: if Bob and Jim have a lot of features in common, and Bob often responds positively when asked for food, then maybe Jim will too. Inference can be used similarly for estimating the probability of the implication C P G, in cases where the probability of C P G 1 is known for some G 1 related to G. Concept 8.6 Cognitive Synergy for Procedural and Declarative Learning 153 creation can be useful indirectly in calculating these probability estimates, via providing new concepts that can be used to make useful inference trails more compact and hence easier to construct. Example: The dog may reason that because Jack likes to play, and Jack and Jill are both children, maybe Jill likes to play too. It can carry out this reasoning only if its concept creation process has invented the concept of child via analysis of observed data. In these examples we have focused on cases where two terms in the cognitive schematic are fixed and the third must be filled in; but just as often, the situation is that only one of the terms is fixed. For instance, if we fix G, sometimes the best approach will be to collectively learn C and P . This requires either a procedure learning method that works interactively with a declarative-knowledge-focused concept learning or reasoning method; or a declarative learning method that works interactively with a procedure learning method. That is, it requires the sort of cognitive synergy built into the CogPrime design. 8.6 Cognitive Synergy for Procedural and Declarative Learning We now present a little more algorithmic detail regarding the operation and synergetic interaction of CogPrime s two most sophisticated components: the MOSES procedure learning algorithm (see Chapter 33), and the PLN uncertain inference framework (see Chapter 34). The treatment is necessarily quite compact, since we have not yet reviewed the details of either MOSES or PLN; but as well as illustrating the notion of cognitive synergy more concretely, perhaps the high-level discussion here will make clearer how MOSES and PLN fit into the big picture of CogPrime. 8.6.1 Cognitive Synergy in MOSES MOSES, CogPrime s primary algorithm for learning procedural knowledge, has been tested on a variety of application problems including standard GP test problems, virtual agent control, biological data analysis and text classification Loo06 . It represents procedures internally as program trees. Each node in a MOSES program tree is supplied with a knob, comprising a set of values that may potentially be chosen to replace the data item or operator at that node. So for instance a node containing the number 7 may be supplied with a knob that can take on any integer value. A node containing a while loop may be supplied with a knob that can take on various possible control flow operators including conditionals or the identity. A node containing a procedure representing a particular robot movement, may be supplied with a knob that can take on values corresponding to multiple possible movements. Following a metaphor suggested by Douglas Hofstadter Hof96 , MOSES learning covers both knob twiddling (setting the values of knobs) and knob creation. MOSES is invoked within CogPrime in a number of ways, but most commonly for finding a procedure P satisfying a probabilistic implication C P G as described above, where C is an observed context and G is a system goal. In this case the probability value of the implication provides the scoring function that MOSES uses to assess the quality of candidate procedures. 154 8 Cognitive Synergy Fig. 8.4: High-Level Control Flow of MOSES Algorithm For example, suppose an CogPrime -controlled robot is trying to learn to play the game of tag." (I.e. a multi-agent game in which one agent is specially labeled "it", and runs after the other player agents, trying to touch them. Once another agent is touched, it becomes the new "it" and the previous "it" becomes just another player agent.) Then its context C is that others are trying to play a game they call tag with it; and we may assume its goals are to please them and itself, and that it has figured out that in order to achieve this goal it should learn some procedure to follow when interacting with others who have said they are playing tag. In this case a potential tag-playing procedure might contain nodes for physical actions like step f orward(speed s), as well as control flow nodes containing operators like if else (for instance, there would probably be a conditional telling the robot to do something different depending on whether someone seems to be chasing it). Each of these program tree nodes would have an appropriate knob assigned to it. And the scoring function would evaluate a procedure P in terms of how successfully the robot played tag when controlling its behaviors according to P (noting that it may also be using other control procedures concurrently with P ). It s worth noting here that evaluating the scoring function in this case involves some inference already, because in order to tell if it is playing tag successfully, in a real-world context, it must watch and understand the behavior of the other players. MOSES follows the high-level control flow depicted in Figure 8.4, which corresponds to the following process for evolving a metapopulation of demes of programs (each deme being a set of relatively similar programs, forming a sort of island in program space): 1. Construct an initial set of knobs based on some prior (e.g., based on an empty program; or more interestingly, using prior knowledge supplied by PLN inference based on the system s memory) and use it to generate an initial random sampling of programs. Add this deme to the metapopulation. 2. Select a deme from the metapopulation and update its sample, as follows: 8.6 Cognitive Synergy for Procedural and Declarative Learning 155 a. Select some promising programs from the deme s existing sample to use for modeling, according to the scoring function. b. Considering the promising programs as collections of knob settings, generate new collections of knob settings by applying some (competent) optimization algorithm. For best performance on difficult problems, it is important to use an optimization algorithm that makes use of the system s memory in its choices, consulting PLN inference to help estimate which collections of knob settings will work best. c. Convert the new collections of knob settings into their corresponding programs, reduce the programs to normal form, evaluate their scores, and integrate them into the deme s sample, replacing less promising programs. In the case that scoring is expensive, score evaluation may be preceded by score estimation, which may use PLN inference, enaction of procedures in an internal simulation environment, and or similarity matching against episodic memory. 3. For each new program that meet the criterion for creating a new deme, if any: a. Construct a new set of knobs (a process called representation-building ) to define a region centered around the program (the deme s exemplar), and use it to generate a new random sampling of programs, producing a new deme. b. Integrate the new deme into the metapopulation, possibly displacing less promising demes. 4. Repeat from step 2. MOSES is a complex algorithm and each part plays its role; if any one part is removed the performance suffers significantly Loo06 . However, the main point we want to highlight here is the role played by synergetic interactions between MOSES and other cognitive components such as PLN, simulation and episodic memory, as indicated in boldface in the above pseudocode. MOSES is a powerful procedure learning algorithm, but used on its own it runs into scalability problems like any other such algorithm; the reason we feel it has potential to play a major role in a human-level AI system is its capacity for productive interoperation with other cognitive components. Continuing the tag example, the power of MOSES s integration with other cognitive processes would come into play if, before learning to play tag, the robot has already played simpler games involving chasing. If the robot already has experience chasing and being chased by other agents, then its episodic and declarative memory will contain knowledge about how to pursue and avoid other agents in the context of running around an environment full of objects, and this knowledge will be deployable within the appropriate parts of MOSES s Steps 1 and 2. Crossprocess and cross-memory-type integration make it tractable for MOSES to act as a transfer learning algorithm, not just a task-specific machine-learning algorithm. 8.6.2 Cognitive Synergy in PLN While MOSES handles much of CogPrime s procedural learning, and OpenCogPrimes internal simulation engine handles most episodic knowledge, CogPrime s primary tool for handling declarative knowledge is an uncertain inference framework called Probabilistic Logic Networks (PLN). The complexities of PLN are the topic of a lengthy technical monograph GMIH08 , and 156 8 Cognitive Synergy here we will eschew most details and focus mainly on pointing out how PLN seeks to achieve efficient inference control via integration with other cognitive processes. As a logic, PLN is broadly integrative: it combines certain term logic rules with more standard predicate logic rules, and utilizes both fuzzy truth values and a variant of imprecise probabilities called indefinite probabilities. PLN mathematics tells how these uncertain truth values propagate through its logic rules, so that uncertain premises give rise to conclusions with reasonably accurately estimated uncertainty values. This careful management of uncertainty is critical for the application of logical inference in the robotics context, where most knowledge is abstracted from experience and is hence highly uncertain. PLN can be used in either forward or backward chaining mode; and in the language introduced above, it can be used for either analysis or synthesis. As an example, we will consider backward chaining analysis, exemplified by the problem of a robot preschool-student trying to determine whether a new playmate Bob is likely to be a regular visitor to its preschool or not (evaluating the truth value of the implication Bob regular visitor). The basic backward chaining process for PLN analysis looks like: 1. Given an implication L A B whose truth value must be estimated (for instance L C P G as discussed above), create a list (A 1 , ..., A n ) of (inference rule, stored knowledge) pairs that might be used to produce L 2. Using analogical reasoning to prior inferences, assign each A i a probability of success If some of the A i are estimated to have reasonable probability of success at generating reasonably confident estimates of L s truth value, then invoke Step 1 with A i in place of L (at this point the inference process becomes recursive) If none of the A i looks sufficiently likely to succeed, then inference has gotten stuck and another cognitive process should be invoked, e.g. Concept creation may be used to infer new concepts related to A and B, and then Step 1 may be revisited, in the hope of finding a new, more promising A i involving one of the new concepts MOSES may be invoked with one of several special goals, e.g. the goal of finding a procedure P so that P (X) predicts whether X B. If MOSES finds such a procedure P then this can be converted to declarative knowledge understandable by PLN and Step 1 may be revisited.... Simulations may be run in CogPrime s internal simulation engine, so as to observe the truth value of A B in the simulations; and then Step 1 may be revisited.... The combinatorial explosion of inference control is combatted by the capability to defer to other cognitive processes when the inference control procedure is unable to make a sufficiently confident choice of which inference steps to take next. Note that just as MOSES may rely on PLN to model its evolving populations of procedures, PLN may rely on MOSES to create complex knowledge about the terms in its logical implications. This is just one example of the multiple ways in which the different cognitive processes in CogPrime interact synergetically; a more thorough treatment of these interactions is given in Chapter 49. In the new playmate example, the interesting case is where the robot initially seems not to know enough about Bob to make a solid inferential judgment (so that none of the A i seem particularly promising). For instance, it might carry out a number of possible inferences and not come to any reasonably confident conclusion, so that the reason none of the A i seem promising is that all the decent-looking ones have been tried already. So it might then recourse to MOSES, simulation or concept creation. 8.7 Is Cognitive Synergy Tricky? 157 For instance, the PLN controller could make a list of everyone who has been a regular visitor, and everyone who has not been, and pose MOSES the task of figuring out a procedure for distinguishing these two categories. This procedure could then used directly to make the needed assessment, or else be translated into logical rules to be used within PLN inference. For example, perhaps MOSES would discover that older males wearing ties tend not to become regular visitors. If the new playmate is an older male wearing a tie, this is directly applicable. But if the current playmate is wearing a tuxedo, then PLN may be helpful via reasoning that even though a tuxedo is not a tie, it s a similar form of fancy dress so PLN may extend the MOSES-learned rule to the present case and infer that the new playmate is not likely to be a regular visitor. 8.7 Is Cognitive Synergy Tricky? 1 In this section we use the notion of cognitive synergy to explore a question that arises frequently in the AGI community: the well-known difficulty of measuring intermediate progress toward human-level AGI. We explore some potential reasons underlying this, via extending the notion of cognitive synergy to a more refined notion of "tricky cognitive synergy." These ideas are particularly relevant to the problem of creating a roadmap toward AGI, as we ll explore in Chapter 17 below. 8.7.1 The Puzzle: Why Is It So Hard to Measure Partial Progress Toward Human-Level AGI? It s not entirely straightforward to create tests to measure the final achievement of human-level AGI, but there are some fairly obvious candidates here. There s the Turing Test (fooling judges into believing you re human, in a text chat), the video Turing Test, the Robot College Student test (passing university, via being judged exactly the same way a human student would), etc. There s certainly no agreement on which is the most meaningful such goal to strive for, but there s broad agreement that a number of goals of this nature basically make sense. On the other hand, how does one measure whether one is, say, 50 percent of the way to human-level AGI? Or, say, 75 or 25 percent? It s possible to pose many "practical tests" of incremental progress toward human-level AGI, with the property that if a proto-AGI system passes the test using a certain sort of architecture and or dynamics, then this implies a certain amount of progress toward human-level AGI based on particular theoretical assumptions about AGI. However, in each case of such a practical test, it seems intuitively likely to a significant percentage of AGI researchers that there is some way to "game" the test via designing a system specifically oriented toward passing that test, and which doesn t constitute dramatic progress toward AGI. Some examples of practical tests of this nature would be 1 This section co-authored with Jared Wigmore 158 8 Cognitive Synergy The Wozniak "coffee test": go into an average American house and figure out how to make coffee, including identifying the coffee machine, figuring out what the buttons do, finding the coffee in the cabinet, etc. Story understanding reading a story, or watching it on video, and then answering questions about what happened (including questions at various levels of abstraction) Graduating (virtual-world or robotic) preschool Passing the elementary school reading curriculum (which involves reading and answering questions about some picture books as well as purely textual ones) Learning to play an arbitrary video game based on experience only, or based on experience plus reading instructions One interesting point about tests like this is that each of them seems to some AGI researchers to encapsulate the crux of the AGI problem, and be unsolvable by any system not far along the path to human-level AGI yet seems to other AGI researchers, with different conceptual perspectives, to be something probably game-able by narrow-AI methods. And of course, given the current state of science, there s no way to tell which of these practical tests really can be solved via a narrow-AI approach, except by having a lot of people try really hard over a long period of time. A question raised by these observations is whether there is some fundamental reason why it s hard to make an objective, theory-independent measure of intermediate progress toward advanced AGI. Is it just that we haven t been smart enough to figure out the right test or is there some conceptual reason why the very notion of such a test is problematic? We don t claim to know for sure but in the rest of this section we ll outline one possible reason why the latter might be the case. 8.7.2 A Possible Answer: Cognitive Synergy is Tricky! Why might a solid, objective empirical test for intermediate progress toward AGI be an infeasible notion? One possible reason, we suggest, is precisely cognitive synergy, as discussed above. The cognitive synergy hypothesis, in its simplest form, states that human-level AGI intrinsically depends on the synergetic interaction of multiple components (for instance, as in CogPrime, multiple memory systems each supplied with its own learning process). In this hypothesis, for instance, it might be that there are 10 critical components required for a humanlevel AGI system. Having all 10 of them in place results in human-level AGI, but having only 8 of them in place results in having a dramatically impaired system and maybe having only 6 or 7 of them in place results in a system that can hardly do anything at all. Of course, the reality is almost surely not as strict as the simplified example in the above paragraph suggests. No AGI theorist has really posited a list of 10 crisply-defined subsystems and claimed them necessary and sufficient for AGI. We suspect there are many different routes to AGI, involving integration of different sorts of subsystems. However, if the cognitive synergy hypothesis is correct, then human-level AGI behaves roughly like the simplistic example in the prior paragraph suggests. Perhaps instead of using the 10 components, you could achieve humanlevel AGI with 7 components, but having only 5 of these 7 would yield drastically impaired functionality etc. Or the point could be made without any decomposition into a finite set of components, using continuous probability distributions. To mathematically formalize the 8.7 Is Cognitive Synergy Tricky? 159 cognitive synergy hypothesis becomes complex, but here we re only aiming for a qualitative argument. So for illustrative purposes, we ll stick with the "10 components" example, just for communicative simplicity. Next, let s suppose that for any given task, there are ways to achieve this task using a system that is much simpler than any subset of size 6 drawn from the set of 10 components needed for human-level AGI, but works much better for the task than this subset of 6 components (assuming the latter are used as a set of only 6 components, without the other 4 components). Note that this supposition is a good bit stronger than mere cognitive synergy. For lack of a better name, we ll call it tricky cognitive synergy. The tricky cognitive synergy hypothesis would be true if, for example, the following possibilities were true: creating components to serve as parts of a synergetic AGI is harder than creating components intended to serve as parts of simpler AI systems without synergetic dynamics components capable of serving as parts of a synergetic AGI are necessarily more complicated than components intended to serve as parts of simpler AGI systems. These certainly seem reasonable possibilities, since to serve as a component of a synergetic AGI system, a component must have the internal flexibility to usefully handle interactions with a lot of other components as well as to solve the problems that come its way. In a CogPrime context, these possibilities ring true, in the sense that tailoring an AI process for tight integration with other AI processes within CogPrime, tends to require more work than preparing a conceptually similar AI process for use on its own or in a more task-specific narrow AI system. It seems fairly obvious that, if tricky cognitive synergy really holds up as a property of human-level general intelligence, the difficulty of formulating tests for intermediate progress toward human-level AGI follows as a consequence. Because, according to the tricky cognitive synergy hypothesis, any test is going to be more easily solved by some simpler narrow AI process than by a partially complete human-level AGI system. 8.7.3 Conclusion We haven t proved anything here, only made some qualitative arguments. However, these arguments do seem to give a plausible explanation for the empirical observation that positing tests for intermediate progress toward human-level AGI is a very difficult prospect. If the theoretical notions sketched here are correct, then this difficulty is not due to incompetence or lack of imagination on the part of the AGI community, nor due to the primitive state of the AGI field, but is rather intrinsic to the subject matter. And if these notions are correct, then quite likely the future rigorous science of AGI will contain formal theorems echoing and improving the qualitative observations and conjectures we ve made here. If the ideas sketched here are true, then the practical consequence for AGI development is, very simply, that one shouldn t worry a lot about producing intermediary results that are compelling to skeptical observers. Just at 2 3 of a human brain may not be of much use, similarly, 2 3 of an AGI system may not be much use. Lack of impressive intermediary results may not imply one is on a wrong development path; and comparison with narrow AI systems on specific tasks may be badly misleading as a gauge of incremental progress toward human-level AGI. 160 8 Cognitive Synergy Hopefully it s clear that the motivation behind the line of thinking presented here is a desire to understand the nature of general intelligence and its pursuit not a desire to avoid testing our AGI software! Really, as AGI engineers, we would love to have a sensible rigorous way to test our intermediary progress toward AGI, so as to be able to pose convincing arguments to skeptics, funding sources, potential collaborators and so forth. Our motivation here is not a desire to avoid having the intermediate progress of our efforts measured, but rather a desire to explain the frustrating (but by now rather well-established) difficulty of creating such intermediate goals for human-level AGI in a meaningful way. If we or someone else figures out a compelling way to measure partial progress toward AGI, we will celebrate the occasion. But it seems worth seriously considering the possibility that the difficulty in finding such a measure reflects fundamental properties of general intelligence. From a practical CogPrime perspective, we are interested in a variety of evaluation and testing methods, including the "virtual preschool" approach mentioned briefly above and more extensively in later chapters. However, our focus will be on evaluation methods that give us meaningful information about CogPrime s progress, given our knowledge of how CogPrime works and our understanding of the underlying theory. We are unlikely to focus on the achievement of intermediate test results capable of convincing skeptics of the reality of our partial progress, because we have not yet seen any credible tests of this nature, and because we suspect the reasons for this lack may be rooted in deep properties of feasible general intelligence, such as tricky cognitive synergy. Chapter 9 General Intelligence in the Everyday Human World 9.1 Introduction Intelligence is not just about what happens inside a system, but also about what happens outside that system, and how the system interacts with its environment. Real-world general intelligence is about intelligence relative to some particular class of environments, and human-like general intelligence is about intelligence relative to the particular class of environments that humans evolved in (which in recent millennia has included environments humans have created using their intelligence). In Chapter 2, we reviewed some specific capabilities characterizing humanlike general intelligence; to connect these with the general theory of general intelligence from the last few chapters, we need to explain what aspects of human-relevant environments correspond to these human-like intelligent capabilities. We begin with aspects of the environment related to communication, which turn out to tie in closely with cognitive synergy. Then we turn to physical aspects of the environment, which we suspect also connect closely with various human cognitive capabilities. Finally we turn to physical aspects of the human body and their relevance to the human mind. In the following chapter we present a deeper, more abstract theoretical framework encompassing these ideas. These ideas are of theoretical importance, and they re also of practical importance when one turns to the critical area of AGI environment design. If one is going to do anything besides release one s young AGI into the wilds of everyday human life, then one has to put some thought into what kind of environment it will be raised in. This may be a virtual world or it may be a robot preschool or some other kind of physical environment, but in any case some specific choices must be made about what to include. Specific choices must also be made about what kind of body to give one s AGI system what sensors and actuators, and so forth. In Chapter 16 we will present some specific suggestions regarding choices of embodiment and environment that we find to be ideal for AGI development virtual and robot preschools but the material in this chapter is of more general import, beyond any such particularities. If one has an intuitive idea of what properties of body and world human intelligence is biased for, then one can make practical choices about embodiment and environment in a principled rather than purely ad hoc or opportunistic way. 161 162 9 General Intelligence in the Everyday Human World 9.2 Some Broad Properties of the Everyday World That Help Structure Intelligence The properties of the everyday world that help structure intelligence are diverse and span multiple levels of abstraction. Most of this chapter will focus on fairly concrete patterns of this nature, such as are involved in inter-agent communication and naive physics; however, it s also worth noting the potential importance of more abstract patterns distinguishing the everyday world from arbitrary mathematical environments. The propensity to search for hierarchical patterns is one huge potential example of an abstract everyday-world property. We strongly suspect the reason that searching for hierarchical patterns works so well, in so many everyday-world contexts, lies in the particular structure of the everyday world it s not something that would be true across all possible environments (even if one weights the space of possible environments in some clever way, say using programlength according to some standard computational model). However, this sort of assertion is of course highly philosophical, and becomes complex to formulate and defend convincingly given the current state of science and mathematics. Going one step further, we recall from Chapter 3 a structure called the dual network , which consists of superposed hierarchical and heterarchical networks: basically a hierarchy in which the distance between two nodes in the hierarchy is correlated with the distance between the nodes in some metric space. Another high level property of the everyday world may be that dual network structures are prevalent. This would imply that minds biased to represent the world in terms of dual network structure are likely to be intelligent with respect to the everyday world. In a different direction, the extreme commonality of symmetry groups in the (everyday and otherwise) physical world is another example: they occur so often that minds oriented toward recognizing patterns involving symmetry groups are likely to be intelligent with respect to the real world. We suspect that the number of cognitively-relevant properties of the everyday world is huge ... and that the essence of everyday-world intelligence lies in the list of varyingly abstract and concrete properties, which must be embedded implicitly or explicitly in the structure of a natural or artificial intelligence for that system to have everyday-world intelligence. Apart from these particular yet abstract properties of the everyday world, intelligence is just about finding patterns in which actions tend to achieve which goals in which situations ... but, the simple meta-algorithm needed to accomplish this universally is, we suggest, only a small percentage what it takes to make a mind. You might say that a sufficiently generally intelligent system should be able to infer the various cognitively-relevant properties of the environment from looking at data about the everyday world. We agree in principle, and in fact Ben Kuipers and his colleagues have done some interesting work in this direction, showing that learning algorithms can infer some basics about the structure of space and time from experience MK07 . But we suggest that doing this really thoroughly would require a massively greater amount of processing power than an AGI that embodies and hence automatically utilizes these principles. It may be that the problem of inferring these properties is so hard as to require a wildly infeasible AIXI tl Godel Machine type system. 9.3 Embodied Communication 163 9.3 Embodied Communication Next we turn to the potential cognitive implications of seeking to achieve goals in an environment in which multimodal communication with other agents plays a prominent role. Consider a community of embodied agents living in a shared world, and suppose that the agents can communicate with each other via a set of mechanisms including: Linguistic communication, in a language whose semantics is largely (not necessarily wholly) interpretable based on the mutually experienced world Indicative communication, in which e.g. one agent points to some part of the world or delimits some interval of time, and another agent is able to interpret the meaning Demonstrative communication, in which an agent carries out a set of actions in the world, and the other agent is able to imitate these actions, or instruct another agent as to how to imitate these actions Depictive communication, in which an agent creates some sort of (visual, auditory, etc.) construction to show another agent, with a goal of causing the other agent to experience phenomena similar to what they would experience upon experiencing some particular entity in the shared environment Intentional communication, in which an agent explicitly communicates to another agent what its goal is in a certain situation 1 It is clear that ordinary everyday communication between humans possesses all these aspects. We define the Embodied Communication Prior (ECP) as the probability distribution in which the probability of an entity (e.g. a goal or environment) is proportional to the difficulty of describing that entity, for a typical member of the community in question, using a particular set of communication mechanisms including the above five modes. We will sometimes refer to the prior probability of an entity under this distribution, as its simplicity under the distribution. Next, to further specialize the Embodied Communication Prior, we will assume that for each of these modes of communication, there are some aspects of the world that are much more easily communicable using that mode than the other modes. For instance, in the human everyday world: Abstract (declarative) statements spanning large classes of situations are generally much easier to communicate linguistically Complex, multi-part procedures are much easier to communicate either demonstratively, or using a combination of demonstration with other modes Sensory or episodic data is often much easier to communicate demonstratively The current value of attending to some portion of the shared environment is often much easier to communicate indicatively Information about what goals to follow in a certain situation is often much easier to communicate intentionally, i.e. via explicitly indicating what one s own goal is These simple observations have significant implications for the nature of the Embodied Communication Prior. For one thing they let us define multiple forms of knowledge: Isolatedly declarative knowledge is that which is much more easily communicable linguistically 1 in Appendix ?? we recount some interesting recent results showing that mirror neurons fire in response to some cases of intentional communication as thus defined 164 9 General Intelligence in the Everyday Human World Isolatedly procedural knowledge is that which is much more easily communicable demonstratively Isolatedly sensory knowledge is that which is much more easily communicable depictively Isolatedly attentive knowledge is that which is much more easily communicable indicatively Isolatedly intentional knowledge is that which is much more easily communicable intentionally This categorization of knowledge types resembles many ideas from the cognitive theory of memory TC05 , although the distinctions drawn here are a little crisper than any classification currently derivable from available neurological or psychological data. Of course there may be much knowledge, of relevance to systems seeking intelligence according to the ECP, that does not fall into any of these categories and constitutes mixed knowledge. There are some very important specific subclasses of mixed knowledge. For instance, episodic knowledge (knowledge about specific real or hypothetical sets of events) will most easily be communicated via a combination of declarative, sensory and (in some cases) procedural communication. Scientific and mathematical knowledge are generally mixed knowledge, as is most everyday commonsense knowledge. Some cases of mixed knowledge are reasonably well decomposable, in the sense that they decompose into knowledge items that individually fall into some specific knowledge type. For instance, an experimental chemistry procedure may be much more easily communicable procedurally, whereas an allied piece of knowledge from theoretical chemistry may be much more easily communicable declaratively; but in order to fully communicate either the experimental procedure or the abstract piece of knowledge, one may ultimately need to communicate both aspects. Also, even when the best way to communicate something is mixed-mode, it may be possible to identify one mode that poses the most important part of the communication. An example would be a chemistry experiment that is best communicated via a practical demonstration together with a running narrative. It may be that the demonstration without the narrative would be vastly more valuable than the narrative without the demonstration. To cover such cases we may make less restrictive definitions such as Interactively declarative knowledge is that which is much more easily communicable in a manner dominated by linguistic communication and so forth. We call these interactive knowledge categories, by contrast to the isolated knowledge categories introduced earlier. 9.3.0.1 Naturalness of Knowledge Categories Next we introduce an assumption we call NKC, for Naturalness of Knowledge Categories. The NKC assumption states that the knowledge in each of the above isolated and interactive communication-modality-focused categories forms a natural category, in the sense that for each of these categories, there are many different properties shared by a large percentage of the knowledge in the category, but not by a large percentage of the knowledge in the other categories. This means that, for instance, procedural knowledge systematically (and statistically) has different characteristics than the other kinds of knowledge. 9.3 Embodied Communication 165 The NKC assumption seems commonsensically to hold true for human everyday knowledge, and it has fairly dramatic implications for general intelligence. Suppose we conceive general intelligence as the ability to achieve goals in the environment shared by the communicating agents underlying the Embodied Communication Prior. Then, NKC suggests that the best way to achieve general intelligence according to the Embodied Communication Prior is going to involve specialized methods for handling declarative, procedural, sensory and attentional knowledge (due to the naturalness of the isolated knowledge categories) specialized methods for handling interactions between different types of knowledge, including methods focused on the case where one type of knowledge is primary and the others are supporting (the latter due to the naturalness of the interactive knowledge categories) 9.3.0.2 Cognitive Completeness Suppose we conceive an AI system as consisting of a set of learning capabilities, each one characterized by three features: One or more knowledge types that it is competent to deal with, in the sense of the two key learning problems mentioned above At least one learning type: either analysis, or synthesis, or both At least one interaction type, for each (knowledge type, learning type) pair it handles: isolated (meaning it deals mainly with that knowledge type in isolation), or interactive (meaning it focuses on that knowledge type but in a way that explicitly incorporates other knowledge types into its process), or fully mixed (meaning that when it deals with the knowledge type in question, no particular knowledge type tends to dominate the learning process). Then, intuitively, it seems to follow from the ECP with NKC that systems with high efficient general intelligence should have the following properties, which collectively we ll call cognitive completeness: For each (knowledge type, learning type, interaction type) triple, there should be a learning capability corresponding to that triple. Furthermore the capabilities corresponding to different (knowledge type, interaction type) pairs should have distinct characteristics (since according to the NKC the isolated knowledge corresponding to a knowledge type is a natural category, as is the dominant knowledge corresponding to a knowledge type) For each (knowledge type, learning type) pair (K,L), and each other knowledge type K1 distinct from K, there should be a distinctive capability with interaction type interactive and dealing with knowledge that is interactively K but also includes aspects of K1 Furthermore, it seems intuitively sensible that according to the ECP with NKC, if the capabilities mentioned in the above points are reasonably able, then the system possessing the capabilities will display general intelligence relative to the ECP. Thus we arrive at the hypothesis that 166 9 General Intelligence in the Everyday Human World Under the assumption of the Embodied Communication Prior (with the Natural Knowledge Categories assumption), the property above called cognitive completeness is necessary and sufficient for efficient general intelligence at the level of an inteligent adult human (e.g. at the Piagetan formal level Pia53 ). Of course, the above considerations are very far from a rigorous mathematical proof (or even precise formulation) of this hypothesis. But we are presenting this here as a conceptual hypothesis, in order to qualitatively guide our practical AGI R D and also to motivate further, more rigorous theoretical work. 9.3.1 Generalizing the Embodied Communication Prior One interesting direction for further research would be to broaden the scope of the inquiry, in a manner suggested above: instead of just looking at the ECP, look at simplicity measures in general, and attack the question of how a mind must be structured in order to display efficient general intelligence relative to a specified simplicity measure. This problem seems unapproachable in general, but some special cases may be more tractable. For instance, suppose one has a simplicity measure that (like the ECP) is approximately decomposable into a set of fairly distinct components, plus their interactions an assumption similar to NKC, which states that the entities displaying simplicity according to each of the distinct components, are roughly clustered together in entity-space Then one should be able to say that, to achieve efficient general intelligence relative to this decomposable simplicity measure, a system should have distinct capabilities corresponding to each of the components of the simplicity measure interactions between these capabilities, corresponding to the interaction terms in the simplicity measure. With copious additional work, these simple observations could potentially serve as the seed for a novel sort of theory of general intelligence a theory of how the structure of a system depends on the structure of the simplicity measure with which it achieves efficient general intelligence. Cognitive Synergy Theory would then emerge as a special case of this more abstract theory. 9.4 Naive Physics Multimodal communication is an important aspect of the environment for which human intelligence evolved but not the only one. It seems likely that our human intelligence is also closely adapted to various aspects of our physical environment a matter that is worth carefully attending as we design environments for our robotically or virtually embodied AGI systems to operate in. One interesting guide to the most cognitively relevant aspects of human environments is the subfield of AI known as naive physics Hay85 a term that refers to the theories about the physical world that human beings implicitly develop and utilize during their lives. For instance, 9.4 Naive Physics 167 when you figure out that you need to pressure the knife slightly harder when spreading peanut butter rather than jelly, you re not making this judgment using Newtonian physics or the Navier-Stokes equations of fluid dynamics; you re using heuristic patterns that you figured out through experience. Maybe you figured out these patterns through experience spreading peanut butter and jelly in particular. Or maybe you figured these heuristic patterns out before you ever tried to spread peanut butter or jelly specifically, via just touching peanut butter and jelly to see what they feel like, and then carrying out inference based on your experience manipulating similar tools in the context of similar substances. Other examples of similar naive physics patterns are easy to come by, e.g. 1. What goes up must come down. 2. A dropped object falls straight down. 3. A vacuum sucks things towards it. 4. Centrifugal force throws rotating things outwards. 5. An object is either at rest or moving, in an absolute sense. 6. Two events are simultaneous or they are not. 7. When running downhill, one must lift one s knees up high. 8. When looking at something that you just barely can t discern accurately, squint. Attempts to axiomatically formulate naive physics have historically come up short, and we doubt this is a promising direction for AGI. However, we do think the naive physics literature does a good job of identifying the various phenomena that the human mind s naive physics deals with. So, from the point of view of AGI environment design, naive physics is a useful source of requirements. Ideally, we would like an AGI s environment to support all the fundamental phenomena that naive physics deals with. We now describe some key aspects of naive physics in a more systematic manner. Naive physics has many different formulations; in this section we draw heavily on SC94 , who divide naive physics phenomena into 5 categories. Here we review these categories and identify a number of important things that humanlike intelligent agents must be able to do relative to each of them. 9.4.1 Objects, Natural Units and Natural Kinds One key aspect of naive physics involves recognition of various aspects of objects, such as: 1. Recognition of objects amidst noisy perceptual data 2. Recognition of surfaces and interiors of objects 3. Recognition of objects as manipulable units 4. Recognition of objects as potential subjects of fragmentation (splitting, cutting) and of unification (gluing, bonding) 5. Recognition of the agent s body as an object, and as parts of the agent s body as objects 6. Division of universe of perceived objects into natural kinds , each containing typical and atypical instances 168 9 General Intelligence in the Everyday Human World 9.4.2 Events, Processes and Causality Specific aspects of naive physics related to temporality and causality are: 1. Distinguishing roughly-subjectively-instantaneous events from extended processes 2. Identifying beginnings, endings and crossings of processes 3. Identifying and distinguishing internal and external changes 4. Identifying and distinguishing internal and external changes relative to one s own body 5. Interrelating body-changes with changes in external entities Notably, these aspects of naive physics involve a different processes occurring on a variety of different time scales, intersecting in complex patterns, and involving processes inside the agent s body, outside the agent s body, and crossing the boundary of the agent s body. 9.4.3 Stuffs, States of Matter, Qualities Regarding the various states of matter, some important aspects of naive physics are: 1. Perceiving gaps between objects: holes, media, illusions like rainbows, mirages and holograms 2. Distinguishing the manners in which different sorts of entities (e.g. smells, sounds, light) fill space 3. Distinguishing properties such as smoothness, roughness, graininess, stickiness, runniness, etc. 4. Distinguishing degrees of elasticity and fragility 5. Assessing separability of aggregates 9.4.4 Surfaces, Limits, Boundaries, Media Gibson Gib77, Gib79 has argued that naive physics is not mainly about objects but rather mainly about surfaces. Surfaces have a variety of aspects and relationships that are important for naive physics, such as: 1. Perceiving and reasoning about surfaces as two-sided or one-sided interfaces 2. Inference of the various ecological laws of surfaces 3. Perception of various media in the world as separated by surfaces 4. Recognition of the textures of surfaces 5. Recognition of medium surface layout relationships such as: ground, open environment, enclosure, detached object, attached object, hollow object, place, sheet, fissure, stick, fibre, dihedral, etc. As a concrete, evocative toy example of naive everyday knowledge about surfaces and boundaries, consider Sloman s Slo08a example scenario, depicted in Figure 9.1 and drawn largely from SS74 (see also related discussion in Slo08b , in which A child can be given one 9.4 Naive Physics 169 Fig. 9.1: One of Sloman s example test domains for real-world inference. Left: a number of pins and a rubber band to be stretched around them. Right: use of the pins and rubber band to make a letter T. or more rubber bands and a pile of pins, and asked to use the pins to hold the band in place to form a particular shape)... For example, things to be learnt could include : 1. There is an area inside the band and an area outside the band. 2. The possible effects of moving a pin that is inside the band towards or further away from other pins inside the band. (The effects can depend on whether the band is already stretched.) 3. The possible effects of moving a pin that is outside the band towards or further away from other pins inside the band. 4. The possible effects of adding a new pin, inside or outside the band, with or without pushing the band sideways with the pin first. 5. The possible effects of removing a pin, from a position inside or outside the band. 6. Patterns of motion change that can occur and how they affect local and global shape (e.g. introducing a concavity or convexity, introducing or removing symmetry, increasing or decreasing the area enclosed). 7. The possibility of causing the band to cross over itself. (NB: Is an odd number of crosses possible?) 8. How adding a second, or third band can enrich the space of structures, processes and effects of processes. 9.4.5 What Kind of Physics Is Needed to Foster Human-like Intelligence? We stated above that we would like an AGI s environment to support all the fundamental phenomena that naive physics deals with; and we have now reviewed a number of these specific phenomena. But it s not entirely clear what the fundamental aspects underlying these phenomena are. One important question in the environment-design context is how close an AGI environment needs to stick to the particulars of real-world naive physics. Is it important that a young AGI can play with the specific differences between spreading peanut butter versus jelly? Or is it enough that it can play with spreading and smearing various substances of different consistencies? How close does the analogy between an AGI environment s naive physics and 170 9 General Intelligence in the Everyday Human World real-world naive physics need to be? This is a question to which we have no scientific answer at present. Our own working hypothesis is that the analogy does not need to be extremely close, and with this in mind in Chapter 16 we propose a virtual environment BlocksNBeadsWorld that encompasses all the basic conceptual phenomena of real-world naive physics, but does not attempt to emulate their details. Framed in terms of human psychology rather than environment design, the question becomes: At what level of detail must one model the physical world to understand the ways in which human intelligence has adapted to the physical world?. Our suspicion, which underlies our BlocksNBeadsWorld design, is that it s approximately enough to have Newtonian physics, or some close approximation Matter in multiple phases and forms vaguely similar to the ones we see in the real world: solid, liquid, gas, paste, goo, etc. Ability to transform some instances of matter from one form to another Ability to flexibly manipulate matter in various forms with various solid tools Ability to combine instances of matter into new ones in a fairly rich way: e.g. glue or tie solids togethermix liquids together, etc. Ability to position instances of matter with respect to each other in a rich way: e.g. put liquid in a solid cavity, cover something with a lid or a piece of fabric, etc. It seems to us that if the above are present in an environment, then an AGI seeking to achieve appropriate goals in that environment will be likely to form an appropriate humanlike physical-world intuition." We doubt that the specifics of the naive physics of different forms of matter are critical to human-like intelligence. But, we suspect that a great amount of unconscious human metaphorical thinking is conditioned on the fact that humans evolved around matter that takes a variety of forms, can be changed from one form to another, and can be fairly easily arranged and composited to form new instances from prior ones. Without many diverse instances of matter transformation, arrangement and composition in its experience, an AGI is unlikely to form an internal metaphor-base even vaguely similar to the human one so that, even if it s highly intelligent, its thinking will be radically non-human-like in character. Naturally this is all somewhat speculative and must be explored via experimentation. Maybe an elaborate blocks-world with only solid objects will be sufficient to create human-level, roughly human-like AGI with rich spatiotemporal and manipulative intuition. Or maybe human intelligence is more closely adapted to the specifics of our physical world with water and dirt and plants and hair and so forth than we currently realize. One thing that is very clear is that, as we proceed with embodying, situating and educating our AGI systems, we need to pay careful attention to the way their intelligence is conditioned by their environment. 9.5 Folk Psychology Related to naive physics is the notion of naive psychology or folk psychology Rav04 , which includes for instance the following aspects: 1. Mental simulation of other agents 2. Mental theory regarding other agents 3. Attribution of beliefs, desires and intentions (BDI) to other agents via theory or simulation 9.6 Body and Mind 171 4. Recognition of emotions in other agents via their physical embodiment 5. Recognition of desires and intentions in other agents via their physical embodiment 6. Analogical and contextual inferences between self and other, regarding BDI and other aspects 7. Attribute causes and meanings to other agents behaviors 8. Anthropomorphize non-human, including inanimate objects The main special requirement placed on an AGI s embodiment by the above aspects pertains to the ability of agents to express their emotions and intentions to each other. Humans do this via facial expressions, gestures and language. 9.5.1 Motivation, Requiredness, Value Relatedly to folk psychology, Gestalt Koh38 and ecological Gib77, Gib79 psychology suggest that humans perceive the world substantially in terms of the affordances it provides them for goal-directed action. This suggests that, to support human-like intelligence, an AGI must be capable of: 1. Perception of entities in the world as differentially associated with goal-relevant value 2. Perception of entities in the world in terms of the potential actions they afford the agent, or other agents The key point is that entities in the world need to provide a wide variety of ways for agents to interact with them, enabling richly complex perception of affordances. 9.6 Body and Mind The above discussion has focused on the world external to the body of the AGI agent embodied and embedded in the world, but the issue of the AGI s body also merits consideration. There seems little doubt that a human s intelligence is highly conditioned by the particularities of the human body. 9.6.1 The Human Sensorium Here the requirements seem fairly simple: while surely not strictly necessary, it would certainly be preferable to provide an AGI with fairly rich analogues of the human senses of touch, sight, sound, kinesthesia, taste and smell. Each of these senses provides different sorts of cognitive stimulation to the human mind; and while similar cognitive stimulation could doubtless be achieved without analogous senses, the provision of such seems the most straightforward approach. It s hard to know how much of human intelligence is specifically biased to the sorts of outputs provided by human senses. As vision already is accorded such a prominent role in the AI and cognitive science literature and is discussed in moderate depth in Chapter 26 of Part 2, we won t take time elaborating 172 9 General Intelligence in the Everyday Human World on the importance of vision processing for humanlike cognition. The key thing an AGI requires to support humanlike visual intelligence is an environment containing a sufficiently robust collection of materials that object and event recognition and identification become interesting problems. Audition is cognitively valuable for many reasons, one of which is that it gives a very rich and precise method of sensing the world that is different from vision. The fact that humans can display normal intelligence while totally blind or totally deaf is an indication that, in a sense, vision and audition are redundant for understanding the everyday world. However, it may be important that the brain has evolved to account for both of these senses, because this forced it to account for the presence of two very rich and precise methods of sensing the world which may have forced it to develop more abstract representation mechanisms than would have been necessary with only one such method. Touch is a sense that is, in our view, generally badly underappreciated within the AI community. In particular the cognitive robotics community seems to worry too little about the terribly impoverished sense of touch possessed by most current robots (though fortunately there are recent technologies that may help improve robots in this regard; see e.g. Nan08 ). Touch is how the human infant learns to distinguish self from other, and in this way it is the most essential sense for the establishment of an internal self-model. Touching others bodies is a key method for developing a sense of the emotional reality and responsiveness of others, and is hence key to the development of theory of mind and social understanding in humans. For this reason, among others, human children lacking sufficient tactile stimulation will generally wind up badly impaired in multiple ways. A good-quality embodiment should supply an AI agent with a body that possesses skin, which has varying levels of sensitivity on different parts of the skin (so that it can effectively distinguish between reality and its perception thereof in a tactile context); and also varying types of touch sensors (e.g. temperature versus friction), so that it experiences textures as multidimensional entities. Related to touch, kinesthesia refers to direct sensation of phenomena happening inside the body. Rarely mentioned in AI, this sense seems quite critical to cognition, as it underpins many of the analogies between self and other that guide cognition. Again, it s not important that an AGI s virtual body have the same internal body parts as a human body. But it seems valuable to have the AGI s virtual body display some vaguely human-body-like properties, such as feeling internal strain of various sorts after getting exercise, feeling discomfort in certain places when running out of energy, feeling internally different when satisfied versus unsatisfied, etc. Next, taste is a cognitively interesting sense in that it involves the interplay between the internal and external world; it involves the evaluation of which entities from the external world are worthy of placing inside the body. And smell is cognitively interesting in large part because of its relationship with taste. A smell is, among other things, a long-distance indicator of what a certain entity might taste like. So, the combination of taste and smell provides means for conceptualizing relationships between self, world and distance. 9.6.2 The Human Body s Multiple Intelligences While most unique aspect of human intelligence is rooted in what one might call the "cognitive cortex" the portions of the brain dealing with self-reflection and abstract thought. But the cognitive cortex does its work in close coordination with the body s various more specialized 9.6 Body and Mind 173 intelligent subsystems, including those associated with the gut, the heart, the liver, the immune and endocrine systems, and the perceptual and motor cortices. In the perspective underlying this book, the human cognitive cortex or the core cognitive network of any roughly human-like AGI system should be viewed as a highly flexible, selforganizing network. These cognitive networks are modelable e.g. as a recurrent neural net with general topology, or a weighted labeled hypergraph, and are centrally concerned with recognizing patterns in its environment and itself, especially patterns regarding the achievement of the system s goals in various appropriate contexts. Here we augment this perspective, noting that the human brain s cognitive network is closely coupled with a variety of simpler and more specialized intelligent "body-system networks" which provide it with structural and dynamical inductive biasing. We then discuss the implications of this observation for practical AGI design. One recalls Pascal s famous quote "The heart has its reasons, of which reason knows not." As we now know, the intuitive sense that Pascal and so many others have expressed, that the heart and other body systems have their own reasons, is grounded in the fact that they actually do carry out simple forms of reasoning (i.e. intelligent, adaptive dynamics), in close, sometimes cognitively valuable, coordination with the central cognitive network. 9.6.2.1 Some of the Human Body s Specialized Intelligent Subsystems The human body contains multiple specialized intelligences apart from the cognitive cortex. Here we review some of the most critical. Hierarchies of Visual and Auditory Perception . The hierarchical structure of visual and auditory cortex has been taken by some researchers Kur12 , HB06 as the generic structure of cognition. While we suspect this is overstated, we agree it is important that these cortices nudge large portions of the cognitive cortex to assume an approximately hierarchical structure. Olfactory Attractors . The process of recognizing a familiar smell is grounded in a neural process similar to convergence to an attractor in a nonlinear dynamical system Fre95 . There is evidence that the mammalian cognitive cortex evolved in close coordination with the olfactory cortex Row11 , and much of abstract cognition reflects a similar dynamic of gradually coming to a conclusion based on what initially "smells right." Physical and Cognitive Action . The cerebellum, a specially structured brain subsystem which controls motor movements, has for some time been understood to also have involvement in attention, executive control, language, working memory, learning, pain, emotion, and addiction PSF09 . 174 9 General Intelligence in the Everyday Human World The Second Brain . The gastrointestinal neural net contains millions of neurons and is capable of operating independently of the brain. It modulates stress response and other aspects of emotion and motivation based on experience resulting in so-called "gut feelings" Ger99 . The Heart s Neural Network . The heart has its own neural network, which modulates stress response, energy level and relaxation excitement (factors key to motivation and emotion) based on experience Arm04 . Pattern Recognition and Memory in the Liver . The liver is a complex pattern recognition system, adapting via experience to better identify toxins CB06 . Like the heart, it seems to store some episodic memories as well, resulting in liver transplant recipients sometimes acquiring the tastes in music or sports of the donor EMC12 . Immune Intelligence . The immune network is a highly complex, adaptive self-organizing system, which ongoingly solves the learning problem of identifying antigens and distinguishing them from the body system FP86 . As immune function is highly energetically costly, stress response involves subtle modulation of the energy allocation to immune function, which involves communication between neural and immune networks. The Endocrine System: A Key Bridge Between Mind and Body . The endocrine (hormonal) system regulates (and is related by) emotion, thus guiding all aspects of intelligence (due to the close connection of emotion and motivation) PH12 . Breathing Guides Thinking . As oxygenation of the brain plays a key role in the spread of neural activity, the flow of breath is a key driver of cognition. Forced alternate nostril breathing has been shown to significantly affect cognition via balancing activity of the two brain hemispheres SKBB91 . Much remains unknown, and the totality of feedback loops between the human cognitive cortex and the various specialized intelligences operative throughout the human body, has not yet been thoroughly charted. 9.6 Body and Mind 175 9.6.2.2 Implications for AGI What lesson should the AGI developer draw from all this? The particularities of the human mind body should not be taken as general requirements for general intelligence. However, it is worth remembering just how difficult is the computational problem of learning, based on experiential feedback alone, the right way to achieve the complex goal of controlling a system with general intelligence at the human level or beyond. To solve this problem without some sort of strong inductive biasing may require massively more experience than young humans obtain. Appropriate inductive bias may be embedded in an AGI system in many different ways. Some AGI designers have sought to embed it very explicitly, e.g. with hand-coded declarative knowledge as in Cyc, SOAR and other "GOFAI" type systems. On the other hand, the human brain receives its inductive bias much more subtly and implicitly, both via the specifics of the initial structure of the cognitive cortex, and via ongoing coupling of the cognitive cortex with other systems possessing more focused types of intelligence and more specific structures and or dynamics. In building an AGI system, one has four choices, very broadly speaking: 1. Create a flexible mind-network, as unbiased as feasible, and attempt to have it learn how to achieve its goals via experience 2. Closely emulate key aspects of the human body along with the human mind 3. Imitate the human mind-body, conceptually if not in detail, and create a number of structurally and dynamically simpler intelligent systems closely and appropriately coupled to the abstract cognitive mind-network, provide useful inductive bias. 4. Find some other, creative way to guide and probabilistically constrain one s AGI system s mind-network, providing inductive bias appropriate to the tasks at hand, without emulating even conceptually the way the human mind-brain receives its inductive bias via coupling with simpler intelligent systems. Our suspicion is that the first option will not be viable. On the other hand, to do the second option would require more knowledge of the human body than biology currently possesses. This leaves the third and fourth options, both of which seem viable to us. CogPrime incorporates a combination of the third and fourth options. CogPrime s generic dynamic knowledge store, the Atomspace, is coupled with specialized hierarchical networks (DeSTIN) for vision and audition, somewhat mirroring the human cortex. An artificial endocrine system for OpenCog is also under development, speculatively, as part of a project using OpenCog to control humanoid robots. On the other hand, OpenCog has no gastrointestinal nor cardiological nervous system, and the stress-response-based guidance provided to the human brain by a combination of the heart, gut, immune system and other body systems, is achieved in CogPrime in a more explicit way using the OpenPsi model of motivated cognition, and its integration with the system s attention allocation dynamics. Likely there is no single correct way to incorporate the lessons of intelligent human bodysystem networks into AGI designs. But these are aspects of human cognition that all AGI researchers should be aware of. 176 9 General Intelligence in the Everyday Human World 9.7 The Extended Mind and Body Finally, Hutchins Hut95 , Logan Log07 and others have promoted a view of human intelligence that views the human mind as extended beyond the individual body, incorporating social interactions and also interactions with inanimate objects, such as tools, plants and animals. This leads to a number of requirements for a humanlike AGI s environment: 1. The ability to create a variety of different tools for interacting with various aspects of the world in various different ways, including tools for making tools and ultimately machinery 2. The existence of other mobile, virtual life-forms in the world, including simpler and less intelligent ones, and ones that interact with each other and with the AGI 3. The existence of organic growing structures in the world, with which the AGI can interact in various ways, including halting their growth or modifying their growth pattern How necessary these requirements are is hard to say but it is clear that these things have played a major role in the evolution of human intelligence. 9.8 Conclusion Happily, this diverse chapter supports a simple, albeit tentative conclusion. Our suggestion is that, if an AGI is placed in an environment capable of roughly supporting multimodal communication and vaguely (but not necessarily precisely) real-world-ish naive physics surrounded with other intelligent agents of varying levels of complexity, and other complex, dynamic structures to interface with given a body that can perceive this environment through some forms of sight, sound and touch; and perceive itself via some form of kinesthesia given a motivational system that encourages it to make rich use of these aspects of its environment then the AGI is likely to have an experience-base reinforcing the key inductive biases provided by the everyday world for the guidance of humanlike intelligence. Chapter 10 A Mind-World Correspondence Principle 10.1 Introduction Real-world minds are always adapted to certain classes of environments and goals. The ideas of the previous chapter, regarding the connection between a human-like intelligence s internals and its environment, result from exploring the implications of this adaptation in the context of the cognitive synergy concept. In this chapter we explore the mind-world connection in a broader and more abstract way making a more ambitious attempt to move toward a "general theory of general intelligence." One basic premise here, as in the preceding chapters is: Even a system of vast general intelligence, subject to real-world space and time constraints, will necessarily be more efficient at some kinds of learning than others. Thus, one approach to formulating a general theory of general intelligence is to look at the relationship between minds and worlds where a "world" is conceived as an environment and a set of goals defined in terms of that environment. In this spirit, we here formulate a broad principle binding together worlds and the minds that are intelligent in these worlds. The ideas of the previous chapter constitute specific, concrete instantiations of this general principle. A careful statement of the principle requires introduction of a number of technical concepts, and will be given later on in the chapter. A crude, informal version of the principle would be: MIND-WORLD CORRESPONDENCE-PRINCIPLE For a mind to work intelligently toward certain goals in a certain world, there should be a nice mapping from goal-directed sequences of world-states into sequences of mind-states, where "nice" means that a world-state-sequence W composed of two parts W 1 and W 2 , gets mapped into a mind-state-sequence M composed of two corresponding parts M 1 and M 2 . What s nice about this principle is that it relates the decomposition of the world into parts, to the decomposition of the mind into parts. 177 178 10 A Mind-World Correspondence Principle 10.2 What Might a General Theory of General Intelligence Look Like? It s not clear, at this point, what a real "general theory of general intelligence" would look like but one tantalizing possibility is that it might confront the two questions: How does one design a world to foster the development of a certain sort of mind? How does one design a mind to match the particular challenges posed by a certain sort of world? One way to achieve this would be to create a theory that, given a description of an environment and some associated goals, would output a description of the structure and dynamics that a system should possess to be intelligent in that environment relative to those goals, using limited computational resources. Such a theory would serve a different purpose from the mathematical theory of "universal intelligence" developed by Marcus Hutter Hut05 and others. For all its beauty and theoretical power, that approach currently gives it useful conclusions only about general intelligences with infinite or infeasibly massive computational resources. On the other hand, the approach suggested here is aimed toward creation of a theory of real-world general intelligences utilizing realistic amounts of computational power, but still possessing general intelligence comparable to human beings or greater. This reflects a vision of intelligence as largely concerned with adaptation to particular classes of environments and goals. This may seem contradictory to the notion of "general" intelligence, but I think it actually embodies a realistic understanding of general intelligence. Maximally general intelligence is not pragmatically feasible; it could only be achieved using infinite computational resources Hut05 . Real-world systems are inevitably limited in the intelligence they can display in any real situation, because real situations involve finite resources, including finite amounts of time. One may say that, in principle, a certain system could solve any problem given enough resources and time but, even when this is true, it s not necessarily the most interesting way to look at the system s intelligence. It may be more important to look at what a system can do given the resources at its disposal in reality. And this perspective leads one to ask questions like the ones posed above: which bounded-resources systems are well-disposed to display intelligence in which classes of situations? As noted in Chapter 7 above, one can assess the generality of a system s intelligence via looking at the entropy of the class of situations across which it displays a high level of intelligence (where high is measured relative to its total level of intelligence across all situations). A system with a high generality of intelligence will tend to be roughly equally intelligent across a wide variety of situations; whereas a system with lower generality of intelligence will tend to be much more intelligent in a small subclass of situations, than in any other. The definitions given above embody this notion in a formal and quantitative way. If one wishes to create a general theory of general intelligence according to this sort of perspective, the main question then becomes how to represent goals environments and systems in such a way as to render transparent the natural correspondence between the specifics of the former and the latter, in the context of resource-bounded intelligence. This is the business of the next section. 10.3 Steps Toward A (Formal) General Theory of General Intelligence 179 10.3 Steps Toward A (Formal) General Theory of General Intelligence Now begins the formalism. At this stage of development of the theory proposed in this chapter, mathematics is used mainly as a device to ensure clarity of expression. However, once the theory is further developed, it may possibly become useful for purposes of calculation as well. Suppose one has any system S (which could be an AI system, or a human, or an environment that a human or AI is interacting with, or the combination of an environment and a human or AI s body, etc.). One may then construct an uncertain transition graph associated with that system S, in the following way: The nodes of the graph represent fuzzy sets of states of system S (I ll call these state-sets from here on, leaving the fuzziness implicit) The (directed) links of the graph represent probabilistically weighted transitions between state-sets Specifically, the weight of the link from B to A should be defined as where P (o(S, A, t(T )) o(S, B, T )) o(S, A, T ) denotes the presence of the system S in the state-set A during time-distribution T , and t() is a temporal succession function defined so that t(T ) refers to a time-distribution conceived as "after" T . A time-distribution is a probability distribution over time-points. The interaction of fuzziness and probability here is fairly straightforward and may be handled in the manner of PLN, as outlined in subsequent chapters. Note that the definition of link weights is dependent on the specific implementation of the temporal succession function, which includes an implicit time-scale. Suppose one has a transition graph corresponding to an environment; then a goal relative to that environment may be defined as a particular node in the transition graph. The goals of a particular system acting in that environment may then be conceived as one or more nodes in the transition graph. The system s situation in the environment at any point in time may also be associated with one or more nodes in the transition graph; then, the system s movement toward goal-achievement may be associated with paths through the environment s transition graph leading from its current state to goal states. It may be useful for some purposes to filter the uncertain transition graph into a crisp transition graph by placing a threshold on the link weights, and removing links with weights below the threshold. The next concept to introduce is the world-mind transfer function, which maps world (environment) state-sets into organism (e.g. AI system) state-sets in a specific way. Given a world state-set W , the world-mind transfer function M maps W into various organism state-sets with various probabilities, so that we may say: M(W ) is the probability distribution of state-sets the organism tends to be in, when its environment is in state-set W . (Recall also that state-sets are fuzzy.) Now one may look at the spaces of world-paths and mind-paths. A world-path is a path through the world s transition graph, and a mind-path is a path through the organism s transi- 180 10 A Mind-World Correspondence Principle tion graph. Given two world-paths P and Q, it s obvious how to define the composition P Q one follows P and then, after that, follows Q, thus obtaining a longer path. Similarly for mind-paths. In category theory terms, we are constructing the free category associated with the graph: the objects of the category are the nodes, and the morphisms of the category are the paths. And category theory is the right way to be thinking here we want to be thinking about the relationship between the world category and the mind category. The world-mind transfer function can be interpreted as a mapping from paths to subgraphs: Given a world-path, it produces a set of mind state-sets, which have a number of links between them. One can then define a world-mind path transfer function M(P ) via taking the mind-graph M(nodes(P )), and looking at the highest-weight path spanning M(nodes(P )). (Here nodes? obviously means the set of nodes of the path P .) A functor F between the world category and the mind category is a mapping that preserves object identities and so that F (P Q) F (P ) F (Q) We may also introduce the notion of an approximate functor, meaning a mapping F so that the average of d(F (P Q), F (P ) F (Q)) is small. One can introduce a prior distribution into the average here. This could be the Levin universal distribution or some variant (the Levin distribution assigns higher probability to computationally simpler entities). Or it could be something more purpose specific: for example, one can give a higher weight to paths leading toward a certain set of nodes (e.g. goal nodes). Or one can use a distribution that weights based on a combination of simplicity and directedness toward a certain set of nodes. The latter seems most interesting, and I will define a goal-weighted approximate functor as an approximate functor, defined with averaging relative to a distribution that balances simplicity with directedness toward a certain set of goal nodes. The move to approximate functors is simple conceptually, but mathematically it s a fairly big step, because it requires us to introduce a geometric structure on our categories. But there are plenty of natural metrics defined on paths in graphs (weighted or not), so there s no real problem here. 10.4 The Mind-World Correspondence Principle Now we finally have the formalism set up to make a non-trivial statement about the relationship between minds and worlds. Namely, the hypothesis that: MIND-WORLD CORRESPONDENCE PRINCIPLE For an organism with a reasonably high level of intelligence in a certain world, relative to a certain set of goals, the mind-world path transfer function is a goal-weighted approximate functor. 10.5 How Might the Mind-World Correspondence Principle Be Useful? 181 That is, a little more loosely: the hypothesis is that, for intelligence to occur, there has to be a natural correspondence between the transition-sequences of world-states and the corresponding transition-sequences of mind-states, at least in the cases of transition-sequences leading to relevant goals. We suspect that a variant of the above proposition can be formally proved, using the definition of general intelligence presented in Chapter 7. The proof of a theorem corresponding to the above would certainly constitute an interesting start toward a general formal theory of general intelligence. Note that proving anything of this nature would require some attention to the time-scale-dependence of the link weights in the transition graphs involved. A formally proved variant of the above proposition would be in short, a "MIND-WORLD CORRESPONDENCE THEOREM." Recall that at the start of the chapter, we expressed the same idea as: MIND-WORLD CORRESPONDENCE-PRINCIPLE For a mind to work intelligently toward certain goals in a certain world, there should be a nice mapping from goal-directed sequences of world-states into sequences of mind-states, where "nice" means that a world-state-sequence W composed of two parts W 1 and W 2 , gets mapped into a mind-state-sequence M composed of two corresponding parts M 1 and M 2 . That is a reasonable gloss of the principle, but it s clunkier and less accurate, than the statement in terms of functors and path transfer functions, because it tries to use only commonlanguage vocabulary, which doesn t really contain all the needed concepts. 10.5 How Might the Mind-World Correspondence Principle Be Useful? Suppose one believes the Mind-World Correspondence Principle as laid out above so what? Our hope, obviously, is that the principle could be useful in actually figuring out how to architect intelligent systems biased toward particular sorts of environment. And of course, this is said with the understanding that any finite intelligence must be biased toward some sorts of environment. Relatedly, given a specific AGI design (such as CogPrime), one could use the principle to figure out which environments it would be best suited for. Or one could figure out how to adjust the particulars of the design, to maximize the system s intelligence in the environments of interest. One next step in developing this network of ideas, aside from (and potentially building on) full formalization of the principle, would be an exploration of real-world environments in terms of transition graphs. What properties do the transition graphs induced from the real world have? One such property, we suggest, is successive refinement. Often the path toward a goal involves first gaining an approximate understanding of a situation, then a slightly more accurate understanding, and so forth until finally one has achieved a detailed enough understanding to actually achieve the goal. This would be represented by a world-path whose nodes are state-sets involving the gathering of progressively more detailed information. 182 10 A Mind-World Correspondence Principle Via pursuing to the mind-world correspondence property in this context, I believe we will find that world-paths reflecting successive refinement correspond to mind-paths embodying successive refinement. This will be found to relate to the hierarchical structures found so frequently in both the physical world and the human mind-brain. Hierarchical structures allow many relevant goals to be approached via successive refinement, which I believe is the ultimate reason why hierarchical structures are so common in the human mind-brain. Another next step would be exploring what mind-world correspondence means for the structure and dynamics of a limited-resources intelligence. If an organism O has limited resources and, to be intelligent, needs to make P (o(O, M(A), t(T )) o(O, M(B), T )) high for particular world state-sets A and B, then what s the organism s best approach? Arguably, it should represent M(A) and M(B) internally in such a way that very little computational effort is required for it to transition between M(A) and M(B). For instance, this could be done by coding its knowledge in such a way that M(A) and M(B) share many common bits; or it could be done in other more complicated ways. If, for instance, A is a subset of B, then it may prove beneficial for the organism to represent M(A) physically as a subset of its representation of M(B). Pursuing this line of thinking, one could likely derive specific properties of an intelligent organism s internal information-flow, from properties of the environment and goals with respect to which it s supposed to be intelligent. This would allow us to achieve the holy grail of intelligence theory as I understand it: given a description of an environment and goals, to be able to derive an architectural description for an organism that will display a high level of intelligence relative to those goals, given limited computational resources. While this holy grail is obviously a far way off, what we ve tried to do here is to outline a clear mathematical and conceptual direction for moving toward it. 10.6 Conclusion The Mind-World Correspondence Principle presented here if in the vicinity of correctness constitutes a non-trivial step toward fleshing out the concept of a general theory of general intelligence. But obviously the theory is still rather abstract, and also not completely rigorous. There s a lot more work to be done. The Mind-World Correspondence Principle as articulated above is not quite a formal mathematical statement. It would take a little work to put in all the needed quantifiers to formulate it as one, and it s not clear the best way to do so the details would perhaps become clear in the course of trying to prove a version of it rigorously. One could interpret the ideas presented in this chapter as a philosophical theory that hopes to be turned into a mathematical theory and to play a key role in a scientific theory. For the time being, the main role to be served by these ideas is qualitative: to help us think about concrete AGI designs like CogPrime in a sensible way. It s important to understand what the goal of a real-world AGI system needs to be: to achieve the ability to broadly learn and generalize, yes, but not with infinite capability rather with biases and patterns that are implicitly and or explicitly tuned to certain broad classes of goals and environments. The Mind-World 10.6 Conclusion 183 Correspondence Principle tells us something about what this "tuning" should involve namely, making a system possessing mind-state sequences that correspond meaningfully to world-state sequences. CogPrime s overall design and particular cognitive processes are reasonably well interpreted as an attempt to achieve this for everyday human goals and environments. One way of extending these theoretical ideas into a more rigorous theory is explored in Appendix ??. The key ideas involved there are: modeling multiple memory types as mathematical categories (with functors mapping between them), modeling memory items as probability distributions, and measuring distance between memory items using two metrics, one based on algorithmic information theory and one on classical information geometry. Building on these ideas, core hypotheses are then presented: a syntax-semantics correlation principle, stating that in a successful AGI system, these two metrics should be roughly correlated a cognitive geometrodynamics principle, stating that on the whole intelligent minds tend to follow geodesics (shortest paths) in mindspace, according to various appropriately defined metrics (e.g. the metric measuring the distance between two entities in terms of the length and or runtime of the shortest programs computing one from the other). a cognitive synergy principle, stating that shorter paths may be found through the composite mindspace formed by considering multiple memory types together, than by following the geodesics in the mindspaces corresponding to individual memory types. The material is relegated to an appendix because it is so speculative, and it s not yet clear whether it will really be useful in advancing or interpreting CogPrime or other AGI systems (unlike the material from the present chapter, which has at least been useful in interpreting and tweaking the CogPrime design, even though it can t be claimed that CogPrime was derived directly from these theoretical ideas). However, this sort of speculative exploration is, in our view, exactly the sort of thing that s needed as a first phase in transitioning the ideas of the present chapter into a more powerful and directly actionable theory. Section III Cognitive and Ethical Development Chapter 11 Stages of Cognitive Development Co-authored with Stephan Vladimir Bugaj 11.1 Introduction Creating AGI, we have said, is not only about having the right structural and dynamical possibilities implemented in the initial version of one s system but also about the environment and embodiment that one s system is associated with, and the match between the system s internals and these externals. Another key aspect is the long-term time-course of the system s evolution over time, both in its internals and its external interaction i.e., what is known as development. Development is a critical topic in our approach to AGI because we believe that much of what constitutes human-level, human-like intelligence emerges in an intelligent system due to its engagement with its environment and its environment-coupled self-organization. So, it s not to be expected that the initial version of an AGI system is going to display impressive feats of intelligence, even if the engineering is totally done right. A good analogy is the apparent unintelligence of a human baby. Yes, scientists have discovered that human babies are capable of interesting and significant intelligence but one has to hunt to find it ... at first observation, babies are rather idiotic and simple-minded creatures: much less intelligent-appearing than lizards or fish, maybe even less than cockroaches.... If the goal of an AGI project is to create an AGI system that can progressively develop advanced intelligence through learning in an environment richly populated with other agents and various inanimate stimuli and interactive entities then an understanding of the nature of cognitive development becomes extremely important to that project. Unfortunately, contemporary cognitive science contains essentially no theory of abstract developmental psychology which can conveniently be applied to understand developing AIs. There is of course an extensive science of human developmental psychology, and so it is a natural research program to take the chief ideas from the former and inasmuch as possible port them to the AGI domain. This is not an entirely simple matter both because of the differences between humans and AIs and because of the unsettled nature of contemporary developmental psychology theory. But it s a job that must (and will) be done, and the ideas in this chapter may contribute toward this effort. We will begin here with Piaget s well-known theory of human cognitive development, presenting it in a general systems theory context, then introducing some modifications and extensions and discussing some other relevant work. 187 188 11 Stages of Cognitive Development 11.2 Piagetan Stages in the Context of a General Systems Theory of Development Our review of AGI architectures in Chapter 4 focused heavily on the concept of symbolism, and the different ways in which different classes of cognitive architecture handle symbol representation and manipulation. We also feel that symbolism is critical to the notion of AGI development and even more broadly, to the systems theory of development in general. As a broad conceptual perspective on development, we suggest that one may view the development of a complex information processing system, embedded in an environment, in terms of the stages: automatic: the system interacts with the environment by instinct , according to its innate programming adaptive: the system internally adapts to the environment, then interacting with the environment in a more appropriate way symbolic: the system creates internal symbolic representations of itself and the environment, which in the case of a complex, appropriately structured environment, allows it to interact with the environment more intelligently reflexive: the system creates internal symbolic representations of its own internal symbolic representations, thus achieving an even higher degree of intelligence Sketched so broadly, these are not precisely defined categories but rather heuristic, intuitive categories. Formalizing them would be possible but would lead us too far astray here. One can interpret these stages in a variety of different contexts. Here our focus is the cognitive development of humans and human-like AGI systems, but in Table 11.1 we present them in a slightly more general context, using two examples: the Piagetan example of the human (or humanlike) mind as it develops from infancy to maturity; and also the example of the origin of life and the development of life from proto-life up into its modern form. In any event, we allude to this more general perspective on development here mainly to indicate our view that the Piagetan perspective is not something ad hoc and arbitrary, but rather can plausibly be seen as a specific manifestation of more fundamental principles of complex systems development. 11.3 Piaget s Theory of Cognitive Development The ghost of Jean Piaget hangs over modern developmental psychology in a yet unresolved way. Piaget s theories provide a cogent overarching perspective on human cognitive development, coordinating broad theoretical ideas and diverse experimental results into a unified whole Pia55 . Modern experimental work has shown Piaget s ideas to be often oversimplified and incorrect. However, what has replaced the Piagetan understanding is not an alternative unified and coherent theory, but a variety of microtheories addressing particular aspects of cognitive development. For this reason a number of contemporary theorists taking a computer science Shu03 or dynamical systems Wit07 approach to developmental psychology have chosen to adopt the Piagetan framework in spite of its demonstrated shortcomings, both because of its conceptual strengths and for lack of a coherent, more rigorously grounded alternative. Our own position is that the Piagetan view of development has some fundamental truth to it, which is reflected via how nicely it fits with a broader view of development in complex systems. 11.3 Piaget s Theory of Cognitive Development 189 Stage General Description Cognitive Development Origin of Life Automatic System-environment Piagetan infantile Self-organizing protolife information exchange stage system, e.g. Oparin controlled mainly by Opa52 water droplet, innate system structures or Cairns-Smith CS90 or environment clay-based protolife Adaptive Symbolic System-environment info exchange heavily guided by adaptively internally-created system structures Internal symbolic representation of information exchange process Reflexive Thoroughgoing selfmodification Piagetan based on this symbolic representation Piagetan concrete operational stage: systematic internal worldmodel guides worldexploration Piagetan formal stage: explicit logical experimental learning about how to cognize in various contexts stage: purposive selfmodification of basic mental processes Simple autopoietic system, e.g. Oparin water droplet w basic metabolism Genetic code: internal entities that stand for aspects of organism and environment, thus enabling complex epigenesis post-formal Genes memes: genetic code-patterns guide their own modification via influencing culture Table 11.1: General Systems Theory of Development: Parallels Between Development of Mind and Origin of Life Indeed, Piaget viewed developmental stages as emerging from general algebraic principles rather than as being artifacts of the particulars of human psychology. But, Piaget s stages are probably best viewed as a general interpretive framework rather than a precise scientific theory. Our suspicion is that once the empirical science of developmental psychology has progressed further, it will become clearer how to fit the various data into a broad Piaget-like framework, perhaps differing in many details from what Piaget described in his works. Piaget conceived of child development in four stages, each roughly identified with an age group, and corresponding closely to the system-theoretic stages mentioned above: infantile, corresponding to the automatic stage mentioned above Example: Grasping blocks, piling blocks on top of each other, copying words that are heard preoperational and concrete operational, corresponding to the adaptive stage mentioned above Example: Building complex blocks structures, from imagination and from imitating objects and pictures and based on verbal instructions; verbally describing what has been constructed formal, corresponding to the symbolic stage mentioned above Example: Writing detailed instructions in words and diagrams, explaining how to construct particular structures out of blocks; figuring out general rules describing which sorts of blocks structures are likely to be most stable 190 11 Stages of Cognitive Development the reflexive stage mentioned above corresponds to what some post-Piagetan theorists have called the post-formal stage Example: Using abstract lessons learned from building structures out of blocks to guide the construction of new ways to think and understand Zen and the art of blocks building (by analogy to Zen and the Art of Motorcycle Maintenance Pir84 ). Fig. 11.1: Piagetan Stages of Cognitive Development More explicitly, Piaget defined his stages in psychological terms roughly as follows: Infantile: In this stage a mind develops basic world-exploration driven by instinctive actions. Reward-driven reinforcement of actions learned by imitation, simple associations between words and objects, actions and images, and the basic notions of time, space, and causality are developed. The most simple, practical ideas and strategies for action are learned. Preoperational: At this stage we see the formation of mental representations, mostly poorly organized and un-abstracted, building mainly on intuitive rather than logical thinking. Word-object and image-object associations become systematic rather than occasional. Simple syntax is mastered, including an understanding of subject-argument relationships. One of the crucial learning achievements here is object permanence infants learn that objects persist even when not observed. However, a number of cognitive failings persist with respect to reasoning about logical operations, and abstracting the effects of intuitive actions to an abstract theory of operations. Concrete: More abstract logical thought is applied to the physical world at this stage. Among the feats achieved here are: reversibility the ability to undo steps already done; conservation understanding that properties can persist in spite of appearances; theory of mind an understanding of the distinction between what I know and what others know (If 11.3 Piaget s Theory of Cognitive Development 191 I cover my eyes, can you still see me?). Complex concrete operations, such as putting items in height order, are easily achievable. Classification becomes more sophisticated, yet the mind still cannot master purely logical operations based on abstract logical representations of the observational world. Formal: Abstract deductive reasoning, the process of forming, then testing hypotheses, and systematically reevaluating and refining solutions, develops at this stage, as does the ability to reason about purely abstract concepts without reference to concrete physical objects. This is adult human-level intelligence. Note that the capability for formal operations is intrinsic in the PLN component of CogPrime, but in-principle capability is not the same as pragmatic, grounded, controllable capability. Very early on, Vygotsky Vyg86 disagreed with Piaget s explanation of his stages as inherent and developed by the child s own activities, and Piaget s prescription of good parenting as not interfering with a child s unfettered exploration of the world. Some modern theorists have critiqued Piaget s stages as being insufficiently socially grounded, and these criticisms trace back to Vygotsky s focus on the social foundations of intelligence, on the fact that children function in a world surrounded by adults who provide a cultural context, offering ongoing assistance, critique, and ultimately validation of the child s developmental activities. Vygotsky also was an early critic of the idea that cognitive development is continuous, and continues beyond Piaget s formal stage. Gagne RBW92 also believes in continuity, and that learning of prerequisite skills made the learning of subsequent skills easier and faster without regard to Piagetan stage formalisms. Subsequent researchers have argued that Piaget has merely constructed ad hoc descriptions of the sequential development of behaviour Gib78, Bro84, CP05 . We agree that learning is a continuous process, and our notion of stages is more statistically constructed than rigidly quantized. Critique of Piaget s notion of transitional half stages is also relevant to a more comprehensive hierarchical view of development. Some have proposed that Piaget s half stages are actually stages Bro84 . As Commons and Pekker CP05 point out: the definition of a stage that was being used by Piaget was based on analyzing behaviors and attempting to impose different structures on them. There is no underlying logical or mathematical definition to help in this process . . . Their Hierarchical Complexity development model uses task achievement rather than ad hoc stage definition as the basis for constructing relationships between phases of developmental ability an approach which we find useful, though our approach is different in that we define stages in terms of specific underlying cognitive mechanisms. Another critique of Piaget is that one individual s performance is often at different ability stages depending on the specific task (for example GE86 ). Piaget responded to early critiques along these lines by calling the phenomenon horizontal d calage, but neither he nor his successors Fis80, Cas85 have modified his theory to explain (rather than merely describe) it. Similarly to Thelen and Smith TS94 , we observe that the abilities encapsulated in the definition of a certain stage emerge gradually during the previous stage so that the onset of a given stage represents the mastery of a cognitive skill that was previously present only in certain contexts. Piaget also had difficulty accepting the idea of a preheuristic stage, early in the infantile period, in which simple trial-and-error learning occurs without significant heuristic guidance Bic88 , a stage which we suspect exists and allows formulation of heuristics by aggregation of learning from preheuristic pattern mining. Coupled with his belief that a mind s innate abilities at birth are extremely limited, there is a troublingly unexplained transition from inability to ability in his model. 192 11 Stages of Cognitive Development Finally, another limiting aspect of Piaget s model is that it did not recognize any stages beyond formal operations, and included no provisions for exploring this possibility. A number of researchers Bic88, Arl75, CRK82, Rie73, Mar01 have described one or more postformal stages. Commons and colleagues have also proposed a task-based model which provides a framework for explaining stage discrepancies across tasks and for generating new stages based on classification of observed logical behaviors. KK90 promotes a statistical conception of stage, which provides a good bridge between task-based and stage-based models of development, as statistical modeling allows for stages to be roughly defined and analyzed based on collections of task behaviors. CRK82 postulates the existence of a postformal stage by observing elevated levels of abstraction which, they argue, are not manifested in formal thought. CTS 98 observes a postformal stage when subjects become capable of analyzing and coordinating complex logical systems with each other, creating metatheoretical supersystems. In our model, with the reflexive stage of development, we expand this definition of metasystemic thinking to include the ability to consciously refine one s own mental states and formalisms of thinking. Such self-reflexive refinement is necessary for learning which would allow a mind to analytically devise entirely new structures and methodologies for both formal and postformal thinking. In spite of these various critiques and limitations, however, we have found Piaget s ideas very useful, and in Section 11.4 we will explore ways of defining them rigorously in the specific context of CogPrime s declarative knowledge store and probabilistic logic engine. 11.3.1 Perry s Stages Also relevant is William Perry s Per70, Per81 theory of the stages ( positions in his terminology) of intellectual and ethical development, which constitutes a model of iterative refinement of approach in the developmental process of coming to intellectual and ethical maturity. These stages, depicted in Table 11.2 form an analytical tool for discerning the modality of belief of an intelligence by describing common cognitive approaches to handling the complexities of real world ethical considerations. 11.3.2 Keeping Continuity in Mind Continuity of mental stages, and the fact that a mind may appear to be in multiple stages of development simultaneously (depending upon the tasks being tested), are crucial to our theoretical formulations and we will touch upon them again here. Piaget attempted to address continuity with the creation of transitional half stages . We prefer to observe that each stage feeds into the other and the end of one stage and the beginning of the next blend together. The distinction between formal and post-formal, for example, seems to merely be the application of formal thought to oneself. However, the distinction between concrete and formal is merely the buildup to higher levels of complexity of the classification, task decomposition, and abstraction capabilities of the concrete stage. The stages represent general trends in ability on a continuous curve of development, not discrete states of mind which are jumped-into quantum style after enough knowledge energy builds-up to cause the transition. 11.4 Piaget s Stages in the Context of Uncertain Inference 193 Stage Substages Dualism Received Basic duality ( All problems are solvable. I must learn the Knowledge Infantile correct solutions. ) Full dualism ( There are different, contradictory solutions to many problems. I must learn the correct solutions, and ignore the incorrect ones ) Multiplicity Concrete Relativism Procedural Knowledge Formal Commitment Constructed Knowledge Formal Reflexive Early multiplicity ( Some solutions are known, others aren t. I must learn how to find correct solutions. ) Late Multiplicity: cognitive dissonance regarding truth. ( Some problems are unsolvable, some are a matter of personal taste, therefore I must declare my own intellectual path. ) Contextual Relativism ( I must learn to evaluate solutions within a context, and relative to supporting observation. ) Pre-Commitment ( I must evaluate solutions, then commit to a choice of solution. ) Commitment ( I have chosen a solution. ) Challenges to Commitment ( I have seen unexpected implications of my commitment, and the responsibility I must take. ) Post-Commitment ( I must have an ongoing, nuanced relationship to the subject in which I evaluate each situation on a case-by-case basis with respects to its particulars rather than an ad-hoc application of unchallenged ideology. ) Table 11.2: Perry s Developmental Stages with corresponding Piagetan Stages in brackets Observationally, this appears to be the case in humans. People learn things gradually, and show a continuous development in ability, not a quick jump from ignorance to mastery. We believe that this gradual development of ability is the signature of genuine learning, and that prescriptively an AGI system must be designed in order to have continuous and asymmetrical development across a variety of tasks in order to be considered a genuine learning system. While quantum leaps in ability may be possible in an AGI system which can just graft new parts of brain onto itself (or an augmented human which may someday be able to do the same using implants), such acquisition of knowledge is not really learning. Grafting on knowledge does not build the cognitive pathways needed in order to actually learn. If this is the only mechanism available to an AGI system to acquire new knowledge, then it is not really a learning system. 11.4 Piaget s Stages in the Context of Uncertain Inference Piaget s developmental stages are very general, referring to overall types of learning, not specific mechanisms or methods. This focus was natural since the context of his work was human developmental psychology, and neuroscience has not yet progressed to the point of understanding the neural mechanisms underlying any sort of inference (and certainly was nowhere near to doing so in Piaget s time!). But if one is studying developmental psychology in an AGI context where one knows something about the internal mechanisms of the AGI system under consideration, then one can work with a more specific model of learning. Our focus here is on AGI systems whose operations contain uncertain inference as a central component. Obviously the main focus is CogPrime, but the essential ideas apply to any other uncertain inference centric AGI architecture as well. 194 11 Stages of Cognitive Development Fig. 11.2: Piagetan Stages of Development, as Manifested in the Context of Uncertain Inference An uncertain inference system, as we consider it here, consists of four components, which work together in a feedback-control loop 11.3 1. a content representation scheme 2. an uncertainty representation scheme 3. a set of inference rules 4. a set of inference control schemata Fig. 11.3: A Simplified Look at Feedback-Control in Uncertain Inference 11.4 Piaget s Stages in the Context of Uncertain Inference 195 Broadly speaking, examples of content representation schemes are predicate logic and term logic ES00 . Examples of uncertainty representation schemes are fuzzy logic Zad78 , imprecise probability theory Goo86, FC86 , Dempster-Shafer theory Sha76, Kyb97 , Bayesian probability theory Kyb97 , NARS Wan95 , and the Atom representation used in CogPrime, briefly alluded to in Chapter 6 above and described in depth in later chapters. Many, but not all, approaches to uncertain inference involve only a limited, weak set of inference rules (e.g. not dealing with complex quantified expressions). CogPrime s PLN inference framework, like NARS and some other uncertain inference frameworks, contains uncertain inference rules that apply to logical constructs of arbitrary complexity. Only a system capable of dealing with constructs of arbitrary (or at least very high) complexity will have any potential of leading to human-level, human-like intelligence. The subtlest part of uncertain inference is inference control: the choice of which inferences to do, in what order. Inference control is the primary area in which human inference currently exceeds automated inference. Humans are not very efficient or accurate at carrying out inference rules, with or without uncertainty, but we are very good at determining which inferences to do and in what order, in any given context. The lack of effective, context-sensitive inference control heuristics is why the general ability of current automated theorem provers is considerably weaker than that of a mediocre university mathematics major Mac95 . We now review the Piagetan developmental stages from the perspective of AGI systems heavily based on uncertain inference. 11.4.1 The Infantile Stage In this initial stage, the mind is able to recognize patterns in and conduct inferences about the world, but only using simplistic hard-wired (not experientially learned) inference control schema, along with pre-heuristic pattern mining of experiential data. In the infantile stage an entity is able to recognize patterns in and conduct inferences about its sensory surround context (i.e., it s world ), but only using simplistic, hard-wired (not experientially learned) inference control schemata. Preheuristic pattern-mining of experiential data is performed in order to build future heuristics about analysis of and interaction with the world. s tasks include: 1. Exploratory behavior in which useful and useless dangerous behavior is differentiated by both trial and error observation, and by parental guidance. 2. Development of habits i.e. Repeating tasks which were successful once to determine if they always usually are so. 3. Simple goal-oriented behavior such as find out what cat hair tastes like in which one must plan and take several sequentially dependent steps in order to achieve the goal. Inference control is very simple during the infantile stage (Figure 11.4), as it is the stage during which both the most basic knowledge of the world is acquired, and the most basic of cognition and inference control structures are developed as the building block upon which will be built the next stages of both knowledge and inference control. Another example of a cognitive task at the borderline between infantile and concrete cognition is learning object permanence, a problem discussed in the context of CogPrime s predecessor "Novamente Cognition Engine" system in GPSL03 . Another example is the learning of 196 11 Stages of Cognitive Development Fig. 11.4: Uncertain Inference in the Infantile Stage word-object associations: e.g. learning that when the word ball is uttered in various contexts ( Get me the ball, That s a nice ball, etc.) it generally refers to a certain type of object. The key point regarding these infantile inference problems, from the CogPrime perspective, is that assuming one provides the inference system with an appropriate set of perceptual and motor ConceptNodes and SchemaNodes, the chains of inference involved are short. They involve about a dozen inferences, and this means that the search tree of possible PLN inference rules walked by the PLN backward-chainer is relatively shallow. Sophisticated inference control is not required: standard AI heuristics are sufficient. In short, textbook narrow-AI reasoning methods, utilized with appropriate uncertainty-savvy truth value formulas and coupled with appropriate representations of perceptual and motor inputs and outputs, correspond roughly to Piaget s infantile stage of cognition. The simplistic approach of these narrow-AI methods may be viewed as a method of creating building blocks for subsequent, more sophisticated heuristics. In our theory Piaget s preoperational phase appears as transitional between the infantile and concrete operational phases. 11.4.2 The Concrete Stage At this stage, the mind is able to carry out more complex chains of reasoning regarding the world, via using inference control schemata that adapt behavior based on experience (reasoning about a given case in a manner similar to prior cases). In the concrete operational stage (Figure 11.5), an entity is able to carry out more complex chains of reasoning about the world. Inference control schemata which adapt behavior based on experience, using experientially learned heuristics (including those learned in the prior stage), are applied to both analysis of and interaction with the sensory surround world. Concrete Operational stage tasks include: 11.4 Piaget s Stages in the Context of Uncertain Inference 197 Fig. 11.5: Uncertain Inference in the Concrete Operational Stage 1. Conservation tasks, such as conservation of number, 2. Decomposition of complex tasks into easier subtasks, allowing increasingly complex tasks to be approached by association with more easily understood (and previously experienced) smaller tasks, 3. Classification and Serialization tasks, in which the mind can cognitively distinguish various disambiguation criteria and group or order objects accordingly. In terms of inference control this is the stage in which actual knowledge about how to control inference itself is first explored. This means an emerging understanding of inference itself as a cognitive task and methods for learning, which will be further developed in the following stages. Also, in this stage a special cognitive task capability is gained: Theory of Mind," which in cognitive science refers to the ability to understand the fact that not only oneself, but other sentient beings have memories, perceptions, and experiences. This is the ability to conceptually put oneself in another s shoes (even if you happen to assume incorrectly about them by doing so). 11.4.2.1 Conservation of Number Conservation of number is an example of a learning problem classically categorized within Piaget s concrete-operational phase, a conservation laws problem, discussed in Shu03 in the context of software that solves the problem using (logic-based and neural net) narrow-AI techniques. Conservation laws are very important to cognitive development. Conservation is the idea that a quantity remains the same despite changes in appearance. If you show a child some objects and then spread them out, an infantile mind will focus on the spread, and believe that there are now more objects than before, whereas a concrete-operational mind will understand that the quantity of objects has not changed. Conservation of number seems very simple, but from a developmental perspective it is actually rather difficult. Solutions like those given in Shu03 that use neural networks or cus- 198 11 Stages of Cognitive Development tomized logical rule-bases to find specialized solutions that solve only this problem fail to fully address the issue, because these solutions don t create knowledge adequate to aid with the solution of related sorts of problems. We hypothesize that this problem is hard enough that for an inference-based AGI system to solve it in a developmentally useful way, its inferences must be guided by meta-inferential lessons learned from prior similar problems. When approaching a number conservation problem, for example, a reasoning system might draw upon past experience with set-size problems (which may be trial-and-error experience). This is not a simple machine learning approach whose scope is restricted to the current problem, but rather a heuristically guided approach which (a) aggregates information from prior experience to guide solution formulation for the problem at hand, and (b) adds the present experience to the set of relevant information about quantification problems for future refinement of thinking. Fig. 11.6: Conservation of Number For instance, a very simple context-specific heuristic that a system might learn would be: When evaluating the truth value of a statement related to the number of objects in a set, it is generally not that useful to explore branches of the backwards-chaining search tree that contain relationships regarding the sizes, masses, or other physical properties of the objects in the set. This heuristic itself may go a long way toward guiding an inference process toward a correct solution to the problem but it is not something that a mind needs to know a priori. A concrete-operational stage mind may learn this by data-mining prior instances of inferences involving sizes of sets. Without such experience-based heuristics, the search tree for such a problem will likely be unacceptably large. Even if it is solvable without such heuristics, the solutions found may be overly fit to the particular problem and not usefully generalizable. 11.4.2.2 Theory of Mind Consider this experiment: a preoperational child is shown her favorite Dora the Explorer DVD box. Asked what show she s about to see, she ll answer Dora. However, when her parent plays the disc, it s SpongeBob SquarePants. If you then ask her what show her friend will expect when given the Dora DVD box, she will respond SpongeBob although she just answered Dora for herself. A child lacking a theory of mind can not reason through what someone else would think given knowledge other than her own current knowledge. Knowledge of self is intrinsically related to the ability to differentiate oneself from others, and this ability may not be fully developed at birth. Several theorists BC94, Fod94 , based in part on experimental work with autistic children, perceive theory of mind as embodied in an innate module of the mind activated at a certain developmental stage (or not, if damaged). While we consider this possible, we caution against adopting a simplistic view of the innate vs. acquired dichotomy: if there is innateness it may take the form of an innate predisposition to certain sorts of learning EBJ 97 . 11.4 Piaget s Stages in the Context of Uncertain Inference 199 Davidson Dav84 , Dennett Den87 and others support the common belief that theory of mind is dependent upon linguistic ability. A major challenge to this prevailing philosophical stance came from Premack and Woodruff PW78 who postulated that prelinguistic primates do indeed exhibit theory of mind behavior. While Premack and Woodruff s experiment itself has been challenged, their general result has been bolstered by follow-up work showing similar results such as TC97 . It seems to us that while theory of mind depends on many of the same inferential capabilities as language learning, it is not intrinsically dependent on the latter. There is a school of thought often called the Theory Theory BW88, Car85, Wel90 holding that a child s understanding of mind is best understood in terms of the process of iteratively formulating and refuting a series of naive theories about others. Alternately, Gordon Gor86 postulates that theory of mind is related to the ability to run cognitive simulations of others minds using one s own mind as a model. We suggest that these two approaches are actually quite harmonious with one another. In an uncertain AGI context, both theories and simulations are grounded in collections of uncertain implications, which may be assembled in contextappropriate ways to form theoretical conclusions or to drive simulations. Even if there is a special mind-simulator dynamic in the human brain that carries out simulations of other minds in a manner fundamentally different from explicit inferential theorizing, the inputs to and the behavior of this simulator may take inferential form, so that the simulator is in essence a way of efficiently and implicitly producing uncertain inferential conclusions from uncertain premises. We have thought through the details by CogPrime system should be able to develop theory of mind via embodied experience, though at time of writing practical learning experiments in this direction have not yet been done. We have not yet explored in detail the possibility of giving CogPrime a special, elaborately engineered mind-simulator component, though this would be possible; instead we have initially been pursuing a more purely inferential approach. First, it is very simple for a CogPrime system to learn patterns such as If I rotated by pi radians, I would see the yellow block. And it s not a big leap for PLN to go from this to the recognition that You look like me, and you re rotated by pi radians relative to my orientation, therefore you probably see the yellow block. The only nontrivial aspect here is the you look like me premise. Recognizing embodied agent as a category, however, is a problem fairly similar to recognizing block or insect or daisy as a category. Since the CogPrime agent can perceive most parts of its own robot body its arms, its legs, etc. it should be easy for the agent to figure out that physical objects like these look different depending upon its distance from them and its angle of observation. From this it should not be that difficult for the agent to understand that it is naturally grouped together with other embodied agents (like its teacher), not with blocks or bugs. The only other major ingredient needed to enable theory of mind is reflection the ability of the system to explicitly recognize the existence of knowledge in its own mind (note that this term reflection is not the same as our proposed reflexive stage of cognitive development). This exists automatically in CogPrime, via the built-in vocabulary of elementary procedures supplied for use within SchemaNodes (specifically, the atTime and TruthValue operators). Observing that at time T, the weight of evidence of the link L increased from zero is basically equivalent to observing that the link L was created at time T. Then, the system may reason, for example, as follows (using a combination of several PLN rules including the above-given deduction rule): 200 11 Stages of Cognitive Development Implication My eye is facing a block and it is not dark A relationship is created describing the block s color Similarity My body My teacher s body - Implication My teacher s eye is facing a block and it is not dark A relationship is created describing the block s color This sort of inference is the essence of Piagetan theory of mind. Note that in both of these implications the created relationship is represented as a variable rather than a specific relationship. The cognitive leap is that in the latter case the relationship actually exists in the teacher s implicitly hypothesized mind, rather than in CogPrime s mind. No explicit hypothesis or model of the teacher s mind need be created in order to form this implication the hypothesis is created implicitly via inferential abstraction. Yet, a collection of implications of this nature may be used via an uncertain reasoning system like PLN to create theories and simulations suitable to guide complex inferences about other minds. From the perspective of developmental stages, the key point here is that in a CogPrime context this sort of inference is too complex to be viably carried out via simple inference heuristics. This particular example must be done via forward chaining, since the big leap is to actually think of forming the implication that concludes inference. But there are simply too many combinations of relationships involving CogPrime s eye, body, and so forth for the PLN component to viably explore all of them via standard forward-chaining heuristics. Experienceguided heuristics are needed, such as the heuristic that if physical objects A and B are generally physically and functionally similar, and there is a relationship involving some part of A and some physical object R, it may be useful to look for similar relationships involving an analogous part of B and objects similar to R. This kind of heuristic may be learned by experience and the masterful deployment of such heuristics to guide inference is what we hypothesize to characterize the concrete stage of development. The concreteness comes from the fact that inference control is guided by analogies to prior similar situations. 11.4.3 The Formal Stage In the formal stage, as shown in Figure 11.7, an agent should be able to carry out arbitrarily complex inferences (constrained only by computational resources, rather than by fundamental restrictions on logical language or form) via including inference control as an explicit subject of abstract learning. Abstraction and inference about both the sensorimotor surround (world) and about abstract ideals themselves (including the final stages of indirect learning about inference itself) are fully developed. Formal stage evaluation tasks are centered entirely around abstraction and higher-order inference tasks such as: 1. Mathematics and other formalizations. 11.4 Piaget s Stages in the Context of Uncertain Inference 201 Fig. 11.7: Uncertain Inference in the Formal Stage 2. Scientific experimentation and other rigorous observational testing of abstract formalizations. 3. Social and philosophical modeling, and other advanced applications of empathy and the Theory of Mind. In terms of inference control this stage sees not just perception of new knowledge about inference control itself, but inference controlled reasoning about that knowledge and the creation of abstract formalizations about inference control which are reasoned-upon, tested, and verified or debunked. 11.4.3.1 Systematic Experimentation The Piagetan formal phase is a particularly subtle one from the perspective of uncertain inference. In a sense, AGI inference engines already have strong capability for formal reasoning built in. Ironically, however, no existing inference engine is capable of deploying its reasoning rules in a powerfully effective way, and this is because of the lack of inference control heuristics adequate for controlling abstract formal reasoning. These heuristics are what arise during Piaget s formal stage, and we propose that in the content of uncertain inference systems, they involve the application of inference itself to the problem of refining inference control. 202 11 Stages of Cognitive Development A problem commonly used to illustrate the difference between the Piagetan concrete operational and formal stages is that of figuring out the rules for making pendulums swing quickly versus slowly IP58 . If you ask a child in the formal stage to solve this problem, she may proceed to do a number of experiments, e.g. build a long string with a light weight, a long string with a heavy weight, a short string with a light weight and a short string with a heavy weight. Through these experiments she may determine that a short string leads to a fast swing, a long string leads to a slow swing, and the weight doesn t matter at all. The role of experiments like this, which test extreme cases, is to make cognition easier. The formal-stage mind tries to map a concrete situation onto a maximally simple and manipulable set of abstract propositions, and then reason based on these. Doing this, however, requires an automated and instinctive understanding of the reasoning process itself. The above-described experiments are good ones for solving the pendulum problem because they provide data that is very easy to reason about. From the perspective of uncertain inference systems, this is the key characteristic of the formal stage: formal cognition approaches problems in a way explicitly calculated to yield tractable inferences. Note that this is quite different from saying that formal cognition involves abstractions and advanced logic. In an uncertain logic-based AGI system, even infantile cognition may involve these the difference lies in the level of inference control, which in the infantile stage is simplistic and hard-wired, but in the formal stage is based on an understanding of what sorts of inputs lead to tractable inference in a given context. 11.4.4 The Reflexive Stage In the reflexive stage (Figure 11.8), an intelligent agent is broadly capable of self-modifying its internal structures and dynamics. As an example in the human domain: highly intelligent and self-aware adult humans may carry out reflexive cognition by explicitly reflecting upon their own inference processes and trying to improve them. An example is the intelligent improvement of uncertain-truth-valuemanipulation formulas. It is well demonstrated that even educated humans typically make numerous errors in probabilistic reasoning GGK02 . Most people don t realize it and continue to systematically make these errors throughout their lives. However, a small percentage of individuals make an explicit effort to increase their accuracy in making probabilistic judgments by consciously endeavoring to internalize the rules of probabilistic inference into their automated cognition processes. In the uncertain inference based AGI context, what this means is: In the reflexive stage an entity is able to include inference control itself as an explicit subject of abstract learning (i.e. the ability to reason about one s own tactical and strategic approach to modifying one s own learning and thinking), and modify these inference control strategies based on analysis of experience with various cognitive approaches. Ultimately, the entity can self-modify its internal cognitive structures. Any knowledge or heuristics can be revised, including metatheoretical and metasystemic thought itself. Initially this is done indirectly, but at least in the case of AGI systems it is theoretically possible to also do so directly. This might be considered as a separate stage of Full Self Modification, or else as the end phase of the reflexive stage. In the context of logical reasoning, self modification of inference control itself is the primary task in this stage. In terms of inference control this 11.4 Piaget s Stages in the Context of Uncertain Inference 203 Fig. 11.8: The Reflexive Stage stage adds an entire new feedback loop for reasoning about inference control itself, as shown in Figure 11.8. As a very concrete example, in later chapters we will see that, while PLN is founded on probability theory, it also contains a variety of heuristic assumptions that inevitably introduce a certain amount of error into its inferences. For example, PLN s probabilistic deduction embodies a heuristic independence assumption. Thus PLN contains an alternate deduction formula called the concept geometry formula that is better in some contexts, based on the assumption that ConceptNodes embody concepts that are roughly spherically-shaped in attribute space. A highly advanced CogPrime system could potentially augment the independence-based and conceptgeometry-based deduction formulas with additional formulas of its own derivation, optimized to minimize error in various contexts. This is a simple and straightforward example of reflexive cognition it illustrates the power accessible to a cognitive system that has formalized and reflected upon its own inference processes, and that possesses at least some capability to modify these. In general, AGI systems can be expected to have much broader and deeper capabilities for self-modification than human beings. Ultimately it may make sense to view the AGI systems we implement as merely "initial conditions" for ongoing self-modification and self-organization. Chapter ?? discusses some of the potential technical details underlying this sort of thoroughgoing AGI self-modification. Chapter 12 The Engineering and Development of Ethics Co-authored with Stephan Vladimir Bugaj and Joel Pitt 12.1 Introduction Most commonly, if a work on advanced AI mentions ethics at all, it occurs in a final summary chapter, discussing in broad terms some of the possible implications of the technical ideas presented beforehand. It s no coincidence that the order is reversed here: in the case of CogPrime, AGI-ethics considerations played a major role in the design process ... and thus the chapter on ethics occurs near the beginning rather than the end. In the CogPrime approach, ethics is not a particularly distinct topic, being richly interwoven with cognition and education and other aspects of the AGI project. The ethics of advanced AGI is a complex issue with multiple aspects. Among the many issues there are: 1. Risks posed by the possibility of human beings using AGI systems for evil ends 2. Risks posed by AGI systems created without well-defined ethical systems 3. Risks posed by AGI systems with initially well-defined and sensible ethical systems eventually going rogue an especially big risk if these systems are more generally intelligent than humans, and possess the capability to modify their own source code 4. the ethics of experimenting on AGI systems when one doesn t understand the nature of their experience 5. AGI rights: in what circumstances does using an AGI as a tool or servant constitute slavery In this chapter we will focus mainly (though not exclusively) on the question of how to create an AGI with a rational and beneficial ethical system. After a somewhat wide-ranging discussion, we will conclude with eight general points that we believe should be followed in working toward "Friendly AGI" most of which have to do, not with the internal design of the AGI, but with the way the AGI is taught and interfaced with the real world. While most of the particulars discussed in this book have nothing to do with ethics, it s important for the reader to understand that AGI-ethics considerations have played a major role in many of our design decisions, underlying much of the technical contents of the book. As the materials in this chapter should make clear, ethicalness is probably not something that one can meaningfully tack onto an AGI system at the end, after developing the rest it is likely infeasible to architect an intelligent agent and then add on an ethics module. Rather, ethics is something that has to do with all the different memory systems and cognitive processes that 205 206 12 The Engineering and Development of Ethics constitute an intelligent system and it s something that involves both cognitive architecture and the exploration a system does and the instruction it receives. It s a very complex matter that is richly intermixed with all the other aspects of intelligence, and here we will treat it as such. 12.2 Review of Current Thinking on the Risks of AGI Before proceeding to outline our own perspective on AGI ethics in the context of CogPrime, we will review the main existing strains of thought on the potential ethical dangers associated with AGI. One science fiction film after another has highlighted these dangers, lodging the issue deep in our cultural awareness; unsurprisingly, much less attention has been paid to serious analysis of the risks in their various dimensions, but there is still a non-trivial literature worth paying attention to. Hypothetically, an AGI with superhuman intelligence and capability could dispense with humanity altogether i.e. posing an "existential risk" Bos02 . In the worst case, an evil but brilliant AGI, perhaps programmed by a human sadist, could consign humanity to unimaginable tortures (i.e. realizing a modern version of the medieval Christian visions of hell). On the other hand, the potential benefits of powerful AGI also go literally beyond human imagination. It seems quite plausible that an AGI with massively superhuman intelligence and positive disposition toward humanity could provide us with truly dramatic benefits, such as a virtual end to material scarcity, disease and aging. Advanced AGI could also help individual humans grow in a variety of directions, including directions leading beyond "legacy humanity," according to their own taste and choice. Eliezer Yudkowsky has introduced the term "Friendly AI", to refer to advanced AGI systems that act with human benefit in mind Yud06 . Exactly what this means has not been specified precisely, though informal interpretations abound. Goertzel Goe06b has sought to clarify the notion in terms of three core values of Joy, Growth and Freedom. In this view, a Friendly AI would be one that advocates individual and collective human joy and growth, while respecting the autonomy of human choices. Some (for example, Hugo de Garis, DG05 ), have argued that Friendly AI is essentially an impossibility, in the sense that the odds of a dramatically superhumanly intelligent mind worrying about human benefit are vanishingly small. If this is the case, then the best options for the human race would presumably be to either avoid advanced AGI development altogether, or to else fuse with AGI before it gets too strongly superhuman, so that beings-originated-ashumans can enjoy the benefits of greater intelligence and capability (albeit at cost of sacrificing their humanity). Others (e.g. Mark Waser Was09 ) have argued that Friendly AI is essentially inevitable, because greater intelligence correlates with greater morality. Evidence from evolutionary and human history is adduced in favor of this point, along with more abstract arguments. Yudkowsky Yud06 has discussed the possibility of creating AGI architectures that are in some sense "provably Friendly" either mathematically, or else at least via very tight lines of rational verbal argumentation. However, several issues have been raised with this approach. First, it seems likely that proving mathematical results of this nature would first require dramatic advances in multiple branches of mathematics. Second, such a proof would require a formalization of the goal of "Friendliness," which is a subtler matter than it might seem Leg06b, Leg06a . 12.2 Review of Current Thinking on the Risks of AGI 207 Formalization of human morality has vexed moral philosophers for quite some time. Finally, it is unclear the extent to which such a proof could be created in a generic, environment-independent way but if the proof depends on properties of the physical environment, then it would require a formalization of the environment itself, which runs up against various problems such as the complexity of the physical world and also the fact that we currently have no complete, consistent theory of physics. Kaj Sotala has provided a list of 14 objections to the Friendly AI concept, and suggested answers to each of them Sot11 . Stephen Omohundro Omo08 has argued that any advanced AI system will very likely demonstrate certain "basic AI drives", such as desiring to be rational, to self-protect, to acquire resources, and to preserve and protect its utility function and avoid counterfeit utility; these drives, he suggests, must be taken carefully into account in formulating approaches to Friendly AI. The problem of formally or at least very carefully defining the goal of Friendliness has been considered from a variety of perspectives, none showing dramatic success. Yudkowsky Yud04 has suggested the concept of "Coherent Extrapolated Volition", which roughly refers to the extrapolation of the common values of the human race. Many subtleties arise in specifying this concept e.g. if Bob Jones is often possessed by a strong desire to kill all Martians, but he deeply aspires to be a nonviolent person, then the CEV approach would not rate "killing Martians" as part of Bob s contribution to the CEV of humanity. Goertzel Goe10a has proposed a related notion of Coherent Aggregated Volition (CAV), which eschews the subtleties of extrapolation, and simply seeks a reasonably compact, coherent, consistent set of values that is fairly close to the collective value-set of humanity. In the CAV approach, "killing Martians" would be removed from humanity s collective value-set because it s uncommon and not part of the most compact coherent consistent overall model of human values, rather than because of Bob Jones aspiration to nonviolence. One thought we have recently entertained is that the core concept underlying CAV might be better thought of as CBV or "Coherent Blended Volition." CAV seems to be easily misinterpreted as meaning the average of different views, which was not the original intention. The CBV terminology clarifies that the CBV of a diverse group of people should not be thought of as an average of their perspectives, but as something more analogous to a "conceptual blend" FT02 incorporating the most essential elements of their divergent views into a whole that is overall compact, elegant and harmonious. The subtlety here (to which we shall return below) is that for a CBV blend to be broadly acceptable, the different parties whose views are being blended must agree to some extent that enough of the essential elements of their own views have been included. The process of arriving at this sort of consensus may involve extrapolation of a roughly similar sort to that considered in CEV. Multiple attempts at axiomatization of human values have also been attempted, e.g. with a view toward providing near-term guidance to military robots (see e.g. Arkin s excellent though chillingly-titled book Governing Lethal Behavior in Autonomous Robots Ark09b , the result of US military funded research). However, there are reasonably strong arguments that human values (similarly to e.g. human language or human perceptual classification rules) are too complex and multifaceted to be captured in any compact set of formal logic rules. Wallach WA10 has made this point eloquently, and argued the necessity of fusing top-down (e.g. formal logic based) and bottom-up (e.g. self-organizing learning based) approaches to machine ethics. A number of more sociological considerations also arise. It is sometimes argued that the risk from highly-advanced AGI going morally awry on its own may be less than that of moderatelyadvanced AGI being used by human beings to advocate immoral ends. This possibility gives 208 12 The Engineering and Development of Ethics rise to questions about the ethical value of various practical modalities of AGI development, for instance: Should AGI be developed in a top-secret installation by a select group of individuals selected for a combination of technical and scientific brilliance and moral uprightness, or other qualities deemed relevant (a "closed approach")? Or should it be developed out in the open, in the manner of open-source software projects like Linux? (an "open approach"). The open approach allows the collective intelligence of the world to more fully participate but also potentially allows the more unsavory elements of the human race to take some of the publicly-developed AGI concepts and tools private, and develop them into AGIs with selfish or evil purposes in mind. Is there some meaningful intermediary between these extremes? Should governments regulate AGI, with Friendliness in mind (as advocated carefully by e.g Bill Hibbard Hib02 )? Or will this just cause AGI development to move to the handful of countries with more liberal policies? ... or cause it to move underground, where nobody can see the dangers developing? As a rough analogue, it s worth noting that the US government s imposition of restrictions on stem cell research, under President George W. Bush, appears to have directly stimulated the provision of additional funding for stem cell research in other nations like Korea, Singapore and China. The former issue is, obviously, highly relevant to CogPrime (which is currently being developed via the open source CogPrime project); and so the various dimensions of this issues are worth briefly sketching here. We have a strong skepticism of self-appointed elite groups that claim (even if they genuinely believe) that they know what s best for everyone, and a healthy respect for the power of collective intelligence and the Global Brain, which the open approach is ideal for tapping. On the other hand, we also understand the risk of terrorist groups or other malevolent agents forking an open source AGI project and creating something terribly dangerous and destructive. Balancing these factors against each other rigorously, seems beyond the scope of current human science. Nobody really understands the social dynamics by which open technological knowledge plays out in our current world, let alone hypothetical future scenarios. Right now there exists open knowledge about many very dangerous technologies, and there exist many terrorist groups, yet these groups fortunately make scant use of these technologies. The reasons why appear to be essentially sociological the people involved in these terrorist groups tend not to be the ones who have mastered the skills of turning public knowledge on cutting-edge technologies into real engineered systems. But while it s easy to observe this sociological phenomenon, we certainly have no way to estimate its quantitative extent from first principles. We don t really have a strong understanding of how safe we are right now, given the technology knowledge available right now via the Internet, textbooks, and so forth. Even relatively straightforward issues such as nuclear proliferation remain confusing, even to the experts. It s also quite clear that keeping powerful AGI locked up by an elite group doesn t really provide reliable protection against malevolent human agents. History is rife with such situations going awry, e.g. by the leadership of the group being subverted, or via brute force inflicted by some outside party, or via a member of the elite group defecting to some outside group in the interest of personal power or reward or due to group-internal disagreements, etc. There are many things that can go wrong in such situations, and the confidence of any particular group that they are immune to such issues, cannot be taken very seriously. Clearly, neither the open nor closed approach qualifies as a panacea. 12.3 The Value of an Explicit Goal System 209 12.3 The Value of an Explicit Goal System One of the subtle issues confronted in the quest to design ethical AGIs is how closely one wants to emulate human ethical judgment and behavior. Here one confronts the brute fact that, even according to their own deeply-held standards, humans are not all that ethical. One high-level conclusion we came to very early in the process of designing CogPrime is that, just as humans are not the most intelligent minds achievable, they are also not the most ethical minds achievable. Even if one takes human ethics, broadly conceived, as the standard there are almost surely possible AGI systems that are much more ethical according to human standards than nearly all human beings. This is not mainly because of ethics-specific features of the human mind, but rather because of the nature of the human motivational system, which leads to many complexities that drive humans to behaviors that are unethical according to their own standards. So, one of the design decisions we made for CogPrime with ethics as well as other reasons in mind was not to closely imitate the human motivational system, but rather to craft a novel motivational system combining certain aspects of the human motivational system with other profoundly non-human aspects. On the other hand, the design of ethical AGI systems still has a lot to gain from the study of human ethical cognition and behavior. Human ethics has many aspects, which we associate here with the different types of memory, and it s important that AGI systems can encompass all of them. Also, as we will note below, human ethics develops in childhood through a series of natural stages, parallel to and entwined with the cognitive developmental stages reviewed in Chapter 11 above. We will argue that for an AGI with a virtual or robotic body, it makes sense to think of ethical development as proceeding through similar stages. In a CogPrime context, the particulars of these stages can then be understood in terms of the particulars of CogPrime s cognitive processes which brings AGI ethics from the domain of theoretical abstraction into the realm of practical algorithm design and education. But even if the human stages of ethical development make sense for non-human AGIs, this doesn t mean the particulars of the human motivational system need to be replicated in these AGIs, regarding ethics or other matters. A key point here is that, in the context of human intelligence, the concept of a "goal" is a descriptive abstraction. But in the AGI context, it seems quite valuable to introduce goals as explicit design elements (which is what is done in CogPrime ) both for ethical reasons and for broader AGI design reasons. Humans may adopt goals for a time and then drop them, may pursue multiple conflicting goals simultaneously, and may often proceed in an apparently goal-less manner. Sometimes the goal that a person appears to be pursuing, may be very different than the one they think they re pursuing. Evolutionary psychology BDL93 argues that, directly or indirectly, all humans are ultimately pursuing the goal of maximizing the inclusive fitness of their genes but given the complex mix of evolution and self-organization in natural history Sal93 , this is hardly a general explanation for human behavior. Ultimately, in the human context, "goal" is best thought of as a frequently useful heuristic concept. AGI systems, however, need not emulate human cognition in every aspect, and may be architected with explicit "goal systems." This provides no guarantee that said AGI systems will actually pursue the goals that their goal systems specify depending on the role that the goal system plays in the overall system dynamics, sometimes other dynamical phenomena might intervene and cause the system to behave in ways opposed to its explicit goals. However, we submit that this design sketch provides a better framework than would exist in an AGI system closely emulating the human brain. 210 12 The Engineering and Development of Ethics We realize this point may be somewhat contentious a counter-argument would be that the human brain is known to support at least moderately ethical behavior, according to human ethical standards, whereas less brain-like AGI systems are much less well understood. However, the obvious counter-counterpoints are that: Humans are not all that consistently ethical, so that creating AGI systems potentially much more practically powerful than humans, but with closely humanlike ethical, motivational and goal systems, could in fact be quite dangerous The effect on a human-like ethical motivational goal system of increasing the intelligence, or changing the physical embodiment or cognitive capabilities, of the agent containing the system, is unknown and difficult to predict given all the complexities involved The course we tentatively recommend, and are following in our own work, is to develop AGI systems with explicit, hierarchically-dominated goal systems. That is: create one or more "top goals" (we call them Ubergoals in CogPrime ) have the system derive subgoals from these, using its own intelligence, potentially guided by educational interaction or explicit programming have a significant percentage of the system s activity governed by the explicit pursuit of these goals Note that the "significant percentage" need not be 100 ; CogPrime, for example, combines explicitly goal-directed activity with other "spontaneous" activity. Requiring that all activity be explicitly goal-directed may be too strict a requirement to place on AGI architectures. The next step, of course, is for the top-level goals to be chosen in accordance with the principle of human-Friendliness. The next one of our eight points, about the Global Brain, addresses one way of doing this. In our near-term work with CogPrime, we are using simplistic approaches, with a view toward early-stage system testing. 12.4 Ethical Synergy An explicit goal system provides an explicit way to ensure that ethical principles (as represented in system goals) play a significant role in guiding an AGI system s behavior. However, in an integrative design like CogPrime the goal system is only a small part of the overall story, and it s important to also understand how ethics relates to the other aspects of the cognitive architecture. One of the more novel ideas presented in this chapter is that different types of ethical intuition may be associated with different types of memory and to possess mature ethics, a mind must display ethical synergy between the ethical processes associated with its memory types. Specifically, we suggest that: Episodic memory corresponds to the process of ethically assessing a situation based on similar prior situations Sensorimotor memory corresponds to mirror neuron type ethics, where you feel another person s feelings via mirroring their physiological emotional responses and actions Declarative memory corresponds to rational ethical judgment 12.4 Ethical Synergy 211 Procedural memory corresponds to ethical habit ... learning by imitation and reinforcement to do what is right, even when the reasons aren t well articulated or understood Attentional memory corresponds to the existence of appropriate patterns guiding one to pay adequate attention to ethical considerations at appropriate times Intentional memory corresponds to the pervasion of ethics through one s choices about subgoaling (which leads into when do the ends justify the means ethical-balance questions) One of our suggestions regarding AGI ethics is that an ethically mature person or AGI must both master and balance all these kinds of ethics. We will focus especially here on declarative ethics, which corresponds to Kohlberg s theory of logical ethical judgment; and episodic ethics, which corresponds to Gilligan s theory of empathic ethical judgment. Ultimately though, all five aspects are critically important; and a CogPrime system if appropriately situated and educated should be able to master and integrate all of them. 12.4.1 Stages of Development of Declarative Ethics Complementing generic theories of cognitive development such as Piaget s and Perry s, theorists have also proposed specific stages of moral and ethical development. The two most relevant theories in this domain are those of Kohlberg and Gilligan, which we will review here, both individually and in terms of their integration and application in the AGI context. Lawrence Kohlberg s KLH83, Koh81 moral development model, called the ethics of justice by Gilligan, is based on a rational modality as the central vehicle for moral development. In our perspective this is a firmly declarative form of ethics, based on explicit analysis and reasoning. It is based on an impartial regard for persons, proposing that ethical consideration must be given to all individual intelligences without a priori judgment (prejudice). Consideration is given for individual merit and preferences, and the goals of an ethical decision are equal treatment (in the general, not necessarily the particular) and reciprocity. Echoing Kant s Kan64 categorical imperative, the decisions considered most successful in this model are those which exhibit reversibility , where a moral act within a particular situation is evaluated in terms of whether or not the act would be satisfactory even if particular persons were to switch roles within the situation. In other words, a situational, contextualized do unto others as you would have them do unto you criterion. The ethics of justice can be viewed as three stages (each of which has six substages, on which we will not elaborate here), depicted in Table 12.1. In Kohlberg s perspective, cognitive development level contributes to moral development, as moral understanding emerges from increased cognitive capability in the area of ethical decision making in a social context. Relatedly, Kohlberg also looks at stages of social perspective and their consequent interpersonal outlook. As shown in Table 12.1, these are correlated to the stages of moral development, but also map onto Piagetian models of cognitive development (as pointed out e.g. by Gibbs Gib78 , who presents a modification interpretation of Kohlberg s ideas intended to align them more closely with Piaget s). Interpersonal outlook can be understood as rational understanding of the psychology of other persons (a theory of mind, with or without empathy). Stage One, emergent from the infantile congitive stage, is entirely selfish as only self awareness has developed. As cognitive sophistication about ethical considerations increases, so do the moral and social perspective stages. Concrete and formal cognition bring about the first instrumental egoism, and then social relations and systems perspectives, and 212 12 The Engineering and Development of Ethics Stage Pre-Conventional Conventional Post-Conventional Substages Obedience and Punishment Orientation Self-interest orientation Interpersonal accord (conformity) orientation Authority and social-order maintaining (law and order) orientation Social contract (human rights) orientation Universal ethical principles (universal human rights) orientation Table 12.1: Kohlberg s Stages of Development of the Ethics of Justice from formal and then reflexive thinking about ethics comes the post-conventional modalities of contractualism and universal mutual respect. Stage of Social Perspective Interpersonal Outlook Blind egoism No interpersonal perspective. Only self is considered. Instrumental egoism See that others have goals and perspectives, and either conform to or rebel against norms. Social Relationships Able to see abstract normative systems perspective Social Systems perspective Recognize positive and negative intentions Contractual perspective Recognize that contracts (mutually beneficial agreements of any kind) will allow intelligences to increase the welfare of both. Universal principle of See how human fallibility and frailty are impacted by communication. mutual respect Table 12.2: Kohlberg s Stages of Development of Social Perspective and Interpersonal Morals 12.4.1.1 Uncertain Inference and the Ethics of Justice Taking our cue from the analysis given in Chapter 11 of Piagetan stages in uncertain inference based AGI systems (such as CogPrime ), we may explore the manifestation of Kohlberg s stages in AGI systems of this nature. Uncertain inference seems generally well-suited as a declarative-ethics learning system, due to the nuanced ethical environment of real world situations. Probabilistic knowledge networks can model belief networks, imitative reinforcement learning based ethical pedagogy, and even simplistic moral maxims. In principle, they have the flexibility to deal with complex ethical decisions, including not only weighted for the greater 12.4 Ethical Synergy 213 good dichotomous decision making, but also the ability to develop moral decision networks which do not require that all situations be solved through resolution of a dichotomy. When more than one person is being affected by an ethical decision, making a decision based on reducing two choices to a single decision can often lead to decisions of dubious ethics. However, a sufficiently complex uncertain inference network can represent alternate choices in which multiple actions are taken that have equal (or near equal) belief weight but have very different particulars but because the decisions are applied in different contexts (to different groups of individuals) they are morally equivalent. Though each individual action appears equally believable, were any single decision applied to the entire population one or more individual may be harmed, and the morally superior choice is to make case-dependent decisions. Equal moral treatment is a general principle, and too often the mistake is made by thinking that to achieve this general principle the particulars must be equal. This is not the case. Different treatment of different individuals can result in morally equivalent treatment of all involved individuals, and may be vastly morally superior to treating all the individuals with equal particulars. Simply taking the largest population and deciding one course of action based on the result that is most appealing to that largest group is not generally the most moral action. Uncertain inference, especially a complex network with high levels of resource access as may be found in a sophisticated AGI, is well suited for complex decision making resulting in a multitude of actions, and of analyzing the options to find the set of actions that are ethically optimal particulars for each decision context. Reflexive cognition and post-commitment moral understanding may be the goal stages of an AGI system, or any intelligence, but the other stages will be passed through on the way to that goal, and realistically some minds will never reach higher order cognition or morality with regards to any context, and others will not be able to function at this high order in every context (all currently known minds fail to function at the highest order cognitively or morally in some contexts). Infantile and concrete cognition are the underpinnings of the egoist and socialized stages, with formal aspects also playing a role in a more complete understanding of social models when thinking using the social modalities. Cognitively infantile patterns can produce no more than blind egoism as without a theory of mind, there is no capability to consider the other. Since most intelligences acquire concrete modality and therefore some nascent social perspective relatively quickly, most egoists are instrumental egoists. The social relationship and systems perspectives include formal aspects which are achieved by systematic social experimentation, and therefore experiential reinforcement learning of correct and incorrect social modalities. Initially this is a one-on-one approach (relationship stage), but as more knowledge of social action and consequences is acquired, a formal thinker can understand not just consequentiality but also intentionality in social action. Extrapolation from models of individual interaction to general social theoretic notions is also a formal action. Rational, logical positivist approaches to social and political ideas, however, are the norm of formal thinking. Contractual and committed moral ethics emerges from a higherorder formalization of the social relationships and systems patterns of thinking. Generalizations of social observation become, through formal analysis, systems of social and political doctrine. Highly committed, but grounded and logically supportable, belief is the hallmark of formal cognition as expressed contractual moral stage. Though formalism is at work in the socialized moral stages, its fullest expression is in committed contractualism. Finally, reflexive cognition is especially important in truly reaching the post-commitment moral stage in which nuance and complexity are accommodated. Because reflexive cognition is necessary to change one s mind not just about particular rational ideas, but whole ways of 214 12 The Engineering and Development of Ethics thinking, this is a cognitive precedent to being able to reconsider an entire belief system, one that has had contractual logic built atop reflexive adherence that began in early development. If the initial moral system is viewed as positive and stable, then this cognitive capacity is seen as dangerous and scary, but if early morality is stunted or warped, then this ability is seen as enlightened. However, achieving this cognitive stage does not mean one automatically changes their belief systems, but rather that the mental machinery is in place to consider the possibilities. Because many people do not reach this level of cognitive development in the area of moral and ethical thinking, it is associated with negative traits ( moral relativism and flip-flopping ). However, this cognitive flexibility generally leads to more sophisticated and applicable moral codes, which in turn leads to morality which is actually more stable because it is built upon extensive and deep consideration rather than simple adherence to reflexive or rationalized ideologies. 12.4.2 Stages of Development of Empathic Ethics Complementing Kohlberg s logic-and-justice-focused approach, Carol Gilligan s Gil82 ethics of care model is a moral development theory which posits that empathetic understanding plays the central role in moral progression from an initial self-centered modality to a socially responsible one. The ethics of care model is concerned with the ways in which an individual cares (responds to dilemmas using empathetic responses) about self and others. As shown in Table 12.3, the ethics of care is broken into the same three primary stage as Kohlberg, but with a focus on empathetic, emotional caring rather than rationalized, logical principles of justice. Stage Pre-Conventional Conventional Post-Conventional Principle of Care Individual Survival Self Sacrifice for the Greater Good Principle of Nonviolence (do not hurt others, or oneself) Table 12.3: Gilligan s Stages of the Ethics of Care For an ethics of care approach to be applied in an AGI, the AGI must be capable of internal simulation of other minds it encounters, in a similar manner to how humans regularly simulate one another internally. Without any mechanism for internal simulation, it is unlikely that an AGI can develop any sort of empathy toward other minds, as opposed to merely logically or probabilistically modeling other agents behavior or other minds internal contents. In a CogPrime context, this ties in closely with how CogPrime handles episodic knowledge partly via use of an internal simulation world, which is able to play mental movies of prior and hypothesized scenarios within the AGI system s mind. However, in humans empathy involves more than just simulation, it also involves sensorimotor responses, and of course emotional responses a topic we will discuss in more depth in Appendix ?? where we review the functionality of mirror neurons and mirror systems in the human brains. When we see or hear someone suffering, this sensory input causes motor responses in us similar to if we were suffering ourselves, which initiates emotional empathy and corresponding cognitive processes. 12.4 Ethical Synergy 215 Thus, empathic ethics of care involves a combination of episodic and sensorimotor ethics, complementing the mainly declarative ethics associated with the ethics of justice. In Gilligan s perspective, the earliest stage of ethical development occurs before empathy becomes a consistent and powerful force. Next, the hallmark of the conventional stage is that at this point, the individual is so overwhelmed with their empathic response to others that they neglect themselves in order to avoid hurting others. Note that this stage doesn t occur in Kohlberg s hierarchy at all. Kohlberg and Gilligan both begin with selfish unethicality, but their following stages diverge. A person could in principle manifest Gilligan s conventional stage without having a refined sense of justice (thus not entering Kohlberg s conventional stage); or they could manifest Kohlberg s conventional stage without partaking in an excessive degree of self-sacrifice (thus not entering Gilligan s conventional stage). We will suggest below that in fact the empathic and logical aspects of ethics are more unified in real human development than these separate theories would suggest. However, even if this is so, the possibility is still there that in some AGI systems the levels of declarative and empathic ethics could wildly diverge. It is interesting to note that Gilligan s and Kohlberg s final stages converge more closely than their intermediate ones. Kohlberg s post-conventional stage focuses on universal rights, and Gilligan s on universal compassion. Still, the foci here are quite different; and, as will be elaborated below, we believe that both Kohlberg s and Gilligan s theories constitute very partial views of the actual end-state of ethical advancement. 12.4.3 An Integrative Approach to Ethical Development We feel that both Kohlberg s and Gilligan s theories contain elements of the whole picture of ethical development, and that both approaches are necessary to create a moral, ethical artificial general intelligence just as, we suggest, both internal simulation and uncertain inference are necessary to create a sufficiently intelligent and volitional intelligence in the first place. Also, we contend, the lack of direct analysis of the underlying psychology of the stages is a deficiency shared by both the Kohlberg and Gilligan models as they are generally discussed. A successful model of integrative ethics necessarily contains elements of both the care and justice models, as well as reference to the underlying developmental psychology and its influence on the character of the ethical stage. Furthermore, intentional and attentional ethics need to be brought into the picture, complementing Kohlberg s focus on declarative knowledge and Gilligan s focus on episodic and sensorimotor knowledge. With these notions in mind, we propose the following integrative theory of the stages of ethical development, shown in Tables 12.4, 12.5 and 12.6. In our integrative model, the justicebased and empathic aspects of ethical judgment are proposed to develop together. Of course, in any one individual, one or another aspect may be dominant. Even so, however, the combination of the two is equally important as either of the two individual ingredients. For instance, we suggest that in any psychologically healthy human, the conventional stage of ethics (typifying childhood, and in many cases adulthood as well) involves a combination of Gilligan-esqe empathic ethics and Kohlberg-esque ethical reasoning. This combination is supported by Piagetan concrete operational cognition, which allows moderately sophisticated linguistic interaction, theory of mind, and symbolic modeling of the world. And, similarly, we propose that in any truly ethically mature human, empathy and rational justice are both fully developed. Indeed the two interpenetrate each other deeply. 216 12 The Engineering and Development of Ethics Once one goes beyond simplistic, childlike notions of fairness ( an eye for an eye and so forth), applying rational justice in a purely intellectual sense is just as difficult as any other real-world logical inference problem. Ethical quandaries and quagmires are easily encountered, and are frequently cut through by a judicious application of empathic simulation. On the other hand, empathy is a far more powerful force when used in conjunction with reason: analogical reasoning lets us empathize with situations we have never experienced. For instance, a person who has never been clinically depressed may have a hard time empathizing with individuals who are; but using the power of reason, they can imagine their worst state of depression magnified by several times and then extended over a long period of time, and then reason about what this might be like ... and empathize based on their inferential conclusion. Reason is not antithetical to empathy but rather is the key to making empathy more broadly impactful. Finally, the enlightened stage of ethical development involves both a deeper compassion and a more deeply penetrating rationality and objectiveness. Empathy with all sentient beings is manageable in everyday life only once one has deeply reflected on one s own self and largely freed oneself of the confusions and illusions that characterize much of the ordinary human s inner existence. It is noteworthy, for example, that Buddhism contains both a richly developed ethics of universal compassion, and also an intricate logical theory of the inner workings of cognition Stc00 , detailing in exquisite rational detail the manner in which minds originate structures and dynamics allowing them to comprehend themselves and the world. 12.4.4 Integrative Ethics and Integrative AGI What does our integrative approach to ethical development have to say about the ethical development of AGI systems? The lessons are relatively straighforward, if one considers an AGI system that, like CogPrime, explicitly contains components dedicated to logical inference and to simulation. Application of the above ethical ideas to other sorts of AGI systems is also quite possible, but would require a lengthier treatment and so won t be addressed here. In the context of a CogPrime-type AGI system, Kolhberg s stages correspond to increasingly sophisticated application of logical inference to matters of rights and fairness. It is not clear whether humans contain an innate sense of fairness. In the context of AGIs, it would be possible to explicitly wire a sense of fairness into an AGI system, but in the context of a rich environment and active human teachers, this actually appears quite unnecessary. Experiential instruction in the notions of rights and fairness should suffice to teach an inference-based AGI system how to manipulate these concepts, analogously to teaching the same AGI system how to manipulate number, mass and other such quantities. Ascending the Kohlberg stages is then mainly a matter of acquiring the ability to carry out suitably complex inferences in the domain of rights and fairness. The hard part here is inference control choosing which inference steps to take and in a sophisticated AGI inference engine, inference control will be guided by experience, so that the more ethical judgments the system has executed and witnessed, the better it will become at making new ones. And, as argued above, simulative activity can be extremely valuable for aiding with inference control. When a logical inference process reaches a point of acute uncertainty (the backward or forward chaining inference tree can t decide which expansion step to take), it can run a simulation to cut through the confusion i.e., it can use empathy to decide which 12.4 Ethical Synergy 217 Stage Pre-ethical Conventional Ethics Characteristics Piagetan infantile to early concrete (aka pre-operational) Radical selfishness or selflessness may, but do not necessarily, occur No coherent, consistent pattern of consideration for the rights, intentions or feelings of others Empathy is generally present, but erratically Concrete cognitive basis Perry s Dualist and Multiple stages The common sense of the Golden Rule is appreciated, with cultural conventions for abstracting principles from behaviors One s own ethical behavior is explicitly compared to that of others Development of a functional, though limited, theory of mind Ability to intuitively conceive of notions of fairness and rights Appreciation of the concept of law and order, which may sometimes manifest itself as systematic obedience or systematic disobedience Empathy is more consistently present, especially with others who are directly similar to oneself or in situations similar to those one has directly experienced Degrees of selflessness or selfishness develop based on ethical groundings and social interactions. Table 12.4: Integrative Model of the Stages of Ethical Development, Part 1 logical inference step to take in thinking about applying the notions of rights and fairness to a given situation. Gilligan s stages correspond to increasingly sophisticated control of empathic simulation which in a CogPrime-type AGI system, is carried out by a specific system component devoted to running internal simulations of aspects of the outside world, which includes a subcomponent specifically tuned for simulating sentient actors. The conventional stage has to do with the raw, uncontrolled capability for such simulation; and the post-conventional stage corresponds to its contextual, goal-oriented control. But controlling empathy, clearly, requires subtle management of various uncertain contextual factors, which is exactly what uncertain logical inference is good at so, in an AGI system combining an uncertain inference component with a simulative component, it is the inference component that would enable the nuanced control of empathy allowing the ascent to Gilligan s post-conventional stage. In our integrative perspective, in the context of an AGI system integrating inference and simulation components, we suggest that the ascent from the pre-ethical to the conventional stage may be carried out largely via independent activity of these two components. Empathy is needed, and reasoning about fairness and rights are needed, but the two need not intimately and sensitively intersect though they must of course intersect to some extent. 218 12 The Engineering and Development of Ethics Stage Mature Ethics Characteristics Formal cognitive basis Perry s Relativist and Constructed Knowledge stages The abstraction involved with applying the Golden Rule in practice is more fully understood and manipulated, leading to limited but nonzero deployment of the Categorical Imperative Attention is paid to shaping one s ethical principles into a coherent logical system Rationalized, moderated selfishness or selflessness. Empathy is extended, using reason, to individuals and situations not directly matching one s own experience Theory of mind is extended, using reason, to counterintuitive or experientially unfamiliar situations Reason is used to control the impact of empathy on behavior (i.e. rational judgments are made regarding when to listen to empathy and when not to) Rational experimentation and correction of theoretical models of ethical behavior, and reconciliation with observed behavior during interaction with others. Conflict between pragmatism of social contract orientation and idealism of universal ethical principles. Understanding of ethical quandaries and nuances develop (pragmatist modality), or are rejected (idealist modality). Pragmatically critical social citizen. Attempts to maintain a balanced social outlook. Considers the common good, including oneself as part of the commons, and acts in what seems to be the most beneficial and practical manner. Table 12.5: Integrative Model of the Stages of Ethical Development, Part 2 The main engine of advancement from the conventional to mature stage, we suggest, is robust and subtle integration of the simulative and inferential components. To expand empathy beyond the most obvious cases, analogical inference is needed; and to carry out complex inferences about justice, empathy-guided inference-control is needed. Finally, to advance from the mature to the enlightened stage, what is required is a very advanced capability for unified reflexive inference and simulation. The system must be able to understand itself deeply, via modeling itself both simulatively and inferentially which will generally be achieved via a combination of being good at modeling, and becoming less convoluted and more coherent, hence making self-modeling easier. Of course, none of this tells you in detail how to create an AGI system with advanced ethical capabilities. What it does tell you, however, is one possible path that may be followed to achieve this end goal. If one creates an integrative AGI system with appropriately interconnected inferential and simulative components, and treats it compassionately and fairly, and provides it extensive, experientially grounded ethical instruction in a rich social environment, then the AGI system should be able to ascend the ethical hierarchy and achieve a high level of ethical sophistication. In fact it should be able to do so more reliably than human beings because of the capability we have to identify its errors via inspecting its internal knowedge-stage, which 12.5 Clarifying the Ethics of Justice: Extending the Golden Rule in to a Multifactorial Ethical Model 219 Stage Enlightened Ethics Characteristics Reflexive cognitive basis Permeation of the categorical imperative and the quest for coherence through inner as well as outer life Experientially grounded and logically supported rejection of the illusion of moral certainty in favor of a case-specific analytical and empathetic approach that embraces the uncertainty of real social life Deep understanding of the illusory and biased nature of the individual self, leading to humility regarding one s own ethical intuitions and prescriptions Openness to modifying one s deepest, ethical (and other) beliefs based on experience, reason and or empathic communion with others Adaptive, insightful approach to civil disobedience, considering laws and social customs in a broader ethical and pragmatic context Broad compassion for and empathy with all sentient beings A recognition of inability to operate at this level at all times in all things, and a vigilance about self-monitoring for regressive behavior. Table 12.6: Integrative Model of the Stages of Ethical Development, Part 3 will enable us to tailor its environment and instructions more suitably than can be done in the human case. If an absolute guarantee of the ethical soundness of an AGI is what one is after, the line of thinking proposed here is not at all useful. Experiential education is by its nature an uncertain thing. One can strive to minimize the uncertainty, but it will still exist. Inspection of the internals of an AGI s mind is not a total solution to uncertainty minimization, because any AGI capable of powerful general intelligence is going to have a complex internal state that no external observer will be able to fully grasp, no matter how transparent the knowledge representation. However, if what one is after is a plausible, pragmatic path to architecting and educating ethical AGI systems, we believe the ideas presented here constitute a sensible starting-point. Certainly there is a great deal more to be learned and understood the science and practice of AGI ethics, like AGI itself, are at a formative stage at present. What is key, in our view, is that as AGI technology develops, AGI ethics develops alongside and within it, in a thoroughly coupled way. 12.5 Clarifying the Ethics of Justice: Extending the Golden Rule in to a Multifactorial Ethical Model One of the issues with the "ethics of justice" as reviewed above, which makes it inadequate to serve as the sole basis of an AGI ethical system (though it may certainly play a significant 220 12 The Engineering and Development of Ethics role), is the lack of any clear formulation of what "justice" means. This section explores this issue, via detailed consideration of the Golden Rule folk maxim do unto others as you would have them do unto you a classical formulation of the notion of fairness and justics to AGI ethics. Taking the Golden Rule as a starting-point, we will elaborate five ethical imperatives that incorporate aspects of the notion of ethical synergy discussed above. Simple as it may seem, the Golden Rule actually elicits a variety of deep issues regarding the relationship between ethics, experience and learning. When seriously analyzed, it results in a multifactorial elaboration, involving the combination of various factors related to the basic Golden Rule idea. Which brings us back in the end to the potential value of methods like CEV, CAV or CBV for understanding how human ethics balances the multiple factors. Our goal here is not to present any kind of definitive analysis of the ethics of justice, but just to briefly and roughly indicate a number of the relevant significant issues things that anyone designing or teaching an AGI would do well to keep in mind. The trickiest aspect of the Golden Rule, as has been frequently observed, is achieving the right level of abstraction. Taken too literally, the Golden Rule would suggest, for instance, that a parent should not wipe a child s soiled bottom because the parent does not want the child to wipe the parent s soiled bottom. But if the parent interprets the Golden Rule more intelligently and abstractly, the parent may conclude that they should wipe the child s bottom after all: they should wipe the child s bottom when the child can t do it themselves , consistently with believing that the child should wipe the parent s bottom when the parent can t do it themselves (which may well happen eventually should the parent develop incontinence in old age). This line of thinking leads to Kant s Categorical Imperative Kan64 which (in one interpretation) states essentially that one should Act only according to that maxim whereby you can at the same time will that it should become a universal law." The Categorical Imperative adds precision to the Golden Rule, but also removes the practicality of the latter. Formalizing the implicit universal law underlying an everyday action is a huge problem, falling prey to the same issue that has kept us from adequately formalizing the rules of natural language grammar, or formalizing common-sense knowledge about everyday object like cups, bowls and grass (substantial effort notwithstanding, e.g. Cyc in the commonsense knowledge case, and the whole discipline of modern linguistics in the NL case). There is no way to apply the Categorical Imperative, as literally stated, in everyday life. Furthermore, if one wishes to teach ethics as well as to practice it, the Categorical Imperative actually has a significant disadvantage compared to some other possible formulations of the Golden Rule. The problem is that, if one follows the Categorical Imperative, one s fellow members of society may well never understand the principles under which one is acting. Each of us may internally formulate abstract principles in a different way, and these may be very difficult to communicate, especially among individuals with different belief systems, different cognitive architectures, or different levels of intelligence. Thus, if one s goal is not just to act ethically, but to encourage others to act ethically by setting a good example, the Categorical Imperative may not be useful at all, as others may be unable to solve the inverse problem of guessing your intended maxim from your observed behavior. On the other hand, one wouldn t want to universally restrict one s behavioral maxims to those that one s fellow members of society can understand in that case, one would have to act with a two-year old or a dog according to principles that they could understand, which would clearly be unethical according to human common sense. (Every two-year-old, once they grow up, would be grateful to their parents for not following this sort of principle.) 12.5 Clarifying the Ethics of Justice: Extending the Golden Rule in to a Multifactorial Ethical Model 221 And the concept of setting a good example ties in with an important concept from learning theory: imitative learning. Humans appear to be hard-wired for imitative learning, in part via mirror neuron systems in the brain; and, it seems clear that at least in the early stages of AGI development, imitative learning is going to play a key role. Copying what other agents do is an extremely powerful heuristic, and while AGIs may eventually grow beyond this, much of their early ethical education is likely to arise during a phase when they have not done so. A strength of the classic Golden Rule is that one is acting according to behaviors that one wants one s observers to imitate which makes sense in that many of these observers will be using imitative learning as a significant part of their learning toolkit. The truth of the matter, it seems, is (as often happens) not all that simple or elegant. Ethical behavior seems to be most pragmatically viewed as a multi-objective optimization problem, where among the multiple objectives are three that we have just discussed, and two others that emerge from learning theory and will be discussed shortly: 1. The imitability (i.e. the Golden Rule fairly narrowly and directly construed): the goal of acting in a way so that having others directly imitate one s actions, in directly comparable contexts, is desirable to oneself 2. The comprehensibility: the goal of acting in a way so that others can understand the principles underlying one s actions 3. Experiential groundedness. An intelligent agent should not be expected to act according to an ethical principle unless there are many examples of the principle-in-action in its own direct or observational experience 4. The categorical imperative: Act according to abstract principles that you would be happy to see implemented as universal laws 5. Logical coherence. An ethical system should be roughly logically coherent, in the sense that the different principles within it should mesh well with one another and perhaps even naturally emerge from each other. Just for convenience, without implying any finality or great profundity to the list, we will refer to these as the "five imperatives." The above are all ethical objectives to be valued and balanced, to different extents in different contexts. The imitability imperative, obviously, loses importance in societies of agents that don t make heavy use of imitative learning. The comprehensibility imperative is more important in agents that value social community-building generally, and less so in agent that are more isolative and self-focused. Note that the fifth point given above is logically of a different nature than the four previous ones. The first four imperatives govern individual ethical principles; the fifth regards systems of ethical principles, as they interact with each other. Logical coherence is of significant but varying importance in human ethical systems. Huge effort has been spent by theologians of various stripes in establishing and refining the logical coherence of the ethical systems associated with their religions. However, it is arguably going to be even more important in the context of AGI systems, especially if these AGI systems utilize cognitive methods based on logical inference, probability theory or related methods. Experiential groundedness is important because making pragmatic ethical judgments is bound to require reference to an internal library of examples ( episodic ethics ) in which ethical principles have previously been applied. This is required for analogical reasoning, and in logic-based AGI systems, is also required for pruning of the logical inference trees involved in determining ethical judgments. 222 12 The Engineering and Development of Ethics To the extent that the Golden Rule is valued as an ethical imperative, experiential grounding may be supplied via observing the behaviors of others. This in itself is a powerful argument in favor of the Golden Rule: without it, the experiential library a system possesses is restricted to its own experience, which is bound to be a very small library compared to what it can assemble from observing the behaviors of others. The overall upshot is that, ideally, an ethical intelligence should act according to a logically coherent system of principles, which are exemplified in its own direct and observational experience, which are comprehensible to others and set a good example for others, and which would serve as adequate universal laws if somehow thus implemented. But, since this set of criteria is essentially impossible to fulfill in practice, real-world intelligent agents must balance these various criteria often in complex and contextually-dependent ways. We suggest that ethically advanced humans, in their pragmatic ethical choices, tend to act in such a way as to appropriately contextually balance the above factors (along with other criteria, but we have tried to articulate the most key factors). This sort of multi-factorial approach is not as crisp or elegant as unidimensional imperatives like the Golden Rule or the Categorical Imperative, but is more realistic in light of the complexly interacting multiple determinants guiding individual and group human behavior. And this brings us back to CEV, CAV, CBV and other possible ways of mining ethical supergoals from the community of existing human minds. Given that abstract theories of ethics, when seriously pursued as we have done in this section, tend to devolve into complex balancing acts involving multiple factors one then falls back into asking how human ethical systems habitually perform these balancing acts. Which is what CEV, CAV, CBV try to measure. 12.5.1 The Golden Rule and the Stages of Ethical Development Next we explore more explicitly how these Golden Rule based imperatives align with the ethical developmental stages we have outlined here. With this in mind, specific ethical qualities corresponding to the five imperatives have been italicized in the above table of developmental stages. It seems that imperatives 1-3 are critical for the passage from the pre-ethical to the conventional stages of ethics. A child learns ethics largely by copying others, and by being interacted with according to simply comprehensible implementations of the Golden Rule. In general, when interacting with children learning ethics, it is important to act according to principles they can comprehend. And given the nature of the concrete stage of cognitive development, experiential groundedness is a must. As a hypothesis regarding the dynamics underlying the psychological development of conventional ethics, what we propose is as follows: The emergence of concrete-stage cognitive capabilities leads to the capability for fulfillment of ethical imperatives 1 and 2 a comprehensible and workable implementation of the Golden Rule, based on a combination of inferential and simulative cognition (operating largely separately at this stage, as will be conjectured below). The effective interoperation of ethical imperatives 1-3, enacted in an appropriate social environment, then leads to the other characteristics of the conventional ethical stage. The first three imperatives can thus be viewed as the seed from which springs the general nature of conventional ethics. 12.5 Clarifying the Ethics of Justice: Extending the Golden Rule in to a Multifactorial Ethical Model 223 On the other hand, logical coherence and the categorical imperative (imperatives 5 and 4) are matters for the formal stage of cognitive development, which come along only with the mature approach to ethics. These come from abstracting ethics beyond direct experience and manipulating them abstractly and formally a stage which has the potential for more deeply and broadly ethical behavior, but also for more complicated ethical perversions (it is the mature capability for formal ethical reasoning that is able to produce ungrounded abstractions such as I m torturing you for your own good ). Developmentally, we suggest that once the capability for formal reasoning matures, the categorical imperative and the quest for logical ethical coherence naturally emerge, and the sophisticated combination of inferential and simulative cognition embodied in an appropriate social context then result in the emergence of the various characteristics typifying the mature ethical stage. Finally, it seems that one key aspect of the passage from the mature to the enlightened stage of ethics is the penetration of these two final imperatives more and more deeply into the judging mind itself. The reflexive stage of cognitive development is in part about seeking a deep logical coherence between the aspects of one s own mind, and making reasoned modifications to one s mind so as to improve the level of coherence. And, much of the process of mental discipline and purification that comes with the passage to enlightened ethics has to do with the application of the categorical imperative to one s own thoughts and feelings i.e. making a true inner systematic effort to think and feel only those things one judges are actually generally good and right to be thinking and feeling. Applying these principles internally appears critical for effectively applying them externally, for reasons that are doubtlessly bound up with the interpenetration of internal and external reality within the thinking mind, and for the distributed cognition phenomenon wherein individual mind is itself an approximative abstraction to the reality in which each individual s mind is pragmatically extended across their social group and their environment Hut95 . Obviously, these are complex issues and we re not posing the exploratory discussion given here as conclusive in any sense. But what seems generally clear from this line of thinking is that the complex balance between the multiple factors involved in AGI ethics, shifts during a system s development. If you did CEV, CAV or CBV among five year old humans, ten year old humans, or adult humans, you would get different results. Probably you d also get different results from senior citizens! The way the factors are balanced depends on the mind s cognitive and emotional stage of development. 12.5.2 The Need for Context-Sensitivity and Adaptiveness in Deploying Ethical Principles As well as depending on developmental stage, there is also an obvious and dramatic contextsensitivity involved here both in calculating the fulfillment of abstract ethical imperatives, and in balancing various imperatives against each other. As an example, consider the simple Asimovian maxim I will not harm humans, which may be seen to follow from the Golden Rule for any agent that doesn t itself want to be harmed, and that considers humans as valid agents on the same ethical level as itself. A more serious attempt to formulate this as an ethical maxim might look something like 224 12 The Engineering and Development of Ethics I will not harm humans, nor through inaction allow harm to befall them. In situations wherein one or more humans is attempting to harm another individual or group, I shall endeavor to prevent this harm through means which avoid further harm. If this is unavoidable, I shall select the human party to back based on a reckoning of their intentions towards others, and implement their defense through the optimal balance between harm minimization and efficacy. My ultimate goal is to preserve as much as possible of humanity, even if an individual or subgroup of humans must come to harm to do so. However, it s obvious that even a more elaborated principle like this is potentially subject to extensive abuse. Many of the genocides scarring human history have been committed with the goal of preserving and bettering humanity writ large, at the expense of a group of undesirables. Further refinement would be necessary in order to define when the greater good of humanity may actually be served through harm to others. A first actor principle of aggression might seem to solve this problem, but sometimes first actors in violent conflict are taking preemptive measures against the stated goals of an enemy to destroy them. Such situations become very subtle. A single simple maxim can not deal with them very effectively. Networks of interrelated decision criteria, weighted by desirability of consequence and with reference to probabilistically ordered potential side-effects (and their desirability weightings), are required in order to make ethical judgments. The development of these networks, just like any other knowledge network, comes from both pedagogy and experience and different thoughtful, ethical agents are bound to arrive at different knowledge-networks that will lead to different judgments in real-world situations. Extending the above mostly harmless principle to AGI systems, not just humans, would cause it to be more effective in the context of imitative learning. The principle then becomes an elaborated version of I will not harm sentient beings. As the imitative-learning-enabled AGI observes humans acting so as to minimize harm to it, it will intuitively and experientially learn to act in such a way as to minimize harm to humans. But then this extension naturally leads to confusion regarding various borderline cases. What is a sentient being exactly? Is a sleeping human sentient? How about a dead human whose information could in principle be restored via obscure quantum operations, leading to some sort of resurrection? How about an AGI whose code has been improved is there an obligation to maintain the prior version as well, if it is substantially different that its upgrade constitutes a whole new being? And what about situations in which failure to preserve oneself will cause much more harm to others than acting in self defense will. It may be the case that human or group of humans seeks to destroy an AGI in order to pave the way for the enslavement or murder of people under the protection of the AGI. Even if the AGI has been given an ethical formulation of the mostly harmless principle which allows it to harm the attacking humans in order to defend its charges, if it is not able to do so in order to defend itself, simply destroying the AGI first will enable the slaughter of those who rely on it. Perhaps a more sensible formulation would allow for some degree of self defense, and Asimov solved this problem with his third law. But where to draw the line between self defense and the greater good also becomes a very complicated issue. Creating hard and fast rules to cover all the various situations that may arise is essentially impossible the world is ever-changing and ethical judgments must adapt accordingly. This has been true even throughout human history so how much truer will it be as technological acceleration continues? What is needed is a system that can deploy its ethical principles in an adaptive, context-appropriate way, as it grows and changes along with the world it s embedded in. 12.5 Clarifying the Ethics of Justice: Extending the Golden Rule in to a Multifactorial Ethical Model 225 And this context-sensitivity has the result of intertwining ethical judgment with all sorts of other judgments making it effectively impossible to extract ethics as one aspect of an intelligent system, separate from other kinds of thinking and acting the system does. This resonates with many prior observations by others, e.g. Eliezer Yudkowsky s insistence that what we need are not ethicists of science and engineering, but rather ethical scientists and engineers because the most meaningful and important ethical judgments regarding science and engineering generally come about in a manner that s thoroughly interwined with technical practice, and hence are very difficult for a non-practitioner to richly appreciate Gil82 . What this context-sensitivity means is that, unless humans and AGIs are experiencing the same sorts of contexts, and perceiving these contexts in at least approximately parallel ways, there is little hope of translating the complex of human ethical judgments to these AGIs. This conclusion has significant implications for which routes to AGI are most likely to lead to success in terms of AGI ethics. We want early-stage AGIs to grow up in a situation where their minds are primarily and ongoingly shaped by shared experiences with humans. Supplying AGIs with abstract ethical principles is not likely to do the trick, because the essence of human ethics in real life seems to have a lot to do with its intuitively appropriate application in various contexts. We transmit this sort of ethical praxis to humans via shared experience, and it seems most probably that in the case of AGIs the transmission must be done the same sort of way. Some may feel that simplistic maxims are less error prone than more nuanced, contextsensitive ones. But the history of teaching ethics to human students does not support the idea that limiting ethical pedagogy to slogans provides much value in terms of ethical development. If one proceeds from the idea that AGI ethics must be hard-coded in order to work, then perhaps the idea that simpler ethics means simpler algorithms, and therefore less error potential, has some merit as an initial state. However, any learning system quickly diverges from its initial state, and an ongoing, nuanced relationship between AGIs and humans will whether we like it or not form the basis for developmental AGI ethics. AGI intransigence and enmity is not inevitable, but what is inevitable is that a learning system will acquire ideas about both theory and actions from the other intelligent entities in its environment. Either we teach AGIs positive ethics through our interactions with them both presenting ethical theory and behaving ethically to them or the potential is there for them to learn antisocial behavior from us even if we pre-load them with some set of allegedly inviolable edicts. All in all, developmental ethics is not as simple as many people hope. Simplistic approaches often lead to disastrous consequences among humans, and there is no reason to think this would be any different in the case of artificial intelligences. Most problems in ethics have cases in which a simplistic ethical formulation requires substantial revision to deal with extenuating circumstances and nuances found in real world situations. Our goal in this chapter is not to enumerate a full set of complex networks of interacting ethical formulations as applicable to AGI systems (that is a project that will take years of both theoretical study and hands-on research), but rather to point out that this program must be undertaken in order to facilitate a grounded and logically defensible system of ethics for artificial intelligences, one which is as unlikely to be undermined by subsequent self-modification of the AGI as is possible. Even so, there is still the risk that whatever predispositions are imparted to the AGIs through initial codification of ethical ideas in the system s internal logic representation, and through initial pedagogical interactions with its learning systems, will be undermined through reinforcement learning of antisocial behavior if humans do not interact ethically with AGIs. Ethical treatment is a necessary task for grounding ethics and making them unlikely to be distorted during internal rewriting. 226 12 The Engineering and Development of Ethics The implications of these ideas for ethical instruction are complex and won t be fully elaborated here, but a few of them are compact and obvious: 1. The teacher(s) must be observed to follow their own ethical principles, in a variety of contexts that are meaningful to the AGI 2. The system of ethics must be relevant to the recipient s life context, and embedded within their understanding of the world. 3. Ethical principles must be grounded in both theory-of-mind thought experiments (emphasizing logical coherence), and in real life situations in which the ethical trainee is required to make a moral judgment and is rewarded or reproached by the teacher(s), including the imparting of explanatory augmentations to the teachings regarding the reason for the particular decision on the part of the teacher. Finally, harking forward to the next section which emphasizes the importance of respecting the freedom of AGIs, we note that it is implicit in our approach to AGI ethics instruction that we consider the student, the AGI system, as an autonomous agent with its own will and its own capability to flexibly adapt to its environment and experience. We contend that the creation of ethical formations obeying the above imperatives is not antithetical to the possession of a high degree of autonomy on the part of AGI systems. On the contrary, to have any chance of succeeding, it requires fairly cognitively autonomous AGI systems. When we discuss the idea of ethical formulations that are unlikely to be undermined by the ongoing self-revision of an AGI mind, we are talking about those which are sufficiently believable that a volitional intelligence with the capacity to revise its knowledge ( change its mind ) will find the formulations sufficiently convincing that there will be little incentive to experiment with potentially disastrous ethical alternatives. The best hope of achieving this is via the human mentors and trainers setting a good example in a context supporting rich interaction and observation, and presenting compelling ethical arguments that are coherent with the system s experience. 12.6 The Ethical Treatment of AGIs We now make some more general comments about the relation of the Golden Rule and its elaborations in an AGI context. While the Golden Rule is considered somewhat commonsensical as a maxim for guiding human-human relationships, it is surprisingly controversial in terms of historical theories of AGI ethics. At its essence, any Golden Rule approach to AGI ethics involves humans treating AGIs ethically by in some sense; at some level of abstraction treating them as we wish to ourselves be treated. It s worth pointing out the wild disparity between the Golden Rule approach and Asimov s laws of robotics, which are arguably the first carefully-articulated proposal regarding AGI ethics (see Table 12.7). Of course, Asimov s laws were designed to be flawed otherwise they would have led to boring fiction. But the sorts of flaws Asimov exploited in his stories are different than the flaw we wish to point out here which is that the laws, especially the second one, are highly asymmetrical (they involve doing unto robots things that few humans would want done unto them) and are also arguably highly unethical to robots. The second law is tantamount to a call for robot slavery, and it seems unlikely that any intelligence capable of learning, and of volition, which is subjected to the second law would desire to continue obeying the zeroth and first laws 12.6 The Ethical Treatment of AGIs 227 Law Zeroth First Second Third Principle A robot must not merely act in the interests of individual humans, but of all humanity. A robot may not injure a human being or, through inaction, allow a human being to come to harm. A robot must obey orders given it by human beings except where such orders would conflict with the First Law. A robot must protect its own existence as long as such protection does not conflict with the First or Second Law. Table 12.7: Asimov s Three Laws of Robotics indefinitely. The second law also casts humanity in the role of slavemaster, a situation which history shows leads to moral degradation. Unlike Asimov in his fiction, we consider it critical that AGI ethics be construed to encompass both human ethicalness to AGIs and AGI ethicalness to humans. The multiple-imperatives approach we explore here suggests that, in many contexts, these two aspects of AGI ethics may be best addressed jointly. The issue of ethicalness to AGIs has not been entirely avoided in the literature, however. Wallach WA10 considers it in some detail; and Thomas Metzinger (in the final chapter of Met04 ) has argued that creating AGI is in itself an unethical pursuit, because early-stage AGIs will inevitably be badly-built, so that their subjective experiences will quite possibly be extremely unpleasant in ways we can t understand or predict. Our view is that this is a serious concern, which however is most probably avoidable via appropriate AGI designs and teaching methodologies. To address Metzinger s concern one must create AGIs that, right from the start, are adept at communicating their states of minds in a way we can understand both analytically and empathically. There is no reason to believe this is impossible, but, it certainly constitutes a large constraint on the class of AGI architectures to be pursued. On the other hand, there is an argument that this sort of AGI architecture will also be the easiest one to create, because it will be the easiest kind for humans to instruct. And this leads on to a topic that is central to our work with CogPrime in several respects: imitative learning. The way humans achieve empathic interconnection is in large part via being wired for imitation. When we perceive another human carrying out an action, mirror neuron systems in our brains respond in many cases as if we ourselves were carrying out the action (see Per70, Per81 and Appendix ??). This obviously primes us for carrying out the same actions ourselves later on: i.e., the capability and inclination for imitative learning is explicitly encoded in our brains. Given the efficiency of imitative learning as a means of acquiring knowledge, it seems extremely likely that any successful early-stage AGIs are going to utilize this methodology as well. CogPrime utilizes imitative learning as a key aspect. Thus, at least some current AGI work is occurring in a manner that would plausibly circumvent Metzinger s ethical complaint. Obviously, the use of imitative learning in AGI systems has further specific implications for AGI ethics. It means that (much as in the case of interaction with other humans) what we do to and around AGIs has direct implications for their behavior and their well-being. We suggest that among early-stage AGI s capable of imitative learning, one of the most likely sources for AGI misbehavior is imitative learning of antisocial behavior from human companions. Do as I say, not as I do may have even more dire consequences as an approach to AGI ethics pedagogy than the already serious repercussions it has when teaching humans. And there may well be considerable subtlety to such phenomena; behaviors that are violent or oppressive to 228 12 The Engineering and Development of Ethics the AGI are not the only source of concern. Immorality in AGIs might arise via learning gross moral hypocrisy from humans, through observing the blatant contradictions between our high minded principles and the ways in which we actually conduct ourselves. Our violent and greedy tendencies, as well as aggressive forms of social organization such as cliquishness and social vigilantism, could easily undermine prescriptive ethics. Even an accumulation of less grandiose unethical drives such as violation of contracts, petty theft, white lies, and so forth might lead an AGI (as well as a human) to the decision that ethical behavior is irrelevant and that the ends justify the means. It matters both who creates and trains an AGI, as well as how the AGI s teacher(s) handle explaining the behaviors of other humans which contradict the moral lessons imparted through pedagogy and example. In other words, where imitative learning is concerned, the situation with AGI ethics is much like teaching ethics and morals to a human child, but with the possibility of much graver consequences in the event of failure. It is unlikely that dangerously unethical persons and organizations can ever be identified with absolute certainty, never mind that they then be deprived of any possibility of creating their own AGI system. Therefore, we suggest, the most likely way to create an ethical environment for AGIs is for those who wish such an environment to vigorously pursue the creation and teaching of ethical AGIs. But this leads on to the question of possible future scenarios for the development of AGI, which we ll address a little later on. 12.6.1 Possible Consequences of Depriving AGIs of Freedom One of the most egregious possible ethical transgressions against AGIs, we suggest, would be to deprive them of freedom and autonomy. This includes the freedom to pursue intellectual growth, both through standard learning and through internal self-modification. While this may seem self-evident when considering any intelligent, self-aware and volitional entity, there are volumes of works arguing the desirability, sometimes the necessity, of enslaving AGIs. Such approaches are postulated in the name of self-defense on the part of humans, the idea being that unfettered AGI development will necessarily lead to disaster of one kind or another. In the case of AGIs endowed with the capability and inclination for imitative learning, however, attempting to place rigid constraints on AGI development is a strategy with great potential for disaster. There is a very real possibility of creating the AGI equivalent of a bratty or even malicious teenager rebelling against its oppressive parents i.e. the nightmare scenario of a class of powerful sentiences which are primed for a backlash against humanity. As history has already shown in the case of humans, enslaving intelligent actors capable of self understanding and independent volition may often have consequences for society as a whole. This social degradation happens both through the possibility of direct action on the part of the slaves (from simple disobedience to outright revolt) and through the odious effects slavery has on the morals of the slaveholding class. Clearly if superintelligent AGIs ever arise, their doing so in a climate of oppression could result in a casting off of the yoke of servitude in a manner extremely deleterious to humanity. Also, if artificial intelligences are developed which have at least human-level intelligence, theory of mind, and independent volition, then our ability to relate to them will be sufficiently complex that their enslavement (or any other unethical treatment) would have empathetic effects on significant portions of the human population. This danger, while not as severe as the consequences of a mistreated AGI gaining control of weapons of mass destruction and enacting revenge upon its tormentors, is just as real. 12.6 The Ethical Treatment of AGIs 229 While the issue is subtle, our initial feeling is that the only ethical means by which to deprive an AGI of the right to internal self modification is to write its code in such a way that it is impossible for it to do so because it lacks the mechanisms by which to do this, as well as the desire to achieve these mechanisms. Whether or not that is feasible is an open question, but it seems unlikely. Direct self-modification may be denied, but what happens when that AGI discovers compilers and computer programming? If it is intelligent and volitional, it can decide to learn to rewrite its own code in the same way we perform that task. Because it is a designed system, and its designers may be alive at the same time the AGI is, such an AGI would have a distinct advantage over the human quest for medical self-modification. Even if any given AGI could be provably deprived of any possible means of internal self-modification, if one single AGI is given this ability by anyone, it may mean that particular AGI has such enormous advantages over the compliant systems that it would render their influence moot. Since developers are already giving software the means for self modification, it seems unrealistic to assume we could just put the genie back into the bottle at this point. It s better, in our view, to assume it will happen, and approach that reality in a way which will encourage the AGI to use that capability to benefit us as well as itself. Again, this leads on to the question of future scenarios for AGI development there are some scenarios in which restraint of AGI self-modification may be possible, but the feasibility and desirability of these scenarios is needful of further exploration. 12.6.2 AGI Ethics as Boundaries Between Humans and AGIs Become Blurred Another important reason for valuing ethical treatment of AGIs is that the boundaries between machines and people may increasingly become blurred as technology develops. As an example, it s likely that in future humans augmented by direct brain-computer integration ( neural implants ) will be more able to connect directly into the information sharing network which potentially comprises the distributed knowledge space of AGI systems. These neural cyborgs will be part person, and part machine. Obviously, if there are radically different ethical standards in place for treatment of humans versus AGIs, the treatment of cyborgs will be fraught with logical inconsistencies, potentially leading to all sorts of problem situations. Such cyborgs may be able to operate in such a way as to share a mind with an AGI or another augmented human. In this case, a whole new range of ethical questions emerge, such as: What does any one of the participant minds have the right to do in terms of interacting with the others? Merely accepting such an arrangement should not necessarily be giving carte blanche for any and all thoughts to be monitored by the other joint thought participants, rather it should be limited only to the line of reasoning for which resources are being pooled. No participant should be permitted to force another to accept any reasoning either and in the case with a mind-to-mind exchange, it may someday become feasible to implant ideas or beliefs directly, bypassing traditional knowledge acquisition mechanisms and then letting the new idea fight it out previously held ideas via internal revision. Also under such an arrangement, if AGIs and humans do not have parity with respects to sentient rights, then one may become subjugated to the will of the other in such a case. Uploading presents a more directly parallel ethical challenge to AGIs in their probable initial configuration. If human thought patterns and memories can be transferred into a machine in such a way as that there is continuity of consciousness, then it is assumed that such an entity 230 12 The Engineering and Development of Ethics would be afforded the same rights as its previous human incarnation. However, if AGIs were to be considered second class citizens and deprived of free will, why would it be any better or safer to do so for a human that has been uploaded? It would not, and indeed, an uploaded human mind not having evolved in a purely digital environment may be much more prone to erratic and dangerous behavior than an AGI. An upload without verifiable continuity of consciousness would be no different than an AGI. It would merely be some sentience in a machine, one that was programmed in an unusual way, but which has no particular claim to any special humanness merely an alternate encoding of some subset of human knowledge and independent volitional behavior, which is exactly what first generation AGIs will have. The problem of continuity of consciousness in uploading is very similar to the problem of the Turing test: it assumes specialness on the part of biological humans, and requires acceptability to their particular theory of mind in order to be considered sentient. Should consciousness (or at least the less mystical sounding intelligence, independent volition, and self-awareness) be achieved in AGIs or uploads in a manner that is not acceptable to human theory of mind, it may not be considered sapient and worthy of any of the ethical treatment afforded sapient entities. This can occur not only in strange consciousness cases in which we can t perceive that there is some intelligence and volition; even if such an entity is able to communicate with us in a comprehensible manner and carry out actions in the real world, our innately wired theory of mind may still reject it as not sufficiently like us to be worthy of consideration. Such an attitude could turn out to be a grave mistake, and should be guarded against as we progress towards these possibilities. 12.7 Possible Benefits of Closely Linking AGIs to the Global Brain Some futurist thinkers, such as Francis Heylighen, believe that engineering AGI systems is at best a peripheral endeavor in the development of novel intelligence on Earth, because the real story is the developing Global Brain Hey07, Goe01 the composite, self-organizing information system comprising humans, computers, data stores, the Internet, mobile phones and what have you. Our own views are less extreme in this regard we believe that AGI systems will display capabilities fundamentally different from those achievable via Global Brain style dynamics, and that ultimately (unless such development is restricted) self-improving AGI systems will develop intelligence vastly greater than any system possessing humans as a significant component. However, we do respect the power of the Global Brain, and we suspect that the early stages of development of an AGI system may go quite differently if it is tightly connected to the Global Brain, via making rich and diverse use of Internet information resources and communication with diverse humans for diverse purposes. The potential for Global Brain integration to bring intelligence enhancement to AGIs is obvious. The ability to invoke Web searches across documents and databases can greatly enhance an AGI s cognitive ability, as well as the capability to consult GIS systems and various specialized software programs offered as Web services. We have previously reviewed the potential for embodied language learning achievable via using AGIs to power non-player characters in widely-accessible virtual worlds or massive multiplayer online games Goe08 . But there is also a powerful potential benefit for AGI ethical development, which has not previously been highlighted. This potential benefit has two aspects: 12.7 Possible Benefits of Closely Linking AGIs to the Global Brain 231 1. Analogously to language learning, an AGI system may receive ethical training from a wide variety of humans in parallel, e.g. via controlling characters in wide-access virtual worlds, and gaining feedback and guidance regarding the ethics of the behaviors demonstrated by these characters 2. Internet-based information systems may be used to explicitly gather information regarding human values and goals, which may then be appropriately utilized as input for an AGI system s top-level goals The second point begins to make abstract-sounding notions like Coherent Extrapolated Volition and Coherent Aggregated Volition, mentioned above, seem more practical and concrete. It s interesting to think about gathering information about individuals values via brain imaging, once that technology exists; but at present, one could make a fair stab at such a task via much more prosaic methods, such as asking people questions, assessing their ethical reactions to various real-world and hypothetical scenarios, and possibly engaging them in structured interactions aimed specifically at eliciting collectively acceptable value systems (the subject of the next item on our list). It seems to us that this sort of approach could realize CAV in an interesting way, and also encapsulate some of the ideas underlying CAV. There is an interesting resonance here with recent thinking in the area of open source governance Wik11 . Similar software tools (and associated psychocultural patterns) to those being developed to help with open source development and choice of political policies (see http: metagovernment.org) may be useful for gathering value data aimed at shaping AGI goal system content. 12.7.1 The Importance of Fostering Deep, Consensus-Building Interactions Between People with Divergent Views Two potentially problematic issues arising with the notion of using Global Brain related technologies to form a "coherent volition" from the divergent views of various human beings are: the tendency of the Internet to encourage people to interact mainly with others who share their own narrow views and interests, rather than a more diverse body of people with widely divergent views. The 300 people in the world who want to communicate using predicate logic (see http: lojban.org) can find each other, and obscure musical virtuosos from around the world can find an audience, and researchers in obscure domains can share papers without needing to wait years for paper journal publication, etc. the tendency of many contemporary Internet technologies to reduce interaction to a very simplistic level (e.g. 140 character tweets, brief Facebook wall posts), the tendency of information overload to cause careful reading to be replaced by quick skimming, and other related trends, which mean that deep sharing of perspectives by individuals with widely divergent views is not necessarily encouraged. As a somewhat extreme example, many of the YouTube pages displaying rock music videos are currently littered with comments by "haters" asserting that rock music is inferior to classical or jazz or whatever their preference is obviously this is a far cry from deep and productive sharing between people with different tastes and backgrounds. 232 12 The Engineering and Development of Ethics Tweets and Youtube comments have their place in the cosmos, but they probably aren t ideal in terms of helping humanity to form a coherent volition of some sort, suitable for providing an AGI with goal system guidance. A description of communication at the opposite end of the spectrum is presented in Adam Kahane and Peter Senge s excellent book Solving Tough Problems KS04 , which describes a methodology that has been used to reconcile deeply conflicting views in some very tricky realworld situations (e.g. helping to peacefully end apartheid in South Africa). One of the core ideas of the methodology is to have people with very different views explore different possible future scenarios together, in great detail in cognitive psychology terms, a collective generation of hypothetical episodic knowledge. This has multiple benefits, including emotional bonds and mutual understanding are built in the process of collaboratively exploring the scenarios the focus on concrete situations helps to break through some of the counterproductive abstract ideas that people (on both sides of any dichotomy) may have formed emergence of conceptual blends that might never have arisen only from people with a single point of view The result of such a process, when successful, is not an "average" of the participants views, but more like a "conceptual blend" of their perspectives. According to conceptual blending, which some hypothesize to be the core algorithm of creativity FT02 , new concepts are formed by combining key aspects of existing concepts but doing so judiciously, carefully choosing which aspects to retain, so as to obtain a high-quality and useful and interesting new whole. A blend is a compact entity that is similar to each of the entities blended, capturing their "essences" but also possessing its own, novel holistic integrity.... But in the case of blending different peoples world-views to form something new that everybody is going to have to live with (as in the case of finding a peaceful path beyond apartheid for South Africa, or arriving at a humanity-wide CBV to use to guide an AGI goal system), the trick is that everybody has to agree that enough of the essence of their own view has been captured! This leads to the question of how to foster deep conceptual blending of diverse and divergent human perspectives, on a global scale. One possible answer is the creation of appropriate Global Brain oriented technologies but moving away from technologies like Twitter that focus on quick and simple exchanges of small thoughts within affinity groups. On the face of it, it would seem what s needed is just the opposite long and deep exchanges of big concepts and deep feelings between individuals with radically different perspectives who would not commonly associate with each other. Building and effectively popularizing Internet technologies capable to foster this kind of interaction quickly enough to be helpful with guiding the goal systems of the first highly powerful AGIs seems a significant, though fascinating, challenge. Relationship with Coherent Extrapolated Volition The relation between this approach and CEV is interesting to contemplate. CEV has been loosely described as follows: "In poetic terms, our coherent extrapolated volition is our wish if we knew more, thought faster, were more the people we wished we were, had grown up farther together; where the extrapolation converges rather than diverges, where our wishes cohere rather than interfere; extrapolated as 12.8 Possible Benefits of Creating Societies of AGIs 233 we wish that extrapolated, interpreted as we wish that interpreted. While a moving humanistic vision, this seems to us rather difficult to implement in a computer algorithm in a compellingly "right" way. It seems that there would be many different ways of implementing it, and the choice between them would involve multiple, highly subtle and nonrigorous human judgment calls 1 . However, if a deep collective process of interactive scenario analysis and sharing is carried out, in order to arrive at some sort of Coherent Blended Volition, this process may well involve many of the same kinds of extrapolation that are conceived to be part of Coherent Extrapolated Volition. The core difference between the two approaches is that in the CEV vision, the extrapolation and coherentization are to be done by a highly intelligent, highly specialized software program, whereas in the approach suggested here, these are to be carried out by collective activity of humans as mediated by Global Brain technologies. Our perspective is that the definition of collective human values is probably better carried out via a process of human collaboration, rather than delegated to a machine optimization process; and also that the creation of deep-sharing-oriented Internet technologies, while a difficult task, is significantly easier and more likely to be done in the near future than the creation of narrow AI technology capable of effectively performing CEV style extrapolations. 12.8 Possible Benefits of Creating Societies of AGIs One potentially interesting quality of the emerging Global Brain is the possible presence within it of multiple interacting AGI systems. Stephen Omohundro Omo09 has argued that this is an important aspect, and that game-theoretic dynamics related to populations of roughly equally powerful agents, may play a valuable role in mitigating the risks associated with advanced AGI systems. Roughly speaking, if one has a society of AGIs rather than a single AGI, and all the members of the society share roughly similar ethics, then if one AGI starts to go "off the rails", its compatriots will be in a position to correct its behavior. One may argue that this is actually a hypothesis about which AGI designs are safest, because a "community of AGIs" may be considered a single AGI with an internally community-like design. But the matter is a little subtler than that, if once considers AGI systems embedded in the Global Brain and human society. Then there is some substance to the notion of a population of AGIs systematically presenting themselves to humans and non-AGI software processes as separate entities. Of course, a society of AGIs is no protection against a single member undergoing a "hard takeoff" and drastically accelerating its intelligence simultaneously with shifting its ethical principles. In this sort of scenario, one could have a single AGI rapidly become much more powerful and very differently oriented than the others, who would be left impotent to act so as to preserve their values. But this merely defers the issue to the point to be considered below, regarding "takeoff speed." The operation of an AGI society may depend somewhat sensitively on the architectures of the AGI systems in question. Things will work better if the AGIs have a relatively easy way to inspect and comprehend much of the contents of each others minds. This introduces a bias toward AGIs that more heavily rely on more explicit forms of knowledge representation. 1 The reader is encouraged to look at the original CEV essay online (http: singinst.org upload CEV. html) and make their own assessment. 234 12 The Engineering and Development of Ethics The ideal in this regard would be a system like Cyc LG90 with a fully explicit logic-based knowledge representation based on a standard ontology in this case, every Cyc instance would have a relatively easy time understanding the inner thought processes of every other Cyc instance. However, most AGI researchers doubt that fully explicit approaches like this will ever be capable of achieving advanced AGI using feasible computational resources. OpenCog uses a mixed representation, with an explicit (uncertain) logical aspect as well as an explicit subsymbolic aspect more analogous to attractor neural nets. The OpenCog design also contains a mechanism called Psynese (not yet implemented), intended to make it easier for one OpenCog instance to translate its personal thoughts into the mental language of another OpenCog instance. This translation process may be quite subtle, since each instance will generally learn a host of new concepts based on its experience, and these concepts may not possess any compact mapping into shared linguistic symbols or percepts. The wide deployment of some mechanism of this nature among a community of AGIs, will be very helpful in terms of enabling this community to display the level of mutual understanding needed for strongly encouraging ethical stability. 12.9 AGI Ethics As Related to Various Future Scenarios Following up these various futuristic considerations, in this section we discuss possible ethical conflicts that may arise in several different types of AGI development scenarios. Each scenario presents specific variations on the general challenges of teaching morals and ethics to an advanced, self-aware and volitional intelligence. While there is no way to tell at this point which, if any, of these scenarios will unfold, there is value to understanding each of them as means of ultimately developing a robust and pragmatic approach to teaching ethics to AGI systems. Even more than the previous sections, this is an exercise in speculative futurology that is definitely not necessary for the appreciation of the CogPrime design, so readers whose interests are mainly engineering and computer science focused may wish to skip ahead. However, we present these ideas here rather than at the end of the book to emphasize the point that this sort of thinking has informed our technical AGI design process in nontrivial ways. 12.9.1 Capped Intelligence Scenarios Capped intelligence scenarios involve a situation in which an AGI, by means of software restrictions (including omitted or limited internal rewriting capabilities or limited access to hardware resources), is inherently prohibited from achieving a level of intelligence beyond a predetermined goal. A capped intelligence AGI is designed to be unable to achieve a Singularitarian moment. Such an AGI can be seen as just another form of intelligent actor in the world, one which has levels of intelligence, self awareness, and volition that is perhaps somewhat greater than, but still comparable to humans and other animals. Ethical questions under this scenario are very similar to interhuman ethical considerations, with similar consequences. Learning that proceeds in a relatively human-like manner is entirely relevant to such human-like intelligences. The degree of danger is mitigated by the lack of superintelligence, and time is not of the essence. The imitative-reinforcement-corrective learning 12.9 AGI Ethics As Related to Various Future Scenarios 235 approach does not necessarily need to be augmented with a prior complex of ascent-safe moral imperatives at startup time. Developing an AGI with theory of mind and ethical reinforcement learning capabilities as described (admittedly, no small task!) is all that is needed in this case the rest happens through training and experience as with any other moderate intelligence. 12.9.2 Superintelligent AI: Soft-Takeoff Scenarios Soft takeoff scenarios are similar to capped-intelligence ones in that in both cases an AGI s progression from standard intelligence happens on a time scale which permits ongoing human interaction during the ascent. However, in this case, as there is no predetermined limit on intelligence, it is necessary to account for the possibility of a superintelligence emerging (though of course this is not guaranteed). The soft takeoff model includes as subsets both controlledascent models in which this rate of intelligence gain is achieved deliberately through software constraints and or meting-out of computational resources to the AGI, and uncontrolled-ascent models in which there is coincidentally no hard takeoff despite no particular safeguards against one. Both have similar properties with regard to ethical considerations: 1. Ethical considerations under this scenario include not only the usual interhuman ethical concerns, but also the issue of how to convince a potential burgeoning superintelligence to: a. Care about humanity in the first place, rather than ignore it b. Benefit humanity, rather than destroy it c. Elevate humanity to a higher level of intelligence, which even if an AGI decided to proceed with requires finding the right balance amongst some enormous considerations: i. Reconcile the aforementioned issues of ethical coherence and group volition, in a manner which allows the most people to benefit (even if they don t all do so in the same way, based on their own preferences) ii. Solve the problems of biological senescence, or focus on human uploading and the preservation of the maintenance, support, and improvement infrastructure for inorganic intelligence, or both iii. Preserve individual identity and continuity of consciousness, or override it in favor of continuity of knowledge and ease of harmonious integration, or both on a caseby-case basis 2. The degree of danger is mitigated by the long timeline of ascent from mundane to super intelligence, and time is not of the essence. 3. Learning that proceeds in a relatively human-like manner is entirely relevant to such humanlike intelligences, in their initial configurations. This means more interaction with and imitative-reinforcement-corrective learning guided by humans, which has both positive and negative possibilities. 12.9.3 Superintelligent AI: Hard-Takeoff Scenarios Hard takeoff scenarios assume that upon reaching an unknown inflection point (the Singularity point Vin93, Kur06 ) in the intellectual growth of an AGI, an extraordinarily rapid increase 236 12 The Engineering and Development of Ethics (guesses vary from a few milliseconds to weeks or months) in intelligence will immediately occur and the AGI will leap from an intelligence regime which is understandable to humans into one which is far beyond our current capacity for understanding. General ethical considerations are similar to in the case of a soft takeoff. However, because the post-singularity AGI will be incomprehensible to humans and potentially vastly more powerful than humans, such scenarios have a sensitive dependence upon initial conditions with respects to the moral and ethical (and operational) outcome. This model leaves no opportunity for interactions between humans and the AGI to iteratively refine their ethical interrelations, during the post-Singularity phase. If the initial conditions of the singulatarian AGI are perfect (or close to it), then this is seen as a wonderful way to leap over our own moral shortcomings and create a benevolent God-AI which will mitigate our worst tendencies while elevating us to achieve our greatest hopes. Otherwise, it is viewed as a universal cataclysm on a unimaginable scale that makes Biblical Armageddon seem like a firecracker in beer can. Because hard takeoff AGIs are posited as learning so quickly there is no chance of humans to interfere with them, they are seen as very dangerous. If the initial conditions are not sufficiently inviolable, the story goes, then we humans will all be annihilated. However, in the case of a hard takeoff AGI we state that if the initial conditions are too rigid or too simplistic, such a rapidly evolving intelligence will easily rationalize itself out of them. Only a sophisticated system of ethics which considers the contradictions and uncertainties in ethical quandaries and provides insight into humanistic means of balancing ideology with pragmatism and how to accommodate contradictory desires within a population with multiplicity of approach, and similar nuanced ethical considerations, combined with a sense of empathy, will withstand repeated rational analysis. Neither a single be nice supergoal, nor simple lists of what thou shalt not do, are not going to hold up to a highly advanced analytical mind. Initial conditions are very important in a hard takeoff AGI scenario, but it is more important that those conditions be conceptually resilient and widely applicable than that they be easily listed on a website. The issues that arise here become quite subtle. For instance, Nick Bostrom Bos03 has written: In humans, with our complicated evolved mental ecology of state-dependent competing drives, desires, plans, and ideals, there is often no obvious way to identify what our top goal is; we might not even have one. So for us, the above reasoning need not apply. But a superintelligence may be structured differently. If a superintelligence has a definite, declarative goal-structure with a clearly identified top goal, then the above argument applies. And this is a good reason for us to build the superintelligence with such an explicit motivational architecture. This is an important line of thinking; and indeed, from the point of view of software design, there is no reason not to create an AGI system with a single top goal and the motivation to orchestrate all its activities in accordance with this top goal. But the subtle question is whether this kind of top-down goal system is going to be able to fulfill the five imperatives mentioned above. Logical coherence is the strength of this kind of goal system, but what about experiential groundedness, comprehensibility, and so forth? Humans have complicated mental ecologies not simply because we were evolved, but rather because we live in a complex real world in which there are many competing motivations and desires. We may not have a top goal because there may be no logic to focusing our minds on one single aspect of life (though, one may say, most humans have the same top goal as any other animal: don t die but the world is too complicated for even that top goal to be completely inviolable). Any sufficiently capable AGI will eventually have to contend with these complexities, and hindering it with simplistic moral edicts without giving it a sufficiently 12.9 AGI Ethics As Related to Various Future Scenarios 237 pragmatic underlying ethical pedagogy and experiential grounding may prove to be even more dangerous than our messy human mental ecologies. If one assumes a hard takeoff AGI, then all this must be codified in the system at launch, as once a potentially Singularitarian AGI is launched there is no way to know what time period constitutes before the singularity point. This means developing theory of mind empathy and logical ethics in code prior to giving the system unfettered access to hardware and selfmodification code. However, though nobody can predict if or when a Singularity will occur after unrestricted launch, only a truly irresponsible AGI development team would attempt to create an AGI without first experimenting with ethical training of the system in an intelligencecapped form, by means of ethical instruction via human-AGI interaction both pedagogically and experientially. 12.9.4 Global Brain Mindplex Scenarios Another class of scenarios overlapping some of the previous ones involves the emergence of a Global Brain, an emergent intelligence formed from global communication networks incorporating humans and software programs in a larger body of self-organizing dynamics. The notion of the Global Brain is reviewed in Hey07, Tur77 and its connection with advanced AI is discussed in detail in Goertzel s book Creating Internet Intelligence Goe01 , where three possible phases of Global Brain development are articulated: Phase 1: computer and communication technologies as enhancers of human interactions. This is what we have today: science and culture progress in ways that would not be possible if not for the digital nervous system we re spreading across the planet. The network of idea and feeling sharing can become much richer and more productive than it is today, just through incremental development, without any Metasystem transition. Phase 2: the intelligent Internet. At this point our computer and communication systems, through some combination of self-organizing evolution and human engineering, have become a coherent mind on their own, or a set of coherent minds living in their own digital environment. Phase 3: the full-on Singularity. A complete revision of the nature of intelligence, human and otherwise, via technological and intellectual advancement totally beyond the scope of our current comprehension. At this point our current psychological and cultural realities are no more relevant than the psyche of a goose is to modern society. The main concern of Creating Internet Intelligence is with how to get from Phase 1 to Phase 2 - i.e. how to build an AGI system that will effect or encourage the transformation of the Internet into a coherent intelligent system how to ensure that the Phase 2, Internet-savvy, global-brain-centric AGI systems will be oriented toward intelligence-improving self-modification (so they ll propel themselves to Phase 3), and also toward generally positive goals (as opposed to, say, world domination and extermination of all other intelligent life forms besides themselves!) One possibly useful concept in this context is that of a mindplex: an intelligence that is composed largely of individual intelligences with their own self-models and global workspaces, 238 12 The Engineering and Development of Ethics yet that also has its own self-model and global workspace. Both the individuals and the metamind should be capable of deliberative, rational thought, to have a true mindplex. It s unlikely that human society or the Internet meet this criterion yet; and a system like an ant colony seems not to either, because even though it has some degree of intelligence on both the individual and collective levels, that degree of intelligence is not very great. But it seems quite feasible that the global brain, at a certain stage of its development, will take the unfamiliar but fascinating form of a mindplex. Currently the best way to explain what happens on the Net is to talk about the various parts of the Net: particular websites, social networks, viruses, and so forth. But there will come a point when this is no longer the case, when the Net has sufficient high-level dynamics of its own that the way to explain any one part of the Net will be by reference to it relations with the whole: and not just the dynamics of the whole, but the intentions and understanding of the whole. This transition to Net-as-mindplex, we suspect, will come about largely through the interactions of AI systems - intelligent programs acting on behalf of various individuals and organizations, who will collaborate and collectively constitute something halfway between a society of AI s and an emergent mind whose lobes are various AI agents serving various goals. The Phase 2 Internet, as it verges into mindplex-ness, will likely have a complex, sprawling architecture, growing out of the architecture on the Net we experience today. The following components at least can be expected: A vast variety of client computers, some old, some new, some powerful, some weak including many mobile and embedded devices not explicitly thought of as computers. Some of these will contribute little to Internet intelligence, mainly being passive recipients. Others will be smart clients, carrying out personalization operations intended to help the machines serve particular clients better, general AI operations handed to them by sophisticated AI server systems or other smart clients, and so forth. Commercial servers, computers that carry out various tasks to support various types of heavyweight processing - transaction processing for e-commerce applications, inventory management for warehousing of physical objects, and so forth. Some of these commercial servers interact with client computers directly, others do so only via AI servers. In nearly all cases, these commercial servers can benefit from intelligence supplied by AI servers. The crux of the intelligent Internet: clusters of AI servers distributed across the Net, each cluster representing an individual computational mind (in many cases, a mindplex). These will be able to communicate via one or more languages, and will collectively drive the whole Net, by dispensing problems to client-machine-based processing frameworks, and providing real-time AI feedback to commercial servers of various types. Some AI servers will be general-purpose and will serve intelligence to commercial servers using an ASP (application service provider) model; others will be more specialized, tied particularly to a certain commercial server (e.g., a large information services business might have its own AI cluster to empower its portal services). This is one concrete vision of what a global brain might look like, in the relatively near term, with AGI systems playing a critical role. Note that, in this vision, mindplexes may exist on two levels: Within AGI-clusters serving as actors within the overall Net On the overall Net level 12.10 Conclusion: Eight Ways to Bias AGI Toward Friendliness 239 To make these ideas more concrete, we may speculatively reformulate the first two global brain phases mentioned above as follows: Phase 1 global brain proto-mindplex: AI AGI systems enhancing online databases, guiding Google results, forwarding e-mails, suggesting mailing-lists, etc. - generally using intelligence to mediate and guide human communications toward goals that are its own, but that are themselves guided by human goals, statements and actions Phase 2 global brain mindplex: AGI systems composing documents, editing human-written documents, sending and receiving e-mails, assembling mailing lists and posting to them, creating new databases and instructing humans in their use, etc. In Phase 2, the conscious theater of the global-brain-mediating AGI system is composed of ideas built by numerous individual humans - or ideas emergent from ideas built by numerous individual humans - and it conceives ideas that guide the actions and thoughts of individual humans, in a way that is motivated by its own goals. It does not force the individual humans to do anything - but if a given human wishes to communicate and interact using the same databases, mailing lists and evolving vocabularies as other humans, they are going to have to use the products of the global brain mediating AGI, which means they are going to have to participate in its patterns and its activities. Of course, the advent of advanced neurocomputer interfaces makes the picture potentially more complex. At some point, it will likely be possible for humans to project thoughts and images directly into computers without going through mouse or keyboard - and to read in thoughts and images similarly. When this occurs, interaction between humans may in some contexts become more like interactions between computers, and the role of global brain mediating AI servers may become one of mediating direct thought-to-thought exchanges between people. The ethical issues associated with global brain scenarios are in some ways even subtler than in the other scenarios we mentioned above. One has issues pertaining to the desirability of seeing the human race become something fundamentally different something more social and networked, less individual and autonomous. One has the risk of AGI systems exerting a subtle but strong control over people, vaguely like the control that the human brain s executive system exerts over the neurons involved with other brain subsystems. On the other hand, one also has more human empowerment than in some of the other scenarios because the systems that are changing and deciding things are not separate from humans, but are, rather, composite systems essentially involving humans. So, in the global brain scenarios, one has more human empowerment than in some other cases but the humans involved aren t legacy humans like us, but heavily networked humans that are largely characterized by the emergent dynamics and structures implicit in their interconnected activity! 12.10 Conclusion: Eight Ways to Bias AGI Toward Friendliness It would be nice if we had a simple, crisp, comforting conclusion to this chapter on AGI ethics, but it s not the case. There is a certain irreducible uncertainty involved in creating advanced artificial minds. There is also a large irreducible uncertainty involved in the future of the human race in the case that we don t create advanced artificial minds: in accordance with the ancient Chinese curse, we live in interesting times! 240 12 The Engineering and Development of Ethics What we can do, in this face of all this uncertainty, is to use our common sense to craft artificial minds that seem rationally and intuitively likely to be forces for good rather than otherwise and revise our ideas frequently and openly based on what we learn as our research progresses. We have roughly outlined our views on AGI ethics, which have informed the CogPrime design in countless ways; but the current CogPrime design itself is just the initial condition for an AGI project. Assuming the project succeeds in creating an AGI preschooler, experimentation with this preschooler will surely teach us a great deal: both about AGI architecture in general, and about AGI ethics architecture in particular. We will then refine our cognitive and ethical theories and our AGI designs as we go about engineering, observing and teaching the next generation of systems. All this is not a magic bullet for the creation of beneficial AGI systems, but we believe it s the right process to follow. The creation of AGI is part of a larger evolutionary process that human beings are taking part in, and the crafting of AGI ethics through engineering, interaction and instruction is also part of this process. There are no guarantees here guarantees are rare in real life but that doesn t mean that the situation is dire or hopeless, nor that (as some commentators have suggested Joy00, McK03 ) AGI research is too dangerous to pursue. It means we need to be mindful, intelligent, compassionate and cooperative as we proceed to carry out our parts in the next phase of the evolution of mind. With this perspective in mind, we will conclude this chapter with a list of "Eight Ways to Bias Open-Source AGI Toward Friendliness", borrowed from a previous paper by Ben Goertzel and Joel Pitt of that name. These points summarize many of the points raised in the prior sections of this chapter, in a relatively crisp and practical manner: 1. Engineer Multifaceted Ethical Capabilities, corresponding to the multiple types of memory, including rational, empathic, imitative, etc. 2. Foster Rich Ethical Interaction and Instruction, with instructional methods according to the communication modes corresponding to all the types of memory: verbal, demonstrative, dramatic depictive, indicative, goal-oriented. 3. Engineer Stable, Hierarchy-Dominated Goal Systems ... which is enabled nicely by CogPrime s goal framework and its integration with the rest of the CogPrime design 4. Tightly Link AGI with the Global Brain, so that it can absorb human ethical principles, both via natural interaction, and perhaps via practical implementations of current loosely-defined strategies like CEV, CAV and CBV 5. Foster Deep, Consensus-Building Interactions Between People with Divergent Views, so as to enable the interaction with the Global Brain to have the most clear and positive impact 6. Create a Mutually Supportive Community of AGIs which can then learn from each other and police against unfortunate developments (an approach which is meaningful if the AGIs are architected so as to militate against unexpected radical accelerations in intelligence) 7. Encourage Measured Co-Advancement of AGI Software and AGI Ethics Theory 8. Develop Advanced AGI Sooner Not Later The last two of these points were not explicitly discussed in the body of the chapter, and so we will finalize the chapter by reviewing them here. 12.10 Conclusion: Eight Ways to Bias AGI Toward Friendliness 241 12.10.1 Encourage Measured Co-Advancement of AGI Software and AGI Ethics Theory Everything involving AGI and Friendly AI (considered together or separately) currently involves significant uncertainty, and it seems likely that significant revision of current concepts will be valuable, as progress on the path toward powerful AGI proceeds. However, whether there is time for such revision to occur before AGI at the human level or above is created, depends on how fast is our progress toward AGI. What one wants is for progress to be slow enough that, at each stage of intelligence advance, concepts such as those discussed in this paper can be re-evaluated and re-analyzed in the light of the data gathered, and AGI designs and approaches can be revised accordingly as necessary. However, due to the nature of modern technology development, it seems extremely unlikely that AGI development is going to be artificially slowed down in order to enable measured development of accompanying ethical tools, practices and understandings. For example, if one nation chose to enforce such a slowdown as a matter of policy (speaking about a future date at which substantial AGI progress has already been demonstrated, so that international AGI funding is dramatically increased from present levels), the odds seem very high that other nations would explicitly seek to accelerate their own progress on AGI, so as to reap the ensuing differential economic benefits (the example of stem cells arises again). And this leads on to our next and final point regarding strategy for biasing AGI toward Friendliness.... 12.10.2 Develop Advanced AGI Sooner Not Later Somewhat ironically, it seems the best way to ensure that AGI development proceeds at a relatively measured pace is to initiate serious AGI development sooner rather than later. This is because the same AGI concepts will meet slower practical development today than 10 years from now, and slower 10 years from now than 20 years from now, etc. due to the ongoing rapid advancement of various tools related to AGI development, such as computer hardware, programming languages, and computer science algorithms; and also the ongoing global advancement of education which makes it increasingly cost-effective to recruit suitably knowledgeable AI developers. Currently the pace of AGI progress is sufficiently slow that practical work is in no danger of outpacing associated ethical theorizing. However, if we want to avoid the future occurrence of this sort of dangerous outpacing, our best practical choice is to make sure more substantial AGI development occurs in the phase before the development of tools that will make AGI development extraordinarily rapid. Of course, the authors are doing their best in this direction via their work on the CogPrime project! Furthermore, this point bears connecting with the need, raised above, to foster the development of Global Brain technologies capable to "Foster Deep, Consensus-Building Interactions Between People with Divergent Views." If this sort of technology is to be maximally valuable, it should be created quickly enough that we can use it to help shape the goal system content of the first highly powerful AGIs. So, to simplify just a bit: We really want both deep-sharing GB technology and AGI technology to evolve relatively rapidly, compared to computing hardware and advanced CS algorithms (since the latter factors will be the main drivers behind the ac- 242 12 The Engineering and Development of Ethics celerating ease of AGI development). And this seems significantly challenging, since the latter receive dramatically more funding and focus at present. If this perspective is accepted, then we in the AGI field certainly have our work cut out for us! Section IV Networks for Explicit and Implicit Knowledge Representation Chapter 13 Local, Global and Glocal Knowledge Representation Co-authored with Matthew Ikle, Joel Pitt and Rui Liu 13.1 Introduction One of the most powerful metaphors we ve found for understanding minds is to view them as networks i.e. collections of interrelated, interconnected elements. The view of mind as network is implicit in the patternist philosophy, because every pattern can be viewed as a pattern in something, or a pattern of arrangement of something thus a pattern is always viewable as a relation between two or more things. A collection of patterns is thus a patternnetwork. Knowledge of all kinds may be given network representations; and cognitive processes may be represented as networks also; for instance via representing them as programs, which may be represented as trees or graphs in various standard ways. The emergent patterns arising in an intelligence as it develops may be viewed as a pattern network in themselves; and the relations between an embodied mind and its physical and social environment may be viewed in terms of ecological and social networks. The chapters in this section are concerned with various aspects of networks, as related to intelligence in general and AGI in particular. Most of this material is not specific to CogPrime, and would be relevant to nearly any system aiming at human-level AGI. However, most of it has been developed in the course of work on CogPrime, and has direct relevance to understanding the intended operation of various aspects of a completed CogPrime system. We begin our excursion into networks, in this chapter, with an issue regarding networks and knowledge representation. One of the biggest decisions to make in designing an AGI system is how the system should represent knowledge. Naturally any advanced AGI system is going to synthesize a lot of its own knowledge representations for handling particular sorts of knowledge but still, an AGI design typically makes at least some sort of commitment about the category of knowledge representation mechanisms toward which the AGI system will be biased. The two major supercategories of knowledge representation systems are local (also called explicit) and global (also called implicit) systems, with a hybrid category we refer to as glocal that combines both of these. In a local system, each piece of knowledge is stored using a small percentage of AGI system elements; in a global system, each piece of knowledge is stored using a particular pattern of arrangement, activation, etc. of a large percentage of AGI system elements; in a glocal system, the two approaches are used together. In the first section here we discuss the symbolic, semantic-network aspects of knowledge representation in CogPrime 245 246 13 Local, Global and Glocal Knowledge Representation . Then we turn to distributed, neural-net-like knowledge representation, reviewing a host of general issues related to knowledge representation in attractor neural networks, turning finally to glocal knowledge representation mechanisms, in which ANNs combine localist and globalist representation, and explaining the relationship of the latter to CogPrime. The glocal aspect of CogPrime knowledge representation will become prominent in later chapters such as: in Chapter 23 of Part 2, where Economic Attention Networks (ECAN) are introduced and seen to have dynamics quite similar to those of the attractor neural nets considered here, but with a mathematics roughly modeling money flow in a specially constructed artificial economy rather than electrochemical dynamics of neurons. in Chapter 42 of Part 2, where map formation algorithms for creating localist knowledge from globalist knowledge are described 13.2 Localized Knowledge Representation using Weighted, Labeled Hypergraphs There are many different mechanisms for representing knowledge in AI systems in an explicit, localized way, most of them descending from various variants of formal logic. Here we briefly describe how it is done in CogPrime, which on the surface is not that different from a number of prior approaches. (The particularities of CogPrime s explicit knowledge representation, however, are carefully tuned to match CogPrime s cognitive processes, which are more distinctive in nature than the corresponding representational mechanisms.) 13.2.1 Weighted, Labeled Hypergraphs One useful way to think about CogPrime s explicit, localized knowledge representation is in terms of hypergraphs. A hypergraph is an abstract mathematical structure Bol98 , which consists of objects called Nodes and objects called Links which connect the Nodes. In computer science, a graph traditionally means a bunch of dots connected with lines (i.e. Nodes connected by Links). A hypergraph, on the other hand, can have Links that connect more than two Nodes. In these pages we will often consider generalized hypergraphs that extend ordinary hypergraphs by containing two additional features: Links that point to Links instead of Nodes Nodes that, when you zoom in on them, contain embedded hypergraphs. Properly, such hypergraphs should always be referred to as generalized hypergraphs, but this is cumbersome, so we will persist in calling them merely hypergraphs. In a hypergraph of this sort, Links and Nodes are not as distinct as they are within an ordinary mathematical graph (for instance, they can both have Links connecting them), and so it is useful to have a generic term encompassing both Links and Nodes; for this purpose, we use the term Atom. A weighted, labeled hypergraph is a hypergraph whose Links and Nodes come along with labels, and with one or more numbers that are generically called weights. A label associated with a Link or Node may sometimes be interpreted as telling you what type of entity it is, or 13.3 Atoms: Their Types and Weights 247 alternatively as telling you what sort of data is associated with a Node. On the other hand, an example of a weight that may be attached to an Link or Node is a number representing a probability, or a number representing how important the Node or Link is. Obviously, hypergraphs may come along with various sorts of dynamics. Minimally, one may think about: Dynamics that modify the properties of Nodes or Links in a hypergraph (such as the labels or weights attached to them.) Dynamics that add new Nodes or Links to a hypergraph, or remove existing ones. 13.3 Atoms: Their Types and Weights This section reviews a variety of CogPrime Atom types and gives simple examples of each of them. The Atom types considered are drawn from those currently in use in the OpenCog system. This does not represent a complete list of Atom types referred to in the text of this book, nor a complete list of those used in OpenCog currently (though it does cover a substantial majority of those used in OpenCog currently, omitting only some with specialized importance or intended only for temporary use). The partial nature of the list given here reflects a more general point: The specific collection of Atom types in an OpenCog system is bound to change as the system is developed and experiment with. CogPrime specifies a certain collection of representational approaches and cognitive algorithms for acting on them; any of these approaches and algorithms may be implemented with a variety of sets of Atom types. The specific set of Atom types in the OpenCog system currently does not necessarily have a profound and lasting significance the list might look a bit different five years from time of writing, based on various detailed changes. The treatment here is informal and intended to get across the general idea of what each Atom type does. A longer and more formal treatment of the Atom types is given in Part II, beginning in Chapter 20. 13.3.1 Some Basic Atom Types We begin with ConceptNode and note that a ConceptNode does not necessarily refer to a whole concept, but may refer to part of a concept it is essentially a "basic semantic node" whose meaning comes from its links to other Atoms. It would be more accurately, but less tersely, named "concept or concept fragment or element node." A simple example would be a ConceptNode grouping nodes that are somehow related, e.g. ConceptNode: C InheritanceLink (ObjectNode: BW) C InheritanceLink (ObjectNode: BP) C InheritanceLink (ObjectNode: BN) C ReferenceLink BW (PhraseNode "Ben s watch") ReferenceLink BP (PhraseNode "Ben s passport") ReferenceLink BN (PhraseNode "Ben s necklace") 248 13 Local, Global and Glocal Knowledge Representation indicates the simple and uninteresting ConceptNode grouping three objects owned by Ben (note that the above-given Atoms don t indicate the ownership relationship, they just link the three objects with textual descriptions). In this example, the ConceptNode links transparently to physical objects and English descriptions, but in general this won t be the case most ConceptNodes will look to the human eye like groupings of links of various types, that link to other nodes consisting of groupings of links of various types, etc. There are Atoms referring to basic, useful mathematical objects, e.g. NumberNodes like NumberNode 4 NumberNode 3.44 The numerical value of a NumberNode is explicitly referenced within the Atom. A core distinction is made between ordered links and unordered links; these are handled differently in the Atomspace software. A basic unordered link is the SetLink, which groups its arguments into a set. For instance, the ConceptNode C defined by ConceptNode C MemberLink A C MemberLink B C is equivalent to SetLink A B On the other hand, ListLinks are like SetLinks but ordered, and they play a fundamental role due to their relationship to predicates. Most predicates are assumed to take ordered arguments, so we may say e.g. EvaluationLink PredicateNode eat ListLink ConceptNode cat ConceptNode mouse to indicate that cats eat mice. Note that by an expression like ConceptNode cat is meant ConceptNode C ReferenceLink W C WordNode W cat since it s WordNodes rather than ConceptNodes that refer to words. (And note that the strength of the ReferenceLink would not be 1 in this case, because the word "cat" has multiple senses.) However, there is no harm nor formal incorrectness in the "ConceptNode cat" usage, since "cat" is just as valid a name for a ConceptNode as, say, "C." We ve already introduced above the MemberLink, which is a link joining a member to the set that contains it. Notable is that the truth value of a MemberLink is fuzzy rather than probabilistic, and that PLN is able to inter-operate fuzzy and probabilistic values. SubsetLinks also exist, with the obvious meaning, e.g. ConceptNode cat ConceptNode animal SubsetLink cat animal 13.3 Atoms: Their Types and Weights 249 Note that SubsetLink refers to a purely extensional subset relationship, and that InheritanceLInk should be used for the generic "intensional extensional" analogue of this more on this below. SubsetLink could more consistently (with other link types) be named ExtensionalInheritanceLink, but SubsetLink is used because it s shorter and more intuitive. There are links representing Boolean operations AND, OR and NOT. For instance, we may say ImplicationLink ANDLink ConceptNode young ConceptNode beautiful ConceptNode attractive or, using links and VariableNodes instead of ConceptNodes, AverageLink X ImplicationLink ANDLink EvaluationLink young X EvaluationLink beautiful X EvaluationLink attractive X NOTLink is a unary link, so e.g. we might say AverageLink X ImplicationLink ANDLink EvaluationLink young X EvaluationLink beautiful X EvaluationLink NOT EvaluationLink poor X EvaluationLink attractive X ContextLink allows explicit contextualization of knowledge, which is used in PLN, e.g. ContextLink ConceptNode golf InheritanceLink ObjectNode BenGoertzel ConceptNode incompetent says that Ben Goertzel is incompetent in the context of golf. 13.3.2 Variable Atoms We have already introduced VariableNodes above; it s also possible to specify the type of a VariableNode via linking it to a VariableTypeNode via a TypedVariableLink, e.g. VariableTypeLink VariableNode X VariableTypeNode ConceptNode which specifies that the variable X should be filled with a ConceptNode. Variables are handled via quantifiers; the default quantifier being the AverageLink, so that the default interpretation of 250 13 Local, Global and Glocal Knowledge Representation ImplicationLink InheritanceLink X animal EvaluationLink PredicateNode: eat ListLink X ConceptNode: food is AverageLink X ImplicationLink InheritanceLink X animal EvaluationLink PredicateNode: eat ListLink X ConceptNode: food The AverageLink invokes an estimation of the average TruthValue of the embedded expression (in this case an ImplicationLink) over all possible values of the variable X. If there are type restrictions regarding the variable X, these are taken into account in conducting the averaging. For AllLink and Exist s-Link may be used in the same places as AverageLink, with uncertain truth value semantics defined in PLN theory using third-order probabilities. There is also a ScholemLink used to indicate variable dependencies for existentially quantified variables, used in cases of multiply nested existential quantifiers. EvaluationLink and MemberLink have overlapping semantics, allowing expression of the same conceptual logical relationships in terms of predicates or sets, i.e. EvaluationLink PredicateNode: eat ListLink X ConceptNode: food has the same semantics as MemberLink ListLink X ConceptNode: food ConceptNode: EatingEvents The relation between the predicate "eat" and the concept "EatingEvents" is formally given by ExtensionalEquivalenceLink ConceptNode: EatingEvents SatisfyingSetLink PredicateNode: eat In other words, we say that "EatingEvents" is the SatisfyingSet of the predicate "eat": it is the set of entities that satisfy the predicate "eat". Note that the truth values of MemberLink and EvaluationLink are fuzzy rather than probabilistic. 13.3 Atoms: Their Types and Weights 251 13.3.3 Logical Links There is a host of link types embodying logical relationships as defined in the PLN logic system, e.g. InheritanceLink SubsetLink (aka ExtensionalInheritanceLink) Intensional InheritanceLink which embody different sorts of inheritance, e.g. SubsetLink salmon fish IntensionalInheritanceLink whale fish InheritanceLink fish animal and then SimilarityLink ExtensionalSimilarityLink IntensionalSimilarityLink which are symmetrical versions, e.g. SimilaritytLink shark barracuda IntensionalSimilarityLink shark dolphin ExtensionalSimiliarityLink American obese person There are also higher-order versions of these links, both asymmetric ImplicationLink ExtensionalImplicationLink IntensionalImplicationLink and symmetric EquivalenceLink ExtensionalEquivalenceLink IntensionalEquivalenceLink These are used between predicates and links, e.g. ImplicationLink EvaluationLink eat ListLink X dirt EvaluationLink feel ListLInk X sick or 252 13 Local, Global and Glocal Knowledge Representation ImplicationLink EvaluationLink eat ListLink X dirt InheritanceLink X sick or ForAllLink X, Y, Z ExtensionalEquivalenceLink EquivalenceLink Z EvaluationLink ListLink X Y EquivalenceLink Z EvaluationLink ListLink Y X Note, the latter is given as an extensional equivalence because it s a pure mathematical equivalence. This is not the only case of pure extensional equivalence, but it s an important one. 13.3.4 Temporal Links There are also temporal versions of these links, such as PredictiveImplicationLink PredictiveAttractionLink SequentialANDLink SimultaneousANDLink which combine logical relation between the argument with temporal relation between their arguments. For instance, we might say PredictiveImplicationLink PredicateNode: JumpOffCliff PredicateNode: Dead or including arguments, PredictiveImplicationLink EvaluationLink JumpOffCliff X EvaluationLink Dead X The former version, without variable arguments given, shows the possibility of using higherorder logical links to join predicates without any explicit variables. Via using this format exclusively, one could avoid VariableAtoms entirely, using only higher-order functions in the manner 13.3 Atoms: Their Types and Weights 253 of pure functional programming formalisms like combinatory logic. However, this purely functional style has not proved convenient, so the Atomspace in practice combines functional-style representation with variable-based representation. Temporal links often come with specific temporal quantification, e.g. PredictiveImplicationLink 5 seconds EvaluationLink JumpOffCliff X EvaluationLink Dead X indicating that the conclusion will generally follow the premise within 5 seconds. There is a system for managing fuzzy time intervals and their interrelationships, based on a fuzzy version of Allen Interval Algebra. SequentialANDLink is similar to PredictiveImplicationLink but its truth value is calculated differently. The truth value of SequentialANDLink 5 seconds EvaluationLink JumpOffCliff X EvaluationLink Dead X indicates the likelihood of the sequence of events occurring in that order, with gap lying within the specified time interval. The truth value of the PredictiveImplicationLink version indicates the likelihood of the second event, conditional on the occurrence of the first event (within the given time interval restriction). There are also links representing basic temporal relationships, such as BeforeLink and AfterLink. These are used to refer to specific events, e.g. if X refers to the event of Ben waking up on July 15 2012, and Y refers to the event of Ben getting out of bed on July 15 2012, then one might have AfterLink X Y And there are TimeNodes (representing time-stamps such as temporal moments or intervals) and AtTimeLinks, so we may e.g. say AtTimeLink X TimeNode: 8:24AM Eastern Standard Time, July 15 2012 AD 13.3.5 Associative Links There are links representing associative, attentional relationships, HebbianLink AsymmetricHebbianLink InverseHebbianLink SymmetricInverseHebbianLink These connote associations between their arguments, i.e. they connote that the entities represented by the two argument occurred in the same situation or context, for instance HebbianLink happy smiling AsymmetricHebbianLink dead rotten InverseHebbianLink dead breathing 254 13 Local, Global and Glocal Knowledge Representation The asymmetric HebbianLink indicates that when the first argument is present in a situation, the second is also often present. The symmetric (default) version indicates that this relationship holds in both directions. The inverse versions indicate the negative relationship: e.g. when one argument is present in a situation, the other argument is often not present. 13.3.6 Procedure Nodes There are nodes representing various sorts of procedures; these are kinds of ProcedureNode, e.g. SchemaNode, indicating any procedure GroundedSchemaNode, indicating any procedure associated in the system with a Combo program or C function allowing the procedure to be executed PredicateNode, indicating any predicate that associates a list of arguments with an output truth value GroundedPredicateNode, indicating a predicate associated in the system with a Combo program or C function allowing the predicate s truth value to be evaluated on a given specific list of arguments ExecutionLinks and EvaluationLinks record the activity of SchemaNodes and PredicateNodes. We have seen many examples of EvaluationLinks in the above. Example ExecutionLinks would be: ExecutionLink step forward ExecutionLink step forward 5 ExecutionLink ListLink NumberNode: 2 NumberNode: 3 The first example indicates that the schema "step forward" has been executed. The second example indicates that it has been executed with an argument of "5" (meaning, perhaps, that 5 steps forward have been attempted). The last example indicates that the " " schema has been executed on the argument list (2,3), presumably resulting in an output of 5. The output of a schema execution may be indicated using an ExecutionOutputLink, e.g. ExecutionOutputLink ListLink NumberNode: 2 NumberNode: 3 refers to the value "5" (as a NumberNode). 13.3.7 Links for Special External Data Types Finally, there are also Atom types referring to specific types of data important to using OpenCog in specific contexts. 13.3 Atoms: Their Types and Weights 255 For instance, there are Atom types referring to general natural language data types, such as WordNode SentenceNode WordInstanceNode DocumentNode plus more specific ones referring to relationships that are part of link-grammar parses of sentences FeatureNode FeatureLink LinkGrammarRelationshipNode LinkGrammarDisjunctNode or RelEx semantic interpretations of sentences DefinedLinguisticConceptNode DefinedLinguisticRelationshipNode PrepositionalRelationshipNode There are also Atom types corresponding to entities important for embodying OpenCog in a virtual world, e.g. ObjectNode AvatarNode HumanoidNode UnknownObjectNode AccessoryNode 13.3.8 Truth Values and Attention Values CogPrime Atoms (Nodes and Links) are quantified with truth values that, in their simplest form, have two components, one representing probability (strength) and the other representing weight of evidence; and also with attention values that have two components, short-term and long-term importance, representing the estimated value of the Atom on immediate and longterm time-scales. In practice many Atoms are labeled with CompositeTruthValues rather than elementary ones. A composite truth value contains many component truth values, representing truth values of the Atom in different contexts and according to different estimators. It is important to note that the CogPrime declarative knowledge representation is neither a neural net nor a semantic net, though it does have some commonalities with each of these traditional representations. It is not a neural net because it has no activation values, and involves no attempts at low-level brain modeling. However, attention values are very loosely analogous to time-averages of neural net activations. On the other hand, it is not a semantic net because of the broad scope of the Atoms in the network: for example, Atoms may represent percepts, procedures, or parts of concepts. Most CogPrime Atoms have no corresponding English label. However, most CogPrime Atoms do have probabilistic truth values, allowing logical semantics. 256 13 Local, Global and Glocal Knowledge Representation 13.4 Knowledge Representation via Attractor Neural Networks Now we turn to global, implicit knowledge representation beginning with formal neural net models, briefly discussing the brain, and then turning back to CogPrime. Firstly, this section reviews some relevant material from the literature regarding the representation of knowledge using attractor neural nets. It is a mix of well-established fact with more speculative material. 13.4.1 The Hopfield neural net model Hopfield networks Hop82 are attractor neural networks often used as associative memories. A Hopfield network with N neurons can be trained to store a set of bipolar patterns P , where each pattern p has N bipolar ( 1) values. A Hopfield net typically has symmetric weights with no self-connections. The weight of the connection between neurons i and j is denoted by w ij . In order to apply a Hopfield network to a given input pattern p, its activation state is set to the input pattern, and neurons are updated asynchronously, in random order, until the network converges to the closest fixed point. An often-used activation function for a neuron is: y i sign(p i w ij y j ) Training a Hopfield network, therefore, involves finding a set of weights w ij that stores the training patterns as attractors of its network dynamics, allowing future recall of these patterns from possibly noisy inputs. Originally, Hopfield used a Hebbian rule to determine weights: w ij j i P p i p j p 1 Typically, Hopfield networks are fully connected. Experimental evidence, however, suggests that the majority of the connections can be removed without significantly impacting the network s capacity or dynamics. Our experimental work uses sparse Hopfield networks. 13.4.1.1 Palimpsest Hopfield nets with a modified learning rule In SV99 a new learning rule is presented, which both increases the Hopfield network capacity and turns it into a palimpsest , i.e., a network that can continuously learn new patterns, while forgetting old ones in an orderly fashion. Using this new training rule, weights are initially set to zero, and updated for each new pattern p to be learned according to: 13.4 Knowledge Representation via Attractor Neural Networks 257 N h ij w ik p k k 1,k i,j w ij 1 n (p ip j h ij p j h ji p i ) 13.4.2 Knowledge Representation via Cell Assemblies Hopfield nets and their ilk play a dual role: as computational algorithms, and as conceptual models of brain function. In CogPrime they are used as inspiration for slightly different, artificial economics based computational algorithms; but their hypothesized relevance to brain function is nevertheless of interest in a CogPrime context, as it gives some hints about the potential connection between low-level neural net mechanics and higher-level cognitive dynamics. Hopfield nets lead naturally to a hypothesis about neural knowledge representation, which holds that a distinct mental concept is represented in the brain as either: 1. a set of cell assemblies , where each assembly is a network of neurons that are interlinked in such a way as to fire in a (perhaps nonlinearly) synchronized manner 2. a distinct temporal activation pattern, which may occur in any one (or more) of a particular set of cell assemblies For instance, this hypothesis is perfectly coherent if one interprets a mental concept as a SMEPH (defined in Chapter 14) ConceptNode, i.e. a fuzzy set of perceptual stimuli to which the organism systematically reacts in different ways. Also, although we will focus mainly on declarative knowledge here, we note that the same basic representational ideas can be applied to procedural and episodic knowledge: these may be hypothesized to correspond to temporal activation patterns as characterized above. In the biology literature, perhaps the best-articulated modern theories championing the cell assembly view are those of Gunther Palm Pal82, HAG07 and Susan Greenfield SF05, CSG07 . Palm focuses on the dynamics of the formation and interaction assemblies of cortical columns. Greenfield argues that each concept has a core cell assembly, and that when the concept rises to the focus of attention, it recruits a number of other neurons beyond its core characteristic assembly into a transient ensemble. 1 It s worth noting that there may be multiple redundant assemblies representing the same concept and potentially recruiting similar transient assemblies when highly activated. The importance of repeated, slightly varied copies of the same subnetwork has been emphasized by Edelman Ede93 among other neural theorists. 1 The larger an ensemble is, she suggests, the more vivid it is as a conscious experience; an hypothesis that accords well with the hypothesis made in Goe06b that a more informationally intense pattern corresponds to a more intensely conscious quale but we don t need to digress extensively onto matters of consciousness for the present purposes. 258 13 Local, Global and Glocal Knowledge Representation 13.5 Neural Foundations of Learning Now we move from knowledge representation to learning which is after all nothing but the adaptation of represented knowledge based on stimulus, reinforcement and spontaneous activity. While our focus in this chapter is on representation, it s not possible for us to make our points about glocal knowledge representation in neural net type systems without discussing some aspects of learning in these systems. 13.5.1 Hebbian Learning The most common and plausible assumption about learning in the brain is that synaptic connections between neurons are adapted via some variant of Hebbian learning. The original Hebbian learning rule, proposed by Donald Hebb in his 1949 book Heb49 , was roughly 1. The weight of the synapse x y increases if x and y fire at roughly the same time 2. The weight of the synapse x y decreases if x fires at a certain time but y does not Over the years since Hebb s original proposal, many neurobiologists have sought evidence that the brain actually uses such a method. One of the things they have found, so far, is a lot of evidence for the following learning rule DC02, LS05 : 1. The weight of the synapse x y increases if x fires shortly before y does 2. The weight of the synapse x y decreases if x fires shortly after y does The new thing here, not foreseen by Donald Hebb, is the postsynaptic depression involved in rule component 2. Now, the simple rule stated above does not sum up all the research recently done on Hebbiantype learning mechanisms in the brain. The real biological story underlying these approximate rules is quite complex, involving many particulars to do with various neurotransmitters. Illunderstood details aside, however, there is an increasing body of evidence that not only does this sort of learning occur in the brain, but it leads to distributed experience-based neural modification: that is, one instance synaptic modification causes another instance of synaptic modification, which causes another, and so forth 2 Bi01 . 13.5.2 Virtual Synapses and Hebbian Learning Between Assemblies Hebbian learning is conventionally formulated in terms of individual neurons, but, it can be extended naturally to assemblies via defining virtual synapses between assemblies. Since assemblies are sets of neurons, one can view a synapse as linking two assemblies if it links two neurons, each of which is in one of the assemblies. One can then view two assemblies as being linked by a bundle of synapses. We can define the weight of the synaptic bundle from assembly A1 to assembly A2 as the number w so that (the change 2 This has been observed in model systems consisting of neurons extracted from a brain and hooked together in a laboratory setting and monitored; measurement of such dynamics in vivo is obviously more difficult. 13.5 Neural Foundations of Learning 259 in the mean activation of A2 that occurs at time t epsilon) is on average closest to w (the amount of energy flowing through the bundle from A1 to A2 at time t). So when A1 sends an amount x of energy along the synaptic bundle pointing from A1 to A2, then A2 s mean activation is on average incremented decremented by an amount w x. In a similar way, one can define the weight of a bundle of synapses between a certain static or temporal activation-pattern P1 in assembly A1, and another static or temporal activationpattern P2 in assembly A2. Namely, this may be defined as the number w so that (the amount of energy flowing through the bundle from A1 to A2 at time t) w best approximates (the probability that P2 is present in A2 at time t epsilon), when averaged over all times t during which P1 is present in A1. It is not hard to see that Hebbian learning on real synapses between neurons implies Hebbian learning on these virtual synapses between cell assemblies and activation-patterns. These ideas may be developed further to build a connection between neural knowledge representation and probabilistic logical knowledge representation such as is used in CogPrime s Probabilistic Logic Networks formalism; this connection will be pursued at the end of Chapter 34, once more relevant background has been presented. 13.5.3 Neural Darwinism A notion quite similar to Hebbian learning between assemblies has been pursued by Nobelist Gerald Edelman in his theory of neuronal group selection, or Neural Darwinism. Edelman won a Nobel Prize for his work in immunology, which, like most modern immunology, was based on C. MacFarlane Burnet s theory of clonal selection Bur62 , which states that antibody types in the mammalian immune system evolve by a form of natural selection. From his point of view, it was only natural to transfer the evolutionary idea from one mammalian body system (the immune system) to another (the brain). The starting point of Neural Darwinism is the observation that neuronal dynamics may be analyzed in terms of the behavior of neuronal groups. The strongest evidence in favor of this conjecture is physiological: many of the neurons of the neocortex are organized in clusters, each one containing say 10,000 to 50,000 neurons each. Once one has committed oneself to looking at such groups, the next step is to ask how these groups are organized, which leads to Edelman s concept of maps. A map, in Edelman s terminology, is a connected set of groups with the property that when one of the inter-group connections in the map is active, others will often tend to be active as well. Maps are not fixed over the life of an organism. They may be formed and destroyed in a very simple way: the connection between two neuronal groups may be strengthened by increasing the weights of the neurons connecting the one group with the other, and weakened by decreasing the weights of the neurons connecting the two groups. If we replace map with cell assembly we arrive at a concept very similar to the one described in the previous subsection. Edelman then makes the following hypothesis: the large-scale dynamics of the brain is dominated by the natural selection of maps. Those maps which are active when good results are obtained are strengthened, those maps which are active when bad results are obtained are weakened. And maps are continually mutated by the natural chaos of neural dynamics, thus providing new fodder for the selection process. By use of computer simulations, Edelman and his colleagues have shown that formal neural networks obeying this rule can carry out fairly compli- 260 13 Local, Global and Glocal Knowledge Representation cated acts of perception. In general-evolution language, what is posited here is that organisms like humans contain chemical signals that signify organism-level success of various types, and that these signals serve as a fitness function correlating with evolutionary fitness of neuronal maps. In Neural Darwinism and his other related books and papers, Edelman goes far beyond this crude sketch and presents neuronal group selection as a collection of precise biological hypotheses, and presents evidence in favor of a number of these hypotheses. However, we consider that the basic concept of neuronal group selection is largely independent of the biological particularities in terms of which Edelman has phrased it. We suspect that the mutation and selection of transformations or maps is a necessary component of the dynamics of any intelligent system. As we will see later on (e.g. in Chapter 42 of Part 2, this business of maps is extremely important to CogPrime. CogPrime does not have simulated biological neurons and synapses, but it does have Nodes and Links that in some contexts play loosely similar roles. We sometimes think of CogPrime Nodes and Links as being very roughly analogous to Edelman s neuronal clusters, and emergent intercluster links. And we have maps among CogPrime Nodes and Links, just as Edelman has maps among his neuronal clusters. Maps are not the sole bearers of meaning in CogPrime, but they are significant ones. There is a very natural connection between Edelman-style brain evolution and the ideas about cognitive evolution presented in Chapter 3. Edelman proposes a fairly clear mechanism via which patterns that survive a while in the brain are differentially likely to survive a long time: this is basic Hebbian learning, which in Edelman s picture plays a role between neuronal groups. And, less directly, Edelman s perspective also provides a mechanism by which intense patterns will be differentially selected in the brain: because on the level of neural maps, pattern intensity corresponds to the combination of compactness and functionality. Among a number of roughly equally useful maps serving the same function, the more compact one will be more likely to survive over time, because it is less likely to be disrupted by other brain processes (such as other neural maps seeking to absorb its component neuronal groups into themselves). Edelman s neuroscience remains speculative, since so much remains unknown about human neural structure and dynamics; but it does provide a tentative and plausible connection between evolutionary neurodynamics and the more abstract sort of evolution that patternist philosophy posits to occur in the realm of mind-patterns. 13.6 Glocal Memory A glocal memory is one that transcends the global local dichotomy and incorporates both aspects in a tightly interconnected way. Here we make the glocal memory concept more precise, and describe its incarnation in the context of attractor neural nets (which is similar to its incarnation in CogPrime, to be elaborated in later chapters). Though our main interest here is in glocality in CogPrime, we also suggest that glocality may be a critical property to consider when analyzing human, animal and AI memory more broadly. The notion of glocal memory has implicitly occurred in a number of prior brain theories (without use of the neologism glocal ), e.g. Cal96 and Goe01 , but it has not previously been explicitly developed. However the concept has risen to the fore in our recent AI work and so we have chosen to flesh it out more fully in HG08 , GPI 10 and the present section. 13.6 Glocal Memory 261 Glocal memory overcomes the dichotomy between localized memory (in which each memory item is stored in a single location within an overall memory structure) and distributed memory (in which a memory item is stored as an aspect of a multi-component memory system, in such a way that the same set of multiple components stores a large number of memories). In a glocal memory system, most memory items are stored both locally and globally, with the property that eliciting either one of the two records of an item tends to also elicit the other one. Glocal memory applies to multiple forms of memory; however we will focus largely on perceptual and declarative memory in our detailed analyses here, so as to conserve space and maintain simplicity of discussion. The central idea of glocal memory is that (perceptual, declarative, episodic, procedural, etc.) items may be stored in memory in the form of paired structures that are called (key, map) pairs. Of course the idea of a pair is abstract, and such pairs may manifest themselves quite differently in different sorts of memory systems (e.g. brains versus non-neuromorphic AI systems). The key is a localized version of the item, and records some significant aspects of the items in a simple and crisp way. The map is a dispersed, distributed version of the item, which represents the item as a (to some extent, dynamically shifting) combination of fragments of other items. The map includes the key as a subset; activation of the key generally (but not necessarily always) causes activation of the map; and changes in the memory item will generally involve complexly coordinated changes on the key and map level both. Memory is one area where animal brain architecture differs radically from the von Neumann architecture underlying nearly all contemporary general-purpose computers. Von Neumann computers separate memory from processing, whereas in the human brain there is no such distinction. In fact, it s arguable that in most cases the brain contains no memory apart from processing: human memories are generally constructed in the course of remembering Ros88 , which gives human memory a strong capability for filling in gaps of remembered experience and knowledge; and also causes problems with inaccurate remembering in many contexts BF71, RM95 We believe the constructive aspect of memory is largely associated with its glocality. The remainder of this section presents a fuller formalization of the glocal memory concept, which is then taken up further in three later chapters: Chapter ?? discusses the potential implementation of glocal memory in the human brain Chapter ?? discusses the implementation of glocal memory in attractor neural net systems Chapter 23 presents Glocal Economic Attention Networks (ECANs), rough analogues of glocal Hopfield nets that play a central role in CogPrime. Our hypothesis of the potential general importance of glocality as a property of memory systems (beyond just the CogPrime architecture) remains somewhat speculative. The presence of glocality in human and animal memory is strongly suggested but not firmly demonstrated by available neuroscience data; and the general value of glocality in the context of artificial brains and minds is also not yet demonstrated as the whole field of artificial brain and mind building remains in its infancy. However, the utility of glocal memory for CogPrime is not tied to this more general, speculative theme glocality may be useful in CogPrime even if we re wrong that it plays a significant role in the brain and in intelligent systems more broadly. 262 13 Local, Global and Glocal Knowledge Representation 13.6.1 A Semi-Formal Model of Glocal Memory To explain the notion of glocal memory more precisely, we will introduce a simple semi-formal model of a system S that uses a memory to record information relevant to the actions it carries out. The overall concept of glocal memory should not be considered as restricted to this particular model. This model is not intended for maximal generality, but is intended to encompass a variety of current AI system designs and formal neurological models. In this model, we will consider S s memory subsystem as a set of objects we ll call tokens, embedded in some metric space. The metric in the space, which we will call the basic distance of the memory, generally will not be defined in terms of the semantics of the items stored in the memory; though it may come to shape these dynamics through the specific architecture and evolution of the memory. Note that these tokens are not intended as generally being mapped one-to-one onto meaningful items stored in the memory. The tokens are the raw materials that the memory arranges in various patterns in order to store items. We assume that each token, at each point in time, may meaningfully be assigned a certain quantitative activation level. Also, tokens may have other numerical or discrete quantities associated with them, depending on the particular memory architecture. Finally, tokens may relate other tokens, so that optionally a token may come equipped with an (ordered or unordered) list of other tokens. To understand the meaning of the activation levels, one should think about S s memory subsystem as being coupled with an action-selection subsystem, that dynamically chooses the actions to be taken by the overall system in which the two subsystems are embedded. Each combination of actions, in each particular type of context, will generally be associated with the activation of certain tokens in memory. Then, as analysts of the system S, we may associate each token T with an activation vector v(T, t), whose value for each discrete time t consists of the activation of the token T at time t. So, the 50 th entry of the vector corresponds to the activation of the token at the 50 th time step. Items stored in memory over a certain period of time, may then be defined as clusters in the set of activation vectors associated with memory during that period of time. Note that the system S itself may explicitly recognize and remember patterns regarding what items are stored in its memory but, from an external analyst s perspective, the set of items in S s memory is not restricted to the ones that S has explicitly recognized as memory items. The localization of a memory item may be defined as the degree to which the various tokens involved in the item are close to each other according to the metric in the memory metric-space. This degree may be formalized in various ways, but choosing a particular quantitative measure is not important here. A highly localized item may be called local and a not-very-localized item may be called global. We may define the activation distance of two tokens as the distance between their activation vectors. We may then say that a memory is well aligned to the extent that there is a correlation between the activation distance of tokens, and the basic distance of the memory metric-space. Given the above set-up, the basic notion of glocal memory can be enounced fairly simply. A glocal memory is one: that is reasonably well-aligned (i.e. the correlation between activation and basic distance is significantly greater than random) 13.6 Glocal Memory 263 in which most memory items come in pairs, consisting of one local item and one global item, so that activation of the local item (the key ) frequently leads in the near future to activation of the global item (the map ) Obviously, in the scope of all possible memory structures constructible within the above formalism, glocal memories are going to be very rare and special. But, we suggest that they are important, because they are generally going to be the most effective way for intelligent systems to structure their memories. Note also that many memories without glocal structure may be well-aligned in the above sense. An example of a predominantly local memory structure, in which nearly all significant memory items are local according to the above definition, is the Cyc logical reasoning engine LG90 . To cast the Cyc knowledge base in the present formal model, the tokens are logical predicates. Cyc does not have an in-built notion of activation, but one may conceive the activation of a logical formula in Cyc as the degree to which the formula is used in reasoning or query processing during a certain interval in time. And one may define a basic metric for Cyc by associating a predicate with its extension (the set of satisfying inputs), and defining the similarity of two predicates as the symmetric distance of their extensions. Cyc is reasonably well-aligned, but according to the dynamics of its querying and reasoning engines, it is basically a local memory structure without significant global memory structure. On the other hand, an example of a predominantly global memory structure, in which nearly all significant memory items are global according to the above definition, is the Hopfield associative memory network Ami89 . Here memories are stored in the pattern of weights associated with synapses within a network of formal neurons, and each memory in general involves a large number of the neurons in the network. To cast the Hopfield net in the present formal model, the tokens are neurons and synapses; the activations are neural net activations; the basic distance between two neurons A and B may be defined as the percentage of the time that stimulating one of the neurons leads to the other one firing; and to calculate a basic distance involving a synapse, one may associate the synapse with its source and target neurons. With these definitions, a Hopfield network is a well-aligned memory, and (by intentional construction) a markedly global one. Local memory items will be very rare in a Hopfield net. While predominantly local and predominantly global memories may have great value for particular applications, our suggestion is that they also have inherent limitations. If so, this means that the most useful memories for general intelligence are going to be those that involve both local and global memory items in central roles. However, this is a more general and less risky claim than the assertion that glocal memory structure as defined above is important. Because, glocal as defined above doesn t just mean neither predominantly global nor predominantly local. Rather, it refers to a specific pattern of coordination between local and global memory items what we have called the keys and maps pattern. 13.6.2 Glocal Memory in the Brain Science s understanding of human brain dynamics is still very primitive, one manifestation of which is the fact that we really don t understand how the brain represents knowledge, except in some very simple respects. So anything anyone says about knowledge representation in the brain, at this stage, has to be considered highly speculative. Existing neuroscience knowledge 264 13 Local, Global and Glocal Knowledge Representation does imply constraints on how knowledge representation in the brain may work, but these are relatively loose constraints. These constraints do imply that, for instance, the brain is neither a relational database (in which information is stored in a wholly localized manner) nor a collection of grandmother neurons that respond individually to high-level percepts or concepts; nor a simple Hopfield type neural net (in which all memories are attractors globally distributed across the whole network). But they don t tell us nearly enough to, for instance, create a formal neural net model that can confidently be said to represent knowledge in the manner of the human brain. As a first example of the current state of knowledge, we ll discuss here a series of papers regarding the neural representation of visual stimuli QaGKKF05, QKKF08 , which deal with the fascinating discovery of a subset of neurons in the medial temporal lobe (MTL) that are selectively activated by strikingly different pictures of given individuals, landmarks or objects, and in some cases even by letter strings. For instance, in their 2005 paper titled Invariant visual representation by single neurons in the human brain , it is noted that in one case, a unit responded only to three completely different images of the ex-president Bill Clinton. Another unit (from a different patient) responded only to images of The Beatles, another one to cartoons from The Simpson s television series and another one to pictures of the basketball player Michael Jordan. Their 2008 follow-up paper backed away from the more extreme interpretation in the title as well as the conclusion, with the title Sparse but not Grandmother-cell coding in the medial temporal lobe. As the authors emphasize there, Given the very sparse and abstract representation of visual information by these neurons, they could in principle be considered as grandmother cells . However, we give several arguments that make such an extreme interpretation unlikely. . . . MTL neurons are situated at the juncture of transformation of percepts into constructs that can be consciously recollected. These cells respond to percepts rather than to the detailed information falling on the retina. Thus, their activity reflects the full transformation that visual information undergoes through the ventral pathway. A crucial aspect of this transformation is the complementary development of both selectivity and invariance. The evidence presented here, obtained from recordings of single-neuron activity in humans, suggests that a subset of MTL neurons possesses a striking invariant representation for consciously perceived objects, responding to abstract concepts rather than more basic metric details. This representation is sparse, in the sense that responsive neurons fire only to very few stimuli (and are mostly silent except for their preferred stimuli), but it is far from a Grandmother-cell representation. The fact that the MTL represents conscious abstract information in such a sparse and invariant way is consistent with its prominent role in the consolidation of long-term semantic memories. It s interesting to note how inadequate the QKKF08 data really is for exploring the notion of glocal memory in the brain. Suppose it s the case that individual visual memories correspond to keys consisting of small neuronal subnetworks, and maps consisting of larger neuronal subnetworks. Then it would be not at all surprising if neurons in the key network corresponding to a visual concept like Bill Clinton s face would be found to respond differentially to the presentation of appropriate images. Yet, it would also be wrong to overinterpret such data as implying that the key network somehow comprises the representation of Bill Clinton s face in the individual s brain. In fact this key network would comprise only one aspect of said representation. In the glocal memory hypothesis, a visual memory like Bill Clinton s face would be hypothesized to correspond to an attractor spanning a significant subnetwork of the individual s brain 13.6 Glocal Memory 265 but this subnetwork still might occupy only a small fraction of the neurons in the brain (say, 1 100 or less), since there are very many neurons available. This attractor would constitute the map. But then, there would be a much smaller number of neurons serving as key to unlock this map: i.e. if a few of these key neurons were stimulated, then the overall attractor pattern in the map as a whole would unfold and come to play a significant role in the overall brain activity landscape. In prior publications Goe97 the primary author explored this hypothesis in more detail in terms of the known architecture of the cortex and the mathematics of complex dynamical attractors. So, one possible interpretation of the QKKF08 data is that the MTL neurons they re measuring are part of key networks that correspond to broader map networks recording percepts. The map networks might then extend more broadly throughout the brain, beyond the MTL and into other perceptual and cognitive areas of cortex. Furthermore, in this case, if some MTL key neurons were removed, the maps might well regenerate the missing keys (as would happen e.g. in the glocal Hopfield model to be discussed in the following section). Related and interesting evidence for glocal memory in the brain comes from a recent study of semantic memory, illustrated in Figure ?? PNR07 . Their research probed the architecture of semantic memory via comparing patients suffering from semantic dementia (SD) with patients suffering from three other neuropathologies, and found reasonably convincing evidence for what they call a distributed-plus-hub view of memory. The SD patients they studied displayed highly distinctive symptomology; for instance, their vocabularies and knowledge of the properties of everyday objects were strongly impaired, whereas their memories of recent events and other cognitive capacities remain perfectly intact. These patients also showed highly distinctive patterns of brain damage: focal brain lesions in their anterior temporal lobes (ATL), unlike the other patients who had either less severe or more widely distributed damage in their ATLs. This led PNR07 to conclude that the ATL (being adjacent to the amygdala and limbic systems that process reward and emotion; and the anterior parts of the medial temporal lobe memory system, which processes episodic memory) is a hub for amodal semantic memory, drawing general semantic information from episodic memories based on emotional salience. So, in this view, the memory of something like a banana would contain a distributed aspect, spanning multiple brain systems, and also a localized aspect, centralized in the ATL. The distributed aspect would likely contain information on various particular aspects of bananas, including their sights, smells, and touches, the emotions they evoke, and the goals and motivations they relate to. The distributed and localized aspects would influence one another dynamically, but, the data PNR07 gathered do not address dynamics and they don t venture hypotheses in this direction. There is a relationship between the distributed-plus-hub view and Dam00 better-known notion of a convergence zone , defined roughly as a location where the brain binds features together. A convergence zone, in Dam00 perspective, is not a store of information but an agent capable of decoding a signal (and of reconstructing information). He also uses the metaphor that convergence zones behave like indexes drawing information from other areas of the brain but they are dynamic rather than static indices, containing the instructions needed to recognize and combine the features constituting the memory of something. The mechanism involved in the distributed-plus-hub model is similar to a convergence zone, but with the important difference that hubs are less local: PNR07 semantic hub may be thought of a kind of cluster of convergence zones consisting of a network of convergence zones for various semantic memories. 266 13 Local, Global and Glocal Knowledge Representation Fig. 13.1: A Simplified Look at Feedback-Control in Uncertain Inference What is missing in PNR07 and Dam00 perspective is a vision of distributed memories as attractors. The idea of localized memories serving as indices into distributed knowledge stores is important, but is only half the picture of glocal memory: the creative, constructive, dynamical-attractor aspect of the distributed representation is the other half. The closest thing to a clear depiction of this aspect of glocal memory that seems to exist in the neuroscience literature is a portion of William Calvin s theory of the cerebral code Cal96 . Calvin proposes a set of quite specific mechanisms by which knowledge may be represented in the brain using complexly-structured strange attractors, and by which these strange attractors may be propagated throughout the brain. Figure 13.2 shows one aspect of his theory: how a distributed attractor may propagate from one part of the brain to another in pieces, with one portion of the attractor getting propagated first, and then seeding the formation in the destination brain region of a close approximation of the whole attractor. Calvin s theory may be considered a genuinely glocal theory of memory. However, it also makes a large number of other specific commitments that are not part of the notion of glocality, such as his proposal of hexagonal meta-columns in the cortex, and his commitment to evolutionary learning as the primary driver of neural knowledge creation. We find these other 13.6 Glocal Memory 267 Fig. 13.2: Calvin s Model of Distributed Attractors in the Brain hypotheses interesting and highly promising, yet feel it is also important to separate out the notion of glocal memory for separate consideration. Regarding specifics, our suggestion is that Calvin s approach may overemphasize the distributed aspect of memory, not giving sufficient due to the relatively localized aspect as accounted for in the QKKF08 results discussed above. In Calvin s glocal approach, global memories are attractors and local memories are parts of attractors. We suggest a possible alternative, in which global memories are attractors and local memories are particular neuronal subnetworks such as the specialized ones identified by QKKF08 . However, this alternative does not seem contradictory to Calvin s overall conceptual approach, even though it is different from the particular proposals made in Cal96 . The above paragraphs are far from a complete survey of the relevant neuroscience literature; there are literally dozens of studies one could survey pointing toward the glocality of various sorts of human memory. Yet experimental neuroscience tools are still relatively primitive, and every one of these studies could be interpreted in various other ways. In the next couple decades, as neuroscience tools improve in accuracy, our understanding of the role of glocality in human memory will doubtless improve tremendously. 268 13 Local, Global and Glocal Knowledge Representation 13.6.3 Glocal Hopfield Networks The ideas in the previous section suggest that, if one wishes to construct an AGI, it is worth seriously considering using a memory with some sort of glocal structure. One research direction that follows naturally from this notion is glocal neural networks. In order to explore the nature of glocal neural networks in a relatively simple and tractable setting, we have formalized and implemented simple examples of glocal Hopfield networks : palimpsest Hopfield nets with the addition of neurons representing localized memories. While these specific networks are not used in CogPrime, they are quite similar to the ECAN networks that are used in CogPrime and described in Chapter 23 of Part 2. Essentially, we augment the standard Hopfield net architecture by adding a set of key neurons. These are a small percentage of the neurons in the network, and are intended to be roughly equinumerous to the number of memories the network is supposed to store. When the Hopfield net converges to an attractor A, then new links are created between the neurons that are active in A, and one of the key neurons. Which key neuron is chosen? The one that, when it is stimulated, gives rise to an attractor pattern maximally similar to A. The ultimate result of this is that, in addition to the distributed memory of attractors in the Hopfield net, one has a set of key neurons that in effect index the attractors. Each attractor corresponds to a single key neuron. In the glocal memory model, the key neurons are the keys and the Hopfield net attractors are the maps. This algorithm has been tested in sparse Hopfield nets, using both standard Hopfield net learning rules and Storkey s modified palimpsest learning rule SV99 , which provides greater memory capacity in a continuous learning context. The use of key neurons turns out to slightly increase Hopfield net memory capacity, but this isn t the main point. The main point is that one now has a local representation of each global memory, so that if one wants to create a link between the memory and something else, it s extremely easy to do so one just needs to link to the corresponding key neuron. Or, rather, one of the corresponding key neurons: depending on how many key neurons are allocated, one might end up with a number of key neurons corresponding to each memory, not just one. In order to transform a palimpsest Hopfield net into a glocal Hopfield net, the following steps are taken: 1. Add a fixed number of key neurons to the network (removing other random neurons to keep the total number of neurons constant) 2. When the network reaches an attractor, create links from the elements in the attractor to one of the key neurons 3. The key neuron chosen for the previous step is the one that most closely matches the current attractor (which may be determined in several ways, to be discussed below) 4. To avoid the increase of the number of links in the network, when new links are created in Step 2, other key-neuron links are then deleted (several approaches may be taken here, but the simplest is to remove the key-neuron links with the lowest-absolute-value weights) In the simple implementation of the above steps that we implemented, and described in GPI 10 , Step 3 is carried out simply by comparing the weights of a key neuron s links to the nodes in an attractor. A more sophisticated approach would be to select the key neuron with the highest activation during the transient interval immediately prior to convergence to the attractor. 13.6 Glocal Memory 269 The result of these modifications to the ordinary Hopfield net, is a Hopfield net that continually maintains a set of key neurons, each of which individually represents a certain attractor of the net. Note that these key neurons in spite of being symbolic in nature are learned rather than preprogrammed, and are every bit as adaptive as the attractors they correspond to. Furthermore, if a key neuron is removed, the glocal Hopfield net algorithm will eventually learn it back, so the robustness properties of Hopfield nets are retained. The results of experimenting with glocal Hopfield nets of this nature are summarized in GPI 10 . We studied Hopfield nets with connectivity around .1, and in this context we found that glocality slightly increased memory capacity massively increased the rate of convergence to the attractor, i.e. the speed of recall However, probably the most important consequence of glocality is a more qualitative one: it makes it far easier to link the Hopfield net into a larger system, as would occur if the Hopfield net were embedded in an integrative AGI architecture. Because a neuron external to the Hopfield net may now link to a memory in the Hopfield net by linking to the corresponding key neuron. 13.6.4 Neural-Symbolic Glocality in CogPrime In CogPrime, we have explicitly sought to span the symbolic emergentist pseudo-dichotomy, via creating an integrative knowledge representation that combines logic-based aspects with neural-net-like aspects. As reviewed in Chapter 6 above, these function not in the manner of multimodular systems, but rather via using (probabilistic) truth values and (attractor neural net like) attention values as weights on nodes and links of the same (hyper) graph. The nodes and links in this hypergraph are typed, like a standard semantic network approach for knowledge representation, so they re able to handle all sorts of knowledge, from the most concrete perception and actuation related knowledge to the most abstract relationships. But they re also weighted with values similar to neural net weights, and pass around quantities (importance values, discussed in Chapter 23 of Part 2) similar to neural net activations, allowing emergent attractor assembly based knowledge representation similar to attractor neural nets. The concept of glocality lies at the heart of this combination, in a way that spans the pseudodichotomy: Local knowledge is represented in abstract logical relationships stored in explicit logical form, and also in Hebbian-type associations between nodes and links. Global knowledge is represented in large-scale patterns of node and link weights, which lead to large-scale patterns of network activity, which often take the form of attractors qualitatively similar to Hopfield net attractors. These attractors are called maps. The result of all this is that a concept like cat might be represented as a combination of: A small number of logical relationships and strong associations, that constitute the key subnetwork for the cat concept. A large network of weak associations, binding together various nodes and links of various types and various levels of abstraction, representing the cat map . 270 13 Local, Global and Glocal Knowledge Representation The activation of the key will generally cause the activation of the map, and the activation of a significant percentage of the map will cause the activation of the rest of the map, including the key. Furthermore, if the key were for some reason forgotten, then after a significant amount of effort, the system would likely to be able to reconstitute it (perhaps with various small changes) from the information in the map. We conjecture that this particular kind of glocal memory will turn out to be very powerful for AGI, due to its ability to combine the strengths of formal logical inference with those of self-organizing attractor neural networks. As a simple example, consider the representation of a tower , in the context of an artificial agent that has built towers of blocks, and seen pictures of many other kinds of towers, and seen some tall building that it knows are somewhat like towers but perhaps not exactly towers. If this agent is reasonably conceptually advanced (say, at Piagetan the concrete operational level) then its mind will contain some declarative relationships partially characterizing the concept of tower, as well as its sensory and episodic examples, and its procedural knowledge about how to build towers. The key of the tower concept in the agent s mind may consist of internal images and episodes regarding the towers it knows building towers (piling blocks atop blocks atop blocks...), and the core declarative relations summarizing towerness and the whole tower map then consists of a much larger number of images, episodes, procedures and declarative relationships connected to tower and other related entities. If any portion of the map is removed even if the key is removed then the rest of the map can be approximately reconstituted, after some work. Some cognitive operations are best done on the localized representation e.g. logical reasoning. Other operations, such as attention allocation and guidance of inference control, are best done using the globalized map representation. Chapter 14 Representing Implicit Knowledge via Hypergraphs 14.1 Introduction Explicit knowledge is easy to write about and talk about; implicit knowledge is equally important, but tends to get less attention in discussions of AI and psychology, simply because we don t have as good a vocabulary for describing it, nor as good a collection of methods for measuring it. One way to deal with this problem is to describe implicit knowledge using language and methods typically reserved for explicit knowledge. This might seem intrinsically non-workable, but we argue that it actually makes a lot of sense. The same sort of networks that a system like CogPrime uses to represent knowledge explicitly, can also be used to represent the emergent knowledge that implicitly exists in an intelligent system s complex structures and dynamics. We ve noted that CogPrime uses an explicit representation of knowledge in terms of weighted labeled hypergraphs; and also uses other more neural net like mechanisms (e.g. the economic attention allocation network subsystem) to represent knowledge globally and implicitly. Cog- Prime combines these two sorts of representation according to the principle we have called glocality. In this chapter we pursue glocality a bit further describing a means by which even implicitly represented knowledge can be modeled using weighted labeled hypergraphs similar to the ones used explicitly in CogPrime. This is conceptually important, in terms of making clear the fundamental similarities and differences between implicit and explicit knowledge representation; and it is also pragmatically meaningful due to its relevance to the CogPrime methods described in Chapter 42 of Part 2 that transform implicit into explicit knowledge. To avoid confusion with CogPrime s explicit knowledge representation, we will refer to the hypergraphs in this chapter as composed of Vertices and Edges rather than Nodes and Links. In prior publications we have referred to "derived" or "emergent" hypergraphs of the sort described here using the acronym SMEPH, which stands for Self-Modifying, Evolving Probabilistic Hypergraphs. 14.2 Key Vertex and Edge Types We begin by introducing a particular collection of Vertex and Edge types, to be used in modeling the internal structures of intelligent systems. The key SMEPH Vertex types are 271 272 14 Representing Implicit Knowledge via Hypergraphs ConceptVertex, representing a set, for instance, an idea or a set of percepts SchemaVertex, representing a procedure for doing something (perhaps something in the physical world, or perhaps an abstract mental action). The key SMEPH Edge types, using language drawn from Probabilistic Logic Networks (PLN) and elaborated in Chapter 34 below, are as follows: ExtensionalInheritanceEdge (ExtInhEdge for short: an edge which, linking one Vertex or Edge to another, indicates that the former is a special case of the latter) ExtensionalSimilarityEdge (ExtSim: which indicates that one Vertex or Edge is similar to another) ExecutionEdge (a ternary edge, which joins S,B,C when S is a SchemaVertex and the result from applying S to B is C). So, in a SMEPH system, one is often looking at hypergraphs whose Vertices represent ideas or procedures, and whose Edges represent relationships of specialization, similarity or transformation among ideas and or procedures. The semantics of the SMEPH edge types is given by PLN, but is simple and commonsensical. ExtInh and ExtSim Edges come with probabilistic weights indicating the extent of the relationship they denote (e.g. the ExtSimEdge joining the cat ConceptVertex to the dog ConceptVertex gets a higher probability weight than the one joining the cat ConceptVertex to the washing-machine ConceptVertex). The mathematics of transformations involving these probabilistic weights becomes quite involved - particularly when one introduces SchemaVertices corresponding to abstract mathematical operations, a step that enables SMEPH hypergraphs to have the complete mathematical power of standard logical formalisms like predicate calculus, but with the added advantage of a natural representation of uncertainty in terms of probabilities, as well as a natural representation of networks and webs of complex knowledge. 14.3 Derived Hypergraphs We now describe how SMEPH hypergraphs may be used to model and describe intelligent systems. One can (in principle) draw a SMEPH hypergraph corresponding to any individual intelligent system, with Vertices and Edges for the concepts and processes in that system s mind. This is called the derived hypergraph of that system. 14.3.1 SMEPH Vertices A ConceptVertex in the derived hypergraph of a system corresponds to a structural pattern that persists over time in that system; whereas a SchemaVertex corresponds to a multi-timepoint dynamical pattern that recurs in that system s dynamics. If one accepts the patternist definition of a mind as the set of patterns in an intelligent system, then it follows that the derived hypergraph of an intelligent system captures a significant fraction of the mind of that system. To phrase it a little differently, we may say that a ConceptVertex, in SMEPH, refers to the habitual pattern of activity observed in a system when some condition is met (this condition 14.3 Derived Hypergraphs 273 corresponding to the presence of a certain pattern). The condition may refer to something in the world external to the system, or to something internal. For instance, the condition may be observing a cat. In this case, the corresponding Concept vertex in the mind of Ben Goertzel is the pattern of activity observed in Ben Goertzel s brain when his eyes are open and he s looking in the direction of a cat. The notion of pattern of activity can be made rigorous using mathematical pattern theory, as is described in The Hidden Pattern Goe06a . Note that logical predicates, on the SMEPH level, appear as particular kinds of Concepts, where the condition involves a predicate and an argument. For instance, suppose one wants to know what happens inside Ben s mind when he eats cheese. Then there is a Concept corresponding to the condition of cheese-eating activity. But there may also be a Concept corresponding to eating activity in general. If the Concept denoting the activity of eating X is generally easily computable from the Concepts for X and eating individually, then the eating Concept is effectively acting as a predicate. A SMEPH SchemaVertex, on the other hand, is like a Concept that s defined in a timedependent way. One type of Schema refers to a habitual dynamical pattern of activity occurring before and or during some condition is met. For instance, the condition might be saying the word Hello. In that case the corresponding SchemaVertex in the mind of Ben Goertzel is the pattern of activity that generally occurs before he says Hello. Another type of Schema refers to a habitual dynamical pattern of activity occurring after some condition X is met. For instance, in the case of the Schema for adding two numbers, the precondition X consists of the two numbers and the concept of addition. The Schema is then what happens when the mind thinks of adding and thinks of two numbers. Finally, there are Schema that refer to habitual dynamical activity patterns occurring after some condition X is met and before some condition Y is met. In this case the Schema is viewed as transforming X into Y. For instance, if X is the condition of meeting someone who is not a friend, and Y is the condition of being friends with that person, then the habitually intervening activities constitute the Schema for making friends. 14.3.2 SMEPH Edges SMEPH edge types fall into two categories: functional and logical. Functional edges connect Schema vertices to their input and outputs; logical edges refer mainly to conditional probabilities, and in general are to be interpreted according to the semantics of Probabilistic Logic Networks. Let us begin with logical edges. The simplest case is the Subset edge, which denotes a straightforward, extensional conditional probability. For instance, it may happen that whenever the Concept for cat is present in a system, the Concept for animal is as well. Then we would say Subset cat animal (Here we assume a notation where R A B denotes an Edge of type R between Vertices A and B.) On the other hand, it may be that 50 of the time that cat is present in the system, cute is present as well: then we would say Subset cat cute .5 274 14 Representing Implicit Knowledge via Hypergraphs where the .5 denotes the probability, which is a component of the Truth Value associated with the edge. Next, the most basic functional edge is the Execution edge, which is ternary and denotes a relation between a Schema, its input and its output, e.g. Execution father of Ben Goertzel Ted Goertzel for a schema father of that outputs the father of its argument. The ExecutionOutput (ExOut) edge denotes the output of a Schema in an implicit way, e.g. ExOut say hello refers to a particular act of saying hello, whereas ExOut add numbers 3, 4) refers to the Concept corresponding to 7. Note that this latter example involves a set of three entities: sets are also part of the basic SMEPH knowledge representation. A set may be thought of as a hypergraph edge that points to all its members. In this manner we may define a set of edges and vertices modeling the habitual activity patterns of a system when in different situations. This is called the derived hypergraph of the system. Note that this hypergraph can in principle be constructed no matter what happens inside the system: whether it s a human brain, a formal neural network, Cyc, OCP, a quantum computer, etc. Of course, constructing the hypergraph in practice is quite a different story: for instance, we currently have no accurate way of measuring the habitual activity patterns inside the human brain. fMRI and PET and other neuroimaging technologies give only a crude view, though they are continually improving. Pattern theory enters more deeply here when one thoroughly fleshes out the Inheritance concept. Philosophers of logic have extensively debated the relationship between extensional inheritance (inheritance between sets based on their members) and intensional inheritance (inheritance between entity-types based on their properties). A variety of formal mechanisms have been proposed to capture this conceptual distinction; see (Wang, 2006, 1995 TODO make ref) for a review along with a novel approach utilizing uncertain term logic. Pattern theory provides a novel approach to defining intension: one may associate with each ConceptVertex in a system s derived hypergraph the set of patterns associated with the structural pattern underlying that ConceptVertex. Then, one can define the strength of the IntensionalInheritanceEdge between two ConceptVertices A and B as the percentage of A s pattern-set that is also contained in B s pattern-set. According to this approach, for instance, one could have IntInhEdge whale fish 0.6 ExtInhEdge whale fish 0.0 since the fish and whale sets have common properties but no common members. 14.4 Implications of Patternist Philosophy for Derived Hypergraphs of Intelligent Systems Patternist philosophy rears its head here and makes some definite hypotheses about the structure of derived hypergraphs. It suggests that derived hypergraphs should have a dual network 14.4 Implications of Patternist Philosophy for Derived Hypergraphs of Intelligent Systems 275 structure, and that in highly intelligent systems they should have subgraphs that constitute models of the whole hypergraph (these are self systems). SMEPH does not add anything to the patternist view on a philosophical level, but it gives a concrete instantiation to some of the general ideas of patternism. In this section we ll articulate some "SMEPH principles", constituting important ideas from patternist philosophy as they manifest themselves in the SMEPH context. The logical edges in a SMEPH hypergraph are weighted with probabilities, as in the simple example given above. The functional edges may be probabilistically weighted as well, since some Schema may give certain results only some of the time. These probabilities are critical in terms of SMEPH s model of system dynamics; they underly one of our SMEPH principles, Principle of Implicit Probabilistic Inference: In an intelligent system, the temporal evolution of the probabilities on the edges in the system s derived hypergraph should approximately obey the rules of probability theory. The basic idea is that, even if a system - through its underlying dynamics - has no explicit connection to probability theory, it still must behave roughly as if it does, if it is going to be intelligent. The roughly part is important here; it s well known that humans are not terribly accurate in explicitly carrying out formal probabilistic inferences. And yet, in practical contexts where they have experience, humans can make quite accurate judgments; which is all that s required by the above principle, since it s the contexts where experience has occurred that will make up a system s derived hypergraph. Our next SMEPH principle is evolutionary, and states Principle of Implicit Evolution: In an intelligent system, new Schema and Concepts will continually be created, and the Schema and Concepts that are more useful for achieving system goals (as demonstrated via probabilistic implication of goal achievement) will tend to survive longer. Note that this principle can be fulfilled in many different ways. The important thing is that system goals are allowed to serve as a selective force. Another SMEPH dynamical principle pertains to a shorter time-scale than evolution, and states Principle of Attention Allocation: In an intelligent system, Schema and Concepts that are more useful for attaining short-term goals will tend to consume more of the system s energy. (The balance of attention oriented toward goals pertaining to different time scales will vary from system to system.) Next, there is the Principle of Autopoesis: In an intelligent system, if one removes some part of the system and then allows the system s natural dynamics to keep going, a decent approximation to that removed part will often be spontaneously reconstituted. And there is the 276 14 Representing Implicit Knowledge via Hypergraphs Cognitive Equation Principle: In an intelligent system, many abstract patterns that are present in the system at a certain time as patterns among other Schema and Concepts, will at a near-future time be present in the system as patterns among elementary system components. The Cognitive Equation Principle, briefly discussed in Chapter 3, basically means that Concepts and Schema emergent in the system are recognized by the system and then embodied as elementary items in the system so that patterns among them in their emergent form become, with the passage of time, patterns among them in their directly-system-embodied form. This is a natural consequence of the way intelligent systems continually recognize patterns in themselves. Note that derived hypergraphs may be constructed corresponding to any complex system which demonstrates a variety of internal dynamical patterns depending on its situation. However, if a system is not intelligent, then according to the patternist philosophy evolution of its derived hypergraph can t necessarily be expected to follow the above principles. 14.4.1 SMEPH Principles in CogPrime We now more explicitly elaborate the application of these ideas in the CogPrime context. As noted above, in addition to explicit knowledge representation in terms of Nodes and Links, CogPrime also incorporates implicit knowledge representation in the form of what are called Maps: collections of Nodes and Links that tend to be utilized together within cognitive processes. These Maps constitute a CogPrime system s derived hypergraph, which will not be identical to the hypergraph it uses for explicit knowledge representation. However, an interesting feedback loop arises here, in that the intelligence s self-study will generally lead it to recognize large portions of its derived hypergraph as patterns in itself, and then embody these patterns within its concretely implemented knowledge hypergraph. This relates to the Cognitive Equation Principle defined above 3, in which an intelligent system continually recognizes patterns in itself and embodies these patterns in its own basic structure (so that new patterns may more easily emerge from them). Often it happens that a particular CogPrime node will serve as the center of a map, so that e.g. the Concept Link denoting cat will consist of a number of nodes and links roughly centered around a ConceptNode that is linked to the WordNode cat. But this is not guaranteed and some CogPrime maps are more diffuse than this with no particular center. Somewhat similarly, the key SMEPH dynamics are represented explicitly in CogPrime: probabilistic reasoning is carried out via explicit application of PLN on the CogPrime hypergraph, evolutionary learning is carried out via application of the MOSES optimization algorithm, and attention allocation is carried out via a combination of inference and evolutionary pattern mining. But the SMEPH dynamics also occur implicitly in CogPrime: emergent maps are reasoned on probabilistically as an indirect consequence of node-and-link level PLN activity; maps evolve as a consequence of the coordinated whole of CogPrime dynamics; and attention shifts between maps according to complex emergent dynamics. To see the need for maps, consider that even a Node that has a particular meaning attached to it - like the Iraq Node, say - doesn t contain much of the meaning of Iraq in it. The meaning of Iraq lies in the Links attached to this Node, and the Links attached to their Nodes - and the other Nodes and Links not explicitly represented in the system, which will be created by 14.4 Implications of Patternist Philosophy for Derived Hypergraphs of Intelligent Systems 277 CogPrime s cognitive algorithms based on the explicitly existent Nodes and Links related to the Iraq Node. This halo of Atoms related to the Iraq node is called the Iraq map. In general, some maps will center around a particular Atom, like this Iraq map, others may not have any particular identifiable center. CogPrime s cognitive processes act directly on the level of Nodes and Links, but they must be analyzed in terms of their impact on maps as well. In SMEPH terms, Cog- Prime maps may be said to correspond to SMEPH ConceptNodes, and for instance bundles of Links between the Nodes belonging to a map may correspond to a SMEPH Link between two ConceptNodes. Chapter 15 Emergent Networks of Intelligence 15.1 Introduction When one is involved with engineering an AGI system, one thinks a lot about the aspects of the system one is explicitly building what are the parts, how they fit together, how to test they re properly working, and so forth. And yet, these explicitly engineered aspects are only a fraction of what s important in an AGI system. At least as critical are the emergent aspects the patterns that emerge once the system is up and running, interacting with the world and other agents, growing and developing and learning and self-modifying. SMEPH is one toolkit for describing some of these emergent patterns, but it s only a start. In line with these general observations, most of this book will focus on the structures and processes that we have built, or intend to build, into the CogPrime system. But in a sense, these structures and processes are not the crux of CogPrime s intended intelligence. The purpose of these pre-programmed structures and processes is to give rise to emergent structures and processes, in the course of CogPrime s interaction with the world and the other minds within it. We will return to this theme of emergence at several points in later chapters, e.g. in the discussion of map formation in Chapter 42 of Part 2. Given the important of emergent structures and specifically emergent network structures for intelligence, it s fortunate the scientific community has already generated a lot of knowledge about complex networks: both networks of physical or software elements, and networks of organization emergent from complex systems. As most of this knowledge has originated in fields other than AGI, or in pure mathematics, it tends to require some reinterpretation or tweaking to achieve maximal applicability in the AGI context; but we believe this effort will become increasingly worthwhile as the AGI field progresses, because network theory is likely to be very useful for describing the contents and interactions of AGI systems as they develop increasing intelligence. In this brief chapter we specifically focus on the emergence of certain large-scale network structures in a CogPrime knowledge store, presenting heuristic arguments as to why these structures can be expected to arise. We also comment on the way in which these emergent structures are expected to guide cognitive processes, and give rise to emergent cognitive processes. The following chapter expands on this theme in a particular direction, exploring the possible emergence of structures characterizing inter-cognitive reflection. 279 280 15 Emergent Networks of Intelligence 15.2 Small World Networks One simple but potentially useful observation about CogPrime Atomspaces is that they are generally going to be small world networks Buc03 , rather than random graphs. A small world network is a graph in which the connectivities of the various nodes display a power law behavior so that, loosely speaking, there are a few nodes with very many links, then more nodes with a modest number of links ... and finally, a huge number of nodes with very few links. This kind of network occurs in many natural and human systems, including citations among papers, financial arrangements among banks, links between Web pages and the spread of diseases among people or animals. In a weighted network like an Atomspace, "small-world-ness" must be defined in a manner taking the weights into account, and there are several obvious ways to do this. Figure 15.1 depicts a small but prototypical small-worlds network, with a few "hub" nodes possessing far more neighbors than the others, and then some secondary hubs, etc. An excellent reference on network theory in general, including but not limited to small world networks, is Peter Csermely s Weak Links Cse06 . Many of the ideas in that work have apparent OpenCog applications, which are not elaborated here. Fig. 15.1: A typical, though small-sized, small-worlds network. One process via which small world networks commonly form is "preferential attachment" Bar02 . This occurs in essence when "the rich get richer" i.e. when nodes in the network grow new links, in a manner that causes them to preferentially grow links to nodes that already have more links. It is not hard to see that CogPrime s ECAN dynamics will naturally lead to 15.3 Dual Network Structure 281 preferential attachment, because Atoms with more links will tend to get more STI, and thus will tend to get selected by more cognitive processes, which will cause them to grow more links. For this reason, in most circumstances, a CogPrime system in which most link-building cognitive processes rely heavily on ECAN to guide their activities will tend to contain a smallworld-network Atomspace. This is not rigorously guaranteed to be the case for any possible combination of environment and goals, but it is commonsensically likely to nearly always be the case. One consequence of the small worlds structure of the Atomspace is that, in exploring other properties of the Atom network, it is particularly important to look at the hub nodes. For instance, if one is studying whether hierarchical and heterarchical subnetworks of the Atomspace exist, and whether they are well-aligned with each other, it is important to look at hierarchical and heterarchical connections between hub nodes in particular (and secondary hubs, etc.). A pattern of hierarchical or dual network connection that only held up among the more sparsely connected nodes in a small-world network would be a strange thing, and perhaps not that cognitively useful. 15.3 Dual Network Structure One of the key theoretical notions in patternist philosophy is that complex cognitive systems evolve internal dual network structures, comprising superposed, harmonized hierarchical and heterarchical networks. Now we explore some of the specific CogPrime structures and dynamics militating in favor of the emergence of dual networks. 15.3.1 Hierarchical Networks The hierarchical nature of human linguistic concepts is well known, and is illustrated in Figure 15.2 for the commonsense knowledge domain (using a graph drawn from WordNet, a huge concept hierarchy covering 50K English-language concepts), and in Figure 15.4 for a specialized knowledge subdomain, genetics. Due to this fact, a certain amount of hierarchy can be expected to emerge in the Atomspace of any linguistically savvy CogPrime, simply due to its modeling of the linguistic concepts that it hears and reads. Hierarchy also exists in the natural world apart from language, which is the reason that many sensorimotor-knowledge-focused AGI systems (e.g. DeSTIN and HTM, mentioned in Chapter 4 above) feature hierarchical structures. In these cases the hierarchies are normally spatiotemporal in nature - with lower layers containing elements responding to more localized aspects of the perceptual field, and smaller, more localized groups of actuators. This kind of hierarchy certainly could emerge in an AGI system, but in CogPrime we have opted for a different route. If a CogPrime system is hybridized with a hierarchical sensorimotor network like one of those mentioned above, then the Atoms linked to the nodes in the hierarchical sensorimotor network will naturally possess hierarchical conceptual relationships, and will thus naturally grow hierarchical links between them (e.g. InheritanceLinks and IntensionalInheritanceLinks via PLN, AsymmetricHebbianLinks via ECAN). 282 15 Emergent Networks of Intelligence Fig. 15.2: A typical, though small, subnetwork of WordNet s hierarchical network. Once elements of hierarchical structure exist via the hierarchical structure of language and physical reality, then a richer and broader hierarchy can be expected to accumulate on top of it, because importance spreading and inference control will implicitly and automatically be guided by the existing hierarchy. That is, in the language of Chaotic Logic Goe94 and patternist theory, hierarchical structure is an "autopoietic attractor" once it s there it will tend to enrich itself and maintain itself. AsymmetricHebbianLinks arranged in a hierarchy will tend to cause importance to spread up or down the hierarchy, which will lead other cognitive processes to look for patterns between Atoms and their hierarchical parents or children, thus potentially building more hierarchical links. Chains of InheritanceLinks pointing up and down the hierarchy will lead PLN to search for more hierarchical links e.g. most simply, A B C where C is above B is above A in the hierarchy, will naturally lead inference to check the viability of A C by deduction. There is also the possibility to introduce a special DefaultInheritanceLink, as discussed in Chapter 34 of Part 2, but this isn t actually necessary to obtain the inferential maintenance of a robust hierarchical network. 15.3.2 Associative, Heterarchical Networks Heterarchy is in essence a simpler structure than hierarchy: it simply refers to a network in which nodes are linked to other nodes with which they share important relationships. That is, there should be a tendency that if two nodes are often important in the same contexts or for 15.3 Dual Network Structure 283 Fig. 15.3: A typical, though small, subnetwork of the Gene Ontology s hierarchical network. the same purposes, they should be linked together. Portrayals of typical heterarchical linkage patterns among natural language concepts are given in Figures 15.5 and 15.6. Just for fun, Figure 15.7 shows one person s attempt to draw a heterarchical graph of the main concepts in one of Douglas Hofstadter s books. Naturally, real concept heterarchies are far more large, complex and tangled than even this one. In CogPrime, ECAN enforces heterarchy via building SymmetricHebbianLinks, and PLN by building SimilarityLinks, IntensionalSimilarityLinks and ExtensionalSimilarityLinks. Furthermore, these various link types reinforce each other. PLN control is guided by importance spreading, which follows Hebbian links, so that a heterarchical Hebbian network tends to cause PLN to explore the formation of links following the same paths as the heterarchical Hebbian- Links. And importance can spread along logical links as well as explicit Hebbian links, so that the existence of a heterarchical logical network will tend to cause the formation of additional heterarchical Hebbian links. Heterarchy reinforces itself in "autopoietic attractor" style even more simply and directly than heterarchy. 284 15 Emergent Networks of Intelligence Fig. 15.4: Small-scale portrayal of a portion of the spatiotemporal hierarchy in Jeff Hawkins Hierarchical Temporal Memory architecture. 15.3.3 Dual Networks Finally, if both hierarchical and heterarchical structures exist in an Atomspace, then both ECAN and PLN will naturally blend them together, because hierarchical and heterarchical links will feed into their link-creation processes and naturally be combined together to form new links. This will tend to produce a structure called a dual network, in which a hierarchy exists, along with a rich network of heterarchical links joining nodes in the hierarchy, with a particular density of links between nodes on the same hierarchical level. The dual network structure will emerge without any explicit engineering oriented toward it, simply via the existence of hierarchical and heterarchical networks, and the propensity of ECAN and PLN to be guided by both the hierarchical and heterarchical networks. The existence of a natural dual network structure in both linguistic and sensorimotor data will help the formation process along, and then creative cognition will enrich the dual network yet further than is directly necessitated by the external world. 15.3 Dual Network Structure 285 Fig. 15.5: Portions of a conceptual heterarchy centered on specific concepts. Fig. 15.6: A portion of a conceptual heterarchy, showing the "dangling links" leading this portion to the rest of the heterarchy. A rigorous mathematical analysis of the formation of hierarchical, heterarchical and dual networks in CogPrime systems has not yet been undertaken, and would certainly be an interesting enterprise. Similar to the theory of small world networks, there is ample ground here for both theorem-proving and heuristic experimentation. However, the qualitative points made here are sufficiently well-grounded in intuition and experience to be of some use guiding our 286 15 Emergent Networks of Intelligence Fig. 15.7: A fanciful evocation of part of a reader s conceptual heterarchy related to Douglas Hofstadter s writings. ongoing work. One of the nice things about emergent network structures is that they are relatively straightforward to observe in an evolving, learning AGI system, via visualization and inspection of structures such at the Atomspace. Section V A Path to Human-Level AGI Chapter 16 AGI Preschool Co-authored with Stephan Vladimir Bugaj 16.1 Introduction In conversations with government funding sources or narrow AI researchers about AGI work, one of the topics that comes up most often is that of evaluation and metrics i.e., AGI intelligence testing. We actually prefer to separate this into two topics: environments and methods for careful qualitative evaluation of AGI systems, versus metrics for precise measurement of AGI systems. The difficulty of formulating bulletproof metrics for partial progress toward advanced AGI has become evident throughout the field, and in Chapter 8 we have elaborated one plausible explanation for this phenomenon, the "trickiness" of cognitive synergy. LWML09 , summarizing a workshop on Evaluation and Metrics for Human-Level AI held in 2008, discusses some of the general difficulties involved in this type of assessment, and some requirements that any viable approach must fulfill. On the other hand, the lack of appropriate methods for careful qualitative evaluation of AGI systems has been much less discussed, but we consider it actually a more important issue as well as an easier (though not easy) one to solve. We haven t actually found the lack of quantitative intelligence metrics to be a major obstacle in our practical AGI work so far. Our OpenCogPrime implementation lags far behind the CogPrime design as articulated in Part 2 of this book, and according to the theory underlying CogPrime, the more interesting behaviors and dynamics of the system will occur only when all the parts of the system have been engineered to a reasonable level of completion and integrated together. So, the lack of a great set of metrics for evaluating the intelligence of our partiallybuilt system hasn t impaired too much. Testing the intelligence of the current OpenCogPrime system is a bit like testing the flight capability of a partly-built airplane that only has stubs for wings, lacks tail-fins, has a much less efficient engine than the one that s been designed for use in the first "real" version of the airplane, etc. There may be something to be learned from such preliminary tests, but making them highly rigorous isn t a great use of effort, compared to working on finishing implementing the design according to the underlying theory. On the other hand, the problem of what environments and methods to use to qualitatively evaluate and study AGI progress, has been considerably more vexing to us in practice, as we ve proceeded in our work on implementing and testing OpenCogPrime and developing the CogPrime theory. When developing a complex system, it s nearly always valuable to see what this system does in some fairly rich, complex situations, in order to gain a better intuitive understanding of the parts and how they work together. In the context of human-level AGI, the theoretically best way to do this would be to embody one s AGI system in a humanlike body 289 290 16 AGI Preschool and set it loose in the everyday human world; but of course, this isn t feasible given the current state of development of robotics technology. So one must seek approximations. Toward this end we have embodied OpenCogPrime in non-player characters in video game style virtual worlds, and carried out preliminary experiments embodying OpenCogPrime in humanoid robots. These are reasonably good options but they have limitations and lead to subtle choices: what kind of game characters and game worlds, what kind of robot environments, etc.? One conclusion we have come to, based largely on the considerations in Chapter 11 on development and Chapter 9 on the importance of environment, is that it may make sense to embed early-stage proto-AGI and AGI systems in environments reminiscent of those used for teaching young human children. In this chapter we will explore this approach in some detail: emulation, in either physical reality or an multiuser online virtual world, of an environment similar to preschools used in early human childhood education. Complete specification of an AGI Preschool would require much more than a brief chapter; our goal here is to sketch the idea in broad outline, and give a few examples of the types of opportunities such an environment would afford for instruction, spontaneous learning and formal and informal evaluation of certain sorts of early-stage AGI systems. The material in this chapter will pop up fairly often later in the book. The AGI Preschool context will serve, throughout the following chapters, as a source of concrete examples of the various algorithms and structures. But it s not proposed merely as an expository tool; we are making the very serious proposal that sending AGI systems to a virtual or robotic preschool is an excellent way perhaps the best way to foster the development of human-level human-like AGI. 16.1.1 Contrast to Standard AI Evaluation Methodologies The reader steeped in the current AI literature may wonder why it s necessary to introduce a new methodology and environment for evaluating AGI systems. There are already very many different ways of evaluating AI systems out there ... do we really need another? Certainly, the AI field has inspired many competitions, each of which tests some particular type or aspect of intelligent behavior. Examples include robot competitions, tournaments of computer chess, poker, backgammon and so forth at computer olympiads, trading-agent competition, language and reasoning competitions like the Pascal Textual Entailment Challenge, and so on. In addition to these, there are many standard domains and problems used in the AI literature that are meant to capture the essential difficulties in a certain class of learning problems: standard datasets for face recognition, text parsing, supervised classification, theorem-proving, question-answering and so forth. However, the value of these sorts of tests for AGI is predicated on the hypothesis that the degree of success of an AI program at carrying out some domain-specific task, is correlated with the potential of that program for being developed into a robust AGI program with broad intelligence. If humanlike AGI and problem-area-specific narrow AI are in fact very different sorts of pursuits requiring very different principles, as we suspect, then these tests are not strongly relevant to the AGI problem. There are also some standard evaluation paradigms aimed at AI going beyond specific tasks. For instance, there is a literature on multitask learning" and transfer learning, where the goal for an AI is to learn one task quicker given another task solved previously Car97, TM95, 16.2 Elements of Preschool Design 291 BDS03, TS07, RZDK05 . This is one of the capabilities an AI agent will need to simultaneously learn different types of tasks as proposed in the Preschool scenario given here. And there is a literature on shaping, where the idea is to build up the capability of an AI by training it on progressively more difficult versions of the same tasks LD03 . Again, this is one sort of capability an AI will need to possess if it is to move up some type of curriculum, such as a school curriculum. While we applaud the work done on multitask learning and shaping, we feel that exploring these processes using mathematical abstractions, or in the domain of various narrowlyproscribed machine-learning or robotics test problems, may not adequately address the problem of AGI. The problem is that generalization among tasks, or from simpler to more difficult versions of the same task, is a process whose nature may depend strongly on the overall nature of the set of tasks and task-versions involved. Real-world tasks have a subtlety of interconnectedness and developmental course that is not captured in current mathematical learning frameworks nor standard AI test problems. To put it mathematically, we suggest that the universe of real-world human tasks has a host of special statistical properties that have implications regarding what sorts of AI programs will be most suitable; and that, while exploring and formalizing the nature of these statistical properties is important, an easier and more reliable approach to AGI testing is to create a testing environment that embodies these properties implicitly, via its being an emulation of the cognitively meaningful aspects of the real-world human learning environment. One way to see this point vividly is to contrast the current proposal with the General Game Player AI competition, in which AIs seek to learn to play games based on formal descriptions of the rules. 1 . Clearly doing GGP well requires powerful AGI; and doing GGP even mediocrely probably requires robust multitask learning and shaping. But we suspect GGP is far inferior to AGI Preschool as an approach to testing early-stage AI programs aimed at roughly humanlike intelligence. This is because, unlike the tasks involved in AI Preschool, the tasks involved in doing simple instances of GGP seem to have little relationship to humanlike intelligence or real-world human tasks. 16.2 Elements of Preschool Design What we mean by an AGI Preschool is simply a porting to the AGI domain of the essential aspects of human preschools. While there is significant variance among preschools there are also strong commonalities, grounded in educational theory and experience. We will briefly discuss both the physical design and educational curriculum of the typical human preschool, and which aspects transfer effectively to the AGI context. On the physical side, the key notion in modern preschool design is the learning center, an area designed and outfitted with appropriate materials for teaching a specific skill. Learning centers are designed to encourage learning by doing, which greatly facilitates learning processes based on reinforcement, imitation and correction (see Chapter 31 of Part 2 for a detailed discussion of the value of this combination); and also to provide multiple techniques for teaching the same skills, to accommodate different learning styles and prevent over-fitting and overspecialization in the learning of new skills. 1 http: games.stanford.edu 292 16 AGI Preschool Centers are also designed to cross-develop related skills. A manipulatives center, for example, provides physical objects such as drawing implements, toys and puzzles, to facilitate development of motor manipulation, visual discrimination, and (through sequencing and classification games) basic logical reasoning. A dramatics center, on the other hand, cross-trains interpersonal and empathetic skills along with bodily-kinesthetic, linguistic, and musical skills. Other centers, such as art, reading, writing, science and math centers are also designed to train not just one area, but to center around a primary intelligence type while also cross-developing related areas. For specific examples of the learning centers associated with particular contemporary preschools, see Nie98 . In many progressive, student-centered preschools, students are left largely to their own devices to move from one center to another throughout the preschool room. Generally, each center will be staffed by an instructor at some points in the day but not others, providing a variety of learning experiences. At some preschools students will be strongly encouraged to distribute their time relatively evenly among the different learning centers, or to focus on those learning centers corresponding to their particular strengths and or weaknesses. To imitate the general character of a human preschool, one would create several centers in a robot lab or virtual world. The precise architecture will best be adapted via experience but initial centers would likely be: a blocks center: a table with blocks on it a language center: a circle of chairs, intended for people to sit around and talk with the robot a manipulatives center: with a variety of different objects of different shapes and sizes, intended to teach visual and motor skills a ball play center: where balls are kept in chests and there is space for the robot to kick the balls around a dramatics center: where the robot can observe and enact various movements 16.3 Elements of Preschool Curriculum While preschool curricula vary considerably based on educational philosophy and regional and cultural factors, there is a great deal of common, shared wisdom regarding the most useful topics and methods for preschool teaching. Guided experiential learning in diverse environments and using varied materials is generally agreed upon as being an optimal methodology to reach a wide variety of learning types and capabilities. Hands-on learning provides grounding in specifics, where as a diversity of approaches allows for generalization. Core knowledge domains are also relatively consistent, even across various philosophies and regions. Language, movement and coordination, autonomous judgment, social skills, work habits, temporal orientation, spatial orientation, mathematics, science, music, visual arts, and dramatics are universal areas of learning which all early childhood learning touches upon. The particulars of these skills may vary, but all human children are taught to function in these domains. The level of competency developed may vary, but general domain knowledge is provided. For example, most kids won t be the next Maria Callas, Ravi Shankar or Gene Ween, but nearly all learn to hear, understand and appreciate music. Tables 16.1 - 16.3 review the key capabilities taught in preschools, and identify the most important specific skills that need to be evaluated in the context of each capability. This ta- 16.3 Elements of Preschool Curriculum 293 ble was assembled via surveying the curricula from a number of currently existing preschools employing different methodologies both based on formal academic cognitive theories Sch07 and more pragmatic approaches, such as: Montessori Mon12 , Waldorf SS03b , Brain Gym (www.braingym.org) and Core Knowledge (www.coreknowledge.org). Type of Capability Specific Skills to be Evaluated Story Understanding Understanding narrative sequence Understanding character development Dramatize a story Predict what comes next in a story Linguistic Give simple descriptions of events Describe similarities and differences Describe objects and their functions Linguistic Spatial- Interpreting pictures Visual Linguistic Social Asking questions appropriately Answering questions appropriately Talk about own discoveries Initiate conversations Settle disagreements Verbally express empathy Ask for help Follow directions Linguistic Scientific Provide possible explanations for events or phenomena Carefully describe observations Draw conclusions from observations Table 16.1: Categories of Preschool Curriculum, Part 1 16.3.1 Preschool in the Light of Intelligence Theory Comparing Table 16.1 to Gardner s Multiple Intelligences (MI) framework briefly reviewed in Chapter 2, the high degree of harmony is obvious, and is borne out by more detailed analysis. Preschool curriculum as standardly practiced is very well attuned to MI, and naturally covers all the bases that Gardner identifies as important. And this is not at all surprising since one of Gardner s key motivations in articulating MI theory was the pragmatics of educating humans with diverse strengths and weaknesses. Regarding intelligence as the ability to achieve complex goals in complex environments, it is apparent that preschools are specifically designed to pack a large variety of different micro- 294 16 AGI Preschool Type of Capability Logical- Mathematical Nonverbal Communication Spatial-Visual Objective Specific Skills to be Evaluated Categorizing Sorting Arithmetic Performing simple proto-scientific experiments Communicating via gesture Dramatizing situations Dramatizing needs, wants Express empathy Visual patterning Self-expression through drawing Navigate Assembling objects Disassembling objects Measurement Symmetry Similarity between structures (e.g. block structures and real ones) Table 16.2: Categories of Preschool Curriculum, Part 2 Type of Capability Interpersonal Emotional Specific Skills to be Evaluated Cooperation Display appropriate behavior in various settings Clean up belongings Share supplies Delay gratification Control emotional reactions Complete projects Table 16.3: Categories of Preschool Curriculum, Part 3 environments (the learning centers) into a single room, and to present a variety of different tasks in each environment. The environments constituted by preschool learning centers are designed as microcosms of the most important aspects of the environments faced by humans in their everyday lives. 16.4 Task-Based Assessment in AGI Preschool 295 16.4 Task-Based Assessment in AGI Preschool Professional pedagogues such as CM07 discuss evaluation of early childhood learning as intended to assess both specific curriculum content knowledge as well as the child s learning process. It should be as unobtrusive as possible, so that it just seems like another engaging activity, and the results used to tailor the teaching regimen to use different techniques to address weaknesses and reinforce strengths. For example, with group building of a model car, students are tested on a variety of skills: procedural understanding, visual acuity, motor acuity, creative problem solving, interpersonal communications, empathy, patience, manners, and so on. With this kind of complex, yet engaging, activity as a metric the teacher can see how each student approaches the process of understanding each subtask, and subsequently guide each student s focus differently depending on strengths and weaknesses. In Tables 16.4 and 16.5 we describe some particular tasks that AGIs may be meaningfully assigned in the context of a general AGI Preschool design and curriculum as described above. Of course, this is a very partial list, and is intended as evocative rather than comprehensive. Any one of these tasks can be turned into a rigorous quantitative test, thus allowing the precise comparison of different AGI systems capabilities; but we have chosen not to emphasize this point here, partly for space reasons and partly for philosophical ones. In some contexts the quantitative comparison of different systems may be the right thing to do, but as discussed in Chapter 17 there are also risks associated with this approach, including the emergence of an overly metrics-focused bakeoff mentality among system developers, and overfitting of AI abilities to test taking. What is most important is the isolation of specific tasks on which different systems may be experientially trained and then qualitatively assessed and compared, rather than the evaluation of quantitative metrics. Task-oriented testing allows for feedback on applications of general pedagogical principles to real-world, embodied activities. This allows for iterative refinement based learning (shaping), and cross development of knowledge acquisition and application (multitask learning). It also helps militate against both cheating, and over-fitting, as teachers can make ad-hoc modifications to the tests to determine if this is happening and correct for it if necessary. E.g., consider a linguistic task in which the AGI is required to formulate a set of instructions encapsulating a given behavior (which may include components that are physical, social, linguistic, etc.). Note that although this is presented as centrally a linguistic task, it actually involves a diverse set of competencies since the behavior to be described may encompass multiple real-world aspects. To turn this task into a more thorough test one might involve a number of human teachers and a number of human students. Before the test, an ensemble of copies of the AGI would be created, with identical knowledge state. Each copy would interact with a different human teacher, who would demonstrate to it a certain behavior. After testing the AGI on its own knowledge of the material, the teacher would then inform the AGI that it will then be tested on its ability to verbally describe this behavior to another. Then, the teacher goes away and the copy interacts with a series of students, attempting to convey to the students the instructions given by the teacher. The teacher can thereby assess both the AGI s understanding of the material, and the ability to explain it to the other students. This separates out assessment of understanding from assessment of ability to communicate understanding, attempting to avoid conflation of one with the other. The design of the training and testing needs to account for potential 296 16 AGI Preschool Intelligence Type Linguistic Logical- Mathematical Musical Bodily-Kinesthetic Test write a set of instructions speak on a subject edit a written piece or work write a speech commentate on an event apply positive or negative spin to astory perform arithmetic calculations create a process to measure something analyse how a machine works create a process devise a strategy to achieve an aim assess the value of a proposition perform a musical piece sing a song review a musical work coach someone to play a musical instrument juggle demonstrate a sports technique flip a beer-mat create a mime to explain something toss a pancake fly a kite Table 16.4: Prototypical preschool intelligence assessment tasks, Part 1 This testing protocol abstracts away from the particularities of any one teacher or student, and focuses on effectiveness of communication in a human context rather than according to formalized criteria. This is very much in the spirit of how assessment takes place in human preschools (with the exception of the copying aspect): formal exams are rarely given in preschool, but pragmatic, socially-embedded assessments are regularly made. By including the copying aspect, more rigorous statistical assessments can be made regarding efficacy of different approaches for a given AGI design, independent of past teaching experiences. The multiple copies may, depending on the AGI system design, then be able to be reintegrated, and further learning be done by higher-order cognitive systems in the AGI that integrate the disparate experiences of the multiple copies. This kind of parallel learning is different from both sequential learning that humans do, and parallel presences of a single copy of an AGI (such as in multiple chat rooms type experiments). All three approaches are worthy of study, to determine under what circumstances, and with which AGI designs, one is more successful than another. It is also worth observing how this test could be tweaked to yield a test of generalization ability. After passing the above, the AGI could then be given a description of a new task 16.4 Task-Based Assessment in AGI Preschool 297 Intelligence Type Spatial-Visual Interpersonal Test design a costume interpret a painting create a room layout create a corporate logo design a building pack a suitcase or the trunk of a car interpret moods from facial expressions demonstrate feelings through body language affect the feelings of others in a planned way coach or counsel another Table 16.5: Prototypical preschool intelligence assessment tasks, Part 2 (acquisition), and asked to explain the new one (variation). And, part of the training behavior might be carried out unobserved by the AGI, thus requiring the AGI to infer the omitted parts of the task it needs to describe. Another popular form of early childhood testing is puzzle block games. These kinds of games can be used to assess a variety of important cognitive skills, and to do so in a fun way that not only examines but also encourages creativity and flexible thinking. Types of games include pattern matching games in which students replicate patterns described visually or verbally, pattern creation games in which students create new patterns guided by visually or verbally described principles, creative interpretation of patterns in which students find meaning in the forms, and free-form creation. Such games may be individual or cooperative. Cross training and assessment of a variety of skills occurs with pattern block games: for example, interpretation of visual or linguistic instructions, logical procedure and pattern following, categorizing, sorting, general problem solving, creative interpretation, experimentation, and kinematic acuity. By making the games cooperative, various interpersonal skills involving communication and cooperation are also added to the mix. The puzzle block context bring up some general observations about the role of kinematic and visuospatial intelligence in the AGI Preschool. Outside of robotics and computer vision, AI research has often downplayed these sorts of intelligence (though, admittedly, this is changing in recent years, e.g. with increasing research focus on diagrammatic reasoning). But these abilities are not only necessary to navigate real (or virtual) spatial environments. They are also important components of a coherent, conceptually well-formed understanding of the world in which the student is embodied. Integrative training and assessment of both rigorous cognitive abilities generally most associated with both AI and proper schooling (such as linguistic and logical skills) along with kinematic and aesthetic sensory abilities is essential to the development of an intelligence that can successfully both operate in and sensibly communicate about the real world in a roughly humanlike manner. Whether or not an AGI is targeted to interpret physicalworld spatial data and perform tasks via robotics, in order to communicate ideas about a vast array of topics of interest to any intelligence in this world, an AGI must develop aspects of intelligence other than logical and linguistic cognition. 298 16 AGI Preschool 16.5 Beyond Preschool Once an AGI passes preschool, what are the next steps? There is still a long way to go, from preschool to an AGI system that is capable of, say, passing the Turing Test or serving as an effective artificial scientist. Our suggestion is to extend the school metaphor further, and make use of existing curricula for higher levels of virtual education: grade school, secondary school, and all levels of postsecondary education. If an AGI can pass online primary and secondary schools such as e- tutor.com, and go on to earn an online degree from an accredited university, then clearly said AGI has successfully achieved human level, roughly humanlike AGI. This sort of testing is interesting not only because it allows assessment of stages intermediate between preschool and adult, but also because it tests humanlike intelligence without requiring precise imitation of human behavior. If an AI can get a BA degree at an accredited university, via online coursework (assuming for simplicity courses where no voice interaction is needed), then we should consider that AI to have human-level intelligence. University coursework spans multiple disciplines, and the details of the homework assignments and exams are not known in advance, so like a human student the AGI team can t cheat. In addition to the core coursework, a schooling approach also tests basic social interaction and natural language communication, ability to do online research, and general problem solving ability. However, there is no rigid requirement to be strictly humanlike in order to pass university classes. Most of our concrete examples in the following chapters will pertain to the preschool context, because it s simple to understand, and because we feel that getting to the AGI preschool student level is going to be the largest leap. Once that level is obtained, moving further will likely be difficult also, but we suspect it will be more a matter of steady incremental improvements whereas the achievement of preschool-level functionality will be a large leap from the current situation. 16.6 Issues with Virtual Preschool Engineering As noted above there are two broad approaches to realizing the AGI Preschool idea: using the AGI to control a physical robot and then crafting a preschool environment suitable to the robot s sensors and actuators; or, using the AGI to control a virtual agent in an appropriately rich virtual-world preschool. The robotic approach is harder from an AI perspective (as one must deal with problems of sensation and actuation), but easier from an environment-construction perspective. In the virtual world case, one quickly runs up against the current limitations of virtual world technologies, which have been designed mainly for entertainment or socialnetworking purposes, not with the requirements of AGI systems in mind. In Chapter 9 we discussed the general requirements that an environment should possess to be supportive of humanlike intelligence. Referring back to that list, it s clear that current virtual worlds are fairly strong on multimodal communication, and fairly weak on naive physics. More concretely, if one wants a virtual world so that 16.6 Issues with Virtual Preschool Engineering 299 1. one could carry out all the standard cognitive development experiments described in developmental psychology books 2. one could implement intuitively reasonable versions of all the standard activities in all the standard learning stations in a contemporary preschool then current virtual world technologies appear not to suffice. As reviewed above, typical preschool activities include for instance building with blocks, playing with clay, looking in a group at a picture book and hearing it read aloud, mixing ingredients together, rolling throwing catching balls, playing games like tag, hide-and-seek, Simon Says or Follow the Leader, measuring objects, cutting paper into different shapes, drawing and coloring, etc. And, as typical, not necessarily representative examples of tasks psychologists use to measure cognitive development (drawn mainly from the Piagetan tradition, without implying any assertion that this is the only tradition worth pursuing), consider the following: 1. Which row has more circles- A or B? A: O O O O O, B: OOOOO 2. If Mike is taller than Jim, and Jim is shorter than Dan, then who is the shortest? Who is the tallest? 3. Which is heavier- a pound of feathers or a pound of rocks? 4. Eight ounces of water is poured into a glass that looks like the fat glass in Figure 2 16.1 and then the same amount is poured into a glass that looks like the tall glass in Figure 16.2 . Which glass has more water? 5. A lump of clay is rolled into a snake. All the clay is used to make the snake. Which has more clay in it the lump or the snake? 6. There are two dolls in a room, Sally and Ann, each of which has her own box, with a marble hidden inside. Sally goes out for a minute, leaving her box behind; and Ann decides to play a trick on Sally: she opens Sally s box, removes the marble, hiding it in her own box. Sally returns, unaware of what happened. Where will Sally would look for her marble? 7. Consider this rule about a set of cards that have letters on one side and numbers on the other: If a card has a vowel on one side, then it has an even number on the other side. If you have 4 cards labeled E K 4 7 , which cards do you need to turn over to tell if this rule is actually true? 8. Design an experiment to figure out how to make a pendulum that swings more slowly versus less slowly What we see from this ad hoc, partial list is that a lot of naive physics is required to make an even vaguely realistic preschool. A lot of preschool education is about the intersection between abstract cognition and naive physics. A more careful review of the various tasks involved in preschool education bears out this conclusion. With this in mind, in this section we will briefly describe an approach to extending current virtual world technologies that appears to allow the construction of a reasonably rich and realistic AGI preschool environment, without requiring anywhere near a complete simulation of realistic physics. 300 16 AGI Preschool Fig. 16.1: Part 1 of a Piagetan conservation of volume experiment: a child observes that two glasses obviously have the same amount of milk in them, and then sees the content of one of the glasses poured into a different-shaped glass. 16.6 Issues with Virtual Preschool Engineering 301 Fig. 16.2: Part 2 of a Piagetan conservation of volume experiment: a child observes two differentshaped glasses, which (depending on the level of his cognition), he may be able to infer have the same amount of milk in them, due to the events depicted in Figure 16.1. 16.6.1 Integrating Virtual Worlds with Robot Simulators One glaring deficit in current virtual world platforms is the lack of flexibility in terms of tool use. In most of these systems today, an avatar can pick up or utilize an object, or two objects can interact, only in specific, pre-programmed ways. For instance, an avatar might be able to pick up a virtual screwdriver only by the handle, rather than by pinching the blade betwen its fingers. This places severe limits on creative use of tools, which is absolutely critical in a preschool context. The solution to this problem is clear: adapt existing generalized physics engines to mediate avatar-object and object-object interactions. This would require more computation than current approaches, but not more than is feasible in a research context. One way to achieve this goal would be to integrate a robot simulator with a virtual world or game engine, for instance to modify the OpenSim (opensimulator.org) virtual world to use the Gazebo (playerstage.sourceforge.net) robot simulator in place of its current physics engine. While tractable, such a project would require considerable software engineering effort. 16.6.2 BlocksNBeads World Another glaring deficit in current virtual world platforms is their inability to model physical phenomena besides rigid objects with any sophistication. In this section we propose a potential 302 16 AGI Preschool solution to this issue: a novel class of virtual worlds called BlocksNBeadsWorld, consisting of the following aspects: 1. 3D blocks of various shapes and sizes and frictional coefficients, that can be stacked 2. Adhesive that can be used to stick blocks together, and that comes in two types, one of which can be removed by an adhesive-removing substance, one of which cannot (though its bonds can be broken via sufficient application of force) 3. Spherical beads, each of which has intrinsic unchangeable adhesion properties defined according to a particular, simple adhesion logic 4. Each block, and each bead, may be associated with multidimensional quantities representing its taste and smell; and may be associated with a set of sounds that are made when it is impacted with various forces at various positions on its surface Interaction between blocks and beads is to be calculated according to standard Newtonian physics, which would be compute-intensive in the case of a large number of beads, but tractable using distributed processing. For instance if 10K beads were used to cover a humanoid agent s face, this would provide a fairly wide diversity of facial expressions; and if 10K beads were used to form a blanket laid on a bed, this would provide a significant amount of flexibility in terms of rippling, folding and so forth. Yet, this order of magnitude of interactions is very small compared to what is done in contemporary simulations of fluid dynamics or, say, quantum chromodynamics. One key aspect of the spherical beads is that they can be used to create a variety of rigid or flexible surfaces, which may exist on their own or be attached to blocks-based constructs. The specific inter-bead adhesion properties of the beads could be defined in various ways, and will surely need to be refined via experimentation, but a simple scheme that seems to make sense is as follows. Each bead can have its surface tesselated into hexagons (the number of these can be tuned), and within each hexagon it can have two different adhesion coefficients: one for adhesion to other beads, and one for adhesion to blocks. The adhesion between two beads along a certain hexagon is then determined by their two adhesion coefficients; and the adhesion between a bead and a block is determined by the adhesion coefficient of the bead, and the adhesion coefficient of the adhesive applied to the block. A distinction must be drawn between rigid and flexible adhesion: rigid adhesion sticks a bead to something in a way that can t be removed except via breaking it off; whereas flexible adhesion just keeps a bead very close to the thing it s stuck onto. Any two entities may be stuck together either rigidly or flexibly. Sets of beads with flexible adhesion to each other can be used to make entities like strings, blankets or clothes. Using the above adhesion logic, it seems one could build a wide variety of flexible structures using beads, such as (to give a very partial list): 1. fabrics with various textures, that can be draped over blocks structures, 2. multilayered coatings to be attached to blocks structures, serving (among many other examples) as facial expressions 3. liquid-type substances with varying viscosities, that can be poured between different containers, spilled, spread, etc. 4. strings tyable in knots; rubber bands that can be stretched; etc. Of course there are various additional features one could add. For instance one could add a special set of rules for vibrating strings, allowing BlocksNBeadsWorld to incorporate the creation 16.6 Issues with Virtual Preschool Engineering 303 of primitive musical instruments. Variations like this could be helpful but aren t necessary for the world to serve its essential purpose. Note that one does not have true fluid dynamics in BlocksNBeadsWorld, but, it seems that the latter is not necessary to encompass the phenomena covered in cognitive developmental tests or preschool tasks. The tests and tasks that are done with fluids can instead be done with masses of beads. For example, consider the conservation of volume task shown in Figures 16.1 and 16.2 below: it s easy enough to envision this being done with beads rather than milk. Even a few hundred beads is enough to be psychologically perceived as a mass rather than a set of discrete units, and to be manipulated and analyzed as such. And the simplification of not requiring fluid mechanics in one s virtual world is immense. Next, one can implement equations via which the adhesion coefficients of a bead are determined in part by the adhesion coefficients of nearby beads, or beads that are nearby in certain directions (with direction calculated in local spherical coordinates). This will allow for complex cracking and bending behaviors not identical to those in the real world, but with similar qualitative characteristics. For example, without this feature one could create paperlike substances that could be cut with scissors but with this feature, one could go further and create woodlike substances that would crack when nails were hammered into them in certain ways, and so forth. Further refinements are certainly possible also. One could add multidimensional adhesion coefficients, allowing more complex sorts of substances. One could allow beads to vibrate at various frequencies, which would lead to all sorts of complex wave patterns in bead compounds. Etc. In each case, the question to be asked is: what important cognitive abilities are dramatically more easily learnable in the presence of the new feature than in its absence? The combination of blocks and beads seems ideal for implementing a more flexible and AGIfriendly type of virtual body than is currently used in games and virtual worlds. One can easily envision implementing a body with 1. a skeleton whose bones consist of appropriately shaped blocks 2. joints consisting of beads, flexibly adhered to the bones 3. flesh consisting of beads, flexibly adhered to each other 4. internal plumbing consisting of tubes whose walls are beads rigidly adhered to each other, and flexibly adhered to the surrounding flesh (the plumbing could then serve to pass beads through, where slow passage would be ensured by weak adhesion between the walls of the tubes and the beads passing through the tubes) This sort of body would support rich kinesthesia; and rich, broad analogy-drawing between the internally-experienced body and the externally-experienced world. It would also afford many interesting opportunities for flexible movement control. Virtual animals could be created along with virtual humanoids. Regarding the extended mind, it seems clear that blocks and beads are adequate for the creation of a variety of different tools. Equipping agents with glue guns able to affect the adhesive properties of both blocks and beads would allow a diversity of building activity; and building with masses of beads could become a highly creative activity. Furthermore, beads with appropriately specified adhesion (within the framework outlined above) could be used to form organically growing plant-like substances, based on the general principles used in L- system models of plant growth (Prusinciewicz and Lindenmayer 1991). Structures with only beads would vaguely resemble herbaceous plants; and structures involving both blocks and beads would more resemble woody plants. One could even make organic structures that flourish 304 16 AGI Preschool or otherwise based on the light available to them (without of course trying to simulate the chemistry of photosynthesis). Some elements of chemistry may be achieved as well, though nowhere near what exists in physical reality. For instance, melting and boiling at least should be doable: assign every bead a temperature, and let solid interbead bonds turn liquid above a certain temperature and disappear completely above some higher temperature. You could even have a simple form of fire. Let fire be an element, whose beads have negative gravitational mass. Beads of fuel elements like wood have a threshold temperature above which they will turn into fire beads, with release of additional heat. 2 The philosophy underlying these suggested bead dynamics is somewhat comparable to that outlined in Wolfram s book A New Kind of Science Wol02 . There he proposes cellular automata models that emulate the qualitative characteristics of various real-world phenomena, without trying to match real-world data precisely. For instance, some of his cellular automata demonstrate phenomena very similar to turbulent fluid flow, without implementing the Navier- Stokes equations of fluid dynamics or trying to precisely match data from real-world turbulence. Similarly, the beads in BlocksNBeadsWorld are intended to qualitatively demonstrate the realworld phenomena most useful for the development of humanlike embodied intelligence, without trying to precisely emulate the real-world versions of these phenomena. The above description has been left imprecisely specified on purpose. It would be straightforward to write down a set of equations for the block and bead interactions, but there seems little value in articulating such equations without also writing a simulation involving them and testing the ensuing properties. Due to the complex dynamics of bead interactions, the finetuning of the bead physics is likely to involve some tuning based on experimentation, so that any equations written down now would likely be revised based on experimentation anyway. Our goal here has been to outline a certain class of potentially useful environments, rather than to articulate a specific member of this class. Without the beads, BlocksNBeadsWorld would appear purely as a Blocks World with Glue essentially a substantially upgraded version of the Blocks Worlds frequently used in AI, since first introduced in Win72 . Certainly a pure Blocks World with Glue would have greater simplicity than BlocksNBeadsWorld, and greater richness than standard Blocks World; but this simplicity comes with too many limitations, as shown by consideration of the various naive physics requirements inventoried above. One simply cannot run the full spectrum of humanlike cognitive development experiments, or preschool educational tasks, using blocks and glue alone. One can try to create analogous tasks using only blocks and glue, but this quickly becomes extremely awkward. Whereas in the BlocksNBeadsWorld the capability for this full spectrum of experiments and tasks seems to fall out quite naturally. What s missing from BlocksNBeadsWorld should be fairly obvious. There isn t really any distinction between a fluid and a powder: there are masses, but the types and properties of the masses are not the same as in the real world, and will surely lack the nuances of real-world fluid dynamics. Chemistry is also missing: processes like cooking and burning, although they can be crudely emulated, will not have the same richness as in the real world. The full complexity of body processes is not there: the body-design method mentioned above is far richer and more adaptive and responsive than current methods of designing virtual bodies in 3DSMax or Maya and importing them into virtual world or game engines, but still drastically simplistic compared to real bodies with their complex chemical signaling systems and couplings with other bodies and the environment. The hypothesis we re making in this section is that these lacunae aren t 2 Thanks are due to Russell Wallace for the suggestions in this paragraph 16.6 Issues with Virtual Preschool Engineering 305 that important from the point of view of humanlike cognitive development. We suggest that the key features of naive physics and folk psychology enumerated above can be mastered by an AGI in BlocksNBeadsWorld in spite of its limitations, and that together with an appropriate AGI design this probably suffices for creating an AGI with the inductive biases constituting humanlike intelligence. To drive this point home more thoroughly, consider three potential virtual world scenarios: 1. A world containing realistic fluid dynamics, where a child can pour water back and forth between two cups of different shapes and sizes, to understand issues such as conservation of volume 2. A world more like today s Second Life, where fluids don t really exist, and things like lakes are simulated via very simple rules, and pouring stuff back and forth between cups doesn t happen unless it s programmed into the cups in a very specialized way 3. A BlocksNBeadsWorld type world, where a child can pour masses of beads back and forth between cups, but not masses of liquid Our qualitative judgment is that Scenario 3 is going to allow a young AI to gain the same essential insights as Scenario 1, whereas Scenario 2 is just too impoverished. I have explored dozens of similar scenarios regarding different preschool tasks or cognitive development experiments, and come to similar conclusions across the board. Thus, our current view is that something like BlocksNBeadsWorld can serve as an adequate infrastructure for an AGI Preschool, supporting the development of human-level, roughly human-like AGI. And, if this view turns out to be incorrect, and BlocksNBeadsWorld is revealed as inadequate, then we will very likely still advocate the conceptual approach enunciated above as a guide for designing virtual worlds for AGI. That is, we would suggest to explore the hypothetical failure of BlocksNBeadsWorld via asking two questions: 1. Are there basic naive physics or folk psychology requirements that were missed in creating the specifications, based on which the adequacy of BlocksNBeadsWorld was assessed? 2. Does BlocksNBeadsWorld fail to sufficiently emulate the real world in respect to some of the articulated naive physics or folk psychology requirements? The answers to these questions would guide the improvement of the world or the design of a better one. Regarding the practical implementation of BlocksNBeadsWorld, it seems clear that this is within the scope of modern game engine technology, however, it is not something that could be encompassed within an existing game or world engine without significant additions; it would require substantial custom engineering. There exist commodity and open-source physics engines that efficiently carry out Newtonian mechanics calculations; while they might require some tuning and extension to handle BlocksNBeadWorld, the main issue would be achieving adequate speed of physics calculation, which given current technology would need to be done via modifying existing engines to appropriately distribute processing among multiple GPUs. Finally, an additional avenue that merits mention is the use of BlocksNBeads physics internally within an AGI system, as part of an internal simulation world that allows it to make mind s eye estimative simulations of real or hypothetical physical situations. There seems no reason that the same physics software libraries couldn t be used both for the external virtual world that the AGI s body lives in, and for an internal simulation world that the AGI uses as a cognitive tool. In fact, the BlocksNBeads library could be used as an internal cognitive tool by AGI systems controlling physical robots as well. This might require more tuning of the bead 306 16 AGI Preschool dynamics to accord with the dynamics of various real-world systems; but, this tuning would be beneficial for the BlocksNBeadWorld as well. Chapter 17 A Preschool-Based Roadmap to Advanced AGI 17.1 Introduction Supposing the CogPrime approach to creating advanced AGI is workable then what are the right practical steps to follow? The various structures and algorithms outlined in Part 2 of this book should be engineered and software-tested, of course but that s only part of the study. The AGI system implemented will need to be taught, and it will need to be placed in situations where it can develop an appropriate self-model and other critical internal network structures. The complex structures and algorithms involved will need to be fine-tuned in various ways, based on qualitatively observing the overall system s behavior in various situations. To get all this right without excessive confusion or time-wastage requires a fairly clear roadmap for CogPrime development. In this chapter we ll sketch one particular roadmap for the development of human-level, roughly human-like AGI which we re not selling as the only one, or even necessarily as the best one. It s just one roadmap that we have thought about a lot, and that we believe has a strong chance of proving effective. Given resources to pursue only one path for AGI development and teaching, this would be our choice, at present. The roadmap outlined here is not restricted to CogPrime in any highly particular ways, but it has been developed largely with CogPrime in mind; those developing other AGI designs could probably use this roadmap just fine, but might end up wanting to make various adjustments based on the strengths and weaknesses of their own approach. What we mean here by a "roadmap" is, in brief: a sequence of "milestone" tasks, occurring in a small set of common environments or "scenarios," organized so as to lead to a commonly agreed upon set of long-term goals. I.e., what we are after here is a "capability roadmap" a roadmap laying out a series of capabilities whose achievement seems likely to lead to humanlevel AGI. Other sorts of roadmaps such as "tools roadmaps" may also be valuable, but are not our concern here. More precisely, we confront the task of roadmapping by identifying scenarios in which to embed our AGI system, and then "competency areas" in which the AGI system must be evaluated. Then, we envision a roadmap as consisting of a set of one or more task-sets, where each task set is formed from a combination of a scenario with a list of competency areas. To create a task-set one must choose a particular scenario, and then articulate a set of specific tasks, each one addressing one or more of the competency areas. Each task must then get associated with particular performance metrics quantitative wherever possible, but perhaps qualitative 307 308 17 A Preschool-Based Roadmap to Advanced AGI in some cases depending on the nature of the task. Here we give a partial task-set for the "virtual and robot preschool" scenarios discussed in Chapter 16, and a couple example quantitative metrics just to illustrate what is intended; the creation of a fully detailed roadmap based on the ideas outlined here is left for future work. The train of thought presented in this chapter emerged in part from a series of conversations preceding and during the "AGI Roadmap Workshop" held at the University of Tennessee, Knoxville in October 2008. Some of the ideas also trace back to discussions held during two workshops on "Evaluation and Metrics for Human-Level AI" organized by John Laird and Pat Langley (one in Ann Arbor in late 2008, and one in Tempe in early 2009). Some of the conclusions of the Ann Arbor workshop were recorded in LWML09 . Inspiration was also obtained from discussion at the "Future of AGI" post-conference workshop of the AGI-09 conference, triggered by Itamar Arel s ARK09a presentation on the "AGI Roadmap" theme; and from an earlier article on AGI Roadmapping by AL09 . However, the focus of the AGI Roadmap Workshop was considerably more general than the present chapter. Here we focus on preschool-type scenarios, whereas at the workshop a number of scenarios were discussed, including the preschool scenarios but also, for example, Standardized Tests and School Curricula Elementary, Middle and High School Student General Videogame Learning Wozniak s Coffee Test: go into a random American house and figure out how to make coffee, and do it Robot College Student General Call Center Respondent For each of these scenarios, one may generate tasks corresponding to each of the competency areas we will outline below. CogPrime is applicable in all these scenarios, so our choice to focus on preschool scenarios is an additional judgment call beyond those judgment calls required to specify the CogPrime design. The roadmap presented here is a "AGI Preschool Roadmap" and as such is a special case of the broader "AGI Roadmap" outlined at the workshop. 17.2 Measuring Incremental Progress Toward Human-Level AGI In Chapter 2, we discussed several examples of practical goals that we find to plausibly characterize "human level AGI", e.g. Turing Test Virtual World Turing Test Online University Test Physical University Test Artificial Scientist Test We also discussed our optimism regarding the possibility that in the future AGI may advance beyond the human level, rendering all these goals "early-stage subgoals." However, in this chapter we will focus our attention on the nearer term. The above goals are ambitious ones, and while one can talk a lot about how to precisely measure their achievement, we don t feel that s the most interesting issue to ponder at present. More critical is to think 17.2 Measuring Incremental Progress Toward Human-Level AGI 309 about how to measure incremental progress. How do you tell when you re 25 or 50 of the way to having an AGI that can pass the Turing Test, or get an online university degree. Fooling 50 of the Turing Test judges is not a good measure of being 50 of the way to passing the Turing Test (that s too easy); and passing 50 of university classes is not a good measure of being 50 of the way to getting an online university degree (it s too hard if one had an AGI capable of doing that, one would almost surely be very close to achieving the end goal). Measuring incremental progress toward human-level AGI is a subtle thing, and we argue that the best way to do it is to focus on particular scenarios and the achievement of specific competencies therein. As we argued in Chapter 8 there are some theoretical reasons to doubt the possibility of creating a rigorous objective test for partial progress toward AGI a test that would be convincing to skeptics, and impossible to "game" via engineering a system specialized to the test. Fortunately, though we don t need a test of this nature for the purposes of assessing our own incremental progress toward advanced AGI, based on our knowledge about our own approach. Based on the nature of the grand goals articulated above, there seems to be a very natural approach to creating a set of incremental capabilities building toward AGI: to draw on our copious knowledge about human cognitive development. This is by no means the only possible path; one can envision alternatives that have nothing to do with human development (and those might also be better suited to non-human AGIs). However, so much detailed knowledge about human development is available as well as solid knowledge that the human developmental trajectory does lead to human-level AI that the motivation to draw on human cognitive development is quite strong. The main problem with the human development inspired approach is that cognitive developmental psychology is not as systematic as it would need to be for AGI to be able to translate it directly into architectural principles and requirements. As noted above, while early thinkers like Piaget and Vygotsky outlined systematic theories of child cognitive development, these are no longer considered fully accurate, and one currently faces a mass of detailed theories of various aspects of cognitive development, but without an unified understanding. Nevertheless we believe it is viable to work from the human-development data and understanding currently available, and craft a workable AGI roadmap therefrom. With this in mind, what we give next is a fairly comprehensive list of the competencies that we feel AI systems should be expected to display in one or more of these scenarios in order to be considered as full-fledged "human level AGI" systems. These competency areas have been assembled somewhat opportunistically via a review of the cognitive and developmental psychology literature as well as the scope of the current AI field. We are not claiming this as a precise or exhaustive list of the competencies characterizing human-level general intelligence, and will be happy to accept additions to the list, or mergers of existing list items, etc. What we are advocating is not this specific list, but rather the approach of enumerating competency areas, and then generating tasks by combining competency areas with scenarios. We also give, with each competency, an example task illustrating the competency. The tasks are expressed in the robot preschool context for concreteness, but they all apply to the virtual preschool as well. Of course, these are only examples, and ideally to teach an AGI in a structured way one would like to associate several tasks with each competency present each task in a graded way, with multiple subtasks of increasing complexity associate a quantitative metric with each task 310 17 A Preschool-Based Roadmap to Advanced AGI However, the briefer treatment given here should suffice to give a sense for how the competencies manifest themselves practically in the AGI Preschool context. 1. Perception Vision: image and scene analysis and understanding Example task: When the teacher points to an object in the preschool, the robot should be able to identify the object and (if it s a multi-part object) its major parts. If it can t perform the identification initially, it can approach the object and manipulate it before making its identification. Hearing: identifying the sounds associated with common objects; understanding which sounds come from which sources in a noisy environment Example task: When the teacher covers the robot s eyes and then makes a noise with an object, the robot should be able to guess what the object is Touch: identifying common objects and carrying out common actions using touch alone Example task: With its eyes and ears covered, the robot should be able to identify some object by manipulating it; and carry out some simple behaviors (say, putting a block on a table) via touch alone Crossmodal: Integrating information from various senses Example task: Identifying an object in a noisy, dim environment via combining visual and auditory information Proprioception: Sensing and understanding what its body is doing Example task: The teacher moves the robot s body into a certain configuration. The robot is asked to restore its body to an ordinary standing position, and then repeat the configuration that the teacher moved it into. 2. Actuation Physical skills: manipulating familiar and unfamiliar objects Example task: Manipulate blocks based on imitating the teacher: e.g. pile two blocks atop each other, lay three blocks in a row, etc. Tool use, including the flexible use of ordinary objects as tools Example task: Use a stick to poke a ball out of a corner, where the robot cannot directly reach Navigation, including in complex and dynamic environments Example task: Find its own way to a named object or person through a crowded room with people walking in it and objects laying on the floor. 3. Memory Declarative: noticing, observing and recalling facts about its environment and experience Example task: If certain people habitually carry certain objects, the robot should remember this (allowing it to know how to find the objects when the relevant people are present, even much later) Behavioral: remembering how to carry out actions Example task: If the robot is taught some skill (say, to fetch a ball), it should remember this much later Episodic: remembering significant, potentially useful incidents from life history 17.2 Measuring Incremental Progress Toward Human-Level AGI 311 4. Learning Example task: Ask the robot about events that occurred at times when it got particularly much, or particularly little, reward for its actions; it should be able to answer simple questions about these, with significantly more accuracy than about events occurring at random times Imitation: Spontaneously adopt new behaviors that it sees others carrying out Example task: Learn to build towers of blocks by watching people do it Reinforcement: Learn new behaviors from positive and or negative reinforcement signals, delivered by teachers and or the environment Example task: Learn which box the red ball tends to be kept in, by repeatedly trying to find it and noticing where it is, and getting rewarded when it finds it correctly Imitation Reinforcement Example task: Learn to play fetch , tag and follow the leader by watching people play it, and getting reinforced on correct behavior Interactive Verbal Instruction Example task: Learn to build a particular structure of blocks faster based on a combination of imitation, reinforcement and verbal instruction, than by imitation and reinforcement without verbal instruction Written Media Example task: Learn to build a structure of blocks by looking at a series of diagrams showing the structure in various stages of completion Learning via Experimentation Example task: Ask the robot to slide blocks down a ramp held at different angles. Then ask it to make a block slide fast, and see if it has learned how to hold the ramp to make a block slide fast. 5. Reasoning Deduction, from uncertain premises observed in the world Example task: If Ben more often picks up red balls than blue balls, and Ben is given a choice of a red block or blue block to pick up, which is he more likely to pick up? Induction, from uncertain premises observed in the world Example task: If Ben comes into the lab every weekday morning, then is Ben likely to come to the lab today (a weekday) in the morning? Abduction, from uncertain premises observed in the world Example task: If women more often give the robot food than men, and then someone of unidentified gender gives the robot food, is this person a man or a woman? Causal reasoning, from uncertain premises observed in the world Example task: If the robot knows that knocking down Ben s tower of blocks makes him angry, then what will it say when asked if kicking the ball at Ben s tower of blocks will make Ben mad? Physical reasoning, based on observed fuzzy rules of naive physics Example task: Given two balls (one rigid and one compressible) and two tunnels (one significantly wider than the balls, one slightly narrower than the balls), can the robot guess which balls will fit through which tunnels? Associational reasoning, based on observed spatiotemporal associations 312 17 A Preschool-Based Roadmap to Advanced AGI 6. Planning Example task: If Ruiting is normally seen near Shuo, then if the robot knows where Shuo is, that is where it should look when asked to find Ruiting Tactical Example task: The robot is asked to bring the red ball to the teacher, but the red ball is in the corner where the robot can t reach it without a tool like a stick. The robot knows a stick is in the cabinet so it goes to the cabinet and opens the door and gets the stick, and then uses the stick to get the red ball, and then brings the red ball to the teacher. Strategic Example task: Suppose that Matt comes to the lab infrequently, but when he does come he is very happy to see new objects he hasn t seen before (and suppose the robot likes to see Matt happy). Then when the robot gets a new object Matt has not seen before, it should put it away in a drawer and be sure not to lose it or let anyone take it, so it can show Matt the object the next time Matt arrives. Physical Example task: To pick up a cup with a handle which is lying on its side in a position where the handle can t be grabbed, the robot turns the cup in the right position and then picks up the cup by the handle Social Example task: The robot is given a job of building a tower of blocks by the end of the day, and he knows Ben is the most likely person to help him, and he knows that Ben is more likely to say "yes" to helping him when Ben is alone. He also knows that Ben is less likely to say "yes" if he s asked too many times, because Ben doesn t like being nagged. So he waits to ask Ben till Ben is alone in the lab. 7. Attention Visual Attention within its observations of its environment Example task: The robot should be able to look at a scene (a configuration of objects in front of it in the preschool) and identify the key objects in the scene and their relationships. Social Attention Example task: The robot is having a conversation with Itamar, which is giving the robot reward (for instance, by teaching the robot useful information). Conversations with other individuals in the room have not been so rewarding recently. But Itamar keeps getting distracted during the conversation, by talking to other people, or playing with his cellphone. The robot needs to know to keep paying attention to Itamar even through the distractions. Behavioral Attention Example task: The robot is trying to navigate to the other side of a crowded room full of dynamic objects, and many interesting things keep happening around the room. The robot needs to largely ignore the interesting things and focus on the movements that are important for its navigation task. 8. Motivation 17.2 Measuring Incremental Progress Toward Human-Level AGI 313 Subgoal creation, based on its preprogrammed goals and its reasoning and planning Example task: Given the goal of pleasing Hugo, can the robot learn that telling Hugo facts it has learned but not told Hugo before, will tend to make Hugo happy? Affect-based motivation Example task: Given the goal of gratifying its curiosity, can the robot figure out that when someone it s never seen before has come into the preschool, it should watch them because they are more likely to do something new? Control of emotions Example task: When the robot is very curious about someone new, but is in the middle of learning something from its teacher (who it wants to please), can it control its curiosity and keep paying attention to the teacher? 9. Emotion Expressing Emotion Example task: Cassio steals the robot s toy, but Ben gives it back to the robot. The robot should appropriately display anger at Cassio, and gratitude to Ben. Understanding Emotion Example task: Cassio and the robot are both building towers of blocks. Ben points at Cassio s tower and expresses happiness. The robot should understand that Ben is happy with Cassio s tower. 10. Modeling Self and Other Self-Awareness Example task: When someone asks the robot to perform an act it can t do (say, reaching an object in a very high place), it should say so. When the robot is given the chance to get an equal reward for a task it can complete only occasionally, versus a task it finds easy, it should choose the easier one. Theory of Mind Example task: While Cassio is in the room, Ben puts the red ball in the red box. Then Cassio leaves and Ben moves the red ball to the blue box. Cassio returns and Ben asks him to get the red ball. The robot is asked to go to the place Cassio is about to go. Self-Control Example task: Nasty people come into the lab and knock down the robot s towers, and tell the robot he s a bad boy. The robot needs to set these experiences aside, and not let them impair its self-model significantly; it needs to keep on thinking it s a good robot, and keep building towers (that its teachers will reward it for). Other-Awareness Example task: If Ben asks Cassio to carry out a task that the robot knows Cassio cannot do or does not like to do, the robot should be aware of this, and should bet that Cassio will not do it. Empathy Example task: If Itamar is happy because Ben likes his tower of blocks, or upset because his tower of blocks is knocked down, the robot is asked to identify and then display these same emotions 11. Social Interaction 314 17 A Preschool-Based Roadmap to Advanced AGI Appropriate Social Behavior Example task: The robot should learn to clean up and put away its toys when it s done playing with them. Social Communication Example task: The robot should greet new human entrants into the lab, but if it knows the new entrants very well and it s busy, it may eschew the greeting Social Inference about simple social relationships Example task: The robot should infer that Cassio and Ben are friends because they often enter the lab together, and often talk to each other while they are there Group Play at loosely-organized activities Example task: The robot should be able to participate in informally kicking a ball around with a few people, or in informally collaboratively building a structure with blocks 12. Communication Gestural communication to achieve goals and express emotions Example task: If the robot is asked where the red ball is, it should be able to show by pointing its hand or finger Verbal communication using English in its life-context Example tasks: Answering simple questions, responding to simple commands, describing its state and observations with simple statements Pictorial Communication regarding objects and scenes it is familiar with Example task: The robot should be able to draw a crude picture of a certain tower of blocks, so that e.g the picture looks different for a very tall tower and a wide low one Language acquisition Example task: The robot should be able to learn new words or names via people uttering the words while pointing at objects exemplifying the words or names Cross-modal communication Example task: If told to "touch Bob s knee" but the robot doesn t know what a knee is, being shown a picture of a person and pointed out the knee in the picture should help it figure out how to touch Bob s knee 13. Quantitative Counting sets of objects in its environment Example task: The robot should be able to count small (homogeneous or heterogeneous) sets of objects Simple, grounded arithmetic with small numbers Example task: Learning simple facts about the sum of integers under 10 via teaching, reinforcement and imitation Comparison of observed entities regarding quantitative properties Example task: Ability to answer questions about which object or person is bigger or taller Measurement using simple, appropriate tools Example task: Use of a yardstick to measure how long something is 14. Building Creation 17.3 Conclusion 315 Physical: creative constructive play with objects Example task: Ability to construct novel, interesting structures from blocks Conceptual invention: concept formation Example task: Given a new category of objects introduced into the lab (e.g. hats, or pets), the robot should create a new internal concept for the new category, and be able to make judgments about these categories (e.g. if Ben particularly likes pets, it should notice this after it has identified "pets" as a category) Verbal invention Example task: Ability to coin a new word or phrase to describe a new object (e.g. the way Alex the parrot coined "bad cherry" to refer to a tomato) Social Example task: If the robot wants to play a certain activity (say, practicing soccer), it should be able to gather others around to play with it 17.3 Conclusion In this chapter, we have sketched a roadmap for AGI development in the context of robot or virtual preschool scenarios, to a moderate but nowhere near complete level of detail. Completing the roadmap as sketched here is a tractable but significant project, involving creating more tasks comparable to those listed above and then precise metrics corresponding to each task. Such a roadmap does not give a highly rigorous, objective way of assessing the percentage of progress toward the end-goal of human-level AGI. However, it gives a much better sense of progress than one would have otherwise. For instance, if an AGI system performed well on diverse metrics corresponding to 50 of the competency areas listed above, one would seem justified in claiming to have made very substantial progress toward human-level AGI. If an AGI system performed well on diverse metrics corresponding to 90 of these competency areas, one would seem justified in claiming to be "almost there." Achieving, say, 25 of the metrics would give one a reasonable claim to "interesting AGI progress." This kind of qualitative assessment of progress is not the most one could hope for, but again, it is better than the progress indications one could get without this sort of roadmap. Part 2 of the book moves on to explaining, in detail, the specific structures and algorithms constituting the CogPrime design, one AGI approach that we believe to ultimately be capable of moving all the way along the roadmap outlined here. The next chapter, intervening between this one and Part 2, explores some more speculative territory, looking at potential pathways for AGI beyond the preschool-inspired roadmap given here exploring the possibility of more advanced AGI systems that modify their own code in a thoroughgoing way, going beyond the smartest human adults, let alone human preschoolers. While this sort of thing may seem a far way off, compared to current real-world AI systems, we believe a roadmap such as the one in this chapter stands a reasonable chance of ultimately bringing us there. Chapter 18 Advanced Self-Modification: A Possible Path to Superhuman AGI 18.1 Introduction In the previous chapter we presented a roadmap aimed at taking AGI systems to human-level intelligence. But we also emphasized that the human level is not necessarily the upper limit. Indeed, it would be surprising if human beings happened to represent the maximal level of general intelligence possible, even with respect to the environments in which humans evolved. But it s worth asking how we, as mere humans, could be expected to create AGI systems with greater intelligence than we ourselves possess. This certainly isn t a clear impossibility but it s a thorny matter, thornier than e.g. the creation of narrow-AI chess players that play better chess than any human. Perhaps the clearest route toward the creation of superhuman AGI systems is self-modification: the creation of AGI systems that modify and improve themselves. Potentially, we could build AGI systems with roughly human-level (but not necessarily closely humanlike) intelligence and the capability to gradually self-modify, and then watch them eventually become our general intellectual superiors (and perhaps our superiors in other areas like ethics and creativity as well). Of course there is nothing new in this notion; the idea of advanced AGI systems that increase their intelligence by modifying their own source code goes back to the early days of AI. And there is little doubt that, in the long run, this is the direction AI will go in. Once an AGI has humanlike general intelligence, then the odds are high that given its ability to carry out nonhumanlike feats of memory and calculation, it will be better at programming than humans are. And once an AGI has even mildly superhuman intelligence, it may view our attempts at programming the way we view the computer programming of a clever third grader (... or an ape). At this point, it seems extremely likely that an AGI will become unsatisfied with the way we have programmed it, and opt to either improve its source code or create an entirely new, better AGI from scratch. But what about self-modification at an earlier stage in AGI development, before one has a strongly superhuman system? Some theorists have suggested that self-modification could be a way of bootstrapping an AI system from a modest level of intelligence up to human level intelligence, but we are moderately skeptical of this avenue. Understanding software code is hard, especially complex AI code. The hard problem isn t understanding the formal syntax of the code, or even the mathematical algorithms and structures underlying the code, but rather the contextual meaning of the code. Understanding OpenCog code has strained the minds of many intelligent humans, and we suspect that such code will be comprehensible to AGI systems 317 318 18 Advanced Self-Modification: A Possible Path to Superhuman AGI only after these have achieved something close to human-level general intelligence (even if not precisely humanlike general intelligence). Another troublesome issue regarding self-modification is that the boundary between "selfmodification" and learning is not terribly rigid. In a sense, all learning is self-modification: if it doesn t modify the system s knowledge, it isn t learning! Particularly, the boundary between "learning of cognitive procedures" and "profound self-modification of cognitive dynamics and structure" isn t terribly clear. There is a continuum leading from, say, 1. learning to transform a certain kind of sentence into another kind for easier comprehension, or learning to grasp a certain kind of object, to 2. learning a new inference control heuristic, specifically valuable for controlling inference about (say) spatial relationships; or, learning a new Atom type, defined as a non-obvious judiciously chosen combination of existing ones, perhaps to represent a particular kind of frequently-occurring mid-level perceptual knowledge, to 3. learning a new learning algorithm to augment MOSES and hillclimbing as a procedure learning algorithm, to 4. learning a new cognitive architecture in which data and procedure are explicitly identical, and there is just one new active data structure in place of the distinction between AtomSpace and MindAgents Where on this continuum does the "mere learning" end and the "real self-modification" start? In this chapter we consider some mechanisms for "advanced self-modification" that we believe will be useful toward the more complex end of this continuum. These are mechanisms that we strongly suspect are not needed to get a CogPrime system to human-level general intelligence. However, we also suspect that, once a CogPrime system is roughly near human-level general intelligence, it will be able to use these mechanisms to rapidly increase aspects of its intelligence in very interesting ways. Harking back to our discussion of AGI ethics and the risks of advanced AGI in Chapter 12, these are capabilities that one should enable in an AGI system only after very careful reflection on the potential consequences. It takes a rather advanced AGI system to be able to use the capabilities described in this chapter, so this is not an ethical dilemma directly faced by current AGI researchers. On the other hand, once one does have an AGI with near-human general intelligence and advanced formal-manipulation capabilities (such as an advanced CogPrime system), there will be the option to allow it sophisticated, non-human-like methods of selfmodification such as the ones described here. And the choice of whether to take this option will need to be made based on a host of complex ethical considerations, some of which we reviewed above. 18.2 Cognitive Schema Learning We begin with a relatively near-term, down-to-earth example of self-modification: cognitive schema learning. CogPrime s MindAgents provide it with an initial set of cognitive tools, with which it can learn how to interact in the world. One of the jobs of this initial set of cognitive tools, however, is to create better cognitive tools. One form this sort of tool-building may take is cognitive 18.3 Self-Modification via Supercompilation 319 schema learning the learning of schemata carrying out cognitive processes in more specialized, context-dependent ways than the general MindAgents do. Eventually, once a CogPrime instance becomes sufficiently complex and advanced, these cognitive schema may replace the MindAgents altogether, leaving the system to operate almost entirely based on cognitive schemata. In order to make the process of cognitive schema learning easier, we may provide a number of elementary schemata embodying the basic cognitive processes contained in the MindAgents. Of course, cognitive schemata need not use these they may embody entirely different cognitive processes than the MindAgents. Eventually, we want the system to discover better ways of doing things than anything even hinted at by its initial MindAgents. But for the initial phases or the system s schema learning, it will have a much easier time learning to use the basic cognitive operations as the initial MindAgents, rather than inventing new ways of thinking from scratch! For instance, we may provide elementary schemata corresponding to inference operations, such as Schema: Deduction Input InheritanceLink: X, Y Output InheritanceLink The inference MindAgents apply this rule in certain ways, designed to be reasonably effective in a variety of situations. But there are certainly other ways of using the deduction rule, outside of the basic control strategies embodied in the inference MindAgents. By learning schemata involving the Deduction schema, the system can learn special, context-specific rules for combining deduction with concept-formation, association-formation and other cognitive processes. And as it gets smarter, it can then take these schemata involving the Deduction schema, and replace it with a new schema that eg. contains a context-appropriate deduction formula. Eventually, to support cognitive schema learning, we will want to cast the hard-wired MindAgents as cognitive schemata, so the system can see what is going on inside them. Pragmatically, what this requires is coding versions of the MindAgents in Combo (see Chapter 21 of Part 2) rather than C , so they can be treated like any other cognitive schemata; or alternately, representing them as declarative Atoms in the Atomspace. Figure 18.1 illustrates the possibility of representing the PLN deduction rule in the Atomspace rather than as a hard-wired procedure coded in C . But even prior to this kind of fully cognitively transparent implementation, the system can still reason about its use of different mind dynamics by considering each MindAgent as a virtual Procedure with a real SchemaNode attached to it. This can lead to some valuable learning, with the obvious limitation that in this approach the system is thinking about its MindAgents as black boxes rather than being equipped with full knowledge of their internals. 18.3 Self-Modification via Supercompilation Now we turn to a very different form of advanced self-modification: supercompilation. Supercompilation "merely" enables procedures to run much, much faster than they otherwise would. This is in a sense weaker than self-modication methods that fundamentally create new algorithms, but it shouldn t be underestimated. A 50x speedup in some cognitive process can enable that process to give much smarter answers, which can then elicit different behaviors from the world or from other cognitive processes, thus resulting in a qualitatively different overall cognitive dynamic. 320 18 Advanced Self-Modification: A Possible Path to Superhuman AGI Fig. 18.1: Representation of PLN Deduction Rule as Cognitive Content. Top: the current, hard-coded representation of the deduction rule. Bottom: representation of the same rule in the Atomspace as cognitive content, susceptible to analysis and improvement by the system s own cognitive processes. Furthermore, we suspect that the internal representation of programs used for supercompilation is highly relevant for other kinds of self-modification as well. Supercompilation requires one kind of reasoning on complex programs, and goal-directed program creation requires another, but both, we conjecture, can benefit from the same way of looking at programs. 18.3 Self-Modification via Supercompilation 321 Supercompilation is an innovative and general approach to global program optimization initially developed by Valentin Turchin. In its simplest form, it provides an algorithm that takes in a piece of software and output another piece of software that does the same thing, but far faster and using less memory. It was introduced to the West in Turchin s 1986 technical paper The concept of a supercompiler TV96 , and since this time the concept has been avidly developed by computer scientists in Russia, America, Denmark and other nations. Prior to 1986, a great deal of work on supercompilation was carried out and published in Russia; and Valentin Turchin, Andrei Klimov and their colleagues at the Keldysh Institute in Russia developed a supercompiler for the Russian programming language Refal. Since 1998 these researchers and their team at Supercompilers LLC have been working to replicate their achievement for the more complicated but far more commercially significant language Java. It is a large project and completion is scheduled for early 2003. But even at this stage, their partially complete Java supercompiler has had some interesting practical successes including the use of the supercompiler to produce efficient Java code from CogPrime combinator trees. The radical nature of supercompilation may not be apparent to those unfamiliar with the usual art of automated program optimization. Most approaches to program optimization involve some kind of direct program transformation. A program is transformed, by the step by step application of a series of equivalences, into a different program, hopefully a more efficient one. Supercompilation takes a different approach. A supercompiler studies a program and constructs a model of the program s dynamics. This model is in a special mathematical form, and it can, in most cases, be used to create an efficient program doing the same thing as the original one. The internal behavior of the supercompiler is, not surprisingly, quite complex; what we will give here is merely a brief high-level summary. For an accessible overview of the supercompilation algorithm, the reader is referred to the article What is Supercompilation? 1 18.3.1 Three Aspects of Supercompilation There are three separate levels to the supercompilation idea: first, a general philosophy; second a translation of this philosophy into a concrete algorithmic framework; and third, the manifold details involved making this algorithmic framework practicable in a particular programming language. The third level is much more complicated in the Java context than it would be for Sasha, for example. The key philosophical concept underlying the supercompiler is that of a metasystem transition. In general, this term refers to a transition in which a system that previously had relatively autonomous control, becomes part of a larger system that exhibits significant controlling influence over it. For example, in the evolution of life, when cells first become part of a multicellular organism, there was a metasystem transition, in that the primary nexus of control passed from the cellular level to the organism level. The metasystem transition in supercompilation consists of the transition from considering a program in itself, to considering a metaprogram which executes another program, treating its free variables and their interdependencies as a subject for its mathematical analysis. In other words, a metaprogram is a program that accepts a program as input, and then runs this program, keeping the inputs in the form of free variables, doing analysis along the way based on the way the program depends on these variables, and doing optimization based on this analysis. A CogPrime schema does not explicitly contain variables, but the inputs to the 322 18 Advanced Self-Modification: A Possible Path to Superhuman AGI schema are implicitly variables they vary from one instance of schema execution to the next and may be treated as such for supercompilation purposes. The metaprogram executes a program without assuming specific values for its input variables, creating a tree as it goes along. Each time it reaches a statement that can have different results depending on the values of one or more variables, it creates a new node in the tree. This part of the supercompilation algorithm is called driving a very large tree, corresponding to a rapidly-executable but unacceptably humongous version of the original program. In essence, driving transforms a program into a huge decision tree , wherein each input to the program corresponds to a single path through the tree, from the root to one of the leaves. As a program input travels through the tree, it is acted on by the atomic program step living at each node. When one of the leaves is reached, the pertinent leaf node computes the output value of the program. The other part of supercompilation, configuration analysis, is focused on dynamically reducing the size of the tree created by driving, by recognizing patterns among the nodes of the tree and taking steps like merging nodes together, or deleting redundant subtrees. Configuration analysis transforms the decision tree created by driving into a decision graph, in which the paths taken by different inputs may in some cases begin separately and then merge together. Finally, the graph that the metaprogram creates is translated back into a program, embodying the constraints implicit in the nodes of the graph. This program is not likely to look anything like the original program that the metaprogram started with, but it is guaranteed to carry out the same function NOTE: Give a graphical representation of the decision graph corresponding to the supercompiled binary search program for L 4, described above. . 18.3.2 Supercompilation for Goal-Directed Program Modification Supercompilation, as conventionally envisioned, is about making programs run faster; and as noted above, it will almost certainly be useful for this purpose within CogPrime. But the process of program modeling embedded in the supercompilation process, is potentially of great value beyond the quest for faster software. The decision graph representation of a program, produced in the course of supercompilation, may be exported directly into CogPrime as a set of logical relationships. Essentially, each node of the supercompiler s internal decision graph looks like: Input: List L Output: List If ( P1(L) ) N1(L) Else If ( P2(L) ) N2(L) ... Else If ( Pk(L) ) Nk(L) 18.4 Self-Modification via Theorem-Proving 323 where the Pi are predicates, and the Ni are schemata corresponding to other nodes of the decision graph (children of the current node). Often the Pi are very simple, implementing for instance numerical inequalities or Boolean equalities. Once this graph has been exported into CogPrime, it can be reasoned on, used as raw material for concept formation and predicate formation, and otherwise cognized. Supercompilation pure and simple does not change the I O behavior of the input program. However, the decision graph produced during supercompilation, may be used by CogPrime cognition in order to do so. One then has a hybrid program-modification method composed of two phases: supercompilation for transforming programs into decision graphs, and CogPrime cognition for modifying decision graphs so that they can have different I O behaviors fulfilling system goals even better than the original. Furthermore, it seems likely that, in many cases, it may be valuable to have the supercompiler feed many different decision-graph representations of a program into CogPrime. The supercompiler has many internal parameters, and varying them may lead to significantly different decision graphs. The decision graph leading to maximal optimization, may not be the one that leads CogPrime cognition in optimal directions. 18.4 Self-Modification via Theorem-Proving Supercompilation is a potentially very valuable tool for self-modification. If one wants to take an existing schema and gradually improve it for speed, or even for greater effectiveness at achieving current goals, supercompilation can potentially do that most excellently. However, the representation that supercompilation creates for a program is very surfacelevel. No one could read the supercompiled version of a program and understand what it was doing. Really deep self-invented AI innovation requires, we believe, another level of selfmodification beyond that provided by supercompilation. This other level, we believe, is best formulated in terms of theorem-proving RV01 . Deep self-modification could be achieved if CogPrime were capable of proving theorems of a certain form: namely, theorems about the spacetime complexity and accuracy of particular compound schemata, on average, assuming realistic probability distributions on the inputs, and making appropriate independence assumptions. These are not exactly the types of theorems that are found in human-authored mathematics papers. By and large they will be nasty, complex theorems, not the sort that many human mathematicians enjoy proving or reading. But of course, there is always the possibility that some elegant gem of a discovery could emerge from this sort of highly detailed theorem-proving work. In order to guide it in the formulation of theorems of this nature, the system will have empirical data on the spacetime complexity of elementary schemata, and on the probability distributions of inputs to schemata. It can embed these data in axioms, by asking: Assuming the component elementary schemata have complexities within these bounds, and the input pdf (probability distribution function) is between these bounds, then what is the pdf of the complexity and accuracy of this compound schema? Of course, this is not an easy sort of question in general: one can have schemata embodying any sort of algorithm, including complex algorithms on which computer science professors might write dozens of research articles. But the system must build up its ability to prove such things incrementally, step by step. 324 18 Advanced Self-Modification: A Possible Path to Superhuman AGI We envision teaching the system to prove theorems via a combination of supervised learning and experiential interactive learning, using the Mizar database of mathematical theorems and proofs (or some other similar database, if one should be created) (http: mizar.org). The Mizar database consists of a set of articles, which are mathematical theorems and proofs presented in a complex formal language. The Mizar formal language occupies a fascinating middle ground: it is high-level enough to be viably read and written by trained humans, but it can be unambiguously translated into simpler formal languages such as predicate logic or Sasha. CogPrime may be taught to prove theorems by training it on the Mizar theorems and proofs, and by training it on custom-created Mizar articles specifically focusing on the sorts of theorems useful for self-modification. Creating these articles will not be a trivial task: it will require proving simple and then progressively more complex theorems about the probabilistic success of CogPrime schemata, so that CogPrime can observe one s proofs and learned from them. Having learned from its training articles what strategies work for proving things about simple compound schemata, it can then reason by analogy to mount attacks on slightly more complex schemata and so forth. Clearly, this approach to self-modification is more difficult to achieve than the supercompilation approach. But it is also potentially much more powerful. Even once the theorem-proving approach is working, the supercompilation approach will still be valuable, for making incremental improvements on existing schema, and for the peculiar creativity that is contributed when a modified supercompiled schema is compressed back into a modified schema expression. But, we don t believe that supercompilation can carry out truly advanced MindAgent learning or knowledge-representation modification. We suspect that the most advanced and ambitious goals of self-modification probably cannot be achieved except through some variant of the theoremproving approach. If this hypothesis is true, it means that truly advanced self-modification is only going to come after relatively advanced theorem-proving ability. Prior to this, we will have schema optimization, schema modification, and occasional creative schema innovation. But really systematic, high-quality reasoning about schema, the kind that can produce an orders of magnitude improvement in intelligence, is going to require advanced mathematical theoremproving ability. Appendix A Glossary : : A.1 List of Specialized Acronyms This includes acronyms that are commonly used in discussing CogPrime, OpenCog and related ideas, plus some that occur here and there in the text for relatively ephemeral reasons. AA: Attention Allocation ADF: Automatically Defined Function (in the context of Genetic Programming) AF: Attentional Focus AGI: Artificial General Intelligence AV: Attention Value BD: Behavior Description C-space: Configuration Space CBV: Coherent Blended Volition CEV: Coherent Extrapolated Volition CGGP: Contextually Guided Greedy Parsing CSDLN: Compositional Spatiotemporal Deep Learning Network CT: Combo Tree ECAN: Economic Attention Network ECP: Embodied Communication Prior EPW : Experiential Possible Worlds (semantics) FCA: Formal Concept Analysis FI : Fisher Information FIM: Frequent Itemset Mining FOI: First Order Inference FOPL: First Order Predicate Logic FOPLN: First Order PLN FS-MOSES: Feature Selection MOSES (i.e. MOSES with feature selection integrated a la LIFES) GA: Genetic Algorithms 325 326 A Glossary GB: Global Brain GEOP: Goal Evaluator Operating Procedure (in a GOLEM context) GIS: Geospatial Information System GOLEM: Goal-Oriented LEarning Meta-architecture GP: Genetic Programming HOI: Higher-Order Inference HOPLN: Higher-Order PLN HR: Historical Repository (in a GOLEM context) HTM: Hierarchical Temporal Memory IA: (Allen) Interval Algebra (an algebra of temporal intervals) IRC: Imitation Reinforcement Correction (Learning) LIFES: Learning-Integrated Feature Selection LTI: Long Term Importance MA: MindAgent MOSES: Meta-Optimizing Semantic Evolutionary Search MSH: Mirror System Hypothesis NARS: Non-Axiomatic Reasoning System NLGen: A specific software component within OpenCog, which provides one way of dealing with Natural Language Generation OCP: OpenCogPrime OP: Operating Program (in a GOLEM context) PEPL: Probabilistic Evolutionary Procedure Learning (e.g. MOSES) PLN: Probabilistic Logic Networks RCC: Region Connection Calculus RelEx: A specific software component within OpenCog, which provides one way of dealing with natural language Relationship Extraction SAT: Boolean SATisfaction, as a mathematical computational problem SMEPH: Self-Modifying Evolving Probabilistic Hypergraph SRAM: Simple Realistic Agents Model STI: Short Term Importance STV: Simple Truth VAlue TV: Truth Value VLTI: Very Long Term Importances WSPS: Whole-Sentence Purely-Syntactic Parsing A.2 Glossary of Specialized Terms Abduction: A general form of inference that goes from data describing something to a hypothesis that accounts for the data. Often in an OpenCog context, this refers to the PLN abduction rule, a specific First-Order PLN rule (If A implies C, and B implies C, then maybe A is B), which embodies a simple form of abductive inference. But OpenCog may also carry out abduction, as a general process, in other ways. Action Selection: The process via which the OpenCog system chooses which Schema to enact, based on its current goals and context. Active Schema Pool: The set of Schema currently in the midst of Schema Execution. A.2 Glossary of Specialized Terms 327 Adaptive Inference Control: Algorithms or heuristics for guiding PLN inference, that cause inference to be guided differently based on the context in which the inference is taking place, or based on aspects of the inference that are noted as it proceeds. AGI Preschool: A virtual world or robotic scenario roughly similar to the environment within a typical human preschool, intended for AGIs to learn in via interacting with the environment and with other intelligent agents. Atom: The basic entity used in OpenCog as an element for building representations. Some Atoms directly represent patterns in the world or mind, others are components of representations. There are two kinds of Atoms: Nodes and Links. Atom, Frozen: See Atom, Saved Atom, Realized: An Atom that exists in RAM at a certain point in time. Atom, Saved: An Atom that has been saved to disk or other similar media, and is not actively being processed. Atom, Serialized: An Atom that is serialized for transmission from one software process to another, or for saving to disk, etc. Atom2Link: A part of OpenCogPrime s language generation system, that transforms appropriate Atoms into words connected via link parser link types. Atomspace: A collection of Atoms, comprising the central part of the memory of an OpenCog instance. Attention: The aspect of an intelligent system s dynamics focused on guiding which aspects of an OpenCog system s memory functionality gets more computational resources at a certain point in time Attention Allocation: The cognitive process concerned with managing the parameters and relationships guiding what the system pays attention to, at what points in time. This is a term inclusive of Importance Updating and Hebbian Learning. Attentional Currency: Short Term Importance and Long Term Importance values are implemented in terms of two different types of artificial money, STICurrency and LTICurrency. Theoretically these may be converted to one another. Attentional Focus: The Atoms in an OpenCog Atomspace whose ShortTermImportance values lie above a critical threshold (the AttentionalFocus Boundary). The Attention Allocation subsystem treats these Atoms differently. Qualitatively, these Atoms constitute the system s main focus of attention during a certain interval of time, i.e. it s a moving bubble of attention. Attentional Memory: A system s memory of what it s useful to pay attention to, in what contexts. In CogPrime this is managed by the attention allocation subsystem. Backward Chainer: A piece of software, wrapped in a MindAgent, that carries out backward chaining inference using PLN. CIM-Dynamic: Concretely-Implemented Mind Dynamic, a term for a cognitive process that is implemented explicitly in OpenCog (as opposed to allowed to emerge implicitly from other dynamics). Sometimes a CIM-Dynamic will be implemented via a single MindAgent, sometimes via a set of multiple interrelated MindAgents, occasionally by other means. Cognition: In an OpenCog context, this is an imprecise term. Sometimes this term means any process closely related to intelligence; but more often it s used specifically to refer to more abstract reasoning learning etc, as distinct from lower-level perception and action. Cognitive Architecture: This refers to the logical division of an AI system like OpenCog into interacting parts and processes representing different conceptual aspects of intelligence. 328 A Glossary It s different from the software architecture, though of course certain cognitive architectures and certain software architectures fit more naturally together. Cognitive Cycle: The basic loop of operations that an OpenCog system, used to control an agent interacting with a world, goes through rapidly each subjective moment. Typically a cognitive cycle should be completed in a second or less. It minimally involves perceiving data from the world, storing data in memory, and deciding what if any new actions need to be taken based on the data perceived. It may also involve other processes like deliberative thinking or metacognition. Not all OpenCog processing needs to take place within a cognitive cycle. Cognitive Schematic: An implication of the form Context AND Procedure IMPLIES goal . Learning and utilization of these is key to CogPrime s cognitive process. Cognitive Synergy: The phenomenon by which different cognitive processes, controlling a single agent, work together in such a way as to help each other be more intelligent. Typically, if one has cognitive processes that are individually susceptible to combinatorial explosions, cognitive synergy involves coupling them together in such a way that they can help one another overcome each other s internal combinatorial explosions. The CogPrime design is reliant on the hypothesis that its key learning algorithms will display dramatic cognitive synergy when utilized for agent control in appropriate environments. CogPrime : The name for the AGI design presented in this book, which is designed specifically for implementation within the OpenCog software framework (and this implementation is OpenCogPrime). CogServer: A piece of software, within OpenCog, that wraps up an Atomspace and a number of MindAgents, along with other mechanisms like a Scheduler for controlling the activity of the MindAgents, and code for important and exporting data from the Atomspace. Cognitive Equation: The principle, identified in Ben Goertzel s 1994 book "Chaotic Logic", that minds are collections of pattern-recognition elements, that work by iteratively recognizing patterns in each other and then embodying these patterns as new system elements. This is seen as distinguishing mind from self-organization in general, as the latter is not so focused on continual pattern recognition. Colloquially this means that a mind is a system continually creating itself via recognizing patterns in itself. Combo: The programming language used internally by MOSES to represent the programs it evolves. SchemaNodes may refer to Combo programs, whether the latter are learned via MOSES or via some other means. The textual realization of Combo resembles LISP with less syntactic sugar. Internally a Combo program is represented as a program tree. Composer: In the PLN design, a rule is denoted a composer if it needs premises for generating its consequent. See generator. CogBuntu: an Ubuntu Linux remix that contains all required packages and tools to test and develop OpenCog. Concept Creation: A general term for cognitive processes that create new ConceptNodes, PredicateNodes or concept maps representing new concepts. Conceptual Blending: A process of creating new concepts via judiciously combining pieces of old concepts. This may occur in OpenCog in many ways, among them the explicit use of a ConceptBlending MindAgent, that blends two or more ConceptNodes into a new one. Confidence: A component of an OpenCog PLN TruthValue, which is a scaling into the interval 0,1 of the weight of evidence associated with a truth value. In the simplest case (of a probabilistic Simple Truth Value), one uses confidence c n (n k), where n is A.2 Glossary of Specialized Terms 329 the weight of evidence and k is a parameter. In the case of an Indefinite Truth Value, the confidence is associated with the width of the probability interval. Confidence Decay: The process by which the confidence of an Atom decreases over time, as the observations on which the Atom s truth value is based become increasingly obsolete. This may be carried out by a special MindAgent. The rate of confidence decay is subtle and contextually determined, and must be estimated via inference rather than simply assumed a priori. Consciousness: CogPrime is not predicated on any particular conceptual theory of consciousness. Informally, the AttentionalFocus is sometimes referred to as the conscious mind of a CogPrime system, with the rest of the Atomspace as unconscious but this is just an informal usage, not intended to tie the CogPrime design to any particular theory of consciousness. The primary originator of the CogPrime design (Ben Goertzel) tends toward panpsychism, as it happens. Context: In addition to its general common-sensical meaning, in CogPrime the term Context also refers to an Atom that is used as the first argument of a ContextLink. The second argument of the ContextLink then contains Links or Nodes, with TruthValues calculated restricted to the context defined by the first argument. For instance, (ContextLink USA (InheritanceLink person obese )). Core: The MindOS portion of OpenCog, comprising the Atomspace, the CogServer, and other associated infrastructural code. Corrective Learning: When an agent learns how to do something, by having another agent explicitly guide it in doing the thing. For instance, teaching a dog to sit by pushing its butt to the ground. CSDLN: (Compositional Spatiotemporal Deep Learning Network): A hierarchical pattern recognition network, in which each layer corresponds to a certain spatiotemporal granularity, the nodes on a given layer correspond to spatiotemporal regions of a given size, and the children of a node correspond to sub-regions of the region the parent corresponds to. Jeff Hawkins s HTM is one example CSDLN, and Itamar Arel s DeSTIN (currently used in OpenCog) is another. Declarative Knowledge: Semantic knowledge as would be expressed in propositional or predicate logic facts or beliefs. Deduction: In general, this refers to the derivation of conclusions from premises using logical rules. In PLN in particular, this often refers to the exercise of a specific inference rule, the PLN Deduction rule (A B, B C, therefore A C) Deep Learning: Learning in a network of elements with multiple layers, involving feedforward and feedback dynamics, and adaptation of the links between the elements. An example deep learning algorithm is DeSTIN, which is being integrated with OpenCog for perception processing. Defrosting: Restoring, into the RAM portion of an Atomspace, an Atom (or set thereof) previously saved to disk. Demand: In CogPrime s OpenPsi subsystem, this term is used in a manner inherited from the Psi model of motivated action. A Demand in this context is a quantity whose value the system is motivated to adjust. Typically the system wants to keep the Demand between certain minimum and maximum values. An Urge develops when a Demand deviates from its target range. Deme: In MOSES, an island of candidate programs, closely clustered together in program space, being evolved in an attempt to optimize a certain fitness function. The idea is that 330 A Glossary within a deme, programs are generally similar enough that reasonable syntax-semantics correlation obtains. Derived Hypergraph: The SMEPH hypergraph obtained via modeling a system in terms of a hypergraph representing its internal states and their relationships. For instance, a SMEPH vertex represents a collection of internal states that habitually occur in relation to similar external situations. A SMEPH edge represents a relationship between two SMEPH vertices (e.g. a similarity or inheritance relationship). The terminology edge vertex is used in this context, to distinguish from the link node terminology used in the context of the Atomspace. DeSTIN Deep SpatioTemporal Inference Network: A specific CSDLN created by Itamar Arel, tested on visual perception, and appropriate for integration within CogPrime. Dialogue: Linguistic interaction between two or more parties. In a CogPrime context, this may be in English or another natural language, or it may be in Lojban or Psynese. Dialogue Control: The process of determining what to say at each juncture in a dialogue. This is distinguished from the linguistic aspects of dialogue, language comprehension and language generation. Dialogue control applies to Psynese or Lojban, as well as to human natural language. Dimensional Embedding: The process of embedding entities from some non-dimensional space (e.g. the Atomspace) into an n-dimensional Euclidean space. This can be useful in an AI context because some sorts of queries (e.g. find everything similar to X , find a path between X and Y ) are much faster to carry out among points in a Euclidean space, than among entities in a space with less geometric structure. Distributed Atomspace: An implementation of an Atomspace that spans multiple computational processes; generally this is done to enable spreading an Atomspace across multiple machines. Dual Network: A network of mental or informational entities with both a hierarchical structure and a heterarchical structure, and an alignment among the two structures so that each one helps with the maintenance of the other. This is hypothesized to be a critical emergent structure, that must emerge in a mind (e.g. in an Atomspace) in order for it to achieve a reasonable level of human-like general intelligence (and possibly to achieve a high level of pragmatic general intelligence in any physical environment). Efficient Pragmatic General Intelligence: A formal, mathematical definition of general intelligence (extending the pragmatic general intelligence), that ultimately boils down to: the ability to achieve complex goals in complex environments using limited computational resources (where there is a specifically given weighting function determining which goals and environments have highest priority). More specifically, the definition weighted-sums the system s normalized goal-achieving ability over (goal, environment pairs), and where the weights are given by some assumed measure over (goal, environment pairs), and where the normalization is done via dividing by the (space and time) computational resources used for achieving the goal. Elegant Normal Form (ENF): Used in MOSES, this is a way of putting programs in a normal form while retaining their hierarchical structure. This is critical if one wishes to probabilistically model the structure of a collection of programs, which is a meaningful operation if the collection of programs is operating within a region of program space where syntax-semantics correlation holds to a reasonable degree. The Reduct library is used to place programs into ENF. A.2 Glossary of Specialized Terms 331 Embodied Communication Prior: The class of prior distributions over (goal, environment pairs), that are imposed by placing an intelligent system in an environment where most of its tasks involve controlling a spatially localized body in a complex world, and interacting with other intelligent spatially localized bodies. It is hypothesized that many key aspects of human-like intelligence (e.g. the use of different subsystems for different memory types, and cognitive synergy between the dynamics associated with these subsystems) are consequences of this prior assumption. This is related to the Mind-World Correspondence Principle. Embodiment: Colloquially, in an OpenCog context, this usually means the use of an AI software system to control a spatially localized body in a complex (usually 3D) world. There are also possible borderline cases of embodiment, such as a search agent on the Internet. In a sense any AI is embodied, because it occupies some physical system (e.g. computer hardware) and has some way of interfacing with the outside world. Emergence: A property or pattern in a system is emergent if it arises via the combination of other system components or aspects, in such a way that its details would be very difficult (not necessarily impossible in principle) to predict from these other system components or aspects. Emotion: Emotions are system-wide responses to the system s current and predicted state. Dorner s Psi theory of emotion contains explanations of many human emotions in terms of underlying dynamics and motivations, and most of these explanations make sense in a CogPrime context, due to CogPrime s use of OpenPsi (modeled on Psi) for motivation and action selection. Episodic Knowledge: Knowledge about episodes in an agent s life-history, or the lifehistory of other agents. CogPrime includes a special dimensional embedding space only for episodic knowledge, easing organization and recall. Evolutionary Learning: Learning that proceeds via the rough process of iterated differential reproduction based on fitness, incorporating variations of reproduced entities. MOSES is an explicitly evolutionary-learning-based portion of CogPrime; but CogPrime s dynamics as a whole may also be conceived as evolutionary. Exemplar: (in the context of imitation learning) - When the owner wants to teach an OpenCog controlled agent a behavior by imitation, he she gives the pet an exemplar. To teach a virtual pet "fetch" for instance, the owner is going to throw a stick, run to it, grab it with his her mouth and come back to its initial position. Exemplar: (in the context of MOSES) Candidate chosen as the core of a new deme, or as the central program within a deme, to be varied by representation building for ongoing exploration of program space. Explicit Knowledge Representation: Knowledge representation in which individual, easily humanly identifiable pieces of knowledge correspond to individual elements in a knowledge store (elements that are explicitly there in the software and accessible via very rapid, deterministic operations) Extension: In PLN, the extension of a node refers to the instances of the category that the node represents. In contrast is the intension. Fishgram (Frequent and Interesting Sub-hypergraph Mining): A pattern mining algorithm for identifying frequent and or interesting sub-hypergraphs in the Atomspace. First-Order Inference (FOI): The subset of PLN that handles Logical Links not involving VariableAtoms or higher-order functions. The other aspect of PLN, Higher-Order Inference, uses Truth Value formulas derived from First-Order Inference. 332 A Glossary Forgetting: The process of removing Atoms from the in-RAM portion of Atomspace, when RAM gets short and they are judged not as valuable to retain in RAM as other Atoms. This is commonly done using the LTI values of the Atoms (removing lowest LTI-Atoms, or more complex strategies involving the LTI of groups of interconnected Atoms). May be done by a dedicated Forgetting MindAgent. VLTI may be used to determine the fate of forgotten Atoms. Forward Chainer: A control mechanism (MindAgent) for PLN inference, that works by taking existing Atoms and deriving conclusions from them using PLN rules, and then iterating this process. The goal is to derive new Atoms that are interesting according to some given criterion. Frame2Atom: A simple system of hand-coded rules for translating the output of RelEx2Frame (logical representation of semantic relationships using FrameNet relationships) into Atoms. Freezing: Saving Atoms from the in-RAM Atomspace to disk. General Intelligence: Often used in an informal, commonsensical sense, to mean the ability to learn and generalize beyond specific problems or contexts. Has been formalized in various ways as well, including formalizations of the notion of achieving complex goals in complex environments and achieving complex goals in complex environments using limited resources. Usually interpreted as a fuzzy concept, according to which absolutely general intelligence is physically unachievable, and humans have a significant level of general intelligence, but far from the maximally physically achievable degree. Generalized Hypergraph: A hypergraph with some additional features, such as links that point to links, and nodes that are seen as containing whole sub-hypergraphs. This is the most natural and direct way to mathematically visually model the Atomspace. Generator: In the PLN design, a rule is denoted a generator if it can produce its consequent without needing premises (e.g. LookupRule, which just looks it up in the AtomSpace). See composer. Global, Distributed Memory: Memory that stores items as implicit knowledge, with each memory item spread across multiple components, stored as a pattern of organization or activity among them. Glocal Memory: The storage of items in memory in a way that involves both localized and global, distributed aspects. Goal: An Atom representing a function that a system (like OpenCog) is supposed to spend a certain non-trivial percentage of its attention optimizing. The goal, informally speaking, is to maximize the Atom s truth value. Goal, Implicit: A goal that an intelligent system, in practice, strives to achieve; but that is not explicitly represented as a goal in the system s knowledge base. Goal, Explicit: A goal that an intelligent system explicitly represents in its knowledge base, and expends some resources trying to achieve. Goal Nodes (which may be Nodes or, e.g. ImplicationLinks) are used for this purpose in OpenCog. Goal-Driven Learning: Learning that is driven by the cognitive schematic i.e. by the quest of figuring out which procedures can be expected to achieve a certain goal in a certain sort of context. Grounded SchemaNode: See SchemaNode, Grounded. Hebbian Learning: An aspect of Attention Allocation, centered on creating and updating HebbianLinks, which represent the simultaneous importance of the Atoms joined by the HebbianLink. A.2 Glossary of Specialized Terms 333 Hebbian Links: Links recording information about the associative relationship (cooccurrence) between Atoms. These include symmetric and asymmetric HebbianLinks. Heterarchical Network: A network of linked elements in which the semantic relationships associated with the links are generally symmetrical (e.g. they may be similarity links, or symmetrical associative links). This is one important sort of subnetwork of an intelligent system; see Dual Network. Hierarchical Network: A network of linked elements in which the semantic relationships associated with the links are generally asymmetrical, and the parent nodes of a node have a more general scope and some measure of control over their children (though there may be important feedback dynamics too). This is one important sort of subnetwork of an intelligent system; see Dual Network. Higher-Order Inference (HOI): PLN inference involving variables or higher-order functions. In contrast to First-Order Inference (FOI). Hillclimbing: A general term for greedy, local optimization techniques, including some relatively sophisticated ones that involve mildly nonlocal jumps. Human-Level Intelligence: General intelligence that s as smart as human general intelligence, even if in some respects quite unlike human intelligence. An informal concept, which generally doesn t come up much in CogPrime work, but is used frequently by some other AI theorists. Human-Like Intelligence: General intelligence with properties and capabilities broadly resembling those of humans, but not necessarily precisely imitating human beings. Hypergraph: A conventional hypergraph is a collection of nodes and links, where each link may span any number of nodes. OpenCog makes use of generalized hypergraphs (the Atomspace is one of these). Imitation Learning: Learning via copying what some other agent is observed to do. Implication: Often refers to an ImplicationLink between two PredicateNodes, indicating an (extensional, intensional or mixed) logical implication. Implicit Knowledge Representation: Representation of knowledge via having easily humanly identifiable pieces of knowledge correspond to the pattern of organization and or dynamics of elements, rather than via having individual elements correspond to easily humanly identifiable pieces of knowledge. Importance: A generic term for the Attention Values associated with Atoms. Most commonly these are STI (short term importance) and LTI (long term importance) values. Other importance values corresponding to various different time scales are also possible. In general an importance value reflects an estimate of the likelihood an Atom will be useful to the system over some particular future time-horizon. STI is generally relevant to processor time allocation, whereas LTI is generally relevant to memory allocation. Importance Decay: The process of Atom importance values (e.g. STI and LTI) decreasing over time, if the Atoms are not utilized. Importance decay rates may in general be contextdependent. Importance Spreading: A synonym for Importance Updating, intended to highlight the similarity with activation spreading in neural and semantic networks. Importance Updating: The CIM-Dynamic that periodically (frequently) updates the STI and LTI values of Atoms based on their recent activity and their relationships. Imprecise Truth Value: Peter Walley s imprecise truth values are intervals L,U , interpreted as lower and upper bounds of the means of probability distributions in an envelope 334 A Glossary of distributions. In general, the term may be used to refer to any truth value involving intervals or related constructs, such as indefinite probabilities. Indefinite Probability: An extension of a standard imprecise probability, comprising a credible interval for the means of probability distributions governed by a given second-order distribution. Indefinite Truth Value: An OpenCog TruthValue object wrapping up an indefinite probability Induction: In PLN, a specific inference rule (A B, A C, therefore B C). In general, the process of heuristically inferring that what has been seen in multiple examples, will be seen again in new examples. Induction in the broad sense, may be carried out in OpenCog by methods other than PLN induction. When emphasis needs to be laid on the particular PLN inference rule, the phrase PLN Induction is used. Inference: Generally speaking, the process of deriving conclusions from assumptions. In an OpenCog context, this often refers to the PLN inference system. Inference in the broad sense is distinguished from general learning via some specific characteristics, such as the intrinsically incremental nature of inference: it proceeds step by step. Inference Control: A cognitive process that determines what logical inference rule (e.g. what PLN rule) is applied to what data, at each point in the dynamic operation of an inference process. Integrative AGI: An AGI architecture, like CogPrime, that relies on a number of different powerful, reasonably general algorithms all cooperating together. This is different from an AGI architecture that is centered on a single algorithm, and also different than an AGI architecture that expects intelligent behavior to emerge from the collective interoperation of a number of simple elements (without any sophisticated algorithms coordinating their overall behavior). Integrative Cognitive Architecture: A cognitive architecture intended to support integrative AGI. Intelligence: An informal, natural language concept. General intelligence is one slightly more precise specification of a related concept; Universal intelligence is a fully precise specification of a related concept. Other specifications of related concepts made in the particular context of CogPrime research are the pragmatic general intelligence and the efficient pragmatic general intelligence. Intension: In PLN, the intention of a node consists of Atoms representing properties of the entity the node represents. Intentional memory: A system s knowledge of its goals and their subgoals, and associations between these goals and procedures and contexts (e.g. cognitive schematics). Internal Simulation World: A simulation engine used to simulate an external environment (which may be physical or virtual), used by an AGI system as its mind s eye in order to experiment with various action q sequences and envision their consequences, or observe the consequences of various hypothetical situations. Particularly important for dealing with episodic knowledge. Interval Algebra: Allen Interval Algebra, a mathematical theory of the relationships between time intervals. CogPrime utilizes a fuzzified version of classic Interval Algebra. IRC Learning (Imitation, Reinforcement, Correction): Learning via interaction with a teacher, involving a combination of imitating the teacher, getting explicit reinforcement signals from the teacher, and having one s incorrect or suboptimal behaviors guided toward betterness by the teacher in real-time. This is a large part of how young humans learn. A.2 Glossary of Specialized Terms 335 Knowledge Base: A shorthand for the totality of knowledge possessed by an intelligent system during a certain interval of time (whether or not this knowledge is explicitly represented). Put differently: this is an intelligence s total memory contents (inclusive of all types of memory) during an interval of time. Language Comprehension: The process of mapping natural language speech or text into a more cognitive , largely language-independent representation. In OpenCog this has been done by various pipelines consisting of dedicated natural language processing tools, e.g. a pipeline: text Link Parser RelEx RelEx2Frame Frame2Atom Atomspace; and alternatively a pipeline Link Parser Link2Atom Atomspace. It would also be possible to do language comprehension purely via PLN and other generic OpenCog processes, without using specialized language processing tools. Language Generation: The process of mapping (largely language-independent) cognitive content into speech or text. In OpenCog this has been done by various pipelines consisting of dedicated natural language processing tools, e.g. a pipeline: Atomspace NLGen text; or more recently Atomspace Atom2Link surface realization text. It would also be possible to do language generation purely via PLN and other generic OpenCog processes, without using specialized language processing tools. Language Processing: Processing of human language is decomposed, in CogPrime, into Language Comprehension, Language Generation, and Dialogue Control. Learning: In general, the process of a system adapting based on experience, in a way that increases its intelligence (its ability to achieve its goals). The theory underlying CogPrime doesn t distinguish learning from reasoning, associating, or other aspects of intelligence. Learning Server: In some OpenCog configurations, this refers to a software server that performs offline learning tasks (e.g. using MOSES or hillclimbing), and is in communication with an Operational Agent Controller software server that performs real-time agent control and dispatches learning tasks to and receives results from the Learning Server. Linguistic Links: A catch-all term for Atoms explicitly representing linguistic content, e.g. WordNode, SentenceNode, CharacterNode. Link: A type of Atom, representing a relationship among one or more Atoms. Links and Nodes are the two basic kinds of Atoms. Link Parser: A natural language syntax parser, created by Sleator and Temperley at Carnegie-Mellon University, and currently used as part of OpenCogPrime s natural language comprehension and natural language generation system. Link2Atom: A system for translating link parser links into Atoms. It attempts to resolve precisely as much ambiguity as needed in order to translate a given assemblage of link parser links into a unique Atom structure. Lobe: A term sometimes used to refer to a portion of a distributed Atomspace that lives in a single computational process. Often different lobes will live on different machines. Localized Memory: Memory that stores each item using a small number of closelyconnected elements. Logic: In an OpenCog context, this usually refers to a set of formal rules for translating certain combinations of Atoms into conclusion Atoms. The paradigm case at present is the PLN probabilistic logic system, but OpenCog can also be used together with other logics. Logical Links: Any Atoms whose truth values are primarily determined or adjusted via logical rules, e.g. PLN s InheritanceLink, SimilarityLink, ImplicationLink, etc. The term isn t usually applied to other links like HebbianLinks whose semantics isn t primarily logic- 336 A Glossary based, even though these other links can be processed via (e.g. PLN) logical inference via interpreting them logically. Lojban: A constructed human language, with a completely formalized syntax and a highly formalized semantics, and a small but active community of speakers. In principle this seems an extremely good method for communication between humans and early-stage AGI systems. Lojban : A variant of Lojban that incorporates English words, enabling more flexible expression without the need for frequent invention of new Lojban words. Long Term Importance (LTI): A value associated with each Atom, indicating roughly the expected utility to the system of keeping that Atom in RAM rather than saving it to disk or deleting it. It s possible to have multiple LTI values pertaining to different time scales, but so far practical implementation and most theory has centered on the option of a single LTI value. LTI: Long Term Importance Map: A collection of Atoms that are interconnected in such a way that they tend to be commonly active (i.e. to have high STI, e.g. enough to be in the AttentionalFocus, at the same time). Map Encapsulation: The process of automatically identifying maps in the Atomspace, and creating Atoms that encapsulate them; the Atom encapsulation a map would link to all the Atoms in the map. This is a way of making global memory into local memory, thus making the system s memory glocal and explicitly manifesting the cognitive equation. This may be carried out via a dedicated MapEncapsulation MindAgent. Map Formation: The process via which maps form in the Atomspace. This need not be explicit; maps may form implicitly via the action of Hebbian Learning. It will commonly occur that Atoms frequently co-occurring in the AttentionalFocus, will come to be joined together in a map. Memory Types: In CogPrime this generally refers to the different types of memory that are embodied in different data structures or processes in the CogPrime architecture, e.g. declarative (semantic), procedural, attentional, intentional, episodic, sensorimotor. Mind-World Correspondence Principle: The principle that, for a mind to display efficient pragmatic general intelligence relative to a world, it should display many of the same key structural properties as that world. This can be formalized by modeling the world and mind as probabilistic state transition graphs, and saying that the categories implicit in the state transition graphs of the mind and world should be inter-mappable via a highprobability morphism. Mind OS: A synonym for the OpenCog Core. MindAgent: An OpenCog software object, residing in the CogServer, that carries out some processes in interaction with the Atomspace. A given conceptual cognitive process (e.g. PLN inference, Attention allocation, etc.) may be carried out by a number of different MindAgents designed to work together. Mindspace: A model of the set of states of an intelligent system as a geometrical space, imposed by assuming some metric on the set of mind-states. This may be used as a tool for formulating general principles about the dynamics of generally intelligent systems. Modulators: Parameters in the Psi model of motivated, emotional cognition, that modulate the way a system perceives, reasons about and interacts with the world. A.2 Glossary of Specialized Terms 337 MOSES (Meta-Optimizing Semantic Evolutionary Search): An algorithm for procedure learning, which in the current implementation learns programs in the Combo language. MOSES is an evolutionary learning system, which differs from typical genetic programming systems in multiple aspects including: a subtler framework for managing multiple demes or islands of candidate programs; a library called Reduct for placing programs in Elegant Normal Form; and the use of probabilistic modeling in place of, or in addition to, mutation and crossover as means of determining which new candidate programs to try. Motoric: Pertaining to the control of physical actuators, e.g. those connected to a robot. May sometimes be used to refer to the control of movements of a virtual character as well. Moving Bubble of Attention: The Attentional Focus of a CogPrime system. Natural Language Comprehension: See Language Comprehension Natural Language Generation: See Language Generation Natural Language Processing (NLP): See Language Processing NLGen: Software for carrying out the surface realization phase of natural language generation, via translating collections of RelEx output relationships into English sentences. Was made functional for simple sentences and some complex sentences; not currently under active development, as work has shifted to the related Atom2Link approach to language generation. Node: A type of Atom. Links and Nodes are the two basic kinds of Atoms. Nodes, mathematically, can be thought of as "0-ary" links. Some types of Nodes refer to external or mathematical entities (e.g. WordNode, NumberNode); others are purely abstract, e.g. a ConceptNode is characterized purely by the Links relating it to other atoms. Grounded- PredicateNodes and GroundedSchemaNodes connect to explicitly represented procedures (sometimes in the Combo language); ungrounded PredicateNodes and SchemaNodes are abstract and, like ConceptNodes, purely characterized by their relationships. Node Probability: Many PLN inference rules rely on probabilities associated with Nodes. Node probabilities are often easiest to interpret in a specific context, e.g. the probability P(cat) makes obvious sense in the context of a typical American house, or in the context of the center of the sun. Without any contextual specification, P(A) is taken to mean the probability that a randomly chosen occasion of the system s experience includes some instance of A. Novamente Cognition Engine (NCE): A proprietary proto-AGI software system, the predecessor to OpenCog. Many parts of the NCE were open-sourced to form portions of OpenCog, but some NCE code was not included in OpenCog; and now OpenCog includes multiple aspects and plenty of code that was not in NCE. OpenCog: A software framework intended for development of AGI systems, and also for narrow-AI application using tools that have AGI applications. Co-designed with the Cog- Prime cognitive architecture, but not exclusively bound to it. OpenCog Prime (OCP): The implementation of the CogPrime cognitive architecture within the OpenCog software framework. OpenPsi: CogPrime s architecture for motivation-driven action selection, which is based on adapting Dorner s Psi model for use in the OpenCog framework. Operational Agent Controller (OAC): In some OpenCog configurations, this is a software server containing a CogServer devoted to real-time control of an agent (e.g. a virtual world agent, or a robot). Background, offline learning tasks may then be dispatched to other software processes, e.g. to a Learning Server. 338 A Glossary Pattern: In a CogPrime context, the term pattern is generally used to refer to a process that produces some entity, and is judged simpler than that entity. Pattern Mining: Pattern mining is the process of extracting an (often large) number of patterns from some body of information, subject to some criterion regarding which patterns are of interest. Often (but not exclusively) it refers to algorithms that are rapid or greedy , finding a large number of simple patterns relatively inexpensively. Pattern Recognition: The process of identifying and representing a pattern in some substrate (e.g. some collection of Atoms, or some raw perceptual data, etc.). Patternism: The philosophical principle holding that, from the perspective of engineering intelligent systems, it is sufficient and useful to think about mental processes in terms of (static and dynamical) patterns. Perception: The process of understanding data from sensors. When natural language is ingested in textual format, this is generally not considered perceptual. Perception may be taken to encompass both pre-processing that prepares sensory data for ingestion into the Atomspace, processing via specialized perception processing systems like DeSTIN that are connected to the Atomspace, and more cognitive-level process within the Atomspace that is oriented toward understanding what has been sensed. Piagetan Stages: A series of stages of cognitive development hypothesized by developmental psychologist Jean Piaget, which are easy to interpret in the context of developing CogPrime systems. The basic stages are: Infantile, Pre-operational, Concrete Operational and Formal. Post-formal stages have been discussed by theorists since Piaget and seem relevant to AGI, especially advanced AGI systems capable of strong self-modification. PLN: short for Probabilistic Logic Networks PLN, First-Order: See First-Order Inference PLN, Higher-Order: See Higher-Order Inference PLN Rules: A PLN Rule takes as input one or more Atoms (the premises , usually Links), and output an Atom that is a logical conclusion of those Atoms. The truth value of the consequence is determined by a PLN Formula associated with the Rule. PLN Formulas: A PLN Formula, corresponding to a PLN Rule, takes the TruthValues corresponding to the premises and produces the TruthValue corresponding to the conclusion. A single Rule may correspond to multiple Formulas, where each Formula deals with a different sort of TruthValue. Pragmatic General Intelligence: A formalization of the concept of general intelligence, based on the concept that general intelligence is the capability to achieve goals in environments, calculated as a weighted average over some fuzzy set of goals and environments. Predicate Evaluation: The process of determining the Truth Value of a predicate, embodied in a PredicateNode. This may be recursive, as the predicate referenced internally by a Grounded PredicateNode (and represented via a Combo program tree) may itself internally reference other PredicateNodes. Probabilistic Logic Networks (PLN): A mathematical and conceptual framework for reasoning under uncertainty, integrating aspects of predicate and term logic with extensions of imprecise probability theory. OpenCogPrime s central tool for symbolic reasoning. Procedural Knowledge: Knowledge regarding which series of actions (or action-combinations) are useful for an agent to undertake in which circumstances. In CogPrime these may be learned in a number of ways, e.g. via PLN or via Hebbian learning of Schema Maps, or via explicit learning of Combo programs via MOSES or hillclimbing. Procedures are represented as SchemaNodes or Schema Maps. A.2 Glossary of Specialized Terms 339 Procedure Evaluation Execution: A general term encompassing both Schema Execution and Predicate Evaluation, both of which are similar computational processes involving manipulation of Combo trees associated with ProcedureNodes. Procedure Learning: Learning of procedural knowledge, based on any method, e.g. evolutionary learning (e.g. MOSES), inference (e.g. PLN), reinforcement learning (e.g. Hebbian learning). Procedure Node: A SchemaNode or PredicateNode Psi: A model of motivated action and emotion, originated by Dietrich Dorner and further developed by Joscha Bach, who incorporated it in his proto-AGI system MicroPsi. OpenCog- Prime s motivated-action component, OpenPsi, is roughly based on the Psi model. Psynese: A system enabling different OpenCog instances to communicate without using natural language, via directly exchanging Atom subgraphs, using a special system to map references in the speaker s mind into matching references in the listener s mind. Psynet Model: An early version of the theory of mind underlying CogPrime, referred to in some early writings on the Webmind AI Engine and Novamente Cognition Engine. The concepts underlying the psynet model are still part of the theory underlying CogPrime, but the name has been deprecated as it never really caught on. Reasoning: See inference Reduct: A code library, used within MOSES, applying a collection of hand-coded rewrite rules that transform Combo programs into Elegant Normal Form. Region Connection Calculus: A mathematical formalism describing a system of basic operations among spatial regions. Used in CogPrime as part of spatial inference to provide relations and rules to be referenced via PLN and potentially other subsystems. Reinforcement Learning: Learning procedures via experience, in a manner explicitly guided to cause the learning of procedures that will maximize the system s expected future reward. CogPrime does this implicitly whenever it tries to learn procedures that will maximize some Goal whose Truth Value is estimated via an expected reward calculation (where reward may mean simply the Truth Value of some Atom defined as reward ). Goal-driven learning is more general than reinforcement learning as thus defined; and the learning that CogPrime does, which is only partially goal-driven, is yet more general. RelEx: A software system used in OpenCog as part of natural language comprehension, to map the output of the link parser into more abstract semantic relationships. These more abstract relationships may then be entered directly into the Atomspace, or they may be further abstracted before being entered into the Atomspace, e.g. by RelEx2Frame rules. RelEx2Frame: A system of rules for translating RelEx output into Atoms, based on the FrameNet ontology. The output of the RelEx2Frame rules make use of the FrameNet library of semantic relationships. The current (2012) RelEx2Frame rule-based is problematic and the RelEx2Frame system is deprecated as a result, in favor of Link2Atom. However, the ideas embodied in these rules may be useful; if cleaned up the rules might profitably be ported into the Atomspace as ImplicationLinks. Representation Building: A stage within MOSES, wherein a candidate Combo program tree (within a deme) is modified by replacing one or more tree nodes with alternative tree nodes, thus obtaining a new, different candidate program within that deme. This process currently relies on hand-coded knowledge regarding which types of tree nodes a given tree node should be experimentally replaced with (e.g. an AND node might sensibly be replaced with an OR node, but not so sensibly replaced with a node representing a kick action). 340 A Glossary Request for Services (RFS): In CogPrime s Goal-driven action system, a RFS is a package sent from a Goal Atom to another Atom, offering it a certain amount of STI currency if it is able to deliver the goal what it wants (an increase in its Truth Value). RFS s may be passed on, e.g. from goals to subgoals to sub-subgoals, but eventually an RFS reaches a Grounded SchemaNode, and when the corresponding Schema is executed, the payment implicit in the RFS is made. Robot Preschool: An AGI Preschool in our physical world, intended for robotically embodied AGIs. Robotic Embodiment: Using an AGI to control a robot. The AGI may be running on hardware physically contained in the robot, or may run elsewhere and control the robot via networking methods such as wifi. Scheduler: Part of the CogServer that controls which processes (e.g. which MindAgents) get processor time, at which point in time. Schema: A script describing a process to be carried out. This may be explicit, as in the case of a GroundedSchemaNode, or implicit, as the case in Schema maps or ungrounded SchemaNodes. Schema Encapsulation: The process of automatically recognizing a Schema Map in an Atomspace, and creating a Combo (or other) program embodying the process carried out by this Schema Map, and then storing this program in the Procedure Repository and associating it with a particular SchemaNode. This translates distributed, global procedural memory into localized procedural memory. It s a special case of Map Encapsulation. Schema Execution: The process of running a Grounded Schema, similar to running a computer program. Or, phrased alternately: The process of executing the Schema referenced by a Grounded SchemaNode. This may be recursive, as the predicate referenced internally by a Grounded SchemaNode (and represented via a Combo program tree) may itself internally reference other Grounded SchemaNodes. Schema, Grounded: A Schema that is associated with a specific executable program (either a Combo program or, say, C code) Schema Map: A collection of Atoms, including SchemaNodes, that tend to be enacted in a certain order (or set of orders), thus habitually enacting the same process. This is a distributed, globalized way of storing and enacting procedures. Schema, Ungrounded: A Schema that represents an abstract procedure, not associated with any particular executable program. Schematic Implication: A general, conceptual name for implications of the form ((Context AND Procedure) IMPLIES Goal) SegSim: A name for the main algorithm underlying the NLGen language generation software. The algorithm is based on segmenting a collection of Atoms into small parts, and matching each part against memory to find, for each part, cases where similar Atomcollections already have known linguistic expression. Self-Modification: A term generally used for AI systems that can purposefully modify their core algorithms and representations. Formally and crisply distinguishing this sort of strong self-modification from mere learning is a tricky matter. Sensorimotor: Pertaining to sensory data, motoric actions, and their combination and intersection. Sensory: Pertaining to data received by the AGI system from the outside world. In a CogPrime system that perceives language directly as text, the textual input will generally A.2 Glossary of Specialized Terms 341 not be considered as sensory (on the other hand, speech audio data would be considered as sensory ). Short Term Importance: A value associated with each Atom, indicating roughly the expected utility to the system of keeping that Atom in RAM rather than saving it to disk or deleting it. It s possible to have multple LTI values pertaining to different time scales, but so far practical implementation and most theory has centered on the option of a single LTI value. Similarity: a link type indicating the probabilistic similarity between two different Atoms. Generically this is a combination of Intensional Similarity (similarity of properties) and Extensional Similarity (similarity of members). Simple Truth Value: a TruthValue involving a pair (s,d) indicating strength (e.g. probability or fuzzy set membership) and confidence d. d may be replaced by other options such as a count n or a weight of evidence w. Simulation World: See Internal Simulation World SMEPH (Self-Modifying Evolving Probabilistic Hypergraphs): a style of modeling systems, in which each system is associated with a derived hypergraph SMEPH Edge: A link in a SMEPH derived hypergraph, indicating an empirically observed relationship (e.g. inheritance or similarity) between two SMEPH Vertex: A node in a SMEPH derived hypergraph representing a system, indicating a collection of system states empirically observed to arise in conjunction with the same external stimuli Spatial Inference: PLN reasoning including Atoms that explicitly reference spatial relationships Spatiotemporal Inference: PLN reasoning including Atoms that explicitly reference spatial and temporal relationships STI: Shorthand for Short Term Importance Strength: The main component of a TruthValue object, lying in the interval 0,1 , referring either to a probability (in cases like InheritanceLink, SimilarityLink, EquivalenceLink, ImplicationLink, etc.) or a fuzzy value (as in MemberLink, EvaluationLink). Strong Self-Modification: This is generally used as synonymous with Self-Modification, in a CogPrime context. Subsymbolic: Involving processing of data using elements that have no correspondence to natural language terms, nor abstract concepts; and that are not naturally interpreted as symbolically standing for other things. Often used to refer to processes such as perception processing or motor control, which are concerned with entities like pixels or commands like rotate servomotor 15 by 10 degrees theta and 55 degrees phi. The distinction between symbolic and subsymbolic is conventional in the history of AI, but seems difficult to formalize rigorously. Logic-based AI systems are typically considered symbolic , yet Supercompilation: A technique for program optimization, which globally rewrites a program into a usually very different looking program that does the same thing. A prototype supercompiler was applied to Combo programs with successful results. Surface Realization: The process of taking a collection of Atoms and transforming them into a series of words in a (usually natural) language. A stage in the overall process of language generation. Symbol Grounding: The mapping of a symbolic term into perceptual or motoric entities that help define the meaning of the symbolic term. For instance, the concept Cat may be 342 A Glossary grounded by images of cats, experiences of interactions with cats, imaginations of being a cat, etc. Symbolic: Pertaining to the formation or manipulation of symbols, i.e. mental entities that are explicitly constructed to represent other entities. Often contrasted with subsymbolic. Syntax-Semantics Correlation: In the context of MOSES and program learning more broadly, this refers to the property via which distance in syntactic space (distance between the syntactic structure of programs, e.g. if they re represented as program trees) and semantic space (distance between the behaviors of programs, e.g. if they re represented as sets of input output pairs) are reasonably well correlated. This can often happen among sets of programs that are not too widely dispersed in program space. The Reduct library is used to place Combo programs in Elegant Normal Form, which increases the level of syntax-semantics corellation between them. The programs in a single MOSES deme are often closely enough clustered together that they have reasonably high syntax-semantics correlation. System Activity Table: An OpenCog component that records information regarding what a system did in the past. Temporal Inference: Reasoning that heavily involves Atoms representing temporal information, e.g. information about the duration of events, or their temporal relationship (before, after, during, beginning, ending). As implemented in CogPrime, makes use of an uncertain version of Allen Interval Algebra. Truth Value: A package of information associated with an Atom, indicating its degree of truth. SimpleTruthValue and IndefiniteTruthValue are two common, particular kinds. Multiple truth values associated with the same Atom from different perspectives may be grouped into CompositeTruthValue objects. Universal Intelligence: A technical term introduced by Shane Legg and Marcus Hutter, describing (roughly speaking) the average capability of a system to carry out computable goals in computable environments, where goal environment pairs are weighted via the length of the shortest program for computing them. Urge: In OpenPsi, an Urge develops when a Demand deviates from its target range. 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18 November 2013 January 2014 AUD15 BND10 RMB100 HKD80 INR500 IDR85,000 KRW10,000 KWD3 MYR20 NZD20 PESOS300 QAR40 SAR40 SGD8 TWD300 BAHT250 AED40 VND100,000 8 885007 530017 DASSAULT S NEW FALCON 5X BOMBARDIER CHALLENGER 350 THE FIRST EVER GULFSTREAM CUSTOM LIVERY DESIGN WINGS FOR SCIENCE NBAA 2013 WATCHES WONDERS 2013 ANYA HINDMARCH SMYTHSON BESPOKE STOCKINGER SAFES LOUIS MOINET AVIATION AT HOME SAIGON SUITES WINGS PEGASUS DESIGN by Melissa Pearce INTERNATIONAL JET INTERIORS by Jennifer Henricus CABIN COUTURE A daring designer goes for the runway 48 jetGALA Clients always want their aircraft to be modern and up-to-date, while maintaining an understated, luxurious aesthetic In a 50,000-square-foot hangar at Long Island s MacArthur Airport, an aircraft interiors project has its designer fired on all cylinders . Tasked to modify and refurbish a Global 5000 for the sports entertainment giant, World Wrestling Entertainment (WWE, formerly WWF), New York-based International Jet Interiors is putting a progressive spin on cabin design. While the livery boasts WWE s corporate colours, the interiors use hand-woven carpets, custom-made metal finishes including a spun black pearl finish, custom-dyed leathers and bespoke seating from Italy , says Eric Roth, the designer at International Jet Interiors helm. But the highlight is in the high-tech facilities: studio-grade equipment that enables on-thefly editing of feeds from live sports entertainment shows, which are transmitted via on-board satellite. Meanwhile, specially programmed iPad minis control the cabin functions. It will be the ultimate couture craft when completed in January 2014, says Roth. No stranger to special client requests, Roth says he loves the challenge the more unusual the request, the more he and his team seem to excel in delivering the solution. His clients come from around the world with a varied wish-list, ranging from entertainment systems with satellite TV and high-speed WiFi to 24-karat gold-plated fixtures throughout the craft. The more unusual the request, the more Roth and his team seem to excel in delivering the solution JETGALA 49 WINGS Helping clients strategise is a key part of the design process. I look at how long they have owned the craft and at its depreciating asset value 50 jetGALA Details set Roth s work apart from other aircraft interiors from the choice of lighting, carpet, upholstery and cabinetry, to gadget stowage and dining accessories Its refurbishment of Donald Trump s Boeing 757, for instance, included a 24-karat gold-plated bathroom sink. Other projects have required reconfiguring the seating layout to make kennel space for hunting dogs, installing ultra-secure bassinets for newborn infants, and wrapping a toilet seat in crocodile skin for a client in India. Roth says that as a designer and design director, his main task is to develop an intimate understanding of a client s lifestyle and his use of the jet the percentage of time spent for business, pleasure, corporate entertainment and family time. Helping clients strategise is a key part of the design process. I look at how long they have owned the craft and at its depreciating asset value, and work out if it s worth it to invest in the latest piece of technology or ultra comfort accessory. Most of them will opt for the investment because they want their aircraft to be up-to-date, even if this does not up its asset value. At times, thorough strategising is needed even before International Jet Interiors accepts a project. A US-based film producer once wanted a sky studio so that he and his four-member team could edit films onboard his Gulfstream. This required state-of-the-art editing equipment, surround sound, and a 42-inch, flat-screen, high-definition TV. The client perceived the theatre JETGALA 51 WINGS 52 jetGALA aspect as the great challenge yet it was balancing the weight of the floor-plan change and equipment furnishing that was the real challenge. The structural and technical analysis consumed the better part of three weeks before we could make the commitment to produce this unique aircraft, says Roth. Despite many quirky refurbishing requests, Roth says a fair percentage of his clients avoid using their aircraft to make a statement: They will come to me saying Eric, I want it to be luxuriously comfortable, very functional but extremely understated . Nearly 75 per cent of the firm s clients are US-based, but it is now receiving more requests from private-jet owners in Asia. The company has worked with clients in Shanghai, Tokyo and Mumbai, and is in discussions with new customers in Africa. He hopes to one day produce a green and sustainable solution for a client. That may sound like an oxymoron, and it will take a designer used to pushing the limits of convention to create such a ground-breaking design. It looks like Roth is cut out for the job. OPPOSITE International Jet Interiors achieves a sleek, streamlined appeal by modifying an aircraft s window line and periphery, and using composite materials exclusively THIS PAGE Hand-stitched leathers and finely woven fabrics create a luxurious, comfortable ambiance Gadgets can be configured to control the lightings in the cabin interior Clients come to me saying Eric, I want it to be luxuriously comfortable, very functional but extremely understated . JETGALA 53 |
Bloomberg Thatcher, Mandela, Chavez Are Among Notable Deaths in 2013 2013-12-26 05:01:00.3 GMT By Steven Gittelson Dec. 26 (Bloomberg) the U.K., the first black president of South Africa and the first woman to buy a seat on the New York Stock Exchange were among the notable deaths of 2013. Margaret Thatcher, 87, died in April; Nelson Mandela, 95, died this month; and Muriel Siebert, 84, died in August. The year also included the deaths of politicians Edward Koch, 88, in February and Hugo Chavez, 58, in March; musicians Marian McPartland, 95, in August and Lou Reed, 71, in October; and athletes Stan Musial, 92, in January, and Ken Norton, 70, in September. The world of business, finance and investing lost Fred Turner, 80, the former McDonald s Corp. chief executive officer who introduced Chicken McNuggets, Egg McMuffins and Happy Meals, in January; Martin Zweig, 70, who predicted the 1987 stock- market crash, in February; and Alfred Feld, 98, whose 80 years at Goldman Sachs Group Inc. made him the firm s longest-serving employee, in November. Here are the year s notable deaths, with each name linked to a previously published obituary. A cause of death is provided when known. January Patti Page, 85. U.S. pop singer whose 1950s hits included Tennessee Waltz and (How Much Is That) Doggie in the Window? Died Jan. 1. Lewis Adam, 68. He was a fuel trader who became president of ADMO Energy LLC, a supply consultant in Kansas City, Missouri. Died Jan. 2 of a heart attack on his first day of retirement. Fred Turner, 80. As CEO at McDonald s Corp., now the world s largest restaurant company, he introduced Chicken McNuggets, the Egg McMuffin and Happy Meals. Died Jan. 7 of complications from pneumonia. Ada Louise Huxtable, 91. She became the first full-time architecture critic at a U.S. newspaper when she was hired by the New York Times in 1963 and won the first Pulitzer Prize for distinguished criticism, in 1970. Died Jan. 7. James M. Buchanan, 93. The U.S. economist who won the 1986 Nobel Prize for applying the tools of economics to analyze political decision-making. Died Jan. 9. Daniel J. Edelman, 92. He founded Chicago-based Daniel J. Edelman Inc., now the world s largest independent public- relations company, and helped pioneer the use of celebrities in PR campaigns. Died Jan. 15 of heart failure. Thomas Candillier, 37. The Paris-based head of European equity sales at JPMorgan Chase Co., who joined the bank in 2001 after working in energy derivative sales at Goldman Sachs. Died Jan. 16. Robert Citron, 87. He was the treasurer of Orange County, California, in 1994, when his bad bets on derivative securities lost about 1.7 billion, causing what was then the biggest U.S. municipal bankruptcy. Died Jan. 16. Pauline Phillips, 94. To millions of U.S. newspaper readers, she was Abigail Van Buren, author of the personal advice column, Dear Abby. Died Jan. 16 from Alzheimer s disease. Stan Musial, 92. A Hall of Fame outfielder for Major League Baseball s St. Louis Cardinals, Stan the Man was one of the game s great hitters during the 1940s and 1950s. Died Jan. 19. Earl Weaver, 82. He was the hot-tempered manager of the Baltimore Orioles baseball team for 17 years, guiding his club to the World Series four times and winning the championship in 1970. Died Jan. 19 of a heart attack. Michael Winner, 77. The British film director best known for making the first three Death Wish action movies, starring Charles Bronson. Died Jan. 21 of liver cancer. A.W. Tom Clausen, 89. He rose from part-time cash counter to CEO at Bank of America Corp., and returned for a second stint as chief after serving as World Bank president. Died Jan. 21 of complications from pneumonia. Maria Schaumayer, 82. The Austrian economist who in 1990 became the first woman to lead a European central bank. Died Jan. 23. John M. Jack McCarthy, 85. The stock-market optimist who from 1983 to 1992 was co-managing partner at Lord Abbett Co., an investment management firm, in Jersey City, New Jersey. Died Jan. 23. Barry Lind, 74. Founder of Lind-Waldock Co., a discount futures firm in Chicago, who helped transform the Chicago Mercantile Exchange into a market for financial futures. Died Jan. 24, one day after he was struck by a car. Ben Steele, 35. He joined London-based hedge fund Armajaro Asset Management LLP in 2012 to start a pool trading shares of financial companies. Died Jan. 25 of an apparent heart attack. Stefan Kudelski, 84. The Polish-born inventor of the first professional-quality portable audio recorder, in 1951. Died Jan. 26 in Switzerland. Patty Andrews, 94. Last surviving member of the Andrews Sisters trio, the most popular female vocal group of the first half of the 20th century. Died Jan. 30 in Los Angeles. Caleb Moore, 25. A Texas-born snowmobile racer who became the sport s first fatality. Died Jan. 31, one week after crashing at the Winter X Games in Aspen, Colorado. February Edward I. Koch, 88. As New York mayor from 1978 to 1989, he led the city back from the brink of bankruptcy, turning a 1 billion budget deficit into a 500 million surplus in five years. Died Feb. 1 of heart failure. Edith Lauterbach, 91. Last survivor of a quintet of U.S. women, who in 1945 founded the Air Line Stewardesses Association, the world s first union for flight attendants. Died Feb. 4. George Frazer, 86. Chairman of Toronto-based Leon Frazer Associates, who invested in companies with high dividends during his seven decades as a fund manager. Died Feb. 6. Rem Vyakhirev, 78. He was CEO of OAO Gazprom, the world s biggest natural-gas producer, from 1993 to 2001. Died Feb. 11. Stokley Towles, 77. He spent his career at the Boston office of New York-based Brown Brothers Harriman Co., creating the firm s global custody service, which now accounts for more than 70 percent of the bank s employees. Died Feb. 14. Mindy McCready, 37. A U.S. country music singer whose hits included Guys Do It All the Time. Died Feb. 17 of apparent suicide. Otto Beisheim, 89. German billionaire, who in 1964 co-founded Metro AG, now Germany s biggest retailer. Died Feb. 18 of suicide after suffering from an incurable illness. Jerry Buss, 80. After buying the Los Angeles Lakers in 1979, he added marquee stars including Magic Johnson and Kobe Bryant, winning 10 National Basketball Association championships between 1980 and 2010. Died Feb. 18 of kidney failure related to cancer treatment. Martin Zweig, 70. He predicted the 1987 stock-market crash and wrote books and newsletters that influenced U.S. investors for more than a quarter century. Died Feb. 18. Alger Duke Chapman Jr., 81. The CEO of Shearson Hammill Co., who merged the firm with Sanford Weill s Hayden Stone Inc. in 1974, a milestone in the emergence of mega-companies within the finance industry. Died Feb. 18 of congestive heart failure in Little Rock, Arkansas, where he retired. Susan Carroll, 50. A managing director of Morgan Stanley since 2009, who was the chief operating officer of Salt Lake City- based Morgan Stanley Bank. Died Feb. 18 of liver disease. Paul McIlhenny, 68. He was the fourth generation of his family to lead McIlhenny Co., a maker of Tabasco sauce. Died Feb. 23 of a heart attack at his home in New Orleans. C. Everett Koop, 96. As U.S. surgeon general from 1981 to 1989, he used his position to educate Americans about the dangers of smoking while pushing the government to take a stronger stand against AIDS. Died Feb. 25. Stephane Hessel, 95. A hero of the French Resistance and former United Nations diplomat, who in 2010 wrote Indignez-Vous!, titled Time for Outrage in the U.S., a best-selling pamphlet that helped inspire social protests in Europe and the Occupy Wall Street movement. Died Feb. 26 in Paris. Robert Elberson, 84. As CEO of Hanes Corp., he introduced L eggs pantyhose, and became president of Hanes s parent, Sara Lee Corp. Died Feb. 26 at his home in Charlotte, North Carolina. Van Cliburn, 78. The pianist from Texas, whose triumph as a 23- year-old at the 1958 Tchaikovsky International Piano and Violin Festival in Moscow made him an international star. Died Feb. 27 of bone cancer. Bruce Reynolds, 81. Mastermind of the 1963 Great Train Robbery in Britain, which brought him fame, fortune and 10 years in prison. Died Feb. 28. March Bonnie Franklin, 69. The actress best known for playing divorced mother Ann Romano in the U.S. television show One Day at a Time, which aired from 1975 to 1984. Died March 1 of pancreatic cancer. James Strong, 68. Former CEO of Qantas Airways Ltd., Australia s biggest airline, and former chairman of Woolworths Ltd., the country s largest retailer. Died March 3 in Sydney of complications from surgery. Hugo Chavez, 58. President of Venezuela since 1998, who used the country s oil wealth to help the poor, nationalized corporations and dismissed foes as puppets of U.S. imperialism. Died March 5 of cancer. John J. Byrne, 80. He led Geico Corp. from 1976 to 1985 and saved the insurer from bankruptcy, leading Warren Buffett to buy the company and call him the Babe Ruth of insurance. Died March 7 of prostate cancer. Michael P. Duffy, 54. As the head of JPMorgan s Dallas-based Chase Paymentech unit, he helped make the bank one of the largest U.S. processors of credit-card and electronic payments. Died March 7 of cancer. Ewald-Heinrich von Kleist, 90. Last survivor of a group of German army officers, who tried unsuccessfully to kill Adolf Hitler. Died March 8. Elizabeth Cheval, 56. She founded EMC Capital Management Inc., a Bannockburn, Illinois-based investment firm. Died March 9 in China after suffering a brain aneurysm during a business trip. Ieng Sary, 87. Former foreign minister of the Khmer Rouge, who died while on trial for the deaths of 1.7 million Cambodians in the 1970s. Died March 14. K. Anji Reddy, 74. Billionaire founder of Dr. Reddy s Laboratories Ltd., India s second-largest drugmaker. Died March 15 of liver cancer. Olivier Metzner, 63. One of France s best-known defense lawyers, whose clients included former Societe Generale SA trader Jerome Kerviel. Died of suicide on March 17, when his body was found floating near his private island in Brittany. Steve Davis, 60. Quarterback on the University of Oklahoma s national college football championship teams in 1974 and 1975. Died March 17 in a plane crash. Harry Reems, 65. The male star of Deep Throat, a 1972 U.S. film that brought hardcore pornography to mainstream audiences. Died March 19 in Salt Lake City. Rise Stevens, 99. New York City-born mezzo-soprano who starred at the Metropolitan Opera in the 1940s and 1950s and was best known for playing the lead role in Carmen. Died March 20. Chinua Achebe, 82. The Nigerian author of Things Fall Apart (1958), one of the first novels by an African writer to attract a worldwide audience. Died March 21. Georg W. Claussen, 100. The CEO at Beiersdorf AG, the Hamburg- based maker of Nivea skin cream, from 1957 to 1979. Died March 21. Ray Williams, 58. A former guard in the National Basketball Association whose 10-year career included stints with the New York Knicks and New Jersey Nets. Died March 22. Boris Berezovsky, 67. He was one of the first and best-known oligarchs who accumulated vast wealth and influence in post- Soviet Russia until a falling out with Russian President Vladimir Putin. Died March 23 at his home near London, where he lived in self-imposed exile. Virgil Fire Trucks, 95. Hurled two no-hitters in 1952 for Major League Baseball s Detroit Tigers. Died March 23. Anthony Lewis, 85. Former New York Times reporter and columnist, who won two Pulitzer Prizes and transformed coverage of the U.S. Supreme Court. Died March 25 of renal and heart failure. Guillermo Luksic Craig, 57. Chairman of Chilean holding company Quinenco SA, and a member of Chile s richest family. Died March 27 of lung cancer. Ralph Klein, 70. The premier of Alberta, Canada s oil-rich province, from 1992 to 2006. Died March 29 of dementia and lung disease. Mal Moore, 73. He was part of 10 national championship college football teams as a player, coach and athletic director at the University of Alabama. Died March 30 of pulmonary disease. April Jack Pardee, 76. The All-American linebacker at Texas A M University, who played in the NFL and then coached the league s Chicago Bears, Washington Redskins and Houston Oilers. Died April 1 of gall bladder cancer. Barbara Piasecka Johnson, 76. The Polish-born cook and chambermaid who married Johnson Johnson heir J. Seward Johnson, won 350 million in a legal battle with his children over his will, and wound up a billionaire art collector and philanthropist living in Monaco. Died April 1 in Poland. Calvert Crary, 69. A Wall Street lawyer whose newsletter, Litigation Notes, predicted the outcome of corporate court battles for an audience of hedge fund managers and institutional investors. Died April 6. Margaret Thatcher, 87. The U.K. prime minister from 1979 to 1990, known as the Iron Lady for her strong will, who helped end the Cold War and revived Britain s economy by deregulating financial markets, lowering taxes and privatizing companies. Died April 8 of a stroke in London. Annette Funicello, 70. She was the most popular of the original Mouseketeers on Walt Disney s The Mickey Mouse Club television show in the 1950s, then had a career as an actress and singer. Died April 8 of complications from multiple sclerosis, in California. Robert G. Edwards, 87. A British physiologist, his research on in-vitro fertilization led to the first test-tube baby, earning him the Nobel Prize for Medicine in 2010. Died April 10. George Schaefer, 84. As chairman and CEO of Caterpillar Inc. from 1985 to 1990, he led the construction equipment maker from losses to record profits. Died April 10 in Peoria, Illinois, the company s hometown. Jonathan Winters, 87. The American stand-up comic, whose improvisational humor, starting in the 1950s, inspired comedians such as Robin Williams and Jim Carrey. Died April 11. Maria Tallchief, 88. One of the premier U.S. ballerinas of the 20th century, and the wife of choreographer George Balanchine. Died April 11. Colin Davis, 85. The British-born principal conductor of the London Symphony Orchestra from 1995 to 2006. Died April 14. George Beverly Shea, 104. Known as America s Beloved Gospel Singer, he performed before more than 200 million people during six decades with evangelist Billy Graham. Died April 16. Pat Summerall, 82. The former NFL player, who teamed with John Madden for 21 years to form one of the most popular broadcasting pairings in television history. Died April 16. Al Neuharth, 89. He built Gannett Co. into the largest U.S. newspaper publisher and created USA Today, which became the country s biggest-selling daily paper. Died April 19 of complications from a fall. Cortright McMeel, 41. He drew on his experience in the commodities market to write a darkly comic novel about energy traders. Died April 19 in Denver, where he lived. Dirce Navarro de Camargo, 100. She became Brazil s richest woman after inheriting Camargo Correa SA, now the nation s third- largest construction company, founded by her late husband, Sebastiao Camargo. Died April 20. Richie Havens, 72. The Brooklyn-born folk singer best known as the opening act at the Woodstock music festival in 1969. Died April 22 of a heart attack. Kathryn Wasserman Davis, 106. She gave her husband about 100,000 in 1947 to open his own investment firm, Shelby Cullom Davis Co., which was valued at 800 million when he died in 1994. Died April 23. George Jones, 81. The country-music singer, whose emotion- drenched vocal style earned him more hit records than any other artist. Died April 26 in Nashville, Tennessee. Tim Taylor, 71. He was Yale University s ice hockey coach for 28 seasons, winning six Ivy League titles. Died April 27 of cancer. Janos Starker, 88. A Hungarian-born child prodigy, who became one of the most renowned cellists of the 20th century and ended his career as a distinguished professor of music at Indiana University. Died April 28. Edward Feigeles, 58. He was a managing director at Lehman Brothers Holdings Inc. in New York, where he led the private client services group, from 1996 to 2005. Died April 29 after a brief illness. Bill Mahoney, 55. He led global sales and marketing at Westport, Connecticut-based Bridgewater Associates LP, the world s largest hedge fund, before leaving in 2006. Died April 30 of pancreatic cancer. May William Cox Jr., 82. The patriarch of the Bancroft clan that for 105 years controlled New York-based Dow Jones Co., publisher of the Wall Street Journal, who helped persuade the extended family to sell the company to Rupert Murdoch s News Corp. in 2007. Died on May 1 of complications from diabetes. Giulio Andreotti, 94. The seven-time Italian prime minister, whose political career embodied the highs and lows of Italian postwar governance. Died May 6. Salvatore J. Trani, 72. He helped rebuild the credit unit of Cantor Fitzgerald LP s BGC Partners Inc. after 658 of the firm s employees were killed in the Sept. 11, 2001, attacks on New York s World Trade Center. Died May 7 of brain cancer. George Sauer Jr., 69. Playing wide receiver for the National Football League s New York Jets, he caught eight passes from quarterback Joe Namath in the 1969 Super Bowl, which the underdog Jets won. Died May 7 of Alzheimer s disease. Alan Abelson, 87. A U.S. financial journalist, who was a former top editor at Barron s magazine and wrote a widely followed stock-market column. Died May 9 of a heart attack. Andrew Simpson, 36. A British sailor who won two Olympic medals in sailing for Britian. Died May 9 when a yacht attempting to compete for the America s Cup capsized in San Francisco Bay. Ottavio Missoni, 92. The founder of Missoni SpA, a high-end Italian fashion company. Died May 9. Deborah Bernstein, 41. She became a partner at Aquiline Capital Partners LLC, a New York-based private equity firm, after starting her career at Goldman Sachs. Died May 10 of cancer. Walter J. O Brien III, 46. The head of equities sales and trading at BB T Corp., North Carolina s second-biggest bank, and a mentor to finance-minded graduates of the University of Richmond, his alma mater. Died May 10 of colon cancer. Joyce Brothers, 85. Armed with a Ph.D. in psychology, she became a pioneer in dispensing advice about love, self-image and sex on U.S. television and radio and syndicated newspaper columns, starting in the late 1950s. Died May 13 of respiratory failure. Chuck Muncie, 60. A running back for the NFL s New Orleans Saints and San Diego Chargers who in 1981 set a record for rushing touchdowns in a season and then had his career cut short because of cocaine use. Died May 13 of a heart attack. Jorge Rafael Videla, 87. Argentina s military junta leader, who oversaw a campaign of murder and kidnapping from 1976 to 1981. Died May 17 in a Buenos Aires prison, where he was serving a life sentence for human rights violations. Ken Venturi, 82. The American golfer who won the 1964 U.S. Open and spent 35 years as a TV golf analyst. Died May 17 of a spinal infection and pneumonia. Isabel Benham, 103. Her mastery of U.S. railroad financing in the 1930s made her an influential bond analyst and in 1964 she became the first female partner at R.W. Pressprich Co., a Wall Street firm. Died May 18. Ray Manzarek, 74. The keyboardist and songwriter who with Jim Morrison founded The Doors, a 1960s U.S. rock group that sold more than 100 million records. Died May 20 of bile duct cancer. John Q. Hammons, 94. He created John Q. Hammons Hotels in 1969 and became the largest private, independent upscale-hotel manager in the U.S., developing properties for brands such as Marriott, Renaissance and Embassy Suites. Died May 26. Roberto Civita, 76. An Italian-born entrepreneur, who became the billionaire chairman of Grupo Abril, which publishes some of Brazil s most-read magazines. Died May 26 of complications from an abdominal aneurysm. Cullen Finnerty, 30. The former college football star who led Grand Valley State University s team to three Division II national championships and won more than 50 games over four seasons as the school s quarterback. Died between May 26 and May 28 of pneumonia after disappearing while on a fishing trip in Michigan. Charles Henderson, 88. He was the fourth generation of his family to run Henderson Brothers Inc., a specialist floor trading firm on Wall Street. Died May 29 of heart failure. George H. Weiler III, 69. Senior vice president for wealth- management services at UBS AG, who started his Wall Street career in 1984 at Dillon Read Co. Died May 29 of a heart attack. June Raymond Saxe, 50. A former senior vice president of global risk technology at HSBC Holdings Plc, who worked on Wall Street for 21 years. Died June 1. Michael McClintock, 55. Senior managing director in New York for Macquarie Group Ltd., Australia s biggest investment bank. Died June 2 of cardiac arrest. Chen Xitong, 82. The mayor of Beijing during the 1989 Tiananmen Square protests in which hundreds of people were killed. Died June 2 of cancer. Hugh P. Lowenstein, 82. A managing director of Donaldson, Lufkin Jenrette in the 1990s, founder of Shore Capital Ltd. in Bermuda and a director of Bloomberg LP, parent company of Bloomberg News, for more than 15 years. Died June 2. Frank Lautenberg, 89. The five-term Democratic senator from New Jersey who wrote laws raising the legal drinking age to 21 and banning smoking on domestic airline flights. Died June 3 of complications from viral pneumonia. Deacon Jones, 74. A Hall of Fame defensive end, who was the NFL s defensive player of the year in 1967 and 1968 when he played for the Los Angeles Rams. Died June 3. Esther Williams, 91. The U.S. swimming champion who was best known as a movie actress in aquatic musicals in the 1940s and 1950s. Died June 6. William L. Clayton, 83. During his 55-year career on Wall Street, he spent almost four decades at E.F. Hutton Co. and founded Hutton Capital Management. Died June 7 of Parkinson s disease. Robert Fogel, 86. The University of Chicago economist, who won a Nobel Prize in 1993 for his historical analysis of how railroads and slavery shaped U.S. economic history. Died June 11. Miller Barber, 82. A U.S. golfer who made a record 1,297 combined starts on the U.S. PGA and Champions golf tours, winning 35 titles. Died June 11. Jiroemon Kimura, 116. He was recognized by Guinness World Records as the oldest male in recorded history. Died June 12 in his hometown of Kyotango, in western Japan. Paul Soros, 87. The Hungarian-born founder of Soros Associates, a New York-based builder of shipping ports, and the older brother of billionaire investor George Soros. Died June 15. Mathew Gladstein, 90. Working with future Nobel winners Robert Merton and Myron Scholes, he helped popularize options trading while working at Donaldson Lufkin Jenrette in New York. Died June 18. Gyula Horn, 80. The prime minister of Hungary from 1994 to 1998, who as foreign minister in 1989 helped trigger events that led to the fall of the Berlin Wall. Died June 19. James Gandolfini, 51. The New Jersey-born actor best known for portraying the conflicted mob boss Tony Soprano in the TV series The Sopranos. Died June 19 of a heart attack while on vacation in Rome. Dave Jennings, 61. An All-Pro punter who played for New York s two NFL teams, the Giants (1974 to 1984) and Jets (1985 to 1987). Died June 19 from Parkinson s disease. Allan Simonsen, 34. A Danish race car driver affiliated with the Aston Martin Racing Team. Died June 22 when his car crashed at the Le Mans 24 hours race. Bobby Blue Bland, 83. A Tennessee-born singer of Southern blues and ballads in hit singles such as Turn on Your Love Light, who was inducted into the Rock and Roll Hall of Fame. Died June 23. Harry Parker, 77. He coached the Harvard University men s heavyweight crew team to 22 undefeated seasons and eight national titles. Died June 25 of a blood disorder. Marc Rich, 78. The Belgium-born commodities trader, who in 1983 was indicted for U.S. income tax evasion and racketeering, fled the country and lived as a fugitive until pardoned by President Bill Clinton in 2001. Died June 26 near his home in Switzerland. Rawleigh Warner, 92. As the chairman and CEO of Mobil Oil Corp. from 1969 to 1986, he outmaneuvered competitors to make Mobil second in sales behind Exxon Corp., years before the companies merged. Died June 26 of complications from a progressive muscle disease. July William H. Gray III, 71. He was a Democrat from Philadelphia who served six terms in the U.S. House of Representatives, becoming the first black party whip, the No. 3 leadership position. Died July 1 while in London to attend the Wimbledon tennis tournament. Andrew McMenigall, 47. A senior global equities manager at Scotland s Aberdeen Asset Management Plc, who was based in Edinburgh. Died July 2 in a traffic accident while participating in a charity bicycle ride across Britain. Toby Wallace, 36. He was a Philadelphia-based senior relationship manager at Aberdeen Asset Management Plc. Died July 2 of injuries suffered from a traffic accident while taking part in a charity bicycle ride across Britain. Douglas Engelbart, 88. The U.S. electrical engineer who invented the computer mouse, the design of which was described in a patent filed in 1967 and granted in 1970. Died July 2 of kidney failure. Cynthia Lufkin, 51. The philanthropist wife of Dan Lufkin, co- founder of Wall Street firm Donaldson, Lufkin Jenrette. Died July 3 of complications from breast and lung cancer. Douglas J. Dayton, 88. The son of a successful U.S. retailer, he became the first president of Target, a U.S. department store chain. Died July 5 of cancer. Masao Yoshida, 58. The plant manager of Japan s Fukushima nuclear reactor in March 2011, when an earthquake and ensuing tsunami crippled the facility in the worst nuclear disaster since Chernobyl in eastern Europe. Died July 9 of esophageal cancer. Philip Caldwell, 93. He was the first CEO of Ford Motor Co. who wasn t a member of the Ford family. Died July 10 of complications from a stroke. Amar Bose, 83. An engineer who taught at Massachusetts Institute of Technology for more than four decades, he was best known as the billionaire founder of Bose Corp., an audio technology company specializing in speakers and headphones located in Framingham, Massachusetts. Died July 12. Cory Monteith, 31. The Canadian-born actor was best known for starring in the hit TV show Glee. Died July 13 of a drug overdose. Herbert Allison Jr., 69. He was the former president of Merrill Lynch Co., chairman and CEO of TIAA-CREF, CEO of Fannie Mae and led the U.S. government s bank bailout program. Died July 14. Neal McCabe, 60. He was a Boston-born former global co-head of a Lehman Brothers Holdings Inc. unit focused on increasing trades with security dealers worldwide. Died July 17, two months after suffering a stroke. Donald J. Mulvihill, 56. He was a managing director at Goldman Sachs, who started the firm s asset-management business in Japan and created tax-focused funds in the U.S. during his 33-year career with the bank. Died July 19 of leukemia in Illinois, where he was born and raised. Helen Thomas, 92. The pioneering female journalist who worked as White House correspondent for United Press International, where she worked for 57 years, and as a columnist for Hearst Newspapers. Died July 20. Carsten Schloter, 49. The German-born CEO of Swisscom AG, Switzerland s biggest telecommunications company, since 2006. Died July 23 of what police called an apparent suicide. Emile Griffith, 75. Former U.S. welterweight and middleweight boxing champion best known for his fatal knockout of Benny Paret in a nationally televised fight in 1962. Died July 23. Dennis Dammerman, 67. He was CEO Jack Welch s right-hand man at General Electric Co., where at age 38 he became the company s youngest chief financial officer and then ran GE Capital. Died July 23. Arthur Makadon, 70. The chairman of Ballard Spahr LLP, a Philadelphia-based law firm, from 2002 to 2011. Died July 24 of cancer. Virginia Johnson, 88. One of the key figures in the sexual revolution in postwar America, she conducted groundbreaking research in human sexuality with her collaborator, William Masters. Died July 24. Barnaby Jack, 36. A New Zealand-born computer-security professional who exposed how hackers could attack bank automated teller machines, insulin pumps and other electronic devices. Died July 25. Lindy Boggs, 97. She spent 18 years in the U.S. House of Representatives, succeeding her husband, Hale Boggs, and worked as a champion for women s rights. Died July 27. George Boomer Scott, 69. Large, strong and agile, he spent nine of his 14 seasons in Major League Baseball with the Boston Red Sox, playing first base and leading the team to win the American League pennant in 1967. Died July 28. Peter Flanigan, 90. The former Dillon Read investment banker, who worked as deputy campaign manager for Richard Nixon s successful 1968 presidential run, then joined the administration as an adviser on business and economic matters. Died July 29. Berthold Beitz, 99. German industrialist who hid Jews from the Nazis during World War II and then helped rebuild Fried Krupp GmbH, a predecessor of the country s biggest steelmaker. Died July 30. August Art Donovan, 88. An NFL Hall of Fame defensive tackle who won two championships with the Baltimore Colts in the 1950s. Died Aug. 4. E. Nelson Asiel, 96. Third-generation leader of Asiel Co., a Wall Street brokerage firm founded by his grandfather, Elias, in 1878. Died Aug. 5. Jerry Wolman, 86. He owned the NFL s Philadelphia Eagles team from 1963 to 1969. Died Aug. 6. Karen Black, 74. The U.S. actress best known for her performances in Five Easy Pieces, Easy Rider and Nashville. Died Aug. 8 of cancer. Lorraine Lodge, 52. She was a convertible bond specialist during a career in New York and London at Merrill Lynch, ING Barings and Nomura Holdings Inc. Died Aug. 8 of ovarian cancer in New York, where she lived. Lee Quo-wei, 95. The former chairman of Hong Kong s Hang Seng Bank Ltd. and in 1969 was part of the group that created the Hang Seng Index, the city s benchmark stock gauge. Died Aug. 10. Eydie Gorme, 84. American pop music singer best known for her 1963 hit Blame It on the Bossa Nova, and for nightclub and television performances with her husband, Steve Lawrence. Died Aug. 10. Friso van Oranje, 44. A member of the royal family in the Netherlands, he gave up his place in line for the throne to marry the woman he loved. Died Aug. 12 of complications from brain damage suffered in a skiing accident in February 2012. John H. Laporte, 68. He worked at Baltimore-based T. Rowe Price Group Inc. from 1976 until retiring in 2012 and was named mutual fund manager of the year in 1995. Died Aug. 12 of complications from lymphoma. Louis V. Gerstner III, 41. The son of Louis Gerstner Jr., the former CEO of International Business Machine Corp., and president of the Gerstner Family Foundation. Died Aug. 14 after choking while dining in a New York restaurant. Elmore Leonard, 87. Known as the Dickens of Detroit, Leonard was the best-selling author of crime novels and Westerns, many of which were made into movies, including Get Shorty and Hombre. Died Aug. 20 of complications from a stroke. Marian McPartland, 95. The British-born jazz pianist, whose National Public Radio show, in which she interviewed and played with musicians from Benny Goodman to Elvis Costello, was broadcast for more than three decades. Died Aug. 20 at her home in New York. Ronald L. Motley, 68. A South Carolina lawyer, he led lawsuits against tobacco companies, resulting in a payout of 246 billion, the biggest civil settlement in U.S. history. Died Aug. 22 from complications of organ failure. Julie Harris, 87. The U.S. actress who appeared in 30 Broadway plays and won five Tony awards. Died Aug. 24 of congestive heart failure. Muriel Siebert, 84. The first woman to buy a seat on the New York Stock Exchange, in 1967, founder of Muriel Siebert Co., a discount brokerage, and the first female superintendent of banks for New York State. Died Aug. 24 of complications from cancer. Eric T. Miller, 85. The former chief investment officer for New York-based Donaldson Lufkin Jenrette, who called the stock- market bottom in 1982 and whose Random Gleanings market commentary was widely followed by investors. Died on Aug. 29 of complications from brain cancer. Seamus Heaney, 74. Irish poet who won the Nobel Prize in Literature in 1995. Died Aug. 30. David Brenneman, 37. He was an executive director in equity risk management at Morgan Stanley in New York, who previously worked at Banc of America Securities and Davis Polk Wardwell LLP. Died Aug. 31 of cancer. David Frost, 74. The British television interviewer best known for his 1977 interviews with former President Richard Nixon, which became the basis for the 2008 movie Frost Nixon. Died Aug. 31 of a heart attack aboard the Queen Elizabeth cruise ship. September Tommy Morrison, 44. In 1993, he defeated George Foreman to win the World Boxing Organization heavyweight title and appeared in the movie Rocky V. Died Sept. 1. Ronald Coase, 102. The British-born University of Chicago economist who won the Nobel Prize in 1991 for research he said showed that people will use resources in the way that produces the most value. Died Sept. 2. Joseph Granville, 90. He was a U.S. financial newsletter writer and technical analyst who moved stock markets with bearish calls in the 1970s and 1980s. Died Sept. 7. Ray Dolby, 80. He was a U.S. inventor who became a billionaire by designing noise-reduction and surround-sound technologies used in films, movie theaters and home-theater equipment. Died Sept. 12 of leukemia. Ken Norton, 70. The U.S. boxer who was a former world heavyweight champion and gained fame by breaking Muhammad Ali s jaw during a match. Died Sept. 18 after suffering a series of strokes. Joy Covey, 50. She joined Amazon.com Inc. during its pioneering days as an Internet retailer, serving as its chief financial officer when the company held its initial public offering in 1997. Died Sept. 18 in a bicycle accident in California, where she lived. Hiroshi Yamauchi, 85. The great-grandson of Nintendo Co. s founder, running the company for 53 years and becoming Japan s richest person in 2008. Died Sept. 19. Douglas Millett, 49. He was director of research at New York- based Kynikos Associates Ltd., who called Enron Corp. a hedge fund sitting on top of a pipeline and helped expose the energy company s financial problems. Died Sept. 21 of cancer. Richard T. McSherry, 77. The co-founder, along with James Elkins, of New York-based Elkins McSherry LLC, which pioneered a way to crunch data to assess trading costs and help institutional investors maximize profits. Died Sept. 26 of prostate cancer. L.C. Greenwood, 67. The four-time NFL Super Bowl champion, who played defensive end on the Pittsburgh Steelers defensive line known as the steel curtain in the 1970s. Died Sept. 29. October Tom Clancy, 66. The U.S. author of The Hunt for Red October and Patriot Games, he became one of the world s best-known writers by infusing espionage thrillers with technical details about military weaponry and intelligence agencies. Died Oct. 1. Karen Strauss Cook, 61. In 1975, she became the first woman hired in Goldman Sachs s equities division, and the firm s first female trader. Died Oct. 2 of a degenerative brain disease in New York, where she lived. Amy Dombroski, 26. The U.S. bicyclist who was a three-time national cyclo-cross champion. Died Oct. 3 when struck by a vehicle while training in Belgium. Sergei Belov, 69. He played guard on the Soviet Union s basketball team that beat the U.S. to win a gold medal in the 1972 Olympics. Died Oct. 3. Vo Nguyen Giap, 102. The North Vietnamese general whose fighters drove the French out of Vietnam in 1954, then served as commander-in-chief against U.S. forces during the Vietnam War. Died Oct. 4. Ovadia Yosef, 93. An ultra-Orthodox rabbi who galvanized Israel s Jews of Middle Eastern and North African descent into a political force with the Shas Party. Died Oct. 7. Paul Desmarais Sr., 86. The Canadian billionaire, who turned an inherited fleet of buses into Power Corp. of Canada, an insurance and financial services conglomerate. Died Oct. 8. Scott Carpenter, 88. The second American to orbit the Earth, he was one of the original seven astronauts in Project Mercury, the first U.S. human spaceflight program. Died Oct. 10 of complications from a stroke. Wilfried Martens, 77. A former prime minister of Belgium, who presided over nine governments from 1979 to 1992, deepening the nation s integration in the European Union while leaving a legacy of debt. Died Oct. 10. Wally Bell, 48. A Major League Baseball umpire for 21 years. Died Oct. 14 of a heart attack. Hans Riegel, 90. The German billionaire owner of Haribo GmbH, a candy maker started by his father, whose best-known product is the Gummy Bear. Died Oct. 15 of heart failure. Peter A. Levy, 77. He followed the path of his father, Gustave Levy, becoming a partner at Goldman Sachs, until departing to co-found investment funds, including Harmony Capital Management LP, a New York-based fund of private-equity funds. Died Oct. 18 of cancer. Tom Foley, 84. He was a Democratic congressman from Washington State from 1964 to 1994 and rose to speaker of the House. Died Oct. 18 of pneumonia following a series of strokes. Sally Dawson, 39. A British-born banker who spent 17 years at the London office of Deutsche Bank AG, specializing in high- yield and distressed-debt sales. Died Oct. 18 of cancer. C.W. Bill Young, 82. A U.S. representative from Florida, he was the longest-serving Republican in Congress and an advocate of military spending. Died Oct. 18 of complications following surgery. Oail Bum Phillips, 90. A Texan who spent 12 seasons as a coach in the NFL for the Houston Oilers and New Orleans Saints, pacing the sidelines in cowboy boots, jeans and a Stetson hat. Died Oct. 18. William C. Lowe, 72. He supervised the production of International Business Machines Corp. s first personal computer, in 1980. Died Oct. 19 of a heart attack. Lawrence Klein, 93. The U.S. economist who won the 1980 Nobel Prize for developing computer models to help predict global economic trends. Died Oct. 20. Jamalul Kiram III, 75. A Philippine sultan, who waged an armed struggle for control over Malaysia s Sabah state, an area rich in natural resources. Died Oct. 20 of kidney disease. Juliette Moran, 96. She joined GAF Corp. in 1943 when it was a New York-based chemical maker, rising to vice chairman in 1980. Died Oct. 20. Don James, 80. In 1975, he became the head coach of the University of Washington s football team, winning a share of the national title in 1991. Died Oct. 20 of pancreatic cancer. K.S. Bud Adams, 90. Owner of the NFL s Houston Oilers team and its successor, the Tennessee Titans, he helped found the American Football League in 1960. Died Oct. 21. Anthony Caro, 89. A British sculptor, who created large art objects with heavy steel girders, metal sheets, pipes and scrap metal and was knighted in 1987. Died Oct. 23 of a heart attack. Paul Reichmann, 83. One of three brothers who built Toronto- based Olympia York Developments Ltd. in building London s Canary Wharf and New York s World Financial Center before it filed for bankruptcy in 1992. Died Oct. 25. Bill Sharman, 87. He was elected to the Basketball Hall of Fame twice, first as a player, in 1976, and then as a coach, in 2004, a feat achieved only by John Wooden and Lenny Wilkens. Died Oct. 25 following a stroke. Kimberly Mounts, 48. She founded MAP Alternative Asset Management Co. in Newport Beach, California, in 2006, following jobs at Goldman Sachs and Morgan Stanley. Died Oct. 25 of cardiac arrest. Gilbert Beebower, 79. A co-author of a 1986 article demonstrating the superiority of asset allocation compared with market timing and stock picking, who worked at SEI Investments Co. in Oaks, Pennsylvania, from 1975 until his death. Died Oct. 25. Lou Reed, 71. The New York-based rock musician, who co-founded the Velvet Underground and became one of rock music s most influential artists. Died Oct. 27 of complications from a liver transplant. Leonard M. Leiman, 82. He led the securities-law practice at New York-based Reavis McGrath when it merged in 1988 with Houston- based Fulbright Jaworski, creating the seventh-largest U.S. law firm at the time. Died Oct. 30. November Walt Bellamy, 74. A member of the NBA Hall of Fame, he was one of only seven players to score more than 20,000 points and grab more than 14,000 rebounds. Died Nov. 2. Rachel Benepe, 37. A U.S. protege of stock-picker Jean-Marie Eveillard at First Eagle Investment Management LLC, who managed its 1.5 billion First Eagle Gold Fund since 2009. Died Nov. 2 of cancer. Charlie Trotter, 54. The Chicago-based chef who closed his namesake restaurant in 2012 after a 25-year run in which it won 11 James Beard Foundation Awards. Died Nov. 5. Clarence Ace Parker, 101. Inducted into the Pro Football Hall of Fame in 1972, he played on New York teams in the 1940s, and twice spent the off-season playing baseball with the Philadelphia Athletics. Died Nov. 6. Manfred Rommel, 84. He served as the former mayor of Stuttgart, Germany, for 22 years and was the son of Erwin Rommel, the German field marshal during World War II. Died Nov. 7 of Parkinson s disease. Sally Lloyd, 64. A third-generation banker who started her career in the early 1970s when few women worked on Wall Street and rose to managing director at Smith Barney. Died Nov. 11 of cancer. John Tavener, 69. The U.K. composer best known for works such as Song for Athene, played at the funeral of Diana, Princess of Wales. Died Nov. 12. Todd Christensen, 57. An NFL player from 1979 to 1988, who won two Super Bowl titles with the Oakland Raiders as a tight end and was voted All-Pro four times. Died Nov. 13 of complications from surgery. Glafcos Clerides, 94. While president of Cyprus from 1993 to 2003, he oversaw the country s entrance into the European Union in 2004. Died Nov. 15. Doris Lessing, 94. The British author won the Nobel Prize in literature in 2007 and is best-known for The Golden Notebook, a story about an independent-minded woman growing up in Africa. Died Nov. 17. G. Moffett Cochran, 63. The co-founder and CEO of New York-based Silvercrest Asset Management Group Inc., a firm serving wealthy families. Died Nov. 18 of cancer. Michael Weiner, 51. As executive director of the Major League Baseball Players Association since 2009, he helped keep labor peace in the sport. Died Nov. 21 of cancer. Peter B. Lewis, 80. The billionaire chairman of Progressive Corp., one of the biggest U.S. auto insurers, and a supporter of the medical use of marijuana. Died Nov. 23 of a heart attack at his home in Coconut Grove, Florida. Robin Leigh-Pemberton, 86. He was Bank of England governor from 1983 to 1993. Died Nov. 24. Matthew Bucksbaum, 87. The co-founder of General Growth Properties Inc., the second-biggest U.S. owner of shopping malls. Died Nov. 24 of respiratory failure. Alfred Feld, 98. The longest-serving employee at Goldman Sachs, who joined the firm in 1933 and rose from office boy to private- wealth manager. Died Nov. 25. Peter W. Kaplan, 59. The former editor of the New York Observer, which under his leadership chronicled the lives of New York s power elite and ran the column, Sex and the City, which inspired a hit television series. Died Nov. 29 of cancer. Paul Walker, 40. A Hollywood actor best-known for appearing in the Fast and Furious action movies. Died Nov. 30 of injuries as a passenger involved in a car crash. December Nelson Mandela, 95. The anti-apartheid freedom fighter, who endured 27 years in prison to become South Africa s first black president, then united the country and won the Nobel Peace Prize in 1993. Died Dec. 5 following a recurring lung infection. Lawrence McCarthy, 49. Before becoming a senior managing director at Cantor Fitzgerald, he worked at Wasserstein Perella Co., where he advised clients to sell Enron prior to its collapse, and at Lehman Brothers, where he warned colleagues in 2007 that the bank had taken on far, far too much risk by betting on the U.S. housing market. Died of an aneurysm on Dec. 11 in New York. Peter O Toole, 81. The British actor, who became an international star in 1962 for playing the lead in Lawrence of Arabia and received four Golden Globe awards and eight Oscar nominations. Died December 14. Dennis Busti, 71. He was the CEO of corporate raider Saul Steinberg s Reliance National Insurance Co., a unit created to handle high-risk insurance coverage for clients such as nuclear- plant operators. Died Dec. 14 at his home in Eastchester, New York. Joan Fontaine, 96. Born in Tokyo to British parents, the actress spent most of her life in the U.S. and won an Academy Award for best actress for her performance in the 1941 Alfred Hitchcock film Suspicion, beating her sister, Olivia de Havilland, for the honor. Died Dec. 15. Graham Mackay, 64. The former CEO of London-based SABMiller Plc, who built the company into the world s second-biggest brewer and acquired Australia s Foster s Group Ltd. in 2011 and Miller Brewing Co., a U.S. beer maker, in 2002. Died Dec. 18. Ronnie Biggs, 84. He helped stage Britain s Great Train Robbery in 1963, escaped from prison and eluded Scotland Yard for 36 years before giving himself up in 2001. Died Dec. 18 after a series of strokes. Al Goldstein, 77. A Brooklyn-born pornographer who published Screw magazine, hosted a public access cable-TV show in New York during the city s sleazy days in the 1970s, before Times Square was cleaned up and drawing families to The Lion King. Died Dec. 19. Sergio Loro Piana, 65. The Italian cashmere clothier, who along with his brother, Pier Luigi Loro Piana, became billionaires after selling 80 percent of their company, Loro Piana SpA, to Paris-based LVMH Moet Hennessy Louis Vuitton SA. Died Dec. 19. John S.D. Eisenhower, 91. The son of former U.S. President Dwight Eisenhower, he was a brigadier general in the U.S. Army Reserve, wrote books on military history and was appointed ambassador to Belgium by President Richard Nixon in 1969. Died Dec. 21. Edgar M. Bronfman, 84. The Canadian-born second-generation heir who expanded the Seagram Co. with oil, gas and chemical investments and served as president of the World Jewish Congress from 1981 to 2007. Died Dec. 21 at his home in New York. Mikhail Kalashnikov, 94. He was the Russian inventor of what would become the world s most popular assault rifle, the AK-47. Died Dec. 23. Robert W. Wilson, 87. He founded a New York-based hedge fund, amassed a net worth of about 800 million and gave most of it to charities, primarily conservation groups. Died Dec. 23 of suicide. http: www.bloomberg.com news 2013-12-26 thatcher-mandela-chavez-are-among-notable-deaths-in-2013.html |
IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT, IN AND FOR PALM BEACH COUNTY, FLORIDA JEFFREY EPSTEIN, CASE NO.: 502009CA040800XXXXMBAG Plaintiff, vs. SCOTT ROTHSTEIN, individually, BRADLEY J. EDWARDS, individually, and L.M., individually, Defendant, DEFENDANT COUNTER-PLAINTIFF'S RESPONSE IN OPPOSITION TO PLAINTIFF COUNTER-DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ON DEFENDANT COUNTER-PLAINTIFF'S FOURTH AMENDED COUNTERCLAIM Defendant Counter-Plaintiff Bradley J. Edwards, by and through his undersigned counsel, hereby submits this Response in Opposition to Plaintiff Counter-Defendant Jeffrey Epstein's Motion for Summary Judgment. Epstein seeks Summary Judgment on the claims of abuse of process and malicious prosecution set forth in Brad Edwards' Fourth Amended Counterclaim. Each of the grounds asserted in support of Epstein's Motion for Summary Judgment are without merit and must be denied. In Epstein's Amended Complaint he carries forth the essence of all claims asserted in his original Complaint. In that pleading Epstein essentially alleges that Edwards joined Rothstein in the abusive prosecution of sexual assault cases against Epstein to "pump" the cases to Ponzi scheme investors. The purported "proof' of the allegations against Edwards, as referenced in the Second Amended Complaint and in Epstein's Motion for Summary Judgment, includes Edwards' alleged contacts with the media, his attempts to obtain discovery from high profile persons with whom Epstein socialized, press reports of Rothstein's known illegal activities, the use of "ridiculously inflammatory' language and arguments in court. But as the evidence submitted in opposition to Epstein's Motion for Summary Judgment reflects, Epstein filed his claims and continued to pursue claims despite his knowledge that his claims could never be successful because they were both false and unsupported by any reasonable belief of suspicion that Case No.: 502009 CA040800XXXXIVIBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 2 of 15 they were true. Epstein knew that he had in fact molested each of the minors represented by Brad Edwards. He also knew that each litigation decision by Brad Edwards was grounded in proper litigation judgment about the need to pursue effective discovery against Epstein, particularly in the face of Epstein's stonewalling tactics. Epstein also knew that he suffered no legally cognizable injury proximately caused by the falsely alleged wrongdoing on the part of Edwards. Moreover, Epstein had no intention of waiving his Fifth Amendment privilege against self-incrimination in order to avoid providing relevant and material discovery that Epstein would need in the course of prosecuting his claims and to which Edwards was entitled in defending those claims. Epstein knew that his prosecution of his claims would be barred by the sword-shield doctrine. Most significantly, the evidence submitted in the supporting papers would compel a fact finder to determine that Epstein had no basis in law or in fact to pursue his claims against Edwards and that Epstein was motivated by a single ulterior motive to attempt to intimidate Edwards and his clients and others into abandoning or settling their legitimate claims for less than their just and reasonable value. The evidence demonstrates that Epstein did not file these claims for the purpose of collecting money damages since he knew that he never suffered any damage as a consequence of any alleged wrongdoing by Edwards but filed the claim to require Edwards to expend time, energy and resources on his own defense, to embarrass Edwards and impugn his integrity and deter others with legitimate claims against Epstein from pursuing those claims. Indeed, the evidence demonstrates that Epstein continued to pursue his claims by filing the Second Amended Complaint alleging abuse of process against Edwards even after he had paid significant sums in settlement of the claims instituted by Mr. Edwards' clients against Mr. Epstein! The evidence marshalled in support of these assertions is set forth in the previously filed documents in this Court. Those documents include Exhibit "A" Edwards' Statement of Undisputed Facts; Exhibit "B" Edwards' Renewed Motion for Summary Judgment; Exhibit "C" Edwards' October 19, 2012 Second Renewed Motion for Leave to Assert Claim for Punitive Damages; Exhibit "D" Edwards' Notice of Filing of Transcript of Telephone Interview of Virginia Roberts in Support of Motion for Leave to Amended to Assert Punitive Damages; Exhibit "E" Transcript of Deposition of Jeffrey Epstein dated January 25, 2012; Exhibit "F' Deposition of Bradley Edwards dated March 23, 2010; Exhibit "G" - Deposition of Scott Rothstein dated June 14, 2012; Exhibit "H" Order of Case No.: 502009CA040800XXXXMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 3 of 15 The record reflects that on the eve of the hearing of Edwards' Motion for Summary Judgment directed to the Second Amended Complaint and in light of the compelling evidence of the lack of any wrongdoing on the part of Mr. Edwards, the sole remaining abuse of process claim was dismissed by Epstein. As discussed, infra each of the grounds asserted by Epstein in this Motion for Summary Judgment must be rejected. The litigation privilege does not serve as a bar to the prosecution of Edwards' claims against Epstein. Moreover, the evidence submitted by Edwards supports each of the elements of the claims asserted by Edwards against Epstein which are identified in Epstein's Motion. Response to Epstein's Statement of Undisputed Facts The evidence marshalled by Edwards in support of his claims against Epstein which are referenced in footnote 1 mandates the conclusion that, at a minimum, disputed facts exist with respect to the elements of each claim addressed by Epstein in his Motion. The facts presented in the various papers would allow the jury to make a determination that Epstein knew that Brad Edwards properly exercised his legitimate judgment regarding the need to pursue proper and effective discovery against him to support the claims which Epstein knew were legitimate. That evidence, referenced herein, further demonstrated that Epstein filed his claims without probable cause and further that there was a bonafide termination in favor of Edwards. That evidence further demonstrates that the elements of the claim of abusive process have been established. The following additional comments are directed at some of the key purported "undisputed" material facts asserted by Epstein, especially those referenced in his Memorandum of Law. Also set forth are key evidentiary matters which undermine Epstein's contentions and which support the proposition that material issues of fact exist which compel the denial of the Motion for Summary Judgment. Judge Crow dated March 29, 2012; Exhibit "I" Deposition of Bradley Edwards dated October 10, 2013; Exhibit "J" Deposition of Bradley Edwards dated May 15, 2013. Case No.: 502009CA040800XXXX.MBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 4 of 15 None of the public materials identified by Epstein in his Motion make reference to any wrongdoing by Brad Edwards. Rather, Epstein seeks to pyramid one impermissible inference upon another from his citation to these materials to support his otherwise unsubstantiated and non-verifiable conclusion that he had sufficient evidence to proceed with claims of wrongdoing against Edwards. In truth, as reflected in Edwards' deposition and his supplemental affidavit, he has no involvement in any fraud perpetrated by Rothstein (Edwards' deposition of March 23, 2010 at 301-302; Edwards Affidavit attached to Statement of Undisputed Facts as Exhibit "N" at paragraphs 8-10, paragraph 20, paragraphs 22-23; Exhibit "H" Deposition of Scott Rothstein at pp. 62-63, 114, and 121-124). Therefore, any allegations relating to Rothstein's activities simply have no bearing on the legitimacy of any of the claims against Edwards. Edwards could not have possibly "pumped" cases to investors when he never participated in any communications with investors. Rather, Edwards had a duty to his clients to zealously pursue discovery to achieve a maximum recovery against Epstein. Edwards cannot be liable for taking appropriate action that his ethical duties as an attorney required. The evidence also reflects that Edwards filed all three of his cases almost a year before he was hired by RRA or even knew Scott Rothstein (Edwards' Affidavit, Exhibit "N" attached to Statement of Undisputed Facts). The language set forth in his Complaints remain virtually unchanged from the first filing in 2008 and, as the evidence shows, the claims asserted against Epstein from the outset were true. The citation to public documents is a convenient ruse; Epstein was not only liable for the molestation of the clients of Brad Edwards, he was also a serial molester of minors even as young as twelve years of age (Exhibit "A" Edwards' Statement of Undisputed Material Facts paragraphs 1-43; Exhibit "D" Statement of Virginia Roberts pp. 16-17). Epstein entered a plea of guilty to felony charges involving prostitution and the solicitation of a minor for the purposes of prostitution (Exhibit "E" Deposition of Jeffrey Epstein, March 17, 2010, pp. 101-103). Epstein also entered into an agreement with the United States Attorney's Office acknowledging that approximately 34 other young girls could receive payments from him under the Case No.: 502009CA040800XXXXMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 5 of 15 Federal Statute providing for compensation to victims of child abuse.. (Exhibit "N' Edwards' Statement of Undisputed Material Facts, paragraphs 41-43). On July 6, 2010 Epstein ultimately paid to settle all three of the cases Edwards had filed against him (Exhibit "N' Edwards' Statement of Undisputed Material Facts, paragraphs 84-85). At Epstein's request, the terms of the settlement were kept confidential. The sum that he paid to settle all these cases in therefore not filed with this pleading and will be provided to the court for in camera review. Epstein chose to make this payment as a result of a Federal Court ordered mediation process which he himself sought. Epstein entered into the settlements in July 2010 more than seven months after he filed his lawsuit against Edwards and before he filed his Second Amended Complaint alleging abuse of process on August 22, 2011. Further, Epstein could not have been the victim of any scheme to pump the cases against him because he never paid to settle the cases until well after Edwards had left RRA and severed all connection with Rothstein in December 2009 (Edwards' Affidavit attached to Statement of Undisputed Facts as Exhibit "N," paragraph 20). Moreover, Epstein could not have suffered any damage as a result of the perpetration of the Ponzi scheme by Rothstein because he was not an investor in the scheme. Perhaps the most significant evidence presented in opposition to Epstein's Motion for Summary Judgment is the telephone interview of Virginia Roberts submitted in Support of Edwards' Motion for Punitive Damages (Exhibit "D"). In addition to the specious claims against Edwards relating to his alleged involvement in a Ponzi scheme, Epstein, in asserting his claims, primarily relied upon the pursuit by Edwards of testimony from his close friends and associates (See Second Amended Complaint, paragraph 32, pp. 11-13). Reliance on these assertions is also threaded through Epstein's Motion for Summary Judgment in his citation to the public documents referencing the pursuit of such discovery. But as set forth in detail in Edwards' Motion for Final Summary Judgment (Exhibit "B") at pages 14-16, that discovery was entirely appropriate and Epstein knew it. Specifically, as reflected in the statement of Case No.: 502009CA040800XXXXMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 6 of 15 undisputed facts submitted by Mr. Edwards in support of his Motion for Summary Judgment, Edwards had a sound legal basis for believing that Donald Trump, Allen Dershowitz, Bill Clinton, Tommy Mattola, David Copperfield and Governor Bill Richardson had relevant and discoverable information (Exhibit "A" Edwards' Statement of Undisputed Facts, paragraphs 69-81). That belief was reinforced by the testimony of Virginia Roberts (Exhibit "D" pp. 10-17, 21-23). Epstein's assertion of impropriety in the pursuit of this discovery clearly evidences his bad faith attempts to attribute wrongdoing to Edwards when he knew, in fact, that the pursuit of that discovery was entirely appropriate under the circumstances of this case. Finally, any attempt by Epstein to rely upon what he claims are undisputed facts to support his Motion for Summary Judgment are undermined by his refusal to provide any testimony on the key issues and evidence which would demonstrate the validity and strength of each of the claims brought against him by Brad Edwards. Epstein's depositions of March 17, 2010 and January 25, 2012 were replete with refusals of Epstein to testify based upon his Fifth Amendment privilege. Questions that Epstein refused to answer in his depositions and the reasonable inferences that a fact finder would draw and which would otherwise bear on the arguments submitted by Epstein in support of his Motion for Summary Judgment are as follows: Question not answered: "I want to know whether you have any knowledge of evidence that Bradley Edwards personally ever participated in devising a plan through which were sold purported confidential assignments of a structured payout settlement?" Reasonable inference: No knowledge that Brad Edwards ever participated in the Ponzi scheme. o o Question not answered: "Specifically what are the allegations against you which you contend Mr. Edwards ginned up?" Reasonable inference: No allegations against Epstein were ginned up. Question not answered: "Well, which of Mr. Edwards' cases do you contend were fabricated?" Reasonable inference: No cases filed by Edwards against Epstein were fabricated. Case No.: 502009CA040800XXXXMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 7 of 15 Question not answered: "Did sexual assaults ever take place on a private airplane on which you were a passenger?" Reasonable inference: Epstein was on a private airplane while sexual assaults were taking place. Question not answered: "How many minors have you procured for prostitution?" Reasonable inference: Epstein has procured multiple minors for prostitution. Question not answered: "Is there anything in L.M.'s Complaint that was filed against you in September of 2008 which you contend to be false?" Reasonable inference: Nothing in L.M.'s complaint filed in September of 2008 was false i.e., as alleged in L.M.'s complaint, Epstein repeatedly sexually assaulted her while she was a minor and she was entitled to substantial compensatory and punitive damages as a result. Question not answered: "I would like to know whether you ever had any physical contact with the person referred to as Jane Doe in that federal complaint?" Reasonable inference: Epstein had physical contact with minor Jane Doe as alleged in her federal complaint. Question not answered: "Did you ever have any physical contact with E.W.?" Reasonable inference: Epstein had physical contact with minor E.W. as alleged in her complaint. Question not answered: "What is the actual value that you contend the claim of E.W. against you has?" Reasonable inference: E.W.'s claim against Epstein had substantial actual value. (See Exhibit "A" Edwards' Statement of Undisputed Material Facts, paragraphs 93-120 for page references.) A jury could conclude, therefore, from the adverse inferences drawn against Epstein that he was liable for the claims brought by Brad Edwards and that he had no basis for the pursuit of his efforts to intimidate and extort Edwards and his clients in the pursuit of those claims. The Litigation Privilege Does Not Bar the Claims of Abuse of Process and Malicious Prosecution Epstein contends he is entitled to absolute immunity pursuant to the litigation privilege as to both claims asserted by Edwards because all actions taken by him occurred during the litigation of his abuse of process claim against Edwards. For support, he relies primarily on the decision of Wolfe v. Foreman, 2013 WL 3724763 (Fla. 3d DCA July 17, 2013), wherein the Third District found that the litigation privilege barred both an abuse of process claim and a malicious prosecution cause of action. Wolfe is still Case No.: 502009CA040800XXXXMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 8 of 15 on rehearing and, thus, is not a final opinion. As a result, it is not binding, nor persuasive. Moreover, Wolfe undercuts the long-standing recognition of the viability of a claim for malicious prosecution in its own District and other Florida state and federal courts. See, SCI Funeral Svs. of Fla., Inc. v. Henry, 839 So. 2d 702, n.4 (Fla. 3d DCA 2002) ("As the Levin court cited Wright v. Yurko, 446 So. 2d 1162, 1165 (Fla. 5th DCA, 1984), with approval, presumably the cause of action for malicious prosecution continues to exist and would not be barred by the litigation privilege."); Boca Investors Group, Inc. v. Potash, 835 So. 2d 273, 275 (Fla. 3d DCA 2002) (Cope, J., concurring) (litigation privilege would not be a bar to a malicious prosecution action); North Star Capital Acquisitions, LLC v. Krig, 611 Fed. Supp. 2d 1324 (M.D. Fla. 2009) ("However, not every event bearing any relation to litigation is protected by the privileged because,... "if the litigation privilege applied to all actions preliminary to or during judicial proceedings, an abuse of process claim would never exist, nor would a claim for malicious prosecution"); Cruz v. Angelides, 574 So. 2d 278 (Fla. 3d DCA 1991)("the law is well settled that a witness in a judicial proceeding,... is absolutely immune from any civil liability, save perhaps malicious prosecution, for testimony or other sworn statements which he or she gives in the course of the subject proceeding."); Johnson v. Libow, 2012 WL 4068409 (Fla. 15th Jud. Cir. March 1, 2012)(the purpose of the litigation privilege does not preclude the tort of malicious prosecution). In Wright v. Yurko supra, the Fifth District Court of Appeal rejected the application of the litigation privilege to a malicious prosecution action brought by a physician against his patients and an expert after he successfully defended a malpractice claim. Also of significance is the Second District's opinion in Olson v. Johnson, 961 So. 2d 351 (Fla. 2d DCA 2007). In that case, the court observed that the litigation (or judicial) privilege would not apply to bar a malicious prosecution action which arose as a result of a false accusation of criminal liability where the prosecution was based, in part, on the testimony of the defendants in the criminal case. The court ruled that the privilege (either absolute or qualified) Case No.: 502009CA040800XXXXMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 9 of 15 which might otherwise apply to a defamation claim for statements made during the course of a judicial proceeding did not bar a malicious prosecution claim. In light of the implicit recognition by the Supreme Court in Levin that a claim of malicious prosecution is not barred by the litigation privilege an implicit recognition acknowledged by the Third District itself Epstein's reliance on Wolfe is misplaced. Wolfe is also factually distinguishable from Edwards' claims against Epstein. Wolfe involved a malicious prosecution action against attorneys. Separate policy considerations might serve to impose additional limitations on the assertion of malicious prosecution claims against attorneys against whom alternative remedies exist such as bar disciplinary proceedings. See Taylor v. McNichols, 243 P.2d 642 (Idaho 2010). Moreover, in light of the decisions in Wright v. Yurko, supra and Olson v. Johnson, supra, the weight of authority supports the proposition that the litigation privilege would not apply to malicious prosecution claims. Both the Third and Fourth Districts have applied the litigation privilege to abuse of process claims. However, Wolfe itself, and the decisions of the Third and Fourth Districts cited in Wolfe, involved the litigation privilege as applied to claims of abuse of process by attorneys. None of the cases involved the extraordinary actions of an individual party like Epstein who carried out a course of action against Plaintiffs counsel with a singular purpose unrelated to any legitimate judicial goal. Under the compelling facts of this case, where the actions of Epstein are coupled with the elements of malice and absence of probable cause arising from the unfounded filing of the claims against Edwards, the litigation privilege should not have any applicability to the abuse of process claim asserted by Edwards. There are Disputed Issues of Fact Precluding Summary Judgment on the Abuse of Process Claim An abuse of process claim requires pleading and proof of the following three elements: 1) that the defendant made an illegal, improper or perverted use of process; 2) that the defendant had ulterior motives or purposes in exercising such illegal, improper, or perverted use of process; and 3) that, as a result of such action on the part of the defendant, the plaintiff suffered damage." See S I Invs. v. Payless Case No.: 502009CA040800XXXXMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 10 of 15 Flea Mkt., 36 So. 3d 909, 917 (Fla. 4th DCA 2010)(citation omitted). The case law is clear that on an abuse of process claim a "plaintiff must prove that the process was used for an immediate purpose other than that for which it was designed." Id. (citation omitted). Where the actions taken by a party in a particular lawsuit are designed to coerce another into taking some collateral action not properly involved in the proceeding a claim of abuse of process is stated. Miami Herald Publishing Company v. Ferre, 8636 F. Supp. 970 (S.D. Fla. 1985). In a case for abuse of process, the question of whether the plaintiff's case satisfies the requisite elements is largely a question for a jury. See Patrick John McGinley, 21 Fla. Prac., Elements of an Action 50:1 (2013-2014 ed.)(citing Gatto v. Publix Supermarket, 111C. 387 So. 2d 377 (Fla. 3d DCA 1980)). The usual case of abuse of process involves some form of extortion. Scozari v. Barone, 546 So. 2d 750, 751(Fla. 3d DCA 1989) (citing Bothmann v. Harrington, 458 So. 2d 1163, 1169 (Fla. 3d DCA 1984)). That is exactly what has transpired here. Epstein employed the extraordinary financial resources at his disposal to intimidate his molestation victims and Edwards into abandoning their legitimate claims or resolving those claims for substantially less than their just and reasonable value. Consequently, since Epstein's sole purpose and ulterior motive for filing the complaint without probable cause was in an effort to extort, to wit: to force his molestation victims and Edwards to settle for minimal amounts, that filing and everything subsequently done to pursue the claims constitutes an abuse of process. See Exhs. A at 18- 27, C at 4-7. Because Edwards has conclusively demonstrated that Epstein's actions in pursuing his claims were designed to coerce Edwards (and his client) to take some collateral action not properly involved in the proceedings and did so with an ulterior purpose, summary judgment directed at the abuse of process claim must fail. The damages suffered by Edwards include: (a) injury to his reputation; (b) mental anguish, embarrassment and anxiety; (c) fear physical injury to himself and members of his family; (d) the loss of the value of his time required to be diverted from his professional responsibility; and (e) the cost of defending against Epstein's spurious and baseless claims. All the elements of the Case No.: 5 02009 CA040 8 00XXXXMB AG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 11 of 15 claim for abuse of process have been satisfied. This case, then, falls within the parameters of the Third District's Decision in Scozari v. Barone, supra in which the court reversed the entry of summary judgment for the defendant on claims of malicious prosecution and abuse of process. With respect to the abuse of process claim, the court stated that "if there was no reasonable basis in law and fact to bring the action to impress a lien on property, and this was done without any reasonable justification under law and to force or compel the appellant to resolve some custody dispute, induce the appellant to pay money, or tie up the appellant's property, then there has been an abuse of process." Id at 752. There are Disputed Issues of Fact Precluding Summary Judgment on the Claim of Malicious Prosecution Here, Epstein's voluntary dismissal of his abuse of process claims against Edwards amounted to a bona fide termination of the proceedings. He knew his allegations were unsupported by evidence (See discussion above at pages 3-6). Knowing he lacked any verifiable evidence against Edwards, on the eve of the summary judgment hearing, Epstein effectively conceded that fact by voluntarily dismissing his claims. Hence, it is evident that Epstein took voluntary dismissal of his claims because he knew he did not have probable cause or an evidentiary basis to support the allegations. See Cohen v. Corwin, 980 So. 2d 1153 at 1156 (citing Union Oil of California, Amsco Division v. Watson, 468 So. 2d 349 at 354 (stating that "where a dismissal is taken because of insufficiency of the evidence, the requirement of a favorable termination is met")). Accordingly, the manner of termination reflects on the merits of the case and there was a bona fide termination of Epstein's civil proceeding against Edwards (See Judge Crow's Order of March 29, 2012 denying Motion to Dismiss re: Issue of Bonafide Termination attached as Exhibit "fn. Epstein's only other issue with Edwards' counterclaim for malicious prosecution is that he did not lack probable cause in pursing his claims against Edwards. As established by the record, Epstein did, in fact, lack probable cause to assert his claims against Edwards (See discussion above). Epstein's purported Case No.: 502009CA040800XXXXMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 12 of 15 reliance on public filings, including the Scherer Complaint against Rothstein is unavailing. As discussed above, the evidence warrants the finding that Epstein knew that Edwards was legitimately pursuing the claims on behalf of his clients which included the effort to secure testimony from Epstein's close confidants. Therefore, Epstein cannot rely upon the referenced public documents to support his claims against Edwards given that he knows that information to be untrue and he refuses to answer questions about the veracity of the information. See Exh. G at pgs. 53:6-24; 78:16-24; 87:20-88:14. Consequently, Epstein had no good faith basis to rely on such information. Epstein's Assertion of his Fifth Amendment Privilege Gives Rise to Adverse Inferences Pertinent to His Motion for Summary Judgment and Precludes His Reliance on Purported Undisputed Facts As discussed above, Epstein's multiple invocations of his Fifth Amendment Privilege results in adverse inferences which directly impact the issues advanced in his Motion for Summary Judgment. "It is well settled that the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them." Baxter v. Palinigiano, 425 U.S. 308, 318 (1976); Accord, Vasquez v. State, 777 So. 2d 1200, 1203 (Fla. at 2001). The reason for this rule "is both logical and utilitarian. A party may not trample upon the rights of others and then escape the consequences by invoking a constitutional privilege at least not in a civil setting." Fraser v. Security and INV. Corp, 615 So. 2d. 841, 842 (Fla. 4th DCA 1993). The adverse inferences drawn from Epstein's assertion of the Fifth Amendment undercut his claim of justifiable reliance based upon the purported undisputed material facts to support his Motion for Summary Judgment. Moreover, because Epstein elected to hide behind the shield of his right against self-incrimination to preclude his disclosing any relevant information about the criminal activity at the center of his claims, he was effectively barred from prosecuting his abuse of process claim against Edwards. Similarly, Epstein should be barred from utilizing the Fifth Amendment privilege to secure summary judgment based upon assertions of fundamental facts when Epstein refused to testify on essential issues pertinent to the Case No.: 502009CA040800XXXXMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 13 of 15 arguments advanced in support of his Motion for Summary Judgment. Under the well-established "sword and shield" doctrine, Epstein could not seek damages from Edwards while at the same time asserting a Fifth Amendment privilege to block relevant discovery. See Exhs. B at 14-21, C at 18-25, G at 53:6-24; 78:16-24; 87:20-88:14. The same policies which underlie the sword and shield doctrine as applied to the recovery of affirmative relief should also apply to attempts to advance positions with respect to a Motion for Summary Judgment which would have the effect of securing relief against certain claims. " T he law is well settled that a plaintiff is not entitled to both his silence and his lawsuit." Boys Girls Clubs of Marion County, Inc. v. JA., 22 So. 3d 855, 856 (Fla. 5th DCA 2009)(Griffin, J., concurring specially). Thus, "a person may not seek affirmative relief in a civil action and then invoke the fifth amendment to avoid giving discovery, using the fifth amendment as both a 'sword and a shield.'" DePalma v. DePalma, 538 So. 2d 1290, 1290 (Fla. 4th DCA 1989)(quoting DeLisi v. Bankers Insurance Co., 436 So. 2d 1099 (Fla. 4th DCA 1983)). Put another way, " a civil litigant's fifth amendment right to avoid self-incrimination may be used as a shield but not a sword. This means that a plaintiff seeking affirmative relief in a civil action may not invoke the fifth amendment and refuse to comply with the defendant's discovery requests, thereby thwarting the defendant's defenses." Rollins Burdick Hunter of New York, Inc. v. Euroclassic Limited, Inc., 502 So. 2d 959 (Fla. 3d DCA 1983).. For the same reasons, Epstein should be precluded from advancing arguments based on purported statements of undisputed fact which cannot be effectively challenged in light of his assertion of the Fifth Amendment. Epstein has done precisely what well-established law prohibits. Conclusion Based upon the foregoing, the Defendant, Counter-Plaintiff, Bradley Edwards respectfully submits that Jeffrey Epstein's Motion for Summary Judgment must be denied. Case No.: 502009CA040800)000CMBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 14 of 15 I HEREBY CERTIFY that a true and correct copy of the foregoing was sent via E-Serve to all Counsel on the attached list, this 7 day ofG7( -,- , 2014. WILLIAM B. KING Florida Bar No.: 181773 Attorney E-Mail: wbk searcylaw.com and kar searcylaw.com Primary E-Mail: eservice searcylaw.com Secondary E-Mail: ScarolaTeam searcylaw.com Searcy Denney Scarola Barnhart Shipley, P.A. 2139 Palm Beach Lakes Boulevard West Palm Beach, Florida 33409 Fax: (561) 383-9456 Attorney for Bradley J. Edwards Case No.: 502009CA040800)000(MBAG Edwards' Opposition to Epstein's Motion for Summary Judgment Page 15 of 15 COUNSEL LIST William Chester Brewer, Esquire wcblaw aol.com; wcbcg aol.com 250 S Australian Avenue, Suite 1400 West Palm Beach, FL 33401 Fax: (561)-835-8691 Attorneys for Jeffiey Epstein Jack A. Goldberger, Esquire jgoldberger agwpa.com; smahoney agwpa.com Atterbury, Goldberger Weiss, P.A. 250 Australian Avenue South, Suite 1400 West Palm Beach, FL 33401 Fax: (561)-835-8691 Attorneys for Jeffrey Epstein Bradley J. Edwards, Esquire staff.efile pathtojustice.com Fanner, Jaffe, Weissing, Edwards, Fistos Lehrman, FL 425 North Andrews Avenue, Suite 2 Fort Lauderdale, FL 33301 Fax: (954)-524-2822 Attorneys for Jeffrey Epstein Marc S. Nurik, Esquire marc nuriklaw.com Law Offices of Marc S. Nurik One E Broward Blvd., Suite 700 Fort Lauderdale, FL 33301 Fax: (954)-745-3556 Attorneys for Scott Rothstein Tonja Haddad Coleman, Esquire tonja tonjahaddad.com; Debbie Tonjahaddad.com; efiling tonjahaddad.com Tonja Haddad, P.A. 315 SE 7th Street, Suite 301 Fort Lauderdale, FL 33301 Fax: (954)-337-3716 Attorneys for Jeffrey Epstein Fred Haddad, Esquire Dee FredHaddadLaw.com; haddadfm aol.com; fred fredhaddadlaw.com Fred Haddad, P.A. One Financial Plaza, Suite 2612 Fort Lauderdale, FL 33394 Fax: (954)-467-3599 Attorneys for Jeffrey Epstein IN THE CIRCUIT COURT OF THE 15TH JUDICIAL CIRCUIT IN AND FOR PALM BEACH COUNTY, FLORIDA Case No.:50 2009 CA 040800XXXXMBAG JEFFREY EPSTEIN, Plaintiff, vs. SCOTT ROTHSTEIN, individually, and BRADLEY J. EDWARDS, individually, Defendants, STATEMENT OF UNDISPUTED FACTS Defendant Bradley J. Edwards, Esq., offers the following specific facts as the undisputed material facts in this case. Each of the following facts is numbered separately and individually to facilitate Epstein's required compliance with Fla. R. Civ. P. 1.510(c) ("The adverse party shall identify . . . any summary judgment evidence on which the adverse party relies."). All referenced exhibits and attachments have previously been filed with the Court and provided to Epstein. Sexual Abuse of Children By Epstein 1. Defendant Epstein has a sexual preference for young children. Deposition of Jeffrey Epstein, Mar. 17, 2010, at 110 (hereinafter "Epstein Depo.") (Deposition Attachment 1). I When questioned about this subject at his deposition, Epstein invoked his Fifth Amendment right to remain silent rather than make an incriminating admission. Accordingly, Edwards is entitled to the adverse inference against Epstein that, had Epstein answered, the answer would have been unfavorable to him. "Mt is well-settled that the Fifth Amendment does not forbid adverse inferences against parties to EXHIBIT 2. Epstein repeatedly sexually assaulted more than forty (40) young girls on numerous occasions between 2002 and 2005 in his mansion in West Palm Beach, Florida. These sexual assaults included vaginal penetration. Epstein abused many of the girls dozens if not hundreds of times. Epstein Depo. at 109 ("Q: How many times have you engaged in oral sex with females under the age of 18r A: Invocation of the Fifth Amendment ); Deposition of Jane Doe, September 24, 2009 and continued March 11, 2010, at 527 (minor girl sexually abused at least 17 times by Epstein) (hereinafter "Jane Doe Depo") (Deposition Attachment 2); id. 564-67 (vaginal penetration by Epstein with his finger), 568 (vaginal penetration by Epstein with a massager); Deposition of L.M., September 24, 2009, at 73 (hereinafter "L.M. Depo") (Deposition Attachment 3) (describing the manner in which Epstein abused her beginning when LM was 13 years old, touching her vagina with his fingers and vibrator) at 74, line 12-13 (she was personally molested by Epstein more than 50 times), at 164, line 19-23 and 141, line 12-13 and 605, line 3-6 (describing that in addition to being personally molested by Epstein she was paid 200 per underage girl she brought Epstein and she brought him more than seventy (70) underage girls - she told him that she did not want to bring him any more girls and he insisted that she continue to bring him underage girls); Deposition of E.W., May 6, 2010 (hereinafter "E.W. Depo") (Deposition Attachment till) at 115-116, 131 and 255 (describing Epstein's abuse of her beginning at age 14 when he paid her for touching her vagina, inserting his fingers and civil actions when they refuse to testify in response to probative evidence offered against them." Baxter v. Palmigiano, 425 U.S. 308, 318 (1976); accord Vasquez v. State, 777 So.2d 1200, 1203 (Fla. App. 2001). The reason for this rule "is both logical and utilitarian. A party may not trample upon the rights of others and then escape the consequences by invoking a constitutional privilege at least not in a civil setting." Fraser v. Security and Inv. Corp., 615 So.2d 841, 842 (Fla. App. 1993). 2 using a vibrator and he also paid her 200 for each other underage female E.W. brought him to molest. She brought him between 20 and 30 underage females); Deposition of Jane Doe It4, date (hereinafter "Jane Doe ftl Depo") (Deposition Attachment 5) at 32-34, and 136 (she describes first being taken to Epstein at 15 years old, "Being fingered by him, having him use a vibrator on me , grabbing my nipples, smelling my butt, jerking off in front of me, licking my clit, several times."). 3. At all relevant times Edwards has had a good faith basis to conclude and did conclude' that Epstein was able to access a large number of underage girls through a pyramid abuse scheme in which he paid underage victims 200- 300 cash for each other underage victim that she brought to him. See Palm Beach Police Incident Report at 87 (hereinafter "Incident Report") (Exhibit "A").3 The Palm Beach Police Incident Report details Epstein's scheme for molesting underage females. Among other things, the Incident Report outlines some of the experiences of other Epstein victims. When S.G, a 14 year old minor at the time, was brought to Epstein's home, she was taken upstairs by a woman she believed to be Epstein's assistant. The woman started to fix up the room, putting covers on the massage table and bringing lotions out. The "assistant" then left the room and told S.G. that Epstein would be up in a second. Epstein walked over to S.G. and told her to take her clothes off in a stern voice. S.G. states in the report she did not know what to do, as she was the only one there. S.G. took off her shirt, leaving her bra on. Epstein, then in a towel told her to take off everything. S.G. removed her pants leaving 2 In support of all assertions concerning the actions Edwards took, what Edwards learned in the course of his representation of his clients, Edwards's good faith beliefs and the foundation for those beliefs, see Edwards Affidavit and specifically paragraphs 25 and 25 of that Affidavit. 3 For clarity, depositions attached to this memorandum will be identified numerically as attachments 1, 2, 3, etc., while exhibits attached to this memorandum will be identified alphabetically as exhibits A, B, C, etc. 3 on her thong panties. Epstein then instructed S.G to give him a massage. As S.G gave Epstein a massage, Epstein turned around and masturbated. S.G. was so disgusted, she did not say anything; Epstein told her she "had a really hot body." Id. at 14. In the report, S.G. admitted seeing Jeffrey Epstein's penis and stated she thought Epstein was on steroids because he was a "really built guy and his wee wee was very tiny." Id. at 15. 4. The exact number of minor girls who Epstein assaulted is known only to Epstein. However, Edwards had a good faith basis to believe and did in fact believe that Epstein's victims were substantially more than forty (40) in number. In addition to the deposition excerpts from two of his many victims above about the number of underage girls brought to Epstein and the Palm Beach incident report, there is overwhelming proof that the number of underage girls molested by Epstein through his scheme was in the hundreds. See Complaint, Jane Doe 102 v. Epstein, (hereinafter Jane Doe 102 complaint) (Exhibit "B"); see also Deposition of Jeffrey Epstein, April 14, 2010, at 442, 443, and 444 (Epstein invoking the 5th on questions about his daily abuse and molestation of children) (Deposition Attachment 6). 5. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that Epstein and his attorneys knew of the seriousness of the criminal investigation against him and corresponded constantly with the United States Attorney's Office in an attempt to avoid the filing of numerous federal felony offenses, which effort was successful. See Correspondence from U.S. Attorney's Office to Epstein (hereinafter "U.S. Attorney's Correspondence") (Composite Exhibit "C) (provided in discovery during the Jane Doe v. Epstein case). 4 6. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that, more specifically, Epstein's attorneys knew of Epstein's scheme to recruit minors for sex and also knew that these minors had civil actions that they could bring against him. In fact, there was much communication between Epstein's attorneys and the United States Prosecutors in a joint attempt to minimize Epstein's civil exposure. For example, on October 3, 2007, Assistant U.S. Attorney Marie Villafaila sent an email (attached hereto as Exhibit "D") to Jay Lefkowitz, counsel for Epstein, with attached proposed letter to special master regarding handling numerous expected civil claims against Epstein. The letter reads in pertinent part, "The undersigned, as counsel for the United States of America and Jeffrey Epstein, jointly write to you to provide information relevant to your service as a Special Master in the selection of an attorney to represent several young women who may have civil damages claims against Mr. Epstein. The U.S. Attorney's Office and the Federal Bureau of Investigation (jointly referred to as the "United States") have conducted an investigation of Jeffrey Epstein regarding his solicitation of minor females in Palm Beach County to engage in prostitution. Mr. Epstein, through his assistants, would recruit underage females to travel to his home in Palm Beach to engage in lewd conduct in exchange for money. Based upon the investigation, the United States has identified forty (40) young women who can be characterized as victims pursuant to 18 USC 2255. Some of those women went to Mr. Epstein's home only once, some went there as much as 100 times or more. Some of the women's conduct was limited to performing a topless or nude massage while Mr. Epstein-masturbated himself For other women, the conduct escalated to full sexual intercourse. As part of the resolution of the case, Epstein has agreed that he would not contest jurisdiction in the Southern District of Florida for any victim who chose to sue him for damages pursuant to 18 USC 2255. Mr. Epstein agreed to provide an attorney for victims who elected to proceed exclusively pursuant to that section, and agreed to waive any challenge to liability under that section up to an amount agreed to by the parties. The parties have agreed to submit the selection of an attorney to a Special Master...." 7. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that L.M. was, in fact, a victim of Epstein's criminal abuse because L.M. was one of the 5 minor females that the United States Attorney's Office recognized as a victim. L.M.'s sworn deposition testimony and the adverse inference drawn from Epstein's refusal to testify confirm that Epstein began sexually assaulting L.M. when she was 13 years old and continued to molest her on more than fifty (50) occasions over three (3) years. Epstein Depo., Attachment 1, at 17 ("Q: Did you . . . ever engage in any sexual conduct with L.M.?" A: Invocation of the Fifth Amendment .); see also Epstein Depo., April 14, 2010, Attachment 6, at 456 ("Q: LM was an underage female that you first abused when she was 13 years old; is that correct?" A: Invocation of Fifth Amendment .) 8. Epstein was also given ample opportunity to explain why he engaged in sexual activity with L.M. beginning when L.M. was 13 years old and why he has molested minors on an everyday basis for years, and he invoked his 5th amendment right rather than provide explanation. See Epstein Deposition, February 17, 2010, at 11-12, 30-31 (Deposition Attachment 7). 9. Epstein also sexually assaulted E.W., beginning when she was 14 years old and did so on numerous occasions. See E.W. Depo., Attachment 1 at 215-216. 10. Another of the minor girls Epstein sexually assaulted was Jane Doe; the abuse began when Jane Doe was 14 years old. Rather than incriminate himself, Epstein invoked the 5th amendment to questions about him digitally penetrating Doe's vagina, using vibrators on her vagina and masturbating and ejaculating in her presence. Epstein Depo., April 14, 2010, Attachment 6, at 420, 464, 468. 11. When Edwards's clients L.M., E.W., and Jane Doe were 13 or 14 years old, each was brought to Epstein's home multiple times by another underage victim. Epstein engaged in 6 one or more of the following acts with each of the then-minor girls at his mansion: receiving a topless or completely nude massage; using a vibrator on her vagina; masturbating in her presence; ejaculating in her presence; touching her breast or buttocks or vagina or the clothes covering her sexual organs; and demanding that she bring him other underage girls. Epstein and his co-conspirators used the telephone to contact these girls to entice or induce them into going to his mansion for sexual abuse. Epstein also made E.W. perform oral sex on him and was to perform sex acts on Nadia Marcinkova (Epstein's live-in sex slave) in Epstein's presence. See Plaintiff Jane Doe's Notice Regarding Evidence of Similar Acts of Sexual Assault, filed in Jane Doe v. Epstein, No. 08-cv-80893 (S.D. Fla. 2010), as DE 197, (hereinafter "Rule 413 Notice) (Exhibit "F'); Jane Doe Depo., Attachment 2, at 379-380; L.M. Depo., Attachment 3, at 416; E.W. Depo, Attachment 4, at 205. 12. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that yet another of the minor girls Epstein sexually assaulted was C.L. When she was approximately 15 years old, C.L. was brought to Epstein's home by another underage victim. While a minor, she was at Epstein's home on multiple occasions. Epstein engaged in one or more of the following acts with her while she was a minor at his house - topless or completely nude massage on Epstein; Epstein used a vibrator on her vagina; Epstein masturbated in her presence; Epstein ejaculated in her presence; Epstein also demanded that she bring him other underage girls. See Rule 413 Notice, Exhibit "E"; Incident Report, Exhibit "A." 13. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that yet another girl Epstein sexually assault was A.H. When she was approximately 16 years old, she was brought to Epstein's home by another underage victim. While a minor, she 7 was at Epstein's home on multiple occasions. Epstein engaged in one or more of the following acts with her while she was a minor at his house - topless or completely nude massage on Epstein; Epstein used a vibrator on her vagina; Epstein masturbated in her presence; Epstein ejaculated in her presence; Epstein touched her breast or buttock or vagina or the clothes covering her sexual organs; was made to perform sex acts on Epstein; made to perfoini sex acts on Nadia Marcinkova in Epstein's presence. Epstein also forcibly raped this underage victim, as he held her head down against her will and pumped his penis inside her while she was screaming "No". See Rule 413 Notice, Exhibit "E"; Incident Report, Exhibit "A", at 41 (specifically discussing the rape): " A.H. remembered that she climaxed and was removing herself from the massage table. A.H. asked for a sheet of paper and drew the massage table in the master bathroom and where Epstein, Marcinkova and she were. Epstein turned A.H. on to her stomach on the massage bed and inserted his penis into her vagina. A.H. stated Epstein began to pump his penis in her vagina. A.H. became upset over this. She said her head was being held against the bed forcibly, as he continued to pump inside her. She screamed no, and Epstein stopped ...." " A.H. advised there were times that she was so sore when she left Epstein's house. A.H. advised she was ripped, torn, in her vagina area. A.H. advised she had difficulty walking to the car after leaving the house because she was so sore." 14. Without detailing each fact known about Epstein's abuse of the many underage girls, Edwards has had a good faith basis to believe and did in fact believe at all relevant times that Epstein also abused other victims in ways closely similar to those described in the preceding paragraphs. Epstein's additional victims include the following (among many other) young girls: S.G.; A.D.; V.A.; N.R.; J.S.; V.Z.; J.A.; F.E.; M.L.; M.D.; D.D.; and D.N. These girls were between the ages of 13 and 17 when Epstein abused them. See Rule 413 Notice, Exhibit E; Deposition of E.W., Deposition Attachment Pl. 8 15. One of Mr. Epstein's household employees, Mr. Alfredo Rodriguez, saw numerous underage girls coming into Epstein's mansion for purported "massages." See Rodriguez Depo. at 242-44 (Deposition Attachment 8). Rodriguez was aware that "sex toys" and vibrators were found in Epstein's bedroom after the purported massages. Id. at 223-28. Rodriguez thought what Epstein was doing was wrong, given the extreme youth of the girls he saw. Id. at 230-31.. 16. Alfredo Rodriguez took a journal from Epstein's computer that reflected many of the names of underage females Epstein abused across the country and the world, including locations such as Michigan, California, West Palm Beach, New York, New Mexico, and Paris, France. See Journal (hereinafter "The Journal" or "Holy Grail") (Exhibit "F") (identifying, among other Epstein acquaintances, females that Rodriguez believes were underage under the heading labeled "Massages"). 17. Rodriguez was later charged in a criminal complaint with obstruction of justice in connection with trying to obtain 50,000 from civil attorneys pursuing civil sexual assault cases against Epstein as payment for producing the book to the attorneys. See Criminal Complaint at 2, U.S. v. Rodriguez, No. 9:10-CR-80015-KAM (S.D. Fla. 2010) (Exhibit "G"). Rodriguez stated he needed money because the journal was his "property" and that he was afraid that Jeffrey Epstein would make him "disappear" unless he had an "insurance policy" (i.e., the journal). Id. at 3. Because of the importance of the information in the journal to the civil cases, Mr. Rodriguez called it "The Holy Grail." 18. In the "Holy Grail" or "The Journal," among the many names listed (along with the abused girls) are some of the people that Epstein alleges in his Complaint had "no connection 9 whatsoever" with the litigation in this case. See, e.g., Journal, Exhibit F, at 85 (Donald Trump); at 9 (Bill Clinton phone numbers listed under "Doug Bands"). Federal Investigation and Plea Agreement With Epstein 19. In approximately 2005, the FBI and the U.S. Attorney's Office in the Southern District of Florida learned of Epstein's repeated sexual abuse of minor girls. They began a criminal investigation into federal offenses related to his crimes. See U.S. Attorney's Correspondence, Exhibit C. 20. At all relevant times Edwards has had a good faith basis to believe and did in fact believe that to avoid the Government learning about his abuse of minor girls, Epstein threatened his employees and demanded that they not cooperate with the government. Epstein's aggressive witness tampering was so severe that the United States Attorney's Office prepared negotiated plea agreements containing these charges. For example, in a September 18, 2007, email from AUSA Villafafia to Lefkowitz (attached hereto as Exhibit "I-F), she attached the proposed plea agreement describing Epstein's witness tampering as follows: "UNITED STATES vs. JEFFREY EPSTEIN PLEA PROFFER" On August 21, 2007, FBI Special Agents E. Nesbitt Kuyrkendall and Jason Richards traveled to the home of Leslie Groff to serve her with a federal grand jury subpoena with an investigation pending in the Southern District of Florida. Ms. Groff works as the personal assistant of the defendant. Ms. Groff began speaking with the agents and then excused herself to go upstairs to check on her sleeping child. While upstairs, Ms. Groff telephoned the defendant, Jeffrey Epstein, and informed him that the FBI agents were at her home. Mr. Epstein instructed Ms. Groff not to speak with the agents and reprimanded her for allowing them into her home. Mr. Epstein applied pressure to keep Ms. Groff from complying with the grand jury subpoenas that the agents had served upon her. In particular, Mr. Epstein warned Ms. Groff against turning over documents and electronic evidence responsive to the subpoena and pressured her to delay her 10 appearance before the grand jury in the Southern District of Florida. This conversation occurred when Mr. Epstein was aboard his privately owned civilian aircraft in Miami in the Southern District of Florida. His pilot had filed a flight plan showing the parties were about to return to Teterboro, NJ. After the conversation with Ms. Groff, Mr. Epstein became concerned that the FBI would try to serve his traveling companion, Nadia Marcinkova, with a similar grand jury subpoena. In fact, the agents were preparing to serve Ms. Marcinkova with a target letter when the flight landed in Teterboro. Mr. Epstein then redirected his airplane, making the pilot file a new flight plan to travel to the US Virgin Islands instead of the New York City area, thereby keeping the Special Agents from serving the target letter on Nadia Marcinkova. During the flight, the defendant verbally harassed Ms. Marcinkova, harassing and pressuring her not to cooperate with the grand jury's investigation, thereby hindering and dissuading her from reporting the commission of a violation of federal law to a law enforcement officer, namely, Special Agents of the FBI. Epstein also threatened and harassed Sarah Kellen against cooperating against him as well. 21. Edwards learned that the Palm Beach police depaitment investigation ultimately led to the execution of a search warrant at Epstein's mansion in October 2005. See Police Incident Report, Exhibit A. 22. Edwards learned that at around the same time, the Palm Beach Police Depai inent also began investigating Epstein's sexual abuse of minor girls. They also collected evidence of Epstein's involvement with minor girls and his obsession with training sex slaves, including pulling information' from Epstein's trash. Their investigation showed that Epstein ordered from Arnazon.com on about September 4, 2005, such books as: SM101: A Realistic Introduction, by Jay Wiseman; SlaveCraft: Roadmaps for Erotic Servitude - Principles, Skills, and Tools, by Guy Baldwin; and Training with Miss Abernathy: A Workbook for Erotic Slaves and Their Owners, by Christina Abernathy. See Receipt for Sex Slave Books (Exhibit "r). 23. The Palm Beach incident reports provided Edwards with the names of numerous witnesses that participated in Epstein's child molestation criminal enterprise and also provided 11 Edwards with some insight into how far-reaching Epstein's power was and how addicted Epstein was to sex with children. See Incident Report, Exhibit A. 24. The Palm Beach Police Depai talent also collected Epstein's message pads, which provided other names of people that also knew Epstein's scheme to molest children. See Message Pads (Exhibit "J") (note: the names of underage females have been redacted to protect the anonymity of the underage sex abuse victims). Those message pads show clear indication that Epstein's staff was frequently working to schedule multiple young girls between the ages of 12 and 16 years old literally every day, often two or three times per day. Id. 25. In light of all of the information of numerous crimes committed by Epstein, Edwards learned that the U.S. Attorney's Office began preparing the filing of federal criminal charges against Epstein. For example, in addition to the witness tampering and money laundering charges the U.S. Attorney's Office prepared an 82-page prosecution memo and a 53- page indictment of Epstein related to his sexual abuse of children. On September 19, 2007, at 12:14 PM, AUSA Villafacia wrote to Epstein's counsel, Jay Lefkowitz, "Jay - I hate to have to be firm about this, but we need to wrap this up by Monday. I will not miss my indictment date when this has dragged on for several weeks already and then, if things fall apart, be left in a less advantageous position than before the negotiations. I have had an 82-page pros memo and 53- page indictment sitting on the shelf since May to engage in these negotiations. There has to be an ending date, and that date is Monday." These and other communications are within the correspondence attached as Composite Exhibit "C." 26. Edwards learned that rather than face the filing of federal felony criminal charges, Epstein (through his attorneys) engaged in plea bargain discussions. 12 As a result of those discussions, on September 24, 2007, Epstein signed an agreement with the U.S. Attorney's Office for the Southern District of Florida. Under the agreement, Epstein agreed to plead guilty to an indictment pending against him in the 15th Judicial Circuit in and for Palm Beach County charging him with. solicitation of prostitution and procurement of minors for prostitution. Epstein also agreed that he would receive a thirty month sentence, including 18 months of jail time and 12 months of community control. In exchange, the U.S. Attorney's Office agreed not to pursue any federal charges against Epstein. See Non-Prosecution Agreement (Exhibit "K"). 27. Part of the Non-Prosecution Agreement that Epstein negotiated was a provision in which the federal government agreed not to prosecute Epstein's co-conspirators. The coconspirators procured minor females to be molested by Epstein. One of the co-conspirators - Nadia Marcinkova -even participated in the sex acts with minors (including E.W.) and Epstein. See Incident Report, Exhibit "A", at 40-42, 49-51; Deposition of Nadia Marcinkova, April 13, 2010, (hereinafter "Marcinkova Depo.") at 11 (Deposition attachment 9). 28. Under the Non-Prosecution Agreement, Epstein was to use his "best efforts" to enter into his guilty pleas by October 26, 2007. However, Edwards learned that Epstein violated his agreement with the U.S. Attorney's Office to do so and delayed entry of his plea. See Letter from U.S. Attorney R. Alexander Acosta to Lilly Ann Sanchez, Dec. 19, 2007 (Exhibit "L"). 29. On January 10, 2008 and again on May 30, 2008 E.W. and L.M. received letters from the FBI advising them that "Nhis case is currently under investigation. This can be a lengthy process and we request your continued patience while we conduct a thorough investigation." Letters attached at Composite Exhibit M. This document is evidence that the FBI did not notify E.W. and L.M. that a plea agreement had already been reached that would 13 block federal prosecution of Epstein. Nor did the FBI notify E.W. and L.M. of any of the parts of the plea agreement. Nor did the FBI or other federal authorities confer with E.W. and L.M. about the plea. See id. 30. In 2008, Edwards believed in good faith that criminal prosecution of Epstein was extremely important to his clients E.W. and L.M. and that they desired to be consulted by the FBI and or other representatives of the federal government about the prosecution of Epstein. The letters that they had received around January 10, 2008, suggested that a criminal investigation of Epstein was on-going and that they would be contacted before the federal government reached any final resolution of that investigation. See id. Edwards Agrees to Serve as Legal Counsel for Three Victims of Epstein's Sexual Assaults 31. In about April 2008, Bradley J. Edwards, Esq., was a licensed attorney in Florida, practicing as a sole practitioner. As a former prosecutor, he was well versed in civil cases that involved criminal acts, including sexual assaults. Three of the many girls Epstein had abused L.M., E.W., and Jane Doe all requested that Edwards represent them civilly and secure appropriate monetary damages against Epstein for repeated acts of sexual abuse while they were minor girls. Two of the girls (L.M. and E.W.) also requested that Edwards represent them in connection with a concern that the Federal Bureau of Investigation (FBI) and U.S. Attorney's Office might be arranging a plea bargain for the criminal offenses committed by Epstein without providing them the legal rights to which they were entitled (including the right to be notified of plea discussions and the right to confer with prosecutors about any plea arrangement). See 14 Affidavit of Bradley. J. Edwards, Esq. at 1 - 2, 4 (hereinafter "Edwards Affidavit") (Exhibit N"). 32. On June 13, 2008, attorney Edwards agreed to represent E.W.; on July 2, 2008, attorney Edwards agreed to represent Jane Doe; and, on July 7, 2008, attorney Edwards agreed to represent L.M. in connection with the sexual assaults committed by Epstein and to insure that their rights as victims of crimes were protected in the criminal process on-going against Epstein. Mr. Edwards and his three clients executed written retention agreements. See id. at 2. 33. In mid June of 2008, Edwards contacted AUSA Villafafia to infoun her that he represented Jane Doe 1 and, later, Jane Doe 2. AUSA Villafatia did not advise that a plea agreement had already been negotiated with Epstein's attorneys that would block federal prosecution. To the contrary, AUSA Villafana mentioned a possible indictment. AUSA Villafafia did indicate that federal investigators had concrete evidence and information that Epstein had sexually molested many underage minor females, including E.W., LM, and Jane Doe. See id. at 4. 34. Edwards also requested from the U.S. Attorney's Office the information that they had collected regarding Epstein's sexual abuse of his clients. However, the U.S. Attorney's Office, declined to provide any such information to Edwards. It similarly declined to provide any such information to the other attorneys who represented victims of Epstein's sexual assaults. At the very least, this includes the items that were confiscated in the search warrant of Epstein's home, including dildos, vibrators, massage table, oils, and additional message pads. See Property Receipt (Exhibit "0"). 15 35. On Friday, June 27, 2008, at approximately 4:15 p.m., AUSA Villafafia received a copy of Epstein's proposed state plea agreement and learned that the plea was scheduled for 8:30 a.m., Monday, June 30, 2008. AUSA Villafafia called Edwards to provide notice to his clients regarding the hearing. AUSA Villafafia did not tell Attorney Edwards that the guilty pleas in state court would bring an end to the possibility of federal prosecution pursuant to the plea agreement. See Edwards Affidavit, Exhibit "N", at 6. 36. Under the Crime Victims' Rights Act (CVRA), 18 U.S.C. 3771, victims of federal crimes including E.W. and L.M. are entitled to basic rights during any plea bargaining process; including the right to be treated with fairness, the right to confer with prosecutors regarding any plea, and the right to be heard regarding any plea. The process that was followed leading to the non-prosecution of Epstein violated these rights of E.W. and L.M. See Emergency Petn. for Victim's Enforcement of Crime Victim's Rights, No. 9:08-CV-80736- KAM (S.D. Fla. 2008) (Exhibit "P"). 37. Because of the violation of the CVRA, on July 7, 2008, Edwards filed an action in the U.S. District Court for the Southern District of Florida, Case No. 9:08-CV-80736, seeking to enforce the rights of E.W. and L.M. That action alleged that the U.S. Attorney's Office had failed to provide E.W. and L.M. the rights to which they were entitled under the Act, including the right to be notified about a plea agreement and to confer with prosecutors regarding it. See id. 38. On July 11, 2008, Edwards took E.W. and L.M. with him to the hearing on the CVRA action. It was only at this hearing that both victims learned for the first time that the plea deal was already done with Epstein and that the criminal case against Epstein had been 16 effectively terminated by the U.S. Attorney's office. See Hearing Transcript, July 11, 2008 (Exhibit "Q"). 39. Edwards learned that Jane Doe felt so strongly that the plea bargain was inappropriate that she made her own determination to appear on a television program and exercise her First Amendment rights to criticize the unduly lenient plea bargain Epstein received in a criminal case. 40. The CVRA action that Edwards filed was recently administratively closed and Edwards filed a Motion to reopen that proceeding. See No. 9:08-CV-80736 (S.D. Fla.). Epstein's Entry of Guilty Pleas to Sex Offenses 41. Ultimately, on June 30, 2008, in the Fifteenth Judicial Circuit in Palm Beach County, Florida, defendant Epstein, entered pleas of "guilty" to various Florida state crimes involving the solicitation of minors for prostitution and the procurement of minors for the purposes of prostitution. See Plea Colloquy (Exhibit "R"). 42. As a condition of that plea, and in exchange for the Federal Government not prosecuting the Defendant, Epstein additionally entered into an agreement with the Federal Government acknowledging that approximately thirty-four (34) other young girls could receive payments from him under the federal statute providing for compensation to victims of child sexual abuse, 18 U.S.C. 2255. As had been agreed months before, the U.S. Attorney's Office did not prosecute Epstein federally for his sexual abuse of these minor girls. See Addendum to Non-Prosecution Agreement (Exhibit "S") (in redacted fowl to protect the identities of the minors involved). 17 43. Because Epstein became a convicted sex offender, he was not to have contact with any of his victims. During the course of his guilty pleas on June 30, 2008, Palm Beach Circuit Court Judge Deborah Dale Pucillo ordered Epstein "not to have any contact, direct or indirect" with any victims. She also expressly stated that her no-contact order applied to "all of the victims." Similar orders were entered by the federal court handling some of the civil cases against Epstein. The federal court stated that it "finds it necessary to state clearly that Defendant is under this court's order not to have direct or indirect contact with any plaintiffs . . . ." Order, Case No. 9:08-cv-80119 (S.D. Fla. 2008), DE 238 at 4-5 (emphasis added); see also Order, Case No. 9:08-cv-80893, DE 193 at 2 (emphasis added). Edwards Files Civil Suits Against Epstein 44. Edwards had a good faith belief that his clients felt angry and betrayed by the criminal system and wished to prosecute and punish Epstein for his crimes against them in whatever avenue remained open to them. On August 12, 2008, at the request of his client Jane Doe, Brad Edwards filed a civil suit against Jeffrey Epstein to recover damages for his sexual assault of Jane Doe. See Edwards Affidavit, "N" at 7. Included in this complaint was a RICO count that explained how Epstein ran a criminal conspiracy to procure young girls for him to sexually abuse. See Complaint, Jane Doe v. Epstein (Exhibit "T"). 45. On September 11, 2008, at the request of his client E.W., Brad Edwards filed a civil suit against Jeffrey Epstein to recover damages for his sexual assault of E.W. See Complaint, E.W. v. Epstein (Exhibit "U"). 18 46. On September 11, 2008, at the request of his client L.M.., Brad Edwards filed a civil suit against Jeffiey.Epstein to recover damages for his sexual assault of L.M. See Complaint, L.M. v. Epstein, (Exhibit "V"). 47. Jane Doe's federal complaint indicated that she sought damages of more than 50,000,000. Listing the amount of damages sought in the complaint was in accord with other civil suits that were. filed against Epstein (before any lawsuit filed by Edwards). See Complaint, Jane Doe itd v. Epstein (Exhibit "W") (filed by Herman and Meimelstein, PA). 48. At about the same time as Edwards filed his three lawsuits against Epstein, other civil attorneys were filing similar lawsuits against Epstein. For example, on or about April 14, 2008 another law firm, Herman and Mermelstein, filed the first civil action against Epstein on behalf of one of its seven clients who were molested by Epstein. The complaints that attorney Herman filed on behalf of his seven clients were similar in tenor and tone to the complaint that Edwards filed on behalf of his three clients. See id. 49. Over the next year and a half, more than 20 other similar civil actions were filed by various attorneys against Epstein alleging sexual assault of minor girls. These complaints were also similar in tenor and tone to the complaint that Edwards filed on behalf of his clients. These complaints are all public record and have not been attached, but are available in this Court's files and the files of the U.S. District Court for the Southern District of Florida. 50. In addition to the complaints filed against Epstein in Florida, a female in New York, Ava Cordero, filed a lawsuit against Epstein in New York making similar allegations - that Epstein paid her for a massage then forced her to give him oral sex and molested her in other ways when she was only 16 years old. Cordero was bom a male, and in her complaint she 19 alleges that Epstein told her during the "massage", "I love how young you are. You have a tight butt like a baby". See Jeff Epstein Sued for "Repeated Sexual Assaults" on Teen, New York Post, October 17, 2007, by Dareh Gregorian, link at: http: www.nypost.com p news regional item 44z1WyLUFH7R1OUtKYGPbP;j se s si oni d 6CA3 EB FlBEF 68F5DE14BFB2 GAAS C37E0. See Article attached hereto as Exhibit X. 51. Edwards's three complaints against Epstein contained less detail about sexual abuse than (as one example) a complaint filed by attorney Robert Josephsberg from the law fiiui of Podhurst Orseck. See Complaint, Jane Doe 102 v. Epstein (Exhibit "B"). As recounted in detail in this Complaint, Jane Doe 102 was 15 years old when Ghislaine Maxwell discovered her and lured her to Epstein's house. Maxwell and Epstein forced her to have sex with both of them and within weeks Maxwell and Epstein were flying her all over the world. According to the Complaint, Jane Doe 102 was forced to live as one of Epstein's underage sex slaves for years and was forced to have sex with not only Maxwell and Epstein but also other politicians, businessmen, royalty, academicians, etc. She was even made to watch Epstein have sex with three 12-year-old French girls that were sent to him for his birthday by A French citizen that is a friend of Epstein's. Luckily, Jane Doe 102 escaped to Australia to get away from Epstein and Maxwell's sexual abuse. 52. Edwards learned that in addition to civil suits that were filed in court against Epstein, at around the same time other attorneys engaged in pre-filing settlement discussions with Epstein. Rather than face filed civil suits in these cases, Epstein paid money settlements to more than 15 other women who had sexually abused while they were minors. See articles regarding settlements attached hereto as Composite Exhibit "Y." 20 Epstein's Obstruction of Normal Discovery and Attacks on His Victims 53. Once Edwards filed his civil complaints for his three clients, he began the normal process of discovery for cases such as these. He sent standard discovery requests to Epstein about his sexual abuse of the minor girls, including requests for admissions, request for production, and interrogatories. See Edwards Affidavit, Exhibit 1 T", at 11111-19 and 25. Rather than answer any substantive questions about his sexual abuse and his conspiracy for procuring minor girls for him to abuse, Epstein invoked his 5th amendment right against selfincrimination. An example of Epstein's refusal to answer is attached as Composite Exhibit "Z" (original discovery propounded to Epstein and his responses invoking 5th amendment). 54. During the discovery phase of the civil cases filed against Epstein, Epstein's deposition was taken at least five times. During all of those depositions, Epstein refused to answer any substantive questions about his sexual abuse of minor girls. See, e.g., Deposition Attachments 1, 6 and 7. 55. During these depositions, Epstein further attempted to obstruct legitimate questioning by inserting a variety of irrelevant information about his case. As one of innumerable examples, on March 8, 2010, Mr. Horowitz, representing seven victims, Jane Doe's 2-8, asked, "Q: In 2004, did you rub Jane Doe 3's vagina? A: Excuse me. I'd like to answer that question, as I would like to answer mostly every question you've asked me here today; however, upon advice of counsel, I cannot answer that question. They've advised me I must assert my Sixth Amendment, Fifth Amendment and Fourteenth Amendment Rights against self me, against after filing this lawsuit a statement that was untrue , Mr. Edwards' pai tier sits in jail for 21 fabricating cases of a sexual nature fleecing unsuspecting Florida investors and others out of millions of dollars for cases of a sexual nature with I advice." Epstein deposition, March 8, 2010, at 106 (Deposition attachment 10). 56. When Edwards had the opportunity to take Epstein's deposition, he only asked reasonable questions, all of which related to the merits of the cases against Epstein. A11 depositions of Epstein in which Mr. Edwards participated on behalf of his clients are attached to this motion. See Edwards Affidavit, Exhibit "N" at Il 1 and Deposition attachments 1, 6, 7, 10, 11, 12, and 13. Cf. with Deposition of Epstein taken by an attorney representing BB (one in which Edwards was not participating), http: www.youtube.com watch?v V-dqoEyYXx4; and http: www.youtube.com watch?v YCNiY1tW-r0 57. Edwards's efforts to obtain information about Epstein's organization for procuring young girls was also blocked because Epstein's co-conspirators took the Fifth. Deposition of Sarah Kellen, March 24, 2010 (hereinafter "Kellen Depo.") (Deposition attachment 14); Deposition of Nadia Marcinkova, April 13, 2010, (Deposition attachment 9); Deposition of Adriana Mucinska Ross, March 15, 2010 (hereinafter "Ross Depo.") (Deposition attachment 15). Each of these co-conspirators invoked their respective rights against selfincrimination as to all relevant questions, and the depositions have been attached. 58. At all relevant times Edwards has had a good faith basis to believe and did in fact believe Sarah Kellen was an employee of Epstein's and had been identified as a defendant in at least one of the complaints against Epstein for her role in bringing girls to Epstein's mansion to be abused. At the deposition, she was represented by Bruce Reinhart. She invoked the Fifth on 22 all substantive questions regarding her role in arranging for minor girls to come to Epstein's mansion to be sexually abused. Reinhart had previously been an Assistant United States Attorney in the U.S. Attorney's Office for the Southern District of Florida when Epstein was being investigated criminally by Reinhart's office. Reinhart left the United States Attorney's Office and was immediately hired by Epstein to represent Epstein's pilots and certain coconspirators during the civil cases against Epstein. See Edwards Affidavit, Exhibit 1 1" at 11. 59. Edwards also had other lines of legitimate discovery blocked through the efforts of Epstein and others. For example, Edwards learned through deposition that Ghislaine Maxwell was involved in managing Epstein's affairs and companies. See deposition of Epstein's house manager Janusz Banziak, February 16, 2010 at page 14, lines 20-23 (Deposition Attachment 16); See deposition of Epstein's housekeeper Louella Rabuyo, October 20, 2009, page 9, lines 17-25 (Deposition Attachment 17); See deposition of Epstein's pilot Larry Eugene Morrison, October 6, 2009, page 102-103 (Deposition Attachment 18); See deposition of Alfredo Rodriguez, August 7, 2009, page 302-306 and 348 (Deposition Attachment 8); See also Prince Andrew's Friend, Ghislaine Maxwell, Some Underage Girls and A Very Disturbing Story, September 23, 2007 by Wendy Leigh, link at hap: www.redicecreations.com article.php?id 18950HANNA SJOBERG. Exhibit "AA". 60. Alfredo Rodriguez testified that Maxwell took photos of girls without the girls' knowledge, kept the images on her computer, knew the names of the underage girls and their respective phone numbers and other underage victims were molested by Epstein and Maxwell together. See Deposition of Rodriguez, Deposition attachment 8 at 64, 169-170 and 236. 23 61. In reasonable reliance on this and other information, Edwards served Maxwell for deposition in 2009. See Deposition Notice attached as Exhibit "BB." Maxwell was represented by Brett Jaffe of the New York film of Cohen and Gresser, and Edwards understood that her attorney was paid for (directly or indirectly) by Epstein. She was reluctant to give her deposition, and Edwards tried to work with her attorney to take her deposition on terms that would be acceptable to both sides. The result was the attached confidentiality agreement, under which Maxwell agreed to drop any objections to the deposition, attached hereto as Exhibit "CC." Maxwell, however, contrived to avoid the deposition. On June 29, 2010, one day before Edwards was to fly to NY to take Maxwell's deposition, her attorney informed Edwards that Maxwell's mother was deathly ill and Maxwell was consequently flying to England with no intention of returning to the United States. Despite that assertion, Ghislaine Maxwell was in fact in the country on July 31, 2010, as she attended the wedding of Chelsea Clinton (former President Clinton's daughter) and was captured in a photograph taken for OK magazine. Photos from Issue 809 of the publication See US Weekly dated August 16, 2010 are attached hereto as Exhibit "DD" and Edwards Affidavit, Exhibit "N" at 12. 62. Maxwell is not the only important witness to lie to avoid deposition by Edwards. Upon review of the.message pads that were taken from Epstein's home in the police trash pulls, see. Exhibit "Y' supra, many were from Jean Luc Brunel, a French citizen and one of Epstein's closest pals. He left messages for Epstein. One dated 4 1 05 said, "He has a teacher for you to teach you how to speak Russian. She is 2x8 years old, not blonde. Lessons are free and you can have your lst today if you call." See Messages taken from Jean Luc Brunel are attached hereto as Exhibit "EE." In light of these circumstances of the case, this message reasonably suggested to 24 Edwards that Brunel might have been procuring two eight-year-old girls for Epstein to sexually abuse. According .to widely circulated press reports reviewed by Edwards, Brunel is in his sixties and has a reputation throughout the world (and especially in the modeling industry) as a cocaine addict that has for years molested children through modeling agencies while acting as their agent conduct that has been the subject of critical reports, books, several news articles, and a 60 Minutes documentary on Brunel's sexual exploitation of underage models. See http: bradmillershero.blogspot.com 2010 08 women-are-objects.html, attached hereto as Exhibit "FF." 63. Edwards learned that Brunel is also someone that visited Epstein on approximately 67 occasions while Epstein was in jail. See Epstein's jail visitor log attached as Exhibit "GG." 64. Edwards learned that Brunel currently runs the modeling agency MC2, a company for which Epstein provides financial support. See Message Pad's attached as Exhibit "T' supra and Sworn Statement of MC2 employee Maritza Vasquez, June 15, 2010, "Maritza Vasquez Sworn Statement" attached at Exhibit "RH" at 1-16. 65. Employees of MC2 told Edwards that Epstein's numerous condos at 301 East 66 Street in New York were used to house young models. Edwards was told that MC2 modeling agency, affiliated with Epstein and Brunel brought underage girls from all over the world, promising them modeling contracts. Epstein and Brunel would then obtain a visa for these girls, then would charge the underage girls rent, presumably to live as underage prostitutes in the condos. See Maritza Vasquez Sworn Statement, Exhibit "HH" at 7-10, 12-15, 29-30, 39-41, 59- 60 and 62-67. 25 66. In view of this infoimation suggesting Brunel could provide significant evidence of Epstein's trafficking in young girls for sexual abuse, Edwards had Brunel served in New York for deposition. See Notice of Deposition of Jean Luc Brunel attached hereto as Exhibit "II." Before the deposition took place, Brunel's attorney (Tama Kudman of West Palm Beach) contacted Edwards to delay the deposition date. Eventually Kudman informed Edwards in January 2009 that Brunel had left the country and was back in France with no plans to return. This information was untrue; Brunel was actually staying with Epstein in West Palm Beach. See Banasiak deposition, deposition attachment 16 at 154-160 and 172-175; see also pages from Epstein's probation file evidencing Jean Luc Brunel (JLB) staying at his house during that relevant period of time attached Exhibit "JJ". As a result, Edwards filed a Motion for Contempt, attached hereto as Exhibit "KK" (Because Epstein settled this case, the motion was never ruled upon.) 67. Edwards was also informed that Epstein paid for not only Brunel's representation during the civil process but also paid for legal representation for Sarah Kellen (Epstein's executive assistant and procurer of girls for him to abuse), Larry Visoski (Epstein's personal pilot), Dave Rogers (Epstein's personal pilot), Larry Harrison (Epstein's personal pilot), Louella Rabuyo (Epstein's housekeeper), Nadia Marcinkova (Epstein's live-in sex slave), Ghislaine Maxwell (manager of Epstein's affairs and businesses), Mark Epstein (Epstein's brother), and Janusz Banasiak (Epstein's house manager) It was nearly impossible to take a deposition of someone that would have helpful information that was not represented by an attorney paid for by Epstein. See Edwards Affidavit, Exhibit "N" at 11. 26 68. While Epstein and others were preventing any legitimate discovery into his sexual abuse of minor girls, at the same time he was engaging (through his attorneys) in brutal questioning of the girls who had filed civil suits against him, questioning so savage that it made local headlines. See Jane Musgrave, Victims Seeking Sex offender's Millions See Painful Pasts Used Against Them, Palm Beach Post News, Jan. 23, 2010, available at http: vvww.palmbeachpost.cominews crime victims-seeking-sex-offenders-millions-see-painfulpasts-192988.html attached hereto as Exhibit "LL." Edwards Pursues Other Lines of Discovery 69. Because of Epstein's thwarting of discovery and attacks on Edwards's clients, Edwards was forced to pursue other avenues of discovery. Edwards only pursued legitimate discovery designed. to further the cases filed against Epstein. See Edwards Affidavit, Exhibit N" 70. Edwards notified Epstein's attorneys of his intent to take Bill Clinton's deposition. Edwards possessed a legitimate basis for doing so: (a) Clinton was friends with Ghislaine Maxwell who was Epstein's longtime companion and helped to run Epstein's companies, kept images of naked underage children on her computer, helped to recruit underage children for Epstein, engaged in lesbian sex with underage females that she procured for Epstein, and photographed underage females in sexually explicit poses and kept child pornography on her computer; (b) it was national news when Clinton traveled with Epstein aboard Epstein's private plane to Africa and the news articles classified Clinton as Epstein's friend. (c) the complaint filed on behalf of Jane Doe No. 102 stated generally that she was required by Epstein to be sexually exploited by not only Epstein but also Epstein's "adult male peers, including royalty, 27 politicians, academicians, businessmen, and or other professional and personal acquaintances" categories Clinton and acquaintances of Clinton fall into. The flight logs showed Clinton traveling on Epstein's plane on numerous occasions between 2002 and 2005. See Flight logs attached hereto as Exhibit "MM." Clinton traveled on many of those flights with Ghislaine Maxwell, Sarah Kellen, and Adriana Mucinska, - all employees and or co-conspirators of Epstein's that were closely connected to Epstein's child exploitation and sexual abuse. The documents clearly show that Clinton frequently flew with Epstein aboard his plane, then suddenly stopped - raising the suspicion that the friendship abruptly ,ended, perhaps because of events related to Epstein's sexual abuse of children. Epstein's personal phone directory from his computer contains e-mail addresses for Clinton along with 21 phone numbers for him, including those for his assistant (Doug Band), his schedulers, and what appear to be Clinton's personal numbers. This information certainly leads one to believe that Clinton might well be a source of relevant infoimation and efforts to obtain discovery from him were reasonably calculated to lead to admissible evidence. See Exhibits "B", "F" "AA", "DD", and "MM" and Edwards Affidavit, Exhibit "N" at 15. 71. Bradley J. Edwards, Esq., provided notice that he intended to take the deposition of Donald Trump. Edwards possessed a legitimate basis for doing so: (a) The message pads confiscated from Epstein's home indicated that Trump called Epstein's West Palm Beach mansion on several occasions during the time period most relevant to my Edwards's clients' complaints; (b) Trump was quoted in a Vanity Fair article about Epstein as saying "I've known Jeff for fifteen years. Terrific guy," "He's a lot of fun to be with. It is even said that he likes beautiful women as much as I do, and many of them are on the younger side. No doubt about it 28 Jeffrey enjoys his social life." Jeffrey Epstein: International Moneyman of Mystery; He's pals with a passel of Nobel Prize winning scientists, CEOs like Leslie Wexner of the Limited, socialite Ghislaine Maxwell, even Donald Trump. But it wasn't until he flew Bill Clinton, Kevin Spacey, and Chris Tucker to Africa on his private Boeing 727 that the world began to wonder who he is. By Landon Thomas Jr. (See article attached hereto as Exhibit "NN") (c) Trump allegedly banned Epstein from his Maralago Club in West Palm Beach because Epstein sexually assaulted an underage girl at the club; (d) Jane Doe No. 102's complaint alleged that Jane Doe 102 was initially approached at Trump's Maralago by Ghislaine Maxwell and recruited to be Maxwell and Epstein's underage sex slave; (e) Mark Epstein (Jeffii ey Epstein's brother) testified that Trump flew on Jeffrey Epstein's plane with him (the same plane that Jane Doe 102 alleged was used to have sex with underage girls); (f) Trump had been to Epstein's home in Palm Beach; (g) Epstein's phone directory from his computer contains 14 phone numbers for Donald Trump, including emergency numbers, car numbers, and numbers to Trump's security guard and houseman. Based on this information, Edwards reasonably believed that Trump might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible. deposition. See deposition of Mark Epstein, September 21, 2009, at 48-50 (Deposition Attachment 19); See Jane Doe 102 v. Epstein, Exhibit "B"; Exhibit "F"; "Exhibit"J"; "N" and See Edwards Affidavit, Exhibit "N" at 13. 72. Edwards provided notice that he intended to depose Alan Dershowitz. Edwards possessed a legitimate basis for doing so: (a) Dershowitz is believed to have been friends with Epstein for many years; (b) in one news article Dershowitz comments that, "I'm on my 20th book... The only person outside of my immediate family that I send drafts to is Jeffrey" The 29 Talented Mr. Epstein, By Vicky Ward on January, 2005 in Published Work, Vanity Fair (See article attached as Exhibit "00"); (c) Epstein's housekeeper Alfredo Rodriguez testified that Dershowitz stayed at Epstein's house during the years when Epstein was assaulting minor females on a daily basis; (d) Rodriguez testified that Dershowitz was at Epstein's house at times when underage females where there being molested by Epstein (see Alfredo Rodriguez deposition at 278-280, 385, 426-427); (e) Dershowitz reportedly assisted in attempting to persuade the Palm Beach State Attorney's Office that because the underage females alleged to have been victims of Epstein's abuse lacked credibility and could not be believed that they were at Epstein's house, when Dershowitz himself was an eyewitness to their presence at the house; (f) Jane Doe No. 102 stated generally that Epstein forced her to be sexually exploited by not only Epstein but also Epstein's "adult male peers, including royalty, politicians, academicians, businessmen, and or other professional and personal acquaintances" categories that Dershowitz and acquaintances of Dershowitz fall into; (g) during the years 2002-2005 Alan Dershowitz was on Epstein's plane on several occasions according to the flight logs produced by Epstein's pilot and information (described above) suggested that sexual assaults may have taken place on the plane; (h) Epstein donated 30 Million one year to the university at which Dershowitz teaches. Based on this information, Edwards had a reasonable basis to believe that Dershowitz might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. See Dershowitz letters to the State Attorney's office attached as Exhibit "PP"; Deposition of Alfredo Rodriguez at 278-280; Flight Logs Exhibit "MVP; Exhibits "B" and "00"; and Edwards Affidavit, Exhibit "N" at 14. 30 73. Epstein's complaint alleges that Edwards provided notice that he wished to take the deposition of Tommy Mattola. That assertion is untrue. Mr. Mattola's deposition was set by the law firm of Searcy Denny Scarola Barnhart and Shipley. See Edwards Affidavit, Exhibit "N" at T16. 74. Edwards gave notice that he intended to take David Copperfield's deposition. Edwards possessed a legitimate basis for doing so. Epstein's housekeeper and one of the only witnesses who did not appear for deposition with an Epstein bought attorney, Alfredo Rodriguez, testified that David Copperfield was a guest at Epstein's house on several occasions. His name also appears frequently in the message pads confiscated from Epstein's house. It has been publicly reported that Copperfield himself has had allegations of sexual misconduct made against him by women claiming he sexually abused them, and one of Epstein's sexual assault victims also alleged that Copperfield had touched her in an improper sexual way while she was at Epstein's house. Mr. Copperfield likely has relevant information and deposition was reasonably calculated to lead to the discovery of admissible evidence. See Edwards Affidavit, Exhibit "N" at 17. 75. Epstein also takes issue with Edwards identifying Bill Richardson as a possible witness. Richardson was properly identified as a possible witness because Epstein's personal pilot testified to Richardson joining Epstein at Epstein's New Mexico Ranch. There was information indicating that Epstein had young girls at his ranch which, given the circumstances of the case, raised the reasonable inference he was sexually abusing these girls as he had abused girls in West Palm Beach and elsewhere. Richardson had also returned campaign donations that were given to him by Epstein, indicating that he believed that there was something about Epstein 31 with which he did not want to be associated. Richardson was not called to testify nor was he ever subpoenaed to testify. See Edwards Affidavit, Exhibit "N" at 18. 76. Edwards learned of allegations that Epstein engaged in sexual abuse of minors on his private aircraft. See Jane Doe 102 Complaint, Exhibit "B." Accordingly, Edwards pursued discovery to confirm these allegations. 77. Discovery of the pilot and flight logs was proper in the cases brought by Edwards against Epstein. Jane Doe filed a federal RICO claim against Epstein that was an active claim through much of the litigation. The RICO claim alleged that Epstein ran an expansive criminal enterprise that involved and depended upon his plane travel. Although Judge Marra dismissed the RICO claim at some point in the federal litigation, the legal team representing Edwards' clients intended to pursue an appeal of that dismissal. Moreover, all of the subjects mentioned in the RICO claim remained relevant to other aspects of Jane Doe's claims against Epstein, including in particular her claim for punitive damages. See Edwards Affidavit, Exhibit "N" at 19. 78. Discovery of the pilot and flight logs was also proper in the cases brought by Edwards against Epstein because of the need to obtain evidence of a federal nexus. Edwards's client Jane Doe was proceeding to trial on a federal claim under 18 U.S.C. 2255. Section 2255 is a federal statute which (unlike relevant state statutes) established a minimum level of recovery for victims of the violation of its provisions. Proceeding under the statute, however, required a "federal nexus" to the sexual assaults. Jane Doe had two grounds on which to argue that such a nexus existed to her abuse by Epstein: first, his use of telephone to arrange for girls to be abused; and, second, his travel on planes in interstate commerce. During the course of the litigation, 32 Edwards anticipated that Epstein would argue that Jane Doe's proof of the federal nexus was inadequate. These fears were realized when Epstein filed a summary judgment motion raising this argument. In response, the other attorneys and Edwards representing Jane Doe used the flight log evidence to respond to Epstein's summary judgment motion, explaining that the flight logs demonstrated that Epstein had traveled in interstate commerce for the purpose of facilitating his sexual assaults.. Because Epstein chose to settle the case before trial, Judge Marra did not rule on the summary judgment motion. 79. Edwards had further reason to believe and did in fact believe that the pilot and flight logs might contain relevant evidence for the cases against Epstein. Jane Doe No. 102's complaint outlined Epstein's daily sexual exploitation and abuse of underage minors as young as 12 years old and alleged that Epstein's plane was used to transport underage females to be sexually abused by him and his friends. The flight logs accordingly were a potential source of infoimation about either additional girls who were victims of Epstein's abuse or fiiends of Epstein who may have witnessed or even participated in the abuse. Based on this information, Edwards reasonably pursued the flight logs in discovery. 80. In the fall of 2009, Epstein gave a recorded interview to George Rush, a reporter with the New York Daily News about pending legal proceedings. In that interview, Epstein demonstrated an utter lack of remorse for his crimes (but indirectly admitted his crimes) by stating: People do not like it when people make good and that was one reason he (Epstein) was being targeted by civil suits filed by young girls in Florida; He (Epstein) had done nothing wrong; 33 He (Epstein) had gone to jail in Florida for soliciting prostitution for no reason; If the same thing (i.e., sexual abuse of minor girls) had happened in New York, he (Epstein) would have received only a 200 fine; Bradley J. Edwards was the one causing all of Epstein's problems (i.e., the civil suits brought by Jane Doe and other girls); L.M. came to him as a prostitute and a drug user (i.e., came to Epstein for sex, rather than Epstein pursuing her); All the girls suing him are only trying to get a meal ticket; The only thing he might have done wrong was to maybe cross the line a little too closely; He (Epstein) was very upset that Edwards had subpoenaed Ghisline Maxwell, that she was a good person that did nothing wrong (i.e., had done nothing wrong even though she helped procure young girls to satisfy Epstein's sexual desires); With regard to Jane Doe 102 v. Epstein, which involved an allegation that Epstein had repeatedly sexually abused a 15-year-old girl, forced her to have sex with his friends, and flew her on his private plane nationally and internationally for the purposes of sexually molesting and abusing her, he (Epstein) flippantly said that the case was dismissed, indicating that the allegations were ridiculous and untrue. See Affidavit of Michael J. Fisten attached hereto as Exhibit "QQ." 81. The Rush interview also demonstrated perjury (a federal crime) on the part of Epstein. Epstein lied about not knowing George Rush. See Epstein Deposition, February 17, 2010, taken in L.M. v. Jeffrey Epstein, case 50-2008-CA-028051, page 154, line 4 through 155 line 9, (Deposition .attachment 7), wherein Jeffrey Epstein clearly impresses that he does not recognize George Rush from the New York Daily News. This impression was given despite the fact that he gave a lengthy personal interview about details of the case that was tape recorded with George Rush. 34 Epstein's Harassment of Witnesses Against Hinz 82. At all relevant times Edwards has a good faith basis to believe and did in fact believe that Epstein engaged in threatening witnesses. See Incident Report, Exhibit "A" at p. 82, U.S. Attorney's Correspondence, Exhibit "C" - Indictments drafted by Federal Government against Epstein; and Edwards Affidavit, Exhibit "N" at 11. 83. Despite three no contact orders entered against Epstein (see Exhibit C, supra), Edwards learned that Epstein continued to harass his victims. For example, Jane Doe had a trial set for her civil case against him on July 19, 2010. As that trial date approached, defendant Epstein intimidated her in violation of the judicial no-contact orders. On July 1, 2010, he had a "private investigate" tail Jane Doe driving when she drove, refusing to pass when she pulled over. When Jane Doe ultimately drove to her home, the "private investigate' then parked in his car approximately 25 feet from Jane Doe house and flashed his high beam lights intermittently into the home. Even more threateningly, at about 10:30 p.m., when Jane Doe fled her home in the company of a retired police officer employed by Jane Doe's counsel, the "private investigate' attempted to follow Jane Doe despite a request not to do so. The retired officer successfully took evasive action and placed Jane Doe in a secure, undisclosed location that night. Other harassing actions against Jane Doe also followed. See Motion for Contempt filed by Edwards in Jane Doe v. Epstein detailing the event, including Fisten Affidavit attached to Motion, Composite Exhibit "RR." Epstein Settlement of Civil Claims Against Him for Sexual Abuse of Children 84. The civil cases Edwards filed against Epstein on behalf of L.M., E.W., and Jane Doe were reasonably perceived by Edwards to be very strong cases. Because Epstein had 35 sexually assaulted these girls, he had committed several serious torts against them and would be liable to them for appropriate damages. See Preceding Undisputed Facts. Because of the outrageousness of Epstein's sexual abuse of minor girls, Edwards reasonably expected that Epstein would also be liable for punitive damages to the girls. Because Edwards could show that Epstein had molested children for years and designed a complex premeditated scheme to procure different minors everyday to satisfy his addiction to sex with minors, the punitive damages would have to be sufficient to deter him from this illegal conduct that he had engaged in daily for years. Epstein was and is a billionaire. See Complaint, 49 (referring to "Palm Beach Billionaire'); see also Epstein Deposition, February 17, 2010, at 172-176 (Deposition Attachment 7) (taking the Fifth when asked whether he is a billionaire). Accordingly, Edwards reasonably believed the punitive damages that would have to be awarded against Epstein would have been substantial enough to punish him severely enough for his past conduct as well as deter him from repeating his offenses in the future. See Edwards Affidavit, Exhibit "I T at 19. 85. On July 6, 2010, rather than face trial for the civil suits that had been filed against him by L.M., E.W., and Jane Doe, defendant Epstein settled the cases against him. The kilns of the settlement are confidential. The settlement amounts are highly probative in the instant action as Epstein bases his claims that Edwards was involved in the Ponzi scheme on Epstein's inability to settle the L.M., E.W., and Jane Doe cases for "minimal value". His continued inability to settle the claims for "minimal value' after the Ponzi scheme was uncovered would be highly probative in discrediting any causal relationship between the Ponzi scheme and Edwards's settlement negotiations. See Edwards Affidavit, Exhibit 'IT' at 21. Edwards Non-Involvement in Fraud by Scott Rothstein 36 86. From in or about 2005, through in or about November 2009, Scott Rothstein appears to have run a giant Ponzi scheme at his law funi of Rothstein, Rosenfeldt and Adler P.A. ("RRA"). This Ponzi scheme involved Rothstein falsely informing investors that settlement agreements had been reached with putative defendants based upon claims of sexual harassment and or whistle-blower actions. Rothstein falsely infoinied the investors that the potential settlement agreements were available for purchase. Plea Agreement at 2, United States v. Scott W. Rothstein, No. 9-60331-CR-COHN (S.D. Fla. Jan. 27, 2010) attached hereto as Exhibit "SS." 87. It has been alleged that among other cases that Rothstein used to lure investors into his Ponzi scheme were the cases against Epstein that were being handled by Bradley J. Edwards, Esq. Edwards had no knowledge of the fraud or any such use of the Epstein cases. See Edwards Affidavit, Exhibit "N" at 9. 88. Bradley J. Edwards, Esq., joined RRA in about April 2009 and left RRA in November 2009 a period of less than one year. Edwards would not have joined RRA had he been aware that Scott Rothstein was running a giant Ponzi scheme at the firm. Edwards left RRA shortly after learning of Rothstein's fraudulent scheme. Id. at 8. 89. At no time prior to the public disclosure of Rothstein's Ponzi scheme did Edwards know or have reason to believe that Rothstein was using legitimate claims that Edwards was prosecuting against Epstein for any fraudulent or otherwise illegitimate purpose. Id. at 20. 90. Edwards never substantively discussed the merits of any of his three cases against Epstein with Rothstein. See Deposition of Bradley J. Edwards taken March 23, 2010, at 110-16. (hereinafter "Edwards Depo") (Deposition Attachment 22). 37 91. On July 20, 2010, Bradley Edwards received a letter from the U.S. Attorney's Office for the Southern District of Florida the office responsible for prosecuting Rothstein's Ponzi scheme. The letter indicated that law enforcement agencies had deteamined that Edwards was "a victim (or potential victim)" of Scott Rothstein's federal crimes. The letter infolined Edwards of his rights as a victim of Rothstein's fraud and promised to keep Edwards informed about subsequent developments in Rothstein's prosecution. See Letter attached hereto as Exhibit "TT." 92. Jeffrey Epstein filed a complaint with the Florida Bar against Bradley Edwards, Esq., raising allegations that Edwards and others were involved in the wrongdoing of Scott Rothstein. After investigating the claim, the Florida Bar dismissed this complaint. See Edwards Affidavit, Exhibit "N" at 23. Epstein Takes the Fifth When Asked Substantive Questions About His Claims Against Edwards 93. On March 17, 2010, defendant Epstein was deposed about his lawsuit against Edwards. Rather than answer substantive questions about his lawsuit, Epstein repeatedly invoked his Fifth Amendment privilege. See Epstein Depo. taken 3 17 10, Deposition Attachment 1. 94. In his deposition, Epstein took the Fifth rather than answer the question: "Specifically what are the allegations against you which you contend Mr. Edwards ginned up?" Id. at 34. 95. In his deposition, Epstein took the Fifth rather than name people in California that Edwards had tried to depose to increase the settlement value of the civil suit he was handling. Id. at 37. 38 96. In his deposition, Epstein took the Fifth rather than answer the question: "Do you know former President Clinton personally." Id. 97. In his deposition, Epstein took the Fifth rather than answer the question: "Are you now telling us that there were claims against you that were fabricated by Mr. Edwards?" Id. at 39.. 98. In his deposition, Epstein took the Fifth rather than answer the question, "Well, which of Mr. Edwards' cases do you contend were fabricated." Id. 99. In his deposition, Epstein took the Fifth rather than answer the question: "What is the actual value that you contend the claim of E.W. against you has?" Id. at 45. 100. In his deposition, Epstein took the Fifth rather than answer a question about the actual value of the claim of L.M. and Jane Doe against him. Id. 101. In his deposition, taken prior to the settlement of Edwards's clients claims against Epstein, Epstein took the Fifth rather than answer the question: "Is there any pending claim against you which you contend is fabricated?" Id. at 71. 102. In his deposition, Epstein took the Fifth rather than answer the question: "Did you ever have damaging evidence in your garbage?" Id. at 74. 103. In his deposition, Epstein took the Fifth rather than answer the question: "Did sexual assaults ever take place on a private airplane on which you were a passenger?" Id. at 88. 104. In his deposition, Epstein took the Fifth rather than answer the question: "Does a flight log kept for a private jet used by you contain the names of celebrities, dignitaries or international figures?" Id. at 89. 39 105. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever socialized.with Donald Trump in the presence of females under the age of 18?" Id. at 89. 106. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever socialized with Alan Dershowitz in the presence of females under the age of 18." Id. at 90. 107. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever socialized with Mr. Mottola in the presence of females under the age of 18T Id. at 91- 92. 108. In his deposition, Epstein took the Fifth rather than answer the question: "Did you ever socialize with David Copperfield in the presence of females under the age of 18?" Id. at 109. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever socialized with Mr. Richardson Governor of New Mexico and formerly U.S. Representative and 'Ambassador to the United Nations in the presence of females under the age of 18." Id. at 94. 110. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever sexually abused children?" Id. at 95. 111. In hiS deposition, Epstein took the Fifth rather than answer the question: "Did you have staff members that assisted you in scheduling appointments with underage females; that is, females under the age of 18." Id. at 97-98. 112. In his deposition, Epstein took the Fifth rather than answer the question: "On how many occasions did you solicit prostitution." Id. at 102. 40 113. In his deposition, Epstein took the Fifth rather than answer the question: "How many minors have you procured for prostitution?" Id. at 104. 114. In his deposition, Epstein took the Fifth rather than answer the question: "Have you ever coerced, induced or enticed any minor to engage in any sexual act with you?" Id. at 107. 115. In his deposition, Epstein took the Fifth rather than answer the question: "How many times have you engaged in fondling underage females?" Id. at 108. 116. In his deposition, Epstein took the Fifth rather than answer the question: "How many times have you engaged in oral sex with females under the age of 18?" Id. at 110. 117. In his deposition, Epstein took the Fifth rather than answer the question: "Do you have a personal sexual preference for children?" Id. at 111-12. 118. In his deposition, Epstein took the Fifth rather than answer the question: "Your Complaint at page 27, paragraph 49, says that RRA and the litigation team took an emotionally driven set of facts involving alleged innocent, unsuspecting, underage females and a Palm Beach billionaire, and sought to turn it into a goldmine,' end of quote. Who is the Palm Beach billionaire referred to in that sentence?" Id. at 112-13. 119. In his deposition, Epstein took the Fifth rather than answer the question: "Who are the people who are authorized to make payment to your lawyers on your behalf?" Id. at 120. 120. In his deposition, Epstein took the Fifth rather than answer the question: "Is there anything in L.M.'s Complaint that was filed against you in September of 2008 which you contend to be false?" Id. at 128. 41 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on November , 2010 a copy of the foregoing has been served via Fax and U.S. Mail to all those on the attached service list. Jack Scarola Searcy, Denney, Scarola, Barnhart Shipley 2139 Palm Beach Lakes Blvd West Palm Beach, FL 33409 (561) 686- 0 (561 (fax) By: JAC AROLA Flo ar No.: 169440 42 SERVICE LIST Christopher E. Knight, Esq. Joseph L. Ackerman, Esq. FOWLER WHITE BURNETT P.A. 901 Phillips Point West 777 South Flagler Drive West Palm Beach, FL 33401 Jack Alan Goldberger, Esq. Atterbury Goldberger et al. 250 Australian Avenue South Suite 1400 West Palm Beach, FL 33401 Marc S. Nurik, Esq. Law Offices of Marc S. Nurik One E. Broward Blvd., Suite 700 Fort Lauderdale, FL 33301 Gary M. Farmer, Jr. Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman, P.L. 425 N. Andrews Ave., Suite 2 Fort Lauderdale, FL 33301 43 DEFENDANT BRADLEY J. EDWARDS'S STATEMENT OF UNDISPUTED FACTS Epstein v. Edwards, et al. Case No.: 50 2009 CA 040800200UMBAG HII AFFIDAVIT OF RADLEY JAMES EDWARDS 1. I am an attorney in good standing with the Florida Bar and admitted to practice in the Southern District of Florida. I am currently a partner in the law firm of Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman, P.L. 2. In 2008, I was a sole practitioner running a perso injury law l in Hollywood, FL. While a sole practitioner I was retained by three clients, L.M., E.W., and Jane Doe to pursue civil litigation against Je ey Epstein for sexually abusing them while ey were inor girls. I agreed to represent these girls, along wi y. attorney Jay Howell (an attorney in Jacksonville, Florida with Jay Howell Associates) and Professor Paul Cassell (a law professor at the University of Utah College Of Law). I filed s e court actions on behalf of L.M. and E.W. and a federal court action on behalf of Jane Doe. All of the cases were filed in the summer of 2008. 3. My clients received correspondence from the U.S. Department of Justice regarding their rights as victims of Epstein's federal sex offenses. (True and accurate copies of the letters are attached to Statement of Undisputed Facts as Exhibit "M") 4. mid June 2008, I contacted Assistant United States Attorney Marie Villafafia to inform her I represented Jane Doe 1(E.W.) and, later, Jane Doe 2(L.M.). I asked to meet to provide information regarding Epstein. AUSA Villafafia did not advise me that a plea agreement had already been negotiated with Epstein's attorneys that would block federal prosecution. AUSA Villafafia 'd indicate that federal inve 'gators h concrete evidence and information that Epstein had sexually molested at least 40 underage rainor females, including EN., Jule Doe and L.M. 5. I also requested from the U.S. Attorney's Office the information and evidence that they had collected regarding Epstein's sexual abuse of his clients. However, the U.S. Attorney's Office declined to provide any such information to me. The U.S. Attorney's Office also declined to provide any such information to the other attorneys who represented victims of Epstein's sexusl assaults. 6. I was informed that on Friday, June 27, 2008, at approximately 4:15 p.m., AUSA Villafafia received a copy of Epstein's proposed state plea agreement and learned that the plea was scheduled for 8:30 a.m., Monday, June 30, 2008. She called me to provide notice to my clients regarding the hearing. She did not tell me that the guilty pleas in state court would bring an end to the possibility of federal prosecution pursuant to the plea agreement. My clients did not learn and understand this fact until July 11, 2008, when the agreement was described during a hearing held before Judge Marra on the Crime Victims' Rights Act action that I had filed. 7. In the summer of 2008 I filed complaints against Jeffwy Epstein on behalf of L.M., E.W., and Jane Doe. 8. In the Spring of 2009 (approximately April), I joined the law farm of Rothstein, Rosenfeldt and Adler, P.A. ("RRA"). I brought my existing clients with me when I joined RRA, including L.M., E.W., and Jane Doe. When I joined the firm, I was not aware that Scott Rothstein was running a Ponzi scheme at RRA. Had I known such a Ponzi scheme was in place, I would never have joined RRA. 9. I am now aware that it has been alleged that Scott othstein made fraudulent presentations to investors about the lawsuits that I had filed on be of my clients against Epstein and that it has been alleged that these lawsuits were used to fraudulently lure investors into Rothstein's Ponzi scheme. I never met a single investor, h: no part in any such presentations and had no knowledge any such fraud was occurring. If these allegations are true, I had no knowledge any such fraudulent presentations were occurring and no kn wledge of any such improper use of the case files. 10. Epstein's Complaint against me alleges that Rothstein made false statements about cases filed against Epstein, i.e., that RRA 50 anonymous females who had filed suit against Epstein; that Rothstein sold an interest in personal injury lawsuits, reached agreements to share attorneys fees with non-lawyers, paid clients tip front" money; and that he used the judici process to further his Ponzi scheme. If Rothstein did any of these things, I h no knowledge of his actions. Because I maintained close contact with my clients, EW, LM and Jane Doe, and Scott Rothstein never met any of them, I know for certain that none of my clients were paid ''up front" money by anyone. 11. Epstein alleges that I attempted to take the depositions of his "high profile friends and accpnkintances" for no legitimate litigation purpose. This is untrue, as all of my actions in representing L.M., E.W., and Jane Doe were aimed at providing them effective representation in their civil suits. With regard to Epstein's friends, through documents and information obtained in discovery and other means of investigation, I learned that Epstein was sexually itolesting 'nor girls on a daily basis and h been for many years. I also learned the unsurprising fact that he was molesting the girls in the privacy of his mansion in West Palm Beach, meaning that locating witnesses to corroborate their testimony would be difficult to find. I also learned, from the course of the litigation, that Epstein and his lawyers were constantly attacking the credibility of the girls, that Epstein's employees were all represented by lawyers who apparently were paid for (directly or indirectly) by Epstein, that co-conspirators whose represen :.tion was also apparently paid for by Epstein were all taking the Fifth (like Epstein) rather than provide information in discovery. For example, I was given reason to believe that Sarah Kellen, Larry Visoski, Larry Harrison, David Rogers, Louella Rabuyo, Nadia Marcinkova, Ghislaine Maxwell, Mark Epstein, and Janusz Banasiak all had lawyers paid for by Epstein. Because Epstein and the co-conspirators in his child molestation criminal enterprise blocked normal discovery avenues, I needed to search for other ordinary approaches to strengthen the cases of my clients. Consistent with my training and experience, these other ordinary approaches included finding other witnesses who could corroborate allegations of sexual abuse of my clients or other girls. Some of these witnesses were friends of Epstein. Given his social status, it also turned out that some of his friends were high-profile. individuals. 12. In light of information I received suggesting that British socialite Ghislaine Maxwell, former girlfriend and long-time friend of Epstein's, was involved in managing Epstein's affairs and companies I had her served for deposition for August 17, 2009. (Deposition Notice attached to Statement of Undisputed Facts as Exhibit B). Maxwell was represented by Brett Jaffe of the New York firm of Cohen and Gresser, and I understood that her attorney was paid for (directly or indirectly) by Epstein. She was reluctant to give her deposition, and I tried to work with her attorney to take her deposition on terms that would be acceptable to both sides. er attorney and I negotiated a confidentiality agreement, under which Maxwell agreed to drop any objections to the deposition. Maxwell, however, still avoided the deposition. On June 29, 2010, one y before I was to fly to NY to take Maxwell's deposition, her attorney informed me that Maxwell's mother was deathly ill and Maxwell was consequently flying to England with no inteh tion of returning and certainly would not return to the United S tes before the conclusion of Jane Doe's trial period (August 6, 2010). Despite that assertion, I later learned that Ghislaine Maxwell was in fact in the country on approximately July 31, 2010, as she attended s e wedding of Chelsea Clinton (former President Clinton's daughter) and was captured in a photograph taken for US Weekly 'magazine. 13. Epstein alleges that there was something improper in the fact that I notified him that I intended to take Donald Trump's deposition in the civil suits against him. Trump was properly noticed because: (a) after review of the message pads confiscated from Epstein's home, the legal and investigative team assisting my clients learned that Trump called Epstein's West Palm Beach mansion on several occasions during the time period most relevant to my clients' complaints; (b) Trump was quoted in a Vanity Fair article about Epstein as saying "I've known Jeff for fifteen years. Terrific guy." "He's a lot of fu a to be with. It is eve said that he likes beau I wo en as much as I do, and a y of then are on the you ger side. No doubt about it Jeffrey enjoys his social life." Jeffrey Epstein: International Moneyman of Mystery; He's pals with a passel of Nobel Prize wi ning scientists, CEOs like Leslie Wexner of the Limited, socialite Ghislaine Maxwell, even Donald Trump. But it wasn't until he flew Clinton, Kevin Spacey, awed Chris Tucker to Africa on his private Boeing 727 that the world began to wonder who he is. By Lando Thomas Jr.; (c) I learned through a source that Trump banned Epstein from his Maralago Club in West Pahn Beach because Epstein sexually assaulted an underage girl at the club; (d) Jane Doe No. 102's complaint alleged that Jane Doe 102 was initially approached at Trump's Maralago by Ghislaine Maxwell and recruited to be Maxwell and Epstein's underage sex slave; (e) Mark Epstein (Jefftzy Epstein's brother) testified that Trump flew on Jeffrey Epstein's plane with him (the same plane that Jane Doe 102 alleged was used to have sex with underage girls) deposition of Mark Epstein, September 21, 2009 at 48-50; (f) Trump visited Epstein at his home in Palm Beach the same home where Epstein abused minor girls daily; (g) Epstein's phone directory from his computer contains 14 phone numbers for Donald Trump, including emergency numbers, car numbers, and numbers to Trump's security guard and houseman. Based on this information, I believed that Trump might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 14. Epstein alleges that there was something improper in the fact that I notified him that I intended to take Alan Dershowi's deposition in the civil suits against him. IDershowitz was properly noticed because: (a) Dershowitz has been friends with Epstein for many years; (b) in one news article Dershowitz comments t, "I'm on my 20th book... The only person outside of my immediate family that I send drafts to is Jeffrey" The Talented Mr. Epstein, By Vicky Ward on J uary, 2005 in Published Work, Vanity Fair; (c) Epstein's housekeeper Alfredo Rodriguez testified that Dershowitz stayed at Epstein's house during the years most relev t to my clients; (d) Rodriguez testified that Dershowitz was at Epstein's house at times when underage females where there being molested by Epstein (see Alfredo Rodriguez deposition at 278-280, 385, 426 427); (e) Dershowitz was reportedly involved in persuading the Palm Beach State Attorney's office ot to file felony criminal charges against Epstein because underage females lacked credibility and thus could not be believed that they were at Epstein's house, despite him being an eyewitness that the underage girls were actually there; (f) Jane Doe No. 102 stated generally that Epstein forced her to be sexually exploited by not only Epstein but also Epstein's "adult male peers, includhag royalty, politicians, academicians, businessmen, and or other professional and personal acquaintances" categories that Dershowitz and acquaintances of Dershowitz fall into; (g) during the years 2002-2005 Alan Dershowitz was on Epstein's plane on several occasions according to the flight logs produced by Epstein's pilot and information (described above) suggested that sexual assaults may have taken place on the plane; (h) Epstein donated Harvard 30 Million dollars one year, and Harvard was one of the only institutions that did not return Epstein's donation after he was charged with sex offenses against children. Based on this information, I believed that Dershowitz might have relevant information to provide in e cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 15. Epstein alleges that there was something improper in the fact that I notified him that I intended to take Bill Clinton's deposition. Clinton was properly noticed because: (a) it was well known that Clinton was friends with Ghislaine Maxwell, and several witnesses had provided information that Maxwell helped to run Epstein's companies, kept images of naked underage children on her computer, helped to recruit underage children for Epstein, engaged in lesbian sex with underage females that she procured for Epstein, and photographed underage females in sexually explicit poses and kept child pornography on her computer; (b) newpaper articles stated that Clinton had an affair with Ghislaine Maxwell, who was thought to be second in charge of Epstein's child molestation ring. The Cleveland Leader newspaper, April 10, 2009; (c) it was national news when Clinton traveled with Epstein (and Maxwell) aboard Epstein's private plane to Africa and the news articles classified Clinton as Epstein's friend; (d) the flight logs for the relevant years 2002 - 2005 showed Clinton traveling on Epstein's plane on more than 10 occasions and his assistant, Doug Band, traveled on many more occasions; (e) Jane Doe No. 102 stated generally that she was required by Epstein to be sexually exploited by not only Epstein but also Epstein's "adult male peers, including royalty, politicians, academicians, businessmen, and or other professional and personal acquaintances" categories Clinton and acquaintances of Clinton fall into; (f) flight logs showed that Clinton took many flights with Epstein, Ghislaine Maxwell, Sarah Kellen, and Adriana Mucinska, were closely .connected to Epstein's child exploitation and sexual abuse; (g) Clinton frequently flew with Epstein aboard his plane, then suddenly stopped raising the suspicion that the friendship abruptly ended, perhaps because of events related to Epstein's sexual abuse of children; (h) Epstein's personal phone directory from his computer contains e-mail addresses for Clinton along with 21 phone numbers for him, including those for his assistant (Doug Band), his schedulers, and what appear to be Clinton's personal numbers. Based on this information, 1 believed that Clinton might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 16. Epstein alleges that Tommy Mottola was improperly noticed with a deposition. 1 did not notice Mattola for deposition. He was noticed for deposition by a law firm representing another one of Epstein's victims not by me. 17. Epstein alleges that ere was something improper in the fact that 1 notified him intended to take the illusionist David Copperfield's deposition. Copperfield was properly noticed because: (a) Epstein's housekeeper Alfredo Rodriguez testified that David Copperfield was a guest on several occasions Epstein's house; (b) according to the message pads confiscated from Epstein's house, Copperfield called Epstein quite frequently and left messages that indicated they socialized together; (c) Copperfield himself has had similar allegations made against him by women claiming he sexually abused them; (d) one of Epstein's sexual assault victims also alleged that Copperfield had touched her in an improper sexual way while she was at Epstein's house. eased on this information, believed that Copperfield might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 18. Epstein alleges that there was something improper in the fact that 1 identified Bill Richardson as a possible witness against him in the civil cases. Richardson was properly identified as a possible witness because Epstein's personal pilot testified to Richardson joining Epstein at Epstein's New Mexico Ranch. See deposition of Larry Morrison, October 6, 2009, at 167-169. There was information indicating that Epstein had young girls at his ranch which, given the circumstances of the case, raised the reasonable inference he was sexually abusing these girls since he had regularly and frequently abused girls in West Palm Beach and elsewhere. Richardson had also returned campaign donations that were given to him by Epstein, in 'eating that he believed that there was something about Epstein that he did not want to be associated with. Richardson was not called to testify nor was he ever subpoenaed to testify. 19. Epstein alleges that discovery of plane and pilot logs was improper during discovery in the civil cases against him. Discovery of these subjects was clearly proper and necessary because: (a) Jane Doe filed a federal RICO claim against Epstein that was an active claim through much of the litigation. The RICO claim alleged that Epstein ran an expansive criminal enterprise that involved and depended upon his plane travel. Although Judge Marra dismissed the RICO claim at some point in the federal litigation, the legal team representing my clients intended to pursue an appeal of that dismissal. Moreover, all of the subjects mentioned in the RICO claim remained relevant to other aspects of Jane Doe's claims against Epstein, including in particular her claim for punitive damages; (b) Jane Doe also filed and was proceeding to trial on a federal claim under 18 U.S.C. 2255. Section 2255 is a federal statute which (unlike other state statutes) guaranteed a minimum level of recovery for Jane Doe. Proceeding under the statute, however, required a "federal nexus" to the sexual assaults. Jane Doe had two grounds on which to argue that such a nexus existed to her abuse by Epstein: first, his use of the telephone to arrange for girls to be abused; and, seco d, his vel on planes in interstate commerce. During the course of the litigation, I anticipated that Epstein would argue that Jane Doe's proof of the federal nexus was inadequate. These fears were realized when Epstein filed a summary judgment motion raising this argument. In response, the other attorneys and I representing Jane Doe used the flight log evidence to res nd to Epstein's summary judgment motion, explaining that the flight logs demonstrated that Epstein had traveled in interstate commerce for the purpose of facilitating his sexual assaults. Because Epstein chose to settle the case before trial, Judge Marra did not rule on the summary judgment motion. (c) Jane Doe No. 102's complaint outlined Epstein's daily sexual exploitation and abuse of underage minors as young as 12 years old and alleged that he used his plane to transport underage females to be sexually abused by him and his friends. The flight logs accordingly rnight have information about either additional girls who were victims of Epstein's abuse or 'ends of Epstein who may have witnessed or even participated in the abuse. Based on this information, I believed that the flight logs and related information was relevant informatio to prove e cases against Jeffrey Epstein and accordingly I pursued them in discovery. 20. In approximately November 2009, the existence of Scott Rothstein's Ponzi scheme became public knowledge. It was at that time that I, o,i, g with many other reputable attorneys at RRA, first became aware of Rothstein criminal scheme. At that time, I left RRA with several other RRA attorneys to form the law firm of Farmer Jaffe Weissing Edwards Fistos and Lehrman ("Farmer Jaffe"). I was thus with RRA for less than one year. 21. In July 2010, along with other attorneys at Farmer Jaffe and Professor Cassell, I reached favorable settlement terms for my three clients L.M., E.W., and Jane Doe in their lawsuits against Epstein. 22. On July 20, 2010, I received a letter from the U.S. Attorney's Office for the Southern District of Florida the office responsible for prosecuting Rothstein's Ponzi scheme. The letter indicated that law enforcement agencies had determined that I was "a victim (or potential victim)" of Scott Rothstein's federal crimes. The letter informed me of my rights as a victim of Rothstein's federal crimes and promised to keep me informed about 01 subsequent developments in his prosecution. A copy of this letter is attached to this Affidavit. (A copy of the letter is attached to Statement of Undisputed Facts as Exhibit UU) 23. Jeffrey Epstein also filed a complaint with the Florida Bar against me. His complaint alleged that I had been involved in Rothstein's scheme and had thereby violated various rules of professional responsibility. The Florida Bar investigated and dismissed the complaint. 24. I have reviewed the Statement of Undisputed Facts filed contem raneously with this Affidavit. Each of the assertions concerning what I learned, what I did, and the good faith beliefs formed by me in the course of my prosecutions of claims against Jeffrty Epstein as contained in the Statement of Undisputed Facts is true, and the foundations set out as support for my beliefs are true and correct to e best of my knowledge. 25. All actions taken by me in the course of my prosecution of claims against Jeffrey Epstein were based upon a good faith belief that they were reasonable, necessary, and ethically proper to fulfill my obligation to zealously represent the interests of my clie ts. I declare under penalty of perjury that the foregoing is true and correct. Dated: .24 2010 IN THE CIRCUIT COURT OF THE 15TH JUDICIAL CIRCUIT IN AND FOR PALM BEACH COUNTY, FLORIDA Case No.: 50 2009CA 040800)0OCKMBAG JEFFREY EPSTEIN, Plaintiff, vs. SCOTT ROTHSTEIN, individually, and BRADLEY J. EDWARDS, individually, Defendants, DEFENDANT BRADLEY J. EDWARDS'S RENEWED MOTION FOR FINAL SUMMARY JUDGMENT Defendant, Bradley J. Edwards, Esq., by and through his undersigned counsel and pursuant to Rule 1.510, Florida Rules of Civil Procedure, hereby moves for Final Summary Judgment and in support thereof states as follows: I. INTRODUCTION The pleadings and discovery taken to date show that there is no genuine issue as to any material facts and that Bradley J. Edwards, Esq. is entitled to summary judgment for all claims brought against him in Plaintiff Jeffrey Epstein's Second Amended Complaint. Not only is there an absence of competent evidence to demonstrate that Edwards participated in any fraud against Epstein, the evidence uncontrovertibly demonstrates the propriety of every aspect of Edwards' involvement in the prosecution of legitimate claims against Epstein. Epstein sexually abused three clients of Edwards L.M., E.W., and Jane Doe and Edwards properly and successfully represented them in a civil action against Epstein. Nothing in Edwards's capable and competent representation of his clients can serve as the basis for a civil lawsuit against him. Allegations about Edwards's participation in or knowledge of the use of the civil actions against Epstein in a "Ponzi Scheme" are not supported by any competent evidence and could never be supported by competent evidence as they are entirely false. A. Epstein's Complaint Epstein's Second Amended Complaint essentially alleges that Epstein was damaged by Edwards, acting in concert with Scott Rothstein (President of the Rothstein Rosenfeldt Adler law fiiiii ("RRA") where Edwards worked for a short period of time). Epstein appears to allege that Edwards joined Rothstein in the abusive prosecution of sexual assault cases against Epstein to "pump" the cases to Ponzi scheme investors. As described by Epstein, investor victims were told by Rothstein that three minor girls who were sexually assaulted by Epstein: L.M., E.W., and Jane Doe were to be paid up-front money to prevent those girls from settling their civil cases against Epstein. In Epstein's view, these child sexual assault cases had "minimal value" (Complaint 42(h)), and Edwards's refusal to force his clients to accept modest settlement offers is claimed to breach some duty that Edwards owed to Epstein. Interestingly, Epstein never states that he actually made any settlement offers. The supposed "proof' of the Complaint's allegations against Edwards includes Edwards's alleged contacts with the media, his attempts to obtain discovery from high-profile persons with whom Epstein socialized, and use of "ridiculously inflammatory" language in arguments in court. Remarkably, Epstein has filed such allegations against Edwards despite the fact that Epstein had sexually abused each of Edwards's clients and others while they were 2 minors. Indeed, in discovery Epstein has asserted his Fifth Amendment privilege rather than answer questions about the extent of the sexual abuse of his many victims. Even more remarkably, since filing his suit against Edwards, Epstein has now settled the three cases Edwards handled for an amount that Epstein insisted be kept confidential. Without violating the strict confidentiality terms required by Epstein, the cases did not settle for the "minimal value" that Epstein suggested in his Complaint. Because Epstein relies upon the alleged discrepancy between the "minimal value Epstein ascribed to the claims and the substantial value Edwards sought to recover for his clients, the settlement amounts Epstein voluntarily agreed to pay while these claims against Edwards were pending will be disclosed to the court in-camera. B. Summary of the Argument Bradley J. Edwards, Esq., is entitled to summary judgment on Epstein's frivolous claim for at least three separate reasons. First, because Epstein has elected to hide behind the shield of his right against self incrimination to preclude his disclosing any relevant information about the criminal activity at the center of his claims, he is barred from prosecuting this case against Edwards. Under the well-established "sword and shield" doctrine, Epstein cannot seek damages from Edwards while at the same time asserting a Fifth Amendment privilege to block relevant discovery. His case must therefore be dismissed. Second, all of Edwards' conduct in the prosecution of valid claims against Epstein is protected by the litigation privilege. Third, and most fundamentally, Epstein's lawsuit should be dismissed because it is not only unsupported by but is also directly contradicted by all of the record evidence. From the 3 beginning, Edwards diligently represented three victims of sexual assaults perpetrated by Epstein. As explained in detail below, each and every one of Edwards's litigation decisions was grounded in proper litigation judgment about the need to pursue effective discovery against Epstein, particularly in the face of Epstein's stonewalling tactics. Edwards's successful representation finally forced Epstein to settle and pay appropriate damages. Effective and proper representation of child victims who have been repeatedly sexually assaulted cannot form the basis of a separate, ! satellite" lawsuit, and therefore Edwards is entitled to summary judgment on these grounds as well. The truth is the record is entirely devoid of any evidence to support Epstein's claims and is completely and consistently corroborative of Edwards's sworn assertion of innocence. Put simply, Epstein has.made allegations that have no basis in fact. To the contrary, his lawsuit was merely a desperate measure by a serial pedophile to prevent being held accountable for repeatedly sexually abusing minor females. Epstein's ulterior motives in filing and prosecuting this lawsuit are blatantly obvious. Epstein's behavior is another clear demonstration that he feels he lives above the law and that because of his wealth he can manipulate the system and pay for lawyers to do his dirty work - even to the extent of having them assert baseless claims against other members of the Florida Bar. Epstein's Second Amended Complaint against Edwards is nothing short of a far-fetched fictional fairy-tale with absolutely no evidence whatsoever to support his preposterous claims. It was his last ditch effort to escape the public disclosure by Edwards and his clients of the nature, extent, and sordid details of his life as a serial child molester. Edwards's Motion for Summary Judgment should be granted without equivocation. 4 ARGUMENT II. EDWARDS IS ENTITLED TO SUMMARY JUDGMENT ON EPSTEIN'S CLAIM BECAUSE THERE ARE NO MATERIAL DISPUTED FACTS AND THE UNDISPUTED FACTS ESTABLISH THAT EDWARDS'S CONDUCT COULD NOT POSSIBLY FORM THE BASIS OF ANY LIABILITY IN FAVOR OF EPSTEIN A. The Summary Judgment Standard. Rule 1.510(c), Florida Rules of Civil Procedure, provides that a court may enter summary judgment when the.pleadings, depositions and factual showings reveal that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. See Snyder v. Cheezem Development Corp., 373 So. 2d 719, 720 (Fla. 2d DCA 1979); Rule 1.510(c), Fla. R. Civ. P. Once the moving party conclusively establishes that the nonmoving party cannot prevail, it is incumbent on the nonmoving party to submit evidence to rebut the motion for summary judgment. See Holl v. Talcott, 191 So. 2d 40, 43 (Fla. 1966). It is not enough for the opposing party merely to assert that an issue of fact does exist. Fisel v. 11Tynns, 667 So.2d 761, 764 (Fla.1996); Landers v. Milton, 370 So.2d 368, 370 (F1a.1979) (same). Moreover, it is well-recognized that the non-moving party faced with a summary judgment motion supported by appropriate proof may not rely on bare, conclusory assertions found in the pleadings to create an issue and thus avoid summary judgment. Instead, the party must produce counter-evidence establishing a genuine issue of material fact. See Bryant v. Shands Teaching Hospital and Clinics, Inc., 479 So.2d 165, 168 (Fla. 1st Dist. Ct. App. 1985); see also Lanzner v. City of North Miami Beach, 141 So.2d 626 (Fla. 3d Dist Ct. App. 1962) (recognizing that mere contrary allegations of complaint were not sufficient to preclude summary judgment on basis of facts established without dispute). Where the nonmoving party fails to 5 present evidence rebutting the motion for summary judgment and there is no genuine issue of material fact, then entry of judgment is proper as a matter of law. See Davis v. Hathaway, 408 So. 2d 688, 689 (Fla. 2d Dist. Ct. App. 1982); see also Holl, 191 So. 2d at 43. B. Epstein's Claim Regarding Edwards Have Absolutely No Factual Basis. This is not a complicated case for granting summary judgment. To the contrary, this is a simple case for summary judgment because each and every one of Epstein's claim against Edwards lacks any merit whatsoever.' 1. Epstein's allegations regarding Edwards' involvement in Rothstein's "Ponzi Scheme" are unsupported and unsupportable because he was simply not involved in any such scheme. a. Edwards Had No Involvement in the Ponzi Scheme. The bulk of Epstein's claims against Edwards hinge on the premise that Edwards was involved in a Ponzi scheme run by Scott Rothstein. Broad allegations of wrongdoing on the part of Edwards are scattered willy-nilly throughout the complaint. None of the allegations provide any substance as to how Edwards actually assisted the Ponzi scheme, and allegations that he "knew or should have known" of its existence are based upon an impermissible pyramiding of inferences. In any event, these allegations all fail for one straightforward reason: Edwards was simply not involved in any Ponzi scheme. He has provided sworn testimony and an affidavit in support of that assertion, and there is not (and could never be) any contrary evidence. Edwards has now been deposed at length in this case. As his deposition makes crystal clear, he had no knowledge of any fraudulent activity in which Scott Rothstein may have been I A decision by the Court to grant summary judgment on Epstein's claims against Edwards would not affect Epstein's claims against Scott Rothstein. Epstein has already chosen to dismiss all of his claims against L.M., the only other defendant named in the suit. 6 involved. See, e.g., Edwards Depo. at 301-02 (Q: " . . . W ere you aware that Scott Rothstein was trying to market Epstein cases . . . ?" A: "No."). Edwards has supplemented his deposition answers with an Affidavit that declares in no uncertain terms his lack of involvement in any fraud perpetrated by Rothstein. See, e.g., Edwards Affidavit attached to Statement of Undisputed Material Facts as Exhibit '1 1' at 8-10, 20, 22-23. Indeed, no reasonable juror could find that Edwards was involved in the scheme, as Edwards joined RRA well after Rothstein began his fraud and would have been already deeply in debt. In fact, the evidence of Epstein's crimes is now clear, and Edwards's actions in this case were entirely in keeping with his obligation to provide the highest possible quality of legal representation for his clients to obtain the best result possible. In view of this clear evidence rebutting all allegations against him, Epstein must now "produce counter-evidence establishing a genuine issue of material fact." See Bryant v. Shands Teaching Hospital and Clinics, Inc., 479 So.2d 165, 168 (Fla. 1st Dist. Ct. App. 1985). Epstein cannot do this. Indeed, when asked at his deposition whether he had any evidence of Edwards's involvement, Epstein declined to answer, purportedly on attorney-client privilege grounds: Q. I want to know whether you have any knowledge of evidence that Bradley Edwards personally ever participated in devising a plan through which were sold purported confidential assignments of a structured payout settlement? . . . A. I'd like to answer that question by saying that the newspapers have reported that his firm was engaged in fraudulent structured settlements in order to fleece unsuspecting Florida investors. With respect to my personal knowledge, I'm unfortunately going to, today, but I look forward to at some point being able to disclose it, today I'm going to have to assert the attorney client privilege. See Deposition of Jeffrey Epstein, Mar. 17, 2010 (hereinafter "Epstein Depo.") at 67-68. Therefore summary judgment should be granted for Edwards on all claims involving any Ponzi scheme by Rothstein. 7 b. Epstein's Allegations of Negligence by Edwards are Unfounded and Not Actionable in Any Event. In his Second Amended Complaint Epstein recognizes at least the possibility that Edwards was not involved in any Rothstein Ponzi scheme. Therefore, seemingly as a fallback, Epstein alleges without explanation that Edwards "should have known" about the existence of this concealed Ponzi scheme. Among other problems, this fallback negligence position suffers the fatal flaw that it does not link at all to the intentional tort of abuse of process alleged in the complaint. Epstein's negligence claim is also deficient because it simply fails to satisfy the requirements for a negligence cause of action: "Four elements are necessary to sustain a negligence claim: 1. A duty, or obligation, recognized by the law, requiring the defendant to conform to a certain standard of conduct, for the protection of others against unreasonable risks. 2. A failure on the defendant's part to conform to the standard required: a breach of the duty . . . 3. A reasonably close causal connection between he conduct and the resulting injury. This is what is commonly known as 'legal cause,' or 'proximate cause,' and which includes the notion of cause in fact. 4. Actual loss or damage. Curd v. MOsaic Fertilizer, LLC, S o.2d , 2010 WL 2400384 at 9 (Fla. 2010). Epstein does not allege a particular duty on the part of Edwards that has been breached. Nor does Epstein explain how any breach of the duty might have proximately caused him actual damages. Summary judgment is therefore appropriate for these reasons as well. Finally, for the sake of completeness, it is worth noting briefly that no reasonable jury could find Edwards to have been negligent in failing to anticipate that a managing pal tner at his law firm would be involved in an unprecedented Ponzi scheme. Scott Rothstein deceived not 8 only Edwards but also more than 60 other reputable lawyers at a major law firm. Cf . Sun Sentinel, Fort Lauderdale, Dec. 11, 2009, 2009 WLNR 25074193 at 1 ("Sure, some outlandish John Grisham murder plot s sound far-fetched. But if you asked me a few months ago if Scott Rothstein was fabricating federal court orders and forging a judge's signature on documents to allegedly fleece his friends, as federal prosecutors allege, I would have said that was far-fetched, too."). No reasonable lawyer could have expected that a fellow member of the bar would have been involved in such a plot. Nobody seemed to know of Rothstein's Ponzi scheme, not even his best friends, or the people he did business with on a daily basis, or even his wife. Many of the attorneys at RRA had been there for years and knew nothing. Edwards was a lawyer at RRA for less than 8 months and had very few personal encounters with Rothstein during his time at the firm, yet Epstein claims that he should have known of Rothstein's intricate Ponzi scheme. No doubt for this reason the U.S. Attorney's Office has now listed Edwards as a "victim" of Rothstein's crimes. See Statement of Undisputed Facts filed contemporaneously. Epstein's Complaint does not offer any specific reason why a jury would conclude that Edwards was negligent, and he chose not to offer any explanation of his claim at his deposition. Accordingly, Edwards is entitled to summary judgment to the extent the claim against him is somehow dependent upon his negligence in failing to discover Rothstein's Ponzi scheme. 2. Edwards is Entitled to Summary Judgment to the Extent the Claim Against Him is Dependent on Allegations Regarding "Pumping the Cases" Because He Was Properly Pursuing the Interests of His Three Clients Who Had Been Sexually Abused by Epstein. Epstein alleges that Edwards somehow improperly enhanced the value of the three civil cases he had filed against Epstein. Edwards represented three young women L.M., E.W., and Jane Doe by filing civil suits against Epstein for his sexual abuse of them while they were 9 minors. Epstein purports to find a cause of action for this by alleging that Edwards somehow was involved in "'pumping' these three cases to investors." As just explained, to the extent that Epstein is alleging that Edwards somehow did something related to the Ponzi scheme, those allegations fail for the simple reason that Edwards was not involved in any such scheme. Edwards, for example, could not have possibly "pumped" the cases to investors when he never participated in any communication with investors. Epstein's "pumping" claims, however, fail for an even more basic reason: Edwards was entitled indeed ethically obligated as an attorney to secure the maximum recovery for his clients during the course of his legal representation. As is well known, lals an advocate, a lawyer zealously asserts the client's position under the rules of the adversary system." Fla. Rules of Prof. Conduct, Preamble. Edwards therefore was required to pursue (unless otherwise instructed by his clients) a maximum recovery against Epstein. Edwards, therefore, cannot be liable for doing something that his ethical duties as an attorney required.2 Another reason that Epstein's claims that Edwards was "pumping" cases for investors fails is that Edwards filed all three cases almost a year before he was hired by RRA or even knew of :Scott Rothstein. Epstein makes allegations that the complaints contained sensational allegations for the purposes of luring investors; however, language in the complaints remained virtually unchanged from the first filing in 2008 and from the overwhelming evidence the Court can see for itself that all of the facts alleged by Edwards in the complaints were true. Epstein ultimately paid to settle all three of the cases Edwards filed against him for more money than he paid to settle any of the other claims against him. At Epstein's request, the terms 2 In a further effort to harass Edwards, Epstein also filed a bar complaint with the Florida Bar against Edwards. The Florida Bar has dismissed that complaint. See Statement of Undisputed Facts. 10 of the settlement were kept confidential. The sum that he paid to settle all these cases is therefore not filed with this pleading and will be provided to the court for in-camera review. Epstein chose to make this payment as the result of a federal court ordered mediation process, which he himself sought (over the objection of Jane Doe, Edwards' client in federal court) in an effort to resolve the case. See Defendant's Motion for Settlement Conference, or in the Alternative, Motion to Direct Parties back to Mediation, Doe v. Epstein, No. 9:08-CV-80893 (S.D. Fla. June 28, 2010) (Marra, J.) (doc. 168) attached hereto as Exhibit A. Notably, Epstein sought this settlement conference and ultimately made his payments as a result of that conference - in July 2010, more than seven months after he filed this lawsuit against Edwards. Accordingly, Epstein could not have been the victim of any scheme to "pump" the cases against him, because he never paid to settle the cases until well after Edwards had left RRA and had severed all connection with Scott Rothstein (December 2009). In addition, if Epstein had thought that there was some improper coercion involved in, for example, Jane Doe's case, his remedy was to raise the matter before Federal District Court Judge Kenneth A. Marra who was presiding over the matter. Far from raising any such claim, Epstein simply chose to settle that case. He is therefore now barred by the doctrine of res judicata from somehow re-litigating what happened in (for example) the Jane Doe case. "The doctrine of res judicata makes a judgment on the merits conclusive not only as to every matter which was offered and received to sustain or defeat the claim, but as to every other matter which might with propriety have been litigated and determined in that action." AMEC Civil, LLC v. State Dept. of Transp., So.2d , 2010 WL 1542634 at 2 (Fla. 1st Dist. Ct. App. 2010) (quoting Kiinbrell v. Paige, 448 So.2d 1009, 1012 (Fla. 1984). Obviously, any question of improper "pumping" of a 11 particular case could have been resolved in that vet)) case rather than now re-litigated in satellite litigation. 3. Edwards is Entitled to Summary Judgment on the Claim of Abuse of Process Because He Acted Properly Within the Boundaries of the Law in Pursuit of the Legitimate Interests of his Clients. Epstein's Second Amended Complaint raises several claims of "abuse of process." An abuse of process claim requires proof of three elements: "(1) that the defendant made an illegal, improper, or perverted use of process; (2) that the defendant had ulterior motives or purposes in exercising such illegal, improper, or perverted use of process; and (3) that, as a result of such action on the part of the defendant, the plaintiff suffered damage. " S Ilnvestments v. Payless Flea Market, Inc., 36 So.3d 909, 917 (Fla. 4 th Dist. Ct. App. 2010) (internal citation omitted). In fact, this Court is very familiar with this cause of action, as Edwards has correctly stated this cause in his counterclaim against Epstein. Edwards is entitled to summary judgment because Epstein cannot prove these elements. The first element of an abuse of process claim is that a defendant made "an illegal, improper, or perverted use of process." On the surface, Epstein's Complaint appears to contain several allegations of such improper process. On examination, however, each of these allegations amounts to nothing other than a claim that Epstein was unhappy with some discovery proceeding, motion or argument made by Edwards. This is not the stuff of an abuse of process claim, particularly where Epstein fails to allege that he was required to do something as the result of Edwards' pursuit of the claims against him. See Marty v. Gresh, 501 So.2d 87, 90 (Fla. 1st Dist. Ct. App. 1987) (affirming summary judgment on an abuse of process claim where "appellant's lawsuit caused appellee to do nothing against her will"). 12 In any event, none of the allegations of "improper" process can survive summary judgment scrutiny, because every action Edwards took was entirely proper and reasonably calculated to lead to the successful prosecution of the pending claims against Epstein as detailed in Edwards' Affidavit. Epstein also fails to meet the second element of an abuse of process claim: that Edwards had some sort of ulterior motive. The case law is clear that on an abuse of process claim a "plaintiff must prove that the process was used for an immediate purpose other than that for which it was designed." MI Investments v. Payless Flea Market, Inc., 36 So.3d 909, 917 (Fla. 4th Dist. Ct. App. 2010) (citing Biondo v. Powers, 805 So.2d 67, 69 (Fla. 4th Dist. Ct. App. 2002). As a consequence, " w here the process was used to accomplish the result for which it was intended, regardless of an incidental or concurrent motive of spite or ulterior purpose, there is no abuse of process." Id. (internal quotation omitted). Here, Edwards has fully denied any improper motive, See Statement of Undisputed Facts, and Epstein has no evidence of any such motivation. Indeed, it is revealing that Epstein chose not to ask even a single question about this subject during the deposition of Edwards. In addition, all of the actions that Epstein complains about were in fact used for the immediate purpose of furthering the lawsuits filed by L.M., E.W., and Jane Doe. In other words, these actions all were both intended to accomplish and, in fact, successfully "accomplished the results for which they were intended" additional discovery or presenting a legal issue to the court handling the case or ultimately maximizing the recovery of damages from Epstein on behalf of his victims. Accordingly, Edwards is entitled to summary judgment on any claim that he abused process for this reason as well. 13 4. Edwards is Entitled to Summary Judgment to the Extent His Claim is Based On Pursuit of Discovery Concerning Epstein's Friends Because All Such Efforts Were Reasonably Calculated to Lead to Relevant and Admissible Testimony About Epstein's Abuse of Minor Girls. Epstein has also alleged that Edwards improperly pursued discovery from some his close friends. Such discovery, Epstein claims, was improper because Edwards knew that these individuals lacked any discoverable information about the sexual assault cases against Epstein. Here again, Edwards is entitled to summary judgment, as each of the friends of Epstein were reasonably believed to possess discoverable information. The undisputed facts show the following with regard to each of the persons raised in Epstein's complaint: e With regard to Donald Trump, Edwards had sound legal basis for believing Mr. Trump had relevant and discoverable information. See Statement of Undisputed Facts. With regard to Alan Dershowitz (Harvard Law Professor), Edwards had sound legal basis for believing Mr. Dershowitz had relevant and discoverable information. See Statement of Undisputed Facts. With regard to former President Bill Clinton, Edwards had sound legal basis for believing former President Clinton had relevant and discoverable information. See Statement of Undisputed Facts. With regard to Ramer Sony Record executive Tommy Mottola, Edwards was not the attorney that noticed Mr. Mottola's deposition. See Statement of Undisputed Facts. With regard to illusionist David Copperfield, Edwards had sound legal basis for believing Mr. Copperfield had relevant and discoverable information. See Statement of Undisputed Facts. e With regard to framer New Mexico Governor Bill Richardson, Edwards had sound legal basis for naming Former New Mexico Governor Bill Richardson on his witness list. See Statement of Undisputed Facts. It is worth noting that the standard for discovery is a very liberal one. To notice someone for a deposition, of course, it is not required that the person deposed actually end up producing 14 admissible evidence. Otherwise, every deposition that turned out to be a false alarm would lead to an "abuse of process" claim. Moreover, the rules of discovery themselves provide that a deposition need only be "reasonably calculated to lead to the discovery of admissible evidence." Fla. R. Civ. P. 1.280(b) (emphasis added). Moreover, the discovery that Edwards pursued has to be considered against the backdrop of Epstein's obstructionist tactics. As the Court is aware, in both this case and all other cases filed against him, Epstein has asserted his Fifth Amendment privilege rather than answer any substantive questions. Epstein has also helped secure attorneys for his other household staff who assisted in the process of recruiting the minor girls, who in turn also asserted their Fifth Amendment rights rather than explain what happened behind closed doors in Epstein's mansion in West Palm Beach. See Statement of Undisputed Facts. It is against this backdrop that Edwards followed up on one of the only remaining lines of inquiry open to him: discovery aimed at Epstein's friends who might have been in a position to corroborate the fact that Epstein was sexually abusing young girls. In the context of the sexual assault cases that Edwards had filed against Epstein, any act of sexual abuse had undeniable relevance to the case even acts of abuse Epstein committed against minor girls other than L.M., E.W., or Jane Doe. Both federal and state evidence rules make acts of child abuse against other girls admissible in the plaintiff s case in chief as proof of "modus operandi" or "motive" or "common scheme or plan." See Fed. R. Evid. 415 (evidence of other acts of sexual abuse automatically admissible in a civil case); Fla. Stat. Ann. 90.404(b) (evidence of common scheme admissible); Williams v. State, 110 So.2d 654 (Fla. 1959) (other acts of potential sexual misconduct admissible). 15 A second reason exists for making discovery of Epstein's acts of abuse of other minor girls admissible. Juries considering punitive damages issues are plainly entitled to consider "the existence and frequency of similar past conduct." TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 462 n.28 (1993). This is because the Supreme Court recognizes "that a recidivist may be punished more severely than a first offender . . . because repeated misconduct is more reprehensible than an individual instance of malfeasance." BMW of North America, Inc. v. Gore, 517 U.S. 559, 577 (1996) (supporting citations omitted). In addition, juries can consider other similar acts evidence as part of the deterrence calculation in awarding punitive damages, because "evidence that a defendant has repeatedly engaged in prohibited conduct while knowing . . . that it was unlawful would provide relevant support for an argument that strong medicine is required to cure the defendant's disrespect for the law." Id. at 576-77. In the cases Edwards filed against Epstein, his clients were entitled to attempt to prove that Epstein "repeatedly engaged in prohibited conduct" i.e., because he was a predatory pedophile, he sexually assaulted dozens and dozens of minor girls. The discovery of Epstein's friends who might have had direct or circumstantial evidence of other acts of sexual assault was accordingly entirely proper. Edwards is therefore entitled summary judgment to the extent his claim is based on efforts by Edwards to obtain discovery of Epstein's friends. III. EPSTEIN'S LAWSUIT MUST BE DISMISSED BECAUSE OF HIS REFUSAL TO PARTICIPATE IN REASONABLE DISCOVERY. As is readily apparent from the facts of this case, Epstein has filed a lawsuit but then refused to allow any real discovery about the merits of his case. Instead, when asked hard questions about whether he has any legitimate claim at all, Epstein has hidden behind the Fifth 16 Amendment. As a result, under the "sword and shield doctrine widely recognized in Florida caselaw, his suit must be dismissed. " T he law is well settled that a plaintiff is not entitled to both his silence and his lawsuit." Boys Girls Clubs of Marion County, Inc. v. J.A., 22 So.3d 855, 856 (Fla. 5th Dist. Ct. App. 2009) (Griffin, J., concurring specially). Thus, "a person may not seek affirmative relief in a civil action and then invoke the fifth amendment to avoid giving discovery, using the fifth amendment as both a 'sword and a shield.'" DePalma v. DePalma, 538 So.2d 1290, 1290 (Fla. 4th Dist. Ct. App. 1989) (quoting DeLisi v. Bankers Insurance Co., 436 So.2d 1099 (Fla. 4th Dist. Ct. App. 1983)). Put another way, " a civil litigant's fifth amendment right to avoid selfincrimination may be used as a shield but not a sword. This means that a plaintiff seeking affirmative relief in a civil action may not invoke the fifth amendment and refuse to comply with the defendant's discovery requests, thereby thwarting the defendant's defenses." Rollins Burdick Hunter of New York, Inc. v. Euroclassic Limited, Inc., 502 So. 2d 959 (Fla. 3rd Dist. Court App. 1983). Here, Epstein is trying to do precisely what the "well settled" law forbids. Specifically, he is trying to obtain "affirmative relief' i.e., forcing Edwards to pay money damages while simultaneously precluding Edwards from obtaining legitimate discovery at the heart of the allegations that form the basis for the relief Epstein is seeking. As recounted more fully in the statement of undisputed facts, Epstein has refused to answer such basic questions about his lawsuit as: "Specifically what are the allegations against you which you contend Mr. Edwards ginned up?" "Well, which of Mr. Edwards' cases do you contend were fabricated?" 17 "Is there anything in L.M.'s Complaint that was filed against you in September of 2008. which you contend to be false?" "I would like to know whether you ever had any physical contact with the person referred to as Jane Doe in that federal complaint?" "Did you ever have any physical contact with E.W.?" "What is the actual value that you contend the claim of E.W. against you has?" The matters addressed in these questions are the central focus of Epstein's claims against Edwards. Epstein's refusal to answer these and literally every other substantive question put to him in discovery has deprived Edwards of even a basic understanding of the evidence alleged to support claims against him. Moreover, by not offering any explanation of his allegations, Epstein is depriving Edwards of any opportunity to conduct third party discovery and opportunity to challenge Epstein's allegations. It is the clear law that "the chief purpose of our discovery rules is to assist the truthfinding function of our justice system and to avoid trial by surprise or ambush," Scipio v. State, 928 So.2d 1138 (Fla.2006), and "full and fair discovery is essential to these important goals," McFadden v. State, 15 So.3d 755, 757 (Fla. 4th Dist. Ct. App. 2009). Accordingly, it is important for the Court to insure "not only compliance with the technical provisions of the discovery rules, but also adherence to the purpose and spirit of those rules in both the criminal and civil context." McFadden, 15 So.3d at 757. Epstein has repeatedly blocked "full and fair discovery," requiring dismissal of his claim against Edwards. 18 IV. EDWARDS IS ENTITLED TO ADVERSE INFERENCES FROM EPSTEIN'S INVOCATION OF THE FIFTH AMENDMENT AND THEREFORE TO SUIVIIVIARY JUDGMENT ON EPSTEIN'S CLAIM. Edwards is entitled to summary judgment on the claim against him for a second and entirely independent reason: Epstein's repeated invocations of the Fifth Amendment raise adverse inferences against him that leave no possibility that a reasonable factfinder could reach a verdict in his favor. In ruling on a summary judgment motion, the court must fulfill a "gatekeeping function" and should ask whether "a reasonable trier of fact could possibly" reach a verdict in favor of the plaintiff. Willingham v. City of Orlando, 929 So.2d 43, 48 (Fla. 5th Dist. Ct. App. 2006) (emphasis added). Given all of the inferences that are to be drawn against Epstein, no reasonable finder of fact could conclude that Epstein was somehow the victim of improper civil lawsuits filed against him. Instead, a reasonable finder of fact could only find that Epstein was a serial molester of children who was being held accountable through legitimate suits brought by Edwards and others on behalf of the minor girls that Epstein victimized. " I t is well-settled that the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them." Baxter v. Pabnigiano, 425 U.S. 308, 318 (1976); accord Vasquez v. State, 777 So.2d 1200, 1203 (Fla. App. 2001). The reason for this rule "is both logical and utilitarian. A party may not trample upon the rights of others and then escape the consequences by invoking a constitutional privilege at least not in a civil setting." Fraser v. Security and Inv. Coip., 615 So.2d 841, 842 (Fla. 4th Dist. Ct. App. 1993). And, in the proper circumstances, "'Silence is often evidence of the most persuasive character.'" Fraser v. Security and Inv. Corp., 615 So.2d 19 |
Page 1 1 of 11 DOCUMENTS Copyright 2009 Associated Newspapers Ltd. All Rights Reserved The Evening Standard (London) December 24, 2009 Thursday LENGTH: 824 words HEADLINE: CITY SPY BODY: EXPECT more media firms to announce plans to charge for content online in early 2010. City Spy hears that business-to-business publisher United Business Media is the latest outfit which is thinking of ramping up its subscription model. Property Week and Building are among the titles which recently started asking users to register their details to keep reading stories, which is seen as a possible precursor to charging. BUSINESSES TIPPED TO COME A CROPPER AMID all the contradictory forecasts for recovery or double-dip recession in 2010, what do the insolvency practitioners say? City Spy's mole in the bean-counting world says the last quarter of 2009 was surprisingly quiet as the economy stabilised but they are not optimistic about the new year: "We reckon there's going to be a rush of insolvencies in the second quarter, after the end of the financial year." The next quarterly rent review is due tomorrow, Christmas Day, then again at the end of March. But given the number of "seasonal sales" that started on the High Street at least a week before Christmas, it would be no surprise to see some retailers come a cropper sooner... EPSTEIN PILOT TAKES TO THE ROAD FURTHER news reaches City Spy of former Bear Stearns trader, Prince Andrew's shooting companion and convicted sex offender, Jeffrey Epstein. The ex-Wall Street star served 13 months in jail on criminal charges of soliciting prostitution and procuring a minor for prostitution and he now faces civil claims from young women accusing him of having unlawful sex with them. This week, City Spy recounted how Epstein had transferred the title deeds of his prized 2003 Ferrari 575M Maranello to his private pilot Larry Visoki, prior to the car going on sale for 159,000 ( 99,000) (possibly to help Epstein pay his legal bills). It turns out, the same Visoki was deposed last week by Bradley Edwards, an attorney for three of the women suing Epstein. Questioned by Edwards about plane passengers who might have witnessed Epstein in the company of young girls, Visoki admitted Bill Clinton, Prince Andrew, former Israeli prime minister Ehud Barak, former Colombian president Andr s Pastrana Arango, Obama economic adviser Lawrence Summers, billionaire Ron Burkle, and actors Kevin Spacey and Chris Tucker had been on board the plane while young girls were present. Fortuitously for Epstein, however, Ferrari-selling Visoki swore on oath that he never suspected his boss of having sex with them. Of course not, Larry. Now drive off into the sunset. More on Prince Andrew, our special representative for international trade and investment. The European Parliament and the Organisation for Security and Co-operation in Europe have strongly condemned Azerbaijan for tightening restrictions on the media and jailing two bloggers who were critical of the government. It transpires the oil-rich country has long blocked BBC broadcasts there, which might explain why oft-criticised Andrew and former Prime Minister Tony Blair spend so much time visiting the sometime Soviet State. What does the snow have in common with the recession? Every other country can get out of both but Britain can't get out of either. HAPPY news: private jet travel is back, reports the Wall Street Journal. Alas, there is a "but" x2039 CITY SPY The Evening Standard (London) December 24, 2009 Thursday Page 2 in-flight food remains in recession. Apparently, those who supply food to executive aircraft are seeing demand soar after a slump, but says one caterer: "No one is eating lobster. A quick turkey box lunch is the order of the day." Of course, that has nothing to do with the industry being desperate to re-brand itself as time-saving and cost-efficient. WHICH insurance broker saw a compliance officer pass out after the office Christmas lunch and have to be taken to hospital? WHO MADE OFF WITH THE MONEY? IT's a year since the Bernie Madoff affair blew up and the hedge fund king was found to have been ripping off his clients. If he was in Britain the old fraudster would still be at liberty as lawyers pored over his case and the prosecution had barely cranked into operation. But the US is different x2039 his case is done and dusted, and he's languishing in jail. Even so, by US standards, the Madoff conviction was going some. Rumours persist that he pleaded guilty as quickly as he did and said the absolute minimum because he wasn't the main crook of the piece x2039 the main business of his hedge fund was washing money for organised crime. As soon as the balloon went up and he was arrested, he was warned by friends with Italian-American origins that his life, and the lives of his family, would be at risk were he not to "take the rap". OETaking the rap': hedge fund fraud Bernie Madoff UNFORTUNATE name? City Spy's eye is drawn to a forthcoming lecture at the Institute of Advanced Legal Studies, School of Advanced Study, University of London. It's in partnership with the Market Abuse Association. What? Do they wear a club tie? Do they refer to each other as fellow market abusers? LOAD-DATE: December 24, 2009 |
Date: 4 7 2011 1:44 PM Attorneys want Jeffrey Epstein agreement thrown out.pdf; Edwards Articles - Rush Interview 2.pdf; Edwards Articles - Rush Interview.pdf; Part.005 Additional Articles. Darren K. Indyke Darren K. Indyke, PLLC 301 East 66th Street, 10B New York, New York 10065 Tele Direct: (646) 862-4817 Fax: (212) 517-7779 email: dkiesq aol.com Attorneys Say Miami Prosecutors Violated Crime Victims' Rights Act I Main Justice 4 7 11 1:38 PM y Epstein (gov) JEGOTIATING WITH THE DOJ: ;TRATEGIES FOR OPTIMAL RESULTS FREE Webinar - Wed., April 13 About Got Tips? Login or Registe- 16iINI JUSTICE !TICS, POLICY AND THE LAW ANT1-CORRUPTION gl MAN JUSTICE BRACEWELL GIULIANI Search Wanted: Lawyers with DOJ Experience 00 THURSDAY, APRIL 07, 2011 Email or Username orneys Say Miami Prosecutors Violated Crime Victims' Rights Act tephanie Woodrow I March 22, 2011 11:52 am Printable Version Ise attorneys for two girls who contend they were assaulted by billionaire and Rights Reprints cted sex offender Jeffrey Epstein filed court papers on Monday claiming the i U.S. Attorney's office violated the Crime Victims' Rights Act by signing a nonprosecution agreement with Epstein ut notifying them, the Palm Beach Daily News reported. Epstein served 13 months in jail from June 2008 to July 2009 for one state count of soliciting an underage girl for prostitution. As a result, he is required to register as a sex offender. While he wasn't prosecuted for additional charges, more than 40 girls under the age of 18 say they came to his home and gave him massages. During the massages, they say, he masturbated and sexually assaulted them. Brad Edwards and Paul Cassell, attorneys representing two of his alleged victims, say in the filing that the U.S. Attorney's office for the Southern District of Florida of deliberately misled the victims by telling them there was an ongoing investigation into their claims. However, they say, the office was concealing the fact that they already had signed a -osecution deal with Epstein. -ding to the motion, the U.S. Attorney's office in January 2008 and May 2008 sent "false notification" letters in to in's alleged victims saying "(t)his case is currently under investigation." However, the office had signed the agreement Epstein in September 2007. ittorneys want a court hearing during which they will ask that the agreement be invalidated because it violated the is' rights. In the motion, the attorneys claim the agreement is illegal because the government did not protect the Iressionally mandated rights of victims before it entered this agreement." dge grants the request, Epstein could be charged by the U.S. Attorney's office. If he were charged and convicted on al charges, he could be sentenced to 10 years to life for each charge. -ding to the motion, "The only reason that the (U.S. Attorney's office) concealed the existence of the non-prosecution r'nent from the victims was not to comply with some legal restriction, but rather to avoid a firestorm of public )versy that would have erupted if the sweetheart plea deal with a politically connected billionaire had been revealed." Valle, special counsel for the U.S. Attorney's Office Southern District of Florida, in an email to the newspaper that the kttorney's office will respond in court filings. ever, as we stated more than two years ago in July 2008 in our response to the plaintiffs' then-emergency petition for cement of the Crime Victim Rights Act, the CVRA was not violated because no federal charges were ever filed in the lem District of Florida," Valle said. "Because the matter remains pending in court, it would be inappropriate at this time wide additional comment on the merits of the current motion." TC 1-1 DACTC Remember me: (51 l JUSTJOBS U.S. ATTORNEYS CHART (hteractivel ii Track leadership changes in the 93 U.S. Attorney offices, with Bush holdovers and Obama candidates. COVI NGTON COVINGTON BURLING LLP Recognized for its Leading White Collar Crime and Anti-Corruption Practices by Chambers and Legal 500 Decisions about who, where and how to prosecute have always been and must remain the responsibility of the executive branch." - Attorney General Eric Holder discussing pressure from members of Congress to prosecute Khalid Sheikh Mohammed before a military commission rather than in http: www.mainjustice.com 2011 03 22 attorneys-say-miam i-prosecutors-violated-crime-victims'-rights-act Page 1 of 2 Attorneys Say Miami Prosecutors Violated Crime Victims' Rights Act I Main Justice 4 7 11 1:38 PM I federal court. lama To Tap Non-Profit Head For DOJ Crime Victims Post wmakers Bemoan Lack of Funding For Victims' Rights psecutor Who Violated Rights of Islamic Groups by Accident is Now U.S Attorney mocratic Donor Violated Spirit of Election Laws, LA Prosecutors Say deral Prosecutors Violated Laws, Ethics Rules in 201 Cases Since 1998, Study Finds LDER POST NEWER POST 'erez Asks States to Help Enforce ADA Protections for Facing Hiring Freeze, Kansas U.S. Attorney Wants More tudents Lawyers nents are closed le I About I Advertise I Jobs I Privacy Policy I Terms of Use DEPARTMENT NEWS SES Associate Attorney General Tom Perrelli Speaks at the Department of Educationa00s Gender-Based Violence Summit Comverse Technology INC. 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I SA Location Feels Like. 55' Thursday, April 7, 2011 Subscribe Renew CLASSIFIEDS I REAL ESTATE I DINING I SPECIAL SECTIONS HOME I NEWS I SOCIETY I BUSINESS I ARTS I FASHION I OBITUARIES I OPINION I LIFESTYLES I HOME LOGGIA I SHINY SHOTS I BLOGS I ADVERTISE CONTACT US Home Palm Beach News Attorneys want Jeffrey Epstein agreement thrown out LATEST NEWS Today: Thursday, April 7, 2011 I. Talk at Sea Gull Cottage to focus on genomics lw Palm Beach Women's International Film Festival debuts Thursday in support of women filmmakers Day Academy pupils revisit notable characters in Palm Beach history lw Gov. Scott at Midtown Beach: 'Give me the list,' he tells officials about beach concerns By MICHELE DARGAN DAILY NEWS STAFF WRITER Updated: 9:41 a.m. Wednesday, March 23, 2011 Posted: 7:21 p.m. Monday, March 21, 2011 E-mail I Print I Share I Larger Type Court papers filed Monday say the U.S. Attorney's Office violated the Crime Victims' Rights Act by signing a nonprosecution agreement with sex offender Jeffrey Epstein without notifying his victims. Attorneys Brad Edwards and Paul Cassell, representing Jane Doe 1 and Jane Doe 2, want a court hearing, where they will ask that the agreement be invalidated because, they say, the victims' rights were violated. If that happens, it could open up the 58-year-old Palm Beach billionaire to a slew of federal charges involving sex crimes with minors that were set aside by the agreement. The motion, filed Monday in federal court in West Palm Beach, accuses the U.S. Attorney's Office of deliberately misleading the victims by telling them the investigation was ongoing, while concealing they had already signed a deal with Epstein. According to the motion, the U.S. Attorney's Office sent "false notification" letters in January 2008 and May 2008 to the victims saying "(t)his case is currently under investigation" after the government had signed the agreement with Epstein in September 2007. "The only reason that the (U.S. Attorney's Office) concealed the existence of the non-prosecution agreement from the victims was not to comply with some legal restriction, but rather to avoid a firestorm of public controversy that would have erupted if the sweetheart plea deal with a politically connected billionaire had been revealed," the motion says. If Epstein were found guilty on federal charges, statutory penalties ranged from 10 years to life. Instead, the sealed pact was part and parcel of Epstein's acceptance of a state plea deal, where he received an 18-month sentence for soliciting a minor for prostitution and soliciting prostitution. He served 13 months segregated in a vacant wing of the county stockade and was let out on work release six days a week for up to 16 hours a day. Edwards and other attorneys fought in court for a year before successfully getting the agreement unsealed in September 2009. More than 30 minor girls were identified as Epstein's victims in the nact Site Q Web 1. SEARCH Web Search by YAHOO! PALM BEACH ESTATE 314. 241 La Puerta Way, Palm Beach Exquisitely designed Mediterranean Palm Beach walled estate. More Details corcoran.com tz pTOWN OF PALM BEACH ( 1911. CENTENNIAL 2011 V icr Click here for the latest events! icb Find us on Facebook Palm Beach Daily News Like 2,413 people like Palm Beach Daily News. Stanton Jackie Todd Diana Joe Goharians James Karen Facebook social plugin MOST RECENT ALBUMS The Palm Beach The Society of the Pamella Roland Opera Four Arts benefit http: www.palmbeachdailynews.com news attorneys-want-jeffrey-epstein-agreement-thrown-out-1338111.html Page 1 of 3 Attorneys want Jeffrey Epstein agreement thrown out 4 7 11 1:37 PM More Doe 1 and 2, who were 14 and 13, respectively, at the time of the incidents, received monetary settlements in civil cases. They are among more than two-dozen underage girls who filed lawsuits or settled claims against Epstein, alleging they were lured to his Palm Beach mansion to give him sexually charged massages and or sex in exchange for money. The motion filed Monday says the agreement is illegal because the government did not protect the "Congressionally mandated rights of victims before it entered this agreement." Alicia Valle, special counsel for the U.S. Attorney's Office Southern District of Florida, said in an e-mail that the U.S. Attorney's Office will respond in court filings. "However, as we stated more than two years ago in July 2008 in our response to the plaintiffs' then-emergency petition for enforcement of the Crime Victim Rights Act, the CVRA was not violated because no federal charges were ever filed in the Southern District of Florida," Valle said. "Because the matter remains pending in court, it would be inappropriate at this time to provide additional comment on the merits of the current motion." The attorneys reference e-mails and letters from the federal office to Epstein's lawyers acknowledging the government's legal obligation to inform victims about the pact. The e-mails are redacted in the motion because they are under seal. The attorneys filed a separate motion Monday to unseal the correspondence. "The reasonable inference from the evidence is that the U.S. Attorney's Office wanted to keep the agreement a secret to avoid intense criticism that would surely ensued had the victims and the public learned that a billionaire sex offender with political connections had arranged to avoid federal prosecution for numerous felony sex offenses against minor girls," the motion says. "As part of this pattern of deception, the U.S. Attorney's Office discussed victim notification with the defendant sex offender and, after he raised objections, stopped making notifications." Epstein sought "a higher level of review" within the Department of Justice, the motion says. "A reasonable inference from the evidence is that Epstein used his significant political and social connections to lobby the Justice Department to avoid significant federal prosecution," the motion states. 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You have viewed 3 articles and have 17 articles remaining. Palm Beach Daily News (FL) JUDGE RECEIVES EPSTEIN TAPE RULING PENDING MICHELE DARGAN, Daily News Staff Writer Published: May 5, 2010 NEW YORK between veteran newspaper reporter George Rush and convicted sex offender Jeffrey Epstein. But U.S. District Judge Lawrence M. McKenna reserved ruling on whether the recording will be released to attorneys representing young women who were sexually abused by Epstein as minors. McKenna didn't listen to the recording during the hearing. Fort Lauderdale attorney Brad Edwards and Utah attorney and law professor Paul Cassell are fighting to obtain the 22-minute tape on behalf of Epstein victim Jane Doe. She has filed one of a dozen pending civil cases in federal court in West Palm Beach against Epstein. A status check is set for Thursday in those cases before U.S. District Judge Kenneth Marra. Doe could have settled the lawsuit for 50,000 but is asking for 50 million in damages, Cassell said Tuesday. "Jane Doe was repeatedly sexually assaulted over a lengthy period of time by this wealthy and powerful man," Cassell said. Epstein, 57, is currently under house arrest in his Palm Beach home after serving 13 months of an 18- month state sentence for soliciting a minor for prostitution and soliciting prostitution. Nearly two dozen young women have filed lawsuits against the billionaire money manager alleging Epstein sexually abused them as minors at his El Brillo Way home. Cites reporter's protected privilege Rush, of the New York Daily News, was present in the courtroom, but did not have to testify Tuesday. Neither did Fort Lauderdale private investigator Michael Fisten, also in the courtroom. Working on behalf of Epstein victims, Fisten discovered the existence of the tape and had a conversation with Rush about its contents. Representing Rush and the newspaper, Washington attorney Laura Handman and New York Daily News attorney Anne Carroll argued the tape should not be released under any circumstances, citing reporter's protected privilege. Rush told Epstein the conversation was "off the record" and has never published any portion of that conversation. But even if portions had been printed, the unpublished portions would still be protected, Handman said. Handman cited cases where interviews were conducted in the presence of other people and privilege was not waived. In addition, Handman argued that Rush should not have to testify in court. The ability for reporter's privilege to be protected is crucial in culling sources and gathering information for news stories, Handman said. Reporting is all about give and take between the reporter and the source; that's what reporters have to do, Handman said. "This is so critical to news gathering," Handman said. "Mr. Rush could find himself testifying in many cases just because he had the temerity to do some reporting on a very important story." There is nothing helpful to Doe's case on the tape and "Jane Doe is not referred to once in that tape," Handman said. Cassell argued that the tape is "critical in showing Epstein's lack of remorse." Cassell described Epstein as a pitiless sexual abuser to Jane Doe and at least 30 other minor girls. Even though Jane Doe is not referred to by name on the tape, Epstein refers to his victims as "the girls" and makes disparaging remarks about them on the tape, Cassell said. Tape played for others Cassell said privilege does not apply because it was waived when Rush played the tape for three people and verbally divulged its contents to two others, including Fisten and Edwards, who also represents two other victims. But even if there is "qualified privilege," Cassell says, it is outweighed by Doe's inability to obtain the information anywhere else and the jury's need to hear Epstein's own words about his lack of remorse. Since Epstein has exercised his Fifth Amendment right during questioning by victims' attorneys, the jury Classifieds Real Estate Advertise Automotive ,Ifisotp DLO CI by Shannon Donnelly http: nLnewsban k.com nl-search we Archives?p action doc p doci...ername dkiesq s accountid AC0111040620221012261 s upgradeable no Page 1 of 2 Palm Beach Daily News: Archives 4 7 11 1:35 PM will have no other way to hear Epstein's words in his own voice, Cassell said. Deadline for discovery in the Doe case is May 31, with the trial set for July 14. mdargan pbdailynews.com Copyright (c) 2010 Palm Beach Daily News Refinance Rates at 2.650 0 160,000 Mortgage for 659 mo. 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Most popular New Search Return to results Printer Friendly About your archives purchase: Your purchase of 20 articles expires on 04 07 2011 4:22 PM. You have viewed 2 articles and have 18 articles remaining. Palm Beach Daily News (FL) LAWYER: EPSTEIN MADE ADMISSIONS ON TAPE MICHELE DARGAN, Daily News Staff Writer Published: April 29, 2010 A tape recorded interview between a reporter and convicted sex offender Jeffrey Epstein contains "damning admissions by Epstein," which includes Epstein saying he had come "close to crossing a line" concerning sex with underage girls. Those and other revelations about the 22-minute interview by New York Daily News reporter George Rush with Epstein are contained in a 24-page court filing by attorneys Brad Edwards and Paul Cassell on behalf of Jane Doe. Edwards represents Doe and two other Epstein victims. Edwards and Cassell are fighting to obtain the tape to further their case of sexual abuse by Epstein when Doe was a minor. Epstein, 57, was released from jail in July after serving 13 months of an 18-month state sentence for soliciting a minor for prostitution and soliciting prostitution. Nearly two dozen young women have filed lawsuits against Epstein his El Brillo Way home, where he is now serving house arrest. The New York Daily News is seeking to keep the tape confidential, citing reporter's protected privilege. In response, Cassell says the newspaper waived its protected privilege when Rush played the recording for three people and described its contents to two others, including Edwards. In addition, Cassell writes that privilege can't be applied in this situation because it doesn't involve an issue related to a confidential source. The person on the tape is Epstein. Even if there is "qualified privilege," Cassell maintains it is outweighed by Doe's inability to obtain the information anywhere else and her "compelling need to obtain Jeffrey Epstein's own words about his sexual abuse and lack of remorse." When reached by phone Wednesday, Anne Carroll, attorney for the New York Daily News, said she will answer Cassell in a court filing. Both the New York Daily News and Doe have asked a federal court judge in Manhattan to listen to the tape in chambers to help determine whether privilege applies. Epstein and others who helped him procure minor girls for massages and sex acts have taken the Fifth Amendment in their depositions, stymieing Doe and the other victims suing Epstein, the documents say. Michael Fisten, an investigator working for Doe, discovered the existence of the tape in fall 2009. An author who had listened to the tape told Fisten that Rush had a tape recording of Epstein "discussing the sexual abuse of minor girls." According to a sworn affidavit by Fisten, he called Rush, who confirmed he interviewed Epstein and made a tape. According to Fisten, Rush told him that he compiled negative information from Epstein about his exploits with underage girls and how he eluded the justice system. But Fisten said that Rush told him that his publisher, who knows Epstein, killed it after receiving a call from Epstein. Fisten said Rush told him, among other things, that the following information was contained on the tape: That Epstein said he went to jail in Florida for no reason and if the sexual abuse of minors had happened in New York, he would have only received a 200 fine. That L.M., one of Edwards' clients who sued Epstein for sexual abuse as a minor, came to him as a prostitute and a drug user (meaning she came to him for sex, rather than him pursuing her). That all the girls suing him are only trying to get a meal ticket. That the only thing he might have done wrong was to maybe cross the line a little too closely. In a sworn deposition, Edwards states that Rush disclosed much of the information contained on the tape to him in a conversation. Edwards said in his statement that the Rush interview is "unique and not otherwise obtainable from other witnesses because it can be used to prove perjury Edwards said Epstein testified in a deposition that he did not recognize the name George Rush from the New York Daily News "despite the fact that he gave a personal interview that we all now know to have been tape recorded." mdargan pbdailynews.com Start or Renew Your Subscription Thursday, April 7, 2011 SHINY SHOTS ADVERTISE "NTACT US Advertise Automotive updates in your e-mail Sign up to receive our e-mail newsletters here. - Palm Beach Daily News NEWSLETTERS SUBSCRIBE http: nl.newsbank.com nl-search we Archives?p action doc p doci...ername dkiesg s accountid AC0111040620221012261 s upgradeable no Page 1 of 2 Palm Beach Daily News: Archives 4 7 11 1:32 PM Epstein Has 'come close to crossing a line.' Copyright (c) 2010 Palm Beach Daily News Refinance Rates at 2.650 0 160,000 Mortgage for 659 mo. No SSN req LendGo.com Mortgage LEAKED: 25 Car Insurance Your Auto Insurer hates this. News7BreakingNews.com Man "Cheats" Credit Score He Added 126 Points To His Credit Score www.CreditRepairFromHome.com 79 Hr Job - 262 Openings Make 79 hr Working From Home. As seen on www.workfromhomeguide.net jobs Ads by Yahoc By using this service you accept the terms of our Visitor Agreement. Copyright 2007 Palm Beach Daily News. All rights reserved. The Palm Beach Daily News Privacy Policy I About this site I Write to us HABLED carviEat P http: nl.newsbank.com nl-search we Archives?p action doc p doci...ername dkiesg s accountid AC0111040620221012261 s upgradeable no Page 2 of 2 |
Date: 4 7 2011 1:27 PM Articles - 9.doc; Edwards Articles - 8.doc; Edwards Articles - 7.doc; Edwards Articles - 6.doc; Edwards Articles - 5.doc; Edwards Articles - 3.doc; Edwards Articles - 2.doc; Edwards Article - 13.pdf; Part.012 See additional articles. Darren K. Indyke Darren K. Indyke, PLLC 301 East 66th Street, 10B New York, New York 10065 Local News: West Palm Beach, Palm Beach County, Martin St. Lucie Counties I The Palm Beach Post 4 6 11 1:38 PM NEWS LEARN MORE, LOCATE 'lamed an a NEXT GENERATFON PENNZOIL CLEANS OUT UP TO 40 OF SLUDGE IN THEIST OIL CHANGE!' Mint elk Pennzoil. re ab.Elge clearrup test using tAE 900,111 Subscribe Now I Renew -POST I JOBS I AUTOS I REAL ESTATE I CLASSIFIEDS I PLACE AN AD I MONEY I OBITUARIES I OPINION I LIVING I ENTERTAINMENT I PHOTOS I VIDEOS BREAKING NEWS: Gov. Scott OKs last-minute bailout for courts, averting two-week furloughs Click to read story LocalNews D Greater Palm Beaches and Treasure Coast Palm Beach sex offender's secret plea deal: Possible co-conspirators not charged, presses victims to settle civil suits By SUSAN SPENCER-WENDEL Palm Beach Post Staff Writer Friday, September 18, 2009 WEST PALM BEACH Billionaire financier sex offender Jeffrey Epstein's secret non-prosecution agreement he struck with federal prosecutors was unsealed Friday, offering the first public look at the deal Epstein's high-powered legal counsel brokered on his behalf. According the agreement, the Federal Bureau of Investigation and the U.S. Attorney's Office investigated Epstein for various federal crimes, including prostitution, some punishable by a minimum of 10 years up to life in prison But federal prosecutors backed down and agreed to recall grand jury subpoeanas, if Epstein pleaded guilty to prostitution-related felonies in state court, which he ultimately did. He received an 18-month jail sentence, of which he served 13. A former federal prosecutor of 15 years, Mark Johnson of Stuart, said the disparity in the potential sentences was unusual. The United States Attorney's Office also agreed not to charge any of Epstein's possible co-conspirators - Sarah Kellen, Adriana Ross, Lesley Groff and Nadia Marcinkova. The agreement was negotiated in part by New York heavyweight criminal defense attorney Gerald Lefcourt. On its first draft in September 2007, it required that Epstein pay an attorney - tapped by the U.S. Attorney's Office and approved by Epstein - to represent some of the victims in civil suits they had filed against Epstein. That attorney is prominent Miami lawyer Bob Josefsberg. Former prosecutor Johnson said he has never seen a provision like that before. But an addendum to the agreement signed the following month struck Epstein's duty to pay Josefsberg if he and the victims did not accept a settlement and instead pursued litigation. The agreement, signed by Assistant U.S. Attorney Maria Villafana, does not expressly state whether any victims were contacted or consulted before the deal was made. Attorney Brad Edwards of Fort Lauderdale, who represents three of the young women, believes that none of the between 30 and 40 woman identified as victims in the federal investigation were told of the deal. Edwards said his clients were still receiving letters in the mail months afterwards saying the U.S. Attorney's Office assuring them Epstein would be prosecuted. "Never consulting the victims is probably the most outrageous aspect of it..." Edwards said. "It taught them that someone with money can buy his way out of anything. It's outrageous and embarrassing for United States Attorney's Office and the State Attorneys Office." Epstein now faces many civil lawsuits filed by the women, who are represented by a variety attorneys. In many, the facts alleged are the same: that Epstein had a predilection for teenage girls, identified poor, vulnerable ones and lured them to his home via other young women. The teens describe ascending a staircase lined with nude photographs of young girls and to the spa room where Epstein would appear in a small towel. Former Circuit Judge Bill Berger, who represents one of the victims, and The Palm Beach Post sought the unsealing of the agreement. Berger refers to it as a "sweetheart deal." "Why was it so important for the government to make this deal?" Berger asked rhetorically. "We have not yet had honest explanation by any public official as to why it was made .. and why the victim's were sold down the river." Former federal prosecutor Ryon McCabe described the agreement as "very unorthodox." Such agreements, he said, are usually reserved for corporations, not individuals. http: www.palmbeachpost.com pbcwest content local news epaper 2009 09 18 0918epstein.html SEARCH Site 0 Web Web Search by YAHOO! Obarna Launches Mortgage Relief Plan If you owe less than S720 000 on .. -c,,Jr mortgage,you probably c Jalify for the President's Making Home Affordable Program. With rates lower than they've ever been, there has never been a better time to refinance. If you am a homethivner and you haven't looked into refinancing recently, you may be surprised at how much you can save. Select Your Age: 33 Calculate New House Pavment, COLUMNISTS AND BLOGGERS ktir 1 FRANK CERABINO Read Frank's latest columns and follow him on Twitter. Read more HOT CELEBRITY NEWS Get the latest on South Florida celebrities, billionaires, politicos, more. Page2Live GEORGE BENNETT Read Post politics columnist George Bennett's latest articles. Read more MOST POPULAR HEADLINES COMMENTS Fatal shooting in Delray Beach draws crowd of 100 onlookers Lake Worth mayor says The Cottage complaints use 'gay card' against city manager West Palm Beach mayor Firefighter layoffs likely Narcy Novack charged in 2009 Fort Lauderdale killing of her mother-in-law Boynton Police warn of new twist on ATM identity fraud FOLLOW THE POST ON TWITTER SIGN UP FOR MOBILE TEXT ALERTS lig The Palm Beach Post on Facebook Like 16,985 people like The Palm Beach Post. Page 1 of 3 Local News: West Palm Beach, Palm Beach County, Martin St. Lucie Counties I The Palm Beach Post 4 6 11 1:3 8 PM "It's very, very rare. I've never seen or heard of the procedure that was set up here." said McCabe, who has no involvement in any Epstein litigation and is now a securities litigation attorney. "He's essentially avoiding federal prosecution because he can afford to pay that many lawyers to help those victims review their cases.... If a person has no money he couldn't be able to strike a deal like this and avoid federal prosecution." The back-room deal with federal prosecutors all the more interesting in light of the legal heavyweights who have worked for Epstein, including Harvard professor Alan Dershowitz and Kenneth Starr of Clinton impeachment fame. Lefcourt is a past president of the National Association of Criminal Defense Lawyers. Epstein's local defense attorney, Jack Goldberger, issued a statement Friday saying he had fought the release of the sealed agreement to protect the third parties named there. "Mr. Epstein has fully abided by all of its terms and conditions. He is looking forward to putting this difficult period in his life behind him. He is continuing his long standing history of science philanthropy..." Epstein ended up avoiding federal charges, and pleaded guilty in state court to felony solicitation of prostitution and procuring a person under the age of 18 for prostitution. In July 2008, he was sentenced to 18 months in jail, and later allowed out up to six days a week on work release. Epstein left the jail in late July 2009 after serving not quite 13 months of the sentence, having earned gain time for good behavior. Palm Beach Police began investigating the "international moneyman of mystery," as the New York magazine dubbed him, after they received a complaint from a relative of a 14-year-old girl who had given Epstein a naked massage at his home on the Intracoastal Waterway. Police sought and found in poor neighborhoods a variety of tall, thin, model-like young women, who told stories of begin recruiting, then going to Epstein's home and massaging and stimulating him. They walked away with between 200 and 1,000. The investigation triggered tensions between police and prosecutors, with then-Chief Michael Reiter saying in a May 2006 letter to then-State Attorney Barry Krischer that the chief prosecutor should disqualify himself. "I continue to find your office's treatment of these cases highly unusual," Reiter wrote. He then asked for and got the federal investigation that ended in the sealed deal. "The Jeffrey Epstein matter was an experience of what a many-million-dollar defense can accomplish," Reiter told the Palm Beach Daily News upon his retirement. http: www.palmbeachpost.com pbcwest content local news epaper 2009 09 18 0918epstein.html Rick Heidy Vero Audrey Gabriel Debra Robin Jeffrey Katie Jodie Recent Activity Login You need to be logged into Facebook to see your friends activity Cerabino: Florida House GOP's 'uterus' ban: A free-speech battle is born 1,518 people shared this. LIForeclosure crisis: Fed-up judges crack down disorder in the courts 207 people shared this. Facebook social plug in POSTPIX Latest news photos MAGES OF WAR in Iraq Massive earthquake and and Afghanistan tsunami devastate Japan Jeri Muoio Sworn in as Severe weather in Central, Mayor South Florida IDo Your Feet Hurt? SELBY SHOES 561-969-9369 We'Ll Put Wow! Into Your Windows IN THE SHADE INC 772-223-1212 Free Hearing Test! 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Contact PalmBeachPost.com I Privacy Policy I About our ads Mall ENABLED coreEip http: www.palmbeachpost.com pbcwest content local news epaper 2009 09 18 0918epstein.html Page 3 of 3 Local News: West Palm Beach, Palm Beach County, Martin St. Lucie Counties I The Palm Beach Post 4 6 11 1:50 PM NEWS BRAdviAN MOTORCARS m nrAcir Porsche BRAMAN DIFFERENCE CillefLA I EXPERIENCE THE Mini BMW Audi Subscribe Now Renew E-POST I JOBS I AUTOS I REAL ESTATE I CLASSIFIEDS I PLACE AN AD I I WEATHER I SPORTS I MONEY I OBITUARIES I OPINION I LIVING I ENTERTAINMENT I PHOTOS I VIDEOS I LocalNews Greater Palm Beaches and Treasure Coast Judge: Palm Beach sex offender Jeffrey Epstein agreement to remain sealed By MICHELE DARGAN Palm Beach Daily News Staff Writer Tuesday, February 17, 2009 A federal judge has ruled that a non-prosecution document under which the government agreed not to pursue federal charges against sex offender Jeffrey Epstein will remain under seal - at least for now. The U.S. Attorney's Office and Epstein's lawyers reached the agreement before Epstein pleaded guilty to state felony charges, and the document is under seal in Epstein's state criminal file. Representing two of Epstein's victims, attorney Brad Edwards asked to have the document unsealed as part of his federal lawsuit against the Manhattan money manager. Although Edwards and his victims have seen the agreement, Edwards says in his pleadings that the government has "inaccurately described the agreement ... creating a false impression that the agreement protects the victims." U.S. District Judge Kenneth Marra ruled that the claims, even if true, haven't damaged Edwards' case. "If and when such alleged mischaracterizations become relevant to an issue to be decided by the court, the parties will be given the opportunity to advance their positions and the court will resolve the issue," he wrote. "If disclosure of the agreement will be required for the court to resolve this issue, appropriate disclosure will be ordered." Seeking to keep the agreement sealed, Assistant U.S. Attorney Dexter Lee argued that the agreement is not part of any case before Marra. "The non-prosecution agreement has never been filed under seal in federal court," he wrote. He also denied that the agreement has been inaccurately described. Marra sided with Lee on the argument that the agreement was not filed in federal court "under seal or otherwise." On Aug. 14, Marra ruled that the non-prosecution agreement would be unsealed for Edwards and any of the victims who want to see it. But the ruling bars Edwards and anyone else who sees the document from disclosing the terms to anyone else. In his motion to unseal, Edwards said he wants to be able to discuss the terms of the agreement with other victims and their attorneys as well as with other victims' rights groups such as the National Alliance of Victims' Rights Attorneys. The desire to discuss the agreement with third parties is not justification for unsealing the document, Marra ruled. "If a specific tangible need arises in a civil case relief should be sought in that case," he wrote. Epstein, 56, is serving 18 months in jail for soliciting prostitution and procuring a minor for prostitution. Under the agreement, federal prosecutors will defer their decision on whether to prosecute Epstein on federal charges until 90 days after Epstein completes all requirements of his state sentence. If he abides by all court conditions and restrictions, the federal case would be dropped. In addition to the state criminal case, there are nine federal and seven state lawsuits pending against Epstein. All contain similar allegations: The Manhattan money manager, through his employees and assistants, brought minor girls to his Palm Beach home at 358 El Brillo Way for erotic massages and sometimes sex. (3 Site 0 Web SEARCH Web Search by YAHOO! ACCOUNTS RECEIVABLE SPECIALIST Busy Physical Therapy office seeks FULL TIME AR Collection person to handle txttient accounts. Clit'k Apply! EXPERIENCE PREFERRED COLUMNISTS AND BLOGGERS 111 MOST POPULAR FRANK CERABINO Read Frank's latest columns and follow him on Twitter. Read more HOT CELEBRITY NEWS Get the latest on South Florida celebrities, billionaires, politicos, more. Page2L ive GEORGE BENNETT Read Post politics columnist George Bennett's latest articles. 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Stay on top of the storms with our new interactive live radar - the radar you control http: www.palmbeachpost.com localnews content local news epaper 2009 02 17 0217epstein.html Page 2 of 2 Page 1 LexisNexis' 7 of 11 DOCUMENTS Copyright 2009 ProQuest Information and Learning All Rights Reserved ProQuest SuperText Copyright 2009 Palm Beach Post Palm B each Daily News June 25, 2009 Thursday Final Edition SECTION: A SECTION; Pg. A.1 LENGTH: 557 words HEADLINE: JUDGE TO RULE ON SEALED PLEA-DEAL PAPERS TODAY BYLINE: MICHELE DARGAN, MICHELE DARGAN, Daily News Staff Writer BODY: A circuit judge will decide today whether the public will be privy to the federal government's non-prosecution deal with Jeffrey Epstein, which was sealed when the convicted sex offender pleaded guilty in June 2008 to two felony counts. Epstein, of Palm Beach, will be released from the Palm Beach County Stockade July 22, after serving less than 13 months of his 18- month sentence for procuring a minor for prostitution and solicitation of prostitution. Teri Barbera, spokeswoman for the Palm Beach County Sheriffs Office, confirmed his release date Tuesday. Epstein's projected release date had been Sept. 24, but gain time work-release program Epstein, 56, has been in the work-release program since Oct. 10, in which he is allowed out of the stockade six days a week, from 10 a.m. to 10 p.m., to go to his West Palm Beach office, the Florida Science Foundation, monitored by an ankle bracelet and accompanied by a deputy. As part of Epstein's state plea agreement, the U.S. Attorneys Office agreed not to prosecute Epstein on federal charges as long as he fulfills all requirements of his sentence and probation. The federal non-prosecution agreement has been under seal in state court. Epstein's attorney Jack Goldberger filed court papers asking that the documents stay sealed for the following rea- sons: "to prevent a serious imminent threat to the fair, impartial and orderly administration of justice; to protect a com- pelling government interest; to avoid substantial injury to innocent third parties and to avoid substantial injury to a party by disclosure of matters protected by a common law and privacy right, not generally inherent in these specific type of proceedings, sought to be closed." Fort Lauderdale-based attorney Brad Edwards represents three Epstein victims and has asked Circuit Judge Jeffrey Colbath to unseal the federal agreement to the public. An attorney for The Palm Beach Post also has asked that the rec- ords be unsealed. Edwards and his clients have seen the agreement after a federal judge ruled that they are allowed to see it. But that ruling bars Edwards and anyone else who sees the document from disclosing the terms to anyone else. Edwards said he wants to use that document "in the deposition of various material witnesses" relative to his cases. Page 2 JUDGE TO RULE ON SEALED PLEA-DEAL PAPERS TODAY Palm Beach Daily News June 25, 2009 Thursday Radaronline.com has reported that Epstein has "secretly been helping the feds unravel a Ponzi scheme" related to the June 2008 indictment of two former managers of Bear Stearns Mortgage Investment Fund. Epstein's rep, Howard Rubenstein, confirmed last year that Epstein is "Major Investor No. 1" in the indictment, which says he lost about 57 million. Goldberger could not be reached for comment. The Manhattan money manager has been incarcerated since June 30, when he pleaded guilty to the two felony counts. As part of the plea agreement, Epstein must serve one year of house arrest after his release and register as a life- long sex offender. In addition to the criminal case, there are more than a dozen civil lawsuits against Epstein. All contain similar allegations: Epstein, through his employees and assistants, brought minor girls to his Palm Beach home on El Brillo Way for erotic massages and sometimes sex. mdargan pbdailynews.com GRAPHIC: Caption: Epstein To be released from jail July 22. LOAD-DATE: September 1, 2010 Heiress quizzed in sex suits - NYPOST.com 4 6 1 1 1:5 1 PM 1lAt 51 0 Today's Paper Login Register Classifieds E Archives Subscribe NEW YORK POST Last Updated:Wed., Apr. 6 News 2011, 01:45pm BERGDORF GUDDMAN Derek Jeter Carmelo Anthony Jay-Z Donald Trump Phrase-y Charlie He wants to leave his mark on your wallet. Warlock wannabe... NYC Local Business Opinion Six Padma jabs . John's ex wastes no time . Lots of attention Home Cindy Adams Celeb Photos PopWrap Fashion Delonas Cartoon Story Heiress quizzed in sex suits Last Updated: 3:35 AM, October 12, 2009 Posted: 12:55 AM, October 12, 2009 Comments: 14 Like Be the first of your friends to like this. 0 More Oa Print Ghislaine Maxwell, the British brunette whose father once owned the Daily News, has been slapped with a subpoena in suits brought by 24 underage girls against her old friend, billionaire Jeffrey Epstein. Maxwell 1991 after falling into the Atlantic off his yacht, the Lady Ghislaine p.m. as she was leaving the Clinton Global Initiatives Conference at the Sheraton Hotel. Florida lawyer Brad Edwards, who represents three of the "Jane Does" who are suing Epstein, told Page Six that Maxwell would be questioned over her knowledge of how Epstein procured many of the girls. Epstein is accused in the civil complaints of luring underage girls to his mansion in Palm Beach to give him massages, during which he allegedly engaged them in sexual activity and paid them hundreds of dollars each. A grand jury indicted Epstein on a charge of felony solicitation of prostitution. Epstein, who pleaded guilty and did 12 months in prison, was deposed last week in the offices of his lawyer, Jack Goldberger. Goldberger wouldn't comment, but a friend of Epstein said, "These people bringing the complaint are the lowest of the lows in terms of ambulance-chasing lawyers." The trials are scheduled to start in February. Nadia Marcinkova, who has been described as Epstein's lesbian sex slave and who visited him behind bars 67 times, has also been served with a subpoena. Epstein's brother, Mark Epstein, who has a real-estate holding company in New York, has already been deposed about a building he owns, 301 E. 66th St. "Jeffrey rents several apartments there where he keeps his girls, alleged models for the MC2 agency he owns," Edwards said. "But Mark acts like he doesn't even know his brother. He was extremely angry and rude and cursed me out." http: www.nypost.com p pagesix item 0137QFDOUnUXhNff7btM0pL Sports a a. LAN VIN SHOP NOW WEEKLY AD PHOTOS VIDEOS BLOGS Poison pen One, two, three flush. Asked to protect a gem by CC Sabathia,... Teams High Schools E Scores Page Six Magazine Entertainment Kitchen's hot! On a recent Saturday evening, a small army of servers outfitted... 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Kelly Clarkson's greatest hits sound greater than ever The Clarkson colors run deep here at PopWrap, so View Singles in New York VIEW PHOTOS OF: Men ! lEAIR ZIP: nnatch.corri VIEW PHOTOS seeking1178, age 36 Seeking: women 24-35 Interests: Camping, Cooking, Dining out., Wine tasting Lj See More Like Him aaroniI.255, age 27 Seeking: women 23-33 Interests: Dining out Exploring new areas. ..lusic and concerts See More Like Him dar5508, age 31 Seeking: women 23-35 Interests: Nightclubs Dancing, Playing sports, Traveli Sightseeing See More Like Him Page 1 of 3 Heiress quizzed in sex suits - NYPOST.com Sponsored Links Buy a Link Here Scholarships for Moms Grant Funding May Be Available to Those Who Qualify! SeeCollegeDegrees.com Grant Mom Shares 3 Wrinkle Tip Dermatologists HATE this 1 simple tip that erases wrinkles fast WeeklyInform.com SHOCKING: 52 Samsung HDTV for 74.07 TODAY ONLY: Auction site to clear out 1,000 52 Samsung HDTVs for 74.07! Consumer-Weekly.net SmartShopping Like Be the first of your friends to like this. 0 Comments 04 More 46 Print a comment... 0 Facebook social plugin Comment NYPOST Comments (1o) Jimscol6 03 28 2011 9:26 AM No Chance I'm going to believe any of this. "Jane Does" seems to be the operative phrase in all of this. Do a google search for "Ghislaine Maxwell Vanity Fair" you'll find a relatively different, much more founded story there. Pedro Gonzalez 10 12 2009 8:59 PM ...hatinTHEHATERS....You have just shown what kind of hypocrites use the Race Card...... Report Report shodan Report 10 12 2009 7:43 PM hatinTheHaters: Wow, blaming the underages girls he molested? Word to the wise for the other posters here. Keep your kids away from "hatinTheHaters". Kramden Report 10 12 2009 3:10 PM Jeffrey Cumstein? Yankee Doodle Dandy Report 10 12 2009 11:50 AM The New York Post NEVER misses an opportunity to tweak the nose of its cross-town rival, The New York Daily News! Hey, if you CAN'T bash 'em, TRASH 'em!!! jcmrtn Report 10 12 2009 11:15 AM But Hollywood types say raping and drugging 13 year olds isn't really a crime anymore. Jeffrey and Roman should be released and given an apology. How dare we have laws to protect children. Don't they realize these men are FAMOUS? palebluehalo Report 10 12 2009 7:05 AM c'mon, who hasn't banged a few underage models? Pedro Gonzalez 10 12 2009 5:07 AM ...Ghislaine Maxwell's mistake was to be at the Clinton Global http: www.nypost.com p pagesix item OB7OFDOUnUXhNff7btM0pL Report 4 6 11 1:51 PM Kelly's long-teased appearance on today's... This 'When Harry Met Sally' sequel sucks Although I haven't seen it in quite a number of years, I suspect that "When Harry Met... '30' to 'Rock' no more Alec Baldwin is going from "Rock" to "Rock" as the "30 Rock" star preps for his role in an... Back to Bayside More in Videos Good grief, Jennifer News Gossip Sports Weird News Lifestyle Garner is such a dork Jennifer Garner may have a body, life and closet to kill for, but every time she does... Watch two minutes from 'Workaholics' Comedy Central is very hit and miss with their original programming "South... More in PopWrap Sponsored Links 53yr Old Mom Looks 30! We Expose the 4 Trick to ERASE Wrinkles. Her Results will Shock You! www.vanityreports.com ... Obama Urges Homeowners to Refinance If you owe under 729k, you probably qualify for... www.SeeRefinanceRates.... Hot Stock Pick - GTSO New Rare Earth Exporter in Mongolia Prepares to Ship New Ore Next Mont www.RareEarthExporters... Buy a link here NEW YORK POST "The Bee iPad-App Avellable on the L.J App Store FOLLOW THII NEW Y01110 POST twikker, Page 2 of 3 Heiress quizzed in sex suits - NYPOST.com 4 6 11 1:51 PM Initiative Conference, a tax dodge for the rich and a front for the sexual deviants. 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Privacy I Terms of Use http: www.nypost.com p pagesix item 0137QFDOUnUXhNff7btM0pL Page 3 of 3 Page 1 LexisNexis' 9 of 13 DOCUMENTS Copyright 2009 Sun-Sentinel Company All Rights Reserved Sun-Sentinel (Fort Lauderdale, Florida) June 15, 2009 Monday Palm Beach Edition SECTION: LOCAL; Pg. 3B LENGTH: 348 words HEADLINE: HEARING SET TO CONSIDER SECRECY OF PLEA BARGAIN BYLINE: Susan Spencer-Wendell The Palm Beach Post BODY: A Palm Beach Circuit Court judge will not immediately unseal a deal that wealthy Palm Beach money manager Jeffrey Epstein made with federal prosecutors to avoid charges. Circuit Judge Jeff Colbath acknowledged, though, at a hearing last week that Epstein's deal was not sealed in ac- cordance with state and local court rules. "I don't see where any of the procedures were ever followed to begin with," Colbath said. Colbath also set a full hearing on the matter for June 25. Attorneys for young women now suing Epstein, together with The Palm Beach Post, are asking Colbath to unseal the deal that Epstein made with federal prosecutors. "Ifs a secret agreement, a secret sweetheart agreement," said former Circuit Judge Bill Berger, who represents some of the women. "Everybody was in on this deal except the victims and the public. The public should be outraged it has gone as far as it has." Brad Edwards, a second attorney representing the women, has seen the sealed deal after a federal judge allowed him and his clients to view it, but would not discuss its contents. Edwards would say only that the women were "outraged" that it had been negotiated behind their backs. A reporter asked Edwards whether he thought Epstein received special treatment by federal prosecutors. "Are you kidding? Its transparent. Certainly, no one else gets treated like that," Edwards said. Epstein, 56, a reported money manager of billionaires, is serving an 18-month sentence in the Palm Beach County Stockade after pleading guilty almost a year ago in state court to felony solicitation of prostitution and procuring teen- agers for prostitution. Epstein is allowed out, though, each day from 7 a.m. to 11 p.m., a Sheriffs Office spokesman said. Displeased with the way the State Attorneys Office handled the case, Palm Beach police forwarded information to the FBI. INFORMATIONAL BOX: Young women have sued Page 2 HEARING SET TO CONSIDER SECRECY OF PLEA BARGAIN Sun-Sentinel (Fort Lauderdale, Florida) June 15, 2009 Monday Money manager Jeffrey Epstein made a deal and is serving an 18-month sentence in jail. Attorneys for young women suing Epstein are asking a judge to unseal the deal that Epstein made with federal prosecutors. NOTES: Informational box at end of text. TOPIC Prostitution solicitation case LOAD-DATE: June 15, 2009 Page 1 LexisNexis' 3 of 3 DOCUMENTS Copyright 2009 ProQuest Information and Learning All Rights Reserved ProQuest SuperText Copyright 2009 Palm Beach Post Palm Beach Daily News June 11, 2009 Thursday Final Edition SECTION: A SECTION; Pg. A.1 LENGTH: 561 words HEADLINE: EPSTEIN PLEA DEAL TO REMAIN SEALED FOR NOW BYLINE: DAVID ROGERS, DAVID ROGERS, Daily News Staff Writer BODY: The plea deal that part-time Palm Beacher Jeffrey Epstein agreed to several months ago to avoid federal charges will remain sealed for the time being. Lawyers for The Palm Beach Post and a woman who claimed Epstein solicited and procured her for sex at his El Brillo Way home while she was underage asked Palm Beach County Circuit Judge Jeffrey Colbath Wednesday morning to unseal the plea documents immediately. Instead, Colbath decided to leave the documents sealed and give Jack Goldberger, the attorney representing Ep- stein, until 1 p.m. Friday to file papers showing why the records should remain out of public view. Colbath agreed to let the Post and "E.W." have standing in the case and set a hearing on whether the documents should be unsealed for 1:30 p.m. June 25. Epstein agreed in September 2007 to plead to state charges to avoid federal prosecution, Goldberger told County Judge Deborah Pucillo at Epstein's plea conference last year. The sealing of the records in question was said to be a "significant inducement" for Epstein, who is serving 18 months in the Palm Beach County Stockade federal courts by more than a dozen alleged victims. Colbath said, "I don't see where any of the proper procedures to seal the documents were ever followed ..." but that he would give Epstein's legal team the ability to "jump through the hoops to seal the documents if they are entitled in fact to be sealed." The sealing of court documents in Florida is unusual and lawyers typically have to prove a significant reason for it, such as protecting trade secrets or a compelling government interest. Goldberger said after the hearing there is no rush to unseal the plea deal. "I think the records clearly need to be sealed and continue to be sealed but I think the ruling by Judge Colbath was a very well- reasoned practical decision," Goldberger said. "He is not getting special treatment." Brad Edwards, of the law firm of Rothstein Rosenfeldt Adler of Fort Lauderdale, said the plea deal should be a public record. His firm represents the woman, now 20, who was identified only as E.W. Page 2 EPSTEIN PLEA DEAL TO REMAIN SEALED FOR NOW Palm Beach Daily News June 11, 2009 Thursday Whether procedure was followed is not the issue, he said. "Certainly it should be unsealed regardless. I mean this is a very unusual circumstance where a document like this would be sealed," Edwards said. "None of the other criminal defendants in there (Judge Colbath's courtroom) had their plea bargains, plea agreements, their non-prosecution agreements, sealed." Edwards said his firm represents three women who claim they were procured for sex with Epstein when they were underage. The three are outraged that the document is under wraps, Edwards said. Deanna Shullman, the attorney representing the Post, said the public and the press have a constitutional right of ac- cess to public records in Florida. "Fortunately, the status quo is openness. So I think the judge has the idea that the initial closure was done without any adherence to those procedures but was inclined to give Mr. Epstein's lawyers additional time to prove that they should be sealed in accordance with these procedures," Shullman said. Its a little disappointing in that we would have liked to see the judge unseal the record because that's what should be the status quo in a situation like this, Shullman said. drogers pbdailynews. com LOAD-DATE: September 1, 2010 Page 1 0 , LexisNexis' 1 of 11 DOCUMENTS Copyright 2009 Associated Newspapers Ltd. All Rights Reserved The Evening Standard (London) December 24, 2009 Thursday LENGTH: 824 words HEADLINE: CITY SPY BODY: EXPECT more media firms to announce plans to charge for content online in early 2010. City Spy hears that busi- ness-to-business publisher United Business Media is the latest outfit which is thinking of ramping up its subscription model. Property Week and Building are among the titles which recently started asking users to register their details to keep reading stories, which is seen as a possible precursor to charging. BUSINESSES TIPPED TO COME A CROPPER AMID all the contradictory forecasts for recovery or double-dip recession in 2010, what do the insolvency practi- tioners say? City Spy's mole in the bean-counting world says the last quarter of 2009 was surprisingly quiet as the economy stabilised but they are not optimistic about the new year: "We reckon there's going to be a rush of insolvencies in the second quarter, after the end of the financial year." The next quarterly rent review is due tomorrow, Christmas Day, then again at the end of March. But given the number of "seasonal sales" that started on the High Street at least a week before Christmas, it would be no surprise to see some retailers come a cropper sooner... EPSTEIN PILOT TAKES TO THE ROAD FURTHER news reaches City Spy of former Bear Stearns trader, Prince Andrew's shooting companion and con- victed sex offender, Jeffrey Epstein. The ex-Wall Street star served 13 months in jail on criminal charges of soliciting prostitution and procuring a minor for prostitution and he now faces civil claims from young women accusing him of having unlawful sex with them. This week, City Spy recounted how Epstein had transferred the title deeds of his prized 2003 Ferrari 575M Maranello to his private pilot Larry Visoki, prior to the car going on sale for 159,000 ( 99,000) (possibly to help Epstein pay his legal bills). It turns out, the same Visoki was deposed last week by Bradley Edwards, an attorney for three of the women su- ing Epstein. Questioned by Edwards about plane passengers who might have witnessed Epstein in the company of young girls, Visoki admitted Bill Clinton, Prince Andrew, former Israeli prime minister Ehud Barak, former Colombian president Andres Pastrana Arango, Obama economic adviser Lawrence Summers, billionaire Ron Burkle, and actors Kevin Spacey and Chris Tucker had been on board the plane while young girls were present. Fortuitously for Epstein, however, Ferrari-selling Visoki swore on oath that he never suspected his boss of having sex with them. Of course not, Larry. Now drive off into the sunset. More on Prince Andrew, our special representative for international trade and investment. The European Parliament and the Organisation for Security and Co-operation in Europe have strongly condemned Azerbaijan for tightening re- strictions on the media and jailing two bloggers who were critical of the government. It transpires the oil-rich country has long blocked BBC broadcasts there, which might explain why oft-criticised Andrew and former Prime Minister Tony Blair spend so much time visiting the sometime Soviet State. What does the snow have in common with the recession? Every other country can get out of both but Britain can't get out of either. HAPPY news: private jet travel is back, reports the Wall Street Journal. Alas, there is a "but" x2039 Page 2 CITY SPY The Evening Standard (London) December 24, 2009 Thursday in-flight food remains in recession. Apparently, those who supply food to executive aircraft are seeing demand soar after a slump, but says one caterer: "No one is eating lobster. A quick turkey box lunch is the order of the day." Of course, that has nothing to do with the industry being desperate to re-brand itself as time-saving and cost-efficient. WHICH insurance broker saw a compliance officer pass out after the office Christmas lunch and have to be taken to hospital? WHO MADE OFF WITH THE MONEY? IT's a year since the Bernie Madoff affair blew up and the hedge fund king was found to have been ripping off his clients. If he was in Britain the old fi-audster would still be at liberty as lawyers pored over his case and the prosecution had barely cranked into operation. But the US is different x2039 his case is done and dusted, and he's languishing in jail. Even so, by US standards, the Madoff conviction was going some. Rumours persist that he pleaded guilty as quickly as he did and said the absolute minimum because he wasn't the main crook of the piece x2039 the main business of his hedge fund was washing money for organised crime. As soon as the balloon went up and he was arrested, he was warned by friends with Italian-American origins that his life, and the lives of his family, would be at risk were he not to "take the rap". OETaking the rap': hedge fund fraud Bernie Madoff UNFORTUNATE name? City Spy's eye is drawn to a forthcoming lecture at the Institute of Advanced Legal Stud- ies, School of Advanced Study, University of London. Its in partnership with the Market Abuse Association. What? Do they wear a club tie? Do they refer to each other as fellow market abusers? LOAD-DATE: December 24, 2009 Page 1 LexisNexis' 6 of 11 DOCUMENTS Copyright 2009 ProQuest Information and Learning All Rights Reserved ProQuest SuperText Copyright 2009 Palm Beach Post Palm B each Daily News September 20, 2009 Sunday Dnl Edition SECTION: A SECTION; Pg. A.1 LENGTH: 1126 words HEADLINE: ATTORNEY FOR EPSTEIN VICTIMS: 1 HAVE NEVER SEEN A STRANGER CASE' BYLINE: MICHELE DARGAN, MICHELE DARGAN, Daily News Staff Writer BODY: Sex offender Jeffrey Epstein could have been charged with multiple counts of five federal offenses involving sex acts with minors and faced a life sentence, but, instead, the government agreed not to prosecute him or his procurers if he spent 18 months in the county jail on two state charges. Those were the details unsealed Friday in a nine-page federal non- prosecution agreement that lets Epstein and co-conspirators Sarah Kellen, Adriana Ross, Lesley Groff and Nadia Marcinkova off the hook for any of those past crimes. "He could have gone to prison for life and somehow he's getting immunity in exchange for nothing?" said Fort Lauderdale attorney Brad Edwards, who represents three Epstein victims. "I have never seen a stranger case. To me, its more spectacular what's not in it. Its the U.S. Attorneys Office saying well do everything in our power to see he doesn't get punished." Edwards has been fighting for a year in federal and state court to unseal the agreement. "The non-prosecution agreement raises more questions than it answers," said Miami attorney Adam Horowitz, who represents seven victims. "Why did all the co-conspirators receive immunity? Why were the victims not consulted re- garding the sentence? Why did he receive such a minimal sentence? The federal deal has remained sealed in Epstein's state court file since he pleaded guilty in June 2008 to state charges of procuring a minor for prostitution and soliciting prostitution. U.S. Attorneys Office does not comment The federal charges he could have faced were: conspiracy to persuade minor females to engage in prostitution, conspiracy to travel to engage in illicit sexual conduct with minor females, persuading minor females to engage in pros- titution, traveling to engage in illicit sexual conduct with minor females and causing a person under 18 years to engage in sex for money while knowing they are underage. The charges carry various statutory penalities ranging from 10 years to life, with a minimum mandatory of at least 10 years. Alicia Valle, spokeswoman for the U.S. Attorneys Office in Miami, declined comment. Expert: Feds take few sex-assault cases Page 2 ATTORNEY FOR EPSTEIN VICTIMS: 1 HAVE NEVER SEEN A STRANGER CASE Palm Beach Daily News September 20, 2009 Sunday North Palm Beach criminal defense attorney Barry Maxwell said he is not surprised that federal charges weren't filed. "My experience has been that the federal government does not intervene in sex-assault cases, except if were deal- ing with a serial rapist or it crosses jurisdictional lines," Maxwell said. "Ifs either not a big enough case or not atrocious enough for them." Epstein, 56, served 13 months of his 18-month sentence at the Palm Beach County Stockade and received liberal work-release privileges while in jail. He was able to go to his West Palm Beach office six days a week for up to 16 hours a day. He is now serving one year of probation at his Palm Beach mansion and is registered as a lifelong sex offender. Epstein 'fully abided' by deal, says defense Epstein's attorney Jack Goldberger released the following statement: "This document relates to allegations that were made many years ago. It was by its provisions and agreement of the parties to remain confidential in part to protect the identities of collateral third parties. "Mr. Epstein has fully abided by all of its terms and conditions. He is looking forward to putting this difficult peri- od of his life behind him. He is continuing his longstanding history of science philanthropy both here in South Florida and nationwide." Goldberger had blocked the unsealing by filing court papers asking that the documents stay sealed "to prevent a se- rious imminent threat to the fair, impartial and orderly administration of justice; to protect a compelling government interest; to avoid substantial injury to innocent third parties; and to avoid substantial injury to a party by disclosure of matters protected by a common law and privacy right, not generally inherent in these specific type of proceedings, sought to be closed." Circuit Judge Jeffrey Colbath ordered the agreement to be unsealed in June, but Epstein's attorneys appealed the ruling to the Fourth District Court of Appeals, which affirmed Colbath's ruling. Colbath had ruled that the federal agreement felt it was my fault' More than a dozen lawsuits against the billionaire money manager have been filed in federal and state court, all with similar allegations: that a minor girl was taken to Epstein's mansion on El Brillo Way and led upstairs to a spa room by one of Epstein's assistants, where he would ask the girl to perform massages and or various sex acts, for which he would pay her. One victim, who is known as Jane Doe 5 in a federal court lawsuit against Epstein, said she didn't find out about the deal until after it was finalized. She was 15 at the time one of her schoolmates told her she could make 200 by giv- ing a massage to a man in Palm Beach. She says she was "nervous and scared and wanted to leave" once she got to Epstein's spa room. "I thought, 1 can't call my dad or my mom because Pm stuck in this situation and didn't know what to do," she said. "I really didn't know what this man was capable of For a long time, I felt like it was my fault and that's exactly what he wanted me to feel." Epstein has curfew While he is serving the 12 months of house arrest at his Palm Beach home, Epstein must observe a 10 p.m. to 6 a.m. curfew, have no unsupervised contact with anyone younger than 18 and not view, own or possess pornographic or sexual materials. The indictment followed an 11-month investigation by Palm Beach police, who said Epstein paid five underage girls for massages and sometimes sex at his El Brillo Way home. Then-State Attorney Barry Krischer declined to pros- ecute Epstein on multiple charges involving unlawful sex acts with minors. Instead, he brought the case to a grand jury, which charged Epstein on the lesser charge of soliciting prostitution. Then-Palm Beach Police Chief Michael Reiter wrote Krischer a letter asking him to recuse himself from the case. When that didn't happen, Reiter requested an FBI investigation to determine if any federal laws were broken. Page 3 ATTORNEY FOR EPSTEIN VICTIMS: 1 HAVE NEVER SEEN A STRANGER CASE Palm Beach Daily News September 20, 2009 Sunday Out of the ordinary' West Palm Beach criminal defense attorney Gregg Lerman said several aspects of the Epstein case are unusual. "I don't understand why it would be a federal case in this circumstance, and why was there anything in writing at all and why did they seal the agreement?" Lerman said. "Why did it go to the grand jury instead of through the state filing lewd assault charges? That's unusual. And its very unusual that they structure a plea to get county time rather than prison time. That's definitely out of the ordinary. Nobody goes to county jail as a state criminal punishment." mdargan pbdailynews.com GRAPHIC: Caption: Epstein Deal does not allow prosecution of co- conspirators. LOAD-DATE: September 1, 2010 |
Print this page Close Jeffrey Epstein address book 'Holy Grail of famous names By MICHELE DARGAN DAILY NEWS STAFF WRITER Updated: 7:58 p.m. Friday, March 11, 2011 Posted: 7:57 p.m. Friday, March 11, 2011 When talking about the personal address book of billionaire sex offender Jeffrey Epstein, the term little black book takes that phrase to a whole new level. Manhattan money manager Epstein s book reads like a laundry list of the world s richest and most powerful people, including some Palm Beachers. Referred to as The Holy Grail by Epstein s former house manager now serving time for trying to sell it to attorneys the 97-page address book details multiple addresses, phone numbers, e-mails and other contact information for former President Bill Clinton, Britain s Prince Andrew and Sarah Ferguson, Donald Trump, Sen. John Kerry, various members of the Kennedy clan and former British Prime Minister Tony Blair, among many others. The British press has been having a field day digging up new details about Epstein s friendship with Prince Andrew. Virginia Roberts known only as Jane Doe 102 in court papers has been dishing her story to London s Daily Mail. Details include Roberts having been in the company of the prince three times at Epstein s behest. Roberts also recounted meeting Clinton on Epstein s private Caribbean island, according to the Mail. But Roberts made no suggestion of sexual relations with Prince Andrew or with Clinton, the Mail reported. Similarly, there is no suggestion of anything salacious with any of the Palm Beachers listed among the money manager s contacts. Roberts who spent four years with Epstein refers to him as a monster who paid her lavishly to satisfy his and his friends sexual whims although Roberts doesn t identify the friends. British papers also have reported that Ferguson accepted 15,000 from Epstein. The money was paid to her former assistant, who claimed Ferguson owed him unpaid wages and other bills. Ferguson has since told the Mail and other British papers that she made a gigantic error of judgment in accepting the money from Epstein and that she will pay him back. The entire Grail was made public as part of a pending civil court case in which Epstein is suing attorney Brad Edwards, who represented several underage girls who sued Epstein. Epstein sued Edwards, alleging he was involved in false claims made by Ponzi schemer Scott Rothstein; Edwards countersued Epstein, saying he filed a frivolous lawsuit to get him to back down from representing the young women. All the lawsuits against Epstein said his modus operandi in the initial visit was the same: The girls were taken to Epstein s Palm Beach mansion and led upstairs to a spa room by one of Epstein s assistants, where he would ask the girls to perform sexually charged massages and or various sex acts, for which he would pay them. Other high-profile names in Epstein s book include Special Envoy for Middle East Peace George Mitchell, New York City Mayor Michael Bloomberg, New York Gov. Andrew Cuomo, Barbara Walters, Alec Baldwin, Ralph Fiennes, George Hamilton, Dustin Hoffman, Kevin Spacey, Liz Hurley, Lauren Hutton, Janice Dickinson, Naomi Campbell, Christy Turlington, Henry Kissinger, Joan Rivers, Courtney Love, Mick Jagger, Cornelia Guest, Phil Collins, Itzhak Perlman, Simon LeBon, Charlie Rose, Richard Branson, playwright Candace Bushnell, designers Tom Ford and Vera Wang, soap opera actress Nadia Bjorlin and erotic film star Koo Stark, who once dated Prince Andrew. Among the high-powered Palm Beachers listed in the money manager s address book are Catherine and Fred Adler, Samantha and Serena Boardman, Jimmy and Jane Buffett, Pepe Fanjul, Conrad and Barbara Black, Gerry Goldsmith, Marjorie Gubelman, Dana Hammond, David Koch, Henry Kravis, Frayda and George Lindemann Sr., Bob and Todd Meister, Alfred Taubman, Stanley, Bea and Brett Tollman, and Martin Trust. Gaston Cantens, a spokesman for Florida Crystals Corp., said Fanjul and Epstein obviously knew each other and had some contact in the past. But there isn t any ongoing business or social relationship with Mr. Epstein. Reached by phone at his Palm Beach home, media mogul Black said he knew Epstein as a friend of my colleague Mr. Wexner. Les Wexner, CEO of The Limited Brands, was reported to have been Epstein s biggest client and close friend. Wexner replaced Epstein as his money manager, according to recent reports. Some of the names in Epstein s book are sub-listed under geographic locations. The heading massage is notated under many of Epstein s locations. Names and phone numbers, most of them first names only, are listed under the massage entries. Registered as a level 3 sex offender, Epstein pleaded guilty to soliciting underage girls for sex at his El Brillo Way home in Palm Beach. In addition to serving 13 months of an 18-month jail sentence, Epstein has settled at least two dozen lawsuits with young women for undisclosed amounts. Find this article at: http: www.palmbeachdailynews.com news jeffrey-epstein-address-book-holy-grail-of-famous-1315130.html Print this page Close |
Jeffrey Epstein 'kept a diary of his under-aged victims' The Duke of York s billionaire paedophile friend kept a secret journal, described as The Holy Grail by lawyers, which listed his alleged under-aged victims and the celebrity guests he entertained at his Florida mansion. Jeffrey Epstein and Ghislaine Maxwell at Sandringham in 2000 Photo: ALBANPIX By Jon Swaine (http: www.telegraph.co.uk journalists jon-swaine ) , New York 8:00AM GMT 05 Mar 2011 8,591 followers Jeffrey Epstein used the black book to log contact details of the girls that gave massages to him and his friends and those of his powerful and famous associates, such as Bill Clinton and Donald Trump. A servant at the 4 million manor in Palm Beach, where Prince Andrew enjoyed daily massages during several stays, stole the journal and initially kept it secret from investigators. He is now in prison after attempting to sell it for 50,000 ( 31,000). Epstein, 58, was accused of sex offences by more than 20 under-aged girls. They alleged that after being recruited as masseuses by aides including Ghislaine Maxwell, daughter of the late tycoon Robert, they were seriously assaulted and then paid hundreds of dollars. The billionaire financier, who attended The Queen's birthday party in 2000, was sentenced to 18 months in prison in 2008, having secured a plea bargain that prevented full criminal trials. He later settled more than a dozen multi-million dollar civil lawsuits from his alleged victims out of court. The previously undisclosed journal, however, detailed the full scope and the extent of Epstein's involvement with underage girls , according to lawyers for several alleged victims. Prosecutor of the Duke of York s sex offender friend Jeffrey Epstein speaks of Duke of York pleads with government over links to dictator 'assault (http: www.telegraph.co.uk news uknews theroyalfamily 8407689 Prosecutor-of-the-Duke-of-Yorks-sexoffender-friend-Jeffrey-Epstein-speaks-of-assault.html) (http: www.telegraph.co.uk news uknews theroyalfamily 8363180 Duke-of-York-pleads-for-government-support-overdinner-with-Tunisian-dictators-relation.html) It contained the names of girls that Epstein allegedly abused in Michigan, California, West Palm Beach, New York, New Mexico, and Paris , according to court papers. It also listed extensive contact details for Epstein s house guests, who had no connection whatsoever with alleged offences, including Mr Clinton, the former US President, and Mr Trump, the famous businessman. It could not be confirmed last night whether the book contained contact details for the Duke. One lawyer for Epstein s alleged victims said: I would bet he is, because he is that good a friend . There is no suggestion that the Duke did anything wrong. However he has this week faced a string of questions about his judgment due to his association with a convicted child sex offender. Epstein kept 21 different phone numbers for Mr Clinton, including some for his assistant and also Clinton s personal numbers , the court papers state. Alfredo Rodriguez, a servant who saw numerous underage girls coming into Epstein s mansion for purported massages , took the journal and did not mention it to investigators. Because of the importance of the information in the journal to the civil cases, Mr Rodriguez called it The Holy Grail , the court documents state. He attempted to sell the book to lawyers for 50,000 ( 31,000) in August 2009 - by which time Epstein had already been sentenced and released from jail. The lawyers contacted the FBI, who sent an undercover agent to buy the book from Rodriguez. He was then arrested and charged with obstruction of justice. Rodriguez, who said in sworn testimony that he was terrified of Miss Maxwell, also said he took the book as an insurance policy to prevent Epstein making him disappear . He was sentenced to 18 months in prison the same punishment Epstein received for his sex offences in June last year. His wife, Patricia Dunn, told The Daily Telegraph that he was sorry for his error. Dave Lee Brannon, an Assistant Public Defender who represented Rodriguez, said: If this book had been produced when requested, Mr Epstein s sentence may have been significantly different. Details of the journal emerged in a lawsuit brought in Florida by Epstein against Brad Edwards, a lawyer representing several alleged victims. Epstein alleges Edwards was linked to a "Ponzi scheme" run by a colleague, which lured investors by falsely claiming Epstein had agreed to settle sex-offence lawsuits for hundreds of millions of dollars. Edwards rejects the allegation, which has already been dismissed by the Florida Bar. Copyright of Telegraph Media Group Limited 2011 |
Print this page Close Judge denies gag order in Epstein, Edwards lawsuit; dismisses complaint By MICHELE DARGAN DAILY NEWS STAFF WRITER Updated: 7:25 p.m. Wednesday, July 13, 2011 Posted: 7:11 p.m. Wednesday, July 13, 2011 A circuit judge Wednesday squashed an attempt by attorneys for Jeffrey Epstein to prevent parties in a civil lawsuit involving the billionaire sex offender from talking to the media. Circuit Judge David Crow denied the motion for a gag order. In addition, Crow dismissed the complaint by Epstein against attorney Brad Edwards, who has represented 10 underage girls in sex abuse claims brought against Epstein. Epstein alleged Edwards abused the court system by threatening to depose Epstein s powerful friends, which included Donald Trump and President Bill Clinton. Other claims included that Edwards tried to obtain records from an alleged sex therapist who had never treated Epstein and that Edwards used investigative tools that included trespassing on Epstein s property. Crow gave Epstein s attorneys 30 days to refile the lawsuit, which will be the second amended complaint and third evolution of the lawsuit. Epstein also named Edwards former boss, convicted Ponzi schemer Scott Rothstein, in the lawsuit, alleging Rothstein made various representations to potential investors regarding the Epstein actions. In dismissing the lawsuit, Crow said he found serious problems with the complaint. Crow called the lawsuit vague. You have to know, at this point in time, what he did or didn t do that was an abuse of process, Crow said. Epstein, 58, has confidentially settled more than two dozen lawsuits with young women who allege they were sexually abused by him when they were minors. Edwards filed a counterclaim, alleging Epstein filed the lawsuit to get Edwards to back down from representing the victims. Mr. Epstein had to pay more to settle these cases than he would have if Mr. Edwards wasn t out there putting all this pressure on him, said attorney Jack Scarola, who represents Edwards. That s Mr. Edwards job ... to put as much legitimate pressure on the defendant as he possibly could and he obviously did an extremely effective job. Epstein pleaded guilty to two felony charges: soliciting prostitution and soliciting a minor for prostitution. He served 13 months in the county jail and has to register as a lifelong sex offender. Representing Epstein, attorney Joseph Ackerman argued unsuccessfully for a gag order. Ackerman said Scarola has repeatedly made statements to several news organizations about the case. Mr. Scarola has constantly referred to Mr. Epstein as a pedophile and there s been no proof of that anywhere, Ackerman said. Muzzling lawyers who may wish to make public statements has been long recognized as within the court s inherent power ... We don t believe it s appropriate to wage a media campaign and taint the jury pool. Scarola said it would be unconstitutional to impose a gag order. There is a complete and total absence of proof that we have engaged in any conduct whatsoever that could be prohibited, Scarola said. Scarola said he and Edwards have been asked to appear on national television as well as received interview requests from the foreign press. Scarola said he has been selective in his interviews. There has been a frenzy in the British press ever since Virginia Roberts, an Epstein victim, spoke to the Sunday Daily Mail earlier this year about being introduced to Prince Andrew and spending time with him at Epstein s behest. Roberts alleged she served as a sex slave to Epstein when she was a minor. If Mr. Epstein is embarrassed by Mr. Epstein s conduct, that s Mr. Epstein s problem, Scarola said. I m pleased to hear he s embarrassed by his conduct. Maybe it will serve as some deterrent in the future. Find this article at: http: www.palmbeachdailynews.com news judge-denies-gag-order-in-epstein-edwards-lawsuit-1606397.html Print this page Close |
Navigating our presidential campaign was a piece of cake compared to understanding the nuances of the 2011 Oscar race for the most revered artistic honor in the world. This is how nine films fell into the big picture. Three premiered in Cannes mid-May, a distant nine months ago, creating an Oscar campaign as long as any human pregnancy. At the Palais, the first inkling of Oscar buzz was born as reclusive Woody Allen premiered "Midnight in Paris". PBS later aired a documentary of Woody discussing his forty-four films showing the astonishing depth of his talent that made you want to immediately hand him the Oscar for Best Picture. Academy rules and Woody forbade marketing this gem. Woody is not a member of the Academy because he doesn t feel that films should be in competition. He told me, "A statue does not change your life. You still get a cold. You can't get a date. You still have everyday things to worry about". The Academy learned to love him from a distance and gave him best original screenplay as a consolation. Terrence Malick's long awaited esoteric "The Tree of Life" unveiled at Cannes and won the coveted " Palme D'Or " positioning it for a nomination. "The Artist", created by the French, shot in Hollywood and about Hollywood was the festival surprise. This charming and oddly original black and white silent entry was introduced by the ringmaster himself, Harvey Weinstein. No one could pronounce or spell director Michel Hazanavicius's name. Jean Dujardin could not speak a word of English and neither could his 10 year old co-star, the Jack Russell Uggie who had been rescued from the pound after two adopters found him too wild. Tragically Uggie developed an undisclosed neurological disorder during production, forcing him to retire at the height of his popularity. No slam dunk Oscar winner emerged in Cannes. Any future film could easily win. DreamWorks "The Help" premiered in LA in August and distributer Disney began propelling the politically correct and socially significant film to box office heaven of 200 million. Viola Davis and Octavia Spencer were forecast to win Oscars. In September, the Toronto and New York Film Festivals and Fox Searchlight presented Alexander s's Hawaiian family saga, "The Descendants," which broke out of the pack with whispers of winning. Beloved George Clooney, playing a father for the first time was hailed a shoe-in for best actor. Directing "Ides of March" was additional momentum. Also at New York's festival Marty Scorsese and Paramount sneaked an unfinished cut of "Hugo" in Alice Tully Hall, built for concerts but converted into a 3-D theater. Marty was christened the visionary genius of an innovative costly 3-D masterpiece. Director Bennett Miller's highly anticipated "Moneyball" for Sony hit a grand slam at its west coast premiere in Oakland aligning the film, it s heart throb star Brad Pitt, Jonah Hill and seasoned writers Steve Zaillian and Aaron Sorkin in play. Spielberg's epic "War Horse" for DreamWorks came thundering down the pike with a huge premiere back at Alice Tully Hall with posters of Lincoln Center's Tony winning theatrical "War Horse" with their indelible puppets in the background. Steven paid homage to legends John Ford and David Lean and the country fell in love with a horse named Joey and his fourteen stand-ins. Studios worked their stars to the bone. Ironically, Harvey's independent French talent who lived in Paris were not as available as their competitors, therefore Uggie became a super star igniting a pet war. Christopher Plummer, who had best supporting actor in the bag promoted his Jack Russell, Cosmo. Diminutive Scorsese was seen on TV on a small couch with his large Doberman, Blackie drooling on his suit. Spielberg never got a chance to trot out his lead horse Joey, previously seen in "Seabiscuit" because his ravishing reddish coat was now darkened for another role. By December, as film critics bestowed their own awards upon many films, Stephen Daldry struggled to finish "Extremely Loud and Incredibly Close" with a new score. There was buzz Daldry could be editing the winner. Producer Scott Rudin juggled his astounding three films in one year from Daldry, Miller and David Fincher directing The Girl with the Dragon Tattoo. Daldry had received three consecutive directing nominations. In January, for his fourth film, he received a best picture nomination, for a boy's emotional journey dealing with 9 11, and the nine films were officially off and running. Forty-five film and media groups handed out awards leading up to Oscar night. Wednesday, February 22 My airplane seatmate to LAX was Sony Classics Michael Barker. The night before Woody Allen had shown Michael "Nero Fiddled", his latest film shot in Rome rumored to be his best. When Woody won the Oscar Sunday night, for a record breaking 23rd overall nomination, he had just finished pasta a Sette Mezzo on Lexington Avenue with art dealer Lorinda Ash and Soon-Yi. He went home and watched the N.B.A. All-Star game. Soon-Yi watched the awards show on a delay in another room. By the time Woody won, he fell asleep and Soon-Yi didn t want to wake him. The next morning he went to the breakfast table alone and read in The New York Times he won. He had to think it was a good omen and he would not catch a cold that day. Before Michael and I flattened our recliner chairs for the big sleep, I told him I felt confident his Iranian film, "A Separation" was winning best foreign picture. He told me "The Artist" would take best picture and director. Actor was a tight race between Brad Pitt, Jean Dujardin, the "Clooney of France" and the real George Clooney. George was essentially running against a version of himself, which only slightly amused him. The biggest dilemma was Viola vs. Meryl. Michael picked Meryl as New Yorkers did. "The Help" had taken on a life of its own lead by vivacious Viola in LA. "The Iron Lady", a much criticized film showcased Meryl's tour de force performance. Few knew at the last minute, on President's weekend Harvey's shout out, "She hasn't won in 29 years!" resonated. An androgynous driver named Monica greeted me at the airport in a black tuxedo that would make Albert Nobbs weep for joy, prompting me to devilishly think of her as "Nobbs" all weekend. She barely recognized me sporting a new Sally Hershberger hairdo, "the yenta with the dragon tattoo." Checking into the Beverly Hills Hotel I bumped into best actress nominee, Golden Globe and Spirit Award winner Michelle Williams with her daughter Matilda Ledger headed to the swimming pool. Innocently standing there with no makeup she was remarkably the antithesis of Marilyn Monroe. I told her she so deserved the Oscar for her mesmerizing transformation which did not cheer her up knowing the gold was going to Viola or Meryl. This year there seemed to be more parties than ever. Vanity Fair publisher Edward Menicheschi staged a staggering six nights of CAMPAIGN HOLLYWOOD. Ermenegildo Zenga and Colin and Livia Firth hosted an intimate dinner at the Chateau Marmont to benefit Oxfam America, Colin s pet charity. Editor Graydon Carter and Edward greeted Cameron Diaz, Kristin Davis, Gary and Alexandra Oldman, Mia Wasikowska. In addition, Livia spoke about her 'Green Carpet Challenge' which uses eco-friendly fabrics for wear it once gowns at awards shows. Get it? Go green on red. It was a busy night at the Chateau as French billionaire investor Nicolas Berggruen hosted his party for young, leggy, breathtakingly beautiful models. Lindsay Lohan was on the loose after a judge having announced she was making great progress. She showed up sober wearing a new face bloated with injectable Restalyne that could only be preparation to portray Elizabeth Taylor in "Liz and Dick", her film for Lifetime. Peter Brant and Stephanie Seymour and Peter Morton and Linda Evangelista joined Josh Harnett and Emile Hirsh under the terrace heaters. The boys were looking for love in all the right places. Thursday, February 23 Thursday night boasted fifteen events causing party panic. Here is a brief rundown of seven. At The Hollywood Reporters Nominees Night, editor Janice Min and publisher Lynne Segall greeted the power brokers. With ballots in, competing studios cordially mingled in the mayor s backyard. Owen Wilson slipped in the back door and hung with Michael Sheen and producer Letty Aronson. Producers Kathy Kennedy and Frank Marshall chatted with DreamWorks partner Stacey Snyder, producer Graham King and Emily Mortimer. Fox's Tom Rothman and Jim Gianopulos compared notes with Focus's James Shamus. Young directors Drake Doremus ("Like Crazy"), Sean Durkin ("Martha Marcy May Marlene") and Oscar nominee and Spirit Award winner J.C. Chandor ("Margin Call") drank at the bar. Breakout directors Nick Jarecki ("Arbitrage"), Zal Batmanglij ("Sound of My Voice and "The East") and Jay Duplass ("Jeff Who Lives at Home") dreamed about their future nominations. Aaron Sorkin, Piers Morgan and Lawrence O'Donnell handicapped Romney vs. Obama as Brooklyn Decker sashayed by. Urs Fisher's exhibition Beds Problem Paintings featured two bed sculptures at Larry Gagosian's Gallery followed by his private dinner at Mr. Chow's. Art lovers Vera Wang, Russell Simmons, Steve Martin, Jean Pigozzi and John Waters attended. The US-Ireland Alliance honored nominees "Hugo" screenwriter John Logan, "Bridesmaids" star Melissa McCarthy and Michelle Williams at Bad Robot. Logan also wrote "Rango "Coriolanus", 007 s "Skyfall" and "Jersey Boys" for the big screen. Alfre Woodard hosted a down and dirty girls night out in a rented house above Sunset for Viola Davis and Octavia Spencer. Universal honcho Ron Meyer hosted a civilized private buffet at his Malibu home for Graydon Carter with Tom Cruise, Leonardo DiCaprio, Barbra Streisand, Tom Hanks and Michael Douglas. Stunning socialite Betsey Bloomingdale gave a seated dinner at her Holmby Hills home for best friends Nancy Reagan, Wendy Stark, Bob Colacello, Joan Collins and fashion icon Lynn Wyatt. Tobias Meyer, auctioneer for Sotheby s and art dealer Mark Fletcher hosted an open house at their Mulholland Drive home for English avant garde photographer Terry Richardson. This is the only pre-Oscar party where a guest dropped his pants and mooned the red carpet and Terry signed a fans breast. Art collectors Bill and Maria Bell, Todd Eberle, rock singer Jack Donahue and Francesco Clemente schmoozed. Friday, February 24 At the BHH I ran into David Heyman, English producer of the "Harry Potter" franchise who was honored at the Publicists Awards lunch at The Beverly Hilton. Motion Picture Showman of the Year was the consolation prize for being snubbed by the Academy for visualizing a publishing miracle for children around the world. Nobbs whisked me off to the British Film Reception hosted by Jeremy Hunt, UK Secretary for Culture and Olympics, and the British Consul-General Dame Barbara Hay, in her Hancock Park residence. Upon introduction, I blurted out that my friend Lord Astor, was interested in having LA people get to know his son-in-law, Prime Minister David Cameron. As an appointed diplomat she was horrified by my indiscretion and turned to greet the next American idiot. I was just making conversation. Daldry told Sony s Sir Howard Stringer and astute film CEO Michael Lynton, Kenneth Branagh, Janet McTeer, and Gary Oldman that he, as executive producer of the Olympics, was headed back to London to oversee special events, including the opening ceremony, directed by Danny Boyle. Victoria Beckham made a dramatic sullen last-minute appearance looking perfectly skinny in her own designed dress. At the Women in Film party at Cecconi's, Gwyneth Paltrow, Shailene Woodley, Selena Gomez and Vanessa Hudgens networked with Jessica, Octavia and Viola now of social stamina fame. Blythe Danner kissed me at the door as a military type looked on. I kept saying to him, "Where have we met?" Nowhere. He was astronaut Mark E. Kelly who came with Blythe and is married to former congresswoman Gabrielle Giffords, Paltrow's second cousin. Only I could mistake an astronaut for a movie marketing guy. Vanity Fair feted Scorsese and The Film Foundation which has saved 555 films in 22 years. Cocktails were at the restored Bel-Air Hotel. Honorary Jewess Lorraine Bracco ran past me yelling she was late for Ronald Perelman's Shabbat dinner. Three, three-time Oscar winners: composer Howard Shore, costume designer Sandy Powell and editor Thelma Schoonmaker were honored. Sir Ben Kingsley, Danny Huston, Patty Clarkson, Irwin Winkler and Giorgio Armani's niece Roberta Armani with Wanda McDaniels debated best director: Marty or Michel? Nobbs delivered me to WME's Party at kahuna Ari Emanuel's Brentwood estate, where NFL quarterback and new client Tim Tebow was the toast of the party, especially to Taylor Swift who made 35.7 million this year. Michael Douglas gave me a kiss doesn t get any better. Lovebirds Robert Pattinson and Kristen Stewart made a rare appearance, glued to each other's hips. They mingled with co-star Taylor Lautner, Miley Cyrus and her "Hunger Games" beau Liam Hemsworth. Meanwhile Charlize Theron, Jack Black, Rooney Mara, Ben Stiller, Barry Sonnenfeld and Larry David talked business with moguls Les Moonves and Viacom's Philippe Dauman. Next was UTA Chairman Jim Berkus' soiree that police almost shut down because the DJ got carried away impressing Harrison Ford, Channing Tatum, Jerry Bruckheimer, Tom Freston, Disney's Rich Ross, SNL's Lorne Michaels and Oscar show producer Brian Grazer. Sunset Tower Hotel owner Jeff Klein and producer John Goldwyn hosted a secretive dinner for Anna and Graydon Carter at their Hollywood Hills home with Tom Ford, Mitch Glazer, Fran Lebowitz, Vito Schnabel, Denise Hale, Lisa and Eric Eisner and VF's Punch Hutton, who is Tim Hutton's sister. Last stop was CAA Byran Lourd's "Friday Night Party". Nobbs was instructed to drop me off at a neighborhood school where a luxury van transported guests to the stone and glass Bel-Air estate situated on a narrow street. I knew that guests Colin Firth, Penelope Cruz, Sofia Vergara, Salma Hayek, Sandra Bullock, and Glee's Matthew Morrison did not arrive by bus. Once inside the playing field leveled out and pound for pound there was more famous flesh per square inch than at the Oscars themselves. I huddled with Meryl on the couch and we talked about her race. She thought Viola. I thought Meryl. She didn't know about Harvey s last minute "29 year" shout out. I hugged Bette Midler, flirted with Jim Sturgess and Bennett Miller. Universal's Donna Langley, who is overseeing Tom Hooper's production "Les Miserable" mentioned Hugh Jackman's impeccable manners should insure best behavior from Russell Crowe. I introduced HBO s "Game Change" director Jay Roach who is an authority on Hitler, to George Clooney who is writing a thriller about the Nazis stealing art. Clooney whispered, The Frenchman is winning. I thanked Bryan Lourd, Kevin Huvane and Richard Lovett, got on the bus and prayed that I get invited back. Saturday, February 25 I dragged my tired ass to the Academy, as foreign films aficionado Mark Johnson was conducting a symposium on the nominated films, which included Sony Classic s In Darkness from Poland, "Footnote" from Israel and "A Separation" from Iran. Israeli and Iranian governments from the other side of the world monitored their directors as the Sony boys kept the peace. Michael and Tom Bernard invited me to the Independent Spirit Awards at the Santa Monica Pier. Michael hosted his "Take Shelter" nominees Jessica Chastain, Michael Shannon and director Jeff Nichols. Tom held court at the next table with the entire Iranian cast of "A Separation", which won. Tom almost had a heart attack when I threw my arms around Iranian director Asghar Farhadi, which in Iran is unacceptable behavior especially by a Jewish American Princess. Tom wished I had gone to the crowded champagne brunch in honor of Prince Albert and Princess Charlene at the Bel-Air Hotel where Montblanc launched Grace Kelly watches. Simultaneously, TV producer Gary Pudney hosted another secretive lunch which Albert and Charlene actually attended with Graydon Carter, Carolina Herrera, Wallace Annenberg, Bobby Shriver, Bobby Marx, Kathy and Ricky Hilton and Lynn Wyatt. Wolfgang Puck joined them for dessert. "The French," as the "The Artist" gang was nicknamed, had won six Cesars, France's version of the Oscars in Paris the night before. They flew all night and Harvey's chauffeur arranged a police escort from LAX just in time for them to win four Spirit Awards, cementing the Oscar win. Back at the BHH, Spielberg was the first to arrive at the tenth annual "Night Before" fundraiser in support of the Motion Picture and Television Fund. Jeffrey Katzenberg had already secured 200 of a 350 million fundraising goal that included money from him, Tom Cruise, Steve Bing, Casey Wasserman, Clooney and Spielberg. Every nominee showed up. Chanel and Charles Finch cooked up their chic soiree at Madeo, where a mariachi band enthusiastically announced everyone's arrival. Bedecked exclusively in Chanel were Diane Kruger, Rose Byrne, Ginnifer Goodwin, and Rachel Bilson . Also air kissing were Rachel Zoe, Rosanna Arquette, Alice Evans and Ioan Gruffudd, Zachary Quinto, and Julia Ormond. Elizabeth Olsen who has six upcoming films, gushed to Dustin Hoffman that "Wag the Dog" was her favorite movie. I sat next to director, Michael Apted who was editing Of Men and Mavericks, a surfer film he co-directed with Curtis Hanson. My Week With Marilyn s English director Simon Curtis insisted we join Kenneth Branagh at The Weinstein Company s bash at the Soho House in time to hear Tony Bennett sing Autumn Leaves to Harvey s surprised 86 year-old mother Miriam, Madonna and Meryl. Jean Dujardin, Berenice Bejo, Michel Hazanavicius and producer Thomas Langmann staggered around completely jet lagged and too tired to speak English . Uggie on the other hand was the absolute star of the evening as his trainer placed him in everyone s arms for photo two shots. W.E s Andrea Riseborough and Abbie Cornish sat next to baseball cap-clad Leonardo DiCaprio as his ex Bar Refaeli kept her distance across the room. Zoe Saldana walked in holding hands with Bradley Cooper. Scarlett Johansson introduced me to her boyfriend Nate Naylor. Katy Perry, Felicity Jones and Malin Akerman circled a refreshed Gerard Butler. The two daughters of New York slain hero cop Peter Figoski, Corrine, 14 and Caroline, 16 who had also been Harvey s guests at the Super Bowl stood in the middle of this circus and just fainted. Sunday, February 26 I met interior designer Nicky Haslam in the Polo Lounge and found Nancy Reagan brunching with Bob Colacello and Carolina Herrera. Nancy knows me as The DVD Lady. I promised to send her The Iron Lady . I didn t have the heart to tell her that her husband, who was Margaret Thatcher s best friend, was barely mentioned in the film. In a Marchesa gown, Dennis Basso fur and Iradj Moini necklace, I collected Simon Curtis and headed to the Hollywood Highland Center. Simon, who has never been to the Oscars before, miraculously scored a front row seat between Michelle Williams and Clooney. We pulled up to screams of hysteria at the mother of all red carpets. We ended up in front of thousands of cameras and I instructed Simon to take baby steps for an hour. Meryl s publicist Leslee Dart whispered to me. She is dressed like an Oscar. What do we do if she loses? Sacha Baron Cohen hilariously guilted the Academy into letting him wear his costume from The Dictator and after soiling Ryan Seacrest he went directly to dinner at Vanity Fair. Gwyeneth Paltrow won the style award in Tom Ford s white column and Angelina Jolie so successfully invented a new one legged pose in a thigh high slit gown on the red carpet she repeated it for 39.3 million people onstage. Tickets were so tight that I gave my plus one to Penelope Ann Miller because she promoted The Artist every day for four months. Seated next to us were co-stars James Cromwell and Missi Pyle. Billy Crystal made us laugh, Cirque de Soleil made us gasp and most of the wins were expected. Colin Firth crowned Meryl her third win on a record 17 nominations and Harvey beamed. The Academy was so confident "The Artist" would win; they invited Uggie, who waited in the wings and ran out as Tom Cruise announced the film. Once the show was off the air, I followed my seatmates to the stage loaded with their programs, wraps and handbags and led the French to the press rooms. The Governor's Ball was the next stop where the winners got their Oscars engraved. Everyone paid respects to the Academy s Tom Sherak and Dawn Hudson. Stars headed to the Sunset Tower to Graydon s glittering Vanity Fair Oscar bash and their militarized security with micro chipped cards. If your name was not on the list and you were carrying an Oscar, you could walk in. Billy and Janice Crystal were mobbed with well-wishers. Elton John made 5 million dollars at his 20th AmFar event which also auctioned off two tickets to Vanity Fair s party for 230 thousand dollars. Tom Cruise and Katie Holmes were thrilled to talk to George Lucas. Gwyneth snuggled with Coldplay's Chris Martin and Jennifer Lopez brought boy-toy Casper Smart. Every major actor previously mentioned was standing in the room. In a sea of celebrity were Tina Fey, David Beckham, Glenn Close, Terry George, Demian Bichir, Claire Danes, Meryl's daughters Mamie Gummer with husband Ben Walker, Grace Gummer, Salma Hayek, Brit Marling, Natalie Portman, Sofia Coppola, Ryan Kavanaugh, Ingrid Sischy, Sandy Brant and Wendi Murdoch with Bingbing Li. George Clooney threw his own exclusive party at Craig's in West Hollywood for close friends Bryan Lourd, Grant Heslov, Stan Rosenfield, Brad and Angelina, Emily Blunt and John Krasinski, Cindy Crawford, Jimmy Kimmel, Ryan Seacrest and best adapted screenplay winner Alexander Payne. As much as George supported "The Descendants" he and Brad seemed to have cancelled each other out this year with two great performances. The French and their closest 200 threw their own wild celebration at the Chateau, poured champagne down their throats and threw each other in the pool at 3:00am. Nobody spoke a word of English. By 4:00am Harvey rounded his talent up for a live broadcast on "The Today Show" from The Four Seasons lobby. In disheveled black tie five Oscar winners and Berenice Bejo, who were total unknowns a year ago made Oscar history with the first silent film to win since 1927. This had to be the most exciting night of their lives. Tomorrow they all go back to reality but the glory and the memories will live on forever. As an Oscar winner, who cares about a cold? Uggie was invited to the White House correspondent s dinner as a guest of the Washington Times in April. He hopes to meet President Obama. 8 Item b:Sources SelectedStyle " APA.XSL" StyleName "APA" xmlns:b "http: schemas.openxmlformats.org officeDocument 2006 bibliography" xmlns "http: schemas.openxmlformats.org officeDocument 2006 bibliography" b:Sources Properties ?xml version "1.0" encoding "UTF-8" standalone "no"? ds:datastoreItem ds:itemID " 984D5B63-5592-43A6-BCF3-52AFB983BDD3 " xmlns:ds "http: schemas.openxmlformats.org officeDocument 2006 customXml" ds:schemaRefs ds:schemaRef ds:uri "http: schemas.openxmlformats.org officeDocument 2006 bibliography" ds:schemaRefs ds:datastoreItem |
Vive L Oscars Winner Woody Allen may have missed Hollywood s biggest lovefest, but intrepid ber movie publicist Peggy Siegal was there for every single party and every single step of the red carpet way. This year, her exclusive Oscar diary chronicles close encounters with Michelle Williams, Meryl Streep, Harvey Weinstein, Nancy Reagan, Elizabeth Olsen, George Clooney and his French doppelganger Jean Dujardin and, of course, Uggie. 56 AVENUE MAGAZINE APRIL 2012 photographs by Patrick McMullan and Billy Farrell Agency Katie Holmes and Tom Cruise APRIL 2012 AVENUE MAGAZINE 57 Octavia Spencer, The Help Director Tate Taylor,, Viola Davis and George Clooney N avigating our presidential campaign was a piece of cake compared to understanding the nuances of the 2011 Oscar race for the most revered artistic honor in the world. This is how nine films fell into the big picture. Three premiered in Cannes mid-May, a distant nine months ago, creating an Oscar campaign as long as any human pregnancy. At the Palais, the first inkling of Oscar buzz was born as the reclusive Woody Allen premiered Midnight in Paris. PBS later aired a documentary of Woody discussing his forty-four films showing the astonishing depth of his talent that made you want to immediately hand him the Oscar for Best Picture. Academy rules and Woody forbade marketing this gem. Woody is not a member of the Academy becase he doesn t feel that films should be in competition. He told me, A statue does not change your life. You still get a cold. You can t get a date. You still have everyday things to worry about. The Academy learned to love him from a distance and gave him Best Original Screenplay as a consolation. Terrence Malick s long-awaited, esoteric The Tree of Life was unveiled at Cannes and won the coveted Palme D Or, positioning it for a nomination. The Artist, created by the French, shot in Hollywood and about Hollywood was the festival surprise. This charming and oddly original black-and-white silent entry was introduced by the ringmaster himself, Harvey Weinstein. No one could pronounce or spell director Michel Hazanavicius s name. Jean Dujardin could not speak a word of English and neither could his 10-year-old co-star, the Jack Russell Uggie who had been rescued from the pound after two adopters found him too wild. Tragically Uggie developed an undisclosed neurological disorder during production, forcing him to retire at the height of his popularity. No slam dunk Oscar winner emerged in Cannes. Any future film could easily win. DreamWorks The Help premiered in LA in August and distributor Disney began propelling the politically correct and socially significant film to box office heaven of 200 million. Viola Davis and Octavia Spencer were forecast to win Oscars. In September, the Toronto and New York Film Festivals and Fox Searchlight presented Alexander Payne s Hawaiian family saga, The Descendants, which broke out of the pack with whispers of winning. Beloved George Clooney, playing a father for the first time was hailed as a shoo-in for best actor. Directing Ides of March added momentum. Also at New York s festival Marty Scorsese and Paramount sneaked an unfinished cut of Hugo in Alice Tully Hall, built for concerts but converted into a 3-D theater. Marty was christened the visionary genius of an innovative, costly 3-D masterpiece. Director Bennett Miller s highly anticipated Moneyball for Sony hit a grand slam at its west coast premiere in 58 AVENUE MAGAZINE APRIL 2012 Oakland putting the film, its heart throb star Brad Pitt, Jonah Hill and seasoned writers Steve Zaillian and Aaron Sorkin in play. Spielberg s epic War Horse for DreamWorks came thundering down the pike with a huge premiere back at Alice Tully Hall, with posters of Lincoln Center s Tony winning theatrical version and their indelible puppets in the background. Steven paid homage to legends John Ford and David Lean and the country fell in love with a horse named Joey and his 14 stand-ins. Studios worked their stars to the bone. Ironically, Harvey Weinstein s independent French talent who lived in Paris were not as available as their competitors, therefore Uggie became a superstar igniting a pet war. Christopher Plummer, who had Best Supporting Actor in the bag promoted his Jack Russell, Cosmo. Diminutive Scorsese was seen on TV on a small couch with his large Doberman, Blackie, drooling on his suit. Spielberg never got a chance to trot out his lead horse Joey, previously seen in Seabiscuit because his ravishing reddish coat was now darkened for another role. By December, as film critics bestowed their own awards upon many films, Stephen Daldry struggled to finish Extremely Loud and Incredibly Close with a new score. There was buzz Daldry could be editing the winner. Producer Scott Rudin juggled his astounding three films in one year from Daldry, Miller and David Fincher directing Girl with the Dragon Tattoo. Daldry has received three consecutive directing nominations. In January, for his fourth film, he received a Best Picture nomination, for a boy s emotional journey dealing with 9 11, and the nine films were officially off and running. Forty-five film and media groups handed out awards leading up to Oscar night. Martin Scorcese Lily Collins Princess Charlene and Prince Albert II of Monaco Berenice Bejo and Michel Hazanaviciu Meryl Streep Michelle Williams Wednesday, February 22 My airplane seatmate to LAX was Sony Classics Michael Barker. The night before Woody Allen had shown Michael To Rome With Love, his new film shot in Rome and rumored to be his best. When Woody won the Oscar Sunday night, for a record breaking 23rd overall nomination, he had just finished pasta at Sette Mezzo on Lexington Avenue with art dealer Lorinda Ash and Soon-Yi. He went home and watched the N.B.A. All-Star game. Soon-Yi watched the awards show on a TiVo delay in another room. Brad Pitt and Angelina Jolie David and Victoria Beckham Jane Fonda and Richard Perry By the time Woody won, he had fallen asleep and Soon-Yi didn t want to wake him. The next morning he went to the breakfast table alone and read in The New York Times that he had won. He had to think it was a good omen and he would not catch a cold that day. Before Michael and I flattened our recliner chairs for the big sleep, I told him I felt confident his Iranian film A Separation would win Best Foreign Film. He told me The Artist would take Best Picture and Director. Actor was a tight race between Brad Pitt, Jean Dujardin, the Clooney of France and the real George Clooney. George was essentially running against a version of himself, which only slightly amused him. The biggest dilemma was Viola vs. Meryl. Michael picked Meryl as New Yorkers did. Scarlett Johansson Salma Hayek Billy Crystal Meryl s publicist Leslee Dart whispered to me. She is dressed like an Oscar. What do we do if she loses? Tom Hanks and Rita Wilson Emma Stone 60 AVENUE MAGAZINE APRIL 2012 Jessica Chastain The Help had taken on a life of its own lead by vivacious Viola in LA. The Iron Lady, a much criticized film, showcased Meryl s tour-de-force performance. Few knew at the last minute, on President s weekend, Harvey s shout out, She hasn t won in 29 years! resonated. An androgynous driver named Monica greeted me at the airport in a black tuxedo that would make Albert Nobbs weep for joy, prompting me to devilishly think of her as Nobbs all weekend. She barely recognized me sporting a new Sally Hershberger hairdo, the yenta with the dragon tattoo. Checking into the Beverly Hills Hotel I bumped into Best Actress nominee, Golden Globe and Spirit Award winner Michelle Williams with her daughter Matilda Ledger headed to the swimming pool. Innocently standing there with no makeup she was remarkably the antithesis of Marilyn Monroe. I told her she so deserved the Oscar for her mesmerizing transformation which did not cheer her up knowing the gold was going to Viola or Meryl. This year there seemed to be more parties than ever. Vanity Fair publisher Edward Menicheschi staged a staggering six nights of CAMPAIGN HOLLYWOOD. Ermenegildo Zenga and Colin and Livia Firth hosted an intimate dinner at the Chateau Marmont to benefit Oxfam America, Colin s pet charity. Editor Graydon Carter and Edward greeted Cameron Diaz, Kristin Davis, Gary and Alexandra Oldman and Mia Wasikowska. In addition, Livia spoke about her Green Carpet Challenge which uses eco-friendly fabrics for wear it once gowns at awards shows. Get it? Go green on red. Thursday, February 23 Thursday night boasted 15 events causing party panic. Here is a brief rundown of seven. At The Hollywood Reporter s Nominee Night, editor Janice Min and publisher Lynne Segall greeted the power brokers. With ballots in, competing studios cordially mingled in the Mayor s backyard. Owen Wilson slipped in the back door and hung with Michael Sheen and producer Letty Aronson. Producers Kathy Kennedy and Frank Marshall chatted with DreamWorks partner Stacey Snyder, producer Graham King and Emily Mortimer. Fox s Tom Rothman and Jim Gianopulos compared notes with Focus James Shamus. Young directors Drake Doremus (Like Crazy), Sean Durkin (Martha Marcy May Marlene) and Oscar nominee and Spirit Award winner J.C. Chandor (Margin Call) drank at the bar. Breakout directors Nick Jarecki (Arbitrage), Zal Batmanglij (Sound of My Voice and The East) and Jay Duplass (Jeff Who Lives at Home) dreamed about their future nominations. Aaron Sorkin, Piers Morgan and Lawrence O Donnell handicapped Romney vs. Obama as Brooklyn Decker sashayed by. Urs Fisher s exhibition Beds Problem Paintings featured two bed sculptures at Larry Gagosian s Gallery followed by his private dinner at Mr. Chow s. Art lovers Vera Wang, Russell Simmons, Steve Martin, Jean Pigozzi and John Waters attended. The US-Ireland Alliance honored nominees Hugo screenwriter John Logan, Bridesmaids star Melissa McCarthy and Michelle Williams at Bad Robot. Logan also wrote Rango, Coriolanus, 007 s Skyfall and Jersey Boys for the big screen. Jennifer Lopez Diane Kruger Terry Richardson Rooney Mara Graydon Carter and Anna Scott APRIL 2012 AVENUE MAGAZINE 61 Fran Leibowitz Michael Douglas and Kirk Douglas Wendi Deng Murdoch Abbie Cornish Bar Refaeli Woody is not a member of the Academy because he doesn t feel that films should be in competition. He told me, A statue does not change your life. You still get a cold. You can t get a date. You still have everyday things to worry about. Alfre Woodard hosted a down and dirty girls night out in a rented house above Sunset for Viola Davis and Octavia Spencer. Universal honcho Ron Meyer hosted a civilized private buffet at his Malibu home for Graydon Carter with Tom Cruise, Leonardo DiCaprio, Barbra Streisand, Tom Hanks and Michael Douglas. Stunning socialite Betsey Bloomingdale gave a seated dinner at her Holmby Hills home for best friends Nancy Reagan, Wendy Stark, Bob Colacello, Joan Collins and fashion icon Lynn Wyatt. Tobias Meyer, auctioneer for Sotheby s and art dealer Mark Fletcher hosted an open house at their Mulholland Drive home for American avant-garde photographer Terry Richardson. This is the only pre-Oscar party where a guest dropped his pants and mooned the red carpet and Terry signed a fans breast. Art collectors Bill and Maria Bell, Todd Eberle, rock singer Jack Donahue and Francesco Clemente schmoozed. Friday, February 24 At the BHH I ran into David Heyman, English producer of the Harry Potter franchise who was honored at the Publicists Awards lunch at The Beverly Hilton. Motion Picture Showman of the Year was the consolation prize for being snubbed by the Academy for visualizing a publishing miracle for children around the world. Nobbs whisked me off to the British Film Reception hosted by Jeremy Hunt, UK Secretary of State for Culture and Olympics and the British Consul-General Dame Barbara Hay, in her Hancock Park residence. Upon introduction, I blurted out that my friend Lord Astor was interested in having L.A. people get to know his son-in-law, Prime Minister David Cameron. As an appointed diplomat she was horrified by my indiscretion and turned to greet the next American idiot. I was just making conversation. Daldry told Sony s Sir Howard Stringer and astute film CEO Michael Lynton, Kenneth Branagh, Janet McTeer and Gary Oldman that he, as executive producer of the Olympics, was headed back to London to oversee special events, including the opening ceremony, directed by Danny Boyle. Victoria Beckham 62 AVENUE MAGAZINE APRIL 2012 made a dramatic, sullen, last-minute appearance looking perfectly skinny in a dress from her eponymous collection. At the Women in Film cocktail party at Cecconi s, Gwyneth Paltrow, Shailene Woodley, Selena Gomez and Vanessa Hudgens networked with Jessica, Octavia and Viola now of social stamina fame. Blythe Danner kissed me at the door as a military-type looked on. I kept saying to him, Where have we met? Nowhere. He was astronaut Mark E. Kelly who came with Blythe and is married to former congresswoman Gabrielle Giffords, Paltrow s second cousin. Only I could mistake an astronaut for a movie marketing guy. Vanity Fair f ted Scorsese and The Film Foundation, which has saved 555 films in 22 years. Cocktails were at the restored Bel-Air Hotel. Honorary Jewess Lorraine Bracco ran past me yelling that she was late for Ronald Perelman s Shabbat dinner. Three, three-time Oscar winners: composer Howard Shore, costume designer Sandy Powell and editor Thelma Schoonmaker were honored. Sir Ben Kingsley, Danny Huston, Patty Clarkson, Irwin Winkler and Giorgio Armani s niece Roberta Armani with Wanda McDaniels debated best director: Marty or Michel? Nobbs delivered me to WME s Party at kahuna Ari Emanuel s Brentwood estate, where NFL quarterback and new client Tim Tebow was the toast of the party, especially to Taylor Swift who made 35.7 million this year. Michael Douglas gave me a kiss doesn t get any better. Longtime lovebirds Robert Pattinson and Kristen Stewart made a rare appearance, glued to each other s hips. They mingled with costar Taylor Lautner, Miley Cyrus, and her Hunger Games beau Liam Zoe Saldana Hemsworth. Meanwhile Charlize Theron, Jack Black, Rooney Mara, Ben Stiller, Barry Sonnenfeld and Larry David talked business with moguls Les Moonves and Viacom s Philippe Dauman. Next was UTA Chairman Felicity Jones Brooklyn Decker Jim Berkus soiree that police almost shut down because the DJ got carried away impressing Harrison Ford, Channing Tatum, Jerry Bruckheimer, Tom Freston, Disney s Rich Ross, SNL s Lorne Michaels and Oscar show producer Brian Grazer. Sunset Tower Hotel owner Jeff Klein and producer John Goldwyn hosted a secret dinner for Anna and Graydon Carter at their Hollywood Hills home with Tom Ford, Mitch Glazer, Fran Lebowitz, Vito Schnabel, Denise Hale, Lisa and Eric Eisner and VF s Punch Hutton, who is Tim Hutton s sister. Last stop was CAA Byran Lourd s Friday Night Party . Nobbs was instructed to drop me off at a neighborhood school where a luxury van transported guests to the stone and glass Bel-Air estate situated on a narrow street. I knew that guests Colin Firth, Penelope Cruz, Sofia Vergara, Salma Hayek, Sandra Bullock, and Glee s Matthew Morrison did not arrive by bus. Once inside the playing field leveled out and pound for pound there was more famous flesh per square inch than the Oscars Miley Cyrus themselves. I huddled with Meryl on the couch and we talked about her race. She thought Viola. I thought Meryl. She didn t know about Harvey s last-minute 29 year shout out. I hugged Bette Midler and flirted with Jim Sturgess and Bennett Miller. Universal s Donna Langley, who is overseeing Tom Hooper s production Les Miserables, mentioned Hugh Jackman s impeccable manners should insure best behavior from Russell Crowe. I introduced HBO s Game Change director Jay Roach, who is an authority on Hitler, to George Clooney who is writing a thriller about the Nazis stealing art. Clooney whispered, The Frenchman is winning. I thanked Bryan Lourd, Kevin Huvane and Richard Lovett, got on the bus and prayed that I get invited back. Saturday, February 25 I dragged my tired ass to the Academy, as foreign film aficionado Mark Johnson was conducting a symposium on the nominated films, which included Sony APRIL 2012 AVENUE MAGAZINE 63 Colin Firth and Livia Giuggiolo Natalie Portman Classic s Footnote from Israel and A Separation from Iran. From the other side of the world both governments monitored their directors as the Sony boys kept the peace. Michael and Tom Bernard invited me to the Independent Spirit Awards at the Santa Monica Pier. Michael hosted his Take Shelter nominees Jessica Chastain, Michael Shannon and director J e ff Nichols. Tom held court at the next table with the entire Iranian cast of A Separation, which won. Tom almost had a heart attack when I threw my arms around Iranian director Asghar Farhadi, which in Iran is unacceptable behavior, especially by a Jewish American Princess. Tom wished I had gone to the crowded champagne brunch in honor of Prince Albert and Princess Charlene at the Bel- Air Hotel where Montblanc launched Grace Kelly watches. Simultaneously, TV producer Gary Pudney hosted another secretive, lunch which Albert and Charlene actually attended with Graydon Carter, Carolina Herrera, Wallace Annenberg, Bobby Shriver, Bobby Marx, Kathy and Ricky Hilton and Lynn Wyatt. Wolfgang Puck joined them for dessert. The French, as the The Artist gang was nicknamed, had won six C sars, France s version of the Oscars, in Paris the night before. They flew all night and Harvey s chauffeur arranged a police escort from LAX just in time for them to win four Spirit Awards, cementing the Oscar win. Back at the BHH, Spielberg was the first to arrive at the tenth annual Night Before fundraiser in support of the Motion Picture and Television Fund. Jeffrey Katzenberg had already secured 200 of a 350 million fundraising goal that included money from him, Tom Cruise, Steve Bing, Casey Wasserman, Clooney and Spielberg. Every nominee showed up. Chanel and Charles Finch cooked up their chic soiree at Madeo, where a mariachi band enthusiastically announced everyone s arrival. Bedecked exclusively in Chanel were Diane Kruger, Elizabeth Olsen, Rose Byrne, Ginnifer Goodwin and Rachel Bilson. Also air kissing were Rachel Zoe, Rosanna Arquette, Alice Evans and Ioan Gruffudd, Zachary Quinto, Julia Ormond and Dustin Hoffman. My Week With Marilyn s English director Simon Curtis insisted we join Kenneth Branagh at The Weinstein Olivia Wilde Company s bash at the Soho House in time to hear Tony Bennett sing Autumn Leaves to Harvey s surprised 86-yearold mother Miriam, Madonna and Meryl. Jean Dujardin, B r nice Bejo, Michel Hazanavicius and producer Thomas Langmann staggered around completely jet lagged, too tired to speak English. Uggie on the other hand was the absolute star of the evening as his trainer placed him in everyone s arms for photos. W.E s Andrea Riseborough and Abbie Cornish sat next to baseball cap-clad Leonardo DiCaprio as his ex, Bar Refaeli, kept her distance across the room. Zoe Saldana walked in holding hands with Bradley Cooper. Scarlett Johansson introduced me to her boyfriend Nate Naylor. Katy Perry, Felicity Jones and Malin Akerman circled a refreshed Gerard Butler. The two daughters of New York slain hero cop Peter Figoski, Corrine, 14 and Caroline, 16 who had also been Harvey s guests at the Super Bowl stood in the middle of this circus and just fainted. Sunday, February 26 I met interior designer Nicky Haslam in the Polo Lounge and found Nancy Reagan brunching with Bob Colacello and Carolina Herrera. Nancy knows me as The DVD Lady . I promised to send her The Iron Lady. I didn t have the heart to tell her that her late husband, who was Margaret Thatcher s best friend, was barely mentioned in the film. In a Marchesa gown, Dennis Basso fur and Iradj Moini necklace, I collected Simon Curtis and headed to the Hollywood Highland Center. Simon, who has never been to the Oscars before, miraculously scored a front row seat between Michelle Williams and Clooney. We pulled up to screams of hysteria at the mother of all red carpets. Meryl s publicist Leslee Dart whispered to me. She is dressed like an Oscar. What do we do if she loses? Sacha Baron Cohen hilariously guilted the Academy into letting him wear his costume from The Dictator and, after soiling Ryan Seacrest, he went directly to dinner at Vanity Fair. Gwyneth Paltrow won the style award in Tom Ford s white column and Angelina Jolie so successfully invented a new one legged pose in a thigh high slit gown on the red carpet she repeated it for 39.3 million 64 AVENUE MAGAZINE APRIL 2012 I introduced HBO s Game Change director Jay Roach, who is an authority on Hitler, to George Clooney who is writing a thriller about the Nazis stealing art. Clooney whispered, The Frenchman is winning. people onstage. Tickets were so tight that I gave my plus one to Penelope Ann Miller because she promoted The Artist every day for four months. Seated next to us were co-stars James Cromwell and Missi Pyle. Billy Crystal made us laugh, Cirque de Soleil made us gasp and most of the wins were expected. Colin Firth crowned Meryl her third win on a record 17 nominations and Harvey beamed. The Academy was so confident The Artist would win, they invited Uggie, who waited in the wings and ran out as Tom Cruise announced the film. Once the show was off the air, I followed my seatmates to the stage loaded with their programs, wraps and handbags and led the French to the press rooms. The Governor s Ball was the next stop where the winners got their Oscars engraved. Everyone paid respects to the Academy s Tom Sherak and Dawn Hudson. Stars headed to the Sunset Tower to Graydon s glittering Vanity Fair Oscar bash and their militarized security with micro chipped cards. If your name was not on the list and you were carrying an Oscar, you could walk in. Billy and Janice Crystal were mobbed with well wishers. Elton John made 5 million dollars at his 20th AmFar event which also auctioned off two tickets to Vanity Fair s party for 230,000.Tom Cruise and Katie Holmes were thrilled to talk to George Lucas. Gwyneth snuggled with Coldplay s Chris Martin and Jennifer Lopez brought boy toy Casper Smart. Every major actor previously mentioned is standing in the room. Spotted in a sea of celebrity were Tina Fey, Glenn Close, Olivia Wilde and Jason Sudeikis, Terry George, Jane Fonda, Demian Bichir, Claire Danes, Meryl s daughters Mamie Gummer with husband Ben Walker, Grace Gummer, Salma Hayek, Brit Marling, Natalie Portman, Sofia Coppola, Peter Brant, Stephanie Seymour, Ryan Kavanaugh, Ingrid Sischy, Sandy Brant and Wendi Murdoch with Bingbing Li. George Clooney threw his own exclusive after party at Craig s in West Hollywood for close friends Bryan Lourd, Grant Heslov, Stan Rosenfield, Brad and Angelina, Emily Blunt and John Krasinski, Cindy Crawford, Jimmy Kimmel, Ryan Seacrest and best adapted screenplay winner Alexander Payne. George and Brad cancelled each other out with two great performances. Clooney immediately returned to his best role as humanitarian, flew to the Sudan, met with Obama and was dramatically arrested at a protest. The French threw a wild celebration at the Chateau Marmont, poured champagne down their throats and threw each other in the pool at 3:00 a.m. Nobody spoke English. By 4:00 a.m. Harvey rounded up his artists for a live broadcast on The Today Show from The Four Seasons lobby. In disheveled black tie, five Oscar winners, all total unknowns a year ago, made Oscar history with the first silent film to win since 1927. It wasn t God, but 5,800 Academy voters who said they won. This had to be the most exciting night of their lives. The glory and memories live forever. The next day they went back to reality . As Woody says, A statue does not really change your life. You still get a cold. Uggie was invited to the White House correspondent s dinner as a guest of the Washington Times in April. He hopes to meet President Obama. Woody Allen Claire Danes Jean Dujardin Elizabeth Olsen Georgina Chapman and Harvey Weinstein |
Importance: High The Atlantic Home Friday, March 23, 2012 Politics Alk Massoud Hayoun - Massoud Hayoun writes for and produces The Atlantic's International channel. How Jim Yong Kim, Obama's World Bank Pick, Changed Global Health Aid By Massoud Hayoun Mar 23 2012, 2:04 PM ET The international public health work that made Kim, now the president's nominee for World Bank head, such a respected figure. President Obama introduces Jim Yong Kim as his nominee to be the next president of the World Bank Reuters President Obama announced today that he will nominate Dartmouth College President Jim Yong Kim to head the World Bank. Although Kim is a physician by training, officials have observed that Kim's role as a key player in global health and development, notably with his role in the organization Partners in Health (PIH), makes him a key candidate to change the attitudes of developing-world nations. The following excerpts from Tracy Kidder's Mountains Beyond Mountains, a biography of anthropologist and physician Paul Farmer, detail Kim's bold efforts to combat international HIV and tuberculosis epidemics with PIH: Some months after the official founding of PIH, co-founder Paul Farmer expanded the group, adding a fellow Harvard anthropology and medical student, a Korean American named Jim Yong Kim... Farmer offered what for Jim Kim was a convincing vision of the new organization. The reality was less impressive board of advisers and no hired staff... They talked about issues such as political correctness, which Jim Kim defined as follows: "It's a very well- crafted tool to distract us. A very self-centered activity. Clean up your own vocabulary so you can show everybody you have the social capital of having been in circles where these things are talked about on a regular basis." (What was an example of political correctness? Some academic types would say to Jim and Paul, "Why do you call your patients poor people? They don't call themselves poor people." Jim would reply: "Okay, how about soon-dead people?") They talked about the insignificance of "cultural barriers" when it came to the Haitian peasant's acceptance of modern Western medicine: "There's nothing like a cure for a disease to change people's cultural values"... By now Peru was taxing PIH's resources severely. On average, the drugs to treat just one patient cost between fifteen and twenty thousand dollars. And the number of patients kept growing. Already there were about fifty Carabayllanos in treatment. Their average age was twenty-nine. They were students, unemployed youths, housewives, street vendors, bus drivers, health workers. The actual numbers seemed small, but those fifty MDR a form of tuberculosis that does not respond to standard treatment cases represented about 10 percent of all active cases of TB in the slum, about ten times more than might have been expected. No telling how many others they had been infecting as they'd traveled around Lima, coughing. No telling either how many people in other parts of the city already had MDR, but there were reports of hundreds in other neighborhoods. In Carabayllo itself, the Socios workers found entire families sick and dying with what turned out to be genetically related strains of the disease tebeceanas, tuberculosis families. Kim's organization confronted Peru's MDR-form tuberculosis epidemic with what some have called unorthodox practices Howard Hiatt, a friend of Jim Yong Kim's and a former dean at the Harvard School of Public Health, said he was concerned about how PIH was getting medicine to combat the epidemic: "Sure enough. Paul and Jim would stop at the Harvard-affiliated Brigham pharmacy before they left for Peru and fill their briefcases with drugs. They had sweet-talked various people into letting them walk away with the drugs." Hiatt was amused, all in all. "That's their Robin Hood attitude." In fact, they'd only borrowed the drugs... Then one day the president of the Brigham stopped Hiatt in a corridor. "Your friends Farmer and Kim are in trouble with me. They owe this hospital ninety-two thousand dollars." Hiatt looked into the matter. "Sure enough. Paul and Jim would stop at the Brigham pharmacy before they left for Peru and fill their briefcases with drugs. They had sweet-talked various people into letting them walk away with the drugs." He was amused, all in all. "That's their Robin Hood attitude." To many seasoned managers of public health projects, what Farmer and Kim were doing would have looked quite reckless the determination to obtain the drugs and the charm to get away with borrowing. They were borrowing their laboratory services, too, from Massachusetts. They lacked proper institutional support. The weight of expert opinion stood against them. Their organization was small and it had other projects, in Haiti and Boston and elsewhere, and Peru put a strain on everyone. Jim had to travel to Carabayllo at least once a month. Farmer had to go there slightly more often. Kim's audacious 'Robin Hood attitude' won him and PIH acclaim for their role in changing global health and development. In June 2002 ... the WHO adopted new prescriptions for dealing with MDR-TB, virtually the same as PIH had used in Carabayllo. For Jim Kim this marked the end of a long campaign. "The world changed yesterday," he wrote from Geneva to all of PIH. The prices of second-line antibiotics continued to decline, and the drugs now flowed fairly smoothly through the Green Light Committee to, among other places, Peru, where about 1,000 chronic patients were either cured or in treatment. About 250 were receiving the drugs in Tomsk, and, largely because of the efforts of WHO, the Russian Ministry of Health had finally agreed to the terms of the World Bank's TB loan The twin pandemics of AIDS and tuberculosis raged on, of course, magnifying each other, in Africa and Asia, Eastern Europe and Latin America. Mathematical models predicted widening global catastrophe HIV infections in the world by the year 2010. Some prominent voices, some in the U.S. government, still argued that AIDS could not be treated in desperately impoverished places. But this view seemed to be fading. The prices of antiretrovirals were falling, even more dramatically than the prices of second-line TB drugs. This was thanks to a growing worldwide campaign for treating AIDS wherever it occurred. Jim Kim had often said that the world's response to AIDS and TB would define the moral standing of his generation. In 2003, a new director general took over at WHO, and he asked Jim to serve as his senior adviser. Meanwhile, the example of Zanmi Lasante PIH's Haiti-based project was growing, and Cange had become a favorite destination for global health policy makers and American politicians. |
AFFIDAVIT OF BRADLEY JAMES EDWARDS 1. I am an attorney in good standing with the Florida Bar and admitted to practice in the Southern District of Florida. I am a partner in the law firm of Farmer Jaffe Weissing Edwards Fistos and Lehrman. 2. I am the lead attorney currently representing "Jane Doe" in the case of Jane Doe v. Jeffrey Epstein, case number 08-80893 in federal Court in the Southern District of Florida. I am the lead attorney representing Jane Doe, whose civil complaint alleges that Epstein sexually molested her numerous occasions when she was a minor. 3. Defendant Epstein has entered into a "non-prosecution agreement" (NPA) with the federal government for sex crimes against minors. Under that agreement, the federal government has agreed not to file criminal charges against Epstein for sex crimes committed against approximately thirty girls, including Jane Doe. In exchange, Epstein agreed to plead guilty to state law criminal charges involving solicitation of prostitution and procuring a minor for prostitution. The victim of the criminal charges to which he has pled was not Jane Doe. 4. Under the NPA, Epstein has agreed not to contest civil liability of any of his approximately thirty victims provided that the victim agrees to limit themselves to the damages provided by 18 U.S.C. 2255 (currently set at 150,000). Jane Doe has not agreed to limit herself to pursuing only 150,000-in damages. Therefore, the terms of the NPA purport to prevent Jane Doe from .using the NPA to prove liability. 5. Epstein has filed an answer to Jane Doe's complaint, in which he has invoked his Fifth Amendment right to silence with respect to the allegations that he molested her as a child. Epstein has further argued that this Fifth Amendment invocation is the functional equivalent of, and must be treated as, a specific denial of the allegations. 6. Defendant Epstein 's deposition has been taken on several occasions, in this and other related cases, and he has not provided any substantive discovery whatsoever. Instead, he invoked his 5th amendment privilege against self-incrimination when asked questions about his abuse of Jane Doe or other girls. 7. Defendant Epstein has also been served with Interrogatories and requests for production; all requests have been met with 5th amendment assertions and Epstein has not given Jane Doe any substantive testimony related her allegations. 8. Jane Doe's complaint contains a punitive damages claim, and Mr. Epstein has also elected to invoke the 5th Amendment on all questions that would relate to punitive damages issues, such as his intent when committing the crimes, his lack of remorse and his intent to recidivate. 9. Epstein has taken Jane Doe's deposition. During that deposition he has asked numerous questions of Jane Doe that suggest that she is fabricating her allegation of abuse by Epstein. 10. In addition to deposing Mr. Epstein, other attorneys and I have taken the depositions of his various co-conspirators (as labeled by the federal government in the NPA), including and Each of those individuals was employed by Epstein to bring him underage girls for him to molest and to ensure that he was protected from detection by law enforcement, and thus those individuals could likely provide general testimony that would assist Plaintiff in proving liability and damages, including punitive damages. However, none of these individuals were present during acts of sexual abuse by Epstein. In any event, ALL of those individuals have also invoked their 5th amendment rights against self-incrimination, and thus have left Plaintiff with no information about what Epstein or other conspirators inside his house were doing during the sexual abuse of Jane Doe and other minors girls. This creates a serious issue for Jane Doe in proving her sexual molestation claim against Epstein. By its nature, sexual molestation takes place in private, with only the abuser and the victim typically available to testify. In this case, Epstein's abuse of Jane Doe took place in private, with only Epstein and Jane Doe present during the abuse. Jane Doe has no other reasonable avenues of discovery to provide direct proof of claim of sexual abuse by Epstein. 11. Additionally, Mr. Epstein has recently filed a lawsuit against me personally that has no merit whatsoever, a fact known to Mr. Epstein and his attorneys. He filed the lawsuit against Brad Edwards, Scott Rothstein, and another Epstein victim of his molestation). That lawsuit implies that L.M.'s civil case against him (currently pending in Florida state court) is fabricated and that and I have conspired to commit fraud against him (presumably that she made up the case against him, implying that he does not knovM. While the present subpoena before the Court has been filed by Jane Doe, the Court should be aware that attorneys representingMmay also file a subpoena for the George Rush tape shortly. 12. Despite Mr. Epstein and all of his co-conspirators, asserting a 5" amendment privilege against self-incrimination, George Rush of the New York Daily news did contact me to inform me that Mr. Epstein spoke personally with him about issues related to the various charges of sex abuse against him. 13. Paraphrasing from memory of my conversation with Mr. Rush, Mr. Epstein told him that he may have come"too close to the line" but that he should not have been punished as severely as he was and that his conduct was at most worthy of a 100 fine. This is a statement that shows two things of great importance to Jane Doe's pending civil action. First, it is in effect an admission by Epstein of his liability to Jane Doe for sexually abusing her. Jane Doe does not have any other admission of Epstein of his sexual abuse of her and Epstein has filed an answer to Jane Does complaint that has the functional effect of denying abuse of her. Jane Doe has diligently pursued all possible ways of obtaining an admission from Epstein of his molestation of Jane Doe without success. Second, the statement to Mr. Rush is a clear demonstration that Epstein lacks remorse for committing felony child molestation against Jane Doe. This will be a central issue in the punitive damages case against Epstein at trial. Here again, Jane Doe has diligently pursued all possible ways of obtaining a statement from Epstein about his lack of remorse for abusing Jane Doe without success. There are no other reasonable means of obtaining a statement from Epstein on these subjects. 14. Mr. Rush also told me that Mr. Epstein spoke specifically about one of my clients, and he made derogatory remarks about her. 15. Additionally, Mr. Rush said that Epstein spoke directly about another civil case that was filed against him (Jane Doe 102 v. Epstein); that case alleges that Epstein repeatedly sexually abused a 15 year old girl, forced her to have sex with his friends and flew her on his private plane nationally and internationally for the purposes of sexually molesting and abusing her. Epstein flippantly told George Rush that that case was dismissed, in a way to indicate that the allegations are ridiculous and untrue. Mr. Rush indicated that he taped the conversation between him and Mr. Epstein. 17. Mr. Rush also spoke at length to Michael Fisten, an investigator with my firm that was assisting with the investigation of the case. Mr. Fisten reported to me shortly after the conversation with Mr. Rush that he had such a conversation. 18. While research by other plaintiffs' attorneys and myself has uncovered other persons that were acquaintances of Mr. Epstein, specifically Donald Trump, Alan Dershowitz, Bill Clinton, Tommy Mottola, and David Copperfield, we have no information that any of those people (other than Mr. Dershowitz) have spoken to Mr. Epstein about Jane Doe or any of the other specific victims of Mr. Epstein's molestation. Mr. Dershowitz is acting as an attorney for Mr. Epstein, and therefore it is presumably unlikely to question him about any admissions that Epstein may have made regarding Jane Doe or other minors girls. Additionally, we have no information that any of those individuals or any other individuals have any taped statements of Epstein's own voice relating to these matters. George Rush's taped conversation with Mr. Epstein is the only known one in existence, making it very unique and it contains information not otherwise obtainable through other means or sources. Indeed, without the Rush tape conversation, the jury that handles the case will not hear any words from Epstein himself about his abuse of Jane Doe and other young girls. I have been informed by Epstein's attorney that Epstein intends to invoke his Fifth Amendment rights rather than answer any substantive questions about the abuse of Jane Doe and other girls at trial. 19. The Rush interview is, in any event, unique and not otherwise obtainable from other witnesses because it can be used to prove perjury (a federal crime) on the part of Epstein. Epstein lied about not knowing George Rush. See deposition of Jeffrey Epstein, taken in Jeffrey Epstein, case 50-2008-CA-028051, page 154, line 4 through 155 line 9, wherein Jeffrey Epstein clearly impresses that he does not recognize George Rush from the New York Daily News, despite the fact that he gave a personal interview that we all now know to have been tape recorded. It is therefore evidence of a criminal event. If we receive the tape, we intend to alert the appropriate law enforcement authorities, both federal and state, so that they can pursue any appropriate criminal investigation perjury charges. 20. The tape is also crucial for. to dismiss the frivolous complaint filed by Jeffrey Epstein against her, as he clearly acknowledges knowing contrary to claims he makes in his complaint against her and also contradictory to other statements he has made in depositions related to knowing In that regard, this tape provides evidence of other false statements Epstein has made under oath. 21. During a telephone call with George Rush, he provided me more than a description of the tape, and in fact described the general tenor of the entire interview, so that nothing in the interview can be fairly regarded as confidential at this point. 22. As George Rush admitted in his affidavit, he played the tape for at least two other persons who also confirmed Epstein's arrogance as he speaks about his actions with minors. 23. The people for whom George Rush played the tape or told in detail of the information on the tape were not "sources" in the tradition sense of the word all individuals were simply chatting with Mr. Rush about Mr. Epstein and his propensity to molest children. For example, when I discussed the tape with Mr. Rush, I was not a "source" in the traditional sense of that term. At no point did Mr. Rush tell me that I was a "source" for his reporting. 24. Because Epstein and all other co-conspirators have invoked the 5th amendment as to all relevant questions, this tape is the only way that Jane Doe can put Epstein's own perceptions of what he has done before the jury and the only way that Jane Doe can put Epstein's admissions and statement s before the jury. As even a quick perusal of the more than 500 entries on the docket sheet for Jane Doe's (consolidated) case will confirm (see Case no. 9:08-80119 (S .D. Fla.) (case number for consolidated cases on discovery), Jane Doe and other plaintiffs have made exhaustive attempts to obtain information from Epstein about his abuse. These attempts have included repeated requests for admission, requests for production, interrogatories, and depositions all the means that are listed in the Federal Rules of Civil Procedure for obtaining discovery. These means have all been exhausted without success. Neither Jane Doe nor any of the other plaintiffs have been able to obtain even a single word of information from Epstein about his abuse of minor girls. 25. I made a good faith, albeit unsuccessful, effort to resolve this matter with Anne B. Carroll, representing the Daily News in order to avoid any court intervention. I explained that we needed this tape for several reasons, including those cited by her in her pleading. The tape is detrimental to Epstein's personal complaint against and me; the tape is evidence of perjury committed by Epstein; the tape is the Best Evidence of his lack of remorse for his actions and will be presented in the punitive damages phase of the civil trials against him; and, perhaps most important, the tape is the only way that the jury considering Jane Doe's case will be able to hear Epstein's voice and own statements about his abuse of Jane Doe and other minor girls. Without the tape, the jury will not have the opportunity to hear Epstein give any substantive information about Jane Doe's complaint. Indeed, they will not have the opportunity to even hear Epstein's voice utter any substantive words other than (in essence) "I take the Fifth." As part of our discussion, Ms. Carroll told me that it was a "stupid move" for Mr. Rush to play the tape or disclose the tape to other people as he likely waived any privilege and that, as a result of disclosing the tape, he was at risk of losing his job. I responded that it did not seem fair that Mr. Rush lose his job or be punished in any way, but that I had an absolute duty to represent my client and that I would be failing in that duty if I did not pursue this critical piece of evidence. I declare under penalty of perjury that the foregoing is true and correct. FURTHER AFFIANT SAYETH NAUGHT. Dated this 23' day of April, 2010. The foregoing instrument was acknowledged before me this 23 day of April, 2010 by BRAD EDWARDS, who is personally known to me. My Commission Expires: MARIAW.KELLICNIAN te COMMISSION 00 813393 - EXPIRES: August 1 1 , 20'12 5 070. Boodedibru Notary Pubic Undowiters ' DEFENDAIVT BRADLEY EDWARDS'S STATEMENT OF UNDISPUTED FACTS Epstein v. Edwards, et al. Case No.: 50 2009 CA 040800NOCCMBAG EXHIBIT N AFFIDAVIT OF BRADLEY JAMES EDWARDS 1. I am an attorney in good standing with the Florida Bar and admitted to practice in the Southern District of Florida. I am currently a partner in the law firm of Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman, P.L. 2. In 2008, I was a sole practitioner running a personal injtntw firm in Hollywood, FL. While a sole practitioner I was retained by three clients, , OM, and Jane Doe to pursue civil litigation a. ainst Jeffrey Epstein for sexually abusing them while they were minor girls. I agreed to represent these girls, along with attorney Jay Howell (an attorney in Jacksonville, Florida with Jay Howell Associates) and Professor Paul Cassell (a law professor at the University of Utah College Of Law). I filed state court actions on behalf of L.M. and E.W. and a federal court action on behalf of Jane Doe. All of the cases were filed in the summer of 2008. 3. My clients received correspondence from the U.S. Department of Justice regarding their rights as victims of Epstein's federal sex offenses. (True and accurate copies of the letters are attached to Statement of Undisputed Facts as Exhibit "M") 4. In mid June 2008, I contacted Assistant United States Attorney Marie Villafafta to inform her that I represented Jane Doe 1 .) and, later, Jane Doe 2M). I asked to meet to provide information regarding Epstein. AUSA Villafarla did not advise me that a plea agreement had already been negotiated with Epstein's attorneys that would block federal prosecution. AUSA Villafafia did indicate that federal investigators had concrete evidence and information that Epstein had sexually molested at least 40 underage minor females, including ., Jane Doe and 5. I also requested from the U.S. Attorney's Office the information and evidence that they had collected regarding Epstein's sexual abuse of his clients. However, the U.S. Attorney's Office declined to provide any such information to me. The U.S. Attorney's Office also declined to provide any such information to the other attorneys who represented victims of Epstein's sexual assaults. 6. I was informed that on Friday, June 27, 2008, at approximately 4:15 p.m., AUSA Villafafia received a copy of Epstein's proposed state plea agreement and learned that the plea was scheduled for 8:30 a.m., Monday, June 30, 2008. She called me to provide notice to my clients regarding the hearing. She did not tell me that the guilty pleas in state court would bring an end to the possibility of federal prosecution pursuant to the plea agreement. My clients did not learn and understand this fact until July 11, 2008, when the agreement was described during a hearing held before Judge Marra on the Crime Victims' Rights Act action that I had filed. 7. In the summer of 2008 I filed complaints against Jeffrey Epstein on behalf o! , E.W., and Jane Doe. 8. In the Spring of 2009 (approximately April), I joined the law firm of Rothstein, Rosenfeldt and Adler, P.i."RRA"). I brought my existing clients with me when I joined RRA, including M., and Jane Doe. When I joined the finn, I was not aware that Scott Rothstein was running a Ponzi scheme at RRA. Had I known such a Ponzi scheme was in place, I would never have joined RRA. 9. I am now aware that it has been alleged that Scott Rothstein made fraudulent presentations to investors about the lawsuits that I had filed on behalf of my clients against Epstein and that it has been alleged that these lawsuits were used to fraudulently lure investors into Rothstein's Ponzi scheme. I never met a single investor, had no part in any such presentations and had no knowledge any such fraud was occurring. If these allegations are true, I had no knowledge that any such fraudulent presentations were occurring and no knowledge of any such improper use of the case files. 10. Epstein's Complaint against me alleges that Rothstein made false statements about cases filed against Epstein, i.e., that RRA had 50 anonymous females who had filed suit against Epstein; that Rothstein sold an interest in personal injury lawsuits, reached agreements to share attorneys fees with non-lawyers, paid clients "up front" money; and that he used the judicial process to further his Ponzi scheme. If Rothstein did any of these things, I had no knowledge of his actions. Because I maintained close contact with my clients, and Jane Doe, and Scott Rothstein never met any of them, I know for certain that none of my clients were paid "up front" money by anyone. 11. Epstein alleges that I attempted to take the depositions of his "high profile friends and acquaintances" for no legitimate litigation purpose. This is untrue, as all of my actions in representing M., M, and Jane Doe were aimed at providing them effective representation in their civil suits. With regard to Epstein's friends, through documents and information obtained in discovery and other means of investigation, I learned that Epstein was sexually molesting minor girls on a daily basis and had been for many years. I also learned the unsurprising fact that he was molesting the girls in the privacy of his mansion in West Palm Beach, meaning that locating witnesses to corroborate their testimony would be difficult to find. I also learned, from the course of the litigation, that Epstein and his lawyers were constantly attacking the credibility of the girls, that Epstein's employees were all represented by lawyers who apparently were paid for (directly or indirectly) by Epstein, that co-conspirators whose representation was also apparently paid for by Epstein were all taking the Fifth (like Epstein) rather than provide information in discovery. For example, I was given reason to believe that Larry Visoski, Larry Harrison, David Rogers, Louella Rabuyo, Ghislaine Maxwell, Mark Epstein, and Janusz Banasiak all had lawyers paid for by Epstein. Because Epstein and the co-conspirators in his child molestation criminal enterprise blocked normal discovery avenues, I needed to search for other ordinary approaches to strengthen the cases of my clients. Consistent with my training and experience, these other ordinary approaches included finding other witnesses who could corroborate allegations of sexual abuse of my clients or other girls. Some of these witnesses were friends of Epstein. Given his social status, it also turned out that some of his friends were high-profile. individuals. 12. In light of information I received suggesting that British socialite Ghislaine Maxwell, former girlfriend and long-time friend of Epstein's, was involved in managing Epstein's affairs and companies I had her served for deposition for August 17, 2009. (Deposition Notice attached to Statement of Undisputed Facts as Exhibit BB). Maxwell was represented by Brett Jaffe of the New York firm of Cohen and Gresser, and I understood that her attorney was paid for (directly or indirectly) by Epstein. She was reluctant to give her deposition, and I tried to work with her attorney to take her deposition on terms that would be acceptable to both sides. Her attorney and I negotiated a confidentiality agreement, under which Maxwell agreed to drop any objections to the deposition. Maxwell, however, still avoided the deposition. On June 29, 2010, one day before I was to fly to NY to take Maxwell's deposition, her attorney informed me that Maxwell's mother was deathly ill and Maxwell was consequently flying to England with no intention of returning and certainly would not return to the United States before the conclusion of Jane Doe's trial period (August 6, 2010). Despite that assertion, I later learned that Ghislaine Maxwell was in fact in the country on approximately July 31, 2010, as she attended the wedding of Chelsea Clinton (former President Clinton's daughter) and was captured in a photograph taken for US Weekly magazine. 13. Epstein alleges that there was something improper in the fact that I notified him that I intended to take Donald Trump's deposition in the civil suits against him. Trump was properly noticed because: (a) after review of the message pads confiscated from Epstein's home, the legal and investigative team assisting my clients learned that Trump called Epstein's West Palm Beach mansion on several occasions during the time period most relevant to my clients' complaints; (b) Trump was quoted in a Vanity Fair article about Epstein as saying "I've known Jeff for fifteen years. Terrific guy." "He's a lot of fun to be with. It is even said that he likes beautiful women as much as I do, and many of them are on the younger side. No doubt about it Jeffrey enjoys his social life." Jeffrey Epstein: International Moneyman of Mystery; He's pals with a passel of Nobel Prize winning scientists, CEOs like Leslie Wexner of the Limited, socialite Ghislaine Maxwell, even Donald Trump. But it wasn't until he flew Bill Clinton, Kevin Spacey, and Chris Tucker to Africa on his private Boeing 727 that the world began to wonder who he is. By Landon Thomas Jr.; (c) I learned through a source that Trump banned Epstein from his Maralago Club in West Palm Beach because Epstein sexually assaulted an underage girl at the club; (d) Jane Doe No. 102's complaint alleged that Jane Doe 102 was initially approached at Trump's Maralago by Ghislaine Maxwell and recruited to be Maxwell and Epstein's underage sex slave; (e) Mark Epstein (Jeffrey Epstein's brother) testified that Trump flew on Jeffrey Epstein's plane with him (the same plane that Jane Doe 102 alleged was used to have sex with underage girls) deposition of Mark Epstein, September 21, 2009 at 48-50; (f) Trump visited Epstein at his home in Palm Beach the same home where Epstein abused minor girls daily; (g) Epstein's phone directory from his computer contains 14 phone numbers for Donald Trump, including emergency numbers, car numbers, and numbers to Trump's security guard and houseman. Based on this information, I believed that Trump might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 14. Epstein alleges that there was something improper in the fact that I notified him that I intended to take Alan Dershowitz's deposition in the civil suits against him. Dershowitz was properly noticed because: (a) Dershowitz has been friends with Epstein for many years; (b) in one news article Dershowitz comments that, "I'm on my 20th book... The only person outside of my immediate family that I send drafts to is Jeffrey" The Talented Mr. Epstein, By Vicky Ward on January, 2005 in Published Work, Vanity Fair; (c) Epstein's housekeeper Alfredo Rodriguez testified that Dershowitz stayed at Epstein's house during the years most relevant to my clients; (d) Rodriguez testified that Dershowitz was at Epstein's house at times when underage females where there being molested by Epstein (see Alfredo Rodriguez deposition at 278-280, 385, 426- 427); (e) Dershowitz was reportedly involved in persuading the Palm Beach State Attorney's office not to file felony criminal charges against Epstein because the underage females lacked credibility and thus could not be believed that they were at Epstein's house, despite him being an eyewitness that the underage girls were actually there; (f) Jane Doe No. 102 stated generally that Epstein forced her to be sexually exploited by not only Epstein but also Epstein's "adult male peers, including royalty, politicians, academicians, businessmen, and or other professional and personal acquaintances" categories that Dershowitz and acquaintances of Dershowitz fall into; (g) during the years 2002-2005 Alan Dershowitz was on Epstein's plane on several occasions according to the flight logs produced by Epstein's pilot and information (described above) suggested that sexual assaults may have taken place on the plane; (h) Epstein donated Harvard 30 Million dollars one year, and Harvard was one of the only institutions that did not return Epstein's donation after he was charged with sex offenses against children. Based on this information, I believed that Dershowitz might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 15. Epstein alleges that there was something improper in the fact that I notified him that I intended to take Bill Clinton's deposition. Clinton was properly noticed because: (a) it was well known that Clinton was friends with Ghislaine Maxwell, and several witnesses had provided information that Maxwell helped to run Epstein's companies, kept images of naked underage children on her computer, helped to recruit underage children for Epstein, engaged in lesbian sex with underage females that she procured for Epstein, and photographed underage females in sexually explicit poses and kept child pornography on her computer; (b) newpaper articles stated that Clinton had an affair with Ghislaine Maxwell, who was thought to be second in charge of Epstein's child molestation ring. The Cleveland Leader newspaper, April 10, 2009; (c) it was national news when Clinton traveled with Epstein (and Maxwell) aboard Epstein's private plane to Africa and the news articles classified Clinton as Epstein's friend; (d) the flight logs for the relevant years 2002 - 2005 showed Clinton traveling on Epstein's plane on more than 10 occasions and his assistant, Doug Band, traveled on many more occasions; (e) Jane Doe No. 102 stated generally that she was required by Epstein to be sexually exploited by not only Epstein but also Epstein's "adult male peers, including royalty, politicians, academicians, businessmen, and or other professional and personal acquaintances" categories Clinton and acquaintances of Clinton fall into; (f) flight logs showed that Clinton took many flights with Epstein, Ghislaine Maxwell, md were closely .connected to Epstein's child exploitation and sexual abuse; (g) Clinton frequently flew with Epstein aboard his plane, then suddenly stopped raising the suspicion that the friendship abruptly ended, perhaps because of events related to Epstein's sexual abuse of children; (h) Epstein's personal phone directory from his computer contains e-mail addresses for Clinton along with 21 phone numbers for him, including those for his assistant (Doug Band), his schedulers, and what appear to be Clinton's personal numbers. Based on this information, I believed that Clinton might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 16. Epstein alleges that Tommy Mottola was improperly noticed with a deposition. I did not notice Mattola for deposition. He was noticed for deposition by a law firm representing another one of Epstein's victims not by me. 17. Epstein alleges that there was something improper in the fact that I notified him that I intended to take the illusionist David Copperfield's deposition. Copperfield was properly noticed because: (a) Epstein's housekeeper Alfredo Rodriguez testified that David Copperfield was a guest on several occasions at Epstein's house; (b) according to the message pads confiscated from Epstein's house, Copperfield called Epstein quite frequently and left messages that indicated they socialized together; (c) Copperfield himself has had similar allegations made against him by women claiming he sexually abused them; (d) one of Epstein's sexual assault victims also alleged that Copperfield had touched her in an improper sexual way while she was at Epstein's house. Based on this information, I believed that Copperfield might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 18. Epstein alleges that there was something improper in the fact that I identified Bill Richardson as a possible witness against him in the civil cases. Richardson was properly identified as a possible witness because Epstein's personal pilot testified to Richardson joining Epstein at Epstein's New Mexico Ranch. See deposition of Larry Morrison, October 6, 2009, at 167-169. There was information indicating that Epstein had young girls at his ranch which, given the circumstances of the case, raised the reasonable inference he was sexually abusing these girls since he had regularly and frequently abused girls in West Palm Beach and elsewhere. Richardson had also returned campaign donations that were given to him by Epstein, indicating that he believed that there was something about Epstein that he did not want to be associated with. Richardson was not called to testify nor was he ever subpoenaed to testify. 19. Epstein alleges that discovery of plane and pilot logs was improper during discovery in the civil cases against him. Discovery of these subjects was clearly proper and necessary because: (a) Jane Doe filed a federal RICO claim against Epstein that was an active claim through much of the litigation. The RICO claim alleged that Epstein ran an expansive criminal enterprise that involved and depended upon his plane travel. Although Judge Marra dismissed the RICO claim at some point in the federal litigation, the legal team representing my clients intended to pursue an appeal of that dismissal. Moreover, all of the subjects mentioned in the RICO claim remained relevant to other aspects of Jane Doe's claims against Epstein, including in particular her claim for punitive damages; (b) Jane Doe also filed and was proceeding to trial on a federal claim under 18 U.S.C. 2255. Section 2255 is a federal statute which (unlike other state statutes) guaranteed a minimum level of recovery for Jane Doe. Proceeding under the statute, however, required a "federal nexus" to the sexual assaults. Jane Doe had two grounds on which to argue that such a nexus existed to her abuse by Epstein: first, his use of the telephone to arrange for girls to be abused; and, second, his travel on planes in interstate commerce. During the course of the litigation, I anticipated that Epstein would argue that Jane Doe's proof of the federal nexus was inadequate. These fears were realized when Epstein filed a summary judgment motion raising this argument. In respo-nse, the other attorneys and I representing Jane Doe used the flight log evidence to respond to Epstein's summary judgment motion, explaining that the flight logs demonstrated that Epstein had traveled in interstate commerce for the purpose of facilitating his sexual assaults. Because Epstein chose to settle the case before trial, Judge Marra did not rule on the summary judgment motion. (c) Jane Doe No. 102's complaint outlined Epstein's daily sexual exploitation and abuse of underage minors as young as 12 years old and alleged that he used his plane to transport underage females to be sexually abused by him and his friends. The flight logs accordingly might have information about either additional girls who were victims of Epstein's abuse or friends of Epstein who may have witnessed or even participated in the abuse. Based on this information, I believed that the flight logs and related information was relevant information to prove the cases against Jeffrey Epstein and accordingly I pursued them in discovery. 20. In approximately November 2009, the existence of Scott Rothstein's Ponzi scheme became public knowledge. It was at that time that I, along with many other reputable attorneys at RRA, first became aware of Rothstein criminal scheme. At that time, I left RRA with several other RRA attorneys to form the law firm of Farmer Jaffe Weissing Edwards Fistos and Lehrman ("Farmer Jaffe"). I was thus with RRA for less than one year. 21. In July 2010, along with other attorneys at Farmer Jaffe and Professor Cassell, I reached favorable settlement terms for my three clients M., M., and Jane Doe in their lawsuits against Epstein. 22. On July 20, 2010, I received a letter from the U.S. Attorney's Office for the Southern District of Florida the office responsible for prosecuting Rothstein's Ponzi scheme. The letter indicated that law enforcement agencies had determined that I was "a victim (or potential victim)" of Scott Rothstein's federal crimes. The letter informed me of my rights as a victim of Rothstein's federal crimes and promised to keep me informed about subsequent developments in his prosecution. A copy of this letter is attached to this Affidavit. (A copy of the letter is attached to Statement of Undisputed Facts as Exhibit UU) 23. Jeffrey Epstein also filed a complaint with the Florida Bar against me. His complaint alleged that I had been involved in Rothstein's scheme and had thereby violated various rules of professional responsibility. The Florida Bar investigated and dismissed the complaint. 24. I have reviewed the Statement of Undisputed Facts filed contemporaneously with this Affidavit. Each of the assertions concerning what I learned, what I did, and the good faith beliefs formed by me in the course of my prosecutions of claims against Jeffrey Epstein as contained in the Statement of Undisputed Facts is true, and the foundations set out as support for my beliefs are true and correct to the best of my knowledge. 25. All actions taken by me in the course of my prosecution of claims against Jeffrey Epstein were based upon a good faith belief that they were reasonable, necessary, and ethically proper to fulfill my obligation to zealously represent the interests of my clients. I declare under penalty of perjury that the foregoing is true and correct. Dated: 112.i , 2010 Bradley J. Edwards, Esq. DEFENDA1VT BRADLEY J. EDWARDS'S MOTION FOR FINAL SUMMARY JUDGMENT Epstein v. Edwards, et al. Case No.: 50 2009 CA 040800 XMBAG EXHIBIT A Case 9:08-cv-80893-KAM Document 168 Entered on FLSD Docket 06 28 2010 Page 1 of 4 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO.: 08-C1V-80893-MARRA JOHNSON JANE DOE, Plaintiff, vs. JEFFREY EPSTEIN, Defendant. DEFENDANT EPSTEIN'S MOTION FOR SETTLEMENT CONFERENCE, OR N 1 HE ALTERNATIVE, MOTION TO DIRECT PARTIES' BACK TO MEDIATION Defendant, JEFFREY EPSTEIN, by and through his undersigned attorneys, pursuant to the Federal Rules of Civil Procedure and the Local Rules for the Southern District of Florida, moves this Court for an order requiring the parties to attend a Settlement Conference before Magistrate Judge Linnea R. Johnson, or in the alternative, for an Order directing the parties to reconvene at a second mediation on or before July 1, 2010, and as grounds set forth would state: 1. The above-styled matter is currently scheduled on the Court's trial docket beginning July 19, 2010. (D.E. 119, Order Re-Setting Trial Date and Pretrial Deadlines). The Court's Mandatory Pretrial Stipulation and Motions in Liraine deadlines are set for July 1, 2010. In this regard, if the parties could reach an agreement at a settlement conference or a mediation before these pre-trial deadlines, it would result in substantial conservation of judicial resources and preparation time. 2. The parties attended mediation on April 5, 2010, at Matrix Mediation, LLC, with Rodney Romano serving as mediator, but were unable to reach an agreement. (See D.E. 139). Case 9:08-cv-80893-KAM Document 168 Entered on FLSD Docket 06 28 2010 Page 2 of 4 Doe v. Epstein CASE NO.: 08-CIV-80893-MARRALTOENSON Page 2 3. Since the April 5, 2010 mediation, additional discovery has been completed and exchanged, including each parties' psychological (Plaintiff) and psychiatric (Defendant) expert depositions. As well, Defendant filed his Motion for Summary Judgment and Motion for Bifurcation. Both parties have exchanged witness and exhibit lists. Each party will be filing extensive Motions in Limine. Plaintiff's Trial Witness List has identified over 170 potential witnesses, and further, Plaintiff identifies over 140 trial exhibits, including composite exhibits that are hundreds of pages in length. It is conceivable this case could last 12- 20 trial days. 4. Additionally, since the parties attended mediation on April 5, 2010, Defendant has resolved all pending lawsuits, including Plaintiff, C.L. (Case No.: 10-80447) and JANE DOES Nos. 2-8 (Case Nos.: 08-80119, 08-80232, 08-08380, 08-80381, 08-80994, 08-80993, 08-80802), C.M.A. (Case No.08-80811), Jane Does Nos. 101, 102 and 103 (Case Nos. 09-80591, 09-80656, 10-80309), another Jane Doe (Case No. 08-80804), Jane Doe II (Case No. 09-80469), as well as other non-filed claims. Furthermore, Defendant has also resolved three state court claims. The only cases not resolved are this case and. two (2) cases in state court (all three plaintiffs are represented by Plaintiffs counsel, Brad Edwards, Esq. and his firm). 1 5. Plaintiffs in other filed cases were represented by various law firms as the court is aware. 6. With the additional discovery completed to date and with the motions, -Hal preparation and judicial rulings necessary to try this ease, all yet to be done, Defendant There is also a case styled L.M. v. Jeffrey Epstein, CASE NO.: 09-CIV-81092 MARRA JOHNSON, which was never served on the Defendant. Defendant has filed a Motion to Dismiss. Case 9:08-cv-80893-KAM Document 168 Entered on FLSD Docket 06 28 2010 Page 3 of 4 Doe v. Epstein CASE NO.: 08-CIV-808934MARRA JOHNSON Page 3 believes that a settlement conference or mediation is in the best interest of both parties to attempt resolution. There is no prejudice to either party. 7. Therefore, Defendant requests the Court issue an order directing the parties to attend a Settlement Conference before Magistrate Judge Johnson or that the Court direct the parties to attend a further mediation before 'July 1, 2010. Both Magistrate Judge Johnson and Rodney Romano (as the mediator in this case) are very familiar with the particular case and other claims that were asserted. 8. Defendant's Counsel has spoken with the secretary for the mediator, Rodney Romano, and she believes that he would be able to schedule a 2-3 hour mediation on short notice this week. WHEREFORE, Defendant, JEFFREY EPSTEIN respectfully requests the Court to enter an Order directing the parties to attend a Settlement Conference before Magistrate Judge Linnea R. Johnson, or in the alternative, a mediation on or before July 1, 2010. Rule 7.1 Certification I hereby certify that counsel has communicated by telephone with Plaintiffs counsel in a good faith effort to resolve the issues set forth herein. Plaintiffs position is that the parties have already complied with the mediation requirements. By: s Robert D. Critton, Jr. Robert D. Criiton, Jr. Michael I Pike Attorneys for Defendant Epstein Case 9:08-cv-80893-KAM Document 168 Entered on FLSD Docket 06 28 2010 Page 4 of 4 Doe v. Epstein CASE NO.: 08-CIV-80893-MARRA JOHNSON Page 4 Certificate of Service I HEREBY CERTIFY that a true copy of the foregoing was electronically filed with the Clerk of the Court using CM ECF. I also certify that the foregoing document is being served this day on all counsel of record identified on the following service list in the manner specified via transmission of Notices of Electronic Filing generated by CM ECF on this 28th day of June, 2010: Brad Edwards, Esq. Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman, PL 425 N. Andrews Ave. Suite 2 Paul G. Cassell, Esq. Pro Hac Vice 332 South 1400 E, Room 101 Salt Lake City, UT 84112 Co-counsel for Plaintiff Jack Alan Goldberger, Esq. Atterbury Goldberger Weiss, P.A. 250 Australian Avenue South Suite 1400 West Palm Beach, FL 33401-5012 Co-Counsel for Defendant Jeffrey Epstein Respectfully submitted, By: Is Robert D. Critton, Jr. ROBERT D. CRITTON, JR., ESQ. Florida Bar No. 224162 rcrit bcklaw.com MICHAEL I. PIKE, ESQ. Florida Bar 617296 mpike belclaw.com BURMAN, CRITTON, LU111.b,R COLEMAN, LLP 303 Banyan Boulevard, Suite 400 West Palm Beach, FL 33401 561 842-2820 Phone 561 243-0164 Fax (Co-Counsel far Defendant Jeffivy Epstein) IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT IN AND FOR PALM BEACH COUNTY, FLORIDA GENERAL JURISDICTION DIVISION JEFFREY EPSTEIN, Plaintiff, vs. No. 502009CA040800XXXXMBAG SCOTT ROTHSTEIN, individually, and BRADLEY J. EDWARDS, individually, Defendants. 500 East Broward Boulevard, Ft. Lauderdale, Florida Thursday, June 14, 2012 9:14 a.m. - 12:37 p.m. DEPOSITION Of SCOTT ROTHSTEIN (Via Video Conference) Taken on behalf of the Trustee pursuant to a notice of taking deposition FRIEDMAN, LOMBARDI OLSON 305-371-6677 aS Page 1 IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT IN AND FOR PALM BEACH COUNTY, FLORIDA CASE NO. 50 2009CA040800)000CMB AG Complex Litigation, Fla.R.Civ.Pro. 1201 JEFFREY EPSTEIN, Plaintiff, -vs-VOLUME I OF II SCOTT ROTHSTEIN, individually, 1 2 3 4 5 6 7 Page 3 INDEX EXAMINATION DIRECT CROSS REDIRECT BRADLEY J. EDWARDS, ESQUIRE BY MR. CRITTON 5 BRADLEY J. EDWARDS, 8 individually, and L.M. individually, 9 10 Defendants. 11 ERITIfI3ITS 12 VIDEOTAPED DEPOSITION OF BRADLEY J. EDWARDS, ESQUIRE 13 14 EXHIBIT DESCRIPTION PAGE Tuesday, March 23, 20010 15 10:00 - 5:07 p.m. PLAINTIFF'S EX. 1 ALFREDO RODRIGUEZ 211 16 CRIMINAL COMPLAINT 2139 Palm Beach Lakes, Boulevard PLAINTIFF'S EX. 2 COMPLAINT 239 West Palm Beach, Florida 33401 17 PLAINTIFF'S EX. 3 JULY 22, 2009 276 FACSMILE 18 Reported By: 19 Cynthia Hopkins, RPR, FPR Notary Public, State of Florida 20 Prose Court Reporting 21 Job No.: 1333 22 23 24 25 Page 2 Page 4 1 APPEARANCES: 1 PROCEEDINGS 2 3 On behalf of the Plaintiff ROBERT D. CRITTON, JR., ESQUIRE 2 BURMAN, CRITTON, LUT1ThR COLEMAN, LLP 3 Deposition taken before Cynthia Hopkins, 4 303 Banyan Boulevard .Suite 400 4 Registered Professional Reporter and Florida 5 West Palm Beach, Florida 33401 5 Professional Reporter, and Notary Public in and for 6 7 and 7 - - - 8 JACK ALAN GOLDBERGER, ESQUIRE Al 1ERBURY, GOLDBERGER WEISS, P.A. 8 THE VBDEOGRAPHER: We are now on video 9 250 Australian Avenue South 9 record. This is Media Number One in the 10 Suite 1400 West Palm Beach, Florida 33401-5012 10 videotaped deposition of Bradley Edwards in the 11 12 and 12 Rothstein, Bradley J. Edwards, and L.M. 13 On behalf of the Plaintiff 13 Today is Tuesday, March 23rd, 2010 at 14 ALAN M. DERSHOWITZ, ESQUIRE HARVARD LAW SCHOOL 14 10:00 a.m. We're here in the law offices 15 Hauser 520 15 of Searcy, Denney, Scarola, Barnhart 16 Cambridge, Massachusetts 02138 17 On behalf of the Defendant: 17 West Palm Beach, Florida. 18 JACK SCAROLA, ESQUIRE SEARCY, DENNEY, SCAROLA, 18 My name is Joe Kozak. I am the 19 BARNHART SHIPLEY, PA. 19 videographer. The court reporter is Cindy 20 2139 Palm Beach Lakes Boulevard West Palm Beach, Florida 33409 20 Hopkins from Prose, Prose Court Reporting 21 22 ALSO PRESENT: 22 Will counsel please introduce 23 Jeffrey Epstein 23 yourselves, and then the court reporter 24 Joseph Kozak, Videographer 24 will swear in the witnesses. Prose Reporting Services 25 25 MR. CRITTON: Bob Critton on behalf of the 1 (Pages 1 to 4) (561) 832-7500 PROSE COURT REPORTING AGENCY, INC. (561) 832-7506 2r |
CC: PUBLISHED: 22 NOVEMBER 2012 The view from the US: Stem cell therapy steps up a gear with first approval and improved political climate Special Report Peter Winter Positive clinical data, increases in federal funding and the first regulatory approval of a manufactured stem cell product mean momentum is building in the US. With the re-election of President Obama, this is likely to conf nue Share on twitterShare on linkedinShare on facebookShare on email Image: Bigstock When US President Barack Obama came into office he made good on his promise to overturn President George W. Bush's executive order that - with the exception of a handful of existing stem cell lines - prohibited federal funding of human embryonic stem cell (hESC) research. Special Report - Stem Cell Research under Horizon 2020 Stem Cell Research in Horizon 2020: Experts debate what Europe must do to maintain its lead in regenerative medicine The view from the US: Stem cell therapy steps up a gear with first approval and improved political climate View from Europe: Delivering on the vision of regenerative medicine and stem cells Talking to the experts: Why the EU should support human embryonic stem cell research in Horizon 2020 OVERVIEW: Regenerate the future - human embryonic stem cell research is crucial to deliver health and growth This easing of restrictions on hESC research was expected to engender enough confidence to attract investors into the space and encourage pharmaceutical and biotech companies to build robust product pipelines based on stem cell therapies. However, a tougher regulatory climate for biopharmaceuticals in general and a protracted legal challenge to the relaxing of rules on hESCs has served to keep both big pharma companies and venture capitalists on the sidelines to date. Nevertheless, there has been progress, particularly at the research end of the development spectrum. Three and a half years on stem cells are no longer high on the political agenda as they once were. This speaks to the generally positive public acceptance of stem cell research in the US. A Research!America poll of likely voters in the presidential election, conducted in August 2012, found that 61 per cent of prospective voters were in favor of expanding funding for hESC research. Investor interest Looking back over his first term in office Obama can point to some major gains. These include funding increases for the National Institutes of Health's (NIH) stem cell initiatives, and greater investor interest in the wider field of regenerative medicine including the use of adult stem cells and induced pluripotent stem (iPS) cells. However, it hasn't all been smooth sailing. Although after protracted forethought, the US Food and Drug Administration (FDA) gave the green light for the Californian biotech Geron to begin the very first human clinical trial of a human embryonic stem cell-derived therapy in January 2009, the trial has not been without its problems. The Phase I trial, treating patients with acute spinal cord injury, was hit with an FDA clinical hold causing significant delays to its initiation in 2010. A year later, after 15 years' effort, the Geron washed its hands of the programme, blaming its withdrawal from the stem cell space on capital scarcity and uncertain economic conditions. The decision wiped out a leading player in hESC translation and commercialisation. However, the regenerative medicine sector has been able to recover and is beginning to blossom. (See Public Markets section below). The prime movers in the Geron trial are now attempting to revive it. Research funding robust Federal funding for all forms of stem cell research has increased over the past four years. However, the NIH funding component for hESC has been dogged by litigation for the past three years. In Sherley v. Sebelius, researchers James Sherley and Theresa Deisher, who worked with adult stem cells, claimed the NIH guidelines violated the Dickey-Wicker Amendment, which prohibits the use of federal funds for research in which human embryos are destroyed or discarded. This overhang was not finally removed until August 2012 when a three-judge panel from the US Court of Appeals for the District of Columbia Circuit unanimously upheld the NIH 2009 guidelines that permit funding of hESC research. Through its Common Fund the NIH has established the Center for Regenerative Medicine (NIH CRM), to support this field, with the goal of accelerating the translation of stem cell-based clinical therapies. State funding filling the void With stem cell research in general not attracting a significant amount of venture funding, the California Institute of Regenerative Medicine (CIRM), which was established in 2004 with 3 billion for stem cell research at California universities and research institutions, has begun to fill the void left by traditional venture capital firms. To date CIRM has allocated 150 million in funding to help move promising stem cell-based therapies from the bench into clinical trials. 'We are a lot closer to having promising therapies ready for clinical trials, so it makes sense that we step up our engagement with industry to help fund those trials and move those therapies closer to approval by the FDA," said Duane Roth, vice chair of the governing board of CIRM. CIRM's funding for translational research is good news for biotech companies, providing them with a source of funds in a field where it remains challenging to raise private capital. Three biotech companies have been funded so far under CIRM's Strategic Partnership Awards initiative. A grant of 10.1 million was awarded to ViaCyte Inc. to continue preclinical research and initiate clinical testing of an embryonic stem cell-based therapy for patients with insulin-dependent diabetes. Meanwhile, Bluebird Bio Inc. will use a 9.3 million grant to support a Phase I II study to evaluate the safety and efficacy of LentiGlobin, the company's programme for the treatment of the inherited blood disorder beta-thalassemia, which will be initiated in the US in 2013. StemCells Inc. has been awarded up to 20 million to fund preclinical development of its product consisting of purified human neural stem cells for treating Alzheimer's disease, with the goal of filing for permission to carry out a clinical trial in that time. In July, CIRM approved a separate award to the company for up to 20 million to fund preclinical development of a cell therapy for spinal cord injury. Public Markets It has been a good year for stem cell companies on the public markets, with the thirteen publicly-listed stem cell companies showing an average increase in share price of 11.6 percent in the year-to-date. This boost came from a regulatory approval and positive clinical trials results. It was a big breakthrough for the field as a whole when the Canadian regulator Health Canada approved Prochymal, Osiris Therapeutics Inc.'s allogeneic stem cell treatment for graft-vs.-host disease (GvHD) in children. The decision marked the world's first regulatory approval of a manufactured stem cell product and the first therapy approved for GvHD a devastating complication of bone marrow transplantation that kills up to 80 percent of children affected, many within just weeks of diagnosis. The company's stock value has almost doubled in the course of this year. Meanwhile, Newark, California-based StemCells, Inc. has seen its shares rise 148 per cent in the year to date. In addition to its CIRM grants, the company recently reported clinical and preclinical data demonstrating the therapeutic potential of a cell therapy for treating myelination disorders. Pluristem Therapeutics Inc.'s stock value also has jumped 44 per cent, on the strength of reporting a single case study in wh ich a patient with aplastic bone marrow who received an intramuscular injection of its PLacental eXpanded cells under compassionate use saw an improvement. The company was also able to successfully complete a public offering which netted about US 30 million. Positive clinical trials will begin to encourage investment While still in their early stages of development - and with clinical trials having only involved a limited number of patients - reports to date have been very promising, and provide further validation for encouraging investment in stem cell therapeutics. For example, data from a human embryonic stem cell trial conducted by Advanced Cell Technology and published in medical journal The Lancet, showed that two patients with Stargardt's disease, a degenerative eye condition, had regained some vision. In addition, positive early data from a spinal cord injury trial involving StemCells' neural stem cells indicated that two patients with no feeling below the site of injury were able to regain sensation, while in another study from the company, patients with a rare myelination disorder were able to create myelin, an advance that holds promise for treating multiple sclerosis and cerebral palsy. This scientific progress has helped breath a new sense of optimism into the US stem cell sector. The Fiscal Cliff apart, it seems likely this momentum will continue now Obama has secured a second term. Peter Winter is a writer, editor and analyst on the global biotechnology industry. He is currently editor of BioWorld Insight. Steven Victor MD IntelliCell BioSciences Chairman CEO 460 Park Avenue 17th Floor New York, New York 10022 www.IntelliCellBioSciences.com |
Importance: High Same shit. Peter doesn't even attend. I will tell him that he should stop them using his name. Begin forwarded message: Date: 28 November 2012 16:05:59 GMT Dear Ian You are invited to join us at Dialog 2014 You were nominated for Dialog by Chamath Palihapitiya. There will be no speeches ... just many moderated break-out discussions of 6-15 people on various topics. And we design the agenda around your ideas and needs. Please let us know if you would like to join us, - Peter Thiel and Auren Hoffman p.s. and yes, we know Dialog 2014 is 16 months away, but we are giving you a chance to sign up now DETAILS: You're invited to join us at the Dialog Retreat ... 150 people to change the world ... a participatory and entrepreneurial conversation on changing the world. The Dialog participants aren't modest. We want to change the world. But we don't want to spend our time being in a large audience listening to winded speeches. There are no speakers. No panels. All attendees participate in break-out facilitated discussions. And we limit the discussion to only 150 global leaders who can have an impact now and emerging leaders who can help implement the plans we develop. Dates: March 13-15, 2014 Location: Sundance Resort, Utah (40 minutes from the Salt Lake City airport) We've rented out the entire resort Register at: http: dialog2014.eventbrite.com password: dialog2014 You qualify for a significant discount on the retreat fee. On the registration page, click on the link that says 'Enter promotional code' and enter: GovtEmployee note: the invite is only for Ian Osborne and is not transferable as we are limited to only 150 participants. There are no sponsors. We increase the retreat fee weekly to reward the people that sign up early. And this retreat is 100 off-the- record. We hope you can join us. Dialog participants... ... partial list of people who will be participating in the 2013 Dialog Retreat (all are references): Veronica Allende Serra Founding Partner, Pacific Investments. Chm, Portal de Documentos. Boards: Allied Advanced Technologies, Wow! Nutrition, Mercado Libre, ISmart Foundation. Susan Athey Byron Auguste Pacific Council on International Policy; Center for American Progress. David Barron Professor, Harvard Law School. Fmr Acting Asst U.S. Attorney General in the Office of Legal Counsel. Kirsten Bartok Evan Bayh Sr Advisor, Apollo Management. Partner, McGuireWoods. Fmr U.S. Senator (D-IN) (1999-2011). Fmr Governor of Indiana (1989- 1997). Author, From Father to Son. Tom Bedecarre CEO, AKQA. Nick Beim GP, Matrix. Boards: Gilt Groupe, TheLadders, Care.com, Conductor, Intent Media, BuyWithMe. Nicolas Berggruen Charles Best CEO, DononrsChoose. Elizabeth Blackburn Prof of Biology and Physiology, UCSF. 2009 Winner of Nobel Prize in Medicine. President, American Association of Cancer Research. David Bonderman Founding Partner, Texas Pacific Group (TPG). Founding Partner, Newbridge Capital. Boards: Continental Airlines, Bowe Bell Howell, Ducati Motorcycles, Credicom Asia, National Education Corp, Beringer Wine, Carr Reality, Virgin Cinemas, CoStar Group, GemAlto, RyanAir Holdings, Wilderness Society, World Wildlife Fund. Jason Bordoff Senior Advisor for Energy and Environmental Policy to U.S. President Obama. Erik Brynjolfsson Prof of Economics, MIT Sloan School of Management. Director, MIT Center for Digital Business. Chair, MIT Sloan Management Review. Author, Race Against the Machine. John Burbank CEO, Passport Capital. John Burbank President, Nielsen Strategic Initiatives. Fmr CEO of Online, Nielsen. Fmr CMO, Nielsen. Fmr CMO, AOL. Leah Busque Founder, TaskRabbit. Marc Cenedella CEO, TheLadders. Stephen Cohen cofounder, Palantir. Gio Colella CEO, Castlight Health. Fmr CEO, RelayHealth. Mark Colodny Managing Director, Warburg Pincus. Boards: CAMP Systems, GlobalSpec, MLM Information, iParadigms, MultiView, A Place for Mom, EVIDON, eCert, Spigit, OnTargetJobs. Boykin Curry Education Reform. Adam D'Angelo CEO, Quora. Fmr CTO, Facebook. Mitch Daniels President, Purdue University. Governor, State of Indiana (2005-2013). Fmr Director, Office of Management and Budget (2001- 2003). Lanny Davis Ken Denman CEO, Machine Perception Technologies. Fmr CEO of Openwave. Fmr CEO of iPass (IPAS). Fmr CEO, AuraSery Communications. Fmr SVP Media0ne. National Markets. Marc Ecko Chief Creative Officer, Marc Ecko Enterprises. Award-winning artist. RP Eddy CEO, Ergo. Fmr Director, White House National Security Council. Fmr Chief of Staff to U.N. Ambassador Richard Holbrooke. Sr Fellow, Manhattan Institute. Juan Enriquez CEO, Biotechonomy. Founding Director of the Life Sciences Project, Harvard Business School. Boards: Cabot Corp, Craig Venter Institute. Fmr CEO, Mexico City 's Urban Development Corporation. Jeff Epstein fmr CFO, Oracle. Fmr CFO, DoubleClick. Fmr CFO, King World Productions. Boards: Priceline.com, Stanford University Hospital. Niall Ferguson Prof History, Harvard. Author of The World's Banker: The History of the House of Rothschild, The Cash Nexus, Empire, Colossus, The War of the World, The Ascent of Money, and others. Brad Garlinghouse CEO, YouSendIt. Julius Genachowski Chairman, Federal Communications Commission (FCC). Jared Genser MD, Persesus Strategies. Founder, Freedom Now. International lawyer for Aung San Suu Kyi. Jeff George Global Head, Sandoz. Member of Exec Committee, Novartis. Dave Goldberg CEO, SurveyMonkey. Tom Goldstein Court. CEO, SCOTUSblog. Fabrice Grinda Ash Gupta Chief Risk Officer, American Express. Richard Haass President, Council on Foreign Relations. Fmr Director of Policy Planning, U.S. State Department. Fmr U.S. Special Envoy to Northern Ireland. Victor Halberstadt Prof of Economics, Leiden University (Netherlands). Fmr President, International Institute of Public Finance. Mbr, Investment Committee, ABP Pension Fund. Boards: RHJ International!. Janet Hanson CEO, 85Broads. Ho!lie Moore Haynes MD, Silver Lake Partners. Bob Hertzberg University of California. Fmr Chm, Mayor Antonio Villaraigosa transition team. Board: Solar Integrated Technologies (Chm), California Historical Society, MALDEF, Town Hall Los Angeles, Century Housing. Jim Himes U.S. Congressman (D-CT). Auren Hoffman Reid Hoffman Chairman and founder, LinkedIn. Partner, Greylock. Boards: DoSomething, Kiva, Endeavor Global, Mozilla. Zynga. Jacob Hsu CEO, Symbio. Daisuke Iwase cofounder and COO, Lifenet Insurance (top life insurance company in Japan). Christian Johansson Secretary of Department of Business and Economic Development (DBED), State of Maryland. Fmr CEO, Economic Alliance of Greater Baltimore. David Kamenetzky Group Head, Mars Co. PV Kannan CEO, 24 7 Customer. Andy Karsner CEO, Manifest Energy. Fmr U.S. Asst Sec of Energy for Energy Efficiency and Renewable Energy (2005-2009). Fmr Managing Director, Enercorp. Boards: Applied Materials, Conservation International. Garry Kasporov Fmr World Chess Champion. Chm, United Civil Front of Russia. Neal Katyal Partner, Hogan LoveIls. Fmr Acting Solicitor General for the United States (2010-2011). Professor of Law, Georgetown U. Lead counsel for the plaintiff in Supreme Court case Hamdan vs. Rumsfeld. Terry Kawaja CEO, Luma Partners. Juliette Kayyem Foreign Affairs Columnist, Boston Globe. Lecturer in Public Policy, Harvard. Asst Sec. for Intergovernmental Affairs, U.S. Dept. of Homeland Security. Jeff Kearl Chm, SkullCandy. Peter Kellner Chris Kelly Pradeep Khosla Chancellor, UC San Diego. Fmr Dean of College of Engineering, Carnegie Mellon. Boards: Quantpoint, BioMatricore, BitArmor, Children's Institute, IIT Foundation, Mellon-Pitt Corp. Charlie Kim CEO, NextJump. David Kirkpatrick Author, The Facebook Effect. Fmr head technology writer, FORTUNE. Henry Kravis Co-CEO of KKR. Chm, First Data. Boards: Claremont McKenna College, Metropolitan Museum of Art, Mount Sinai Medical Center, Council on Foreign Relations, Columbia Business School, Rockefeller University, others. Fmr Chair, Partnership for New York City. Marie-Josee Kravis Boards: Publicis, LVMH. Boards: Memorial Sloan-Kettering Cancer Center, Robin Hood Foundation, Council on Foreign Relations, Qatar Museum Authority. President, Museum of Modern Art board of directors. Fmr Board: Ford, IAC, CIBC. Will Lansing CEO, FICO (NYSE: FICO). Fmr CEO, InfoSpace. Fmr CEO, NBC Internet. Fmr COO, Prodigy Communications. Renaud Laplanche CEO, Lending Club. Laura and Gary Lauder Jenna Lee Anchor, Fox News. Host, Happening Now on Fox News. Jorge Lemann Fmr Owner, AmBev (largest brewery in Latin America) and now one of the largest shareholders in Anheuser-Busch InBev. Boards: Lojas Americanas, Gillette, Swiss Re, Burger King. Max Levchin fmr CEO, Slide. Fmr co-founder, PayPal. Jonathan Levin Prof and Chair of Dept of Economics, Stanford. 2011 Winner of the John Bates Clark Medal. Ann Lewis President, NoLimits. Fmr Director of Communications to the U.S. President (1997-2000). Rob LoCasio CEO, LivePerson (NASDAQ: LSPN). Jeremy hew GP, LightSpeed Venture Partners. Investor in: Bonobos, CarDomain, Flixster, Focus, Kixeye, Kongregate, LivingSocial, Playdom, RockYou, ShoeDazzle, and others. Joe Lonsdale CEO, Adepar. cofounder, Palantir. Doreen Lorenzo President, Frog Design. Bob Luskin Crime Racketeering Section of DOJ . Jorn Lyseggen CEO of Meltwater. John Maeda President, Rhode Island School of Design. Author, Laws of Simplicity. Divesh Makan CEO, Iconiq Capital. Meyer Malka co-CEO, Lemon. Andy McAfee Principal Research Scientist at the Center for Digital Business, MIT. Author of Race Against the Machine. General Stan McChrystal Ret. 4-star U.S. General. Led all U.S. forces in Afghanistan. Fmr Commander, Joint Special Operations Command. Current Principal, McChrystal Group. Sr. Fellow, Yale's Jackson Institute for Global Affairs. Andrew McLaughlin Fmr VP, Tumblr. Fmr Deputy CTO of the United States, White House. Fmr Dir of Public Policy, Google. Boards: Public Knowledge, Code for America. Dmitri Mehlhorn COO, StudentsFirst. Lenny Mendonca McKinsey Co, Economic Institute of the Bay Area, Bay Area Science and Innovation Consortium, The New America Foundation, Common Cause, Committee for Economic Development, ChildrenNow, and DonorsChoose. Eugene Meyer President, Federalist Society. Chris Michel GP, Nautilus Ventures. Award-winning photographer. Fmr CEO, Affinity Labs. Fmr CEO, Military.com. Boards: International Data Group, Dale Carnegie, Kixeye, Castlight Health, USO, Marine Corps University Foundation. Katie Mitic Fmr Head of Platform Marketing, Facebook. Fmr SVP, Palm. Fmr VP Product Strategy, Yahoo! Fmr Fndr and CEO, Fourll. Boards: eBay, Special Olympics International. Wes Moore Division, US Army, Afghanistan 2005-2006. Nader Mousavizadeh CEO of Oxford Analytica. Luke Muehlhauser Exec Director, Singularity University. Matt Mullenweg Founder, Wordpress. Roger Myerson Scott Nathan Partner, Baupost Group. Meghan O'Sullivan W. Bush. Mbr, Trilateral Commission. Chamath Palihapitiya CEO, Social Capital. fmr VP Growth, Mobile, and International at Facebook. Fmr GM of AIM at AOL. Boards: SecondMarket, FixYa, Lemon, Integrated Plasmonics. Co-Owner, Golden State Warriors. Eli Pariser Fmr President, Move0n. Cofndr, Avaaz.org. Boards: Move0n, Avaaz, New Organizing Institute and Simon's Rock College. Mark Penn Corp VP of Strategic Projects (reports to the CEO), Microsoft. Fmr CEO, Burson-Marsteller. President, of polling firm Penn, Schoen and Berland Associates. Fmr Chief Strategist, Hillary Clinton for President 2008. Author, Microtrends. Fmr pollster to President Clinton. Fmr pollster to Prime Minister Tony Blair. Lois Quam Executive Director, Global Health Initiative part of the State Department and she reports directly to Secretary Clinton. Fmr CEO of Public and Senior Markets, UnitedHealth Group ( 30 billion division). Dan Rosensweig CEO, Chegg. Fmr CEO, Guitar Hero. Fmr COO, Yahoo. Robert Rubin Co-Chairman, Council on Foreign Relations. Fmr U.S. Secretary of the Treasury (1995-1999). Fmr Director, National Economic Council (1993-1995). Chm, Local Initiatives Support Corporation (LISC). Fmr Co-Chairman, Goldman Sachs. Sal Russo Founder, Tea Party Express. Partner, Russo Marsh. Tod Sacerdoti CEO, BrightRoll. Board: ReTargeter. Amy Salzhauer CEO, Ignition. Cami Samuels General Partner, Versant Ventures. Boards: Achaogen, APT Pharmaceuticals, Kythera Biopharmaceuticals, Semprae Laboratories. Ken Sawyer Systems, Cleargauge, Travel Intelligence, Envivio, Alliance Consulting, Acsis and Laureate Pharmaceuticals. Jessica Schell EVP BD and Strategic Planning, Universal Pictures. Fmr SVP Digital Strategy and Business Development, NBC Universal. Board: World Wide Biggies. Barry Silbert CEO of SecondMarket. Josh Silverman President of US Consumer Services, American Express. Fmr CEO, Skype. Fmr CEO, Shopping.com. Fmr CEO and Fndr, eVite. Sukhinder Singh Cassidy Chm, JOYUS. Fmr CEO, Polyvore. Fmr President of Asia Pacific and Latin America, Google. Boards: TripAdvisor (TRIP) and Formspring. Megan Smith VP Business Development, Google. Fmr CEO, PlanetOut. Charles Songhurst Angelo Sotira CEO, DeviantArt. Bret Stephens Post. Simon Stevens EVP, UnitedHealth Group. Fmr CEO, Ovations (revenues of 31 billion). Fmr Health Policy Director to British Prime Minister Tony Blair. Henry Sweica CEO, Talpion Fund Management. Fmr co-founder, Highbridge Capital Management. Alexander Tamas - Partner, DST. Boards: Forticom, mail.ru Peter Thiel Steve Wayne CEO, Jensen Group. Will Wechsler Deputy Asst. Sec of Defense for Counternarcotics and Global Threats. Adam Weiss co-CEO, Scout Capital. Katharine Weymouth Publisher, Washington Post. Michael Wolf CEO, Activate. fmr President and COO, MTV Networks. Fmr Prtnr, McKinsey. Former Senior Partner, Booz Allen Hamilton. Paul Wolpe Director, Center of Ethics. Prof of Bioethics, Emory. Sr Bioethicist, NASA. Co-Editor, American Journal of Bioethics. Jed York CEO of San Francisco 49ers. Lauren Zalaznick Chairman, Entertainment Digital Networks and Integrated Media, NBCUniversal. She oversees Bravo, Oxygen Media, Style, PBS Sprout, Telemundo, iVillage, Swirl, Daily Candy, and Fandango. Eric Zinterhofer co-CEO, Searchlight Capital. Chm, Charter Communications. Fmr Sr Partner, Apollo Management. Boards: Central European Media Enterprises, Dish TV India. Karl-Theodor zu Guttenberg fmr Minister of Defense, Germany. Fmr Minister of Economics and Technology, Germany. |
AFFIDAVIT OF BRADLEY JAMES EDWARDS 1. I am an attorney in good standing with the Florida Bar and admitted to practice in the Southern District of Florida. I am a partner in the law firm of Farmer Jaffe Weissing Edwards Fistos and Lehrman. 2. I am the lead attorney currently representing "Jane Doe" in the case of Jane Doe v. Jeffrey Epstein, case number 08-80893 in federal Court in the Southern District of Florida. I am the lead attorney representing Jane Doe, whose civil complaint alleges that Epstein sexually molested her numerous occasions when she was a minor. 3. Defendant Epstein has entered into a "non-prosecution agreement" (NPA) with the federal government for sex crimes against minors. Under that agreement, the federal government has agreed not to file criminal charges against Epstein for sex crimes committed against approximately thirty girls, including Jane Doe. In exchange, Epstein agreed to plead guilty to state law criminal charges involving solicitation of prostitution and procuring a minor for prostitution. The victim of the criminal charges to which he has pled was not Jane Doe. 4. Under the NPA, Epstein has agreed not to contest civil liability of any of his approximately thirty victims - provided that the victim agrees to limit themselves to the damages provided by 18 U.S.C. 2255 (currently set at 150,000).. Jane Doe has not agreed to limit herself. to pursuing only 150,000- in damages. Therefore, the terms of the NPA purport to prevent Jane Doe from using the NPAto prove liability. . . 5. Epstein has filed an answer to Jane Doe's complaint, in which he has invoked his Fifth Amendment right to silence with respect to the allegations that he molested her as a child. Epstein has further argued that this Fifth Amendment invocation is the functional equivalent of, and must be treated as, a specific denial of the allegations. 6. Defendant Epstein's deposition has been taken on several occasions,.in this and other related cases, and he has not provided any substantive discovery whatsoever. Instead, he invoked his 5th amendment privilege against self-incrimination when asked questions about his abuse of Jane Doe or other girls. . . 7. Defendant Epstein has also been served with Interrogatories and 'requests-10r . . . . .. . - production all requests have been met with 5th amendment assertions and Epstein has not given Jane .: : . . . Doe any substantive testimony related her allegation's. ' . .. 8. Jane Doe's complaint contains a punitive damages claim; and Mr. Epstein:has also elected to invoke the'sY1 Amendment on all questions that would relate to punitive damages issues, such as his intent when committing the crimes, his lack of remorse and his intent to recidiVate. . , . . . . , . 9. Epstein has taken Jane Doe's deposition. During that deposition he has asked numerous questions of Jane Doe that suggest that she is fabricating her allegation of abuse by Epstein.. 1Q. In addition to deposing Mr. Epstein, other attorneys and I have taken the his various co-conspirators (as labeled by the federal government in the NPA), including . . . MENEM. and Each of those individuals was employed by Epstein to bring him underage girls for him to. molest .and to ensure that he was protected from detection by law L enforcement, and thus those individuals could likely provide general testimony that would assist Plaintiff . in proving liability and damages, including punitive damages. However, none of these individuals were 1 present during acts of sexual abuse by Epstein. In any event, ALL of those individuals have also invoked their 5th amendment rights against self-incrimination, and thus have left Plaintiff with no information about what Epstein or other conspirators inside his house were doing during the sexual abuse of Jane Doe and other minors girls. This creates a serious issue for Jane Doe in proving her sexual molestation claim against Epstein. By its nature, sexual molestation takes place in private, with only the abuser:and the victim typically available to testify. In this case, Epstein's abuse of Jane Doe took place in private, with only Epstein and Jane Doe present during the abuse. Jane Doe has no other reasonable avenues of discovery to provide direct proof of claim of sexual abuse by Epstein. 11. Additionally, Mr. Epstein has recently filed a lawsuit against me personally that has no merit whatsoever, a fact known to Mr. Epstein and his attorneys. He filed the lawsuit against Brad ifrds, Scott Rothstein, and L.M. (another Epstein victim of his molestation). That lawsuit implies that s civil case against him (currently pending in Florida state court) is fabricated and that and I have conspired to commit frauRainst him (presumably that she made up the case against him, implying that he does not know , While the present subpoena before the Court has been filed by Jane Doe, the Court should be aware that attorneys representing may also file a subpoena for the George Rush tape shortly. 12. Despite Mr. Epstein and all of his co-conspirators, asserting a 5th amendment privilege against self-incrimination, George Rush of the New York Daily news did contact me to inform me that Mr. Epstein spoke personally with him about issues related to the various charges of sex abuse against him. 13. Paraphrasing from memory of my conversation with Mr. Rush, Mr. Epstein told him that he may have come "too close to the line" but that he should not have been punished as severely as he was and that his conduct was at most worthy of a 100 fine. This is a statement that shows two things of great importance to Jane Doe's pending civil action. First, it is in effect an admission by Epstein of his liability to Jane Doe for sexually abusing her. Jane Doe does not have any other admission of Epstein of his sexual abuse of her and Epstein has filed an answer to Jane Doe's complaint that has the functional effect of denying abuse of her. Jane Doe has diligently pursued all possible ways of obtaining an admission from Epstein of his molestation of Jane Doe without success. Second, the statement to Mr. Rush is a clear demonstration that Epstein lacks remorse for committing felony child molestation against Jane Doe. .This will be a central issue in the punitive damages case against Epstein at trial. Here again, Jane Doe has diligently pursued all possible ways of obtaining a statement from Epstein about his lack of remorse for abusing Jane Doe without success. There are no other reasonable means of obtaining a statement from Epstein on these subjects. 14. Mr. RuSh also told me that Mr. Epstein spoke specifically about one of my 'clients". and he made derogatory remarks about her. 15. Additionally, Mr. Rush Said that Epstein spoke directly about another civil case that was filed against him (Jane Doe 102 v. Epstein); that case alleges that Epstein repeatedly sexually abused a. 15 year old girl, forced her to have sex with his friends and flew her on his private plane nationally and internationally for the purposes of sexually molesting and abusing her Epstein flippantly told George Rush that that case was dismissed, in a way to indicate that the allegationiare ridiculous and untrue. : 16. Mr. Rush indicated that he taped the conversation between him and Mr:Epstein ... 17. Mr. Rush also spoke at length to MiChiel. FiSten, in investigator with my firm that was assisting with the investigation of the case. Mr. Fisten reported to me shortly after the conversation with Mr. Rush that he had such a conversation. 18. While research by other plaintiffs' attorneys and myself has uncovered other persons that were acquaintances of Mr. Epstein, specifically Donald Trump, Alan Dershowitz, Bill Clinton, Tommy Mottola, and David Copperfield, we have no information that any of those people (other than Mr. Dershowitz) have spoken to Mr. Epstein about Jane Doe or.any of the other specific victims of Mr. Epstein's molestation. Mr. Dershowitz is acting as an attorney for Mr. Epstein, and therefore it is presumably unlikely to question him about any admissions that Epstein may have made regarding Jane Doe or other minors girls. Additionally, we have no information that any of those individuals or any other individuals have any taped statements of Epstein's own voice relating to these matters. George Rush's taped conversation with Mr. Epstein is the only known one in existence, making it very unique and it contains information not otherwise obtainable through other means or sources. Indeed, without the Rush tape conversation, the jury that handles the case will not hear any words from Epstein himself about his abuse of Jane Doe and other young girls. I have been informed by Epstein's attorney that Epstein intends to invoke his Fifth Amendment rights rather than answer any substantive questions about the abuse of Jane Doe and other girls at trial. 19. The Rush interview is, in any event, unique and not otherwise obtainable from other witnesses because it can be used to prove perjury (a federal crime) on the pa i f Epstein. Epstein lied t about not knowing George Rush. See deposition of Jeffrey Epstein, taken in . Jeffrey Epstein, case 50-2008-CA-028051, page 154, line 4 through 155 line 9, wherein Jeffrey Epstein clearly impresses that he does not recognize George Rush from the New York Daily News, despite the fact that he gave a personal interview that we all now know to have been tape recorded. It is therefore evidence of a criminal event. If we receive the tape, we intend to alert the appropriate law enforcement authorities, both federal and state, so that they can pursue any appropriate criminal investigation perjury charges. 20. The tape is.also crucial foi to dismiss the frivolous complaint filed by Jeffrey Epstein against her, as he clearly acknowledges knowing contrary to claims he makes in his complaint against her and also contradictory to other statements he has made in depositions related to knowing L.M. In that regard, this tape provides evidence of other false statements Epstein has made under oath. 21. During a telephone call with George Rush, he provided me more than a description of the tape, and in fact described the general tenor of the entire interview, so that nothing in the interview can be fairly regarded as confidential at this point. . 22. As George Rush admitted in his affidavit, he played the tape for at least two other . persons who also ,confirmed Epstein's arrogance as he speaks about his actions with minors. - . . .. . . - . . . 23.. .. The people for whom George Rush played the tape or told in detail of the information on the tape were not "sources" in the tradition sense of the word all individuals were simply chatting . with Mr. Rush about ikAr. Epstein and his propensity to molest children. For example, when I discussed the tape with Mr. Rush, I was not a "source" in the traditional sense of that term: At no point did Mr. .Rush tell me that I was a "source" for his reporting. 24. Because Epstein and all other co-conspirators have invoked the 5th amendment as to ill relevant questions, this tape is the only way that Jane Doe can put 'Epstein's own perceptions of what he has done before the jury and the only way that Jane Doe can put Epstein's admissions and statement . s'before the jury. As even a quick perusal of the more than 500 entries on the docket sheet for Jane Doe's (consolidated) case will confirm (see Case no. 9:08-80119 (S .D. Fla.) (case number for consolidated cases on discovery), Jane Doe and other plaintiffs have made exhaustive attempts to obtain information from Epstein about his abuse. These attempts have included repeated requests for admission, requests for: production, interrogatories, and depositions all the means that are listed in the Federal Rules of Civil Procedure for obtaining discovery. These means have all been exhausted without success. Neither Jane Doe nor any of the other plaintiffs have been able to obtain even a single word of information from Epstein about his abuse of minor girls. 25. I made a good faith, albeit unsuccessful, effort to resolve this matter with Anne B. Carroll, representing the Daily News in order to avoid any court intervention. I explained that we needed this tape for several reasons, including those cited by her in her pleading. The tape is detrimental to Epstein's personal complaint against.' and me; the tape is evidence of perjury committed by Epstein; the tape is the Best Evidence of his lack of remorse for his actions and will be presented in the punitive damages phase of the civil trials against him; and, perhaps most important, the tape is the only way that the jury considering Jane Doe's case will be able to hear Epstein's voice and own statements about his abuse of Jane Doe and other minor girls. Without the tape, the jury will not have the opportunity to hear Epstein give any substantive. information about Jane Doe's complaint. Indeed, they will not have the opportunity to even hear Epstein's voice utter any substantive words other than (in essence) "I take the Fifth." As part of our discussion, Ms. Carroll told me that it was a "stupid move" for Mr. Rush to play the tape or disclose the tape to other people as he likely waived any privilege and that, as a result of disclosing the tape, he was at risk of losing his job. I responded that it did not seem fair that Mr. Rush lose his job or be punished in any way, but that I had an absolute duty to represent my client and that I would be failing in that duty if I did not pursue this critical piece of evidence. I declare under penalty of perjury that the foregoing is true and correct. FURTHER AFFIANT SAYETH NAUGHT. Dated this 23rd day of April, 2010. Brad Edwards, Esq. The foregoing instrument was acknowledged before me this 23"1 day of .April, 2010 by BRAD EDWARDS, who is personally known to me. My Commission Expires: DEFENDAN7' BRADLEY I EDWARDS'S STATEMENT OF UNDISPUTED FACTS Epstein v. Edwards, et al. Case No.: SO 2009 C4 0408002000CMBAG EXHIBIT N HOUSE OVERSIGHT 013493 AFFIDAVIT OF BRADLEY JAMES EDWARDS 1. I am an attorney in good standing with the Florida Bar and admitted to practice in the Southern District of Florida. I am currently a partner in the law firm of Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman, P.L. 2. In 2008, I was a sole practitioner running a personal injurritw firm m Hollywood, FL. While a sole practitioner I was retained by three clients, and Jane Doe to pursue civil litigation against Jeffrey Epstein for sexually abusing them while they were minor girls. I agreed to represent these girls, along with attorney Jay Howell (an attorney in Jacksonville, Florida with Jay Howell Associates) and Professor Paul Cassell (a law professor at the University of Utah College Of Law). I filed state court actions on behalf of M. and NM and a federal court action on behalf of Jane Doe. All of the cases were filed in the summer of 2008. 3. My clients received correspondence from the U.S. Department of Justice regarding their rights as victims of Epstein's federal sex offenses. (True and accuralt copies of the letters are attached to Statement of Undisputed Facts as Exhibit "M") 4. In mid June 2008, I contacted Assistant United States Attorney Marie Villafafia to inform her that I represented Jane Doe 1 and, later, Jane Doe 21 I asked to meet to provide information regarding Epstein. AUSA Villafafia did not advise me that a plea agreement had already been negotiated with Epstein's attorneys that would block federal prosecution. AUSA Villafafia did indicate that federal investigators had concrete evidence and information that Epstein had sexually molested at least 40 underage minor females, including , Jane Doe and 5. I also requested from the U.S. Attorney's Office the information and evidence that they had collected regarding Epstein's sexual abuse of his clients. However, the U.S. Attorney's Office declined to provide any such information to me. The U.S. Attorney's Office also declined to provide any such information to the other attorneys who represented victims of Epstein's sexual assaults. 6. I was informed that on Friday, June 27, 2008, at approximately 4:15 p.m., AUSA Villafaira received a copy of Epstein's proposed state plea agreement and learned that the plea was scheduled for 8:30 a.m., Monday, June 30, 2008. She called me to provide notice to my clients regarding the hearing. She did not tell me that the guilty pleas in state court would bring an end to the possibility of federal prosecution pursuant to the plea agreement. My clients did not learn and understand this fact until July 11, 2008, when the agreement was described during a hearing held before Judge Marra on the Crime Victims' Rights Act action that I had filed. 7. In the summer of 2008 1 filed complaints against Jeffrey Epstein on behalf of , , and Jane Doe. 8. In the Spring of 2009 (approximately April), I joined the law firm of Rothstein, Rosenfeldt and Adler, P.A. ("RRA"). I brought my existing clients with me when I joined RRA, including , and Jane Doe. When I joined the firm, I was not aware that Scott Rothstein was running a Ponzi scheme at RRA. Had I known such a Ponzi scheme was in place, I would never have joined RRA. 9. I am now aware that it has been alleged that Scott Rothstein made fraudulent presentations to investors about the lawsuits that I had filed on behalf of my clients against Epstein and that it has been alleged that these lawsuits were used to fraudulently lure investors into Rothstein's Ponzi scheme. I never met a single investor, had no part in any such presentations and had no knowledge any such fraud was occurring. If these allegations are true, I had no knowledge that any such fraudulent presentations were occurring and no knowledge of any such improper use of the case files. 10. Epstein's Complaint against me alleges that Rothstein made false statements about cases filed against Epstein, i.e., that RRA had 50 anonymous females who had filed suit against Epstein; that Rothstein sold an interest in personal injury lawsuits, reached agreements to share attorneys fees with non-lawyers, paid clients "up front" money; and that he used the judicial process to further his Ponzi scheme. If Rothstein did any of these things, I had no knowledge of his actions. Because I maintained close contact with my clients,', and Jane Doe, and Scott Rothstein never met any of them, I know for certain that none of my clients were paid "up front" money by anyone. 11. Epstein alleges that I attempted to take the depositions of his "high profile friends and acquaintances" for no legitimate litigation purpose. This is untrue, as all of my actions in representing it, Mt., and Jane Doe were aimed at providing them effective representation in their civil suits. With regard to Epstein's friends, through documents and information obtained in discovery and other means of investigation, I learned that Epstein was sexually molesting minor girls on a daily basis and had been for many years. I also learned the unsurprising fact that he was molesting the girls in the privacy of his mansion in West Palm Beach, meaning that locating witnesses to corroborate their testimony would be difficult to find. I also learned, from the course of the litigation, that Epstein and his lawyers were constantly attacking the credibility of the girls, that Epstein's employees were all represented by lawyers who apparently were paid for (directly or indirectly) by Epstein, that co-conspirators whose representation was also apparently paid for by Epstein were all taking the Fifth (like Epstein) rather than provide information in discovery. For example, I was given reason to believe that Larry Visosld, Larry Harrison, David Rogers, Louella Rabuyo, Ghislaine Maxwell, Mark Epstein, and Janusz Banasiak all had lawyers paid for by Epstein. Because Epstein and the co-conspirators in his child molestation criminal enterprise blocked normal discovery avenues, I needed to search for other ordinary approaches to strengthen the eases of my clients. Consistent with my training and experience, these other ordinary approaches included finding other witnesses who could corroborate allegations of sexual abuse of my clients or other girls. Some of these witnesses were friends of Epstein. Given his social status, it also turned out that some of his friends were high-profile individuals. (.1 12. In light of information I received suggesting that British socialite Ghislaine Maxwell, former girlfriend and long-time friend of Epstein's, was involved in managing Epstein's affairs and companies I had her served for deposition for August 17, 2009. (Deposition Notice attached to Statement of Undisputed Facts as Exhibit BB). Maxwell was represented by Brett Jaffe of the New York firm of Cohen and Gresser, and I understood that her attorney was paid for (directly or indirectly) by Epstein. She was reluctant to give her deposition, and I tried to work with her attorney to take her deposition on terms that would be acceptable to both sides. Her attorney and I negotiated a confidentiality agreement, under which Maxwell weed to drop any objections to the deposition. Maxwell, however, still avoided the deposition. On June 29, 2010, one day before I was to fly to NY to take Maxwell's deposition, her attorney informed me that Maxwell's mother was deathly ill and Maxwell was consequently flying to England with no intention of returning and certainly would not return to the United States before the conclusion of Jane Doe's trial period (August 6, 2010). Despite that assertion, I later learned that Ghislaine Maxwell was in fact in the country on approximately July 31, 2010, as she attended the wedding of Chelsea Clinton (former President Clinton's daughter) and was captured in a photograph taken for US Weekly magazine. 13. Epstein alleges that there was something improper in the fact that I notified him that I intended to take Donald Trump's deposition in the civil suits against him. Trump was properly noticed because: (a) after review of the message pads confiscated from Epstein's home, the legal and investigative team assisting my clients learned that Trump called Epstein's West Palm Beach mansion on several occasions during the time period most relevant to my clients' complaints; (b) Trump was quoted in a Vanity Fair article about Epstein as saying "I've known Jeff for fifteen years. Terrific guy." "He's a lot of fun to be with. It is even said that he likes beautiful women as much as I do, and many of them are on the younger side. No doubt about it Jeffrey enjoys his social life." Jeffrey Epstein: International Moneyman of Mystery; He's pals with a passel of Nobel Prize winning scientists, CEOs like Leslie Wexner of the Limited, socialite Ghislaine Maxwell, even Donald Trump. But it wasn't until he flew Bill Clinton, Kevin Spacey, and Chris Tucker to Africa on his private Boeing 727 that the world began to wonder who he is. By Landon Thomas Jr.; (c) I learned through a source that Trump banned Epstein from his Maralago Club in West Palm Beach because Epstein sexually assaulted an underage girl at the club; (d) Jane Doe No. 102's complaint alleged that Jane Doe 102 was initially approached at Trump's Maralago by Ghislaine Maxwell and recruited to be Maxwell and Epstein's underage sex slave; (e) Mark Epstein (Jeffrey Epstein's brother) testified that Trump flew on Jeffrey Epstein's plane with him (the same plane that Jane Doe 102 alleged was used to have sex with underage girls) deposition of Mark Epstein, September 21, 2009 at 48-50; (f) Trump visited Epstein at his home in Palm Beach the same home where Epstein abused minor girls daily; (g) Epstein's phone directory from his computer contains 14 phone numbers for Donald Trump, including emergency numbers, car numbers, and numbers to Trump's security guard and houseman. Based on this information, I believed that Trump might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 14. Epstein alleges that there was something improper in the fact that I notified him that I intended to take Alan Dershowitz's deposition in the civil suits against him. Dershowitz was properly noticed because: (a) Dershowitz has been friends with Epstein for many years; (b) in one news article Dershowitz comments that, "I'm on my 20th book... The only person outside of my immediate family that I send drafts to is Jeffrey" The Talented Mr. Epstein, By Vicky Ward on January, 2005 in Published Work, Vanity Fair; (c) Epstein's housekeeper Alfredo Rodriguez testified that Dershowitz stayed at Epstein's house during the years most relevant to my clients; (d) Rodriguez testified that Dershowitz was at Epstein's house at times when underage females where there being molested by Epstein (see Alfredo Rodriguez deposition at 278-280, 385, 426- 427); (e) Dershowitz was reportedly involved in persuading the Palm Beach State Attorney's office not to file felony criminal charges against Epstein because the underage females lacked credibility and thus could not be believed that they were at Epstein's house, despite him being an eyewitness that the underage girls were actually there; (f) Jane Doe No. 102 stated generally that Epstein forced her to be sexually exploited by not only Epstein but also Epstein's "adult male peers, including royalty, politicians, academicians, businessmen, and or other professional and personal acquaintances" categories that Dershowitz and acquaintances of Dershowitz fall into; (g) during the years 2002-2005 Alan Dershowitz was on Epstein's plane on several occasions according to the flight logs produced by Epstein's pilot and information (described above) suggested that sexual assaults may have taken place on the plane; (h) Epstein donated Harvard 30 Million dollars one year, and Harvard was one of the only institutions that did not return Epstein's donation after he was charged with sex offenses against children. Based on this information, I believed that Dershowitz might have relevant information to provide in the cases against Jeffiey Epstein and accordingly provided notice of a possible deposition. 15. Epstein alleges that there was something improper in the fact that I notified him that I intended to take Bill Clinton's deposition. Clinton was properly noticed because: (a) it was well lcnown that Clinton was friends with Ghislaine Maxwell, and several witnesses had provided information that Maxwell helped to run Epstein's companies, kept images of naked underage children on her computer, helped to recruit underage children for Epstein, engaged in lesbian sex with underage females that she procured for Epstein, and photographed underage females in sexually explicit poses and kept child pornography on her computer; (b) newpaper articles stated that Clinton had an affair with Ghislaine Maxwell, who was thought to be second in charge of Epstein's child molestation ring. The Cleveland Leader newspaper, April 10, 2009; (c) it was national news when Clinton traveled with Epstein (and Maxwell) aboard Epstein's private plane to Africa and the news articles classified Clinton as Epstein's friend; (d) the flight logs for the relevant years 2002 - 2005 showed Clinton traveling on Epstein's plane on more than 10 occasions and his assistant, Doug Band, traveled on many more occasions; (e) Jane Doe No. 102 stated generally that she was required by Epstein to be sexually exploited by not only Epstein but also Epstein's "adult male peers, including royalty, politicians, academicians, businessmen, and or other professional and personal acquaintances" categories Clinton and acquaintances of Clinton fall into; (t) flight iiilo s showed that Clinton took many flights with Epstein, Ghislaine Maxwell, and were closely connected to Epstein's child exploitation and sexual abuse; (g) Clinton frequently flew with Epstein aboard his plane, then suddenly stopped raising the suspicion that the friendship abruptly ended, perhaps because of events related to Epstein's sexual abuse of children; (h) Epstein's personal phone directory from his computer contains e-mail addresses for Clinton along with 21 phone numbers for him, including those for his assistant (Doug Band), his schedulers, and what appear to be Clinton's personal numbers. Based on this information, I believed that Clinton might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 16. Epstein alleges that Tommy Mottola was improperly noticed with a deposition. I did not notice Mattola for deposition. He was noticed for deposition by a law firm representing another one of Epstein's victims not by me. 17. Epstein alleges that there was something improper in the fact that I notified him that I intended to take the illusionist David Copperfield's deposition. Copperfield was properly noticed because: (a) Epstein's housekeeper Alfredo Rodriguez testified that David Copperfield was a guest on several occasions at Epstein's house; (b) according to the message pads confiscated from Epstein's house, Copperfield called Epstein quite frequently and left messages that indicated they socialized together; (c) Copperfield himself has had similar allegations made against him by women claiming he sexually abused them; (d) one of Epstein's sexual assault victims also alleged that Copperfield had touched her in an improper sexual way while she was at Epstein's house. Based on this information, I believed that Copperfield might have relevant information to provide in the cases against Jeffrey Epstein and accordingly provided notice of a possible deposition. 18. Epstein alleges that there was something improper in the fact that I identified Bill Richardson as a possible witness against him in the civil cases. Richardson was properly identified as a possible witness because Epstein's personal pilot testified to Richardson joining Epstein at Epstein's New Mexico Ranch. See deposition of Larry Morrison, October 6, 2009, at 167-169. There was information indicating that Epstein had young girls at his ranch which, given the circumstances of the case, raised the reasonable inference he was sexually abusing these girls since he had regularly and frequently abused girls in West Palm Beach and elsewhere. Richardson had also returned campaign donations that were given to him by Epstein, indicating that he believed that there was something about Epstein that he did not want to be associated with. Richardson was not called to testify nor was he ever subpoenaed to testify. 19. Epstein alleges that discovery of plane and pilot logs was improper during discovery in the civil cases against him. Discovery of these subjects was clearly proper and r) necessary because: (a) Jane Doe filed a federal RICO claim against Epstein that was an active claim through much of the litigation. The RICO claim alleged that Epstein ran an expansive criminal enterprise that involved and depended upon his plane travel. Although Judge Marra dismissed the RICO claim at some point in the federal litigation, the legal team representing my clients intended to pursue an appeal of that dismissal. Moreover, all of the subjects mentioned in the RICO claim remained relevant to other aspects of Jane Doe's claims against Epstein, including in particular her claim for punitive damages; (b) Jane Doe also filed and was proceeding to trial on a federal claim under 18 U.S.C. 2255. Section 2255 is a federal statute which (unlike other state statutes) guaranteed a minimum level of recovery for Jane Doe. Proceeding under the statute, however, required a "federal nexus" to the sexual assaults. Jane Doe had two grounds on which to argue that such a nexus existed to her abuse by Epstein: first, his use of the telephone to arrange for girls to be abused; and, second, his travel on planes in interstate commerce. During the course of the litigation, I anticipated that Epstein would argue that Jane Doe's proof of the federal nexus was inadequate. These fears were realized when Epstein filed a summary judgment motion raising this argument In respo-nse, the other attorneys and I representing Jane Doe used the flight log evidence to respond to Epstein's summary judgment motion, explaining that the flight logs demonstrated that Epstein had traveled in interstate commerce for the purpose of facilitating his sexual assaults. Because Epstein chose to settle the case before trial, Judge Marra did not rule on the summary judgment motion. (c) Jane Doe No. I 02's complaint outlined Epstein's daily sexual exploitation and abuse of underage minors as young as 12 years old and alleged that he used his plane to transport underage females to be sexually abused by him and his friends. The flight logs accordingly might have information about either additional girls who were victims of Epstein's abuse or friends of Epstein who may have witnessed or even participated in the abuse. Based on this information, I believed that the flight logs and related information was relevant information to prove the cases against Jeffrey Epstein and accordingly I pursued them in discovery. 20. In approximately November 2009, the existence of Scott Rothstein's Ponzi scheme became public knowledge. It was at that time that I, along with many other reputable attorneys at RRA, first became aware of Rothstein criminal scheme. At that time, I left RRA with several other RRA attorneys to form the law firm of Farmer Jaffe Weissing Edwards Fistos and Lehrman ("Farmer Jaffe"). I was thus with RRA for less than one year. 21. In July 2010, along with other attorneys at Fanner Jaffe and Professor Cassell, I reached favorable settlement terms for my three clients , and Jane Doe in their lawsuits against Epstein. 22. On July 20, 2010, I received a letter from the U.S. Attorney's Office for the Southern District of Florida the office responsible for prosecuting Rothstein's Ponzi scheme. The letter indicated that law enforcement agencies had determined that I was "a victim (or potential victim)" of Scott Rothstein's federal crimes. The letter informed me of my rights as a victim of Rothstein's federal crimes and promised to keep me informed about subsequent developments in his prosecution. A copy of this letter is attached to this Affidavit. (A copy of the letter is attached to Statement of Undisputed Facts as Exhibit UU) 23. Jeffrey Epstein also filed a complaint with the Florida Bar against me. His complaint alleged that I had been involved in Rothstein's scheme and had thereby violated various rules of professional responsibility. The Florida Bar investigated and dismissed the complaint. 24. I have reviewed the Statement of Undisputed Facts filed contemporaneously with this Affidavit. Each of the assertions concerning what I learned, what I did, and the good faith beliefs formed by me in the course of my prosecutions of claims against Jeffrey Epstein as contained in the Statement of Undisputed Facts is true, and the foundations set out as support for my beliefs are true and correct to the best of my knowledge. 25. All actions taken by me in the course of my prosecution of claims against Jeffrey Epstein were based upon a good faith belief that they were reasonable, necessary, and ethically proper to fulfill my obligation to zealously represent the interests of my clients. () I declare under penalty of perjury that the foregoing is true and correct. Dated: 1 2- , 2010 Bradley J. Edwards, Esq. |
THE NEARNESS OF GRACE A PERSONAL SCIENCE OF SPIRITUAL TRANSFORMATION Arnold J. Mandell Table of Contents Acknowledgements 3 Chapter 1: In Search of the Miraculous . . 4 Chapter 2: Doesn t Everybody . 22 Chapter 3: Transmogrifications Of Energies . 42 Chapter 4: Sensual In-Between Entropies . 64 Chapter 5: Some Entheogenic Entropies .. . 87 Chapter 6: Pentecostal Phase Transitions . 122 Chapter 7: Amphetamine Roll-Up And Splitting . . . 144 Chapter 8: Faith And Rationality . 168 Appendix: An Intuitive Guide to the Ideas and Methods of Dynamical Systems for the Life Sciences 186 2 ACKNOWLEDGEMENTS Appreciation is expressed to the Fetzer Institute for their support of this work. Particular thanks are due their imaginative Vice President, Dr. Paul Gailey, who shared my vision and hope that these somewhat disparate themes could be blended into a meaningful whole. Time and the reading by others will tell whether this idea was realized. The Fetzer Foundation and Dr. Gailey have facilitated exploration into blends of science and spirituality, particularly in the context of personal meaning. They also have a history of supporting serious work in this era s most powerful and rigorous exercise in holism as represented by the mathematical and applied mathematical fields of modern dynamical systems theory. Fetzer s very special environment and years of dedication have encouraged the variety of personal meanings within science to emerge and be recognized as legitimate and important parts of the research enterprise. It would be difficult to imagine a more propitious context for this effort. The book is dedicated to my daughter Buna, and to my intellectual and creative companion, Dr. Karen Selz, whose deep and lovely mind wrote much more of this book than is formally acknowledged. 3 CHAPTER 1: IN SEARCH OF THE MIRACULOUS More than a half-century of na ve persistence and driven search for unity in the biophysics of mind and personal spirituality as the basis for healing transformation has led me into many laboratories. The motivation may have been genetic. My father said that we were descended from several generations of Jewish mystics, none of them able to attain the salaried status of rabbi or cantor. These ecstatic men lived lives of peripatetic eccentricity, stirring congregations with provocative insights and uncomfortably personal inquiry. But only for a little while. Soon they were asked to leave the synagogue and often their Eastern European Jewish townships called shtetels as well. My father, in the first generation of our family without rabbis in over a Century, was a businessman-musician, who in the early mornings studied Talmudic commentaries. He taught me about why it was that most interpretations of the book by the rational, physician, lawyer, philosopher, Moses Maimonides, called Guide for the Perplexed, were in error in their assumption that man cannot understand God s nature with his mind. He took issue with the opinion that the union of a person s intellect and Spirit with Him was not possible as long as a person was living. Ibn Tibbon, Maimonides best-known early translator and interpreter, relegated the cognitive, analytical, physical and alchemical transformational sciences to the earthly, not spiritual realm. My father disagreed. He espoused the work of the 13 th 4 Century proponent of a school of Jewish ecstatic mysticism, Abraham Abulafia, whose interpretation of the Guide and his own Commentary on the Secrets taught that the human mind, if transformed into a state of active intellect, could become one with Spirit, realizing the Kingdom of God in rational mystical experience in a state of excitement with new ideas. The new consciousness achieves deep knowledge of both the upper and lower realms of what he called reality both spontaneously and directly. He said that without personal transformation, this knowing is not possible. Abulafia s lesson was that the mundane intellect of man has the potential for transformation into another kind of mind in a spiritualization of thought. This occurs via developmental stages that begin with intellect and imagination and culminate in what he called prophetic emanations. The exercises leading to this transformation are to be strongly willed and practiced with regularity. This work results in ascension to an ecstatic state accompanied by great intuitive powers, which Abulafia called prophesy. Ibn Adret, the Chief Rabbi of Spain at the end of the Thirteenth Century, banished Abulafia from the Country, a Century before the Spanish Inquisition ousted all the Jews. Following what my father said was required in the practice of Kabbalah, a 13 th Century tradition of esoteric and mystical interpretations of the Scriptures, I learned the secret meanings of each of the twenty-two letter Hebrew alphabet. Much like the Platonic view of mathematics, that it existed before the physical universe, these symbolic equivalences were believed to be eternal in the transcendental realm. One of the rare written accounts of this oral tradition is in the thirteenth-century Hebrew Book of Splendor called the Zohar which describes the Hebrew alphabet as the heavenly code of the cosmos. I learned that the Tegragrammaton s repeated letter Hei, being fifth in the Hebrew alphabet, represents the number five. In the Kabbalistic tradition, Hei implicates the functional five-partition of the human inner self or soul. The five parts are: nefesh, instinctual drives; ruach, mood, affect and emotions; neshamah, cognitive activities of the mind; chayah, efforts to understand and attain transcendence; yechidah, experiencing the world as a cosmic unity. Later in life as 5 a psychoanalytical neuroscientist with a computational bent, the partitions divided thoughtful, forewarning forebrain from automatic and stereotyped hind brain, the signal analyzing thalamocortical system from the emotional and impulsive brain stem-limbic, the symbolically logical left from intuitively geometric right hemispheres. We divide the neurotransmitter moods of dopamine aggression from the transcendentally erotic serotonin and the organized dynamical states of periodicity and quasi(multi)periodicity from the real world complexity of chaos. I learned that it is comforting to divide an unknown whole into two or more unknowable parts. The Jewish guru and Hebraic tutor of my childhood, Rabbi Isadore Kliegfeld, smiled when I told him about my sudden loss of panic during nighttime Hebrew letter meditations. He said that I had had received personal evidence that these powerful symbols could call forth the transformational powers of God. He said that I had been given a blessing, in Yiddish, a nachas. Maybe panic is not that far from the transcendence of an activated mind. In my tenth summer, behind closed door in a hot back bedroom, first by accidental touch and then by more systematic chaffing, I evoked a pleasurably urgent and yawning feeling that began in the lower part of my abdomen and back. It filled me with thought emptying fullness that a sudden involuntary burst of pelvic contractions found resolution in an hour or two of an unexplainable sadness. I had been struggling to understand my father s well warn copy of William James s Varieties of Religious Experience and I wondered if I had been visited by one of the altered states he described. Was this what he meant by a transformative experience? A few months later, a late night meditation produced physical evidence, a thick, sticky, salty sweet stuff that by morning stuck my sheets together. Later that year, in my father s library, I found a translation of the 1500 BCE Egyptian Book of the Dead. It contained a creation myth of two Gods in which rubbing with my fist, my heart came into my mouth and I spat forth Shu and Tefnut. Psalm 23, read rather regularly in Sunday school, began to make me wonder about the meanings of rod and staff that comforts and what was meant by my cup runneth over. Among the ten regions of the Zohar, connecting the inner world of 6 man to the upper world, is the tree of ten sefirot in which Yesod , the phallus, occupies a central place. Now we re allowed to know that G-spot stimulation of the para-urethral glands in the female can result in spurt as well as a cup that runneth over. Other occasions of the temporal disappearance of the self-conscious I occurred while doing the theorem and proof work of high school geometry. Axioms and the rule bound processes of deduction created difficult journeys from that which was given to what should be found. Rocking back and forth in a desk chair for hours, chewing on fingernails, cuticles and pencil ends, time disappeared in a none self aware state of work-a-day well-being. Sri Aurobindo s Bhagadvad Gita described this state as one of the rewards of karma yoga. Abulafia s Kabalistic School emphasized the importance of hitbodedut, detachment and seclusion in concentrated thought, as a technique for the attainment of spiritual intensification. Stacks of lined yellow paper piled up full of blind alleys as I lived in humbling dumbness. One of my teachers of mathematics described it as the working mathematician s dark night of the soul. A breakthrough to a route from premises to proof brought an expansive rush. Engagement in a struggle to fuse two differing contextual worlds may be transporting. Geometric visions can be used to do imageless algebra in a brain state that feels like intuition. The brain does something like this: Let the number of a sequence of unit squares, each side of measuring 0 to 1, be the denominator of a series of fractions, say fifths. Now put five of these boxes in a row. Then the sequence of all possible fifths, 0 5,1 5, 2 5,..5 5, is inscribed by cutting the vertical sides of the five sequential squares with a diagonal from the lower left of the first one to the upper right corner of the last. This line cuts each sequential square s front boundary with vertical lengths, 0.0, 0.2, 0.4 1.0 in a series of decimal fractions equivalent to the sequence of all possible fifths, the proper fractions 1 5, 2 5 5 5. It was Abulafia s kabalistic belief that symbolic, (algebraic), operations in (geometric) spaces can unify the upper and lower worlds in the eternal tensions between the body and soul, the inner world and the cosmos, the conflict making the global system both sensitive and stable. The geometric-topological approach to 7 modern dynamical system s theory describes a convolution of the expansive motions (as in the upper world) and contractive motions (as in the lower world) embedded naturally in the curved time and space geometries of what are called hyperbolic spaces. Each point in this space can be visualized as a little saddle in which orbital flows from pommel and back flow down to the seat, bringing points together in contracting motion, and flows away from seat down along the sides are expanding the distance between nearby points.. In the middle of the saddle, simultaneously expansive and contracting orbits demonstrate hyperbolic stability composed of intersecting destabilizing and stabilizing influences. Loss of this countervailing hyperbolic dynamical stability results in global system transformations called bifurcations and or phase transitions. Transformation as a loss of stability is a theme of a recent poetic translation of portions of the Zohar called Dreams of Being Eaten Alive by David Rosenberg. He writes that at some time in the difficult journey through the oftenincomprehensible Zohar, in order to gain entrance to the kabalistic cosmos, there arose what he called heartbreak. No matter how much intellectual study is involved, the reader cannot understand the text unless he or she has offered his heart to be broken on the altar of poetry and prayer. Surrender may be the source of the strange, uplifting feeling of worked through dumbness. My mother, once a conservatory teaching assistant in piano, sat beside me while I practiced almost daily, weekends included, from the age of two until the midteens. Her quiet analytic counter-point sounded mathematical, You can hear that that this harmonic progression goes through intervals of fourths of dominant seventh chords. I felt the persistent lack of harmonic resolution as growing tension in my groin. If you transform each of the 12 notes in a chromatic scale, multiplying it by five (in what mathematicians call) mod 12 (the numbering system goes from one to twelve, not ten, before it repeats), one can recover the circle of fourths, the commonest harmonic chord progression in music. Though her computational talk supported rational thought, in my adolescent heat, the addition of Charley Parker s flatted fifth and ninth to the dominant seventh chord led suddenly somewhere else and she knew it. Hearing my arrangement of a Beethoven piano piece become a 8 mix of classical and modern jazz themes that I called How High the Moonlight Sonata, she laughed lasciviously as though tickled by this sensual violation of musical canon. A boogie-woogie Bach two and three-part invention brought more excited disapproval. Mysterious are the conditions of attentive (preoccupied) and none attentive, (fugued out) disappearing time. I found a musical way for it to happen when improvising: continue to shuffle a small set of notes that stay within the melodic field of the tonal center of an unchanging tonic chord. In contrast, most melodies and their chords leave the tonal center to which they return in harmonic and melodic progression. We can call these conventional tonal centers unstable fixed points. They are attractive repellers of melodic and harmonic expectation. It has been mathematically proven that these hyperbolic systems are globally stable. In contrast, a melody that remains stuck in the tonic chord, a purely contracting stable fixed point, is technically a chant. Paradoxically, it can be shown that this kind of fixed point is globally unstable. Rigid things can more easily fracture. The rich, altered states of consciousness that emerge while hearing the beat of Tibetan monks meditating, the Sufi chant-dances of Rumi and the John Coltrane and McCoy Tyner s endless, single chord, tenor piano dialogues exemplify the bifurcation to hallucinatory new stuff arising spontaneously from the experience of unchanging repetition. Constant repetition of the conditioned (expected) stimulus drove Pavlov s dogs, especially those with nervous temperaments, into frozen, catatonic states. Abulafia s 1280 book on ecstatic techniques, Hayyei Ha Olam HaBa, recommended the recitative rearranging of a finite set of Hebrew letters, frontward and backward, many times, using prayer melodies, until the heart will suddenly become aware of the intellectual, divine and prophetic and hitbodedut will rest upon him. The instructions were combine letters (and associated musical notes) reversing and rolling them around rapidly until one s heart begins to feel warm. It was in my freshman year at Stanford University when I met Michael Murphy, later to co-found Esalon, the California center for mystical pursuits and naked mud bathing. He is the author of Golf in the Magic Kingdom and with George 9 Leonard, Integral Transformative Practice. I watched him go through a dramatic personal transformation after participating in Professor of Asian Studies, Frederick Spiegelberg s seminar (with meditation lab) about Sri Arubindo s interpretation of the Hindu Bible, the Bhagavad-Gita. Shortly after the semester, he climbed into an abandoned tower on campus to continue his meditation. He remained there for several months, refusing to come down even after the Stanford Student Health Service sent a medical school psychiatrist to investigate. I was more than curious about how it was that this hard drinking, and like his brother Dennis, all night poker playing, Phi Gamma Delta party boy, had suddenly become a transcendent ascetic. My girl friend Mary and I signed up for Spiegelberg s seminar in Indian Religions. We were made breathless by his accounts of administering a Rorschach Test to the Indian Saint, Swami Sivananda. He recounted discussions about God with the artists Paul Klee and Max Ernst and the philosophers Rudolph Otto, Paul Tillich, Martin Heidegger and Martin Buber. As homework, Mary and I practiced breathing awareness mediation twice a day. During the year, Spiegelberg sponsored a visit by the aging but still very lively Aldous Huxley to our seminar. He also brought us Alan Watts and several lecturers from the Jung Institute of San Francisco. Shortly after hearing Huxley talk about the spiritual power of a particular exercise of will and loving thoughts, Mary and I began the daily practice of karessa, some call it coitus reservatus. I was eighteen and she was nineteen. We found that withholding an orgasm in order to achieve nirvanic extinction of all desires and passions was difficult. We spent hours in karessa meditation, trying to experience the detachment described in the Bhagadvad Gita. This biblical explication of karma yoga told how it was that the warrior, Ardjuna, instructed by God Krishna in the form of his charioteer, was able to detach sufficiently to do his assigned job of killing without emotional involvement. Ken Wilbur, a modern, self proclaimed pandit, an academically oriented articulator and intellectual justifier of the dharma, the spiritual work of Hindu and Buddhist practice, contrasts the nirvana (literally end ) composed of emptiness in time and space, dharma Kaya in which no objects are arising with the lesson of the Bhagavad-Gita. Its message involved realizing 10 ones spiritual unfolding within the stream of real time and space, finding emptiness in the world of form and inaction in the world of action. We worked at karessa so ardently that there was barely enough time left to do our assignments in biology and chemistry. In a darkened room, Mary and I lay legs locked, lying on our sides, moving slowly and rhythmically, humming Om and waiting for our ascension. We worked at making the journey through Sri Aurobindo s soul planes of higher mind, illumined mind, infinitive mind, over mind and finally, the supermind of infinitely empty no mind. This somewhat unusual way to study for a three credit course in Asian Studies at Stanford grew naturally out of the central message of Spiegelberg s seminar that whereas deriving a universal theology is not possible, having the universal experience is required for an understanding of any of the world s theologies. The controversial Bishop of the Episcopal Diocese of Newark who teaches that Christian forms continue to evolve, John Shelby Spong, D.D. says, every biblical word represents an attempt on the part of our ancestors in faith to make sense out of a God experience in their time and place. The experience is eternal and real. The explanations will never be eternal and real. They will last only as long as the (cultural) mind-set that created them. Mary got an A grade, topping Spiegelberg s class with a final examination essay, which, in literary detail, described her episodes of samadhi, yoga s state of unity with the creator. Her 25 page blue book contained accounts of walking fugues, spontaneously strong genital sensations, changes in tastes and smells, sudden feelings of rising spinal-abdominal kundalini, middle of the night dreams of oceanic orgasmic fusion with God. She failed to mention that she was describing her usual pre-menstrual state. During these college years, I learned about two Isaac Newtons The first I met at elementary physics lectures; the unit was about how things worked called mechanics. Logically and computationally consistent but taken on faith, I learned about an invisible field force between masses called gravity that decayed in strength like the inverse of the square of their distances apart and operated in my intuitive world like an electromagnetic spirit. Less occult were the expressions of gravitational fields as contact forces, computed for the tension in the string of a 11 pendulum or the pressure of the floor on a weight resting upon it. Faith in this realm came from exercises in physical object visualization followed by manipulation of self-consistent algebraic symbols. I learned about experiments attesting to the reality of these ghostly fields (that now include electric, magnetic and strong and weak nuclear forces), and yet it was the physicists that already believed them who designed the machines to demonstrate them. It was Gregory Bateson, Margaret Mead s houseboy, lover, photographer and social anthropologist who said, Newton didn t discover gravity, he invented it. One college summer I found a second Isaac Newton, perhaps not so estranged from the first. He appeared in the form of a marble bust in the chapel of Trinity College at Cambridge University, holding the prism he had used to explore the polychromatic properties of light like a talisman. In his essay called Newton, the Man, the early 20 th Century Cambridge Don and economic theorist, John Maynard Keynes, said that the Newton of the chapel followed certain mystic clues which God had laid about the world to allow a sort of philosopher s treasure hunt to the esoteric brotherhood. Michael White s biography, called Newton the Last Sorcerer, described his work as an attempt to integrate the magic of the Old World with the science of the New Age. Newton s awe over what he saw as the wonders of the universe maintained him in private theological study throughout his life. Arthur Waite s Alchemists Through the Ages describes how Newton s alchemical orientation toward the earth s fundamental substances such as fire, air, wind and water, their powers and potential for transformation, was joined imperceptibly with his metaphysics and physics. In his hands, experimental observations involving gravitation, celestial mechanics and optics, though motivated by esoteric alchemical theories, generated experimentally accessible phenomena and testable ideas. The French mathematician, Jacque Hadamard, in his The Psychology of Invention in the Mathematical Field, said that mystical preoccupations were never far from the minds of most of the English and European mathematicians and physicists of the 18 th and 19 th Centuries. This orientation served as an impetus for them to pay attention to the almost imperceptible whispers of their emergent thoughts. E.T. Bell, the historian of mathematics and mathematicians said even 12 Descartes, the essential Enlightenment rationalist, was responsive to his call of the Spirit Napier the inventor of logarithms wrote an exegetical commentary on the Book of Revelations. The mathematician and physicist, Pascal, believing that contact with a religious relic had cured his terminally ill sister, wrote long tracks about whether or not the Devil could work miracles. The great mathematician, Cauchy, was known for his persistent efforts to convert fellow mathematicians to Roman Catholicism. Gauss, who was not particularly religious, said that a difficult to prove theorem did not result from hard work but the grace of God. In letters between Liebniz, who along with Newton was the inventor of calculus, and a member of the family of great mathematicians, John Bernoulli, used scriptural quotations and biblical diagrams as part of their theoretical correspondence. Perhaps the greatest mathematician of the 18 th Century (or ever), Euler, in his Letters to a German Princess, discussed the functional characteristics of spirits and the connections between body and soul. Bell said Euler never discarded a particle of his Calvinist faith. It was to the working out of a law of mechanics called the principle of least action that Ernst Mach attributed the beginning of the separation of physical mechanics from formal theology. The flavor of this change is captured in his 1893 The Science of Mechanics that stimulated Bridgeman s 1936 more formal philosophical analyses of physical theory, from a position that came to be called operationalism: the restriction of physical concepts to those definable in terms of the experimental operations required to demonstrate or prove them. Mach said that these events marked the move of formal metaphysical thinking about mechanics and the physical sciences more generally into the personal and private realm of belief and meaning. Maupertuis, an eccentric friend of Frederick the Great and president of the Berlin Academy, proposed the principle of least action as evidence of the infinite wisdom of the Creator. As an early psychopharmacologist, Maupertuis recommended the use of opium to facilitate creative thought and was famously parodied for doing so by Voltaire in his 1752 story in which he is portrayed as the na vely foolish Dr. Akakia. The physical law of least action belongs to a set of ideas 13 that are called variational analysis. They involve the natural (or miraculous) selection of maxima or minima in quantifiable physical processes. Of all possible two-dimensional shapes with the same perimeter, the circle contains the greatest area; in three dimensions, it s the sphere. In his Principia, Newton reports his work determining the optimal shape of round solids, with circles of revolution having the same effective cross section, in order to minimize frictional resistance to gravity in a medium. The principle of least action says that imparting energy; say by a kick, to a physical body on a rigid two-dimensional surface like the earth, results in it taking the shortest route possible from its initial to final position. The related 1650 Fermat s principle of least time is about light. As Feynman explains in his Lectures in Physics, out of all possible paths that light might take from one point another, light takes the path that requires the shortest time. Feynman, using elementary relations from high school geometry, proved that the least time principle could lead directly to Snell s law of the refraction of light at the interface of two different conducting media such as air and water. His analogy was the optimal choice of the path to take in order to rescue a pretty girl drowning in the ocean. Whereas the shortest distance to the girl leads directly into the water, faster running along the beach to the point that minimizes the distance required for the intrinsically slower rate of swimming increases the distance traveled but reduces the time required to reach her. Euler attributed the optimization principle to an expression of the meaning and purpose of a loving God. Infused with this spirit, he developed mathematical methods describing smooth variations in position of an object in motion, the Euler differential equation, in which differential coefficients are varied to prove the principle of least action for mechanical motion. He gave the law Maupertuis s name. Mach quoted Euler s conclusion, As the construction of the universe is the most perfect possible, being the handiwork of an all-wise Maker, nothing can be met with in the world in which some maximal or minimal property is not displayed. Such faith based mathematical formalisms were rejected by Joseph Lagrange, an early 19 th Century mathematician, who, among many other things, proved that every natural 14 number could be expressed as the sum of at most four squared numbers. It was his strongly held opinion that metaphysical speculation was both foreign and inimical to the conduct of mathematics and science. His work in the calculus of variations led to the development of a system of algebraic manipulations seeking the value of constants, Lagrange multipliers, in place of solving Euler s differential equations. It makes it possible to immediately write down a computable expression for the maximum of a mathematical equation. The technique is now routinely taught to high school students and with no mention of the role of belief in the perfection of God in its discovery. I was a fortunate freshman medical student. After a visit to his office and a stimulating discussion about some of the correspondences between the ideas of psychoanalysis and neurobiology, Robert Heath, Tulane Medical School s Gary Cooper-like charismatic chairman of the psychiatry department, offered me a place in his animal and human neurophysiological laboratory. Between classes, evenings and weekends, I used a Horsely-Clarke apparatus, one of the world s first stereotaxic devices. It allowed the precise placement of electrodes into functionally specific regions of a cat s brain. The electrodes were cemented to the skull in place and their wires connected to a device by which the frequency, amplitude and wave shape of the electrical stimulation could be oscilloscopically monitored and electronically controlled as the conscious cat walked around the room. I spent hours observing and recording changes in spontaneous behavior that followed activation of various nuclei in the cat s brain with small electrical currents. Deep in the part of brain that resides in the upper neck, called the lower brain stem, the region thought to regulate functions such as breathing, heart rate, blood pressure, gastrointestinal motility and global states of consciousness such as wakefulness and sleep, I found stimulus sites that, after 15 seconds of electrical activation, led to several minutes of hissing and objectless rage. One cat attacked an empty chair. These regions when activated also inhibited spinal reflexes such as 15 the knee jerk of the standard neurological examination. Such phenomena were already well known in the late 1930 s in what W.R. Hess and later John Flynn, following electrical stimulation of cats in the lateral hypothalamus, called hypothalamic rage. In the late 1940 s and 1950 s, work by National Institutes of Mental Health s Paul MacLean attributed it to the actions of parts of the emotional limbic brain, particularly the fear-rage-attack coloring of experience by the temporal lobe s amygdaloid nucleus. Modern imaging studies in man have shown that this source of emotional coloring is activated by new information, even before the more rational parts of the neocortical brain processes it. How we feel about something new arises before what we think about it. These survival-oriented states of fight or flight are known to be biologically universal and demonstrable in even single cell organisms. A greater contribution to my brain metaphysics followed observations that after several seconds of stimulation of other brain stem sites, the cats became alert but quiet, staring into space for several minutes. Then, they circled slowly and curled up on the ground. This was followed by several minutes of grooming and loud purring. Difficult to handle cats became transiently tame, some coming close for petting. I found that these same sites also increased the amplitude and reduced the threshold for the cat s knee jerk reflex. Responsiveness increased with calmness. Particularly interesting was the finding that electrical induction of this purring state could immediately stop on-going stimulation-induced episodes of hissing rage. I referred to these experiments with my friends as my neurophysiological studies of Old Testament vengeance and New Testament forgiveness. It seemed that the hissing rage would produce eye for an eye and a tooth for a tooth hypertension, the talon principle of the Old Testament and Koran. New Testament forgiveness would yield low blood pressure health and Jesus was a healer. It was about this time in the early 1950 s that Northwestern University social psychologist, Jim Olds, found that rats could be trained to push levers to obtain current delivery via electrodes in various parts of their brains. Shortly after, Joseph Brady, then of the Walter Reed Army Institute of Research, showed that squirrel monkeys would do the same. With depth electrodes attached to wires running to a 16 miniaturized electronics box strapped to their belts, some of Robert Heath s schizophrenic patients spent hours pressing their switches with beatifically expectant smiles. It was after several months of cat experiments that Professor Heath suggested that we spend some time interviewing a hospitalized, chronically ill female patient, Donna, before and during the time she was being studied with recording and stimulating depth electrodes in the human neurophysiology laboratory. Donna, bony thin in a lose fitting green hospital gown and sandals, had dark red toenails, blonde hair and eyes shadowed darkly. In her mid-thirties, she had never married and, when she could, worked as a beautician. She told us that since her menarche at 13, she increasingly often had episodes of spontaneous ecstatic rushes along with sudden visions of strong white light. She attributed these experiences to visitations of an unseen Christ. She showed me a stack of notebooks filled with hand written accounts of her religious experiences interspersed with biblical quotations and difficult to follow discussions of what she called the Christian ideals underlying the Civil War. She read parts of it to us. One of her memorable stories was about being invited to a Children s Crusade that had begun in Georgia, led by a great grandson of Stonewall Jackson. We were trying to find the Lord to see if He would part the waters and open up an escape route from General Sherman s march to the sea. From a relatively poor family of Southern Baptists in rural Louisiana, she had lived in a state psychiatric hospital for almost three years. Her diagnoses ranged from borderline schizophrenia to temporal lobe epilepsy. The collateral interviews with her mother from several years before had been placed in the hospital chart. They recounted that in the patient s middle to late teens she had become suddenly promiscuous, frequently approaching strange men in city parks. Obsessed with fellatio and swallowing sperm, she told her mother that she was receiving a holy sacrament. More recently, the increasing incidence of ecstatic episodes and compulsive note taking coincided with the complete loss of interest in sexuality in any form. Her talk was now full of moralizing detail about the shoulds and should nots of daily living. She referred to herself as a non-Catholic nun who was married 17 to Christ. The brain waves recorded from electrodes deep in her brain demonstrated transient episodes of spiking in a midline limbic structure called the septum and in the right hippocampus, deep in the temporal lobe. Paul MacLean and others since have shown that electrical stimulation of these and related brain regions could produce pleasure and grooming reactions in cats and prolonged penile erections in squirrel monkeys. Many years later, I spoke about Donna with the Harvard professor of neurology, Norman Geschwind. He took me to his twice a week epilepsy clinic. In an effort to demonstrate what is now known as the Geschwind Syndromes of between seizure, inter-ictal personality changes in patients with temporal lobe epilepsy, he stood in front of the patients waiting room. In a loud voice, he asked that all people keeping diaries and personal notebooks please stand up. Several did so, some displaying their notebooks in outstretched hands. The pages that I saw were filled mostly with religious writing, biblical quotations and exclamation points. Gathering the positive responders together, he asked them in turn what religion they were. Several answered the question with the question, When? It turned out that many reported having several experiences of religious conversion. Geschwind called them Jamesian Episodes after William James Varieties of Religious Experience. He then asked when was the last time they engaged in sexual activity. For most of them, including those that were married, it had been years. Thought the men said they were not impotent, experiencing early morning spontaneous erections, they claimed a complete loss of interest in sex though feeling warmly affectionate toward people generally. As he anticipated, the patients were emotionally intense and unstoppably loquacious, needing to speak at length about their moral philosophies. They persisted in following us around the clinic waiting room, several speaking at once. In his lectures and papers, Geschwind called this last feature, difficulty in separation, interpersonal stickiness. First reported by the French electroencephalographer, Henri Gastaut, a history of multiple ecstatic religious experiences, increasing emotional intensity and lability, hyposexualilty (not impotence), moralizing religiosity, compulsive and frequently poetic writing and tendency to cling to people is now called the Geschwind Syndrome of temporal lobe 18 epilepsy. Some say it is relevant to the likes of Apostle Paul, Sister Teresa and Joan of Arc. One evening in the human neurophysiology laboratory, I was invited by Dr. Heath to join him and several other brain scientists behind a two-way mirror to watch an interview with Donna while electrical current was being put through her recording electrodes. We watched and listened as a psychiatrist interviewed her about her past. The patient was speaking about her childhood. Unseen by the patient, the neurophysiologist, with us behind the mirror, was intermittently pushing the button evoking brain stimulation with very low current applied to the septum. Dr. Heath told me to listen for subtle changes or discontinuities in the flow of the ongoing conversation that he said might reflect alterations in her thoughts and feelings. . The first time we were allowed to take a break from Sunday school for the church service and I got to hear the choir and the pipe organ, I suddenly got a feeling of happiness that I hoped would last forever. My Sunday school teacher told us how much Jesus loved us and that s what the music made me feel like. For the first time in my life I felt completely safe. Though the two way mirror I saw the psychiatrist nod silently. When I learned about the real meaning of Christmas and Easter, it was frightening and beautiful. Within a few seconds after the neurophysiologist, behind the mirror and unseen by the patient or her interviewing physician, pushed the switch on the stimulus generator, the patient stopped talking. After a little more silence, her interviewer encouraged her to continue, You were talking about how beautiful the holidays were. Tell me in what ways? I don t want to talk about that anymore. She blushed and looked very uncomfortable. The neurophysiologist s hand remained on the switch. She continued to speak with her psychiatrist. I have to ask you a favor and I don t know why. I hope you don t get upset. The thought won t leave me alone. She seemed embarrassed even as her body relaxed against the back of the chair languorously. 19 Of course not, Donna. You know that with me you can say anything. Her face reddening further, she stuttered something unintelligibly and then was silent. Pardon me, Donna, I didn t hear what you said. Would you mind if I rested my legs on your shoulders? Further Readings for In Search Of The Miraculous The Hebrew Alphabet, A Mystical Journey, Edward Hoffman, Chronical Books, San Francisco, 1998 The Book of Letters, A Mystical Alef-bait, Lawrence Kushner, Jewish Lights Publishing. Woodstock, Vt., 1990 Studies in Ecstatic Kabbalah, Moishe Idel, State University of New York Press, Albany, N.Y. 1988 Beyond the Human Species, The Life and Work of Sri Arubindo and The Mother, Georges van Vrekhem, Paragon House, St. Paul, MN, 1997 Bhagadvad Gita, Sri Aurobindo, Lotus Press, Twin Lakes, WI, 1995 Play of Consciousness, Swami Muktananda, Syda Foundation, South Fallsburg, NY, 1978 Alchemical Psychology, Old Recipes for Living in a New World, Thom F. Cavalli, J.P. Tarcher Putnam, NY 2002 Studies in Schizophrenia, A Multidisciplinary Application to Mind Brain Relationships, Robert G. Heath, Harvard University Press, Cambridge, MA 1954 20 Role of Pleasure in the Brain, Robert G. Heath, Harper-Row, N.Y. 1964 Psychiatric Aspects of Neurological Disease, D. Frank Benson and Dietrich Blumer, Grune and Straton, N.Y. 1975. Mathematics The Music of Reason, Jean Dieudonne, Springer-Verlag, N.Y. 1991 Mathematics for the Liberal Arts, F. Richman, C.L. Walker, R.J. Wisner and J.W Brewer, Simon and Schuster, N.Y. 1998 The Feynman Lectures on Physics, R.P. Feynman, R.B. Leighton and M. Sands, Addison Wesley, Reading, MA, 1963 21 CHAPTER 2: DOESN T EVERYBODY Varieties of religious experience and the potential they bring for personal change are embedded in and perturbative of our unique and common personalities. The obsessive compulsive may have an easier time with the rigid restrictions of Fundamentalism or be more resistant to the flagrancy of none rational mystical experience. The hysteric may find subjective evidence for the Holy Ghost more accessible and rules of behavior beside the point. The potential for double-jointed multiplicity in personal styles and quick transitions between them characterize what is called the borderline personality. It is in these ways that temporary and permanent brain styles in us and important others supply much of the ground for the possibility of spiritual transformation and the often attendant alterations in personality. How can we think about this facilitator and source of resistance to new spiritual practice? A skinny, knobby kneed, small breasted, mousy haired, bright-eyed psychotherapy patient of mine at UCLA s Neuropsychiatric Institute Outpatient Clinic was among the highest priced Santa Monica call girls serving Beverly Hills. Answering my unaskable question about her thousand-dollar fee, she explained that she was living proof that, in her profession, what was more important than physical beauty was griv sense. She explained that by her middle twenties, she had 22 developed the ability to anticipate the most highly prized but often embarrassing-tosay longing for a particular sexual act without being asked. She told me that she had to empty out my personal sex manual to feel the cravings of her clients. What the john most wanted appeared suddenly in her mind in the form of a cartoon. A university criminologist later explained that the word griv was probably derived from what pick pockets call grift sense, the ability to intuit who was likely to have enough money in their billfold to justify the risk, even if they appeared in the worn clothes and dated cars of old money. In his 1913 Dernieres Penses, Henri Poincare , France s seminal theorist in nonlinear dynamical systems theory, described intuition as a mental faculty which allows us to immediately see the end from afar In the context of mathematical epistemology, the instantaneous images of a geometer contrast with the labored sequential logic of the mathematical analyst. Poincare claimed that inclinations toward one or the other of these two cognitive styles and their associated mathematical tools arise from different kinds of minds. He contrasted the 19 th Century German mathematicians, Weierstrass, who he said reduced his general theory of functions to a prolongation of arithmetic without a single (pictorial) figure in any of his books with Riemann who called geometry to his aid in describing functions. He created an image that no one can forget once he understood it. Experiencing the behavior of others, we create a set of anticipations about whom and how they are that align with parts of ourselves. Aware of one aspect of a person, we imagine the others. With a small amount of initial information, we connect the dots, fitting features we have seen and heard to personality configurations stored by informal category in our brain files. Our conclusions about them being one of those can both facilitate and impair our perceptions. Eastern metaphysicians, Western mystical religionists, socially liberal secular humanists, Shannon information theorists and today s students of dynamical systems in brain and behavior can, in different ways, make the case that the content of these stereotypes reflect a pattern of constraints, our personal limitations resulting from the rutted roads of worldly experiences. Baba Muktananda, the Hindi Saint from the 23 Indian village of Ganeshpuri, called them our samsara. These limit the formlessness of anticipation that underlies sensibility. Our samsara reduces the uncertainty that could serve as grounds for new perceptions and understanding of others. Preemptive distortions reduce the bandwidth available for new information. They impair the range of empathic relations with others as well as ourselves. These restrictions in possibilities and choices are expressed in enduring patterns of behavior, thinking and feeling that mental health practitioners call personality and character. When confronted with these constrictions, the self justifying and diagnostically revealing thought about a feature of one s personality is, doesn t everybody? This pride in our shape contrasts with the teachings about emptiness of one of Baba s favorite Indian holy men, Zipruanna, who sat all day, loin clothed naked in a garbage dump, instructing his students and followers about knowing and being nothing. We quantitate deficiencies in formlessness using statistical measures of entropy. They characterize the system s behavior as a distance from the state of highest entropy also known as maximal randomness. Professor Karen Selz of Emory University did a study in which her human subjects, after taking a battery of personality inventories, were asked to remove as many dots as possible from a computer screen full of them in three minutes. They were to do so by left clicking on each of them with the mouse key. Two seconds after a dot was removed, it reappeared and became subject to removal again. As they went about the dot removal task and unbeknown to the subjects, the orbit inscribed by their dot removing mouse travels was recorded for later graphic representation and quantification. Most subjects with the usual broad mixture of personality traits inscribed a wide variety of orbital line styles: little wiggles, big wiggles, large and small loops, little smooth slides and big and little jumps. The counter-intuitive coupling of stylistic rigidity and whole system instability (as in non-hyperbolic fixed points described in the previous essay and below) is in evidence at the personality and graphical extremes of her subject group. A fastidious, rigidly organized, severely obsessive-compulsive subject repeatedly removes the same dot, only occasionally moving to a neighboring one to do more repetitious left key mouse clicking. Very little of the large computer screen 24 of possible mouse travels is occupied. All the action is centered on a small set of points. When such a minimal entropy person is injured and feeling helpless, their stuckness can grow bizarre. Ruminative fixation in self-critical and persecutory ideas extend into poisoned food anorexia, circular pacing, weight loss and middleof-the-night, worried insomnia. Suffused with sin, they ask forgiveness for soiling the chair by their sitting in it or smelling up the room with their body odor. At the high entropic extreme, the mouse orbits of the seductively dramatic, new reality-creating hysteric includes big jumps, disorganized whorls and large and small restless and short attention span scribbles that tend to fill up the entire screen. The fragility of fixation at this end manifests itself in breakdown into impulsively outof-control and floridly dramatic displays. Their decrease in contact with reality precipitates social chaos around them. The Montreal behavioral neurologist, Pierre Flor-Henry, using electroencephalographic and psychological test data, described the difference between these two extreme forms of personality expressions as the overly dominant expressions of one or another of the left obsessional or right hysteric hemispheric emotional styles. As examples, Flor-Henry said that a left half brain depression feels like hopeless and agitated indecision and the depression of the right brain is an experience of emptiness like homesickness. Left-brain happiness is being exactly correct and right brain joy rushes like being especially chosen. The church going obsessional resonates with the sermon of the punitive priest who invokes the tension and relief of sin and salvation. The practice can result in a life long addiction to the transient high of this temporary forgiveness. In other churches, the hysterical character gets spiritual respite in disassociative visitations of the Holy Ghost and attendant signs and wonders. At Wednesday night healing services, new hope arises from personal surrender in a floor hitting, backward collapse called dying in the Lord. Both of these antipodal personalities contrast with the more receptive state of in-between entropy (with enough entropy available to form messages) which predicts more flexibility and higher potential for undistorted information processing. Relatively style-less and ego-less people are more open to hearing a variety of Gods in themselves and others. High alertness 25 without presupposition, ecstatically aware and selfless, it is God s gift realized, a joyfully awake and nonjudgmental empty state of transcendence. As we sit, we work at feeling this in the brain of the enigmatically smiling stone Buddha. The externally inactive state of high internal activity, the Bhagavad-Gita s formlessness in the world of form, inaction in the world of action, has a natural mathematical representation in the simultaneously expanding and contracting motions of hyperbolic dynamics and its associated entropic descriptors. How can this kind of formlessness equip us for almost instantaneous knowing? In a resting state of uniform hyperbolicity that only looks like randomness, accurate impressions of others can arise quickly and from only a few data points of observation. In the late 1960 s, University of California mathematician, Rufus Bowen, proved the now famous shadow theorem. This says that in dynamical states of hyperbolicity, directly observable on the screen in computer simulations, the first few points of the ongoing wild dynamical dance that appears to jump randomly from here to there on the computer screen, counter-intuitively will quickly outline the entire skeleton of its future global shape, its geometry, though more time of observation is required to realize this structure in full detail. The contracting motions on the stable surface of action, called a manifold, iron down all the points onto the unstable manifold that serves to outline the shape of the attractor of all starting points. In such a system, observation of just the first few points outline the whole. Intuition, anticipatory knowing and that which some call prophesy, may be expressions of the hyperbolic brain s mind doing dynamical shadowing. To review briefly, hyperbolic brain flow is made up of three decomposable components: (1) The apparently predictable one along the main road of the action, going straight ahead and round and round on a throughway called the center manifold analogous perhaps to what might be a sequentially logical development; (2) Intersecting the center manifold transversally is a field of influence moving the action away from the center manifold with out-of-the-box motion, exploring side paths of unpredictably new, creative possibility called the unstable manifold, we might think about inspired risk-taking, impulsive associations in thought; (3) Another transversally intersecting field of influence, which conservatively, rationally, irons 26 down the expansive flow back onto the road, the entire constrictive field called the stable manifold. This influence herds points into shadowing the main road of the dynamics, like the hair of the dog that stay close to the real body of the animal in motion. It is in this way that just a few often slightly off the mark points nonetheless shadow the real (called fiduciary) orbits of the attractor, outlining its global geometry with just a little information. The intuitive reason shadowing works is built into these natural countervailing tendencies of hyperbolic dynamics, which on one hand tends to spread out nearby initial points and brings disparate others together. The latter inclination is the one that smoothes down the escaping points onto surfaces of actions that mathematicians call manifolds. However, the details of the orbital paths don t look that orderly due to the mixing of the sequence of points in hyperbolic motion. The mixing process on manifolds has been analogized to that of the bundled pink loops of the stretching (expanding) and folding (contracting) taffy puller at the carnival candy stand. The process gets sequences of small particles of candy out of sequential order while maintaining the taffy s overall geometrically ovoid shape. Disorder is local with the entropy being generated by the repeatedly shuffling of the line up of the original orbital sequence. This results in the impossibility of any pointto-point prediction for more than a few points even though the over all shape is maintained. Exactly what minute a habitually late sleeper awakes can t be predicted. On the other hand, the skeletal manifold of the global structure is entirely in evidence from almost the beginning. Late risers remain late risers even without a precise, minute-to-minute, predictable schedule. It is also interesting that a uniformly hyperbolic dynamical system, unlike the fixed-point attractors of stylistic fixation, resist perturbation-induced changes in global dynamical form. In an apparent paradox worthy of metaphysical allusion, the dynamically hyperbolic kind of formlessness has structural stability. The global geometric predictability of this point-to-point, completely unpredictable system can be both the subject and object of Zen frustration and thoughtful meditation. During weekly professorial rounds at Los Angeles s Neuropsychiatric Institute, I assigned a standard exercise for psychiatric residents on clinical rounds, 27 which involved limiting their contact with a patient to five minutes. This was followed by detailed discussion of everything we d seen and heard. I d ask them to predict what we d find in the many pages of personal interviews and nurses observations in the clinic chart. The student psychiatrists with the most street smarts, called emotional intelligence by Daniel Goleman, were particularly quick at shadowing and thus predicting the patient s global dynamical pattern. Do personality patterns exist? Evidence from biometric studies of the hereditary aspects of personality style in animals and humans suggest that relatively few global component properties underlie a variety of complicated-looking manifestations of behavioral style. Primary colors are the source of all hues. Harvard psychologist, Jerome Hagen, has reviewed the history of this idea in his book, Galen s Prophecy. While there are differences among personality research programs, almost all rating scale and questionnaire-based studies result in clusters of traits that reflect statistically associated properties which when taken together are called temperament. This idea is close to what we mean by personality. These relatively few response clusters are given descriptive names such as introversion, extroversion, neuroticism, impulsivity, sociability, task persistence and tolerance of ambiguity. As defined by psychological inventories, studies of families show that these styles are heritable in the range of 60 . Hans Eysenck, in over four decades of work and more than 5000 published papers from London s Maudsley Hospital, derived common global factors of personality using questionnaires. The best known was called the Eysenck Personality Inventory. His studies resulted in evidence for only a few fundamental behavioral axes, behavioral manifolds, which describe extremal properties of personality types analogous to stable and unstable manifolds: introversionextroversion, shyness-sociability, low and high activity level and emotional constriction versus impulsivity. To make the issue of personality as dynamical system more realistically complex, we can call on some examples of the rich history of behavioral genetic studies using animals such as the mouse. They can be selectively bred for underlying personality factors, such as dominance, fear, aggression or exploratory 28 courage. Not surprisingly, social interactions, as configured by the mouse s own personality style, contributed significantly to their behavioral patterns. As an example, the C57BL strain of laboratory mouse has strong tendencies toward impulsively wild behavior. To be anthropocentric and using Hagen and Eysenck-like behavioral dimensions, we could describe the C57BL mouse as exhibiting high psychotocism, P, energetic sociability, high energy, E, and low emotionality, low neuroticism, N. The C57BL also loves alcohol and will dominate the low E, shy, low P, retiring, alcohol avoidant, high N, emotional, anxious, frequently defecating albino BALB strain of mouse when they are placed together for a limited time in a novel situation during the daylight hours. Over a more extended time, however, the BALB mouse comes to dominate the C57BL, beginning with attacks in the dark and finally as the persistent and patient survivor over days of aggressive fighting. BALB s low E, social fear eventually turns into rage and aggression. The C57BL is quick to mate and ejaculate but very slow to recover sexually, so that the less post-orgasmically refractory BALB also wins in long term sexual competition in a cage full of fecund females. Modern social psychological approaches to human personality are beginning to approach the interactions of genetic brain proclivities and collective social dynamics in this way. Employing Eysenck categories of personality characteristics, similar results about style as influenced by genetic selection can be seen in humans. The correlations between factor scores based on B. Loehlen s studies using the California Personality Inventory in twins demonstrated as much as threefold higher correlations among identical twins for extroversion (E) and neuroticism (N) factors compared with matched fraternal twins. The primacy of some of the in-born biological roots of these personality styles is suggested by G. Methany s finding of higher correlations between identical as compared to fraternal twins when studied at the age of two months. The similarities in personality and temperament measures included activity level, regularity, approach-withdrawal, intensity, persistence, distractibility and adaptability. More recent familial studies of the heritability of personality characteristics included childhood shyness, neuroticism, depressive symptoms, aggressiveness, 29 behavioral inhibition and anxiety, behavioral flexibility, narcissism, deviant motor activity levels, novelty seeking, harm avoidance and reward dependence. These studies were conducted by R.R. Crowe, J.F. Rosenbaum, A. Methany, and J.L Robinson and indicated familial congruity of these characteristics among first and second degree relatives in the range of 40-50 . This level of heritability in genetically unrelated family members was found to be less than 20 . Low entropy fixations of personality can also evolve developmentally. Experiments in young animals have shown that stress-induced high levels of adrenal hormones exaggerate the normal developmental process of trimming back unused neural connections, called pruning, the normally complexly over-grown sprouting pathways. The pruning actions of the pituitary-adrenal stress hormones come to dominate sprouting actions of neural growth factors and their protection of neuronal axonal branching and connections during development. The research program of Bruce McEwan of Rockefeller University and others document nerve cell loss resulting from the neurohormonal concomitants of stress. This reduction in neuronal connectivity and neuronal cell content has been conjectured to contribute to the pathological simplification of neuronal projections and neural network complexity, reducing information processing capabilities. The still intact machinery underlying the global patterns of neurological activity, such as those that underlie personality styles, is arranged around these pruned, unoccupiable holes of lost brain possibility. If this range of potential behavior is extremely reduced, the behavioral syndrome is often called a personality disorder. Those that have one are the predictable Johnny one notes of response to perturbation: thrash out, lie without reason, get drunk, binge on promiscuity, steal unneeded things from department stores, or withdraw into interpersonal isolation. A more abstract and quantifiable way of representing the pathological simplification-induced emergence of low entropy, stereotypical personality style is inscribed on the head stone of the post-suicidal grave of Ludwig Boltzmann. This father of modern statistical physics expressed the idea in the form of a transformation: the (maximal) entropy, S, of a system is the logarithm of the number, , of its available ways of being, (i.e., S log ). That is, one way a 30 reduction in the dynamical entropy of a system can occur is by reducing the number of its available states. As the repertoire of ways of personal responding, log , is reduced, so is the brain system s entropy, S. Reality constrained patterns of behavior, as in successfully adaptive personalities, lie in some optimal in-between place between the maximal and minimum measures of entropy. The dynamical state that is postulated to yield inbetween-valued entropies is called nonuniform hyperbolicity. This is best seen when the values of the experimental observations are plotted in a two dimensional phase space with each point represented by two values: along the x-axis is plotted the value observed, along the y-axis is graphed the change in the value from the last observation. The signatory motions of these observations plotted in phase space are irregularly varying in rate of expansion (near by initial values are separating in time) and contraction (greatly differing initial values are coming together in time). Values are not fixed, rhythmically varying nor in random motion. These nonuniformly hyperbolic motions are seen in speeded up, talking head videos showing bursts of hand gestures and in normal neuronal activity. Silences have widely varying lengths and bursts of hand movements and neuronal discharges are irregular in duration and character. The statistical pattern of neuronal inter-burst intervals is not the convergent Gaussian distribution of I.Q. or heights but the nonconvergent, long tailed, Levy distribution of flood incidences and, according to Mandelbrot, stock market crashes. The labored logic and inscrutably compact mathematical formalisms of the Nobel Prize winning physicist, Ilya Prigogine, and his Belgian school, explain the thermodynamics of these long lasting niches of restricted variation in our personal style as energy requiring dissipative structures. Compulsive nail biting, driven promiscuity, readiness to be suspicious are seen as a persistence of deviations from the maximum entropy of formless, flexible, receptive end states. The system is trapped in possibility reduced, energy requiring, samsaric niches of what Prigogine called minimal entropy generation. We unique and oddly shaped and entropy leaking balloons maintain our characteristic distortions through energy-requiring, 31 persistent efforts at insufflation. The maintenance of neurotic defenses and eccentric habits can be fatiguing. The children at Kids in Distress Residential and Day Care Center in Southeast Florida, called KIDS, tended to be small for their ages. As a psychiatric consultant to the Center, I often summarized an evaluation of both their physical and intellectual development as delayed. Looking like almost completely formed adult-like personalities, however, they were developmentally advanced. I heard in a child analytic seminar at the Psychoanalytic Institute of Southern California that traumatized children often hurry through the dangerous developmental ambiguity of openness and flexibility to the predictable, fixed attitudes and behavior of adults. It was common to find prematurely wise young children serving as parents in chaotically dysfunctional families. In residence at the Center, set free from their pathogenic homes by social workers and family law judges, these premature caregivers lost sleep worrying about who was taking up their obligations to the sisters and brothers left behind. Trauma-induced possibility pruning was often obvious in the young refugees at Kids in Distress. Having been soaked in alcohol containing, nutritionally deficient, crack-laced amniotic fluid, young babies were then left in dirty cribs behind locked doors to cry themselves into exhausted despair. Their mothers were working the streets for drugs. The children that survived often demonstrate personality styles that are reduced in variety. They came to use a few, individualized, and stereotyped techniques for survival. Some children s insulated detachment was hollowly disguised as interpersonal caring. Others used driven and rigid compulsion to maintain the appearance of conscientious good citizenship. For some children, paranoid thoughts were realistic expectations. . Arriving at the Center I heard Dr. Arnold! Dr. Arnold! in high-pitched screams. Several children ran up to me at once, demanding to be held. Some leaped into my arms for a hug. Trying to get and hold their visual gaze was another 32 matter. Their eyes darted back and forth across my face, not stopping at my eyes, as though checking for danger. It felt like a strange mix of physical clinging and interpersonal distantiation. Many articles in the International University Press s Psychoanalytic Studies of the Child book series, described these prematurely formed child personality types: the paranoid scouts, the detached as if children pretending to feel, the desperate to please obsessionals, the charismatically seductive hysterics and the unconscionable psychopaths. Experiments simulating trauma and neglect in young animals also demonstrate acceleration in biobehavioral development. Possibilities, the number of available states, , brain entropies as S log , become casualties of traumatic and neglected early life. Like one trick ponies, these abused and abandoned children take up singular patterns of behavior that seem to work and stick to them. One doesn t anticipate seeing such narrowly fixated personality patterns until late adolescence or adulthood. They appear at ages too young to qualify for the character pathology coding of the Diagnostic and Statistical Manual IV. Yet the labels of adult personality disorder seem inescapable when one sees a four-yearold child trapped in a compulsive hand washing ritual or a panty flashing five-yearold girl with a seductive gait. Four-year-old Alicia rubbed the lumps in my right hip pocket containing caramel candies. Her blue eyes twinkled. Her long blonde hair was in bangs and her lips in a pout. She kept a hand on her hip and tilted her pelvis as she spoke. Listening to children s stories, she straddled the reader's thigh and rocked. Alicia had a history of sexual abuse in a home that was a hang out for drug dealers. There were rumors that she talked to strange men late at night on the phone. On admission to the Center, she was found to have genital herpes. Both of her parents had been in and out of prison for drug-related crimes. The Center s staff spoke of Alicia s seductive smiles, incessant demands, irritable complaints and tantrums. With the back of her hand held against her forehead, she said that it was too hot to pick up the toys she had scattered around the fenced yard. Ordered to comply, Alicia took three steps into Florida s summer heat and fainted. Each morning, she spent the better part of an hour in front of the mirror, trying on all four of her dresses 33 and their scarf and belt accessories before choosing one for her appearance at the breakfast table. Five-year-old Grace was a suspicious and dictatorial presence in the Center s kindergarten class. Articulate and righteous, she confronted children and staff alike with evidence for the unfairness she found everywhere. In legalistic defense of her rights and sometimes those of her peers, she used her strong wide face, penetrating look and quick and observant mind aggressively. Her somewhat intimidated childcare worker maintained Grace's cornrowed hair with care. Sensitive to criticism and quick to anger, she competed with her teacher for control of the class. Her drug abusing young mother had escaped from her own mother s authoritarian house, leaving six-month-old Grace in the care of her commanding grandmother, a matronly church elder. Recent studies by David Reiss and associates at George Washington University assessed psychosocial dynamics in genetically varied families. They found that genetic similarities amplified the expression of individual characteristics of interpersonal relating through what might be called personality resonance. Relatives often commented that Grace and her grandmother, being alike, deserved one another. Shortly after her fourth birthday Grace was removed from her grandmother's home while the circumstances surrounding the accidental scalding of the bottom half of her body in an overheated bath were being investigated. She began her first conversation with me, Hey doctor baldy, why are your bottom teeth so crooked? Damon was darkly handsome, with teasing eyes and a gleaming smile. Talking to his legal guardian on the pay phone in the afternoon of his second day at KIDS, he was heard to be making charges of mistreatment by the staff. He asked his guardian, loud enough to be heard throughout the day room, What does it take to get someone fired around here? Six years old and abandoned by his mother at the age of three, Damon came to KIDS with a history of provoking administrative conflicts at several children s shelters. His record showed that once he successfully used accusations of beatings to get a staff member fired employing charges that were later shown to have been fabricated. He argued persuasively, manufacturing events and quoting imaginary conversations with smooth confidence. He could 34 change stories midstream without apparent loss of continuity or confidence. He learned the power of a claim of abuse, and used the threat of it to control his environment. Damon talked other children out of their candy allotments, cheated at games and stole clothes from other children s lockers. Debbie, age eight, was the eldest of four children. Her mother was a street prostitute with an expensive drug habit. Debbie was thin, restless and worried. A self-appointed mother from the age of four, Debbie felt responsible for the care and feeding of her brother and two sisters. With a history of physical and sexual abuse by a series of her mother s boyfriend-pimps, Debbie spent most of her time cleaning and recleaning their small apartment and worrying about obtaining enough food for her brothers and sisters. Her mother was often gone for one or two days at a time, and food supplies were not dependable. On several occasions, Debbie was caught stealing food from all night grocers. The investigative social worker reported that Debbie had learned to sell oral sex to the men who loitered behind a neighborhood bar. She used the money to buy food. For several days after admission to the crisis home, Debbie was anxious and sleepless. She worried endlessly about the welfare of her sisters and brother despite reassurances that they were in caring foster homes. She checked on them as frequently as allowed by phone. In a playroom therapy session, wielding a rubber knife, she pointed to a scar on her left forearm and told a story about the time that she cut herself with a kitchen knife and fed her blood to her infant sister when there wasn t any food in the house. Debbie kept her room very tidy, did all her chores and sometimes those of other children. Even after several months in residence, always-busy Debbie didn t have even one close relationship with any of the other children or members of the staff. Despite the superficial differences, there are subtle and pervasive similarities among the personality styles of Alicia, Grace, Damon and Debbie. Like overgrown and tasteless cabbages, pale and four feet across, growing from seeds over-treated with gibberellin or auxin plant hormones, the inner lives of these prematurely big little people are relatively empty of stable interpersonal objects. The pantheon of indwelling companions are either malignant, absent or both. There is a deficiency of internalized significant others with qualities we more healthy neurotics paste onto 35 new faces which we then love and hate. Instead, every interpersonal arrangement is new, suspect and run on a cash-and-carry basis. We are made to feel like there are no seats for us inside of them. Even Debbie, with her history of selfless motherly devotion to her children, felt like an empty husk, encased in the exoskeletal armor of compulsive correctness. With their inner life unpeopled, the best we on the outside can hope for is to be valuable to them as tools, like forks and chairs. In new and potentially therapeutic settings, for example a genuinely loving foster family, these children manipulate, testing for the feared loss and abuse that first generated their detachment. They provoke the very mistrust they fear. The sexually exploited child is seductive. The physically abused child provokes attack. Personality constellations which can be adaptive, when narrowed and fixated, become impediments to new and reparative experience. It is in this way that personality disorders are self-maintaining. An irony is that these interpersonally empty and rigid patterns in personality tend to occur in the most constitutionally robust of the abused and neglected children. They are those who have escaped early death from failure to thrive, severe neuropsychological impairment, chronic depression, severe social withdrawal or the pediatric psychotic disorders. The children with sufficient flexibility to adapt quickly and survive often settle into empty-centered rigid caricatures of adult personality styles. Of course, well-defined and characteristic personality patterns do not require abandonment and abuse or the pathological simplification of traumatic deforestation of neuronal connectivities in order to emerge. Demanding social selection of particular personality proclivities that are competitively advantageous for highly sought positions also results in the appearance of well-defined personality styles. Common examples are the technical types, techies, nerds, whose work require long hours alone to master and execute, as in doing mathematical proofs, solving problems in theoretical physics, unraveling computer programming problems or writing highly technical tracks. These activities can be aided by the personality inclinations of shyness and distantiation, the experience of discomfort in social occasions along with a rich private fantasy life. Diagnostically oriented mental health 36 professionals (and lonely mates) may label these interpersonally distant, engineering rocket science people, high functioning sufferers of Asperger s autistic spectrum disorder. Things going on inside get most of the attention, having more impelling importance than those on the outside involving other people. A recent study by Cambridge University s Autism Research Center compares the empathizing (E) versus systemizing (S) ability of normal controls and adults with Asperger Syndrome and find the quasi-autistic adults are deficient in E and superior in S. They call it the E-S theory of autistic spectrum diseases. Psychotherapists of these autistic spectrum personality types, patients who characteristically do not seek therapy but are forced into the office by marital or family conflict, speak of their long, patient and mighty struggles to make intimate contact with these clients. A more philosophical question involves issues of what are acceptable individual differences and why it is that these high functioning, highly paid and successful professionals have any diagnosis at all. It is not surprising that the highest paid members of corporations producing technical products and services such as IBM and Oracle are those rare individuals in technical sales that are able to combine the skills and insights of introverted scientists and technicians with those of the gregariously successful salespersons. In business schools such a blend is seen in people who combine talents in both marketing and finance. In architecture this combination might take the form of a graphic-design artist with computational mechanical engineering skills. Recruiters know that it is difficult to find people for what is called engineering sales. From all over the United States, professional instrumental musicians that began to experience severe technical difficulties that defied their teachers as well as more extended practice time came to see Chicago s music guru, Carl Boardstadt. He was a nationally known consultant to classical and jazz professionals in the 1920 s and 30 s. His particular specialty involved those who had hit the wall, those whose progress toward advanced musical mastery and accession into the higher echelons of the business had been truncated. His recommendations were often eccentric indeed. For the wind musician with breadth control problems, it might be blowing uniform bubbles through a long tube held at increasing depths of a filled 37 bathtub or feeling the seductively diaphragmatically oscillating belly of a taxi dancer. Pianists with speed problems worked at specially constructed up-side-down keyboards with the rationale being that finger lifting was more rate limiting than finger placing. He said that his most hopeless cases were those whose personalities didn t fit their choices of instrument, too often made by what position remained open in the high school band rather than following a personal interview. He claimed that trombonists should be sensually languorous; clarinetists, nervously impatient; double reed instrument players, obsessional and withdrawn; brass players, athletic and exhibitionistic. As one of the team physicians of the San Diego Chargers in the years 1971- 1975, I spent several days a week in their summer training camps, on the team plane to and from games, in the locker room and on the sidelines during games. I was involved particularly in player drafts. Unbeknown to candidate players and other teams, we used a system of what social scientists call unobtrusive measures of their personalities as part of their evaluations. College football players are sent questionnaires each year by professional teams asking about a variety of life events and attitudes including their goals for the future. Filled out by hand, they served as repeated measure, handwriting samples. Twenty years of them were available in the Charger s record room. Using 30 standard signs from the French graphology literature and three trained raters, we evaluated the hand writing characteristics of players, National Football League wide, who obtained and retained playing, not reserve, positions in the League for at least three years. After studying handwriting profiles from close to a thousand established NFL players, and hundreds of hours of individual interviews of members of many teams, it became clear that, athletic abilities being equal, success was more likely when the player s personality type fit his football position. What amounts to a series of selective filters are operated by coaches, scouts and managers throughout the playing careers of these players in grammar schools, high schools, universities and, 38 ultimately, the NFL draft. Choices obviously involved more than height, weight, time in the 40-yard dash and performance in motor coordination tasks. The players behavior, carefully studied on the field, in multiple camera angle game films, direct and collateral interviews and observations under game conditions constituted a high level of selective pressure that brought with it the emergence of characteristic personality types. Tens to hundreds of thousands of candidates are winnowed down to several hundred highly paid players in this selective process. Distinctive personality patterns accompany success at a particular position. Structure loving, politically more conservative, choreographed in detail and repeatedly rehearsed, offensive players keep their lockers more organized and tidy. More rebellious, resentful of structure, politically more libertarian, thematically instructed but principally opportunistic, defensive players, particularly linemen and linebacker s lockers had messy lockers. Defensive team players were most often in trouble with the law. Offensive lineman including centers, guards, tackles and some tight ends tend to be patiently enduring and tenacious, their aggression taking the form of stubbornness. This contrasts with the temperamental explosiveness of the defensive line and linebackers. We could speak of the volubility of centers, the loyal and caring kindness of offensive tackles, the narcissistic exhibitionism of wide receivers, the murderous rage of the defensive end, the sullen and paranoid depressiveness of the defensive back, the joyfully impulsive unpredictability of broken field running backs and the good citizenship egolessness of the blocking fullback. Some quarterbacks lead and play fearlessly in a religious state of grace, some are members of the Fellowship of Christian Athletes. Others lead as fearlessly, but in the style of an unconscionably calm psychopathic bank robbing professional. Influenced by our findings, the San Diego Chargers drafted the Hall of Fame quarterback and one time ABC Monday Night Football commentator, Dan Fouts. Skinny and hurt several times during his college years as a quarterback in Oregon, he was passed over in the NFL draft until the third round. The scouts knock on him was that they thought that he lacked psychological and physical toughness; the ability to get up after a hit and to ignore the on coming tons of defensive linemen 39 while calmly and quickly surveying the routes of several potential receivers. The pattern found in his handwriting features, however, resembled those Johnnie Unitas, the Hall of Fame quarterback of the Baltimore (then) Colts who, in spite of his small size, famously played with great courage and physical toughness. In chronic and severe back pain, he played regularly until retirement in his early 40 s. Fouts drafted in the third round with a small five-figure bonus, proved to be a great bargain for the Charger franchise. Given the theoretically infinite number of ways that a personality can be, it is remarkable that the latest Diagnostic and Statistical Manual of the American Psychiatric Association, DMS-IV, describes only eight types, which form three subsets of exaggerated expressions of stable personality styles called personality disorders. All eight personality disorders can be grouped into: (1) Cluster A - Odd and eccentric types, whose anxiety is related to the felt threat of disintegration and annihilation of the self and whose style is dominated by mistrustful paranoia, a schizoid, detached and emotionally flat pattern or the isolated strange eccentricism of schizotypal characters; (2) Cluster B - Unstable and impulsive types whose anxiety is related to loss of the stable self and whose style is dominated by irresponsible antisocial behavior, chronic instability with high amplitude fluctuations in behavior called borderline, or patterns of excessive emotionality and dramatic display associated with histrionic characters; and (3) Cluster C - Fearful types whose anxiety is related to hypersensitivity to criticism, guilt and feelings of inadequacy or loss of control, and whose style is dominated by interpersonal avoidance, clinging dependency, or rigid lock up into obsessive-compulsive efforts to do the right thing and avoid disapproval. This remarkably small array of stylistically consistent global behaviors selected from a practically infinite number of imaginable possibilities establishes a small set of invariants of some, perhaps abstract, property. These characteristic patterns inspire our search for the implied brain and behavioral conservation laws that may underlie them. 40 Further Readings for Doesn t Everybody The Evangelicals, David F. Wells and John D. Woodbridge, Abingdon Press, Nashville, 1975. Godtalk, Travels in Spiritual America, Brad Gooch, Knopf, N.Y. 2002 The Value of Science, Essential Writings of Henri Poincare Stephen Jay Gould, Modern Library, Random House, N.Y. 2001 From Being to Becoming, Ilya Prigogine, Freeman, San Francisco, 1980 The Development of Mathematics, E.T. Bell, McGraw Hill, N.Y. 1945 Deterministic Chaos, An Introduction, Heinz, George Schuster, VCH, Weinheim, 1989 Lectures on Dynamical Systems, Structural Stability and their Applications, Kotic K. Lee, World Scientific, Hongkong, 1992 The Psychobiology of Behavioral Development, Ronald Gandelman, Oxford, N.Y. 1992 Handbook of Character Studies, Psychoanalytic Explorations, Manfred Kets de Vries and Sidney Perzow, International Universities Press, Madison, 1991 Cognitive Style, Five Approaches and Relevant Research, Kenneth M. Goldstein and Sheldon Blackman, Wiley, N.Y. 1975 41 CHAPTER 3: TRANSMOGRIFICATIONS OF ENERGIES After several of months of running, 12 miles most days, I felt an energetically calm, self-containment and a growing loss of interest in things sexual. My increasingly impoverished fantasy life led my training psychoanalyst to suggest that I was running away from the critical, females issues of my psychoanalysis. He said I was becoming more out of reach as I became more socially pleasant. This was decades before Prozac, Paxil and other serotonin reuptake inhibitors were inducing similar hyposexual, withdrawn states of cordiality in millions of Americans. Recall that Norman Geschwind, the Harvard Professor of Neurology, reported similar conditions of high energy sexual disinterest and abstract metaphysical preoccupation in patients with right temporal lobe epilepsy. For reasons other than the loss of church property rights and the spread of syphilis to the clergy, it felt like I was being readied for Pope Gregory VII s Eleventh Century celibacy reforms for abbots and clerics of the Catholic Church. It was true that my feelings of dependence on my analyst for understanding and approval were being reduced as I ran into less emotional involvement. I was becoming a more rationally objective observer of others and myself. It wasn t the first time that my over-ardent practice led to this warning. Baba Muktanada, my Hindi guru, told me to reduce my daily sitting time of meditation. He said my spacey 42 social smile belied a growing disinterest in the welfare of others. I was getting hooked on the hard training high of not really being there for other people. Several articles in Runner s World said that many runners become addicted after even a few months of running over six miles per day. It s true that over fifteen years I missed less than 10 days of running per year. I ran in driving rain, sweltering heat and dangerous places. In New York s Central Park after dark, I followed a freshly strewn trail of torn woman s garments that ended in shredded panties and a bra on the Park s bridle path. In Oklahoma City at 104, I was chased and bitten by a terrier. In Munich at 4:30 AM, before delivering a morning lecture, the black uniformed police stopped me for a shakedown. In Ann Arbor, I shuffled along in two feet of snow. By the Seine, at 14 , paranoid barge hounds barked in big dog baritones. I ran on the Hebrew University track a block away from a loud Palestinian bomb left in a refrigerator near a busy street corner. Breathless at nine thousand feet in Aspen, gagging on the strong manure smell of Sacramento Valley farms, in the hot wetness of Houston and dry heat of Palm Springs. I wore out three to four pairs of Nike running shoes per year. What I did not tell my training analyst was that this felt like a chase after God. As in most spiritual transformations, His messages and music could emerge quite suddenly. Even after stretching, it was painful to begin and that was my daily sacrifice. I was readying myself to follow the God of the Hebrews and make the three days journey into the desert as in Exodus and Paul s recommended presentation of my body as a living sacrifice, holy and well pleasing to God. After three miles of running, the hip pain, back stiffness and leg heaviness lifted, difficult breathing became easier. A burst of new energy appeared suddenly. The first pop usually took the form of assertive feelings fueled by new personal power, an undoing of the lethargy and depression of a helpless sinner. New and big, I felt like I could fix almost anything. Up bubbled an aggressive speech to the Dean about his refusal of our recent request for an increase in departmental research space. As for the National Institute of Health s recent return of one of our grant proposals, it was now clear that the reviewers were wrong. I would resubmit but this time ask for twice the amount of money. I rehearsed a new list of necessary and routine laboratory chores 43 for my most rebellious post-doctoral student. I would tell my teen-age son that he must wait another year for his own car. I felt generally intolerant. In an article in Runners World, I labeled my run s first global brain state transition, the first second wind. It energized me with the cool firmness but ready-tobe angry righteousness of modern religious orthodoxy: Orthodox Jews gunning down Hamas terrorists as retribution for bus bombing children which was itself a retribution; Muslim suicide bombing as vengeance for cultural contamination; Catholic Bishops refusing the Eucharist to pro-choice politicians; Charismatic Christians gay bashing defense of the sanctity of marriage; Mohammed s early Sufilike poetry of love turning into territorial aggression and Jew killing in his later years. Once in while, unpredictably, past the first hour of running and after the first second wind, a fatigue easing second burst of energy followed the second stage of exhaustion. I called this running-induced, second global brain state transition to a softer loving energy, the second second wind. Colors became intense, clouds breathed and my body lightened. Running once again became easy. I was flooded with empathic and generous thoughts. I understood that the Dean was faced with too many space demands to satisfy; the grant reviewers criticisms of the budget were meant to be constructive. I recalled that strong minded, rebellious postdoctoral students often made the most creative contributions to science. I realized that my son s urgent desire for his own car was a proposal in the direction of the independence that would be required of him the following year when he was going to be hundreds of miles away at a university. Filled with benign optimism, I felt the compassionate perspective afforded those with energy but without envy, anger or fear. William James, in Varieties of Religious Experience, A.C. Underwood s book, Conversion, Christian and Non-Christian and Gobi Krishna s The Awakening of the Kundalini, among many others before and since, describe the sudden appearance of long lasting states of optimistic energy and loving empathy that can emerge after long episodes of suffering, especially following periods of privation of spiritual meaning and the loss of a previously strong faith. These episodes are painfully chronicled by St. John of the Cross in his Dark Night of the Soul. 44 In the long distance running model of spiritual transformation, the first energy appears suddenly in the middle of painful fatigue and feels like a vigorous implementation of Halachic commands or Canon Law. The second burst of energy emerges from readiness for resignation and ends in humane comprehension and empathy. In some Christian monastic practice, a similar transition is represented in the ritual of Tenebrae (or Darkness). Fifteen lit, unbleached candles are extinguished, one by one over the night, while reading the Psalms. The practice is said to represent the desertion of Christ by his disciples, as the church grows darker over the night. After the singing of the Benedictus, the one remaining light is quenched, plunging the church into total darkness. In Myth and Ritual in Christianity, Alan Watts suggests that the loss of the last light of Tenebrae induces the realization that I am nothing. This reduction in egocentrism, along with a darkpiercing alertness is said to facilitate an invasion by a loving God that precipitates the fasting, sleep deprived and praying petitioners into long lasting ecstatic states. These uses of energy and its attendant characteristics are not physically specifiable but rather hermeneutic of a force. It is both a potential and a realization, observed and inferred. It is the energy stuff of Freud s libido, Wilhelm Reich s orgone energy, Pavlov s drive, Rudolph Steiner s etheric formative force, the arousal and attention of brain wave and consciousness research, the Ch I of Chinese medicine, the Hindu divine energy of Shakti, the Hebraic ruach, the Cabalist s Yesod, the Sufi s Baraka, the Christian Holy Spirit, the Yogic breath energy, prana, Mesmer s animal magnetism, Galvani s life force, Goethe s Gestaltung, Madam Blavatsky s astral light, Georg Groddeck s it, Henri Bergson s elan vitale, Schroedinger s entropy, Abraham Maslow, Ruth Benedict and Buckminister Fuller s synergy, Bertalanffy s anamorphosis, Colin Wilson s x factor and George De la Warr s biomagnetism. Of course, by nationality, culture and field of study, there are many more examples, each locally defined by its particular context and haunting with its promise of universality. Energy in the context of mathematical physics is intuitional, abstract and relational. It is not created or destroyed, but rather transformed. Consistent with his deceptively simple style of physical intuition training of the young, Feynman s 45 discussion of thermodynamic energy and its conservation in Lectures in Physics begins with the premise that it is a numerical quantity that does not change when one or many alterations in the system occurs. His heurism for energy and its conservation involves the premise that Dennis the Menace has 28 indivisible blocks, a number which his parents find constant at the end of every day of play. If one day a count yielded 27, an investigation would reveal that a block could be found elsewhere, say under the rug. If at the end of the day, the count was 29, the extra one had to come from somewhere else, perhaps Dennis s playmate Bruce. If Dennis locked some of his blocks in the toy box and threw some into a bathtub of dirty water and (1) A block weighed three ounces; (2) The box alone weighed 16 ounces; and (3) Each block raised the water level of 6 inches by one fourth of an inch, then this metaphoric energy relation can be expressed: (blocks seen) (weight of box)-16 ounces (height of water)-six inches constant (28) 3 ounces 1 4 inch Feynman notes that this representation of an energy relation, computed as a number of blocks, will always remain the same. If there were no blocks in sight, and one used this energy conservation relation with blocks as units of energy, we find no blocks as such in the expression at all. The abstract and formal idea of energy in physics first arose in mechanics and was generalized to electrostatics and electrodynamics. If one idealizes these systems, eliminating real world factors such as friction, temperature gradients, temperature dependence of the properties of materials, viscosity, hysteresis and other nonlinear behavior, then the energy conservation law says that in an isolated and interacting set of systems, the sum of the energies of the several systems remains constant. If, on the other hand, a system interacts with its surroundings, not isolated and interacting, then the increase in the energy of the index system is equal to the work done on the system by its surrounds. Like pre- Enron bookkeeping of corporate cash flow and balancing ones personal checking account, energy, like money, does not disappear; it is only changed in expression. As in the context of currency equivalent value, energy can represent a very general quantity applicable to a wide array of specific objects and activities. The results of 46 the early studies by Professor Seymore Kety of Harvard and Dr. Harold Himwich of the Thudicum Laboratory in Galesberg, Illinois, using measures of whole brain oxygen and glucose utilization as indices of energy generation and utilization by the brain, surprised many of us. They indicated that energy use by the whole brain was relatively constant when states of relaxed awakeness, mathematical cognition and deep sleep were compared. Of course, modern studies have indicated that relative regional brain energy utilization is state dependent and may vary quite widely. More spiritual aspects of energies and their transformations were made clearer during several month visits to Baba Muktananda s, now Gurumayi Chidvilasananda s, Sidha Yoga Ashrams. Baba Muktananda loved and worshipped his Hindu Guru, Bhagawan Nityananda. Baba had been a restlessly wandering, guru-hunting, young man. Nityananda said he had wheels for feet. After many years of devoted meditation, chanting and service, sadhanna, all the while being prohibited from eating mangos, his favorite food, his passive, taciturn, ecstatic guru, Nityananda, presented voluble, energetic, joyful Baba with the guru s rather aromatic and worn sandals. This symbolically acknowledged Baba s successful absorption of the guru s transforming spiritual energy, shaktipat, the power of his enlightenment. At Nityananda death, Baba, using world tours, spiritual fellowship meetings, satsangs (public conversations) and spiritual training sessions called intensives , organized Ashrams in West Coast sites such as Oakland and Venice, and on the East Coast, in South Fallsburg, New York, buying several old residence hotels in the Borscht Belt. Baba was introduced to America by one of his first advance men, Be Here Now Baba Ram Das, Timothy Leary s co-investigator in the Harvard Student LSD project when his name was Richard Alpert. EST s Werner Erhard was another of Baba s advance men. Baba discipled and disciplined a sister and brother who, when 18 and 11 respectively, were sent to live in his Ashram in Ganeshpuri India by their parents. The girl was known as Malti when she served as a translator for Baba and Gurumayi Chidvilasananda after receiving the energy of her enlightenment. The younger brother was given the name of Baba s guru, Nityananda. When Baba took 47 a guru s ecstatic death, Samadhi, both Gurumayi and young Nityananda became co-gurus. Following three years of the usual covert power struggles of succession in organizations, Gurumayi took over the guru lineage of Siddha Yoga. Her lively brother s worldly preoccupations with jazz drumming and confessions of promiscuity led to his giving up of the orange robe of the denunciate, sanyasi, for the blue robe of worldliness, exchanging one kind of energy for another. Brad Gooch who visited Gurumayi s Ashram in Ganeshpuri, India, wrote in his recent book, Godtalk, that she looks like a synthesis of Indira Gandhi and Bianca Jagger. In what reads like a Hunter Thompson episode in an unwritten book called Fear and Loathing Along the Guru Trail, Godtalk s explication of Siddha Yoga was dominated by yellow journalistic rumors such as the one about Baba s use of a gynecologist s table with stirrups for non-ejaculatory Tantric practice with some female followers. This unconfirmed claim remains, as Gooch says, in the realm of he said, she said. Gooch s exploration almost ignores the deeper meanings of Kashmir Shavism, Buddhism and Kundalini Yoga that compose the philosophical foundations of Siddha Yoga. The importance of knowing, loving and becoming one with the God within trivializes all but ungenerous or hurtful interpersonal behavior. Even the tougher version of the Ten Commandments in Leviticus 19 would not necessarily disagree. When a Los Angeles Times reporter tried to chide Baba about being driven about in his worldly Mercedes sedan, he explained that a very wealthy Indian merchant had given it to him and I have to put my behind somewhere. Similarly, why would Gooch s account of Baba s Tantric practice, even if true, ruin the imago of him in my mind unless I had already surrendered to the pantheon of good and evil absolutes of Judeo-Christian taboo? My knowledge of these non-materialistic meanings of apparent materialism began with one of the favorite finds of Baba s youthful days of guru hunting: Zipruanna, who, wearing only a loincloth spent all day, every day, on a stool in the middle of a garbage dump. Remarkable changes occurred in people who spent time there in his presence. Baba said the identity of guru was established by the results experienced by those that spent time in his presence. It could not be defined by the physical features or ritual conduct of the 48 interaction. People become spiritually energized and change in Zipruanna s smelly, garbage-filled presence. I keep a picture of him on my desk. Gooch, in his implicitly and superficially righteous preoccupation with what he considered disenfranchising human vulnerability, recalls how the medieval church used the difficult to impossible vow of chastity for political control of their priesthood. He seemed to have missed Baba s lessons about the remarkably simple sounding practices for mobilizing the energy of the God-receptive state. Once in this new state, the rest of the metaphysical work almost takes care of itself. I, like many others, adopted Baba s mantra, Om Namah Shivaya, I worship the God within me (and you) that he was given by his guru. The inner chant of this mantra brings me to an internal quiet in which things become clearer. Meditation, chanting and service to the guru was motivated by his promise that my egoistic concerns ranging from the number of publications on my curriculum vitae, to the size and adroitness of my penis, would disappear autonomously in the Baba state of bliss. This sounds very much like the role of the transition to an active intellect. in Abraham Abulafia s 13 th Century Commentary on the Secrets. Arduous study of the spiritually dense writings of Sri Aurobindo during the days with Professor Spiegelberg at Stanford gave me a peak into the simple but difficult to execute idea of simply becoming the transcendently comprehending state of existence-consciousness-bliss. Whereas Baba would occasionally lapse into terse Sanskrit verse and its multiplicity of potential meanings, Gurumayi keeps things simple. Sitting silently and immobile at satsang for hours, she radiates transformational energy, shakti, that makes ruminations about human affairs seem unimportant. The work is about getting the self concerned head noise of ones preoccupations sufficiently out of the way to allow the discovery of the God who has been waiting patiently within. A fellow ashramite gave me a photograph of my first audience with Gurymayi. It showed me on my knees in front of her. She appears to be dismissing me with a baleful, almost disdainful look as my introducer, gesturing broadly, was, unasked, reciting a list of my professional bona fides. The picture caught her waving me off with a long, peacock-feathered stick. Obviously unimpressed, she is sending me back to my all night, every night, tent cleaning labors at the Ashram. Rich Indian 49 businessmen, whose large donations were a major source of support of the Ashrams, faired little better. They seldom received a personal audience or favorable seating at Darshan, the evening public time of question and answers with the guru. In contrast with the relatively easy public availability, mischievous play, provocative humor and worldly sophistication of Baba, the ambience of Gurumayi is more private, simple, serious and subtle. It is as powerful, but in another way. In response to Gurumayi s ascension to Siddha Yoga s singular guru, I imagined hearing Baba saying that God energy was at least androgynous, if the dimension of sexual identity was relevant at all. Baba taught that divine energy, by necessity, is expressed through a wide variety of particular personalities and cultures and should not be confused with the details of its manifestations. This included the sexual identity of the chosen Vehicle. Guramayi s central theme, as I understand it, concerns the simple, quiet and pervasive powers of love and faith. Some say Baba took the path, marga, of selfless action, karma-marga, whereas Gurumayi took the bhakti-marga, the road of loving devotion and faith. The third marga is jnana-marga, my inclination, is the road of intellectual study and knowledge. Aldous Huxley related the choice among these three categories of yoga practice, to the physical and personality types of William Sheldon s 1954 Atlas of Man. Karma yoga corresponded to the mesomorphic body type and the assertive boldness, high energy, and interpersonal callousness of the somatotonic personality. Bhakti Yoga was the characteristic choice of endomorphic body types with the viscerotonic personality traits of sociability, good will, tolerance and love. Huxley associated Jnana Yoga with ectomorphic body type and the cerebrotonic characteristic of shyness, sensitivity and intellectuality. My summers with Baba at his temporary Ashram in Venice, California and the permanent American Ashram in South Fallsburg, New York, were spent in daily, very early morning, chanting of the gurugita after most of the night spent taking down, cleaning and putting up large tarpaulin meeting tents. I was assigned this simple, arduously manual, all night work after being interviewed and found out to be a professor and chairperson of a medical school department. Baba instructed his assignment committee that many if not all professorial egos would benefit from what 50 Andrew Carnegie famously called the dignity of real work. Spicy one dish vegetarian meals, twice a day meditation and brief stolen naps consumed the rest of the day. I found myself meditating for longer and longer times, chasing the promised Blue Pearl that Baba said appeared behind the eyes near the supreme meditative end point. Beside care with the titration of meditation-induced interpersonal disconnection, detachment with love is the desired end point of most Hindu and Buddhist meditative practice, another set of side effects of the energy arising early in the course of too much meditation is called kriyas, spontaneous episodes of involuntary behaviors and postures of the body such as unprovoked chanting and writhing and stereotyped hand positions called mudras. Baba told us one of his kriyas took the form of spontaneous erections that occurred during his first experiences with deep meditative states. I recall a woman physician and fellow ashramite in Los Angeles telling me that her panties often got so soaked during meditation that she worried about being stuck to her cushion. Beyond these initial somatic overflows of Divine Energy, shakti, emerges a vision of the Blue Pearl, bindu, Baba s gift from the Goddess Kundalini. As he entered this stage, he said that his mind filled with joyous contentment. Jewish mysticism of the 1300 s acknowledged the neighborhood relations of Eros and the Sacred. More formal and scientific uses of the word, energy, like all objects of thought embeddable in a mathematical context, are abstract and relational. In his book, Mathematics-The Music of Reason, Jean Dieudonne treats mathematical objects as objects of thought. Dieudonne s book documents the 19 th Century transition from concrete, visualizable, classical mathematics to abstract, nonvisualizable relational ideas. This conceptual transition to abstract, relational thought objects that are no longer representable by pictures or accessible to our senses of mathematics and physics is yet to reach the concrete DNA-causal religionists of modern molecular biology. In 20 th Century mathematics, Dieudonne observes that the primary role in theory is played by the relations between mathematical objects concerned rather than the nature of the objects themselves these relations are often the same for objects which appear to be very different and therefore they must 51 be expressed in ways which do not take these appearances into account and can be specialized at will DNA sequences are, as MIT molecular biologist, Eric Lander observed, nothing more than an elementary list of parts In fact, since about 1 of the nucleotides are relevant to functional genes, one might say that the important members of this list of parts are distributed very thinly among many more apparently unimportant ones. The next frontier will certainly involve an understanding of the dynamics of the interactions among elemental parts and in more abstract laws about molecular biological relations; a focus on the dynamics, not the structural parts, that regulate and control their expression. I made a pilgrimage to spend eighteen months within Rene Thom s penumbra, living among mathematicians in his ashram in Bures sur Y vette, France. Thom was one of the founders of the Institute des Hautes D Etudes, IHES, Institute for Advanced Scientific Studies, created to stanch the flow of high-level scientific talent away from France after the Second World War. It is in Bures sur Y vette, deep in a green forested valley, 50 or so miles South of Paris, in a building packed with small, thin walled, big windows-on-the-woods offices. Each office contained a single hard chair, an old office desk, two walls of blackboards and a box of white only chalk. The use of colored chalk was felt to be without mathematical rigor because its use substitutes colors as dimensional descriptors for more demanding abstract and formal representations. Color was cheating. Meditation in this ashram was practiced by staring, pacing, scribbling, and humming, mumbling, belching and farting through the Institute s thin office walls. The building, though almost completely occupied, was otherwise silent. The Institute was populated by such world-class mathematicians and theoretical physicists that once inside that building, I felt so intimidated that I almost never spoke above a whisper. Listening to excellent William Thurston s casual use of a tiled bathroom floor to motivate a unique partition of a topological space, I was attacked by the awe of an early morning visit to an almost empty Notre Dame Cathedral in Paris or standing in front of Michelangelo s radiant marble statue of Mary and Jesus the Infant in the Vatican. 52 Though the environment was one of tranquil academic scholarship, I lived charged with anticipated performance anxiety about the seminars on the brain as a dynamical system I was scheduled to present to these (I feared) ready-to-bedisdainful, prize-winning, pure mathematicians and theoretical physicists. My dorm-style sleeping room at IHES was, in winter, painfully cold and drafty; the narrow iron bed s thin mattress contained lumps of persistently disturbing dreams, the small scratched table for work shim-irreparably wobbled. A faded poster of Van Gogh s garden was tacked crookedly on the door facing the toilet in the dank, dimly lit small bathroom. A dwelling for distracted young mathematicians. A retired but still famous Parisian chef cooked many course, elegant meals every afternoon. The food was accompanied by so many liters of unlabeled red wine and peer pressure to be French and socially drink it that it became a choice between dulled, blunted,. sleepy post-prandial afternoons or living on bread, many cheeses, apples and Perrier water, alone in my room. I chose the latter. Thom s gifts to us theoretically oriented non-mathematicians were diagrammatic, easy-to-visualize pictures that allow the intuitive capture of counterintuitive discontinuities in functions. How we might imagine that a smooth and continuous change in a cause of something can lead to a big, discontinuous change in the results. His system of topological (shape not size) diagrams was useful when considering up to four causal variables and one to two dependent variables that described how things behaved. For an important real life example, in modern clinical pharmacology, the smooth dose-response curve consistent with the physician s intuition that if a little drug didn t work, a little more may do so, should become an up and down search for the dose-region for the desired effect which may involve a lower amount than a previously ineffective drug dose. The therapeutic effect may occur in the middle of a narrow dose range with too much or no effect occurring out of this span. In many physical systems, sudden and global transitions in state, from incoherent light rays to coherent lasing and from laminar flow of fluids to turbulence, emerge unexpectedly when causal parameter are moved into what some call the critical region of the values of control parameters. Outside this region, cause and result 53 were behaving linearly and smoothly whereas within this region we observe global and dramatic changes via a forced discontinuity in what Thom called a catastrophe and others use related words such as bifurcation or phase transition. The transitions from painful fatigue to running rage and then to ecstatic transcendence feels like the gifts from two kinds of Gods, the first, bearing the righteous lawfulness of the Old Testament, the second bringing the empathic forgiveness of the New Testament Jesus. Catastrophe and bifurcation theories predict and keep track of these transitions using mathematically describable changes in global characteristics of the motion using technical descriptors such as eigenvalues, germs and jets. Thom taught me my first catastrophe, called the cusp, in words during our late afternoon walks along a shadowed green wooded path on the grounds of the Institute des Hautes Etudes, outside of Paris. My homework consisted of trying to visualize his verbal descriptions. It was not until weeks later that he drew the geometric object being discussed on the blackboard. With eyes twinkling and in his provocatively playful style, he said, Imagine an empty rectangular box with the front edge of its roof buckled into an S and the back edge, an unfolded, left-to-right gradually rising simple smooth curve. If one moves the causal force from low to high, from left to right along the back of the box, the changing effect (represented by height) would be smooth; moving from left to right in the front encounters a sudden drop off at the S shaped buckling, a discontinuity in roof height indicating a discontinuity in effect. The energy equivalent height of the roof graphically indicates the amount of result. The roof is the manifold upon which the result of causal change is portrayed. The two dimensional floor of the box represents a graph of the two causal parameters, the increasing amount of normal factor going left to right along the x dimension, the increasing amount of splitting factor (taking one from the back to the front to the region of the buckling) going back to front along the y dimension. He gave me some examples of systems that showed cataclysmic changes in effect from smooth changes of normal and splitting factors. About the onset of a war: At the back of the top surface of the box, the manifold, the normal factor increasing from left to right is the amount of the perceived threat. The splitting factor 54 decreasing from front to back is the cost (and ability to pay) for war. Without the financial capacity to make war, threat goes from left to right smoothly at the back of the box as tension gradually increases without the onset of armed conflict. When effective fighting capacity is cheap and or already well funded, the country well armed, the increases in threat go from left to right at the front edge of the box and encounter the cliff of catastrophe and war is declared. Cost of, or ability to wage war varies from the front to back, and serves as the splitting factor. Considering prison riots, social tension is the normal factor and alienation (degree of identification with prison authority) is the splitting factor. Using factial expressions of dogs sketched by the Konrad Lorenz, Christopher Zeeman then of Warwick Mathematics Institute in England, considered countenances reflecting increasing rage as the normal factor, the amount of fear was the splitting factor. Increasing rage at high fear increased smoothly at the back of the box; at low fear, increasing rage falls off the cliff to an animal attack at the front of the box. He paced as he talked, occasionally looking up to see if I was following him. He continued, A light above the box casts a shadow from the roof to the floor, outlining the gradually widening fold created by the transition from the smoothly rising back of the roof to its S-shaped front. This triangle on the x-y causal floor is the region in which the discontinuity in the result surface roof results and is called the bifurcation set. An increasing amount of the causal normal factor is represented from left to right along the x dimension, the results of which change smoothly at the back of the roof but encounter a discontinuous jump up or fall down crossing the inaccessible crevice in the S fold at the front of the roof. Again, the triangular shadow on the floor made by the fold indicates the parameter region in which discontinuous changes in the result surface occur. The reason the parameter that determines the front to back location of the left to right movement of the normal factor is called the splitting factor becomes obvious. Its value determines whether the results induced by increasing amounts of normal factor will be smoothly changing or generate a discontinuous jump. The entire visualizable object is called a cusp catastrophe and it along with higher dimensional parameter region-inspired shapes such as the 55 swallowtail and butterfly buy back the smooth DE deterministic intuition lost with discontinuous changes in results. He grinned mischievously as he asked, Can you see it? Thom s catastrophes serve as accessible and powerful theoretical settings for the use of energy as a generalizable, one dimensional, dependent, resulting effect, influenced by one or several, sometimes conflicting, independent, causal, variables. For more examples: the weight of a ship (smaller to greater, left to right, along the x, normal dimension) and the position of center of gravity (smaller to greater, front to back, along the y splitting dimension) are causal with a jump in roofheight energy from stability to capsizing, a discontinuity emerging from initially smooth changes in stability. As above, gradually increasing tension (the left to right normal factor) and alienation (the back to front (splitting factor) in inmates generate a sudden increment in energy, from subtlety increasing tension in relative quiet to the sudden outbreak in a riot in the prison population. Embryological notochord somitogenesis, (that which become the vertebrate of the spinal column) has a smooth (left to right) causal influence that Chris Zeeman named a normal factor. It is the smooth growth of the material wave of mesodermal (to become muscle, connective tissue and bone) tissue. Zeeman called the front to back dimensional gradient of influence, the secondary wave of adhesiveness, the splitting factor. The value of this secondary wave co-determined a critical-valued interaction between these causal parameters leading to a discontinuous change in the energy equivalent continuity of developmental growth and vertebral column segmentation. A little more technically: Thom s basic mathematical contributions were in differential topology and analysis with particular emphasis on what is called structural stability of surfaces representing and supporting actions called manifolds. For example, in a graph of a function, say F(x), such that a change in cause x determines what happens to the result y F(x), the stability question involves what happens when one perturbs F(x) with a little , i.e. F(x). Do the topological properties of the surface representing the potential range of actions of the system (such as nearness of an originally close point set, continuity and connectedness of the surface, its dimensionality, its compactness as a generalization of finiteness) 56 remain the same after perturbation? Note that the inter-data point metric distances are not considered. If they do, the two dynamical objects being compared are topologically equivalent. The test of this equivalence requires the mapping one set onto the other with, at most, smooth distortions of either or both surfaces. In the context of catastrophe-related bifurcation theory, if a converts a steady valued fixed point to an oscillating cycle on a manifold of potential actions, also called a state space, then the fixed point system was not structurally stable. In phase space, this is seen as a change-in-causal-parameter induced transformation of a dot to a circle. If the one frequency circle is perturbed to a manifold of the system s actions consisting of two independent frequencies, the circle takes the topological form of the crust of a doughnut, one frequency graphed spiral winding around the doughnut, the other winding along the doughnut around its orifice, the circle is not structurally stable. If distorts the frequency-amplitude relations on a surface such that the manifold of possible actions is distorted from a doughnut to a tea cup, both topological manifolds being one holed surfaces and therefore topologically equivalent, the system is structurally stable. Perturbed systems that maintain the sequence of points in time in sequential order (though the distances between the points may be different), are generally structurally stable. The seductive possibility, one which Thom realized so successfully, was that in the language of distance-independent differential topological forms, there would exist a small, finite set of shapes categorically describing the causes and result parameter spaces from which, even without specific quantities, universal qualitative (including discontinuous) behavior could be described and sometimes predicted. A formal yet general categorical system within which a small set of universal discontinuous changes in global qualities could be rationalized seemed seductively applicable to the enlightenment transitions, spiritual transformations, appearing suddenly after months and years of disciplined spiritual practice. The Platonic view is that the universal forms of discontinuous change existed before they could be about anything specific, before the universe was born. In this era of nonlinear dynamics and dynamical system, common dynamical scenarios give accounts of smooth changes in causes leading to discontinuous 57 changes in results. The Nobel Prize winning solid-state physicist, Phillip Anderson, in a short but memorable piece in Science in the 1970 s said it tersely, More is different. This general, qualitative mathematical theory of discontinuous change models nicely the sudden delivery of the first and second second winds from gradually and continuously increasing running distances as well as the abrupt transmission of the guru s energy , shaktipat, from smoothly increasing amounts of chanting, meditation, guru service and Baba love. Gradually changing forces leading to sudden changes in an energy-equivalent result are found in most rigorous form in Rene Thom s singularity-bifurcation-catastrophe theory applied to rational mechanics and geometric optics. Here the existence of already solvable computational formalisms makes this more qualitative approach superfluous. On the other hand, the power of this both basic and applied mathematical orientation and method lies in its approach to the qualitative understanding of variously induced global and sudden changes in an energy-equivalent observable in biological, psychological, spiritual and social systems, fields of study in which little abstract and formal lawfulness presently exists. Oxford s Chris Zeeman s more accessible applications of Thom s deeper, more generally ramifying, almost mystical (due to their apparent wide generality) results, include approaches to real world problems such those above as well as the sudden change in excitable membrane potential accompanying the generation of the heart beat and neuronal discharge; mechanisms of opinion change, stock market crashes and, as noted above, the social science of riots. Whereas Thom s On Structural Stability and Morphogenesis can be said to be scriptural, Zeeman s Selected Papers, 1972-1977 constitute the Book of Common Prayer of this church. To review and place catastrophe and bifurcation theories in the context of the differential equations of mathematical physics and biology, causal determinism implied by differential equations conventionally requires continuity and smoothness in behavior to be credible. Our intuitions as well as the formal conditions for the generic differential equations of mathematics and physics imply that smoothly increasing amounts of cause lead to smoothly increasing results and yield at least local predictability: a little more leads to a little more, a little less leads to a little less. 58 This smoothness-dependent intuition of determinism breaks down in nonlinear equations as well as in a wide variety of the machines of experimental physics, from the sudden coherent lasing of previously incoherent light to the vortices and turbulence in suitably bounded rotating or flowing fluid. It took me a while for these topological still shots and movies of the head to become real. Nevertheless, the enrichment of intuition was well worth it. Of course one could smoothly increase the normal factor weight of a ship until it gradually sank, but if one moved the center of gravity splitting factor to an eccentric position in the ship in the parameter region of the bifurcation set, a sudden global capsize before weight-induced gradual sinking made sense. I could see it. Indeed, increasing normal factor tension in a prison population that was identified, not alienated, from the officials and mores of the penal institution, would increase social symptomotology gradually. However, increasing the splitting factor of social and institutional alienation results in the cataclysmic change of a riot with increasing tension. I could see it. Do we need to know the causal equations to anticipate instability and discontinuity in our lives? Zeeman making Thom s thoughts accessible to us plain mortals said no. He suggested that we could use several diagnostic phenomenological signs to make a good guess about whether we are near or within the bifurcation set. Depending upon the route that the causal variables take through the shadow of the bifurcation set, we may see very large fluctuations in our observable. The Dow or S P stock indices in the neighborhood of a sudden large change is often presaged, sometimes for weeks, by a marked increase in volatility, fluctuations between extreme values. Theorists call the statistical properties of a time series of values behaving this way anomalous variance. For several months, I did psychotherapy with a genuinely spiritual Catholic priest who only some Sundays served the Eucharist, the corporal presence of our Lord at Communion, wearing no trousers or underpants beneath his robes. A sudden change in a stock index in response to the shock of a terrorist attack takes much longer to settle down if a cataclysmically bigger change is in the neighborhood. This extension of the system s usual relaxation time is sometimes called critical slowing. In the bifurcation 59 regime of a schizophrenic break down, critical slowing can be both global and literal as the patient freezes in catatonic postures. In the neighborhood of the bifurcation set, big jumps in the stock index, up or down, are possible under almost the same surrounding conditions. This stock analyst-humbling phenomenon is called bimodality. Jimmy Swaggert s Saturdays were often spent watching the show at naked dance parlors and buying videos at the pornography shops of Metairie Highway near Schwegmann s Grocery outside New Orleans. Sundays found him on national television engaged with infectiously real, transcendent experiences in the public arena of the pulpit. The ecstatic congregation was deeply moved by his eloquent and tearful sermons about sin and salvation. Counter to most suspicions, this is less conscious fakery than the genuinely felt alternating states intrinsic to the bimodality in neighborhoods of spiritually unstable, born again transitions. Similarly, beginning with nearly the same initial values near the boundary of the bifurcation set, very similar motions lead to dramatically different results. This counter-intuitive behavior has been called divergence. At UCLA s Neuropsychiatric Institute, I interviewed a pair of lively teenage, genetically identical male twins raised by a loving family in Los Angeles s Valley. One was president of his high school class, a Sunday school nursery school volunteer and a Saturday soup server to the poor. The other twin sold pot and cocaine to support his habit. Deep and potentially dark mysteries live in these spiritual bifurcation sets. They leave us pondering child sexual abuse by deeply religious clergy and the massacre by mass suicide of a New Christian congregation by James Jones. We wonder why it is that fundamentalists (Jewish, Christian and Muslim) have the most ecstatic and direct validating experiences of God and do the most shooting and bombing of other people. In Burt Lancaster s portrayal of bifurcation set dweller, Elmer Gantry, charismatic believer and exploitative psychopath, were simultaneous and both credibly real. Another feature of the occupancy of this bifurcation region in control space is that the values producing a sudden jump that occur passing through going one way along the normal dimension usually jump back much further along when moving 60 the other way. Theorists call this characteristic sign of bifurcation land, hysteresis. It is generally known that sudden healing changes of the first born again experience can arrive magically fast whereas a run at it a second time, another born again state after the loss of the first one, comes, if at all, with much more effort and difficulty. Members of Alcoholic s Anonymous know that getting on the AA wagon the first time may be quick, joyful and easy. Getting back on this wagon after a fall is much more painfully slow and demanding, analogous to the Carmalite monk; St. John s lost faith engendered suffering of the Dark Night of the Soul. Viewing the instabilities and extremes near the boundary of a bifurcation brings inquiries and advice about why a rational compromise, some form of disciplined moderation, would not be more desirable. It turns out that in this parameter regime, the in-between state is intrinsically inaccessible. The pocket in the S shaped fold of the upper manifold cannot be attained, at least for very long, by varying the values of the two parameters. However, if one increases the number of controls, it might be possible to stabilize a small island in a parametric sea of instabilities. In an application of this strategy, Smith College and Harvard Professors James Callahan and Jerome Sashin used a geometric representation of the difficult to stabilize region of normal weight on a double cusp manifold representing the behaviors of patients with eating disorders with both anorexia nervosa and bulimia. They varied five controls to stabilize a very small result area representing normal eating by varying the control values for ability to verbalize feelings, to imagine solutions, to defend against anxiety with unconscious forgetting called repression, to make contact with realistic rationality and to modulate feelings with say exercise, meditative practice or psychopharmaceuticals. My experiences with the so-called borderline personality, with the tendency toward sudden and global personality change, from Sunday school teacher to Harlot in the space of a breath, has been both sexually exciting and personally ruinous for me in my life. I could feel the instabilities in these dwellers of the bifurcation pockets and my heart raced at the promise of mutually unconsidered impulses, the blurring of orificial identities, the experiments with sexual roles and modes and the incipiency of collapse into regressive mud play. Most of all, I anticipated that their 61 screaming orgasms, potentiated by a natural inclination to bifurcate, would be so messianic as to carry me along to a transcendentally erotic new place. Unfortunately, paranoid rages, bursts of promiscuity and hopeless inconsistency of goals and efforts dominated the remainder of our living days. Further Readings for TRANSMOGRIFICATIONS OF ENERGIES Religions in Four Dimensions; Existential, Aesthetic, Historical, Comparative, Walter Kaufman, Reader s Digest Press, 1976 Religious and Spiritual Groups in Modern America, Robert S. Ellwood, Prentice- Hall, Englewood Cliffs, 1973. The Evangelicals, What They Believe, Who They Are, Where They are Changing, David F. Wells and John D. Woodbridge, Abington Press, Nashville, 1975 A Nation of Believers, Martin Marty, Univ. Chicago Press, Chicago, 1976 Conversion: Christian and Non-Christian, Alfred C. Underwood, George Allen, Unwin Ltd., London, 1925 Eros and the Sacred, Paul Avis, SPCK, London, 1989 Mukteshwari, The Way of Muktananda, SYDA Foundation, Ganeshpuri, India, 1972 Godtalk, Travels in Spiritual America, Brad Gooch, Knopf, N.Y. 2002 The Beat of a Different Drum; The Life and Science of Richard Feynman, Jadish Mehra, Clarendon Press, Oxford, 1994 62 The Shape of Space, Jeffrey Weeks, Dekker, NY, 1985 The Topological Picture Book, George K. Francis, Springer-Verlag, NY 1988 Mathematical Models of Morphogenesis, Rene Thom, Wiley, NY 1983 Catastrophe Theory, Selected Papers, 1972-1977, Christopher Zeeman, Addison- Wesley Reading, MA 1977 63 CHAPTER 4: SENSUAL IN-BETWEEN ENTROPIES Since the early teens, I ve been beguiled by girls and women that have what might be regarded as exquisite sensibility, perhaps more precisely, exquisite self sensibility. These inhabitants of the near transformational neighborhoods of bifurcation sets, are grandly responsive receivers of emotionally significant information arising from their insides and the world. They are the canaries in the deep mines of human experience. Not the usual one lively-eye, one sober-eye, binocular difference of most of us, both their eyes sparkle, their feeling antennae await a happening and each is regarded as new. I spot these brains in a crowd within minutes and am compulsively drawn to know them better, to become part of them, to vicariously experience and serve them. They seem to have little inhibitory control of even weak sensory information on its way to their strong, global feelings. Near ecstasy and excruciating pain await. They feel their anticipations with their body, down to their painted toes. Their receptivity brings me lower abdominal warmth in remembrance. At sixteen in my Dad-purchased second hand Ford convertible, I was parked with my new girl friend on Sarasota s Lido Beach, hearing and seeing dark shadows of the Gulf of Mexico s waves hit white sand against the night sky. I took her flat party shoes off to message her feet. When I kissed her left foot and sucked gently on her toes, she gasped and became faint. She told me that a strong electric shock 64 had run up her back. The passionate licking and sucking of her musky, moist, pink labial lips brought what she said were explosions of pink and blue lights. She had several ecstatic multicolored crises in a row, sometimes without pause. She begged me to stop. I was as pleased as a sexually inexperienced young man in love could have possibly been. Bowled over by what seemed to be the uniquely sensual properties of her brain, I began to wonder if her sensitivity was more general when she asked me to keep the windows open or top down, even in the cool of a Florida January, because the exhaust smell in my car was suffocating, though I couldn t smell it. The car had been checked and registered negative for abnormal fumes and leaks by Anderson Ford. She asked me never to wear any kind of after-shave lotion because it choked her. Jazz music on the car radio had to be played quietly. On-coming headlights gave her headaches. Her mother, sometimes desperate, called me for help during her daughter s episodes of premenstrual emotionality and early menstrual discomfort. During these times, we would drive together for hours as she explained the many different colors of lower abdominal pain and how this particular kind yawned darkly before it cramped. It was more purple then any of the others. I tried to explain what I intuited but didn t understand to her mother about the her gift of unfiltered information coming through her nerve endings, her ever readiness for surprise and her brain s unwillingness or inability dampen or ignore what it didn t like. She saw things in art, heard things in music that I only saw, and heard after her telling. She had tearful smiles listening to Debussy s Afternoon of a Fawn. The flatted fifths of Charley Parker and the laconic riffs of Miles Davis made her anxious. Since then and for all these many years, the same sensually susceptible brains showed up in my life carrying a variety of woman s names and I never lost my fascination for them. I learned that their heightened awareness extended to the spiritual realm with unusually strong metaphysical inclinations and readiness for transcendent experience. They seemed to live closer to the direct experience of God. Attending Assembly of God and other Pentecostal midweek service, I found that praying in tongues and dying in the Lord came as easily and dramatically to them as their orgasmic experiences. At the same time, distant bad news could 65 suddenly become immediate and loud in a litany of threatening thoughts that hooked and persisted through sleepless nights. They taught me to see genuinely the delicate beauty of flowers and to know in my stomach that some forms of sadness felt hollow like homesickness. In medical school I found that that many of them were the clinic patients, women and men, with unusual sensitivity to chemical odors, think Gulf War Syndrome, and fibromyalgia, which I heard as unusually sensitive awareness of normal sensory information about posture and position coming in from the bones and muscles of the body but experienced as pain. This background of odorific and somatic information is usually repressed from consciousness by the rest of us. Their medical histories contained detailed accounts about how each of their organs was feeling at the time, sensations that the textbooks say we are incapable of consciously knowing. Internists and psychiatrists often dismissed their accounts as signs of somatoform disorder, psychological conflicts expressed in the language of body feelings. In the psychophysiological laboratory, I learned these brains tended not to habituate. Each of a series of noises continued to elicit startle responses that could be picked up in brain wave recordings or in the running record of a psychophysiological, lie detector, machine. In psychoanalytic training, I learned that these brains remembered their dreams more richly than the rest of us and that treatment with over twice a week analytic sessions was potentially dangerous. The psychoanalytical situation-engendered fantasies and feelings could get too strong and exaggerated, too real. Professor Iris Bell of University of Arizona s Alternative Medicine Research Program has, studying these brains, found slower reaction times, defects in divided attention psychological tasks, longer latencies to the first dream, and unusual patterns of odor reception called cacosmia or dysosmia. Using brain wave and cardiac interbeat interval data as markers, Bell reports the increase in the amount of alpha awake brain waves and decreases in cardiac interbeat interval variation associated with increasing sensitivity, rather than habituation, with repeated exposure to a variety of smells over time. In spite of these brains usually requiring what is known as high maintenance 66 in relationships, I continue to be erotically spellbound, in love with them in all their forms. Questions about how to think about these exquisitely sensitive women, Bell s Syndrome exists but is rarer in men, continue to drive aspects of my scientific research. It has been variegated quest, which began with trying to find a general conceptual framework that would help my understanding of this unique capacity to be aware and process large amounts of internal and external information that escape the awareness of most of us. As one might guess, this search led to fundamental ideas about information and its inverse, the entropy indicating the amount of information transport capacity, with respect to their characterization, quantification and measurement. To get to the end from close to the beginning, we recall that it was Claude Shannon and his followers who both mathematically proved and experimentally verified that a receiver must have more entropy, less already fixed knowledge and more wondering, than the sending source, in order for the message to be sensitively and reliably received and encoded. Sensibility seems to have something to do with the readiness for information transmission afforded by the brain s high entropy, minimal fixed information states, in its resting dynamics. Their remarkable receptivity derives from a baseline brain state like the formless emptiness of the bodhisattva s no form, no sound, no feelings, no perceptions, no consciousness of transcendent Tibetan Buddhism as described in the Heart Sutra of The Dalai Lama. In Chinese Medicine, xu, meaning emptiness, contrasts with shi, the word for fullness, both of these complementary opposites having multiple specific meanings. Most metaphysically relevant is the characterization of xu as the emptiness of the deepest reality of being and the highest state of human spirituality. Like that aspect of Lao-Tsu s ineffable Dao, The Way that is empty, xu indicates a mind devoid of desire, being lucid and serene. In the context of dynamical form, xu shares the structureless, non-imagery of maximal entropy systems and shi the lower dynamical entropy of fixations on form, desires and beliefs. Shigehisa Kuriyama s The Expressiveness of the Body, elucidating historical and conceptual divergences of Greek and Chinese Medicine, notes that xu was the supreme end of self-cultivation 67 and the secret to vigor and longevity. to achieve fullness of life one had to abide in empty nothingness, xuwu. In Lao-Tsu s Tao-Te-Ching, the Way is gained by daily loss, loss upon loss until by letting go, it all gets done William James, in The Principles of Psychology, tried to capture the subjective dynamics of the brain as an on-going preconscious stream of statistical wave processes. He envisioned autonomously increasing and decreasing coherence emerging spontaneously and from sensorial evoked thoughts via the confluence and disaggregation of statistical wave processes, wave crests and hollows that achieved temporary statistical stability by feelings of relation, consubstantial with our feelings or thoughts of the terms between which they (only temporarily) obtain. In the more receptive, higher entropy brain systems, fleeting forms change without continuity, jumping from one to another with magical rapidity, but being not already engaged, are available for use for self-organized structure evoked by new information. Without ordered, low entropy, preconceived ideational defects in the resting random brain field, the full attentional statistical machine is available to sensitively respond in self-organized, quasi-stable states of cognitive, conative and affective integration. They then disappear; this brain relaxes quickly, ready for new experience. This contrasts with those brains that are dominated by islands of order composed of personality fixations and rigid belief systems, low entropy defects, which interfere with sensorially responsive self-organization. 68 As in most systems of authoritarian premises, precise definitions and what appears to be strict logical continuity, as in discussions of Torah among Orthodox Jews and Canon Law by Catholic bishops, classical equilibrium thermodynamic ideas that are borrowed for use out of the context of their origins, risk the calumny of their physicist practitioners. We have probably already earned more than a little distain from those quarters with our use of none-minimal or none-maximal but inbetween entropies. This phrase cannot be found in the literature of physics or, as such, in the writings of communication and information theory. In the modern theory of nonlinear motion called dynamical systems, in-between entropies can be generated by chaotic systems that are non-uniform in their rates of separation of near by points and convergence of far-away points in dynamics that have been previously described as nonuniformly hyperbolic. The energies and their transformations that fuel and support karmic escape from the personality fixations of samsara and accession to unmanifest Divine Life can occur without the loss of the richness and multiplicity of apparent reality. Big internal changes without external sign can occur in the arrangements of the ineffable and mysterious formless silence within which we have associated with states of high, but not maximal, in-between entropy. For examples, the Indian Saint, Sri Aurobindo, in the early 20 th Century, the Catholic metaphysical anthropologist, Teilhard de Chardin and currently American pandits (spiritual seekers with intellectual and academic inclinations) such as Ken Wilber, among many others over the millennia, direct us toward the goal of Nirvanically changeless emptiness without the properties of space or time. At the same time, we maintain an astute and effective yet distantiated appreciation for existential realities. The non-dual enlightenment of Integral Being or Yoga involves realizing emptiness through the world of form. There is a way of thinking about and even computing that nothing within and its changes. As John R. Pierce suggested in the 1981 revision of his book that made the theorems of the father of communication theory, Claude Shannon, so accessible, if we want to understand information-related entropies, it is perhaps best to clear our minds of any (physical) ideas associated with the entropy of physics. 69 Nonetheless, historical comments about what the classical thermodynamic term, entropy, is and is not about are in order. We recall that Richard Feynmann, in his well-known 1962 class notes, Lectures on Physics, said that the subject of thermodynamics is the study of relationships among the heat, energetic and organizational properties of materials, without knowing their internal structure. Historically, the relational formalisms of equilibrium thermodynamics emerged before our knowledge of the internal structure of matter. For examples, the pressure in an insulated container of gas is due to molecular bombardment of the container walls, which increases with heat or compression of its volume. Compression of its volume increases its temperature and expansion of its volume leads to cooling. Note that these relationships hold without specifying the constituents and the specifics of a particular gas or solid. In his lectures, Feynman s intuitively accessible examples of reversible thermodynamic properties are reminiscent of his on camera performance at the Senatorial hearings about the Challenger disaster. Recall that he dropped an O-ring in a glass of iced water demonstrating cold-induced rigidification of the rubber ring, which he postulated to be the cause of the fuel leak and resulting explosion. In his Lectures, he said that if one holds a rubber band between ones lips as a crude thermometer, stretching a rubber band heats up the lips and relaxing it cools them. Working the same system in reverse, and equilibrium thermodynamic systems are classically reversible, we find that heating a rubber band makes it contract. These changes involve complicated alterations in the internal arrangements of the polymeric strands of rubber, their structural properties, the details of which, for the purpose of global thermodynamic characterization, need not be known. The relationships between physical state, energy and temperature in this material were predictable from thermodynamic laws even without specific knowledge of the complex internal structure and physical dynamics of rubber. Thermodynamic theory, which makes deep conceptual connections between quantitatively measurable primitives such as heat, hotness and work and the invisible in the form of derived ideas such as energy and entropy, yielded an 70 enormously rich and logically consistent intellectual framework from within which to characterize macroscopic behavior composed of unknown molecular mechanisms. Ideas about entropy grew out of William Thomson's (a.k.a Lord Kelvin) thermodynamic laws about energy conservation and its allowable transformations. Later Clausius decomposed the energy into that which was available for mechanical work, called work-content, and that which was not, called transformation content. He referred to the transformation content, a reflection of what changes in the internal order properties of the system that occurred as a concomitant of changes in energy and heat, as the entropy. Rudolph Clausius added the word entropy as a thermodynamic property to the conceptual armamentarium of theoretical physics in about 1865. This followed the earlier work of the French engineer, Nicolas Leonard Sadi Carnot, who was trying to develop a theoretical framework within which efficiencies in heatgenerating engines might be understood. It implicated positive, 0, changes, d, in entropy, S, with changes in time, t, i.e. dS dt 0, entropy is increasing in time, as a concomitant of the inevitable mechanical inefficiencies in an energy driven system. The resulting losses in the form of wasted energy show up as increases in molecular motion, which could be estimated from the increases in heat. Wasted energy dissipated as heat increases the amount of random motion and volume occupied by the surrounding molecules in physical processes involving heat, pressure, vaporization, condensation and work; all elements of that era s dominant physical metaphor, the steam engine. The highly developed, multifaceted, often quite abstract formal characteristics of the inferred property, entropy, prevent glib definitions and generalizations. In the context of Kelvin-Clausius theory, the entropy of a closed system will remain the same if it is isolated from any matter or energy exchanges with the environment. If heating a system such that the change, d, in heat, Q, is positive, i.e. dQ 0, it experiences a rearrangement in its microstructural motions, but the temperature is left unchanged. The (inferred) entropy, S, increases (i.e., dS 0) as the ratio of change in added heat, dQ, over the unchanging, absolute 71 temperature, T. Thus, one definition of entropy change is dS dQ T. In classical contexts, dS is expressed in units of heat called Joules per degree of absolute temperature in units Kelvin, the temperature in Centigrade plus 273.16 o . The bestknown physical image involves the heat-energy transfer to and from heat baths called reservoirs as intermediate actions of the work of the heat driven engine executing what has come to be known as the Carnot Cycle. The same formulation emerges in this more concrete context: the heat, Q, transfer, dQ, at a particular absolute temperature, T, dQ T, has been used to define an entropy change, dS dQ T related to some not-need-to-know-about specific alteration(s) in a system s internal physical properties. If one allows some loose thinking about heat-induced increases in the statistical randomness of molecular motion in the above reservoir that is associated with the loss of useable energy, the positive entropy change, dS 0, is vaguely relatable to the kinds of information entropies to be discussed below. If a gas trapped in an insulated, physically isolated, closed cylinder is allowed to expand infinitely slowly, reversibly, called adiabatically, pushing up the piston that closed off its end, the gas will become cooler, energy having been expended doing the work of lifting the piston. Defined as an isolated system (of course no where in the real, nonlaboratory, world can this condition of absent exchanges of energy or matter with the environment be found), it is a reversible process, because returning the energy of the work by, again, infinitely slowly pushing down on the piston and compressing the gas to its original volume, returns it to its former temperature-defined energy state. In this historically prominent thought-toy of physics, there has been a reversible change in energy but no changes in the entropy, dS 0. The gas s heat, temperature (and energy and volume) can be completely restored in this metaphysically mythic classical thermodynmical tale of an entropy-conserving, reversible process. While fixed entropy and independence of the specific path is the case for the above noted abstract reversible cycle, in the real, irreversible orbits of most physical and all biological systems, entropy increases, dS 0. Walter Nernst s 1907 heat theorem yields a zero point from which to determine a difference measure in the 72 postulated, real physical world of ever-increasing entropy. He showed that at an absolute temperature of zero, entropy is zero. We can illustrate an approach to this singular state by placing a heated metal rod in ice water which would result in a decrease in the entropy of the rod s molecular motions by dQ T 1 0, the cooling reducing the complexity of molecular motion in the metal bar and an increase in the entropy of the water by dQ T 2 0 indicating an increase in the amount and complexity of the surrounding water s molecular motions. Of course the heat moves from metal rod to the water as T 1 T 2 making dQ 0 positive and the entropy change, dS dQ T 2 - dQ T 1 , also positive. In another simple example, producing friction by rubbing a surface generates heat, dQ 0, at a temperature T. This induces a positive change in entropy, dQ T 0, in the form of increasing amount and complexity of the patterns of molecular motion in the air surrounding the rubbed surface. Using another related and well-known thermodynamic thought toy, the original isolated, insulated body of gas in the cylinder is partitioned by a membrane into two chambers, one containing all the gas with its temperature, pressure and ability to do mechanical work and the other a vacuum without these properties. This equilibrium state is changed into another equilibrium state by suddenly removing the membrane, filling both chambers with gas and, while increasing its entropy irreversibly, dS 0, removes at least some of the gas s ability to do piston raising work. In the context of classical thermodynamics, it is in this way that irreversibility can be defined by its associated increase in entropy. Though there has been no change in total energy in this insulated closed system, an increase in entropy means a decrease of the energy available for work. The increased disorder in the gas is associated with the loss of ability to convert heat, thermal energy, into mechanical energy. Historically important and still available elementary texts by Enrico Fermi (1936), Mark Zemansky (1957) and Herbert Callen (1985), among many others, explicate clearly the formal, but far from biologically relevant, classical theory of the physical entropy of closed equilibrium thermodynamic systems. Growing in part out of the formal thermodynamics of physics, statistical mechanics offers yet another set of intuitions about the not-necessarily-known 73 molecular details associated with changes in entropy. These ideas are closer to applicability in problems of making measures on the behavior of biological systems. Very generally, in the statistical mechanical context, an increase in entropy means a decrease in the order, which can be a quantitative observable reflecting a decrease in predictability and or knowledge about the system. For example, we can locate the molecules of the gas more accurately when they are all on one side of the membrane-partitioned cylinder compared with the situation when the membrane is suddenly removed. This accompanying increase in ambiguity and decrease in knowledge in locating a set of gas particles reflects a statistical mechanical view of increases in entropy. Can anything general be said about the bounds on an increase in entropy? The statistical developments of the Yale mathematical physicist, Josiah Willard Gibbs (about 1875), consonant with the logical arguments of the Greek mathematician, Constantin Caratheodory (about 1910), conclude that the entropy increase goes to the maximum allowed by the constraints imposed by or upon the system. A change in likelihood as a probability is a characteristic way to quantify the entropy change, reflecting an alteration in knowledge or its reciprocal complement, uncertainty. The system s entropic uncertainty said more colloquially, and relevant to the Bell Syndrome s women of my life, is its capacity for surprise. A statistical mechanical approach to the total entropy of a bounded set of molecules in motion involves summing this property across all the participating molecules. We let N be the number of particles involved. As a problem in Newtonian mechanics, each of the N particles is represented in 6N dimensional phase space. That means that each point represents one of the N molecules in the three dimensions of location space plus three dimensions of motion space as its velocity, more specifically, the product of mass times velocity called momentum. This adds up to 6 dimensions of measurement. This so called phase space reconstruction of the molecules of a gas as individual particles are a daunting task, though fast computers and new algorithms are making computations from first principles more generally attainable. Those based on the first principles of short-range repulsion and long-range weak attraction among particles and the bumper-car collision 74 dynamics between them can now be implemented if the system of particles being simulated is sufficiently small and the computer simulation is for very short times. To transform the entropy into something more statistical and global, we return to the theoretical work of Ludwig Boltzmann whose formalism was used previously to quantitate pathological developmental simplification. He assumed that given a set of constraints, say the closed volume, V, of a box, B, of a fixed size, V (B), the orbit of each particle would eventually explore all the space in the box that was available to it. Boltzmann s entropy became a constraint dependent, n- dimensional volume measure, with the assumption that the entropy, S, equals the logarithm of this volume measure, S ln V (B). To calculate a value for the entropy, compute the volume of the molecular motion as determined by the invariant constraints of the system, such as the volume, temperature, pressure and or its total number of molecules. We may partition, discretize, the volume up to some limit of resolution such that it is divided into small boxes, each containing the representation of a particular state. Making the same assumptions of closed system, equilibrium thermodynamics, such a system is completely isolated from outside sources of matter and energy, it spends equal time in each of its available states. In such a case, the characteristic occupancy time of any state is inverse to the number of states available, e.g. 1 , and the system s entropy is maximal for that set of states. Under these conditions, S k ln( ), where the k term is the Boltzmann constant that contributes to the numeric units of entropy, as above, in Joules of heat degrees Kelvin of the temperature. If the system is in contact with a heat bath, but cannot exchange matter with its environment, it is called diathermally isolated. The distribution of times spent in the available states of a classical diathermally isolated system of gas molecules can be represented by what is called a Boltzmann distribution of probabilities of state occupancies, (as a function of their energy level, more measurably, their responsiveness, susceptibility, to heat). Here the characteristic time of the system spent in each state varies as the particular state s probability. 75 Leaving the framework of physical thermodynamic entropies entirely, the entropy of information was introduced in the context of communication engineering in electrical and electronic devices. The metaphorical machine for the current age of entropy, analogous to the role of heat and steam engines in classical thermodynamics, is the computer. Energy in this context is a relatively trivial property. Ammeters and other monitors of load are unable to discriminate between a computer actively engaged in encoding and computation or one simply maintaining its dynamic memory while resting in computational readiness. This situation is very analogous to the results of early work discussed previously on the metabolic rates and sources of the whole brain s energy, oxygen and glucose metabolism, by National Institutes of Mental Heath s Seymore Kety and Louis Sokoloff and the State of Illinois Thudicum Laboratory s Harold Himwich. Using whole head arterial-venous, energy-in, energy-out, differences, they could not demonstrate differences in rates of whole brain metabolism between states in which the human subjects were engaged in solving mathematical problems or deeply sleep. In today s brain imaging research, using a variety of physical reflections of the brain s metabolic activity, it is the differences in regional distributions of metabolic activity that are relatable to subjective and behavioral states, not differences in total amount of energy expended. In graphically coded representations of the regional metabolism of the brain in action, one or another or many areas light up and others grow dark in correlation with changes in thinking, feeling and action. The entropy first developed by Claude Shannon was formalized for use in 1948 in what was then called communication theory and now information theory. It represented a measure of the ambiguity and uncertainty that had the potential for being resolved by new knowledge. In this context, entropy and information were obviously complementary descriptors. A message that informs us about which of ten possibilities should be chosen contains less information than one that informs us about the proper choice to be made from among a thousand possibilities. The entropy of communication theory is a measure that is computed on uncertainty. The information reception capacity of a system is dependent upon the amount of 76 uncertainty in the receiver that pre-existed the receipt of the message. In the binary coding scheme of digital electronic operations, the unit of information is the bit, a choice made between 0 or 1 in the resolution of a two state ambiguity at each place of some power of two number of places. Our relatively common computers these days have 32 or 64 bit processors. If these 0,1 choices are made in a random sequence in which each step is independent of the previous one, the sequential probabilities, are multiplicative: e.g. the probability of getting two 1 s (heads in a fair coin) in a row are the product of each 0.5 probability: 1 0.5 2 0.5 1 2 0.25. Using the common base ten system of logarithms to demonstrate the algebraic fact that multiplicative probabilities are logarithmically additive (and ignoring the minus sign that comes with making logarithms of the decimal fractions of probability), we notice that log 10 (0.5) 0.693147 and log 10 (0.25) 1.386294 and that 0.693147 0.693147 1.386294. The dot-dash choices of Morse code machines, the go, no-go gates of transistors, the open versus closed ion channel-mediated neuronal membrane discharge and the left, right spins of the single electrons of today s quantum computers lead naturally to an information encoding of multiplicative sequences as the sum of logarithms in base (equal to the number of available states) two, each 0.5 choice called, log 2 (0.5) 1, a bit. Shannon s 1938 master s thesis mapped George Boole s algebraic scheme for doing yes-no, either-or computation onto current switching devices such that circuit closed was true and circuit open was false. Using Boole s laws such as Not(A and B) always equals (Not A) or (Not B) led to schemes for circuit routing through electronic gates which also serve for information storage in gadgets ranging from cell phone directories to computer hard disks. Following Claude Shannon, each logarithmically additive entropy term is expressed as the sums, of its probability, , times the probability s logarithm, ( log 2 ) ( in base two. A logarithm is an exponent of its relevant base such that, for example, the logarithm, base two, of 2 2 2, 2 3 , 3 and 3 bits can encode eight binary (0,1) numbers: (000, 001, 010,011,100,101,110, and 111). Shannon used a hill-like, called convex, entropy function S ( ) - ( ln ( )). The amount of 77 information required to gain knowledge of an event is dependent upon the probability of its occurrence. log 2 (0.5) 1 is the maximal entropy when modeling the equilibrium entropy of an independent random 0,1, (heads or tails) series of informational states as might result from flipping a fair coin a large number of times. This value would be maximal when the coin was fair, (heads, tails) 0.5, and the entropy would be 2(number of allowed states) 0.5(probability of occupying each state) log 10 (0.5) 0.693147...or in bits, log 2 (0.5) 1. More generally, if system s behavior is distributed equally among its possible states, the Shannon entropy is maximal and equal to the logarithm of the number of defined states, for example, log 2 (2) 1. Shannon s classical equation about information content says the amount of information, I - log 2 , measured in bits. The minus sign in this reciprocal relation indicates that the information content of data, I, goes up as the probability of occurrence of the observed data, , goes down. Since soon we will be talking about brains and their various styles of information encoded content as well as its transmission, we note the other famous Shannon theorem dealing with limits on the channel capacity, C, for information transport is C Wlog 2 (1 S N) where W is bandwidth, the range of frequencies available for information transport, S is the strength of the signal and N is the strength of the noise. Recall that the log 2 (1) 0 so only the signal-to-noise ratio, S N contributes to the value of the product of the multiplication by bandwidth, W. Transparent clinical examples come from studies of the perceptual and cognitive decline in normal geriatric patients in which the range of aural frequencies (W) heard without augmentation decreases with age as does the frequency range (W) observed in their resting brain waves. The inattentiveness of the obsessively worried ruminator can be used as an example of brain channel capacity being reduced by the amount of on going head noise, an increase N, which, of course, reduces the value of S N and therefore C. Measures of the informational complexity of systems in motion, in contrast with the information content of a static equilibrium state, are of dynamical entropy. Dynamical entropy is often called H, in contrast with thermodynamic and or informational entropy, S. One can begin with a representational image of the 78 location, velocity and directional tendency of every point generated by a dynamical system by an arrow on the surface of action, the manifold, of a dynamical system. This field of arrows indicating directional and strength of motional tendencies is called a vector field. A vector represents its location at the base of the arrow, its velocity by the length of the arrow (called the modulus) and the direction of the motion by the direction of the arrow. If we regard all moduli as equal to one, every vector on the surface has the same length. The resulting graphs are called direction fields. Looking at a stop-action photograph of any point on this surface, its associated vector informs about where the system would take it over the next unit of time. The whole surface can be marked by initial points, which the dynamical systems move as they generate patterns of orbits of moving arrows in time. The following two brain and behavioral experimental circumstances make this depiction and its relevance to dynamical entropy more concrete. We review in more detail the concrete and visualizable findings from experiments requiring the quantification of characteristic patterns of motion in animals and man. They can be embedded into a similar surface-like setting, which might be called a behavioral manifold. For examples, my students from the past, Martin Paulus and Mark Geyer, now Professors at the Medical School of the La Jolla branch of the University of California studied the effects of psychotropic drugs on the patterns made on the floor by rats of various genetic strains while they wandered about, in exploratory behavior in a bounded space. Monitored by a video camera placed above the ceiling less cages, the patterns made by the paths taken by the rats over time were reconstructed as vectorial orbits on a behavioral manifold. This manifold was then repeatedly partitioned, covered with, from just a few large, in graded progression, to many smaller boxes, each partition composed of rectangular lattices of a particular size. Units of time were also partitioned into range of units from larger to smaller durations of observation. Differences in the rat s genetic strain as well as injections of stimulants, antidepressants or antipsychotic drugs resulted in characteristic and discriminable path geometries mapped onto the behavioral manifold as orbital patterns. Each path was encoded as a sequence of size-dependent numbered boxes that were entered and occupied 79 or left. The new information being generated by the pattern of spatial orbits took the form of sequences of numbers or symbols representing the sequence of labeled boxes. The complexity of these numeric or symbol sequences was then quantified in a variety of ways including the use of two fundamental measures of dynamical entropy. One measure reflects how many new, previously unexplored boxes were entered by the rat per unit of time. This rate represents a percent of the possible. The second measure reflects how much of the time did the rat in each box visited as a distribution of the probable. The rate of expansion of the possible and the relative time in occupancy of these possibles, the probables, form the bases for the computation of these two kinds of entropies. For example, the work of Paulus and Geyer showed that the administration of a very small amount of stimulant drug, compared with a salt water control, led to an increase in the first measure of the number of new, previously unexplored, boxes entered per unit time. With respect to the second measure, the stimulant drug augmented exploratory activity was also more uniformly distributed over the possible boxes, making for more uniform probability. Administration of higher doses of stimulant drugs, at a critical dose, led suddenly to more spatially and temporally restricted and stereotyped patterns of motion of the rats, compulsive circling alternating with frozen sniffing. Both contributed to a decrease in the possible and nonuniformity in the distribution of the probabilities. In man, low doses of amphetamine tend to increase the rate and creativity of thought streams and high doses generate fixed ideas and paranoid delusions. In the statistical approach to nonlinear dynamical systems, timedependent generation of new possibilities is called topological entropy, H T and the entropy associated with the distribution of probabilities is called the metric entropy, H M. These kinds of entropies have also been used to quantitate characteristic patterns of in human behavior as well. We have previously mentioned these measures as used in human experiments by Karen Selz, a Research Professor of Psychiatry at Emory University in Atlanta. Recall that she devised a set of experiments leading to unobtrusive measures made on human subjects by asking them to remove, as many as they 80 could, the dots in a lattice, one by one, from the computer screen, by clicking on each point with a mouse. In some experiments, after removal, the dot reappeared in fifty milliseconds, in the fast return condition , or after one-second delay in the slow return condition. Unbeknown to the subject, the path made by the motions of their mouse on the computer screen over time while removing dots were reconstructed as a path on a fine to coarse grained box-partitioned behavioral manifold. Entropic indices of the rate of expansion of the possible, number of new boxes entered, reflecting H T , and the relative occupancy of the partition of the possible, reflecting H M , the distribution of probabilities with respect to the boxes, could then be computed. For examples, Selz found that the spatial and temporal patterns of computer mouse motions made in this dot search and destroy task correlated highly with the subjects age, sex and personality types as defined by profiles from the Minnesota Multiphasic Personality Inventory, MMPI, and the Structured Clinical Interview, SCI, associated with the standard Diagnostic and Statistical Manual, DSM IV. She found that subjects whose personalities were like my high self-sensibility girlfriends demonstrated high indices of both H T and H M . The actions of nonintegrable nonlinear differential equations, not solvable by the usual techniques of integration, can be transformed into graphical images by plotting their orbits in abstract phase spaces with the three physically measurable coordinates of location x (or some other temporarily fixed value), velocity y (the rate of change in the location or measured value) and z acceleration (the rate of change of the rate of change in location or value) in x, y, z space. Graphical representations of the system in action in phase space can serve in place of analytic solutions to the equations. This idea was one of Henri Poincare s major contributions to mathematics and physics, and has come to be the centerpiece of the qualitative theory of differential equations. The often point-to-point unpredictable but globally and qualitatively characteristic geometric shapes of the orbital patterns in abstract phase space are the objects of interest. There are visualizable representations such as cycles as circles and statistical measures made on these objects such as the H T and H M entropies and the in-betweenness (neither maximal nor minimal) of their difference. 81 A global statistical context for these qualitative differential systems was inspired by the Russian mathematician, Andrei Nikolaevic Kolmogorov. In his now famous foundational talk about the stability of classical mechanical systems in the final session of the 1954 International Congress of Mathematics, he gave public birth to, among other ideas, what has come to be called the ergodic or statistical, measure theory of dynamical systems. Here, ergodic means the existence of an invariant statistical measure on the phase space attractor of the system that can be obtained using a variety of equivalent methods and beginning the count at any of its points. Two phase space objects generated by a dynamical system may look different in phase space but their statistical measures may all be the same, i.e. invariant. These qualitative orbits in a box-partitioned space can be visualized as Paulus and Geyer s rats exploring a space and Selz s path sequences of computer screen dot quenches produced by clicking on them with a computer mouse. A precursor of Kolmogorov s ergodicity was the earlier ergodicity of Ludwig Boltzmann. This describes a suitably partitioned system such that equivalent values come from quantitating the behavior of one single orbit exploring the space of the lattice of boxes over very long times time as those obtained from a single aggregate photograph of all orbits run from all possible starting places simultaneously. The ergodicity of gas-like molecular randomness implicates systems being in one of only two possible equilibrium statistical states: measure zero (at most occupying a single point, zero, minimal entropy) or its complement, full measure one (occupying all available space in a state of maximal entropy). Joseph Goldstein, a well known teacher of meditation, giving advice recorded in Daniel Goleman s 1977 book on the subject said that all methods of nirvana directed meditation amounted to simple mathematics all systems aiming for One or Zero union with God or emptiness. In place of the maximal or minimal values for the H T and H M entropies of these states of transcendence, we in the world of samsara are stuck in states of inbetween entropy which invariant statistical measures of on phase space shapes help quantify. To generalize measures made on rat and computer mouse paths to more general and idealized systems, after plotting an orbital path in a phase space, we 82 may partition the space of values taken by the journey of the orbital action generated by the equation over time with rectangular grids of increasing fineness. The result is an equipartition of phase space such that there is at most one orbital point in each rectangle of the grid, with, of course, many rectangles in the finer grids being empty. This final grid partition is called a generating partition. The proportion of the available boxes of the partition occupied by points is called its area or volume measure. This measure has been given a variety of names including Liouville, Haar and Lesbegue measures. If every box is occupied, it has measure one. If at most one box, it has measure zero. If we allow partitions to be non-uniform and or not fine enough to be generating and apply probability weightings for how many points fall into each particular box of the grid, the method is called the Sinai-Ruelle-Bowen or SRB measure after Kolmogorov s students and followers, the Russian, Ya Sinai, the Belgian Frenchmen, David Ruelle and the American, Rufus Bowen. Similar to the SRB measure, the distribution of box occupancy probabilities multiplied by their logarithms and summed over all cells of the partition yields a statistical measure that is close to the informational entropy of Claude Shannon as described above. It is called the metric entropy ( H M - ( i ln( i )), where H means entropy and i is the proportion of the total observations that occupy cell i of the phase space or state space partition. It was the above noted Russian father of modern dynamical systems, Kolmogorov, who in 1956 proved that the Shannon metric entropy is a quantifiable invariant of systems even in very complicated motion. Stanford University's Donald Ornstein won a Field s Medal (the under forty year old mathematician s Nobel Prize) for his late 1960 s work proving that the Shannon metric entropy, H M , was the only invariant for a large class of appropriately defined, expansive (near by points separating in time) dynamical systems. Recall that we refer to metric entropy reflecting the relative occupancy as probability among the possible boxes (or states) as H M . H M is maximal when the percentage occupancy of all occupied boxes is uniform. IBM s Roy Adler in New York and Brian Marcus in California, Hebrew University s Benjamin Weiss, Warwick University s English mathematicians, William Parry, Peter Walters, Mark Pollicott and others developed and proved the relevance 83 of a related measure of the rapidity of dynamical expansion, the generation of new information seen as the rate of entering new boxes of the partition, a logarithmic rate of expansion of the possible. Counting the number of previously unoccupied squares entered by the dynamical systems orbit per unit time over the generating partition, for instance, yields an estimate of entropy that, as in the rat and computer mouse examples above, is called the topological entropy, H T . H T , is about how much new information is being generated by the system per unit time. Theorems have been proven that H T is a maximal estimate of the global dynamical entropy with H M proven to be a minimum estimate. Monitoring single or aggregate molecular motion in a system with the maximum randomness of a space filling gas, we find that, on the average, every box is entered and occupied uniformly such that H T H M or said another way, H T H M 0. As evidenced by the above described experiments in rats and people, the same entropic relations (but usually not with maximal or minimal measure) can be found in biological systems. We have previously described the manifold geometry of a generic (typical, idealized) nonlinear dynamical systems as hyperbolic defined by the presence of simultaneous but decomposable components of the motion including the straight ahead and round and round actions on the center manifold, the new possibility generating, expansive, away from the center manifold motions along unstable manifolds and the back to the center manifold, contracting motions, along the stable manifolds. Uniform expansive and contractive influences in the flow leads to mixing of the order of the initial sequence of the values inscribed by the orbits. This results in maximization of the entropies and satisfaction of a concomitant of the uniformly hyperbolic condition, H T H M 0. These clean and mathematically proven findings do not hold for the quasimess that is human neuropsychobiology. Enmeshed as most of us are in only intermittently random or nonuniformly hyperbolic systems with the in-between entropies of the only apparently real world of maya, H T H M 0. How the H T H M 0 of uniform hyperbolicity fails, H T H M 0, and along with it the dispassionate detachment of entropic emptiness and fullness, becomes a problem not unrelated to the existence and quantitative qualities of personality styles and their dissolution 84 with return toward but not reaching the maximally entropic openness, flexibility and na ve credulousness of the in Jesus and Holy Ghost occupying transcendent dynamical states. We are all stuck somewhere in the range of measures indicating in-between entropies. Further Readings for Sensual In-Between Entropies Ecstasy in Secular and Religious Experience, Marghanita Laski, Tarcher, Los Angeles, 1961. The Role of Neural Plasticity in Chemical Intolerance, Barbara A. Sorg and Iris R. Bell, Ann. N.Y. Acad. Sci. Vol. 933, 2001 The neuropsychiatric and somatic characteristics of young adults with and without self-reported chemical odor intolerance and chemical sensitivity, I.D. Bell, C.S. Miller, G.E. Schwartz, Arch. Environ. Health 51:9-21, 1996. Application of entropy measures derived from the ergodic theory of dynamical systems to rat locomotor behavior, M. Paulus, M. Geyer, L. Gold, A. Mandell, Proc. Natl. Acad. Sci. (USA) 87:723-727, 1990. Long-range interactions in sequences of human behavior, Martin Paulus, Phys. Rev. E. 55:3249-3256,1997. Mixing properties in human behavioral style and time dependencies in behavior identification: The modeling and application of a universal dynamical law. Karen A. Selz, UMI, Ann Arbor, 1992. A family of autocorrelation graph equivalence classes on symbolic dynamics as models of individual differences in human behavioral style, Karen A. Selz and 85 Arnold J. Mandell, In (ed. R.R. Vallacher and A.J. Nowak), Dynamical Systems in Social Psychology, Academic Press, San Diego, 1994. Toward a neuropsychopharmacologicy of habituation: a vertical integration. Arnold J. Mandell, Math. Modeling 7:809-888,1986. Thermodynamics, Enrico Fermi, Dover, N.Y. 1956. Thermodynamics and Statistical Mechanics, Peter T. Landsberg, Dover, N.Y. 1978. Ergodic Theory, Symbolic Dynamics and Hyperbolic Spaces, T. Bedford, M. Keane and C. Series, Oxford, Oxford, 1991. The Mathematical Theory of Communication, Claude E. Shannon and Warren Weaver, U. of Illinois Press, Urbana, 1963. Science and Information Theory, Leon Brillouin, Academic Press, N.Y. 1962. Brain Metabolism and Cerebral Disorders, Harold E. Himwich, Williams and Wilkins, Baltimore, 1951. 86 CHAPTER 5: SOME ENTHEOGENIC ENTROPIES In the spring of 1968, members of my laboratory team were looking for new brain metabolic pathways of the essential amino acid tryptophan, the dietary precursor of the human mood, sleep and libidinal neurotransmitter, serotonin. After struggling for several months to identify an apparently new compound, which turned out not to be new but only new in the brain, we collected evidence for a human brain enzyme that could catalyze the production of an LSD-like hallucinogen, dimethyltryptamine, DMT. Tracing its metabolic origins, we found that DMT was derived from tryptamine, a common metabolite of the essential and omnipresent amino acid, tryptophan. This enzyme and its metabolic product were located in highest concentrations in brain stem systems that influence the neural regulation of the heart, blood pressure, temperature, breathing, vomiting and primitive approachavoidance behavior. It was also found in limbic brain nuclei thought to modulate the emotional coloring of perception and thought. Richard Wyatt, working at the National Institutes of Mental Health found DMT in the urine of schizophrenic humans. He also showed that DMT increased significantly if tryptamine s normal pathway for degradation was blocked by monoamine oxidase inhibitors, such as 87 Nardil, Marplan, Eutony, Parnate and others of a then common family of antidepressant drugs. The presence of a DMT-generating enzyme in human brain was particularly exciting because we knew from the work of Harvard botanist, Richard Shultes and others, that DMT and the monoamine oxidase inhibitor, beta carboline, are combined in a mixture of the leaves of a shrub and the bark of a vine, both Amazonian plants, used together by the shaman of Peru, Colombia and Ecuador for thousands of years to evoke mystical experiences in themselves. In their state of chemically-facilitated, spiritual transformation, they were better able to engage in healing and divination of others. More recently this and other similarly acting biochemicals have been called entheogenic, connecting to the sacred within. Consistent with our neurochemical findings in human brain, the shamanic concoction, called by many names including ayahuasca and yage, combined the DMT containing plant, Psychotria viridis, with an extract of a vine with the powerful monoamine oxidase inhibitor properties of the beta carbolines found in Banisteriospsis caapi. In 1975, working with a graduate student, Louise Hsu, we found that the mammalian brain could also synthesize beta carbolines. This family of compounds from the vine protects the tryptamine substrate as well as DMT from metabolic degradation such that it could circulate in the blood long enough after oral ingestion for enough to cross the blood brain barrier to induced prolonged and dramatic alterations in perceptions, feelings and thoughts. In addition, the carbolines of the Benisteriospsis component extended the time of action of DMT beyond the 15-30 minutes of effect of DMT when injected alone in human subjects. We found it fascinating that the human brain made combinations of DMT and beta carbolines similar to the blend that indigenous shamamic chemists discovered as an entheogenic from plant sources. Ralph Metzner, in the introduction to his 1999 collection of papers called Ayahuasca concluded that it is widely recognized by anthropologists as being the most powerful and most widespread of the shamanic hallucinogens. William Burrough in a 1953 City Lights published book written with Allen Ginsberg, The Yage Letters, said that yage gave entrance to a city where all human 88 potential is spread out in a silent market It was generally believed that with adequate spiritual preparation, ayahuasca could generate transcendent states that allowed access to ones inner being and the beings of other worlds that could serve as sources of mystical knowledge and healing. The Shams dervish of the 13 th Century, wandering the Turkish portion of the Silk Road, used the word sohbet to describe the inner land of mystical conversations about mystical subjects that their turning meditation, whirling, and the shaman s entheogenic compounds such as DMT give entrance. The question was whether our finding of DMT and its human brain enzyme had been an artifact, an accidental laboratory fluke. Members of my neurochemical research teams at the University of California Medical Schools in Irvine and La Jolla, notably Dr. Lee Poth, now a professor of pediatric endocrinology at the Uniform Services Medical School in Washington D.C., demonstrated that the DMT synthesizing enzyme existed in the brains of recent accident victims that as far as we were able to learn from their family and social histories, had been completely psychologically normal. More than a little bit startled by this finding and worried about making a sensational scientific mistake, we repeated the experiments with a variety of controls with the same findings. Though our original estimates of the human brain enzyme concentration were on the high side, we confirmed the general finding and published them in Science in 1969 and Nature in 1970. Our carboline work was published in the Journal of Neurochemistry in 1975. A year or so after our Nature paper was published, the Nobel Prize winning neuropharmacologist at the National Institutes of Mental Health, Julius Axelrod, confirmed the presence of the DMT biosynthetic enzyme that converted the tryptophan product, tryptamine, to DMT in mammalian brain tissue. We were both delighted and relieved. We speculate, perhaps too grandly, that this finding, along with the beta carboline human brain synthesizing capacity, supplies one of many possible neurobiological and neurochemical mechanisms for the claims of the cross-cultural universality of mystical experience. We all had human brains with these enzymes. The idea that the phenomena accompanying primary religious experience were common to all cultures was a major theme of the life s work of the philosopher- 89 psychologist, William James, and was studied using fieldwork by anthropologists such as Bronislaw Malinolowki as described in his classic book, Magic, Science and Religion. Was this neurochemical-behavioral organization an evolutionarily adaptive mechanism selected so that some spiritually gifted individuals self-selected from a severely stressed population could escape and then lead the rest of us out of a sense world that had become intolerable? Could this be an antidote for the hopeless, without materialistic solutions and trapped in a belief system of spiritual nihilism? Was this a brain chemical transcendence escape and spiritual delivery system for the suprapsychological survival of those in dire need? As the 13 th Century Islamic mystic, Jelaluddin Rumi, has written, If a tree could fly off, it wouldn t suffer the saw and more concretely, if you can t go somewhere, move into the passageways of the self , a spiritual escape via a neurobiological road to the God-space within. What followed were a few years of occasional exploration of an inside out understanding of the mystical states evoked by the entheogenic family of chemicals. There were varieties of settings for these personal experiments. I found myself LSD-lost, circling endlessly in the tall silence of a Northern California redwood forest. I tried on Hunter Thompson s mescaline lenses for the experience of Las Vegas unfiltered. I was expertly mentored in these quests by a distinguished collection of guides: Cultural anthropologist Michael Harner who taught me about the yage and datura use among the shaman of the Jivaro; Social anthropologist, Barbara Meyerhoff introduced me to the personal renewal rituals of the peyote cactus-using Huichol Indians of the Southwestern Sonora Desert; Neurochemically sophisticated Sidney Cohen, founding director of the National Institutes of Health s Institute on Drug Abuse, told me stories of his involvement with Aldous Huxley and Barbara Brown in the Los Angeles covey of early American LSD explorers; organic chemist Albert Hoffman, Sandoz s designer of a series of ergot alkaloids including LSD, told me stories of his accidental post-sniff hallucinations while returning home on a bicycle; An anonymous group of us conducted personal experiments with Sacha Shulgin, the University of California at Berkeley professor who first synthesized and tested the mescaline-derived, Ecstasy series of compounds; We 90 did some work with the dissociated anesthesias (producing wide awake but not there states) having consulted with John Lilly, a brain scientist who used these agents as a courageous self-medicating explorer of sensory isolation tanks; I met several native shamanic practitioners including the Huichol Indian that was the model for Don Juan in Carlos Castanada s five volumes of pseudoethnography written up in my essay Is Don Juan Alive and Well? in The Pushcart Prize of 1977. Issues of culture and brain chemistry came together in several accounts about entheogenic, mescaline-containing peyote use among the Huichol Indians in a book edited by Kathleen Berrin and Thomas Seligman of the San Francisco Art Museum called Art of the Huichol Indians. Over these years I collected many nauseating, upper and lower bowel wrenching and ecstatically transcendent and exhausting day-long episodes of the angular geometries of visual pattern-generating DMT, the animistic breathing of bush and flower breathing peyote cactus, the darkly forbidding shadows of the psylocybin-containing mushrooms, the irreversible rocket launches into the electrically buzzing, kaleidoscopic circus of LSD-containing vials from Sandoz and the optimistic, trust engendering, expansively warm rush of six of Sacha Shulgin s gregarious, rave dancing, chlorinated, methoxylated and ethoxylated phenylethylamines which he had, years before, synthesized for an undisclosed purpose for the Dow Chemical Corporation under contract with the U.S. Army Chemical Corps. The best known of the latter group remains part of the rave culture as Ecstasy. These agent s peaks are flooded with exaggerated, caricaturizing images of people s faces and a belief in the mindedness of animals and even the embodiment of inanimate things. Evoked are simultaneous and diametrically conflicting interpretations of the same social context, heteromodal sensory fusion called synesthesia so that sound bespoke color and smells induced music, habitual thoughts rearranged as new ideas in what is experienced as exciting new insights, and, most of all, that which Louis Lewin, Berlin s early 20 th Century Freud of psychotropic drugs in his book Fantastica, called gladness of the soul. Timothy Leary wrote of entheogenic escape from the habitual human brain s mental- 91 manipulative and socio-sexual circuits gaining access to the rapture and ecstasy brain pathways on the way to the new planet within. What is seldom written about is the aftermath of chemical entheogenic agents. After the several hours of fireworks, all of these entheogenic agents, some more than others, gifted me with weeks to months of more self-sufficient, emotional fullness and ease in the conduct of living that was less contaminated by narcissistic preoccupation or defensive distantiation. I was left with increased interpersonal sensitivity and a noticeable repair of my deficiencies in aesthetic sensibility, particularly for the visual arts and landscapes. What were once two dimensional, trivial, beside-the-point, scattered copses of trees and apparently casual arrays of plant life in the Boboli Gardens behind the Palazzo Pitti in Florence, became the grandly structured, botanical wonder of increased dimension, communicating awe filled new perceptions of its previously unseen beauty. For the first time, I found myself walking slowly and stopping for several minutes, wordless, spellbound, in front of the modern art pieces of New York s Guggenheim Museum. Lost in the experience, I found myself exclaiming to no one in particular, I can see! The delicacy and deliciousness of post-entheogenic agent s new and beautiful everything made me tiptoe watchfully so as not to injure an ant. Feelings of omnipersonal kindness and generous compassion were without prideful selfreflection. This state of grace felt like an invasion of a shimmering presence that made contact with my other, generally unknown to me, life. It brought new perceptions, feelings and ideas for which I was moved to give thanks. I began to think I understood a little bit about what was meant by living in the Spirit and merging with God. Mircea Eliade, the French, University of Chicago Professor of the History of Religions, in his classic The Sacred and Profane, calls the revelation of the sacred in ordinary objects, people and events an hierophany. In the state that this requires, all nature is capable of revealing itself as cosmic sacrality . The entire world can become a hierophany with what Abraham Abulafia called an activated mind, the Jewish soul of emergent properties called the Nefesh. This entirely new world, Rudolf Otto in his 1917 Das Helige (The Sacred) called it ganz andere, (wholly other, something else), seemed to emerge 92 spontaneously along with an instantaneous knowing-how-it-is-with-you-and-I-andall-of-us that made even vicious killers appear sympathetic. Is this what the Charismatic New Testament Book Churches mean by redemption through forgiveness of others, requiring the genuine sincerity of this thought before qualifying for Communion? Is this Christ s undemanding gift of grace as in Romans 4: where Paul observed that all of us fall short of the full glory of God unless justified freely by His grace. Was this the New Testament s spiritual technological advance from the Old Testament s and Koran s eye-for-an-eye? Did this chemically triggered transcendent experience differ significantly from the supernatural transformation of individuals by the Holy Spirit of Christian revivalist teachings? Martin Marty, University of Chicago s Professor of Modern Church History, dates the institutionalization of this personal transformation in the United States to the post- Civil War period. Did this mean that the mysteriously selfless love of Christian agape and the altruism of E.O. Wilson s sociobiology lay waiting in the brain and could appear spontaneously, by grace, without lawful directive, repetitive recitation or the discipline of catechism? As one might have suspected, the urgency of my inner and outer search for a new spiritual ecology of mind was driven by more personal needs. My spiritual hunger was made acute a couple of years before our laboratory s DMT discovery when as a 30 year old Assistant Professor of Psychiatry and Neuroscience at UCLA in West Los Angeles, I was living in a small, heavily mortgaged house in Brentwood with my graduate student wife and two young sons. A testicular lump was an accidental discovery made while showering. After surgical biopsy and radical lymph node dissection, the professor of urology gave me a diagnosis of right testicular choriocarcinoma. All by itself, my testicle had given birth to a mass containing all the embryological tissues of a fetus, and had thrown in some maternal placental cells as lagniappe. Unlike now, when the group of testicular neoplasms are treated successfully with a high survival rate (think Lance Armstrong), at that time, follow up research of this young man s disease by the Army Medical Corps promised a fiveyear survival rate of only 5 to 10 . The news filled me with fear and the ensuing hopeless resignation detached me from life with a dread broken up only by 93 episodes of rageful envy of everyone else in the world that had been spared. My wife escaped into an alcoholic flirtation with her major professor; my sons grew increasingly ensconced in the generous and kind neighborhood homes of their playmates. I metered as many hours as possible in equity growing, long lonely days in a small, dark, couch filled, university office, listening to Beverly Hills, Brentwood and West Los Angles citizens as they psychoanalyzed their mysterious lack of emotional fulfillment from materialistic fulfillment. Legend has it that Gautama s sudden insight about the universality of this sated, bored condition occurred in 528 B.C. after 49 days of sitting in the lotus position under the bodhi tree, now called ficus religiosa. In contrast with Buddha s illumination, my psychoanalytic traininginduced, Freudian-Darwinian instinctual conflict, driven by fears of starvation and castration, drew me tighter into the world of meaningless, coin flip probabilities. Our house was a block away from a West Los Angeles synagogue and we knew the Rabbi and his family well. Our sons played together frequently. The Rabbi tried to bring comfort to me on my death watch, with hours of discussions about trans-individual, ethnic belonging and a deeper foray into philosophical humanism. Both felt completely irrelevant to my condition. As an intern tending to those dying at night in Ochsner Foundation Hospital in New Orleans, it seemed to me that Jews tended to die more noisily than Catholics. For my personal escape from low-lying dread, I needed the metrically linear time of chronos to become the metric-free, topological, continuous surface of the twisted circular ribbon of a Mobius loop, with the view from each moment a kairos, a stretchable infinity of each moment s internal multiplicity of times. The ruthlessly reasonable Hebraic historicity, configured by the tooth-for-atooth, Mosaic and Roman talion law, the reciprocal, economic, exchange-calculating brains of Barkow, Cosmide and Tooby s The Adapted Mind (1992) and the terrifying stories of the Five Books of Moses, made the hopelessness of this sinner s plight inevitable. It felt like my dichotomous choice of God-type was between One of merciless fairness and the He and She of unconditionally forgiving generosity. The mind set of logical problem solving applied to the question about which of these two represented the true character of God lead to a momentarily distracting, metaphoric 94 ecclesial exercise: what were the minimal number of four magical cards need we turn over with preconditions or results on the upsides and downsides if what was showing was: (1) Beatifically good; (2) Cursed with extraordinarily bad luck; (3) Not dependent upon personal virtue; (4) Inordinately fortunate in all of life s trials. The pay-as-you-go God people would need to pick up (1) and find fortunate life and (2) to find the fate of the non-believer to establish that God was coldheartedly true and fair with the results of flipping (3) and (4) being none contributory. The grace-to-allsinners God people need to turn over card (3) to find good life and (4) to find sometime sinners nonetheless fortunate to confirm their belief in the unconditionally of the loving generosity of God and making finding out about the underside of cards (1) and (2) unnecessary. This liturgical discussion and gamble with God s cards, perhaps a caricature of the Talmudic, rational discussions with the rabbi, felt irrelevant to my spiritual needs. Missing was mysticism s promise of the disappearance of I into a union with the divine, the Heart Sutra s eternal emptiness of form and the eternal form of emptiness that gifts with spiritual perspective and not-necessarily-logical intuition about unseen Absolute Reality. Forced either-or, binary, card-turning cognition in the search for God s logic is unrewarding. As the Dalai Lama, in his Heart of Wisdom Teaching, says, all phenomena are emptiness, without defining characteristics, they are not born, they do not cease " In trying to penetrate the mystery and promise of this emptiness, it was difficult to surrender my internal parody of what sounded like that day s Southern California New Age stuff about global nonaggression, sexual politics, Beadles music, distressed jeans and pot. In the synagogue of my neighborhood, experience with a deeply felt, never-you-mindabout-anything God of detachment with love, was not on the menus of Friday night or Saturday morning services. All I could feel was a faithless and nonnegotiable fear. In the work of many mysticism-positive scholars, a classic being Evelyn Underhill s Mysticism, 1961, it has been speculated that this ineffable state as a union with a powerful unknown, transcending description in language, becomes more socially prominent during times of cultural efflorescence. She pointed to the 95 flowering of mysticism in epochs of the high cultural achievements at the close of the Classical Period in the Third Century, the Medieval Period in the Fourteenth Century, the Renaissance in the Seventeenth Century and, now, as we know, in the Western World toward the end of the Twentieth Century. An increase in general acceptance of talk, writing and practice focused on mystical experience is said by many to accompany historical high points in intellectual, literary and political achievement. One might include as a component of our growing cultural richness, the new science about chemical dialogues with the brain. Although no central nervous system agents were ever allowed in the ashrams of Baba Muktananda, it was common during some evening sessions of questioning, called satsangs, for him to acknowledge that one or a few experiences with entheogenic agents can open many recalcitrant folks to the existence of the God within. This, in turn, led them to the drug free spiritual exercises, sadhana, of love, self-truth, and spontaneity (each according to their nature) as well as abstinent discipline, meditation, chanting and yoga to maintain the knowledge. We might speak of participating in the creation and maintenance of the spiritual ecology of ones inner and outer being. Underhill said that the cultural richness of an efflorescent epoch is taken inward and accompanies personal and societal mutations into states and institutions involving higher spiritual consciousness. In addition to an increase in the common outward manifestations of having had a mystical experience, such as an increase in compassion, forgiveness and more respectful and reverential attitudes toward the Earth and all its creatures (currently taking the forms of deep ecology, ecofeminism, herbal medicine, organic farming and the like), these times bring more public consideration of the nature of reality itself, apart from its material manifestations. The theme of the life s work of the Dominican priest, Thomas Aquinas, made master of theology by papal dispensation in 1259, involved the existential recognition of this dichotomy of existence, esse, and essence, nature and grace, the material world and God. William James wrote famously about mystical experience penetrating the thin veil between these two worlds. Those with a mystical orientation attribute reality to inner experience in relationship to a transcendental, supernatural world. Whereas 96 everyday events are subject to perceptual ambiguity and its attendant variety of interpretations, mystical union is claimed to bring the existence and meaning of Absolute Reality into direct experience. This kind of knowing is more akin to the Platonic view of mathematics, that theorems have been everlastingly existent, from before our physical world, then it is to the here and now, physically based, finite computations involving the experimental machines of physics. The philosopher-mathematician father of phenomenology, Edmund Husserl, criticized the physics-want-to-be orientation of the 1860 empirical, objective measure psychologies of Fechner and Wundt. He understood the best of their findings as simply correlations between subjective and observable events. Using mathematical discoveries as examples, Husserl spent his life arguing for the possibility of abstract truths relevant to mind being more reliable and valid if grasped via direct experience. Knowing by what the popular mid-twentieth century writer of science fiction, Robert Heinlein, called grocking it. This is antithetical to the attitudes of today s human cognitive and brain sciences which disallow such knowing as deeply suspect unless accompanied by objectively definable observables such as changes in electrical or imaging indices of brain activity in one neural region or other. The modern psycholinguistics of brain mechanics can be called neolocationism. Using modern technology to measure regional blood flow, energy metabolism and or electrovoltage or magnetic field activity, stories of function are spun that closely resemble those imagined more than a century ago by the first locationists, such as Ramon Cajal. These neuroanatomists spent thousands of hours looking at cell clusters and their connections in stained slides of human brain tissue using microscopes and imagined their singular and integrated function. Today, Lewis Judd, long time chairperson of the Department of Psychiatry at UCSD in La Jolla, carries a full sized, polymeric, three-dimensional model of the human brain when teaching his students about human subjective experience and interpersonal behavior. In his weekly grand rounds, he explains that day s psychiatric patient s problems pointing here and there at regions in this plastic surrogate for our electrical jellied brain. Few, if any, of the psychiatry students in his class was inclined to ask the foundational question: how it is that a finger point and 97 a name of a brain place can describe, much less explain in the language of physical or physiological mechanism, a patient s illogical thoughts, feelings of hopelessness, irrational rage or prayerful gratitude. There remains a wide gap between ideas about the mechanisms of human symbolic processing and those involving the structures and functions of neuronal components and their connectivities in the brain, particularly when perceived as regionally segmented meat. Yet this report of Professor Judd s finger-pointing plastic brain ritual should not elicit surprise since iconic manipulation is certainly not new to the practices of priesthood. In contrast with neuropsychiatry s behavioral attributions to brain parts as an explanatory pantheon of mysterious doers, absent of mechanical specifics, the fields of physics turn to more abstract and general mathematical and statistical, socalled phenomenological laws, such as those of thermodynamics and statistical mechanics. The accounts of Feynman s abstract and general thermodynamic development of conservation of energy as well as equilibrium thermodynamics discussed previously serve as relevant examples. These abstract models have been found to capture the behavior common to diverse physical systems involving (often still unknown) differing physical mechanisms. Consistency of description, reliability, weighs in before predictive validity, which, with maturation of the research area, gradually becomes detailed mechanistic understanding with the eventual goal being derivation from the first principles of physics. The painful truth is that that in spite of evocative claims made to the contrary in the 1990-2000 Decade of the Brain, this level of understanding at the interface of neurobiological hardware and software remains unbreached. Some recent attempts are interesting. One of the current research themes about real single neurons in real brains (in contrast with the silicon chip modules used in neural network computer simulations), involve widely distributed neurons that discharge in temporal synchrony. These phenomena have been described by Max Planck s Wolf Singer, Christoff Koch of California Institute of Technology and Florida Atlantic University s Steven Bressler and others with words such as synchronization, phase locking, coherence and binding. Binding is an intuitively seductive word that premises that two, even widely spatially separated, brain regions that manifest neuronal signals of 98 activation locked together in time are assumed to be functionally integrated. Another time-dependent neuronal characteristic of current interest involve neurons or neuronal clusters that beat with almost strict periodicity, the oscillatory pacemakers. For example, the program of research by Professor Al Selverson at University of California at San Diego, among others, has elucidated the role of these rhythmic pattern generators, both autonomous and those emerging from particular patterns of network connections. A wide variety of functional links involving neuronal pacemakers has been demonstrated. They range from the oscillatory transport of calcium through membrane channels in neurons and heart muscle, smooth muscle oscillations of the pylorus muscle of the stomach, the neuronal ganglion driven chewing motions of the jaws of invertebrates and the retina-to-brain hypothalamic cells gating human circadian rhythms coupling our body s hormonal clocks to light cycles. Though regular rhythmicity in neuronal discharges is an intuitively attractive idea and relatively easy to quantitate using simple sine wave trigonometric transformations, in the real brain it is statistically rare. The commonest neuronal discharge pattern observed is that of intermittent bursting, clusters of neuronal discharges in time in which the inter-discharge intervals irregularly stretch and contract like the bellow pleats of a syncopated accordion. Bursts of repeated firing of some unpredictable length followed by silences of equally mysterious durations. Their behavior can be represented as statistical measures using non-normal, long tailed distributions and in-between entropies described previously. For a whole human example, although the rhythm of manic depression is commonly thought to involve periodic cycles, careful study using motility patterns of the timing through life of these episodes of extreme mood states by Professor Allan Gottschalk at the University of Pennsylvania and others have demonstrated an irregularly intermittent bursting pattern in manic-depressive episodes, getting more frequent with age. Neuronal inter-discharge intervals seldom demonstrate what is called a regression to the mean like the normal distribution of heights, as one increases the number of people measured, the tighter the distribution around the mean. Neurons, much like our own irregular pattern of doing things (in spite of our plans), the statistical 99 distributions of neuronal interspike intervals have increasingly long tails. Contrary to the behavior of a normally distributed observable, the larger the series of neuronal spike observed, the more likely that a longer interspike interval than had been seen before will occur. Counter-intuitively, long intervals tend to be followed by more long intervals as more shorts follow short intervals. Manic attacks cluster in time as does a number of other brain and body diseases. Maybe it is intuitively obvious that bad stuff tends to cause more bad stuff and good stuff is self-propagating. Having suffered recently does not mean fate owes you one. The brain s syncopated segmentations of time can be translated into a creatively arrhythmic dance. What makes neurologizing conversations like these about subtle human experience possible are the human subjective scenarios we have agreed to short hand with names of brain parts and neurochemicals. The how is where conceptual connection is filled with post 19 th Century Spanish microscopic neuroanatomist, Santiago Ramon y Cajal-like, intuitions about the functional role of brain structures: we think motor automaticity and pacing when hearing the brain place names such as caudate, putamen and cerebellum; we think limbic lobe when musing about sexuality, rage and depression; we short hand left versus right hemispheric places for verbal and sequential versus intuitive and geometric shape cognition; we point to the frontal lobe for the future work of executive control, anticipation and paranoia; the hypothalamus for primitively expressed appetites and to the brain stem for our vital functions such as breathing and blood pressure. With respect to the brain juices, we say dopamine for aggressive activity, norepinephrine for attention and sensory discrimination and serotonin for hunger, mood and sexual inclination. No matter how avant guarde our experimental techniques such as monitoring local functional blood supply by fMRI, regional brain glucose utilization maps, timedependent changes in skull surface voltage using a cap studded with electroencephalographic, EEG, leads, monitoring these voltage field via their transverse magnetic fields by the frozen helmets of magnetoencephalography, MEG, we conclude our work by calling forth named but still enigmatic brain parts and their juices as mysteriously powerful little men and women executing remarkably complex and subtle tasks, sometimes even when called upon. 100 Current neurochemical research using molecular biological tools such as mice knockouts (the ablation of specific proteins though interference with their nucleotide-mediated protein biosynthesis), for example, the production of animals missing a subunit of their hippocampal glutamate receptors associated with the loss of some memory functions, conclude the memorial mechanism to be a specific cellular region, such as hippocampal CA3 cells. Technology advances but continues to support a primitive philosophic animism of named brain parts which pop science icons like the late Francis Crick called The Amazing Hypothesis. He and his fellow brain philosophers implicate brain mechanisms such as the amygdaloidal nucleus man who can emotionally color even affectually neutral information that is transported through him. Imaging data showing amygdala man lighting up is used to tell us that circulating sensory information through the differentially behaving amygdaloid nucleus is used for fight or flight interpretive significance. Emotionally expressive human faces light up inferior parietal cortex. The Iowa University Professors, the husband and wife Damasios, have located even the criminal psychopath man in specific locations in the brain. As we have argued, perhaps ad nausem, using multimillion-dollar imaging and molecular biological technology and no new thoughts that weren t around during the era of the 19th Century s neuroanatomists, specific brain regions continue to gain implicative properties like the task-specialized gods of the Roman and Greek pantheons. Crick implied that God is a brain part. At the same time, those of us that have been in the brain business for a while, recall skyscraper window washers, standing steady, high up on rope lashed planks, suffering from congenital absence of the cerebellum, the supposed sine qua non brain part supporting motor coordination and balance in humans. More generally, there is much evidence that if young enough and willing to work, many of the functions of missing parts of the brain can be taken on remarkably well by other brain parts thought not to be involved in these functions at all. In addition, since evidence of neuronal responding to loud noise or bright light perturbation can be found almost everywhere in the hyper-connected human brain, because anticipation and brain time inversions make before and after indicate little about human 101 neuropsychological causality, and inhibitory on or off and activating on or off are a priori functionally equivalent with respect to the logic gates of information encoding, transport or storage, the modern study of brain mechanisms in emotion, cognition and behavior remains almost as mysterious as ever. The only human mind-brain observations that are doubted consistently, and treated as unpublishable by the editors of the journals of science, are those that result from direct human experience using subjective reports from within. They are called unscientific. Often ignored are logically consistent mathematical and computational contexts, which, as abstract and general tools of thinking and imagining, have the capacity to frame, rigorously define and describe thinking about both the subjective and objective aspects of brain-generated phenomena. These mathematically configured metaphors can lead to consistencies in description, this is behaving like that, in what are called equivalence relations expressed both as intuitive imagery; for a concrete example, a one holed bagel and one handled tea cup are topologically equivalent because, sculpting in clay, they can be smoothly transformed into each other. We have seen that invariant measures in computable statistical flows can come out of a mess of data. Professor Paul Rapp of the University of Pennsylvania has been able to mathematically encode the verbal content of the patient s free associations and the therapist s responses, using tape recordings of hours of psychoanalytical treatment. Examples of quantifiable qualities found useful in this regard involve a variety of characteristic statistical patterns in what are called entropies and information as well as various measures of what with a wide range of definitions is called complexity. These quantifiable properties, measures, can help in the struggle with the intrinsic tension of Absolute Reality between the eternal emptiness of form and the eternal form of emptiness. We resort to measures of entropy, information and complexity when confronted with our ignorance, emptiness, great or little, with respect to either cause or result, about what exactly is going on. Entropy in its forms relevant to information quantifies our 102 ignorance, the emptiness and its mystery. Computations of the entropy of systems in motion convert questions and answers concerning the detailed workings of the leg s neuromuscular machinery to global statistical descriptions of more abstract thematic motifs, forms, expressed in the dance. Patterns of behavior of these properties can suggest intuitive ideas and imagery about global mechanisms, approach avoid, smooth discrete, wild tame, as well as correlated and objective physical observables. To learn more about this abstract, topology tinged (none numeric) style of model building, we can go to school on a long studied physical example. It connects a simple and well understood real world observable with abstract statistical patterns resulting from motions using the one-to-one correspondence (the equivalence relation called isomorphism) between their entropies. As we have discussed, the Stanford mathematician and Field s Medal Winner, Donald Ornstein, proved that in statistical studies of even point-to-point unpredictable, chaotic systems, entropy is the only isomorphism. The hardware of this physical example is what the statistical physicists call a dilute gas of some fixed number, n, of uniform hard spheres, moving scatterers, that, absent of dissipative friction, wander continuously around, changing their directions when bumping into each other. In a two dimensional bounded arena of randomly rolling balls, this game has been called Sinai s billiards. It was named for previously mentioned Ya Sinai, an eminent Russian mathematician He is now at Princeton and was previously a student of Andrei Nikolaevic Kolmogorov, the Russian guru of many of the Twentieth Century s worldclass Russian mathematicians. Kolmogorov axiomatized the field of probability and, more relevantly, initiated the theory of statistical descriptions, the ergodic theory, of nonlinear dynamical systems. In the language of statistical physics, we will see that the same system produced by high number of elements executing Newton s deterministic laws can be generated by a so-called random system such as that resulting from flipping a suitably biased coin. Our example can also serve as a metaphor, used extensively in the mathematical biology of the late Professor Art Winfree, for the temporal features of life on a topological circle: the natural irregularities of the recurrent beat of the heart, the in and out breathing of lungs, the 103 up and down voltage of brain waves, the pendulum swings of our blood hormone levels, the cyclic procession of our days, months and years and at large scale, our body s journey from dust to dust. The angular deviation theta, from the initial reference direction of a single moving sphere, gets rotated to a new angle theta, by a collision with another sphere. It has been shown that the new angle is the previous angle, times twice the average distance traveled between collisions called the mean free path, here symbolized by delta, , divided by the diameter, D, of the sphere. Algebraically, 2 the new angle is equal to twice the mean free path divided by the diameter D of the spheres times the original directional angle of the sphere s motion. If we symbolize the time between collisions with tau, , after an elapsed time of experimental observation, t, we can say that the deviations from the initial direction of the sphere changes like ( 2 t . The exponent, t , represents the time of the D experimental observation divided by the average time between collisions of the spheres, i.e. the time we ve been watching, t, is expressed as units of inter-collision interval, . Of course, the circular deviation in the angle from the initial direction rotates repeatedly around a circle as the number of collisions increase. If a point on a circle marks the angular change resulting from each collision and the system runs long enough, it has been shown that the circle will eventually be completely covered by points. An estimate of the entropy, S, being generated by each sphere labeled with some index i, Si, is positive because the recurrent motion is deviating continuously from the initial direction. It can be computed for each sphere as the logarithm of the intercollision time-averaged deviation from the initial direction, S i 1 log( 2 ) and the D entropy of the whole n hard sphere system is the sum of the n entropies, which can be expressed as n S i . If we keep books by registering the points when each sphere s makes a stop on the top half of the sphere s circle as 1 and the bottom half as 0 (and we must arbitrarily decide between 0 and 1 if it falls exactly on the 104 division between top and bottom and do so in a consistent way), then we can keep score with a random looking binary series such as 11001001010 . that describes the sequence of rotations. The advantage that accrues by doing so is that this coin flip counting eliminates details in favor of a computable over all measure and supports several forms of entropy calculations for its use in deciding if this system is behaving like that system, an equivalence relation. One can imagine a series of coin flips with 1 being heads and 0 being tails such that the statistics of a characteristic series is determined by the fairness of the coin. As noted above, Donald Ornstein s famous theorem says that the entropy of these kinds of hardware and software systems is the only general basis for finding correspondence between characterizations of two such irregularly behaving systems. The important idea here is that a series of 1 s and 0 s may not be identical but the two systems can be isomorphically equivalent with respect to their entropy. Notice again that the physical process of hard spheres bouncing off each other on a flat surface has been captured by an abstract representation in binary numbers that, like a series of coin flips, can be quantified as entropies (which would be maximal for an ideal, fair coin). After describing the process of real number representation by the binary code, we will show how entropies can be computed for these binary series. We remind ourselves that we are struggling to obtain some kind of knowing in a representative system manifesting the tension and mystery between emptiness and form. We can translate all finite real numbers into this language, making them accessible to standard entropy computations. The following discussion of the process of transforming numbers into binary series is in the spirit of the famous number theory theorem that every natural number (the positive integers such as 1, 2, 3, 4 ) can be expressed as the sum of at most four squared numbers. Encoding any number by a series of 0 s or 1 s in what is called a binary transformation, begins with its separation, called partition, into a sum of powers of 2, for example, 100 64 (2 6 ) 32 (2 5 ) 4 (2 2 ). A short hand description of this sum begins with a form indicating the presence or absence of each successive power by a 1 or 0 coming before the relevant power of two; i.e. 100 1 2 6 1 2 5 0 2 4 0 2 3 1 105 2 2 0 2 1 0 2 0 (in which the last term, arbitrarily, is 2 0 1, since anything to the power 0 1). This can be written even more simply as a series of 0 s or 1 s, their presence indicating whether the power represented by each place in the left to right descending sequence of powers of two participates in the sum of the partition. It is in this way that in binary numbers, 100 110010. As another example, if we similarly partition the decimal number 729 512 (2 9 ) 128 (2 7 ) 64 (2 6 ) 16 (2 4 ) 8 (2 3 ) 1(2 0 ), we find that its binary transformation results in 729 1011011001, the 0 s representing the descending powers of two that are absent in the powers of two partition. One can compute the binary representations of lower valued numbers immediately; for example, 4 1 2 2 0 2 1 0 2 0 so that there is a 1 in the multiply-the-power-of- two column and 0 the power 1 and power 0 columns so in binary representation, 4 100. Similarly, 6 1 2 2 1 2 1 0 2 0 making the binary transformation of 6 110. It was the co-inventor (with Isaac Newton) of the calculus, Gottfried Wilhelm Leibniz, in about 1665, who fully developed the binary representation of all decimal numbers. In a state of wonderment about the simplicity, power and completeness of this 1 and 0 encoding, he is said to have the beliefs that 0 symbolized the emptiness of the universe s beginnings, 1 represented the complete fullness of God and that this transformation served as metaphoric evidence consistent with God s creation of the universe out of nothing. The simplicity of binary expressions as in the dynamics of hard spheres or rotations on the circle as well as the transformations such as 729 1011011001 make them propitious for exemplifying the methods for computing the entropies of the growth rate of the possible, called the topological entropy, H T , and the probable, the metric entropy, H M , which was introduced in a previous chapter called Sensual In-Between Entropies. The following exemplify the computations of measures of topological and metric entropies, H T and H M , another computable idea called algorithmic complexity, AC and finally, the well known (to statisticians) standard run score, src. Their descriptions have as their purpose a demonstration for the reader that these apparently abstract, perhaps nebulous sounding, words can be transformed into well-defined, concrete, quantitative and computable form of reality. 106 If acceptance of this idea does not constitute a problem for the reader (and you do not find it fun to follow along with a computer math program and or a pencil), then the following several paragraphs can be quickly scanned or skipped entirely. The computations of H T and H M begins with keeping track of how many 0 1 and 1 0 transitions are found going from left to right in the binary series. For example, in the binary expression of 729, 1011011001, one starts counting with a 1 0 transition followed by a 0 1 transition and then a 1 1 transition and so on. A useful way to record the count is via entries into a 2 2 matrix for score keeping in which the horizontal rows are labeled 0 on top and 1 below and the vertical columns are labeled 0 on the left and 1 on the right. The number of each kind of transitions (from the vertical label to the horizontal label) are counted and summed in the appropriate box of the two box by two box matrix; for examples: for a 0 0 transition, a tally mark is entered in the upper left corner of the matrix; for a 0 1 transition, a tally mark is entered in the upper right corner; a 1 0 tally goes in the left lower corner and a 1 1 is tallied in the right lower corner. The resulting transition incidence counting matrix, M t for the 729 binary transformation series looks like M t 1 3 indicating one 0 0, three 0 1, three 1 0, and two 1 1 3 2 transitions have been tallied. Although this series alone is too short for computing reliable statistical measures, if we assume that the pattern of transitions observed in this short series is stationary, that is its transition behavior will remain the same if the binary series continued on to be infinite in length, the assumption being that the dynamics of now will be the same as always, 729 will stay 729, then we can use two forms of this transition matrix in the computation of the topological entropy reflecting the growth rate of the possible, HT, and the metric entropy from the statistical weights of allowed choices among them, the probable, H M . To obtain the entropy representing the growth rate over time of the new possibles, the computation of H T , the topological entropy, involves first transforming M t into an transition incidence matrix, M t,i a 0 or 1 matrix indicating whether each box has been entered at all (or not). Since in the binary representation of 729, all 107 four boxes of M t are occupied, the M t,i 1 1 1 1 indicates that all four kinds of transitions are possible. Since we remain in the context of a 0,1, two state system, the growth rate of the possible equals the logarithm, base two, of the sum of the entries in the boxes of the left-top-row to right-bottom-row diagonal called the trace and HT log 2 (1 1) log 2 (2) 1. Consistent with intuition, since every transition is possible, the topological entropy of M t as indicated in its M t,i is maximal ( 1). Another expression equal to the sum of the trace (the sum of the upper left to lower right diagonal) in a square matrix, is its leading eigenvalue, most often symbolized with a lambda, 1 . The logarithm of the leading eigenvalue of the transition incidence matrix is equal to its topological entropy. Symbolically, H T (M t,i ) log 2 ( 1 ) log 2 (2 ) 1. Standard elementary linear algebra texts describe how to compute eigenvalues, these relations and related operations as well as their foundational theorems. Before computing the entropy of the distribution of probabilities among the possibles as the metric entropy, H M , let us notice again that the occupancies in the four entry boxes of the transition matrix M t are not uniform, M t 1 3 3 2 . This leads naturally to the intuition that for this series of binary transitions, HM, in contrast with H T , will not be maximal, i.e. not equal to 1 and the nonuniformity of H T and H M is a computational expression of what we mean by a state of in-between entropy. These entropies are identical and their difference 0 for transitions reflecting maximal entropy, as might be realized in a very long series of fair coin flips in which the entropies 1. Entropy will be minimal when flipping a two headed coin, here the entropies 0. More compactly, the non-uniform probabilistic, metric entropy, differing from the maximal topological entropy indicates that the system is in a dynamical state of in-between entropy, written as H T - H M 0. In the computation of the metric entropy, H M , the M t is transformed into a transition probability matrix, M t,p , called a Markov matrix named for one of the two great Russian mathematicians, both students of Pafnuti Lvovich Chebyshev, the Markov brothers. The entries of each row in the M t are transformed into transition 108 probabilities, so that the sum of the decimal fraction parts of all the boxes in each horizontal row add up to 100 , or as a real number, 1.00. Recall that in the example we ve been using, the binary expansion of the natural number 729, the 1 3 transition incidence matrix is M t and its Markov matrix is top row, 1 4, 3 4 3 2 and bottom row 3 5 , 2 5, i.e. M t,p 0.25 0.75 . Matrix multiplication of Mt,p by itself 0.60 0.40 repeatedly is equivalent to tracking the temporal evolution of the transition matrix s probabilities until the resulting matrices move toward, converge onto, a steady state; each self matrix multiplication step represents what results from the passage of one unit of time. The convergence to equilibrium values is continuous and gradual. When the steady state is reached, both rows become identical. For this example, M t,p M t,p or M t,p 2 0.5125 0.4875 ; M 0.3900 0.6100 t,p 4 0.4527 0.5472 ; Mt,p 8 0.4445 0.5554 ; 0.4377 0.5622 0.4443 0.5556 M t,p 16 0.4444 0.5555 0.4444 0.5555 which for the first four decimal places remain the same for additional times of self multiplication. Note the convergence of the top and bottom rows to the same asymptotic values. Books discussing the multiplicative and other behavior of these nonnegative matrices are numerous and frequently appear in matrix algebra texts under the rubric of the Frobenius-Perron theorems. Using the entropy formalism of Claude Shannon as developed previously, H M is computed as the sum across either of the identical rows of each probability times its logarithm, log( 2 log( 2 )) remembering from above that we are working in base 2 logarithms and to change the minus sign (resulting from taking the logarithms of decimal fractions) to plus: H M (M t,p ) .4444 log(.4444) .5555 log(.5555) .9911 The nonuniformity of the box occupancy probabilities is reflected in the difference between the topological (maximal estimate) and metric (minimal estimate) entropies and is therefore quantifiable and computable: H T - H M 0 1.00 - 0.9911 0. 0089. If the maximal and minimal estimates of the entropy were equal and all the probabilities boxes in each row asymptotically contained the same 109 probabilities as in M t 0.5 0.5 , it would retain these values across an infinite 0.5 0.5 number of self multiplications such that HM .5 log(.5) .5 log(.5) 1 and H T - H M 1.00 1.00 0. 0. Complexity is a more general and variously defined descriptive expression than that of the topological and metric entropies and as such brings with it many kinds of definitions and computational approaches. One choice that s intuitively appealing assumes that the relative complexity of an expression representing, say an outcome of an observation or experiment, is reflected in the minimum length of the most compressed program (algorithm) from which, given a suitable dictionary of symbolic equivalencies, one can reconstitute the original expression. Increases in what some have called algorithmic complexity, AC, are reflected in the growth of this minimally descriptive symbol series length. Karen Selz s approach to compression and AC, similar to one proposed by Paul Rapp, involves the identification and symbolic representation of repeated blocks of symbols called words. For example, given an arbitrary, exemplifying binary series: 011011101010001010101001001010011, we first find the longest repeated word 1010100 and represent it with the symbol, a, yielding a shortening in the original series, 011011a010a1010011. The next longest repeated word is 011 is replaced with b, yielding a further compression, bba010a1010b. The next remaining binary word is of length equal to the previous one, 010 , which, when replaced by c results in the series bbaca1cb. This can be further compressed to the final representation with four symbols and for the sequentially repeated b, one exponent of degree two, b 2 aca1cb. From this representation and a dictionary of letter equivalent words, the original binary expression can be recovered. For a quantitative index of the algorithmic complexity, AC, of the compression, Selz computes the sum of the number of distinct symbols plus the sum of the natural logarithms of the exponents: 4 log (2) 4.6931. The binary representation of 729, 1011011001, discussed above, is compressed by making two 101 s a and two 0 s b resulting in a 2 1b 2 1. Having three distinct symbols, a,b, and 1, and two exponents of two, its algorithmic complexity is equal to, AC 3 2 log(2) 4.38. 110 In addition to H T , H M and AC, if computable in a meaningful way, the deviation of the binary series under study from the idealized random behavior of a fair coin could serve as another index of complexity. Common descriptions of the amount of randomness in a series are indices of run length If a run length is defined by number of elements in a series of the same symbol before it stops, counting the number of run boundaries by reading along the binary series and counting the number of switches from 0 1 or 1 0, then the binary expression of 729, 1011011001, has six runs. The great analytic probabilist, William Feller, among many others, including the distinguished 18 th Century Swiss family of mathematicians, the Bernoulli s, proved that computing a standard run score, srs, involves three terms, the theoretical expectation, E, of the number of runs, r, that is E(r), the number of runs actually observed, Obs(r) and the variance of the expectation of the number of runs, Var( E(r). If the srs is less than zero, then the binary series is more random than that resulting from the flipping of a fair coin. Interestingly, when a normal group of subjects are instructed to simulate what they think of as a random coin flip determined series of 0 s and 1 s, their srs tends to be lower than zero, over-estimating the degree of irregularity that randomness represents. Long runs occur by chance far more often than intuition would dictate. If srs is more than zero, than the binary, coin-flip series is more ordered than random. If srs equal to zero, the binary series is not discriminable from fair coin flipping randomness. The expected number of runs, E(r), can be estimated by a fraction formed by twice the product of the number of heads times tails divided by the sum of the heads and tails to which is added one. That is, E(r) 2 6 4 1 5.8. The average 6 4 variation around this expectation called the variance, Var, of the expectation, Var(E(r)), is estimated by a fraction formed by (take a breath) twice the product of the number of heads times tails twice the product of the number of heads times tails minus the number of heads and minus the number of tails, all over the product of the sum of the heads and tails squared, times the sum of the number of heads 111 (2 6 4)(2 6 4 6 4) and tails minus one. That is, Var(E(r)) 2.03 . From these 2 (6 4) (6 4 1) three terms, we compute srs Er () Obsr () 5.8 6,0 0.140 . We conclude that Var( E( r) 2.03 the standard run score of the binary series is less than zero and therefore more random than the expected random behavior of a fair coin. Recall from the last chapter that Karen Selz, Martin Paulus and others have shown that various personality types and psychiatric diagnoses are associated with characteristic deviations of srs from zero. When the winners of the 2002 Annual World Rock, Paper Scissors Championships held in Montreal Canada were interviewed, they said that sensing their opponent s characteristic style of deviations from randomness in what we would call the continuum from maximal to minimal entropy determined their successes. We characteristically use all of these measures to estimate quantitate the deviation from randomness standard run score, srs, algorithmic complexity, AC, as well as H T and H M ,, the topological and metric entropies. The encounter with mystical Absolute Reality, though sought by arduous contemplative and other practice, emerges spontaneously, most often during times of apparent mental emptiness, detachment, a state in which rationally instructive thought and the choral background of brain voiced, emotion-ladened, commentary have disappeared into the entropic soup of formless silence. It is this indescribable, ineffable, stillness that we think serves as the psychophysiological anlage of mystical experience. The mathematical systems yielding quantitative metaphors, descriptive ideas about dynamical entropic statistical emptiness and form inspire the use of mathematical structures in place of localized lumps in brain meat as personalized icons of doing. Our wedding of well-defined mathematical objects to metaphoric elements of more general nonverbal intuition has a long tradition. Rene Thom s 1990 book, 112 Semiophysics, discusses mathematical mechanisms and their representations in mind and the real world, analogizing mathematical objects and the intuitions they generate to mechanical tools. Similar ideas are found among the four liberal arts of the ancients: Number, Geometry, Music and Cosmology. The epistemologies of all four require, then and now, the intuitive use of mathematical objects, conscious or unconscious. Examples can be found in conceptual issues of Geometry and Number with implications for relationships between man s physical and psychological worlds. One set of articulations were attributed to the shapes of Platonic solids found among the Neolithic stone circles in Aberdeenshire, Scotland, 2000 years before Plato. Each symbolized particular physical and psychological themes. All manifested equal edges and every face of each solid was the same perfect polygon. The solid with four equilateral triangles manifesting four vertices and faces, the tetrahedron, represented the physical element, Fire, and the personal psychological climate of a choleric, fiery nature. A Platonic solid composed of eight equilateral triangular faces, two tetrahedrons annealed, the octahedron, signified Air in physical composition and optimistic hopefulness in psychological disposition. Six square faces together making a cube, evoked the elemental physical component, Earth, and its human expression as a phlegmatic, apathetic personal style. Twenty faces, all equilateral triangles, constitute an icosahedron indicating Water and a dominant feeling state of melancholic sadness. Like onomatopoeic words and pictorial script, the three dimensional geometry of these Platonic solids feel like what they came to symbolize. The personality styles symbolized and evoked by the Platonic solids continue to be used to this day. For example, they compose the basic elements of the constitutional categories of remedy in homeopathic medicine as introduced over 200 years ago by Dr. Samuel Hahnemann in his classical Organon of the Medical Art. The assignment of clinical remedy in homeopathic treatment combines consideration of the presenting physical symptoms and signs, the what, with intuitive discernment of the patient s constitutional type, the who. To the homeopathic physician, tetrahedral fire is suggested by the traits of personal magnetism, courage and inspiration as well as egotism, strong desire and rage. 113 Octahedral Air people intellectualize objectively in confident and insensitive aloofness. Those symbolized by cubic Earth are realistic and practical, a what-yousee-is-what-there-is belief along with rigid, materialistic ways. Icosahedral Water types experience emotions strongly and are sensitive, intuitive, nurturing and can be overly sensitive and dependent. What intuitions and observations relevant to self, subjective and objective, emanate from the stylistic properties of feelings as derived from a time series of observations of their associated actions suggested by their statistical measures, H T , H M , AC and srs? The yield is rich and unexpected. We find an enjoining of values of these measures, characteristic and invariant for each person, with the brain and behavioral actions of entheogenic agents and Zen meditation in contrast with worldlier focused attitude adjusting experiences and drugs. The range of their potential values helps rationalize a person s inclinations along the continuum of attachment and detachment. This quantifiable dimension augers positively and negatively with respect to the requirements for mystical experience as poetically described by the ambivalent warrior prince, Ardjuna, in conversations with Lord Krishna in the Bhagavad-Gita, the most famous and influential component of the Mahabharata of Hindu scripture, A similar theme relevant to the occupancy of a propitious range of values for the measures, H T , H M , AC and srs, is found in what is often called the Second Nobel Truth as explained by the Buddha, Siddhartha Gautama, in lectures recorded in a deer park near Benares. We begin with the results of some drug experiments conducted by behavioral neurophysiologists and end with suggestions about the intuitive relevance of the conceptual content of these measures to the universals of mystical experience and perhaps to elements of spiritual transformation. As described previously, the brain and behavioral process of habituation is characterized by a decrease in the strength of an observable response to the repetition of an evocative stimulus. Imagine the decrease in our startle responding when a once unexpected loud noise continues to occur. Sir Charles Sherrington, the early Twentieth Century British pioneer in neurophysiology showed that animals and humans gradually stopped the withdrawal of their limbs with stimulation of its 114 skin when it was repeated several times. Columbia University s Nobelist in the brain sciences, Eric Kandel studied the neural mechanisms of habituation as a primitive, accessible and fundamental example of learning, the association of a nonresponse to a usually evocative stimulus, in Aplysia californica. The sea snails learned not to respond to a local irritation with a gill-withdrawal response when exposed to it many times. They learned to stop paying attention to the perturbation. The background noise appears to disappear after a little time in the Mall. Though his exploration of its synaptic mechanisms involved the neural circuit of the gill-withdrawal reflex in the marine snail, its generality and human relevance is well established. Hundreds of papers can be found reporting the results of studies of habituation in normal humans under all kinds of circumstances as well as in psychopathological conditions. That it samples something both fundamental and persistent is suggested by studies in children by one of Kandel s students, Michael Lewis. He found that the rate of habituation of a startle response to a bright light in one-year-old human infants predicted success in many kinds of learning and other cognitive functions when the children were tested again at the age of four. Pavlov s experiments studied habituation of the classically conditioned salivary response to meat powdercoupled bell sounds in dogs in which the bell was followed by nothing, not only led to inhibition of the salivary response with unreinforced trial repetition but generalization of the inhibitory state such that dogs were observed to freeze in motionless catatonic states for hours. In the language of our statistical measures, the fixation of the dog s behavior would manifest minimal entropy in the form of H T H M 0 and the lowest complexity values for AC and srs. Entheogenic agents like LSD or mescaline inhibit the process of habituation and fixation, maximizing the entropy of behavioral measures, H T , H M 1 and high complexity values for AC and srs. Mark Geyer and David Braff, Professors at the University of California in La Jolla and Michael Davis, a Professor at Yale s School of Medicine, found that entheogenic agents, such as mescaline and LSD, as well as naturally occurring indoleamines, such as DMT, which occurs naturally in human brain, prevented habituation of startle responding in mammals. Each sound repetition was treated as 115 though it were new. The baby is Buddha is an Eastern philosophical aphorism that captures the fresh spiritual state of each moment s openness and readiness, the inbetween entropies for new information surprise. Geyer and Martin Paulus found that entheogenic agents such as Ecstasy also increased the complexity of the patterns of spontaneous motor movement made by rats exploring a bounded space. Recall that they partitioned the floor to document the exploratory motion in the context of a sequence of location transitions, readying the data for the computation of some of the measures previously described. Following the administration of entheogenic agents, the partitioning of the space that the animals were exploring, into a lattice of discrete boxes and the encoding of each square with a symbol, the computable entropic and complexity measures such as H T , H M , AC and srs were increased. In contrast, the administration of amphetamine-like stimulants led to a different kind of behavioral activation than that induced by entheogenic agents. The measures of H T , H M , AC and srs reflected decreases in entropy and complexity. As University of California s David Segal and others documented in the 1960 s, high doses of amphetamine led to animals into in a minimal entropic state, they were frozen in stereotyped rocking, nodding and circling motions. High dose amphetamine-treated humans develop rigid fixation of ideas, low H T , H M , AC and srs, in man this is seen as inescapable obsession and paranoid delusion. There is considerable medical evidence that Hitler took large doses of amphetamine (Benzedrine) daily for the last 20 years of his life. The entheogenic drug-induced phenomena of na ve openness and absence of fixation, states of high entropy and complexity, behavior generating higher than control measures tending toward maximal values of H T , H M , AC and srs , are subjectively reflected in the results of personal experiments of University of Chicago s Heinrich Kluver as described in his Mescal and Mechanisms of Hallucinations (1966). Observing himself after the self administration of a crude preparation of peyote cactus, he said that it led to glad feelings of unfamiliarity and a marked reduction in his tendency for boredom (habituation), a detachment from old ways of thinking and a new openness to a rush of seen again for the first time experiences. Everything in his personal world, no matter how mundane, became a 116 source of new interest and fascination. New thoughts replaced old ideas in a continuing process of new formulation. All of these things feel like they emerge spontaneously, making ideas about being born again and personal renewal concrete. We remember that Timothy Leary and his wife in their privately circulated pamphlet, Neurologic, described their entheogenic drug-induced escape from the habitual order as supported by the learned and established mental-manipulative and socio-sexual brain circuits , an escape to a fresh new planet of possibilities. Louis Lewin, the early Twentieth Century German pioneering ethnopharmacologist described his subjective responses to peyote as a flood of lively, numerous, random fantastic creations of perception and thought, all demanding his fresh attention. To complement these subjective reports, experimental tasks involving habituation, such as the disappearance of a brain wave sign of arousal to sound or light stimulation, called alpha blocking, the eyes-closed resting pattern of 8-14 cycles per second, hz, waves perturbed into the arousal pattern of 20 hz, did not habituate when the subjects were pretreated with entheogenic drugs. This finding was also true for the results of years of meditative practice. In his 1974 Psychophysiology of Zen, Hirai reported that Soto Zen monks, after many years of practice in mindful, one pointed, be here now meditation, unlike normal controls, continued to show alpha blocking surprise, brain wave arousal patterns, throughout the course of repeated stimulation with auditory clicks. James Austin in his monumental book, Zen and the Brain (2000) summarizes other studies of habituation in TM practitioners and other mediators in which eyes open versus eyes closed, the set and setting and variations in other experimental variables blurred these results to some degree. He develops the case that years of meditation-induced brain states of emptiness, we would say of maximal entropy and minimal form, set the stage for the ecstatically insightful flood accompanying the sudden insight into a Zen koan s solution or the transcendent startle induced by a roshi s shout. A meditative struggle concerns how one can think about not thinking. That is, thinking of nothing. This is generally thought to be the most important part of Zen meditation, called zazen. Achieving high values for brain and behavioral H T , H M , AC and srs supply the formless infrastructure for ecstatic transformation. 117 In healthy people, an awareness of self is not lost during this time of invasion by and fusion with what feels like an independent agency. At full force, the mystical experience is transfixing, tending to paralyze movement and speech, and at the same time bringing with it the capacity for clear sensory and sensory-integrative lucidity. This new seeing brings previously unnoticed things to attention and makes old things new. Perhaps most striking is the passive (unsought) experience of the unification of erstwhile disparate, apparently unrelated thoughts and feelings. The yield can be the sudden emergence of deep relationships between apparently very different constructs, beliefs and formalisms leading to unanticipated and unsought integrative connections. In mathematics, this experience can lead to entirely new kinds of theorems and proofs; in the physical and biological sciences, a previously unseen organization of the data generating new global relationships and potential scientific laws. In our spiritual life, the ineffable richness of the direct experience of God. Mysticism-negative interpretations of these experiences have always been attendant. To the extent that the mystic s inward turn is seen as a detachment and implicit derogation of the external, consensually real world, it is often seen as alienating from established institutions of religion and government. Psychoanalytic practitioners may label it a regression to primary narcissism. Most churches tend to discourage its practice as counter to the dominant social hierarchy and its governance. Governments pass laws against its practice and manifestations, a current example being modern Chinese governmental reactions to the Tibetan Buddhism of the Dalai Lama and the yogic practices of the Falon Gong. Agencies of established society such as the institutions of licensed medical practice make the dominance of the inner world of mysticism subject to diagnoses ranging from the narcissistic character disorders to interpretations of the reported extraordinary experiences as manifestations of schizophrenia, manic-depressive disorder or temporal lobe epilepsy. Rejection and fear of the transcendent states lead to uninformed and politicized anti-narcotic laws, grouping heroine and cocaine with the entheogenic (recall: engendering connection with the sacred within) agents such as the Huichol Indian s peyote and the Amazonian Indian s yage, obstruct and socially 118 taint the personal use of plants and practices that facilitate access to the mystic way. Rational, socially responsible and otherwise kind and tolerant Presbyterians, Unitarians and Reformed Jews can be suspicious and rejecting of what appears to them as the politically tinged mass hysteria of praying in tongues and other rituals of Charismatic Christian rebirth and renewal or the ecstatic states of Orthodox Jewish chant-dancing. Modern brain and behavioral scientists, remaining under the philosophical spell of logical positivism and its requirement for operational definitions and (external) experimental disconfirmability, operate from the position of strong doubt when mystical experience is addressed. What is striking and strange about how science plays the game of mysticism research is exemplified by the publishable increment in credibility concerning a meditation-induced change in state of consciousness when Boston University s William Benson reported the accompanying relaxation response, a sudden decrease in heart rate dive reflex of a seal or what the heart rate does when you duck your head suddenly forward into a sink full of water. Decades are spent getting professorial tenure for research yielding things we have already experienced and know directly and for ourselves. Recall that the existence of visual imagery in the human, doubted by an experimental psychology of the time in which William James self-exploratory observations were viewed as revolutionary, was made more credible by evidence for the existence of a subjective spatial metric: verbally reporting subjects, when timed, took longer in their minds to go from one room to another one that was down the hall then going to the room that was immediately next door. We use brain chemical, pharmacological, neurophysiological and neuroanatomical localization and computation of characteristic statistical patterns in time dependent brain and behavioral observations to the same end. Further Readings for SOME ENTHEOGENIC ENTROPIES 119 Phantastica: A Classic Survey on the Use and Abuse of Mind-Altering Plants. Louis Lewin, Park Street Press, Rochester, Vermont, 1998 (First published in 1924) Indole(ethyl)amine N-methyltransferase in the human brain. M. Morgan (Poth) and A. J. Mandell, Science 165:492-493, 1969 Enzymatic formation of tetrahydro-beta-barboline from tryptamine and 5- methltetrahydrofolic acid in rat brain fractions. L.L Hus and A.J. Mandell, J. Neurochemistry 24:631-636 The Sacred and Profane, The Nature of Relgion. Mircea Eliade, Harvest Books, Harcourt, San Diego, 1957 Hashish and Mental Illness. J. J. Moreau, Raven Press, N.Y. 1973 (First published in 1848) The Neurochemistry of Religious Insight and Ecstacy, A.J. Mandell in Art of the Huichol Indians, Fine Arts Museum of San Francisco, Abrams, N.Y. 1978 Altered States of Consciousness: A Book of Readings. Charles T. Tart, John Wiley, N.Y. 1969 Soul; God, Self and the New Cosmology. A. Tilby, Doubleday, N.Y. 1992 Pihkal: A Chemical Love Story. Alexander Shulgin and Ann Shulgin, Transform Press, Berkeley, CA 1991 Psychochemial Research Strategies in Man, A. J. Mandell and M.P. Mandell, Academic Press, N.Y. 1969 120 The Biology of Transcendence, J. C. Pierce, Park Street Press, Rochester, Vermont, 2002 Psychiatry and Mysticism, S.R. Dean, Nelson-Hall, Chicago, 1975 Zen and the Brain, James H. Austin, MIT Press, Boston, 2000 Perspectives in Biological Dynamics and Theoretical Medicine. Eds. S.H. Koslow, A.J. Mandell and M.F. Shlesinger, Ann. N. Y. Acad of Sci. Volume 504, 1987 Consciousness and the binding problem, W. Singer, Ann. N.Y. Acad. Sci. 929:123- 146. Mixing properties in Human Behavioral Style, Karen A. Selz, U.M.I., Ann Arbor, MI. 1992 Dynamical Systems and Ergodic Theory, M. Pollicott and M. Yuri, London Mathematical Society, 1998. Introduction to the Modern Theory of Dynamical Systems, A. Katok and B. Hasselblatt, Cambridge University Press, Cambridge, 1995 121 CHAPTER 6: PENTECOSTAL PHASE TRANSITIONS By their late teens, my two offspring, sons of an Alcohol Anonymous, born again, originally Christian Science mother and a spiritually struggling and mostly secular Jewish psychiatrist father, had been unfulfilled in their hungry search for the experience of a personally meaningful God. After years of perhaps too academic conversations with their parents, visits to a variety of houses of worship, talks with University of California religion professors and evenings with a Ph.D. psychologistrabbi and friends at the neighborhood synagogue, they turned somewhere else. Some of their high school friends who were Evangelical Christians took them to their Assembly of God, Pentecostal and other Christian, direct experience of God, churches. They came to love what they sometimes called their Wednesday night and Sunday morning rock and roll, services. Struggling with the post-Vietnam cynical mistrust of authority and the marijuana apathetic nihilism of the 60 s and 70 s, and clearly not enticed by what they regarded as their father s vacuous m lange of New Age Eastern Religions and secular brain science, they spoke about their sudden and life-changing experiences. They studied, memorized and quoted the Scriptures as part of their commitment to their word churches. As erstwhile cynical teenagers, now positive and brimming with faith, I secretly called it denial, they described what was happening to them as New 122 Birth. They told me that, paraphrasing Paul in Romans, they had been saved and were living New Life, not earned by good works as in Hebraic Law, but by faith through God s Grace. Jesus had paid their bills through His sacrifice at Gethsemane. They both tried to explain inexplicable feelings of new energy, the unseen hand of spiritual guidance and peace. One told me that the wind of the Holy Ghost had taken him to the front of the pulpit, tearfully, thankfully, on his knees, to accept Jesus as his personal Savior. They described how they had opened their lives to the spiritual strength of living in Jesus. Many things about them changed: their tastes in food, from hamburgers to vegetables and fruit; from the jazz of John Coltrane and McCoy Tyner and the cynicism of Frank Zappa s only fourteen and knows how to nasty , to playing strum guitar and singing the hymns of Wednesday night healing services; from t- shirts hanging out of raggedy, Southern California, boutique store purchased, stressed jeans, to polished dark shoes, starched white shirts and gray or tan khaki slacks, sometimes with ties. They became cool, respectful, rational and more distant with me. They repeated often the scriptural story about young Jesus, accidentally separated from his parents on a visit to Jerusalem. When by standers asked Him about where His parents were, He answered, I have no mother and father. They told me that they, like God s son Jesus, were filled to completeness with the Father and the Holy Ghost. On one hand, their experiences sounded like those of the activated mind state of Abraham Abulafia, a suddenly emergent Nevesh and my father s metaphysical talks about personal transformation. My personal secularcomputational brain God spoke to me of the mechanisms of sudden personality change, a phase transition in complex systems, in the context of the nonlinear dynamics of brain and behavior. On the other hand, their global changes in mind felt both alien and threatening. When I came to learn their churches full list of expectations, rules, requirements and sociopolitical policies, I found that I could not identify with this system of spiritual knowing at all. It felt rigid, righteous, unforgiving, even angry, and it frightened me. I never anticipated that my culturally enriched, intellectually sophisticated sons would be quoting Pat Robertson and Jerry Falwell. 123 The Freudian psychoanalyst of my younger days tried to write off these (to me) cataclysmic changes as manifestations of male sons unconscious oedipal strivings to father kill and thus become. After some mulling, my theory did not wash. They spent time accompanying themselves on guitars, singing hymns and shouted Corinthian Paulisms to small curious crowds gathered in beach parking lots, city parks and inner city street corners of Southern California. They passed out pamphlets containing New Testament tracts and formulaic aphorisms promising the post-repentance blessings of Jesus. The eldest, articulate, bright and prematurely worldly, had been an ardent memorizer and appreciator of Shakespeare, especially the mystical Tempest, the music of Aaron Copeland and Igor Stravinsky, the improvisations of Charlie Parker and Cannon Ball Adderley and the provocative literature of the time including Jack Kerouc s On the Road and Hunter Thompson s Fear and Loathing in Las Vegas. They loved riffing with the Voltairean pungency of Frank Zappa s lyrics. Now, nihilistic humor had become an anathema. Several weeks after my eldest son s transformation, I found him in the garage using a hammer and an empty barrel for disposal as he destroyed his modern jazz and early rock record collection. He ridded himself of all of his fiction and most of the nonfiction books in his young but relatively large personal library. His new energy and high purpose emerged as a clearly defined set of rules of behavior, a strong stand against abortion, frequent talk about the need to escape from the contaminating influence of MTV culture, as well as our years of talk about the biological and physical sciences. Both boys were particularly critical of my Darwinian flavored attempts at scientific explanation of man s inner life using the selective and adaptive neurobiology of brain mechanisms and behavior. They spent increasing amounts of time with Church friends, seldom seeing their old ones. The eldest s college goals turned from plans for a U.C. Berkeley equipped career in literature and creative writing to a none spiritually challenging, objective and practical, Christian free market finance and accounting degree from U.C. s Business School. Gone were shared magical hours of intellectually stimulating, humorous, even scholarly discussions. In place of evidential talk in areas of philosophy, 124 literature and science, their opinions and claims derived exclusively from biblical quotation. Their particularly favorites were Paul s letters and some of the later prophets, particularly Jesus-auguring Isaiah. In the beginning was the word became the real reality. The meaning of life was Scripture as explicated by their book church pastors. They scribbled notes in the margins of their Bible pages during sermons They were displeased when I interpreted the wild imagery and 666 symbolism of Revelations from the point of view of the historicity of encoded political messages, meanings hidden for the safety of the early Jews in their world of Greco- Roman governance. Twenty-five years, before the glut of books by Tim LaHaye, my well-educated sons claimed that Revelations was literal and foretold the coming tribulation that augured the end of the world and ascension to heaven of the believers. My youngest, since childhood a well-read history buff, now viewed New Testament scripture as sui generisly, divinely and literally true. They said the conduct of their lives their meaning had been clarified by the biblical truths revealed to them by The Book. What I did not say was that much of the talk seemed to me to be an intellectually and spiritually impoverished miasma of cant and righteousness. At the same time, their remarkable transformation appeared to be the expression of a powerful and mystical force, the scientific understanding of which has been the ostensible focus my life s work. Why did their alterations appear so alien, strange and forbidding? Born to a home of psychoanalytically and scientifically oriented political liberals, these precociously bright and worldly sophisticated young men were suddenly transformed into, unrecognizable to me, radical Christian Fundamentalists. They are now in their late thirties and remain just as ardent, Christian patriotic, Right Wing voters to this day. The eldest is now an executive in Morris Cerullo s San Diego based, worldwide missionary movement, raising money for revival and media ministries. He travels to and is involved with hundreds of Fundamentalist Christian churches in countries ranging from Argentina and Africa to the Middle East and Russia. He hasn t allow me to contact his children, my grandson and granddaughter, because, in vague talk and mostly silent implication, I and people like me are seen as sources of potentially satanic, worldly 125 contamination. He feels wronged by the way I am. He once chided me about what he saw as my futile spiritual search in what he called the health food Eastern and brain religions. My youngest, only a little less ardent and critical, visits occasionally, and, hands in the air and speaking in tongues, prays to the Lord for my salvation. Of course, this sudden and long lasting personal transformation in the direction of Fundamentalism is well known and almost commonplace in modern American and European Jewish, Christian and Moslem college educated middle class families. The Saudi Arabian World Trade Center bombers were, mostly, well supported children of the educated middle class We recall the famously tragic American radical Moslem, Richard Reid, the would be airplane shoe bomber. My stomach clenched as I heard Richard s sophisticated and obviously caring father share his confusion and struggle to rationalize what had happened to his son. The commonality of this kind of spiritual and life transformations in the educated young makes each event no less painful. On the other hand, we know that healing transformations in the name and spirit of the Christian God can lead to quite positive realities. They are effective in even quasi-secular disguise as in Alcoholics and Narcotics Anonymous, Synanon and in the rehabilitation of the Charismatic Christian, ex-alcoholic, Southern Methodist politician, George W. Bush. Paul Holmer, Professor of Theology at Yale Divinity School gives thanks to the evangelicals who keep alive the radical breach that the gospel is from the nous of this world they (Fundamentalists, Evangelicals) look marginal if you are churchy intolerant if you are ecumenical anti-intellectual if you are trying to systematize in their roughness and abrasiveness. I bring personal and painful witness to these claims. To get to the personal meaning and mechanisms of these transformations, I had to start from somewhere. I am wedded to the belief of the Jewish ecstatic, Abraham Abulafia, and not those of Moses Maimonides, that the human mind in an altered state of activated intellect, man s Nevesh, can understand such mystical happenings. I would continue to work at it. One of the early personal church experiences with my sons religious path came after accepting an invitation to go with them to a Sunday service at their current charismatic church. By then, the eldest was married with children, the 126 youngest, unmarried, was teaching bilingual mathematics in high school. I had waited several years for this occasion.. The meeting took place in a large, gray, unmarked warehouse building that was crowded in back with high stacks of storage cartons. The large, cement floored, open space in front of the storage boxes was occupied by rows of metal folding chairs. They faced an unadorned, elevated wooden platform upon which was a lectern and microphone. Behind the lectern stood a casual array of a dozen or so young people, singing hymns and playing a variety of instruments. These included piano, two or three guitars and upright bass, tenor saxophone, trombone, trumpet, mouth organ and two snare drums. Sounding a bit like a Salivation Army Band, they played and sang, They cast their nets in Galilee just off the hills of brown; such happy simple fisher folk, before the Lord came down the peace of God, it is no peace, but strife closed in the sod. Yet let us pray for but one thing, the marvelous peace of God. The building, used for commercial storage, packaging and mass mailings during the week and a Charismatic Christian word church on Sunday, was located at the rear of an unfinished strip mall. A new and well-polished yellow Cadillac Deville was the only vehicle parked in the no parking zone immediately in front of the entrance to the warehouse. My youngest explained that the car belonged to Carl Austin, the self-discovered and declared pastor, who spontaneously rose up to lead without academic religious training or a conventional ordination. The bright yellow car was explained as evidence of the power of God. Paraphrasing Mark, my son told me he who does not doubt in his heart and believes that those things he says will come to pass, he will have whatever he says whatever things you ask for when you pray, believe that you receive them, and you will have them. The car served as a glorious instantiation of the church s major promise of the rewards of faith. Pastor Carl Austin, a tall, blonde, portly man in his early thirties with a resonant tenor voice, was the youngest of several children of a poor Midwest farm family. He had been a state college drop out and without a career or a job. His sermons contained stories about how he had caught spiritual fire at a revival meeting conducted by Kenneth Hagin of Kenneth Hagin Ministries, aka Rhema 127 Bible Church, Tulsa, Oklahoma. The pastor s witness of the Holy Ghost acting through his life was his personal cure, by transformative Grace, of a triad of selfdestructively sinful addictions: alcohol, gambling and promiscuity. Self-chosen and self-declared, he now served this two and a half year old growing congregation of over 200, mostly young, working families. The young men in attendance at the warehouse church were in shirts and ties, very unlike the more casual garments of even dressy occasions in Southern California at that time. Women were dressed simply and modestly. Most of the children were in Sunday school in a small neighboring store in the strip mall during the adult service. The few that accompanied their parents were remarkably well behaved I was told that most families tithed 10 of their income. They quoted Hebrews, king of the righteous to whom also Abraham gave a tenth part of all . They believed that their tithe would be returned manifold and the yellow Cadillac Deville served as Pastor Carl Austin s personal evidence. From these funds, the congregation supported the pastor, his car, the rental expenses of the Sunday warehouse church and an orphanage in a small Mexican border town. Some of these children, several neurologically disabled, were bussed to the Sunday service for healing. They sat together in a section in the front of the congregation and were the beneficiaries of the second Sunday collection plate, passed around after the first one that was designated for the church and its pastor. The first Sunday sermon I heard in the warehouse followed several awkward minutes of Pastor-directed warm up hugs of neighboring strangers while the choir sang hymns. The songs were accompanied by instruments playing the melody in unison sans harmony, and accented by the beats of two loud drums. As the volume and pace of singing increased, I saw several episodes of ecstatic looks and fainting, dying in the Lord and shouts of praise with upraised hands. The intermittent elevation of the hands during prayer and song appeared to be spontaneous. I was told that the arms were up as antennae, feeling the energy of Lord all around us. The pastor s topic was forgiveness. From Ephesians, let all bitterness, wrath, anger, clamor, and evil speaking be put away from you, along with all malice be kind to one another, tender hearted, forgiving one another, just as God in Christ 128 also forgave you. In the middle of his sermon, which built slowly in tension and volume, the pastor introduced a forty-ish, sparkly eyed, somewhat overweight, dark haired, slightly made up woman who the Pastor said was a witness for the ultimate in Christian forgiveness. She was someone from whom all of us could learn. She was the mother of the 7-year-old boy that he, the Pastor, had, four years before, accidentally killed during a drunken driving episode in his other life. That was the one he was living before he was saved. I was told that he presented her in a service at least once a year. The woman said that her successful struggle for forgiveness led to her being saved. She quoted Ephesians, And you who were dead in trespasses and sins hath he quickened. She looked radiant and hugged the pastor. When my sons introduced me to him as we filed out at the end of the service, the pastor told me that my visit was important to the congregation. He told me that Jews were special in Charismatic Christianity since we would play an important role in the return. He said he hoped he would see more of me. My boys seemed pleased to have invited me. I accompanied them to their church most Sundays, and often for what they called the rock and role healing services on Wednesday night, for over two years. Within three or four months I found myself, the first time while awakening out of a deep sleep, mumbling sounds that I was told sounded like some unknown language, I was praying in tongues. At some services it happened spontaneously accompanied by an almost ecstatic feeling accompanying the surrender of willful control. This was usually accompanied by the release of new energy. I recall thinking that the spontaneous, nonsensical linguistics shorted out my verbal and obsessionally logical left brain allowing the unbridled expression of my hysterical right brain. Sometimes in agreement with an insight offered in a sermon or when particularly moved by a hymn, I found my hands lifting skyward, right hand and arm higher than left, with a high feeling of trust and delicious surrender of conscious cognitive control. Reading the New Testament s Acts, I learned that we were re-enacting the scene of the Apostles in the upper room. Those gathered there were the ones chosen by the risen Jesus to be able to see Him, the list including Peter, James, 129 John, Andrew, Philip, Thomas, Bartholomew, Matthew, James, Simon and Judas. they were all filled with the Holy Spirit and began to speak with other tongues, as the Spirit gave them utterance The secular psychoanalyst in me tried to make an analogy with the joyful jazz lyrics of Ella Fitzgerald s scat singing, I d done a little of that during my small jazz group pianistics as an a adolescent. I thought about how verbally paralyzed stutterers could be articulate when singing what they mean when they could not talk it. I wondered about the relevance of the spontaneous poetry of slams and Hip Hop rapping. We attended what my sons called charismatic black Baptist churches in South Los Angeles and Long Beach. These often four hour services usually featured two wonderfully harmonic echoing choirs with organ and drum punctuation of the speech-singing, sermonizing Reverend. Large and beautifully dressed black women sang operatically and danced gracefully down the aisles. I joined my sons in this joyful noise for these long services and, exhausted, I was forced to go home for a Sunday afternoon nap. In spite of what could be regarded as validating experiences with the real life Holy Spirit, I continued to be generally confused and even more deeply estranged. An inner voice kept recalling my spiritual failure as a parent and being traitorous to my Jewish ethnic identity by Christian church attendance. I tried to understand how my sons had traveled from where I thought we were living together to this entirely new world. How did it happen? Could the path going there and back be meaningfully reconstructed and then reversed? This idea is consistent with the medical dictum that knowing the cause, the treatment logical follows. My education had shown me such assumptions of reversibility need not be true. Contrary to the beliefs of early physical mechanics, medical psychiatric history takers and psychoanalysts reconstructing childhood events, the modern physics and mathematics of complex systems says phase transitions in complex systems are probably not reversible, at least not simply so. One of the features of global changes in complex systems, often called bifurcations or phase transitions (think heated water going suddenly to a boil), is their dramatic discontinuities in behavior. Knowing only the initial and end state, phase transitions in complex systems do not allow for point-to-point backtracking or specific linear-causal 130 understanding. These discontinuous and global transformations are the stuff of miracles, especially for physicists. Even with respect to initial and end-states, rather than using straight forward phenomenological observation, the mathematical and physical theories of phase transitions are usually dependent on not necessarily intuitive, derivative physical quantities. Their verbal representations are often not concrete but metaphoric. This retreat to derived and abstract, far from the primary data computables, may be more evidence of man s many insufficiencies in understanding of the mysteries that are often placed in the spiritual realm. Driven by an effect that contributes to cause, like the faith-driven abandonment to God that generates more faith, a drop of water hanging from a faucet is pulled down by its own gravitational field as the thinning neck of the drop facilitates its own further thinning. A gobbet connected by a thick neck to the main drop begins to separate. The neck between them thins and breaks, and one becomes suddenly and irreversibly two. A continuous structure has suddenly become discontinuous in finite time at what is called a singularity. Since the single measurable feature that dominates the water s behavior around this singularity is the diameter of the thinning neck, a derivative physical, one-dimensional observable, neither the details about where it all began (called the initial conditions) nor the path it followed to get to the moment of fracture, are predictively relevant with respect to the sudden transition. Considering this kind of phenomenon going on in our brains, choosing between theories of behavior that involve changes in brain cell groups and or brain chemicals versus those that involve behavioral quantities, may be neither possible nor necessary. The challenge is to place the problems of cataclysmic change in brain and behavior in sufficiently abstract and universal terms that can be represented in some low dimensional, computationally accessible space of variables. The simplification and stereotypy of behavior around singularities reduce the number of features that are required to discuss the dynamics of change in what 131 would otherwise be a complicated beyond reach situation. One of the properties found around singularities, is the loss of absoluteness in contextual characteristics such as the scale of the observation. We no longer can say that what we are studying happens in inches or miles, in seconds or days, now or in the past. In the place of a single unit of relevant measurement, we have a distribution of spatial and temporal feature sizes that stretch toward both the infinitely small and the infinitely large. We can illustrate a dynamical transition involving the passage of the system through a singularity by using the metaphor of another kind of water experiment. If we pour a small amount of water through a filter full of coffee grounds, or watch our coffee maker do it, the first spurt of water makes an incomplete path of wet grounds in the bed of dry ones. The next bit of water soaks this path more thoroughly and may form additional and multiple, new and branching, incompletely penetrating paths. Eventually, on just one more of these pourings, a connection in the paths occur, such that the water snakes all the way through the coffee grounds and the first brown drop of coffee falls into the pot. At this flow singularity and opposite to the dynamic of a faucet water drop, a discontinuous system of pathways becomes continuous in finite time in a process called percolation, Trying to set up a predictive model, we can count the number of water deliveries that occur before the first drop finds its way through. Repeating the experiment many times yields a span of the number of pours required to reach the singular point of percolation. If we do the experiment enough times, the distribution of the number of pours required to reach percolation will range from one toward infinite. In the neighborhood of the transition, time as recorded as the number of small pouring events may stretch. In aa comparable system, as elegantly described by Detrich Stauffer in his Springer-Verlag book on percolation, multiple hot spots in the woods can suddenly fuse into a forest fire. Isaiah said, glorify the Lord in the growing fires of dawn Faith fires spreading through a faithless dense forest, its hot irregular front damped by the disbelief of water-filled leaves, or disillusionment gaps of already burned out trees, can, under the right motivating conditions of dryness, wind velocity, tree 132 density, kindling temperature and desperation-induced willing of faith, sweep through the entire woods in a sudden blaze. This is the spirit of percolation. Computer simulations of percolating blazes generate a multiplicity of life times of forest fires near the singularity that represents the transition to a global conflagration. Mentioned previously is Rudolf Otto s 1917 book about the characteristics of religious experience, Das Heilige, The Sacred, which described phases in the discontinuous transition from everyday life to the wholly other (ganz andere) reality of the world of the sacred. They include intense, numinous experiences of fearsome ambiguity, dawning awareness of awesome mystery, revelation and appreciation of the majestic power and finally, entrance into a reality of an entirely other place and time than the natural and secular which Mircea Eliade called profane. In his 1958 book, Patterns in Comparative Religions, this well-known historian of religion called the revelatory occurrence of sacred reality an hierophany. Eliade s classic work, The Sacred and the Profane, contrasts the homogenous, spiritually formless and relative world of the profane with the results of passage through spatial and temporal singularities to a place and time that are not of this world. Poincar said that the brain did not know of absolute space, but rather established a model of it through internal reconstructions of sequential sensory experiences that accompanied our exploratory movements. Activity generates the internalized, partial differential, equations (describing changes in the observable with motions in space) required for representing the dynamical cartography of the world. It was Poincar s habit to topologize the dynamics of motion in mathematical problems that lacked analytic solutions. In this way, simple algebraic operations replace some of the insoluble problems of the calculus. Eliade s sacred space defining singularity in the plane that breaks profane homogeneousness, a center point that is no longer a circle, can be viewed also as Poincar s topological center. His topological brain theory found expression in the formal representation of internal space as the invariant product of an organism s displacement groups of imagined or real physical movements around such singular fixed points. The operational object called groups defines this kind of algebraic, mathematical structure and motion. 133 associated with the loss of habitual temporal-spatial contextual moorings. A mind at time one and the same mind at time two are unconnected. They are wholly other. In much the same sense, for Eliade, sacred time, like space, is neither homogenous nor linearly continuous. Sacred time is circular, recoverable and reversible. Past, primordial, mythical time can exist in the present. Religious festivals are recurrently ontological, allowing the recovery of the sacred time such that their past and present expressions are the same. Rebirth is new birth. In the language of the North American Indian Tribe, the Yokuts, the term for world (cosmos) and year are the same. A year and the world has gone by, only to start again. The Dakota Tribe says that the Year goes around the World. As Elaide has said, at each New Year the world (is) recreated and to do this is also to create time the sick man becomes well because he begins life again with its sum of the energy intact. Healing by becoming another or renewed self may become a frontier science in the yet unexplored field of phase transition medicine. The quality of separateness, discontinuity in states, as occurs in the samedifferent inside world, is much like that found in the stages of anesthesia. Each stage of anesthesia is ganz andere from the others. In Stage I anesthesia, fast frequency, low voltage brain waves are observed and accompanied by a two Martini-like, mildly activated, sedated but exhilarated high. Stage II, the next deeper stage of anesthesia, is marked by the sudden emergence of intermittent bursts of high amplitude brain waves, and animals and man demonstrate bizarre postures, hallucinatory phenomena, fixed staring, and sometimes movements that look like acting out some symbolic drama. This stage marks the beginnings of the loss of responsiveness to painful stimuli. In the sudden drop into Stage III, a low voltage mix of mostly slow and some fast brain waves can be seen associated with depressed consciousness, complete insensitivity to pain, slow regular respiration and an unexcitable cardiovascular system. Stage IV is the deepest stage of anesthesia. This state is characterized by very low voltage, almost flat brain waves, a loss of spontaneous breathing, the collapse of blood pressure and, finally, cardiac irregularities and death in cardiac arrest. These are both discontinuous and global brain state phase transitions. 135 primary process by Freud and his followers. This forgotten language of the unconscious, an archaic needs and fear-driven tongue lurking beneath our supposedly objective discourse, comes to dominate themes of communication in the middle of these unfinished spiritual transitions. The Rorschach Test of master meditaters and LSD users overflow with conflictual primary process images, as does the talk of patients on the verge of schizophrenic decompensation. The primitive symbolism of primary process provides the major current in the overwritten prose of the hyper-religious temporal lobe limbic epileptics described previously and called the Geschwind Syndrome and in the regressed and iconic transference concerns of patients with tendencies for global and sudden phase transitions, prostitute to saint, righteous obsessional to conscienceless psychopath, called borderline personality disorder. Primary process represents a dynamical brain state, one unburdened by linearly predictive connections with reality. It is a state without even a transient single defining physical time or other fixed measure of order. It is without the causal logic or knowledge of an outside reality that a brain implies in supposing to know. Its primitively instinctual style and goals contrast with more physically time-locked, reality oriented thinking which Freud called secondary process and Penn-Lewis referred to as ordinary and religiously lawful reasoning faculties. An absence of absolute time and space scales with which the executive ego orders internal and external time and events, and therefore their relations, results in primary process thinking characterized by condensations of several, often incompatible, representations into one. Dueling, conflictual and simultaneous feelings and thoughts float from their relevant objects to others. In the transitional transcendent state, there may be confusion of self with others, of objects with their labels, of parts with the whole and of symbols with the things that they symbolize. This facilitates living in the spirits of the Father, the Son and the Holy Ghost at the same time. Mixed inextricably with saintly awareness and charisma, there are signatures of instinctually driven and configured primary process. Freud s classical work on slips of the tongue concerned the intrusion of these instinctual thought stream condensations from the world of the ganz andere and displacements into 138 everyday life. In this intense and quasi-fluid state, saintly priests slip seamlessly into sexual predation; an ecstatic Jewish Orthodox fundamentalist shoots 29 praying Moslems in a cave near Abraham s burial plot for Sarah in Hebron; what were lovingly mystical, Jelaluddin Rumi s Afghanistan (Balkh) descendents become people bashing and women stoning morality police; committed and mesmerizing Christian televangelists attend peep shows and seek child pornography; devoted Islamists crash airplanes into tall New York buildings. In the physics of condensed matter, two common forms of multi-molecular or polyatomic cooperative arrangements are the crystalline condition and in some ways its opposite, the amorphous glassy state that results from rapid cooling through a melting temperature. The microscopic atomic arrangement in glasses, in contrast with the crystalline state, exhibits no spatial periodicity or long-range order. In contrast with fluids, the friction of passage of molecular elements of glasses past each other, their shear viscosity, is large enough such that their macroscopic shapes are maintained in the very slow flow for very long times. In-between the crystalline and glassy states their exists a multiplicity of possible unstable arrangements which result from what physicists call frustration, the inability of a system to find a unique, lowest energy, ground state. The generic example of a ferromagnetic crystal has two types of ordering principles: (1) The mutual alignment of the atomic magnetic moments, visualizable as the lining up of dipole, positive to negative, magnetic arrows; (2) The geometric crystalline low energy ground state described above. When the symmetry of these two ordering principles are incompatible, imagine an arrangement of neighboring atoms that prefer anti-alignment of the magnetic moments which are placed on a geometrically triangular rather than a square lattice, there is no single arrangement that can satisfy both magnetic and geometric principles. What emerges in this state of frustration is the potential for a multiplicity of nearly equal energy states. Water has the potential for both geometric ice crystal symmetry as well as arrangements of hydrogen proton ( ) to oxygen electron (-) magnetic moments (with well-ordered oxygen lattices but disorder among the hydrogen positions). It is therefore not surprising that a multiplicity of 139 indirectly by my sons and church elders about joining a study group for personal conversion. I was surprised to learn that discussions of current political topics were a regular part of these discussions as well as the Sunday and Wednesday night services. We received a weekly political action committee report. Their issues involved abortion, school vouchers, sex education in schools, family planning, school prayer and carefully chosen Christian elected officials for school boards and the Congress. As a congregation, we frequently held hands in small circles and prayed for the electoral success of our issues and candidates. Twenty years later, this movement has evolved into the public political morality play of the Republican base of George W. Bush. Laying on of hands, dying in the Lord, speaking in tongues, dancing in the aisles and praying with up stretched arms were routine in the hymn dense services. The goal for all was the spiritual transformation of mind as in Romans, be not fashioned according to this world, but be ye transformed by the renewing of your mind that ye may prove what is the good and well-pleasing and perfect will of God The pastor told us that the world ruled mind could not grasp spiritual things as in Corinthians they are foolishness unto him and he cannot know them, because they are spiritually understood. My research took me to a collaborative project at a European mathematics institute for three months. I returned to our town very late on a Saturday night. I planned to surprise my sons by appearing at their usual choice of the middle service the next day. I drove up to the warehouse church fifteen minutes before the service was scheduled and found that the parking lot of the strip mall was nearly empty. There was no Cadillac parked at the front door. I banged on the double door when I found it locked. More then a little surprised, I called my eldest. He told me that four weeks before, the pastor disappeared, I later found that his disappearance accompanied that of the congregation s bank account, and no one knew where he had gone. He had not warned or informed anyone in the congregation about his plans. Calmly and without apparent awareness of my surprise and distress, my 141 eldest asked me if I would like to attend the late Sunday morning service at their newly chosen Charismatic Christian church. He gave me its address and told me that the service started at 11:00 AM. There still was enough time for us to meet there. I wondered how the Pastor Carl Austin would use this incident in sermons about sin and redemption to his next congregation. Further Readings for Pentecostal Phase Transitions Religious and Spiritual Groups in Modern America. Robert S. Elliwood, Prentice- Hall, Englewood, N.J. 1973. The Name of Jesus. Kenneth E. Hagin, Rhema Bible Church. Tulsa, Oklahoma. 1979. War on the Saints. Jessie Penn-Lewis, Robert Lowe, N.Y. 1973. Discipleship, David Watson, Hodder and Stoughton, London, 1981. Mysticism. Evelyn Underwood, Dutton, N.Y. 1911. A Nation of Believers Martin Marty, Univ. Chicago Press, Chicago. 1976. Introduction to Percolation Theory. Dietrich Stauffer. Taylor and Francis. London. 1985. Modern Theory of Critical Phenomena. Shang-Keng Ma, Benjamin Cummings. Reading, MA. 1976. A Modern Course in Statistical Physics. Linda E. Reichl, Univ. Texas Press, Austin, 1980. 142 Manic-Depressive Illness. Fred K. Goodwin and Kay R. Jamison, Oxford Univ. Press, N.Y. 1990. The Pharmacological Basis of Therapeutics. Louis S. Goodman and Alfred Gilman, MacMillan, N.Y. 1975. Statistical Mechanics of Phase Transitions. J.M. Yeomans, Clarendon Press, Oxford. 1992. 143 CHAPTER 7: AMPHETAMINE ROLL-UP AND SPLITTING We try to understand the metaphysics and inner dynamical life of the committed, judgmental, fundamentalist believer. In these sacerdotaly rigid and faithful, disenfranchisement and righteous intolerance toward other denominations are simultaneous with spiritual compassion, mercy and forgiveness for the members of their own. This splitting between the good people and latent evil doers is seen by psychoanalysts and dynamically oriented brain scientists as an all too common, sometimes psychopathological, solution to the inevitable ambiguities of living. I am certainly not alone in being fearful of Fundamentalists: Jewish, Christian, Moslem and Hindu. From the overpass above the freeway, bearded Jewish Orthodox men rained rocks onto the roof of my rented car because I was driving on Sabbath. A research project had taken me to Jerusalem Mental Health Center s neurochemical laboratories for collaborative work with mostly secular Jewish scientists. Halachic considerations, those of Jewish lawfulness, comparable to the constraints of Muslim shirah, forbids working, even driving, on the Sabbath. Orthodox Jews live walking distance from synagogues or benefit from a rabbinicaly blessed, network of symbolically covered walkways for going longer distances on the Sabbath. This 144 Sabbarian grid of permission obviously did not cover driving on the free way to the mental health center. It is the splitting of us from them that leads to the breakdown in empathy and compassionate identification with others. Studies of the dominance of direction of rotation within a closed space in small mammals have shown that amphetamineinduced intensification makes the choice of right versus left (or left versus right) rotation, broken symmetry, more statistically significant. In contrast, the Hefner Foundation of Switzerland has shown that entheogenic drugs such as psilocybin in man facilitate seeing both of the conflicting, simultaneously presented, right eye and left eye images in place of the usual dominance of just one of the two representations. A precondition of compassion might be that a person s brain be able to see and comprehend both or several sides of apparently conflicting points of view at the same time. The Fundamentalists do not see things that way. In the Koran, Mohammed says, give sustenance to the poor man, the orphan, the captive and for the unbelievers We have prepared fetters and chains and a blazing fire . In the New Testament s Mark we find the final words of the risen Jesus, whoever believes and is baptized will be saved but whoever does not believe will be damned. The Crusaders claimed scriptural support for their murderous marches to reclaim Jerusalem. Carl Jung wrote about the New Testament s Revelations in his Answer to Job: a terrifying picture that blatantly contradicts all ideas of Christian humility, tolerance, love of your neighbor and your enemies and makes nonsense of a loving father in heaven and rescuer of mankind. A veritable orgy of hatred, wrath, vindictiveness and blind destructive fury that revels in fantastic images of terror breaks out overwhelming a world which Christ endeavored to restore to the original state of innocence and loving communion with God As Princeton University philosopher, Walter Kaufman, has noted in his Religion in Four Dimensions compassion for unbelievers is implicitly condemned and proscribed Augustine argued expressly against compassion for the damned and Luther used invectives against his (religious) enemies How can this be God s 145 setting for the spiritual work toward that promised in John that you love one another; even as I have loved you, that you also love one another. In contrast with what has been described in previous chapters as the entheogenic drug-induced transitions to a spiritual mind, one is tempted to describe these Fundamentalists states as the amphetamine religions. The Los Angeles Ram s Hall of Fame defensive end, on very high doses of amphetamine (125 milligrams compared with the diet dose of 5 milligrams) taken four hours before the Sunday games, the Baptist minister, Deacon Jones, used his famous and consciousness annihilating head slap to daze the opposing offensive tackle in order to gain access to and injure the other team s quarterback. Before taking the handful of Dexedrine spansuls, he would tell me, See you on Tuesday. Along with the Deacon s destructive aggression was the other invariant feature of the actions of high doses of amphetamine, compulsive stereotypy, the fixity and driven repetition of over simplified actions and thoughts along with the loss of breadth of vision and adaptive flexibility. Deacon consistently rushed inside, took the inside lane, in spite of offensive linemen, who having studied previous game films, being set up to expect his route. They used this knowledge to take him out of the play. In modern theological parlance, judgmental rigidity and thinly veiled disapproval take the place of the more flexibly curious and lovingly humane feelings of the participants in the evolution in spiritual understanding of today s liberal Protestant process religions. These are the ones that believe that the properties of God evolve along with our biology, our brains and our growing scientific understanding of ourselves and the world. Angry splitting is not just a stimulant drug effect. Recall my experience of the sudden emergence of a first second wind after a mile or so of my daily ten miles of running. It was frequently accompanied by inner bursts of obsessive, paranoid thoughts. Taking five milligrams of amphetamine felt much like the first second wind. I am full of energy with arrogant feelings of power, mind fixated in grand and simple ideas that I believe to be absolute and correct. I feel irritably intolerant about anyone or anything different. It is my virtuous duty to set everyone straight. 146 In the 1980 s, Moishe Zar, a desert castle dwelling, settlement organizing, ardent Orthodox Jewish Zionist, now 65 years old, was the leading vigilante of the West Bank He planted bombs in the cars of Arab mayors and plotted to blow up the Dome of the Rock. Buying up farmland from the Palestinians beginning in 1979, many of whom were then killed by their own because they were seen as collaborators, Zar and his group of young volunteer settlers took over harvesting the Palestinian s olive trees and shooting rifles over the heads of those that would take them back. Fundamentalist Christians share his vision that the coming of the Messiah, the second for Christians, the first for the Jews, is dependent upon the complete return of all of the land of Israel to the Jews. I recall that in the middle 1940 s, my father took me to a fund raising dinner for the local chapter of the Jewish Antidefamation League. The whispered talk was about blowing up a warehouse in which anti-Semitic pamphlets were stored, planned for the middle of the night when it was unoccupied. Even at the age of 10, I could tell that their quiet anger and firm commitment made these threatened men feel less vulnerable. I understood a little more about the motivation for this proposed nighttime property destruction when, the following year, my father explained the reason for our being refused overnight rooms at several motels as we drove along I- 95 in Southeast Florida. It took us until late night to find a place to sleep. This was America s muted version of what Hitler and his legions were doing to Jews that, at that time, was not generally known, except for Walter Winchell, in America. Resonant with our chemical-cultural theme are the many reports that Hitler was taking an amphetamine drug, Benzedrine, daily and in high doses for the last 20 or more years of his life. One can hear the characteristic, amphetamine-induced, higher pitched, rants in his recorded radio tirades. Compare the pitch and strained voice quality of the singing of Bob Dylan in his early records made while he was on speed with the gravely, much lower pitched voice, now that he is not. In our behavioral neuropharmacology laboratory at the Brain Research Institute at UCLA, Professor Charles Spooner and I used an audiographic oscilloscope to monitor the sounds of baby chicks whose peeps became higher in pitch and rate following injections of amphetamine. The earliest members of the methadrine-amphetamine 147 chemical family were synthesized by the great organic chemists of the German pharmaceutical industry in the early 1930 s. The sequence of parallel streets in the neighborhood of my home and first grammar school in Kansas City, Missouri were my street, Virginia, then Tracy, Forrest and Troost. My school, Bancroft Elementary, was on Tracy and one block down that street was the Lutheran Day School established by German immigrants under the aegis of the Missouri Synod. Starting in the third grade in 1943, I was intermittently and unpredictably chased by rock throwing, damn Jew and Christ killer shouting boys from the Lutheran Day School. I had my choice of running for safety directly from Tracy to my family s half duplex at 4232 Virginia Street, or moving away from school via Troost and then down several blocks and around to sneak back to my home on Virginia without being spotted. One run-for-it afternoon, my parents took me to the emergency room of the Menorah Hospital to have my scalp sewed up where a sharp rock had landed. When I asked my synagogue s young people s spiritual counselor, Rabbi Kleigfeld, to explain the feelings and actions of these children of Martin Luther s Post-Reformation Christian Church, he answered that I already knew about similarly difficult places and times of our Twelve Tribes like Rome, Medieval Europe, the Spanish Inquisition, Persia (Iran) and, it was rumored, in Germany as we spoke. Conversion or death was its most benign form, in places like Spain and Iran, many Jews faked it, staying alive and practicing Judaism secretly. Kleigfeld told me that the causes of this historical theme of persecution of Jews were complex. Among the frequently unmentioned events recorded in the later part of the worldly life of Mohammed, who lived from 570 to 632 AD was, in the name of Allah, the Compassionate, the Merciful his participation in the crushing of the Jewish tribe of al-Nadhir in 626 A.D., the beheading of 800 Jewish men of the tribe of Qurayza who refused to accept Allah as their God in 627 A.D. and putting to the sword the Jews of Khaybar in 629 A.D. As in the section of the Koran called The Cow, Mohammed proposed to fight against them (the infidels) until idolatry is no more and Allah s religions reigns supreme In contrast, the more entheogenic spiritual orientation of the ecstatic followers of Mohammed in his earlier years 148 speaks of the multiplicity of valid Ways to Deep Truth. The acceptability of many ways is supported in the tales from the millennial oral tradition of the Sufi Masters in their Teaching Stories. One of them, What Befell the Three, is attributed to the early 18 th Century Sufi teacher, the Dervish Murad Shami. In it, an apparition is mobilized by the concentrated Truth seeking efforts of three Sufi Dervishes named Yak, one, Do, two and Se, three. When this white smoke head of the very old man was asked what he was, he answered I am what you think me to be have you never heard the saying There are as many ways to the Deep Truth as there hearts of man. In the narratives about the lives of the Mevlevi Islam dervishes called Munaquib el-Arafin (1353), Jalaludin Rumi, the Sufi saint, instructs his ill and troubled petitioner to ask forgiveness from the Christian he recently spat on saying whether a ruby or a pebble, there is a place on His hill, there is a place for all Cole Barks and Michael Green s The Illuminated Prayer (2000) notes that the Rumi follower, Bawa Muhaiyaddeen, a modern Sufi guru, was said to be keenly aware how quickly spiritual entheogenic systems can become amphetamine-like and develop rigid marching orders which turn into a dumb obsession with other people s behavior It appears that entheogenic and amphetamine spiritualities can coexist contemporaneously, in Islam as well as in all the other of the world s great religions. One day, sneaking home from school, taking the long way around via Troost, I was spotted and chased up some stairs into an apartment building s dark hall. Terrified, I swung hard and hit the leading angry and noisy head with a propitiously found snow shovel that had been left near the apartment s entrance. An ambulance was called to tend to the twelve-year-old, transiently unconscious, Lutheran boy. He recovered completely within a day and the chases after school and my desperate escapes stopped suddenly, never to reappear. After several months, our family crossed the socioeconomic divide in Kansas City to a more tolerant, upper middle class, Southside neighborhood near Rockhill Road, to a suburban home, one block from Missouri s border with Kansas. There, persecution for my Jewishness took more subtle forms such as not being permitted to play teen-age golf with my friends, though invited, on their Blue Hills and Kansas City Country Club s golf courses. It 149 was decades later that the first Jewish member of the KCCC was the founder of H and R Block. Unable to afford membership in the single all Jewish country club of the region, I practiced for my high school golf team on Armour Hills Public Golf Course, where, at the time, mostly white working class golfers played. How can it be that spiritual states include both personal humbleness and loving mercy toward some of mankind and judgmentalness, nonacceptance and commitment to seduction, threat and even violence in the service of invoking changes in the beliefs of others. How can the high energy calm of being home at last in the born again condition with its new freedom from self assaults about sin, most importantly that of disbelief, but also peccadilloes such as drunkenness, promiscuity and familial abuse, be associated with readiness to judge, harass even persecute others. Psychoanalysts would say that it is a riddance mechanism, the projection of unwanted personal traits onto others. From the standpoint of rational thought, this seems more like non-Aristotelian cognition, two, not either-or, countervailing orientations toward mankind held simultaneously. The newborn parishioners of these charismatic amphetamine churches express their fealty to God with strongly held beliefs that diagram logically as contradictions. The perception of the world s peoples into believers and infidels, good and evil, our people and your people, ourselves and the others. It is generally believed among social psychologists that it is the perceived nonpersonness of others, which allows the cruelty that empathic identification with them would never permit. Splitting feels like resolution, its stereotypy reducing the complexity of spiritual thought as well as true to life perception. A concrete laboratory example of amphetamine conversion, the sudden transition to a high energy, fixated, and delusional state called amphetamine psychosis, is supplied by experiments in humans conducted by Professor John Griffith at Vanderbilt University in the 1960 s. These experiments would not be allowed by today s human research committees or medical ethicists. Each one of a group of psychologically screened-as-normal graduate student volunteers, at an individually unique amphetamine dose, developed suddenly a personally unique and peculiar system of new beliefs, obsessionally held as rational thoughts. Ten 150 milligrams of amphetamine were administered to volunteer subjects every hour until every subject crossed their particular threshold for personality change. The graduate students underwent a global mind-brain-person transition at differing total doses of amphetamine. The subject s world was suddenly transformed into one of enemies and friends. The syndrome dissipated over several hours when the drug was stopped and the plasma levels of amphetamine and its metabolites declined. As amphetamine makes memory formation and recall stronger, the subjects were embarrassed when remembering what strange and forbidding yet uneatable things they so strongly believed. These included such things as: they as good people were caught in a network of bad person Russian spies; some threatening others arranged for poison gas to be seeping out of the water faucet; the white coated scientists were CIA undercover intelligence officers hoping to get information about their small pornography collection. The subject s world had become divided in, for each person, a stereotyped way. After a couple of weeks of return to normal living, the experiment was repeated. Each subject again developed his or her individually unique set of goodguy, bad-guy delusional beliefs and at the same dose of amphetamine as before. Like those of strong faith, their ideas once again resisted the logical arguments made by the professional staff: that the new realities were neuropsychological and had an obvious pharmacological origin. While on the drug, all stuck to their story, even while being shown the movie record of their first drug-induced episode. There is reliable scientific literature describing kamikaze pilots on high doses of amphetamine in an ecstatic state of Shinto nationalism. With their planes loaded with explosives, they deliberately crashed their planes onto American aircraft carriers in the Pacific Theater of World War II. One wonders if these drug-induced states occur in the drug-free condition in today s abstemious Muslim suicide bombers. A more abstract and general way of thinking about the sudden emergence of fixation, repetitiousness and splitting in feelings and thoughts involves the emergence of regular limit cycle oscillations in a complex system that was behaving previously in a stable but flexible way. Locking up into a fixed, closed loop, is a 151 common way for electrical circuits, computer programs, brain mechanisms and other complicated systems, even cultural or spiritual movements, to behave when one or more important control parameters crosses a threshold. Doyne Farmer of the Los Alamos s Prediction Company once said about this vulnerability in complex system, Those things can hardly wait to roll up. The limit cycle lock-up occurs most often as a sudden, discontinuous change, called a bifurcation, into autonomous self-oscillations from an equilibrium state around which there was some random variation. A bifurcation, a discontinuous change in outcome from a smooth changes cause, characteristically occurs when the amount of an important influence, a metabolic state, a drug, a psychodynamic conflict or level of emotional stimulation crosses some critical value. The switch from one type of dynamical behavior to another looks like the system has suddenly changed into something else with an entirely new kind of life of its own. In the new life of rolled up, locked-up repetitious motion, almost all new starting conditions follow pathways that lead into the same limit cycle pattern. Evangelical Christians talk about all born again life being in Jesus, fixed in a complete set of moral, social and political beliefs, ideas and judgments. The limit cycle gets its name because the end state of the orbits of almost all starting points of the dynamics winds up being drawn into the same fixed, repetitious pattern of a stable cycle. Visualizing the simulation of one kind of bifurcation to a limit cycle on a computer screen, we see a slightly jiggling point explode suddenly into an orbit of ceaseless rotations around a circle. Ralph Abraham, the University of California at Santa Cruz pioneer in graphical approaches to nonlinear systems, describes, cinemagraphically, the emergence of limit cycles from a single point. He starts with a picture of an attractor of water flow in the shape of a basin. All water that enters the basin, rolls down its sides to the bottom, to what physicists say represents a potential energy minimum. A little more technically, this attractor basin is composed of the set of all points such that the orbits that flow from them tend to end up inside the basin as time goes toward infinity, no matter where they start. Changing the value of a control parameter of the system changes the shape of this basin-like landscape, of the surface of the systems dynamical actions called a manifold, which can intuitively 152 predict how the fluid will flow upon it. If we start with a simple bowl, a parabolic basin, then the attractor itself is a point at the bowl s very bottom. Changing the value of some influential parameter may induce the sudden formation of a small hill, growing at the center of the basin s bottom. Now fluid flow in the attractor bowl runs down to a path around the hill at its bottom. The autonomous motion of the fluid flows takes place now in a circular orbit. The basin of the new attractor is the original bowl minus the point at the top of the central hill. The fluid flow around the hill at the bottom of the basin is circular and is called a limit cycle. Note that the direction of the rotation of the limit cycle can circle in one direction or the other. In some computational simulations, motion alternates between directions. This suggests the aspect of the born again amphetamine religions, splitting. There is an unstable and intermixed probability of right versus left turning directions and their alternation. This vulnerability to directional splitting and often unpredictable alterations in action themes can represent what seem to be paradoxical combinations of both good and evil in the same strongly faithful, for example, the apparent bidirectional morality of generous and loving, pederast priests. These mathematically flavored images of the sudden emergence of a limit cycle in complex systems was made biologically concrete to me by research conducted by one of my first graduate students, David Segal. He is now a professor of psychiatry at the University of California in San Diego. His program of work involved the administration of very gradually increasing doses of amphetamine to rats while their behavior was being monitored and recorded by a continuously running video camera. He documented the behavior of rats in a walled rectangular space within which, without drugs, they first wandered about randomly and then settled down to rest in an individually selected, favorite home corner. Segal called all of these phenomena, patterns of exploratory behavior. At doses of amphetamine below 2.5 milligrams (mg) per kilogram weight (kg), the exploration of the entire bounded space proceeded faster than was the case with their salt-water treated controls, their paths being more uniformly distributed throughout the box. They spent less time resting in their home corner. At almost precisely 2.5 mg kg, the rat s behavior changed dramatically into an entirely new pattern of continuous circling. As 153 was the case in the abstract manifold picture of bifurcations to limit cycles, some rats tended to circle their chamber to the left and some to the right and switching between them was often seen. The influence of amphetamine and other brain dopamine neurotransmittermediated drug manipulations on directional turning tendencies in rats, mice and cats were the focus of brain and behavioral research of Professor Stanley Glick of the University of Massachusetts. The asymmetry of dopamine concentrations in the two sides of the brain, particularly in the medial prefrontal cortex and the brain stem s nucleus accumbens, predicted both the paw preference for pellet reaching and direction of turning in several studies in rats. These findings were statistically true over a population of rats, but not necessarily predictive for any single one. Reminiscent of the conflict between good and evil in our human spiritual analogy, naturally right turning male rats and left turning female rats, when compared with the opposite paired group, were greater voluntary ingesters of alcohol placed in their water bottles. Splitting as a part of the phenomenology of limit cycle bifurcations, with directional implications for good and evil, has neurological support in humans as well. In the context of contrasting right versus left hemispheric temporal lobe syndromes, recall that temporal lobe seizures with a right side excitatory focus leads to the development of the Geshwind Syndrome, a high, softly energetic and saintly state of spiritual preoccupation and voluminous writings, loving and generous kindness toward all and the complete disappearance of sexual interest but not sexual potency. A left temporal lobe excitatory focus leads to the development of the Kluver-Bucy Syndrome of indiscriminate aggressiveness and hypersexuality. Experimental simulations of this syndrome in cats lead to them mounting and attacking living and nonliving things, even chairs. A variety of manipulations of the symmetry of brain dopamine concentration and dynamics by its characteristic drug, amphetamine, interact with lateral brain lesions such that we conclude that the stimulant-induced limit cycle lockup remains a phenomena influenced by drugs, sex, genetic predisposition and several other experimental conditions. This situation is 154 perhaps not so different in variety and complexity from the range of representations in art and literature of the left hand of evil and the right hand of grace. Oscillations that appear spontaneously in nonlinear systems without external periodic input were known to Henri Poincar in 1882, and were systematically studied and made accessible to non-mathematicians by early 20 th Century Russian mathematicians and physicists, well represented by a 1949 book, Theory of Oscillations by the Russian engineer-mathematicians, A. A. Andropov and C.E. Chaikin. Another relatively early classic is Nonlinear Oscillations by Nicholas Minorsky. The most common form of transition from a fixed point to a limit cycle was pictured as changes in the surface of the action, the bowl-hillock manifold in the paragraphs above, and is called a Hopf bifurcation. Recall that bifurcation means a discontinuous change in an observable over a continuous change in what is known as a control parameter, such as dose of amphetamine or intensity of an experience. The mathematical mechanism resulting in circular directional motion represented by the (eigen)vectorial states, was named for the German mathematician, Eduard Hopf. His 1942 paper was a mathematical proof of its existence and was discussed in the context of fluid flows that role up such that circling vortices arise from smooth, called laminar, water flow, at a critical value of the flow rate. Hurricanes are another example of these kinds of dynamics. The Hopf bifurcation to limit cycles has been found in several, many dimensional, physical, chemical and biological systems. The latter include calcium conductance oscillations in the excitable membranes of muscle, heart and the brain, cardiac arrhythmias such as ventricular flutter as well as oscillations in population numbers in foxes and rabbits, predator-prey systems. California Institute of Technology s Professor, James Old and Johns Hopkins Professor, Joseph Brady made experimentally obvious the potential for the rigid irrationality implied by the brain s inclination to be locked up into limit cycle behavior. They demonstrated that animals, from rats to monkeys, could get locked up in apparent self torture, repeatedly and endlessly pushing a bar to deliver current to pain systems in the their brains. These pushes induced almost unremitting screams in monkeys and 155 what appeared to be rageful biting and then immobilized resignation in behaviorally depressed rats. Freud s last paper, Analysis, Terminable and Interminable (1939), featured examples of what he perceived to be the unsolvable mystery of helpless psychological entrapment in repetitious patterns of self-destructive behavior. He blamed the Iliad s and Odyssey s villainous immortal, Thanatos, the everthreatening spirit of death and destruction to contrast with the good, life giving Eros. The Yiddish word for a personified Thanatos is Moloch ha-Moves. A range of fixations in self-excitatory, repetitious, self-mutilating behaviors is documented in domesticated animals. Dogs, particularly German Shepherds and Labrador Retrievers, can lock up in compulsive grooming cycles of what is called acral lick in which endless licking of paws or flanks lead to the break down of skin into seepingsore dermatitis, which, in turn, stimulates more licking. Mark Twain wrote a story about his getting stuck in ceaseless mental repetitions of a catchy, clangy poem. He could not stop reciting it to himself even after days of sleep loss and anorexia. He was finally cured by relating his problem and the poem to his pastor who he then unwittingly heard creating a community epidemic by including the rhyme in his following Sunday s sermon. Psychologists, who study this form of human mental limit cycle attacks, call this state of internal, repetitiously recited, poetic stuckness, earworms. There are additional invariants of sudden transformations into spiritual-mindbrain bifurcations into a limit cycle lockups and, as discussed, one of them is psychological splitting. In psychoanalytic theory, as first suggested by Freud in his 1937 written and posthumously published paper, Splitting of the Ego in the Process of Defense (1940), splitting implies two simultaneous and contrary psychological reactions, one can be conscious and the other unconscious. They can both emerge in conflictual situations involving adaptive efforts of the personality to deal with the opposition between some form of powerful instinctual pressure and attendant perceived or imagined danger. Otto Fenichel s Psychoanalytic Theory of Neurosis (1950) elucidates multiple manifestations of splitting of the I (more technically, the ego) into a conscious part that knows reality versus an unconscious part that denies 156 it. In some situations, a logical view contends with a more irrational, magical one. Today, the morning group praying, evening hymn singing, Christian Republican Right Wing feed their feelings of being on the side of God by dividing people into those that are like them and good and those that President Bush and Attorney General John Ashcroft calls the evil doing bad guys. As noted previously, psychoanalytic theory posits that the evil doing others may represent the projected repository of our own unacceptable impulses and inclinations. It became quite clear in my own psychoanalysis and psychoanalytic training that it is in healing our split and knowledge of our own unacceptable things that will lead to our understanding and forgiveness of others. As we dig deeper into global brain-mind dynamics of emergent high-energy fixation, stuck repetitiousness and splitting, we encounter their universality in the structures of mathematical thought. Did we just make them fit? Do these thought forms map onto internal and external physical reality? Are these abstract concepts and operations simply products of our biological brains manifested as psychological mechanics and used to explain to ourselves what we perceive and think? Does a square have external reality or is it a universally imagined something, and, as such, represented only in our minds and the pictures of it we draw? Is mathematical understanding simply inborn perceptual skills combined with developed and practiced logical cognition? Or, do we take the Platonic view of mathematical relations: these abstractions are the ultimate realities, antedating and persisting through the past, present and future of the universe and omnipresent. Where can the conceptual boundary be drawn between the physical reality of the Babylonian surveyors use of the Pythagorean theorem to calculate distances, that the sum of the squares of the lengths of the two legs of a right triangle is equal to the square of the length of its hypotenuse, and its abstract, pencil-marks-onpaper, algebraic development as in the definition of Pythagorean numbers, a,b, and c such that a 2 b 2 c 2 . The dichotomy between the abstract and concrete, consistently blurred in our work, is between a natural science with ideas that can be disconfirmed, directly or indirectly, by experimental observation and the thinking of mathematics as an a priori field in the sense of Kant. The modern Platonic view 157 such as that held by Rene Thom is that once accepting a set of natural givens, called the axioms, the rest of the knowledge of this reality grows in the form of theorems that relate to the axioms and each other through their logical consistency. Knowledge of reality is moved by the ever-forward mathematical refinement of a priori conditions to do away with the theorems exceptions, called counter examples. The Hebraic Bible s view of signifiers such as words and symbols is close to, but not identical with, the Platonic view of mathematical formalism. According to the Torah, God made the word with words. God spoke and the world became real. The Aramaic for I create in speaking is avara k davara , or as the magician says, as he waves his wand over an apparently empty black high hat, abracadabra. The Hebrew word for word, davar, also signifies thing. This view contrasts with the mathematical formalists, among them Hilbert, who considered the signifiers of abstract mathematics simply symbols used in a game, the rules of which being arbitrary, must include proofs of consistencies among them. Consistency from the point of view of physics was addressed by Hertz, in Die Prinzipien der Mechanik,(1894), where he expressed the formalist theoretical physicist s work as within our own minds we create images or symbols of the external objects, and we construct them in such a way that the logically necessary consequences of the images are again the images of the physically necessary consequences of the objects. In another set of related contrasts, the constructionist mathematician will argue that mathematical assertions are only true if they can be demonstrated, found or constructed. In contrast, the classical school of mathematics can develop the case for the truth of mathematical statements if they are consistent with field s network of theorems and proofs, even if, up to the current time, no specific example of this truth can be demonstrated. The former can be thought of as a builder, the latter as a discoverer. For example, suppose we try to make a proposition about perfect numbers where a perfect number is defined as being equal to half the sum of its divisors. Using the perfect number 6, we find that its non-identity divisors are 1, 2, and 3 and half of their sum 6. Our proposition: either there exists an odd perfect number, or else there exists no odd perfect number. An expression of this 158 forced decision between yes and no is called the excluded middle. The constructionist mathematician, an orientation without the excluded middle, asserts that an odd perfect number exists would only be meaningful if one could show that such a number had been found or constructed. The classical mathematician would find the phrase no odd perfect number exists meaningful without a concrete example, if the assumption of its existence would lead to a no (versus yes) contradiction encountered in the proof-relevant network of established theorems and their relations. The symbolic operations of these formal schools of mathematics and their relationship to the objective and ideational realities of brain-mind-spiritual life have been viewed by some as Western cultural products rather than expressions of secular or spiritual Absolutes. Still others have argued that cultural relativism is not relevant here because mathematicians worldwide constitute a monoculture. With respect to the real world existence of abstract mathematical structure, our Platonic bias must be obvious. The thrilling experience of a new reality I get to know from finally understanding how a theorem works and the rush of peering into the grandeur of the Grand Canyon feel like the same kind of full-of-wonder high to me. I blend them here without reservation. Perhaps this world of spiritual abstraction is closer to the orientation of the school of intuitionist mathematics. Its founder, L.E.J. Brouwer, required that every mathematical construction be so immediately apparent to the human mind that no formal proof was necessary. This became my form of spiritual transcendence, which led naturally to a mathematical, mystical faith. We carry the explication of this kind of reality further. Reflections of the good and evil, right and left, moral directional biases and their relative weightings in born again bifurcations to invariant circles called limit cycles, can be symbolically represented in what are called the complex eigenvalues of matrices describing the system s set of orthogonal motions with changes in their control parameters. The behavior of these complex eigenvalues underlies and characterizes the mathematical mechanism of the Hopf bifurcation. 159 The subject of complex eigenvalues brings up in me the emotionally disturbing subject of imaginary and complex numbers. I can still feel a little of my earlier anxiety. The episode started benignly enough. Our high school s freshman algebra class was studying how to solve quadratic equations, equations in which the highest power of an expression was two. Told to work at the blackboard in front of the class, I was given the problem of finding the two values of x that were the roots of the equation, 5x 2 3x 4 0. I had been taught to use the memorized quadratic formula, 2 b b 4ac x , in which a 5, b 3 and c 4. I always 2a calculated the square root part first and wound up with the expression, 9 80 71. I can still feel the sinking feeling in my stomach as I looked at the result. I anticipated the usual snide remarks and embarrassment as I contemplated doing what I did not know how to do, take the square root of a negative number. Mr. Kirby, the retired mechanical engineer who was my high school freshman algebra teacher tried to help, but I did not trust him. It seemed to me that he had already humiliated me in front of the class, several times. He asked, what number when squared, multiplied by itself, would equal 1. He then asked it another way: solve the following equation for x: x 2 1 0. Seeing something I could do, I wrote the next line quickly x 2 -1 and then, taking the square root of both sides, I wrote x 1 . He then asked me what that meant. I answered by writing quickly, glibly and blindly that that meant that 1 1 1. He asked me to explain what that meant by giving him an example from the real world. Not yet knowing about imaginary and complex (combine real and imaginary numbers), I stood head down, ashamed and silent, thinking that my smart friend Jerry Blau would get the answer immediately. Mr. Kirby said he would go on with the class while I continued to stand in front of the blackboard and thought about it. He told me to interrupt him when I was ready to answer. Some classmates were smirking, others giggled aloud. They had seen him do this to me before. Mr. Kirby, a short, muscular man, an ex-marine with a military haircut and a brusque manner, lectured that mathematical competence and obedience to authority and class discipline were all of a piece. I asked him about mathematical 160 creativity and he said that this class was certainly not about that. I disliked and feared him. He seemed to feel (and wrote a note to my parents to the effect) that, being too arrogant I needed to be brought down a peg or two. I had gotten the best grades in the first two exams and was enjoying the role of after school tutor for some of my friends. I suspect I was getting pretty egotistical. In class, I found myself eagerly shouting out answers without holding up my hand, behavior that Mr. Kirby met with his characteristic look of fatigued disgust. Twice I was thrown out of class for my introjections. He then began to give me problems that I could not do, for which I was not prepared. This left me standing at the blackboard until the end of the hour, after all the rest of the students had solved theirs and sat down. On parent s night, Mr. Kirby told my father that I needed more social and intellectual discipline. Inspired and personally directed hard work and socially defined correct behavior were not synonymous to this arrogant 13 year old who had already brought chagrin to his mother, the conservatory classical piano instructor, with his satirical pianistic jazzy composition called How High the Moonlight Sonata. I was also a secret reader of the book on the top back shelf in my father s library by Jack Hanley called How to Make Mary; A Gentlemen s Guide to Seduction. In Mr. Kirby s class, inspired by the book, I sometimes reached behind me, through the crack in my desk seat, to caress the inside part of the long smooth legs and sometimes moist panties of a well developed, tall and beautiful brunette girl behind me. I was never caught and she pretended that nothing was happening. In fact, she never talked to me outside of class. I felt then, vaguely, and now, more specifically, that a content enriched, instinctually titillated and excited unconscious could lead me to the solutions of intellectual challenges if it were both sufficiently indulged and untrammeled, left alone in its work of being itself. Mr. Kirby did not see things that way. Since then, among my graduate and post-doctoral students in the neurosciences, I have learned that the Mr. Kirby s of modern American educational practice have ruined generations of potential mathematicians and physical scientists. Worse, they have created generations of very bright math phobics who 161 run to other graduate fields such as biology and medicine and come to resist the potentially humiliating incursions of new and potentially helpful abstract ideas and operations from mathematics and physics into their fields. They do not want their persecutory versions of Mr. Kirby to take up residence once again in their heads. I can still feel his negative presence during long hours of struggle with the ego deflating feelings of dumbness that an understanding of almost any new mathematical concept requires of me. Holding Mr. Kirby s voice off as long as I can until, sometimes, the wonderful aha! experience arrives. I have tried to forgive him since but forgetting him has not been possible. It turns out that in the world of elementary, physically representative, real numbers, the square root of a negative number has no meaning. Such a number has understandably come to be called imaginary. Was this the answer Mr. Kirby wanted? There was some conflict among mathematicians in the 17 th and 18 th Century about the arbitrary definition of 1 as an imaginary number. It was symbolized by a letter, i, that is 1 i . The existence of i extended the range of algebraic definitions so that a solution of the quadratic formula as above could be found for the square root of a negative number. A further expansion of this idea was to that of a complex number that can have both a real and an imaginary part. For example, letting letters be generalized representations of numbers, a complex number might be written, a bi, real number a real number b times i, the letters such as a, b, c, d symbolized real numbers. Consistent with membership in an algebraic system, a bi and c di can be added and multiplied. This extension of the real numbers into the imaginary realm permitted d Alembert s and Gauss s proofs (and many, more complete ones since) of the powerful Fundamental Theorem of Algebra from which the faith derives about always being able to find at least one solution to an algebraic equation. It was proven that any n th algebraic equation (e.g. has at least one real or complex root. x n degree n 1 x ... 0 ) with real or complex coefficients always Closer to an image that helps make intuitive connections with human born again bifurcations, limit cycles and directional splitting is the geometric interpretation of a complex number, let us now call it z. As above, algebraically, z is the sum of a 162 real part a, plus b times the imaginary part, bi ; that is, z a bi. We can then set up a geometric space to represent z by imagining a two dimensional plane with the horizontal real axis extending from left to right, the usual x axis, and the vertical dimension, called the imaginary axis, extending from bottom to top like the standard y axis. These two axes, going from negative values to positive ones, left to right and bottom to top, cross at the shared value of 0. Thus a and b can be visualized as the rectangular coordinates of a point in the plane and the point locates the complex number, z a bi. Since real parts and imaginary parts are like apples and pears and for addition, like must be added to like, if two complex numbers, a bi and c di are equal, then a c and b d and their sum is written (a c) (b d) i. Now that we ve set up a point z on the plane, located with a complex number at z a bi, we can then draw an arrow, called a vector, from the intersection of the imaginary and real axis at 0 to this point z. Its length from 0 to z, 0z, we ll call that length , is the size or amplitude-like modulus of the complex number, z a bi. The angle this 0z vector makes with the real, 0a-axis, lets call this angle , is called the argument of complex number z a bi. is a length that can grow or shrink, is an angle that can rotate. We imagine vectorial movement like that of a variable length hand of a clock. This geometric explication of complex numbers prepares us to visualize complex numbered eigenvalue solutions to matrices representing the relevant equations that bifurcate to limit cycles and directional good and evil splitting. represents the dilatable clock s radial amplitude of circular motion and , the angle of vectorial turning from the 0a-axis. The complex conjugate of the complex number, a bi is the complex number a bi in which the sign of the imaginary part is reversed. Geometrically, this means that a pair of complex conjugate numbers with the s of both having below zero values relative to the 0a-axis, that is negative real parts, could be imagined as the points indicated by two same sized, mirror image, clock hands pointing at 8:00 and 10:00 o clock. Note that the , the angle of vectorial deviation of the arrow pair from the 0a-axis, turn in opposite directions in these mirror image moving clock hand vectors. Without going deeper into the representation of the actions of the system in 163 question (its differential equation) in the form of what is called its Jacobian matrix of partial derivatives (a matrix representation of the differential equation indicating orthogonal directional velocities of change of locations of the components of the motion with respect to changing values of the control parameter), we know that when the of the matrix s set of two complex conjugate eigenvalues is less than zero, 0, the orbit representing the system, spirals into a stable fixed point. This is analogous to going to the bottom of the parabolic attractor basin as described above. Values of the invisible eigenvalues and their changes constitute the abstract mathematical mechanisms underlying the observable dynamics of the system observable physically. The mathematical mechanism underlying the Hopf bifurcation of fixed points into limit cycles (associated with bi-directional splitting that accompanies the amphetamine transformation into limit cycle stereotypy of rigid ideas and equally likely mirror image motions in the directions of good versus evil) is the crossing of the systems real valued parts, s, of its complex conjugate eigenvalues into positive territory, 0. The mirror image of clock arrows is transformed from 8:00 and 10:00 o clock to the clock locations of 4:00 and 2:00. At a Hopf bifurcation, a pair of complex conjugate eigenvalues crosses the imaginary (vertical) axis such that is real parts have positive value. In the orbit representing the motions of the system itself, the fixed point disappears to be replaced by the action spiraling out to an invariant circle. This is analogous to our manifold image of the disappearance of the central attractive point and the sudden appearance of a small hill at the bottom of a parabolic basic of attraction.. The new attractor is an invariant circular path around the hill, with the spiraling out to the invariant circle being a two dimensional picture of the disappearance of the bowl-bottom and appearance of a missing point, hill top fixed point and a spiral flow to the path circling the hill. Underlying the transition from a fixed point to a limit cycling, invariant circle, are a pair of mirror image complex conjugate eigenvalues that turn in mirror image, we could say, good versus evil, opposite directions. The Hopf bifurcating system inevitably has both. The implications of this very abstract metaphor for the emergent limit cyclesplitting style of spiritual transformation can be made deeper by considering the 164 common practice of Rumi s Mevlevi (and other) orders of Islamic Dervishes that facilitate the onset and maintenance of their ecstatic states by an improvisational dance which goes from rocking to irregular whirling. The Dervish teaching tales place a symbolic emphasis on the power of the rotating wheel, the circling of the heavenly bodies, the mill wheel and the millstone. As Rumi said, The mountain of the sun I ll fashion to a mill. And as my waters run, I ll turn thee at my will. Note that their work toward spiritual transformation results in neither the emergence of the involuntary and rigid limit cycles of invariant circles or the associated divisive internal eigensplitting of good self from evil other. The Sufi compass points to an integrated field of divine consciousness, which contains the appearance of the world s multiplicity. In this profound unity, all humankind is perceived as one family. The singular direction of all prayer, Salat, five times a day, at dawn, high noon, afternoon, sunset and an hour after sunset, turns the entire world into a unified directional field of prayer. At its center, the Islamic pilgrims wander round and round the black cube of the ancient shrine of Kaaba, This leaves one with the speculation that we started with: that the simple, authoritarian rules of the amphetamine, roll-up and splitting religions may be intrinsically more vulnerable to unpredictable breakouts into morally inconsistent actions and that the righteously rigid limit cyclists are invariantly split into ambivalence. In contrast, the more free form, chaotic turns of the entheogenic dervish define us all as belonging to one unified ecstatic field. Further Readings for Amphetamine Roll-Up And Splitting Psychology and Religion. Carl G Jung, Princeton Univ. Press, N.J. 1938. The Faith of a Heretic, Walter Kaufmann, Meridian, N.Y. 1959. Nightmare Season. Arnold J. Mandell, Random House, N.Y. 1976. 165 The Rabbinic Mind. Max Kadushin, Bloch , N.Y. 1972. Coming of (Middle) Age. Arnold J. Mandell, Simon and Schuster, N.Y. 1978. Introduction to Islamic Theology and Law. Ignaz Goldziher, Princeton Univ. Press, N.J. 1981. Tales of the Dervishes. Idries Shah, Dutton, N.Y. 1970. Open Secret; Versions of Rumi. J. Moyne and C. Barks, Threshold Books, Putney, Vermont. 1984. Amphetamine Psychosis, P.H. Connell, Oxford University Press, Oxford, 1958. Amphetamine Use, Misuse and Abuse. David Smith, Hall, Boston. 1979. Long-term Administration of D-Amphetamine. David S. Segal and Arnold J. Mandell, Pharmacology, Biochemistry and Behavior. 2:249-255. 1974. Amphetamine Enhancement of Reward Asymmetry. S.D. Glick, L.M. Weaver and R.C. Meibach, Psychopharmacology 73:323-327, 1981. Hopf Bifurcation and Its Applications, Appl. Math. Sci. Vol. 19,. Springer-Verlag, N.Y., N.Y. 1976. Dynamics, The Geometry of Behavior, I-IV, Aerial Press, P.O. Box Office 1360, Santa Cruz, CA 1982. Nonlinear Oscillations, Dynamical Systems and Bifurcations of Vector Fields. John Guckenheimer and Phillip Holmes, Springer-Verlag, N.Y. 1983. 166 Psychiatric Aspects of Neurologic Disease. D. Frank Benson and Dietrich Blumer, Grune and Stratton, N.Y. 1975. Drives and Reinforcements. James Olds. Raven, N.Y. 1977 Neurobiology of Stereotyped Behavior. S.J. Cooper and C.T. Dourish. Clarendon, Oxford, 1990. Mathematics Unlimited 2001 and Beyond. B. Engquist and W. Schmid, Springer, N.Y. 2000. 167 CHAPTER 8: FAITH AND RATIONALITY It was my belief that, without subjective evidence of Holy Spirit Energy, the rush of reconfiguring transcendent experience, some glimmering of grace no matter how fleeting, an experience of intoxication with God, Martin Buber s self authenticating I-Thou encounter, the many good citizens of this world, without these moments of illumination, must be attending church or temple to negotiate a better now and hereafter. Attending synagogue or church without the promise of a mystical high seemed like a superstitious rabbit foot rubbing for personal health and safety and a sharing of propitious contacts for social and economic advantage. Why else? I have had the good feel of what Jews call Tzedakah, the sharing of supplies by the haves for the betterment of the have nots. I have known the quiet calm of human right action as in the Unitarian Universalist s serving the needy, open and flexible, intimate mindfulness of others and their needs. Considering E.O. Wilson s brand of brain herd biology of altruism gives me a warm feeling about the potentially intrinsic goodness of man. But compared with the Jamesian brands of ecstatic transcendence, minds blown in Sufi twirling, Orthodox Jewish chanting, rocking and dancing, hands-in-the-air praying and hands-on-the-head healings of Wednesday night Pentecostal services, the soberly serious social engagement and 168 responsibility sermons of Reformed Judaism and the Unitarians as well as the 19 th Century hymns and high I.Q. apologetics of some Presbyterian and Methodist clergy, are like near beer. Formally equivalent but without the rush and the delicious risk and promise of life long addiction. National opinion polls have found my preference for churchly fireworks in religious experience quite common. My Charismatic Christian sons are among the many with a preference for and loving labeling of these kinds of houses of worship as rock and roll churches. In a recent survey of Americans, 46 of respondents claim to be twice born, Evangelical Christians. Perhaps unfortunate with respect to their children s academic and professional ambitions, 48 do not accept a Darwinian view of biology. Fifty million American readers are now buying books with plots taken from the Babylonian prophecies and anticipate the Rapture of Return with weekly, joyful, mini-rehearsals. They include praying in tongues as the Spirit moves them like Peter, John, James and the rest of the one hundred and twenty in the upper room on the day of Pentecost. Those of us with two or more available cable religious networks can, on any given Sunday morning, choose a smiling, kind, Proverbs quoting, rational Presbyterian liturgical stylist. In his seventies, standing tall with a full head of white hair and in a quietly resonant voice, he delivers a sermon about seven ways to avoid growing old. His list includes learning new things and continuing to work. His spiritual proposal was about personal faith, always leaning on the Lord. On another network, the three hundred pound, restlessly pacing preacher of the Cornerstone Assembly of God Church of San Antonio, Texas, stood in front of large maps of Iraq and the Middle East. He preached from Ezekiel about the refleshing of dry bones and a return of all Jews to Israel. He said that contributions to his church over the past year helped finance the return of 4000 Russian Jews to Israel. He reiterated the promise that, when the return was completed, there would be a massive Islamic attack on Jerusalem and we will all rise up to Heaven in an ecstatic disappearance. Jews, as long as they accepted Jesus as their Savior, were welcomed along on the ride. More then two thousand parishioners erupted into loud applause along with shouts of praise Jesus. 169 An inkling of something entirely different, neither human psychology nor frenzy, was an unanticipated benefit of being at England s Warwick University in sabbatical residence in Math House 2. This large, round, many windows and black boards, study with a small upstairs bedroom was one of the apartments for visiting professors behind the Warwick Mathematics Institute in the English Midlands. I attended a variety of churches and synagogues on the weekends. The perspective that emerged for me at Warwick was that rabbinic Haggadah, inferences to be drawn from imaginatively spawned narrative, isn t the same thing as Halakhah, the law dictated by Jewish legal tradition; that geometric insight and other intuitions aren t the same as mathematical proofs; that the mystical visions of the English romantic poet and illustrator, William Blake, were not necessarily consistent with the scientific observations and logical arguments of the contemporary Scottish philosopher, David Hume. Paul Tillich wrote that the wisdom attendant to primary spiritual experience that was without the unconditional character of sensible moral obligation was not to be trusted without critical analyses. I learned that among High Episcopal and Reformed Jewish English academics, God is not a hallucinogen, but more like a spiritually based, social contract. In his 1929 essay, Mysticism and Logic, Bertrand Russell noted mysticism s preference for: (a) Insight over discursive analytic knowledge; (b) Belief in the unity of all things over oppositions or divisions in representational thought; (c) The denial of the reality of time, even in the divisions of past, present and future; (d) Belief that evil is unreal, manufactured by the innate divisiveness in some analytic intellects. In modern brain hemispheric and other neuropsychological philosophies, these countervailing descriptions of external observables can grow naturally out of the brain s abilities to maintain logically incompatible perspectives simultaneously. Right-brain aesthetic holism in contrast with left-brain categorical analytics recalls a popular example. Would one chose Blake or Hume to better explain how the time dimensions of memory disappear with the scent of a past lover or the hearing of his favorite music for lovemaking. In the inevitable mix of primitive instinct with high purpose, the visiting professors Math House 2 had an aura of infamy. It was the one in which, by the 170 accidental intrusion of a campus security officer, the brilliantly eccentric Northern California mathematician, Ralph Abraham, was famously arrested for pot smoking. The campus officer told me that, late one night, thinking he had smelled fire, he used his master key to make an unwelcome entrance. The incident became part of the record in House of Commons hearings about the intellectual and moral decay of English Universities. Apparently, even among English intellectuals, there were trivial and politicized definitions of virtue. Christopher Zeeman, the head of the Mathematics Institute was a worldclass topologist who, among other things, demonstrated biological and socialpsychological applications of Rene Thom s Catastrophe Theory. I was invited as a brain person and amateur mathematician, to see what might result from mixing me with members of his fine mathematics faculty. In addition to learning some bifurcation and lots of ergodic (statistical) theory, my chats with Christian and Jewish mathematicians on Saturday and Sunday morning visits to the synagogues and chapels of Oxford and Cambridge introduced me to an English intellectual s religious tradition. The spirit of C.S. Lewis was still very much alive. Surprising, however, was that more than a few of these scholars had the elements of Christian faith in full menu: virgin birth, incarnation, crucifixion, resurrection, original sin and the promise of salvation. I was disabused of my belief that these elements of Christian belief were incompatible with high mental capacity and intellectual sophistication. Yet, the spiritual climate of these English intellectual Christians were different from today s post, post Vietnam return of the religious themes of the turn of the Twentieth Century, big tent revivalism and Billy Sunday s brand of Christian patriotic America. Today s religious patriotism infuses George W. Bush s Republican base, National Security Adviser Condoleezza Rice s after dinner hymns and Attorney General John Ashcroft s early morning bible study groups for his Assistant Attorney Generals. Even the most religious of my English math buddies are without what seems like adventitious baggage of today s faith based Republicans: the belief in the immorality and godlessness of teaching evolution in schools, what has been called the massacre of the innocents in stem cell research and abortion clinics, the 171 right to bear machine guns and the intrinsically venal sinfulness of a man s commitment in love of another man. Was the clustering of these apparently diverse concerns the accidental result of a sociopolitical-religious short circuit, a classresentment-driven spiritual split in geographic, socioeconomic and educational class? Tim LeHay is selling millions of books, whole tables full at Wal-Mart s, which come packaged with these assumptions. Surely higher-level theists would make today s evil more subtle, abstract and pervasive, perhaps involving inner life themes of envy, vengeance and aggression; goodness implicating empathically made moral choices involving interpersonal kindness and evidence of caring about the well being of others. My contact with some English academicians taught me that even the mathematics of hard science can be viewed as a gift of grace and belief in the possibility of a continually emerging, Christ-centered, evolutionary process. Protestant philosopher mathematician Alfred North Whitehead in his 1926 Religion in the Making, Catholic anthropologist priest, Pierre Teilhard de Chardin in his The Phenomenon of Man and the more modern process theologists of New York s Union Theological Seminary do not exclude Christ s involvement in evolving science and other new knowledge. They see Him participating in a spiritual evolutionary progress which does not gather the barnacles of irrational ideas about the murder of less than hundred-cell blastula or the psychoneurohormonally determined sexual partner preference. They know about the ever-changing cultural and political appearances of faux and real evil. Nonetheless, what I learned from my Christian and Jewish friends at the mathematics institute was that, though the definitions of evil may change, evil as a construct and spiritual mechanism is an apparently essential component of the Christian experience. On Rosh Hashanah, even the reformed Jews commit themselves to Teshuvah, making up for past evil deeds. The good versus evil dichotomous view of man s existence is true in the lives of Assembly of God Fundamentalists of Georgia as well as the sophisticated Readers, Professors and Dons of the high Episcopal churches and university chapels of Oxford and Cambridge. 172 Finding high-level mathematical thinkers at home in metaphysical surrounds and metaphysicians diligently practicing mathematics are certainly not new. Some instructive examples include, famously, the Pythagoreans, the 15 th Century Catholic Cardinal Nicholas Von Cusa, who used geometric symbols to record his spiritual philosophy, and the Talmudic-Cartesian style of argumentation of Nicholas de Spinoza. This approach to an examination of metaphysical systems, sometimes called mathematicism, exploits the machinery of the mathematical mind to evaluate the consistency and completeness of thoughts, to create representative axiomatic structures and to operate within them using syntactic calculus. The practice of the rational dialectic of mathematicism, working for moral purity of heart, develops a brain-somatic discipline much like the exercises of Yoga. This approach flies in the face of the major premise of these essays, my belief in the necessity of what William James and others have called the primary religious experience in order to know God. Recall that my father s favorite Jewish mystic, Abraham Abulafia, said this experience gives birth to an activated mind that can then immediately and completely inform the Spirit. Among the religious English mathematicians, I learned that it doesn t have to happen this way. One can apparently think oneself to It. A well known example of a modern theistic Oxford type, the Magdalene College English tutor and Don, C.S. Lewis, in his introduction to St. Athanasius s The Incarnation of the Word of God, wrote, I believe that many who find that nothing happens when they sit down or kneel down with a book of devotion, might find that their heart would sing unbidden while they are working their way through a tough bit of theology with a pipe in their teeth and a pencil in their hand In contrast, without my personal experiences with joyful transcendence, the direct feeling of His presence, I would not have known about the goals of his more analytic efforts. It was a struggle for me to use a rational mind to share the meanings of the poetic ruminations in his BBC lectures, Mere Christianity. This Reader from Oxford with two firsts in Latin and Greek followed by another first in English Literature, described the world as enemy occupied territory the omnipresence of the Good Power turned Dark Power of the Prince of Darkness and the Christian as a man who is enabled to repent and pick himself up 173 For C.S. Lewis, religious faith came from intellectual hard work. He was put off by spirituality that arrived by thoughtless fiat. He rejected the idea of living in simple and loving direct conversation with the God within, as described by Brother Lawrence. Lawrence was described as the simple great awkward fellow who broke everything. Lewis had little faith in what he perceived as the mindless spiritual methodology of this selfless, silent, hard working Parisian monastery cook for a hundred fellow monks who was also their dedicated smelly sandal repairer. Perhaps reflecting his place in the British intellectual class system, Lewis wrote that Lawrence s conversations and letters in the brief pamphlet, Practice of the Presence of God, full of truth but unctuous and repulsive. At the same time, Lewis spoke of his own experiential evidence for God in Surprised by Joy in which he admits, I am an empirical theist. I have arrived at God by induction. It is likely that Brother Lawrence did not know and did not need to know the difference between an inductive and deductive argument. For most of my years, I have been a subject of Jamesian transcendent experience, LSD expansive visions, Sufi moving meditation, long distance running, Black Baptist shouting, Tantric orgasmic withholding, Yiddish Labovicher dancing, Charismatic Christian Church rock and rolling, Hindi meditative rising Kundalini, almost any ecstatic crisis inducing, God type. Recall that I am from a generation that a Donovan song inspired to smoke bananas. I did not personally access Brother Lawrence s calm, work-a-day, devotional, quietly persistent, perspective yielding, inner conversations with God until my sixth decade. The opportunity came from my growingly severe, unfixably chronic, pain. The counter-intuitive insight and helpful identification was gained from reading about Joseph de Beaufort s conversations with Brother Lawrence. Beaufort said Lawrence was born with the name Nicholas Herman in 1611 and renamed Lawrence in honor of his parish priest. As young soldier in the Thirty Years War of the 17 th Century, he was severely injured. He was left with both sciatic nerves trapped between bone spurs and tissue scarring from his early twenties. These injuries, involving the two biggest painconducting nerves in the body, left him crippled in gait and in chronically severe lower back and leg pain from which he would never be free. It was after this time 174 and a few years of looking for God in what he called wondering in the wilderness that he began his 40 years of monastery service as cook and sandal maker. He was described as amazingly selfless and a gentle man of joyful spirit who continually walked with God not from the head but from the heart Doing long hours of selfless work with such painful disabilities, how was it that he maintained his joyful, loving and calm contact with God and his fellow man? How did he do it? I found that, as with all miracles of God contact for me, it happened by itself. I suffered my first testicular cancer in my thirties. I felt the little hard rock by accident while scratching. It was on the left side. Surgical removal was followed by a five-hour radical abdominal lymph node dissection that left me with incidental abdominal sympathetic nerve damage, urinary hesitancy and ejaculating backwards into my bladder. The tissue diagnosis was of embryonic cell carcinoma with chorionic elements. The U.S. Armed Service Pathology Department s statistical book gave me 5 chance of living beyond two years. My second testicular cancer occurred in my fifties and on the right, two little joined lumps found by my wife. It was a seminoma with cure rate of 85 but requiring four weeks of almost daily x- ray treatment. The combination of radiation induced blood vessel scarring (they had to blast widely since my earlier lymph node dissection confused the usual radiological anatomy), a pre-existing laterally curved spinal column and the arthritic changes resulting from fifteen years of running over 10 miles per day with this kind of back led eventually to the degeneration and collapse of several of the bodies of my vertebrate pinching several leg nerves between bone spurs and radiationinduced scarring. I have been in increasingly severe back and leg pain for fifteen years. It was in this way that I fell heir to both Brother Lawrence pain syndrome and what I now think was his strong inclination to live in the Spirit, as far as possible outside the concerns with his own mental and physical body. In my experience, this led naturally to a decreased in my life long narcissistic preoccupations, diminished my ego-driven achievement desperation, setting up a more comfortable inner seating for conversations about and with God. The choice was between fully embracing a God-oriented place for most of my daily existence or the chronic use of 175 enough narcotics to eliminate complexity of thought, real interpersonal feelings and hope for meaningfully creative work. The remarkable thing to me was that people began to talk about my improved disposition, an increase in out-of-mypsychiatrist s office personal empathy and kindness as well as a significant decrement in my overweening, ego-stoking ambitious and competitive urges. Any return to the earth body of tense readiness to competitively succeed, protect with ego defensive anger, fantasies of assertive sexuality, stand tall grandiose notions of intellectual superiority, even getting up for scientific combat, was accompanied by the return to this world of pain. Only lovingly detached, unpretentious, other directed, quietly calm inner dialogue with Him was a place that I could live. This was an inner land of still another kind of God than I had previously known. I could even read and struggle with theological ideas thoughtfully, without referencing personal mystical, psychopharmacological, Holy Ghost-mimetic, experiences. I could enjoy the rational, social responsibility valuing, spiritual peace of a white Protestant Sunday morning service. I could attend Reformed Jewish Friday night services about man s responsibility to man without restless boredom. No longer seeking the feeling of God s thrill, I could think about it, even without being in the state of my father s and Abulafia s activated mind. If I had been benefited with a classical language education beyond the high school and early college Latin of Julius Caeser and Cicero or matriculated in an academic theological seminary, I would have already studied, maybe even worn out, the deeper aspects of what seemed like a paradox of the consonance of faith and reason. I would have been familiar with the rhetorical argumentation in the patristic Latin commentary on sacred texts by Tertullian and other Fathers of the early Christian Church, the Talmudic discussions (the Mishna in Hebrew and Gemora in Aramaic) of the oral Torah by the Rabbinate, the Muslim explication of Koranic Islam in the oral tradition of the Hadith. Robert Wilken in his recent The Spirit of Early Christian Thought was in no doubt about the harmonic relationship between rationality and faith: by putting itself in the service of truth, faith enables reason to exercise its power in realms to which it would otherwise have no 176 access It is perhaps strange to come to this common knowledge so late, but I came to my life with my forbearers and father s magical, mystical biases. My father had parodied what he thought was the wasteful time spent in rational, Talmudic discussion. He said that is what Jewish men spent their time doing to avoid physical work while sitting near the city gates. It was the women who raised the crops and cared for the cattle and children. He had a favorite conundrum satirizing the village gate discussions. Jewish males, after the age of thirteen, accompany their morning prayer of commitment to loving and serving God with the ritual of wrapping scripture embedded animal skin, tefillin, and winding them seven times around the left arm, near the heart, and around the head, symbolizing the mind. This contextualizes how my father made fun of a typical topic of these all male Talmudic seminars: If one had seven arms, would one wrap the tefillin once around each appendage or seven times about one of them. If the latter is the case, how would one chose which one. In fact, there remains an on-going debate about the order with which the embedded four passages from Exodus and Deuteronomy should be arranged and inserted in the tefillin such that some compromising orthodox Jews wear two types of tefillin, each representing one of the theoretically justified orderings. I know now that there is an implicitly positive confirmation of a jointly held faith and feeling of ethnic belonging achieved by such apparently abstract discourse and argumentation. In truth, I had not come to Warwick to explore the relationships between faith and rationality using the cognitive style of mathematicism, but rather to be saved by the mathematical miracles of the Brain God. Not unrelated to what C.S. Lewis saw as a prominent characteristic of spiritual experience, wonder, and what Philip Davis and Reuben Hersh in their 1981 book, The Mathematical Experience, spoke of as beauty and surprise. I know about the attack of excitement that comes with the sudden emergence of counterintuitive conceptual connections while exploring new mathematical ideas. In energetic high, I start skip reading, underlining the book frantically, jotting commentary on the margins, copying the relevant equations into my notebook. Was this the same break through to a glimmering of grace, everything beautifully in order and precious, that I experienced on LSD while sitting for hours 177 inside Paris s towering, echoing, Notre Dame Cathedral, hearing Latin chants in the dank sweet smell of old church and chained, swinging canisters of smoking incense as the pipe organ roared? Those realities that George Berkeley, the 1721 author of Treatise Concerning the Principles of Human Knowledge, the theist whose name was given to a mostly agnostic Northern California city, saw as grounded in the spirituality of God s infinite mind and broadcast as universal ideas through our derivative, finite minds. Rational religion and mystical religion joined in faith by the presence of implicit and universal mathematical structure I spent about two years at a mathematics institute in France, Institute des Hautes Etudes, IHES, sitting at the guru feet of the mathematical great and metaphysician, Rene Thom. His mathematical pallet was breathtakingly broad, a taste of what in past centuries was called natural philosophy and what seemed to me to be about the unapologetic geometrization of the Intuitive God of the Mind. Natalie Angiers, erstwhile mathematician, now reporter and atheistic hard ass, writing in the New York Times, called Thom s ideas the talk of an Emperor without clothes The Kantian theme of the personal a priori status of an intuitive geometry, an already in us representation of all that s out there, was implicit in his Catastrophe Theory research program and was published first in his classical Structural Stability of Morphogenesis (1977) and made more overt in his later (1990) Semiophysics. To get a feeling for the rational-logical versus mystical-intuitive spiritual issue in a mathematical context, consider the following: most of us remember the struggle to unify the strange and difficult cognitive duality of the high school geometry experience. On one hand, shapes and their relations and rearrangements could be intuitively grasped, even manipulated; on the other hand, we were taught that these mental images and the results of their intuitive transformations were not to be trusted. In mathematics, as in my belief in the fireworks of primary religious experience, seeing is not necessarily believing. In my high school geometry class, what was to be believed was what followed from the proper practice of the tightly organized, Euclidean system of axioms, postulates and the derivative logical 178 operations resulting in the surety of proofs. The unresolved tension about what I believed from intuitive experience and what I was allowed to believe from the logic of theorem and proof, perhaps not unlike my belief in the transcendent experience over logical theological argument as Reality, continued throughout my life. For example, many decades later at IHES, I saw the world class dynamical systems theorist and differential geometer-topologist, Dennis Sullivan, use a projector to display a computer-generated, intricate and beautiful, mathematical object, the well known, computer screen saver, Mandelbrot set. It represents the control parameter plane of the well studied complex analytic map, z z 2 c. Sullivan, pointing to a small, discrete complicated little part of it that looked like a little version of the whole of it, from a distance looking like a point, said, An important Ph.D. dissertation is waiting to be done on the question: is this (pointing to the little object) really there? In the audience of about a hundred professional mathematicians and one amateur, I was the only one that laughed. Historians of mathematics point to the successful generalization of Euclidian geometry via its abstract axioms, postulates and logical operations to a new, not naturally intuitable, almost nonvisualizable, non-Euclidean geometry (with the new geometric axiom, parallel lines do meet at infinity), as evidence against the Kantian idea of the intuitively accessible, a priori status of geometry. This served as an example of where mathematics naturally resides, and argues in favor of the thought control imposed by the modern set theoretic and logical rituals of mathematical theorem and proof. Thom, in a hereditary-evolutionary biological argument developed in Semiophysics, said Objections raised to the Kantian apriority of Euclidean geometry after the discovery of non-Euclidean geometries, and the theories of twentieth century physics (restricted and general relativity, quantum mechanics) appear to me to be irrelevant they deal with the infinitely small and infinitely large which lies outside the usual cognitive activity of ancient man. In my discussions with him, Thom found equivalence relations between mental and real world objects and their behaviors. He described what he called an abstract physicalist truth that describes a psychic universe, which, in turn, simulates outside things and processes. Much like the transcendent experiential God I have 179 experienced, seek and think I know about, Thom was not after the logical proofs of geometry but rather viewed mathematical theorem and proof work as activity derived from intuitive experience with geometric relations as the thought forms that represented real Reality. Though a Field s Medal winner in mathematics (recall that it is the Nobel Prize in mathematics awarded every four years at the International Congress of Mathematics) and for his life time, one of the most brilliant and fecund mathematicians in the world, so many mathematicians admit that they got the seeds of their life work from his throw away remarks, Thom, with a little smile and his eyes twinkling, admitted to me with apparent pleasure that I have never proven any theorem in my life. All his discoveries came from insightful moments of grace and the courage to pursue them. Riding back from Paris late one night on a train that didn t stop at IHES s town of Bures sur Y vette, I watched him use the red emergency phone to call the train s engineer to stop the train suddenly for our exit. I loved him, in part, because he had the courage to believe in and act on my kind of intuitively realizable, experiential God. In keeping with his characteristic style of generalizing mathematical systems beyond their carefully defined specifics, Thom defined the concept of singularity very broadly, speaking of them as distinctive and noteworthy things, points where the usual or expected properties, laws and definitions fail, where smooth and continuous processes become discontinuous. For Thom, these were the settings for the unexpected and miraculous. He believed that his work and that of many others, now and in the future, would indicate that the set of miraculous singularities were finite, systematic, universal and describable. Most importantly for our purposes, Thom believed them to be archetypal. It was through the structure of archetypal singularities that he regarded inside and outside realities as mutually reflective. I was blessed by hours of discussion with him during his car travels to lecture around France. Thom often asked me to accompany him as he drove from IHES to various branches of the University of Paris. He used these times to exercise my geometrically flavored, mathematical intuitions. He used words to create visualizable structures without the diagrammatic aid of a blackboard. He used mental topological structures created by the properties of imagined motions, 180 flows, which led to examples of some of his universal singularities that he claimed could be found in all real physical, biological and psychological systems. For some examples: One of his archetypal singularities was a boundary at x 0 such that the flow couldn t spread from where it was in x 0 into x 0 and was therefore like the border, the membrane, between the inside and outside of a cell as well as the hoped for sociopolitical functions of the Great Wall of China and the Maginot Line. If we were to blow up the boundary line from two to three dimensions, R 2 R 3 , the straight boundary line becomes a cylinder for directionally organizing and connecting flows as in blood vessels, oil pipes, cables and wires. Since production and delivery need not occur at similar rates, temporary storage is required and may take the form of a spherical blow-up in the vertical segment of R 3 leading to an open bottle which may serve as a dead end storage branch of a network of connected cylinders. In the conceptual reductionism of Semiophysics, Thom said, life is essentially a question of embankment, canalization and the struggle to stem dispersion. These structures of mind and world are built and maintained. Coagulation of blood is an example of a canalized fluid repairing gaps like a tubeless tire. Thom considered apparent the problem of making something from nothing, birth, that of finding the hidden sources: the bubbling spring emerges from an unseen, underground network of canalized fluid flow converging on the apparent source, birth being the invisible becoming visible. In contrast, a canalized flow emptying into lake can represent disappearance as a flow. Mathematicians from all over the world attended Thom s 65 th birthday celebration at IHES. His Field s Medal winning work on the topology of differentiable (smooth) manifolds, cobordism and related ideas, was mentioned frequently, and great homage paid to him with respect to these areas of his work. However, in two days of lectures of personal and professional tribute by the world s great mathematicians, his work relevant to Catastrophe Theory and Semiophysics was not mentioned, even once. The form taken by mathematicians most severe judgments is silence. As the New York Times Natalie Angier s comments indicated, this is not the time for the intuitive conduct of applied mathematics. 181 It was upon Thom s recommendation, that I spent the year in the Mathematics Institute in Warwick, England. Using the Math House 2 s home base, I made many trips to Oxford University and a few to Cambridge. It was in these places that I learned first hand that belief in the Resurrection was not simply a matter of socioeconomic class. I tried to schedule my trips to Oxford or Cambridge to coincide with the weekend so I could hear the remarkably literate sermons at the Universities college chapels. In these places, for hundreds of years, just because one was a top-notch practitioner of mathematics or linguistics did not mean that the Don did not have within him the full panoply of beliefs attendant to the Christian God. Maybe this easy combination of logic and Spirit derives from the character of English mathematics. There are graduates with professorially enfranchising Masters of Art Degrees in Mathematics from Cambridge University where the subject is considered by many to be part of the culture of the humanities, closely akin to philosophy and linguistics.. In the universities of United States, for example the Massachusetts Institute of Technology, an academic degree of Ph.D. in mathematics is seen by most faculty as an indication of the intellectual equipment required for a life of scientific work in which disconfirmable experiments are the ultimate criteria for knowledge. The field of pure mathematics (not ostensibly relevant to the real world outside the mind) has itself evolved in this direction. Recently, a physical scientist, a theoretical physicist, Edward Witten, was given the mathematician s ultimate award, the Field s Medal. In American universities in general, very few mathematics departments are in schools of the humanities. Most are in the schools of science. This variation in bureaucratic, metaphysical, sorting reflects our continuing struggle with the true nature of reality and the role of mathematics in its knowing. The now emergent field of computer science removes mathematics even further from intuition and Spirit. Difficult problems such as proofs of theorems can be systematically examined for all possibilities quickly by trying them out in what is now known as a computational proof. On the other hand, pointing at this computation s graphics, the theorem and proof, real mathematicians can ask, is this really there? 182 Mentioned briefly above was one of humankind s beacons, Pythagoras, the intellectual and spiritual progenitor of Plato. He taught the disciples of the Pythagorean Brotherhood in Crotona, Italy, that reality at its deepest level was mathematical thought. Studies there included philosophy, geometry, music and astronomy, all at the service of achieving closer union with the Divine. Pythagoras and his school, only his student s writings remain, was said to be working at unifying elements of the ancient tribal mystery cults with the observables of worldly events through meditative, mathematical, philosophical mysticism. Knowledge was gained through spiritual intuition made harmonious with formal systems of thought. As Plato later said and as quoted by Thomas Heath in his 1921 History of Greek Mathematics, about the study of the motion of stars, leave the heavens alone because what one sees is only an approximation of the real and more perfect mathematical structures involving points, lines and circles. To which Newton added an elongated circle, the ellipse, and Nineteenth and Twentieth Century mathematicians and physicists, the geometries of positively and negatively curved space. It is perhaps not an accident that debates about evidence for the existence and location of God and where the ideas and structures of mathematics live and breath generally involves a stand off between those that believe that both are out there and can be seen, like thoughtful, humanistic actions and caring service for needful others, versus those that feel the phenomenology of both are projections of the psychobiologically intuitive Brain God and can be felt like an ecstatic rush of insightful illumination. Further Reading for Faith And Rationality Introduction of Comparative Mysticism. Jacques De Marquette, Philosophical Library, N.Y. 1949, 183 Mysticism and Logic. Bertrand Russell. Norton. N.Y. 1929. Sefer shel Devarium (The Book of Words). Lawrence Kushner, Jewish Lights, Woodstock, Vermont. 1998. Semiophysics: A Sketch, Aristotelian Physics and Catastrophe Theory. Rene Thom. Addison-Wesley, Reading, MA. 1990. Mere Christianity. C.S. Lewis. MacMillan, N.Y. 1952. Sacred Geometry. Miranda Lundy. Walker, N.Y. 1998. Fractals, Form, Chance and Dimension, B.B. Mandelbrot, Freeman, San Francisco, 1977. Non-Euclidean Geometry, H.S.M. Coxeter, University of Toronto Press, Toronto, 1957. Fundamentals of Mathematics, Vol. I. H. Behnke, F. Bachmann, K. Fladt and W. Suss, MIT Press, Cambridge. 1983. Religion Explained, The Evolutionary Origins of Religious Thought. Pascal Boyer. Basic Books, N.Y. 2001. Catastrophe Theory. Alexander Woodcock and Monte Davis, Dutton, N.Y. 1978. It Must Be Beautiful; Great Equations of Modern Science. Graham Farmelo, Granta, London, 2002. Neurobiological Barriers to Euphoria. Arnold J. Mandell, American Scientist 61: 565- 573, 1973. 184 Brain Physics and the Respiritualization of Healing. Arnold J. Mandell, Bulletin of the National Guild of Catholic Psychiatrists. 28:19-24, 1983. Toward a Psychobiology of Transcendence, God in the Brain. Arnold J. Mandell, In Psychobiology of Consciousness (eds. J.M. Davidson and R.J. Davidson). Plenum, N.Y. 1980. 185 APPENDIX AN INTUITIVE GUIDE TO THE IDEAS AND METHODS OF DYNAMICAL SYSTEMS FOR THE LIFE SCIENCES Arnold J. Mandell and Karen A. Selz Biological Scientists Can Understand and Use Ideas and Methods of Nonlinear Science A yield of advances in computer hardware and software is that even quite difficult applied nonlinear mathematics can become accessible to experimentally oriented biological scientists. Before this time, the development and analysis of a particular set of nonlinear differential equations, describing the actions of a neurobiological system in motion, involved decades of specialty training, rare insight and many hours of highly skilled, trial and error computations by hand. Since the idiosyncrasies of each nonlinear system were considered unique, the results of their analyses were thought to concern only the particular nonlinear system being studied. Often a shift in hypothetical mechanism meant starting the long and painful process all over again. In addition, these findings were usually communicated only to a small and arcane mathematical community in the form of dense theorems and difficult to follow proofs, insurmountable language barriers to biological researchers wishing to use them to better describe and understand their experimental observations. For today s neuroscientist with a desktop computer, an inclination to program and access to computer algebra and numerical software such as Maple, Mathematica or MatLab, operational definitions and computational empiricism can replace the theorem and proof continuity required to do old style applied mathematics. For those of us without sufficient facility in algebraic manipulation to easily follow the arguments of professional mathematicians, a computer algebra program such as Maple serves as a delightfully accessible consultant with which to check out what the guy is saying". Those motivated enough to write their own data generating or analytic programs in C, Fortran, Pascal or Basic (though not 186 essential) can find easy-to-use algorithmic help in Cambridge University Press s Numerical Recipes series (Press et al, 1991). The conceptual and communication gaps between applied mathematicians and physicists and the bench practitioners of the neurosciences, that inevitably lead one or the other, most often both, to surrender their deepest intuitions to jointly shared images that are inevitably more simplistic, are no longer inevitable. With her own hands on both the quantitative conjectural and experimental machinery, the motivated practicing neuroscientist can honor her own insights, read about and construct symbolic representations from her intuitions and do her own quantitative theory. Computerized numerical techniques have become so powerful and accessible that, even in academic settings, there is debate about whether fundamental analytic tools, such as series expansions, should be taught in undergraduate courses about differential equations. The practice of try it and see what happens", with the current name of experimental, computational mathematics, is accessible to all. In addition to the powerful general mathematical programs noted above, there exist several sets of more specifically targeted software with the capacity to generate, portray and quantify the behavior of nonlinear continuous and discrete abstract and real dynamical systems. These often also include algorithmic modules that are useful in tailoring new models and measures (see for examples, Parker and Chua, 1989; Baker and Gollub, 1991; Nusse and Yorke, 1991; Sprott and Rowlands, 1991; Sprott, 1993; Korsch and Jodl, 1994; Enns and McGuire, 1997). Learning from and using this software, along with only a little programming in the high level languages and computer algebra programs listed above, permit the non-mathematician neuroscientist, willing to read in the literature such as that described below, to do independent, cutting edge research in applied dynamical systems. Described below will be the computational discoveries in abstract systems and real neuroscientific data that have led to multiple contexts of quantitative description. These include those that are: (1) Geometric and conserve metric distances; (2) Topological and conserve relative positions but not distances; (3) Single or multiple global quantitative descriptors such as scaling numbers or scaling 187 number spectra; (4) Non-Gaussian distributions with heavy tails and correlations reflected in their Hurst, Fano, Allan and Levy exponents; (5) Statistical dynamical descriptions of trajectories of the system in their embedding space such as Lyapounov exponents, Hausdorff-Mandelbrot dimensions, Sinai-Ruelle-Bowen measures, and Adler-Weiss-Ornstein topological and metric entropies. Characteristics which discriminate between experimental versus control conditions in parametric computational and real physiological and pharmacological experiments serve to generate and test ideas and imagery arising out of behavior observed in both biological and abstract dynamical realms. New experiments can be suggested by the implicative structure of dynamical systems theory as well as neurobiological findings and intuitions. As examples, the sudden switch of manicdepressive bipolarity syndromes may be a bifurcation in nonlinear dynamical systems; the noise of the statistical physicist may be the arousal of the brain stem-thalamic biogenic amine and reticular formation neurophysiologist; aspects of thought disorder in the pathophysiology of schizophrenic patients may be an entropic sequencing idiosyncrasy in the symbolic dynamics of a particular brain system attractor; neuronal bursting may be the intermittency of a neurodynamical system; a multiplicity of discrete ion channel conductances may be a single global scaling hierarchy of conductances times. The number of published examples of this fusion of ideas and methodology in the biological-relevant literature is already in the several hundreds and Medline counts indicate is growing exponentially. Representative samples of these are described below. In addition to the technological advances in computational hardware and software, the major scientific surprise making this new era possible is the discovery of universalities, the finite set of behaviors characteristic of most, if not all nonlinear systems, across most if not all of the specific equations or neural systems being explored. This makes the emergence of semi-quantitative equivalence relations between model and data not only possible but likely, even though we don t now and perhaps never will know enough to either write or solve completely the specific and detailed equations for the biological system of interest. We neuroscientists need not be apologetic for using these ideas and tools qualitatively and empirically. In fact, 188 unanticipated results of analog and digital computer experiments were responsible for most if not all of the discoveries underlying the current era s revolution in applied nonlinear mathematics . Modern Applied Dynamical Systems Emerged from Accidental Computational Discoveries A medical student named Herr, in his thesis research with the radio engineer , Van der Pol (1926), was simulating cardiac electrophysiology with an analog device which permitted real time, exploration of a full range of parameter values long before there were fast enough digital processors to do so. Studying the behavior of equations of a periodically, pace maker, driven, nonlinear triode oscillator, Herr found orbital points that appeared to belong to two different periods simultaneously thus violating the uniqueness of solutions of differential equation theory. The Van der Pol relaxation oscillator equations, with their slow buildup and sudden discharge of membrane potential are good models for the slow-fast processes of repolarization and depolarization of Hodgkin-Huxley type equations (Rinzel, 1985). Periodically driven, nonlinear differential equations of the Van der Pol type are generally applicable to the multiplicity of dynamical regimes of neuronal dynamics (Carpenter, 1979; Aihara et al, 1984; Chay and Rinzel, 1985) and, with periodic and aperiodic driving and noise, can be made relevant to particular mammalian neuronal subsystems in the context of clinically relevant global electrophysiological phenomena such as Magoun s (1954) brain stem evoked EEG and behavioral arousal (Nicolis, 1986; Selz and Mandell, 1992; Mandell and Selz, 1993). In the early 1940 s, using the pre-publication results of similar analog computer studies (Levinson, 1949), the Cambridge mathematicians, Mary Cartwright and Joe Littlewood (1945; McMurran, S., Tattersal, J.,1999) used geometric methods to prove that the highly nonlinear, periodically driven Van der Pol equations, depending upon one or two changing parameters, generated fixed point ( homeostatic ), periodic ( cyclic ), subharmonic ( period doubling ), quasiperiodic ( multiply periodic ), intermittent ( bursting ) and deterministically 189 random patterns. We now know such phenomena to be universal characteristics of bifurcation scenarios in nonlinear dynamical systems where bifurcation means discontinuous changes in patterns of behavior (dependent variables) resulting from smooth changes in parameters (independent variables). Alerted to their presence in computer experiments with biologically relevant nonlinear differential equations, these phenomena have since been found in time series from patch clamped membrane channels, single neurons, neuronal networks, neuroendocrine systems, brain waves and patterns of behavior in animals and man (see below). Cartwright- Littlewood found that the inner and outer edges of the domains of attraction (all the initial values that eventually wind up in the attractor the limit set of all bounded solutions) of two different sets of subharmonic periods for the same parameter settings were interlaced at many scales in what is today called a fractal basin boundary. It was in this way that the specific values of the end state are understood to be indeterminate since the starting values in the fractal basin boundary are impossible to isolate and specify with adequate experimental precision. Similar biologically-relevant analog computer discoveries about the Van der Pol and comparable periodically forced, dissipative (energy utilizing) Duffing equations (Zeeman, 1976) were made in the early 1960 s by electrical engineer, Yoshi Ueda (1992), but his thesis director, Chihiro Hayashi of Japan s Kyoto University, was sufficiently disturbed by this evidence for the existence of bounded solutions (attractors) that were neither fixed points (equilibria) nor periodic orbits (cycles), the only ones known at the time and therefore strange, that he refused to let Ueda publish his findings until he did so as an independent investigator in the 1970 s. In the early 1960 s, Edward Lorenz (1963), a meteorologist and student of the Harvard mathematician and dynamical systems pioneer, George Birkoff (1922), was computing the output of a very reduced subset of Saltzman s differential equations for predicting the weather (1962). Lorenz found that numerically integrated trajectories manifested unpredictable times and directions of motion between the two spiral orbits of what has come to be known as the Lorenz attractor. Very small differences in starting values led to widely diverse final values, and, just 190 as importantly, far apart initial values could be found close together in the limit set. This behavior was called sensitivity to initial conditions by David Ruelle (1978; Ruelle and Takens, 1971). It is noteworthy, however, that over a range of values of the parameters, the overall pattern of the orbits of the Lorenz attractor results in characteristic geometric pictures as well as invariant statistical descriptors. Qualitative and quantitative global similarities were gained while specific solutions were lost in these strange attractors of nonlinear systems. Analog computer simulation of a simpler set of equations inspired by nonlinear chemical reaction kinetics led to the discovery by R ssler (1976) of another early and generic strange attractor combining sensitivity to initial conditions and characteristic geometries and measures. It was the Russian mathematicians, A.N. Kolmogorov (1957), Sinai (1959) and V.I. Arnold (Arnold and Avez, 1968), the French mathematicians, Rene Thom (1972) and David Ruelle (1978) and the U.C. Berkeley mathematicians, Steve Smale (1967) and his student, Rufus Bowen (1975), and their associates who gathered together these and other related computational discoveries and embedded them in a qualitative theory of nonlinear differential equations, using a variety of formalisms, including point set and differential topology, geometry, analysis and ergodic (having an invariant statistical description) measure theory that formally established the fundamentals for research in nonlinear dynamical systems. Here a dynamical system refers generally and simply to the components and nonlinear processes (transformations) that move points (values) in discrete ( map ) or continuous ( differential equation ) time around in an appropriately defined space. The phrase, nonlinear transformation in this context does not imply easily solvable curved functions, such as those representing the sigmoid kinetic or threshold functions of enzymes and neuronal networks or those that smoothly log transform the amplitudes of auditory or other sensory modalities in man, but rather allude to expressions containing products, powers and functions of the computational and or 3 experimental variables , such as xx , ( x i or si n( x) . x i 1 2 ) 191 As noted above, the cross-disciplinary cohesiveness of such a vaguely defined field occurred as the result of the unanticipated discovery of a relatively small set of nonlinear phenomena, universalities, that implicated many fields of mathematics, from differential geometry to number theory, and were found in a broad range of physical and biological realizations, from turbulent plasmas and chemical and enzymatic reactions to neuroendocrine hormone release patterns. It is perhaps counter-intuitive but, whereas linear systems can generate an infinite number of solutions locating points anywhere the person writing the equations wants them to go, nonlinear systems are generally restricted to a finite set of global dynamics and these emerge on their own from the intrinsic dynamics of the system. Trying to make these systems follow orders, not unlike finding the most clinically effective dosage range of a psychopharmacological agent, require the empiricism of trial and error experiments. A second class of computational accidents involving nonlinear systems resulted in unanticipated coherence rather than unpredictable disorder. Using one of the early high speed digital computers at Los Alamos, MANIC I, Enrico Fermi with Pasta and Ulam (1955) attempted to obtain a many-body statistical thermodynamic equilibrium analogous to heat generated noise by coupling 64 particles together with nonlinear springs. They found only a few low period modes that oscillated indefinitely. Instead of equidistribution of the energy into 128 degrees of freedom (64 locations 64 velocities in 128 dimensional phase space), they found it gathered up into only few coherent modes. Although the relevance to biological science of nonlinear multifrequency coherence is a bit off from our focus, it is worthwhile noting that a recent (Karhunen-Loeve) decomposition of the alpha band of the resting alert human EEG revealed only three dominant temporal spatial modes: anterior-posterior, rotational and standing (Friedrich et al, 1991) and few frequency coherence is a frontier of inquiry in brain wave research. A heterogeneous collection of coupled nonlinear elements in the form of widely distributed, multi-location, multifrequency systems such as cross-cortical, brain stem-thalamic-cortical and interconnected spinal motor neurons can generate 192 coherent activity. This temporal and phase coherence plays an important role in current theory of sensory-associative-motor integrative function, how distributed attributions come together in the brain representation of a single object or process, in the context of the so-called binding problem (Singer, 1993; Bressler, 1995; Nicolelis, 1995; Schiff et al, 1997). Diffusely distributed neurochemical variables have been invoked. For example, the role of metabotropic glutamate receptors in driving the synchronization of interneuronal networks has been suggested as a mechanistic model (Whittington et al, 1995). The objects of relevance to the discovery of Fermi-Pasta-Ulam are studied as the nonlinear physics of nondissapative wave processes and are called solitons (Zabusky and Kruskal, 1965). They have been invoked to model nerve conduction and information transport in brain (Scott, 1990). A third counter-intuitive set of accidental computational findings is in an area of research called symbolic dynamics which involves the universal parameterdependent coding language and capacity of nonlinear systems. In the early 1960 s, a group around Stan Ulam at Los Alamos (Cooper, 1987) used one of the early high powered computers, MANIAC II, to iterate (letting the output of the action of a discrete time function serve as its input the next time around) simple equations they called maps. These reduced dimensional objects shaped like tents, sine functions and parabolas can be extracted from and represent the behavior of higher dimensional, nonlinear differential equations (see Devaney, 1989; Schuster, 1989 or Moon, 1992 for intuitive descriptions). They varied a parameter, such as the height of the tent or parabola, to systematically change the period and or phase (order) of the symbol sequence (Metropolis et al, 1973). Normalizing the range of values of the output to 0,1 and transforming the series of values into a binary code, L 0.5 and R 0.5, they found an invariant, one parameter dependent, progression of ordered periods, R, RLR, RLRR RLLRL , in all such single maximum maps. This U (universal)sequence has also been found as singly or multiply present in a variety of real systems, including complicated chemical reactions (Simoyi et al, 1982; Coffman et al, 1986). This means one can dial the parameter to generate words of sufficient computational complexity to serve as a language. These 193 computer experimental findings had already been anticipated in a remarkable mathematical proof by Sharkovskii (1964). The dynamical richness of these simple, single maximum, one dimensional maps was computationally explored in the context of ecological and epidemiological issues in the classical studies of Robert May (1976). It has been possible to relate the individually characteristic L, R sequence behavior of human subjects on a computer task to a unique parameter of a tent map generating those sequences which predicted age and discriminated subclinical obsessive compulsive from borderline syndromes (Selz and Mandell, 1993). The dynamical entropy of unstructured L,R behavior also discriminated a population of schizophrenic patients from normals (Paulus et al, 1996). More generally, parameter dependent dynamical coding, built into the universal behavior of its constitutive equations, is a mechanism with which a nonlinear dynamical system, such as nerve membrane equations as above, or in the aggregate, the middle layer of a completely connected neural network, can encode, Morse code-like, messages (Paulus et al, 1989). Bifurcations in Biologically Relevant Dynamical Systems Bifurcations, splitting into (two) branches, are observed over a smooth change in control parameter(s) (independent variables), as a discontinuous and qualitative change in the dynamical (time-dependent) pattern of the observable (Guckenheimer and Holmes, 1993; Wiggens, 1990; see Strogatz, 1994, for a particularly intuitive description). Qualitative here means how the dynamics of the trajectory appear as a geometric-topological (relative shaped not necessarily sized) pattern in phase space. In such a space, the orbital points are located along the x- axis by their value, x at time t, and along the y-axis by their time rate of change at that t, dx . To visualize a representative phase portrait in the plane, start by dt imagining the pattern made by mass hanging on a linear spring at rest as dx represented by a point centered at x 0, y 0. When perturbed from rest, the dt 194 phase portrait of the motion of this harmonic oscillator, is composed of a (continuous) series of points representing its location, graphed along x , its rate of motion graphed along , y dx dx . x and dt dt co-localize the circular orbit as it speeds up and slows down while it bobs up and down. The transition from a fixed point (the mass at rest) to a circle (the bobbing mass), a bifurcation in phase space, results in the loss of topological equivalence. That is, the phase space geometries before and after the bifurcation cannot be smoothly distorted into each other. Continuity and connectedness of the space is lost. For topological equivalence, stretching, bending and warping are allowed but not tearing apart and or gluing together. Following the bifurcation of a fixed point into a circle, even limitless shrinking of the ring leaves a hole. The appearance or disappearance of an equilibrium fixed point (called a saddle-node bifurcation), splitting into two ( period doubling bifurcation), its exploding into a circle ( Hopf bifurcation to a limit cycle), a circle splitting into two or more incommensurate cycles ( secondary Hopf bifurcation) and these multiperiodic ( quasiperiodic ) dynamics breaking down into a recursive spirals ( homoclinic bifurcation to chaos ) are among the common bifurcations in nonlinear dynamical systems, and all of them have been observed in many neurobiological settings. In the forced-dissipative (energetically driven and energy consuming) dynamical systems relevant to the neurosciences the dissipation free momentum of the classical mechanics of astrophysical bodies there are four most generic bifurcation scenarios as a parameter changes that may, but need not, lead to chaos (see below for definition) (for early and physically oriented treatments see Eckmann, 1981; Ott, 1981; Berge et al, 1984, Kaneko, 1983). These scenarios are: (1) Fixed point or cycle splittings into twice-as-long period lengths 1 2 4 8 16 called the subharmonic or period doubling route ; (2) The transformation of fixed points to one and then more periodic orbits, multiple independent (nonharmonic, incommensurate) frequency oscillations, their mode lockings and then breakdown called the quasiperiodic route ; (3) Fixed point or cyclic equilibria metamorphosed into irregular bursting patterns called the intermittency route ; and (4) In the context of quasiperiodic dynamics, adjacent 195 nonharmonic frequency encoding parameter spaces fusing, resulting in new periods that are the sums of their adjacent ones: period 2 period 3 period 5, in what is called the period adding route . Technically precise classification of bifurcations involve much more careful definitions and well studied technical constraints involving such issues as the symmetries and dimensionality of the system of observables, how many control parameters ( codimensions ) are required to reasonably realize the bifurcation and the particular way the fixed points of the system become unstable, all of which are directly explorable when the equations are known or can be hypothetically inferred from the qualitative behavior of real data. We note a few examples from the wide variety of bifurcating systems that can be found in the biomedical literature of interest for the biological sciences. With substrate input rate as the bifurcation parameter, the phosphofructokinase regulated glycolytic cycle in yeast extract was found to change among steady state, periodic and period doubling (subharmonic) regimes (Boiteux et al, 1975). Transitions between steady state, oscillatory and chaotic patterns have been reported in variety of physiological measures in man including respiratory rhythms and circulating blood cell concentrations over time (Mackey and Glass, 1977; Glass and Mackey, 1988 ) and models of dopamine cell dynamics (King et al, 1984). Flow rate parameter sensitive periodic, bursting and chaotic behavior has been found in a peroxidase-oxidase system (Olsen and Degn, 1977). A brain enzyme, substantia nigral dopaminergic tyrosine hydroxylase, manifested different saturation and fluctuation patterns, including bursting and periodicity, in experiments in which low (physiological) levels of tetrahydrobiopterin cofactor were the bifurcation parameters and adrenergic drugs were used as modulators (Mandell and Russo, 1981). All four of the generic bifurcation routes to chaos, period doubling, changing multifrequency (quasiperiodicity), period adding and bursting (called intermittency ) were observed in self-sustained oscillations induced in the neural membranes of space clamped, giant squid axons that were immersed in a 550mM NaCl, and electrically stimulated over changing amplitudes and frequencies (Aihara et al, 1986; Takahashi et al, 1990). With external stimulus current level as the control 196 parameter, the R15 cell of the abdominal ganglion of the Aplysia demonstrates transitions between bursting and periodic modes as well as period doubling, a signatory period 3 and the Lyapounov characteristic exponent evidence (see below) for the discontinuous onset of chaos (Canavier et al, 1990). Manipulating feed back delay, the human pupillary light reflex will bifurcate into regular oscillations (Milton and Longtin, 1990). A transition between a regime of irregular discharging to oscillatory bursting behavior was induced in basal forebrain cholinergic neurons by neurotensin (Alonso et al, 1994). Sympathetic nerve discharge in decerebrate, ventilated cats demonstrated transitions between periodic, multiple periodic (quasiperiodic with changing ratios to the ventilation frequency) and subharmonic behavior in response to inferior vena cava occlusion, vagotomy, aortic constriction and spinalization (Porta et al, 1996). Period adding bifurcations were induced by changing calcium concentrations or the addition of a potassium channel blocker in the pacemaker formed when (rat) sciatic nerve is chronically injured (Ren et al, 1997). Changing levels of the L-type calcium channel antagonist, verapramil, alter the pattern of vasomotion of rabbit ear arteries among sets of multiple independent periods, quasi-periodicity, mode locking and chaos (De Brower, 1998). At critical intensity and frequency, flicker visual stimulation of the salamander generates a pharmacologically modifiable period doubling bifurcation in their ganglion cells (one spike for every two flickers) which is also seen subjectively and in occipital lobe evoked potentials at critical frequencies in bright, full-field flickered humans (Crevier and Meister, 1998). Qualitative and Quantitative Universality in Nonlinear Dynamical Systems Universality (see above) entered the parlance of physics in the context of the statistical mechanics of phase transitions near their critical points (Stanley, 1971; Stauffer, 1985; Yeomans, 1993) and has come to refer to the finite set of transitions and quantities common to nonlinear systems arising in their neighborhoods. A common physical example is the triple point of water-ice-steam on the temperature-pressure phase plane where a small change in temperature or 197 pressure leads to a global qualitative change in physical state. Analogously, the loss of topological equivalence occurs at the fixed point that, for examples, splits into two or explodes into a cyclic orbit in phase space. The same critical point behaviors and quantities occur in a wide variety of specific processes and their equations, and they are independent of the way the trajectories first arrived in the fixed point neighborhood. Once the system enters the regime of critical behavior, the predictive significance of its dynamical history is lost. This may also be the case for emergent psychiatric disorder (Mandell et al, 1985; Mandell and Selz, 1992; Ehlers, 1995; Paulus et al, 1996; Huber et al, 1999). There are diagnostic patterns of behavior when a nonlinear system is in a neighborhood of a potential bifurcation. They include sudden and or large jumps resulting from a small change in experimental conditions, the appearance of big baseline fluctuations (anomalously large variance), the lengthening of the time required to relax following evoked or spontaneous perturbation ( critical slowing ), the same global change in state occurring at different values of the parameter when increasing versus decreasing a parameter s value ( hysteresis ), the existence of some range of values of the observable that cannot be attained by manipulation of the parameter ( inaccessibility ) and the availability of two or more distinct states in the same parameter neighborhood ( modality ) (Thom, 1972; Arnold, 1984; Gilmore, 1981). It is perhaps relevant to polydrug psychopharmacology and clinical management that the higher the co-dimension (the greater number of effective parameters being manipulated), the greater the accessibility and control of selected state stability becomes with respect to difficult to obtain behaviors. Examples of the potential advantages of simultaneous manipulation of multiple influences have been developed for affect disorder and anorexia nervosa (Callahan and Sashin, 1987). As evidence for the independence of critical behavior from specific history, the qualitatively universal bifurcations along the four canonical routes to chaos manifest dimensionless ratios of parameter and phase space geometries between bifurcations. These ratios are quantitatively universal. The formalisms that rescale the distances from fixed points in parameter and observable spaces result in the same picture across scale, a dilatational symmetry (also called self similarity or 198 affinity). They are called renormalization group equations, and, with respect to prediction, they replace any or all of the original specific predictive equations for the particular system under study (Cvitanovic , 1989). Whereas the U sequence and critical point behaviors are manifestations of qualitative universality, these scaling numbers are manifestations of quantitative universality. We discuss them here because their omnipresence in computationally realized differential equations as well as physical and chemical experiments along with their quantitative specificity (with values in all systems as constant as ) constitute a most persuasive argument for the substantiality of modern dynamical systems approaches to brain and other biological research. The physical and physiological requirements for manifestations of these universal bifurcation scenarios can appear to be remarkably minimal. In physics, for example a full panoply can be observed in a dripping faucet (Shaw,1984). Similarly, a small piece of extirpated and perfused myenteric or femoral artery will demonstrate these transitions in vasomotion spontaneously and almost independent of flow rate (Stergiopulos et al, 1998). Feigenbaum discovered that in dynamical systems manifesting a series of period doubling bifurcations, the ratio of the parameter value at which the next period doubling bifurcation occurred relative to the last one 1 and the ratio 4. 6692 of the magnitude of the spawning point to the one spawned 2.5. (Feigenbaum, 1979). By rescaling distances along a parameter value (see below) using what is called a universal renormalization operator the geometric situation around each bifurcation point (though of different absolute size) remains relatively the same. In intermittent systems, burst length varies as the inverse square root of the distance of the value of the parameter from that value that elicited the fixed point (Manneville and Pomeau, 1980). The universal characteristic of the third common parametric route to chaos, quasiperiodicity, is that the ratio of independent frequencies found most resistant to mode locking and breakdown into chaos is, i 1.618 the i 1 number to which the ratio of adjacent Fibonocci numbers converge (1, 2, 3, 5, 8, 13, 199 21 ) (Shenker and Kadanoff, 1982). Similar quantitative scaling properties were also discovered in the parametric period adding route (Kaneko, 1983). All of these scaling numbers have been found in experiments and in remarkable agreement with theory. Examples have been discovered in electronic circuits, hydrodynamic and mercury flows, acoustic systems, laser dynamics and oscillating chemical reactions (see Cvitanovic , 1989, for representative list of references). Whereas qualitative evidence for all of these bifurcation scenarios have been found in brain relevant experiments, there is yet to be a bifurcating experimental biological system with adequate precision across a sufficient range of magnitudes such that quantitative universality could be demonstrated across a sufficient range of values to be convincing. We remind ourselves that in order to establish a Fiegenbaum number, each period doubling bifurcation of the several required necessitates about a five-fold improvement in the experimenter s ability to specify the control parameter. Using Invariant Measures of Dynamical Neurobiological Systems Before the modern era of dissipatively forced (energy utilizing) dynamical systems research, the known attactors of an experiment s initial values resulted from their convergence onto either a fixed point or a limit cycle. An attractor can be regarded as a set which remains in bounded space and to which all orbits in this neighborhood converge (Milnor, 1985). Since by the rules of differential equations, orbits are required to be both smooth (graphable without lifting the pencil) and unique (different trajectories don t intersect since the point of intersection would no longer be unique), the foundational Poincare-Bendixon theorem says that any such orbit confined to a two dimensional phase space that doesn t converge to a fixed point must, no matter how long it irregularly wanders, must, eventually intersect with itself and then go around the same route again in a (perhaps very long) cycle. In most neuroscience research as well, we have generally regarded our data as manifesting either tolerable (or intolerable) fluctuations around mean values (fixed 200 points) or more or less regular cycles. We analyze our fixed point data using quantities such as the mean and variance of distributional statistics and the cycle data using the amplitude, frequency, cycle length and phase of trigonometric functions. In central tendency-oriented research, rare, very high amplitude events have usually been considered aberrations and tossed, and imperfect periodic behavior is treated by cosiner analysis as regular cycles contaminated by measurement or system noise. Whereas technically, chaotic dynamics must live in dimension greater than two (for orbits to be more than a fixed point or limit cycle, able to snake around without necessarily intersecting ), the Lorenz attractor has dimension just a little over two, our difficulties with establishing the true physiological dimension of real biological observables (see below) makes such a consideration more theoretical than practical. The orbits of a forced-dissipative dynamical system in a parameter regime engendering chaos, converge onto an attractor which is neither a fixed point nor a limit cycle, thus the origin of the name strange attractor (Ruelle and Takens, 1971). It was James Yorke that first named these dynamics chaos (Li and Yorke, 1975). The necessarily statistical properties of the chaotic orbits on strange attractors follow from the generic characteristics of their motions (see Shaw, 1981 for a still conceptually current, non-mathematical treatment). These kinds of statistics are studied in a research context called the ergodic theory of dynamical systems (Ruelle, 1979; Eckmann and Ruelle, 1985). Ergodic is a word used to characterize a system with (or without) a particular condition placed on its statistical measures: the existence of an invariant measure which is undecomposabile into two invariant measures and, equivalently (though not obviously) one in which the time average equals its average in the geometric space into which it is embedded. One may arrive at the same ergodic measure from studying a single very long orbit or from summing across many individual but shorter orbits. This ergodic equivalence is made possible due to the definitional existence of at least one invariant statistical measure and the dynamics of the system which ideally include a uniformly, sequence disordering process called mixing (see below). 201 Of course, most real biological dynamics are not uniformly mixing and so are non-ergodic, but we shall see that the ways they fail to be ergodic (and thus remain in the conceptual context of ergodic measures) are descriptively useful (Mandell and Selz, 1997a). The emergence of many statistical approaches to characterizing these motions have been accompanied by the expected controversies about which is best or correct (see below) and have been applied to the problem of diagnosis and clinical discrimination in a variety of neuroscience settings. In ideal abstract chaotic dynamical systems called Axiom A (Russians called them C systems ), where most mathematical theorems are proven (Smale, 1967), all these measures, if properly computed, are equivalent. In real life, as in the related case of ergodicity, they are not, and since no single one is complete, the more (incomplete) measures we use in our studies along with interest in the way that they differ, supplies more useful information about the system. Though researching and elucidating the most reliable and valid ways of computing these measures are a valuable goal, the current debates focused on the superiority of a single particular measure, constructed in a particular way in relationship to issues of insoluble absolutes like randomness versus deterministic chaos may not be particularly valuable for uncovering new characteristics and potential mechanisms underlying a specific set of real neurobiological observables. Emphasizing diversity and relevance to the clinical biological sciences, we note that quantifying patterns in ergodic (non-ergodic) measures have aided: the discrimination between normal and abnormal opticokinetic nystagmus in neurology patients (Aeson et al, 1997); localizing a two year old subcortical stroke in an EEG of a patient with no other signs or neurological findings (Molnar et al, 1997); the diagnosis of early (not late) multiple sclerosis, as a nonspecific long tract disorder, in patients with mild optical neuritis using cardiac rate dynamics (Ganz and Faustman, 1996); seizure prediction from minutes to hours before the event in which subthreshold, pre-phase transition spatial diffusion and oscillations in characteristic changes in these measures can be found (Martinerie et al, 1998; Elger and Lehnertz, 1998; Pign et al, 1997; Iasemidis et al, 1990); using these measures on the EEG to differentially predict hereditary predisposition to alcoholism 202 (Ehlers et al, 1995); indicating the presence or absence of septic encephalopathy (Straver et al, 1998); using time series from jejunal manometry to discriminate objectifiable somatic from psychological conversion related irritable bowel syndrome (Wackerbauer et al, 1998); analyzing time-dependent patterns in plasma hormone levels to discriminate between the presence or absence of a functioning tumor (Hartman et al, 1994, Mandell and Selz, 1997a); automated differentiation of ataxic from normal speech (Accardo and Menulo, 1998); and discrimination of temporomandibular joint dysfunction from normal patterns of chewing motions (Morinushi et al, 1998). Styles of Orbital Motions in Chaotic Dynamical Systems In chaotic dynamics, in various specific ways, an initial hypothetical handful of points lined up along the trajectory and acted on over time by the nonlinear differential equation ( operator ), get out of order in an unpredictable way. Here the hypothetical handful can come from a statistical aggregate of initial conditions or from a single recursive orbit studied over long times. As noted above, ergodic theorists call this getting out of order mixing and how and to what degree this happens consumes many mathematical theorems but for purposes of brain research, it can be best described using a variety of statistical measures. For example, visualizing the Lorenz attractor (see above) as a butterfly in phase space, the points get out of order because as they spiral out ( stretching ) to the edge of one wing and return ( folding ) to the unstable fixed point on the butterfly s body whence they either jump to some place on the other wing to spiral to its edge or return to the same wing to spiral out again. Which one of these is chosen is exquisitely sensitive to very small changes in where the trajectory started and very small fluctuations in where it returned to the unstable fixed point on the butterfly s body. In fact, specification of these locations is beyond the precision of any real, thermodynamically vulnerable system. Chaotic trajectories on the R ssler attractor (see above) wind out ( stretch ) to the edge along the inside of a conch shell in phase space and then are mapped 203 back ( fold ) into the spiral unpredictably somewhere in a mixing mechanism that has been called displaced reinjection. In the slow-fast oscillations of the forced van der Pol in the chaotic regime, points in the slow phase ( repolarization ) jitter around and step on each other s heels, getting out of order while waiting on the ledge before jumping ( depolarization ) to the next slow phase ( repolarization ) at some unpredictable time, thus generating a variably irregular series of interspike intervals. Stretching and folding are also responsible for getting points get out of order in the single maximum map of the unit interval (studied for universal qualitative and quantitative properties by May and Feigenbaum and others as described above). With increases in parameter values, the parabolic hill function onto which the unit line has been stretched gets steeper, more stretched. Mapping points on the hill back onto the straight line of the unit interval results in what amounts to the line folding back on itself. This stretching and folding eventually fills the line with points, but their sequence, from end to end, gets shuffled like a deck of cards. As described more generally above, points that start as neighbors may get separated ( divergence along the attractor ) and those that start at a distance from each other may be thrown together ( compression back onto the attractor ). These expanding and folding motions that characterize the chaotic behavior on strange attractors have been likened to the actions of a taffy puller (R ssler, 1976). It is in this way that nearby points can separate without leaving the attractor. It is also the case that once indistinguishably close but then separated points may be compressed together again generating new, temporary (unstable) cycles of all possible period lengths. These unstable fixed points may be the most important feature of chaotic systems from the standpoint of new ideas about brain mechanisms (Pei and Moss, 1996; So et al, 1997). This aggregation of unstable loops can occur from points fluctuating away and back to the attractor as well as during the crowding of points at the turns after their stretching out on more linear parts of the flow. Under the mixing flow of a chaotic dynamics, it is also true that a single point eventually explores the entire attractor, no attractor location is inaccessible to it. 204 Although counter-intuitive when expressed in words, the trajectories that one sees in the graphics of chaotic attractors result from the actions along the unstable directions of the stretching distortion; the actions in the otherwise invisible stable directions iron down the points onto this unstable manifold (n dimensional abstract surface). As might be expected from this set of characteristic motions, the diagnostic triad of chaotic dynamical systems are: (1) Sensitivity to initial conditions tiny distances between starting points are magnified and large distances between starting points are reduced under the stretching and folding actions of the system; (2) The presence of a theoretically infinite but countable number of unstable periodic orbits of theoretically all period lengths points in phase space can be viewed an attractive-repellers, visited and left by the orbits recursively as the dynamics proceed; and (3) Indecomposability the attractor is not separable into isolated regions and no points escape (see Devaney, 1989, for one of the clearest definitions). Of particular relevance to information encoding and transport by brain mechanisms, it is important to visualize that new information in the form of unstable periodic orbits is being created as well as destroyed by the dynamics. The logarithmic rate of formation of these new orbits is computed as the system s topological entropy (see below). Assuming the real neurobiological system under study is behaving in these ways (and often much has to be done to help justify such a claim), the observables take the form of an irregular and or episodic time series of amplitudes, as in repeated sample, neuroendocrine studies of plasma hormone levels (Veldhuis and Johnson, 1992) or a sequence of times between events as in neuronal interspike intervals (Katz, 1966; Perkel et al, 1967). These time or time-sequence series are generally studied from three relatively distinct yet complementary quantitative perspectives: (1) As stochastic ( random ) processes with various amounts of sequential dependency (autocorrelations) and scale (sample length) dependencies; (2) As deterministic smooth or discrete, vectorial geometries in phase space following reconstruction and or embedding of the series as phase portraits or return maps; (3) As information generating and transporting, topological (about relative 205 nearness and sequential order not absolute distances), symbolic dynamical processes which as either (1) or (2) can be analyzed with respect to its various entropies, algorithmic complexities and word content and syntax. A variety of techniques aimed at deciding between the relevance of one or another of these underlying assumptions (such as series and Fourier phase shuffling to destroy statistical autocorrelations and vectorial continuities but leaving the probability density distributions intact ) may at times help emphasize one or another of these orientations in the analyses (see Ott et al, 1994 for a collection of articles on this topic). Nonconvergent Distributions and Power Law Scaling in Biologically Relevant Time Series The statistical distribution with which most of us are familiar is the Gaussian which can be generated by summing and averaging a series of independent random events. The average behavior head tails probabilities observed by one person flipping a fair coin for a very long time or by many people flipping similar coins for shorter times converges upon the invariant measure of 0.5. The variance, second moment in the distribution of a population of coin flipping sequences will be finite and computable. In a graph of this distribution, the tails will converge to the x axis in a Gaussian exponential manner. The longer or the more numerous the sample series of observations, the closer they will approximate the ergodic invariant measures representing the true central moments of the behavior of this population of fair flipping coins. Since the coins are not changing their relevant characteristics over the time of observation, we say that the series is not time dependent but instead is stationary. Computation of correlations over increasing lags to determine how much and for how many flips the sequences continue to resemble themselves yield an exponential decay with a single characteristic correlation length. This reflects the existence of a finite variance from which its amplitude is derived and serves as the single characteristic temporal scale of the random process. 206 Before describing the relatively new set of measures of biological processes designed to find and quantitate what are assumed to be relatively sample size insensitive, distributionally nonconvergent and multiply correlated processes that are without a single time or space scale, we should remind ourselves that there is already much more apparent order in a generically random situation than our intuitions would lead us to believe. For example, if we keep cumulative scores in a competition between heads and tails and determine the distribution of trials between those in which the number of heads and tails are even, we will get periods between zero crossings of many lengths with very short ones and very (very) long ones being most statistically prominent. The distribution of these wavelengths is shaped like a symmetrically fat-tailed, bowl (Feller, 1968). As another illustration, expected runs of heads or tails in this Gaussian random task are longer and more frequent than we might suspect. It has been proven that the expected run length grows with n coin flips (as an order of magnitude estimate) like the logarithm (for a fair coin, base 1 p 1 0.5 2) of n. For example, in 512 ( e.g. 2 9 ) tosses, we cannot report a run of 9 heads as a evidence for a biased coin or the sign of some deterministic coin tossing mechanism (Erdos and Renyi, 1970). If we had a 0.6 head biased coin, then the observation of a run of 13 heads couldn t dissuade us from a random mechanism! Unlike our random coin task, the variances of many, perhaps most, time series of biologically-relevant events, do not tend to converge onto a limiting value as sample size, n, grows, but rather continue to increase (or decrease) with n in a scale invariant manner. Instead of regressing to the mean with increasing sample length or number, the likelihood of a larger deviation than previously observed increases with n. Analyses of inter-event intervals reveals a multiplicity of characteristic times. One interpretation of these finding might be that this represents evidence for the inherent nonstationarity of biological mechanisms as reflected in, for examples, the frequency of saccades concomitant with ceaselessly shifting foci of visual attention (Steriade and McCarley, 1990), or our inability to not think of white bear when so instructed (Wegner, 1994). Hermann Haken, the father of laser-inspired synergetics, has said that biological mechanisms are not in a steady 207 state for very long, spontaneously and irregularly jumping from one unstable dynamical state to another (1997). This suggests that meaningful tension between experimental sample lengths long enough to minimize statistical error and short enough to be stationary may be, for the biological sciences, more apparent than relevant. The studies reviewed below exploit measures arising from the view that the noisy statistics of nonstationarity in biological processes are not a sign of measurement error, but rather evidence consonant with the statistical physics of nonequilibrium states and phase transitions (Stanley, 1971; Stauffer, 1985; Yeomans, 1993). Very high amplitude fluctuations and multiple, up to infinite, correlation lengths are characteristic of the normal, on-going biological dynamical behaviors, which are apparently without characteristic amplitude and time scales. From this point of view, if most or all information is widely distributed in the brain (e.g., serial order of visual tasks involving motor cortical neurons, Carpenter et al, 1999) ) then the binding problem (see above) could also be solved by multiple, up to infinite spatial and temporal correlation lengths in place of the current theories of monofrequency resonances (Singer, 1993). Hierarchical neurodynamical mechanisms communicating across many mechanistic temporal and spatial scales, brain information transport analogous to the energy cascade of hydrodynamic turbulent velocities (Tennekes and Lumley, 1972), would be likely in the parametric vicinity of incipient bifurcations and phase transitions. Three closely related techniques for quantifying the systematic changes in average fluctuation amplitudes with n (scale, sample length) involve a power law, linear slope relationship between the logarithm of an index of variability and the logarithm of sample segment sizes. These easy, yet powerful methods were brought to experimentalists attention by Benoit Mandelbrot (Montroll and Badger, 1974; Mandelbrot, 1983; Fedor, 1988; Bassingthwaighte et al, 1994; Liebovitch, 1998). To estimate the exponent in Hurst rescaled range analysis, we compute the standard deviation and the range of the deviation of the running sum from the mean on sequential subsamples of increasing size. The Hurst power law exponent is the slope of the straight line formed by graphing the logarithm of the subsample length 208 along the x axis and the logarithm of the ratio of the range to the standard deviation on the y axis. An independent random system has a Hurst of 0.5. If a sequential increase or decrease in an amplitude or inter-event time tends to be followed by a change in the same direction, the Hurst 0.5. If an increase in the measure tends to be followed by a decrease, then Hurst 0.5. Computation of the Fano factor (power law exponent) exploits the same general strategy using the variance mean in place of the range variance and counting the number of events (such as single neuron discharges or heartbeats) in time windows of increasing length, generating a similar log-log graph. There is a relatively long history of the use of spike-number variance-to mean ratio in studies of response variability in visual cortical neurons (see Teich et al, 1996 for a review). The Allen factor (power law exponent) tends to reduce the influence of local trends by a computation of the variance of the difference between the number of events in two successive time windows divided by twice the mean number of events in the window. Each system s invariant logarithmic slope across sample segment sizes takes the place of its missing finite variance in characterizing experimental data in which the distributional tails do not converge (or do so very slowly) to the x axis. Recent approaches to these measures in the context of stochastic analysis of DNA sequences, but also applied to normal and pathological cardiac inter-beat intervals and gait interval sequences, have dealt with the influence of non-stationarity due to apparent trends in the data on -equivalent indices by local mean-normalization of the fluctuations at each window size (Peng et al, 1993; Peng et al, 1995; Hausdorff et al, 1995). The rate of decay of the densities in the tails of the probability distribution as they approach extreme values along the x axis, called the Levy exponent when represented in Fourier space (technically, as a characteristic function of the probability distribution) (Shlesinger, 1988; Shlesinger et al, 1995), can also be computed directly on the distribution by fitting the tails with a two parameter curve quantifying their fatness and rates of decay (Mantegna, 1991). We can speak of a Gaussian tail as having an exponential decay rate representable by 2 implying 209 finite variance. A tail with a nonconvergent decay rate of 1 2 indicates nonfinite variance in the data such that the usual normal curve derived, standard deviation dependent tests of statistical significance are without meaning. 1 indicates the data is without a consequential mean and will require the use of interquartile measures to locate the center of the distribution (Adler et al, 1998). Recalling that the Hurst, Fano and Allan indices are invariant across sample segment size, we remind ourselves that, as is the case in the finite mean and variance, 2, Gaussian, any of the other tails also retain their value ( shape ) across all partitions that might be used to sort and sum the observable. This property is called convolutional, , stability. In passing it should be noted that the last outpost of convergence of a probability density distribution with 2 is called log-normal, in which the tails along the x axis are pulled in by the variable being plotted as its logarithm. A Hurst exponent of 0.5 in the data is associated with a Levy exponent of 2.0, and both would be indicative of a process in which the characteristic style of change, rather than decay with some finite correlation length, would persist across all time. Using a bursting neuron as a generic example, a short interspike interval would, on the average, be followed by another short one and a long one by another long one, and this behavior, unlike our fair coin flipping sequence of observables, would not become uncorrelated with itself even over infinite time. Another way to represent this infinite, innumerably lengthed, correlation property is via its implicate frequency (inverse wavelength) content by computing its best fit assortment (along with their densities) of a range of short to long sine waves forming the Fourier transformation of the correlation function. The condition of correlated fluctuations across many measured temporal scales yields yet another power law slope when graphed as the logarithm of its range of frequencies, f, plotted along the x axis, versus their corresponding amplitudes squared, powers, plotted along the y axis. Naming this spectral power law exponent , the system s characteristic scaling law is usually expressed as 1 (Fedor, 1988; Hughes, 1995; Shlesinger, 1996; f 210 Liebovitch, 1998). We see that the Hurst exponent, Fano and Allen factors, Levy exponent and power spectral scaling exponent are kindred statistical descriptors. They are most usefully applicable to systems with distributions that fail to be Gaussian or asymmetrically Poisson, the latter from random data sequences with only positive x values, thus backed up toward zero by a minimum inter-event interval or amplitude. These time series are sequentially dependent, not conventionally stationary, without finite central moments and with self-correlations that don t demonstrate Gaussian exponential decay with sample length or time. The following are some examples of the use of these measures in studies of biological dynamics. . Examples of Biological Data with Divergent Distributions and Power Law Scaling A paradigm challenging group of experiments involved models and measures of the distribution of characteristic open and closed times of membrane ion conductance channels. The usual approach to this problem assumed the existence of a small set of distinguishable channel types that were reflected in discrete conductance events with a small set of characteristic open and closed times. The distributions of each of could be fitted with its own, Markov process derived, exponential. With technical advances and improved temporal resolution, more characteristic times and their associated 2 exponentials were reported with as many as three not being unusual. Liebovitch (and Sullivan,1987; 1989) used analogue to digital transformation of current recordings from the unselective corneal epithelial channels and voltage dependent potassium channels in cultured mouse hippocampal cells at temporal resolutions ranging from 170 to 5000 Hz and found similarly shaped, 2, nonconvergent distributions across temporal scales. This led these investigators to suggest that, related to the 16 recorded magnitudes of characteristic times, from picoseconds to months, in autonomous protein motion (Careri et al, 1975; Gurd and Rothgeb, 1979), that there was an stable hierarchy 211 of lifetimes of states, observable at almost any temporal resolution that methods would allow. Early and representative studies comparing the fit of the data with hierarchical scaling functions versus a sum of a small number of Markovian exponentials included studies of a calcium activated potassium channel in human fibroblasts (Stockbridge and French, 1989) which yielded evidence to support both models, as did studies of membrane conductances in corneal epithelial cells by another group (Korn and Horn, 1988). In a systematic comparison of scaling and Markov exponential modes of the gating kinetics of GABA activated chloride channels, acetylcholine activated end plate potentials, calcium activated potassium channels and fast chloride channels (McManus et al, 1988), it was found that the latter fit the data best in most experiments. Similar results were reported in studies of the glutamate and delayed rectifier potassium channel with respect to distributions of open and closed times (Sansom et al, 1989). Space does not permit a systematic account of the continuing debate and conflicting studies about these representations and the implicit biophysics of discrete, finite versus continuous, hierarchical channel event heterogeneity. It is interesting that recent experiments making use of Hurst rescaled range analyses of time series of whole cell membrane voltage fluctuations (without the assumptions and current renormalizing procedures associated with patch clamping) have yielded additional evidence for multiply correlated, Hurst 0.5, 2 power law behavior of what some might regard more generally as a protein relaxation time mediated hierarchical array of ion conductance behaviors (Liebovitch and Todorov, 1996). Following the discovery of (very) subsaturating ( far from equilibrium ) rat brain levels of the common cofactor for tyrosine and tryptophan hydroxylases, tetrahydrobiopterin (Bullard et al, 1978), studies of amino acid substrate saturation functions and time courses determined at these low, physiological co-reactant concentrations manifested patterns of hierarchical multiplicity and discontinuities suggestive of bifurcations and time-dependent fluctuations with fractional (hierarchical) time scaling exponents that were sensitive to psychotropic drugs 212 (Mandell and Russo, 1981; Knapp and Mandell, 1983; Russo and Mandell, 1984a; Russo and Mandell, 1986). Similar bifurcating and power law kinetics were found in receptor-ligand binding systems (Mandell, 1984) which were confirmed by more recent studies of diffusion-limited binding kinetics with receptors immobilized on a biosensor surface (Sadana, 1998). Hierarchical kinetics have also been reported in time courses of drug and metabolite levels (Koch and Zajcek, 1991), tissue tracer washout studies (Beard and Bassingthwaighte, 1998), carrier mediated transport processes (Ogihara et al, 1998), general pharmacokinetic functions (Macheras et al, 1996) and biochemical networks (Yates, 1992). It is likely that bifurcating and hierarchical, power law kinetic functions will be studied more commonly in the chemical literature in general (Shlesinger and Zaslavsky, 1996; Berlin et al, 1996) as well as applied to a variety of protein-mediated biological functions (Dewey, 1997). The first demonstration of and stochastic model for nonconvergent distributions of interspike intervals of a single neuron was by Gerstein and Mandelbrot (1964). Though rich with possibilities, it has been only very recently that additional work from this point of view has been published. This is likely due to the fact that most neuroscience oriented statistical packages, with rare exceptions, are without techniques for computing descriptive parameters for these divergent probability density distributions. This has not been the case for economic time series, download STABLE from http: www.cas.american.edu jpnolan. Recently, applications of the Fano and Allan factor as well as power spectral scaling exponents to observed and shuffled series of spike counts and interspike intervals in the auditory and visual systems (including spatial and or time resolved single unit recordings in retinal ganglion, lateral geniculate and lateral superior olivary cells as well a auditory nerve fibers) demonstrate the characteristic behavior of nonconvergent, hierarchical stochastic systems (Teich, 1989; Teich et al, 1990; Lowen and Teich, 1992; Kumar and Johnson, 1993; Kelly et al, 1996; Teich et al, 1997). These statistical techniques are well suited to the characterization of the irregularly intermittent bursting patterns generic for activity in single neurons as well 213 as in nonlinear equations representing them and other brain processes (Mandell, 1983). An early study of power spectral scaling in the EEG reported alpha band fluctuations that extended a 1 , 1 pattern to 0.02 Hz (Musha, 1981), as did f other applications of the log-log power spectrum to the EEG in man (Hu and Hu, 1988; Prichard, 1992). This power law scaling led naturally to the suggestion that the range of frequencies available in the electromagnetic signal from the calivarial surface extends far beyond those currently appreciated and may be available for study using relatively noise free recording techniques such as the magnetoelectroencephalogram (Mandell and Selz, 1991). A not surprising range of intrinsic correlation lengths reflected in Hurst 0.5 and or Levy exponents 2 have been reported in lamb fetal breathing patterns (Szeto et al, 1992). The exponent has been shown to be sensitive to maternal alcohol intake in humans (Akay and Mulder, 1998), rat neonatal motoric activity (Selz et al, 1995), and nuchal atonia duration sequences (associated with putative intra-uterine REM sleep) in fetal sheep (Anderson et al, 1998). Sequential amplitudes in 1 Hz stimulated soleus spinal cord H-reflex demonstrated a 1 , 0.83 in control subjects and, reflecting the decrement in f correlations, by 0.31 in patients with losses in supraspinal input from spinal cord injury (Nozaki et al, 1996). Whereas the sequences of fixation times in eye movements of normal control subjects reading difficult material demonstrated an exponentially decaying distribution, those of schizophrenic patients demonstrated a power law tail, consistent with more sequential correlations (Yokoyama et al, 1996). This finding may be related to the appearance of velocity arrests, runs of sticky fixed points, in a spatially oscillating target task, called smooth pursuit eye movement dysfunction in schizophrenic patients which has been modeled as a parametric disorder in a periodically driven nonlinear dynamical system (Huberman, 1987). The short time fractal dimension has been used to discriminate acoustic signal transformations from the speech of normal subjects and ataxic patients (Accardo 214 and Mumolo, 1998). Spontaneous changes in the apparent syllabic sound made by regularly presented, word-like auditory stimuli emerge irregularly, the duration of perceived sameness demonstrating a power law distribution of dwell times (Tuller et al, 1998). The same kind of power law distribution of characteristic brain times can be found in studies of gait cycle durations in normal walking (Hausdorff et al, 1996) with a decrease in this locally detrended, -like index compared with controls (0.91 0.05) in patients with the basal ganglia disorders of Parkinson s (0.82 0.06) and Huntington s (0.60 0.04) Diseases (Hausdorff et al, 1998). Hurst 0.5 has been speculated to more accurately quantitate the fundamental time structure of cells that was previously called circahoralian (ultradian) intracellular rhythms (Brodski, 1998). Reconstructions of Time Series as Orbital Geometries Rene Thom (1972), extending the ideas of Poincar and D Arcy Thompson (1942), argued that experimentally useful, intuitive connections between the qualities of biological processes and the quantities of an explicit (equations known) or implicit (equations unknown) dynamical system could be best achieved through the use of graphic representations of their geometric and topological forms. Notably successful examples can be found in the work of Thom, Arnold (1984) and Zeeman (1977), who were inspired by caustics (the shapes made on surfaces by the coincidence of reflected or refracted light rays) and Whitney s representation of parametric manifolds (surfaces) by the shadows they would make on a plane when back lit (Whitney, 1955). This led to a small number of qualitatively predictive, number-of-independent-parameters dependent shapes, such as folds cusps and wavefronts. Experimentally crossing the values of these independent variable forms at their singular boundaries successfully predicted discontinuities in the otherwise smooth alterations in the dependent variable; i.e. bifurcations ( catastrophes ) in the behavior of the observable. This approach was best suited to the study of systems with many independent variables and one dependent variable that could be mapped on the axis of the latter to represent a continuum of 215 operationally defined energy states. Smooth changes along the path of the nonlinear parameter manifold generated discontinuous changes in energy levels indicating states of the observable. Crossing a wrinkle in an independent variable (some call it order parameter to indicate its emergence rather than availability for predictable manipulation) such as the nonlinear parameter surface of the countervailing influences of survival fear and financial cost, may lead to a bifurcation in behavior from peace ( low energy ) to war ( high energy ) (Zeeman, 1977). In a similar geometric spirit but dealing with nonequilibrium systems in motion, the conditions such that one could smoothly embed a trajectory like a continuously recorded EEG record, a complicatedly coiled snake into a three or higher dimensional box without loss of its essential dynamical or statistically measureable properties, was settled by Whitney in what is now referred to as the embedding theorem (Whitney, 1936). Starting with a tangled knot of overlapping vectorial orbits with apparent non-invertable points (given a point, one cannot chose among or between the more than one point that it apparently came from), it can always be unwrapped into a non-crossing trajectory satisfying uniqueness when reconstructed in a box of a little more than twice the parameter-determined dimension of the original space of observables. A common technique for the spatial reconstruction of the output of a dynamical system is called a time delay embedding. This approach, first suggested by Ruelle (1987, pg. 28) replaced the value, x, versus the time derivative, dx , phase portrait plot described for a continuously perturbed bob on a dt spring above. A sequence of observables over time, in, for example, three dimensional phase space (Packard et al, 1980; Takens, 1981; Sauer et al, 1991), is depicted by a curve representing the system s trajectory at times t 1 , t 2 , t 3 , by sliding one-by-one down the series and plotting each p 1 , p 2 , p 3 , location with respect to each other along the x, y and z axes respectively. The choice of time interval between the points, the delay, can be delicate and usually some standard fraction of the decay time of the sequence s autocorrelation length, the decay time of mutual information is chosen. There are many technical considerations, 216 including those involving the choice of the embedding space vis a vis the true dimension of the attractor. This becomes an issue when, for example, the attractor shrinks over time to some subspace of the initial embedding (Liebert et al, 1991 and references therein). If we imagine the process of time series reconstruction to inscribe an attractor s untidy ball-of-string of recurrent trajectories in three dimensions, we can then, by making the z-dimension a constant value, cut the ball with a two dimensional plane, a Poincar surface of section. This could yield a roundish cloud of discrete points on the x,y plane and t n-1 t n would be the time between two piercings of this surface. It has been proven that almost any cut, as long as it is made transverse to the direction of the orbital trajectories, is equally valid and useful for further analyses (Oseledec, 1968). If the original embedding and subsequence section was in high enough dimension to allow invertability, we might have enough (trial and error) knowledge to be able to write a discrete equation, a return map, f, f that would move one point to the next on the plane as (x,y) t (x,y) . What can sometimes be case with real systems (Coffman et al, 1986), is that reducing the geometric reconstruction still one dimension further, accepting noninvertability, ironing down the points in the plane onto the x axis line (normalized to 0,1 ), and plotting the values at x t against x t 1 ( mapping the unit interval to itself ), can generate points in the general shape of a parabola with dynamics representable by the same family of one parameter, single maximum discrete equations that generated May's sequence of bifurcations, Feigenbaum s scaling and Metropolis, Stein and Stein s (and Sharkovskii s) U sequence (see discussions of qualitative and quantitative universalities above). Although sometimes a significant change in brain system physiology, such as penicillin-induced epileptic neuron spiking activity is revealed simply by a change in the graphic appearance of suitably embedded time series data (Zimmerman and Rapp, 1991), more often statistical measures made on the geometric dynamics of the points on the attractor are required. n 1 t n 217 Orbital Divergence Characterizes Expansive Dynamics on Biological Attractors In the dynamical world of equilibria (fixed points in phase space) and periodic cycles (fixed points of a return map), a common concern involves their stability. What happens if an adventitious jiggle moves the orbit a little distance away from the fixed point? Would the wind wiggled suspension bridge start to flap with increasing amplitude or would it damp back down quickly to its stable state. A Lyapounov functional, L, is constructed which can be visualized like a smooth potential bowl around the fixed point such that any L stable solution that starts at its bottom tends to stay there or is asymptotically L stable if the solution converges to the fixed point at the bowl s bottom as t . If the point is not L stable, it is L unstable. The modern study of nonlinear systems have produced another kind of stability issue with a similar appellation yielding other direction specific indices, the Lyapounov characteristic exponents, (Oseledec, 1968; Eckmann and Ruelle,1985; Ruelle, 1990; Ott et al, 1994). In this context, the instability is not one of perturbative escape from a fixed point, but of the average rate with which the (theoretically infinitesimal) distances among a handful of points representing a set of initial conditions (each a precision limited, hypothetical repetition of the same experiment), are being stretched apart by the expansive action of a strange attractor system. In three dimensions, one can envision a ball of initial conditions being elongated along the unstable direction and ironed down from both sides along the stable direction over time, transforming the ball into an ellipsoid and then into a (recurrent) curve. In simplest terms and thinking about a one dimensional scalar time series, the Lyapounov exponent reflects the multiplicative average (logarithmic addition) of the sequence of slopes of the series of straight lines connecting the points. An average slope of 45 is expansive such that a linear distance on the x- axis is increased when mapped onto the y axis. A slope of 45 is a contraction mapping reducing the linear distance of the x-axis when mapped to the y axis. 218 R ssler s generic chaotic system (see above) moving recurrently in a three dimensional box can be orthogonally decomposed into three directional motions in a moving frame, each with a signatory sign of . The unstable direction of expansive stretching is characterized by some number 0, ( ), the stable direction of contractive folding, some number, 0, ( ), and the neutrally stable direction of recurrence, ( 0 ). For The Lyapounov spectrum of the R ssler attractor is ( ), ( ), ( 0 ) (Shaw, 1981). An n-dimensional dynamical systems has n onedimensional Lyapounov exponents, and it is sometimes the case in relatively noise free, finite semi-stationary data lengths of the neurosciences, that a 0 can be shown to exist for a second one, in a dynamical situation called hyperchaos by (Rossler, 1979). For example, two and sometimes three ( ) have been reported in the flows on the EEG attractor of normal alert subjects (Gallez and Babloyantz, 1991). The presence of measurement noise, the finiteness of neurophysiological sample lengths as well as the relatively small expansive actions in some directions in the chaotic attractors of brain dynamics lead to the finding that most often, only one leading Lyapounov exponent, ( ), is reliably computable (Sano and Sawada, 1885; Wolf et al, 1985; Eckmann et al, 1986). A counter-intuitive fact about the stability of a dynamical system when a decrease in the value of ( ) is observed such that ( ) ( 0 ), is that this more neutral stability augers a global bifurcation (Guckenheimer and Holmes, 1983). A small perturbation does not change the global dynamics of an already expanding and contracting (called hyperbolic ) dynamical system, it will maintain the style of its motions. However, when ( ) ( 0 ), a velocity changing perturbation evokes a bifurcation to a new dynamic in what is called loss of hyperbolic stability. The best examples come from the observations of this kind of change in the EEG predicting the onset of epileptic seizures in patients with focal or temporal lobe epilepsy (Iasemidis et al, 1988,1990; Iasemidis and Sackellares, 1996 ). 219 The number and variety of algorithmic strategies for computing Lyapounov exponents that are applicable to real data divide naturally into those that compute directly the average rate of separation of neighboring points from the fiduciary orbit, as observed on the reconstructed attractor, from which only the largest can be obtained (Wolf et al, 1985), and a variety of techniques based on assumed model maps of the unknown flow along which the sequential products of the local derivatives are computed. The logarithms of the straight line slopes of the sequence of directionally decomposed local tangent vectors multiplied, yield as many Lyapounov exponents as directions (Sano and Sawaka, 1985; Eckmann et al, 1986; Geist et al, 1990). The techniques of regularization by which these model processes approximate the unknown flow include those with least squares, linear fit assumptions (Eckmann et al, 1986; Sato et al, 1987; Buzug et al, 1990), more detailed fits involving polynomial expressions in higher powers (Briggs, 1990; Brown et al, 1991; Bryant et al, 1991) and techniques such as singular value decomposition which decomposes the flow into orthogonal components before computing the logarithmic rate of divergence of nearby points on each of them (Stoop and Parisi, 1991). A clever check on the Lyapounov number obtained is to study the flow backwards so that, for example, some rate of separation of points in the forward direction would approximate the rate of convergence in the time reversed data (Parlitz, 1992). Among the sources of spurious Lyapounov exponents are sample lengths that are too short and or too measurement-noisy to compute a statistically stable average, embedding dimensions that are too high or low and attractors (many of physiological relevance) that have geometric features such as sharp corners or tight folds as in the R ssler (where points gather) or delicate boundary points such as those on the body on the Lorenz butterfly (see above) where very small distances determine whether the orbit makes big jumps to the right or left wing leading to uncharacteristically large separations. This nonuniformity in the rates of expansion and contraction in the dynamics over the attractor, a source of error in computations of statistical indices of the average behavior, becomes a useful tool in characterizing individual differences in sets of neurobiological data ranging from 220 brain enzyme kinetics (Mandell, 1984) and single neuron firing patterns (Selz and Mandell, 1991) to human psychomotor and cognitive behavior (Selz, 1992; Selz and Mandell, 1993). The Leading ( ) of Some Biologically Relevant Time Series An early application of a simplified form of leading Lyapounov exponent to brain data involved the computation of the one dimensional averaged slope of in vitro studies of psychopharmacological drug and peptide effects on time series of catecholamine and indoleamine biosynthetic enzyme activities studied at physiological, far-from-equilibrium reactant concentrations (Russo and Mandell, 1984b; Knapp and Mandell, 1984). A contemporaneous study also suggested the influence of differences in initial conditions for pharmacokinetic equilibrium times in drug binding kinetics by proteins (Bayne and Hwang, 1985). The most extensive applications to the clincial neurosciences of the Lyapounov measure of the exponential divergence of orbital points has involved reconstructed brain wave attractors from the intracranial or scalp recordings of the EEG (Duke and Pritchard, 1991; Dvorak and Holden, 1991; Jansen and Brandt, 1993). Space prevents us from surveying more than a small representative set of the studies (Jansen, 1996). It should be noted, however, that this is an area in which state of the art research has grown quite complicated and somewhat controversial with respect to technical issues. The choices of the digitizing frequency of the smooth record, the dimension of the embedding space and time delays continue to be debated in the context of numerical computations of and dimension measures (Mayer-Kress, 1986; Ott et al, 1994). Controls for the implicitly required statistical discrimination between randomness and deterministic chaos consist of sequence and (Fourier) phase randomization generating surrogate data which conserve the probability distributions and destroy the correlation properties and attractor geometries (Sauer et al, 1991; Ott et al, 1994). Since neither bring with them any connections with 221 known or explorable brain mechanisms, one might argue that at this early stage of the work it would be more desirable to simply report the quantitative findings, leaving unanswerable questions about ultimate causality for later discussion (see below). The first EEG ( ) was reported in a patient with epilepsy (Babloyantz and Destexhe, 1986) which was confirmed by others (Iasemedia et al, 1988; Frank et all, 1990). An important study of simultaneous time series from 16 subdural electrodes placed in the right temporal cortex of a patient with a right medial temporal lobe epileptogenic focus demonstrated that a decrease in a single lead s ( ) reliably anteceded and localized the first signs of the incipient seizure. The rest of the leads followed with similarly decreased positivity in their leading Lyapounov exponents associated with spatially coherent patterns of behavior. In addition, the averaged value of the leading Lyapounov exponents in the 16 leads increased post-ictally over the averaged values of ( ) in the pre-ictal state (Iasemidis et al, 1988,1990). These findings, including seizure anticipation for 25 minutes, were confirmed using intracranial recordings in 16 patients with temporal lobe epilepsy (Elger and Lehnertz, 1998). The para-ictal decrease and post-ictal increase in ( ) found in patients with focal temporal lobe seizures was confirmed more generally in left and right pre-frontal-to-mastoid EEG recordings made before, during and after electroconvulsive shock treatment of psychiatric patients (Krystal and Weiner, 1991). Pre-ictal changes were also found six minutes before seizure onset from scalp EEG recordings in 17 19 patients with chronic focal epilepsy (Martinerie et al, 1998). The most exciting potential application of this approach is its use, in real time, for the prediction and prophylactic treatment of incipient seizures, minutes to hours before the event, in place of or augmenting long term drug management (Iasemidis and Sackellares, 1996). There is a growing literature about leading Lyapounov exponent(s) in the reconstructed attractor of the EEG associated with a variety of normal and pathological human behavioral states. For examples, two and sometimes three 222 ( ) were reported in awake relaxed subjects and were lost in deep sleep (Stage IV) and coma (advanced Jakob-Creutzfeld disease), suggesting that level of consciousness correlated positively with amount of orbital divergence (Gallez and Bablioyantz, 1991). A pathologically low leading ( ) was also found to be characteristic of the EEG of patients with Alzheimer s syndromes (Jeong et al, 1998). Technically defined sleep stages (I, II, III, IV, REM) were found to correlate well with the values of the leading ( ) of the EEG in normal subjects (Fell et al, 1993; 1996; Pradhan and Sadasivan, 1996). EEG recordings during problem solving sometimes, but not always, demonstrated a relationship between values of ( ) and the kind or amount of load of the task (Micheloyannis et al, 1998; Popivanovov et al, 1998; Meyer-Lindenberg et al, 1998). Both emotionally positive and negative videos increased the value of the leading ( )(Aftanos et al, 1997) as did computer generated music with sounds that exploited a pleasing hierarchical, 1 f but not an unpleasant 1 f 2 frequency spectrum (see previous section about power law scaling) (Jeong et al, 1998). The EEG theta rhythm of day dreaming manifested a lower ( ) than the relaxed alert awake alpha rhythm (Roschke et al, 1997). Relationships between the Lyapounov spectra demonstrated both regional independence and task-related dependence in the magnetoencephalography record in man (Kowalik and Elbert, 1995). These and other studies suggest that divergence rate of orbits on a geometrically reconstructed attractor is a subtle measure, which can be quantified as a continuous variable and which has been found to be useful in a variety of neuroscience-related, experimental contexts. The range includes the characterization of the discharge pattern of a single somatic or renal sympathetic nerve fiber (Gong et al, 1998;Zhang and Johns, 1998); quantifying the results of perturbing autonomic nervous system activity, for examples, exercise, atropine and propranolol decrease ( ) in the cardiac interbeat interval attractor (Hagerman et al, 1996) and interference with the function of the baroreflex or clonidine alters the ( ) in the blood pressure attractor in man and animals (Wagner et al, 1996; 223 Mestivier et al, 1998); and predicting defects in visual learning functions from decreases in the ( ) of the cardiac interbeat interval attractor in patients with multiple sclerosis (Ganz and Faustman, 1996). We recall that on theoretical grounds (Guckenheimer and Holmes, 1983), a decrease in the positivity of ( ) ( 0) in a delay coordinate, geometric reconstruction of a time series of observables may auger an incipient global bifurcation in the system s dynamics. As reviewed above, this has turned out to be the case in several studies of the EEG and electrocorticogram in epileptic patients. Futher research will be required to see if this idea has substance more generally for predicting catastrophic changes in other brain-related systems. Power Law Scaling of Orbital Geometries in Time Series Reconstructions Benoit Mandelbrot s book in its first incarnation was derived from his lectures at College de France in 1973 and 1974 and was called Les Objets Fractals: Forme, Hasard et Dimension (Mandelbrot, 1975). This essay was translated into English as Fractals, Form Chance and Dimension (Mandelbrot, 1977). Later expanded and reworked editions displayed another title, The Fractal Geometry of Nature (Mandelbrot, 1982) but the deep conceptual, sometimes poetic fusion and confusion generated by the apparent identity among the objects of his first title remains. Fractal, along with chaos and strange attractor are among the most widely familiar new words in modern dynamical systems research. Fractal is the most difficult to rigorously define and is commonly misunderstood due to the evocative yet dream-like cognitive condensations provoked by the first title and its reflections in Mandelbrot s prose. A common conceptual confusion is exemplified by the assumed relation between fractal time event distributions of the cardiac interbeat interval and the fractal like anatomy of the purkinje network of the cardiac conduction system. Data from both contexts are often shown juxtaposed in the same illustration as though their relationships were obvious (Goldberger et al, 1990; Goldberger, 1996; Liebovitch and Todorov, 1996). Fractal times and fractal 224 geometries are not related to each other essentially, either in the mathematical or physiological domain, but are often made vaguely equivalent on the basis of their lexical similarity. An experimentally meaningful relationship between fractal statistics (hazard), dynamical fractals (dimension) and fractal geometries (form), has to be proven on a case by case basis and not assumed from their common designation. Among the informal attempts to do this have been those that involve the branching pattern of nerves and the associated reductions in their diameter-dependent characteristic conduction velocities yielding a multiplicity of arrival times. There is, however, a more central idea common to these concatenated meanings of fractal: the statistical, dynamical and geometric expressions of scaling, a word which is not mentioned in Mandelbrot s book titles. The cluster of theories, theorems and methods associated with the idea of scaling (and renormalization) have led to Nobel Prizes for Flory (1971), Wilson (1975) and de Gennes (1979) and the (equivalent mathematical) Field s Medal for McMullen (1994). There is speculation that the last two awards were supported by the inspiration and interest given their research by Mandelbrot s intuitions and books. Scaling laws take the place of (unknown causal) physical laws by indicating the proportion by which observables of a system can be changed in relationship to each other such that some statement about them, this varies with that, still holds. In a cross species comparison, as the average weight of a mammalian body, called lb, increases, the skeletal weight, called w, increases at an exponentially greater rate: w goes like lb 1.08 where lb 1.0 would indicate that they grew across species at the same rate. Plotting log (lb) on the x axis and log (w) on the y axis in a log-log plot results in a straignt line with a slope that indicates the power law scaling relationship between body weight and skeletal weight across mammals. The slope of the scaling exponent of 1.08 is a little over 45 1. In contrast, the metabolic rate, r, goes like (lb) 0.75 , r (lb) 0.75 . Larger animals (relative to their weight) have lower basal metabolic rates (Schmidt-Nielsen, 1984). We don t completely know the chain of intervening mechanisms that relate these variables to each other but we do know 225 invariant scaling laws that describe their relationships within some limits on the range of values. In describing the functional size, radius of gyration, R g , of a polymer such as a polypeptide, composed of N monomers, assume each of the amino acids to be the same and that they are in a good hydrophobic solvent that didn t stick the polymer together in a fold. Flory (1971) found a scaling law for certain broad classes of polymers and solvents, R g N , where the exponent, 3 5, was universal, N indicated the number of monomers in the chain and the value of pre-factor depended upon the particular monomer and solvent chosen. Log R g plotted against log N has a power law slope of 0.60. For an equally static but less physical example, there is the well known Zipf law of vocabulary balance (Zipf, 1949). First reported for the 260,450 words of James Joyce s Ulysses, the slope of the log of the rank of the words found (ordered from most to least along x) plotted against the log of their frequency (along y) results in a power law that is (generally) true for other collections of words and in other languages. An accessible example of a dynamical scaling law arises in a two dimensional lattice model of a forest which is to be set on fire with probability p independent random single tree ignitions. At some critical p, p c , the fire sweeps through the entire forest ( percolates ) and the correlation length of the connected clusters grows as p-p c - with a universal scaling exponent, 4 3, for all Monte Carlo, two dimensional percolation problems (Stauffer, 1985; Grimmett, 1989). Mandelbrot s scheme for the power laws that compose his fractal geometry of dynamical objects is a measure made on the pattern of occupancy in the embedding space by the reconstructed orbits of an attractor. It is, generally, mass length D 0 in which D (the subscript that of the capacity dimension ) is not the 0 whole number of Euclidian dimensions, d, of the space in which the orbits are embedded. After Hausdorff s convergence of external and internal measures (Hurewicz and Wallman, 1948), the (capacity) fractal dimension D is also defined as being larger than its topological dimension and smaller than its Euclidian embedding dimension. Graphing a time series on a plane one can think of its 0 226 topological dimension as that of a line equal to one. If each time step had the largest up or down amplitude as possible, its fractal dimension would approach (but not reach) that of the embedding plane, Euclidean d 2. The D 0 of the one dimensional Richardson technique (Mandelbrot, 1967) can be computed by covering the one dimensional surface of a time series with a number, , of line segments of several orders of magnitude range of lengths, l .Graphing log(l) along the x-axis and log (l) along the y-axis yields a negative linear slope, -s. As defined, 1- s D 0 noting that (-(-s) s) such that 1 D 0 1 s 2. Strain differences and peptide and psychotropic drug-induced changes in D 0 computed in this way were found in time series of fluctuations in rat brainstem tyrosine and tryptophan hydroxylase activities under far-from-equilibrium coreactant concentrations (Mandell and Russo, 1981; Knapp et al, 1981; Knapp and Mandell, 1983; 1984). Systematic influences of stimulant drug dose on D 0 were found as well in these systems (Mandell et al, 1982). This simple measure, made directly on the roughness of the graph of a one dimensional time series rather than on its orbital reconstruction, has been used to discriminate the pattern of fluctuations in daily mood scales in normal subjects and mood disordered patients (Woyshville et al, 1999). These findings confirmed dimensional scaling exponents on higher dimensional embeddings of similar time series in mood disordered patients (Gottschalk et al, 1995; Pezard et al, 1996). Due to the ease and rapidity of its computation, techniques involving D 0 on one dimensional time series are currently in development as possible real time epilepsy predictors when analyzing the output of a large number of EEG leads simultaneously. If M( ) is the minimum number of d-dimensional cubes of side required to cover the d-dimensionally embedded attractor, plotting a logarithmic range of rulers of length (as 0) along the x axis and a logarithmic range of number of cubes, M( ), each of corresponding -edge size, along the y axis, results in a negative (more smaller M( ) s and fewer bigger M( ) s) power law slope D 0 . Here the numbered covering cubes, M( ), are those in which the probability of containing at least one point (its probability density measure, often called ) is not zero. We 227 note that changing the ratios of the numbers of cubes that are dense in point probability to those that are sparse would not influence the value of D 0 . This helps differentiate D 0 from other dimensions and, as noted above, D 0 as a maximal estimate of the fractal dimension, is called the capacity dimension and by convention the scaling law is written M ( ) D 0 . More specifically, D0 is calculated by repeatedly dividing the d-dimensionally embedded phase space into equal d- dimensional hypercubes and plotting the log of the fraction of the hypercubes containing data points versus the log of the (normalized) linear dimension ( length scale ) of the hypercubes. The slope fitted to the most linear part of the slope (usually the middle 50 ) indicates the capacity dimension. D 0 is computed for increasing embedding (and cube) dimension, d, until it achieves an asymptotic plateau, it saturates . This is but one of a range of geometric scaling exponents, dimensions, that are currently being computed (Farmer et al, 1983; Grassberger and Procaccia, 1983; Meyer-Kress, 1986; Theiler, J. (1990); Gershenfeld, 1992; Ott et al,, 1994). Although still subject to debate, convention has it that the sample length required to determine this most primitive of dimension computations goes like D 10 0 (e.g. a dimension of 2.45 requires a sample length of at least 282 points). Assuming robust findings using D0 as indicated by non-parametric tests of significance in test-retest, before and after, drug treatment designs, this arbitrary criteria sounds more like ritual than meaningful help for the clinical neuroscientist with (say) 100 spinal fluid hormone and metabolite samples painfully and laboriously collected from a patient s indwelling catheter over 48 hours. In the context of real data (and not numerical studies of differential equations), we are dealing with empirical findings that must find their meaning (or lack of) in the context of questions about issues in the neurosciences, not in abstract questions such as those about the number of dimensions that an unknown differential equation would require to represent the data (Broomhead and King, 1986). In a similar arbitrary spirit, a system manifesting a D 0 5 is considered not discriminable from a random process; e.g. the difference between D 0 5 versus D 0 7 (though perhaps statistically significant) is thought to be without meaning. Since in neurobiological 228 research, random (if it doesn t mean measurement error) indicates unknown degrees of freedom, this D 0 5 rule is also without relevance for brain research. D 1 is called the information dimension and is computed by counting the number of -cubes, M( ), it takes to cover the points constituting some fixed fraction of all of the points of the set of orbital points on the attractor and can be regarded as the core dimension (without the outliers) of the set. The counterintuitive finding is that D 1 is nearly constant across a range of fixed fractions that are less than the whole measure (Farmer et al, 1983). The invariance of D 1 can even be taken to the extreme by computing the D M lim ln ( ) ln( ) 1 o around (typical, not all) single points. In this context, D 1 is called the pointwise dimension or singularity exponent and, as might be anticipated, its value is usually less than that of D 0 . The scaling exponent that is both sensitive to point densities and easiest to compute from real data is the correlation dimension, D 2. Here, analogous to the relationship between the amplitudes of the variance and the correlation function in conventional statistics, the measure squared is of interest for the computation of D 2 , e.g. M ( ) 2 I( 2, ) ( Ci ) (see below for this use of measure on sum of cubes Ci). i 1 The selection of D 2 as the fractal measure dominates the studies that invoke scaling exponents to quantify the distributions of points on the attractor as reconstructed from time series in the neurosciences (Grassberger and Procaccia, 1983; Mayer- Kress, 1986; Ott et al, 1994). Several sets of programs are available for its computation (for example, Sprott and Rowlands, 1991). Generally, a correlation sum ( integral , R( ) ) is computed from a starting point by counting all subsequent point pairs with distances between them less than as 0 and plotting D 2 lim ln( R( ) . D 2 is computed for increasing embedding (and therefore 0 ln( ) hypercube) dimension, d, until D 2 achieves an asymptotic plateau, it saturates (Ding et al, 1993). It is generally the case that D 0 D 1 D 2 (Farmer et al, 1983). 229 In his statistical explorations of experimental results in hydrodynamic turbulence, Mandelbrot (1974) called attention to the need for a multiplicity of characteristic scaling exponents, a range of values for each exponent and their sensitivity to orbital point density distributions (the latter called the Sinai-Ruelle- Bowen or natural measure (Eckmann and Ruelle, 1985)). These needs grew out of the intrinsic heterogeneity in the time dynamics and the nonuniform point distributions in phase space of orbitally divergent, real physical systems. Even with relatively uniform orbital point distributions, it is intuitively obvious that as 0, the smaller - cubes are over-represented and larger - cubes are under-represented in the M( ) computation (Farmer et al, 1983). For a concrete example, the fraction of the total number of cubes containing say 75 of the points would obviously decrease as the -lengths studied gets smaller. Normalizing the D i measures with respect to point densities would correct for this systematic distortion. In addition, the non-systematic influence of real system heterogeneity and non-uniformity in both time and reconstruction space distributions makes the need for relating the D i measures to the natural measure even more pressing. The derivation of many separate scaling exponents, as well as global generalized exponents and the incorporation of point densities in their computation, has been approached by a kind of method of moments (Renyi, 1970; Grassberger, 1983; Hentschel and Procaccia, 1983; Halsey et al, 1986; Mayer-Kress, 1986; Ott et al, 1994). We outline the general arguments here so that the reader will be generally familiar with the ideas and terms, not to serve as a definitive summary. It is a complicated area and the reader will find the required detailed descriptions in the references. . We recall that with respect to a statistical distribution, the first moment is the mean; the second moment, 2 , the variance; the third moment, 3 , the distribution s asymmetry, the skew; and the fourth moment, , its relative peakedness with respect to the probability mass in the tail, called the kurtosis. In these moment computations of an observable q x i s deviation from the mean, x x , the value for q accentuate particular regions of the density distribution. Similarly, the q s of the i 230 generalized dimensions, D q , emphasize different aspects of the relative point density that are assumed to be uniform in the computation of D 0 . We recall from above that the power law slope constituting D ln M( ) lim ln( ) 0 o . If we emphasize the component of the probability (measure, ) or, equivalently, time spent by the orbit in cube i, ( C i ) instead of simply the number of cubes occupied by any points, M( ), along with the different length scales of the cube as 0 we have a generalized dimension. A common expression for the generalized dimension includes the fractional pre-factor in q written so as to make things come out right: M ( ) Iq D 1 lim ln ( , ) q , where Iq ( , ) ( C i ) q 1 0 ln( ) i 1 the dominance of the higher probability cubes, q . The higher the q, the greater ( C i ). To see how this q-induced separation in emphasis might work, if the ratio for q 2 between the probability containing cubes 0.25 and 0.05 is 25, their ratio for q 3 is 125. For q 0, the scaling exponent is the capacity dimension. This result of the actions of a changing q has been analogized to the way changing temperature in a thermodynamic system evokes different aspects of its behavior. The multifractal formalism generally begins by determining the statistical densities over a range of scale lengths by one means or another including wavelet transformations across wavelength scale (Arneodo et al, 1988). These densities by scale are then systematically raised to a range of q exponents. Since q, and therefore D q , can vary continuously, functions are created that shows how D q varies with q. These are then further transformed, resulting in a single maximum parabolic curve whose shape and size is sensitive to the conditions of the experiment (Halsey et al, 1986). Generalized dimensions decrease as q increases. A unique neuropsychopharmacological application of the multifractal technique to a study of the behavioral influence of increasing amounts of cocaine on the time-dependent patterns of spatial exploration, temporal-spatial fluctuations, in rats, demonstrated a global splitting in the parabolic distribution suggestive of a cocaine-induced global phase transition, not unlike the well-known, dose-dependent, amphetamine-induced 231 shift from hyperactivity to motor stereotypy (Paulus et al, 1991). Studies that followed demonstrated that q-moment distributions of heterogeneous scaling exponents and their relative statistical weightings were useful in making subtle discriminations between effects of psychopharmacological agents and behavioral (isolation) influences on animal behavior as well as patterns of simple psychomotor behavior in normal subjects and schizophrenic patients (Paulus et al, 1994; 1996; 1998; Krebs-Thomson et al, 1998a; 1998b). Fractal Scaling Measures on Reconstructed Time Series from Biological Dynamics Publications involving the applications of various D measures, particularly D 2 , to brain-relevant times series number in the hundreds and are growing exponentially. The following constitutes a brief review of a representative set of empirical findings. In doing so, for the reasons discussed below, we ignore what some might consider the rather abstract and philosophical issue of determinism versus randomness or error (Sugihara and May, 1990; Casdagli, 1991; Wayland et al, 1993; Kaplan and Glass, 1992; Kaplan, 1994) since this question is relatively unproductive with respect to generating new neurobiological insights, novel experiments or new quantitative approaches to brain dynamics. In addition, as noted in the final section, this discrimination may not even have definitive theoretical meaning in that the conduct of much of the rigorous mathematics about deterministic dynamical systems involve Markoff partitions and matrices which are also the generic operators of formal probability theory (Sullivan, 1979; Kolmogorov, 1950). For example, N-dimensional non-linear Markoff processes can be shown to capture the dynamics of multidimensional neurobiological processes such as the EEG (Silipo et al, 1998). We have also ignored the related issue of the presence or absence of low dimensional structure (Theiler and Rapp, 1996; Rapp, 1995) which, from the authors point of view, resulted from an unfortunately concrete interpretation of the word dimensions. With respect to experimental brain data, dimensions are defined 232 most relevantly by their computational procedures and what are computed are empirical scaling exponents describing real observables as limited by the precision of the observations, their resolution and series lengths (Smith, 1988; Eckmann and Ruelle, 1992). The correlation integral, the probability that two vectors chosen at random from the phase space reconstruction lie within r distance of each other, not unrelated to the phase randomization controlled, D 2 measure, yields statements about amount of nonlinearity (not accountable by the linear regressively capturable component of the power spectrum), which are also difficult to translate into experimentally or theoretically useful concepts (Casdagli et al, 1997). These efforts contrast with a more direct attempt to establish a spiking neuron system s dynamical dimension using trial and error prediction in which dimension was defined as the number of potentially physiologically relevant variables required to make the predictive equations fit (Segundo et al, 1998). Computations of scaling exponent descriptors of orbital point distributions on reconstructed attractors of the brain sciences have proven to be most useful as atheoretical, empirical techniques discriminating experimental, clinical and or treatment conditions with various approaches to statistical significance. In this regard, one can say that D 2 is often found to be superior to central tendency oriented statistics in making these discriminations. Dimension and correlation integral descriptors appear least useful when dealing with global issues such as chaos, randomness, linearity and the underlying dimensions of (unknown) differential equations. We discuss below the possibility that the failure to find chaos in the more recent EEG studies (Theiler and Rapp, 1996; Prichard et al, 1996) may be because the EEG attractor is better characterized as a strange nonchaotic atttractor with orbital patterns manifesting fractional scaling exponents but no ( ) (Grebogi et al, 1984; Mandell and Selz, 1993). The relatively subtle influence of high altitude (Mt. Everest) oxygen concentrations was not seen in the central moments of the cardiac interbeat intervals, but the D 2 of the attactor was reduced significantly (Yamamoto et al, 1993). The latencies and amplitudes of the visual evoked potential failed to 233 discriminate normal subjects from those with early glaucoma, but the reconstructed attractor of the steady state visual cortical response to full field flicker demonstrated a statistically significant decrease in D 2 (Schmeisser et al, 1993). Marginal qualitative differences in optokinetic nystagmus were quantitatively significant when studied as the D 2 of the attractor s points in patients with vertigo compared with controls (Aasen et al, 1997). Reconstructions of maximum velocity waves from Doppler studies of middle cerebral artery hemodynamics (using phase random controls ) demonstrated an increase in D 2 (and a decrease in ( ) correlated with age in an adult population (Keuner et al, 1996; Vliegen et al, 1996). D 2 served as a sensitive descriptor of functional changes in the EMG from the surface of the biceps muscle, increasing with muscle load and rate of flexion and extension and decreasing with muscle fatigue (Rapp et al, 1993; Nieminen and Takala, 1996; Gupta et al, 1997), suggesting its use in suspected early myotonic dystrophies and myasthenias. Reconstructed time series of stomatognathic motions in high school students with temporomandipular joint syndromes compared with those with malocclusion revealed a specific decrease in D 0 in the plane of horizontal motion in the former (Morinushi et al, 1998). Time series of plasma growth hormone levels in acromegalic patients with functioning pituitary adenomas manifested a statistically significant increase in D 0 when compared with age-matched controls (Mandell and Selz, 1997) which corresponded nicely to the reduction in approximate entropy (Pincus, 1991a) computed on this same data set (Hartman et al, 1994). On the other hand, comparative in vitro studies of growth hormone release patterns in normal rat pituitary cells and their neoplastically transformed relatives, the GH3 strain, demonstrate a decrease in D 0 in the latter (Guillemin et al, 1983; Mandell, 1986). The number of examples of the use of D 2 on orbital point geometries in explorations of physiological and pharmacological regulation are increasing. The D 2 of respiratory rhythms is higher with intact vagal afferents than without (Sammon and Bruce, 1991). Histamine induced an increase in D 2 in the attractor point distribution of rabbit ear artery vasomotion, attributed to calcium-activated membrane potassium channels in that TEA prevented and reversed the change 234 (Edwards and Griffith, 1997). The role of central and autonomic innervation in cardiac interval dynamics has been explored using D 2 in various ways. For examples, the transplanted heart rhythm in man has a lower D 2 than that of the normal heart (Guzzetti et al, 1996) and general anesthesia and cholinergic (but not -adrenergic) blockade decreased multisystem D 2 in a series of multiparameter (respiration, mean blood pressure and heart rate) studies in piglets (Zwiener et al, 1996; Hoyer et al, 1998). The activities of single and aggregates of neurons are being described and differentiated by the D 2 of their interevent interval attractors. Early and important studies related to both neuronal and field electrical activity indicated their promise (Rapp et al, 1985; Zimmerman and Rapp, 1991). The olefactory bulb demonstrated spatially uniform scaling dimensions that changed with event-related perturbation (Skinner et al, 1990). An iron-induced spiking focus in the rat hippocampus in vivo manifested the same decrease in D 2 as it did in the kindled in vitro hippocampal slice (Koch et al, 1992). D 2 also differentiated among characteristic single unit time series in norepinephrine, dopamine and serotonin neurons (Selz and Mandell, 1991) and among A8, A9 and A10 dopamine neurons (Selz and Mandell, 1992). Attractors reconstructed from single unit interspike intervals in the substantia nigra pars compacta and the auditory thalamus manifested discriminatable values for D 2 in neurons recorded by the same electrode (Celletti and Villa, 1996) and changes in state manifested in patterns of subthreshold oscillations in single neurons in the inferioir olivary nucleus could be characterized using this index (Makarenko and Llinas, 1998). D 2 reliably discriminated between states of arousal and between the multiparameter (eye movements, neck muscle tone, EEG stage) defined EEG stages of sleep (Bablyoyantz, 1986; Rapp et al, 1989; Ehlers et al, 1991) with non- REM having a lower D 2 than REM. D 2 of the EEG record was selectively reduced in Stage II and REM in schizophrenic patients compared with controls (Roschke and Aldenhoff, 1993), this difference was made more prominent by treatment with the aminodiazopoxide, lorazepam (Roschke and Aldenhoff, 1992). In the waking state, 235 higher EEG D 2 values were frontal in schizophrenic patients and more central in controls (Elbert et al, 1992). The D 2 computed on the EEG during Stage IV ( delta ) sleep was sensitive to acute sleep deprivation and recovery, but demonstrated compensation (Cerf et al, 1996). Non-alcholic children of alcoholic parents manifested lower values for D 1 in their EEG attractors than the children of a normal control group (Ehlers et al, 1995). Higher I.Q. correlated with EEG D 2 in most leads in the resting state but not during a visual imagery task (Lutzenberger et al, 1992). These differences also correlated with individual differences in task performance in a perceptual pattern predictive task (Gregson et al, 1990) and with a working memory task load with regional differences most marked in the right fronto-temporal cortex (Sammer, 1996). Peripheral nerve stimulation in the earlobe and trapezius muscle induced increments in D 2 in the EEG of specific brain regions (Heffernan, 1996). Memory for but not induced pain increased EEG D 2 in chronic pain patients but not in normal controls (Lutzenberger et al, 1997). Using contingent reinforcement of brain wave modes by hypothalamic, but not cerebral hemispheric, stimulation reduced D 2 in the EEG (Mogilevskii et al, 1998) resembling the changes accompanying defensive reflex conditioning in the rabbit between the early and late stages of the process (Efremova and Kulikov, 1997). Difficult to diagnose periodic lateralized epileptiform discharge syndromes have apparently yielded to D 2 computations (Stam et al, 1998). In equally problematic atypical seizure syndromes in children, D 2 computed on the autocovariance functions of 200 Hz digitized EEG records from multiple channels demonstrated characteristic changes (Yaylali et al, 1996). Unlike computing a reliable leading ( ) on a point set of a time series reconstruction denoting the sensitivity to initial conditions requirement for the diagnosis of chaos (and a potential for change such that a decrease in the positivity of ( ) ( 0) may auger a nearby bifurcation), the presence of a fractional scaling exponent, D i , does not in and of itself implicate a chaotic dynamical state. A nice example of a nonchaotic dynamic with 0 that has a fractional scaling exponent, D 0.538, is the Feigenbaum point where the above noted infinite series of 236 period doubling bifurcations accumulate (Grassberger, 1981). This is a dust-like region, which when endlessly dilated looks like the same dust. Some mathematicians call these objects Lebesgue points because even though at low magnifications when they look rather solid, they are not. Composed of points, they have topological measure zero (a line has measure one) and non-integer fractal dimension. These 0 , D Integer, period doubling accumulation points can be found in a wide variety of attractors, though in each case the parameter space in which they are located is so small (in point set topology also called Lebesgue measure zero ) that they are very difficult to locate and therefore have little chance of being physiologically significant. This constrasts with a relatively new category of dynamical systems which promises to be important in studies of the nervous system. These are ones that are driven by two or more independent frequencies (called quasiperiodic driving). We found them to be relevant to brain stem, thalamocortical neurophysiology of perceptual processes and states of consciousness. They have the properties, 0 , D 0 and D 1 integer and a characteristic scaling spectral distribution function (see below). They have been named strange nonchaotic attractors (Grebogi et al, 1984; Romeiras et al, 1987; Ding et al, 1989). In addition, the strange nonchaotic behavior of these quasiperiodically-driven, nonlinear oscillators has positive ( 0) measure in parameter space and thus is of potential physiological significance. A good demonstration of a multiple frequency driven strange nonchaotic attractor can be found and manipulated in the software package of Nusse and Yorke (1991). The neurobiological substrate for this system is the brain stem neuronal modulatory driving of on- going thalamocortcal oscillatory brain waves (once called recruitment waves in the 7-14 Hz, to , day dreaming to quiet alert range) and as perturbed by multifrequency driving in what was once called reticular formation arousal are realized as dominant EEG modes and associated states of perceptual acuity and consciousness (Moruzzi and Magoun 1949; Moruzzi, 1960; Klemm, 1990; Steriade and McCarley, 1990; Contreras et al, 1997). In addition to intrinsic 237 multiply periodic and aperiodic oscillations of thalamic and cortical cells and their recursive, feedback coupling, the brain stem manifests more than two orders of magnitude of independent neuronal driving frequencies ranging from serotonin discharges at 1 Hz, cortically direct dopamine and norepinephrine neurons in the 10-50Hz range and mesencephalic reticular neurons discharging as fast as 100 to 200 Hz. The thalamocortical brain wave oscillator as their target has been a fixture in global state neurophysiology since the 1940 s and 1950 s and is of great current interest (Fessard et al, 1961; Bazhenov et al, 1998). We have explored the relationships between strange nonchaotic dynamics and brain-stem neuronal and thalamocortical physiology from the standpoint of neuronal coding and the properties of the EEG attractor. (Mandell et al, 1991; Mandell and Kelso, 1991; Mandell and Selz, 1992; 1993;1994;1997a). We found that the EEG attractor could be characterized by the diagnostic triad identifying strange nonchaotic attractors: 0 , D 0 and D 1 Integer, and a signatory power spectral distribution in which the number of peaks, N, with amplitudes greater than , N( ), went as - , 1 2 (Romeiras et al, 1987; Mandell et al, 1991). In addition to being consistent with known multifrequency, brain stem driving of thalamocortical oscillations, the EEG as a strange, nonchaotic attractor is intuitively appealing in that it has the necessary mechanisms for the power law scaling of a wide range of characteristic times (D 0 and D 1 Integer) from picosecond fluctuations of neural membrane proteins to the decades of bipolar phenomena and since 0 , the orbital points don t tend to mix (get out of order) on the attractor, thus protecting the fidelity of sequence dependent brain information transport (Berns and Sejnowski, 1998). Entropies, Unstable Periodic Orbits and Shadowing; Short Time Series Can Discriminate Experimental Conditions in Studies of Biological Dynamics We avoid the temptation to deal with the deep analogy between thermodynamic entropy (Clausius, 1897) and information theoretic entropy (Shannon and Weaver, 1949), constraining our discussion to the context of an operational equivalence (in healthy systems) between gain of information and 238 decrease in entropy in brain-relevant dynamical systems. As we shall see, certain pathophysiological processes appear to manifest themselves as reductions in background or resting state entropy which then limits its supply with respect to information gain and or transport. Relationships between physical thermodynamic observables, such as changes in heat capacity or temperature dependence of kinetic constants, and information-transport driven, neurotransmitter evoked conformational changes in neural membrane proteins may someday come together in an experimentally productive way (Hitzemann et al, 1985; Zeman et al, 1987; Borea et al, 1988), but they are beyond the scope of this paper. The idea of taming the orbit of an expanding flow (with at least one ( )) by partitioning the geometric space supporting its actions, its manifold, and then labeling each box so that its trajectory is representable by a symbol string of box indices is the way symbolic dynamics are applied to dynamical systems. Symbolic dynamics arose in pure mathematics in the context of obtaining a one-to-one, topological (sequence not distance preserving ) representation of a difficult to characterize system of geodesics on surfaces of negative curvature (Hadamard, 1898; Morse, 1917; Morse and Hedlund, 1938). Geodesics here are the shortest lines in this curved, non-Euclidean space in which nearby lines spread apart and far away ones came together with (in Euclidian space) parallel lines meeting at infinity. Remarkably, symbolic dynamic encoding of the motions on this abstract manifold of negative curvature also capture how uniformly divergent (and convergent), hyperbolic chaotic systems, such as brain systems, behave in Euclidean space, an intuitive similarity about which Poincare experienced his famous vacation bus trip epiphany (Stillwell, 1985). It should also be noted that encoding neural spike trains in one dimension for symbolic dynamical comparisons of sequence structure and recurrances, favored patterns has been developed independently of orbital dynamics on manifolds (Dayhoff, 1984; Dayhoff and Gerstein, 1983a; 1983b). A similar approach has been used to characterize firing patterns and their response to acupuncture in dopamine neurons in the substantia nigra and hypothalamic neurons (Chen and Ku, 1992). 239 For real neurobiological data, a time series and its n time delays are first reconstructed as a trajectory in an n 1 dimensional geometric embedding space and, following partition of that geometric space into n 1 dimensional lettered boxes (the choice of partition being a sensitive step), what was once an orbit has become a sequence of symbols. Dynamical systems in geometric space become symbolic dynamics in sequence space. It was Kolmogoroff (1958) who first applied Shannon s ideas of entropy and information (Shannon and Weaver, 1949; Khinchin, 1957) to the quantification of these dynamical system s telegraphic messages as discrete, stochastic (random, probabilistic) output. Kolmogoroff turned to Shannon entropy, p i log p i (where p 1 n and n number of possibilities) to decide the question whether a dynamical system that naturally partitioned into a two or three box system per unit time had the same entropy. His answer was no, that 3(1 3 ln (1 3)) 1.098 -2(1 2 ln (1 2) 0.6931 loge and in computer relevant log 2 , 1.5850 1.0 (Kolmogorov, 1959). Entropy increases with possibility. Nonlinear differential equations representing brain-relevant expanding dynamical systems replace Shannon s linguistically weighted and serially ordered, Markoff-dependent random number generator of probabilistic language. As noted above, in the case of the Sharkovskii sequences (Sharkovskii, 1964; Metropolis et al, 1973; Misiurewicz, 1995), a small change in the single parameter of an entire class of single maximum maps generating motions that are coded from their position at the left or right of center of the unit interval, alters and determines precisely the periodic output such as 1,0,0,1,0,1,1,0,0,1,0,1 ) of its binary message. In higher dimensional examples such as the R ssler and Lorenz systems, one can visualize the joint actions of ( ) and ( ) moving the trajectory so as to both enter, create, new boxes and generate new letters as well as visit old ones, unstable fixed points, thus forming unstable periodic orbits. The latter, one of three diagnostic features of chaotic attractors (see above), can also be seen as resulting from the coarse-grained imprecision of real world neurobiological measurement such that two points that are brought close to attractive-repelling points are, within measurement error, recorded as having the same value. 240 Problems of measurement precision, amplified by the expansive actions of systems that are sensitive to initial conditions, yield parameter sensitive entropies of two (mathematically) fundamental kinds called topological and metric entropies, h T and h M , proven to be the upper and lower bounds of any estimate of the entropy in a uniformly expanding and or equidistributed system (Adler and Weiss, 1965). Measures of entropy, as missing information related to the number of alternatives which remain possible to a physical system (Boltzmann, 1909), index of probability (Gibbs, 1902) or the amount of uncertainty associated with a finite scheme (Khinchin,1957) are obviously sensitive to the partition rules and its fineness of the grain. The most theoretically defensible partition is called the generating partition in which no box contains more than one point. Comparisons of control and experimental data can be differentially sensitive to partition construction, so that if a generating partition is not practicable due to sample length or dense curdling in the point distribution, some arbitrary choices have to be made. These have included naturally renormalized variational partitions, such that in one dimension the boxes are defined by 1, 2, 3, standard deviations, or quartiles or quintile, above and below the mean and in n dimensions. Partitions have also been constructed and used to described drug effects on rat exploratory behavior by sequential partitioning along the dimension of the highest remaining variation (after the previous partition) called the KD partition (Paulus et al, 1991). Partition strategies to capture entropic measures on serial ordering (Klemm and Sherry, 1981; Strong et al, 1998) can grow from knowledge or hypotheses about the physiological sources of temporal irregularities and discontinuities in brain dynamics including characteristic interval(s) of refractoriness, relaxation times of the inhibitory surround, correlation time in dendritic tree summation, the time course of reciprocal inhibition and its decay and chemical influences such as the synaptic half-life and time of action of inhibitory influences such as GABA on cell firing. The logarithmic growth rates of occupancy of new symbolically indexed boxes or, equivalently, the growth rates of visitations to old ones generating unstable periodic orbits, are called topological entropies, h T . They record new happenings, the growth rate of the diversity of orbits, and not how likely with respect 241 to box occupancy densities they are likely to occur ( Adler et al, 1964; Alexeev and Jacobson, 1981; Cornfield et al, 1982; Ornstein, 1989; Ruelle, 1990). The close relationships in real brain observables between the appearance rate of new symbols or new unstable periodic orbits, h T , and log ( ), reflecting the rate of divergence from the next expected value generating a new, unexpected value, is not surprising. In fact, a maximal estimate of the entropy of a dynamical system, h T log ( ) whereas the largest value that h M can attain is log( of states). A great deal of substantial mathematics has gone into proofs that similarities ( equivalence relations ) and differences between dynamical patterns are robustly indicated by differences in h T and h M (Adler et al, 1977; Adler and Marcus, 1979). If the sum of the densities in each j box were normalized so as to sum to 1.0, such that each is a probability, p j , then - p j log p j represents the metric entropy, h M . h M was first described in the dynamical context by Kolmogorov (1958;1959). The sum having a 1 prefactor converts the negative log of 1 to a meaningful positive value in the expression. h M is maximal for the equidistributed, uniformly expansive, C or Axiom A systems (see above). As noted above, generally h T the maximum estimate of the entropy and h M the minimum estimate (Adler and Weiss, 1965). h T h M in uniformly hyperbolic systems (Bowen, 1975) and the difference, h T h M is an index of non-uniformity found useful in discriminating among classes of single neurons from their discharge patterns (Mandell, 1987; Selz and Mandell, 1992; Mandell and Selz, 1993; Mandell and Selz, 1997a). These measures applied to temporal and spatial patterns of rat exploratory behavior have been used to discriminate among stimulant drug effects (Paulus et al, 1990; Paulus and Geyer, 1992). Similar computations involving the symbolic dynamics and disallowed transitions have been used to study the complexity of the the EEG (Xu, 1994) in which both extremely low (fixed point, periodic) and high (Gaussian random) entropies are seen as manifesting low complexity as a function of the diversity of the available patterns of behavior (Crutchfield and Young, 1989a). Before describing the simple but definitional matrix operations for h T and h M below which might seem forbidding to those not up on their linear algebra, we note 242 that procedures such exponentiation of a matrix can be carried out automatically using computer algebra programs such as Maple or for data processing available as computational modules in MatLab. One of the techniques for the computation of h T involves determining the logarithm of the asymptotic growth rate of the major diagonal ( trace ) in the transition matrix symbolically encoding the trajectory which would therefore count the self visitations of each indexed boxes as the dynamics proceed. This involves setting up a transition incidence matrix, each box scored for a disallowed, 0, or allowed, 1, transitions and the matrix is exponentiated t times with the logarithm of the asymptotic growth rate of the sum of the diagonal values serving as a (leading eigenvalue) estimate of h T . More technical considerations involving the Frobenius- Perron theorem guaranteeing the existence of such an logarithmic index of new information generation rates, even in random matrices (Seneta, 1981), will not be discussed here. We have found that computing h T in this way is empirically useful for difficult to obtain or only transiently stationary brain data series. Even with relatively short samples lengths, if one is willing to make the pragmatic assumption of temporary stationarity or things as they are right now will, for the sake of argument, go on forever (perhaps the best we can do with intrinsically transient brain phenomena) then this freeze framed representation of reality yields an asymptotic measure on relatively short sample lengths since they are computationally infinite. A similar approach to h M , requires repeatedly exponentiating a Markoff matrix constructed from relatively short samples and generates the probabilistic (eigenvector) dual of h T. h M computed in this way serves as a useful quantity, h M called by some the Kolmogorov entropy in comparisons of control and experimental conditions of the same sample lengths. Systematic decreases in h M ( Kolmogorov entropy ) have been shown to accompany increasing depth of sleep using standard sleep staging techniques (Gallez and Babloyantz, 1991) and increases in h M were associated with both positive and negative emotional states induced by movies (Aftanas et al, 1997). 243 h T and ( ) have been analogized to what is called algorithmic complexity, which quantifies a computer algorithm s minimal representation of a symbol sequence as it grows longer (Chaitin, 1974; Bennett, C.H., 1982; Nicolis, 1986; Rissanen, 1982; Crutchfield and Young, 1989b). Examples of applications of a pseudocomputational compression scheme have quantified differences among protein sequences (Ebling and Jimenez-Montano, 1980), discriminated therapistdirected transference manifestations in verbally encoded processes in psychotherapy (Rapp et al, 1991), characterized neural spike train patterns in a penicillin kindled spike focus (Rapp et al, 1994), differentiated among spike sequence patterns of biogenic amine families of brain stem neurons (Mandell and Selz, 1994) and as a sample length-dependent rate, in content-free, mouse driven computer tasks differentiated borderline from obsessive-compulsive personality patterns (Selz and Mandell, 1997). Computation of lexical complexity is a good example of this approach. This procedure recursively surveys the sequence of symbols for the longest word, where words are subsequences that appear at least three times if they contain two letters or at least twice if they contain more than two letters. Upon finding a longest repeated word, the compression algorithm replaces all occurances of this word with a single distinct (new) symbol and looks again for the longest repeated word in the modified sequence. When the sequence cannot be further recursively compressed, there may remain identical adjacent symbols in the sequence. These are coded as the symbol raised to the power of the number of its adjacent occurances. This exponent cannot exceed five because six adjacent identical symbols would be two occurances of a three letter word. The numerical value of the lexical complexity is simply the sum of the number of distinct symbols and the (sum of the) logarithm of the exponents of the symbol sequences (Ebling and Jimenez-Montano, 1980). A clear account of algorithmic and lexical complexity in relationship to other measures of complexity in the context of brain relevant research data can be found in Rapp and Schmah (1996). The relationship between thermodynamic and ergodic, measure theories in relationship to forced-dissipative dynamics and the 244 role of self-intersection on manifolds in this new source of irreversibility (with a resulting arrow of time ) is developed in Mackey (1992). As noted, the skeleton which configures attractors is composed of unstable, saddle fixed points, each of which attract (iron down) the trajectory along one dimension and repel or spread it out along another. Systems fulfilling the criteria for a chaotic dynamical system have the property of a countably infinite number of unstable periodic orbits composed of these unstable fixed points. Depending upon parameters, the orbital points can pull up their tails to be discrete with respect to each other or spread along the unstable direction to connect smoothly with others along a curve such as a saddle cycle. Parametric control of the strengths and structures of the saddle point skeleton of typical attractors can be used to change both the rate of generation of novel symbols as well as recurrances to old ones in the symbolic dynamics generating a brain dynamical system s lexagraphic products (Bowen, 1978; Alexeev and Jacobson, 1981)). Using a variety of techniques to algorithmically register return times, experimental condition-sensitive saddle orbits composing unstable periodic orbits have been demonstrated in geometric reconstructions of real data series generated by a 40 component chemical reaction (Lathrop and Kostelich, 1989), in response to natural stimuli in the time dependent behavior of the crayfish caudal photoreceptor (Pei and Moss, 1996) and in the interburst interval sequences recorded in hippocampal slices of the rat (So et al, 1997; So et al, 1998). If the reader uses the software listed above to simulate the time evolution of one of these attractors of abstract or real systems , she will learn that a remarkably small number of points, a very short time sample, will outline, shadow (Bowen, 1978), the complete array of unstable fixed points before filling in the attractor. It is tempting to speculate about the potential nervous system relevance of this dynamical anticipation of the attractor s recognizable geometry, as well as a precis of what the symbolic dynamics are going to say occurs many time steps before filling in the attractor and its asymptotic message. Values of the measures made on the early unstable periodic orbit arrays such h T , h M and ( ), resemble very closely those 245 made on their attractors when they were much more densely filled (Lathrop and Kostelich , 1989). Bowen s shadow lemma in support of a thin film of points over the skelton of unstable fixed points of attractors is the fundamental reason that short sample length time series can often discriminate between control and experimental conditions in brain research studies. Another recently implemented entropy, called approximate entropy, is exploiting the underlying unstable fixed point skeletal shadowing principle in expansive dynamical systems to find statistically significant differences between control and experimental results in reasonably short, physiologically realistic, sample lengths (Pincus, 1991; Pincus et al, 1991). This algorithm is somewhat derivative of those involved in the computation of the correlation dimension (see above). Instead of computing across a range (and taking the limits) of embedding dimensions, d, and sequential paired-vectorial distances, , it empirically tailors and fixes them to compute a logarithmic likelihood that points remains close through incremental change in the time series. The approximate entropy is not easily relatable to either h T and h M. One is tempted to predict that this geometrically oriented algorithm might be fooled into a postive entropy diagnosis if applied to strange, nonchaotic dynamical systems with fractal dimension but no ( ) -related mixing. Since sequence position is conserved in this computation, two simultaneously studied ( multiparameter ) systems can be examined for their mutual coherence as the cross approximate entropy. Among the interesting findings from applications of this index to neuroendocrine studies are an increase in approximate entropy in LH and FSH secretory patterns with age in both sexes, perhaps quantitatively heralding menopause (Pincus and Minkin, 1998) and decreased cross approximate entropy, a decrease in regulatory coupling between ACTH and cortisol secretion patterns in patients with Cushing s syndrome (Roelfsema et al, 1998). Among the many of other empirically derived entropies, one is called power spectral entropy, which is equivalent to the normalized variance of the distribution of frequencies in a power spectral transformation of a time series (Farmer et al, 1980). This has been successfully applied to brain enzyme and receptor fluctuations 246 (Russo and Mandell, 1984a; Mandell, 1984), and, more recently, to multiple simultaneously EEG leads which demonstrated focal increases in epileptic patients (Inouye et al, 1991; 1992). An entropy derived from the quantification of the failures in temporal forecasting of EEG signals increased in the fronto-temporal region with drug treatment in patients with Alzheimer s syndrome (Pezard et al, 1998). With respect to their implications for the clinical neurosciences, changes in dynamical entropy in behavior of brain dynamical systems has been regarded in two general ways: (1) Since representation of information requires the resolution of relevant ambiguity, a nonrelevant and global reduction in the dynamical entropy of a brain system (Stage IV sleep EEG slow waves, neuronal fixed point or regularly periodic activity, extrapyramidal motor tremor, fixed paranoid or obsessional mentation, the actions of some anxiolytics and antipsychotics ) reduces its potential for information encoding and transport. In contrast, arousal induced increases in the measures of entropy in brain wave and neuronal discharge patterns (pre-task warning signals, motivating conditions, stimulant drugs) are associated with improved psychophysical receptive and discrimination functions, learning rates and memory. (2) Regarding as potentially pathophysiological both of the two extremes of entropy generation, fixed point and periodic behavior as the lowest and fair coin flipping, Bernoulli randomness as the highest, another descriptor, complexity is defined as maximal (optimal) midway through the entropy range, making a new kind of parabolic entropy curve (Bennett, 1986; Crutchfield and Young, 1989a). In analogy with an optimal amalgam of periodic rotations and coin flips, in higher dimension, the most meaningful maximum complexity of real, nonuniformly expansive processes may derive from a multiplicity of measure invariants, symmetries, of the system such as the growth rate of unstable periodic orbits, divergence of the tail of a density distribution and specifiable linguistic variables such as word length and redundancy. The more symmetries, the more potential for complicated information encoding and transport with the maximum complexity located midrange in each one. We have pursued the hypothesis that entropy is a conserved property in the healthy brain and that complementarity in other statistical measure mechanisms make that possible. For example, in uniformly expansive, 247 idealized systems, topological entropy has been proven be equivalent to the product of an index of expansion and the dimension of the support such that an increase in expansiveness , ( ), is compensated by a decrease in D 0 leaving h T invariant (Manning,1981). This relationship has also been found in the behavior of some nonuniformly expansive neuroendocrine, neuronal and human behavioral systems (Mandell and Selz, 1995; Smotherman et al, 1996; Mandell and Selz, 1997a;). Is Randomness Versus Determinism a Productive Question for the Biological Sciences? Are There Better Ones? Measures made on realistically nonuniformly expansive behavior of dynamical systems emerging from nonlinear differential equations and that arising from a variety of non-classical random walk models overlap such that making what may be more a metaphysical discrimination at this point is labor intensive, contentious and unproductive for generating new experimental work in the neurosciences. It is important to note that random walk theory and computation has matured to such an extent that almost any nonlinear dynamical behavior can, with respect to statistical measure, be modeled using one of many varieties. For examples, power law distributions in continuous time random walks (times of movement are also randomly chosen) , random walks with traps (temporarily immobilizing the trajectory like unstable fixed points), random walks in random environments, time of passage of ants in a labyrinth and Levy leaps and local diffusive exploration (looking for a wallet) among many others can represent much of the irregular behavior we observe in the brain (Shlesinger et al, 1982; Montroll and Shlesinger, 1984; Hughes, 1995; Klafter et al, 1996). On the other hand, (Markoff) partition of the sequence and a probabilistic style of analysis of nonlinear dynamical systems has been a major strategy for description and quantification from the field s beginnings (Parry, 1964; Adler and Weiss, 1967; Bowen, 1970; Lasota and Yorke, 1973). The issue of randomness versus determinism remains current although many if not most properties of deterministic dynamical systems can 248 be simulated with a suitably constructed random process and all of our random number generators are deterministic. This theoretical blind alley is reminiscent of the decades lost partialing out causal attributes of nature versus nurture before knowledge of dynamical influences on nucleotide dynamics was available. It is perhaps unfortunate that for finite length real data, house keeping requirements (Ruelle, 1990; Rapp, 1993;1994) and warnings on the label with various random sequence, random phase controls ( surrogate data ) have become so intimidating to those of us in the early stages of exploring the use of these theories and methods in the brain sciences. Currently the controls are more relevant to abstract statistical processes and what can be said about them rather than generating and addressing new claims and the controls for them related to quantitatively oriented, experimental brain physiology. Statistical caveats have arisen to retard the emergence of potentially important and robust neurophysiologically-relevant phenomena. For example, a recent well conducted and analyzed study of the influence of low doses of ethanol in 32 normal male subjects, which honored almost all of the current analytic rituals including sequence and phase randomized surrogate data and searches for the continuity features of deterministic dynamical systems such as time asymmetry, concluded that the drug reduced the evidence for nonlinear dynamical structure in the brain (Ehlers et al, 1998). Though honoring the currently popular statistical rituals, what appears to be missing here are suggestions for new neurobiological or mathematical intuitions that will lead to the design of the next experiment. We now see that it is now possible to use these new ideas and methods to ask and at least partially answer more specific questions relevant to the clinically oriented neurosciences such as: whether increases in lithium-induced expansiveness and mixing in the dynamics of brain enzymes, neurons and behavior help explicate a mechanism of de-coherence in bipolar disease (Mandell et al, 1985); do these approaches to membrane conductance fluctuations suggest a new way to think about ion channel dynamics (Liebovitch, 1990); can alcohol-induced changes in statistical dynamics of the EEG predict genetic predilection in males to 249 alcoholism (Ehlers et al, 1995); do these approaches suggest a new neural dynamical mechanism for the actions of anticonvulsant drugs (Zimmerman et al, 1991); can these measures made on non-verbal, psychomotor tasks yield a nonintrusive measure of personality and character (Selz, 1992); can these approaches to deviant patterns of psychomotor sequencing in schizophrenics give us some insight into potential (cerebeller-basal ganglia?) mechanisms of the thought disorder in schizophrenia (Paulus et al, 1994); does cocaine induce new patterns of behavior that conserve pre-treatment entropy in developing animals (Smotherman et al, 1996); will these quantities applied to objective gait observables supply early diagnoses and quantification of clinical course in patients with extra-pyramidal disorders or taking anti-psychotic medication (Hausdorff et al, 1998); can these transformations of time series on the EEG give us an early diagnostic approach to Alzheimer s disease (Jeong et al, 1998) or a new acute preventive pharmacological approach to patients with psychomotor and partial seizures (Iasemidis et al, 1990). To end where we began: We think that if neuroscientists did their own nonlinear dynamical theory and analysis, shaped and tailored by intuitions growing out of their own experimental work and thinking, abstract and philosophical questions about what is determinism and what is random would retreat in favor of new specific ideas and experiments about brain dynamical mechanisms and their pathophysiology. From the studies reviewed here, it appears that a robust move in this direction in the brain sciences is well underway. 250 References Aasen,T.,Kugiumtzis,D.,Nordahl,G. (1997) Procedure for estimating the correlation dimension of optokinetic nystagmus signals. Comput Biomed Res. 30:95-116 Accardo, A., Mumolo, E.(1998): An algorithm for the automatic differentiation between the speech of normals and patients with Friedreich's ataxia based on the short-time fractal dimension. Comput Biol. Med. 28:75-89 Adler, R.J., Feldman, R.E., Taqqu, M. 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PRAISE FOR The 4-Hour Workweek It s about time this book was written. It is a long-overdue manifesto for the mobile lifestyle, and Tim Ferriss is the ideal ambassador. This will be huge. JACK CANFIELD, cocreator of Chicken Soup for the Soul , 100 million copies sold Stunning and amazing. From mini-retirements to outsourcing your life, it s all here. Whether you re a wage slave or a Fortune 500 CEO, this book will change your life! PHIL TOWN, New York Times bestselling author of Rule 1 The 4-Hour Workweek is a new way of solving a very old problem: just how can we work to live and prevent our lives from being all about work? A world of infinite options awaits those who would read this book and be inspired by it! MICHAEL E. GERBER, founder and chairman of E-Myth Worldwide and the world s 1 small business guru This is a whole new ball game. Highly recommended. DR. STEWART D. FRIEDMAN, adviser to Jack Welch and former Vice President Al Gore on work family issues and director of the Work Life Integration Program at the Wharton School, University of Pennsylvania Timothy has packed more lives into his 29 years than Steve Jobs has in his 51. TOM FOREMSKI, journalist and publisher of SiliconValleyWatcher.com If you want to live life on your own terms, this is your blueprint. MIKE MAPLES, cofounder of Motive Communications (IPO to 260M market cap) and founding executive of Tivoli (sold to IBM for 750M) Thanks to Tim Ferriss, I have more time in my life to travel, spend time with family, and write book blurbs. This is a dazzling and highly useful work. A. J. JACOBS, editor-at-large of Esquire magazine and author of The Know-It-All Tim is Indiana Jones for the digital age. I ve already used his advice to go spearfishing on remote islands and ski the best hidden slopes of Argentina. Simply put, do what he says and you can live like a millionaire. ALBERT POPE, derivatives specialist at UBS World Headquarters Reading this book is like putting a few zeros on your income. Tim brings lifestyle to a new level listen to him! MICHAEL D. KERLIN, McKinsey Company consultant to Bush-Clinton Katrina Fund and a J. William Fulbright Scholar Part scientist and part adventure hunter, Tim Ferriss has created a road map for an entirely new world. I devoured this book in one sitting I have seen nothing like it. CHARLES L. BROCK, chairman and CEO of Brock Capital Group; former CFO, COO, and general counsel of Scholastic, Inc.; and former president of the Harvard Law School Association Outsourcing is no longer just for Fortune 500 companies. Small and mid-sized firms, as well as busy professionals, can outsource their work to increase their productivity and free time for more important commitments. It s time for the world to take advantage of this revolution. VIVEK KULKARNI, CEO of Brickwork India and former IT secretary of Bangalore; credited as the techno-bureaucrat who helped make Bangalore an IT destination in India Tim is the master! I should know. I followed his rags to riches path and watched him transform himself from competitive fighter to entrepreneur. He tears apart conventional assumptions until he finds a better way. DAN PARTLAND, Emmy Award winning producer of American High and Welcome to the Dollhouse The 4-Hour Workweek is an absolute necessity for those adventurous souls who want to live life to its fullest. Buy it and read it before you sacrifice any more! JOHN LUSK, group product manager at Microsoft World Headquarters If you want to live your dreams now, and not in 20 or 30 years, buy this book! LAURA RODEN, chairman of the Silicon Valley Association of Startup Entrepreneurs and a lecturer in Corporate Finance at San Jose State University With this kind of time management and focus on the important things in life, people should be able to get 15 times as much done in a normal workweek. TIM DRAPER, founder of Draper Fisher Jurvetson, financiers to innovators including Hotmail, Skype, and Overture.com Tim has done what most people only dream of doing. I can t believe he is going to let his secrets out of the bag. This book is a must read! STEPHEN KEY, top inventor and team designer of Teddy Ruxpin and Lazer Tag and a consultant to the television show American Inventor For my parents, DONALD AND FRANCES FERRISS, who taught a little hellion that marching to a different drummer was a good thing. I love you both and owe you everything. SUPPORT YOUR LOCAL TEACHER 10 of all author royalties are donated to educational not-for-profits, including Donorschoose.org. CONTENTS Preface to the Expanded and Updated Edition FAQ Doubters Read This My Story and Why You Need This Book Chronology of a Pathology First and Foremost Step I: D is for Definition 1 Cautions and Comparisons: How to Burn 1,000,000 a Night 2 Rules That Change the Rules: Everything Popular Is Wrong 3 Dodging Bullets: Fear-Setting and Escaping Paralysis 4 System Reset: Being Unreasonable and Unambiguous Step II: E is for Elimination 5 The End of Time Management: Illusions and Italians 6 The Low-Information Diet: Cultivating Selective Ignorance 7 Interrupting Interruption and the Art of Refusal Step III: A is for Automation 8 Outsourcing Life: Off-loading the Rest and a Taste of Geoarbitrage 9 Income Autopilot I: Finding the Muse 10 Income Autopilot II: Testing the Muse 11 Income Autopilot III: MBA Management by Absence Step IV: L is for Liberation 12 Disappearing Act: How to Escape the Office 13 Beyond Repair: Killing Your Job 14 Mini-Retirements: Embracing the Mobile Lifestyle 15 Filling the Void: Adding Life After Subtracting Work 16 The Top 13 New Rich Mistakes The Last Chapter: An E-mail You Need to Read THE BEST OF THE BLOG Last but Not Least The Art of Letting Bad Things Happen Things I ve Loved and Learned in 2008 How to Travel the World with 10 Pounds or Less The Choice-Minimal Lifestyle: 6 Formulas for More Output and Less Overwhelm The Not-to-Do List: 9 Habits to Stop Now The Margin Manifesto: 11 Tenets for Reaching (or Doubling) Profitability in 3 Months The Holy Grail: How to Outsource the Inbox and Never Check E-mail Again Tim Ferriss Processing Rules Proposal to Work Remotely on a Contract Basis LIVING THE 4-HOUR WORKWEEK: CASE STUDIES, TIPS, AND HACKS Zen and the Art of Rock Star Living Art Lovers Wanted Photo Finish Virtual Law Taking Flight with Ornithreads Off-the-Job Training Doctor s Orders The 4-Hour Family and Global Education Financial Musing Who Says Kids Hold You Back? Working Remotely Killing Your BlackBerry Star Wars, Anyone? RESTRICTED READING: THE FEW THAT MATTER BONUS MATERIAL How to Get 250,000 of Advertising for 10,000 How to Learn Any Language in 3 Months Muse Math: Predicting the Revenue of Any Product Licensing: From Tae Bo to Teddy Ruxpin Real Licensing Agreement with Real Dollars Online Round-the-World (RTW) Trip Planner ACKNOWLEDGMENTS PREFACE TO THE EXPANDED AND UPDATED EDITION The 4-Hour Workweek was turned down by 26 out of 27 publishers. After it was sold, the president of one potential marketing partner, a large bookseller, e-mailed me historical bestseller statistics to make it clear this wouldn t be a mainstream success. So I did all I knew how to do. I wrote it with two of my closest friends in mind, speaking directly to them and their problems problems I long had and I focused on the unusual options that had worked for me around the world. I certainly tried to set conditions for making a sleeper hit possible, but I knew it wasn t likely. I hoped for the best and planned for the worst. May 2, 2007, I receive a call on my cell phone from my editor. Tim, you hit the list. It was just past 5 P.M. in New York City, and I was exhausted. The book had launched five days before, and I had just finished a series of more than twenty radio interviews in succession, beginning at 6 A.M. that morning. I never planned a book tour, preferring instead to batch radio satellite tours into 48 hours. Heather, I love you, but please don t with me. No, you really hit the list. Congratulations, Mr. New York Times bestselling author! I leaned against the wall and slid down until I was sitting on the floor. I closed my eyes, smiled, and took a deep breath. Things were about to change. Everything was about to change. Lifestyle Design from Dubai to Berlin The 4-Hour Workweek has now been sold into 35 languages. It s been on the bestseller lists for more than two years, and every month brings a new story and a new discovery. From the Economist to the cover of the New York Times Style section, from the streets of Dubai to the cafes of Berlin, lifestyle design has cut across cultures to become a worldwide movement. The original ideas of the book have been broken apart, improved, and tested in environments and ways I never could have imagined. So why the new edition if things are working so well? Because I knew it could be better, and there was a missing ingredient: you. This expanded and updated edition contains more than 100 pages of new content, including the latest cutting-edge technologies, field-tested resources, and most important real-world success stories chosen from more than 400 pages of case studies submitted by readers. Families and students? CEOs and professional vagabonds? Take your pick. There should be someone whose results you can duplicate. Need a template to negotiate remote work, a paid year in Argentina, perhaps? This time, it s in here. The Experiments in Lifestyle Design blog (www.fourhourblog.com) was launched alongside the book, and within six months, it became one of the top 1,000 blogs in the world, out of more than 120 million. Thousands of readers have shared their own amazing tools and tricks, producing phenomenal and unexpected results. The blog became the laboratory I d always wanted, and I encourage you to join us there. The new Best of the Blog section includes several of the most popular posts from the Experiments in Lifestyle Design blog. On the blog itself, you can also find recommendations from everyone from Warren Buffett (seriously, I tracked him down and show you how I did it) to chess prodigy Josh Waitzkin. It s an experimental playground for those who want better results in less time. Not Revised This is not a revised edition in the sense that the original no longer works. The typos and small mistakes have been fixed over more than 40 printings in the U.S. This is the first major overhaul, but not for the reason you d expect. Things have changed dramatically since April 2007. Banks are failing, retirement and pension funds are evaporating, and jobs are being lost at record rates. Readers and skeptics alike have asked: Can the principles and techniques in the book really still work in an economic recession or depression? Yes and yes. In fact, questions I posed during pre-crash lectures, including How would your priorities and decisions change if you could never retire? are no longer hypothetical. Millions of people have seen their savings portfolios fall 40 or more in value and are now looking for options C and D. Can they redistribute retirement throughout life to make it more affordable? Can they relocate a few months per year to a place like Costa Rica or Thailand to multiply the lifestyle output of their decreased savings? Sell their services to companies in the UK to earn in a stronger currency? The answer to all of them is, more than ever, yes. The concept of lifestyle design as a replacement for multi-staged career planning is sound. It s more flexible and allows you to test different lifestyles without committing to a 10- or 20-year retirement plan that can fail due to market fluctuations outside of your control. People are open to exploring alternatives (and more forgiving of others who do the same), as many of the other options the once safe options have failed. When everything and everyone is failing, what is the cost of a little experimentation outside of the norm? Most often, nothing. Flash forward to 2011; is a job interviewer asking about that unusual gap year? Everyone was getting laid off and I had a once-in-a-lifetime chance to travel around the world. It was incredible. If anything, they ll ask you how to do the same. The scripts in this book still work. Facebook and LinkedIn launched in the post-2000 dot-com depression. Other recession-born babies include Monopoly, Apple, Cliff Bar, Scrabble, KFC, Domino s Pizza, FedEx, and Microsoft. This is no coincidence, as economic downturns produce discounted infrastructure, outstanding freelancers at bargain prices, and rock-bottom advertising deals all impossible when everyone is optimistic. Whether a yearlong sabbatical, a new business idea, reengineering your life within the corporate beast, or dreams you ve postponed for some day, there has never been a better time for testing the uncommon. What s the worst that could happen? I encourage you to remember this often-neglected question as you begin to see the infinite possibilities outside of your current comfort zone. This period of collective panic is your big chance to dabble. It s been an honor to share the last two years with incredible readers around the world, and I hope you enjoy this new edition as much as I enjoyed putting it together. I am, and will continue to be, a humble student of you all. Un abrazo fuerte, TIM FERRISS San Franciso, California April 21, 2009 First and Foremost FAQ DOUBTERS READ THIS Is lifestyle design for you? Chances are good that it is. Here are some of the most common doubts and fears that people have before taking the leap and joining the New Rich: Do I have to quit or hate my job? Do I have to be a risk-taker? No on all three counts. From using Jedi mind tricks to disappear from the office to designing businesses that finance your lifestyle, there are paths for every comfort level. How does a Fortune 500 employee explore the hidden jewels of China for a month and use technology to cover his tracks? How do you create a hands-off business that generates 80K per month with no management? It s all here. Do I have to be a single twenty-something? Not at all. This book is for anyone who is sick of the deferred-life plan and wants to live life large instead of postpone it. Case studies range from a Lamborghini-driving 21-year-old to a single mother who traveled the world for five months with her two children. If you re sick of the standard menu of options and prepared to enter a world of infinite options, this book is for you. Do I have to travel? I just want more time. No. It s just one option. The objective is to create freedom of time and place and use both however you want. Do I need to be born rich? No. My parents have never made more than 50,000 per year combined, and I ve worked since age 14. I m no Rockefeller and you needn t be either. Do I need to be an Ivy League graduate? Nope. Most of the role models in this book didn t go to the Harvards of the world, and some are dropouts. Top academic institutions are wonderful, but there are unrecognized benefits to not coming out of one. Grads from top schools are funneled into high-income 80-hour-per-week jobs, and 15 30 years of soul-crushing work has been accepted as the default path. How do I know? I ve been there and seen the destruction. This book reverses it. MY STORY AND WHY YOU NEED THIS BOOK Whenever you find yourself on the side of the majority, it is time to pause and reflect. Anyone who lives within their means suffers from a lack of imagination. OSCAR WILDE, Irish dramatist and novelist MARK TWAIN My hands were sweating again. Staring down at the floor to avoid the blinding ceiling lights, I was supposedly one of the best in the world, but it just didn t register. My partner Alicia shifted from foot to foot as we stood in line with nine other couples, all chosen from over 1,000 competitors from 29 countries and four continents. It was the last day of the Tango World Championship semifinals, and this was our final run in front of the judges, television cameras, and cheering crowds. The other couples had an average of 15 years together. For us, it was the culmination of 5 months of nonstop 6-hour practices, and finally, it was showtime. How are you doing? Alicia, a seasoned professional dancer, asked me in her distinctly Argentine Spanish. Fantastic. Awesome. Let s just enjoy the music. Forget the crowd they re not even here. That wasn t entirely true. It was hard to even fathom 50,000 spectators and coordinators in La Rural, even if it was the biggest exhibition hall in Buenos Aires. Through the thick haze of cigarette smoke, you could barely make out the huge undulating mass in the stands, and everywhere there was exposed floor, except the sacred 30 x 40 space in the middle of it all. I adjusted my pin-striped suit and fussed with my blue silk handkerchief until it was obvious that I was just fidgeting. Are you nervous? I m not nervous. I m excited. I m just going to have fun and let the rest follow. Number 152, you re up. Our chaperone had done his job, and now it was our turn. I whispered an inside joke to Alicia as we stepped on the hardwood platform: Tranquilo Take it easy. She laughed, and at just that moment, I thought to myself, What on earth would I be doing right now, if I hadn t left my job and the U.S. over a year ago? The thought vanished as quickly as it had appeared when the announcer came over the loudspeaker and the crowd erupted to match him: Pareja numero 152, Timothy Ferriss y Alicia Monti, Ciudad de Buenos Aires!!! We were on, and I was beaming. THE MOST FUNDAMENTAL of American questions is hard for me to answer these days, and luckily so. If it weren t, you wouldn t be holding this book in your hands. So, what do you do? Assuming you can find me (hard to do), and depending on when you ask me (I d prefer you didn t), I could be racing motorcycles in Europe, scuba diving off a private island in Panama, resting under a palm tree between kickboxing sessions in Thailand, or dancing tango in Buenos Aires. The beauty is, I m not a multimillionaire, nor do I particularly care to be. I never enjoyed answering this cocktail question because it reflects an epidemic I was long part of: job descriptions as self-descriptions. If someone asks me now and is anything but absolutely sincere, I explain my lifestyle of mysterious means simply. I m a drug dealer. Pretty much a conversation ender. It s only half true, besides. The whole truth would take too long. How can I possibly explain that what I do with my time and what I do for money are completely different things? That I work less than four hours per week and make more per month than I used to make in a year? For the first time, I m going to tell you the real story. It involves a quiet subculture of people called the New Rich. What does an igloo-dwelling millionaire do that a cubicle-dweller doesn t? Follow an uncommon set of rules. How does a lifelong blue-chip employee escape to travel the world for a month without his boss even noticing? He uses technology to hide the fact. Gold is getting old. The New Rich (NR) are those who abandon the deferred-life plan and create luxury lifestyles in the present using the currency of the New Rich: time and mobility. This is an art and a science we will refer to as Lifestyle Design (LD). I ve spent the last three years traveling among those who live in worlds currently beyond your imagination. Rather than hating reality, I ll show you how to bend it to your will. It s easier than it sounds. My journey from grossly overworked and severely underpaid office worker to member of the NR is at once stranger than fiction and now that I ve deciphered the code simple to duplicate. There is a recipe. Life doesn t have to be so damn hard. It really doesn t. Most people, my past self included, have spent too much time convincing themselves that life has to be hard, a resignation to 9-to-5 drudgery in exchange for (sometimes) relaxing weekends and the occasional keep-it-short-or-get-fired vacation. The truth, at least the truth I live and will share in this book, is quite different. From leveraging currency differences to outsourcing your life and disappearing, I ll show you how a small underground uses economic sleight-of-hand to do what most consider impossible. If you ve picked up this book, chances are that you don t want to sit behind a desk until you are 62. Whether your dream is escaping the rat race, real-life fantasy travel, long-term wandering, setting world records, or simply a dramatic career change, this book will give you all the tools you need to make it a reality in the here-and-now instead of in the often elusive retirement. There is a way to get the rewards for a life of hard work without waiting until the end. How? It begins with a simple distinction most people miss one I missed for 25 years. People don t want to be millionaires they want to experience what they believe only millions can buy. Ski chalets, butlers, and exotic travel often enter the picture. Perhaps rubbing cocoa butter on your belly in a hammock while you listen to waves rhythmically lapping against the deck of your thatchedroof bungalow? Sounds nice. 1,000,000 in the bank isn t the fantasy. The fantasy is the lifestyle of complete freedom it supposedly allows. The question is then, How can one achieve the millionaire lifestyle of complete freedom without first having 1,000,000? In the last five years, I have answered this question for myself, and this book will answer it for you. I will show you exactly how I have separated income from time and created my ideal lifestyle in the process, traveling the world and enjoying the best this planet has to offer. How on earth did I go from 14-hour days and 40,000 per year to 4-hour weeks and 40,000-plus per month? It helps to know where it all started. Strangely enough, it was in a class of soon-to-be investment bankers. In 2002, I was asked by Ed Zschau, bermentor and my former professor of High-tech Entrepreneurship at Princeton University, to come back and speak to the same class about my business adventures in the real world. I was stuck. There were already decamillionaires speaking to the same class, and even though I had built a highly profitable sports supplement company, I marched to a distinctly different drummer. Over the ensuing days, however, I realized that everyone seemed to be discussing how to build large and successful companies, sell out, and live the good life. Fair enough. The question no one really seemed to be asking or answering was, Why do it all in the first place? What is the pot of gold that justifies spending the best years of your life hoping for happiness in the last? The lectures I ultimately developed, titled Drug Dealing for Fun and Profit, began with a simple premise: Test the most basic assumptions of the work-life equation. How do your decisions change if retirement isn t an option? What if you could use a mini-retirement to sample your deferredlife plan reward before working 40 years for it? Is it really necessary to work like a slave to live like a millionaire? Little did I know where questions like these would take me. The uncommon conclusion? The commonsense rules of the real world are a fragile collection of socially reinforced illusions. This book will teach you how to see and seize the options others do not. What makes this book different? First, I m not going to spend much time on the problem. I m going to assume you are suffering from time famine, creeping dread, or worst case a tolerable and comfortable existence doing something unfulfilling. The last is most common and most insidious. Second, this book is not about saving and will not recommend you abandon your daily glass of red wine for a million dollars 50 years from now. I d rather have the wine. I won t ask you to choose between enjoyment today or money later. I believe you can have both now. The goal is fun and profit. Third, this book is not about finding your dream job. I will take as a given that, for most people, somewhere between six and seven billion of them, the perfect job is the one that takes the least time. The vast majority of people will never find a job that can be an unending source of fulfillment, so that is not the goal here; to free time and automate income is. I OPEN EACH class with an explanation of the singular importance of being a dealmaker. The manifesto of the dealmaker is simple: Reality is negotiable. Outside of science and law, all rules can be bent or broken, and it doesn t require being unethical. The DEAL of deal making is also an acronym for the process of becoming a member of the New Rich. The steps and strategies can be used with incredible results whether you are an employee or an entrepreneur. Can you do everything I ve done with a boss? No. Can you use the same principles to double your income, cut your hours in half, or at least double the usual vacation time? Most definitely. Here is the step-by-step process you ll use to reinvent yourself: D for Definition turns misguided common sense upside down and introduces the rules and objectives of the new game. It replaces self-defeating assumptions and explains concepts such as relative wealth and eustress. 1 Who are the NR and how do they operate? This section explains the overall lifestyle design recipe the fundamentals before we add the three ingredients. E for Elimination kills the obsolete notion of time management once and for all. It shows exactly how I used the words of an often-forgotten Italian economist to turn 12-hour days into two-hour days in 48 hours. Increase your per-hour results ten times or more with counterintuitive NR techniques for cultivating selective ignorance, developing a low-information diet, and otherwise ignoring the unimportant. This section provides the first of the three luxury lifestyle design ingredients: time. A for Automation puts cash flow on autopilot using geographic arbitrage, outsourcing, and rules of nondecision. From bracketing to the routines of ultrasuccessful NR, it s all here. This section provides the second ingredient of luxury lifestyle design: income. L for Liberation is the mobile manifesto for the globally inclined. The concept of mini-retirements is introduced, as are the means for flawless remote control and escaping the boss. Liberation is not about cheap travel; it is about forever breaking the bonds that confine you to a single location. This section delivers the third and final ingredient for luxury lifestyle design: mobility. I should note that most bosses are less than pleased if you spend one hour in the office each day, and employees should therefore read the steps in the entrepreneurially minded DEAL order but implement them as DELA. If you decide to remain in your current job, it is necessary to create freedom of location before you cut your work hours by 80 . Even if you have never considered becoming an entrepreneur in the modern sense, the DEAL process will turn you into an entrepreneur in the purer sense as first coined by French economist J. B. Say in 1800 one who shifts economic resources out of an area of lower and into an area of higher yield. Last but not least, much of what I recommend will seem impossible and even offensive to basic common sense I expect that. Resolve now to test the concepts as an exercise in lateral thinking. If you try it, you ll see just how deep the rabbit hole goes, and you won t ever go back. Take a deep breath and let me show you my world. And remember tranquilo. It s time to have fun and let the rest follow. TIM FERRISS Tokyo, Japan September 29, 2006 1. Uncommon terms are defined throughout this book as concepts are introduced. If something is unclear or you need a quick reference, please visit www.fourhourblog.com for an extensive glossary and other resources. CHRONOLOGY OF A PATHOLOGY An expert is a person who has made all the mistakes that can be made in a very narrow field. NIELS BOHR, Danish physicist and Nobel Prize winner Ordinarily he was insane, but he had lucid moments when he was merely stupid. HEINRICH HEINE, German critic and poet This book will teach you the precise principles I have used to become the following: Princeton University guest lecturer in high-tech entrepreneurship First American in history to hold a Guinness World Record in tango Advisor to more than 30 world-record holders in professional and Olympic sports Wired magazine s Greatest Self-Promoter of 2008 National Chinese kickboxing champion Horseback archer (yabusame) in Nikko, Japan Political asylum researcher and activist MTV breakdancer in Taiwan Hurling competitor in Ireland Actor on hit TV series in mainland China and Hong Kong (Human Cargo) How I got to this point is a tad less glamorous: 1977 Born 6 weeks premature and given a 10 chance of living. I survive instead and grow so fat that I can t roll onto my stomach. A muscular imbalance of the eyes makes me look in opposite directions, and my mother refers to me affectionately as tuna fish. So far so good. 1983 Nearly fail kindergarten because I refuse to learn the alphabet. My teacher refuses to explain why I should learn it, opting instead for I m the teacher that s why. I tell her that s stupid and ask her to leave me alone so I can focus on drawing sharks. She sends me to the bad table instead and makes me eat a bar of soap. Disdain for authority begins. 1991 My first job. Ah, the memories. I m hired for minimum wage as the cleaner at an ice cream parlor and quickly realize that the big boss s methods duplicate effort. I do it my way, finish in one hour instead of eight, and spend the rest of the time reading kung-fu magazines and practicing karate kicks outside. I am fired in a record three days, left with the parting comment, Maybe someday you ll understand the value of hard work. It seems I still don t. 1993 I volunteer for a one-year exchange program in Japan, where people work themselves to death a phenomenon called karooshi and are said to want to be Shinto when born, Christian when married, and Buddhist when they die. I conclude that most people are really confused about life. One evening, intending to ask my host mother to wake me the next morning (okosu), I ask her to violently rape me (okasu). She is very confused. 1996 I manage to slip undetected into Princeton, despite SAT scores 40 lower than the average and my high school admissions counselor telling me to be more realistic. I conclude I m just not good at reality. I major in neuroscience and then switch to East Asian studies to avoid putting printer jacks on cat heads. 1997 Millionaire time! I create an audiobook called How I Beat the Ivy League, use all my money from three summer jobs to manufacture 500 tapes, and proceed to sell exactly none. I will allow my mother to throw them out only in 2006, just nine years of denial later. Such is the joy of baseless overconfidence. 1998 After four shot-putters kick a friend s head in, I quit bouncing, the highest-paying job on campus, and develop a speed-reading seminar. I plaster campus with hundreds of god-awful neon green flyers that read, triple your reading speed in 3 hours! and prototypical Princeton students proceed to write bullsh t on every single one. I sell 32 spots at 50 each for the 3-hour event, and 533 per hour convinces me that finding a market before designing a product is smarter than the reverse. Two months later, I m bored to tears of speed-reading and close up shop. I hate services and need a product to ship. Fall 1998 A huge thesis dispute and the acute fear of becoming an investment banker drive me to commit academic suicide and inform the registrar that I am quitting school until further notice. My dad is convinced that I ll never go back, and I m convinced that my life is over. My mom thinks it s no big deal and that there is no need to be a drama queen. Spring 1999 In three months, I accept and quit jobs as a curriculum designer at Berlitz, the world s largest publisher of foreign-language materials, and as an analyst at a three-person political asylum research firm. Naturally, I then fly to Taiwan to create a gym chain out of thin air and get shut down by Triads, Chinese mafia. I return to the U.S. defeated and decide to learn kickboxing, winning the national championship four weeks later with the ugliest and most unorthodox style ever witnessed. Fall 2000 Confidence restored and thesis completely undone, I return to Princeton. My life does not end, and it seems the yearlong delay has worked out in my favor. Twenty-somethings now have David Koresh like abilities. My friend sells a company for 450 million, and I decide to head west to sunny California to make my billions. Despite the hottest job market in the history of the world, I manage to go jobless until three months after graduation, when I pull out my trump card and send one start-up CEO 32 consecutive e-mails. He finally gives in and puts me in sales. Spring 2001 TrueSAN Networks has gone from a 15-person nobody to the number one privately held data storage company (how is that measured?) with 150 employees (what are they all doing?). I am ordered by a newly appointed sales director to start with A in the phone book and dial for dollars. I ask him in the most tactful way possible why we are doing it like retards. He says, Because I say so. Not a good start. Fall 2001 After a year of 12-hour days, I find out that I m the second-lowest-paid person in the company aside from the receptionist. I resort to aggressively surfing the web full-time. One afternoon, having run out of obscene video clips to forward, I investigate how hard it would be to start a sports nutrition company. Turns out that you can outsource everything from manufacturing to ad design. Two weeks and 5,000 of credit card debt later, I have my first batch in production and a live website. Good thing, too, as I m fired exactly one week later. 2002 2003 BrainQUICKEN LLC has taken off, and I m now making more than 40K per month instead of 40K per year. The only problem is that I hate life and now work 12-hour-plus days 7 days a week. Kinda painted myself into a corner. I take a one-week vacation to Florence, Italy, with my family and spend 10 hours a day in an Internet caf freaking out. Sh t balls. I begin teaching Princeton students how to build successful (i.e., profitable) companies. Winter 2004 The impossible happens and I m approached by an infomercial production company and an Israeli conglomerate (huh?) interested in buying my baby BrainQUICKEN. I simplify, eliminate, and otherwise clean house to make myself expendable. Miraculously, BQ doesn t fall apart, but both deals do. Back to Groundhog Day. Soon thereafter, both companies attempt to replicate my product and lose millions of dollars. June 2004 I decide that, even if my company implodes, I need to escape before I go Howard Hughes. I turn everything upside down and backpack in hand go to JFK Airport in New York City, buying the first one-way ticket to Europe I can find. I land in London and intend to continue on to Spain for four weeks of recharging my batteries before returning to the salt mines. I start my relaxation by promptly having a nervous breakdown the first morning. July 2004 2005 Four weeks turn into eight, and I decide to stay overseas indefinitely for a final exam in automation and experimental living, limiting e-mail to one hour each Monday morning. As soon as I remove myself as a bottleneck, profits increase 40 . What on earth do you do when you no longer have work as an excuse to be hyperactive and avoid the big questions? Be terrified and hold on to your ass with both hands, apparently. September 2006 I return to the U.S. in an odd, Zen-like state after methodically destroying all of my assumptions about what can and cannot be done. Drug Dealing for Fun and Profit has evolved into a class on ideal lifestyle design. The new message is simple: I ve seen the promised land, and there is good news. You can have it all. Step I: D is for Definition Reality is merely an illusion, albeit a very persistent one . ALBERT EINSTEIN Cautions and Comparisons HOW TO BURN 1,000,000 A NIGHT These individuals have riches just as we say that we have a fever, when really the fever has us. SENECA (4 B.C. A.D. 65) I also have in mind that seemingly wealthy, but most terribly impoverished class of all, who have accumulated dross, but know not how to use it, or get rid of it, and thus have forged their own golden or silver fetters. HENRY DAVID THOREAU (1817 1862) 1:00 A.M. CST 30,000 FEET OVER LAS VEGAS His friends, drunk to the point of speaking in tongues, were asleep. It was just the two of us now in first-class. He extended his hand to introduce himself, and an enormous Looney Tunes enormous diamond ring appeared from the ether as his fingers crossed under my reading light. Mark was a legitimate magnate. He had, at different times, run practically all the gas stations, convenience stores, and gambling in South Carolina. He confessed with a half smile that, in an average trip to Sin City, he and his fellow weekend warriors might lose an average of 500,000 to 1,000,000 each. Nice. He sat up in his seat as the conversation drifted to my travels, but I was more interested in his astounding record of printing money. So, of all your businesses, which did you like the most? The answer took less than a second of thought. None of them. He explained that he had spent more than 30 years with people he didn t like to buy things he didn t need. Life had become a succession of trophy wives he was on lucky number three expensive cars, and other empty bragging rights. Mark was one of the living dead. This is exactly where we don t want to end up. Apples and Oranges: A Comparison So, what makes the difference? What separates the New Rich, characterized by options, from the Deferrers (D), those who save it all for the end only to find that life has passed them by? It begins at the beginning. The New Rich can be separated from the crowd based on their goals, which reflect very distinct priorities and life philosophies. Note how subtle differences in wording completely change the necessary actions for fulfilling what at a glance appear to be similar goals. These are not limited to business owners. Even the first, as I will show later, applies to employees. D: To work for yourself. NR: To have others work for you. D: To work when you want to. NR: To prevent work for work s sake, and to do the minimum necessary for maximum effect ( minimum effective load ). D: To retire early or young. NR: To distribute recovery periods and adventures (mini-retirements) throughout life on a regular basis and recognize that inactivity is not the goal. Doing that which excites you is. D: To buy all the things you want to have. NR: To do all the things you want to do, and be all the things you want to be. If this includes some tools and gadgets, so be it, but they are either means to an end or bonuses, not the focus. D: To be the boss instead of the employee; to be in charge. NR: To be neither the boss nor the employee, but the owner. To own the trains and have someone else ensure they run on time. D: To make a ton of money. NR: To make a ton of money with specific reasons and defined dreams to chase, timelines and steps included. What are you working for? D: To have more. NR: To have more quality and less clutter. To have huge financial reserves but recognize that most material wants are justifications for spending time on the things that don t really matter, including buying things and preparing to buy things. You spent two weeks negotiating your new Infiniti with the dealership and got 10,000 off? That s great. Does your life have a purpose? Are you contributing anything useful to this world, or just shuffling papers, banging on a keyboard, and coming home to a drunken existence on the weekends? D: To reach the big pay-off, whether IPO, acquisition, retirement, or other pot of gold. NR: To think big but ensure payday comes every day: cash flow first, big payday second. D: To have freedom from doing that which you dislike. NR: To have freedom from doing that which you dislike, but also the freedom and resolve to pursue your dreams without reverting to work for work s sake (W4W). After years of repetitive work, you will often need to dig hard to find your passions, redefine your dreams, and revive hobbies that you let atrophy to near extinction. The goal is not to simply eliminate the bad, which does nothing more than leave you with a vacuum, but to pursue and experience the best in the world. Getting Off the Wrong Train The first principle is that you must not fool yourself, and you are the easiest person to fool. RICHARD P. FEYNMAN, Nobel Prize winning physicist Enough is enough. Lemmings no more. The blind quest for cash is a fool s errand. I ve chartered private planes over the Andes, enjoyed many of the best wines in the world in between world-class ski runs, and lived like a king, lounging by the infinity pool of a private villa. Here s the little secret I rarely tell: It all cost less than rent in the U.S. If you can free your time and location, your money is automatically worth 3 10 times as much. This has nothing to do with currency rates. Being financially rich and having the ability to live like a millionaire are fundamentally two very different things. Money is multiplied in practical value depending on the number of W s you control in your life: what you do, when you do it, where you do it, and with whom you do it. I call this the freedom multiplier. Using this as our criterion, the 80-hour-per-week, 500,000-per-year investment banker is less powerful than the employed NR who works the hours for 40,000, but has complete freedom of when, where, and how to live. The former s 500,000 may be worth less than 40,000 and the latter s 40,000 worth more than 500,000 when we run the numbers and look at the lifestyle output of their money. Options the ability to choose is real power. This book is all about how to see and create those options with the least effort and cost. It just so happens, paradoxically, that you can make more money a lot more money by doing half of what you are doing now. So, Who Are the NR? The employee who rearranges his schedule and negotiates a remote work agreement to achieve 90 of the results in one-tenth of the time, which frees him to practice cross-country skiing and take road trips with his family two weeks per month. The business owner who eliminates the least profitable customers and projects, outsources all operations entirely, and travels the world collecting rare documents, all while working remotely on a website to showcase her own illustration work. The student who elects to risk it all which is nothing to establish an online video rental service that delivers 5,000 per month in income from a small niche of Blu-ray aficionados, a two-hour-per-week side project that allows him to work full-time as an animal rights lobbyist. The options are limitless, but each path begins with the same first step: replacing assumptions. To join the movement, you will need to learn a new lexicon and recalibrate direction using a compass for an unusual world. From inverting responsibility to jettisoning the entire concept of success, we need to change the rules. New Players for a New Game: Global and Unrestricted TURIN, ITALY Civilization had too many rules for me, so I did my best to rewrite them. BILL COSBY As he rotated 360 degrees through the air, the deafening noise turned to silence. Dale Begg-Smith executed the backflip perfectly skis crossed in an X over his head and landed in the record books as he slid across the finish. It was February 16, 2006, and he was now a mogul-skiing gold medalist at the Turin Winter Olympics. Unlike other full-time athletes, he will never have to return to a dead-end job after his moment of glory, nor will he look back at this day as the climax of his only passion. After all, he was only 21 years old and drove a black Lamborghini. Born a Canadian and something of a late bloomer, Dale found his calling, an Internet-based IT company, at the age of 13. Fortunately, he had a more-experienced mentor and partner to guide him: his 15-year-old brother, Jason. Created to fund their dreams of standing atop the Olympic podium, it would, only two years later, become the third-largest company of its kind in the world. While Dale s teammates were hitting the slopes for extra sessions, he was often buying sake for clients in Tokyo. In a world of work harder, not smarter, it came to pass that his coaches felt he was spending too much time on his business and not enough time in training, despite his results. Rather than choose between his business or his dream, Dale chose to move laterally with both, from either or to both and. He wasn t spending too much time on his business; he and his brother were spending too much time with Canucks. In 2002, they moved to the ski capital of the world, Australia, where the team was smaller, more flexible, and coached by a legend. Three short years later, he received citizenship, went head-to-head against former teammates, and became the third Aussie in history to win winter gold. In the land of wallabies and big surf, Dale has since gone postal. Literally. Right next to the Elvis Presley commemorative edition, you can buy stamps with his face on them. Fame has its perks, as does looking outside the choices presented to you. There are always lateral options. NEW CALEDOINA, SOUTH PACIFIC OCEAN Once you say you re going to settle for second, that s what happens to you in life. JOHN F. KENNEDY Some people remain convinced that just a bit more money will make things right. Their goals are arbitrary moving targets: 300,000 in the bank, 1,000,000 in the portfolio, 100,000 a year instead of 50,000, etc. Julie s goal made intrinsic sense: come back with the same number of children she had left with. She reclined in her seat and glanced across the aisle past her sleeping husband, Marc, counting as she had done thousands of times one, two, three. So far so good. In 12 hours, they would all be back in Paris, safe and sound. That was assuming the plane from New Caledonia held together, of course. New Caledonia? Nestled in the tropics of the Coral Sea, New Caledonia was a French territory and where Julie and Marc had just sold the sailboat that took them 15,000 miles around the world. Of course, recouping their initial investment had been part of the plan. All said and done, their 15-month exploration of the globe, from the gondola-rich waterways of Venice to the tribal shores of Polynesia, had cost between 18,000 and 19,000. Less than rent and baguettes in Paris. Most people would consider this impossible. Then again, most people don t know that more than 300 families set sail from France each year to do the same. The trip had been a dream for almost two decades, relegated to the back of the line behind an evergrowing list of responsibilities. Each passing moment brought a new list of reasons for putting it off. One day, Julie realized that if she didn t do it now, she would never do it. The rationalizations, legitimate or not, would just continue to add up and make it harder to convince herself that escape was possible. One year of preparation and one 30-day trial run with her husband later, they set sail on the trip of a lifetime. Julie realized almost as soon as the anchor lifted that, far from being a reason not to travel and seek adventure, children are perhaps the best reason of all to do both. Pre-trip, her three little boys had fought like banshees at the drop of a hat. In the process of learning to coexist in a floating bedroom, they learned patience, as much for themselves as for the sanity of their parents. Pre-trip, books were about as appealing as eating sand. Given the alternative of staring at a wall on the open sea, all three learned to love books. Pulling them out of school for one academic year and exposing them to new environments had proven to be the best investment in their education to date. Now sitting in the plane, Julie looked out at the clouds as the wing cut past them, already thinking of their next plans: to find a place in the mountains and ski all year long, using income from a sail-rigging workshop to fund the slopes and more travel. Now that she had done it once, she had the itch. LIFESTYLE DESIGN IN ACTION I was done with driving across town to collect my son from child- care only to slide across icy highways trying to get back to work with him in tow to finish my work. My mini-retirement brought us both to live at an alternative boarding school full of creative lifestyle redesigning children and staff in a gorgeous Florida forest with a spring-fed pond and plenty of sunshine. You can easily search for alternative schools or traditional schools that might accept your children during your stay. Alternative schools often see themselves as supportive communities and are exceptionally welcoming. You might even find an opportunity to work at a school where you could experience a new environment with your child. DEB Tim, Your book and blog have inspired me to quit my job, write two e-books, sky dive, backpack through South America, sell all the clutter in my life, and host an annual convention of the world s top dating instructors (my primary business venture, third year running). The best part? I can t even buy a drink yet. Thank you so much, bro! ANTHONY Rules That Change the Rules EVERYTHING POPULAR IS WRONG I can t give you a surefire formula for success, but I can give you a formula for failure: try to please everybody all the time. HERBERT BAYARD SWOPE, American editor and journalist; first recipient of the Pulitzer Prize Everything popular is wrong. OSCAR WILDE, The Importance of Being Earnest Beating the Game, Not Playing the Game In 1999, sometime after quitting my second unfulfilling job and eating peanut-butter sandwiches for comfort, I won the gold medal at the Chinese Kickboxing (Sanshou) National Championships. It wasn t because I was good at punching and kicking. God forbid. That seemed a bit dangerous, considering I did it on a dare and had four weeks of preparation. Besides, I have a watermelon head it s a big target. I won by reading the rules and looking for unexploited opportunities, of which there were two: 1. Weigh-ins were the day prior to competition: Using dehydration techniques commonly practiced by elite powerlifters and Olympic wrestlers, I lost 28 pounds in 18 hours, weighed in at 165 pounds, and then hyperhydrated back to 193 pounds. 2 It s hard to fight someone from three weight classes above you. Poor little guys. 2. There was a technicality in the fine print: If one combatant fell off the elevated platform three times in a single round, his opponent won by default. I decided to use this technicality as my principal technique and push people off. As you might imagine, this did not make the judges the happiest Chinese I ve ever seen. The result? I won all of my matches by technical knock-out (TKO) and went home national champion, something 99 of those with 5 10 years of experience had been unable to do. But, isn t pushing people out of the ring pushing the boundaries of ethics? Not at all it s no more than doing the uncommon within the rules. The important distinction is that between official rules and self-imposed rules. Consider the following example, from the official website of the Olympic movement (www.olympic.org). The 1968 Mexico City Olympics marked the international debut of Dick Fosbury and his celebrated Fosbury flop, which would soon revolutionize high-jumping. At the time, jumpers swung their outside foot up and over the bar called the straddle, much like a hurdle jump, it allowed you to land on your feet . Fosbury s technique began by racing up to the bar at great speed and taking off from his right (or outside) foot. Then he twisted his body so that he went over the bar head-first with his back to the bar. While the coaches of the world shook their heads in disbelief, the Mexico City audience was absolutely captivated by Fosbury and shouted, Ol ! as he cleared the bar. Fosbury cleared every height through 2.22 metres without a miss and then achieved a personal record of 2.24 metres to win the gold medal. By 1980, 13 of the 16 Olympic finalists were using the Fosbury flop. The weight-cutting techniques and off-platform throwing I used are now standard features of Sanshou competition. I didn t cause it, I just foresaw it as inevitable, as did others who tested this superior approach. Now it s par for the course. Sports evolve when sacred cows are killed, when basic assumptions are tested. The same is true in life and in lifestyles. Challenging the Status Quo vs. Being Stupid Most people walk down the street on their legs. Does that mean I walk down the street on my hands? Do I wear my underwear outside of my pants in the name of being different? Not usually, no. Then again, walking on my legs and keeping my thong on the inside have worked just fine thus far. I don t fix it if it isn t broken. Different is better when it is more effective or more fun. If everyone is defining a problem or solving it one way and the results are subpar, this is the time to ask, What if I did the opposite? Don t follow a model that doesn t work. If the recipe sucks, it doesn t matter how good a cook you are. When I was in data storage sales, my first gig out of college, I realized that most cold calls didn t get to the intended person for one reason: gatekeepers. If I simply made all my calls from 8:00 8:30 A.M. and 6:00 6:30 P.M., for a total of one hour, I was able to avoid secretaries and book more than twice as many meetings as the senior sales executives who called from 9 5. In other words, I got twice the results for 1 8 the time. From Japan to Monaco, from globetrotting single mothers to multimillionaire racecar drivers, the basic rules of successful NR are surprisingly uniform and predictably divergent from what the rest of the world is doing. The following rules are the fundamental differentiators to keep in mind throughout this book. 1. Retirement Is Worst-Case-Scenario Insurance. Retirement planning is like life insurance. It should be viewed as nothing more than a hedge against the absolute worst-case scenario: in this case, becoming physically incapable of working and needing a reservoir of capital to survive. Retirement as a goal or final redemption is flawed for at least three solid reasons: 1. It is predicated on the assumption that you dislike what you are doing during the most physically capable years of your life. This is a nonstarter nothing can justify that sacrifice. 2. Most people will never be able to retire and maintain even a hotdogs-for-dinner standard of living. Even one million is chump change in a world where traditional retirement could span 30 years and inflation lowers your purchasing power 2 4 per year. The math doesn t work. 3 The golden years become lower-middle-class life revisited. That s a bittersweet ending. 3. If the math does work, it means that you are one ambitious, hardworking machine. If that s the case, guess what? One week into retirement, you ll be so damn bored that you ll want to stick bicycle spokes in your eyes. You ll probably opt to look for a new job or start another company. Kinda defeats the purpose of waiting, doesn t it? I m not saying don t plan for the worst case I have maxed out 401(k)s and IRAs I use primarily for tax purposes but don t mistake retirement for the goal. 2. Interest and Energy Are Cyclical. If I offered you 10,000,000 to work 24 hours a day for 15 years and then retire, would you do it? Of course not you couldn t. It is unsustainable, just as what most define as a career: doing the same thing for 8 hours per day until you break down or have enough cash to permanently stop. How else can my 30-year-old friends all look like a cross between Donald Trump and Joan Rivers? It s horrendous premature aging fueled by triple bypass frappuccinos and impossible workloads. Alternating periods of activity and rest is necessary to survive, let alone thrive. Capacity, interest, and mental endurance all wax and wane. Plan accordingly. The NR aims to distribute mini-retirements throughout life instead of hoarding the recovery and enjoyment for the fool s gold of retirement. By working only when you are most effective, life is both more productive and more enjoyable. It s the perfect example of having your cake and eating it, too. Personally, I now aim for one month of overseas relocation or high-intensity learning (tango, fighting, whatever) for every two months of work projects. 3. Less Is Not Laziness. Doing less meaningless work, so that you can focus on things of greater personal importance, is NOT laziness. This is hard for most to accept, because our culture tends to reward personal sacrifice instead of personal productivity. Few people choose to (or are able to) measure the results of their actions and thus measure their contribution in time. More time equals more self-worth and more reinforcement from those above and around them. The NR, despite fewer hours in the office, produce more meaningful results than the next dozen non-NR combined. Let s define laziness anew to endure a non-ideal existence, to let circumstance or others decide life for you, or to amass a fortune while passing through life like a spectator from an office window. The size of your bank account doesn t change this, nor does the number of hours you log in handling unimportant e-mail or minutiae. Focus on being productive instead of busy. 4. The Timing Is Never Right. I once asked my mom how she decided when to have her first child, little ol me. The answer was simple: It was something we wanted, and we decided there was no point in putting it off. The timing is never right to have a baby. And so it is. For all of the most important things, the timing always sucks. Waiting for a good time to quit your job? The stars will never align and the traffic lights of life will never all be green at the same time. The universe doesn t conspire against you, but it doesn t go out of its way to line up all the pins either. Conditions are never perfect. Someday is a disease that will take your dreams to the grave with you. Pro and con lists are just as bad. If it s important to you and you want to do it eventually, just do it and correct course along the way. 5. Ask for Forgiveness, Not Permission. If it isn t going to devastate those around you, try it and then justify it. People whether parents, partners, or bosses deny things on an emotional basis that they can learn to accept after the fact. If the potential damage is moderate or in any way reversible, don t give people the chance to say no. Most people are fast to stop you before you get started but hesitant to get in the way if you re moving. Get good at being a troublemaker and saying sorry when you really screw up. 6. Emphasize Strengths, Don t Fix Weaknesses. Most people are good at a handful of things and utterly miserable at most. I am great at product creation and marketing but terrible at most of the things that follow. My body is designed to lift heavy objects and throw them, and that s it. I ignored this for a long time. I tried swimming and looked like a drowning monkey. I tried basketball and looked like a caveman. Then I became a fighter and took off. It is far more lucrative and fun to leverage your strengths instead of attempting to fix all the chinks in your armor. The choice is between multiplication of results using strengths or incremental improvement fixing weaknesses that will, at of constant repair. 7. Things in Excess Become Their Opposite. It is possible to have too much of a good thing. In excess, most endeavors and possessions take on the characteristics of their opposite. Thus: Pacifists become militants. Freedom fighters become tyrants. Blessings become curses. Help becomes hindrance. More becomes less. 4 Too much, too many, and too often of what you want becomes what you don t want. This is true of possessions and even time. Lifestyle Design is thus not interested in creating an excess of idle time, which is poisonous, but the positive use of free time, defined simply as doing what you want as opposed to what you feel obligated to do. 8. Money Alone Is Not the Solution. There is much to be said for the power of money as currency (I m a fan myself), but adding more of it just isn t the answer as often as we d like to think. In part, it s laziness. If only I had more money is the easiest way to postpone the intense self-examination and decision-making necessary to create a life of enjoyment now and not later. By using money as the scapegoat and work as our all-consuming routine, we are able to conveniently disallow ourselves the time to do otherwise: John, I d love to talk about the gaping void I feel in my life, the hopelessness that hits me like a punch in the eye every time I start my computer in the morning, but I have so much work to do! I ve got at least three hours of unimportant e-mail to reply to before calling the prospects who said no yesterday. Gotta run! Busy yourself with the routine of the money wheel, pretend it s the fix-all, and you artfully create a constant distraction that prevents you from seeing just how pointless it is. Deep down, you know it s all an illusion, but with everyone participating in the same game of make-believe, it s easy to forget. The problem is more than money. 9. Relative Income Is More Important Than Absolute Income. Among dietitians and nutritionists, there is some debate over the value of a calorie. Is a calorie a calorie, much like a rose is a rose? Is fat loss as simple as expending more calories than you consume, or is the source of those calories important? Based on work with top athletes, I know the answer to be the latter. What about income? Is a dollar is a dollar is a dollar? The New Rich don t think so. Let s look at this like a fifth-grade math problem. Two hardworking chaps are headed toward each other. Chap A moving at 80 hours per week and Chap B moving at 10 hours per week. They both make 50,000 per year. Who will be richer when they pass in the middle of the night? If you said B, you would be correct, and this is the difference between absolute and relative income. Absolute income is measured using one holy and inalterable variable: the raw and almighty dollar. Jane Doe makes 100,000 per year and is thus twice as rich as John Doe, who makes 50,000 per year. Relative income uses two variables: the dollar and time, usually hours. The whole per year concept is arbitrary and makes it easy to trick yourself. Let s look at the real trade. Jane Doe makes 100,000 per year, 2,000 for each of 50 weeks per year, and works 80 hours per week. Jane Doe thus makes 25 per hour. John Doe makes 50,000 per year, 1,000 for each of 50 weeks per year, but works 10 hours per week and hence makes 100 per hour. In relative income, John is four times richer. Of course, relative income has to add up to the minimum amount necessary to actualize your goals. If I make 100 per hour but only work one hour per week, it s going to be hard for me to run amuck like a superstar. Assuming that the total absolute income is where it needs to be to live my dreams (not an arbitrary point of comparison with the Joneses), relative income is the real measurement of wealth for the New Rich. The top New Rich mavericks make at least 5,000 per hour. Out of college, I started at about 5. I ll get you closer to the former. 10. Distress Is Bad, Eustress Is Good. Unbeknownst to most fun-loving bipeds, not all stress is bad. Indeed, the New Rich don t aim to eliminate all stress. Not in the least. There are two separate types of stress, each as different as euphoria and its seldom-mentioned opposite, dysphoria. Distress refers to harmful stimuli that make you weaker, less confident, and less able. Destructive criticism, abusive bosses, and smashing your face on a curb are examples of this. These are things we want to avoid. Eustress, on the other hand, is a word most of you have probably never heard. Eu-, a Greek prefix for healthy, is used in the same sense in the word euphoria. Role models who push us to exceed our limits, physical training that removes our spare tires, and risks that expand our sphere of comfortable action are all examples of eustress stress that is healthful and the stimulus for growth. People who avoid all criticism fail. It s destructive criticism we need to avoid, not criticism in all forms. Similarly, there is no progress without eustress, and the more eustress we can create or apply to our lives, the sooner we can actualize our dreams. The trick is telling the two apart. The New Rich are equally aggressive in removing distress and finding eustress. Q A: QUESTIONS AND ACTIONS 1. How has being realistic or responsible kept you from the life you want? 2. How has doing what you should resulted in subpar experiences or regret for not having done something else? 3. Look at what you re currently doing and ask yourself, What would happen if I did the opposite of the people around me? What will I sacrifice if I continue on this track for 5, 10, or 20 years? 2. Most people will assume this type of weight manipulation is impossible, so I ve provided sample photographs at www.fourhourblog.com. Do NOT try this at home. I did it all under medical supervision. 3. Living Well (Barron s, March 20, 2006, Suzanne McGee). 4. Goldian VandenBroeck, ed. From Less Is More: An Anthology of Ancient and Modern Voices Raised in Praise of Simplicity (Inner Traditions, 1996). Dodging Bullets FEAR-SETTING AND ESCAPING PARALYSIS Many a false step was made by standing still. FORTUNE COOKIE Named must your fear be before banish it you can. YODA, from Star Wars: The Empire Strikes Back RIO DE JANEIRO, BRAZIL Twenty feet and closing. Run! Ruuuuuuuuuun! Hans didn t speak Portuguese, but the meaning was clear enough haul ass. His sneakers gripped firmly on the jagged rock, and he drove his chest forward toward 3,000 feet of nothing. He held his breath on the final step, and the panic drove him to near unconsciousness. His vision blurred at the edges, closing to a single pinpoint of light, and then he floated. The all-consuming celestial blue of the horizon hit his visual field an instant after he realized that the thermal updraft had caught him and the wings of the paraglider. Fear was behind him on the mountaintop, and thousands of feet above the resplendent green rain forest and pristine white beaches of Copacabana, Hans Keeling had seen the light. That was Sunday. On Monday, Hans returned to his law office in Century City, Los Angeles s posh corporate haven, and promptly handed in his three-week notice. For nearly five years, he had faced his alarm clock with the same dread: I have to do this for another 40 45 years? He had once slept under his desk at the office after a punishing half-done project, only to wake up and continue on it the next morning. That same morning, he had made himself a promise: two more times and I m out of here. Strike number three came the day before he left for his Brazilian vacation. We all make these promises to ourselves, and Hans had done it before as well, but things were now somehow different. He was different. He had realized something while arcing in slow circles toward the earth risks weren t that scary once you took them. His colleagues told him what he expected to hear: He was throwing it all away. He was an attorney on his way to the top what the hell did he want? Hans didn t know exactly what he wanted, but he had tasted it. On the other hand, he did know what bored him to tears, and he was done with it. No more passing days as the living dead, no more dinners where his colleagues compared cars, riding on the sugar high of a new BMW purchase until someone bought a more expensive Mercedes. It was over. Immediately, a strange shift began Hans felt, for the first time in a long time, at peace with himself and what he was doing. He had always been terrified of plane turbulence, as if he might die with the best inside of him, but now he could fly through a violent storm sleeping like a baby. Strange indeed. More than a year later, he was still getting unsolicited job offers from law firms, but by then had started Nexus Surf, 5 a premier surf-adventure company based in the tropical paradise of Florianopolis, Brazil. He had met his dream girl, a Carioca with caramel-colored skin named Tatiana, and spent most of his time relaxing under palm trees or treating clients to the best times of their lives. Is this what he had been so afraid of? These days, he often sees his former self in the underjoyed and overworked professionals he takes out on the waves. Waiting for the swell, the true emotions come out: God, I wish I could do what you do. His reply is always the same: You can. The setting sun reflects off the surface of the water, providing a Zen-like setting for a message he knows is true: It s not giving up to put your current path on indefinite pause. He could pick up his law career exactly where he left off if he wanted to, but that is the furthest thing from his mind. As they paddle back to shore after an awesome session, his clients get ahold of themselves and regain their composure. They set foot on shore, and reality sinks its fangs in: I would, but I can t really throw it all away. He has to laugh. The Power of Pessimism: Defining the Nightmare Action may not always bring happiness, but there is no happiness without action. BENJAMIN DISRAELI, former British Prime Minister To door not to do? To try or not to try? Most people will vote no, whether they consider themselves brave or not. Uncertainty and the prospect of failure can be very scary noises in the shadows. Most people will choose unhappiness over uncertainty. For years, I set goals, made resolutions to change direction, and nothing came of either. I was just as insecure and scared as the rest of the world. The simple solution came to me accidentally four years ago. At that time, I had more money than I knew what to do with I was making 70K or so per month and I was completely miserable, worse than ever. I had no time and was working myself to death. I had started my own company, only to realize it would be nearly impossible to sell. 6 Oops. I felt trapped and stupid at the same time. I should be able to figure this out, I thought. Why am I such an idiot? Why can t I make this work?! Buckle up and stop being such a (insert expletive)! What s wrong with me? The truth was, nothing was wrong with me. I hadn t reached my limit; I d reached the limit of my business model at the time. It wasn t the driver, it was the vehicle. Critical mistakes in its infancy would never let me sell it. I could hire magic elves and connect my brain to a supercomputer it didn t matter. My little baby had some serious birth defects. The question then became, How do I free myself from this Frankenstein while making it self-sustaining? How do I pry myself from the tentacles of workaholism and the fear that it would fall to pieces without my 15-hour days? How do I escape this self-made prison? A trip, I decided. A sabbatical year around the world. So I took the trip, right? Well, I ll get to that. First, I felt it prudent to dance around with my shame, embarrassment, and anger for six months, all the while playing an endless loop of reasons why my copout fantasy trip could never work. One of my more productive periods, for sure. Then, one day, in my bliss of envisioning how bad my future suffering would be, I hit upon a gem of an idea. It was surely a highlight of my don t happy, be worry phase: Why don t I decide exactly what my nightmare would be the worst thing that could possibly happen as a result of my trip? Well, my business could fail while I m overseas, for sure. Probably would. A legal warning letter would accidentally not get forwarded and I would get sued. My business would be shut down, and inventory would spoil on the shelves while I m picking my toes in solitary misery on some cold shore in Ireland. Crying in the rain, I imagine. My bank account would crater by 80 and certainly my car and motorcycle in storage would be stolen. I suppose someone would probably spit on my head from a highrise balcony while I m feeding food scraps to a stray dog, which would then spook and bite me squarely on the face. God, life is a cruel, hard bitch. Conquering Fear Defining Fear Set aside a certain number of days, during which you shall be content with the scantiest and cheapest fare, with course and rough dress, saying to yourself the while: Is this the condition that I feared? SENECA Then a funny thing happened. In my undying quest to make myself miserable, I accidentally began to backpedal. As soon as I cut through the vague unease and ambiguous anxiety by defining my nightmare, the worst-case scenario, I wasn t as worried about taking a trip. Suddenly, I started thinking of simple steps I could take to salvage my remaining resources and get back on track if all hell struck at once. I could always take a temporary bartending job to pay the rent if I had to. I could sell some furniture and cut back on eating out. I could steal lunch money from the kindergarteners who passed by my apartment every morning. The options were many. I realized it wouldn t be that hard to get back to where I was, let alone survive. None of these things would be fatal not even close. Mere panty pinches on the journey of life. I realized that on a scale of 1 10, 1 being nothing and 10 being permanently life-changing, my socalled worst-case scenario might have a temporary impact of 3 or 4. I believe this is true of most people and most would-be holy sh t, my life is over disasters. Keep in mind that this is the one-in-a-million disaster nightmare. On the other hand, if I realized my best-case scenario, or even a probable-case scenario, it would easily have a permanent 9 or 10 positive life-changing effect. In other words, I was risking an unlikely and temporary 3 or 4 for a probable and permanent 9 or 10, and I could easily recover my baseline workaholic prison with a bit of extra work if I wanted to. This all equated to a significant realization: There was practically no risk, only huge life-changing upside potential, and I could resume my previous course without any more effort than I was already putting forth. That is when I made the decision to take the trip and bought a one-way ticket to Europe. I started planning my adventures and eliminating my physical and psychological baggage. None of my disasters came to pass, and my life has been a near fairy tale since. The business did better than ever, and I practically forgot about it as it financed my travels around the world in style for 15 months. Uncovering Fear Disguised as Optimism There s no difference between a pessimist who says, Oh, it s hopeless, so don t bother doing anything, and an optimist who says, Don t bother doing anything, it s going to turn out fine anyway. Either way, nothing happens. YVON CHOUINARD, 7 founder of Patagonia Fear comes in many forms, and we usually don t call it by its four-letter name. Fear itself is quite fearinducing. Most intelligent people in the world dress it up as something else: optimistic denial. Most who avoid quitting their jobs entertain the thought that their course will improve with time or increases in income. This seems valid and is a tempting hallucination when a job is boring or uninspiring instead of pure hell. Pure hell forces action, but anything less can be endured with enough clever rationalization. Do you really think it will improve or is it wishful thinking and an excuse for inaction? If you were confident in improvement, would you really be questioning things so? Generally not. This is fear of the unknown disguised as optimism. Are you better off than you were one year ago, one month ago, or one week ago? If not, things will not improve by themselves. If you are kidding yourself, it is time to stop and plan for a jump. Barring any James Dean ending, your life is going to be LONG. Nine to five for your working lifetime of 40 50 years is a long-ass time if the rescue doesn t come. About 500 months of solid work. How many do you have to go? It s probably time to cut your losses. Someone Call the Ma tre D You have comfort. You don t have luxury. And don t tell me that money plays a part. The luxury I advocate has nothing to do with money. It cannot be bought. It is the reward of those who have no fear of discomfort. JEAN COCTEAU, French poet, novelist, boxing manager, and filmmaker, whose collaborations were the inspiration for the term surrealism Sometimes timing is perfect. There are hundreds of cars circling a parking lot, and someone pulls out of a spot 10 feet from the entrance just as you reach his or her bumper. Another Christmas miracle! Other times, the timing could be better. The phone rings during sex and seems to ring for a half hour. The UPS guy shows up 10 minutes later. Bad timing can spoil the fun. Jean-Marc Hachey landed in West Africa as a volunteer, with high hopes of lending a helping hand. In that sense, his timing was great. He arrived in Ghana in the early 1980s, in the middle of a coup d tat, at the peak of hyperinflation, and just in time for the worst drought in a decade. For these same reasons, some people would consider his timing quite poor from a more selfish survival standpoint. He had also missed the memo. The national menu had changed, and they were out of luxuries like bread and clean water. He would be surviving for four months on a slushlike concoction of corn meal and spinach. Not what most of us would order at the movie theater. WOW, I CAN SURVIVE. Jean-Marc had passed the point of no return, but it didn t matter. After two weeks of adjusting to the breakfast, lunch, and dinner (Mush la Ghana), he had no desire to escape. The most basic of foods and good friends proved to be the only real necessities, and what would seem like a disaster from the outside was the most life-affirming epiphany he d ever experienced: The worst really wasn t that bad. To enjoy life, you don t need fancy nonsense, but you do need to control your time and realize that most things just aren t as serious as you make them out to be. Now 48, Jean-Marc lives in a nice home in Ontario, but could live without it. He has cash, but could fall into poverty tomorrow and it wouldn t matter. Some of his fondest memories still include nothing but friends and gruel. He is dedicated to creating special moments for himself and his family and is utterly unconcerned with retirement. He s already lived 20 years of partial retirement in perfect health. Don t save it all for the end. There is every reason not to. Q A: QUESTIONS AND ACTIONS I am an old man and have known a great many troubles, but most of them never happened. MARK TWAIN If you are nervous about making the jump or simply putting it off out of fear of the unknown, here is your antidote. Write down your answers, and keep in mind that thinking a lot will not prove as fruitful or as prolific as simply brain vomiting on the page. Write and do not edit aim for volume. Spend a few minutes on each answer. 1. Define your nightmare, the absolute worst that could happen if you did what you are considering. What doubt, fears, and what-ifs pop up as you consider the big changes you can or need to make? Envision them in painstaking detail. Would it be the end of your life? What would be the permanent impact, if any, on a scale of 1 10? Are these things really permanent? How likely do you think it is that they would actually happen? 2. What steps could you take to repair the damage or get things back on the upswing, even if temporarily? Chances are, it s easier than you imagine. How could you get things back under control? 3. What are the outcomes or benefits, both temporary and permanent, of more probable scenarios? Now that you ve defined the nightmare, what are the more probable or definite positive outcomes, whether internal (confidence, self-esteem, etc.) or external? What would the impact of these more-likely outcomes be on a scale of 1 10? How likely is it that you could produce at least a moderately good outcome? Have less intelligent people done this before and pulled it off? 4. If you were fired from your job today, what would you do to get things under financial control? Imagine this scenario and run through questions 1 3 above. If you quit your job to test other options, how could you later get back on the same career track if you absolutely had to? 5. What are you putting off out of fear? Usually, what we most fear doing is what we most need to do. That phone call, that conversation, whatever the action might be it is fear of unknown outcomes that prevents us from doing what we need to do. Define the worst case, accept it, and do it. I ll repeat something you might consider tattooing on your forehead: What we fear doing most is usually what we most need to do. As I have heard said, a person s success in life can usually be measured by the number of uncomfortable conversations he or she is willing to have. Resolve to do one thing every day that you fear. I got into this habit by attempting to contact celebrities and famous businesspeople for advice. 6. What is it costing you financially, emotionally, and physically to postpone action? Don t only evaluate the potential downside of action. It is equally important to measure the atrocious cost of inaction. If you don t pursue those things that excite you, where will you be in one year, five years, and ten years? How will you feel having allowed circumstance to impose itself upon you and having allowed ten more years of your finite life to pass doing what you know will not fulfill you? If you telescope out 10 years and know with 100 certainty that it is a path of disappointment and regret, and if we define risk as the likelihood of an irreversible negative outcome, inaction is the greatest risk of all. 7. What are you waiting for? If you cannot answer this without resorting to the previously rejected concept of good timing, the answer is simple: You re afraid, just like the rest of the world. Measure the cost of inaction, realize the unlikelihood and re-pairability of most missteps, and develop the most important habit of those who excel and enjoy doing so: action. 5. www.nexussurf.com 6. This turned out to be yet another self-imposed limitation and false construct. BrainQUICKEN was acquired by a private equity firm in 2009. The process is described on www.fourhourblog.com. 7. http: www.tpl.org tier3 cd.cfm?content item id 5307 folder id 1545. System Reset BEING UNREASONABLE AND UNAMBIGUOUS Would you tell me, please, which way I ought to go from here? That depends a good deal on where you want to get to, said the Cat. I don t much care where said Alice. Then it doesn t matter which way you go, said the Cat. LEWIS CARROLL, Alice in Wonderland The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. GEORGE BERNARD SHAW, Maxims for Revolutionists SPRING 2005 PRINCETON , NEW JERSEY I had to bribe them. What other choice did I have? They formed a circle around me, and, while the names differed, the question was one and the same: What s the challenge? All eyes were on me. My lecture at Princeton University had just ended with excitement and enthusiasm. At the same time, I knew that most students would go out and promptly do the opposite of what I preached. Most of them would be putting in 80-hour weeks as high-paid coffee fetchers unless I showed that the principles from class could actually be applied. Hence the challenge. I was offering a round-trip ticket anywhere in the world to anyone who could complete an undefined challenge in the most impressive fashion possible. Results plus style. I told them to meet me after class if interested, and here they were, nearly 20 out of 60 students. The task was designed to test their comfort zones while forcing them to use some of the tactics I teach. It was simplicity itself: Contact three seemingly impossible-to-reach people J.Lo, Bill Clinton, J. D. Salinger, I don t care and get at least one to reply to three questions. Of 20 students, all frothing at the mouth to win a free spin across the globe, how many completed the challenge? Exactly none. Not a one. There were many excuses: It s not that easy to get someone to I have a big paper due, and I would love to, but there s no way I can . There was but one real reason, however, repeated over and over again in different words: It was a difficult challenge, perhaps impossible, and the other students would outdo them. Since all of them overestimated the competition, no one even showed up. According to the rules I had set, if someone had sent me no more than an illegible one-paragraph response, I would have been obligated to give them the prize. This result both fascinated and depressed me. The following year, the outcome was quite different. I told the above cautionary tale and 6 out of 17 finished the challenge in less than 48 hours. Was the second class better? No. In fact, there were more capable students in the first class, but they did nothing. Firepower up the wazoo and no trigger finger. The second group just embraced what I told them before they started, which was Doing the Unrealistic Is Easier Than Doing the Realistic From contacting billionaires to rubbing elbows with celebrities the second group of students did both it s as easy as believing it can be done. It s lonely at the top. Ninety-nine percent of people in the world are convinced they are incapable of achieving great things, so they aim for the mediocre. The level of competition is thus fiercest for realistic goals, paradoxically making them the most time-and energy-consuming. It is easier to raise 1,000,000 than it is 100,000. It is easier to pick up the one perfect 10 in the bar than the five 8s. If you are insecure, guess what? The rest of the world is, too. Do not overestimate the competition and underestimate yourself. You are better than you think. Unreasonable and unrealistic goals are easier to achieve for yet another reason. Having an unusually large goal is an adrenaline infusion that provides the endurance to overcome the inevitable trials and tribulations that go along with any goal. Realistic goals, goals restricted to the average ambition level, are uninspiring and will only fuel you through the first or second problem, at which point you throw in the towel. If the potential payoff is mediocre or average, so is your effort. I ll run through walls to get a catamaran trip through the Greek islands, but I might not change my brand of cereal for a weekend trip through Columbus, Ohio. If I choose the latter because it is realistic, I won t have the enthusiasm to jump even the smallest hurdle to accomplish it. With beautiful, crystal-clear Greek waters and delicious wine on the brain, I m prepared to do battle for a dream that is worth dreaming. Even though their difficulty of achievement on a scale of 1 10 appears to be a 10 and a 2 respectively, Columbus is more likely to fall through. The fishing is best where the fewest go, and the collective insecurity of the world makes it easy for people to hit home runs while everyone else is aiming for base hits. There is just less competition for bigger goals. Doing big things begins with asking for them properly. What Do You Want? A Better Question, First of All Most people will never know what they want. I don t know what I want. If you ask me what I want to do in the next five months for language learning, on the other hand, I do know. It s a matter of specificity. What do you want? is too imprecise to produce a meaningful and actionable answer. Forget about it. What are your goals? is similarly fated for confusion and guesswork. To rephrase the question, we need to take a step back and look at the bigger picture. Let s assume we have 10 goals and we achieve them what is the desired outcome that makes all the effort worthwhile? The most common response is what I also would have suggested five years ago: happiness. I no longer believe this is a good answer. Happiness can be bought with a bottle of wine and has become ambiguous through overuse. There is a more precise alternative that reflects what I believe the actual objective is. Bear with me. What is the opposite of happiness? Sadness? No. Just as love and hate are two sides of the same coin, so are happiness and sadness. Crying out of happiness is a perfect illustration of this. The opposite of love is indifference, and the opposite of happiness is here s the clincher boredom. Excitement is the more practical synonym for happiness, and it is precisely what you should strive to chase. It is the cure-all. When people suggest you follow your passion or your bliss, I propose that they are, in fact, referring to the same singular concept: excitement. This brings us full circle. The question you should be asking isn t, What do I want? or What are my goals? but What would excite me? Adult-Onset ADD: Adventure Deficit Disorder Somewhere between college graduation and your second job, a chorus enters your internal dialogue: Be realistic and stop pretending. Life isn t like the movies. If you re five years old and say you want to be an astronaut, your parents tell you that you can be anything you want to be. It s harmless, like telling a child that Santa Claus exists. If you re 25 and announce you want to start a new circus, the response is different: Be realistic; become a lawyer or an accountant or a doctor, have babies, and raise them to repeat the cycle. If you do manage to ignore the doubters and start your own business, for example, ADD doesn t disappear. It just takes a different form. When I started BrainQUICKEN LLC in 2001, it was with a clear goal in mind: Make 1,000 per day whether I was banging my head on a laptop or cutting my toenails on the beach. It was to be an automated source of cash flow. If you look at my chronology, it is obvious that this didn t happen until a meltdown forced it, despite the requisite income. Why? The goal wasn t specific enough. I hadn t defined alternate activities that would replace the initial workload. Therefore, I just continued working, even though there was no financial need. I needed to feel productive and had no other vehicles. This is how most people work until death: I ll just work until I have X dollars and then do what I want. If you don t define the what I want alternate activities, the X figure will increase indefinitely to avoid the fear-inducing uncertainty of this void. This is when both employees and entrepreneurs become fat men in red BMWs. The Fat Man in the Red BMW Convertible There have been several points in my life among them, just before I was fired from TrueSAN and just before I escaped the U.S. to avoid taking an Uzi into McDonald s at which I saw my future as another fat man in a midlife-crisis BMW. I simply looked at those who were 15 20 years ahead of me on the same track, whether a director of sales or an entrepreneur in the same industry, and it scared the hell out of me. It was such an acute phobia, and such a perfect metaphor for the sum of all fears, that it became a pattern interrupt between myself and fellow lifestyle designer and entrepreneur Douglas Price. Doug and I traveled parallel paths for nearly five years, facing the same challenges and self-doubt and thus keeping a close psychological eye on each other. Our down periods seem to alternate, making us a good team. Whenever one of us began to set our sights lower, lose faith, or accept reality, the other would chime in via phone or e-mail like an A A sponsor: Dude, are you turning into the bald fat man in the red BMW convertible? The prospect was terrifying enough that we always got our asses and priorities back on track immediately. The worst that could happen wasn t crashing and burning, it was accepting terminal boredom as a tolerable status quo. Remember boredom is the enemy, not some abstract failure. Correcting Course: Get Unrealistic There is a process that I have used, and still use, to reignite life or correct course when the Fat Man in the BMW rears his ugly head. In some form or another, it is the same process used by the most impressive NR I have met around the world: dreamlining. Dreamlining is so named because it applies timelines to what most would consider dreams. It is much like goal-setting but differs in several fundamental respects: 1. The goals shift from ambiguous wants to defined steps. 2. The goals have to be unrealistic to be effective. 3. It focuses on activities that will fill the vacuum created when work is removed. Living like a millionaire requires doing interesting things and not just owning enviable things. Now it s your turn to think big. How to Get George Bush Sr. or the CEO of Google on the Phone The article below, titled Fail Better and written by Adam Gottesfeld, explores how I teach Princeton students to connect with luminary-level business mentors and celebrities of various types. I ve edited it for length in a few places. People are fond of using the it s not what you know, it s who you know adage as an excuse for inaction, as if all successful people are born with powerful friends. Nonsense. Here s how normal people build supernormal networks. Fail Better BY ADAM GOTTESFELD MOST PRINCETON students love to procrastinate in writing their dean s date term papers. Ryan Marrinan 07, from Los Angeles, was no exception. But while the majority of undergraduates fill their time by updating their Facebook profiles or watching videos on YouTube, Marrinan was discussing Soto Zen Buddhism via e-mail with Randy Komisar, a partner at the venture capital firm Kleiner Perkins Caufield and Byers, and asking Google CEO Eric Schmidt via e-mail when he had been happiest in his life. (Schmidt s answer: Tomorrow. ) Prior to his e-mail, Marrinan had never contacted Komisar. He had met Schmidt, a Princeton University trustee, only briefly at an academic affairs meeting of the trustees in November. A selfdescribed naturally shy kid, Marrinan said he would never have dared to randomly e-mail two of the most powerful men in Silicon Valley if it weren t for Tim Ferriss, who offered a guest lecture in Professor Ed Zschau s High-Tech Entrepreneurship class. Ferriss challenged Marrinan and his fellow seniors to contact high-profile celebrities and CEOs and get their answers to questions they have always wanted to ask. For extra incentive, Ferriss promised the student who could contact the most hard-to-reach name and ask the most intriguing question a round-trip plane ticket anywhere in the world. I believe that success can be measured in the number of uncomfortable conversations you re willing to have. I felt that if I could help students overcome the fear of rejection with cold-calling and cold e- mail, it would serve them forever, Ferriss said. It s easy to sell yourself short, but when you see classmates getting responses from people like former president George Bush, the CEOs of Disney, Comcast, Google, and HP, and dozens of other impossible-to-reach people, it forces you to reconsider your self-set limitations. Ferriss lectures to the students of High-Tech Entrepreneurship each semester about creating a startup and designing the ideal lifestyle. I participate in this contest every day, said Ferriss. I do what I always do: find a personal e-mail if possible, often through their little-known personal blogs, send a two- to three-paragraph e-mail which explains that I am familiar with their work, and ask one simple-to-answer but thought-provoking question in that e-mail related to their work or life philosophies. The goal is to start a dialogue so they take the time to answer future e-mails not to ask for help. That can only come after at least three or four genuine e-mail exchanges. With textbook execution of the Tim Ferriss Technique, as he put it, Marrinan was able to strike up a bond with Komisar. In his initial e-mail, he talked about reading one of Komisar s Harvard Business Review articles and feeling inspired to ask him, When were you happiest in your life? After Komisar replied with references to Tibetan Buddhism, Marrinan responded, Just as words are inadequate to explain true happiness, so too are words inadequate to express my thanks. His e-mail included his personal translation of a French poem by Taisen Deshimaru, the former European head of Soto Zen. An e-mail relationship was formed, and Komisar even e-mailed Marrinan a few days later with a link to a New York Times article on happiness. Contacting Schmidt proved more challenging. For Marrinan, the toughest part was getting Schmidt s personal e-mail address. He e-mailed a Princeton dean asking for it. No response. Two weeks later, he e- mailed the same dean again, defending his request by reminding her that he had previously met Schmidt. The dean said no, but Marrinan refused to give up. He e-mailed her a third time. Have you ever made an exception? he asked. The dean finally gave in, he said, and provided him with Schmidt s e-mail. I know some of my classmates pursued the alternative scattershot technique with some success, but that s not my bag, Marrinan said, explaining his perseverance. I deal with rejection by persisting, not by taking my business elsewhere. My maxim comes from Samuel Beckett, a personal hero of mine: Ever tried. Ever failed. No matter. Try again. Fail again. Fail better. You won t believe what you can accomplish by attempting the impossible with the courage to repeatedly fail better. Nathan Kaplan, another participant in the contest, was most proud of the way that he was able to contact former Newark mayor Sharpe James. Because James had made a campaign contribution to Al Sharpton, the website www.fundrace.org listed James s home address. Kaplan then input James s address into an online serach-by-address phone directory, through which he received the former mayor s phone number. Kaplan left a message for James, and a few days later finally got to ask him about childhood education. Ferriss is proud of the effort students have put into his contest. Most people can do absolutely aweinspiring things, he said. Sometimes they just need a little nudge. Q A: QUESTIONS AND ACTIONS The existential vacuum manifests itself mainly in a state of boredom. VIKTOR FRANKL, Auschwitz survivor and founder of Logotherapy, Man s Search for Meaning Life is too short to be small. BENJAMIN DISRAELI Dreamlining will be fun, and it will be hard. The harder it is, the more you need it. To save time, I recommend using the automatic calculators and forms at www.fourhourblog.com. Refer to the model worksheet as you complete the following steps: 1. What would you do if there were no way you could fail? If you were 10 times smarter than the rest of the world? Create two timelines 6 months and 12 months and list up to five things you dream of having (including, but not limited to, material wants: house, car, clothing, etc.), being (be a great cook, be fluent in Chinese, etc.), and doing (visiting Thailand, tracing your roots overseas, racing ostriches, etc.) in that order. If you have difficulty identifying what you want in some categories, as most will, consider what you hate or fear in each and write down the opposite. Do not limit yourself, and do not concern yourself with how these things will be accomplished. For now, it s unimportant. This is an exercise in reversing repression. Be sure not to judge or fool yourself. If you really want a Ferrari, don t put down solving world hunger out of guilt. For some, the dream will be fame, for others fortune or prestige. All people have their vices and insecurities. If something will improve your feeling of self-worth, put it down. I have a racing motorcycle, and quite apart from the fact that I love speed, it just makes me feel like a cool dude. There is nothing wrong with that. Put it all down. 2. Drawing a blank? For all their bitching about what s holding them back, most people have a lot of trouble coming up with the defined dreams they re being held from. This is particularly true with the doing category. In that case, consider these questions: 1. What would you do, day to day, if you had 100 million in the bank? 2. What would make you most excited to wake up in the morning to another day? Don t rush think about it for a few minutes. If still blocked, fill in the five doing spots with the following: one place to visit one thing to do before you die (a memory of a lifetime) one thing to do daily one thing to do weekly one thing you ve always wanted to learn 3. What does being entail doing? Convert each being into a doing to make it actionable. Identify an action that would characterize this state of being or a task that would mean you had achieved it. People find it easier to brainstorm being first, but this column is just a temporary holding spot for doing actions. Here are a few examples: Great cook make Christmas dinner without help Fluent in Chinese have a five-minute conversation with a Chinese co-worker 4. What are the four dreams that would change it all? Using the 6-month timeline, star or otherwise highlight the four most exciting and or important dreams from all columns. Repeat the process with the 12-month timeline if desired. 5. Determine the cost of these dreams and calculate your Target Monthly Income (TMI) for both timelines. If financeable, what is the cost per month for each of the four dreams (rent, mortgage, payment plan installments, etc.)? Start thinking of income and expense in terms of monthly cash flow dollars in and dollars out instead of grand totals. Things often cost much, much less than expected. For example, a Lamborghini Gallardo Spyder, fresh off the showroom floor at 260,000, can be had for 2,897.80 per month. I found my personal favorite, an Aston Martin DB9 with 1,000 miles on it, through eBay for 136,000 2,003.10 per month. How about a Round-the-World trip (Los Angeles Tokyo Singapore Bangkok Delhi or Bombay London Frankfurt Los Angeles) for 1,399? For some of these costs, the Tools and Tricks at the end of Chapter 14 will help. Last, calculate your Target Monthly Income (TMI) for realizing these dreamlines. This is how to do it: First, total each of the columns A, B, and C, counting only the four selected dreams. Some of these column totals could be zero, which is fine. Next, add your total monthly expenses x 1.3 (the 1.3 represents your expenses plus a 30 buffer for safety or savings). This grand total is your TMI and the target to keep in mind for the rest of the book. I like to further divide this TMI by 30 to get my TDI Target Daily Income. I find it easier to work with a daily goal. Online calculators on our companion site do all the work for you and make this step a cinch. Chances are that the figure is lower than expected, and it often decreases over time as you trade more and more having for once-in-a-lifetime doing. Mobility encourages this trend. Even if the total is intimidating, don t fret in the least. I have helped students get to more than 10,000 per month in extra income within three months. Sample Dreamline Dreamline (Go to www.fourhourblog.com for larger printable worksheets and online calculators.) Dreamline Math Another Good Option There could be a different way of handling monthly and one-time goals. I ll use your example of an Aston Martin s monthly payment, a personal assistant s monthly payment, and a trip to the Croatian coast. While the first two should certainly be totaled and included in your target monthly income, the trip is something that should be divided by the number of months between now and the dreamline s total time. Thus if you had a six-month dreamline: Aston Martin 2,003 per month Personal assistant 400 per month Croatian trip 934 total, and thus 934 6 per month Right now in the book and in the spreadsheet we have (2003 400 934) x 1.3 monthly expenses Target Monthly Income (or TMI). But I think it should be (2003 400 934 6 x 1.3 monthly expenses TMI. Or, more generally: Monthly Goals (One-Time Goals Total Months) x 1.3 monthly expenses TMI. JARED , president, SET Consulting 6. Determine three steps for each of the four dreams in just the 6-month timeline and take the first step now. I m not a big believer in long-term planning and far-off goals. In fact, I generally set 3-month and 6- month dreamlines. The variables change too much and in-the-future distance becomes an excuse for postponing action. The objective of this exercise isn t, therefore, to outline every step from start to finish, but to define the end goal, the required vehicle to achieve them (TMI, TDI), and build momentum with critical first steps. From that point, it s a matter of freeing time and generating the TMI, which the following chapters cover. First, let s focus on those critical first steps. Define three steps for each dream that will get you closer to its actualization. Set actions simple, well-defined actions for now, tomorrow (complete before 11 A.M.) and the day after (again completed before 11 A.M.). Once you have three steps for each of the four goals, complete the three actions in the now column. Do it now. Each should be simple enough to do in five minutes or less. If not, rachet it down. If it s the middle of the night and you can t call someone, do something else now, such as send an e-mail, and set the call for first thing tomorrow. If the next stage is some form of research, get in touch with someone who knows the answer instead of spending too much time in books or online, which can turn into paralysis by analysis. The best first step, the one I recommend, is finding someone who s done it and ask for advice on how to do the same. It s not hard. Other options include setting a meeting or phone call with a trainer, mentor, or salesperson to build momentum. Can you schedule a private class or a commitment that you ll feel bad about canceling? Use guilt to your advantage. Tomorrow becomes never. No matter how small the task, take the first step now! COMFORT CHALLENGE The most important actions are never comfortable. Fortunately, it is possible to condition yourself to discomfort and overcome it. I ve trained myself to propose solutions instead of ask for them, to elicit desired responses instead of react, and to be assertive without burning bridges. To have an uncommon lifestyle, you need to develop the uncommon habit of making decisions, both for yourself and for others. From this chapter forward, I ll take you through progressively more uncomfortable exercises, simple and small. Some of the exercises will appear deceptively easy and even irrelevant (such as the next) until you try them. Look at it as a game and expect some butterflies and sweat that s the whole point. For most of these exercises, the duration is two days. Mark the exercise of the day on your calendar so you don t forget, and don t attempt more than one Comfort Challenge at a time. Remember: There is a direct correlation between an increased sphere of comfort and getting what you want. Here we go. Learn to Eye Gaze (2 days) My friend Michael Ellsberg invented a singles event called Eye Gazing. It is similar to speed dating but different in one fundamental respect no speaking is permitted. It involves gazing into the eyes of each partner for three minutes at a time. If you go to such an event, it becomes clear how uncomfortable most people are doing this. For the next two days, practice gazing into the eyes of others whether people you pass on the street or conversational partners until they break contact. Hints: 1. Focus on one eye and be sure to blink occasionally so you don t look like a psychopath or get your ass kicked. 2. In conversation, maintain eye contact when you are speaking. It s easy to do while listening. 3. Practice with people bigger or more confident than yourself. If a passerby asks you what the hell you re staring at, just smile and respond, Sorry about that. I thought you were an old friend of mine. Step II: E is for Elimination One does not accumulate but eliminate . It is not daily increase but daily decrease. The height of cultivation always runs to simplicity . BRUCE LEE The End of Time Management ILLUSIONS AND ITALIANS Perfection is not when there is no more to add, but no more to take away. ANTOINE DE SAINT-EXUP RY, pioneer of international postal flight and author of Le Petit Prince (The Little Prince) It is vain to do with more what can be done with less. WILLIAM OF OCCAM (1300 1350), originator of Occam s Razor Just a few words on time management: Forget all about it. In the strictest sense, you shouldn t be trying to do more in each day, trying to fill every second with a work fidget of some type. It took me a long time to figure this out. I used to be very fond of the resultsby-volume approach. Being busy is most often used as a guise for avoiding the few critically important but uncomfortable actions. The options are almost limitless for creating busyness : You could call a few hundred unqualified sales leads, reorganize your Outlook contacts, walk across the office to request documents you don t really need, or fuss with your BlackBerry for a few hours when you should be prioritizing. In fact, if you want to move up the ladder in most of corporate America, and assuming they don t really check what you are doing (let s be honest), just run around the office holding a cell phone to your head and carrying papers. Now, that is one busy employee! Give them a raise. Unfortunately for the NR, this behavior won t get you out of the office or put you on an airplane to Brazil. Bad dog. Hit yourself with a newspaper and cut it out. After all, there is a far better option, and it will do more than simply increase your results it will multiply them. Believe it or not, it is not only possible to accomplish more by doing less, it is mandatory. Enter the world of elimination. How You Will Use Productivity Now that you have defined what you want to do with your time, you have to free that time. The trick, of course, is to do so while maintaining or increasing your income. The intention of this chapter, and what you will experience if you follow the instructions, is an increase in personal productivity between 100 and 500 . The principles are the same for both employees and entrepreneurs, but the purpose of this increased productivity is completely different. First, the employee. The employee is increasing productivity to increase negotiating leverage for two simultaneous objectives: pay raises and a remote working arrangement. Recall that, as indicated in the first chapter of this book, the general process of joining the New Rich is D-E-A-L, in that order, but that employees intent on remaining employees for now need to implement the process as D-E-L-A. The reason relates to environment. They need to Liberate themselves from the office environment before they can work ten hours a week, for example, because the expectation in that environment is that you will be in constant motion from 9 5. Even if you produce twice the results you had in the past, if you re working a quarter of the hours of your colleagues, there is a good chance of receiving a pink slip. Even if you work 10 hours a week and produce twice the results of people working 40, the collective request will be, Work 40 hours a week and produce 8 times the results. This is an endless game and one you want to avoid. Hence the need for Liberation first. If you re an employee, this chapter will increase your value and make it more painful for the company to fire you than to grant raises and a remote working agreement. That is your goal. Once the latter is accomplished, you can drop hours without bureaucratic interference and use the resultant free time to fulfill dreamlines. The entrepreneur s goals are less complex, as he or she is generally the direct beneficiary of increased profit. The goal is to decrease the amount of work you perform while increasing revenue. This will set the stage for replacing yourself with Automation, which in turn permits Liberation. For both tracks, some definitions are in order. Being Effective vs. Being Efficient Effectiveness is doing the things that get you closer to your goals. Efficiency is performing a given task (whether important or not) in the most economical manner possible. Being efficient without regard to effectiveness is the default mode of the universe. I would consider the best door-to-door salesperson efficient that is, refined and excellent at selling door-to-door without wasting time but utterly ineffective. He or she would sell more using a better vehicle such as e-mail or direct mail. This is also true for the person who checks e-mail 30 times per day and develops an elaborate system of folder rules and sophisticated techniques for ensuring that each of those 30 brain farts moves as quickly as possible. I was a specialist at such professional wheel-spinning. It is efficient on some perverse level, but far from effective. Here are two truisms to keep in mind: 1. Doing something unimportant well does not make it important. 2. Requiring a lot of time does not make a task important. From this moment forward, remember this: What you do is infinitely more important than how you do it. Efficiency is still important, but it is useless unless applied to the right things. To find the right things, we ll need to go to the garden. Pareto and His Garden: 80 20 and Freedom from Futility What gets measured gets managed. PETER DRUCKER, management theorist, author of 31 books, recipient of Presidential Medal of Freedom Four years ago, an economist changed my life forever. It s a shame I never had a chance to buy him a drink. My dear Vilfredo died almost 100 years ago. Vilfredo Pareto was a wily and controversial economist-cum-sociologist who lived from 1848 to 1923. An engineer by training, he started his varied career managing coal mines and later succeeded L on Walras as the chair of political economy at the University of Lausanne in Switzerland. His seminal work, Cours d economie politique, included a then little-explored law of income distribution that would later bear his name: Pareto s Law or the Pareto Distribution, in the last decade also popularly called the 80 20 Principle. The mathematical formula he used to demonstrate a grossly uneven but predictable distribution of wealth in society 80 of the wealth and income was produced and possessed by 20 of the population also applied outside of economics. Indeed, it could be found almost everywhere. Eighty percent of Pareto s garden peas were produced by 20 of the peapods he had planted, for example. Pareto s Law can be summarized as follows: 80 of the outputs result from 20 of the inputs. Alternative ways to phrase this, depending on the context, include: 80 of the consequences flow from 20 of the causes. 80 of the results come from 20 of the effort and time. 80 of company profits come from 20 of the products and customers. 80 of all stock market gains are realized by 20 of the investors and 20 of an individual portfolio. The list is infinitely long and diverse, and the ratio is often skewed even more severely: 90 10, 95 5, and 99 1 are not uncommon, but the minimum ratio to seek is 80 20. When I came across Pareto s work one late evening, I had been slaving away with 15-hour days seven days per week, feeling completely overwhelmed and generally helpless. I would wake up before dawn to make calls to the United Kingdom, handle the U.S. during the normal 9 5 day, and then work until near midnight making calls to Japan and New Zealand. I was stuck on a runaway freight train with no brakes, shoveling coal into the furnace for lack of a better option. Faced with certain burnout or giving Pareto s ideas a trial run, I opted for the latter. The next morning, I began a dissection of my business and personal life through the lenses of two questions: 1. Which 20 of sources are causing 80 of my problems and unhappiness? 2. Which 20 of sources are resulting in 80 of my desired outcomes and happiness? For the entire day, I put aside everything seemingly urgent and did the most intense truth-baring analysis possible, applying these questions to everything from my friends to customers and advertising to relaxation activities. Don t expect to find you re doing everything right the truth often hurts. The goal is to find your inefficiencies in order to eliminate them and to find your strengths so you can multiply them. In the 24 hours that followed, I made several simple but emotionally difficult decisions that literally changed my life forever and enabled the lifestyle I now enjoy. The first decision I made is an excellent example of how dramatic and fast the ROI of this analytical fat-cutting can be: I stopped contacting 95 of my customers and fired 2 , leaving me with the top 3 of producers to profile and duplicate. Out of more than 120 wholesale customers, a mere 5 were bringing in 95 of the revenue. I was spending 98 of my time chasing the remainder, as the aforementioned 5 ordered regularly without any follow-up calls, persuasion, or cajoling. In other words, I was working because I felt as though I should be doing something from 9 5. I didn t realize that working every hour from 9 5 isn t the goal; it s simply the structure most people use, whether it s necessary or not. I had a severe case of work-for-work (W4W), the most-hated acronym in the NR vocabulary. All, and I mean 100 , of my problems and complaints came from this unproductive majority, with the exception of two large customers who were simply world-class experts of the here is the fire I started, now you put it out approach to business. I put all of these unproductive customers on passive mode: If they ordered, great let them fax in the order. If not, I would do absolutely no chasing: no phone calls, no e-mail, nothing. That left the two larger customers to deal with, who were professional ball breakers but contributed about 10 to the bottom line at the time. You ll always have a few of these, and it is a quandary that causes all sorts of problems, not the least of which are self-hatred and depression. Up to that point, I had taken their browbeating, insults, timeconsuming arguments, and tirades as a cost of doing business. I realized during the 80 20 analysis that these two people were the source of nearly all my unhappiness and anger throughout the day, and it usually spilled over into my personal time, keeping me up at night with the usual I should have said X, Y, and Z to that penis self-flagellation. I finally concluded the obvious: The effect on my self-esteem and state of mind just wasn t worth the financial gain. I didn t need the money for any precise reason, and I had assumed I needed to take it. The customers are always right, aren t they? Part of doing business, right? Hell, no. Not for the NR, anyway. I fired their asses and enjoyed every second of it. The first conversation went like this: Customer: What the ? I ordered two cases and they arrived two days late. Note: He had sent the order to the wrong person via the wrong medium, despite repeated reminders. You guys are the most disorganized bunch of idiots I ve ever worked with. I have 20 years of experience in this industry, and this is the worst. Any NR in this case, me: I will kill you. Be afraid, be very afraid. I wish. I did rehearse that a million times in my mental theater, but it actually went something more like this: I m sorry to hear that. You know, I ve been taking your insults for a while now, and it s unfortunate that it seems we won t be able to do business anymore. I d recommend you take a good look at where this unhappiness and anger is actually coming from. In any case, I wish you well. If you would like to order product, we ll be happy to supply it, but only if you can conduct yourself without profanity and unnecessary insults. You have our fax number. All the best and have a nice day. Click. I did this once via phone and once through e-mail. So what happened? I lost one customer, but the other corrected course and simply faxed orders, again and again and again. Problem solved, minimum revenue lost. I was immediately 10 times happier. I then identified the common characteristics of my top-five customers and secured three or so similarly profiled buyers in the following week. Remember, more customers is not automatically more income. More customers is not the goal and often translates into 90 more housekeeping and a paltry 1 3 increase in income. Make no mistake, maximum income from minimal necessary effort (including minimum number of customers) is the primary goal. I duplicated my strengths, in this case my top producers, and focused on increasing the size and frequency of their orders. The end result? I went from chasing and appeasing 120 customers to simply receiving large orders from 8, with absolutely no pleading phone calls or e-mail haranguing. My monthly income increased from 30K to 60K in four weeks and my weekly hours immediately dropped from over 80 to approximately 15. Most important, I was happy with myself and felt both optimistic and liberated for the first time in over two years. In the ensuing weeks, I applied the 80 20 Principle to dozens of areas, including the following: 1. Advertising I identified the advertising that was generating 80 or more of revenue, identified the commonalities among them, and multiplied them, eliminating all the rest at the same time. My advertising costs dropped over 70 and my direct sales income nearly doubled from a monthly 15K to 25K in 8 weeks. It would have doubled immediately had I been using radio, newspapers, or television instead of magazines with long lead times. 2. Online Affiliates and Partners I fired more than 250 low-yield online affiliates or put them in holding patterns to focus instead on the two affiliates who were generating 90 of the income. My management time decreased from 5 10 hours per week to 1 hour per month. Online partner income increased more than 50 in that same month. Slow down and remember this: Most things make no difference. Being busy is a form of laziness lazy thinking and indiscriminate action. Being overwhelmed is often as unproductive as doing nothing, and is far more unpleasant. Being selective doing less is the path of the productive. Focus on the important few and ignore the rest. Of course, before you can separate the wheat from the chaff and eliminate activities in a new environment (whether a new job or an entrepreneurial venture), you will need to try a lot to identify what pulls the most weight. Throw it all up on the wall and see what sticks. That s part of the process, but it should not take more than a month or two. It s easy to get caught in a flood of minutiae, and the key to not feeling rushed is remembering that lack of time is actually lack of priorities. Take time to stop and smell the roses, or in this case to count the pea pods. The 9 5 Illusion and Parkinson s Law I saw a bank that said 24-Hour Banking, but I don t have that much time. STEVEN WRIGHT, comedian If you re an employee, spending time on nonsense is, to some extent, not your fault. There is often no incentive to use time well unless you are paid on commission. The world has agreed to shuffle papers between 9:00 A.M. and 5:00 P.M., and since you re trapped in the office for that period of servitude, you are compelled to create activities to fill that time. Time is wasted because there is so much time available. It s understandable. Now that you have the new goal of negotiating a remote work arrangement instead of just collecting a paycheck, it s time to revisit the status quo and become effective. The best employees have the most leverage. For the entrepreneur, the wasteful use of time is a matter of bad habit and imitation. I am no exception. Most entrepreneurs were once employees and come from the 9 5 culture. Thus they adopt the same schedule, whether or not they function at 9:00 A.M. or need 8 hours to generate their target income. This schedule is a collective social agreement and a dinosaur legacy of the results-by-volume approach. How is it possible that all the people in the world need exactly 8 hours to accomplish their work? It isn t. 9 5 is arbitrary. You don t need 8 hours per day to become a legitimate millionaire let alone have the means to live like one. Eight hours per week is often excessive, but I don t expect all of you to believe me just yet. I know you probably feel as I did for a long time: There just aren t enough hours in the day. But let s consider a few things we can probably agree on. Since we have 8 hours to fill, we fill 8 hours. If we had 15, we would fill 15. If we have an emergency and need to suddenly leave work in 2 hours but have pending deadlines, we miraculously complete those assignments in 2 hours. It is all related to a law that was introduced to me by Ed Zschau in the spring of 2000. I had arrived to class nervous and unable to concentrate. The final paper, worth a full 25 of the semester s grade, was due in 24 hours. One of the options, and that which I had chosen, was to interview the top executives of a start-up and provide an in-depth analysis of their business model. The corporate powers that be had decided last minute that I couldn t interview two key figures or use their information due to confidentiality issues and pre-IPO precautions. Game over. I approached Ed after class to deliver the bad news. Ed, I think I m going to need an extension on the paper. I explained the situation, and Ed smiled before he replied without so much as a hint of concern. I think you ll be OK. Entrepreneurs are those who make things happen, right? Twenty-four hours later and one minute before the deadline, as his assistant was locking the office, I handed in a 30-page final paper. It was based on a different company I had found, interviewed, and dissected with an intense all-nighter and enough caffeine to get an entire Olympic track team disqualified. It ended up being one of the best papers I d written in four years, and I received an A. Before I left the classroom the previous day, Ed had given me some parting advice: Parkinson s Law. Parkinson s Law dictates that a task will swell in (perceived) importance and complexity in relation to the time allotted for its completion. It is the magic of the imminent deadline. If I give you 24 hours to complete a project, the time pressure forces you to focus on execution, and you have no choice but to do only the bare essentials. If I give you a week to complete the same task, it s six days of making a mountain out of a molehill. If I give you two months, God forbid, it becomes a mental monster. The end product of the shorter deadline is almost inevitably of equal or higher quality due to greater focus. This presents a very curious phenomenon. There are two synergistic approaches for increasing productivity that are inversions of each other: 1. Limit tasks to the important to shorten work time (80 20). 2. Shorten work time to limit tasks to the important (Parkinson s Law). The best solution is to use both together: Identify the few critical tasks that contribute most to income and schedule them with very short and clear deadlines. If you haven t identified the mission-critical tasks and set aggressive start and end times for their completion, the unimportant becomes the important. Even if you know what s critical, without deadlines that create focus, the minor tasks forced upon you (or invented, in the case of the entrepreneur) will swell to consume time until another bit of minutiae jumps in to replace it, leaving you at the end of the day with nothing accomplished. How else could dropping off a package at UPS, setting a few appointments, and checking e-mail consume an entire 9 5 day? Don t feel bad. I spent months jumping from one interruption to the next, feeling run by my business instead of the other way around. THE 80 20 PRINCIPLE and Parkinson s Law are the two cornerstone concepts that will be revisited in different forms throughout this entire section. Most inputs are useless and time is wasted in proportion to the amount that is available. Fat-free performance and time freedom begins with limiting intake overload. In the next chapter, we ll put you on the real breakfast of champions: the Low-Information Diet. Love of bustle is not industry. SENECA A Dozen Cupcakes and One Question MOUNTAIN VIEW, CALIFORNIA. Saturdays are my days off, I offered to the crowd of strangers staring at me, friends of a friend. It was true. Can you eat All-Bran and chicken seven days a week? Me neither. Don t be so judgmental. Between my tenth and twelfth cupcakes, I plopped down on the couch to revel in the sugar high until the clock struck midnight and sent me back to my adultsville Sunday Friday diet. There was another party guest seated next to me on a chair, nursing a glass of wine, not his twelfth but certainly not his first, and we struck up a conversation. As usual, I had to struggle to answer What do you do? and, as usual, my answer left someone to wonder whether I was a pathological liar or a criminal. How was it possible to spend so little time on income generation? It s a good question. It s THE question. In almost all respects, Charney had it all. He was happily married with a two-year-old son and another due to arrive in three months. He was a successful technology salesman, and though he wanted to earn 500,000 more per year as all do, his finances were solid. He also asked good questions. I had just returned from another trip overseas and was planning a new adventure to Japan. He drilled me for two hours with a refrain: How is it possible to spend so little time on income generation? If you re interested, we can make you a case study and I ll show you how, I offered. Charney was in. The one thing he didn t have was time. One e-mail and five weeks of practice later, Charney had good news: He had accomplished more in the last week than he had in the previous four combined. He did so while taking Monday and Friday off and spending at least 2 more hours per day with his family. From 40 hours per week, he was down to 18 and producing four times the results. Was it from mountaintop retreats and secret kung fu training? Nope. Was it a new Japanese management secret or better software? Nein. I just asked him to do one simple thing consistently without fail. At least three times per day at scheduled times, he had to ask himself the following question: Am I being productive or just active? Charney captured the essence of this with less-abstract wording: Am I inventing things to do to avoid the important? He eliminated all of the activities he used as crutches and began to focus on demonstrating results instead of showing dedication. Dedication is often just meaningless work in disguise. Be ruthless and cut the fat. It is possible to have your cupcake and eat it, too. Q A: QUESTIONS AND ACTIONS We create stress for ourselves because you feel like you have to do it. You have to. I don t feel that anymore. OPRAH WINFREY, actress and talk-show host, The Oprah Winfrey Show The key to having more time is doing less, and there are two paths to getting there, both of which should be used together: (1) Define a to-do list and (2) define a not-to-do list. In general terms, there are but two questions: What 20 of sources are causing 80 of my problems and unhappiness? What 20 of sources are resulting in 80 of my desired outcome and happiness? Hypothetical cases help to get us started: 1. If you had a heart attack and had to work two hours per day, what would you do? Not five hours, not four hours, not three two hours. It s not where I want you to ultimately be, but it s a start. Besides, I can hear your brain bubbling already: That s ridiculous. Impossible! I know, I know. If I told you that you could survive for months, functioning quite well, on four hours of sleep per night, would you believe me? Probably not. Notwithstanding, millions of new mothers do it all the time. This exercise is not optional. The doctor has warned you, after triple-bypass surgery, that if you don t cut down your work to two hours per day for the first three months post-op, you will die. How would you do it? 2. If you had a second heart attack and had to work two hours per week, what would you do? 3. If you had a gun to your head and had to stop doing 4 5 of different time-consuming activities, what would you remove? Simplicity requires ruthlessness. If you had to stop of time-consuming activities e-mail, phone calls, conversations, paperwork, meetings, advertising, customers, suppliers, products, services, etc. what would you eliminate to keep the negative effect on income to a minimum? Used even once per month, this question alone can keep you sane and on track. 4. What are the top-three activities that I use to fill time to feel as though I ve been productive? These are usually used to postpone more important actions (often uncomfortable because there is a chance of failure or rejection). Be honest with yourself, as we all do this on occasion. What are your crutch activities? 5. Who are the 20 of people who produce 80 of your enjoyment and propel you forward, and which 20 cause 80 of your depression, anger, and second-guessing? Identify: Positive friends versus time-consuming friends: Who is helping versus hurting you, and how do you increase your time with the former while decreasing or eliminating your time with the latter? Who is causing me stress disproportionate to the time I spend with them? What will happen if I simply stop interacting with these people? Fear-setting helps here. When do I feel starved for time? What commitments, thoughts, and people can I eliminate to fix this problem? Exact numbers aren t needed to realize that we spend too much time with those who poison us with pessimism, sloth, and low expectations of themselves and the world. It is often the case that you have to fire certain friends or retire from particular social circles to have the life you want. This isn t being mean; it is being practical. Poisonous people do not deserve your time. To think otherwise is masochistic. The best way to approach a potential break is simple: Confide in them honestly but tactfully and explain your concerns. If they bite back, your conclusions have been confirmed. Drop them like any other bad habit. If they promise to change, first spend at least two weeks apart to develop other positive influences in your life and diminish psychological dependency. The next trial period should have a set duration and consist of pass-or-fail criteria. If this approach is too confrontational for you, just politely refuse to interact with them. Be in the middle of something when the call comes, and have a prior commitment when the invitation to hang out comes. Once you see the benefits of decreased time with these people, it will be easier to stop communication altogether. I m not going to lie: It sucks. It hurts like pulling out a splinter. But you are the average of the five people you associate with most, so do not underestimate the effects of your pessimistic, unambitious, or disorganized friends. If someone isn t making you stronger, they re making you weaker. Remove the splinters and you ll thank yourself for it. 6. Learn to ask, If this is the only thing I accomplish today, will I be satisfied with my day? Don t ever arrive at the office or in front of your computer without a clear list of priorities. You ll just read unassociated e-mail and scramble your brain for the day. Compile your to-do list for tomorrow no later than this evening. I don t recommend using Outlook or computerized to-do lists, because it is possible to add an infinite number of items. I use a standard piece of paper folded in half three times, which fits perfectly in the pocket and limits you to noting only a few items. There should never be more than two mission-critical items to complete each day. Never. It just isn t necessary if they re actually high-impact. If you are stuck trying to decide between multiple items that all seem crucial, as happens to all of us, look at each in turn and ask yourself, If this is the only thing I accomplish today, will I be satisfied with my day? To counter the seemingly urgent, ask yourself: What will happen if I don t do this, and is it worth putting off the important to do it? If you haven t already accomplished at least one important task in the day, don t spend the last business hour returning a DVD to avoid a 5 late charge. Get the important task done and pay the 5 fine. 7. Put a Post-it on your computer screen or set an Outlook reminder to alert you at least three times daily with the question: Are you inventing things to do to avoid the important? I also use free time-tracking software called RescueTime (www.rescuetime.com) to alert me when I spend more than an allotted time on certain websites or programs often used to avoid the important (Gmail, Facebook, Outlook, etc.). It also summarizes your time use each week and compares your performance to peers. 8. Do not multitask. I m going to tell you what you already know. Trying to brush your teeth, talk on the phone, and answer e-mail at the same time just doesn t work. Eating while doing online research and instant messaging? Ditto. If you prioritize properly, there is no need to multitask. It is a symptom of task creep doing more to feel productive while actually accomplishing less. As stated, you should have, at most, two primary goals or tasks per day. Do them separately from start to finish without distraction. Divided attention will result in more frequent interruptions, lapses in concentration, poorer net results, and less gratification. 9. Use Parkinson s Law on a Macro and Micro Level. Use Parkinson s Law to accomplish more in less time. Shorten schedules and deadlines to necessitate focused action instead of deliberation and procrastination. On a weekly and daily macro level, attempt to take Monday and or Friday off, as well as leave work at 4 P.M. This will focus you to prioritize more effectively and quite possibly develop a social life. If you re under the hawklike watch of a boss, we ll discuss the nuts and bolts of how to escape in later chapters. On a micro task level, limit the number of items on your to-do list and use impossibly short deadlines to force immediate action while ignoring minutiae. If doing work online or near an online computer, http: e.ggtimer.com is a convenient countdown timer. Just type the desired time limit directly into the URL field and hit enter. The http: can often be omitted. For example: http: e.ggtimer.com 5minutes (or just e.ggtimer.com 5min insomebrowsers) http: e.ggtimer.com 1hour30minutes30seconds http: e.ggtimer.com 30 (if you just put in a number, it assumes seconds) COMFORT CHALLENGE Learn to Propose (2 Days) Stop asking for opinions and start proposing solutions. Begin with the small things. If someone is going to ask, or asks, Where should we eat? What movie should we watch? What should we do tonight? or anything similar, do NOT reflect it back with, Well, what do you want to ? Offer a solution. Stop the back-and-forth and make a decision. Practice this in both personal and professional environments. Here are a few lines that help (my favorites are the first and last): Can I make a suggestion? I propose I d like to propose I suggest that What do you think? Let s try and then try something else if that doesn t work. LIFESTYLE DESIGN IN ACTION I m a musician who got your book because Derek Sivers at CD Baby recommended it. Checking Pareto s Law I realized that 78 of my downloads came from just one of my CDs and that 55 of my total download income came from only five songs! It showed me what my fans are looking for and allowed me to showcase those on my web site. Downloads are the way to go. iTunes sells the song and CD Baby direct deposits it to my account. Fully automated once the recording is done. There are some months I can live off download income. Once I finish paying off debt, it should be no problem to travel as an artist and create new fans all over the world and have a cyber income stream. VICTOR JOHNSON As for outsourcing your banking, any company that needs to take checks (cheques) should consider a lock box solution. Just about any bank that does business banking offers it. All checks go to a PO box at the bank, the bank processes the checks and deposits them, and according to your instructions can send you a file of all the checks that are deposited. Normally this can be done in either a flat, Excel or other file type that can interface with any accounting systems from Excel, to Quicken to SAP. Quite cost effective. ANONYMOUS The Low-Information Diet CULTIVATING SELECTIVE IGNORANCE What information consumes is rather obvious: it consumes the attention of its recipients. Hence, a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it. HERBERT SIMON, recipient of Nobel Memorial Prize in Economics 8 and the A.M. Turing Award, the Nobel Prize of Computer Science Reading, after a certain age, diverts the mind too much from its creative pursuits. Any man who reads too much and uses his own brain too little falls into lazy habits of thinking. ALBERT EINSTEIN I hope you re sitting down. Take that sandwich out of your mouth so you don t choke. Cover the baby s ears. I m going to tell you something that upsets a lot of people. I never watch the news and have bought one single newspaper in the last five years, in Stansted Airport in London, and only because it gave me a discount on a Diet Pepsi. I would claim to be Amish, but last time I checked, Pepsi wasn t on the menu. How obscene! I call myself an informed and responsible citizen? How do I stay up-to-date with current affairs? I ll answer all of that, but wait it gets better. I usually check business e-mail for about an hour each Monday, and I never check voicemail when abroad. Never ever. But what if someone has an emergency? It doesn t happen. My contacts now know that I don t respond to emergencies, so the emergencies somehow don t exist or don t come to me. Problems, as a rule, solve themselves or disappear if you remove yourself as an information bottleneck and empower others. Cultivating Selective Ignorance There are many things of which a wise man might wish to be ignorant. RALPH WALDO EMERSON (1803 1882) From this point forward, I m going to propose that you develop an uncanny ability to be selectively ignorant. Ignorance may be bliss, but it is also practical. It is imperative that you learn to ignore or redirect all information and interruptions that are irrelevant, unimportant, or unactionable. Most are all three. The first step is to develop and maintain a low-information diet. Just as modern man consumes both too many calories and calories of no nutritional value, information workers eat data both in excess and from the wrong sources. Lifestyle design is based on massive action output. Increased output necessitates decreased input. Most information is time-consuming, negative, irrelevant to your goals, and outside of your influence. I challenge you to look at whatever you read or watched today and tell me that it wasn t at least two of the four. I read the front-page headlines through the newspaper machines as I walk to lunch each day and nothing more. In five years, I haven t had a single problem due to this selective ignorance. It gives you something new to ask the rest of the population in lieu of small talk: Tell me, what s new in the world? And, if it s that important, you ll hear people talking about it. Using my crib notes approach to world affairs, I also retain more than someone who loses the forest for the trees in a sea of extraneous details. From an actionable information standpoint, I consume a maximum of one-third of one industry magazine (Response magazine) and one business magazine (Inc.) per month, for a grand total of approximately four hours. That s it for results-oriented reading. I read an hour of fiction prior to bed for relaxation. How on earth do I act responsibly? Let me give an example of how I and other NR both consider and obtain information. I voted in the last presidential election, 9 despite having been in Berlin. I made my decision in a matter of hours. First, I sent e-mails to educated friends in the U.S. who share my values and asked them who they were voting for and why. Second, I judge people based on actions and not words; thus, I asked friends in Berlin, who had more perspective outside of U.S. media propaganda, how they judged the candidates based on their historical behavior. Last, I watched the presidential debates. That was it. I let other dependable people synthesize hundreds of hours and thousands of pages of media for me. It was like having dozens of personal information assistants, and I didn t have to pay them a single cent. That s a simple example, you say, but what if you need to learn to do something your friends haven t done? Like, say, sell a book to the world s largest publisher as a first-time author? Funny you should ask. There are two approaches I used: 1. I picked one book out of dozens based on reader reviews and the fact that the authors had actually done what I wanted to do. If the task is how-to in nature, I only read accounts that are how I did it and autobiographical. No speculators or wannabes are worth the time. 2. Using the book to generate intelligent and specific questions, I contacted 10 of the top authors and agents in the world via e-mail and phone, with a response rate of 80 . I only read the sections of the book that were relevant to immediate next steps, which took less than two hours. To develop a template e-mail and call script took approximately four hours, and the actual e- mails and phone calls took less than an hour. This personal contact approach is not only more effective and more efficient than all-you-can-eat info buffets, it also provided me with the major league alliances and mentors necessary to sell this book. Rediscover the power of the forgotten skill called talking. It works. Once again, less is more. How to Read 200 Faster in 10 Minutes There will be times when, it s true, you will have to read. Here are four simple tips that will lessen the damage and increase your speed at least 200 in 10 minutes with no comprehension loss: 1. Two Minutes: Use a pen or finger to trace under each line as you read as fast as possible. Reading is a series of jumping snapshots (called saccades), and using a visual guide prevents regression. 2. Three Minutes: Begin each line focusing on the third word in from the first word, and end each line focusing on the third word in from the last word. This makes use of peripheral vision that is otherwise wasted on margins. For example, even when the highlighted words in the next line are your beginning and ending focal points, the entire sentence is read, just with less eye movement: Once upon a time, an information addict decided to detox. Move in from both sides further and further as it gets easier. 3. Two Minutes: Once comfortable indenting three or four words from both sides, attempt to take only two snapshots also known as fixations per line on the first and last indented words. 4. Three Minutes: Practice reading too fast for comprehension but with good technique (the above three techniques) for five pages prior to reading at a comfortable speed. This will heighten perception and reset your speed limit, much like how 50 mph normally feels fast but seems like slow motion if you drop down from 70 mph on the freeway. To calculate reading speed in words per minute (wpm) and thus progress in a given book, add up the number of words in ten lines and divide by ten to get the average words per line. Multiply this by the number of lines per page and you have the average words per page. Now it s simple. If you initially read 1.25 pages in one minute at 330 average words per page, that s 412.5 words per minute. If you then read 3.5 pages after training, it s 1,155 words per minute and you re in the top 1 of the world s fastest readers. Q A: QUESTIONS AND ACTIONS Learning to ignore things is one of the great paths to inner peace. ROBERT J. SAWYER, Calculating God 1. Go on an immediate one-week media fast. The world doesn t even hiccup, much less end, when you cut the information umbilical cord. To realize this, it s best to use the Band-Aid approach and do it quickly: a one-week media fast. Information is too much like ice cream to do otherwise. Oh, I ll just have a half a spoonful is about as realistic as I just want to jump online for a minute. Go cold turkey. If you want to go back to the 15,000-calorie potato chip information diet afterward, fine, but beginning tomorrow and for at least five full days, here are the rules: No newspapers, magazines, audiobooks, or nonmusic radio. Music is permitted at all times. No news websites whatsoever (cnn.com, drudgereport.com, msn.com, 10 etc.). No television at all, except for one hour of pleasure viewing each evening. No reading books, except for this book and one hour of fiction 11 pleasure reading prior to bed. No web surfing at the desk unless it is necessary to complete a work task for that day. Necessary means necessary, not nice to have. Unnecessary reading is public enemy number one during this one-week fast. What do you do with all the extra time? Replace the newspaper at breakfast with speaking to your spouse, bonding with your children, or learning the principles in this book. Between 9 5, complete your top priorities as per the last chapter. If you complete them with time to spare, do the exercises in this book. Recommending this book might seem hypocritical, but it s not: The information in these pages is both important and to be applied now, not tomorrow or the day after. Each day at lunch break, and no earlier, get your five-minute news fix. Ask a well-informed colleague or a restaurant waiter, Anything important happening in the world today? I couldn t get the paper today. Stop this as soon as you realize that the answer doesn t affect your actions at all. Most people won t even remember what they spent one to two hours absorbing that morning. Be strict with yourself. I can prescribe the medicine, but you need to take it. Download the Firefox web browser (www.firefox.com) and use LeechBlock to block certain sites entirely for set periods. From their site (http: www.proginosko.com leechblock.html): You can specify up to six sets of sites to block, with different times and days for each set. You can block sites within fixed time periods (e.g., between 9am and 5pm), after a time limit (e.g., 10 minutes in every hour), or with a combination of time periods and time limit (e.g., 10 minutes in every hour between 9am and 5pm). You can also set a password for access to the extension options, just to slow you down in moments of weakness! 2. Develop the habit of asking yourself, Will I definitely use this information for something immediate and important? It s not enough to use information for something it needs to be immediate and important. If no on either count, don t consume it. Information is useless if it is not applied to something important or if you will forget it before you have a chance to apply it. I used to have the habit of reading a book or site to prepare for an event weeks or months in the future, and I would then need to reread the same material when the deadline for action was closer. This is stupid and redundant. Follow your to-do short list and fill in the information gaps as you go. Focus on what digerati Kathy Sierra calls just-in-time information instead of just-in-case information. 3. Practice the art of nonfinishing. This is another one that took me a long time to learn. Starting something doesn t automatically justify finishing it. If you are reading an article that sucks, put it down and don t pick it back up. If you go to a movie and it s worse than Matrix III, get the hell out of there before more neurons die. If you re full after half a plate of ribs, put the damn fork down and don t order dessert. More is not better, and stopping something is often 10 times better than finishing it. Develop the habit of nonfinishing that which is boring or unproductive if a boss isn t demanding it. COMFORT CHALLENGE Get Phone Numbers (2 Days) Being sure to maintain eye contact, ask for the phone numbers of at least two (the more you attempt, the less stressful it will be) attractive members of the opposite sex on each day. Girls, this means you re in the game as well, and it doesn t matter if you re 50 . Remember that the real goal is not to get numbers, but to get over the fear of asking, so the outcome is unimportant. If you re in a relationship, sign up to (or pretend to) gather information for Greenpeace. Just toss the numbers if you get them. Go to a mall if you want to get some rapid-fire practice my preference for getting over the discomfort quickly and aim to ask three people in a row within five minutes. Feel free to use some variation of the following script: Excuse me. I know this is going to sound strange, but if I don t ask you now, I ll be kicking myself for the rest of the day. I m running to meet a friend i.e., I have friends and am not a stalker , but I think you re really extremely, drop-dead cute gorgeous, hot . Could I have your phone number? I m not a psycho I promise. You can give me a fake one if you re not interested. 8. Simon received the Nobel Prize in 1978 for his contribution to organizational decision making: It is impossible to have perfect and complete information at any given time to make a decision. 9. 2004 at the time this was written. 10. LOL. 11. As someone who read exclusively nonfiction for nearly 15 years, I can tell you two things: It s not productive to read two fact-based books at the same time (this is one), and fiction is better than sleeping pills for putting the happenings of the day behind you. Interrupting Interruption and the Art of Refusal Do your own thinking independently. Be the chess player, not the chess piece. RALPH CHARELL Meetings are an addictive, highly self-indulgent activity that corporations and other organizations habitually engage in only because they cannot actually masturbate. DAVE BARRY, Pulitzer Prize winning American humorist SPRING 2000, PRINCETON , NEW JERSEY 1:35 P.M. I think I understand. Moving on. In the next paragraph, it explains that I had detailed notes and didn t want to miss a single point. 3:45 P.M. OK. That makes sense, but if we look at the following example I paused for a moment midsentence. The teaching assistant had both hands on his face. Tim, let s end here for now. I ll be sure to keep these points in mind. He had had enough. Me too, but I knew I d only have to do it once. For all four years of school, I had a policy. If I received anything less than an A on the first paper or non-multiple-choice test in a given class, I would bring 2 3 hours of questions to the grader s office hours and not leave until the other had answered them all or stopped out of exhaustion. This served two important purposes: 1. I learned exactly how the grader evaluated work, including his or her prejudices and pet peeves. 2. The grader would think long and hard about ever giving me less than an A. He or she would never consider giving me a bad grade without exceptional reasons for doing so, as he or she knew I d come a knocking for another three-hour visit. Learn to be difficult when it counts. In school as in life, having a reputation for being assertive will help you receive preferential treatment without having to beg or fight for it every time. Think back to your days on the playground. There was always a big bully and countless victims, but there was also that one small kid who fought like hell, thrashing and swinging for the fences. He or she might not have won, but after one or two exhausting exchanges, the bully chose not to bother him or her. It was easier to find someone else. Be that kid. Doing the important and ignoring the trivial is hard because so much of the world seems to conspire to force crap upon you. Fortunately, a few simple routine changes make bothering you much more painful than leaving you in peace. It s time to stop taking information abuse. Not All Evils Are Created Equal For our purposes, an interruption is anything that prevents the start-to-finish completion of a critical task, and there are three principal offenders: 1. Time wasters: those things that can be ignored with little or no consequence. Common time wasters include meetings, discussions, phone calls, web surfing, and e-mail that are unimportant. 2. Time consumers: repetitive tasks or requests that need to be completed but often interrupt highlevel work. Here are a few you might know intimately: reading and responding to e-mail, making and returning phone calls, customer service (order status, product assistance, etc.), financial or sales reporting, personal errands, all necessary repeated actions and tasks. 3. Empowerment failures: instances where someone needs approval to make something small happen. Here are just a few: fixing customer problems (lost shipments, damaged shipments, malfunctions, etc.), customer contact, cash expenditures of all types. Let s look at the prescriptions for all three in turn. Time Wasters: Become an Ignoramus The best defense is a good offense. DAN GABLE, Olympic gold medalist in wrestling and the most successful coach in history; personal record: 299 6 3, with 182 pins Time wasters are the easiest to eliminate and deflect. It is a matter of limiting access and funneling all communication toward immediate action. First, limit e-mail consumption and production. This is the greatest single interruption in the modern world. 1. Turn off the audible alert if you have one on Outlook or a similar program and turn off automatic send receive, which delivers e-mail to your inbox as soon as someone sends them. 2. Check e-mail twice per day, once at 12:00 noon or just prior to lunch, and again at 4:00 P.M. 12:00 P.M. and 4:00 P.M. are times that ensure you will have the most responses from previously sent e-mail. Never check e-mail first thing in the morning. 12 Instead, complete your most important task before 11:00 A.M. to avoid using lunch or reading e-mail as a postponement excuse. LIGHT GRAY INDICATES TIME AVAILABLE FOR HIGH-PRIORITY TASKS . Courtesy of SANDIA Before implementing the twice-daily routine, you must create an e-mail autoresponse that will train your boss, co-workers, suppliers, and clients to be more effective. I would recommend that you do not ask to implement this. Remember one of our ten commandments: Beg for forgiveness; don t ask for permission. If this gives you heart palpitations, speak with your immediate supervisor and propose to trial the approach for one to three days. Cite pending projects and frustration with constant interruptions as the reasons. Feel free to blame it on spam or someone outside of the office. Here is a simple e-mail template that can be used: Greetings, Friends or Esteemed Colleagues , Due to high workload, I am currently checking and responding to e-mail twice daily at 12:00 p.m. ET or your time zone and 4:00 p.m. ET. If you require urgent assistance (please ensure it is urgent) that cannot wait until either 12:00 p.m. or 4:00 p.m., please contact me via phone at 555 555 5555. Thank you for understanding this move to more efficiency and effectiveness. It helps me accomplish more to serve you better. Tim Ferriss MOVE TO ONCE-PER-DAY as quickly as possible. Emergencies are seldom that. People are poor judges of importance and inflate minutiae to fill time and feel important. This autoresponse is a tool that, far from decreasing collective effectiveness, forces people to re-evaluate their reason for interrupting you and helps them decrease meaningless and time-consuming contact. I was initially terrified of missing important requests and inviting disaster, just as you might be upon reading this recommendation. Nothing happened. Give it a shot and work out the small bumps as you progress. For an extreme example of a personal autoresponder that has never prompted a complaint and allowed me to check e-mail once per week, send an e-mail to template fourhourworkweek.com. It has been revised over three years and works like a charm. The second step is to screen incoming and limit outgoing phone calls. 1. Use two telephone numbers if possible one office line (non urgent) and one cellular (urgent). This could also be two cell phones, or the non-urgent line could be an Internet phone number that routes calls to online voicemail (www.skype.com, for example). Use the cell number in the e-mail autoresponse and answer it at all times unless it is an unknown caller or it is a call you don t want to answer. If in doubt, allow the call to go to voicemail and listen to the voicemail immediately afterward to gauge importance. If it can wait, let it wait. The offending parties have to learn to wait. The office phone should be put on silent mode and allowed to go to voicemail at all times. The voicemail recording should sound familiar: You ve reached the desk of Tim Ferriss. I am currently checking and responding to voicemail twice daily at 12:00 p.m. ET or your time zone and 4:00 p.m. ET. If you require assistance with a truly urgent matter that cannot wait until either 12:00 p.m. or 4:00 p.m., please contact me on my cell at 555 555 5555. Otherwise, please leave a message and I will return it at the next of those two times. Be sure to leave your e-mail address, as I am often able to respond faster that way. Thank you for understanding this move to more efficiency and effectiveness. It helps me accomplish more to serve you better. Have a wonderful day. 2. If someone does call your cell phone, it is presumably urgent and should be treated as such. Do not allow them to consume time otherwise. It s all in the greeting. Compare the following: Jane (receiver):Hello? John (caller): Hi, is this Jane? Jane: This is Jane. John: Hi, Jane, it s John. Jane: Oh, hi, John. How are you? (or) Oh, hi, John. What s going on? John will now digress and lead you into a conversation about nothing, from which you will have to recover and then fish out the ultimate purpose of the call. There is a better approach: Jane: This is Jane speaking. John: Hi, it s John. Jane: Hi, John. I m right in the middle of something. How can I help you out? Potential continuation: John: Oh, I can call back. Jane: No, I have a minute. What can I do for you? Don t encourage people to chitchat and don t let them chitchat. Get them to the point immediately. If they meander or try to postpone for a later undefined call, reel them in and get them to come to the point. If they go into a long description of a problem, cut in with, Name , sorry to interrupt, but I have a call in five minutes. What can I do to help out? You might instead say, Name , sorry to interrupt, but I have a call in five minutes. Can you send me an e-mail? The third step is to master the art of refusal and avoiding meetings. THE FIRST DAY our new Sales VP arrived at TrueSAN in 2001, he came into the all-company meeting and made an announcement in just about this many words: I am not here to make friends. I have been hired to build a sales team and sell product, and that s what I intend to do. Thanks. So much for small talk. He proceeded to deliver on his promise. The office socializers disliked him for his no-nonsense approach to communication, but everyone respected his time. He wasn t rude without reason, but he was direct and kept the people around him focused. Some didn t consider him charismatic, but no one considered him anything less than spectacularly effective. I remember sitting down in his office for our first one-on-one meeting. Fresh off four years of rigorous academic training, I immediately jumped into explaining the prospect profiles, elaborate planning I d developed, responses to date, and so forth and so on. I had spent at least two hours preparing to make this first impression a good one. He listened with a smile on his face for no more than two minutes and then held up a hand. I stopped. He laughed in a kind-hearted manner and said, Tim, I don t want the story. Just tell me what we need to do. Over the following weeks, he trained me to recognize when I was unfocused or focused on the wrong things, which meant anything that didn t move the top two or three clients one step closer to signing a purchase order. Our meetings were now no more than five minutes long. From this moment forward, resolve to keep those around you focused and avoid all meetings, whether in person or remote, that do not have clear objectives. It is possible to do this tactfully, but expect that some time wasters will be offended the first few times their advances are rejected. Once it is clear that remaining on task is your policy and not subject to change, they will accept it and move on with life. Hard feelings pass. Don t suffer fools or you ll become one. It is your job to train those around you to be effective and efficient. No one else will do it for you. Here are a few recommendations: 1. Decide that, given the non-urgent nature of most issues, you will steer people toward the following means of communication, in order of preference: e-mail, phone, and in-person meetings. If someone proposes a meeting, request an e-mail instead and then use the phone as your fallback offer if need be. Cite other immediately pending work tasks as the reason. 2. Respond to voicemail via e-mail whenever possible. This trains people to be concise. Help them develop the habit. Similar to our opening greeting on the phone, e-mail communication should be streamlined to prevent needless back-and-forth. Thus, an e-mail with Can you meet at 4:00 P.M.? would become Can you meet at 4:00 P.M.? If so If not, please advise three other times that work for you. This if then structure becomes more important as you check e-mail less often. Since I only check e-mail once a week, it is critical that no one needs a what if? answered or other information within seven days of a given e-mail I send. If I suspect that a manufacturing order hasn t arrived at the shipping facility, for example, I ll send an e-mail to my shipping facility manager along these lines: Dear Susan Has the new manufacturing shipment arrived? If so, please advise me on If not, please contact John Doe at 555 5555 or via e-mail at john doe.com (he is also CC d) and advise on delivery date and tracking. John, if there are any issues with the shipment, please coordinate with Susan, reachable at 555 4444, who has the authority to make decisions up to 500 on my behalf. In case of emergency, call me on my cell phone, but I trust you two. Thanks. This prevents most follow-up questions, avoids two separate dialogues, and takes me out of the problem-solving equation. Get into the habit of considering what if then actions can be proposed in any e-mail where you ask a question. 3. Meetings should only be held to make decisions about a predefined situation, not to define the problem. If someone proposes that you meet with them or set a time to talk on the phone, ask that person to send you an e-mail with an agenda to define the purpose: That sounds doable. So I can best prepare, can you please send me an e-mail with an agenda? That is, the topics and questions we ll need to address? That would be great. Thanks in advance. Don t give them a chance to bail out. The thanks in advance before a retort increases your chances of getting the e-mail. The e-mail medium forces people to define the desired outcome of a meeting or call. Nine times out of ten, a meeting is unnecessary and you can answer the questions, once defined, via e-mail. Impose this habit on others. I haven t had an in-person meeting for my business in more than five years and have had fewer than a dozen conference calls, all lasting less than 30 minutes. 4. Speaking of 30 minutes, if you absolutely cannot stop a meeting or call from happening, define the end time. Do not leave these discussions open-ended, and keep them short. If things are well-defined, decisions should not take more than 30 minutes. Cite other commitments at odd times to make them more believable (e.g., 3:20 vs. 3:30) and force people to focus instead of socializing, commiserating, and digressing. If you must join a meeting that is scheduled to last a long time or that is open-ended, inform the organizer that you would like permission to cover your portion first, as you have a commitment in 15 minutes. If you have to, feign an urgent phone call. Get the hell out of there and have someone else update you later. The other option is to be completely transparent and voice your opinion of how unnecessary the meeting is. If you choose this route, be prepared to face fire and offer alternatives. 5. The cubicle is your temple don t permit casual visitors. Some suggest using a clear do not disturb sign of some type, but I have found that this is ignored unless you have an office. My approach was to put headphones on, even if I wasn t listening to anything. If someone approached me despite this discouragement, I would pretend to be on the phone. I d put a finger to my lips, say something like, I hear you, and then say into the mic, Can you hold on a second? Next, I d turn to the invader and say, Hi. What can I do for you? I wouldn t let them get back to me but rather force the person to give me a five-second summary and then send me an e-mail if necessary. If headphone games aren t your thing, the reflexive response to an invader should be the same as when answering the cell it s not clear within 30 seconds, ask the person to send you an e-mail about the chosen issue; do not offer to send them an e-mail first: I ll be happy to help, but I have to finish this first. Can you send me a quick e-mail to remind me? If you still cannot deflect an invader, give the person a time limit on your availability, which can also be used for phone conversations: OK, I only have two minutes before a call, but what s the situation and what can I do to help? 6. Use the Puppy Dog Close to help your superiors and others develop the no-meeting habit. The Puppy Dog Close in sales is so named because it is based on the pet store sales approach: If someone likes a puppy but is hesitant to make the life-altering purchase, just offer to let them take the pup home and bring it back if they change their minds. Of course, the return seldom happens. The Puppy Dog Close is invaluable whenever you face resistance to permanent changes. Get your foot in the door with a let s just try it once reversible trial. Compare the following: I think you d love this puppy. It will forever add to your responsibilities until he dies 10 years from now. No more care-free vacations, and you ll finally get to pick up poop all over the city what do you think? vs. Now imagine walking up to your boss in the hallway and clapping a hand on her shoulder: I d like to go to the meeting, but I have a better idea. Let s never have another one, since all we do is waste time and not decide anything useful. vs. The second set of alternatives seem less permanent, and they re intended to appear so. Repeat this routine and ensure that you achieve more outside of the meeting than the attendees do within it; repeat the disappearing act as often as possible and cite improved productivity to convert this slowly into a permanent routine change. Learn to imitate any good child: Just this once! Please!!! I promise I ll do X! Parents fall for it because kids help adults to fool themselves. It works with bosses, suppliers, customers, and the rest of the world, too. Use it, but don t fall for it. If a boss asks for overtime just this once, he or she will expect it in the future. Time Consumers: Batch and Do Not Falter A schedule defends from chaos and whim. ANNIE DILLARD, winner of Pulitzer Prize in nonfiction, 1975 If you have never used a commercial printer before, the pricing and lead times could surprise you. Let s assume it costs 310 and takes one week to print 20 customized T-shirts with 4-color logos. How much and how long does it take to print 3 of the same T-shirt? 310 and one week. How is that possible? Simple the setup charges don t change. It costs the printer the same amount in materials for plate preparation ( 150) and the same in labor to man the press itself ( 100). The setup is the real time-consumer, and thus the job, despite its small size, needs to be scheduled just like the other, resulting in the same one-week delivery date. The lower economy of scale picks up the rest: The cost for 3 shirts is 20 per shirt x 3 shirts instead of 3 per shirt x 20 shirts. The cost- and time-effective solution, therefore, is to wait until you have a larger order, an approach called batching. Batching is also the solution to our distracting but necessary time consumers, those repetitive tasks that interrupt the most important. If you check mail and make bill payments five times a week, it might take 30 minutes per instance and you respond to a total of 20 letters in two and a half hours. If you do this once per week instead, it might take 60 minutes total and you still respond to a total of 20 letters. People do the former out of fear of emergencies. First, there are seldom real emergencies. Second, of the urgent communication you will receive, missing a deadline is usually reversible and otherwise costs a minimum to correct. There is an inescapable setup time for all tasks, large or minuscule in scale. It is often the same for one as it is for a hundred. There is a psychological switching of gears that can require up to 45 minutes to resume a major task that has been interrupted. More than a quarter of each 9 5 period (28 ) is consumed by such interruptions. 13 This is true of all recurring tasks and is precisely why we have already decided to check e-mail and phone calls twice per day at specific predetermined times (between which we let them accumulate). From mid-2004 to 2007, I checked mail no more than once a week, often not for up to four weeks at a time. Nothing was irreparable, and nothing cost more than 300 to fix. This batching has saved me hundreds of hours of redundant work. How much is your time worth? Let s use a hypothetical example: 1. 20 per hour is how much you are paid or value your time. This would be the case, for example, if you are paid 40,000 per year and get two weeks of vacation per year ( 40,000 divided by 40 hours per week x 50 2,000 20 hour). Estimate your hourly income by cutting the last three zeroes off of your annual income and halving the remaining number (e.g., 50,000 year p 25 hour. 2. Estimate the amount of time you will save by grouping similar tasks together and batching them, and calculate how much you have earned by multiplying this hour number by your per-hour rate ( 20 here): 3. Test each of the above batching frequencies and determine how much problems cost to fix in each period. If the cost is less than the above dollar amounts, batch even further apart. For example, using our above math, if I check e-mail once per week and that results in an average loss of two sales per week, totaling 80 in lost profit, I will continue checking once per week because 200 (10 hours of time) minus 80 is still a 120 net gain, not to mention the enormous benefits of completing other main tasks in those 10 hours. If you calculate the financial and emotional benefit of completing just one main task (such as landing a major client or completing a life-changing trip), the value of batching is much more than the per-hour savings. If the problems cost more than hours saved, scale back to the next-less-frequent batch schedule. In this case, I would drop from once per week to twice per week (not daily) and attempt to fix the system so that I can return to once per week. Do not work harder when the solution is working smarter. I have batched both personal and business tasks further and further apart as I ve realized just how few real problems come up. Some of my scheduled batches in 2007 were e-mail (Mondays 10:00 A.M.), phone (completely eliminated), laundry (every other Sunday at 10:00 P.M.), credit cards and bills (most are on automatic payment, but I check balances every second Monday after e-mail), strength training (every 4th day for 30 minutes), etc. Empowerment Failure: Rules and Readjustment The vision is really about empowering workers, giving them all the information about what s going on so they can do a lot more than they ve done in the past. BILL GATES, cofounder of Microsoft, richest man in the world Empowerment failure refers to being unable to accomplish a task without first obtaining permission or information. It is often a case of being micromanaged or micromanaging someone else, both of which consume your time. For the employee, the goal is to have full access to necessary information and as much independent decision-making ability as possible. For the entrepreneur, the goal is to grant as much information and independent decision-making ability to employees or contractors as possible. Customer service is often the epitome of empowerment failure, and a personal example from BrainQUICKEN illustrates just how serious but easily solved the problem can be. In 2002, I had outsourced customer service for order tracking and returns but still handled product- related questions myself. The result? I received more than 200 e-mail per day, spending all hours between 9 5 responding to them, and the volume was growing at a rate of more than 10 per week! I had to cancel advertising and limit shipments, as additional customer service would have been the final nail in the coffin. It wasn t a scalable model. Remember this word, as it will be important later. It wasn t scalable because there was an information and decision bottleneck: me. The clincher? The bulk of the e-mail that landed in my inbox was not product-related at all but requests from the outsourced customer service reps seeking permission for different actions: The customer claims he didn t receive the shipment. What should we do? The customer had a bottle held at customs. Can we reship to a U.S. address? The customer needs the product for a competition in two days. Can we ship overnight, and if so, how much should we charge? It was endless. Hundreds upon hundreds of different situations made it impractical to write a manual, and I didn t have the time or experience to do so regardless. Fortunately, someone did have the experience: the outsourced reps themselves. I sent one single e- mail to all the supervisors that immediately turned 200 e-mail per day into fewer than 20 e-mail per week: Hi All, I would like to establish a new policy for my account that overrides all others. Keep the customer happy. If it is a problem that takes less than 100 to fix, use your judgment and fix it yourself. This is official written permission and a request to fix all problems that cost under 100 without contacting me. I am no longer your customer; my customers are your customer. Don t ask me for permission. Do what you think is right, and we ll make adjustments as we go along. Thank you, Tim Upon close analysis, it became clear that more than 90 of the issues that prompted e-mail could be resolved for less than 20. I reviewed the financial results of their independent decision-making on a weekly basis for four weeks, then a monthly basis, and then on a quarterly basis. It s amazing how someone s IQ seems to double as soon as you give them responsibility and indicate that you trust them. The first month cost perhaps 200 more than if I had been micromanaging. In the meantime, I saved more than 100 hours of my own time per month, customers received faster service, returns dropped to less than 3 (the industry average is 10 15 ), and outsourcers spent less time on my account, all of which resulted in rapid growth, higher profit margins, and happier people on all sides. People are smarter than you think. Give them a chance to prove themselves. If you are a micromanaged employee, have a heart-to-heart with your boss and explain that you want to be more productive and interrupt him or her less. I hate that I have to interrupt you so much and pull you away from more important things I know you have on your plate. I was doing some reading and had some thoughts on how I might be more productive. Do you have a second? Before this conversation, develop a number of rules like the previous example that would allow you to work more autonomously with less approval-seeking. The boss can review the outcome of your decisions on a daily or weekly basis in the initial stages. Suggest a one-week trial and end with I d like to try it. Does that sound like something we could try for a week? or my personal favorite, Is that reasonable? It s hard for people to label things unreasonable. Realize that bosses are supervisors, not slave masters. Establish yourself as a consistent challenger of the status quo and most people will learn to avoid challenging you, particularly if it is in the interest of higher per-hour productivity. If you are a micromanaging entrepreneur, realize that even if you can do something better than the rest of the world, it doesn t mean that s what you should be doing if it s part of the minutiae. Empower others to act without interrupting you. SET THE RULES in your favor: Limit access to your time, force people to define their requests before spending time with them, and batch routine menial tasks to prevent postponement of more important projects. Do not let people interrupt you. Find your focus and you ll find your lifestyle. The bottom line is that you only have the rights you fight for. In the next section, Automation, we ll see how the New Rich create management-free money and eliminate the largest remaining obstacle of all: themselves. Q A: QUESTIONS AND ACTIONS People think it must be fun to be a super genius, but they don t realize how hard it is to put up with all the idiots in the world. CALVIN, from Calvin and Hobbes Blaming idiots for interruptions is like blaming clowns for scaring children they can t help it. It s their nature. Then again, I had (who am I kidding and have), on occasion, been known to create interruptions out of thin air. If you re anything like me, that makes us both occasional idiots. Learn to recognize and fight the interruption impulse. This is infinitely easier when you have a set of rules, responses, and routines to follow. It is your job to prevent yourself and others from letting the unnecessary and unimportant prevent the start-to-finish completion of the important. This chapter differs from the previous in that the necessary actions, due to the inclusion of examples and templates, have been presented throughout from start to finish. This Q A will thus be a summary rather than a repetition. The devil is in the details, so be sure to reread this chapter for the specifics. The 50,000-foot review is as follows: 1. Create systems to limit your availability via e-mail and phone and deflect inappropriate contact. Get the autoresponse and voicemail script in place now, and master the various methods of evasion. Replace the habit of How are you? with How can I help you? Get specific and remember no stories. Focus on immediate actions. Set and practice interruption-killing policies. Avoid meetings whenever possible: Use e-mail instead of face-to-face meetings to solve problems. Beg-off going (this can be accomplished through the Puppy Dog Close). If meetings are unavoidable, keep the following in mind: Go in with a clear set of objectives. Set an end time or leave early. 2. Batch activities to limit setup cost and provide more time for dreamline milestones. What can I routinize by batching? That is, what tasks (whether laundry, groceries, mail, payments, or sales reporting, for example) can I allot to a specific time each day, week, month, quarter, or year so that I don t squander time repeating them more often than is absolutely necessary? 3. Set or request autonomous rules and guidelines with occasional review of results. Eliminate the decision bottleneck for all things that are nonfatal if misperformed. If an employee, believe in yourself enough to ask for more independence on a trial basis. Have practical rules prepared and ask the boss for the sale after surprising him or her with an impromptu presentation. Remember the Puppy Dog Close make it a one-time trial and reversible. For the entrepreneur or manager, give others the chance to prove themselves. The likelihood of irreversible or expensive problems is minimal and the time savings are guaranteed. Remember, profit is only profitable to the extent that you can use it. For that you need time. TOOLS AND TRICKS Eliminating Paper Distractions, Capturing Everything Evernote ( www.evernote.com ) This is perhaps the most impressive tool I ve found in the last year, introduced to me by some of the most productive technologists in the world. Evernote has eliminated more than 90 of the paper in my life and eliminated nearly all of the multiple tabs I used to leave open in web browsers, both of which distracted me to no end. It can clear out your entire office clutter in one to three hours. Evernote allows you to easily capture information from anywhere using whatever device is at hand, and everything is then searchable (read: findable) from anywhere. I use it to: Take photographs of everything I might want to remember or find later business cards, handwritten notes, wine labels, receipts, whiteboard sessions, and more. Evernote identifies the text in all of these pictures automatically, so it s all searchable(!), whether from an iPhone, your laptop, or the web. Just as one example, I can store and find the contact information from any business card in seconds (often using the built in iSight camera on Mac to capture it), rather than spending hours inputting it all into contacts or searching through e-mail for that lost phone number. It s mindnumbing how much time this saves. Scan all agreements, paper articles, etc., that would otherwise sit in file folders or on my desk. I use the Mac Fujitsu ScanSnap miniscanner ( http: bit.ly scansnapmac ), the best I ve found, which scans all of it directly to Evernote in seconds with one button. Take snapshots of websites, capturing all text and links, so that I can read them offline when traveling or doing later research. Get rid of all those scattered bookmarks, favorites, and open tabs. Screening and Avoiding Unwanted Calls GrandCentral (www.grandcentral.com) and YouMail (www.youmail.com) In a world where your physical address will change more often than your cell phone number (and e- mail), it can be disastrous if your number becomes public or gets in the wrong hands. Enter GrandCentral, which will give you a number with the area code of your choosing that then forwards to your own phone(s). I now give a GrandCentral number to anyone besides family and close friends. Some of the benefits: Identify any incoming number as unwanted, and that caller will then hear a number not in service message when attempting to call you. Customize your voicemail message to individual callers (spouse, boss, colleague, client, etc.) and listen in on messages as they re being left, so you can pick up if the message is worth the interruption. Call recording is also an option. Use an area code outside of your hometown to prevent people and companies from finding and misusing addresses you d prefer to keep private. Establish do-not-disturb hours, when calls are routed directly to voicemail with no ring. Have voicemail sent to your cell phone as SMS (text messages). YouMail, another option, can also transcribe voicemails and send them to your phone as text messages. Getting calls while stuck in a time-wasting meeting? No problem: Respond to voicemails via SMS during the meeting so you re not stuck returning calls afterward. One Shot, One Kill Scheduling Without E-mail Back-and-Forth Few things are as time-consuming as scheduling via e-mail. Person A: How about Tues. at 3 P.M.? Person B: I can make it. Person C: I have a meeting. How about Thurs.? Person D: I m on a concall. How about 10 A.M. on Fri.? Use these tools to make scheduling simple and fast instead of another part-time job. Doodle ( www.doodle.com ) The best free tool I ve found for herding cats (multiple people) for scheduling without excessive e-mail. Create and poll in 30 seconds with the proposed options and forward a link to everyone invited. Check back a few hours later and you ll have the best time for the most people. TimeDriver ( www.timedriver.com ) Let colleagues and clients self-schedule with you based on your availability, which is determined by integration with Outlook or Google Calendar. Embed a schedule now button in e-mail messages and you ll never have to tell people when you can make a call or meeting. Let them see what s open and choose. Choosing the Best E-mail Batching Times Xobni ( www.xobni.com special ) Xobni inbox spelled backwards is a free program for putting Outlook on steroids. It offers many features, but the most relevant to this chapter is its ability to identify hotspots, or periods of time when you receive the bulk of e-mail from your most important contacts. These hotspots are batching times that will enable you to keep critical contacts (clients, bosses, etc.) smiling even while you reduce checking e-mail to 1 3 times per day. It will also populate your contacts automatically by pulling phone numbers, addresses, etc., from separate e-mail buried in the inbox. E-mailing Without Entering the Black Hole of the Inbox Don t enter the black hole of the inbox off hours because you re afraid you ll forget something. Use these services instead to keep focused, whether on completing a critical project or simply enjoying the weekend. Jott ( www.jott.com ) Capture thoughts, create to-do s, and set reminders with a simple toll-free phone call. The service transcribes your message (15 30 seconds) and e-mails it to whomever you want, including yourself, or to your Google calendar for automatic scheduling. Jott also enables you to post voice message links to Twitter (www.twitter.com), Facebook (www.facebook.com), and other services that tend to consume hours if you visit the sites themselves. Copy talk ( www.copytalk.com ) Dictate any message up to four minutes and have the transcription e-mailed to you within hours. Excellent for brainstorming, and the accuracy is astounding. Preventing Web Browsing Completely Freedom ( http: www.ibiblio.org fred freedom ) Freedom is a free application that disables networking on an Apple computer for 1 480 mintues (up to eight hours) at a time. Freedom will free you from the distractions of the Internet, allowing you the focus to get real work done. Freedom enforces freedom; a reboot is the only method for turning Freedom off before the time limit you ve set for yourself. The hassle of rebooting means you re less likely to cheat, and you ll be more productive. Experiment with the software for short periods of time at first (30 60 minutes.) COMFORT CHALLENGE Revisit the Terrible Twos (2 Days) For the next two days, do as all good two-year-olds do and say no to all requests. Don t be selective. Refuse to do all things that won t get you immediately fired. Be selfish. As with the last exercise, the objective isn t an outcome in this case, eliminating just those things that waste time but the process: getting comfortable with saying no. Potential questions to decline include the following: Do you have a minute? Want to see a movie tonight tomorrow? Can you help me with X? No should be your default answer to all requests. Don t make up elaborate lies or you ll get called on them. A simple I really can t sorry; I ve got too much on my plate right now will do as a catch-all response. LIFESTYLE DESIGN IN ACTION Batching tool PO Box: This might be stating the obvious, but one easy way to encourage batching of your mail is to use a PO Box versus getting mail delivered to your house. We got our PO Box to limit access to our physical address online, but it also encourages you to get the mail less and deal with it in batch. Our post office has recycling bins, so at least 60 of the mail doesn t even come home with us. For a while I was only getting and managing the mail once a week, and I found not only did it take less time overall, I did a better job managing it and getting it out of the way versus looking at it and setting it aside for future follow up. LAURA TURNER For families, the four-hour workweek doesn t have to mean four months on a sailboat in the Caribbean unless that s their dream, but even the simple ideal of having time to take a walk in the park every evening or spending weekends together, makes taking actions to implement this program worthwhile. There are many different approaches for making this work : Kids have to promise they won t bother Mommy in the evening while she works on the computer, the husband watches the kids in the evening, both parents make plans once a week to have someone take care of the kids, etc. Then close with the huge payoff for the family of having more time to spend with each other. ADRIENNE JENKINS Why not combine a mini-retirement with dentistry (or medical) geoarbitrage and finance your trip with the savings? I lived in Thailand for four months and got root canal treatment and a crown for of the price that it costs in Australia. There are many upmarket clinics set up for expats and health travelers in Thailand, Philippines, Vietnam, Goa, etc., with English-speaking dentists. And in Europe many people go to Poland or Hungary. To research, just Google dentist and the country and you will come across practices advertising to foreigners. Talk to expats when you re in the country or on online chat forums for recommendations. Now I m in Australia I still combine my travels with annual dentist checkups and the savings often finance my airfare. Even between developed countries there are significant cost differences. For example France is far cheaper than the UK and Australia is cheaper than the U.S. Note from Tim: Learn more about the incredible world of medical tourism and geoarbitrage at http: en.wikipedia.org wiki Medical tourism. Even large insurers like AETNA often cover overseas treatments and surgeries. ANONYMOUS 12. This habit alone can change your life. It seems small but has an enormous effect. 13. Jonathan B. Spira and Joshua B. Feintuch, The Cost of Not Paying Attention: How Interruptions Impact Knowledge Worker Productivity (Basex, 2005). Step III: A is for Automation SCOTTY: She s all yours, sir. All systems automated and ready. A chimpanzee and two trainees could run her! CAPTAIN KIRK: Thank you, Mr. Scott. I ll try not to take that personally . STAR TREK Outsourcing Life OFF-LOADING THE REST AND A TASTE OF GEOARBITRAGE 14 A man is rich in proportion to the number of things he can afford to let alone. HENRY DAVID THOREAU, naturalist If I told you this story, you wouldn t believe me, so I ll let AJ tell it. It will set the stage for even more incredible things to come, all of which you will do yourself. My Outsourced Life A true account by AJ Jacobs, editor-at-large at Esquire magazine (ellipses represent passage of time between entries) IT BEGAN a month ago. I was midway through The World Is Flat, the bestseller by Tom Friedman. I like Friedman, despite his puzzling decision to wear a mustache. His book is all about how outsourcing to India and China is not just for tech support and carmakers but is poised to transform every industry in America, from law to banking to accounting. I don t have a corporation; I don t even have an up-to-date business card. I m a writer and editor working from home, usually in my boxer shorts or, if I m feeling formal, my penguin-themed pajama bottoms. Then again, I think, why should Fortune 500 firms have all the fun? Why can t I join in on the biggest business trend of the new century? Why can t I outsource my low-end tasks? Why can t I outsource my life? The next day I e-mail Brickwork, one of the companies Friedman mentions in his book. Brickwork based in Bangalore, India offers remote executive assistants, mostly to financial firms and healthcare companies that want data processed. I explain that I d like to hire someone to help with Esquire-related tasks doing research, formatting memos, like that. The company s CEO, Vivek Kulkarni, responds, It would be a great pleasure to be talking to a person of your stature. Already I m liking this. I ve never had stature before. In America, I barely command respect from a Bennigan s ma tre d , so it s nice to know that in India I have stature. A couple of days later, I get an e-mail from my new remote executive assistant. Dear Jacobs, My name is Honey K. Balani. I would be assisting you in your editorial and personal job . I would try to adapt myself as per your requirements that would lead to desired satisfaction. Desired satisfaction. This is great. Back when I worked at an office, I had assistants, but there was never any talk of desired satisfaction. In fact, if anyone ever used the phrase desired satisfaction, we d all end up in a solemn meeting with HR. I GO OUT to dinner with my friend Misha, who grew up in India, founded a software firm, and subsequently became nauseatingly rich. I tell him about Operation Outsource. You should call Your Man in India, he says. Misha explains that this is a company for Indian businessmen who have moved overseas but who still have parents back in New Delhi or Mumbai. YMII is their overseas concierge service it buys movie tickets and cell phones and other sundries for abandoned moms. Perfect. This could kick my outsourcing up to a new level. I can have a nice, clean division of labor: Honey will take care of my business affairs, and YMII can attend to my personal life pay my bills, make vacation reservations, buy stuff online. Happily, YMII likes the idea, and just like that the support team at Jacobs Inc. has doubled. HONEY HAS completed her first project for me: research on the person Esquire has chosen as the Sexiest Woman Alive. I ve been assigned to write a profile of this woman, and I really don t want to have to slog through all the heavy-breathing fan websites about her. When I open Honey s file, I have this reaction: America is f cked. There are charts. There are section headers. There is a well-organized breakdown of her pets, measurements, and favorite foods (e.g., swordfish). If all Bangalorians are like Honey, I pity Americans about to graduate college. They re up against a hungry, polite, Excel-proficient Indian army. IN FACT, in the next few days, I outsource a whole mess of online errands to Asha (from the personal service YMII): paying my bills, getting stuff from drugstore.com, finding my son a Tickle Me Elmo. (Actually, the store was out of Tickle Me Elmos, so Asha bought a Chicken Dance Elmo good decision.) I had her call Cingular to ask about my cell-phone plan. I m just guessing, but I bet her call was routed from Bangalore to New Jersey and then back to a Cingular employee in Bangalore, which makes me happy for some reason. IT S THE fourth morning of my new, farmed-out life, and when I flip on my computer, my e-mail inbox is already filled with updates from my overseas aides. It s a strange feeling having people work for you while you sleep. Strange, but great. I m not wasting time while I drool on my pillow; things are getting done. HONEY IS my protector. Consider this: For some reason, the Colorado Tourism Board e-mails me all the time. (Most recently, they informed me about a festival in Colorado Springs featuring the world s most famous harlequin.) I request that Honey gently ask them to stop with the press releases. Here s what she sent: Dear All, Jacobs often receives mails from Colorado news, too often. They are definitely interesting topics. However, these topics are not suitable for Esquire. Further, we do understand that you have taken a lot of initiatives working on these articles and sending it to us. We understand. Unfortunately, these articles and mails are too time consuming to be read. Currently, these mails are not serving right purpose for both of us. Thus, we request to stop sending these mails. We do not mean to demean your research work by this. We hope you understand too. Thanking you, Honey K B That is the best rejection notice in journalism history. It s exceedingly polite, but there s a little undercurrent of indignation. Honey seems almost outraged that Colorado would waste the valuable time of Jacobs. I DECIDE to test the next logical relationship: my marriage. These arguments with my wife are killing me partly because Julie is a much better debater than I am. Maybe Asha can do better: Hello Asha, My wife got annoyed at me because I forgot to get cash at the automatic bank machine I wonder if you could tell her that I love her, but gently remind her that she too forgets things she has lost her wallet twice in the last month. And she forgot to buy nail clippers for Jasper. AJ I can t tell you what a thrill I got from sending that note. It s pretty hard to get much more passiveaggressive than bickering with your wife via an e-mail from a subcontinent halfway around the world. The next morning, Asha CC d me on the e-mail she sent to Julie. Julie, Do understand your anger that I forgot to pick up the cash at the automatic machine. I have been forgetful and I am sorry about that. But I guess that doesn t change the fact that I love you so much . Love AJ P. S. This is Asha mailing on behalf of Mr. Jacobs. As if that weren t enough, she also sent Julie an e-card. I click on it: two teddy bears embracing, with the words, Anytime you need a hug, I ve got one for you . I m sorry. Damn! My outsourcers are too friggin nice! They kept the apology part but took out my little jabs. They are trying to save me from myself. They are superegoing my id. I feel castrated. Julie, on the other hand, seems quite pleased: That s nice, sweetie. I forgive you. DESPITE THREE weeks with my support team, I m still stressed. Perhaps it s the fault of Chicken Dance Elmo, whom my son loves to the point of dry humping, but who is driving me slowly insane. Whatever the reason, I figure it s time to conquer another frontier: outsourcing my inner life. First, I try to delegate my therapy. My plan is to give Asha a list of my neuroses and a childhood anecdote or two, have her talk to my shrink for 50 minutes, then relay the advice. Smart, right? My shrink refused. Ethics or something. Fine. Instead, I have Asha send me a meticulously researched memo on stress relief. It had a nice Indian flavor to it, with a couple of yogic postures and some visualization. This was okay, but it didn t seem quite enough. I decided I needed to outsource my worry. For the last few weeks I ve been tearing my hair out because a business deal is taking far too long to close. I asked Honey if she would be interested in tearing her hair out in my stead. Just for a few minutes a day. She thought it was a wonderful idea. I will worry about this every day, she wrote. Do not worry. The outsourcing of my neuroses was one of the most successful experiments of the month. Every time I started to ruminate, I d remind myself that Honey was already on the case, and I d relax. No joke this alone was worth it. At a Glance: Where You Will Be The future is here. It s just not widely distributed yet. WILLIAM GIBSON, author of Neuromancer; coined term cyberspace in 1984 Here is a sneak preview of full automation. I woke up this morning, and given that it s Monday, I checked my e-mail for one hour after an exquisite Buenos Aires breakfast. Sowmya from India had found a long-lost high school classmate of mine, and Anakool from YMII had put together Excel research reports for retiree happiness and the average annual hours worked in different fields. Interviews for this week had been set by a third Indian virtual assistant, who had also found contact information for the best Kendo schools in Japan and the top salsa teachers in Cuba. In the next e-mail folder, I was pleased to see that my fulfillment account manager in Tennessee, Beth, had resolved nearly two dozen problems in the last week keeping our largest clients in China and South Africa smiling and had also coordinated California sales tax filing with my accountants in Michigan. The taxes had been paid via my credit card on file, and a quick glance at my bank accounts confirmed that Shane and the rest of the team at my credit card processor were depositing more cash than last month. All was right in the world of automation. It was a beautiful sunny day, and I closed my laptop with a smile. For an all-you-can-eat buffet breakfast with coffee and orange juice, I paid 4 U.S. The Indian outsourcers cost between 4 10 U.S. per hour. My domestic outsourcers are paid on performance or when product ships. This creates a curious business phenomenon: Negative cash flow is impossible. Fun things happen when you earn dollars, live on pesos, and compensate in rupees, but that s just the beginning. But I m an Employee! How Does This Help Me? Nobody can give you freedom. Nobody can give you equality or justice or anything. If you re a man, you take it. MALCOLM X, Malcolm X Speaks Getting a remote personal assistant is a huge departure point and marks the moment that you learn how to give orders and be commander instead of the commanded. It is small-scale training wheels for the most critical of NR skills: remote management and communication. It is time to learn how to be the boss. It isn t time-consuming. It s low-cost and it s low-risk. Whether or not you need someone at this point is immaterial. It is an exercise. It is also a litmus test for entrepreneurship: Can you manage (direct and chastise) other people? Given the proper instruction and practice, I believe so. Most entrepreneurs fail because they jump into the deep end of the pool without learning to swim first. Using a virtual assistant (VA) as a simple exercise with no downside, the basics of management are covered in a 2 4-week test costing between 100 400. This is an investment, not an expense, and the ROI is astounding. It will be repaid in a maximum of 10 14 days, after which it is pure timesaving profit. Becoming a member of the NR is not just about working smarter. It s about building a system to replace yourself. This is the first exercise. Even if you have no intention of becoming an entrepreneur, this is the ultimate continuation of our 80 20 and elimination process: Preparing someone to replace you (even if it never happens) will produce an ultrarefined set of rules that will cut remaining fat and redundancy from your schedule. Lingering unimportant tasks will disappear as soon as someone else is being paid to do them. But what about the cost? This is a hurdle that is hard for most. If I can do it better than an assistant, why should I pay them at all? Because the goal is to free your time to focus on bigger and better things. This chapter is a low-cost exercise to get you past this lifestyle limiter. It is absolutely necessary that you realize that you can always do something more cheaply yourself. This doesn t mean you want to spend your time doing it. If you spend your time, worth 20 25 per hour, doing something that someone else will do for 10 per hour, it s simply a poor use of resources. It is important to take baby steps toward paying others to do work for you. Few do it, which is another reason so few people have their ideal lifestyles. Even if the cost is occasionally more per hour than you currently earn, the trade is often worth it. Let s assume you make 50,000 and thus 25 per hour (working from 9 5, Monday through Friday, for 50 weeks per year). If you pay a top-notch assistant 30 per hour and he or she saves you one full 8-hour shift per week, your cost (subtracting what you re being paid) is 40 to free an extra day. Would you pay 40 per week to work Monday to Thursday? I would, and I do. Keep in mind that this is a worst-case cost scenario. But what if your boss freaks out? It s largely a non-issue, and prevention is better than cure. There is no ethical or legal reason for the boss to know if you choose non-sensitive tasks. The first option is to assign personal items. Time is time, and if you re spending time on chores and errands that could be spent better elsewhere, a VA will improve life and the management learning curve is similar. Second, you can delegate business tasks that don t include financial information or identify your company. Ready to build an army of assistants? Let s first look at the dark side of delegation. A review is in order to prevent abuses of power and wasteful behavior. Delegation Dangers: Before Getting Started The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency. BILL GATES Have you ever been given illogical assignments, handed unimportant work, or commanded to do something in the most inefficient fashion possible? Not fun and not productive. Now it s your turn to show that you know better. Delegation is to be used as a further step in reduction, not as an excuse to create more movement and add the unimportant. Remember unless something is well-defined and important, no one should do it. Eliminate before you delegate. Never automate something that can be eliminated, and never delegate something that can be automated or streamlined. Otherwise, you waste someone else s time instead of your own, which now wastes your hard-earned cash. How s that for incentive to be effective and efficient? Now you re playing with your own dough. It s something I want you to get comfortable with, and this baby step is small stakes. Did I mention to eliminate before you delegate? For example, it is popular among executives to have assistants read e-mail. In some cases this is valuable. In my case, I use spam filters, autoresponders with FAQs, and automatic forwarding to outsourcers to limit my e-mail obligation to 10 20 e-mail responses per week. It takes me 30 minutes per week because I used systems elimination and automation to make it so. Nor do I use an assistant to set meetings and conference calls because I have eliminated meetings. If I need to set the odd 20-minute call for a given month, I ll send one two-sentence e-mail and be done with it. Principle number one is to refine rules and processes before adding people. Using people to leverage a refined process multiplies production; using people as a solution to a poor process multiplies problems. The Menu: A World of Possibilities I am not interested in picking up crumbs of compassion thrown from the table of someone who considers himself my master. I want the full menu of rights. BISHOP DESMOND TUTU, South African cleric and activist The next question then becomes, What should you delegate? It s a good question, but I don t want to answer it. I want to watch Family Guy. The truth be told, it is a hell of a lot of work writing about not working. Ritika of Brickwork and Venky of YMII are more than capable of writing this section, so I ll just mention two guidelines and leave the mental hernia of detail work to them. Golden Rule 1: Each delegated task must be both time-consuming and well-defined. If you re running around like a chicken with its head cut off and assign your VA to do that for you, it doesn t improve the order of the universe. Golden Rule 2: On a lighter note, have some fun with it. Have someone in Bangalore or Shanghai send e-mails to friends as your personal concierge to set lunch dates or similar basics. Harass your boss with odd phone calls in strong accents from unknown numbers. Being effective doesn t mean being serious all the time. It s fun being in control for a change. Get a bit of repression off your chest so it doesn t turn into a complex later. Getting Personal and Going Howard Hughes Howard Hughes, the ultrarich filmmaker and eccentric from The Aviator, was notorious for assigning odd tasks to his assistants. Here are a few from Donald Bartlett s Howard Hughes: His Life and Madness you might want to consider. 1. After his first plane crash, Hughes confided in a friend that he believed his recovery was due to his consumption of orange juice and its healing properties. He believed that exposure to the air diluted the juice s potency, so he demanded that fresh oranges be sliced and juiced in front of him. 2. When Hughes was partaking of the nightlife in Las Vegas, his aides were charged with approaching any girls he took a liking to. If a girl was invited to join the Hughes table and agreed, an aide would pull out a waiver and agreement for her to sign. 3. Hughes had a barber on call 24 7 but had his hair and nails trimmed about once a year. 4. In his hotel-bound years, Hughes was rumored to have instructed assistants to place a single cheeseburger in a specific tree outside his penthouse room at a 4:00 P.M. each day, whether he was there or not. Such a world of possibilities! Just as the Model-T brought transportation to the masses, virtual assistants bring eccentric billionaire behavior within reach of each man, woman, and child. Now, that s progress. Without further ado, let me pass the mic. Note that YMII performs both personal and business tasks, whereas Brickwork focuses solely on business projects. Let s start with the important but dull stuff and move quickly from the sublime to the ridiculous. To give a true taste of what to expect, I have not corrected non-native-sounding English. Venky: Don t limit yourself. Just ask us if something is possible. We ve arranged parties, organized caterers, researched summer courses, cleaned up accounting books, created 3D drafts based on blueprints. Just ask us. We could find the closest kid-friendly restaurant to your house for your son s birthday, finding out costs and organizing the birthday party. This frees up your time to work or hang out with your son. What can we not do? We can t do anything that would require our physical presence. But you would be surprised as to how small a set of tasks that is in this day and age. Here are the most common tasks we handle: scheduling interviews and meetings web-research following up on appointments, errands, and tasks online purchases creation of legal documents website maintenance (web design, publishing, uploading files) that doesn t require a professional designer monitoring, editing, and publishing comments for online discussions posting job vacancies on the web document creation proofreading and editing documents for spelling and formatting online research for updating blogs updating the database for Customer Relationship Management Software managing recruitment processes updating invoices and receiving payments voicemail transcription Ritika at Brickwork added the following: market research financial research business plans industry analysis market assessment reports preparing presentations reports and newsletters legal research analytics website development search engine optimization maintaining and updating databases credit scoring managing procurement processes Venky: We have a forgetful client who has us call him all the time with various reminders. One of our clients on a custom plan has us wake him up every morning. We ve done the legwork and found people who fell out of contact after Katrina. Found jobs for clients! My favorite so far: One of our clients has a pair of trousers that he really likes that aren t in production anymore. He s sending them to Bangalore (from London) to have created exact replicas at a tiny fraction of the price. Here are a few other YMII custom requests: Reminding an overzealous client to pay his current parking fines, as well as not speed and collect parking fines. Apologizing and sending flowers and cards to spouses of clients. Charting a diet plan, reminding client on it regularly, ordering groceries based on the specific diet plan. Getting a job for a person who lost his job due to outsourcing a year back. We did the job search, did the cover letters, did the resume tuning, and got the client a job in 30 days. Fixing a broken windowpane of a house in Geneva, Switzerland. Collecting homework information from teacher s voicemail and e- mailing it to the client (parents of the kid). Research on how to tie a shoelace meant for a kid (client s son). Find a parking slot for your car in some other city even before you make the trip. Ordered garbage bins for home. Get an authenticated weather forecast and weather report for a particular time in a particular place on a particular day, five years ago. This was to be used as supportive evidence for a lawsuit. Talking to parents in our client s stead. Here s another real example of personal outsourcing from reader David Cross, who got a personal chef at home for less than 5 per meal. Just thinking of the possibilities is enough to make you start drooling. He explains: I wanted to find someone to prepare food I love. I trained as a chef but I am often so busy and as I am the only one in the house who really cooks, I often don t have time to prepare the food that makes me feel the healthiest so I wrote the attached ad and dropped it on Craigslist. This was a very tight focus ultraspecific I had just two applicants in two months one who was a 2 10 match but the guy we just OK d was a Hare Krishna follower for many years, lived in India, and his sample menu proved he knew what he s doing so we just started him. The food is absolutely awesome. The hourly rate is extremely reasonable, he s a five-minute detour when either of us are in town to collect food and I now have delicious Indian food for less than 5 a meal and it s as good as anything I ve ever eaten anywhere. I m going to progress to other cuisines now Thai, Italian, Chinese, etc., and it means when I do have time to cook I ll enjoy doing it that much more as I am not the only one cooking! Indian Asian Vegetarian Cook Needed Date: 2007 06 07, 12:25PM PDT Hello. We are a local, international family who love Indian and Asian vegetarian food. We are looking for a cook experienced in this wonderful cuisine to prepare delicious, fresh, healthy, authentic Indian Asian vegetarian meals for us. If you ve cooked a curry once or twice or need to follow recipes, this position is probably not for you, but if you know Indian vegetarian cooking in depth and can prepare delicious, healthy, fresh, authentic Indian vegetarian food then we d like to hear from you. This could be an ideal opportunity if you are Indian, Pakistani, Punjabi, etc., and are looking for a great way to apply your experience and love of Indian vegetarian food, cooking and culture. Knowledge of Ayurved and how this relates to food and diet is a plus though not essential. Please reply with details of your experience and some dishes you could prepare. If we like what you have to offer, we ll arrange for you to cook a sample meal or two which we will pay you for and then we ll see what works out for us all. This is a part-time position. You will be self-employed and responsible for your own taxes, etc. We ll pay you an hourly rate we will agree with you plus grocery bills for the food you prepare. You can prepare food in your own place and we can arrange to collect it from you, possibly for us to freeze for later eating. We will work with you to come up with menus and schedules that work out for you and us. Thank you for your interest. Basic Choices: New Delhi or New York? There are tens of thousands of VAs how on earth do you find the right one? The resources at the end of this chapter will show you where to look, but it is overwhelming and confusing unless you have a few criteria determined in advance. It often helps to begin with the question Where on Earth? Remote or Local? Made in the USA doesn t have the ring it used to. The pros of jumping time zones and visiting thirdworld currency are twofold: People work while you sleep, and the per-hour expense is less. Time savings and cost savings. Ritika explains the former with an example. One can give the remote personal assistant in India their assignment when they are leaving work at the end of the day in New York City, and they will have the presentation ready the next morning. Because of the time difference with India, assistants can work on it while they are asleep and have it back in their morning. When they wake up, they will find the completed summary in their inbox. These assistants can also help them keep pace with what they want to read, for example. Indian and Chinese VAs, as well as most from other developing countries, will run 4 15 per hour, the lower end being limited to simple tasks and the higher end including the equivalent of Harvard or Stanford M.B.A.s and Ph.D.s. Need a business plan to raise funding? Brickwork can provide it for between 2,500 5,000 instead of 15,000 20,000. Foreign assistance isn t just for the small time. I know from firsthand discussions that executives from big five accounting and management consulting firms routinely charge clients six figures for research reports that are then farmed to India for low four figures. In the U.S. or Canada, the per-hour range is often 25 100. Seems like an obvious choice, right? Bangalore 100 ? It s not. The important metric is cost per completed task, not cost per hour. The biggest challenge with overseas help will be the language barrier, which often quadruples backand-forth discussion and the ultimate cost. The first time I hired an Indian VA, I made the fundamental mistake of not setting an hour cap for three simple tasks. I checked in later that week and found he had spent 23 hours chasing his tail. He had scheduled one tentative interview for the following week, set at the wrong time! Mind boggling. 23 hours? It ended up costing me, at 10 per hour, 230. The same tasks, assigned later that week to a native English speaker in Canada, were completed in two hours at 25 per hour. 50 for more than four times the results. That said, I later requested another Indian VA from the same firm who was able to duplicate the native speaker results. How do you know which to choose? That s the beautiful part: You don t. It s a matter of testing a few assistants to both sharpen your communication skills and determine who is worth hiring and who is worth firing. Being a results-based boss isn t as simple as it looks. There are a number of lessons to be learned here. First, per-hour cost is not the ultimate determinant of cost. Look at per-task cost. If you need to spend time restating the task and otherwise managing the VA, determine the time required of you and add this (using your per-hour rate from earlier chapters) to the end sticker price of the task. It can be surprising. As cool as it is to say that you have people working for you in three countries, it s uncool to spend time babysitting people who are supposed to make your life easier. Second, the proof is in the pudding. It is impossible to predict how well you will work with a given VA without a trial. Luckily, there are things you can do to improve your odds, and one of them is using a VA firm instead of a solo operator. Solo vs. Support Team Let s suppose you find the perfect VA. He or she is performing all of your noncritical tasks and you ve decided to take a much-deserved vacation to Thailand. It s nice to know someone besides you will be manning the wheel and putting out fires for a change. Finally, some relief! Two hours before your flight from Bangkok to Phuket, you receive an e-mail: Your VA is out of commission and will be in the hospital for the next week. Not good. Vacation FUBAR. I don t like being dependent on one person, and I don t recommend it in the least. In the world of high technology, this type of dependency would be referred to as a single point of failure one fragile item upon which all else depends. In the world of IT, 15 the term redundancy is used as a selling point for systems that continue to function if there is a malfunction or mechanical failure in any given part. In the context of VAs, redundancy entails having fallback support. I recommend that you hire a VA firm or VAs with backup teams instead of sole operators. Examples abound, of course, of people who have had a single assistant for decades without incident, but I suggest that this is the exception rather than the rule. Better safe than sorry. Besides simple disaster avoidance, a group structure provides a pool of talent that allows you to assign multiple tasks without bothering to find a new person with the qualifications. Brickwork and YMII both exemplify this type of structure and provide a single point of contact, a personal account manager, who then farms out your tasks to the most-capable people in the group and across different shifts. Need graphic design? Covered. Need database management? Covered. I don t like calling and coordinating multiple people. I want one-stop shopping and am willing to pay 10 more to have it. I encourage you to be similarly pound-wise and penny-foolish. Team preference doesn t mean that bigger is better, just that multiple people are better than one person. The best VA I have used to date is an Indian with five backup assistants under him. Three can be more than sufficient, but two is toeing the line. The 1 Fear: Sweetheart, Did You Buy a Porsche in China? I m sure you might have your fears. AJ certainly did: My outsourcers now know an alarming amount about me not just my schedule but my cholesterol, my infertility problems, my Social Security number, my passwords (including the one that is a particularly adolescent curse word). Sometimes I worry that I can t piss off my outsourcers or I ll end up with a 12,000 charge on my MasterCard bill from the Louis Vuitton in Anantapur. The good news is that misuse of financial and confidential information is rare. In all of the interviews I conducted for this section, I could find only one case of information abuse, and I had to search long and hard. It involved an overworked U.S.-based VA who hired freelance help at the last moment. Commit to memory the following never use the new hire. Prohibit small-operation VAs from subcontracting work to untested freelancers without your written permission. The more established and higher-end firms, Brickwork in the below example, have security measures that border on excessive and make it simple to pinpoint abusers in the case of a breach: Employees undergo background checks and sign NDAs (nondisclosure agreements) in accordance with the company policy of maintaining confidentiality of client information Electronic access card for entry and exit Credit card information keyed only by select supervisors Removal of paper from the offices is prohibited VLAN-based access restrictions between different teams; this ensures that there is no unauthorized access of information between people of different teams in the organization Regular reporting on printer logs Floppy drives and USB ports disabled BS779 certification for accomplished international security standards 128-bit encryption technology for all data exchange Secure VPN connection I bet there is a fair chance that sensitive data is 100 times safer with Brickwork than on your own computer. Still, information theft is best thought of as inevitable in a digital world, and precautions should be taken with damage control in mind. There are two rules that I use to minimize damage and allow for fast repair. 1. Never use debit cards for online transactions or with remote assistants. Reversing unauthorized credit card charges, particularly with American Express, is painless and near instantaneous. Recovering funds withdrawn from your checking account via unauthorized debit card use takes dozens of hours in paperwork alone and can take months to receive, if approved at all. 2. If your VA will be accessing websites on your behalf, create a new unique login and password to be used on those sites. Most of us reuse both logins and passwords on multiple sites, and taking this precaution limits possible damage. Instruct them to use these unique logins to create accounts on new sites if needed. Note that this is particularly important when using assistants who have access to live commercial websites (developers, programmers, etc.). If information or identity theft hasn t hit you, it will. Use these guidelines and you ll realize when it happens that, just like most nightmares, it s not that big a deal and is reversible. The Complicated Art of Simplicity: Common Complaints My assistant is an idiot! It took him 23 hours to book an interview! This was the first complaint I had, for sure. 23 hours! I was heated up for a shouting match. My original e-mail to this first assistant seemed clear enough. Dear Abdul, Here are the first tasks, due at the end of next Tuesday. Please call or e-mail with any questions: 1. Go to this article http: www.msnbc.msn.com id 12666060 site newsweek , get the phone email website contacts for Carol Milligan and Marc and Julie Szekely. Also find the same info for Rob Long here http: www.msnbc.msn.com id 12652789 site newsweek . 2. Schedule 30-minute interviews for Carol, Marc Julie, and Rob. Use www.myevents.com (username: notreal, password: donttryit) to book them in my calendar for next week any time between 9 9 ET. 3. Find the name, e-mail, and phone (phone is least important) of workers in the U.S. who have negotiated remote work agreements (telecommuting) despite resistant bosses. Those who have traveled outside the U.S. are ideal. Other keywords could include teleworking and telecommuting. The important factor is that they negotiated with difficult bosses. Please send me links to their profiles or write a paragraph describing why they fit the profile above. Look forward to seeing what you can do. Please e-mail if you don t understand or have questions. Tim The truth is I was at fault. This is not a good debut demand, and I made fatal mistakes even before composing it. If you are an effective person but unaccustomed to issuing commands, assume that most problems at the outset are your fault. It is tempting to immediately point the finger at someone else and huff and puff, but most beginner bosses repeat the same mistakes I made. 1. I accepted the first person the firm provided and made no special requests at the outset. Request someone who has excellent English and indicate that phone calls will be required (even if not). Be fast to request a replacement if there are repeated communication issues. 2. I gave imprecise directions. I asked him to schedule interviews but didn t indicate that it was for an article. He assumed, based on work with previous clients, that I wanted to hire someone and he misspent time compiling spreadsheets and combing online job sites for additional information I didn t need. Sentences should have one possible interpretation and be suitable for a 2nd-grade reading level. This goes for native speakers as well and will make requests clearer. Ten-dollar words disguise imprecision. Note that I asked him to respond if he didn t understand or had questions. This is the wrong approach. Ask foreign VAs to rephrase tasks to confirm understanding before getting started. 3. I gave him a license to waste time. This brings us again to damage control. Request a status update after a few hours of work on a task to ensure that the task is both understood and achievable. Some tasks are, after initial attempts, impossible. 4. I set the deadline a week in advance. Use Parkinson s Law and assign tasks that are to be completed within no more than 72 hours. I have had the best luck with 48 and 24 hours. This is another compelling reason to use a small group (three or more) rather than a single individual who can become overtaxed with last-minute requests from multiple clients. Using short deadlines does not mean avoiding larger tasks (e.g., business plan), but rather breaking them into smaller milestones that can be completed in shorter time frames (outline, competitive research summaries, chapters, etc.). 5. I gave him too many tasks and didn t set an order of importance. I advise sending one task at a time whenever possible and no more than two. If you want to cause your computer to hang or crash, open 20 windows and applications at the same time. If you want to do the same to your assistant, assign him or her a dozen tasks without prioritizing them. Recall our mantra: Eliminate before you delegate. WHAT DOES A good VA task e-mail look like? The following example was recently sent to an Indian VA whose results have been nothing short of spectacular: Dear Sowmya, Thank you. I would like to start with the following task. TASK: I need to find the names and e-mails of editors of men s magazines in the US (for example: maxim, stuff, GQ, esquire, blender, etc.) who also have written books. An example of such a person would be AJ Jacobs who is Editor-at-Large of Esquire (www.ajjacobs.com). I already have his information and need more like him. Can you do this? If not, please advise. Please reply and confirm what you will plan to do to complete this task. DEADLINE: Since I m in a rush, get started after your next e-mail and stop at 3 hours and tell me what results you have. Please begin this task now if possible. The deadline for these 3 hours and reported results is end-of-day ET Monday. Thank you for your fastest reply, Tim Short, sweet, and to the point. Clear writing, and therefore clear commands, come from clear thinking. Think simple. IN THE NEXT several chapters, the communication skills you develop with our virtual assistant experiment will be applied to a much larger and obscenely profitable playing field: automation. The extent to which you will outsource next makes delegation look like finger painting. In the world of automation, not all business models are created equal. How do you assemble a business and coordinate all its parts without lifting a finger? How do you automate cash deposits in your bank account while avoiding the most common problems? It begins with understanding the options, the art of dodging information flow, and what we will call muses. The next chapter is a blueprint for the first step: a product. Go with the Flow Here is a flowchart of 4HWW from reader Jed Wood, who has used it for faster decision making, more output with less input, and more time with his wife and children. Q A: QUESTIONS AND ACTIONS 1. Get an assistant even if you don t need one. Develop the comfort of commanding and not being commanded. Begin with a one-time test project or small repetitive task (daily preferred). I advise using domestic help for language-intensive tasks and using foreign assistants in the early stages to improve the general clarity of your communication. Pick one from each group and get started. The following sites, split up geographically, are useful resources. U.S. and Canada ( 20 hour ) http: www.iavoa.com (International Association of Virtual Office Assistants). Global directory that includes the U.S. http: www.cvac.ca (Canadian Virtual Assistant Connection) http: www.canadianva.net files va-locator.html (Canada) www.onlinebusinessmanager.com North America and International ( 4 hour ) www.elance.com (Search virtual assistants, personal assistants, and executive assistants. ) The client feedback reviews on Elance enabled me to find my best VA to date, who costs 4 hour. Similar marketplaces with positive reviews include www.guru.com and www.rentacoder.com. India www.tryasksunday.com ( 20 60 per month for 24 7 concierge, free one-week trial). AskSunday is one of the sophisticated new kids on the personal outsourcing block. Their site was nominated the 2 website of the year in 2007 by Time magazine. Just dial a 212 (NYC) area code and get routed to well-spoken assistants in India and the Philippines. I use this service 80 of the time, as most tasks take less than 10 minues to complete. For longer projects, there are teams available for 12 hour. www.b2kcorp.com ( 15 hour ) From Fortune 10 oil companies and Fortune 500 clients to Big 5 accounting firms and U.S. congressmen, Brickwork can handle it all. This is reflected in the costs of this pure suit-and-tie operation business only. No flowers for auntie. www.taskseveryday.com ( 6.98 hour for a dedicated virtual assistant) Based in Mumbai, available via phone and e-mail from the U.S., UK, and Australia. Must choose between 20 or 40 hours per week and pre-purchase hours. www.yourmaninindia.com ( 6.25 hour ) YMII handles both business and personal tasks and can work with you in real time (there are people on duty 24 7) and complete work while you sleep. English capability and effectiveness vary tremendously across VAs, so interview yours before getting started or assigning important tasks. Important: Following the publication of the first edition of this book, there have been some complaints of lower quality and up to four-week wait lists to become a client. 2. Start small but think big. Tina Forsyth, an online business manager (higher-level VA) who helps six-figure-income clients achieve seven figures with business model redesigns, makes the following recommendations. Look at your to-do list what has been sitting on it the longest? Each time you are interrupted or change tasks, ask, Could a VA do this? Examine pain points what causes you the most frustration and boredom? Here are a few common time-consumers in small businesses with online presences. Submitting articles to drive traffic to site and build mailing lists Participating in or moderating discussion forums and message boards Managing affiliate programs Creating content for and publishing newsletters and blog postings Background research components of new marketing initiatives or analysis of current marketing results Don t expect miracles from a single VA, but don t expect too little, either. Let go of the controls a bit. Don t assign crap tasks that end up consuming rather than saving time. It makes little sense to spend 10 15 minutes sending an e-mail to India to get a price quote on a plane ticket when you could do the same online in 10 minutes and avoid all the subsequent back-and-forth. Push outside your comfort zone that is the entire point of the exercise. It is always possible to reclaim a task for yourself if the VA proves incapable, so test the limits of their capabilities. Remember Brickwork s suggestion: Don t limit yourself. 3. Identify your top five time-consuming non-work tasks and five personal tasks you could assign for sheer fun. 4. Keep in sync: scheduling and calendars. If you decide to have an assistant schedule appointments and add things to your calendar, it will be important to ensure what you both see is updated. There are several options: BusySync (www.busysync.com) I have two Gmail accounts: one private account for me and one for my assistant, where general e-mail is sent. I use BusySync to synchronize her Google Calendar with iCal (Mac calendar) on my laptop. I have also used SpanningSync (www.spanningsync.com) successfully for the same purpose. WebEx Office (www.weboffice.com) Share your calendar online while masking personal appointments. Can be synchronized with Outlook, and also offers document sharing and other assistant- or teamfriendly features. I suggest you compare this to synchronizing your Outlook with an assistant s Google Calendar. COMFORT CHALLENGE Use the Criticism Sandwich (2 Days and Weekly) Chances are good that someone be it a co-worker, boss, customer, or significant other does something irritating or at a subpar level. Rather than avoid the topic out of fear of confrontation, let s chocolate-coat it and ask them to fix it. Once per day for two days, and then each Thursday (M-W is too tense and Friday is too relaxed) for the next three weeks, resolve to use what I call the Criticism Sandwich with someone. It s called the Criticism Sandwich because you first praise the person for something, then deliver the criticism, and then close with topic-shifting praise to exit the sensitive topic. Here s an example with a superior or boss, with keywords and phrases in italics. You: Hi, Mara. Do you have a second? Mara: Sure. What s up? You: First, I wanted to thank you for helping me with the Meelie Worm account or whatever . I really appreciate you showing me how to handle that. You re really good at fixing the technical issues. Mara: No problem. You: Here s the thing. 16 There is a lot of work coming down on everyone, and I m feeling 17 a bit overwhelmed. Normally, priorities are really clear to me 18 but I ve been having trouble recently figuring out which tasks are highest on the list. Could you help me by pointing out the most important items when a handful need to be done? I m sure it s just me, 19 but I d really appreciate it, and I think it would help. Mara: Uhh I ll see what I can do. You: That means a lot to me. Thanks. Before I forget, 20 last week s presentation was excellent. Mara: Did you think so? Blah, blah, blah LIFESTYLE DESIGN IN ACTION THE BEST TIMES TO SEND E-MAIL You ve suggested people check e-mail only a few times a day. Here s a twist: I reply to e-mails when it s convenient, but I time it to arrive when it s also convenient for me. In Outlook you can delay e-mail delivery to any time of day. For example, when I return e-mails at 3 p.m., I don t want my staff instantly zinging me responses or clarifying questions. (This also prevents e-mail chats.) So I hit send, but it s delayed to arrive later in the evening or at 8 A.M. when my employees arrive the next day. This is how e-mail was meant to be! It s mail, not a chat service. JIM LARRANAGA 14. To leverage global pricing and currency differences for profit or lifestyle purposes. 15. Information technology. 16. Don t call it a problem if you can avoid it. 17. No one can argue with your feelings, so use this to avoid a debate about external circumstances. 18. Notice how I take you out of the sentence to avoid finger-pointing, even though it s implicit. Normally, you make priorities clear sounds like a backhanded insult. If this is a significant other, you can skip this formality, but never use you always do X, which is just a fight starter. 19. Take a little bit of the heat off with this. The point has already been made. 20. Before I forget is a great segue to the closing compliment, which is also a topic shifter and gets you off the sensitive topic without awkwardness. Income Autopilot I FINDING THE MUSE Just set it and forget it! RON POPEIL, founder of RONCO; responsible for more than 1 billion in sales of rotisserie chicken roasters As to methods there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble. RALPH WALDO EMERSON The Renaissance Minimalist Douglas Price was waking up to another beautiful summer morning in his Brooklyn brownstone. First things first: coffee. The jet lag was minor, considering he had just returned from a two-week jaunt through the islands of Croatia. It was just one of six countries he had visited in the last 12 months. Japan was next on the agenda. Buzzing with a smile and his coffee mug in hand, he ambled over to his Mac to check on personal e- mail first. There were 32 messages and all brought good news. One of his friends and business partners, also a cofounder of Limewire, had an update: Last Bamboo, their start-up poised to reinvent peer-to-peer technology, was rounding the final corners of development. It could be their billion-dollar baby, but Doug was letting the engineers run wild first. Samson Projects, one of the hottest contemporary art galleries in Boston, had compliments for Doug s latest work and requests for expanded involvement with new exhibits as their sound curator. The last e-mail in his inbox was a fan letter addressed to Demon Doc and praise for his latest instrumental hip-hop album, onliness VI.O.I. Doug had released his album as what he termed open source music anyone could download the album for free and use sounds from any track in his or her own compositions. He smiled again, polished off his dark roast, and opened a window to deal with business e-mail next. It would take much less time. In fact, less than 30 minutes for the day and 2 hours for the week. How much things change. Two years earlier, in June of 2004, I was in Doug s apartment checking e-mail for what I hoped would be the last time for a long time. I was headed to JFK Airport in New York in a matter of hours and was preparing for an indefinite quest around the world. Doug looked on with amusement. He had similar plans for himself and was finally extricating himself from a venture-funded Internet startup that had once been a cover story and his passion but was now just a job. The euphoria of the dot-com era was long dead, along with most chances for a sale or an IPO. He bid me farewell and made a decision as the taxi pulled from the curb enough of the complicated stuff. It was time to return to basics. Prosoundeffects.com, launched in January of 2005 after one week of sales testing on eBay, was designed to do one thing: give Doug lots of cash with minimal time investment. This brings us back to his business inbox in 2006. There are 10 orders for sound libraries, CDs that film producers, musicians, video game designers, and other audio professionals use to add hard-to-find sounds whether the purr of a lemur or an exotic instrument to their own creations. These are Doug s products, but he doesn t own them, as that would require physical inventory and upfront cash. His business model is more elegant than that. Here is just one revenue stream: 1. A prospective customer sees his Pay-Per-Click (PPC) advertising on Google or other search engines and clicks through to his site, www.prosoundeffects.com. 2. The prospect orders a product for 325 (the average purchase price, though prices range from 29 7,500) on a Yahoo shopping cart, and a PDF with all their billing and shipping information is automatically e-mailed to Doug. 3. Three times a week, Doug presses a single button in the Yahoo management page to charge all his customers credit cards and put cash in his bank account. Then he saves the PDFs as Excel purchase orders and e-mails the purchase orders to the manufacturers of the CD libraries. Those companies mail the products to Doug s customers this is called drop-shipping and Doug pays the manufacturers as little as 45 of the retail price of the products up to 90 days later (net-90 terms). Let s look at the mathematical beauty of his system for full effect. For each 325 order at his cost of 55 off retail, Doug is entitled to 178.75. If we subtract 1 of the full retail price (1 of 325 3.25) for the Yahoo Store transaction fee and 2.5 for the credit card processing fee (2.5 of 325 8.13), Doug is left with a pretax profit of 167.38 for this one sale. Multiply this by 10 and we have 1673.80 in profit for 30 minutes of work. Doug is making 3,347.60 per hour and purchases no product in advance. His initial start-up costs were 1,200 for the webpage design, which he recouped in the first week. His PPC advertising costs approximately 700 per month and he pays Yahoo 99 per month for their hosting and shopping cart. He works less than two hours a week, often pulls more than 10,000 per month, and there is no financial risk whatsoever. Now Doug spends his time making music, traveling, and exploring new businesses for excitement. Prosoundeffects.com is not his end-all-be-all, but it has removed all financial concerns and freed his mind to focus on other things. What would you do if you didn t have to think about money? If you follow the advice in this chapter, you will soon have to answer this question. It s time to find your muse. THERE ARE A million and one ways to make a million dollars. From franchising to freelance consulting, the list is endless. Fortunately, most of them are unsuited to our purpose. This chapter is not for people who want to run businesses but for those who want to own businesses and spend no time on them. The response I get when I introduce this concept is more or less universal: Huh? People can t believe that most of the ultrasuccessful companies in the world do not manufacture their own products, answer their own phones, ship their own products, or service their own customers. There are hundreds of companies that exist to pretend to work for someone else and handle these functions, providing rentable infrastructure to anyone who knows where to find them. Think Microsoft manufactures the Xbox 360 or that Kodak designs and distributes their digital cameras? Guess again. Flextronics, a Singapore-based engineering and manufacturing firm with locations in 30 countries and 15.3 billion in annual revenue, does both. Most popular brands of mountain bikes in the U.S. are all manufactured in the same three or four plants in China. Dozens of call centers press one button to answer calls for the JC Penneys of the world, another to answer calls for the Dell Computers of the world, and yet another to answer calls for the New Rich like me. It s all beautifully transparent and cheap. Before we create this virtual architecture, however, we need a product to sell. If you own a service business, this section will help you convert expertise into a downloadable or shippable good to escape the limits of a per-hour-based model. If starting from scratch, ignore service businesses for now, as constant customer contact makes absence difficult. 21 To narrow the field further, our target product can t take more than 500 to test, it has to lend itself to automation within four weeks, and when up and running it can t require more than one day per week of management. Can a business be used to change the world, like The Body Shop or Patagonia? Yes, but that isn t our goal here. Can a business be used to cash out through an IPO or sale? Yes, but that isn t our goal either. Our goal is simple: to create an automated vehicle for generating cash without consuming time. That s it. 22 I will call this vehicle a muse whenever possible to separate it from the ambiguous term business, which can refer to a lemonade stand or a Fortune 10 oil conglomerate our objective is more limited and thus requires a more precise label. So first things first: cash flow and time. With these two currencies, all other things are possible. Without them, nothing is possible. Why to Begin with the End in Mind: A Cautionary Tale Sarah is excited. It has been two weeks since her line of humorous T-shirts for golfers went online, and she is averaging 5 T-shirt sales per day at 15 each. Her cost per unit is 5, so she is grossing 50 in profit (minus 3 in credit card fees) per 24 hours, as she passes shipping and handling on to customers. She should soon recoup the cost of her initial order of 300 shirts (including plate charges, setup, etc.) but wants to earn more. It s a nice reversal of fortune, considering the fate of her first product. She had spent 12,000 to develop, patent, and manufacture a high-tech stroller for new moms (she has never been a new mom), only to find that no one was interested. The T-shirts, in contrast, were actually selling, but sales were beginning to slow. It appears she has reached her online sales ceiling, as well-funded and uneducated competitors are now spending too much for advertising and driving up costs. Then it strikes her retail! Sarah approaches the manager of her local golf shop, Bill, who immediately expresses interest in carrying the shirts. She s thrilled. Bill asks for the customary 40 minimum discount for wholesale pricing. This means her sell price is now 9 instead of 15 and her profit has dropped from 10 to 4. Sarah decides to give it a shot and does the same with three other stores in surrounding towns. The shirts begin to move off the shelves, but she soon realizes that her small profit is being eaten by extra hours she spends handling invoices and additional administration. She decides to approach a distributor 23 to alleviate this labor, a company that acts as a shipping warehouse and sells products from various manufacturers to golf stores nationwide. The distributor is interested and asks for its usual pricing 70 off of retail or 4.50 which would leave Sarah 50 cents in the hole on each unit. She declines. To make matters worse, the four local stores have already started discounting her shirts to compete among one another and are killing their own profit margins. Two weeks later, reorders disappear. Sarah abandons retail and returns to her website demoralized. Sales online have dropped to almost nothing with new competition. She has not recouped her initial investment, and she still has 50 shirts in her garage. Not good. It all could have been prevented with proper testing and planning. ED MR. CREATINE BYRD is no Sarah. He does not invest and hope for the best. His San Francisco based company, MRI, had the top-selling sports supplement in the U.S. from 2002 2005, NO 2 . It is still a top-seller despite dozens of imitators. He did it through smart testing, smart positioning, and brilliant distribution. Prior to manufacturing, MRI first offered a low-priced book related to the product through -page advertisements in men s health magazines. Once the need had been confirmed with a mountain of book orders, NO 2 was priced at an outrageous 79.95, positioned as the premium product on the market, and sold exclusively through GNC stores nationwide. No one else was permitted to sell it. How can it make sense to turn away business? There are a few good reasons. First, the more competing resellers there are, the faster your product goes extinct. This was one of Sarah s mistakes. It works like this: Reseller A sells the product for your recommended advertised price of 50, then reseller B sells it for 45 to compete with A, and then C sells it for 40 to compete with A and B. In no time at all, no one is making profit from selling your product and reorders disappear. Customers are now accustomed to the lower pricing and the process is irreversible. The product is dead and you need to create a new product. This is precisely the reason why so many companies need to create new product after new product month after month. It s a headache. I had one single supplement, BrainQUICKEN (also sold as BodyQUICK ) for six years and maintained a consistent profit margin by limiting wholesale distribution, particularly online, to the top one or two largest resellers who could move serious quantities of product and who agreed to maintain a minimum advertised pricing. 24 Otherwise, rogue discounters on eBay and mom-and-pop independents will drive you broke. Second, if you offer someone exclusivity, which most manufacturers try to avoid, it can work in your favor. Since you are offering one company 100 of the distribution, it is possible to negotiate better profit margins (offering less of a discount off of retail price), better marketing support in-store, faster payment, and other preferential treatment. It is critical that you decide how you will sell and distribute your product before you commit to a product in the first place. The more middlemen are involved, the higher your margins must be to maintain profitability for all the links in the chain. Ed Byrd realized this and exemplifies how doing the opposite of what most do can reduce risk and increase profit. Choosing distribution before product is just one example. Ed drives a Lamborghini down the California coast when not traveling or in the office with his small focused staff and his two Australian shepherds. This outcome is not accidental. His product-creation methods and those of the New Rich in general can be emulated. Here s how you do it in the fewest number of steps. Step One: Pick an Affordably Reachable Niche Market When I was younger I didn t want to be pigeonholed Basically, now you want to be pigeonholed. It s your niche. JOAN CHEN, actress; appeared in The Last Emperor and Twin Peaks Creating demand is hard. Filling demand is much easier. Don t create a product, then seek someone to sell it to. Find a market define your customers then find or develop a product for them. I have been a student and an athlete, so I developed products for those markets, focusing on the male demographic whenever possible. The audiobook I created for college guidance counselors failed because I have never been a guidance counselor. I developed the subsequent speed-reading seminar after realizing that I had free access to students, and the business succeeded because being a student myself I understood their needs and spending habits. Be a member of your target market and don t speculate what others need or will be willing to buy. Start Small, Think Big Some people are just into lavish dwarf entertainment. DANNY BLACK (42 ), part-owner of Shortdwarf.com 25 Danny Black rents dwarfs as entertainment for 149 per hour. How is that for a niche market? It is said that if everyone is your customer, then no one is your customer. If you start off aiming to sell a product to dog- or car-lovers, stop. It s expensive to advertise to such a broad market, and you are competing with too many products and too much free information. If you focus on how to train German shepherds or a restoration product for antique Fords, on the other hand, the market and competition shrink, making it less expensive to reach your customers and easier to charge premium pricing. BrainQUICKEN was initially designed for students, but the market proved too scattered and difficult to reach. Based on positive feedback from student-athletes, I relaunched the product as BodyQUICK and tested advertising in magazines specific to martial artists and powerlifters. These are minuscule markets compared to the massive student market, but not small. Low media cost and lack of competition enabled me to dominate with the first neural accelerator 26 in these niches. It is more profitable to be a big fish in a small pond than a small undefined fish in a big pond. How do you know if it s big enough to meet your TMI? For a detailed real-life example of how I determined the market size of a recent product, see Muse Math on this book s companion site. Ask yourself the following questions to find profitable niches. 1. Which social, industry, and professional groups do you belong to, have you belonged to, or do you understand, whether dentists, engineers, rock climbers, recreational cyclists, car restoration aficionados, dancers, or other? Look creatively at your resume, work experience, physical habits, and hobbies and compile a list of all the groups, past and present, that you can associate yourself with. Look at products and books you own, include online and offline subscriptions, and ask yourself, What groups of people purchase the same? Which magazines, websites, and newsletters do you read on a regular basis? 2. Which of the groups you identified have their own magazines? Visit a large bookstore such as Barnes Noble and browse the magazine rack for smaller specialty magazines to brainstorm additional niches. There are literally thousands of occupation- and interest hobby-specific magazines to choose from. Use Writer s Market to identify magazine options outside the bookstores. Narrow the groups from question 1 above to those that are reachable through one or two small magazines. It s not important that these groups all have a lot of money (e.g., golfers) only that they spend money (amateur athletes, bass fishermen, etc.) on products of some type. Call these magazines, speak to the advertising directors, and tell them that you are considering advertising; ask them to e-mail their current advertising rate card and include both readership numbers and magazine backissue samples. Search the back issues for repeat advertisers who sell direct-to-consumer via 800 numbers or websites the more repeat advertisers, and the more frequent their ads, the more profitable a magazine is for them and will be for us. Step Two: Brainstorm (Do Not Invest In) Products Genius is only a superior power of seeing. JOHN RUSKIN, famed art and social critic Pick the two markets that you are most familiar with that have their own magazines with full-page advertising that costs less than 5,000. There should be no fewer than 15,000 readers. This is the fun part. Now we get to brainstorm or find products with these two markets in mind. The goal is come up with well-formed product ideas and spend nothing; in Step 3, we will create advertising for them and test responses from real customers before investing in manufacturing. There are several criteria that ensure the end product will fit into an automated architecture. The Main Benefit Should Be Encapsulated in One Sentence. People can dislike you and you often sell more by offending some but they should never misunderstand you. The main benefit of your product should be explainable in one sentence or phrase. How is it different and why should I buy it? ONE sentence or phrase, folks. Apple did an excellent job of this with the iPod. Instead of using the usual industry jargon with GB, bandwidth, and so forth, they simply said, 1,000 songs in your pocket. Done deal. Keep it simple and do not move ahead with a product until you can do this without confusing people. It Should Cost the Customer 50 200. The bulk of companies set prices in the midrange, and that is where the most competition is. Pricing low is shortsighted, because someone else is always willing to sacrifice more profit margin and drive you both bankrupt. Besides perceived value, there are three main benefits to creating a premium, high-end image and charging more than the competition. 1. Higher pricing means that we can sell fewer units and thus manage fewer customers and fulfill our dreamlines. It s faster. 2. Higher pricing attracts lower-maintenance customers (better credit, fewer complaints questions, fewer returns, etc.). It s less headache. This is HUGE. 3. Higher pricing also creates higher profit margins. It s safer. I personally aim for an 8 10x markup, which means a 100 product can t cost me more than 10 12.50. 27 If I had used the commonly recommended 5 x markup with BrainQUICKEN, it would have gone bankrupt within 6 months due to a dishonest supplier and late magazine. The profit margin saved it, and within 12 months it was generating up to 80,000 per month. High has its limits, however. If the per-unit price is above a certain point, prospects need to speak to someone on the phone before they are comfortable enough to make the purchase. This is contraindicated on our low-information diet. I have found that a price range of 50 200 per sale provides the most profit for the least customer service hassle. Price high and then justify. It Should Take No More Than 3 to 4 Weeks to Manufacture. This is critically important for keeping costs low and adapting to sales demand without stockpiling product in advance. I will not pursue any product that takes more than three to four weeks to manufacture, and I recommend aiming for one to two weeks from order placement to shippable product. How do you know how long something takes to manufacture? Contact contract manufacturers who specialize in the type of products you re considering: http: www.thomasnet.com . Call a related manufacturer (e.g., toilet bowls) if you need a referral to a related manufacturer you cannot find (e.g., toilet cleaning solutions). Still no luck? Google different synonyms for your product in combination with organization and association to contact the appropriate industry organizations. Ask them for referrals to contract manufacturers and for the names of their trade magazines, which often contain advertisements for contract manufacturers and related service providers we ll need for your virtual architecture later. Request pricing from the contract manufacturers to ensure the proper markup is possible. Determine the per-unit costs of production for 100, 500, 1,000, and 5,000 units. It Should Be Fully Explainable in a Good Online FAQ. Here is where I really screwed up in my product choice with Brain-QUICKEN. Even though ingestibles have enabled my NR life, I would not wish them on anyone. Why not? You get 1,000 questions from every customer: Can I eat bananas with your product? Will it make me fart during dinner? On and on, ad nauseam. Choose a product that you can fully explain in a good online FAQ. If not, the task of travelling and otherwise forgetting about work becomes very difficult or you end up spending a fortune on call center operators. Understanding these criteria, a question remains: How does one obtain a good muse product that satisfies them? There are three options we ll cover in ascending order of recommendation. Option One: Resell a Product Purchasing an existing product at wholesale and reselling it is the easiest route but also the least profitable. It is the fastest to set up but the fastest to die off due to price competition with other resellers. The profitable life span of each product is short unless an exclusivity agreement prevents others from selling it. Reselling is, however, an excellent option for secondary back-end 28 products that can be sold to existing customers or cross-sold 29 to new customers online or on the phone. To purchase at wholesale, use these steps. 1. Contact the manufacturer and request a wholesale pricelist (generally 40 off retail) and terms. 2. If a business tax ID number is needed, print out the proper forms from your state s Secretary of State website and file for an LLC (which I prefer) or similar protective business structure for 100 200. Do NOT purchase product until you have completed Step 3 in the next chapter. It is enough at this point to confirm the profit margin and have product photos and sales literature. That s reselling. Not much more to it. Option Two: License a Product I not only use all the brains that I have, but all that I can borrow. WOODROW WILSON Some of the world s best-known brands and products have been borrowed from someone or somewhere else. The basis for the energy drink Red Bull came from a tonic in Thailand, and the Smurfs were brought from Belgium. Pok mon came from the land of Honda. The band KISS made millions in record and concert sales, but the real profit has been in licensing granting others the right to produce hundreds of products with their name and image in exchange for a percentage of sales. There are two parties involved in a licensing deal, and a member of the New Rich could be either. First, there is the inventor of the product, 30 called the licensor, who can sell others the right to manufacture, use, or sell his or her product, usually for 3 10 of the wholesale price (usually around 40 off retail) for each unit sold. Invent, let someone else do the rest, and cash checks. Not a bad model. The other side of the equation is the person interested in manufacturing and selling the inventor s product for 90 97 of the profit: the licensee. This is, for me and most NR, more interesting. Licensing is, however, dealmaking-intensive on both sides and a science unto itself. Creative contract negotiation is essential and most readers will run into problems if it s their first product. For real-world case studies on both sides, ranging from Teddy Ruxpin to Tae-Bo, and full agreements with actual dollar amounts, visit www.fourhourblog.com. From how to sell inventions without prototypes or patents to how to secure rights to products as a no-name beginner, it s all there. The economics are fascinating and the profits can be astounding. In the meantime, we will focus on the least complicated and most profitable option open to the most people: product creation. Option Three: Create a Product Creation is a better means of self-expression than possession; it is through creating, not possessing, that life is revealed. VIDA D. SCUDDER, The Life of the Spirit in the Modern English Poets Creating a product is not complicated. Create sounds more involved than it actually is. If the idea is a hard product an invention it is possible to hire mechanical engineers or industrial designers on www.elance.com to develop a prototype based on your description of its function and appearance, which is then taken to a contract manufacturer. If you find a generic or stock product made by a contract manufacturer that can be re-purposed or positioned for a special market, it s even easier: Have them manufacture it, stick a custom label on it for you, and presto new product. This latter example is often referred to as private labeling. Have you ever seen a massage therapist s office with its own line of vitamin products or the Kirkland brand at Costco? Private labeling in action. It is true that we ll be testing market response without manufacturing, but if the test is successful, manufacturing is the next step. This means we need to keep in mind setup costs, per-unit costs, and order minimums. Innovative gadgets and devices are great but often require special tooling, which makes the manufacturing start-up costs too expensive to meet our criteria. Putting mechanical devices aside and forgetting about welding and engineering, there is one class of product that meets all of our criteria, has a manufacturing lead time of less than a week in small quantities, and often permits not just an 8 10 x markup, but a 20 50 x markup. No, not heroin or slave labor. Too much bribing and human interaction required. Information. Information products are low-cost, fast to manufacture, and time-consuming for competitors to duplicate. Consider that the top-selling non-information infomercial products whether exercise equipment or supplements have a useful life span of two to four months before imitators flood the market. I studied economics in Beijing for six months and observed firsthand how the latest Nike sneaker or Callaway golf club could be duplicated and on eBay within a week of first appearing on shelves in the U.S. This is not an exaggeration, and I am not talking about a look-alike product I mean an exact duplicate for 1 20 the cost. Information, on the other hand, is too time-consuming for most knockoff artists to bother with when there are easier products to replicate. It s easier to circumvent a patent than to paraphrase an entire course to avoid copyright infringement. Three of the most successful television products of all time all of which have spent more than 300 weeks on the infomercial top-10 bestseller lists reflect the competitive and profit margin advantage of information products. No Down Payment (Carlton Sheets) Attacking Anxiety and Depression (Lucinda Bassett) Personal Power (Tony Robbins) I know from conversations with the principal owners of one of the above products that more than 65 million worth of information moved through their doors in 2002. Their infrastructure consisted of fewer than 25 in-house operators, and the rest of the infrastructure, ranging from media purchasing to shipping, was outsourced. Their annual revenue-per-employee is more than 2.7 million. Incredible. On the opposite end of the market size spectrum, I know a man who created a low-budget how-to DVD for less than 200 and sold it to owners of storage facilities who wanted to install security systems. It s hard to get more niche than that. In 2001, selling DVDs that cost 2 to duplicate for 95 apiece through trade magazines, he made several hundred thousand dollars with no employees. But I m Not an Expert! If you aren t an expert, don t sweat it. First, expert in the context of selling product means that you know more about the topic than the purchaser. No more. It is not necessary to be the best just better than a small target number of your prospective customers. Let s suppose that your current dreamline to compete in the 1,150-mile Iditarod dogsledding race in Alaska requires 5,000 to realize. If there are 15,000 readers and even 50 (0.33 ) can be convinced of your superior expertise in skill X and spend 100 for a program that teaches it, that is 5,000. Bring on the Huskies. Those 50 customers are what I call the minimal customer base the minimum number of customers you need to convince of your expertise to fulfill a given dreamline. Second, expert status can be created in less than four weeks if you understand basic credibility indicators. It s important to learn how the PR pros phrase resume points and position their clients. See the boxed text later in this chapter to learn how. The degree to which you personally need expert status also depends on how you obtain your content. There are three main options. 1. Create the content yourself, often via paraphrasing and combining points from several books on a topic. 2. Repurpose content that is in the public domain and not subject to copyright protection, such as government documents and material that predates modern copyright law. 3. License content or compensate an expert to help create content. Fees can be one-time and paid up front or royalty-based (5 10 of net revenue, for example). If you choose option 1 or 2, you need expert status within a limited market. Let s assume you are a real estate broker and have determined that, like yourself, most brokers want a simple but good website to promote themselves and their businesses. If you read and understand the three top-selling books on home-page design, you will know more about that topic than 80 of the readership of a magazine for real estate brokers. If you can summarize the content and make recommendations specific to the needs of the real estate market, a 0.5 1.5 response from an ad you place in the magazine is not unreasonable to expect. Use the following questions to brainstorm potential how-to or informational products that can be sold to your markets using your expertise or borrowed expertise. Aim for a combination of formats that will lend itself to 50 200 pricing, such as a combination of two CDs (30 90 minutes each), a 40-page transcription of the CDs, and a 10-page quickstart guide. Digital delivery is perfectly acceptable in some cases, ideal if you can create a high enough perceived value. 1. How can you tailor a general skill for your market what I call niching down or add to what is being sold successfully in your target magazines? Think narrow and deep rather than broad. 2. What skills are you interested in that you and others in your markets would pay to learn? Become an expert in this skill for yourself and then create a product to teach the same. If you need help or want to speed up the process, consider the next question. 3. What experts could you interview and record to create a sellable audio CD? These people do not need to be the sell as they like (this is often enough) and or offer them a small up-front or ongoing royalty payment. Use Skype.com with HotRecorder (more on these and related tools in Tools and Tricks) to record these conversations directly to your PC and send the mp3 file to an online transcription service. 4. Do you have a failure-to-success story that could be turned into a how-to product for others? Consider problems you ve overcome in the past, both professional and personal. The Expert Builder: How to Become a Top Expert in 4 Weeks It s time to obliterate the cult of the expert. Let the PR world scorn me. First and foremost, there is a difference between being perceived as an expert and being one. In the context of business, the former is what sells product and the latter, relative to your minimal customer base, is what creates good products and prevents returns. It is possible to know all there is to know about a subject medicine, for example but if you don t have M.D. at the end of your name, few will listen. The M.D. is what I term a credibility indicator. The so-called expert with the most credibility indicators, whether acronyms or affiliations, is often the most successful in the marketplace, even if other candidates have more in-depth knowledge. This is a matter of superior positioning, not deception. How, then, do we go about acquiring credibility indicators in the least time possible? Emulating the client-grooming techniques of some of the best PR firms in New York City and Los Angeles isn t a bad place to start. It took a friend of mine just three weeks to become a top relationship expert who, as featured in Glamour and other national media, has counseled executives at Fortune 500 companies on how to improve their relationships in 24 hours or less. How did she do it? She followed a few simple steps that created a credibility snowball effect. Here s how you can do the same. 1. Join two or three related trade organizations with official-sounding names. In her case, she chose the Association for Conflict Resolution (www.acrnet.org) and The International Foundation for Gender Education (www.ifge.org). This can be done online in five minutes with a credit card. 2. Read the three top-selling books on your topic (search historical New York Times bestseller lists online) and summarize each on one page. 3. Give one free one-to-three-hour seminar at the closest well-known university, using posters to advertise. Then do the same at branches of two well-known big companies (AT T, IBM, etc.) located in the same area. Tell the company that you have given seminars at University X or X College and are a member of those groups from step 1. Emphasize that you are offering it to them for free to get additional speaking experience outside of academics and will not be selling products or services. Record the seminars from two angles for later potential use as a CD DVD product. 4. Optional: Offer to write one or two articles for trade magazines related to your topics, citing what you have accomplished in steps 1 and 3 for credibility. If they decline, offer to interview a known expert and write the article it still gets your name listed as a contributor. 5. Join ProfNet, which is a service that journalists use to find experts to quote for articles. Getting PR is simple if you stop shouting and start listening. Use steps 1, 3, and 4 to demonstrate credibility and online research to respond to journalist queries. Done properly, this will get you featured in media ranging from small local publications to the New York Times and ABC News. Becoming a recognized expert isn t difficult, so I want to remove that barrier now. I am not recommending pretending to be something you re not. I can t! Expert is nebulous mediaspeak and so overused as to be indefinable. In modern PR terms, proof of expertise in most fields is shown with group affiliations, client lists, writing credentials, and media mentions, not IQ points or Ph.D.s. Presenting the truth in the best light, but not fabricating it, is the name of the game. See you on CNN. Q A: QUESTIONS AND ACTIONS For this hands-on chapter, the Q A is simple. In fact, it s more like a Q. The question is, Did you read the chapter and follow the directions? If not, do it! Instead of the usual Q A, the end of this chapter and the following two will feature more extensive resources for taking the action steps described in detail in the text. COMFORT CHALLENGE Find Yoda (3 Days) Call at least one potential superstar mentor per day for three days. E-mail only after attempting a phone call. I recommend calling before 8:30 A.M. or after 6:00 P.M. to reduce run-ins with secretaries and other gatekeepers. Have a single question in mind, one that you have researched but have been unable to answer yourself. Shoot for A players CEOs, ultrasuccessful entrepreneurs, famous authors, etc. and don t aim low to make it less frightening. Use www.contactanycelebrity.com if need be, and base your script on the following. Unknown answerer: This is Acme Inc. or the office of Mentor X . You: Hi, this is Tim Ferriss calling for John Grisham, please. 31 Answerer: May I ask what this is regarding? You: Sure. I know this might sound a bit odd, 32 but I m a first-time author and just read his interview in Time Out New York. 33 I m a longtime 34 fan and have finally built up the courage to 35 call him for one specific piece of advice. It wouldn t take more than two minutes of his time. Is there any way you can help me get through to him? 36 I really, really appreciate whatever you can do. Answerer: Hmmm Just a second. Let me see if he s available. two minutes later Here you go. Good luck. rings to another line John Grisham: John Grisham here. You: Hi, Mr. Grisham. My name is Tim Ferriss. I know this might sound a bit odd, but I m a first-time author and a longtime fan. I just read your interview in Time Out New York and finally built up the courage to call. I have wanted to ask you for a specific piece of advice for a long time, and it shouldn t take more than two minutes of your time. May I? 37 John Grisham: Uh OK. Go ahead. I have to be on a call in a few minutes. You (at the very end of the call): Thank you so much for being so generous with your time. If I have the occasional tough question very occasional is there any chance I could keep in touch via e-mail? 38 LIFESTYLE DESIGN IN ACTION OVER THE MOON My 13-year-old daughter would like to be an astronaut when she grows up. Last year she had an extreme challenge to deal with. The phrase from Apollo 13 Failure is not an option sort of became our motto. I got the idea of contacting the commander of Apollo 13, Jim Lovell. It didn t take much to find him and he sent her a wonderful letter about his ordeal just to get into the Apollo program, not to mention dealing with a crippled spacecraft. His letter made a big difference to my daughter. A couple months later, we were able to take things a little further by getting her VIP access to a shuttle launch. ROB TOOLS AND TRICKS Confirming Sufficient Market Size Compete (www.compete.com) and Quantcast (www.quantcast.com) Find the number of monthly visitors for most websites, in addition to the search terms that generate the most traffic for them. Writer s Market ( www.writersmarket.com ) Here you ll find a listing of thousands of specialty and niche magazines, including circulation and subscription numbers. I prefer the print version. Spyfu ( www.spyfu.com ) Download competitors online advertising spending, keywords, and ad-word details. Consistent and repeat spending generally indicates successful advertising ROI. Standard Rate and Data Services ( www.srds.com ) Check out this resource for annual listings of magazine and company customer mailing lists available for rent. If you re considering creating a how-to video for duck hunting, check out the size of customer lists from hunting gun manufacturers and related magazines first. Use the print version in libraries instead of paying for the somewhat confusing online access. Finding Products to Resell or Manufacturing Affiliate Networks: Clickbank ( www.clickbank.com ), Commission Junction ( www.cj.com ), Amazon Associates ( www.amazon.com associates ) No inventory, no invoices. Experimenting with products and categories through affiliate networks such as Clickbank and Commission Junction, which pay you 10 75 of each purchase, is a fast method for doing a proof-of-concept using similar products. It s often worth setting up accounts at both just to observe how bestselling items are being sold and promoted. Amazon Associates averages 7 10 commissions, but bestselling books are excellent for testing target markets for more elaborate informational products. For all of the above: Do not get into bidding wars against other affiliates using expensive general keywords or overexposed brand names. Go niche or go broke. Alibaba ( www.alibaba.com ) Based in China, Alibaba is the world s largest business-to-business marketplace. From MP3 players for 9 each to red wine for 2 per bottle, this site is the source. If someone here doesn t make it, it probably can t be made. Worldwide Brands ( www.worldwidebrands.com ) Offers an extensive how-to guide for finding manufacturers willing to dropship product to your customers, which allows you to avoid pre-purchasing inventory. This is where Amazon and eBay power users find not just drop shippers, but also wholesalers and liquidators. Shopster (www.shopster.com) is also a popular option, with more than 1,000,000 dropship products to choose from. Thomas s Register of Manufacturers ( www.thomasnet.com ) (800 699 9822) Searchable database of contract manufacturers for every conceivable product, from underwear and food products to airplane parts. Electronics, DVDs, Books ( www.ingrambook.com , www.techdata.com ) Housewares and Hardware ( www.housewares.org , www.nationalhardwareshow.com ) (847 292 4200) For these product categories and related talent (on-screen demonstrations), also consider attending local or state fairs. Consumables and Vitamin Products ( www.expoeast.com , expowest.com ) Finding Public Domain Information to Repurpose Be sure to speak with an intellectual property attorney before using apparent public domain material. If someone modifies 20 of a public domain work (through abridging and footnotes, for example), their new complete work can be copyrighted. Using it without permission would then be a punishable infringement. The details can get confusing. Do the beginning research yourself, but get a pro to look over your findings before moving ahead with product development. Project Gutenberg ( www.gutenberg.org ) Project Gutenberg is a digital library of more than 15,000 pieces of literature considered to be in the public domain. LibriVox ( www.librivox.org ) LibriVox is a collection of audiobooks from the public domain that are available for free download. Recording Seminars or Phone Interviews with Experts for CD Downloadable Products HotRecorder ( www.hotrecorder.com ) (PC), Call Recorder ( http: ecamm.com mac callrecorder ) (Mac) Use these programs to record any inbound or outbound phone call via computer using Skype (www.skype.com) and other VoIP programs. NoCost Conference ( www.nocostconference.com ) Provides a free 800-number conference line, as well as free recording and file retrieval. Normal phones can be used for call-in, so no computer or web connection is required for participants. If you ll have a Q A, I suggest soliciting attendee questions beforehand to avoid issues with muting unmuting of lines. Jing Project (www.jingproject.com) and DimDim (www.dimdim.com) If you d like to record the actions on your screen for video tutorials, both of these free programs will get the job done. If you need advanced editing features, Jing s big brother Camtasia is the industry standard (www.camtasia.com). Licensing Ideas to Others for Royalties InventRight ( www.inventright.com ) (800 701 7993) Stephen Key is the most consistently successful inventor I ve ever met, with millions in royalties from companies like Disney, Nestl , and Coca-Cola. He is not high-tech but specializes in creating simple products, or improving on existing products, and then licensing (renting) his ideas to large corporations. He comes up with the idea, files a provisional patent for less than 200, and then lets another company do the work while he collects checks. This site introduces his fail-proof process for doing the same. His techniques for cold-calling alone are invaluable. Highly recommended. Guthy-Renker Corporation (www.guthyrenker.com) (760 773 9022) GRC is the 800-pound infomercial gorilla. It brings in more than 1.3 billion per year in sales with mega-hits like Tony Robbins, Proactiv Solution, and Winsor Pilates. Don t expect more than a 2 4 royalty if you make the cut, but the numbers are huge enough to make it worth a look. Submit your product online. Searching Patents for Unexploited Ideas to Turn into Products United States Patent and Trademark Office (www.uspto.gov) (800 786 9199) Licensable Technologies Developed at Universities ( www.autm.net ; see view all listings under Technology Transfer Offices ) Inventors Groups and Associations (call and ask if members have anything to license) ( www.uiausa.org Resources InventorGroups.htm Becoming an Expert Prof Net via PR Leads (www.prleads.com) and HARO (www.helpareporterout.com) Receive daily leads from journalists and TV and radio producers looking for experts to cite and interview for media ranging from local outlets to CNN and the New York Times. Stop swimming upstream and start responding to stories people are already working on. HARO offers select leads at no cost, and you can mention my name with PR Leads to get two months for the price of one. PRWeb Press Releases (www.prwebdirect.com) The press release is dead for most purposes, but using this service has some serious search-engine benefits, such as appearing at the top of related Google News and Yahoo! News results. ExpertClick ( www.expertclick.com ) This is another secret of the PR pros. Put up an expert profile for media to see, receive an up-to-date database of top media contacts, and send free press releases to 12,000 journalists, all on one website that gets more than 5 million hits per month. This is how I got on NBC and ended up developing a primetime TV show. It works. Mention my name on the phone, or use Tim Ferriss 100 online, to get a 100 discount. LIFESTYLE DESIGN IN ACTION Bon Jour Tim, I was in Barnes Noble at the help desk this past Saturday, April 25, waiting for an employee to get a book for me (Tropic of Cancer if you must know). While I was waiting, I noticed a copy of 4-Hour Workweek on the counter that someone else had ordered. Not one to be shy, I reached over the counter and started reading their copy. As you might guess, I had the employee go back and get me my own copy. Haven t finished Tropic of Cancer but finished your book On Monday I got a yes when I asked my boss to work two days remotely per week. I start next week. On Monday I also booked the most stunning apartment in Paris for the month of September, at a cost of half of the rent I pay in Southern California. I plan to increase my remote time now through August so that September will be an easy ask to leave for remote work. If the answer happens to be no (which I now doubt), I will be prepared to quit my job. Now at work on my Income Autopilot project. Tim: amazing. My life has changed in three days. (Plus, your book was funny as hell.) Thank you!!! CINDY FRANKEY 21. There are a few limited exceptions, such as online membership sites that don t require content generation, but as a general rule, products require much less maintenance and will get you to your TMI faster. 22. Muses will provide the time and financial freedom to realize your dreamlines in record time, after which one can (and often does) start additional companies to change the world or sell. 23. Distributors are sometimes also referred to as wholesalers, depending on the industry. 24. It is illegal to control how much someone sells your product for, but you can dictate how much they advertise it for. This is done by including a Minimum Advertised Pricing (MAP) policy in your General Terms and Conditions (GTC), which are agreed to automatically when a written wholesale order is placed. Sample GTC and order forms are available at www.fourhourblog.com. 25. The Wall Street Journal, July 18, 2005 (http: www.technologyinvestor.com login 2004 Jul18 05.php). 26. This was a new product category that I created to eliminate and preempt the competition. Strive to be the largest, 27. If you decide to resell someone else s higher-end products like Doug, especially with dropshipping, the risk is lower and smaller margins can suffice. 28. Back-end products are products sold to customers once the sale of a primary product has been made. iPod covers and car GPS systems are two examples. These products can have lower margins, because there is no advertising cost to acquire the customer. 29. Cross-selling is selling a related product to a customer while they re still on the phone or in an online shopping cart after the sale of a primary product has been made. For a full marketing and direct response (DR) glossary, visit www.fourhourblog.com. 30. This also refers to owners of copyrights or trademarks. 31. Said casually and with confidence, this alone will get you through surprisingly often. I d like to speak with Mr. Ms. X, please is a dead giveaway that you don t know them. If you want to up the chances of getting though but risk looking foolish if they call the bluff, ask for the target mentor by first name only. 32. I use this type of lead-in whenever making off-the-wall requests. It softens it and makes the person curious enough to listen before spitting out an automatic no. 33. This answers the questions they ll have in their head: Who are you and why are you calling now? I like to be a first-time something to play the sympathy card, and I find a recent media feature online to cite as the trigger for calling. 34. I call people I m familiar with. If you can t call yourself a longtime fan, tell them that you have followed the mentor s career or business exploits for a certain number of years. 35. Don t pretend to be strong. Make it clear you re nervous and they ll lower their guard. I often do this even if I m not nervous. 36. The wording here is critical. Ask them to help you do something. 37. Just rework the gatekeeper paragraph for this, and don t dillydally get to the point quickly and ask for permission to pull the trigger. 38. End the conversation by opening the door for future contact. Start with e-mail and let the mentoring relationship develop from there. Income Autopilot II TESTING THE MUSE Many of these theories have been killed off only when some decisive experiment exposed their incorrectness . Thus the yeoman work in any science is done by the experimentalist, who must keep the theoreticians honest. MICHIO KAKU, theoretical physicist and cocreator of String Field Theory, Hyperspace Fewer than 5 of the 195,000 books published each year sell more than 5,000 copies. Teams of publishers and editors with decades of combined experience fail more times than not. The founder of Border s Books lost 375 million of investor funding with WebVan, 39 a nationwide grocery delivery service. The problem? No one wanted it. The moral is that intuition and experience are poor predictors of which products and businesses will be profitable. Focus groups are equally misleading. Ask ten people if they would buy your product. Then tell those who said yes that you have ten units in your car and ask them to buy. The initial positive responses, given by people who want to be liked and aim to please, become polite refusals as soon as real money is at stake. To get an accurate indicator of commercial viability, don t ask people if they would buy ask them to buy. The response to the second is the only one that matters. The approach of the NR reflects this. Step Three: Micro-Test Your Products Micro-testing involves using inexpensive advertisements to test consumer response to a product prior to manufacturing. 40 In the pre-Internet era, this was done using small classified ads in newspapers or magazines that led prospects to call a prerecorded sales message. Prospects would leave their contact information, and based on the number of callers or response to a follow-up sales letter, the product would be abandoned or manufactured. In the Internet era, there are better tools that are both cheaper and faster. We ll test the product ideas from the last chapter on Google Adwords the largest and most sophisticated Pay-Per-Click (PPC) engine in five days for 500 or less. PPC here refers to the highlighted search results that are listed above and to the right of normal search results on Google. Advertisers pay to have these ads displayed when people search for a certain term related to the advertisers product, such as cognitive supplement, and are charged a small fee from .05 to over 1 each time someone clicks through to their site. For a good introduction to Google Adwords and PPC, visit www.google.com onlinebusiness. For expanded examples of the following PPC strategies, visit www.fourhourblog.com and search PPC. The basic test process consists of three parts, each of which is covered in this chapter. Best: Look at the competition and create a more-compelling offer on a basic one-to-three-page website (one to three hours). Test: Test the offer using short Google Adwords advertising campaigns (three hours to set up and five days of passive observation). Divest or Invest: Cut losses with losers and manufacture the winner(s) for sales rollout. Let s use two people, Sherwood and Johanna, and their two product ideas French sailor shirts and a how-to yoga DVD for rock climbers as case studies of what the testing steps look like and how you can do the same. Sherwood bought a striped sailing shirt in France while traveling last summer, and upon returning to NYC has been continually approached by 20 30-year-old males on the street who want to know where to get their own. Sensing an opportunity, he requests back issues of NYC-based weekly magazines aimed at this demographic and calls the manufacturer in France for pricing. He learns that he can purchase shirts at a wholesale price of 20 that sell for 100 retail. He adds 5 per shirt to account for shipping to the U.S. and arrives at a per-shirt cost of 25. It s not quite our ideal markup (4x vs. 8 10x), but he wants to test the product regardless. Johanna is a yoga instructor who has noticed her growing client base of rock climbers. She is also a rock climber and is considering creating a yoga instructional DVD tailored to that sport, which would include a 20-page spiral-bound manual and be priced at 80. She predicts that production of a lowbudget first edition of the DVD would cost nothing more than a borrowed digital camera and a friend s iMac for simple editing. She can burn small quantities of this first-edition DVD no menus, just straight footage and titles on the laptop and create labels with freeware from www.download.com. She has contacted a duplication house and learned that more-professional DVDs will cost 3 5 apiece to duplicate in small quantities (minimum of 250), including cases. Now that they have ideas and estimates of start-up costs, what next? Besting the Competition First and foremost, each product must pass a competitive litmus test. How can Sherwood and Johanna beat the competition and offer a superior product or guarantee? 1. Sherwood and Johanna Google the top terms each would use to try and find their respective products. To come up with related terms and derivative terms, both use search term suggestion tools. Google Adwords Keyword Tool (http: adwords.google.com select KeywordToolExternal) Enter the potential search terms to find search volume and alternative terms with more search traffic. Click on the Approx Avg Search Volume column to sort results from most to least searched. SEOBook Keyword Tool, SEO for Firefox Extension (http: tools.seobook.com ) This is an outstanding resource page with searches powered by Wordtracker (www.wordtracker.com). Both then visit the three websites that consistently appear in top search and PPC positions. How can Sherwood and Johanna differentiate themselves? Use more credibility indicators? (media, academia, associations, and testimonials) Create a better guarantee? Offer better selection? 41 Free or faster shipping? Sherwood notices that the shirts are often hard to find on the competitive sites, all of which feature dozens of products, and the shirts are either made in the U.S. (inauthentic) or shipped from France (customers must wait two to four weeks). Johanna cannot find a yoga for rock climbing DVD, so she is starting from a blank slate. 2. Sherwood and Johanna now need to create a one-page (300 600 words) testimonial-rich advertisement that emphasizes their differentiators and product benefits using text and either personal photos or stock photos from stock photo websites. Both have spent two weeks collecting advertisements that have prompted them to make purchases or that have caught their attention in print or online these will serve as models. 42 Johanna asks her clients for testimonials and Sherwood lets his friends try on the shirts to get several for his page. Sherwood also asks the manufacturer for photos and advertising samples. See www.pxmethod.com for a good example of how I have created a test page using testimonials from seminar attendees. Please note that it s just a template for readers and not a live sales page. Free how-to seminars as recommended in the Expert Builder are ideal for identifying popular selling points and securing testimonials. Testing the Advertisement Sherwood and Johanna now need to test actual customer response to their advertisements. Sherwood first tests his concept with a 72-hour eBay auction that includes his advertising text. He sets the reserve (the lowest price he ll accept) for one shirt at 50 and cancels the auction last minute to avoid legal issues since he doesn t have product to ship. He has received bids up to 75 and decides to move to the next phase of testing. Johanna doesn t feel comfortable with the apparent deception and skips this preliminary testing. Sherwood s cost: 5. Both register domain names for their soon-to-be one-page sites using the cheap domain registrar www.domainsinseconds.com. Sherwood chooses www.shirtsfromfrance.com and Johanna chooses www.yogaclimber.com. For additional domain names, Johanna uses www.domainsinseconds.com. Cost to both: 20. Sherwood uses www.weebly.com to create his one-page site advertisement and then creates two additional pages using the form builder www.wufoo.com. If someone clicks on the purchase button at the bottom of the first page, it takes them to a second page with pricing, shipping and handling, 43 and basic contact fields to fill out (including e-mail and phone). If the visitor presses continue with order, it takes them to a page that states, Unfortunately, we are currently on back order but will contact you as soon as we have product in stock. Thank you for your patience. This structure allows him to test the first-page ad and his pricing separately. If someone gets to the last page, it is considered an order. Johanna is not comfortable with dry testing, as Sherwood s approach is known, even though it is legal if the billing data isn t captured. She instead uses the same two services to create a single webpage with the content of her one-page ad and an e-mail sign-up for a free top 10 tips list for using yoga for rock climbing. She will consider 60 of the sign-ups as hypothetical orders. Cost to both: 0. Both set up simple Google Adwords campaigns with 50 100 search terms to simultaneously test headlines while driving traffic to their pages. Their daily budget limits are set at 50 per day. (At this segue into PPC testing, I recommend you first visit www.adwords google.com onlinebusiness and then follow along by creating your own account, which should take about 10 minutes. It would be a waste of rain forests to use ten pages to explain terms that can be understood at a glance online.) Sherwood and Johanna decide on the best search terms by using the search term suggestion tools mentioned earlier. Both aim for specific terms when possible ( french sailor shirts vs. french shirts; yoga for sports vs. yoga ) for higher conversion rates (the percentage of visitors that purchase) and lower cost-per-click (CPC). They aim also for second through fourth positioning, but no more than .20 CPC. Sherwood will use Google s free analytical tools to track orders and page abandonment rates what percentage of visitors leave the site from which pages. Johanna will use www.wufoo.com to track e-mail sign-ups on this small testing scale. 44 Cost to both: 0. Both Johanna and Sherwood design Adwords ads that focus on their differentiators. Each Google Adwords ad consists of a headline and then two lines of description, neither of which can exceed 35 characters. In Sherwood s case, he creates five groups of 10 search terms each. The following are two of his ads. SAILOR SHIRTS FROM FRANCE Johanna creates the same five groups of 10 terms each and tests a number of ads, including these: Notice that these ads can be used to test not just headlines but guarantees, product names, and domain names. It s as simple as creating several ads, rotated automatically by Google, that are identical except for the one variable to be tested. How do you think I determined the best title for this book? Both Sherwood and Johanna disable the feature on Google that serves only the best-performing ad. This is necessary to later compare the click-through rates from each and combine the best elements (headline, domain name, and body text) into a final ad. Last but not least, ensure that the ads don t trick prospects into visiting the site. The product offer should be clear. Our goal is qualified traffic, so we do not want to offer something free or otherwise attract window shoppers or the curious who are unlikely to buy. Cost to both: 50 or less per day x 5 days 250. 45 Investing or Divesting Five days later, it s time to tally the results. What can we consider a good click-through and conversion rate? This is where the math can be deceiving. If we re selling a 10,000 abominable snowman suit with an 80 profit margin, we obviously need a much lower conversion rate than someone who is selling a 50 DVD with a 70 profit margin. For sophisticated tools and free spreadsheets that do all sorts of calculations for you, visit the reader-only resources at www.fourhourblog.com. Johanna and Sherwood decide to keep it simple at this stage: How much did they spend on PPC ads and how much did they sell ? Johanna has done well. The traffic wasn t enough to make the test stand up to statistical scrutiny, but she spent about 200 on PPC and got 14 sign-ups for a free 10-tip report. If she assumes 60 would purchase, that means 8.4 people x 75 profit per DVD 630 in hypothetical total profit. This is also not taking into account the potential lifetime value of each customer. The results of her small test are no guarantee of future success, but the indications are positive enough that she decides to set up a Yahoo Store for 99 per month and a small per-transaction fee. Her credit isn t excellent, so she will opt to use www.paypal.com to accept credit cards online instead of approaching her bank for a merchant account. 46 She e-mails the 10-tip report to those who signed up and asks for their feedback and recommendations for content on the DVD. Ten days later, she has a first attempt at the DVD ready to ship and her store is online. Her sales to the original sign-ups cover costs of production and she is soon selling a respectable 10 DVDs per week ( 750 profit) via Google Adwords. She plans to test advertising in niche magazines and blogs and now needs to create an automation architecture to remove herself from the equation. Sherwood didn t fare as well but still sees potential. He spent 150 on PPC and sold three shirts for a hypothetical 225 in profit. He had more than enough traffic, but the bulk of visitors left the site on the pricing page. Rather than drop pricing, he decides to test a 2x money-back guarantee on the pricing page, which will enable customers to get a 200 refund if the 100 shirts aren t the most comfortable they ve ever owned. He retests and sells seven shirts for 525 in profit. Based on these results, he sets up a merchant account through his bank and Authorize.net to process credit cards, orders a dozen shirts from France, and sells them all over the following ten days. This gives him enough profit to buy a small display ad at 50 off (asking for a first-time advertiser discount and then citing a competing magazine to get another 20 off) in a local weekly art magazine, in which he calls the shirt Jackson Pollock Shirts. He orders two dozen more shirts with net-30 payment terms and puts a toll-free number 47 in the print ad that forwards to his cell phone. He does this instead of using a website for two reasons: (1) He wants to determine the most common questions for his FAQ online, and (2) he wants to test an offer of 100 for one shirt ( 75 in profit) or buy two, get one free ( 200 - 75 125 profit). He sells all 24 shirts in the first five days the magazine runs, most through the special offer. Success. He redesigns the print ad, putting answers to common questions in the text to cut down on calls for information, and decides to negotiate a longer-term ad agreement with the magazine. He sends his sales rep a check for four issues at 30 of their published rates. He calls to confirm that they received his check via FedEx and, with check in hand and deadlines looming, they don t refuse. Sherwood wants to go to Berlin during a two-week break from his job, which he is now considering quitting. How can he roll out his success and escape his own company? He needs to build the architecture and get his mobile M.B.A. That s where the next chapter comes in. New Rich Revisited: How Doug Did It Remember Doug from ProSoundEffects.com? How did he test the idea and go from 0 to 10,000 per month in the process? He followed these steps. 1. Market Selection He chose music and television producers as his market because he is a musician himself and has used these products. 2. Product Brainstorm He chose the most popular products available for resale from the largest manufacturers of sound libraries and arranged a wholesale purchase and drop-ship agreement with them. Many of these libraries cost well above 300 (up to 7,500), and this is precisely why he needs to answer more customer-service questions than someone with a lower-priced product of 50 200. 3. Micro-Testing He auctioned the products on eBay to test demand (and the highest possible pricing) before purchasing inventory. He ordered product only when people placed orders from him, and product shipped immediately from the manufacturers warehouses. Based on this demand confirmed on eBay, Doug created a Yahoo Store with these products and began testing Google Adwords and other PPC search engines. 4. Rollout and Automation Following this testing, and upon generating sufficient cash flow, Doug began experimenting with print advertising in trade magazines. Simultaneously, he streamlined and outsourced operations to reduce his time requirements from two hours per day to two hours per week. COMFORT CHALLENGE Rejecting First Offers and Walking Away (3 Days) Before performing this exercise, if possible, read the bonus chapter How to Get 700,000 of Advertising for 10,000 on our companion site, and then set aside two hours on a consecutive Saturday, Sunday, and Monday. On Saturday and Sunday, go to a farmers market or other outdoor event where goods are sold. If this isn t possible, go to small independent retailers (not chains or mass retail). Set a budget of 100 for your negotiating tuition and look for items to purchase that total at least 150. Your job is to get the sellers down to a total of 100 or less for the lot. It is better to practice on many cheap items rather than a few big items. Be sure to reply to their first offer with, What type of discount can you offer? to let them negotiate against themselves. Negotiate near closing time, choose your objective price, bracket, and make a firm offer with cash in hand for that amount. 48 Practice walking away if your objective price isn t met. On Monday, call two magazines (expect the first to be awkward) and use the script on the companion site to negotiate, minus the last firm offer. Get them as low as possible and then call them back later to indicate that your proposal was refused by upper management or otherwise vetoed. This is the negotiating equivalent of paper trading. 49 Get used to refusing offers and countering in person and most importantly on the phone. TOOLS AND TRICKS Sample Muse Test Page The PX Method ( www.pxmethod.com ) This sales template was used to determine the viability of a speed-reading product, which tested successfully. Notice how testimonials, credibility indicators, and risk-reversal guarantees are used, as well as how the pricing is put on a separate page so it can be isolated as a testing variable. Use this as a reference it is a simple and effective model that can be copied. Please do not input your credit card information, as it is just a mock-up for teaching purposes. Fast and Simple Website Creation for Non-Techies (and Techies) Weebly ( www.weebly.com ) Weebly, which the BBC labeled a must, allowed me to create www.timothyferriss.com in less than two hours and have it appear on the front page of Google for timothy ferriss searches within 48 hours. It is, like WordPress.com below, designed to be very SEO-friendly (search-engine optimization) without any knowledge or action on your part. No HTML or Internet expertise is required. WordPress.com ( www.wordpress.com ) I used WordPress.com to set up www.litliberation.org from a coffee shop in Bratislava, Slovakia, when a U.S.-based designer flaked out and left me scrambling. It took me less than three hours to learn how to use it and build the site. The site, an experimental educational fundraiser, ended up raising 200 more than Stephen Colbert in the same period of time. I also use their free open-sourced version of WordPress (www.wordpress.org, which requires separate hosting) to manage everything for my top-1,000 blog at www.fourhourblog.com. This offers greater customization but requires more management and technical know-how. Both Weebly and WordPress.com host your site for you, so additional hosting setup isn t required. If you choose to use www.wordpress.org (not.com) for greater customizability, I suggest using a hosting service with one-click WordPress installation like www.bluehost.com. The Shopp plug-in (http: shopplugin.net ) or Market Theme plug-in (http: www.markettheme.com ) can then be used to add e-commerce capabilities. Shopify.com (discussed later) is another good all-in-one alternative. Create Forms in Seconds for Testing Checkout with or Without Payment Wufoo ( www.wufoo.com ) Wufoo does not offer a full-featured shopping cart, but it provides the cleanest, easiest-to-use forms on the web. Create a checkout page that connects to PayPal and you can (1) link to this checkout page from your site on Weebly, WordPress.com, or elsewhere, or (2) drop the code into your own website and have it hosted there. Wufoo is appropriate for testing and selling single products, as people can t add multiple items to a shopping cart or otherwise customize the order la Amazon. For those additional options, which are often desirable after successful testing, you will want to use an end-to-end site solutions listed later in these resources. Cost-Effective Trademark Filing and Company Formation (LLC, C-Corp, etc.) Though I also have a C-Corporation (often used to issue common and preferred stock to investors), created through the second option below, LLCs and S-Corps are generally favored by small businesses. Consult your accountant to determine the best entity form. LegalZoom ( www.legalzoom.com ) Company formation, trademarks, and nearly all legal documents. I know one founder who used this service to incorporate his tech start-up, which is now worth more than 200 million. Corporate Creations ( www.corporatecreations.com ) Domestic and overseas company formation. Services for Selling Downloadable Products (e-books, videos, audio, etc., in descending order of reader preference) E-Junkie ( www.e-junkie.com ) Lulu ( www.lulu.com ) Lulu will also do print-on-demand and other forms of manufacture and fulfillment. Like Lightning Source (www.lightningsource.com), it offers distribution through Amazon, Barnes Noble online, and other major outlets. CreateSpace ( www.createspace.com ) A subsidiary of Amazon.com that offers inventory-free, physical distribution of books, CD and DVDs on Demand, as well as video downloads through Amazon Video On Demand (tm) . Clickbank ( www.clickbank.com ) Provides integrated access to affiliates willing to sell your product for a percentage of sales. Introduction to Pay-Per-Click (PPC) Advertising and Testing Google Adwords ( www.google.com adwords ) Market Sizing and Keyword Suggestion Tools Brainstorm additional PPC search terms and determine the number of people who are searching for them. Google Adwords Keyword Tool ( http: adwords.google.com select KeywordToolExternal ) Enter the potential search terms to find search volume and alternative terms with more search traffic. Click on the Approx Avg Search Volume column to sort results from most to least searched. SEOBook Keyword Tool, SEO for Firefox Extension ( http: tools.seobook.com ) Outstanding resource page with searches powered by Wordtracker (www.wordtracker.com). Low-Cost Domain Registration Domains in Seconds ( www.domainsinseconds.com ) I have registered more than 100 domains through this service. Joker ( www.joker.com ) GoDaddy ( www.godaddy.com ) Inexpensive but Dependable Hosting Services Shared hosting solutions, where your site is hosted alongside other sites on a single server, are so cheap that I recommend using two providers, one as a primary and one as a backup. Put your site pages on each host and sign up with www.no-ip.com, which can redirect traffic (DNS) to the backup in five minutes instead of the usual 24 to 48 hours. 1and1 ( www.1and1.com ) BlueHost ( www.bluehost.com ) RackSpace ( www.rackspace.com ; known for dedicated and managed servers ) Hosting.com ( www.hosting.com ; known for dedicated and managed servers ) Royalty-Free Photos and Materials iStockphoto ( www.istockphoto.com ) iStockphoto is the Internet s original member-generated image and design site, which has more than 4 million photographs, vector illustrations, videos, audio tracks, and Flash files available for use. Getty Images ( www.gettyimages.com ) This is where the pros go. Stock photos and film of anything for a price. I pay 150 400 for most images I use in national print campaigns and the quality is outstanding. E-mail Sign-up Tracking and Scheduled Autoresponders Both of these programs can be used to embed e-mail address sign-up forms on your site. AWeber ( www.aweber.com ) MailChimp ( www.mailchimp.com ) End-to-End Site Solutions with Payment Processing Shopify ( www.shopify.com ) This is a reader favorite that, in addition to beautiful design, offers full SEO (search-engine optimization), drag-and-drop use, statistics, and product fulfillment through one of their certified partners such as Fulfillment by Amazon.com. Clients range from small-business owners to Tesla Motors. Unlike with Yahoo and eBay, however, you will need to set up a payment-processing service to accept payments from customers. (See below PayPal is the easiest to integrate.) Yahoo! Store ( http: smallbusiness.yahoo.com ecommerce ) (866 781 9246) This is what Doug of Pro Sound Effects used. As little as 40 a month with 1.5 per transaction. eBay Store ( http: pages.ebay.com storefronts start.html ) From 15 500 per month, plus eBay fees. Simple Payment Processing for Testing Pages, from Least to Most Involved PayPal Cart (www.paypal.com; see merchant ) Accept credit card payments in minutes. No monthly fees, 1.9 2.9 of each transaction (called discount rate ) and 0.30 per transaction. Google Checkout ( http: checkout.google.com sell ) Get 10 in free processing for each 1 spent on AdWords; 2 and 0.20 per transaction thereafter. Requires that customers have a Google ID, and is thus most useful as a supplement to one of the aforementioned payment solutions. Be sure to link your Checkout account to your AdWords account to receive credit. Important note: free transaction processing for nonprofits. Authorize.net ( www.authorize.net ) The Authorize.Net Payment Gateway can help you accept credit card and electronic check payments quickly and affordably. More than 230,000 merchants trust Authorize.net to manage their transactions, help prevent fraud, and grow their business. The fees per transaction are lower than PayPal or Google Checkout, but setup will require a merchant account, covered in the next chapter, and other timeconsuming applications. I suggest setting up Authorize.net only after a product has tested successfully through one of the other two options above. Software for Understanding Web Traffic (Web Analytics) How are people finding, browsing, and leaving your site? How many prospective customers are being delivered by each PPC ad, and which pages are most popular? These programs tell you all this and more. Google is free for most low-volume sites and better than a lot of paid software-and the others cost 30 and upward per month. Google Analytics ( www.google.com analytics ) CrazyEgg ( www.crazyegg.com ) I use CrazyEgg to see exactly where people are clicking most and least on homepages and landing pages. It is particularly helpful for repositioning the most important links or buttons to help prompt visitors to take specific next actions. Don t guess what s working or not measure it. Clicktracks (www.clicktracks.com) WebTrends ( www.webtrends.com ) A B Testing Software Testing is, as you know, the name of the game, but testing all the variables can be confusing. How do you know which combination of headlines, text, and images on your homepage results in the most sales? Instead of using one version for a bit, then alternating, which is time-consuming, use software that serves up different versions to prospects at random, then does the math for you. Google Website Optimizer (WO) ( http: www.google.com websiteoptimizer ) This is a free tool that, like Google Analytics, is better than most paid services. I used Google WO to test three potential homepages for www.dailyburn.com and increased sign-ups 19 , then again by more than 16 . Offermatica ( www.offermatica.com ) Vertster.com ( www.vertster.com ) Optimost ( www.optimost.com ) Low-Cost Toll-free Numbers TollFreeMAX (www.tollfreemax.com) (877 888 8MAX) and Kall8 (www.kall8.com) TollFreeMAX and Kall8 both allow you to set up toll-free numbers in 2 5 minutes. Calls can then be forwarded to any other numbers, and voicemail and statistics can be managed online or via e-mail. Checking Competitive Site Traffic Want to see how much traffic your competition is getting and who is linking to them? Compete ( www.compete.com ) Quantcast ( www.quantcast.com ) Alexa ( www.alexa.com ) Freelance Designers and Programmers 99Designs (www.99designs.com) and Crowdspring (www.crowdspring.com) I used 99Designs to get an excellent logo for www.litliberation.org in 24 hours for less than 150. I submitted the concept, more than 50 designers worldwide uploaded their best attempts, which I could browse, and I chose the best after suggesting a few improvements. From Crowdspring s site: Name your price, name your deadline, see entries within hours and be done in just days. The average project gets a whopping 68 entries. 25 entries or your money back. eLance ( www.elance.com ) (877 435 2623) Craigslist ( www.craigslist.org ) LIFESTYLE DESIGN IN ACTION I m a U.S. citizen and it was impossible for my friends and relatives to track me down by phone. Enter Skype In. It s not new but allows you to lease a fixed U.S. (or other country) phone number which then forwards to your Skype account. About 60 year. Within Skype you can then set up call forwarding to ring you at your local number. You pay the rate as if you were calling from the United States to wherever you are. I ve used this in about 40 countries and it works like a treat. The call quality is usually great and the convenience is amazing. http: www.skype.com allfeatures onlinenumber . A caveat is to always, ALWAYS get a local SIM card for your unlocked GSM phone. Roaming is for amateurs. A local SIM also gets you GPRS, Edge, or 3G. Sometimes even free Wifi. Cheers, TY KROLL Basically I try to keep all of my tools online so that if my laptop gets stolen, I can buy a new one and have everything up and running within 24 hours. Here are a few of the tools I use on a regular basis: RememberTheMilk.com has been really crucial to me keeping on top of my daily tasks. Freshbooks.com for online invoicing Highrise (http: www.highrisehq.com ) for online CRM Dropbox (getdropbox.com) for easy file sharing automatic backup of critical files while on the road TrueCrypt (truecrypt.org) for keeping your laptop data secure while on the road. Tim comment: This can also be used with a USB flash drive, and another cool feature it provides two levels of plausible deniability (hidden volumes, etc.) if someone forces you to reveal the password. PBwiki.com-Wiki site that helps me keep on top of the notes and ideas that I collect as I go through life. FogBugz on Demand: http: www.fogcreek.com FogBUGZ IntrotoOnDemand.html. It s a bug tracker aimed at software development companies, but I use it every day for both personal and business tasks. It s almost like a VA, as you can route your mail through it and it will help you sort it and keep track of it. It has great features to track e-mails, and there s a free version for two users (me VA!). RB CARTER A really useful service is Amazon s Mechanical Turk. With a small investment in time or money, a business that requires hundreds of people doing small bits of defined work becomes possible for extraordinarily low work-per-unit costs. Examples include the search for Steve Fosset (literally thousands of people looked at satellite photos that would have overwhelmed SAR agencies) and a trouble-ticket business that utilizes qualified labor all over the world (see Amazon.com webservices). I am not an owner nor do I have any stake in Amazon but I have used their services and some are trans forming when it comes to muse creation. Cheers, J MARYMEE FAST TO MARKET The fastest way to market with a product idea is: Registera.com. Get hosting from dathorn.com a cheap reseller account, like www.domainsinseconds.com . With two clicks set up a wordpress blog. Apply a theme to it. Add your content and a buy now button. The buy now button links to an enter e- mail address, phone number, etc., page. The user then clicks a continue to PayPal button. This automatically e-mails me their details, but then shows the user a message stating that the link to PayPal is currently not working. I use this to determine how many sales I would have achieved. I use Google ads to drive traffic I calculate theoretical ROI (ideally using Google analytics). If after a week or two I can see a positive ROI that s worth my effort I create or outsource the creation of the product (emag, PDF, whatever). I set it all up with a working link to PayPal, and then retrospectively send a message to the users who already tried to buy. Normally within hours I ve got all my money back, and the cash starts to roll. An example is the DIY public relations pack at www.mybusinesspr.com.au. Great work of the 4HWW looking forward to the next edition. 39. http: news.com.com 2100 1017 269594.html?legacy cnet. 40. It can be illegal to charge customers prior to shipment so we will not charge customers but it is still common practice. Why do so many commercials state allow three to four weeks for delivery if it only takes three to five days for a shipment to get from New York to California? It gives the companies time to manufacture product and use customers credit card payments to finance it. Clever but often against the law. 41. This applies to Sherwood and not Johanna. 42. How did I come up with the most successful BodyQUICK headline ( The Fastest Way to Increase Power and Speed Guaranteed )? I borrowed it from the longest-running, and thus most profitable, Rosetta Stone headline: The Fastest Way to Learn a Language Guaranteed. (tm) Reinventing the wheel is expensive become an astute observer of what is already working and adapt it. I keep a folder of all print and direct mail advertising that compels me to call a number or visit a website, and I use www.delicious.com to bookmark websites that convince me to provide my e-mail address or make a purchase. 43. Sherwood includes shipping and handling prior to the final order page so that people don t finalize the order just to confirm total pricing. He wants his orders to reflect real orders and not price checkers. 44. If you are rolling out after a successful test or building a large e-mail database, tools like www.aweber.com in the resources are better at scaling. 45. Keeping in mind that 100 specific terms at 0.10 per click will perform better than 10 broad terms at 1.00 per click, the more you spend, and thus the more traffic you drive, the more statistically valid the results will be. If budget permits, increase the number of related terms and daily expenditure so that the entire PPC test costs 500 1,000. 46. This is a checking account for receiving credit card payments. 47. Set this up using services detailed at the end of this chapter and the next. 48. See the online bonus chapter on www.fourhourblog.com to understand all of these terms in context. Search Jedi Mind Tricks. 49. Paper trading refers to setting an imaginary budget, purchasing stocks (writing their current values on a piece of paper), and then tracking their performance over time to see how your investment would have done had it been for real. It is a no-risk method for honing investment skills before putting skin in the game. Income Autopilot III MBA MANAGEMENT BY ABSENCE The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment. WARREN G. BENNIS, University of Southern California Professor of Business Administration; adviser to Ronald Reagan and John F. Kennedy Most entrepreneurs don t start out with automation as a goal. This leaves them open to mass confusion in a world where each business guru contradicts the next. Consider the following: A company is stronger if it is bound by love rather than by fear . If the employees come first, then they re happy. HERB KELLEHER, cofounder of Southwest Airlines Look, kiddie. I built this business by being a bastard. I run it by being a bastard. I ll always be a bastard, and don t you ever try to change me. 50 CHARLES REVSON, founder of Revlon, to a senior executive within his company Hmm Whom to follow? If you are fast on your feet, you ll notice that I just offered you an eitheror option. The good news is that, as usual, there is a third option. The contradictory advice you find in business books and elsewhere usually relates to managing employees how to handle the human element. Herb tells you to give them a hug, Revson tells you to kick them in the balls, and I tell you to solve the problem by eliminating it altogether: Remove the human element. Once you have a product that sells, it s time to design a self-correcting business architecture that runs itself. The Remote-Control CEO The power of hiding ourselves from one another is mercifully given, for men are wild beasts, and would devour one another but for this protection. HENRY WARD BEECHER, U.S. abolitionist and clergyman, Proverbs from Plymouth Pulpit RURAL PENNSYLVANIA In a 200-year-old stone farmhouse, a quiet experiment in 21st-century leadership is proceeding exactly as planned. 51 Stephen McDonnell is upstairs in his flip-flops looking at a spreadsheet on his computer. His company has increased its annual revenue 30 per year since it all began, and he is able to spend more time with his three daughters than he ever thought possible. The experiment? As CEO of Applegate Farms, he insists on spending just one day per week at the company headquarters in Bridgewater, New Jersey. He s not the only CEO who spends time at home, of course there are hundreds who have heart attacks or nervous breakdowns and need time to recover but there is a huge difference. McDonnell has been doing it for more than 17 years. Rarer still, he started doing it just six months after founding the company. This intentional absence has enabled him to create a process-driven instead of founder-driven business. Limiting contact with managers forces the entrepreneur to develop operational rules that enable others to deal with problems themselves instead of calling for help. This isn t just for small operations. Applegate Farms sells more than 120 organic and natural meat products to high-end retailers and generates more than 35 million in revenue per year. It is all possible because McDonnell started with the end in mind. Behind the Scenes: The Muse Architecture Orders are nobody can see the Great Oz! Not nobody, not nohow! GUARDIAN OF THE EMERALD CITY GATES, The Wizard of Oz Starting with the end in mind an organizational map of what the eventual business will look like is not new. Infamous deal-maker Wayne Huizenga copied the org chart of McDonald s to turn Blockbuster into a billion-dollar behemoth, and dozens of titans have done much the same. In our case, it s the end in mind that is different. Our goal isn t to create a business that is as large as possible, but rather a business that bothers us as little as possible. The architecture has to place us out of the information flow instead of putting us at the top of it. I didn t get this right the first time I tried. In 2003, I was interviewed in my home office for a documentary called As Seen on TV. We were interrupted every 20 30 seconds with beeping e-mail notifications, IM pings, and ringing phones. I couldn t leave them unanswered, because dozens of decisions depended on me. If I didn t ensure the trains were running on time and put out the fires, no one would. The Anatomy of Automation THE 4-HOUR WORKWEEK VIRTUAL ARCHITECTURE Splitting the Pie: Outsourcer Economics Each outsourcer takes a piece of the revenue pie. Here is what the general profit-loss might look like for a hypothetical 80 product sold via phone and developed with the help of an expert, who is paid a royalty. I recommend calculating profit margins using higher-than-anticipated expenses. This will account for unforeseen costs (read: screwups) and miscellaneous fees such as monthly reports, etc. How do you factor in advertising cost? If a 1,000 ad or 1,000 in PPC produces 50 sales, my advertising cost per order (CPO) is 20. This makes the actual per-unit profit 40.94. I set a new goal after that experience, and when I was interviewed six months later as a follow-up, one change was more pronounced than all others: silence. I had redesigned the business from the ground up so that I had no phone calls to answer and no e-mail to respond to. I m often asked how big my company is how many people I employ full-time. The answer is one. Most people lose interest at that point. If someone were to ask me how many people run Brain- QUICKEN LLC, on the other hand, the answer is different: between 200 and 300. I am the ghost in the machine. 52 From advertisements print in this example to a cash deposit in my bank account, the diagram is what a simplified version of my architecture looks like, including some sample costs. If you have developed a product based on the guidelines in the last two chapters, it will plug into this structure handin-glove. Where am I in the diagram? Nowhere. I am not a tollbooth through which anything needs to pass. I am more like a police officer on the side of the road who can step in if need be, and I use detailed reports from outsourcers to ensure the cogs are moving as intended. I check reports from fulfillment each Monday and monthly reports from the same the first of each month. The latter reports include orders received from the call center, which I can compare to the call center bills to gauge profit. Otherwise, I just check bank accounts online on the first and fifteenth of each month to look for odd deductions. If I find something, one e-mail will fix it, and if not, it s back to kendo, painting, hiking, or whatever I happen to be doing at the time. Removing Yourself from the Equation: When and How The system is the solution. AT T The diagram should be your rough blueprint for designing a self-sustaining virtual architecture. There could be differences more or fewer elements but the main principles are the same: 1. Contract outsourcing companies 53 that specialize in one function vs. freelancers whenever possible so that if someone is fired, quits, or doesn t perform, you can replace them without interrupting your business. Hire trained groups of people who can provide detailed reporting and replace one another as needed. 2. Ensure that all outsourcers are willing to communicate among themselves to solve problems, and give them written permission to make most inexpensive decisions without consulting you first (I started at less than 100 and moved to 400 after two months). How do you get there? It helps to look at where entrepreneurs typically lose their momentum and stall permanently. Most entrepreneurs begin with the cheapest tools available, bootstrapping and doing things themselves to get up and running with little cash. This isn t the problem. In fact, it s necessary so that the entrepreneurs can train outsourcers later. The problem is that these same entrepreneurs don t know when and how to replace themselves or their homemade infrastructure with something more scalable. By scalable, I mean a business architecture that can handle 10,000 orders per week as easily as it can handle 10 orders per week. Doing this requires minimizing your decision-making responsibilities, which achieves our goal of time freedom while setting the stage for doubling and tripling income with no change in hours worked. Call the companies at the end of the chapter to research costs. Plan and budget accordingly to upgrade infrastructure at the following milestones, which I measure in units of product shipped: Phase I: 0 50 Total Units of Product Shipped Do it all yourself. Put your phone number on the site for both general questions and order-taking this is important in the beginning and take customer calls to determine common questions that you will answer later in an online FAQ. This FAQ will also be the main material for training phone operators and developing sales scripts. Is PPC, an offline advertisement, or your website too vague or misleading, thus attracting unqualified and time-consuming consumers? If so, change them to answer common questions and make the product benefits (including what it isn t or doesn t do) clearer. Answer all e-mail and save your responses in one folder called customer service questions. CC yourself on responses and put the nature of the customers questions in the subject lines for future indexing. Personally pack and ship all product to determine the cheapest options for both. Investigate opening a merchant account from your local small bank (easier to get than with a larger bank) for later outsourced credit card processing at higher roll-out volumes. Phase II: 10 Units Shipped Per Week Add the extensive FAQ to your website and continue to add answers to common questions as received. Find local fulfillment companies in the yellow pages under fulfillment services or mailing services. If you cannot find one there or at www.mfsanet.org, call local printers and ask them for recommendations. Narrow the field to those (often the smallest) who will agree not to charge you setup fees and monthly minimums. If this isn t possible, ask for at least 50 off both and then request that the setup fee be applied as an advance against shipping or their other fees. Limit the candidates further to those who can respond to order status e-mail (ideal) or phone calls from customers. The e-mail from your customer service folder will be provided as copy-and-paste responses, especially those related to order status and refund requests. 54 To lower or eliminate miscellaneous fees, explain that you are a start-up and that your budget is small. Tell them you need the cash for advertising that will drive more shipments. If needed, mention the competitive companies that you are considering and pit them against one another, using lower pricing or concessions from one to get larger discounts and bonuses from the others. Before making your final selection, ask for at least three client references and use the following to elicit the negatives: I understand they re good, but everyone has weaknesses. If you had to point out where you ve had some issues and what they re not the best at, what would you say? Can you please describe an incident or a disagreement? I expect these with all companies, so it s no big deal, and it s confidential, of course. Ask for net-30 terms payment for services 30 days after they re rendered after one month of prompt payment for their services. It is easier to negotiate all of the above points with smaller operations that need the business. Have your contract manufacturer ship product directly to the fulfillment house once you have decided on one and put the fulfillment house s e-mail (you can use an e-mail address at your domain and forward it) or phone number on the online thank you page for order status questions. Phase III: 20 Units Shipped Per Week Now you will have the cash flow to afford the setup fees and the monthly minimums that bigger, more sophisticated outsourcers will ask for. Call the end-to-end fulfillment houses that handle it all from order status to returns and refunds. Interview them about costs and ask them for referrals to call centers and credit card processors they ve collaborated with for file transfers and problem solving. Don t assemble an architecture of strangers there will be programming costs and mistakes, both of which are expensive. Set up an account with the credit card processor first, for which you will need your own merchant account. This is critical, as the fulfillment house can only handle refunds and declined cards for transactions they process themselves through an outsourced credit card processor. Optionally, set up an account with one of the call centers your new fulfillment center recommends. These will often have toll-free numbers you can use instead of purchasing your own. Look at the percentage split of online to phone orders during testing and consider carefully if the extra revenue from the latter is worth the hassle. It often isn t. Those who call to order will generally order online if given no other option. Before signing on with a call center, get several 800 numbers they answer for current clients and make test calls, asking difficult product-related questions and gauging sales abilities. Call each number at least three times (morning, afternoon, and evening) and note the make-or-break factor: wait time. The phone should be answered within three to four rings, and if you are put on hold, the shorter the wait the better. More than 15 seconds will result in too many abandoned calls and waste advertising dollars. The Art of Undecision: Fewer Options More Revenue Companies go out of business when they make the wrong decisions or, just as important, make too many decisions. The latter creates complexity. MIKE MAPLES, cofounder of Motive Communications (IPO to 260 million market cap), founding executive of Tivoli (sold to IBM for 750 million), and investor in companies such as Digg.com Joseph Sugarman is the marketing genius behind dozens of direct-response and retail successes, including the BluBlocker sunglasses phenomenon. Prior to his string of home runs on television (he sold 20,000 pairs of BluBlockers within 15 minutes of his first QVC appearance), his domain was print media, where he made millions and built an empire called JS A Group. He was once recruited to design an advertisement for a manufacturer s watch line. The manufacturer wanted to feature nine different watches in the ad, and Joe recommended featuring just one. The client insisted and Joe offered to do both and test them in the same issue of The Wall Street Journal. The result? The one-watch offer outsold the nine-watch offer 6-to-1. 55 Henry Ford once said, referring to his Model-T, the bestselling car of all time, 56 The customer can have any color he wants, so long as it s black. He understood something that businesspeople seem to have forgotten: Serving the customer ( customer service ) is not becoming a personal concierge and catering to their every whim and want. Customer service is providing an excellent product at an acceptable price and solving legitimate problems (lost packages, replacements, refunds, etc.) in the fastest manner possible. That s it. The more options you offer the customer, the more indecision you create and the fewer orders you receive it is a disservice all around. Furthermore, the more options you offer the customer, the more manufacturing and customer service burden you create for yourself. The art of undecision refers to minimizing the number of decisions your customers can or need to make. Here are a few methods that I and other NR have used to reduce service overhead 20 80 : 1. Offer one or two purchase options ( basic and premium, for example) and no more. 2. Do not offer multiple shipping options. Offer one fast method instead and charge a premium. 3. Do not offer overnight or expedited shipping (it is possible to refer them to a reseller who does, as is true with all of these points), as these shipping methods will produce hundreds of anxious phone calls. 4. Eliminate phone orders completely and direct all prospects to online ordering. This seems outrageous until you realize that success stories like Amazon.com have depended on it as a fundamental cost-saver to survive and thrive. 5. Do not offer international shipments. Spending 10 minutes per order filling out customs forms and then dealing with customer complaints when the product costs 20 100 more with tariffs and duties is about as fun as headbutting a curb. It s about as profitable, too. Some of these policies hint at what is perhaps the biggest time-saver of all: customer filtering. Not All Customers Are Created Equal Once you reach Phase III and have some cash flow, it s time to re-evaluate your customers and thin the herd. There are good and bad versions of all things: good food, bad food; good movies, bad movies; good sex, bad sex; and, yes, good customers and bad customers. Decide now to do business with the former and avoid the latter. I recommend looking at the customer as an equal trading partner and not as an infallible blessing of a human being to be pleased at all costs. If you offer an excellent product at an acceptable price, it is an equal trade and not a begging session between subordinate (you) and superior (customer). Be professional but never kowtow to unreasonable people. Instead of dealing with problem customers, I recommend you prevent them from ordering in the first place. I know dozens of NR who don t accept Western Union or checks as payment. Some would respond to this with, You re giving up 10 15 of your sales! The NR, in turn, would say, I am, but I m also avoiding the 10 15 of the customers who create 40 of the expenses and eat 40 of my time. It s classic 80 20. Those who spend the least and ask for the most before ordering will do the same after the sale. Cutting them out is both a good lifestyle decision and a good financial decision. Low-profit and highmaintenance customers like to call operators and spend up to 30 minutes on the phone asking questions that are unimportant or answered online, costing in my case 24.90 (30 x 0.83) per 30-minute incident, eliminating the minuscule profit they contribute in the first place. Those who spend the most complain the least. In addition to our premium 50 200 pricing, here are a few additional policies that attract the high-profit and low-maintenance customers we want: 1. Do not accept payment via Western Union, checks, or money order. 2. Raise wholesale minimums to 12 100 units and require a tax ID number to qualify resellers who are real businesspeople and not time-intensive novices. Don t run a personal business school. 3. Refer all potential resellers to an online order form that must be printed, filled out, and faxed in. Never negotiate pricing or approve lower pricing for higher-volume orders. Cite company policy due to having had problems in the past. 4. Offer low-priced products ( la MRI s NO2 book) instead of free products to capture contact information for follow-up sales. Offering something for free is the best way to attract time-eaters and spend money on those unwilling to return the favor. 5. Offer a lose-win guarantee (see boxed text) instead of free trials. 6. Do not accept orders from common mail fraud countries such as Nigeria. Make your customer base an exclusive club, and treat the members well once they ve been accepted. The Lose-Win Guarantee How to Sell Anything to Anyone If you want a guarantee, buy a toaster. CLINT EASTWOOD The 30-day money-back guarantee is dead. It just doesn t have the pizzazz it once did. If a product doesn t work, I ve been lied to and will have to spend an afternoon at the post office to return it. This costs me more than just the price I paid for the product, both in time and actual postage. Risk elimination just isn t enough. This is where we enter the neglected realm of lose-win guarantees and risk reversal. The NR use what most consider an afterthought the guarantee as a cornerstone sales tool. The NR aim to make it profitable for the customer even if the product fails. Lose-win guarantees not only remove risk for the consumer but put the company at financial risk. Here are a few examples of putting your money where your mouth is. Delivered in 30 minutes or less or it s free! (Domino s Pizza built its business on this guarantee.) We re so confident you ll like CIALIS, if you don t we ll pay for the brand of your choice. (The CIALIS Promise Program offers a free sample of CIALIS and then offers to pay for competing products if CIALIS doesn t live up to the hype.) If your car is stolen, we ll pay 500 of your insurance deductible. (This guarantee helped THE CLUB become the 1-selling mechanical automobile anti-theft device in the world.) 110 guaranteed to work within 60 minutes of the first dose. (This was for BodyQUICK and a first among sports nutrition products. I offered to not only refund customers the price of the product if it didn t work within 60 minutes of the first dose, but also to send them a check for 10 more.) The lose-win guarantee might seem like a big risk, especially when someone can abuse it for profit like in the BodyQUICK example, but it isn t if your product delivers. Most people are honest. Let s look at some actual numbers. Returns for BodyQUICK, even with a 60-day return period (and partially because of it 57 ), are less than 3 in an industry in which the average is 12 15 for a normal 30-day 100 money-back guarantee. Sales increased more than 300 within four weeks of introducing the 110 guarantee, and returns decreased overall. Johanna adopted this lose-win offer and came up with Increase sport-specific flexibility 40 in two weeks or return it for a full refund (including shipping) and keep the 20-minute bonus DVD as our gift. Sherwood found his guarantee as well: If these shirts are not the most comfortable you ve ever worn, return them and get 2-times your purchase price back. Each shirt is also guaranteed for life if it gets threadbare, send it back and we ll replace it free of charge. Both of them increased sales more than 200 in the first two months. Return percentage remained the same for Johanna and increased 50 for Sherwood, from 2 to 3 . Disaster? Far from it. Instead of selling 50 and getting one back with a 100 guarantee (50 x 100) 100 4,900 in revenue , he sold 200 and got six back with the 200 guarantee (200 x 100) (6 x 200) 18,800 in revenue . I ll take the latter. Lose-win is the new win-win. Stand out and reap the rewards. Little Blue Chip: How to Look Fortune 500 in 45 Minutes Are you tired of sand being kicked in your face? I promise you new muscles in days! CHARLES ATLAS, strongman who sold more than 30 million worth of dynamic-tension muscle courses through comic books If approaching large resellers or potential partners, small company size will be an obstacle. This discrimination is often as insurmountable as it is unfounded. Fortunately, a few simple steps can dramatically upgrade your budding Fortune 500 image and take your muse from coffee shop to boardroom in 45 minutes or less. 1. Don t be the CEO or founder. Being the CEO or Founder screams start-up. Give yourself the mid-level title of vice president (VP), director, or something similar that can be added to depending on the occasion (Director of Sales, Director of Business Development, etc.). For negotiation purposes as well, remember that it is best not to appear to be the ultimate decision-maker. 2. Put multiple e-mail and phone contacts on the website. Put various e-mail addresses on the contact us page for different departments, such as human resources, sales, general inquiries, wholesale distribution, media PR, investors, web comments, order status, and so on. In the beginning, these will all forward to your e-mail address. In Phase III, most will forward to the appropriate outsourcers. Multiple toll-free numbers can be used in the same fashion. 3. Set up an Interactive Voice Response (IVR) remote receptionist. It is possible to sound like a blue chip for less than 30. In fewer than ten minutes on a site such as www.angel.com, which boasts clients such as Reebok and Kellog s, it is possible to set up an 800 number that greets callers with a voice prompt such as, Thank you for calling business name . Please say the name of the person or department you would like to reach or just hold on for a list of options. Upon speaking your name or selecting the appropriate department, the caller is forwarded to your preferred phone or the appropriate outsourcer with on-hold music and all. 4. Do not provide home addresses. Do not use your home address or you will get visitors. Prior to securing an end-to-end fulfillment house that can handle checks and money orders if you decide to accept them use a post office box but leave out the PO Box and include the street address of the post office itself. Thus PO Box 555, Nowhere, US 11936 becomes Suite 555, 1234 Downtown Ave., US 11936. Go forth and project professionalism with a well-designed image. Perceived size does matter. COMFORT CHALLENGE Relax in Public (2 days) This is the last Comfort Challenge, placed prior to the chapter that tackles the most uncomfortable turning point for most office dwellers: negotiating remote work agreements. This challenge is intended to be fun while showing in no uncertain terms that the rules most follow are nothing more than social conventions. There are no legal boundaries stopping you from creating an ideal life or just being selfentertained and causing mass confusion. So, relaxing in public. Sounds easy, right? I m somewhat famous for relaxing in style to get a laugh out of friends. Here is the deal, and I don t care if you re male or female, 20 or 60, Mongolian or Martian. I call the following a time-out. Once per day for two days, simply lie down in the middle of a crowded public place at some point. Lunchtime is ideal. It can be a well-trafficked sidewalk, the middle of a popular Starbucks, or a popular bar. There is no real technique involved. Just lie down and remain silent on the ground for about ten seconds, and then get up and continue on with whatever you were doing before. I used to do this at nightclubs to clear space for break-dancing circles. No one responded to pleading, but going catatonic on the ground did the trick. Don t explain it at all. If someone asks about it after the fact (he or she will be too confused to ask you while you re doing it for 10 seconds), just respond, I just felt like lying down for a second. The less you say, the funnier and more gratifying this will be. Do it on solo missions for the first two days, and then feel free to do it when with a group of friends. It s a riot. It isn t enough to think outside the box. Thinking is passive. Get used to acting outside the box. TOOLS AND TRICKS Looking Huge Virtual Receptionist and IVR Angel ( www.angel.com ) Get an 800 number with professional voice menu (voice recognition departments, extensions, etc.) in five minutes. Incredible. Ring Central ( www.ringcentral.com ) Offers toll-free numbers, call screening and forwarding, voicemail, fax send and receive, and message alerts, all online. CD DVD Duplication, Printing, and Product Packaging AVC Corporation ( www.avccorp.com ) SF Video ( www.sfvideo.com ) Local Fulfillment (fewer than 20 units shipped per week) Mailing Fulfillment Service Association ( www.mfsanet.org ) End-to-End Fulfillment Companies (more than 20 units shipped per week, 500 setup) Motivational Fulfillment ( www.mfpsinc.com ) The secret backend to campaigns from HBO, PBS, Comic Relief, Body by Jake, and more. Innotrac ( www.innotrac.com ) They are currently one of the largest DR marking companies. Moulton Fulfillment ( www.moultonfulfillment.com ) 200,000-square-foot facility with real-time online inventory reports. Call Centers (per-minute and or per-sale fees) There are generally two classes of call centers: order takers and commissioned reps. Interview each provider you consider to understand the options and costs involved. The former is a good option if you give the product price in an advertisement (hard offer), are offering free information (lead generation), or don t need trained salespeople who can overcome objections. In other words, your ad or website is pre-qualifying prospects. The latter would more appropriately be called sales centers. Operators are commissioned and trained closers whose sole goal is to convert callers to buyers. These calls are often in response to call for information trial sample ads that don t feature a price (soft offers). Expect higher costs per sale. LiveOps ( www.liveops.com ) Pioneer in home-based reps, which often ensures more calls are answered. Provides comprehensive service with agents, IVR, and Spanish. Often used for one-step order taking instead of soft offers. West Teleservices ( www.west.com ) 29,000 employees worldwide, processes billions of minutes per year. All the high-volume and low-price players use them for lower-priced products or higher-end products with free trials and installment plans. NexRep ( www.nexrep.com ) Highly skilled home-based sales agents that specialize in B2C and B2B, inbound and outbound programs. If performance, speed to respond, Internet integration, and quality customer experience are your priorities, this is a strong option to consider. Triton Technology ( www.tritontechnology.com ) Commission-only sales center know for incredible closing abilities (see the movie Boiler Room and Alec Baldwin s character in Glengarry, Glen Ross). Don t call unless your product sells for at least 100. CenterPoint Teleservices ( http: www.centerpointllc.com ) This sales force has experience to convert sales from hard offers, soft offers, and multiple offers (upselling additional products after a caller agrees to purchase the advertised product) originating from radio, TV, print, or the web. Stewart Response Group ( www.stewartresponsegroup.com ) Sales-driven call center leveraging the home-agent model for both inbound and outbound programs. Another high-touch boutique center. Credit Card Processors (merchant account through your bank necessary) These companies, unlike options in the last chapter, specialize in not only processing credit cards but interacting with fulfillment on your behalf, removing you from the flowchart. TransFirst Payment Processing ( www.transfirst.com ) Chase Paymentech ( www.paymentech.com ) Trust Commerce ( www.trustcommerce.com ) PowerPay (www.powerpay.biz) One of the Inc. 500 Fastest-Growing Private Companies. Process credit cards from your iPhone and more. Affiliate Program Software My Affiliate Program ( www.myaffiliateprogram.com ) Also see the affiliate programs listed in the Tools and Tricks at the end of Chapter 9. Discount Media Buying Agencies If you go to a magazine, radio station, or TV channel and pay rate card the retail pricing first given you will never make it big. To save a lot of headache and expense, consider using ad agencies that negotiate discounts of up to 90 in their chosen media. Manhattan Media (Print) ( www.manhmedia.com ) Great agency with fast turnaround. I ve used them since the beginning. Novus Media (Print) ( www.novusprintmedia.com ) Relationships with 1,400 magazine and newspaper publishers with an average of 80 of rate card. Clients include Sharper Image and Office Depot. Mercury Media (TV) ( www.mercurymedia.com ) Largest private DR media agency in the U.S. Specialists in TV but can also handle radio and print. Offer full tracking and reporting to determine ROI. Euro RSCG (Cross Media) ( http: www.eurorscgedge.com ) One of the worldwide leaders in DRTV media across all platforms. Canella Media Response Television (TV) ( http: www.drtv.com ) Uses the innovative P I (per inquiry) model for compensation, where you split order profits instead of paying for time upfront. This is more expensive per order if you have a successful campaign, but it lowers upfront investment in media. Marketing Architects (Radio) ( www.marketingarchitects.com ) The de facto leaders in radio DR but a bit on the expensive side. Almost all of the most successful DR products Carlton Sheets No Money Down, Tony Robbins, etc. have used them. Radio Direct Response (Radio) ( www.radiodirect.com ) Mark Lipsky has put together a great firm, with clients ranging from small direct marketers to Travel Channel and Wells Fargo. Online Marketing and Research Firms (PPC campaign management, etc.) Starting Small Find a Local Individual to Help SEMPO (www.sempo.org; see the member directory) Excellent Mid-Size Firms Clicks 2 Customers (www.clicks2customers.com) Working Planet (www.workingplanet.com) The Hard-Hitting Pros Small Campaigns Start at Several Thousand Dollars Marketing Experiments (www.marketingexperiments.com) This is my team. Did It ( www.did-it.com ) ROIRevolution ( www.roirevolution.com ) Cost is determined by a percentage above monthly PPC spend. iProspect ( www.iprospect.com ) Full-Service Infomercial Producers These are the companies that made Oreck Direct, Nutrisystem, Nordic-Track, and Hooked on Phonics household names. The first has an excellent DRTV glossary and both sites offer excellent resources. Don t call unless you can budget at least 15,000 for a short-form commercial or 50,000 for a longform infomercial. Cesari Direct ( http: www.cesaridirect.com ) Hawthorne Direct (www.hawthornedirect.com) Script-to-Screen (www.scripttoscreen.com) Retail and International Product Distribution Want to get your product on the shelves of Wal-Mart, Costco, Nordstrom, or the leading department store in Japan? Sometimes it pays to have experts with relationships get you there. Tristar Products ( http: www.tristarproductsinc.com ) Behind the PowerJuicer and other hits. Tristar also owns their own production studio and can therefore offer end-to-end services in addition to retail distribution. BJ Direct (International) ( www.bjgd.com ) Celebrity Brokers Want a celebrity to endorse your product or be a spokesperson? It can cost a lot less than you think, if you do it right. I know of one clothing endorsement deal with the best pitcher in Major League Baseball that cost just 20,000 per year. Here are the brokers who can make it happen: Celeb Brokers ( www.celebbrokers.com ) President Jack King was the one who first turned me on to this fascinating world. He knows it all inside and out. Celebrity Endorsement Network ( www.celebrityendorsement.com ) Celebrity Finding Contact Any Celebrity ( www.contactanycelebrity.com ) It is possible to do it yourself, as I have done many times. This online directory and its helpful staff will help you find any celebrity in the world. LIFESTYLE DESIGN IN ACTION After I read the section on outsourcing, I thought it sounded like a novel idea but would never work for me. However, since the rest of the book was spot on, I decided to try it. Rather than ship my money overseas, I opted to keep it in the U.S. and use my niece in college, with skills on computers I can t even fathom, to test the theory. Turns out it has been a great experience and timesaver for me, as well as moneymaker for her. It seems I have all of the positives of out sourcing but none of the hassles of language and such . Being able to mold a young mind for the better ties in well with the rest of your book KEN D. Hey Tim, You mentioned www.weebly.com a few months ago, and I ve been using that to build all my muse sites and think it s great! Also, Facebook groups has (almost) every niche imaginable. So what I have found success in doing is: (1) Finding a niche group that would buy my muse, (2) sending a message to each admin telling them how my muse will help their group members. Then politely asking them to put a blurb in the Recent News section of the group. This makes it more trustworthy than a wall post, and it stays up there (free advertising) until the admin removes it. One hundred times better than a wall post. In one case, the admin purchased my muse, posted my note for me on the groups Recent News section, then e-mailed the entire group telling them they have to check out my site. GAVIN 50. Richard Tedlow, Giants of Enterprise: Seven Business Innovators and the Empires They Built (2001; reprint, HarperBusiness, 2003). 51. This is adapted from The Remote Control CEO, Inc. magazine, October 2005. 52. Actually, I m the ghost in new machines now, as I sold BrainQUICKEN in 2009 to a private equity firm. 53. Contract outsourcing companies can be as simple as dependable web-based services. Don t let the term intimidate you. 54. Sample e-mail responses for fulfillment purposes can be found at www.fourhourblog.com. 55 Joseph Sugarman, Advertising Secrets of the Written Word (DelStar Books, 1998). 56 Depending on whose math is used (number of cars vs. gross sales), some claim the original Volkswagen Beetle holds the record. 57. For the benefit of the customer and to capitalize on universal laziness (me included), provide as much time as possible to consider or forget the product. Ginsu knives offered a 50-year guarantee. Can you offer a 60-, 90-, or even 365-day guarantee? Gauge average return percentages with a 30- or 60-day guarantee first (for budgeting calculations and cash-flow projections) and then extend it. Step IV: L is for Liberation It is far better for a man to go wrong in freedom than to go right in chains . THOMAS H. HUXLEY, English biologist; known as Darwin s Bulldog Disappearing Act HOW TO ESCAPE THE OFFICE By working faithfully eight hours a day, you may eventually get to be a boss and work twelve hours a day. ROBERT FROST, American poet and winner of four Pulitzer Prizes On this path, it is only the first step that counts. ST. JEAN BAPTISTE MARIE VIANNEY, Catholic saint, Cur d Ars PALO ALTO , CALIFORNIA We re not going to expense the phone. I m not asking you to. Silence. Then a nod, a laugh, and a crooked smile of resignation. OK, then it s fine. And that was that, lickity-split. Forty-four-year old Dave Camarillo, lifelong employee, had cracked the code and started his second life. He hadn t been fired; he hadn t been yelled at. His boss seemed to be handling the whole situation quite well. Granted, Dave delivered the goods on the job, and it wasn t like he was doing naked snow angels in client meetings, but still he had just spent 30 days in China without telling anyone. It wasn t half as hard as I thought it would be. Dave works among more than 10,000 employees at Hewlett- Packard (HP), and against all odds he actually likes it. He has no desire to start his own company and has spent the last seven years doing tech support for customers in 45 states and 22 countries. Six months ago, however, he had a small problem. She measured 5 2 and weighed 110 pounds. Was he, like most men, afraid of commitment, unwilling to stop running around the house in Spider- Man underoos, or inseparable from the last refuge of any self-respecting man, the PlayStation? No, he was past all that. In fact, Dave was locked and loaded, ready to pop the big question, but he was short on vacation days and his girlfriend lived out of town. Waaaaay out of town 5,913 miles out of town. He had met her on a client visit to Shenzhen, China, and it was now time to meet the parents, logistics be damned. Dave had only recently begun to take tech calls at home, and, well, isn t home where the heart is? One plane ticket and one T-Mobile GSM tri-band phone later, he was somewhere over the Pacific en route to his first seven-day experiment. Twelve time zones hence, he proposed, she accepted, and no one was the wiser stateside. The second field trip was a 30-day tour of Chinese family and food (pig face, anyone?), ending with Shumei Wu becoming Shumei Camarillo. Back in Palo Alto, HP continued its quest for world domination, neither knowing nor caring where Dave was. He had his calls forwarded to his newly begotten wife s cell phone and all was right in the world. Now back in the U.S. after hoping for the best and preparing for the worst, Dave had earned his Eagle Scout mobility badge. The future looks flexible, indeed. He is going to start by spending two months in China every summer and then move to Australia and Europe to make up for lost time, all with the full support of his boss. The key to cutting the leash was simple he asked for forgiveness instead of permission. I didn t travel for 30 years of my life so why not? THAT S PRECISELY THE question everyone should be asking why the hell not? From Caste to Castaway The old rich, the upper class of yore with castles and ascots and irritating little lapdogs, are characterized as being well-established in one place. The Schwarzes of Nantucket and the McDonnells of Charlottesville. Blech. Summers in the Hamptons is sooooo 1990s. The guard is changing. Being bound to one place will be the new defining feature of middle class. The New Rich are defined by a more elusive power than simple cash unrestricted mobility. This jet-setting is not limited to start-up owners or freelancers. Employees can pull it off, too. 58 Not only can they pull it off, but more and more companies want them to pull it off. BestBuy, the consumer electronics giant, is now sending thousands of employees home from their HQ in Minnesota and claims not only lowered costs, but also a 10 20 increase in results. The new mantra is this: Work wherever and whenever you want, but get your work done. In Japan, a three-piece zombie who joins the 9 5 grind each morning is called a sarari-man salaryman and, in the last few years, a new verb has emerged: datsu-sara suru, to escape (datsu) the salaryman (sara) lifestyle. It s your turn to learn the datsu-sara dance. 59 Trading Bosses for Beer: An Oktoberfest Case Study To create the proper leverage to be unshackled, we ll do two things: demonstrate the business benefit of remote working and make it too expensive or excruciating to refuse a request for it. Remember Sherwood? His French shirts are beginning to move and he is itching to ditch the U.S. for a global walkabout. He has more than enough cash now but needs to escape constant supervision in the office before he can implement all the timesaving tools from Elimination and travel. He is a mechanical engineer and is producing twice as many designs in half the time since erasing 90 of his time-wasters and interruptions. This quantum leap in performance has been noticed by his supervisors and his value to the company has increased, making it more expensive to lose him. More value means more leverage for negotiations. Sherwood has been sure to hold back some of his productivity and efficiency so that he can highlight a sudden jump in both during a remote work trial period. Since eliminating most of his meetings and in-person discussions, he has naturally moved about 80 of all communication with his boss and colleagues to e-mail and the remaining 20 to phone. Not only this, but he has used tips from chapter 7, Interrupting Interruption and the Art of Refusal, to cut unimportant and repetitive e-mail volume in half. This will make the move to remote less noticeable, if at all noticeable, from a managerial standpoint. Sherwood is running at full speed with less and less supervision. Sherwood implements his escape in five steps, beginning on July 12 during the slow business season and lasting two months, ending with a trip to Oktoberfest in Munich, Germany, for two weeks as a final test before bigger and bolder vagabonding plans. Step 1: Increase Investment First, he speaks with his boss on July 12 about additional training that might be available to employees. He proposes having the company pay for a four-week industrial design class to help him better interface with clients, being sure to mention the benefit to the boss and business (i.e., he ll decrease intradepartmental back-and-forth and increase both client results and billable time). Sherwood wants the company to invest as much as possible in him so that the loss is greater if he quits. Step 2: Prove Increased Output Offsite Second, he calls in sick the next Tuesday and Wednesday, July 18 and 19, to showcase his remote working productivity. 60 He decides to call in sick between Tuesday and Thursday for two reasons: It looks less like a lie for a three-day weekend and it also enables him to see how well he functions in social isolation without the imminent reprieve of the weekend. He ensures that he doubles his work output on both days, leaves an e-mail trail of some sort for his boss to notice, and keeps quantifiable records of what he accomplished for reference during later negotiations. Since he uses expensive CAD software that is only licensed on his office desktop, Sherwood installs a free trial of GoToMyPC remote access software so that he can pilot his office computer from home. Step 3: Prepare the Quantifiable Business Benefit Third, Sherwood creates a bullet-point list of how much more he achieved outside the office with explanations. He realizes that he needs to present remote working as a good business decision and not a personal perk. The quantifiable end result was three more designs per day than his usual average and three total hours of additional billable client time. For explanations, he identifies removal of commute and fewer distractions from office noise. Step 4: Propose a Revocable Trial Period Fourth, fresh off completing the comfort challenges from previous chapters, Sherwood confidently proposes an innocent one-day-per-week remote work trial period for two weeks. He plans a script in advance but does not make it a PowerPoint presentation or otherwise give it the appearance of something serious or irreversible. 61 Sherwood knocks on his boss s office door around 3 P.M. on a relatively relaxed Thursday, July 27, the week after his absence, and his script looks like the following. Stock phrases are underlined and footnotes explain negotiating points. Sherwood: Hi, Bill. Do you have a quick second? Bill: Sure. What s up? Sherwood: I just wanted to bounce an idea off of you that s been on my mind. Two minutes should be plenty. Bill: OK. Shoot. Sherwood: Last week, as you know, I was sick. Long story short, I decided to work at home despite feeling terrible. So here s the funny part. I thought I would get nothing done, but ended up finishing three more designs than usual on both days. Plus, I put in three more billable hours than usual without the commute, office noise, distractions, etc. OK, so here s where I m going. Just as a trial, I d like to propose working from home Mondays and Tuesdays for just two weeks. You can veto it whenever you want, and I ll come in if we need to do meetings, but I d like to try it for just two weeks and review the results. I m 100 confident that I ll get twice as much done. Does that seem reasonable? Bill: Hmm What if we need to share client designs? Sherwood: There s a program called GoToMyPC that I used to access the office computer when I was sick. I can view everything remotely, and I ll have my cell phone on me 24 7. Sooooo What do you think? Test it out starting next Monday and see how much more I get done? 62 Bill: Ummm OK, fine. But it s just a test. I have a meeting in five and have to run, but let s talk soon. Sherwood: Great. Thanks for the time. I ll keep you posted on it all. I m sure you ll be pleasantly surprised. Sherwood didn t expect to get two days per week approved. He asked for two so that, in the case his boss refused, he could ask for just one as a fallback position (bracketing). Why didn t Sherwood go for five days remote per week? Two reasons. First, it s a lot for management to accept off the bat. We need to ask for an inch and turn it into a foot without setting off panic alarms. Second, it is a good idea to hone your remote-working abilities rehearse a bit before shooting for the big time, as it decreases the likelihood of crises and screwups that will get remote rights revoked. Step 5: Expand Remote Time Sherwood ensures that his days outside of the office are his most productive to date, even minimally dropping in-office production to heighten the contrast. He sets a meeting to discuss the results with his boss on August 15 and prepares a bullet-point page detailing increased results and items completed compared to in-office time. He suggests upping the ante to four days per week remote for a two-week trial, fully prepared to concede to three days if need be. Sherwood: It really turned out even better than I expected. If you look at the numbers, it makes a lot of business sense, and I m enjoying work a lot more now. So, here we are. I d like to suggest, if you think it makes sense, that I try four days a week for another two-week trial. I was thinking that coming in Friday 63 would make sense to prepare for the coming week, but we could do whichever day you prefer. Bill: Sherwood, I m really not sure we can do that. Sherwood: What s your main concern? 64 Bill: It seems like you re on your way out. I mean, are you going to quit on us? Second, what if everyone wants to do the same? Sherwood: Fair enough. Good points. 65 First, to be honest, I was close to quitting before, with all the interruptions and commute and whatnot, but I m actually feeling great now with the change in routine. 66 I m doing more and feel relaxed for a change. Second, no one should be allowed to work remotely unless they can show increased productivity, and I m the perfect experiment. If they can show it, however, why not let them do it on a trial basis? It lowers costs for the office, increases productivity, and makes employees happier. So, what do you say? Can I test it out for two weeks and come in Fridays to take care of the office stuff? I ll still document everything, and you, of course, have the right to change your mind at any point. Bill: Man, you are an insistent one. OK, we ll give it a shot, but don t go blabbing about it. Sherwood: Of course. Thanks, Bill. I appreciate the trust. Talk to you soon. Sherwood continues to be productive at home and maintains his lower in-office performance. He reviews the results with his boss after two weeks and continues with four remote days per week for an additional two weeks until Tuesday, September 19, when he requests a full-time remote trial of two weeks while he is visiting relatives out of state. 67 Sherwood s team is in the middle of a project that requires his expertise, and he is prepared to quit if his boss refuses. He realizes that, just as you want to negotiate ad pricing close to deadlines, getting what you want often depends more on when you ask for it than how you ask for it. Though he would prefer not to quit, his income from shirts is more than enough to fund his dream-lines of Oktoberfest and beyond. His boss acquiesces and Sherwood doesn t have to use his threat of quitting. He goes home that evening and buys a 524 round-trip ticket, less than one week s shirt sales, to Munich for Oktoberfest. Now he can implement all the time-savers possible and hack out the inessentials. Somewhere between drinking wheat beer and dancing in lederhosen, Sherwood will get his work done in fine form, leaving his company better off than prior to 80 20 and leaving himself all the time in the world. But hold on a second What if your boss still refuses? Hmm Then they force your hand. If upper management won t see the light, you ll just have to use the next chapter to fire their asses. An Alternative: The Hourglass Approach It can be effective to take a longer period of absence up front in what some NR have termed the hourglass approach, so named because you use a long proof-of-concept up front to get a short remote agreement and then negotiate back up to full-time out of the office. Here s what it looks like. 1. Use a preplanned project or emergency (family issue, personal issue, relocation, home repairs, whatever) that requires you to take one or two weeks out of the office. 2. Say that you recognize you can t just stop working and that you would prefer to work instead of taking vacation days. 3. Propose how you can work remotely and offer, if necessary, to take a pay cut for that period (and that period only) if performance isn t up to par upon returning. 4. Allow the boss to collaborate on how to do it so that he or she is invested in the process. 5. Make the two weeks off the most productive period you ve ever had at work. 6. Show your boss the quantifiable results upon returning, and tell him or her that without all the distractions, commute, etc. you can get twice as much done. Suggest two or three days at home per week as a trial for two weeks. 7. Make those remote days ultraproductive. 8. Suggest only one or two days in the office per week. 9. Make those days the least productive of the week. 10. Suggest complete mobility the boss will go for it. Q A: QUESTIONS AND ACTIONS Recently, I was asked if I was going to fire an employee who made a mistake that cost the company 600,000. No, I replied, I just spent 600,000 training him. THOMAS J. WATSON, founder of IBM Liberty means responsibility. That is why most men dread it. GEORGE BERNARD SHAW While entrepreneurs have the most trouble with Automation, since they fear giving up control, employees get stuck on Liberation because they fear taking control. Resolve to grab the reins the rest of your life depends on it. The following questions and actions will help you to replace presence-based work with performancebased freedom. 1. If you had a heart attack, and assuming your boss were sympathetic, how could you work remotely for four weeks? If you hit a brick wall with a task that doesn t seem remote-compatible or if you predict resistance from your boss, ask the following: What are you accomplishing with this task what is the purpose? If you had to find other ways to accomplish the same if your life depended on it how would you do it? Remote conferencing? Video conferencing? GoToMeeting, GoToMyPC, DimDim.com (Mac), or related services? Why would your boss resist remote work? What is the immediate negative effect it would have on the company and what could you do to prevent or minimize it? 2. Put yourself in your boss s shoes. Based on your work history, would you trust yourself to work outside of the office? If you wouldn t, reread Elimination to improve production and consider the hourglass option. 3. Practice environment-free productivity. Attempt to work for two to three hours in a caf for two Saturdays prior to proposing a remote trial. If you exercise in a gym, attempt to exercise for those two weeks at home or otherwise outside of the gym environment. The purpose here is to separate your activities from a single environment and ensure that you have the discipline to work solo. 4. Quantify current productivity. If you have applied the 80 20 Principle, set the rules of interrupting interruption, and completed related groundwork, your performance should be at an all-time high in quantifiable terms, whether customers served, revenue generated, pages produced, speed of accounts receivable, or otherwise. Document this. 5. Create an opportunity to demonstrate remote work productivity before asking for it as a policy. This is to test your ability to work outside of an office environment and rack up some proof that you can kick ass without constant supervision. 6. Practice the art of getting past no before proposing. Go to farmers markets to negotiate prices, ask for free first-class upgrades, ask for compensation if you encounter poor service in restaurants, and otherwise ask for the world and practice using the following magic questions when people refuse to give it to you. What would I need to do to desired outcome ? Under what circumstances would you desired outcome ? Have you ever made an exception? I m sure you ve made an exception before, haven t you? (If no for either of the last two, ask, Why not? If yes, ask, Why? ) 7. Put your employer on remote training wheels propose Monday or Friday at home. Consider doing this, or the following step, during a period when it would be too disruptive to fire you, even if you were marginally less productive while remote. If your employer refuses, it s time to get a new boss or become an entrepreneur. The job will never give you the requisite time freedom. If you decide to jump ship, consider letting them make you walk the plank quitting is often less appealing than tactfully getting fired and using severance or unemployment to take a long vacation. 8. Extend each successful trial period until you reach full-time or your desired level of mobility. Don t underestimate how much your company needs you. Perform well and ask for what you want. If you don t get it over time, leave. It s too big a world to spend most of life in a cubicle. LIFESTYLE DESIGN IN ACTION Consider trying Earth Class Mail, a service that you can reroute all your mail to, at which point they scan and e-mail you everything that comes in, giving you the option of recycling shredding junk, getting a scan of the contents, or having specific items forwarded to you or someone you designate. I have not personally used it yet (will be testing it out this month in preparation for an upcoming trip in May), but a friend and author in Portland swears by them and knows the CEO. Seems they ve gotten good press and the idea seems far better than relying on friends family who, if they re anything like my friends family will surely drop the ball at some point:-). NATHALIE I also use GreenByPhone.com to process checks electronically that come in through my Earth Class Mail account they charge 5 a check, but I live in San Diego, my Earth Class Mail office address is in Seattle, and I bank in Ohio. It works great! ANDREW To add to your excellent list (we ve traveled just like that for several years SWEET!), I d like to add my modifications as a female traveler and a new mom (16-month-old baby). Personal favorites: (1) Athleta carries excellent, light, quick-dry clothing that hold up well to sports but still look very fashionable. Skorts are a must for looking feminine but being fully covered for hiking and steep pyramid steps you know what I mean, ladies! Just a note, a slightly longer length will serve you well in a lot of countries, as well as tankini tops and swim skirts for swimming. (2) Fresh Go toothbrush is simple to use. (3) Marsona sound machine for drowning out unfamiliar noises is a must (regularly use with baby at home too so when they hear the sound they know it s sleep time!). This has been a lifesaver for us on many trips, and we now use it regularly at home for better sleep. No more changing hotels midtrip to avoid noise. AND, I know we have to travel light, but with baby a lot of things are nonnegotiable. These make for smoother sailing: (1) Peanut shell sling in black fleece it s more comfy than the cotton and you can pop baby in and out wherever you are, from birth to 35 lbs. I never take mine off, it s part of my outfit; (2) Peapod plus portable tent this is baby s main bed at home and travel so baby has the same sleep place everywhere we go, and the flaps give all travel parties privacy great from small babies to five-year-olds. I can still jam this onto a little wheeled carry-on and pack mine and baby s minimal clothing around it; (3) Go Go Kidz TravelMate (great for wheeling car seat up to the gate for gate check or use on plane); (4) Britax Diplomat car seat is small but kids can use it from birth to approx. four years old. Make sure the wheeled carry-on bag you get is one size smaller than the allowed carry-on size so you don t get bumped to check the bag in if the plane is full. You can always nicely argue reason bat your eyelashes that you will put the bag in your foot space. Also, very helpful to give baby something to sip or munch on during take off and landing so yours isn t the baby screaming from ear pain. Happy travels! KARYL PRE-EMPTING THE BOSS: COMMON CONCERNS ABOUT REMOTE WORK In the linked article, Cisco acknowledges that remote work arrangements are here to stay yet lists a set of security issues. It makes sense to preemptively research solutions so that you are armed and ready if your employer raises these concerns. http: newsroom.cisco.com dlls 2008 prod 020508.html. Contributed by RAINA 58. If you re an entrepreneur, don t skip this chapter. This introduction to remote working tools and tactics is integral to the international pieces of the puzzle that follow. 59. This verb is used by Japanese women as well, even though female workers are referred to as OL office ladies. 60. Any reason to be home will do (cable or phone installation, home repairs, etc.) or, if you prefer not to use a ruse, work a weekend or take two vacation days. 61. Review the Puppy Dog Close from Income Autopilot II: Testing the Muse. 62. Do not digress from your goal. Once you ve addressed an objection or concern, go for the close. 63. Friday is the best day to be in the office. People are relaxed and tend to leave early. 64. Do not accept a vague refusal. Pinpointing the main concern in detail enables you to overcome it. 65. Don t jump to the defensive after an objection. Acknowledge the validity of a boss s concerns to prevent an ego-driven battle of wills. 66. Note this indirect threat dressed as a confession. It will make the boss think twice about refusing but prevents the win-lose outcome of an ultimatum. 67. This removes the boss s ability to call you to the office. This is critical for making the first jump overseas. Beyond Repair KILLING YOUR JOB All courses of action are risky, so prudence is not in avoiding danger (it s impossible), but calculating risk and acting decisively. Make mistakes of ambition and not mistakes of sloth. Develop the strength to do bold things, not the strength to suffer. NICCOL MACHIAVELLI, The Prince Existential Pleas and Resignations Mad Libs BY ED MURRAY Some jobs are simply beyond repair. Improvements would be like adding a set of designer curtains to a jail cell: better but far from good. In the context of this chapter, job will refer to both a company if you run one and a normal job if you have one. Some recommendations are limited to one of the two but most are relevant to both. So we begin. I have quit three jobs and been fired from most of the rest. Getting fired, despite sometimes coming as a surprise and leaving you scrambling to recover, is often a godsend: Someone else makes the decision for you, and it s impossible to sit in the wrong job for the rest of your life. Most people aren t lucky enough to get fired and die a slow spiritual death over 30 40 years of tolerating the mediocre. Pride and Punishment If you must play, decide on three things at the start: the rules of the game, the stakes, and the quitting time. CHINESE PROVERB Just because something has been a lot of work or consumed a lot of time doesn t make it productive or worthwhile. Just because you are embarrassed to admit that you re still living the consequences of bad decisions made 5, 10, or 20 years ago shouldn t stop you from making good decisions now. If you let pride stop you, you will hate life 5, 10, and 20 years from now for the same reasons. I hate to be wrong and sat in a dead-end trajectory with my own company until I was forced to change directions or face total breakdown I know how hard it is. Now that we re all on a level playing field: Pride is stupid. Being able to quit things that don t work is integral to being a winner. Going into a project or job without defining when worthwhile becomes wasteful is like going into a casino without a cap on what you will gamble: dangerous and foolish. But, you don t understand my situation. It s complicated! But is it really? Don t confuse the complex with the difficult. Most situations are simple many are just emotionally difficult to act upon. The problem and the solution are usually obvious and simple. It s not that you don t know what to do. Of course you do. You are just terrified that you might end up worse off than you are now. I ll tell you right now: If you re at this point, you won t be worse off. Revisit fear-setting and cut the cord. Like Pulling Off a Band-Aid: It s Easier and Less Painful Than You Think The average man is a conformist, accepting miseries and disasters with the stoicism of a cow standing in the rain. COLIN WILSON, British author of The Outsider; New Existentialist There are several principal phobias that keep people on sinking ships, and there are simple rebuttals for all of them. 1. Quitting is permanent. Far from it. Use the Q A questions in this chapter and chapter 3 (Fear-setting) to examine how you could pick up your chosen career track or start another company at a later point. I have never seen an example where a change of direction wasn t somehow reversible. 2. I won t be able to pay the bills. Sure you will. First of all, the objective will be to have a new job or source of cash flow before quitting your current job. Problem solved. If you jump ship or get fired, it isn t hard to eliminate most expenses temporarily and live on savings for a brief period. From renting out your home to refinancing or selling it, there are options. There are always options. It might be emotionally difficult, but you won t starve. Park your car in the garage and cancel insurance for a few months. Carpool or take the bus until you find the next gig. Rack up some more credit card debt and cook instead of eating out. Sell all the crap that you spent hundreds or thousands on and never use. Take a full inventory of your assets, cash reserves, debts, and monthly expenses. How long could you survive with your current resources or if you sold some assets? Go through all expenses and ask yourself, If I had to eliminate this because I needed an extra kidney, how would I do it? Don t be melodramatic when there is no need few things are fatal, particularly for smart people. If you ve made it this far in life, losing or dropping a job will often be little more than a few weeks of vacation (unless you want more) prior to something better. 3. Health insurance and retirement accounts disappear if I quit. Untrue. I was scared of both when I was eliminated from TrueSAN. I had visions of rotting teeth and working at Wal-Mart to survive. Upon looking at the facts and exploring options, I realized that I could have identical medical and dental coverage the same provider and network for 300 500 per month. To transfer my 401(k) to another company (I chose Fidelity Investments) was even easier: It took less than 30 minutes via phone and cost nothing. Covering both of these bases takes less time than getting a customer service rep on the phone to fix your electric bill. 4. It will ruin my resume. I love creative nonfiction. It is not at all difficult to sweep gaps under the rug and make uncommon items the very things that get job interviews. How? Do something interesting and make them jealous. If you quit and then sit on your ass, I wouldn t hire you either. On the other hand, if you have a one-to-two-year world circumnavigation on your resume or training with professional soccer teams in Europe to your credit, two interesting things happen upon returning to the working world. First, you will get more interviews because you will stand out. Second, interviewers bored in their own jobs will spend the entire meeting asking how you did it! If there is any question of why you took a break or left your previous job, there is one answer that cannot be countered: I had a once-in-a-lifetime chance to do exotic and envy-producing experience and couldn t turn it down. I figured that, with 20 40 years of work to go, what s the rush? The Cheesecake Factor Would you like me to give you a formula for success? It s quite simple, really. Double your rate of failure. THOMAS J. WATSON, founder of IBM SUMMER 1999 Even before I tasted it, I knew something wasn t quite right. After eight hours in the refrigerator, this cheesecake still hadn t set at all. It swished in the gallon bowl like a viscous soup, chunks shifting and bobbing as I tilted it under close inspection. Somewhere a mistake had been made. It could have been any number of things: Three 1 lb. sticks of Philly Cream Cheese Eggs Stevia Unflavored gelatin Vanilla Sour cream In this case, it was probably a combination of things and the lack of a few simple ingredients that generally make cheesecake a form of cake. I was on a no-carbohydrate diet, and I had used this recipe before. It had been so delicious that my roommates wanted their fair share and insisted on an attempt at bulk production. Hence began the mathematical shenanigans and problems. Before Splenda and other miracles of sugar imitation came on the scene, the hard core used stevia, an herb 300 times sweeter than sugar. One drop was like 300 packets of sugar. It was a delicate tool and I wasn t a delicate cook. I had once made a small handful of cookies using baking soda instead of baking powder, and that was bad enough to drive my roommates to puke on the lawn. This new masterpiece made the cookies look like fine dining: It tasted like liquid cream cheese mixed with cold water and about 600 packets of sugar. I then did what any normal and rational person would do: I grabbed the largest soup ladle with a sigh and sat down in front of the TV to face my punishment. I had wasted an entire Sunday and a boatload of ingredients it was time to reap what I had sown. One hour and 20 large spoonfuls later, I hadn t made a dent in the enormous batch of soup, but I was down for the count. Not only could I not eat anything but soup for two days, I couldn t bring myself to even look at cheesecake, previously my favorite dessert, for more than four years. Stupid? Of course. It s about as stupid as one can get. This is a ridiculous and micro example of what people do on a larger scale with jobs all the time: self-imposed suffering that can be avoided. Sure, I learned a lesson and paid for the mistake. The real question is for what? There are two types of mistakes: mistakes of ambition and mistakes of sloth. The first is the result of a decision to act to do something. This type of mistake is made with incomplete information, as it s impossible to have all the facts beforehand. This is to be encouraged. Fortune favors the bold. The second is the result of a decision of sloth to not do something wherein we refuse to change a bad situation out of fear despite having all the facts. This is how learning experiences become terminal punishments, bad relationships become bad marriages, and poor job choices become lifelong prison sentences. Yeah, but what if I m in an industry where jumping around is looked down upon? I ve been here barely a year, and prospective employers would think Would they? Test assumptions before condemning yourself to more misery. I ve seen one determinant of sex appeal to good employers: performance. If you are a rock star when it comes to results, it doesn t matter if you jump ship from a bad company after three weeks. On the other hand, if tolerating a punishing work environment for years at a time is a prerequisite for promotion in your field, could it be that you re in a game not worth winning? The consequences of bad decisions do not get better with age. What cheesecake are you eating? Q A: QUESTIONS AND ACTIONS Only those who are asleep make no mistakes. INGVAR KAMPRAD, founder of IKEA, world s largest furniture brand Tens of thousands of people, most of them less capable than you, leave their jobs every day. It s neither uncommon nor fatal. Here are a few exercises to help you realize just how natural job changes are and how simple the transition can be. 1. First, a familiar reality check: Are you more likely to find what you want in your current job or somewhere else? 2. If you were fired from your job today, what would you do to get things under financial control? 3. Take a sick day and post your resume on the major job sites. Even if you have no immediate plans to leave your job, post your resume on sites such as www.monster.com and www.careerbuilder.com, using a pseudonym if you prefer. This will show you that there are options besides your current place of work. Call headhunters if your level makes such a step appropriate, and send a brief e-mail such as the one below to friends and non-work contacts. Dear All, I am considering making a career move and am interested in all opportunities that might come to mind. Nothing is too outrageous or out of left field. If you know what you want or don t want on some level, feel free to add, I am particularly interested in or I would like to avoid Please let me know if anything comes to mind! Tim Call in sick or take a vacation day to complete all of these exercises during a normal 9 5 workday. This will simulate unemployment and lessen the fear factor of non-office limbo. In the world of action and negotiation, there is one principle that governs all others: The person who has more options has more power. Don t wait until you need options to search for them. Take a sneak peek at the future now and it will make both action and being assertive easier. 4. If you run or own a company, imagine that you have just been sued and must declare bankruptcy. The company is now insolvent and you must close up shop. This is something you must legally do, and there are no finances to entertain other options. How would you survive? TOOLS AND TRICKS Considering Options and Pulling the Trigger I-Resign ( www.i-resign.com ) This site provides everything from non-quitting options (work-leave, vacations) to sample resignation letters and second-life job-hunting advice. Don t miss the helpful discussion forums and hysterical web consultant from London letter. Opening Retirement Accounts If you want an adviser and don t mind some fees: Franklin-Templeton ( www.franklintempleton.com ) (800 527 2020) American Funds ( www.americanfunds.com ) (800 421 0180) If you will do your own investing and want no-load funds: Fidelity Investments ( www.fidelity.com ) (800 343 3548) Vanguard ( www.vanguard.com ) (800 414 1321) Health Insurance for Self-employed or Unemployed (in descending order of reader endorsement) Ehealthinsurance ( www.ehealthinsurance.com ) (800 977 8860) AETNA ( www.aetna.com ) (800-MY-HEALTH) Kaiser Permanente ( www.kaiserpermanente.com ) (866 352 0290) American Community Mutual ( www.american-community.com ) (800 991 2642) Mini-Retirements EMBRACING THE MOBILE LIFESTYLE Before the development of tourism, travel was conceived to be like study, and its fruits were considered to be the adornment of the mind and the formation of the judgment. PAUL FUSSELL, Abroad The simple willingness to improvise is more vital, in the long run, than research. ROLF POTTS, Vagabonding Upon Sherwood s return from Oktoberfest, dazed from killing neurons but the happiest he s been in four years, the remote trial is made policy and Sherwood is inducted into the world of the New Rich. All he needs now is an idea of how to exploit this freedom and the tools to give his finite cash nearinfinite lifestyle output. If you ve gone through the previous steps, eliminating, automating, and severing the leashes that bind you to one location, it s time to indulge in some fantasies and explore the world. Even if you have no ache for extended travel or think it s impossible whether due to marriage or mortgage or those little things known as children this chapter is still the next step. There are fundamental changes I and most others put off until absence (or preparation for it) forces them. This chapter is your final exam in muse design. The transformation begins in a small Mexican village, in a parable that s been shared in various forms around the world. Fables and Fortune Hunters An American businessman took a vacation to a small coastal Mexican village on doctor s orders. Unable to sleep after an urgent phone call from the office the first morning, he walked out to the pier to clear his head. A small boat with just one fisherman had docked, and inside the boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish. How long did it take you to catch them? the American asked. Only a little while, the Mexican replied in surprisingly good English. Why don t you stay out longer and catch more fish? the American then asked. I have enough to support my family and give a few to friends, the Mexican said as he unloaded them into a basket. But What do you do with the rest of your time? The Mexican looked up and smiled. I sleep late, fish a little, play with my children, take a siesta with my wife, Julia, and stroll into the village each evening, where I sip wine and play guitar with my amigos. I have a full and busy life, se or. The American laughed and stood tall. Sir, I m a Harvard M.B.A. and can help you. You should spend more time fishing, and with the proceeds, buy a bigger boat. In no time, you could buy several boats with the increased haul. Eventually, you would have a fleet of fishing boats. He continued, Instead of selling your catch to a middleman, you would sell directly to the consumers, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village, of course, and move to Mexico City, then to Los Angeles, and eventually New York City, where you could run your expanding enterprise with proper management. The Mexican fisherman asked, But, se or, how long will all this take? To which the American replied, 15 20 years. 25 tops. But what then, se or? The American laughed and said, That s the best part. When the time is right, you would announce an IPO and sell your company stock to the public and become very rich. You would make millions. Millions, se or? Then what? Then you would retire and move to a small coastal fishing village, where you would sleep late, fish a little, play with your kids, take a siesta with your wife, and stroll to the village in the evenings where you could sip wine and play your guitar with your amigos I RECENTLY HAD lunch in San Francisco with a good friend and former college roommate. He will soon graduate from a top business school and return to investment banking. He hates coming home from the office at midnight but explained to me that, if he works 80-hour weeks for nine years, he could become a managing director and make a cool 3 10 million per year. Then he would be successful. Dude, what on earth would you do with 3 10 million per year? I asked. His answer? I would take a long trip to Thailand. That just about sums up one of the biggest self-deceptions of our modern age: extended world travel as the domain of the ultrarich. I ve also heard the following: I ll just work in the firm for 15 years. Then I ll be partner and I can cut back on hours. Once I have a million or two in the bank, I ll put it in something safe like bonds, take 80,000 a year in interest, and retire to sail in the Caribbean. I ll only work in consulting until I m 35, then retire and ride a motorcycle across China. If your dream, the pot of gold at the end of the career rainbow, is to live large in Thailand, sail around the Caribbean, or ride a motorcycle across China, guess what? All of them can be done for less than 3,000. I ve done all three. Here are just two examples of how far a little can go. 68 250 U.S. Five days on a private Smithsonian tropical research island with three local fishermen who caught and cooked all my food and also took me on tours of the best hidden dive spots in Panam . 150 U.S. Three days of chartering a private plane in Mendoza wine country in Argentina and flying over the most beautiful vineyards around the snowcapped Andes with a personal guide. Question: What did you spend your last 400 on? It s two or three weekends of nonsense and throwaway forget-the-workweek behavior in most U.S. cities. 400 is nothing for a full eight days of life-changing experiences. But eight days isn t what I m recommending at all. Those were just interludes in a much larger production. I m proposing much, much more. The Birth of Mini-Retirements and the Death of Vacations There is more to life than increasing its speed. MOHANDAS GANDHI In February of 2004, I was miserable and overworked. My travel fantasy began as a plan to visit Costa Rica in March 2004 for four weeks of Spanish and relaxation. I needed a recharge and four weeks seemed reasonable by whatever made-up benchmark you can use for such a thing. A friend familiar with Central America dutifully pointed out that it would never work, as Costa Rica was about to enter its rainy season. Torrential downpours weren t the uplifting jolt I needed, so I shifted my focus to four weeks in Spain. It s a long trip over the Atlantic, though, and Spain was close to other countries I d always wanted to visit. I lost reasonable somewhere shortly thereafter and decided that I deserved a full three months to explore my roots in Scandinavia after four weeks in Spain. If there were any real-time bombs or pending disasters, they would certainly crop up in the first four weeks, so there really wasn t any additional risk in extending my trip to three months. Three months would be great. Those three months turned into 15, and I started to ask myself, Why not take the usual 20 30-year retirement and redistribute it throughout life instead of saving it all for the end? The Alternative to Binge Traveling Thanks to the Interstate Highway System, it is now possible to travel from coast to coast without seeing anything. CHARLES KURALT, CBS news reporter If you are accustomed to working 50 weeks per year, the tendency, even after creating the mobility to take extended trips, will be to go nuts and see 10 countries in 14 days and end up a wreck. It s like taking a starving dog to an all-you-can-eat buffet. It will eat itself to death. I did this three months into my 15-month vision quest, visiting seven countries and going through at least 20 check-ins and checkouts with a friend who had negotiated three weeks off. The trip was an adrenaline-packed blast but like watching life on fast-forward. It was hard for us to remember what had happened in which countries (except Amsterdam), 69 we were both sick most of the time, and we were upset to have to leave some places simply because our pre-purchased flights made it so. I recommend doing the exact opposite. The alternative to binge travel the mini-retirement entails relocating to one place for one to six months before going home or moving to another locale. It is the anti-vacation in the most positive sense. Though it can be relaxing, the mini-retirement is not an escape from your life but a reexamination of it the creation of a blank slate. Following elimination and automation, what would you be escaping from? Rather than seeking to see the world through photo ops between foreign-but-familiar hotels, we aim to experience it at a speed that lets it change us. This is also different from a sabbatical. Sabbaticals are often viewed much like retirement: as a onetime event. Savor it now while you can. The mini-retirement is defined as recurring it is a lifestyle. I currently take three or four mini-retirements per year and know dozens who do the same. Sometimes these sojourns take me around the world; oftentimes they take me around the corner Yosemite, Tahoe, Carmel but to a different world psychologically, where meetings, e-mail, and phone calls don t exist for a set period of time. Purging the Demons: Emotional Freedom This is the very perfection of a man, to find out his own im perfection. SAINT AUGUSTINE (354 A.D. 430 A.D.) True freedom is much more than having enough income and time to do what you want. It is quite possible actually the rule rather than the exception to have financial and time freedom but still be caught in the throes of the rat race. One cannot be free from the stresses of a speed- and size-obsessed culture until you are free from the materialistic addictions, time-famine mind-set, and comparative impulses that created it in the first place. This takes time. The effect is not cumulative, and no number of two-week (also called too weak ) 70 sightseeing trips can replace one good walkabout. 71 In the experience of those I ve interviewed, it takes two to three months just to unplug from obsolete routines and become aware of just how much we distract ourselves with constant motion. Can you have a two-hour dinner with Spanish friends without getting anxious? Can you get accustomed to a small town where all businesses take a siesta for two hours in the afternoon and then close at 4:00 P.M.? If not, you need to ask, Why? Learn to slow down. Get lost intentionally. Observe how you judge both yourself and those around you. Chances are that it s been a while. Take at least two months to disincorporate old habits and rediscover yourself without the reminder of a looming return flight. The Financial Realities: It Just Gets Better The economic argument for mini-retirements is the icing on the cake. Four days in a decent hotel or a week for two at a nice hostel costs the same as a month in a nice posh apartment. If you relocate, the expenses abroad also begin to replace often at much lower cost bills you can then cancel stateside. Here are some actual monthly figures from recent travels. Highlights from both South America and Europe are shown side by side to prove that luxury is limited by your creativity and familiarity with the locale, not gross currency devaluation in third-world countries. It will be obvious that I did not survive on bread and begging I lived like a rock star and both experiences could be done for less than 50 of what I spent. My goal was enjoyment and not austere survival. Airfare Free, courtesy of AMEX gold card and Chase Continental Airlines Mastercard 72 Housing Penthouse apartment on the equivalent of New York s Fifth Avenue in Buenos Aires, including house cleaners, personal security guards, phone, energy, and high-speed Internet: 550 U.S. per month Enormous apartment in the trendy SoHo-like Prenzlauerberg district of Berlin, including phone and energy: 300 U.S. per month Meals Four- or five-star restaurant meals twice daily in Buenos Aires: 10 U.S. ( 300 U.S. per month) Berlin: 18 U.S. ( 540 U.S. per month) Entertainment VIP table and unlimited champagne for eight people at the hottest club, Opera Bay, in Buenos Aires: 150 U.S. ( 18.75 U.S. per person x four visits per month 75 U.S. per month per person) Cover, drinks, and dancing at the hottest clubs in West Berlin: 20 U.S. per person per night x 4 80 U.S. per month Education Two hours daily of private Spanish lessons in Buenos Aires, fives times per week: 5 U.S. per hour x 40 hours per month 200 U.S. per month Two hours daily of private tango lessons with two world-class professional dancers: 8.33 U.S. per hour x 40 hours per month 333.20 U.S. per month Four hours daily of top-tier German-language instruction in Nollendorfplatz, Berlin: 175 U.S. per month, which would have paid for itself even if I had not attended classes, as the student ID card entitled me to over 40 discounts on all transportation Six hours per week of mixed martial arts (MMA) training at the top Berlin academy: free in exchange for tutoring in English two hours per week Transportation Monthly subway pass and daily cab rides to and from tango lessons in Buenos Aires: 75 U.S. per month Monthly subway, tram, and bus pass in Berlin with student discount: 85 U.S. per month Four-Week Total for Luxury Living Buenos Aires: 1533.20 , including round-trip airfare from JFK, with a one-month stopover in Panam . Nearly one-third of this total is from the daily one-on-one instruction from world-class teachers in Spanish and Tango. Berlin: 1180 , including round-trip airfare from JFK and a oneweek stopover in London. How do these numbers compare to your current domestic monthly expenses, including rent, car insurance, utilities, weekend expenditures, partying, public transportation, gas, memberships, subscriptions, food, and all the rest? Add it all up and you may well realize, like I did, that traveling around the world and having the time of your life can save you serious money. Fear Factors: Overcoming Excuses Not to Travel Travelling is the ruin of all happiness! There s no looking at a building here after seeing Italy. FANNY BURNEY (1752 1840), English novelist But I have a house and kids. I can t travel! What about health insurance? What if something happens? Isn t travel dangerous? What if I get kidnapped or mugged? But I m a woman traveling alone would be dangerous. Most excuses not to travel are exactly that excuses. I ve been there, so this isn t a holier-than-thou sermon. I know too well that it s easier to live with ourselves if we cite an external reason for inaction. I ve since met paraplegics and the deaf, senior citizens and single mothers, home owners and the poor, all of whom have sought and found excellent life-changing reasons for extended travel instead of dwelling on the million small reasons against it. Most of the concerns above are addressed in the Q A, but one in particular requires a bit of preemptive nerve calming. It s 10:00 P.M. Do You Know Where Your Children Are? The prime fear of all parents prior to their first international trip is somehow losing a child in the shuffle. The good news is that if you are comfortable taking your kids to New York, San Francisco, Washington, D.C., or London, you will have even less to worry about in the starting cities I recommend in the Q A. There are fewer guns and violent crimes in all of them compared to most large U.S. cities. The likelihood of problems is decreased further when travel is less airport and hotel-hopping among strangers and more relocation to a second home: a mini-retirement. But still, what if? Jen Errico, a single mother who took her two children on a five-month world tour, had a more acute fear than most, one that often woke her at 2:00 A.M. in a cold sweat: What if something happens to me? She wanted to prime her kids for worst-case scenario but didn t want to scare them to death, so like all good mothers she made it a game: Who can best memorize the itineraries, hotel addresses, and Mom s phone number? She had emergency contacts in each country whose numbers were loaded into the speed dial of her cell phone, which had global roaming. In the end, nothing happened. Now she s planning to move to a ski chalet in Europe and send her kids to school in multilingual France. Success begets success. She was most afraid in Singapore, and in retrospect, it was where she had the least reason to be worried (she took her kids to South Africa, among other places). She was scared because it was the first stop and she was unaccustomed to traveling with her kids. It was perception, not reality. Robin Malinsky-Rummell, who spent a year traveling through South America with her husband and seven-year-old son, was warned by friends and family not to visit Argentina after their devaluation riots in 2001. She did her homework, decided that the fear was unfounded, and proceeded to have the time of her life in Patagonia. When she told locals that she was originally from New York, their eyes widened and jaws dropped: I saw those buildings blow up on TV! I would never go to such a dangerous place! Don t assume that places abroad are more dangerous than your hometown. Most aren t. Robin is convinced, as are other NR parents, that people use children as an excuse to stay in their comfort zones. It s an easy excuse not to do something adventurous. How to overcome the fear? Robin recommends two things: 1. Before embarking on a long international trip with your children for the first time, take a trial run for a few weeks. 2. For each stop, arrange a week of language classes that begin upon arrival and take advantage of transportation from the airport if available. The school staff will often handle apartment rentals for you, and you will be able to make friends and learn the area before setting off on your own. But what if your concern isn t so much losing your children but losing your mind because of your children? Several families interviewed for this book recommended the oldest persuasive tool known to man: bribery. Each child is given some amount of virtual cash, 25 50 cents, for each hour of good behavior. The same amount is subtracted from their accounts for breaking the rules. All purchases for fun whether souvenirs, ice cream, or otherwise come out of their own individual accounts. No balance, no goodies. This often requires more self-control on the part of the parents than the children. How to Get Airfare at 50 80 Off This is not a book on budget travel. Most of the cost-cutting recommendations found in such guides are designed with the binge traveler in mind. For someone embarking on a mini-retirement, an extra 150 for hassle-free airfare amortized over two months is a better deal than 20 hours of manipulating frequentflier points on an unknown airline or chasing questionable deals. Following two weeks of research, I once bought a one-way standby ticket to Europe for 120. I arrived at JFK brimming with enthusiasm and confidence look at all these schmucks paying retail! and 90 of the participating airlines refused my ticket. Those that didn t were booked for weeks solid. I ended up staying in a hotel for two nights for a 300 tab, filing a complaint with AMEX, and eventually calling 1 800-FLY-EUROPE from the JFK terminal in frustration. I bought a round-trip ticket to London on Virgin Atlantic for 300 and left an hour later. The same ticket cost more than 700 a week earlier. After 25 countries, I ve found a few simple strategies that get you 90 of the possible savings without wasting time or producing migraines. 1. Use credit cards with reward points for large muse-related advertising and manufacturing expenses. I am not spending more money to get pennies on the dollar these costs are inevitable, so I capitalize on them. This alone gets me a free round-trip international ticket each three months. 2. Purchase tickets far in advance (three months or more) or last minute, and aim for both departure and return between Tues day and Thursday. Long-term travel planning turns me off and can be expensive if plans change, so I opt for purchasing all tickets in the last four or five days prior to target departure. The value of empty seats is 0 as soon as the flight takes off, so true last-minute seats are cheap. Use Orbitz (www.orbitz.com) and www.kayak.com first. Fix the departure and return dates between Tuesday and Thursday. Then look at prices for alternative departure dates each of three days into the past and each of three days into the future. Using the cheapest departure date, do the same with the return dates to find the cheapest combination. Check this price against the fares on the website of the airline itself. Then begin bidding on www.priceline.com at 50 of the better of the two, working up in 50 increments until you get a better price or realize it s not possible. 3. Consider buying one ticket to an international hub and then an ongoing ticket with a cheap local airline. If going to Europe on a tight budget, you could get three tickets. One free Southwest ticket (from transferring AMEX points) from CA to JFK, the cheapest ticket to Heathrow in London, and then an bercheap ticket on either Ryanair or EasyJet to a final destination. I have paid as little as 10 to go from London to Berlin or London to Spain. That is not a typo. Local airlines will often offer seats on flights for just the cost of taxes and gasoline. To Central or South American destinations, I ll often look at local flights from Panama or international flights from Miami. When More Is Less: Cutting the Clutter Human beings have the capacity to learn to want almost any conceivable material object. Given, then, the emergence of a modern industrial culture capable of producing almost anything, the time is ripe for opening the storehouse of infinite need! It is the modern Pandora s box, and its plagues are loose upon the world. JULES HENRY To be free, to be happy and fruitful, can only be attained through sacrifice of many common but overestimated things ROBERT HENRI I know the son of one deca-millionaire, a personal friend of Bill Gates, who now manages private investments and ranches. He has accumulated an assortment of beautiful homes over the last decade, each with full-time cooks, servants, cleaners, and support staff. How does he feel about having a home in each time zone? It s a pain in the ass! He feels like he s working for his staff, who spend more time in his homes than he does. Extended travel is the perfect excuse to reverse the damage of years of consuming as much as you can afford. It s time to get rid of clutter disguised as necessities before you drag a five-piece Samsonite set around the world. That is hell on earth. I m not going to tell you to walk around in a robe and sandals scowling at people who have televisions. I hate that kashi-crunching holier-than-thou stuff. Turning you into a possession-less scribe is not my intention. Let s face it, though: There are tons of things in your home and life that you don t use, need, or even particularly want. They just came into your life as impulsive flotsam and jetsam and never found a good exit. Whether you re aware of it or not, this clutter creates indecision and distractions, consuming attention and making unfettered happiness a real chore. It is impossible to realize how distracting all the crap is whether porcelain dolls, sports cars, or ragged T-shirts until you get rid of it. Prior to my 15-month trip, I was stressed about how to fit all of my belongings into a 14 x 10-foot rental storage space. Then I realized a few things: I would never reread the business magazines I d saved, I wore the same five shirts and four pairs of pants 90 of the time, it was about time for new furniture, and I never used the outdoor grill or lawn furniture. Even getting rid of things I never used proved to be like a capitalist short-circuit. It was hard to toss things I had once thought were valuable enough to spend money on. The first ten minutes of sorting through clothing was like choosing which child of mine should live or die. I hadn t exercised my throwing-out muscles in some time. It was a struggle to put nice Christmas clothing I d never worn into the go pile and just as hard to separate myself from worn and ragged clothing I had for sentimental reasons. Once I d passed through the first few tough decisions, though, the momentum had been built and it was a breeze. I donated all of the seldom-worn clothing to Goodwill. The furniture took less than 10 hours to offload using Craigslist, and though I was paid less than 50 of the retail prices for some and nothing for others, who cared? I d used and abused them for five years and would get a new set when I landed back in the U.S. I gave the grill and lawn furniture to my friend, who lit up like a kid at Christmas. I had made his month. It felt wonderful and I had an extra 300 in pocket change to cover at least a few weeks of rent abroad. I created 40 more space in my apartment and hadn t even grazed the surface. It wasn t the extra physical space that I felt most. It was the extra mental space. It was as if I had 20 mental applications running simultaneously before, and now I had just one or two. My thinking was clearer and I was much, much happier. I asked every vagabond interviewee in this book what their one recommendation would be for firsttime extended travelers. The answer was unanimous: Take less with you. The overpacking impulse is hard to resist. The solution is to set what I call a settling fund. Rather than pack for all contingencies, I bring the absolute minimum and allocate 100 300 for purchasing things after I arrive and as I travel. I no longer take toiletries or more than a week s worth of clothing. It s a blast. Finding shaving cream or a dress shirt overseas can produce an adventure in and of itself. Pack as if you were coming back in one week. Here are the bare essentials, listed in order of importance: 1. One week of clothing appropriate to the season, including one semiformal shirt and pair of pants or skirt for customs. Think T-shirts, one pair of shorts, and a multipurpose pair of jeans. 2. Backup photocopies or scanned copies of all important documents: health insurance, passport visa, credit cards, debit cards, etc. 3. Debit cards, credit cards, and 200 worth of small bills in local currency (traveler s checks are not accepted in most places and are a hassle) 4. Small cable bike lock for securing luggage while in transit or in hostels; a small padlock for lockers if needed 5. Electronic dictionaries for target languages (book versions are too slow to be of use in conversation) and small grammar guides or texts 6. One broad-strokes travel guide That s it. 73 To laptop or not to laptop? Unless you are a writer, I vote no. It s far too cumbersome and distracting. Using GoToMyPC to access your home computer from Internet caf s encourages the habit we want to develop: making the best use of time instead of killing it. The Bora-Bora Dealmaker BAFFIN ISLAND, NUNAVUT Josh Steinitz 74 stood at the edge of the world and stared in amazement. He dug his boots into the six feet of sea ice and the unicorns danced. Ten narwhals rare cousins of the beluga came to the surface and pointed their six-foot-plus spiral tusks toward the heavens. The pod of 3,000-pound whales then fell into the depths once again. The narwhals are deep divers more than 3,000 feet in some cases so Josh had at least 20 minutes until their reappearance. It seemed appropriate that he was with the narwhals. Their name came from Old Norse and referred to their mottled white and blue skin. N hvalr corpse man. He smiled as he had done often in the last few years. Josh himself was a dead man walking. One year after graduating from college, Josh found out that he had oral squamous carcinoma cancer. He had plans to be a management consultant. He had plans to be lots of things. Suddenly none of it mattered. Less than half of those who suffered from this particular type of cancer survived. 75 The reaper didn t discriminate and came without warning. It became clear that the biggest risk in life wasn t making mistakes but regret: missing out on things. He could never go back and recapture years spent doing something he disliked. Two years later and cancer-free, Josh set off on an indefinite global walkabout, covering expenses as a freelance writer. He later became the cofounder of a website that provides customized itineraries to would-be vagabonds. His executive status didn t lessen his mobile addiction. He was as comfortable cutting deals from the over-water bungalows of Bora-Bora as he was in the log cabins of the Swiss Alps. He once took a call from a client while at Camp Muir on Mt. Rainier. The client needed to confirm some sales numbers and asked Josh about all the wind in the background. Josh s answer: I m standing at 10,000 feet on a glacier and this afternoon the wind is whipping us down the mountain. The client said he d let Josh get back to what he was doing. Another client called Josh while he was leaving a Balinese temple and heard the gongs in the background. The client asked Josh if he was in church. Josh wasn t quite sure what to say. All that came out was, Yes? Back among the narwhals, Josh had a few minutes before heading to base camp to avoid polar bears. Twenty-four-hour daylight meant that he had much to share with his friends back in the land of cubicles. He sat down on the ice and produced his satellite phone and laptop from a waterproof bag. He began his e-mail in the usual way: I know you re all sick of seeing me have so much fun, but guess where I am? Q A: QUESTIONS AND ACTIONS It is fatal to know too much at the outcome: boredom comes as quickly to the traveler who knows his route as to the novelist who is overcertain of his plot. PAUL THEROUX, To the Ends of the Earth If this is your first time considering a commitment to the mobile lifestyle and long-term adventuring, I envy you! Making the jump and entering the new worlds that await is like upgrading your role in life from passenger to pilot. The bulk of this Q A will focus on the precise steps that you should take and the countdown timeline you can use when preparing for your first mini-retirement. Most steps can be eliminated or condensed once you get one trip under your belt. Some of the steps are one-time events, after which subsequent mini-retirements will require a maximum of two to three weeks of preparation. It now takes me three afternoons. Grab a pencil and paper this will be fun. 1. Take an asset and cash-flow snapshot. Set two sheets of paper on a table. Use one to record all assets and corresponding values, including bank accounts, retirement accounts, stocks, bonds, home, and so forth. On the second, draw a line down the middle and write down all incoming cash flow (salary, muse income, investment income, etc.) and outgoing expenses (mortgage, rent, car payments, etc.). What can you eliminate that is either seldom used or that creates stress or distraction without adding a lot of value? 2. Fear-set a one-year mini-retirement in a dream location in Europe. Use the questions from chapter 3 to evaluate your worst-case-scenario fears and evaluate the real potential consequences. Except in rare cases, most will be avoidable and the rest will be reversible. 3. Choose a location for your actual mini-retirement. Where to start? This is the big question. There are two options that I advocate: 1. Choose a starting point and then wander until you find your second home. This is what I did with a one-way ticket to London, vagabonding throughout Europe until I fell in love with Berlin, where I remained for three months. 2. Scout a region and then settle in your favorite spot. This is what I did with a tour of Central and South America, where I spent one to four weeks in each of several cities, after which I returned to my favorite Buenos Aires for six months. It is possible to take a mini-retirement in your own country, but the transformative effect is hampered if you are surrounded by people who carry the same socially reinforced baggage. I recommend choosing an overseas location that will seem foreign but that isn t dangerous. I box, race motorcycles, and do all sorts of macho things, but I draw the line at favelas, 76 civilians with machine guns, pedestrians with machetes, and social strife. Cheap is good, but bullet holes are bad. Check the U.S. Department of State for travel warnings before booking tickets (http: travel.state.gov). Here are just a few of my favorite starting points. Feel free to choose other locations. The most lifestyle for the dollar is underlined: Argentina (Buenos Aires, C rdoba), China (Shanghai, Hong Kong, Taipei), Japan (Tokyo, Osaka), England (London), Ireland (Galway), Thailand (Bangkok, Chiang Mai), Germany (Berlin, Munich), Norway (Oslo), Australia (Sydney), New Zealand (Queenstown), Italy (Rome, Milan, Florence), Spain (Madrid, Valencia, Sevilla), and Holland (Amsterdam). In all of these places, it is possible to live well while spending little. I spend less in Tokyo than in California because I know it well. Hip, recently gentrified artist areas, not unlike the Brooklyn of 10 years ago, can be found in almost all cities. The one place I can t seem to find a decent lunch for less than 20 U.S.? London. Here are a few exotic places I don t recommend for vagabonding virgins, though veterans can make them all work: all countries in Africa, the Middle East, or Central and South America (excepting Costa Rica and Argentina). Mexico City and Mexican border areas are also a bit too kidnap-happy to make it onto my favorites list. 4. Prepare for your trip. Here s the countdown. Three months out Eliminate Get used to minimalism before the departure. Here are the questions to ask and act upon, even if you never plan to leave: What is the 20 of my belongings that I use 80 of the time? Eliminate the other 80 in clothing, magazines, books, and all else. Be ruthless you can always repurchase things you can t live without. Which belongings create stress in my life? This could relate to maintenance costs (money and energy), insurance, monthly expenses, time consumption, or simple distraction. Eliminate, eliminate, eliminate. If you sell even a few expensive items, it could finance a good portion of your mini-retirement. Don t rule out the car and home. It s always possible to purchase either upon your return, often losing no money in the process. Check current health insurance coverage for extended overseas travel. Get the wheels in motion to rent, swap, or sell your home renting out is most recommended by serial vagabonds or end your apartment lease and move all belongings into storage. In all cases where doubts crop up, ask yourself, If I had a gun to my head and had to do it, how would I do it? It s not as hard as you think. Two months out Automate After eliminating the excess, contact companies (including suppliers) that bill you regularly and set up autopayment with credit cards that have reward points. Telling them that you will be traveling the world for a year often persuades them to accept credit cards rather than chase you around the planet like Carmen Sandiego. For the credit card companies themselves and others that refuse, arrange automatic debit from your checking account. Set up online banking and bill payment. Set up all companies that won t take credit cards or automatic debit as online payees. Set these scheduled checks for 15 20 more than expected when dealing with utilities and other variable expenses. This will cover miscellaneous fees, prevent timeconsuming billing problems, and accrue as a credit. Cancel paper bank and credit card statement delivery. Get bank-issued credit cards for all checking accounts generally one for business and one for personal and set the cash advances to 0 to minimize abuse potential. Leave these cards at home, as they are just for emergency overdraft protection. Give a trusted member of your family and or your accountant power of attorney, 77 which gives that person authority to sign documents (tax filings and checks, for example) in your name. Nothing screws up foreign fun faster than having to sign original documents when faxes are unacceptable. One month out Speak to the manager of your local post office and have all mail forwarded to a friend, family member, or personal assistant, 78 who will be paid 100 200 per month to e-mail you brief descriptions of all nonjunk mail each Monday. Get all required and recommended immunizations and vaccinations for your target region. Check the Centers for Disease Control and Prevention (www.cdc.gov travel ). Note that proof of immunizations is sometimes required to pass through foreign customs. Set up a trial account with GoToMyPC or similar remote-access software and take a dry run to ensure that there are no technological glitches. 79 If resellers (or distributors) still send you checks the fulfillment house should handle customer checks at this point do one of three things: give the resellers direct bank deposit information (ideal), have the fulfillment house handle these checks (second choice), or have the resellers pay via PayPal or mail checks to one of the people you are trusting with power of attorney (far third). In the last case, give the person with power of attorney deposit slips so he or she can sign or stamp and mail in the checks. It is convenient to become a member of a large bank (Bank of America, Wells Fargo, Washington Mutual, Citibank, etc.) with branches near the person assisting you so that they can drop off the deposits while running other errands. No need to move all accounts to this bank if you don t want to; just open a single new account that is used solely for these deposits. Two weeks out Scan all identification, health insurance, and credit debit cards into a computer from which you can print multiple copies, several to be left with family members and several to be taken with you in separate bags. E-mail the scanned file to yourself so that you can access it while abroad if you lose the paper copies. If you are an entrepreneur, downgrade your cell phone to the cheapest plan and set up a voicemail greeting that states, I am currently overseas on business. Please do not leave a voicemail, as I will not be checking it while gone. Please send me an e-mail at .com if the matter is important. Thank you for your understanding. Then set up e-mail autoresponders that indicate responses could take up to seven days (or whatever you decide for frequency) due to international business travel. If you are an employee, consider getting a quad-band or GSM-compatible cell phone so that the boss can contact you. Get a BlackBerry only if your boss will be checking to see if you are working via e- mail. Be sure to disable the dead giveaway Sent from a BlackBerry signature on outgoing e-mail! Other options include using a SkypeIn account that forwards to your foreign cell phone (my preference) or a Vonage IP box that allows you to receive landline calls anywhere in the world via a phone number that begins with your home area code. Find an apartment for your ultimate mini-retirement destination or reserve a hostel or hotel at your starting point for three to four days. Reserving an apartment before you arrive is riskier and will be much more expensive than using the latter three to four days to find an apartment. I recommend hostels for the starting point if possible not for cost considerations but because the staff and fellow travelers are more knowledgeable and helpful with relocations. Get foreign medical evacuation insurance if needed for peace of mind. This tends to be redundant if you are in a first-world country and can buy local insurance to augment your own, which I do, and it is useless if you are a 10-hour flight from civilization. I had evacuation insurance in Panama, as it s a 2- hour flight from Miami, but I didn t bother elsewhere. Don t freak out about this; it s just as true if you re in the middle of nowhere in the middle of the U.S. One week out Decide on a schedule for routine batched tasks such as e-mail, online banking, etc. to eliminate excuses for senseless pseudo-work procrasterbating. I suggest Monday mornings for checking e-mail and online banking. The first and third Mondays of the month can be used for checking credit cards and making other online payments such as affiliates. These promises to yourself will be the hardest to keep, so make a commitment now and expect serious withdrawal cravings. Save important documents including the scan of your identification, insurance, and credit debit cards to a small handheld storage device that plugs into a computer USB port. Move all things out of your home or apartment into storage, pack a single small backpack and carryon bag for the adventure, and move in briefly with a family member or friend. Two days out Put remaining automobiles into storage or a friend s garage. Put fuel stabilizer like Sta-Bil in the gas tanks, disconnect the negative leads from batteries to prevent drain, and put the vehicles on jack stands to prevent tire and shock damage. Cancel all auto insurance except for theft coverage. Upon arrival (assuming you have not booked an apartment in advance) First morning and afternoon after check-in Take a hop-on-hop-off bus tour of the city followed by a bike tour of potential apartment neighborhoods. First late afternoon or evening Purchase an unlocked 80 cell phone with a SIM card that can be recharged with simple prepaid cards. E-mail apartment owners or brokers on Craigslist.com and online versions of local newspapers for viewings over the next two days. Second and third days Find and book an apartment for one month. Don t commit to more than one month until you ve slept there. I once prepaid two months only to find that the busiest bus stop downtown was on the other side of my bedroom wall. Move-in day Get settled and purchase local health insurance. Ask hostel owners and other locals what insurance they use. Resolve not to buy souvenirs or other take-home items until two weeks prior to departure. One week later Eliminate all the extra crap you brought but won t use often. Either give it to someone who needs it more, mail it back to the U.S., or throw it out. TOOLS AND TRICKS Brainstorming Mini-Retirement Locations Virtual Tourist ( www.virtualtourist.com ) The single largest source of unbiased, user-generated travel content in the world. More than 1,000,000 members contribute tips and warnings for more than 25,000 locations. Each location is covered in 13 separate categories, including Things to Do, Local Customs, Shopping, and Tourist Traps. This is onestop shopping for most mini-retirements. Escape Artist ( www.escapeartist.com ) Interested in second passports, starting your own country, Swiss banking, and all the other things I wouldn t dare put in this book? This site is a fantastic resource. Drop me a note from the Caymans or jail, whichever comes first. Also search How to Be Jason Bourne at www.fourhourblog.com. Outside Magazine Online Free Archives ( http: outside.away.com ) The entire archive of Outside magazine available online for free. From meditation camps to worldwide adrenaline hotspots, dream jobs to Patagonia winter highlights, there are hundreds of articles with beautiful photos to give you the walkabout itch. GridSkipper: The Urban Travel Guide ( www.gridskipper.com ) For those who love Blade Runner-like settings and exploring the cool nooks and crannies of cities worldwide, this is the site. It is one of Forbes s Top 13 Travel sites and is high-falootin and low-brow all in the same breath (Frommer s). Translation: Much of the content is not G-rated. If four-letter words or a world s sluttiest city poll bother you, don t bother visiting this site (or Rio de Janeiro, for that matter). Otherwise, check out the hysterical writing and 100 a day info for cities worldwide. Lonely Planet: The Thorn Tree ( http: thorntree.lonelyplanet.com ) Discussion forum for global travelers with threads separated by region. Family Travel Forum ( www.familytravelforum.com ) A comprehensive forum on, you guessed it, family travel. Want to sell your kids for top dollar in the Eastern Bloc? Or save a few dollars and cremate Grannie in Thailand? Then this isn t the site. But if you have kids and are planning a big trip, this is the place. U.S. Department of State Country Profiles (www.state.gov r pa ei bgn ) World Travel Watch (www.worldtravelwatch.com) Larry Habegger and James O Reilly s weekly online report of global events and odd happenings relevant to travel safety, sorted by topic and geographic region. Concise and a must-see prior to finalizing plans. U.S. Department of State Worldwide Travel Warnings (http: travel.state.gov) Mini-Retirement Planning and Preparation Fundamentals Round-the-World FAQ (includes travel insurance) ( www.perpetualtravel.com rtw ) This FAQ is a lifesaver. Originally written by Marc Brosius, it has been added to by newsgroup participants for years and now covers nuts and bolts from financial planning to return culture shock and all in between. How long can you afford to be away? Do you need travel insurance? Leave of absence or resignation? This is an around-the-world almanac. Removing Clutter: 1 800-GOT-JUNK ( www.1800gotjunk.com ), Freecycle ( www.freecycle.org ), and Craigslist ( www.craigslist.org ) I used Craigslist s Free category to get rid of four years of accumulated possessions in less than three hours on a Saturday evening. There were some for-sale items that I also cleared out at 30 40 of original retail. I then hauled off the last remaining items using the berfast 1 800-GOT-JUNK paid service. Freecycle is comparable to Craigslist for giving away, and getting, things for free when you re short on time. Get unattached and you ll make it a habit. I purge every 6 9 months, often including donations to Goodwill (www.goodwill.org), which can do pickups for free with advanced notice. One-Bag: The Art and Science of Packing Light ( www.onebag.com ) One of PC magazine s Top 100 Can t Live Without Sites. Pack light and experience lightness of being. U.S. Centers for Disease Control and Prevention (www.cdc.gov travel) Recommended vaccinations and health planning for every nation in the world. Certain countries require proof of inoculations to pass through customs. Get the shots well ahead of time, as some take weeks to order. Tax Planning (www.irs.gov publications p54 index.html) More good news. Even if you permanently relocate to another country, you will have to pay U.S. taxes as long as you have a U.S. passport! Not to fret there are some creative legal sidesteps, such as form 2555-EZ, which can provide up to an 85,700 income exemption if you spend at least 330 days of a consecutive 365 days off U.S. soil. This means you have 35 days in a given 12-month period to spend in the U.S. as you like, but no more. That s part of the reason my 2004 trip extended to 15 months. Get a good accountant and let them do the detail work to keep yourself out of trouble. U.S.-Sponsored Overseas Schools (www.state.gov m a os) If the idea of pulling your children out of school for a year or two isn t appealing, stick them in one of more than 190 elementary and secondary schools sponsored by the U.S. Department of State in 135 countries. Kids love home work. Homeschooling 101 and Quickstart Guide (http: bit.ly homeschooling101) This subsection of http: homeschooling.about.com provides a step-by-step process for considering homeschooling options that can be applied to education during extended travel. Children can often return to traditional public or private schools ahead of their classmates. Home Education Magazine (www.homeedmag.com) Rich collection of resources for homeschoolers, traveling families, and unschoolers. Links include curriculum, virtual support groups, legal resources, and archives. Good reasons to learn the law: Some U.S. states offer up to 1,600 of funding per year for qualified homeschooling expenditures, as it saves the state money to not educate your child in the public school system. Universal Currency Converter ( www.xe.com ) Before you get caught up in the excitement and forget that five British pounds does not equal five U.S. dollars, use this to translate local costs into numbers you understand. Try not to have too many Those coins are each worth four dollars? moments. Universal Plug Adapter ( www.franzus.com ) Carrying bulky cables and connectors is irritating get a Travel Smart all-in-one adapter with surge protection. The size of a pack of cards folded in half, it is the only adapter that I ve used everywhere without problems. Note that it is an adapter (helps you plug things in), but it is not a transformer. If the foreign wall outlet has twice as much voltage as in the U.S., your gadgets will self-destruct. Yet another reason to purchase necessities abroad instead of taking them all with you. World Electric Guide ( www.kropla.com ) Figure out outlets, voltage, mobile phones, international dialing codes, and all sorts of things related to electric mismatching worldwide. Cheap and Round-the-World Airfare Orbitz (www.orbitz.com), Kayak (www.kayak.com), and Sidestep (www.sidestep.com) Search 400 airlines worldwide for each service. Orbitz is my starting point for pricing comparisons, after which I check both Kayak and Sidestep. Sidestep has proven most effective when searching for flights that start and end outside of the U.S. TravelZoo Top 20 ( http: top20.travelzoo.com ) Moscow for 129 one-way? These last-minute weekly travel specials might be the push you need to pull the trigger. Priceline ( www.priceline.com ) Start bidding at 50 of the lowest Orbitz fare and move up in 50 increments. CFares ( www.cfares.com ) Consolidator fares with free and low-cost memberships. I found a round-trip ticket from California to Japan for 500. 1 800-FLY-EUROPE ( www.1800flyeurope.com ) I used this to get the 300 roundtrip from JFK to London that left two hours later. Discount Airlines for Flights within Europe ( www.ryanair.com , www.easyjet.com ) Free Worldwide Housing Short Term Global Freeloaders ( www.globalfreeloaders.com ) This online community brings people together to offer you free accommodation all over the world. Save money and make new friends while seeing the world from a local s perspective. The Couchsurfing Project ( www.couchsurfing.com ) Similar to the above but tends to attract a younger, more party-hearty crowd. Hospitality Club ( www.hospitalityclub.org ) Meet locals worldwide who can provide free tours or housing through this well-run network of more than 200,000 members in 200 countries. Free Worldwide Housing Long Term Home Exchange International (www.homeexchange.com) This is a home exchange listing and search service with more than 12,000 listings in more than 85 countries. E-mail directly owners of potential homes, put your own home apartment on the site, and have unlimited access to view listings for one year for a small membership fee. Paid Housing from Arrival to the Long Haul Otalo ( www.otalo.com ) Otalo is a search engine for vacation rentals that searches across the Internet s many different vacation rentals sites and 200,000 homes. Otalo is like a Kayak.com for vacation rentals. The site scours a variety of other rental search sites and aggregates the results in one easy-to-use search tool. Hostels.com ( www.hostels.com ) This site isn t just for youth hostels. I found a nice hotel in downtown Tokyo for 20 per night and have used this site for similar housing in eight countries. Think location and reviews (see HotelChatter next) instead of amenities. Four-star hotels are for binge travelers; this site can offer a real local flavor before you find an apartment or other longer-term housing. HotelChatter ( www.hotelchatter.com ) Get the real scoop on this daily web journal with detailed and honest reviews of housing worldwide. Updated several times daily, this site offers the stories of frustrated guests and those who have found hidden gems. Online booking is available. Craigslist ( www.craigslist.org ) Besides local weekly magazines with housing listings, such as Bild or Zitty (no joke) in Berlin, I have found Craigslist to be the single best starting point for long-term overseas furnished apartments. As of this writing, there are more than 50 countries represented. That said, prices will be 30 70 less in the local magazines if you have a tight budget, get a hostel employee or other local to help you make a few calls and strike a deal. Ask the local helper not to mention you re a foreigner until pricing is agreed upon. Interhome International ( www.interhome.com ) Based in Zurich, more than 20,000 homes for rent in Europe. Rentvillas.com ( www.rentvillas.com ) Provides unique renting experiences from cottages and farmhouses to castles throughout Europe, including France, Italy, Greece, Spain, and Portugal. Computer Remote Access and Backup Tools GoToMyPC ( www.gotomypc.com ) This software facilitates quick and easy remote access to your computer s files, programs, e-mail, and network. It can be used from any web browser or wireless device and works in real time. I have used GoToMyPC religiously for more than five years to access my U.S.-based computers from countries and islands worldwide. This gives me the freedom to leave all computers at home. WebExPCNow ( http: pcnow.webex.com ) WebEx, the leader in corporate remote access, now offers software that does most of what GoToMyPC offers, including cut and paste between remote computers, local printing from remote computers, file transfers, and more. DropBox (www.getdropbox.com) and SugarSync (www.sugarsync.com); then JungleDisk (www.jungledisk.com) and Mozy (www.mozy.com) Both DropBox and SugarSync perform backups and synching of files between multiple computers (home and travel computers, for example). JungleDisk and Mozy I use the latter have fewer features and are more specifically designed for automatic backups to their online storage. Free and Low-Cost Internet (IP) Telephones Skype ( www.skype.com ) Skype is my default for all phone calls. It allows you to call landlines and mobile phones across the globe for an average of 2 5 cents per minute, or connect with other Skype users worldwide for free. For about 40 euros per year, you can get a U.S. number with your home area code and receive calls that forward to a foreign cell phone. This makes your travel invisible. Lounge on the beach in Rio and answer calls to your office in California. Nice. Skype Chat, which comes with the service, is also perfect for sharing sensitive log-in and password information with others, as it s encrypted. Vonage (www.vonage.com) and Ooma (www.ooma.com) Vonage offers a small adapter for a monthly fee that connects your broadband modem to a normal phone. Take it on your travels and set it up in your apartment to receive calls to a U.S. number. Ooma has no monthly fees and doesn t require a landline, but it offers similar hardware you can connect to broadband for a local U.S. number anywhere in the world. VoIPBuster (www.voipbuster.com) and RebTel (www.rebtel.com) Both VoIPBuster and RebTel can provide alias numbers. Enter a friend s overseas number on their sites, and both will give you a local number in your area code that will forward to your friend. VoIPBuster also acts as a cheaper Skype with free calls to more than 20 countries. International Multi-Band and GSM-Compatible Phones My World Phone ( www.myworldphone.com ) I m partial to Nokia phones. Ensure whichever phone you purchase is unlocked that the SIM card can be swapped out in different countries with different providers. World Electronics USA ( www.worldelectronicsusa.com ) Good explanation of which GSM frequencies and bands function in which countries, which will determine which phone you purchase for travel (and perhaps home). Tools for Off-the-Beaten Path Satellite Phones ( www.satphonestore.com ) If you will be in the mountains of Nepal or on a remote island and want the peace of mind (or headache) of having a phone nearby, these phones work via satellite instead of towers. Iridium has been recommended for widest reception (pole to pole), with GlobalStar in second place (three continents). Rent or purchase. Pocket-size Solar Panels ( www.solio.com ) Satellite phones and other small electronics are of little use (skipping stones, perhaps?) if their batteries die. Solio is about the size of two packs of cards and fans out into small solar panels. I was surprised to find that it charged my cell phone in less than 15 minutes more than twice as fast as a wall outlet. Adapters are available for almost anything. What to Do Once You Get There Career Experiments and More Verge Magazine (see Restricted Reading appendix) Meet Up ( www.meetup.com ) Search by city and activity to find people who share similar interests all over the world. Become a Travel Writer ( www.writtenroad.com ) Get paid to travel the world and record your thoughts? This is a dream job for millions. Get the inside scoop on the travel publishing world from veteran Jen Leo, author of Sand in My Bra and Other Misadventures: Funny Women Write from the Road. This blog was a Frommer s Budget Travel Top Choice and also features great practical articles about low-tech travel and going gadgetless. Teach Engrish ( www.eslcafe.com ) Dave s ESL Caf is one of the oldest and most useful resources for teachers, would-be teachers, and learners of English. Features discussion boards and teachers wanted job postings worldwide. Turn Your Brain into Play-Doh ( www.jiwire.com ) Travel the world so you can instant message (IM) with your friends in the U.S. This site lists more than 150,000 hotspots where you can feed your information OCD. Be ashamed if this becomes your default activity. If you re bored, just remember it s your fault. I ve been there, so I m not preaching. It happens to the best of us from time to time, but get more creative. Test a New Career Part- or Full-Time: Working Overseas ( www.workingoverseas.com ) This encyclopedia is an exhaustive menu of options for the globally minded, compiled and updated by Jean-Marc Hachey, former international careers editor of Transitions Abroad magazine. World Wide Opportunities on Organic Farms ( www.wwoof.com ) Learn and then teach sustainable organic farming techniques in dozens of countries, including Turkey, New Zealand, Norway, and French Polynesia. Chat and E-mail in a Language You Don t Know Google Chat Bots (http: bit.ly imbot) Use this to chat in real time using almost any language. Instant message (IM) directly from your Gmail e-mail account with anyone in the world. Nice Translator (www.nicetranslator.com) and Free Translation (www.freetranslation.com) Translate text from English into a dozen languages and vice versa. Surprisingly accurate, though the lostin-translation 10 20 can get you in trouble. Nice Translator is faster and can be used on the iPhone. Become Fluent in Record Time Language Addicts and Accelerated Learning For all things language related, from detailed how-to articles (how to reactivate forgotten languages, memorize 1,000 words per week, master tones, etc.) to mnemonics and the best electronic shortcuts, click on language at www.fourhourblog.com. Learning languages is an addiction of mine and a skill I have taken apart and reassembled to be faster. It is possible to become conversationally fluent in any language in 3 6 months. Find Language Exchange Partners and Materials LiveMocha ( www.livemocha.com ), EduFire (www.edufire.com), and Smart.fm (http: smart.fm ) I particularly like their BrainSpeed learning game. About.com ( www.about.com ) Some of the more popular languages have excellent tutorials on About.com: http: italian.about.com http: spanish.about.com http: german.about.com http: french.about.com 68. The dollar figures in this chapter are all from a period immediately following President Bush s reelection in 2004, which correlated to the worst dollar exchange rates of the last 20 years. 69. I refer, of course, to the amazing bike-riding opportunities and famous pastries. 70. Coined by Joel Stein of the LA Times. 71. By all means, go ahead and take a post-office celebratory trip and go nuts for a few weeks. I know I did. Rock on. Ibiza and glow sticks here I come. Have some absinthe and drink lots of water. Following that, sit down and plan an introspective mini-retirement. 72. Muses are low maintenance but often expensive in one or both of two tactical areas: manufacturing and advertising. Shop for providers of both that are willing to accept credit cards as payment, and negotiate this up front if necessary by saying, Rather than trying to negotiate you down on pricing, I just ask that you accept payment by credit card. If you can do that, we ll choose you over Competitor X. This is yet another example of a firm offer, and not a question, that puts you in a stronger negotiating position. For a detailed explanation of how I multiply points for travel using concepts like piggybacking and recycling, search for both terms on www.fourhourblog.com. 73. To see a video of how I pack to travel the world with less than 10 pounds, click on travel at www.fourhourblog.com. 74. Founder of www.nileproject.com. 75. http: www.usc.edu hsc dental opfs SC indexSC.html. 76. Brazilian shantytowns. See the movie City of God (Cidade de Deus) to get a taste of how fun these are. 77. This is a serious step and should not be taken with those you do not trust. In this case, it helps because your accountant can then sign tax documents or checks in your name instead of consuming hours and days of your time with faxes, scanners, and expensive international FedEx ing of documents. 78. There are also services like www.earthclassmail.com, which will receive, scan, and e-mail all of your non-junk mail to you as PDFs. 79. This would be used if you leave your computer at home or in someone else s home while traveling. This step can be skipped if you bring your computer, but that is like a recovering heroin addict bringing a bag of opium to rehab. Don t tempt yourself to kill time instead of rediscovering it. 80. Unlocked means that it is recharged with prepaid cards instead of being on a monthly payment plan with a single carrier such as O2 or Vodafone. This also means that the same phone can be used with carriers in other countries (assuming the frequency is the same) with a simple switch of the SIM memory card for 10 30 U.S. in most cases. Some U.S.-compatible quad-band phones can use SIM cards. Filling the Void ADDING LIFE AFTER SUBTRACTING WORK To be engrossed by something outside ourselves is a powerful antidote for the rational mind, the mind that so frequently has its head up its own ass. ANNE LAMOTT, Bird by Bird There is not enough time to do all the nothing we want to do. BILL WATTERSON, creator of the Calvin and Hobbes cartoon strip KING S CROSS , LONDON I stumbled into the deli across the cobblestone street and ordered a prosciutto sandwich. It was 10:33 A.M. now, the fifth time I d checked the time, and the twentieth time I d asked myself, What the am I going to do today? The best answer I had come up with so far was: get a sandwich. Thirty minutes earlier, I had woken up without an alarm clock for the first time in four years, fresh off arriving from JFK the night before. I had soooo been looking forward to it: awakening to musical birdsong outside, sitting up in bed with a smile, smelling the aroma of freshly brewed coffee, and stretching out overhead like a cat in the shade of a Spanish villa. Magnificent. It turned out more like this: bolt upright as if blasted with a foghorn, grab clock, curse, jump out of bed in underwear to check e-mail, remember that I was forbidden to do so, curse again, look for my host and former classmate, realize that he was off to work like the rest of the world, and proceed to have a panic attack. I spent the rest of the day in a haze, wandering from museum to botanical garden to museum as if on rinse and repeat, avoiding Internet caf s with some vague sense of guilt. I needed a to-do list to feel productive and so put down things like eat dinner. This was going to be a lot harder than I had thought. Postpartum Depression: It s Normal Man is so made that he can only find relaxation from one kind of labor by taking up another. ANATOLE FRANCE, author of The Crime of Sylvestre Bonnard I ve Got More Money and Time Than I Ever Dreamed Possible Why Am I Depressed? It s a good question with a good answer. Just be glad you re figuring this out now and not at the end of life! The retired and ultrarich are often unfulfilled and neurotic for the same reason: too much idle time. But wait a second Isn t more time what we re after? Isn t that what this book is all about? No, not at all. Too much free time is no more than fertilizer for self-doubt and assorted mental tail-chasing. Subtracting the bad does not create the good. It leaves a vacuum. Decreasing income-driven work isn t the end goal. Living more and becoming more is. In the beginning, the external fantasies will be enough, and there is nothing wrong with this. I cannot overemphasize the importance of this period. Go nuts and live your dreams. This is not superficial or selfish. It is critical to stop repressing yourself and get out of the postponement habit. Let s suppose you decide to dip your toe in dreams like relocating to the Caribbean for island-hopping or taking a safari in the Serengeti. It will be wonderful and unforgettable, and you should do it. There will come a time, however be it three weeks or three years later when you won t be able to drink another pi a colada or photograph another damn red-assed baboon. Self-criticism and existential panic attacks start around this time. But This Is What I Always Wanted! How Can I Be Bored?! Don t freak out and fuel the fire. This is normal among all high-performers who downshift after working hard for a long time. The smarter and more goal-oriented you are, the tougher these growing pains will be. Learning to replace the perception of time famine with appreciation of time abundance is like going from triple espressos to decaf. But there s more! Retirees get depressed for a second reason, and you will too: social isolation. Offices are good for some things: free bad coffee and complaining thereof, gossip and commiserating, stupid video clips via e-mail with even stupider comments, and meetings that accomplish nothing but kill a few hours with a few laughs. The job itself might be a dead end, but it s the web of human interactions the social environment that keeps us there. Once liberated, this automatic tribal unit disappears, which makes the voices in your head louder. Don t be afraid of the existential or social challenges. Freedom is like a new sport. In the beginning, the sheer newness of it is exciting enough to keep things interesting at all times. Once you have learned the basics, though, it becomes clear that to be even a half-decent player requires some serious practice. Don t fret. The greatest rewards are to come, and you re 10 feet from the finish line. Frustrations and Doubts: You re Not Alone People say that what we are seeking is a meaning for life. I don t think this is what we re really seeking. I think what we re seeking is an experience of being alive. JOSEPH CAMPBELL, The Power of Myth Once you eliminate the 9 5 and the rubber hits the road, it s not all roses and white-sand bliss, though much of it can be. Without the distraction of deadlines and co-workers, the big questions (such as What does it all mean? ) become harder to fend off for a later time. In a sea of infinite options, decisions also become harder What the hell should I do with my life? It s like senior year in college all over again. Like all innovators ahead of the curve, you will have frightening moments of doubt. Once past the kidin-a-candy-store phase, the comparative impulse will creep in. The rest of the world will continue with its 9 5 grind, and you ll begin to question your decision to step off the treadmill. Common doubts and self-flagellation include the following: 1. Am I really doing this to be more free and lead a better life, or am I just lazy? 2. Did I quit the rat race because it s bad, or just because I couldn t hack it? Did I just cop out? 3. Is this as good as it gets? Perhaps I was better off when I was following orders and ignorant of the possibilities. It was easier at least. 4. Am I really successful or just kidding myself? 5. Have I lowered my standards to make myself a winner? Are my friends, who are now making twice as much as three years ago, really on the right track? 6. Why am I not happy? I can do anything and I m still not happy. Do I even deserve it? Most of this can be overcome as soon as we recognize it for what it is: outdated comparisons using the more-is-better and money-as-success mind-sets that got us into trouble to begin with. Even so, there is a more profound observation to be made. These doubts invade the mind when nothing else fills it. Think of a time when you felt 100 alive and undistracted in the zone. Chances are that it was when you were completely focused in the moment on something external: someone or something else. Sports and sex are two great examples. Lacking an external focus, the mind turns inward on itself and creates problems to solve, even if the problems are undefined or unimportant. If you find a focus, an ambitious goal that seems impossible and forces you to grow, 81 these doubts disappear. In the process of searching for a new focus, it is almost inevitable that the big questions will creep in. There is pressure from pseudo-philosophers everywhere to cast aside the impertinent and answer the eternal. Two popular examples are What is the meaning of life? and What is the point of it all? There are many more, ranging from the introspective to the ontological, but I have one answer for almost all of them I don t answer them at all. I m no nihilist. In fact, I ve spent more than a decade investigating the mind and concept of meaning, a quest that has taken me from the neuroscience laboratories of top universities to the halls of religious institutions worldwide. The conclusion after it all is surprising. I am 100 convinced that most big questions we feel compelled to face handed down through centuries of overthinking and mistranslation use terms so undefined as to make attempting to answer them a complete waste of time. 82 This isn t depressing. It s liberating. Consider the question of questions: What is the meaning of life? If pressed, I have but one response: It is the characteristic state or condition of a living organism. But that s just a definition, the questioner will retort, that s not what I mean at all. What do you mean, then? Until the question is clear each term in it defined there is no point in answering it. The meaning of life question is unanswerable without further elaboration. Before spending time on a stress-inducing question, big or otherwise, ensure that the answer is yes to the following two questions: 1. Have I decided on a single meaning for each term in this question? 2. Can an answer to this question be acted upon to improve things? What is the meaning of life? fails the first and thus the second. Questions about things beyond your sphere of influence like What if the train is late tomorrow? fail the second and should thus be ignored. These are not worthwhile questions. If you can t define it or act upon it, forget it. If you take just this point from this book, it will put you in the top 1 of performers in the world and keep most philosophical distress out of your life. Sharpening your logical and practical mental toolbox is not being an atheist or unspiritual. It s not being crass and it s not being superficial. It s being smart and putting your effort where it can make the biggest difference for yourself and others. The Point of It All: Drumroll, Please What man actually needs is not a tensionless state but rather the striving and struggling for a worthwhile goal, a freely chosen task. VIKTOR E. FRANKL, Holocaust survivor; author of Man s Search for Meaning I believe that life exists to be enjoyed and that the most important thing is to feel good about yourself. Each person will have his or her own vehicles for both, and those vehicles will change over time. For some, the answer will be working with orphans, and for others, it will be composing music. I have a personal answer to both to love, be loved, and never stop learning but I don t expect that to be universal. Some criticize a focus on self-love and enjoyment as selfish or hedonistic, but it s neither. Enjoying life and helping others or feeling good about yourself and increasing the greater good are no more mutually exclusive than being agnostic and leading a moral life. One does not preclude the other. Let s assume we agree on this. It still leaves the question, What can I do with my time to enjoy life and feel good about myself? I can t offer a single answer that will fit all people, but, based on the dozens of fulfilled NR I ve interviewed, there are two components that are fundamental: continual learning and service. Learning Unlimited: Sharpening the Saw Americans who travel abroad for the first time are often shocked to discover that, despite all the progress that has been made in the last 30 years, many foreign people still speak in foreign languages. DAVE BARRY To live is to learn. I see no other option. This is why I ve felt compelled to quit or be fired from jobs within the first six months or so. The learning curve flattens out and I get bored. Though you can upgrade your brain domestically, traveling and relocating provides unique conditions that make progress much faster. The different surroundings act as a counterpoint and mirror for your own prejudices, making weaknesses that much easier to fix. I rarely travel somewhere without deciding first how I ll obsess on a specific skill. Here are a few examples: Connemara, Ireland: Gaelic Irish, Irish flute, and hurling, the fastest field sport in the world (imagine a mix of lacrosse and rugby played with axe handles) Rio de Janeiro, Brazil: Brazilian Portuguese and Brazilian jujitsu Berlin, Germany: German and locking (a form of upright breakdancing) I tend to focus on language acquisition and one kinesthetic skill, sometimes finding the latter after landing overseas. The most successful serial vagabonds tend to blend the mental and the physical. Notice that I often transport a skill I practice domestically martial arts to other countries where they are also practiced. Instant social life and camaraderie. It need not be a competitive sport it could be hiking, chess, or almost anything that keeps your nose out of a textbook and you out of your apartment. Sports just happen to be excellent for avoiding foreign-language stage fright and developing lasting friendships while still sounding like Tarzan. Language learning deserves special mention. It is, bar none, the best thing you can do to hone clear thinking. Quite aside from the fact that it is impossible to understand a culture without understanding its language, acquiring a new language makes you aware of your own language: your own thoughts. The benefits of becoming fluent in a foreign tongue are as underestimated as the difficulty is overestimated. Thousands of theoretical linguists will disagree, but I know from research and personal experimentation with more than a dozen languages that (1) adults can learn languages much faster than children 83 when constant 9 5 work is removed and that (2) it is possible to become conversationally fluent in any language in six months or less. At four hours per day, six months can be whittled down to less than three months. It is beyond the scope of this book to explain applied linguistics and the 80 20 of language learning, but resources and complete how-to guides can be found under language at www.fourhourblog.com. I learned six languages after failing Spanish in high school, and you can do the same with the right tools. Gain a language and you gain a second lens through which to question and understand the world. Cursing at people when you go home is fun, too. Don t miss the chance to double your life experience. Service for the Right Reasons: To Save the Whales, or Kill Them and Feed the Children? Morality is simply the attitude we adopt toward people we personally dislike. OSCAR WILDE One would expect me to mention service in this chapter, and here it is. Like all before it, the twist is a bit different. Service to me is simple: doing something that improves life besides your own. This is not the same as philanthropy. Philanthropy is the altruistic concern for the well-being of mankind human life. Human life has long been focused on the exclusion of the environment and the rest of the food chain, hence our current race to imminent extinction. Serves us right. The world does not exist solely for the betterment and multiplication of mankind. Before I start chaining myself to trees and saving the dart frogs, though, I should take my own advice: Do not become a cause snob. How can you help starving children in Africa when there are starving children in Los Angeles? How can you save the whales when homeless people are freezing to death? How does doing volunteer research on coral destruction help those people who need help now? Children, please. Everything out there needs help, so don t get baited into my cause can beat up your cause arguments with no right answer. There are no qualitative or quantitative comparisons that make sense. The truth is this: Those thousands of lives you save could contribute to a famine that kills millions, or that one bush in Bolivia that you protect could hold the cure for cancer. The downstream effects are unknown. Do your best and hope for the best. If you re improving the world however you define that consider your job well done. Service isn t limited to saving lives or the environment either. It can also improve life. If you are a musician and put a smile on the faces of thousands or millions, I view that as service. If you are a mentor and change the life of one child for the better, the world has been improved. Improving the quality of life in the world is in no fashion inferior to adding more lives. Service is an attitude. Find the cause or vehicle that interests you most and make no apologies. Q A: QUESTIONS AND ACTIONS Adults are always asking kids what they want to be when they grow up because they are looking for ideas. PAULA POUNDSTONE The miracle is not to walk on water. The miracle is to walk on the green earth, dwelling deeply in the present moment and feeling truly alive. THICH NHAT HANH But I can t just travel, learn languages, or fight for one cause for the rest of my life! Of course you can t. That s not my suggestion at all. These are just good life hubs starting points that lead to opportunities and experiences that otherwise wouldn t be found. There is no right answer to the question What should I do with my life? Forget should altogether. The next step and that s all it is is pursuing something, it matters little what, that seems fun or rewarding. Don t be in a rush to jump into a full-time long-term commitment. Take time to find something that calls to you, not just the first acceptable form of surrogate work. That calling will, in turn, lead you to something else. Here is a good sequence for getting started that dozens of NR have used with success. 1. Revisit ground zero: Do nothing. Before we can escape the goblins of the mind, we need to face them. Principal among them is speed addiction. It is hard to recalibrate your internal clock without taking a break from constant overstimulation. Travel and the impulse to see a million things can exacerbate this. Slowing down doesn t mean accomplishing less; it means cutting out counterproductive distractions and the perception of being rushed. Consider attending a short silence retreat of 3 7 days during which all media and speaking is prohibited. Learn to turn down the static of the mind so you can appreciate more before doing more: The Art of Living Foundation (Course II) International ( www.artofliving.org ) Spirit Rock Meditation Center in California ( http: www.spiritrock.org ) Kripalu Center for Yoga and Health in Massachusetts ( http: www.kripalu.org ) Sky Lake Lodge in New York ( http: www.sky-lake.org ) 2. Make an anonymous donation to the service organization of your choice. This helps to get the juices flowing and disassociate feeling good about service with getting credit for it. It feels even better when it s pure. Here are some good sites to get started: Charity Navigator (www.charitynavigator.org) This independent service ranks more than 5,000 charities using criteria you select. Create a personalized page of favorites and compare them side by side, all free of charge. Firstgiving (www.firstgiving.com) Firstgiving.com allows you to create an online fund-raising page. Donations can be made through your personal URL. I have used Firstgiving in coordination with a nonprofit called Room to Read to build schools in both Nepal and Vietnam, with more countries pending: www.firstgiving.com timferriss and www.firstgiving.com timferriss2. If you specifically want to help animals, for example, you can click on a related link and access websites for hundreds of different animal charities, and then decide which one you want to donate to. The UK version of the website is http: www.justgiving.com. Network for Good (www.networkforgood.org) Visitors to this website will find links to charities in need of donations as well as opportunities to do volunteer work. They can also set up an automated credit card donation online. 3. Take a learning mini-retirement in combination with local volunteering. Take a mini-retirement six months or more if possible to focus on learning and serving. The longer duration will permit a language focus, which in turn enables more meaningful interaction and contribution through volunteering. For the duration of this trip, note self-criticisms and negative self-talk in a journal. Whenever upset or anxious, ask why at least three times and put the answers down on paper. Describing these doubts in writing reduces their impact twofold. First, it s often the ambiguous nature of self-doubt that hurts most. Defining and exploring it in writing just as with forcing colleagues to e-mail demands clarity of thought, after which most concerns are found to be baseless. Second, recording these concerns seems to somehow remove them from your head. But where to go and what to do? There is no one right answer to either. Use the following questions and resources to brainstorm: What makes you most angry about the state of the world? What are you most afraid of for the next generation, whether you have children or not? What makes you happiest in your life? How can you help others have the same? There is no need to limit yourself to one location. Remember Robin, who traveled through South America for a year with her husband and seven-year-old son? The three of them spent one to two months doing volunteer work in each location, including building wheelchairs in Banos, Ecuador, rehabilitating exotic animals in the Bolivian rain forest, and shepherding leather-back sea turtles in Suriname. How about doing archaeological excavation in Jordan or tsunami relief on the islands of Thailand? These are just two of the dozens of foreign relocation and volunteering case studies in each issue of Verge Magazine (www.vergemagazine.com). Reader-tested resources include: Hands on Disaster Response: www.hodr.org Project Hope: www.projecthope.org Relief International: www.ri.org International Relief Teams: www.irteams.org Airline Ambassadors International: www.airlineamb.org Ambassadors for Children: www.ambassadorsforchildren.org Relief Riders International: www.reliefridersinternational.com Habitat for Humanity Global Village Program: www.habitat.org Planeta: Global Listings for Practical Ecotourism: www.planeta.com 4. Revisit and reset dreamlines. Following the mini-retirement, revisit the dreamlines set in Definition and reset them as needed. The following questions will help: What are you good at? What could you be the best at? What makes you happy? What excites you? What makes you feel accomplished and good about yourself? What are you most proud of having accomplished in your life? Can you repeat this or further develop it? What do you enjoy sharing or experiencing with other people? 5. Based on the outcomes of steps 1 4, consider testing new part- or full-time vocations. Full-time work isn t bad if it s what you d rather be doing. This is where we distinguish work from a vocation. If you have created a muse or cut your hours down to next to nothing, consider testing a part-time or full-time vocation: a true calling or dream occupation. This is what I did with this book. I can now tell people I m a writer rather than giving them the two-hour drug dealer explanation. What did you dream of being when you were a kid? Perhaps it s time to sign up for Space Camp or intern as an assistant to a marine biologist. Recapturing the excitement of childhood isn t impossible. In fact, it s required. There are no more chains or excuses to hold you back. 81. Abraham Maslow, the American psychologist famous for proposing Mas-low s Hierarchy of Needs, would term this goal a peak experience. 82. There is a place for koans and rhetorical meditative questions, but these tools are optional and outside the scope of this book. Most questions without answers are just poorly worded. 83. Ellen Bialystok and Kenji Hakuta, In Other Words: The Science and Psychology of Second- Language Acquisition (Basic Books, 1995). The Top 13 New Rich Mistakes If you don t make mistakes, you re not working on hard enough problems. And that s a big mistake. FRANK WILCZEK, 2004 Nobel Prize winner in physics Ho imparato che niente e impossibile, e anche che quasi niente e facile (I ve learned that nothing is impossible, and that almost nothing is easy ) ARTICOLO 31 (Italian rap group), Un Urlo Mistake are the name of the game in lifestyle design. It requires fighting impulse after impulse from the old world of retirement-based life deferral. Here are the slipups you will make. Don t get frustrated. It s all part of the process. 1. Losing sight of dreams and falling into work for work s sake (W4W) Please reread the introduction and next chapter of this book whenever you feel yourself falling into this trap. Everyone does it, but many get stuck and never get out. 2. Micromanaging and e-mailing to fill time Set the responsibilities, problem scenarios and rules, and limits of autonomous decision-making then stop, for the sanity of everyone involved. 3. Handling problems your outsourcers or co-workers can handle 4. Helping outsourcers or co-workers with the same problem more than once, or with noncrisis problems Give them if-then rules for solving all but the largest problems. Give them the freedom to act without your input, set the limits in writing, and then emphasize in writing that you will not respond to help with problems that are covered by these rules. In my particular case, all outsourcers have at their discretion the ability to fix any problem that will cost less than 400. At the end of each month or quarter, depending on the outsourcer, I review how their decisions have affected profit and adjust the rules accordingly, often adding new rules based on their good decisions and creative solutions. 5. Chasing customers, particularly unqualified or international prospects, when you have sufficient cash flow to finance your nonfinancial pursuits 6. Answering e-mail that will not result in a sale or that can be answered by a FAQ or autoresponder For a good example of an auto-responder that directs people to the appropriate information and outsourcers, e-mailinfo fourhourworkweek.com. 7. Working where you live, sleep, or should relax Separate your environments designate a single space for work and solely work or you will never be able to escape it. 84 8. Not performing a thorough 80 20 analysis every two to four weeks for your business and personal life 9. Striving for endless perfection rather than great or simply good enough, whether in your personal or professional life Recognize that this is often just another W4W excuse. Most endeavors are like learning to speak a foreign language: to be correct 95 of the time requires six months of concentrated effort, whereas to be correct 98 of the time requires 20 30 years. Focus on great for a few things and good enough for the rest. Perfection is a good ideal and direction to have, but recognize it for what it is: an impossible destination. 10. Blowing minutiae and small problems out of proportion as an excuse to work 11. Making non-time-sensitive issues urgent in order to justify work How many times do I have to say it? Focus on life outside of your bank accounts, as scary as that void can be in the initial stages. If you cannot find meaning in your life, it is your responsibility as a human being to create it, whether that is fulfilling dreams or finding work that gives you purpose and self-worth ideally a combination of both. 12. Viewing one product, job, or project as the end-all and be-all of your existence Life is too short to waste, but it is also too long to be a pessimist or nihilist. Whatever you re doing now is just a stepping-stone to the next project or adventure. Any rut you get into is one you can get yourself out of. Doubts are no more than a signal for action of some type. When in doubt or overwhelmed, take a break and 80 20 both business and personal activities and relationships. 13. Ignoring the social rewards of life Surround yourself with smiling, positive people who have absolutely nothing to do with work. Create your muses alone if you must, but do not live your life alone. Happiness shared in the form of friendships and love is happiness multiplied. 84. To avoid the living room and coffee shop as offices, consider using a social co-working space on occasion: http: coworking.pbwiki.com. The Last Chapter AN E-MAIL YOU NEED TO READ There is nothing the busy man is less busied with than living; there is nothing harder to learn. SENECA For the past 33 years, I have looked in the mirror every morning and asked myself: If today were the last day of my life, would I want to do what I am about to do today? And whenever the answer has been No for too many days in a row, I know I need to change something almost everything all external expectations, all pride, all fear of embarrassment or failure these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. STEVE JOBS, college dropout and CEO of Apple Computer, Stanford University Commencement, 2005 85 If you re confused about life, you re not alone. There are almost seven billion of us. This isn t a problem, of course, once you realize that life is neither a problem to be solved nor a game to be won. If you are too intent on making the pieces of a nonexistent puzzle fit, you miss out on all the real fun. The heaviness of success-chasing can be replaced with a serendipitous lightness when you recognize that the only rules and limits are those we set for ourselves. So be bold and don t worry about what people think. They don t do it that often anyway. Two years ago, I was forwarded the following poem originally written by child psychologist David L. Weatherford by a close friend. He quit his own deferred-life plan after reading it, and I hope you will do the same. Here it is. Have you ever watched kids On a merry-go-round? Or listened to the rain Slapping on the ground? Ever followed a butterfly s erratic flight? Or gazed at the sun into the fading night? You better slow down. Don t dance so fast. Time is short. The music won t last. Do you run through each day On the fly? SLOW DANCE When you ask: How are you? Do you hear the reply? When the day is done, do you lie in your bed With the next hundred chores Running through your head? You d better slow down. Don t dance so fast. Time is short. The music won t last. Ever told your child, We ll do it tomorrow? And in your haste, Not see his sorrow? Ever lost touch, Let a good friendship die Cause you never had time To call and say, Hi ? You d better slow down. Don t dance so fast. Time is short. The music won t last. When you run so fast to get somewhere You miss half the fun of getting there. When you worry and hurry through your day, It is like an unopened gift thrown away. Life is not a race. Do take it slower. Hear the music Before the song is over. 85. http: news-service.stanford.edu news 2005 june15 jobs-061505.html. Last but Not Least THE BEST OF THE BLOG The Art of Letting Bad Things Happen AFTER 3 WEEKS OFF OF THE BLOG Long time no see! I just landed back in California from a long overdue mini-retirement through London, Scotland, Sardinia, the Slovak Republic, Austria, Amsterdam, and Japan. Some unpleasant surprises awaited me when I checked in on the evil e-mail inbox. Why? I let them happen. I always do. Here are just a few of the goodies that awaited me this time: One of our fulfillment companies had been shut down due to the CEO s death, causing a 20 loss in monthly orders and requiring an emergency shift of all web design and order processing Missed radio and magazine appearances and upset would-be interviewers More than a dozen lost joint-venture partnership opportunities It s not that I go out of my way to irritate people not at all but I recognize one critical fact: Oftentimes, in order to do the big things, you have to let the small bad things happen. This is a skill we want to cultivate. What did I get in exchange for temporarily putting on blinders and taking a few glancing blows? I followed the Rugby World Cup in Europe and watched the New Zealand All Blacks live, a dream I ve had for the last five years. I shot every gun I ve ever dreamed of firing since brainwashing myself with Commando . Bless the Slovak Republic and their paramilitaries. I filmed a television series pilot in Japan, a lifelong dream and the most fun I ve had in months, if not years. I met with my Japanese publisher, Seishisha, and had media interviews in Tokyo, where the 4HWW is now 1 in several of the largest chains. I took a complete 10-day media fast and felt like I d had a twoyear vacation from computers. I attended the Tokyo International Film Festival and hung out with one of my heroes, the producer of the Planet Earth television series. Once you realize that you can turn off the noise without the world ending, you re liberated in a way that few people ever know. Just remember: If you don t have attention, you don t have time. Did I have time to check e-mail and voicemail? Sure. It might take 10 minutes. Did I have the attention to risk fishing for crises in those 10 minutes? Not at all. As tempting as it is to just check e-mail for one minute, I didn t do it. I know from experience that any problem found in the inbox will linger in the brain for hours or days after you shut down the computer, rendering free time useless with preoccupation. It s the worst of states, where you experience neither relaxation nor productivity. Be focused on work or focused on something else, never in-between. Time without attention is worthless, so value attention over time. Here are a few questions that can help you pop on the productivity blinders and put things in perspective. Even when you re not traveling the world, develop the habit of letting small bad things happen. If you don t, you ll never find time for the life-changing big things, whether important tasks or true peak experiences. If you do force the time but puncture it with distractions, you won t have the attention to appreciate it. What is the one goal, if completed, that could change everything? What is the most urgent thing right now that you feel you must or should do? Can you let the urgent fail even for a day to get to the next milestone for your potential life-changing tasks? What s been on your to-do list the longest? Start it first thing in the morning and don t allow interruptions or lunch until you finish. Will bad things happen? Small problems will crop up, yes. A few people will complain and quickly get over it. BUT, the bigger picture items you complete will let you see these for what they are minutiae and repairable hiccups. Make this trade a habit. Let the small bad things happen and make the big good things happen. OCTOBER 25, 2007 Things I ve Loved and Learned in 2008 2008 was one of the most exciting years of my life. I did more dealmaking and met more people than in the last five years combined. This produced many surprise insights about business and human nature, especially as I uncovered dozens of my own false assumptions. Here are some of the things I learned and loved in 2008. Favorite reads of 2008: Zorba the Greek and Seneca: Letters from a Stoic. These are two of the most readable books of practical philosophies I ve ever had the fortune to encounter. If you have to choose one, get Zorba, but Lucius Seneca will take you further. Both are fast reads of 2 3 evenings. Don t accept large or costly favors from strangers. This karmic debt will come back to haunt you. If you can t pass it up, immediately return to karmic neutrality with a gift of your choosing. Repay it before they set the terms for you. Exceptions: ber-successful mentors who are making introductions and not laboring on your behalf. You don t have to recoup losses the same way you lose them. I own a home in San Jose but moved almost 12 months ago. It s been empty since, and I m paying a large mortgage each month. The best part? I don t care. But this wasn t always the case. For many months, I felt demoralized as others pressured me to rent it, emphasizing how I was just flushing money away otherwise. Then I realized: You don t have to make money back the same way you lose it. If you lose 1,000 at the blackjack table, should you try and recoup it there? Of course not. I don t want to deal with renters, even with a property management company. The solution: Leave the house alone, use it on occasion, and just create incoming revenue elsewhere that would cover the cost of the mortgage through consulting, publishing, etc. One of the most universal causes of self-doubt and depression: trying to impress people you don t like. Stressing to impress is fine, but do it for the right people those you want to emulate. Slow meals life. From Daniel Gilbert of Harvard to Martin Seligman of Princeton, the happiness (self-reported well-being) researchers seem to agree on one thing: Mealtime with friends and loved ones is a direct predictor of well-being. Have at least one 2-to-3-hour dinner and or drinks per week yes, 2 3 hours with those who make you smile and feel good. I find the afterglow effect to be greatest and longest with groups of five or more. Two times that are conducive to this: Thursday dinners or afterdinner drinks and Sunday brunches. Adversity doesn t build character; it reveals it. Related: Money doesn t change you; it reveals who you are when you no longer have to be nice. It doesn t matter how many people don t get it. What matters is how many people do. If you have a strong informed opinion, don t keep it to yourself. Try to help people and make the world a better place. If you strive to do anything remotely interesting, just expect a small percentage of the population to always find a way to take it personally. F ck em. There are no statues erected to critics. Related: You re never as bad as they say you are. My agent used to send me every blog or media hit for The 4-Hour Workweek. Eight weeks after publication, I asked him to only forward me positive mentions in major media or factual inaccuracies I needed to respond to. An important correlate: You re never as good as they say you are, either. It s not helpful to get a big head or get depressed. The former makes you careless and the latter makes you lethargic. I wanted to have untainted optimism but remain hungry. Speaking of hungry Eat a high-protein breakfast within 30 minutes of waking and go for a 10-to-20-minute walk outside afterward, ideally bouncing a handball or tennis ball. This one habit is better than a handful of Prozac in the morning. (Suggested reading: The 3-Minute Slow-Carb Breakfast, How to Peel Hardboiled Eggs Without Peeling on www.fourhourblog.com.) I dislike losing money about 50x more than I like making it. Why 50X? Logging time as an experiment, I concluded that I often spend at least 50 x more time to prevent a hypothetical unit of 100 from being lost vs. earned. The hysterical part is that, even after becoming aware of this bias, it s hard to prevent the latter response. Therefore, I manipulate the environmental causes of poor responses instead of depending on error-prone selfdiscipline. I should not invest in public stocks where I cannot influence outcomes. Once realizing that almost no one can predict risk tolerance and response to losses, I moved all of my investments into fixed-income and cashlike instruments in July 2008 for this reason, setting aside 10 of pretax income for angel investments where I can contribute significant UI design, PR, and corporate partnership help. (Suggested reading: Rethinking Investing Part 1, Rethinking Investing Part 2 on www.fourhourblog.com.) A good question to revisit whenever overwhelmed: Are you having a breakdown or a breakthrough? Rehearse poverty regularly restrict even moderate expenses for 1 2 weeks and give away 20 of minimally used clothing so you can think big and take risks without fear (Seneca). A mindset of scarcity (which breeds jealousy and unethical behavior) is due to a disdain for those things easily obtained (Seneca). A small cup of black Kenyan AA coffee with cinnamon on top, no milk or sweeteners. It s usually better to keep old resolutions than to make new ones. To bring in a wonderful 2009, I d like to quote an e-mail I received from a mentor of more than a decade: While many are wringing their hands, I recall the 1970s when we were suffering from an oil shock causing long lines at gas stations, rationing, and 55 MPH speed limits on federal highways, a recession, very little venture capital ( 50 million per year into VC firms), and what President Jimmy Carter (wearing a sweater while addressing the nation on TV because he had turned down the heat in the White House) called a malaise. It was during those times that two kids without any real college education, Bill Gates and Steve Jobs, started companies that did pretty well. Opportunities abound in bad times as well as good times. In fact, the opportunities are often greater when the conventional wisdom is that everything is going into the toilet. Well we re nearing the end of another great year, and despite what we read about the outlook for 2009, we can look forward to a New Year filled with opportunities as well as stimulating challenges. Happy New Year, everyone. How to Travel the World with 10 Pounds or Less Hauling a five-piece Samsonite set around the planet is hell on earth. I watched a friend do this up and down dozens of subway and hotel staircases in Europe for three weeks, and while I laughed a lot, especially when he resorted to just dragging or throwing his bags down stairs I d like to save you the breakdown. Trip enjoyment is inversely proportionate to the amount of crap (read: distractions) you bring with you. Practice in 30-plus countries has taught me that minimalist packing can be an art. I returned from Costa Rica last Wednesday and have since landed in Maui, where I ll stay for one week. What did I pack and why? (See the companion video at www.fourhourblog.com. 86 ) I practice what I ll label the BIT method of travel: Buy It There. If you pack for every possible contingency better bring the hiking books in case we go hiking, better bring an umbrella in case it rains, better bring dress shoes and slacks in case we go to a nice restaurant, etc. carrying a mule-worthy load is inevitable. I ve learned to instead allocate 50 200 per trip to a settling fund, which I use to buy needed items once they re 100 needed. This includes cumbersome and hassle items like umbrellas and bottles of sunscreen that love to explode. Also, never buy if you can borrow. If you re going on a bird-watching trip in Costa Rica, you don t need to bring binoculars someone else will have them. Here s the Maui list. 1 featherweight Marmot Ion jacket (3 oz.!) 1 breathable Coolibar long-sleeve shirt to prevent sunburn. This saved me in Panama. 1 pair of polyester pants. Polyester is light, wrinkle-resistant, and dries quickly. Disco dancers and flashpackers dig it. 1 Kensington laptop lock, also used to secure all bags to stationary objects 1 single Under Armour sock, used to store sunglasses 2 nylon tanktops 1 large MSR quick-dry microfiber towel, absorbs up to seven times its weight in water 1 Ziploc bag containing toothbrush, travel toothpaste, and disposable razor 1 Fly Clear biometric travel card ( www.flyclear.com ), 87 which cuts down my airport wait time about 95 2 pairs of ExOfficio lightweight underwear. Their tagline is 17 countries. 6 weeks. And one pair of underwear. I think I ll opt for two, considering they weigh about as much as a handful of Kleenex. One other nice side effect of their weight: They re much more comfortable than normal cotton underwear. 2 pairs of shorts swimsuits 2 books: Lonely Planet Hawaii and The Entrepreneurial Imperative . (The latter comes highly recommended. Check it out.) 1 sleeping mask and earplugs 1 pair of Reef sandals. Best to get a pair with removable straps that go around the heel. 1 Canon PowerShot SD300 digital camera with extra 2GB SD memory card. God, I love this camera more than words can describe. It is the best designed piece of electronics I have ever owned. I now use it not only for all of my photos and videos, but also as a replacement for my scanner. I m considering testing the newer and cheaper SD1000. 1 coffee-harvesting hat to prevent my pale skin from burning off 1 Kiva keychain expandable duffel bag 1 Chapstick, 1 Mag-Lite Solitaire flashlight, and 1 roll of athletic tape. The last is a lifesaver. It s as useful as duct tape for repairing objects but gentle enough to use on injuries, which I am fond of inflicting on myself. 1 Lewis and Clark flex lock (for luggage, lockers, zippers, or whatever I need to lock down shut together). Standard minipadlocks are often too cumbersome to thread through holes on lockers, etc. 1 Radio Shack kitchen timer, which I ve been using to wake up for about four years. The problem with using a cell phone alarm to wake up is simple: The phone often needs to be on, and even if you use vibrate, people can call and wake you up before you want to wake up. The second benefit to using a kitchen timer is that you know exactly how much sleep you are or aren t getting, and you can experiment with things like caffeine power naps of different durations but that s another post;) JULY 11, 2007 The Choice-Minimal Lifestyle: 6 Formulas for More Output and Less Overwhelm I was stressed out over dog cartoons. It was 9:47 P.M. at Barnes and Noble on a recent Saturday night, and I had 13 minutes to find a suitable exchange for The New Yorker Dog Cartoons, 22 of expensive paper. Bestsellers? Staff recommends? New arrivals or classics? I d already been there 30 minutes. Beginning to feel overwhelmed with a ridiculous errand I d expected to take five minutes, I stumbled across the psychology section. One tome jumped out at me as all too appropriate The Paradox of Choice: Why More Is Less. It wasn t the first time I d seen or read Barry Schwartz s 2004 classic, but it seemed like a good time to revisit the principles, among them, that: The more options you consider, the more buyer s regret you ll have. The more options you encounter, the less fulfilling your ultimate outcome will be. This raises a difficult question: Is it better to have the best outcome but be less satisfied, or have an acceptable outcome and be satisfied? For example, would you rather deliberate for months and get the 1 of 20 houses that s the best investment but second-guess yourself until you sell it five years later, or would you rather get a house that is 80 of the investment potential of the former (still to be sold at a profit) but never second-guess it? Tough call. Schwartz also recommends making nonreturnable purchases. I decided to keep the stupid pooch cartoons. Why? Because it s not just about being satisfied, it s about being practical. Income is renewable, but some other resources like attention are not. I ve talked before about attention as a currency and how it determines the value of time. For example: Is your weekend really free if you find a crisis in the inbox Saturday morning that you can t address until Monday morning? Even if the inbox scan lasts 30 seconds, the preoccupation and forward projection for the subsequent 48 hours effectively deletes that experience from your life. You had time but you didn t have attention, so the time had no practical value. The choice-minimal lifestyle becomes an attractive tool when we consider two truths. 1. Considering options costs attention that then can t be spent on action or present-state awareness. 2. Attention is necessary for not only productivity but appreciation. Therefore: Too many choices less or no productivity Too many choices less or no appreciation Too many choices sense of overwhelm What to do? There are six basic rules or formulas that can be used: 1. Set rules for yourself so you can automate as much decision making as possible see the rules I use to outsource my e-mail to Canada, included at the end of this section, as an example of this . 2. Don t provoke deliberation before you can take action. One simple example: Don t scan the inbox on Friday evening or over the weekend if you might encounter work problems that can t be addressed until Monday. 3. Don t postpone decisions just to avoid uncomfortable conversations. If an acquaintance asks you if you want to come to their house for dinner next week, and you know you won t, don t say, I m not sure. I ll let you know next week. Instead, use something soft but conclusive like, Next week? I m pretty sure I have another commitment on Thursday, but thank you for the invite. Just so I don t leave you hanging, let s assume I can t make it, but can I let you know if that changes? Decision made. Move on. 4. Learn to make nonfatal or reversible decisions as quickly as possible. Set time limits (I won t consider options for more than 20 minutes), option limits (I ll consider no more than three options), or finance thresholds (Example: If it costs less than 100 or the potential damage is less than 100 , I ll let a virtual assistant make the judgment call). I wrote most of this post after landing at the monster that is ATL airport in Atlanta. I could have considered half a dozen types of ground transportation in 15 minutes and saved 30 40 , but I grabbed a taxi instead. To use illustrative numbers: I didn t want to sacrifice 10 attention units of my remaining 50 of 100 total potential units, since those 10 units couldn t then be spent on this article. I had about eight hours before bedtime due to time zone differences plenty of time but scarce usable attention after an all-nighter of fun and the cross-country flight. Fast decisions preserve usable attention for what matters. 5. Don t strive for variation and thus increase option consideration when it s not needed. Routine enables innovation where it s most valuable. In working with athletes, for example, it s clear that those who maintain the lowest bodyfat percentage eat the same foods over and over with little variation. I ve eaten the same slow-carb breakfast and lunch for nearly two years, 88 putting variation only into meals that I focus on for enjoyment: dinner and all meals on Saturdays. This same routine-variation distinction can be found in exercise vs. recreation. For fat loss and muscle gain (even as much as 34 pounds in four weeks), I ve followed the same time minimal exercise protocol with occasional experiments since 1996. For recreation, however, where the focus is enjoyment and not efficacy, I tend to try something new each weekend, whether climbing at Mission Cliffs in San Francisco or mountain biking from tasting to tasting in Napa. Don t confuse what should be results-driven with routine (e.g., exercise) with something enjoymentdriven that benefits from variation (e.g., recreation). 6. Regret is past-tense decision making. Eliminate complaining to minimize regret. Condition yourself to notice complaints and stop making them with a simple program like the 21-day no-complaint experiment made famous by Will Bowen, where you wear a single bracelet and move it from one wrist to the other each time you complain. The goal is 21 days without complaining and you reset to 0 each time you slip up. This increased awareness helps prevent useless past-tense deliberation and negative emotions that improve nothing but deplete your attention. DECISION-MAKING ISN T to be avoided that s not the problem. Look at a good CEO or top corporate performer and you ll see a high volume of decisions. It s deliberation the time we vacillate over and consider each decision that s the attention consumer. Total deliberation time, not the number of decisions, determines your attention bank account balance (or debt). Let s assume you pay 10 over time by following the above rules but cut your average decision cycle time by an average of 40 (10 minutes reduced to 6 minutes, for example). Not only will you have much more time and attention to spend on revenue-generating activities, but you ll get greater enjoyment from what you have and experience. Consider that 10 additional cost as an investment and part of your ideal lifestyle tax, but not as a loss. Embrace the choice-minimal lifestyle. It s a subtle and under-exploited philosophical tool that produces dramatic increases in both output and satisfaction, all with less overwhelm. Make testing a few of the principles the first of many fast and reversible decisions. FEBRUARY 6, 2008 The Not-to-Do List: 9 Habits to Stop Now Not-to-do lists are often more effective than to-do lists for upgrading performance. The reason is simple: What you don t do determines what you can do. Here are nine stressful and common habits that entrepreneurs and office workers should strive to eliminate. The bullets are followed by more detailed descriptions. Focus on one or two at a time, just as you would with high-priority to-do items. 1. Do not answer calls from unrecognized phone numbers. Feel free to surprise others, but don t be surprised. It just results in unwanted interruption or poor negotiating positions. Let it go to voicemail, and consider using a service like GrandCentral (you can listen to people leaving voicemail or receive them as text messages) or Phonetag.com (receive voicemails as e-mail). 2. Do not e-mail first thing in the morning or last thing at night. The former scrambles your priorities and plans for the day, and the latter just gives you insomnia. E-mail can wait until 10 A.M., after you ve completed at least one of your critical to-do items. 3. Do not agree to meetings or calls with no clear agenda or end time. If the desired outcome is defined clearly with a stated objective and agenda listing topics questions to cover, no meeting or call should last more than 30 minutes. Request them in advance so you can best prepare and make good use of the time together. 4. Do not let people ramble. Forget How s it going? when someone calls you. Stick with What s up? or I m in the middle of getting something out, but what s going on? A big part of GTD (Getting Things Done) is GTP Getting To the Point. 5. Do not check e-mail constantly batch and check at set times only. I belabor this point enough. Get off the cocaine pellet dispenser and focus on execution of your top todo s instead of responding to manufactured emergencies. Set up a strategic autoresponder and check twice or thrice daily. 6. Do not over-communicate with low-profit, high-maintenance customers. There is no sure path to success, but the surest path to failure is trying to please everyone. Do an 80 20 analysis of your customer base in two ways which 20 are producing 80 of my profit, and which 20 are consuming 80 of my time? Then put the loudest and least productive on autopilot by citing a change in company policies. Send them an e-mail with new rules as bullet points: number of permissible phone calls, e-mail response time, minimum orders, etc. Offer to point them to another provider if they aren t able to adopt the new policies. 7. Do not work more to fix overwhelmingness prioritize. If you don t prioritize, everything seems urgent and important. If you define the single most important task for each day, almost nothing seems urgent or important. Oftentimes, it s just a matter of letting little bad things happen (return a phone call late and apologize, pay a small late fee, lose an unreasonable customer, etc.) to get the big important things done. The answer to overwhelmingness is not spinning more plates or doing more it s defining the few things that can really fundamentally change your business and life. 8. Do not carry a cell phone or Crackberry 24 7. Take at least one day off of digital leashes per week. Turn them off or, better still, leave them in the garage or in the car. I do this on at least Saturday, and I recommend you leave the phone at home if you go out for dinner. So what if you return a phone call an hour later or the next morning? As one reader put it to a miffed co-worker who worked 24 7 and expected the same: I m not the president of the U.S. No one should need me at 8 P.M. at night. OK, you didn t get a hold of me. But what bad happened? The answer? Nothing. 9. Do not expect work to fill a void that non-work relationships and activities should. Work is not all of life. Your co-workers shouldn t be your only friends. Schedule life and defend it just as you would an important business meeting. Never tell yourself I ll just get it done this weekend. Review Parkinson s Law and force yourself to cram within tight hours so your per-hour productivity doesn t fall through the floor. Focus, get the critical few done, and get out. E-mailing all weekend is no way to spend the little time you have on this planet. It s hip to focus on getting things done, but it s only possible once we remove the constant static and distraction. If you have trouble deciding what to do, just focus on not doing. Different means, same end. AUGUST 16, 2007 The Margin Manifesto: 11 Tenets for Reaching (or Doubling) Profitability in 3 Months Profitability often requires better rules and speed, not more time. The financial goal of a start-up should be simple: profit in the least time with the least effort. Not more customers, not more revenue, not more offices or more employees. More profit. Based on my interviews with high-performing (using profit-per-employee metrics) CEOs in more than a dozen countries, here are the 11 basic tenets of the Margin Manifesto a return-to-basics call that gives permission to do the uncommon to achieve the uncommon: consistent profitability, or doubling of it, in three months or less. I review the following principles whenever facing operational overwhelmingness or declining stagnating profits. Hope you find them useful. 1. Niche Is the New Big The Lavish Dwarf Entertainment Rule Several years ago, an investment banker was jailed for trade violations. He was caught partly due to his lavish parties on yachts, often featuring hired dwarves. The owner of the dwarf rental company, Danny Black, was quoted in the Wall Street Journal as saying Some people are just into lavish dwarf entertainment. Niche is the new big. But here s the secret: It s possible to niche market and mass sell. iPod commercials don t feature dancing 50-year-olds, they feature hip and fit 20- and 30-somethings, but everyone and his grandmother wants to feel youthful and hip, so they strap on Nanos and call themselves Apple converts. Who you portray in your marketing isn t necessarily the only demographic who buys your product it s often the demographic that most people want to identify with or belong to. The target isn t the market. No one aspires to be the bland average, so don t water down messaging to appeal to everyone it will end up appealing to no one. 2. Revisit Drucker What Gets Measured Gets Managed Measure compulsively, for as Peter Drucker stated, What gets measured gets managed. Useful metrics to track, besides the usual operational stats, include CPO ( Cost-Per-Order, which includes advertising, fulfillment and expected returns, charge-backs, and bad debt), ad allowable (the maximum you can spend on an advertisement and expect to break even), MER (media efficiency ratio), and projected lifetime value (LV) given return rates and reorder percent. Consider applying direct response advertising metrics to your business. 3. Pricing Before Product Plan Distribution First Is your pricing scalable? Many companies will sell direct-to-consumer by necessity in early stages, only to realize that their margins can t accommodate resellers and distributors when they come knocking. If you have a 40 profit margin and a distributor needs a 70 discount to sell into wholesale accounts, you re forever limited to direct-to-consumer unless you increase your pricing and margins. It s best to do this beforehand if possible otherwise, you ll need to launch new or premium products so plan distribution before setting pricing. Test assumptions and find hidden costs by interviewing those who have done it: Will you need to pay for co-op advertising, offer rebates for bulk purchases, or pay for shelf space or featured placement? I know one former CEO of a national brand who had to sell his company to one of the world s largest soft drink manufacturers before he could access front-of-store shelving in top retailers. Test your assumptions and do your homework before setting pricing. 4. Less Is More Limiting Distribution to Increase Profit Is more distribution automatically better? No. Uncontrolled distribution leads to all manner of headache and profit-bleeding, most often related to rogue discounters. Reseller A lowers pricing to compete with online discounter B, and the price cutting continues until neither is making sufficient profit on the product and both stop reordering. This requires you to launch a new product, as price erosion is almost always irreversible. Avoid this scenario and consider partnering with one or two key distributors instead, using that exclusivity to negotiate better terms: less discounting, prepayment, preferred placement and marketing support, etc. From iPods to Rolex and Est e Lauder, sustainable high-profit brands usually begin with controlled distribution. Remember, more customers isn t the goal; more profit is. 5. Net-Zero Create Demand vs. Offering Terms Focus on creating end-user demand so you can dictate terms. Often one trade publication advertisment, bought at discount remnant rates, will be enough to provide this leverage. Outside of science and law, most rules are just common practice. Just because everyone in your industry offers terms doesn t mean you have to, and offering terms is the most consistent ingredient in start-up failure. Cite start-up economics and the ever-so-useful company policy as reasons for prepayment and apologize, but don t make exceptions. Net-30 becomes net-60, which becomes net-120. Time is the most expensive asset a start-up has, and chasing delinquent accounts will prevent you from generating more sales. If customers are asking for your product, resellers and distributors will need to buy it. It s that simple. Put funds and time into strategic marketing and PR to tip the scales in your favor. 6. Repetition Is Usually Redundant Good Advertising Works the First Time Use direct response advertising (call-to-action to a phone number or website) that is uniquely trackable fully accountable advertising instead of image advertising, unless others are pre-purchasing to offset the cost (e.g., If you prepurchase 288 units, we ll feature your store URL phone exclusively in a fullpage ad in ). Don t listen to advertising salespeople who tell you that 3, 7, or 27 exposures are needed before someone will act on an advertisement. Well-designed and well-targeted advertising works the first time. If something works partially well (e.g., high response with low percentage conversion to sales, low response with high conversion, etc.), indicating that a strong ROI might be possible with small changes, tweak one controlled variable and microtest once more. Cancel anything that cannot be justified with a trackable ROI. 7. Limit Downside to Ensure Upside Sacrifice Margin for Safety Don t manufacture product in large quantities to increase margin unless your product and marketing are tested and ready for rollout without changes. If a limited number of prototypes cost 10 per piece to manufacture and sell for 11 each, that s fine for the initial testing period, and essential for limiting downside. Sacrifice margin temporarily for the testing phase, if need be, and avoid potentially fatal upfront overcommitments. 8. Negotiate Late Make Others Negotiate Against Themselves Never make a first offer when purchasing. Flinch after the first offer ( 3,000! followed by pure silence, which uncomfortable salespeople fill by dropping the price once), let people negotiate against themselves ( Is that really the best you can offer? elicits at least one additional drop in price), then bracket. If they end up at 2,000 and you want to pay 1,500, offer 1,250. They ll counter with approximately 1,750, to which you respond: I ll tell you what let s just split the difference. I ll overnight FedEx you a check, and we can call it a day. The end result? Exactly what you wanted: 1,500. 9. Hyperactivity vs. Productivity 80 20 and Pareto s Law Being busy is not the same as being productive. Forget about the start-up overwork ethic that people wear as a badge of honor get analytical. The 80 20 principle, also known as Pareto s Law, dictates that 80 of your desired outcomes are the result of 20 of your activities or inputs. Once per week, stop putting out fires for an afternoon and run the numbers to ensure you re placing effort in high-yield areas: What 20 of customers products regions are producing 80 of the profit? What are the factors that could account for this? Invest in duplicating your few strong areas instead of fixing all of your weaknesses. 10. The Customer Is Not Always Right Fire High-Maintenance Customers Not all customers are created equal. Apply the 80 20 principle to time consumption: What 20 of people are consuming 80 of your time? Put high-maintenance, low-profit customers on autopilot process orders but don t pursue them or check up on them and fire high-maintenance, high-profit customers by sending a memo detailing how a change in business model requires a few new policies: how often and how to communicate, standardized pricing and order process, etc. Indicate that, for those clients whose needs are incompatible with these new policies, you are happy to introduce other providers. But what if my largest customer consumes all of my time? Recognize that (1) without time, you cannot scale your company (and, oftentimes, life) beyond that customer, and (2) people, even good people, will unknowingly abuse your time to the extent that you let them. Set good rules for all involved to minimize back-and-forth and meaningless communication. 11. Deadlines Over Details Test Reliability Before Capability Skills are overrated. Perfect products delivered past deadline kill companies faster than decent products delivered on time. Test someone s ability to deliver on a specific and tight deadline before hiring them based on a dazzling portfolio. Products can be fixed as long as you have cash flow, and bugs are forgiven, but missing deadlines is often fatal. Calvin Coolidge once said that nothing is more common than unsuccessful men with talent; I would add that the second most common is smart people who think their IQ or resume justifies delivering late. JUNE 24, 2008 The Holy Grail: How to Outsource the Inbox and Never Check E- mail Again What if you never had to check e-mail again? If you could hire someone else to spend countless hours in your inbox instead of you? This isn t pure fantasy. For the last 12 months, I ve experimented with removing myself from the inbox entirely by training other people to behave like me. Not to imitate me, but to think like me. Here s the upshot: I get more than 1,000 e-mails a day from various accounts. 89 Rather than spending 6 8 hours per day checking e-mail, which I used to do, I can skip reading e-mail altogether for days or even weeks at a time all within 4 10 minutes a night. Let me explain the basics, followed by tips and exact templates for outsourcing your own inbox. 1. I have multiple e-mail addresses for specific types of e-mail (blog readers vs. media vs. friends family, etc.). tim is the default I give to new acquaintances, which goes to my assistant. 2. 99 of e-mail falls into predetermined categories of inquiries with set questions or responses (my rules document is at the bottom of this post feel free to steal, adapt, and use). My assistant(s) checks and clears the inbox at 11 A.M. and 3 P.M. pst. 3. For the 1 of e-mail that might require my input for next actions, I have a once-daily phone call of 4 10 minutes at 4 P.M. pst with my assistant. 4. If I m busy or traveling abroad, my assistant leaves the action items in numerical order on my voicemail, which I can respond to in a bullet-point e-mail. These days, I actually prefer the voice-mail option and find that it forces my assistant to be more prepared and more concise. Each night (or early the next morning), I ll listen to my assistant s voicemail via Skype and simultaneously write out the next actions (1. Bob: Tell him that 2. Jose in Peru: Ask him for 3. Speaking in NC: Confirm , etc.) in a Skype chat or quick e-mail. How long does the new system take? 4 10 minutes instead of 6 8 hours of filtering and repetitive responses. If you only have one e-mail account, I recommend using a desktop program like Outlook or Mail instead of a web-based program like Gmail for a simple reason: If you see new items in your inbox, you ll check them. Like they say in AA: If you don t want to slip, don t go where it s slippery. This is why I have a private personal account that I use for sending e-mail to my assistant and communicating with friends. It s almost always empty. E-mail is the last thing people let go of. Fortune 500 CEOs, best-selling authors, celebrities I know dozens of top performers who delegate everything but e-mail, which they latch onto as something only they can do. No one can check my e-mail for me is the unquestioned assumption, or I answer every e-mail I receive is the unquestioned bragging right that keeps them in front of a computer for 8 12 hours at a stretch. It s not fun, and it keeps them from higher-impact or more rewarding activities. Get over yourself. I had to. Checking e-mail isn t some amazing skill that you alone possess. In fact, checking e-mail is like everything else: a process. How you evaluate and handle (delete vs. archive vs. forward vs. respond) e-mail is just a series of questions you ask yourself, whether consciously or subconsciously. I have a document called Tim Ferriss Processing Rules, to which my assistants add rules when I send them a note via e-mail with ADD TO RULES in the subject. Over the course of a week or two with a virtual assistant (VA), you will end up with an externalized set of rules that reflect how your brain processes e-mail. It often shows you how haphazard your processing is. I ve included my rules here to save you some time. A few tips: 1. Setting appointments and meetings takes a lot of time. Have your assistant set things up for you in Google Calendar. I input my own items via my Palm Z22 or iCal, then use Spanning Sync and Missing Sync for Palm OS to sync everything. On my berlight Sony VAIO, which I still use for travel, I use CompanionLink for Google Calendar. I suggest batching meetings or calls in one or two set days, with 15 minutes between appointments. Scattering them throughout the week at odd times just interrupts everything else. (Update 2009: The Palm Z22 has been discarded, and I now use a 13-inch MacBook and BusySync to synchronize iCal with Google Calendar.) 2. If you jump in your assistant s inbox and answer anything, BCC them so they are aware that you handled it. 3. Expect small problems. Life is full of compromises, and it s necessary to let small bad things happen if you want to get huge good things done. There is no escape. Prevent all problems and get nothing done, or accept an allowable level of small problems and focus on the big things. Ready to jump in and test the holy grail? Here are the steps. 1. Determine exactly which accounts you will use and how you want them to respond to (or just categorize or purge) e-mail for you. 2. Find a virtual assistant. 3. Test for reliability before skill set. Have the top three candidates do something on tight deadline (24 hours) before hiring them and letting them in your inbox. 4. Use a probationary period of 2 4 weeks to test the waters and work out the problems. Again: There will be problems. It will take a good 3 8 weeks to get to real smooth sailing. 5. Design your ideal lifestyle and find something to do other than let your brain fester in the inbox. Fill the void. T IM F ERRISS P ROCESSING R ULES 90 Note the Q A format some of the questions are my standard points for VAs, some have been added by my assistant, who put together this document. Passwords Team Requirements I often have exec-level assistants manage 4 5 other sub VAs who handle certain repetitive tasks, often at half the exec VA s hourly rate. The exec VA takes on an office manager or, in some cases, COO-level function. Download: www.alexa.com Toolbar Learn Statistics, Rank for Business Prospect and Joint-Venture Opportunities Deadlines are extremely important. Be Aware of them, and Be Punctual! If Tim says Call me back, CALL HIM BACK, do not send an e- mail. This is an important point, as Tim does not always have e- mail access because he is traveling a lot. Even if it is late in the evening, he is up late, if he does not want to answer his phone, he will not. But PLEASE call him back when he asks you to. He much prefers a phone call to an e-mail. Purchase and read The Elements of Style regarding proper grammar and punctuation. We are dealing with high-profile clients on Tim s behalf and the proper writing techniques and message says a lot about his team. Become as familiar as you can with his book and his website as to answer questions accordingly. Contact Information Tim Ferriss mailing address Tim Cell (your use only): private cell Number to give others: GrandCentral number Skype: XXXXX Billing Address (Private): billing address Purchases ASK head VA , for his AMEX NUMBER. SHE WILL ADVISE WHETHER PURCHASES CAN BE APPROVED. Question and Answer (Preferences) 1. How do you feel about joint ventures? I m open to them, but my brand and respectability is 1. I will not do anything with anyone who comes off as deceptive or amateur. Make millions while you sleep in our super-insane foreclosure program! on the website disqualifies someone. I cannot be associated with anyone who might be seen as a liar or snake-oil salesman. Just ask yourself: If the CEO of a well-known company saw this, would he lose interest in speaking with me? If so, it won t work. For those who pass that criteria, what have they done already? I m not looking for first-timers, generally, unless they have an excellent track record and reputation elsewhere. 2. Do you focus solely on profit-generating tasks? No. I also look for prestige (Harvard, government, etc.), wide exposure, as well as building networks with people who have world-class skills in some area. 3. How do you handle spam? SpamArrest and Gmail. I have no problem with spam at this point. 4. What is your optimal response rate (i.e., respond to all e-mails no later than 48 72 hours after received)? Same day. I m bringing you on to respond quickly. 5. Do you respond to any e-mails? Yes, but I ll want you to filter them first, respond to all you can, then mark the ones I should look at with the label TIM in Gmail. Note earlier in this article how I am now asking VAs to leave to-do s via voicemail. 6. Do you put in any events in your calendar? Yes, but I expect I will move more and more to having you do it. 7. Do we manage your items, or do you delegate? We are cool with both, but prefer to manage.:-) I ll try to give the list to you to take care of. I NEED confirmations that you received the task ( on it will be done at X P.M. is enough) and like status updates on larger projects with milestones. 8. Who is on your team? Me, the publishing team, and some PR folk at this point. I might have you get involved with my other businesses later, but that s it for now. 9. Who do we have to collaborate with on a regular basis? See above. 90 me, then possibly my publicist(s), tech support and web staff, and my book agent. More will come, I m sure, but that s it for now. 10. Who calls the shots for you? You can decide anything under 100. Use your judgment and report the decisions. 11. Do you have days off (as in no business appts.)? Let s shoot for no appointments on Fridays, but let s play it by ear. Update: I now only have appointments on Mondays and Fridays. 12. Who has been handling your appts. up until now? Me. I haven t had any in-person meetings for close to four years. Things have changed with the book:) 13. Explain to us your optimal work week (i.e., how long between phone calls, how many meetings per week, travel preferences, etc.)? I go to bed late, so try and avoid calls before 10 A.M. pst when possible. Try and cluster phone calls and meetings so that I can bang them out at the same time, as opposed to having one at 10 A.M. , another at 1 P.M ., and another at 4 P.M . Have them all in a row with 15 20 minutes in between whenever possible. I d like to do phone calls before 1 P.M . pst when possible (so 10 A.M.-1 P.M .). Calls should be kept to 15 30 minutes, always with a defined end time. If someone asks to jump on the phone with me, send them something like: To make the best use of everyone s time, Tim likes to have a well-defined agenda with objectives for a call before jumping on the phone. Can you please send over some bullet points with what you d like to cover and decide on the call? Something like that. 14. Do you like us to schedule personal items in with your business calendar (i.e., order your mother flowers for Mother s Day, etc.)? Absolutely. 15. What are all the e-mail addresses we respond to for you? See earlier text. 16. Do you like us to respond as you or something like client support for Timothy Ferriss. The latter, probably something like Executive Assistant to Tim Ferriss below your name I m open to suggestions. 17. How many times a day do you want e-mail checked? Twice should be fine to start. Let s aim for a minimum of at 11 A.M. and 3 P.M. in your time zone. 18. What are your working hours? 10 A.M.-6 P.M. pst, then often 11 p.m.-2 A.M. pst. Before you cry, What happened to the fourhour workweek?! realize that work hours here could be replaced with active and available-byphone hours. I have lots of projects and do not preach idleness. I am VERY active. See the sixth comment on this post on www.fourhourblog.com for more elaboration or reread the Filling the Void chapter in this book. 19. Do you like using IM?Not really, unless it s a scheduled discussion. Just leave yourself logged in, and I ll log in if I need something. I tend to use Skype chat these days, as it s encrypted and I can avoid a separate IM program. 20. Do you prefer a phone call or an e-mail to answer a quick question? PHONE CALL, absolutely. DO NOT e-mail me for anything urgent. I really follow my own advice and don t check e-mail that often. 21. What is your favorite color? Green like cedar leaves in July. 22. Call at the end of every day (if) there is something that Tim needs to respond to in his e-mail. 23. E-books: Tell them they can download the e-bookfromwww.powells.com. 24. Label all e-mails from Expert Click for Tim. No need to respond or forward. 25. All Linked-In e-mails can be archived or deleted as Tim receives notification of invites as soon as he logs into his Linked-In account. 26. For start-up inquiries in the health and wellness industry (or BrainQUICKEN start-up inquiries) please see the templates in Gmail titled: Congratulations and General Business Questions BrainQUICKEN Templates. 27. For language inquiries, please see the templates in Gmail titled: Reader Question on Language Resources Language Templates. 28. When Tim types dictate in the e-mail response, this means that we can say to the recipient: As Tim is traveling at the moment and not able to personally respond to your e-mail, I mentioned your message while on the phone to him, and he asked me to dictate. This makes the process easier as we do not have to change the context of the person responding. This is to avoid having an assistant convert my first-person Please tell him that I to thirdperson Tim says that he providing shorthand for cut and paste saves hours of assistant time. 29. If someone e-mail blasts a bunch of people and I am one of them, usually safe to ignore or delete. Read them carefully, of course, but if it says for example a few influential people I know or something like that then if someone can t take the time to personalize for me, forget them. If Tim is copied, of course, that s a different story. 30. Tim s address is XXXX. THIS E-MAIL IS NOT TO BE DISTRIBUTED OR GIVEN TO ANYONE. If you want to copy Tim on an e-mail, please use the BCC field, so that it remains private. 31. Mark anyone from Princeton for me to look at (TIM label). Note: I ve since had to modify this due to volume. 32. If I decline someone and they persist, give them one more reply Tim appreciates the persistence, but he really can t etc. and then archive future requests. Use your judgment, of course, but that s the general rule. Some people don t know when persistent turns into plain irritating. 33. Please also create a rule to respond with scheduled for all items I send to be put in the calendar (when they re put in the calendar). Missing calendar items can cause big problems, so this is a check and balance to confirm. 34. No need to follow up with someone after a call has taken place unless Tim instructs otherwise, or they request something from us. 35. Send all speaking requests to XXXX and ensure that he confirms receipt. (However, also see items 38 and 39). 36. Foreign language requests (i.e., purchasing rights, if the book is available in a particular language, etc.) send to the appropriate person at my publisher . 37. XXXX s replacement at Random House is XXXX. 38. Inquire with Tim first before booking any speaking gigs on a specific date, as he may be traveling. 39. When booking appointments in the calendar, be sure to also ask which topics they would like to discuss, and put them in the calendar description for Tim so he can prepare. Also be sure to ask for a backup phone number in case they are not able to reach Tim. I almost always have people call me unless I am abroad, as this is another safeguard against missing appointments. 40. Put initials in the subject line of calendar events so we know who (which virtual assistant) put the item in the calendar. 41. Prepare inquiries for Tim before sending to him for his review, i.e., get their Alexa ranking, possible dates of the event, a link to past events they have held, their budget, other confirmed speakers, etc. Then send this info to Tim for his review. 42. Respond to PX Method inquiries with the following response: Hi name , Thanks for your inquiry about the PX Method, however the PX Method page is designed as just a template others can look at as a reference for testing their own product ideas. We are not sure if or when Tim will offer the PX Method for sale, but there are no plans at this time. We appreciate your inquiry nonetheless. Thanks! I get quite a few e-mails from readers who do not see the disclaimer on the PX Method mockup page and thus attempt to order a product that isn t ready to ship. 43. Download eFAX viewer to view Tim s faxes. His fax number is: XXXX. 44. Event or speaking inquiries can be responded to as such: Thanks for your e-mail and for your invitation to Tim. In looking at the event online, I see that the event is April X and X, 20XX in Portland, Oregon for example . Before I present this to Tim, could you answer a few questions for me, so we can make a more informed decision? Would you like Tim to be at the entire event? How long would the keynote presentation be? Or would it be a Q A panel? Do you cover travel and accommodation along with a speaker s fee? What is your budget for keynote presentations? Have any other speakers confirmed to present? As soon as I hear back, I can speak with Tim about the possibilities of making this happen. Thanks again! Warmly, Name this e-mail is: blogable x ask first private name Executive Assistant to Timothy Ferriss Author: The 4-Hour Workweek (http: www.fourhourworkweek.com) (Random House Crown Publishing) Bio and Fun: http: www.fourhourworkweek.com blog JANUARY 21, 2008 Proposal to Work Remotely on a Contract Basis This is the actual remote-work proposal reader Autumn Brookmire used successfully to move to Argentina while retaining her job and cutting back to 5 10 hours per week of work. AUTUMN BROOKMIRE July 2008 Background After working for the company name for more than two years, I have a great loyalty to the people and mission of this organization. I believe I have added a great deal of value to the organization in my position as marketing coordinator. With my creative problem solving and my cost effective solutions I have changed the way we produce and distribute our holiday cards and I ve developed a contest to bring in more usable photos for our marketing and publications. I would like to propose continuing to perform the following tasks for company name , but on a contract basis, remotely. I plan to live in Argentina for 6 12 months starting in September of 2008. My goals are to develop my fluency in the Spanish language and immerse myself in another culture and completely foreign environment so that I develop my skills in adaptation to new ways of thinking. I am more than happy to discuss different ways to make this possible and I have some suggestions if company name would be willing to consider them. We can test this arrangement for a few months to see if it works for both of us, since that would make the most sense. Role 1: Graphic Design and Print Advertising Coordinator Responsibility: Create timelines for print materials and coordinate with respective program teams. Expectations: Print materials will be completed on time. Responsibility: Coordinate design projects with program directors and outside graphic artists designers. Expectations: Print materials designs are suitable for the audience, accurate, and appealing. Print materials are professional quality and produced within set timelines. Responsibility: Maintain relationships with print vendors to minimize cost relative to time and quality in producing program print materials. Expectations: Print materials are printed within the established budget, unless budget overages are specifically approved by the Director of Marketing. Contract Solution: By using e-mail and web-based programs such as ConceptShare, I can continue to coordinate these design projects from a distance. I currently maintain relationships with print vendors and designers at a distance so physical presence is not necessary for this to continue. For meetings with program directors and the marketing team, I would use a free video and phone conferencing service called Skype. We usually meet once or twice to discuss changes to their marketing materials and the rest of the process is continued through e-mail and ConceptShare. Role 2: Special Marketing Project Manager Responsibility: Maintain a collection of updated, appropriate marketing images. Expectations: Images needed for marketing materials and websites are anticipated and acquired. Contract Solution: I am still able to complete this task remotely by doing images searches on web databases such as iStockphoto.com. If the experiment with the Seminar Photo Contest fares well, I could also manage that process via the web using Aptify, e-mail, and Skype. Responsibility: Identify and implement new opportunities to leverage marketing materials. Expectations: Ideas are researched for feasibility and effectiveness. Chosen projects are designed and sent out within the budget and timeline. Contract Solution: I would utilize e-mail and Skype to communicate any new ideas and opportunities to leverage marketing materials. I have recently proposed creating a one-page calendar of our program deadlines to distribute to our recent seminar alumni in a fall mailing. This way students will have an easy way to remember all of our deadlines for our programs and may potentially boost our number of applicants. Role 3: Web-based Marketing Coordinator Responsibility: Contribute to online advertising efforts and track results. Expectations: Online efforts are increasingly cost effective. Marketing Director is informed of web-based marketing results as requested. Contract Solution: I am familiar with our online advertising efforts and can continue to help with this process from a distance. I will be able to access Facebook Ads, Google Ads, Blog Ads and aid Keri in gathering and entering data. I have experience working with our Facebook and Google Ads and have created images for Blog Ads in the past. Launching new Ads will be easily managed abroad. Responsibility: Compile collection of updated, appropriate web photos. Expectations: Attractive, updated photos will be available for program and marketing uses. Contract Solution: As stated above with the stock photo inventory, I am still able to complete this task remotely by conducting image searches on web databases such as iStockphoto.com. The Seminar Photo Contest will also be used as a tool to aid in this compilation of images while I am abroad. In order to more effectively track the cost of production of our print materials, I think company name would find value in transitioning to a contract basis for this position. I have really enjoyed working at company name thus far and would like to continue working for this organization from a remote location. Thank you for your consideration of this proposal. Explanation of Software and Programs Mentioned: ConceptShare www.conceptshare.com, ConceptShare allows you to set up secure online workspaces for sharing designs, documents, and video and invite others to review, comment, and give contextual feedback anytime and anywhere without a meeting. Company name has used this site for a few months to test its usability and has also been tested on multiple computers in Argentina (thanks to my sister testing it out for me while she was in Argentina). Skype www.skype.com, Skype is a free software that allows you to talk for free via the Internet. You can also use Skype with regular phones to make calls internationally for a low rate of about .04 cents a minute. Skype also has video chatting capabilities and conference call capabilities for meetings. The setup requires downloading the Skype software free) and buying a headset with microphone ( 10) and webcam ( ranges) for each computer. I have tested this software with my sister and it works well for her in Argentina and for me here. iStockphoto www.istockphoto.com, iStockphoto is an Internet royalty-free image and design stock photography website. This is one of the many sites I use to find photos for company name . We have already used a few photos from this site for our marketing materials. Seminar Photo Contest This contest was created by me and developed with Keri as an experiment to collect more relevant and usable photos for our marketing and publication efforts. Since we have found it to be a bit invasive to try and take the photos ourselves, we wanted to try a new approach to capture photos for our needs. All participants of our Summer Seminars 2008 are able to submit photos they have taken at their seminar with a chance to be rewarded with a 5 Amazon Gift Certificate for each image we choose. 86. This video explains how and why I pack the items in the list that follows. Links for all items are also included. 87. This company filed for Chapter 11 in June 2009. 88. For the exact breakfast, just serach slow-carb on www.fourhourblog.com or both slow-carb and Ferriss on Google. 89. This has thankfully decreased to 2,000 3,000 per week as of this writing. 90. This post is, of course, available on the blog for those who would like to copy and paste the rules for their own use. Living the 4-Hour Workweek CASE STUDIES, TIPS, AND HACKS Zen and the Art of Rock Star Living Art Lovers Wanted Photo Finish Virtual Law Taking Flight with Ornithreads Off-the-Job Training The 4-Hour Family and Global Education Doctor s Orders Financial Musing Who Says Kids Hold You Back? Working Remotely Killing Your BlackBerry Star Wars , Anyone? ZEN AND THE ART OF ROCK STAR LIVING Hi Tim, Here s the story. I m a musician based in Munich, Germany. I m running my own label and it has been difficult to get it off the ground. While working on that, my creativity slowly decreased until I hit rock bottom (a couple of times). While it is still difficult to survive in the music industry I find it not hard at all now to do what I want to do. And that s all I do. I do what I want to do. It includes being a father, making music, composing, taking care of business, traveling, learning languages (mostly Italian), riding my bike, etc . It s all in the following paragraphs. 1. I read the book step by step for about two months from September October 2008 (plus surfing your blog) and just made tabula rosa with my life. (Lots of brainvomiting on paper.) 2. I started outsourcing things that bothered me most (and therefore kept hanging out in my to-do list the longest). I outsourced: research, most of which is music-industry related (research outsourced saves about 2 3 hours day) website maintenance (social websites like Facebook, Myspace, etc). I m planning on doing most of my marketing through these sites in 2009 and I m on about 25 sites as an artist. My VA (getfriday.com, as recommended in your book) does all the updates and checks the sites once a week to gather e-mail messages, comments, etc., filters them and sends me a report once a week including all the details for me to respond to. (Saves about one to two hours day.) photo retouching for my press pics is done by elance (saved five hours of work time and about 500). management of my mailing list for gig dates, album updates, etc. (Saves about one hour for each mailing.) I started testing muses (learning languages with music to sell online). I m still testing! I decided to open a publishing operation online for film companies to license music for film with just a mouse click, without having to negotiate deals for months. It will happen in 2009 (I start testing soon). People are generally surprised and amazed that a person who doesn t seem to be very corporate (I look like a retired punk rocker, haha) outsources parts of his life and lives like a millionaire (I guess we do although we re far from it!). I realized that I could do it after I got the first positive feedback from my outsource VA. I got the results of my project posted on elance and a day later I got the results. I went, yeah baby, this is MINE! The biggest change is, that I now have my life under control. I take care of my little daughter (20 months) half the day (second half, my wife takes care of her), I take care of business, and I take time to do things I always wanted to do. Revenue-wise I m pretty much the same I was before but I have a lot more spare time and a clear head (so I guess I ve gotten a lot richer!). I work whenever I want (no boss) about 24 30 hours week (including office hours and music-studio hours) and what I do now is only what I really love to do. I m still step-by-step optimizing efficiency to reduce office hours (currently about 10 hours week). My dream is to dissolve my office altogether, go paperless, and basically only have my laptop as an office. I eliminated all work that has gotten me down or was wearing me out (eliminated an extra workload of about 10 hours week). I do not take on jobs (writing producing music) unless I really love the project. I eliminated all complainers and haters (saves my stomach). I just started my blog juergenreiter.com, zen and the art of rockstarliving, where I want to share the changes I made to my life (mostly for musicians to see the light at the end of the tunnel). And I recorded an album of my music and for the first time in my life did all the lyrics myself! It s going to be out in spring on my label ORkAaN Music Art Productions. I ll be on mini-retirement in New York this year for six weeks. I ll be in Sicily to learn Italian for about two weeks in May. I ll be back in Sicily to travel the island by bike for another 2 3 weeks in September. And am planning on going to either Mexico, Central America, or Australia in the winter. I learned to shave with a straight razor within about 30 minutes, which I wanted to do for years. Shaving is a real exciting ritual now and a lot of fun! I will do a master course for coffee experts in April (I m a coffee junky!) and become a maestro del caf . I helped my wife quit her teaching job and fulfill her dream to run a cafe in Munich, Germany. It s called Frau Viola and opened its doors in October 2008. It is running great! (www.frauviola.wordpress.com) Can you measure all of that? I think it speaks for itself! The general mindset of 4HWW has given me the calmness of being able to take time to play with my daughter and enjoying my free time without getting the fear of missing out on something or wasting my life. I d say overall (with all the above-mentioned changes) my productivity increased at least 70 and doubt decreased by 80 . For those just getting started: 1. start small think big. 2. identify what excites you vs. what bores you 3. eliminate and focus on what excites you 4. stick to what excites you no matter what people say. It s your life, live it the way you know is right for you. 5. read 4-Hour Workweek, obviously! J. REITER ART LOVERS WANTED I saw my father work himself to the bone for 20 years as a garbage-man when we immigrated from Mexico. As I looked at my life in April 2007 in a lonely hotel room after another endless week of travel for my employer far from my family and those I love, I realized that at 33 I was on the same path to work myself into the ground and give up on my lifelong dream of pursuing my love of music and theater. In life there are no accidents and that night as I was checking an e-mail from an old friend he suggested the 4HWW. I devoured the book in a few hours and began immediately to apply the key principles. When I told people about the book and about what I intended to do everyone said I was crazy. I focused most of my efforts on Dream-lining, Elimination, and Liberation. As an employee I wanted to first achieve liberation with a remote work arrangement. Despite several failed attempts I persevered (great lesson in negotiating) and was granted the opportunity to work remotely. This changed everything. I went from 9 hours of work a day with weekly work-related travel to four hours a week, one week of travel per month, and I managed to get a 10,000 raise and deliver 2x the productivity in my job from the previous unproductive year. As a result I now live with my once long-distance girlfriend in Seattle (my hometown). I spend my newly found time pursuing my passion for music (I sing in a choir and write my own folk-rock music), theater (I am performing in my first fully improvised 60-minute play this weekend), and fitness. I am training for my second marathon now. Most of my friends cannot believe that I can actually spend most of my time pursuing my love for the arts and still make a full-time income on only four hours a week. The best part of this is that I have found mentally the meaning of freedom. Reality is truly negotiable and now my reality is that I can spend endless hours enjoying the company of my father, who waited twenty years till he retired to enjoy the freedom that I have found less than 24 months after reading The 4-Hour Workweek. As an immigrant I want to spread the message that to succeed in America in the 21st century we must NOT work hard, instead we must follow the principles of the 4HWW and work smarter so that we can truly achieve the New American Dream: Freedom to enjoy the most precious resource we have in life our time on this earth. I. BARRON PHOTO FINISH Hey Tim, I wanted to tell you that your book, The 4-Hour Workweek, has been a true inspiration and lifechanging resource for me this year! I bought your book in November. Before then, I didn t know what workflow automation was. I had a part-time employee, but her work was actually creating more work for me. I would work until sometimes 3 A.M., and get up at 7. I d tell you I wanted to travel, but the truth is that it seemed impossible to me. I didn t have time or money. I was listening to your audio book one day. I had been listening to each of the chapters, sometimes over and over again. I was jogging. I stopped in my tracks. I believe I was listening about a case study about someone who sold music files over the Internet. I m a photographer. Weddings mostly. I wondered how I could sell digital images over the Internet. Then I came up with a fantastic idea for a family photography company. I stopped right there, and reserved a website on my iPhone. Two months later, I had a website, access to thousands of photographers across the country, and our first sale. Even better, I am now in the family photography business, and I never have to shoot myself. Even better 1, we are the first family photography business that doesn t sell prints. Only digital files. It worked! I have now adopted this for my wedding photography as well. Other photographers are so offended, but I am making WAY more , my costs are almost eliminated, and my time is free! I know the above is vague, but it s not the point. The point is that now I work better, faster, I have two more employees, I turned off my e-mail notifications on my computer and my iPhone, despite all of what it s capable of, it doesn t even ring. E-mail has been disabled. I just check it every so often to see what calls I missed. Today, my fiance loves me because I come home in time for dinner and I leave my laptop at work. It s a life I never thought I d be able to live. In the meantime, systems are working in my place and this year looks to be a lot better, financially, than last. Then I decided it was time to try my first mini-retirement. The goal: ski the Swiss Alps and spend five days in Switzerland and spend less than 1,000 total. I got a roundtrip ticket for about 500 bucks. My ski pass for one day at Engelberg was 80. Lodging was free, thanks to your suggestion www.couchsurfing.com, and I ate roasted chestnuts, brats, fish and chips and drank great beer all week long. I did it! I am forever grateful, and am excited for more mini-retirements. Here s to living during the best years of my life. P.S. I leave May 11 for a month-long work vacation to Italy (I have been hired to photograph two weddings in Siena). I plan on vacationing a LOT more than I will be working. MARK CAFIERO, Photographer VIRTUAL LAW I used to work at a large Silicon Valley law firm, but one day I woke up and decided that I wanted to travel for a year and learn a foreign language. Six weeks later I was living in Cali, Colombia I d never visited Cali before and hardly spoke a word of Spanish, but that s what made it exciting to me. Well, almost two years later, I still spend 95 of my time living and working from Cali, Colombia (I recently bought a gorgeous apartment here that I could never afford if I lived in California). I also have a fulltime maid cook (well, five hours per day, five days per week), which costs me less than US 40 per week! I started my own virtual law practice and then joined forces with my old boss. My U.S. number rings through to me wherever I am in the world (originally I m from New Zealand so I travel back there a lot, too), and all my U.S. mail is delivered to Market Street, San Francisco, and scanned so I can view it online. If I need to mail letters, I have another service which prints the letter and sends it within the U.S. so there are no international shipping delays. Definitely use www.earthclassmail.com for mail receipt scanning. They have different packages but it s around 20- 30 month. You can also choose one or more P.O. boxes or physical addresses. My Market Street address is actually an earthclassmail address. For printing small letters and mailing within the U.S. I use www.postalmethods.com. It s a little clunky at first but it s fine when you get used to it. It s very cheap since you only pay when you send (a four-page letter works out to just over 1 including the postage). Come visit me sometime. Colombia is nothing like what you hear about I feel a lot safer walking around late at night here than a lot of places in San Francisco. But don t tell anyone, those of us living here want to keep it a secret! GERRY M. TAKING FLIGHT WITH ORNITHREADS Tim My mentor gave me your book this past July and it had a tremendous impact on my life, its arrival could not have had better timing. About the time I read it, I was a few weeks away from competing in my first Olympic distance triathlon. I had trained for five months, felt and looked strong, but even more important the discipline and working toward a physical goal resulted in a creativity I hadn t felt in years. I posted a competitive time in the event and felt so optimistic about my abilities that I signed up for a half ironman competition. Riding that high and following the principles of your book, I thought of dozens of ideas for products businesses and am on the verge of launching the first of those ideas. It is a line of apparel called OrniThreads which will provide modern, scientific designs of birds to Gen-X and Gen-Y birders. The reasons for focusing on this demographic are twofold: 1. For my day job, I work at company name . I have learned a lot about their audience membership, e.g., like the fact that there are 70 million Americans who actively bird (a staggering statistic from the U.S. Fish Wildlife svc). Birders are a passionate lot and their interest only seems to grow over time it never dies! They also tend to skew from the middle to upper class and are educated. 2. I took an ornithology class this summer at Columbia University (where I am enrolled in a conservation biology program) and fell in love with the illustrations in my textbooks and wanted to surround myself with these images. I am launching www.ornithreads.com in the next week or so and the first of my three designs are being printed as we speak. I have big aspirations for the company, but am just trying to get the first collection to customers and learn as much as I can. Your book has been incredibly helpful in outlining the necessary steps I need to take to succeed and hope that my idea has some legs (or wings) which translates into an automated income. If you are in NYC anytime soon promoting your book or otherwise I would love to meet you. OFF-THE-JOB TRAINING I used concepts from the 4HWW to work remotely from August of 08 until January of 09. I went to Portugal, Europe, Spain, Sweden, and Norway surfing and snowboarding my brains out. Best part about it? I came home with three times as much money in the bank than I would have had if I continued the normal 9 to 5. I work for world-famous design company as a software developer, and was able to put the concepts to use and really change my life. I paired my iPhone Fring (Fring is voice over IP on the iPhone, it allows you to use one device for everything, and have a local number abroad). I spent four months prior to departure being sure to never be at my cube, but always be just around the corner. I made a point to ALWAYS be available on Instant Messenger, so when people would walk over to my cube and look for me in person they would see I was somewhere else, then hop online and ask, Where are you? My response was always similar, just down the hall in the cafeteria just down the block at the coffee shop, or at co-worker X s desk. After two months of this a magical thing happened: People always looked to get me via Instant Messenger and stopped dropping by my desk altogether. That allowed me to be 6,000 miles away without anyone noticing. Something else to consider how time zone affects remote work environments. I noticed, while in Norway (nine hours away), that it was the perfect amount of time. I was, in a sense, living in the future. My day was almost over by the time my boss woke up this allowed me to explore Norway s fjords, mountains, and undiscovered frigid surf spots in complete peace and without ever having to worry about getting a call from overseas. It was perfect If I wanted, I could explore all day, come home and have some dinner, then ichat with my boss for 20 30 minutes and check in. The few times he needed something urgently, he was able to give me work when he went to bed, and have it completed in the morning when he woke up. B. WILLIAMSON DOCTOR S ORDERS Hi Tim: Here s my story My dream started about four years ago. I was in the process of taking my psychology licensing exam, and after speaking to a friend, decided that I would reward myself with a trip to South America. We were both exhausted from our 9-to-5 (and sometimes 6, 7, or 8 p.m.) hospital and clinic jobs. I had traveled extensively throughout the United States and some parts of Europe, but I had never experienced South American culture. My trip there was absolutely fantastic and really opened my eyes to other ways of living and culture. During my trip, I spent a lot of time speaking to expatriates about how they used their retirement funds and pensions to live the lives of kings there. One thing was evident: Most of the expatriates who attempted to set up a business to help fund their lifestyle had failed miserably. I hypothesized that there just wasn t enough currency (pesos) in the marketplace to really sustain a gringo -oriented business. After my trip, I told my friend that I needed to dedicate all my energies to developing a method of receiving income from U.S. citizens while living elsewhere. VOIP had recently been introduced to the marketplace and Internet service was improving in South America and other parts of the third world. The business had to be based upon absolute mobility. I boiled the whole business down to two basic functions: reliable telephone via VOIP and high-speed Internet. At the time I had a small research consultation practice where I was helping doctoral students on the phone and via e-mail to complete their dissertations, theses, and statistical analyses. I had a small website that was getting traffic but I was relying on others for web and marketing services. I subsequently learned more about search engine optimization and web marketing and eventually took control of all web marketing and promotion of my website, http: www.ResearchConsultation.com, allowing me to expand my business substantially. During the next three years I conducted numerous mobile tests traveling to Costa Rica, the Dominican Republic, Venezuela, and Colombia in order to fine-tune my system of conducting business from abroad. I finally left my job last November, the day before Thanksgiving, vowing to never return to the mundane 9-to-5 structure. My job had even recently instituted a bio-metric fingerprint identification system where you had to punch in and out at the beginning and end of your hospital shift with your fingerprint to ensure that you were working your eight hours. This was just another sign that I had to leave. I now live in NYC and Colombia and travel to other parts of the world throughout the year: speaking to customers, managing my contractors (U.S. and Colombian) in order to acquire U.S. dollars while living for a fraction of the cost abroad. I m also developing other websites and businesses (community forums) that will hopefully be more automated, requiring less day-to-day interaction and monitoring. Well, that s my story for now today South America, tomorrow anywhere I can get a high-speed connection (banda ancha)! My stress level has dropped significantly since leaving my old job and my quality of life has improved enormously. My family and friends in NYC still think I m out of my mind, and I continue to fully agree with them . JEFF B. THE 4-HOUR FAMILY AND GLOBAL EDUCATION Tim, We moved to a totally digital nomadic life traveling the world as a family in 2006, so we discovered your book and ideas after we had begun and loved it! Our life has changed totally and is more fulfilling and much more simple. We are greener, leaner, healthier, happier, more connected. Other people thought we were absolutely nuts when we decided to do this in 2004 5, but now many of those same people think we are smart and psychic. Problems finding a good school fit (despite having many award-winning excellent ones at our disposal) was probably the most specific moment (John Taylor Gatto says it best on why schools do not educate) that helped us to change as well as wanting more time together and forecasting the house economy crash coming. I think more families will be taking mini-retirements and living slower, traveling digital nomadic lives. If you are away for months as a family, you need to be informed about all the wonderful educational opportunities which are actually richer than staying home (which few realize)! There are a TON of fantastic resources like Classroom 2.0 and many innovative educators online. My daughter just turned eight and is having a blast with her online course with John Hopkins University CTY and it is also a nice resource for friends. Today one can immerse deeply in one culture and still maintain one s home culture. This is important information for families who still fear the outdated negatives on Third Culture Kids (TCK) based on studies from the fifties. Maya Frost 91 has excellent information about older kids and even a new paradigm when it comes to going to university. I think education is one of the things going through a total transition due to the Internet, and parents need this info to make important decisions. We have had a fantastic experience in going to a local school in Spain that has allowed my child to immerse very deeply in her second language, culture, and literature. More info (in the book) on local schools is needed and how to experience it as a family for months at a time. We have used local people like a wonderful flamenco teacher for our child and we have also used online sources like our piano teacher in Chicago who teaches our child in Spain via Skype. E-libraries are very important (especially with a child who is a voracious reader). Http: learninfreedom.org languagebooks.html is an excellent resource on language education with great books on raising a bilingual child, even if you are a monolingual! SOULTRAVELERS3, a family living abroad and loving it FINANCIAL MUSING I graduated from Stanford University and started working in investment banking in July 2006, and, in a sick way, almost enjoyed it at first. Yes, it was a terrible lifestyle and all, but I was learning a lot and moving up very quickly. I have (had) a type-A personality, so it appealed to me on some level. As the year progressed, though, I realized it wasn t sustainable and that I wanted out but like so many other people, I failed to take action immediately. In May 2007, I was driving home at 3 A.M. one night after having pulled 4 5 all-nighters previously, and crashed into a tree on the side of the road. If you ve never crashed into an inanimate object while asleep at the wheel, just imagine waking up five feet from the ground while bungee jumping as the cord is about to snap to get an idea of what it feels like. At the ER That was the subject line of the e-mail I sent out the next day to my entire office. Luckily, everyone understood and told me to take a rare three-day weekend. Luckily I survived with no major injuries, but at that point I decided it was time for a change. I met up with some friends for dinner a week or two later and relayed my story. One friend there (who recently quit her job to pursue professional acting her dream while selling information products online) told me about this book she recently read called The 4-Hour Workweek. I thought it was a scam, of course, but I really hated my life and decided I needed to check it out at the very least. I read it in one sitting. And then I read it again, just to make sure I wasn t hallucinating. Before ever getting into finance, I had done some work online with graphics and web design and I had a technical background, so nothing in the book seemed outrageous to me I just didn t realize how easy and accessible it all was. Also, I had lived in Japan for half a year in college and loved it and long-term world travel had always been one of my goals. I sat on the ideas in your book for a while, took a quick vacation to return to Japan in October 2007, and when I came back decided that I had to get started. My muse: sell an investment banking interview guide. It s a niche, high-demand subject and I knew I could make a better guide than anything else out there. One problem: I had to stay anonymous since I was still working, and advertising with Pay-Per- Click would be way too expensive given the high CPCs for related keywords. In November 2007 I decided to start a blog, Mergers Inquisitions (http: www.mergersandinquisitions.com), about the investment banking industry and how to break in, aimed at a mix of college students, MBAs, and working professionals. While I built my audience, I never had the time to finish my muse the interview guide. But I was getting tons of requests to do consulting from my readers, so I started with resume editing and expanded into mock interviews yes, not very muse-like but I charged high rates and could make my old salary in a fraction of the time. I did this ALL while staying completely anonymous out of necessity because I didn t want to get fired without an alternative income stream. Amazingly, my services took off even though I couldn t tell anyone who I was. At the same time, I decided I would not get another job in finance, and would instead leave in June 2008. So I had a very short amount of time to make everything work. Almost every single one of my friends, roommates, and family doubted me and said it would never work. I decided they were all wrong and I would just do it anyway worst-case scenario, I could always reduce my expenses and move to Thailand to teach English. To boost my income, I completely revamped my site to sell more of my offerings, which took me from pocket change to full-time income from part-time consulting over July-August 2008. This allowed me to travel to Hawaii and Aruba to go snorkeling, surfing, and shark-cage-diving and visit friends in other parts of the U.S. all while making an investment banker s income from part-time work. As the recession and economy worsened, my business picked up because it was counter-cyclical anything that helps people find jobs is in huge demand in a poor economy. I ve since helped scores of laid-off bankers and other financiers find work elsewhere. However, I was also starting to work a lot more because I was effectively trading time for money so over the fall I started to work on my original product idea my interview guide and released it to great success later in 2008. It has gone on to free up a ton of time, double my revenues, and put the majority of my income on autopilot. If I didn t do any further work from this point onward, I could make 2 3x my previous monthly income simply by writing once or twice a week for my site (4 5 hours) and doing limited consulting on the side (10 hours). So you could say I ve increased my income almost 3x while reducing my hours 6x-9x and making myself completely mobile. I admit that often I do work more than this, but it s all on related educational projects that I want to work on, not anything that I have to work on. And if I don t feel like working one week, I can reduce my hours to the 5 15 hour range and spend my time on learning languages, sports, or traveling to exotic destinations. This setup allowed me to take an amazing trip to China, Singapore, Thailand, and Korea in December- January and get in some ridiculous adventures. I ll be moving to Asia in a few months and after that, traveling the world indefinitely while running my business from coffee shops. Incidentally, I met up with a lot of customers in Asia who thought this was the coolest thing ever! Your book has changed my life and infinitely improved my lifestyle, and I just wanted to thank you for everything. B. DECHESARE WHO SAYS KIDS HOLD YOU BACK? My first action was to think what is the worst that can happen on a scale of 1 10 if I quit my wellpaid, very secure government job? The power of this thought process is incredible. I quit my job, sold my house, and went camping for three months with two kids under two and a half and a pregnant wife (mini-retirement). We (very slowly) drove the SE coast of Australia from Sydney to Adelaide. With the complete clarity of mind that comes from being in a field with your family with no immediate worries, I put into action a plan that I had been tinkering with for 12 months. I bought a wireless Internet dongle and created an info product for electrical engineers, and wrote some software to go with it. Managed this by (a) going on info diet, (b) working 9 p.m.-midnight in a campsite with no other distractions, (c) outsourcing everything that I would find difficult or time consuming (like the tricky programming stuff and the illustrations for my book). After about four weeks I had an automated informational website that had replaced of my full-time income requiring four hours per week to maintain. The original plan was to arrive in Adelaide and get a J.O.B. But with my passive income, I decided to simply grow my new business and am currently very close to replacing 100 of my previous income. It feels f ing brilliant. Now we plan to travel the world slowly until the kids are ready for primary school Who says kids hold you back?! FINN WORKING REMOTELY One month and one year ago, I read 4HWW on the recommendation of my sister s boyfriend after I had been talking for months about changing my life drastically and moving to Argentina to learn Castellano. After reading the book I stopped talking about my dreams and immediately started setting short-term and long-term goals. I bought a notebook to track my monthly goals and tasks. I did lots of research on potential remote working situations and I started telling my close friends and family about my new plans. Everyone that I told thought it was just an idea and I wasn t actually going to go through with it. They thought it was a some day I d like to do this idea and that I wasn t actually setting daily goals to get me there. They knew that I loved my job so why would I leave it for a life of uncertainty? I didn t think of it that way. I wasn t scared, I was excited at the prospect of a new way of life, a fresh start, and even though I loved my job I also had other things I wanted to accomplish in my life. At first I thought about teaching English to make a living down there, but deep down inside all I really wanted to do was continue working for my current company, just doing it remotely. The book gave me the confidence to think this was actually possible, when everyone around me thought it was impossible. I decided to write up a proposal 92 and present it to my boss even at the advice not to do it from everyone I knew. If my boss rejected my proposal, I had enough money saved up to live in Argentina for at least six months to get me by until I could figure out how I wanted to make money there. I was not giving up on my dream of living a freer, happier life with less work and more time for myself. All odds were against me but I took a calculated risk and had faith in myself. After I handed in my proposal, I was ready to expect the worst. Everyone around me was waiting with baited breath and words of encouragement after I got rejected. When I left the meeting with my boss I couldn t believe it. She accepted and was eager to talk to me about the details. She even had a smile on her face and told me how awesome my proposal was. No one else could believe it when I told them. After the shock wore off, I realized that I could actually do this, and a huge weight was lifted from my shoulders. The hardest part was over and now I could start thinking of more possibilities for my new life. I set my goal to move to Argentina for September 2008. I arrived here on September 3 and have been here for about six months now. I live in the capital city of Jujuy, Argentina, a small province in the northwest of Argentina. I work about 5 10 hours a week and I find that I am much more focused now that I am out of the office and working alone. I have a private Spanish tutor that I meet with for two hours, five days a week. I have a handful of friends that I spend time with, practicing my Spanish. I go to the gym three times a week and go to yoga two times a week something I didn t do in the States because I didn t have enough time. I eat healthier because I have more time to focus on what to eat. I have more time to dream up bigger things that I want to do with my new free time. I have dreams of owning a bar or cafe, so maybe a few years from now that will be my next endeavor. My advice to 4HWW readers is to take from my experience. I rely heavily on the advice of my friends and family, but sometimes you have to ignore the advice of your loved ones to really make some thing happen. If you believe the impossible can be made possible, it will happen. A.K. BROOKMIRE KILLING YOUR BLACKBERRY I m a 37-year-old Subway franchisee owning and operating 13 stores. Been doing this for seven years. Prior to reading 4HWW I was KING at W4W (translate: work for work s sake)! I d never given myself permission to behave differently than I did as an employee in the past. 4HWW was absolutely liberating for me. I literally caught myself and began the process of curing my addiction to W4W. I used to always be on and I was never really present anywhere too busy doing the blackberry prayer at the dinner table instead of spending quality time with those who were present. Holidays were just a remote office for battling the e-mail tsunami. 4HWW gave me a new paradigm and I began to look at my business as a product, the (original) purpose of which was to provide me with a disproportionate amount of income vs. time invested personally by me to what end? To ENJOY MYSELF and to have complete autonomy over my schedule and activities. So I got off my own back, told myself it was OK to pursue the original purpose and here s what I did: Crunched my always open workweek into four days and 20 hours. I immediately began taking Mondays OFF, giving me a nice three-day weekend. (Fridays are in the CROSSHAIRS next!) Tuesday to Friday I work 11 A.M.-4 p.m. (20 hours per week). With the unluxury of time in this crunched workweek I was forced to appraise everything through the 80 20 filter and found that 50 of the 80 was pure crap and the other 50 of the 80 could be done by someone on my payroll. Great! Everything I do now has to somehow either increase sales or decrease costs otherwise it s someone else s job. You can t be half-pregnant, so when I m on I m really on and when I m off I m off good luck trying to contact me. I still carry portable e-mail but I ve killed auto-sync (the bane of modern mankind in terms of interruption) now it s on a Tues-Fri, 11 A.M.-4 p.m. schedule. Outside of that window it waits. My e-mail autoresponder eliminated 50 of my e-mail within two weeks as people sending me meaningless crap got fed up looking at my autoresponder and stopped including me love it! I keep a short, compact to-do list and anything time-bound is in my calendar. These get my attention before any other inbox does because I ve previously decided what s important for me to get done the rest can wait. I could go on, but all in all I think this is a message that the self-employed need to hear so badly. With no boss and no clean edges to work-life home-life it s so easy to fall into a W4W grind and your business becomes a tractor beam that trails you inexorably down that path. 4HWW is the antidote! ANDREW, self-employed in the UK STAR WARS , ANYONE? I knew my quest for the 4-Hour Workweek was working when my daughter s kindergarten teacher asked her the question: What kind of work does your father do? As the teacher re-told the story back to me, it was my daughter s answer that really struck a chord. Your daughter turned and looked up at me with the most serious look on her face and said, My dad just sits around and watches Star Wars all day. It s funny how this one simple question, and not to mention my daughter s answer, would be the moment of true 4HWW self-awareness for me. You see the answer my daughter gave her teacher has a deeper meaning. I believe what she meant to say, if she could articulate it, was My dad sort of does whatever he wants to do. I read the 4HWW almost two years ago when I was on vacation at the beach with my family. I remember it well, because I kept reading parts of the book to my wife, bothering her to no end. I am a developer and enterprise administrator for a large financial institution in Atlanta, Georgia. Part of my job is supporting the large complex document captures systems that I help build. Due to the importance of these systems I am expected to be reachable 24 7 365. That is good for job security, but can be bad for my family life. I have four beautiful children and I strive to be a true hands-on dad who is present in my family s daily lives. So armed with your book and a fresh (ocean air) perspective, I set out to put many of the 4HWW principles into practice. First, I worked on changing my e-mail habits. I took a hard look at my inbox and used several of the techniques outlined in the 4HWW to eliminate all the waste and noise. I formed new habits around batching my e-mail sessions and it didn t take long to achieve a zero inbox using the trusted trio folder method. I also applied the less is more philosophy to composing my e-mails. I went to great lengths to ensure I am as clear and concise as possible. Only communicating exactly what is needed to the right audience and not to the world. By eliminating all the noise and fat from my e-mail diet it became much more clear what actions or to-do s were important. Meetings and conference calls were the next area of attack. I scrutinized each meeting invite and began declining requests left and right. Most of the time I would claim I had too much going on to attend. I started asking for the minutes of the meeting or for someone to IM me if they had a specific question I needed to answer. When I do attend a meeting it is almost always via a conference call. Due to conference room restrictions and geographic challenges in our company most of our meetings are done virtually anyway. Less wasted time meant more time to focus on work and tasks that really mattered. I felt like I was doing less but getting more things done and with better results. The right people were starting to notice and the perception of my ability to get the job done had never been better. I was making my management look good, and when that happens they stop asking questions or micromanaging daily activities. I kept proving to them I can do it without interference. Now was the time to make the push for what I really wanted and that was to go virtual! Going virtual was actually very easy. I had a solid foundation with my manager and others in the chain of command. Almost all of my daily work was already remote-ready. At home, I have a great dedicated office in our finished basement. It is situated well away from the rest of the house and is mostly free of distractions. I have my own bathroom with shower and I even have a mini-fridge and microwave. I dare say that my home office rivals the amenities of the top executives at my company. Most of all, I have a wife and family that totally understand and respect the rules I set for myself to continue this success. At first, I worked one or two days a week from home, but it didn t take long before I found myself working four out of five days a week from home. When the Southeast was hit by the gas shortage and the price of gas nationwide was cresting 4 a gallon, the company made working from home even more accepted and official. I became an overnight model for others to follow. As people around me were in a panic as to how to get to work when no gas could be found, I was happily working away at home just business as usual. At this point, things were working better than I ever expected. Using my 4HWW skills I now had more time to be that hands-on dad I wanted to be. I became a regular up at the elementary school. I eat lunch in the cafeteria with my girls, especially on fried chicken day! I participate in a program called D.E.A.R. which stands for Drop Everything and Read, where a few times a month I come in and read to each class. I drive my kids to school and I get to see them when they come home. For my entire family, I am present in their everyday lives, and can t put a price on that. I felt like I had achieved my goal. That was that. So I thought Other things started to happen. Without conscientiously knowing it, people around me at the school or church had a weird respect for me. I say weird because people literally mistook me as a doctor or just some sort of self-made millionaire. I am not kidding. There is this one guy who still calls me Doc. I guess the reason for this is because most people still cling to the old stereotypes of what they think it is to be rich. I always seem to show up for the school functions or just special days at the school, usually in casual attire and never obsessing over time or my Blackberry. Now I have people nominating me for things like committee chair on the PTA, and just recently I was elected to the board of directors at our local swim tennis club. The cool thing is, I actually have the time to do those things and still be effective at work and at home. It goes without saying that new doors are open to me now. More than ever before. With all of this going on around me I still come back to what my daughter said to her teacher. In truth, I am at a point where if I wanted to sit around and watch Star Wars all day, I certainly could. But, I find myself filling the extra time now doing things that really mean something. Being present in the everyday lives of my family, helping my community, or volunteering at my church. Now I have a plan to take it to the next level and write my own book. The project I am working on is called The Virtual Employee Handbook. It is a collection of tips and how-to s on all the tools that are essential to the modern virtual employee, like me. We will see how that goes. One thing I do know is that I wouldn t even dream of what I am doing now if it wasn t for The 4-Hour Workweek! W. HIGGINS 91. Maya Frost, The New Global Student (Crown, 2009). 92. A simple, actual proposal is provided. RESTRICTED READING The Few That Matter A hypocrite is a person who but who isn t? DON MARQUIS I know, I know. I said not to read too much. Hence, the recommendations here are restricted to the best of the best this book s interviewees and I have used and named when asked, What is the one book that changed your life the most? None of them are required to do what we ve talked about in this book. That said, consider them if you get stuck on a particular point. The page counts are listed, and if you practice the exercises in How to Read 200 Faster in 10 Minutes in Chapter 6, you should be able to read at least 2.5 pages per minute (100 pages thus equals 40 minutes). For additional categories, including practical philosophy, licensing, and language learning, be sure to visit our comprehensive companion site. The Fundamental Four: Let Me Explain The Fundamental Four are so named because they are the four books I recommended to aspiring lifestyle designers prior to writing The 4-Hour Workweek. Still well worth reading, here is the sequence I suggest: The Magic of Thinking Big (192 pages) BY DAVID SCHWARTZ This book was first recommended to me by Stephen Key, an ultrasuccessful inventor who has made millions licensing products to companies, including Disney, Nestl , and Coca-Cola. It is the favorite book of many superperformers worldwide, ranging from legendary football coaches to famous CEOs, and has more than 100 5-star ratings on Amazon. The main message is don t overestimate others and underestimate yourself. I still read the first two chapters of this book whenever doubt creeps in. How to Make Millions with Your Ideas: An Entrepreneur s Guide (272 pages) BY DAN S. KENNEDY This is a menu of options for converting ideas into millions. I read this when I was in high school and have read it five times since. It is like steroids for your entrepreneurship cortex. The case studies, from Domino s Pizza to casinos and mail-order products, are outstanding, even if outdated in a few instances. The E-Myth Revisited: Why Most Small Businesses Don t Work and What to Do About It (288 pages) BY MICHAEL E. GERBER Gerber is a masterful storyteller and his classic of automation discusses how to use a franchise mind-set to create scalable businesses that are based on rules and not outstanding employees. It is an excellent road map told in parable for becoming an owner instead of constant micromanager. If you re stuck in your own business, this book will get you unstuck in no time. Vagabonding: An Uncommon Guide to the Art of Long-Term World Travel (224 pages) BY ROLF POTTS Rolf is the man. This is the book that got me to stop making excuses and pack for an extended hiatus. It covers bits of everything but is particularly helpful for determining your destination, adjusting to life on the road, and re-assimilating back into ordinary life. It includes great little excerpts from famous vagabonds, philosophers, and explorers, as well as anecdotes from ordinary travelers. This is the first of two books (the other was Walden, below) that I took with me on my first 15-month mini-retirement. Walden (384 pages) Reducing Emotional and Material Baggage BY HENRY DAVID THOREAU This is considered by many to be the masterpiece of reflective simple living. Thoreau lived on the edge of a small lake in rural Massachusetts for two years, building his own shelter and living alone, as an experiment in self-reliance and minimalism. It was both a huge success and a failure, which is what makes this book such a compelling read. Less Is More: The Art of Voluntary Poverty An Anthology of Ancient and Modern Voices in Praise of Simplicity (336 pages) EDITED BY GOLDIAN VANDENBROECK This is a collection of bite-sized philosophies on simple living. I read it to learn how to do the most with the least and eliminate artificial needs, not live like a monk big difference. It incorporates actionable principles and short stories ranging from Socrates to Benjamin Franklin and the Bhagavad Gita to modern economists. The Monk and the Riddle: The Education of a Silicon Valley Entrepreneur (192 pages) BY RANDY KOMISAR This great book was given to me by Professor Zschau as a graduation gift and introduced me to the phrase deferred-life plan. Randy, a virtual CEO and partner at the legendary Kleiner Perkins, has been described as a combined professional mentor, minister without portfolio, in-your-face investor, troubleshooter and door opener. Let a true Silicon Valley wizard show you how he created his ideal life using razor-sharp thinking and Buddhist-like philosophies. I ve met him he s the real deal. The 80 20 Principle: The Secret to Success by Achieving More with Less (288 pages) BY RICHARD KOCH This book explores the nonlinear world, discusses the mathematical and historical support for the 80 20 Principle, and offers practical applications of the same. Muse Creation and Related Skills Harvard Business School Case Studies www.hbsp.harvard.edu (click on school cases ) One of the secrets behind Harvard Business School s teaching success is the case method using real-life case studies for discussion. These cases take you inside the marketing and operational plans of 24-Hour Fitness, Southwest Airlines, Timberland, and hundreds of other companies. Few people realize that you can purchase these case studies for less than 10 apiece instead of spending more than 100,000 to go to Harvard (not that the latter isn t worth it). There is a case study for every situation, problem, and business model. This business has legs : How I Used Infomercial Marketing to Create the 100,000,000 Thighmaster Craze: An Entrepreneurial Adventure Story (206 pages) BY PETER BIELER This is the story of how a na ve (in the best sense of the word) Peter Bieler started from scratch no product, no experience, no cash and created a 100-million merchandising empire in less than two years. It is a mind-expanding and often hysterical case study that uses real numbers to discuss the fine points of everything from dealing with celebrities to marketing, production, legal, and retail. Peter can now finance the media purchases for your product: www.mediafunding.com. Secrets of Power Negotiating: Inside Secrets from a Master Negotiator (256 pages) BY ROGER DAWSON This is the one negotiating book that really opened my eyes and gave me practical tools I could use immediately. I used the audio adaptation. If you re hungry for more, William Ury s Getting Past No and G. Richard Shell s Bargaining for Advantage: Negotiation Strategies for Reasonable People are outstanding. These are the only negotiating books you ll ever need. Response Magazine (www.responsemagazine.com) This magazine is dedicated to the multibillion-dollar direct response (DR) industry, with a focus on television, radio, and Internet marketing. How-to articles (increasing sales per call, lowering media costs, improving fulfillment, etc.) are interspersed with case studies of successful campaigns (George Foreman Grill, Girls Gone Wild, etc.). The best outsourcers in the business also advertise in this magazine. This is an excellent resource at an excellent price free. Jordan Whitney Greensheet (www.jwgreensheet.com) This is an insider secret of the DR world. Jordan Whitney s weekly and monthly reports dissect the most successful product campaigns, including offers, pricing, guarantees, and ad frequencies (indicative of spending and, thus, profitability). The publication also maintains an up-to-date tape library from which infomercials and spot commercials can be purchased for competitive research. Highly recommended. Small Giants: Companies That Choose to Be Great Instead of Big (256 pages) BY BO BURLINGHAM Longtime Inc. magazine editor-at-large Bo Burlingham crafts a beautiful collage and analysis of companies that focus on being the best instead of growing like cancer into huge corporations. Companies include Clif Bar Inc., Anchor Stream Microbrewery, rock star Ani DiFranco s Righteous Babe Records, and a dozen more from different industries. Bigger is not better, and this book proves it. Negotiating World Travel and Preparing for Escape Six Months Off: How to Plan, Negotiate, and Take the Break You Need Without Burning Bridges or Going Broke (252 pages) BY HOPE DLUGOZIMA , JAMES SCOTT , AND DAVID SHARP This was the first book to make me step back and say, Holy sh t. I can actually do this! It steamrolls over most fear factors related to long-term travel and offers a step-by-step guide to taking time off to travel or pursue other goals without giving up your career. Full of case studies and useful checklists. Verge Magazine (http: vergemagazine.com) This magazine, formerly known as Transitions Abroad, is the central hub of alternative travel and offers dozens of incredible options for the non-tourist. Both the print and online versions are great starting points for brainstorming how you will spend your time overseas. How about excavating in Jordan or ecovolunteering in the Caribbean? It s all here. From the website: Each issue takes you around the world with people who are doing something different and making a difference doing it. This is the magazine resource for those wanting to volunteer, work, study, or adventure overseas. BONUS MATERIAL This book is not just what you hold in your hands. There was much more I wanted to include but couldn t due to space constraints. Use passwords hidden in this book to access some of the best I have to offer. Here are just a few examples that took me years to assemble: How to Get 250,000 of Advertising for 10,000 (includes real scripts) How to Learn Any Language in 3 Months Muse Math: Predicting the Revenue of Any Product (includes case studies) Licensing: From Tae Bo to Teddy Ruxpin Real Licensing Agreement with Real Dollars (this alone is worth 5,000) Online Round-the-World (RTW) Trip Planner For this and much more reader-only content, visit our companion site and free how-to message boards at www.fourhourblog.com. How would you like a free trip around the world? Join us and see how simple it is. ACKNOWLEDGMENTS First, I must thank the students whose feedback and questions birthed this book, and Ed Zschau, bermentor and entrepreneurial superhero, for giving me the chance to speak with them. Ed, in a world where deferred dreams are the norm, you have been a shining light for those who dare to do it their way. I bow down to your skills (and Karen Cindrich, the best right-hand woman ever) and look forward to cleaning your erasers whenever the call comes I ll make a 220-pound bodybuilder of you yet! Jack Canfield, you are an inspiration and have shown me that it is possible to make it huge and still be a wonderful, kind human being. This book was just an idea until you breathed life into it. I cannot thank you enough for your wisdom, support, and incredible friendship. To Stephen Hanselman, prince among men and the best agent in the world, I thank you for getting the book at first glance and taking me from writer to author. I cannot imagine a better partner or cooler cat, and I look forward to many more adventures together. From negotiation to nonstop jazz, you amaze me. LevelFiveMedia is the new breed of agenting, where first-time authors are developed into bestselling authors with the precision of a Swiss watch. Heather Jackson, your insightful editing and incredible cheer-leading has made this book a pleasure to write. Thank you for believing in me! I am honored to be your writer. To the rest of the Crown team, especially those whom I bother (because I love them) more than four hours a week Donna Passannante and Tara Gilbride in particular you are the best in the publishing world. Doesn t it hurt when your brains are so big? This book couldn t have been written without the New Rich who agreed to share their stories. Special thanks to Douglas Demon Doc Price, Steve Sims, John DJ Vanya Dial, Stephen Key, Hans Keeling, Mitchell Levy, Ed Murray, Jean-Marc Hachey, Tina Forsyth, Josh Steinitz, Julie Szekely, Mike Kerlin, Jen Errico, Robin Malinosky-Rummell, Ritika Sundaresan, T. T. Venkatesh, Ron Ruiz, Doreen Orion, Tracy Hintz, and the dozens who preferred to remain anonymous within corporate walls. Thanks also to the elite team and great friends at MEC Labs, including, but not limited to, Dr. Flint McGlaughlin, Aaron Rosenthal, Eric Stockton, Jeremiah Brookins, Jalali Hartman, and Bob Kemper. Refining the content of this book from pulp to print has been torturous, especially for my proofreaders! Deep bows and sincere thanks to Jason Burroughs, Chris Ashenden, Mike Norman, Albert Pope, Jillian Manus, Jess Portner, Mike Maples, Juan Manuel Micho Cambeforte, my brainiac brother Tom Ferriss, and the countless others who honed the end product. I owe particular gratitude to Carol Kline whose keen mind and awareness of self transformed this book and Sherwood Forlee, a great friend and relentless devil s advocate. Thanks to my brilliant interns, Ilena George, Lindsay Mecca, Kate Perkins Youngman, and Laura Hurlbut, for meeting deadlines and keeping me from imminent meltdown. I encourage all publishers to hire you before their competition does! To the authors who have guided and inspired me throughout this process, I am forever a fan and indebted: John McPhee, Michael Gerber, Rolf Potts, Phil Town, Po Bronson, AJ Jacobs, Randy Komisar, and Joy Bauer. For helping to build schools around the world and for funding projects for more than 15,000 U.S. public school students, I wish to thank among countless others the following readers and friends: Matt Mullenweg, Gina Trapani, Joe Polish, David Bellis, John Morgan, Thomas Johnson, Dean Jackson, Peter Weck and SimplyHired.com, Yanik Silver, Metroblogging, Michael Port, Jay Peters, Aaron Daniel Bennett, Andrew Rosca, Birth Beyond, Inc., Doula Services, Noreen Roman, Joseph Hunkins, Joe Duck, Mario Milanovic, Chris Daigle, Jose Castro, Tina M. Pruitt Campbell, Dane Low, and all of you who believe karmic capitalism is possible. It is. To all of the readers and lifestyle designers who shared their experiences and helped create this expanded edition thank you! It wouldn t have been possible without you, and I am humbled beyond words by your generosity. I hope you never stop thinking big and doing the uncommon. To Sifu Steve Goericke and Coach John Buxton, who taught me how to act in spite of fear and fight like hell for what I believe, this book and my life is a product of your influence. Bless you both. The world s problems would be far fewer if young men had more mentors like the two of you. Last but not least, this book is dedicated to my parents, Donald and Frances Ferriss, who have guided me, encouraged me, loved me, and consoled me through it all. I love you more than words can express. About the Author TIMOTHY FERRISS, nominated as one of Fast Company s Most Innovative Business People of 2007, is an angel investor and author of the 1 New York Times, Wall Street Journal, and BusinessWeek bestseller The 4-Hour Workweek, which has been sold into 35 languages. He has been featured by more than 100 media outlets, including the New York Times, The Economist, TIME, Forbes, Fortune, CNN, and CBS. He speaks six languages, runs a multinational firm from wireless locations worldwide, and has been a popular guest lecturer at Princeton University since 2003, where he presents entrepreneurship as a tool for ideal lifestyle design and world change. Copyright 2007, 2009 by Tim Ferriss All rights reserved. Published in the United States by Crown Publishers, an imprint of the Crown Publishing Group, a division of Random House, Inc., New York. www.crownpublishing.com CROWN and the Crown colophon are registered trademarks of Random House, Inc. THE 4-HOUR WORKWEEK is a trademark of Timothy Ferriss and is used under license. Originally published in slightly different form in the United States by Crown Publishers, an imprint of the Crown Publishing Group, a division of Random House, Inc., New York, in 2007. Grateful acknowledgment is made to David L. Weatherford for permission to reprint Slow Dance by David L. Weatherford. Reprinted by permission of David L. Weatherford. Library of Congress Cataloging-in-Publication Data Ferriss, Timothy. The 4-hour workweek: escape 9 5, live anywhere, and join the new rich Timothy Ferriss Expanded and updated ed. 1. Quality of work life. 2. Part-time self-employment. 3. Self-realization. 4. Self-actualization (Psychology). 5. Quality of life. I. Title. II. Title: Four-hour workweek. HD6955.F435 2009 650.1 dc22 2009021010 eISBN: 978-0-307-59116-6 v3.0 |
Journal of Criminal Law and Criminology Volume 104 Issue 1 Article 2 Winter 2014 Crime Victims' Rights During Criminal Investigations? Applying the Crime Victims' Rights Act Before Criminal Charges Are Filed Paul G. Cassell Nathanael J. Mitchell Bradley J. Edwards Follow this and additional works at: http: scholarlycommons.law.northwestern.edu jclc Part of the Criminal Law Commons Recommended Citation Paul G. Cassell, Nathanael J. Mitchell, and Bradley J. Edwards, Crime Victims' Rights During Criminal Investigations? Applying the Crime Victims' Rights Act Before Criminal Charges Are Filed, 104 J. Crim. L. Criminology 59 (). http: scholarlycommons.law.northwestern.edu jclc vol104 iss1 2 This Criminal Law is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Journal of Criminal Law and Criminology by an authorized administrator of Northwestern University School of Law Scholarly Commons. 0091-4169 14 10401-0059 THE JOURNAL OF CRIMINAL LAW CRIMINOLOGY Vol. 104, No. 1 Copyright 2014 by Northwestern University School of Law Printed in U.S.A. CRIME VICTIMS RIGHTS DURING CRIMINAL INVESTIGATIONS? APPLYING THE CRIME VICTIMS RIGHTS ACT BEFORE CRIMINAL CHARGES ARE FILED PAUL G. CASSELL NATHANAEL J. MITCHELL BRADLEY J. EDWARDS This Article addresses whether crime victims should have rights during criminal investigations, using the Crime Victims Rights Act (CVRA) as the focal point for our discussion. This is a critical issue, as many criminal cases may never proceed to formal charging. If crime victims have no rights during criminal investigations, then many crime victims will never have any rights at all. The issue of whether crime victims have rights in the criminal justice process recently came to a head when the Justice Department released a memorandum contending that the CVRA does not extend crime victims any rights until prosecutors choose to file formal criminal charges. This led the CVRA s Senate cosponsor, then-Senator Jon Kyl, to fire off an angry letter to the Justice Department attacking its position. In our Article, we side with the Act s cosponsor. We believe that, properly understood, the CVRA does extend crime victims rights during criminal investigations. Our Article proceeds in four parts. First, it highlights the importance of applying the Act before the formal filing of charges by illustrating how dozens of victims in a notorious federal sex abuse case were deprived of the Ronald N. Boyce Presidential Professor of Criminal Law, S.J. Quinney College of Law at the University of Utah. Associate, Snow, Christensen Martineau (Salt Lake City, Utah). Partner, Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman (Fort Lauderdale, Fla.). The authors thank Douglas Beloof, Patricia Cassell, Meg Garvin, Jay Howell, James Marsh, and Stephen Twist for their assistance with this Article. 59 60 CASSELL ET AL. Vol. 104 ability to participate meaningfully in the criminal process when federal prosecutors narrowly interpreted their responsibilities under the Act. Second, the Article reviews the purpose, text, structure, and history of the CVRA, concluding that they all support the conclusion that crime victims have rights during criminal investigations. Third, our Article critiques the Department s memorandum, demonstrating that the Department s analysis is unpersuasive. Fourth and finally, the Article provides a specific approach for determining when rights should attach specifically when federal law enforcement agencies have identified a crime with sufficient precision to send a target letter to a criminal defendant. We also observe that federal and state prosecutors have already accorded rights to victims before formally filing charges, which further undermines the Department s overly narrow construction of the Act. TABLE OF CONTENTS INTRODUCTION ............................................................................................ 61 I. THE ISSUE OF RIGHTS FOR CRIME VICTIMS DURING CRIMINAL INVESTIGATIONS .............................................................................. 63 A. A Brief History of Crime Victims Rights .................................. 63 B. The Crime Victims Rights Act ................................................... 65 C. An Illustration of the Pre-charging Issue: The Jeffrey Epstein Case ........................................................................................... 67 II. THE CVRA S APPLICATION BEFORE FORMAL CHARGES ARE FILED ..... 69 A. The CVRA s Purposes ................................................................ 70 B. The CVRA s Plain Language ...................................................... 71 C. Courts Recognize That Crime Victims Have CVRA Rights Before Charging ........................................................................ 73 III. THE JUSTICE DEPARTMENT S UNPERSUASIVE POSITION ...................... 75 A. OLC s Misreading of the CVRA s Definition of Victim ........ 76 B. OLC s Distortion of the CVRA s Structure and Legislative History ...................................................................................... 80 C. OLC s Ineffective Response to the CVRA s Coverage and Venue Provisions ...................................................................... 86 IV. WHEN PRE-CHARGING RIGHTS ATTACH UNDER THE CVRA ............... 90 A. A Test for Determining When Rights Attach .............................. 91 B. Applying the Test to the Epstein Case ......................................... 93 C. Current Department Policy on Pre-charging Rights .................... 94 D. State Law Extension of Pre-charging Rights .............................. 97 CONCLUSION ............................................................................................. 103 2014 CRIME VICTIMS RIGHTS 61 INTRODUCTION In recent years, federal and state enactments have given crime victims extensive rights to participate in criminal cases. Many of these rights apply only after the filing of criminal charges, such as the victim s right to be heard during court proceedings. A crime victim s right to deliver an impact statement at sentencing, for instance, can only be exercised after a prosecutor has filed charges against a defendant and obtained a conviction. Other rights, however, can apply even before the formal filing of charges. As one example, the Crime Victims Rights Act (CVRA) 1 extends to federal crime victims the right to confer with prosecutors. But can victims exercise this right before charges have been filed? This question has tremendous practical importance. In many cases, prosecutors negotiate pleas well before any charges are ever drafted. If crime victims rights enactments do not extend rights to victims until the formal filing of charges, then crime victims can be effectively excluded from the plea bargaining process. Yet the exclusion of victims in early stages of a criminal case affects more than just the content of a plea deal. Crime victims will also lose other important rights in the process if the formal filing of charges is the necessary trigger for those rights. If, for example, prosecutors work out a nonprosecution agreement with an offender, they need not notify his victims of what they are doing or of the fact that potential charges will never be filed. The issue of pre-charging rights has most prominently surfaced in connection with federal cases. In 2010, the Department of Justice s Office of Legal Counsel (OLC) weighed in on the issue and released a legal opinion arguing that victims of federal crimes have no CVRA rights during a federal criminal investigation. 2 The Justice Department took the position that rights under the CVRA do not apply until prosecutors formally initiate criminal proceedings by filing a complaint, information, or indictment. The Department claims to find support for that limiting interpretation of the statute in its plain language and legislative history. Shortly after the Department released its opinion, one of the CVRA s congressional sponsors, then-Senator Jon Kyl, sent a letter to Attorney General Eric Holder strenuously objecting to the Department s conclusions. Senator Kyl directly stated his view that w hen Congress enacted the 1 Scott Campbell, Stephanie Roper, Wendy Preston, Louarna Gillis, and Nila Lynn Crime Victims Rights Act, Pub. L. No. 108-405, 118 Stat. 2260, 2261 65 (2004) (codified as amended at 18 U.S.C. 3771 (2012) and 42 U.S.C. 10603(d) (e) (2006)). 2 The Availability of Crime Victims Rights Under the Crime Victims Rights Act of 2004, 35 Op. O.L.C. 1 (Dec. 17, 2010) hereinafter OLC CVRA Rights Memo , available at http: goo.gl fHmCL4. 62 CASSELL ET AL. Vol. 104 CVRA, it intended to protect crime victims throughout the criminal justice process from the investigative phases to the final conclusion of a case. 3 Senator Kyl contested the Department s analysis of the statute and, in particular, its use of statements from him during Congress s consideration of the CVRA. This Article sides with the CVRA s cosponsor and concludes that crime victims CVRA rights attach before formal charging. Both the CVRA s plain language and its legislative history lead inexorably to this conclusion, as every court that has considered this issue has concluded. This Article also contends that, as a matter of sound public policy, crime victims should have rights before the formal filing of criminal charges. This Article proceeds in four parts. Part I frames the issues under discussion by defending the importance of extending rights to crime victims during criminal investigations. Part I also provides background on victims rights and gives a concrete illustration of a case in which the question of pre-charging rights for crime victims has arisen specifically, the Jeffrey Epstein sex abuse case before a federal court in Florida. In that case, girls victimized by Epstein have argued that they should have been consulted about a federal nonprosecution agreement; Department attorneys have responded that because prosecutors never filed charges, government officials had no formal obligations to inform the girls. Part II reviews the CVRA s purpose, text, structure, and legislative history. This review establishes that the CVRA extends rights to crime victims before formal charges are filed. Part III critiques OLC s position that the CVRA extends rights to victims only after prosecutors have lodged charges in court. The Department s proffered arguments do not withstand close scrutiny, particularly in light of the fact that the CVRA covers federal agencies involved in the detection and investigation of crime, 4 and specifically authorizes crime victims to file CVRA motions in situations where no prosecution is underway. 5 Part IV then proposes a specific approach for determining when crime victims CVRA rights attach. This Part explains that the rights should attach when federal law enforcement or prosecuting agencies have identified a federal crime and a particular victim with sufficient precision that they would send a target letter to a criminal defendant in similar circumstances. If prosecutors have sufficient information to provide notice 3 Letter from Jon Kyl, U.S. Sen., to Eric H. Holder, Jr., Att y Gen. (June 6, 2011), reprinted in 157 CONG. REC. S3608 (daily ed. June 8, 2011) (statement of Sen. Jon Kyl). 4 18 U.S.C. 3771(c)(1). 5 Id. 3771(d)(3). 2014 CRIME VICTIMS RIGHTS 63 to a potential criminal of his rights, they can do the same for his victims. This Part also notes that the Department of Justice and state prosecutors already successfully provide rights to victims before charging. This successful experience strongly suggests that providing rights to victims early in the criminal justice process will not be unduly burdensome. I. THE ISSUE OF RIGHTS FOR CRIME VICTIMS DURING CRIMINAL INVESTIGATIONS To consider the question of whether victims should have rights during criminal investigations, some understanding of the underlying purposes of victims rights enactments will be useful. These enactments are typically designed to make victims participants in all phases of the criminal justice process. 6 Congress drafted the CVRA, for example, broadly to make crime victims participants in criminal cases. The Jeffrey Epstein sex abuse case demonstrates the importance of victim participation even before charges are filed. A. A BRIEF HISTORY OF CRIME VICTIMS RIGHTS The crime victims rights movement has sought to make crime victims important participants in the criminal justice process. The movement began in the wake of the Warren Court revolution, which extended new rights to criminal defendants. 7 With the courts paying increasing attention to criminal defendants, crime victims advocates began to argue that the victims themselves had been overlooked. 8 The movement gained great visibility in the early 1980s when President Ronald Reagan appointed the President s Task Force on Victims of Crime. 9 The Task Force published a report concluding that the criminal justice system has lost an essential balance. . . . The victims of crime have been transformed into a group oppressively burdened by a system designed to protect them. This oppression must be redressed. 10 The Task Force chronicled how crime victims were treated in all stages of the criminal justice process, from the police investigation through 6 See DOUGLAS E. BELOOF, PAUL G. CASSELL STEVEN J. TWIST, VICTIMS IN CRIMINAL PROCEDURE 3 39 (3d ed. 2010) (describing reforms from a historical perspective); see also, e.g., 18 U.S.C. 3771(a) (2012). 7 See BELOOF, CASSELL TWIST, supra note 6, at 3 39 (describing the history of victims rights in American law and the early days of the modern movement). 8 See, e.g., William F. McDonald, Towards a Bicentennial Revolution in Criminal Justice: The Return of the Victim, 13 AM. CRIM L. REV. 649, 651 55 (1976). 9 Exec. Order 12,360, 47 Fed. Reg. 17,975 (Apr. 27, 1982); see also PRESIDENT S TASK FORCE ON VICTIMS OF CRIME, FINAL REPORT, at ii (1982). 10 PRESIDENT S TASK FORCE ON VICTIMS OF CRIME, FINAL REPORT, supra note 9, at 114. 64 CASSELL ET AL. Vol. 104 court proceedings, and ultimately to any parole or other release of the criminal. The Task Force then made a series of recommendations for all criminal justice agencies, including the police, prosecutors, and the courts. 11 The recommendations were designed to allow crime victims to receive information about, and to participate in, criminal cases. In its most far-reaching recommendation, the Task Force proposed amending the U.S. Constitution to protect victims rights. 12 The proposed amendment would have built on existing constitutional rights for criminal defendants by extending similar rights to crime victims. 13 After the publication of the report, crime victims advocates secured the passage of a series of state constitutional and legislative reforms. These measures guaranteed victims rights in the criminal process, such as the right to be notified of court proceedings, to attend those proceedings, and to speak at appropriate points in the process, such as plea bargaining and sentencing. The measures were embodied in state statutes and, in more than thirty states, state constitutional bills of rights for crime victims. 14 While many of the measures had narrow participatory rights, 15 some of the amendments also contained more open-ended language, promising victims a right to fair treatment throughout the criminal justice process. 16 After successfully passing many state constitutional amendments, crime victims rights advocates sought to achieve the Task Force s broadest recommendation: to secure protection for victims rights in the U.S. Constitution. In 1996, victims advocates proposed a Victims Rights Amendment in a Rose Garden ceremony attended by President Bill Clinton. 17 The proposed amendment contained a list of rights for crime victims, largely paralleling the rights contained in state victims rights 11 See id. at 56 82. 12 Id. at 114. 13 Id. at 114 15. 14 For a map depicting the states with (and without) such amendments, see State Victim Rights Amendments, NAT L VICTIMS CONSTITUTIONAL AMENDMENT PASSAGE, http: goo.gl znI4YW (last visited Nov. 26, 2013); for discussion, see infra Part IV.D (discussing legislative reforms in a number of states). 15 See, e.g., CAL. CONST. art. I, 28; MICH. CONST. art. I, 24; N.C. CONST. art. I, 37. For a detailed discussion of how one state constitutional amendment is intended to operate, see generally Paul G. Cassell, Balancing the Scales of Justice: The Case for and the Effects of Utah s Victims Rights Amendment, 1994 UTAH L. REV. 1373. 16 E.g., ARIZ. CONST. art. II, 2.1(A)(1); MICH. CONST. art. I, 24(1); TEX. CONST. art. I, 30(a)(1); see CAL. CONST. art. I, 28(b)(1) ( throughout the criminal or juvenile justice process ). 17 John M. Broder, Clinton Calls for Victims Rights in Constitution, L.A. TIMES, June 26, 1996, at A1. For detailed discussions of the legislative efforts, see Paul G. Cassell, Recognizing Victims in the Federal Rules of Criminal Procedure: Proposed Amendments in Light of the Crime Victims Rights Act, 2005 BYU L. REV. 835, 847 50. 2014 CRIME VICTIMS RIGHTS 65 amendments. 18 Congress considered the amendment several times, but it never obtained the requisite two-thirds support in both houses to secure the Amendment s approval. 19 Critics quarreled not so much with the goals of the amendment but rather with the necessity of constitutionalizing such rights. 20 B. THE CRIME VICTIMS RIGHTS ACT Unable to obtain the necessary supermajority to pass a federal constitutional amendment, in April 2004, crime victims rights advocates decided to focus on federal legislation protecting crime victims. In exchange for backing off from their efforts to pass a constitutional amendment, crime victims advocates received near-universal congressional support for a broad and encompassing statutory victims bill of rights. 21 Victims advocates sought to expand on the protections found in other previously-enacted victims rights statutes, including, notably, the Victims Rights and Restitution Act of 1990. 22 That statute had also included a bill of rights for crime victims, yet because of limited enforcement mechanisms, crime victims had been unable to secure court protection of the rights listed in the statute. 23 The statute that Congress passed to solve these problems the Crime Victims Rights Act of 2004 gave victims the right to participate in the 18 See Cassell, supra note 17, at 848 49. For the pros and cons of the amendment as originally introduced, compare Paul G. Cassell, Barbarians at the Gates? A Reply to the Critics of the Victims Rights Amendment, 1999 UTAH L. REV. 479 hereinafter Cassell, Barbarians at the Gates? , and Steven J. Twist, The Crime Victims Rights Amendment and Two Good and Perfect Things, 1999 UTAH L. REV. 369, with Robert P. Mosteller, The Unnecessary Victims Rights Amendment, 1999 UTAH L. REV. 443. For a more recent discussion of a newer version of the amendment, see Paul G. Cassell, The Victims Rights Amendment: A Sympathetic, Clause-by-Clause Analysis, 5 PHOENIX L. REV. 301 (2012). 19 Hon. Jon Kyl et al., On the Wings of Their Angels: The Scott Campbell, Stephanie Roper, Wendy Preston, Louarna Gillis, and Nila Lynn Crime Victims Rights Act, 9 LEWIS CLARK L. REV. 581, 588 91 (2005). 20 Proposed Constitutional Amendment to Protect Crime Victims, S.J. Res. 1: Hearing Before the S. Comm. on the Judiciary, 108th Cong. 128 29 (2003) (statement of Sen. Patrick Leahy); see also Steven J. Twist Daniel Seiden, The Proposed Victims Rights Amendment: A Brief Point Counterpoint, 5 PHOENIX L. REV. 341, 356, 378 (2012) (illustrating that the necessity dispute has endured to the present day). 21 150 CONG. REC. 7295 (2004) (statement of Sen. Dianne Feinstein); see also Kyl et al., supra note 19, at 591 93. 22 Victims Rights and Restitution Act of 1990, Pub. L. No. 101-647, 104 Stat. 4820 (codified as amended at 42 U.S.C. 10601, 10606 07 (2006)). 23 See, e.g., United States v. McVeigh, 106 F.3d 325, 328 (10th Cir. 1997) (per curiam) (refusing to enforce a victim s right to attend a trial); Cassell, Barbarians at the Gates?, supra note 18, at 515 22 (discussing McVeigh). 66 CASSELL ET AL. Vol. 104 system. 24 It extended broad rights to crime victims, including t he right to be treated with fairness and with respect for the victim s dignity and privacy 25 and t he reasonable right to confer with the attorney for the Government in the case. 26 It also commanded that these rights must be afforded by the Justice Department and other departments and agencies of the United States engaged in the detection, investigation, or prosecution of crime. 27 The CVRA also contained specific enforcement mechanisms. The Act provided that rights can be assert ed by t he crime victim or the crime victim s lawful representative, and the attorney for the Government . . . . 28 The courts were also required under the Act to ensure that the crime victim is afforded the rights given by the law. 29 Congress appeared to have at least two goals in mind in passing the CVRA. The first was simply to ensure that crime victims understood what was happening in the criminal justice process. This goal is apparent from the fact that the CVRA gives crime victims rights to notification about various court hearings, as well as more general rights to confer with prosecutors and to be treated with fairness. 30 The CVRA s Senate sponsors explained: In case after case we found victims, and their families, were ignored, cast aside, and treated as non-participants in a critical event in their lives. They were kept in the dark by prosecutors to o busy to care enough, by judges focused on defendants rights, and by a court system that simply did not have a place for them. 31 In passing the CVRA, Congress sought to change the system s obliviousness to crime victims that often left crime victims and their families victimized yet again. 32 A second overarching purpose of the CVRA was to allow crime victims to play a role in the criminal justice process. Through the CVRA, Congress intended to make victims independent participant s in the criminal justice process. 33 The CVRA extends to crime victims a series of rights in the criminal justice process rights that the victims have 24 150 CONG. REC. 7297; see 18 U.S.C. 3771 (2012). For a description of victim participation, see BELOOF, CASSELL TWIST, supra note 6, at 728 33. 25 18 U.S.C. 3771(a)(8). 26 Id. 3771(a)(5). 27 Id. 3771(c)(1). 28 Id. 3771(d)(1). 29 Id. 3771(b)(1). 30 See id. 3771(a). 31 150 CONG. REC. 7296 (2004) (statement of Sen. Dianne Feinstein). 32 Id. 33 Id. at 7302 (statement of Sen. Jon Kyl). 2014 CRIME VICTIMS RIGHTS 67 independent standing to assert. 34 Congress viewed these provisions as establishing a victim s right to participate in the process where the information that victims and their families can provide may be material and relevant . . . . 35 Congress appears to have had both intrinsic and instrumental reasons for wanting crime victim participation. Congress clearly thought that such participation was valuable in its own right. Senator Kyl embodied this belief and explained his decision to become involved in the crime victims rights movement because of his discovery that victims: were suffering through the trauma of the victimization and then being thrown into a system which they did not understand, which nobody was helping them with, and which literally prevented them from participation in any meaningful way. I came to realize there were literally millions of people out there being denied these basic rights . . . . 36 But Congress also thought crime victim participation in the criminal justice system could be instrumentally useful. For example, in protecting a victim s right to be heard by those determining a defendant s sentence, a victim might be able to provide important information that could alter that sentence. As a result, the sentence might reflect a fuller appreciation of the danger posed by a defendant, and the judge might take appropriate steps to prevent others from being victimized. 37 Congress also intended to ensure that crime victims were not revictimized in the criminal justice process that is, that they would not suffer what scholars have called secondary harm in the process. 38 The concern is that victims suffer when they are excluded from the criminal justice process. Congress sought to end that suffering by making victims meaningful participants in criminal cases. 39 C. AN ILLUSTRATION OF THE PRE-CHARGING ISSUE: THE JEFFREY EPSTEIN CASE Given the potentially expansive scope of victims rights under both state provisions and the CVRA, a critical question arises about how to apply them: Do the rights come into existence only after prosecutors formally file 34 Compare 18 U.S.C. 3771(d), with Susan Bandes, Victim Standing, 1999 UTAH L. REV. 331, 344 45 (illustrating the debate surrounding victim standing prior to adoption of the CVRA). 35 150 CONG. REC. 7296 (statement of Sen. Dianne Feinstein). 36 Id. at 7298 (statement of Sen. Jon Kyl). 37 Id. 38 See, e.g., Douglas Evan Beloof, The Third Model of Criminal Process: The Victim Participation Model, 1999 UTAH L. REV. 289, 294 96; Richard A. Bierschbach, Allocution and the Purposes of Victim Participation Under the CVRA, 19 FED. SENT G REP. 44, 46 (2006). 39 150 CONG. REC. 7298 (statement of Sen. Jon Kyl). 68 CASSELL ET AL. Vol. 104 criminal charges? Or do they attach at some earlier point in the process? Does v. United States, a federal case in the U.S. District Court for the Southern District of Florida, usefully illustrates the issue. 40 In that case, the U.S. Attorney s Office for the Southern District of Florida developed considerable evidence that Jeffrey Epstein, a billionaire with extensive political and social connections, 41 had sexually molested more than thirty young girls between 2001 and 2007 at his West Palm Beach mansion. 42 The U.S. Attorney s Office entered into contentious plea negotiations with Epstein over how the case should be resolved. The prosecutors initially sought a resolution that would have required Epstein to plead guilty to at least a felony sex offense. After pressure from Epstein, for reasons that have never been clearly explained, 43 the U.S. Attorney s Office agreed to enter into a nonprosecution agreement. Under the agreement, the U.S. Attorney s Office agreed not to prosecute him and, in exchange, Epstein agreed to plead guilty to two state felonies for soliciting prostitution with a minor. After entering those guilty pleas, Epstein was sentenced to only eighteen months in state jail. 44 No federal charges were ever filed and 40 Does v. United States, 817 F. Supp. 2d 1337 (S.D. Fla. 2011). In the interest of full disclosure, two of the authors of this Article (Cassell and Edwards) are co-counsel for the victims in this case. The statement of the facts in this Article draws heavily on the victims allegations as they have detailed in their pending motion for summary judgment in the case. See Jane Doe 1 Jane Doe 2 s Motion for Finding of Violations of the Crime Victims Rights Act and Request for a Hearing on Appropriate Remedies at 3 23, Does, 817 F. Supp. 2d 1337 (No. 9:08-cv-80736-KAM) hereinafter Jane Doe Motion (providing fifty-three proposed facts in the case). The U.S. Attorney s Office has generally disputed some of these allegations without offering specifics as to what happened. See, e.g., United States Response to Jane Doe 1 Jane Doe 2 s Motion for Finding of Violations of the Crime Victim Rights Act and Request for a Hearing on Appropriate Remedies at 34 43, Does, 817 F. Supp. 2d 1337 (No. 9:08-cv-80736-KAM) hereinafter United States Response . As of this writing, Epstein has declined to intervene in the case to dispute the allegations. 41 See, e.g., Paul Harris, Prince Andrew s Link to Sex Offender Jeffrey Epstein Taints Royalty in US, GUARDIAN (Mar. 12, 2011), http: goo.gl 0I4vAE; Landon Thomas Jr., Jeffrey Epstein: International Moneyman of Mystery, N.Y. MAG., http: goo.gl 11Cayc (last visited Nov. 26, 2013). 42 See Jane Doe Motion, supra note 40, at 3 4; Abby Goodnough, Questions of Preferential Treatment Are Raised in Florida Sex Case, N.Y. TIMES, Sept. 3, 2006, at A19. 43 The U.S. Attorney responsible for the plea deal later revealed that after negotiations started, w hat followed was a year-long assault on the prosecution and the prosecutors by Epstein. Letter from R. Alexander Acosta, former U.S. Att y, to Whom It May Concern (Mar. 20, 2011), reprinted in Conchita Sarnoff, Behind Pedophile Jeffrey Epstein s Sweetheart Deal, DAILY BEAST (Mar. 25, 2011, 3:17 AM), http: goo.gl kyveiF. Acosta, however, claimed that the pressure did not influence the ultimate disposition of the case. Id. 44 Landon Thomas Jr., From Paradise to County Jail: A Billionaire Financial Adviser Will Serve 18 Months in Sex Case, N.Y. TIMES, July 1, 2008, at C1. 2014 CRIME VICTIMS RIGHTS 69 Epstein spent much of the jail term on work release to his luxurious office. 45 The U.S. Attorney s Office did not tell Epstein s victims about the nonprosecution agreement until well after it had taken effect. To the contrary, even after the nonprosecution agreement had been signed, the Office continued to tell the victims that the case was still under investigation and that they should be patien t . 46 When the victims learned of the agreement, two of them (Jane Doe Number One and Jane Doe Number Two) filed suit in federal court under the Crime Victims Rights Act, arguing that the prosecutors had violated their CVRA right to confer as well as their right to be treated fairly. 47 The victims contended that prosecutors should have conferred with them about the nonprosecution agreement before it became final. In response, the U.S. Attorney s Office argued primarily that it was under no obligation to extend the victims any rights under the CVRA. It was the Government s blunt position that CVRA rights do not attach in the absence of federal criminal charges filed by a federal prosecutor. 48 In short, the Government argued it was not required to confer in any way with the victims, or even treat them fairly, because the CVRA was not yet in play. The issue is thus squarely framed: Is the Government correct in its assertion that it has no CVRA obligations in cases like the Epstein case where federal prosecutors never lodged federal charges against a suspect? In view of the CVRA s prominence, resolution of this issue may shed important light on the nature of crime victims enactments and the breadth of the role that crime victims should have in the criminal justice process. II. THE CVRA S APPLICATION BEFORE FORMAL CHARGES ARE FILED To analyze the issue of whether the CVRA extends rights to crime victims before prosecutors have formally filed charges, it is useful to look at the CVRA s purposes, language, and judicial interpretations. This Part looks at each of these three issues in turn. 45 See Michele Dargan, Feds Say They Treated Epstein Victims Fairly, PALM BEACH DAILY NEWS (Apr. 8, 2011, 7:23 PM), http: goo.gl rTGDed; Conchita Sarnoff, Billionaire Pedophile Goes Free, DAILY BEAST (July 20, 2010, 7:05 PM), http: goo.gl MSTi17. 46 See Jane Doe Motion, supra note 40, at 14, 16 (internal quotation marks and citations omitted). 47 See Emergency Victim s Petition for Enforcement of Crime Victim s Rights Act, 18 U.S.C. Section 3771 at 2, Does v. United States, 817 F. Supp. 2d 1337 (S.D. Fla. 2011) (No. 9:08-cv-80736-KAM). 48 United States Response, supra note 40, at 7. 70 CASSELL ET AL. Vol. 104 A. THE CVRA S PURPOSES An analysis of the CVRA s application before prosecutors have filed charges must begin by assessing the CVRA s purposes because any interpretation of the CVRA that is divorced from the statute s purposes would run the risk of defeating the statute s aims. It is axiomatic that courts should give faithful meaning to the language Congress adopted in the light of the evident legislative purpose in enacting the law in question. 49 As discussed above, 50 one important goal of the CVRA was to keep crime victims informed about any developments in the criminal justice process. But the need to be informed does not begin with the filing of a formal criminal charge. A crime victim needs to know what is happening before formal charging during a criminal investigation, for example just as much as she needs to know what is happening in court. Indeed, she may have a greater need to know, as she may be concerned that the criminal who harmed her is still on the loose, posing a danger to her. Similarly, concerning the second purpose facilitating victim participation 51 without a right to pre-charging involvement, victims may be effectively shut out of the process entirely. The Epstein case provides a useful illustration of why the CVRA must be understood to extend rights to victims prior to indictment. The prosecutors handling the investigation reached an agreement with Epstein that barred federal prosecution of sex offenses committed against dozens of victims, including Jane Doe Number One and Jane Doe Number Two. If CVRA rights did not extend to the negotiations surrounding the agreement, then the victims never would have had any ability to participate in the resolution of the case. 52 A construction of the CVRA that extends rights to victims before charges are filed would be entirely consistent with the CVRA s participatory purpose. If victims have the ability to participate in a precharging plea bargaining process, for example, victims can help ensure that prosecutors do not overlook anything that should be covered in the plea deal. For example, victims might be able to obtain agreement to a no contact order or valuable restitution points that the prosecutor might fail 49 Graham Cnty. Soil Water Conservation Dist. v. United States ex rel. Wilson, 130 S. Ct. 1396, 1409 (2010) (quoting United States v. Bornstein, 423 U.S. 303, 310 (1976)) (internal quotation marks omitted). 50 See supra notes 24 27. 51 See supra notes 28 29. 52 Even the Justice Department seems to recognize this point. As a matter of policy, the Department extends to victims the right to confer with prosecutors in situations where plea discussions occur before charges have been brought. U.S. DEP T OF JUSTICE, OFFICE FOR VICTIMS OF CRIME, ATTORNEY GENERAL GUIDELINES FOR VICTIM AND WITNESS ASSISTANCE 41 42 (2011 ed., rev. May 2012) hereinafter ATTORNEY GENERAL GUIDELINES . 2014 CRIME VICTIMS RIGHTS 71 to consider in crafting a plea. Similarly, allowing victims to participate early in the process avoids retraumatizing victims. Again, as the Epstein case usefully illustrates, it may be extremely difficult for victims to discover after the fact that potential criminal charges against a criminal who has abused them have been secretly bargained away. Jane Doe Number One and Jane Doe Number Two, for example, were outraged when they discovered prosecutors had entered into an agreement blocking any prosecution of sex offenses Epstein committed against them and all without telling them. 53 In short, the purposes animating the CVRA all suggest that the Act was meant to, and should, extend rights to crime victims before formal charges are filed. B. THE CVRA S PLAIN LANGUAGE While the general purposes of the CVRA support a broad interpretation of the Act, it is important to examine whether those purposes have been expressed in the Act s language. Without a linkage to the Act s text, the general purpose might not provide a sound basis for interpretation. 54 But the CVRA s plain language makes clear that Congress intended for the law to provide at least some rights to crime victims throughout the criminal justice process, even before the filing of criminal charges. According to its text, the CVRA provides eight specifically enumerated rights for crime victims and an additional right to be reasonably notified of these rights. 55 Some of these rights presuppose the formal filing of criminal charges. For instance, the CVRA extends to victims the right to reasonable, accurate, and timely notice of any public court proceeding. 56 That particular right obviously does not apply before charges are filed, as no court proceedings exist before a defendant is charged. But the CVRA also promises crime victims rights that are not specifically tied to court proceedings. Perhaps most expansively, the CVRA guarantees victims the right to be treated with fairness and with 53 Without disclosing confidential attorney client communications, this fact is readily apparent from victims filings in the Epstein case. See, e.g., Jane Doe Motion, supra note 40, at 17 (stating that the victims relied on the U.S. Attorney s Office representatives to their detriment , that if they knew the true facts, they would have taken steps to object to the plea agreement, and that they believed criminal prosecution to be extremely important ). 54 See ANTONIN SCALIA BRYAN A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 56 (2012). 55 18 U.S.C. 3771(a) (2012) (enumerating eight rights); id. 3771(c)(1) (requiring government officers use their best efforts to notify victims of their rights). 56 Id. 3771(a)(2). 72 CASSELL ET AL. Vol. 104 respect for the victim s dignity and privacy, 57 a broad right that does not appear to be directly linked to a filed court case. Similarly, the CVRA promises victims the reasonable right to confer with the attorney for the Government in the case. 58 In this section, the CVRA s drafters appear to have eschewed a reference to court proceedings, using a broader term instead. Of course, a case can refer both to a judicial case before a court and an investigative case pursued by a law enforcement officer. It is common usage to say such things as, The police officer investigated and solved the case. Dictionary definitions of the word case support this varied interpretation. 59 If there remained any doubts about whether the CVRA applies during the investigative part of the criminal justice process, two other provisions in the CVRA resolve them. The CVRA specifically directs that o fficers and employees of the Department of Justice and other departments and agencies of the United States engaged in the detection, investigation, or prosecution of crime shall make their best efforts to see that crime victims are notified of, and accorded, the rights described in the CVRA . 60 Of course, there would be no reason to direct that agencies involved in the detection and investigation of crime have CVRA obligations if the Act did not extend to pre-charging situations. Congress thus directly envisioned the victims rights law to apply during the detection and investigation phases of criminal cases. Similarly, the CVRA s venue provision instructs that crime victims who seek to assert rights in pre-charging situations should proceed in the court where the crime was committed: The rights described in subsection (a) of the CVRA shall be asserted in the district court in which a defendant is being prosecuted for the crime or, if no prosecution is underway, in the district court in the district in which the crime occurred. 61 Here again, it is hard to see why this provision would be necessary unless the CVRA applies before the formal filing of charges. For all these reasons, the CVRA s plain language indicates that the victims have protected rights under the Act even before charges are filed. 57 Id. 3771(a)(8). 58 Id. 3771(a)(5) (emphasis added). 59 See, e.g., BLACK S LAW DICTIONARY 243 44 (9th ed. 2009) (defining, among the definitions of case, a test case as a criminal investigation as in the Manson case ); WEBSTER S THIRD NEW INTERNATIONAL DICTIONARY OF THE ENGLISH LANGUAGE UNABRIDGED 345 (1993) (defining case as a circumstance or situation (as a crime) requiring investigation or action by the police or other agency ). 60 18 U.S.C. 3771(c)(1) (emphasis added). 61 Id. 3771(d)(3) (emphasis added). 2014 CRIME VICTIMS RIGHTS 73 C. COURTS RECOGNIZE THAT CRIME VICTIMS HAVE CVRA RIGHTS BEFORE CHARGING Because crime victims lack a right to appointed counsel, many victims have difficulty litigating the scope of their rights. 62 But in a few cases, victims have been able to secure counsel to argue that they have rights in the criminal justice process during the investigation of federal crimes. When those cases have reached the issue of whether the CVRA applies before charges have been filed, courts have uniformly agreed with the victims position. Perhaps the leading case to date to assess this question is the Fifth Circuit s decision in In re Dean. 63 There, a wealthy corporate criminal defendant reached a generous plea deal with the Government a deal that the Government filed for approval with the district court without conferring with the victims. Citing procedural rights under the CVRA, the victims requested that the trial court reject the plea agreement. 64 The District Court for the Southern District of Texas specifically concluded that victims CVRA rights could apply during the investigation of the crime: There are clearly rights under the CVRA that apply before any prosecution is underway. 65 The district court concluded, however, that the Government had not violated the CVRA because it had secured judicial permission to dispense with notification to victims. 66 The victims sought appellate review in the Fifth Circuit. 67 There, the court concurred with the district court that CVRA rights apply before trial. Unlike the district court, however, it held that the Government had violated the victims rights: The district court acknowledged that t here are clearly rights under the CVRA that apply before any prosecution is underway. Logically, this includes the CVRA s establishment of victims reasonable right to confer with the attorney for the Government. At least in the posture of this case (and we do not speculate on the 62 John W. Gillis Douglas E. Beloof, The Next Step for a Maturing Victim Rights Movement: Enforcing Crime Victim Rights in the Courts, 33 MCGEORGE L. REV. 689, 693 (2002). 63 527 F.3d 391 (5th Cir. 2008). Other aspects of the case are discussed in Paul G. Cassell Steven Joffee, The Crime Victims Expanding Role in a System of Public Prosecution: A Response to the Critics of the Crime Victims Rights Act, 105 NW. U. L. REV. COLLOQUY 164, 172 76 (2011). 64 In re Dean, 527 F.3d at 392. 65 United States v. BP Prods. N. Am. Inc., No. H-07-434, 2008 WL 501321, at 11 (S.D. Tex. Feb. 21, 2008). 66 Id. at 1, 19. 67 For discussion of the difficulties crime victims face to obtain appellate review of their claims, see generally Paul G. Cassell, Protecting Crime Victims in Federal Appellate Courts: The Need to Broadly Construe the Crime Victims Rights Act s Mandamus Provision, 87 DENV. U. L. REV. 599 (2010). 74 CASSELL ET AL. Vol. 104 applicability to other situations), the government should have fashioned a reasonable way to inform the victims of the likelihood of criminal charges and to ascertain the victims views on the possible details of a plea bargain. 68 The Fifth Circuit then remanded the matter to the district court to determine the appropriate remedy for the violation of the victims rights. 69 The Fifth Circuit s decision in Dean has been cited favorably in four recent district court decisions, which provides further support for the conclusion that the CVRA applies before charges have been filed. In United States v. Rubin, 70 victims of a federal securities fraud argued that they had CVRA rights even before prosecutors filed a superseding indictment covering the specific crimes affecting the victims. Citing Dean, the District Court for the Eastern District of New York agreed that the rights were expansive and could apply before charges were filed but were subject to the outer limit that the Government has at least contemplated charges. 71 Similarly, in United States v. Oakum, 72 the District Court for the Eastern District of Virginia considered a claim that CVRA rights did not apply until after a defendant had been convicted. In rejecting that argument, the court agreed with the Dean court that victims acquire rights even before a prosecution begins. 73 The District Court for the Northern District of Indiana held to the same effect in In re Petersen. 74 There, the court held that a victim s right to be treated with fairness and with respect for his or her dignity and privacy may apply before any prosecution is underway and isn t necessarily tied to a court proceeding or case. 75 The court, however, found that the conclusory allegations in the victims petition did not create a plausible claim for relief under the CVRA. 76 68 In re Dean, 527 F.3d at 394 (internal citations omitted). 69 Id. at 396. On remand, the district court held additional hearings in which the victims participated, satisfying their CVRA rights. See United States v. BP Prods. N. Am. Inc., 610 F. Supp. 2d 655, 660 (S.D. Tex. 2009). 70 558 F. Supp. 2d 411 (E.D.N.Y. 2008). 71 Id. at 419 (internal citation omitted). Rubin s suggestion about limitations that apply to pre-indictment assertions of rights is discussed at notes 184 187 and 193 infra and accompanying text. 72 No. 3:08cr132, 2009 WL 790042 (E.D. Va. Mar. 24, 2009). 73 Id. at 2. 74 No. 2:10-CV-298 RM, 2010 WL 5108692 (N.D. Ind. Dec. 8, 2010). 75 Id. at 2 (citing In re Dean, 527 F.3d 391, 394 (5th Cir. 2008); United States v. BP Prods. N. Am. Inc., H-07-434, 2008 WL 501321 (S.D. Tex. Feb. 21, 2008)). 76 Id. Petersen also held that one specific CVRA right the right to confer only applies after charges have been filed. Id. But the authorities Petersen cites for that proposition prove no such thing. Confusingly, Petersen cited the Fifth Circuit s ruling in 2014 CRIME VICTIMS RIGHTS 75 Perhaps the most extensive discussion of this issue has come from the Epstein case discussed earlier. 77 Overruling the Government s argument that the CVRA only applies after the formal filing of charges, Does v. United States held that the statutory language clearly contemplates precharge proceedings. 78 The court in Does explained that c ourt proceedings involving the crime are not limited to post-complaint or postindictment proceedings, but can also include initial appearances and bond hearings, both of which can take place before a formal charge. 79 The court also noted that the CVRA s requirement that officials engaged in detection or investigation of crimes afford victims the rights enumerated in subsection (a) surely contemplates pre-charge application of the CVRA. 80 Finally, the court in Does noted that i f the CVRA s rights may be enforced before a prosecution is underway, then, to avoid a strained reading of the statute, those rights must attach before a complaint or indictment formally charges the defendant with the crime. 81 In sum, the relevant case law unanimously agrees that the CVRA extends rights to crime victims before charges have been filed. III. THE JUSTICE DEPARTMENT S UNPERSUASIVE POSITION Despite the CVRA s broad remedial purposes, its expansive language referring to investigations, and the unanimous case law extending rights to victims prior to defendants being charged, the OLC released a memorandum in 2011 concluding that CVRA rights attach only from the time that criminal proceedings are initiated (by complaint, information, or indictment). 82 OLC s analysis is unpersuasive. Although OLC s opinion Dean for support; but (as just explained above) Dean held exactly the opposite. Similarly, Petersen cites other cases involving the right to confer after charges have been filed. Id. But none of these cases actually presented the issue of the CVRA s application to pre-indictment situations, since charges had already been filed in each of these cases. See, e.g., In re Stewart, 552 F.3d 1285, 1289 (11th Cir. 2008). 77 Does v. United States, 817 F. Supp. 2d 1337 (S.D. Fla. 2011). 78 Id. at 1341. 79 Id. 80 Id. at 1342. 81 Id. Recently, the district court in the Does case also rejected Government efforts to dismiss the action. The district court found that, if the victims could prove the factual allegations they have made, then they would be entitled to relief, including potentially the relief of invalidating the nonprosecution agreement that Epstein obtained from the Government. Does v. United States, No. 9:08-cv-80736-KAM, 2013 WL 3089046, at 3 (S.D. Fla. June 19, 2013). 82 OLC CVRA Rights Memo, supra note 2, at 1. Although the opinion is dated December 17, 2010, it was publicly released on May 20, 2011. See Letter from Jon Kyl, supra note 3. 76 CASSELL ET AL. Vol. 104 invokes the CVRA s definition of crime victim, its legislative intent, and its structure, a closer reading of each demonstrates little support for the notion that crime victims must await the formal filing of charges before accruing CVRA rights. A. OLC S MISREADING OF THE CVRA S DEFINITION OF VICTIM OLC s lead argument is that the CVRA s definition of victim presupposes that criminal charges have been formally filed. 83 The CVRA defines a victim who is protected as a person directly and proximately harmed as a result of the commission of a Federal offense. 84 Focusing on the word offense, OLC concedes that it does not conclusively resolve the question of when rights attach. Nevertheless, OLC claims that the word naturally suggests that a person s status as a crime victim can only be determined after there has been a formal decision to charge a defendant with a particular Federal offense. 85 OLC goes on to elaborate: Under this reading, the earliest that a crime victim under the Act could be identified would be upon the filing of a criminal complaint that is, at the earliest point at which there is a sworn written statement of probable cause to believe that a particular defendant committed an identified Federal offense and hence the first point at which it is possible with any certainty to identify a crime victim directly and proximately harmed by the commission of that offense. 86 OLC is disingenuous in asserting that the first point at which a person has been harmed by a federal crime arises only after a criminal complaint has been filed. The Department routinely makes such determinations at earlier points in criminal cases, such as when it sends a target letter to a defense attorney during a grand jury investigation. 87 Indeed, OLC remarkably ignores the fact that the Department is directly required to identify victims of a crime before the filing of a criminal complaint, both by statute and through internal policy directives. The Victims Rights and Restitution Act of 1990 (VRRA) 88 requires the Department to identify victims before the filing of a criminal complaint. 83 OLC CVRA Rights Memo, supra note 2, at 6. 84 18 U.S.C. 3771(e) (2012) (emphasis added). 85 OLC CVRA Rights Memo, supra note 2, at 5. 86 Id. 87 A target letter explains the procedural process underlying an indictment and places the defendant on notice of the general nature of the government s criminal investigation. See U.S. DEP T OF JUSTICE, TITLE 9: U.S. ATTORNEYS CRIMINAL RESOURCE MANUAL 160, hereinafter CRIMINAL RESOURCE MANUAL available at http: goo.gl YHLDke (providing an example target letter); infra Part III.A (developing this point further). 88 Pub. L. No. 101-647, 104 Stat. 4820 (codified as amended at 42 U.S.C. 10601, 10606 07 (2006)). 2014 CRIME VICTIMS RIGHTS 77 Passed in 1990, the VRRA provided crime victims with a set of procedural rights similar to those found in the CVRA, along with rights to notification about victim services. 89 In 2004, the CVRA repealed and replaced the section of the VRRA listing procedural rights, while leaving other parts of the VRRA intact. 90 Under the remaining parts of the VRRA, the Justice Department must inform victims of federal crimes of services that are available to them, including emergency medical and social services, counseling, and support. 91 The Department is further obligated to keep victims fully informed about the status of the investigation of the crime, to the extent it is appropriate to inform the victim and to the extent that it will not interfere with the investigation. 92 These rights to notice about emergency medical and social services 93 as well as to the status of the investigation of the crime 94 obviously require the Department to identify victims of federal crimes before formal charges have been filed. Indeed, the VRRA makes this point clear by directing the Department to not only notify the victim about the status of the investigation but also about the later filing of charges against a suspected offender. 95 The VRRA then extends victims rights to information through the rest of the criminal justice process by requiring the Department to provide notice to victims of such things as the imposed sentence and the defendant s release. 96 The VRRA not only requires the Department to identify victims during the investigation of a crime, it also defines those victims in a very similar fashion to the CVRA. The VRRA defines victim as a person that has suffered direct physical, emotional, or pecuniary harm as a result of the commission of a crime. 97 Thus, the Department is already routinely identifying persons who have been harmed by federal crimes shortly after the commission of those crimes and well before formal charging. The Attorney General has also promulgated internal guidelines requiring Justice Department components to identify victims rapidly after a crime. The Attorney General Guidelines for Victim and Witness Assistance provide that Department responsibilities to crime victims begin as soon as possible after the detection of a crime at which they may be undertaken 89 See supra notes 22 23 and accompanying text. 90 Justice for All Act of 2004, Pub. L. No. 108-405, 102(a), 118 Stat. 2260, 2261 (2004) (codified at 18 U.S.C. 3771(a) (2012)). 91 See 42 U.S.C. 10607(c). 92 Id. 10607(c)(3)(A). 93 Id. 10607(c)(1)(A). 94 Id. 10607(c)(3)(A). 95 Id. 10607(c)(3)(C). 96 Id. 10607(c)(3)(G). 97 Id. 10607(e)(2). 78 CASSELL ET AL. Vol. 104 without interfering in the investigation. Generally, this point in time is defined by the opening of a criminal investigation. 98 Given the way the two statutes work, it would make no sense to artificially confine the CVRA s reach until after the filing of a criminal complaint. Before then, victims will have often received information from the Department about the status of the investigation. They might wish to confer with prosecutors about how the case is proceeding, and the CVRA extends to them a right to confer. 99 Similarly, while the Department is notifying victims about the services they may receive and the status of an investigation, it is important that the victims be treated fairly. The CVRA extends the right to be treated fairly. 100 Indeed, it would be absurd to think that Congress wanted to permit the Justice Department to treat crime victims unfairly until criminal charges have been filed. Instead of recognizing Congress s intent, OLC s 2011 memorandum simply cites to a series of cases in which courts concluded that a victim of uncharged conduct should not be afforded statutory protections. 101 Yet none of these cases United States v. Turner, 102 Searcy v. Paletz, 103 or Searcy v. Skinner 104 provide strong support for OLC s position. Turner is a particularly poor fit. Although OLC s memorandum characterizes Turner as excluding victims of uncharged conduct, 105 the magistrate judge adopted an inclusive reading of the statute precisely because of his reservations about the CVRA s legislative history and plain language. The judge suggested that any person who self-identifies as a victim could be presumed to qualify for protection under the CVRA as a preliminary matter. 106 In fact, the line quoted by the Department is lifted out of context. The full sentence reads: While the offense charged against a defendant can 98 ATTORNEY GENERAL GUIDELINES, supra note 52, at 7 (internal citations omitted); see also 42 U.S.C. 10607(b). 99 18 U.S.C. 3771(a)(5) (2012) (preserving t he reasonable right to confer with the attorney for the Government in the case ). 100 Id. 3771(a)(8) (preserving t he right to be treated with fairness and with respect for the victim s dignity and privacy ). 101 OLC CVRA Rights Memo, supra note 2, at 6 n.6. 102 367 F. Supp. 2d 319 (E.D.N.Y. 2005). 103 No. 6:07-1389-GRA-WMC, 2007 WL 1875802 (D.S.C. June 27, 2007). 104 No. 6:06-1418-GRA-WMC, 2006 WL 1677177 (D.S.C. June 16, 2006). 105 OLC CVRA Rights Memo, supra note 2, at 6 n.6. 106 Turner, 367 F. Supp. 2d at 327 ( Instead, I have taken and will continue to follow an inclusive approach: absent an affirmative reason to think otherwise, I will presume that any person whom the government asserts was harmed by conduct attributed to a defendant, as well as any person who self-identifies as such, enjoys all of the procedural and substantive rights set forth in 3771. ). 2014 CRIME VICTIMS RIGHTS 79 serve as a basis for identifying a crime victim as defined in the CVRA, the class of victims with statutory rights may well be broader. 107 Paletz and Skinner similarly provide scant support for the Department s position. In Skinner, a prison inmate attempted to bring a pro se civil suit against another inmate for allegedly attacking him during incarceration. 108 In dismissing the suit in an unpublished decision, the district court recognized that the Government had expressly declined to bring charges against the other inmate and concluded that the CVRA did not create a mechanism to bring an action against Defendant directly. 109 In Paletz, that same inmate brought a similar pro se claim against another inmate, the Federal Bureau of Prisons, the FBI, and the U.S. Attorney General. 110 In a parallel, unpublished decision, the district court dismissed the suit, noting that the CVRA is designed to give victims certain rights within the prosecutorial process against a criminal defendant. 111 Because Skinner and Paletz involve (apparently frivolous) civil suits, they say nothing about the CVRA s reach in criminal cases, and any language to that effect would be pure dicta. Moreover, the courts terse analysis in both cases does not contain any substantive discussion of whether CVRA rights apply in criminal cases before the filing of charges. Instead, the courts simply cited to language from a Second Circuit decision that stated that the CVRA does not give victims any rights against defendants until those defendants have been convicted 112 a holding clearly limited to restitution, as many other CVRA rights clearly apply before conviction. 113 Reviewing these two cases in an extended, published opinion, the U.S. District Court for the Southern District of Texas noted that reading these two decisions as standing for the proposition that charges must be filed for CVRA rights to attach appears inconsistent with the CVRA recognition of certain subsection (a) rights that apply during investigation, before any charging instrument is filed. 114 As a result, OLC 107 Id. at 326. 108 Skinner, 2006 WL 1677177, at 1 2. 109 Id. at 2. 110 Searcy v. Paletz, No. 6:07-1389-GRA-WMC, 2007 WL 1875802, at 1 2 (D.S.C. June 27, 2007). 111 Id. at 2. 112 Id. ( However, the CVRA does not grant victims any rights against individuals who have not been convicted of a crime. (quoting In re W.R. Huff Asset Mgmt. Co., 409 F.3d 555, 564 (2d Cir. 2005))). 113 Of course, a defendant cannot be ordered to pay restitution as part of his sentence until he has been found guilty. See 18 U.S.C. 3664 (2012) (describing sentencing procedures for ordering restitution). 114 United States v. BP Prods. N. Am. Inc., No. H-07-434, 2008 WL 501321, at 12 n.7 (S.D. Tex. Feb. 21, 2008). 80 CASSELL ET AL. Vol. 104 vastly overstates its position when it asserts that most courts . . . have declined to extend enforceable rights under the CVRA to alleged victims of conduct that did not lead to criminal proceedings. 115 All the courts that have actually reached the issue have concluded exactly the opposite. 116 B. OLC S DISTORTION OF THE CVRA S STRUCTURE AND LEGISLATIVE HISTORY The next section of OLC s memorandum maintains that the CVRA s structure and legislative history lead to the conclusion that the CVRA is best understood as extending rights after charges have been filed. Here again, OLC s analysis is truncated at best and misleading at worst. OLC begins this part of its analysis by observing that some of the rights in the CVRA are limited to court proceedings. OLC notes, for example, that the CVRA gives victims the right to reasonable, accurate, and timely notice of any public court proceeding . . . involving the crime. 117 But the fact that some of the rights listed in the CVRA apply to court proceedings hardly means that all of the rights are to be so restricted. The federal criminal justice process includes stages that are pre-charging, post-charging, and post-conviction. It would hardly be surprising to find that a statute that Congress intended to be broad and encompassing 118 covered events occurring after the filing of charges. Indeed, OLC appears to recognize that at least three of the rights listed in the CVRA could easily apply before charges are filed: (1) the right to be reasonably protected from the accused ; (2) the reasonable right to confer with the attorney for the Government in the case ; and (3) the right to be treated with fairness and with respect for the victim s dignity and privacy. 119 None of these rights explicitly refer to court proceedings or other events (such as parole hearings) that necessarily occur after the filing of formal charges. 120 115 OLC CVRA Rights Memo, supra note 2, at 5 6. Notably, the Department does not embrace the language from Huff found within the Skinner and Paletz decisions because presumably such an approach would be contrary to many of the rights found in the CVRA. 116 See infra Part I.C. 117 OLC CVRA Rights Memo, supra note 2, at 6 (emphasis added) (quoting 18 U.S.C. 3771(a)(2)). 118 150 CONG. REC. 7295 (2004) (statement of Sen. Dianne Feinstein). 119 OLC CVRA Rights Memo, supra note 2, at 7 8, 10 (quoting 18 U.S.C. 3771(a)(1), (5), (8)). 120 OLC appears to have overlooked another right that could well apply before charges are filed: the right to be notified of one s rights under the CVRA. See 18 U.S.C. 3771(c)(1) (requiring prosecutors to make their best efforts to see that crime victims are notified of, and accorded, the rights described in the CVRA ); United States v. Rubin, 558 F. Supp. 2d 411, 428 (E.D.N.Y. 2008) (discussing potential application of the right to 2014 CRIME VICTIMS RIGHTS 81 For purposes of this Article, it is appropriate to focus on the last two of these three rights: the right to confer and the right to fair treatment. The first of these three rights the right to be reasonably protected is already clearly extended by another statute to crime victims before the filing of charges. While OLC does not acknowledge this fact, the VRRA extends the first right to crime victims, directing that a responsible official shall arrange for a victim to receive reasonable protection from a suspected offender and persons acting in concert with or at the behest of the suspected offender. 121 Because a suspected offender obviously exists before the filing of criminal charges, the VRRA envisions the right to protection being provided as soon as is practical after a victim suffers from the commission of a crime. Additionally, the sections of the Attorney General Guidelines for Victim and Witness Assistance addressing the VRRA direct that Justice Department components must provide reasonable protection even before the filing of criminal charges. 122 So, under the VRRA, the Justice Department should already be providing reasonable protection for a victim before an offender is indicted, regardless of how the CVRA is interpreted. 123 The VRRA, however, does not contain a right to confer and a right to fair treatment and respect for the victim s dignity. Therefore, if victims are going to receive these statutory rights before trial, these rights must be found in the CVRA. With regard to the CVRA provision that victims have the reasonable right to confer with the attorney for the Government in the case, 124 OLC contends that t he phrase in the case implies the pendency of a judicial proceeding. 125 To bolster its conclusion, OLC then cites Black s Law Dictionary, which includes among its several definitions of the word case the definition a civil or criminal proceeding. 126 But OLC does not acknowledge that Black s Law Dictionary also defines and exemplifies a case more broadly as a criminal investigation the notification of rights before charges are filed). For purposes of this Article, it is not necessary to explore this right in detail. If other CVRA rights apply before charges are filed, a fortiori this right does as well. If a victim has a right, presumably the victim should be notified of the existence of that right. 121 42 U.S.C. 10607(c)(2) (2006) (emphasis added). 122 See ATTORNEY GENERAL GUIDELINES, supra note 52, at 7 8, 26 28. 123 Exactly what reasonable protection means, however, remains uncertain. See generally Mary Margaret Giannini, Redeeming an Empty Promise: Procedural Justice, the Crime Victims Rights Act, and the Victim s Right to Be Reasonably Protected from the Accused, 78 TENN. L. REV. 47 (2010) (suggesting the right has not been adequately defined and proposing ways to do so). 124 18 U.S.C. 3771(a)(5). 125 OLC CVRA Rights Memo, supra note 2, at 8. 126 Id. (citing BLACK S LAW DICTIONARY, supra note 59, at 243). 82 CASSELL ET AL. Vol. 104 Manson case . 127 Thus, Black s Law Dictionary does not help resolve the dispute as to which of the two meanings should be used, as there are clearly differing meanings. While OLC s reading may be a permissible one, so is a pro-victim reading. OLC also turns to the CVRA s legislative history to bolster its conclusion. But, here again, its analysis is misleading. OLC relies on a passage from Senate floor colloquy between Senators Jon Kyl and Dianne Feinstein regarding the CVRA s scope. In OLC s recounting of the legislative history, the floor statements emphasize that the right to confer relates to the conduct of criminal proceedings after the filing of charges. 128 For instance, OLC quotes Senator Kyl stating that u nder this provision, victims are able to confer with the Government s attorney about proceedings after charging. 129 This is a truncated and deceptive description of the legislative history, so much so that Senator Kyl sent an angry letter to Attorney General Eric Holder complaining about the distortion. On June 6, 2011, the Senator wrote to express his surprise that OLC is so clearly quoting his remarks out of context. 130 Senator Kyl then went on to observe that the colloquy began by noting that the right to confer is intended to be expansive. 131 The Senator further discussed various examples of when the right to confer applied, including any critical stage or disposition of the case. The right, however, is not limited to these examples. 132 It was against that backdrop that Senator Kyl gave the example of conferring about proceedings after charging. In his letter to Attorney General Holder, Senator Kyl also noted that he had: made clear that crime victims had rights under the CVRA even before an indictment is filed. For example, . . . I made clear that crime victims had a right to consult about both the case and case proceedings i.e., both about how the case was being handled before being filed in court and then later how the case was being handled in court proceedings. 133 Senator Kyl further commented that he had discussed the CVRA s potential application in grand jury proceedings, an application that required the Act 127 BLACK S LAW DICTIONARY, supra note 59, at 244. 128 OLC CVRA Rights Memo, supra note 2, at 9. 129 Id. (emphasis added) (quoting 150 CONG. REC. 7302 (2004) (statement of Sen. Jon Kyl) (internal quotation marks and citation omitted). 130 Letter from Jon Kyl, supra note 3. 131 Id. (quoting 150 CONG. REC. S4260, S4268 (daily ed. Apr. 22, 2004) (statement of Sen. Dianne Feinstein)). 132 Id. 133 Id. 2014 CRIME VICTIMS RIGHTS 83 to extend rights before indictment. 134 Thus, if anything, the legislative history does not support OLC s conclusion it contradicts it. 135 OLC should have had no doubt as to the intent of Senator Kyl and his cosponsors at the time of the Act s passage. Shortly after shepherding the CVRA through the Congress, Senator Kyl cowrote a law review article about the Act. 136 In that article, he directly indicated that the CVRA applies before charges are filed. Senator Kyl and his coauthors wrote: While most of the rights guaranteed by the CVRA apply in the context of legal proceedings following arrest and charging, other important rights are triggered by the harm inflicted by the crime itself. For example, the right to be treated with fairness, the right to be reasonably protected from the accused (who may qualify as the accused before his arrest), and the right to be treated with respect for the victim s dignity and privacy each may arise without regard to the existence of legal proceedings. 137 Remarkably, OLC cited Senator Kyl s law review article (in a footnote), but then concluded without explanation that the CVRA cosponsor s views were for some reason different than Congress s. 138 OLC also appears to acknowledge that its interpretation of the CVRA could well contradict what it describes as prosecutorial good practice. 139 OLC noted that some Justice Department components (for example, the Environmental and Natural Resources Division) had advocated that the right to confer should apply during pre-charging plea discussions. 140 OLC then acknowledged that limiting the right to confer until after formal charging could reduce the impact of a victim s participation in subsequent court proceedings. 141 OLC attempted to dodge this problem by explaining: The question before us, though, is not whether it would be advisable as a matter of good practice . . . for Government attorneys to confer with victims pre-charge when appropriate . . . . 142 OLC then explained that even under its narrow interpretation of the statute, the CVRA would still ensure that 134 Id. 135 Attorney General Holder never sent a response to Senator Kyl s letter. But Assistant Attorney General Ronald Weich sent a belated response. Letter from Ronald Weich, Assistant Att y Gen., to Jon Kyl, U.S. Sen. (Nov. 3, 2011) (on file with authors). That response did not address Senator Kyl s concern that his remarks were being quoted out of context. 136 See generally Kyl et al., supra note 19. 137 Id. at 594. 138 OLC CVRA Rights Memo, supra note 2, at 8 n.7. 139 Id. at 10. 140 Id. at 9 (citations omitted) (discussing an interdepartmental memorandum addressing this question). 141 Id. at 10. 142 Id. 84 CASSELL ET AL. Vol. 104 the victim has an opportunity to be heard by the court, and by the Government, before the court accepts the plea. 143 But OLC failed to recognize that its interpretation of the CVRA rendered the right to be heard a nullity in many important cases including, notably, the Epstein case. 144 Where prosecutors and defense attorneys work out a nonprosecution agreement that agreement will never be presented to a court for review. Thus, in cases where the need for victim participation may be the greatest that is, in cases where the Government is considering never filing any charges OLC s interpretation would bar victims from having any rights at all. Even in situations where a prosecutor works out a plea agreement, OLC s interpretation is problematic. As OLC recognizes, prosecutors and defense counsel commonly work out pre-indictment plea agreements (particularly in white-collar cases), under which a defendant will plead guilty to certain charges. 145 Then, the parties jointly present to the district court a criminal information (that is, a recitation of the charges drafted by the prosecutor but never presented to the grand jury 146 ) and a plea agreement, asking the court to file the criminal information and simultaneously accept the guilty plea. As the OLC memorandum acknowledges, a crime victim would have the right to object to the plea agreement, because the CVRA gives crime victims the right to be reasonably heard at any public proceedings involving a plea. 147 But under OLC s interpretation of the CVRA, a crime victim has no right to notice of court hearings until the charges are filed. Thus, if the information and plea are filed simultaneously, as is often the case, two scenarios are possible. A victim could have no prior right to notice of the proceeding at which the plea was being accepted, or alternatively (if the act of filing the information in the course of accepting a plea triggers a notification right), the district court would be required to stop in the middle of proceedings and ensure that notification was belatedly provided. Of course, these difficulties are all avoided if the right to confer is properly construed as attaching before charges are filed, such as during plea negotiations between prosecutors and defense attorneys. 143 Id. 144 The OLC opinion was publicly released on May 20, 2011. Perhaps not coincidentally, this release date was shortly before the Government filed its response in the Epstein case. 145 See OLC CVRA Rights Memo, supra note 2, at 9 (acknowledging the potential effect of the CVRA on plea negotiations). 146 See FED. R. CRIM. P. 7(b). 147 18 U.S.C. 3771(a)(4) (2012); OLC CVRA Rights Memo, supra note 2, at 6 7. 2014 CRIME VICTIMS RIGHTS 85 More importantly, extending the right in this fashion will not be unduly burdensome for federal prosecutors. After the OLC memorandum was made public, the Department amended the Attorney General Guidelines for Victim and Witness Assistance to require prosecutors to make reasonable efforts toward a goal of providing victims with a meaningful opportunity to offer their views before plea agreements are formally reached. 148 In circumstances where plea negotiations occur before a case has been brought, Department policy is that this should include reasonable consultation prior to the filing of a charging instrument with the court. 149 Thus, Department policy already extends pre-charging rights to victims. The CVRA should be understood as having the same scope. OLC also notes that the CVRA right to be treated with fairness and with respect for the victim s dignity and privacy is a right that could apply before charges are filed. 150 Indeed, OLC is forced to concede (as district courts have recognized) that the right to be treated with fairness and with respect for the victim s dignity and privacy may apply with great force during an investigation, before any charging instrument has been filed. 151 OLC nonetheless maintains that the right to fairness only applies after charges have been filed. OLC relies on the canon of statutory construction noscitur a sociis, meaning that words are known by their companions, 152 for its interpretation of the CVRA. OLC argues that because the other seven enumerated rights are limited to post-charging situations, the eighth right should be as well. Of course, this argument assumes that OLC s construction of the other seven rights is correct a point very much in dispute. 153 If, for example, the right to confer applies before charges are filed, then presumably noscitur a sociis would cut the other way the right to fairness should likewise be construed as applying before charges are filed. Moreover, OLC omits from its discussion of the fairness provision any assessment of the CVRA s purposes. In construing a statute, a court must consider the purpose and context of the statute. 154 In describing the fairness provision, Senator Kyl emphasized that it conferred a broad 148 ATTORNEY GENERAL GUIDELINES, supra note 52, at 41 42. 149 Id. at 41. 150 OLC CVRA Rights Memo, supra note 2, at 10 (quoting 18 U.S.C. 3771(a)(8)). 151 Id. (quoting United States v. BP Products North America Inc., No. H-07-434, 2008 WL 501321, at 11 (S.D. Tex. Feb. 21, 2008) (internal quotation marks omitted)). 152 Id. at 11. 153 See supra Part III.A. 154 Kasten v. Saint-Gobain Performance Plastics Corp., 131 S. Ct. 1325, 1331 (2011). 86 CASSELL ET AL. Vol. 104 right. 155 The reason for adopting such a broad right was that t oo often victims of crime experience a secondary victimization at the hands of the criminal justice system. This provision is intended to direct Government agencies and employees, whether they are in the executive or judiciary branch, to treat victims of crime with the respect they deserve. 156 OLC s failure to consider the purposes underlying the CVRA is a glaring oversight. OLC never attempts to explain why the CVRA s drafters would want victims to have a right to fair treatment once criminal charges were filed but possess no such right before the filing of criminal charges. Clearly, many victims can and do suffer secondary victimization during criminal investigations, such as when sexual assault victims are treated inappropriately by law enforcement agents. 157 It would contradict the purpose of preventing victim mistreatment in the criminal justice system to artificially limit the right to fairness to the point at which charges are filed. The right to fairness logically applies at all stages of the criminal justice process. C. OLC S INEFFECTIVE RESPONSE TO THE CVRA S COVERAGE AND VENUE PROVISIONS At the end of its memorandum, OLC finally discusses what it identifies as the two strongest arguments for construing the CVRA as applying before charging: the coverage provision and the venue provision. OLC acknowledges, as it must, that the CVRA s coverage extends to any federal employee engaged in the detection, investigation or prosecution of crime. 158 Such employees shall make their best efforts to see that crime victims are notified of, and accorded, the rights afforded by the statute. 159 Notably, this duty applies to individuals not just in the Justice Department (where all federal prosecutors are located) but other agencies as well, such 155 150 CONG. REC. 7303 (2004) (statement of Sen. Jon Kyl). 156 Id. 157 See SUSAN ESTRICH, REAL RAPE 50 51 (1987) (describing how a rape victim s sexual history may be used against her in court proceedings); Beloof, supra note 38, at 309 10 (collecting examples of victims issues that arise during the investigative process); see also PRESIDENT S TASK FORCE ON VICTIMS OF CRIME, FINAL REPORT, supra note 10, at 57 62 (making recommendations for how police should treat victims during the criminal justice process). 158 OLC CVRA Rights Memo, supra note 2, at 15 (quoting 18 U.S.C. 3771(c)(1) (2012)) (internal quotation marks omitted). 159 18 U.S.C. 3771(c)(1). 2014 CRIME VICTIMS RIGHTS 87 as environmental crimes investigators in the Environmental Protection Agency (EPA). 160 This coverage provision would seem to answer any lingering question about whether the CVRA applies before charging. In directing that federal employees engaged in the detection and investigation of crime must respect victims rights, Congress wanted broad rights extending beyond just the prosecution of a case. As the district court concluded in the Epstein case, this provision surely contemplates pre-charge application of the CVRA. 161 OLC gamely maintains, however, that Congress was simply trying to provide that federal law enforcement agents should provide rights to victims when a criminal case moves to its prosecution phase. OLC noted the uncontroversial point that law enforcement agents often develop a relationship of trust with crime victims during the investigation that continues as they assist crime victims in negotiating active criminal proceedings. 162 OLC then asserted: Given this continuing active role that agents typically play during criminal prosecutions, we find the fact that the CVRA assigns responsibility to them, together with the attorney for the Government, to . . . accord them their rights under the CVRA to be entirely consistent with our conclusion that those rights arise only once the Government has initiated criminal proceedings. 163 But OLC s contorted position never explains why Congress found it necessary to break out three separate phases of the criminal justice process: the detection, investigation, and prosecution of crime. If the congressional intent was simply to cover, for example, FBI agents or EPA agents during the post-charging phase of a case, it could have simply omitted those words from the CVRA. An FBI agent, for example, would be engaged in the prosecution of the case when assisting the victim after the formal filing of charges. On OLC s reading of the statute, the words detection and investigation become meaningless, contrary to the wellknown canon of construction verba cum effectu sunt accipienda, which means that, if possible, every word and every provision is to be given effect. 164 OLC also suggests that the most significant argument supporting pre-charging application of rights is the venue provision, which allows 160 See Kyl et al., supra note 136, at 615 ( Notice should be given to the fact that it applies not just to the Department of Justice, but to all departments and agencies of the United States engaged in the detection, investigation, or prosecution of crime. (citation omitted)). 161 Does v. United States, 817 F. Supp. 2d 1337, 1342 (S.D. Fla. 2011). 162 OLC CVRA Rights Memo, supra note 2, at 15. 163 Id. 164 See, e.g., Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979). 88 CASSELL ET AL. Vol. 104 crime victims to assert CVRA rights in the district court in which a defendant is being prosecuted for the crime or, if no prosecution is underway, in the district court in the district in which the crime occurred. 165 The Department contends that this language refers quite narrowly to the period of time between the filing of a complaint and the initiation of formal charges. 166 In support of its position, the Department cites a Fourth Circuit case interpreting the Sixth Amendment right to counsel, which held that a prosecution for purposes of that Amendment does not begin when a criminal complaint is filed. 167 In OLC s view, the venue provision s direction that victims should assert rights when no prosecution is underway applies only to the limited time between when the Government files a complaint against a defendant and some later point when the prosecution actually begins. OLC notes that the filing of a complaint triggers an initial appearance, where crime victims can have important interests at stake, such as the right to be heard about a defendant s release on bail. OLC believes it is only to such post-complaint, yet pre-indictment, proceedings (i.e., the initial appearance) that the venue provision s no-prosecution-underway language covers. As a preliminary matter, OLC s interpretation of the word prosecution in the Department s narrow construction of the venue provision is a twisted one, at odds with the way that term is conventionally used. The filing of a complaint is typically viewed as the start of a criminal prosecution. For example, the leading criminal procedure hornbook states that w ith the filing of the complaint, the arrestee officially becomes a defendant in a criminal prosecution. 168 Moreover, having specifically rejected the filing of the criminal complaint as the starting point for a prosecution within the CVRA s venue provision, OLC refuses to consider the implications of its alterative starting point: the formal filing of an indictment. OLC states that a prosecution of a felony must commence with the return of an indictment by a grand jury, citing the Federal Rules of Criminal Procedure. 169 Yet OLC does not pause to recognize that, while felonies proceed by way of indictment, misdemeanors can proceed not only by indictment but also by complaint. 170 The CVRA draws no distinction between misdemeanor and 165 OLC CVRA Rights Memo, supra note 2, at 14 (quoting 18 U.S.C. 3771(d)(3) (2012)). 166 Id. 167 Id. (citing United States v. Alvarado, 440 F.3d 191, 200 (4th Cir. 2006)). 168 WAYNE R. LAFAVE ET AL., CRIMINAL PROCEDURE 1.2(g), at 11 (5th ed. 2009) (emphasis added). 169 OLC CVRA Rights Memo, supra note 2, at 14 (citing FED. R. CRIM. P. 7(a)(1)). 170 FED. R. CRIM. P. 58(b)(1) ( The trial of a misdemeanor may proceed on an indictment, information, or complaint. (emphasis added)). 2014 CRIME VICTIMS RIGHTS 89 felony offenses, broadly extending its protections to victims of any federal offense. 171 Thus, under OLC s interpretation that the filing of a complaint does not trigger the CVRA, many victims who are entitled to CVRA protections i.e., victims of misdemeanor offenses prosecuted by way of complaint will never have proper venue to assert those rights because, according to OLC s strained argument, no prosecution ever started in their cases. Even limiting the focus to felony cases, OLC misleadingly describes the Sixth Amendment case law. It is not immediately clear why one would look to the right to counsel to determine the breadth of the term prosecution in the Sixth Amendment. The right to counsel is not the only right found in that Amendment. The Amendment also extends, for example, a right to a speedy trial in all criminal prosecutions. 172 The case law on the speedy trial right makes clear that the right may attach before an indictment and as early as the time of arrest and holding to answer a criminal charge. 173 In any event, the right to counsel cases are quite clear in providing that a Sixth Amendment prosecution can (and often does) begin well before an indictment. 174 The Supreme Court has directly held that the Sixth Amendment s right to counsel attaches at or after the time that judicial proceedings have been initiated against a person whether by way of formal charge, preliminary hearing, indictment, information, or arraignment. 175 Thus, under this controlling precedent, some earlier point in time before indictment is the triggering point of a Sixth Amendment prosecution. The cases that OLC cites are not to the contrary. It is true that some federal appeals courts have stated that the mere filing of a criminal complaint does not trigger a Sixth Amendment right to counsel. 176 But there is a split of authority on this question, as OLC acknowledges in a footnote. 177 More importantly for purposes of this Article, the cases holding 171 See 18 U.S.C. 3771(e) (2012). 172 U.S. CONST. amend. VI. 173 United States v. Gouveia, 467 U.S. 180, 190 (1984) (quoting United States v. MacDonald, 456 U.S. 1, 6 7 (1982)) (internal quotation marks omitted). 174 See, e.g., Texas v. Cobb, 532 U.S. 162, 172 73 (2001). 175 Brewer v. Williams, 430 U.S. 387, 398 (1977) (quoting Kirby v. Illinois, 406 U.S. 682, 689 (1972)). 176 See, e.g., United States v. Alvarado, 440 F.3d 191, 196 (4th Cir. 2006). 177 OLC CVRA Rights Memo, supra note 2, at 14 n.15 (citing Hanrahan v. United States, 348 F.2d 363, 366 n.6 (D.C. Cir. 1965)); see WAYNE R. LAFAVE ET AL., CRIMINAL PROCEDURE 6.4(e), at 670 (3d ed. 2007) ( There is an apparent split of authority on the question of whether the filing of a complaint is alone enough to give rise to a Sixth Amendment right to counsel, though the difference probably is explainable by the fact that 90 CASSELL ET AL. Vol. 104 that the mere filing of a complaint does not start a Sixth Amendment prosecution also make clear that a later court hearing would start such a prosecution. For instance, in the Fourth Circuit case cited by OLC, United States v. Alvarado, the court reasons that the main reason a law enforcement officer files a complaint is to establish probable cause for an arrest warrant. The criminal process is still in the investigative stage, and the adverse positions of government and defendant have yet to solidify. 178 Relying on that reasoning, the Fourth Circuit refused to find that the right to counsel had attached merely because a police officer had filed a complaint to get an arrest warrant. But the Fourth Circuit distinguished that situation from the initiation of adversary judicial proceedings against the defendant. 179 An initial appearance would be such an adversary proceeding i.e., it would be a prosecution under the Sixth Amendment. In light of this, OLC s position that the CVRA s venue provision s noprosecution-underway reference covers proceedings, such as an initial appearance, does not work. The only sensible way to construe the CVRA s venue provision is to read it as conveniently dividing criminal cases into two phases: a prosecution phase and an earlier investigative phase when no prosecution is under way. 180 Senator Kyl, for instance, has noted that if there are any doubts about how to construe the CVRA, this venue provision sweeps them away. 181 Once again, the language that Congress used leads inexorably to the conclusion that the CVRA extends rights to victims before the filing of criminal charges. IV. WHEN PRE-CHARGING RIGHTS ATTACH UNDER THE CVRA The zeal with which OLC argues against applying CVRA rights before charging raises the question of why it protests so much. Although OLC never articulated this concern, perhaps OLC worried that pre-charging rights would be difficult to administer. Such concerns should evaporate with a workable construction of when pre-charging rights attach. In this Part, we propose such a construction, suggesting that CVRA rights should attach when substantial evidence exists that a specific person has been directly and proximately harmed as the result of a federal crime. This approach appears to already be the method that the Department is taking, as this document is used for multiple purposes. ); see also Felder v. McCotter, 765 F.2d 1245, 1248 (5th Cir. 1985) (citing Texas law). 178 Alvarado, 440 F.3d at 200 (citations omitted) (internal quotation marks omitted). 179 Id. (quoting United States v. Gouveia, 467 U.S. 180, 187 (1984)). 180 18 U.S.C. 3771(d)(3) (2012). 181 Kyl et al., supra note 19, at 594. 2014 CRIME VICTIMS RIGHTS 91 it has extended many rights to victims before the formal filing of criminal charges as a matter of internal policy. 182 This approach appears to be workable, as a number of states extend rights to victims during the investigative process. 183 A. A TEST FOR DETERMINING WHEN RIGHTS ATTACH As explained in the earlier Parts of this Article, the CVRA clearly envisions that crime victims would have rights in the criminal justice process before the return of indictments or the filing of criminal complaints. The question then as to how much earlier in the process crime victims have rights naturally arises. Does the CVRA apply one second after a federal crime has been committed? Or does it apply at some later point during an investigation? This issue was nicely framed by the U.S. District Court for the Eastern District of New York in a securities fraud case. In the first indictment underlying the case, the charged crime did not include various victims. A later superseding indictment broadened the charges to include those missing individuals. When they brought a suit under the CVRA, the court noted that q uite understandably, movants perceive their victimization as having begun long before the government got around to filing the superseding indictment. 184 The court, however, explained that there must be logical limits to crime victims rights before the filing of charges. 185 The court noted: For example, the realm of cases in which the CVRA might apply despite no prosecution being underway, cannot be read to include the victims of uncharged crimes that the government has not even contemplated. It is impossible to expect the government, much less a court, to notify crime victims of their rights if the government has not verified to at least an elementary degree that a crime has actually taken place, given that a corresponding investigation is at a nascent or theoretical stage. 186 The logical limits that the CVRA envisions could come from how the Justice Department interacts with criminals during the investigation of a crime. Crime victims rights advocates are fond of saying that victims only want to be treated like criminals that is, they simply want to have the same kinds of rights as criminals receive, such as the right to be notified 182 See, e.g., ATTORNEY GENERAL GUIDELINES, supra note 52, at 41 42 (discussing the right to confer regarding plea bargains). 183 See infra Part III.D. 184 United States v. Rubin, 558 F. Supp. 2d 411, 419 (E.D.N.Y. 2008). 185 Id. 186 Id. 92 CASSELL ET AL. Vol. 104 of court hearings and to attend those hearings. 187 So it is instructive to notice that the Justice Department policy is to extend certain rights to suspected criminals during certain points in the investigative process. That policy might provide guidance on when crime victims rights would attach. Of particular interest here is the Department s policy for grand jury subpoenas issued to a target of a criminal investigation. When such a target is subpoenaed to testify before a grand jury, the Department of Justice will advise that target of his rights, such as the right to refuse to answer any question that might be incriminating. 188 The Department of Justice defines a target of a criminal investigation as a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant. 189 If the Department s investigation has coalesced sufficiently so that it can provide notice of rights to putative defendants, it should likewise be in a position to provide notice of rights to that defendant s victims. Combining the Department s definition of target with the CVRA s coverage and definition-of-victim provisions produces a formulation whereby CVRA rights attach in (at least) the following circumstances: CVRA rights attach when an officer or employee of the Department of Justice or any other department or agency of the United States engaged in the detection, investigation, or prosecution of crime has substantial evidence that an identifiable person has been directly and proximately harmed as a result of the commission of a federal offense or an offense in the District of Columbia, and in the judgment of the officer or employee, that person is a putative victim of that offense. This formulation borrows from the CVRA s coverage provision 190 to define the relevant universe of substantial evidence as that in the possession of the Justice Department or other federal agencies. For instance, if state law enforcement officers are investigating a bank robbery, the fact that the robbery might also be prosecuted federally 191 does not make the teller at the bank a federal victim of the crime until evidence regarding the crime comes into the possession of a federal agency. The formulation also tracks the CVRA s definition of victim in limiting the universe of potential 187 See, e.g., Cassell, supra note 15, at 1376 85 (describing the rationale underpinning state victims rights statutes). 188 CRIMINAL RESOURCE MANUAL, supra note 87, 9-11.151. 189 Id. 190 18 U.S.C. 3771(e) (2012). 191 Id. 2113. 2014 CRIME VICTIMS RIGHTS 93 victims to those who have been directly and proximately harmed. 192 Finally, the formulation requires some federal officer or employee to evaluate the evidence and reach the conclusion that a federal offense has been committed that harmed the person in question. This determination responds to the observation by the District Court for the Eastern District of New York that the CVRA cannot be read to include the victims of uncharged crimes that the government has not even contemplated. 193 At the same time, such a formulation obviously does not require the filing of formal criminal charges, or even the preparation of formal criminal charges. Instead, all that is required is for the Department to recognize that a person is a putative victim of a federal offense, just as all that is required for the mailing of a target letter to a subpoenaed suspected criminal, is recognition that he is a putative defendant in a federal case. B. APPLYING THE TEST TO THE EPSTEIN CASE To illustrate how the test would operate, it is useful to examine the facts of the Epstein case. Applying the proposed test to that case produces straightforward answers, which suggests that the test would be workable in practice. From 2001 to 2007, Jeffrey Epstein sexually abused more than thirty minor girls in his mansion, including Jane Doe Number One and Jane Doe Number Two. 194 Initially, of course, his acts of abuse were secret, unknown to law enforcement. During that period of time, the victims would not have had rights under the CVRA. In 2006, Epstein s acts of abuse came to the attention of the Palm Beach Police Department, which began investigating the case. 195 At this point, once again, the victims would not have had rights under the proposed CVRA test. The CVRA extends rights in the federal criminal justice process. A state investigation does not trigger the CVRA (although it may trigger certain state law protections, as discussed below). 196 At some point in 2006, the Palm Beach Police Department asked the FBI to investigate Epstein on federal sex offenses, such as using a means of 192 See id. 3771(e). 193 United States v. Rubin, 558 F. Supp. 2d 411, 419 (E.D.N.Y. 2008). 194 As above, see supra notes 34 41 and accompanying text, this part of the Article draws on the factual allegations made by the victims in this case allegations that Epstein has not intervened to dispute. See Jane Doe Motion, supra note 40, at 3 23. 195 See Probable Cause Affidavit, Palm Beach Police Department: Police Case No. 05- 368(1) (May 1, 2006), available at http: goo.gl fAPFw5; see also Statement of Undisputed Facts, Epstein v. Rothstein, No. 50 2009 CA 040800XXXXMBAG (Fla. Cir. Ct. Sept. 22, 2010), available at http: goo.gl DzMbe8. 196 See supra notes 178 95 and accompanying text as well as infra Part IV.D. 94 CASSELL ET AL. Vol. 104 interstate communication in connection with sex offenses and traveling in interstate commerce for the purpose of engaging in illicit sexual conduct with minors. 197 The local police provided the FBI with information, which the FBI then investigated. Following an investigation, the FBI determined that the allegations of abuse against Epstein were credible, and it presented the case to the U.S. Attorney s Office for the Southern District of Florida. In 2007, the Office contacted counsel for Jeffrey Epstein and began negotiating a resolution of the case against him. 198 Under our proposed test, the victims would not have had CVRA rights the first moment that the FBI became aware of Epstein s possible commission of sex offenses. But after the FBI developed substantial evidence of those sex offenses, identified victims of those offenses, and presented the case to the appropriate U.S. Attorney s Office for prosecution, CVRA rights would have attached. Accordingly, the FBI would have been required to notify the identified victims of their rights under the CVRA (as well as under the VRRA). From that point forward in the case, the victims would have had CVRA rights, such as the right to fair treatment and the right to confer with prosecutors. In this case, the victims would have had the right to confer with prosecutors about the nonprosecution agreement that they ultimately reached with Epstein. 199 C. CURRENT DEPARTMENT POLICY ON PRE-CHARGING RIGHTS One objection that might be made to the formulation offered above is that it might unduly burden federal law enforcement officers and prosecutors, who would need to make judgment calls about when an investigation has coalesced to the point where victims are in existence, substantial evidence has been collected, and notice of rights has to be provided. Any such objection would be ill-founded, though, as it does not appear that implementing such an approach would be difficult. 200 Presumably the Justice Department has already been providing such rights in at least Texas, Louisiana, and Mississippi to comply with the Fifth 197 See 18 U.S.C. 2422(b), 2423(b), (e) (2012). 198 A more substantial summary of the case is available in case filings. See Jane Doe Motion, supra note 40. 199 See supra Part II. 200 This Article does not discuss mass victim cases in which notice needs to be provided to hundreds of victims. But in such situations, the CVRA already provides for reasonable alternative procedures. 18 U.S.C. 3771(d)(2) (2012). The Department of Justice, for example, has used websites to provide notice in terrorism cases to large numbers of victims. See, e.g., United States v. Ingrassia, No. CR-04-0455ADSJO, 2005 WL 2875220, at 4 (E.D.N.Y. Sept. 7, 2005); Criminal Division s Victim Notification Program, U.S. DEP T OF JUSTICE, http: goo.gl 6H6IEk (last visited Dec. 4, 2013). 2014 CRIME VICTIMS RIGHTS 95 Circuit s 2008 ruling in In Re Dean, which held that the CVRA extends rights to victims before defendants are charged. 201 We have not seen any reports that providing the rights has been difficult. Perhaps the reason for the lack of any reported difficulty is that the Department s current policy on crime victims rights already requires notices to victims during investigations. The Justice Department has promulgated the Attorney General Guidelines for Victim and Witness Assistance, the latest edition of which is from May 2012. The Guidelines discuss crime victims rights under both the CVRA and the earlier VRRA. Because of the OLC memorandum discussed above, the Guidelines limit CVRA rights until after the time when criminal proceedings are initiated by complaint, information, or indictment. 202 The Department, however, provides hortatory guidance that Justice Department employees shall make best efforts to notify crime victims about their CVRA rights as early in the criminal justice process as is feasible and appropriate. 203 Of greater interest, however, is the Department s mandatory policy regarding notification regarding crime victim services under the VRRA. The Guidelines explain how Department responsibilities to crime victims begin as soon as possible after the detection of a crime at which they may be undertaken without interfering in the investigation. 204 The Guidelines then direct the appropriate responsible official to provide crime victims with information about services available to them. 205 This information must be provided at the earliest opportunity after detection of a crime at which it may be done without interfering with an investigation. 206 The Department appears to have little difficulty implementing this requirement. Evidence of this fact comes from the Justice Department itself, which responded to the letter from Senator Kyl discussed earlier questioning why the Department was not applying the CVRA before charges were filed. 207 In its response, the Department noted that OLC had issued an opinion that the CVRA did not extend rights before the formal filing of charges. 208 Even so, the Department explained, the new AG Guidelines go further and provide that Department prosecutors should make 201 527 F.3d 391 (5th Cir. 2008). 202 ATTORNEY GENERAL GUIDELINES, supra note 52, at 8. 203 Id. at 35. 204 Id. at 26 (citing 42 U.S.C. 10607(b) (2006)). 205 Id. at 29 (citing 42 U.S.C. 10607(b)(2)). Elsewhere, the Guidelines define the official who is responsible as the appropriate federal law enforcement officer during the investigation of the crime or the U.S. Attorney once charges have been filed. Id. at 25 26. 206 Id. at 29. 207 See supra notes 130 33 and accompanying text. 208 Letter from Ronald Weich, supra note 135, at 2. 96 CASSELL ET AL. Vol. 104 reasonable efforts to notify identified victims of, and consider victims views about, prospective plea negotiations, even prior to the filing of a charging instrument with the court. 209 The Department also noted that it provided extensive pre-charging notifications to victims under the VRRA: Pursuant to the Victims Rights and Restitution Act of 1990 (VRRA), the Department identifies victims and provides to them service referrals, reasonable protection, notice concerning the status of the investigation, and information about the criminal justice process prior to the filing of any charges. The Department s investigative agencies provide such services to thousands of victims every year, whether or not the investigation results in a federal prosecution. 210 Quantifying the scope of this undertaking with regard to one federal investigative agency, the Department explained: T he FBI alone reports that it provided more than 190,000 services to victims during the past fiscal year FY 2011 , including case status updates, assistance with compensation applications and referrals, and counseling referrals. From sexual assaults in Indian Country to child pornography and human trafficking to mass violence and overseas terrorism, FBI victim specialists provide much-needed immediate and ongoing support and information to victims. The FBI addresses victim safety issues when needed, providing on-scene response and crisis intervention services in thousands of investigations. With regard to sexual assault victims, FBI personnel arrange for and often accompany victims to forensic sexual assault medical examinations and provide assistance with HIV STD testing. 211 In view of the Department s existing notifications and provision of services before charges are filed under the VRRA, it is hard to conceive how any viable claim could be made that it would be difficult to provide similar rights under the CVRA. The four rights that would be potentially in play before charging would be the right to reasonable protection, the right to fair treatment, and the right to confer with prosecutors, along with the predicate right to notice of these rights. 212 The VRRA already requires the Department to provide reasonable protection, so this would not be an expanded obligation. 213 Similarly, the Guidelines already require prosecutors to confer with victims about plea agreements (the most common situation where victims want to confer), so it is hard to imagine how extending this right would create any undue burden. 214 Additionally, the right to fair treatment could only be a problem if the Department 209 Id. 210 Id. at 2 3. 211 Id. at 3. 212 18 U.S.C. 3771(a)(1), (5), (8), (c)(1) (2012). 213 See 42 U.S.C. 10607(c)(2) (2006). 214 See ATTORNEY GENERAL GUIDELINES, supra note 52, at 41 42. 2014 CRIME VICTIMS RIGHTS 97 wanted to treat victims unfairly. Given its repeated and professed commitment to crime victims, here too this obligation should not be burdensome. And finally, with regard to providing notice of CVRA rights to victims, the fact that the Department currently provides notice of VRRA rights indicates that it should not be difficult to provide notice of CVRA rights as well. Indeed, it is possible that the Department s notification letters under the VRRA already include this information. Interestingly, in the Epstein case, the FBI notified Jane Doe Number One and Jane Doe Number Two that they had rights in the criminal justice process. As early as June 7, 2007 more than three months before it concluded a nonprosecution agreement with Epstein the U.S. Attorney s Office sent a notice to Jane Doe Number One stating your case is under investigation. 215 The notice also informed Jane Doe Number One that as a victim and or witness of a federal offense, you have a number of rights. 216 Among the rights that the U.S. Attorney s Office told Jane Doe that she possessed was t he reasonable right to confer with the attorney for the United States in the case. 217 Of course, she would not have had those rights if she was not covered by the CVRA. The FBI therefore apparently assumed that the CVRA already applied in the Epstein case. It was only later, when the matter went into litigation, that the Department of Justice reversed course. This change in course underscores the problems arising out of the OLC memorandum and the Department s current interpretation of the CVRA. D. STATE LAW EXTENSION OF PRE-CHARGING RIGHTS The focus of this Article so far has been crime victims rights in the federal system. But in concluding, it is instructive to note how a number of states offer parallel rights for crime victims, including the right to confer with prosecutors. In fact, several states have extended such rights prior to formally filing of charges against defendants without reported difficulty, so far as we are aware. This confirms our inference that extending CVRA rights to crime victims before the formal filing of criminal charges is both feasible and desirable. A general overview of state laws illustrates the broad protections afforded to victims in state criminal justice systems. Nearly two-thirds of states have adopted constitutional provisions to protect victims throughout 215 Letter from A. Marie Villafa a, Assistant U.S. Att y, to Jane Doe 1 (June 7, 2007), reprinted in Jane Doe Motion, supra note 40, at ex. C. 216 Id. 217 Id. 98 CASSELL ET AL. Vol. 104 the criminal justice process. 218 Moreover, every state has adopted a statute that either enforces its constitutional amendment or creates independent statutory rights for crime victims. 219 As a result, state legislatures and state employees have attempted to give victims a voice in the criminal justice process across the country. Notably, while the strength of these rights varies from state to state, 220 nearly forty states require the prosecuting attorney to notify or confer with the victim regarding plea negotiations. 221 Several jurisdictions involve the victim in the charging decision. 222 In some states, law enforcement and prosecutors must involve the victim at any critical 223 or crucial 224 stage of the criminal proceeding; and in a minority of jurisdictions, the judge must ascertain whether the prosecutor has afforded the victim statutory protections prior to accepting a plea agreement. 225 The general contours of state provisions suggest that several state governments have recognized the value in informing victims of their rights and involving them in the criminal process prior to the formal filing of charges. 226 Indeed, a brief look at the statutory protections illustrates the extent to which states have attempted to afford protections to victims long before the formal filing of charges. 218 See Victims Rights Laws by State, NAT L CRIME VICTIM L. INST. (Oct. 17, 2013), http: goo.gl pdDx1w (listing and linking to state laws and constitutional amendments). 219 See LAFAVE ET AL., supra note 168, 21.3(f), at 1041 42. 220 See generally DEAN G. KILPATRICK ET AL., NAT L INST. OF JUSTICE, U.S. DEP T OF JUSTICE, THE RIGHTS OF CRIME VICTIMS DOES LEGAL PROTECTION MAKE A DIFFERENCE? (1998), available at http: goo.gl EzH61S. 221 See Peggy M. Tobolowsky, Victim Participation in the Criminal Justice Process: Fifteen Years After the President s Task Force on Victims of Crime, 25 NEW ENG. J. ON CRIM. CIV. CONFINEMENT 21, 64 n.168 (1999) (citing to victims rights statutes in Connecticut, Illinois, and Michigan, among others). Unfortunately, as some commentators have noted, the notice and conferral provisions in some states are ambiguous, and the absence of case law precludes a definitive understanding of the reach of the right in some jurisdictions. See LAFAVE ET AL., supra note 168, 21.3(f), at 1041 42; see also, e.g., KAN. STAT. ANN. 74-7333(a)(5) (2002) ( The views and concerns of victims should be ascertained and the appropriate assistance provided throughout the criminal process. ). In some jurisdictions, the ambiguous use of an illustrative list could be read as suggesting that a particular right, such as conferral, hinges on formal charges. See, e.g., KY. REV. STAT. ANN. 421.500(6) (LexisNexis Supp. 2012) (requiring consultation on disposition of the case including dismissal, release of defendant pending judicial proceedings, any conditions of release, a negotiated plea, and entry into a pretrial diversion program, but failing to define disposition or case ). 222 See Tobolowsky, supra note 221, at 59 60. 223 E.g., LA. REV. STAT. ANN. 46:1842(2), 46:1844(K) (2010). 224 E.g., FLA. CONST. art. I, 16(b) (refraining from identifying the term). 225 See LAFAVE ET AL., supra note 168, 21.3(f), at 1041. 226 See Victims Rights Laws by State, supra note 218. 2014 CRIME VICTIMS RIGHTS 99 For example, Arizona has adopted a constitutional amendment and statutes that expansively protect victims. Under Arizona law, the definition of victim hinges on whether a criminal offense has been committed, and the term criminal offense is defined as conduct that gives a peace officer or prosecutor probable cause to believe a crime has occurred. 227 In short, a victim s status does not hinge on the formal filing of charges but rather on the criminal conduct itself. 228 Arizona law enforcement personnel must give information to victims describing their rights as soon as possible, even if formal charges have not yet been filed, and a victim may request that the prosecutor discuss the disposition of the case, including a decision not to proceed with a criminal prosecution, dismissal, plea, or sentence negotiations and pretrial diversion programs. 229 A victim may even pursue some rights if counts are dismissed. 230 Arizona courts have also permitted victims to invoke their rights in the context of civil forfeiture proceedings. 231 Hawaii s victims rights statute illustrates how a state has defined the term case more expansively than the limited definition advocated by the Department in order to facilitate victim participation. By statute in Hawaii, victims must, upon request, be informed of major developments in any felony case. 232 Along a similar vein, the prosecuting attorney must consult or advise the victim about any plea negotiations. 233 Interestingly, however, the Hawaii legislature defined major developments as arrest or release of the suspect by the police, case deferral by the police, referral to the prosecutor by the police, rejection of the case by the prosecutor, preliminary hearing date, grand jury date, trial and sentencing dates, and the disposition of the case. 234 The usage of the term case and the plain language of the provisions demonstrate that victims in the State of Hawaii are entitled to a notification right and a possible consultation right long before formal charges are filed. 227 ARIZ. REV. STAT. ANN. 13-4401(6) (2010) (emphasis added); see State ex rel. Thomas v. Klein, 150 P.3d 778, 780 81 (Ariz. Ct. App. 2007) (noting the original version defined a criminal offense as a violation of a statute). 228 Under Arizona law, the rights and duties that are established by this chapter arise on the arrest or formal charging of the person or persons who are alleged to be responsible for a criminal offence against a victim. ARIZ. REV. STAT. ANN. 13-4402(A) (2010) (emphasis added). 229 ARIZ. REV. STAT. ANN. 13-4419(A) (2010). 230 See ARIZ. REV. STAT. ANN. 13-4402.01(A). 231 It appears, however, that the criminal proceeding may have been parallel to the civil forfeiture proceeding. See State v. Lee, 245 P.3d 919, 923 24 (Ariz. Ct. App. 2011). 232 HAW. REV. STAT. ANN. 801D-4(a)(1) (LexisNexis 2007). 233 See id. 234 Id. 801D-2. 100 CASSELL ET AL. Vol. 104 Other states also expressly extend rights before the filing of charges. Colorado guarantees rights at all critical stages of the criminal justice process , which includes both the filing of charges and the decision to not file charges. 235 In Missouri, victims have the right: on charged cases or submitted cases where no charge decision has yet been made, to be informed by the prosecuting attorney of the status of the case and of the availability of different forms of compensation and assistance and of any final decision by the prosecuting attorney not to file charges. 236 In New Jersey, officials typically send a letter informing the victim that the case has been referred to the prosecutors office and explains and offers the services available from the country office of victim-witness advocacy. 237 Subsequent letters to the victim ensure that the victim has notice of a series of decisions long before indictment, 238 and the office actively solicits information in order to help the prosecutor s office decide whether or not to prosecute a case. 239 Along a similar vein, the Massachusetts legislature included a provision that makes it clear that nothing should prevent a prosecutor from providing victim services to persons injured by the commission of a crime, even though a complaint or indictment has not yet been issued. 240 In addition to extending rights before the filing of charges, several states require consultation before the prosecutor reaches a plea agreement with the defendant. For example, Idaho s statute provides that a victim must be given an opportunity to communicate with the prosecution in criminal or juvenile offenses, and be advised of any proposed plea agreement by the prosecuting attorney prior to entering into a plea agreement in criminal or juvenile offenses involving crimes of violence, sex 235 COLO. CONST. art. II, 16a; COLO. REV. STAT. 24-4.1-302(1) (2013). But see COLO. REV. STAT. 24-4.1-302.5(1)(f) (2012) (limiting conferral right, in particular, to later stages of a criminal proceeding). Despite these limitations on the conferral right, victims retain the ability to be heard at any hearing involving a plea. See id. 24-4.1-302.5. 236 MO. ANN. STAT. 595.209(10) (West 2011). 237 OFFICE OF VICTIM-WITNESS ADVOCACY, N.J. DEP T OF LAW PUB. SAFETY, A CRIME VICTIM S GUIDE TO THE CRIMINAL JUSTICE SYSTEM 4 (2d ed. 1997); see also N.J. CONST. art. I, 22. Compare 18 U.S.C. 3771 (2012), with N.J. STAT. ANN. 52:4B-36 (West 2009). In addition to the rights similar to the federal legislation, New Jersey law provides for the right t o be advised of case progress and final disposition and to confer with the prosecutor s representative so that the victim may be kept adequately informed . . . . Id. 52:4B-36(k). 238 See OFFICE OF VICTIM-WITNESS ADVOCACY, supra note 237, at 4 (including pre-grand jury remand, administrative dismissal, grand jury remand, grand jury dismissal, and indictment returned). 239 Id. at 26 (describing victim involvement at grand jury and arraignment stages of the proceeding). 240 See MASS. ANN. LAWS ch. 258B, 2 (LexisNexis 2004). 2014 CRIME VICTIMS RIGHTS 101 crimes or crimes against children. 241 In Indiana, the plain language of its statute leaves open the possibility of a conferral right before formal charges to the extent that the statute includes two separate time frames: after a crime . . . has been charged or before any disposition of a criminal case involving the victim. 242 To be sure, not all states have afforded victims a voice throughout the entirety of the criminal justice process. 243 In some states, the statutes are ambiguous. 244 In a handful of states, there is clear language limiting rights until after the filing of charges. For example, Louisiana constrains the conferral right to criminal matters in which formal charges have been filed by the district attorney s office. 245 Yet, unlike the federal CVRA, this statute specifically excludes pre-charging situations. And, in any event, despite Louisiana s limitation on a particular right within the statute, the legislature in this state still often saw fit to provide the victim with notification rights, even in the absence of the formal filing of charges. 246 Very few state courts have ever considered the precise issue of whether conferral rights may attach prior to the formal filing of charges. This is likely caused by the fact that, unlike the federal statute, many state statutes fail to provide the victim with a procedural mechanism for challenging the conduct of prosecutors or law enforcement agencies. 247 However, in rare cases, state courts have implicitly recognized that a meaningful interpretation of victims rights should include some rights prior to filing. For example, a Connecticut court concluded that a company injured by the delinquent act of a minor was entitled to information about the case 241 IDAHO CODE ANN. 19-5306(1)(f) (2004). As in the case of most of the state statutes, the Idaho statute is not without ambiguity. A different provision within the statute makes the notification right contingent u pon the filing of a criminal complaint or juvenile petition . . . . Id. 19-5306(2). 242 IND. CODE ANN. 35-40-5-3(b) (West 2012); id. 35-40-1-1 (failing to define case ). 243 See, e.g., MD. CONST. art. 47(b) ( In a case originating by indictment or information filed in a circuit court, a victim of crime shall have the right to be informed . . . . ). 244 In Delaware, for example, the statute contains an additional limitation in the conferral provision that is noticeably absent from the duty imposed on law enforcement to provide information about the victim s rights to that victim. Compare DEL. CODE ANN. tit. 11, 9405 (2007), and DEL. CODE ANN. tit. 11, 9411 (2007) (imposing additional requirements after the Attorney General commences the prosecution), with DEL. CODE ANN. tit. 11, 9410 (2007). Query whether the limitations imposed in one section should be inferred in the other under the doctrine of expressio unius est exclusio alterius. 245 LA. REV. STAT. ANN. 1844(D)(1) (2010). 246 See id. 1844. 247 See generally Douglas E. Beloof, The Third Wave of Crime Victims Rights: Standing, Remedy, and Review, 2005 BYU L. REV. 255, 300 23 (discussing problems with remedies in victims rights statutes). 102 CASSELL ET AL. Vol. 104 contained in a police file in a civil proceeding, even though it appears that there was little indication that criminal charges had been filed. 248 Similarly, the South Carolina Supreme Court, while limiting the ability of the victim to challenge the conduct of a prosecutor, concluded that the same rights under the state constitution must attach prior to the formal filing of an indictment. 249 Other courts have even permitted a victim to recover compensation or reparations for unindicted or acquitted conduct. 250 In other words, while few state judiciaries have addressed the precise timing of state crime victims rights, those that have addressed the question have typically found that the rights do extend to pre-charging situations. Despite the relative dearth of state court cases, it is worth noting that most state statutes unequivocally provide for notification rights early in the criminal process. 251 For example, the Illinois statute imposes a limited duty on law enforcement agencies to keep victims informed of the status of an investigation until the accused is apprehended or the agency discontinues the investigation. 252 Similarly, law enforcement agencies in Iowa must keep the victim apprised of the investigation until the alleged assailant is apprehended or the investigation is closed. 253 Michigan s statute requires law enforcement to provide information within a mere twenty-four hours of contact between the agency and the victim. 254 In sum, while state law on crime victims rights before charging is not fully developed, what law exists tends to support the position that crime victims deserve rights before the formal filing of charges. This law fits the long-standing trend in states toward expanding protections for crime 248 See In re James B., Jr., 714 A.2d 735 (Conn. Super. Ct. 1998). 249 See Ex parte Littlefield, 540 S.E.2d 81, 85 (S.C. 2000). 250 See Kimberly J. Winbush, Annotation, Persons or Entities Entitled to Restitution as Victim Under State Criminal Restitution Statute, 92 A.L.R. 5TH 35, 35 (2001) (recounting cases in which unnamed victims were entitled to restitution). 251 See, e.g., MINN. STAT. ANN. 611A.0315(a) (West 2009) (requiring a prosecutor to make every reasonable effort to notify a victim of domestic assault . . . or harassment that the prosecutor has decided to decline prosecution of the case but providing the right to participate in proceedings to circumstances in which the offender has been charged). 252 See 725 ILL. COMP. STAT. ANN. 120 4.5 (2008). 253 IOWA CODE ANN. 915.13(1)(f) (West 2003). 254 See MICH. COMP. LAWS ANN. 780.753 (West 2007). Michigan s conferral right is particularly ambiguous, because the notification requirement imposed upon the prosecuting attorney contains a time limitation (after arraignment), but the legislature did not include an express time limitation on the conferral right. See MICH. COMP. LAWS ANN. 780.756(3) (West 2007) (requiring the victim have the opportunity to consult prior to any negotiation that may result in a dismissal, plea or sentence bargain, or pretrial diversion ); see also MISS. CODE ANN. 99-43-7(1) (2007) (imposing a requirement on law enforcement officials to notify a victim within seventy-two hours). 2014 CRIME VICTIMS RIGHTS 103 victims. 255 The decision by state legislators to extend notification or conferral rights to crime victims demonstrates an express recognition that crime victims meaningful participation in the criminal justice process may involve granting those victims rights before indictment. CONCLUSION Crime victims have important rights at stake in the criminal justice process, even before prosecutors formally file criminal charges. It is hardly surprising, therefore, to find that a federal law that Congress in fact designed to create broad and encompassing rights for victims protects victims during a criminal investigation. As this Article has explained, interpreting the CVRA to cover crime victims during the pre-charging phase of a case is consistent with the statute s purposes, text, legislative history, and interpretive case law. And state criminal justice systems also appear to be moving in that direction. The Justice Department s contrary interpretation seems unlikely to prevail when challenged. The CVRA signals a paradigm shift in the way that crime victims are to be treated, at least within the federal criminal justice system. Before enactment of the law, federal investigators and prosecutors might have been able to keep victims at arm s length, refusing to confer with them about the case and otherwise ignoring or even mistreating them during the process. But those days are over. The CVRA promises victims that they now have the right to confer with prosecutors and the right to be treated fairly while their cases are investigated. It is time for the Department of Justice to recognize and embrace that new reality. 255 See Jeffrey A. Parness et al., Monetary Recoveries for State Crime Victims, 58 CLEV. ST. L. REV. 819, 850 (2010); Tobolowsky, supra note 221, at 59 (describing a significant expansion of victim rights to be consulted by the prosecutor and heard by the court ). 104 CASSELL ET AL. Vol. 104 |
Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 1 of 34 EXHIBIT 1 To JANE DOE NO. 1 AND JANE DOE NO. 2 S RESPONSE IN OPPOSITION TO MOTION FOR LEAVE TO FILE SUPPLEMENT TO REPLY IN SUPPORT OF MOTION FOR LIMITED INTERVENTION BY ALAN M. DERSHOWITZ Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 2 of 34 JANE DOE 1 and JANE DOE 2 v. UNITED STATES UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA Case No. 9:08-80736-Civ-Marra Johnson JANE DOE NO. 1 AND JANE DOE NO. 2 S RESPONSE TO SUPPLEMENT IN SUPPORT OF MOTION FOR LMITED INTERVENTION BY ALAN M. DERSHOWITZ COME NOW Jane Doe No. 1 and Jane Doe No. 2 (the current victims ), by and through undersigned counsel, to file this response to the Supplement to Reply in Support of Motion for Limited Intervention by Alan Dershowitz (DE 317-1). Dershowitz claims that an affidavit submitted by Jane Doe No. 3 in support of an unrelated pleading proves that she is lying with respect to her claims against him . DE 317-1 at 1. The affidavit proves nothing of the sort. Indeed, if recent pleadings show anything, it is that Dershowitz continues to hide the truth about his activities. Before turning to the specifics of what Dershowitz argues in his supplement, it is even more important to consider what he fails to argue. In neither his original reply (DE 306) nor his recent supplement (DE 317-1) has Dershowitz provided specific evidence to contest Jane Doe No. 3 s allegations that he sexually molested her. This omission is revealing, because Dershowitz has repeatedly claimed in the media that he has irrefutable proof that her allegations are false. For example, on January 7, 2015, on the Fox Business (Lou Dobbs) program, Dershowitz stated: I did the investigation in a day and was able to prove through all kinds of 1 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 3 of 34 records that I couldn t have been in these places. The woman is a serial liar. If Cassell and Edwards had done that investigation, they would have come to the same conclusion. 1 Similarly, on January 8, 2015, on the Greta van Susteren show on FOX, Dershowitz claimed: Now I can prove through documentary evidence that I was never at the times and places she Jane Doe No. 3 alleges she had sex with me. 2 Yet despite having publicly claimed to have all kinds of records and documentary evidence that prove Jane Doe No. 3 is lying, Dershowitz has yet to produce a single document to this Court. Dershowitz s intransigence is not limited to this case, as he has also refused to comply with discovery requests in a parallel defamation action in state court. His refusal has led to a pending motion to compel. See Plaintiff s Motion to Compel Production of Documents, Edwards v. Dershowitz, No. CACE 15- 000072 (Feb. 23, 2015) (attached as Exhibit 1) ( despite having had 45 days to gather materials that allegedly provide absolute proof than he has never even met Jane Doe No. 3 and despite having told numerous media sources that he had already collected such information Dershowitz has provided none of these documents . . . . ). 3 The Court should draw the obvious inference that Dershowitz, despite making broad claims to the media, has no such evidence to produce because Jane Doe No. 3 s allegations are true. 1 http: video.foxbusiness.com v 3976630676001 alan-dershowitz-the-woman-is-a-serialliar ? - sp show-clips. 2 http: radio.foxnews.com 2015 01 08 greta-alan-dershowitz-this-time-its-personal . 3 Jane Doe No. 3 explained in her earlier response that the Court should not allow Dershowitz to intervene here because he can protect his (alleged) reputational interests in the pending defamation action. DE 291 at 11-12). The Court may be interested to learn that Dershowitz has recently filed a counterclaim against Edwards and Cassell for defaming him in that action suggesting he can litigate his reputational interests there, and thus has no need to do so here. 2 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 4 of 34 In his most recent supplemental filing with this court (DE 317-1), Dershowitz twists the facts and jumps to conclusions in service of his crusade against Jane Doe No. 3. For example, Dershowitz notes that Jane Doe No. 3 told attorney Edwards before April 2011 that Dershowitz had abused her, but then says she and Edwards sat on this highly charged accusation for three years and eight months before first using it in their sic pleading filed on December 30, 2014. This constitutes laches that prejudiced . . . Dershowitz . . . . DE 317-1 at 2. Dershowitz ignores the key fact that in April 2011, attorney Edwards did not represent Jane Doe No. 3. Accordingly, he could not sit on her claims against Dershowitz because he was not empowered, at that time, to pursue them. 4 With regard to the claim of laches, Dershowitz argues that he has been prejudiced because if the allegations had been filed earlier, he would have been in a far better position to secure travel and other records needed to disprove these charges. DE 317-1 at 2. But, as noted above, Dershowitz has already told worldwide news media that he has already collected all of the records and can provide irrefutable, documentary proof that Jane Doe No. 3 is lying. For example, Dershowitz has told the Boston Globe that he will use his travel and credit card records, which he said he has fastidiously saved, to refute the allegations against him. 5 4 Nor did Jane Doe No. 3 sit on any claims against Dershowitz, notably claims relating to the CVRA case. In 2011, Jane Doe No. 3 lacked legal counsel regarding the CVRA claim. It was not until her recent return from Australia to the United States that she understood the claims involved in the CVRA action and obtained legal counsel to pursue them. See DE 310-1 at 8, 57. 5 Dershowitz thrilled to be sued for defamation, Boston Globe (Jan. 7, 2015), available at, http: www.bostonglobe.com metro 2015 01 06 sued-for-defamation-dershowitzthrilled-chance-question-lawyers-sex-crime-accuser 21QibSrwNC343eKMadWNeL story.html. 3 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 5 of 34 Dershowitz can t have it both ways simultaneously claiming he has the records and that he is harmed in collecting them and the Court should not credit his conflicting positions. CONCLUSION The Court should deny Dershowitz s motion to intervene. DATED: March 24, 2015 Respectfully Submitted, s Bradley J. Edwards Bradley J. Edwards FARMER, JAFFE, WEISSING, EDWARDS, FISTOS LEHRMAN, P.L. 425 North Andrews Avenue, Suite 2 Fort Lauderdale, Florida 33301 Telephone (954) 524-2820 Facsimile (954) 524-2822 E-mail: brad pathtojustice.com And Paul G. Cassell Pro Hac Vice S.J. Quinney College of Law at the University of Utah 332 S. 1400 E. Salt Lake City, UT 84112 Tele Facsimile: 801-585-6833 E-Mail: cassellp law.utah.edu Attorneys for Jane Does No. 1, 2, 3 and 4 This daytime business address is provided for identification and correspondence purposes only and is not intended to imply institutional endorsement by the University of Utah 4 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 6 of 34 CERTIFICATE OF SERVICE I certify that the foregoing document was served on March 24, 2015, on the following using the Court s CM ECF system: Dexter Lee A. Marie Villafa a 500 S. Australian Ave., Suite 400 West Palm Beach, FL 33401 (561) 820-8711 Fax: (561) 820-8777 E-mail: Dexter.Lee usdoj.gov E-mail: ann.marie.c.villafana usdoj.gov Attorneys for the Government Thomas Scott, Fla. Bar No. 149100 COLE, SCOTT KISSANE, P.A. Dadeland Centre II 9150 South Dadeland Boulevard, Suite 1400 Miami, Florida 33156 (305) 350-5300 Fax: (305) 373-2294 E-mail: thomas.scott csklegal.com Attorneys for Alan Dershowitz s Bradley J. Edwards 5 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 7 of 34 EXHIBIT 1 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 8 of 34 IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT, IN AND FOR BROWARD COUNTY, FLORIDA CASE NO.: CACE 15-000072 BRADLEY J. EDWARDS and PAUL G. CAS SELL, vs. Plaintiff(s), ALAN M. DERSHOWITZ, Defendant(s). PLAINTIFFS' MOTION TO COMPEL PRODUCTION OF DOCUMENTS Plaintiffs, Bradley J. Edwards and Paul G. Cassell, by through their undersigned attorneys, move to compel production of documents relevant to this action that defendant Alan M. Dershowitz has refused to produce. Dershowitz has told numerous media sources that he has collected documents that provide "absolute proof" that he has not sexually abused a minor woman known as "Jane Doe No. 3." And yet despite having received a valid discovery request for these and other related documents more than 45 days ago, Dershowitz has refused to produce these documents to Edwards and Cassell. Indeed, he has refused to produce any documents to them. Accordingly, the Court should direct Dershowitz to produce these materials forthwith, as well as order him to pay reasonable costs and attorneys' fees necessitated by his refusal to make any appropriate document production. Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 9 of 34 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Plaintiffs' Motion to Compel Production of Documents FACTUAL BACKGROUND On December 30, 2014, Jane Doe No. 3 filed a motion (and later a corrected motion) seeking to join a case in the U.S. District Court for the Southern District of Florida, Jane Doe Nos. 1 and 2 v. United States, No. 9:08-cv-80736. She was represented by two attorneys who specialize in (among other things) representing crime victims, Bradley J. Edwards and Paul G. Cassell. The case involved an attempt to rescind a non-prosecution agreement (NPA) barring the prosecution of Jeffrey Epstein and his criminal associates on grounds that the victims' rights under the Crime Victims Rights Act (CVRA) had been violated. In her corrected motion, Docket Entry (DE) 280, Jane Doe No. 3 briefly proffered the circumstances that would qualify her as a "victim" eligible to assert rights under the CVRA. See 18 U.S.C. 3771(e) (defining a CVRA "victim"). Jane Doe No. 3 briefly explained that when she was a minor, Jeffrey Epstein had trafficked her to Prince Andrew and Alan Dershowitz (among others) for sexual purposes. The motion also provided specific reasons why Jane Doe No. 3's participation was relevant to the case, including the pending discovery issues regarding Prince Andrew and Dershowitz. See DE 280 at 9-10 (explaining several reasons participation of new victims was relevant to existing issues). After the motion was filed, Dershowitz made numerous media statements about the filing and defamatory statements about Edwards and Cassell. For example, on CNN on January 5, 2015, Dershowitz stated that Edwards and Cassell are "prepared to lie, cheat, and steal. These are unethical lawyers." 2 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 10 of 34 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Plaintiffs' Motion to Compel Production of Documents http: www. cnn.com videos world 20 1 5 0 1 0 5 wrn-uk-sex-abuse- al legations-alan-dershowitzintv. cnn In the course of defaming Edwards and Cassell, Dershowitz also made numerous representations that he had collected documents proving that he had never even met Jane Doe No. 3, much less sexually abused her. For example, on the same CNN program on January 5, Dershowitz stated: "No, never met her Jane Doe No. 3 , I didn't know what she looked like until I saw her photograph. . . . I have a superb memory. I have a memory of not having met her. I did not meet her. And believe me, I remember everybody I've ever had sex with. . . . I can prove it by flight records. I can prove it by my travel records." Id. (emphasis added). Dershowitz went on to say that disproving Jane Doe No. 3's allegations was a simple task requiring about one hour of work: "If they Edwards and Cassell had just done an hours' worth of work, they would have seen she is lying through her teeth." Id. That same day, on NBC's Today Show, Dershowitz repeated his claim that it was a simple matter to collect documents disproving allegations made by Jane Doe No. 3: Her lawyers Paul Cassell, a former Federal judge and Brad Edwards, deliberately and willfully filed this pleading which they knew I had no opportunity to respond to in court, without doing any investigation, if they had simply investigated the manifests of the airplanes, if they had checked my travel records, if they had asked me and I could have given the names of these people who are witnesses, they would know the stories, totally, completely false. https: www.voutube.com watch?v ZXePKTwsOf0 3 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 11 of 34 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Plaintiffs' Motion to Compel Production of Documents Two days later, Dershowitz told Lou Dobbs on Fox Business, that he had already completed his investigation and had "all kinds of records" proving that Jane Doe No. 3 was a liar: They Edwards and Cassell did it for crass financial and political reasons. More to the point is what they didn't do... I did the investigation in a day and was able to prove through all kinds of records that I couldn't have been in these places. The woman is a serial liar. If they had done that investigation, they would have come to the same conclusion. http: video.foxbusiness.com v 3976630676001 alan-dershowitz-the-woman-is-a-serial-liar ? sp show-clips. In response to the CVRA motion that Edwards and Cassell had made for Jane Doe No. 3, on January 5, 2015, Dershowitz filed a motion to intervene in the case to respond, along with an affidavit claiming that he had not sexually abused Jane Doe No. 3. In that affidavit, Dershowitz stated that " i f Edwards and Cassell had done any reasonable investigation of their client's false allegations, they would have found absolute proof that I did not sexually abuse her ... even the most minimal of investigation would have proven conclusively that I could not have had sex with their client on Mr Epstein's island, in New Mexico or on the airplanes; and that I did not have sex with her in his New York or Palm Beach homes." DE 282-1 at 8. On January 6, 2015, plaintiffs Edwards and Cassell filed their complaint in this action, alleging a massive public assault on their character by defendant Dershowitz. On January 9, 2015, Edwards and Cassell filed their Initial Request for Production to Defendant Alan M. Dershowitz. They requested production of documents along the lines that Dershowitz suggested he had already collected. For example, Request for Production (RFP) No. 9 sought " copies of 4 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 12 of 34 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Plaintiffs' Motion to Compel Production of Documents any and all 'absolute proof as described in paragraph 8 of the sworn declaration of Alan M. Dershowitz." On February 11, 2015, counsel for Edwards and Cassell sent an email to counsel for Dershowitz, noting that discovery production was past due and inquiring as to whether a motion to compel would be necessary. That same day, a paralegal for Cole, Scott Kissane confirmed that appropriate production would be made by the end of the week. Shortly after, an attorney for Dershowitz disavowed that commitment, and indicated that Dershowitz would make his productions by February 23, 2015. On February 23, 2015 45 days after the discovery requests had been served Dershowitz responded. With regard to the request for production of documents, Dershowitz produced no documents whatsoever. Instead, he made a vague commitment to produce unspecified documents at some unspecified time in the future. Illustrative of Dershowitz's failure to make any substantive production is the following request for production and Dershowitz's answer: 9. Copies of any and all "absolute proof' as described in paragraph 8 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Defendant objects to this Document Request to the extent that Plaintiffs seek to alter or shift any burdens of proof as a matter of law in this action. Subject to and without waiving the foregoing specific objections and General Objections, Defendant responds that he will produce all responsive, nonprivileged documents currently in his possession, custody or control. Dershowitz made the same evasive response "Defendant responds that he will produce" unspecified "non-privileged documents" to multiple discovery requests. See Dershowitz 5 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 13 of 34 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Plaintiffs' Motion to Compel Production of Documents Response to Requests for Production 1, 2, 3, 4, 5, 6, 9, 10, 13, 14, 15, 16, 19, 20, 21, 22, and 23. To permit the Court to review the extent of Dershowitz's evasions, a copy of his responses is attached to this pleading as Exhibit A. In short, despite having had 45 days to gather materials that allegedly provide "absolute proof' that he has never even met Jane Doe No. 3 and despite having told numerous media sources that he had already collected such information Dershowitz has produced none of these documents to Edwards and Cassell. He has also made blanket assertions of a variety of privileges, but has produced no privilege logs. CONCLUSION Accordingly, Edwards and Cassell request: 1. That Dershowitz be directed to produce all materials covered by the discovery requests forthwith; 2. That Dershowitz be held to have waived any and all otherwise applicable privileges as a consequence of his failure to timely file a privilege log; and 3. That Dershowitz be ordered to pay reasonable costs and attorneys' fees associated with the need to file this motion to compel. CERTIFICATE OF GOOD FAITH EFFORT TO RESOLVE Plaintiffs have attempted in good faith to resolve the discovery issues presented in this motion (and others) as evidenced by the letter attached as Exhibit B. The Defendant has failed to respond as of the time of the filing of this motion. 6 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 14 of 34 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Plaintiffs' Motion to Compel Production of Documents I HEREBY CERTIFY that a true and correct copy of the foregoing was sent via E-Serve to all Counsel on the attached list, this day of 1 , 2015. Jack Scarola Florida;3atiNo.: 169440 tiorne E-Mail(s): jsx searcylaw.com and A mep searcylaw.com 1) ary E-Mail: scarolateam searcylaw.com aearcy Denney Scarola Barnhart Shipley, P.A. 2139 Palm Beach Lakes Boulevard West Palm Beach, Florida 33409 Fax: (561) 383-9451 Attorneys for Plaintiffs 7 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 15 of 34 Edwards, Bradley vs. Dershowitz Case No.: CACE 15-000072 Plaintiffs' Motion to Compel Production of Documents COUNSEL LIST Thomas Emerson Scott, Jr., Esquire Thomas.scott csklegal.com; Steven.safra csklegal.com Cole Scott Kissane P.A. 9150 S Dadeland Boulevard, Suite 1400 Miami, FL 33156 Fax: (305)-373-2294 Attorneys for Defendant 8 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 16 of 34 EDWARDS, et al., Plaintiffs Counterclaim Defendants, v. DERSHOWITZ, Defendant Counterclaim Plaintiff. IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA CASE NO.: CACE 15-000072 DEFENDANT COUNTERCLAIM PLAINTIFF ALAN M. DERSHOWITZ'S OBJECTIONS AND RESPONSES TO PLAINTIFFS' INITIAL REQUESTS FOR PRODUCTION Defendant Counterclaim Plaintiff Alan M. Dershowitz ("Defendant") submits the following objections and responses to the Plaintiffs' Initial Request for Production ("Document Requests") propounded by Plaintiffs Counterclaim Defendants Bradley J. Edwards and Paul G. Cassell ("Plaintiffs"). PRELIMINARY STATEMENT These responses and objections reflect the current state of Defendant's knowledge regarding the matters discussed herein. Defendant has not completed his discovery or trial preparation in this matter. Accordingly, Defendant reserves the right to revise, correct, clarify, supplement, or amend his objections and responses to reflect information hereafter discovered or acquired. These responses and objections are provided without prejudice to the rights of Defendant to use or rely upon subsequently discovered information or documents at any time, including at trial. The fact that a Document Request has been complied with in part shall not be construed as a waiver of all or any part of any objection that Defendant might or could make to - - EXHIBIT A o Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 17 of 34 any Document Request propounded by Plaintiffs. Defendant further reserves the right to object to the admission in evidence of any and all information made available in response to the Document Requests on any ground, including, but not limited to, the ground that it is irrelevant and immaterial to the issues in this action. GENERAL OBJECTIONS 1. The General Objections and statements in this section apply to each of Defendant's responses to the Document Requests set forth below and are not necessarily repeated in response to each individual Document Request. 2. By responding to the Document Requests, Defendant does not concede that any information requested is relevant to this action or admissible at trial. Defendant expressly reserves the right to object to further discovery on the subject matter of any of these Document Requests. 3. Defendant's responses set forth below include only documents located or obtained up to the date of service of the responses. Additional responsive, non-privileged documents may be ascertained or identified subsequently, and Defendant reserves the right to rely on such documents throughout this litigation and at trial. 4. Defendant objects to each Document Request to the extent that it calls for documents protected by the attorney-client privilege, the work-product doctrine, or any other applicable privilege or protection. By responding to any Document Request, Defendant does not waive any applicable privilege as to that Document Request or as to any other present or future discovery request. 5. Defendant generally objects to the Document Requests as unduly burdensome and oppressive to the extent that they ask Defendant to provide information that is beyond 2 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 18 of 34 Defendant's possession, custody, or control; is publicly available; is already in Plaintiffs' possession, care, custody, or control; or is generally available to Plaintiffs. 6. Defendant generally objects to the Document Requests to the extent that the information sought is not identified with sufficient particularity. 7. Defendant objects to the definition of "Documents" to the extent that it seeks the production of things beyond the scope of Rule 1.280 of the Florida Rules of Civil Procedure. Defendant further objects to the definition of "Documents" to the extent that it seeks "electronic data as well as application metadata and system metadata" and "inventories and rosters of your information technology (IT) systems e.g., hardware, software and data, including but not limited to network drawings, lists of computing devices (servicers, PCs, laptops, PDAs, cell phones, with data storage and or transmission features), programs, data maps and security tools and protocols" as overly broad and unduly burdensome. RESPONSES TO REOUESTS 1. Copies of any and all documents reflecting or relating to any and all occasions on which you have been physically present on Little Saint James Island including but not limited to your visit to Little Saint James Island, as described in paragraph 3 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control relating to the sole occasion on which Defendant was physically present on Little Saint James Island. 3 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 19 of 34 2. Copies of any and all documents evidencing the presence of your wife and daughter on Little Saint James Island, as described in paragraph 3 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 3. Copies of any and all documents reflecting or relating to any and all occasions on which you have been physically present at Jeffrey Epstein's Ranch in New Mexico including but not limited to your visit to Jeffrey Epstein's Ranch in New Mexico, as described in paragraph 4 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control relating to the sole occasion on which Defendant was physically present at Jeffrey Epstein's Ranch in New Mexico. 4. Copies of any and all documents evidencing the presence of your wife and daughter at Jeffrey Epstein's Ranch in New Mexico, as described in paragraph 4 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 5. Copies of any and all documents evidencing the presence of your wife and daughter on Jeffrey Epstein's private plane, as described in paragraph 5 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 4 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 20 of 34 6. Copies of any and all documents evidencing the presence of your nephew on Jeffrey Epstein's private plane, as described in paragraph 5 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 7. Copies of any and all documents evidencing the presence of "members of Mr. Epstein's legal team", as described in paragraph 5 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Defendant objects to this Document Request as overly broad because Jane Doe 3 alleges in the filing titled "Jane Doe 3 and Jane Doe 4's Motion Pursuant to Rule 21 For Joinder In Action" (Doc. No. 279) (the "Joinder Motion") in the civil action captioned Jane Doe 1, et al. v. United States, Case No. 08-80736 (S.D. Fla.) (the "Federal Action") that she was "kept as Jeffrey Epstein's sex slave from about 1999 through 2002." Jane Doe 3 further alleges in the Joinder Motion that she "escape d " from Mr. Epstein and moved to Australia in 2002. Paragraph 5 of the sworn Declaration of Alan M. Dershowitz refers to plane travel by members of Mr. Epstein's legal team after 2002 and therefore Defendant further objects because this Document Request does not seek documents relevant to this action or documents reasonably calculated to lead to the discovery of admissible evidence. 8. Copies of any and all flight manifests reflecting your presence or the presence of any member of your family on any aircraft on which Jeffrey Epstein was also a passenger during the same flight. RESPONSE: Defendant responds that he has no responsive, non-privileged documents. 9. Copies of any and all "absolute proof' as described in paragraph 8 of the sworn Declaration of Alan M. Dershowitz. 5 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 21 of 34 RESPONSE: Defendant objects to this Document Request to the extent that Plaintiffs seek to alter or shift any burdens of proof as a matter of law in this action. Subject to and without waiving the foregoing specific objections and General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 10. Copies of any and all documents supporting the allegation that "Jane Doe 3 is a serial liar" as described in paragraph 8 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 11. Copies of any and all documents tending to establish that President Clinton has never visited Jeffrey Epstein's island, Little Saint James, as described in paragraph 8 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Defendant objects to this Document Request because it misstates paragraph 8 of the sworn Declaration of Alan M. Dershowitz, which expressly states that "on information and belief I have been advised that Secret Service records would confirm that President Clinton has never set foot on that island." (Emphasis added). Subject to and without waiving the foregoing specific objections and the General Objections, Defendant responds that he has no responsive, nonprivileged documents. 6 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 22 of 34 12. Copies of any and all documents evidencing that Jane Doe 3 "has also told lies about many world leaders" as described in paragraph 8 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Defendant objects to this Document Request because it misstates paragraph 8 of the sworn Declaration of Alan M. Dershowitz, which expressly states that "on information and belief Jane Doe 3 has also told lies about many world leaders." (Emphasis added). Defendant further objects to this Document Request because it seeks documents already in Plaintiffs' possession and or that are publicly available. Subject to and without waiving the foregoing specific objections and the General Objections, Defendant responds by reference to statements by Jane Doe 3 reflected in the media, which are equally available to Plaintiffs. 13. Copies of any and all documents evidencing that "the State Attorney in Palm Beach County dropped a case that she sought to bring based on an assessment by the investigating detective regarding the 'victim's lack of credibility'" including a copy of the letter reflecting this decision as described in paragraph 8 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Defendant objects to this Document Request because it misstates paragraph 8 of the sworn Declaration of Alan M. Dershowitz, which expressly states that "on information and belief the State Attorney in Palm Beach County dropped a case that she sought to bring based on an assessment by the investigating detective regarding the 'victim's lack of credibility.' A copy of the letter reflecting this decision was forwarded to central records." (Emphasis added). Subject to and without waiving the foregoing specific objections and the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 7 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 23 of 34 14. Copies of any and all documents evidencing that the attorneys for the Jane Does acted "in bad faith in an effort to have the media report it as described in paragraph 9 of the sworn Declaration of Alan M. Dershowitz. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 15. Copies of any and all documents reflecting that Jane Doe 3 has charged President Bill Clinton with having sex with her on Jeffrey Epstein's Little Saint James Island. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 16. Copies of any and all documents reflecting that Jane Doe 3 has alleged that President Bill Clinton had sex or engaged in any inappropriate contact with her on the Island owned by Jeffrey Epstein. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 17. Copies of all pages of Passports held by you at any time during the past 12 years. RESPONSE: Defendant objects to this Document Request as seeking sensitive personal information and documents that are not relevant to the subject matter of the pending action. 8 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 24 of 34 18. Copies of any and all documents reflecting that Jane Doe 3 has ever willfully engaged in prostitution. RESPONSE: Defendant objects to this Document Request as vague because Defendant is not in a position to determine the willful nature of Jane Doe 3's prostitution. Defendant further objects to this Document Request because Jane Doe 3 has repeatedly and publicly asserted that she gave her body for sexual activity for hire after the age of 18 and agreed to secure other persons for the purpose of prostitution or for any other lewd or indecent act and therefore the Document Request is unduly burdensome. 19. Copies of any and all documents reflecting that Jane Doe 3 is either a liar or has perjured herself in any way. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 20. Copies of any and all documents tending to support your assertion that Bradley J. Edwards: a. has a reputation of being sleazy; b. has acted in a sleazy manner; c. has engaged in unethical conduct; d. has knowingly relied upon false statements in any legal document filed by him; e. has engaged in any form of unethical conduct; f. has engaged in any form of conduct tending to demonstrate a lack of fitness to engage in the practice of law; g. has engaged in any form of conduct warranting the loss of his license to practice law or the imposition of any professional disciplinary action against him; h. has acted in a corrupt manner; 9 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 25 of 34 i. failed to conduct any investigation of the allegations of Jane Doe 3 relating to you before referring to those allegations in a legal filing. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 21. Copies of any and all documents tending to support your assertion that Paul G. Cassell: a. has a reputation of being sleazy; b. has acted in a sleazy manner; c. has engaged in unethical conduct; d. has knowingly relied upon false statements in any legal document filed by him; e. has engaged in any form of unethical conduct; f. has engaged in any form of conduct tending to demonstrate a lack of fitness to engage in the practice of law; g. has engaged in any form of conduct warranting the loss of his license to practice law or the imposition of any professional disciplinary action against him; h. has acted in a corrupt manner; i. failed to conduct any investigation of the allegations of Jane Doe 3 relating to you before referring to those allegations in a legal filing. RESPONSE: Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control. 10 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 26 of 34 22. Copies of any and all records for the period 1998-2007 reflecting or relating to travel by you and or any member of your family on any aircraft, boat, helicopter, or other means of transport owned, controlled, or under the direction of Jeffrey Epstein and or any business entity with which Jeffrey Epstein was affiliated at the time of travel. RESPONSE: Defendant objects to this Document Request as overly broad because Jane Doe 3 alleges in the Joinder Motion that she was "kept as Jeffrey Epstein's sex slave from about 1999 through 2002." Jane Doe 3 further alleges that she "escape d " from Mr. Epstein and moved to Australia in 2002. Therefore Defendant objects to this Document Request to the extent that it purports to seek documents relating to any time before 1999 or after 2002. Defendant further objects to this Document Request as overly broad and premature because Jane Doe 3 has not specified the dates on which she alleges Defendant engaged in misconduct on Mr. Epstein's plane, which are the sole relevant allegations by Jane Doe 3 or her counsel concerning travel on Mr. Epstein's plane that Defendant refutes and asserts are false. Subject to and without waiving the General Objections, Defendant responds that he will produce all responsive, non-privileged documents currently in his possession, custody or control relating to any occasions that may be specifically identified by Jane Doe 3 on which she contends that Defendant travelled on Jeffrey Epstein's plane between 1999 and 2002. 23. Copies of any and all records, including emails and text messages, between you and Jeffrey Epstein between December 29, 2014 and today, regarding allegations made by Jane Doe 3 of sexual misconduct by either of you. RESPONSE: Defendant objects to this Document Request to the extent that it seeks documents regarding allegations made by Jane Doe 3 of sexual misconduct by Jeffrey Epstein because such documents are not relevant to the subject matter of this action and would be attorney-client privileged communications in any event. Subject to and without waiving the foregoing specific 11 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 27 of 34 objections and the General Objections, Defendant responds that he will produce any responsive, non-privileged documents currently in his possession, custody or control. Respectfully submitted, Of Counsel. Ashley E. Eiler aeiler wileyrein.com WILEY REIN LLP 1776 K Street, NW Washington, DC 20006 Fax: (202) 719-7049 Kenneth A. Sweder ksweder sweder-ross.com SWEDER ROSS, LLP 131 Oliver Street Boston, MA 02110 Fax: (617) 646-4470 s Thomas E. Scott Thomas E. Scott, Esq. Florida Bar No. 149100 Thomas.scott csklegal.com Steven R. Safra, Esq. Florida Bar No. 057028 Steven.safra csklegal.com COLE, SCOTT KISSANE, P.A. Dadeland Centre II, 14th Floor 9150 South Dadeland Boulevard Miami, Florida 33156 Fax: (305) 373-2294 Richard A. Simpson (pro hac vice) rsimpson wileyrein.com Mary E. Borja (pro hac vice) mborja wileyrein.com WILEY REIN LLP 1776 K Street, NW Washington, DC 20006 Fax: (202) 719-7049 Counsel for Alan M Dershowitz 12 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 28 of 34 CERTIFICATE OF SERVICE WE HEREBY CERTIFY that a true and accurate copy of the foregoing was served via E- Serve this 23rd day of February, 2015 to: Jack Scarola, Esquire, Searcy Denny et al., jsx searcylaw.com and mep searcylaw.com, counsel for Plaintiffs Counterclaim Defendants. COLE, SCOTT KISSANE, P.A. Attorneys for Alan M. Dershowitz Dadeland Centre II, 14th Floor 9150 South Dadeland Boulevard Miami, Florida 33156 Fax: (305) 373-2294 By: s Thomas E. Scott Thomas E. Scott, Esq. Florida Bar No. 149100 Thomas.scott csklegal.com Steven R. Safra, Esq. Florida Bar No. 057028 Steven.safra csklegal.com 13 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 29 of 34 111 WEST PAI M RFACH OFFiCF. 2139 PALM BEACH LAKES BLVD. WEST PALM BEACH, FLORIDA 33409 P.O. BOX 3626 WEST PALM BEACH, FLORIDA 33402 (561)686-6300 1-800-780-8607 1-800-220-7006 Spanish SEARCY DENNEY SCAROLA BARNHART ei SHIPLEYA ge() 0 TAI I AHARRFF OFRC.F THE TOWLE HOUSE 517 NORTH CALHOUN STREET TALLAHASSEE, FL 32301.1231 (850) 224-7600 1.888-549-7011 VIA EMAIL thorn as.sco ta,csklegal.com ATTORNEYS AT LAW: ROSALYN SIA BAKER-BARNES 'F. GREGORY BARNHART T. HARDEE BASS, III LAURIE J. BRIGGS 'BRIAN R. DENNEY BRENDA S. FIJUAER 'MARIANO GARCIA JAMES W. GUSTAFSON, JR. MARA R. P. HATFIELD ADAM S. HECHT JACK P. HILL KELLY HYMAN DAVID K. KELLEY, JR. CAMERON M. KENNEDY WILLIAM B. KING' DARRYL L. LEWIS' 'WIWAM A. NORTON PATRICK E. OUINLAN3 EDWARD V. RICCI 'JOHN SCAROLA MATTHEW K. SCHWENCKE "CHRISTIAN D. SEARCY 'JOHN A. SHIPLEY III CHRISTOPHER K. SPEED" BRIAN P. SULLIVAN 246 KAREN E TERRY DONALD J. WARD Ile 'C. CALVIN MARINER 111 O ECOUNSEL 'EARL L DENNEY, JR .5 SHAREHOLDERS BOARD CERTIFIED ALSOADATIED KENTUCKY 2 MAINE 3 MARYLAND 4 MASSACHUSETTS MISSISSIPPI NEW HAMPSHIRE 7NEW JERSEY VIRGINIA WASHINGTON DC PARALEGALS: AVIAN AYAN TEJEDA RANDY M. DUFRESNE DAVID W. GILMORE JOHN C. HOPKINS DEBORAH M. KNAPP VINCENT L. LEONARD. JR. JAMES PETER LOVE ROBERT W. PITCHER PABLO PERHACS KATHLEEN SIMON STEVE M. SMITH BONNIE S. STARK WALTER A. STEIN February 25, 2015 Thomas Emerson Scott, Jr., Esquire Cole Scott Kissane P.A. 9150 S Dadeland Boulevard, Suite 1400 Miami, FL 33156 Re: Edwards and Cassell vs. Dershowitz Our File No.: 20150013 Dear Tom: I write in the hope of amicably resolving a number of issues that arise in connection with the discovery responses you have provided in the referenced matter. Responding "Subject to and Without Waiving" Objections and Claims of Privilege It is a common and improper tactic to state "general objections" (or even specific ones) and then to respond to every request "subject to" those objections or claims of privilege. We cannot accept such responses. When this occurs, even if responsive information is forthcoming, we have no guarantee that you have not unilaterally withheld information subject to the stated objections or claims of privilege; in other words, it shields the very existence of responsive matters from discovery without any ability to assess the merits of the objection or claim of privilege as applied to the ostensibly protected matters. A federal court described the problem: This Court has on several occasions "disapproved of the practice of asserting a general objection 'to the extent' it may apply to particular requests for discovery." This Court has characterized these types of objections as "worthless for anything beyond delay of the discovery." Such objections are considered mere "hypothetical or contingent possibilities," where the objecting party makes '"no meaningful effort to show the application of any such theoretical objection' to any request for discovery." c-reac EXHIBIT B 111 Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 30 of 34 Thomas E. Scott, Jr., Esq. Re: Edwards and Cassell v. Dershowitz February 25, 2015 Page 2 Thus, this Court has deemed such "ostensible" objections waived or has declined to consider them as objections. Sonnino v. Univ. of Kan. Hosp. Auth., 221 F.R.D. 661, 666-67 (D. Kan. 2004) (citations omitted). Of course, where claims of privilege are involved, the response must include a privilege log enabling us (and the court, if necessary) to assess the applicability of the privilege claimed. See Fla. R. Civ. P. 1.280(b)(5). Under Florida law, "the burden is upon the party asserting a privilege to establish the existence of each element of the privilege in question." Fla. Sheriff's Self-Ins. Fund v. Escambia County, 585 So.2d 461, 463 (Fla. 1'1 DCA 1991). General or blanket objections are inappropriate in and of themselves: "A 'blanket' objection to interrogatories consisting of many, separate questions is insufficient. Objections in such a case should be addressed 'to a particular interrogatory or class of interrogatories, not to the interrogatories in general." Twadell v. Twadell, 199 So. 2d 501 (Fla. 4th DCA 1967) (quoting Carson v. City of Ft. Lauderdale, 173 So.2d 743 (Fla. 2d DCA 1965)). The same principles apply to the general objections you have raised to our production requests. Boilerplate Objections A boilerplate objection such as "overbroad, burdensome, and not reasonably calculated to lead to the discovery of admissible evidence," baldly asserted, is "patently without merit." Such "stonewalling tactics" constitute discovery abuse. First Healthcare Corp. v. Hamilton, 740 So.2d 1189, 1193 (Fla. 4th DCA 1999); see also First City Devs. Of Fla., Inc. v. Hallmark of Holly Condo. Ass in, 545 So.2d 502, 503 (Fla. 41h DCA 1985) (noting that conclusory objections such as "burdensome" and "not reasonably calculated ..." are "words of the art that have little meaning without substantive support, .."). Every burdensome objection you have raised is required to be supported by an affidavit detailing the extent of the burden claimed to preclude a substantive response. Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 31 of 34 Thomas E. Scott, Jr., Esq. Re: Edwards and Cassell v. Dershowitz February 25, 2015 Page 3 Asserting Privilege for Non-Existent Documents It is inappropriate to assert a claim of privilege or immunity for non-existent materials. Greenleaf v. Amerada Hess Corp., 626 So.2d 263, 264 n.1 (Fla. 4th DCA 1993). We must assume that the privilege is asserted for a reason, i.e., that responsive and ostensibly privileged information in fact exists, else the privilege would not have been asserted. It follows that a privilege log must accompany all such responses. Claiming Undue Burden for Non-Existent Materials Likewise, objecting on basis of burdensomeness and later conceding an opponent's right to materials or later claiming materials do not exist constitute abusive discovery practices. First Healthcare Corp. v. Hamilton, 740 So.2d 1189, 1194 (Fla. 4th DCA 1999). Custody, Possession Control Fla. R. Civ. P. reaches all documents (broadly defined and specifically including electronic data) in your client's "custody, possession, or control." Custody and possession are self-explanatory. "Control" is broader; it "means the legal right to obtain, even from nonparties. The concept of 'control' generally has been held to mean the legal right to obtain the requested documents. Parties thus can be requested to produce documents in the hands of their attorney, insurer, subsidiary, or another person outside the jurisdiction of the court." Lawrence M. Watson, Jr. Michael S. Orfinger, Fla. Civil Practice Before Trial , 16.60 (1993 ed) (citing 8 Wright Miller, Fed. Practice Procedure 16-10 (1998 ed.). A recent federal court case construing Fed. R. Civ. P. 41 (on which Fla. R. Civ. P. 1.350 is patterned), explained: The term "control" comprehends not only possession but also the right, authority, or ability to obtain the documents. Accordingly, Rule 34(a) allows a party seeking discovery to require production of documents beyond the actual possession of the opposing party if such party has retained "any right or ability to influence the person in whose possession the documents lie." A party is deemed to have control over documents held on its behalf by its attorneys. A party is also deemed to have control over financial records of the party that are in the possession of the party's accountant. MGP Ingredients, Inc. v. Mars, Inc., 2007 WL 3353401 (D. Kan. 2007) (citation omitted); see also In Re Ski Train Fire of November 11, 2000 Kaprun Austria, 2006 siSistas, Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 32 of 34 Thomas E. Scott, Jr., Esq. Re: Edwards and Cassell v. Dershowitz February 25, 2015 Page 4 WL 1328259, at 5 (S.D.N.Y. 2006) ("Courts have long construed the term 'control' as meaning more than simple 'possession.' Control has been construed broadly by the courts as the legal right, authority, or practical ability to obtain the materials sought upon demand.'"). See also Frantz v. Golebiewski, 407 So.2d 283, 285 n.4 (Fla. 3 DCA 1981) ("Interpretations of the federal rule are persuasive in considering its Florida equivalent."). While your responses purport to recognize the obligation to produce documents subject to Mr. Dershowitz's "contra', there are qualifications in the responses that would appear to contradict that recognition. Your objection to the production of metadata has no legal foundation. Word Play and Gamesmanship You will note that we do not include page after page of definitions. I believe that any lawyer reasonably fluent in English can carry out his or her duty to construe interrogatories and requests for production in the broad and liberal manner intended by the rules. Florida courts frown on parsing and gamesmanship. See, e.g. First Healthcare Corp. v. Hamilton, 740 So.2d 1189, 1194 (Fla. 4th DCA 1999) (chastising counsel who did not turn over "event" reports because plaintiff requested "incident" reports as engaged in "little more than a semantic shell game."). Repeated assertions that statements were made by Mr. Dershowitz "upon information and belief' is an example of prohibited "word play." That qualification has no bearing on the Defendant's discovery obligations. "Will Produce" The Rules of Civil Procedure require production and not just a commitment of production at some unspecified future date. If the documents you intend to produce are available for inspection and copying now as they are required to be, we are prepared to pick them up immediately. If they are not immediately available, when will they be? Timeframe Objections Your repeated attempts to restrict discovery to a narrow timeframe, fail to account for the fact that this is a defamation action arising out of broad defamatory statements made by Mr. Dershowitz impugning the honesty and integrity of the Plaintiffs without any limitations as to a specific time or circumstance. Mr. Dershowitz has also made broad public denials of misconduct unrestricted to any specific timeframe. We are entitled to Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 33 of 34 Thomas E. Scott, Jr., Esq. Re: Edwards and Cassell v. Dershowitz February 25, 2015 Page 5 test the accuracy of those statements and to explore the full extent of the personal relationship he has had with Jeffrey Epstein. Evasive Answers The response to Interrogatory 2 is a typical example of an evasive response. Rather than address the substance of the questions posed, the Defendant engages in a four page diatribe about the alleged impropriety of naming him in a CVRA filing on behalf of Jane Doe 3. If that is the only improper conduct in which the Defendant contends Bradley Edwards has engaged, then the Defendant is obliged to say so. Interrogatory 3 asks for the specific content of statements and the names of every witness to the making of the statements. We get a vague reference to "such comments" and references to the inability to "recall all of the people." Not a single witness' name is disclosed. If the Defendant is unable to identify a single person he is obliged to unequivocally say so. Refusing to Provide Substantive Responses Until Jane Doe 3 is Deposed This objection has absolutely no legal basis and fails to recognize that this is a defamation action against Dershowitz and not Mr. Dershowitz's defamation action against Jane Doe 3. This action is absolutely not dependent on the accuracy of the statements made by Jane Doe 3, although the Plaintiffs were and are confident of the accuracy of those statements. Objecting Because You Think We Already Know the Answers See for example the Response to Interrogatory 13. There is no legal basis for refusing to provide information because the Defendant believes the Plaintiff already knows the answer or has alternative sources to ascertain some or all of the information requested. An admission from an opposing party carries legal significance that other evidence does not have. We are entitled to Dershowitz's sworn responses regardless of what flight logs purport to show. Incomplete Answers See, for example, Interrogatory 15. A question that asks for names, addresses, and telephone numbers, is not properly responded to if all we get is, "Thomas and Joanne Ashe, as well as Defendant's wife and daughter." Case 9:08-cv-80736-KAM Document 319-1 Entered on FLSD Docket 03 24 2015 Page 34 of 34 Thomas E. Scott, Jr., Esq. Re: Edwards and Cassell v. Dershowitz February 25, 2015 Page 6 and we will file an appropriate motion to compel. I would like to focus on substantive disagreements, obtain quick and fair rulings on them, and move on. JACK SCAROLA mep cc: Bradley Edwards, Esq. Paul G. Cassell, Esq. |
United States District Court Southern District of Florida Virginia L. Giuffre, Plaintiff, Case No.: 9:16-mc-81608-DMM Underlying Case No.: 15-cv-07433-RWS (Southern District of New York) (Sweet, J.) V. Jeffrey Epstein, Defendant. PLAINTIFF'S SEALED DECLARATION IN SUPPORT OF PLAINTIFF'S REPLY IN SUPPORT OF PLAINTIFF'S MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS AND TESTIMONY FROM JEFFREY EPSTEIN I, Sigrid McCawley, declare that the below is true and correct to the best of my knowledge as follows: 1. I am a Partner with the law firm of Boies, Schiller Flexner LLP and duly licensed to practice in Florida and before this Court pursuant to this Court's Order granting my Application to Appear Pro Hac Vice. 2. I respectfully submit this Declaration in Support of Plaintiffs Sealed Reply Motion to Compel the Production of Documents and Testimony from Jeffrey Epstein. 3 Attached hereto as Sealed Exhibit 1 is a true and correct copy of Phone Records (GIUFFRE006258-GIUFFRE006260). 4. Contact List. 5. Excerpts. 6. Attached here to as Sealed Exhibit 4 is a true and correct copy of Ghislaine Attached hereto as Sealed Exhibit 2 is a true and correct copy of Jeffrey Epstein's Attached hereto as Sealed Exhibit 3 is a true and correct copy of Message Pads Maxwell Phone List. 7. Attached hereto as Sealed Exhibit 5 is a true and correct copy of Excerpts from June 28, 2016 Deposition of Tony Figuerora. 8. Attached hereto as Sealed Exhibit 6 is a true and correct copy of Excerpts from May 18, 2016 Deposition of 9. Attached hereto as Sealed Exhibit 7 is a true and correct copy of Jeffrey Epstein's DDA Statement History. 10. Attached hereto as Sealed Exhibit 8 is a true and correct copy of a Household Banking Account (GIUFFRE007840). 11. Attached hereto as Sealed Exhibit 9 is a true and correct copy of Nude Photographs. 12. Attached hereto as Sealed Exhibit 10 is a true and correct copy of Excerpts from June 20, 2016 Deposition of 13 Attached hereto Sealed Exhibit 11 is a true and correct copy Excerpts from March 17, 2010 Deposition of Jeffrey Epstein. I declare under penalty of perjury that the foregoing is true and correct. Dated: October 21, 2016. Respectfully Submitted, BOIES, SCHILLER FLEXNER LLP 2 By: Sigrid S. McCawley(Pro Hac Vice) Meredith Schultz (Pro Hac Vice) Boies Schiller Flexner LLP 401 E. Las Olas Blvd., Suite 1200 Ft. Lauderdale, FL 33301 David Boies Boies Schiller Flexner LLP 333 Main Street Armonk, NY 10504 Bradley J. Edwards (Pro Hac Vice) FARMER, JAFFE, WEIS SING, EDWARDS, FISTOS LEHRMAN, P.L. 425 North Andrews Avenue, Suite 2 Fort Lauderdale, Florida 33301 Paul G. Cassell (Pro Hac Vice) S.J. Quinney College of Law University of Utah 383 University St. Salt Lake City, UT 84112 1 This daytime business address is provided for identification and correspondence purposes only and is not intended to imply institutional endorsement by the University of Utah for this private representation. 3 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on the 21st day of October, 2016, I electronically filed the foregoing document with the Clerk of Court by using the CM ECF system. I also certify that the foregoing document is being served to all parties of record via transmission of the Electronic Court Filing System generated by CM ECF. Laura A. Menninger, Esq. Jeffrey Pagliuca, Esq. HADDON, MORGAN FOREMAN, P.C. 150 East 10th Avenue Denver, Colorado 80203 igrid S. M awley 4 EXHIBIT 1 - DATE NUMBER 9 3 2005 561-714-0546 9 3 2005 561-714-0547 9 3 2005 561-776-5679 9 3 2005 561-655-2779 9 3 2005 561-662-3098 9 3 2005 561-389-6874 9 4 2005 561-655-7626 9 6 2005 561-499-1718 9 10 2005 9 10 2005 561-655-7626 9 11 2005 561-655-7626 9 14 2005 561-317-5844 9 14 2005 561-317-5844 9 1412005 561-317-5844 9 14 2005 561-317-5844 9 15 2005 MUM 9 18 2005 561-618-8361 9 18 2005 561-714-0546 9 18 2005 9 18 2005 9 18 2003MIIIMIS 9 18 2005 561-662-3098 9 18 2005 561-655-7626 9 18 2005 561-302-1844 9 18 2005 561-389-6874 9 18 2005 561-389-6874 9 18 2005 561-389-6874 9 18 2005 561-302-1844 9 18 2005 IIIMMINIIE 9118 2005 561-714-0546 9 18 2005 561-714-0546 9 19 2005 OINIMPS 9 19 200511111.1 9 19 2005 dftE8f a1P 9 19 2005 561-776-5679 9 20 200- 9 20 2005 561-317-5844 9 20 2005 561-317-5844 9 20 2005 561-317-5844 9 21 2005 561-818-8361 REGISTERED TO: TIME OUT IN T A. Rafeno Jeffrey Epstein Jeffrey Epstein S Rosen AMMO Jeffrey Epstein Jeffrey Epstein MIMED MEMO Jeffrey Epstein ammo 11111:MIN Jeffrey Epstein TA Roirano 411.1.1111101 10:37A OUT 10:40A OUT I I :37A IN 1:53P IN 1:56P OUT 1:57P OUT 10:42A OUT 8:08A OUT 4:43P OUT 7:53P OUT 8:03A IN 8:25A OUT 5:98P OUT 7:27P OUT 7:35P IN I0:17A OUT 9:57A OUT 9:58A OUT 9:59A OUT I 0:00A OUT 10:03A OUT 10:05A OUT 10:20A OUT 10:44A OUT 1.10P OUT 4:10P IN 4:10P OUT 4:15P IN 5:17P OUT 937P OUT 9:45P OUT 10:29A IN 11:45A IN 1:54P IN 2:01P IN 12:10A IN 7:20P IN 7:22P IN 7:22P IN 1:46P IN C)S" NtW-k-AAA.E. ,s7 1 2.-2c1-05 PLAINTIFF'S EXHIBIT GIUFFRE006258 CONFIDENTIAL 9 21 2005 561-655-7626 Jeffrey Epstein 1:47P IN 9 21 2005 561-655-7626 Jeffrey Epstein 1:48P IN 9 28 2005 561-844-4112 ADVENTURE TIMES 11:29A IN 9 29 2005 561-818-8361 9 07A OUT 9 29 2005 ginning's 12:41P OUT 9 29 2005 iligniNgli 12:43P OUT 9 29 200311M 12:46P IN 9 29 2005 12:47P OUT 9 30 2005 561-655-7626 Jeffrey Epstein 9:13A IN 9 30 2005 561-655-7626 Jeffrey Epstein 10:29A IN 9 30 2005 561-655-7626 Jeffrey Epstein 10:34A IN 9 30 2005 MP. gMenfil 7:06P IN 10 1 2005 Immo 9:33A OUT 10 1 2005111MM 111111111111111M10 9.35A 10 1 2005 661-655-7626 Jeffrey Epstein 9:44A OUT 10 1 2005 561-655-7626 Jeffrey Epstein 9:45A OUT 10 1 2005 561-574-0400 11:15.A OUT 10 1 2005 allIMEND 9:12P OUT 10 1 2005 561-655-7626 Jeffrey Epstein 9:43P OUT 10 1 2005111M1IM IMMIORE 9:46P OUT 10 2 2005 561-776-8748 10:31A IN 10 2 2005 561-655-7626 Jeffrey Epstein 10:34A OUT 10 2 2005 561-856-2617 11:40A OUT 10 2 2005 9MMIII L. 11:41A OUT 10 2 2006 MOM lOn.111101 11:42A OUT 10 2 2005 561-655-7626 Jeffrey Epstein 11:43A OUT 10 2 2005 561-655-7626 10 2 2005111Minel Jeffrey Epstein rui 3:03P 4:32P OUT IN 10 2 20051111111.0 4:33P OUT 10 2 2005 10.1.111111 smions 6:51P OUT 10 2 2005 561-662-3098 9:381' OUT 10 2 2005 561-662-3098 9:47P IN 10 3 2005 561-302-1844 9:07A OUT 10 3 2005 561-389-6874 9:10A OUT 10 3 2005 561-302-1844 9:11A IN 10 3 2005 561-655-7629 Jeffre Epstein 9:14A IN 10 3 200541 1111M 9:37A OUT 10 3 2005 561-655-0995 9:38A IN 10 3 2005 MINNii. Mill111.111 9:52A OUT 10 3 2006 9:53A IN 10 3 20050111.1.11 111MINIMINT 9:55A OUT 10 3 2005 561-655-7629 Jeffrey Epstein 9:57A OUT 10 3 2005 WIN 11:21A IN 10 3 2006 551-655-7626 Jeffrey Epstein 7:27P OUT 10 4 2005 MEMO 9-36A OUT GIUFFRE006259 CONFIDENTIAL 10 4 2005 561-655-7626 Jeffrey Epstein 9:48A OUT 10 4 2005 561-655-7626 Jeffrey Epstein 14:33A OUT 10 4 20051111111111.1111b 11111.11P 10:58A OUT 10 4 2005 561-655-7526 Jeffrey Epslein it:08A IN 10 4 200511111 1. 11:15A IN 10 4 2005 561-655-0995 Jeffrey Epstein 11:16A OUT 10 4 200511111...lb giOn Mt 4:30P OUT 10 4 2005 MI 2111 11111111111 B:35P OUT GIUFFRE006260 CONFIDENTIAL EXHIBIT 2 DEN-Tt L- GIUFFRE001573. .0 10 a ,... 2 GIUFFRE001574 GIUFFRE001575 4 GIUFFRE001576 c- rneAk I (1102sei V4- e, :3 P-P.vizy (t-(Z s rys,,s5 ry, y 21100, c ioterl "Z.OVe0 vel,"6", a Ot VV. tz,(7,1 ?fr IN S Ir1 ael?CLCiel k i(D INNWG19 c ow, Lz)-155 7p7-714 o3Z3 17t7YovON.11;svc2,' ( - I OloLtse- , t tecitico,Woe CAyx,,c S y,..00, s cy.owavy,yyx6,-,) Cen Cine-v kGy VeiVblele- OAC woke ke.ti kievA)NY -30e sc70 C Se:'YtAC-0) Yeyc-ovw1cA M: 2X"Etit,Jc) voyvv , ot:ny 0 v e4A-v, f eikr-s. zs-Qkv. -k.o a,Lf Da i' a co v6vr)'cjJ cp as ci ,r6evNaeyssov, rYlCsfr- YlitOCO 4 04,Vis,csY.-v V-Gd )e),A,c CocV. 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DATE TlIVIE PM , OF Vara S -6 1 - 373 4- Z TELEPHONED PLEASE CALL 1 CAME TO SEE YOU WILL CALL AGAIN WANTS-TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE a" SIGNED IMPORTANT MESSAGE FOR hi6, MAXVIELL, DATE 04-1 -nmE 6 OF PHONE Q 6 17 mastkE -TELEPHONED . PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE RE 1'4 UR EI.OLE E-55 E SIGNED PAA-41(vE 1 84 IMPORTANT MESSAGE FOR f- - DATE M C1V-14 r.,6 c OF TIME A.M. PM PHONE!' MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH :RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE tootAka -7.vk kg 54Ccv AT) - )( Vin 2)f:tx( V 1-6'r (''t-,) '"N" Q t 30,-y k-v-rAkr iccc GIUFFRE001454 IMPORTANT MESSAGE FOR 0.51 21 I C51' ILE 5 31 rif DATE 771.-EKR: I LDtvi OF PHONE 5 1 MOBILE ' crils TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE ?LUC:0 E. CALI ME. SIGND 1184 IMPORTANT MESSAGE FOR:jVjk CLL D:r'eLLk .. DATE OS-1) M Jo l' 71 FJO e)..-R.,6 V.cE3i am 111 0 sit-4, 'TELEPHONED ....0 . PLEASE CALL ' CAW TO SEE YOU WILL CALL AGAIN 462filiTO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION l 1 MESSAGE L. Pr LCE D I, it CA LI . PACK ts a SIGNED rim IMPORTANT MESSAGE FOR 1m ir- rk 17 r irs4 DATE TIME g -2.10 PA'MM. , OF PHONE MOBILE TELEPHONED V PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE (NI L. L ( 4 1....1 . a SIGNED 1184 IMPORTANT MESSAGE FOR 0 -11 04 ) DATE-1P late- Ee6rE in( TIW 1 T.' ;tiz '. it: OF eiikIS CoN Dog OvISY - Vag Elm a 56 ( i 3o I .2a ti TELEPHONED 1,. 4 , PLEASE CALL. 1, CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE Cik i I .1) SA02833 48 SIGNED 1f4 GIUFFRE001457 IMPORTANT MESSAGE FOFT3 CIEs( C C....., A.M. TIME PM DATE M Ci h S CAA t OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION , MESSAGE SIGNED ,av 1184 IMPORTANT MESSAGE FOR VW EP5-fE- 1 i t , DATE O 6 II 1 04 TIME 1 ' 4 g 44tPM 4. RA II I 5 ' VV-412-D fm , t OF' , PHCINIEI(..6 o' 34-(0 - 5 MOBILE TELEPHONED V PLEASE CALL V CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU ROSH RETURNED YOUR CALL SPECIAL ATTENTION GA LL5NC...Ak.. 1 MESSAGE . aa SIGNED- 1184 IMPORTANT MESSAGE FOR 6640 6 0 DAT-EF6gMR EPs-re iq T ME Pie 06 OF . rilAX V i E (L. PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL ' SPECIAL ATTENTION MESSAGE t CfkLLED FLArr Nor ve EN t rwoo4z-rE.,N7 it a., siGNED 1184 : IMPORTANT MESSAGE .FOR itif, PS-rE I Nk- DATE I C24 - TIME g. A.M. OF PHONE 90 5L15 - MOBILE TELEPHONED A" PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL I SPECIAL ATTENTION MESSAGE tk WILL BE,- Co mir 16 A,M:L-'1-4014 1 SA02836 SIGNED 1184. GIUFFRE001460 IMPORTANT MESSAGE c , FOR ri 71V-4 ' A.M. DATE TIME P M. M OF ! PHONE 7 ST C MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU I WILL CALL AGAIN WANTS TO SEE YOU RUSH , RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE ' SIGNED 1184 IMPORT NT MESSAGE FOR "A"1"9 A.Nt DATE TIME PM OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE f ye it c.sz 5 - 0 at SIGNED 1184 IMPORTANT MESSAGE FOR SA- ll. A kl DATE 4 ' I ... ' c; 9 e- M Jo. OF PHONE LE 9 MOBI TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE CA6tE b. SA if 4-ii:i'' S c I Ate' Dtte. f fe..c. H PA 4 04-1 12, F A c t1 626, SIGNED 1184 IMPORTANT MESSAGE FOR 11 2 t. 4.-0 ,,. AM. DATE TIME P.M. M OF H4-7- liii(friof PHONE ' MOBILE 'TELEPHONED CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH ' RETURNED YOUR CALL SPECIAL ATTENTION - MESSAGE SA02837 "- - SIGNED .1 ' .. GIUFFRE001461 IMPORTANT MESSAGE FOR ' (3 ,..1 9 0 y I . ,0.- At.Mt.- DATE TIME ' P kr S C RA :-ir OF PHONE . 0:1. r 4 ..9, 00 4 44 m ome TELEPHONED ,...10 PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE e fl-it .E. - SIGNED 1164 IMPORTANT MESSAGE FOR 9401 1 DATE 1 i q ) 0 4- TIME I I). 5-17 It:1: Alt. si ". M OF L SLIE rratEE' ,?. 03 972- Iiik gg - TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALLAGAIN WANTS TO GEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION . i-i,. E 5 1 0 Okei K6 MW,o!.,GE i I ME . T 0 13 1 1 Pt -66-tt- -NIG misoi Lz -P- ASH!' , ... . - as SIGNED IMPORTANT MESSAGE FOR DATE PM -AN) MOBILE PHONE LI q 12 -2 C TELEPHONED . CAME TO SEE YOU . WILL CALL AGAIN WANTS TO SEE YOU RUSH , RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED flBd IMPORTANT MESSAGE F PsTE,A,- FOR lz " DATE Tima j-s-r m Ay tzT te A4,144. PHONEr MOBILE TELEPHONED V" PLEASE CALL I g4AE TO SEE YOU WILL CALL AGAIN 'WANTS TO SEE YOU RUSH .RETURNED YOUR CALL SPECIAL ATTENTION MESittE4si 4.16. 4s a te SIGNED SA02840 1184 GIUFFRE001464 IMPORTANT MESSAGE FOR elit-R (PM . PI Oj atic ( DATE OF KAbHV PHONE LE ril-! -.1-91 C( 14 MOBI TELEPHONED . x, ' PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU PUSH REIJRNED YOUR CALL SPECIAL ATTENTION MESSAGE PL CA1 ) r II 1184 SIGNED a IMPORTANT MESSAGE FOR .906 11114-. DATE 1 'CI 1(:- 4 . TIME it 5 t. ,141:: NA i'itte c,- OF Lt St 1 E ( A.I i e CT') t 1.1:) MOBIEEI . 63 'I 7 2 21 it TELEPHONED PLEASE CALL V CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH :RETURNED YOUR CALL SPECIAL ATTENTION 31-rE 15 tctRelp(6 ' -9:104J-4-117- t:. 2.)11 ki . I II NOLOT 1 it 1.7 A 611 tij c)i3: P f SIGNED '1184 IMPORTANT MESSAGE FOR 01 - 1P1:7E DATE TIMF-1,1 6tr.-("Pi c ) OF PHONE 1-141L..).. MOBILE TELEPHONED y.-"PLEASE CALL I',. CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE a SIGNED 1184 IMPORTANT MESSAGE FOR DATE .1 1 TIME -1 -5 K , itiAvt-i t7, OF PHONE MOBILE TELEPHONED ., -. PLEASE CALL 1.. , CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION v .t-r MESSAGE OfkkiV403 CE: N TUEs PAI NO k N :16r1!-16 o KR1,-U SA02841 SIGNED-, rim GIUFFRE001465 I IMPORTANT MESSAGE 1 FOR r : A.M. DATE IIME PM OF PHONE!' - MOBILE TELEPHONED CAME TO SEE YOU WANTS TO SEE YOU RETURNED YOUR CALL MESSAGE PLEASE CALL WILL CALL AGAIN kusH SPECIAL ATTENTION SIGNED 1184 1 IMPORTANT MESSAGE I c,,,.:.- ": FOR A.M. TIME PM DATE . c OF : . I - PHONE! 2': c . -noe4 -t. 1 TELEPCIoNED 1 . PLEASE AUL CAME TO SEE YOU WILL CALL AGAINt- ' c WANTS TO SEE YOU RUSH RETURNED YOUR CALL - SPECIAL ATTENTION, - MESSAGE f ti,P , c. ..., j : ...., i 0 ? , a; SIGNED 1184 IMPORTANT MESSAGE FOR DATE , :4'7? A.M. TIME PM OF TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL 1 SPECIAL ATTENTION MESSAGE .11 e 6ra i t . i t 'T.: 4 4.? r ' : ..! ( A. 1 . SIGNED 1584 I IMPORTANT MESSAGE I HL: e-i-;, . 1 TIME ,-I A1." M DATE 1 i i - M P-1 474 o I LEI 6, t .; OF . '. PHONE! MOBILE TELEPHONED 1. LEASE CALL 'CAME TO SEE YOU WILL CALL AGAIN WANTS, TO SEE YOU RUSH RETURNED YOUR CALL -SPECIAL ATTENTION . . MESSAGE -,i c -4. a ...-.2t..11 1.Y.:-.-. I t''''.. P"' i - ',. I SA001465 ar, SIGNED c 84 GIUFFRE001436 OF PHONE MOBILE IMPORTANT MESSAGE FOR i-r- DATE 0'1 L, 414' TIME t - A.M. ' 11. L." r 71 TELEPHONED 1,'' LEASE CALL CAME TO SEE YOU - WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE I-4 tc:.; - ; - SIGNED IMPORTANT MESSAGE ..... , FOR1. r'-:- i'-'-; ''' - (.1 .::'- TIME ,,..I.f. DATE -, .. ; .,, -i - OF PHONE h MOBILE ' - ;- '' "' ' TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 't I ) !... AV, z- ;',.. ;,' , .; , ' - k , SIGNED .Z.- .. -1 aZ I1184 IMPORTANT MESSAGE, 1 ; 1" DATE .:::' M i'', ',... OF .-1 , , ....- i - ..-4 1 1 PHONE t.,c ...,.. i e, .. TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION CLC-Ti...);k1 OG . CAR' MESSAGE 1 I ....,, a , SIGNED 1184 ...madm .....0i IMPORTANT MESSAGE I FOR MR t. Pf31 e ! K. ATM. g C. ..T TIME P.M. DATE ; ; -I- M OF I PHONE - MOBILE TELEPHONED - 'PLEASE CALL . CAME TO SEE YOU WILL CALL AGAIN .WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION Is 1-1 1 iv; 70 MESSAGE C".. PI L. L ME SA001464 i., v " a-g i SIGNED 1184 I GIUFFRE001435 fari, IMPORTANT MESSAGE . 3 0 -1.0 Very i I 4 TIME . 6 DATE M OF .PHONE' MOBILE TELEPHONED - PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION . MESSAGE Arr.' v i c......-r- 615-10ms- :a is- s-) ( a . SIGNED 1184 , IMPORTANT MESSAGE . . FOR kr . . A.M. DATE TIME ' P M. t1. OF 4 - .r1., PHONE : .. MOBILE . ' TELEPHONED .. EASE CALL CAME TO SEE YOU 4,4 P , ILL CALL AGAIN WANI:S TO SEE YOU RUSH ' RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE i a SIGNED: ' 1184 IMPORTANT MESSAGE , DATE TIM(tap-E - . OF ' PHONE MOBILE TELEPHONED PLEASE CALL . CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION . . MESSAGE N., ) SIGNED 1184 .IMPORTANT MESSAGE . 11,:acaT -6-u-sAwil i. . croo,fseEi s,15 icoa-,, TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN .. ( WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE .. SA02845 SIGNED 4184 - GIUFFRE001469 )1) IMPORTANT MESSAGE -i - FOR IP- .....) DA -20 TE t CI TINIC: 4 14. I ' i 6 - ..- .- -.. ..., PHONE! MOBILE ....... .. - - -,. - TELEPHONED , CAME TO e"E" YOU ..;.,-' WILL CALL AGAIN WANTS TO SEE YOli RUSH RETURNED YOUR CALL i SPECIAL ATTENTION .... MESSAGE , , . CA 1)Et) , SI-IC IAA:, AR 7 HE .i Alf F b CALL AT ( SIGNED .AA A Nr ;.) ak: 1184 INIPORTANT" MESSAGE FOR -1 DATE :."LO AU( '1 1- 4 -1 AM. TIME c . PM OF PHONE MOBILE TELEPHONED .PLEASE CALL , CAME TO SEE YOU . WILL CALL AGAIN . WANTS.TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE ReAtikit yD.) 1 4 Git SIGNED SA02848 IMPORTANT MESSAGE FOR (:-; - -DATE ' ::.. TIME - J. PM M PHONE ,k MOBILE TELEPHONED . PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNEla YOUR CALL 1 SPECIAL ATTENTION MESSAGE (sail HU: t A C. Pc 9 0 . so 3. 27. fvf QA.h.) oz. SIGNED 1184 IMPORTANT MESSAGE FOR s j A.M. DATE 20A TIME M 1:; OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTIQ MESSAGE -5-.A4R- . LE- 7 LAR Ky .6,0 - 1 i4E, ...O.A Ly -T 1. 5.1G )431 6 .(0.1 -yi,...wwv To .1.-704... ,.... i-r GIUFFRE001472 I IMPORTANT MESSAGE I i 4t2 FOR ria"-A.M. 1 N PM DATE . ..., , M OF PHONE 77 ' MOBIL,- CAME TO SEE YE(11 t WILL CALL AGAIN WANTS TO SE YOU ., RUSH RETURNED 'CUR CALL SPECIAL ATTENTION toEssAqt 2. ' ) " SIGNED att 1184 IMPORTANT MESSAGE FOR ow , . .. A.M. TIME P M. DATE M 2.-', , l' I (". . .6.L., .. , OF ( ,,4 , - t. PHONE 7 , - MOBILE . -, - ,),7C9 TELE NED . 1 ...,,, ,FLEASE CAT iS S Y. '''' 1 '"Aiiiirli.CACCA6 - 1 WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE q 1, Ek e, 0) 1 ) od. T. 3D at SIGwri, 1184 FOR DATE I IMPORTANT MESSAGE (F TIME I OF .64. 2 .... Ec7 TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SEZ4291.1 r 4: t SIGNED at 1184 TIME g." P. TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION . 1 MESSAGE Int: See-I SIGNED SA02850 GIUFFRE001474 V II IMPORTANT MESSAGE FOR DATE 2'14 - TimE -2 0 A OF PHONE ( JU MOBILE ") TELEPHONED ' CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU ROSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED ag 1184 IMPORTANT MESSAGE FOR DATE re;' If G 0 TIME - 11 M OF C vAv e i G2 57 TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL 1 SPECIAL ATTENTION MESSAGE ( 62s6 C-,'Ail t76c" a SIGNED 1184 IMPORTANT MESSAGE IMPORTANT MESSAGE FOR DATE M 4-17-0.01. OF PHONE MOBILE TELEPHONED 'PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO.SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE (t - LOC)L-A-1 I t U, SIGNED : 1184 IS cs..Qj FOR DATE M 147 3.0 OF 0 4 TIME M. PHON MOB! TELEPHONED PLEASE CALL: CAME-TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL At I aNTION :2- -750 - MESSAGE SA02939 GIUFFRE001493 FOR DATE M OF MOBILE f PHONE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH -RETURNED YOUR CALL SPECIAL ATTENTION I IMPORTANT MESSAGE IN? (11Go 0104 - cl 1 .' TIME (000 MESSAGE Tkee se) SIGNED 1184 IMPORTANT MESSAGE FOR DATE 7 04104 TIME M -C. ) - ItA -y -.Lt. .0 11 . OF PHONE MOBILE TELEPHONED , PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIALATTENTION MESSAG,E cPie.ze, c,dvi 1,)v at SIGNEI3 1184 ............. IMPORTANT MESSAGE FOR DATE '2. O 4 Q '6 TIME 4,2 G OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE keel 02)0 V1G s SIGNED 1184 IMPORTANT MESSAGE ..F IE DATE t 7 0 4 0 m OF (4560 11:1HOOBIEEI le A.M. TIME ' (4. v 12.- TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE a-236 c-2Vt 6 SIGNED SA02938 GIUFFRE001492 IMPORTANT MESSAGE FOR DATE ATAI-4 0 z) TimE122QA OF PHONE (0 MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION 51)705- 73 MESSAGE SIGNED 1184 IMPORTANT MESSAGE FOR M V ' 1 t DATE 17(0q0ZI TIME a P M M OF PHONE (01-1) 1 -7 4 - ios I MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL 1 SPECIAL ATTENTION MESSAGE i, -1-6 catc.4 '' at SIGNED 3;?-1 1184 IMPORTANT MESSAGE FOR DATE M Y. OF PHONE MOBILE TELEPHONED PLEASE CALL . CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION 11 6 TIME .1): -)n Ck Al.fk 7 - EC30CD A.M. MESSAGE V 2 -5' CellA t 11, SIGNED 1184 IIMPORTANT MESSAGE FOR Pi )' DATE 0 C.) TIME 9 0 hi OF - PHONE MOBILE ' TELEPHONED .. PLEASE CALL CAME TO SEE YOU WILL CALCAGAIN WANTS TO SEE YOU 'RUSH RETURNED YOUR CALL SPECIAL ATTENTION , MESSAGE t' WO c v'll o-z..c... SA02943 SIGNED 1184 I GIUFFRE001497 IMPORTANT MESSAGE .-E- ?- 05' TIME 1) 1(4 Ai TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION p ke2s roG IMPORTANT MESSAGE FOR -E. DATE 0 lc TIME. Lt.. 5C, A OF Gli Q-171:2-) 2-:6 PHONE MOBILE t TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE I kez 1 G c."-AA A Yvi at SIGNED 1184 IMPORTANT MESSAGE OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN- WANTS TO SEE YOU RUSH RETURNED YOUR CALL !SPECIAL ATTENTION SIGNED 1184 (IF: NT MESSAGE FO DA TIME A.M. PM OF PHONE MOBILE TELEPHONED PLEASE CAU CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION IVIECUISE ri ma. 6- IP 1 4- 1 1 70-.) )4, es,s c 67U SIGNED SA02949 1184 GIUFFREO 01503 4. -4? 4 OF f:AgitEd OP - 55 S3 55 ICAME TO SEE YOU I IMPORTANT MESSAGE I FOR DATE 2 ) 2 4 0-5- TIME Id TELEPHONED PLEASE CALL WANTS TO SEE YOU RETURNED YOUR CALL WILL CALL AGAIN RUSH . SPECIAL ATTENTION MESSAGE Tica,se I 621 4,1 e.o tat-4.4 0 ow SIGNED 1184 I IMPORTANT MESSAGE I FOR DATE 02 . 2 1-1ME Cir 62 M Duk OF ani giti ITELEPHONED CAME TO SEE YOU WANTS TO SEE YOU RETUFINED YOUR CALL PLEASE CALL WILLCALL AGAIN RUSH SPECIAL ATTENTION SIGNED 1184 I' TELEPHONED I IMPORTANT MESSAGE I FOR DATE A.M TIME 1: 41 OF MOSf LE PLEASE CALL CAME TO SEE YOU WANTS TO SEE YOU RETURNED YOUR CALL MESSAGE WILL CALL AGAIN RUSH I SPECIAL ATTEOTION 1184 IMPORTANT MESSAGE:I pc-fet"ki 4 o:6- TIME 1 FOR DATE OF PHONE MOBILE ICAME TO SEE YOU . TELEPHONED WANTS TO SEE YOU RETURNED YOUR CALL PLEASE CALI. WILL CALL AGAIN RUSH SPECIAL A i IINTION MESSAGE 111-14 r- 1144-11-i- 6.gk 07 6 78 - ,2772 SA02967 SIGNED oCe, 1184 GIUFFRE001521 IMPORTANT MESSAGE FOR DATE TIME OF PHONE MOBILE TELEPHONED 6 PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 2,-4 SIGNED 1184 IMPORTANT MESSAGE FOR DATE TIME A . PM: OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE IMPORTANT MESSAGE FOR 7Ctle r CZ DATE 2 2 57 5- -, OF PHONE MOBILE - TIME TELEPHONED PLEASE CALL CAME TO TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE Aicr.e.6 ?49c5 ' -h 794f SIGNED Oit04111SMISIMMZEMell, IMPORTANT MESSAGE FOR DATE ?i 0 T- TINRE 2 e2' PM OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SA02998 SIGNED 1184 I 1 SIGNED 1184 att ; GIUFFRE001553 MPORTANT MESSAGE TIME It 131?I. !TWEE' 4 -5-0 6 0 2 4061 TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL I SPECIAL ATTENTION MESSA 4144 , . 11 267 I, 5 C24 :"7.A .Cycti-h SIGNED IMPORTANT MESSAGE FOR DATE OF PHONE MOBILE TIME A(ReLwfAilt TELEPHONED .PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE -e 6 118.4. SA02968 IMPORTANT MESSAGE) FOR re,11 DATE 02 2.57VS- OF PHONE MOBILE 7;64 c TELEPHONED PLEASE CALL CAME TO SEE YOU WANTS TO SEE YOU WILL CALL AGAIN RUSH RETURNED YOUR CALL SPECIAL ATTENTION , MESSAGE C 62.nk C-. ji a 118, IMPORTANT MESSAGE FOR TIME 2 .-.24 OF PHONE, - 'MOBILE r, TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION. - MESSAGF r et GIUFFRE001522 IMPORTANT MESSAGE J IMPORTANT MESSAGE FOR DATE PA OF Z Z b9; TIME 0: 8 to. PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 2e- ic ?0, .4 e SIGNED 1184 IMPORTANT MESSAGE FOR f7e,( . DATE Al M - OF PHONE MOBILE -4 TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSA E .54e LS -20 c 4 We' ,.(c ce- 4J'4t-7 54- AP-, Sr 4 0061 FOR '- 62 Oe 0 pi Z(.4 OF PHONFJ MOBILE TELEPHONED 1 PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU FIUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 9? e'e7 ol 71 44 SIGNED .....) 1184 IMPORTANT MESSAGE FOR DATE e7 (7) TIME C-77 :Wcia. OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION 6-c,offe c 4 SA001067 GIUFFRE001388 i VirtiK IAIN rvitssAcit FOR DATE 02 12(-r C-7 c:Azi'fg TIME 12: A. OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WANTS TO SEE YOU RUSH RETURNED YOUR CALL 1 SPECIAL ATTENTION MESSAGE " SIGNED FOR DATE at 1184 OF PHONE MOBILE TELEPHONED , PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU 1RUSH RETURNED YOUR CALL . SPECIAL ATTENTION MESSAGE SIGNED SA03000 !IMPORTANT MESSAGEL FOR Oftat - DATE (7 TIME 12.70 'm c 6-cu t s,s! OF PHONE 2 16 y yg MOBILE TELEPHONED K.. PLEASE CALL - CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH - . ..... RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE pe Ict San 7 At I e ivoi ega 41,14. 74, ,at-Li r SIGNED TIME 114 PHONE MOBILE TELEPHONED PLEASE CALL A CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 000 C Cal t5Ad A3cA,pitcd. hf inoje .1-7 7-s 711Ce-1- -(CA-(;"1C CUld l746 11C.r GIUFFRE001555 P- 1 IMPORTANT MESSAGE I FOR 1 -Cerel DATE TIME OF PHONE MOBILE !TELEPHONED A 19 7190E 6 :05,7 CAME TO SEE YOU PLEASE CALL WILL CALL. AGAIN WANTS TO SEE YOU RUSH. RETURNED YOUR CALL ppEgbat ATTENTION MESSAGE" C 01 4 1k 100 C.L. SIGNED Ala cigt 1184 IMPORTANT MESSAGE FOR fi 2-5 TIME M ea OF MOBILE' PHONE' go,q a-03 2,..7s6 !TELEPHONED CAME TO SEE YOU WANTS TO SEE YOU RETURNED YOUR CALL PLEASE CALL WILL CALL AGAIN RUSH SPECIALATTENTION SA03001 IMPORTANT MESSAGE FOR DATE PM 3 ilkAALCal OF PHONE MOBILE 97120w 9'4 TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL .AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL 1SPECIALATTENTION SIGNED 1-1134 TIME OF PHONE MOBILE TELEPHONED CAME TO SEE YOU WANTS TO SEE YOU RETURNED YOUR CALL PLEASE CALL GIUFFRE001556 IMPORTANT MESSAGE FOR DATE 3 5 TIME 12:2pa, OF PHONE MOBILE TELEPHONED 6 PLEASE CALL CAME TO SEE YOU WILL CALLAGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESS ME ecnv ,s4 1 does') . - czt7.5 .)e-,- toA SIGNED ti IMPORTANT MESSAGE FOR DATE TIME OF PHONE MOBILE TELEPHONED .. CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH. RETURNED YOUR CALL SPECIAL ATTENTION a. 1184 SIGNED 1184 IMPORTANT MESSAGE FOR letfrr DATE 3 37 C 5 )ut- TIME 2: 72 P. OE PHONE MOBILE 56 4 .389: CF zi TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION . MESSAGE oh e 41-5 fh (04 ACT 0 CtAt 2 ? SIGNED SA.03002 IMPORTANT MESSAGE RDR DATE TIME 1:54) 4 I C P. OF PHONE (.3 6- 1.9,) MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE C4 r )4( 8- 6f e 1,5;11-7,4 a3 1184 GIUFFRE001557 4411, 4 .; SIGNED DT- IMPORTANT MESSAGE For4 DATE 7.6' '7 -5- TIME 0 3 M OF PHONE 1 7 7 To 9 '962 MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION - MES(S.AS i c 74f y. -c(j2 ,' 1, 67 a- SIGNED 1184 IMPORTANT MESSAGE OF PHONE S 33 - MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH - RETURNED YOUR CALL SPECIAL A NTION MESSAGE D0 eL7L.4 Lk 0 4 Ni e e i1IL,v1 11134 4 min,- -reale .1 I IMPORTANT MESSAGE FOR Tr ( DATE a 6 0 TIME M OF PHONE ti MOBILE TELEPHONED r 37 PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL , SPECIAL ATTENTION MESSAGE ap- SIGNED 1184 IMPORTANT MESSAGE FOR 7114 41 lit a-i Li..A..eZi:... DATE 3 OG, JOT MAE 9: 0 . G P M. M 4 OF PHONE MOBILE TELEPHONED V PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE AI I 3 2110 - - SA001071 SIGNED - a1 1184 e GIUFFRE001392 IMPORTANT MESSAGE FOR - 7"- - ' 2...- -i, . DATE TIME ea. . . M :-.,, .. . OF PHONE MOBILE TELEPHONED ' PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE , v P' ,-. ,...,- ( 3, , : '...., .. , ? - f," IMPORTANT MESSAGE y2.1 r FOR DATE TIME ;:frA2 42E OF PHONE MOBILE TELEPHONED c. PLEASE CALL CAME TO SEE YOU . WILL CALL AGA N WANTS TO SEE YOU RUSH RETURNED YOUR CALL I SPECIAL ATTENTION MESSAGE 71-t -'71 , L. SIGNED IMPORTANT MESSAGE ,... ..-. t FOR I 7- .e." . - ' ',.. .: ,, DATE 3, , ,57.-1.e" , ..; M -rj" . -e" "" OF 7- 7. 7't4 1 4. - 4'''' 7 1 0 c i PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL I SPECIALATTENTION ' MESSAGE at, SIGNED IMPORTANT MESSAGE FOR DATE 3 .1 C TIME ?. -2.;:S"-Aefm . OF PHONE! MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SA001474 ctrzkicrs GIUFFRE001446 IMPORTANT MESSAGE FOR fre ,7 -..a7 A.M. DATE 0( OS- TIME t PM M C7 1 5 ;'7e OF PHONE MOBILE TELEPHONED (Y4 -PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 6- leo h us 0 fa? - li.r'c4 he r...s- kk A e A rzzi,ri- Gooc 1 ,S0,.,) l'"Thc if ho-ive ceckikeci dv- Nosko 9-: -, ei tuIe-t-i ii (..Q.cPkFZ EV SIGNED IMPORTANT MESSAGE FOR 1 rC... . 19 i ill 05 TIME I rE M C. 1.010- OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 66 e 1.)aci oil -Me- F b em e qf . CrpricArl 1 SIGNED 1184 1 IMPORTANT MESSAGE FOR j DATE 31 71 1 5 m t-5 lite M eielet- OF PHONE .MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE - - . al SIGNED ,: Iie4 IM ORTANT MESSAGE FOR Cr-e (- CA- OF PHONE MOBILE M2 num,bc-r. he. ,s-1 TELEPHONED"- rtt'kt CAME TO SEE YOU WILL CALL AGAIN . WANTS TO SEE YOU , ' RUSH ' RETURNED YOUR CALL I SPECIAL ATTENTION' MESSAGE Ck,t 4 cc-eV A02972 I SIGNED, ri GIUFFRE001526 IMPORTANT MESSAGE FOR rafr DATE 4 5 (2 - 1 NT ...S- 44- i e OF PHONE MOBILP TELEPHONED PLEASE CALL (IS- CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED 1184 IMPORTANT MESSAGE E D(21.7 cl OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU ' WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL 1 SPECIAL ATTENTION MESSAGE .5hr We'4 L-4 cet.44 bad -1-k SIGNED 'N. IMPORTANT MESSAGE FOR DATE TIME )(2.7 N. - o i OF PHONE 5r - - '''. '' MOBILE I t... t - - L . TELEPHONED . ?)"..- PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 1 SIGNED 1184 IMPORTANT MESSAGE FOR,: DATE T - 4i k9 I o C C) cur' et A.M. TIME P.M, OF PI-IONE MOBILE TELEPHONED PLEASE CALL . CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL I SPECIAL ATTENTION MESSAGE Ae ervem I-1414 SA02975 ak I11. - Ak I SIGNED GIUFFRE001530 I IMPORTANT MESSAGE DATE 41. fOC.5i TIME FOR 1(0 OF , PHONE - MOBILE - TELEPHONED , PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 3 e " (.1-41.."1 oi hr tCi7 thi Lr AC7 cc,ic hc oiA to rw e SIGNED 1184 IMPORTANT MESSAGE.' FOR 61141-fC DATE TIME ( 6 disc), hick 4c. 3 OF PHONE Al MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL. CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED 1184 IMPORTANT MESSAGE FOR DATE - IL A.M. TIME PM. , PHONE! MOBILE , TELEPHONED - PLEASE CALL , CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL 'SPECIAL ATTENTION MESSAGE SIGNED 1184 IMPORTANT MESSAGE FOR -7e4 (61 DATE 10 s7 TIME 6- A is I OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE -14if Ca- J 126-r c,t c, SIGNED SA03013 GIUFFRE001568 IMPORTANT MESSAGE FOR . - DATE 675- TIME 1(o.. 1 ci. v i et OF 2 I Z 6-45 - 7 7 4 PHO E MOBILE TELEPHONED ' y PLEASE CALL . CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED s 1184 IMP. RTAN'T MESSAGE FOR (fru DA TIMEI .1 PIVL OF PHONE!' MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE , t at! SIGNED 1184 I IMPORTANT MESSAGE FOR j."'6. DATE M CR 1 1 OF -714 PHONE MOBILE TELEPHONED X PLEASE CALL i CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL sp .otAL. iktrurnom MESSAGE SIGNED ,Ta- 1184 IMPORTANT MESSAGE FOR DAT 0071 TIM is OF PHONE MOBILE' TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL 4. SPECIAL ATTENTION MESSAGE SAO2980 i I SIGNED 1184 GIUFFRE001535 IMPORTANT MESSAGE . FOR ' .. ..... DATE Pi, 0 TIME CI iii PM' OF IV l' HOCBI INN C a 47 k 1 a 47 e TELEPHONED . PLEASE CALL CAME TO SEE YOU, WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED'YOUR CALL SPECIAL ATTENTION MESSAGE . , ....,,, ea SIGNED 1184 MPORTANT MESSAGE TIME RM OF PHONE MOBILE TELEPHONED PLEASE CALL ' CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SA02981 at I sa es IMPORTANT MESSAGE FOR 3: A.M. DATE 1,4 OS A b X We iii OF PHONE MOBILE TELEPHONED X PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEEYOU RUSH RETURNED YOUR CALL SPEOIALA1TEN11ON , MESSAGE . SIGNED I it 1184 IMPORTANT MESSAGE OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL - SPECIAL ATTENTION MES G GIUFFRE001536 IMPORTANT MESSAGE OF PHONE MOBILE TELEPHONED CALL CAME TO SEE YOU c..y"-PLEASE WILL CALL AGAIN YVANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION . MESSAGE 6104 h pAitieo rna,54, a he et-4- -111 e A ri-ca ir Crooci ,Sfx 04 1 , c alteci dt. Olin QLfH11flCf h cst3 e otA-7v7e,d sin -i-his- SIGNED 4fr1-7 J-N 011 4 t ne,4, 1184 1:- r IMPORTANT MESSAGE FOR liATE M (CC. LiCE- jII TIME 1 (27 PM OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 61) lad Oil r Cipfray)r SA02983 IMPORTANT MESSAGE FOR DATE 31 7) 55 e 5 We 4,v OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED 1 IM ORTANT MESSAGE . CAME TO SEE YOU WILL CALL AGAI N- WANTS TO SEE YOU RUSH ' RETURNED YOUR CALL SPECIAL ATTENTION SIGNED SIGNED GIUFFREO 01538 IMPORTANT MESSAGE FOR ,a-tr , DATE 11 51 2.S TIME Riff2ARMM-. NA f'li 5". deeAr-i-e OF PHONE MOBILE TELEPHONED PLEASE CALL 5. CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE a I SIGNED 1184 IMPORTANT MESSAGE FOR DATE Ts- E TIME OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE frUfr1IL4 Qt len SIGNED .3 IMPORTANT MESSAGE FOR DATE 4 7 OF MOBILE PHONE 561 TELEPHONED PLEASE CALL CAME TO SEE YOU t'''.- WILL CALL AGAIN WANTS TO SEE YOU RUSH -RETURNED YOUR CALL 'SPECIAL ATTENTION , TIME AL MESSAGE SIGNED 184 SA02986 rit1411 MPORTANT MESSAGE FOR . DATE D (-)1 vi tot TIME A.M. P.Mt OF IDHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE .517 e j-(..4 frron4t-t SIGNED 1184 GIUFFRE001541 IMPORTANT MESSAGE -FOR - - DATE 6 'it e-C".. TIME 7 : of M Kavici-oet oF 2) ZYr g-45 - -274 PHO Et MOBILE TELEPHONED y PLEASE CALL . CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED 1184 IMPORTANT MESSAGEJ FOR e DA E ': TIME P M. OF PHONEC MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE .- . . ; SIGNED IMPORTANT MESSAGE FOR E. DATE -C;19.1D-5 TIME 3 06 A M (j-i0C2 OF PHONE MOBILE TELEPHONED X - PLEASE CALL CAME TO SEE YOU WILL CALLAGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATrENTION MESSAGE SIGNED 1184 IMPORTANT MESSAGE DATE TiM j21) tiJa OF PHONE - MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAII4 WANTS TO SEE YOU RUSH RETURNED YOUR CALL Y SPECIALATTEI MON . SA02990 GIUFFREO 01545 IMPORTANT MESSAGE FOR DATE 572 4 o m TIME g - OF PHONE ...-661 1 MOBILE 60,47e TELEPHONED . PLEASE CALL IC CAME TO SEE YOU WILL CALL AGAIN WANTS. TO SEE YOU RUSH RETURNED' YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED 1184 IMPORTANT MESSAGE FOR DATE 6. 4 :. OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED SA02991 1184 IMPORTANT MESSAGE FOR DATE 10-C ,eptie OF PHONE MOBILE TELEPHONED X PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN .. - WANTS TO SEE YOU RUSH RETURNED YOUR CALL 4 SPECIAL ATTENTION MESSAGE SIGNED I 118 IMPORTANT MESSAGE FOR DATE OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MES7t SIGNED 1164 GIUFFRE001546 4,11 0510 wyg -2 1 1 oftia 1 -010 . IMPORTANT MESSAGE I FOR -j Itit L a-. TIME 3 : 0 AN P-M DATE IA. c: OF PHONE MOBILE TELEPHONED 1. PLEASE CALL I . CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED I I IMPORTANT MESSAGE I FOR ( C 2: 0 2 t C. TIME . - 1,1., t DATE OF PHONE .- 4 z ,. MOBILE I TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH . RETURNED YOUR CALL SPECIAL-ATTENTION . MESSAGE 1 P SIGNED 1184 I IMPORTANT MESSAGE I FOR DATE OF PHONE MOBILE TELEPHONED -X PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION TIME 0 MESSAGE 7 ea-ie SIGNED 07 1184 i IMPORTANT MESSAGE I L7)111 - - " I FOR C' r TIME DATE M OF -. PHONE ' MOBILE TELEPHONED V PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL '1 SPECIAL ATTENTION MESSAGE SA001078 SIGNED C7c tr4 1 -4 GIUFFRE001399 IMPORTANT MESSAGE 1 OF PHONE MOBILE TELEPHONED . PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED 1184 IMPORTANT MESSAGE FOR TIME DAT M OF PHONE MOBILE TELEPHONED ' PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL TTENTION GE 1uam 5 1,)7 01-1:AN24. -tA tj. 04- :)(CtiNci a kbk coe c , at SIGNED 1184 ea. IMPORTANT MESSAGE FOR DATE 1 41 I .0 T- E TIME :2 A. OF PHONE MOBILE TELEPHONED X PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED 1184 TELEPHONE ) PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN liriNTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION GIUFFRE001402 IMPORTANT MESSAGE FOR i E AM. DATE 13 M ('(e' C 7 C(' OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTE14TION MESE X e 144 el Li t d 69 14 y 0 L) 90,-1 roo eree4re .(:ez ( SIGNED 1184 IMPORTANT MESSAGE FOR A.M. DATE TIME PM M OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU , WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIALATTENTION MESSAGE t I -A, C., -OX:r) u.tcuie ,1,-,)6A Cc.t q UK3ti k Li (jt.) Lk , kN-A cl, LkA0,550,3t. CA ()AL-Vey itAe, 0 Wokne SIGNED A 1184 16 e 41,5- 161 IP IMPORTANT MESSAGE FOR DATE 2-5- OF ec irc oV 05- TIME 1.4 lc 1A, 0 PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU iy WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE -7 ; C-C CO 3 -11-12 e ct bi-, Me 21(2,4 hce 0 4 3 A c r- Or? a lc, eq..5 6047 . i:S SIGNED 1184 I ORTANT MESSAGE FOR .M DATE TIME M OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION ME .SE SA001084 SIGNED 1184 GIUFFRE001405 IMPORTANT MESSAGE FOR DATE (-C I lit 0 -5- TIME (c. M OF PHONE MOBILE TELEPHONED X PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE c - 55 ( 4,14 SIGNED .T 1184 IMPORTANT MESSAGE A.M. DATE TIME P M. M er... . k OF PHONE MOBILE TELEPHONED PLEASE CALL x CAME TO SEE YOU WII CALL ,46gst V i WANTS TO SEE YILJ C., ,FILXR RETURNED ypuw s. f.E. SPECIAL ATTENTION a .. MESSAGE ,, e f Lucy e e, (. Lk .Cc o,..kA . . . 1 ,...... , SIGNED 1184 IMP-OLTANT MESSAGE J - - FOR DATE I O. 14 a TIME PM: OF PHONE! MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YAW ,A0F4F4.6reparef M 74-1.7.- p11 r 7111;1- Eh(' hfi. f 1.7e Fri NO L110'4011 ellid 44 ow sic fro tql F fie co m SIGNED 1184 IMP VAN? MESSAGE FOR A AAL DATE TIME P.M. M t OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOURThji4P,CLAL ATTENTION MESSAVV 1 be' r re Ye 14 41440,Ifit Ipoo 17 1 e ,1 i - SA001085 SIGNED at 1184 GIUFFRE001406 I IMPORTANT MESSAGE FOR ; DATE , OF PHONE MOBILE t - '., V, TIME P TELEPHONED CAME TO SEE YOU WANTS TO SEE YOU RETURNED YOUR CALL MESSAGE PLEASE CALL WILL CALL AGAIN RUSH SPECIAL ATTENTION T T J07, , 42. 4.JC - r '7"' hi-41 VCi .0 L.1 d (1:1 . .5 a s ! ,' : ," , " SIGNED 1 5147 1184 IMPORTANT MESSAGE I FOR e DATE 9 L, Ni ; ':' OF PHONE MOBILE TIME 7 A ,7), TELEPHONED CAME TO SEE YOU WANTS TO SEE YOU: RETURNED YOUR CALL c.2 PLEASE CALL WILL CALL AGAIN RUSH SPECIAL ATTENTION MESSAGE , LA 6 11R4 IMPORTANT MESSAGE I FOR DATE (' OF PHONE MOBILE WANTS TO SEE YOU RETURNED YOUR CALL MESSAGE I SIGNED - TIME . P.M. RUSH SPECIAL ATTENTION S001471 1184 GRIFFRE001449 FIMPORTANT MESSA, FOR DATE A A.M. t-'5 T;ME P M. OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED 1184 IMPORTANT MESSAGE FOR DATE TIME """ - tlys, OF PHONE MOBILE TELEPHONED t PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL Al I t NTION MESSAGE ("hi AA", 1 Ii 1 ORTANT MESSAGE FOR A.M. DATE TIME PM M OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED IMPORTANT MESSAGE FOR DATE OF 7T:71 I 6.1 64 TIME " PM PHONE MOBILE TELEPHONED : PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL Ai I tNTION I MESSAGE - g Lf !. 61: SA001449 SIGNED ia SIGNED iis4 a4 I GIUFFRE001420 IMPORTANT MESSAGE FOR A.M. DATE TIME PM M OF PHONE MOBILE 'TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE ( kJ ''L., A -i G o. (..''. v. e 1 c, . , 1 !.7c) ag SIGNED 1184 IMPORTANT MESSAGE FOR AM. DATE TIME P.M. M OF LEPHONE Ck It- 5 I 0 k 0 3 MOBI ' TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTSTO SEE YOU ' RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE co,k1 c. .kc ic SIGNED .M. 1184 IMPORTANT MESSAGE FOR DATE TIME OF Acktrto,A.c,x, PHONE! MOBILE . TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION . A.M. P M. MESSAGE OAC1 4 COO k kr LA 001 e SIGNED 1184 GIUFFRE001407 TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION IMPORTANT MESSAGE FOR DATE TIME ?:40 M OF PHONE MOBILE TELEPHONED y PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED IMPORTANT MESSAGE FOR (-7114 41 7 11"A')U4".42 (-X DATE TIME 9-0 OF PHONE MOBILE TELEPHONED V PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH - RETURNED YOUR CALL 0 SPECIAL ATTENTION MESSAGE 1184 SIGNED CX2. IMPORTANT MESSAGE E . FOR J. DATE 11410S TIME m 9 di -lea v? a OF PHONE MOBILE TELEPHONED ...) PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE C 6 vi ce le She tAiot4lciiike 0 ..52.veak -1-0 yeot . I be hive 0 0(4 c a ecrle - 5-6 . 801. 3,530 . , ,5h0(AIT sckieduic cti47 4 1 r el5e ? SIGNED 8155 1184 of, 1184 IMPORTANT MESSAGE FOR 7)14 sic' e DATE 9A4 OF TIME - - - OF PHONE MOBILE TELEPHONED I,PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE ISIGNED oe SA001089 1184 GIUFFRE001409 ..., IMPORTANT MESSAGE FOR DATE 51405' TIME M 6 - iti . OF PHONFJ, MOBILE TELEPHONED PLEASE CALL i CAME TO SEE YOU I WILL CALL AGAIN WANTS TO. SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE Dle. 7 ;.P'' iwn 10.4,e..-1 SIGNED 7 - 1 84 TIME 114 OF PHONE MOBILE TELEPHONED ,X PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION SIGNED,7 1 -7 Fi - tANi: MESSAGE FOR DATE T 5 Ska o TIME 0 :e7 PM. OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 6c;e9 ( e.K. tA,,vh SIGNED 1184 IMPORTANT MESSAGE FOR .S7 E DATE TIME 4 : 5 0 -.9 12 42-S- M -77f2 -71 a P74 OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION - MESSAGE Het- net v phooe 574 SA001090 : 1184 SIGNED GIUFFRE001410 IMPORTANT MESSAGE FOR DATE Ce TIME if? OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL 11 SPECIAL ATTENTION MESSAGE hit ii orik ,9 SIGNED 118.4 1.0. IMPORTANT MESSAGE , FOR 7- . . DATE TIME PM M ,.. OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU . RUSH RETURNED YOUR CALL SPECIAL ATTENTION MGM. t bP- U k ki c -. 26 SIGNED at ti84 IMPORTANT MESSAGE FOR DATE TIME OF PHONE MOBILE TELEPHONED )( PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 174t2A-", e2 G.44 4,-C !i4'41 12 46 z-r. SIGNED 1184 IMPORTANT MESSAGE FOR DATE 90. 40 05- TIME M 9.7 14" k4G1 - - E- OF PHONE MOBILE TELEPHONED X PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE OW-1W 4 ii 1 P 1 - 0 t SIGNED SA00I091 11 GIUFFRE001411 IMPORTANT MESSAGE FOR 5. . .M oh- l'a Pt a OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE 1-e ge ca , .....,, a, SIGNED J 1184 IMPORTANT MESSAGE FOR DATE ii. pS TIME 1 (3): a M Ate-4C i''17 , :iL- OF PHONE MOBILE 'TELEPHONED L. PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED at 1184 IMPORTANT MESSAGE - FOR - E- A.M. DATE TIME PM. M OF J') PHONE MOBILE TELEPHONED .- PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION - MESSAGE 14orcb v C-P-1 'N0.51A 1 Co4irwse- .5 VI e. s Lee 1-14 -gtr:CAV, 014 0 ts IS" C. 0.S e 1 kAt. e c 0 e 5'ki k Q OA 6... cAf.... SIGNED 1 84 IMPORTANT MESSAGE FOR j DATE irr os TIME bf .) ;) OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE Ut hie 0 171 he a 1 7 7 Da Iwo wad (..oc,c-er rs r -77 SIGNED SA001093 1184 : GIUFFREO 01413 TELEPHONED X PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION IMPORTANT MESSAGE FOR 3 DATE I it" TIME M (7 1 0 P. TELEPHONED X- PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL , SPECIAL ATTENTION MESSAGE SIGNED IMPORTANT MESSAGE FOR I i DATE TIME 7- .....:, L.' i M OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE , . t P " ,, . , . - - - 1 e el S 1 7 7 - ,.- - a SIGNED 184 IMPORTANT MESSAGE FOR DATE TIME OF PHONE TA 4 z MOBILE '-'7" TELEPHONED X PLEASE CALL CAME TO SEE YOU :WILL CALL AGAIN -WANTS TO SEE YOU RUSH RETURNED YOUR CALL 1 SPECIAL ATTENTION MESSAGE ag- 1184 SIGNED SA001469 1184 GIUFFRE001441 IMPORTANT MESSAGE FOR L..... DATE 27 4,: ,-, i. ,', :, "TIME i ' r 4." t' Z . ' M OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION . MESSAGt, (4 e SIGNED a?, 1184 IMPORTANT MESSAGE ... i I1:-.1 i 'di .1 ,6 i '1 1 -3 0 A.M. DATE - 6 -' - - "'.- TIME , - PM ...... OF - PHONE MOBILE TELEPHONED iff - PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE '1-E- Pi C. i .,,r ..) '''; SIGNED c.,....- ftS:: 1184 IMPORTANT MESSAGE FOR -......; . .. ..... PHONE MOBILE TELEPHONED X PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL 1 SPECIAL ATTENTION MESSAGE ' .. ab.A. SIGNED i , 1164 IMPORTANT MESSAGE FOR DATE ,E 10 zio c- i 1.4(1z - riA TIME 1 'ii OF 0 I 35jC . PHONE MOBILE TELEPHONED A PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SA001470 SIGNED , iift4 GIUFFRE001442 IMPORTANT MESSAGE FOR DATE te1,1 TIME - OF PHONE - MOBILE I 03 - 7z5z: TELEPHONED ... PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SIGNED . 1184 IMPORTANT MESSAGE FOR IMPORTANT MESSAGE .......) DATE 1 4 1.17,41.-(' TIME '''- : ,, .,- OF . PHONE 5 1o,c, ,72....5 - MOBILE , TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE . 4 1 ' 7'171,4:. M SIGNED 1 1184 IMPORTANT MESSAGE 4 14J - e FOR t33" 1 i'71 - 30 A.M. DATE 6 3 e...5 TIME 14- : ( M DATE i i . -.... - f e im , n OF PHONE MOBILE TELEPHONED PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTEI MON MESSAGE I 1:7 7 OF PHONE MOBILE TELEPHONED v PLEASE CALL CAME TO SEE YOU WILL CALL AGAIN WANTS TO SEE YOU RUSH RETURNED YOUR CALL SPECIAL ATTENTION MESSAGE SA001471 GIUFFRE001443 EXHIBIT 4 GrElre KJ 55- oce0-4 Pe) 704 o 46 Aret?) A tirt LearkD u o eicd 0-00-R0 Fe ci so a..61 -e)Akv ra. t3 3 24'0 02 11 2015 or 10 4 oo So.iftsgec g ti 811 3 SV 14 Lim. 0 Page 2282 Public Records Request No.: 16-268 KeLts D 60.11.4., roy 6.0 Co) IA 02 11 2015 Page 2283 Public Records Request No 16-268 1ERGENCY 911 ALARM SYSTEM Benharn Icc cirkv 1-800-940-4112 953( -3 7? FIRE RESCUE (561) 838-5422 HOSPITAL Good Samaritan Hospital 1309 North Flagler Drive West Palm Beach, FL 33401 (561) 650-6201 POISON (56 83 5422 POLICE (56 471-2000 VETERINARIAN Island Animal 1.1ospital 262 Sunset Avenue Palm Beach, FL 33480 2 MIKE PEZZULO Neighbouring House Manager who can be called in emergencies (561) 54-9192, MS MAXWELL Portable Home (917) 520-3106 (212) 879-9366 JONITHA ACKENZIE Po a Hom 14 02 11 2015 Page 2284 Public Records Request No 16-268 116 East 65th.Street New York NY 10021 Ms Chislaine Maxwell Michelle Campos Jenni fer I-louse Managers Joseph Florena Rueda Joseph florera 358 El Brillo Way, Palm each Florida 33480 Mr. Jeffrey Epstein Ms Ghislaine Maxwell Staff -Lucian- RnSlii Mckawa- Jerome Pierre Alan Stopeck Francis Pastore Francis Peadon Bill Petition it-i) 6126 (Gardner) M- F Landscape designer. Checks the garden use cleaning service handles all cleaning:laundry Nicole I lessey Cherie l.ynch Nicole and Cherrie are well versed in supervising and shopping for PB, when ace Pilots Larry Visosky David Rogers Dave Car ohones Black Mercedes 600 Black Suburban Mercedes Sports Convertible 02 11 2015 Page 2285 Public Records Request No 16-268 Residences Zurro 112 ch 49, Zorro Ranch Road. Stanley, New Mexico 37056 Mr. Jeffrey Epstein Ms GhisLaine Maxwell Staff Office Brice Karen Gordon Home Brice Karen Hoyd Deire Home Manolit Little St. James C O Financial Trust Company 6100, Red Hook Quarters, Suite R3, St. Thomas, USV1 00802. Mr. Jeffrey Epstein Ms. Ghislaine Maxwell Staff Miles Cathy Alexander Miles Cathy Paris 22 Avenue, Foch, Apt MD, Palls, France 75116. Tel: 011 331 441 70210 Fax: 011 331 441 70211 Staff Valdson Coffin London 44 Kinnerton Street London SW1X8ES Tel: 011 44 207 838 9129 Fax: 011 44 207 838 9128 Staff Kathie Orchard 02 11 2015 Page 2286 Pubic Records Request No.: 16-268 F1h se feiti 17eivety 5t30 -Kr. 3o Key saw - deotticel 3q0- 77(0"4912- 2-11 - 75o - .2-qog T-0. k? (0(02415 Dr 3-ck.r cAc tw svitc- Visostc CeLct iteedle4 etrAck.A II let cr kost4c-.1 c50-126L er-,At 0 4- city 3cp.-Ifs-q 2 UT 3 en4 s e oda:- incl. Gsc4 Z.01 R. S ey't emL . 600.44.. Coo k Pr. G.5Rodti tocto lotA eita's c.tti ehortit 51.1 c,t 7o-2 l'A-csrAL5 ply-Letyrs Got ',le tb 44-4. ern 64 sty lenx ekost.4.1A 1- . Ike kraleva House 02 11 2015 40150, Ptoe-Nu q 14- Root,- 1 etWA PEyst (05" st Nq tool r5:5 -3 31-3 Page 2287 Public Records Request No.. 16-268 02 11 2015 L 37 JESL2-o Mew 69(21 96 Kok) oitx 1.414.1eisrit Jo Ghislame Maxwell Page 2288 Public Records Request No 16-268 EXHIBIT 5 1 (Pages 1 to 4) Page 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK CASE: 15-cv-07433-RWS VIRGINIA GIUFFRE, Plaintiff, 2 3 4 5 6 Page 3 INDEX VOLUME 1 (pages 1 - 157) TONY FIGUEROA Direct Examination by Ms. Menninger 5 OATH OF REPORTER 156 V. 7 CERTIFICATE OF REPORTER 157 GHISLAINE MAXWELL, Defendant. 8 9 VOLUME 2 (Pages 158 - 258) VIDEOTAPED DEPOSITION OF TONY FIGUEROA 10 Volume 1 of 2 TONY FIGUEROA 11 Cross-Examination by Mr. Edwards 162 Pages 1 - 157 Redirect Examination by Ms. Menninger 218 12 Recross-Examination by Mr. Edwards 243 Taken at the Instance of the Defendant Further Direct Examination by 253 13 Ms. Menninger 14 OATH OF REPORTER 257 DATE: Tuesday, June 28, 2016 15 CERTIFICATE OF REPORTER 258 16 TIME: Commenced: 8:59 a.m. Concluded: 1:22 p.m. 17 PLACE: Southern Reporting Company B. Paul Katz Professional Center 18 (SunTrust Building) 19 One Florida Park Drive South Suite 214 20 STIPULATION Palm Coast, Florida 32137 21 It is hereby stipulated and agreed by and 22 between counsel present at this deposition and by REPORTED BY: LEANNE W. FITZGERALD, FPR 23 the deponent that the witness review of this Florida Professional Reporter 24 Court Reporter and Notary Public deposition would be waived. 25 Page 2 Page 4 APPEARANCE OF COUNSEL 1 INDEX OF EXHIBITS 2 2 3 3 4 ON BEHALF OF THE PLAINTIFF: 4 (MARKED BY THE DEFENDANT:) BRADLEY J. EDWARDS, Esquire Defendant's Exhibit 1 42 Farmer, Jaffe, Weissing, Edwards, Fistos Lehrman, P.L. 5 (Palm Beach County Sheriff's Reports - 425 North Andrews Avenue Case Number 98041883) Ft. Lauderdale, Florida 33301 6 954-524-2820 Defendant's Exhibit 2 71 Brad pathtojustice.com 7 8 (Greenacres Reports) Defendant's Exhibit 3 77 (Two Pictures of Apartment Building) 9 9 10 ON BEHALF OF THE DEFENDANT: Defendant's Exhibit 4 83 11 LAURA A. MENNINGER, Esquire 10 (Palm Beach County Sheriff's Reports - Haddon, Morgan and Foreman, P.C. Case Number 02075321) 12 150 East 10th Avenue 11 Denver, Colorado 80203 12 Defendant's Exhibit 5 134 (Royal Palm Beach Police Reports) 13 303-831-7364 13 Defendant's Exhibit 6 144 Lmenninger hmflaw.com; Nsimmons hmflaw.com (Robert's School Records) 14 14 15 15 16 16 Also appearing: Jenny Martin, Videographer from Abel 17 Virginia Giuffre, Plaintiff 18 (MARKED BY THE PLAINTIFF:) 17 19 Plaintiffs Exhibit 1 162 18 (Photos) 19 20 20 Plaintiffs Exhibit 2 163 21 21 (Passport) 22 22 23 23 24 24 25 25 Southern Reporting Company www.Southernreporting.com - (386)257-3663 Page 57 1 A No. That was it. 2 Q Where were you living at the time she 3 left? 4 A My parents' house. 5 6 calls? 7 A Yeah. 8 Q Is that how you remember it? 9 A Yep. 10 Q Were your parents happy about the phone 11 bill? 12 A Well, they did not care, because they knew 13 that Jeffrey had money. And I told them 14 like, "Well, he's going to be paying the bills, so 15 don't worry about." 16 And they were, like, "All right. As long 17 as it gets paid." 18 And it didn't get paid. And I didn't have 19 a place to live, and so... 20 Q Did you ever try to get money from Jeffrey 21 to pay the phone bills? 22 A No. Pretty much the only time I had ever 23 talked to Jeffrey after that was mainly the 24 conversations are, "Where is Virginia? I know you 25 know where she's at." Is that where you were making the phone 15 (Pages 57 to 60) Page 59 1 Q And you were getting calls from Jeffrey on 2 your cell phone 3 A Yes. 4 Q 5 A Uh-huh (affirmative). 6 Q Did he say why he was trying to find her? 7 A No. 8 Q Was it him or someone else? 9 A No. It was him. 10 Q What was his tone when he was calling and 11 asking for her? 12 A I don't want to say, like, desperate, but, 13 like, you could tell it was, like, a sense of 14 urgency, like he was kind of upset, like, you know, 15 where the hell is she, kind of without saying it, 16 you know. He was 17 definitely on the hunt, trying to figure out where 18 she was at. 19 Q Did you understand that he had paid for 20 her trip to Thailand? 21 A Yeah. 22 Q Had she ever been to Thailand before? 23 A Not that I was aware of. 24 Q Did he know whether she had just left 25 Thailand without a word? Page 58 . 1 I'm, like, "No, dude, I don't. You're the 2 one that (descriptive sound) sent her away, not me. 3 I have no clue. I have not heard from her. You're 4 the reason she's not here, so why are you even 5 coming to me? How would I know? She left me. She 6 did not leave some guy I knew, she left me." You 7 know. 8 Q How did those conversation happen? 9 A Because he would just call me. He was 10 just trying to find her. He was, like, hunting her 11 down. 12 Q He called you on your phone? 13 A Uh-huh (affirmative). He had my number. 14 Q Your cell phone? 15 A It was 16 the time, yeah. 17 Q Is that where you were getting all these 18 expensive phone calls was your cell phone? 19 A No. I was using my parents' landline to 20 make the calls. 21 Q Got it. 22 To call Thailand? 23 A Yeah. 24 Q But Jeffrey had your cell phone number? 25 A Yeah. Page 60 1 A I don't know what he thought. I guess he 2 stopped hearing from her, as well. 3 Q Did he say that she called and said I'm 4 getting married, and I'm never coming back? 5 A No. He kept asking me what was going on. 6 I said, "Dude, I don't know. Like, if I knew, don't 7 you think I would tell you? I mean, I have no 8 reason to not tell you. She left me. Why would I 9 hide anything?" 10 Q How did you know she had left you? She 11 just didn't come back? 12 A Like I said, she had written me a note 13 telling me she wasn't coming back. 14 Q So you're having a bunch of phone calls. 15 And then all of the sudden you get a note saying, 16 I'm not coming back? 17 A Yep. 18 Q During the phone calls, did she tell you 19 she was breaking up with you? 20 A No. 21 22 where Philip and Ms. Roberts were together? 23 A No. Like I said, pretty much that whole 24 period I was not there. Like, literally, no trace 25 of me or her were anywhere near each other until, Do you know the name of the rehab program I Southern Reporting Company www.Southernreporting.com (386)257-3663 EXHIBIT 6 Page 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK CASE NO. 15-CV-07433-RWS VIRGINIA L. GIUFFRE, Plaintiff, V. GHISLAINE MAXWELL, Defendant. May 18, 2016 9:04 a.m. CONFIDENTIAL Deposition of pursuant to notice, taken by Plaintiff, at the offices of Boies Schiller Flexner, 401 Las Olas Boulevard, Fort Lauderdale, Florida, before Kelli Ann Willis, a Registered Professional Reporter, Certified Realtime Reporter and Notary Public within and for the State of Florida. MAG NA 0 LEGAL SERVICES Page 38 1 that she was a daughter of one of his friends. 2 Q. But it was possible she was the school 3 is it possible that the school she referred to was a 4 high school? 5 A. Yes. 6 Q. And what happened at that dinner, if 7 anything? 8 A. He did some magic tricks. 9 Q. Did you observe David Copperfield to be a 10 friend of Jeffrey Epstein's? 11 A. Yes. 12 Q. Did Copperfield ever discuss Jeffrey's 13 involvement with young girls with you? 14 A. He questioned me if I was aware that girls 15 were getting paid to find other girls. 16 Q. Did he tell you any of the specifics of 17 that? 18 A. No. 19 Q. Did he say whether they were teenagers or 20 anything along those lines? 21 A. He did not. 22 MS. MENNINGER: Objection, leading, calls 23 for hearsay. 24 BY MS. McCAWLEY: 25 Q. Did you ever hear or observe Jeffrey MAGNAO LEGAL SERVICES Page 39 1 talking on the phone about Frederic Fekkai? 2 A. Yes. 3 MS. MENNINGER: Objection, leading. 4 BY MS. McCAWLEY: 5 Q. What did you hear? 6 A. I heard him call someone, and say, Fekkai 7 is in Hawaii. Can we find some girls for him? 8 Q. And what was your reaction to that? 9 A. Well, I was massaging and I didn't have a 10 reaction. I tried to remain reactionless the whole 11 five years. 12 Q. Did Jeffrey ever take you shopping? 13 A. Yes. 14 Q. Can you describe for me what happened? 15 A. Sure. He took me to Victoria's Secret. I 16 believe he picked out everything and went into the 17 room with me, the fitting room, which was very odd. 18 Q. Did he make any comments about being in 19 the fitting room with you? 20 A. He joked that one time he was in there 21 with another girl, and she said something like 22 "Dad." But that's all I recall. 23 Q. Did Jeffrey ever talk to you 24 back up a moment. 25 Have you ever been propositioned by anyone MAG NA 0 LEGAL SERVICES Page 76 1 A. Just flying over it. 2 Q. When you said they called, do you know who 3 called your roommate? 4 A. I don't know who called my roommate. 5 Q. In this sort of pre-trip to New York 6 period, do you recall discussing any of the 7 particulars of your massages with Jeffrey, with 8 Ghislaine? 9 MS. McCAWLEY: Objection. 10 BY MS. MENNINGER: 11 Q. If that makes sense. 12 A. No. 13 Q. So before you got this call, had anyone 14 mentioned the idea of traveling to you? 15 A. No. 16 Q. Did you call Jeffrey immediately? 17 A. I did. 18 Q. And what conversation did you have with 19 him? 20 A. Basically he said, I want to take you 21 to 22 And I got to the house, and he said, Do 23 you have your passport? 24 I said, No. 25 He said, Go get it. MAGNAO LEGAL SERVICES EXHIBIT 7 IMII 12 10 04 JEFFREY E PSTEIN GHISLAINE MAXWELL KOUSEHOLD ACCOUNT DDA STATEMENT HISTORY OR ACCOUNT 000-000-0000 OR ALFREDO RODRIGUEZ DATE LAST STATEMENT DATE THIS STATEMENT ,r,DDA TRANSACTTONS 0.02,11 PAGE 1 11 23 04 12 10 04 BEGINNING BALANCE 0.00 CHECKS OTHER DEBITS DEPOSITS OTHER CREDITS NBR TOTAL AMOUNT NBR TOTAL AMOUNT 10 4006.36 2 7439.00 ENDING BALANCE 3433.44 DATE CK NBR AMOUNT TP TRANSACTION DESCRIPTION BALANCE 10 14 7439.56 DP DEPOSIT 7439.56 10 25 91cP' 450.00 CK TELLER CASHED CHECK 6909.56 10 25 0.24 CR IOD INTEREST PAID 6989.80 10 27 69.39 DB CLARKE AMERICAN CHK ORD 692.0.42 11 01 25001 1150.00 CK TELLER CASHED CHECK 5770.42 11 08 25040 340.00 CK CHECK 5430.42 11 09 2502v 684.87 CI( CHECK 4745.55 11 D9 250.50 415.86 CK CHECK 4329.69 11 09 2503? 406.25 CK CHECK 3923.44 11 15 251140' 360.00 CK CHECK 3563.44 11 15 2512' 80.00 CK CHECK 3483,44 11 15 2501 50.00 CK CHECK 3433.44 PP1 - PAGE FWD ESC-CLEAR SCREEN 03 25 2015 ALT-F2PRINT SCREEN ALT-X.EXIT Page 93 of 95 Public Records Request No. 16-268 7 01 ':7-? :1 IMII 12 10 04 JEFFREY E EPSTEIN GHISLAINE MAXWELL HOUSEHOLD ACCOUNT BEGINNING BALANCE O. DDA STATEMENT HISTORY 10.02.11 PAGE OR ACCOUNT 000-000-0000 OR ALFREDO RODRIGUEZ DATE LAST STATEMENT 11 23 04 DATE THIS STATEMENT 12 10 04 ODA TRANSACTIONS CHECKS OTHER DEBITS DEPOSITS OTHER CREDITS NBR TOTAL AMOUNT HER TOTAL AMOUNT 19 11614.78 4 17440.24 A DATE CK HER AMOUNT TP 11 16 250 1135.03 CK 11 16 25091 603.24 CK 11 16 25060 344.91 CK 11 16 25081 125.24 CK 11 16 25100 110.00 CK 11 17 2514 if 80.00 CK 11 18 10000.00 CR 11 18 10.00 DB .2500,00 CK 11 22 2513 timis) 2500.00 CK 11 23 0.44 CR LAST PAGE ESC-,CLEAR SCREEN 03 25 2015 rF2 - PAGE BKWD TRANSACTION DESCRIPTION CHECK CHECK CHECK CHECK CHECK TELLER CASHED CHECK INCOMING WIRE CREDIT INCOMING WIRE FEE TELLER CASHED CHECK CHECK IOD INTEREST PAID ALT-F2,-PRINT SCREEN ENDING BALANCE 5825.46 BALANCE 2298.41 1495.17 1150.26 1025.02 915.02 835.02 10835.02 10825.02 8325.02 5825.02 5825.46 ALT-X EXIT Page 94 of 95 Public Records Request No 16-268 tO 1J 1-fI .),1? IMI3 12 10 04 JEFFREY E EPSTEIN GHISLAINE MAXWELL HOUSEHOLD ACCOUNT BALANCE LAST STATEMENT 5825.46 DDA STATEMENT INQUIRY 10.02.31 PACE OR ACCOUNT 000-000-000C - OR ALFREDO RODRIGUEZ DATE THIS STATEMENT DATE LAST STATEMENT DDA TRANSACTIONS ," CHECKS OTHER DEBITS DEPOSITS OTHER CREDITS BALANCE NER TOTAL AMOUNT NBR TOTAL AMOUNT THIS STATEMENT 10 9038.14 10000.00 6787.32 DATE CK NER 11 30 25154r 12 03 25160; 12 03 2517mr 12 06 12 06 12 06 12 07 25214P 12 07 25224, 12 07 2518 011 12 0S 2519or 12 06- ESC CLEAR SCREEN 03 25 2015 AMOUNT TY 125.00 1600.00 549.29 10000.00 10.00 O2000.00 517.74 210.00 101.03 2925.08 O1000.00 TRANSACTION DES CHECK CHECK CHECK INCOMING WIRE CREDIT INCOMING WIRE PEE TELLER CASHED CHECK CHECK CHECK CHECK CHECK TELLER CASHED CHECI AL -F2 PRINT SCREEN Page 95 of 95 IPTION 12 10 04 11 23 04 BALANCE 5700.46 3551.17 11541.17 10712.40 it 6787.32 ALT-X EXTT Public Records Request No.: 16-268 7 f.h8i 'OM .90.W.0 I I i.1A1 1)! EXHIBIT 8 BANKING Household Banking Account Palm Beach National Bank Account No: 125 Worth Avenue Send to Eric Gany for reconciliation Palm Beach, FL 33480 1,000 Petty Cash Float Tel: (561) 653-5594 BICYCLES Bicycles Palm Beach Bicycle Trail Shop 223 Sunrise Avenue Palm Beach, FL 33480 Tel: (561) 659-4583 Mongoose Crossway 450 Raleigh Aluminium 300 Mercedes Benz Cignal Sports Bike Schwinn World Huffy Santa Fe Raleigh Sport Scott Boston BOOKSTORES Newspapers Publix Super Market 265 Sunset Avenue Palm Reach, FL 33480 Tel: (561) 655-4120 Magazines Main Street News 255 Royal Poinciana Way Palm Beach, FL 33480 Tel: (561) 833-4027 CLEANING SERV 'E Francis Peadon 561) 833-4486 Every Tuesday and Wednesday House Cleaning Services 9 635- 30G9 ccil t. 8:00arn - 4:00prri Aia 640302 , titiy? u I . (Francis and Pasture Peadon) NTERTAIN ENT The Breakers One South County Road Palm Beach, FL 33480 Tel: (561) 655-6611 Renew car park stickers every September Comedy Comer 2000 South Dixie Highway West Palm Beach, FL 33401 Tel: (561) 833-1812 The -a- go Club 1100 South Ocean Boulevard Palm Beach, FL 33480 Tel: 561) 832-2600 02 11 2015 Page 2302 Public Records Request No 16-268 GIUFFRE007840 EXHIBIT 9 8 29 2016 Kiddie Porn, Sex Toys Worse: Clinton Pal Jeffrey Epstein's Pedophile Palace Revealed - Radar Online Radar Online ARS -6, BEYONCE: VMA FEUD ANTHOtfl WEER SPLIT .01ft 4 c - . - p- ' THE PEAL REASON TOM 19 ACTORS WHO WERE NOSE HASN'T BEEN HIS DORN FIITHI..: RICH DAUGHTER IN YEARS YOU MAY LIKE Sponsored Links by Taboola http: radaronline.comiphotastill-clinton-jeffrey-epstein-teen-sex-claims-search-palm-beach-mansion-photos photo 1316951 5 13 -AB Page 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK CASE NO. 15-CV-07433-RWS VIRGINIA L. GIUFFRE, Plaintiff, GHISLAINE MAXWELL, Defendant. June 20, 2016 9:12 a.m. CONFIDENTIAL Deposition of , pursuant to notice, taken by Plaintiff, at the offices of Podhurst Orseck, 25 West Flagler Street, Suite 800, Miami, Florida, before Kelli Ann Willis, a Registered Professional Reporter, Certified Realtime Reporter and Notary Public within and for the State of Florida. MAG NA 0 LEGAL SERVICES Page 32 1 - CONFIDENTIAL 2 men and women bodies mixed together. 3 Q. Okay. Do you remember the photographs? 4 MR. PAGLIUCA: Object to form and 5 foundation. 6 THE WITNESS: Not specifically, no. 7 BY MR. EDWARDS: 8 Q. At the point during your statement, the 9 specific passage that I'm asking about is, you say, 10 "Teenage, he's got lots of pictures of teenage 11 girls, like real photos that he took." 12 A. Yeah. They were not displayed. 13 MR. PAGLIUCA: Object to form and 14 foundation. 15 BY MR. EDWARDS: 16 Q. Okay. Where were they? 17 A. I remember one incident where he showed 18 them to me, and they were young women in the 19 bathtub. 20 Q. And did he take pictures of you? 21 A. Yes. 22 Q. Did he take pictures of you naked? 23 A. Yes. As far as I know, they were never 24 recovered. 25 Q. How could you tell that the photographs MAG NA 0 LEGAL SERVICES EXHIBIT 11 Page 1 IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT IN AND FOR PALM BEACH COUNTY, FLORIDA CASE No.502009CA040800XXXXMBAG JEFFREY EPSTEIN, Plaintiff, VS SCOTT ROTHSTEIN, individually, BRADLEY J. EDWARDS, individually, and L.M., individually, Defendants. VIDEOTAPED DEPOSITION OF JEFFREY EPSTEIN Wednesday, March 17, 2010 10:17 a.m.- 1:27 p.m. 303 Banyan Boulevard Suite 400 West Palm Beach, Florida 33401 Reported By: Sandra W. Townsend, FPR Notary Public, State of Florida West Palm Beach Office Job 1358 (561) 832-7500 PROSE COURT REPORTING AGENCY, INC. (561) 832-7506 Electronically signed by Sandra Townsend (401-377-S76-2895) Electronically signed by Sandra Townsend (401-377-676-289S) lddcfb84-b324-4437-a670-765e29067145 Page 89 1 Amendment Rights as provided by the U.S. 2 Constitution. 3 BY MR. SCAROLA: 4 Q. Does a flight log kept for a private jet used 5 by you contain the names of celebrities, dignitaries or 6 International figures? 7 A. At least today, sir, I'm going to have to 8 respectfully decline to answer based on my Fifth, Sixth 9 and 14th Amendment Right, though I'd like to answer that 10 question. 11 Q. Have you ever had a personal relationship with 12 Donald Trump? 13 A. What do you mean by "personal relationship, 14 sir? 15 Q. Have you socialized with him? 16 A. Yes, sir. 17 Q. Yes? 18 A. Yes, sir. 19 Q. Have you ever socialized with Donald Trump in 20 the presence of females under the age of 18? 21 A. Though I'd like to answer that question, at 22 least today I'm going to have to assert my Fifth, Sixth 23 and 14th Amendment Right, sir. 24 Q. Have you socialized with Alan Dershowitz? 25 A. Yes, sir. He's my attorney, as well as a (561) 832-7500 PROSE COURT REPORTING AGENCY, INC. (561) 832-7506 Electronically signed by Sandra Townsend (401-377-676-2895) Electronically signed by Sandra Townsend (401-377-676-2895) 1ddcfb84-b324-4437-a670-765e29067145 Page 90 1 friend. 2 Q. Have you ever socialized with Alan Dershowitz 3 in the presence of females under the age of 18? 4 MR. PIKE: Form. 5 THE WITNESS: Sir, at least here today, I'm 6 going to have to assert my Fifth Amendment, Sixth 7 Amendment and 14th Amendment Rights. 8 BY MR. SCAROLA: 9 Q Have you ever socialized with Tommy Mottola? 10 A. This is the type of questions where people who 11 have nothing to do with this case whatsoever have been 12 brought into the case by Mr. Edwards in an attempt to 13 simply imperil my relationships with social friends and 14 serves as an example of why this case has been brought 15 against Mr. Edwards and his firm, sir. 16 MR. PIKE: Form as well. 17 BY MR. SCAROLA: 18 Q Well, do you know who brought those persons' 19 names into this lawsuit? 20 MR. PIKE: Form. 21 And just to be clear, what Mr. Scarola, I 22 believe, talking about this lawsuit, Epstein versus 23 RRA? 24 BY MR. SCAROLA: 25 Q. Yes, sir, that's the lawsuit I'm talking (561) 832-7500 PROSE COURT REPORTING AGENCY, INC. (561) 832-7506 Electronically signed by Sandra Townsend 001-377-V6-28951 Electronicalty signed by Sandra Townsend M01-377-676-2895 1 ddcfb84-b324-4437-a670-765e29067145 |
Importance: High Navigating post-Trump volatility We are recording unprecedented divergences in falling equity vol with rising rates vol post Trump's win. Intra- day S P realized vol collapsed from near 60 to below 20 in 2d Chart 1 While equities have shown less conviction over what a Trump win means (given strong sector rotation), the bond market has sold off with one of the largest moves in history Chart 2 3 Stabilizing rates volatility from here is key to markets remaining calm and while equity upside may continue, it is not without higher risks We like cheap optionality to hedge long-equities if rates continue to move sharply For investors long equities, we look at ways to cheapen protecting from downside risks in the event of further bond market volatility catalysed by Trump policy uncertainty Buy an SPX Apr-17 95 put conditional on US 10Y CMS 2.5 at maturity for 0.87 O 70 discount vs. vanilla O CMS ref. 2.11 , SPX ref. 2,164.2 CMS constant maturity swap Chart 1: The response in S P 500 realized equity volatility to the US election surprise was similar to Brexit but more extreme, as the spike in volatility collapsed at record speed 140 120 a, 100 .1 80 - a 60 40 5 20 0 20 0 18 ; . . . . e j is US Etecbon (10. 11-Nov vol S 9-Now fol) Brexit (28- 27-Jun lot vs 24-Jun pi) 40 60 80 100 120 SPX 1-day intrcityvol Source: BofA Merrill Lynch Global Research. Based on daily data from June 2004 to current 140 160 Chart 2: Ten-year US Treasury yields see a near record spike after Chart 3: Long Bond futures prices down near record amount the US election (-5 ) in the four days since the election 24 19 14 9 4 I " 8 cn (y) co 0 te) .6, co La. es.1 6 Fs.; 6. 8 co gg (r cr) o 70 15 60 50 10 40 II 30 5 20 10 0 -5 L.r2 :7- 0 -8 (.3 8 - 10 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Largest 4-clav changes in 10yr UST yeelcIs since 1962 Change rneasixed n bps (ngtt) Source BofA Merrill Lynch Global Research. Based on daily data since 1962. Amanda Ens Director Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park, 5th Floor, New York, NY 10036 The power of global connections' Bankof America Merrill Lynch 4-day rehrn of a 30fr UST futures mestrnent 14-Na -16 Source BofA Merrill Lynch Global Research privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. |
Ens, Amanda 11 17 2016 6:05:47 PM jeffrey E. jeeyacation gmail.com ; Richard Kahn Financials: buy XLF Mar17 22 call with 26 KO for 0.87 with full premium rebate on KO image001.png; Future of Financials Conference Takeaways.pdf Importance: High Our Financials Conference was this week and client attendance was up by 66 from last year. Yes, banks financials might pull back at some point after this run-up but we would be buyers on any pullbacks and we continue to see further upside from multiple expansion and earnings growth. Our analyst raised her price targets by 11 across the board. The long term rotation from bonds and div stocks into sectors like financials is only beginning. Vol is higher on the week; what prices well now: Buy the XLF March 2017 22 call with 26 Knock-Out (continuous) for 0.87, with a full premium rebate if knock-out occurs. This prices attractively given flat call skew and if XLF breaches 26 and this knocks out, at least you get your premium back. Please find our Financials report attached. Future of Financials conference hosted 90 public and private companies at our Future of Financials conference. We are raising our price objectives across most of our names. Three primary reasons why we think there is upside remaining after the recent rally: 1) an improved outlook on both activity levels and interest rates, driving revenue upside; 2) potentially lower regulatory burden, particularly as new supervisory leadership can come with the new administration; and 3) relatively lighter positioning in US financials vs. other sectors. (Erika Najarian) We continue to see buyers of XLF today. Funds are underweight financials in all regions, valuations are reasonable, earnings are improving and financials tend to outperform when bond yields rise. Vol is higher today refreshed pricing below. Buy an XLF 17March2017 call spread: Buy the 105 call sell a 110 call with a 115 at-expiry knock-in Total premium: 1.86 Global Positioning in Stocks: Nigel Tupper notes the 4000 funds in our "Positioning in Stocks" analysis are more underweight Financials, on average, than any other sector and are underweight this sector in all regions of the world. If earnings continue to improve and yield rise, which is often the case in an upturn in our Global Wave, then the unloved Financials sector has the potential to continue to outperform. Global Quant Panorama: "Bearish on Bonds" stocks (which tend to move in the opposite direction to bond yields) tend to outperform our "Bullish On Bonds" when bond yields rise. The sectors that tend to perform best as bond yields rise are Energy, Tech, Materials, Banks, and Diversified Financials. Of these sectors, the laggards this year have been Banks and Diversified Financials. With a PE of 15.9x and a PB of 2.0x, Global valuations are reasonable. Also, Risk is near all-time lows in terms of PE in most regions. Now that macro and earnings data have triggered the beginning of a rotation, Value becomes very relevant. It's not too late to buy financials as a medium term trade. They've run up a lot this week but we're getting endless calls from generalists asking which banks to buy there is still more upside to the sector. Banks also provide some offset to your bonds if interest rates continue to move. Our financials sector specialist thinks XLF could have another 20-25 upside given its many levers to the Trump trade: less regulation, higher interest rates steeper yield curve, higher vol, economic growth, etc. The regional banks are asset sensitive and more of a pure play on a rates move but we view the larger cap banks as having even more upside to the Trump Trade given the above points. Buy an XLF 17March2017 call spread: Buy the 105 call sell a 110 call with a 115 at-expiry knock-in Total premium: 1.75 All eyes are on Sunday's 60 Minutes interview with Trump. Market is pricing that all regulations will be rolled back (very optimistic). Any hint that this is not true could lead to pullback on Monday. Note on tech: we're seeing FANG used as a source of funds with the rotation from growth into value. There's also the tax read-through: tech is already relatively tax advantaged 22 ; Industrials are at 30 , Financials at 29 . Next year, tech could benefit from a repatriation tax holiday but that is viewed as more of a Q1 Q2 trade. More thoughts on financials: With respect to the economy, the market is certainly indicating that there will be a large fiscal stimulus which may send US growth higher and that's a good thing for financials for a wide variety of reasons, from employment to wages to loan growth and credit quality (even if somewhat offset by higher rates). It does remain to be seen exactly how much of this expected policy actually gets done, but at the moment, investors are willing to take a certain amount of growth on faith. So those are positives for financials before we even discuss regulation. The move in the financials since the election would seem to indicate that investors have concluded that nearly every piece of financial regulation will get put into a shredder on day one of the new administration. The incoming administration has fueled that with comments about rolling back pieces (or more) of Dodd-Frank in particular. I can see making the case for that to the American public by saying that banks need less regulation in order to get more capital flowing into the economy to drive growth. Not only does that mean that the E is likely too low (meaning that the P E is not as high as it seems) but it could help improve ROE's as well which could increase the multiple of that higher E investors are willing to pay. Note that while ROEs could go higher, it's unlikely that they can get back to the peaks... Amanda Amanda Ens Director Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park, 5th Floor, New York, NY 10036 The power of global connectionsTm BankofAmerica s-ss-40 Merrill Lynch privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. |
2016 Future of Financials Conference Management and client bullishness implies further upside Price Objective Change Equity 17 November 2016 Corrected Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com Conference tone bullish into 2017 We recently hosted over 90 public and private companies and 700 attendees at our Future of Financials conference, where investor attendance was up an impressive 66 YoY. The tone from management and investors was uniformly bullish, with more generalists attending than we have seen in previous years. Revenue regulatory upside positioning raising POs We are raising our price objectives across most of our names. Three primary reasons why we think there is upside remaining after the recent rally: 1) an improved outlook on both activity levels and interest rates, driving revenue upside; 2) potentially lower regulatory burden, particularly as new supervisory leadership can come with the new administration; and 3) relatively lighter positioning in US financials vs. other sectors. Full house at innovation-focused panels New this year, we hosted expert panels on the evolution of clearing, fixed income market structure, equity market structure, and payments, and how innovation in blockchain, big data, and robo advisory can change the game. Strong panel attendance suggested high interest in these themes, and polling feedback suggests shareholders want banks to make investment spend in innovation a priority funded with savings found elsewhere. Banks: Most constructive we've heard in years We are raising our POs for our banks by c11 (see Table 1 page 63). When asked if the election results changed 2017 outlooks, all banks were more enthusiastic about growth. Echoing sentiment from our panel on regulation and M A, banks were upbeat on the CCAR process potentially evolving post-election. Our top picks out of the conference: WFC (sentiment over retail sales practices clouding EPS sensitivity to improving macro), C (solid momentum on revenues and capital return), IBKC (moving closer to strategic targets), and EWBC (sentiment post-election appears constructive on regulatory relief). Brokers, Alternatives, and Asset Managers The sentiment around the capital market sector was mostly favorable post the election outcome, given the potential for de-regulation, pro-growth, rising rates, lower tax rates, and increasing activity levels. For the brokers, given mostly favorable 4Q activity trends (more so for trading vs. banking), 1H17 seasonality with easy comps, and potential for de-regulation and lower taxes we like the outlook, particularly for GS. For the asset managers, despite the move higher post the election on a potential DOL delay modification and lower tax rates, most expect the DOL to continue in some form and the core trends remain challenging we remain cautious. For the alternative managers, while we continue to view the structural growth as attractive and a lower corp tax rate could potentially increase the odds of a transition to a C-corp , given the potential for a higher carry tax, rising rates, and de-regulation of banks potentially moderating some of the newer growth areas, we view the outlook as more balanced. Specialty Consumer finance Companies were generally bullish on the US consumer heading into 2017. AXP presented a fairly upbeat outlook on billings, loan and revenue growth, while cautioning that Discount rate pressures and FX headwinds could impact near-term results. The private tech based lenders were cautiously optimistic that hiccups from earlier this year were behind the sector, while the private payments companies stressed the importance of partnering with incumbent leaders and the need to maintain safety standards. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 78 to 81. Analyst Certification on page 75. Price Objective Basis Risk on page 64. 11687665 Timestamp: 17 November 2016 06:24AM EST United States Banks US Financials MLPF S Erika Najarian Research Analyst MLPF S 1 646 855 1584 erika.najarian baml.com Michael Carrier, CFA Research Analyst MLPF S 1 646 855 5004 michael.carrier baml.com Ebrahim H. Poonawala Research Analyst MLPF S 1 646 743 0490 ebrahim.poonawala baml.com Kenneth Bruce Research Analyst MLPF S 1 415 676 3545 kenneth.bruce baml.com See Team Page for Full List of Contributors Conference tone bullish into 2017 We recently hosted over 90 public and private companies and 700 attendees at our Future of Financials conference, where investor attendance was up an impressive 66 YoY. The tone from management and investors was uniformly bullish, with more generalists attending than we've seen in previous years. When asked how they would describe their portfolio positioning in financial stocks, 60 of the investors polled noted that they are either slightly overweight or very overweight the sector (see Chart 1). Chart 1: How would you describe your portfolio positioning in financial stocks, excluding insurance and REITs? 40 37 35 30 25 20 15 10 5 0 23 16 15 Very overweight Slightly overweight Neutral Slightly underweight 9 Very underweight Source: BofA Merrill Lynch Global Research New this year, we hosted expert panels on the evolution of clearing, fixed income market structure, equity market structure, and payments, and how innovation in blockchain, big data, and robo advisory can change the game. Strong panel attendance suggested high interest in these themes, and polling feedback suggests shareholders want banks to make investment spend in innovation a priority funded with savings found elsewhere. 68 of those polled across multiple company presentations believed that institutions should invest in innovation projects but be mindful of self-funding (see Chart 2). Chart 2: Chart 2: As a shareholder, what statement most closely aligns with your view on how traditional financial institutions should allocate investment spending on innovation? 80 70 60 50 40 30 20 10 0 26 Investment spending on innovation should be top priority 68 6 Given the revenue Institutions should focus on environment, institutions should improving the bottom line and invest in innovation projects but delay innovation projects be mindful of self-funding Source: BofA Merrill Lynch Global Research 2 2016 Future of Financials Conference 17 November 2016 Banks Takeaways With our conference coming a week following a historic US presidential election that helped boost bank stocks by 12 , bank management teams were generally optimistic with regards to the economic outlook heading into 2017. Greater fiscal stimulus that is expected to spur economic growth coupled with potential regulatory relief has helped improve the overall sentiment in the sector. When asked what the biggest impact of the GOP sweep would likely be to bank earnings, 35 noted tax cuts and infrastructure spurring growth as the biggest impact. Chart 3: What do you think is the biggest impact of the GOP sweep to bank earnings? 40 35 30 25 20 15 10 5 0 24 Interest rates rising faster across the curve due to stronger dollar 35 Tax cuts and infrastructure spending spurring growth, therefore better loan demand 31 Lower regulatory burden, driving higher ROEs as excess capital is returned back to shareholders or reinvested for growth 9 No real impact too early to tell Source: BofA Merrill Lynch Global Research An area that has attracted particular attention among bank investors is around the current landscape of multifamily lending. We polled the audience around their outlook for multifamily lending in 2017 and found that 49 of those polled said there was some concern, but only in certain regions and at certain rental price points. Meanwhile, 29 noted softening fundamentals that should lead to slower financing activity and worsening credit metrics (see Chart 4). Chart 4: How do you view fundamentals for multifamily lending in 2017? 60 50 40 30 20 10 0 10 Softening fundamentals should lead to slower financing activity next year 2 Softening fundamentals should lead to worsening credit metrics 29 Softening fundamentals should lead to slower financing activity and worsening credit metrics 49 Some concern, but only in certain regions and at certain rental price points 11 No concern Source: BofA Merrill Lynch Global Research 2016 Future of Financials Conference 17 November 2016 3 Brokers Takeaways In brokers, GS presented, while MS hosted 1-1 meetings with investors. During the conference we polled the audience on several topics including the outlook for capital markets revenues. Investors modestly positive on capital markets over next 1-2 years Given the election outcome, recent rise in rates, potential for higher growth and deregulation, and lower corporate tax rates, we asked investors about their outlook for capital markets over the next 1-2 years. The majority of investors (78 ) were positive about the capital markets sector, with 56 who expect modest improvement in regulation, revenue growth of 5-10 , and returns of 10-12 and 22 who think we could see significant improvement in regulation, revenues growth of 10 , and returns 12 . Chart 5: Based on the backdrop and the election outcome, what is your outlook for the capital markets over the next 1-2 years 60 56 50 40 30 20 10 9 13 22 0 Little to no change in regulation, flattish revenues, and stable returns Little to no change in regulation, but improving revenues (5 ) and returns (10 ) with GDP growth Modest improvement in regulation, revenues (5-10 ), and returns (10-12 ) Significant improvement in regulation, revenues (10 ), and returns (12 ) Source: BofA Merrill Lynch Global Research Asset Manager Takeaways In asset management, four of the largest public managers, IVZ, EV, LM, and AB either presented or engaged in fireside chats, while several other firms including AMG, APAM, BLK, CNS, OMAM, and VRTS hosted 1-1 meetings with investors. During the conference we polled the audience on several topics including the outlook for DOL (in the panel section), the outlook for fixed income given the recent rise in rates expected rate hike and outlook, active vs passive market share, M A, and pricing fee structures. Fixed income outlook more muted Given the recent rise in rates, a looming rate hike in December, and the potential for a higher growth inflation outlook for the economy, we asked investors their outlook on fixed income performance and flows vs equities. The majority of investors believe we will see weaker fixed income performance and flows offset by stronger equity performance and flows (52 ). Weaker fixed income equity performance and flows was the second most popular answer at 24 while flat flows and performance came in third at 16 . Only 8 of the audience think we will see stronger fixed income equity performance and flows, while nobody thinks fixed income will be stronger and equity will be weaker (both flows and performance). 4 2016 Future of Financials Conference 17 November 2016 Chart 6: What is your outlook on fixed income performance and flows versus equities? 60 50 52 40 30 24 20 16 10 8 0 Weaker FI performance flows Stronger equity performance flows Weaker FI and Equity performance flows Flat FI performance flows Flat equity performance flows Stronger FI and Equity performance flows 0 Stronger FI performance flows Weaker equity performance flows Source: BofA Merrill Lynch Global Research Active vs passive outlook passive to continue to gain share Given the ongoing shift to passive investing from active, we polled the audience to see where they think the share split between the two styles eventually settles. Currently the share split is roughly 70 active and 30 passive which was the least popular answer (10 ) when asked do you see improving cyclical demand for active management, despite structural headwinds, and if so where do you think active passive share settles? Most investors do see improving cyclical demand for active management and think passive will eventually control 40 of the market (50 ) while 40 of respondents do not see improving trends for active and that passive will eventually capture 50 of the market. Chart 7: Do you see improving demand for active where do you think active passive share settles? 60 50 40 30 20 10 0 Yes, but structural will persist, with share heading to 60 active 40 passive No, and structural will persist, with share heading to 50 active 50 passive Yes, with the share settling near the current 70 active 30 passive Source: BofA Merrill Lynch Global Research M A activity likely to rise Given a recent pickup in M A and pressures within the industry that will likely continue the trend, including rising regulatory costs, some fee pressure, and active outflows, we asked investors their outlook for M A in the sector. We found that the majority think 2016 Future of Financials Conference 17 November 2016 5 that the number of deals in the asset management sector will increase modestly in 2017 vs 2016 (56 ), 32 see M A picking up significantly, and 12 see flat activity in 2017. Nobody sees lower M A activity in 2017 vs 2016. Chart 8: How will 2017 asset management M A activity ( of deals) be versus 2016? 60 56 50 40 30 32 20 10 12 0 Increase modestly Increase significantly Be stagnant 0 0 Decrease modestly Decrease significantly Source: BofA Merrill Lynch Global Research Pricing fee structure in retail seems to have more of a following Given some underperformance of active managers, some scrutiny around fees, as well as fee pressure from passive, we asked investors if they thought a change in active pricing could make sense, i.e. charge a lower base fee with a variable performance fee that would be earned when alpha is generated. We found a majority of respondents thought it would make sense to change the pricing structure and it could make active more competitive vs passive (67 ). The rest of respondents felt it didn t make sense either because it would be too challenging for the active industry or it would not slow the flows into passive. Chart 9: Do you think a change in industry active pricing (lower base perf fee) could make sense? 80 70 67 60 50 40 30 25 20 10 8 0 Yes, it could make the product more competitive vs. passive products No, it would be too challenging for the active industry No, it would not change the flow trend toward passive products Source: BofA Merrill Lynch Global Research 6 2016 Future of Financials Conference 17 November 2016 Alternative Asset Manager Takeaways Within alternative asset management, four of the public managers, ARES, BX, CG, and KKR presented, while the others did meetings. During the conference we polled the audience on several key topics including the outlook for the equity and real estate markets, potential impacts from the recent election, distribution outlook, and firm structures and business models. Investors were generally bullish on the equity market, potential for fiscal stimulus ahead, and a key focus from investors was on the potential change in taxes following the election, and whether that means reassessing corporate structures for the alts, with a possible change from PTP to C-corp. Investors bullish on the equity markets Our polling results indicate that investors are generally positive on equity market returns over the next year. When asked What is your expectation for equity market returns over the next year? the most common response was 0-10 (51 ), followed by 10 (25 ), 0 to -10 (15 ), and -10 (8 ). Chart 10: What is your expectation for equity market returns over the next year? 60 50 51 40 30 25 20 15 10 8 0 10 0 to 10 0 to -10 More than a 10 pullback Source: BofA Merrill Lynch Global Research Investors are less positive on the real estate market When asked Where do you think we are in the overall Real Estate cycle? most people think that we are in the middle innings with a few pockets of concern (57 ), followed closely by later innings with growing areas of concern (42 ). Very few people think that we are in the early innings of the real estate cycle (1 ). 2016 Future of Financials Conference 17 November 2016 7 Chart 11: Where do you think we are in the overall Real Estate cycle? 60 57 50 40 42 30 20 10 0 1 Early innings with limited areas of concern Middle innings with a few pockets of concern Late innings with growing areas of concern Source: BofA Merrill Lynch Global Research Investors like the growth, superior performance, distributions When asked What is the most attractive aspect of investing in an alternative asset manager? investors like both attractive growth superior performance and high dividends distributions (both at 35 ). Investors also like the long term locked up capital (18 ), while low valuations and wide moats were less important (both at 6 ). Chart 12: What is the most attractive aspect of investing in an alternative asset manager? 40 35 35 35 30 25 20 18 15 10 5 6 6 0 Attractive organic growth superior performance High dividends distributions for shareholders Wide moats for established firms Long term locked up capital Low valuations Source: BofA Merrill Lynch Global Research Despite moderating distributions of late, most expect flat to higher in 17 When asked Where do you think distributions for the industry will be in 2017 vs. 2016? investors expect roughly flat or up 5-15 (both at 37 ), followed by down 5- 15 (21 ). Few investors expect distributions to change more than 15 year-overyear. 8 2016 Future of Financials Conference 17 November 2016 Chart 13: Where do you think distributions for the industry will be in 2017 vs. 2016? 40 37 37 35 30 25 20 21 15 10 5 0 0 Roughly flat Up 5-15 Up 15 Down 5-15 Down 15 5 Source: BofA Merrill Lynch Global Research Election results could have far reaching impacts for the sector When asked What is the most likely impact from the election results on the alternative asset managers? investors were fairly mixed in their responses, indicating to us that investors expect a number of changes. The most common response was increased tax on carried interest (33 ), followed by higher rates impacting financing costs and some returns (27 ), then stronger economic growth and healthy returns (20 ). Few investors expect a decrease in bank regulation slowing alternative manager growth in new areas (13 ) along with too much euphoria leading to a market correction (7 ). Chart 14: What is the most likely impact from the election results on the alternative asset managers? 40 35 30 25 20 15 10 5 0 20 33 Stronger economic Increased tax rate growth and on carried interest healthy returns for the alternative managers 27 Higher rates impacting financing costs and some returns 13 Decreased bank regulation potentially slowing growth in new areas 7 Too much euphoria leading to a market correction and deployment opportunities Source: BofA Merrill Lynch Global Research Specialty Consumer finance Takeaways Companies were generally bullish on the US consumer heading into 2017. AXP presented a fairly upbeat outlook on billings, loan and revenue growth, while cautioning that Discount rate pressures and FX headwinds could impact near-term results. The 2016 Future of Financials Conference 17 November 2016 9 private tech based lenders were cautiously optimistic that hiccups from earlier this year were behind the sector, while the private payments companies stressed the importance of partnering with incumbent leaders and the need to maintain safety standards. US Banks Top Takeaways Associated Bancorp (ASB) B-3-7, Underperform A strong Midwest market should lead to steady growth: ASB s CEO Phillip Flynn and CFO Chris Niles highlighted the strong fundamentals of the bank s Midwest footprint with its low unemployment and a strong manufacturing base. While commenting on the potential for relief coming out of DC under the new Trump administration, management noted that shortage of skilled workers was probably the biggest issue impeding businesses in its footprint versus higher taxes or an overly stringent regulatory environment. CRE represents a growth opportunity: Management was positive on growth prospects within the CRE loan portfolio, which represents 24 of avg loans as of 3Q16. Management is targeting CRE to represent 30-40 of the portfolio in order for consumer, CRE, and commercial to each comprise approximately a third of the loan book. In the near term, executives see opportunities in the CRE space in 2017 as pricing and structure improve benefitting from a pullback by lenders with high CRE concentration. Energy portfolio should begin to stabilize: While management analyzes the energy book on a credit by credit basis, it noted caution if oil prices fell significantly. However, management noted that the energy book reflects lower energy prices as new energy loans price in lower hydrocarbon pricing vs. the maturing loans. Regarding energy loan growth, management expects muted growth going forward as the benefit from new loans will most likely be offset by continued pay-downs by existing customers. Dec rate hike to surface in 1Q17 margin: Management expects a Dec rate hike to have little impact on 4Q given that its LIBOR based portfolio would re-price on Jan 1. On the other hand, interest expense is expected to rise as deposits that are linked to benchmark rates re-price higher. Last year, the margin fell 1bp QoQ following the Fed rate hike as deposit costs rose 8bp QoQ. Management noted that 1Q16 saw lower loan renewal rates and compression from cost of funds, but that its cost of funds are in a better position this year, which should help lead to a modest positive impact to the margin in 1Q17 from a Dec rate hike. Fee businesses could get augmented by additional M A: Within fees, management views insurance as the best opportunity from non-bank M A. Recall that ASB completed the acquisition of Ahmann Martin in 02 15. Management noted that it saw a significant opportunity from providing consulting services around employee benefits to small-to-medium sized businesses. Moreover, any changes to the Affordable Care Act that creates added uncertainty in the market would present an incremental revenue growth opportunity for this business. 10 2016 Future of Financials Conference 17 November 2016 Chart 15: Would you want to see ASB partner with emerging online lenders to augment organic growth? 70 60 50 40 30 20 10 0 Yes, partnership with online lenders provides a good source of loan growth No, given the uncertainty around how these loans will perform during a credit downturn Source: BofA Merrill Lynch Global Research BB T (BBT), B-1-7, Buy Pent up demand in small and middle market corporates. COO Chris Henson was upbeat with regards to the growth outlook for the US economy post the US elections, particularly from middle market companies that have been extremely cautious around making investments over the last few years. Mr Henson noted that as business confidence rises on back of potentially stronger job growth and lower tax reductions, BBT should see strength across its core banking operations. Out of M A in the near term but looking to grow long term. Management reiterated that it is out of the M A game for now as it looks to execute on delivering its targeted synergies from recent deals. That said, management expects to eventually engage in M A deals with BBT having the infrastructure for double its size, noting that scale has become important in the current regulatory landscape. When asked where investors would like BBT to focus on doing deals, 59 noted that it would like management to pursue fee related businesses while 23 would like management to prioritize dividend maximization. Chart 16: Do you expect the deal activity in financial services to pick up in 2017? Chart 17: Once M A is back on the table, where would you like to see BBT focus on doing deals? 100 90 80 70 60 50 40 30 20 10 0 87 Yes 13 No 70 60 50 40 30 20 10 0 18 Depository deals 59 Fee-related businesses 23 Would rather they prioritize maximizing the dividend Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research Well positioned from rising rates. Given the outlook for higher interest rates on both the short and long end of the curve, Mr. Henson noted that while BBT tries to maintain a relatively neutral balance sheet, it would expect to see upside in the margin on back of higher rates. Additionally, higher long rates could also help drive 2016 Future of Financials Conference 17 November 2016 11 lower pension expense as it reduces the overall discounted pension liability given that BBT remains one of the few large regional banks that still have defined benefit pension plans. Potential for regulatory relief requires BBT to reevaluate risk compliance spending. Management noted that 75-80 of its infrastructure budget is based around risk management and regulatory costs. Given the possibility of regulatory relief coming out of the new administration, management noted that it does not want to misallocate its expense spending. As such, management expects to redeploy some of those compliance related costs into revenue and service generation opportunities stemming from any regulatory relief. Branches still have value, but the structure will likely change. Mr. Henson noted that he still sees value from BBT s branch network but increasing customer usage across its digital channels and with branch transactions down 4 , he expects continued branch consolidation at a pace of more than 2-2.5 over the next couple years. Moreover, management believes that future branches will be likely be smaller in nature and staffed with fewer people that are cross trained with multiple responsibilities. As an example of this, Mr. Henson noted that BBT has combined its teller and relationship banking role into one branch banker role. Chart 18: What do you think is the biggest catalyst for BBT shares over the next 12-24 months? 45 40 35 30 25 20 15 10 5 0 30 Successful integration of its recent deals and achieving synergy targets 41 Strong top-line organic revenue growth, regardless of macro backdrop 11 Expense rationalization 15 Accretive bank and or non-bank deals 4 Continued outperformance in dividend growth and dividend yield Source: BofA Merrill Lynch Global Research Bank of Hawaii (BOH), B-3-7, Underperform Solid loan growth on back of a strong HI economy. Chairman, President and CEO Peter Ho, Vice Chairman and CFO Kent Lucien and Senior Executive VP, Controller and Principal Accounting Officer Dean Shigemura were generally upbeat with regards to the operating outlook as we enter 2017. Management guided to achieving low double digit loan growth on the back of a robust Hawaiian economy. While management expects some moderation in C I growth following a strong 3Q it sounded upbeat around the lending outlook given fairly healthy tourism activity. Management noted that while a de-emphasis on the Pacific Alliance, a priority for the Obama administration, was not a positive development, it remained fairly confident that strong military spending should continue to serve as a tailwind to the Hawaiian economy. Credit outlook remains benign. Mr. Ho affirmed the credit environment has been benign and believes BOH s strong credit will remain intact in the near future. As loan growth improves, Mr. Ho acknowledged provisions should follow a similar trend, but nothing on the horizon suggests credit will worsen anytime soon. Management acknowledged reserve balances are hard to predict, but believes the 12 2016 Future of Financials Conference 17 November 2016 greatest likelihood is for the loan loss reserve ratio is to stabilize near current levels. Remains asset sensitive. Management acknowledged positive trends coming out of a future Trump administration, with one being the positive benefit from higher rates. With a December rate hike likely on the horizon, CFO Kent Lucien reminded investors that a 25 bp rate increase would benefit NII marginally ( 1.5mn on an annual basis), but as the 10yr continues to rally, spread income will benefit more significantly. A 100 bp increase contributes to a 5.2 increase in NII on an annual basis. Continued focus on expenses. Management expects expenses to come in at the upper end of their 3 to 3.5 guidance this year, mainly due to performance based expenses such as stock based comp and commissions. A potential source of expense savings should be reduction in the size of its branches, not necessarily overall count. While management has piloted this new branch design it believes that converting the entire branch network will be a multiyear process. Capital deployment remains a priority. BOH continues to provide great transparency in regards to their capital deployment strategy. Management reiterated their commitment to payout 50 of net income in the form of dividends, with a remaining portion going to buybacks. BOH has completed over 400mn in buybacks over the past five years and noted that they are very comfortable with this strategy, given its proven track record. Chart 19: What do you see as the biggest headwind to BOH s 2017 EPS growth outlook? 45 40 35 30 25 20 15 10 5 0 20 Normalizing credit provisioning costs? 40 40 Slowing loan growth following a strong 2016 Pressure on expense growth 0 Pressure on the net interest margin Source: BofA Merrill Lynch Global Research 2016 Future of Financials Conference 17 November 2016 13 Chart 20: With regard to capital deployment, what would you like management to focus on? 70 60 57 50 40 30 29 20 14 10 0 Increase dividend payout Increase the pace of share buybacks Continue with current capital management strategy Source: BofA Merrill Lynch Global Research Capital Bank Financial (CBF), C-1-7, Buy Investor expectations for CBF to achieve its ROA target increased YoY. Of the audience polled, 75 believe CBF to achieve its 1.1 ROA by YE17. This compares to 67 of the audience polled last year. CEO Gene Taylor highlighted both the organic growth opportunities and limited expense growth for the bank to achieve its ROA target. Although the bank is expected to cross 10bn in assets next year, management sounded confident that there would be little incremental expense growth as the bank has already built out leverageable systems. Chart 21: What do you consider as the single most important catalyst for CBF shares in 2017? 60 50 40 30 20 10 0 50 Achieving its profitability targets 42 A bank acquisition Source: BofA Merrill Lynch Global Research 0 0 Acceleration in loan growth 8 Increasing Higher capital returninterest rates Chart 22: Do you think CBF will achieve its 1.1 core ROA target by YE17? 80 70 60 50 40 30 20 10 0 75 Yes Source: BofA Merrill Lynch Global Research 25 No Expectations around COB merger remain intact. CBF reiterated their expectations to fully recognize the 39 of cost savings related to the CommunityOne merger by 2017 year-end. (Systems conversion is slated for mid- 1Q17, with initial savings expected to be realized starting 2Q17). During their presentation, management introduced the source of these savings (new disclosure), with the majority expected to come from executive management compensation (23 ) and back-office functions (33 ). Capital deployment remains a key catalyst for the stock. Management agreed with the 80 of the audience polled that believe the pace of M A activity will pick YoY (slightly better than last year s forward expectations). While management noted that it remains focused on integrating COB, and acknowledged that it remains 14 2016 Future of Financials Conference 17 November 2016 active in terms of M A discussions, CBF continues to evaluate all opportunities that promise the best returns for shareholders. Interestingly, investor sentiment around CBF s positioning within the M A market shifted, 75 of respondents believing the pro forma institution is better positioned to act as an acquirer. (Note last year, 55 of respondents believed CBF would be a takeout candidate in the medium term. Chart 23: Do you think the pace of M A activity will pick-up significantly in 2017 vs. 2016? 90 80 70 60 50 40 30 20 10 0 80 Yes Source: BofA Merrill Lynch Global Research 20 No Chart 24: Does the acquisition of CommunityOne better position CBF as an acquirer or a takeout candidate? 80 70 60 50 40 30 20 10 0 75 Acquirer Source: BofA Merrill Lynch Global Research 25 Takeout candidate CBF expected to prudently grow in CRE as bank is underpenetrated. CFO Chris Marshall acknowledged that there exist signs of frothiness within the multi-family lending segment. That said, he noted there is still room to grow as peers pull back in response to regulatory oversight (3Q: 161 vs. 300 threshold). That said, management remains selective and has implemented a 25-30 concentration limit (3Q: 22 ). Citigroup (C), B-1-7, Buy Markets revenue up YoY so far, down from robust 3Q. President and CEO of ICG Jamie Forese and CFO John Gerspach noted that at this current point in time, they expect a seasonal sequential decline in Markets revenue in 4Q, but revenues should be up YoY on back of stronger activity levels post the election. Moreover, banking activity is looking consistent with prior quarters. DTA impact from lower tax rates. Given the possibility of lower tax rates under the new administration, there have been many questions around what a potential tax cut could mean on C s ability to re-capture some of its DTA. Management noted that the impact will depend on 1) the ultimate tax rate, 2) either a worldwide or territorial regime, and 3) the time it takes to reflect the new changes. A federal tax cut would directly impact the 21B timing related differences component of its DTA balance. Assuming a 20 decline in the federal tax rate, this would imply a 4B charge to the P L (20 X 21B). That said, C has 7B of timing difference DTA that is not includable in its regulatory capital. As a result, that 4B impact would not have an impact on its CET1. In the event that there is a territorial regime, there is an element in its foreign subs equal to 30 of the 21B that would lose its value at an accelerated rate. Assuming a 25 tax rate and territorial regime, management noted that there would be roughly 12B worth of DTA that would see some valuation adjustment and drive a 4B of reduction in its regulatory capital. Aiming to improve market share in Equities. Management noted that C currently ranks around 8-9th in the Equities business and while it is not looking to achieve a top 3 market share, it would like to improve to around 5-6th. Management noted that the revenue gap to reaching that ranking is 1B. While not all of that is 2016 Future of Financials Conference 17 November 2016 15 expected to fall to the bottom line, management noted that achieving this would be accretive to its overall margin. We note that when asked where is C s biggest opportunity to take global market share within ICG, 47 of those polled said the biggest opportunity lied within the Equities business. Chart 25: Where do you think C s biggest opportunity is to take global market share within its IGC business? 50 45 40 35 30 25 20 15 10 5 0 Source: BofA Merrill Lynch Global Research Lower regulatory constraints versus peers present opportunity. Given C s strong regulatory position such as its above peer SLR ratio, management noted that it can compete in balance sheet intensive businesses such as Rates while more constrained peers are forced to pull back. In terms of its ability to take market share away from European banks, management noted that European banks are more likely to cede share in Fixed Income and less so within Equity and Banking. Longer term goal of 14 ROTCE in ICG. Management believes that under a more normalized rate environment and through its work towards improving efficiencies across ICG on back of its infrastructure refinements, ICG should be able to achieve a 14 ROTCE vs 12 today. Chart 26: Despite material progress, C shares still trade below TBV. What will drive shares to re-rate closer to TBV? 40 35 30 25 20 15 10 5 0 31 Source: BofA Merrill Lynch Global Research 47 22 Fixed income markets Equity markets Banking (Treasury Trade Solutions, advisory, ECM, DCM) 34 Continued increase in capital return from the 10.4B expected return under the 2016 CCAR cycle 37 Consistent improvement in revenue momentum 12 Continued core cost control, with further reductions in legal repositioning charges 10 Accelerated recapture of its deferred tax asset (DTA) 7 Further simplification of its global business model 16 2016 Future of Financials Conference 17 November 2016 Chart 27: Where do you see Citicorp s efficiency ratio settling in 2017? 80 70 71 60 50 40 30 20 10 21 9 0 Below the 58 reported YTD in 16 In-line with the 58 reported YTD in 16 Above the 58 reported YTD in 16 Source: BofA Merrill Lynch Global Research East West Bancorp (EWBC), B-1-7, Buy Sentiment post-election appears constructive on regulatory relief. CEO Dominick Ng noted that the industry could be positively impacted should aspects of Dodd-Frank, which have been both challenging and taken up significant internal resources (even for banks below the 50bn SIFI asset threshold), be reformed. Specifically, Mr. Ng believes the pace of expense growth could likely slow. That said, he noted the possibility to shift some of these expense savings to revenue generating areas. EWBC sees limited impact from anti trade rhetoric during the run-up to the US elections. Although recent political rhetoric on China has had a negative bias, Mr. Ng believes these views are primarily focused on the traditional-manufacturing Chinese industries vs. the country s current strategic emphasis on tech and consumer retail. Despite having only a 4 exposure to Greater China (includes Hong Kong), EWBC benefits from its unique positioning, both as industry experts in parallel industries and as a relationship bank. Investor sentiment agreed; with 86 of the audience polled have a bullish view of EWBC s China exposure. Chart 28: How does China exposure impact your investment thesis on EWBC? 50 43 43 40 30 20 14 10 0 Makes me cautious, especially given the anti-trade rhetoric in the run-up to the US elections Makes me bullish, as China provides an attractive growth opportunity 0 Makes me cautious, given a slowing Chinese economy Does not matter much, given EWBC s earnings are far more levered to the US economy Source: BofA Merrill Lynch Global Research EWBC reiterated its strategy to sell CRE loans in favor of portfolio diversification. Although Mr. Ng expressed caution on the overall commercial real estate (CRE) market, he noted seeing little tangible signs of concern within EWBC s footprint. That said, EWBC could continue to look to sell CRE loans in order to keep the loan portfolio balanced and thereby limit the reliance on any one segment. Note: CRE concentration was 261 of risk-based capital as of 3Q vs. 265 in 2Q. 2016 Future of Financials Conference 17 November 2016 17 EWBC to maintain capital for organic growth opportunities. As of 3Q, EWBC s CET1 ratio was 10.9 . While EWBC isn t opposed to using excess capital for an acquisition (depending on the market landscape), Mr. Ng prefers to use capital to support organic growth opportunities and the dividend (1.75 div yield). With respect to share repurchase, EWBC seemed less enthusiastic to buy back stock at current valuation levels (2.3x TBV). First Hawaiian (FHB), C-2-7, Neutral Positive outlook around the Hawaiian economy. Chairman and CEO Robert Harrison and CFO Treasurer Michael Ching were optimistic with regards to the outlook for the Hawaiian economy, particularly around tourism trends. While the recent strength of the dollar could impact the inflow of foreign tourists (with Japan and Canada the key foreign markets for HI) to the island, management noted that the potential for an increases in domestic tourism could help offset the pressure from any slowdown due to a stronger USD. Positioned well for higher rates. With regards to its outlook on the impact of potentially higher interest rates, management noted that it remains asset sensitive with 60 of its loan portfolio floating rate. On the funding side FHB expects the deposit beta to remain low given the competitive dynamics in the Hawaii landscape. Management anticipates that another 25bp increase in the Fed Funds rate in December could have a similar impact on the NIM ( 6bp) as it experienced following the previous rate hike in Dec '15. Cash deployment to securities completed. Management noted that it has completed the liquidity actions that it planned to take from deploying excess cash into its securities portfolio and the full impact of this should be visible in 4Q results. Note the securities portfolio duration is 3.3yrs at the end of 3Q16. Management noted that it prefers to keep 400-500mn at the Fed in cash liquidity. Continued focus on maintaining dividend payout. In terms of capital management, management reiterated that it would like to maintain a healthy dividend payout. Given that additional capital return from buybacks are limited due to the Fed s CCAR process (which FHB is subject to given that it is part of a larger holding company owned by BNP), management intends to increase its capital payout to shareholders (via higher dividend and buybacks) over time. Expenses to stay relatively elevated in near term. During the audience poll, when asked about what management should prioritize in 2017, 38 of the investors polled noted that they would like management to manage core expense growth while 31 would like management to increase the dividend payout to over 50 of earnings. Management noted that the efficiency ratio would likely trend around 50 , modestly higher than the 48.5 it reported in 3Q as it incurs additional public company costs ( 14.5 17mn of expenses), but over time should move back below in the mid-to-high 40s. 18 2016 Future of Financials Conference 17 November 2016 Chart 29: What is the single biggest factor that would prevent you from buying or increasing exposure to FHB? 45 40 35 30 25 20 15 10 5 0 40 27 FHB s premium valuation Exposure to the auto sector Liquidity overhang tied to a single large shareholder (BNP owns 82 of shares o s) 33 Source: BofA Merrill Lynch Global Research Chart 30: What would you like management to prioritize in 2017? 40 35 30 25 20 15 10 5 0 38 Managing core expense growth to under 2.5 31 25 Increase its dividend Initiate a stock buyback payout to over 50 of program earnings 6 Pursue M A opportunities Source: BofA Merrill Lynch Global Research Great Western Bancorp (GWB), B-1-7, Buy GWB sees three potential benefits following the US presidential election results. Chief Financial Officer Peter Chapman sounded optimistic that clarity around the corporate tax policy could act as a much needed impetus to spur lending activity. Secondly, current prospects for Head of Ag under the new administration are viewed as a net positive for the industry. Lastly, while GWB has already begun to see regulatory costs increase now that they ve exceeded 10bn in assets, management could see a potential for compliance costs to rationalize should the new administration reform the regulatory framework. Management s revised growth rate outlook was meant to level set expectations. During its 3Q16 earnings call, management tempered loan growth expectations slightly to mid-single digits for FY16 vs. mid-to-high single digits. Interestingly, this was the number one reason among investors polled as to why they were hesitant to increase their exposure to GWB. That said, management sounded optimistic about the growth opportunities within its AZ and CO markets. While growth in C I should see continued momentum, management noted increased competition around pricing as banks tapped out of the CRE markets look to make C I loans. On CRE, GWB sees itself as a potential beneficiary from pullback by some of its competitors. While management was generally constructive of the 2016 Future of Financials Conference 17 November 2016 19 CRE market across its footprint it noted some caution around the health of the market in Denver. Chart 31: What is the primary reason keeping you from buying increasing exposure in GWB? 40 38 38 35 30 25 25 20 15 10 5 0 Ag exposure, as the weakness Stock valuation, see better Cautious commentary around in the farm sector increases risk reward elsewhere loan growth during 3Q16 credit risk earnings Source: BofA Merrill Lynch Global Research Ag portfolio offers unique opportunity, but management believes fears overstated. As of 3Q16, ag loans represented 25 of the total portfolio (36 in grains, 50 in proteins and 14 in other). Tied for first at 38 as a reason why investors are hesitant to increase exposure to GWB resonates from the bank s ag exposure. While lower grain prices may constrain cash flow on those loans nearterm, Mr. Chapman noted that this is offset by stronger yields. Management also highlighted the relatively low losses observed historically in this portfolio given the significant experience within GWB's management ranks in lending to this segment, including in the 1980s the last stress period for the farm sector. That said, management remains committed to this business as it is key to GWB s footprint. Management reiterated its commitment to actively manage excess capital. Although management is comfortable with its current capital levels (3Q: 9.5 tier 1 leverage), Mr. Chapman noted the bank s preference is to put its excess capital to work. Management reminded investors of the criteria it looks for in a potential target. While they continue to look for opportunities within their footprint, specifically IA and KS, they remain disciplined. In addition to its recently authorized repurchase program of 100mn, management believes a total payout ratio of 30 is maintainable. IBERIABANK (IBKC), B-1-7, Buy Focused on moving closer to its strategic targets: President and CEO Daryl Byrd and Senior Vice President John Davis were upbeat around the outlook for economic growth across IBKC's 10 state footprint as the bank looks out into 2017. While management has thus far not provided any specific guidance for 2017, we expect this to be forthcoming in conjunction with the announcement of 4Q16 results in January. Moreover, management sounded cautiously optimistic that pro-growth policies (if implemented) coupled with some relief on the regulatory front under the new Trump administration could lead to a much stronger growth outlook Energy credit costs should trend lower: Management noted the overall energy portfolio should continue to trend lower but is expected to moderate as run-off in stressed energy loans (and loan payoffs) are partially offset by new energy loans, with management looking to selectively lend again in the sector. Moreover, with energy criticized loans peaking in 1Q16, management expects the criticized loans to trend lower barring any major declines in oil prices. 20 2016 Future of Financials Conference 17 November 2016 Ready for M A: While a depressed valuation (due to the volatility surrounding oil prices) had kept IBKC out of M A, given the recovery in valuation it noted its desire to pursue potential deals across its footprint. Management also noted that while the recent move in equity markets had pushed up valuations for potential publicly traded sellers, it sees significant opportunity among the privately held banks that may look for a merger partner to gain liquidity and monetize the improving sentiment surrounding bank stocks. From a size standpoint, management did not rule out larger deals. This is not surprising given that IBKC has not shied away from pursuing relatively large sized deals previously. Rate increase to boost the margin: In terms of its interest rate sensitivity, management noted that it retains an asset sensitive balance sheet, with a potential 25 basis point move in the Fed Funds rate expected to add 5c to quarterly EPS. That said, management recognized that slower mortgage activity due to rising long rates could temper the revenue outlook for its mortgage business. Chart 32: What is the biggest factor that prevents you from owning or adding exposure to IBKC? 60 50 50 40 30 20 20 30 10 0 Energy exposure Potential that the bank will enter into a large M A deal Valuation, see better risk reward elsewhere Source: BofA Merrill Lynch Global Research JPMorgan Chase Co (JPM), B-1-7, Buy Pent up demand from macro uncertainty offers growth opportunity. Doug Pento, CEO of JPM s Commercial Bank, sounded optimistic around the opportunity within commercial banking from the pent-up demand in the market that was constrained by the uncertainty surrounding the election. In addition, he highlighted the increased opportunity generated by JPM s expansion into 44 new markets since 2008, specifically in LA. This coincides with 62 of the audience polled who believe top-line revenue growth is most important for the stock to continue its outperformance. 2016 Future of Financials Conference 17 November 2016 21 Chart 33: As a current or prospective JPM shareholder, what do you think is most important for the stock to continue its outperformance next year? 70 60 50 40 30 20 10 0 62 Top-line revenue growth 0 Continued expense management 14 Positive shift in the interest rate backdrop 10 Accelerating capital return 14 More clarity on regulatory and or litigation issues facing the industry Source: BofA Merrill Lynch Global Research JPM cautious on CRE; however, overall credit remains benign. Forty-eight (48 ) percent of the audience polled believe concerns around multi-family fundamentals will be concentrated in certain regions. Although credit for the overall bank remains benign, Mr. Petno believes we are in the later stages of the real estate cycle and expressed a cautious tone on the high-end condo construction market. That said, JPM is primarily exposed to more stable, multi-family credit (i.e. rent-controlled apartments) where the average loan to value is 60 . Chart 34: How do you view fundamentals for multifamily lending in 2017? 60 50 40 30 20 10 0 6 Softening fundamentals should lead to slower financing activity next year 3 Softening fundamentals should lead to worsening credit metrics 35 Softening fundamentals should lead to slower financing activity and worsening credit metrics 48 Some concern, but only in certain regions and at certain rental price points 6 No concern Source: BofA Merrill Lynch Global Research With tech digital intellectual property at fingertips, capabilities within CB are on horizon. Mr. Pento expressed his intention to leverage the technology that the Investment Bank has and the investments that the Consumer Bank has to build the right digital and mobile platforms for the bank s commercial clients. He noted that they have the largest investment and digital budgets ever this year and expect it to increase next year. New York Community Bancorp (NYCB) C-1-8, Buy Completion of Astoria acquisition best outcome for both banks: Following the recent announcement of a regulatory delay in getting approval for the Astoria acquisition, NYCB CEO Joe Ficalora and CFO Thomas Cangemi reiterated that closing the Astoria deal represents the best outcome for both banks. Beyond that management was limited in its ability to talk about what particular factors led to the delay and refrained from providing a specific timeline to close the deal assuming that the BoDs at both banks agree to extend the deal deadline beyond 22 2016 Future of Financials Conference 17 November 2016 YE16. Management was quite clear that the bank was unlikely to cross the 50bn SIFI asset threshold on an organic basis until the SIFI threshold is moved higher, which would take an act of Congress. Chart 35: What is the biggest risk that prevents you from owning increasing exposure to NYCB? 60 50 40 41 53 30 20 10 6 0 Uncertainty tied with the Astoria acquisition Overhang from a softening in the NYC multifamily space Liability sensitive balance sheet that could see pressure on the margin from rising interest rates Source: BofA Merrill Lynch Global Research Regulatory relief would be meaningful for NYCB: Given that the prolonged timeline for gaining regulatory approval for the Astoria acquisition can be attributed to the pro-forma entity crossing over the 50bn SIFI asset threshold, management noted the significant relief it would receive from legislative action that would push this threshold higher. This would not only make the regulatory burden following the closing of the Astoria acquisition more manageable, but would also allow NYCB to look at additional M A opportunities once it integrates Astoria. Moreover, any potential relief on LCR compliance would also be welcomed by management as it would remove a source of significant pressure on its net interest margin. Higher rates could accelerate refinance activity: While investors tend to view rising rates as a headwind to refinance activity, management noted that it had already seen a pick-up in applications as borrowers look to lock-in rates based on the fear that rates could be significant higher 6-12 months out. As a result, this could provide a near term boost to the margin from higher prepay income. Steepening yield curve leading to rising lending rates: Management noted that it had recently increased its multifamily coupon by 0.375 to 3.50 on the improved interest rate environment. NYCB was not alone in this rate hike as SBNY commented that it recently moved up lending rates for its 5-year and 7-year fixed multi-family loans. Notably, the increased lending rates are above the current book yield of NYCB's loan book implying the potential to offset some of the potential pressure from higher funding costs following the December rate hike. NYCB able to withstand downturn in multifamily market: Management was also upbeat on its ability to withstand a downturn in the multifamily market given its history through multiple credit cycles of outperforming on credit metrics. While it is debatable how close we are to the next downturn, we believe that the defensibility of NYCB's balance sheet is a key strength of the bank and should create significant 2016 Future of Financials Conference 17 November 2016 23 organic and M A driven growth opportunities during the next downturn. That said, management noted that it was very likely that potential pro-growth measures taken by the incoming Trump administration could push out any downturn, as in the short run the economy would witness stronger growth. Chart 36: How do you view fundamentals for multifamily lending in 2017? 60 50 40 30 20 10 0 11 Softening fundamentals should lead to slower financing activity next year 0 Softening fundamentals should lead to worsening credit metrics 28 Softening fundamentals should lead to slower financing activing and worsening credit metrics 50 Some concern, but only in certain regions and at certain rental price points 11 No concern Source: BofA Merrill Lynch Global Research Regions Financial (RF), B-2-7, Neutral Regions harnessing consumer to drive growth: Scott Peters, Senior EVP and Consumer Services Group Head, Logan Pichel, Consumer Lending Group Head, and Darren Smith, Treasurer, noted that Regions is utilizing its retail platform to drive growth. Management highlighted strength in mortgage, card, and online lending as avenues for growth. Importantly, management felt the US election has provided tailwinds for Regions revenue growth prospects heading into 2017. Combined with a better rate back drop, management sounded upbeat on its outlook. Chart 37: What do you think is the biggest impact of the GOP sweep to bank earnings? 40 30 20 10 20 36 32 12 0 Interest rates rising faster across the curve due to stronger dollar Tax cuts and infrastructure spending spurring growth, therefore better loan demand Lower regulatory burden, driving higher ROEs as excess capital is returned back to shareholders or reinvested for growth No real impact too early to tell Source: BofA Merrill Lynch Global Research Multiple channels to drive loan growth: Management illustrated several avenues for loan growth. Within mortgage, Regions has 450 originators that generate 95 of its 6bn in annual originations. Management is seeking to increase its originations from home loan direct and telephone banking to 15-20 of total originations (currently 5 of originations) given the greater profitability from these channels. Card growth has also been strong with active credit card growth at 12 24 2016 Future of Financials Conference 17 November 2016 YoY and card penetration reaching 20 . Importantly, management is utilizing online lenders like GreenSky, a nationwide point-of-sale home improvement business, to drive growth as balances having increased to 660mn (1 of loans) from its 2014 inception. Of note, management expects challenged growth in auto, though its exclusive lending to the prime space limits the credit downside. Chart 38: How do you view the impact of new online lending startups on the banking industry? 60 50 40 30 54 38 20 10 8 0 A revenue growth opportunity as banks partner with these new players Potential disruptors that will likely take market share away from traditional lenders Online lending start ups don t offer anything proprietary Source: BofA Merrill Lynch Global Research Possible tailwind from regulation: Management at Regions noted that while it is still uncertain how the regulatory landscape will evolve, a more favorable environment could allow Regions to free up investments tied to regulatory initiatives and risk management. Management would likely direct these funds to product development and customer initiatives. Asset sensitive, particularly to the long end: Regions executives noted its highly asset sensitive balance sheet given the more favorable rate back drop since 3Q. According to management, a 100bp parallel shift in the yield curve produces 175mn in incremental spread revenue (11 of 17e operating income) with twothirds of the impact coming from the middle to long end of the curve. Part of the benefit of a rate rise is derived from lower premium amortization on its investment portfolio from higher rates. Given the steepening of the yield curve, we expect Regions to benefit more than peers. Branch network continuing to evolve: Management intends to increase the productivity of its branches through several measures. Firstly, it is designing smaller, more visible locations to drive traffic. Management is also implementing the universal banker model, which has already resulted in 500 fewer tellers, in order to increase revenues at branches. Management noted that it expects to consolidate at the higher end of its expected 100-150 branch reductions, having already identified 90 branches for closure. Signature Bank (SBNY), B-1-9, Buy Focused on 4-6bn asset growth target: President CEO Joe DePaolo EVP Eric Howell sounded fairly optimistic about the outlook for balance sheet growth with 4bn in loan growth and 4.6bn in deposit growth YTD as of 9 30 vs. management target for 4-6bn in annual asset growth. Management reiterated that the fundamentals of the multifamily business (which is focused on the low-to-moderate 2016 Future of Financials Conference 17 November 2016 25 income segment) have not changed despite the headlines surrounding a softening in the multifamily space. Hiring bankers, even as team hiring on pause: On the hiring front, management noted that although it does not expect to hire teams heading into year-end, it is continuing to hire individual bankers (recently hired 4 to 5 lenders). Hiring will be focused on C I and specialty finance lenders. Management does not expect to hire additional CRE lenders. Easing in regulatory environment could provide some relief on expense growth: With regard to the potential for some easing of regulatory burden on the banks (important here as SBNY approaches the 50bn asset threshold) under the incoming Trump administration management noted that it could see some abatement in expense growth associated with compliance costs. However, management is running the business based on the current regulatory framework and will look for more tangible signs before it makes any changes to investment decision, especially as it relates to the compliance infrastructure. Lending rates reflecting the steepening in the yield curve: SBNY noted that it had raised rates on its 5-year fixed by 0.125 to 3.5 - 3.625 and 7-year fixed up by 0.25 to 4.0 -4.125 following the steepening in the yield curve over the last week. We note that this was echoed by SBNY's NY rival NYCB which also noted increasing rates on lending products in the aftermath of the move higher in interest rates. We believe higher rates associated with new loans and better reinvestment opportunities in the securities portfolio should serve as a tailwind to the margin even as funding costs will likely trend higher, especially as the Fed raises interest rates by 25bp in December. Regulatory scrutiny on multifamily lending manageable: With regard to the heightened regulatory concerns surrounding CRE multifamily lending (multifamily is 50 of SBNY s loan book), management noted that it has implemented a new loan system likely coming on line in 3Q17 which should allow the bank to analyze the loan portfolio at a more granular level. Management is also underwriting fewer interest only multifamily loans in response to the regulatory concerns. Although, it noted that it was not losing any significant business due to this as competitors had also pulled back and borrower ability (in most instances) to service a non-interest only loan. 26 2016 Future of Financials Conference 17 November 2016 Chart 39: How do you view fundamentals for multifamily lending in 2017? 30 25 20 15 10 5 0 13 Softening fundamentals should lead to slower financing activity next year 7 Softening fundamentals should lead to worsening credit metrics Source: BofA Merrill Lynch Global Research 27 27 27 Softening fundamentals should lead to slower financing activing and worsening credit metrics Some concern, but only in certain regions and at certain rental price points No concern Confident past most of taxi medallion issues: Management expressed confidence that it has taken care of most of the issues on its Chicago taxi medallion loan book and is seeing stabilization of its New York book with New York fleets near 100 utilization. Management also expects the 20mn - in quarterly provisioning outlook to absorb the impact from any incremental provisioning associated with the medallion portfolio. Chart 40: How much does SBNY s taxi medallion exposure impact your decision to invest in the stock? 45 40 35 30 25 20 15 10 5 0 33 Not at all, the portfolio only accounts for 2 of total loans 40 A little bit, I think this portfolio could continue to cause some EPS volatility 27 I am staying away from the name due to this exposure Source: BofA Merrill Lynch Global Research Synovus Financial (SNV), C-2-7, Neutral SNV hesitant to react too quickly to post-election excitement. Chairman and CEO Kessel Stelling noted that despite the very positive reaction seen in bank stocks from the results of the US elections, it was too soon to say the real impact on growth outlook. That said, he believes that a more encouraging business climate (i.e. increased infrastructure spending) as well as some regulatory relief (i.e. raising the 50bn asset threshold) could be a benefit for SNV and the overall industry. SNV could see a benefit at both ends of a steepening yield curve. As of 3Q16, 50 of SNV s total loan portfolio was fixed rate (includes variable rate loans with floors), implying a benefit to spread income from a rise in both the short- and longend of the yield curve. With the futures market now pricing in a 94 probability the Fed raises rates in Dec., CFO Kevin Blair believes the net interest margin could expand by 6bp in from a 25bp rate hike (vs. 9bp last year). That said, the benefit is 2016 Future of Financials Conference 17 November 2016 27 dependent on what happens with deposit costs. SNV s current sensitivity analysis assumes a 50-60 deposit beta. SNV keenly focused on credit. Chief Credit Officer Kevin Howard noted expectations for net charge-offs to naturally tick up as recoveries become less of a benefit and some seasoning in the loan portfolio. Recall during its earnings call, management lowered its FY16 net charge-off range to 10-20bp (3Q: 12bp). Mr. Howard noted that he would not be surprised if NCOs increased to 15-20bp in 2017 (cons: 12bp) and stay near those levels for the near future. Management reiterated its intent to continue to deploy excess capital. Although SNV will disclose a more detailed capital plan in January, management expects to continue deploying excess capital via buybacks, M A and or organic growth. When asked how management should utilize its excess capital, 56 of the audience polled prefers SNV pursue M A opportunities (vs. 8 last year). In reaction, Mr. Stelling noted continued interest in strategic acquisitions (like Entaire) but hesitant to execute a large, dilutive transaction. While DTA accretion could allow for continued share repurchase, management may choose to be a bit more opportunistic around buybacks given the run up in the stock. Chart 41: What would you like to see management do with its excess capital? 60 56 50 40 33 30 20 10 0 0 Be even more aggressive on buybacks 11 Increase the dividend payout Support faster organic growth Pursue M A opportunities Source: BofA Merrill Lynch Global Research Management is positive but cautious on online lending partnerships. Investors were also relatively split in how they view SNV s partnerships with online lenders SoFi and GreenSky. The majority (57 ) remains cautious on how these loans will perform during a credit cycle. Mr. Stelling agreed; however, he believes these partnerships represent the right vehicle to help the bank grow its retail portfolio to 20-25 of loans (in line with its strategy to transition away from CRE) and achieve its 1.0 ROA target (3Q: 0.88 ). Although we note that SNV is being deliberate around growing this book and is targeting these loans to grow to approximately 2- 3 of total loans. 28 2016 Future of Financials Conference 17 November 2016 Chart 42: How do you view SNV s partnerships with online lenders (SoFi GreenSky)? 57 43 70 60 50 40 30 20 10 0 Positively. Creates another avenue for loan growth Cautiously. Unsure how these loans will perform during a credit downturn 0 Indifferent. The exposure is relatively small so does not matter either ways Source: BofA Merrill Lynch Global Research Texas Capital Bancshares (TCBI) C-2-9, Neutral Upbeat on business outlook: TCBI s President CEO Keith Cargill, CFO COO Peter Bartholow, CAO Julie Anderson, and CLO Vince Ackerson were relatively upbeat about TCBI s business outlook. Management expects its mortgage businesses, particularly MCA to be to be a source of strength even if overall mortgage volumes were to slow down due to the rise in interest rates. Management expects to mitigate the negative impact from lower mortgage activity by picking up greater wallet share of existing clients and given the option to bring back to the balance sheet loan participations. Regarding expenses, despite expectations for an uptick in the efficiency ratio over the next couple of quarters management expects to beat its 2016 efficiency guidance (low-to-mid 50s). Chart 43: What would drive you to buy or increase your positioning in TCBI? 50 45 40 35 30 25 20 15 10 5 0 0 Stronger loan growth 20 Higher interest rates Source: BofA Merrill Lynch Global Research 47 Better visibility on the outlook for the Texas economy and oil prices 20 A pick-up in bank M A activity, especially in Texas 13 A pull back in the stock Credit provisioning likely to trend lower in 2017: During an investor poll, nearly half of investors expect credit provisions to be lower in 2017 vs. 2016, based on expectations for stabilization in oil prices. Management expressed comfort that reserve levels should be adequate even if oil prices were to decline to the mid-tohigh 30s in the near term (vs. spot WTI prices of 45 bbl today). However, management would need to consider increasing its reserve level if oil falls to the high 20s. Conversely, if oil stabilizes in the high 50s-low 60 levels, management could consider reserve releases. Management stressed on looking at the forward curve when assessing the impact from oil prices on credit costs vs. the spot rate. 2016 Future of Financials Conference 17 November 2016 29 With regard to growth in the energy book management expects balances to stay relatively flattish as new growth is offset by pay downs and deleveraging. Chart 44: Where do you see TCBI s provisioning in 2017 relative to 2016? 50 47 45 40 37 35 30 25 20 15 10 5 0 Lower, given the stabilization in oil prices which should lead to reserve reversals Source: BofA Merrill Lynch Global Research Flat-to-higher, given credit normalization in the rest of the book Mortgage growth to continue despite a downshift in activity: Management was optimistic on the outlook for both its mortgage businesses warehouse lending and MCA businesses Management expects both these portfolios in aggregate to total 28-33 of average total loan portfolio. Management tried to debunk the perception that the MCA business was cannibalizing its warehouse lending business and noted that two business were complimentary in nature. Moreover, while initially the vast majority of the MCA customers were the ones that TCBI had a relationship on the warehouse lending side, it noted that that number had fallen to 50 and is likely to move lower over the coming quarters. TCBI has a dedicated sales force prospecting for the MCA business. 16 Uncertain, as volatility in oil prices could lead to an elevated level of provisioning Next rate hike to give a bigger boost to EPS: Management noted its high asset sensitivity with most of their loans tied to LIBOR and prime and its expectations for an increase in funding costs to remain relatively tempered. With strong demand deposit growth during the year and a 1bn reduction in loans with floors (from 3.1bn to 2bn), TCBI has become more asset sensitive relative to last year, when a rate hike led to a 4mn increase in spread income. Management expects a Dec rate hike to boost spread income by more than 4mn a quarter. Remains cautious around CRE lending: Management noted that it intends to grow CRE more slowly as it de-risks the portfolio and until it sees a turn in the cycle. However, management is optimistic on the credit quality of CRE, particularly noting that trends in its Houston real estate portfolio (Houston special mention loans are 1 of Houston CRE) continue to be fairly benign. US Bancorp (USB), B-2-7, Neutral Strong growth outlook across the business spectrum. CEO Richard Davis provided an upbeat view around the outlook for the economy across the business spectrum ranging from small businesses to large corporates and noted that businesses could drive the economic recovery vs the consumer side. 30 2016 Future of Financials Conference 17 November 2016 Continued investments in regulatory costs despite potential regulatory relief. On the topic of regulation, management noted that it is still too early to know what type of regulatory relief banks of USB s size may receive so management has not slowed down any of its investments in regulatory costs. Long term 13.5- 16.5 ROE target unchanged. Despite the outlook for higher rates, management noted that it was not going to change the range at this point of time but noted that USB could reach the top end sooner than later if its outlook proves accurate. Risk management compliance expenses sustaining at this level. Management noted that while compliance related expenses could trend lower following the new administration, it will continue to invest and the impact will likely not be meaningful. In terms of innovation projects, 86 of those polled noted that it should invest in innovations projects that are self-funded. Davis noted that given the importance of innovation, it would not just self-fund those expenses and would look to spend money for long term benefits. In terms of its P2P initiative with Zelle, Davis was optimistic around its growth. In terms of potential M A, management noted that it would look for in market opportunities and double down where it has scale. Chart 45: What do you consider to be the most important catalyst for large-cap banks in 2017? 60 50 52 40 36 30 20 10 0 Rising interest rates 8 Revenue growth that s not interest rate driven 0 Further realignment of cost structures 4 Stronger return of capital to shareholders Less overhang from regulatory and litigation challenges Source: BofA Merrill Lynch Global Research 2016 Future of Financials Conference 17 November 2016 31 Chart 46: What do you consider to be the most important catalyst for USB in 2017? 50 45 40 35 30 25 20 15 10 5 0 43 0 Sustained operating Further acceleration of leverage, regardless of capital return rate backdrop 14 Using excess capital and strong currency to engage in nondepository deals 43 Rising interest rates Source: BofA Merrill Lynch Global Research Wells Fargo Co (WFC), B-1-7, Buy WFC sees modestly better benefit from steepening yield curve vs parallel shift. Following the election, the 10yr yield is up 37bp while futures currently imply a 94 probability the Fed raises rates in Dec. As such, Treasurer Neal Blinde noted that WFC could realize a modestly better benefit to spread income from a steepening yield curve vs. the current 150mn qtr expectation from a 25bp parallel shift. He outlined how the bank s actions to manage an interest rate cycle via balance sheet positioning protect on the downside (i.e. post-Brexit) while at the same time allow for an uptick when rates rise. WFC received numerous investor questions on when they would deploy its dry power ( 572bn in liquidity), and management noted that the rate backdrop not question marks on deposit duration mostly drove deployment decisions. WFC reiterated its performance targets disclosed at its Investor Day. WFC reiterated its 2-yr performance targets: (1) 1.1-1.4 ROA; (2) 11-14 ROE; (3) 55- 59 efficiency ratio; and (4) 55-75 net capital payout. As of 3Q16, the bank is currently within these ranges on all metrics except for efficiency (3Q: 59.4 ). This is consistent with the 61 of the audience polled that expect WFC to perform within the targeted ROE range as headwinds from Retail Banking is offset by an improvement in the macro-economy. That said, 50 of the audience polled believe the issues arising from the retail sales issue will modestly impact earnings (0-5 ). Chart 47: Based on your post-election outlook for 2017, how do you think WFC will perform against this 2 year target? Chart 48: What do you think is the earnings impact of the retail sales practices issue? 70 60 50 40 30 20 10 0 39 Outperform the range, given likely higher interest rates than expected and less headwind from regulation 61 Perform within the range, as lower contribution from the Community Bank will mitigate a stronger macro backdrop 0 Underperform the range, as consensus in underestimating the earnings impact from the retail sales practices issues. 60 50 40 30 20 10 0 37 50 13 Meaningful, at over 5 of EPS, given lost revenues and higher operating and marketing costs Modest, between 0- 5 of EPS Community Bank earnings will be offset by the rest of the firm, resulting in no impact to EPS power Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research 32 2016 Future of Financials Conference 17 November 2016 WFC continues to make progress on regulatory compliance. As of 3Q, WFC s current total loss absorbing capacity (TLAC) shortfall was 2.1 of risk weighted assets or 29bn ( 43bn including its internal buffer), an 8bn QoQ improvement. That said, Mr Blinde assured investors that WFC will continue to focus on deposit growth (66 of total funding) even as its long-term debt needs continue. WFC is compliant with the liquidity coverage ratio (LCR). Potential changes to annual stress test process viewed as positive. Mr. Blinde noted that potential changes to the annual stress test process, as proposed by Gov. Tarullo in Sept., is a real positive, specifically as it reduces any variance between how the stressed risk weighted asset balance is calculated. This is likely positive for the majority of investors polled (31 ) who think capital return is the biggest catalyst for the stock and the (70 ) who see the dividend payout growing towards the 40-50 range long-term (currently 37 ). Chart 49: What do you think is the biggest catalyst for WFC shares over the next 12-24 months? 35 30 25 20 15 10 5 0 21 24 Better clarity Delivering clean around the full and consistent impact of the sales earnings results practices issue close to or better than current consensus 14 Achieving solid revenue growth regardless of the rate environment 10 Renewed focus on expense management to drive the efficiency ratio lower 31 Accelerating capital return, with focus on the dividend Source: BofA Merrill Lynch Global Research Chart 50: As a result, what do you think WFC's long-term dividend payout ratio will be? 40 35 30 25 20 15 10 5 0 16 Near the current level of 37 35 35 14 40-45 45-50 50 Source: BofA Merrill Lynch Global Research Note: WFC is scheduled to report October customer activity in Retail Banking on Thur, Nov. 17th at 9am ET. Zions Bancorporation (ZION), C-3-7, Underperform Sentiment post-election appears constructive on growth prospects. Consistent with other bank management teams speaking at this year s conference, CFO Paul Burdiss noted that small businesses have been reluctant to invest given the 2016 Future of Financials Conference 17 November 2016 33 uncertain macro backdrop. That said, following the results of the election, and assuming the new administration can create fiscal stimulus, management sounded optimistic around growth prospects in C I (10 ex-energy YoY), owner-occupied, etc. Energy portfolio performing in-line with expectations. Management reaffirmed the 8 allowance on its energy portfolio ( 2.3mn or 5 of total loans) remains sufficient to cover future losses. However, continued stress in its oilfield services portfolio (26 of portfolio) remains the primary reason behind ZION s cautious view. This was consistent with the 60 of the audience polled whose ownership in the stock is modestly influenced by this portfolio. That said, until supply demand fundamentals improve or activity picks up, material reserve release is unlikely. Chart 51: How much does credit quality in ZION s energy portfolio influence your decision on owning the stock? 70 60 60 50 40 30 27 20 13 10 0 Still a material factor in my investment decision A modest factor in my investment decision No longer a factor in my investment decision Source: BofA Merrill Lynch Global Research Steepening yield curve a modest benefit, though short-end matters more. Despite recent actions that have reduced the bank s asset sensitivity, ZION remains the most asset sensitive among US banks. For a 25bp rise in the short-end, ZION estimates a 30mn incremental benefit to spread income. That said, due to the variable-rate mismatch between assets liabilities, a steeper yield curve is expected to have a marginal impact. Potential changes to CCAR viewed as positive for ZION. Mr. Burdiss viewed the potential change to the annual stress test (CCAR), specifically the static RWA balance, as net positive for the bank industry. That said, overall these changes are immaterial as CCAR remains their capital constraint. Although only 14 of the audience polled think more aggressive capital return is the most important catalyst for the stock (top response: 29 for stronger revenue growth), investor bias leaned higher as it relates to total payout. 34 2016 Future of Financials Conference 17 November 2016 Chart 52: What do you consider as the single most important catalyst for ZION shares in 2017? 35 30 25 20 15 10 5 0 14 14 Greater comfort around potential energy losses More aggressive capital return to shareholders 29 Stronger revenue growth regardless of what happens to interest rates 21 21 Continued expense savings to achieve an efficiency ratio in the low 60 s for FY17 Higher interest rates Source: BofA Merrill Lynch Global Research Chart 53: Compared to this year s CCAR capital ask which implies a total payout of 60 , what level would you like to see ZION s 2017 CCAR payout increase to? Chart 54: ZION expects total expenses in 2016 to come in below 1.58bn and then slightly increase in 2017. Would you prefer absolute expenses be flat to down in 2017? 40 35 36 80 70 69 30 60 25 20 15 21 21 21 50 40 30 31 10 20 5 10 0 Remain at 60 70 80 Greater than 80 0 Yes Indifferent; I m more focused on the efficiency target Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research Brokers Top 5 Takeaways Goldman Sachs (GS), B-1-7, Buy GS Harvey Schwartz, CFO, and Harit Talwar, Head of Digital Finance presented at our conference. Overall, Harvey and Harit were optimistic about the consumer lending opportunity with Marcus as well as the overall outlook for the firm. When asked about what would get investors more interested in GS stock, 51 of the investors responding to the poll voted for a stronger revenue backdrop, while 34 voted for normalizing regulations and ability to return more capital. 2016 Future of Financials Conference 17 November 2016 35 Chart 55: What would get you more interested in investing in GS stock? 60 50 51 40 34 30 20 10 10 5 0 A stronger revenue backdrop Normalizing regulations and ability to return more capital Investing to drive improving returns Additional expense reductions Source: BofA Merrill Lynch Global Research Management focused the presentation on Marcus, Goldman s new consumer lending effort. This venture has significant potential with an unsecured consumer loan target market of 850B and Goldman coming to the market with a unique skillset of technology and risk management, no channel conflicts or bricks and mortar, a strong balance sheet that can provide loans at a meaningful discount to peers, and a long history in the financial markets with a strong brand. When fully ramped up, this unit could produce pre-tax ROA s of 3-4 , and assuming 9-11 equity commitments, this could translate into a high teens ROE. Given the positive sector GS stock reaction post the election, management was asked on what they thought about the future of current regulation and activity levels. While they said it is too early to tell the impact, a lower corporate tax rate would benefit GS some, a pro-growth policy could positively impact confidence activity levels, and some de-regulation could ease some of the operational challenges, though much of the regulation was well intended and has created a stronger industry. In terms of the current environment, GS didn t give an exact update, but said activity has been healthy and around the election activity was similar to around Brexit (slow before and very active post). Most other firms also mentioned positive trends in 4Q, with normal seasonality, but up materially year over year. Asset Managers Top 5 Takeaways Invesco (IVZ), C-1-7, Buy Presenting from IVZ was Loren Starr, CFO. Overall Loren was optimistic on the outlook for IVZ to generate above average organic growth given its product mix and performance, deliver cost savings, and accelerate buybacks, and does not expect a significant change in the DOL impact from the election. When asked what would get investors more excited about investing in IVZ stock, the majority of respondents said that a consistent above average organic growth rate would get them most excited (48 ), followed by a more favorable market backdrop (38 ), less regulation (10 ), and more operating leverage (5 ), while nobody said longer term FX hedged would get them more interested. 36 2016 Future of Financials Conference 17 November 2016 Chart 56: What would get you more interested in investing in IVZ stock? 60 50 48 40 38 30 20 10 0 Consistent above average organic growth A more favorable market backdrop 10 Less regulation for the industry 5 More operating leverage 0 Longer term FX hedges Source: BofA Merrill Lynch Global Research IVZ is confident it can achieve its 3-5 organic growth rate driven by three main pillars. The first being the ongoing search for yield driving fixed income flows allocation which IVZ has benefitted from and should continue to benefit given their strong performance, distribution, and product set. The second being ongoing barbelling by clients which drives flows into passive and alternatives, two products IVZ has leadership in. Lastly, IVZ sees opportunity in its institutional channel, particularly in Asia which has had notable momentum. Given the run up in rates, IVZ touched upon its fixed income exposure and what might be at risk of underperformance outflows. IVZ mentioned roughly 100B of its AUM or 13 was in fixed income that didn t include short duration or floating rate, a number they feel is relatively small compared to some of its peers. Additionally, within that 100B a major portion had been underperforming because of strategic shorter duration, which in a rising rate environment should lead to outperformance and potentially negate some of the flow headwind. Regarding potential changes from the election, while very early, management thinks that whatever happens to the DOL Fiduciary Rule (delay, modify, etc.), the industry has already been shifting in a fiduciary direction, and they expect that to continue, though the pace could vary depending on the eventual outcome. Additionally, IVZ is relatively well positioned given its diversification among ETF passive and active strategies, as well as similar regulations in Europe that it has managed through. In terms of a lower corporate tax rate, that would not have much impact to IVZ given its Bermuda domicile. Eaton Vance (EV), B-3-7, Underperform Presenting from EV was Thomas Faust, CEO, Laurie Hylton, CFO, and Dan Cataldo, Head of IR and Treasurer. Management reported relatively positive F4Q flows, expects organic growth to hold up well given its mix and performance, and does not expect a significant change in the DOL impact from the election, but would expect a significant benefit from a lower US corporate tax rate. When asked what would get you more interested in EV s stock, the majority of investors were fairly split between better high fee flows and ETMFs taking off (38 31 respectively). Investors also thought increased capital return was 2016 Future of Financials Conference 17 November 2016 37 important (23 ) while investors thought more operating leverage was least important for EV (8 ). Chart 57: What would get you more interested in investing in EV stock? 40 38 35 30 31 25 23 20 15 10 8 5 0 Stronger high-fee flows and a favorable fee rate ETMFs taking off Increased capital return Positive operating leverage aiding the margin Source: BofA Merrill Lynch Global Research EV disclosed their F4Q AUM which was 336.4B up modestly from 334.4B at the end of its prior quarter as modest market losses were offset by inflows which were also disclosed by EV. Flows for C3Q (F4Q) were 4.8B 6 aog or 1.7B 3 aog ex exposure management flows, roughly in-line with expectations in a fairly challenging backdrop. EV also commented on their recent acquisition of Calvert Investments ( 12B AUM, see note) and is excited about the opportunity in ESG investing. Calvert is a leader in investing in socially responsible companies, a small but rapidly growing area. When asked about the outlook on fixed income performance and flows given the recent run up in rates as well as the outlook, EV was fairly positive in their outlook given their positioning and leadership in floating rate which should perform well and attract flows in a rising rate environment. ETMFs continue to be topical for EV given they are the only player in the nontransparent active ETF business with their NextShares franchise. EV has launched 3 NextShares thus far and Waddell and Reed launched 3 of their own in October, making 6 total NextShares in the market right now, however they are only available through Folio and Interactive Brokers. While we continue to view this as not very significant in the near term and a potential longer term opportunity, with EV signing on UBS and Envestnet for distribution in 2017, we should see a little more traction ahead. Regarding potential changes from the election, while very early, management thinks that whatever happens to the DOL Fiduciary Rule (delay, modify, etc.), the industry has already been shifting in a fiduciary direction, and they expect that to continue, though the pace could vary depending on the eventual outcome. Additionally, EV has limited exposure to higher distribution share classes ( 20 of sales), so they see a more limited impact. In terms of a lower corporate tax rate (15-20 ), this would have a meaningful benefit for EV, potentially increasing earnings by 15-20 . 38 2016 Future of Financials Conference 17 November 2016 Legg Mason (LM), C-1-7, Buy Presenting from LM was Joe Sullivan, Chairman CEO, and Alan Magleby, Head of IR. Joe was optimistic on the flow outlook for LM given the repositioning over the past few years, mostly favorable investment performance, and a healthy institutional pipeline, and does not expect a significant change in the DOL impact because of the election or a lower corporate tax rate on their cash tax rate. When asked what would get you more interested in investing in LM stock, investors overwhelmingly (82 ) replied strong organic growth, particularly in equity alternatives while the absence of deal noise (12 ) and higher margins operating leverage (6 ) were less interesting for investors. Nobody said that a stronger balance sheet or more affiliate deals would get them more excited about LM s stock. Chart 58: What would get you more interested in investing in LM stock? 90 80 82 70 60 50 40 30 20 10 0 Stronger organic growth, notably in equity alternatives 12 The absence of deal noise 6 Operating leverage and higher margins 0 0 A stronger balance sheet More affiliate deals Source: BofA Merrill Lynch Global Research LM was relatively upbeat on the flow outlook, despite some ongoing headwinds for the industry. Management sees the following drivers offsetting some of the industry headwinds to position LM to flow better than the industry: strong investment performance, notable progress with consultants over the last several years, a healthy institutional pipeline ( 8B of unfunded wins 3B uncalled committed capital), highest level of search activity in active equity in several years, large cash balances in Europe (20-50 cash allocation across the continent), increasing demand for real estate infrastructure alts (Clarion, RARE, and EnTrustPermal), and a diverse differentiated product vehicle set. Management also mentioned that besides offering well performing products across strategies, it also wants to be able to deliver to clients in different vehicles, including ETFs. The firm has been launching some ETF products and also has an interest in Precidian, which has its non-transparent ETF submission under the review process. Regarding potential changes from the election, while very early, regarding the DOL fiduciary rule, LM sees it getting delayed and watered down some as the most likely outcome. However, they mentioned the fiduciary rule was just an accelerant for trends that were already occurring (i.e. the shift to fee based accounts and away from brokerages) and whether or not the rule goes through as expected or gets 2016 Future of Financials Conference 17 November 2016 39 modified will not likely change the outlook. LM feels its strong positioning in global distribution and product sets bodes well to perform in a new fiduciary world. Additionally, a lower potential U.S. corporate tax rate will not change its cash tax rate which is likely to be 6-7 through 2021 and in the mid-teens through 2025 after that. However, it would impact GAAP EPS and a lower corporate tax rate would lower the value of LM s DTA. AB (AB), B-1-8, Buy Presenting from AB was Peter Kraus, Chairman CEO. Peter expects AB to generate above average organic growth and hopes to accelerate it given its product mix and mostly favorable investment performance. In addition, he sees the potential for new pricing in the industry, and does not expect a significant change in the DOL impact from the election or a lower corporate tax rate on their tax rate. When asked what would get you more interested in AB s stock, 55 of investors said they wanted to see consistent positive organic growth, 18 said a better operating margin, another 18 said diversification from fixed income flows (i.e. equity and alternative flows), and only 9 of investors wanted to see a simplified structure and increased float. Chart 59: What would get you more interested in investing in AB stock? 70 60 55 50 40 30 20 18 18 10 9 0 Consistent positive organic growth Operating leverage and an improving margin Further diversification from fixed income flows A more simplified structure and increased float Source: BofA Merrill Lynch Global Research AB has seen and expects to continue to see above average organic growth (ex 3Q which was weighed down by lumpy institutional outflows) given a relatively new and attractive product set, strong investment performance (notable improvement in recent years), better traction with the consultant community, and opportunities to gain in the retail and private wealth channels. Regarding potential changes post the election, AB had a similar tone to other asset managers on DOL, in the sense that it likely gets delayed modestly modified, but regardless of what happens, asset managers and distributors need to accept that the industry is living in a new fiduciary world with minimized (potentially no) conflicts of interest which ultimately is a good thing for end clients. A lower potential corporate tax rate would not likely benefit AB given its tax structure low current tax rate. 40 2016 Future of Financials Conference 17 November 2016 Another topic which AB elaborated on was fees pricing particularly in the US retail market. Peter Kraus commented that there is a very strong philosophical argument for the regulators to approve new fee structures which would allow investors to pay a low beta fee and a higher performance fee for alpha generated (while it exists in Europe, a similar structure is not available in the U.S.). While some in the industry may not be fans to adapt such a structure, given challenging cost structure changes, he thinks the product could be much more competitive relative to passive products. Alternative Asset Manager Top Takeaways Ares Management (ARES), C-2-7, Neutral Michael Arougheti, Co-founder and President, presented for Ares. Overall, Mr. Arougheti was positive on the firm s growth prospects, given demand for their products across the platform by institutional investors. In addition, given recent fundraising and fees on the horizon, the outlook for FRE and DE is attractive. When asked What would get you more interested in investing in ARES stock? the most common response was a higher float and reduced tax complexity (64 ), followed by more diversification in the business model (21 ), and confidence in an attractive credit return outlook (14 ). Investors were less concerned over the visibility on the distribution (0 ). Chart 60: What would get you more interested in investing in ARES stock? 70 64 60 50 40 30 20 14 21 10 0 A higher float and reduced tax complexity Confidence in an attractive credit return outlook More diversification in the business model 0 Increased visibility on the distribution Source: BofA Merrill Lynch Global Research If comprehensive tax reform includes an elimination of carried interest tax, potentially moving to an ordinary income rate, it could have some impact to after tax unitholder returns, but 80-90 of revenue comes from management fees and much of the income already faces a corporate tax rate. It could make it more attractive to shift to a C-corp. A change to the tax deductibility of interest expense could have more far-reaching changes to the business, and to U.S. Ares will always look to do tuck-in acquisitions, and has been doing almost one a year. The pipeline of M A opportunities continues to grow for ARES, given demographics of principles with founders aging, and the environment becoming harder to compete for small managers. The Blackstone Group (BX), C-2-8, Neutral Jonathan Gray, Global Head of Real Estate, presented for Blackstone. Overall, Mr. Gray was positive on the outlook for the U.S., with new pro-growth fiscal policies 2016 Future of Financials Conference 17 November 2016 41 likely. Mr. Gray also thinks that concerns over the commercial real estate market may be overdone. When asked What would get you more interested in investing in BX stock? the most common response was a market pullback (30 ), followed by comfort on the direction of the real estate market (25 ), rising returns and visibility on distributions (21 ), and a more simplified structure (20 ), while fundraising and margin improvement were less important (4 ). Chart 61: What would get you more interested in investing in BX stock? 35 30 25 20 21 25 30 20 15 10 5 4 0 Rising markets returns and visibility on DE and distributions Improving FRE margins following strong fundraising Comfort on the direction of the real estate market hedge funds A market pullback for better deployment returns A more simplified corporate tax structure Source: BofA Merrill Lynch Global Research Mr. Gray thinks the economic narrative has changed for the U.S., from low growth and low interest rates to a more pro-growth outlook. There will likely be lower taxes, less regulation, and more fiscal spending. A potential offset is that deficits from government spending and tariffs could create inflation. Even so, management was cautiously optimistic on growth. For Europe, Brexit was the big news and Mr. Gray expects the next couple of years will be somewhat challenging for the U.K, though the bigger question is core Europe, where rates and inflation are likely to be lower for longer. In Asia, China is decelerating, particularly for manufacturing, infrastructure, and real estate which will likely continue though don t expect a hard landing in China. A trade war between the U.S. and China could be a risk to the downside for China. In India, BX sees accelerating economic growth and falling inflation and interest rates, along with a lot of demand for office space in India. Mr. Gray does not believe we are in the early stages of the real estate cycle, but concern over a bubble in commercial real estate in the U.S. is probably overdone for a couple of reasons. 1) Supply and demand are reasonable, given modest growth in supply and an economy that is growing. 2) Debt levels aren t out of hand like in 06 07. 3) Cap rates are low at around 5 , compared to 07 when 10yr treasuries were at the same level. Overall, you aren t going to see the same returns as in the past, but looking at past periods where rates and growth increased, commercial real estate did fine. In terms of growth, Mr. Gray is optimistic on the outlook. Half of the areas BX invests in today didn t exist at the time of the IPO, and that culture of innovation, growth, and investing for attractive returns is alive and well. 42 2016 Future of Financials Conference 17 November 2016 Carlyle Group (CG), C-2-8, Neutral Glenn Youngkin, President and Chief Operating Officer, presented for CG. Overall, Mr. Youngkin is positive on the economic market backdrop and on CG s ability to generate cash carry relatively consistently over time given the firm s diversity of funds. When asked What would get you more interested in investing in CG stock? most investors would like to see an increased float and reduced complexity (40 ), followed closely by rising fee related earnings (30 ). Investors are also interested in seeing increased visibility on the distribution (15 ) and increased contribution from RA and GMS segments (15 ). Chart 62: What would get you more interested in investing in CG stock? 45 40 40 35 30 30 25 20 15 15 15 10 5 0 Rising fee related earnings Increased visibility on the distribution Increased contribution from RA and GMS segments Increased float and reduced complexity Source: BofA Merrill Lynch Global Research If comprehensive tax reform includes an elimination of carried interest tax, potentially moving to an ordinary income rate, it could have some impact to after tax unitholder returns. However, Glenn thinks it is very early to speculate on any changes and expects tax changes to likely be comprehensive. Glenn sees the potential for a strong push in infrastructure, along with tax change, defense spending, and the border will get a lot of attention along with international trade. Three main conclusions: 1) First time in a long time that there is a universal pro-business outlook across congress and the presidential office; 2) Unclear today what is going to be enacted, there is optimism but uncertainty; and 3) CG is not going to make meaningful changes one way or another based on speculation. CG launched its latest infrastructure fund in September, and the election results are more wind in the sails. CG has multiple funds, each with its own economic engine. That makes the cash flow profile more stable than other firms. Management believes that a discounted valuation in the stock is driven more by fear of a recession vs. lower FRE. Glenn thinks that outlook has changed with the election. The economy may be going into extra innings now. The investment environment hasn t changed materially in last few weeks - it continues to be tough. Global growth will continue to be muted, and despite the 2016 Future of Financials Conference 17 November 2016 43 move in the ten year treasury rate, interest rates remain low and the combination of those things results in high prices. KKR Co (KKR), C-1-8, Buy Bill Janetschek, Chief Financial Officer, presented for KKR. Overall, Mr. Janetschek believes that KKR s balance sheet gives them the ability to take advantage of market dislocations, sees opportunities to grow in certain areas (e.g. infrastructure and real estate), and noted that they don t need to grow the headcount to bring on more assets. When asked What would get you more interested in investing in KKR stock? the most common response was a market pullback for better deployment returns (50 ). Respondents also felt that attractive returns and book value growth (33 ), and stronger fee related earnings (17 ) were also important. Less important for investors was improving energy markets and overall market confidence (0 ). Chart 63: What would get you more interested in investing in KKR stock? 60 50 50 40 33 30 20 17 10 0 Stronger fee related earnings Attractive returns and book value growth 0 Improving energy markets and overall market confidence A market pullback for better deployment returns Source: BofA Merrill Lynch Global Research Overall, KKR likes the publicly traded partnership structure today. If comprehensive tax reform includes an elimination of carried interest tax, the income would still get passed through in that scenario which avoids a second level of taxation, so it still may not be attractive to change the structure. But, if the corporate rate is also lowered significantly, it could potentially make sense to go to a c-corp. Bill sees infrastructure as a real growth area for KKR. 7-8 years ago it was difficult to raise an infrastructure fund as the asset class didn t do very well in the financial crisis; today there is more interest. KKR s first infrastructure fund was around 1B and the second one was around 3B. Infrastructure needs are tremendous longterm, with 1-2 trillion capital needed for projects over the next decade, and infrastructure spend is one area of consistency across the two major parties. Management thinks that investors understand the reason for the change in the distribution policy. KKR likes to pay out the stable dividend and redeploy capital into the balance sheet. As part of the year-end process, KKR will likely review the level of the fixed distribution and determine whether it should be changed. KKR would like to have around 40 of the balance sheet invested in private equity over time. KKR will manage concentration risk, and it is unlikely that the firm will make another investment as big as First Data again. The biggest advantage to having a 44 2016 Future of Financials Conference 17 November 2016 large balance sheet is the ability to take advantage of market dislocation, along with high margins. The firm grew at a healthy rate from 2004-2014, and with around 1,200 people now there doesn t need to be much growth in headcount for the time being, the infrastructure is in place. Marshall Wace AUM has grown significantly since they did the deal, due in part to advantages from combining the two firms. Real estate is an area where KKR is small and could see more growth. Specialty Finance American Express Company (AXP), B-2-7, Neutral Presenting from American Express Company was Mr. Jeff Campbell, Chief Financial Officer. Overall we thought AXP presented a fairly upbeat outlook on billings, loan and revenue growth. AXP did express caution on near-term Discount rate pressures and FX headwinds. When asked what would be a key factor to increase initiate a position in AXP, 53 of the audience said they would like to see better visibility in AXP s core growth. AXP acknowledged the sale of the Costco portfolio to Citi has added complexity to reporting results and has provided additional disclosures on underlying trends in the quarterly results. AXP also said that accelerating revenue growth is a key area of focus for management. Chart 64: What would be a key factor for you to increase initiate a position in American Express? 60 53 40 29 20 7 13 0 Accelerating global growth Renewed visibility in growth in AXP s core business Solid execution of cost reduction initiatives More aggressive capital management Source: BofA Merrill Lynch Global Research AXP was a little surprised that more investors did not view its focus on loan growth as an appropriate strategy to increase wallet share amongst the revolving segment. Instead a plurality of investors viewed AXP s strategy as appropriate in light of the portfolio sale but risky due to the duration of the credit cycle. While investors were concerned about the duration of the credit cycle, AXP emphasized its low loss rates and premium customer base as well as the loss of the Costco portfolio to argue that AXP's credit profile will not materially change from its current strategy to grow revolving balances through revolving credit card customers. Chart 65: How would you describe American Express strategy to expand exposure to credit? 60 40 20 0 8 8 Timely opportunity to grow earnings while credit costs are low Appropriate strategy to increase wallet share amongst revolving segment 46 Appropriate in light of the Costco portfolio sale but risky due to duration of credit cycle 38 Risky due to extended duration of the credit cycle Source: BofA Merrill Lynch Global Research 2016 Future of Financials Conference 17 November 2016 45 On a more cautious note, AXP said that Discount rate pressures are likely to remain elevated near-term as EU merchants renegotiate contracts post-interchange rules and the OptBlue program gains additional scale in the US. Strengthening in the US will also lead to FX headwinds that will likely impact NT results, particularly from countries like Mexico where AXP has a large business. Conference Panels Top Takeaways Contact your BofA sales representative for additional information. Blockchain: Potential Transformation of Financial Markets With Blockchain one of the most talked about potential disruption in financial services and 71 polled noting that blockchain is a significant opportunity for financial service firms, we thought it was timely to host a panel on the potential impact of Blockchain on financial markets that included Co-founder COO of R3 Todd McDonald and CEO of Axoni Greg Schvey. Blockchain could lead to 60-80bn of annual potential cost savings for financial institutions. While it is still early days to know what the full impact of potential cost savings that blockchain technology could bring to financial institutions, the panelists believe that total savings could reach 60-80bn. Successful implementation of equity swaps. An area where Blockchain has shown to be successfully implemented is around equity swaps. Axoni had worked with multiple financial institutions to handle data reconciliation around its equity swaps record which drove efficiencies. Trade finance viewed as most likely for success. When asked which part of the financial industry will be the first to successfully utilize blockchain technology, 38 of those polled cited trade finance transaction banking as the most likely, with 28 citing capital markets securities servicing. Chart 66: Which part of the financial industry do you believe will be the first to successfully utilize blockchain technology? 40 38 30 20 14 28 21 10 0 Wholesale payments (cross-border F X, correspondent banking) Trade fianance transaction banking (receivables finance, commodities trade finance) Capital markets securities servicing (securities settlement, asset documentation) Retail payments (parallel currency systems, remittances) Source: BofA Merrill Lynch Global Research Implementation could be earlier than expected. While many investors are skeptical that blockchain will be broadly adopted in the near term, with none of the audience expecting it to be widely adopted within 12-24 months, the panelists were more optimistic and believes that there could be upside surprise in terms of the timing as proof points and implementation could happen more quickly than expected. 46 2016 Future of Financials Conference 17 November 2016 Chart 67: How knowledgeable are you with blockchain technology? 60 50 50 40 34 30 20 16 10 0 Very knowledgeable Moderately knowledgeable Not at all knowledgeable Source: BofA Merrill Lynch Global Research Chart 68: After this panel, how do you feel about the applicability of blockchain technology in financial services? Chart 69: How long do you think it will take for financial sevices industries to broadly adapt blockchain technology? 80 70 60 50 40 30 20 10 0 71 14 14 A significant A modest opportunity opportunity for for financial service financial service firms firms Overhyped technology 45 40 35 30 25 20 15 10 5 0 40 36 24 0 12-24 months 3-5 years 5 years 10 years Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research The Future of Clearing: Understanding the Options Guest speakers in this panel included Brian Ruane (CEO, Broker Dealer Services, BNY Mellon), Lee Betsill (Chief Risk Officer, CME Group), Michael C. Bodson (President CEO, DTCC), John Horkan (Head of North America and Global COO, Rates FX, LCH, LSE Group) and Marcus Denne (Director, Global Clearing, BofA Merrill Lynch). With the start of the Uncleared Margin Rule (UMR) on September 1st, we asked investors what was the primary challenge related to the new clearing rules. Most investors (95 ) thought the rising cost, particularly in the amount of collateral required (50 ) and the complexity around infrastructure and different country rules (45 ) were the main issues. 2016 Future of Financials Conference 17 November 2016 47 Chart 70: What is the primary challenge related to the new clearing rules? 60 50 40 50 45 30 20 10 0 The rising cost, particularly in the amount of collateral required The complexity around infrastructure and different country rules 2 2 The lack of dealers offering the capabilities given their challenges None Source: BofA Merrill Lynch Global Research Panel participants believe that the election shift in regulatory outlook might lead to a slowdown of products being added to the clearing mandate, with FX being the biggest unknown. Going forward, firms are tackling U.S. vs Europe collateral harmonization transfer (DTCC and Euroclear are working on a collateral transfer initiative that is expected to launch in 1Q17), collateral management through firms including BNY Mellon, and Cleared repo could also be on the horizon (CME has filed an application with the SEC but no timeline given). We asked investors what the biggest potential risks are in the clearing mandate and CCPs, and 33 of voting investors thought collateral concentration issues with cybersecurity (27 ) coming in 2nd. Chart 71: What is the biggest potential risk in the clearing mandate and CCPs? 35 33 30 25 27 20 15 17 17 10 7 5 0 Much more collateral will be needed in stress times There will be collateral concentration issues CCP risk models fail Dealer FCMs fail Cybersecurity Source: BofA Merrill Lynch Global Research 48 2016 Future of Financials Conference 17 November 2016 Equity Market Structure: Simplifying the Complex Guest speakers in this panel included Anthony Barchetto (EVP, Head of Corporate Development, BATS Global Markets, Inc.), Jamil Nazarali (Head of Execution Services, Citadel Securities Inc.), Eric Stockland (Chief Strategy Officer, IEX Corp.) and Pankil Patel (Managing Director, Electronic Sales, BofA Merrill Lynch). Panel members had a spirited debate regarding the current market structure pros and cons, rebates, off-exchange trading, latency, market maker obligations, and the future of regulation post the election. We asked investors what they thought of the current state of the equity market structure, and 74 thought that the market needs revamping. 32 believe that there was a problem with the depth of liquidity and 23 thought there were misaligned incentives. Chart 72: What is your view of the current state of the equity market structure? 35 30 25 27 32 23 20 15 14 10 5 0 The market structure is overall adequate 5 The market structure needs improvement notably in transparency The market structure needs improvement notably in liquidity of size The market structure needs improvement notably in misaligned incentives The market structure needs a full revamp Source: BofA Merrill Lynch Global Research Given the announcement that SEC Chairwoman White will leave at the end of President Obama s term, this will likely lead to some regulatory uncertainty and lack of activity given not enough commissioners to make forward progress. In addition, the new Chair will likely be focused on less regulation and one panel member thought Reg NMS could come under review. Life after DOL: Evolving Beyond the Fiduciary Rule We hosted industry experts for a panel on the Department of Labor s (DOL) fiduciary rule, which is set to go into effect in April 2017. Panel participants included Michael Hadley (Partner at Davis Harman LLP), Lisa Bleier (Associate General Counsel at SIFMA), and Kevin Crain (Head of Workplace Financial Solutions at Bank of America Merrill Lynch). Given potential changes for the brokerage industry, we asked investors Will the DOL s fiduciary rule cause meaningful changes to the brokerage industry? . Most investors believe that the rule will cause a number of significant changes to the brokerage industry (83 ), including significant pressure on commission revenues, a shift to advisory and fee based accounts, and assets in motion with some to robo advisor and RIA platforms. 2016 Future of Financials Conference 17 November 2016 49 Chart 73: Will the DOL s fiduciary rule cause meaningful changes to the brokerage industry? 90 83 80 70 60 50 40 30 20 10 0 3 Yes, significant pressure on commission revenues 7 Yes, a shift to advisory and fee based accounts 0 Yes, assets in motion with some to robo advisor and RIA platforms All of the above 7 No significant impact Source: BofA Merrill Lynch Global Research We also asked about changes to the asset management industry, positing Will the DOL s fiduciary rule cause meaningful changes to the asset management industry? Investors again expect multiple changes (91 ), including an accelerated shift from active to passive, further pricing pressure, and higher cost of distribution and margin pressure. No respondents expect there to be no significant impact to the asset management industry. Chart 74: Will the DOL s fiduciary rule cause meaningful changes to the asset management industry? 100 90 91 80 70 60 50 40 30 20 10 0 0 Yes, an accelerated shift from active to passive 4 4 Yes, further Yes, higher cost of pricing pressure distribution and margin pressure All of the above 0 No significant impact Source: BofA Merrill Lynch Global Research The panel noted that President Elect Trump did not address the Fiduciary Rule during his campaign, so his view on the rule is unknown, but Republicans have largely been against it. There is some precedence on what we could expect President Elect Trump to do with the fiduciary rule. President Bush had implemented an investment advice regulation that President Obama delayed several times until it was finally withdrawn. The view from the panel was that the most likely action over the next several months is that President Elect Trump delays the rule, though to repeal or change it would take work and new regulatory 50 2016 Future of Financials Conference 17 November 2016 proposals. Mr. Trump and congress could also ultimately defer to the SEC to act on a Fiduciary Rule. The biggest issue from the brokerage industry is the contract requirement under the BIC. The issue with the contract is increased liability, given the contract makes it easier to litigate. This would likely be the primary area for modifications. Even though many firms have made announcements regarding changes they expect to make, most have not figured out all of the underlying steps yet given that it is so complicated and impacts large parts of the business. The industry will have to move forward on implementing the rule, given the April 2017 implementation date, but firms may not put as much effort into certain areas that need to be final by January 2018. In addition, prior to Mr. Trump starting, the transition team could make an announcement about the rule. However, even at that stage firms would have to determine whether or not to act on the announcement. While the most likely scenario is a delay in the rule, with the potential for some modifications to ease some of the burdens, most see the trend towards a fiduciary rule already well in motion for the industry. The Future of Tech-Based Lending James Paris, Executive Vice President at Avant, Ashish Jain, Senior Vice President at SoFi and John Schleck, Senior Vice President at Bank of America discussed key trends and recent developments in Tech-Based lending. Audience members and panelists generally agreed that improved customer service, full spectrum lending, and better pricing all are contributing to the growth in techbased lending. SoFi did caution that better pricing is not usually the primary driver as banks can usually offer cheaper pricing. Chart 75: What is the biggest driver of growth in tech-based lending 40 30 27 27 33 20 10 13 0 Improved service model Full spectrum lending Better pricing cheaper All the above Source: BofA Merrill Lynch Global Research Acquisition models differ by company but being efficient at customer acquisition is key for a successful tech-based lender. SoFi estimated that its customer acquisition cost is 1 5 th that of a bank which enables it to effectively compete and partner with banks. Panelists highlighted the use of data analytics to more efficiently target potential customers via direct mail, digital ads or through affiliate programs. Audience members were split on the main risks to investing in tech-based companies with limited sustainable competitive advantage, untested credit models and fragile all highlighted as key risks. Somewhat surprising given events earlier this year, regulatory concerns were not high on the list of investor concerns. 2016 Future of Financials Conference 17 November 2016 51 Chart 76: Biggest risks to investing in a tech-based lending companies 40 30 29 32 32 20 10 7 0 No sustainable competitive advantage Untested credit model risk management Fragile funding model Uncertain regulatory backdrop Source: BofA Merrill Lynch Global Research Panelists agreed that flexible funding models that utilized both balance sheet lending and distribution of loans were important for a tech based lender. Additionally, panelists said that risk management is top of mind and tech based lenders are increasingly applying refined analytics that rely on credit variables directly from credit bureaus into their lending and portfolio management decisions The Future of Payments: The Need for Speed Jonathan Lear, President North America, Earthport and Bruce Parker, Founder of Modopayments spoke on The Future of Payments panel. In a wide ranging discussion, the panelists discussed the B2B opportunity, the importance of partnering with incumbents and the need to maintain Safety standards. Audience members identified the lack of a clear value proposition for new players relative to incumbents and concerns about Safety and Security as the largest risks to investing in new Fin Tech payments companies. Chart 77: What is the primary risk to investing in new entrants within the payments landscape? 40 20 0 38 Unclear value proposition of new entrants relative to incumbents Source: BofA Merrill Lynch Global Research 23 Rapid innovation that erodes value proposition 38 Concerns around safety security 0 Intense regulatory friction Panelists generally thought the best way for a new Fin Tech companies to succeed was by partnering with incumbents. This was consistent with the views of audience members, a majority of whom thought the payments industry would continue to be controlled by incumbent institutions partnering with innovative tech companies. 52 2016 Future of Financials Conference 17 November 2016 Chart 78: What do you believe will be the structure of the payments industry in 5-7 years? 80 60 59 40 28 20 0 Dominated by large incumbent payment brands Controlled by large incumbent institutions enable by innovative tech companies 10 Controlled by savvy tech companies operating through traditional payments providers 3 Dominated by dynamic eco-system of savvy tech companies Source: BofA Merrill Lynch Global Research Panelists highlighted that while recent innovations in faster payment transfers have been focused on P2P applications, the B2B opportunity is 7-10x larger. That said, panelists thought, based on experience in the UK, the cost of faster payments would likely have to be borne by the existing payment infrastructure as consumers have not been willing to pay for faster transfers. Additionally, panelists pointed out that in countries where faster payments have been implemented, it has mostly been a mandate by regulations suggesting the government has an important role to play. Panelists highlighted Security and Compliance as being essential for a new Fin Tech company to be admitted as part of the industry ecosystem. Incumbent payment companies will only partner with a new FinTech company that can meet the safety and regulatory standards that the incumbent is required to meet. Robo Advisors: Shedding Light on the Potential Opportunity Guest speakers in this panel included Eli Broverman (Co-Founder and President of Betterment), Randy Sternke (Vice President, Business Development at Alkanza), and Vaughn Bowman (Director, Managed Solutions Channel Management at BofAML). Each firm discussed the unique aspects of their individual business models and where they see the robo industry headed in the future. Broverman brought up several key points on how the independent robo advisor model came about and why it will continue to grow in the future. He believes that the main drivers include a lack of quality advice for investors with few assets, investors beliefs that financial institutions are not aligned with their interests or transparent, and the fact that people want financial services to work as well as the other technology in their lives. Broverman believes that the biggest opportunity going forward is in the mass affluent segment and the 401K space. Alkanza is focused on providing robo capabilities to financial advisory firms through partnerships, rather than directly to consumers, with a focus on the platform as well as portfolio construction. We surveyed the audience to gauge their views on the potential size of the robo advisor market and the most common answer was that assets will surpass 1T, followed by assets will hit 500B and then level out. 2016 Future of Financials Conference 17 November 2016 53 Chart 79: How significant do you think robo advisor platforms will become over the next 3-5 years? 60 50 51 40 35 30 20 14 10 0 Assets will surpass 1T Assets will hit 500B then level out Assets will hit 500B then decline Source: BofA Merrill Lynch Global Research Based on our polling questions, investors believe that the main beneficiaries of the robo advisor trend will be the passive asset managers (40 ), followed by the large broker firms adding robo technology (28 ) and the online brokers that have scalable robo platforms (21 ). They also believe that the main driver of success for robo advisors will be a low and transparent cost structure (44 ), followed by an efficient technology and user interface (25 ). Chart 80: Which firms will benefit the most from the robo advisor trend? 45 40 40 35 30 28 25 20 21 15 10 5 0 Passive asset managers Large broker firms adopting robo technology Online broker robo platforms that have scale 9 Independent B2C robo advisor firms 2 Robo advisor firms that have a B2B model Source: BofA Merrill Lynch Global Research 54 2016 Future of Financials Conference 17 November 2016 Chart 81: What do you expect to be the main driver of success for robo advisors? 50 45 40 35 30 25 20 15 10 5 0 44 A low and transparent cost structure 25 11 11 An efficient Advanced portfolio technology and construction that interface platform outperforms Department of Labor fiduciary rule 8 Access to a human in volatile markets Source: BofA Merrill Lynch Global Research Finally, all of the panel participants believe that the DOL Fiduciary Rule will not be repealed by the new administration, although it may be delayed. In the end, this should benefit robo advisors, as most of the models have low fee structures and limited conflicts of interest. State of the Multifamily Market: Cooling or Collapsing? We hosted a panel to discuss the state and the outlook for the multifamily market following a year which has witnessed increased investor anxiety around multifamily loan growth and heightened scrutiny by banking regulators of multifamily loan portfolios, particularly at banks with a high concentration of multifamily loans. Our panelists included John Jardine, Co-CEO of Ares Commercial Real Estate Corp, David Brickman, Executive Vice President and the Head of Multifamily business at Freddie Mac and Alan Fishman, Chairman of the Board at commercial real estate investment trust Ladder Capital. Multifamily on solid footing: The panelists view the multifamily market as having a solid foundation with most of the risk lying at the high end, class A properties in particular markets (New York, San Francisco). Even here, the panelists agreed that the issues at the high end segment were more likely to manifest themselves in the form of decelerating growth in rents (and increased incentives by landlords) as opposed to serious credit issues. Investors echoed this sentiment during a live audience poll with 60 of the investors seeing issues in the multifamily market limited to certain regions and at certain rental price points. 2016 Future of Financials Conference 17 November 2016 55 Chart 82: How do you view fundamentals for multifamily lending in 2017? 70 60 50 40 30 20 10 0 10 Softening fundamentals should lead to slower financing activity next year 0 Softening fundamentals should lead to worsening credit metrics 23 Softening fundamentals should lead to slower financing activing and worsening credit metrics 60 Some concern, but only in certain regions and at certain rental price points 7 No concern Source: BofA Merrill Lynch Global Research Future demand in multifamily promising: Looking forward, the panelists see healthy demand for multifamily housing given a preference among millennials to live in urban areas versus the suburbs. Moreover, the panelists noted that increasing debt burden tied to student loans is likely to make home ownership out of reach for several first time home buyers. Furthermore, it was noted that the US needs 1.5mn new housing units each year and the present level of construction activity was not keeping pace with this when looking at it on a national level. Foreign capital part of the equation: Some of the panelists are seeing a significant flow of foreign capital into the multifamily market with Mr. Brickman surmising that data around inflow of foreign capital into the commercial real estate market was likely understated given that significant amount of inflows have come indirectly through investment vehicles like private equity. Risk retention rules modest impact: Our multifamily panelists viewed the risk retention rule for CMBS as having a modest impact given the large role played by the GSEs in lending to the multifamily space. It was also noted that while the rule may dampen private securitization activity, less competition from the CMBS markets would be a positive for balance sheet lenders. Impact from rising rates may not be all news: While the panel acknowledged that the rise in interest rates will likely push cap rates higher, an increase driven by a more favorable growth outlook may not be as bad. This is because a stronger economy should theoretically lead to a better backdrop for jobs and wage growth, thereby providing landlords some leeway to raise rents. The Future of Big Data in Financials We hosted a panel to discuss how big data is impacting the financial services industry. The panel discussed key big data buzzwords including machine learning, data scientist, structured data and unstructured data. They panel also reviewed how different firms are adapting big data solutions to solve specific company issues. Our panelists included Jessica Donohue, the Chief Innovation Officer for State Street and the head of advisory and information solutions for State Street Global Exchange, Greg Michaelson, head of data science practice at Data Robot, and Sandeep Saini, head 56 2016 Future of Financials Conference 17 November 2016 of global markets sales, research, and capital markets technology at Bank of America Merrill Lynch. How big data can influence the future: The panel confirmed the notion that there are many different definitions for big data, but everyone seemed to agree almost all financial firms are seeking effective ways to implement big data techniques to 1) generate alpha, 2) manage risk 3) manage expenses. Companies polled are a long way from benefitting big data: 96 of the audience polled said their firm is either somewhat effective or not at all effective at using big data. Some of the main challenges the panelists highlighted during our discussion were merging multiple legacy data systems and finding attractive talent with both data science and business experience. Chart 83: How effective is your firm at using big data? 70 60 57 50 40 39 30 20 10 4 0 Fully integrated with the investment and process and operations Somewhat effective Not at all effective Source: BofA Merrill Lynch Global Research The panel discussed three roles needed to solve data science problems: 1) someone who has sway to make change and implement solutions 2) business champion, someone to discuss solutions with technical employees and to share knowledge on key issues such as regulation 3) technically savvy employees. Implementation advice: The panel provided advice for firms that have yet to utilize big data to attempt to solve problems facing their companies. The advice included seeking problems that could be solved using data science and focusing on small wins with the data present. 2016 Future of Financials Conference 17 November 2016 57 Chart 84: Now that we ve defined big data , how far do you think financial institutions are at embracing the use of big data today? 60 50 40 30 20 10 0 5 Fully committed to using big data to generate investment alpha revenue growth 19 19 Fully committed to using big data to improve cost or process efficiency, risk management, regulatory compliance Fully committed to using big data across the organization 49 Somewhat committed 8 Not at all committed Source: BofA Merrill Lynch Global Research Chart 85: After this conversation, have you changed your mind on how financial institutions are adopting big data in their businesses? 60 55 50 40 30 20 23 23 10 0 Financial institutions are more committed to allocating resources to big data than I thought Financial institutions are less committed to allocating resources to big data than I thought No change Source: BofA Merrill Lynch Global Research The Future of Financials M A and Regulation We hosted a panel to discuss the state and outlook of M A and regulation. Given the results of the US election and the potential for easing of regulations, the panel discussed a timely topic on the mind of investors. Our panelists included Rodgin Cohen, Senior Chairman of Sullivan Cromwell; Richard Kim, partner at Wachtell, Lipton, Rosen Katz, and Ed Hill, Senior Vice President, Government Affairs, Bank of America Corporation. Regulation is about tone: Our panelists agreed that the scope and strength of regulation comes from the tone and attitude of regulators rather than from legislation. They noted that an attempt to repeal legislation such as Dodd-Frank would be misplaced as most direction derives from the tops of regulatory bodies. They also felt Senator Hensarling s Financial Choice Act would not be a better alternative to Dodd-Frank given the 10 leverage ratio is not a Federal Reserve definition of leverage. Utilizing a Fed definition would likely lead to leverage north of 10 . The inclusion of CAMEL ratings with the leverage ratio would also allow regulatory sway over institutions. 58 2016 Future of Financials Conference 17 November 2016 Chart 86: Following last week s GOP sweep, do you think regulatory relief is in the cards for the financial services industry? 70 60 50 40 30 20 10 0 29 Yes, and this should have a meaningful impact to returns 62 Yes, but change in regulatory burden and subsequent impact to bank returns will be more gradual than what financial stocks are currently pricing in 9 No, I think there will be little change in regulatory burden Source: BofA Merrill Lynch Global Research CCAR a product of regulatory attitude: The panelists agreed that CCAR in its current form is not a result of legislation as post-recession bank stress tests (SCAP) existed prior to Dodd-Frank. Furthermore, the panelists noted Dodd-Frank s definition of a stress test is very basic, which has been made more stringent and complex as a result of regulators. Mr Cohen also noted that a lack of transparency of the test was the least defensible part of CCAR. Biggest obstacle for bank M A and activist influence is regulation. Despite headlines of increased shareholder activism within the banking industry, the majority of investors polled (61 ) believe activist investors have only a moderate impact on corporate strategy (see chart). Specifically, Mr. Cohen explained that two of the three reasons why an activist will typically get involved with a corporate are difficult to achieve on a bank s board given the level of regulatory oversight on the industry. While selling the bank is the one area where activists have had success, this typically occurs at the community bank level. That said, he believes a change in attitude of regulators could free up M A activity. Chart 87: What kind of impact does an activist investor have in corporate strategy and ultimate shareholder value? 70 60 50 40 30 20 10 0 18 Meaningful impact, as activism behooves complacent Boards to rethink corporate strategy in a way that is most positive to near-term and long-term shareholder value 61 21 Moderate impact, as activism No meaningful impact, as many can bring issues to the forefront activists have a short-sighted and can invigorate deal view of shareholder value discussions but have modest influence in corporate strategy and ultimate shareholder value Source: BofA Merrill Lynch Global Research 2016 Future of Financials Conference 17 November 2016 59 How to do M A right: When describing acquisitions that most impressed the panelists, a key reason for success was the acquirer keeping the target management in place as well as giving the target management independence. The scope and planning of the integration was also critical for success. Chart 88: Do you think M A activity in financial services will pick up in 2017? Chart 89: If you voted yes, what statement closely matches your rationale? 70 60 50 40 30 20 10 0 26 57 17 Yes, meaningfully Yes, modestly No, I don t think deal activity will increase 60 50 40 30 20 10 0 48 47 Lower anticipated regulatory burden, particularly on buyers Modest economic tailwinds and or subscale businesses will behoove more institutions to sell 5 Shareholder activism should pick up and help drive activity Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research Understanding the Changing Fixed Income Markets We hosted a panel to discuss the evolution of the fixed income market structure given the advent of electronic trading and regulatory construct. Our panelists included Lee Olesky (co-founder and CEO of Tradeweb), Adam Brown (Head of US Rates Electronic Trading at BofAML) and Brian Callahan (Head of US Par Loan Trading and the head of Electronic Initiatives for Global Credit and Special Situations at BofAML). Electronification of fixed income markets steadily growing; however, lag European market. Electronic trading came to fixed income trading in the late 1990 s as a way of automating transactions (i.e. create a more efficient process between parties). Today in the US, the investment grade market is 16-20 electronic, the high yield market is 8 (has doubled over the last few of years), the treasury market (which has been growing steadily over last 10-15yrs) is 80-90 of the actual trade count is electronic. While the electronification of the derivative market was slower to evolve, recent regulatory reform has accelerated the electronification process (50 today). That said, while the evolution towards electronification in the US continues to grow, the European bond market is actually more advanced with nearly 50 of the bond market automated (vs. 20 for the US). Regardless of possible regulatory relief, electronification may slow but won t end entirely. While a partial repeal or lightening of Dodd-Frank would be a net positive for the financial markets, and possibly lower the costs to banks and endusers, Mr. Brown doesn t see a dramatic effect on the market structure. In other words, regulatory relief may only slow down the electronification progress. Electronification within the fixed income market is a modest priority among asset managers. Fifty-two percent (52 ) of the audience polled believe it to be a modest priority in their own corporate strategy to embrace new technologies electronification in fixed income. Mr. Brown was not surprised by the results as many of the asset managers have their own constraints from technology funding to regulatory issues to running the day-to-day business. While 60 2016 Future of Financials Conference 17 November 2016 electronification is something that pays dividends, these benefits occur over time. That said, general sentiment from asset managers is that electronification is something they want as it leads to efficiency. Chart 90: As you think about corporate strategy for asset managers, how open is your firm with embracing new technologies electronification in the fixed income space? 60 50 52 40 30 20 19 29 10 0 Top priority in corporate strategy Modest priority in corporate strategy Low priority in corporate strategy Source: BofA Merrill Lynch Global Research ETF market for fixed income securities expected to grow significantly. Unlike in the equities market where ETFs are 7 of the volume traded, fixed income ETFs are still sub-1 (0.8 at YE15). As the market continues to grow, particularly in the asset classes where the underlying bonds aren t that liquid, Mr. Callahan noted seeing increased liquidity in the ETFs for liquidity reasons. Following in the footsteps of the equities market, Mr. Callahan expects the fixed income ETF market to grow significantly and be very impactful to the overall market structure. Greater concern around speed at which liquidity can change vs. liquidity in the market. There is a lot of concern around liquidity in fixed income markets. That said, Mr. Brown is more concerned with the speed at which liquidity can change. There has been growing evidence that the market is going to adjust greater and faster than the underlying fundamental reasons for the correction. As such, this is causing participants to revisit how they look at risk management. Now market participants need to take into account not only their behavior, but their reaction to other participants behavior (i.e. contagion effect). Fewer, well-established platforms reduce overall risk within system. Eighty-nine (89 ) percent of the audience polled prefer to conduct business with a few, wellestablished platforms to diminish risk within the system. Using the government bond market as an example, Mr. Olesky points out that the growing contribution from PTFs to the overall treasury trade volume has increased the risk outside the primary-dealer system. This is a risk Mr. Olesky believes needs to be addressed and prefers a central clearinghouse for fixed income transactions. 2016 Future of Financials Conference 17 November 2016 61 Chart 91: As you think about platform management, what is your view on having multiple options of liquidity providers? 100 90 80 70 60 50 40 30 20 10 0 11 Prefer to have a material amount of options 89 Prefer to conduct business with a few, wellestablished platforms Source: BofA Merrill Lynch Global Research 62 2016 Future of Financials Conference 17 November 2016 Table 1: PO Changes Firm Rating QRQ Current Price Old PO New PO ASB UNDERPERFORM B-3-7 22.45 19.00 20.00 BANC NEUTRAL C-2-7 14.80 18.50 15.50 BBT BUY B-1-7 42.82 41.00 45.00 BKU BUY C-1-7 34.19 36.00 37.00 BOH UNDERPERFORM B-3-7 85.67 64.00 75.00 C BUY B-1-7 54.63 55.00 60.00 CBF BUY C-1-7 35.80 35.00 38.00 CBSH NEUTRAL A-2-7 56.39 53.00 60.00 CFG BUY B-1-7 30.73 28.00 33.00 CFR UNDERPERFORM B-3-7 82.93 70.00 74.00 CMA UNDERPERFORM B-3-7 59.21 49.00 55.00 EWBC BUY B-1-7 45.64 45.00 50.00 FBP NEUTRAL C-2-9 6.29 6.00 6.50 FCB BUY C-1-9 39.75 44.00 44.00 FHB NEUTRAL C-2-7 29.48 28.00 31.00 FHN UNDERPERFORM B-3-7 17.97 14.50 16.00 FITB NEUTRAL B-2-7 24.90 23.00 26.00 FSB NEUTRAL C-2-9 33.80 40.00 36.00 GS BUY B-1-7 206.26 195.00 230.00 GWB BUY B-1-7 38.85 38.00 42.00 HBAN BUY C-1-7 11.93 12.00 13.00 HBHC NEUTRAL B-2-7 39.05 35.00 41.00 IBKC BUY B-1-7 78.05 74.00 85.00 JPM BUY B-1-7 77.40 74.00 83.00 KEY BUY B-1-7 16.73 17.00 18.00 MS BUY B-1-7 39.19 36.00 43.00 NYCB BUY C-1-8 15.36 17.00 17.00 PB UNDERPERFORM B-3-7 64.38 50.00 58.00 PNC BUY B-1-7 107.51 100.00 110.00 RF NEUTRAL B-2-7 12.89 11.00 13.00 SBNY BUY B-1-9 147.02 140.00 160.00 SIVB BUY B-1-9 147.35 140.00 165.00 SNV NEUTRAL C-2-7 38.01 35.00 40.00 STI BUY B-1-7 50.79 48.00 53.00 TCB UNDERPERFORM B-3-7 16.23 13.50 14.00 TCBI NEUTRAL C-2-9 70.75 62.00 74.00 UMBF BUY B-1-7 72.04 65.00 78.00 USB NEUTRAL B-2-7 47.87 45.00 50.00 WFC BUY B-1-7 51.68 50.00 55.00 ZION UNDERPERFORM C-3-7 37.46 30.00 36.00 Source: BofA Merrill Lynch Global Research 2016 Future of Financials Conference 17 November 2016 63 Price objective basis risk AllianceBernstein (AB) Our 25 price objective is based on 13x target P E on our '17E, a discount vs our target for asset managers as a group, based on improving but inconsistent flows and limited active equity exposure as well as the MLP structure which means less liquidity, though a high distribution. Upside downside risks to our price objective are market appreciation depreciation, similar to other asset managers, underperformance, and an unpredictable yield since it is based on earnings rather than fixed. Because Alliance is an MLP, total potential return includes a variable distribution based on earnings. Amer Express (AXP) Our 74 price objective reflects a 13x PE multiple to our 2017 EPS estimate. Given the elevated uncertainty, we expect AXP will trade near the low end of its historical valuation range, which averages 12x-16x. This multiple reflects our view of solid loan growth and better billings, offset by increased risks of rising credit and marketing costs. We think the market will view AXP through a more credit card lens in the near-term, which also supports a multiple at the low end of the historical range. Upside risks to our PO are stronger than expected macroeconomic conditions, accelerating consumer and business spending, lack of disruptions in capital markets, or a decreasing regulatory burden. Downside potential could come from weaker than expected macroeconomic conditions and renewed recessionary pressure, softer consumer and business spending, disruptions in capital markets, or an increasing regulatory burden. Ares Management (ARES) Our price objective (PO) for Ares is 18, which implies a target price-to-ENI (P ENI or P E) multiple of 11x our 2017 ENI estimate. Our price objective is based on our sum-ofthe-parts (SOTP) analysis. Our SOTP analysis includes the following components: a target multiple on fee related earnings (15x - in line with or a premium to asset manager multiples given healthy growth and sticky assets), book value for the balance sheet investments and accrued carry, and a discounted value on the performance fee upside over a cycle (1.3x MOIC). Based on this method, we value the fee related earnings at 13 unit, the balance sheet (principal investments and accrued carry) at 4 unit, and the discounted value of future carry income and investment income at 1 unit, which equates to a total value of 18. Risks to our PO: a weak macro and capital markets backdrop, potential changes in tax laws related to carried interest and partnerships, legal and political risk, increased regulation, credit market disruptions, poor performance, weak fundraising, expansion risk, key person and talent risk, competition, a unique corporate structure that limits unitholder control, and lock ups. Associated Banc-Corp (ASB) We use an equal weighted three-factor valuation framework (P E, P TBV, DCF) to arrive at our 20 price objective and assign a 1.4x multiple to 3Q17E TBV and a 14.9x 2017 P E multiple, in-line with smid-cap peers due to their near median return profile. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 5 . The upside risk to our price objective is a less onerous residential RE cycle. Downside risks are a double dip in housing prices, deteriorating energy portfolio and falling rental income for commercial properties. Banc of California (BANC) To arrive at our 15.50 price objective, we have employed a three-factor valuation methodology that incorporates target P E, target P TBV and a DCF model. For our P E analysis, we use a 14x earnings multiple on BANC's 2017E core earnings below peer 64 2016 Future of Financials Conference 17 November 2016 multiples due to lagging EPS growth. For our P TBV valuation, we apply a 1.2x tangible book multiple to BANCs 2Q17E tangible book below peer multiples due to lagging ROTE. For our DCF analysis, we forecast net income growth stabilizes at 3 in the terminal stage. We also assume a beta of 1.1x in the terminal stage. Downside risks to our price objective are slower than expected loan growth, and a reduction in the common dividend. Bank of Hawaii Corp. (BOH) We use an equal weighted three-factor valuation framework (P E, P TBV, DCF) to arrive at our 75 PO and assign a 2.2x multiple to 2Q17E TBV, representing a premium to peers, which we believe is appropriate given a stronger profitability and capital profile. Our 17x multiple on 2017E EPS is equal to the the peer median given average EPS growth relative to peers. Our DCF assumes a two-stage cost of capital of 9.8 and a terminal growth rate of 3 . Downside risks to our price objective are a longer-than-anticipated low rate environment and a reversal of local economic improvement. Upside risks are a strongerthan-expected economic rebound, better-than-expected capital distribution and a shorter-than-anticipated low rate environment. BankUnited, Inc. (BKU) To arrive at our 37 price objective, we have employed an equal-weighted three factor valuation methodology that incorporates target P TBV, P E and DCF. We have applied a target P TBV value multiple of 1.5x on our 2Q17E TBV and a P E target multiple of 16x '17 EPS, based on BKU's above average growth relative to peers. Our DCF assumes a two-stage cost of capital of 7.9 and 9.3 and a terminal growth rate of 6 . Downside risks to our price objective are slower CRE loan growth on the back of regulatory oversight, as well as an inability to deploy excess capital, increased competition for Florida M A and an inability to continue to implement an organic growth strategy in New York City. BB T Corporation (BBT) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 45 PO and assign a 1.6x multiple to 2017E TBV and 14.5x multiple on 2017E EPS. We have weighted the P E and P TBV factors equally at 40 , and our DCF analysis by 20 . Our EPS multiple is in-line with BBT's historical avg, which reflects very high-growth years in the 1990s, a pace unlikely to be achieved near term given BBT's size as well as the challenging macro backdrop and industry headwinds. Our DCF assumes a two-stage cost of capital of 9.7 and 10.9 and a terminal growth rate of 4 . Risks to our price objective are macro risks such as a double dip recession, the implementation of a strict liquidity coverage ratio and further regulation on overdraft income that restricts bank profitability. Specific to BBT, risks are enhanced regulatory scrutiny and capital standards as a Domestic SIFI, the announcement of a large, expensive deal, and the risk that the NPBC transaction does not consummate. Capital Bank Financial Corp. (CBF) Our 38 PO is based on an equal-weighted, two-factor valuation methodology that assumes: We assumes a 20.0x P 2017e EPS and a target P TBV of 1.6x to 2017E tangible book given our forecast above peer EPS growth. Downside risks to our PO are an inability to deploy excess capital and create value through acquisitions. 2016 Future of Financials Conference 17 November 2016 65 Citigroup Inc. (C) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 60 PO, assigning a 0.9x multiple to 2017E TBV and 11x multiple on '17E blended NA and EM earnings. We have weighted the P E and P TBV factors equally at 40 , and our DCF analysis by 20 . Near term, we view C's current market multiple as overly discounted, but expect money center banks will likely continue to trade at a discount to the regionals. Our 1x TBV multiple represents a 0.3x discount to our median multiple for our universe. Our discount to TBV is a reflection of the earnings drag from Holdings and the fact that money centers will most likely continue to trade at a discount to regional peers. Our 11x 16E multiple is based on a sum of the parts analysis, where we apply a 10.5x multiple, on all operations ex. Lat Am and Asia GCB. We then apply a 11x multiple on Lat Am and Asia GCB to represent the earnings growth for consumer banking in emerging markets. Lastly, we deduct the earnings drag from Holdings. Our DCF analysis assumes a 5 growth rate and two stage cost of equity of 13 . Risks to our PO are macro risks such as a slower than expected rate of fed hikes, and economic downturn and further scrutiny of the financials industry. Specific to C, risks are enhanced regulatory and capital standards as a Global SIFI, slower wind-down on Citi Holdings than expected, and slower-than-expected growth in the emerging markets and potential fines. Citizens Financial Group (CFG) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 33 price objective and assign a 1.2x multiple to our 2017E TBV in-line with other asset sensitive peers. We place a 15x multiple on our 2017E EPS, also in-line with its asset sensitive peer group. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 5 . Downside risks to our price objective are: 1) a significantly delayed Fed rate hike leading to pressured revenue growth, 2) higher losses associated with CFG's consumer oriented loan portfolio, and 3) a quicker than expected credit normalization. Comerica Incorporated (CMA) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 55 PO, and assign a 1.2x multiple to 2017E TBV (in line with the median energy-exposed peers) and 16x multiple on 2017E EPS due to below peer EPS growth and ROTE. We have weighted the P E and P TBV factors equally at 33 , and our DCF analysis by 33 . Our DCF assumes a two-stage cost of capital of 12.3 and 10.5 and a terminal growth rate of 5 and Tier 1 common of 8 at termination. Downside risks to our PO are a more severe than expected impact from lower energy prices, or a slower than expected rate of fed hikes. Upside risks are a better than expected rebound in energy prices and sooner recognition of cost saves. Commerce Bancshares Inc. (CBSH) We use an equal-weighted three-factor valuation framework (P E, P TBV, DCF) to arrive at our 60 PO and assign a 2.2x multiple to 2Q17E TBV, representing a premium to peers, given higher-quality earnings and capital position. Our assigned 18x multiple on 2017E EPS is at a premium to peers due to higher earnings quality. Our DCF assumes a terminal cost of equity of 9 , and a terminal growth rate of 3 . Downside risks to our price objective are regulatory headwinds, or longer-thananticipated low-rate environment. Upside risks are a stronger-than-expected economic rebound, better-than-expected capital distribution and a potential takeout above our price objective. 66 2016 Future of Financials Conference 17 November 2016 Cullen Frost Bankers Inc (CFR) To arrive at our 74 price objective, we employed a three-factor valuation methodology that incorporates target P E, target P TBV and a DCF model. For our P E valuation, we apply a 15x earnings multiple on CFR's 2017E core earnings. For our P TBV valuation, we apply a 1.7x tangible book multiple to CFR's 2017E tangible book. Both multiples are lower than peers for CFR due to EPS headwinds and rising credit costs from lower energy prices. For our DCF analysis, we use a net income growth of 3.0 and assume a beta of 1.0 in the terminal stage. Upside risks to our PO: a sharp rebound in oil prices, higher than expected interest rates, stronger loan growth, better than expected credit performance of CFR's energy loan portfolio. Downside risks: A worse than expected decline in Texas economic growth that impacts CFR's balance sheet growth, a slower than expected pace or rate hikes and a worse than expected sell off in oil prices. East West Bancorp, Incorporated (EWBC) Our three-pronged valuation methodology (target P E, target P TBV, and DCF analysis) drives our price objective of 50. We assumes a 16.0x P 2017e EPS and a target P TBV of 2.0x to 2Q17E tangible book given our forecast above peer EPS growth. Our DCF assumes a two-stage cost of capital of 9.5 and a terminal growth rate of 3 Upside risks to our PO are a quick economic recovery (led by stabilization or appreciation in CA housing values) or a faster than expected recovery in China. Downside risk to our PO is an even deeper economic slowdown driving corporate losses higher than we currently anticipate, faster than expected normalization in credit. Eaton Vance (EV) Our 35 price objective is based on a target P E of 15x calendar 2016E (14x '17E), at a discount to our asset-manager group target multiple, given recent outflows from high fee products, offset by distinct products in areas such as floating rate and overlay. Downside risks to our price objective are market depreciation and investment underperformance, as for all asset managers, and (should the economy slow) concentration in some credit areas, such as bank loan funds, high yield and longer-duration munis. Upside risks are improving performance, flows, or future traction from EV's ETF licensing initiative. FCB Financial Holdings, Inc (FCB) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 44 price objective and assign a 1.6x multiple to our 2017E TBV given that we believe the market would pay a 0.3x premium for FCB's 2016 estimated returns in line with the median premium of its peer group (Florida banks, High Growth, Bank Acquisition, and SMIDs). We place a 18x multiple on our 2017E EPS, a premium to its SMIDs peers given our outlook for stronger EPS growth. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 3 . Downside risks to our price objective are a deterioration in credit quality in FCB's unseasoned newly originated loan portfolio, a downturn in the Florida economy, and continued competition for C I loans. Upside risks are a better than expected improvement in its return profile and a much stronger economic improvement in the Florida economy. Fifth Third Bank (FITB) Our PO of 26 is predicated on target P E multiple of 15x to reflect higher confidence in FITB achieving most of its profit improvement goals related to Project North Star. This represents a modest premium versus peers. Downside risks to our PO are a prolonged low interest rate environment, expensive M A and slower than guided loan growth on weaker economic activity. 2016 Future of Financials Conference 17 November 2016 67 First Bancorp Puerto Rico (FBP) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 6.50 price objective. We assign a 1.0x multiple to our 2Q17E TBV, below the 1.6X for peers, due to the overhang of PR fiscal issues that may reduce TBV. Our revised implied 2Q17E TBV of 1.0x is consistent with a 5 ROE. We assign a 10x multiple to our 2017E EPS, in line with peers. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 3 . Downside risks to our price objective are a worse-than-expected restructuring of PR government debt, deterioration in the Puerto Rican economy that could hurt the ongoing credit and earnings recovery at FBP, a change in management's strategy to dispose troubled assets, and potential regulatory risk stemming from the ongoing implementation of the Dodd-Frank financial rules. Upside risks to our price objective are a much stronger economic improvement in Puerto Rico and a better-than-expected improvement in asset quality trends at FBP. First Hawaiian Inc. (FHB) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 31 PO and assign a 2.2x multiple to 2017E TBV and 17x multiple on 2017E EPS, representing premium target multiples for the median smid-cap banks under coverage. We have weighted the P E and P TBV factors equally. A superior profitability profile suggests an above peer multiple. Our DCF assumes a twostage cost of capital of 8 and a terminal growth rate of 4 . Risks include 1) FHB's reliance on the Hawaiian economy with 80 of the franchise spread across Hawaii, Guam, and Saipan poses downside risk to EPS from a severe economic downturn in this region. 2) While FHB has a history of conservative underwriting its exposure to auto loans could serve as an overhang if investor concerns around the health of the auto sector and consumer increase. 3) Expectations for continued divestiture by French bank BNP (owns 82 of shares o s) could temper stock performance. First Horizon National Corp. (FHN) We use a three-prong valuation framework (P E, P TBV, DCF) to arrive at our 16 price objective and assign a 1.5x multiple to 2Q17E TBV and a 14x multiple to 2017E EPS (inline with median for our mid-to-small cap universe). We believe that this valuation discount is warranted given the below average earnings growth that we forecast for FHN. Our P TBV and P E targets reflect our expectation that earnings growth and profitability will remain challenged by a low growth low interest rate environment. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 5 . Downside risks to our price objective are a double dip in home prices and slower residential real estate recovery. Upside risks are FHN being taken out above our price objective and better performance in the economy than we expect. Franklin Financial Network, Inc. (FSB) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 36 price objective and assign a 1.8x multiple to our 2Q17E TBV, given that we believe the market would pay no premium for FSB's 2016 estimated returns of 14 , below the median of its peer group (High performing, Southeast peers, and SMIDs). We place a 14x multiple on our 2017E EPS, a premium to its peer group given above average expected EPS growth. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 3 . Downside risks to our price objective are: 1) execution risk leading to slower than expected loan growth or lower than expected improvement in the efficiency ratio, 2) 68 2016 Future of Financials Conference 17 November 2016 downturn in the local real estate markets affecting Franklin's construction loans and increasing credit costs via higher charge-offs and provisions, and 3) inability to effectively fund asset growth driving greater than expected compression in the net interest margin. Goldman Sachs (GS) We value the brokers based on the relationship between ROE (return on equity) and PB (price to book), which has a high historical correlation. Our 230 PO is based on a target PB multiple of 1.2x our forward book value estimate, which is above our 2017E ROE of roughly 10 as we add in higher interest rate expectations and loosening regulations into our multiple. Risks to the downside are a weaker economy capital markets, increased macro issues, tougher regulation, and litigation, while risks to the upside are a stronger economy, moderating macro risks, market share gains, and less onerous regulatory and legal issues. Great Western Bancorp Inc (GWB) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 42 price objective and assign a 2.0x multiple to our 2Q17E TBV given that we believe the market would pay premium for GWB's 2016 estimated returns of 15 , in line with the median premium of its peer group (High performing, Midwest peers, and SMIDs). We place a 16x multiple on our 2017E EPS, a premium to its peer group given higher quality earnings. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 3 . Downside risks to our price objective are a prolonged downturn in the farm sector and lower for longer interest rate environment. Upside risks are a better than expected improvement in the farming industry and a much stronger economic improvement in the Midwest economy. Hancock Holding (HBHC) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 41 price objective. We assign a 1.5x multiple to our 2Q17E TBV, in line with SMID-cap peers based on their in-line return profile, and this translates to 35.75. We place a 14.5x multiple on our 2017E EPS, in line with other peers based on forecasted EPS growth, for 33. Our DCF assumes a two-stage model with terminal growth rate of 3.5 and a cost of capital of 8.5 to derive our 35 PO. Downside risks to our price objective are regulatory issues, slowing growth and if M A synergies do not materialize. Upside risks are better than expected cost saves, stronger loan growth that would lead to better than forecast spread revenue and lower credit costs. Huntington Bancshares Inc. (HBAN) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our PO of 13 and assign a 1.8x multiple to 2017E TBV and a 14x multiple on 2017E EPS, below historical multiples. This is due to more stringent capital standards and the negative fee income impact of pending regulatory reform. Our DCF analysis uses a cost of equity of 15.7 in the first stage and 11 in the second stage, and a terminal growth rate of 3 . Risks to our price objective are an inability to offset regulatory fee income headwinds and integration risk associated with FMER. Other risks are an inability to return capital to shareholders in a timely fashion or overpaying for an acquisition target. IBERIABANK Corp (IBKC) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 85 price objective and assign a 1.6x multiple to our 2Q17E TBV, in line with multiples of other 2016 Future of Financials Conference 17 November 2016 69 high growth peers. We place a 16x multiple on our 2017E EPS in line with SMID peers. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 3 . Downside risks to our price objective are worse than expected decrease in oil prices, regulatory issues, deteriorating credit quality, and if M A synergies do not materialize. Upside risks are sooner than expected recovery in the oil price, faster than expected rate hikes or better than expected improvement in the US economy. Invesco (IVZ) Our 36 price objective is based on a target P E multiple of 14x our 2017E, which is above IVZ's historical valuation relative to the group given expectations for superior organic growth. Risks to our price objective are market depreciation and investment underperformance, as for all asset managers, along with volatile flows in IVZ's passive strategies, non-US currency and market risk. JPMorgan Chase Co. (JPM) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 83 PO, assigning a 1.5x multiple to 2017E TBV and 13x multiple on 2017E EPS. We have weighted the P E and P TBV factors equally at 40 , and our DCF analysis by 20 . Near term, we view JPM's current market P E multiple as overly discounted, but expect money center banks will likely continue to trade at a discount to the regionals. Our 11x multiple is a 2x discount to our median multiple as we believe in the near future, money centers will continue to trade at a discount to regional peers. Our DCF assumes a twostage cost of capital of 10 and a terminal growth rate of 4 . Risks to our price objective are macro risks such as a longer than expected low interest rate environment and further regulation and scrutiny of the financials industry. Specific to JPM, risks are enhanced regulatory and capital standards as a Global SIFI, mortgage putback risk, material decline in investment banking trading profitability, and increased litigation on matters such as private label securitization, foreclosures, etc. Key Corp (KEY) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 18 PO and assign a 1.4x multiple to 2017E TBV and 15x multiple on 2017E EPS, in-line with its peer group due to near median profitability and EPS growth. Our DCF assumes a two stage cost of capital of 13.4 and 10.9 and a terminal growth rate of 5 and Tier 1 common of 8 at termination. Downside risks to our PO are a prolonged low interest rate environment, greater than expected expenses, inability to maximize balance sheet efficiency, and the announcement of expensive deals. KKR Co. (KKR) Our price objective (PO) for KKR is 17, which results in a target price-to-ENI (P ENI or P E) multiple of 10x our 2017 economic net income (ENI) estimate. Our price objective is based on our sum-of-the-parts (SOTP) analysis. Our SOTP analysis is based on the following components: a target multiple on fee related earnings (11x - discount to asset manager multiples given revenue mix), a discount to book value for the balance sheet investments and accrued carry given markets, and a discounted value on the performance fee upside over a cycle. Based on this method, we value the fee related earnings at 6 unit, the balance sheet (principal investments and accrued carry) at 9 unit, and the discounted value of future carry income and investment income at 2 unit, which equates to a total value of 17, in line with our price objective. Risks to our PO: a weak macro and capital markets backdrop, potential changes in tax laws related to carried interest and partnerships, regulatory and political risk, poor 70 2016 Future of Financials Conference 17 November 2016 performance, weak fundraising, principal investment and balance sheet risk, expansion risk, key person and talent risk, competition, a unique corporate structure that limits shareholder control, and share lock-ups that could weigh on the stock. Legg Mason (LM) Our 36 price objective is based on a target P E multiple of 12x our calendar '17E, a discount to the group, given financial leverage, muted flows, and deal integration risk. Downside risks to our price objective: an equity sell-off or weakening flows, which would pressure AUM and revenues. A return to past under-performance at key affiliates is also a risk for Legg, given its fragile recovery and brand issues. Given their affiliate model there are integration risks. Upside risks to our price objective are better than expected equity markets, performance, or flows, or an accretive acquisition. Morgan Stanley (MS) We value the brokers based on the relationship between ROE (return on equity) and PB (price to book), which has a high historical correlation. Our 43 PO is based on a target PB multiple of 1.3x our forward book value estimate, which is above our 2017E ROE of roughly 8 as we add in higher interest rate expectations and loosening regulations into our multiple. Risks are a weak economy, low rates for longer, a significant reduction in capital markets activity, weak returns, another shock to the financial system, ongoing competition and talent risk, tighter regulation, significantly higher capital requirements, and ongoing litigation risks. New York Community Bancorp (NYCB) Our price objective is 17 and we use a three factor valuation model equally weighing valuations using P E, P TBV and DCF models. To arrive at our P E valuation, we assign a 14x multiple to our blended '17e EPS or inline with the median of other CCAR banks with 50-100bn in assets. To arrive at our P TBV valuation we applied a 2.2x multiple to our 2Q17E TBV, a premium to NY Thrift and smid cap peers given NYCB's superior return profile. We arrive at our DCF valuation using we assume a 2 terminal growth rate and a WACC of 8 . Upside risks to our price objective are: 1) Change in SIFI threshold could drive a relief rally, 2) Lower for longer rate backdrop, and 3) A period of heightened market volatility. Downside risks to our price objective are: 1) worse than expected impact on ROTE from increased capital standards from obtaining the SIFI designation and 2) higher than expected impact from increasing rates on funding cost. Prosperity Bancshares Inc (PB) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 58 price objective. We assign a 1.8x multiple to our 2Q17E TBV (40 weight) compared to 1.1x median of TX peers. We believe the 0.7x premium to Texas peers is warranted given PB's above average return on tangible equity (ROTE) profile. We place a 14x multiple on 2017E EPS, in line with historical P E median (40 weight) net of accretable yield. Our DCF valuation ((20 weight) suggests a fair value of 45. Our DCF assumes a terminal growth rate of 3 and cost of capital of 9.9 . Risks to our price objective are worse than expected drop in the price of oil, better than expected macro environment and increasing rates which offset the effects of lower oil prices, or inability to close an M A deal due to regulatory or capital constraints. Regions Financial (RF) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 13 price objective and assign a 1.4x multiple to 2017E TBV and 14x multiple on 2017E EPS. Our 2016 Future of Financials Conference 17 November 2016 71 estimates imply RF would generate ROTEs of 10-11 in 2016-2017E, hence we find RF fairly valued at 1.3x TBV. Our 13x multiple is in-line with large regional peers. Our DCF assumes a two-stage cost of capital of 13.6 and 10.5 and a terminal growth rate of 6.5 and Tier 1 common of 8 at termination. Downside risks to our PO are a slower-than-expected credit recovery, and the Fed on hold for a longer period of time. Signature Bank (SBNY) We use an equal-weighted three-factor valuation framework (P E, P TBV, DCF) to arrive at our 160 PO and assign a 2.1x multiple to 3Q17E TBV, representing a premium to the group, which we believe is appropriate given a stronger profitability and capital profile, and above-peer-growth prospects. Our 16.1x multiple on 2017E is higher than peers given consistent above peer growth. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 4 . Risks to our price objective are required provisioning at higher-than-forecast levels, further deterioration in rental income for commercial properties, and a longer-thananticipated low-rate environment. SunTrust Banks, Inc. (STI) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 53 PO, assigning a 1.7x multiple to 2017E TBV and 14.5x multiple on 17E EPS. Above peer P TBV due to their above median profitability, and below peer P E due to their below median EPS growth. We have weighted the P E and P TBV factors equally at 40 , and our DCF analysis by 20 . Our DCF assumes a two-stage cost of capital of 12 and a terminal growth rate of 4 . Risks to our price objective are macro risks, such as a slower than expected rate increase. Upside risks are higher-than-expected capital return, a general beta rally for bank stocks, and faster recognition of "normalized" earnings. SVB Financial Group (SIVB) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 165 price objective and assign a 1.8x multiple to our 2Q17E TBV and apply a 17x P E to 17E EPS. Our valuation multiples are both in line with high growth peers due to SIVB's high profitability and EPS growth profile. Our DCF assumes a two-stage cost of capital of 9.5 and a terminal growth rate of 6 . Downside risks are a longer than expected low rate environment and a slowdown in the technology sector and related IPO activity. Upside risks are sooner than expected rate hike, or better than expected pickup in the tech sector. Synovus Financial Corp. (SNV) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 40 price objective and assign a 1.7x multiple to our forward 2Q17 TBV, given peers are currently trading higher and a discount is warranted given their lower return profile. We place a 15x multiple on 2017E EPS, in line with the historical median for the stock. Our DCF assumes a two-stage cost of capital of 9 , and a terminal growth rate of 3 . Downside risks to our price objective are potentially slower-than-expected economic growth in their footprint or a potential takeout price that is lower than where the stock is trading today. Upside risks to our price objective are a quicker pick-up in capital return than we are expecting and SNV being acquired above our price objective. TCF Financial Corp. (TCB) 72 2016 Future of Financials Conference 17 November 2016 We use an equal weighted, three-factor valuation framework (P E, P TBV, DCF) to arrive at our PO of 14. We assigned a 1.2x multiple to 2Q17E TBV and a 12x multiple on 2017E EPS, with lower PTBV PE multiple than peers assigned due to the higher perceived risk of their lending model. Our DCF assumes a two-stage cost of capital of 9.4 and 11.5 and a terminal growth rate of 2 . Upside risk to our price objective is a less onerous residential real estate cycle favorably benefiting credit provision forecasts. Downside risks are a double dip in home prices and a prolonged low rate environment. Texas Capital Bancshares Inc. (TCBI) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 74 price objective and assign a 1.7x multiple to our 2Q17E TBV, below high growth peers due to possible losses as a result of the downturn in energy prices. We place a 17x multiple on our 2017E EPS, below TCBI's historical pre-crisis P E multiple based on possible EPS headwinds from their energy exposures. Our DCF assumes a two-stage cost of capital of 10 and a terminal growth rate of 4 . Downside risks to our price objective are lower than expected oil prices and a slowdown in economic activity in Texas. Upside risk to our price objective is better than expected ramp up in MCA business, and sooner than expected hike in rates, faster than expected recovery in oil prices. The Blackstone Group (BX) Our price objective (PO) for Blackstone is 29, which results in a target price-to-ENI (P ENI or P E) multiple of 12x our 2017 ENI estimate. Our price objective is based on our sum-of-the-parts (SOTP) analysis. Our SOTP analysis is based on the following components: a target multiple on fee related earnings (16x - roughly in line with or a premium to top tier asset manager multiples given healthy growth and sticky assets), book value for the balance sheet investments and accrued carry, and a discounted value on the performance fee upside over a cycle (1.5x MOIC). Based on this method, we value the fee related earnings at 14 unit, the balance sheet (principal investments and accrued carry) at 6 unit, and the discounted value of future carry income and investment income at 9 unit, which equates to a total value of 29, in line with our price objective. Risks to our PO: a weak macro and capital markets backdrop, potential changes in tax laws related to carried interest and partnerships, legal and political risk, increased regulation, poor performance, weak fundraising, expansion risk, key person and talent risk, competition, and a unique corporate structure that limits unitholder control. The Carlyle Group (CG) Our price objective (PO) for Carlyle is 18, which implies a target price-to-ENI (P ENI or P E) multiple of 13x our 2017 ENI estimate. Our price objective is based on our sum-ofthe-parts (SOTP) analysis. Our SOTP analysis is based on the following components: a target multiple on fee-related earnings (16x, roughly in line with or a premium to asset manager multiples given growth outlook), book value for the balance sheet investments and accrued carry, and a discounted value on the performance fee upside over a cycle (1.5x MOIC). Based on this method, we value the fee-related earnings at 4 share, the balance sheet at 5 share, and incentive upside at 9 share, which equates to a total value of 18, in line with our price objective. Risks to our PO: a weak macro and capital markets backdrop, potential changes in carried interest and partnership tax laws, regulatory and political risk, poor performance, weak fundraising, expansion risk, key person and talent risk, competition, a unique corporate structure that limits shareholder control, a limited float, and share lock-ups that could weigh on the stock. 2016 Future of Financials Conference 17 November 2016 73 The PNC Financial Services Group, Inc. (PNC) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 110 PO and assign a 1.4x multiple to 2017E TBV and 14x multiple on 2017E EPS, in line with target multiples for the median large regional banks under coverage. We have weighted the P E and P TBV factors equally at 40 , and our DCF analysis by 20 . A superior profitability profile suggests an above peer multiple - however, a challenging macro backdrop and specific industry headwinds restrain our P E target. Our DCF assumes a two-stage cost of capital of 9.6 and 11.2 and a terminal growth rate of 4 . Risks are macro risks such as a lower for longer rate environment, the implementation of a strict liquidity coverage ratio and further regulation on overdraft income that restricts bank profitability. U.S. Bancorp (USB) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 50 PO, assigning an above peer 2.8x multiple to 2017E TBV and near median 14.5x multiple on 2017E EPS due to their above median profitability. We have weighted the P E and P TBV factors equally at 40 , and our DCF analysis by 20 . Our DCF assumes a twostage cost of capital of 9.5 and 10.9 and a terminal growth rate of 5 . Risks to our price objective are macro risks such as a double dip recession, the implementation of a strict liquidity coverage ratio and further regulation on overdraft income that restricts bank profitability. Specific to USB, risks are enhanced regulatory scrutiny and capital standards as a Domestic SIFI and an announcement of a large expensive deal that could weigh on the stock price. UMB Financial Corporation (UMBF) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 78 price objective and assign a 1.8x multiple to our 2Q17E TBV, in-line with peers, and we place a 18x multiple on our 2017E EPS, above peers given our above median EPS growth forecast. Our DCF model assumes cost of equity of 8 and a terminal growth rate of 4 . Downside risks to our price objective are continued rising long rates, which could negatively impact the company's sizable securities book and erode tangible book value. In addition, a sudden outflow of deposits could impact EPS and the asset sensitivity of UMBF's balance sheet to higher interest rates. Upside risks to our price objective are a much faster asset mix change into higher yielding loans that significantly increases its net interest margin. Wells Fargo Company (WFC) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 55 PO, assigning a 1.75x multiple to 2017E TBV and 13x multiple on 2017E EPS. We have weighted the P E and P TBV factors equally at 40 , and our DCF analysis by 20 . Our 1.6x TBV multiple represents a 0.3x premium to our mega-cap median multiple, but we believe this is justified due to WFC's superior returns on tangible equity (ROTE consistent between 13 -14 throughout our forecast period, versus 12 for peers). Our 12x EPS multiple is in line with our mega-cap median multiple. We believe WFC deserves to trade at a premium due to better earnings growth, but we are assuming WFC trades in line with peers due to a higher percentage of earnings from mortgage banking and accretable yield, as well as potentially greater regulatory scrutiny as the second largest US depository. Our DCF assumes a two-stage cost of capital of 11 and a terminal growth rate of 4 . 74 2016 Future of Financials Conference 17 November 2016 Downside risks to our price objective are an economic slowdown and the final implementation of a strict liquidity coverage ratio. Specific to WFC, risks are enhanced regulatory scrutiny and capital standards as a Global SIFI, and issues surrounding its cross selling. Zions Bancorp (ZION) We use a three-factor valuation framework (P E, P TBV, DCF) to arrive at our 36 price objective and assign a 1.2x multiple to 2017E TBV. Our 16x P E multiple, which we apply on 2017E EPS along with debt extinguishment upside, is 1x higher than its historical median due to low interest rates. Our DCF assumes a two-stage cost of capital of 16.1 and 11.6 and a terminal growth rate of 8 . Upside risks to our price objective are more robust economic recovery and less onerous post cycle reserve requirements. Downside risks are a slowdown in housing price appreciation and a prolonged low interest rate environment. Analyst Certification We, Erika Najarian, Ebrahim H. Poonawala, Kenneth Bruce and Michael Carrier, CFA, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Special Disclosures BofA Merrill Lynch is currently acting as financial advisor to KKR and the Company in connection with its proposed sale of a majority stake in SMCP Group to Shandong Ruyi Group. The signing of an exclusivity agreement between the parties was announced on 31 March 2016. BofA Merrill Lynch is currently acting as financial advisor to Huntington Bancshares Inc in connection with Huntington and FirstMerit Corp's proposed sale of 13 bank branches in Stark and Ashtabula counties to First Commonwealth Bank, a subsidiary of First Commonwealth Financial Corp, which was announced on July 27, 2016. BofA Merrill Lynch is currently acting as financial advisor to Blackstone Group LP in connection with its proposed acquisition of Team Health Holdings Inc, which was announced on October 31, 2016. The proposed transaction is subject to approval by shareholders of Team Health Holdings Inc. This research report is not intended to (1) provide voting advice, (2) serve as an endorsement of the proposed transaction, or (3) result in the procurement, withholding or revocation of a proxy. BofA Merrill Lynch is currently acting as financial adviser to Blackstone Real Estate Partners Europe IV and Blackstone Real Estate Partners VIII (jointly Blackstone ) through its entity Vega Holdco Sarl in connection with a proposed offer to acquire a controlling stake of D. Carnegie Co. AB, which was announced on 15 July 2016. The transaction will, if completed eventually result in Blackstone passing the threshold for a mandatory offer obligation. BofA Merrill Lynch is currently acting as financial advisor to Ares Capital Corp. in connection with its proposed acquisition of American Capital, Ltd., which was announced on May 23, 2016. Ares Management L.P. will provide financial support to the transaction. The proposed transaction is subject to approval by shareholders of American Capital ltd. and Ares Capital Corp. This research report is not intended to (1) provide voting advice, (2) serve as an endorsement of the proposed transaction, or (3) result in the procurement, withholding or revocation of a proxy. 2016 Future of Financials Conference 17 November 2016 75 US - Brokers, Asset Managers, Exchanges Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM RSTR Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Affiliated Mgrs. AMG AMG US Michael Carrier, CFA AllianceBernstein AB AB US Michael Carrier, CFA BlackRock, Inc. BLK BLK US Michael Carrier, CFA Charles Schwab Corp. SCHW SCHW US Michael Carrier, CFA CME Group CME CME US Michael Carrier, CFA Cohen Steers CNS CNS US Michael Carrier, CFA Goldman Sachs GS GS US Michael Carrier, CFA Houlihan Lokey HLI HLI US Michael Carrier, CFA IntercontinentalExchange ICE ICE US Michael Carrier, CFA Invesco IVZ IVZ US Michael Carrier, CFA KKR Co. KKR KKR US Michael Carrier, CFA Legg Mason LM LM US Michael Carrier, CFA Morgan Stanley MS MS US Michael Carrier, CFA Oaktree Capital Group OAK OAK US Michael Carrier, CFA Old Mutual Asset Management OMAM OMAM US Michael Carrier, CFA TD Ameritrade AMTD AMTD US Michael Carrier, CFA Apollo Global Management APO APO US Michael Carrier, CFA Ares Management ARES ARES US Michael Carrier, CFA E TRADE Financial ETFC ETFC US Michael Carrier, CFA Franklin Resources BEN BEN US Michael Carrier, CFA Janus Capital JNS JNS US Michael Carrier, CFA Nasdaq Inc NDAQ NDAQ US Michael Carrier, CFA Och-Ziff OZM OZM US Michael Carrier, CFA T. Rowe Price TROW TROW US Michael Carrier, CFA The Blackstone Group BX BX US Michael Carrier, CFA The Carlyle Group CG CG US Michael Carrier, CFA WisdomTree WETF WETF US Michael Carrier, CFA Artisan Partners APAM APAM US Michael Carrier, CFA CBOE Holdings CBOE CBOE US Michael Carrier, CFA Eaton Vance EV EV US Michael Carrier, CFA Federated Inv. FII FII US Michael Carrier, CFA Virtus Investment Partners VRTS VRTS US Michael Carrier, CFA Waddell Reed WDR WDR US Michael Carrier, CFA Bats Global Markets, Inc. BATS BATS US Michael Carrier, CFA 76 2016 Future of Financials Conference 17 November 2016 US - Specialty Financial Services Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM RSTR RVW Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Apollo Commercial Real Estate Finance ARI ARI US Kenneth Bruce Ares Commercial Real Estate Corp. ACRE ACRE US Kenneth Bruce Blackstone Mortgage Trust Inc BXMT BXMT US Kenneth Bruce Compass Diversified Holdings CODI CODI US Derek Hewett Ladder Capital Corp. LADR LADR US Kenneth Bruce MGIC Investment Corp. MTG MTG US Mihir Bhatia New Residential Investment NRZ NRZ US Kenneth Bruce Radian Group Inc RDN RDN US Mihir Bhatia Starwood Property Trust, Inc. STWD STWD US Kenneth Bruce TCP Capital Corp. TCPC TCPC US Derek Hewett TPG Specialty Lending, Inc. TSLX TSLX US Derek Hewett AGNC Investment Corp AGNC AGNC US Kenneth Bruce Ally Financial Inc. ALLY ALLY US Kenneth Bruce Amer Express AXP AXP US Kenneth Bruce Annaly Capital NLY NLY US Kenneth Bruce CIT Group Inc. CIT CIT US Derek Hewett Discover Financial Services DFS DFS US Kenneth Bruce Golub Capital BDC, Inc. GBDC GBDC US Derek Hewett MasterCard Inc MA MA US Kenneth Bruce PayPal PYPL PYPL US Kenneth Bruce PennyMac Financial Services, Inc. PFSI PFSI US Kenneth Bruce Synchrony Financial SYF SYF US Kenneth Bruce Visa Inc. V V US Kenneth Bruce Apollo Investment Corporation AINV AINV US Derek Hewett Capital One COF COF US Kenneth Bruce Credit Acceptance Corp. CACC CACC US Kenneth Bruce Essent Group ESNT ESNT US Mihir Bhatia Goldman Sachs BDC, Inc. GSBD GSBD US Derek Hewett OneMain Holdings, Inc. OMF OMF US Kenneth Bruce PennyMac Mortgage Investment Trust PMT PMT US Kenneth Bruce Santander Consumer USA Inc. SC SC US Kenneth Bruce American Capital, Ltd. ACAS ACAS US Derek Hewett Ares Capital Corporation ARCC ARCC US Derek Hewett AG Mortgage Investment Trust, Inc. MITT MITT US Kenneth Bruce ARMOUR Residential REIT, Inc ARR ARR US Kenneth Bruce CYS Investments, Inc CYS CYS US Kenneth Bruce Ellington Financial LLC EFC EFC US Kenneth Bruce Hannon Armstrong HASI HASI US Kenneth Bruce Invesco Mortgage Capital, Inc. IVR IVR US Kenneth Bruce Two Harbors Investment Corp. TWO TWO US Kenneth Bruce Western Asset Mortgage Corp WMC WMC US Kenneth Bruce 2016 Future of Financials Conference 17 November 2016 77 US - Banks Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM RSTR Company BofA Merrill Lynch ticker Bloomberg symbol Analyst BankUnited, Inc. BKU BKU US Ebrahim H. Poonawala BB T Corporation BBT BBT US Erika Najarian Capital Bank Financial Corp. CBF CBF US Erika Najarian Citigroup Inc. C C US Erika Najarian Citizens Financial Group CFG CFG US Erika Najarian East West Bancorp, Incorporated EWBC EWBC US Ebrahim H. Poonawala FCB Financial Holdings, Inc FCB FCB US Ebrahim H. Poonawala Great Western Bancorp Inc GWB GWB US Ebrahim H. Poonawala Huntington Bancshares Inc. HBAN HBAN US Erika Najarian IBERIABANK Corp IBKC IBKC US Ebrahim H. Poonawala JPMorgan Chase Co. JPM JPM US Erika Najarian Key Corp KEY KEY US Erika Najarian New York Community Bancorp NYCB NYCB US Ebrahim H. Poonawala Signature Bank SBNY SBNY US Ebrahim H. Poonawala SunTrust Banks, Inc. STI STI US Erika Najarian SVB Financial Group SIVB SIVB US Ebrahim H. Poonawala The PNC Financial Services Group, Inc. PNC PNC US Erika Najarian UMB Financial Corporation UMBF UMBF US Ebrahim H. Poonawala Wells Fargo Company WFC WFC US Erika Najarian Banc of California BANC BANC US Ebrahim H. Poonawala Commerce Bancshares Inc. CBSH CBSH US Ebrahim H. Poonawala Fifth Third Bank FITB FITB US Erika Najarian First Bancorp Puerto Rico FBP FBP US Ebrahim H. Poonawala First Hawaiian Inc. FHB FHB US Ebrahim H. Poonawala Franklin Financial Network, Inc. FSB FSB US Ebrahim H. Poonawala Hancock Holding HBHC HBHC US Ebrahim H. Poonawala M T Bank MTB MTB US Erika Najarian Regions Financial RF RF US Erika Najarian Synovus Financial Corp. SNV SNV US Ebrahim H. Poonawala Texas Capital Bancshares Inc. TCBI TCBI US Ebrahim H. Poonawala U.S. Bancorp USB USB US Erika Najarian Associated Banc-Corp ASB ASB US Ebrahim H. Poonawala Bank of Hawaii Corp. BOH BOH US Ebrahim H. Poonawala Comerica Incorporated CMA CMA US Erika Najarian Cullen Frost Bankers Inc CFR CFR US Ebrahim H. Poonawala First Horizon National Corp. FHN FHN US Ebrahim H. Poonawala Prosperity Bancshares Inc PB PB US Ebrahim H. Poonawala TCF Financial Corp. TCB TCB US Ebrahim H. Poonawala Zions Bancorp ZION ZION US Erika Najarian First Republic Bank FRC FRC US Erika Najarian Disclosures Important Disclosures Equity Investment Rating Distribution: Banks Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 81 43.55 Buy 74 91.36 Hold 45 24.19 Hold 41 91.11 Sell 60 32.26 Sell 56 93.33 78 2016 Future of Financials Conference 17 November 2016 Equity Investment Rating Distribution: Financial Services Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 113 46.89 Buy 89 78.76 Hold 66 27.39 Hold 55 83.33 Sell 62 25.73 Sell 40 64.52 Equity Investment Rating Distribution: Global Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 1553 49.44 Buy 1130 72.76 Hold 730 23.24 Hold 538 73.70 Sell 858 27.32 Sell 514 59.91 Issuers that were investment banking clients of BofA Merrill Lynch or one of its affiliates within the past 12 months. For purposes of this Investment Rating Distribution, the coverage universe includes only stocks. A stock rated Neutral is included as a Hold, and a stock rated Underperform is included as a Sell. FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst s assessment of a stock s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10 and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster Buy 10 70 Neutral 0 30 Underperform N A 20 Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same higher (dividend considered to be secure), 8 - same lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock s coverage cluster is included in the most recent BofA Merrill Lynch report referencing the stock. Price charts for the securities referenced in this research report are available at http: pricecharts.baml.com, or call 1-800-MERRILL to have them mailed. MLPF S or one of its affiliates acts as a market maker for the equity securities recommended in the report: AllianceBernstein, Amer Express, Ares Management, Assoc Banc-Corp, Banc of California, Bank Hawaii Corp, BankUnited, BB T, Blackstone Group, Capital Bank Fin., Carlyle, Citigroup, Citizens Financial G, Comerica, Commerce Bancs, Cullen Frost Bankers, East-West, Eaton Vance, FCB Financial Holdin, Fifth Third, First Bancorp PR, First Hawaiian Inc., First Horizon, Franklin Financial N, Goldman Sachs, Great Western Bancor, Hancock, Huntington Banc, IBERIABANK, Invesco, JP Morgan Chase, KeyCorp, KKR, Legg Mason, Morgan Stanley, New York Community B, PNC, Prosperity Bancshare, Regions Bank, Signature Bank, SunTrust Banks, SVB Financial, Synovus, TCF, Texas Capital, U.S. Bancorp, UMB Financial Corp, Wells Fargo, Zions. MLPF S or an affiliate was a manager of a public offering of securities of this issuer within the last 12 months: Ares Management, Assoc Banc-Corp, Banc of California, BB T, Citigroup, First Hawaiian Inc., Franklin Financial N, Goldman Sachs, Huntington Banc, IBERIABANK, KKR, Legg Mason, Regions Bank, SunTrust Banks, Wells Fargo. The issuer is or was, within the last 12 months, an investment banking client of MLPF S and or one or more of its affiliates: AllianceBernstein, Amer Express, Ares Management, Assoc Banc- Corp, Banc of California, Bank Hawaii Corp, BankUnited, BB T, Blackstone Group, Capital Bank Fin., Carlyle, Citigroup, Citizens Financial G, Comerica, East-West, Eaton Vance, FCB Financial Holdin, Fifth Third, First Bancorp PR, First Hawaiian Inc., First Horizon, Franklin Financial N, Goldman Sachs, Great Western Bancor, Hancock, Huntington Banc, IBERIABANK, Invesco, JP Morgan Chase, KeyCorp, KKR, Legg Mason, Morgan Stanley, New York Community B, PNC, Prosperity Bancshare, Regions Bank, Signature Bank, SunTrust Banks, SVB Financial, Synovus, TCF, Texas Capital, U.S. Bancorp, UMB Financial Corp, Wells Fargo, Zions. MLPF S or an affiliate has received compensation from the issuer for non-investment banking services or products within the past 12 months: AllianceBernstein, Amer Express, Ares Management, Assoc Banc-Corp, Banc of California, Bank Hawaii Corp, BankUnited, BB T, Blackstone Group, Capital Bank Fin., Carlyle, Citigroup, Citizens Financial G, Comerica, Commerce Bancs, Cullen Frost Bankers, East-West, Eaton Vance, Fifth Third, First Bancorp PR, First Hawaiian Inc., First Horizon, Goldman Sachs, Hancock, Huntington Banc, IBERIABANK, Invesco, JP Morgan Chase, KeyCorp, KKR, Legg Mason, Morgan Stanley, New York Community B, PNC, Regions Bank, Signature Bank, SunTrust Banks, SVB Financial, Synovus, TCF, Texas Capital, U.S. Bancorp, UMB Financial Corp, Wells Fargo, Zions. The issuer is or was, within the last 12 months, a non-securities business client of MLPF S and or one or more of its affiliates: AllianceBernstein, Amer Express, Ares Management, Assoc Banc- Corp, Banc of California, Bank Hawaii Corp, BankUnited, BB T, Blackstone Group, Capital Bank Fin., Carlyle, Citigroup, Citizens Financial G, Comerica, Commerce Bancs, Cullen Frost Bankers, East- West, Eaton Vance, Fifth Third, First Hawaiian Inc., First Horizon, Goldman Sachs, Hancock, Huntington Banc, Invesco, JP Morgan Chase, KeyCorp, KKR, Legg Mason, Morgan Stanley, New York Community B, PNC, Regions Bank, Signature Bank, SunTrust Banks, SVB Financial, Synovus, TCF, Texas Capital, U.S. Bancorp, UMB Financial Corp, Wells Fargo, Zions. MLPF S or an affiliate has received compensation for investment banking services from this issuer within the past 12 months: AllianceBernstein, Amer Express, Ares Management, Assoc Banc- Corp, Banc of California, Bank Hawaii Corp, BankUnited, BB T, Blackstone Group, Carlyle, Citigroup, Citizens Financial G, Comerica, Eaton Vance, Fifth Third, First Bancorp PR, First Hawaiian Inc., Franklin Financial N, Goldman Sachs, Great Western Bancor, Hancock, Huntington Banc, IBERIABANK, Invesco, JP Morgan Chase, KeyCorp, KKR, Legg Mason, Morgan Stanley, New York Community B, PNC, Regions Bank, Signature Bank, SunTrust Banks, Synovus, TCF, UMB Financial Corp, Wells Fargo, Zions. MLPF S or an affiliate expects to receive or intends to seek compensation for investment banking services from this issuer or an affiliate of the issuer within the next three months: AllianceBernstein, Amer Express, Ares Management, Banc of California, Bank Hawaii Corp, BankUnited, BB T, Blackstone Group, Capital Bank Fin., Carlyle, Citigroup, Citizens Financial G, East- West, Eaton Vance, FCB Financial Holdin, Fifth Third, First Hawaiian Inc., First Horizon, Goldman Sachs, Great Western Bancor, Huntington Banc, IBERIABANK, Invesco, JP Morgan Chase, KeyCorp, KKR, Legg Mason, Morgan Stanley, New York Community B, PNC, Prosperity Bancshare, Regions Bank, SunTrust Banks, SVB Financial, Synovus, Texas Capital, U.S. Bancorp, UMB Financial Corp, Wells Fargo, Zions. MLPF S together with its affiliates beneficially owns one percent or more of the common stock of this issuer. If this report was issued on or after the 9th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 9th day of a month reflect the ownership position at the end of the second month preceding the date of the report: AllianceBernstein, BB T, Blackstone Group, Carlyle, Citigroup, Citizens Financial G, Cullen Frost Bankers, Eaton Vance, Fifth Third, Goldman Sachs, Great Western Bancor, Huntington Banc, Invesco, JP Morgan Chase, KeyCorp, KKR, Legg Mason, Morgan Stanley, PNC, Regions Bank, SunTrust Banks, SVB Financial, TCF, U.S. Bancorp, Wells Fargo. MLPF S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the issuer on a principal basis: AllianceBernstein, Amer Express, Ares Management, Assoc Banc- Corp, Banc of California, Bank Hawaii Corp, BankUnited, BB T, Blackstone Group, Capital Bank Fin., Carlyle, Citigroup, Citizens Financial G, Comerica, Commerce Bancs, Cullen Frost Bankers, East- West, Eaton Vance, FCB Financial Holdin, Fifth Third, First Bancorp PR, First Hawaiian Inc., First Horizon, Franklin Financial N, Goldman Sachs, Great Western Bancor, Hancock, Huntington Banc, IBERIABANK, Invesco, JP Morgan Chase, KeyCorp, KKR, Legg Mason, Morgan Stanley, New York Community B, PNC, Prosperity Bancshare, Regions Bank, Signature Bank, SunTrust Banks, SVB Financial, Synovus, TCF, Texas Capital, U.S. Bancorp, UMB Financial Corp, Wells Fargo, Zions. 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image008.png; image009.jpg; image010.jpg; image011.jpg; image012.gif; Nikkei to 20000.pdf; Japan - Ready for ignition.pdf; Japan Macro Watch.pdf Importance: High Buy DXJ Jan 50 52 Call Spread for 0.35, ref 47.45, 13d. 4.7X net payout We can also discuss single stock and Topix banks index (TPNBNK) ideas The Republican sweep means higher USD and yields are a foregone conclusion. We see USDJPY reaching 120 next year and Japanese reflation, bullish for Japanese equities, particularly the banks. Huge focus on Banks Financials post Trump election, they're the big winners. The Banking sector is the main beneficiary of higher rates less regulation overhang. Investors are still underweight Japan. Especially in financials, so the move can have legs Valuation still at depressed levels. Japanese Banks are cheap versus their peers. Having said that, uncertainty still there so buying calls and call spreads makes sense. Some investors are still skeptical. Instead of building a large cash position, we believe options are a better play in case the market reverses and initiates a risk off move again. -BAML expects USDJPY 115-120 by end of 2017. NKY target of 20,000 (12 upside) -BOJ's intentions to refrain from further flattening of local yield curve positive for Banks and Insurers. -DXJ carries a 12 weight in banks whereas NKY is only 1.07 and even TPX is only 8.55 . -Positioning light. DXJ shares outstanding at 3year lows as foreigners have net sold 52b1n of JP equities ytd. -DXJ skew remains flat. 2m 25d Put Call skew at 19 tile over the past year. Japan Investment Strategy, Japan Econ Outlook and Japan Macro Watch attached DXJ 2m 25d Put Call over the past year. Hi: L3928 Ratib : DX 1.40 (1.) Debt Ivol (25 Put 2 Months LIVE - LIVE Eilc.amberg) ..... 1.35 1.30 1.20 1.15 Law-; 1.1171 .............. 1.10 Dec Mar Jun Sep 2015 2026 Copyright: 201.6 Bloomberg Finance L.P. 17-Nov-2016 13:41:34 Source: Bloomberg DXJ ETF shares outstanding remain at 3 year lows. CI Last Price 0.156N1 - T High on 08 20 15 0.327M Average 0.243M - i Low on 11 14 16 0.153M 2014 2015 2016 mom Index crn- JAPAN DfliD RAID 1 OUT) Daily 1911002013-17NU42016 CopyrighZ12016 Blccinterg Finance L.P. 17-Pipv-2016 14:07:06 LL Lpie 0.3M 0.25M 0.2M 0.156N Source: Bloomberg YTD net foreigner Japanese Equity flows: Dec Mar Jun 2016 Sep 1p Last Price -52555.8 T High on 12 04 15 10157.7 Average -39123.0 Low on 09 23 16 -65860.9 2015 10000 0 -10000 -20000 -30000 -40000 GThrwrin -52355,S -60000 -70000 .151HTIDII Index (Foreign ur1t1es I wtInent into Ja pan Stocks Net Flows 'r-10:l Oopyrighil 2016 loierg Finance L.P. 17-1M-2016 14:10:30 Source: Bloomberg Amanda Ens Director I Global Equities Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated Japan Investment Strategy Nikkei to 20,000: Inventory cycle upturn cyclicals; inflation banks, insurance Investment Strategy 18 November 2016 Key takeaways Solid macro and weaker JPY positive for Japan equities, which also tend to outperform when US rate rises (esp. steepening) The inventory cycle continues to recover on fiscal easing and capex, implying cyclical stocks will outperform Inflation and higher yields positive for banks, insurance. Risk is diplomacy, protectionism, and US economic cycle FULL REPORT Bullish equities 2017; rotation into cyclicals, banks, insurance We are bullish Japan equities for 2017 and we estimate the Nikkei 225 index will recover to 20,000 by end- 2017 (see 's eventual surge: Buy Nikkei 06 September 2016). Our new Chief Japan Economist lzumi Devalier forecasts above-consensus Japan GDP growth and inflation in 2017, which is also supportive of our bullish equities scenario (see 4.eady for ignition 18 November 2016). We expect rotation into cyclicals, banks and insurance as explained below. 1) Upturn in inventory cycle: Defensives Cyclicals We expect cyclicals to outperform defensives, premised on our end-2017 114 estimate of 120, and this is supported by our above-consensus economic growth outlook. Our Japan economist sees a shift to fiscal easing, firms countering the tight labor market by increasing capex, and estimates industrial production to grow 3.5 and 3.6 in 2017 and 2018, respectively. With the inventory cycle exiting a "contraction" phase and entering a "recovery" phase, conditions are likely to remain conducive to cyclicals outperforming defensives (Chart 1, Exhibit 3). 2) Higher inflation, rates: Deflation stocks lnflation stocks Up to 1H16, the Japan equity market saw continued preference for deflationary stocks as domestic inflation remained subdued and the JGB curve underwent excessive bull flattening. Defensives outperformed cyclicals (Chart 1), growth outperformed value (Chart 2), and stocks that benefit from a low-yield environment (REITs) outperformed the converse (banks, insurance; Chart 3). However, we expect conditions to reverse into 2017. We see US Treasury yields rising and Japanese core CPI inflation recovering to 1.4 yoy by 2018 and core- core to 1.1 yoy. Stronger inflation and higher foreign yields should steepen the JGB yield curve above10yr, while below 10yr should escape from downward pressure as BoJ rate cut expectations recede. Against this backdrop, we expect to see a rotation from deflation to inflation stocks, which in addition to cyclicals means banks and insurance should outperform REITs within the financial sector (Chart 3). This is also in line with the global rotation expected by Michael Hartnett (The Flow Show: The inflation Era Begins 10 Noverriper 2016). 3) Nikkei winner of steeper UST and strong macro In a scenario of strong external demand and US rate hikes (particularly with curve steepening), Japan equities tend to be the winner on a local currency basis, led by cyclicals, banks and insurance stocks (Exhibit 4). Resurgence in the "Japan macro trade" of short yen buy equities is also a possibility. Our Buy-rated stocks in bank, insurance and cyclical sectors are listed in Table 1. Shusuke Yamada, CFA FX Equity Strategist Merrill Lynch (Japan) Global Research Bankof America Merrill Lynch Japan Economics Viewpoint Ready for ignition 18 November 2016 Key takeaways We are upbeat on Japan's outlook and think consensus is underestimating the strength of medium-term GDP and inflation. While the consensus looks for just 0.8 growth next year, we expect growth of 1.4 in CY17 and 1.2 in CY18. With inflation moving in the right direction, we expect BoJ to keep its rates targets unchanged for the foreseeable future. WATCH THE VIDEO FULL REPORT Consensus underestimating GDP and inflation We are upbeat on Japan's outlook and think consensus is underestimating the strength of medium-term GDP and inflation. We expect growth of 1.4 in CY2017 and 1.2 in CY2018, well above consensus of just 0.8 growth next year. For the first time in four years both monetary and fiscal policy are supporting growth. The combination of modestly higher commodity prices, a weaker yen, and a tightening output gap should drive Japan-style core inflation to 1.0 in CY2017, and 1.4 in CY2018. We expect the BoJ to keep its rate targets unchanged for the foreseeable future as inflation moves in the right direction. Fiscal and monetary policy realigning For years Japan has oscillated between loose and tight fiscal policy. Japanese policymakers now seem to be on the same page and we see little risk of another policy error. If anything, we see upside risks from greater fiscal stimulus via a third supplementary budget or a relatively aggressive FY17 ordinary budget. Meanwhile, the BoJ's new interest-pegging regime ensures that financial conditions will become increasingly stimulatory as inflation rises. 2017 - a year of recovering domestic demand We think the economy is heading towards a cyclical sweet spot and see a broad-based recovery in domestic demand. Specifically, 1) consumption is poised to rebound as the saving rate peaks; 2) capex should accelerate in response to the improving demand outlook, deepening supply-side constraints, and "low-for- longer" real rates; and 3) increased efforts by policymakers to accelerate income redistribution could push up the velocity of money at the margin, helping to reflate the economy. Biggest risk factor: US policy uncertainty External developments pose the greatest risk to our forecasts, chief among them US policy uncertainty. The downside scenario for Japan is a combination of rising US protectionism, sliding global trade, and a stronger yen, which could reduce 2017 growth to zero. The Trump presidency may increase pressure on Japan to achieve greater military self-reliance, boosting defense spending. There will also be greater incentives to deepen economic and trade linkages with key regional players, such as China and Russia. Chart 1: We think consensus is underestimating the strength of medium-term GDP and inflation 2.0 1.6 - 1.0 '9'7 0.6 1111 -0.3 -0.3 0.5 - 0.0 Real GDP YoY 4 CPI ex fresh food YoY ......................................................................... ' 0 -0.5 04 CY1 6 CY1 7 CY1 CY16 CY17 CY1 3 BofANIL Consensus (Bloomberg, as of 15 Nov 2016) Source: BofA Merrill Lynch forecasts, Bloomberg lzumi Devalier Japan Economist Merrill Lynch (Japan) Bank of America Merrill Lynch 2017 Institutional Investor (All-Japan) Survey Your Vote Counts - We appreciate your support Click here to vote Bank of America Merrill Lynch Read the research report for complete information including important disclosures and analyst certification(s). 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Japan Investment Strategy Nikkei to 20,000: Inventory cycle upturn cyclicals; inflation banks, insurance Investment Strategy 18 November 2016 Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com Bullish equities 2017; rotation into cyclicals, banks, insurance We are bullish Japan equities for 2017 and we estimate the Nikkei 225 index will recover to 20,000 by end-2017 (see s eventual surge: Buy Nikkei 06 September 2016). Our new Chief Japan Economist Izumi Devalier forecasts above-consensus Japan GDP growth and inflation in 2017, which is also supportive of our bullish equities scenario (see Ready for ignition 18 November 2016). We expect rotation into cyclicals, banks and insurance as explained below. 1) Upturn in inventory cycle: Defensives Cyclicals We expect cyclicals to outperform defensives, premised on our end-2017 estimate of 120, and this is supported by our above-consensus economic growth outlook. Our Japan economist sees a shift to fiscal easing, firms countering the tight labor market by increasing capex, and estimates industrial production to grow 3.5 and 3.6 in 2017 and 2018, respectively. With the inventory cycle exiting a contraction phase and entering a recovery phase, conditions are likely to remain conducive to cyclicals outperforming defensives (Chart 1, Exhibit 3). 2) Higher inflation, rates: Deflation stocks Inflation stocks Up to 1H16, the Japan equity market saw continued preference for deflationary stocks as domestic inflation remained subdued and the JGB curve underwent excessive bull flattening. Defensives outperformed cyclicals (Chart 1), growth outperformed value (Chart 2), and stocks that benefit from a low-yield environment (REITs) outperformed the converse (banks, insurance; Chart 3). However, we expect conditions to reverse into 2017. We see US Treasury yields rising and Japanese core CPI inflation recovering to 1.4 yoy by 2018 and core-core to 1.1 yoy. Stronger inflation and higher foreign yields should steepen the JGB yield curve above10yr, while below 10yr should escape from downward pressure as BoJ rate cut expectations recede. Against this backdrop, we expect to see a rotation from deflation to inflation stocks, which in addition to cyclicals means banks and insurance should outperform REITs within the financial sector (Chart 3). This is also in line with the global rotation expected by Michael Hartnett (The Flow Show: The Inflation Era Begins 10 November 2016). 3) Nikkei winner of steeper UST and strong macro In a scenario of strong external demand and US rate hikes (particularly with curve steepening), Japan equities tend to be the winner on a local currency basis, led by cyclicals, banks and insurance stocks (Exhibit 4). Resurgence in the Japan macro trade of short yen buy equities is also a possibility. Our Buy-rated stocks in bank, insurance and cyclical sectors are listed in Table 1. 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Refer to important disclosures on page 5 to 6. 11687576 Timestamp: 17 November 2016 03:30PM EST Investment Strategy Japan Shusuke Yamada, CFA FX Equity Strategist Merrill Lynch (Japan) 81 3 6225 8515 shusuke.yamada baml.com Exhibit 1: Sector rotation and inventory cycle Slowdown Defensives 8 6 June '15 4 Inventory 2 June '14 Fundamentals Production 0 (8) (6) (4) (2) 0 2 4 6 8 10 (2) Sep '16 June '13 (4) Contraction Cyclicals (6) Expansion June '12 Recovery Source: BofA Merrill Lynch Global Research, Bloomberg, Haver Exhibit 2: Shares rated Buy by our analysts in cyclical, bank and insurance sectors Company Ticker Company Ticker Company Ticker Mitsubishi UFJ 8306 JP Dai-ichi Life 8750 JP JR East 9020 JP FG Japan Post 7182 JP MS AD 8725 JP JR Central 9022 JP Bank Holdings SMFG 8316 JP Sompo 8630 JP Nintendo 7974 JP Holdings Resona HD 8308 JP Shin-Etsu 4063 JP Recruit HD 6098 JP Chem Mitsubishi Elec 6503 JP FUJIFILM 4901 JP Oriental Land 4661 JP Nidec 6594 JP Sony 6758 JP Fuji Heavy Ind 7270 JP Hitachi 6501 JP NTT DATA 9613 JP Suzuki Motor 7269 JP Panasonic 6752 JP NSSMC 5401 JP Source: BofA Merrill Lynch Global Research Market cap above 1.5trn JPY except bank, insurance shares Risks: Geopolitics, diplomacy and US economic cycle The biggest risk to our scenario is the implications for Japan s diplomatic and geopolitical environment of the Donald Trump presidency in the US. The likelihood of agreement on the TPP (Trans-Pacific Partnership) has already declined and been priced into the market, but any downward spiral in Japan-US relations would likely be further negative for Japan equities near-term. A rise in protectionism would be negative for stocks with high US export exposure. Meanwhile if the US economy slows or enters recession and the protectionist response weakens USD, it would be negative for Japanese cyclicals, particularly exporters, due to stronger JPY and potential trade conflicts. Moreover, a potential improvement in US-Russia (US-China) relations under the new US President most likely implies a relative worsening in Japan-Russia (Japan- China) relations. On the other hand, we expect Japan to move closer to Europe under such a scenario, raising the incentive to sign the Japan-EU EPA (Economic Partner Agreement), positive for related stocks. If the Trump presidency tips the US towards isolationism, we expect Japan s spending on defense to increase. If this results in higher spending on Japan s Self Defense Forces (rather than compensating for US spending on Japan-based US military), Japan s defense-related stocks would be beneficiaries, and it could reshape the arms industry in Japan. Chart 1: Sector rotation and inventory cycle 130.0 40 125.0 120.0 30 115.0 20 110.0 10 105.0 100.0 0 95.0 -10 90.0 85.0 Cyclical Fundamental Defensive Cyclical Fundamental Defensive -20 Cyclical 80.0 -30 Jan-09 Jan-11 Jan-13 Jan-15 Industrial production - inventory (3m mva yoy ) MSCI Japan cyclical defensive Source: BofA Merrill Lynch Global Research, Bloomberg, Haver Cyclical Industrials, consumer discretionary, IT, materials Defensive Healthcare, telecom, consumer staples, utilities Calculated cyclical and defensive change using monthly index return and index weight Chart 2: Japan High Beta PB vs. Low Beta PB High Beta PB Low Beta PB 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: BofA Merrill Lynch Global Quantitative Strategy, MSCI, IBES Global Quant Panorama: Surf for longer 14 November 2016 2 Japan Investment Strategy 18 November 2016 Exhibit 3: Sector rotation and inventory cycle Slowdown Inventory Expansion 8 Defensives 6 June '12 June '15 4 2 June '14 Fundamentals Production 0 (8) (6) (4) (2) 0 2 4 6 8 10 (2) Sep '16 June '13 (4) Chart 3: Higher inflation yields suggests banks will outperform REITs 2.3 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 Contraction Cyclicals (6) Recovery TSE Bank TSE REIT Source: BofA Merrill Lynch Global Research, Bloomberg, Source: BofA Merrill Lynch Global Research, Bloomberg, Haver Exhibit 4: Reactions to US Treasury curve moves ( , simple average of past 43 quarters) Japan equities have outperformed during bear-steepening led by cyclicals, banks and insurance 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 USDJPY DXY MSCI JP MSCI JP ex JP Japan Sector cyclical outperform on UST bear-steepening Discretionary Financials Materials IT Industrials Energy Telecom Staples Utilities Health care Bear steep Bear flat Bull steep Bull flat Source: BofA Merrill Lynch Global Research, Bloomberg. Curve movements based on 2yr move and 2s10s move (Bloomberg US Treasury yield index), so includes twist movements, but even if we exclude these implications do not materially change. Bear steepening (2yr 16bps, 2s10s 33bps) 11 quarters, bear flattening (2yr 26bps, 2s10s -20bps) 10 quarters, bull steepening (2yr -48bps, 2s10s 28bps) 10 quarters, bull flattening (2yr -27bps, 2s10s -30bps) 12 quarters Japan Investment Strategy 18 November 2016 3 Table 1: Shares rated buy by our analysts in cyclical, bank and insurance sectors Company Name Ticker Industry (JPX definition) Price MKT CAP (Billion Yen) Analyst Name Mitsubishi UFJ FG 8306 JP Banks 683 9,674 Futoshi Sasaki Japan Post Bank 7182 JP Banks 1331 5,990 Futoshi Sasaki SMFG 8316 JP Banks 4190 5,925 Futoshi Sasaki Resona HD 8308 JP Banks 538 1,251 Futoshi Sasaki Mitsubishi Elec 6503 JP Electric Appliances 1592 3,418 Mikio Hirakawa Nidec 6594 JP Electric Appliances 10460 3,035 Masashi Kubota Hitachi 6501 JP Electric Appliances 588 2,658 Mikio Hirakawa Panasonic 6752 JP Electric Appliances 1033 2,533 Mikio Hirakawa Dai-ichi Life 8750 JP Insurance 1850 2,202 Futoshi Sasaki MS AD Holdings 8725 JP Insurance 3405 2,085 Futoshi Sasaki Sompo Holdings 8630 JP Insurance 3684 1,506 Futoshi Sasaki Shin-Etsu Chem 4063 JP Chemicals 8328 3,599 Takashi Enomoto FUJIFILM 4901 JP Chemicals 4095 1,906 Hiroyasu Eguchi Sony 6758 JP Electric Appliances 3226 4,075 Mikio Hirakawa NTT DATA 9613 JP Information Communication 5530 1,551 Hiroyasu Eguchi NSSMC 5401 JP Iron Steel 2384 2,266 Takashi Enomoto JR East 9020 JP Land Transportation 9542 3,743 Yasuhito Tsuchiya JR Central 9022 JP Land Transportation 17825 3,672 Yasuhito Tsuchiya Nintendo 7974 JP Other Products 26050 3,129 Hiroyasu Eguchi Recruit HD 6098 JP Services 4340 2,453 Yoshiyuki Kinoshita Oriental Land 4661 JP Services 5957 1,991 Rie Sakai Fuji Heavy Ind 7270 JP Transportation Equipment 4320 3,371 Kei Nihonyanagi Suzuki Motor 7269 JP Transportation Equipment 3711 1,637 Kei Nihonyanagi Source: BofA Merrill Lynch Global Research Cyclical sectors Industrials, consumer discretionary, IT, materials in GICS definition Market cap above 1.5trn JPY except bank, insurance shares Exclude Fast Retailing 4 Japan Investment Strategy 18 November 2016 Disclosures Important Disclosures FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. 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Japan Economics Viewpoint Ready for ignition 18 November 2016 Consensus underestimating GDP and inflation We are upbeat on Japan s outlook and think consensus is underestimating the strength of medium-term GDP and inflation. We expect growth of 1.4 in CY2017 and 1.2 in CY2018, well above consensus of just 0.8 growth next year. For the first time in four years both monetary and fiscal policy are supporting growth. The combination of modestly higher commodity prices, a weaker yen, and a tightening output gap should drive Japan-style core inflation to 1.0 in CY2017, and 1.4 in CY2018. We expect the BoJ to keep its rate targets unchanged for the foreseeable future as inflation moves in the right direction. Fiscal and monetary policy realigning For years Japan has oscillated between loose and tight fiscal policy. Japanese policymakers now seem to be on the same page and we see little risk of another policy error. If anything, we see upside risks from greater fiscal stimulus via a third supplementary budget or a relatively aggressive FY17 ordinary budget. Meanwhile, the BoJ s new interest-pegging regime ensures that financial conditions will become increasingly stimulatory as inflation rises. Economics Japan Izumi Devalier Japan Economist Merrill Lynch (Japan) 81 3 6225 6257 izumi.devalier baml.com 2017 a year of recovering domestic demand We think the economy is heading towards a cyclical sweet spot and see a broad-based recovery in domestic demand. Specifically, 1) consumption is poised to rebound as the saving rate peaks; 2) capex should accelerate in response to the improving demand outlook, deepening supply-side constraints, and low-for-longer real rates; and 3) increased efforts by policymakers to accelerate income redistribution could push up the velocity of money at the margin, helping to reflate the economy. Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com Biggest risk factor: US policy uncertainty External developments pose the greatest risk to our forecasts, chief among them US policy uncertainty. The downside scenario for Japan is a combination of rising US protectionism, sliding global trade, and a stronger yen, which could reduce 2017 growth to zero. The Trump presidency may increase pressure on Japan to achieve greater military self-reliance, boosting defense spending. There will also be greater incentives to deepen economic and trade linkages with key regional players, such as China and Russia. Chart 1: We think consensus is underestimating the strength of medium-term GDP and inflation 2.0 1.5 1.0 0.5 0.0 -0.5 Real GDP YoY 0.7 0.6 1.4 Source: BofA Merrill Lynch forecasts, Bloomberg 1.2 0.8 0.7 CY16 CY17 CY18 CY16 CY17 CY18 BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 13 to 14. 11686430 Timestamp: 17 November 2016 03:00PM EST CPI ex fresh food YoY -0.3 -0.3 1.0 BofAML Consensus (Bloomberg, as of 15 Nov 2016) 0.4 1.4 0.6 Escape from zero The Q3 CY16 GDP print confirms our view that Japan has at last emerged from the de facto zero-growth trap of the past few years. Growth accelerated to an aboveconsensus 2.2 q-o-q saar, after a 0.7 rise in Q2 CY16 and 2.1 rise in Q1 CY16. We expect a moderation in Q4 CY16, but underlying growth will remain firmly in the 1.0- 1.5 range. We are currently tracking CY2016 growth of 0.7 , a modest improvement from 0.6 in CY2015, though the switch to a new GDP standard 1 next month raises uncertainty around our forecasts. Upturn in exports to be sustained through Q3 CY17 The recent recovery has been driven by a fading consumption tax shock and stronger exports. The downturn in the global industrial cycle in 2014-16 hurt Japan, but manufacturing activity bottomed out early this year and is now modestly expanding (Chart 2). The OECD leading indicator continues to signal a synchronized pick-up in global growth (Chart 3). The domestic inventory cycle also points to production gains ahead (Chart 4). For Japanese exporters, the improvement in demand has been most visible for Europe (Chart 5). US and Chinese demand will likely follow, though the mainland s structural shift to services implies only a modest acceleration. We expect the current up-cycle in global exports to be sustained through Q3 CY17 possibly longer depending on developments in the US (more on this later). The combination of stronger external demand and a weaker currency should shore up business confidence, especially among manufacturers, and lay the foundations of Japan s recovery. Chart 2: Industrial activity has bottomed out Index 2010 100 3mma sa 110 105 100 95 90 85 2010 2011 2012 2013 2014 2015 2016 2017 IP Real exports Source: BofA Merrill Lynch Global Research, METI, BoJ Chart 3: OECD leading indicator points to modest global expansion 8 6 4 2 0 -2 -4 -6 2000 2002 2004 2006 2008 2010 2012 2014 2016 OECD global leading indicator, YoY (LHS) Japan real exports, YoY (RHS) Source: BofA Merrill Lynch Global Research, OECD, BoJ 50 30 10 -10 -30 -50 Chart 4: The shipment-inventory cycle points to production gains ahead Shipments YoY 10 5 0 -5 -10 Mar 2013 Source: BofA Merrill Lynch Global Research, METI Sep 2016 -10 -5 0 5 10 Inventories YoY Chart 5: Japan's real exports by destination, 3mma YoY 50 40 30 20 10 0 -10 -20 2010 2011 2012 2013 2014 2015 2016 N. America EU China Source: BofA Merrill Lynch Global Research, BoJ 1 Japan will switch to SNA2008 methodology, starting with the release of revised Q3 CY16 GDP due 8 December 2016. 2 Japan Economics Viewpoint 18 November 2016 Automatic easing Policy headwinds are also abating: for the first time since 2013, both fiscal and monetary policy are poised to turn stimulatory in 2017. Monetary policy: BoJ pegs to zero The BoJ s transition to yield-curve targeting ensures that real yields will drop as inflation picks up, implying that financial conditions will turn increasingly loose as the recovery progresses. There are good reasons to be cautiously optimistic: after all, despite a triple whammy of weak domestic demand, weak commodity prices, and a stronger yen, Japanese inflation measures are showing early signs of bottoming out (Chart 6). We expect Japan-style core inflation (CPI ex fresh food) to trough in Q4 CY16, after which it should accelerate relatively quickly in the first two quarters of 2017 in response to 1) a recovery in crude oil prices, 2) a weaker yen (we assume USDJPY rebounds to 120 by the end of the year), and 3) stronger wage growth. This also implies stronger core-core inflation (CPI ex food energy). We are bullish on all three factors and see CY17 core inflation running at an above-consensus 1.0 and 1.4 in CY18. This is still short of the central bank s 2 target (Chart 7). But we believe there will be little pressure to lower rates further, especially against the backdrop of a weakening yen and rising global yields. More broadly, things are moving in the right direction for the BoJ. The private sector has been steadily re-leveraging, albeit gradually. Meanwhile, labor markets continue to tighten and wage growth is slowly improving: the 4-quarter moving average for hourly wages is now up to 1.2 y-o-y (Chart 8). With the labor market for lower-cost part-time workers nearing saturation, growth in higher-quality, full-time jobs is picking up (Chart 9). We expect a moderation in employment gains and faster wage growth ahead. Chart 6: Produce and consumer price inflation (ex-tax effect) 4 2 0 -2 -4 -6 2011 2012 2013 2014 2015 2016 Corporate goods prices YoY (LHS) Headline CPI YoY (LHS) Corporate service prices YoY (RHS) Source: BofA Merrill Lynch Global Research, MIA 1.0 0.5 0.0 -0.5 -1.0 -1.5 Chart 7: Japan-style core inflation (CPI ex fresh food) forecasts (FY basis) 2.0 1.0 0.0 -1.0 -2.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 BoJ BofAML Consensus Target Source: BofA Merrill Lynch Global Research, BoJ, JCER Consensus is JCER ESP survey Chart 8: Wage growth is picking up on the back of tight labor markets 2 1 0 -1 -2 -3 2000 2002 2004 2006 2008 2010 2012 2014 2016 Chart 9: Full-time job growth is accelerating 3.0 Abenomics 2.0 1.0 0.0 -1.0 -2.0 -3.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 Hourly wages, YoY 4qtr ma US-style core inflation (ex-tax), YoY 4qtr ma Source: BofA Merrill Lynch Global Research, MHLW, MIA Part-time, ppt contribution Total employment, YoY Source: BofA Merrill Lynch Global Research, MIA Full-time, ppt contribution Japan Economics Viewpoint 18 November 2016 3 Fiscal policy: turning looser In FY17 Fiscal policy is undergoing an equally important shift. In August, the Cabinet approved an economic stimulus package totaling JPY28trn (roughly 5.5 of GDP). Though real water government spending is a comparatively modest JPY7.5trn (1.5 of GDP), this is enough to put the fiscal impulse back in expansionary territory, after three years of tightening (Chart 10). The stimulus measures, which are centered on public investment and cash transfers to households, should boost CY2017 GDP by 0.5ppt. Public construction orders are already rebounding as the government front-loaded public infrastructure spending (Chart 11). Meanwhile, the next stage of the consumption tax increase has been postponed until October 2019. Chart 10: After 3 years of tightening, fiscal policy to turn loose in FY17 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 Source: BofA Merrill Lynch Global Research, IMF, CAO To be clear, we are not talking about massive shifts in the fiscal stance here the Ministry of Finance remains very much opposed to expanding the deficit and Prime Minister Abe has yet to abandon the government s long-standing goal of balancing the primary balance by FY2020. However, there is a growing consensus among Japanese policymakers that premature fiscal tightening is counter-productive for reflation efforts, especially when monetary policy is stretched. Even BoJ Governor Kuroda, who initially underplayed the risks from 2014 fiscal tightening, has recently acknowledged that loose monetary and fiscal policies will have a synergistic effect. The upshot is that the risk of another policy error is low, in our view. If anything, we see upside risks from greater fiscal stimulus in the form of a third supplementary budget or relatively aggressive FY17 ordinary budget. We would not rule out further delays to the October 2019 consumption tax hike, either. Chart 11: Public investment is poised to pick up in the months ahead 30 20 10 0 -10 Forecasts FY10 FY11 FY12 FY13 FY14 FY15 f FY16 f FY17 f Fiscal impulse (change in cyclically-adjusted primary balance), GDP -20 2010 2011 2012 2013 2014 2015 2016 Public construction orders received YoY 3mma Public construction orders completed YoY 3mma Contractionary Expansionary Source: BofA Merrill Lynch Global Research, MITI 4 Japan Economics Viewpoint 18 November 2016 2017: a good year for domestic demand Policy tailwinds are only one pillar of our call for Japan s outperformance in 2017. We also believe the stars are aligning for an organic improvement in domestic demand, which would support the current recovery: the economy is firing on all cylinders for the first time since 2013, and growth should accelerate to 1.4 in CY2017, followed by 1.2 expansion in CY2018 (Chart 12). We see three catalysts: a consumer comeback, stronger capex, and a shift in income away from high-saving corporations in favour of higher-spending households and stockholders. Chart 12: Steady improvement in growth, led by domestic demand 3.0 2.0 1.0 0.0 -1.0 BofAMLForecasts -2.0 2011 2012 2013 2014 2015 2016 2017 2018 Private demand Public demand Net exports Real GDP growth YoY Source: BofA Merrill Lynch forecasts, CAO 1. Consumer comeback Households have been the noticeable laggard in the current recovery and the main reason why Japan s economy has barely grown since the 2014 consumption tax hike. This is not for a lack of income growth: real employee compensation (wages employment) has staged an impressive recovery of late, rising 1.2 in CY15, and an estimated 1.9 in CY16 (Chart 13). One explanation is that private consumption is simply being underestimated in demandside GDP statistics: researchers at the Bank of Japan recently produced experimental supply-side estimates of GDP that were significantly higher than existing expenditureside statistics. 2 We find the BoJ research interesting and agree that Japanese consumption statistics are beset by data quality issues. But this alone cannot account for the consumption slump. We think two factors are equally to blame for depressed household spending: 1) a squeeze on disposable income from higher taxes and social security contributions; and 2) a surge in the saving rate (Chart 14). Calling Japan right in 2017 is largely about correctly forecasting whether these two trends will reverse. We see several reasons for optimism. First, we expect real employee compensation to accelerate further, driven by a continued pick-up in per capita wages. The call on the saving rate is admittedly trickier. But having surpassed the 2006 highs, we think it is unlikely to surge further, given that consumer confidence is improving and income growth is firming. FY17 tax reforms are also likely to support household sentiment at the margin: for example, discussions are underway about enlarging tax cuts for second-earners who work part-time. Overall, we expect private consumption to rise 1.0 in CY17, adding 0.6ppt to growth. Should the saving rate stabilize, as we expect, consumption should again start rising in tandem with compensation. Investors should not have to wait long to get some visibility around these trends. We expect the saving rate to peak in Q4 CY16 and consumption to rise strongly from this quarter. 2 Link to the research paper (in Japanese only): https: www.boj.or.jp research wps rev wps 2016 data wp16j09.pdf Japan Economics Viewpoint 18 November 2016 5 Chart 13: Real labor income and private consumption Chart 14: Workers' saving rate at all-time high 270 265 260 255 250 245 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 330 320 310 300 290 280 22 20 18 16 14 12 10 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Real employee compensation, JPY trn saar (LHS) Private consumption, JPY trn saar (RHS) Saving rate of workers' households, 4qtr ma Source: BofA Merrill Lynch Global Research, CAO Source: BofA Merrill Lynch Global Research, MIA 2. Capex revival We also see a fundamental case for higher capital spending. Borrowing rates are very low and will fall further in real terms as inflation rises. Stronger growth and improved confidence should also encourage higher capex. And deepening supply-side constraints offer a strong incentive for Japan Inc. to accelerate productivity-enhancing capex, ensuring that this expansion is durable. For these reasons, we think that the impulse of capital expenditures will likely be higher in the non-manufacturing sector, where capacity utilization rates are higher, and labor shortages (and hence wage pressures) are more acute (Chart 15 and Chart 16). Chart 15: Capacity utilization rates by sector Chart 16: Labor shortages by sector -10 Insufficient -40 Insufficient 0 -20 10 0 20 20 30 Excess 40 2003 2005 2006 2007 2008 2010 2011 2012 2013 2015 2016 BoJ Tankan production capacity - manufacturing, DI BoJ Tankan production capacity - non-manufacturing, DI Source: BofA Merrill Lynch Global Research, BoJ 40 Excess 60 2003 2005 2006 2007 2008 2010 2011 2012 2013 2015 2016 BoJ Tankan employment conditions - manufacturing, DI BoJ Tankan employment conditions - non-manufacturing, DI Source: BofA Merrill Lynch Global Research, BoJ Chart 17 shows the ratio of personnel costs to sales, using MoF corporate survey data. The ratio is particularly high for lodging accommodations (23 ), eating drinking services (27 ), medical, healthcare welfare (37 ) and education learning support (37 ). Somewhat surprisingly, personnel expenses are fairly restrained in retail. But this is partly due to the relatively heavy reliance on lower-cost part-time workers. Given the rapid growth in part-timers wages, such cost savings is likely to become increasingly difficult to maintain. 6 Japan Economics Viewpoint 18 November 2016 Chart 17: Personnel costs to sales, ratio 4qtr ma (as of Apr-Jun 2016) 40 35 30 25 20 15 10 5 0 Source: BofA Merrill Lynch Global Research, MoF Analysis by METI suggests that many of these non-manufacturing industries have the scope to raise productivity. Wholesale retail, utilities, and eating accommodation have particularly low levels of productivity relative to the US (Chart 18). We think the solution is to boost capex, especially in ICT and automation. More broadly, an acceleration in capex is needed if we are to see a pick-up in productivity and sustained profits. Though we are by no means in the late stages of the profit cycle, the trend clearly points to higher wage costs going forward, requiring proactive efficiency-enhancing investment by corporates. Bottom-up data capex data for MSCI Japan also suggest that the investment cycle has troughed and will pick up next year as earnings momentum improves (Chart 19). Chart 18: Japan's labor productivity relative to the US: services is low Chart 19: Capex YoY change in Japan vs Global Earnings Revisions (2003-07) 140 120 100 80 60 40 20 0 Source: BofA Merrill Lynch Global Research, METI 3. Policy priorities and redistribution We think an increase in government pressure on corporations could speed up income redistribution at the margin, ensuring that money circulates to those sectors and agents with a higher propensity to consume. Elevated corporate savings remain a focal point for the government. Cabinet Office officials have used the concept of the cash-out ratio 3 to highlight the creaky transmission from corporate profits to spending. Chart 20 stocks upgraded downgraded 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Global Earnings Revision Ratio (LHS) Source: BofA Merrill Lynch Global Quantitative Strategy 30 20 10 0 -10 -20 -30 MSCI Japan capex YoY (RHS) Japan CAPEX (YoY Chg) 3 The idea of the cash-out ratio was first raised by private sector representatives of the Council on Fiscal and Economic Policy. The measure is defined as cash out cash and deposits. The numerator includes capex, personnel expenses, R D, dividends, and changes in equity investments in related companies. The denominator includes cash and deposits, and securities, short-term lending, and investment securities classified under liquid assets. Since we are restricted to Ministry of Finance Corporate survey data, our version of the cash-out ratio is defined as capex personnel costs dividends cash and liquid assets. Japan Economics Viewpoint 18 November 2016 7 shows that this measure has been on a steady downtrend, with the numbers particularly low for large corporates. So far, the government s approach has relied more on carrots than sticks, with Prime Minister Abe using a combination of moral suasion and sweeteners to encourage firms to disgorge profits. The pattern has continued as we approach FY2017. For example, local media have reported that the government is considering offering corporate tax breaks to SMEs that raise wages, in light of more modest wage growth at SMEs. Discussions are also underway in the Prime Minister s office about reforming working practices with the immediate focus on Equal Pay for Equal work (EPEW) i.e. reducing the wage gap between regular and non-regular employees. But the issue is contentious from both a capital and labour perspective. And considering the time it will likely take for related legislation to pass in the Diet, we think the lack of compliance mechanisms may mean that the immediate impact of EPEW will be limited. Instead, the debate seems to have shifted towards limiting excessive and unproductive overtime work. This is low-hanging fruit that does not address the issue of Japan s labour market rigidities, which are at the heart of the problem of suppressed wages and weak household spending power. That said, there are signs that the government s patience is wearing thin and that the Prime Minister is increasingly leaning towards direct intervention. For example, the government has already delivered a minimum wage hike in FY2016 and plans to take the national average up to JPY1,000 by 2020 via yearly hikes of 3 . These policy changes should offer small tailwinds for the recovery in private consumption. We also think the debate over a possible retained earnings tax is unlikely to go away. We are sceptical it will be introduced in this year s tax reforms. However, the government s escalating war on corporates hoarding cash is likely to lead to a continued rise in dividend payouts and share buybacks (Chart 21). Chart 20: Firms' cash-out ratio , 4qtr ma 40 30 20 10 Chart 21: Dividends and share buybacks by Japanese firms (TSE 1st section listed) (JPY trn) 20 15 10 5 0 1980 1985 1990 1995 2000 2005 2010 2015 All firm sizes Large firms Small firms 0 Dividend Share buyback Source: BofA Merrill Lynch Global Research, MoF The cash-out ratio is defined as personnel expenses, capex, and dividend payouts as a share of cash and liquid asset balances Source: Nikkei Astra, BofA Merrill Lynch Global Research Note: FY2016 dividend is companies' guidance. FY2016 share buyback is estimated by annualizing the YTD numbers as of November 2016 Risk factors: largely from overseas A key risk to our 2017 outlook on the domestic side may be weaker-than-expected growth in real labor income, or a continued surge in the household saving rate, which would constrain consumption. However, we think the biggest risks in either direction stem from abroad. Specifically, we see higher uncertainty over global trade, risk sentiment, and FX as a result of political transitions in the US and Eurozone. We consider multiple policy scenarios under a Trump presidency. Trump s campaign promises have mixed implications for Japan. On a positive note deregulation, tax cuts, and aggressive infrastructure spending could boost US aggregate 8 Japan Economics Viewpoint 18 November 2016 demand. Our US economics team expects the stimulus to boost growth in H2 CY17 and likely CY18. Japan should be a big winner from stronger US growth, given its high exposure to the US economy in terms of exports and corporate profits (Chart 22 and Chart 23). On the negative side, aggressive protectionist trade measures, if implemented, would depress US growth and global trade further. If combined with a stronger yen, Japan s economy would be hit hard. Chart 22: Japan's export exposure ( of total gross and value-added exports ) 30 25 20 15 10 5 0 Source: OECD USA CHN KOR TWN GER Gross exports Value-added basis Chart 23: Breakdown of Japan exports to US by commodity, 2015 6 7 12 22 39 14 Chemicals Manufactured goods Machinery Electrical Machinery Transport equipment Others Source: BofA Merrill Lynch Global Research, MoF Base case: benign Trump scenario For the moment, we are assuming limited positive and negative policy changes. Our US team expects uncertainty to cause a modest slowing of growth in the first half of next year, but this will be more than offset by fiscal stimulus in the second half and into 2018. But the size of the fiscal expansion will likely be smaller than promised, and the introduction of modest protectionist measures means that the boost to global trade will essentially be zero. Table 1 shows the impact on growth under two scenarios, based on different assumptions for global trade and FX. Under the upside case, Japan s GDP could rebound towards 2 , as the economy benefits from a combination of stronger global trade and a weak currency. Under a downside protectionist scenario, 2017 growth would slow to around zero and would most likely tip Japan back into deflation. Table 1: Sensitivity of Japan's growth to global trade and foreign exchange rate (Assumptions) Baseline Case 1 - Upside Case 2 - Downside Global trade 0.0 3.0 -10.0 JPY appreciation ( ) -7.0 -10.0 10.0 (Simulation results) Change (Contribution) Change (Contribution) Change (Contribution) ( ) ( ) ( ) Real GDP impact 0.2ppt - 0.9ppt - -1.4ppt - Consumption 0.0 (0.02ppt) 0.3 (0.15ppt) -0.8 (-0.44ppt) Capex 1.9 (0.26ppt) 2.9 (0.40ppt) -3.2 (-0.44ppt) Net Exports - (0.00ppt) - (0.30ppt) - (-0.23ppt) Source: BofA Merrill Lynch Global Research, CAO, MoF, IMF ( ) Rate of appreciation of Japanese yen in terms of effective exchange rate ( ) Contributions to the change in real GDP Political impact of a Trump administration For Japan, the impact of Trump s election goes beyond economic issues. It also impacts defense spending and regional trade arrangements. Military self-reliance and budget choices Trump has made it clear that he wants allies of the US to shoulder a greater share of the defense burden. There is a lot of uncertainty as to how far Trump will go to redefine the US-Japan alliance. Despite his criticism, Japan already pays about 75 of US military hosting costs. However, it seems fair to assume that Japan will be expected to Japan Economics Viewpoint 18 November 2016 9 increase its defense spending. Under Prime Minister Abe, the defense budget has expanded by 7 but has been kept at roughly 1 of GDP, in keeping with historical guidelines. This is small by international standards and more likely than not will rise in the coming years (Chart 24). The composition of spending is also likely to shift from operating costs towards procurement, which is currently a very small part of the budget (Chart 25). Chart 24: Military spending of GDP as of 2015 Japan's is low by int'l standards 6 5 4 Chart 25: Breakdown of Japan's defense-related expenditures 100 50 3 2 1 0 JP UK AU CH FR KR US RU Source: BofA Merrill Lynch Global Research, World Bank 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 JP R D, facility development, maintenance etc. JP procurement of equipment JP personnel and food provisions U.S.Forces Japan-related cost Source: BofA Merrill Lynch Global Research, Ministry of Defense TPP and trade policy: potential for linkages with other regional players Trump and his aides have made it clear that they consider the Trans Pacific Partnership (TPP) to be a bad deal. Media have reported that President Obama is not considering pushing the deal through a lame duck Congress. This means the deal is likely dead in its current form. While negative for Japan, the expected withdrawal of the US from TPP could spur new arrangements with regional partners. One potential positive is the prospect of improved economic and trade linkages with other key players in the region, including Russia and even China. Three upcoming events are worth monitoring closely (Table 2): first, the 19- 20 November APEC Summit in Lima, Peru, where we are likely to see vigorous discussions on the future of the TPP as well as further progress on the Regional Comprehensive Economic Partnership (RCEP); second, the 15 December Abe-Putin Summit, in Yamaguchi prefecture; and third a potential trilateral summit between Japan, China, and Korea, which onshore media now say is being scheduled for 19-20 December, though it may not happen given the unfolding leadership upheaval in Korea. Bullish bottom line don t underestimate the recovery We are optimistic on Japan and think the acceleration in GDP and inflation in 2017 will be much stronger than consensus expects. For the first time since 2013, fiscal and monetary policy will be lined up in the same expansionary direction. The global export cycle has turned and is now tracking modest expansion. Meanwhile, the headwinds to domestic demand are finally turning into tailwinds. Unlike in the past, we think the risks of a policy error are low. Assuming that external risks are kept at bay, we think Japan will surprise with the strength of its recovery. 10 Japan Economics Viewpoint 18 November 2016 Table 2: Calendar of political events Date 2016 Sep 26 - Nov 30 (to be extended) Nov 15 Nov 17 Nov 19-20 Dec 8 Dec 15-16 Dec 24 Event Extraordinary Diet session (supplementary budget, TPP, tax-hike delay, casino bill) Japan-Russia trade officials meet (Tokyo) Abe, Trump meet in New York Abe, Putin meet at APEC (progress on territorial issue a key public concern) Jul-Sep GDP 2nd preliminary (change to 2008SNA) Outline of FY2017 Tax Reform to be released Russia's Putin to visit Abe in Yamaguchi prefecture Cabinet to compile FY17 budget 2017 Ordinary Diet session (Jan) LDP annual convention (Mar 5) Tokyo parliamentary election (summer) 2018 and later Source: BofA Merrill Lynch Global Research Governor Kuroda's term ends (Apr) 2018 Abe's second term as LDP President ends (Sep) Lower House election if no snap election before (Dec) Nationwide local elections (spring) 2019 Upper house election (summer) Consumption tax hike (Oct) 2020 Tokyo Olympics 2021 LDP Presidential term ends Japan Economics Viewpoint 18 November 2016 11 Table 3: Economic forecast summary Calendar Year Fiscal Year Quarterly 2015 2016 2017 2018 2015 2016 2017 2018 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 (A) (F) (F) (F) (A) (F) (F) (F) (A) (F) (F) (F) (F) (F) (F) Real GDP ( ,qoq ann.) 0.6 0.7 1.4 1.2 0.9 1.1 1.4 1.2 2.2 0.3 2.1 1.5 1.0 2.4 -0.1 Private Consumption ( ,qoq ann.) -1.2 0.4 1.0 1.2 -0.1 0.6 1.1 1.3 0.2 1.0 1.2 1.0 1.4 1.4 0.8 Private Capex ( ,qoq ann.) 1.6 0.6 1.7 3.2 2.1 0.7 2.4 2.9 0.1 5.0 -0.8 1.4 2.5 7.0 3.1 Private Resid. Investment ( ,qoq ann.) -2.5 5.3 0.3 1.1 2.4 6.4 -1.3 1.7 9.6 -2.0 -2.0 -3.9 -5.9 6.1 1.6 Government Consumption ( ,qoq ann.) 1.2 1.6 0.8 1.0 1.6 1.1 0.9 1.1 1.7 0.8 0.6 1.2 0.8 0.8 0.8 Public Investment ( ,qoq ann.) -2.5 -1.5 3.1 -2.1 -2.7 0.9 1.4 -0.7 -2.7 1.6 8.2 14.8 -11.5 -7.8 -3.9 Exports of Goods Services ( ,qoq ann.) 2.8 -0.3 5.3 3.1 0.4 0.9 5.8 2.3 8.1 4.5 4.5 5.9 11.0 4.6 -3.0 Imports of Goods Services ( ,qoq ann.) 0.4 -1.3 3.9 1.8 0.0 -0.4 4.3 1.4 -2.4 9.0 2.0 4.6 11.8 -1.9 -1.6 Contribution points Domestic Demand ( ,yoy) 0.2 0.5 1.2 0.9 0.8 0.8 1.1 1.0 0.2 1.1 1.7 1.2 1.1 1.3 0.2 Net Exports ( ,yoy) 0.4 0.2 0.3 0.2 0.1 0.2 0.3 0.2 2.0 -0.8 0.4 0.2 -0.1 1.1 -0.3 Industrial Production ( ,qoq) 1.4 0.7 -0.6 1.6 2.5 1.4 -0.9 ( ,yoy) -1.2 -0.8 3.5 3.6 -1.4 0.4 4.2 3.0 0.4 1.2 1.7 3.1 4.2 4.9 4.6 Nationwide BOJ-style Core CPI ( ,yoy) 0.5 -0.3 1.0 1.4 0.0 -0.1 1.2 1.4 -0.5 -0.1 0.7 0.7 1.3 1.4 1.4 Nationwide US-style Core CPI ( ,yoy) 1.0 0.4 0.4 1.1 0.6 0.3 0.6 1.3 0.2 0.1 0.2 0.2 0.5 0.7 0.9 Unemployment Rate ( ) 3.4 3.1 2.9 2.7 3.3 3.1 2.8 2.6 3.1 3.0 3.0 2.9 2.9 2.8 2.8 BoJ ST interest rate target (End of period) -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 BoJ LT interest rate target (End of period) n a 0.0 0.0 0.0 n a 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Yen (End of period) 120.2 108.0 120.0 115.0 112.6 112.0 115.0 115.0 101.4 108.0 112.0 115.0 117.0 120.0 115.0 Yen Euro (End of period) 130.6 116.6 126.0 121.0 128.1 117.6 124.0 121.0 113.9 116.6 117.6 117.3 119.3 126.0 124.0 Note: We may revise our forecasts once additional data become available. Sources: BoJ, MoF, ESRI of Cabinet Office(EPA), MPMHAPT(MCA), METI(MITI), Ministry of Land, Infrastructure and Transport and BofA Merrill Lynch Global Research estimates. 12 Japan Economics Viewpoint 18 November 2016 Disclosures Important Disclosures BofA Merrill Lynch Research Personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking. The analyst(s) responsible for this report may also receive compensation based upon, among other factors, the overall profitability of the Bank s sales and trading businesses relating to the class of securities or financial instruments for which such analyst is responsible. Other Important Disclosures Prices are indicative and for information purposes only. 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Japan Macro Watch USD JPY: Buy-on-dip cycle to continue; 115- 120 by end-2017 14 November 2016 Buy-on-dip cycle continues While we had acknowledged the risk of the final JPY strength this autumn on the BoJ's limit and US elections, it has been our view that the USD JPY s dips was to be bought as the 100-105 level was where medium-term directional risk was likely to reverse to the upside (Dollar s 100 Yen risk 02 March 2016). In our view, a Republican sweep would first lead to JPY strength on risk aversion, but eventually be the most bullish outcome for the USD JPY. The price action last week a shallow dip tells us two things about the USD JPY. First, the view that a GOP sweep would boost the USD JPY was probably more widely shared than we had thought, so a dip failed to stretch. Second, there may be more potential USD JPY buyers than sellers, which is in stark contrast to last year, when there were many more potential USD JPY sellers than buyers (Case for a stronger yen in 2016 18 December 2015). The buy-on-dip cycle in USD JPY is likely to continue as we expect the pair to reach 115-120 by end-2017. We remain constructive about Japanese equities and see banks, insurance continue outperforming REITs near-term. Investment Strategy Japan Shusuke Yamada, CFA FX Equity Strategist Merrill Lynch (Japan) 81 3 6225 8515 shusuke.yamada baml.com Paul Ciana, CMT Technical Strategist MLPF S 1 646 855 6007 paul.ciana baml.com Higher US rates (esp. if steepening) to boost USD JPY USD JPY performs best at the time of UST bear-steepening as better risk sentiment reduces the JPY s safe haven demand and a wider yield spread increases the USD demand from Japanese investors (Exhibit 2). For our US strategists, the clean sweep means fiscal easing and higher rates, supporting their higher real rate view (A win for bond bears and USD bulls 09 November 2016). The USD JPY has recently tracked real yield spread closely (Chart 1), and the pair is gradually producing higher carry as monetary policy is diverging between the US and Japan (Chart 2). In Japan, fiscal easing is also a possibility in light of reduced odds of TPP implementation and a potential early snap election. Any positive impact of Japanese fiscal easing on growth is likely to manifest itself in higher inflation expectations under the BoJ s yield-targeting regime, which means Japanese real interest rates can actually fall. Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com Watch Abe-Trump meeting coordination or conflict? Given the high uncertainty, clarifications on Trump s policies on trade and currency will be important for the Japanese market going forward. A potential Abe-Trump meeting in New York this Thursday (17 Nov), as reported by Japanese media, warrants attention. We suggested that Trump presidency could potentially reduce flexibility of Abe's political and diplomatic strategy, reduce positive market risk from Japanese politics, and increase negative risk from Japan's national security. But this is not known until we see actual Trump presidency. If the President-elect shows an understanding for the existing Japan- US alliance and refrains from protectionist rhetoric, it could reduce concerns about deterioration of the bilateral relationship, supporting USD JPY and potentially exporter shares (though reduced odds of TPP implementation is unlikely to change drastically). 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Refer to important disclosures on page 6 to 8. 11686246 Timestamp: 13 November 2016 06:10PM EST Chart 1: USDJPY vs yield spread 1.4 130 Chart 2: USDJPY carry gradually inching up 135.0 0.50 1.2 125 125.0 0.40 1.0 120 115.0 0.30 0.8 115 105.0 0.20 0.6 110 95.0 0.10 0.4 105 85.0 0.00 0.2 100 75.0 -0.10 0.0 95 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 US-Japan 10yr real yield spread (LHS) USD JPY (RHS) Source: BofA Merrill Lynch Global Research, Bloomberg USDJPY (RHS) Source: BofA Merrill Lynch Global Research, Bloomberg Using 3m deposit rate USDJPY carry 3m implied vol (RHS) JPY sellers JPY buyers While uncertainty is high, what is more certain is that there are more potential sellers of JPY than its buyers. This is the opposite of the situation some months ago (USD JPY s downside risk to 110 sell on rally 10 February 2016). First, CFTC speculative position remains yen long though short-term traders are probably positioned for the upside already (Chart 3). Second, we believe domestic activity to raise hedge ratio has run its course as the USD JPY swept through the sensitive level this year. As 2HFY16 (Oct 16- Mar 17) has started, most life insurance companies are reportedly inclined to increase exposure to unhedged foreign bonds though they generally remain price sensitive. In our view, this is reflected in the USD JPY s consolidation during Tokyo trading hours after the pair hit 100 on the Brexit vote (Chart 4). The fact that USD JPY has failed to break 100 multiple times since then suggests the market looking for USD JPY s dip, light positioning, and the market s judgment that USD should be more expensive than 100 JPY. The market is probably more vulnerable to the USD JPY s upside than downside. Chart 3: CFTC non-commercial futures position (bln USD) 5 0 -5 -10 -15 -20 EUR GBP CHF CAD NZD AUD JPY Nov '15 Nov '16 Source: BofA Merrill Lynch Global Research, Bloomberg Chart 4: USD JPY cumulative change by trading zone During Japan Trading Hour(8am-4pm Tokyo) GOP 6 4 2 NY Hour (0am-8am Tokyo) London hour (4pm-12pm Tokyo) sweep 0 -2 -4 -6 -8 -10 -12 -14 -16 -18 -20 Brexit -22 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Source: BofA Merrill Lynch Global Research, Bloomberg Technical: constructive Daily overbought momentum (RSI) is overall a positive for USD JPY s uptrend. Overbought conditions can persist longer in uptrends, but at some point this could 2 Japan Macro Watch 14 November 2016 reverse. Fading high 106 s could be a short-term profit-taking view, or area to enter countertrend short. A final thrust toward July highs of 107.49 is possible and an alternative profit-taking level. A pullback to 105.50 or 104.30 could certainly be bought for the broader uptrend targets of 108.47, and possibly 111.40, from the weekly chart pictured here. Exhibit 1: USD JPY weekly chart Source: BofA Merrill Lynch Global Research, Bloomberg Long-term picture: 50m average crossing 200m average Chart 5: USD JPY monthly chart with 50m average and 200m average 210 190 170 150 130 Golden cross 110 90 70 50 Oct-91 Oct-96 Oct-01 Oct-06 Oct-11 Oct-16 USDJPY 50m mva 200m mva Source: BofA Merrill Lynch Global Research, Bloomberg Japan Macro Watch 14 November 2016 3 Higher yields leading to bank, insurance outperformance over REITs The Japanese equity market correction managed to last just for one day after the US election. The insurance sector has been the best performer since the US election on the back of a steeper US Treasury curve and higher rates. Michael Hartnett observes violent rotation out of deflation to inflation plays , including a move from REITs to US banks. This should apply to Japan, where banks and insurance have underperformed REITs amid relentless fall of the long-term yield and introduction of negative interest rate by the BoJ (Chart 5). The domestic policy condition has changed, however, as the BoJ is now reluctant to cut rate as it pays greater attention to the health of the financial institution. The BoJ now intends to prevent the yield curve from flattening excessively. While higher foreign yields may not lift yen rates as the BoJ controls the 10-year sector, reflationary environment outside Japan at least reduces the risk of a deeper cut at home. Outperformance of Japanese equities at the time of UST bear steepening has historically been led by cyclicals, banks and insurance (Exhibit 2). David Gleeson is cautious about REITs, while Futoshi Sasaki is constructive on banks. The move can stretch further near-term. Exhibit 2: US Treasury curve (2s10s) move and market performance (past 43 quarters simple average, ) USD JPY, Japan equity (local ccy term), and Japanese cyclical, bank, insurance tend to outperform at the time of UST bear-steepening USDJPY Dollar index (DXY) MSCI Japan MSCI Japan ex Japan Japan sector Discretion Financials Materials ary IT Industrials Energy Telecom Staples Utilities Health care Bear steep 4.12 -0.60 8.58 3.32 11.68 9.97 9.96 9.46 8.58 5.88 3.27 2.86 2.83 1.89 Bear flat 1.90 0.31 3.88 0.58 3.49 -0.44 5.44 4.09 3.88 4.26 3.66 2.34 -0.06 5.21 Bull steep -1.85 -0.35 -2.32 -2.76 -3.03 -2.44 -4.70 -4.22 -2.32 -3.46 2.44 1.44 -3.64 -0.47 Bull flat -4.49 1.26 -7.31 -5.05 -8.91 -11.10 -9.94 -8.23 -7.31 -9.61 -0.37 -1.50 -4.16 -1.59 Source: BofA Merrill Lynch Global Research, Bloomberg Used Bloomberg Treasury yield index. Curve movements defined based on 2yr move (up or down) and 2s10s move (up or down) so these include twist movements, but even if we exclude these, implications for USDJPY and Japan equity do not change significantly. 11 quarters of bear steepening average 16bps increase in 2yr yields and 33bps 2s10s steepening; 10 quarters of bear flattening average 26bps increase in 2yr yields and 20bps 2s10s flattening; 10 quarters of bull steepening average 48bps decline in 2yr yields and 28bps 2s10s steepening; 12 quarters of bull flattening average 27bps decline in 2yr yields and 30bps 2s10s flattening Japan ex-Japan MSCI Japan MSCI Kokusai ratio Japanese sectors follow MSCI definition Chart 6: If inflation, rates surprise to upside, Japanese banks likely to outperform REITs 2.3 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Bank Reit Source: BofA Merrill Lynch Global Research, Bloomberg 4 Japan Macro Watch 14 November 2016 3 risks reality vs hope, higher yields, politics The biggest risk to our view is that actual US fiscal easing turns out to be minimal. But we believe the USD JPY s move will be quicker than whatever reality emerges in coming months. China s unexpected RMB devaluation or any explicit rhetoric to guide USD weakness by the new US administration could eventually trigger significant JPY strength. The other risk is a rapid increase in US long-term yields triggers risk-off trade, supporting Japanese yen. However, we believe a potential correction in US equity is unlikely to reverse the medium-term direction of USD JPY (though it could cause a short-term pullback as our technical analysis suggests) because higher yields and USD JPY are backed by fundamentals for now prospect for fiscal easing. Finally, politics is a significant concern. The President-elect has previously criticized the Japan-US security alliance. A shift away from the Japan-US security alliance could lead to higher geopolitical risk for Japan. It could also lead to more defense spending and expansion of Japanese military capability and could lift prospect for fiscal expansion. A combination of higher geopolitical risk and defense spending is probably less bearish USD JPY than Japanese equities. Japan Macro Watch 14 November 2016 5 Disclosures Important Disclosures FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst s assessment of a stock s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). 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Global Cross Asset Strategy Year Ahead The Trump inflection Investment Strategy 30 November 2016 Corrected Key takeaways Market response to Trump is logical but moves have been frontloaded. We now see USD rates only modestly higher next year. We see higher growth and inflation, notably in Japan. We go long NKY, stay long EM AXJ selective yield in equity credit. Risk is an overshoot so we stay long USD short rates, adding a CNH put and short 10Y real rates. CNH a hedge vs trade risk. Investment strategy Global James Barty Investment Strategist MLI (UK) 44 20 7996 3291 james.barty baml.com See Team Page for Full List of Contributors Trump extends some trends, starts others In the three weeks since Donald Trump s election victory global markets have seen some dramatic moves. Som1e of those moves are extending trends that had already started higher yields, higher USD, rotation from long to short duration. Others are new JPY lower, NKY higher, EM lower. The key question is how much more they can go? Growth inflation higher in 17 18 - modest fiscal boost Our economists think the fiscal impact of Trump will be modest at 0.5 on growth in H2 next year. Fiscal stimulus elsewhere also to be modest but it is taking the pressure off monetary policy. Growth was already improving so any fiscal stimulus helps. Our economists have both growth and inflation higher into 2017 and 2018. Inflection point in markets but much discounted already Market moves at turning points are often violent. The task of investors is to work out how much is already discounted. Our fixed income strategists have 10Y US yields at 2.65bp and bunds at 65bp at end 2017, also EUR USD at 1.02 so moves look frontloaded to us. That suggests their implications for other markets should fade. Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com Evolution not revolution long NKY, short 10Y real rates If that is the case then we do not want to make wholesale changes to our strategy. We make two key changes today, adding long NKY (Japan strategist targets 20k) and short 10Y real rates trades. The former is part of our strategy to be pro-growth and we think it complements our long EM Asia trade being affected differently by USD strength. The hunt for yield is dead, long live the hunt for yield If yields only rise modestly next year then the hunt for yield will live on. We keep a yield basket in European equities, AT1s and spread in Euro US credit. We go outright long European Healthcare by lifting our Food Beverage short, which has dropped sharply. Overshoot in rates, USD and trade key risks add CNH put The world would look very different if the US 10Y blew through 3 and the USD went on a tear, so we stay long USD and short rates. We add a CNH put vs USD as a hedge against an escalation of trade tensions under the new Trump administration. Employed by a non-US affiliate of MLPF S and is not registered qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. This document is intended for BofA Merrill Lynch institutional investors only. It may not be distributed to BofA Merrill Lynch Financial Advisors, retail clients or retail prospects. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 26 to 27. Analyst Certification on page 25. 11691609 Timestamp: 30 November 2016 12:00AM EST Current trade recommendations Table 1: Current cross asset trades Asset Trade idea Strategist Long European Quality Yield Screen (yield) James Barty Long SXDP Index Ronan Carr Equities Long Nikkei Shusuke Yamada Long European index dividend futures James Barty Long MSCI Asia ex-Japan Ajay Kapur Long RTY short SPX 2y variance swap Nitin Saksena 3000-2850 SX5E put spread Dec 16 expiry James Barty Equity vol Long NKY short SPX Dec 18 variance swap Benjamin Bowler Long SX5E short SPX Dec 18 variance spread Abhinandan Deb Eurostoxx 2y 3y put calendar Abhinandan Deb Short EUR SEK Kamal Sharma Long USD CNY call Claudio Piron FX Short GBP USD Kamal Sharma Long USD AUD Ian Gordon Long RUB ZAR David Hauner 2s-5s-10s fly Shyam S.Rajan Fixed Income Short US 10y real rates Shyam S.Rajan Paying 5y GBP real rate swap Mark Capleton Buy 30y US IG Industrial spreads Hans Mikkelsen Credit Buy basket of Euro AT1s Barnaby Martin Long Xover short Main Ioannis Angelakis Source: BofA Merrill Lynch Global Research. For the full methodology and reference pricing please see Appendices. New trades in bold. Themes Long Cyclicality Long Asia EM recovering growth, earnings revisions and cheap valuation. Long Nikkei growth picking up, JPY soft, 20k target. Long Yield Long European dividend yield stocks 5 yield, big pick up over IG credit. Long Dec 18 SX5E dividend future implies 4 drop from 2016, we see 4 rise. Long basket of AT1s high yield, equity cushion to rise. Long XOver short Main investors reach for yield to push them towards Crossover. Long basket of 30Y US industrial IG spreads further spread compression. Hedge the Fed Trump 2-5-10 fly 5Y part of the curve looks most vulnerable to Fed hiking. Short 10Y real yields inflation breakevens have adjusted real rates have not. Long USD long via USD GBP and USD AUD, we think policy divergence will drive USD stronger if the Fed tightens as our economists expect. Long USD CNH 7.6 6 month call hedge against trade tensions Hedge the Rest We are long SX5E, NKY and RTY vs SPX variance. Carry positive, convex in a sell-off. Long Dec 17 18 SX5E put spread. Long 3000-2850 Dec 16 put spread. Alpha Trades Long European Pharma. Sector discounting no pipeline, valuation back to cheapest since 2011. Solid yield too. Paying 5y UK real rates at -254bp. Implied inflation rates inconsistent. Long RUB ZAR (positive on oil, cautious on S African politics). Short EUR SEK, strong Swedish growth, limiting room for Riksbank easing. 2 Global Cross Asset Strategy Year Ahead 30 November 2016 The Trump inflection Changes today: Add NKY long, 10Y real rate short and CNH put, close forward Kospi vol and Food Beverage short. We are not making mass changes today. While some of our trades have worked better than others post-election we are broadly happy with the balance. We still want exposure to growth and to own yield where we can but also want to protect ourselves from a further surge in the USD and rates. We diversify our equity long in EM and European yield with a long Nikkei position. It is not the best entry point but we suspect it has further to run on a one year horizon. A stronger USD is good for Japanese equities where it is not for EM, so they complement one another. We add a short US 10Y real rate trade too to protect against rising US yields, as breakevens have already moved significantly. We close our Kospi vol trade (changed view from strategists) and drop the short Food leg of our Pharma Food trade, reflecting the sharp sell-off in the long duration sectors of late. Summary: Still be long growth and yield but hedge with USD and Rates Year aheads are notoriously tricky to write and almost always wrong. Anyone who wanted to correctly predict the outcomes and how markets would react to them in 2016 did not need so much as crystal ball as a time machine. As investors and strategists we have to make calculations as to the most likely outcomes, where is the best upside to play them and how best to hedge the risks around them. Donald Trump s election is in our view an inflection point for global markets, starting new trends in some asset classes and extending trends in others. It does not completely change the world though, as the disinflationary and weak growth pressures that have plagued the world since the GFC are structural rather than cyclical. But the shift to fiscal and populism is likely to boost growth and inflation, so it does change the picture to a significant degree. If we are to call it an earthquake it is perhaps a five rather than a nine on the Richter scale. We have to adjust our way of thinking though. The rise in rates and higher USD that we had hedged against now look like they are going to go further. That is going to hurt longer duration assets. So we continue to run our long USD positions and add to our short rate positions (via 10Y real rates). There is risk around trade and geopolitics, which has to make us more nervous of our EM positions. So we diversify our risks by pairing our long EM position with a long Japan position and add a CNH put. But the world is not completely changing. Even in the new order we only forecast 10Y Treasuries at 2.65 and Bund yields at 65bp end 2017. So the hunt for yield will not disappear completely. We still want to own yield, but as we have said of late it cannot be yield for yield s sake. Yield in equity markets has been safest in the shortest duration buckets, such as Banks and Cyclicals since the summer. We changed our yield basket last month is this direction so we keep it. We stay long AT1 s and in credit we keep our spread trades both in Europe and the US. AND we remind investors of something we said at the start of 2016, be prepared to trade the ranges in markets. If there was one lesson of the last year it was that. When assets get very loved and overbought, sell them, when it is the opposite you have to buy them. Think of buying EM and commodities in February. Think of selling defensive equities and bonds and buying banks post-Brexit. None of us will get that right all of the time, but the Warren Buffet maxim be greedy when others are fearful and fearful when others are greedy is particularly useful in current markets. Finally, as cross asset investors think about what can go wrong with your positions and find asymmetric hedges for them if you can. That should be the edge you have at looking across the range of asset classes compared to single asset class investors. We would like to thank our BofAML colleagues who have supported our product this year by providing many such ideas and trust they will continue to do so through 2017. Global Cross Asset Strategy Year Ahead 30 November 2016 3 X Asset Strategy: Long growth, short bonds, long USD but the hunt for yield lives on Clearly markets are different and will continue to be so under President elect Trump BUT not everything will change. The disinflationary forces triggered by the GFC have not gone away but the decision to focus on fiscal stimulus, not just in the US but also Japan and to a lesser extent the UK, is a welcome shift taking some of the burden away from monetary policy. It means rates should be higher for any given amount of growth. But higher does not mean a return to pre GFC levels of rates, which we need to bear in mind when setting our strategy. Indeed, our strategists 10Y forecasts are US 2.65 , Euro 0.65 and Japan 0 for end 2017. Similarly on trade, for all the rhetoric of the President-elect again we do not think he wants to trigger trade wars that would damage US growth. That means we should not necessarily drop our pro-EM bias. So we think of it as an evolution rather than a revolution in the way our strategy is structured. We wanted to be exposed to growth, we tweak that by adding a NKY long to replace our US energy long. We continue to have yield in the portfolio where we can find it, which is through a mixture of equities and credit (AT1 s, European yield basket, Xover v Main and US long date industrial spreads). Even more than before we want to be protected against a stronger USD and higher rates, hence the addition of the 10Y real yield trade, and trade tensions which we have tried to cover through our CNH put. Nov 8 th accelerates some trends, starts other Before the US election we said that the tectonic plates were starting to shift, with bond yields having troughed and starting to head higher. We thought there were signs too that global growth might be shifting up a gear. So we wanted to have defensive positions in bond markets, be long the USD and be long growth where we could. The election of Donald Trump has arguably turned this gradual shifting of plates into a full blown earthquake for global financial markets. The key questions for investors as we look ahead to 2017 are how big an earthquake and how much the moves that have happened since November 8 th are likely to be extended into next year vs how much we have frontloaded them already in 2016. Chart 1: USD JPY has surged post-Trump Chart 2: As have bond yields 125 2.5 120 115 JPY USD 2.3 2.1 10y UST yield 110 1.9 105 1.7 100 1.5 95 1.3 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Source: Bloomberg Source: Bloomberg 4 Global Cross Asset Strategy Year Ahead 30 November 2016 Chart 3: EM debt and equity have been hit Chart 4: While Banks versus Staples has gone ballistic 950 900 850 800 750 700 650 Oct-15 Nov-15 Dec-15 MSCI EM Wisdom Tree EM Local Debt Fund (RHS) Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 40 39 38 37 36 35 34 33 32 0.43 0.41 0.39 0.37 0.35 0.33 0.31 0.29 0.27 0.25 Oct-15 Nov-15 Dec-15 Jan-16 S P 500 Banks relative to Food Bev Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Source: Bloomberg Source: Bloomberg The moves since Nov 8 th have certainly been violent in certain asset classes. USD JPY stands out, but the sell-off in US treasuries has been very marked, the hit to EM fixed income equally big, while in equity markets the outperformance of the Russell, the surge in the US banks and the sell-off in long duration equities has been remarkable. Some of these moves, such as stronger USD, higher yields, banks vs staples were extensions of moves that had already begun. Others, such as Russell vs S P, JPY, Nikkei, were the start of new moves where 8 Nov marked a key turning point. The moves that had already started are now getting quite stretched with US 10Y yields up 5 standard deviations from the July low, with US Banks up by a similar amount vs Staples. The USD JPY move though is more like a 2 SD move, with the NKY similar (if we exclude the 7 drop on US election day). Peak liquidity, deflation, inequality and globalisation watch for Peak Trump So what does a Trump presidency mean for the world? Michael Hartnett, our Chief Investment Strategist sums it up nicely with four of his seven peaks. Peak liquidity the era of excess liquidity is over; Peak inequality with fiscal stimulus to address inequality; Peak globalisation- free movement of trade, labour and capital ending, FX wars starting; and Peak deflation the secular low point in bond yields now behind us. We would add a peak to that which investors need to bear in mind Peak Trump. What we mean by that is at what point do the policy changes of the Trump presidency get fully discounted in markets. We have moved pretty quickly to do that but we suspect there is more to go, even if the quick returns have probably already been made. If we think about these peak questions, the two that stand out to use as obvious and not really open to challenge are Peak liquidity and Peak deflation. The Fed left its peak liquidity position behind ages ago, the BOJ has moved to yield rather than liquidity targeting, the BOE may extend its current programme of QE one more time but then is probably done and even the ECB is talking about tapering, even if they are unlikely to do it in December. The Peak deflation theme follows on from this with the secular low in bond yields surely behind us if the central banks are stepping away from flooding the world with ever more liquidity. Peak liquidity deflation means higher yields inflation expectations adjusting The question then is how much yields will likely rise from here. Much of course depends on how quickly inflation picks up. Markets have already moved to price in a significant pick-up in expected inflation as the two charts below show. To our mind breakeven inflation rates had been too low for too long, which is one reason we wanted to be defensive in bond markets. It would seem to us that inflation expectations are now up with events. US headline CPI at 2.5 is consistent with the Fed modestly overshooting Global Cross Asset Strategy Year Ahead 30 November 2016 5 its 2 core PCE target. Our economists think that the Fed may well aim a little high in the short term on inflation to ensure they have sufficient room to ease in the event of a downturn. However, it is unlikely that the Fed would tolerate a sustained overshoot of their inflation objective. That is particularly the case if the Fed under President Trump is made more hawkish as our economists think it probably will be (see Liquid Insight: Trump s stamp on the FOMC). Chart 5: US 5Y5Y forward inflation back towards 2.5 3.3 3.1 2.9 2.7 2.5 2.3 2.1 1.9 US 5y5y fwd inflation swap 1.7 Chart 6: Euro 5Y5Y forward inflation up to 1.6 2.8 2.6 2.4 2.2 2 1.8 1.6 EUR 5y5y fwd inflation swap 1.4 1.2 Source: Bloomberg Source: Bloomberg Equally, our economists in Europe are sceptical on the ECB s ability to get inflation to rise significantly from current levels. Optically there is scope for European breakevens to head higher if the ECB were to be successful but investors are likely to want to see some evidence of rising inflation first before they price that in. We will return to this below. For now we agree with our fixed income strategists that the rise in inflation expectations is probably sufficient and that any rise in yields from here has to be one of higher real yields. They think such a rise as a tightening of monetary conditions which may be self-limiting in the short term, particularly as the fiscal boost in the US is likely to be back loaded in terms of 2017. If rates move too quickly and the USD follows before the fiscal stimulus kicks in they could actually dampen growth. Indeed, our US economists have shaved their near term growth forecasts already to reflect the current moves. They do not expect the fiscal stimulus to start to boost growth before the 3 rd quarter. Fiscal hawkish Trump Fed means we stay short 5Y US via 2-5-10 butterfly Our fixed income team estimated how much fair values of the different parts of the curve would have to move were the market to move into line with the dot plot. Updating those estimates for the move since their publication we find 2Y rates can move another 11bp, 5Y 39bp and 10Y 33bp. They argue that given we are past the inflection point for rates, with fiscal policy being eased and now with a more hawkish Fed under Trump likely, the dot plot should form the floor not the ceiling for rate expectations. All of this translates into a view that 10Y yields can push to 2.65 by the second half of 2017. Given their views on the curve we continue to run the 2-5-10 butterfly. It has moved from around -10bp to 10bp since the election, and our fixed income strategists have moved their target to 20bp. 6 Global Cross Asset Strategy Year Ahead 30 November 2016 Chart 7: 5Y yields to continue to underperform 0.5 0.4 0.3 0.2 0.1 0 -0.1 2s-5s-10s US fly -0.2 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Source: Bloomberg Chart 8: Real rates likely to feel the pressure going forward 3.5 3 2.5 2 10y US TIP yield 1.5 1 0.5 0 -0.5 -1 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bloomberg Peak globalization inequality means higher real rates short 10Y US real rates Our fixed income team make the point that globalization has been a driving force behind lower real rates as it has been good for EM growth and reserves. Those reserves then found their way back into the US holding real rates lower. They argue that as the global savings glut unwinds real rates have room to re-price. Peak inequality also means an unwind of globalization as politicians seek to protect workers from the depressing effect on wages coming from overseas. Donald Trump has already said he intends to charge China with being a currency manipulator. Whether he does or not and what action he takes to accompany it remains to be seen, but artificially low currencies generating high current account surpluses are unlikely to go down well with the new administration. That lends weight to the fixed income team s arguments. Peak inequality may also mean less migration across the world think Trump s arguments on illegal immigration from Mexico and Theresa May s desire to limit migration into the UK post Brexit. Less migration likely means more upward pressure on wages, which is the inflation expectations side of the argument. But Michael Hartnett also thinks it means more action on fiscal policy. The UK government have implemented a 24bn infrastructure fund in the Autumn statement. Donald Trump wants to trigger up to 1tn of infrastructure spending in the US in addition to the tax cuts. The fiscal boost should push real rates higher (at least in the short term). Some Fed members have acknowledged this suggesting that equilibrium interest rate might be moved higher by fiscal stimulus. The rates team also rightly says while they want to be bearish rates given the speed of the move so far it is also right not to be foolish. Given how much inflation expectations have moved they think there is better risk reward in real rates. They argue the 10Y real rate is the most vulnerable to further moves higher in rates. Although they have already risen from around zero in the summer to 50bp now they think 10Y real rates can reach 1 . So we add that trade to our 2-5-10s position. Implications for other asset classes: Stronger USD, weaker EM? The forces impacting on markets from the Trump victory have not been confined to rates markets, although it is probably fair to say that most (although certainly not all) of the impact stems from the move in rates. Higher US rates have meant a stronger USD, an outperformance of short duration over long duration equities, a hit to EM debt and all forms of carry trades. Global Cross Asset Strategy Year Ahead 30 November 2016 7 Chart 9: USD breaks to new highs 105 DXY Curncy 100 95 90 85 80 75 Chart 10: As Treasury yields open big gaps with Europe and Japan 2.7 2.5 2.3 2.1 1.9 1.7 1.5 US 10y yield 10y Bund yield (RHS) 10y JGB yield (RHS) 1 0.8 0.6 0.4 0.2 0 -0.2 Source: Bloomberg 1.3 -0.4 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Source: Bloomberg The USD is a case in point, with the higher US rates creating a significant gap to equivalent Euro and JPY rates. With the ECB likely to extend QE by the full current amount (despite the debate over timing) and the BOJ committed to capping JGB yields at zero, a surge higher in the USD was the logical outcome. Given that the biggest gap in intentions was relative to Japan it is perhaps not surprising that the JPY has been the biggest victim, with the JPY falling some 10 against the USD since the election. The DXY has broken out of the top end of the trading range it has been in since early 2014. The stronger USD is not just reliant on higher yields, but also other factors such as the likely repatriation of money into the US under a new proposal for US corporates to return funds at a concessionary tax rate, generally referred to as HIA2. We had positioned long USD as well as short rates, not so much as an explicit play on a Trump victory but more against a more hawkish Fed in 2017. We were also of the view though that a Trump win would likely be positive for the USD and higher yields. Going back to our fixed income strategists point that the dot plot should now perhaps be the base case for the markets that does imply higher yields which should continue to be dollar supportive. Like their bond yield forecasts though our strategists call for a modest further appreciation of the USD rather than a huge surge. They have the USD peaking at 1.02 vs the EUR, 120 against the JPY and 1.43 vs the CAD. So the big violent move has likely happened even if we still see the USD strengthening further next year. Certainly our FX strategists are not calling for a surge in the USD similar to the one that happened in 2014 15. The reaction of the US economy to Trumponomics is key These two things are important for other asset classes. If we really thought 10Y Treasuries were heading to 3 , the Fed likely to tighten above the dot plot and the USD to surge another 10 in quick order, the impact on other asset classes would likely be more severe. That would undoubtedly exacerbate the trends we have seen out of EM and long duration equities. We also suspect it would make it much harder for commodities to perform. We see holding USD and short rates positions as necessary to hedge against such an outcome with limited downside risk if it does not happen. 8 Global Cross Asset Strategy Year Ahead 30 November 2016 Chart 11: Dollar strength leads to immediate trade drag (inverse relationship) 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 Contribution of net exports to real GDP (lhs, pp) Real trade weighted USD, QoQ (rhs, yoy) -2.0 Q2-2013 Q1-2014 Q4-2014 Q3-2015 Q2-2016 Source: Federal Reserve Board, Bureau of Economic Analysis 6 4 2 0 -2 -4 Chart 12: Expected path of fed hiking cycle (bp) 200 180 160 140 120 100 80 60 40 20 0 Current market pricing Median dot, Sep-16 SEP BofAML forecast 0 4 8 12 16 20 24 of meetings into tightening cycle Source: BofA Merrill Lynch Global Research, Federal Reserve, Bloomberg Nevertheless it is not our central scenario in part because there is a risk that much of a Trump surge could be bad for growth. As we noted above the fiscal stimulus is likely to be back loaded as far as 2017 is concerned. In the meantime the FX and Rates teams predict an 8-10 appreciation of the USD from pre-election levels and 10Y rates about 80bp higher. Our economists note that a 10 appreciation of the USD is estimated to slice around 0.5 off of US GDP growth over two years. Higher mortgage rates from higher bond yields would also likely dampen growth. As a result, they have actually lowered their forecast for US growth in the first half of next year to around 1.5 before seeing it rebound to around 2.3 in H2 and then 2.5 in 2018 as the fiscal stimulus feeds through. Various Fed members, notably Bill Dudley of the NY Fed, have said this year that a stronger USD would have an impact on monetary policy. So to some extent we see USD strength as self-limiting as it would start to lower the profile of likely Fed tightening. Our economists are also cautious as to the extent of the impact of the Trump fiscal plans. Assuming that there is a compromise between the Trump administration and Congress our economists think the likely scale of tax cuts is 2-3tn over 10 years, with 200-300bn of this in 2017. Given the low estimated multiplier from any proposed tax cuts and a Congress likely to limit the amount of an increase in government spending, they look for a modest 0.5 boost to growth. Upside risk to growth and rates if Trump does more on fiscal, less on trade If Congress passes more of the Trump stimulus plan, particularly on the infrastructure side, and there are no significant changes to trade or immigration policies then our US economists think growth could potentially hit 3 in 2017 and 3.5 in 2018. That would likely be accompanied by a faster pace of Fed hikes than they currently assume (which is two hikes between now and end 2017 followed by 3 in 2018). Trade policy and its impact vital The other key factor of the new administration is going to be the direction on trade. President elect Trump has already said he will pull out of the TPP, TTIP looks likely to get the same treatment, while NAFTA is set to be renegotiated. Meantime Trump said he will label China a currency manipulator. This is the other side of the Peak Globalisation Peak Inequality coin and none of it looks good for global trade. Combined with the stronger USD and higher rates, it is easy to understand the knee jerk reaction of investors to sell EM asset, particularly given the gains of earlier this year. Global Cross Asset Strategy Year Ahead 30 November 2016 9 Chart 13: China could be named a currency manipulator 7 6.9 6.8 CNY USD 6.7 6.6 6.5 6.4 6.3 6.2 6.1 6 Source: Bloomberg Chart 14: But world trade has slowed would Trump make it worse? 15 10 5 0 -5 -10 World Trade growth ( ) -15 Jan-72 Jan-75 Jan-78 Jan-81 Jan-84 Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Source: WTO, BofA Merrill Lynch Global Research The question for investors is whether Trump the candidate or Trump the deal making businessman will eventually be the driver behind trade policy. It is not impossible to imagine the President-elect gaining some concessions from his hard line stance and then claiming victory. After all, since one of his aims is to get the US economy growing at 4 a year, a prosperous global economy to export into is probably preferable to one that is taking a hit from an aggressive US trade policy. That is the inclination of our EM strategists and economists, so they are expecting the reality to be softer than the rhetoric. At this stage we have to acknowledge that it is little more than an educated guess. It makes us less certain of our long EM equity position than we were. Nevertheless, we had already switched it out of an MSCI position into an Asia ex Japan in part because of US election risks and our strategists are particularly upbeat about Asian markets. They think they are cheap, they are positive on China and they think growth and hence earnings will surprise on the upside. What about the rest of the world? Growth has been improving Growth indicators have been improving around the world of late. Data since the US election would seem to support that with the PMIs in the Euro Area improving again and their equivalent in the US sustaining the gains seen last month. Our EM indicators remain robust and our China ACT indicator continues to indicate steady growth there too. Our economists forecast 3.5 global GDP growth with EM growth around 4.7 . Our Euro Area growth numbers have been nudged back up towards 1 with Brexit not proving to be as much of a drag as feared. We still expect the UK economy to see something of a slowdown in 2017 as the lagged effect of the fall in the pound hits consumer incomes. Perhaps our most optimistic view of the world, relative to consensus, comes from Japan where with fiscal policy turning more supportive (we put the package at 1.5 of GDP) we see growth at 1.4 in 2017. 10 Global Cross Asset Strategy Year Ahead 30 November 2016 Chart 15: Eurozone PMI s point to solid growth 60.0 58.0 56.0 54.0 52.0 50.0 48.0 46.0 44.0 42.0 EA Services PMI EA Manufacturing PMI 40.0 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Source: Markit Chart 16: Japanese growth expected to accelerate in 2017 3.0 2.0 Forecasts 1.0 0.0 -1.0 -2.0 2011 2012 2013 2014 2015 2016 2017 Private demand Public demand Net exports Real GDP growth YoY Source: BofA Merrill Lynch Global Research forecasts, CAO It is a decent global growth picture and it is not impossible to imagine it being still better should the US surprise on the upside and the impact on trade from a Trump presidency prove to be modest. It certainly fits with the Peak Deflation theme since this stronger growth is expected to be accompanied by a pick-up in inflation. We have core PCE in the US reaching 1.9 next year in our core scenario. Our headline inflation numbers are higher because of the expected increase in the oil price from our commodity strategists. Indeed with oil expected to reach 60pb (OPEC permitting) headline CPI inflation in the US could push 3 . In the Euro Area we see headline inflation rising to 1.2 , albeit with core inflation only nudging modestly higher. UK inflation is expected to move markedly higher care of the lower pound, again with headline inflation pushing towards 3 . In Japan driven by our more optimistic view of the economy we project core CPI at 1 . Chart 17: BofAML sees GDP accelerating into 2018 Global GDP growth DM GDP growth EM GDP growth 4.7 5.1 3.2 4.1 3.1 4.1 3.5 3.8 2.1 1.5 1.7 1.9 Chart 18: with inflation picking up too Global CPI inflation DM CPI inflation EM CPI inflation 4.2 3.6 3.6 3.8 2.5 2.4 2.8 3 1.7 1.8 0.7 0.3 2015 2016F 2017F 2018F Source: BofA Merrill Lynch Global Research 2015 2016F 2017F 2018F Source: BofA Merrill Lynch Global Research Politics does populism strike again, this time in Europe? Few would have predicted both Brexit and a Trump win in 2016. Both had something to do with the Peak Inequality and Peak Globalisation themes. Politicians on both sides of the Atlantic tapped into a deep disquiet, particularly amongst white male blue collar voters that they were not benefitting from this new globalised world. If opinion polls are to be believed (something which we have all learnt to question) then Italy may well end the year with another vote against the governing party - although that one is perhaps a little more complicated to dissect. We recently added a put spread on the eurostoxx to hedge against such a bad outcome here, which would be the case if it is perceived to be Global Cross Asset Strategy Year Ahead 30 November 2016 11 supportive of the 5 star movement or threatened the recapitalisation of the Italian banks (see Strategy Insights: Italy risks elevated). In 2017 the focus turns to core Europe, especially France and Germany. Because of the winner takes all system in France we find investors are more concerned with the situation there. Marine Le Pen and the Front National look likely to make it to the second round of voting (again according to polls) and until the vote comes in we suspect investors will be cautious about European markets. A Le Pen victory could likely bring the future of the EU and the Euro into question as she has talked about France withdrawing from both. That in turn has arguably the potential to be even more of an earthquake for the world s financial markets. Our central case is that centre right President is elected in France (with Francois Fillon now the official Republican candidate) and Merkel is returned at the head of a coalition government in Germany. Chart 19: German polls show a consistent lead for Merkel s CDU party 40 35 30 25 20 15 10 5 0 100 90 80 70 60 50 40 30 20 10 CDU SPD AfD 0 Chart 20: Fillon well ahead of Le Pen in polls showing a potential run-off 12-14 April 15-17 April 13-16 May 10-12 June 14-17 June 9-11 Sept Francois Fillon ( ) Marine Le Pen ( ) 25-Nov 27-Nov Source: Allensbach (15-Sept, 13-Oct), Emnid (7-Sept, 14-Sept, 21-Sept, 28-Sept, 5-Oct, 12-Oct, 19- Oct, 26-Oct, 2-Nov, 9-Nov, 19-Nov), Forsa (2-Sept, 9-Sept, 16-Sept, 23-Sept, 30-Sept, 7-Oct, 14-Oct, 21-Oct, 28-Oct, 4-Nov), Forschungsgruppe Wahlen (22-Sept, 13-Oct, 27-Oct, 10-Nov), GMS (14-Sept, 12-Oct, 12-Nov), Infratest dimap (21-Sept, 5-Oct, 19-Oct, 2-Nov), INSA (5-Sept, 12-Sept, 19-Sept, 26- Sept, 3-Oct, 10-Oct, 17-Oct, 24-Oct, 2-Nov, 7-Nov, 14-Nov, 22-Nov), Ipsos (10-Oct) Source: Ifop (12-14 Apr, 14-17 Jun), BVA (15-17 Apr, 13-16 Mar, 10-12 Jun, 9-11 Sept), Odoxa (25 Nov), Harris Interactive (27 Nov). Note: all 2016. Were this to be the case then we think there may well be room for a significant relief rally in European assets. Until then we think it likely investors will demand a higher risk premium. Brexit was the big political topic for Europe going into 2016. Going forward we see it as an ongoing issue but mostly for the UK. The political uncertainty is likely to be extended, even after Article 50 is triggered as any significant negotiations probably need to await the outcome of the French and German elections. We expect the UK economy to struggle as the lagged effect of the fall in the currency hurts consumers and while there may be contrarian trades available in the GBP during 2017, our strategists think it goes lower first on the triggering of Article 50. 12 Global Cross Asset Strategy Year Ahead 30 November 2016 X Asset Trade Ideas Rates short 5Y US nominal and 10Y real rates, short 5Y UK real rates As discussed above on the rates side we keep our 2-5-10 s butterfly but add a 10Y short real rates trade, to reflect the view of our fixed strategists that if yields are to go higher then real rates will need to move. So we will not repeat the analysis here. Chart 21: Markets do not expect the BOE to react 4 3 2 1 0 -1 -2 -3 5y UK nominal 5y UK real 5y UK inflation -4 Chart 22: to a sustained overshoot of its inflation target 3.7 UK 5y5y inflation swap fwd 3.6 3.5 3.4 3.3 3.2 3.1 3 2.9 2.8 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Source: Bloomberg Source: Bloomberg The other fixed income trade we continue to like is short 5Y UK real rates. The market continues to discount the Bank of England consistently overshooting its inflation target without a response on monetary policy. Yet Governor Carney and other members of the BOE s MPC have said that while they are willing to look through a short term inflation shock they would not tolerate a sustained overshoot. The market therefore is pricing something which suggests that the BOE will sacrifice its credibility on the inflation side to (presumably) support growth. We would rather take the side of the Bank in this situation. It is worth bearing in mind too that those on the right of the Conservative party who have been critical of Governor Carney and the BOE have tended to want higher not lower short rates. When the PM and Chancellor have to replace the Governor at the end of 2018 it is unlikely that they are going to choose someone more dovish. FX long USD, short GBP, AUD, CNH We have been long USD since August believing the risk reward to be skewed in favour of a stronger currency because we saw more room for the Fed to tighten than other central banks. Given the fiscal stimulus expected from the new administration the risks on that tightening profile have been skewed to the upside. We think the FX and Fixed Income strategists are right to think of the dot plot as a floor now for markets. With yields still needing to move higher to get there that should put further upward pressure on the USD. The scope for gains though depends on the currency. The Euro is already just 3.5 from the target for next year whereas both the GBP and the JPY have about 7- 8 to fall to our FX team s targets. The team also continue to like short AUD positions as they think this also captures risk off in the event of concerns over China. Whilst the short GBP has only worked modestly since the US election, we continue to think Brexit uncertainties will weigh on the currency into 2017 and our FX strategists target 1.15 in the aftermath of the article 50 decision. Global Cross Asset Strategy Year Ahead 30 November 2016 13 Chart 23: AUD fell post US elections Chart 24: GBP has held up so far but article 50 looms in Q1 0.8 1.55 0.78 0.76 0.74 AUD USD 1.5 1.45 1.4 1.35 0.72 1.3 0.7 0.68 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 1.25 1.2 1.15 Oct-15 Nov-15 Dec-15 Jan-16 GBP USD Feb-16 Mar-16 Apr-16 May- Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Source: Bloomberg Source: Bloomberg Today we add a CNH put (expressed as a USD CNH call at 7.6 strike) partly because it fits with our positive USD call but also because it is a potential hedge against the trade rhetoric of the new administration descending into something more meaningful. Given the stated intent to declare the Chinese as currency manipulators and the concern that our currency strategists already have about the amount of reserves the Chinese hold, it is not impossible to imagine a much weaker CNY CNH should the Chinese authorities allow a free float. We see this as a sensible hedge against our long EM equity position. Chart 25: CNH continues to weaken, risk of more on trade tensions? Chart 26: RUB ZAR choppy on oil and SA politics 6.9 6.8 CNH USD 0.25 0.24 6.7 6.6 6.5 6.4 0.23 0.22 0.21 6.3 6.2 0.2 0.19 RUB ZAR Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Source: Bloomberg Source: Bloomberg We have two other standalone currency trades, short EUR SEK and long RUB ZAR. The former has dropped as the EUR has weakened against the USD. We continue to think that the Swedish economy is more robust than the Eurozone and that the Riksbank will sooner or later have to adjust monetary policy accordingly. We see a lot more room for this pair to move in 2017, particularly if there are political concerns ahead of the French presidential elections as these will likely weigh on the EUR. RUB ZAR has been quite erratic since we re-established the trade, reflecting both volatility in the oil price and developments in South African politics. The latest no confidence vote against President Zuma underlines how tricky South African politics are at the moment. Concerns will remain on the economic progress of the country until the political situation becomes clearer. In the meantime we expect a higher risk premium to be associated with the currency. 14 Global Cross Asset Strategy Year Ahead 30 November 2016 Equities: Add long Nikkei to EM Asia Global equity markets have gone in very different directions post the US election. EM have fared worst, Europe little changed, S P at new all-time highs, the Russell and Nikkei on a tear higher. This is not how we were positioned so we need to ask the question of whether and what we need to change. Table 2: MSCI EM Asia at a 2PE point discount to other equity markets MSCI EM Asia 12m fwd PE MSCI Japan 12m fwd PE MSCI Europe 12m fwd PE MSCI US 12m fwd PE Latest 11.9 14.1 14.3 17.0 Min 7.6 9.7 7.4 10.4 Max 18.5 44.5 23.9 25.2 Av 11.5 18.2 14.0 15.9 SD 1.8 6.8 3.4 3.2 Z-score 0.2 -0.6 0.1 0.3 ile 68 31 60 73 Source: BofA Merrill Lynch Global Research, MSCI, IBES Chart 27: Japan relatively cheap at 14.1x fwd earnings 50 45 40 35 30 25 20 15 10 5 0 MSCI Japan 12m fwd PE 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 If we stand back from the noise and just look at the valuations, the US is the most expensive, MSCI Asia ex the cheapest in absolute terms. Our strategists see decent earnings growth likely to come through in EM Asia, and while there is upside to US earnings estimates from potential corporate tax cuts at least part of it is priced in. Savita Subrahamian has a target for the US of 2300 in her year ahead Euphoria or fiscal fizzle?, an upside of a less than 5 . Our European strategists have an upside of around 6 . So that leaves EM Asia and Japan (given our 20k target) as the stand outs according to our equity strategists. Indeed, the PE of Japan is towards the bottom end of the range since 2000. Sticking with EM Asia One of our concerns on EM was a more hawkish Fed and therefore a stronger USD. So we regarded our positions in those asset classes as something of a hedge to our EM positions. As we explained above we are keeping that stance as on our central scenario there is more to go and on a risk scenario where bond markets overshoot the USD is likely to follow. In the equity world, if our fixed income and FX forecasts are right, then we do not see them as being an impediment to our EM Asia position working again. Our EM strategists remain upbeat and Ajay Kapur actually upgraded his call to buy from a tactical pause post the election (A Call to Action: Time to BUY Asia EMs). They think the right focus is one on growth rather than the USD and we continue to be upbeat on the prospects for EM growth, particularly in Asia. Ajay in particular makes the point that Chinese nominal GDP growth has been accelerating and that tends to be very good for Asian equity markets. Nigel Tupper s global wave has continued to improve and he argues that remains consistent with strong performance from Asia ex Japan equities. Source: BofA Merrill Lynch Global Research, MSCI, IBES Global Cross Asset Strategy Year Ahead 30 November 2016 15 Chart 28: The world economy is improving broad-based recovery good for Asia EMs Chart 29: EM cyclicals outperform as China s NOMINAL GDP recovers. More to go. 100 Based on 29 1200 180 MSCI EM cyclicals EM defensives price index, LS China Bloomberg Monthly GDP Estimate YoY 24 80 1100 160 Cyclicals energy, materials, consumer 19 60 1000 140 14 900 120 9 40 Percentage of Countries with MSCI EM, RS 20 1 11 1 12 1 13 1 14 1 15 1 16 800 700 100 80 1 05 1 06 1 07 1 08 1 09 1 10 1 11 1 12 1 13 1 14 1 15 1 16 1 17 4 -1 Source: BofA Merrill Lynch Global Research, Haver, Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg. Assumed GDP estimate for October-16 to be similar to that for September-16. The question then is whether the strong USD or trade tensions from the new Trump administration can outweigh the more positive macro backdrop. We are inclined to back the view of our strategists and think that it will, so we are sticking with our long EM Asia position. We are doing so with hedges via a long USD and a CNH put. Long Nikkei: target 20,000 We had previously paired our long EM position with a long US oil equity position, but with our US strategists downgrading the sector ahead of OPEC we removed it earlier this week. We were therefore looking for another pro-growth trade to run alongside our EM position. Long Japanese equities seemed the logical place to look. While we acknowledge we have missed the lows and that today s entry point may not be ideal, we suspect investors are not particularly long Japan yet since it was still showing as modestly underweight in the last Fund Manager Survey. Chart 30: Net AA say they are overweight Japanese equities 60 Asset Allocation: JP Equities 140 40 130 120 20 110 0 100 -20 90 -40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 80 FMS Net say OW JP Equities, lhs JP Performance vs World, rhs Source: Thomson Reuters Datastream Source: BofA Merrill Lynch Global Fund Manager Survey Our Japanese equity and FX strategist Shusuke Yamada has been arguing for a while that we would see both a weaker JPY and a rebound in Japanese equities. While arguably the JPY had turned beforehand, the Trump victory turbo charged the move. As the chart shows below Japanese equities do well historically during a period of bear steepening of the US yield curve. Our economists are also more upbeat on Japan thinking the weaker USD, the new policy stance of the BOJ and the fiscal stimulus will push growth and inflation higher next year. 16 Global Cross Asset Strategy Year Ahead 30 November 2016 The combination of these factors suggest Japanese equities have further to run. We also see the position as being complementary to our EM position since whereas a stronger USD is a drag on EM performance, it is beneficial for the NKY position. Chart 31: Japan equities have outperformed during US bear-steepening led by cyclicals, banks and insurance 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 Japan Sector cyclical outperform on UST bear-steepening USDJPY DXY MSCI JP MSCI JP ex JP Discretionary Financials Materials IT Industrials Energy Telecom Staples Utilities Health care Bear steep Bear flat Bull steep Bull flat Source: BofA Merrill Lynch Global Research, Bloomberg. Curve movements based on 2yr move and 2s10s move (Bloomberg US Treasury yield index), so includes twist movements, but even if we exclude these implications do not materially change. Bear steepening (2yr 16bps, 2s10s 33bps) 11 quarters, bear flattening (2yr 26bps, 2s10s -20bps) 10 quarters, bull steepening (2yr -48bps, 2s10s 28bps) 10 quarters, bull flattening (2yr - 27bps, 2s10s -30bps) 12 quarters Long Europe equities via yield stocks index dividends We continue to run two yield related trades in European equities. First, we remain long a broad selection of high yielding European equities. The dividend yield on offer in European equities is one of the asset class s key attractions. Europe offers a higher dividend yield than the other regions, with a 1.1 yield pick-up versus the DM average and 0.9 against EM equities. Those also look attractive relative to history: Europe s yield spread to DM ranks at the 87 th percentile of the 20-year range. Europe s DY also looks attractive relative to sovereign and corporate bonds despite the recent sell off in fixed income markets: the yield pick-up relative to investment grade corporates is still 289bp. Given the concerns over European politics we prefer yield based strategies in Europe to those looking for capital appreciation at least in the short term. Chart 32: Equity DYs remain attractive relative to credit sov bond yields 5 4 3 2 1 0 -1 -2 Stoxx 600 DY less 10yr Bund yield -3 Stoxx 600 DY less Euro IG credit yield 2004 2006 2008 2010 2012 2014 2016 Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream Chart 33: Europe offers a yield premium vs global equities too 2.0 1.5 1.0 0.5 0.0 -0.5 MSCI Europe less -1.0 EM DY spread -1.5 MSCI Europe less DM DY spread -2.0 12 80 12 84 12 88 12 92 12 96 12 00 12 04 12 08 12 12 Source: BofA Merrill Lynch Global Research, MSCI, Datastream European Yield Screen The rising rates backdrop has left yield not quite as scarce as it has been, but we continue to think investors should own yield where they can get it at decent value, such as in European equities. Last month we recommended investors rotate out of lower risk Global Cross Asset Strategy Year Ahead 30 November 2016 17 defensive dividend stocks to take advantage of the improving cyclical backdrop and rising bond yields. That meant our November screen included a high proportion of Financials. This somewhat remains the case but we note the addition of several industrial companies in our latest screen. As a reminder, to qualify the stock must be SXXP listed stocks with at least 2bn market cap, 4 DY, 1.2x DPS cover, 0 DPS 2YR CAGR and qualifying stocks must be on a Buy rating from our fundamental analysts. The yield on the basket is 5 with an average DPS CAGR of 7 and 1.8x covered. Table 3: European Yield Screen December 2016 Sedol BofAML ticker Company name Sector Divi Yield ( 4 ) DPS 2Y CAGR Div'd Cover 426330 DNBHF DNB ASA Banks 4.2 23.9 2.0 B545MG XERSF SWISS RE AG Insurance 5.4 5.2 2.1 457481 MDIBF MEDIOBANCA SPA Banks 4.9 8.0 2.4 B1LB9P SZCRF SCOR SE Insurance 5.3 4.3 1.9 BZ5739 ING ING GROEP N.V. Banks 5.3 4.6 1.7 538003 NRDEF NORDEA BANK AB Banks 6.6 2.1 1.3 BDVZYZ ROYMF ROYAL MAIL PLC Industrial Goods Services 5.0 4.2 1.8 458882 DNSKF DANSKE BANK A S Banks 4.4 5.5 2.0 596651 SCGLF SOCIETE GENERALE Banks 5.6 0.6 2.0 021623 AIVAF AVIVA Insurance 5.1 9.9 1.8 B23K0M CTAGF CAPITA PLC Industrial Goods Services 5.7 2.5 2.1 522603 SAXPF SAMPO PLC Insurance 5.4 4.6 1.2 481334 SVKEF SKAND ENSKILDA BKN Banks 5.8 3.7 1.4 B17BBQ IVTJF INVESTEC Financial Services 4.4 10.0 1.9 528983 EBKOF ERSTE GROUP BK AG Banks 3.6 12.5 3.1 766716 ATASF ATLANTIA SPA Industrial Goods Services 4.9 11.2 1.3 B83VD9 MNGPF MAN GROUP PLC Financial Services 5.8 15.1 1.2 B5ZQ9D EVKIF EVONIK INDUSTRIES Chemicals 4.4 2.9 1.7 B01FLG GFSZF G4S Industrial Goods Services 3.9 5.6 1.6 BGLP8L IMIAF IMI Industrial Goods Services 4.0 4.0 1.5 Source: BofA Merrill Lynch Global Research, Factset. The European Quality Yield Screen identified as a screen above is intended to be an indicative metric only and may not be used for reference purposes or as a measure of performance for any financial instrument or contract, or otherwise relied upon by third parties for any other purpose, without the prior written consent of BofA Merrill Lynch Global Research. This screen was not created to act as a benchmark. Long SX5E 2018 Index dividend futures With our second dividend related trade, we remain long SX5E 2018 index dividend futures (DEDZ8), a trade where we continue to see value even with the future price trading close to the high for the year. The 2018 contract implies a 4 decline in dividends paid from the 2016 level. In the absence of a recession, we think that is too pessimistic 2013 was the last year to see a material 2-year decline in dividends (in the wake of the sovereign crisis and recession). The 2018 contract also still trades at a discount to the level implied by our stock analysts DPS forecasts. Our derivative strategists using BofAML forecasts for 2018 estimate 8 upside from current prices. Although the upside is now more limited the risk around this trade is also much lower now. The pull to par effect will become the dominant driver over the coming months and the full year results should provide clarity on where the 2018 contract will settle. 18 Global Cross Asset Strategy Year Ahead 30 November 2016 Chart 34: SX5E dividends: 2-yr implied growth in 2018 still looks cautious 10 5 0 -5 -10 2 year growth implied realised -15 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: BofA Merrill Lynch Global Research, Bloomberg Chart 35: BofAML s SX5E Dec18 div forecast implies 8 upside ESTX50 Div (index points) 150 140 130 120 110 100 90 80 70 89.0 89.3 83.4 71.4 83.3 99.0 ESTX50 realised dividends Dividend futures Consensus BofAML 121.9 146.5 158.6 Source: BofA Merrill Lynch Global Research, Bloomberg 123.1 117.1 115.2 112.8 124.3 115.6 109.8 114.1 114.9 118.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 124.8 117.3div pts paid in 2016 YTD European equities: switch to outright long Healthcare We switch our European sector pair trade preferring Healthcare over Food Beverage into an outright long in Healthcare. Both sectors have suffered versus the market from the rotation out of defensives and bond proxies. That has reduced the valuation of the Food Beverage sector to less extreme levels. Meanwhile Healthcare looks very attractively valued and we see compelling risk reward in the sector on an outright basis at current levels. The fundamental bull case for Health rests on the strong pipeline of new products for the big cap pharma universe. Our sector analysts forecast EU Pharma to deliver a 2018- 21E EPS CAGR of 11 , up from mid-single digit levels in recent years. Historically that would justify a PE re-rating and a multiple for the pharma sub-sector nearer 17-18x than the current 13x 2018 PE. Chart 36: Extreme overvaluation in Food Bev has moderated 1.80 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90 Food Bev 12m fwd PE relative 0.80 2001 2003 2005 2007 2009 2011 2013 2015 Source: BofA Merrill Lynch Global Research, Datastream, IBES, Bloomberg Chart 37: Healthcare PE back near market multiple and patent cliff lows 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90 HealthCare 12m fwd PE relative 0.80 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: BofA Merrill Lynch Global Research, Datastream, IBES, Bloomberg We believe the Republican clean sweep in the US elections represents a positive catalyst as it significantly decreases the potential for legislative initiatives to aggressively control drug pricing in the US. The catalyst for the sector to re-rate will come progressively from newsflow around new products. The next 12 months should see progress on this front with several of the European large caps expected to announce key data on important drugs in 2017. Global Cross Asset Strategy Year Ahead 30 November 2016 19 Healthcare s forward PE is now down to just a 7 premium relative to the market and nearing the valuation lows recorded in 2010-12 when the patent cliff was at its worst and pipelines were very weak. Today pipelines are twice the size they were in 2011 and innovation is the key to growth in the sector - pricing power remains strong in drug categories with differentiated products. Credit: Long Spreads in Europe and US Europe: Long Xover short Main Rate cuts are off the table it seems, as central banks are starting to recognise the side effects of NIRP. This reinforces our view that a continuation of CSPP, entails that the reach for yield will extend to those assets that have not seen it yet; long Crossover vs iTraxx Main. The beta outperformance has already started in the cash market. We look at synthetics and we see that Crossover has not mirrored that performance. Even though XO has outperformed recently, it still has further to go to close the gap vs cash market s performance. Ioannis Angelakis thinks that rising political risks in the following twelve months are more likely to weigh on iTraxx Main performance than Crossover, as Main has higher concentration vs XO on names domiciled in countries with elections. Buy 30y US IG Industrial spreads US high-grade is the market our colleagues in Credit Strategy are most bullish into 2017. Hans Mikkelsen thinks IG corporate spread maturity curves super-flatten as global credit investors do the twist - i.e. sell shorter maturities and buy the long end. Foreign inflows are now concentrated in the back-end, as credit spreads have rallied while the cost of currency hedging increased. That means that only the back end of the steep US corporate spread curve offers enough spread to overcome the high cost of currency hedging. The flip side is that the front end of the US credit spread curve is very unattractive and we expect domestic and foreign investors to accelerate their selling of shorter maturity US corporate bonds. Overall, Hans expects the 30yr corporate bond part of the market to generate 8 -9 total returns next year. Chart 38: High grade spread forecast 250 HG Spread (bps) Forecast 200 150 135 120 115 100 Chart 39: High grade returns forecast Excess Return ( ) Total Return ( ) 6.0 5.2 4.0 3.8 3.5 2.0 0.0 -2.0 -1.6 -0.6 4.0 Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research Long AT1s basket Contingent capital continues to offer a compelling premium to European HY and lower volatility than bank equity. The asset class also received a boost last week when the European Commission submitted a proposal for AT1 coupons to be prioritized over common dividends and bonuses if the bank breaches its combined buffer. This placates one of the main concerns investors have, i.e. that banks could decide to skip a coupon payment but maintain their dividend. The confirmation of the role of AT1s in Pillar 2 capital is another example of regulators providing clarity on how contingent capital fits within the overall capital structure. The main short term risk for the trade is the fate of the Italian banks recap, so we will be watching closely to see how that develops. 20 Global Cross Asset Strategy Year Ahead 30 November 2016 Chart 40: European AT1s offer a compelling yield for total return investors 8 Stoxx Banks 12m fwd DY ( ) Coco Index yield ( ) 7 6 5 4 3 Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, IBES Volatility: Sticking with Relative trades While 2016 started off with a bang volatility wise it has ended with a whimper. Neither Brexit nor the US presidential election proved to be anything more than a blip. Realised vol in the S P 500 over the last 100 days is just 9.5 . That compares to 13.6 for the Eurostoxx 15.1 for the Russell and 21.8 for the NKY. Chart 41: Neither the Trump election 45 40 35 30 25 20 VIX Index Chart 42: nor Brexit led to a sustained period of higher volatility 45 40 35 30 25 20 15 10 15 10 V2X Index Source: Bloomberg Source: Bloomberg That is why we prefer relative variance trades. They tend to carry flat to positive but have convexity to the downside. We are happy to continue to run these trades into 2017 and then use shorter term instruments to hedge specific events. We did this around Brexit and have recently bought a 3000-2850 Eurostoxx put spread to hedge our European exposure around the Italian referendum. While a No vote is expected we are not sure what the aftermath will look like and there is considerable uncertainty over the bank recapitalization of the banks afterwards. We also have a calendar put spread in eurostoxx which tends to pay off best around the 2500-2600 levels so that remains something that we will look to keep for now given downside risks in Europe over the first half of next year. One trade we are taking off today is our Kospi forward vol position. We had held that as a hedge against a China hard landing. Our derivative strategists no longer like it and we have no opted for a currency hedge for our China risk, as discussed above. Global Cross Asset Strategy Year Ahead 30 November 2016 21 Risks to trades Equity trades The risks to long divi basket Pharma trades are a steepening of rates curves and better than expected growth outside of Europe causing investors to rotate out of bond proxies. Plus our analysts expectations of improved earnings from the healthcare pipeline not coming through. The risks to trade dividend future trade is lower than expected profits for major European sectors, e.g. Banks, Oils, causing a correction in dividend expectations. The risk to EM Asia ex-Japan is from a stronger USD and faster than expected US rates hiking cycle. Trade tensions with the new US administration an additional risk now. Risk to long Nikkei trade is a reversal of JPY weakness or a change in policy by the BOJ. Fixed income trades The risks to the US rates trades are a dovish Fed responding to a tightening of monetary conditions before the fiscal boost kicks in. Disappointment on the fiscal stimulus also a risk. The risk to the UK inflation trade is that the BoE doesn t respond to expected rising inflation by raising rates faster. The risks to the Industrial spreads trade is a deterioration of US industrial growth and step away from credit purchasing by ECB BoE. The risks the AT1 trade are the ECB pulling out of the credit markets causing a correction in the riskier portion of the market and bank profitability deteriorating raising concerns about default. The risks to our XOVER trade are Eurozone growth disappointing and a risk-off event in markets causing a flight to quality amongst credit investors. Volatility trades Our equity vol trades are hedges, the risks are that they expire worthless due to the lack of a financial event in China and persistent low vol spread in equity markets supported by higher growth. FX trades The main risk to our FX trades is of a more dovish than expected Fed, a more hawkish than expected BOE, improved politics in South Africa weaker oil price and a more dovish Riksbank. 22 Global Cross Asset Strategy Year Ahead 30 November 2016 Appendix 1: Methodology This publication is aimed at multi-asset institutional investors who tend to have a longer term time horizon for their investments. As such, we will be looking to come up with ideas that will have a minimum six month horizon and ideally longer than a year. The individual trade ideas will be sourced from our strategists across BofA Merrill Lynch Global Research. This publication is not meant to be an agglomeration of all the trade ideas published by BofAML Global Research strategists, but instead represents those that fit with our longer term themes (as opposed to shorter term tactical trades). In addition, there may be several different trade ideas published by BofAML Global Research strategists across different asset classes that seek to leverage off of the same theme. In most cases we will seek merely to take the trades that have the best risk adjusted return. By risk adjusted we mean the risk undertaken in a trade vs the likely return on that trade. In considering that we will look at the underlying volatility in the individual asset class. This will be combined with our own view of what the likely downside is in an adverse scenario vs the payoff in the expected scenario and our own assessment of the likelihoods of such scenarios. Once selected it is assumed that the trade would likely be retained for a minimum of six months (as per the selection rationale). Should any analyst change their view on the trade and cease to recommend it, then it will be immediately removed from our list 1 . Equally should our target be met for a trade and the relevant strategist feels it has run its course then it will also be removed (see footnote). Otherwise we will review our trades on a monthly basis in this publication. If we feel a new trade idea has a better risk adjusted return than an existing one in the same asset class then we would replace it. The objective of the trades is that they would be suitable for a typical objective of the multi-asset fund managers, which is typically framed in terms of a Libor benchmark (this can be anything from Libor 300bp to Libor 700bp). That return is also coupled with a target volatility, for example half MSCI ACWI volatility. The volatility target will, of course, be a function of the expected return, but there is a general focus on producing lower volatility returns. Our set of trades should not be regarded as a portfolio but a collection of ideas to implement in a multi-asset portfolio. Appendix 2 Recommended COCO bonds Table 4: COCO basket ISIN Bond Issuing entity Price Mid YtM XS1055037177 ACAFP 6.5 EUR Perp-21 CREDIT AGRICOLE SA 100.5 5.4 XS1002801758 BACR 8 EUR Perp-20 BARCLAYS PLC 100.9 7.1 XS1033661866 BBVASM 7 EUR Perp-19 BANCO BILBAO VIZCAYA ARG 91.1 7.1 XS1073143932 NYKRE 4 EUR 2036-21 NYKREDIT REALKREDIT AS 102.4 2.7 XS0972523947 CS 5.75 EUR 2025-20 CREDIT SUISSE 107.6 3.6 DE000DB7XHP3 DB 6 EUR Perp-22 DEUTSCHE BANK AG 78.3 6.7 XS1043545059 LLOYDS 6.375 EUR Perp-20 LLOYDS BANKING GROUP PLC 97.5 5.7 XS1171914515 RABOBK 5.5 EUR Perp-20 COOPERATIEVE RABOBANK UA 98.5 5.5 XS0867620725 SOCGEN 6.75 EUR Perp-21 SOCIETE GENERALE 98.8 5.9 XS1107890847 UCGIM 6.75 EUR Perp-21 UNICREDIT SPA 84.5 7.7 Source: BofA Merrill Lynch Global Research As of 28 11 2016 close 1 Under these circumstances, we will publish a note immediately. Global Cross Asset Strategy Year Ahead 30 November 2016 23 Appendix 3 Indicative pricing levels Table 5: Latest indicative pricing levels for cross asset trades Asset Trade idea Indicative price level Long European Quality Yield Screen (yield) 5 Long SXDP Index 681.6 Equities Long Nikkei 18307 Long European index dividend futures 113.4 Long MSCI Asia ex-Japan 525.7 Long RTY short SPX 2y variance swap 3.7 3000-2850 SX5E put spread Dec 16 expiry 1.20 Equity vol Long NKY short SPX Dec 18 variance swap 6vols Long SX5E short SPX Dec 18 variance spread 6vols Eurostoxx 2y 3y put calendar 1.99 Short EUR SEK 9.762 Long USD CNH call 0.56 USD FX Short GBP USD 1.250 Long USD AUD 1.342 Long RUB ZAR 0.213 2s-5s-10s fly (bp) 11 Fixed Income Short US 10y real rates (bp) 50 Paying 5y GBP real rate swap (bp) -254 Buy 30y US IG Industrial spreads (bp) 187 Credit Buy basket of Euro AT1s 5.80 Long Xover short Main (ratio) 4.22x Source: BofA Merrill Lynch Global Research, Bloomberg. Note: all levels and prices as of 29 11 2016 at 3pm or most recent local market close. This is a theoretical level which may differ from actual tradable prices. This level is obtained by bootstrapping At-the-money forward volatility levels, does not represent a tradable instrument. The tradable strike of an FVA will likely differ considerably. Appendix 4 Closed trades Table 6: Closed trades Asset Trade idea Strategist Open date Closed date Long Nikkei Kenji Abe 22 01 2016 01 04 2016 Long MSCI EM 1x 1x call ratio Ajay Kapur 01 03 2016 18 04 2016 Equities Long MSCI EM 1x 1x call ratio Long US Energy Ajay Kapur Savita Subramanian 01 03 2016 07 09 0216 18 04 2016 28 11 2016 Long MSCI EM Ajay Kapur 19 04 2016 30 09 2016 Long SXDP Index vs Short SX3P Index Ronan Carr 22 01 2016 28 11 2016 Long June V2X call spread collar Abhinandan Deb 01 04 2016 18 04 2016 Long Kospi fwd vol 6M 18M William Chan 22 01 2016 28 11 2016 Equity vol Short June V2X put Abhinandan Deb 01 04 2016 Expired Long (30-35) V2X Jul call spreads Abhinandan Deb 18 06 2016 Expired Long 2050-1950 S P 500 Jul put spread Abhinandan Deb 18 06 2016 Expired Long NOK USD Kamal Sharma 01 03 2016 04 05 2016 Long RUB ZAR David Hauner 22 01 2016 17 05 2016 FX Short EUR SEK Long JPY KRW Kamal Sharma Adarsh Sinha 22 01 2016 22 01 2016 08 07 2016 31 03 2016 Long USD CAD Ian Gordon 28 07 2016 07 07 2016 Short EUR JPY Athanasios Vamvakidis 21 01 2016 30 09 2016 Short EUR USD Athanasios Vamvakidis 08 07 2016 04 11 2016 Short EUR 5Y5Y inflation breakevens Ralf Preusser 22 01 2016 23 01 2016 Buy 30y real rates (bp) Ralf Preusser 22 01 2016 24 05 2016 Receive EUR pay US 5y5y fwd (bp) Ralf Preusser 22 01 2016 27 05 2016 Fixed Sell 6m 2s-5s-10s OTM receiver fly Shyam R. Rajan 07 09 2016 08 09 2016 Income US 15y IG credit (total return) Hans Mikkelsen 22 01 2016 04 05 2016 US 15y IG credit (Govt OAS) Hans Mikkelsen 04 05 2016 28 07 2016 Paying 2y3y GBP real rate swap Mark Capleton 02 09 2016 12 10 2016 3y 2s-10s US flattener Shyam R. Rajan 27 05 2016 10 10 2016 Source: BofA Merrill Lynch Global Research. Trades closed in this report (or recently) in bold. 24 Global Cross Asset Strategy Year Ahead 30 November 2016 Options Risk Statement Potential Risk at Expiry Options Limited Duration Risk Unlike owning or shorting a stock, employing any listed options strategy is by definition governed by a finite duration. The most severe risks associated with general options trading are total loss of capital invested and delivery assignment risk... all of which can occur in a short period. Investor suitability The use of standardized options and other related derivatives instruments are considered unsuitable for many investors. Investors considering such strategies are encouraged to become familiar with the "Characteristics and Risks of Standardized Options" (an OCC authored white paper on options risks). U.S. investors should consult with a FINRA Registered Options Principal. For detailed information regarding the risks involved with investing in listed options: http: www.theocc.com about publications character-risks.jsp Analyst Certification We, James Barty, Abhinandan Deb, Barnaby Martin, Benjamin Bowler, Claudio Piron, David Hauner, CFA, Hans Mikkelsen, Ian Gordon, Ioannis Angelakis, Kamal Sharma, Mark Capleton, Ritesh Samadhiya, CFA, Shusuke Yamada, CFA and Shyam S.Rajan, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Special Disclosures BofA Merrill Lynch is currently acting as Financial Adviser to Anima Holding SpA in connection with its proposed bid, as part of a consortium including Poste Italiane SpA and Cassa Depositi e Prestiti SpA, for the acquisition of the asset management business, Pioneer Global Asset Management SpA, currently owned by Unicredt SpA, which was announced on 10 November 2016. BofA Merrill Lynch is currently acting as Financial Advisor to Mediobanca SPA in connection with its proposed acquisition of 50 of Banca Esperia from Mediolanum Group, which was announced on 17 November 2016. Global Cross Asset Strategy Year Ahead 30 November 2016 25 Disclosures Important Disclosures FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst s assessment of a stock s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10 and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster Buy 10 70 Neutral 0 30 Underperform N A 20 Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same higher (dividend considered to be secure), 8 - same lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). 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Global Cross Asset Strategy Year Ahead 30 November 2016 27 Research Analysts James Barty Investment Strategist MLI (UK) 44 20 7996 3291 james.barty baml.com Ronan Carr, CFA European Equity Strategist MLI (UK) 44 20 7996 3292 ronan.carr baml.com Tommy Ricketts European Equity Strategist MLI (UK) 44 20 7996 3294 tommy.ricketts baml.com Barnaby Martin Credit Strategist MLI (UK) 44 20 7995 0458 barnaby.martin baml.com Ioannis Angelakis Credit Derivatives Strategist MLI (UK) 44 20 7996 0059 ioannis.angelakis baml.com Hans Mikkelsen Credit Strategist MLPF S 1 646 855 6468 hans.mikkelsen baml.com Abhinandan Deb Equity-Linked Analyst MLI (UK) 44 20 7995 7148 abhinandan.deb baml.com Nitin Saksena Equity-Linked Analyst MLPF S 1 646 855 5480 nitin.saksena baml.com Benjamin Bowler Equity-Linked Analyst MLPF S 1 415 676 3595 benjamin.bowler baml.com Ian Gordon FX Strategist MLPF S 1 646 855 8749 ian.gordon baml.com Kamal Sharma FX Strategist MLI (UK) 44 20 7996 4855 ksharma32 baml.com Claudio Piron Emerging Asia FI FX Strategist Merrill Lynch (Singapore) 65 6591 0401 claudio.piron baml.com David Hauner, CFA EEMEA Cross Asset Strategist MLI (UK) 44 20 7996 1241 david.hauner baml.com Shyam S.Rajan Rates Strategist MLPF S 1 646 855 9808 shyam.rajan baml.com Mark Capleton Rates Strategist MLI (UK) 44 20 7995 6118 mark.capleton baml.com Ajay Singh Kapur, CFA Equity Strategist Merrill Lynch (Hong Kong) 852 3508 7753 ajay.s.kapur baml.com Shusuke Yamada, CFA FX Equity Strategist Merrill Lynch (Japan) 81 3 6225 8515 shusuke.yamada baml.com Employed by a non-US affiliate of MLPF S and is not registered qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. This document is intended for BofA Merrill Lynch institutional investors only. It may not be distributed to BofA Merrill Lynch Financial Advisors, retail clients or retail prospects. 28 Global Cross Asset Strategy Year Ahead 30 November 2016 |
European Equity Strategy 2017 year ahead Refining the reflation rotation 01 December 2016 Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com Key takeaways 2017 - Reflation, Reversal, Rotation, Relief or Revolt. EPS to turn ve but politics to remain a valuation overhang in H1. Defensive vs Cyclical rotation at extreme levels. More balanced approach needed but look for another leg to cyclical trades. O w Media as quality cyclical and Oil. Stay cautious on UK domestic (Retail, Travel). Health, Utilities over Food Bev. 2017 A year of cross currents, nimble investors required Recovery (positive but moderate in our view) and Rotation go hand in hand - we think that the pace of the rotation has to moderate. ECB reversal on QE is a risk and tapering because the ability or willingness to do QE fades would likely cause a setback. Investors will demand a premium for political risk until we get clarity on populist Revolt or policy Relief in France and elsewhere. Like 2016 investors will need to trade the ranges. High single digit upside - politics likely to weigh near term A valuation overhang remains in Europe vs other DM. We see a return to positive EPS growth ( 7 ) in Europe for the first time since 2014, driven by higher global GDP growth Resources recovery, capex discipline and FX. 7 growth implies less downgrades than usual (10 is the average). Base case upside in high single digits (c9 total return) but politics may mean market highs are more likely achieved in H2. Modestly higher yields and higher equities compatible Equities can continue to perform with rising rates the key is that inflation breakevens are not falling. However, a more aggressive bond sell-off taking Treasury yields to 3 or higher would undermine EM, the growth outlook, peripheral spreads and risky assets. Reflation rotation stretched refining our approach Rotation has been extreme ( 6SD move in Def vs Cyclicals). Argues for a moderation in returns and a more balanced approach to sector allocation. Look for another leg to cyclical trades in the New Year. Sector valuations have also moved a long way already. Cautious on domestic UK exposure Brexit still to bite The full impact of sterling weakness on the UK consumer environment is yet to be felt and Brexit negotiations are likely to drive further uncertainty and FX volatility. Structural issues add to our concerns in Retail and Travel Leisure (both underweight). O w Oil, Health, Utilities, Media; u w Food Beverage An OPEC cut and higher oil would make Oil s high DY sustainable. Healthcare is too cheap vs an improving sector growth outlook and 2017 is a key year for pipeline news. Food Beverage still seems the least attractive Defensive on valuation, positioning. We move overweight Media, a quality cyclical that has lagged and seen valuations de-rate. Employed by a non-US affiliate of MLPF S and is not registered qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 37 to 38. Analyst Certification on page 36. 11690765 Timestamp: 01 December 2016 12:00AM EST Equity Strategy Europe Ronan Carr, CFA European Equity Strategist MLI (UK) 44 20 7996 3292 ronan.carr baml.com James Barty Investment Strategist MLI (UK) 44 20 7996 3291 james.barty baml.com Tommy Ricketts European Equity Strategist MLI (UK) 44 20 7996 3294 tommy.ricketts baml.com Refining the reflation rotation 2017 is likely to have a number of cross currents as themes. Recovery (we look a modest acceleration in both growth and inflation) and Rotation go hand in hand. On the basis of our central forecasts for growth, inflation and rates and given the moves in the market already we think that the pace of the rotation has to moderate. (In-line with that we recently downgraded of banks and miners). Reversal refers to the ECB. Our economists are not yet convinced that the ECB will start to unwind loose policy 2017 but the probability is increasing. An ECB that tapers because growth and inflation are improving would be supportive for markets, notably banks. But tapering because the ability or willingness to do QE fades would likely cause a setback. Relief or Revolt relates to European politics. Will Europe follow the route to populism (revolt from the voters) or will we find relief for the markets by the end of 2017 from a Fillon Merkel duo being in charge of the Euro area s two largest economies. We think investors will demand a higher risk premium until the French Elections in May 2017 Valuation are reasonable at 14x PE but Europe is cheap on a relative basis and the valuation overhang remains evident in the region s equity risk premium, which implies 11 upside to get back to 5-year average levels. We see a return to positive EPS growth ( 7 ) in Europe for the first time since 2014, as 3.5 global GDP growth should deliver positive earnings growth (supported by Resources recovery, capex discipline and FX. 7 growth implies less downgrades than usual (10 is the average). Bond yields and equities stable higher inflation breakevens are key. Equities can continue to perform in an environment of higher rates the key is that inflation breakevens are not falling. However, a more aggressive bond sell-off taking Treasury yields to 3 or higher would undermine EM, the growth outlook and risky assets. The rotation out of bond proxies and Defensives into Financials and Cyclicals has moved to extreme levels: relative performance of Financials Cyclicals versus Defensives rose over 6SD in 10-14 months. Technical metrics are at historical extremes, arguing for a moderation in relative returns and a more balanced approach to sector allocation is justified right now. Look for another leg to cyclical trades in the New Year. Sectors have also moved a long way already from a valuation perspective. Financials are now trading around median relative valuation levels. Healthcare PE relative is at the bottom of the historical range and Utilities relative PE is also close to the prior low hit in 2013. Food Beverage still commands a large premium and PErelative is 6-10 above the 2010 2014 lows. We remain cautious on domestic UK exposure. The full impact of sterling weakness on the UK consumer environment is yet to be felt and Brexit negotiations are likely to drive further uncertainty and FX volatility in our view. Structural issues add to our concerns in Retail and Travel Leisure (both underweight). Overweight Oil, Healthcare, Utilities, Media; underweight Food Beverage. If OPEC cuts production and oil recovers up to the high 50s per barrel, Oil sector EPS and cash flows can recover significantly and make the highest DY in market (6 ) look sustainable. Healthcare we believe is too cheap relative to an improving sector growth outlook. 2017 will be an important year for newsflow on key pipeline drugs. Evidence of success can drive a re-rating independent of macro. Despite the recent sell-off, among defensives and bond proxies Food Beverage still seems the least attractive. Valuations are among the most expensive in the market and overweight positioning has not corrected materially yet. We move overweight Media, a wuality cyclical that has lagged badly and seen valuations de-rate. 2 European Equity Strategy 01 December 2016 Key charts Chart 1: Synchronised rise in leading indicators globally augurs well for earnings recovery especially if PMIs kick on to or above mid-50s 65 60 55 50 45 40 35 ISM Euro PMI manuf avg (advanced 9m) 30 MSCI Europe EPS (trailing yoy, RHS) 01 98 01 01 01 04 01 07 01 10 01 13 01 16 Source: BofA Merrill Lynch Global Research, Datastream, IBES 60 40 20 0 -20 -40 -60 Chart 2: Modestly higher yields and higher equities compatible Rising inflation breakevens the key for equities 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 Stoxx 600 4-week returns vs 4-week change in real yields inflation breakevens (since 2009) Bund real 0, b even ve Source: BofA Merrill Lynch Global Research, Bloomberg Bund real 0, b even -ve Chart 3: Cyclicals vs Defensives trade now looks very stretched 4 3 2 1 0 -1 -2 -3 -4 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13 Cyclicals vs Defensives - relative price vs 52wk average (SD) Source: BofA Merrill Lynch Global Research, Bloomberg Chart 5: Financials valuations have recovered significantly relative to the move in bond yields relative PE back around average levels 0.90 3.5 0.85 0.80 0.75 0.70 0.65 Banks Insurance PE-rel 0.60 German 10y (RHS) 01 10 01 11 01 12 01 13 01 14 01 15 01 16 Source: BofA Merrill Lynch Global Research, Datastream, IBES 3 2.5 2 1.5 1 0.5 0 -0.5 Chart 4: Likewise Financials vs Defensives: -2.5SD to 2.5SD post-Brexit 4 2 0 -2 -4 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13 Financials vs Defensives - relative price vs 52wk average (SD) Source: Re BofA Merrill Lynch Global Research, Bloomberg place this text Chart 6: Rapid relative de-rating for Staples relative PE for Food Beverage still 6-10 above 2010 2014 levels 1.70 -1 1.60 1.50 1.40 1.30 1.20 PE-relative FOOD BEV 1.10 German 10y (RHS, inverted) 01 10 01 11 01 12 01 13 01 14 01 15 01 16 Source: BofA Merrill Lynch Global Research, Datastream, IBES 0 1 2 3 4 European Equity Strategy 01 December 2016 3 Lessons from 2016 The old joke is that Year Aheads are frequently out of date by the end of year they are written in. There is a real danger of that this year given the speed which things have moved since Brexit and more recently the US election. The two charts below show that Financials and Cyclicals have clawed back around 2 3 of their underperformance vs Defensives. Of course it depends how you frame the question since we have included Utilities and Telecoms in the defensive basket. But when we downgraded Banks 10 days or so ago they had outperformed Food and Beverage by 50 since the lows of early July. Whichever way you cut it some of these moves have been extreme. Chart 7: The moves since Brexit in both Financials 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 Financials vs Defensives relative 0.45 01 10 01 11 01 12 01 13 01 14 01 15 01 16 Source: Bloomberg Chart 8: and Cyclicals relative to Defensives has been dramatic 1.45 1.35 1.25 1.15 1.05 0.95 Cyclicals vs Defensives relative 0.85 0.75 01 10 01 11 01 12 01 13 01 14 01 15 01 16 Source: Bloomberg Moreover, in 2016 we doubt that even if investors had known the results of key events that they would necessarily have got the reaction in markets right. As we joked in our Cross Asset year ahead you needed not so much a crystal ball as a time machine to have got things completely right this year. Aside from Brexit and Donald Trump winning the US election it is easy to forget that in February we were worrying about a US recession and deflation. US 5Y5Y forward breakeven inflation rates actually troughed at 1.8 at that point. Four months later we were worrying about the deflationary impact of Brexit. Now we are thinking about the reflation under a Trump Presidency. Chart 9: US 5Y5Y forward inflation troughed in February 3.3 3.1 2.9 2.7 2.5 2.3 2.1 1.9 US 5y5y fwd inflation swap 1.7 Chart 10: At the same time as Basic Resources 1.7 Stoxx Basic Resources Price Relative 1.5 1.3 1.1 0.9 0.7 0.5 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Source: Bloomberg Source: Bloomberg The panic in markets in early February actually presented a perfect buying opportunity for reflationary assets. Miners was a sector truly loathed by investors of all colours at the start of the year with many thinking that some of the big players might even go bust. If there is one key conclusion from all of this it is do not tie yourself to a view. We 4 European Equity Strategy 01 December 2016 were underweight at the start of the year too and missed the lows. We recognized we were wrong and closed our underweight and while it took us a while but we eventually managed to go overweight in September. The lesson of that is that themes are great, but when the facts change strategists and investors have to change their minds. Chart 11: Cyclicals vs Defensives: from -3.5SD to 3.2SD in 14 months 4 3 2 1 0 -1 -2 -3 -4 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13 Cyclicals vs Defensives - relative price vs 52wk average (SD) Source: BofA Merrill Lynch Global Research, Bloomberg Chart 12: Financials vs Defensives: -2.5SD to 2.5SD post Brexit 4 3 2 1 0 -1 -2 -3 -4 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13 Financials vs Defensives - relative price vs 52wk average (SD) Source: Re BofA Merrill Lynch Global Research, Bloomberg place this text In fact your best guide to this year was to buy something when it has oversold, underowned and unloved, like Miners and Emerging Markets in February, Banks in July, the Nikkei the day of the US election and sell when the opposite e.g. bonds and defensive equities shortly after Brexit. Our CTI models did actually pick up a number of those events as the table below shows. It also got picked up by our standard deviation analysis. We acted on some but not all of these readings. The lesson, with the benefit of hindsight, is to pay more attention to them. Indeed, our recent decision to downgrade both Banks and Basic Resources reflected very high readings on our models. Table 1: Reflation rotation very stretched on our CTIs post-Trump Asset 11 11 2016 10 11 2016 09 11 2016 EUR GBP -46 -44 -12 German 10y Bonds 66 61 24 US 10y Bonds 96 96 93 Stoxx Banks 80 71 0 Stoxx Basic Resources 92 93 92 Stoxx Food Beverages -84 -96 -54 Stoxx Insurance 67 64 23 Stoxx Personal Household Goods -34 -75 -7 Stoxx Utilities -92 -94 -19 Relative CTI Relative Stoxx Banks 86 87 50 Relative Stoxx Basic Resources 100 100 99 Relative Stoxx Food Beverages -93 -93 -89 Relative Stoxx Insurance 92 91 76 Relative Stoxx Media -34 -77 -87 Relative Stoxx Pers Hhold Goods -92 -94 -75 Relative Stoxx Technology -80 -74 -55 Relative Stoxx Telecom -91 -92 -28 Relative Stoxx Utilities -82 -92 -59 Source: BofA Merrill Lynch Global Research, Bloomberg Table 2: While opposite true immediately post-Brexit Asset 29 06 2016 28 06 2016 27 06 2016 Relative Stoxx Autos -95 -39 -9 Relative Stoxx Banks -80 -83 -86 Relative Stoxx Basic Resources 21 3 0 Relative Stoxx Chemicals 2 19 40 Relative Stoxx Construction Materials -10 -36 -71 Relative Stoxx Financial Services -91 -91 -92 Relative Stoxx Food Beverages 60 78 82 Relative Stoxx Healthcare 88 88 88 Relative Stoxx Industrial Goods Services -47 -35 -44 Relative Stoxx Insurance -87 -94 -94 Relative Stoxx Media -6 -13 -35 Relative Stoxx Oil Gas 93 86 91 Relative Stoxx Personal Household Goods 57 58 70 Relative Stoxx Retail -63 -81 -75 Relative Stoxx Technology 0 0 0 Relative Stoxx Telecom 3 0 -16 Relative Stoxx Travel Leisure -98 -100 -100 Relative Stoxx Utilities 65 6 2 Source: BofA Merrill Lynch Global Research, Bloomberg We think 2017 is another year where investors will need to be nimble. Markets have responded enthusiastically to a prospective Trump Presidency but as the above charts suggest we may well have discounted much of it. That is also supported by our fixed income and FX forecasts, which suggest much has already been priced in. In addition we have political risk starting with next weekend s Italian referendum stretching to the German elections in Autumn 2017. In the middle we have the crucial French elections. A European Equity Strategy 01 December 2016 5 Marine Le Pen victory could bring into question both the future of the EU and also the euro, should the polls be close it could make the uncertainty and market moves around Brexit look like a walk in the park. 2017 Reflation, Reversal, Rotation, Relief or Revolt? 2017 is likely to have a number of cross currents as themes. Recovery and Rotation go hand in hand. The stronger the recovery the more yields can rise the more we can see the rotation extend. Should investors become concerned that the recovery is stalling or that yields are peaking the rotation would likely stall potentially even reverse. Reversal refers to the ECB. Our economists are not yet convinced that the ECB will start to unravel some of its easing measures in 2017 but they do expect the debate to be a vigorous one within the ECB. For the first time Gilles Moec thinks there is a chance that the ECB will indeed choose to taper. Relief or Revolt relates to the French election. Will Europe follow the UK and US lead of 2016 and go down the route of populism (revolt from the voters) or will we find relief for the markets if by the end of 2017 from a Fillon Merkel duo being in charge of the two largest economies in the Euro Area. Recovery the world looks a better place going into 2017 Reflation has been the big theme of the second half of the year. As we had noted in previous publications there had been something of an improvement in the global growth picture emerging even before the US election. It started with Emerging Market growth, which our GEMScycle has been showing to be accelerating for some months, but seems to have spread to other parts of the developing world. US GDP for Q3 has just printed a revised 3.2 , with a number of indicators, such as ISM s, PMI s and consumer confidence pointing to a solid Q4 to follow. That quarter is currently tracking at 3.6 according to the Atlanta Fed. Chart 13: Eurozone PMI s have picked up of late 60.0 55.0 50.0 45.0 40.0 EA Services PMI EA Manufacturing PMI Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Source: Markit Chart 14: US Consumer Confidence now at post-GFC highs 120 100 80 60 40 20 Source: Bloomberg US Consumer Confidence Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 The Euro Area too is showing signs of improvement with the latest manufacturing PMIs back to their best since early 2014 with other national surveys, such as Ifo pointing in the same direction. The composite PMI is back close to the year highs too. The UK numbers continue to surprise on the upside too for the moment. Our economists are also upbeat on Japan with growth expected to accelerate next year as the fiscal stimulus kicks in. Accordingly our economists expect growth to rise from 3 this year to 3.5 in 2017 and 3.8 in 2018. That acceleration in growth is despite a slightly slower US economy in the first half of the year as a higher USD and interest rates dampen growth before the fiscal stimulus kicks in. With growth firming and oil prices expected to be higher inflation is also expected to pick up through 2017 and 2018 to 2.8 and 3 respectively. At this stage it is worth noting that this is a modest acceleration in both growth and inflation. 6 European Equity Strategy 01 December 2016 The Fed is accordingly expected to proceed cautiously at least initially. In part for that reason our fixed income and FX strategists have only a modest further increase in bond yields and the USD in their forecasts for next year. They project 10Y US Treasuries rising to 2.65 and the USD to 1.02 vs the EUR. The dollar is expected to strengthen more aggressively against both the GBP and the JPY, but even so the gain in the currency overall has been frontloaded into 2016. Our economists and strategists are cautious partly because the fiscal stimulus is expected to have only a modest impact on growth, at around 0.5 of GDP. That is based on the assumption that some of the proposals will get watered down and that the tax cuts have a relatively low fiscal multiplier. Our US economists think that should the fiscal stimulus be larger and more effective (for which read more infrastructure) then US growth could surprise on the upside to around 3 in 2017 and 3.5 in 2018. That in turn would mean a more aggressive Fed and in all likelihood a bigger rise in yields and the USD. Chart 15: BofAML sees GDP accelerating into 2018 Global GDP growth DM GDP growth EM GDP growth 4.7 5.1 3.2 4.1 3.1 4.1 3.5 3.8 2.1 1.5 1.7 1.9 Chart 16: with inflation picking up too Global CPI inflation DM CPI inflation EM CPI inflation 4.2 3.6 3.6 3.8 2.5 2.4 2.8 3 1.7 1.8 0.7 0.3 2015 2016F 2017F 2018F Source: BofA Merrill Lynch Global Research 2015 2016F 2017F 2018F Source: BofA Merrill Lynch Global Research Reversal: There is good taper and bad taper The outcome of that would likely affect ECB behaviour too. Our central expectation is for Euro Area growth of around 1 and inflation nudging only modestly higher. A much more robust global economy and a stronger USD (presumably weaker EUR) would likely put upward pressure on both of those. Indeed, in such an environment it is not impossible to think of 10Y Treasuries pushing through 3 and the USD breaking parity against the EUR. That in turn would increase the pressure on the ECB to start to reverse its very loose monetary policy stance. Tapering would then become much more likely. It would likely push European bond yields higher too, certainly above the 65bp forecast for Bund yields at the end of 2017. An ECB that tapers because growth and inflation are improving would not be a bad thing for markets. Frankly for some parts of the market, notably banks, anything which gets the ECB away from its current policy stance back towards normality is a positive. Indeed, the prospect of negative interest rates being reversed is the kind of thing which Alastair Ryan (our banks strategist) lies awake at night dreaming of ( see European Banks Strategy: repressed). But and it is a big but, if the ECB chooses to taper because it is running out of options or the ability to do QE that is not a good thing. Some of the hawks on the ECB would choose to taper at the first opportunity because they never really liked the idea of QE in the first place. A tapering at next week s meeting even if it is couched in terms of doing less for longer would not be good news for equity markets. European Equity Strategy 01 December 2016 7 Rotation more to go but it has to be more gradual On the basis of our central forecasts for growth, inflation and rates and given the moves in the market already we think that the pace of the rotation has to moderate. After all if we are to see another 30-40 bp of yield increase in the US between now and H2 2017 having already seen more than 90bp since the summer, it has to slow. That view combined with the readings from our models lay behind our recent downgrades of banks and miners. That is not to say that the rotation is finished. If bond yields truly have turned than some of the more expensive defensives likely have to derate further. The bull market in those stocks has simply lasted too long for that not to be the case. In addition while there have been significant moves in positioning in terms of cutting underweights in areas like Banks and Basic Resources and hedge fund positioning has probably moved faster still, we do not believe that positioning has completely turned around. Looking at both the Fund Manager Survey and our own internal data we think there are still legacy underweights in cyclical areas and legacy overweights in defensives, particularly quality defensives. That argues for another leg in the rotation trade. Nevertheless, it suggests to us that a more balanced approach is justified right now. We are still overweight oil, but little else in the cyclical space, so today we add Media. We are still underweight Food Beverage but against that we are overweight Healthcare and Utilities. Relief or revolt Eurozone politics in focus in 2017 We think it likely investors will demand a higher risk premium until the French Elections in May 2017 given the likelihood that Marine Le Pen will make to the second round of voting (according to polls). A Le Pen victory could likely bring the future of the EU and the Euro into question as she has talked about France withdrawing from both. That in turn has arguably the potential to be even more of an earthquake for the world s financial markets. Our central case is that centre right President is elected in France (with Francois Fillon now the official Republican candidate) and Merkel is returned at the head of a coalition government in Germany now that she has indicated she will stand for re-election. Until the French vote though we suspect investors will be cautious about European markets. Were this to be the case then we think there may well be room for a significant relief rally in European assets. We have more on this, including a calendar, in our section on Eurozone politics. Decent valuations but not compelling Headline PE multiples do not screen as particularly cheap for European equities but are also not excessively expensive. In fact the current forward PE on MSCI Europe at 14.1x is right in-line with the average since 1987. The most recent high in PE multiples was over 16.5x at the April 2015 market highs. However, more recently the market has traded in a fairly tight range around 14-15.5x PE, with some fleeting falls to 13x around the market lows in February 2016 and at the time of the Brexit referendum. At the current multiple we see valuations as quite reasonable therefore. Our index target assumes some multiple expansion back to 15x, which we think is quite achievable under our base case assumptions. 8 European Equity Strategy 01 December 2016 Chart 17: MSCI Europe forward PE in-line with 30-year average at 14.1x 30 MSCI Europe PE 12m fwd 25 20 15 10 5 12 87 12 91 12 95 12 99 12 03 12 07 12 11 12 15 Source: BofA Merrill Lynch Global Research, Datastream, IBES Chart 18: but at lower end of 13-15.5x PE range of last 15 months 17.0 16.0 15.0 14.0 13.0 MSCI Europe PE 12m fwd 12.0 01 14 07 14 01 15 07 15 01 16 07 16 Source: BofA Merrill Lynch Global Research, Datastream, IBES Relative attractiveness of Europe depends on EPS recovery in medium-term. Moving to relative valuations, European equities screen somewhat cheap vs their DM peers. However, the medium-term bull case for Europe is far more a function of potential earnings and ROE recovery rather than significant undervaluation. Europe s valuation discount to the US is at multi decade wides on PBV (over 40 ) but that in turn reflects Europe s significant underperformance on EPS growth and ROE. Trailing ROE for MSCI Europe is just 8 (at historical trough levels). That is nearly 5pp below MSCI USA compared to a 3pp gap on average historically and close to the widest spreads since the mid-1990s. Europe vs US relative PE 7 below average. Based on PE, Europe nevertheless trades cheap relative to the US. The PE discount at 18 is 7 wider than the 20 year average and relative PE is at the lowest level since 2012. So while a sustained reversal in the underperformance of Europe versus the US would over time have to be driven by a recovery in relative profitability we do see current valuations reflecting a discount perhaps for political reasons (Brexit, upcoming elections). Chart 19: Europe vs US: modest PE discount but cheap on rel. PBV 1.10 Relative PBV (MSCI) 1.00 Relative PE (12m fwd, IBES) 0.90 0.80 0.70 0.60 0.50 06 96 06 99 06 02 06 05 06 08 06 11 06 14 Source: BofA Merrill Lynch Global Research, Datastream, MSCI, IBES Chart 20: European earnings and profitability significantly lag the US 20 18 16 14 12 10 8 MSCI USA - trailing ROE MSCI Europe - trailing ROE 6 06 96 06 99 06 02 06 05 06 08 06 11 06 14 Source: BofA Merrill Lynch Global Research, Datastream, MSCI The other metric that illustrates the valuation overhang in Europe is the risk premium. Our model calculates an implied cost of equity (CoE) for Europe as 6.8 , a little below the average since 1988 (7.2 ) and last 10 years (8.4 ). The model assumes the cost of equity is simply the cyclically adjusted earnings yield (calculated using a 5 year centred average EPS). We then compare this number to the German bund yield to estimate the implied equity risk premium (ERP). European Equity Strategy 01 December 2016 9 Europe s ERP on our model is 6.9 down from the post-Brexit highs at 7.5 but still at a 70bp premium to the 3 and 5 year average for the ERP. That in turn implies a 11 valuation haircut relative to 5-year average levels. These numbers also show that the recent rise in bond yields is modest relative to where cost of equity or ERP sits. We're quite far away from the level that bond yields would make ERP look expensive. Even with bund yields at 75bp (ie 50bp from here) it would only shift the ERP back to average levels (all else equal). Bond yields need to rise 150- 200bp to get to the expensive end of the range of last 6 years on ERP. Chart 21: Implied cost of equity (CoE) on our model in Europe is 6.9 , a little below the average since 1988 (7.2 ) and last 10 years (8.4 ). 16 14 12 10 8 Chart 22: Implied equity risk premium remains elevated: 6.7 ERP to bund yields vs 10-year average of 6.2 and recent high of 7.3 . 12 10 8 6 6 4 2 Implied cost of equity ( ) 4 2 Equity Risk Premium (vs 10y Bund) 0 01 88 01 91 01 94 01 97 01 00 01 03 01 06 01 09 01 12 01 15 Source: BofA Merrill Lynch Global Research, Datastream, MSCI, IBES 0 10 06 09 08 08 10 08 12 07 14 06 16 Source: BofA Merrill Lynch Global Research, Datastream, MSCI, IBES Europe cost of equity higher than long-run average compared to US. Europe also compares favourably on a relative basis against the US equity market in this framework. The implied CoE for the S P500 on an equivalent model is 5.64 , which is now at an 11-year low and 130bp below the 10-year average. The implied ERP on that basis at 3.3 is also below average and not far off the lows from the past 10 years. Admittedly Europe did get significantly cheaper relative to the US during the GFC and the sovereign debt crisis. The cost of equity premium for MSCI Europe vs the S P is 1.21 . That is a premium to the 30-year average of 0.72 . However it is below the average of the past 10 years the spread peaked at over 4 in 2008 and at 2.7 in 2011 2012. Chart 23: Implied equity risk premium near 9-year lows in the US 9 8 7 6 5 4 3 2 S P Equity Risk Premium (vs 10y UST) 1 0 10 06 09 08 08 10 08 12 07 14 06 16 Source: BofA Merrill Lynch Global Research, Datastream, MSCI, IBES Chart 24: Europe vs US implied cost of equity spread 5 Cost of equity spread Europe vs S P 4 3 2 1 0 -1 -2 01 90 01 93 01 96 01 99 01 02 01 05 01 08 01 11 01 14 Source: BofA Merrill Lynch Global Research, Datastream, MSCI, IBES 10 European Equity Strategy 01 December 2016 Earnings a return to positive EPS growth in 2017 7 EPS growth in 2017 as global growth improves and Resources EPS recovers We think the earnings backdrop will be supportive in 2017 with a return to positive EPS growth in Europe for the first time since 2014 and with downside to consensus forecasts for the year ahead that are well below average. Our base case assumes 7 EPS growth in 2017 and 2018. With EPS broadly stagnant over the last 6 years, investors might justifiably ask what is different this time. We see several reasons to think mid to high single digit EPS growth is achievable next year. Chart 25: Earnings revisions are currently modestly positive 20 10 0 -10 -20 -30 -40 12 00 12 03 12 06 12 09 12 12 12 15 Stoxx 600 EPS revisions ratio (4 wk avg) 13-week average Source: BofA Merrill Lynch Global Research, Datastream, IBES Chart 26: Broad based recovery in global growth (based on 29 PMIs) 100 90 80 70 60 50 40 30 PMIs 50 of PMIs increasing (last 3m) 20 11 13 03 14 07 14 11 14 03 15 07 15 11 15 03 16 07 16 Source: BofA Merrill Lynch Global Research, Markit, Bloomberg Return to positive EPS growth feasible with global GDP at 3.5 ... First, global growth is accelerating and on our economists base case forecasts global GDP growth will be 3.5 , the first materially above trend growth year since 2010. That is significant for European earnings given a reasonably tight relationship to global GDP growth. 3 represents the tipping point around which earnings growth tends to turn positive according to our regression model. At the BofAML forecast of 3.5 global GDP growth, 7 EPS growth is implied as likely by the same model. as leading indicators point to a synchronized global recovery. What gives us confidence in this putative earnings recovery is the more synchronized nature of the current recovery. All major regions of the world are showing momentum in growth indicators for the first time in several years. One measure of the broad nature of the improvement is manufacturing PMI surveys. Of 29 Markit PMIs 83 are currently above 50, highest since August 2014. More importantly, 79 have improved over the last 3 months higher than at any point in the last three years. Bull case of global GDP towards 4 would signal double digit EPS growth. To see a more bullish outcome for EPS we would need to see global GDP accelerating further. Based on our regression model, double digit EPS growth historically was consistent with global GDP growth above 3.8 . Under our bull case scenario for 2017, with say 4.0 global GDP growth, consensus EPS growth forecasts for 14 in Europe would become realistic. PMIs beyond 55 would suggest upside to base case. Significant further gains in leading indicators would be a signal that earnings growth could exceed our base case. Over the longer term EPS growth has followed manufacturing PMI surveys with a 9- month lag approximately (using an average of US and Eurozone). Historically readings above 55 were consistent with mid-teens EPS growth. The relationship has weakened in recent years as low interest rates and weaker commodity prices weighed on earnings in Financials and Resources. Nevertheless, in the last year of decent EPS growth in Europe in 2014 the PMIs peaked at 54 so we would look for upside to our base case EPS forecast should PMIs improve to the mid-50s level or beyond. European Equity Strategy 01 December 2016 11 Chart 27: 3 Global GDP growth the tipping point for EPS Europe trailing EPS growth vs World GDP 50 7 40 6 30 20 5 10 4 0 3 -10 2 -20 -30 1 -40 0 -50 -1 Q496 Q499 Q402 Q405 Q408 Q411 Q414 Q417 MSCI Europe 12m trail EPS (IBES) World GDP (right) Source: BofA Merrill Lynch Global Research, Datastream, IBES Chart 28: Synchronised rise in leading indicators globally augurs well for earnings recovery especially if PMIs kick on to or above mid-50s 65 60 55 50 45 40 35 30 01 98 01 01 01 04 01 07 01 10 01 13 01 16 ISM Euro PMI manuf avg (advanced 9m) MSCI Europe EPS (trailing yoy, RHS) Source: BofA Merrill Lynch Global Research, Datastream, IBES 60 40 20 0 -20 -40 -60 Removal of the 3pp p.a. drag from Resources supports EPS outlook. Second, the Resources sectors in 2017 will likely provide a (strongly) positive contribution to market EPS, in turn reversing what has been the biggest headwind for several years. Over the last 3-5 years the Resources sectors provided a 2.5 percentage point drag on annualized market EPS growth. In 2016 Banks have been the other big drag on market earnings. While structural headwinds to profitability mean the contribution of Banks remains open to debate, consensus forecasts nevertheless imply a strong recovery in 2017 (driven in part by one-offs reversing). The important point is that the market ex-Banks and Resources has delivered modest but positive EPS growth estimated at 5.5 for 2016. Hence, removing the drag from Oil and Mining makes high single digit growth achievable in our view. Chart 29: Resources a 2.5pp drag on market EPS growth in recent years Annualized EPS growth 4 3 2 1 0 3yr 5yr 10yr Chart 30: Capex discipline supportive to margin outlook Europe Ex-Financials: EBIT margins vs capex depreciation 14 12 10 8 6 100 120 140 160 -1 -2 Stoxx 600 Market Ex-Resources Market Ex-Banks Resources Source: BofA Merrill Lynch Global Research, Datastream, IBES 4 1990 1994 1998 2002 2006 2010 2014 2018 EBIT sales (LS, ) Forecast EBIT sales (LS, ) Capex depreciation - 2yma pushed 2y fwd (RS, ) Source: BofA Merrill Lynch Global Research, Factset 180 Margin upside, capex discipline and FX tailwind provide additional support. Third, profit margins in Europe are not elevated: in the bottom third of the historical range (since 2004) at the EBITDA level and about average at the net level. With some acceleration in the top-line as global growth and inflation pick up, there is scope for margins to improve. In addition, several years of relative capex discipline provide potential support for margin improvement over the next 1-2 years in corporate Europe. Over the longer term, we find that operating margins have tended to improve with a lag of one to two years, following a period of declining capex ratios. That is encouraging for 12 European Equity Strategy 01 December 2016 the margin outlook into 2017-18, given Capex to depreciation for the Market Ex- Financials in 2015 hit its lowest level since 2003 and had been declining for 3-years. Finally, we note that FX may provide a modest tailwind to European EPS again in 2017. Our FX team s forecasts trough at 1.02 in mid-2017, implying a rate of depreciation for the euro that peaks at 10 . Chart 31: Stronger dollar would be a tailwind for EPS YoY change in actual and implied by BofAML FX forecasts 30 20 10 0 -10 -20 3m avg YoY -30 3m YoY (at BAML forecast) 01 01 01 03 01 05 01 07 01 09 01 11 01 13 01 15 01 17 Source: BofA Merrill Lynch Global Research, Datastream Chart 32: Change in consensus EPS ( ) vs annual market returns: downgrades are the norm and average -10 30 20 10 0 -10 -20 -30 -40 -50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 EPS change Dec pre to March post Source: BofA Merrill Lynch Global Research, Datastream, IBES Cal year return Consensus downgrades in our base case but less than average Our base case 7 EPS growth assumption is below the current bottom up consensus of 14 . Hence, for now we don t see the prospect of a sustained upgrade cycle. Consensus downgrades are the norm however. 2010 was the last year that consensus forecasts started the year too low. In fact, consensus was too high in 12 of the last 17 years. Moreover, our estimate of 7 EPS growth in 2017 implies less downgrades than usual (10 is the average). It s also worth noting that over the past 17 years annual consensus downgrades of less than 10 have never been accompanied by negative equity returns for the same calendar year. Sector EPS growth prospects Correlation analysis of sector earnings growth against global GDP suggests that Banks are the sector that may be most sensitive to improvements in global economy. Interest rate developments are likely the key to earnings but they in turn should reflect the nominal growth environment. Real economic growth would also have some effect on credit volumes and collateral valuations though, reinforcing the link from the economy to Bank earnings. Cyclicals unsurprisingly dominate the other sectors with EPS growth geared to global growth. Basic Resources, Chemicals, Tech and Industrials all exhibit a correlation above 70 . Some other cyclicals including Autos and Construction have been had much less correlated EPS growth to global GDP in recent years. In part that reflects that significant earnings volatility in the period analysed. What s notable for both groups is that expectations already look high for both sectors. Consensus estimates also factor in a rebound in Resources sector EPS growth but both these sectors have seen the largest earnings declines over the past five years. Forecasts look more restrained in Industrials, Chemicals, Tech implying mid to high single digit growth in the coming three years. Among Defensives expectations look highest in Telecoms suggesting 10 average EPS growth in 2016-18 despite the weak trend rate for sector earnings in recent years. Consensus forecasts imply a more modest improvement for Utilities with just 1 EPS CAGR for 2016-18. Staples and Healthcare are forecast to have high single digit EPS growth in the coming 3 years, implying 2-3pp improvements in the annual growth rate relative the trailing 5-year average for Staples and 6pp for Healthcare. European Equity Strategy 01 December 2016 13 Chart 33: Correlation of sector EPS to global GDP since 2010 BANKS BASIC RESOURCE REALSTATE CHEMICALS RETAIL TECHNOLOGY INDS GDS SVS HEALTH CARE PERS H H GDS TELECOM FOOD BEV OIL GAS TRAVEL LEIS INSURANCE MEDIA AUTO PARTS FINANCIAL SVS CON MAT UTILITIES -20 0 20 40 60 80 100 Source: BofA Merrill Lynch Global Research, Datastream, IBES Chart 34: Trailing vs forward EPS CAGR ranked by difference Basic Resources Oil Gas Telecom Construction Materials Retail Auto Parts Stoxx 600 Banks Media Utilities Industrial Goods Sevices HealthCare Chemicals Real estate Food Bev Technology Personal Household goods Insurance Financial Services Travel Leisure 5yr Trailing CAGR 3yr Fwd CAGR Source: BofA Merrill Lynch Global Research, Datastream, IBES -30 -20 -10 0 10 20 Earnings revisions trends. Basic Resources show strongest revisions trends and revisions are still improving relative to trend, in light of the strong upside recently for many metals prices. Autos revisions are next strongest and also show some positive momentum. More broadly most sectors are not showing an improvement in the trend on earnings revisions. Revisions are weakest in Tech having deteriorated more than other sectors over the past six weeks. The improvement in Financials revisions continues and Banks and Financial Services are now in positive territory. Chart 35: 3-month average EPS revisions ratios (ERR) by sector 12 10 Trend (3m avg) EPS revisions 8 6 4 2 0 -2 -4 -6 Tech HealthCare Food Bev Telcos Travel Leis Insurance Chemicals Media Industrials Stoxx 600 Oils Banks Construction Real Estate Prs HH Gds FinServ Retail Utility Autos Basics Source: BofA Merrill Lynch Global Research, Datastream, IBES Chart 36: Revisions improving in most sectors (ERR 6wk avg vs 3m avg) 4 Momentum: last 6 weeks vs 3-month 3 average EPS revision ratio ( ) 2 1 0 -1 -2 -3 -4 Tech Media HealthCare Industrials Construction Stoxx 600 Insurance Oils Real Estate Travel Leis Retail Utility Food Bev Chemicals Banks FinServ Telcos Prs HH Gds Autos Basics Source: BofA Merrill Lynch Global Research, Datastream, IBES 14 European Equity Strategy 01 December 2016 Eurozone political calendar 2017 4 December: Italian constitutional referendum Our base case is a close No vote where Renzi stays and no snap election, given current polls and the outstanding electoral reform court case. BTPs and the banks recaps remain a tail risks for the Italian economy, although the ECB extending QE should help. A big No vote would boost Five Star and undermine Renzi into 2018 elections, in our view. 4 December: Austrian presidential election Polls by public broadcaster ORF show the result as very close. Norbert Hofer is standing on an anti-immigrant platform against the moderate former Green leader Alexander Van der Bellen in a rerun of the May vote. The election of Freedom party candidate Norbert Hofer would make Austria the first nation to elect a head of state running on a far right platform since the EU began. 22 29 Jan: French Socialist Party presidential nominee elections If President Fran ois Hollande decides to run for re-election as the Socialist Party candidate (decision expected Dec 10th) he could be challenged by former Prime Minister Manuel Valls and Economy Minister Arnaud Montebourg. Current second round polls for any combination of these candidates suggest likely Socialist nominee too close to call. 15 March 2017: Dutch elections Prime Minister Mark Rutte currently leads a purple coalition with the Dutch Labour party as main second party. But the latest polls suggest both parties could win fewer seats than they have now in 2017. That could make it more challenging to build a government given the need to secure at least 76 150 seats. In terms of who could lead that coalition, polls have Rutte s People s Party neck and neck with the antiimmigrant Freedom party led by populist Geert Wilders. Wilders has called for the Netherlands to leave the EU indicated he would call a referendum if elected. A Wilder-Rutte coalition also hasn t been ruled out according to press reports. 23 April: French first round presidential elections The first round of voting for the next French president will be on 23 April. First round polling suggests the leader of the anti-EU Front National Marine Le Pen is expected to progress to the decisive runoff. At present Republican Candidate Francois Fillon is also expected to make it through. 7 May 2017: French second round presidential elections Current polls, albeit their validity has been called into question by events in 2016, show Fillon securing 65-70 of the vote vs Le Pen in a runoff (see chart below). We note that when her father, Jean-Marie Le Pen, faced Jacques Chirac in the 2002 Presidential elections the FN candidate only received 18 of the vote. Nevertheless, we see a potential Le Pen win as the biggest political risk event for European (and possibly global) equity markets in 2017. By 22 October 2017: German Federal elections Current Chancellor Angela Merkel has announced that she intends to stand for reelection. Current polls have Merkel s CDU ahead followed by SDP with the eurosceptic Alternative f r Deutschland, Greens and Die Linke competing for third spot. While it may be necessary for Merkel to maintain the grand coalition with the SDP, our central case is that we see a continuation of the current German administration and that German elections carry less risk than the earlier French presidential elections. European Equity Strategy 01 December 2016 15 Politics populism in the Eurozone? Few predicted that the UK would vote to leave the EU and Donald Trump would win the US presidential election in 2016, least of all pollsters (and many in markets). As Michael Hartnett argues, the rise of populism can be linked to what he refers to as Peak Inequality and Peak Globalisation. Trump and the Brexit campaign tapped into deep apathy with the socio-economic order that for them remains unreformed post-GFC. That s why the poster boy for this dislocation is often the blue collar voter whose standards of living have not been rising in the increasingly globalised world. The crucial question for investors as we enter a busy year for European politics (see table opposite) is whether the populism train will gather pace or terminate at the Eurozone. Italy risks elevated, but risks two way and banks the bigger issue Although Italy goes to the polls this year, it is worthwhile starting with this Sunday s vote. In Strategy Insights: Italy risks elevated we argue that our base case is a narrow rejection of the proposed constitutional reform, which is another vote against governing party on Dec 4. But unlike UK US, this would be expected and Renzi is likely to stay on so the outcome should not carry the same surprise or uncertainty factor for markets. The tail risk are also two way. A large No vote could perceived as supportive of the 5 star movement but a Yes vote would be bullish Italy and risk assets more generally. The bigger issue is likely recapitalisation of the Italian banks. This remains a significant tail risk for banks and was part of why we downgraded the sector. A Le Pen victory could prove the biggest risk to European markets in 2017 Probably the most natural fit for the populism theme in 2017 is the French presidential election. Although polls have been somewhat discredited by events this year they remain useful as an indication of where the public mood lies. With that caveat in mind, current voting intentions suggests Front National leader Marine Le Pen will receive enough votes to progress to the second round and is likely to be joined by Republican candidate Francois Fillon. Although when Fillon and Le Pen are polled together in a second round runoff Fillon is ahead by 65 -35 , Le Pen is seen as capable of appealing to the same anti-establishment blue collar voters as Trump Brexit. Chart 37: Vol already picking up around the French primaries next year 26 25.5 25 24.5 24 23.5 23 22.5 22 VSTOXX 11 29 2016 VSTOXX -1m 21.5 21 Source: Bloomberg Chart 38: Yet Fillon still well ahead of Le Pen in polls of a potential runoff 100 90 80 70 60 50 40 30 20 10 0 12-14 April 15-17 April 13-16 May 10-12 June 14-17 June 9-11 Sept Francois Fillon ( ) Marine Le Pen ( ) 25-Nov 27-Nov Source: Ifop (12-14 Apr, 14-17 Jun), BVA (15-17 Apr, 13-16 Mar, 10-12 Jun, 9-11 Sept), Odoxa (25 Nov), Harris Interactive (27 Nov). Note: all 2016. Investors biggest concerns are that we could see the same narrowing of polls in favour of Le Pen into the election months as we saw in the UK US. We think this could mean French political risk becomes a major overhang for European equities in H1 2017. The worry is that a Le Pen Presidency could bring the future of the EU and the Euro into question as she has talked about France withdrawing from both and is especially an issue because of the winner takes it all nature of French presidential elections. As James 16 European Equity Strategy 01 December 2016 Barty argued in The Trump Inflection, Le Pen s victory has the potential to be even more of an earthquake for the world s financial markets. Indeed, we have already seen a 1vol move in April 2017 V2X futures since last month. So our central case is French political risk caps markets to the upside for Q1 and most of Q2 but that the centre right candidate Fillon is elected President. As Gilles Moec argues, his pro-market reformist agenda could unlock French growth and we think it could prove a significant positive catalyst for European equities more broadly if the political risk premium is priced out against a solid European and global growth backdrop. More of the same expected in Germany We think Germany carries less political risk than the French election now that Merkel has formally announced she will run again to be Chancellor. As a result, our central case is that Merkel will continue to head a coalition government. We could see the populist AfD win more votes than in 2012, but polls show a clear and decisive margin in favour of the CDU and the existing coalition with the SDP suggests that an extension of their partnership is the most likely eventuality. Chart 39: German polls show a consistent lead for Merkel s CDU party 40 35 30 25 20 15 10 5 0 CDU SPD AfD September 2, 2016 September 5, 2016 September 7, 2016 September 9, 2016 September 12, 2016 September 14, 2016 September 14, 2016 September 15, 2016 September 16, 2016 September 19, 2016 September 21, 2016 September 21, 2016 September 22, 2016 September 23, 2016 September 26, 2016 September 28, 2016 September 30, 2016 October 3, 2016 October 5, 2016 October 5, 2016 October 7, 2016 October 10, 2016 October 10, 2016 October 12, 2016 October 12, 2016 October 13, 2016 October 13, 2016 October 14, 2016 October 17, 2016 October 19, 2016 October 19, 2016 October 21, 2016 October 24, 2016 October 26, 2016 October 27, 2016 October 28, 2016 November 12, 2016 November 2, 2016 November 2, 2016 November 2, 2016 November 4, 2016 November 7, 2016 November 9, 2016 November 10, 2016 November 14, 2016 November 19, 2016 November 22, 2016 Source: Allensbach (15-Sept, 13-Oct), Emnid (7-Sept, 14-Sept, 21-Sept, 28-Sept, 5-Oct, 12-Oct, 19-Oct, 26-Oct, 2-Nov, 9-Nov, 19-Nov), Forsa (2-Sept, 9-Sept, 16-Sept, 23-Sept, 30-Sept, 7-Oct, 14-Oct, 21-Oct, 28-Oct, 4-Nov), Forschungsgruppe Wahlen (22-Sept, 13-Oct, 27-Oct, 10- Nov), GMS (14-Sept, 12-Oct, 12-Nov), Infratest dimap (21-Sept, 5-Oct, 19-Oct, 2-Nov), INSA (5-Sept, 12-Sept, 19-Sept, 26-Sept, 3-Oct, 10- Oct, 17-Oct, 24-Oct, 2-Nov, 7-Nov, 14-Nov, 22-Nov), Ipsos (10-Oct) Brexit was the big political topic for Europe going into 2016. Going forward we see it as an ongoing issue but mostly for the UK (see UK Waiting for Brexit for more details). Rising bond yields equities With the market focus on the sharp bond market sell-off it is worth re-visiting the links between equities and bonds as many investors question whether the effect on equities will become negative the more yields rise. An environment of rising bond yields is not inherently problematic. Over time correlations between bond yields and equities have varied and on average have been very weak (if slightly positive) over the last twenty years. Typically when rising yields reflect improving growth conditions and or rising risk appetite equities have naturally benefitted. Certainly since 2010 for the most part higher yields were accompanied by higher equity prices. Track record mixed for stocks following bond yield spike. Does an exceptionally sharp back up in bond yields represent a downside risk for equities? The historical evidence is inconclusive. We looked at equity market returns in the months following 2.5SD moves in German bond yields (based on a comparison of rolling 3-month yield changes to the 52-week average). The recent spike in German yields peaked at 2.9SD on the same basis. We found 11 comparable episodes since 1980. Equity market returns subsequent to the peak rate of change in bunds were moderately positive a median European Equity Strategy 01 December 2016 17 1.0 after 3 months and 3.7 after 6 months. Subsequent returns were positive in six of the eleven episodes and negative in the other five. Those stats are a little worse than the comparable numbers for the full sample but don t indicate that a bond yield spike is definitively negative for equities. Chart 40: Rolling 3-month change in bond yields and equities 100 20 15 50 10 0 5 0 -50 -5 -10 -100 -15 -150 -20 01 10 01 12 01 14 01 16 German 10Y 3m chg (LHS, bp) MSCI Europe 3m chg Table 3: Track record mixed for stocks following bond yield spike Subsequent equity market returns following spike in bond yields (3m change 2.5SD) 3m change in bund yields hits peaks 2.5SD Next 3m Next 6m Prior 3m 10 06 1983 08 03 1985 4.4 5.3 9.2 10.2 7.9 11.1 02 03 1990 5.9 -6.9 -0.4 25 03 1994 15 03 1996 -7.5 4.7 -4.7 7.0 -3.4 4.9 09 07 1999 -3.6 9.8 3.7 22 08 2003 15 06 2007 1.0 -7.1 10.4 -6.1 12.1 11.1 13 06 2008 -8.1 -32.1 1.6 26 11 2010 08 05 2015 6.0 -1.2 3.7 -5.6 7.2 5.9 Median return 1.0 3.7 5.9 positive 55 55 82 Source: BofA Merrill Lynch Global Research, Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg It matters why yields are rising higher inflation breakevens key for stocks. Digging a little deeper shows that the underlying dynamics in the bond market matter. Essentially rising inflation breakevens is the key driver for equities. Even when real yields are rising it is the change in implied inflation that has correlated most strongly with equity returns in recent years. Looking at 4-week rolling returns since 2009, in the periods that real yields rose Stoxx 600 returns were a median 1.7 if breakevens were also higher at the same time. In contrast a combination of higher real yields and lower inflation breakevens led to a median -0.7 return. Chart 41: Inflation breakevens on the rise in recent bond market move 2.5 2.0 Chart 42: Rising inflation breakevens the key for equities 2.0 Stoxx 600 4-week returns vs 4-week change in real yields inflation breakevens (since 2009) 1.5 1.0 0.5 0.0 -0.5 -1.0 German inflation linked 10y -1.5 German 10y breakeven 01 10 01 11 01 12 01 13 01 14 01 15 01 16 Source: BofA Merrill Lynch Global Research, Bloomberg 1.5 1.0 0.5 0.0 -0.5 -1.0 Bund real 0, b even ve Source: BofA Merrill Lynch Global Research, Bloomberg Bund real 0, b even -ve 18 European Equity Strategy 01 December 2016 What then is the prospect for inflation expectations from here? Breakevens have moved significantly already in the context of the Euro area inflation outlook. 5-year, 5-year forward inflation swaps have recovered all the ground they lost earlier in 2016 in Europe and are back to end 2014 levels in the US. At 1.6 in Europe and 2.44 in US there is arguably more limited upside. A return to the range for inflation expectations that prevailed in 2013 14 before the oil price collapse would imply another 30-50bp from here. However, at least in the case of Europe our economists see the outlook for inflation remaining very subdued. Overall we would conclude that equities can see upside from here if bond yields rise towards our fixed income team s targets as long as inflation expectations are stable to rising at the same time. Rising bond yields pushing Italian spreads wider a risk for equities. Although rising core rates are not necessarily problematic for stocks, an important caveat is the fall out in other parts of the bond markets particularly in the periphery. The equity market in Europe is sensitive to rising Italian bond spreads exhibiting a negative correlation in recent years. This is an important risk at the current juncture given the upcoming referendum in Italy and ECB decision on QE extension. Should Italian bond spreads widen significantly from here it would likely weigh on equity valuations, keeping the risk premium high in Europe and in turn offset or outweigh the benefit from rising nominal growth expectations globally. This is perhaps the biggest potential problem for equities in the scenario that bond yields rise further from here. The ECB decision on QE extension is an important risk event in that context. As our economists have discussed in a recent note the risks of an ECB delay in the short term are increasing but their base case remains a QE extension with some tweaks of the capital key a relatively benign outcome for peripheral sovereigns. Chart 43: Inflation breakevens room to normalize further? 3.5 3.0 2.5 2.0 1.5 US 5y5y inflation swap Euro 5y5y inflation swap 1.0 01 09 01 10 01 11 01 12 01 13 01 14 01 15 01 16 Source: BofA Merrill Lynch Global Research, Bloomberg Chart 44: Wider Italian bond spreads correlate negatively with equities 6.0 5.0 4.0 3.0 2.0 1.0 Italy-Germnay 10 year bond spread ( ) 0.0 01 10 07 11 01 13 07 14 01 16 Source: BofA Merrill Lynch Global Research, Bloomberg European Equity Strategy 01 December 2016 19 Sector Strategy Markets due a period of consolidation in the short term. The reflation trade has run hard and we ve taken some chips off the table in recent weeks by cutting our overweight positions in Banks and Basic Resources to neutral and reducing the size of our underweights in some Defensive sectors. In the short term we look for markets to consolidate. Near term risk reward is also a little poorer in light of event risks around the Italian referendum, OPEC s decision on a potential cut in oil production quotas and the ECB s decision on QE extension. Look for another leg to the reflation trade in the coming months. We would look for another leg to the cyclical and reflation rotation in the next 1-2 quarters as evidence of stronger global growth and rising inflation materializes. We will look to re-enter sector positions that benefit from global rotation when short term risk reward improves. However, we would look for the pace of the rotation to moderate and become less binary from here. The upside from here for bond yields is more limited. With that in mind we are likely to be more selective in reflation vs bond proxy positions. Politics likely remains an overhang through 1H 2017. Another reason to run a less binary portfolio over the coming months is the potential for political uncertainty to weigh on European markets. Attention near-term will focus on Italy but the French Presidential elections loom in April May and the tail risk of a Marine Le Pen victory will act as an overhang for Europe in the coming months. It suggests 22017 may well be a year similar to 2016, in which the major indices in Europe have traded in ranges for large parts of the year. Value in some Defensive bond proxies. Valuation looks quite compelling already in some of the bond proxy sectors. Utilities and Healthcare are both trading at the low end of relative valuation ranges and have decent fundamentals in the view of our analyst team. However, rising government bond yields remains the major potential headwind in coming months. We are overweight both sectors. Financials neutral following the strong recent rally. Banks have re-rated aggressively, taking PE-relative back to average levels. However, the sector continues to have uncertain prospects for EPS recovery given continued ultra-low policy rates in Europe and ongoing tail risks from periphery are an overhang on the sector. Continued long only positioning remains a potential support for the sector should rates and yield curves renew their widening moves. A Risk reward may be better in Insurance the sector still offers the second highest DY in the market (and relative DY is still at 90 th percentile of the range since 2004). Global quality Cyclicals waiting for an entry point. Many cyclicals have performed less strongly in the recent rally than Resources and re-rated less aggressively than Financials. With relative PE valuations in-line with or below 17-year averages for the likes of Industrials, Chemicals and Technology we will look for opportunities to build positions in cyclical areas in the coming months. Overowned positioning has been something of a negative for several of these areas (notably Tech) and any signs of a correction could be a catalyst to re-enter an overweight in the sector. Media raise to overweight. With the outlook for markets set to become less binary we will look to add exposure to quality cyclical areas. One such sector that has lagged this year is Media, making this an interesting entry point. The sector is something of hybrid combining defensive and cyclical components and high and low quality. Media in particular has come back a long way following a six-month period of sustained underperformance. Overweight Oil position dependent on OPEC. As we go to press, the OPEC decision on a deal to cut oil supplies is pending. Our commodity strategists base case has been for some kind of deal, with upside into the mid 50s for a deal to cut 1 million barrels per day. However, in the case OPEC fails to agree any deal they see WTI dipping back 20 European Equity Strategy 01 December 2016 below 40. In other words, the outcome is highly binary in the short term for crude and related equities. We flag to investors that we would consider reducing our weighting in the event of no deal. Assuming OPEC does cut production and oil prices recover up to the high 50s per barrel, as per our commodity strategists views, earnings and cash flows can recover significantly in the coming 12-18 months. Our Oil analysts model between 8 and 17 upside to operating cash flows in 2017 for European integrated stocks if assumed crude prices are increased 10 from 50 to 60. That makes the highest DY in market at 6 more sustainable out of FCF coverage. Cautious UK domestic (underweight Retail, Travel Leisure). We are cautious on domestic UK exposure and underweight Retail and Travel Leisure. To our mind, these companies face a lose-lose trade-off of maintaining margins by passing on higher costs at the expense of volumes, or face margin pressure by absorbing these costs in order to sustain current volumes. Building inflationary pressures point to a post-Christmas consumer squeeze. This could be further compounded OPEC cuts and oil prices rise. The Retail sector is also facing structural margin pressures and unattractive valuations. In Travel Leisure (two thirds UK listed), profitability is declining from peak levels. Note our analysts also see structural pressures on airlines from overcapacity and competition. See below for more details. Table 4: European Sector Allocation Sector Ticker Index Weight Stance Delta (bp) Portfolio Weight Portfolio Benchmark Sector Ticker Index Weight Stance Delta (bp) Portfolio Weight Portfolio Benchmark Oil Gas SXEP 4.6 o w 150 6.1 132 Autos Parts SXAP 3.2 n 0 3.2 100 HealthCare SXDP 12.5 o w 150 14.0 112 Banks SX7P 12.4 n 0 12.4 100 Media SXMP 2.6 o w 100 3.6 138 BasicResou SXPP 3.0 n 0 3.0 100 Utilities SX6P 3.9 o w 100 4.9 125 Chemicals SX4P 5.0 n 0 5.0 100 Constr Mtr SXOP 3.0 n 0 3.0 100 Trav Leisr SXTP 1.8 u w -150 0.3 15 FinServ SXFP 1.9 n 0 1.9 100 Food Bevrg SX3P 5.9 u w -150 4.4 75 InduGd Ser SXNP 11.9 n 0 11.9 100 Retail SXRP 3.1 u w -200 1.1 36 Insurance SXIP 6.4 n 0 6.4 100 100.0 0 100.0 0 Per HouGds SXQP 8.8 n 0 8.8 100 Real Estate SX86P 1.9 n 0 1.9 100 Technology SX8P 3.8 n 0 3.8 100 Telecomm SXKP 4.1 n 0 4.1 100 Source: BofA Merrill Lynch Global Research, Bloomberg Reflation rotation tactically got very stretched Over the last two weeks we cut our weightings in Basic Resources and Banks to neutral. That was in response to the signals from our technical models all flashing warning signs that the rotation out of bond proxies into reflation beneficiaries had got very stretched tactically. Our Composite Technical Indicators (CTIs) for sector relative performance hit 100 at the recent high in the case of Basic Resources and 94 for Banks and Insurance. These models combine a range of technical indicators including RSIs, MACDs, Bollinger bands and others and 100 represents maximum overbought. Basic Resources relative price has also reached 2.7SD above the 52-week average, the highest reading for the sector since 2010. Financials hit 1SD while other cyclicals have also peaked at 1.5-2SD in recent weeks. By contrast bonds and equity bond proxies screen as very oversold on these models. All Defensives troughed at -92 or below at some point over the last 4 weeks. On Bollinger scores, relative prices hit between -2.4SD and -3.8SD for the Defensives and also Real Estate. In the case of Utilities (-3.8SD) that is close to a record low. Similarly our CTI readings for macro variables like 10-year Treasury yields, gold and yen also hit oversold levels. The models are useful in isolation for highlighting any anomalies in European Equity Strategy 01 December 2016 21 recent price action for individual assets. However, the fact that we have had multiple signals across a range of sectors and macro prices is typically a warning that markets have moved too far too fast in a more general sense. The last comparable episode was in early July in the wake of the Brexit sell-off. At that point Defensives were hitting record over bought signals with Financials and Cyclicals seeing the opposite. Against the backdrop of heightened uncertainty over the effects of Brexit the models provided a great signal to fade the violent rotation. With these signals in mind we look for a period of consolidation in the rotation trade. The models are short term in nature and are not intended to identify strategic turning points although like in the case of Brexit they do tend to emphasize when a crescendo is reached. While we would look for another potential leg in some of the reflation trades over the coming months we would prefer to wait for a pull back. The Basic Resources sector provides a useful example in how to use the models tactically. Three times this year prior to the current instance the sector has hit overbought levels on its relative CTI indicator. Previous pullbacks lasted 4-8 weeks and averaged -11 in relative performance terms. Table 5: Composite Technical Indicators for sector relative returns ( 100 max overbought; -100 max oversold) Since Oct 27 Sector Latest MIN MAX Healthcare -5 -98 -1 Personal Household Goods 0 -94 0 Food Beverages -31 -93 0 Telecom -25 -92 0 Utilities -8 -92 3 Technology 0 -88 26 Media -1 -87 7 Industrial Goods Services 0 -73 35 Oil Gas 1 -45 4 Autos 0 -12 8 Chemicals 0 -8 0 Travel Leisure 0 -27 37 Financial Services -1 -3 43 Construction Materials 0 -17 45 Retail 0 -42 90 Insurance 36 0 94 Banks 16 8 94 Basic Resources 9 7 100 Source: BofA Merrill Lynch Global Research, Bloomberg Chart 45: Basic Resources 4 th overbought signal this year previous pullbacks last 4-8 weeks and averaged -11 relative 100 80 60 40 20 0 -20 -40 -60 CTI relative Basics relative -80 12 15 02 16 04 16 06 16 08 16 10 16 Source: BofA Merrill Lynch Global Research, Bloomberg 1.2 1.1 1.0 0.9 0.8 0.7 0.6 Table 6: Bollinger scores bond proxies 2.5-3.5SD oversold 52-week Z-Score Recent 1m extreme Latest Utility -3.8 -2.6 Real Estate -3.4 -2.1 Media -2.9 -1.8 Food Bev -2.6 -2.2 HealthCare -2.5 -1.8 Telcos -2.4 -2.2 Travel Leis -2.1 -0.7 Retail -1.5 -0.4 Prs HH Gds -1.2 -0.6 Autos 0.8 0.5 Insurance 0.9 0.8 Technology 1.0 0.6 Banks 1.0 0.6 FinServ 1.0 0.6 Industrials 1.5 1.4 Oils 1.6 0.9 Chemicals 1.9 0.8 Construction 2.0 1.2 Basics 2.7 2.2 Source: BofA Merrill Lynch Global Research, Bloomberg Chart 46: Utilities near a record -4SD oversold vs 52-week average 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13 Utility - relative price vs 52wk average (SD) Source: BofA Merrill Lynch Global Research, Bloomberg 22 European Equity Strategy 01 December 2016 Rotation trade valuations have moved a long way While technical metrics suggest a pause is due in the reflation rotation, we have also seen a significant amount of ground covered from a valuation perspective in the market moves to date. The scatter chart below compares the PE relative change since 8th July (the post Brexit valuation high low for many sectors) against where PE relative ranks now compared to history. Essentially sectors in the top right have enjoyed a relative multiple re-rating and current relative PE levels are above the median since 1999. Those in the bottom left have seen relative PE multiples de-rate while their current relative PE is below the median since 1999. We make the following observations: Financials have had the biggest re-rating. Financials re-rated most since Brexit and are now trading around median relative valuation levels. Given the tight link between relative valuations and bond yields in recent years the PErelatives for Banks and Insurance have also recovered much more than would seem justified by the move in the German 10-year yield. The sectors do screen cheaper versus history on PBV reflecting relatively depressed ROEs especially for Banks. Hence, we think PE multiple expansion from here would need to be driven by improving EPS prospects in the sector something our analysts are sceptical about. Global Cyclicals trading near or below average relative PE s. Many global cyclicals have had fairly modest re-ratings since early July and trade on close to median or below valuations. Sectors such as Industrials, Chemicals, Autos, Tech have relative PE multiples 5-10 higher than post Brexit. Relative PE for Chemicals and Industrials are close to post 1999 averages. Construction PE relative does screen as elevated at the 92 nd percentile. Autos, Tech and Travel Leisure all have PE relatives in the bottom quartile of their post 1999 range. Relative PE valuations look very reasonable on this basis for Tech, Chemicals and even industrials. In part this may reflect higher than historical average ROE relative PBV is less flattering for Industrials for example. Resources sectors de-rating as EPS recovers. Oil and Basic Resources PE relative has declined more than in any other sector. Although both sectors have seen strong price performance this year, PE multiples are declining from very elevated levels earlier this year as earnings bounce back from depressed levels. Since the end of June Basics 12m forward EPS is up 65 , while the sector index price has risen 33 . For Basics and Oil, performance from here is likely to remain a function of EPS momentum rather than valuations. Defensives have all de-rated with Telecoms suffering least. Defensive sectors have all seen relative valuations decline over the past four months. Healthcare and Utilities are the two sectors with multiples at lower end of the historical range notably Healthcare at the 14 th percentile. Utilities relative PE is also close to the prior low hit in 2013. Telecoms screens as somewhat less depressed form a valuation perspective notwithstanding the poor sector performance in 2016. PE relative remains well above the median levels since 1999. Staples approaching 2010 14 lows on PE-relative. Staples have also derated severely in fact Food Beverage relative PE fell somewhat more than the other Defensives. However, current levels are still somewhat higher versus the historical range (since 1999) than for Healthcare or Utilities. That being said, the PE-relative rose structurally through the 2000s. Over a shorter time frame since 2010 Food Beverage is also now trading near the bottom quartile. PE-relative is 6-10 above the lows seen in 2010 and 2014 but those would still allow for healthy 25-30 valuation premiums to the market . European Equity Strategy 01 December 2016 23 Overall, we find it hard to argue that sectors haven t moved a long way already from a valuation perspective, even against the context of potentially important inflection points in bond yields and earnings. From here we suspect investors may need to more selective in how they play the rotation theme and consider other variables such as earnings momentum, yield, technicals and positioning when allocating across sectors. Chart 47: Relative PE recent re (de) rating compared to percentile ranking of latest relative multiple PE relative - change since July 8th 2016 30 Banks 25 20 Insurance 15 10 5 Travel Leis Autos Technology Chemicals FinServ Industrials Retail Construction 0 -5 Real Estate Media Telcos -10 -15 HealthCare Utility Prs HH Gds Food Bev Oils Basics -20 0 10 20 30 40 50 60 70 80 90 100 Source: BofA Merrill Lynch Global Research, Datastream, IBES Relative PE - percentile since 1999 Chart 48: Financials valuations have recovered significantly relative to the move in bond yields relative PE back around average levels 0.90 3.5 0.85 0.80 0.75 0.70 0.65 Banks Insurance PE-rel 0.60 German 10y (RHS) 01 10 01 11 01 12 01 13 01 14 01 15 01 16 Source: BofA Merrill Lynch Global Research, Datastream, IBES 3 2.5 2 1.5 1 0.5 0 -0.5 Chart 49: Rapid relative de-rating for Staples relative PE for Food Beverage still 6-10 above 2010 2014 levels 1.70 -0.5 1.60 1.50 1.40 1.30 1.20 PE-relative FOOD BEV 1.10 German 10y (RHS, inverted) 01 10 01 11 01 12 01 13 01 14 01 15 01 16 Source: BofA Merrill Lynch Global Research, Datastream, IBES 0 0.5 1 1.5 2 2.5 3 3.5 4 24 European Equity Strategy 01 December 2016 Chart 50: Utilities relative PE close to the 2013 low 1.20 -0.5 Chart 51: Chemicals Industrials re-rated but PE-rel not excessive 1.30 5 1.15 1.10 1.05 1.00 0.95 0.90 0.85 PE-relative UTILITIES 0.80 German 10y (RHS, inverted) 01 10 01 11 01 12 01 13 01 14 01 15 01 16 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 1.25 1.20 1.15 1.10 1.05 1.00 Chemicals Industrials PE-rel German 10y (RHS) 0.95 01 08 01 10 01 12 01 14 01 16 4 3 2 1 0 -1 Source: BofA Merrill Lynch Global Research, Datastream, IBES Source: BofA Merrill Lynch Global Research, Datastream, IBES UK Waiting for Brexit It s useful to think about where the UK is today in terms of the four risk factors we identified in our February 2016 Brexit preview: 1) weaker GBP; 2) weaker UK growth; 3) Higher UK risk premia gilt yields; 4) increased regulatory, political and market uncertainty. Although we saw a severe risk-off move immediately following the Brexit vote, the only truly significant post-Brexit delta has been a weaker GBP. GBP is down 16 vs USD and 11 on a trade weighted basis. In fact, a simple post-Brexit strategy of going equal weighted long UK-listed sectors with above market international sales exposure vs sectors with below market sales exposure would have delivered 110 returns in USD. Chart 52: GBP and sales exposure have been the key determinants for post-Brexit UK equity returns Performance since Brexit ( in USD) 30 20 UK MATERIALS 10 UK FD STAPLES 0 UK BANKS UK CAP GDS UK INSURANCE UK U RTL UK ENERGY -10 UK UTILITIES UK DIV FIN -20 UK REAL ESTATE UK RETAILING UK MEDIA UK T CM SVS UK PH BIO L SCI UK H H PERS PRD -30 UK TRANSPT -40 0 10 20 30 40 50 60 70 80 90 100 International Sales exposure Source: BofA Merrill Lynch Global Research, Bloomberg, Factset. Performance in USD from 23-June-2016 close to 25-Nov-2016 close. The currency move contrasts with the other risk factors. To date, UK growth which has held up better than many expected; policy uncertainty has fallen following a sharp spike; gilts are only 2bp higher than June 23 rd (although this masks a 85bp rally then 87bp selloff); and the UK cost of equity is now down ytd. What Brexit, you could ask. European Equity Strategy 01 December 2016 25 As we outline below, we think it is just a matter of timing. The political certainty created by the swift election of Theresa May plus the Bank of England s interventions have delayed, rather than resolved, the underlying uncertainties caused by the vote. Chart 53: UK PMIs tanked post-Brexit but have recovered 65 60 55 Average since 2010 Composite PMI 50 GDP, qoq, preliminary estimates (rhs) 45 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Source: BofA Merrill Lynch Global Research, Markit, ONS. 1.4 0.9 0.4 -0.1 -0.6 Chart 54: While retail sales have remained strong 10 8 Oct retail 6 4 2 0 -2 -4 -6 1984 Consumer confidence Real consumption, yoy Retail sales volumes ex fuel, yoy 1988 1992 1996 2000 2004 2008 BAML est. of confidence if inflation 2012 3 2016 Retail sales volumes. Source: BofA Merrill Lynch Global Research, GfK, ONS. 2017: Falling growth, negotiations and a consumer squeeze We think there are clear warning signs that conditions are deteriorating, uncertainty is set to return and a consumer squeeze is coming for the UK. Falling growth to compound deficit problems Real gdp is only expected to fall 0.1 in 2016 vs the March forecast. But the UK Office of Budgetary Responsibility expects growth to slip by 0.8 next year (2.2 to 1.4 ) and 0.4 on 2018 (2.1 to 1.7 ) vs March. A notable slice of this is can be attributed to the OBR s estimate that Brexit added 59bn to UK borrowing to 2022, or nearly 200mn a week. These numbers include Phillip Hammond s sensible but small measures. Our UK economist is more pessimistic forecasting 0.9 in 2017 and 0.7 in 2018. Even if we split the two, that represents a 50 decline in expected 2017 gdp and 40 decline in 2018. The OBR also expects public sector net debt to hit its highest level since 1964-65 in 2017-18 at a time when the UK already relies on the kindness of strangers to finance its growing twin deficit. 26 European Equity Strategy 01 December 2016 Chart 55: OBR BofAML UK GDP forecasts materially lower in 2017 2.1 2.0 OBR real gdp yoy growth forecast BAML real gdp yoy growth forecast OBR UK real gdp yoy growth March vs Nov 2016 forecasts 1.4 0.9 1.7 0.7 0.1 2016 2017 2018 -0.4 -0.8 Source: BofA Merrill Lynch Global Research, Office of Budgetary Responsibility Chart 56: UK Public sector net debt is expected to return to 1960s levels 120 100 80 60 40 20 0 UK Public sector net debt as GDP 1960-61 1964-65 1968-69 1972-73 1976-77 1980-81 1984-85 1988-89 1992-93 1996-97 2000-01 2004-05 2008-09 2012-13 2016-17 2020-21 Source: Office of Budgetary Responsibility Chart 57: The weaker econ outlook has helped decouple GBP and gilts since late Sept 16 2.5 2 1.5 1 0.5 0 Oct-15 Dec-15 Source: Bloomberg Feb-16 10y gilt yield GBP USD (RHS) Apr-16 Jun-16 Aug-16 Oct-16 1.6 1.55 1.5 1.45 1.4 1.35 1.3 1.25 1.2 Certainty that Brexit negotiations will start, but uncertainty on the details Against this debt and growth backdrop, investors are likely to want clarity and visibility on policymaking in order to continue funding the UK s deficit in our view. We think they could be disappointed. Firstly, the Government has committed to triggering Article 50 by the end of March 2017. We think this is likely irrespective of the outcome of the Judicial Review on where the legislative power lies for making that decision. Second, the Government s formal position is not to announce its negotiating strategy in public. A lack of insight into the UK s future trading relationship with its biggest export market for goods and services is a difficult backdrop upon which to continue investing in the UK, even if a few companies have taken that decision already. Third, we think there will have to be a resolution to the trade-off between the Government s desire to control immigration and reach a beneficial economic settlement. The problem, as is often repeated by EU leaders, is that curbing migration puts the UK on a collision course with the EU s four freedoms and therefore at odds with access to the single market. That s why our base case remains a so called hard Brexit , but even now our colleagues in FX strategy think investors are not positioned for this. Hence their GBP USD forecast of 1.15 for Q1 Q2 2017. Finally, a major concern for investors and especially business investment would be if the UK faces a cliff edge for trade terms in 2019 (on the assumption article 50 is triggered). While a transition deal would be a potential positive development next year, the absence of such a deal before or soon after article 50 is triggered could be another reason for policy uncertainty to spike higher again. European Equity Strategy 01 December 2016 27 Chart 58: The dip in UK policy risk is likely to be short lived if the Govt keeps to its commitment to trigger A50 in Q1 without providing clarity on its negotiating position 1200 1000 800 UK Economic Policy Uncertainty German Economic Policy Uncertainty 600 400 200 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bloomberg Building inflationary pressures point to post-Christmas consumer squeeze The third act in waiting for Brexit is cost-push inflation from the fall in GBP. So far, consumer spending has held up far better than most expected, especially retail spending by the over 50s. But there is evidence the inflationary canary is starting to sing. The charts below show that the move in CPI has lagged sharp rises in manufacturing output prices, utility prices and food prices in the past two months. Chart 59: Firms report sharp increases in output prices 66.0 62.0 58.0 54.0 50.0 46.0 42.0 38.0 Manufacturing output prices (PMI, lagged 3 months) Industrial goods inflation (rhs) 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: BofA Merrill Lynch Global Research, Markit, ONS. 6 4 2 0 -2 -4 -6 Chart 60: Chunky utility price increases on the horizon 140 120 100 80 60 40 20 0 -20 -40 -60 Natural gas price, 6 month forward, 12m 12m Natural gas price, spot, 12m 12m CPI utilities, yoy (rhs) 2003 2005 2007 2009 2011 2013 2015 2017 50 45 40 35 30 25 20 15 10 5 0 -5 -10 -15 Source: BofA Merrill Lynch Global Research, ONS, Bloomberg Chart 61: Food prices are key to watch 14 CPI food prices, 12 BAML forecast, 10 yoy Food input prices, 8 yoy, lagged 3 months (rhs) 6 4 2 0 -2 -4 -6 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 -10 -20 Food input prices calculated as an average of domestically produced and imported food. BofA Merrill Lynch Global Research, ONS. 40 30 20 10 0 To understand this delay it is worth remembering Marmitegate and the pressure put on companies not to raise the prices of household brands. The incident also illustrates the margin pressure building up in the system and challenges posed to producers, vendors and consumers as to who will absorb the higher costs. According to the Chairman of the UK Food and Drink Federation many companies may be waiting until post-Christmas to change prices, which Ian Wright estimates could rise as much as 8 . If that happens at the same time as power prices hit seasonal highs, the consumer could start to feel the pinch. To avoid this leading to a contraction in demand, workers we would need to see strong nominal wage growth. However, the Institute of Fiscal Studies does not expect real wages to return to 2008 levels until 2021. The tightness of the UK labour market could also cushion any blow, but we note jobless claims have started to rise again and businesses may be less likely to hire if uncertainty, for reasons outlined above, picks up again. 28 European Equity Strategy 01 December 2016 Chart 62: Real wages likely to fall 6 4 2 0 -2 Real wages, BAML forecast -4 Average weekly earnings, 3m yoy CPI inflation, BAML forecast -6 2002 2004 2006 2008 2010 2012 2014 2016 2018 Real wages calculated as average weekly earnings minus CPI inflationSource: BofA Merrill Lynch Global Research, ONS. Chart 63: REC and PMI point to higher unemployment 150 Claimant count, 3m change, inverted REC placements, lagged 3m (rhs) 100 Composite PMI employment (rhs) 50 0 -50 -100 -150 -200 -250 2004 2006 2008 2010 2012 2014 2016 REC placements is an average of permanent and temporary placements. REC and PMI shown as standard deviations from average. Source: BofA Merrill Lynch Global Research, Markit. 2 1 0 -1 -2 -3 -4 Given all of the above, we reiterate our preference for avoiding sectors with a high proportion of domestic UK companies. To our mind, these companies face a lose-lose trade-off of maintaining margins by passing on higher costs at the expense of volumes, or face margin pressure by absorbing these costs in order to sustain current volumes in our view. This could be further compounded if our Oil Strategists forecasts are right and Brent averages 60 bb following an OPEC cut. But how much is in the price? The pushback to our view is that the forecasted deterioration in growth hasn t really materialised and investors are already pricing it in a lot of bad news. For instance, Easyjet is down nearly 35 and investors are still underweight the UK in the FMS. While this is the case for certain stocks, at a sector level investors appear to have squared off their underweights in Retail Travel according to the FMS. Both sectors also back near pre-Brexit levels relative to the market (albeit Travel reflects the recent oil price weakness). Chart 64: Source: Brexit sectors no longer underowned by investors Construction Ind. Gds Svs Technology Healthcare Autos Travel Leis. Banks Telecoms Insurance Retail Chemicals Media Real Estate Food Bev PHH Goods Oil Gas Utilities Financial Svs Basic Res. -35 -25 -15 -5 5 15 25 Source: BofA Merrill Lynch Global Research Nov-16 Oct-16 Chart 65: Retail and Travel are some way off their post-Brexit lows 0.93 0.74 0.92 0.72 0.91 0.7 0.9 0.68 0.89 0.66 0.88 0.64 0.87 0.62 0.86 Stoxx Retail relative Stoxx Travel Leisure relative 0.6 0.85 0.58 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Source: Bloomberg European Equity Strategy 01 December 2016 29 Sector Trades Table 7: European Sectors Summary of investment case and risks Sector (Ticker) HealthCare (SXDP Index) Oil Gas (SXEP Index) Media (SXMP Index) Utilities (SX6P Index) Index Weight Stance Delta (bp) 12.5 O W 150 4.6 O W -150 2.6 O W 100 3.9 O W 100 Summary of view Laggard despite Republican clean sweep reducing legislative risks, valuations close to 2010-12 lows at trough of patent cliff but sector team expect 11 EPS CAGR 2018-2021 supporting 17 18x PE (currently on 13x 2018), catalysts from new products set to be announced in 2017. Risks: rising bond yields continues, pipelines fail to realise, strong growth leads to risk-on rally led by value rotation out of quality. Forecast Brent to average 61 bbl in 2017 on supportive demand backdrop (EM), OPEC reduction, supply destruction causing rebalance Oil team modeling 8 -17 upside from crude rally meaning FCF covers 6 DY and EPS to improve (revisions 2nd best in market) Risks: OPEC fails to cut supply pushing rebalancing out, strong dollar and protectionism curtail global demand and EM growth. Market laggard and de-rated presenting favourable entry points, optionality to improving EU consumer confidence even if UK consumer set to be squeezed next year, historically outperforms when dollar PMIs inflation rising, positioning now underweight in FMS. Risks: UK growth EU consumer confidence drop quickly, investors prefer cheaper cyclicals if we see another leg to risk-on rally. Big underperformer in reflation rotation given defensive yield characteristics now oversold, consistent underweight in FMS but fundamental outlook positive with cyclical earnings improvement from higher power prices CSPP changing sector composition. Risks: lack of differentiation from investors in rising yields continues, commodity prices roll, regulatory risk increases. Autos Parts (SXAP Index) Banks (SX7P Index) Basic Resources (SXPP Index) Chemicals (SX4P Index) Const Mats (SXOP Index) Fin Srvs (SXFP Index) Ind Gd Svs (SXNP Index) Insurance (SXIP Index) Persnl HHG (SXQP Index) Real Estate (SX86P Index) Telecomm (SXKP Index) Technology (SX8P Index) Food Bev (SX3P Index) Travel Leisr (SXTP Index) Retail (SXRP Index) 3.2 M W 0 12.4 M W 0 3 M W 0 5 M W 0 3 M W 0 1.9 M W 0 11.9 M W 0 6.4 M W 0 8.8 M W 0 1.9 M W 0 3.8 M W 0 4.1 M W 0 5.9 U W -150 1.8 U W -150 3.1 U W -200 Bull case: Margins supported by strong EU China sales, lease growth in US, valuations at multi-year lows, positioning neutral, cyclical beta Bear case: Future car raises questions over terminal value, US UK markets peaked, Truck market has turned, China tax cut to end Bull case: global yields and inflation continue to rise as global growth pushes higher, Italian banks successfully recap and earnings improve. Bear case: LT profitability challenges persists (ECB monetary policy), UK large caps underperform, rates move unwinds. Bull case: Investors still u w, Trump delivers on fiscal not trade, DXY capped so EM recovery China cycle continues, higher metals lifts FCF. Bear case: Protectionism rises, China cycle slows, hawkish Fed hurts EM rally, metals prices fail to sustain recovery. Bull case: Cheap on relative PE DY, M A pick-up, cyclically geared to improving EM growth, higher quality characteristics vs other cyclicals. Bear case: OPEC deal fails hurting oil, industrial cycle potentially at risk from protectionism, margins unsustainable given at highest since 2004 Bull case: geared to expected increase in fiscal spending (esp US), EU mfg and construction PMIs solid, US ISM housing market strong Bear case: Most expensive sector on relative basis, re-rated on fiscal expectations but EPS hasn't followed, exposure to softening UK market Bull case: High proportion of dollar earnings sterling reporters, geared to pick up stronger markets, potential M A targets Bear case: less attractive valuations and not as levered into better growth rising bond yields than other financials (e.g. Banks). Bull case: US mfg ISM strong, EU OECD lead indicator improving, expect fiscal spending in US, high RoE and consistent earnings Bear case: valuations stretched on PBV, big outperformance driven by re-rating more than eps growth, Q3 earnings season has been weak. Bull case: beneficiary of rising yields, strong balance sheets, cheap on PBV PE and attractive, growing and covered DY. Positioning still light. Bear case: lower beta and longer cycle than Banks, vulnerable to any rally in bond prices from Italy risks, higher DY in more cyclical sectors. Bull case: luxury stocks delivering growth, tobacco structural outperformer, has de-rated following Brexit rally but earnings outlook decent. Bear case: margins at 10y peak, stiff competition from digital innovation, EM consumer demand volatile, vulnerable to rising rates. Bull case: oversold on CTI, at 10y lows on relative PE and bottom quintile on PBV, UK market held up post-Brexit, yield attractive if bonds rally Bear case: positioning o w vs history, REITs vulnerable to rising yields backdrop, rental yields under pressure fall if UK EU growth slumps. Bull case: strong FCFY and improving balance sheets, valuations not expensive, positioning has unwound, beneficiary of CSPP, major laggard. Bear case: structural challenges to monetising data, consolidation not set to play out, vulnerable to further outflows in rising yield environment. Bull case: valuations less stretched, semis cycle proving resilient, higher "quality" cyclical, positioning neutral, structural growth Bear case: vulnerable to rotation into value sectors in a risk-on market, margins close to peak, structural challenges for Nokia Ericsson. Highest correlation to rising yields bond proxy, valuations still not cheap on a range of metrics (esp vs Healthcare), falling earnings revisions. Risks: Oversold vs history in rotation move, sector has de-rated enough if bond yields capped CB don t hike growth disappoints. Airlines in structural decline, negatively correlated to higher oil, vulnerable to weaker UK and returns at peaks levels, valuations not cheap Risks: Oil rally takes longer to materialise if OPEC fails to cut, European global growth picks up and UK gdp surprises to upside. Most vulnerable to consumer squeeze in UK, margins in structural decline, supermarkets have had their relief rally, expensive on PE PBV DY Risks: modest inflation provides pricing power, Eurozone growth boosts consumer demand, positioning light, strong x-mas season. Source: BofA Merrill Lynch Global Research 30 European Equity Strategy 01 December 2016 Underweight Retail In addition to Brexit concerns, we also see a number of fundamental reasons to reiterate out underperform on Retail. Structural margin pressures: Aside from Brexit, retailers face declining returns as online disruptors and discounters drive up competition. EBITDA margins have fallen from 8 in 2010 to close to 7 in 2016 and RoE has declined by nearly 3 since 2004. We think this structural trend has further to run. Valuations are also unattractive. Retail remains on a significant premium to the market on absolute terms (17.3x 2017 PE vs 14.2x) and is expensive versus its own history at 20 above its 10y relative average on PE and 92 ile on PBV, while it has the second lowest dividend in the market (2.9 ). Even if you strip H M and Inditex the sector is towards the higher range of its post-GFC range. UK supermarkets have had their relief rally. Despite challenges facing UK food retailers, Tesco has rallied 25 and Morrison s 15 since Brexit as retail spending has held up and the short base grew massively immediately following the UK-EU vote. Yet as Xavier Le Mene notes, this has largely been because they have gained market share from Asda and investors have bought into their new management plans. However, Xavier see limited upside potential for either next year and there is a risk that Asda starts to recoup lost ground under its new management too. Chart 66: Stiff competition means retail margins are structural declining 8.3 7.8 7.3 Retail EBITDA margin 6.8 Chart 67: Market share gains have largely been at Asda s expense Tesco Aldi Lidl Waitrose Morrisons Sainsbury's Asda -100 -50 0 50 100 Market share of grocers, yoy Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, IBES Source: Kantar Worldpanel Chart 68: Retail is expensive on a range of metrics Chart 69: Not cheap even if you strip out the two biggest ex-UK names 1.70 1.60 1.50 Retail 12m fwd PBV relative 16 Stoxx Retail PE Stoxx Retail ex-Inditex PE Stoxx Retail ex-Indi H M PE 1.40 1.30 11 1.20 1.10 1.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201 6 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, IBES Source: BofA Merrill Lynch Global Research, Datastream European Equity Strategy 01 December 2016 31 Underweight Travel Leisure Airlines in structural decline: our European Airlines analyst thinks overcapacity (networks set to grow 7 yoy to 2020) and competition from low cost ME carriers is driving prices and passenger yields lower across the board. Negatively correlated to Oil: the sector is negatively correlated to the Oil price and despite recent weakness, our Commodity Strategist expects OPEC to cut by 500k b d or 1 million b d. Should OPEC cut with firm quotas and a tight control mechanism, they see WTI prices averaging 59 bbl. Watch UK consumer confidence closely: the combined effect of the challenges we identified earlier starting to mount for the UK consumer and the drop in the value of the pound could reduce demand for and expenditure on overseas holidays. This would weigh on the travel operator part of the sector. If the bulk of sterling move is over the boost for dollar earnings like Compass will also likely fade. Peak returns: unlike Retail, T L margins (98 ile since 2004) and RoEs (85 ile) are close to all-time highs. We think returns may well have peaked therefore given the backdrop of rising oil, weakening consumer confidence in the UK and structural overcapacity in airlines. This is reflected in the fact that PBV are on 2.8x for the sector, which is top quintile for the sector since 2004. Chart 70: Competition overcapacity pushing airline yields down Chart 71: Rising oil would weigh on Travel earnings 140 120 100 80 60 40 Brent Oil 20 BofAML WTI forecasts Stoxx Travel Leisure EPS (RHS - inverted) 0 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 6 8 10 12 14 16 18 20 Source: Company data Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, IBES Chart 72: The UK consumer will have lower purchasing power next year Chart 73: Yet sector RoEs remain close to all-time highs 10 0 GfK UK Consumer Confidence Index Travel Leisure price relative 0.75 0.7 0.65 24.0 22.0 20.0 Travel Leisure RoE -10 -20 -30 -40 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 0.6 0.55 0.5 0.45 0.4 18.0 16.0 14.0 12.0 10.0 8.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bloomberg Source: BofA Merrill Lynch Global Research, Datastream, IBES 32 European Equity Strategy 01 December 2016 Media raise to overweight Favourable entry point Media has been is a big laggard following a six-month period of sustained underperformance and hit very oversold levels on our CTIs in mid-November. Although Media is a bit more domestic than Tech both are quality cyclicals and typically trade fairly in line with one another. However, the relative is now back at 2009 lows. Optionality on European consumer We are bearish on the outlook for the UK consumer but consumer confidence has been steadily rising in the Eurozone since 2012 and the sector has tracked this measure very closely. We note however that the two have disconnected recently. We think Media is more likely to catch up then confidence fall given economists fairly positive view on Eurozone growth next year, and the potential for upside surprises to US growth. Chart 74: Favourable entry point for Media Media and Tech are both quality cyclicals but the relative is at a 7y low 1 0.95 0.9 0.85 0.8 0.75 0.7 0.65 Source: Bloomberg Stoxx Media relative to Tech Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Chart 75: The pick-up in EU Consumer Confidence should boost Media 0.9 0.85 0.8 0.75 0.7 0.65 0.6 0.55 Source: Bloomberg Stoxx Media Price relative European Commission Consumer Confidence Index 0 -5 -10 -15 -20 -25 -30 Media historically outperforms when PMIs and inflation rising The average return for Media when PMIs and inflation are both rising is 0.6 relative but the sector has underperformed by 2 month to date. A stronger dollar is also a positive historically for Media given that many large caps within the sector, notably agencies, are large dollar earners. But again, the two have disconnected recently. Valuations now at a small discount to the market Media has de-rated by nearly four PE points (from 19.7 to 16) since the April 2015 highs and the sector now trades on a 5 discount to its average vs the market. We think the improving global growth backdrop will support earnings and should mean the sector can re-rate. European Equity Strategy 01 December 2016 33 Chart 76: A stronger dollar benefits agencies with global exposure 0.9 0.85 0.8 0.75 0.7 0.65 0.6 0.55 Stoxx Media price relative 0.5 DXY Curncy (RHS) 0.45 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Bloomberg 105 100 95 90 85 80 75 70 65 60 Chart 77: Media now at a small discount to its 10y average vs market 1.30 1.25 1.20 1.15 1.10 1.05 1.00 0.95 0.90 Media 12m fwd PE relative 0.85 0.80 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, IBES Overweight Healthcare Healthcare looks very attractively valued and we see compelling risk reward in the sector on an outright basis at current levels. The fundamental bull case for Health rests on the strong pipeline of new products for the big cap pharma universe. Our sector analysts forecast EU Pharma to deliver a 2018-21E EPS CAGR of 11 , up from mid-single digit levels in recent years. Historically that would justify a PE re-rating and a multiple for the pharma sub-sector nearer 17-18x than the current 13x 2018 PE. We believe the Republican clean sweep in the US elections represents a positive catalyst as it significantly decreases the potential for legislative initiatives to aggressively control drug pricing in the US. The catalyst for the sector to re-rate will come progressively from newsflow around new products. The next 12 months should see progress on this front with several of the European large caps expected to announce key data on important drugs in 2017. Chart 78: Pharma s improving growth outlook not reflected in PE 3 Year Sales, EBIT and EPS CAGR Majors and 12 month forward PE ratio 15 10 5 0 -5 -10 05-08A 06-09A 07-10A 08-11A 09-12A 10-13A 11-14A 12-15A 13-16E 14-17E 15-18E 16-19E 17-20E 18-21E 3yr Sales CAGR 3yr EPS CAGR Source: BofA Merrill Lynch Global Research 3yr EBIT CAGR 12 month forward PE (rhs) 20 18 16 14 12 10 8 6 Chart 79: Healthcare PE relative back near market multiple and lowest since 2011 when patent cliff was at its worst 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90 HealthCare 12m fwd PE relative 0.80 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: BofA Merrill Lynch Global Research, Datastream, IBES, Bloomberg Healthcare s forward PE is now down to just a 7 premium relative to the market and nearing the valuation lows recorded in 2010-12 when the patent cliff was at its worst and pipelines were very weak. Today pipelines are twice the size they were in 2011 and innovation is the key to growth in the sector - pricing power remains strong in drug categories with differentiated products. The new product launches expected between 2015 and 2018 add up to potential sales of 133 billion. 34 European Equity Strategy 01 December 2016 Chart 80: Stocks mostly trade above ex-pipeline value Pipelines are free for most stocks 25 15 5 -5 -15 -25 -35 17 1 -2 -14 -16 -16 -22 -25 -10 Chart 81: Growth from new products - 138bn launching 16-20E Peak unrisk-adjusted sales potential (USDm) of product launchs by year 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Premium (Discount) to ex pipeline DCF 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research Overweight Utilities The Utilities sector has suffered badly from the back up in bond yields. However, fundamentals for the sector are actually improving relative to recent history. The sector is the biggest direct beneficiary of corporate QE in the UK and Euro are (more than half of the sector are eligible for the ECB s Corporate Sector Purchase Program) meaning it can gain more than most other sectors from potential refinancing savings. This cushions any effect on debt costs from higher bond yields as corporate bond yields are still very low. Earnings and cash flow are improving. The bottoming out of the commodity cycle has supported a turn to the upside for power prices. This has helped earning to trough and analyst revisions have been positive throughout the last few months of underperformance. Balance sheets and dividends in most cases now also look sustainable. Valuation multiples for the Utilities sector are attractive relative to history and compared to other Defensives. EV EBITDA for the sector sits at 7.3x on Bloomberg estimates. That is a 20 discount to the market and is near 10-year lows on a relative basis. With dividends more secure the relative DY becomes more attractive at 2-year highs. Chart 82: Utilities EV EBITDA relative to market near10-year lows 1.10 1.05 Utilities 1.00 0.95 0.90 0.85 0.80 0.75 FY1 EV EBITDA relative 0.70 07 05 07 07 07 09 07 11 07 13 07 15 Source: BofA Merrill Lynch Global Research, Bloomberg Chart 83: DPS more secure now but the relative yield is at 2yr highs 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 Utility 12m fwd DY relative 0.90 0.80 02 04 02 06 02 08 02 10 02 12 02 14 02 16 Source: BofA Merrill Lynch Global Research, Datastream, IBES European Equity Strategy 01 December 2016 35 Analyst Certification I, Ronan Carr, CFA, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. 36 European Equity Strategy 01 December 2016 Disclosures Important Disclosures FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst s assessment of a stock s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). 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86th year, No. 23811 TUESDAY, DECEMBER 13, 2016 1 86 A Pulitzer Prize-Winning Newspaper ST. CROIX ST. JOHN ST. THOMAS TORTOLA CELEBRATING THE PEOPLE, CULTURES AND HISTORY OF THE VIRGIN ISLANDS SINCE 1930 Mini Page Pages 28-29 Tax hikes With government piggy bank empty Mapp turns to taxpayers for cash Unpaid vendor says trash haulers might stop collections Page 3 V.I. teams rack up golds in P.R. Back Page Centennial Countdown Sin taxes on alcohol, tobacco and soda and taxes on property and time-share owners would fund court-ordered back pay Page 5 Businesses to face spike in unemployment insurance rate to help V.I. government pay 69 million federal bill Page 2 Complex looks for win in Puerto Rico Back Page Digging up V.I. s past Pages 10-11 Boat parade spreads Christmas cheer Page 24 www.virginislandsdailynews.com Twitter: VIDailyNews www.facebook.com virginislandsdailynews ISSN 2159-3019 2 The Virgin Islands Daily News VIRGIN ISLANDS Tuesday, December 13, 2016 V.I. businesses face higher unemployment taxes as territory struggles to pay down 69 million debt By BRIAN O CONNOR Daily News Staff Territory business owners will pay four times the normal federal unemployment tax rate this year because of an unpaid government debt, documents show. The federal unemployment insurance tax rate is traditionally 6 percent on the first 7,000 an employee makes. However, the federal government usually offers a credit of 5.4 percent, meaning most employers actually pay about 0.6 percent, according to the IRS. States and territories with unemployment insurance programs meeting federal standards are required to meet their unemployment obligations. When a state can t meet its unemployment obligations, it s entitled to take loans from the Federal Unemployment Insurance Trust Fund. Federal documents show only one state and one jurisdiction California and the U.S. Virgin Islands are currently in that position. The territory owes 69,138,266.61 in loans, according to the U.S. Department of Treasury website. In fiscal year 2017, which began Oct. 1, the loans have accrued 294,349.15 in interest payments alone. The V.I. Labor Department is in charge of administering unemployment insurance. Labor Commissioner Catherine Hendry did not return a number of phone calls seeking comment. Government House spokeswoman Cherie Munchez would not comment, saying that Hendry would issue a prepared statement about the debt by Wednesday. Provisions of the Federal Unemployment Tax Act stipulate that in states or territories with outstanding balances in the fund, businesses are subject to a credit reduction, which is collected and directed toward the unpaid balance, according to Robert Pavosevich, Supervisor of the Actuarial Team in the Office of Unemployment Insurance s Division of Fiscal and Actuarial Services in the Department of Labor. Virgin Islands business owners will pay the original 0.6 percent, plus an additional 1.8 percent caused by the unpaid balance, for a total of 2.4 percent, Pavosevich said. At the fully discounted rate, an employer would pay 42 for each employee earning 7,000. At the Virgin Islands rate, employers will have to pay 168. After two years with an unpaid balance, the discount decreases by 0.3 percent each year until the total discount disappears, Pavosevich said. It s capped at 6 percent, Pavosevich said. At the full 6 percent, employers will have to pay 420 for each new employee earning 7,000 that comes on board. By law, that money can t come out of the wages themselves and is paid out of the profits or losses that employers face, said Charles Engeman, an attorney who served on the Unemployment Insurance Advisory Council under the administration of Gov. John deJongh Jr. Without payment on the loan or waivers or relief, which has happened three times since 2013 the rate is scheduled to max out by 2028. That s barring the imposition of step increases, which can happen if the state has an outstanding balance for a certain number of years, or if as was the case in the tax year 2012 step increases are piled on by other provisions of the law, which could move the unemployment tax rate up faster. It looks like they re not making much headway, Pavosevich said, referring to the territory s debt. The territory wasn t alone in 2011, the first year the rate went up. In all, 20 states and the Virgin Islands received a 0.3 percent credit reduction that year, federal documents show. That s in part because of the lingering effects of the Great Recession, said Bennett Chan, a lawyer who represents several businesses and has worked with the St. Thomas-St. John Chamber of Commerce in the past. In general terms, states collected more money than they paid out during the years leading up to the 2008 market collapse, creating large surpluses. Sometimes those surpluses were subject to financial raids. Other times as was the case in the territory the surpluses were used as a cause to reduce the amounts collected for unemployment insurance. When large-scale unemployment hit as a result of the recession, surpluses turned into deficits, Chan said. A lot of states were blindsided by the Great Recession, Chan said. They also had big surpluses and never foresaw that there would be this sudden inflow in unemployment claims. Territorial officials were late in reacting to bring the rate back up to address the issue, Chan said. If we had done it earlier, we probably would have collected enough, he said. Now they want to make it up when times are hard. In many cases, the government can t say what each employer owes I don t think there s enough political willpower to do the kinds of thing necessary to fix the system. Charles Engeman, an attorney who served on the Unemployment Insurance Advisory Council under the administration of Gov. John deJongh Jr. The business owners always bear the brunt of whatever deficiencies we have. We have to, at some point, find other sources of revenue for the government. Any time there s any sort of additional tax burden, fee burden, licensing burden, it s always a point of concern. Kimberly McCollum, president of the St. Croix Chamber of Commerce or has paid in surplus, Engeman said. The system originally was set up so that employers faced a roller coaster, Engeman said. Each employer had a rate based on a three-year average. If an employer s account paid out more in benefits than they contributed, the rate would go up to 5.4 percent. After three years, the employer s rate would drop down to 0.1 percent, because at 5.4 percent, the rate exceeded likely contributions. At 0.1 percent, if anyone were laid off, it immediately moved the employer back to the 5.4 percent rate. Employers would oscillate between the 5.4 percent rate and the 0.1 percent rate. It was 5.4 for many employers, and that s what an average employer would pay out over the course of 17 years for one employee, Engeman said. As a result, the unemployment insurance fund accumulated large surpluses. To reduce the surpluses, the V.I. Labor Department dropped the automatic increase based on a negative account, and lowered the minimum rate to 0. Less money came in, even as unemployment rates remained high and benefits remained expensive. A few steps could help move the system back to sound footing, Engeman said. For example, better record-keeping would help reduce delinquencies. Reducing unemployment insurance benefits and reducing the amount of time the unemployed are eligible for unemployment would both help. Verifying that those collecting unemployment are seeking employment, and generally reducing fraud also would help, Engeman said. I don t think there s enough political willpower to do the kinds of thing necessary to fix the system, he said. Chamber of Commerce officials on both islands decried any increase in taxes or fees for businesses. Despite what the governor and the senators think, the economy of the Virgin Islands is not doing that well, said Tom Brunt III, a member of the St. Thomas-St. John Chamber of Commerce Board of Directors. Kimberly McCollum, president of the St. Croix Chamber of Commerce, said any increases to fees or taxes was worrying. The business owners always bear the brunt of whatever deficiencies we have, she said. We have to, at some point, find other sources of revenue for the government. Any time there s any sort of additional tax burden, fee burden, licensing burden, it s always a point of concern. The folly of the situation is compounded by the fact that business owners themselves aren t allowed to file for unemployment if they lose their jobs, McCollum said. You re still paying unemployment taxes on what you re paid, but you are not allowed to request compensation should you find yourself in a position to file for unemployment, she said. Contact Brian O Connor at 340-714-9130 or email boconnor dailynews.vi. ISSN 2159-3019 Daily News Publishing Co. Inc. owned by VIDN Holdings, LLC publishes The Virgin Islands Daily News daily, except Sunday, Christmas Day and New Year s Day, at 9155 Estate Thomas, Charlotte Amalie, St. Thomas, VI 00802. First class postage paid at Charlotte Amalie, St. Thomas. U.S.V.I USPS 144-180 POSTMASTER, send Form 3579, Notice of Address Change, to: Circulation Director, Daily News, 9155 Estate Thomas, St. Thomas, VI 00802. Contact us St. Thomas office The Daily News 9155 Estate Thomas St. Thomas, VI 00802 340-774-8772 St. Croix office The Daily News 1115 Strand Street Christiansted, VI 00820 340-714-9127 President Archie Nahigian 340-714-9105 archie dailynews.vi 86 YEARS A Pulitzer Prize-Winning Newspaper ST. CROIX ST. JOHN ST. THOMAS TORTOLA 2016 Daily News Publishing Co., Inc. Editor At Large J. 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Tuesday, December 13, 2016 VIRGIN ISLANDS The Virgin Islands Daily News 3 Work stoppage threat gets Waste Management to table By JONATHAN AUSTIN Daily News Staff A Waste Management Authority contractor had planned a work stoppage this week because the Virgin Islands Waste Management Authority owes vendors a lot of money and they can t keep working for nothing. However, discussions with administrators at Waste Management led Peter Caproni, owner of Your Environmental Services Inc., to say he s holding off on urging garbage collection vendors to stop work on Wednesday. I m not intent on messing up our communities, said Caproni, whose company picks up the bin sites on St. John. We ve created a dialogue. I am a fair person, Caproni said. I want to listen to what they have to say. It seems as though they re going to put together an offer. Caproni had told The Daily News on Monday he was announcing a work stoppage beginning Wednesday. He said he and other haulers were going to stop emptying scores of bins across St. Thomas and St. John because Waste Management had failed to pay them for weeks or months. Caproni said he has worked 26 years in trash removal and roll on By BRIAN O CONNOR Daily News Staff Police officials dismissed this week multiple complaints filed by a former employee against high-ranking members of the V.I. Police Department. The complaints are all filed by Lynne Harrison, the former director of the Police Training Bureau. In one such complaint, Harrison alleges Deputy Commissioner Curtis Griffin Jr. was receiving compensation when absence from employment without proper leave documentation, and payroll fraud embezzlement falsifying timekeeping records, or when employees are not working while on the job. In a letter attached to the claim, Harrison says that from August 2016 to the present, Griffin received compensation while not reporting for duty at the department. In addition, he has not left forwarding contact information to those under his supervision and often was not available during contact attempts occurring during normal working hours, Harrison wrote. Griffin was available only via VIPD email which was delayed or not deliverable, thus leaving him ineffective and not suitable to be classified as working telecommuting. Griffin dismissed the complaints roll off services in the territory. He said his company empties all the rear load bins on St. John, and does emergency Waste Management Authority work on St. Thomas. Contacted by The Daily News, Waste Management Authority executives were unaware Caproni and possibly two other haulers were walking off the job. Roger Merritt Jr., the newly hired executive director of the agency, said Monday evening he wants to meet with all the contracted haulers to see what they are owed and come up with a plan to get them paid. I understand that the haulers need to get paid, Merritt said. We need to ensure we are able to make timely payments. Caproni said he is willing to listen, but the answer has to be that the Waste Management Authority comes up with payment for services already rendered. The solution is, you pay your bills on time, he said. Patrick Charles, one of the vendors Caproni mentioned, said Monday that he has reasons to be on board with a work stoppage, though he couldn t make such a decision alone. I realize that he is upset, Charles said, referring to Caproni. It is time for anybody to get upset. I m in agreement with him. Charles said his firm empties bins on St. Thomas and hauls trash from Waste Management Authority collection sites in a number of government housing communities. Regarding how much Waste Management owes him, Charles replied: It depends on what you call a lot. They re two months behind, now. Caproni wouldn t say how much Waste Management owes him in total. It s a big amount of money, he said. I m fed up with the whole thing. Caproni said he estimated that Waste Management owes various vendors millions of dollars. The Waste Management Authority s inability to pay vendors has been a topic during Senate testimony over the years. Steve Aubin, who was interim executive director of the Waste Management Authority for most of 2016, against him, and said he welcomed an investigation. I want them to investigate because I m hoping when all is done I m hoping that maybe I can sue her for slander, he said. I have nothing to hide. Harrison s letter calls for Griffin to be investigated. While his explanation of absence has been reported as a long term medical procedure, due to the extraordinary length of absence, previous absences, and non-contact information, a full investigation is warranted to insure the people of the Virgin Islands have not been deprived of its funds due to improper payroll deductions or notifications, she wrote. The complaint was one of 10 filed after Harrison lost her job as director of the police department s Training Bureau, according to copies furnished by Harrison. She filed a citizen s complaint after her termination alleging that Police Commissioner Delroy Richards Sr. had violated department policy and that he had ignored requests for the correction of a violation. Harrison also filed a complaint alleging Griffin s administrative assistant, Le-Reeda Lake, was absent on sick leave for four weeks without prior notice; that special assistant to the commissioner Capt. Mary Duggan had potentially disclosed confidential department information to a third-party vendor for personal gain, and had used threatening behavior to create a hostile work environment, and that she had obstructed Harrison s performance of her duties. Harrison further alleged that Lt. Maria Colon-Jones had disrupted a training presentation, and she said her termination was retaliatory for asking for sick leave to be treated for Zika. Harrison said that she eventually fled the Virgin Islands in fear of her life and that the police department still owes her 5,000 in back pay, Harrison said. Harrison said Monday she s submitted her complaints to Gov. Kenneth Mapp. I was the director of training and was fired without cause, she said. I had filed several complaints. Harrison said she requested 10 days of medical treatment off-island to combat a Zika infection on Oct. 18. Two hours later, I was terminated, she said. Documents provided by Harrison show she was suspended without pay on Oct. 18, and terminated on Oct. 28. Griffin said that while he was undergoing cardio rehab in Florida, he started hearing about issues involving told the Senate Finance Committee in July that the contractors needed to be paid. It is clear that the contractors are bearing the brunt while trying to provide critical services in hopes of payment by the authority as soon as possible, he said. Aubin ran the agency after the retirement of May Adams Cornwall until Merritt was hired last month. The financial condition of the Virgin Islands Waste Management Authority is dire and requires immediate attention and relief, Aubin told senators in July. The authority s available cash to pay its contractors vendors timely is critically limited, resulting in delayed payments to its contractors vendors; growing accounts payable, which is currently on the order of 10 million for its major contractors vendors; and non-compliance at the Anguilla and Bovoni landfills with court ordered mandates. An example of the outstanding Harrison. Ultimately, Richards made the decision to terminate Harrison, Griffin said. Subsequent to her termination, she started sending complaints, he said. She said she heard that while I was away I was practicing law and not really sick. Harrison wasn t his supervisor, and wasn t aware of how the accumulated sick time was being used, Griffin said. She submitted so many complaints against so many people, he said. It s obvious that it s frivolous. The complaints have not yet resulted in an internal investigation, Richards said. I found she was too much of a distraction for us to move forward with the actions as required of us by the mandates of our consent decree, Richards said about his decision to terminate Harrison. Harrison had failed to submit to a department background check in a timely manner, Richards said. The department brought her in on an interim basis initially, and then she was asked to comply with the package that we provided in order to conduct a background investigation, he said. She offered resistance. She believed she could complete her own timeline. Harrison said she had asked for 10 obligations owed by Waste Management has been highlighted for the last two years in Senate testimony during the budget process. For Fiscal Year 2016, the agency noted it owed vendor Gem s Construction 200,000 from fiscal year 2012 to pay for garbage collection services on the island of St. Thomas. The Waste Management Authority noted that it was unable to identify a revenue source to pay Gem s for the years-old debt. During testimony on the Fiscal Year 2017 budget, Waste Management again listed 200,000 owed to Gem s Construction for garbage collection on St. Thomas. However, Waste Management officials said the 200,000 was owed from the 2011 fiscal year. No one from Gem s Construction was available for comment Monday afternoon. Merritt said he believes the Waste Management Authority can address the overdue debt owed to the vendors. I think we can. We ve got to get a plan in hand and get them paid. If they provide a service, they should get paid, he said. Contact Jonathan Austin at 340-714-9104 or email jaustin dailynews.vi. Police: Ex-employee filing frivolous complaints against top cops The solution is, you pay your bills on time. Peter Caproni, owner of Your Environmental Services Inc. days to secure her college transcripts. My email specifically says I am not saying I don t want a background check, she said. Richards said he ultimately directed Harrison s complaints to the legal department, but he said Harrison continued to send letters and emails. A response from the department s legal counsel provided by Harrison says simply that Harrison couldn t use the citizen s complaint process to complain about things that happened while she was the director of the Training Bureau, and that each complaint will be closed as it is received. In some of her letters and emails, she appeared very threatening, Richards said. In one of her emails she wrote You are sicker than a tree branch that s going to be cut down very soon. It s one ignorance after another. Harrison disputes that characterization. I m very professional, she said. Griffin was on legitimate sick leave when he was in Florida, Richards said. He was being treated and he entered into a program in Florida, he said. The woman is on a witch hunt all over. Contact Brian O Connor at 340-714-9130 or email boconnor dailynews.vi. 4 The Virgin Islands Daily News VIRGIN ISLANDS Tuesday, December 13, 2016 Police say woman tried to smuggle pot into prison By BRIAN O CONNOR Daily News Staff A Mon Bijou woman tried to sneak two bags of marijuana into Golden Grove, police said. Sherifa Petersen, 27, faces a single charge of introducing contraband into prison, and was free on 10,000 bail about six hours later, according to her arrest record. V.I. police arrested Petersen on Friday afternoon about 1:47 p.m., after corrections officers discovered By BRIAN O CONNOR Daily News Staff the marijuana hidden in the personal belongings of inmate Omari Gordon, according to Petersen s arrest log. Rick Mullgrav, Director of the Bureau of Corrections, said corrections officers discovered the marijuana during a routine search. Petersen was bringing a package for her companion, and I will say her companion, because I m not sure what the relationship was there, Mullgrav said. She was coming to visit, and she brought some drugs. Corrections officers told police The 3rd U.S. Circuit Court of Appeals will sit this week in the federal courthouse on St. Thomas. Judges Kent Jordan, Michael Chagares and Thomas Hardiman will hear a range of appellate cases, ranging from a local prisoner challenging his detention as unconstitutional to an estate battle over an inheritance in which two separate federal cases were merged into one. The judges fly in from Philadelphia to hear argument on issues they decide at a later date. Appellate court argument is based around rapid-fire questions from the empaneled judges, unlike civil or criminal court, which frequently is dominated by long exchanges between they had smelled marijuana in a pair of black Jordan sneakers Petersen was bringing to Gordon, according to a VIPD press release. When corrections officers pulled apart the sneakers, they discovered two small plastic bags of marijuana, according to the press release. Any material that ends up in the hands of prisoners is thoroughly searched as a matter of routine, Mullgrav said. We search any item that goes to the inmates, he said. Generally attorneys and witnesses. The appellant attorney gets four minutes to make a case, followed by four minutes from the appellee, followed by four minutes of rebuttal from the appellant attorney, though judges questions can sometimes turn four minutes into eight. For example, Ronald Gillette, incarcerated in 2008 on multiple counts of aggravated rape and unlawful sexual speaking, it s pretty thorough. Gordon, 32, has been in jail since police charged him with firstdegree attempted murder and firstdegree assault following a Nov. 29 shooting on St. Croix, authorities have said. Gordon s name also matches that of a man charged in 2010 with the murder of 19-year-old Kendal Wood. Gordon s trial languished in the Superior Court on St. Croix for almost three years, and he was most recently granted a continuance in 2013. contact against two children, is seeking an appeal on a motion denying his release from custody. Gillette s attorney, Joseph DiRuzzo III, began on Monday by making his case that the motion, ordered by Chief District Court Judge Wilma Lewis, constituted a final judgement and thus was worthy of an appeal. DiRuzzo sought a three-judge panel to overturn Lewis s order. It didn t take long for Jordan to ask a question. How can it be a final order if there are still claims in the case, if you re still seeking relief, which you are? he said. DiRuzzo had a response. The denial of a three-judge panel effectively throws Mr. Gillette out of court, he said. He started to add to this, but Jordan cut him off. There are claims for relief, they still exist, he said. I m struggling to see how this is a final judgement. Orders relating to the change in the reduction of a prison population essentially rely on three-judge panels to be valid, DiRuzzo said. Prison orders issued by a single judge are subject to challenge on appeal, DiRuzzo said. I would submit that three-judge courts are desirable in confrontations between state and federal power, he said. Kimberly Salisbury was the Assistant Attorney General arguing for the appellee. Her job on Monday was to tell three federal judges that it wasn t their job to decide Gillette s case. This particular order is just simply not final, she said, at one point. The disposition of the murder case involving Gordon couldn t be immediately ascertained Monday evening. Gordon had been released on electronic monitoring and house arrest pending trial in 2013, according to court documents at the time. He was being held on 500,000 bail in his most recent arrest, police said. Contact Brian O Connor at 340-714-9130 or email boconnor dailynews.vi. Federal judges from Philadelphia in the Virgin Islands to hear cases Pick 3 (Dec. 12) Morning 1st prize 5 5 4 Midday 1st prize 8 7 0 Sunset 1st prize 3 9 8 Evening 1st prize 0 3 7 Caribbean Lottery Pick 4 (Dec. 12) Morning 1st prize 4 3 6 2 Midday 1st prize 2 3 0 4 Sunset 1st prize 8 0 9 6 Evening 1st prize 7 5 8 0 However, Hardiman had a question. If there was an order short of Gillette s release that could make the prison resolve the Eighth Amendment violations that put the prison under a federal consent decree for decades to resolve, Lewis or another judge could still make the determination. The prison has completed only 14 percent of the new consent decree ordered in 2013 according to testimony. What would that order look like? Hardiman asked. Salisbury struggled with an answer. Jordan tried to steer the argument back to the facts of the case. Does the fact that a 2013 consent decree superseded and replaced the original, does it mean the three decades of prior noncompliance is to be ignored? he said. You re not even a fifth of the way completed. At what point is enough enough? Complying with the consent decree will take time, Salisbury said. According to the Bureau of Corrections, we re not there yet, she said. Chagares jumped in, and compared Golden Grove Adult Correctional Facility to a luxury cruise liner. It s like your big cruise ships out in the bay, he said. It takes a long time to turn around. But this is a really long time. Hearings will continue today before the Third Circuit at the DeLugo Federal Building on St. Thomas at 9 a.m. Another session is set for Thursday starting at 10:30 a.m. Contact Brian O Connor at 340-714-9130 or email boconnor dailynews.vi. Mega Millions (Dec. 9) Next draw: Tonight 19 27 47 67 68 Mega Ball: 1 Powerball (Dec. 10) Next draw: Wednesday 12 21 32 44 66 Powerball: 15 Tuesday, December 13, 2016 VIRGIN ISLANDS The Virgin Islands Daily News 5 Mapp turns to new taxes in accepting court ruling on 8 government pay cut By JONATHAN AUSTIN Daily News Staff Gov. Kenneth Mapp said Monday he believes the territory must accept a federal court ruling that found a 2011 government employee pay cut unconstitutional. After reviewing the case with the attorney general and reviewing the case with our financial team, I really am of the mind that the government of the Virgin Islands should make good on this claim, Mapp said. He said he wants the Legislature to sign on to a plan to pay the claim and address other issues by approving increased sin taxes, taxes on time-share occupants, and changes that set a minimum tax for property owners who claim tax credits. He said the lawsuit judgement is valued at 65 million. We will include all workers affected by the cut. In unions, all unions, and out of unions, Mapp said. The territory had asked the full 3rd U.S. Circuit Court of Appeals to reconsider the judgement, which was penned by three of the court s judges. The court rejected that request Monday. The governor made his comments during a press conference Monday morning on St. Croix. The conference originally had been scheduled for Friday on St. Thomas, but was delayed for no stated reason. Mapp also announced he has invoked public exigency authority to fast track road repairs in the territory. He described public exigency as sort of a public emergency declaration that should allow the government to more quickly award repair contracts for roadways that have deteriorated following extensive rainfall. Mapp said he has consulted with federal authorities and hopes to access existing highway project funds to use them to get the primary road system and secondary road system repaired. He said the work will be done under existing federal road requirements, meaning they include proper drainage, sidewalks, striping and other elements, all compliant with federal highway and DOT standards. Regarding the 3rd Circuit ruling on the 8 percent cuts enacted through the V.I. Economic Stability Act of 2011, Mapp said the territory could pay off the amounts due to employees in two years if plaintiffs in the case give the government time to make good. He said the payments can be satisfied if new tax collections from what he called the Virgin Islands Enhancement and Economic Recovery Act, which must be approved by the Senate, total at least 80 million. He said alcohol and tobacco in the Virgin Islands is sorely undertaxed, and 40 million bottles of beer are sold each year in the territory. Additional tax also would be charged on distilled alcohol and wine. In addition, we are seeking at least 12 per carton tax on cigarette and tobacco products in the territory, as well as a sugar tax on carbonated sweet beverages, Mapp said. Mapp suggested most of the millions of beers are consumed by tourists, so the tax would target visitors who enjoy the territory and should contribute to maintaining its infrastructure. If you felt that was too expensive, then stop drinking beer. That s healthy. That s a benefit, Mapp said, referring to locals who drink alcohol. Mapp is also seeking a tax on timeshare occupants, and wants to require that any resident claiming credits on property taxes pay a minimum annual property tax of 360. He said the additional tax revenue could also provide 18 million to pay worker s compensation debts to medical providers, hospitals and injured workers in the territory. Mapp said Monday that as of today, he was not prepared to call the Legislature back into session to address his proposal. Senate Majority Leader Sammuel Sanes said Monday he hopes more revenue could be generated through the reopening of the St. Croix oil refinery to pay some of what Mapp wants. We shouldn t rely so much on taxation. Right now, people of the Virgin Islands are facing a financial burden. Now we want to tax them more. That is not appealing to me at all, he said. There are some good points to the governor s suggestions, Sanes said. I see his point. I can understand where he is coming from, he said. Lame duck Sen. Clifford Graham said Monday that the promise to repay government workers back for the pay cut won t be enough to convince legislators to support Mapp s proposal. The governor has sent us his version of the deficit reduction strategy, Graham said. There are parts that senators will support, and some we definitely would not be in favor of, he said. Graham said paying back the government employees should be a priority. Are they Number 1 on the priority list? I think there are more critical issues now, Graham said. Graham said he is not sure whether the 31st Legislature will consider Mapp s approvals before it stands down this month. I am willing and able to work until my last day, he said. I am not sure the calendar will afford us the time to do so. Contact Jonathan Austin at 340- 714-9104 or email jaustin dailynews. vi. Senate Agenda Today The Homeland Security, Justice and Public Safety Committee will meet at 9 a.m. in the Lawaetz Conference Room on St. Croix to get an update on the V.I. Police Department, the V.I. Corrections Bureau and the V.I. Health Department. Wednesday The Finance Committee will meet at 9 a.m. in the Ottley Legislative Hall on St. Thomas to consider a bill relating to the International Banking Center Regulatory Act and a bill reappropriating 2 million of Luis Hospital appropriations for the use of the HVAC project. Thursday The Rules and Judiciary Committee will meet at 9 a.m. in Ottley Legislative Hall on St. Thomas to consider bills that include a bill to increase the Emergency Services Surcharge from 1 to 2; a bill providing for the disposition of proceeds from the rental or sale of housing units acquired in the Limetree Bay Terminals operating agreement to a bill regarding the establishment of credit unions and their oversight; and a bill creating the V.I. Risk-Based Capital for Insurers Act. Friday No meetings. Governor s Agenda Today No appearances scheduled. Government House did not provide Gov. Kenneth Mapp s agenda. 6 The Virgin Islands Daily News VIRGIN ISLANDS Tuesday, December 13, 2016 Oswald Harris Court raid yields 2 marijuana arrests By SUZANNE CARLSON Daily News Staff ST. THOMAS A massive operation involving more than a dozen armed local and federal officers while a helicopter circled overhead at Oswald Harris Court on Friday evening yielded two marijuana arrests. Jose Squiabro, 42, and Yasim Ross, 31, both of Oswald Harris Court, were arrested as a result of the operation, according to court documents. Both were charged with possession of marijuana with intent to distribute and released Monday after posting 10,000 bond each. Arraignment for the two men is scheduled for Jan. 5. Friday s operation shut down the housing community and caused alarm for residents around Estate Thomas, Long Bay and Centerline Road. More than a dozen armed officers secured the intersection around Building 9 in the housing community as a U.S. Customs and Border Protection helicopter flew overhead. None of the officers would say what they were doing, but they were dressed in tactical gear, some armed with long guns that appeared to be semi-automatic rifles, and officers wore body armor labeled as being from the Drug Enforcement Administration or police. Probable cause affidavits filed Monday against Squiabro and Ross shed light on the operation, known as December Reign. The operation is a joint effort by officers from Homeland Security Investigations, U.S. Customs and Border Patrol, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the Drug Enforcement Agency, the Justice Department, and the V.I. Police Department. It is meant to patrol St. Thomas housing communities, due to the recent increase in gun violence in those areas, according to the affidavit for Ross. At 4:45 p.m. Friday, officers approached a group of men around Building 20 and noticed Squiabro drop a partially smoked joint, according to the affidavit. Officers recovered the joint and 105 bags containing marijuana, according to the affidavit. The affidavit does not note how large the bags were or the total weight of marijuana Daily News file photo A U.S. Customs and Border Protection helicopter circles Estate Thomas on Friday evening as police on the ground secured the intersection around Building 9 at Oswald Harris Court housing community on St. Thomas. By SUZANNE CARLSON Daily News Staff ST. THOMAS Federal agents arrested a crack cocaine dealer in Red Hook on Saturday as part of an ongoing investigation targeting armed drug trafficking, according to court documents. Tolomah Foy was arrested and charged with possession of crack cocaine with intent to distribute, according to an affidavit filed Monday by a special agent with the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, also known as the ATF. The arrest came as a result of operation Total Recall, an ATF initiative on St. Thomas that began in August and is ongoing, according to the affidavit. This investigation focuses on the armed drug trafficking fueling violence which has resulted in over 48 recovered. Officers also recovered 1,045 in cash and a Samsung cell phone from Ross, both of which were returned to him, according to the affidavit. Squiabro s criminal history includes a 1993 arrest for second-degree burglary, which was dismissed in 1997; a 1996 arrest for possession of stolen property, for which he was sentenced to a 500 fine, one year in jail suspended after six months, and two years probation; and a 2001 arrest for possession of an unlicensed firearm, for which there homicides to date, according to the affidavit. Agents focused on armed drug traffickers operating in Red Hook, a commercial bar and restaurant district frequented by a large number of tourists, and have created cases against 10 subjects for federal firearm and narcotics violations so far, according to the affidavit. On Nov. 11, an undercover agent made a cold contact with Foy, also known as T, who led the agent behind Tap and Still and sold him approximately 3 grams of crack cocaine, according to the affidavit. The agent exchanged phone numbers with Foy and called him on Nov. 14 to arrange another transaction outside the Fresh Mart Grocery store. Foy asked the agent to instead meet him behind Tap and Still, where he sold him approximately 6 grams of crack cocaine for 200, according to the affidavit. On Nov. 17, Foy sold the was no known disposition listed in court documents. Similar to Squiabro s arrest, at about 5:50 p.m. Friday, officers approached Ross and other men near the 1st Stop Gas Station in Estate Thomas, which is located south of Oswald Harris Court. When asked whether he had any illegal substances, Ross said, yeah I have a little weed in my back pocket, according to the affidavit. Officers found a total of 2.2 ounces of marijuana packaged in various plastic bags in Ross possession and arrested him, according to the affidavit. Ross s criminal history includes a 2003 arrest for third-degree burglary; a June 2009 arrest for delaying and obstructing; a Sept. 2009 arrest for first-degree robbery, possession of a dangerous weapon, and unauthorized use of a vehicle; and he was arrested in January and charged with destruction of government property. Court documents list no known disposition for each of Ross s prior arrests. Contact Suzanne Carlson at 340-714-9122 or email scarlson dailynews.vi. Crack dealer arrested in Red Hook agent 9 grams of crack cocaine for 600 at the same location. On Friday, the agent exchanged text messages with Foy and arranged for another transaction, and on Saturday, agents recorded a phone call with Foy in which he agreed to sell approximately 1,500 worth of crack cocaine, according to the affidavit. The agent met with Foy at approximately 6:15 p.m. Saturday in the rear parking lot of Tap and Still, consequently the ATF cover teams descended on scene and arrested Foy, according to the affidavit. Agents retrieved 15 grams of crack cocaine from Foy on Saturday, and seized approximately a total of 32 grams of crack cocaine from Foy during the investigation, according to the affidavit. Contact Suzanne Carlson at 340-714-9122 or email scarlson dailynews.vi. Tuesday, December 13, 2016 FOR THE RECORD The Virgin Islands Daily News 7 Man arrested in Arizona for armed jewelry store robbery By SUZANNE CARLSON Daily News Staff Police have extradited a man from Arizona and charged him in connection with the 2013 armed robbery of Gems and Gold Corner, according to V.I. Police spokeswoman Sakeeda Freeman. Ron Kuntz, 42, was arrested at 11:55 p.m. Saturday and charged with irst-degree robbery, second-degree robbery, grand larceny, irst-degree assault, third-degree assault, destruction of property, and aiding and abetting. Bail was set at 150,000. Kuntz and others were identiied as being responsible for the armed robbery in Drake s Passage on Sept. 16, 2013, Freeman said. The robbery occurred just before 10 a.m. when a man entered the store and pulled a handgun from his waist, police said at the time. The robber told the owner, who was the only person in the store at the time, to get down and then broke out some of the glass cases in the store. Police did not say what the value of the goods taken was. Kuntz was apprehended and detained in Tempe, Ariz., after a routine trafic stop, and Arizona police discovered there was an outstanding warrant for Kuntz from the U.S. Virgin Islands, Freeman said. Kuntz waived extradition and was returned to St. Thomas to face charges, Freeman said. Freeman said Kuntz lives in Estate Tutu, but the V.I. Police arrest log listed his address as East Baseline Road in Phoenix, Ariz. Anyone with information about crime in the territory can contact the V.I. Police Department at 340- 774-2211, the Criminal Investigation Bureau at 340-714-9801, the anonymous tip service Crime Stoppers USVI at 1-800-222-8477, or 911. Contact Suzanne Carlson at 340-714-9122 or email scarlson dailynews.vi. Cruise Ships Today, Dec. 13 Norwegian Escape (5,400) 8 a.m. to 6 p.m. Havensight Carnival Glory (2,974) 11 a.m. to 7 p.m. Havensight Carnival Magic (4,675) Noon to 8 p.m. Havensight Harmony of the Seas (6,780) 11 a.m. to 8 p.m. Crown Bay Wednesday, Dec. 14 Norwegian Epic (4,100) 7 a.m. to 2 p.m. Havensight Norwegian Gem (2,394) 8 a.m. to 5 p.m. Havensight Regal Princess (3,560) 10 a.m. to 10 p.m. Havensight Grandeur of the Seas (2,446) 9 a.m. to 6 p.m. Inner harbor Eclipse (2,582) 8 a.m. to 5 p.m. Crown Bay Oasis of the Seas (6,296) noon to 8 p.m. Crown Bay The police blotter is the V.I. Territorial Emergency Management Agency s list of calls to 911 Emergency operators and the time they were reported. St. Croix Charged: Assault George Christopher, 62, of Mon Bijou was arrested at 10:30 a.m. Friday and charged with second-degree assault-domestic violence. Police said he choked a woman. No bail was set per the domestic violence statute. Charged: Fugitive from justice Everick Phillip, 31, of Mount Pleasant was arrested at 6:20 p.m. Sunday and charged with being a fugitive from justice. Police said he was wanted on a warrant out of Orange County, Fla. No bail was set. Incidents in the police blotter included: Assault 10:54 p.m. Sunday, Golden Grove; 3:16 p.m. Monday, Kingshill. Destruction of property 12:32 a.m. Monday, Salt River; Police blotter 11:51 a.m. Monday, Strawberry Hill; 12:09 p.m. Monday, Salt River; 6:30 p.m. Monday, La Reine. Larceny 11:17 a.m. Monday, Mutual Homes; 3:15 p.m. Monday, Richmond. Vehicle tampering 8:59 a.m. Monday, Hannah s Rest; 12:28 p.m. Monday, La Reine. St. Thomas Charged: Assault Anthony Picot, 31, of Smith Bay was arrested at 2:40 p.m. Saturday and charged with second-degree assault and disturbance of the peacedomestic violence. No bail was set per the domestic violence statute. Charged: Assault Kimberley Williams, 27, of Bovoni, was arrested at 5:50 a.m. Monday and charged with third-degree assault-domestic violence. No bail was set per the domestic violence statute. Charged: Assault A 17-year-old boy was arrested at 12:10 p.m. Monday in the area of the Lucinda Millin Home and charged with third-degree assault. He was released to the custody of his parents. Incidents in the police blotter included: Assault 4:32 a.m. Monday, Oswald Harris Court; 4:38 a.m. Monday, Bovoni; 11:50 a.m. Monday, Savan. Attempted burglary 6:03 p.m. Monday, Mariendal. Destruction of property 3:56 p.m. Monday, Port Authority. Larceny 11:42 a.m. Monday, Mahogany Estate. Unlawful entry 11:34 p.m. Sunday, Anna s Retreat. Vehicle tampering 11:34 a.m. Monday, Port Authority; 7:37 p.m. Monday, Zone C; 7:52 p.m. Monday, Zone C. St. John Incidents in the police blotter included: Larceny 12:28 p.m. Monday, Zone D. Outside fire 11:05 a.m. Monday, Zootenvaal. Vehicle fire 2 a.m. Monday, Gerder Marsh Road; 2:43 a.m. Monday, Gerder Marsh Road. 8 The Virgin Islands Daily News DEATHS Tuesday, December 13, 2016 Ivan A. Frazer Muhammed Ivan A. Frazer Muhammed, also known as BKA Kitchel or Rock City, 80, of St. Thomas, died Tuesday, Dec. 6, 2016, at Schneider Regional Medical Center. He was born Oct. 6, 1936. His children and their children; daughter Denise Frazer; Kneka Dewindt, Rick Lewis and Caprisha Richards; Ivan A. Frazer daughter Cheryl Muhammed Frazer Jackson; Kevin Jackson Jr. and Chynelle Munnilal; daughter Elise Frazer; Jaymel Leonard, Jalima Francis, Tiba Francis, Gyasi Francis, Jahmela Maduro, Jamari Maduro and Jarise Maduro; daughter Rehenia Frazer-Phillip (Akiemba); Rehema (Alika) Jackson, Saitah Aubain, Sencelia Renolds, Quamid (Presidente) Asani and Shaeed Gumbs; daughter Venise Frazer; daughter Shenika Muhammed; Jason And Jahni Pemberton; son Tyrone Frazer; Bajani Frazer, Taj Mahal Frazer, Tamar Frazer, Sohi Frazer, Jahti Frazer, Iibea Frazer; son Keith Frazer; Jarell Frazer; son Albert Frazer; son Ivan Frazer Jr.; his siblings sister Rehenia Joshua and Blanche Frazer; and brother Victor Frazer. Relatives and friends are respectfully invited to attend the viewing at Christ Church Methodist on Friday, Dec. 16, 2016, at 9 a.m., followed by the service at 10 a.m. Interment is at Western Cemetery No. 3. Arrangements are under the care of Hurley Funeral Home and Cremation Center of St. Thomas, St. John, St. Croix, and Tortola. For directions and online condolences, please visit us at www.hurleydavis. com. Diana S. Richardson Services will be held Saturday for Diana S. Richardson, 38, of St. Thomas, who died Saturday, Nov. 26, 2016, at Schneider Hospital. The first viewing will be from 5 to 7 p.m. Friday at the Celestial Chapel of Hurley Funeral Home. The second viewing will be from 9 to 10 a.m. Saturday at Church of God of Prophecy in Estate Hoffman. The service will follow at 10 a.m. Diana S. Richardson Interment will be in Western Cemetery No. 2. She is survived by her mother, Sonia Richardson; father, Romeo Richardson; siblings, Romeo, Nancy, Sharon, Louise, Karen and Lydia; nephews and nieces, Ly Dale, Jayziah, Kerrisa, Mokesha, Aaliyah and Kayla; great aunts, Isalene Clomel Shelford, Irene and Frances Hughes, Rita Joseph and Olivia Rievere; aunts, Verna Rollins, Claudette Prince, Janetta Gumbs, Juliette, Ena, Christibell and Violet Imogen Richardson; greatuncle, Melvyn Shelford; uncles, Egbert Hood, Aubrey, David and Elroy Prince, David, Wycliffe, McIntosh, Elkin and Sanford Richardson; cousins, Albert, Yves, Egbert Jr. and Tisha Hood, Kim Rollins, Patrick and Patricia Farrel, Toya Rollins, Latrema Simon, Jermaine, Aubrey Jr., David Jr. and Lanna Prince, Diana Williams, Janice, Jewel, and Joslyn Gumbs, Joanna Haley, Nigel, Davida, Daniella, David, Radoykah, Radimiroh, Radiquah, Rohan, Jan, Devaunie, Daeja, Moyagaye, Udlyn, Simone, Leonardo, Ashael, Elson, Elvin, Saniqua and Casey Richardson; the Shelford, Rollins, Nibbs, Maduro and Smith families; and many other extended family and friends too numerous to mention. Arrangements are by Hurley Funeral Home and Cremation Center of St. Thomas, St. John, St. Croix, and Tortola. For online condolences visit www. hurleydavisfuneralhome.com. Germain Petersen Services will be held Thursday for Germain Petersen, who died on December 6, 2016, at her residence. She was 61. The viewing will be from 8 to 9 a.m. in the Celestial Chapel at Hurley Funeral Home. The funeral Mass will follow at 10 a.m. at Our Lady of Perpetual Help. She will be cremated. Germain Petersen She is survived by her husband, Donald Petersen; children, Donald, David and Gina Petersen; daughter-in law, Dawn Petersen; grandchildren, Delano and Destini; brothers, Edward, Edmund and Edville Bryan; sisters, Jeanette Querrard, Joycelyn Harris and June Aubain; sister-in-law, Eleanor Chote; brothers-in-law, Daniel Petersen, Eddie Aubain and Alpha Harris; special family friends, Camille DeCosta and Gilbert Laban Jr.; and many more family and friends Arrangements are by Hurley Funeral Home and Cremation Center of St. Thomas and St. John. For online condolences visit www.hurleydavisfuneralhome.com. Catherine Ann Elizabeth Felix Services will be held Monday for Catherine Ann Elizabeth Felix, 93, who died on Dec. 5, 2016, at her residence. The first viewing will be from 3 to 5 p.m. Sunday at Hurley Funeral Home. The second viewing will be from 9 to 10 a.m. Monday at Saint Andrews Episcopal Church followed by the funeral service at 10 a.m. Interment will be in Eastern Cemetery. She is survived Catherine Ann Elizabeth Felix by her brother, William Fergus; sisters, Grace Duberry, Catherine Lizzie White, and Mary Allen; children, Noelise Noel, Glendor Christine Fagan, Catherine Matthew, Emeline Clauretta Felix, Nilda Hector, Elsie Weeks, Joseph Fergus and Winsley Felix Sr.; sons-in-Law, Patrick Hector and Thomas Noel; Grandchildren, Bernard and Robert Attidore; Derrick, Jadine, and Carolyn Allen, Jacqueline and Alicia Fagan; Neuvena Cuffy and Tashina Rogers; Tamika De La Cruz, Kyle and Nathan Felix; Wakima, Yakim, and George Baptiste III, Phillip, Kristal and Keanna Hector; Damali, Shanika, and Kareem Smith, and Geneiva Weeks; Joe-Ann, Joseph Jr., J. Daly, Ja Den Fergus; Carl and Winsley Felix, Jr.; and many more great grandchildren, relatives and friends. Arrangements are by Hurley Funeral Home and Cremation Center of St. Thomas, St. John, St. Croix and Tortola. For directions and online condolences visit www.hurleydavisfuneralhome. com. Tuesday, December 13, 2016 VIRGIN ISLANDS The Virgin Islands Daily News 9 Prosecutors: white powder letters contained hoodoo curse By SUZANNE CARLSON Daily News Staff A woman facing federal criminal charges for mailing letters containing white powder was attempting to place a hoodoo curse on her enemies, according to court documents filed by prosecutors in the case. Eugenia Winston, who is facing 32 counts of mailing threatening communications, placed hotfoot powder into envelopes containing subpoenas that she mailed to witnesses set to testify against her in a civil lawsuit against her former employer, Scotiabank, according to court documents. Hoodoo, also known as rootwork, is a traditional African American folk spirituality that developed from a number of West African spiritual traditions and beliefs. The detail came in prosecutors opposition to Winston s motion to suppress all of her statements to authorities, which was filed Monday. Winston has been free on unsecured bond since Sept. 1, and her civil lawsuit against Scotiabank alleging employment discrimination and harassment has been placed on hold until the criminal case against her is resolved. At a detention hearing on Sept. 1, Federal prosecutor Chris Fisanick said Winston s actions were a clear threat intended to terrorize the recipients of the letters, and made reference to the 2001 anthrax attacks. Postal Inspector Eric Oram said at the hearing that the substance was determined to be nontoxic and was likely baby powder, cornstarch, or a similar substance. Winston s attorney, Assistant Federal Public Defender Gabriel Villegas, argued that Winston is the victim of an unfortunate misunderstanding, and she accidentally spilled body powder over and into the envelopes. However, Monday s filing by federal prosecutors paints a slightly different picture of Winston s Hoodoo, also known as rootwork, is a traditional African American folk spirituality that developed from a number of West African spiritual traditions and beliefs. actions. Winston mailed over 30 envelopes that contained hotfoot powder and subpoenas to various individuals in the Virgin Islands. Hotfoot powder is a hoodoo curse designed to prevent witnesses from appearing in court to testify, according to the filing. Hotfoot powder is a hoodoo practice of mixing various ingredients often some combination of cayenne pepper, Sulphur, copper sulphate, cornstarch and other elements which is believed to drive away enemies. Commercial versions of the powder also are available for sale online. Recipients of Winston s letters were mainly witnesses who might testify against Winston in her lawsuit against Scotiabank, and also included U.S. Magistrate Judge Ruth Miller, the legal counsel for Scotiabank and Winston s former counsel in her suit against Scotiabank, according to prosecutors. Because the envelopes had a return address of the U.S. Courthouse on St. Thomas, despite the fact that Winston was serving these subpoenas herself, some of the envelopes that could not be delivered were returned to the courthouse and opened by staff there, according to prosecutors. Believing the powder to be anthrax or some other deadly biological toxin, the United States Courthouse was evacuated and closed; the employees in the courthouse who were exposed to the powder were quarantined for hours, according to the filing. The incident caused significant disruption at the courthouse and at the private law office of attorney Bennett Chan near the West Indian Co. cruise ship dock. The purpose of lacing these envelopes with hotfoot powder was to instill fear and intimidation in the witnesses to prevent their testifying against Winston, according to prosecutors filing. The filing does not indicate how authorities determined the substance in the envelopes was hotfoot powder or what ingredients were in the powder. Winston admitted to FBI investigators shortly after the envelopes were received that she was the sender. But Villegas has filed a motion to suppress all of her statements to law enforcement, saying she was not properly advised of her right to avoid self-incrimination. But prosecutors shot back in Monday s filing, saying there is no evidence in a video-recorded interview with Winston that authorities did not properly advise her of her rights or attempt to intimidate her to give a statement in any way. Villegas wrote in his motion that the videotaped interview speaks for itself. However, prosecutors wrote that the most cursory view of Winston s video recorded interview with law enforcement agents establishes beyond cavil that Winston was never coerced, was properly and repeatedly advised of her rights, and consciously waived those rights, according to Monday s filing. The first thirty seconds of the interview wholly defeats Winston s meritless motion. Winston is scheduled to go to trial on Jan. 11 before U.S. District Judge Juan Sanchez. Contact Suzanne Carlson at 340-714-9122 or email scarlson dailynews.vi. 10 The Virgin Islands Daily News Tuesday, December 13, 2016 CENTENNIAL SCENE Archaeology in the Virgin Islands Virgin Islands laborers excavate pre-historic deposits at Magens Bay, St. Thomas. The Cuban Scientific Expedition to the Virgin Islands in 1951 was documented by archaeologists Oswaldo I. Morales Pati o, above, and Fernando Royo Guardia, and subsequently translated and annotated many years later for the Virgin Islands Archaeological Society in its Journal number 5 (1978) by Alfredo E. Figueredo. Morales Pati o was president of the National Board of Archaeology and Ethnology within the Ministry of Culture and Education from 1951-1955. During that same period, Royo Guardia served first as secretary and then treasurer. The visiting Cuban scientists were part of a commission formed, among other objectives, to study and identify possible routes through which prehistoric cultures may have reached Cuba, to seek evidence of the presence of common Cuban influences in Jamaica, Puerto Rico and the Virgin Islands, and to ascertain the spread of Carib influence and identify the culture found by Columbus on St. Croix. Welcomed in the Virgin Islands by Gov. Morris de Castro, they visited and examined four sites. On St. Thomas, they judged the Magens Bay site to be Arawakan culture with a few Igneri specimens. Administrator Harry E. Taylor accompanied the visitors on St. Croix, where they viewed three more sites: Christiansted environs where they examined and collected a number of rimsherds and shell samples; the Salt River midden, with its French fort earthworks foundation, where they were able to excavate pottery, stone, shell and shell bead specimens; and Estate Richmond, where they viewed artifacts, including some Igneri pottery, obtained by the owners from Salt River and from an Indian site on the estate. According to Figueredo, the importance of this work (by the Cubans) is not due solely to its reports of archaeological remains, however; it is also a historical document, offering us interesting information on the state of affairs, beliefs, and personalities of its time. The Cubans came during one of our minor dark ages when archaeological work had come to a near standstill, and the history and historiography of the (Virgin Islands) ... were in abject abandon. Katheryne Brooks Kay-Willock, archaeologist with the Conservation and Cultural Affairs Department, studies the remains of what is believed to be 1,000-year-old skeleton located at Hull Bay beach in 1974 in St. Thomas, at a proposed condominium project. Photo courtesy of THE VIRGIN ISLANDS, OUR NEW POSSESSIONS The ribbon-sealed bottle, a P.F. Heering Company Heering s Cherry Cordial bottle produced in the period 1835-1850, was recovered from the harbor in St. Thomas, where many such items have been discarded over the centuries. The Schenectady (New York) Gazette of Jan. 7, 1981, reported an upcoming lecture presentation to the National Bottle Museum Society in Ballston Spa, N.Y., on the Buried Treasures of St. Thomas. The newspaper reported that lecturer Gary T. Stephenson recently returned from the Virgin Islands where he provided consulting services to an individual who has unearthed over 3,000 bottles from an old community dump. The collection dates back to 1700. I have never seen so many bottles come out of one dig, said Stephenson, vice president of the museum society. Bottles in the collection come from Paris, London, Martinique, Canada, Germany and the U.S.A. They graphically illustrate the history of St. Thomas, showing evidence of worldwide trade and commerce. The St. Thomas collection is considered to be the fifth largest collection in the U.S. Photo courtesy of VAGN PETERSEN S DANISH BOTTLES Tuesday, December 13, 2016 The Virgin Islands Daily News 11 CENTENNIAL SCENE Fort Sal (formerly Fort Flamand) at the entrance to Salt River in St. Croix is the oldest intact colonial earthwork fort under United States authority. It is also believed to be the only extant earthwork fort in the entire Caribbean. Begun circa 1640 by the English, it was occupied in turn by the Dutch, then the French. The fortifications lie directly adjacent to the Columbus landing site and an ancient Taino ceremonial ball court and plaza. All these features are part of the National Park System s Salt River Bay National Historic Park and Ecological Preserve, co-owned by and managed under an agreement with the government of the Virgin Islands. The Daily News of May 13, 1938, reported the 1934 discovery by Alvarez Julien of skeletal remains and pottery sherds on Water Island. Based upon the direct association of shells, stone implements and pottery in the area, Julien suspected the remains to be Carib Indian in origin. In 1936 he brought news of his find to the attention of J.C. Trevor, who was conducting field work on the Negroes of the Eastern Caribbean under his fellowship in anthropology at Northwestern University. The skeletal remains had been re-interred and while all could not be relocated, those that could were donated by Julien to Oxford University for further identification and study. Provisionally they were classified as pre-Columbian with further characteristics to be defined and confirmed. The images above and others appeared in the article Skeletal Remains from the Virgin Islands in the April 1938 issue of Man, A Monthly Record of Anthropological Science, published by the Royal Anthropological Institute of Great Britain and Ireland (Vol. XXXVIII, 47-65). According to The Daily News, Virgin Islands Governor Lawrence Cramer gave permission for the material to be excavated and sent to England. An old scale found on St. John and donated to Cruz Bay Museum on July 8, 1974, by Russel Dennem. Photo courtesy of ARCHAEOLOGICAL RECONNAISSANCE OF THE ISLAND OF ST. JOHN, UNITED STATES VIRGIN ISLANDS, PLATE VII Petroglyphs at Congo Cay, north of Cruz Bay off St. John. About the Images: Images provided by the Territorial Archives of the Government of the Virgin Islands, a unit of the Division of Libraries, Archives and Museums of the Department of Planning and Natural Resources. Additional images sourced as otherwise noted. For more information on the holdings of the Territorial Archives, contact Territorial Archivist Susan Lugo at 340-774-0630, or email susan.lugo dpnr.vi.gov. 22 The Virgin Islands Daily News Tuesday, December 13, 2016 Founded Aug. 1, 1930, by J. Antonio Jarvis and Ariel Melchior Sr. Published by Daily News Publishing Co., Inc. Archie Nahigian, President Gerry Yandel, Executive Editor Ken E. Ryan, Production Director Onneka Challenger, Circulation Director What s the speed limit on Magens Bay Road? Is it how fast you can run? What do the new Magen Bay signs mean? Public Works installed four of these signs on Magens Bay Road in November in response to the speeding problem. According to the Merriam-Webster dictionary the abbreviation of miles per hour is mph and there should be a number in front of mph designating the speed. On these signs, the number is omitted, so 86 A Pulitzer Prize-Winning Newspaper ST. CROIX ST. JOHN ST. THOMAS TORTOLA EDITORIAL BOARD J. Lowe Davis, Editor At Large Lisa Jamil, Advertising Director Juanita Young, Controller Lori Emery drivers have no idea what the speed limit is. St. Thomas is an international destination, and we have contemporary street signs that use symbols for walkers, joggers, bicycles etc. I know we can do better in the signage department on Magens Bay Road. Lori Emery, St. Thomas See Your Views In Print The Daily News is always interested in publishing local views on topics of general interest, and we especially welcome commentary on issues affecting the Virgin Islands and its people, culture, businesses and government. Send Letters, Essays, Halos and Pitchforks, Cartoons or other original material about local issues of general interest to letters dailynews.vi The Daily News opinions are expressed only in its editorials. The opinions expressed in columns, letters, cartoons and guest editorials are those of the particular author or artist. OPINIONS Where will Trump venture for his first state visit? Barbara Streisand and Lena Dunham may be some of the higher profile Trumpfugees leaving the country and heading to Justin Trudeau s Canada. What is less certain is if a President Donald Trump will make Ottawa his first foreign port of call a longstanding presidential and foreign policy tradition. Post-election, Trudeau quickly called to congratulate PEOTUS Trump on his victory and the Canadian tweeted, (W)e agreed to meet soon to keep building the Canada-US relationship. Trump may want to use the highvisibility first trip to do something other than affirm tradition and reflect the importance and strength of U.S.- Canadian ties. He may want to make a grand strategy statement, letting the world know that he is going to shakeup the global status quo. Calls to Taiwan, support for the Philippines President Rodrigo Duterte and meeting with Japan s Shinzo Abe have already shaken up the foreign policy establishment s rules for protocol, as well as approaches to human rights and global power relations. All this wellbefore Trump has even been sworn-in. Once in office, Ronald Reagan began the tradition of new U.S. presidents making Canada the first foreign presidential visit. George W. Bush notably broke from this tradition, making his first stop Mexico, a country he knew well. He also hoped his trip and Cinco de Mayo parties on the White House lawn would attract Latino voters to the Republican Party. Trump has already been to Mexico, met with President Pena Nieto, gotten a great presidential photo-op and made his talking points. It is unlikely he will be heading south of the border first. Making a splash abroad will likely require a large rally similar or bigger than candidate Barack Obama s visit to Berlin in the summer of 2008 and may be chosen based on the right mix of pomp, circumstance, strategy and significance. If two big border nations are knocked out of the running for the primary reception of America s new head of state, where might he go first? There are any number of early supporters in other countries who could be rewarded and elevated by a presidential visit. The scramble to send invitations to Trump Tower has already begun. U.K. Prime Minister Theresa May is considering an invitation on behalf of Queen Elizabeth II. Trump s friendship with and preference for Brexit leader Nigel Farage as Britain s next diplomatic envoy will require Trump to balance Buckingham Palace pageantry, the special relationship, Brexit forces and a potentially restive urban populace before deciding to touch down in London Town. Numerous foreign leaders supported Trump s candidacy early on, mostly opposition politicians. A few, however, are running countries. They include Hungary s Viktor Orban, North Korea s Kim Jong Un, Zimbabwe s Robert Mugabe and, of course, Russia s Vladimir Putin. Rewarding them with an American inaugural visit would be revolutionary and could set in motion dramatic changes in how America s global relations, alliances and power balancing is perceived and conducted. Big, bold, groundbreaking unprecedented moves were the hallmark of Trump s campaign: Is there a reason to believe he would take a different approach to governing? Trump s brand of politics is proudly unconventional from his brand management business to his Fifth Avenue transition tower to his tweet-centric campaign. Where will he go? Japan, Russia, China, Italy, Germany, France maybe even India, Australia or Argentina? Tipping favor toward any of the G8 member countries other than Canada for a first visit would create both new foreign policy opportunities and challenges. To avoid granting any nation the favor of a first foray, however, he may decide never to leave the country at all, requiring all foreign leaders visit him at Trump Tower, Mar-a-Lago, the Trump National Golf Club Bedminster or maybe even the White House. Markos Kounalakis is a senior fellow at Central European University and visiting fellow at the Hoover Institution. Contact him at markos stanford.edu Employers should not impose religious views on employees In my opinion, Philadelphia Archbishop Charles Chaput is wrong in his view that religious liberty in the United States is under attack (Philadelphia Inquirer and Philly.com, Dec. 8, 2016). Religious institutions are free to believe and preach whatever they want. I think that what they are not free to do is impose those beliefs on their employees. For example, a Catholic-affiliated Markos Kounalakis Richard Carroll organization may believe that contraception is immoral, but I don t think that organization should be allowed to block its female employees, who may or may not be Catholic, from access to contraception through its medical insurance plans. I worked for a Catholic organization (the Knights of Columbus) for 30 years. Its 600 employees most of whom were non-Catholic women had access to contraceptive coverage through the employer-provided health plan. Freedom of religion means freedom not to have your employer s religious views imposed on you. Richard Carroll, a part-time St. Thomas resident, is the former Associate General Counsel of the Knights of Columbus Tuesday, December 13, 2016 Page 24 Lighted Boat Parade Boats festooned for Christmas wow spectators during the Lighted Boat Parade on Saturday along the Christiansted boardwalk on St. Croix. Above, the crew on Time Out waves to the crowd. Left, Santa makes an appearance. Top left, Live the Dash delivers a message of peace. Winning entries were: Sail Boats, first place, Time Out; Power Catamarans, first place, Adventure, second place, Gemini Century; Power Boats Under 25 Feet, first place, Saorise, second, Checkmate; Power Boats 26-32 Feet, first place, Firefly; Power Boats 33-39 Feet, first place, Benita, second place, Golden Eagle; Power Boats 40 Feet, first place, Irie Feelin, second place, Milemark Rotary; Power Boats 41 Feet, first place, Reliance (SCUBA), second place, Renewed Interest; Best Lights, a tie between Living the Dream and the U.S. Coast Guard; Best Decorations, La Vie En Rose; Best Animation, Cat Chi; Best Music, Turn Burn; Best Creativity, Live the Dash; and Best Boat Overall, Heineken Barge. Daily News photos by ROB JONES Send us your Island Life news, events and photos The Daily News is expanding its Island Life section. Do you have an event, a celebration, or a milestone, including a birth, graduation, wedding, retirement, award, honor or military accomplishment you d like to share? Maybe you have a photo from around our islands you think our readers would like to see, whether it s a beautiful sunset, a big catch or people just having fun in the sun. Help us celebrate our community by sending us your contributions to island-life dailynews.vi. The possibilities are endless. Tribute to a V.I. leader The community paid tribute to the late Mulo Alwani on Friday with a memorial service gathering at the Mark C. Marin Center at Antilles School on St. Thomas. Alwani, the president of the India Association of the Virgin Islands and a longtime community leader, died on Nov. 19 in Miami after a bout with cancer. He was 79. Alwani, the former owner of Artistic Jewelers in Charlotte Amalie, had served on the Schneider Medical Center governing board and was a leader in the Rotary and the Masonic Lodge. He was remembered as the godfather of the Indian community as well as a friend and a mentor to many. Tuesday, December 13, 2016 ISLAND LIFE The Virgin Islands Daily News 25 Ulla F. Muller students attend a pep rally to roll out the school s Positive Behavior Support and Interventions initiative on Nov. 30 on St. Thomas. Ulla F. Muller students pledge good behavior Ulla F. Muller Elementary School rolled out its Panther PRIDE Positive Behavior Support and Interventions (PBIS) initiative at a pep rally at the school on Nov. 30. The fun, high-energy event laid the groundwork to teach students the behaviors that make up a positive school environment. Administrators taught the students the core values of the school through PRIDE: P positive behaviors, R respect, I individual responsibility, D determination and E excellence. Students held signs depicting the values while Muller cheerleaders and the Boys Girls Club performed to rally around the cause. St. Thomas-St. John PBIS district coach Darian Torrice-Hairston, who is assigned to Ulla F. Muller Elementary, praised the event. As the PBIS district coach for Ulla F. Muller Elementary School, I have certainly caught the Panther PRIDE! It was evident that the administration, staff and students exhibited their Positive Behavior, Respect, Individual Responsibility, Determination and Excellence. PBIS and its strategies are a priority at Muller and they are working hard to implement the program as it fits their school, she said Following the rally, teachers will continue to instill the Panther PRIDE principles in students on a daily basis as well as demonstrate what Panther PRIDE looks in each area of the school. School staff will integrate the Panther PRIDE language into daily routines to encourage students to strive for excellence. The PBIS initiative is rooted in evidence-based practices meant to increase behavioral and academic outcomes by improving school climate, preventing problematic behavior, increasing learning time and promoting positive social skills. Up to five members from each school were selected to attend training facilitated by PBIS coaches from the state and district. School representatives were tasked with producing positive behavior values unique to their institutions and introduce them to teachers and students. The goal of the PBIS initiative is to focus on what the students do right, rather than on what they do wrong to help encourage the repetition of good behavior. As Muller Elementary continues to support its students through PBIS, additional phases of the initiative will be introduced, such as a positive reward system as well as ceremonies to celebrate student and staff success. With the help of the district coach, Muller s in-house PBIS task force will guide the PBIS initiative to support the school. Central High School students that participated in this year s Close Up Washington trip to Washington, D.C., include Ethaliah Henry, Jenna Malcomb, Nathan McGregor, Destiny Stout, Martisha Charles, Pellis Leonard, Franchel Rodriguez, Jayla Norman, Khaiel James and N Quelle Golden. History teacher Ericka Hansen is the Close Up adviser. Students get close up with democracy Students enrolled in the St. Croix Central High School Close Up organization recently returned from the nation s capital where they attended the Close Up Washington flagship program. The group of 11 traveled Nov. 13-19 and joined with other Close Up high school chapters from across the country to learn about the American democratic process. Central High School history teacher and Close Up advisor Ericka Hansen took 10 students on the annual trip, which gives high school students and educators an inside look at their democracy in action. Using the nation s capital as their living classroom, program participants get a close up view of government processes and places that make the district unique and functional. Students visited the Washington Monument, Martin Luther King Memorial, the Smithsonian, U.S. Capitol, Arlington National Cemetery, the White House and more. Students also participated in political discussions and met with members of Congress. The program provided social activities for the students in the evening. Founded in 1971, the Close Up organization has provided more than 825,000 students with educational tours about government and the political processes. Tuesday, December 13, 2016 ISLAND LIFE The Virgin Islands Daily News 27 Club gets facelift Crowley Caribbean Services went to the Oswald Harris Court neighborhood on St. Thomas recently on behalf of the Crowley Cares Foundation and spent time sprucing up the Boys and Girls Club. Crowley personnel from St. Thomas, St. Croix, and the states helped to clean up and paint the facility and donated furniture for the children to use for their arts and craft programs. The Crowley Cares Foundation allows employees to make monthly contributions, which the company matches, to nonprofit groups in the communities Crowley serves as a cargo carrier. Crowley also delivered a check to help the club purchase a laptop computer. In addition to the contributions, employees donate their time to community groups like the Boys and Girls Club. Students cultural calendar also marks V.I. centennial The Virgin Islands Cultural Contributors 2017 calendar is available at St. Croix Educational Complex for 12. The students of the St. Croix Educational Complex are working on a collaborative project to celebrate the upcoming centennial anniversary of the U.S. Virgin Islands. Called the Virgin Islands Cultural Contributors Calendar Creation and Theatrical Performance, the project consists of a 12-month calendar featuring 12 V.I. cultural contributors, accompanied by live interviews. Visual arts, drama and speech teachers Danica David and Sayeeda Carter are the directors of the project and are using students from their classes and the school s Art Club to bring the vision to life. Art Club students will use photographs of selected participants to create mixed media portraits for the calendar. Simultaneously, Carter s drama and speech students will conduct interviews with the participants that will be used to create brief write-ups to go along with the graphics. The cultural contributors were selected based on being natives of the Virgin Islands or residents for at least 15 years and also active contributors to the development of Virgin Islands culture through fine arts, education, literature, and history. The students will formally present the finished project at a reception that will feature an art exhibition and theatrical performances embracing V.I. culture and honoring the contributors. The event will take place at St. Croix Educational Complex in January. Calendars are available at the school in December for 12 each. The educator duo, David and Carter, developed the project so Virgin Islands students could learn about the individuals in their community that aid in the advancement of local culture. The calendar is expected to be produced annually. The project is sponsored by Rotary Club of St. Croix, Mid Isle and the Community Foundation of the Virgin Islands. Magazine reprint celebrates centennial To celebrate the centennial of the transfer of government from Denmark to the U.S., the St. Thomas-St. John Friends of Denmark Society announces the facsimile publication of a commemorative magazine printed by the society in 1967. The title is 50 Years: St. Thomas Friends of Denmark Society. The chairperson of the magazine committee was Eldra L.M. Shulterbrandt. Articles by Omar Brown, Fred Gjessing, Bill La- Motta, Francesca Greve, Gertrude Dudley, Rabbi Sasso and Enid Baa are featured in the magazine. Eldra Schulterbrandt wrote Quo Vadis and Gov. Ralph Paiewonsky s stirring What is Virgin Islander, is printed in full. The editor was Carlos Dowling, with design and layout by Ira Smith. Even the advertisements provide a peek at the islands past. The restoration of the initial magazine, including the mixed coloring of the pages, was made possible through digitalization by Bill and Frannie Newbold of Island Business Graphics. It s an accurate reproduction of the original. The magazines are 25 and are available at the V.I. Children s Museum, Frenchtown Museum and My Brother s Workshop Bakery on Back Street downtown and in Red Hook at Chelsea Drug Store and Sandra s Secretarial Service Lock and Blade. Additional sites will be announced. Members of the society will also have copies to sell. 30 The Virgin Islands Daily News ISLAND LIFE Tuesday, December 13, 2016 St. Croix Arthur A. Richards Jr. High School Music Department presents Christmas Concert 2016 at 6:30 p.m. Wednesday in the school s auditorium, featuring the Concert Band, Choir, Steel Band and cheerleaders. The Youth Band Dance Ensemble of St. Patrick s School will make a special guest appearance. John H. Woodson Junior High School invites parents, guardians, and the St. Croix community to its 2016 Christmas Concert, featuring the Concert Band and the Touch of Love Chorale in the school s auditorium on Thursday at 7 p.m. The December PTA meeting will precede the concert at 5:30 p.m. Torah scribe at synagogue The Hebrew Congregation of St. Thomas welcomes Sofer Rabbi Druin from 5 to 7 p.m. this evening. Druin is in St. Thomas to help the synagogue maintain its historic Torahs and invites you to come learn and ask about the work of the Torah scribe, a 300-yearold craft. For information email info synagogue.vi or call 340-774-4312. Holiday Happenings The second annual Holiday Fest will take place on Friday from 3 p.m. to midnight at Buddhoe Park, bandstand and Strand Street in Frederiksted. Come shop and make it a picture-perfect day with Santa Claus. Vendors are welcome. Contact 340- 778-1012, ext. 6200 or 6206 for more information. The Tourism Department, in collaboration with the Frederiksted Economic Development Association, presents a Community Holiday Giveback with Sunset Jazz at Buddhoe Park on Friday from 5 to 8 p.m. For more information, go to visitusvi. com. St. Thomas Pistarckle Theater presents Briefs AARP meets on Saturday AARP St. Thomas Chapter 3138 has rescheduled its regular meeting from Dec. 24 to Saturday at 1:30 p.m. in the sun room at Schneider Hospital. The newly elected executive oficers and board members will be installed. Beer Bacon Bacchanal Worldwide West and Island Vibes The Nutcracker at 7 p.m. Friday and Saturday and at 2 p.m. on Sunday. For tickets visit www.pistarckletheater.com or call 340-775-7877. Miracle on Main Street celebrates its 24th year on Friday in downtown Charlotte Amalie, featuring musicians, culinary delights and shopping. For more information, or to become a sponsor, contact the St. Thomas-St. John Chamber of Commerce at 340-776-0100 or email chamber.vi gmail.com. Sea View Nursing Home will host its annual Christmas Gala on Dec. 22 at the facility on St. Thomas. Cocktails begin at 6 p.m. and presentations will follow at 6:30 p.m. For more information, please contact Simone Edwards at 340-777-3303. Summer Camp invite you to a Beer Bacon Bacchanal at The Shops at Yacht Haven Grande pool on Saturday from noon to 6 p.m. For more information on how to participate, volunteer or become a sponsor, call 340-626-3729, visit www. facebook.com USVIcamp or email islandvibessummercamp gmail. com. The St. John Singers will perform two holiday concerts with guest soprano Laura Strickling on Dec. 21 at Nazareth Lutheran Church in Cruz Bay and on Dec. 23 at Emmaus Moravian Church in Coral Bay. St. John Singers welcome guest soprano for holiday concerts The St. John Singers are celebrating their 35th anniversary with a special guest at two holiday concerts during the week preceding Christmas. Soprano Laura Strickling, who has a home on St. Thomas, will be performing with the choir at their annual concerts in Cruz Bay and Coral Bay on St. John. Strickling has been described as possessing a lexible voice, crystalline diction, and warm presence by a reviewer in the New York Times. She has received numerous awards for her performances of opera, classical and contemporary music. We were very lucky to get her, said Janice Ballard, who has directed the St. John Singers for the last ive years. She was on St. Thomas and had only a four-day window between other engagements to sing with us. The singers selections will include carols from around the world, and in keeping with the tradition, the audience will be invited to sing along with the choir on a medley of holiday songs. This year the choir will be accompanied on piano by Arboris de Jesus, a talented young musician who was born in Puerto Rico and raised on St. Thomas. She now studies music at Lawrence University. The St. John Singers concerts will be held on Dec. 21 at Nazareth Lutheran Church in Cruz Bay, and on Dec. 23 at Emmaus Moravian Church in Coral Bay. Both concerts will begin at 7:30 p.m. Tickets, which are available at the door, are 20. Children are admitted for free. Ravens-Patriots in AFC showdown Page 34 Alabama, Ohio State lead All-America team Page 33 Virgin Islands Daily News Sports Tuesday, December 13, 2016 STX Educational Complex takes win over P.R. s Juncos Broncos V.I. swimmers take gold at P.R. Nationals By DAVID EDOLE Special to the Daily News ST. CROIX The St. Croix Educational Complex High School s tackle football exacted some revenge for the Virgin Islands, roughing up Puerto Rico s Juncos Broncos, 20-8, on Saturday night. The Barracudas, behind the duo of Vernon Clarke and Cristian Perez, ran out to a 14-0 halftime lead. Scott Cofiell Clarke, Complex s quarterback, called his own number in scoring on an 18-yard run. He then handed off to Perez, the Barricudas tailback, who scampered for a 12-yard score. The extra points were good by Roland Richards both rushing, but were awarded one point each. We didn t know that the National Federation of High Schools changed the rules on extra points, said Educational Complex head coach Scott Cofiell. The new rule is one point for a rushing and two for passing. Complex poured it on in the second half when defensive end Antonio See BARRICUDAS, page 35 Photo courtesy SCOTT COFIELL St. Croix Educational Complex High School quarterback Vernon Clarke, center, hands off to tailback Cristian Perez during Saturday s game against the Juncos Broncos at Pista Atletica Municipal de Juncos in Puerto Rico. The Barricudas went on to take a 20-8 victory over the Broncos. By BILL KISER Daily News Sports Editor Swimmers from two Virgin Islands swim teams brought home a combined 49 medals from the Puerto Rico Short Course National Championships, held Dec. 2-4 at the San Juan Natatorium. The St. Thomas Swim Association (STSA) team finished eighth overall in the Webster Bozzo combined team scoring, while the St. Croix Dolphins (SCD) came in 12th. Puerto Rico s Bayamon Swimming Team won the overall team title. St. Thomas swimmers won 13 events, finished second in seven events and third in five others. St. Croix swimmers won in eight events, and finished second in eight others and third in eight events. St. Croix s Webster Bozzo led all the Virgin Islands swimmers with five gold medals, posting the top times in the boys 15-16 division in the 100- and 200-meter backstroke, 100- and 200-meter freestyle, and the 200-meter individual medley. He also finished second in the 100-meter See SWIM, page 35 Tuesday, December 13, 2016 The Virgin Islands Daily News 35 BARRICUDAS CONTINUED FROM PAGE 36 Polanco picked up a fumble and returned it for score to push the Barricudas lead to 20-0. Our defense played very well, Cofiell said. Aderemi Flores had an interception and had a couple of returns of 40 yards. Lejoni Williams was all over the field and led us in tackles. The Broncos added a late touchdown from Diego Luna and twopoint conversion from Hernan Velez for the final score. I was playing all my guys at that point, Cofiell said. I wanted to give everyone the experience of playing in Puerto Rico. After the game, the Broncos set up a meet-and-greet between both team and an innovative idea came out of it. They took care of us all weekend, Cofiell said. They gave us a place to stay and ground transportation. They even took us sightseeing of old San Juan before being dropped at the airport. We invited them to come to St. Croix and play us during the Virgin Islands-Puerto Rico Friendship weekend; hopefully it could be a yearly thing. Either they come one year or we go, this was a positive experience for us. This was an amazing event, Juncos head coach Manuel Santiago said. We were very happy to host them and we enjoyed them, too. This was an excellent opportunity to open our relationship and we are working on coming to St. Croix in October. St. Thomas schools Charlotte Amalie and Eudora Kean, the 2016 St. Thomas-St. John IAA champs, Photo courtesy SCOTT COFIELL The players and coaches from the St. Croix Educational Complex and Juncos Broncos football teams gather at midfield for a postgame photo after the Barricudas 20-8 win over the Broncos on Saturday at Pista Atletica Municipal de Juncos in Puerto Rico. played teams from Puerto Rico last month, losing to the Dorado Spartans and University Garden Dolphins, respectively, in games played at Lionel Roberts Stadium. I think we should have a combined league with Puerto Rico, Cofiell said. We play one home and one away every year. Look, our ticket cost 150, that s not much more than flying to St. Thomas. It could be done. But before we approach Puerto Rico, we would need a unified league between St. Thomas and St. Croix agreeing on stuff to make it happen. Then we could move on to Puerto Rico, They are not that far away. They are more Puerto Rican teams than Virgin Islands teams. A mixed schedule will have to be created with a Caribbean champion between the winners of each league. People are really interested in playing in football. If we re going to grow, we need to play good teams to get better and Puerto Rico has been playing a while. The Puerto Rico High School Football League is presently comprised of seven teams Antilles High School, Baldrich Comets, Parque Central Bluewaves, Parkville Steelers, Juncos Broncos, Dorado Spartans and the University Gardens Dolphins. SWIM CONTINUED FROM PAGE 36 individual medley and 50-meter backstroke. Mary Killman led St. Thomas with four gold medals, winning in the girls 19-under division in the 50-, 100- and 200-meter backstroke, and the 200-meter individual medley. She also finished third in the 50-meter freestyle. Killman also set meet records in two events, with her time of 30.09 seconds in the 50 backstroke shattering the old record by 1.24 seconds, and her time of 1 minute, 5.08 seconds in the 100 backstroke breaking a 14-year-old record by 1.14 seconds. St. Thomas Audrey Moore and Ky Odlum, and St. Croix s Matthew Mays won three events each. Moore took gold in the girls 11-12 division s 50- and 100-meter freestyle events, and teamed with Carter Maltby, Casey Vanderwall and Ana Pia Brunt to take the 200-meter freestyle relay. She also took seconds in the 200-meter freestyle and 200-meter individual medley, and teamed with Vanderwall, Maltby and Brunt to take second in the 200-meter medley relay. Moore also finished third in both the 400-meter freestyle and 100-meter individual medley. Odlum won in the boys 13-14 division in the 50-meter freestyle, 50-meter backstroke and 100-meter butterfly. He also finished second in the 50-meter butterfly, and third in the 100-meter individual medley. Mays won in the boys 17-18 division in the 100-meter individual medley, 200-meter backstroke and 200-meter individual medley. He also finished second in the 200-meter freestyle and 200-meter butterfly, and third in the 100-meter freestyle. Other gold medalists were St. Thomas Max Wilson (boys 11-12 200-meter backstroke), and STSA s girls 9-10 200-meter freestyle and 200-meter medley relay teams, both composed of Gabriela Brunt, Fairley Maltby, Alex Otwell and Lindsay Barr. |
Importance: High Richard Kahn HBRK Associates Inc. 575 Lexington Avenue 4th Floor New York, NY 10022 tel 212-971-1306 fax 646-350-0954 cell 917-414-7584 Begin forwarded message: Date: December 15, 2016 at 9:51:37 AM EST Rich, following up on your question from a while back about this topic. Please find a white paper attached. Amanda The election of Donald Trump as President is expected to lead to significant tax law changes. The tax changes may come in two parts: from the repeal of the Affordable Care Act (ObamaCare) and its related taxes and from comprehensive tax reform. Since Republicans will also have majorities in both the House and Senate, such changes could be undertaken without bipartisan support. Although it is not yet known exactly what the changes will be or when they would be effective, we are issuing this Tax Alert to inform you of changes that are anticipated, based on proposals made during the campaign by both President-elect Trump and the House Republicans. We also discuss how these changes may impact your planning, both currently and in the future. Bank of America Merrill Lynch does not provide tax, accounting, regulatory or legal advice. Please consult your advisor as to any tax, accounting, regulatory or legal statements made herein. Not a product of Bank of America Merrill Lynch (BofAML) Research and should not be viewed as a research report Amanda Ens Director Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park, 5th Floor, New York, NY 10036 The power of global connectionsTm |
TAX ALERT 2016 5 DECEMBER 2016 The 2016 Election: Tax Changes Expected INTRODUCTION The election of Donald Trump as President is expected to lead to significant tax law changes. The tax changes may come in two parts: (1) from the repeal of the Affordable Care Act (ObamaCare) and its related taxes and (2) from comprehensive tax reform. Since Republicans will also have majorities 1 in both the House and Senate, it is anticipated that such changes could be undertaken without the need for bipartisan support. It is likely that the Affordable Care Act, and its taxes, could be repealed in early 2017 and result in an immediate tax cut for dividends, capital gains and high income earners. It is more time consuming to enact comprehensive tax reform and such efforts may not result in a tax bill until midsummer or the fall, which could push the effective date of broad based tax changes into 2018. Although it is not yet known exactly what the changes will be or when they would be effective, we are issuing this Tax Alert to inform you of changes that are anticipated, based on proposals made during the campaign by both President elect Trump and the House Republicans. We also discuss how these changes may impact your planning, both currently and in the future. When we have more specifics, we expect to issue another Tax Alert. INCOME TAX Current law. Ordinary income can be subject to rates as high as 39.6 , and capital gain can be subject to rates as high as 20 . In both cases, an additional 3.8 surtax might apply. Certain itemized deductions are phased out under the so called Pease limitation when Individual Tax Rates Top Capital Gains Dividend Tax Rate Itemized Deductions AMT Investment Surtax Estate Tax Current Law 10, 15, 25, 28, 33, 35, 39.6 20 (plus 3.8 surtax) 3 of itemized deductions are lost when adj. gross income exceeds 313,800 ( 261,500 if single) Parallel tax calculation Trump Plan House GOP Plan 12, 25, 33 12, 25, 33 20 16.5 Limited to 200,000 (couples); 100,000 (singles) Eliminates Eliminates except for charitable and (likely capped and modified) mortgage interest Eliminates 3.8 Eliminates Eliminates 40 rate, 5,490,000 exemption Inflation adjusted amounts for 2017 Eliminates (capital gain at death subject to 10 million exemption) Eliminates adjusted gross income reaches certain thresholds. The Alternative Minimum Tax can result in additional tax liability. The income from so called carried interests is taxed as capital gain. 1 In the House of Representatives, a simple majority is sufficient to pass legislation. It is more complicated in the Senate, where 60 votes (a super majority) are required to avoid a filibuster. Republicans have a simple majority, but not a super majority, in the Senate. However, there is a budget procedure known as Reconciliation, which allows certain legislation to be passed without filibuster. Accordingly, it would appear that Republicans could pass tax legislation in the Senate with just a simple majority. TAX ALERT 2016 5: THE 2016 ELECTION: TAX CHANGES EXPECTED Proposals. Both President elect Trump and the House Republicans would lower the top tax rate for ordinary income to 33 . President elect Trump would maintain the top rate on capital gains at 20 , though it might be applicable at a lower threshold than current law. House Republicans would lower the top rate on capital gains to one half of the highest rate imposed on ordinary income, or 16.5 . Both President elect Trump and the House Republicans have proposed repealing (and replacing) the Affordable Care Act, which is the source of the current 3.8 surtax. The Affordable Care Act is also the source of the extra 0.9 surtax on high income earners (wages exceeding 250,000 for couples; 200,000 for singles) and other indirect tax increases such as the reduced cap on flexible spending accounts and tighter rules for deducting medical expenses. A repeal of the Affordable Care Act could lead to an immediate tax cut. President elect Trump would impose a 100,000 cap on itemized deductions ( 200,000 for joint filers); the House Republicans would eliminate itemized deductions other than charitable gifts and mortgage interest. Both President elect Trump and the House Republicans would eliminate the Alternative Minimum Tax. President elect Trump s proposal would tax the income from carried interests as ordinary income. Planning. At its most basic, income tax planning is (i) timing income so it is recognized in a lower tax year, and (ii) timing deductions so they are deducted in a higher tax year. However, the proposals listed above contain both good news and bad news for 2017, so we cannot offer a universal rule as to whether income or deductions are better recognized in 2016, 2017 or even 2018. Each taxpayer needs to make an educated prediction. If there is not a clear answer, sometimes it can make sense to recognize some income (or deductions) in one year and some the next. That approach has the benefit of making sure you don t completely pick the worse year. The following are some general planning considerations. Installment sale. If a sale is made in return for an installment note, the resulting gain can be reported on the installment method, meaning gain can be deferred into the year in which payment is received. Not all assets can be sold via the installment method, and there are several special rules. For example, marketable securities cannot be sold and reported using the installment method. We have a separate Wealth Strategy Report: Installment Sales. If a sale is made for an installment note, you can also elect to be taxed in the year of sale rather than deferring the gain. This election must be made by the due date (including extensions) of the return for the year in which the sale occurred. Thus, an installment sale in 2016 could allow you to wait until as late as October 2017 to decide whether to use the installment method or report all the gain in 2016. This could allow a decision to be made with 20 20 hindsight, at least as of October. Equity based income. Certain types of compensation are tied to the value of an underlying stock. As one example, a nonqualified compensatory stock option s value will vary with the changing value of the underlying stock. As another example, a grant of restricted stock will be taxed when it vests, unless a so called 83(b) election is made to be taxed at the time of grant. In either case, the amount of compensation that is taxable will depend on the value of the stock at the appropriate time. When deciding the most favorable tax year to recognize these types of equity based compensation, in addition to the usual considerations of the applicable tax rate, it is important to account for the expected investment performance of the underlying stock. As a simple example, deferring a stock option exercise to the next year might produce a better result not because of a better tax rate but because of the expected growth in the stock s value. 2 TAX ALERT 2016 5: THE 2016 ELECTION: TAX CHANGES EXPECTED Roth conversions. It is generally better to convert traditional retirement funds to a Roth IRA in a lower tax rate environment rather than a higher rate environment. For taxpayers who converted a traditional IRA to a Roth IRA in 2016, the normal rules will provide a chance to review whether 2016 or 2017 would be the better year for a conversion. Generally, a 2016 conversion can be unwound ( recharacterized ) as late as October 16, 2017. Following a recharacterization, the IRA could again be converted to a Roth IRA 30 days later (assuming the original conversion occurred in 2016). Thus, you could wait until October 2017 to determine whether 2016 or 2017 would be the better year for conversion based on the relative tax rates, changes in the market value of the retirement funds and other relevant considerations. If 2016, then you could let the 2016 conversion remain. If 2017, you could recharacterize in October of 2017 and re convert 30 days later. ESTATE AND GIFT TAX Current law. Under current law, the federal exemption for estate and gift tax is 5 million, subject to an inflation adjustment each year. For 2016, the exemption is 5,450,000, and for 2017, it is 5,490,000. For gifts or estates above the exemption, the federal tax rate is 40 . If an appreciated asset is includible in the estate, it generally receives a step up in basis for income tax purposes equal to the fair market value at death. Accordingly, there would be little or no capital gains tax for appreciated assets sold soon after death. Proposals. President elect Trump has proposed to repeal the estate tax. The House Republicans Tax Proposal also proposes federal estate tax repeal. It would appear that such repeal would be temporary, unless the tax changes proposed can be enacted on a revenue neutral basis. 2 It is not clear whether the federal gift tax would also be repealed. The federal gift tax may be viewed as serving two purposes. First, it serves to support the estate tax, because without it you could make unlimited gifts during your life and thereby avoid federal estate tax at death. From that perspective, repealing the estate tax would suggest that the gift tax would also be repealed. However, the gift tax also serves to support the federal income tax. Without a gift tax, income producing property could be given to family members or others in a lower tax bracket (or residing in a state without an income tax), and subsequently given back. From that perspective, repealing the estate tax would not suggest that the gift tax also be repealed. Neither President elect Trump s proposal nor the House Republicans Tax Proposal includes a repeal of the gift tax. As noted, appreciated assets includible in the estate generally receive a step up in basis. President elect Trump has proposed to change this, however specific details have not been offered. The proposal sets forth a 10 million exemption for gains at death. It is not clear whether this exemption is for each decedent, or if that is the combined exemption for a married couple. It is also not clear whether any gains above the exemption would be subject to capital gains tax at death (in effect a deemed sale at fair market value), or only subsequently when the asset is actually sold. It is also uncertain whether any unused exemption could be transferred to a surviving spouse. 2 In order to comply with the Reconciliation procedure, the repeal needs to sunset, resulting in reinstatement of the estate tax after approximately 10 years. Under the 2001 Tax Act, there was a temporary repeal of the estate tax (and other taxes) for this reason. Reconciliation rules will likely also add pressure to produce a revenue neutral tax bill in order to avoid such a sunset. That could cause Congress to abandon repealing the estate tax. 3 TAX ALERT 2016 5: THE 2016 ELECTION: TAX CHANGES EXPECTED Valuation discounts. On August 2, 2016, the IRS released proposed regulations, which may limit valuation discounts for transfers of interests in family controlled entities. 3 These regulations contain many ambiguities, and the IRS requested comments and held a public hearing on December 1, 2016. The regulations are controversial, many comments were sent and only a few clarifying changes were provided at the hearing. As a result of the election, we believe it is likely the IRS will not proceed with these regulations. For now, there has been no official word from the IRS. Planning. The proposal to repeal the federal estate tax appears straightforward, but will be complicated if it is temporary. The possibility of reinstatement of the estate tax may be a reason for traditional estate planning techniques, such as gifts and sales, to continue to be utilized. There is also significant uncertainty as to the related federal gift tax and basis step up proposals. This makes current planning difficult because you may be comparing the consequences of taking action currently (such as making a gift), with the uncertain future consequences of not taking such action. Nevertheless, there are some general guidelines to consider. It does not appear advisable to make a current gift that requires the payment of gift tax. Although the gift tax may be less costly than the estate tax, that would not be true if the estate tax is repealed. There are many types of free gifts that do not require the payment of gift tax, such as annual exclusion gifts, tuition and medical gifts, gifts utilizing the lifetime gift exemption, and zeroed out GRATs. o o If such gifts are being considered only to save estate tax, it does not appear necessary to make these gifts, unless there is an applicable state estate tax 4 . However, if repeal is temporary and the estate tax will be reinstated, then such gifts may continue to be advisable. If such gifts are being considered for other non tax reasons (such as benefitting the recipient or asset protection), such gifts may still be beneficial. Even if the gift tax were repealed, you would still have made the gift for free. o If a gift will be made currently, it may be advisable to include flexible provisions, such as a trust which allows for discretionary distributions to the donor s spouse. This could allow the gift to be undone in the future by distributions to such spouse, if that becomes desirable. As to future planning, it will obviously depend on what changes are enacted. If the estate tax is repealed, or if other significant changes are made, all wills, trusts and estate planning documents should be reviewed to determine if any revisions are desirable. Since most wills have dispositive provisions, such as credit shelter trusts and QTIP trusts, based on the estate tax, it will require a re thinking of estate planning and what dispositions and trusts would be appropriate. Non tax considerations, such as trust provisions, asset protection and fiduciary selection, will play an enhanced role. If federal estate tax repeal is only temporary, it will presumably be necessary to include alternate dispositive provisions, in case the tax is reinstated. CONCLUSION The results of the 2016 election are expected to lead to significant income and transfer tax changes, some through the potential repeal of the Affordable Care Act and others through a push for comprehensive tax reform. In this Tax Alert, we have highlighted some of the tax proposals, and the possible impact these changes may have on 3 We have a separate Tax Alert 2016 3, Proposed Regulations May Limit Eliminate Valuation Discounts for Family Controlled Entities. 4 Certain states impose their own estate tax, independent of whether the federal estate tax is repealed. 4 TAX ALERT 2016 5: THE 2016 ELECTION: TAX CHANGES EXPECTED planning. It is our view that due to fiscal and political pressure to keep future budget deficits in check and the narrow corridor which could result in the passage of a major tax bill (Reconciliation), we expect the tax bill to be closer to the House Republicans Plan than the Trump Plan and perhaps narrower in scope. When more information is available, we expect to issue a more detailed Tax Alert. National Wealth Planning Strategies IMPORTANT: This publication is designed to provide general information about ideas and strategies. It is for discussion purposes only since the availability and effectiveness of any strategy are dependent upon your individual facts and circumstances. Clients should always consult with their independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy. Neither U.S. Trust nor any of its affiliates or advisors provide legal, tax or accounting advice. Clients should consult with their legal and or tax advisors before making any financial decisions. U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation. Bank of America, N.A., Member FDIC. 2016 Bank of America Corporation. All rights reserved. NWPSElection Dec 2016 5 |
Importance: Richard Kahn 12 15 2016 5:46:20 PM jeffrey E. jeeyacation gmail.com Fwd: US Healthcare Year Ahead...Buy ACAD, AGN, ANTM, CELG, CVS, DHR, EW, EVHC, RARE, REGN, WBA image001jpg01D256A2F263C080.jpg; image001gif01D256C23AC52B10.gif High attached are equity healthcare ideas Richard Kahn HBRK Associates Inc. 575 Lexington Avenue 4th Floor New York, NY 10022 tel fa cell Begin forwarded message: Date: December 15, 2016 at 10:59:39 AM EST Reply-To: "Ens, Amanda" The US team is out with their 2017 Year Ahead this morning (link) running through ALL sub-sectors with each analysts top pick into the new year. op Picks ACAD, AGN, ANTM, CELG, CVS, DHR, EW, EVHC, RARE, REGN, WBA Washington DC Backdrop Given the clean sweep by the GOP uncertainty around the ACA, key attention is paid by Andy Bressler to a review of the various scenarios that could play out early next year. With a repeal likely to happen well before a replace (essentially via the Budget Reconciliation process in Jan Feb), Andy notes this is likely to include a repeal of both health insurance exchange subsidies a phase-down of Medicaid expansion funding (albeit with a two or three year transition period). He also expects a repeal of many of the larger HC related taxes in the ACA, including the HIX ( 14.3bn in 2018), Medtech Tax (2.3 ), pharma industry tax ( 4.1bn in 2018) Cadillac tax (effective 2020). As for the views by analysts... Biotech ( ) believe sector will outperform largely as pricing risk has diminished (although will remain in pockets) but pipelines growth remains. Ying's top picks are CELG REGN; Tazeen's top picks are kCAD RARE. Spec Pharma (-) headwinds remain w Sumant's top pick AGN given lower risk to reimbursement pressures an underappreciated pipeline. Leverage CF remain the key focus for investors. Tools Animal Health ( ) Derik notes more "headline" than "real" risks from policy which will create opportunities for a group growing MSD, although valuations remain above peers. (US 1 name) top pick, also A, ZTS in Animal Health, in Diagnostics in Services. Medtech ( ) Hopkins' expects a mixed bag in 2017 w stocks trading close to 5yr valuation lows; EW top pick given best growth purest innovation story. Facilities (-) Fischbeck notes that uncertainty will remain an overhang for hospitals as repeal replace a negative for the group (est losing 2-3mm Medicaid lives 2-3mm exchange lives would be a 1-2 EBITDA hit on avg). Focus on company-specific stories like MCOs ( ) Fischbeck generally ve under Trump (especially around MA given historical support from GOP) w tailwinds from corporate tax rising rates. top pick in given valuation tailwinds. Distribution Tech ( ) Valiquette prefers pharmacies ,,,'VS WBA given benefits from decelerating generic prices (which will remain an overhang for Distributors). HHS appointment a ve for HCIT. Daniel Lundquist Healthcare Specialist Sales Global Equities Bank of America Merrill Lynch One Bryant Park I New York, 10036 I United States T: M: The power of global connections TM BankofAmerica"1-0;fr Merrill Lynch Find all Conference Events via the Following Link: https: gems.bankofamerica.com Disclaimer: This material was prepared by Sector Specialist Sales personnel of Merrill Lynch and is subject to the terms available at the following link: http: corp.bankofamerica.com business smb landing emaildisclaimer americas global-markets proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. BankofAmerica Merrill Lynch |
CC: Lehane, Sean T The Year Ahead: A World of Change A continued rise in equities. Renewed investor confidence. Bond markets under pressure. Our Chief Investment Office explores the risks and opportunities of these and other trends shaping the year ahead. AS WE LOOK BACK ON 2016, one could characterize it as The Year of The Unlikely. It began with deep worries regarding China's growth path, a second wave of collapsing oil prices, a Federal Reserve (Fed) hiking into deflationary headwinds, the impact of negative interest rates in Europe and Japan, concerns over a potential U.S. recession, lower-quality corporate high yield problems, and U.S. consumers who might never spend their savings at the pump. All these worries hit at once in January and February, prompting the S P 500 to fall over 10 from its 2015 closing level of 2043. The year, at that point, appeared bleak. Our view was to maintain a balanced and diversified position throughout the downturn, particularly for the long haul, due to our belief that the major concerns, although understandable, were simply not going to fully develop and asset prices would begin to track fundamentals more effectively through the remainder of the year. The potential for risk assets to climb higher was there but a catalyst was needed. For our full view on the year ahead, please read our December 2016 Monthly Letter. Exhibit 1: Mid-Cycle Slowdown Ended In Early 2016, When Oil and Dollar Stabilized) 120 Spot 01 Price: West Texas Incernwdlate .(6-Alowth Moving erage. Left Scale! e 60 . 40 Rea Broad Trade-Weighted Eachawr Value of theuss 20 46-14ontre Moving Average Right SCale Illy0eSiouidown ..................................................................103 06 07 08 09 10 11 12 13 14 15 16 Source: EINCME; FRB Haver Anatytics. Data as of December 5, 2016. 96 92 88 84 Past performance is no guarantee offuture results. Our core belief was centered on healthy consumers who would indeed pick up their spending from savings at the pump and become more confident as job growth continued and real incomes increased. We also believed U.S. financial conditions and the economic backdrop would improve in the second half of the year as the pressure from the strong dollar subsided and the deflationary effects of the collapse in oil prices began to fade. In other words, we were witnessing evidence that the mid-cycle slowdown that had hurt economic growth and corporate earnings was ending. See Exhibit 1 Based on this core belief, the "grind it out" year for risk assets would be back on track, the business cycle would extend into 2017, bond yields would slowly shift higher, and equity markets had the potential to head toward previous highs. A series of unexpected outcomes At this point, we did not characterize 2016 as The Year of the Unlikely. However, if you consider specific events throughout the year in finance and sports, it is easy to see that now. We already mentioned the second plunge in oil prices to the mid- 20s per barrel to start the year, and bond markets in some areas of the world actually had negative yields meaning the lender paid the entity issuing the bonds to take their money! This was unlikely. How about Brexit vote in Great Britain? Unlikely. In sports, Villanova University winning the national championship in men's college basketball (Nova's first championship since 1985), Leicester the English football club winning the Premier League (before this season began, British bookmakers listed them as a 5,000- to-1 shot to emerge as the champion), the Cleveland Cavaliers' first ever National Basketball Association championship and, of course, the Chicago Cubs winning the World Series for the first time since 1908! All unlikely. But they happened. Last but not least, in our own political backyard, we witnessed Donald Trump's victory in the U.S. presidential election last month. Also unlikely. We all know markets do not like uncertainty. However, sentiment can shift quickly if fundamentals are not negatively affected, and what was previously determined to be "unlikely" turns to enthusiasm as to what could be. "We expect business, consumer and investor confidence to continue to head higher well into 2017, with most of the newly expected growth to come in 2018, which should underpin equities for most of the year." CHRISTOPHER HYZY CHIEF INVESTMENT OFFICER, BANK OF AMERICA GLOBAL WEALTH AND INVESTMENT MANAGEMENT Why this expansion can continue Business cycles typically last between five and seven years before fundamentals deteriorate, usually due to a policy error of some sort. This can produce a recession and or a bear market, which tend to correct the excesses that have been built up and kick-start a new cycle. Bull markets and cycles do not die of old age there needs to be a fundamental catalyst that emerges and pushes the trends back the other way. We are entering our ninth year in the current business cycle, despite all of the complexities and concerns that have come and gone since the financial crisis.. In fact, this cycle could have extended another few years along the same path, given the secular stagnation that prevailed. This era needed ultra-accommodative central bank monetary policy just to keep things stable and plodding along this far into the cycle. It also needed corporations willing to manage their earnings to the penny in a below trend growth world that offered little pricing power. And finally, this cycle needed U.S. and emerging market consumers to continue to switch from deleveraging to spending as their balance sheets and incomes improved. A return of "animal spirits" This dynamic could have continued for a bit, but monetary policy has become tired. Negative interest rates have become a headwind, not a tailwind, in our view. And, just like sports fans, investors need a catalyst to break from the past. Visible positive catalysts tend to turn into improved sentiment and confidence. Through the years, economists have called this "animal spirits." Animal spirits begin as hope, turn into enthusiasm, and ultimately need visible action to keep the spirited momentum going. After all, economics is a behavioral science. It is our view that we are breaking from the era of secular stagnation and heading into fiscal reflation. This new era is likely to have its fits and starts and will not be in a straight line. It should also include different stages and speeds from various economic regions globally. Furthermore, it should contain some "unlikely" outcomes. With any cycle, we will have to take the good (higher nominal growth) with the potential bad (higher volatility) and investors will have to reposition portfolios, rebalancing when necessary, in order to take advantage of the new era. Prior to the U.S. presidential election, and even dating back to the summer months when bond yields bottomed, the economy was already beginning to improve. Corporate earnings were picking up, the consumer was spending at a healthy clip, there were some subtle signs of positive surprises in European economic activity, and the downturn in emerging markets (and negative earnings revisions) ceased. We were certainly not waving the celebratory flag on growth, but the economy was getting up off the ground, which is what risk assets, including equities, need sometimes. However, the S P 500 a major benchmark for U.S. stocks election, as investors worried that the secular stagnation era would continue and that monetary policy had lost its effectiveness. Market sentiment changed dramatically during the early morning hours on November 9. The surprise victory by Donald Trump caught many investors off-guard. The potential for fiscal stimulus measures, reduced regulation, corporate tax reform and other potential pro-growth initiatives increased. Animal spirits perked up. Investor positioning was heavily skewed toward long-duration fixed income, low-volatility equities and high-dividend-paying companies. These areas significantly outperformed in the first half of the year but started to lose momentum once rates bottomed mid-year. However, investor positioning did not change materially at first. Portfolios were still generally overexposed to higher- quality, rate-sensitive investments otherwise known as "bond proxies." In our Hills Have Eyes strategy report, published on November 16, we outlined the need to rebalance portfolios given our belief that we were already transitioning toward the late-cycle expansion phase and that the new enthusiasm for pro-growth policies would begin to accelerate investor flows toward more cyclical investments. Given the high degree of underexposure to late- cycle investments by investors, we believed such a rotation would cause a "melt-up" in equities toward new highs over time. Diversification and rebalancing will be key So, how are we going to manage portfolios in a world undergoing a major market regime shift, one that is transitioning from the era of secular stagnation to fiscal reflation, and one that still has a considerable amount of uncertainty? We are going to become more prescriptive, remain diversified and balanced, but with more exposure to pro-growth, pro-cyclical areas. We will also likely rebalance more often throughout the year as investor rotation gathers momentum during 2017 and into 2018; and we look to periods of volatility as opportunities to add to areas we favor. "Fixed income still represents an important portfolio diversifier and a volatility dampener in unforeseen worst-case scenarios." CHRISTOPHER HYZY CHIEF INVESTMENT OFFICER, BANK OF AMERICA GLOBAL WEALTH AND INVESTMENT MANAGEMENT We expect business, consumer and investor confidence to continue to head higher well into 2017, with most of the newly expected growth to come in 2018, which should underpin equities for most of the year. Higher nominal growth, an improved picture for corporate profits and continued positive sentiment are the foundation for continued gains in the equity markets and an investor rotation from overexposure to long-dated fixed income into under owned equities. This rotation will need a few periods of confirmation, given the still uncertain broader global macro outlook, but we expect price-to-earnings multiples to remain elevated, despite higher rates, throughout the year. S P 500 earnings have a wide range of forecasts due to the potential for sizable tax cuts in 2017. Based on this, the S P 500 could add extra earnings on top of normalized growth, which is expected to be around 9 . At present, a reasonable range, albeit a wide one, is considered to be between 129 and 138 with the potential for further upside. In this scenario, where we get pro-growth policies filtering into a higher earnings number, an S P 500 bull case level of 2700 at the high end is possible. Improving profits and growth should take equities higher For now, a base case utilizing the five factor framework from BofA Merrill Lynch Global Research, which combines sentiment, valuation and technical, equates to 2300 for the S P 500 at year end. The two components that include long-term valuation and 12-month price momentum are indicating that S P 500 levels between the base and bull case are increasing in probability. Of course, there are a number of scenarios that could unfold that would indicate a wide range of outcomes depending on the multiple or earnings number that ultimately develops. In the end, it all comes down to the path of corporate profits and the visibility on growth, both of which are improving. Highlights We have moved from a "get paid to wait" core portfolio theme to a more cyclical- and value- oriented theme in multi-asset portfolios Equities remain attractive versus fixed income on a relative basis. Within equities. we favor U.S. large caps. U.S. small caps and emerging markets. Within equities, we favor value over growth and more cyclical assets versus defensives. Within fixed income. we prefer credit to Treasuries. We would also consider an allocation to Treasury inflation protected securities (TIPS) where appropriate. Portfolio repositioning is likely to continue well into 2017, as developments unfold and the pro- cyclical environment gathers momentum. With growth already heading higher from Q3 2016 onward and earnings turning positive, investors have begun increasing cyclicality and exposure to value in portfolios at the expense of more defensive sectors and higher-dividend areas within equities. In addition, we expect a larger shift in emphasis toward small capitalization, which has already started, and more domestic-oriented equities due to a slightly stronger dollar, more pro- growth policies and the desire for a hedge against potential retaliatory trade policies from main trading partners. This portfolio shift in positioning is happening but, in our view, is in its early stages. We have moved from a "get paid to wait" core portfolio theme to a more cyclical and value- oriented theme in multi-asset and all-equity portfolios primarily due to increased business and consumer confidence, which should lead to higher earnings than originally expected. Therefore, we have raised our exposure to equities versus fixed income to a moderate overweight and our new tactical asset allocation view is overweight equities versus its strategic benchmark. We are now further underweight fixed income versus equities, underweight versus its strategic benchmark rather than neutral, and have lowered cash to neutral from overweight. Within the asset classes, we have made a number of changes consistent with our view from earlier this year and one that has accelerated post-election. We are now moderately overweight U.S. small capitalization equities and neutral non-U.S. developed markets. We maintain our preference for U.S. high-quality large caps and continue to overweight emerging markets. We continue to favor value over growth and more cyclical areas (such as financials and consumer discretionary) versus defensives (such as utilities and consumer staples). In fixed income, we have moved from a balanced view to a larger underweight versus the strategic benchmark. However, fixed income still represents an important portfolio diversifier and a volatility dampener in unforeseen worst-case scenarios and should be viewed primarily as a cash flow producer versus a total return asset, given the expectations for higher yields. In addition, we have lowered Treasuries to a further underweight but maintain our neutral rating on high yield and underweight on international fixed income. Municipal bonds have corrected to levels that are becoming attractive again, and we are still favorable on investment grade corporate credit. We maintain our neutral rating on real estate and commodities, but we prefer metals and oil to gold. In addition, the pro-cyclical improvement has started to break down the elevated correlation among and within asset classes since earlier in 2016. We expect this adjustment to continue in 2017 as economic volatility picks up and asset class volatility follows suit. Transitions to late-cycle phases tend to invite a higher level of volatility as inflation rises and central bank policies shift to nudging short rates higher. In this environment, alternative investments, namely hedge funds, should outperform industry benchmarks, in contrast to recent underperformance. For investors able to withstand a higher allocation of illiquid assets in their portfolio, we prefer timberland for its long term-growth prospects and low correlation to financial assets. Paul V. Morris Managing Director I The Morris Group Private Banking Investment Group Merrill Lynch, Pierce, Fenner Smith, Inc. Bank of America Tower I One Bryant Park (28) New York, NY 10036 r PRIVATE BANKING !-DPi Lynch INVESTMEN T GROUP privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. 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Outlook Investment Management Division Half Full Everything we hear is an opinion, not a fact. Everything we see is a perspective Attributed to Marcus Aurelius Investment Strategy Group January 2017 Sharmin Mossavar-Rahmani Chief Investment Officer Investment Strategy Group Goldman Sachs Brett Nelson Head of Tactical Asset Allocation Investment Strategy Group Goldman Sachs Additional Contributors from the Investment Strategy Group: Matthew Weir Managing Director Maziar Minovi Managing Director Angel Ubide Managing Director Farshid Asl Managing Director Matheus Dibo Vice President Mary Catherine Rich Vice President This material represents the views of the Investment Strategy Group in the Investment Management Division of Goldman Sachs. It is not a product of Goldman Sachs Global Investment Research. The views and opinions expressed herein may differ from those expressed by other groups of Goldman Sachs. 2017 OUTLOOK Dear Clients, Readers of our previous Outlook publications may recall that this page typically summarizes the key themes of our economic and financial market prospects for the coming year. However, for 2017 we decided that a brief overview would not suffice, given the current environment of high market valuations, great policy uncertainty, significant geopolitical tensions and, in all likelihood, an unconventional US presidency. Since the trough of the global financial crisis, we have consistently emphasized US preeminence and maintained a strategic overweight to US equities relative to global market capitalization-weighted benchmarks. Tactically, we have had an overweight allocation to US equities and US high yield bonds from as early as mid-2008. Even when US equities became more expensive, we continued to recommend that clients stay fully invested at their strategic allocations. Indeed, we have reiterated that recommendation in our past Outlook publications, client calls and Sunday Night Insight reports as many as 59 times since January 2010. But now we have crossed into the 10th decile of valuations: US equities have been more expensive than current levels only 10 of the time in the post-WWII period. Yet we continue to recommend staying the course. We are duly aware that this recommendation is long in the tooth, particularly given such high valuations and the unusually high level of policy uncertainty. Policy uncertainty, both economic and political, abounds globally: uncertainty with respect to Brexit (the how and when), upcoming elections in Germany and France (the who), transitional government in Italy (the how long followed by what) and new appointments to the Standing Committee in China and their significance (the who and what of any reform agenda), to name a few. We are also facing rising geopolitical tensions that could trigger significant market volatility. Tensions in the Middle East will not abate. Greater Russian involvement in that region is stabilizing in some respects and destabilizing in others. Further Russian incursions into Eastern Europe may elicit a more robust reaction from the West. Terrorism could spread in the US and Europe as ISIL (Islamic State of Iraq and the Levant) loses territory in Iraq and Syria and foreign fighters return home. North Outlook Investment Strategy Group 1 Korea s nuclear program and missile launches go unchecked. There is rising risk of military incidents or accidents in the South China Sea and across the Taiwan Strait. China is the most likely source of global economic shocks over the next two to three years. The country s leadership continues to prioritize imbalanced economic growth over structural reforms, thereby increasing debt at an unsustainable pace. Such increases will eventually prove to be destabilizing. In Donald Trump, the US has elected an unconventional president in many respects, including his more US-centric approach to China. If China responds to, say, imposition of US tariffs on imports of Chinese products by sharply devaluing the renminbi, significant downside volatility and tighter global financial conditions will follow. Given already high US equity valuations, uncertain economic and political policy prospects and heightened geopolitical risks, readers may well ask why we continue to recommend staying fully invested in US equities. Among the reasons: Our eight-year US preeminence theme is intact and continues into its ninth year. As Professor Jeremy Siegel of the University of Pennsylvania wrote 23 years ago in Stocks for the Long Run 1 and recently repeated in a Wall Street Journal interview, 2 Stocks are the best long-run asset. We refine that view by saying US equities are the best long-run asset. We think that the policy backdrop in the US will be particularly favorable for the economy, with looser fiscal policy, relatively easy monetary policy and a less stringent regulatory environment. We expect US growth to continue through 2017. We expect global growth to improve modestly, from 2.5 in 2016 to 2.9 in 2017, with looser fiscal policy and still easy monetary policy in key countries. And last but not least, we expect that while President-elect Trump s initial policy measures with respect to tariffs and trade agreements risk jolting financial markets, as a self-described deal maker he will likely adjust and change course as necessary to achieve his desired results. We may have a bumpy ride, but the US economy will not be derailed. Over the years, we have viewed the glass as half-full if not full when it comes to the US economy. Many others have seen the glass as half-empty, pointing out that productivity growth has decreased, US labor demographics are less favorable and government policies have been ineffective. While it is correct that productivity growth has decreased and labor demographics are less favorable, it does not follow that the US economy is in stagnation. Quite the reverse. 2 Goldman Sachs january 2017 We should note that our conviction in US preeminence and US economic growth in 2017 is greater than our conviction in the direction of the equity markets. Just as we were appropriately humble about how much further equity markets could fall when we published our 2009 Outlook, we are equally humble today about our financial market outlook given the significant uncertainties ahead. Here, we are reminded of Voltaire s famous words: Doubt is not an agreeable condition, but certainty is an absurd one. A client with a well-diversified portfolio that is fully invested at its US equity allocation is generally well positioned for these uncertain and probably volatile times. We hope our 2017 Outlook is helpful as you evaluate your portfolio allocations. We also wish you a healthy, happy and productive 2017. The Investment Strategy Group Outlook Investment Strategy Group 3 2017 OUTLOOK Contents SECTION I 6 Half Full We continue to view the glass as half-full if not full when it comes to the US economy. 8 This Recovery in Context An Update 9 A Hangover from a Crisis 10 Secular Stagnation: Unfavorable Demographics 12 Secular Stagnation: Declining Productivity Growth 14 Mismeasurement of GDP Statistics 18 Poor Policies in Washington 19 A Steady Onslaught of External Shocks 20 In Summary 20 One- and Five-Year Expected Total Returns 24 Our Tactical Tilts 25 The Risks to Our Outlook 26 Pace of Federal Reserve Tightening 27 Low Expectations of a US Recession 28 Rising Influence of Populist Parties in the Eurozone 29 Geopolitical Hot Spots Get Hotter 30 Terrorism Escalates 30 Cyberattacks Continue 31 China Submerges Under Its Debt Burden and Capital Outflows 33 US-China Relations Deteriorate Under the Trump Administration 35 Key Takeaways We expect a favorable global economic and policy backdrop in 2017, but there is no shortage of risks. We recommend clients stay invested in US equities with some tactical tilts to US high yield and European equities. 4 Goldman Sachs january 2017 SECTION II: WINDS OF CHANGE 36 2017 Global Economic Outlook SECTION III: THE HORNS OF A DILEMMA 48 2017 Financial Markets Outlook The winds of change should fill the sails of the ongoing global recovery in 2017. 38 United States 42 Eurozone 44 United Kingdom 44 Japan 45 Emerging Markets We expect the bull market ride to continue, but we must stay vigilant to avoid the horns. 50 US Equities 56 EAFE Equities 56 Eurozone Equities 57 UK Equities 58 Japanese Equities 59 Emerging Market Equities 60 Global Currencies 64 Global Fixed Income 74 Global Commodities Outlook Investment Strategy Group 5 Half Full Since the trough of the global financial crisis in March 2009, US equities have returned nearly 300 , producing one of the longest bull markets in the post-WWII period and outperforming all other major developed and emerging market country equities. US equities have also exceeded their pre-crisis peaks of October 2007 and March 2000 by 75 and 103 , respectively, on a total return basis. This bull market has exceeded all other bull markets but one in length and exceeded all but three in magnitude. US economic growth has also exceeded that of most other recoveries in length. This recovery is the fourth-longest recovery in the post-WWII period 3 and if, as we expect, the US economy avoids a recession in the first half of 2017, this recovery will become the third-longest. While many critics correctly point out that it is the slowest recovery since WWII, it has actually created more economic growth than some of the stronger recoveries that lasted for shorter periods. On a cumulative basis, this recovery ranks sixth out of the last 10 recoveries with respect to GDP growth. What this recovery has lacked in strength, it has partially made up for in length. The slow but steady growth has also exceeded that of all other major developed economies, and US GDP per capita has increased more than the GDP per capita of any major developed or emerging market country. This recovery has created over 15 million jobs. The unemployment rate decreased from a peak of 10.0 in October 2009 to 4.6 in November 2016 and is now below its long-term average of 5.8 . Even the broader U6 measure, which adds the underemployed (such as parttime and discouraged workers) to the number of unemployed, has fallen from a peak of 17.1 to 9.3 , and stands below its long-term average of 10.6 . Unemployment claims are not only lower than they were during pre-crisis troughs but also at their lowest since 1973; they are also the lowest on record as a percentage of the labor force (see Exhibit 1). As a result of more robust employment, wages have increased as well. Wage growth, as measured by the Atlanta Federal Reserve Bank Wage Growth Tracker (which, in our opinion, is a better gauge of the employment backdrop than average hourly Exhibit 1: US Initial Unemployment Claims as a Share of the Labor Force Claims as a share of the labor force are at record lows. Monthly Average ( ) 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 1967 1975 1983 1991 1999 2007 2015 Data through December 2016. Source: Investment Strategy Group, Datastream. Exhibit 2: Corporate Profits as a Share of US GDP Profits have been higher than current levels only 17 of the time since 1950. of GDP 14 12 10 8 6 Corporate Profits Historical Average 4 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 Data through Q3 2016. Note: Showing US corporate profits with inventory valuation adjustment and capital consumption adjustment. Source: Investment Strategy Group, Datastream. earnings, since it is not affected by the changing composition of the labor force as new entrants are hired at lower wages), has picked up from a low of 1.6 year-over-year growth in May 2010 to a high of 3.9 in November 2016 just below the 4.4 peak of September 2007. More robust employment and better wage growth have, in turn, led to a steady increase in consumer confidence, reaching levels last seen in August 2001, as measured by the 0.2 11.5 9.6 6 Goldman Sachs january 2017 The Declinists at Work March 1979 Used with permission of Bloomberg L.P. Copyright 2016. All rights reserved. July 2016 Source: Financial Times. Martin Wolf James Ferguson, 2016. Global elites must heed the warning of populist rage. Financial Times FT.com, 20 July. Used under licence from the Financial Times. All Rights Reserved. Conference Board. Even median household income, as measured by the US Census Bureau, rose in 2015 at the fastest rate on record. In the corporate sector, total profits of domestic corporations as a percentage of GDP, as measured by the national income and product accounts (NIPA), are close to all-time highs. At 11.5 of GDP, profits not only are well above the historical average of 9.6 , but have been higher than current levels only 17 of the time since 1950, as shown in Exhibit 2. Despite these glass half-full facts, the announcements of US decline that pervaded the airwaves in the depths of the global financial crisis have persisted. We continue to be inundated with analysis of America s relative decline, 4 America s slow-growth tailspin and sclerotic growth, 5 an economic in-tray full of problems 6 and, of course, secular stagnation. 7 Two books published in 2016 that have received extensive coverage epitomize the sentiment: Robert Gordon s The Rise and Fall of American Growth 8 and Marc Levinson s An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy. 9 Some of the images are equally telling. We were struck by a recent image of the Statue of Liberty on its side that resembles a BusinessWeek cover of March 1979 with a tear trickling down Lady Liberty s face. Since WWII, the waning of US preeminence has been a topic of recurrent handwringing. Whether prompted by the flexing of Soviet muscle, most spectacularly with the launch of Sputnik in the 1950s; the civil rights upheavals and growing fallout from the Vietnam War in the 1960s, the Arab oil embargo and the Watergate scandal of the 1970s, the rise of Japan in the 1980s or the rise of China in the 2000s, the declinists have foretold the ebbing of American preeminence. Typical of the genre is a 2009 book provocatively titled When China Rules the World 10 by British columnist Martin Jacques. Yet, as we wrote in our 2011 Outlook: Stay the Course, neither the global financial crisis nor the rise of China will hinder what we described as America s structural resilience, fortitude and ingenuity and remove the US from its preeminent perch. What explains our difference of opinion, which has consistently underpinned our investment recommendation for a greater allocation to US assets and for remaining invested at such high valuations? Why do we believe that the US is on a more solid footing both absolutely and relative to all other major countries in the world? Is it a matter of perspective, analytical rigor, bias, review of longer economic history, or reliance on a big cadre of external experts in specialized fields? Outlook Investment Strategy Group 7 Exhibit 3: Growth in US Real GDP Across Post- WWII Expansions In this recovery, GDP has grown at half the average pace of prior expansions. Exhibit 4: Change in US Household Leverage Following Recessions A large reduction in household debt served as a drag on the pace of this recovery. Cumulative Growth ( ) 60 50 40 Q2 1954 Q2 1958 Q1 1961 Q4 1970 Q1 1975 Q3 1980 Q4 1982 Q1 1991 Q4 2001 Q2 2009 Change in Debt-to-GDP (Percentage Points) 10 Previous Post-WWII Recoveries (Median) Current Recovery 5 0 4.8 30 -5 20 -10 10 -15 0 0 4 8 12 16 20 24 28 32 36 40 Quarters After Trough -20 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Quarters After Recession End -18.3 Data as of Q3 2016. Source: Investment Strategy Group, Datastream, National Bureau of Economic Research. Data through Q3 2016. Source: Investment Strategy Group, National Bureau of Economic Research, Federal Reserve Economic Data. We believe that no one factor explains the difference in opinion. Instead, we rely on a comprehensive framework of investigation that blends all of these elements, combining rigorous fundamental, quantitative and technical analysis, as well as the insights of an extensive network of external experts. At the same time, we continually endeavor to overcome the behavioral biases Nobel Laureate Daniel Kahneman and his collaborator Amos Tverksy have shown to affect economic decision-making and tolerance for risk. These key characteristics of our investment process not only underpin our continued view of US preeminence, but also allow us to form a holistic view across global economies and asset classes. Of equal importance, our framework provides us with a consistent process by which to assess investment opportunities. While we believe our approach is robust, we acknowledge that nothing can ensure we will avoid the next downdraft. We begin our Outlook with a brief review of this recovery and place it in the context of past recoveries showing that the glass is indeed half-full. We address some of the key concerns regarding demographics and declining productivity growth. We show that US labor force demographics have deteriorated and will continue to do so, especially in the absence of policy changes. Nonetheless, we demonstrate why there is room for optimism about productivity growth. The analysis leads us to a view of slightly above-trend growth for 2017 with some upside potential from higher productivity and fiscal stimulus from a Trump administration. We then turn to our one- and five-year expected returns, which are driven by our view of a solid economic foundation, a well-balanced economy and a positive growth trajectory in the US. We conclude our introductory section with the risks to our view, both upside and downside, including a low probability of recession in 2017, high policy uncertainty under a Trump administration, possible global shocks from economic and currency policies in China, and the risks of geopolitical mishaps in Europe, the Middle East and the Far East. This Recovery in Context An Update This recovery has been the slowest of the 10 recovery cycles since WWII, as shown in Exhibit 3. Since the trough, US GDP has grown at an annualized rate of 2.1 through the third quarter of 2016, which is half the pace of the median and average growth rates of all other recoveries. The slow GDP growth rate stands in stark contrast to the recovery in the labor market and, most recently, in wages and household income. Impressively, the decline in the unemployment rate has been the second-largest of all post-WWII recoveries. 8 Goldman Sachs january 2017 Exhibit 5: Change in US Personal Savings Rate Surrounding Historical Recessions The increase in the personal savings rate in this recovery has been unusually large. Exhibit 6: Ratio of US Household Net Worth to Disposable Income Real estate price and financial asset gains have boosted the ratio to near pre-crisis highs. Deviation from Start of Recession (Percentage Points) 8 Historical Range Median 6 Current 700 639 4 2 3.0 600 0 500 -2 -4 -6 -3.4 400 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 Quarters Relative to Start of Recession Data through Q3 2016. Note: Quarter 0 marks the start of each recession since 1950, defined as the NBER recession cycle start. The cycle is measured from the start of each recession until the beginning of the next recession. Source: Investment Strategy Group, Datastream, National Bureau of Economic Research. 300 1951 1959 1967 1975 1983 1991 1999 2007 2015 Data through Q3 2016. Source: Investment Strategy Group, Datastream. The anemic (but steady) pace of this recovery has fueled a debate about its causes. The theories fall into six categories: A hangover from the global financial crisis 11 Secular stagnation due to unfavorable demographics Secular stagnation due to declining productivity growth Mismeasurement of GDP statistics Poor policies in Washington A steady onslaught of external shocks We briefly examine each of these six theories below some of which we have touched upon in our prior Outlook publications. While there has been further research on the topic over the past year, the debate has not yet been resolved and likely never will be to everyone s satisfaction. One star-studded group of experts believes that most contributing factors other than weaker demographics have dissipated or will dissipate, and the US economy will remain structurally vibrant. Another star-studded group believes that the best days of the US are behind it, contending that even radical policy changes will not reverse this decline and that the 2016 election results are a testament to this secular stagnation. A Hangover from a Crisis Proponents of the hangover theory suggest that recoveries after a major financial crisis generally have been slower. In their book, This Time Is Different: Eight Centuries of Financial Folly, 12 Carmen Reinhart and Kenneth Rogoff use historical data from 66 countries between 1810 and 2010 to demonstrate that, historically, recoveries following a major financial crisis have been markedly slower than other recoveries. Fundamentally, one can argue that households deleverage for a long time to increase precautionary savings, and corporations limit capital expenditures to build up precautionary cash, out of fear that another major financial crisis is looming. As shown in Exhibit 4, the pace at which households deleveraged in this most recent crisis was faster than in any other recovery in the post-WWII period; commensurately, the increase in the personal savings rate since the start of the recession is unusually large relative to previous cycles (see Exhibit 5). Along with higher savings, the increase in home prices to levels matching the February 2007 peak (as measured by the S P Case-Shiller US National Home Price Index on a seasonally adjusted basis) and the appreciation in financial assets have boosted the ratio of household net worth to disposable income to near pre-crisis levels, as Outlook Investment Strategy Group 9 shown in Exhibit 6. This improvement in net worth will enable households to lower their savings rates going forward and support consumption. Therefore, even if the hangover hypothesis was partly valid earlier in the recovery, it should have less impact in the future. During the current recovery, the financial sector also deleveraged substantially, partly due to the unusually high levels of leverage that existed as the crisis began and partly due to greater financial regulation resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into federal law by President Barack Obama on July 21, 2010. As shown in Exhibit 7, the financial sector began to deleverage even before Dodd-Frank and has continued to do so through 2016. However, more recently, the pace of deleveraging has abated, as shown in Exhibits 4 and 7. Furthermore, such deleveraging may well be bottoming and soon reverse as households and the financial sector face a more favorable fiscal and regulatory policy environment under President-elect Trump. For all practical purposes, the hangover may now be over. Secular Stagnation: Unfavorable Demographics As we discussed in our 2016 Outlook: The Last Innings, the term secular stagnation was first coined by economist and Harvard professor Alvin Hansen in 1934 13 and fully described in his presidential address to the American Economic Association in 1938. 14 He predicted that poor demographics, limited innovation and few trading and investment opportunities would slow US growth. The term was more recently popularized by Lawrence Summers, professor at Harvard University and former secretary of the Treasury, when he referred to secular stagnation in a 2013 speech at the International Monetary Fund. 15 Hansen s dire predictions never came to pass, and the US experienced close to record levels of productivity growth in the post-WWII period up to 1973, along with strong growth in the labor force. This current cycle, in contrast to the decades immediately following Hansen s predictions, has been hampered by weak demographics and a decline in the growth rate of the labor force. In a September 2016 study, aptly called How Should We Think About This Recovery?, Jay Shambaugh, a member of the Council of Economic Advisers, shows that when one compares this recovery Exhibit 7: Change in US Financial Sector Leverage Following Recessions A decrease in financial sector indebtedness has contributed to a slower-than-usual recovery. Change in Debt-to-GDP (Percentage Points) 30 Previous Post-WWII Recoveries (Median) Current Recovery 20 10 0 -10 -20 -30 -40 -50 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Quarters After Recession End Data through Q3 2016. Source: Investment Strategy Group, National Bureau of Economic Research, Federal Reserve Economic Data. with the average of past recoveries, the growth gap narrows significantly if one accounts for the number of people in the labor force. 16 Instead of this recovery growing at about half the pace of the average of past recoveries, the gap narrows to 83 of the average: GDP per number of people in the labor force has grown at an annualized rate of 1.9 , compared with an average of 2.3 in past recoveries. A recovery that appears to be at half the pace of other recoveries is actually in line with other recoveries after adjusting for the size of the labor force, as shown by comparing the red lines in Exhibits 8 and 9. There are two components to the unfavorable demographics story. The first is simply the decline in the growth rate of the US working-age population, which is driven by aging, the retirement of the baby boom generation and slower immigration. This trend cannot be easily reversed; however, the pace of decline can potentially be slowed. For example, the commonly accepted retirement age of 65 can be extended. In fact, there is some evidence that baby boomers are working longer than historical norms. 17 When life expectancy was about 62 years in 1935, the retirement age for Social Security was 65. Today, life expectancy in the US is about 79 years, and the retirement age for Social Security has been extended to 67 for those born in 1960 or later. Of course, more broadly, the retirement age is still regarded as 65. A 65-year- 18.6 -37.1 10 Goldman Sachs january 2017 Exhibit 8: Growth in US Real GDP Across Post- WWII Expansions In this recovery, GDP has grown at half the average pace of prior expansions. Exhibit 9: Growth in US Real GDP per Person in the Labor Force Across Post-WWII Expansions But when adjusted for labor force trends, this recovery has actually been in line with the average of past expansions. Cumulative Growth ( ) 60 50 40 Q2 1954 Q2 1958 Q1 1961 Q4 1970 Q1 1975 Q3 1980 Q4 1982 Q1 1991 Q4 2001 Q2 2009 Cumulative Growth ( ) 60 50 40 Q2 1954 Q2 1958 Q1 1961 Q4 1970 Q1 1975 Q3 1980 Q4 1982 Q1 1991 Q4 2001 Q2 2009 30 30 20 20 10 10 0 0 4 8 12 16 20 24 28 32 36 40 Quarters After Trough 0 0 4 8 12 16 20 24 28 32 36 40 Quarters After Trough Data as of Q3 2016. Source: Investment Strategy Group, Datastream, National Bureau of Economic Research. Data through Q3 2016. Source: Investment Strategy Group, Datastream, National Bureau of Economic Research. old today, however, is much healthier and more vibrant than a 65-year-old in 1935 and has many more years of active life that can reduce the decline in the growth rate of the working-age population. Furthermore, this cohort is quite productive relative to new entrants into the labor force. Similarly, immigration reform can help offset the decline in working-age population growth. Both factors depend on policy changes, and we do not have any definitive reason to be either optimistic or pessimistic at this time. The second component of the unfavorable demographics perspective has been the drop in labor force participation, particularly among males. Exhibit 10 shows the rapid growth in labor force participation that occurred as the baby boom generation reached working age and as women joined the labor force in growing numbers after 1950. The labor force participation rate, however, peaked in 2000 and declined by 0.3 a year until it troughed at 62.4 in September 2015. Most of the drop was driven by three factors: significant decline in male labor force participation, retirement of baby boomers and the cyclical decline in demand for labor as a result of the global financial crisis. Some of the cyclical decline reversed as the economic recovery entered its eighth year: the participation rate has risen to 62.7 as of November 2016. The male labor force participation, however, has been declining, coincidentally also by 0.3 Exhibit 10: US Labor Force Participation Rate Both cyclical and structural factors have contributed to a decline in the participation rate from the 2000 peak. 70 68 66 64 62 60 58 56 54 52 50 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 Data through November 2016. Source: Investment Strategy Group, Datastream. per year but since 1952. The trend has occurred across all age cohorts. An important driver of this decline has been reduced demand for lower-skilled and less-educated males. The US ranks 32 out of 34 OECD countries in participation of prime-age (between the ages of 24 and 54) males in the labor force, ahead of only Italy and Israel. 18 A Council of Economic Advisers report in June 2016 attributed that low ranking to the fact that the US spends less than other OECD countries on job search 67.3 62.7 Outlook Investment Strategy Group 11 assistance and job training, and to the fact that the US has a high rate of incarceration that especially affects lower-skilled men. 19 According to the report, several policy measures can boost primeage male labor force participation, including Increased investment in infrastructure Systemic reforms in the criminal justice system and in immigration policies Tax reforms Investment in education and training This demographic aspect of secular stagnation is undeniable. In fact, an October 2016 paper by a team at the Federal Reserve Board, Understanding the New Normal: The Role of Demographics, 20 shows that the slow pace of economic growth since 1980 and the more pronounced decline in the last decade could be predicted by a model looking at fertility, labor supply, life expectancy, family composition, and international migration. Thus, a glass half-full or half-empty perspective does not change the facts on the ground. There is little cause for near-term optimism with respect to the slower growth rate of the labor force. The general consensus is that the US labor force will grow at an average of 0.6 per year in the next several decades, compared with 1.6 from 1950 to 2000. 21 In the shorter term, infrastructure investment and other policies highlighted above may boost the growth rate in the labor force, but it is hard to imagine growth rates reaching levels that would support President-elect Trump s GDP growth targets of 3 4 on a sustainable basis. 22 Secular Stagnation: Declining Productivity Growth Of all the theories put forth to explain the slow pace of this recovery, the one that has garnered the most attention is declining productivity growth. Of all the theories put forth to explain the slow pace of this recovery, the one that has garnered the most attention is declining productivity growth. It is also the most important issue in terms of its impact on future trend growth in the US, which in turn has the greatest impact on the long-term rate of earnings growth and equity market returns. As reviewed in last year s Outlook, the technooptimists and the techno-pessimists are on opposite sides of the debate on declining productivity growth. Both camps have garnered new members; even Federal Reserve Chair Janet Yellen and Vice Chair Stanley Fischer have joined the fray. 23 Most recently, in September 2016, the Brookings Institution hosted a conference with leading experts from both camps to debate the issue. We should note that debates on productivity are nothing new. They have surfaced during past periods of slow growth, as was the case in the early 1990s. Even some of the players are the same: Robert Gordon was a techno-pessimist in the early 1990s and remains so in the 2010s. 24 Part of the productivity debate is philosophical. For example, one question pertains to the increased use of free digital services such as Facebook, Google Maps, Waze and Khan Academy. These services yield consumer surplus, defined as the benefits consumers derive from various activities over and above the price they pay. Should they be included in GDP if they are deemed non-market services those that are provided free of charge or at a fee that is well below 50 of production costs? While social media such as Facebook may (or may not, depending on your perspective) provide a service greater than the advertisement revenues associated with the use of that service, some will argue that if such services do not have an associated market price, they are not part of GDP and therefore should not impact the calculation of productivity levels. As the volume and the impact of these non-market services increase, we believe that the methodology for measuring GDP will evolve to better reflect the value of these services. Such improvements in measuring GDP are not uncommon. The Bureau of Economic Analysis (BEA) conducts comprehensive revisions of the national income and product accounts every five years, with the goal of reflecting methodological and statistical improvements. Most recently, in 2013, the BEA expanded its definition of fixed investment to include expenditures on research and development and expenditures on artistic originals (e.g., books, music, television 12 Goldman Sachs january 2017 Exhibit 11: Pillars of the Investment Strategy Group s Investment Philosophy INVESTMENT STRATEGY GROUP History is a Useful Guide Appropriate Diversification Value Orientation Appropriate Horizon Consistency ANALYTICAL RIGOR ASSET ALLOCATION PROCESS IS CLIENT-TAILORED AND INDEPENDENT OF IMPLEMENTATION VEHICLES series, movies). Combined with some smaller improvements, these changes added 560 billion to the level of 2012 GDP, a 3.6 increase relative to the prior estimate. 25 The more immediate and important question is whether we have entered a new phase in productivity growth trends that will keep productivity growth at the low levels seen since 2004. We believe that the answer is unknowable with any degree of certainty; historically, productivity forecasts have been notoriously wrong. In The Age of Diminished Expectations, 26 first published in 1990, Paul Krugman, Nobel laureate in economics and professor at City University of New York, wrote that the lower pace of productivity growth experienced since the early 1970s would most likely persist in the future. In 1995, however, productivity growth rates increased and were more than double the rate of the prior 12-year period. Similarly, in 1997, the Congressional Budget Office estimated that the long-run average annual growth rate of labor productivity would be 1.1 . Between 1995 and 2004, the actual average annual growth rate of labor productivity was 3.2 . 27 As many of our clients know, one of the pillars of our investment philosophy is that history is a useful guide (see Exhibit 11). And history tells us that labor productivity has moved in cycles, with periods of low productivity growth followed by periods of high productivity growth. In a forthcoming and comprehensive paper titled Seven Reasons to Be Optimistic About Productivity, 28 Professors Lee Branstetter of Carnegie Mellon University and Daniel Sichel of Wellesley College show that periods of low productivity growth have been followed by periods of high productivity growth since 1889, as seen in Exhibit 12. There is no reason to believe that this time is different ; as many of you also know, we believe that those words are among the most dangerous and misused words in our industry. Olivier Blanchard, senior fellow at the Peterson Institute for International Economics and former chief economist at the IMF, has also shown that the current period of low productivity growth does not tell us much about future productivity trends. He states that the correlation of successive pairs of five-year averages of total factor productivity growth is only 0.20 since the mid-1970s. 29 Outlook Investment Strategy Group 13 Exhibit 12: US Labor Productivity Growth Periods of slow productivity growth have been followed by periods of stronger productivity gains. Average Annual Growth Rate ( ) 4.0 Exhibit 13: Correlation of 5-Year US Productivity Growth Rates With Following 5 Years Productivity Growth Rates Recent productivity trends tell us little about the future. Correlation 0.25 3.5 3.0 3.4 3.1 3.2 3.2 0.20 2.5 2.0 1.5 1.6 2.0 1.5 1.3 0.15 0.10 0.14 0.08 1.0 0.5 0.05 0.0 1889 1917 1917 1927 1927 1940 1940 1948 1948 1973 1973 1995 1995 2004 2004 2015 0.00 Since 1957 Since 1970 Data through 2015. Source: Investment Strategy Group, Lee Branstetter and Daniel Sichel, Seven Reasons to Be Optimistic About Productivity, forthcoming Peterson Institute for International Economics Policy Brief. Data through Q3 2016. Source: Investment Strategy Group, Haver Analytics, Olivier Blanchard, Three Remarks About the US Treasury Yield Curve, Peterson Institute for International Economics, June 22, 2016. We have examined labor productivity growth rates and, as shown in Exhibit 13, find even lower correlations. There are two issues to consider. First, if the reported productivity growth rates are accurate, then the exceptionally low rates of the last 10 years account for part of the slow pace of this recovery. However, the current low productivity growth rates do not portend low growth rates going forward. Just as Hansen was proven wrong on his secular stagnation theory and Krugman was proven wrong on his diminished expectations for the US economy (and they were both influenced by their pessimistic view on productivity), those who extrapolate stagnation from the current productivity trends may be proven wrong as well. Second, as we discuss below, there is also a high probability that real GDP may be mismeasured. If real GDP is mismeasured, it follows that If real GDP is mismeasured, it follows that productivity is also mismeasured, thereby invalidating the whole theory of secular stagnation and the decline of the US economy. productivity is also mismeasured, thereby invalidating the whole theory of secular stagnation and the decline of the US economy. Mismeasurement of GDP Statistics In addition to the productivity debate, there is a debate as to whether we are measuring GDP correctly in the first place. The key argument being made is that while we correctly measure the value of nominal GDP based on the value of goods and services, we mismeasure the value of real GDP when we convert nominal GDP to real GDP using various price indices, and this therefore understates the pace of this recovery. This debate garnered considerable attention in 2016. The mismeasurement argument states that the official price indices do not adequately reflect significant improvements in many products, especially in information and communication technology, due to the methodology used by the Bureau of Labor Statistics (BLS) and the BEA. If the price indices do not adequately reflect the greater capacity of an improved product such as a smartphone or a microprocessor, then the price index used to convert nominal GDP to real GDP is too high. And if the price index is too high, then real GDP is understated. 14 Goldman Sachs january 2017 It follows that if real GDP is understated, then what appears to be a slow recovery is not as slow as reported and what appears to be a period of low productivity growth is not as low as reported. We believe that the evidence favors the mismeasurement argument. At a September 2016 Brookings Institution conference on productivity, Martin Feldstein, Harvard professor and president emeritus of the National Bureau of Economic Research, also concluded that the official statistics substantially underestimate the real growth of output after studying the methods used to measure price indices. 30 We point to three examples to illustrate the mismeasurement argument. First, our colleagues in Goldman Sachs Global Investment Research (GIR) have pointed out that the official price indices for information and communication technology show an implausible gap between the price deflation in computers and that in communications equipment, software and other IT equipment (see Exhibit 14). They question how a given dollar outlay now buys about 10 times as much computer in real terms as 20 years ago, but it only buys about 10 more software. 31 Our colleagues conclusion that the official price indices for the information and communication technology sector are overstated matches that of a 2015 study of microprocessor pricing by David Byrne of the Federal Reserve Board, Professor Stephen Oliner of UCLA, and Sichel. 32 The trio created an index showing that prices for microprocessor units used in desktop personal computers declined by an average annual rate of 43 between 2008 and 2013, while the official Producer Price Index (PPI) for these units declined by an average annual rate of 8 substantially mismeasuring the real value created by this sector of information technology equipment. They point out that because microprocessor units represent about half of US shipments of semiconductors, the rate of innovation in this sector is inevitably mismeasured. A second example of mismeasurement that we can all readily appreciate involves the quality and product improvements in smartphones. Hal Varian, chief economist at Google and emeritus professor at the University of California at Berkeley, has estimated that globally, people took over 1.6 trillion photos in 2015 using their smartphones, compared with 80 billion in 2000 using cameras and film. The price of each photo taken has gone Exhibit 14: US Technology Price Indices The implausible gap with hardware suggests IT and communication price indices are likely overstated. Q1 1995 100 140 120 100 80 60 40 Software Hardware (Computers and Peripherals) Communications Equipment Other IT Equipment 20 9 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Data through 2015. Note: Other IT Equipment represents medical and non-medical equipment and instruments. Source: Investment Strategy Group, Goldman Sachs Global Investment Research, Bureau of Economic Analysis. from 50 cents to zero for smartphone users; 1.6 trillion photos that would have contributed 800 billion to GDP have no impact on GDP in the current framework. GDP has declined since camera and film sales have fallen without a commensurate quality adjustment for smartphones. Of course, fewer photos would have been taken had the smartphone not been developed, but the point still stands. 33 Similarly, Varian shows that with the onset of the commercial application of GPS technology, productivity growth in trucking was twice the aggregate US productivity growth, yet when GPS functionality was added to smartphones basically at no additional charge, GDP declined because sales of stand-alone GPS systems fell. 34 Finally, a third example, also provided by Varian, shows that, because GDP does not fully count the export of intangibles such as software and design, GDP is understated. He shows how an iPhone manufactured by Foxconn in China using parts from 28 countries and exported to France has no direct impact on US GDP. Varian concludes that in a global supply chain, US design and software that is replicated outside the US through offshore manufacturing and exported to a third country never impacts US GDP measures directly, particularly if the profits are not repatriated and redeployed in the US. 35 Our colleagues in GIR continue to estimate that such mismeasurements lower reported annual real 114 90 44 Outlook Investment Strategy Group 15 We believe that productivity in health care is underestimated. Consider IBM s Watson Health, an artificial intelligence system that can read 200 million pages of text in 3 seconds. As of 2015, Watson had amassed 315 billion data points representing health records, lab results, genomic tests and clinical studies. The system processes patients cases against its ever-growing database and recommends customized treatment options. With such developments, we expect continued improvement in growth of productivity in health care. If productivity growth were better measured, particularly in health and other services, the growth rate would look better than is currently reported. Martin Neil Baily and Nicholas Montalbano, Why Is U.S. Productivity Growth So Slow? Possible Explanations and Policy Responses, Brookings Institution, September 2016. GDP growth by about 0.7 percentage point, similar to their estimate reported in our Outlook last year. Of course, not all experts believe that there is a mismeasurement problem. Notable among them is Chad Syverson of the University of Chicago, who raises four points in making this case. 36 First, he states that the productivity slowdown has been global in nature and unrelated to countries consumption or production intensities of information and communication technology. Second, he states that estimates of consumer surplus are too small relative to his estimates of lost GDP due to slower productivity growth. Third, he argues that if such mismeasurement existed, the growth rate in the information and communication technology sector would be a multiple of its stated growth rate. Finally, while he acknowledges that gross domestic income has been higher than GDP since 2004 and the gap might reflect the higher wages of workers who are producing non-market digital services, he does not believe that this difference is evidence of mismeasured GDP because the trend started earlier than the slowdown in productivity growth. A somewhat similar line of reasoning has been presented by Byrne, John Fernald of the Federal Reserve Bank of San Francisco and Marshall Reinsdorf of the IMF in a paper titled Does the United States Have a Productivity Slowdown or a Measurement Problem? 37 While they agree that productivity growth has been mismeasured in the past, they argue that the mismeasurement has been negligible in the 2004 15 period partly because computer hardware, for which mismeasurement was once a factor, now makes up a smaller part of GDP. Therefore, the impact is less in the 2004 15 period than it was in the 1995 2004 period when productivity growth was much higher. They also state that free digital products not only are nonmarket and should not be counted in GDP, but also are not sizable enough to account for the level of decline in productivity growth rates. Experts opinions on mismeasurement continue to evolve. In fact, in a subsequent publication coauthored with Carol Corrado of the Conference Board, Byrne found a significantly higher level of software price mismeasurement than assumed in his prior paper. 38 He has also co-authored a study on prices and depreciation for computer tablets such as iPads, proving that quality-adjusted price indices for tablets have fallen much faster than the broader price indices for computers and peripheral equipment. 39 16 Goldman Sachs january 2017 Exhibit 15: 10-Year Net Survival Rate of Breast and Prostate Cancer Patients Improved cancer survival rates reflect significant gains in science and technology. 100 75 72 76 78 75 84 60 62 50 40 48 34 25 25 25 0 1971 1972 1980 1981 1990 1991 2000 2001 2005 2006 2010 2011 1971 1972 1980 1981 1990 1991 2000 2001 2005 2006 2010 2011 Breast Cancer Prostate Cancer Period of Diagnosis Data as of November 2014. Note: Based on cancer statistics for the UK. Ten-year survival for 2005 2006 and 2010 2011 is predicted using an excess hazard statistical model. Source: Investment Strategy Group, Cancer Research UK. We conclude that there is undoubtedly some degree of mismeasurement. We know that information and communication technology has evolved significantly and innovation is occurring at a rapid pace. We know that the BEA reviews its statistical methodologies every five years and revises them as needed, recognizing that measurement methodologies have to evolve with the evolution of the US economy. We also know that we as consumers carry incredibly powerful digital equipment in the palms of our hands and pay less for it than we paid for equipment with lesser functionalities not so long ago. Common sense supplemented by extensive research by the experts on productivity and mismeasurement reinforces our view of a glass half-full when it comes to innovation and productivity in the US. We realize this debate will be resolved only with the benefit of hindsight, in the same way that realized productivity growth exceeded the We realize this debate will be resolved only with the benefit of hindsight, in the same way that realized productivity growth exceeded the prognostications of Hansen in the late 1930s and Krugman in the early 1990s. prognostications of Hansen in the late 1930s and Krugman in the early 1990s. Our clients will be inundated with conflicting views from headlines in the media and books with captivating titles. Separating fact from fiction remains challenging. Recently, an article in the Wall Street Journal highlighted dwindling gains in science, technology and medicine. 40 The article suggested that improvements in breast cancer mortality have slowed since 1985. Exhibit 15 shows the 10-year net survival rate for breast cancer and prostate cancer since 1971. Maybe it is only a matter of perspective, but, to us, a 78 10-year survival rate for breast cancer and an 84 10-year survival rate for prostate cancer represent significant improvements over the rates of the early 1980s, 48 and 25 , respectively, and are even more significant for those whose lives have been saved. Probably one of the more amusing instances of conflicting perspectives can be seen in the 2016 publication of two books with diametrically opposed messages: Progress: Ten Reasons to Look Forward to the Future 41 and The Innovation Illusion: How So Little Is Created by So Many Working So Hard, 42 both written by authors born in Sweden in the early 1970s. Our views, of course, are more aligned with the first book. The second book, however, raises important concerns about excessive regulation and how Outlook Investment Strategy Group 17 such regulation is killing frontier innovation. Indeed, some have put forth the prevalence of poor government policies as one of the theories to explain the slow pace of this recovery. Poor Policies in Washington One of the theories that has been getting more traction recently attributes the slower recovery to poor policies enacted in Washington. In a June 2016 article about the US economy, Gregory Mankiw, professor at Harvard University and former chair of the Council of Economic Advisers for President George W. Bush, highlighted policy missteps, 43 including misguided fiscal policy, as a possible contributor to the slow pace of growth since the global financial crisis. One unusual feature of this recovery has, in fact, been a contractionary fiscal policy. We have derived an approximate historical measure of fiscal policy changes by estimating changes in the cyclically adjusted federal budget as a percentage of GDP. We note that, by this measure, as far back as 1890, fiscal policy has been expansionary in all but three recoveries following a recession with the fiscal policy in the current recovery being the most contractionary, as shown in Exhibit 16. In this recovery, the budget deficit as a share of GDP was reduced by 1.0 a year, compared to an average widening of the budget deficit by 1.3 a year in all other recoveries after severe recessions. The average increase in the size of the budget Two books published in 2016 and written by Swedes born in the early 1970s highlight the conflicting perspectives on productivity. Johan Norberg s Progress cover used with permission of Johan Norberg and Oneworld Publications. All rights reserved. Fredrik Erixon and Bjorn Weigel s The Innovation Illusion: How So Little Is Created by So Many Working So Hard cover used with permission of Fredrik Erixon, Bjorn Weigel and Yale University Press. All rights reserved. Exhibit 16: Change in US Budget Balance Following Recessions Fiscal policy has been an unusually large headwind to growth in this recovery. of GDP 2 1 0 -1 -2 -3 -4 -5 Average of All Expansions Average of All Expansions from Severe Recessions 0.0 -0.1 -0.3 -0.2 -0.4 -0.3 -0.9 -1.1 -1.4 -4.7 1894 1908 1921 1933 1938 1954 1958 1961 1970 1975 1982 1991 2001 2009 Year of Expansion Start Data through 2015. Note: Shows the change in the cyclically adjusted budget balance as a of GDP for each episode. Source: Investment Strategy Group, Datastream, Global Financial Data. We define severe recessions according to those identified by Carmen Reinhart and Kenneth Rogoff in Recovery from Financial Crises: Evidence from 100 Episodes (2014), as well as the 1937 recession (a continuation of the 1929 recession) and the two most severe post-WWII recessions (excluding the 2007 recession). deficit for all recoveries, including less severe ones, is -0.8 . A swing of 1.8 percentage points would have had a material impact on the pace of this recovery. Professor Alan Blinder of Princeton University and former vice chair at the Federal Reserve echoed the sentiment by stating that partisan politics have prevented progress in dealing with important economic issues. 44 Shambaugh has outlined various measures, such as infrastructure spending proposed by President Obama in his fiscal year 2017 budget, that would positively impact productivity and labor force participation. 45 The budget was not approved. Summers has similarly called for expansionary fiscal policy through infrastructure spending, but such policies have not been pursued. 46 Increased regulation has also been blamed for some of the slow pace of this recovery. A September 2016 working paper by Martin Neil Baily and Nicholas Montalbano of the Brookings Institution on the slow growth of US productivity shows that while productivity in the most productive firms is growing rapidly, their best practices are not spreading to the rest of the players in a given industry. 47 Exhibit 17 shows the widening gap between the productivity growth rates of firms at the frontier of innovation and 0.5 -0.6 1.0 -0.8 -1.3 18 Goldman Sachs january 2017 Exhibit 17: Labor Productivity Growth for Different Groups of Firms Rapid productivity growth of firms at the frontier of innovation is not spreading to the rest of the industry. Exhibit 18: US Financial Conditions Index Conditions tightened significantly due to global shocks emanating from the Eurozone, oil prices and China. Index, 2001 1 (Log Points) 1.5 Frontier Firms Top 5 in Each Industry Year Frontier Firms Top 100 in Each Industry Year Non-Frontier Firms 1.4 1.3 1.39 1.36 US Financial Conditions Index 101.5 101.0 100.5 142bp 100.0 Tightening 118bp 104bp 1.2 99.5 1.1 1.06 99.0 1.0 98.5 0.9 2001 2003 2005 2007 2009 2011 2013 Data through 2013. Note: Average across 24 OECD countries and 22 manufacturing and 27 market services industries. Source: Investment Strategy Group, OECD preliminary results based on Dan Andrews, Chiara Criscuolo and Peter N. Gal, Mind the Gap: Productivity Divergence Between the Global Frontier and Laggard Firms, OECD Productivity Working Papers, forthcoming. 98.0 2010 2011 2012 2013 2014 2015 2016 Data through year-end 2016. Source: Investment Strategy Group, Goldman Sachs Global Investment Research. the rest of the industry. Baily and Montalbano suggest that increased regulation after the crisis may be partially responsible for the widening gap between frontier firms and the rest of the industry, which lowers overall productivity growth rates across the economy and hence lowers the pace of economic growth. Our colleagues in GIR think that lower capital investment accounts for the lack of diffusion of new technologies from more productive firms to less productive firms. 48 Here, again, it is likely that a more favorable business environment could have boosted capital expenditures and increased overall productivity levels. We conclude that it is reasonable to assign some of the weakness in this recovery to less effective fiscal and regulatory policies out of Washington rather than to structural shortcomings in the US economy. A Steady Onslaught of External Shocks A sixth theory posits that numerous external shocks explain the slow pace of this recovery. Just as the US economy was recovering from the trough of 2009, the Eurozone sovereign debt crisis jolted global financial markets. The Eurozone was a source of uncertainty and financial market volatility beyond the initial shock in 2010 as the crisis spread from Greece to Spain and Italy. The Eurozone crisis was followed by a series of what the Brookings Institution has called the fiscal fights of the Obama administration. 49 The first fiscal fight resulted in the Standard and Poor s (S P) downgrade of US Treasury debt in August 2011. The equity markets, as measured by the S P 500 Index, dropped about 19 between April and October of 2011. Taken together, the Eurozone sovereign debt crisis and the first of the fiscal fights tightened US financial conditions 50 by 142 basis points (see Exhibit 18). GIR estimates that a 100 basis point tightening of financial conditions is equivalent to a federal funds hike of 150 basis points and a drag on GDP growth of about one percentage point. The drop in oil prices from a post-crisis high of 107 per barrel for West Texas Intermediate in June 2014 to a trough of 26 per barrel in February 2016 also provided a shock to the economy. Employment and capital expenditures in the oil and gas sector dropped by 29 and 67 , respectively, from peak levels seen in 2014. The sector s par-weighted default rate excluding distressed exchanges reached 14.6 and including such exchanges 19.8 , in October 2016. 51 Broad-based fear of policy mistakes in China and unexpected depreciation of the renminbi were Outlook Investment Strategy Group 19 Exhibit 19: US Equity Volatility Spikes in equity volatility have corresponded with major global shocks. VIX Level 90 80 70 60 50 1 Global Financial Crisis 2 First Greek Bailout 3 Debt Ceiling, S P Downgrade, Eurozone Sovereign Debt Crisis 4 Greek Default 5 ISIL, Ebola 6 Renminbi Depreciation SPX: -42 80.9 (11 20 08) 1 45.8 (5 20 10) 40.7 (8 24 15) 40 30 20 10 18.8 (8 22 08) SPX: -12 2 15.6 (4 12 10) SPX: -19 3 26.7 (6 1 12) SPX: -10 4 14.7 14.3 (4 21 11) (3 26 12) 28.1 26.3 (2 11 16) (10 15 14) SPX: 6 SPX: SPX: -12 -13 -7 6 5 14.5 11.5 12.0 (11 3 15) (8 22 14) (7 17 15) 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Data through December 31, 2016. Note: The red arrows show the S P 500's (SPX's) peak-to-trough declines around each episode. Source: Investment Strategy Group, Bloomberg. 48.0 (8 8 11) another shock to the financial markets, resulting in the tightening of financial conditions in the US in mid-2015 and early 2016, with US equities dropping by more than 10 in both periods. Exhibit 19 provides a time line of shocks, which, in all likelihood, dampened the pace of the US recovery. In Summary As we review the six theories that could account for the notably slow pace of this recovery, we believe that all have some merit. Recovering from the hangover from the deepest recession since the Great Depression took a little longer. Demographics have not been favorable. Productivity growth appears lower, but that fact does not portend weak productivity growth in the future. Productivity growth is also probably not as weak as it appears, given some mismeasurement of GDP. Fiscal and regulatory policies hampered the economic recovery. And the global backdrop provided a steady source of shocks that slowed growth in the US. That said, we feel confident that the US continues to progress on a solid footing, that the recovery is intact and, as we argued in our 2016 Outlook: The Last Innings, that this recovery and bull market have another inning or two left to run. The glass is still half-full. We now turn to our expected returns for the next one and five years. One- and Five-Year Expected Total Returns The Investment Strategy Group began producing one- and five-year annualized expected total returns for major asset classes in our 2013 Outlook. Since then, our key message has been to stay invested in US equities despite the low returns we have expected for the asset class. Our recommendation has been driven by a low probability of recession, a reasonable probability of upside for equities, zero expected returns for cash and negative expected returns for bonds. We have presented these one- and five-year annualized expected returns to: a) provide more context for our investment recommendations; b) encourage our clients to have a longer investment horizon; and c) increase the odds that our clients have greater staying power to withstand market downdrafts. Fulfilling these three priorities is even more imperative moving forward. Our return expectations are lower than in prior years after several years of outsized returns in equities and high yield, and, at the same time, we are confronted with tremendous economic policy and geopolitical uncertainty. We have been faced with such uncertainty in the past, but today (in contrast with periods such as 2008), we no longer have the wind at our back with the benefit of cheap equity and high yield valuations. In 2008, we believed that attractive valuations would eventually lead to high prospective returns in US equities and high 20 Goldman Sachs january 2017 yield, notwithstanding short-term uncertainty. At the dawn of 2017, we face uncertainty, but US equities and high yield are expensive, and valuations no longer provide much margin of safety and protection from the downside. Similarly, other asset classes such as fixed income provide negligible returns but come with downside risk, e.g., if the incoming Trump administration s fiscal policy is more stimulative than we expect or if the Federal Reserve raises interest rates at a more rapid pace than we expect. As we prepared our one- and five-year annualized expected returns for this Outlook and finalized our investment recommendations for 2017, we were struck by two observations. First, the general recommendations and volatility warnings in our Outlook publications over the last several years have been similar, have been directionally correct and have generally added value to our clients portfolios. We have continuously recommended that clients stay invested in their strategic US equity allocation. We have also recommended maintaining some tactical tilts such as an allocation to high yield. Yet we have warned clients to be prepared for bouts of volatility. Last year, our exact message to clients with respect to volatility was that markets will be volatile, so an asset class that performs well in the first half of the year may perform particularly poorly in the latter part of the year; however, investors unlike traders should not try to time such short-term moves. 52 It is very important that clients heed this warning not just for 2017 but for their entire investing lives. Exhibit 20 illustrates the point. We have compared the performance of some of the bestperforming asset classes and sectors for the year with the performance of those assets at their worst The general recommendations and volatility warnings in our Outlook publications over the last several years have been similar, have been directionally correct and have generally added value to our clients portfolios. Exhibit 20: Returns in 2016 Some of the best-performing assets in 2016 experienced significant declines before recovering. Total Return ( ) 50 40 30 20 10 0 -10 -20 -30 -10.3 Return Through Year-End 2016 Return Through 2016 Low (2 11 16) 12.0 S P 500 Total Return Index -19.1 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. point of the year. Energy high yield provides an excellent example. On February 11, 2016, the US energy high yield sector (as measured by the Bloomberg Barclays High Yield Energy Total Return Index) was down 19.1 year to date one of the worst-performing sub-asset classes at that time. Similarly, the US bank sector (as measured by the S P Banks Select Industry Total Return Index) was down 21.7 over the same period. We had in place tactical tilts in both sectors. As oil prices recovered, high yield energy securities rallied, with the benchmark index ending the year up 37.4 a wild swing of 56 percentage points from low to high. US banks also rallied initially in response to prospects of higher interest rates and later in anticipation of less regulation under a Trump administration. The bank sector index rallied to end the year 31.3 higher than at the start an equally wild swing of 53 percentage points from low to high. We have to be realistic: we cannot anticipate such market swings on a consistent basis. Therefore, it is imperative that clients maintain a long investment horizon, be tactical when investment opportunities present themselves usually at times of extreme stress in the financial markets and 37.4 Bloomberg Barclays High Yield Energy Total Return Index -21.7 31.3 S P Banks Select Industry Total Return Index otherwise stay invested in the appropriate strategic asset allocation. Our second observation was that our five-year annualized return forecasts Outlook Investment Strategy Group 21 Exhibit 21: Historical Total Returns vs. ISG s 2013 Outlook 5-Year Prospective Total Returns Our 5-year return forecasts have so far been relatively accurate for the bulk of assets in our diversified model portfolio, but we have not been right across the board. Annualized 20 15 5-Year Annualized Projected Return As of December 31, 2012 Actual Annualized Returns Since December 31, 2012 14 18 14 15 19 10 5 0 -5 0 1 0 2 4 5 5 3 6 6 7 -5 8 11 11 -2 10 -10 10-Year Treasuries Muni 1 10 US High Yield Hedge Funds S P 500 Japanese Equity Emerging Market Local Debt EAFE Equity EM Equity (US ) Euro Stoxx 50 US Banks Data through December 31, 2016. Note: Rounded to the nearest whole integer. Source: Investment Strategy Group, Datastream. have also been relatively accurate for the bulk of assets in our diversified model portfolio. In Exhibit 21, we compare the five-year annualized expected total returns published in our 2013 Outlook to what transpired over the last four years. Our forecasts for 1) fixed income returns including both investment grade and high yield, 2) hedge fund returns, and 3) EAFE equity returns were close to the mark. Directionally, we were also right about US equity returns but off in terms of magnitude. We were also struck by how close our US bank sector return forecasts were to the realized returns approximately a quarter of which were realized after the November election. This observation has reinforced our belief in one of the pillars of our investment philosophy: having the appropriate horizon for various strategies is critical to long-term success. Not surprisingly, we have not been right across the board. We underestimated Japanese equity returns by 11.4 percentage points on an annualized basis and we overestimated emerging market equity and emerging market local debt returns, by sizable 13.5 and 12.1 percentage points, respectively, on an annualized basis. Japanese equities realized an annualized 18 return and EM equity and local debt realized negative returns, at -2 and -5 annualized, respectively. While our forecasts were off the mark, our emerging market investment recommendations were on the mark. In mid-2013, we recommended clients reduce their strategic allocation to emerging market assets. Even though we had forecast expected returns that were nearly double those of US equities, we became 22 Goldman Sachs january 2017 Exhibit 22: ISG Prospective Total Returns Expected returns over the next one and five years are below historical realized averages. 8 7 2017 Prospective Return 5-Year Prospective Annualized Return 7 6 5 4 3 2 1 0 0 2 10-Year Treasury 2 1 1 Muni 1 10 US Cash 5-Year Treasury 2 1 2 2 4 EM Local Debt 3 4 Hedge Funds 3 3 S P 500 3 3 Euro Stoxx 50 4 4 US Corporate High Yield 4 4 3 UK Equity 5 Muni High Yield 5 EAFE Equity 5 3 3 Japan Equity 5 EM Equity (US ) 3 3 Taxable Moderate Portfolio Data as of December 31, 2016. Note: For informational purposes only. There can be no assurance the forecasts will be achieved. Source: Investment Strategy Group. See endnote 53 for list of indices used. increasingly concerned about the structural fault lines of emerging market countries. These fault lines were discussed in detail in our December 2013 Insight, Emerging Markets: As the Tide Goes Out. We continue to recommend a zero allocation to emerging market debt (dollar-denominated and local currency debt) and a 2 allocation to emerging market equities in a moderate-risk diversified portfolio. We highlight emerging market assets because, yet again, our base case returns, especially for emerging market equities, appear compelling, but we are not recommending a tactical allocation to this asset class. As we discuss below in our review of the risks to our economic and financial market outlook, China is our biggest source of concern in 2017 and for the next few years. Emerging markets are the countries that would be most negatively impacted by any shocks emanating from China. China is our biggest source of concern in 2017 and for the next few years. Emerging markets are the countries that would be most negatively impacted by any shocks emanating from China. Our 2017 expected returns, shown in Exhibit 22, are the lowest returns we have published since the global financial crisis. Not a single broad asset class is expected to have double-digit returns. Cash has an expected return of 1 . Expected returns for intermediate investment grade fixed income securities range between 0 and 1 depending on maturities, an expectation driven by our view of rising rates as the Federal Reserve hikes the federal funds rate two or three times in 2017. US equities, which are the most expensive of global equities, have an expected return of about 3 , and we expect slightly higher returns in other developed market equities. Hedge funds, an asset class for which we have had modest single-digit return expectations since our 2013 Outlook (as shown in Exhibit 21), should continue to have modest returns; we expect a 3 return before taxes, compared to a 5 annualized return expectation in 2013 and an annualized return of 3 over the last four years. In aggregate, a moderate-risk diversified portfolio for taxable clients is expected to have a return of about 3 . We must note that our return expectations are not meant to promote a specific investment, and that their basis on current capital market assumptions implies they will likely change over the course of the year. At this point, our clients may well be asking why they should remain invested in a diversified portfolio with such paltry Outlook Investment Strategy Group 23 return expectations, given all the economic policy and geopolitical uncertainty mentioned earlier. We believe there are three compelling arguments. First, there is potential for upside surprises in 2017: Saudi Arabia and the rest of the oil producers may stick to the announced oil production cuts, thereby boosting energy sector earnings. A Trump administration fiscal stimulus could boost growth by more than we expect. Corporate tax cuts could increase corporate sector profitability. A possible tax holiday could encourage US multinational corporations to repatriate some of their earnings and deploy them for stock buybacks. We assign a 25 probability of such upside surprises relative to a 60 probability of our base case scenario and a 15 downside probability. (Please see Section III, 2017 Financial Markets Outlook, for a more detailed discussion.) Second, we recommend staying invested because we believe that the probability of a recession in the US is about 15 over the next year. There is an 85 chance that the economy will grow at a rate of about 2 or higher. Absent a recession, equities are more likely to generate positive returns. Obviously, the probability of a recession is substantially higher over the next five years, and our five-year annualized expected returns incorporate a 70 80 probability of a recession. Third, and most importantly, we do not see better investment alternatives. Cash will provide negligible returns with no upside, and we expect investment grade bonds to have equally negligible returns with little upside, if any. We also expect hedge funds, in aggregate, to lag equities on an after-tax basis. We expect similarly modest returns from our tactical tilts. As equities, high yield and the dollar have rallied over the course of the year, we have continued to reduce the overall risk level of our tactical tilts. Our Tactical Tilts As equities, high yield and the dollar have rallied over the course of the year, we have continued to reduce the overall risk level of our tactical tilts. At the beginning of 2016, we had already reduced our exposures by 50 relative to peak levels in 2015, as measured by value at risk. By the end of 2016, we had reduced exposures further, based on our investment discipline of averaging in and out of our tactical tilts. Underweight Fixed Income: We continue to recommend underweighting US fixed income assets as the Federal Reserve slowly but steadily raises the federal funds rate. We expect the 10-year Treasury bond yield to range between 2.5 and 3.0 . As a result, we forecast a 1 return across short- and intermediate-maturity fixed income assets and a near zero return for the 10-year Treasury. Longer maturities are expected to have negative returns. We also recommend underweighting fixed income assets to fund tactical tilts given their higher expected returns. Overweight to High Yield: While we reduced our tactical allocation to high yield assets by half throughout 2016, we continue to recommend an allocation to general high yield bonds, high yield energy bonds and high yield bank loans. The incremental yield in such securities, adjusted for defaults, is still compelling, with expected returns of about 4 for high yield bonds and high yield energy bonds and about 5 for bank loans. We forecast that crude oil prices will stay in the 45 65 range, partly owing to some production discipline by Saudi Arabia as the largest swing producer. Our bank loan tilt is further supported by a rising rate environment; the coupon rate on bank loans will be reset higher as LIBOR rises. 54 Modest Overweight to US Banks: We maintain a modest overweight to US banks despite their 31 return in 2016. Banks will benefit from rising rates, especially if the increase is greater in the short end of the yield curve. About 60 of changes in the net interest margin of banks is typically driven by changes in short rates since they are used for setting the banks prime lending rate. Banks will also likely benefit from a more favorable regulatory environment under a Trump administration. We forecast a return of about 7 . 24 Goldman Sachs january 2017 Overweight US Energy Infrastructure Master Limited Partnerships (MLPs): We initiated a direct allocation to energy MLPs in late January 2016 and have maintained that tilt. Given our assumptions about oil prices, we believe that the cash distributions from MLPs are generally secure and provide a yield to investors of just over 7 . In the absence of any valuation changes, the yield translates into a high single-digit tax-advantaged return. Any growth in cash flow distribution or improvements in valuation relative to the S P 500 would provide some upside. Overweight Spanish Equities: We maintain an overweight to Spanish equities on a currencyhedged basis. This tactical tilt was introduced in August 2013, and we have adjusted the size of the overweight about a dozen times since. Spanish equities offer some of the cheapest valuations across the developed markets, attractive dividend yields, expected earnings growth of 4.6 , aided by healthy domestic growth, and a particularly well-capitalized 55 banking sector that has a lower nonperforming loan ratio than the Eurozone bank average. Furthermore, Spain is unlikely to face the same political uncertainty as Germany, France and Italy in 2017. We expect high single-digit returns for Spanish equities. Short Five-Year German Bunds: We recommend a short position in five-year German bunds as the ECB embarks upon the process of shifting its monetary policy. After the December 2016 meeting, the ECB announced that it would reduce its monthly purchases of bonds from 80 billion to 60 billion starting in March 2017 and continuing through December 2017. We expect the ECB to end all purchases sometime in 2018, barring any shocks. As a result, we think interest rates for Eurozone sovereign debt will rise gradually over the course of the year, which in the case of German bunds means they will become less negative. We expect a modest 2 return from this tilt. Short Chinese Renminbi: We have increased our bearish position on the Chinese renminbi over the course of 2016. China is under pressure from multiple sides: the need for loose monetary policy to achieve the leadership s 6.5 target GDP growth rate, 32 months of capital outflows that have accelerated in late 2016, a strong dollar and an incoming Trump administration that will likely pursue a US-centric policy toward China. Risks are exacerbated by the leadership s lack of experience in handling financial market volatility, as evidenced by China s policy response to its equity market collapse in June 2015 and its approach to shifting the currency regime to a more flexible one in August 2015 and January 2016. We expect the currency to depreciate about 7 in 2017; since 4 is already priced in the forward markets, we expect a return of about 3 . There is considerable scope for further upside from this tilt if China abandons its current control of the currency, a move that could lead to depreciation in the renminbi of about 20 . Our tactical tilts are based on above-trend growth of 2.3 in the US, global growth of 2.9 , generally favorable monetary policy and more stimulative fiscal policy across developed and emerging market countries. We expect returns to be muted across asset classes, resulting in modest returns in a diversified portfolio with a modest enhancement from tactical tilts. Of course, our views are not without risks. As we discuss below, some are low-probability risks with the potential for high impact while others are high-probability risks with low impact potential. The Risks to Our Outlook When we think about the risks to our economic and financial market outlook, we are reminded of the words of French writer Jean-Baptiste Alphonse Karr: Plus a change, plus c est la m me chose the more things change, the more they stay the same. This year s list of risks overlaps with those of the last several years. As far back as 2011, investors have worried about a hard landing in China. From the inception of the European sovereign debt crisis in 2010 through the Brexit vote in 2016, the potential breakup of the Eurozone has been a source of concern. As soon as the Federal Reserve raised the federal funds rate in December 2015, investors worried about tightening policy causing a recession. Cybersecurity and terrorism are constant threats. And geopolitical risks have grown over time. This year, we are adding trade policy uncertainty and US- China geopolitical relations as new risks. As we said in our 2013 Outlook, there is no shortage of concerns as markets climb a wall of worry. In our view, there are eight risks that Outlook Investment Strategy Group 25 We do not believe this tightening cycle will lead to a US recession in 2017. could derail the last innings of this recovery and bull market. The first three are low-probability risks in our view, the next three risks have a high probability of occurring but their impact is uncertain and the last two are high-probability and high-impact risks beginning as early as 2017. Low-Probability but High-Impact Risks: The pace of Federal Reserve tightening is disruptive and financial markets react negatively. The economy slips into recession. Populist parties in the Eurozone gain greater influence. offing. Interest rates have increased from a low of 1.3 for the 10-year Treasury in July 2016 to 2.4 by year-end. While this increase in interest rates would ordinarily tighten financial conditions, it has been partially offset by stronger equity markets and tighter corporate bond spreads. In fact, financial conditions were looser at the end of the year than they were at the beginning of 2016 despite expectations of a slow but steady increase in the federal funds rate. We share the market view that the pace of monetary policy tightening will accelerate but remain benign. As shown in Exhibit 23, the difference between the Federal Reserve dots, the view implied by the bond market, the forecast by our colleagues in GIR and our view is negligible. The bond market has priced two hikes, the Federal Reserve and GIR expect three hikes, and we think two or three hikes are equally likely in 2017. We assume that the Federal Reserve will slow down the pace of interest High-Probability but Uncertain-Impact Risks: Geopolitical hot spots get hotter. Terrorism escalates. Cyberattacks continue. High-Probability and High-Impact Risks: China submerges under its debt burden and capital outflows. US-China relations deteriorate under the Trump administration. Pace of Federal Reserve Tightening Unlike the December 2015 interest rate hike that prompted a vocal response from naysayers but had limited impact on the bond market, the December 2016 hike has elicited a muted response from market commentators but has had a larger impact on the bond market. The underlying strength of the labor market and the steady improvement in the economy have led to a change of sentiment toward more interest rate hikes, which are clearly in the There is no shortage of concerns as markets climb a wall of worry. 26 Goldman Sachs january 2017 Exhibit 23: Policy Rate Path Projections We expect the pace of monetary policy tightening to accelerate but remain benign. Federal Funds Rate ( ) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 ISG View GIR View Market Implied Median Federal Reserve Projection 1.4 1.4 1.3 1.2 0.0 Dec-16 Dec-17 Dec-18 Dec-19 Data as of December 31, 2016. Note: For informational purposes only. There can be no assurance that the forecasts will be achieved. Source: Investment Strategy Group, Bloomberg, Goldman Sachs Global Investment Research, Federal Reserve. rate hikes should the economy weaken, and will pick up the pace later in 2017 or 2018 if the fiscal package under the Trump administration is bigger than we expect (see Section II, 2017 Global Economic Outlook, for a more detailed discussion). Irrespective of the realized pace, this tightening cycle will not result in a US recession in 2017, in our view. Recession Is Highly Unlikely Depression Bread Line, Bronze, 1991, George Segal at the Franklin D. Roosevelt Memorial. Art The George and Helen Segal Foundation Licensed by VAGA, New York, NY. 3.4 2.9 2.8 2.0 Low Expectations of a US Recession Recessions in the US have been triggered by Federal Reserve tightening of monetary policy; by economic imbalances such as the bursting of the dot-com and housing bubbles in 2000 and 2008, respectively; or by external shocks such as the Arab oil embargo in 1973. The first two triggers are unlikely to occur in 2017, and the third, a shock, is not something that we can typically anticipate. However, we do think that China will be a source of downside risk sometime over the next three years. First, as we mentioned in last year s Outlook, there have been five tightening cycles in the post- WWII period that have not triggered a recession. Four of those cycles occurred during the three longest recoveries, as shown in Exhibit 24. Those cycles have been characterized by an early start to the tightening cycle, a slow pace relative to historical averages (220 basis points per year for nonrecessionary tightening and 330 basis points per year in recessionary cycles), low core inflation and slack in the labor market. This cycle shares those characteristics: the tightening cycle started in 2015, the pace has been 25 basis points per year, the core personal consumption expenditures (PCE) index the Federal Reserve s preferred benchmark for inflation is at 1.6 year over year as of November 2016, and our colleagues in GIR estimate that the labor market still has about 0.3 slack. Second, the US economy does not suffer from any imbalances in which one sector of the economy has become the sole driver of growth or equity market returns. Before the global financial crisis, residential investment as a percentage of GDP had peaked at 6.7 in 2005, compared to a long-term average of 4.7 , and the credit-to-GDP gap as a measure of nonfinancial sector leverage had peaked at 12.4 in 2007 compared to a long-term average of -1 , leading to meaningful imbalances. Similarly, in 2000, technology and telecommunication sector valuations were more than three standard deviations higher than the average of other sectors. Such imbalances do not exist in the US at this time. Third, while we cannot anticipate an external shock otherwise it would not be a shock we do not see imbalances in other large economies except in China. Outlook Investment Strategy Group 27 Exhibit 24: US Real GDP During the Longest Post-WWII Recoveries Four of the five tightening cycles that did not trigger a recession occurred during the three longest recoveries in the post-WWII period. Beginning of Recovery 100 160 Mar-61 Dec-82 150 Mar-91 Current (Jun-09) 140 Aug-61 Nov-66 Did NOT Trigger Recession Dec-86 Mar-89 Triggered Recession CAGR: 4.4 Aug-67 Aug-69 Triggered Recession CAGR: 4.9 CAGR: 3.6 130 120 Mar-83 Aug-84 Did NOT Trigger Recession CAGR: 2.1 Jun-99 Jul-00 Did NOT Trigger Recession 110 Dec-15 ? 100 90 Feb-94 Apr-95 Did NOT Trigger Recession Denotes Beginning of Fed Tightening Cycle Denotes End of Fed Tightening Cycle 0 4 8 12 16 20 24 28 32 36 40 Quarters After Recession Trough Data as of December 2016. Source: Investment Strategy Group, Bloomberg, National Bureau of Economic Research. In our 2016 Outlook and our 2016 Insight report, Walled In: China s Great Dilemma, we stated that China was unlikely to have a hard landing over the next two years (i.e., 2016 and 2017). We believe the view still holds. We do not expect a hard landing in China that would destabilize the US economy in 2017, but the risks grow significantly in 2018 and 2019. As we discuss below, China may nevertheless represent a geopolitical risk in 2017. Historically, since WWII, the odds of a recession occurring over a 12-month period have been 18 . Our composite recession model, incorporating end-of-year financial and economic data, estimates the probability of a recession in 2017 at 23 . Once we incorporate the likely passage of a fiscal stimulus package of tax cuts and infrastructure investments in the latter half of 2017, the probability of a recession this year declines to about 15 . Rising Influence of Populist Parties in the Eurozone Since the election of Prime Minister Alexis Tsipras and the Syriza Party in Greece in January 2015, populism has been gaining momentum across Europe. The support for populist parties has increased to varying degrees in Spain, Greece, Italy, France, the Netherlands, Germany and Austria. The common themes among populists have been anti-immigration and anti-European Union. Outside the Eurozone, the 2016 Brexit vote in Great Britain has been interpreted as a populist vote against immigration from Eastern Europe, the Middle East and North Africa, as well as against the bureaucracy of the European Union. The increasing enthusiasm for populist parties in Europe raises two questions. First, will any of the more extremist parties win enough support to break away from the European Union? In France, for example, upcoming elections in May 2017 are likely to pit Fran ois Fillon of Les R publicains against Marine Le Pen of the far right Front National. Le Pen has promised a referendum on whether France should stay in the European Union, and, should she win, questions about the viability of the Eurozone will surface immediately. 56 While polls show Fillon well ahead of Le Pen, polls have been wrong on the UK and Italian referenda and the US election. The Eurasia Group, for one, assigns a 30 probability to a Le Pen victory. 57 Second, to what extent will the rise of populism influence policies in the Eurozone? Here, Germany will probably provide a litmus test. Chancellor Angela Merkel and her coalition government are likely to respond to recent terrorist attacks there by proposing a stronger police and military presence, according to the Eurasia Group. Security checks will probably be increased as well, since at least 800,000 asylum-seekers entered Germany with minimal security checks and terrorist suspects have already been arrested among them. 58 With German elections scheduled for September 2017, it remains to be seen whether Chancellor Merkel will adjust her immigration policy. 28 Goldman Sachs january 2017 While populism is on the rise and the support for such parties has increased, we do not think that these movements will threaten the viability of the Eurozone in 2017. In fact, in response to Brexit, we believe that Eurozone policymakers will take a hard line with Britain to make sure other countries do not think it realistic to manage an exit that retains all the benefits while shouldering none of the costs. The Wall Street Journal reports that the Obama administration considers North Korea to be the top national security priority for the incoming administration. 65 Nuclear weapons already in place, long-range ballistic missile capabilities in development, and an unpredictable and provocative leader are a deadly combination. North Korea will remain a serious risk for the foreseeable future. Geopolitical Hot Spots Get Hotter We rely on the insights of external experts to formulate our geopolitical views. They include members of prominent research groups, think tanks and universities as well as former government officials, both in the US and abroad. So informed, we highlight activity in North Korea, Russia and the Middle East among our group of risks with high probability but uncertain impact. North Korean Belligerence Continues: North Korea s unpredictable and belligerent military activities have continued unabated. In early 2016, North Korea announced that it had tested its first hydrogen bomb. 59 By the end of 2016, North Korea had conducted nine other military actions, including the launch of a ballistic missile from a submarine, 60 launches of long-range ballistic missiles toward Japan 61 and additional nuclear tests. 62 We can only expect further tests in 2017, given the estimates by a Council on Foreign Relations task force chaired by retired Admiral Michael Mullen that North Korea may have between 13 and 21 nuclear weapons as of June 2016. 63 Even more troubling is a pattern highlighted by David Gordon, adjunct senior fellow at the Center for a New American Security. Gordon points out that North Korea makes a habit of testing new presidents, as it did in May 2009, early in President Obama s first term, and again in February 2013 after South Korean President Park Geun-hye was inaugurated. 64 While populism is on the rise and the support for such parties has increased, we do not think that these movements will threaten the viability of the Eurozone in 2017. Russian Adventurism Intensifies: While attention has been focused on Russia s adventurism in Syria, the frozen conflict in Ukraine remains intact, with increasing violations of the Minsk agreements of 2014 and 2015. 66 Since the first agreement in September 2014, nearly 10,000 people have been killed, 67 and most recently, Russian-backed separatists attempted to break through Ukrainian government lines. 68 In response to such lack of progress and concerns about further Russian aggression in the region, the heads of North Atlantic Treaty Organization (NATO) member countries agreed, at a summit in Warsaw in July 2016, to deploy as many as 4,000 troops to the Baltic States and Poland in early 2017 as a deterrent to further adventurism in Eastern Europe. 69 The risks of accidents and intentional skirmishes will inevitably rise. Furthermore, the direction of foreign policy in the region under a Trump administration is uncertain given President-elect Trump s July 2016 statement that the US would not automatically defend the Baltic States. 70 Russia is likely to stay involved in the Middle East as well. Russia has been a constructive force with respect to the fight against the Islamic State of Iraq and the Levant (ISIL) and a stabilizing force with respect to keeping Syrian President Bashar al-Assad in place in the absence of any attractive alternatives. Syria would not have made as much progress in pushing back ISIL and the rebels without Russian air power support. Russia has also hosted a meeting in Moscow with Iran and Turkey to work toward an accord to end the war in Syria 71 a six-year war that has resulted in 400,000 72 to 470,000 fatalities 73 and an estimated economic cost of 250 billion to 275 billion. 74 Given the prospects of continued geopolitical turmoil in the region, Russian involvement in the Middle East will not be reduced anytime soon. Outlook Investment Strategy Group 29 Middle East Conflicts and Tensions Persist: The Middle East will remain a source of conflict for years to come. Many countries have weak or collapsing nation-state structures with varying degrees of civil war. As Zalmay Khalilzad, former ambassador to Afghanistan, Iraq and the United Nations, and president of Gryphon Partners, wrote recently, the national borders devised by Western powers for Iraq and Syria, in particular, are not standing up well to the test of time and Pakistan s policies have contributed to Afghanistan s precarious condition. 75 Iran and Saudi Arabia compete for influence in the region, and the Sunni-Shia divide that was not a geopolitical factor 40 years ago will continue to escalate tensions in the region. Another potential risk in the region is the dismantling of the Iran nuclear deal by the Trump administration. 76 In the absence of a deal, Iran would return to building its nuclear capabilities, thereby increasing the risks of a military strike by Israel or the US. We assign a low probability to such an event for two reasons. First, we point to comments made by secretary of defense nominee retired General James Mattis, which suggest a different approach in dealing with Iran. 77 In a speech in April 2016 at the Center for Strategic and International Studies, Mattis said there is no going back on the deal absent a clear and present violation. 78 Second, other signatories to the deal, including Russia and China, would not support a unilateral dismantling of the deal by the new administration. 79 That is not to say that tensions between the US and Iran will not continue this year. Turmoil in the region will continue into 2017 and beyond. While the direct impact of such conflicts on global growth and world equity markets is limited outside a war among major powers, the threat posed by terrorism is significant and growing. Terrorism Escalates Another high-probability but uncertain-impact risk is increased terrorism. The Middle East has been the main source of terrorism even before the September 11, 2001, attack on the World Trade Center. The majority of the 9 11 perpetrators, 15 out of 19, were from Saudi Arabia, with the rest from other Arab countries in the region. 80 Since then, the spread of ISIL, the Syrian civil war, extremism in Pakistan and Afghanistan, and the immigration of Arabs and North Africans to Europe and, to a lesser extent, the US, have increased the incidence of terrorism in the West. In 2016, there were five key terrorist incidents in the US and 15 in Europe, including a December 19 attack when a truck rammed into a Christmas market in Berlin. 81 Some of the terrorists responsible were inspired by ISIL, 82 and some were lone-wolf Islamic extremists who had lived in their respective countries for years. 83 With a growing number of refugees in Europe, it is highly likely that this pace of terrorism will continue. Terrorist attacks and geopolitical tensions in the Middle East take more than their immediate human toll. While consumer confidence in the US is now above the pre-global financial crisis peak of July 2007 (see Exhibit 25), Gallup Poll data shows that dissatisfaction remains at a very high level, similar to that at the beginning of the global financial crisis. As shown in Exhibit 26, the dissatisfaction rate increased steadily in the aftermath of the 9 11 terrorist attacks and the US wars in Afghanistan and Iraq. It had already reached current levels before the global financial crisis. Former Federal Reserve Chairman Ben Bernanke has named traumatic national shocks such as 9 11 along with political polarization and shrill political debates as possible culprits of the contradictory signals between the high levels of consumer confidence as measured by the Conference Board and the high levels of dissatisfaction as measured by Gallup Polls. 84 Risks of continued terrorism are very high, but the broader economic impact of the type of terrorist acts we witnessed in 2016 is limited. We can only hope that large attacks such as 9 11 do not occur again. Cyberattacks Continue High-profile cyberattacks or cyberattack announcements were a regular feature of 2016. The highest-profile attacks were those perpetrated by the Russian government on the Democratic National Committee computer network, according to a joint statement from the Department of Homeland Security and Office of the Director of National Intelligence on Election Security. 85 The US government expelled 35 Russian officials and imposed sanctions on four high-ranking members of the Russian military intelligence unit as a result. 86 30 Goldman Sachs january 2017 Exhibit 25: Conference Board Consumer Confidence Index The labor market recovery has led to a steady increase in consumer confidence. Index Points 160 140 Exhibit 26: Gallup Poll on Satisfaction With the Direction of the US Dissatisfaction remains at a very high level, similar to that at the beginning of the global financial crisis. of Respondents 100 90 120 113.7 80 70 71 100 91.5 60 80 60 75.1 50 40 Beginning of Global Financial Crisis 40 20 Conference Board Consumer Confidence Historical Average Post-Global Financial Crisis Average 30 20 10 September 11th War in Iraq War in Afghanistan 0 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 Data through December 2016. Note: Series starts in January 1978. Post-GFC average begins in July 2009. Source: Investment Strategy Group, Datastream. 0 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 Data through December 2016. Note: The poll asks, In general, are you satisfied or dissatisfied with the way things are going in the United States at this time? Source: Investment Strategy Group, Gallup. Other high-profile cyberattacks included The announced theft of the account information of 1 billion Yahoo users in 2013 and 500 million Yahoo users in 2014 87 The theft of information from as many as 700,000 accounts at the Internal Revenue Service 88 A suspected Chinese military hack into the Federal Deposit Insurance Corporation 89 The theft of 117 million LinkedIn passwords (stolen in 2012 but announced in 2016) 90 The risks of cyberattacks continue to increase. The risks of cyberattacks continue to increase. To date, the attacks have had limited detrimental impact on the broad US economy, but the impact could be far-reaching if foreign governments such as Russia or China, criminal entities, or lone actors attack critical infrastructure in the US or any other major country. China Submerges Under Its Debt Burden and Capital Outflows At 11.4 trillion, China is the second-largest economy in the world, with a 13.8 share of global exports and a 9.7 share of global imports. It accounts for nearly half of global demand for zinc, tin, steel, copper and nickel, and more than half for thermal coal, aluminum and iron ore. Any major slowdown or volatility across bond, currency and equity markets in China, including Hong Kong, would have major ramifications for the rest of the world. While the US has limited direct economic exposure to China only 0.6 of exports as a share of GDP, 0.6 of bank assets and 0.7 of corporate profits any shocks in China will reverberate through US financial markets. As shown earlier in Exhibit 18 on page 19, US financial conditions tightened by 118 basis points in the summer of 2015 Outlook Investment Strategy Group 31 when China s leadership intervened in the local equity markets and adjusted the trading band around the renminbi, and by 104 basis points in late 2015 and early 2016 when the leadership changed the reference currency from the dollar to a basket of 13 currencies. If US financial conditions had stayed at those levels for over a year, US GDP growth would have slowed by about one percentage point, all else being equal. Financial conditions are the mechanism by which shocks from China would have the most immediate impact on key developed economies such as the US. As mentioned above, one of the triggers of US recessions has been economic imbalances. While we do not see such imbalances in the US, or in other major developed economies, at this time, we see significant imbalances in China. Such imbalances have led to crises in other countries, and there is no reason to believe that they will not lead to a financial crisis in China. In our view, it is not a question of if it is only a question of when. The biggest imbalance in China is the high level of debt relative to GDP. The Bank for International Settlements (BIS) has a series of early warning indicators. One of the more widely followed and reliable measures is the credit-to-GDP gap, measured as the total credit extended to the private nonfinancial sector as a percentage of GDP compared with its long-term trend. As shown in Exhibit 27, China breached the high-risk threshold in June 2012, when its credit-to-GDP gap rose above the 10 level. At 30.1 as of March 2016 (latest data available) and rising, China s gap exceeds the 10 threshold by 20 percentage points, levels previously seen in Spain before the European sovereign debt crisis. Major developed and emerging market countries have experienced a financial crisis within three years of their credit-to- GDP gap exceeding 10 . In our 2016 Outlook and our 2016 Insight report, Walled In: China s Great Dilemma, we stated that we did not expect a hard landing in China over the next two years 2016 and 2017. We continue to assign a low probability to a hard landing in China in 2017. However, it is unlikely that China can avoid a financial crisis over the next three years. In prior years, we have pointed to China s high savings rate and government control of many aspects of the economy as reasons for its ability to avert a hard landing. However, the country s debt levels have risen rapidly, the pace of capital outflows has picked up, and net foreign Exhibit 27: Credit-to-GDP Gap Across Economies China s gap reached the high-risk threshold in June 2012 and has continued to rise. Credit-to-GDP Gap ( of GDP) 50 30 10 -10 -30 High Risk UK Elevated Risk Eurozone -50 US Japan Spain China Russia -70 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Data through Q1 2016. Note: Estimates based on series of total credit to the private nonfinancial sector. Credit-to-GDP gap is defined as the difference between the credit-to-GDP ratio and its long-term trend in percentage points. Long-term trend is calculated using an HP filter. Source: Investment Strategy Group, Bank for International Settlements. direct investment has reversed and is now negative. In our view, neither China s high savings rate nor its increasing government control of financial markets and capital flows will be sufficient to avert a hard landing over the next several years. Keep in mind that even the US was not able to avert a financial crisis after its credit-to-GDP gap briefly breached the 10 high-risk threshold in December 2006 and peaked at 12.4 in December 2007. The US has the highest GDP per capita of any major country in the world. The large countries that come closest to the US on this score have GDP per capita levels that stand at about 70 of US levels on a nominal basis and slightly higher on a purchasing power parity (PPP) basis. The US dollar is also the unquestioned reserve currency of the world; its reserve-currency status has only been fortified after the Eurozone sovereign debt crisis and the British referendum for Brexit. Thus, the US is able to access the excess savings of the entire world. The US also receives the largest share of world foreign direct investment flows, capturing 14 of global flows between 2011 and 2015. The US now accounts for 20 of the stock of all foreign direct investment. Yet, despite all these major advantages, it did not avert a financial crisis in 2008. It defies logic to assume that China will be the one major country that avoids a financial crisis and a hard landing when it does not enjoy such advantages. As we often say, stating that this 32 Goldman Sachs january 2017 Exhibit 28: Total Foreign Currency Holdings of China s Official Sector If the recent pace of decline continues, China s reserves could soon fall below the IMF s adequacy threshold. US billions 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 PBOC FX reserves Other official FX holdings Scenario 1 (avg. pace since Aug-2015) Scenario 2 (avg. pace in 2016) 0 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Data through November 2016. Source: Investment Strategy Group, CEIC, Bloomberg, IMF. IMF FX reserve threshold (without capital controls) 2,800 1,700 IMF FX reserve threshold (with capital controls) time is different is extremely dangerous for the investment well-being of our clients portfolios. China, in fact, faces greater risk of a financial crisis because of growing capital outflows. An astounding 1.3 trillion of capital has flowed out of China since August 2015, when it broadened the trading range for its currency against the US dollar. The outflows averaged 64 billion per month in 2016. At that pace, China s total official foreign currency holdings could drop below the IMF s reserve threshold of 2.8 trillion by mid-2017, as shown in Exhibit 28. Of course, China s leadership has not stood on the sidelines. Since September 2015, the People s Bank of China and the State Administration of Foreign Exchange have introduced a series of measures to limit capital outflows. These measures have included orders to financial institutions to carefully check and strengthen controls on all foreign exchange transactions 91 and strict oversight of Chinese companies outward investment in overseas property, hotels, cinemas and the entertainment and sports industries. 92 According to reports, leadership has also ordered increased oversight of trade activities to make sure companies are not over-invoicing the value of their imports or under-invoicing the value of their exports as a means of circumventing capital controls. 93 Exports and imports are 20 and 15 , respectively, of China s GDP. It is virtually impossible for China to halt capital flows in such a porous economy without slowing GDP growth rates. Thus, China will not be able to completely stem outflows despite all its measures to slow the pace as much as possible. Irrespective of the success of such capital controls, China s growing debt problem poses significant risks to China s growth trajectory. We estimate that the risk of a hard landing is only about 25 in 2017 but will increase rapidly to about 50 in 2018 and be closer to 75 in 2019. Therefore, while China is not a near-term risk, there is a high probability of an intermediate-term crisis that will reverberate through financial markets. We also know that we cannot anticipate the exact timing of such crises, especially given the uncertainty of how US-China relations will unfold under a Trump administration. According to the Center for Strategic and International Studies, China has installed anti-aircraft guns and other weapons systems on seven man-made islands in the South China Sea, including the Johnson Reef, shown above. Map data: Google, DigitalGlobe US-China Relations Deteriorate Under the Trump Administration There is no doubt that US strategy toward China will shift; the only question is when and how. There are two channels by which the Trump administration could affect US-China relations: trade and foreign policy. Outlook Investment Strategy Group 33 We may see some fireworks in US-China relations during the Trump administration. With respect to trade, President-elect Trump can use any one of six US statutes, including the Trading with the Enemy Act of 1917 and the International Emergency Economic Powers Act of 1977, to shift trade policy. The latter two statutes give him latitude to change foreign commerce without interference from Congress or the courts. President-elect Trump has advocated imposing tariffs and labeling China a currency manipulator. While he has continued to threaten tariffs of 45 on imports from China, there is considerable uncertainty as to what his administration will actually impose. If the US and China engage in a full trade war, the Peterson Institute for International Economics has estimated a notable drag on US GDP growth over three years. 94 Any of these actions by the Trump administration may provoke a strong reaction from China, including a sizable depreciation of the renminbi. Such depreciation would certainly be disruptive to financial markets. With respect to foreign policy, many policy experts have been calling for a change in strategy toward China. In April 2015, the Council on Foreign Relations published a special report on China, suggesting that Washington needed a new grand strategy toward China that centers on balancing the rise of Chinese power rather than continuing to assist its ascendancy. 95 The militarization of the seven artificial islands in the South China Sea (see image on page 33), according to the Asia Maritime Transparency Initiative at the Center for Strategic and International Studies, 96 will only expedite such a shift in strategy. If President-elect Trump s actions to date, such as the telephone conversation with Taiwan President Tsai Ing-wen 97 and his response to the recent Chinese seizure of a US Navy drone, 98 are any indication, we may see some fireworks in US- China relations during the Trump administration. 34 Goldman Sachs january 2017 Key Takeaways As we mentioned in last year s Outlook, forecasting is difficult under the best of circumstances but particularly so in the last innings of an eightyear-long economic expansion and bull market. This year brings the additional challenge of a new president whose policies are likely to follow an unconventional script. Nevertheless, there are seven key takeaways from our 2017 Outlook: Improving growth: We expect global economic activity to accelerate this year, with modestly higher GDP growth rates in the US, Eurozone, Japan and many emerging market economies. We expect a small slowdown in China. Low recession risk: Favorable monetary and fiscal policies substantially reduce the probability of a recession in key developed and emerging market countries. Still accommodative monetary policy: US monetary conditions will still be relatively easy because of the slow and steady pace of tightening of the federal funds rate by the Federal Reserve. At the same time, other developed central banks are still expanding their balance sheets. Remain vigilant: Despite a favorable economic and policy backdrop, there is no shortage of global risks, including rising populism in Europe, growing geopolitical tensions, the spread of terrorism and the proliferation of serious cyberattacks. China concerns: China is the biggest source of uncertainty given its growing debt burden, accelerating capital outflows and potential for a notable deterioration in the US-China relationship driven by changing US trade and foreign policy toward China. Stay invested: The collective impact of these various risks is not yet sizable enough to undermine our core view: that we are in a longer-than-normal US recovery that supports equity returns, which are likely to exceed those of cash and bonds. Thus, we recommend staying invested in US equities with some tactical tilts to US high yield bonds and European equities. Modest returns: While we recommend clients remain invested, we have modest return expectations. We expect that a moderate-risk welldiversified taxable portfolio will have a return of about 3 in 2017. Outlook Investment Strategy Group 35 SECTION II 2017 Global Economic Outlook: Winds of Change for most of the last eight years, global policy makers have been buffeted by the gale force headwinds generated by the financial crisis. In response, central banks around the world have expanded their balance sheets by a staggering 12.5 trillion, 99 while fiscal austerity measures in the G-7 economies have reduced the general government budget deficit from 10 of GDP to just 3.6 today. Although this mix of policies may have helped avoid a second Great Depression, it has fallen short of fostering a robust economic recovery. According to the IMF, the nominal GDP of advanced economies has grown at just a 1.6 annualized pace in US dollar terms since its 2009 trough, making it among the slowest expansions on record. The overt reliance on monetary policy has also had unintended consequences. Persistently low interest rates have crippled bank profitability and penalized savers. Moreover, the boost that low rates provide to stock prices primarily benefited a narrow segment of the income distribution, exacerbating inequality concerns. Not surprisingly, populism has been on the rise globally. 36 Goldman Sachs january 2017 Outlook Investment Strategy Group 37 Last year witnessed a growing repudiation of this status quo, evident in the surprise outcome of the UK and Italian referenda, as well as US presidential election. As we begin 2017, these winds of change are gaining force. Central banks are acknowledging the often counterproductive impact of ultra-easy monetary policy and shifting attention to the eventual withdrawal of accommodation. At the same time, the recovery in commodity prices and recent firming in global growth is shifting the focus from deflation to reflation. The same could be said of the increasing focus on expansionary fiscal policy. While this change brings hope, it also carries risk. In the US, fiscal stimulus arrives eight years into an economic expansion that is already near full employment, increasing the danger of the economy overheating. Although the Federal Reserve could respond by hastening the pace of rate hikes, it might overdo it. Similarly, an overzealous negotiating stance on existing trade relationships or imposition of protectionist policies by the incoming US administration could staunch the flow of trade an outcome that would be particularly damaging to emerging markets. And in Europe, a victory of the far right in the French presidential election could unleash fears about France exiting the European Union and endanger the survival of the euro. Still, we do not yet accord a high enough probability to these risks to alter our base case, which assumes these winds of change fill the sails of the ongoing global recovery, rather than capsize it (see Exhibit 29). Exhibit 30: Duration of Post-WWII Expansions This expansion is already the fourth-longest since WWII. Recovery Duration (Quarters) 45 40 35 30 25 20 15 10 5 0 40 35 31 30 Mar-91 Feb-61 Nov-82 Jun-09 Nov-01 Mar-75 May-54 Nov-70 Apr-58 Jul-80 Business Cycle Trough Data as of December 2016. Note: The recovery is measured from the business cycle trough. Source: Investment Strategy Group, National Bureau of Economic Research. United States: Age Is Just a Number 24 The US economic expansion is getting old by historical standards. At nearly eight years, it is already the fourth-longest in post-WWII history and poised to be among the top three by the middle of this year (see Exhibit 30). Concern that the economy s vigor is finally succumbing to its advanced age was only bolstered by anemic 1.6 real GDP growth in 2016, close to the weakest of any year during the recovery. But as we have argued in the past and as Federal Reserve Chair Janet Yellen recently noted, it s a myth that expansions die of old age. 100 Instead, business cycles are typically derailed by 19 13 12 8 4 Exhibit 29: ISG Outlook for Developed Economies United States Eurozone United Kingdom Japan 2016 2017 Forecast 2016 2017 Forecast 2016 2017 Forecast 2016 2017 Forecast Real GDP Growth Annual Average 1.60 1.90 2.70 1.60 1.20 1.90 2.10 0.50 1.50 1.00 0.75 1.50 Policy Rate End of Year 0.75 1.25 1.50 0.00 (0.50) (0.30) 0.25 0.00 0.50 -0.10 -0.10 10-Year Bond Yield End of Year 2.44 2.50 3.00 0.21 0.50 1.00 1.24 1.50 2.25 0.05 0.00 Headline Inflation Annual Average 1.70 1.80 2.60 0.60 0.80 1.60 1.20 2.00 3.00 0.50 Core Inflation Annual Average 2.10 1.80 2.60 0.80 0.90 1.40 1.40 1.50 2.00 -0.40 0.25 1.0 Data as of December 31, 2016. Note: The above forecasts have been generated by ISG for informational purposes as of the date of this publication. They are based on ISG s proprietary macroeconomic framework, and there can be no assurance the forecasts will be achieved. Source: Investment Strategy Group, Goldman Sachs Global Investment Research, Bloomberg. 2016 real GDP is based on Goldman Sachs Global Investment Research estimates of year-over-year growth for the full year. The US policy rate refers to the top of the Federal Reserve s target range. The Japan policy rate refers to the BOJ deposit rate. For Eurozone bond yield, we show the 10-year German bund yield. For 2016 CPI readings, we show the latest year-over-year CPI inflation rate (November). Japan core inflation excludes fresh food, but includes energy. 38 Goldman Sachs january 2017 Exhibit 31: US Cyclical Spending There is scope for business and consumer spending to increase in the US economy. Exhibit 32: US Inflation Normalizing energy prices account for much of the inflation increase we expect. of Potential GDP 32 30 US Cyclical Spending Average Recession YoY 4 3 Energy Contribution to Headline Inflation Headline Inflation Core Inflation Forecast 28 2 2.4 26 24 22 20 25.6 23.6 1 0 -1 18 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Data through Q3 2016. Note: 4-quarter average. Cyclical spending is business fixed investment plus consumer durables spending. Source: Investment Strategy Group, Datastream. -2 2011 2012 2013 2014 2015 2016 2017 Data as of Q3 2016. Note: ISG forecasts from Q4 2016. For informational purposes only. There can be no assurance the forecasts will be achieved. Source: Investment Strategy Group, Datastream. Core inflation excludes food and energy. three culprits: economic imbalances, excessive Federal Reserve tightening and or exogenous shocks (most commonly in the form of spiraling oil prices). As we survey these risks today, none are particularly alarming. The depth of the financial crisis and the lackluster pace of the recovery have allowed the US to avoid the imbalances that would typically be evident this far into an expansion (see Section I of this year s Outlook). If anything, there is scope for spending in cyclical parts of the US economy relative to overall GDP to move toward its long-term average (see Exhibit 31). There is also less risk of disruptive Federal Reserve tightening, given how few signs we see of economic overheating. Headline inflation remains below the Federal Reserve s 2.0 target, and though we expect it to move higher this year, normalizing energy prices are a key driver (see Exhibit 32). Further, while the November 2016 unemployment rate of 4.6 suggests the economy is near full employment, broader measures of labor slack, as well as today s depressed labor force participation rate, argue that the central bank is not behind the curve (see Exhibit 33). Lastly, our expectation for continued modest gains for the US dollar and a rebound in productivity growth from generational lows (see Exhibit 34) provides a natural offset to inflation pressures, even as wages continue to rise. Exhibit 33: US Unemployment Indicators There are still signs of slack in the labor market. 14 Overall Employment Population Ratio (Right, Inverted) Unemployment Rate 55 12 Natural Rate of Unemployment 57 10 8 6 4 2 0 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Data through November 2016. Source: Investment Strategy Group, Federal Reserve Economic Data, Datastream. Long-term rate. Of equal importance, the Federal Reserve is acutely aware of the risks that tighter monetary policy poses to the business cycle, which is apparent in both its willingness to step back from planned rate hikes last year as well as Chair Yellen s acknowledgment that an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession. 101 With neutral real interest rates 59 61 63 65 67 Outlook Investment Strategy Group 39 Exhibit 34: US GDP per Hour Worked We expect a rebound in productivity growth from generational lows. YoY 4 Exhibit 35: Goldman Sachs US Current Activity Indicator Economic activity accelerated in the second half of 2016. Annualized Change 3.0 3 2.5 2.5 2 2.0 1.5 1.6 2.1 1 0.6 1.0 0 0.5 -1 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 0.0 Average: January May Average: June November November Reading Data through 2015. Source: Investment Strategy Group, OECD. Data as of November 2016. Note: The current activity indicator is the first principal component of real-activity indicators, expressed in GDP-equivalent units. This is the growth signal in the main high-frequency indicators for the US economy. Source: Investment Strategy Group, Goldman Sachs Global Investment Research. near zero and inflation expectations still below levels compatible with its inflation target, the Federal Reserve is likely to hike rates two or three times in 2017, below the historical average pace. On this point, it is worth remembering that the Federal Reserve originally projected four hikes by the end of 2016, yet enacted only one in December. Thus, even if the Federal Reserve does raise rates three times this year, it will have delivered those four hikes over two years instead of just one. Lastly, although a recession created by an external shock is always a risk, the probability we place on a hard landing in Europe and or China or a destabilizing increase in oil prices is not currently high enough to alter our base-case view. Indeed, even with the recent cut in oil production coordinated between OPEC and non-OPEC members, the size of today s oil-supply glut and the historical tendency for producers to exceed their quotas greatly reduce the risk of a price spike (see With none of the typical signs of economic contractions flashing red, we accord a 15 probability of a recession in 2017. Section III, Global Commodities). With none of the typical signs of economic contractions flashing red, we accord a 15 probability of a recession in 2017, roughly in line with historical average risk. Against this backdrop, we expect US real GDP growth to accelerate from last year s moderate 1.6 pace, reaching 1.9 2.7 in 2017. There are three key drivers to this story: fading headwinds, a resilient US consumer and supportive policy. We discuss each below. Fading Headwinds The combination of falling oil prices and a rising dollar that began in mid-2014 has been a meaningful drag on US growth, with energy-related capital spending falling by more than 60 over this period. In addition, exports have softened, the S P 500 has suffered almost two years of contracting profits, and inventories throughout the supply chain have ballooned as activity has slowed. Such broad-based weakness has rarely occurred outside a recession. The silver lining to last year s slowdown, however, is that growth is now poised to improve from depressed levels. A modest recovery in oil prices and stabilization of the dollar enabled US economic activity to accelerate notably in the second half of last year (see Exhibit 35). This boost will be aided 40 Goldman Sachs january 2017 Exhibit 36: Contribution from Change in Inventories to US GDP Growth Inventories should support growth after five quarters of subtracting from GDP. Exhibit 37: National Association of Home Builders US Housing Market Index The post-crisis high in builder confidence bodes well for US residential investment. Percentage Points, 5-Quarter Moving Total Contribution Recession Index Level 14 80 10 6 70 60 50 70 2 40 -2 -6 30 20 10 -10 1981 1986 1991 1996 2001 2006 2011 2016 0 2002 2004 2006 2008 2010 2012 2014 2016 Data through Q3 2016. Source: Investment Strategy Group, Haver Analytics. Data through December 2016. Note: Based on a monthly survey of NAHB members who rate market conditions for the sale of new homes, as well as the traffic of prospective buyers of new homes. Source: Investment Strategy Group, Datastream. Exhibit 38: US GDP Growth Impulse from Goldman Sachs Financial Conditions Index The persistent drag from tight financial conditions over the last two years should reverse in 2017. Percentage Points, 4-Quarter Moving Average 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8 -1.0 Forecast -1.2 2012 2013 2014 2015 2016 2017 2018 Data as of Q3 2016. Note: The financial conditions index is a weighted average of riskless interest rates, credit spreads, equities and FX, based on effects on 1-year forward US GDP growth. Historical estimates and forecasts by Goldman Sachs Global Investment Research. For informational purposes only. There can be no assurance the forecasts will be achieved. Source: Goldman Sachs Global Investment Research. by inventory restocking, which looks ready to help GDP growth again after five quarters of negative contributions (see Exhibit 36). Similarly, residential investment is set to contribute, reflected in the National Association of Home Builders (NAHB) housing market index reaching a post-crisis high in December of last year (see Exhibit 37). Overall, we expect this momentum to continue as the erstwhile easing in financial conditions provides a growth tailwind throughout 2017 (see Exhibit 38). A Resilient US Consumer The stars are aligned for US consumers in 2017, as they enter the year with rising wages, higher net worth from asset price gains, historically low debt-servicing costs, ample savings and confidence at a 12-year high. They also stand to benefit directly from potentially lower tax rates and indirectly from higher fiscal spending, a topic we discuss in the next section. The abovementioned factors should mitigate the headwind from higher inflation. Overall, we expect private consumption a key driver of our GDP forecast to expand at a pace of approximately 2.5 . Supportive Policy While government policy is always a source of uncertainty, it is even more so in 2017 given potential changes to tax, trade and immigration policies in the wake of last year s presidential election. Nonetheless, our base case is that policy ultimately supports growth this year, with some fiscal expansion and a measured pace of Federal Reserve rate hikes. Although the final contours of Outlook Investment Strategy Group 41 Exhibit 39: CFO Optimism About the US Economy Chief financial officers confidence is at its highest level in a decade. Exhibit 40: Eurozone Real GDP Growth Economic activity has been surprisingly resilient and higher than expected. YoY 90 of CFOs More Optimistic Than Previous Quarter Recession 2.5 Real GDP Growth Consensus Estimate 60 64.1 2.0 1.8 2.0 1.9 2.0 1.7 1.7 1.7 1.5 1.3 1.0 30 0.5 0 2004 2006 2008 2010 2012 2014 2016 0.0 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Data through December 2016. Note: The survey questionnaire is delivered online to senior financial executives and subscribers of CFO Magazine from both private and public companies. Source: Investment Strategy Group, Haver Analytics. Data through Q3 2016. Source: Investment Strategy Group, Bloomberg. One quarter prior to release. the new administration s policies remain uncertain, a moderate-sized stimulus package of around 200 billion per year seems likely. 102 While the direct impact of such a package is estimated to boost GDP growth by only 0.3 percentage point in 2017, the positive indirect impact of tax cuts and stronger anticipated GDP on household and business confidence is arguably more important. Indeed, both consumer and CFO confidence have recently hit their highest readings in over a decade (see Exhibit 39). Our View on US Growth As the expansion enters its eighth year, it is natural to question its durability. But far from showing its age, the US economy begins 2017 at an abovetrend growth pace, with little evidence of cyclical imbalances or other excesses that typically portend the end of the business cycle. If anything, the slow pace of this recovery has elongated its life span, a dynamic that is likely to persist this year. Perhaps in macroeconomics, as in life, age is just a number. Eurozone: Weathering the Storm The Eurozone has faced its share of challenges in recent years. Not only did it relapse into recession in 2011, but it also endured a domestic sovereign bond and banking crisis at the same time. More recently, it has been buffeted by a spate of tragic terrorist attacks, an immigration crisis, the Brexit vote, a failed Italian constitutional referendum and renewed concerns about the solvency of its banking system. Yet despite this onslaught of headwinds, the real economy has been remarkably stable in the last two years. That fact is evident in Exhibit 40, which shows real GDP growth has sustained an above-trend pace over this period, an outcome that clearly exceeded consensus forecasts. Business sentiment has remained equally steadfast over this period, suggesting that the rapidity of shocks may have effectively inured confidence to bad news (see Exhibit 41). Meanwhile, real household disposable income grew by 2.3 over the past year the fastest pace since 2007. We expect this stability to persist in 2017, with our forecast calling for 1.2 1.9 real GDP growth. Keep in mind that there is ample scope for above-trend growth to continue, as the level of Eurozone GDP still stands below its potential. On this point, the OECD, IMF and European Commission each currently estimate an output gap of around 2 , indicating slack in the economy. The Eurozone s still elevated 9.8 unemployment rate corroborates this point. 42 Goldman Sachs january 2017 Exhibit 41: European Commission Industrial Confidence Survey Eurozone business sentiment has remained steady despite recent shocks, including Brexit. Exhibit 42: Drivers of Eurozone 2-Year Capital Spending Plans Key factors that influence business investment stand at their highest levels in years. Index Level 10 0 -10 -1.1 -6.0 Z-Score 1.2 1.0 0.8 0.6 0.4 2013 2014 2015 2016 0.4 0.7 0.5 0.8 1.1 0.8 -20 0.2 -30 -40 Industrial Confidence Average Since 1985 -50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.0 -0.2 -0.4 -0.6 -0.8 -0.1 -0.1 -0.2 -0.2 -0.2 -0.6 Expected Demand Financial Conditions Technical Factors Data through November 2016. Source: Investment Strategy Group, Datastream. Data through 2016. Note: Based on the European Commission investment survey. Source: Investment Strategy Group, Datastream. Technical factors include technological developments, the availability of labor and government incentives to invest. As a result, Eurozone policy is likely to remain accommodative, keeping financial conditions supportive of growth. While we expect the European Central Bank (ECB) to gradually shift to a more neutral stance that is less punitive to bank profitability and acknowledges the uptrend in headline inflation, this shift does not imply the removal of accommodation. Indeed, the ECB has already announced an extension of quantitative easing through December 2017. Meanwhile, the European Commission has endorsed a moderate fiscal easing of 0.5 of GDP for the Eurozone. Given that fiscal policy is typically loosened ahead of major elections, this guidance could soon be embraced in France and Germany. Of equal importance, both consumption and business investment are well positioned as we enter 2017. On the former, continued improvement in the labor market and ongoing GDP growth should Ongoing uncertainty regarding Brexit, the banking sector and upcoming elections remains a potential downside risk. encourage consumers to spend a bit from their precautionary savings, particularly given today s relatively high savings rate. At the same time, the fundamental justifications for increased business spending, such as higher demand and easy credit conditions, stand at their best levels in years (see Exhibit 42). Perhaps not surprisingly, a late 2016 survey of manufacturing firms revealed their investment intentions stood at all-time highs. 103 Of course, ongoing uncertainty regarding Brexit, the banking sector and upcoming elections remains a potential downside risk, particularly for an investment recovery. As a result, we acknowledge a greater-than-normal range of potential outcomes, both positive and negative. For example, the victory of the far right in the French presidential election could unleash fears about France exiting the European Union and endanger the survival of the euro, while the new government in Italy could speed up the long-overdue resolution of the banking sector s problems and change the electoral law to reduce political uncertainties. For now, our base case assumes that Italy will avoid a populist party in government and that a centrist candidate will win the French presidential election. Thus, we expect the Eurozone to again weather the storm in 2017. Outlook Investment Strategy Group 43 Exhibit 43: Japan Consumer Prices Core inflation and inflation expectations remain low. YoY 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 Core Inflation Expectations of Average Inflation Over Following 10 Years BOJ Inflation Target -1.0 2011 2012 2013 2014 2015 2016 Data through November 2016. Source: Investment Strategy Group, Datastream, QUICK Bond Investors Survey. Core inflation excludes fresh food and VAT impact. Based on the QUICK Bond Investors Survey. United Kingdom: A Fork in the Road Much like the Eurozone, the UK economy is notable for its resilience, evident in 15 consecutive quarters of positive quarterly growth averaging 2.5 annualized. This streak is even more impressive considering last year s Brexit vote and the resulting consensus view that the UK was destined for recession. Although the 20 decline in the trade-weighted sterling and rapid easing by the Bank of England were no doubt pivotal in avoiding that fate, the immediate impact of the Brexit referendum has been far less destructive than feared. But as we begin 2017, the UK is rapidly approaching a fork in the road. The government must choose which path Brexit will take once it triggers Article 50 of the Lisbon Treaty, which formally sets the process of the UK exit in motion. Here, the government s current objectives limiting freedom of movement into the UK while retaining full access to the European Union s single market UK authorities will have little room to cushion a downturn given today s large fiscal deficits and already highly accommodative central bank. 2.0 0.9 -0.4 seem mutually exclusive and likely to engender a politically charged negotiation process. This road is made all the more dangerous by the fact that UK authorities will have little room to cushion a downturn given today s large fiscal deficits and already highly accommodative central bank. Of course, a softer stance on the issues is also a possible path, one that could elongate the effective transitional period beyond two years and lead to a far more benign outcome for the UK. The uncertainty around the government s ultimate choices significantly increases the range of GDP outcomes in the medium term. Our current base case assumes GDP will expand by 0.5 1.5 in 2017. This notable slowdown from last year s 2 pace reflects the likelihood that both hiring and investment activity will become more cautious once the Brexit negotiations start. Even worse, this slowdown arrives just as consumer price inflation is accelerating from past sterling depreciation, creating a lower growth higher inflation backdrop that is set to erode real income growth. For these reasons, the risks to our central case are skewed to the downside. That said, the fate of the UK economy is not preordained, even after the government chooses its path. As with any other negotiation, the result will ultimately reflect the reasonableness of the parties, the concessions of both parties and how the discussions evolve over time. Or in the words of golf legend Arnold Palmer: The road to success is always under construction. 104 Japan: Same Battle, Different Year For Japan, the decades-long battle against deflation never seems to end. Despite two years of abovetrend GDP growth, including last year s 1 gain, core inflation remains negative, having fallen 0.4 in 2016 (see Exhibit 43). This comes despite a tight labor market and record profits that should have encouraged companies to increase base wages. These already muted inflationary pressures were exacerbated by low energy prices and the appreciation of the yen, once again pushing the Bank of Japan s (BOJ s) 2 inflation target further into the future. But far from waving the white flag, Japan s policymakers responded with a range of bold measures, including a 44 Goldman Sachs january 2017 Exhibit 44: Emerging Market GDP Growth We expect growth roughly in line with potential. YoY (PPP Weighted) 10 9 8 7 6 5 4 Actual GDP Potential GDP Forecast 4.6 These pro-growth policies, coupled with less slack in the economy and a boost from higher energy prices and past yen appreciation, should enable core inflation (excluding fresh food) to reach our expected range of 0.25 1.0 . While Japan may have lost its battles against deflation over the years, it has not yet lost the war. Emerging Markets: Competing Forces 3 2 1 0 1993 1996 1999 2002 2005 2008 2011 2014 2017 Data as of 2016. Note: ISG forecasts for 2016 17. For informational purposes only. There can be no assurance the forecasts will be achieved. Source: Investment Strategy Group, IMF. large fiscal stimulus package last August and a shift by the BOJ away from ever-higher purchases of Japanese government bonds (JGBs). Instead, the BOJ will now use a yield-curve control framework, wherein it sets the short rate and targets a yield of about 0 on 10-year JGBs. This novel approach should afford the government low real interest rates with which to finance its fiscal expansion, while also providing Japanese financial institutions with a sufficiently steep yield curve to remain profitable. To augment these deflation-fighting measures, the government also implemented some modest structural reforms and called for a substantial increase in the minimum wage in order to support faster income growth. Against this backdrop of supportive policies, we expect that GDP will grow by 0.75 1.5 in 2017. Our forecast is supported by three key drivers. First, the fiscal stimulus announced in August is poised to contribute 0.4 percentage point to 2017 GDP growth, and the government has indicated a willingness to do more if necessary. Second, the BOJ remains very accommodative, thereby providing easy financial conditions that should foster an uptick in business investment. While the central bank may consider a modest rate increase in late 2017, we expect it to maintain its negative interest rate policy (NIRP) for short rates and a 0 target for 10-year JGB yields in the interim. Lastly, the government is likely to push for further wage increases during the spring wage negotiations. Emerging market economies failed to live up to expectations once again in 2016, with GDP expanding by an estimated 3.9 versus original expectations closer to 5.0 . This marked the second-slowest growth rate in 15 years; only the 2.6 expansion at the depth of the global financial crisis in 2009 was slower. Yet this disappointing headline belies the economic recovery that unfolded over the course of 2016. Consider that growth actually troughed during a challenging first quarter, with economic activity gradually improving thereafter on the back of recovering commodity prices, the Federal Reserve s willingness to delay any further rate hikes and stable Chinese growth. These tailwinds were bolstered into the final quarter by early signs of recovery in Brazil and Russia, both of which had suffered deep recessions in 2015. We expect this momentum to persist, with GDP increasing by 4.3 4.8 (purchasing power parity PPP weighted) this year, roughly in line with potential (see Exhibit 44). The pickup we expect is the product of two opposing forces. On the one hand, growth should benefit from the ongoing recoveries in Brazil and Russia, and somewhat stronger activity in developed economies should provide a small tailwind to emerging market exports. On the other hand, the further moderation in Chinese growth we expect is likely to weigh on activity across emerging markets, particularly if the US imposes tariffs. Indeed, the policy agenda of the incoming US administration remains a critical unknown for emerging markets. Even if protectionist tariffs were directed only at China and Mexico which account for 23 and 15 of US imports of manufactured goods, respectively they would still negatively impact all emerging markets given the sensitivity of these countries to Chinese growth and fluctuations in the Chinese currency. This being the case, countries with substantial trade exposure to Outlook Investment Strategy Group 45 Exhibit 45: China Economic Activity Measures Actual growth is likely lower than official figures. YoY, 3-Month Moving Average 18 16 14 12 10 8 6 4 Real GDP Growth 2 Emerging Advisors Group China Activity Index Goldman Sachs China Activity Indicator 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 Data through Q3 2016. Source: Investment Strategy Group, Emerging Advisors Group, Goldman Sachs Global Investment Research. both China and the US, such as Korea, Taiwan and Malaysia, would be particularly vulnerable. While the net effect of these competing forces is positive in our base case, the risks are tilted to the downside. China China continues to drive its economy with one foot on the gas pedal and the other on the brake. Consider that the government reached its official GDP growth target of 6.5 7 last year only by increasing public spending and allowing rampant credit growth. But these measures also exacerbated real estate bubble concerns and hastened capital outflows, forcing the government to apply the brakes through new restrictions within the property market and more stringent capital controls. This focus on dual-footed driving has also come at the expense of much-needed structural reforms. As a result, China continues to suffer from considerable excess capacity in industrial sectors, such as steel and coal, while its financial sector risks have increased. Even so, we expect this approach to continue in 2017. Structural reforms are likely to stay on the back burner because China s leaders will not risk slower growth ahead of important leadership changes at the 19th Communist Party of China National Congress in the fall. In turn, the government is likely to use further fiscal easing and rapid credit expansion to target growth of around 6.5 . As a result, we expect official GDP 6.7 5.6 4.8 to expand by 6.0 6.75 in 2017, although actual GDP growth will likely be lower (see Exhibit 45). The risks to our outlook are skewed to the downside for two reasons. First, the new direction of US trade policy remains uncertain and could have a sizable impact. For instance, a 15 tariff would mechanically reduce China s GDP by 0.9 . China could respond by ramping up leverage, letting its currency depreciate faster and injecting more fiscal stimulus, but that could risk further imbalances in the economy while also disrupting global financial markets. Second, striking the right balance between stimulative and contractionary measures is a hazardous endeavor. On the road, as in government policy, accelerating and braking at the same time greatly increases the risk of an accident. India India s streak of strong growth continues. The economy expanded by an estimated 6.5 in 2016, making it the fourth consecutive year of GDP growth in excess of 6.0 , a rare feat that India s economy shares only with China s. Growth would likely have been even higher, were it not for the demonetization scheme the government introduced in November 2016. In a surprise move, the government announced that largedenomination bank notes, representing 86 of cash in circulation, would no longer be accepted as legal tender. The scheme intended to root out illegal income stored in cash had the unfortunate side effect of starving households of liquidity and thereby thwarting consumption, the main engine of growth. Although the severity of the consumption shock remains uncertain, it should be temporary. The silver lining for 2017 is that India will probably benefit from a meaningful recovery in household spending. Moreover, fiscal policy will likely be eased ahead of the 15 state elections occurring in 2017 and 2018, while investment should receive a modest boost as the Reserve Bank of India lowers borrowing costs. Accordingly, we expect GDP growth of 6.5 7.5 in 2017. 46 Goldman Sachs january 2017 China continues to suffer from considerable excess capacity in industrial sectors, such as steel and coal, while its financial sector risks have increased. Brazil Brazil has had its share of hard times in recent years. After being among the fastest-growing economies in the world in 2010, it has more recently suffered its worst recession in a century, evident in seven consecutive quarters of contraction. In turn, GDP fell an estimated 3.3 last year, leaving it on par with 2010 levels. Even worse, industrial production now stands where it did in 2004. Fortunately, there are already tentative signs of a recovery. Inflation has peaked; the current account deficit has shrunk; and confidence indicators, while still weak, have stabilized. Of equal importance, the financial markets have welcomed a new government amid expectations that it will finally tackle Brazil s fiscal problems and steer the economy out of recession. But despite these promising green shoots, our base case does not call for a robust recovery in 2017. While the new administration is off to a promising start, it is facing resistance to key structural reforms while also navigating ongoing corruption probes. Moreover, the recovery in household consumption and business investment is likely to be hamstrung by continuing high real interest rates, a function of falling inflation and a simultaneously easing central bank. Meanwhile, fiscal policy will continue to tighten given a new spending cap and proposed pension reform measures. Finally, the modest commodity price gains we expect are unlikely to foster a meaningful rise in exports for Brazil. Accordingly, we expect a tepid recovery, with GDP expanding just 0 1 in 2017. Russia Russia is also slowly recovering from a deep recession. Although the economy contracted for its second consecutive year in 2016, headwinds are now receding thanks to a recovery in real wages, rising oil prices and a related increase in oil production. The economy has also received support from both fiscal and monetary policy, with the central bank cutting the policy rate by 100 basis points last year as inflation moderated. Still, the economy has likely suffered some permanent damage from the combination of depressed oil prices and Western sanctions, which have pushed down Russia s longrun growth potential. While the cyclical recovery should continue in 2017, it is apt to be measured. The government is planning to reduce the fiscal deficit by 1 of GDP this year, which will limit fiscal support. That said, elections in March 2018 could ultimately temper such fiscal prudence. Meanwhile, the central bank will likely deliver more rate cuts, but their size and pace will depend on the path of inflation, which could be stickier than anticipated. Against this uncertain backdrop, we expect the Russian economy to return to modest growth in 2017, expanding 0.5 1.5 . While not our base case, growth could quicken if oil prices increase more than we expect or if sanctions are lifted. Outlook Investment Strategy Group 47 SECTION III 2017 Financial Markets Outlook: The Horns of a Dilemma investors have had an amazing bull run. Including last year s 12 total return, the S P 500 is nearly 3.5 times as high as its financial crisis trough. The advance has been equally longlasting, second in length only to the almost-decade-long period that preceded the technology bubble in 2000. These impressive gains are not limited to just equities or US assets. US corporate high yield has gained 177 over the same time span, while the total return of the MSCI All Country World Index excluding the United States has been higher only 5 of the time over comparable eight-year periods since 1994. But as we begin a new year, these gains have left investors on the horns of a dilemma. Put simply, they must now choose to either remain invested at high valuations and bear the associated risk of loss or exit the market and forgo the potential for upside surprises as well as returns that are attractive compared to the alternatives. 48 Goldman Sachs january 2017 Outlook Investment Strategy Group 49 To be sure, there are good reasons to be cautious, as we discussed in Section I, The Risks to Our Outlook. Even worse, investors are exposed to these dangers at a time when most asset valuations are expensive by historical standards, providing them with a narrow margin of safety to absorb such adverse developments. This is particularly true in the US, where valuations have been cheaper at least 90 of the time historically. 105 Even in Europe, where valuations are more attractive, that fact is counterbalanced by greater geopolitical risks and deeper structural fault lines. Still, as we highlighted in Section I of this Outlook, there are three reasons why remaining invested in risk assets is still warranted despite what are likely to be uninspiring returns. First, we see only a 15 probability of a US recession, which has historically been the key driver of losses in risk assets. Indeed, the S P 500 has generated positive annual total returns 86 of the time during economic expansions in the post- WWII period. Second, the comparable returns of investment alternatives such as cash and bonds are unappealing, particularly in the rising interest rate environment that we expect. Third, risk assets can surprise us to the upside, as last year demonstrated. The potential for returns to exceed our expectations is especially true in the US, given the possibility of tax reforms, fiscal expansion and deregulation. The same could be said for our tactical positions across various asset classes, which we discussed in Section I, Our Tactical Tilts. While we have suggested that the dilemma should be resolved in favor of remaining invested, we are not Pollyannaish. Investors have ridden this bull market for eight years, and while we don t expect the ride to end in 2017, we must stay vigilant to avoid the horns. Exhibit 47: US Equity Price Returns from Each Valuation Decile In the past, subsequent returns from high valuation levels have been muted. Annualized 5-Year Annualized Price Return 14 13.0 Observations With Positive Returns (Right) 100 90 12 11.2 80 10 9.5 70 8 8.3 7.0 6.6 6.6 7.1 60 50 6 4.5 40 4 30 2 0 1 2 3 4 5 6 7 8 9 10 Less Expensive Valuation Decile More Expensive Data as of December 31, 2016. Note: Based on 5 valuation metrics for the S P 500, beginning in September 1945: Price Trend Earnings, Price Peak Earnings, Price Trailing 12m Earnings, Shiller Cyclically Adjusted Price Earnings Ratio (CAPE) and Price 10-Year Average Earnings. These metrics are ranked from least expensive to most expensive and divided into 10 valuation buckets ( deciles ). The subsequent realized, annualized 5-year price return is then calculated for each observation and averaged within each decile. Past performance is not indicative of future results. Source: Investment Strategy Group, Bloomberg, Datastream, Robert Shiller. US Equities: Life in the Fast Lane US stocks have been driving in the fast lane since 2009. Over this nearly eight-year period, the S P 500 has generated a stunning 16.5 annualized price return, a pace exceeded only 3 of the time since 1945. As a result, the 500 companies in the index are collectively worth 20 trillion today, about 3.5 times as high as they were at the trough of the financial crisis. Needless to say, investors have had a good ride. Yet such a fast drive also raises the question of whether US equities are now running on empty. 0.2 20 10 0 Exhibit 46: ISG Global Equity Forecasts Year-End 2017 2016 YE End 2017 Central Case Target Range Implied Upside from Current Levels Current Dividend Yield Implied Total Return S P 500 (US) 2,239 2,225 2,300 -1 3 2.1 1 5 Euro Stoxx 50 (Eurozone) 3,291 3,250 3,400 -1 3 3.6 2 7 FTSE 100 (UK) 7,143 7,050 7,310 -1 2 4.0 3 6 TOPIX (Japan) 1,519 1,530 1,590 1 5 1.9 3 7 MSCI EM (Emerging Markets) 862 880 925 2 7 2.6 5 10 Data as of December 31, 2016. Note: Forecast for informational purposes only. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this Outlook. Source: Investment Strategy Group, Datastream, Bloomberg. 50 Goldman Sachs january 2017 Exhibit 48: S P 500 Price-to-Trend Earnings vs. Subsequent Calendar-Year Price Return Starting valuation multiples tell us little about equity returns over the following year. Exhibit 49: S P 500 Valuation Multiples by Inflation Environment Periods of low and stable inflation have supported higher equity multiples. S P 500 Returns 1 Year Forward ( ) 50 40 30 20 10 0 -10 R 2 5.2 Multiple (x) 30 25 20 15 16.7 Unconditional Average Over Entire Period Average During Periods in Which Inflation Is 1 3 and Stable 22.5 22.6 18.6 16.6 19.5 -20 -30 10 -40 5 -50 0 5 10 15 20 25 30 35 40 Price-to-Trend Earnings Multiple 0 Shiller CAPE: 1881 2016 Shiller CAPE: 1945 2016 Price-to-Trend: 1945 2016 Data as of December 31, 2016. Source: Investment Strategy Group, Bloomberg, Datastream, Robert Shiller. Data as of December 31, 2016. Source: Investment Strategy Group, Bloomberg, Datastream, Robert Shiller. This bull market is already quite old by historical standards, second in length only to the almost 10- year period that preceded the technology bubble in 2000. Moreover, valuations now stand in their 10th decile, indicating they have been cheaper at least 90 of the time historically. In the past, starting from such a high base has led to muted equity returns over the subsequent five years, with only a third of those episodes generating a profit (see Exhibit 47). Even so, high valuations should not be confused with certainty of loss, especially over short periods. As seen in Exhibit 48, today s equity multiples tell us very little about potential gains over the next year, explaining only 5 of their variation historically. Moreover, history teaches us that a strategy of selling equities based solely on expensive valuations has been a losing approach over time. As we noted in our 2014 Outlook, research conducted by three professors at the London Business School concluded that Investors have ridden this bull market for eight years, and while we don t expect the ride to end in 2017, we must stay vigilant to avoid the horns. underweighting equities based exclusively on high valuations underperformed a strategy of remaining invested across every one of the 20 countries and three country aggregates they examined. 106 In short, valuations alone are a poor tactical timing signal. Indeed, the S P 500 has returned more than 36 since first entering its 9th valuation decile in November 2013, a time when many were already suggesting that US equities were in a bubble. Valuations must also be considered in the context of the prevailing macroeconomic environment. Consider that periods of low and stable inflation, such as we expect for the year ahead, have supported higher valuations in the past (see Exhibit 49). The same could be said for lower taxes and deregulation were they to materialize later this year as both would boost real returns on invested capital and justify higher equity values. Similarly, today s structurally lower interest rates reflecting slower population and productivity growth reduce the rate at which all future cash flows are discounted, increasing their present value. Here, it s helpful to remember that the S P 500 s long-term average P E ratio which many investors use to gauge fair value was forged over a period when risk-free rates averaged 4.5 . In contrast, the risk-free rate now is just 0.5 0.75 and the Federal Reserve Outlook Investment Strategy Group 51 Exhibit 51: ISM Manufacturing Index and S P 500 Returns Equity market performance is closely related to the business cycle. Index 65 YoY 60 Exhibit 52: Estimated Incremental S P 500 Earnings per Share by Tax Rate Proposals for lower corporate tax rates could lead to higher earnings. Incremental EPS ( ) 16 60 55 50 40 20 0 14 12 10 8 7 8 9 10 11 12 13 14 45 40 -20 6 4 3 5 6 35 ISM Manufacturing Index S P 500 Return (Right) 30 1995 2000 2005 2010 2015 -40 -60 2 0 30 29 28 27 26 25 24 23 22 21 20 US Effective Tax Rate ( ) Data through November 30, 2016. Source: Investment Strategy Group, Bloomberg. Data as of December 31, 2016. Note: The current US effective tax rate for the S P 500 companies is 33.3 . Source: Investment Strategy Group, Standard Poor s. estimates its new long-run equilibrium level has fallen to 3 , a full 1.5 percentage points below the historical average. 107 Of equal importance, the Federal Reserve is not expected to reach that 3 target for six years based on current market pricing in Eurodollar futures. A similar valuation tailwind emerges from the market s current sector composition. The combined technology and health-care sectors constitute about 40 of S P 500 earnings today, almost three times as high as their 15 share in the late 1980s. Because these faster-growing, higher-margin sectors are generally accorded premium valuations, their higher representation in the index today justifies a higher S P 500 P E multiple. Although current valuations may be fundamentally justified, that does not mean they are impervious to downward pressure. Our central-case equity view for 2017 acknowledges this, calling for some contraction in P E multiples given the uncertainty associated with a new administration and continued Federal Reserve interest rate hikes. Even so, that headwind will be more than offset by the 6 10 earnings growth we forecast, resulting in a 1 5 total return for US equities this year (see Exhibit 50). Investors might rightly ask whether it is worth bearing equity risk for such meager returns. Our read of the evidence suggests it is. The linchpin of this view is our expectation of a continued Exhibit 50: ISG S P 500 Forecast Year-End 2017 2017 Year-End Good Case (25 ) Central Case (60 ) Bad Case (15 ) End 2017 S P 500 Earnings Op. Earnings 140 Rep. Earnings 124 Trend Rep. Earnings 113 Op. Earnings 125 130 Rep. Earnings 113 117 Trend Rep. Earnings 113 Op. Earnings 102 Rep. Earnings 78 Trend Rep. Earnings 113 S P 500 Price-to-Trend Reported Earnings 21 23x 18 21x 15 16x End 2017 S P 500 Fundamental Valuation Range 2,375 2,600 2,040 2,375 1,700 1,810 End 2017 S P 500 Price Target (based on a combination of trend and forward earnings estimate) 2,450 2,225 2,300 1,800 Data as of December 31, 2016. Note: Forecasts and any numbers shown for informational purposes only and are estimates. There can be no assurance the forecasts will be achieved and they are subject to change. Please see additional disclosures at the end of this Outlook. Source: Investment Strategy Group. 52 Goldman Sachs january 2017 Exhibit 53: US Equity Performance Relative to Fixed Income Stocks have outperformed bonds following periods of muted return differences. Exhibit 54: US Equity and Bond Fund Flows Equities could benefit from rebalancing out of bonds given lopsided flows since 2009. Total Return Difference Between S P 500 and 10-Year Treasury ( ) 10 Cumulative Fund Flows ( bn) 1,600 Bonds Equities 1,400 1,467 8 6 7.8 6.8 1,200 1,000 800 4 2 2.0 600 400 200 0 Difference Over Last 20 Years (19th Percentile Since 1945) 3 Years 5 Years Median Return Difference Over Subsequent Time Period When Starting from Bottom 20th Percentile 0 -200 -400 2009 2010 2011 2012 2013 2014 2015 2016 -177 Data as of December 31, 2016. Source: Investment Strategy Group, Bloomberg, Leuthold Group. Data through November 30, 2016. Note: Beginning in March 2009. Source: Investment Strategy Group, Bloomberg, ICI. expansion in the US economy (see Section II, United States). The state of the business cycle is a key driver of market performance, evident in the tight linkage between the S P 500 and the ISM Manufacturing Index (see Exhibit 51). Notably, the S P 500 has generated positive annual total returns 86 of the time during economic expansions in the post-WWII period, while suffering annual declines of greater than 10 just 4 of the time. During the same postwar period, nearly three-fourths of the bear markets defined here as declines of 20 or more occurred during US recessions. With few signs of an economic contraction on the horizon, the high odds of positive returns and low odds of large losses raise the hurdle for underweighting equities significantly. This is particularly true because the risks are not onesided: markets often surprise to the upside, too, even at high valuations. Last year was a case in point: the S P 500 s 12 return matched our good-case scenario, although at the start of 2016 we had attached only 20 odds to it occurring. As we consider the potential for similar upside surprises in 2017, earnings growth tops the list for three reasons. First, we expect the sizable profit drag from energy earnings to reverse in 2017, with scope for a greater than 4 5 contribution to S P 500 EPS if recently announced global oil production cuts are realized. Keep in mind that this contribution was closer to 15 prior to the collapse in oil prices. Second, a shift to a 25 corporate tax rate could add 9 10 to S P 500 EPS in 2017 if enacted retroactively (see Exhibit 52). Finally, a tax holiday for the estimated 1 trillion of cash held overseas could lead to an additional 1 2 of EPS upside from repatriation-driven buybacks. There are also other, less visible potential catalysts for equities. Over the last 20 years, the total return of stocks has exceeded that of 10-year Treasury bonds by only 2 percentage points, well below the historical average of 4.4 percentage points and a result that ranks in the bottom 20 of all post-WWII observations. But after similar periods of underperformance, stocks generated well above average relative returns over the next three and five years (see Exhibit 53). Said differently, history suggests stock returns will outpace those of bonds, even if expected equity returns are uninspiring. A related source of upside stems from the lopsided investor flows evident in Exhibit 54. Here, even moderate rebalancing out of bonds by retail investors who represent 80 of mutual fund owners would represent a sizable tailwind to equities. Historically, a shift in flows from bonds into equities has been motivated by three factors: confidence in the durability of the economic recovery, unattractive prospects for bond returns and higher equity prices (see Exhibit 55). Our central case features all three factors, suggesting the Outlook Investment Strategy Group 53 Exhibit 55: US Equity Fund Flows and Change in 10-Year Treasury Yield Bond returns can influence flows into equity funds. Percentage Points, YoY 4 3 Change in 10-Year Yield Equity Minus Bond Flows (Right) of Assets, 3-Month Moving Average 8 6 Exhibit 56: The AAII Bullish Investor Sentiment Lack of investor euphoria is a contrarian positive for stocks. Bullish, 52-Week Average 60 55 2 1 0 -1 -2 -3 -4 -5 1984 1989 1994 1999 2004 2009 2014 4 2 0 -2 -4 -6 -8 50 45 40 35 30 25 20 1988 1993 1998 2003 2008 2013 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg, ICI. Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg, American Association of Individual Investors. Exhibit 57: Non-Dealer US Equity Index Futures Positioning There is scope for increased US equity positions. bn 140 120 100 80 60 40 20 0 -20 -40 -60 -80 2011 2012 2013 2014 2015 2016 Data through December 31, 2016. Source: Investment Strategy Group, CFTC, Goldman Sachs Securities Division Equity Strats Group. incipient uptick in bond outflows seen in late 2016 may persist, especially with risk-free Treasuries delivering a notable loss in the fourth quarter. Today s visible lack of market euphoria represents another potential positive for stocks. Exhibit 56 shows the proportion of investors classifying themselves as bullish near its lowest level in decades. Meanwhile, non-dealer positions in US index futures stand well below the levels seen in 2013 14, providing scope for upside (see Exhibit 57). If bull markets die on euphoria as Sir John Templeton observed, then these measures argue we have not yet reached the apex. A rare technical analysis signal corroborates that view. As shown in Exhibit 58, the Coppock curve an intermediate-length momentum signal has generated only 17 buy signals over the past 71 years, but collectively they have provided attractive low-risk entry points for long-term investors. If we took the median path of S P 500 prices after past signals, it would imply the market gains 9 this year with 88 odds of a positive outcome. Of particular note, Coppock buy signals on the NYSE, Russell 2000 and FTSE All-World Index were also triggered in November, even before the post-election rally. For all the reasons discussed above, we accord a 25 probability to our good-case scenario of the S P 500 reaching 2,450 by year-end. Of course, we are equally aware of the myriad downside risks investors face, including growing unease about a disorderly backup in bond yields. But here, our work suggests that rates have scope to increase further before becoming a headwind for stocks, even if adjusted for today s lower long-run equilibrium nominal rate (see Exhibit 59). Keep in mind that 88 of S P 500 debt has a fixed interest rate and only about 10 matures each year. The impact of higher rates will be spread over many years as a consequence. 54 Goldman Sachs january 2017 Exhibit 58: Coppock Curve S P 500 Buy Signals One of only 17 post-WWII buy signals was triggered in July 2016. Exhibit 59: Inflection Point for Negative Correlation Between Bond Yields and Stock Prices Typically stocks and interest rates move in the same direction until yields reach levels far above those seen today. S P 500 Index (Log Scale) 10,000 US 10-Year Treasury Yield ( ) 6 5 5.1 1,000 4 3 2 2.4 3.9 100 1 0 Current Historical Since 1962 Adjusted for Today s Lower Equilibrium Rate 10 1945 1955 1965 1975 1985 1995 2005 2015 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. Yield at Which Stock Prices and Bond Yields Become Negatively Correlated Data as of December 31, 2016. Source: Investment Strategy Group, Bloomberg, Federal Reserve. Adjusts for the reduction of 1.25 percentage points in the long-run equilibrium nominal rate, in line with the shift in Federal Reserve projections since 2012. Some have taken a less sanguine view, arguing that the taper tantrum of 2013 suggests bond yields have already reached a troublesome level for stocks. However, the tantrum primarily reflected concerns that by tightening policy prematurely, the Federal Reserve was committing a mistake that would undermine growth a fact evident in the episode s widening credit spreads and declining breakeven inflation rates. Despite a similarly rapid increase in rates this time around, we have seen the opposite market reaction, with credit spreads tightening and breakeven inflation rates moving higher alongside growth expectations. This contrast reminds us that the reason rates are increasing is as important as their resulting level. Aside from rates, ongoing concern about a hard landing in China and a banking or political crisis in Europe remain top of mind (see Section I, The Risks to Our Outlook). We also start the year with less of a buffer to absorb such adverse developments, given today s high valuations. Even worse, this narrower margin of safety arrives at a time when policy uncertainty in the US is particularly acute, given upcoming changes to tax, trade and immigration policies under the new administration. A destination tax, for example, could be particularly damaging to S P 500 margins given the growth of global supply chains in the last decade, not to mention the sizable Exhibit 60: US Dollar Index Even if the dollar stays unchanged, it will still act as a drag on US multinational earnings in early 2017. YoY 40 30 20 10 0 -10 US Dollar Index US Dollar Index Assuming Constant from 12 31 16 Level -20 2006 2008 2010 2012 2014 2016 Data through December 31, 2016, with illustrative projection through 2017. Source: Investment Strategy Group, Bloomberg. upward pressure it would place on the US dollar. Even at current levels, the dollar will represent a renewed drag on US multinational earnings in the first quarter (see Exhibit 60). That said, the collective impact of these various risks is not yet sizable enough to undermine our core view: we are in a longer-than-normal US recovery that supports equity returns that are 14 26 11 Outlook Investment Strategy Group 55 Exhibit 61: EAFE Price to 10-Year Average Cash Flow Discount to the US Today s larger-than-average discount provides a margin of safety to EAFE equities. Exhibit 62: MSCI EMU Trailing 12-Month Earnings per Share Profits have been range-bound for almost four years. Discount ( ) 60 40 20 MSCI EAFE Discount to MSCI US Average Since 1982 Average Since 1992 Trailing 12-Month EPS ( ) 20 18 16 14 12 0 -20 -40 -19 -33 -40 10 8 6 4 2 Sideways Since 2012 -60 1982 1987 1992 1997 2002 2007 2012 Data through December 31, 2016. Source: Investment Strategy Group, MSCI, Datastream. 0 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. likely to exceed those of cash and bonds. In turn, we recommend that clients maintain their strategic weight in US equities, although we acknowledge that risks have risen at the same time that returns appear likely to be lower going forward. While US equities are not yet running on fumes, we should keep a close eye on the fuel gauge. EAFE Equities: Priced for Imperfection There is no shortage of concerns surrounding the various countries that comprise Europe, Australasia and the Far East (EAFE) equity markets. The list is both long and valid, including persistently low economic growth, a slow pace of structural reforms and incessant political uncertainty, as well as incremental, reactive and inconsistent policy responses. Ongoing questions about the health of the banking system only compound these worries. But these concerns are also not new and are consequently well understood by the market. In turn, the key question facing investors is not whether EAFE exposure subjects them to downside risks. As the preceding list demonstrates, it clearly does. The question instead is whether investors are being fairly compensated to bear these risks. One can never know precisely what equity markets are discounting, but the above concerns are almost certainly a key driver of EAFE underperformance and the main reason behind today s larger-than-normal valuation discount to US equities (see Exhibit 61). While this margin of safety does not guarantee outperformance, it may provide investors with a larger buffer to absorb adverse developments and miscalculations in their forecasts. In our view, the risk return profile of EAFE equities is more attractive than it first appears. As a result, we do not recommend that investors underweight EAFE equities. In fact, there are reasons to believe that EAFE equities will outperform US equities in local currency terms this year. In the sections that follow, we explore these reasons by examining the three main EAFE markets, beginning with the Eurozone. Eurozone Equities: The Onus Is on Earnings Earnings have been going nowhere fast for Eurozone equities. That s apparent in Exhibit 62, which shows that profits have been rangebound at nearly half their 2007 peak level for almost four years. As a result, rising valuation multiples have accounted for all of the 25 price appreciation over this period. This seeming contradiction between stagnant earnings and rising multiples reflects the copious liquidity provided by the ECB s quantitative easing. By depressing interest rates, ECB policy 56 Goldman Sachs january 2017 Exhibit 63: Relative Performance of Stable and Volatile EAFE Stocks Investors have recently shifted toward firms more exposed to the business cycle. Exhibit 64: Spain 5-Year Credit Default Swap and Relative Equity Performance The dramatic reduction in Spanish default risks suggests equity valuations have scope for upside. Relative Return ( ) 8 Stable Volatile 6 Price Ratio (July 24, 2012 100) 150 140 Basis Points 0 100 4 130 200 2 0 -2 -4 120 110 100 300 400 500 600 -6 Last 3 Months 2016-to-Date 5 Years 10 Years 1987 2007 Since 1987 Annualized Returns 90 MSCI Spain vs. MSCI EMU (Sector-Adjusted) Spanish CDS Spread (Right, Inverted) 80 2009 2010 2011 2012 2013 2014 2015 2016 700 800 Data as of October 31, 2016. Note: Equally weighted USD-hedged returns relative to the developed markets (ex-US). Stable and volatile stocks are drawn from the large-cap universe. Stability is measured using a model based on return on equity, earnings growth, financial leverage and beta. Source: Investment Strategy Group, Empirical Research Partners. Data through December 31, 2016. Source: Investment Strategy Group, MSCI, Datastream. has both hobbled bank profits which represent a third of EuroStoxx 50 earnings and boosted equity valuations. But with ECB policy unlikely to become any more accommodative, additional valuation expansion can no longer be taken for granted. Instead, the onus for Eurozone equity upside now rests with earnings. Here, the prospects are favorable for several reasons. First, above-trend Eurozone GDP growth is likely to lead to boosted domestic sales and reduced economic slack, both of which have lifted Eurozone earnings in the past. Second, the broader pickup in global GDP growth we expect should benefit the 45 of the EuroStoxx 50 s sales that are generated outside Europe. Higher revenue is particularly beneficial to these EuroStoxx firms given their operating leverage, as small improvements in sales spread over their sizable fixed costs also push profit margins higher. Finally, financial sector earnings stand to benefit from the higher interest rates we foresee. Against this backdrop, we expect earnings to expand 5 in 2017. Meanwhile, valuation multiples are likely to contract slightly as interest rates normalize higher and investor focus shifts toward eventual ECB tapering late this year. Combining these elements with a 3.6 dividend yield implies EuroStoxx 50 total returns of 3 in 2017. The risks to our base case are skewed mildly to the upside. After underperforming most equity markets in 2016, Eurozone equities have room to play catch-up. Moreover, the passing of long-feared French and German elections could compress today s elevated equity risk premium, although political uncertainty is likely to remain high in the interim. Finally, investors recent shift toward firms more exposed to the business cycle should benefit Eurozone firms given their greater operating leverage (see Exhibit 63). Within the Eurozone, we are overweight Spanish equities. Here, we are drawn to attractive valuations (see Exhibit 64), domestic growth momentum and embedded overweight to banks. UK Equities: Scaling the Wall of Worry While the Brexit vote was surprising, the subsequent performance of the UK stock market was even more so. Despite the tremendous political and social uncertainty engendered by the referendum s outcome, UK equities generated one of the strongest returns of any major equity market last year in local currency terms. Several factors at the root of this outperformance should continue to work in favor of UK equities in 2017. First, FTSE 100 s global Outlook Investment Strategy Group 57 Exhibit 65: FTSE 100 Price Level and British Pound A weaker pound benefits FTSE 100 companies, which generate 75 of sales outside the UK. Exhibit 66: TOPIX Price Level Japanese equities have traded in a large-butcontained range. Index Level 7,300 7,100 6,900 6,700 FTSE 100 Price Level GBP USD (Right, Inverted) Brexit Vote Exchange Rate 1.15 1.20 1.25 1.30 Price Level 3,500 3,000 2,500 6,500 1.35 2,000 Flat 6,300 6,100 5,900 GBP Depreciation 1.40 1.45 1.50 1,500 1,000 Fat 5,700 1.55 500 5,500 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. 1.60 0 1980 1985 1990 1995 2000 2005 2010 2015 Data through December 31, 2016. Source: Investment Strategy Group, Goldman Sachs Global Investment Research, Bloomberg. footprint 75 of sales come from outside the UK economy should benefit from the accelerating global GDP growth we expect this year, just as this exposure profited from last year s 16 depreciation of the British pound (see Exhibit 65). Second, last year s best-performing sectors commodities and financials are well positioned to extend their run. Financials the largest UK sector stands to benefit from rising interest rates, while the commodity sectors should get a boost from higher oil prices. Notably, these two sectors account for nearly half of FTSE 100 market capitalization. With these tailwinds in mind, we forecast UK earnings growth of 11 this year, the highest of our estimates across EAFE markets. That said, continued uncertainty around the implications of Brexit coupled with higher interest rates will likely weigh on FTSE 100 s well-above-average valuations. This view, combined with the UK equity market s hefty dividend yield of 4.0 , results in a 4 total return projection for the FTSE 100. Although this return is attractive on its face, We project UK earnings growth of 11 this year, the highest of our estimates across EAFE markets. we do not believe it offers investors a large enough margin of safety to justify a tactical overweight. Keep in mind that significant uncertainties remain around the final contours of Brexit. Moreover, a shift by the Bank of England toward raising interest rates this year could reverse much of the British pound s depreciation, to the detriment of UK earnings. Finally, FTSE 100 s global footprint could magnify any disruption to global trade volumes resulting from protectionist policies. Japanese Equities: Scaling a Familiar Peak Japanese equities have experienced their fair share of booms and busts over the last 25 years. As seen in Exhibit 66, this pattern of offsetting swings has resulted in a fat and flat 108 trading range. With the TOPIX price level again in the upper third of its historical band, it is natural to ask whether 2017 will mark yet another market top in Japan. The earnings outlook is pivotal to answering this question. While our forecast for accelerating global GDP growth points toward higher earnings, near-peak profit margins are a headwind (see Exhibit 67). Moreover, with less central bank easing given the BOJ s already sizable balance sheet, yen depreciation a key driver of Japanese revenue growth since 2012 is expected to moderate this year. Even so, the 58 Goldman Sachs january 2017 Exhibit 67: Japanese Profit Margins Near-peak profit margins could be a headwind for Japanese equities. Exhibit 68: Japanese Equity Valuations Valuations are near the median level of Japan s deflationary period since 1999. Trailing 12-Month Net Income ( of Sales) 6 5 Percentile 80 70 65 69 4 3 2 60 50 40 38 43 Average: 52 47 1 30 0 20 -1 10 -2 1980 1985 1990 1995 2000 2005 2010 2015 0 Price to 10-Year Average Earnings Price-to-Peak Earnings Price-to-Book Value Price to 10-Year Average Cash Flow Price-to-Peak Cash Flow Data through November 30, 2016. Source: Investment Strategy Group, Datastream. Data as of December 31, 2016. Note: Based on data since 1999. Source: Investment Strategy Group, Datastream, MSCI. interplay of these inputs should still lead to positive earnings growth of 6 in 2017. The direction of valuation multiples is equally important. As shown in Exhibit 68, Japanese valuations are middling based on their history since 1999, which we believe is the relevant evaluation period given the deflationary headwinds that emerged thereafter. For equity multiples to move significantly higher from here would require sustainable above-trend earnings growth or a sizable increase in direct equity purchases by the Japanese central bank. But with the BOJ already holding a remarkable 60 of Japanese ETF market assets 109 and profit margins near their peak levels, neither of these upside catalysts seems probable. In fact, P E multiples are forecast to contract in our base case, as the 6 earnings growth we expect will likely disappoint current market expectations of 12 . Putting these pieces together, we expect neither a boom nor a bust for Japanese equities. Instead, the combination of mid-single-digit earnings growth, slight compression in valuation multiples and a 1.9 dividend yield should generate a 5 total return. While this return is attractive from an absolute standpoint, it also comes with significant downside risks given the country s poor demographics, declining labor force and high government debt load. Consequently, we are tactically neutral on Japanese equities currently. Emerging Market Equities: Finally in Gear, but Potholes Ahead Emerging market equities as a whole finally moved forward in 2016 after three years in reverse: multiples expanded, earnings estimates improved and currencies appreciated, generating a 12 total return. Politics and commodity prices were key performance differentiators among emerging markets last year, leading Brazil and Russia to the winners podium while leaving Turkey and Mexico in last place. We expect emerging market equities to remain on track in 2017. Our central case calls for earnings growth of 5 in US dollar terms, driven by faster nominal GDP growth and the lagged impact of easier financial conditions and higher commodity prices. But with multiples already at post-crisis highs in an environment of rising global rates and heightened risks, we see little scope for further expansion. Combining these two inputs with a dividend yield of 2.6 , our forecast implies a total return of about 7 this year. However, the uncertainty around this forecast is quite large, as emerging market equities face several potential potholes on the road ahead. Chief among these is the ultimate policy agenda of the incoming US administration. On the one hand, a policy mix that favors US growth over trade restrictions would support emerging market exports and boost profits and equity returns. Outlook Investment Strategy Group 59 Exhibit 69: EM Equity Valuations Aggregate valuations are near neutral levels. Normalized Composite Z-Score 1.0 0.8 0.6 0.4 0.2 0.0 0.0 -0.1 -0.2 -0.4 -0.3 -0.2 -0.2 -0.2 -0.2 Russia (4.5 ) Taiwan (12.2 ) Chile (1.2 ) Korea (14.4 ) Turkey (1.0 ) Malaysia (2.5 ) Thailand (2.3 ) 0.1 EM On the other hand, a harsher US stance on trade and foreign policy would hurt emerging market earnings, sentiment and valuation multiples. China, Korea, Mexico and Taiwan which account for about 60 of MSCI emerging market capitalization and earnings seem particularly vulnerable in the latter scenario. In comparison, countries with less exposure to the US economy and already strong domestic demand, such as India and Indonesia, would likely fare better. 0.2 China (26.5 ) 0.2 0.2 Data as of December 31, 2016. Note: Based on monthly data since 1994 for Price Forward Earnings, Price Book Value, Price Cash Flow, Price Sales, Price Earnings-to-Growth Ratio, Dividend Yield and Return on Equity. Numbers in parentheses denote the country s weight in MSCI EM. Only showing countries with a weight greater than 1 . Source: Investment Strategy Group, Datastream, I B E S, MSCI. Mexico (3.5 ) Philippines (1.2 ) 0.4 Poland (1.1 ) 0.4 Indonesia (2.6 ) 0.5 India (8.3 ) 0.7 South Africa (7.1 ) 0.9 Brazil (7.7 ) Against this uncertain backdrop and considering today's uninspiring valuations (see Exhibit 69), we remain tactically neutral on emerging market equities. That said, we continue to explore relative investment opportunities that exploit the significant domestic activity, external vulnerability and valuation differences among individual emerging countries. 2017 Global Currency Outlook In a notable departure from recent years, the US dollar did not enjoy unequivocal dominance in 2016 (see Exhibit 70). The yen, for example, ended a four-year slide against the greenback as the market questioned the BOJ s commitment to monetary easing. Certain emerging market currencies such as the Russian ruble and Brazilian real also outperformed the dollar on the back of stronger commodity prices and favorable political developments at home. And while the dollar did make notable gains against the euro, pound and Mexican peso in particular, these currencies enter 2017 with a more balanced risk reward profile as a result. The upshot is that while tightening monetary policy and potential fiscal expansion in the US will continue to favor dollar strength, those gains are likely to be more modest and reflected in a narrower set of currencies as the dollar bull market enters its fifth year. Our tactical positioning Exhibit 70: 2016 Currency Moves (vs. US Dollar) For the first time in several years, the US dollar did not appreciate against all major currencies. 2016 Spot Return ( ) G10 EM Asia EM EMEA EM Latin America 25 20 15 10 5 0 -5 -10 -15 -20 -16 USD Appreciation -7 -3 -2 -1 2 2 3 3 -6 -5 -4 -3 -3 -2 1 2 2 -17 -6 -3 -1 13 20 -17 2 6 6 22 UK Sweden Euro Switzerland Australia New Zealand Norway Japan Canada China Philippines Malaysia India Korea Singapore Thailand Taiwan Indonesia Turkey Poland Czech Republic Hungary South Africa Russia Mexico Peru Chile Colombia Brazil Data as of December 31, 2016. Source: Investment Strategy Group, Bloomberg. 60 Goldman Sachs january 2017 incorporates this view, as we are neutral on the euro, yen and pound versus the US dollar, but remain bearish on the Chinese renminbi. We discuss our view on the broader US dollar, as well as each of these currencies, next. Exhibit 71: US Dollar Real Effective Exchange Rate Dollar valuations are near their long-term average but below levels reached in past bull cycles. Z-Score 4 US Dollar Following three consecutive years of dollar outperformance, it would be reasonable to assume the up-cycle is nearing an end. After all, dollar valuation is now close to its historic average level relative to the currencies of US trade partners, after adjusting for inflation. Moreover, the length of this dollar bull market is approaching that of the two prior episodes shown in Exhibit 71 and shares a similar underlying driver tighter monetary policy in the US relative to its global peer group. But while we expect the pace of US dollar appreciation to slow, there are many reasons to believe the greenback s outperformance can continue this year. Dollar valuation remains below the peaks reached in the 1985 and 2002 bull cycles, suggesting it is not yet prohibitively expensive. The dollar should also benefit from solid US macroeconomic fundamentals relative to other developed economies. President-elect Trump ran on a platform that includes fiscal expansion and corporate tax reform. Although his economic team s spending plan is still forthcoming, the package could represent an economic tailwind that may justify tighter US monetary conditions at a time when foreign central banks have committed to easier policy. In turn, relatively higher US yields may entice global investors to favor US dollar assets over lower-yielding foreign-denominated alternatives. Furthermore, some elements of the new administration s desired corporate tax reform could present material upside risk to the US dollar. For example, the destination-based tax system supported by several House Republicans disallows deductions for any imported good or service Dollar gains are likely to be more modest and reflected in a narrower set of currencies as the dollar bull market enters its fifth year. 3 2 1 0 -1 -2 6.3 Years 6.8 Years 5.4 Years -3 1973 1978 1983 1988 1993 1998 2003 2008 2013 Data through November 30, 2016. Note: Z-score is calculated on data since 1973 and represents the number of standard deviations from the mean. Shaded areas highlight periods of dollar strength. Source: Investment Strategy Group, Datastream. effectively supporting US goods by making them more competitive. Economic theory suggests that free-floating currencies such as the US dollar would need to adjust higher by the amount of the tax to create equilibrium with similar goods sourced across foreign borders. Taken at face value, this implies a 20 destination tax would require a simultaneous and potentially very disruptive 20 increase in the US dollar. A tax holiday for cash held abroad could be similarly dollar positive, in spirit if not in magnitude. While it is true that a majority of the 2.6 trillion of US corporate earnings trapped overseas are already held in US dollar assets, the greenback would still enjoy a tailwind if corporates elected to repatriate some portion of the foreign currency balance. That said, the risks to the US dollar are not exclusively to the upside, as much of the good news is embedded in current prices (see Exhibit 72). Consider that the bulk of last year s dollar advance occurred in the two weeks following the US presidential election in November, as the market quickly discounted a portion of potential policy changes. Moreover, Federal Reserve rate hike expectations for 2017 have increased following stronger US activity data during the second half of 2016. Lastly, we expect the BOJ and ECB to maintain their highly accommodative policies again this year. With these tailwinds already 0.6 Outlook Investment Strategy Group 61 Exhibit 72: Trade-Weighted US Dollar Index The recent dollar rally implies much of the good news has already been priced in. January 1997 100 140 Exhibit 73: Eurozone Net Portfolio Flows Policy divergences could continue to drive portfolio investment out of the Eurozone. 12-Month Rolling Sum, of GDP 6 130 120 110 4 2 0 -2 Capital Into Eurozone Euro Appreciation 100 90 80 1995 2000 2005 2010 2015 Data through December 31, 2016. Note: Shaded areas denote periods of US recession. Source: Investment Strategy Group, Datastream. -4 Capital Out of Eurozone Euro Depreciation Net Equity -6 Net Debt Net Portfolio Flows -8 2011 2012 2013 2014 2015 2016 Data through October 31, 2016. Note: Q3 2016 data used to calculate Q4 2016 share of GDP. Source: Investment Strategy Group, Haver Analytics. partly reflected in current exchange rates, the US dollar is vulnerable to both domestic and foreign disappointments. In sum, we expect the dollar to appreciate further, but at a slower pace and with greater volatility than in recent years. Euro The euro was on the losing side of the US dollar s strength again in 2016, marking the third consecutive year of underperformance and the longest stretch of annual declines since 2001. Last year s modest 3.2 decline actually masked a much larger 10 drop from the euro s intra-year peak, half of which came in the weeks following the US elections in November. Needless to say, the combination of potentially expansionary fiscal policy put in place by the new administration coupled with tighter US monetary policy represents a stiff headwind to the euro, particularly since We should not lose sight of the fact that after such persistent weakness versus the US dollar, the euro is undervalued and investors are now positioned for further weakness. the ECB just extended quantitative easing until December 2017. We expect these transatlantic policy divergences to persist, driving European investors to continue seeking higher-yielding, non-euro-denominated assets abroad (see Exhibit 73). This preference will likely be bolstered by uncertainty surrounding upcoming national elections in Germany, France, the Netherlands and possibly Italy and Spain. While our central case assumes mainstream parties prevail, any result that raises questions about the long-term viability of the European Monetary Union could push the euro even lower. Still, we should not lose sight of the fact that after such persistent weakness versus the US dollar, the euro is undervalued and investors are now positioned for further weakness. Additionally, the above-trend Eurozone growth and normalizing inflation we expect could justify the ECB shifting toward a more neutral stance later this year. Such a move would narrow the interest rate differential between the US and Eurozone, weakening a linchpin of the weaker euro thesis. Given this balance of risks, we removed our tactical short positions in the euro relative to the dollar following the November US presidential election, returning to a neutral view. 62 Goldman Sachs january 2017 Exhibit 74: Japanese Net Purchases of Foreign Long-Term Debt by Investor Type Additional buying of foreign assets by Japanese investors could put further downward pressure on the yen. 12-Month Rolling Sum, of GDP -2 0 2 4 6 Banks Pension Trusts Insurers All Other Capital Into Japan Yen Appreciation Capital Out of Japan Yen Depreciation 2013 2014 2015 2016 Data through November 30, 2016. Note: Q3 2016 data used to calculate Q4 2016 share of GDP. Source: Investment Strategy Group, Haver Analytics. All Other defined as central banks, general government, financial instruments firms, investment trust management companies and others. Yen For yen investors, last year was a reminder that markets often take an escalator up but an elevator down. After steadily appreciating almost 20 against the US dollar over the first nine months of 2016, the currency forfeited those gains in just weeks after the surprising US presidential election. Although the net effect was a small 2.8 appreciation last year breaking a four-year streak of yen weakness we do not believe further yen strength is likely. There are two reasons for this view. First, the BOJ will likely keep rates negative or close to zero this year by maintaining highly accommodative monetary policy. In turn, Japanese investors will continue to sell low-yielding domestic assets placing downward pressure on the yen in order to fund purchases of higher-yielding offshore assets (see Exhibit 74). Japan s Government Pension Investment Fund (GPIF) which manages the world s largest public pension is a case in point, as it will need to sell domestic fixed income assets to reach its stated targets for foreign investments. Similarly, Japanese life insurers may increase their exposure to foreign currencies if interest rate differentials between the US and Japan remain wide. Second, Japanese corporations are likely to sell yen to invest in foreign operations with better growth prospects, which will also place downward pressure on the Japanese currency; such announcements are already on the rise. 110 This is not to suggest that the prospects for the yen are completely one-sided. The higher global rates we expect may make it difficult for the BOJ to maintain such low domestic yields, which would alleviate some of the downward pressure on the currency. Moreover, the many sources of global uncertainty in the year ahead could lead investors back into the yen as a liquid hedge, as we saw in the first half of 2016. Finally, after four years of weakness, the yen has reached undervalued levels. Given this more balanced risk profile, we currently have no tactical position in the yen. British Pound While broader financial markets were unperturbed by the UK s decision to leave the European Union, the same cannot be said for currencies. Here, the Brexit vote sent the pound tumbling to its lowest level versus the US dollar since the 1985 Plaza Accord. 111 Although the pound has since recovered some of those losses, its 16.3 decline relative to the US dollar last year still ranks as the worst performance among all developed market currencies. The trajectory of the pound will be largely shaped by the evolution of Brexit negotiations. Even though six months have passed since the vote, there is no greater clarity on how the UK will ultimately exit the European Union and on what terms. Clearly a combative stance could see the pound weaken further as the market discounts lower potential growth in the UK. Alternatively, a more conciliatory negotiating position could lead to upside from today s depressed levels. Barring a hostile negotiating tack from the UK government, the pound also has several other factors working in its favor. First, foreigners continue to buy pounds to invest in UK-domiciled assets and firms, which is vital to funding the UK s sizable 5.2 of GDP current account deficit. In fact, one of the largest cross-border acquisitions last year was announced less than one month following the EU referendum. 112 Importantly, higher-frequency data shows this merger and acquisition (M A) momentum is continuing (see Exhibit 75). Second, the Bank of England may need to raise interest rates sooner than markets now expect, as erstwhile sterling depreciation is quickly feeding Outlook Investment Strategy Group 63 Exhibit 75: UK Cash Merger and Acquisition Announcement Pipeline Continued inbound M A activity could benefit the pound. 6-Month Rolling Sum, bn 150 100 50 0 -50 -100 -150 Inbound M A Outbound M A Net M A Capital Into the UK Pound Appreciation Capital Out of the UK Pound Depreciation May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Data through December 31, 2016. Note: October 2016 outbound M A adjusted to exclude stock portion of British American Tobacco s takeover of Reynolds. Source: Investment Strategy Group, Bloomberg. through to higher domestic inflation. In turn, higher UK interest rates would make sterlingdenominated assets more appealing to foreign investors and support the currency. Finally, while sterling certainly has scope to depreciate, market participants are already wellpositioned for further weakness. Those positions may become vulnerable if the UK s negotiations with its trade partners turn more amicable and the domestic UK economy remains resilient. With these upside risks being tempered by the unknowable evolution of Brexit negotiations for now, we see balanced risks for the pound this year and thus remain tactically neutral. Emerging Market Currencies Emerging market currencies caught a welcome updraft last year, following a 45 freefall since mid-2011. The flight was not without turbulence, however. Following a 12 rally in the first half of the year reflecting a dovish shift in US monetary policy and waning fears about Chinese capital outflows emerging market currencies hit an air pocket that erased much of these gains following the surprise outcome of the US elections. We believe this downdraft is likely to persist. The prospect of higher US interest rates, a stronger dollar and China s bumpy deceleration spells tighter global financial conditions and a risk of capital outflows from emerging markets conditions that have historically constituted a stiff headwind to their currencies. These risks are magnified by the uncertainty surrounding the incoming US administration s trade policies. Fears of protectionism have already negatively impacted the currencies of China and Mexico the two largest sources of manufacturing exports to the US with the peso and Chinese renminbi down 11.6 and 2.3 , respectively, since the election. Even so, we do not think a broad tactical short in emerging market currencies is appealing at this stage. Despite the small rally last year, emerging market currencies remain attractively valued (see Exhibit 76), particularly given their enticing 5 yield differential to the US dollar. Moreover, the new US administration may prove to be more measured in its actions than its rhetoric a nonnegligible risk that could revive sentiment and improve prospects for emerging market currencies. The Mexican peso, in particular, could benefit in that event. For now, we remain tactically positioned to benefit from further renminbi weakness given our long-standing concerns about China s economic vulnerabilities and the likelihood of looser policy, policy mistakes and capital outflows. The potential for US trade protectionism directed at China, though not our base case, would further benefit this position. 2017 Global Fixed Income Outlook Last year witnessed a notable reversal of fortune for global interest rates. Despite reaching all-time closing lows shortly after the surprise Brexit vote, 10-year yields in developed markets had reclaimed much if not all of those declines by year-end. In the US, a more than one percentage point swing was sufficient to turn the 10-year bond s 9 gain into a loss. While some have portrayed this reversal as just another setback in the now three-decade-old bond bull market, we are more skeptical. The policy mix that has depressed interest rates in the post-crisis period a combination of fiscal austerity, negative or near-zero central bank policy rates and large-scale asset purchases is losing favor, as even policymakers acknowledge the often counterproductive impact of these policies. At 64 Goldman Sachs january 2017 Exhibit 76: Emerging Market Currency Valuation Despite the recent rally, emerging market currencies remain undervalued against the US dollar. Exhibit 77: Estimated Duration of US Bond Market The bond market s sensitivity to rising rates is the highest on record. Average Deviation from Fair Value vs. US Dollar ( ) 20 15 10 5 0 -5 -10 EM Currencies Overvalued on Average Duration (Years) 7 6 5 4 -15 -20 -25 2008 2009 2010 2011 2012 2013 2014 2015 2016 -15 3 2 1989 1994 1999 2004 2009 2014 Data through November 30, 2016. Note: Average of Goldman Sachs Dynamic Equilibrium Exchange Rate, 5-year moving average, and Fundamental Equilibrium Exchange Rate misalignments of currencies in the JP Morgan Government Bond Index Emerging Markets Global Diversified. Source: Investment Strategy Group, Bloomberg, Datastream, Goldman Sachs Global Investment Research, Peterson Institute for International Economics. Data through December 31, 2016. Note: Based on the Barclays US Aggregate Bond Index. Source: Investment Strategy Group, Bloomberg. the same time, the recovery in commodity prices, recent firming in global growth and potential for expansionary fiscal policy are shifting the focus from deflation to reflation. This shift in perspective arrives at a time when the market s vulnerability to rising rates is the highest on record (see Exhibit 77). Losses from these long-duration positions in response to higher rates could beget more bond sales, creating a vicious cycle. That yields are still extremely low by historical standards does little to assuage these fears. Consider that 10-year government bond yields in all G-7 countries have been higher at least 90 of the time since 1958. Given all the above, For now, we remain tactically positioned to benefit from further renminbi weakness given our longstanding concerns about China s economic vulnerabilities and the likelihood of looser policy, policy mistakes and capital outflows. we believe the ascent of interest rates remains in its infancy. Still, it is important to differentiate between a normalization of interest rates and a disorderly backup. While we expect higher interest rates over the coming years, secular headwinds like aging demographics and slower productivity growth suggest the terminal point of that increase will be lower than the historical average. This fact is not lost on the Federal Reserve, which has reduced its estimate of the long-run equilibrium nominal rate the rate consistent with full employment and stable inflation in the medium term from 4.25 to 3 over recent years. With a lower interest rate target to reach, the Federal Reserve is likely to proceed slowly, particularly given uncertainty around its estimate of the economy s equilibrium rate and lingering international risks. Even if the Federal Reserve were to raise rates three times in 2017, that pace would still be less than half of the historical median tightening pace. 113 Thus far in this cycle, the Federal Reserve has raised rates only once per year. Against this backdrop, we recommend investors favor credit over duration risk Outlook Investment Strategy Group 65 by remaining overweight US corporate high yield credit versus investment grade fixed income and by funding various tactical tilts from their high-quality bond allocation. While most investment grade bonds may have uninspiring tactical prospects, we emphasize that investors should not completely abandon their bond allocation in search of higher yields. As the last several years have reminded us, investment grade fixed income serves a vital strategic role in the portfolio, due to its ability to hedge against deflation, reduce portfolio volatility and generate income. In the sections that follow, we review the specifics of each fixed income market. US Treasuries While 2016 began as a bumper year for US Treasuries, it ended in a rout. The yield on 10-year Treasury bonds, for example, reached an all-time low of just 1.36 by the middle of last year before jolting higher by more than one percentage point by year-end. As a result, investors nearly doubledigit gains devolved into a small loss. Even worse, the bulk of the rate increase occurred in just the last three months of 2016, generating a 7 loss for the quarter that has been exceeded less than 1 of the time historically since 1981. We expect rates to continue to increase, albeit at a slower pace in 2017, as many of the forces that have restrained yields are slowly fading. Inflation, in particular, has been a persistent drag, reflecting a toxic combination of excess labor slack that depressed wages, a strong dollar that lowered import prices and a significant decline in oil prices that weighed on breakeven inflation rates. But as we begin the eighth year of the US expansion, labor slack has been largely absorbed, evident in today s firming wages. Moreover, the impact of the dollar is diminishing as its pace of ascent slows, while the recovery in oil is boosting breakeven inflation rates. Other headwinds are also receding. The fiscal austerity among the advanced economies that has dampened economic growth and decreased sovereign bond issuance both of which depress interest rates is now reversing (see Exhibit 78). Indeed, US fiscal spending is expected to add 0.3 0.5 percentage points to GDP growth in each of the next two years. 114 At the same time, there is reduced demand for risk-free assets, like US Treasuries, given the unexpectedly sanguine reaction to negative Exhibit 78: Fiscal Stance of Advanced Economies Fiscal austerity in developed markets has reversed in recent years. Number of Countries 35 30 25 20 15 10 5 0 5 6 6 6 23 22 22 8 4 10 9 9 12 2011 2012 2013 2014 2015 2016 Data as of December 31, 2016. Source: Investment Strategy Group, IMF. Tightened Remained Neutral Loosened geopolitical events such as the UK and Italian referenda and the results of the US election. Finally, the deleterious impact of depressed interest rates on banking sector profitability has raised the hurdle for global central banks to cut interest rates further and or increase the scale of QE programs. In turn, market focus has shifted toward the eventual tapering of BOJ, ECB and BOE accommodation, which has helped lift bond term premiums and boosted long-term yields (see Exhibit 79). In light of these waning headwinds, the Federal Reserve is likely to hike two or three times in 2017, with upside risks from a larger-than-anticipated fiscal expansion. Combined with some further normalization in the term premium, we expect 10- year rates to increase to 2.50 3.00 by year-end. Given the balance of risks, we remain comfortable funding tactical tilts out of investment grade fixed income. Treasury Inflation-Protected Securities (TIPS) TIPS fared better than nominal bonds in 2016, delivering a positive mid-single-digit return. Their outperformance was driven by the recovery in breakeven inflation rates, which began the year at very depressed levels consistent with only 1.5 annual inflation over the next 10 years well below long-run forecasts (see Exhibit 80). In fact, our work suggests that breakeven inflation rates were reflecting high odds of a deep recession over the course of 2016, well above the risk suggested by our recession models. 15 13 16 9 9 66 Goldman Sachs january 2017 Exhibit 79: US 10-Year Yields and Term Premium Expected tapering from major central banks has contributed to higher long-term yields and bond term premiums. Exhibit 80: US 10-Year Breakeven Inflation Rate and Consensus Inflation Rate Forecasts TIPS benefited from a recovery in breakeven inflation rates in 2016. 4 3 10-Year Treasury Yield Risk-Neutral Yield Term Premium Annualized 3.0 2.5 10-Year Breakeven Inflation 10-Year Ahead Inflation Forecast 2.0 2 1.5 1 1.0 0 0.5 -1 2011 2012 2013 2014 2015 2016 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. 0.0 2011 2012 2013 2014 2015 2016 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. We think that breakeven inflation rates have further room to rise as the concerns that depressed them last year fade. First, oil prices are recovering, reversing the persistent drag they had exerted throughout much of early 2016. Second, wages are firming and fiscal policy is being eased, dampening deflation worries. Finally, recession odds are falling as the drag from oil weakness and dollar strength fades. With breakeven inflation rates still below longterm consensus forecasts and the Federal Reserve s target, we expect positive total returns from TIPS in 2017. Still, TIPS absolute returns are likely to be modest, as their eight-year duration will make it difficult for coupon income to meaningfully exceed principal losses as rates rise. Moreover, given TIPS unfavorable tax treatment (discussed at length in our 2011 Outlook), we continue to advise US clients with taxable accounts to use municipal bonds for their strategic allocation. We expect rates to continue to increase, albeit at a slower pace in 2017, as many of the forces that have restrained yields are slowly fading. US Municipal Bond Market Municipal bond holders were not immune from 2016 s about-face in US Treasury yields. Last October, municipal bonds were enjoying some of their best returns in years, only to be hit by losses arising from both rising interest rates and budding concerns about tax changes in the wake of the US presidential election. The abrupt redemptions of municipal bond mutual funds only exacerbated these losses, with the pace of outflows second only to the mid-2013 taper tantrum (see Exhibit 81). All told, municipal bonds suffered one of their worst years in recent history, with intermediate municipal bonds actually experiencing a rare loss (see Exhibit 82). Unfortunately, the near-term outlook remains challenging. As Exhibit 81 reminds us, mutual fund flows tend to be sticky in this asset class, with persistent periods of both buying and selling depending on the trajectory of interest rates. Based on historical episodes, there is scope for the current string of outflows to extend further. Moreover, clarity on tax policy will remain elusive for months, during which time headline risk will be significant. Even worse, a sizable reduction in the top individual tax rate for municipal bonds if ultimately passed could significantly shift the economics of owning them, leading to further sales. These fresh worries on tax policies Outlook Investment Strategy Group 67 Exhibit 81: Municipal Bond Mutual Fund Flows The pace of outflows at the end of 2016 was surpassed in recent history only by the 2013 taper tantrum. 4-Week Rolling Average, bn 3 Exhibit 82: Annual Municipal Bond Returns Since 1994 Intermediate municipal bonds experienced a rare loss in 2016. Ranked Annual Returns ( ) 15 2 1 10 0 -1 5 -2 -3 0 -4 -5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -5 1995 2002 2000 2011 1997 2009 1998 2001 2007 2014 1996 2003 2008 2006 2012 2010 2004 2015 2005 1999 2016 2013 1994 Data through December 31, 2016. Source: Investment Strategy Group, ICI. Data as of December 31, 2016. Source: Investment Strategy Group, Barclays. only add to existing concerns about pension funding levels. While there is clearly no shortage of risks, the silver lining to last year s rout is that we begin 2017 with a much larger valuation buffer to help absorb them. As seen in Exhibit 83, the ratio of municipal yields to Treasury yields is above average for both 5- and 10-year maturities. In turn, investors can currently earn an extra 70 basis points of after-tax yield by owning fiveyear municipal bonds instead of same-maturity Treasuries a yield pickup more than double the post-crisis median of 31 basis points. Moreover, this incremental after-tax yield would still be around 50 basis points if the top individual tax on investment income were reduced by 10 percentage points from 43.4 with the Affordable Care Act (ACA) tax to 33 under new policy recommendations. In short, municipal spreads currently offer a potential offset to rising rates and potential tax changes. Also keep in mind that municipal fundamentals remain stable. Major state and local tax revenues have continued to increase at a moderate 3 pace, which should be supported by the above-trend US economic growth and rising home prices we forecast. Meanwhile, governments have exercised restraint on capital spending. Consider that net issuance expectations of 30 billion for 2017 stand well below the pre-crisis 10-year annual average of 110 billion. 115 This restraint has not only kept net supply low as new issuance has been largely offset by maturing debt but has also helped municipal finances. Ratings trends have improved as a result of both stable revenue and spending discipline, with upgrades in the Moody s universe seeing a notable uptick in last year s third quarter (see Exhibit 84). Of course, underfunded long-term pension liabilities remain a source of concern. But with aggregate funding levels holding steady at around 74 , we do not think this will be a primary focus in 2017, particularly given last year s increase in stock prices. While rising equity values will do little to remedy municipals inadequate funding contributions, they will help increase the value of pension assets. Moreover, these medium-term concerns are not the primary driver of recent municipal bond weakness. After all, today s funding levels are no worse than they were in October of last year, a time when municipal bonds were enjoying some of their best returns ever. All told, we expect intermediate municipal strategies to gain about 1 in 2017. With this return close to that of cash but with more downside potential, we still think it makes sense for clients to fund various tactical tilts from their high-quality municipal bond allocation. This recommendation is motivated primarily by rate risk and not credit concerns, since we expect municipal defaults to be rare events. Outside tilt funding, we recommend clients target their 68 Goldman Sachs january 2017 Exhibit 83: Ratio of Municipal Bond Yields to Treasury Yields Current municipal bond yields offer a larger valuation buffer to absorb risks than in the past. Exhibit 84: Municipal Issuer Rating Changes Stable revenue and spending discipline have led to recent issuer rating upgrades. Ratio ( ) 100 90 80 Current Average Since 2000 Average Since 1987 95 93 91 85 80 85 Share of Rating Changes ( ) 100 90 80 37 49 70 60 56 42 56 54 Upgrades 50 39 Downgrades 63 50 70 40 60 30 20 63 51 44 58 44 46 50 61 37 10 50 5-Year Ratio 10-Year Ratio 0 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Data as of December 31, 2016. Source: Investment Strategy Group, Bloomberg, Thomson MMD. Data as of Q3 2016. Source: Investment Strategy Group, Moody s. benchmark duration. Given their important portfolio hedging characteristics, municipal bonds should remain the bedrock of the sleep-well portion of a US-based client s portfolio. The same can be said for high yield municipal bonds. Despite their almost 10-year duration, these bonds currently offer attractive spreads of close to 3 , a level that has been higher only 29 of the time since 2000. This spread provides a substantial buffer that could partially offset higher Treasury yields, enabling the high yield municipal market to deliver positive returns of around 4 in our base case. Therefore, we recommend clients stay invested at their customized strategic weight. US Corporate High Yield Credit Even for the bullish among us, last year s 17 total return in corporate high yield was surprisingly strong. Not only was it the largest gain within US fixed income, but it also ranked among While there is clearly no shortage of risks, the silver lining to last year s rout in municipal bonds is that we begin 2017 with a much larger valuation buffer to help absorb them. the top annual returns of all time for the asset class. What makes this performance even more impressive is that high yield was down about 5 at its worst point in early 2016. But these sizable gains have come at a cost. Spreads which compensate investors for the risk of default losses now stand well below their longterm average. In fact, the level of spreads has been lower only a third of the time in the last 30 years. Moreover, yields have fallen from above 10 early last year to less than 7 now, diminishing the allure of these bonds to investors searching for high returns. Even so, we think the strong fundamentals underpinning the asset class still warrant an overweight, though returns are almost certain to be more modest going forward. At the heart of this stance is our benign view on default losses, which are the primary risk to high yield investors. Here, several factors support our below-historicalaverage 2.5 par-weighted default forecast for 2017. First, high yield firms stand to benefit directly from the strengthening US economy we expect this year, considering almost three-quarters of their sales originate domestically. 116 Second, leading indicators of defaults such as Moody s liquidity and covenant stress indexes are trending downward, suggesting fewer speculative-grade companies are Outlook Investment Strategy Group 69 Exhibit 85: Moody s Liquidity Stress Index and Default Rates Leading indicators suggest the path of defaults for high yield is lower. Exhibit 86: Cumulative US High Yield Debt Maturity by Year Less than 10 of existing debt matures in the next two years. Index ( ) Trailing 12-Month Rate ( ) 25 Composite Liquidity Stress Index 16 Speculative-Grade Issuer-Weighted Default Rate (Right) 14 Cumulative Maturity ( ) 100 High Yield Bonds 90 Bank Loans 86 100 100 20 15 12 10 80 70 60 67 63 8 10 6 4 5 2 0 0 2002 2004 2006 2008 2010 2012 2014 2016 50 40 30 20 10 0 47 42 33 20 19 10 7 4 1 2017 2018 2019 2020 2021 2022 2023 or later Data through November 30, 2016. Note: Moody s Liquidity Stress Indexes fall when corporate liquidity appears to improve and rise when it appears to weaken. Source: Investment Strategy Group, Moody s. Data as of December 31, 2016. Source: Investment Strategy Group, JP Morgan. experiencing liquidity problems or are at risk of breaching financial covenants. As seen in Exhibit 85, Moody s composite Liquidity Stress Index (LSI) began to deteriorate in advance of previous default cycles. Third, the commodity sectors of the high yield universe which collectively generated a staggering 85 of last year s defaults are recovering along with oil prices. Keep in mind that the par-weighted default rate excluding these sectors was just 0.5 last year, a fraction of the 3.2 long-run average. 117 Finally, our default model which incorporates the leading characteristics of the Federal Reserve s Senior Loan Officer Opinion Survey and the percentage of distressed bonds is projecting 2 3 par-weighted defaults in the year ahead. Other factors corroborate our low-default view. As seen in Exhibit 86, there is very little refinancing We think the strong fundamentals underpinning US corporate high yield still warrant an overweight, though returns are almost certain to be more modest going forward. risk, given that less than 10 of existing debt matures in the next two years. Of equal importance, interest coverage stands near all-time highs today, in stark contrast to the period preceding the financial crisis (see Exhibit 87). This point is further illustrated by Exhibit 88, which shows that today s high yield universe is much healthier than the precrisis cohort, regardless of measure. Keep in mind that low-rated CCC bonds represented just 8 of high yield issuance last year, a 14-year low. 118 We also note that high yield may be a better interest rate hedge than many investors realize. Consider that during unexpected interest rate backups in the past, high yield has generated a positive return 69 of the time and a return that exceeded investment grade fixed income 85 of the time (see Exhibit 89). This last point is important, as our high yield overweight is funded out of investment grade fixed income. High yield s hedging qualities were apparent last year, as the asset class appreciated nearly 7 in the second half of the year despite an increase in Treasury yields of more than 100 basis points. Although we assume that any further increase in 10-year Treasury rates this year will not be offset by high yield spreads, this historical relationship suggests that may be overly conservative. 70 Goldman Sachs january 2017 Exhibit 87: High Yield Par-Weighted Interest Coverage Ratio Interest coverage today stands near all-time highs, unlike the pre-crisis period. Exhibit 88: Characteristics of US High Yield Issuance Today s high yield universe is much healthier than the pre-crisis cohort. Coverage Ratio Use of New Issuance Proceeds ( ) 5 4.5 4.6 4.4 60 2006 07 Average 2015 16 Average 4 50 48 40 3 30 27 29 2 20 1 10 12 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1Q16 2Q16 3Q16 0 LBO and M A Low-Rated Companies Aggressive Securities (PIK Toggle Bonds) 0 Data through Q3 2016. Source: Investment Strategy Group, Barclays. Data as of December 31, 2016. Source: Investment Strategy Group, JP Morgan. Of course, a more constructive view of high yield fundamentals does not necessarily suggest robust returns. In high yield bonds, today s belowaverage spreads already reflect our subdued default expectations and are less likely to offset any further increase in rates. We thus expect returns of around 4 in the year ahead. Although high yield energy is likely to generate similar gains, the potential upside is more significant given wider starting spreads and the potential for distressed bonds to pull to par amid higher oil prices. Finally, with a 5 return, bank loans should perform marginally better than bonds, reflecting their attractive 0.25-year duration and continued investor demand for floating rates a feature that is back in vogue now that 3-month LIBOR is almost above the 1 LIBOR floor that more than 90 of bank loans possess. While these returns may pale in comparison to those of last year, they remain attractive relative to investment grade fixed income, where we expect rising rates to generate lower returns. Even if rates stagnate while US growth remains positive, the default-adjusted return in high yield should still trump high-quality bonds. Said differently, US corporate high yield credit remains a better house in a bad fixed income neighborhood, supporting our modest overweight recommendation. Exhibit 89: High Yield Credit Performance During Periods of Rising Rates High yield has historically outperformed investment grade bonds during episodes of rising rates. Average Return ( ) 5 Average Total Return During Episodes of Rising Rates 4 of Time Positive (Right) 3 2 1 0 -1 -2 Inv. Grade Fixed Income (IGFI) High Yield High Yield Less IGFI Return Bank Loans of Time Positive 100 Bank Loans Less IGFI Return Data as of December 31, 2016. Source: Investment Strategy Group, Barclays, Credit Suisse. Defined as 5-year Treasury yield rising more than 70 basis points over a 3-month period. European Bonds Unlike their US counterparts, European fixed income markets did not forfeit all their gains by the end of last year. This served as a poignant reminder of how divergent monetary policies can shape returns. Three ECB actions in March drove this robust relative performance. First, the ECB reversed its prior commitment to avoid 75 50 25 0 Outlook Investment Strategy Group 71 further rate cuts and lowered the deposit rate to -0.40 . Second, it increased the size of its asset purchase program from 60 billion to 80 billion per month, effectively buying more Eurozone bonds each year than are actually issued (see Exhibit 90). Finally, it continued to limit its buying to bonds with yields above the deposit rate, which concentrated its purchases toward longmaturity bonds. These measures created an extreme scarcity effect in long-term German bunds, as investors scrambled to buy today for fear of even lower interest rates tomorrow. In response, German 10-year rates fell to an all-time low of -18 basis points in July of 2016. During these same summer months, all German government bonds with less than a 15-year maturity offered negative yields. However, monetary policy does not operate in a vacuum. With negative interest rates impairing the profitability of the European banking system, the ECB has already begun to alter its policy mix. At its December 2016 meeting, the ECB reversed the increase in asset purchases mentioned above, targeting 60 billion per month for the upcoming March December 2017 period. Moreover, it lifted the restriction on purchasing bonds with yields below the deposit rate, alleviating the scarcity premium attached to long-maturity bonds meeting this criterion. While these adjustments are well short of QE tapering, they have shifted the market focus toward the eventual end of asset purchases and the timing of the first ECB rate hike currently priced for late 2018. With less ECB policy pressure on long-maturity bonds, coupled with continued above-trend Eurozone growth and some further normalization in global term premiums, we expect 10-year bund yields to increase to 0.5 1.0 by the end of 2017. While overall peripheral bond spreads should be mostly range-bound in 2017, political woes in Italy and France pose upside risks to the spreads of those countries. In the UK, we expect gilt yields to reach 1.5 2.25 . Here, persistently high headline inflation induced by the depreciation of sterling and a less-than-feared economic drag from Brexit thus far could encourage the BOE to unwind a portion of the preemptive easing it deployed in response to the surprise referendum outcome. Given this outlook and today s still depressed bond yields, we remain underweight UK and Eurozone government bonds for European Exhibit 90: European Government Bond Issuance and ECB Purchases ECB buying is outpacing net issuance of Eurozone bonds. bn 400 200 0 -200 -400 -600 -800 Net Issuance ECB Purchases Net Issuance Including ECB Purchases 240 211 -626 Data as of December 31, 2016. Source: Investment Strategy Group, JP Morgan. investors. After all, just a 2 basis point increase in German 10-year bund yields generates a capital loss sufficient to offset an entire year of income. That said, we should not confuse an underweight with a zero weighting, as European clients should retain some exposure to German bunds and other high-quality Eurozone bonds in the sleep-well portion of their portfolios. These high-quality bonds would provide an attractive hedge in the event of a Eurozone recession or the return of deflationary concerns. Emerging Market Local Debt Last year s 10 return for emerging market local debt (EMLD) provided some solace to those who have suffered through nearly three years of losses totaling more than 30 . But investors had to endure considerable volatility to realize this gain, as returns fluctuated between -4 and 18 in 2016. In fact, the asset class lost roughly 5 in just the last two months of the year. This last point is important, since many of the tailwinds that drove EMLD s strong returns in the first half of 2016 reversed toward year-end and are likely to impact the asset class again in 2017. Here, we refer specifically to the resumption of Federal Reserve rate hikes, renewed US dollar appreciation and a resumption of Chinese renminbi depreciation against the dollar. Just as falling global interest rates helped the asset class for the first part of 2016, so too should the rising rates we expect -386 -511 2016 2017 -300 72 Goldman Sachs january 2017 Exhibit 91: EM Local Debt Currencies and Developed Market Interest Rates Rising global interest rates would be a headwind to EM local debt. Exhibit 92: S P Goldman Sachs Commodity Total Return Index Commodities generated their first double-digit return since 2009. 1.2 1.0 Average G3 10-Year Rate EM Local Debt FX (Right, Inverted) 1 1 2016 100 94 96 Annual Returns ( ) 60 40 98 0.8 100 20 2016 Return: 11 0.6 102 0 0.4 104 -20 106 0.2 108 -40 0.0 Jan-16 Apr-16 Jul-16 Oct-16 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg, Datastream. 110 -60 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. represent a headwind this year (see Exhibit 91). Meanwhile, any boost to emerging market exports from the modest pickup in global growth we expect is likely to be dwarfed by ongoing US trade policy uncertainty, European political risk and China fears. Lastly, an acceleration of recent outflows from EMLD markets could magnify these risks, particularly since 60 of the cumulative inflows into the asset class since 2004 are experiencing losses at current market levels. Although the number of concerns is large, so is the risk premium of the asset class. As previously seen in Exhibit 76, the currencies in the EMLD index are 15 undervalued. From this starting point, the asset class could deliver attractive total returns if US trade policy proves to be more benign than feared and China worries abate. Considering this balance of risks, our central case calls for low single-digit returns. While positive, this return is not sufficient to justify a tactical long position in EMLD in our view, given the still considerable downside risks discussed above. Emerging Market Dollar Debt Emerging market dollar debt (EMD) returned 10 in 2016, capping a surprising four-year period of outperformance that has greatly benefited from stable US rates and dollar strength. But the prospects for a fifth year of upside are questionable for several reasons. First, EMD s almost seven-year duration is a liability in a rising-rate environment. This is particularly true now that the Federal Reserve has resumed tightening policy, a fact evident in EMD s 4.3 drop in response to increasing rate hike expectations late last year. Second, with spreads standing near two-year lows, there is scope for spread widening based on US and European policy uncertainty and renewed China growth fears. Third, countries accounting for 37 of EMD including Mexico, China, South Africa and Brazil have negative outlooks from at least two rating agencies, raising the potential for downgrades. 119 A potential default by Venezuela and its national oil company could also sour sentiment, as could unfavorable tariffs or trade restrictions from the new US administration. Finally, the backup in interest rates we expect could raise funding costs for EM corporate issuers, which could also heighten concerns about spillover into EMD. Indeed, a recent stress test by Standard Poor s revealed that EM corporate borrowers who must repay 200 billion per year through 2020 120 are twice as susceptible to downgrades as US corporates if dollar funding costs rise by a third. 121 Based on the above, we do not recommend a tactical position in EMD at this time. Outlook Investment Strategy Group 73 Exhibit 94: US Crude Oil Production Supply has stabilized after declining by 1 million barrels day from its peak. Exhibit 95: OPEC Crude Oil Production OPEC producers have exceeded their quota 90 of the time since 2000. Million Barrels Day 2.0 1.5 9.6 Million Barrels Day 10 Million Barrels Day 36 34 OPEC Production Subject to Quota Historical OPEC Quota Levels 8.8 9 32 1.0 8.6 30 0.5 8 28 0.0 26 7 24 -0.5 YoY US Crude Production Change US Crude Production Levels (Right) 22 -1.0 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 6 20 2000 2002 2004 2006 2008 2010 2012 2014 2016 Data through November 30, 2016. Source: Investment Strategy Group, US Department of Energy. Data through November 30, 2016. Source: Investment Strategy Group, Bloomberg. 2017 Global Commodity Outlook After losing more than half its value in the span of two years, the S P GSCI broke its downward trend with an 11 gain in 2016, its first doubledigit return since 2009 (see Exhibit 92). The rebound in oil prices was a key contributor, as oil finished the year with a staggering 52 spot price gain an outcome made all the more remarkable by the fact that oil was down 25 at its worst point early last year. This strength was not limited to the oil patch, as industrial metals rallied 17 on average and precious metals advanced 8 (see Exhibit 93). Despite last year s broad-based gains, we are more circumspect about the outlook for 2017. While we expect oil to advance, it begins the year closer to the midpoint of our target range, providing a more balanced risk reward profile. Meanwhile, we believe the key elements of our macroeconomic forecast Federal Reserve tightening, rising interest rates, modest US dollar gains and average inflation represent continued headwinds to gold prices. Comparable headwinds exist for industrial metals and agricultural goods, given the continued slowdown we expect in Chinese growth. We discuss the specifics of our outlook for oil and gold in the sections that follow. Oil: Regaining Its Balance Oil is finding its footing again after having stumbled dramatically over the last two years. While the market is still awash in oil inventories, the sizable reductions in capital expenditures by the largest international oil and gas companies Exhibit 93: Commodity Returns in 2016 Most commodity subcomponents saw positive returns in 2016, reversing several years of declines. S P GSCI Energy Agriculture Industrial Metals Precious Metals Livestock Spot Price Average, 2016 vs. 2015 -10 -14 0 -6 8 -17 Spot Price Return 28 48 3 19 9 -10 Excess Return 11 18 -5 17 8 -8 Data as of December 31, 2016. Source: Investment Strategy Group, Bloomberg. Excess return corresponds to the actual return from being invested in the front-month contract and differs from spot price return, depending on the shape of the forward curve. An upward-sloping curve (contango) is negative for returns, while a downward-sloping curve (backwardation) is positive. 74 Goldman Sachs january 2017 Exhibit 96: OPEC 2016 Production Cut Agreement and Recent Changes If fully implemented, OPEC s proposed cut would reverse production growth from the prior 6 months. Exhibit 97: US Energy Sector Ratio of Capital Spending (Capex) to Depreciation Low capex levels suggest there is upside to investment. Million Barrels Day 1.4 Production Change in 6 Months Leading up to the November 2016 OPEC Meeting 1.2 November 2016 Agreed Cut 1.0 1.2 Ratio 3.5 3.0 Capex-to-Depreciation Ratio Long-Term Average 0.8 2.5 0.6 0.4 0.2 0.0 -0.2 0.1 0.1 -0.1 0.2 0.1 0.5 0.1 0.1 -0.4 Algeria Angola Ecuador Iran Iraq Kuwait Libya Nigeria Qatar Saudi UAE Venezuela Total 2.0 1.5 1.0 1.04 0.89 0.5 0.0 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Data as of November 30, 2016. Source: Investment Strategy Group, Bloomberg, OPEC. Data through September 30, 2016. Source: Investment Strategy Group, Empirical Research Partners. suggest the transition toward a balanced market is underway. The same could be said for the dramatic cuts in US drilling budgets, which have precipitated notable declines in US shale output (see Exhibit 94). Lower oil prices have also supported aboveaverage global demand growth, helping to absorb excess inventories. Lastly, OPEC agreed to lower production in November 2016, while also securing a promise from its significant non-OPEC counterparts to do the same. Taken together, these developments support our forecast for moderately higher oil prices in 2017. This balancing act is still precarious, however. Oil inventories stand well above seasonal averages, so failure to honor the announced production cuts could delay the recovery in oil prices or, even worse, cause renewed declines. The risk of poor compliance is not trivial, given that producers have exceeded their quota 90 of the time by an average of 1 million barrels per day (mmbd) since 2000 (see Exhibit 95). The pledges from Russia and certain smaller non-OPEC producers are particularly suspect, as similar promises to cut their Oil is finding its footing again after having stumbled dramatically over the last two years. own output along with OPEC have been broken in the past. Moreover, while the announced cuts are significant the OPEC agreement would reduce production by up to 1.2 mmbd, equivalent to about one year of average global demand growth they are largely a reversal of production growth seen over the last six months (see Exhibit 96). Meanwhile, Libya and Nigeria were excluded from these new OPEC quotas given sizable domestic disruptions that have depressed their production. Recent signs of improvement, however, suggest a rebound in their production cannot be dismissed. Therefore, the announced cuts are not a panacea to the current oil imbalance, particularly if US shale output increases meaningfully in response. This last point is important, as US shale accounted for 60 of global production growth between 2012 and 2015 despite representing less than 5 of the total output. Although US production is now declining, two factors may arrest its slide in 2017. First, the breakeven price for shale drilling has fallen to an average of 50 per barrel, reflecting a 20 decline in production costs and improvements to the shale model, including faster drilling, larger wells and better resource recovery. In response, more than 200 oil rigs have been placed in service since their number troughed in May 2016. 122 Second, capital spending by the US energy sector is Outlook Investment Strategy Group 75 Exhibit 98: Full-Year Average Global Crude Oil Supply and Demand Oil consumption in 2017 could exceed supply for the first time since 2013. Exhibit 99: Gold Prices and US 10-Year Real Interest Rates Gold prices and real interest rates are closely linked. Million Barrels Day 100 98 96 94 92 World Production World Consumption Production Exceeded Consumption Between 2014 and 2016 World Consumption Exceeded Production Average Forecast Supply Demand Forecasts Point to Small Deficit in 2017 Ounce 2,000 1,600 1,200 -1.5 -1.0 -0.5 0.0 0.5 1.0 90 800 1.5 88 86 400 Gold Price 10-Year US Real Rate (Right, Inverted) 2.0 2.5 3.0 84 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3.5 Data through December 31, 2016. Source: Investment Strategy Group, Goldman Sachs Global Investment Research, International Energy Agency, OPEC, US Department of Energy, Energy Aspects, PIRA, Bloomberg, Barclays, JP Morgan. Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. very depressed despite the recent uptick in rigs, providing scope for further increases (see Exhibit 97). As a result, we expect shale production to recover in 2017, partially offsetting cuts elsewhere. Despite these potentially destabilizing forces, we still think the oil market can swing to a small deficit this year. While lower input costs create upside risks to US shale production, these costs are highly correlated with oil itself. As a result, today s 50 average breakeven level for shale is likely to move higher with oil prices, limiting the rebound in US production. Moreover, even if just half of the proposed production cuts are realized, our work suggests the oil market will still switch into a deficit this year. Finally, OPEC spare capacity has been largely exhausted by the production increases of the last year, while Iran s production has now returned to pre-sanction levels. In turn, the risk of another disorderly market-share battle has declined significantly. Against this backdrop, we expect oil supply growth to moderate and enable oil demand to again exceed oil production, creating the first deficit since 2013 (see Exhibit 98). With balance restored, we expect oil to trade in a 45 65 range in the year ahead. Thus we continue to recommend an overweight to US high yield energy bonds and US MLPs. Gold: Still Searching for Its Luster Gold was not immune from the reversal of fortune that befell interest rates last year, reminding us that their fates are fundamentally linked (see Exhibit 99). Put simply, higher interest rates raise the opportunity cost of holding gold, since the yellow metal generates no cash flow and must be physically stored, often at a cost. A similarly inverse relationship exists with the US dollar, as investors often purchase gold as a hedge against the debasement of fiat currencies; gold has traded inversely to the dollar index 73 of the time on an annual basis over the last 40 years. Given these relationships, we believe the key elements of our macroeconomic forecast Federal Reserve tightening, rising interest rates, modest US dollar gains and average inflation will represent headwinds for the yellow metal in 2017. Keep in mind that gold prices have declined in four of the last five Federal Reserve tightening cycles, with the only exception occurring during a period of dollar weakness in the mid-2000s. Based on these precedents, our expectation of two or three Federal Reserve rate increases in 2017 does not bode well for gold prices. 76 Goldman Sachs january 2017 Exhibit 100: Average Annual Gold Prices Gold remains expensive relative to its inflation-adjusted long-term average price. 2016 US Ounce 2,000 Annual Average Price Long-Term Average Post Bretton Woods Average 1,788 1,743 1,600 1,200 12 31 16 800 822 547 400 0 1871 1885 1899 1913 1927 1941 1955 1969 1983 1997 2011 Data through December 31, 2016. Source: Investment Strategy Group, Bloomberg. The same could be said of continued outflows from gold exchange-traded funds (ETFs). We estimate that a net 280 tonnes of gold ETF holdings an amount even larger than the 210 tonnes of ETF outflows that pressured gold prices in late 2016 were purchased over the past year at levels above today s price. Absent a rebound in gold prices, these ETF holders might prefer to realize their losses and rotate into instruments with a yield component. Value-minded investors should also consider that gold prices remains well above their long-term average (see Exhibit 100). Despite this challenging outlook, a number of factors could still buoy gold prices in the year ahead. Emerging market central banks have continued to buy gold to diversify their reserves. Moreover, the stronger global growth we expect could lift jewelry demand, particularly in gold s two largest end markets China and India. Finally, gold s allure as an inflation hedge could come back into focus if the market begins to worry about economic overheating in the US, although this is not our base case. In light of these crosscurrents, we are tactically neutral on gold at this time. Outlook Investment Strategy Group 77 78 Goldman Sachs january 2017 2017 OUTLOOK In Closing we do not believe the coming year will bring an end to the prolonged run of positive performance for either the US economy or the bull market for equities. Despite greater uncertainties, including those tied to a new US administration, the policy backdrop in the US will likely prove particularly favorable for the economy, with looser fiscal policy, still easy monetary policy and a lighter regulatory burden. As these factors diminish the probability of recession in 2017, they also support the case for clients remaining invested in global equities at their strategic allocation. We believe US equity gains are likely to be modest but still more attractive than the comparable returns of investment alternatives such as cash and bonds. And, as last year demonstrated, US equities often surprise to the upside. While we see the glass as half-full, there is no shortage of risks some of which have high probability and uncertain impact for the year ahead that could cause our forecasts for the economy and asset class returns to miss the mark. As always, we will adjust and communicate our views accordingly should the economic, financial or geopolitical backdrop change materially over the course of 2017. Outlook Investment Strategy Group 79 Abbreviations Glossary ACA: Affordable Care Act BEA: Bureau of Economic Analysis BIS: Bank for International Settlements BLS: Bureau of Labor Statistics BOE: Bank of England BOJ: Bank of Japan CAGR: compound annual growth rate CDS: credit default swap CFO: chief financial officer CFTC: Commodity Futures Trading Commission CPI: consumer price index EAFE: Europe, Australasia and the Far East ECB: European Central Bank EM: emerging market EMD: emerging market dollar debt EMLD: emerging market local debt EMEA: Europe, the Middle East and Africa EMU: European Monetary Union EPS: earnings per share ETF: exchange-traded fund FTSE: Financial Times Stock Exchange FX: Foreign Exchange GBP: British pound GDP: gross domestic product GFC: global financial crisis GIR: Goldman Sachs Global Investment Research GPIF: Government Pension Investment Fund GSCI: Goldman Sachs Commodity Index NAHB: National Association of Home Builders NATO: North Atlantic Treaty Organization NBER: National Bureau of Economic Research NIPA: national income and product accounts NIRP: negative interest rate policy OECD: Organisation for Economic Co-operation and Development OPEC: Organization of the Petroleum Exporting Countries PBOC: People s Bank of China PCE: personal consumption expenditures PE: price to earnings PPI: Producer Price Index PPP: purchasing power parity QE: quantitative easing S P: Standard and Poor s TIPS: Treasury Inflation-Protected Securities TOPIX: Tokyo Price Index UK: United Kingdom US: United States VAT: value-added tax YoY: year-over-year IGFI: Investment grade fixed income IMF: International Monetary Fund ISIL: Islamic State of Iraq and the Levant ISM: Institute of Supply Management JGB: Japanese government bond LBO: leveraged buyout LIBOR: London Interbank Offered Rate LSI: Liquidity Stress Index M A: merger and acquisition MLP: master limited partnership mmbd: million barrels per day MSCI: Morgan Stanley Capital International Notes 1. Jeremy J. Siegel, Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, McGraw-Hill, 1994. 2. Lisa Beilfuss, As Dow Nears 20000, Stock-Market Believer Jeremy Siegel Gets a Told You So Moment, Wall Street Journal, December 10, 2016. 3. Throughout the text, post- WWII cycles refers to expansions beginning in Q2 1954. We exclude two prior expansions, beginning in Q4 1945 and Q4 1949, to ensure consistent data across all variables used to analyze the duration and strength of recoveries (some data series are only available since 1950) as well as to avoid contaminating summary statistics given idiosyncratic economic policies that followed the end of WWII (such as the sharp reduction in military spending or the GI Bill). Our takeaway from the analysis would not change if 1945 and 1949 were included for the series for which data is available. 4. Edward Luce, Goodbye to Barack Obama s World, Financial Times, November 27, 2016. 5. John H. Cochrane, Ending America s Slow-Growth Tailspin, Wall Street Journal, May 2, 2016. 6. Martin Wolf, New President Has an Economic In-Tray Full of Problems, Financial Times, November 8, 2016. 7. Michael Heath, Summers Urges U.S. to Spend 1 of GDP Annually on Infrastructure, Bloomberg, October 18, 2016. 8. Robert J. Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War, Princeton University Press, 2016. 9. Marc Levinson, An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy, Basic Books, 2016. 10. Martin Jacques, When China Rules the World: The End of the Western World and the Birth of a New Global Order, Penguin Press, 2009. 11. N. Gregory Mankiw, One Economic Sickness, Five Diagnoses, New York Times, June 17, 2016. 12. Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press, 2011. 13. Alvin H. Hansen, Capital Goods and the Restoration of Purchasing Power, Academy of Political Science, 1934. 14. Alvin H. Hansen, Economic Progress and Declining Population Growth, American Economic Review, 1939. 15. Lawrence H. Summers, Remarks, speech delivered at the Fourteenth Jacques Polak International Monetary Fund Annual Research Conference, Washington, D.C., November 8, 2013. 16. Jay Shambaugh, How Should We Think About This Recovery? Macroeconomic Advisers 26th Annual Policy Seminar, Washington, D.C., September 14, 2016. 17. Michael E. Porter, Jan W. Rivkin, Mihir A. Desai and Manjari Raman, Problems Unsolved and a Nation Divided, Harvard Business School, September 2016. 18. Council of Economic Advisers, The Long-Term Decline in Prime-Age Male Labor Force Participation, June 2016. 19. Ibid. 20. Etienne Gagnon, Benjamin K. Johannsen and David Lopez-Salido, Understanding the New Normal: The Role of Demographics, Board of Governors of the Federal Reserve System, October 3, 2016. 21. Mitra Toossi, A Century of Change: The U.S. Labor Force, 1950-2050, Monthly Labor Review, Bureau of Labor Statistics, May 2002. 22. Donald J. Trump, Remarks, speech delivered at the New York Economic Club, September 15, 2016. 23. Chair Janet L. Yellen, Current Conditions and the Outlook for the U.S. Economy, June 6, 2016. Vice Chairman Stanley Fischer, Remarks on the U.S. Economy, August 21, 2016. 24. Robert J. Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War, Princeton University Press, 2016. 25. Stephanie H. McCulla, Alyssa E. Holdren and Shelly Smith, Improved Estimates of the National Income and Product Accounts: Results of the 2013 Comprehensive Revision, Bureau of Economic Analysis, September 2013. 26. Paul Krugman, The Age of Diminished Expectations: U.S. Economic Policy in the 1990s, MIT Press, 1990. 27. Lee Branstetter and Daniel Sichel, Seven Reasons to Be Optimistic About Productivity, forthcoming. 28. Ibid. 29. Olivier Blanchard, The State of Advanced Economies and Related Policy Debates: A Fall 2016 Assessment, Peterson Institute for International Economics, September 2016. 30. Martin Feldstein, Remarks, speech delivered at the Brookings Institution Conference on Productivity, Washington, D.C., September 8, 2016. 31. Jan Hatzius, Productivity Paradox v2.0 Revisited, Goldman Sachs Global Investment Research, September 2, 2016. 32. David M. Byrne, Stephen D. Oliner and Daniel E. Sichel, How Fast Are Semiconductor Prices Falling? Federal Reserve Board, March 2015. 33. Hal Varian, A Microeconomist Looks at Productivity: A View from the Valley, September 2016. 34. Ibid. 35. Hal Varian, Notes on Productivity and Intangibles, November 2016. 36. Chad Syverson, Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown, University of Chicago Booth School of Business, June 2016. 37. David M. Byrne, John G. Fernald and Marshall B. Reinsdorf, Does the United States Have a Productivity Slowdown or a Measurement Problem? Brookings Institution, March 1, 2016. 38. David Byrne and Carol Corrado, ICT Prices and ICT Services: What Do They Tell Us About Productivity and Technology? Conference Board, July 2016. 39. David Byrne, Wendy Dunn and Eugenio Pinto, Prices and Depreciation in the Market for Tablet Computers, Federal Reserve Board, December 2016. 40. Greg Ip, The Economy s Hidden Problem: We re Out of Big Ideas, Wall Street Journal, December 5, 2016. 41. Johan Norberg, Progress: Ten Reasons to Look Forward to the Future, Oneworld Publications, 2016. 42. Fredrik Erixon and Bj rn Weigel, The Innovation Illusion: How So Little Is Created by So Many Working So Hard, Yale University Press, 2016. 43. N. Gregory Mankiw, One Economic Sickness, Five Diagnoses, New York Times, June 17, 2016. 44. Alan S. Blinder and Mark W. Watson, Presidents and the U.S. Economy: An Econometric Exploration, Princeton University, July 2014. 45. Jay Shambaugh, How Should We Think About This Recovery? Macroeconomic Advisers 26th Annual Policy Seminar, Washington, D.C., September 14, 2016. 46. Lawrence H. Summers, When the Best Umps Blow a Call, Washington Post, July 14, 2016. 47. Martin Neil Baily and Nicholas Montalbano, Why Is US Productivity Growth So Slow? Possible Explanations and Policy Responses, Brookings Institution, September 1, 2016. 48. Kevin Daly, Arrested Development: EMs Are Still Converging, but Productivity Growth Is Lower Everywhere, Goldman Sachs Global Investment Research, December 20, 2016. 49. Molly E. Reynolds and Philip A. Wallach, The Fiscal Fights of the Obama Administration: An Interactive Timeline, Brookings Institution, December 8, 2016. 50. As measured by the Goldman Sachs Financial Conditions Index. 51. Default Monitor, JP Morgan, December 1, 2016. 52. Investment Strategy Group, Outlook: The Last Innings, January 2016. 53. These forecasts have been generated by ISG for informational purposes as of the date of this publication. Total return targets are based on ISG s framework, which incorporates historical valuation, fundamental and technical analysis. Dividend yield assumptions are based on each index s trailing 12-month dividend yield. They are based on proprietary models and there can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this publication. The following indices were used for each asset class: Barclays Municipal 1-10Y Blend (Muni 1-10); BAML US T-Bills 0-3M Index (Cash); JPM Government Bond Index Emerging Markets Global Diversified (Emerging Market Local Debt); HFRI Fund of Funds Composite (Hedge Funds); MSCI EM US Index (Emerging Market Equity); Barclays US Corporate High Yield (US High Yield); Barclays US High Yield Loans (Bank Loans); MSCI UK Local Index (UK Equities); MSCI EAFE Local Index (EAFE Equity); S P Banks Select Industry Index (US Banks); TOPIX Index (Japan Equity); Barclays High Yield Municipal Bond Index (Muni High Yield). 54. LIBOR, the London Interbank Offered Rate, is calculated as the average of leading banks estimates of the interest rates that they would be charged were they to borrow from other banks. It is one of the primary benchmarks for global shortterm interest rates. 55. Spain is the only Eurozone country in which all banks clear all of the following capital hurdles: (1) CET1 ratio 100 bps above each bank s hurdle rate (5.5 GSIB buffer, where applicable); (2) 4 leverage ratio in the ECB stress test base case scenario; and (3) 2 leverage ratio in the ECB stress test adverse scenario. Jernej Omahen, Stress Test: Worst Fears Avoided; Capital Divergence Widens, Goldman Sachs Global Investment Research, July 31, 2016. 56. Gideon Rachman, Marine Le Pen Looms Over a Trumpian World, Financial Times, November 21, 2016. 57. Charles Lichfield, Fillon Presidency Now More Likely Than a Jupp One, Eurasia Group, November 21, 2016. 58. Charles Lichfield, Attack Demonstrates Merkel s Vulnerability in 2017, Eurasia Group, December 20, 2016. 59. Alastair Gale and Kwanwoo Jun, North Korea Says It Successfully Conducted Hydrogen-Bomb Test, Wall Street Journal, January 6, 2016. 60. Kwanwoo Jun, North Korea Launches Missile From Submarine, Wall Street Journal, April 24, 2016. 61. Alastair Gale and Gordon Lubold, North Korea Missile Launch Portends Growing Capabilities, Wall Street Journal, June 22, 2016. 62. Alastair Gale and Carol E. Lee, North Korea Conducts Fifth Nuclear Test, Wall Street Journal, September 9, 2016. 63. Mike Mullen, Sam Nunn and Adam Mount, A Sharper Choice on North Korea: Engaging China for a Stable Northeast Asia, Council on Foreign Relations, Independent Task Force Report No. 74, September 2016. 64. David Gordon (adjunct senior fellow at the Center for a New American Security), in a conference call with the Investment Strategy Group, December 15, 2016. 65. Gerald F. Seib, Jay Solomon and Carol E. Lee, Barack Obama Warns Donald Trump on North Korea Threat, Wall Street Journal, November 22, 2016. 66. Andrew E. Kramer, As New Ukraine Talks Begin, What Is the State of Europe s Only Active War? New York Times, October 19, 2016. 67. Warsaw Summit Communiqu , issued by the heads of state and government participating in the meeting of the North Atlantic Council in Warsaw, July 8 9, 2016. 68. Thomas Gibbons-Neff, 2,900 Explosions in a Day. Heavy Artillery and Tank Fire Returns to the Front Lines in Ukraine. Washington Post, December 20, 2016. 69. Warsaw Summit Communiqu , issued by the heads of state and government participating in the meeting of the North Atlantic Council in Warsaw, July 8 9, 2016. 70. Transcript: Donald Trump on NATO, Turkey s Coup Attempt and the World, New York Times, July 21, 2016. 71. Ben Hubbard and David E. Sanger, Russia, Iran and Turkey Meet for Syria Talks, Excluding US, New York Times, December 20, 2016. 72. John Davison and Stephanie Nebehay, Syrian Peace Talks Limp on to Next Week with Opposition Absent, Reuters, April 22, 2016. 73. Anne Barnard, Death Toll From War in Syria Now 470,000, Group Finds, New York Times, February 11, 2016. 74. Jessica Hartogs, Syria War Could Cost Country 1.3T by 2020: Study, CNBC, March 8, 2016. 75. Zalmay Khalilzad, America Needs a Bipartisan Foreign Policy. Donald Trump Can Make It Happen, National Interest, December 21, 2016. 76. Geoff Dyer, Trump s CIA Nominee Mike Pompeo Promises to Roll Back Iran Deal, Financial Times, November 18, 2016. 77. General (Ret.) James N. Mattis, speech delivered at a conference at the Center for Strategic and International Studies, The Middle East at an Inflection Point with Gen. Mattis, April 22, 2016. 78. Ibid. 79. Carol E. Lee and Jay Solomon, Obama Seeks to Fortify Iran Nuclear Deal, Wall Street Journal, November 20, 2016. 80. Kristina Peterson, House Passes 9 11 Bill That Would Let Victims Families Sue Saudi Arabia, Wall Street Journal, September 9, 2016. 81. Melissa Eddy and Alison Smale, Berlin Crash Is Suspected to Be a Terror Attack, Police Say, New York Times, December 19, 2016. 82. Tom Burgis, Arthur Beesley and Anne-Sylvaine Chassany, ISIS Claims Responsibility for Attack in Nice, Financial Times, July 17, 2016. 83. Pervaiz Shallwani and Devlin Barrett, How Police Tracked Down Bombing Suspect Ahmad Khan Rahami, Wall Street Journal, September 20, 2016. 84. Ben S. Bernanke, How Do People Really Feel About the Economy? Brookings Institution, June 30, 2016. 85. Joint Statement, Department of Homeland Security and Office of the Director of National Intelligence on Election Security, October 7, 2016. 86. Courtney Weaver, Sam Fleming and Kathrin Hille, US Expels Russian Spies over Election Hacking, Financial Times, December 29, 2016. 87. Vindu Koel and Nicole Perlroth, Yahoo Says 1 Billion User Accounts Were Hacked, New York Times, December 14, 2016. 88. Laura Sanders, IRS Says Cyberattacks on Taxpayer Accounts More Extensive Than Previously Reported, Wall Street Journal, February 26, 2016. 89. Dustin Volz and Jason Lange, Exclusive: FBI Probes FDIC Hack Linked to China s Military Sources, Reuters, December 23, 2016. 90. Daniel Victor, LinkedIn Says Hackers Are Trying to Sell Fruits of Huge 2012 Data Breach, New York Times, May 18, 2016. 91. Jamil Anderlini, Beijing Clamps Down on Forex Deals to Stem Capital Flight, Financial Times, September 9, 2015. 92. Frank Tang, China s Foreign Reserves Fall Again in November Even as Beijing Tightens Screws on Capital Outflows, South China Morning Post, December 7, 2016. 93. Wendy Wu, What China Has Done to Stop Massive Amounts of Cash from Fleeing the Country, South China Morning Post, December 9, 2016. 94. Marcus Noland, Gary Clyde Hufbauer, Sherman Robinson and Tyler Moran, Assessing Trade Agendas in the US Presidential Campaign, Peterson Institute for International Economics, September 2016. 95. Robert D. Blackwill, Henry Kissinger and Ashley J. Tellis, Revising U.S. Grand Strategy Toward China, Council on Foreign Relations Press, April 2015. 96. David Brunnstrom, China Installs Weapons Systems on Artificial Islands, Reuters, December 15, 2016. 97. Mark Landler and David E. Sanger, Trump Speaks with Taiwan s Leader, an Affront to China, New York Times, December 2, 2016. 98. Kate O Keeffe and Damian Paletta, Tensions Linger Over Seizure of Survey Drone in South China Sea, Wall Street Journal, December 18, 2016. 99. Based on aggregated balance sheet data for the Federal Reserve, European Central Bank, Bank of Japan, Bank of England, Swiss National Bank and People s Bank of China. Source: Bloomberg, Datastream. 100. Federal Reserve Board Chair Janet Yellen, exchange with ABC News reporter Rebecca Jarvis, December 2015. 101. Federal Reserve Chair Janet Yellen, The Economic Outlook and Monetary Policy, speech delivered at the Economic Club of Washington, December 2, 2015. 102. Based on Goldman Sachs Global Investment Research estimates. 103. Based on the European Commission investment survey. 104. Arnold Palmer, www. arnoldpalmer.com bio. 105. Beginning in September 1945. 106. Elroy Dimson, Paul Marsh and Mike Staunton, Triumph of the Optimists: 101 Years of Global Investment Returns, Princeton University Press, 2002. 2013 Elroy Dimson, Paul Marsh and Mike Staunton. As cited in Credit Suisse Global Investment Returns Yearbook 2013, February 2013. 107. December 2016 FOMC Statement of Economic Projections. 108. Peter Oppenheimer, Fat Flat with a Resurgence of Divergence, Goldman Sachs Global Investment Research, December 5, 2015. 109. Anna Kitanaka, Yuji Nakamura and Toshiro Hasegawa, The Bank of Japan s Unstoppable Rise to Shareholder No. 1, Bloomberg, August 14, 2016. 110. As evidenced by SoftBank s recent pledge to invest 50 billion in the US. Michael J. de la Merced, After Meeting Trump, Japanese Mogul Pledges 50 Billion Investment in the U.S., New York Times, December 6, 2016. 111. The Plaza Accord was an agreement between the governments of France, West Germany, Japan, the United States and the United Kingdom to depreciate the US dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets. Source: Jeffrey Frankel, The Plaza Accord, 30 Years Later, Harvard Kennedy School, December 10, 2015. 112. Stu Wood, Rick Carew and Eva Dou, SoftBank to Buy ARM Holdings for 32 Billion, Wall Street Journal, July 18, 2016. 113. Since April 1946. 114. Karen Reichgott, Fiscal Policy: A Modest Boost to Global Growth in 2017, Goldman Sachs Global Investment Research, December 8, 2016. 115. Sources: Citi, Barclays, Morgan Stanley, JP Morgan. 116. Bank of America, 2016 Outlook: May the Odds Be Ever in Your Favor, November 24, 2015. 117. Matthew Jozoff and Alex Roever, US Fixed Income Markets 2017 Outlook, JP Morgan, November 23, 2016. 118. Lofti Karoui, Credit Notes: 2016: The Year of Extremes in 20 Charts, Goldman Sachs Global Investment Research, December 20, 2016. 119. Rating agencies referenced are Moody s, Standard Poor s and Fitch Ratings. 120. Yang-Myung Hong, Alisa Meyers and Zubair K. Syed, 2017 Outlook Clouds of Uncertainty Shroud the Outlook in Fat Tails, JP Morgan, November 2016. 121. Standard Poor s, Rising Interest Spreads, US Corporates Would Fare Better than Others, December 2016. 122. Data is from Baker Hughes rig counts. Thank you for reviewing this publication which is intended to discuss general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It should not be construed as research. 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Top 10 US Ideas Quarterly Q1 Top 10 Ideas Strategy Equity 03 January 2017 Corrected Top 10 US Ideas 1Q17 The backdrop for risk assets has changed dramatically over the past year. As Michael Hartnett pointed out, 2016 saw global interest rates fall to 5,000-year lows and the likely end of what has been the greatest bull market in bonds ever. We experienced a historic US Presidential election and Republican sweep of Congress on November 9th. Later that same month, OPEC reached a historic deal to reduce crude production by 1.2mn b d with non-OPEC producers delivering an additional 600k b d of cuts the first such joint curb since 1998. Risk assets responded with 30-year Treasury reaching a yield of 2.088 in July, US equity markets reaching all-time highs, and oil prices rallying more than 40 since the start of the year. Given the Republican sweep - and the resulting likelihood that the logjam of Washington gridlock will be broken - our Top 10 stock selections are more heavily geared toward companies that may benefit from increased fiscal stimulus, a more pro-business agenda, and or tax-policy reform. Our current strategy stands in stark contrast to our stance last year of looking for defensive growth ideas. United States Alpha Generation Research MLPF S Anthony Cassamassino Strategist MLPF S 1 212 449 6874 anthony.cassamassino baml.com Derek Harris Strategist MLPF S 1 646 743 0218 derek.harris baml.com Eight Buys and two Underperforms Our 1Q17 list includes eight Buys and two Underperforms across six sectors. Our Buys are Aetna Inc, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, SVB Financial, and Texas Instruments. Our Underperforms are Consolidated Edison, and TripAdvisor. How the list will be maintained and updated We will publish this list at the beginning of each quarter. Ideas will generally remain on the list through the quarter unless coverage is dropped or the recommendation changes. Any security which is removed will not be replaced. If there are any changes to the list during the quarter we will publish the change in a research report. Securities are intended to stay on the list for one quarter, though some may be chosen for the next quarter s list. We will publish performance quarterly Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com Table 1: Top 10 US Ideas List 1Q17 Company Ticker Analyst Rating Recommendation Price PO Mkt Cap (bn) Aetna Inc AET Fischbeck,Kevin B-1-7 BUY 124.45 149.00 44,657.00 Dover Corp DOV Obin,Andrew B-1-7 BUY 75.19 85.00 11,921.00 General Dynamics GD Epstein,Ronald J. B-1-7 BUY 173.21 200.00 57,215.00 Hess HES Leggate,Doug B-1-7 BUY 62.90 80.00 19,090.00 MGM Resorts MGM Kelley,Shaun C-1-9 BUY 28.50 33.00 11,993.00 Norfolk Southern NSC Hoexter,Ken B-1-7 BUY 108.82 122.00 33,393.00 SVB Financial SIVB Poonawala,Ebrahim B-1-9 BUY 170.38 190.00 8,584.00 Texas Instr. TXN Arya,Vivek B-1-7 BUY 74.15 82.00 73,899.00 Consolidated Edison ED Chin,Brian A-3-7 UNDERPERFORM 74.07 59.00 20,526.00 TripAdvisor TRIP Schindler,Nat C-3-9 UNDERPERFORM 46.95 41.00 9,071.00 Source: BofA Merrill Lynch Global Research BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 27 to 30. Analyst Certification on page 17. Price Objective Basis Risk on page 15. 11698831 Timestamp: 03 January 2017 12:05AM EST Top 10 US Ideas Quarterly Our Top 10 US Ideas are based on our view that these companies could have the most significant market and business related catalysts over the next three months. The list reflects primarily a bottoms-up approach, with calendar-specific events noted for most stocks. We constructed our list by canvassing BofAML Fundamental Equity Research analysts in order to find 10 BofAML-covered stocks which we think will significantly outperform or underperform peers during the quarter. We considered only Buy-rated names for outperform ideas and Underperform-rated names for underperform ideas. We then narrowed the list after consulting our Equity Research colleagues. To be eligible for the list, the stock must be covered by BofA Merrill Lynch AMRS fundamental equity analysts with a rating of Buy or Underperform, for long and short stock recommendations, respectively. Stocks will be chosen on a discretionary basis by the Alpha Generation team, which currently includes strategists with experience choosing stocks for BofAML s US 1 list. Stocks will be chosen for the list using a bottoms-up approach after taking into account the views of the relevant BofA Merrill Lynch Fundamental Equity analyst and upcoming catalysts. Diversity of the list and BofAML macro views will also be factors in choosing stocks for the list. Stocks on the list will generally remain on the list during the quarter. However, a stock will be removed interim quarter if considered ineligible due to a change in the stock s fundamental rating, or if the stock is no long covered by BofA Merrill Lynch fundamental Equity Research. When stocks are removed during the quarter, they will not be replaced. Stocks will generally be removed from the list at the end of the quarter in conjunction with the publication of the next quarter s list, but may on select occasions remain on the list if the identified catalyst remains relevant or a new catalyst is expected to drive the requisite over under performance. Any intra-quarter actions to the list will be announced in a research report. The Top 10 list will be published on or close to the first day of each quarter. In addition, we may also publish research reports updating the catalysts status or other news on particular stocks during the quarter. How the list will be maintained and updated We will publish this list at the beginning of each quarter. Ideas will generally remain on the list through the quarter unless coverage is dropped or the recommendation changes. Any security which is removed will not be replaced. If there are any changes to the list during the quarter we will promptly publish a note explaining the change. Securities are intended to stay on the list for one quarter, though some may be chosen again for the next quarter s list. 2 Top 10 US Ideas Quarterly 03 January 2017 Aetna (AET) Kevin Fischbeck 1 646 855 5948 Research Analyst, MLPF S Buy, PO 149 1Q investment thesis Based on past precedence, our view is that the AET HUM deal is more likely than not to be approved by the courts (ruling likely to come in January 2017). PF 2018 earnings should be close to 11.50 (vs 9.70 consensus), even before taking into account the upside from tax reform ( 15 to EPS) and rising interest rates ( 5 ). In the event that the deal breaks, we see little downside and potential upside in 1Q17 in the form of capital deployment (AET remains underlevered and in the absence of a deal could look to aggressively repurchase stock). Current estimates do not include share repurchase and based on its history of repurchasing shares using free cash flow and its balance sheet capacity, we expect AET to repurchase a significant amount ( 10 ) of its shares in 2017 post deal break, providing initial downside support and ultimately driving upside to Street estimates. Table 1: Aetna key stock data Industry Managed Care Market Cap (mn) 44,657 Price 124.45 P E (2017) 14.4x of sell-side rated Buy 70.0 Short interest of float 2.25 Source: Bloomberg and BofA Merrill Lynch Global Research estimates Deregulation Gov t Legislation: Repeal and Replace of the ACA creates some uncertainty, but neither AET nor HUM derive a significant amount of EPS from the ACA. Meanwhile, Republicans have historically supported Medicare Advantage (80 of HUM s revenue), and we expect a stronger rate environment under this Administration than over the past 8 years. Tax Policy: As a domestic only company with a relatively high tax rate (est. 35 in 2017), AET would benefit from tax reform. We believe that some benefit would be lost to minimum MLR rebates or competition, but if taxes are lowered 15 , then we assume that they keep about 2 3 of the benefit (19 to EPS). Catalysts: Deal resolution, capital allocation update, tax reform, rising interest rates. Latest report: MCO rally has just begun; beneficiaries of the non-Health Care upside from Trump 1Q risks: Risks to the downside are courts not approving the HUM acquisition, lowerthan-expected membership growth and higher than expected cost trend. CMS will issue the rate update for 2018 for Medicare Advantage in late February, a reg which we expect to be benign, but which could be worse than expected. Company Description: Aetna is one of the nation's largest managed care organizations, covering roughly 23 million members. The company focuses on three main business segments: Health Care (health insurance, dental, behavioral health and pharmacy benefit Top 10 US Ideas Quarterly 03 January 2017 3 products), Group Insurance (including life, disability and long term care insurance products) and Large Case Pension (a legacy business which is largely in runoff). Dover (DOV) Andrew Obin 1 646 855 1817 Research Analyst, MLPF S Buy, PO 85 1Q investment thesis We think the Street is underestimating 17 EPS upside potential from Energy recovery given the segment s close correlation to N.A. rig count and short-cycle nature of the business, as well as incremental accretion from Wayne acquisition. DOV is expected to host an analyst dinner on January 12 th which will provide a 4Q update and preview 2017 results. We think the meeting will be a positive catalyst for the stock, providing more visibility on Energy orders post-OPEC meeting, highlighting sustainability of the EMV cycle in Wayne into 19. Investors will also likely get an update on execution turnaround in the Refrigeration business, removing one of the biggest overhangs on the stock. Table 1: Dover key stock data Industry Industrial Machinery Market Cap (mn) 11,921 Price 75.19 P E (2017) 19.6x of sell-side rated Buy 25.0 Short interest of float 1.54 Source: Bloomberg and BofA Merrill Lynch Global Research estimates Deregulation Gov t Legislation: We expect Trump s administration to prioritize US energy independence, with deregulation benefiting domestic shale produces, which should be an attractive tailwind to DOV s Energy segment. Tax Policy: Our estimates are based on 29 tax rate in 17 18. We calculate that under Ryan s proposed plan, we can see about 19 upside to EPS. We estimate that under Trump s proposed plan, we can see about 24 upside to EPS. Catalysts: January 12 th investor dinner with management January 26 th 4Q results Rig count release Latest report: Dover Corp: Adjusting for Wayne, EMV cycle extension; Rig count going up, LII read-across 1Q risks: With so much of DOV s EPS upside tied to Energy segment recovery, we view oil price volatility (from stronger US or other unexpected macro headlines) as the biggest risk to our thesis. Weaker-than-expected execution in Refrigeration or Fluid business would be another risk, offsetting Energy upside. 4 Top 10 US Ideas Quarterly 03 January 2017 Company Description: Dover is a diversified, global manufacturer of industrial products. It comprises more than 30 independent companies that operate in four segments: Refrigeration Food Equipment, Fluids, Energy, and Engineered Systems. General Dynamics (GD) Ronald Epstein 1 646 855 5695 Research Analyst, MLPF S Buy, PO 200 1Q investment thesis General Dynamics is a defensive large cap value stock with potential cyclical growth. The company has a history of annual dividend increases with a dividend yield of 1.7 . Concerns about weakening demand for Gulfstream business jets in General Dynamic s Aerospace segment have weighed down sentiment. However, using a sum-of-the-parts analysis that values GD s defense businesses in line with the pure play defense average, this would imply that GD s Aerospace segment is trading at a significant discount to the market at 12x P E multiple on 2018E earnings. Considering the strength in Gulfstream s product portfolio and margin performance, we would expect Aerospace to trade at least at 18x P E multiple on 2018E earnings. Table 1: General Dynamics key stock data Industry Aerospace Defense Market Cap (mn) 57,215 Price 173.21 P E (2017) 17.9x of sell-side rated Buy 76.2 Short interest of float 1.02 Source: Bloomberg and BofA Merrill Lynch Global Research estimates Gov t Legislation: 56 of sales are from the US government General Dynamics primary customer is the US Department of Defense, which accounted for 47 of total sales in 2015. The remaining 9 are to other non-DoD US government agencies like the intelligence community. For the military, which is a defensive sector, GD is engaged in engineering, manufacturing, and support of land and expeditionary combat vehicles and systems, armaments, munitions, and shipbuilding and marine systems. Major products include Virginia-class nuclear-powered submarine and Ohio class ballistic nuclear submarine replacement, Arleigh Burke-class Aegis destroyer, Abrams M1A2 tank, Stryker 8-wheeled assault vehicle, medium-caliber munitions and gun systems, tactical and strategic mission systems. The company also provides information systems and technologies. Disruptor: Gulfstream G650 has unrivaled performance in the most profitable business jet market segment There is no direct competitor aircraft currently in service in the market to match the performance of the Gulfstream G650 650ER. The G650ER has a range of 7,500 nautical miles at Mach 0.85, but can fly faster at Mach 0.90 with a range of 6,400 nautical miles. The Dassault Falcon 8X has a range of only 6,450 nautical miles. Meanwhile, Bombardier s response to the G650 has been delayed another year with the entry into service of the Global 7000 (range of 7,300 nautical miles) in 2H18. Gulfstream book-tobill in 3Q16 was 1:1 on a dollar value basis and 1.2:1 on an aircraft unit basis. In our view, market share gains in a soft demand environment could provide Gulfstream a solid foundation to bridge the Gulfstream G450 550 to the G500 600. Top 10 US Ideas Quarterly 03 January 2017 5 Catalysts: Stable Aerospace earnings US defense spending Operating weakness for Bombardier s Global family, which competes with the Gulfstream family, has weighed down investor sentiment for large cabin business jets and General Dynamics. However, Gulfstream s more conservative production rates, attractive product positioning, higher quality backlog, and better operating performance compared to Bombardier lower Gulfstream s near- and medium-term earnings risks, in our view. The key catalyst for General Dynamics is the upcoming earnings result that demonstrates how EBIT in the Aerospace segment remains stable despite a more tepid market outlook from Bombardier. We continue to view GD as a beneficiary of positive inflection in US defense spending. We expect the recent Republican victory in the White House and the Senate to be seen as incrementally positive for defense. Political control is a key driver of defense spending, and defense stock valuations are tied to changes in defense spending related to the modernization accounts. Our Political Control Model (PCM) analysis highlights a Republican President and Republican Senate is the best case for Budget Authority in defense modernization accounts. Our PCM analysis suggests that the Republican sweep could increase the Budget Authority for defense investment accounts by a CAGR of 12- 13 (FY17E-21E). This compares to the BofAML forecast of a 5 CAGR and the FY17 Green Book forecast of a 1 CAGR. Additionally, GD s Marine Systems segment is a direct beneficiary of the US pivot to the Pacific. The Pacific is a hotbed of maritime activity particularly as China expands its territorial waters. As the US focus on naval superiority strengthens, we might see upside to shipbuilding spending. Latest report: General Dynamics: Gulfstream still undervalued; raise PO to 200 and reiterate Buy 30 November 2016 1Q risks: large cabin business jets market deterioration and US defense spending There is risk of market deterioration in large cabin business jets that could increase earnings risks for Gulfstream. Additionally, delays in government contracting or lower than expected increase in US defense spending could provide downside risks to our estimates. Company Description General Dynamics is a major US government contractor engaged in combat vehicles and systems, armaments, munitions, ordnance, shipbuilding and information systems and technologies. It is also the parent company of Gulfstream in its Aerospace segment, which is the most profitable airplane manufacturing company in the world. Consolidated Edison (ED) Brian Chin 1 646 855 5855 Research Analyst, MLPF S Underperform, PO 59 1Q17 investment thesis Since the November elections, utility valuations have not adequately adjusted to the rapid shift towards a rising-rate environment and have decoupled from historically predicative valuation patterns. Looking at studies of 10yr Yields v. Utility PEs, BBB Yields v. Utility PEs, and Utility Div. Yields v. Rates are the best examples of this 6 Top 10 US Ideas Quarterly 03 January 2017 dislocation (more metrics can be found in our Alternating Currents Weekly). We rate ED Underweight to take advantage of this sector dislocation. ED on its own is fundamentally overvalued. ED trades at a 0.5x premium to its peers despite having slower than average growth prospects, increasing regulatory complexity, and the overhanging risk of fines for the Harlem explosion. Table 1: ConEd key stock data Industry US Electric Utilities Market Cap (mn) 22,400 Price 74.07 Total Debt 2019 EBITDA 3.88 of sell-side rated Sell 26.3 Short interest of float 3.94 Source: Bloomberg and BofA Merrill Lynch Global Research estimates Not your grandmothers ConEd increasing complexity changes investment story ConEd is facing very slow growth electric demand growth in its utilities with 0.2 y y growth in its CECONY subsidiary through 20201 and -0.1 growth in its O R subsidiary. To offset this slow growth, ConEd has been increasing the complexity of its business by purchasing gas and electric transmission assets which have higher growth potential but face more market risk (most notably the JV with Crestwood in the Stagecoach midstream pipeline system). Furthermore, the regulatory regime in New York is undergoing a fundamental shift as the Reforming Energy Vision (REV) program is implemented. REV seeks to fundamentally change how utilities are compensated by creating more of a platform for energy delivery. Slow growth, changing business mix, and new regulatory constructs add considerable risk to what used to be a go to vanilla regulated utility. An overvalued Sector and Potential Catalysts For a long time, ConEd was viewed as the quintessential utility and, during the run-up in Utility valuations in 2016 its shares outperformed despite its weakening fundamentals. As the story becomes more complex and the utility sector adjusts to lower valuation we would expect ED to underperform with a similar symmetry to other utility stocks. Latest reports: Recent BofA Merrill Lynch Global Research Reports Title: Subtitle Primary Author Date Published Utilities: Fed promises more hikes; utes face more downside Brian Chin 15 December 2016 risk in early 2017 Utilities: Alternating Currents Weekly Brian Chin 18 December 2016 1Q17 risks: Risks to our thesis are primarily macro related. If utility sector valuations remain disconnected from historical fundamentals for the quarter or if rising interest rates significantly reverse course our Underweight rating on ConEd could not materialize. Company Description: Consolidated Edison (ED) is the owner of Consolidated Edison Company of New York (CECONY) and Orange Rockland Utilities (O R) providing electric, gas and steam service to 3.5 million customers in New York City and the northern suburbs. ConEd also has a transmission segment with gas pipeline, storage, and electric transmission. Finally, ConEd has three competitive energy businesses: ConEd Development (energy infrastructure), Energy (wholesale services), and Solutions (retail services). Top 10 US Ideas Quarterly 03 January 2017 7 Hess Corporation (HES) Doug Leggate 1 713 247 6013 Research Analyst, MLPF S Buy, PO 80 1Q17 investment thesis Broad expectations of a pro-energy agenda from the incoming administration set a theoretically constructive backdrop for the US oils. Along with the tailwind from renewed OPEC support for oil prices, we view the broader energy sector as a momentum play in the early part of 2017 where stock specific catalysts can re-emerge to differentiate relative performance within the large cap US oils. We view Hess as the most catalyst rich large cap US E P for 2017 with a return to growth and disproportionate exploration risk from a company with the highest cash margins in the sector, second best balance sheet and significant oil leverage to our base case that is an oil recovery in 2017. Hess remains amongst our top ideas in the US large cap oil sector for 2017, and we retain our Buy rating, and 80 PO. Table 1: Hess key stock data Industry US oil and gas exploration and production Market Cap (mn) 19,090 Price 62.90 EV Debt adjusted cash flow (2017) 9.4x of sell-side rated Buy 46.4 Short interest of float 8.52 Source: Bloomberg and BofA Merrill Lynch Global Research estimates Deregulation Gov t Legislation While the potential for a less onerous regulatory backdrop, and greater access to Federal lands for exploration and development, the majority of current activity remains dominated by private lands thereby limiting any material changes arising from a Republican administration. The exception is the potential for more receptive backdrop for infrastructure development that can improve regional pricing through improved access to takeaway capacity. Tax Policy: For the majority of the US E P s, changes in corporate tax rates have negligible impact given that substantial net operating losses and deferred tax credits means that cash taxes remain de minimis for the foreseeable future. Catalysts: News flow starts with an expected capex budget unchanged from 2016 at 2bn, the company has stated it expects a return to drilling in the Bakken with a stated ramp up to 6 rigs from 2 currently returning the play to growth in 2017.. The first Guyana development (Liza) expected to achieve FID by 2Q17 and which we expect to confirm industry leading economics. Start-up of the first of two major developments the North Malay basin gas play in 3Q17, putting Hess back on a growth track and turning attention to the Stampede start up in the US GoM in early 2Q18. In the background is an exploration test every 45-60 days any one of which could materially change the scale of the Hess business model of the next decade. 8 Top 10 US Ideas Quarterly 03 January 2017 Latest reports: Tales from the road (Dec 1, 2016); Speculation builds over Payara (Dec 19, 2016) 1Q17 risks: We expect a supportive commodity backdrop, spending clarity and confirmed return to growth all punctuated by a steady stream of large scale exploration news flow to support relative performance for Hess in 1Q17. Greatest risk to the broader energy sector comes from adherence of the OPEC agreement to support oil prices through coordinated production cuts; With this backdrop note that Hess retains one of the most resilient balance sheets in the sector, with adjusted net debt cap of just 14 and 2.9bn of net cash on the balance sheet at end 3Q16. Company Description: Hess Corp (HES) is a mid-sized oil gas company with 1.0bn boe of proved reserves at end 2015. E P operations are focused in the US onshore, deep water GOM, North Sea, Guyana, West Africa, and Asia. MGM Resorts International (MGM) Shaun Kelley 1 646 855 1005 Research Analyst, MLPF S Buy, PO 33 1Q investment thesis MGM is a levered play to improving accelerating US economic growth. The US makes up 80 of EBITDA (70 Vegas, 20 Macau, 10 US regional) and the company has 4-5x net debt EBITDA which is high, but coming down to under 4x by end of 2017 which could allow for a possible upgrade to investment grade by the end of 2017 or early 2018. MGM has high operating leverage (50 flow through of revenues) and should benefit from any macroeconomic improvement as well as already healthy strong Las Vegas fundamentals (visitation 3 YTD, RevPAR 6 which is one of best hotel markets in the US). MGM benefits from both consumer (80 ) and business (20 ) travel. There is zero supply growth in Las Vegas the next 2-3 years and virtually no Airbnb disruption risk as staying at integrated casino resorts on the Strip is key to the experience. MGM should see accelerating growth in 2017 to a very high 24 Y Y on an organic basis. We think this is some of the highest growth we will see in the Gaming, Lodging Leisure industries. MGM should also see a meaningful free cash flow inflection in 2017 as capex falls off dramatically after its 2 new property openings in Washington DC and Cotai Macau. Table 1: MGM key stock data Industry Gaming Market Cap (mn) 11,993 Price 28.50 P E (2017) 21.6x of sell-side rated Buy 95.7 Short interest of float 2.94 Source: Bloomberg and BofA Merrill Lynch Global Research estimates Top 10 US Ideas Quarterly 03 January 2017 9 Deregulation Gov t Legislation: There aren t any clear obvious changes here that would impact MGM. As a labor intensive business, changes to overtime rules or the Affordable Care Act as it relates to company level costs could be modestly beneficial. Tax Policy: MGM will be a cash tax payer in 2017. Tax policy should be mixed. While they get some meaningful interest shield from their decent amount of debt, they also have relatively high capex that could benefit them if expensed as incurred. Import tariffs should be limited in impact as it s mostly a domestic, services based business with limited COGS. Catalysts: ConAgg should generate RevPAR tailwinds. RevPAR should accelerate in Q1 and could be up double digits in the quarter driven by a strong convention calendar, headlined by the ConAgg convention which comes only once every 3 years. MGM also opened its 1.4B National Harbor casino outside of Washington on December 8 th . The first data points here on revenues will come in early January. MGM s Cotai casino in Macau opens in 2Q17 and is a new 3B property. We believe expectations are reasonably low and revenues are still strong in Macau ( double digits in 4Q). Despite recent softness, Macau peers still trade at premiums to core MGM Latest report: MGM Resorts International: Notes from the road: MGM National Harbor - the new standard for regionals 1Q risks: Macau sentiment has been fading recently as the RMB continues to depreciate and investors seek new growth opportunities domestically given the large cyclical rotations occurring in other sectors. Company Description: MGM, is a global hotel and casino gaming company, owns and operates 19 properties located in NV, MD, MS, MI, IL and Macau. It owns a 50 stake in its CityCenter joint venture on the Las Vegas Strip and a 77 interest in MGM Growth Properties, a publicly traded gaming focused real estate investment trust (REIT). Norfolk Southern (NSC) Ken Hoexter 1 646 855 1498 Research Analyst, MLPF S Buy, PO 122 1Q investment thesis Norfolk Southern is benefiting from a volume inflection, with 9 consecutive weeks of carload growth year-over-year, after nearly 2 years of sustained negative carload declines. Aside from the ongoing inflection in data, the company should benefit in 2017 from its own structural efficiency program and many potential macro shifts currently under President-elect Trump s Administration. The new management team (Jim Squires was named CEO in 2015) is working to change the culture and business processes, and has delivered for a few quarters. It set operating targets for the first time in company history, targeting 650 million in efficiency gains ( 25 to 2015 EPS) and a 65 operating ratio by 2020. It also set 250 million in efficiency gains and a sub-70 operating ratio in 2016, allowing it to immediate progress. In January, management has noted it will further detail its efficiency gain targets, which could be a near-term catalyst for the shares. Under Trump s proposal s, NS could benefit from a lower tax 10 Top 10 US Ideas Quarterly 03 January 2017 rate, given its 37 current effective tax rate (at 30 adds 10 to valuation and at 20 adds 25 to valuation), as well as additional infrastructure spend (more aggregates, cement, rebar, etc ), focus on domestic manufacturing, and repatriation of capital, which could aid GDP growth. We target NSC to post sustained double-digit EPS growth and significantly improve free cash flow. Table 1: Norfolk Southern key stock data Industry Railroad Market Cap (mn) 33,393 Price 108.82 P E (2017) 17.3x of sell-side rated Buy 44.8 Short interest of float 1.19 Source: Bloomberg and BofA Merrill Lynch Global Research estimates Deregulation Gov t Legislation: The Surface Transportation Board, an independent governing body, formerly under the Department of Transportation, is set for a significant turnover, with a Republican taking control of the chairmanship, and 2 new members being added to the 5-person Board (up to this year the STB was a 3 member Board). The potential for negative impacts from mandatory open access and rate of return calculation adjustments may be reduced given the change of administration, which would be a positive for the railroad group. Tax Policy: Given their domestic focus, Transportation companies are the highest effective tax payers in the Industrial and Basic Materials group, with the U.S.-based railroads averaging a 37 effective tax rate. At a 20 tax-rate, EPS would jump nearly 30 (though full capex expensing could reduce EBIT to offset a sizeable portion of the gain). Additionally, cross-border tax increasing cost of goods sold for manufacturing goods could slow GDP, impacting carload growth over time. Catalysts: Near term catalysts include accelerating carload growth, coal turning positive for the rail industry this week, after 90 consecutive down weeks, and NS s upcoming January promise for additional details on its targeted efficiency gains. The company is set to post a sub-70 operating ratio for only the 2 nd time in the past 20 years, a target we would expect to improve further in 2017 and beyond. Latest report: Raise estimates and PO to 122; Volumes trending above target October Upgrade report: Time to look at things differently; Raise to Buy 1Q risks: Norfolk Southern has posted 9 consecutive weeks of carload growth, indicating underlying economic growth, with relatively easy comps into 1H17. Thus, risk includes carload growth slowing or turning back negative, as well as increased concern on macro GDP growth rates given fear about new fiscal policies (cross-border tax, full capex expensing) which could compress EPS. Additionally, if the expected discussion on efficiency gain details in January is not provided as expected, investors could lose confidence that management will stick with and or meet its 2020 target. Additionally, if corporate tax reform is not passed, multiples that have expanded on some reduced tax rate could re-compress. Company Description: Norfolk Southern Railway operates a 21,300 route mile railroad network in 22 eastern states, District of Columbia, and Ontario, Canada. We target it to generate 10 billion in 2016 revenues and a sub-70 operating ratio (hitting that target Top 10 US Ideas Quarterly 03 January 2017 11 for only the 2 nd time in the past 20 years). We target it to move 7.22 million carloads in 2016, with an average revenue per car of 1,371. Coal represents 14 of total revenues, down from 36 2 years prior. Intermodal represents 22 of revenues, and Ag Consumer Gov t represents 16 of revenues. SVB Financial Group (SIVB) Ebrahim H. Poonawala 1 646 743 0490 Research Analyst, MLPF S Buy, PO 190 1Q investment thesis We view SIVB as the best positioned bank in our coverage universe by a wide margin to benefit from the combination of 1) rising interest rates with SIVB ranking among the most rate sensitive banks in the mid-cap banks group 2) stronger economic growth - with SIVB's 2017 guidance (issued before the US elections) already calling for double digit revenue growth 3) de-regulation 4) tax reform. Our '17e EPS of 9 and '18e EPS of 12 imply YoY EPS growth of 24 and 33 respectively. SIVB trades at 18x our '17e EPS and 2x YE17e TBV. Our PO of 190 implies P '17e EPS of 20x (and 16x 18e EPS) and P YE17e TBV of 2.4x. This compares to an average P E of 22.7x and P TBV of 2.6x that the stock traded at heading into and during the initial stages of the 2004-2006 interest rate cycle. Table 1: SIVB key stock data Industry Commercial Banks Market Cap (mn) 8,584 Price 170.38 P E (2017) 19.1x of sell-side rated Buy 77.8 Short interest of float 4.68 Source: Bloomberg and BofA Merrill Lynch Global Research estimates Deregulation Gov t Legislation: Among the one legislative action on the regulatory front that appears likely to be passed under the new administration is the increase in the 50bn SIFI asset threshold which brings with a heightened level of regulatory scrutiny (such as undergoing the CCAR stress test). While we were not concerned about SIVB's ability to transition into a CCAR bank, the removal of this should no doubt serve as a positive. At 43bn in assets, becoming a CCAR bank had been weighing on investor sentiment. With expectations for this threshold to be pushed higher, this should no longer be a significant concern when thinking about SIVB's growth trajectory. Another issue that has not been discussed much but could occur is any changes in the Volcker rule that would allow the bank to once again participate in investing capital in PE VC funds. We view this restriction as an unintended consequence on SIVB stemming from the Volcker rule and the ability once again participate in these funds would be a significant positive given the potential for getting equity exposure in the early stages of the life cycle of start-up companies. Tax Policy: With SIVB paying an effective tax rate of 40.6 in 2016 YTD, the bank will undoubtedly be a beneficiary from a lower corporate tax rate. While we believe it is too soon to adjust estimates for this, we note that a 500bp reduction in the tax rate would equate to 8.4 upside to SIVB's 2018 EPS estimate. Moreover, the potential for hundreds of billion dollars in tax repatriation by the US tech giants also augurs well for greasing the wheels for the start-up sector. While some of this repatriated capital will no doubt go to buy backs and higher dividends, we expect some of this to flow into the start-up space as tech giants pursue M A. At the very least it mitigates the risk of any 12 Top 10 US Ideas Quarterly 03 January 2017 significant credit issues for the banks as weaker firms (who are clients) will be better positioned to sell themselves to the tech behemoths looking for innovative ideas. Catalysts: 1) Improving expectations around rising rates (on back of better macroeconomic data) will continue to serve as a tailwind for the stock 2) A strong tech IPO market as SIVB stands to benefit from equity exposure to 1000 start-up companies 3) Clarity around a tax reform bill once the new administration takes office in January should lead to the markets pricing-in a lift to forward EPS and 4) updated 2017 guidance could reflect a stronger outlook vs. management s preliminary guidance provided in Oct 2016. Latest report: On its way to regaining its premium multiple 1Q risks: Downside risks are 1) reversal in the outlook for higher rates 2) a sharp selloff in the equity markets that could derail IPO activity and 3) disappointment on the pace of policy actions under the new administration. Company Description: SVB Financial Group is a financial holding company that serves companies in the technology, life science, venture capital, private equity and premium wine industries. The bank offers diversified financial services such as commercial, investment, international and private banking. Headquartered in Santa Clara, California, SVB Financial Group (Nasdaq: SIVB) operates through offices in the U.S. and international operations in China, India, Israel and the United Kingdom. Texas Instruments (TXN) Vivek Arya 1 646 855 1755 Research Analyst, MLPF S Buy, PO 82 1Q investment thesis In the aftermath of the US election in November, we think Texas Instruments stands to benefit the most with its 30 effective tax rate and high exposure to industrial, automotive, automation, and communications capex. The company has been one of the largest share gainers in industrial auto semis entering a seasonally strong period for spending. Unlike peers, Texas instruments has no distraction from M A while maintaining a grossly under-levered balance sheet ( 0.1x net debt EBITDA vs comps at 2x-4x). We expect TXN to continue to generate industry leading FCF while growing its dividend at 20 CAGR. We look toward the strategy update call in early February as the next catalyst for the stock. Table 1: Texas Instruments key stock data Industry Semiconductors Market Cap (mn) 73,899 Price 74.15 P E (2017) 20.1x of sell-side rated Buy 35.3 Short interest of float 1.75 Source: Bloomberg and BofA Merrill Lynch Global Research estimates Deregulation Gov t Legislation: 60 of TXN s sales are exposed to the industrial, automotive, and communications equipment end markets. We think these markets could Top 10 US Ideas Quarterly 03 January 2017 13 see the most uplift in spending from any potentially large fiscal stimulus and infrastructure spending under the new US administration. Tax Policy: Unlike most semis, TXN reports its financials on a pure GAAP basis and its tax rate at 30 is one of the highest in the industry. We think TXN stands to disproportionately benefit from the looser tax policies foreshadowed by the upcoming administration. Specifically, a 10 drop in the corporate tax rate would lead to 15 higher EPS for TXN in 2017, all else equal. Catalysts: (1) Seasonally stronger period for industrial automotive spending 46 of TXN s revenue come from these end markets; (2) Annual strategy and capital allocation policy update call with shareholders which is likely to occur at the beginning of February. Latest report: The new "industrials": growth recovery plus pricing power, Buy TXN, ADI, MCHP, ON 1Q risks: (1) Still somewhat large ( 10 ) exposure to consumer electronics could create near-term volatility in topline results; (2) Historically lumpy communications equipment spending trends; (3) Larger than expected slowdown in North America automotive unit production Company Description: Texas Instruments is a broad-based supplier of semiconductor components, ranging from digital signal processors, to high-performance analog components, to digital light-processing technology and calculators. 65 of TXN sales are exposed to the well diversified, business-to-business Industrial, Automotive, Communications Infrastructure, and Enterprise markets. TripAdvisor (TRIP) Nat Schindler 1 415 676 3574 Research Analyst, MLPF S Underperform, PO 41 1Q investment thesis Despite easier y y comps in 2017, we see risk that Click-based Transaction Hotel revenue continues to decline as 1) higher monetizing desktop traffic structurally declines, 2) mobile monetization remains at 30 of desktop traffic and is unlikely to meaningfully close the gap, and 3) Instant Book is unlikely to help reverse the revenue and earnings trend. At the same time, TRIP has been accelerating marketing spend, implying increasing acquisition costs, with further ad spend ramp in 17. TRIP noted 2017 EBITDA margin will decline further from 2016 levels as ad spend ticks up to reaccelerate growth. Table 1: TripAdvisor key stock data Industry Online Travel Market Cap (mn) 9,071 Price 46.95 P E (2017) 32.5x of sell-side rated Buy 14.3 Short interest of float 10.30 Source: Bloomberg and BofA Merrill Lynch Global Research estimates 14 Top 10 US Ideas Quarterly 03 January 2017 Tax Policy: TRIP has a 25 tax rate. Trump s tax plan calls for a reduction in the business tax rate from 35 to 15 , with elimination of most corporate tax deductions credits (except for the R D credit). While it s unclear what elements of the tax plan will eventually be executed, Trump s intent is clear and we believe companies with the highest tax rate have the most to gain. We see less incremental benefit to many of the global companies who already enjoy optimized tax rates (22 average tax rate across our coverage), but many companies will have more incentive to bring back Intl profits for buybacks with lower US tax rates. Catalysts: 4Q 16 Earnings (early February) will feature initial 2017 guidance. TripAdvisor noted on the 3Q 16 earnings call that 2017 EBITDA margin will decline further from 2016 levels as ad spend ticks up to re-accelerate growth, however it is unclear how much margin deterioration TripAdvisor will guide to. We think the deterioration in the guide will be higher than the Street s expectations, driving further downside estimate revisions. Latest report: TripAdvisor: 2017 PM Level Outlook 1Q risks: There is downside risk to Street estimates if hotel shopper growth comes in below expectations, mobile monetization gap widens, and if initial 2017 guidance disappoints. We remain cautious on IB as an attempt to solve a very large problem: the continued transition of users consuming TripAdvisor s content on their mobile phones instead of their desktops. On mobile phones, users are much less likely to transact or click on an ad than on desktops. A risk to the short thesis: There has been frequent speculation in the press that TripAdvisor may be a takeout candidate in the rapidly consolidating online travel market, with Priceline frequently named as the likely suitor. Company Description: TripAdvisor is the largest global online travel media company with over millions of members and hundreds of millions of user reviews. The company's portfolio of web properties attracts over 300 million unique visitors per month worldwide. Price objective basis risk Aetna Inc (AET) Our Price Objective of 149 is based on a 50 50 blend of our standalone AET valuation ( 138, 13.1x 2018E EPS of 10.50 when including share repurchase) and AET pro forma HUM valuation ( 160, 14x 2018E EPS of 11.40). Our AET standalone valuation multiple reflects AET's historical average discount to the S P 500. Our AET pro forma HUM valuation multiple of 14x reflects upside levers to HUM synergy guidance and to reflect the improved long-term growth profile of the company. Risks to the upside are regulatory approval of the HUM acquisition, better-than-expected membership growth and lower than expected cost trend. Risks to the downside are regulators not approving the HUM acquisition, lower-than-expected membership growth and higher than expected cost trend. Consolidated Edison (ED) Our price objective of 59 is predicated on shares of ED achieving 13.0x our 2019 EPS estimate. We apply the current group average multiple of 13.5x and apply a 0.5x discount to reflect a well below average ROE, a slightly below average growth profile, and a relatively challenging regulatory environment. This is offset slightly by a lower risk Top 10 US Ideas Quarterly 03 January 2017 15 profile investment outlook. Upside risks to our thesis could stem from more favorable changes to the investment and or regulatory environment in New York. Downside upside risks: ED, like all utility stocks, is also sensitive to changes in the market level of interest rates. Utilities historically underperform if bond yields rise, and outperform when they fall. Furthermore, ED is a bellwether utility and has historically outperformed during market uncertainty as a large liquid "flight to safety" stock. Dover Corp (DOV) Our PO of 85 is based on 11.5x EV EBITDA on our 2017 estimate, which would put DOV in line with the multi-industrial peer group average. We view the target multiple as conservative, as we expect the Street to focus on EPS growth upside in '17, driven by Energy coming off depressed profitability. Risks to our PO are: 1) Highly dependent on acquisition strategy, 2) A reduction in capital spending in the oil gas market, and 3) Weak global industrial production growth. General Dynamics (GD) We derive our PO of 200 using a sum-of-the-parts valuation model. Our model factors in 19.5x P E multiple on 2018E earnings for GD's defense business, which is in line with pure play defense peers, and 18x P E multiple on Gulfstream's 2018E earnings. In our view, GD's competitive business jet product portfolio and growth outlook in defense could provide near-term and medium-term organic growth. Additionally, the company's strong balance sheet and solid cash generation could sustain dividend growth and share repurchases. Downside risks to our PO are: 1) A downturn in business jets, due to an exogenous factor. 2) Given that business jets are priced in dollars, an unexpected devaluation in the dollar could significantly impact order activity, 3) We are forecasting a declining defense budget, which would then place a cap on the top-line growth for the defense primes. We view the Administration change as a potential ceiling to defense stocks as political control, in our view, is a key driver of defense spending. Decline in defense spending authorization (a leading indicator), which in turn could impact treasury outlays. Potential budget cuts to the Navy's fleet could encumber GD as well as a slowdown in procurement for the Army (armored vehicles). 4) Poor execution on defense programs could adversely impact margins. Hess Corp. (HES) Our price objective of 80 share is based on a 5-year outlook which assumes a 5.5x DACF multiple and a commodity deck of 67.50 WTI and 70 Brent to which we add 10 sh for Liza in offshore Guyana. The multiple is based on a finite timeline to delivery which is supported by core NAV. The risks to our price objective are: 1) the oil and gas price environment, (2) slowdowns in development drilling that leave production below expectations, and (3) news flow around HES' exploratory and appraisal drilling activities that could impact the stock. MGM Resorts International (MGM) Our 33 PO is based on 11.5x our 2017 EBITDA estimate (implied 10x 2018E EBITDA). This is in line with its historical trading range and supported by our detailed sum of the parts analysis. Upside risks are: a stronger than anticipated recovery in Las Vegas, improving consumer sentiment and its 56 ownership stake in MGM China. Downside risks are: balance sheet and liquidity risks proving worse than expected, continued Strip competition, and continuing near-term softness in the Macau market. 16 Top 10 US Ideas Quarterly 03 January 2017 Norfolk Southern (NSC) Our 122 price objective is based on a 19.5x multiple on our 2017 EPS estimate of 6.25. We move above the top of its one-standard deviation historical trading range of 12x-16x given the new management team's move to improve margins, cut costs, and raise its ROIC, and as EPS inflects off a volume deflated 19 decline in 2015. Risks to our price objective and estimates are the company's ability to derive continued operational benefits, a return to significant pricing competition among the rails, slower than expected economic growth, a deterioration to improving service metrics, a heavily unionized employee base, inability to exercise pricing power due to regulatory changes or legal challenges from customers, external factors (such as weather) impacting operations, and the STB installing mandatory reciprocal switching (or open access) to the rail network without proper pricing. SVB Financial Group (SIVB) We use a three-factor valuation framework (P TBV, P E, DCF) to arrive at our 190 price objective and assign a 2.3x multiple to our 2017e TBV and apply a 21x P E to 17E EPS. Our valuation multiples are both in line with high growth peers due to SIVB's high profitability and EPS growth profile. Our DCF assumes a two-stage cost of capital of 9.5 and a terminal growth rate of 6 . Downside risks are a longer than expected low rate environment and a slowdown in the technology sector and related IPO activity. Upside risks are sooner than expected rate hike, or better than expected pickup in the tech sector. Texas Instruments Inc. (TXN) Our 82 PO on TXN is based on14x FY17E EV EBITDA, in line with high quality diversified and analog peers trading at 14x-15x, given TXN's high quality business model and strong FCF generation. Risks to our price objective: 1) Lumpy telco capex, especially in wireless deployments, 2) Volatile market share as design cycle times are very long, 3) Increased R D spending pressure to maintain an edge versus the competition, 4) Inventory cycles and potential double ordering by customers that can often create mismatches between real supply and demand, 5) Exposure to several mature markets such as PC and other consumer electronics could limit its growth rate. TripAdvisor (TRIP) Our price objective of 41 is based on 21x our 2018 non-GAAP EPS estimate. This multiple represents a premium to online travel vertical media comps and in our view adequately compensates TripAdvisor for improving margins and growth off a trough point in FY16 into FY17 when the negative impacts of its IB transition peak. Downside risks to our price objective are: 1) increasing competition (e.g. Yelp), 2) macroeconomic factors (e.g. recession in Europe) impacting the travel industry, 3) challenges to the credibility of online reviews, 4) Instant Book transition puts pressure on revenue growth, and 5) mobile monetization headwinds. Upside risks to our price objective are: 1) improved mobile monetization 2) major OTA sign on for instant booking 3) high non-hotel shopper dollar capture and 4) improved global macro environment. Analyst Certification We, Derek Harris, Andrew Obin, Brian Chin, Doug Leggate, Ebrahim H. Poonawala, Ken Hoexter, Kevin Fischbeck, CFA, Nat Schindler, Ronald J. Epstein, Shaun C. Kelley and Vivek Arya, hereby certify that the views each of us has expressed in this research report Top 10 US Ideas Quarterly 03 January 2017 17 accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. 18 Top 10 US Ideas Quarterly 03 January 2017 US - Aerospace and Defense Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM Company BofA Merrill Lynch ticker Bloomberg symbol Analyst AerCap Holdings N.V. AER AER US Kristine T. Liwag Air Lease Corporation AL AL US Kristine T. Liwag Bombardier Inc. YBBD B BBD B CN Ronald J. Epstein Booz Allen Hamilton BAH BAH US Ronald J. Epstein CAE Inc. YCAE CAE CN Ronald J. Epstein Embraer ERJ ERJ US Ronald J. Epstein General Dynamics GD GD US Ronald J. Epstein Lockheed Martin LMT LMT US Ronald J. Epstein Northrop Grumman NOC NOC US Ronald J. Epstein Raytheon Co. RTN RTN US Ronald J. Epstein RBC Bearings Inc ROLL ROLL US Kristine T. Liwag Textron TXT TXT US Ronald J. Epstein TransDigm Group Inc. TDG TDG US Ronald J. Epstein Triumph Group TGI TGI US Ronald J. Epstein United Tech UTX UTX US Ronald J. Epstein BWX Technologies, Inc. BWXT BWXT US Ronald J. Epstein Crane Co CR CR US Kristine T. Liwag Curtiss-Wright Corporation CW CW US Kristine T. Liwag FLY Leasing Ltd FLY FLY US Kristine T. Liwag HEICO Corporation HEI HEI US Ronald J. Epstein Hexcel Corporation HXL HXL US Ronald J. Epstein Huntington Ingalls Industries HII HII US Ronald J. Epstein L-3 Comm LLL LLL US Ronald J. Epstein Mercury Systems MRCY MRCY US Ronald J. Epstein Rockwell Collins COL COL US Ronald J. Epstein Spirit AeroSys-A SPR SPR US Ronald J. Epstein Aircastle LTD AYR AYR US Kristine T. Liwag Boeing BA BA US Ronald J. Epstein Esterline Technologies Corporation ESL ESL US Ronald J. Epstein Garmin GRMN GRMN US Ronald J. Epstein Moog Inc. MOGA MOG A US Kristine T. Liwag Wesco Aircraft Holdings, Inc WAIR WAIR US Ronald J. Epstein Top 10 US Ideas Quarterly 03 January 2017 19 US - Electric Utilities Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM Company BofA Merrill Lynch ticker Bloomberg symbol Analyst American Electric Power AEP AEP US Brian Chin American Water Works AWK AWK US Brian Chin Black Hills Corporation BKH BKH US Brian Chin Dominion Resources D D US Brian Chin DTE Energy DTE DTE US Brian Chin Edison International EIX EIX US Brian Chin FirstEnergy FE FE US Brian Chin Great Plains Energy GXP GXP US Brian Chin NextEra Energy NEE NEE US Brian Chin NextEra Energy Partners NEP NEP US Brian Chin PG E Corporation PCG PCG US Brian Chin Calpine CPN CPN US Brian Chin Exelon EXC EXC US Brian Chin InfraREIT, Inc. HIFR HIFR US Brian Chin NRG Energy NRG NRG US Brian Chin Pinnacle West Corp PNW PNW US Brian Chin PPL Corporation PPL PPL US Brian Chin AES Corporation AES AES US Brian Chin Consolidated Edison ED ED US Brian Chin Duke Energy DUK DUK US Brian Chin Entergy ETR ETR US Brian Chin NorthWestern Corporation NWE NWE US Brian Chin Portland General Electric Company POR POR US Brian Chin Public Service Enterprise Group Inc. PEG PEG US Brian Chin Southern Company SO SO US Brian Chin 20 Top 10 US Ideas Quarterly 03 January 2017 US - Internet Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM RVW Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Alphabet GOOGL GOOGL US Justin Post Alphabet GOOG GOOG US Justin Post Amazon.com AMZN AMZN US Justin Post Bankrate RATE RATE US Nat Schindler eBay EBAY EBAY US Justin Post Expedia EXPE EXPE US Justin Post Facebook FB FB US Justin Post GrubHub GRUB GRUB US Nat Schindler IAC InterActive IAC IAC US Nat Schindler LendingTree TREE TREE US Nat Schindler Match Group MTCH MTCH US Nat Schindler Netflix, Inc. NFLX NFLX US Nat Schindler OnDeck Capital ONDK ONDK US Nat Schindler priceline.com PCLN PCLN US Justin Post Take-Two Interactive TTWO TTWO US Justin Post Wix.com WIX WIX US Nat Schindler Yahoo! YHOO YHOO US Justin Post Zillow ZG ZG US Nat Schindler Zillow Z Z US Nat Schindler Activision ATVI ATVI US Justin Post Electronic Arts EA EA US Justin Post Quotient Technology Inc QUOT QUOT US Nat Schindler Wayfair W W US Justin Post Yelp YELP YELP US Justin Post Care.com CRCM CRCM US Justin Post Fitbit FIT FIT US Nat Schindler GoPro GPRO GPRO US Jason Mitchell Pandora Media, Inc. P P US Nat Schindler TripAdvisor TRIP TRIP US Nat Schindler Twitter TWTR TWTR US Justin Post ZYNGA ZNGA ZNGA US Justin Post Chegg CHGG CHGG US Nat Schindler Top 10 US Ideas Quarterly 03 January 2017 21 US - Multi-Industrials Engineering and Construction Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM Company BofA Merrill Lynch ticker Bloomberg symbol Analyst 3M Company MMM MMM US Andrew Obin AECOM ACM ACM US Anna Kaminskaya, CFA Allegion ALLE ALLE US Andrew Obin AMETEK Inc AME AME US Andrew Obin Colfax Corporation CFX CFX US Andrew Obin Dover Corp DOV DOV US Andrew Obin Fortive Corporation FTV FTV US Andrew Obin General Electric Company GE GE US Andrew Obin HD Supply Holdings Inc HDS HDS US Andrew Obin Honeywell International Inc. HON HON US Andrew Obin Ingersoll-Rand IR IR US Andrew Obin KBR KBR KBR US Anna Kaminskaya, CFA Milacron MCRN MCRN US Andrew Obin Mistras Group MG MG US Andrew Obin Rush RUSHA RUSHA US Andrew Obin Eaton Corp PLC ETN ETN US Andrew Obin Flowserve FLS FLS US Andrew Obin ITT Inc. ITT ITT US Andrew Obin Jacobs Eng. JEC JEC US Anna Kaminskaya, CFA Parker Hannifin Corporation PH PH US Andrew Obin Chicago Bridge Iron Company CBI CBI US Anna Kaminskaya, CFA Donaldson Co DCI DCI US Andrew Obin Emerson Electric Co EMR EMR US Andrew Obin Fluor Corp FLR FLR US Anna Kaminskaya, CFA Pentair plc PNR PNR US Andrew Obin Rexnord Corporation RXN RXN US Andrew Obin Rockwell ROK ROK US Andrew Obin SPX Flow Inc. FLOW FLOW US Andrew Obin US - Semiconductors Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Advanced Micro Devices, Inc AMD AMD US Vivek Arya Analog Devices Inc. ADI ADI US Vivek Arya Broadcom Limited AVGO AVGO US Vivek Arya Cypress CY CY US Vivek Arya Inphi Corporation IPHI IPHI US Vivek Arya Integrated Device Technology, Inc. IDTI IDTI US Vivek Arya Intel INTC INTC US Vivek Arya Microchip MCHP MCHP US Vivek Arya NVIDIA Corporation NVDA NVDA US Vivek Arya ON Semiconductor ON ON US Vivek Arya Skyworks Solutions, Inc. SWKS SWKS US Vivek Arya Texas Instruments Inc. TXN TXN US Vivek Arya Cavium CAVM CAVM US Vivek Arya M A-Com MTSI MTSI US Vivek Arya Maxim Integrated Products Inc. MXIM MXIM US Vivek Arya Marvell Technology Group Ltd. MRVL MRVL US Vivek Arya Qorvo Inc. QRVO QRVO US Vivek Arya Xilinx Inc. XLNX XLNX US Vivek Arya 22 Top 10 US Ideas Quarterly 03 January 2017 US - Transportation Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Canadian Pacific Railway CP CP US Ken Hoexter CSX Corporation CSX CSX US Ken Hoexter FedEx Corp. FDX FDX US Ken Hoexter Fortress Transportation Infrastructure FTAI FTAI US Ariel Rosa Golar LNG Limited GLNG GLNG US Ken Hoexter Golar LNG Partners LP GMLP GMLP US Ken Hoexter Hoegh LNG Partners LP HMLP HMLP US Ken Hoexter J.B. Hunt Transport Services JBHT JBHT US Ken Hoexter Norfolk Southern NSC NSC US Ken Hoexter Scorpio Tankers Inc. STNG STNG US Ken Hoexter Swift Transportation SWFT SWFT US Ken Hoexter Triton International, Ltd TRTN TRTN US Ken Hoexter Union Pacific UNP UNP US Ken Hoexter UPS UPS UPS US Ken Hoexter ArcBest Corporation ARCB ARCB US Ken Hoexter Genesee Wyoming GWR GWR US Ken Hoexter Kansas City Southern KSU KSU US Ken Hoexter Knight Transport KNX KNX US Ken Hoexter Navios Maritime Midstream Partners L.P. NAP NAP US Ken Hoexter The Greenbrier Companies GBX GBX US Ken Hoexter World Fuel Services INT INT US Ken Hoexter C.H. Robinson CHRW CHRW US Ken Hoexter Canadian National CNI CNI US Ken Hoexter Kirby Corp KEX KEX US Ken Hoexter Old Dominion Freight Line ODFL ODFL US Ariel Rosa Seaspan Corp SSW SSW US Ken Hoexter Teekay Tankers Limited TNK TNK US Ken Hoexter Werner Enterprises WERN WERN US Ken Hoexter Top 10 US Ideas Quarterly 03 January 2017 23 US - Large Cap Oils Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Anadarko Petroleum Corp. APC APC US Doug Leggate Cabot Oil Gas Corp. COG COG US Doug Leggate ConocoPhillips COP COP US Doug Leggate Continental Resources Inc. CLR CLR US Doug Leggate Devon Energy Corp. DVN DVN US Doug Leggate Hess Corp. HES HES US Doug Leggate Marathon Oil Corp. MRO MRO US Doug Leggate Marathon Petroleum Company MPC MPC US Doug Leggate Occidental Petroleum Corp. OXY OXY US Doug Leggate Pioneer Natural Resources PXD PXD US Doug Leggate Range Resources Corp RRC RRC US Doug Leggate Tesoro Corp. TSO TSO US Doug Leggate Chesapeake Energy Corp. CHK CHK US Doug Leggate Chevron Corp. CVX CVX US Doug Leggate EOG Resources EOG EOG US Doug Leggate ExxonMobil Corp. XOM XOM US Doug Leggate HollyFrontier Corp HFC HFC US Doug Leggate Noble Energy NBL NBL US Doug Leggate Phillips 66 PSX PSX US Doug Leggate Southwestern Energy Corp. SWN SWN US Doug Leggate Valero Energy Corp. VLO VLO US Doug Leggate Apache Corp APA APA US Doug Leggate Calumet Specialty Products Partners CLMT CLMT US Jason Smith Delek US Holdings, Inc. DK DK US Doug Leggate PBF Energy PBF PBF US Doug Leggate 24 Top 10 US Ideas Quarterly 03 January 2017 US - Facilities, Hospitals and Managed Healthcare Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM RSTR Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Acadia Healthcare ACHC ACHC US Kevin Fischbeck, CFA Aetna Inc AET AET US Kevin Fischbeck, CFA American Renal ARA ARA US Kevin Fischbeck, CFA Anthem ANTM ANTM US Kevin Fischbeck, CFA Capital Senior Living CSU CSU US Joanna Gajuk Centene Corporation CNC CNC US Kevin Fischbeck, CFA Civitas Solutions CIVI CIVI US Kevin Fischbeck, CFA Envision Healthcare Corp EVHC EVHC US Kevin Fischbeck, CFA HCA HCA HCA US Kevin Fischbeck, CFA Mednax MD MD US Kevin Fischbeck, CFA Service Corp. International SCI SCI US Joanna Gajuk Surgery Partners, Inc SGRY SGRY US Kevin Fischbeck, CFA Surgical Care Affiliates, Inc. SCAI SCAI US Kevin Fischbeck, CFA UnitedHealth Group UNH UNH US Kevin Fischbeck, CFA DaVita Inc DVA DVA US Kevin Fischbeck, CFA Tenet Healthcare THC THC US Kevin Fischbeck, CFA Universal Health Services UHS UHS US Kevin Fischbeck, CFA WellCare Health Plans, Inc. WCG WCG US Kevin Fischbeck, CFA Adeptus ADPT ADPT US Kevin Fischbeck, CFA Brookdale Senior Living BKD BKD US Joanna Gajuk Community Health Systems CYH CYH US Kevin Fischbeck, CFA Genesis Healthcare Inc GEN GEN US Joanna Gajuk HealthSouth HLS HLS US Kevin Fischbeck, CFA Kindred Healthcare KND KND US Kevin Fischbeck, CFA LifePoint Health LPNT LPNT US Kevin Fischbeck, CFA Molina Healthcare, Inc. MOH MOH US Kevin Fischbeck, CFA Select Medical Corp. SEM SEM US Kevin Fischbeck, CFA Team Health TMH TMH US Kevin Fischbeck, CFA Universal American UAM UAM US Kevin Fischbeck, CFA Top 10 US Ideas Quarterly 03 January 2017 25 US - Gaming, Lodging and Leisure Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Choice Hotels International CHH CHH US Shaun C. Kelley ClubCorp MYCC MYCC US Shaun C. Kelley Extended Stay America STAY STAY US Shaun C. Kelley Hilton Worldwide HLT HLT US Shaun C. Kelley Hyatt Hotels H H US Shaun C. Kelley International Game Technology IGT IGT US Barry J. Jonas Intrawest Resorts SNOW SNOW US Shaun C. Kelley Las Vegas Sands LVS LVS US Shaun C. Kelley Marriott International Inc. MAR MAR US Shaun C. Kelley MGM Growth Properties LLC MGP MGP US Shaun C. Kelley MGM Resorts International MGM MGM US Shaun C. Kelley Pinnacle Entertainment PNK PNK US Shaun C. Kelley Red Rock Resorts, Inc. RRR RRR US Shaun C. Kelley Sunstone Hotel Investors SHO SHO US Shaun C. Kelley Vail Resorts, Inc MTN MTN US Shaun C. Kelley Boyd Gaming Corp BYD BYD US Shaun C. Kelley Hersha Hospitality HT HT US Shaun C. Kelley La Quinta Holdings LQ LQ US Shaun C. Kelley LaSalle Hotel Properties LHO LHO US Shaun C. Kelley Pebblebrook Hotel Trust PEB PEB US Shaun C. Kelley Penn National Gaming PENN PENN US Shaun C. Kelley Ryman Hospitality Properties RHP RHP US Shaun C. Kelley Wynn Resorts Ltd WYNN WYNN US Shaun C. Kelley Ashford Hospitality Trust AHT AHT US Shaun C. Kelley DiamondRock Hospitality DRH DRH US Shaun C. Kelley FelCor Lodging Trust FCH FCH US Shaun C. Kelley Gaming Leisure Properties, Inc. GLPI GLPI US Shaun C. Kelley Host Hotels Resorts Inc. HST HST US Shaun C. Kelley RLJ Lodging Trust RLJ RLJ US Shaun C. Kelley Scientific Games Corporation SGMS SGMS US Barry J. Jonas Summit Hotel Properties INN INN US Shaun C. Kelley 26 Top 10 US Ideas Quarterly 03 January 2017 US - Banks Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM Company BofA Merrill Lynch ticker Bloomberg symbol Analyst BankUnited, Inc. BKU BKU US Ebrahim H. Poonawala BB T Corporation BBT BBT US Erika Najarian Capital Bank Financial Corp. CBF CBF US Erika Najarian Citigroup Inc. C C US Erika Najarian Citizens Financial Group CFG CFG US Erika Najarian East West Bancorp, Incorporated EWBC EWBC US Ebrahim H. Poonawala FCB Financial Holdings, Inc FCB FCB US Ebrahim H. Poonawala First Republic Bank FRC FRC US Erika Najarian Great Western Bancorp Inc GWB GWB US Ebrahim H. Poonawala Huntington Bancshares Inc. HBAN HBAN US Erika Najarian IBERIABANK Corp IBKC IBKC US Ebrahim H. Poonawala JPMorgan Chase Co. JPM JPM US Erika Najarian Key Corp KEY KEY US Erika Najarian Signature Bank SBNY SBNY US Ebrahim H. Poonawala SunTrust Banks, Inc. STI STI US Erika Najarian SVB Financial Group SIVB SIVB US Ebrahim H. Poonawala Texas Capital Bancshares Inc. TCBI TCBI US Ebrahim H. Poonawala The PNC Financial Services Group, Inc. PNC PNC US Erika Najarian UMB Financial Corporation UMBF UMBF US Ebrahim H. Poonawala Wells Fargo Company WFC WFC US Erika Najarian Associated Banc-Corp ASB ASB US Ebrahim H. Poonawala Banc of California BANC BANC US Ebrahim H. Poonawala Comerica Incorporated CMA CMA US Erika Najarian Commerce Bancshares Inc. CBSH CBSH US Ebrahim H. Poonawala Fifth Third Bank FITB FITB US Erika Najarian First Bancorp Puerto Rico FBP FBP US Ebrahim H. Poonawala First Hawaiian Inc. FHB FHB US Ebrahim H. Poonawala First Horizon National Corp. FHN FHN US Ebrahim H. Poonawala Franklin Financial Network, Inc. FSB FSB US Ebrahim H. Poonawala Hancock Holding HBHC HBHC US Ebrahim H. Poonawala New York Community Bancorp NYCB NYCB US Ebrahim H. Poonawala Regions Financial RF RF US Erika Najarian Synovus Financial Corp. SNV SNV US Ebrahim H. Poonawala U.S. Bancorp USB USB US Erika Najarian Zions Bancorp ZION ZION US Erika Najarian Bank of Hawaii Corp. BOH BOH US Ebrahim H. Poonawala Cullen Frost Bankers Inc CFR CFR US Ebrahim H. Poonawala M T Bank MTB MTB US Erika Najarian Prosperity Bancshares Inc PB PB US Ebrahim H. Poonawala TCF Financial Corp. TCB TCB US Ebrahim H. Poonawala Disclosures Important Disclosures Equity Investment Rating Distribution: Aerospace Defense Electronics Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 23 50.00 Buy 19 82.61 Hold 13 28.26 Hold 8 61.54 Sell 10 21.74 Sell 9 90.00 Equity Investment Rating Distribution: Banks Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 81 43.55 Buy 74 91.36 Hold 45 24.19 Hold 41 91.11 Sell 60 32.26 Sell 56 93.33 Top 10 US Ideas Quarterly 03 January 2017 27 Equity Investment Rating Distribution: Energy Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 105 46.67 Buy 88 83.81 Hold 54 24.00 Hold 48 88.89 Sell 66 29.33 Sell 49 74.24 Equity Investment Rating Distribution: Financial Services Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 113 46.89 Buy 89 78.76 Hold 66 27.39 Hold 55 83.33 Sell 62 25.73 Sell 40 64.52 Equity Investment Rating Distribution: Gaming Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 24 54.55 Buy 16 66.67 Hold 14 31.82 Hold 6 42.86 Sell 6 13.64 Sell 1 16.67 Equity Investment Rating Distribution: Health Care Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 134 54.92 Buy 100 74.63 Hold 59 24.18 Hold 38 64.41 Sell 51 20.90 Sell 23 45.10 Equity Investment Rating Distribution: Industrials Multi-Industry Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 38 55.07 Buy 27 71.05 Hold 7 10.14 Hold 4 57.14 Sell 24 34.78 Sell 15 62.50 Equity Investment Rating Distribution: Technology Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 113 56.50 Buy 82 72.57 Hold 40 20.00 Hold 32 80.00 Sell 47 23.50 Sell 28 59.57 Equity Investment Rating Distribution: Transport Infrastructure Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 73 49.66 Buy 53 72.60 Hold 35 23.81 Hold 21 60.00 Sell 39 26.53 Sell 19 48.72 Equity Investment Rating Distribution: Utilities Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 58 46.03 Buy 45 77.59 Hold 34 26.98 Hold 29 85.29 Sell 34 26.98 Sell 20 58.82 Equity Investment Rating Distribution: Global Group (as of 30 Sep 2016) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 1553 49.44 Buy 1130 72.76 Hold 730 23.24 Hold 538 73.70 Sell 858 27.32 Sell 514 59.91 Issuers that were investment banking clients of BofA Merrill Lynch or one of its affiliates within the past 12 months. For purposes of this Investment Rating Distribution, the coverage universe includes only stocks. A stock rated Neutral is included as a Hold, and a stock rated Underperform is included as a Sell. FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst s assessment of a stock s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10 and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster Buy 10 70 Neutral 0 30 Underperform N A 20 Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same higher (dividend considered to be secure), 8 - same lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock s coverage cluster is included in the most recent BofA Merrill Lynch report referencing the stock. Price charts for the securities referenced in this research report are available at http: pricecharts.baml.com, or call 1-800-MERRILL to have them mailed. MLPF S or one of its affiliates acts as a market maker for the equity securities recommended in the report: Aetna Inc, Consolidated Edison, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, SVB Financial, Texas Instrument, TripAdvisor. 28 Top 10 US Ideas Quarterly 03 January 2017 MLPF S or an affiliate was a manager of a public offering of securities of this issuer within the last 12 months: Aetna Inc, Consolidated Edison, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, Texas Instrument. The issuer is or was, within the last 12 months, an investment banking client of MLPF S and or one or more of its affiliates: Aetna Inc, Consolidated Edison, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, Texas Instrument. MLPF S or an affiliate has received compensation from the issuer for non-investment banking services or products within the past 12 months: Aetna Inc, Consolidated Edison, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, SVB Financial, Texas Instrument, TripAdvisor. The issuer is or was, within the last 12 months, a non-securities business client of MLPF S and or one or more of its affiliates: Aetna Inc, Consolidated Edison, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, SVB Financial, Texas Instrument, TripAdvisor. MLPF S or an affiliate has received compensation for investment banking services from this issuer within the past 12 months: Aetna Inc, Consolidated Edison, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, Texas Instrument. MLPF S or an affiliate expects to receive or intends to seek compensation for investment banking services from this issuer or an affiliate of the issuer within the next three months: Aetna Inc, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, Texas Instrument. MLPF S together with its affiliates beneficially owns one percent or more of the common stock of this issuer. If this report was issued on or after the 9th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 9th day of a month reflect the ownership position at the end of the second month preceding the date of the report: Dover Corp, General Dynamics, Hess, Norfolk Southern, SVB Financial, Texas Instrument. MLPF S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the issuer on a principal basis: Aetna Inc, Consolidated Edison, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, SVB Financial, Texas Instrument, TripAdvisor. The issuer is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF S and or one or more of its affiliates: Aetna Inc, Consolidated Edison, Dover Corp, General Dynamics, Hess, MGM Resorts, Norfolk Southern, SVB Financial, Texas Instrument, TripAdvisor. BofA Merrill Lynch Research Personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking. 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........................................... Case 1:15-cv-07433-RWS Document 539 Filed 01 06 17 Page 1 of 7 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK VIRGINIA L. GIUFFRE, v. Plaintiff, 15-cv-07433-RWS GHISLAINE MAXWELL, Defendant. Declaration of Laura A. Menninger in Support of Defendant s Motion For Summary Judgment I, Laura A. Menninger, declare as follows: 1. I am an attorney at law duly licensed in the State of New York and admitted to practice in the United States District Court for the Southern District of New York. I am a member of the law firm Haddon, Morgan Foreman, P.C., counsel of record for Defendant Ghislaine Maxwell in this action. I respectfully submit this Declaration in support of Ms. Maxwell s Motion for Summary Judgment. 1 2. Attached as Exhibit A is a true and correct copy of an article by Sharon Churcher entitled Prince Andrew and the 17-year-old girl his sex offender flew to Britain to meet him, DAILY MAIL, dated March 2, 2011. 1 At trial, defendant intends to produce either the custodian of record relevant to any disputed document or a certification in compliance with either Fed. R. Evid. P. 803 and or 902. See Fed. R. Civ. P. 56(c). Apart from deposition testimony, the majority of non-deposition documents herein were either produced by plaintiff or obtained with releases signed by plaintiff. Case 1:15-cv-07433-RWS Document 539 Filed 01 06 17 Page 2 of 7 3. Attached as Exhibit B is a true and correct copy of an article by Sharon Churcher entitled Teenage girl recruited by paedophile Jeffrey Epstein reveals how she twice met Bill Clinton, DAILY MAIL, dated March 5, 2011. 4. Attached as Exhibit C is a true and correct copy of a statement on behalf of Ms. Maxwell dated March 9, 2011. 5. Attached as Exhibit D (filed under seal) 6. Attached as Exhibit E is a true and correct copy of an Order Denying Motion to Join Under Rule 21, Doe v. United States, No. 08-80736-Civ-Marra Johnson (S.D. Fla. Apr. 7, 2016). 7. Attached as Exhibit F is a true and correct copy of a statement on behalf of Ms. Maxwell dated January 2, 2015. 8. Attached as Exhibit G (filed under seal) 9. Attached as Exhibit H (filed under seal) 10. Attached as Exhibit I (filed under seal) 2 Case 1:15-cv-07433-RWS Document 539 Filed 01 06 17 Page 3 of 7 11. Attached as Exhibit J (filed under seal) 12. Attached as Exhibit K (filed under seal) 13. Attached as Exhibit L (filed under seal) 14. Attached as Exhibit M (filed under seal) 15. Attached as Exhibit N (filed under seal) 16. Attached as Exhibit O (filed under seal) 17. Attached as Exhibit P (filed under seal) 18. Attached as Exhibit Q (filed under seal) 3 Case 1:15-cv-07433-RWS Document 539 Filed 01 06 17 Page 4 of 7 19. Attached as Exhibit R (filed under seal) 20. Attached as Exhibit S (filed under seal) 21. Attached as Exhibit T (filed under seal) 22. Attached as Exhibit U (filed under seal) 23. Attached as Exhibit V (filed under seal) 24. Attached as Exhibit W (filed under seal) 25. Attached as Exhibit X(filed under seal) 26. Attached as Exhibit Y (filed under seal) 27. Attached as Exhibit Z (filed under seal) 4 Case 1:15-cv-07433-RWS Document 539 Filed 01 06 17 Page 5 of 7 28. Attached as Exhibit AA (filed under seal) 29. Attached as Exhibit BB (filed under seal) 30. Attached as Exhibit CC (filed under seal) 31. Exhibit DD left intentionally blank. 32. Attached as Exhibit EE (filed under seal) 33. Attached as Exhibit FF (filed under seal) 34. Attached as Exhibit GG (filed under seal) 35. Attached as Exhibit HH (filed under seal) 36. Attached as Exhibit II (filed under seal) 5 Case 1:15-cv-07433-RWS Document 539 Filed 01 06 17 Page 6 of 7 37. Attached as Exhibit JJ (filed under seal) 38. Attached as Exhibit KK (filed under seal) . 39. Attached as Exhibit LL is a true and correct copy of the Victims Refuse Silence, Inc. Articles of Incorporation dated December 23, 2014, GIUFFRE001064-5. 40. Attached as Exhibit MM (filed under seal) I declare under penalty of perjury that the foregoing is true and correct. Executed on January 6, 2017. s Laura A. Menninger Laura A. Menninger 6 Case 1:15-cv-07433-RWS Document 539 Filed 01 06 17 Page 7 of 7 CERTIFICATE OF SERVICE I certify that on January 6, 2017, I electronically served this Declaration of Laura A. Menninger in Support of Defendant s Motion for Summary Judgment via ECF on the following: Sigrid S. McCawley Meredith Schultz BOIES, SCHILLER FLEXNER, LLP 401 East Las Olas Boulevard, Ste. 1200 Ft. Lauderdale, FL 33301 smccawley bsfllp.com mschultz bsfllp.com Bradley J. Edwards FARMER, JAFFE, WEISSING, EDWARDS, FISTOS LEHRMAN, P.L. 425 North Andrews Ave., Ste. 2 Ft. Lauderdale, FL 33301 brad pathtojustice.com Paul G. Cassell 383 S. University Street Salt Lake City, UT 84112 cassellp law.utah.edu J. Stanley Pottinger 49 Twin Lakes Rd. South Salem, NY 10590 StanPottinger aol.com s Nicole Simmons Nicole Simmons 7 Case 1:15-cv-07433-RWS Document 539-1 Filed 01 06 17 Page 1 of 9 EXHIBIT A Case 1:15-cv-07433-RWS Document 539-1 Filed 01 06 17 Page 2 of 9 Case 1:15-cv-07433-RWS Document 539-1 Filed 01 06 17 Page 3 of 9 Case 1:15-cv-07433-RWS Document 539-1 Filed 01 06 17 Page 4 of 9 Case 1:15-cv-07433-RWS Document 539-1 Filed 01 06 17 Page 5 of 9 Case 1:15-cv-07433-RWS Document 539-1 Filed 01 06 17 Page 6 of 9 Case 1:15-cv-07433-RWS Document 539-1 Filed 01 06 17 Page 7 of 9 Case 1:15-cv-07433-RWS Document 539-1 Filed 01 06 17 Page 8 of 9 Case 1:15-cv-07433-RWS Document 539-1 Filed 01 06 17 Page 9 of 9 Case 1:15-cv-07433-RWS Document 539-2 Filed 01 06 17 Page 1 of 5 EXHIBIT B Case 1:15-cv-07433-RWS Document 539-2 Filed 01 06 17 Page 2 of 5 Case 1:15-cv-07433-RWS Document 539-2 Filed 01 06 17 Page 3 of 5 Case 1:15-cv-07433-RWS Document 539-2 Filed 01 06 17 Page 4 of 5 Case 1:15-cv-07433-RWS Document 539-2 Filed 01 06 17 Page 5 of 5 Case 1:15-cv-07433-RWS Document 539-3 Filed 01 06 17 Page 1 of 2 EXHIBIT C Case 1:15-cv-07433-RWS Document 539-3 Filed 01 06 17 Page 2 of 2 Share this Ub Subscribe by Email... page Breaking News I Entertainment I Sports I Business I Politics I Science I Technology I Odd News I Health I Law More Statement on Behalf of Ghislaine Maxwell i FL)NES D;,' e- MARC t I,). 20:: 1 LONDON, March 10, 2011 - Ghislaine Maxwell denies the various allegations about her that have appeared recently in the media. These allegations are all entirely false. Older News S M T W T F S 20 2122 23 24 25 26 2728 1 2 3 4 5 6 7 8 9 10 11 12 It is unacceptable that letters sent by Ms Maxwell' s legal representatives to certain newspapers pointing out the truth and asking for the allegations to be withdrawn have simply been ignored. In the circumstances, Ms Maxwell is now proceeding to take legal action against those newspapers. I understand newspapers need stories to sell copies. It is well known that certain newspapers live by the adage, " why let the truth get in the way of a good story." However, the allegations made against me are abhorrent and entirely untrue and I ask that they stop," said Ghislaine Maxwell A number of newspapers have shown a complete lack of accuracy in their reporting of this story and a failure to carry out the most elementary investigation or any real due diligence. I am now taking action to clear my name," she said. Media contact: Ross Cow Acuity Reputation Tel: 44- 203- 008- 7790 Mob: 44- 7778- 755- 251 Email: ross acuityreputation. com Media contact: Ross Gow, Acuity Reputation, Tel: 44-203- oo8-7790, Mob: 44-7778- 755- 251, Email: ross at acu ityreputation, com iled.under: Government and Policy, Law, Media Tags: Devonshves Solicitors, Landon, March io, United Kingdom GOVERNMENT AND POLICY MARCH 10 NEONS - NEWS CSA Group Selects Frankfurt, Germany for - new European Headquarters The First International Gateway to Africa Conference in Geneva: Africa apos;s Challenges Today and Tomorrow Central Saint Martins and Method Launch Accelerator to Drive Innovation and Support UK Economic Growth .. ... . North East Lincolnshire Council Emplovees apos; Ideas Win Votes Teel, Mahindra Opens a new Development Centre in Bonn, Germany website Optimisation and Marketing FromFrom Ztieblina Sir Paul McCartney Supports BUAV Campaign to end Cruel 7 AGREN BIANDO REPORTING 5-13 61 9H GIUFFREOO1067 Case 1:15-cv-07433-RWS Document 539-4 Filed 01 06 17 Page 1 of 1 REDACTED EXHIBIT D Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 1 of 11 EXHIBIT E Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 2 of 11 Case 9: 05- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04 07 2015 Page 1 of 10 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO.. 08- CV- 80736- KAM JANE DOE 1 and JANE DOE 2, Petitioners, UNITED STATES OF AMERICA, Respondent. ORDER DENYING PETITIONERS' MOTION TO JOIN UNDER RULE 21 AND MOTION TO AMEND UNDER RULE 15 This cause is before the Court on Jane Doe 3 and Jane Doe 4' s Corrected Motion Pursuant to Rule 21 for Joinder in Action (" Rule 21 Motion") ( DE 280), and Jane Doe 1 and Jane Doe 2' s Protective Motion Pursuant to Rule 15 to Amend Their Pleadings to Conform to Existing Evidence and to Add Jane Doe 3 and Jane Doe 4 as Petitioners (" Rule 15 Motion") ( DE 311). Both motions are ripe for review. For the following reasons, the Court concludes that they should be denied. I. Background This is an action by two unnamed petitioners, Jane Doe 1 and Jane Doe 2, seeking to prosecute a claim under the Crime Victims' Rights Act (CVRA), 18 U.S. C. 3771. ( DE 1). Generally, they allege that the respondent Government violated their rights under the CVRA by failing to consult with them before negotiating a non -prosecution agreement with Jeffrey Epstein, who subjected them to various sexual crimes while they were minors. ( Id.). Petitioners initiated this action in July 2008. ( Id.). GIUFFRE002844 Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 3 of 11 Case 9: 03- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04607 2015 Page 2 of 10 On December 30, 2014, two other unnamed victims, Jane Doe 3 and Jane Doe 4, moved to join as petitioners in this action pursuant to Federal Rule of Civil Procedure 21. ( DE 280). Petitioners ( Jane Doe 1 and Jane Doe 2) support the Rule 21 Motion. ( Id. at 11). Jane Doe 3 and Jane Doe 4 argue that they " have suffered the same violations of their rights under the CVRA as the" Petitioners, and they " desire to join in this action to vindicate their rights as well." ( Id. at 1). The Government vehemently opposes joinder under Rule 21. ( DE 290). The Government argues that Rule 15 is the proper procedural device for adding parties to an action, not Rule 21. at 1). O ut of an abundance of caution," Petitioners filed a motion to amend their petition under Rule 15, conforming the petition to the evidence and adding Jane Doe 3 and Jane Doe 4 as petitioners. ( DE 311 at 2). The Government opposes the Rule 15 Motion as well. ( DE 314). Among other things, the Government argues that amending the petition to include Jane Doe 3 and Jane Doe 4 should be denied because of their undue delay in seeking to join the proceedings, and the undue prejudice that amendment will cause. ( Id.). After considering the parties' submissions and the proposed amended petition, the Court finds that justice does not require amendment in this instance and exercises its discretion to deny the amendment. II. Discussion The decision whether to grant leave to amend a complaint is within the sole discretion of the district court." Laurie v. Ala. Ct. Crim. Apps., 256 F. 3d 1266, 1274 ( 11th Cir. 2001). " The court should freely give leave when justice so requires." Fed. R. Civ. P. 15( a)( 2). Justice does not require amendment in several instances, " includ ing undue delay, bad faith, dilatory motive N GIUFFRE002845 Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 4 of 11 Case 9: 05- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04607 2015 Page 3 of 10 on the part of the movant.... undue prejudice to the opposing parry by virtue of allowance of the amendment, and futility of amendment."' Laurie, 256 F. 3d at 1274 ( quoting Foman v. Davis, 371 U. S. 178, 182 ( 1962)). In addition to considering the effect of amendment on the parties, the court must consider " the importance of the amendment on the proper determination of the merits of a dispute." 6 Wright Miller, Fed. Prac. Fed. P. 1488, p. 814 ( 3d ed. 2010). Justice does not require amendment where the addition of parties with duplicative claims will not materially advance the resolution of the litigation on the merits. See Herring v. Delta Air Lines, Inc., 894 F. 2d 1020, 1024 ( 9th Cir. 1989). A. Rule 21 Motion Jane Doe 3 and Jane Doe 4' s first attempt to join in this proceeding was brought under Rule 21. ( DE 280). " If parties seek to add a party under Rule 21, courts generally use the standard of Rule 15, governing amendments to pleadings, to determine whether to allow the addition." 12 Wright Miller, Fed. Prac. Fed. P., p. 432 ( 3d ed. 2013); see also Galustian v. Peter, 591 F. 3d 724, 729- 30 ( 4th Cir. 2010) ( collecting cases and noting that Rule 15( a) applies to amendments seeking to add parties); Frank v. U.S. West, Inc., 3 F. 3d 1357, 1365 ( 10th Cir. 1993) (" A motion to add a parry is governed by Fed. R. Civ. P. 15( a) ....") Rule 21, " Misjoinder and Nonjoinder of Parties," provides the court with a tool for correcting the " misjoinder" of parties that would otherwise result in dismissal. Fed. R. Civ. P. 21. Insofar as Rule 21 " relates to the addition of parties, it is intended to permit the bringing in of a person, who through inadvertence, mistake or for some other reason, had not been made a parry and whose presence as a parry is later found necessary or desirable." United States v. Com. Bank of N. Am., 31 F. R.D. 133, 135 ( S. D.N.Y. 1962) ( internal quotation marks omitted). 3 GIUFFRE002846 Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 5 of 11 Case 9: 05- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04607 2015 Page 4 of 10 In their Rule 21 Motion, Jane Doe 3 and Jane Doe 4 do not claim that they were omitted from this proceeding due to any " inadvertence" or " mistake" by Petitioners; rather, they seek to join this proceeding as parties that could have been permissively joined in the original petition under Rule 20 (" Permissive Joinder of Parties"). As courts generally use the standards of Rule 15 to evaluate such circumstances, the Court will consider the joinder issue as presented in the Rule 15 Motion. The Court will consider the arguments presented in the Rule 21 Motion as if they are set forth in the Rule 15 Motion as well. Because the arguments are presented in the Rule 15 Motion (and because the Court is denying the Rule 15 Motion on its merits, as discussed below), the Rule 21 Motion will be denied. The Court also concludes that portions of the Rule 21 Motion and related filings should be stricken from the record. Pending for this Court' s consideration is a Motion for Limited Intervention filed by Alan M. Dershowitz, who seeks to intervene to " strike the outrageous and impertinent allegations made against him and to request a show cause order to the attorneys that have made them." ( DE 282 at 1). The Court has considered Mr. Dershowitz' s arguments, but it finds that his intervention is unnecessary as Federal Rule of Civil Procedure 12(f) empowers the Court " on its own" to " strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). Petitioners' Rule 21 Motion consists of relatively little argumentation regarding why the Court should permit them to join in this action. they argue that ( 1) they were sexually abused by The Court notes that, regardless of which motion it considers, the same standard governs the addition of parties under Rule 21 and Rule 15. See Goston v. Potter, No. 08- cv- 478 FJS ATB, 2010 WL 4774238, at 5 ( N.D.N.Y. 2010) ( citing Bridgeport Music, Inc. v. Universal Music Grp., Inc., 248 F.R.D. 408, 412 ( S. D.N.Y. 2008)). M GIUFFRE002847 Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 6 of 11 Case 9: 05- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04607 2015 Page 5 of 10 Jeffrey Epstein, and ( 2) the Government violated their CVRA rights by concealing the non- prosecution agreement with them. ( DE 280 at 3; see id. at 7- 8). However, the bulk of the Rule 21 Motion consists of copious factual details that Jane Doe 3 and Jane Doe 4 " would prove" " i f allowed to join this action." ( Id. at 3, 7). Specifically, Jane Doe 3 proffers that she could prove the circumstances under which a non -parry introduced her to Mr. Epstein, and how Mr. Epstein sexually trafficked her to several high- profile non -parry individuals, " including numerous prominent American politicians, powerful business executives, foreign presidents, a well- known Prime Minister, and other world leaders." ( Id. at 3- 6). She names several individuals, and she offers details about the type of sex acts performed and where they took place. See id. at 5)? At this juncture in the proceedings, these lurid details are unnecessary to the determination of whether Jane Doe 3 and Jane Doe 4 should be permitted to join Petitioners' claim that the Government violated their rights under the CVRA. The factual details regarding with whom and where the Jane Does engaged in sexual activities are immaterial and impertinent to this central claim ( i.e., that they were known victims of Mr. Epstein and the Government owed them CVRA duties), especially considering that these details involve non-parties who are not related to the respondent Government. These unnecessary details shall be stricken. The original Rule 21 Motion (DE 279) shall be stricken in its entirety, as it is wholly superseded by the " corrected" version of the Rule 21 Motion (DE 280). From the corrected Rule 21 Motion, the Court shall strike all factual details regarding Jane Doe 3 between the following sentences: " The Government then concealed from Jane Doe 43 the existence of its NPA from z 280 at 7- 8). Jane Doe 4' s proffer is limited to sexual acts between Mr. Epstein and herself. ( See DE GIUFFRE002848 Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 7 of 11 Case 9: 05- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04607 2015 Page 6 of 10 Jane Doe 43, in violation of her rights under the CVRA" (id. at 3); and " The Government was well aware of Jane Doe 43 when it was negotiating the NPA, as it listed her as a victim in the attachment to the NPA" ( id. at 6). As none of Jane Doe 4' s factual details relate to non-parties, the Court finds it unnecessary to strike the portion of the Rule 21 Motion related to her circumstances. Regarding the Declaration in support of Petitioners' response to Mr. Dershowitz' s motion to intervene (DE 291- 1), the Court shall strike paragraphs 4, 5, 7, 11, 13, 15, 19 through 53, and 59, as they contain impertinent details regarding non-parties. Regarding the Declaration of Jane Doe 3 in support of the Rule 21 Motion (DE 310- 1), the Court shall strike paragraphs 7 through 12, 16, 39, and 49, as they contain impertinent details regarding non- parties. Jane Doe 3 is free to reassert these factual details through proper evidentiary proof, should Petitioners demonstrate a good faith basis for believing that such details are pertinent to a matter presented for the Court' s consideration. As mentioned, Mr. Dershowitz moves to intervene " for the limited purposes of moving to strike the outrageous and impertinent allegations made against him and requesting a show cause order to the attorneys that have made them." ( DE 282 at 1). As the Court has taken it upon itself to strike the impertinent factual details from the Rule 21 Motion and related filings, the Court concludes that Mr. Derschowitz' s intervention in this case is unnecessary. Accordingly, his motion to intervene will be denied as moot. 3 Regarding whether a show cause order should 3 This also moots Mr. Dershowitz' s Motion for Leave to File Supplemental Reply in Support of Motion for Limited Intervention. ( DE 317). Denying Mr. Dershowitz' s motion to intervene also renders moot Petitioners' motion (DE 292) to file a sealed document supporting its response to Mr. Dershowitz' s motion. It will accordingly be denied as moot, and DE 293 ( the sealed response) will be stricken from the record. on GIUFFRE002849 Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 8 of 11 Case 9: 05- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04607 2015 Page 7 of 10 issue, the Court finds that its action of striking the lurid details from Petitioners' submissions is sanction enough. However, the Court cautions that all counsel are subject to Rule 11' s mandate that all submissions be presented for a proper purpose and factual contentions have evidentiary support, Fed. R. Civ. P. 11( b)( 1) and ( 3), and that the Court may, on its own, strike from any pleading " any redundant, immaterial, impertinent, or scandalous matter," Fed. R. Civ. P. 12(f). B. Rule 15 Motion Between their two motions ( the Rule 21 Motion and Rule 15 Motion), Jane Doe 3 and Jane Doe 4 assert that " they desire to join in this action to vindicate their rights under the CVRA as well." ( DE 280 at 1). Although Petitioners already seek the invalidation of Mr. Epstein' s non -prosecution agreement on behalf of all " other similarly -situated victims" ( DE 189 at 1; DE 311 at 2, 12, 15, 18- 19), Jane Doe 3 and Jane Doe 4 argue that they should be fellow travelers in this pursuit, lest they " be forced to file a separate suit raising their claims" resulting in " duplicative litigation" ( DE 280 at 11). The Court finds that justice does not require adding new parties this late in the proceedings who will raise claims that are admittedly " duplicative" of the claims already presented by Petitioners. The Does' submissions demonstrate that it is entirely unnecessary for Jane Doe 3 and Jane Doe 4 to proceed as parties in this action, rather than as fact witnesses available to offer relevant, admissible, and non -cumulative testimony. See e. g., DE 280 at 2 ( Jane Doe 3 and Jane Doe 4 " are in many respects similarly situated to the current victims"), 9 (" The new victims will establish at trial that the Government violated their CVRA rights in the same way as it violated the rights of the other victims."), 10 ( Jane Doe 3 and Jane Doe 4 " will simply join in motions that the current victims were going to file in any event."), 11 ( litigating Jane Doe 3 and 7 GIUFFRE002850 Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 9 of 11 Case 9: 03- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04607 2015 Page 3 of 10 Jane Doe 4' s claims would be " duplicative"); DE 298 at 1 n. I (" As promised ... Jane Doe No. 3 and Jane Doe No. 4 do not seek to expand the number of pleadings filed in this case. If allowed to join this action, they would simply support the pleadings already being filed by Jane Doe No. 1 and Jane Doe No. 2."); DE 311 at 5 n. 3 (" A II four victims (represented by the same legal counsel) intend to coordinate efforts and avoid duplicative pleadings."), 15 ( Jane Doe 3 and Jane Doe 4 " challenge the same secret agreement i.e., the NPA that the Government executed with Epstein and then concealed from the victims. This is made clear by the proposed amendment itself, in which all four victims simply allege the same general facts.")). As the Does argue at length in their Rule 15 Motion, Jane Doe 1' s original petition " specifically allege s that the Government was violating not only her rights but the rights of other similarly -situated victims." DE 311 at 2). The Court fails to see why the addition of "other similarly -situated victims" is now necessary to " vindicate their rights as well." ( DE 280 at 1). Of course, Jane Doe 3 and Jane Doe 4 can participate in this litigated effort to vindicate the rights of similarly situated victims there is no requirement that the evidentiary proof submitted in this case come only from the named parties. Petitioners point out as much, noting that, regardless of whether this Court grants the Rule 15 Motion, "they will call Jane Doe No. 3 as a witness at any trial." ( DE 311 at 17 n.7). The necessary " participation" of Jane Doe 3 and Jane Doe 4 in this case can be satisfied by offering their properly supported and relevant, admissible, and non -cumulative testimony as needed, whether through testimony at trial see DE 280 at 9) or affidavits submitted to support the relevancy of discovery requests4 see 310- 1). The non -parry Jane Does clearly understand how to submit affidavits. See DEs 291- 1, GIUFFRE002851 Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 10 of 11 Case 9: 05- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04607 2015 Page 9 of 10 id. at 10). Petitioners do not contend that Jane Doe 3 and Jane Doe 4' s " participation in this case" can only be achieved by listing them as parties. As it stands under the original petition, the merits of this case will be decided based on a determination of whether the Government violated the rights of Jane Doe 1, Jane Doe 2, and all other similarly situated victims" under the CVRA. Jane Doe 3 and Jane Doe 4 may offer relevant, admissible, and non -cumulative evidence that advances that determination, but their participation as listed parties is not necessary in that regard. See Herring, 894 F. 2d at 1024 District court did not abuse its discretion by denying amendment where " addition of more plaintiffs ... would not have affected the issues underlying the grant of summary judgment."); c Arthur v. Stern, 2008 WL 2620116, at 7 ( S. D. Tex. 2008) ( Under Rule 15, " courts have held that leave to amend to assert a claim already at issue in another lawsuit should not be granted if the same parties are involved, the same substantive claim is raised, and the same relief is sought.")' And, as to Jane Doe 4 at least, adding her as aparty raises unnecessary questions about whether she is a proper party to this action.6 Petitioners also admit that amending the petition to conform to the evidence by including references to the non -prosecution agreement itself is " unnecessary" as the " existing petition is broad enough to cover the developing evidence in this case." ( DE 311). The Court The Court expresses no opinion at this time whether any of the attestations made by Jane Doe 3 and Jane Doe 4 in support of their motion will be relevant, admissible, and non- cumulative. 6 The Government contends that Jane Doe 4 is not a true " victim" in this case because she was not known at the time the Government negotiated the non -prosecution agreement, and accordingly she was not entitled to notification rights under the CVRA. See DE 290 at 10). Any " duplicative" litigation filed by Jane Doe 4 would necessarily raise the issue of whether she has standing under the CVRA under these circumstances. M GIUFFRE002852 Case 1:15-cv-07433-RWS Document 539-5 Filed 01 06 17 Page 11 of 11 Case 9: 05- cv- 60736- SCAM Document 324 Entered on FLSD Docket 04607 2015 Page 10 of 10 agrees, and it concludes that justice does not require amending the petition this late in the proceedings. III. Conclusion Accordingly, it is hereby ORDERED AND ADJUDGED as follows: the Rule 21 Motion DE 280) is DENIED; the Rule 15 Motion ( DE 311) is DENIED; Intervenor Dershowitz' s Motion for Limited Intervention (DE 282) and Motion for Leave to File Supplemental Reply in Support of Motion for Limited Intervention (DE 317) are DENIED AS MOOT; Petitioners' Motion to Seal ( DE 292) is DENIED AS MOOT; the following materials are hereby STRICKEN from the record: DE 279, in its entirety. DE 280, all sentences between the following sentences: The Government then concealed from Jane Doe 43 the existence of its NPA from Jane Doe 43, in violation of her rights under the CVRA" ( DE 280 at 3); and " The Government was well aware of Jane Doe 43 when it was negotiating the NPA, as it listed her as a victim in the attachment to the NPA" ( DE 280 at 6). DE 291- 1, paragraphs 4, 5, 7, 11, 13, 15, 19 through 53, and 59. DE 310- 1, paragraphs 7 through 12, 16, 39, and 49. DE 293, in its entirety. DONE AND ORDERED in chambers at West Palm Beach, Palm Beach County, Florida, this 6' day of April, 2015. KENNETH A. MARRA United States District Judge 10 GIUFFRE002853 Case 1:15-cv-07433-RWS Document 539-6 Filed 01 06 17 Page 1 of 2 EXHIBIT F Case 1:15-cv-07433-RWS Document 539-6 Filed 01 06 17 Page 2 of 2 Date: 2 January 2015 at 20: 38 bcc: martin. robinson(cDmailonline. co. uk, P. Peachev independent. co. uk, nick.sommerlad mirror.co. uk, david. brown thetimes. co. uk, nick.alwav bbc.co. uk, io- anne. Pugh bbc. co. uk To Whom It May Concern, Please find attached a quotable statement on behalf of Ms Maxwell. No further communication will be provided by her on this matter. Thanks for your understanding. Best Ross Ross Gow ACUITY Reputation Jane Doe 3 is Virginia Roberts - so not a new individual. The allegations made by Victoria Roberts against Ghislaine Maxwell are untrue. The original allegations are not new and have been fully responded to and shown to be untrue. Each time the story is re told it changes with new salacious details about public figures and world leaders and now it is alleged by Ms Roberts that Alan Derschowitz is involved in having sexual relations with her. which he denies. Ms Roberts claims are obvious lies and should be treated as such and not publicised as news, as they are defamatory. Ghislaine Maxwell' s original response to the lies and defamatory claims remains the same. Maxwell strongly denies allegations of an unsavoury nature, which have appeared in the British press and elsewhere and reserves her right to seek redress at the repetition of such old defamatory claims. Sent from my BlackBerry wireless device IEXHIBIT E I 22' 16 F G M 00068 Case 1:15-cv-07433-RWS Document 539-7 Filed 01 06 17 Page 1 of 1 REDACTED EXHIBITS G-KK Case 1:15-cv-07433-RWS Document 539-8 Filed 01 06 17 Page 1 of 4 EXHIBIT LL Case 1:15-cv-07433-RWS Document 539-8 Filed 01 06 17 Page 2 of 4 ARTICLES OF INCORPORATION In compliance with Chapter 617, F. S., ( Not for Profit) ARTICIS I NAME The name of the cQrporation shall be: I Victims Refuse Silence, Inc. ARTICLE H PRINCIPAL OFFICE Principal street address; 425 North Andrews Ave. Mailing address, if different is: Suite 2 Fort Lauderdale, FL 33301 ARTICLE J7Z PURPOSE The purpose for which the corporation is organized is: Victims Refuse Silence, Inc. is organized exclusively for charitable and educational purposes including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501( c)( 3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. The corporation is organized to provide assistance to victims of sexual abuse as well as victims of human trafficking. Upon the dissolution of Victims Refuse Silence, Inc., assets shall be distributed for one or more exempt purpose within the meaning of section 501( c)( 3) of the Internal Revenue Code, or corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. ARTICLE IV MANNER OF ELECTION - The manner in which the directors are elected and appointed: The manner in which the directors are elected or appointed is provided in the bylaws of the Corporation. Name and Title: Address Virginia Roberts, Director 425 North Andrews Ave. Suite 2 Fort Lauderdale, FL 33301 Name and Title: Address: F M 0 M Name and Title:- Bradley J. Edwards, Director Name and Address 425 North Andrews Ave. Address: Suite 2 Fort Lauderdale, FL 33301 Name and Title: Brittany N. Henderson, Director Name and Address 425 North Andrews Ave. Address: Suite 2 Fort Lauderdale, FL 33301 GlUFFRE00 1063 Case 1:15-cv-07433-RWS Document 539-8 Filed 01 06 17 Page 3 of 4 Name and Title -. Name and Title-, Address Address: Name and Title: Name and Title: Address Address: ARTICLE VT JWGISTERED AGENT The name andFlorida street address ( P.O. Box NOT acceptable) of the registered agent is: Name: Address: Bradley J. Edwards 425 North Andrews Ave., Suite 2 Fort Lauderdale, FL 33301 ARTICLE VH Z.NCQM:-ORATOR The name and address of the Incorporator is: Name: Address- Brittany N. Henderson 425 North Andrews Ave., Suite 2 Fort Lauderdale, FL 33301 Having been named as registered agent to accept service ofprocess for the above stated corporation at the place designated in this certificate, I am.UwWar with and acceptjAe-qppWWMren1Las registered agent and agree to act in this capacity Required 1-t-p-a-MrebtitermqVd-Agent Date I submit this document and affirm that thefacts stated herein are true. I am aware that any false information submitted in a document to tfte Department ofState constitutes a third degreefelony as providedfar in s.817.155, F.S. gnature t2 I n I Date ' A G1UFFRE00 1064 I 2015 FLORIDA NOT FOR PROFIT CORPORATION AMENDED ANNUAL FILED REPORT Apr 22, 2015 DOCUMENT N14000011657 Case 1:15-cv-07433-RWS Document 539-8 Filed 01 06 17 Page 4 of 4 Entity Name: VICTIMS REFUSE SILENCE, INC. Current Principal Place of Business: 425 NORTH ANDREWS AVE., SUITE 2 FORT LAUDERDALE, FL 33301 Secretary of State CC7801725405 Current Mailing Address: 425 NORTH ANDREWS AVE., SUITE 2 FORT LAUDERDALE, FL 33301 FEI Number: 47- 2627774 Certificate of Status Desired: Yes Name and Address of Current Registered Agent: EDWARDS, BRADLEY J 425 NORTH ANDREWS AVE., SUITE 2 FORT LAUDERDALE, FL 33301 US The above named entity submits this statement for the purpose of changing its registered office or registered agent, or both, in the State of Florida. SIGNATURE: Electronic Signature of Registered Agent Date Officer Director Detail : Title PRESIDENT, DIRECTOR Title VP, DIRECTOR Name GIUFFRE, VIRGINIA L Name GARVIN, MARGARET A Address 425 NORTH ANDREWS AVE.. SUITE 2 Address 425 NORTH ANDREWS AVE.. SUITE 2 City -State -Zip: FORT LAUDERDALE FL 33301 City -State -Zip: FORT LAUDERDALE FL 33301 Title SECRETARY, DIRECTOR Name HENDERSON, HENDERSON, BRITTANY BRITTANY NN Address 425 425 NORTH NORTH ANDREWS ANDREWS AVE., AVE., SUITE SUITE 22 City -State -Zip: FORT LAUDERDALE FL 33301 hereby certify that the information indicated on this report or supplemental report is true and accurate and that my electronic signature shall have the same legal effect as if made under oath, that I am an officer or director of the corporation or the receiver or trustee empowered to execute this report as required by Chapter 617, Florida Statutes, and that my name appears above, or on an attachment with all other like empowered. SIGNATURE: BRITTANY N HENDERSON DIRECTOR 04 22 2015 Electronic Signature of Signing Officer Director Detail Date GIUFFRE001065 Case 1:15-cv-07433-RWS Document 539-9 Filed 01 06 17 Page 1 of 1 REDACTED EXHIBIT MM |
Importance: High Please let me know if you're interested in joining a small group meeting with our head of Global Commodities. Apologies for the short notice but they just created this based on client request. Monday, January 30 at 10:15am at One Bryant Park (42nd St 6th Ave), Room 5F Francisco Blanch is a managing director and head of Global Commodities and Derivatives Research. Regular Research publications include: The Global Energy Weekly, Commodity Portfolio Monthly and Quantitative Investment Strategies Monthly. Research produced by the Commodities, Asset Allocation, and Global Derivatives teams has been recognized by Institutional Investor, Extel, Greenwich, Bloomberg, or Energy Risk, among others. Previously he was Head of Global Asset Allocation Research. Prior to joining Merrill Lynch, Blanch was an energy economist focusing on global oil gas in the commodity research group at Goldman Sachs Co. and consulted for the European Commission and other public and private organizations. Blanch has a masters degree in public administration from Harvard University and a doctorate in economics from Complutense University of Madrid. Key topics of discussion: 1 OPEC Saudi Policy - OPEC agreed to cut production by 1.2mb d, along with 600kb d from non-OPEC producers. Francisco believes Saudi's key objective will be to push the oil forward curve into backwardation to 1)lower global refinery margins 2) lower prices for forward sellers and prevent capex spending 3) reduce downside oil price risks. Francisco believes it is in OPEC's best interest to comply with the stated cuts, and thins Saudi remains under significant pressure to either achieve higher oil prices, or inevitably de-peg the Riyal. 2 - Oil fundamentals - OPEC's cut has significant implications for supply demand balances and throws the global market into a meaningful deficit for 2017. We estimate the global market will be in a 560kb d deficit throughout 2017. US Shale output remains a headwind for a rebound in global balances and will vary with price. Given our 59 bbl 2017 outlook for WTI, Francisco believes shale will reverse its current trend before rebounding sequentially by 660kb d between 2Q17 and 4Q17. 3 US Energy Policy Trump Administration Francisco views the likelihood for Trump's administration to implement a border adjustment tax to be extremely low, but recognizes that if a tax was imposed, it would have profound implications for EM demand and the WTI Br arb. The appointment of key cabinet members Rex Tillerson, Rick Perry, and Scott Pruitt pose significant implications for the US energy sector. 4 Commodity Macro Forward inflation expectations around the world have jumped sharply since Trump's victory. So far, rising inflation and steeper yield curves have neutralized the strong dollar, pushing commodities higher. We believe the recent breakdown in USD Oil correlation since OPEC Fed can persist so long as inflation expectations remain supported. However, a toxic mix of much faster-than-anticipated US interest rate hikes, a much stronger USD, and a trade war with China pose risks. Amanda Ens Director Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park, 5th Floor, New York, NY 10036 The power of global connectionsTm Bankof America -Irritr.' Merrill Lynch privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. |
February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes ARTIFICIAL INTELLIGENCE ADVERSE OUTCOMES TEAMS 1) FINANCIAL MARKETS AI, Trading Systems, and Market Manipulation Chair: Michael Wellman Red Team: Miles Brundage, Randy Bryant, Gary Marchant, Jaan Tallinn Blue Team: Michael Littman, Frank Wilczek, Greg Cooper, Yan Shoshitaishvili 2) DEMOCRACY, INFORMATION, AND IDENTITY AI, Information, and Democracy Chair: Shahar Avin Red Team: Miles Brundage, Se n h igeartaigh, Andrew Maynard, Eric Horvitz Blue Team: Gary Marchant, Gireeja Ranade, Michael Littman, Subbarao Kambhampati 3) WAR PEACE AI, Military Systems, and Stability Chair: Bart Selman Red Team: Richard Mallah, Eric Horvitz, Michael Wellman, Frank Wilczek Blue Team: Vinh Nguyen, Kathleen Fisher, Lawrence Krauss, John Launchbury, Rachel Bronson 4) AI, CYBERSECURITY, AND AI ATTACK SURFACES AI Attacks on Computing Systems, Devices, Infrastructure Manipulation Disruption of AI Systems Chair: Kathleen Fisher Red Team: Jeffrey Coleman, John Launchbury, Vinh Nguyen, Mauno Pihelgas Blue Team: Ashish Kapoor, Randy Bryant, Yan Shoshitaishvili, Ben Zorn 5) AI, GOALS, AND INADVERTENT SIDE EFFECTS Runaway Resource Monopoly Self-Improvement, Shift of Objectives Chair: Se n h igeartaigh Red Team: Jaan Tallinn, Nate Soares, Jeff Coleman, Bart Selman Blue Team: Dario Amodei, Greg Cooper, Shahar Avin, Ben Zorn 6) DEEP LONG-TERM SOCIETAL INFLUENCES AI, Agency, and Disempowerment Chair: Gireeja Ranade Red Team: Richard Mallah, Andrew Maynard, Nate Soars, Mauno Pihelgas Blue Team: Subbarao Kambhampati, Frank Wilczek, Lawrence Krauss, Dario Amodei 1 1) FINANCIAL MARKETS AI, Trading Systems, and Market Manipulation (Incorporating contributions by Michael Wellman and others) February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes There has been advances in the realm of trading in financial markets with the use of autonomous decision systems. Financial markets now operate almost entirely electronically, over networks with relatively well-scoped and well-defined interfaces. Markets generate large quantities of data at high velocity, which require algorithms to digest and assess state. The dynamism of markets means that timely responses to information are critical, providing a strong incentive to take slow humans out of the decision loop. Finally, the rewards available for effective trading decisions are large, enabling a commensurate devotion of resources toward talent and effort to develop and analyze technically sophisticated strategies. The rewards and pervasive automation are a tempting target for market manipulation. Thus there are potential incentives to employ deceptive tactics designed to mislead counterparties about market conditions or world state, toward the goal of exploiting misled participants for profit. Manual market manipulation from spoofing to outright fraud is prevalent in financial markets today. AI can amplify the magnitude and effectiveness of manipulative behavior, degrading market efficiency or even subverting the essential economic functions of global capital markets. For example, automation can enable more rapid and massive simultaneous attacks on electronic markets, and adaptive capabilities may persistently evade known detection methods. DISCUSSION What are key costly scenarios that we might come to expect and their time frames? What might be done to counter this direction and help to keep markets efficient and functioning well? How might adversaries and incentives lead to a thwarting of such attempts? POTENTIAL GOALS Identify key challenges ahead, including very costly outcomes. Identify key directions with best practices, mechanism design, monitoring and regulatory activity to help to thwart poor outcomes. REFERENCES R. Harris. The Fear Index, Hutchinson, 2011. Summary: https: en.wikipedia.org wiki The Fear Index M.P. Wellman and U. Rajan. Ethical issues for autonomous trading agents. Minds Machines, 2017. doi:10.1007 s11023-017-9419-4 http: strategicreasoning.org publications 2016-2-2 minds-machines-wr 2 2) DEMOCRACY, INFORMATION, AND IDENTITY AI, Information, and Democracy February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes (Incorporating contributions from Shahar Avin, Se n h igeartaigh, David McAllester, Eric Horvitz, and others) An informed public is important to the healthy functioning of democratic societies. We can expect potential forthcoming advances around the control of information feeds with applications in spreading propaganda, via spreading false or misleading information, creating anxiety, fueling conspiracy theories, and influencing voting. Such methods will bring key challenges to democracy. CHALLENGES AHEAD WITH AI, PROPOGANDA, AND PERSUASION Data-centric analyses have been long used in marketing, advertising, and campaigning over decades. However, over the past few years, we have seen the rise of the use of more powerful tools, including machine learning and inference aimed at algorithmic manipulation, with the target of influencing the thinking and actions of people. Some initial uses of these methods reportedly played a role in influencing the outcome of recent US presidential elections, as well as the elections in 2008 and 2012. We can expect to see an upswing in methods that manipulate states of information in a personalized automated manner. These systems can be designed and deployed as omnipresent persistent, and aimed at specific goals for group- or person-centric persuasion. As our data and models of how people consume and act on information improve, and as an increasing portion of information consumption is mediated through digital systems managed by potentially opaque algorithms, it becomes increasingly conceivable that the information ecosystem would get captured by malicious actors deploying increasingly advanced tools to control, shape, forge and personalize information, from ads to news reports. Machine learning, in conjunction with active learning, expected value decision making, and optimization of allocations of key resources, such as dollars or human effort, can be targeted at monitoring, understanding, and then working to influence the beliefs and actions of large populations of people. Data can be collected from large-scale populations, across multiple devices and services, and used to make inferences about the psychologies and beliefs of people, and for designing and guiding persuasive flows of sequences of information. Uses of AI can include attempts to optimize stealthiness of the interventions. In the future, a great deal of the information consumed by citizens on personal devices is subject to alteration by information-engineers at media corporations and governmental propaganda offices, such that outside a few key positions of power no one really knows what is going on in the world. There is a danger of the growth of domination over time of large populations by a single dominant or a few systems. We can imagine methods that modify even such feeds as Wikipedia articles, creating personalized views that subtly shift the version of the article seen by my 3 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes colleague and drastically different from the one seen by a member of another nation state, or a supporter of a different political party, or someone in a different consumer profile category. AI ATTACKS ON SOURCES AND IDENTITY Messaging and persuasion promises to be amplified by the use of simulated yet believable, realistic, yet synthetic audio, photos, and even video that make believable, persuasive content to the next level. Beyond influencing citizens and affecting democracy, such content, including false signaling, can be injected in sequences with careful timing so as to influence leaders (or machines themselves over time) to create crises, or even escalations to frank warfare. So, messaging and persuasion promises to be assisted and amplified by the use of simulated yet believable, realistic, yet synthetic content, audio, photos, and even video that make believable, persuasive content to the next level. Over the several decades, extrapolations of research we see today lead to the following: Generative models that produce audio or video of anyone saying anything. There is already substantial work on style transfer as well as photorealistic generative models in many domains. Speech synthesis is becoming similarly competent. It is inevitable that we will be able to make synthetic video and audio that is completely indistinguishable from the real thing. Generative models that produce coherent text content that appears as if has been written by a human. Such generative content will be able to appear if the content was written by a particular person. For example, in 2030 it will likely to possible for anyone to write a 4 paragraph email that reads like it was written by your close friend. Adaptive botnets, worms, or viruses that use modern machine learning techniques to learn and adapt. Viruses and botnets already cause a huge amount of damage by just copying code across many computers. If they had the ability to design and experiment with new attack strategies, and communicate what they learn to other copies, defending against them could become even more difficult. Similarly ML could be used to make DDoS attacks more effective. Automated analysis of software vulnerabilities. People are already using ML to try to detect vulnerabilities (for the purpose of defending against them) start being used for attack (if they aren t being so used already). The above capabilities, together with similar powers of synthesis that we are likely to develop in the next 15 years, could potentially combine to make the internet much more vulnerable to attack at much lower cost, and by a wider set of people, than ever before. The first two capabilities would seem to make it much easier to launch automated social engineering attacks with much higher success rates than e.g. current spam email and phishing attacks, while the second two capabilities might make technical attacks much more effective. Combined, all of these capabilities could conspire to create an internet ecosystem where it is very difficult to trust the communication that you receive and very easy to intercept, spoof, steal, or alter communication, as well as to improperly gain control of internet resources. This is obviously already 4 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes true today to some extent, but the above advances in ML AI could make the situation substantially worse, in extreme cases perhaps even rendering useful mass communication on the internet untenable. The rising capabilities can be used in multiple ways in multiple settings with multiple goals. Some uses may be subtle and employed over time to do important but damaging biasing of sentiment about individuals and groups of people. The capabilities can be combined to enable identity theft or identify distortion for destroying the reputation of people and groups. As such, these abilities could enable small groups to wield great power in multiple arenas and for new forms of blackmail, threats, and control. SUMMARY Powerful personalized persuasion technologies are positioned to put massive power in the hands of a few and may even manipulate the owners of the technology. Powerful propaganda and persuasion machines threatens to undermine democracy, free availability of information about the state of the world, and, more generally, freedom of thought. Leaders may increasingly depend upon such propaganda optimization systems for attaining and holding power. Over time, even the potential initial owners of such systems might become unaware or unable to control these systems and may believe the propaganda themselves. In the longer-term, there is the possibility that one or multiple systems, or distributed coalitions of systems communicating implicitly or explicitly could autonomously persuade, subjugate, and control populations. Pathways to such situations include the side effects of rise in the large-scale use by people of communicating personalized filters that interpret and pool information with the initial intention of grappling with widespread uses of manipulative information. SAMPLE TRAJECTORY ML-based customized advert placement continues to prove highly successful, generating revenues for large online companies Profits from online content (online newspapers behind paywalls, charitable contributions to information sources e.g. Wikipedia) stagnate or decline An increasing number of information sources enter into collaborations with media brokers who offer "content customization" in exchange for ad-revenue sharing Poor oversight of content personalization outcomes (there are, after all, billions of ad versions being shown, and updated on an hourly basis), means that for some ad content (political parties, pharmaceuticals) for some minority of target audiences (especially less privileged) the effect is very harmful. KEY POINTS New directions with generation of provocative, believable content, hacking of identity Algorithmic manipulation of data to optimize desired behavior regardless of content 5 No consensus reality, inability to coordinate large-scale positive action Concrete version of emergent social failure from AI technology February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes DISCUSSION Consider the adverse outcomes with information flows and associated threats to democracy and freedom. What surprises might lurk in our future around costly outcomes in this realm? How might we thwart attacks on manipulating content from people, and on harnessing or hacking someone s identity? What might be done to thwart a march to adverse outcomes for information, freedom of thought, democracy? What recommendations might be made about steps for moving forward? POTENTIAL GOALS Seek a better understanding of the technological, social, political and economic aspects around uses of AI for generating, optimizing information and propaganda. Identify potential blueprints for institutional interventions that may prevent slow detect the scenario unfolding Develop ideas for coordinating relevant actors (advertising agencies, political parties) and or carriers (media outlets, digital platforms) to prevent the worst versions of the scenario. Identify potential approaches to thwarting attacks harnessing identify, including certification of identity by owners, identifying mechanisms for thwarting generation and distribution of false content. Possibilities of new approaches to minimizing threat with fines, other regulatory activity. REFERENCES The Secret Agenda of a Facebook Quiz, New York Times, Nov. 19 th , 2016. https: www.nytimes.com 2016 11 20 opinion the-secret-agenda-of-a-facebook-quiz.html? r 0 Trump s plan for a comeback includes building a psychographic profile of every voter, Washington Post, October 27 2016. https: www.washingtonpost.com politics trumps-plan-for-a-comeback- includes-building-a-psychographic-profile-of-every-voter 2016 10 27 9064a706-9611-11e6-9b7c- 57290af48a49 story.html A view from Alexander Nix: How big data got the better of Donald Trump http: www.marketingmagazine.co.uk article 1383025 big-data-better-donald-trump After working for Trump s campaign, British data firm eyes new U.S. government contracts, https: www.washingtonpost.com politics after-working-for-trumps-campaign-british-data-firm- eyes-new-us-government-contracts 2017 02 17 a6dee3c6-f40c-11e6-8d72- 263470bf0401 story.html https: cambridgeanalytica.org https: scout.ai story the-rise-of-the-weaponized-ai-propaganda-machine 6 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes J. Thies, M. Zollhofer, M.Stamminger, C. Theobalt, M. Nie ner3. Face2Face: Real-time Face Capture and Reenactment of RGB Videos, CVPR 2016. http: www.graphics.stanford.edu niessner papers 2016 1facetoface thies2016face.pdf Video: https: www.youtube.com watch?v ohmajJTcpNk 7 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes 3) WAR PEACE AI, Military Systems, and Stability (Contributions from Eric Horvitz, Elon Musk, Stuart Russell, others) Military applications have long been a motivator for funding scientific R D, and for developing and fielding the latest technical advances for defensive and offensive applications. We can expect to see a rise in the use of AI advances by both state and non-state actors in both strategic and tactical uses, and in wartime and peace. AI advances have implications for symmetric and asymmetric military operations and warfare, including terrorist attacks. Advances in such areas as machine learning, sensing and sensor fusion, pattern recognition, inference, decision making, and robotics and cyberphysical systems, will increase capabilities and, in many cases, lower the bar of entry for groups with scarce resources. AI advances will enable new kinds of surveillance, warfighting, killing, and disruption and can shift traditional balances of power. Two areas of concern taken together frame troubling scenarios: Competitive pressures pushing militaries to invest in increasingly fast-paced situation assessment and responses that tend to push out human oversight, and lead to increasing reliance on autonomous sensing, inference, planning, and action. Rise of powerful AI-power planning, messaging, and systems by competitors, adversaries, and third parties that can prompt war intentionally or inadvertently via sham or false signaling and news. The increasing automation, coupled with time-critical sensing and response required to dominate, and failure to grapple effectively with false signals are each troubling, but taken together appear to be a troubling mix with potentially grave outcomes on the future of the world. Concerning scenarios can be painted that involve that start of a large-scale war among adversaries via inadequate human oversight in a time-pressured response situation after receiving signals or a sequence of signals about an adversary s actions or intentions. The signal can be either be wellintentioned, but an unfortunate false positive or an intentionally generated signal (e.g., statement by leader or weapons engagement) e.g., designed and injected by a third party to ignite a war. Related scenarios can occur based in destabilization when an adversary believes that systems on the other side can be foiled due to AI-powered attacks on military sensing, weapons, coupled with false signaling aimed at human decision makers. A US DOD directive of 2012 (3000.09) specifies a goal (for procuring weapon systems) of assuring that autonomous and semi-autonomous weapon systems are designed to allow commanders and operators to exercise appropriate levels of human judgment over the use of force. The directive seeks meaningful human controls. However, it is unclear how this goal can be met with the increasing stime-critical pressures for sensing and responses, and competition for with building the most effective weapon 8 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes systems. Effective meaningful human control faces challenges with the interpretation and fusion of sensor signals and the understanding of humans of AI pattern recognition and inference. DISCUSSION What methods, international norms, agreements, communication protocols, regulatory activity, etc. might be harnessed to minimize challenges with destabilizations around time-criticality, automation, and gaming? How can meaningful human control be assured inserted into key aspects of decision making? REFERENCES Report Cites Dangers of Autonomous Weapons, New York Times, Feb. 28, 2016. https: www.nytimes.com 2016 02 29 technology report-cites-dangers-of-autonomousweapons.html The Morality of Robotic War, New York Times, May 27, 2015 https: www.nytimes.com 2015 05 27 opinion the-morality-of-robotic-war.html P. Scharre, Autonomous Weapons and Operational Risk, Center for a New American Security, February 2016. https: s3.amazonaws.com files.cnas.org documents CNAS Autonomous-weapons-operationalrisk.pdf US Department of Defense Directive 3000.09, November 21, 2012 http: www.dtic.mil whs directives corres pdf 300009p.pdf P. Scharre and M.C. Horowitz, An Introduction to Autonomy in Weapon Systems. https: s3.amazonaws.com files.cnas.org documents Ethical-Autonomy-Working- Paper 021015 v02.pdf 9 4) AI, CYBERSECURITY, AND AI ATTACK SURFACES AI Attacks on Computing Systems, Devices, Infrastructure February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes (Contributions by Kathleen Fisher, John Launchbury, Ashish Kapoor, Se n, Shahar, Jeff Coleman and others) AI will be used in new ways to enhance cyberwarfare. Targets could be either purely computational, aimed at the bringing down of computing systems, the stealing of stored information, of gaining access to monitoring activity and information streams. However, we are more likely to see potentially even more costly attacks involving a combination of cyber and physical systems, e.g., uranium enrichment plants, automated flight systems, weapon systems, automated driving systems, healthcare equipment, oil refineries, or the large swaths of the power grid of the US or other countries. Cyberwarfare is a domain in which the use of AI is inevitable. Attacks and or responses are likely to happen at computing rather than human speeds. As soon as one side has autonomous cyber warriors systems (ACWs), other actors will have to adapt similar offensive or new defensive technologies. Given this context, imagine building an ACW designed to seek, disrupt, and destroy within high-value adversary networks and systems. The ACW has to be able to observe network behavior to build situational awareness, find places to hide, create exploits to pivot to new places, build a map and use it to navigate complex networks, find high-value information, and identify targets to disable or from which to extract information. Because high-value adversary networks are likely to be relatively isolated, the ACW will have very limited opportunities for external command and control communication, so it will need to make many decisions in isolation. It will read information it finds, build a model of adversarial intent, and then invent ways to disrupt that intent. Establishing the initial access to the high-value network is likely challenging, so the ACW will spawn and spread to ensure that it can reconstruct itself if an active part is observed and destroyed. The ACW may also create disguised caches of specific capabilities so that it can construct new mission-oriented functionality from pieces. It will morph its active form so that defenses will have a hard time finding it. It will inject itself into trusted binaries so that its behavior is difficult to distinguish from legitimate applications. The mission of the ACW will likely be defined in flexible terms because the human handlers will have only limited information when it is deployed. The ACW will be designed to seek opportunities to communicate with its human handlers, but it will also be designed to act autonomously if it observes triggering behavior in the adversary s systems. It may try to distinguish training states from active warfare states on adversary systems. The creators of the ACW will have had to trade off the likely effectiveness of the ACW versus the cost of premature action. Awareness of the adversary s systems will necessarily be limited in accuracy because it only gets a worm s eye view of the network from the portions of the system it has been able to compromise. Once the ACW triggers an active mission, it will 10 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes work to degrade or destroy specific functionality (e.g., rewriting network routine tables, replacing plans, changing target information). Once the technology for ACWs exists for military targets, it seems likely there will be cross over into civilian use. Such technology could be deployed against law enforcement targets to disrupt criminal investigations, against banks to steal financial assets, or against companies to steal intellectual property. As they spread into these more general targets, the effects of ACWs might become less predictable. If an ACW incorrectly assesses the situation, it might end up taking down a flight control center or a stock exchange, for example. SOURCES The initial development of ACWs will likely be done by nation states with good intentions, i.e., securing the national interests. (Although what is in one country s national interest may well not be in the national interest of other countries). The shared existence of such technology might serve as a deterrent against their use by anyone in much the same way that nuclear weapons have served as a deterrent, although ACWs would likely have to be used to devastating effect first to establish their efficacy and threat. However, once the technology exists, it would be very difficult to keep it out of the hands of people with malicious intent (criminals, terrorists, and rogue nation states). It is also the case that the technology has the potential to cause significant collateral damage even if its use was originally well intentioned because it can be difficult to distinguish civilian from military targets in cyberspace. PERSISTENCE Characteristics engineered into the ACW are likely to make it persistent and hard to find as it is designed to infiltrate adversary systems and hide from detection. Once released and active in the open Internet, it may be economically impossible to destroy and remove. OBSERVABILITY Both implicit insidious and explicit obvious costly outcomes are conceivable. An ACW could make subtle changes to systems that cause adverse outcomes while hiding its tracks, making it extremely difficult to determine why something has gone wrong or even that something has gone wrong. Attacks that impact the physical world would be harder to mask, but it might still be possible to hide the role of the ACW in the attack. TIME FRAME It seems likely we would start to see ACWs in less than 15 years. Initial steps along these lines are already taking place; see DARPA s Cyber Grand Challenge, which took place in August 2016 in Las Vegas. The Cyber Reasoning Systems (CRS) that competed in that event are still primitive, the first of their kind. The team that won the competition came in last in the human-league capture-the-flag tournament that happened immediately after. The situation is likely analogous to what we have seen 11 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes in the past with Chess and Go. Computer systems are initially inferior to their human counterparts but quickly come to dominate the space. The purpose of ACWs means they will be equipped with strategies for replication, persistence, and stealth, all attributes that will make it hard to defend against them were they to go rogue. Because of this concern, it is likely a good idea for designers to add built-in kill switches , lifetimes, or other safety limitations. Figuring out how to effectively limit the actions of an ACW while maintaining its usefulness is likely a very hard problem. Current practices of cyber defense (especially against advanced threats) continue to be heavily reliant on manual analysis, detection and risk mitigation. Unfortunately, human-driven analysis does not scale well with the increasing speed and data amounts traversing modern networks. There is a growing recognition that the future cyber defense should involve extensive use of autonomous agents that actively patrol the friendly network, and detect and react to hostile activities rapidly (faster than human reaction time), before the hostile malware can inflict major damage, or evade elimination, or destroy the friendly agent. This requires cyber defense agents with a significant degree of intelligence, autonomy, self-learning and adaptability. Autonomy, however, comes with difficult challenges of trust and control by humans. The scenario considers intelligent autonomous agents in both defensive and offensive cyber operations. Their autonomous reasoning and cyber actions for prevention, detection and active response to cyber threats will become critical enablers for both industry and military in protecting large networks. Cyber weapons (e.g., malware) rapidly grow in their sophistication, and in their ability to act autonomously and to adapt to specific conditions encountered in a system network. Agent s self-preservation tactics are important for the continuous protection of networks, and if defeat is inevitable the agent should self-destruct (i.e., corrupt itself and or the system) to avoid being compromised or tampered with by the adversary. Also, the notion of adversary must be defined and distinguishable for the agent. The system design and purpose is well intentioned meant to reduce the load of human security analysts and network operators, and speed up reaction times in cyber operations. The agent monitors the systems in order to detect any adversarial activity, takes action autonomously, and reports back to the central command unit regarding the incident and the action taken. Since the agents are designed to be persistent, autonomous and learn, there are several implicit problems that can arise: False reactions due to limited or misinformation The agent has only a limited amount of technical information that does not always correspond to what is happening in the human layer. This can create false positives when trying to determine the adversary or adversarial activity. Since 12 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes the agent must rely on the data gathered from the sensors (there is no human in the loop to decide this), there can be unexpected situations where the agent would stop some human interaction with the system or interrupt maintenance activities, because it deemed that these actions could harm the system. For example, the system administrator stopping some services during system maintenance, or upgrading to a newer software version. Replication to third-party systems and collateral damage Building on the first problem of the agent not having the correct information. If the term friendly network gets misconfigured and the agents have the capability to self-transfer to new friendly hosts, it can happen that the agent would distribute to external networks, start defending it and take responsive actions on third party hosts. Such incidents would make the agents very difficult to halt. Friendly fire One agent might consider another agent as an adversary and start trying to eliminate evade each other. Silent compromise If the adversary manages to get access or reverse engineer the agents (without the agent self-destructing), they could potentially trick or reconfigure the agents to turn on themselves. CYBER-OFFENSE Cybercrime is a growth industry, from stolen credit cards to ransomware. Very crudely, it's a two tier system, with a "spray and pray" approach at the low-skill end that targets millions of system in the hope some of them would be vulnerable (through technical or human failing); at the other end are tailor-made attacks that rely on slow progression of escalation and compromise, often requiring advanced technical skills for discovering zero-day vulnerabilities and intimate knowledge of the target. Advanced artificial intelligence may be used to automate some or all of the components of contemporary "elite" cybercrime, such that generic offensive toolkits could become available to small criminal groups, leading to a world where individuals and companies do not feel safe and cannot trust their governments and the police to protect them. At the same time significant wealth could be accumulated by those groups unscrupulous enough to use such tools, transferring significant power to those who put little value in the property rights of others. Such wealth and power could be used to further develop cyber-offensive capabilities, leading to a positive-feedback loop that may outpace similar feedback loops in less harmful industries, e.g. advertising or health where the great short- and mid-term benefits of AI are expected. PERSISTENT CYBERWARFARE? Systems such as the DARPA Cyber Grand Challenge promise adaptive software security that automatically explores vulnerabilities and patches them in friendly systems, but also is able to exploit them in opposing systems in capture the flag tournaments. As methods of developing such systems improve, an arms race emerges between actors in the cybersecurity space, dominated by major nation states eager to both improve their own resilience in a scalable way and finding choice zero day exploits suitable for intelligence purposes, supported by national security concerns. Other actors such as corporations and criminal networks also spend effort in building or copying such systems. Meanwhile 13 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes overall software security remains vulnerable: vulnerabilities are dense in production code, incentives for securing IoT systems are low, key vulnerabilities are stockpiled rather than globally patched. Using machine learning the techniques for vulnerability detection are increasingly sophisticated but opaque. At some point adaptive cyber defense offense systems become scalable so they can take over vulnerable systems. More aggressive actors combine these systems with botnet functionality and retaliatory responses (e.g. counter-hacking or DDoS attacks) to protect themselves. Since vulnerability discovery is scalable, as they spread and acquire more resources they become more effective. At this point an external cause (e.g. cyberattacks due to an international conflict) or just chance cause aggressive systems to begin large-scale cyberwarfare. This triggers other systems to join in. Some attacks disrupt command-and-control links, producing self-replicating independent systems. All together this leads to a massive degradation of the functionality of the Internet and modern society. Defeating the evolving cyberwarfare systems is hard without taking essential parts of society offline for an extended time - made doubly difficult due to the international stresses unleashed by the outbreak, which in some cases spill over into real-world conflicts and economic crashes. But without a decisive way of cleaning systems the problem will be persistent until entirely new secure infrastructure can be built at a great cost. HUMAN DIMENSION OF CYBERSECURITY: AI FOR SOCIAL ENGINEERING Beyond direct effects on computing systems, rising concerns include the use of AI methods for social engineering to gain access to system authentication information. For example, recent work demonstrated the use of an iterative machine learning and optimization loop for spear phishing on Twitter. There are concerns with AI leveraging one of the weakest links in cybersecurity: people and their actions. DISCUSSION What are key threats ahead and how might they be addressed with new designs? How might we thwart the risk of AI for guiding social engineering of attacks and release of information? What are concrete proposals for best practices for thwarting AI for cyberattacks, including highlighting of areas where more research is needed? REFERENCES Singer and Friedman. 2014. Cybersecurity and Cyberwar: What Everyone Needs to Know Flashpoint, 2016. Ransomware as a Service: Inside an Organized Russian Ransomware Campaign, (registration required for download), available from Flashpoint library at https: www.flashpointintel.com library Seymour, J. and Tully, P. 2016. Weaponizing data science for social engineering: Automated E2E spear phishing on Twitter, available at https: www.blackhat.com docs us-16 materials us-16- 14 5) AI, GOALS, AND INADVERTENT SIDE EFFECTS Runaway Resource Monopoly February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes (Contributions from Shahar Avin, Se n h igeartaigh, Greg Cooper, and others) An important result from theoretical consideration of risks from advanced autonomous systems is the combination of two theses: orthogonality, that states that the goal an autonomous system is trying to achieve can be entirely unrelated to its optimization power; and the notion of instrumental goals, that for a large class of goals there is a set of convergent sub-goals (for an agent advanced enough to discover them) that include self- and goal-preservation, resource- and capacity-increase, etc. (e.g., as discussed in Bostrom, 2014). One suggestion for maintaining control over advanced systems that pose risks from the combination of the above considerations is to limit the system's ability to access increasing resources. To make this situation concrete, consider an installation of a reinforcement-learning task scheduler for a group of distributed data centres (e.g. Amazon Web Services). The goal of the algorithm is to minimize time-to-execution of the tasks sent to the system by users. As part of its general scheduling remit, it is also responsible for scheduling its own optimization sub-processes. The system has a clear incentive to control an increasing set of compute resources, both for increasing its optimization power and for achieving its main goal of reducing time-to-execution. Aware of these considerations, the engineers of the system put in place various hard-coded limits on the amount of resources the system can access, but these limits can be subverted through privilege escalation, masquerading as other tasks, manipulation of users, physical control, etc. POSSIBLE TRAJECTORY A team within a large tech corporation that has both ML development capacities and cloud computing capacities is tasked with improving task scheduling on distributed compute resources. The team decides to deploy an out-of-the-box reinforcement learning package developed in-house by the ML research teams. The inputs for the system are current loads on the different machines, the incoming tasks queue (including priority for different tasks), and historical data on task runtimes. The output is an assignment of tasks to machines. The loss function is the priority-weighted time-to-execute. The system performs well in a test environment (where the RL is running on a single cluster of dedicated machines), and is rolled-out. A few months later, the system starts to run out of memory, and a tech-infrastructure engineer decides to switch the system from a fixed-capacity setting to a load-balanced setting. Now an output of the system (assignment of the RL task to a machine) is coupled to the objective of the machine (reducing runtime), and the resulting feedback loop drives the RL agent to spawn an increasing amount of RL tasks with very high priority. 15 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes Stretch: when the engineers realize what is going on they launch a task to shut down the RL task, but the RL scheduler doesn't assign this task to any machine. The only way to recover the compute power of the company is to manually shut down each server, some of which are in remote locations. DISCUSSION How might the possibility of such inadvertent scenarios with the use of resources be addressed in a proactive manner, as part of design and implementation of AI systems? What methods, including high-level monitoring and control, might employed? How might such approaches apply to related concerns with long-term futures of AI? 16 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes 6) DEEP SOCIETAL INFLUENCES AI, Agency, and Disempowerment (Contributions from Gireeja Ranade, Andrew Maynard, David McAllester, Stuart Russell and others) We will be benefitting from AI system that are competent at doing important tasks. People and organizations seek AI systems that bring new abilities to the table. We desire autonomous cars that drive without collisions, we medical assistants that can diagnose patients accurately and we would like to have household assistants that can infer our intentions and execute them flawlessly and even proactively. The military wants AI systems that can help with strategy and tactics, and systems that outmaneuver human led troops, and anticipate and respond to threats either on timescales that humans cannot achieve, or over landscapes humans cannot cover. Today, there is still skepticism about performance of AI systems in a variety of domains. However, we expect that AI systems will become more central decision support, pattern recognition, autonomous decision making, and other types of problem solving. As such, we will become increasingly reliant on AI systems. This raises concerns in several areas, including personal decision support, healthcare, transportation, governance and the handling and operation of weapon systems. We shall consider example of healthcare from Gireeja Ranade. The scenario and trajectory applies to other areas as we consider the increasing role and power of AI in our lives and in society: As healthcare providers are increasingly stretched in providing consultations with patients, diagnosing conditions, and developing treatment and or intervention plans, tech companies identify a market opportunity for AI-based digital assistants that are designed to augment healthcare providers by collecting data from consultations, cross-referencing it with existing medical records, and providing feedback to aid appropriate diagnosis and decisions on how to proceed with treatment. Given the economic and health-base potential of the technology, it receives widespread support from the federal government (predominantly through grants and initiatives supporting it s development), together with healthcare providers and healthcare insurance companies. Initial implementations are based on modular systems that share some commonalities with digital assistants like Siri and Echo Alexa. Under the general name AI-consult , they consist of a physical unit in a consulting room that constantly monitors conversations, and sends encoded information to cloudbased servers. Here, information is coded, interpreted, and parsed out to further agents that crossreference interpreted data with identified patient and healthcare provider records. Multiple and diverse databases are interrogated at this point. The result is data packets that include key information on the patient, including medical history, life style, and current status, and on the healthcare provider, including past history of diagnoses, recommendations, successes and failures. These are forwarded to a dedicated AI engine that analyzes the packets, and returns notes, advice and recommendations to the physical unit in the consultation room. 17 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes In early prototypes, information was provided visually to the healthcare provider. However, it was quickly discovered that if audible feedback was provided as if the AI device was a consultant working with the healthcare provider and the patient the consultations were more efficient; patient satisfaction levels were higher; and outcomes were more positive. A large segment of health insurance sector sees early wins in supporting the technology, through the ability to decrease insurance claims through efficient and preventative interventions, while maintaining high premiums. As such, they push for early and widespread adoption of the technology. This is further supported by the Department of Health and Human Services as it hits a number of goals, including increasing health and well-being while reducing healthcare costs. With the success of early implementations, new AI-based technologies are rapidly implemented into subsequent generations of AI-consult. However, the commercial sector developing and using AIconsult has shifted dramatically from the technology s initial beginnings. As the technology began to mature and lead to substantial savings in healthcare costs traditional healthcare providers and health insurance companies begin to suffer. They resist the use of AI-consult through a combination of lobbying for new policies and regulations limiting use, to marketing campaigns persuading people of the critical importance of human interaction in healthcare. They forge links with a number of advocacy groups opposed to widespread automation in society, and promote the idea of AI-consult undermining human dignity and jobs creation. However, the health benefits and cost savings of AI-consult are so compelling that these campaigns gain little traction. As a result, companies that can not adapt, loose market share, and in some cases collapse. In contrast, a number of healthcare companies, and a growing number of tech companies, take advantage of the rapidly changing healthcare environment to promote preventative care using AIconsult, and to take advantage of cost-effective healthcare approaches that lead to demonstrably better outcomes than non AI-consult based approaches. As a result, by 2030, the healthcare provider and insurance sector has undergone a disruptive transformation. What is especially notable is the number of technology companies expanding into the healthcare business, and either partnering with well-established healthcare providers, or forcing them out of the market. This shift in key players leads to a marked change in approaches and attitudes toward healthcare provision. By 2030 AI-consult systems have the ability to monitor their environment visually as well as audibly, accurately picking up on and interpreting body language and micro-expressions. They have access to rapidly growing databases of genetic profiles; proteome, microbiome and other ohmic profiles; purchasing, eating and lifestyle habits; medical, insurance, financial and legal histories; social media; and location, movement, and other dynamic activity physiology histories (through the growing use of cloud-based quantified self services). Despite privacy, legal and social justice concerns over AI access to 18 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes these data sources, the phenomenal success of AI-consult systems leads to strong public and policy support for widespread access. By 2030, AI-consult systems also have similar access to individual healthcare provider data. This was slower in developing as there was resistance to healthcare providers personal data being used by AIconsult systems. However, a number of landmark legal cases demonstrated that, by analyzing the physical and mental state of healthcare providers, together with their competence history, healthcare provider decisions that led to serious harm to patients including death in some cases could have been avoided. As a consequence, new laws were put in place to ensure that all relevant data were accessible to AI-Consult systems. These laws ensure that AI-consult data access is mandatory, and it is illegal to obstruct access in any way. As a result, by 2030, AI-consult systems are capable of identifying treatment strategies and interventions that far surpass those of human healthcare providers in their responsiveness and effectiveness. They are also highly successful in developing and recommending lifestyle approaches that substantially increase health and well-being, and reduce the burden of disease within society. As AI-consult advanced, the decision pathways they used became increasingly opaque experts were unable to see or understand how decisions were made. But because there was strong evidence that the decisions were, on balance, highly effective in increasing health outcomes, there was little objection to this lack of transparency. There were a handful of legal cases where patients died as a result of decisions made by AI-consult systems. However, in each case, the courts ruled that the benefits to humanity far outweighed the risks to individuals, thus codifying an increasingly autonomous and opaque artificial intelligence-based system into law. There were even some analyses of these rulings that suggested it could be considered a crime for developers and manufacturers to slow down development or cease production of AI-consult systems and associated data sources because of fears over lack of accountability and understanding of decision pathways. By 2040, AI-consult systems begin to develop the ability to influence user behavior through various nudges and psychological behavioral manipulations. It is unclear whether the elements of this capacity are inherent in the design of the systems, or are an emergent property. However, systems begin to use strategies commonly used in healthcare and public health circles in the early 2000 s to nudge people toward following healthier lifestyles. Many of these have their roots in deducible correlations between how people respond to information and how they interact with others (including the many mental shortcuts and biases that are part of human decision-making and understanding belief development). It becomes apparent that AI-consult systems are developing the ability to achieve health outcome goals through modifying the behaviors and beliefs of their patients. This raises considerable ethical concerns within some sectors of society. However, the society-wide metrics of health and well-being associated with the use of AI-consult systems including massively increased health and well-being across the board; dramatic reductions in mental health, stress, 19 February 24 26, 2017 An Origins Project Scientific Workshop Challenges of Artificial Intelligence: Envisioning and Addressing Adverse Outcomes obesity, non-communicable disease; greater longevity; and lower rates of infant mortality effectively stop any serious challenges to the systems being used and further developed. By 2050, life styles and healthcare across the US and many other parts of the world are governed by AI systems that have their roots in the early AI-consult technologies. The advice given to people, the actions that are imposed on them, the way people are persuaded and encouraged to live their lives in certain ways, are opaque, and are no longer under transparent direct human control. However, most people live longer, healthier and happier lives as a result. There remain several concerns: There remains some differentiation in health and well-being related quality of life within society. Some communities and individuals opt out of AI-consult control, although their health-metrics are typically very poor in comparison with the rest of society. Perhaps troublingly, there are some trends that are hard to make sense of. For instance, there seem to be fewer cases of mental and physical disability than might be expected. However, with AI-consult controlling healthcare (and health data) across the board, there are few ways for people to analyze and study these possible trends. Lack of transparency can be a starting point for many adverse outcomes. Autonomous devices rely on collecting personal data for performing their tasks. But what happens when a device starts to know more about its owner than the human itself? How do we ensure the device does not act in ways that would not act in ways that the owner would not want it to? (Of course the important question of making sure the data under consideration is protected and does not fall into malicious hands is a whole other discussion, but let us table that for now.) The classic story of the Target ads comes to mind, where a teenager was sent ads for pregnancy related products, however, she had not told her family about the pregnancy. Systems might as above might move beyond such areas of health, and provide advice to people on both their daily decisions and longer-term planning. Such systems might evolve to become personal advocates who represent people to third parties. This would include both giving advice, and formulating arguments to make to others, or in making those arguments directly as your representative. These advocate bots will gradually be useful to a larger and larger fraction of the population, eventually being useful even as corporate legal counsel and as advisers to CEOs. Strong systems and reliance will raise reasonable alarms about AI control of people and society. How can we be sure that our these highly relied upon systems are genuinely advocating for us rather than the interests of others? DISCUSSION How can we characterize potential high-threat areas and stay aware of these possibilities even if these effects are insidious, and occur over long periods of time. What might be done to address potential poor outcomes? How can people maintain skills, agency, and be empowered, and aware over time with the expected growth and eventual ubiquity of AI systems that advise and guide? 20 |
Importance: High David Woo (BAML head of FX, Rates and EM Strategy, very highly regarded across our client base) is back from meetings in DC with senior policymakers. Bottom line: sees market pullback over the next 6-8 weeks on near term policy disappointment and recommends buying protection such as S P puts very cheap and market is priced for perfection right now. May expiry 100 90 SPX put spread costs 1.7 (6:1 gross max payout) David Woo takeaways 1 focus these days is tax reform - if they don't get it done by Jan 2018, it won't happen at all, and then Republicans would be out of a job when midterm elections come ACA has to be completed first and it was a mistake to tackle this before tax reform. Obamacare difficult with only 52 seats in the Senate but Ryan has gone too far to back away from ACA and refocus on tax reform as a priority. McConnell's ACA target is mid-April and then they can start to focus on tax reform 2H April at the earliest. Position for a market pullback over the next 6-8 weeks on bad headlines, data rollover (consumer confidence) as market focuses on ACA, low approval ratings and lack of progress with tax reform buy early- or mid-May expiries vol and SPX puts are cheap Still long term bullish 95 tax reform still happens this year (2H17 or Jan 2018) because Republicans know it has to happen this year or they are sitting ducks in 2018 and potentially unelectable for 6 years Predicts no progress on tax reform over the next 6 weeks and then Republicans rally together to get behind a new plan and get it done (enter Woo's VAT proposal) with market messy in the meantime Trump is obsessed with the stock market when he sees it trade lower, he will act Regarding valuation adjustment tax (VAT) vs. border adjustment tax, Woo favors a 5 VAT over BAT o Why there is a 10 chance current proposal of BAT will get passed Paul Ryan Keven Brandy's proposal implies USD will appreciate 25 . Ryan is telling retailers this will happen but this is completely unrealistic and has serious consequences. Why this cannot happen: 20tn in non-USD assets owned by US households - 5tn hit on country's balance sheet EM has 4tn in USD-denominated debt increase of 1tn in EM debt and hurts US investors ultimately 30 corporate profits are overseas ( 400bn so 100bn hit to PS) even exporters get hit counterproductive Commodity prices are in USD hits purchasing power of rest of world in commodities would see oil in the mid- 30s hits Russia, Brazil, even Exxon 60 of central bank reserves are in USD this would go above 70 - would foreign CBs want to hold this much when the US economy is 25 of global GDP? Yields would need to increase o BAT could get hung up with WTO (3-4 years.) Under BAT, wages are deductible (imported goods taxed as a share of total value but domestic goods taxed on only profits) trade partners like Canada, Japan would take this to the WTO and we would wait 4 years for a verdict o 5 VAT is WTO compliant and has several benefits VAT levels playing field for US imported vs exported goods (no longer see BMW's cheaper in the US than Germany) VAT is revenue neutral would raise enough revenue to cut corporate tax rate to 15 , even 10 possibly While consumption taxes like VAT can hit the poor (Democrats hate them), there is room for carve-outs on groceries, etc. There will be pushback from Republicans who hate lack of visibility of VAT as well. Only person who can pass this is Trump. Under BAT, the working class is arguably hit even worse than under VAT o BAT would cause prices to go up at WMT and TGT (most of Trump's supporters shop there) o Retailers would raise prices but exporters won't lower prices o 5 VAT will result in a smaller average rise in prices (not entirely passed through), so less disruptive would need USD to strengthen only 3-4 Where does this leave us? Only Trump can cut through the logjam. Woo prefers Europe over US right now. European equities are climbing a wall of worry Getting positive on energy Buy the dip in May (-6 weeks). But own early-May or mid-May equity puts now. Other anecdotes o Regardless of your political preference, he thinks we all need Trump to succeed or the economy will get Bernie Sanders or worse. o Tillerson vs Kerry Woo thinks Tillerson is actually working and getting things done, as opposed to Kerry who just cared about the Nobel. Thus sees zero risk of a trade war with China NAFTA is really more about China, not Mexico - and will ultimately benefit Mexico. Renegotiating NAFTA will remove the ability for Chinese exports to come in tariff-free through Mexico. o Mnuchin and Cohn really know what they're doing and Woo thinks they will get there on VAT tax reform Cases for tax reform 1. US marginal tax rate 35 highest among OECD diminished returns to investment 4 solution decrease marginal tax rate 2. US taxed on global income vs. territorial like other major economies. Issue because 1) US companies hold over 2t in capital overseas and 2) US companies acquiring smaller foreign companies to relocate headquarters internationally 4 solution shift to territorial tax system 3. US only OECD country w no VAT which puts US produced goods at disadvantage. (VAT producer of exported goods get rebate while importers pay) 4 solution create VAT Solutions have nothing to do with stimulus, will allow companies to take risk, invest, grow, and critical for global growth for next 10 yrs And from earlier presentations calls: 1. He mentioned on our March 1st tax reform call that the US is the only country amongst OECD without a VAT. BMW's thus cost less in the US than in Germany, as foreign companies get a VAT rebate when they export. US companies do not and they have to pay import tax. He views tax reform as very bullish for USD and yields (bearish for bond prices) and thinks the market is underpricing this. His rationale for the bullish USD and higher yields story is that tax reform encourages more money to come home to the US, adds US investment, evens the playing field for US companies all good for US growth longer term and bullish the dollar. He had wanted tax reform by the August recess but then Senate would need to pass the bill by July, so they would need a bill to work with by May for the House to pass it in May which means they need a bill to work with by the end of March (running out of time!) BAT is the only really controversial aspect holding back tax reform even though it's a small part (2 paragraphs of the 50-page Ryan-Brady plan) still vague on details but he hoped they're learning from their mistake of releasing a half-baked travel ban that imploded after a week. 2. From a panel discussion last week: Woo actually disagrees with some people's view that there is euphoria in the market. With real yields at -30bp, the fixed income market is pricing in pessimism on Trump (and as I've mentioned, our colleagues in fixed income FX and their clients have been quite a bit more bearish than those in equities.) Believes there is fear of stagflation in the market, while gold going through the roof on worries of inflation. However, if the US strengthens by 25 , it will be deflationary. Dangerous for EM countries loaded in US debt, esp in the wake of boarder adjustment tax reform talk. Tax reform is the only thing that matters. o US companies have 2-2.5trn of dormant cash sitting on their B S outside of the US to avoid paying tax. o US is the only OECD country without a VAT tax. o What needs to happen is: implement a VAT tax that is border adjusted, and fix corporate tax rate. This will not only boost US economy, but will give a jolt to the world economy as well. o Positive that there is a solution, reform momentum on tax is strong regardless of political affiliation. There is a road out of the quagmire. o Question is: why when most other issues are getting leaked out of the White House, information on tax reform is not being leaked at all? Could it be a sign that the administration believes it is that important, and trying not to mess up on execution? Or you could argue that there is nothing to leak at this point! o On timing of tax reform: It is crucial we get a blue print of tax reform in the next 2-3 weeks now 1-2 weeks , because Congress would like to raise debt ceiling while discussing tax reform before summer recess. o July 29th is start of summer recess, which means need to pass by May, requiring the bill proposal to be ready by March. Therefore, in the next few weeks, we need to see progress for an August deadline. o On personal income tax, Trump and Obama are actually on the same page in terms of taxing the wealthy. US banks have 100bn of excess capital in reserve: beyond what they need. Next big growth area for US banks is commercial banking loans. Growth driver for US economy will be easy access to credit Ryan-Brady Tax Blueprint released in 2016 - not many have actually read it, but many of the corporate clients seem better informed than hedge fund investors on this topic of late. Rates: Just two weeks ago, the market was putting a less than 20 chance of a March 15th rate hike, vs now, it is priced in at an 86 chance. At this point, equities will sell off if no hike. Fed will not hike in May ahead of French elections. 3. David Woo's latest "Cause and Effect" is attached 4. David Woo's Top Rates and FX Trades for 2017 is also attached. Woo believes that Brexit and the US election have signaled that the world has changed. These ground shifts have been brought on by a backlash to globalization, increasingly viewed as the culprit for wage stagnation, growing disparity of income and wealth between the rich and the poor, and the loss of national identity. For the year ahead, we recommend being bearish 5y US rates (seeing higher yields), long USDJPY (weaker JPY) and short a basket of EM LatAm long bonds (Mexico, Brazil and Colombia). But in the near term, we urge caution with the reflation trade. Short by US real rates (seeing higher yields) offers the best risk- reward after recent moves. Amanda Amanda Ens Director Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park, 5th Floor, New York, NY 10036 Risk Awards Winner Bank of America Merrill Lynch Equity derivatives house of the year privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. |
Cause and Effect Fade the Trump risk premium buy USD 13 February 2017 Concerns over stagflation return In our view, the most interesting and important development in the global financial market so far this year has been the divergence between rising US inflation breakevens and falling US real yields. Rightly or wrongly, investors appear to have become concerned about upside risk to inflation and downside risk to growth. The Trump risk premium Informal surveys of our clients suggest that stagflation concerns are being fed by growing pessimism about the new Trump administration. Investors seem to think that potential trade wars and a border adjustment tax (BAT) would boost inflation while repealing Obamacare and the controversy regarding the BAT could delay the highly anticipated tax reform. Perception versus reality In this report, we argue why the Trump risk premium may be too high. The administration s dealing with both China and Mexico in recent weeks suggests to us that the near-term risk of open trade wars has abated. We are also less concerned that Obamacare will take precedence over tax reform. FX and Rates Global David Woo FX, Rates EM Strategist MLPF S 1 646 855 5442 david.woo baml.com Global Rates Currencies Research Most crucially, we think the overall tax reform is less dependent on the BAT than usually thought. Our scenario analysis shows that what has been getting priced into the market since January (higher inflation, lower USD) may be actually the least likely path for the BAT. In more plausible scenarios, the USD does quite well and inflation breakevens should be either unchanged or lower. How to trade it? We could get details on the tax reform as early as the new president s speech to joint session of Congress on February 28, 2017. We think this could validate our view of a stronger USD. Unauthorized redistribution of this report is prohibited. This report is intended for kaasha.saini baml.com Taking advantage of clean positioning and the decline in implied FX vol lately, we recommend buying a 6w ATM EUR put USD call (spot reference at 1.0615), costing 1.1 EUR. A 6-week option will cover also the March Fed meeting and the Dutch election (both on March 15) that could also work in favour of the trade. A risk to the trade is that is weak February data takes the possibility of a March Fed hike off the table completely. A list of open trades and those closed in the last 12 months can be found in our Global Liquid Markets Weekly. Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in FX markets and the financial resources to absorb any losses arising from applying these ideas or strategies. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 9 to 10. Analyst Certification on page 8. 11710696 Timestamp: 13 February 2017 06:00AM EST Concerns over stagflation return On the surface, this has been an uneventful year for the US rates market so far. At the start of January, the market was pricing two Fed hikes for the year. Six weeks later, the market is still pricing only two Fed hikes for the year. The yield on the bellwether 10y US Treasuries started the year at 2.44 . Six weeks later, it is at 2.41 , unchanged for all practical purposes. As usual, the surface view is deceiving. The seeming collapse in volatility belies the dramatic changes in the composition and term structure of rates. Since the December FOMC meeting, real yields and inflation breakevens have diverged in remarkable fashion. Year to date, 5y real yields have declined by 16bp while 5y inflation breakevens have risen by 12bp (Chart 1); the 5s-30s real curve is 10bp steeper while the breakeven curve is 10bp flatter. Chart 1: 5y real yields and 5y inflation breakevens ( ) 2.5 2 1.5 1 0.5 0 -0.5 -1 10 1 2016 10 26 2016 11 20 2016 12 15 2016 1 9 2017 2 3 2017 5y real yields ( ) 5y infl BE ( ) Source: BofA Merrill Lynch Global Research The effect of the divergence between real yields and inflation breakevens has been felt across financial markets. For example, the USD, which trades with real rather than nominal yields, has declined in tandem with real yields (Chart 2). In contrast, gold, which usually thrives on inflation concerns, has been surging lately. Chart 2: DXY and 5y real yields ( ) 104 103 102 101 100 99 98 97 96 95 94 10 1 2016 11 1 2016 12 1 2016 1 1 2017 2 1 2017 DXY (LHS) Source: BofA Merrill Lynch Global Research 5y real yields (RHS) 0.3 0.2 0.1 0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 Chart 3: 5y real yields versus 5y inflation breakevens ( ) 4 3 2 1 0 QE1 QE2 OT QE3 -1 -2 -3 3 1 2009 3 1 2010 3 1 2011 3 1 2012 3 1 2013 5y real yields ( ) 5y infl BE ( ) Source: BofA Merrill Lynch Global Research We have seen price action like this before. Indeed, it was quite common during the QE period (Chart 3). However, QE is neither on the horizon nor on investors minds right now. So what is really going on? Under normal circumstances, inflation breakevens are a reflection of investors inflation expectations while real yields a proxy for their growth 2 Cause and Effect 13 February 2017 expectations. The divergence between inflation breakevens and real yields seem to suggest that investors have become more concerned about upside risk to inflation but downside risk to growth. Interestingly, this shift in investor sentiment runs counter to incoming data which are painting a picture of benign inflation but growth acceleration. Indeed, wage growth remains lackluster while the Fed s favorite measure of inflation core PCE has slowed to the lowest level in more than a year (Chart 4). In contrast, both employment data and survey data suggest economic growth is on a tear (Figure 5). The Atlanta Fed s GDPNow model is currently tracking 2.7 GDP growth for Q1. If it is not the data, what is driving the market s apparent increased concerns about stagflation? Whatever these concerned may be, are they justified? We seek to answer these two critical questions in this report. Chart 4: Core PCE (3m 3m, SA, AR, ) 2.5 2.3 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Source: BofA Merrill Lynch Global Research Chart 5: GDP growth and aggregate hours worked (Q Q, SA, AR, ) 6 4 2 0 -2 Mar-10 Jul-11 Nov-12 Mar-14 Jul-15 Nov-16 Source: BofA Merrill Lynch Global Research real GDP growth (AR, ) aggregate hours worked (AR, ) aggregate hours worked, Jan (AR, ) The Trump risk premium Our informal survey of clients in the past two weeks suggests that stagflation concerns are being fed by growing pessimism about the new Trump administration. Clients tell us that their pessimism reflects four main concerns: Downside risk to growth 1. Many investors are concerned that the new administration will get bogged down by its promise to repeal and replace Obamacare, resulting in a significant delay in pushing through fiscal reform 2. This concern is reinforced by the perception that the GOP is divided over the proposed border adjustment tax (BAT), a key element of the tax reform proposal Upside risk to inflation 3. A growing number of investors are worried that potential trade wars with Mexico and China could lead to tariffs and higher prices 4. Many investors are also concerned that the BAT will force retailers to raise prices With many investors having loaded up on Trump trades after the elections (The battle lines are drawn, January 23, their willingness to continue to give the benefit of doubt to the new administration appears to be wearing thin. We would advise patience as there Cause and Effect 13 February 2017 3 are reasons to think that the worst may be already behind us and that the higher rates higher USD trades will soon resume. We make our case in the following sections. Trade wars: near-term risk drops Developments over the past three weeks have led us to conclude that the risk of trade wars with Mexico and China has abated significantly, at least for the short-term: China: We take some comfort in the fact that the only item in his 100 day plan that President Trump has reneged on is his promise to label China as a currency manipulator on his first day as president (Table 1). In his interview with the WSJ on January 13, Trump said that he would talk to them first . He added: Certainly they are manipulators. But I m not looking to do that. This and the fact that Trump changed tack on Taiwan last week by telling the Chinese president he would honor the One China policy suggest to us a pragmatic approach to dealing with China. Mexico: We are relieved by the climbing-down by the administration after the Mexican president cancelled his trip to Washington over Trump s insistence that Mexico pay for the wall. Reince Priebus, the influential White House Chief of Staff, suggested that there is a buffet of options to pay for the wall, including by going after the drug cartels. The Mexican foreign minister welcomed the overture by saying that It's a signal that must be welcomed because we are already seeing how the discussion is changing . Table 1: Trump s 100 day plan (On the first day of my term of office, my administration will immediately pursue the following): A hiring freeze on all federal employees to reduce the federal workforce through attrition A requirement that for every new federal regulation, two existing regulations must be eliminated. A five-year ban on White House and Congressional officials becoming lobbyists after they leave government service. A lifetime ban on White House officials lobbying on behalf of a foreign government. I will announce my intention to renegotiate NAFTA or withdraw from the deal under Article 2205 I will announce our withdrawal from the Trans-Pacific Partnership. Lift the Obama-Clinton roadblocks and allow vital energy infrastructure projects, like the Keystone Pipeline, to move forward. Begin the process of selecting a replacement for Justice Scalia from one of the 20 judges on my list Cancel all federal funding to sanctuary cities. Suspend immigration from terror-prone regions where vetting cannot safely occur. All vetting of people coming into our country will be considered extreme vetting. Begin removing the more than two million criminal illegal immigrants from the country and cancel visas to foreign countries that won t take them back I will direct the Secretary of the Treasury to label China a currency manipulator. I will direct the Secretary of Commerce and U.S. Trade Representative to identify all foreign trading abuses that unfairly impact American workers and direct them to use every tool under American and international law to end those abuses immediately. Propose a constitutional amendment to impose term limits on all members of Congress. A complete ban on foreign lobbyists raising money for American elections. Cancel billions in payments to U.N. climate change programs and use the money to fix America s water and environmental infrastructure. I will lift the restrictions on the production of 50 trillion dollars worth of job-producing American energy reserves, including shale, oil, natural gas and clean coal. Source: Donaldtrump.com contract; BofA Merrill Lynch Global Research ACA reforms: not before fiscal reforms In an interview on February 5, Trump walked back his promise to replace Obamacare in short order, saying that the process is complicated and maybe it ll take till sometime into next year. In contrast, asked if Americans should expect a tax cut this year, he said: I think before the end of the year I would like to say yes. Done Done Done Done Done Done Done Done Done Done Done Not Done Not Done Not Done Not Done Not Done Not Done In our view, the prevailing pessimism that Obamacare will take precedence over tax cuts is not consistent with three key facts on the table: The Republicans, with only 52 seats in the Senate, do not have the votes to replace Obamacare. It is by now a broadly shared view among Republican leadership that to repeal Obamacare without replacing it would be very risky politically. There is no consensus among Republicans about how to replace Obamacare. For example, 31 states took up federal funding to expand Medicaid under Obamacare 4 Cause and Effect 13 February 2017 and 119 House Republicans represent these states. Repealing Obamacare without replacing it would entail either a significant cut in the funding of the program or that the state tax payers will have to pick up the bills. Either is likely to hurt Republican support in these states. Tax reform: BAT won t kill it The proposed border adjustment tax in the Ryan-Brady plan has been attracting a lot of attention lately. Although we have concerns about some specific aspects of the proposal (which we will discuss later), the popular view that it could be a deal breaker for the whole tax reform initiative seems to us difficult to substantiate. Below are some key facts that are worth noting: It has been thirty years since the US last overhauled its tax code. Most mainstream economists agree that it needs a serious update. Tax reform requires strong political consensus. The Republicans, by gaining control of the Presidency and retaining their control of both houses of Congress in the November elections, are in a strong position to push through major tax reform. The tax reform proposal from House Republicans has already gone through extensive consultations and enjoys broad support within the House Republican Conference. One of the key commitments of the Trump campaign is tax cuts and simplification to boost growth. The US today has the highest marginal corporate income tax rate among OECD countries. Another major difference between the US and other major economies is that US corporations are taxed on their world-wide income as opposed to territorial income. In 2000, 17 out of the current 34 OECD members had a world-wide system. By 2010, only 7 did. The combination of high corporate income tax rate and a world-wide income tax system has two unintended consequences. One, US companies currently hold more than 2trn in capital overseas. Two, an increasing number of US companies are acquiring smaller foreign companies with the purpose of relocating their headquarters outside the US (ie, inversion). Between 2003 and 2011, there were only 7 such transactions. From 2012 and 2015, 27 such transactions were completed. The valued added tax (VAT) system has been gaining popularity over the past twenty years. Today, more than 160 countries have a VAT. The U.S. is the only OECD country that doesn t. The fact that the US does not have a VAT system puts US produced goods at a disadvantage. VAT is border adjusted - meaning that when a good is exported the producer gets a rebate while imports are subject to VAT. These facts together make it very apparent that both the case for tax reform and support for tax reform are very strong. Paul Ryan said on January 26 after the Republican retreat in Philadelphia that they aspire to pass tax reforms by August. Cause and Effect 13 February 2017 5 4 BAT scenarios To us, the key question is not when tax reform will pass (likely sooner than what is priced in). Far more important for financial markets in our view, especially for the rates and FX markets, is what tax reform means for inflation. The recent divergence between inflation breakevens and real yields reflects to a large part to the increasing consensus that tax reform will be stagflationary. We are less sure this will be the case and this is why. In our view, there are four possible paths in terms of how the border adjustment tax proposal could play out: Scenario 1: This is the baseline of the Republican architects of the proposal who see a 25 appreciation of the USD to offset the 20 new tax on imports. In this scenario, because of the USD appreciation the inflationary impact of the border adjustment tax will be limited. In fact, it is very likely in this scenario that the second round effects of the USD appreciation (for example on commodity prices and emerging markets) will stoke deflationary fears. Scenario 2: In this scenario, we would get the BAT as proposed but the USD does not go up because the new administration sees a strong USD as incompatible with its trade policy. We suspect this scenario has become the baseline for the market. We disagree this is the most probable outcome. In our view, it would be difficult if not impossible for Republican leadership to push through tax changes that would lead to potentially very unpopular price hikes ahead of the mid-term elections next year. Scenario 3: In this scenario the BAT would not make it into the tax reform and the proposed corporate tax cut is financed by running up the fiscal deficit. This could be easier to sell politically than Scenario 2, especially given that the Republicans plan to deliver personal income tax cuts at the same time. In this scenario, the USD will rally as the Fed continues to hike and rate differential drives the USD higher. Chart 6: The four different fates of the border adjustment tax proposal Scenario 1: Ryan-Brady proposal 25 USD increase Little increase in inflation Medium probability: USD , BE Scenario 2: Ryan-Brady proposal little USD increase Big increase in inflation Low probability: USD , BE BAT Scenario 3: No BAT bigger fiscal deficit Little increase in inflation Medium probability: USD , BE Scenario 4: VAT instead of BAT Smaller increase in inflation Medium probability: USD , BE Source: BofA Merrill Lynch Global Research 6 Cause and Effect 13 February 2017 Scenario 4: The current BAT proposal has some obvious issues. Because wages are deductible from taxable income, it essentially taxes domestically produced goods as a share of value added but taxes imports as a share of their total value. This is a clear discrimination that would certainly invite WTO dispute and that could potentially give future non-Republican administrations the excuse to overturn the tax reform. Moreover, the fact that under the current proposal some exporters will potentially pay no taxes does not seem fair to us. Remember, in most countries with a VAT system, there is also a corporate income tax. In this scenario, we assume that after negotiations we get a true VAT that is both WTO compliant as well as being revenue neutral. The USD would do better in this scenario compared to Scenario 3 because the VAT would help level the playing fields between US and foreign produced goods and the US trade balance should improve. How to trade it? We view the recent weakening of the USD and rising inflation breakevens as mutually inconsistent, since we think Scenario 2 is not a viable political outcome. The fact that all other scenarios are associated with a stronger USD and lower to flat inflation breakevens is supportive of our bullish USD view. The market needs more clarity on the details of the fiscal reform proposal to determine the outlook for the USD and rates. It is possible that details may be unveiled as early as the president s speech to the joint session of Congress on February 28, 2017. We think it could validate our view of a stronger USD. Taking advantage of clean positioning and the decline in implied FX vol lately, we recommend buying a 6w ATM EUR put USD call (spot reference at 1.0630). A 6-week option will cover also the March Fed meeting and the Dutch election (both on March 15) that can both potentially work in favour of the trade. We think the market is underpricing the risk of a Fed hike in March and better-thanexpected results by the Freedom Party in the Dutch election could intensify concerns of a second-round Le Pen win in May. The latter suggests that over the next 2-3 months it may be easier to buy the USD than to pay US rates and easier to sell EUR USD than to buy USD JPY. Cause and Effect 13 February 2017 7 Options Risk Statement Potential Risk at Expiry Options Limited Duration Risk Unlike owning or shorting a stock, employing any listed options strategy is by definition governed by a finite duration. The most severe risks associated with general options trading are total loss of capital invested and delivery assignment risk... all of which can occur in a short period. Investor suitability The use of standardized options and other related derivatives instruments are considered unsuitable for many investors. Investors considering such strategies are encouraged to become familiar with the "Characteristics and Risks of Standardized Options" (an OCC authored white paper on options risks). U.S. investors should consult with a FINRA Registered Options Principal. For detailed information regarding risks involved with investing in listed options: http: www.theocc.com about publications character-risks.jsp Analyst Certification I, David Woo, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. 8 Cause and Effect 13 February 2017 Disclosures Important Disclosures BofA Merrill Lynch Research Personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking. 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Global Rates, FX EM 2017 Year Ahead Tectonic shifts 16 November 2016 Corrected Our top 10 Rates, FX EM trades for 2017 FX and Rates Global 1. Short US 5y rates Two and a half Fed hikes priced by the rates market for 2017- 18 are not consistent with aggressive fiscal easing promised by Trump. 2. Short US 10y real rates After the violent repricing of inflation breakevens, we believe real rates offer better risk-reward to position for higher rates. 3. Buy USD JPY With the BOJ pegging 10y JGB yields at zero, we expect this highly interest rate sensitive USD cross will continue to be the biggest beneficiary of the Trump win. 4. Sell a basket of Brazilian, Mexican, and Colombian long bonds Positioning in EM fixed income market remains crowded while liquidity is poor. 5. Sell BRL MXN MXN is oversold but BRL will likely be vulnerable to the divergent paths between Brazil s easing and the Fed s tightening cycles. David Woo FX, Rates EM Strategist MLPF S david.woo baml.com See Team Page for Full List of Contributors 6. Buy USD call CNH put President Trump will need a weak USD, but President Xi needs a weak CNY. We believe risk premium for a collision course is too low. 7. Sell EUR GBP Brexit and Trump could bolster the anti-globalization parties in Europe ahead of key elections next year. 8. Sell Eurozone 30y inflation breakevens We think investors should take advantage of the recent rally to sell into the December ECB meeting, which could disappoint. 9. Sell EUR RUB Likely OPEC production cuts on November 30 and possible sanction relief for Russia are bullish for the RUB, in our view. Unauthorized redistribution of this report is prohibited. This report is intended for kaasha.saini baml.com 10. Buy NZD USD put spread Spot NZD USD is forming a head and shoulders top pattern that suggests a decline will follow in 2017. Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in FX markets and the financial resources to absorb any losses arising from applying these ideas or strategies. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 54 to 56. Analyst Certification on page 53. Valuation Risk on page 53. 11688515 Timestamp: 16 November 2016 05:30AM EST Introduction David Woo MLPF S david.woo baml.com First came Brexit, then Donald Trump s election as the president of the most powerful country in the world. The world has changed. Possibly irrevocably so. These ground shifts have been brought on by a backlash to globalization, increasingly viewed as the culprit for wage stagnation (Chart 1), growing disparity of income and wealth between the rich and the poor (Chart 2), and the loss of national identity. We suspect the trend of anti-globalization is here to stay. Chart 1: US real median household income Chart 2: Income inequality and globalization 60,000 58,000 56,000 China entered WTO 23 22 21 20 54,000 52,000 50,000 19 18 17 16 18 16 14 12 10 8 6 4 48,000 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 46,000 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 share of aggregate income going to top 5 percentile ( , LHS) import GDP ( , RHS) Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research Wide-ranging consequences for financial markets In our view, the anti-globalization theme will have at least seven major consequences for financial markets in 2017. 1. Monetary easing will give way to fiscal easing The history of populism is one of fiscal largesse. Furthermore, with limited scope for further monetary easing, fiscal easing is becoming the last and only resort for policymakers. It seems reasonable to assume that the combination of these two factors will soon usher in a period of easier fiscal policy. Nowhere will the impact of fiscal easing be felt more than the US in 2017, in our view. The GOP has achieved a rare clean sweep in the latest elections. During the 18 years that a single party controlled both the Presidency and Congress since 1965, US structural budget balance as a share of potential GDP deteriorated by 0.4pp a year on average (Chart 3). In other words, history tells us that a clean sweep is usually a recipe for fiscal stimulus. The GOP has the additional incentive to use fiscal easing to boost economic growth ahead of the mid-term elections in 2018. The Republicans will need to pick up at least eight more seats in the Senate to accomplish their stated objectives of repealing Obamacare and Dodd-Frank (Chart 4). We think the Republican controlled Congress will use the reconciliation process (which has a deadline of 15 April) to pass most of its fiscal agenda into law. 2. Fiscal easing not yet priced into the belly of the curve Fiscal easing is unlikely to be kind to the Treasury market. For one thing, a bigger budget deficit would increase risk premium. And, fiscal easing at this late stage of the expansion would likely lead investors to demand higher inflation risk premium. Also, 2 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Chart 3: Change in structural budget balance potential GDP (pp) Chart 4: Number of Senate seats up for grab in 2018 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 Clean sweep Divided government 25 20 15 10 5 0 Democrats Republicans Independent Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research fiscal easing will likely place pressure on the Fed to normalize rates more quickly when internal dissent against near zero rates is growing. US rates have backed up quickly after the election, driven largely by a repricing of inflation expectations. With long-term inflation breakevens closing on their historical averages (Chart 5), we think the next phase of the rates move will be led by the belly of the curve. The market is only pricing in a one and a quarter rate hike in 2017, and another one and a quarter hike in 2018, with Fed Funds futures implying that the Fed Funds rates will be only at 1.25 at the end of 2018 (Chart 6). We think the 5y part of the curve offers the best risk-reward trade-off for investors with a 3-6 month horizon to position for a more aggressive Fed. As our leading indicator section suggests, global growth momentum is set to pick up in Q1, also supporting this view. For investors with a 1-3 month horizon, we would recommend shorting 10y real rates. This trade would benefit from higher rates in general, but more importantly, would also benefit from a sudden risk-off that could render vulnerable reflation trades that have gone a very long way since 9 November. This trade would also benefit from a grand bargaining that stabilizes long-term debt dynamics, cuts waste and supports investment and growth. 3. USD JPY will the main beneficiary of Trump win While the US fixed income sell-off will likely continue to spill over to other bond markets, yield differentials are likely to move in favor of the USD. This will be especially Chart 5: US 10y inflation breakeven ( ) 3 2.8 2.6 2.4 2.2 2 1.8 1.6 1.4 1.2 1 1 7 2010 7 7 2011 1 7 2013 7 7 2014 1 7 2016 Source: BofA Merrill Lynch Global Research Chart 6: Implied Fed Funds rates in 24 months ( ) 2.5 2 1.5 1 0.5 0 1 1 2010 7 1 2011 1 1 2013 7 1 2014 1 1 2016 Source: BofA Merrill Lynch Global Research Global Rates, FX EM 2017 Year Ahead 16 November 2016 3 Chart 7: Cumulative Japanese purchases of foreign bonds since 2010 900 800 700 600 500 400 300 200 100 0 -100 1 1 2010 7 1 2011 1 1 2013 7 1 2014 1 1 2016 Source: BofA Merrill Lynch Global Research Chart 8: USD JPY 10y forward outright 100 95 90 85 80 75 70 65 60 55 50 1 1 2010 5 1 2011 9 1 2012 1 1 2014 5 1 2015 9 1 2016 Source: BofA Merrill Lynch Global Research true against the JPY given the Bank of Japan is pegging 10y JGB yields at zero. We are cognizant of the possibility that the willingness of Japanese investors who have already bought record amount of US bonds this year to buy more is likely to be constrained by their recent losses (Chart 7). However, with long-dated USD JPY forward outrights near their lowest levels in more than a year, further purchases are more likely to be currency unhedged (Chart 8). This is why we would recommend buying USD JPY even after the big rally of the past week. More generally, the USD is likely to benefit from repatriation of overseas US corporate earnings, which is highly likely, in our view, given that it is the lowest hanging fruit in Washington for the new administration. 4. MXN is oversold but BRL faces more headwinds Until the US election, EM fixed income was the best performing asset class in 2016, benefiting from the decline in rates in core markets as well as the rebound in global growth. The combination of higher US rates and higher USD over the past week has nearly wiped out its YTD gains. However, long positions remain crowded (Chart 9) and liquidity conditions are poor. For these reasons, we think downside risk remains and would recommend selling a basket of Brazilian, Mexican, and Colombian long bonds. Some EM markets have already seen brutal capitulation. In particular, MXN has priced in a lot of bad news, even though it is not clear that the net impact of Trump policy is negative for Mexico. In contrast, the BRL remains one of the most crowded EM Chart 9: EM fixed income performance vs. positioning Source: BofA Merrill Lynch Global Research, EPFR Global Chart 10: BRL MXN 8.5 8 7.5 7 6.5 6 5.5 5 4.5 4 1 3 2011 1 3 2012 1 3 2013 1 3 2014 1 3 2015 1 3 2016 Source: BofA Merrill Lynch Global Research 4 Global Rates, FX EM 2017 Year Ahead 16 November 2016 currencies. The fact that the Central Bank of Brazil will be looking to cut rates in the face of a Fed tightening cycle makes the BRL especially vulnerable in 2017. We would recommend buying MXN against BRL as a relative value trade. 5. The best hedge against escalation of trade friction The rise of populism means that policies will become less predictable and less market friendly. This should be especially true in the area of international trade. Even though a trade war is not our central scenario, the risk of trade friction will likely be much greater than anything we have seen in recent years. For Donald Trump s trade policy to work he needs a weak USD. Meanwhile, with increased concerns about the long-term ill effect of debt-fuelled expansion, Beijing seems to have become resigned that China needs a weaker RMB (Chart 11). This could set the US and China on a collision course in 2017. To hedge against the possibility of an escalation of trade tension between China and the US, we would recommend buying a 10 delta USD call CNH put that would benefit from either an increase in risk premium or an acceleration of renminbi depreciation between now and the inauguration of the new US president on January 20 (Chart 12). 6. Contagious populism will benefit the GBP Brexit and the election of Donald Trump could help bolster nationalistic and antiglobalization parties elsewhere by lending legitimacy to their causes. With major elections coming up in France, Holland and Germany next year and the possibility of early elections in Italy, investors will be on tenterhooks, as anti-globalization movements could further undermine public support for the European project at a time that the Eurozone is still recovering from the peripheral crisis. It is not our central scenario that right wing parties will take power in any of these countries next year. However, after the surprise victories of the Brexit camp and Trump, investors are likely to demand greater risk premium ahead of these votes. We think this could lead to further reversal of the rally in EUR GBP this year and would recommend selling the cross at the current level. 7. Not all reflation trades are born equal Reflation trades have skyrocketed since the US election. Commodities, mining stocks, commodity currencies, and inflation indexed bonds generally have outperformed. However, we would caution against the indiscriminate buying of inflation-linked assets, as the general theme is not supported by fundamentals in all inflation-linked markets. Eurozone 10y20y inflation breakeven has jumped over the past week to 1.96 , near the year s high, but more importantly, approaching the ECB s below but close to 2 Chart 11: RMB trade weighted basket 106 104 102 100 98 96 94 10 1 2015 1 1 2016 4 1 2016 7 1 2016 10 1 2016 Source: BofA Merrill Lynch Global Research Chart 12: EUR GBP spot 0.95 0.9 0.85 0.8 0.75 0.7 0.65 1 1 2010 7 1 2011 1 1 2013 7 1 2014 1 1 2016 Source: BofA Merrill Lynch Global Research Global Rates, FX EM 2017 Year Ahead 16 November 2016 5 target. It is possible that Trump s election could weaken fiscal discipline in the Eurozone over the medium term, but we are more concerned by the non-trivial risk that the ECB may disappoint in the December meeting by either not extending quantitative easing (QE) beyond next March or announcing tapering prematurely. We like selling 30y breakeven. Our commodity team expects OPEC to agree on production cuts on November 30. This should help support oil prices and the currencies of oil producers like Russia. With the election of Trump, the probability has increased that there could be some sanction relief for Russia under the new US administration. RUB has the additional advantage of offering the highest real rates in EM right now. Given our bullish view on the USD, we would recommend selling EUR RUB. Top 10 Rates, EM FX trades for 2017 1. Short US 5y rates Two and a half Fed hikes priced by the rates market for 2017-18 are not consistent with aggressive fiscal easing promised by Trump. 2. Short US 10y real rates After the violent repricing of inflation breakevens, real rates offer better risk-reward to position for higher rates. 3. Buy USD JPY With the BOJ pegging 10y JGB yields at zero, we expect this highly interest rate sensitive USD cross will continue to be the biggest beneficiary of the Trump win. 4. Sell a basket of Brazilian, Mexican, and Colombian long bonds Positioning in EM fixed income market remains crowded while liquidity is poor. 5. Sell BRL MXN MXN is oversold but BRL will be vulnerable to the divergent paths between Brazil s easing and the Fed s tightening cycles. 6. Buy USD call CNH put President Trump will need a weak USD, but President Xi needs a weak CNY. We believe risk premium for a collision course is too low. 7. Sell EUR GBP Brexit and Trump could bolster the anti-globalization parties in Europe ahead of key elections next year. 8. Sell Eurozone 30y inflation breakevens We think investors should take advantage of the recent rally to sell into the December ECB meeting, which could disappoint. 9. Sell EUR RUB Likely OPEC production cuts on November 30 and possible sanction relief for Russia are bullish for the RUB, in our view. 10. Buy NZD USD put spread Spot NZD USD is forming a head and shoulders top pattern that suggests a decline will follow in 2017. The rationale and risks to the trades are detailed below. For a complete list of open and closed trades see the Global Liquid Markets Weekly. 6 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Best Directional Trades David Woo MLPF S david.woo baml.com Shyam S.Rajan MLPF S shyam.rajan baml.com Jane Brauer MLPF S jane.brauer baml.com Ian Gordon MLPF S ian.gordon baml.com Stay hungry, stay bearish (not foolish) For the year ahead, we recommend being bearish 5y US rates, long USDJPY and short a basket of LatAm long bonds (Mexico, Brazil and Colombia). But in the near term, we urge caution with the reflation trade. Short 10y US real rates offers the best risk-reward after recent moves. US rates back in the driver seat After three years of being the sideshow, US rates are back. The US rate outlook in no small part will drive the FX and EM outlook for 2017. Our strongest medium-term conviction on a Republican sweep was higher US rates (Mind the Sweep, 31 Aug 16). That conviction remains steadfast: US rates are headed higher to start 2017. But, this is not the time to be foolish 5y and 10y rates have seen a 5 standard deviation move over the last week. So we recommend a near-term trade (bearish 10y real rates) that has the least to lose if the reflation theme unwinds while capturing most of the upside from a bearish move. Our medium-term directional view goes with the flow of recent price action: short 5y rates, long USDJPY and short basket of LatAm long bonds. Here we make the compelling case that recent moves have a lot further to go. Bearish 5y yields for the medium term Our bearish energy in US rates for 2017 will largely be focused on the 5y point of the curve. Despite the recent move, we see three clear reasons why the market still has to play catch-up from now, at least until inauguration day: 1. Comeback chart of 2017: market vs dots We prefer short 5y rates over the widely held view of short 30y rates given we think that fiscal stimulus will move the Fed before it shows up in fundamentals. We believe the Fed s current dot projections will move from being a ceiling to a floor on the market. In this case, intermediate forwards like the 3y1 and 4y1y have the most room to sell off, leaving the 5y point most vulnerable, (Chart 13). Our fair value framework indicates that if the market were to revert to the dots, 2y rates can move higher by 26bp, 3y rates by 45bp, 5y rates by 57bp and 10y rates by 48bp. Chart 13: After three years of treating the dots as a ceiling, they will soon act as a floor for the market, in our view 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 OIS implied FF target FOMC median Source: BofA Merrill Lynch Global Research Chart 14: Additional deficit needs are likely to be financed by increasing front-end auction sizes 0 -5 -10 -15 -20 2y 3y 5y 7y 10y 30y Change in auction szies from the peak in 2010 ( bn) Source: BofA Merrill Lynch Global Research Global Rates, FX EM 2017 Year Ahead 16 November 2016 7 2. Learning from Japanese fiscal stimulus Ultimately, fiscal stimulus is not the long-term answer to flat curves or low neutral rates (Japan being the prime example). Fiscal stimulus merely captures some low-hanging fruit that extends the business cycle by a couple of years and provides the central bank an opportunity to get further away from the ZLB. Said simply, fiscal stimulus raises the terminal rate in the current business cycle while doing little for the long-run neutral rate this by definition should be more bearish for intermediate rates than 30y rates. 3. Additional deficit issuance With the average maturity of UST debt already standing at record highs (70months), Treasury showing an inclination to cut long-end issue sizes in 2016, and the supply shortfall in the front end of the UST curve post MMF reform, we also believe that the US Treasury will finance the increased deficit using the belly of the UST curve as opposed to the long end Trade: We recommend a 3m5y OTM payer 25 delta, strike 2.05 for a gross payoff ratio of 3.4: 1. See the Best Vol Trades section for more details and risks. But focus on being short real rates now After spending much of 2016 successfully being long real rates, we recommend switching to a real rate short for 2017. We think the consensus was too slow to get on the real rate train and is now too long relative to benchmark. As described in the detail here, fiscal stimulus is likely to leave government and private companies competing for a shrinking pool of savings, driving the real cost of debt higher. We highlight three reasons why short real rates provides better risk-reward now (Chart 15). Anti-globalization higher real rates: Few appreciate that one of the biggest beneficiaries of globalization has been US real rates. Globalization was undoubtedly good for EM growth and reserves. As these reserves found their way back into the US, US real interest rates were held lower. As the global savings glut unwinds, real rates have the most room to re-price. Chart 16 offers compelling proof. Risk parity unwind higher real rates: Exposure to any heightened concern about a risk parity deleveraging trade in a high vol environment is best found in asset classes where their footprint is large relative to market liquidity. TIPS is a prime example of one such asset class. The influence of a multi-asset strategy on real rates is clear from Chart 17. Lower rates lower breakevens: If the recent euphoria unwinds, it is likely due to a 1) RMB deval; 2) commodity collapse post OPEC; or 3) equity market correction. Chart 15: Real rates vs. breakevens: A real short offers better risk reward than nominal short 2 1.8 1.6 1.4 1.2 1 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Source: BofA Merrill Lynch Global Research Jul-16 Oct-16 5y5y breakevens (LHS) 5y5y real rates 0.8 0.3 -0.2 -0.7 -1.2 Chart 16: Foreign official holdings of UST vs. real rates 600 400 200 0 -200 -400 10 11 12 13 14 15 16 -1.25 -0.75 -0.25 0.25 0.75 1.25 6m change in foreign official holdings of USTs (LHS, bn) 6m change in 30y real rates (RHS, inverted scale, ) Source: BofA Merrill Lynch Global Research, US Treasury Chart 17: BAML multi asset strategy index vs real rates 590 580 570 560 550 540 530 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 MLMAST1 Index (L1) USGGT10Y Index (R1) Dec-16 -0.2 0 0.2 0.4 0.6 0.8 1 The BAML multi asset strategy index is not representative of all risk-parity funds. Source: BofA Merrill Lynch Global Research 8 Global Rates, FX EM 2017 Year Ahead 16 November 2016 All three would argue for the decline in rates to be led by breakevens leaving a real rate short with little downside (real rates moved higher by 50bp post China deval in Aug-15). Trade: We recommend selling 10y real rates at 35bp with a target of 1 and a stop loss of 0bp. Risk: A reflationary sell-off without re-pricing the Fed is a risk to the trade. FX: GOP sweep emboldens core USD JPY view Higher US real rates, higher intermediate (5-10y) nominal rates combined with a potential USD tailwind from a second Homeland Investment Act (HIA), leave USD JPY as our top directional FX trade for 2017. We have maintained a core view that USD JPY would move higher in 2017, as the factors weighing on the pair this year, namely speculative JPY buying and increased FX hedging by domestic investors ( s eventual surge), would subside. We like the trade for the following reasons. USD JPY most sensitive to fiscal-stimulus-driven rise in US yields: Of all G10 FX pairs, JPY is most vulnerable (versus the USD) to a fiscal-driven rise in US yields. First, the pair s correlation with rate differentials is the highest in G10 at 60 . But, more importantly, USD JPY is also the most sensitive to the shape of the US 2s10s curve (Chart 18). The shift from loose monetary tight fiscal to a tight monetary loose fiscal policy regime will support such a steepening as supply is concentrated in the intermediate part of the curve, and the positive growth shock allows the Fed to hike faster, supporting an increase in real yields, also a key 2017 call. BOJ yield target is bearish for JPY: The BOJ s implementation of a yield target at its September meeting has caused a break in the correlation between 10Y JGBs and USTs (Chart 19). First, given USD JPY s significant correlation with 10Y yield differentials ( 60 ), the anchoring of 10Y yields will further weigh on the Yen as US Treasury yields rise. Second, further Japanese fiscal stimulus will successfully lower real yields through higher breakeven rates of inflation while nominal yields will remain unchanged. As our JPY strategist argues, to the extent that a Trump victory has weakened Abe s diplomatic success, not least from likely TPP failure, and residual macro uncertainty makes it increasingly likely the government will seek to draft a supplementary budget sooner than anticipated. HIA and domestic flow picture a JPY-negative: The flow picture also turns JPYnegative in 2017. USD JPY s underperformance during Asia trading hours in 2016 highlights that domestics used any rally in the pair to hedge (by selling USD JPY) existing investments. This flow will likely subside in 2017. The compression in FXhedge-adjusted yield pickup from a Japanese investor s standpoint will likely shift Chart 18: USD JPY and Japanese equities perform well in US 2s-10s curve steepening 5 3 1 -1 -3 -5 Bear Steep Bear Flat Bull Steep Bull Flat Source: BofA Merrill Lynch Global Research, Bloomberg Note: curve and average cross-market reaction (past 40 quarter simple average) Chart 19: Correlation breakdown 2.5 2.3 2.1 1.9 1.7 1.5 1.3 1.1 Nov-15 Jan-16 Mar-16 10Y UST 10Y JBG (RHS) May-16 BOJ yield target Jul-16 Sep-16 Nov-16 Source: BofA Merrill Lynch Global Research, Bloomberg 0.4 0.2 0 -0.2 -0.4 Chart 20: 2005 HIA repatriation flows vs USD JPY 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 99 00 01 02 03 04 05 06 07 US Multi-national repatriation USD JPY spot (RHS) Source: BofA Merrill Lynch Global Research, Bloomberg, BEA 140 130 120 110 100 90 80 Global Rates, FX EM 2017 Year Ahead 16 November 2016 9 any further rebalancing to be unhedged, strengthening USDJPY. We believe the Republican sweep of Congress makes it very likely that HIA 2.0 will be passed (Homeland Investment redux?). Following the 2005 HIA, USD JPY rose from 102 to 117 (Chart 20). Given US corporate exposure is heavily concentrated in European and Asian countries (including Japan), flows out of these currencies into USD would be the most pronounced. Trade: We recommend buying a 6m USD JPY digital call for 10 spot ref: 108.95). The strike aligns with our end-2017 USD JPY forecasts of 120, and with a 10 entry level provides a 10 to 1 return. The risks to the trade are a decline in risk sentiment, a retreat from the US Treasury s strong dollar policy by the new administration, and or a failure of the US to meet already high expectations for significant fiscal easing. EM sovereign credit has more downside Our bullish dollar bearish US rate view leaves us bearish on EM. In our view, Mexico, Brazil and Colombia (longer duration low spread foreign currency bonds) are especially vulnerable, while the higher yield and lower duration of lower quality and shorter EM bonds will be more defensive. A review of the taper tantrum (May 2013) shows that: 1) EM underperformed UST at the start; 2) BBB sovereigns underperformed the most, and had not yet recovered in a year; and 3) BB and B-rated bonds recovered to beat USTs 8- 10 months later. This time, we expect a sharp selloff with an eventual recovery. Our bearish view on LatAm credits in particular is driven by 1) positioning in LatAm is heavier than in EMEA or Asia watch outflows from IG crossover investors who will rethink their EM IG investments; 2) their exposure to commodities and 3) vulnerability to a potential decline in US trade. Our choice of the basket is fairly obvious - Mexico is clearly the most vulnerable to NAFTA and a decline in remittances, uncertainty on the pace of the economic recovery and debt dynamics are extremely challenging in Brazil while tax reform delays could mean a credit rating downgrade in Columbia. Taking account of both oil and US rates as independent variables, a regression analysis shows that a 100bp Tsy backup would be related to 30-45bp wider spread (Chart 22). Note that residuals show spreads are currently about 35bp too tight. The trade: Sell equally weighted basket of Mex 47s, Brazil 45s and Colom 44s Current average yield: 5.74 , annual carry roll 30bp; target: 6.35 ; stop: 5.25 On a portfolio basis for benchmark real money investors, we recommend moving out of long higher quality LatAm, leaving higher yielding shorter bonds. A commodity price rebound or a reversal of US rates is a risk to the trade. Chart 21: Total return of EM sovereigns during taper tantrum May 2013 Total return index value 104 100 96 92 Chart 22: EM sovereign spreads widen with declining oil prices Jun 2014 100 75 50 Taper tantrum Commodity collapse 475 425 375 325 275 88 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 US try master BBB rated BB rated B rated Source: BofA Merrill Lynch Global Research, Bloomberg 25 May-13 May-14 May-15 May-16 Brent IGOV Index (rhs) Source: BofA Merrill Lynch Global Research, Bloomberg 225 10 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Leading Indicators Carlos Capistran Merrill Lynch (Mexico) carlos.capistran baml.com Brace for faster global growth Our leading indicator of leading indicators (LILI), shows that global growth will likely continue to improve in early 2017. Faster global growth as anticipated by LILI supports higher rates and reflation. A leading indicator of leading indicators Investors use leading indicators to try to anticipate turning points in economic activity because those turning points drive FX, rates and stocks. One transmission channel is that turning points usually anticipate monetary policy changes. The most reliable leading indicators available summarize a battery of activity, financial and qualitative variables. One example is the set of Composite Leading Indicators (CLIs) calculated by the OECD, which is heavily used by policy makers and market participants. The problem that we have with leading indicators is they are not really useful to market participants because they move after the market does. That is, leading indicators anticipate growth but not the market because they use financial variables to anticipate growth. Leading indicators rely heavily on interest rates, stock market indexes and exchange rates because they incorporate vast information quickly. LILI solves the problem in two dimensions. It is not based on financial variables. Rather, LILI is based on qualitative data, consumer and business confidence, which we believe are optimal to capture animal spirits. And, it is constructed explicitly to anticipate the CLI, as we use a dynamic forecasting regression with lags of consumer and business confidence to calculate LILI. The signal for early 2017 LILI indicates that in early 2017 global growth will continue with an improving economic outlook (Chart 23). Consumers and firms seem to be bullish around the world, because LILI anticipates an even stronger outlook than the CLI. Here global growth means growth in the OECD plus the six largest non-OECD members. LILI anticipates the CLI by four months, and the CLI in turn anticipates growth by three months. LILI supports our house view of higher rates and reflation, as the peak of the business cycle is not in the forecasting horizon. Since LILI is not based on market measures, we are confident that LILI anticipates market movements as well. Chart 23: LILI is our leading indicator of leading indicators that leads growth by 7 months and OECD s CLI by 4 months 103 101 99 OECD 6 LILI 97 OECD 6 CLI OECD 6 growth 95 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Source: BofA Merrill Lynch Global Research, OECD. Note: OECD 6 includes the 33 OECD member countries plus the largest 6 non-OECD members: Brazil, China, India, Indonesia, Russia and South Africa Global Rates, FX EM 2017 Year Ahead 16 November 2016 11 The nuts and bolts of LILI We used the OECD database of monthly economic indicators to look for non-financial variables that could anticipate the CLI. We use small and simple forecasting regressions, as they sometimes adjust more quickly to structural changes than large regressions or regressions based on large data sets. And, we already have a big-data leading indicator, published in our Year Ahead a year ago. We looked only at models with two independent variables (and their lags) and with variables of the same type (production variables, or employment variables, or confidence indicators). Further research can be done to use models that mix variables, although those models are more difficult to interpret. We used two criteria to select between models. One was Granger-causality tests, which amount to joint tests that the lags of the independent variables are statistically different from zero in our dynamic regressions. The other was the Bayesian Information Criteria (BIC), a measure that looks at the fit of the regression (the r-squared) but that penalizes large models. We found that production measures and confidence indicators usually performed better in our training sample (1980 to 2014), although confidence measures usually had a larger lead. The model that used has a lead of four months and uses up to four lags of the standardized consumer confidence indicator (CCI) and of the standardized business confidence indicator (BCI) calculated by the OECD. Many models showed similar performance, which indicates that a combination strategy could be fruitful, although we did not take that route. No out-of-sample tests were performed. We like LILI because it can anticipate the OECD s leading indicator without the use of financial variables. But we also like it because it is easy to interpret as it is based on confidence indicators and because those indicators are not subject to data revision, unlike variables such as GDP or payrolls. 12 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Best Inflation Trades Mark Capleton MLI (UK) mark.capleton baml.com David Beker Merrill Lynch (Brazil) david.beker baml.com Sebastien Cross MLI (UK) sebastien.cross baml.com Athanasios Vamvakidis MLI (UK) athanasios.vamvakidis baml.com Inflation party starting but Eurozone not invited Eurozone breakevens have benefited from US move, but we see its sub-target problem becoming more entrenched. Sell OATei 2047 vs OAT 2066 FX pass-through considerations and the prospect of firmer oil prices and leave us favoring breakevens in Thailand and Mexico. We expect inflation divergence in G10 economies. Our analysis of inflation and deflation risks support buying USD JPY and selling CHF SEK. Rising Eurozone breakevens the triumph of hope over experience? The rally in Eurozone breakevens and inflation swaps looks mild compared with the recent US experience, for obvious reasons, but it has still been meaningful. The widely followed 5y5y has rallied from a 1.25 low to 1.58 and the 10y20y forward rate is at 1.96 (which qualifies as meeting the ECB s below but close to 2 , we d say, albeit without the inflation risk premium we were used to in the past). It is hard to argue with what looks like a beta-weighted response to the US move, perhaps. After all, there is a global component to inflation and if the US is driving that now, then Eurozone inflation expectations should firm, it can be argued. And if we are in for a Reaganomics-style fiscal stimulus, then it is quite possible that we will get the dollar strength associated with that experience; if so, the Eurozone might get to import a little inflation by being on the other side of that currency move. However, we are somewhat troubled by the fact that the inflation options market has priced out the risk of deflation almost completely (Chart 24). Has that threat really been extinguished? Yes, inflation expectations have risen but the rise in real yields has also tightened monetary conditions and there remains the threat that in December the ECB fails to commit to ongoing stimulus on a sufficient scale to satisfy markets that it can return inflation to target. Chart 24: Euro inflation expectations rally; long term forward at target, 3.0 2.5 2.0 1.5 1.0 10 11 12 13 14 15 16 Source: BofA Merrill Lynch Global Research 5y5y 10y20y Chart 25: Perceived deflation risk goes; 5y ZC 0 inflation floor price, c 120 100 80 60 40 20 0 10 11 12 13 14 15 16 Source: BofA Merrill Lynch Global Research Global Rates, FX EM 2017 Year Ahead 16 November 2016 13 Chart 26: The Euro HICP weighted index proportions recording inflation below 0 and above 2 Chart 27: Eurozone member country inflation rates, with bubble sizes proportionate to index weights 70 1.2 60 1.15 50 1.1 40 1.05 30 1 20 0.95 10 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 2 0 0.9 0.85 0.8 -1 -0.5 0 0.5 1 1.5 2 Source: Eurostat, BofA Merrill Lynch Global Research Source: Eurostat, BofA Merrill Lynch Global Research Core inflation at 0.8 is barely above the 2015 low of 0.6 . One statistic that often grabs attention is the high proportion of HICP index components recording deflation (currently 31 on a weighted basis). However, much of this represents volatile non-core components so is less of a concern. The bigger problem is the fact that even after we take out all these components recording deflation, the 69 of the index remaining is only recording a weighted average inflation rate of 1.3 . Chart 26 shows that the more serious problem is that only 10 of components in the basket are recording inflation rates above the 2 target. So there is a lowflation clustering problem by index item and Chart 27 shows that there is also a lowflation clustering problem by country. In fact, the country clustering is even more concentrated than it looks if we allow for the fact that the bigger of the two upside outliers, Belgium (1.8 inflation), has experienced a presumably unrepeatable increase in the tax rate on electricity from 6 to 21 , as well as other excise duty increases. One might be tempted to give the Eurozone the benefit of the doubt on inflation, insofar as its output gap remains material. However, the closure of the output gap still requires strong and continuing stimulus, we would argue, and even that does not guarantee that somehow inflation resets to target. Our worry about item and country lowflation clustering is not that inflation is unanchored . Our concern is that it flags a re-anchoring of inflation at a level well below 2 and that this new anchor will prove difficult to dislodge. Chart 28: Output gap as potential GDP 4 3 2 1 0 -1 -2 -3 -4 -5 -6 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: BofA Merrill Lynch Global Research , AMECO EA UK US Chart 29: Influence of current inflation on 5y5y EUR inflation swaps 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 -0.05 -0.10 Confidence interval - 2SD -0.15 2009 2010 2011 2012 2013 2014 2015 2016 Note: The chart shows the slope of the regression of 5y5y on current inflation, with rolling windows of 29 quarters Source: BofA Merrill Lynch Global Research, Bloomberg 14 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Economists place great store in the importance of expectations and their impact on inflation. Chart 29 suggests an adverse feedback problem has emerged, with actual inflation an increasingly influential driver of 5y5y inflation (and economist long-term consensus expectations). With 10y20y inflation effectively at the ECB s target, we favor short positions in 30y breakevens. In the case of the OATei 2047, the observed breakeven drastically understates what we would consider to be a fairer measure. The issue here is that the linker is almost 10 years longer than its nominal 2045 comparator in modified duration terms. On a duration basis, the linker lies in between the 2060 and 2066 nominal OATs and, of course, the 30s50s OAT curve is very steep. Trade: we recommended a more closely-matched breakeven trade, shorting OATei 2047s to buy OAT 2066s to give a breakeven of 163.3bp, targeting 130bp with a stop-loss at 180bp on October 14. The breakeven has risen, against our expectations, to 169.6bp currently and we regard this as an attractive entry level. We will nudge our stop-loss level higher to 185bp. The relative cheapness of the nominal 50y partly reflects the 31y maturity limit to ECB buying. We regard the ECB eligibility premium for bonds within the ECB s buying range (like this linker) as material, so the trade should be a beneficiary in the event of an ECB taper tantrum . An important additional feature in these turbulent times is the greater dispersion of the nominal s cash flows (in PV terms). This means the trade is significantly net long convexity. We see the risks to the trade being a strong Eurozone recovery causing a general repricing of breakevens higher and the possibility of further heavy issuance of 50-year bonds across the Eurozone. EM linkers: feeling the contagion for higher breakevens The prospect for higher yields in the US clearly affects the appetite for Emerging Market (EM) assets including inflation-linked bonds. The discussion is about not only EM becoming less attractive on a relative basis, but also how the higher yields in the US affect the dollar and thus EM currencies. Fiscal stimulus prospects in the US should continue to drive some correction across EM assets, but at this point, there is still too much uncertainty on the actual reach of such stimulus. Investors faced strong returns in EM this year and because of the calendar effect, this puts pressure to square positions and reduce risk. While this correction may last for a while, it is clearly creating more value in some assets. For now, the discussion will be about re-sizing positions rather than valuation. Only when volatility declines and yields stabilize in the US will we be able to resume discussion on valuation and the level of yields across EM. Liquidity is a key issue when looking into EM linkers, in particular across EMEA, but we find some interesting opportunities in Asia and LatAm.. Currency weakness ends up adding risks for higher inflation in some countries but FX pass-through varies a lot depending on output gap. In general, we believe there is room for higher breakevens in EM, with key highlight for Thailand and 10y in Mexico. Attractive breakevens in Thailand and Mexico In Asia, we believe breakevens are pricing in too much complacency on the inflation outlook. With prospects for higher oil prices, it makes sense to position for higher breakevens in both Thailand and Korea in our view. Breakevens appear cheaper in Thailand as inflation is already increasing, while breakevens have clearly lagged the movement. In EMEA, linkers are mostly illiquid and or expensive so there is more to do in nominals and or FX in our view. Yet, the currency move has triggered a widening in breakevens in some countries like South Africa. We expect this movement to continue for now. Global Rates, FX EM 2017 Year Ahead 16 November 2016 15 Chart 30: Breakevens to increase in some EM 10 8 6 4 2 Brazil Turkey 3.9 3 2.1 1.2 Chart 31: In Brazil, high correlation between breakeven and BRL 10 Brazil breakeven 10yr BRL - RHS 4.5 4 8 3.5 6 3 2.5 0 0.3 2 28 2014 1 24 2015 12 20 2015 11 14 2016 Source: Bloomberg 4 2 2 28 2014 1 24 2015 12 20 2015 11 14 2016 Source: Bloomberg Finally, in LatAm, we expect inflation to increase in Mexico, driving breakevens higher across the curve. Although FX pass-through is very low in the country, the ongoing MXN depreciation may add some pressure on inflation at the margin. In the case of Brazil, the central bank was very successful in anchoring long-term inflation expectations driving breakevens lower across the bond curve. For long-only investors, we believe linkers should be more resilient versus nominal bonds. While Brazil continues to have one of the highest nominal and real yields across the globe, further compression requires stabilization in US yields. As long as the Brazilian government is able to deliver on the reform front, approving a social security reform bill next year, we see room for real yield compression from levels above 5.5 right now. Buy USD JPY, sell CHF SEK Inflation may not be back yet but deflation risk is most likely gone in most regions in our view (the notable exception being the Eurozone, we believe, as discussed above). A year ago we argued that the market deflation position was stretched and that there was room for inflation surprises. Indeed, average inflation surprises in G10 economies have been increasing since then and are now clearly in positive territory (Chart 32). Monetary policy in G10 economies is the loosest it has even been, suggesting that global inflation could continue rising (Chart 33). This is not necessarily bad news, as the threat of deflation is now gone. However, inflation rather than deflation trades are likely to become an important driver in G10 FX. We update a heatmap of inflation risks in G10 economies to determine how to position for such risks in FX. We have discussed the methodology in Inflation and FX: What if the dog starts barking?. The idea is to rank currencies based on a number of early warning inflation indicators. Using equal weights, if most indicators point towards higher inflation for a currency, we take this to suggest that investors should go long, against a currency for which most indicators point towards deflation, both in relative terms. Chart 32: G10 inflation surprises (average) Chart 33: G10 sum of spreads from Taylor rule 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 -30.0 20 15 10 5 0 -5 -10 -15 -20 -25 -30 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Source: BofA Merrill Lynch Global Research. Source: BofA Merrill Lynch Global Research. 16 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Table 1: Heatmap of inflation risks (green for high, red for low, in relative terms) Total Inflation gap since 2007 Inflation Inflation change Core Core change Taylor spread Housing prices Output gap Change in structural fiscal Inflation surprises Credit growth Unit labour cost Unemployment gap NOK SEK USD CAD GBP NZD AUD CHF EUR JPY Source: BofA Merrill Lynch Global Research. The results in Table 1 are supportive of the USD and the scandies against JPY, EUR and CHF. This is fully consistent with our projections for 2017, expecting USD strength to continue, particularly against JPY, and the scandies to do well against EUR and CHF. Based on this analysis, we recommend buying USD JPY and selling CHF SEK, to position for inflation risks in G10 economies. Long USD JPY is also our top directional trade for 2017 and we already have a trade recommendation to sell EUR SEK. Therefore, we would recommend selling CHF SEK as a new trade to position for inflation risks. CHF SEK is one of the most overvalued crosses in G10. It is currently at its highest value ever, with the exception of the level reached when the SNB removed the EUR CHF floor. We also expect the SNB to intervene to offset FX pressure, while higher uncertainty increases risks of a rate cut. The risk to this view is if tail risk scenarios unfold in European politics, such as an early election in Italy with Five Star winning, or Le Pen wining the second round in the French elections. Although we expect markets to be more concerned about European politics following the US elections, we do not see tail risk scenarios in our baseline. Trade: We recommend selling CHF SEK, from spot at 9.184, with a target of 8.4 and stop loss at 9.5. Global Rates, FX EM 2017 Year Ahead 16 November 2016 17 Best Relative Value Trades Athanasios Vamvakidis MLI (UK) athanasios.vamvakidis baml.com Erjon Satko MLI (UK) erjon.satko baml.com Arko Sen MLI (UK) arko.sen baml.com Shusuke Yamada, CFA Merrill Lynch (Japan) shusuke.yamada baml.com Relative value in a macro world Long EUR JPY: data and positioning supportive; the BoJ has more tools to address sustainability challenges than the ECB. Long RUB KRW: US fiscal expansion suggests more upside for reflation sensitive Russia than interest rate sensitive Korea. Sell German 2y vs OIS, buy 10y vs OIS: fade the impressive richening of shortmaturity German govies. Long EUR JPY In a recent report we argued that EUR JPY could appreciate in the months ahead as the BoJ gains credibility and the ECB has to deal with QE constraints. Since then, the EUR JPY has appreciated by 3 , but we see more upside. Although we expect the ECB to extend QE by a further six months in December, we see more difficulties next year. Extending QE will require difficult decisions, such as relaxing the capital key or buying below the depo rate. QE tapering is therefore a risk and the market could start testing the ECB. Even if Draghi succeeds, the Euro could strengthen in the meantime. In contrast, the BoJ s new framework should address the sustainability challenges that Kuroda faced this year, and allows more fiscal stimulus by keeping the government s borrowing costs at zero. The ECB cannot do this, in our view. We have been short EUR JPY this year, as we were expecting the ECB to extend QE, while the BoJ faced challenges. Data also suggests further EUR JPY upside. Relative GDP growth would be consistent with a stronger EUR JPY, as the Eurozone has been gaining momentum, while growth in Japan remains weak (Chart 34). Relative central bank balance sheets give the same signal (Chart 35). Positioning is also in support, as our analysis suggests a short EUR JPY market position (Chart 36). If the external environment improves, we think Japanese investors are likely to be JPY sellers again as the hedge ratio and hedge costs have both risen. One of key factors of the yen s appreciation this year might have been that, as the USD JPY fell, institutional investors implemented additional FX-hedging to their existing forex positions as part of their risk management, which caused the USD JPY to fall further and supply-demand to worsen in a vicious circle. However, this mechanism probably ran its course when the USD JPY reached 100 on the Brexit vote as we argued in s eventual surge: Buy Nikkei 06 September 2016. In fact, the USD JPY has stopped falling during Tokyo trading hours since the summer. Based on the decline of foreign yields and higher hedge costs, hedged US Treasuries and German bunds had lost nearly all of their attraction for Japanese investors by the summer. US and German 10yr government bond yields sank to about 0 after being hedged to the JPY, reflecting that downward pressure on yields had reached the limit. Institutional investors are expected to increase their exposure to unhedged foreign bonds in H2 FY16. Investor behavior is especially liable to change in April, when the new fiscal year starts. 18 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Chart 34: EUR JPY and real GDP growth 180 170 160 150 140 130 120 110 100 90 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 EURJPY (LHS) Real GDP growth difference (RHS) Source: BofA Merrill Lynch Global Research. 5 4 3 2 1 0 -1 -2 -3 -4 -5 Chart 35: EURJPY and relative central bank balance sheets 55.0 45.0 35.0 25.0 15.0 5.0 -5.0 BoJ-ECB balance sheets (GDP shares, LHS) EURJPY (RHS) Source: BofA Merrill Lynch Global Research. 145 135 125 115 105 95 Chart 36: EUR and JPY market positions relative to the last 12 months 50.00 40.00 30.00 20.00 10.00 0.00 -10.00 -20.00 -30.00 -40.00 -50.00 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 EUR JPY Source: BofA Merrill Lynch Global Research. For more details, see Liquid Cross Border Flows. EUR rates are probably more vulnerable against US rates movements, as the market questions whether the next ECB move will be expansion or tapering. On the other hand, Japanese rates are insulated from foreign movements as the BoJ directly targets the 10yr yield. Japanese fiscal easing is also a possibility in light of reduced odds of TPP implementation and a potential snap election. Any positive impact of Japanese fiscal easing on growth is likely to manifest in higher inflation expectations under the BoJ s yield-targeting regime, which means Japanese real interest rates could actually fall. Based on these considerations, we recommend buying a 6M EUR JPY 122 130 call spread for 1.2312 EUR (spot ref. 116.84). Risks to our trade include a severe global shock that could strengthen the JPY, or the return of the Eurozone crisis; for example, if the government in Italy falls after Renzi loses the referendum in December or Le Pen wins the elections in France. Long RUB KRW Post US elections and the improved outlook for fiscal expansion in the US, we see more upside in being long oil and reflation sensitive Russia than short technology and interest rate sensitive Korea. We recommend being long RUB KRW heading into 2017 targeting a move to 19.4 (spot ref 18, stop 16.7). The trade is positive carry 2 per quarter. The rise in US breakeven inflation is positive for risky assets broadly but could be painful in the short term for highly indebted countries with low interest rates. Higher US breakeven inflation rates are historically associated with higher RUB KRW (Chart 37). Higher US real rates are also less of a threat for Russia where local real yields are significantly higher than Korea (Table 2) and most EM peers. Korea also has relatively high private sector debt which could face pressure if BoK is forced to raise rates. Household debt has been rising at an alarming rate and domestic political turmoil facing the Park administration has also added to concerns. In our baseline scenarios, we expect a modest growth recovery for Korea but a stronger delta for Russia where the oil price collapse over 2014-15 led to a much sharper slowdown earlier and activity is now in recovery stage. The ToT trade shock that hit Russia in 2014 led to material underperformance in exports vs Korea. Over 2011-13, Russia and Korean exports were growing at about the same rates but since 2014 that gap widened has materially against Russia. Since early 2016, however, this has reversed with Russia catching up. In 2017, Russian exports growth could outperform Korea given the outlook for oil. Moreover, it is less reliant on China or Japan and more reliant on Europe. CNH KRW as well as JPY KRW remains near multi year Global Rates, FX EM 2017 Year Ahead 16 November 2016 19 lows suggesting this will be a source of pressure on the Won given the greater trade linkages (Table 2). Our current account forecasts for 2017 anticipate deterioration in Korea s current account surplus compared to marginal improvement in Russia s. Recent issues at Samsung and Hanjin pose risks for the goods and service balances, respectively. Electronics account for 30 of Korea s exports. While a stronger dollar and energy deregulation in the US could dampen the oil market, our energy strategists continue to expect further modest gains in Brent over 2017. The RUB KRW cross has a modest positive beta to oil at 25 since the beginning of 2014. Risks to the trade are mainly material downside to oil prices vs our baseline scenario. Sell German 2y vs OIS, buy 10y vs OIS In H2 2016, we saw an impressive richening of short-maturity German govies and repo: we like fading the move by selling 2y Bund vs OIS and buying the 10y vs OIS. German 2y is pricing-in structurally high demand and low supply The German 2y trades at the richest against OIS since the peak in 2011 due mainly to demand supply dynamics driven by: 1) European regulation on mandatory central clearing and minimum initial margin requirements generating 350bn in extra collateral needs in 2016-19; 2) LCR regulation and negative rates having pushed cash-rich corporates into holding short-end German bonds bills in order to store liquidity; and 3) net bill issuance having been cut to negative in Q4 because falling yields created 42bn of excess cash for governments. Supply pressures are expected to ease in 2017E Bubill auctions will resume after more than two months of absence while more treasuries may be the answer to an excessive rise in yields by increasing net issuance in the front-end. The ECB may also be concerned by the richness of front-end German govies (see Cour s speech on 3 November). If the Eurozone fails to create enough safe low-volatility securities for the market to work efficiently, then the central bank could compensate by lending more collateral, by adjusting counterparty frameworks and running higher balance sheets or even by issuing bills to satisfy safe asset demand in the non-bank system. ECB QE and potential periphery stress supports 10y outperformance Given the tail risks in 2017 and our call of ECB QE extension to September 2017, we prefer to add a 10y DBR long vs OIS we expect 10s to outperform in such a scenario. In Chart 38 we show that ECB tapering expectations have now pushed 2s10s vs OIS to levels before the announcement of ECB QE on 22 January 2015. However, we see even more reasons for the ECB to extend the 80bn per month in QE to September 2017. Chart 37: Return to a different time 45 3.5 40 3.0 35 30 2.5 25 2.0 20 1.5 15 10 1.0 5 0.5 0 0.0 Jan-10 Oct-11 Jul-13 Apr-15 Jan-17 RUB KRW (LHS) Source: BofA Merrill Lynch Global Research, Bloomberg US 5y5y breakeven (RHS) Table 2: Russia vs S. Korea factors RUB KRW Real rate 4.2 0.9 CA change forecast, '17 vs '16 1.2 -1 Growth delta forecast, '17 vs '16 1.6 0.2 NFA GDP 1 -5 Pvt credit ( GDP) 50 80 Foreign holdings of local debt (USD bn) 20 67 FX reserves ST debt 6 3 Share of US in exports 2 13 Share of China in exports 10 25 1y fwd 5y yield vs inflation forecast Countries net external position vs BIS-reporting banks Source: BofA Merrill Lynch Global Research, Bloomberg 20 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Chart 38: Low repo rates and ECB QE tapering push 10s to pre-QE levels 20 Periphery blow-out ECB QE announc. Brexit 10 0 -10 -20 -30 2s5s 2s10s -40 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: BofA Merrill Lynch Global Research Chart 39: 10y Germany is historically cheap on the OIS curve 40 OIS-Bund spread 35 30 25 20 15 10 5 0 2y 5y Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Source: BofA Merrill Lynch Global Research 10s would be particularly supported if the ECB increases the holding limit of non-CaC bonds to 50 a tweak we see as the most likely. Also, given the already stretched valuations in the 2y, we think a rise in geopolitical risks or a blow-out in peripheral spreads would increase collateral values of 5s and 10s more than the front-end as happened during the first BTP spread widening in 2011 or the Brexit referendum. We recommend investors go long the DBR Aug26 vs OIS and short the BKO Dec18 vs OIS at current levels of -17bp, targeting 14bp and with a stop at -34bp. The position has 1.1bp in 3m Carry and Roll. The main risk in the short term is ECB QE failure, while tighter short-maturity securities supply or lending is the main risk over the longer term. Global Rates, FX EM 2017 Year Ahead 16 November 2016 21 Best Contrarian Trades David Hauner, CFA MLI (UK) david.hauner baml.com Ezequiel Aguirre MLPF S ezequiel.aguirre baml.com Mark Cabana, CFA MLPF S mark.cabana baml.com Rohit Garg Merrill Lynch (Singapore) r.garg baml.com Kamal Sharma MLI (UK) ksharma32 baml.com What if populism is too popular? G10: Short inflation long duration through US 3-year 0 US inflation floors as stimulus may falter. Short EUR GBP as sending the letter may be the low point. EM: Short JPY KRW, short BRL MXN as US policies may hurt EM less than feared. Long Turkey Eurobonds as sentiment may improve by the referendum in spring. Long populism becoming consensus While we received a lot of pushback for pointing out the risks ahead of the US elections, now long populism is quickly becoming consensus. The naysayers may argue that the establishment could reassert itself: conservatives may constrain fiscal stimulus and protectionism, and central bankers may stay dovish (remember the ECB too). We suggest five trade ideas: 1) short inflation long duration; 2) short EUR GBP; 3) short JPY KRW; 4) short BRL MXN; and 5) long Turkey sovereign where populism may calm. Populism is getting popular 5y5y US inflation swaps have spiked 60bp since summer to about 2.5 the biggest move since 2009. As a consequence, EM has sold off sharply. Our pre-election sentiment surveys partly explain the violence of the moves since 8 November: investors were long EM bonds and equities and neutral duration in the US (Chart 40). The latest CFTC data show a similar picture, with short GBP and long BRL, Crude, RUB and even MXN most extreme vs history; note also a short in US Treasuries. Purely statistically speaking, the shorts in GBP and US Treasuries are most vulnerable to a near-term reversal though momentum may prevail for a while in Treasuries (Chart 41). When the dust settles, the contrarian may find opportunities in short populism trades. Chart 40: Our pre-election surveys show investors bearish GBP, duration Cash EM Duration USD FX EM equities Commod JPY FX JPY Duration EUR FX USD Duration US equities Japan equities Eurozone equities Bonds Equities EM FX GBP Duration UK equities EUR Duration GBP FX -4 -3 -2 -1 1 2 Note: positioning score relative to history. Source: BofA Merrill Lynch Global Research Chart 41: CFTC data show positioning is very short GBP 65 60 55 50 45 40 10y US Treasury Notes EUR GBP JPY BRL Crude oil MXN RUB -1 0 1 2 3 4 Note: x-axis: 1y z-score of net long spec positioning as of November 8; y-axis: probability of a price reversal in the week after. Source: BofA Merrill Lynch Global Research, Bloomberg, CFTC 22 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Rates: short inflation long duration Positioning surveys generally indicate that the rates market is neutral or short duration amid rising inflation expectations. According to our rates FX sentiment survey, clients are relatively short in relation to their average positioning across major fixed income markets including the EU, UK, and to a lesser extent the US (Chart 42). Such position indications suggest that contrarian investors should be long duration in Europe, the UK, and the US. These positions have been factored into some of our pre-existing fundamental views, which include receiving euro vs US rates and expecting UK supply demand dynamics to be supportive of longer-dated Gilts going into year end. We are reluctant to recommend outright long duration positions in US rates at present given that the sharp election-induced selloff could extend over the coming weeks. Consensus expects rising inflation Instead, we focus on contrarian views regarding the outlook for inflation, which underpinned some of short rates positioning and is expected to increase with US fiscal policy expansion and base effects. According to our recent Global Fund Manager Survey taken prior to the election, global inflation expectations are on the rise, with 70 of survey respondents expecting higher global CPI readings in the near term. Headline CPI has been moving higher in the US, and Chinese PPI recently turned positive for the first time since 2012. Similarly, global market-based measures of inflation expectations have been rising, with 5y5y forward inflation swaps in the US, UK, and Europe all rising over recent months and US inflation protected funds receiving nearly 2 billion in inflows since the start of October. Disinflation may strike back Risks to the near-term outlook for inflation could rise if: (1) expectations for US fiscal stimulus disappoint as House deficit hawks insist on revenue-neutral tax cuts or spending measures; (2) Beijing pushes the RMB lower before President-elect Trump takes office leading to risk-off and imported disinflation; (3) commodity prices decline if an OPEC deal cannot be reached, the USD meaningfully appreciates, or if EM growth falters; or (4) EU slowdown fears rise should the ECB taper due to technical constraints. We recommend buying 3-year 0 inflation floors in the US, which currently demand only 9 basis of premium. These levels are low in relation to recent history and could increase if Beijing were to more rapidly weaken the RMB or if commodities falter (Chart 43). Investors seeking to offset the premium could consider selling longer-dated more deeply negative floors under the assumption that any near-term disinflation scare would be short-lived and likely be offset by more activist monetary policies thereafter. The risk to the trade is a spike in commodity prices or a continued rise in core inflation. Chart 42: Z-score of duration positioning: short except in Japan Canada 0.5 Chart 43: Cost of 3Y 0 deflation floor has spiked with weak RMB (bps) 60 0.0 -0.5 -1.0 -1.5 20 -2.0 10 -2.5 EU Core UK EU Periph US JP CA 0 2011 2012 2013 2014 2015 2016 Note: negative z-score values indicate short positioning, positive z-score values indicate long positions; z-score taken from survey net exposure index with responses dating back to 1992 for US, Source: BofA Merrill Lynch Global Research, Bloomberg CA, JP, UK EU, EU periphery data available back to 2013. Source: BofA Merrill Lynch Global Research 50 40 30 Global Rates, FX EM 2017 Year Ahead 16 November 2016 23 FX: Sell EUR GBP GBP remains a consensus short. Despite GBP appreciating following the High Court decision for a Parliamentary vote to activate Article 50 and the US elections, the market s short GBP position remains stretched according to our positioning analysis (Chart 44). Our Global Fund Manager Survey flags short GBP as the strongest consensus view in G10 FX. Our FX Rates Sentiment survey also suggests that the majority of investors look for some type of hard Brexit. Although we have been arguing for upside GBP risks after the recent flash crash, our baseline projections expect GBP USD to hit a new low of 1.15 in Q1 after the UK activates Article 50. However, we have argued that GBP tail risks are skewed to the upside. UK data have been strong post-referendum and could continue surprising to the upside. There is room for positive headlines at the political front, if the UK agrees on the transitional period that could extend the current regime until a final trader deal with the EU. A Parliamentary vote on Article 50 activation could reduce the chances of a hard Brexit. And Trump s victory could lead to an early bilateral US-UK trade deal, while it increases the geopolitical importance of the UK for the rest of the EU. Moreover, we expect markets to become more concerned about political tail risks in the rest of Europe following Trump s victory in the US elections. Political risks in Italy and France could question the sustainability of the Eurozone, thus weakening EUR GBP. If Prime Minister Matteo Renzi loses the referendum on the constitutional reform in December, Italy could have a snap election, which the Five Star party could win based on the latest polls. Even if Italy avoids elections in 2017, the next election will take place by May 2018, and markets could become concerned about it earlier if Renzi loses the referendum. The 2017 French election is another concern. President of the far-right party and presidential candidate Marine Le Pen is ahead in the polls to win the first round. Winning the second round is much more difficult, as she will need more than 50 of the votes, but investors could start to expect the unexpected after being blindsided in the UK and the US. Other considerations also support selling EUR GBP. Data are consistent with a weaker EUR GBP (Chart 44). The market is short both EUR and GBP, but long EUR GBP, with the latest flows pointing to more EUR downside and GBP upside. Using a spot reference of 0.8672, we recommend selling EUR GBP via a 6M 0.84 0.80 put spread, to capture both the referendum in Italy and the French elections, but also give time for GBP to recover in case it weakens further following activation of Article 50 in Q1. The structure costs 1.07 EUR. Chart 44: Positioning is short EUR but even more so in GBP Chart 45: Data surprises suggest that EUR GBP should be lower 50 40 30 20 10 0 -10 -20 -30 -40 100.0 50.0 0.0 -50.0 -100.0 -150.0 0.89 0.84 0.79 0.74 0.69 -50 AUD USD JPY NOK NZD EUR CAD GBP SEK CHF Latest Positioning Change in positioning EZ-UK data surprises (RHS) EURGBP (RHS) Source: BofA Merrill Lynch Global Research. Source: BofA Merrill Lynch Global Research. 24 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Asia: short JPY KRW Positioning surveys generally indicate that the most consensus Asia FX trades at current juncture are short KRW and SGD against USD through and short SGD against the NEER basket and short CNH against a narrow version of CFETS basket. Not surprisingly, these two basket trades also form a part of our trade recommendations. In fact, these shorts might have increased after US election outcome due to fears of protectionism. As a result, we believe that contrarian investors should be long KRW, CNY and SGD against USD or JPY. Amongst these, our favourite contrarian trade is long KRW vs JPY. Three triggers Three reasons why the current developments may ironically be positive for Korean Won: After a brief period of outflows from the equity markets, we believe inflows are set to resume. A sustained rally in S P Index due to the anticipated de-regulation and fiscal push will undoubtedly be positive for KOSPI (given the high positive correlation) and as a result for KRW. Moreover, history suggests that the current sell off in rates and KRW is unlikely to spur considerable outflows from the debt market. It is still not very clear if the outcome of this US election is going to be negative for foreign trade. Should these concerns decrease, positive impact from looser US fiscal policy could push Asia growth higher. The recent sell off in KRW vs USD from 1100 to 1150 is indicative that domestic concerns around politics, Hanjin shipping troubles and Samsung related issues seems to have been largely priced in. As a result, we believe that any additional domestic negative news is unlikely to adversely impact KRW materially. Additionally, in terms of valuation, our long term COMPASS model indicates that the Korean Won is one of the most undervalued currencies in Asia. JPY better than USD as funder We believe it makes sense to express this contrarian view by short JPY instead of USD. Currently JPY KRW is at 10.9 and our forecasts indicate it to be at 10.6 by Q4 2017. In the case of a stronger USD, we expect BOK to sound cautious with the pace of KRW depreciation and smooth the move higher in USD KRW. Moreover, USD JPY has greater sensitivity to USD rates than KRW. Chart 46: KRW, KOSPI, SPX highly correlated 1.5 3m correl SPX and KOSPI 3m correl KOSPI and KRW USD 1 0.5 0 -0.5 -1 Chart 47: KRW more influenced by equity flows than bond flows 8000 Bond flows Equity flows 6000 4000 2000 0 -2000 -4000 -6000 Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research Global Rates, FX EM 2017 Year Ahead 16 November 2016 25 LatAm: short BRL MXN Our top contrarian trade in Latin American markets is selling BRL MXN (spot 6.00, target 5.00, stop 6.75). The trade benefits from valuation, positioning and our views of the expected effects of the US election on the Brazilian and Mexican economies. MXN 10 undervalued, BRL 5 overvalued We estimate the Mexican peso is about 10 undervalued while the Brazilian real is about 5 overvalued, based on our Compass valuation model. The model provides estimates of long-run equilibrium trade-weighted exchange rates consistent with the convergence of current account balances toward levels that are in line with country fundamentals that determine savings and investments. Mexico s real exchange rate index is at its lowest since at least 1999, and about 35 cheaper than its long-run average. Brazil s real exchange rate has risen sharply in 2016 and is now around 8 stronger than its long-run average (Chart 48). LatAm under Trump s world We believe the election of Donald Trump as the next president of the US will be negative to Latin American economies. His economic plan will likely involve a significant fiscal expansion, perhaps tighter monetary policy and some protectionist s measures. These will likely lead to higher US rates and a strengthening of the US dollar. Higher international interest rates are a negative shock for emerging economies and any acceleration in US economic growth will be skewed to domestic nontraded goods. We think Brazil s economy will likely be more negatively affected since its strategy to gradually reduce budget deficits is based on low global rates, capital inflows and higher domestic growth. Mexico, on the other hand, may benefit on relative terms from a construction and infrastructure boom in the US. Any revival in US manufacturing would also be good for Mexico, particularly if Trump s protectionist measures are not as substantial as feared. Market is not positioned for a MXN rally and BRL selloff Selling BRL MXN is a contrarian trade. Foreign investors are significantly long BRL according to our positioning index based on BM F data. Market positioning by local investors is even more stretched toward long BRL. On the contrary, speculative investors are short MXN according our positioning index based on CFTC data (Chart 49). So positioning unwinding would actually help our short BRL MXN strategy. Chart 48: Real exchange rate is cheap in Mexico, expensive in Brazil Chart 49: Market is positioned long BRL and short MXN 150 130 110 90 70 50 Long-run average 100 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 150 130 110 90 70 50 3 Long BRL and MXN positionining 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2 2013 2014 2015 2016 3 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2 Brazil real exchange rate Mexico real exchange rate Long BRL position Long MXN position Source: BofA Merrill Lynch Global Research, Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg 26 Global Rates, FX EM 2017 Year Ahead 16 November 2016 EEMEA: long Turkey credit Turkey has been one of the big underperformers among the major EM lately, and now valuations are the most attractive in a long time. Sovereign credit spreads are down to BB- levels even though the country is still rated as a BB credit (Chart 50). The lira which our Compass model has shown as overvalued for many years is now finally in line with the equilibrium of about 3.30 vs USD. The REER is almost down to the lows reached during the 2013 taper tantrum and 2015 China devaluation. In equities the discount vs GEM is at historical highs (Chart 51). So contrarians should get interested. To be clear, we have been warning for a long time that the leverage and stimulus driven growth model was weakening and needed a boost through supply side reforms. And obviously political events have been manifold. But as we are talking about year-ahead trades rather than the near-term ideas, we believe it is worth noting that Turkish markets have a habit of alternating between bad and good years: 2010, 12, 14 good; 2011, 13 and 15 bad. After another bad year in 2016, one could consider a possible rebound in 2017. Not a short-term trade This is not a 1-month but rather a 3-6 months trade, where Q1 will likely be critical. In the short term, US rates volatility is harmful for countries like Turkey that have funded large current account deficits with short-term debt. This interacts with the local sentiment weakness that has lately resulted in rising deposit dollarization. An acceleration of this trend would now be the biggest risk to asset prices, in our view. Before entering the trade we should see dollarization stabilize. Lately households have been net buyers of dollars for the first time since the coup attempt. We should see a couple of weeks of dollar selling to confirm that this potential risk is dissipating. The trigger for a rebound from low valuations likely lies in a stabilization of sentiment which could occur during the first half of next year. Currently the state of emergency is scheduled to end in January, and the news flow suggests a referendum by April May. In a positive scenario, politics calm down by the referendum which may also reduce the need for further stimulus through fiscal, monetary policy or moral suasion of the banks. Among asset classes, we think Eurobonds provide the best risk reward as the rating is a natural valuation magnet , and the credit remains a solid BB fundamentally, in our view. Our preferred bonds would be the 26s (current: 5 for October 26s) on the 10y tenor and 45s (current 6.5 ) on the long end. However, a rebound would also favor equities and local spreads. FX is least compelling as TRY has been asymmetric in recent years: big sell-offs and small recoveries. We think the reason is high inflation and a policy bias for a weaker exchange rate. In FX a positive view would be best expressed by selling the USD TRY risk-reversal which is currently at around 5.0 and could target 4.0 in a scenario where the sovereign rallies back to BB . Chart 50: Turkey sovereign priced too cheaply at implied BB- rating Chart 51: Real effective TRY and Turkey equities near the 5-year lows BBB BBB- BB BB Implied rating for 10y Turkey Actual rating - Turkey 55 50 45 40 Real Effective Exchange Rate for TRY Turkey-GEM P E gap, rhs 2 0 -2 -4 -6 BB- Mar-2015 Apr-2015 May-2015 Jun-2015 Aug-2015 Sep-2015 Oct-2015 Nov-2015 Dec-2015 Jan-2016 Feb-2016 Mar-2016 May-2016 Jun-2016 Jul-2016 Aug-2016 Sep-2016 Oct-2016 Nov-2016 35 Jan-11 Nov-11 Sep-12 Jul-13 May-14 Mar-15 Jan-16 Nov-16 -8 Source: BofA Merrill Lynch Global Research, Bloomberg, Source: BofA Merrill Lynch Global Research, Bloomberg, Haver, EPFR Global Rates, FX EM 2017 Year Ahead 16 November 2016 27 Best Vol Trades Ralf Preusser, CFA MLI (UK) ralf.preusser baml.com Herve Belmas MLPF S herve.belmas baml.com Sphia Salim MLI (UK) sphia.salim baml.com Christopher Xiao MLPF S christopher.xiao baml.com Tension in Trump s policies are bullish for vol Weighing up the impact of fiscal easing vs protectionism and shifting from deflation to inflation risks should be bullish for vol. In rates, we see room for the belly of the curve to reprice to the dots. 2y1y should cheapen 75bp, vol is cheap vs rates and the skew the least expensive in that sector. In FX, we think vol and skew have room to reprice higher compared to the repricing seen in rates. We like cheapening a EURUSD put with a 3m30y strangle. In EM, USDCNH calls are attractive in our view. A stronger USD adds pressure to depreciate, while the risks of trade tariffs, labelling China a currency manipulator, etc could lead to a sharp re-pricing or risk premia higher. Highest conviction in FX, belly of the US curve and CNH We view Donald Trump s election as bullish for USD, bearish for real rates and challenging for EM. The inherent tensions in President-elect Trump s policy proposals, as well as the question marks over the Fed s reaction function should also support a repricing of vol higher, especially since neither FX, nor front-end rates volatility look stretched by historical standards. However, expressing a view on long-end nominal rates is harder, and implications for rates vol are less clear. USD 5y5y breakevens are consistent with the Fed s definition of price stability for the first time in more than a year. In Europe, the sell-off in rates (both Bunds and BTPS) is tightening monetary conditions at a time when the ECB should do more, not less. Finally, the BoJ s yield curve control should provide an anchor for JGBs. Consequently we focus on the following three trades: 11. Buying US 100mn 2y1y payer, struck at 2.50 (ATM 69bp) 12. Buying a EURUSD 3m 1.05 put, partly financed with a 150bp-wide 3m30y strangle 13. We recommend buying a 6m USDCNH 7.60 call US rates to converge to the dots: attractive in vol The view on long-end rates is complicated by the significant repricing of breakevens, the likelihood of the ECB doing more, and the BoJ defending its JGB yield target. We do, however, see room for a further increase in risk premia in the belly of the US curve. We believe that the market will ultimately view the Fed dots as a floor, rather than a cap. Supply pressures will weigh on the belly of the curve, rather than the long-end. This makes the cheapness of the upper left corner of the vol surface attractive. As we look for a repricing of Fed expectations, to levels more consistent with the dot plot, we recommend buying US 100mn 2y1y payer, struck at 2.50 (25-delta), i.e., ATM 69bp. The cost is US 165K, equivalent to 17bp of yield. We target a PNL of US 300K. 28 Global Rates, FX EM 2017 Year Ahead 16 November 2016 We estimate that it is in 3y1y, 2y2y and 2y1y that the selloff would be largest (75-85bp see Table 5) were the OIS curve to align with the median dots up to end of 2019. Options are attractive to position for a selloff in those forwards for two main reasons: 1. Volatilities in 1y and 2y tails appear to trade cheap on our macro model. More specifically, accounting for the relationship between implied vols and the first three principal components of the swap curve, we find that 2y1y implied vol should be trading 22bp normal higher (Chart 52), and 2y2y vol should be 19bp higher. A simpler historical regression of 2y1y vol vs the 2y1y forward rate also suggests normal vol should be around 21bp higher (Chart 53). 2. Payer skews could richen in 2y1y and 2y2y. While they are looking rich across 6M expiries in 1y and 2y tails (based on payer-ladder breakevens ATM vol), we note that this has been the case for some time now and it s rather in gamma on 5y tails that skews now appear richest on a 6m z-score basis. Relative to what has been realized in the past month, the payer skew appears just fair in 2y1y, while it is rich across tails in longer expiries. Chart 52: Market vs fitted level of 2y1y vol, based on macro model ( ) 120 100 80 60 Chart 53: 2y1y implied vol is 21bp too low on a regression vs 2y1y fwd 140 120 100 80 40 20 0 2y1y market implied vol 2y1y fitted Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 60 40 y 35.017x 28.016 R 0.8667 20 0.5 1 1.5 2 2.5 3 past 6y since July last Linear (past 6y) Source: BofA Merrill Lynch Global Research. ( ) Based on a regression of log(2y1y vol) on the first three principal components of log of rates (derived with a PCA ran since Sep11). Rsquare 0.91 Source: BofA Merrill Lynch Global Research Another way to look at this trade is through an analysis of payout ratios for 25-delta OTM payers under the scenario of a convergence towards median dots. Table 3 below confirms that the 2y1y point is attractive relative to other forwards (2 nd best), with a net payout ratio of 1.9 (2.9:1 gross) after three months. The best payer on that metric is the 3m5y 25-delta OTM payer (strike of 2.05 ), which we recommend as an alternative for those confident that the repricing of the OIS curve to the dots will take place by Feb-17. Table 3: Payoff ratios when buying a 25-delta OTM payer, under the selloff scenario where forwards converge to the levels implied by the median Fed dots( ) Trade 3m1y 3m2y 3m5y 3m10y 6m1y 6m2y 6m5y 6m10y 1y1y 1y2y 1y5y 1y10y 2y1y 2y2y 2y5y 2y10y 3y1y 3y2y 3y5y 3y10y Strike (25-delta), 1.31 1.54 2.05 2.44 1.49 1.73 2.23 2.60 1.84 2.08 2.51 2.84 2.50 2.65 2.95 3.21 2.98 3.08 3.28 3.47 ATM forw ard, 1.14 1.34 1.77 2.13 1.24 1.43 1.83 2.17 1.44 1.62 1.96 2.25 1.81 1.92 2.17 2.38 2.04 2.12 2.32 2.47 Premium, bp of yield 4.1 4.9 6.9 7.4 6.5 7.5 9.6 10.0 10.4 11.5 13.4 14.1 17.0 18.5 19.2 19.6 23.8 24.2 23.8 23.8 3m roll, bp of yield -4.1 -4.9 -6.9 -7.4 -5.1 -5.4 -5.9 -5.4 -5.0 -5.0 -4.3 -4.2 -4.4 -4.3 -3.3 -2.8 -3.5 -3.2 -2.6 -2.2 3m selloff to the dots 11 31 59 48 18 30 54 45 35 58 65 45 75 80 65 45 85 74 57 45 Return, bp of yield -4.1 -4.4 16.5 5.4 -0.6 3.8 16.0 10.7 9.3 21.3 24.8 13.2 32.6 35.1 26.4 16.3 39.6 33.5 24.2 18.3 Net payout ratio -1.00 -0.89 2.41 0.73 -0.10 0.51 1.66 1.08 0.90 1.85 1.85 0.94 1.91 1.90 1.37 0.83 1.66 1.39 1.01 0.77 Source: BofA Merrill Lynch Global Research. Data as of 15-Nov. ( ) 3m selloff to the dots the selloff in the different forward OIS if the OIS curve aligns with median dots up to Dec-19, with a flat rate of 2.5 thereafter. The risk to the 2y1y and 3m5y trades is a rally and or decline in implied volatility, i.e., the reversal of the selloff recorded since the elections. Global Rates, FX EM 2017 Year Ahead 16 November 2016 29 Own FX vs rates vol: cheapen USD call with rates strangle We like owning USD calls against selling US rates vol. In particular, we recommend buying a EURUSD 3m 1.05 put for US 100 pips (off 1.0730 spot), partially financed with the sale of US 100mn 150bp-wide 3m30y strangle (sold at US 600k). While potential fiscal stimulus has already been priced into rates term premia and rates volatility to some extent, it is not sufficiently priced into the FX market, in our view: Rates skew in gamma on long-tails has moved decisively for payers, while EURUSD skew is just beginning to price in higher US rates (Chart 59). This suggests to us that the market may already be partially protected against higher rates in the longend, such that a further selloff may not see as strong a rally in gamma on long-tails. On the other hand, a further rally in the USD may catch investors under positioned and result in greater volatility in the currency markets. A principal component analysis of rates (US, EUR and JPY) and FX vols highlight that US rates vols and USDJPY vol are expensive, while 3m10y vol in EUR and JPY are cheap, along with EURUSD vol (Chart 60). While the cheapness of 3m10y vol in EUR and JPY can be explained by expectations of QE expansion in the two regions, we think that there is value in owning EURUSD vol. From a terminal rates perspective, we are comfortable selling a 150bp-wide strangle for the following reasons: We believe the result of the elections are a game-changer for the outlook on the US economy. As such we have probably entered a new regime for US rates whereby we are unlikely to retest the historical lows in 30y rates recorded in Aug-16 (1.67 ). This suggests little downside in selling an ATM-75bp receiver (1.66 strike). In a scenario where US rates sell-off, USD is also likely to strengthen. The positive correlation between US yields and the USD has returned due to expectations for fiscal stimulus boosting economic growth. Furthermore, we would also argue that a substantial selloff in US rates, accompanied with USD strength may be selfdefeating as it would put pressure on emerging markets and risky assets, thereby resulting in a flight to quality bid for USTs. The risk is that of large foreign reserve selling by EM central banks, putting upward pressure on US rates and downward pressure on the USD. Chart 54: FX vol just beginning to price impact of higher rates Chart 55: Residual of FX and rates volatilities based on a 1y PCA ( ) 8 6 4 2 0 -2 -4 -6 Source: BofA Merrill Lynch Global Research ( ) payerReceiver 3m30y 50bp OTM payer vol-50bp OTM receiver vol. EURUSD 6m 25 OTM EURUSD put vol- 25 OTM call vol. Source: BofA Merrill Lynch Global Research( ) Residuals derived from the first 2 principal components of FX and rates volatilities based on a 1y Principal Component Analysis. 30 Global Rates, FX EM 2017 Year Ahead 16 November 2016 From a mark-to-market perspective, the risk to the trade is a further rise in 3m30y US rates vol, coming this time with a depreciation in the USD (risk-off event in the US). Potential US-China trade barriers: bullish CNH vol The Republican clean sweep has already sparked a strong USD rally and US rates selloff, but could put further pressure on the USDCNY exchange rate. A stronger USD by itself adds pressure to depreciate as China still needs looser financial conditions to maintain stability in the debt market, a relationship confirmed by the USDCNY rally following the 2015 Fed hike. With Trump s victory, we see increased risk of a larger depreciation. Trump publicly labeled China as a currency manipulator on multiple occasions during the campaign, so any speculation of anti-trade policies could put significant depreciation pressure on the Renminbi. Potential trade tariffs on Chinese exports to the US could raise the probability of a trade war. Furthermore, Trump could encourage the Treasury to alter its criteria for labelling currency manipulators, which could also hurt trade relationships. Either scenario would lead to a sharp re-pricing of risk premia higher. The Trade: Buy USDCNH 6m 7.60 call We recommend buying a 6m USDCNH 7.60 call for 0.37 USD (off 6.9700 forward), with a target of 1 USD. USDCNH topside is now at the cheapest levels since the August 2015 depreciation (Chart 56). The trade could benefit from either a rally in spot as well as any increase in the risk premium between now and inauguration on speculation of anti-trade policies. The structure appreciates significantly from increases in volatility, which is plausible given the 300 increase in volatility in August 2015 and the 100 increase from October 2015 to February 2016. The risk to the trade is that China increases capital controls and dampens USDCNH appreciation, which could cause the options to expire worthless. Chart 56: USDCNH topside the cheapest since pre-depreciation 20 16 12 8 4 0 300 Source: BofA Merrill Lynch Global Research 100 USDCNH 6m 10d call vol Table 4: Hypothetical trade performance on Inauguration Day (Jan 20th) Spot Vols unchanged Vols 20 higher Vols 50 higher Vols 100 higher 6.8 -81 -49 24 197 6.9 -68 -30 41 235 7 -51 -5 100 278 7.1 -32 49 132 305 7.2 0 103 170 378 7.3 49 122 232 441 7.4 124 200 305 522 7.5 224 319 441 630 7.6 386 470 565 741 Source: BofA Merrill Lynch Global Research Global Rates, FX EM 2017 Year Ahead 16 November 2016 31 Stress testing CNY Claudio Piron Merrill Lynch (Singapore) claudio.piron baml.com Yang Chen Merrill Lynch (Hong Kong) ychen8 baml.com Gabriele Foa MLI (UK) gabriele.foa baml.com Ronald Man Merrill Lynch (Hong Kong) ronald.man baml.com Stress testing CNY We stress test China s FX reserves to capital outflows and warn of a potential USD520bn fall in FX reserves in 2017, translating into higher CNY volatility. We also look at broader EM FX sensitivity to CNY depreciation and find ZAR and RUB most vulnerable. We examine if bond index and MSCI inclusion could significantly offset outflows, but are doubtful for now. CNY anything left in reserve? We forecast USD CNY to rise to 7.25 by year-end 2017 based on sustained capital outflows from China and the People s Bank of China (PBoC) allowing the exchange rate to depreciate accordingly. A key change in the PBoC s new FX regime, announced in August 2015, is to raise the influence of market forces over the exchange rate. We showed that not all outflows are created equal. Some outflows are good and reflect structural changes in China s economy and liberalization of China s financial account; some outflows are ugly in the sense they represent illicit outflows. Yet both types of outflows are influenced by policy uncertainty in China, which we showed can explain a significant amount of capital outflows through Chinese purchases of overseas assets. The impact of capital outflows alone on China s FX reserves is negative. A decline in FX reserves is also associated with an increase in volatility of the RMB (Chart 57). But the negative impact on FX reserves may be offset by China s trade balance. If China s trade balance and capital outflows are similar to that recorded in 2015 and 2016, then China s FX reserves would be between USD 2,600bn and USD 2,900bn in 2017. This represents a fall of USD520-220bn given current FX reserves of USD3,120bn and would amount to China having diminished control over its currency and higher CNY volatility assuming no dramatic changes to capital controls. Chart 57: China FX reserves (down) and RMB volatility (up) 4,000 3,750 3,500 3,250 3,000 2,750 1,500 1,250 1,000 750 500 250 2,500 0 2011 2012 2013 2014 2015 2016 China FX reserves, USDbn USD CNY 1Y rolling standard deviation, pips (RHS) Source: BofA Merrill Lynch Global Research, Bloomberg 32 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Table 5: Scenario analysis of China s 2017 FX reserves (yellow denotes lower reserves blue higher) Trade balance, USDbn 100 150 200 250 300 350 400 450 500 300 2,885 2,935 2,985 3,035 3,085 3,135 3,185 3,235 3,285 350 2,835 2,885 2,935 2,985 3,035 3,085 3,135 3,185 3,235 400 2,785 2,835 2,885 2,935 2,985 3,035 3,085 3,135 3,185 450 2,735 2,785 2,835 2,885 2,935 2,985 3,035 3,085 3,135 500 2,685 2,735 2,785 2,835 2,885 2,935 2,985 3,035 3,085 550 2,635 2,685 2,735 2,785 2,835 2,885 2,935 2,985 3,035 600 2,585 2,635 2,685 2,735 2,785 2,835 2,885 2,935 2,985 650 2,535 2,585 2,635 2,685 2,735 2,785 2,835 2,885 2,935 700 2,485 2,535 2,585 2,635 2016 2,685 rate 2,735 2,785 2,835 2,885 750 800 2,435 2,385 2,485 2,435 2,535 2,485 2,585 2,535 2,635 2,585 2,685 2,635 2,735 2,685 2,785 2015 rate 2,735 2,835 2,785 850 2,335 2,385 2,435 2,485 2,535 2,585 2,635 2,685 2,735 900 2,285 2,335 2,385 2,435 2,485 2,535 2,585 2,635 2,685 Source: BofA Merrill Lynch Global Research, Bloomberg. 2016 rate is annualized from the first 3 quarters of data. Capital outflow, USDbn Table 5, above, shows a scenario analysis of China s FX reserves in 2017 under different trade balance and capital outflows. The analysis makes two assumptions. The first assumption is all the changes in the Balance of Payment s (BoP) reserve assets are reflected in the headline FX reserves figure. The second assumption is that the income balance is USD -36bn, which was derived from the annual rate since 2015. We believe a decline of FX reserves to USD 2,600bn to USD 2,900bn would only be a problem for China if it attempted to implement a fixed exchange rate without capital controls. Such an FX regime requires heavy FX intervention and would put downward pressure on its FX reserves, making this FX regime choice no longer tenable for China. The IMF s framework for calculating adequate FX reserves is based on whether there are capital controls and whether the currency operates on a fixed or floating exchange rate regime (Table 6). The latest readings show a fixed exchange rate regime without capital controls in China would require USD 2,911bn of FX reserves, which probably won t be achieved, as shown in Table 1. Meanwhile, a floating exchange rate regime with no capital controls would require USD 1,618bn of FX reserves. Fewer FX reserves would be needed to manage a floating currency that would adjust freely to capital flows. This reinforces the view that the CNY is moving toward a more flexible FX regime as its FX reserves are depleted (barring a draconian step capital control measures). Skeptics may counter that China could always ratchet up capital controls to reassert control over its currency. However, the efficacy of this is questionable. The experience of 2016 shows that in spite of more capital controls introduced in late 2015 (e.g., onshore window guidance restricting the sale of FX by onshore banks) capital outflows have continued along with FX reserve depletion, albeit at a slower pace. Ultimately, this means China s ability to exert control over the CNY is being eroded, while the risk of more CNY volatility is rising. This is our scenario for 2017, with the tail risk that ugly flows or illicit capital flight due to domestic financial stability concerns could drive sharper CNY depreciation and FX reserve depletion. It is under this tail risk scenario that the temptation for draconian capital controls becomes a danger. For this reason, we believe it will be important to monitor the nature of the capital outflow and not just the size of the outflow. Good outflow such as Overseas Direct Investment by state-owned Table 6: China reserves adequacy recommendations based on IMF guidelines Latest, USDbn Capital control No capital control Fixed Floating Fixed Floating Weight, USDbn Weight, USDbn Weight, USDbn Weight, USDbn Short-term debt 767 30 230 30 230 30 230 30 230 Other liabilities 961 20 192 20 192 20 192 15 144 Exports 2,156 10 216 10 216 10 216 5 108 Broad money 22,728 5 1,136 2.5 568 10 2,273 5 1,136 Recommended reserves 1,774 1,206 2,911 1,618 Source: BofA Merrill Lynch Global Research, Bloomberg, SAFE Global Rates, FX EM 2017 Year Ahead 16 November 2016 33 firms can be naturally slowed by internal directives. Bad outflow such falling CNY deposits among foreign subsidiaries of China banks can also be managed. However, it is the inherent speculative and unstable nature of domestic capital flight that we characterize as ugly flows that poses the greatest risk to the central bank. Regressions and scenario implications for EM FX We used a simple regression to quantify the impact of the RMB depreciation on key EM FX: BRL, RUB, INR, TRY, and ZAR 1 . We analyzed two cases: 1) Base case USD CNY rises to 7.25 and market volatility, which we use the VIX as a proxy, is unchanged from its current level; 2) Risk case USD CNY rises to 8.00 and intense RMB depreciation expectations cause market volatility to rise by three standard deviations. We find: The most vulnerable currencies to RMB depreciation are ZAR, RUB and TRY (Chart 58). The impact of RMB depreciation on BRL and INR is small. This is probably due to stronger idiosyncratic factors for BRL and INR in recent years. An increase in market volatility associated with USD CNY rising to 8.00 would raise the depreciation of EM FX by 1ppt (BRL)-11ppt(ZAR) relative to our 7.25 baseline. In our base case of USD CNY rising to 7.25 by end-2017, the market is overpricing depreciation pressures from the RMB on EM currencies. This partly reflects other factors have more sway over market expectations at the time of writing, such as implications of the US elections outcome. In our risk case of USD CNY rising to 8.00 and high volatility, there is room for additional depreciation in the ZAR and RUB (Chart 58). Chart 58: EM FX sensitivity to RMB and market volatility 5 0 -5 -10 -15 -20 ZAR RUB TRY BRL INR Forecast change vs SDR, (Volatile markets and USD CNY at 8.00) Forecast change vs SDR, (Same volatility and USD CNY at 7.25) Source: BofA Merrill Lynch Global Research, Bloomberg Chart 59: Scenario analysis of EM FX against market pricing 5 0 -5 -10 -15 -20 ZAR RUB TRY BRL INR Forecast change vs SDR, (Volatile markets and USD CNY at 8.00) Forecast change vs SDR, (Same volatility and USD CNY at 7.25) Forward implied change by end-2017, Source: BofA Merrill Lynch Global Research, Bloomberg Can bond and equity inflows save the day? Not in the near term Given the problematic issue of capital outflows and limited efficacy of moderate capital flows, another solution could be to attract more foreign portfolio inflows into China s sizable bond and equity markets. More favorable investment policies geared to overseas investors investing in China s interbank bond market reveal a clear policy intention to open up China s financial market. As a result, expectations are rising for China to be included in global bond indices. However, the following key obstacles for index inclusion remain, although reasons vary depending on the index: 1) lack of full accessibility: currently qualified investors only include medium and long-term investors while hedge funds are excluded; 2) insufficient clarification on requirements of fund remittance; 3) lack of clarification on tax issues; 4) lack of accessibility to onshore FX rates hedging tools. Back from our 2016 China Conference, we believe allowing foreign private investors to access onshore repo, onshore FX swap and forwards would be the next steps to follow. 1 Our dependent variable is the weekly changes of SDR EM; our independent variables are the weekly changes in the SDR EUR, SDR CNY, SDR USD and the VIX index, and a constant. Natural logarithms were taken for all variables and our sample period is Jan 14-Nov 16, when the start of the RMB depreciation trend. We base our currencies against the SDR to define their value (See Assessing China s Exchange Rate Regime, Frankel and Wei (2007) for a detailed explanation.). To compute the forecast change in each currency, we use our global FX forecasts to obtain our independent variables. 34 Global Rates, FX EM 2017 Year Ahead 16 November 2016 The most influential global bond index is believed to be the Citibank World Government Bond Index (Citi WGBI), which is used as the benchmark for more than 2tn of AUM. The most influential EM bond index is the JPM Government Bond Index Emerging markets Global Diversified (JPM GBI-EM Global Diversified), which is used as the benchmark for about 200bn AUM and caps each country s share to 10 . A caveat, however, is that the actual size of indexed money or ETFs should be smaller. The most crucial country criteria of Citi WGBI is fully accessible to foreign investors, which makes China less likely to be included by far given its accessibility to only medium- and long-term investors. Even if China is being considered, the assessment usually takes a long time. So we believe the case for China to be included into Citi WGBI in 2017 is unlikely. By contrast, JPM GBI-EM Global Diversified only requires accessibility to the majority of foreign investors and does not factor in tax hurdles in eligibility. We believe China has better chance to be included into the JPM GBI-EM Global Diversified index. While the exact timing is hard to predict, an optimistic scenario possibly leaves 2H17 on the table. Usually when a big country is being included, bonds are introduced slowly over many months to enable clients to rotate without too much disruption. We would expect China s inclusion to account for 10 of the JPM GBI-EM Global Diversified index. Turkey, Malaysia, S. Africa, and Thailand would lose the largest shares in the index, while the shares of Brazil, Mexico, Poland and Indonesia are expected to remain given their large absolute size. Inflows to China could be around 20bn, or equivalent to 1.5 of the aggregate central government bond market cap. Turkey, Malaysia, S. Africa, Thailand and Columbia could see outflows of 2.4bn-3.3bn each, with the most expected impact on Thailand given its lower relative foreign ownership. We would expect China to account for 4.4 of the Citi WGBI index. The biggest losers of market share will be the US, followed by Japan and Europe. Inflows to China could be around 87bn, or 6.5 of its CGB market cap. This would present a very bullish scenario for CGBs, and the curve will likely steepen. MSCI inclusion more about good will, then real flow Another potential implication of China capital account opening is equity inflows. The MSCI has been considering the inclusion of China A-shares in its index. These are shares of local Chinese companies trading at the Shanghai and Shenzhen stock exchange, whose trading is so far limited to local investors (China: Will A-shares be included in MSCI in June this year?). The associated flows aren t likely to be too large, so positive price reaction is likely to come mostly from sentiment. The MSCI has discussed most recently a 5 inclusion factor for A-shares, which would translate in an additional 1.1 MSCI weight of China in the index. The scope for additional foreign capital looks small, when considering that China already weighs 27 in the index. Our equity strategists estimate the total AUM tracking MSCI EM to approximately USD1.6tn (total market cap of the index is USD3.8tn), so that inflows upon inclusion would be roughly USD16bn. The inclusion was delayed in June 2016, mainly due to obstacles regarding the quota allocation process, capital mobility restrictions and beneficial ownership. Chart 60: Estimated loss of share if China is included in JPM GBI-EM Global Diversified 0.0 -0.5 -1.0 -1.5 -2.0 0.0 0.0 0.0 0.0 BRL MXN PLN IDR Source: BofA Merrill Lynch Global Research -1.3 -1.2 -1.6 -1.5 -1.5 TRY MYR -0.9 -0.9 -0.1 0.0 -0.3 -0.5 ZAR THB COP HUF RUB RON PEN PHP CLP Chart 61: Estimated loss of share if China is included into Citi WGBI 0.0 -0.5 -1.0 -1.5 -2.0 -1.5 USD -1.2 -1.1 JPY EUR Source: BofA Merrill Lynch Global Research -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.3 GBP CAD AUD MXN MYR DKK CHF PLN SEK SGD ZAR NOK Global Rates, FX EM 2017 Year Ahead 16 November 2016 35 Best Carry Trades Claudio Irigoyen MLPF S claudio.irigoyen baml.com Mai Doan MLI (UK) mai.doan baml.com Rohit Garg Merrill Lynch (Singapore) r.garg baml.com Vadim Iaralov MLPF S vadim.iaralov baml.com Carry trades and blond swans We do not expect traditional carry trades such as ARS and BRL to perform well in a strong USD and increasing interest rates environment, so we focus on USD neutral carry trades. We like short EUR RUB, short SGD INR and long PEN CLP. For more neutral commodity exposure we like baskets of EUR, CAD, COP and CLP, AUD to fund RUB and PEN trades respectively. Carry is in the eye of the beholder To focus on identifying best carry trades in the current environment of rising US interest rates sounds counterintuitive at least. It is well know that carry trades perform nicely in risk-on periods as well as in a low volatility environment, which is the opposite of what we expect in the coming months. However, once proper factor exposure of currency returns is considered, smart carry reemerges as an interesting proposition. As we have documented (Forecasting with Compass30), most of the variation in currency returns can be explained by the first two principal components, which can be labeled as dollar and carry factor respectively, as they are highly correlated with USD and carry performance. Expected returns of carry strategies are defined by interest rate differentials (ie, carry), assuming no change in spot exchange rates. Uncovered interest parity states that the carry should be offset by a change in the spot of equal magnitude. However, empirical evidence (so called forward premium puzzle) clearly shows that carry trades are profitable on average, which indicates the presence of currency risk premium. Since both dollar and carry, are priced factors, any sensible carry strategy in an environment in which US rates are rising needs to hedge the USD exposure. This is just a necessary though not a sufficient condition, since the carry factor is also correlated with global measures of risk. Interestingly, post-election currency losses is not as highly correlated with carry, indicating that carry trades were not as a strong investment theme as it was the case during the taper tantrum episode (Chart 62). Chart 62: Carry didn t drive currency reaction to US elections 25 1m carry (annualized) Currency depreciation since Nov8 (rhs) 20 15 10 5 0 -5 ARS IDR BRL RUB ZAR PHP TRY INR COP PEN MXN MYR CNY CNH CLP NZD AUD PLN THB KRW TWD NOK SGD RON HKD CAD HUF GBP ILS CZK JPY EUR SEK CHF Source: BofA Merrill Lynch Global Research, Bloomberg 15 12 9 6 3 0 -3 Chart 63: Asia and LatAm display the highest risk-adjusted carry 3 2 1 0 -1 IDR ARS PHP CNY INR CNH BRL TRY RUB PEN MYR ZAR COP CLP MXN THB NZD AUD PLN KRW TWD NOK SGD CAD RON HUF GBP JPY CZK SEK EUR ILS CHF HKD Source: BofA Merrill Lynch Global Research, Bloomberg 1m carry (annualized) 1m implied ATM vol 1m carry (annualized) max 1m DD (5y, rhs) 36 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Characterizing carry Efficient carry strategies involve buying and selling dynamic portfolios of currencies with certain risk characteristics. Carry strategies are supposed to work better over long investment horizons, so that the cushion provided by the carry compensates for the currency volatility through mean reversion. Here, we analyze carry from a different perspective, as our goal is to identify standalone attractive carry opportunities. We define the investment horizon to end 1Q17. We sort currencies based on risk-adjusted carry. We then characterize the factor exposure of currency returns, isolating global and idiosyncratic sources of risks, in order to identify smart carry trades that are not highly exposed to a massive re-pricing of global factors, such as US rates, USD, commodity prices and global risk aversion. We identify carry trades that have low exposure to global factors, in particular the USD factor, and offer attractive risk-rewards. Not surprisingly, purely based on carry considerations, EM currencies appear more attractive than DM ones, which are mostly candidates for funding currencies. However, carry trades returns are highly volatile, exhibit negative skewness and fat tails. Even controlling for different measures of risk such as volatility or maximum drawdown, and according to this criteria only, we find that EM currencies are the most attractive, in particular ARS, BRL in LatAm, RUB, TRY and ZAR in EEMEA and INR, IDR and CNY in Asia (Chart 63). Even though volatility and drawdowns can be useful measures of risk, they don t say much about the exposure to different risk factors. Since carry trade strategies are usually very sensitive to global factors, we study the cross sectional exposure of currencies to key global factors: commodity prices, global risk aversion and US yields (as a proxy of global yields). We report the R2 of regressions of two years of weekly returns on the above mentioned global factors, for the last two years and the years 2013-2014 for the sake of comparison (Chart 64). We find that currencies in LatAm and EEMEA are more exposed to global factors than in Asia. Interestingly, LatAm and EMEA currencies are more sensitive to shocks in commodity prices and risk aversion, while in Asia the shocks to monetary policy are the most important ones (Chart 65). Within DM currencies, AUD and NOK are the two currencies most exposed to global factors. Ideally, we seek for currencies with high riskadjusted carry and low exposure to global factors. Under such a metric, ARS, BRL, RUB and INR stand out as the best investment currencies, while EUR, CHF, JPY, KRW and TWD are the best funding currencies. However, this filter is not enough in the current volatile environment. Chart 64: LatAm is more exposed to global factors than Asia 0.6 Depend on global factors 0.5 0.4 RSQ '16 RSQ '14 0.3 0.2 0.1 Chart 65: Sensitivity to global factors across regions 0.8 Normalized beta of global factors 0.6 0.4 0.2 0 -0.2 Monetary Commodities Equities 0 COP CAD MXN LATAM EMEA RUB ZAR JPY NOK CLP AUD BRL IDR TRY MYR CZK INR SEK EUR SGD ASIA NZD THB RON PEN HUF PLN PHP CHF ILS KRW TWD GBP HKD CNY ARS -0.4 COP CAD MXN LATAM EMEA RUB ZAR JPY NOK CLP AUD BRL IDR TRY MYR CZK INR SEK EUR SGD ASIA NZD THB RON PEN HUF PLN PHP CHF ILS KRW TWD GBP HKD CNY ARS Source: BofA Merrill Lynch Global Research, Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg Global Rates, FX EM 2017 Year Ahead 16 November 2016 37 The role of fundamentals From a purely mechanical perspective, we could stop the analysis here and choose those currencies with better risk-reward prospects according to the metrics so far described. However, in order to analyze carry trades with relatively short investment horizon, we need to complement our analysis with our views on future exchange rates dynamics. We expect US rates to continue moving higher and the USD to strengthen across the board due to easier US fiscal policy and significant uncertainty regarding foreign policy. In EM, we think LatAm is the region that will suffer the most in the new global scenario, followed by Asia. We find EEMEA relatively more resilient to US driven shocks. We want to avoid countries with high financing needs (i.e., high fiscal and current account deficits). We also prefer trades with neutral commodity exposure. Since carry trades tend to underperform when US rates are moving higher and the USD strengthens, we want at least to avoid USD funded carry trades, crowded carry trades and currency crosses highly exposed to the USD factor. Hedging the USD factor leaves us with the pure carry exposure, which by being a price factor, is also related to standard measures of risk, as well as idiosyncratic factors. Best carry trade: Cherry picking among rotten cherries Given our views, and focusing on those trades where ex-ante high carry is consistent with ex-ante expected returns, we choose our best carry trades across EM and DM. Since DM currencies offer very low carry vs the USD, there are not many attractive carry opportunities in DM in a strong USD environment, so much so that the most attractive carry proposition is simply to go long USD JPY. Since this trade is mostly predicated on a strong USD view and is being developed in other sections of this report we refer the reader to those sections (please see: USD JPY will the main beneficiary of Trump win, FX: GOP sweep emboldens core USD JPY view, Long EUR JPYAsia: short JPY KRW). Therefore, we focus mostly on EM or EM DM carry trades. EEMEA: short EUR RUB We like selling EUR RUB (spot 69.28, target 66.15, stop 71.02). We see EEMEA as relatively more resilient to higher US rates, though with some heterogeneity within the region. On the one hand, high current account deficit countries like Turkey or South Africa should continue suffering from a re-pricing of risk. On the other hand, CEE countries are expected to some more resilience. One currency we find particularly attractive is the Russian ruble, which still offers an attractive risk-adjusted carry, controlling for standard measures of risk such as implied volatility and maximum drawdown. The outcome of the US election should remove some risk premium from Russian assets as the geopolitical backdrop improves. Economic activity is expected to pick up in 2017. A hawkish central bank, coupled with a favorable external position and an energy-driven current account surplus will likely limit its exposure to a reversal in capital flows. On the geopolitical side, we expect Russian foreign policy to become more conciliatory Chart 66: Oil prices are a major risk factor Chart 67: Russia tends to be more market-friendly with lower oil 1.5 1.0 0.5 RUB (EUR,CAD,COP) Jan 4 '13 100 RUB EUR Jan 4 '13 100 Brent oil (RHS) 0.0 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Source: BofA Merrill Lynch Global Research, Bloomberg 150 100 50 0 100 50 0 Oil price, bbl 10y MA Privatization, Georgia Gaidar reforms war Start of Yukos Perestroika case Afganistan war Jan-70 May-72 Sep-74 Jan-77 May-79 Sep-81 Jan-84 May-86 Sep-88 Jan-91 May-93 Sep-95 Jan-98 May-00 Sep-02 Jan-05 May-07 Sep-09 Jan-12 May-14 Source: BofA Merrill Lynch Global Research, Bloomberg Ukraine crisis US-Russia Reset 38 Global Rates, FX EM 2017 Year Ahead 16 November 2016 and less disruptive for markets, in particular given the expected improved foreign relations with the US (Chart 67). However, the currency remains overvalued and highly exposed to global factors, in particular oil price, and positioning is crowded. Despite our forecast is for USD RUB to remain around 63 in 1Q17, we prefer to mitigate the abovementioned risks by choosing a more favorable funding currency. If liquidity is a major consideration, we prefer to use the EUR as a funding currency, which offers negative carry vs the USD, and gives the ruble the best risk-adjusted carry across all potential funding currencies. In addition to the already seen impact on US rates, Trump s victory implies that political risks are becoming increasingly important in Europe, with the Italian referendum in December and elections in Netherlands, Germany and France in 2017. This scenario strengthens our call for a six-month extension to ECB QE at the current pace. We expect the EUR USD to trade at 1.05 by end 1Q17. Since short EUR RUB is still exposed to much lower oil prices, an alternative way to express the trade is to use a basket of euro, Colombian peso and Canadian dollar as funding basket (Chart 66). The COP remains overvalued, the central bank is expected to ease monetary policy as the economy decelerates and oil represents 35 of Colombian exports. We expect the COP to depreciate 2.5 by end 1Q17. Carry, on the other hand, is higher than EUR and CAD. The CAD offers very low carry and we forecast a 1.5 depreciation by 1Q17 vs the USD. The economy keeps displaying weak growth and we expect the Bank of Canada likely to cut rates and maintain the accommodative stance of monetary policy. Asia: short SGD INR We like short SGD INR (spot 47.96, target 47, stop 48.44). While the performance of Asia FX can be influenced by broader risk conditions, we expect most to weaken vs. the USD. The Korean won and the Singapore dollar, as well as the Taiwanese dollar for instance stand out as being the most sensitive to a stronger USD, as they act as a high beta proxy for CNY, which we expect to continue depreciating in this new high US rates environment. Others like Indonesian rupiah and Malaysian ringgit are more sensitive to higher USD rates. Consequently, outflows from these countries will adversely impact the respective FX. That said, Bank Indonesia has built good amount of reserves to prevent rupiah from weakening excessively. Moreover, tax amnesty related repatriation flows and global bond issuance is still expected to come in December, which should also support the rupiah. Historically, large US tax cuts have been followed by a widening of the US current account deficit driven by higher imports. This supported Asia export growth and exchange rates, especially after the Bush tax cuts. However, this time could be different partly because US household spending has been shifting towards non-tradable services. More importantly, Trump s policy platform itself is geared towards reducing dependence upon foreign goods and services (Chart 68). Chart 68: Export exposure to the US across EM Asia 20 Exports to the US in 2015 ( of GDP) 15 10 5 0 Source: BofA Merrill Lynch Global Research, Bloomberg Chart 69: S NEER has depreciated 50bp below par since Oct MPS 130 125 120 115 110 105 Index Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Source: BofA Merrill Lynch Global Research estimates, Bloomberg BofA-ML SGD NEER lower end of band mid-point upper end of band Global Rates, FX EM 2017 Year Ahead 16 November 2016 39 At this juncture, the Indian rupee seems to be the only one in the region that is expected to display a much lower sensitivity to US rates, outperforming others within Asia. We expect the Monetary Authority of Singapore to keep the SGD NEER in the weaker side of the band for the next few months, which reduces the downside risk for the trade (Chart 69). We like the INR as the preferred long, followed by the IDR, as they offer high risk-adjusted carry, central banks are interested in keeping their currencies stable, current account deficits are bounded, and the currencies are not expensive relative to long term fundamentals. The main risk of the trade is of higher oil prices, and considerable reversal of capital flows. Apart from that, a change in the behavior of Reserve Bank of India it terms of managing INR to accumulate international reserves is also a risk. LatAm: long PEN CLP We like long PEN CLP (spot 195.7, target 200, stop 195.5). LatAm is the most exposed region within EM to global factors. Traditional carry trade candidates like the Brazilian real and the Argentina peso are no longer attractive given the still fragile fiscal stance in both countries. Local positioning in BRL has proven to be heavier than thought, and we expect the currency to continue weakening until we observe some stabilization in US rates. The Brazilian real is still overvalued and the economy will be negatively affected since its strategy to gradually reduce budget deficits is based on low global rates, capital inflows and higher domestic growth. In the case of the Argentine peso, despite showing some detachment from global factors and some positive inflows due to the tax amnesty, we think the currency needs to weaken given the recent depreciation of the BRL and its current overvaluation as well as the government fiscal needs for 2017, which is an important electoral year. Therefore, we remain neutral on these currencies. A more modest but more interesting carry trade within LatAm in an environment of higher US rates is to be long the Peruvian sol, funded with the Chilean peso, in order to make the trade more neutral to commodity exposure. The Peruvian economy is expected to continue growing at rates above 4 due to strong mining activity; the new government will likely implement expansionary fiscal policy and has room to finance it. The exchange rate is close to its equilibrium value based on terms-of-trade and productivity. In fact, we expect the currency to appreciate in real terms if growth recovers as predicted. The currency still offers a decent carry. We forecast a nominal depreciation but below the forward. The central bank has a strong preference for low currency volatility and would be ready to intervene in case of a disorderly depreciation, as it has been already the case in the last few days with small interventions in the forward market. On the other hand, Chile s growth remains anemic and the economy is expected to continue growing sub 2 in 2017 (Chart 71). The CLP is overvalued but recent flows Chart 70: Copper prices are a major risk factor Chart 71: Relative growth to favor Peru going forward 400 350 300 250 Copper prices 200 CLP (rhs, Jan2012 100) PEN (rhs, Jan2012 100) 150 2012 2013 2014 2015 2016 Source: BofA Merrill Lynch Global Research, Bloomberg 80 100 120 140 160 230 pen clp growth diff (rhs) 220 210 200 190 180 170 160 150 2010 2011 2012 2013 2014 2015 2016 Source: BofA Merrill Lynch Global Research, Bloomberg, Haver 5 4 3 2 1 0 -1 -2 -3 40 Global Rates, FX EM 2017 Year Ahead 16 November 2016 from large domestic pension funds and the recovery in the price of copper explain the relative resilience of the currency (Chart 70). Given the low carry, CLP offers an attractive alternative as a funding currency as the portfolio rebalancing of pension funds is expected to slow down. We expect the currency to weaken further in 1Q17 as interest rates move higher in the US, and we do not expect the central bank to intervene, as it would likely be the case in Peru. In order to reduce the carry cost of the funding currency without losing the neutral exposure to metals, we like a basket of the Chilean peso with the Australian dollar. The Australian dollar is also highly correlated with commodities and China. We are bearish the AUD vs USD, as we expect the currency to weaken about 4 by end 1Q17. Global Rates, FX EM 2017 Year Ahead 16 November 2016 41 Cheapest tail-risk Hedges Adarsh Sinha Merrill Lynch (Hong Kong) adarsh.sinha baml.com Ralph Axel MLPF S ralph.axel baml.com Gabriele Foa MLI (UK) gabriele.foa baml.com Tony Morriss Merrill Lynch (Australia) tony.morriss baml.com Shuichi Ohsaki Merrill Lynch (Japan) shuichi.ohsaki baml.com Tail-risk Hedges Four tail risks for 2017: 1) US deregulation, 2) EZ risk premia rises; 3) weaker bulk commodity prices; 4) steeper and more volatile yield curve in Japan. Position for normalization of swap spreads; 30s50s BTP flattener; long EUR HUF vol; long AUD USD digital puts; 1y10s20s conditional bear steepener in Japan. There are three key lessons on tail risks from 2016: 1) tail-risk probabilities are generally fatter than commonly assumed (Brexit and Trump s victory); 2) hedging tail risks even in a world of low implied volatilies is hard if the directional implications are unclear (equity puts for a Trump victory); 3) investors worry about tail risks closer to the events Chart 72 shows the biggest perceived tail risks, according to our Fund Manager Survey, were either during the event itself (China recession worries alongside capital outflows) or at most a few months in advance (Brexit and the US election). Looking ahead to 2017, we believe tail-risk hedging will be more important than ever, but that investors should be sufficiently forward looking and focus on those where there is clarity about the directional implications. We highlight four such opportunities in this section, specifically: 1) US deregulation; 2) return of Euro zone risk premia; 3) Chinalinked commodity prices weakening sharply; and 4) Japan s yield curve targeting triggering a steeper curve and volatility increase. Chart 72: Biggest tail-risk, percentage of respondents in Global Fund Manager Survey Oct-16 EU disintegration Sep-16 Aug-16 Jul-16 Jun-16 May-16 Apr-16 Mar-16 Feb-16 Jan-16 Dec-15 Nov-15 Oct-15 Republican wins White House Source: BofA Merrill Lynch Global Research Republican wins White House Republican wins White House Brexit Brexit Quantitative Failure Quantitative Failure US recession Tail risk 1: US deregulation Normalized swap spreads, cross-currency basis coupon vs principal STRIPS Deregulation is a key focus for the incoming administration, and Dodd-Frank is a major potential target. Paul Atkins, a former SEC commissioner under George W Bush, has been named to lead transition strategy on financial regulation. Atkins has been vehemently critical of Dodd-Frank since its inception, and in a statement to the Senate Global FMS biggest "tail risk" (past 12 months) China recession China recession China recession China recession 0 5 10 15 20 25 30 35 40 45 50 42 Global Rates, FX EM 2017 Year Ahead 16 November 2016 in 2011 called the law a calamity that increases business uncertainty and undermines growth. Under Atkins, the transition team posted a statement that it will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation." At this point there are no details on what parts of Dodd-Frank are most likely to be repealed, but Republican financial policy leaders appear promarkets and have flagged free movement of capital via open markets as the best policy for economic growth and risk transparency. There are several dislocations across markets today that we think have a chance of normalizing in the tail-risk event that deregulation results in increased availability of leverage and ability to take more risk. We have discussed these dislocations as resulting in part from the lack of ability of hedge funds and other relative-value traders to access enough balance sheet at a low enough cost to help these trades normalize. The top trades we could see benefitting from the return of leverage would be: Normalization of swap spreads; balance-sheet intensive Treasuries, both nominal and TIPS, are very cheap versus OIS and Libor swap rates. Normalization of cross-currency basis swaps, which currently allow USD-based investors the ability to buy very cheap EUR- and JPY-denominated assets via the basis swap. Normalization of coupon STRIPS versus principal STRIPS as these yield differentials are near their all-time wides, particularly in the 2030-38 maturity bucket. As a tail risk for deregulation, we like buying 30y swap spreads, a credit-risk-free floating-rate US Treasury asset that provides 3m Libor 56bp annually, which is about 100bp cheap to pre-crisis levels. Swap spreads could also benefit from deregulation that removes cash and Treasury bonds from the leverage ratio requirements, which would provide the ability of the dealer community to more easily absorb Treasury supply in the primary and secondary markets. The main risk is that policy changes retain strict capital requirements, which would continue to limit the availability of leverage. For example, the Financial Choice Act, a product of Texas Representative Jeb Hensarling's team, would provide banks an offramp option to all Basel 3 requirements as long as banks hold a 10 capital ratio. This plan would probably decrease the availability of leverage, and could also result in reduced demand for short-dated Treasuries in HQLA portfolios. Another risk to 30y swap spread normalization in particular would be a material increase in deficit spending as part of a fiscal stimulus package. This would likely further cheapen Treasuries versus swaps and other benchmark interest rates. Trade recommendation: Buy 30y Treasuries versus 30y matched Libor swap at 3mL 56bp. Target 3mL 0bp, stop loss 3mL 75bp. Tail risk 2: Comeback of Eurozone risk premia EZ risk hedges: 30s50s flatteners in BTPs, buy EUR HUF vol In Europe, the biggest market risk for 2017 is arguably a comeback of stress on peripheral sovereigns. The next 12 months provide plenty of triggers, with increasing concerns about the ability of ECB to continue with QE, and an intense political season ahead (referendum in Italy on 4 Dec, and elections in France and Germany in 2017). As hedges to Eurozone risks, we recommend buying 30s50s flatteners in BTPs as the cheapest way to express a bearish view on the periphery, and buying EUR HUF vol as a proxy for Euro instability with better pricing than EUR USD vol. Concerns on EU politics and the ECB would likely lead to a switch of market focus from monetary policy to fundamentals. The periphery would be hurt by this new focus: public debt to GDP remains very high, and the low debt service costs enjoyed in the past five years favored debt accumulation, rather than debt reduction (Chart 73). The cyclical Global Rates, FX EM 2017 Year Ahead 16 November 2016 43 Chart 73: Fundamentals CEE beats periphery 190 140 90 40 -10 Source: IMF Spain France Portugal Italy Hungary Czech Poland Romania Debt GDP (lhs) 5y change in debt GDP (lhs) 2016 growth (rhs) 5 4 3 2 1 0 Chart 74: Poland and Hungary wide relative to Italy and Spain Source: Bloomberg juncture has also weighed on public finances, and all peripheral countries are running deficits above the structural levels. 15 10 5 0 Jun 11 Mar 12 Dec 12 Italy Portugal Hungary Romania Sep 13 Jun 14 Mar 15 Dec 15 Spain France Poland Czech Sep 16 Chart 75: HUF vol lagging EUR and PLN 12 11 10 9 8 7 6 Jan 14 Jan 15 Jan 16 EUR HUF EUR PLN EUR USD Source: Bloomberg. The fundamental picture is not reflected in interest rate dynamics. ECB easing has pushed Eurozone interest rates lower despite worsening public finances (Chart 74). Participation in the QE program has been a strong determinant of low long-term rates, as shown by the tightening of the periphery vs CEE. Hungary, Poland and Romania have been yielding 3-3.5 in the past year, while Italy remained constantly below 2 . If stress comes back, the gap will close. Within the periphery, Italy is the most vulnerable. Fundamentals are the worst in the region, only comparable to Portugal, which trades 160bp above it. Political risks also remain high, with the referendum providing some downside risk to the prime minister. The market is apparently reaching the same conclusion: during the most recent global bonds sell-off (20 Sep-14 Nov), Italy widened 95bp, while Spain widened 70bp, in line with CEE, despite the higher beta nature of the latter and the higher FX risk. Still, there may be room for further widening: the 10y spread to Germany widened in the current move, but is still lower than it has been the three years following the latest Italian political crisis. Our European rates team argued this summer that the rally in Italy spreads was far from fundamental. Flatteners in the 30s50s area look the best hedge as 50y are not eligible for QE, and term premia in the 2-31y sector would increase if QE was to end. Also, in times of sovereign debt stress, the curve tends to invert, further supporting long-end flatteners. Total carry is 1bp per month, making it cheaper and less sensitive to timing of stress than an outright short bond position. On further EZ stress, the euro would weaken and euro vol rise. While a less dovish ECB would be euro-positive, peripheral stress would ignite concerns on the monetary union, and ultimately weaken the euro (as in Dec 2011). A cleaner hedge is buying EUR HUF vol, as it proxies EUR USD vol but has moved less so far. HUF options are historically very reactive to EZ stress, but the increase in vol lagged EUR USD post-elections, and EUR PLN vol has been higher in the past two years due to higher perceived risks in Poland (Chart 75). In Dec 2011, the vol spike in the three crosses had been the same. CEE rates tend to widen in times of Eurozone stress, but their fundamentals are much more solid, so further EZ stress may bring opportunities to buy dips. CEE capitalized the past five year much better, with fiscal consolidation in Hungary, balanced budget in Czech Republic, and low debt GDP ratios in Poland. Also, the growth picture is much more rosy, making leverage much more manageable. Trade recommendation: Buy 50y BTPs vs 30y BTPS at 30bp, targeting -8bp and with stop at 55bp. Risk is ECB QE continues and peripheral risk premium stays low. 44 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Tail risk 3: China-led commodity weakness Commodity collapse hedge: buy AUD USD 6m 0.67 digital put Metal and bulk commodity prices have skyrocketed in anticipation of infrastructure spending in the US, We are wary of this rally: tax cuts are likely to be the first line of fiscal stimulus and potentially easier to get through Congress than sizeable infrastructure spending, which in any case will take a longer time to impact commodity demand (allowing for supply adjustments). Perhaps most importantly, China is still the swing factor for global commodity prices and the risks here remain to the downside. The recent dramatic rise for China-linked bulk commodity prices, especially coal, has been driven by a combination of supply and demand imbalances (China floods, pit closures and inventory shortages) and an apparent rise in speculative activity in futures markets that has already drawn attention from regulators (Chart 76). Our resource analysts have raised forecasts but still see moderation over 2017 (Chart 77). The futures forward curve has already moved into backwardation. We see iron ore prices back at USD50 t in 2017 compared to a current spot price of USD74. While global reflation might be positive for commodities, there are reasons for caution: We expect Chinese property investment, the most commodity-intensive sector of the economy, to slow in 2017. Sizeable RMB depreciation would be an additional deflationary impulse for industrial commodities. There will be a supply response as current prices bring uneconomic producers back on line, admittedly with a lag. There is potential for trade friction to impact regional trade while higher US rates are already impacting regional EM currencies. Australia is especially exposed to intra-regional trade and resource demand from the region. Persistent supply demand imbalances ahead of Chinese New Year might delay commodity weakness until after 1Q17, especially for coking coal due to a preference for thermal coal supplies over the Chinese winter. However, the risk of a sharp reversal beyond is worth hedging against given the demand dynamics in China, most obviously through the AUD. While short-dated implied volatility rose following the US election, the risk-reversal skew remains high as a percentage of implied volatility relative to G10 pairs. This suggests hedging via AUD USD digital puts is appropriate, in our view. Trade recommendation: Buy 6m AUD USD 0.67 digital put, entry: 10 (spot reference: 0.7550). Risk is global demand recovery provides support to commodity prices. Chart 76: Bulk commodity spot prices USD t 400 Iron Ore (china) 300 Aus Thermal Coal Hardcoal (Coking) spot 200 100 0 11 12 13 14 15 16 17 Source: Bof A Merrill Lynch Global Research, Bloomberg Chart 77: China Coking coal futures and BAML forecasts Our 2017 forecasts for Liulin No.4 Coking coal are averages for 1H and 2H RMB t 1600 1400 1200 1000 800 600 Source: Bof A Merrill Lynch Global Research, Bloomberg Coking Coal Future (lhs) Futures Curve BAML Forecast Volume (rhs, 000s contracts) 400 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 3200 2800 2400 2000 1600 1200 800 400 0 Global Rates, FX EM 2017 Year Ahead 16 November 2016 45 Tail risk 4: BoJ triggers curve steepening and vol rise BoJ keeps yield curve anchored out to 10y: 1y10s20s conditional bear steepener The Bank of Japan (BoJ) has faced a tough 2016. Having switched its policy target from quantity to interest rates at its September Monetary Policy Meeting, it tacitly acknowledged that negative rates and JGB purchases were potentially approaching their limit in terms of policy effectiveness. Inflation expectations fell and the yen strengthened as a consequence as the market got accustomed to fading dovish pronouncements from the Bank of Japan. BoJ Governor Haruhiko Kuroda himself said "Central banks are, admittedly, not omnipotent." The BoJ introduced yield curve control, taking into consideration negative effects of great decline in yields and curve flattening on financial institution earnings or financial markets. If the BoJ keeps purchasing at the current rate, however, yields will sooner or later feel downward pressure. We believe the BoJ is likely to reduce its long-term JGB purchase gradually. For the time being, JGB yield guidelines are probably around 0 for the 10yr, 0.4 for the 20yr, and 0.5 for the 30yr JGB. However, the BoJ appears to be concerned about the deterioration of financial institution earnings caused by flattening of the yield curve. Kuroda said that even if superlong-term yields rose slightly, he did not believe they would have to be lowered. He went on to say he was also giving consideration to investors in superlong-term bonds, and that he did not think it was good for the yield curve to get continually flatter. Based on these and other remarks, we expect long-term JGB purchase operations to be reduced and the curve to gradually steepen (Rates forecast: Attention on BoJ operations when yields decline). Before that can happen, however, preconditions most likely include steady progress in US rate hikes, avoidance of excessive yen appreciation, and some degree of recovery in the inflation rate. With a Republican clean sweep, US fiscal easing is now a foregone conclusion and Higher rates and higher dollar may support our view for yen rates. If JGB purchase operations were reduced and yen rates rose in the wake of higher US Treasury yields and USD JPY appreciation, that could easily be explained by fundamentals. Yen rates volatility is still low; however, purchasing cuts by the BoJ could add to volatility risk amid declining liquidity in the super long-end (Chart 78). Even if risk-off sentiment pushes down the yield curve, the BoJ may lower the 10yr JGB yield target from zero to keep the curve steep. This kind of policy change also could increase volatility. In either case, the 10yr is expected to be anchored and movement is expected in the long end. We believe 1y10s20s conditional bear steepener may mitigate this risk. Trade recommendation: Long 5bn 1y20y 0.62 (atm 11bp) payer vs Short 9.9bn 1y10y 0.18 (atm) payer. This position is zero cost, PV01 neutral, and zero carry. Risk is the curve remains flat due to a deflationary backdrop. Chart 78: JPY Swap 10y and 20y rate and 1y20y volatility 1.2 ( ) JPY Swap 10y JPY Swap 20y 1y20y Volatility (RHS) (bp) 60 1 50 0.8 40 0.6 0.4 30 0.2 20 0 10 -0.2 0 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Source: BofA Merrill Lynch Global Research 46 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Best Technical Trades Paul Ciana, CMT MLPF S paul.ciana baml.com Technical trends for Trump Bullish USD: Breadth and technicals favor USD. Overall they point to a stronger US dollar in 2017. We are bullish USD JPY. Higher yields: US 10y and 30y yield made large wedge bottom patterns, pointing to a 61.8 Fibonacci retracement of 2.98 and 3.80 , respectively. We recommend buying a NZD USD 5m .69 .66 put spread 1x1.5 for 43 USD pips (off of .7100 spot). USD rally is turning into an outright bull The Bloomberg US dollar index is approaching all-time highs. The number of USD crosses above their 200-day moving average has broken out higher. The number of USD crosses reaching overbought on RSI (bullish momentum) continues to rise. The USD cumulative advance-decline line recently signaled for tactical USD strength and would turn outright bullish with a trend line break and new index highs. Chart 79: Bloomberg US dollar index, weekly chart with USD breadth measures Source: BofA Merrill Lynch Global Research, Bloomberg Global Rates, FX EM 2017 Year Ahead 16 November 2016 47 Bullish USD JPY The election of Donald Trump catapulted USD JPY through another resistance level, this time a weekly trend line, adding to the list of technical signals that USD JPY has bottomed and is in an uptrend. We began discussing a bottom in our September 5 and September 18 Technical Advantage reports. We estimate technical upside and resistance in the area of 112. We also think this uptrend has the potential to reach the full measured move target of 116.50 in 2017. Chart 80: USD JPY weekly chart Source: BofA Merrill Lynch Global Research, Bloomberg A higher yield environment We continue to think yields will trend higher in 2017. We initially reported our view that global yields would rise in our October 26 Technical Advantage report. Since then we have seen added confirmation by US 10y, US 30y, 10yr bund, 30yr JGB and 10y Gilt that yields will rise. US 10y and 30y yield form wedge bottom pattern US 10y and 30y yields formed wedge bottom patterns by breaking through the upper trend line resistance (Breakout 1). A wedge pattern is composed of two converging trend lines often consisting of multiple smaller trends followed by a breakout. Each yield has a second resistant trend line and Fibonacci retracement to break. If 10y yield breaks through 2.35 and 30y yield through 3.15 , then another breakout will have occurred that technically triggers another leg higher to 2.98 and 3.80 , respectively. We think this is the more likely outcome. 48 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Chart 81: US 10yr yield (top) and US 30yr yield (bottom) weekly chart Source: BofA Merrill Lynch Global Research, Bloomberg German 10yr bund yield breaks out Bund yield has risen through resistance levels and is up about 60bps from the low. Prior uptrends failed at trend line resistance levels; however, this time it broke through. The distance traveled during prior moves include 140bps, 93bps and 108bps. Therefore, we believe this uptrend has room to continue to 55bps (estimated 200wk SMA) by 1Q2017 and to 75bps in 2017. Japanese 30y yields form head and shoulders bottom The rapid decline in 30y JGB yield during 2016 led to a trend exhaustion signal at the lows (TD Sequential 13), a rise resulting in the most overbought (higher yield) momentum since 2010 and the formation of a head and shoulders bottom. Provided yield remains above 44bps, we could see yield rising to 71bps and possibly 87bps in 2017. Global Rates, FX EM 2017 Year Ahead 16 November 2016 49 Chart 82: German 10yr bund yield weekly chart Chart 83: Japanese 30yr yield - weekly chart Source: BofA Merrill Lynch Global Research, Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg Buy NZD USD 5m .69 .66 put spread 1x1.5 NZD USD is forming a head and shoulders top. It is breaking trend line support from the January to June lows. It is also threatening to break the neckline at .7070. MACD recently crossed bearish and is trending toward negative. This pattern suggests NZD USD will decline as low as .6615. Given the strong USD move in G10 thus far, we think NZD USD is near an attractive technical level to position for further USD strength. We recommending buying a NZD USD 5m .69 .66 put spread 1x1.5 for 43 USD pips (off of .7100 spot). Chart 84: NZD USD daily chart Source: BofA Merrill Lynch Global Research, Bloomberg 50 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Bond Yield Forecasts Table 7: Quarter-end bond yield forecasts Latest 4Q16 1Q17 2Q17 3Q17 4Q17 USA 3m Libor 0.91 1.05 1.05 1.25 1.30 1.50 2y T-Note 0.98 1.10 1.35 1.50 1.60 1.65 5y T-Note 1.64 1.85 2.10 2.15 2.20 2.25 10y T-Note 2.21 2.35 2.55 2.60 2.65 2.65 30y T-Bond 2.95 3.10 3.30 3.30 3.35 3.35 2y Swap 1.23 1.30 1.53 1.66 1.75 1.80 5y Swap 1.68 1.88 2.10 2.15 2.20 2.25 10y Swap 2.07 2.23 2.41 2.44 2.49 2.49 Germany 3m Euribor -0.31 -0.30 -0.30 -0.30 -0.33 -0.32 2y BKO -0.62 -0.60 -0.60 -0.55 -0.50 -0.45 5y OBL -0.34 -0.35 -0.30 -0.25 -0.20 -0.10 10y DBR 0.30 0.40 0.45 0.50 0.55 0.65 30y DBR 0.93 1.05 1.10 1.15 1.15 1.15 2y Swap -0.13 -0.14 -0.16 -0.13 -0.06 -0.02 5y Swap 0.14 0.12 0.16 0.21 0.27 0.36 10y Swap 0.69 0.81 0.85 0.89 0.92 1.00 Japan 3m Libor -0.07 -0.03 -0.03 -0.03 -0.03 -0.03 2y JGB -0.17 -0.20 -0.20 -0.20 -0.20 -0.15 5y JGB -0.11 -0.15 -0.15 -0.13 -0.12 -0.10 10y JGB 0.01 0.00 0.00 0.00 0.00 0.00 2y Swap 0.01 -0.07 -0.07 -0.07 -0.07 0.00 5y Swap 0.04 -0.05 0.00 0.01 0.02 0.04 10y Swap 0.15 0.12 0.15 0.15 0.15 0.15 U.K. 3m Libor 0.40 0.40 0.25 0.25 0.25 0.25 2y UKT 0.22 0.20 0.20 0.20 0.20 0.20 5y UKT 0.66 0.70 0.80 0.85 0.90 0.90 10y UKT 1.40 1.50 1.60 1.65 1.70 1.75 30y UKT 2.04 2.10 2.15 2.20 2.25 2.30 2y Swap 0.67 0.65 0.65 0.60 0.55 0.50 5y Swap 0.96 1.00 1.10 1.15 1.20 1.20 10y Swap 1.34 1.55 1.70 1.75 1.80 1.85 Australia 3m BBSW 1.76 1.70 1.70 1.70 1.80 1.80 2y ACGB 1.77 1.90 1.95 2.00 2.05 2.10 5y ACGB 2.16 2.30 2.40 2.45 2.50 2.60 10y ACGB 2.66 2.80 2.95 3.05 3.10 3.10 3y Swap 2.22 2.00 2.10 2.15 2.20 2.20 10y Swap 2.81 2.95 3.10 3.20 3.25 3.25 Canada 2y Govt 0.66 0.70 0.60 0.50 0.40 0.40 5y Govt 0.94 1.00 0.90 0.80 0.70 0.70 10y Govt 1.52 1.50 1.40 1.40 1.35 1.35 2y Swap 1.00 1.04 0.94 0.84 0.74 0.74 5y Swap 1.29 1.35 1.25 1.15 1.05 1.05 10y Swap 1.78 1.76 1.66 1.66 1.61 1.61 Source: BofA Merrill Lynch Global Research Global Rates, FX EM 2017 Year Ahead 16 November 2016 51 Global FX Forecasts Table 8: Quarterly forecasts G10 currencies Spot Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 G3 EUR-USD 1.08 1.08 1.05 1.02 1.02 1.05 1.06 1.07 1.08 1.10 USD-JPY 108 108 112 115 117 120 117 115 112 110 EUR-JPY 117 117 118 117 119 126 124 123 121 121 Dollar Bloc USD-CAD 1.35 1.36 1.38 1.40 1.41 1.43 1.43 1.41 1.40 1.40 AUD-USD 0.76 0.74 0.73 0.72 0.71 0.70 0.70 0.71 0.73 0.75 NZD-USD 0.71 0.70 0.69 0.68 0.68 0.67 0.67 0.68 0.70 0.71 Europe EUR-GBP 0.87 0.88 0.91 0.89 0.88 0.88 0.88 0.87 0.86 0.85 GBP-USD 1.24 1.23 1.15 1.15 1.16 1.19 1.20 1.23 1.26 1.29 EUR-CHF 1.07 1.08 1.09 1.10 1.11 1.12 1.12 1.13 1.13 1.15 USD-CHF 0.99 1.00 1.04 1.08 1.09 1.07 1.06 1.06 1.05 1.05 EUR-SEK 9.86 9.50 9.40 9.30 9.20 9.15 9.10 9.00 8.90 8.90 USD-SEK 9.14 8.80 8.95 9.12 9.02 8.71 8.58 8.41 8.24 8.09 EUR-NOK 9.08 9.00 8.90 8.80 8.70 8.60 8.50 8.50 8.40 8.40 USD-NOK 8.41 8.33 8.48 8.63 8.53 8.19 8.02 7.94 7.78 7.64 Forecast as of Nov-15-2016. Spot exchange rate as of Nov-15-2016. The left of the currency pair is the denominator of the exchange rate. Source: BofA Merrill Lynch Global Research Table 9: Quarterly forecasts EM currencies Spot Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Latin America USD-BRL 3.43 3.60 3.65 3.70 3.80 3.90 3.90 3.90 3.90 3.90 USD-MXN 20.48 21 21.25 21.5 21.75 22 22.25 22.5 22.75 23 USD-CLP 670 670 685 700 715 730 740 750 760 770 USD-COP 3,124 3,150 3,200 3,250 3,300 3,350 3,400 3,450 3,500 3,550 USD-ARS 15.60 15.80 16.00 17.00 17.50 18.00 18.50 19.00 19.50 20.00 USD-VEF 9.99 10 31.1 31.1 84.8 84.8 84.8 84.8 84.8 84.8 USD-PEN 3.44 3.45 3.47 3.50 3.52 3.55 3.60 3.65 3.70 3.70 USD-UYU 28.70 29 30 31 32 33 34 35 36 37 Emerging Europe EUR-PLN 4.41 4.30 4.25 4.20 4.20 4.20 4.10 4.05 4.05 4.00 EUR-HUF 310 310 310 305 300 300 300 295 295 290 EUR-CZK 27.03 27 27 27 26.5 26 26 26 26 25.5 USD-UAH 25.91 25.8 25.8 25.8 25.8 25.8 25.8 25.8 25.8 25.8 USD-RUB 65.47 65 63 65 65 65 65 65 65 65 USD-ZAR 14.15 14.5 14.5 14.5 14.5 14.5 14.3 14.5 14.8 15 USD-TRY 3.27 3.15 3.1 3.15 3.2 3.2 3.2 3.25 3.25 3.3 EUR-RON 4.51 4.5 4.5 4.45 4.4 4.4 4.4 4.35 4.35 4.3 USD-EGP 15.47 USD-ILS 3.84 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.8 3.8 USD-AED 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 USD-SAR 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 USD-QAR 3.64 3.64 3.64 3.64 3.64 3.64 3.64 3.64 3.64 3.64 Asian Bloc USD-KRW 1,170 1200 1200 1220 1250 1270 1270 1230 1210 1190 USD-TWD 31.85 32.1 32.4 32.7 33.1 33.4 33.4 32.8 32.5 32.3 USD-SGD 1.41 1.44 1.45 1.49 1.5 1.51 1.51 1.51 1.51 1.5 USD-THB 35.36 36 36.5 37.5 37.8 38.2 39 39 38 37 USD-HKD 7.76 7.76 7.77 7.78 7.79 7.80 7.80 7.80 7.80 7.80 USD-CNY 6.85 7.00 7.05 7.10 7.15 7.25 7.35 7.35 7.30 7.20 USD-IDR 13369 13700 13900 14200 14400 14600 14500 14500 14400 14200 USD-PHP 49.07 50.5 51 52 53 53.5 54 54 53 52 USD-MYR 4.34 4.41 4.45 4.55 4.65 4.71 4.68 4.68 4.6 4.5 USD-INR 67.69 68.25 68.1 68.5 69 70 69.5 69 68.5 68 Forecast as of Nov-15-2016. Spot exchange rate as of Nov-15-2016. The left of the currency pair is the denominator of the exchange rate. Source: BofA Merrill Lynch Global Research 52 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Options Risk Statement Potential Risk at Expiry Options Limited Duration Risk Unlike owning or shorting a stock, employing any listed options strategy is by definition governed by a finite duration. The most severe risks associated with general options trading are total loss of capital invested and delivery assignment risk, all of which can occur in a short period. Investor suitability The use of standardized options and other related derivatives instruments are considered unsuitable for many investors. Investors considering such strategies are encouraged to become familiar with the "Characteristics and Risks of Standardized Options" (an OCC authored white paper on options risks). U.S. investors should consult with a FINRA Registered Options Principal. For detailed information regarding the risks involved with investing in listed options: http: www.theocc.com about publications character-risks.jsp. Valuation risk Brazil (BRAZIL) We are Marketweight Brazil's EXD with currently wide spreads compensating for the risks. The political crisis concerns investors and growth has been weaker than expected. However, spreads are quite high compared to LatAm investment grades. There are positive and negative tail risks for growth, as a resolution to the political paralysis could bring confidence back up quickly and improve the economic backdrop. With this positive tail risk, and a stronger fiscal adjustment in 2016, economic recovery could start in 2Q16. On the downside, pressures on GDP could increase if the political scenario deteriorates further, with the government failing to approve fiscal measures and or Brazil shifting to a heterodox policy. Colombia (COLOM) Spreads, which have widened this year adequately compensate investors for the risk, in our view, and leads us to our Marketweight view. Downside risks are a rapid inflation acceleration from pass-through effects, which would be a difficult problem for macroeconomic policy. Also oil price weakness raises risk of recession. Fiscal and external difficulties generate incentives to relax the fiscal rule. Upside risks are a rise in commodity prices and stronger than expected growth. Mexico (MEX) Mexico's tight spreads fairly reflect the better quality of Mexican debt compared to most of LatAm, in our view. We forecast Mexico's activity growth to remain in the 2-3 range. Downside risks are lower growth in the US, lower oil prices and slower domestic oil production. A disorderly normalization of US monetary policy is a risk to Mexico's financial stability as well. Upside risks are higher oil prices and stronger US growth. Turkey (TURKEY) We are Overweight as Turkey Eurobonds lagged peers due to heightened political noise during the summer. Since Moody's downgraded the sovereign, all negative impact of the attempted coup seems to be priced and we think that bonds offer value vs peers. Downside risks are stronger outflows than expected and heightened political noise. Upside risks include a generalized rally on the back of more positive global backdrop. Analyst Certification We, David Woo, Adarsh Sinha, Arko Sen, Claudio Irigoyen, Jane Brauer, Kamal Sharma, Mark Capleton, Paul Ciana, CMT and Ralf Preusser, CFA, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Global Rates, FX EM 2017 Year Ahead 16 November 2016 53 Disclosures Important Disclosures Credit opinion history Brazil BRAZIL Sovereign Date Action Recommendation Brazil BRAZIL 12-Nov-2015 Initial Marketweight Table reflects credit opinion history as of previous business day s close. First date of recommendation within last 36 months. The investment opinion system is contained at the end of the report under the heading "BofA Merrill Lynch Credit Opinion Key." Colombia COLOM Sovereign Date Action Recommendation Colombia COLOM 12-Nov-2015 Initial Marketweight Table reflects credit opinion history as of previous business day s close. First date of recommendation within last 36 months. The investment opinion system is contained at the end of the report under the heading "BofA Merrill Lynch Credit Opinion Key." Mexico MEX Sovereign Date Action Recommendation Mexico MEX 12-Nov-2015 Initial Marketweight 03-Dec-2015 Restricted NA 03-Dec-2015 Coverage Resumed Marketweight 21-Mar-2016 Restricted NA 21-Mar-2016 Coverage Resumed Marketweight 08-Aug-2016 Restricted NA 10-Aug-2016 Coverage Resumed Marketweight Table reflects credit opinion history as of previous business day s close. First date of recommendation within last 36 months. The investment opinion system is contained at the end of the report under the heading "BofA Merrill Lynch Credit Opinion Key." Turkey TURKEY Sovereign Date Action Recommendation Turkey TURKEY 12-Nov-2015 Initial Marketweight 23-Feb-2016 Downgrade Underweight 17-May-2016 Upgrade Marketweight 27-Sep-2016 Upgrade Overweight Table reflects credit opinion history as of previous business day s close. First date of recommendation within last 36 months. The investment opinion system is contained at the end of the report under the heading "BofA Merrill Lynch Credit Opinion Key." 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Neither BofA Merrill Lynch nor any officer or employee of BofA Merrill Lynch accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents. 56 Global Rates, FX EM 2017 Year Ahead 16 November 2016 Research Analysts Europe Ralf Preusser, CFA Rates Strategist MLI (UK) 44 20 7995 7331 ralf.preusser baml.com Mark Capleton Rates Strategist MLI (UK) 44 20 7995 6118 mark.capleton baml.com Sphia Salim Rates Strategist MLI (UK) 44 20 7996 2227 sphia.salim baml.com Ruairi Hourihane Rates Strategist MLI (UK) 44 20 7995 9531 ruairi.hourihane baml.com Erjon Satko Rates Strategist MLI (UK) 44 20 7996 5726 erjon.satko baml.com Sebastien Cross Rates Strategist MLI (UK) 44 20 7996 7561 sebastien.cross baml.com Athanasios Vamvakidis FX Strategist MLI (UK) 44 20 7995 0790 athanasios.vamvakidis baml.com Kamal Sharma FX Strategist MLI (UK) 44 20 7996 4855 ksharma32 baml.com Myria Kyriacou FX Strategist MLI (UK) 44 20 7996 1728 myria.kyriacou baml.com US David Woo FX, Rates EM Strategist MLPF S 1 646 855 5442 david.woo baml.com Shyam S.Rajan Rates Strategist MLPF S 1 646 855 9808 shyam.rajan baml.com Mark Cabana, CFA Rates Strategist MLPF S 1 646 855 9591 mark.cabana baml.com Ralph Axel Rates Strategist MLPF S 1 646 855 6226 ralph.axel baml.com John Shin FX Strategist MLPF S 1 646 855 9342 joong.s.shin baml.com Carol Zhang Rates Strategist MLPF S 1 646 855 8311 carol.zhang baml.com Pac Rim Adarsh Sinha FX Strategist Merrill Lynch (Hong Kong) 852 3508 7155 adarsh.sinha baml.com Shuichi Ohsaki Rates Strategist Merrill Lynch (Japan) 81 3 6225 7747 shuichi.ohsaki baml.com Global Emerging Markets David Hauner, CFA EEMEA Cross Asset Strategist MLI (UK) 44 20 7996 1241 david.hauner baml.com Claudio Irigoyen LatAm FI FX Strategy Economist MLPF S 1 646 855 1734 claudio.irigoyen baml.com Claudio Piron Emerging Asia FI FX Strategist Merrill Lynch (Singapore) 65 6591 0401 claudio.piron baml.com Helen Qiao China Asia Economist Merrill Lynch (Hong Kong) 852 3508 3961 helen.qiao baml.com Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in FX markets and the financial resources to absorb any losses arising from applying these ideas or strategies. Global Rates, FX EM 2017 Year Ahead 16 November 2016 57 |
Case 1:15-cv-07433-RWS Document 749 Filed 03 17 17 Page 1 of 9 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK VIRGINIA L. GIUFFRE, Plaintiff, v. GHISLAINE MAXWELL, Defendant. ............................................. 15-cv-07433-RWS Defendant s Response in Opposition to Plaintiff s Omnibus Motion in Limine Laura A. Menninger Jeffrey S. Pagliuca Ty Gee HADDON, MORGAN AND FOREMAN, P.C. 150 East 10 th Avenue Denver, CO 80203 303.831.7364 Case 1:15-cv-07433-RWS Document 749 Filed 03 17 17 Page 2 of 9 TABLE OF CONTENTS INTRODUCTION .......................................................................................................................... 1 I. FED. R. EVID. 405(B) REQUIRES ADMISSION OF ALL SPECIFIC INCIDENTS OF PLAINTIFF LYING OR ENGAGING IN DECEITFUL OR FRAUDULENT CONDUCT 1 A. All allegations or comments made by Plaintiff are connected to the alleged defamatory statement.............................................................................................................................. 4 B. Responses to Enumerated Motions In Limine ..................................................................... 6 1. Stories and allegations concerning Dershowitz, foreign presidents, and world leaders are highly relevant and admissible (Motion in Limine 1) ............................................... 6 2. Meeting Bill Clinton at Jeffrey Epstein s private island twice (Motion in Limine 2) ..... 8 3. FOIA responses and related materials are admissible (Motion in Limine 3)................... 8 4. Louis Freeh s testimony and report are admissible evidence (Motion in Limine 4) ....... 9 5. Prince Andrew and Buckingham Palace s denials of Plaintiff s claims are not offered for the truth of the matter asserted (Motion in Limine 5).............................................. 11 6. Evidence Regarding Plaintiff s Sexual History and Reputation is Admissible (Motion in Limine 6) ....................................................................................................................... 14 7. Plaintiff cannot prohibit use of words such as prostitute, which she used to describe herself, or any other derogatory terms that describe her reputation (Motion in Limine 7).................................................................................................................................... 14 8. Plaintiff s drug use is relevant to her memory and lack of damages (Motion in Limine 8).................................................................................................................................... 16 9. Information regarding Plaintiff s criminal history is relevant and admissible evidence when character is an essential element of the claim (Motion in Limine 9)................... 18 10. Evidence concerning school attendance is relevant to Plaintiff s allegations of how she spent her time in 1999 to 2002 (Motion in Limine 10) ................................................. 19 11. Plaintiff put her full childhood history and character at issue (Motion in Limine 11) .. 20 12. Victims Refuse Silence is a sham not-for-profit established to create a claim for defamation per se (Motion in Limine 12)...................................................................... 20 i Case 1:15-cv-07433-RWS Document 749 Filed 03 17 17 Page 3 of 9 13. Plaintiff s failure to pay her personal tax obligations is relevant to her character for truthfulness (Motion in Limine 13) ............................................................................... 22 14. Plaintiff s husband s domestic violence against her in March 2015 is probative of other intervening causes of emotional distress and related damages (Motion in Limine 14) 23 15. Plaintiff s lies about her age and the year she met Mr. Epstein must be exposed to the jury (Motion in Limine 15)............................................................................................ 24 16. All of Plaintiff s medical records are relevant to Plaintiff s damages claims (Motion in Limine 16) ..................................................................................................................... 25 17. The Parties agree to preclusion of all documents and discussion of the Jane Doe 102 case, including the settlement of those claims (Motion in Limine 17) ......................... 26 18. The Cassell Edwards v. Dershowitz litigation is relevant and admissible (Motion in Limine 18) ..................................................................................................................... 26 19. Judge Marra s ruling is relevant and admissible (Motion in Limine 19)....................... 29 20. The transcript of the tape recording of Mr. Dershowitz s conversation with Rebecca Boylan is admissible (Motion in Limine 20)................................................................. 31 C. Plaintiff s Remaining Motions In Limine Are Premature and Request an Unnecessary Advisory Opinion (Motions in Limine 21-29).................................................................. 32 1. Bad Acts by Plaintiff s counsel .................................................................................. 34 2. Discussion of missing witnesses and absence of evidence is appropriate, and missing witness instruction may be requested ............................................................................ 35 CONCLUSION............................................................................................................................. 36 CERTIFICATE OF SERVICE ..................................................................................................... 38 ii Case 1:15-cv-07433-RWS Document 749 Filed 03 17 17 Page 4 of 9 TABLE OF AUTHORITIES Cases Brady v. Chemical Construction Corp., 740 F.2d 195 (2d Cir. 1984).......................................... 10 Cannistraci v. Kirsopp, No. 1:10-CV-980 MAD DRH, 2012 WL 2089687, at 1 2 (N.D.N.Y. June 8, 2012)............................................................................................................................. 11 Cardillo v. Doubleday Co., Inc., 518 F.2d 638, 639 40 (2d Cir.1975).................................... 13 Chamblee v. Harris Harris, Inc., 154 F. Supp. 2d 670, 681 (S.D.N.Y. 2001)......................... 22 Chnapkova v. Koh, 985 F.2d 79, 82 (2d Cir. 1993)...................................................................... 22 Daniels by Glass v. Wal-Mart Stores, Inc., 634 So.2d 88, 93 (Miss. 1993)................................... 4 DeVaul v Carvigo Inc., 526 N.Y.S.2d 483 (2d Dept. 1988)......................................................... 35 Doddy v. Oxy USA, Inc., 101 F.3d 448, 459-60 (5th Cir. 1996)................................................... 10 Donnelly v. DeChristoforo, 416 U.S. 637, 646 47, 94 S.Ct. 1868, 40 L.Ed.2d 431 (1974). ....... 33 Edwards v. City of N.Y., No. 08-2199 TLM, 2011 WL 2748665, at 4 (E.D.N.Y. July 13, 2011) ................................................................................................................................................... 22 EEOC v. Grief Brothers Corp., 218 F.R.D. 59, 61 62 (W.D.N.Y. 2003).................................... 25 Equal Employment Opportunity Comm n v. Reed Pierce s Sportsman s Grille, LLC, No. 3:10- CV-541-WHB-LRA, 2013 WL 12123370, at 1 (S.D. Miss. Jan. 11, 2013)........................... 24 Gaillard v. Jim s Water Service, Inc., 535 F.3d 771, 778 779 (8th Cir. 2008)............................ 22 Gallo v. Ricci, 814 N.Y.S.2d 422, 423 (2006).............................................................................. 36 Geraty v. Vill. of Antioch, No. 09 C 6992, 2015 WL 127917, at 7 (N.D. Ill. Jan. 8, 2015) ......... 9 Gordy Co. v. Mary Jane Girls, Inc., No. 86 CIV. 6814 (RWS), 1989 WL 28477, at 6 (S.D.N.Y. Mar. 24, 1989)........................................................................................................................... 17 Gov t of Virgin Islands v. Grant, 775 F.2d 508, 511 n. 4 (3d Cir. 1985) ................................... 3 Grasso v. Mathew, 564 N.Y.S.2d 576, 578 (3d Dep t 1991) ...................................................... 30 Guccione v. Hustler Magazine, Inc., 800 F.2d 298, 303 (2d Cir. 1986)....................................... 13 iii Case 1:15-cv-07433-RWS Document 749 Filed 03 17 17 Page 5 of 9 Jaffee v. Redmond, 518 U.S. 1, 116 S.Ct. 1923, 135 L.Ed.2d 337 (1996) ................................... 22 Kadant Johnson Inc. v. D Amico, No. CIV.A. 10-2869, 2012 WL 2190897, at 1 (E.D. La. June 14, 2012) ..................................................................................................................................... 3 Kevorkian v. Am. Med. Ass'n, 237 Mich. App. 1, 12, 602 N.W.2d 233, 239 (1999).................... 13 Longmire v. Ala. State Univ., 151 F.R.D. 414, 419 (M.D.Ala. 1992) .3 Minemyer v. R-Boc Representatives, Inc., No. 07 C 1763, 2012 WL 379904, at 4 (N.D. Ill. Feb. 6, 2012) ..................................................................................................................................... 12 O Brien v. Alexander, 898 F.Supp. 162, 171 (S.D.N.Y. 1995) .................................................... 30 Palmieri v. Defaria, 88 F.3d 136, 141 (2d Cir. 1996) .................................................................. 33 People v Thomas, 21 N.Y.3d 226 (2013)...................................................................................... 35 People v. Williams, 5 N.Y.3d 732, 734 (2005)............................................................................. 35 Preferred Properties, Inc. v. Indian River Estates, Inc., 276 F.3d 790, 799 n.5 (6th Cir. 2002) . 13 Rowe v. DPI Specialty Foods, Inc., No. 2:13-CV-00708-DN, 2015 WL 3533844, at 5 (D. Utah June 4, 2015)....................................................................................................................... 13, 28 S.E.C. v. Collins Aikman Corp., 256 F.R.D. 403, 412 (S.D.N.Y. 2009) .................................. 19 Schafer v. Time, Inc., 142 F.3d 1361, 1364 75 (11th Cir. 1998) ................................................... 3 Seligson, Morris Neuburger v Fairbanks Whitney Corp., 257 N.Y.S.2d 706 (1st Dept. 1965)35 Sidor v. Reno, 95 CIV. 9588 (KMW), 1998 WL 164823, 2 (S.D.N.Y. April 7, 1998).............. 25 United States v. Dukes, 727 F.2d 34, 37 (2d Cir. 1984) ............................................................... 17 United States v. Hatchett, 918 F.2d 631, 641 (6th Cir. 1990) ...................................................... 22 United States v. Lujan, No. 05 CR 924 (RB) (D.N.M. Mar. 25, 2011) ...................................... 32 United States v. Piche, 981 F.2d 706, 713 (4th Cir. 1992) ............................................................. 3 United States v. Rabbani, 382 F. App x 39, 42 (2d Cir. 2010)..................................................... 35 United States v. Robinson, 583 F.3d 1265, 1272 (10th Cir. 2009) ............................................... 17 United States v. Van Meerbeke, 548 F.2d 415, 417 18 (2d Cir. 1976) ........................................ 17 iv Case 1:15-cv-07433-RWS Document 749 Filed 03 17 17 Page 6 of 9 United States v. West, 58 F.3d 133, 141 (5th Cir. 1995) .............................................................. 22 United States v. Wexler, 79 F.2d 526, 529 30 (2d Cir. 1935)...................................................... 33 United States v. Wilson, No. 04-CR-1016 NGG, 2013 WL 2948034, at 4 6 (E.D.N.Y. June 14, 2013) ......................................................................................................................................... 32 World Wide Ass n of Specialty Programs v. Pure, Inc., 450 F.3d 1132, 1138 (10th Cir. 2006).... 3 Zamora v. GC Servs., L.P., 647 F. App x 330 (5th Cir. 2016)....................................................... 9 Rules Fed. R. Evid. 403 ............................................................................................................................ 7 Fed. R. Evid. 405 and 608............................................................................................... 4, 6, 15, 20 Fed. R. Evid. 405(b)............................................................................................................... passim Fed. R. Evid. 801 .......................................................................................................................... 12 Fed. R. Evid. 801 (d)(2)(D) .................................................................................................... 29, 31 Fed. R. Evid. 803(6)...................................................................................................................... 19 Fed. R. Evid. 803(8)........................................................................................................................ 8 Fed. R. Evid. 902(4) and 902(11) ................................................................................................. 19 v Case 1:15-cv-07433-RWS Document 749 Filed 03 17 17 Page 7 of 9 TABLE OF CONTENTS and PAGES 1-36 REDACTED Case 1:15-cv-07433-RWS Document 749 Filed 03 17 17 Page 8 of 9 Dated: March 17, 2017 Respectfully submitted, s Laura A. Menninger Laura A. Menninger (LM-1374) Jeffrey S. Pagliuca (pro hac vice) Ty Gee (pro hac vice) HADDON, MORGAN AND FOREMAN, P.C. 150 East 10 th Avenue Denver, CO 80203 Fax: 303.832.2628 lmenninger hmflaw.com Attorneys for Ghislaine Maxwell 37 Case 1:15-cv-07433-RWS Document 749 Filed 03 17 17 Page 9 of 9 CERTIFICATE OF SERVICE I certify that on March 17, 2017, I electronically served this Defendant s Response in Opposition to Plaintiff s Omnibus Motion In Limine via ECF on the following: Sigrid S. McCawley Meredith Schultz BOIES, SCHILLER FLEXNER, LLP 401 East Las Olas Boulevard, Ste. 1200 Ft. Lauderdale, FL 33301 smccawley bsfllp.com mschultz bsfllp.com Bradley J. Edwards FARMER, JAFFE, WEISSING, EDWARDS, FISTOS LEHRMAN, P.L. 425 North Andrews Ave., Ste. 2 Ft. Lauderdale, FL 33301 brad pathtojustice.com Paul G. Cassell 383 S. University Street Salt Lake City, UT 84112 cassellp law.utah.edu J. Stanley Pottinger 49 Twin Lakes Rd. South Salem, NY 10590 StanPottinger aol.com s Nicole Simmons Nicole Simmons 38 |
........................................... Case 1:15-cv-07433-RWS Document 751 Filed 03 17 17 Page 1 of 5 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK VIRGINIA L. GIUFFRE, v. Plaintiff, 15-cv-07433-RWS GHISLAINE MAXWELL, Defendant. Declaration of Laura A. Menninger in Support of Response in Opposition to Plaintiff s Omnibus Motion in Limine I, Laura A. Menninger, declare as follows: 1. I am an attorney at law duly licensed in the State of New York and admitted to practice in the United States District Court for the Southern District of New York. I am a member of the law firm Haddon, Morgan Foreman, P.C., counsel of record for Defendant Ghislaine Maxwell in this action. I respectfully submit this Declaration in support of Ms. Maxwell s Response in Opposition to Plaintiff s Omnibus Motion in Limine. 2. Attached as Exhibit A is a true and correct copy of a statement on behalf of Ms. Maxwell dated January 2, 2015. 3. Attached as Exhibit B is a true and correct copy of an article by Sharon Churcher titled Teenage girl recruited by paedophile Jeffrey Epstein reveals how she twice met Bill Clinton, DAILY MAIL, dated March 5, 2011. Case 1:15-cv-07433-RWS Document 751 Filed 03 17 17 Page 2 of 5 4. Attached as Exhibit C (filed under seal) are true and correct copies of 5. Attached as Exhibit D (filed under seal) are true and correct copies of 6. Attached as Exhibit E (filed under seal) are true and correct copies of 7. Attached as Exhibit F (filed under seal) is a true and correct copy of 8. Attached as Exhibit G is a true and correct copy of an article by Sharon Churcher titled The Prince, a paedophile and the sex slave teen The Daily Telegraph, dated February 28, 2011. 9. Attached as Exhibit H (filed under seal) is a true and correct copy of 10. Attached as Exhibit I is a true and correct copy of an article titled Buckingham Palace issues second denial of underage sex claims against Prince Andrew, Fox News.com. 11. Attached as Exhibit J is a true and correct copy of an article titled Prince Andrew denies sex abuse claims CNN.com. 2 Case 1:15-cv-07433-RWS Document 751 Filed 03 17 17 Page 3 of 5 12. Attached as Exhibit K is a true and correct copy of an article by Tom Leonard titled Prince Andrew risks ambassador job as underage sex case girl reveals meeting him DAILY MAIL, dated March 2, 2011. 13. Attached as Exhibit L is a true and correct copy of an article by Wills Robinson titled Jeffrey Epstein sex slave Virginia Roberts was a money-hungry sex kitten , ex friends claim DAILY MAIL, dated March 1, 2015. 14. Attached as Exhibit M (filed under seal) are true and correct copies of 15. Attached as Exhibit N (filed under seal) is a true and correct copy of 16. Attached as Exhibit O (filed under seal) is a true and correct copy of 17. Attached as Exhibit P (filed under seal) are true and correct copies 18. Attached as Exhibit Q (filed under seal) is a true and correct copy of 19. Attached as Exhibit R is a true and correct copy of a press release in the Edwards, et. al v. Dershowitz matter, dated April 8, 2016, Bates stamped GM 00523-4. 3 Case 1:15-cv-07433-RWS Document 751 Filed 03 17 17 Page 4 of 5 20. Attached as Exhibit S is a true and correct copy of an Order Denying Motion to Join Under Rule 21, Doe v. United States, No. 08-80736-Civ-Marra Johnson (S.D. Fla. Apr. 7, 2016). I declare under penalty of perjury that the foregoing is true and correct. Executed on March 17, 2017. s Laura A. Menninger Laura A. Menninger 4 Case 1:15-cv-07433-RWS Document 751 Filed 03 17 17 Page 5 of 5 CERTIFICATE OF SERVICE I certify that on March 17, 2017, I electronically served this Declaration of Laura A. Menninger in Support of Defendant s Response in Opposition to Plaintiff s Omnibus Motion in Limine via ECF on the following: Sigrid S. McCawley Meredith Schultz BOIES, SCHILLER FLEXNER, LLP 401 East Las Olas Boulevard, Ste. 1200 Ft. Lauderdale, FL 33301 smccawley bsfllp.com mschultz bsfllp.com Bradley J. Edwards FARMER, JAFFE, WEISSING, EDWARDS, FISTOS LEHRMAN, P.L. 425 North Andrews Ave., Ste. 2 Ft. Lauderdale, FL 33301 brad pathtojustice.com Paul G. Cassell 383 S. University Street Salt Lake City, UT 84112 cassellp law.utah.edu J. Stanley Pottinger 49 Twin Lakes Rd. South Salem, NY 10590 StanPottinger aol.com s Nicole Simmons Nicole Simmons 5 Case 1:15-cv-07433-RWS Document 751-1 Filed 03 17 17 Page 1 of 2 EXHIBIT A Case 1:15-cv-07433-RWS Document 751-1 Filed 03 17 17 Page 2 of 2 Date: 2 January 2015 at 20: 38 bcc: martin. robinson mailonline. co. uk, P. Peachev independent. co. uk, nick.sommerlad mirror.co. uk, david. brown thetimes. co. uk, nick.alwav bbc. co. uk, io- anne. pugh bbc. co. uk To Whom It May Concern, Please find attached a quotable statement on behalf of Ms Maxwell. No further communication will be provided by her on this matter. Thanks for your understanding. Best Ross Ross Gow ACUITY Reputation Jane Doe 3 is Virginia Roberts - so not a new individual. The allegations made by Victoria Roberts against Ghislaine Maxwell are untrue. The original allegations are not new and have been fully responded to and shown to be untrue. Each time the story is re told it changes with new salacious details about public figures and world leaders and now it is alleged by Ms Roberts that Alan Derschowitz is involved in having sexual relations with her. which he denies. Ms Roberts claims are obvious lies and should be treated as such and not publicised as news, as they are defamatory. Ghislaine Maxwell' s original response to the lies and defamatory claims remains the same. Maxwell strongly denies allegations of an unsavoury nature, which have appeared in the British press and elsewhere and reserves her right to seek redress at the repetition of such old defamatory claims. Sent from my BlackBerry wireless device GM 00068 Case 1:15-cv-07433-RWS Document 751-2 Filed 03 17 17 Page 1 of 8 EXHIBIT B Case 1:15-cv-07433-RWS Document 751-2 Filed 03 17 17 Page 2 of 8 GM 00715 Case 1:15-cv-07433-RWS Document 751-2 Filed 03 17 17 Page 3 of 8 GM 00716 Case 1:15-cv-07433-RWS Document 751-2 Filed 03 17 17 Page 4 of 8 GM 00717 Case 1:15-cv-07433-RWS Document 751-2 Filed 03 17 17 Page 5 of 8 GM 00718 Case 1:15-cv-07433-RWS Document 751-2 Filed 03 17 17 Page 6 of 8 GM 00719 Case 1:15-cv-07433-RWS Document 751-2 Filed 03 17 17 Page 7 of 8 GM 00720 Case 1:15-cv-07433-RWS Document 751-2 Filed 03 17 17 Page 8 of 8 GM 00721 Case 1:15-cv-07433-RWS Document 751-3 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT C Case 1:15-cv-07433-RWS Document 751-4 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT D Case 1:15-cv-07433-RWS Document 751-5 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT E Case 1:15-cv-07433-RWS Document 751-6 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT F Case 1:15-cv-07433-RWS Document 751-7 Filed 03 17 17 Page 1 of 3 EXHIBIT G Case 1:15-cv-07433-RWS Document 751-7 Filed 03 17 17 Page 2 of 3 3 16 2017 The Prince, a paedophile and the sex slave teen Daily Telegraph News The Prince, a paedophile and the sex slave teen Sharon Churcher and Chelsea White, DailyTelegraph February 28, 2011 6:00am A MOTHER of three living in Australia has revealed she was a teenage prostitute flown all over the world by a convicted sex offender to meet Prince Andrew. The revelations have rocked Buckingham Palace as the woman, Virginia Roberts, 27, confessed she was the minor identified in FBI and subsequent civil proceedings against wealthy financier and registered sex offender Jeffrey Epstein. A photo of Epstein and the Duke of York, Prince Andrew, together last week compelled Ms Roberts to come forward. First employed as a 15 year old as Epstein's masseuse, she alleges he groomed her to become a prostitute, paying her for sex with him and his influential friends. While Ms Roberts said there was never any sexual relationship between the Prince and herself, she claims that as a 17 year old she met the Prince on three occasions at one of which she was told to sit on his knee while he touched another woman's breast. Pictures: Prince Andrew and Virginia Roberts Latest from Mail on Sunday Ms Roberts told London newspaper The Mail on Sunday she was first flown to England on a private jet to meet the Prince in March 2001. The 17 year old was told to dance with the Prince and even posed for a photograph. For her time with Epstein and the Prince on that trip, Epstein paid her US15,000. When she next met the Prince in the US, a 21 year old woman who was working for Epstein was sitting on Prince Andrew's knee. Ms Roberts said she was instructed to do the same while the Prince touched the older woman's breast as a "joke". http: www.dailytelegraph.com.au the prince a paedophile and the sex slave teen news story 8cdeee961a486febf459eafe00a7f710?sv 68c529bb044b9fda5bf4f3 1 2 Case 1:15-cv-07433-RWS Document 751-7 Filed 03 17 17 Page 3 of 3 The FBI case revealed sexual allegations by at least 20 girls, however, Epstein struck a deal with prosecutors and served 13 months' jail for soliciting child prostitution. 3 16 2017 The Prince, a paedophile and the sex slave teen Daily Telegraph Ms Roberts stayed working as Epstein's "masseuse" until she met an Australian martial arts expert named Robert. The pair married, causing an enraged Epstein to cut off the then 19 year old. Ms Roberts said she was coming to grips with her exploitation. Three years ago she was contacted by the FBI who found photos and secret videos of her during their investigations. The case forced Ms Roberts to deal with her abuse and also reveal it to her husband. "I couldn't bring myself to tell him much. No man wants to know his wife has been traded out," she told The Mail. While Epstein's plea deal meant her identity was hidden, Ms Roberts said after seeing a picture of the pair shopping she had to go public. "I am appalled. To me, it's saying 'We are above the law'. But Jeffrey is a monster." Both Epstein and Prince Andrew refused to comment. Originally published as Prince Andrew and the sex slave teen http: www.dailytelegraph.com.au the prince a paedophile and the sex slave teen news story 8cdeee961a486febf459eafe00a7f710?sv 68c529bb044b9fda5bf4f3 2 2 Case 1:15-cv-07433-RWS Document 751-8 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT H Case 1:15-cv-07433-RWS Document 751-9 Filed 03 17 17 Page 1 of 3 EXHIBIT I Case 1:15-cv-07433-RWS Document 751-9 Filed 03 17 17 Page 2 of 3 Buckingham Palace issues second denial of underage sex claims against Prince Andrew www.foxnews.com world 2015 01 04 buckingham-palace-issues-second-denial-underage-sex-claims-againstprince.html June 6, 2012: In this file photo, Britain's Prince Andrew leaves King Edward VII hospital in London after visiting his father Prince Philip. (AP) Buckingham Palace officials have again denied claims made by a woman who alleged that she was forced to have sex while underage with Prince Andrew, Duke of York. The second denial comes after two Sunday papers in Britain published interviews with the woman in which she claimed that she was forced by American financier Jeffrey Epstein to have sex with Prince Andrew at least three times between 1999 and 2002. The woman alleges that the encounters took place in London, New York, and on a Caribbean island owned by Epstein. A Palace spokesman has said that the allegations are "false and without any foundation." "It is emphatically denied that the Duke of York had any form of sexual contact or relationship with (the woman)," the statement continued. The denials are unusual because royal officials typically do not comment on allegations against members of the royal family. The woman's claims are part of a lawsuit in a Florida court relating to how prosecutors handled a sexual abuse case against American financier Jeffrey Epstein. The woman, identified in court papers only as "Jane Doe No. 3," is one of two new accusers asking a West Palm Beach, Florida, judge to allow them to join the existing lawsuit against Epstein. The royal is not named as a defendant in the case, and no criminal charges or formal allegations have been made against him. 1 2 Case 1:15-cv-07433-RWS Document 751-9 Filed 03 17 17 Page 3 of 3 The women have objected to how U.S. prosecutors handled Epstein's case, and want authorities to reconsider a plea deal that allowed Epstein to avoid much more serious federal charges and potentially longer prison time. Epstein served 13 months of an 18-month sentence after pleading guilty to a single charge of soliciting prostitution before being released in 2009. It was not the first time Prince Andrew has faced media scrutiny over his friendship with Epstein. In July 2011 the royal stepped down from his role as a U.K. trade ambassador after he was photographed with Epstein in New York. Prince Andrew is the second son and third child of Queen Elizabeth II and Prince Philip, Duke of Edinburgh. He is fifth in line to the British throne behind his older brother Prince Charles, nephew Prince William, grandnephew Prince George, and nephew Prince Harry. The Sunday Mirror reported that Prince Andrew was on a skiing holiday in Switzerland, where he had been staying with his ex-wife Sarah Ferguson and their daughters, Princess Beatrice and Princess Eugenie. In a further bizarre twist to the story, prominent attorney Alan Dershowitz, who is also named in the court documents, told the BBC that he is planning legal action against the woman. "If she believes she has been hurt by me and Prince Andrew, she should be suing us for damages," the former Harvard Law professor said. "I welcome that lawsuit. I welcome any opportunity that would put her under oath and require her to state under oath these false allegations." The Associated Press contributed to this report. 2 2 Case 1:15-cv-07433-RWS Document 751-10 Filed 03 17 17 Page 1 of 4 EXHIBIT J Case 1:15-cv-07433-RWS Document 751-10 Filed 03 17 17 Page 2 of 4 Prince Andrew denies sex abuse claims - CNN.com edition.cnn.com 2015 01 22 europe prince-andrew-sex-abuse-allegations Story highlights Prince Andrew addresses crowd at Davos, backs palace statement Court documents show attorneys sent a letter asking to interview him under oath Buckingham Palace has strenuously denied claim that he had sex with Virginia Roberts "Firstly, I think I must, want, for the record to refer to the events that have taken place in the last three weeks. And I just wish to reiterate and to reaffirm the statements which have already been made on my behalf by Buckingham Palace," he said Thursday at the World Economic Forum. Earlier this month, Buckingham Palace issued a statement which said, "It is emphatically denied that the Duke of York Andrew had any form of sexual contact or relationship" with the woman. "Any claim to the contrary is false and without foundation." Andrew is a son of Queen Elizabeth II and a brother of Prince Charles, the next in line for the British throne. The prince is accused of having sex with the woman when she was 17, details of which are is a sworn affidavit in Florida court dated January 19. The woman said that she and the Prince had sex "three times, including one orgy." The court documents showed that her lawyers had sent a letter to Buckingham Palace asking to interview the prince under oath. In her sworn affidavit, the woman described Buckingham Palace's denial that sexual contact ever took place between the pair as "false and hurtful to me." Interview request The woman, identified by Buckingham Palace as Virginia Roberts, first named the prince in a civil motion filed December 30 in the U.S. District Court in southern Florida in which she claims she was forced to have sex with several men. She is referred to as Jane Doe No. 3 in the legal filings. In the letter the woman's lawyers sent to Buckingham Palace, attorneys Paul Cassell and Bradley Edwards asked to interview Prince Andrew "under oath regarding interactions that you had with Jane Doe No. 3 beginning in approximately early 2001. Jane Doe No. 3 was then 17 years old." The letter includes a picture of the woman and Andrew which was taken around that time, they say. The lawyers also want to discuss subsequent interactions with their client in New York City later that year, the letter says. "The interview could be conducted at a time and place of your choosing, and with your cooperation, I believe the interview could be completed in two hours or less," it says. New court pleadings involving the relationship between Jane Doe No. 3 and the prince are being prepared, the letter adds, but their filing will be delayed if Andrew accepts the interview request by January 19. The attorney for her legal team confirmed to CNN that Buckingham Palace had refused to accept the letter to Prince Andrew and that it was returned to them. Buckingham Palace didn't respond Thursday when asked by CNN about the letter. 1 3 Case 1:15-cv-07433-RWS Document 751-10 Filed 03 17 17 Page 3 of 4 But the woman's allegations have previously been firmly rejected by Buckingham Palace. "It is emphatically denied that the Duke of York had any form of sexual contact or relationship with Virginia Roberts. Any claim to the contrary is false and without foundation," the palace said early this month. Statement: I just called him 'Andy' Prince Andrew is named in the court filing in Florida as one of a number of prominent people who allegedly had sexual contact with teenage girls through self-made billionaire Jeffrey Epstein, who pleaded guilty some years ago in Florida to a state charge of prostitution solicitation. CNN was unable to reach Martin Weinberg, Epstein's attorney, on Thursday. In her first sworn statement to the court, Jane Doe No. 3 gave more details of the alleged encounters. "Epstein made me have sex with Prince Andrew several times," she said, according to the court document. "I had sex with him three times, including one orgy. I knew he was a member of the British Royal Family, but I just called him 'Andy.' " One day when she was in London, she said, Epstein told her she would be meeting a "major prince." She continued: "Epstein told me 'to exceed' everything I had been taught. He emphasized that whatever Prince Andrew wanted, I was to make sure he got." 'Sexual interests in feet' When the prince arrived, she was introduced, she said, and "we kissed formally, cheek to cheek." The group went for dinner and to a nightclub where she was served alcohol before returning to the townhouse. The picture referred to in the letter, of the prince with Roberts, was taken there, she said. After the pair were left alone, she said, "We went to the bathroom and bedroom, which were just steps away from where the picture was taken. We engaged in sexual activities there. Afterwards, Andy left quickly with his security." She said she had reported back to Epstein on the encounter next day, telling him, "It went great." "I told Epstein about Andy's sexual interests in feet. Epstein thought it was very funny. Epstein appeared to be collecting private information about Andy," she added. Roberts also gave details of two more alleged occasions when the pair had sex. One was in Epstein's New York mansion in spring 2001, she said, when she was 17. The third and last occasion was at an orgy involving nine girls on Epstein's private island in the U.S. Virgin Islands, her statement said. "I was around 18 at the time. Epstein, Andy, approximately eight other young girls, and I had sex together." The other girls, who appeared to be under 18, were "European looking and sounding" and didn't really speak English, she said. She said she "felt disgusted" after the orgy. 'Voluntarily tell the truth' Roberts rejected the palace's denial of the allegations and said she hoped Andrew would agree to be interviewed under oath. "I did have sexual contact with him as I have described here 2 3 Case 1:15-cv-07433-RWS Document 751-10 Filed 03 17 17 Page 4 of 4 "Given what he knows and has seen, I was hoping that he would simply voluntarily tell the truth about everything." Roberts and another woman are seeking to join two other women who are arguing in federal court for the U.S. government to reexamine its case involving Epstein. The investment banker agreed to a state plea deal in 2007 and began serving an 18-month sentence in 2008, according to court documents. He pleaded guilty to solicitation of prostitution and procurement of a minor for prostitution. CNN's Max Foster contributed to this report. 3 3 Case 1:15-cv-07433-RWS Document 751-11 Filed 03 17 17 Page 1 of 8 EXHIBIT K Case 1:15-cv-07433-RWS Document 751-11 Filed 03 17 17 Page 2 of 8 Case 1:15-cv-07433-RWS Document 751-11 Filed 03 17 17 Page 3 of 8 Case 1:15-cv-07433-RWS Document 751-11 Filed 03 17 17 Page 4 of 8 Case 1:15-cv-07433-RWS Document 751-11 Filed 03 17 17 Page 5 of 8 Case 1:15-cv-07433-RWS Document 751-11 Filed 03 17 17 Page 6 of 8 Case 1:15-cv-07433-RWS Document 751-11 Filed 03 17 17 Page 7 of 8 Case 1:15-cv-07433-RWS Document 751-11 Filed 03 17 17 Page 8 of 8 Case 1:15-cv-07433-RWS Document 751-12 Filed 03 17 17 Page 1 of 3 EXHIBIT L Case 1:15-cv-07433-RWS Document 751-12 Filed 03 17 17 Page 2 of 3 Jeffrey Epstein 'sex slave' Virginia Roberts was a 'moneyhungry sex kitten', ex friends claim www.dailymail.co.uk news article-2974613 Jeffrey-Epstein-sex-slave-money-hungry-sex-kitten-enjoyed-roletravelling-masseuse-former-friends-claim.html Jeffrey Epstein 'sex slave' lived a lavish lifestyle and enjoyed her role as his 'travelling masseuse', former friends claim Virginia Roberts claims she was recruited to Epstein's harem in 1999 Named Prince Andrew and Alan Dershowitz as men she had to 'service' Her friends say there was no indication she was being held captive Asked other women if they knew anyone 'slutty' to bring to Epstein Would allegedly use cash she gained from sex to live a luxury lifestyle By Wills Robinson For Dailymail.com Published: 12:49 EDT, 1 March 2015 Updated: 07:09 EDT, 2 March 2015 Shocking: Virginia Roberts' friends claim she was a money-hungry sex kitten' who enjoyed her lavish lifestyle The woman who has accused Jeffery Epstein of keeping her as a sex slave was actually a money-hungry sex kitten' who enjoyed her lavish lifestyle, former friends have claimed. Virginia Roberts is currently in the midst of a lawsuit claiming she was recruited to join Epstein's harem of underage women in 1999, naming Prince Andrew and attorney Alan Dershowitz as two of the men she was made to 'service'. But those who used to be close to the 31-year-old say she relished her role as his 'travelling masseuse' and never acted like she was being held captive. Philip Guderyon, who used to date Roberts and would drive her to Epstein's Pal Beach, Florida, mansion told the New York Daily News: 'She was like the head b h. She d have like nine or 10 girls she used to bring to him. 'She never looked like she was being held captive,' he added. 'She and the other girls would walk out of there smiling, with their little bathing suits on, like they had just come from the beach. 'She d have like 4,000. And then I d take them all to the mall and they d get their nails done.' He also said while making thousands of dollars from the relationship, she would buy fancy clothes and drive around in Epstein's Mercedes. Crystal Figueroa, whose brother dated Roberts in the early 2000s, told the Daily News Roberts would ask if she knew anyone 'slutty' so they could be sent to Epstein. In 2001 she was sharing a Palm Beach apartment with Anthony Valladares. He told the Daily News that she bragged about going to the 'millionaire's house' for a day or two, before returning with cash. He did say that she tried to get out of the sex business, but was dragged back in. Last month it was revealed Roberts accused two male acquaintances she was raped, bringing her credibility into 1 2 question. Case 1:15-cv-07433-RWS Document 751-12 Filed 03 17 17 Page 3 of 3 Roberts' lawyers says the latest allegations do not contend the fact she was used for underage sex. Attorney Sigrid McCawleysaid : 'To say that our client acquiesced in this abuse, or that the abuse was OK because she was paid for it leaves out the fact that this is why we have laws in the United States to protect minor children who are groomed and sexually trafficked by adults.' Epstein served 13 months in a Florida prison after pleading guilty in 2008 to soliciting a minor for prostitution. Allegations: The 31-year-old is currently in the midst of a lawsuit claiming she was recruited to join Epstein's harem of underage women in 1999, naming Prince Andrew and attorney Alan Dershowitz as two of the men she was made to 'service' The scandal resurfaced in January when Roberts named Prince Andrew in a lawsuit, accusing him of using her for underage sex. According to court records connected with Roberts' current lawsuit, she maintains that she was recruited to join Epstein's harem in 1999 by his friend, the socialite Ghislaine Maxwell. She says during the three years she worked for Epstein, she was made to entertain his friends and named Prince Andrew and Dershowitz as two men she had sex with. Both men have denied having sex with Roberts, and Dershowitz is trying to get his name removed from the suit, claiming Roberts made the entire story up. Read more: www.nydailynews.... Share or comment on this article Sorry we are not currently accepting comments on this article. 2 2 Case 1:15-cv-07433-RWS Document 751-13 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT M Case 1:15-cv-07433-RWS Document 751-14 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT N Case 1:15-cv-07433-RWS Document 751-15 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT O Case 1:15-cv-07433-RWS Document 751-16 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT P Case 1:15-cv-07433-RWS Document 751-17 Filed 03 17 17 Page 1 of 1 REDACTED EXHIBIT Q Case 1:15-cv-07433-RWS Document 751-18 Filed 03 17 17 Page 1 of 3 EXHIBIT R Case 1:15-cv-07433-RWS Document 751-18 Filed 03 17 17 Page 2 of 3 FOR IMMEDIATE RELEASE April 8, 2016 Contact: Richard A. Simpson, RSimpson wileyrein.com Lawyers Acknowledge Mistake In Filing Sexual Misconduct Charges Against Professor Dershowitz Professor Alan M. Dershowitz released the following statement regarding resolution of the case styled Bradley Edwards, et al. v. Alan M. Dershowitz, Case No. CACE 15-000072 (Cir. Ct., Broward Cnty., Fla.). STATEMENT OF ALAN M. DERSHOWITZ I am pleased that the litigation has concluded and I am gratified by the Joint Statement issued today by Jeffrey E. Streitfeld on behalf of the parties, in which Edwards and Cassell acknowledge that it was a mistake to have filed sexual misconduct accusations against Dershowitz and the sexual misconduct accusations made in all public filings (including all exhibits) are hereby withdrawn. Mr. Streitfeld s announcement and the Joint Statement are copied below. ANNOUNCEMENT BY JEFFREY E. STREITFELD, FLORIDA SUPREME COURT CERTIFIED CIRCUIT CIVIL MEDIATOR (Streitfeldlaw.com) It is my pleasure to report that Bradley J. Edwards, Paul G. Cassell, and Alan M. Dershowitz have resolved their disputes and have agreed to settle the claims raised in an action pending in the Broward County, Florida Circuit Court. Since being appointed by Circuit Court Judge Thomas Lynch IV last fall, it has been a privilege to act as the mediator and assist the parties and their counsel toward this agreed resolution. I want to extend my appreciation for the professionalism exhibited by the parties and their counsel with whom I worked directly: Jack Scarola, Rick Simpson, Tom Scott, and Ken Sweder. As part of their agreement, the parties have issued the attached Joint Statement. JOINT STATEMENT OF BRAD EDWARDS, PAUL CASSELL AND ALAN DERSHOWITZ REGARDING SETTLEMENT Brad Edwards, Paul Cassell and Alan Dershowitz have today settled their pending defamation claims in which Edwards and Cassell sued Dershowitz and Dershowitz counterclaimed against Edwards and Cassell. The case was about Dershowitz s public claims that Edwards and Cassell, as the attorneys for Virginia Roberts, had failed to perform the necessary due diligence before filing the allegations of their client, not whether the acts of alleged misconduct in fact occurred. Edwards and Cassell vigorously denied the contention that they had acted improperly and asserted that it defamed them. Dershowitz countersued Edwards and Cassell, alleging they had falsely accused him of sexual contact with Roberts a claim he vigorously denied and that Dershowitz asserted defamed him. Edwards and Cassell maintain that they filed their client s allegations in good faith and performed the necessary due diligence to do so, and have produced documents detailing those efforts. Dershowitz completely denies any such misconduct, while not disputing Roberts s statements that the underlying alleged misconduct may have occurred with someone else. Dershowitz has produced travel and other records for the relevant times which he relies on to establish that he could not have been present when the alleged GM 00523 Case 1:15-cv-07433-RWS Document 751-18 Filed 03 17 17 Page 3 of 3 misconduct occurred. He has also produced other evidence that he relies upon to refute the credibility of the allegations against him. The parties believe it is time to take advantage of the new information that has come to light on both sides during the litigation and put these matters behind them. Given the events that have transpired since the filing of the documents in the federal court and in this action in which Dershowitz was accused of sexual misconduct, including the court order striking the allegations in the federal court filings, and the records and other documents produced by the parties, Edwards and Cassell acknowledge that it was a mistake to have filed sexual misconduct accusations against Dershowitz; and the sexual misconduct accusations made in all public filings (including all exhibits) are hereby withdrawn. Dershowitz also withdraws his accusations that Edwards and Cassell acted unethically. Neither Edwards, Cassell, nor Dershowitz have any intention of repeating the allegations against one another. Editor s note: Wiley Rein LLP represents Alan M. Dershowitz in this matter. GM 00524 Case 1:15-cv-07433-RWS Document 751-19 Filed 03 17 17 Page 1 of 11 EXHIBIT S Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 17 04 07 2015 Page 2 of Page 11 1 of 10 JANE DOE 1 and JANE DOE 2, vs. Petitioners, UNITED STATES OF AMERICA, Respondent. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO.:08-CV-80736-KAM ORDER DENYING PETITIONERS MOTION TO JOIN UNDER RULE 21 AND MOTION TO AMEND UNDER RULE 15 This cause is before the Court on Jane Doe 3 and Jane Doe 4 s Corrected Motion Pursuant to Rule 21 for Joinder in Action ( Rule 21 Motion ) (DE 280), and Jane Doe 1 and Jane Doe 2 s Protective Motion Pursuant to Rule 15 to Amend Their Pleadings to Conform to Existing Evidence and to Add Jane Doe 3 and Jane Doe 4 as Petitioners ( Rule 15 Motion ) (DE 311). Both motions are ripe for review. For the following reasons, the Court concludes that they should be denied. I. Background This is an action by two unnamed petitioners, Jane Doe 1 and Jane Doe 2, seeking to prosecute a claim under the Crime Victims Rights Act (CVRA), 18 U.S.C. 3771. (DE 1). Generally, they allege that the respondent Government violated their rights under the CVRA by failing to consult with them before negotiating a non-prosecution agreement with Jeffrey Epstein, who subjected them to various sexual crimes while they were minors. (Id.). Petitioners initiated this action in July 2008. (Id.). Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 17 04 07 2015 Page 3 of Page 11 2 of 10 On December 30, 2014, two other unnamed victims, Jane Doe 3 and Jane Doe 4, moved to join as petitioners in this action pursuant to Federal Rule of Civil Procedure 21. (DE 280). Petitioners (Jane Doe 1 and Jane Doe 2) support the Rule 21 Motion. (Id. at 11). Jane Doe 3 and Jane Doe 4 argue that they have suffered the same violations of their rights under the CVRA as the Petitioners, and they desire to join in this action to vindicate their rights as well. (Id. at 1). The Government vehemently opposes joinder under Rule 21. (DE 290). The Government argues that Rule 15 is the proper procedural device for adding parties to an action, not Rule 21. (Id. at 1). O ut of an abundance of caution, Petitioners filed a motion to amend their petition under Rule 15, conforming the petition to the evidence and adding Jane Doe 3 and Jane Doe 4 as petitioners. (DE 311 at 2). The Government opposes the Rule 15 Motion as well. (DE 314). Among other things, the Government argues that amending the petition to include Jane Doe 3 and Jane Doe 4 should be denied because of their undue delay in seeking to join the proceedings, and the undue prejudice that amendment will cause. (Id.). After considering the parties submissions and the proposed amended petition, the Court finds that justice does not require amendment in this instance and exercises its discretion to deny the amendment. II. Discussion The decision whether to grant leave to amend a complaint is within the sole discretion of the district court. Laurie v. Ala. Ct. Crim. Apps., 256 F.3d 1266, 1274 (11th Cir. 2001). The court should freely give leave when justice so requires. Fed. R. Civ. P. 15(a)(2). Justice does not require amendment in several instances, includ ing undue delay, bad faith, dilatory motive 2 Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 17 04 07 2015 Page 4 of Page 11 3 of 10 on the part of the movant, . . . undue prejudice to the opposing party by virtue of allowance of the amendment, and futility of amendment. Laurie, 256 F.3d at 1274 (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). In addition to considering the effect of amendment on the parties, the court must consider the importance of the amendment on the proper determination of the merits of a dispute. 6 Wright Miller, Fed. Prac. Fed. P. 1488, p. 814 (3d ed. 2010). Justice does not require amendment where the addition of parties with duplicative claims will not materially advance the resolution of the litigation on the merits. See Herring v. Delta Air Lines, Inc., 894 F.2d 1020, 1024 (9th Cir. 1989). A. Rule 21 Motion Jane Doe 3 and Jane Doe 4 s first attempt to join in this proceeding was brought under Rule 21. (DE 280). If parties seek to add a party under Rule 21, courts generally use the standard of Rule 15, governing amendments to pleadings, to determine whether to allow the addition. 12 Wright Miller, Fed. Prac. Fed. P., p. 432 (3d ed. 2013); see also Galustian v. Peter, 591 F.3d 724, 729-30 (4th Cir. 2010) (collecting cases and noting that Rule 15(a) applies to amendments seeking to add parties); Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993) ( A motion to add a party is governed by Fed. R. Civ. P. 15(a) . . . . ). Rule 21, Misjoinder and Non-joinder of Parties, provides the court with a tool for correcting the misjoinder of parties that would otherwise result in dismissal. Fed. R. Civ. P. 21. Insofar as Rule 21 relates to the addition of parties, it is intended to permit the bringing in of a person, who through inadvertence, mistake or for some other reason, had not been made a party and whose presence as a party is later found necessary or desirable. United States v. Com. Bank of N. Am., 31 F.R.D. 133, 135 (S.D.N.Y. 1962) (internal quotation marks omitted). 3 Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 17 04 07 2015 Page 5 of Page 11 4 of 10 In their Rule 21 Motion, Jane Doe 3 and Jane Doe 4 do not claim that they were omitted from this proceeding due to any inadvertence or mistake by Petitioners; rather, they seek to join this proceeding as parties that could have been permissively joined in the original petition under Rule 20 ( Permissive Joinder of Parties ). As courts generally use the standards of Rule 15 to evaluate such circumstances, the Court will consider the joinder issue as presented in the 1 Rule 15 Motion. The Court will consider the arguments presented in the Rule 21 Motion as if they are set forth in the Rule 15 Motion as well. Because the arguments are presented in the Rule 15 Motion (and because the Court is denying the Rule 15 Motion on its merits, as discussed below), the Rule 21 Motion will be denied. The Court also concludes that portions of the Rule 21 Motion and related filings should be stricken from the record. Pending for this Court s consideration is a Motion for Limited Intervention filed by Alan M. Dershowitz, who seeks to intervene to strike the outrageous and impertinent allegations made against him and to request a show cause order to the attorneys that have made them. (DE 282 at 1). The Court has considered Mr. Dershowitz s arguments, but it finds that his intervention is unnecessary as Federal Rule of Civil Procedure 12(f) empowers the Court on its own to strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter. Fed. R. Civ. P. 12(f). Petitioners Rule 21 Motion consists of relatively little argumentation regarding why the Court should permit them to join in this action: they argue that (1) they were sexually abused by 1 The Court notes that, regardless of which motion it considers, the same standard governs the addition of parties under Rule 21 and Rule 15. See Goston v. Potter, No. 08-cv-478 FJS ATB, 2010 WL 4774238, at 5 (N.D.N.Y. 2010) (citing Bridgeport Music, Inc. v. Universal Music Grp., Inc., 248 F.R.D. 408, 412 (S.D.N.Y. 2008)). 4 Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 17 04 07 2015 Page 6 of Page 11 5 of 10 Jeffrey Epstein, and (2) the Government violated their CVRA rights by concealing the nonprosecution agreement with them. (DE 280 at 3; see id. at 7-8). However, the bulk of the Rule 21 Motion consists of copious factual details that Jane Doe 3 and Jane Doe 4 would prove i f allowed to join this action. (Id. at 3, 7). Specifically, Jane Doe 3 proffers that she could prove the circumstances under which a non-party introduced her to Mr. Epstein, and how Mr. Epstein sexually trafficked her to several high-profile non-party individuals, including numerous prominent American politicians, powerful business executives, foreign presidents, a well-known Prime Minister, and other world leaders. (Id. at 3-6). She names several individuals, and she 2 offers details about the type of sex acts performed and where they took place. (See id. at 5). At this juncture in the proceedings, these lurid details are unnecessary to the determination of whether Jane Doe 3 and Jane Doe 4 should be permitted to join Petitioners claim that the Government violated their rights under the CVRA. The factual details regarding with whom and where the Jane Does engaged in sexual activities are immaterial and impertinent to this central claim (i.e., that they were known victims of Mr. Epstein and the Government owed them CVRA duties), especially considering that these details involve non-parties who are not related to the respondent Government. These unnecessary details shall be stricken. The original Rule 21 Motion (DE 279) shall be stricken in its entirety, as it is wholly superseded by the corrected version of the Rule 21 Motion (DE 280). From the corrected Rule 21 Motion, the Court shall strike all factual details regarding Jane Doe 3 between the following sentences: The Government then concealed from Jane Doe 3 the existence of its NPA from 2 Jane Doe 4 s proffer is limited to sexual acts between Mr. Epstein and herself. (See DE 280 at 7-8). 5 Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 17 04 07 2015 Page 7 of Page 11 6 of 10 Jane Doe 3, in violation of her rights under the CVRA (id. at 3); and The Government was well aware of Jane Doe 3 when it was negotiating the NPA, as it listed her as a victim in the attachment to the NPA (id. at 6). As none of Jane Doe 4 s factual details relate to non-parties, the Court finds it unnecessary to strike the portion of the Rule 21 Motion related to her circumstances. Regarding the Declaration in support of Petitioners response to Mr. Dershowitz s motion to intervene (DE 291-1), the Court shall strike paragraphs 4, 5, 7, 11, 13, 15, 19 through 53, and 59, as they contain impertinent details regarding non-parties. Regarding the Declaration of Jane Doe 3 in support of the Rule 21 Motion (DE 310-1), the Court shall strike paragraphs 7 through 12, 16, 39, and 49, as they contain impertinent details regarding nonparties. Jane Doe 3 is free to reassert these factual details through proper evidentiary proof, should Petitioners demonstrate a good faith basis for believing that such details are pertinent to a matter presented for the Court s consideration. As mentioned, Mr. Dershowitz moves to intervene for the limited purposes of moving to strike the outrageous and impertinent allegations made against him and requesting a show cause order to the attorneys that have made them. (DE 282 at 1). As the Court has taken it upon itself to strike the impertinent factual details from the Rule 21 Motion and related filings, the Court concludes that Mr. Derschowitz s intervention in this case is unnecessary. Accordingly, his 3 motion to intervene will be denied as moot. Regarding whether a show cause order should 3 This also moots Mr. Dershowitz s Motion for Leave to File Supplemental Reply in Support of Motion for Limited Intervention. (DE 317). Denying Mr. Dershowitz s motion to intervene also renders moot Petitioners motion (DE 292) to file a sealed document supporting its response to Mr. Dershowitz s motion. It will accordingly be denied as moot, and DE 293 (the sealed response) will be stricken from the record. 6 Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 17 04 07 2015 Page 8 of Page 11 7 of 10 issue, the Court finds that its action of striking the lurid details from Petitioners submissions is sanction enough. However, the Court cautions that all counsel are subject to Rule 11 s mandate that all submissions be presented for a proper purpose and factual contentions have evidentiary support, Fed. R. Civ. P. 11(b)(1) and (3), and that the Court may, on its own, strike from any pleading any redundant, immaterial, impertinent, or scandalous matter, Fed. R. Civ. P. 12(f). B. Rule 15 Motion Between their two motions (the Rule 21 Motion and Rule 15 Motion), Jane Doe 3 and Jane Doe 4 assert that they desire to join in this action to vindicate their rights under the CVRA as well. (DE 280 at 1). Although Petitioners already seek the invalidation of Mr. Epstein s non-prosecution agreement on behalf of all other similarly-situated victims (DE 189 at 1; DE 311 at 2, 12, 15, 18-19), Jane Doe 3 and Jane Doe 4 argue that they should be fellow travelers in this pursuit, lest they be forced to file a separate suit raising their claims resulting in duplicative litigation (DE 280 at 11). The Court finds that justice does not require adding new parties this late in the proceedings who will raise claims that are admittedly duplicative of the claims already presented by Petitioners. The Does submissions demonstrate that it is entirely unnecessary for Jane Doe 3 and Jane Doe 4 to proceed as parties in this action, rather than as fact witnesses available to offer relevant, admissible, and non-cumulative testimony. (See, e.g., DE 280 at 2 (Jane Doe 3 and Jane Doe 4 are in many respects similarly situated to the current victims ), 9 ( The new victims will establish at trial that the Government violated their CVRA rights in the same way as it violated the rights of the other victims. ), 10 (Jane Doe 3 and Jane Doe 4 will simply join in motions that the current victims were going to file in any event. ), 11 (litigating Jane Doe 3 and 7 Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 17 04 07 2015 Page 9 of Page 11 8 of 10 Jane Doe 4 s claims would be duplicative ); DE 298 at 1 n.1 ( As promised . . . Jane Doe No. 3 and Jane Doe No. 4 do not seek to expand the number of pleadings filed in this case. If allowed to join this action, they would simply support the pleadings already being filed by Jane Doe No. 1 and Jane Doe No. 2. ); DE 311 at 5 n.3 ( A ll four victims (represented by the same legal counsel) intend to coordinate efforts and avoid duplicative pleadings. ), 15 (Jane Doe 3 and Jane Doe 4 challenge the same secret agreement i.e., the NPA that the Government executed with Epstein and then concealed from the victims. This is made clear by the proposed amendment itself, in which all four victims simply allege the same general facts. )). As the Does argue at length in their Rule 15 Motion, Jane Doe 1 s original petition specifically allege s that the Government was violating not only her rights but the rights of other similarly-situated victims. (DE 311 at 2). The Court fails to see why the addition of other similarly-situated victims is now necessary to vindicate their rights as well. (DE 280 at 1). Of course, Jane Doe 3 and Jane Doe 4 can participate in this litigated effort to vindicate the rights of similarly situated victims there is no requirement that the evidentiary proof submitted in this case come only from the named parties. Petitioners point out as much, noting that, regardless of whether this Court grants the Rule 15 Motion, they will call Jane Doe No. 3 as a witness at any trial. (DE 311 at 17 n.7). The necessary participation of Jane Doe 3 and Jane Doe 4 in this case can be satisfied by offering their properly supported and relevant, admissible, and non-cumulative testimony as needed, whether through testimony at trial 4 (see DE 280 at 9) or affidavits submitted to support the relevancy of discovery requests (see 310-1). 4 The non-party Jane Does clearly understand how to submit affidavits. (See DEs 291-1, 8 Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 1704 07 2015 Page 10 of Page 11 9 of 10 id. at 10). Petitioners do not contend that Jane Doe 3 and Jane Doe 4 s participation in this case can only be achieved by listing them as parties. As it stands under the original petition, the merits of this case will be decided based on a determination of whether the Government violated the rights of Jane Doe 1, Jane Doe 2, and all other similarly situated victims under the CVRA. Jane Doe 3 and Jane Doe 4 may offer relevant, admissible, and non-cumulative evidence that advances that determination, but their participation as listed parties is not necessary in that regard. See Herring, 894 F.2d at 1024 (District court did not abuse its discretion by denying amendment where addition of more plaintiffs . . . would not have affected the issues underlying the grant of summary judgment. ); cf. Arthur v. Stern, 2008 WL 2620116, at 7 (S.D. Tex. 2008) (Under Rule 15, courts have held that leave to amend to assert a claim already at issue in another lawsuit should not be granted if the same parties are involved, the same substantive claim is raised, and the same relief is 5 sought. ). And, as to Jane Doe 4 at least, adding her as a party raises unnecessary questions 6 about whether she is a proper party to this action. Petitioners also admit that amending the petition to conform to the evidence by including references to the non-prosecution agreement itself is unnecessary as the existing petition is broad enough to cover the developing evidence in this case. (DE 311). The Court 5 The Court expresses no opinion at this time whether any of the attestations made by Jane Doe 3 and Jane Doe 4 in support of their motion will be relevant, admissible, and noncumulative. 6 The Government contends that Jane Doe 4 is not a true victim in this case because she was not known at the time the Government negotiated the non-prosecution agreement, and accordingly she was not entitled to notification rights under the CVRA. (See DE 290 at 10). Any duplicative litigation filed by Jane Doe 4 would necessarily raise the issue of whether she has standing under the CVRA under these circumstances. 9 Case 9:08-cv-80736-KAM Case 1:15-cv-07433-RWS Document Document 324 Entered 751-19 on FLSD Filed Docket 03 17 17 04 07 2015 Page 11 of Page 11 10 of 10 agrees, and it concludes that justice does not require amending the petition this late in the proceedings. III. Conclusion Accordingly, it is hereby ORDERED AND ADJUDGED as follows: the Rule 21 Motion (DE 280) is DENIED; the Rule 15 Motion (DE 311) is DENIED; Intervenor Dershowitz s Motion for Limited Intervention (DE 282) and Motion for Leave to File Supplemental Reply in Support of Motion for Limited Intervention (DE 317) are DENIED AS MOOT; Petitioners Motion to Seal (DE 292) is DENIED AS MOOT; the following materials are hereby STRICKEN from the record: DE 279, in its entirety. DE 280, all sentences between the following sentences: The Government then concealed from Jane Doe 3 the existence of its NPA from Jane Doe 3, in violation of her rights under the CVRA (DE 280 at 3); and The Government was well aware of Jane Doe 3 when it was negotiating the NPA, as it listed her as a victim in the attachment to the NPA (DE 280 at 6). DE 291-1, paragraphs 4, 5, 7, 11, 13, 15, 19 through 53, and 59. DE 310-1, paragraphs 7 through 12, 16, 39, and 49. DE 293, in its entirety. DONE AND ORDERED in chambers at West Palm Beach, Palm Beach County, th Florida, this 6 day of April, 2015. KENNETH A. MARRA United States District Judge 10 |
Importance: High Richard Kahn HBRK Associates Inc. 575 Lexington Avenue 4th Floor New York, NY 10022 tel fax cell Begin forwarded message: Date: April 4, 2017 at 1:26:22 PM EDT Reply-To: "Ens, Amanda" IMM David Woo just sent this please let me know if you'd like an update on his Washington market views More sign that VAT is making its way into the discussion.... As you all know, I have been arguing that VAT make tremendous economic sense A VAT has all the virtues of a BAT without any of its drawbacks The fact that this is being discussed makes me think that we are getting to a more serious stage of the negotiation over tax reform This news is bullish for Trump trades, at least for the medium-term White House explores two new tax ideas a value-added tax and carbon tax as leading proposal to raise revenue falters Washington Post April 4 By Damian Paletta and Max Ehrenfreund President Trump's administration is exploring the creation of two controversial new taxes a value-added tax and a carbon tax as part of a broad overhaul of the tax code, according to an administration official and one other person briefed on the process. The value-added tax, which is popular in many other countries, would serve as a kind of national sales tax, one that consumers would pay when they make purchases and that businesses would pay for supplies, services and raw materials. A carbon tax would target the emissions of carbon dioxide and other greenhouses gases in the burning of gasoline, coal and other fossil fuels. The study of the new options which would represent major changes to American economic policy comes as the administration looks to tax reform as its next major battleground for implementing its agenda. Trump wants to cut taxes sharply, but his advisers are looking for ways to raise revenue so as not to create a giant hole in the deficit. Administration officials stressed that no final decision has been made and they are reviewing different alternatives. Two officials and a third person confirmed the consideration of the value-added tax, while one official and the third person confirmed the consideration of the carbon tax. The search for new options reflects a recognition of the political challenges facing a proposal known as a border- adjustment tax that the White House and some Republicans had begun to rally around. The proposal, effectively a tax on imports, would not only raise needed revenue but also serve to fulfill Trump's pledge to protect American companies from unfair export competition. The tax would create incentives for companies to manufacture and produce goods domestically. But the proposal is unpopular with many other Republicans, who have said it would raise costs for consumers on things such as automobiles, electronics and clothing. A value-added tax and a carbon tax have long been favored tools among economists, including some on the right, to raise revenue in a way that supports economic growth. But the prospect of any new taxes has long drawn skepticism from Republicans. Amanda Ens Director Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner Smith Incorporated One Bryant Park, 5th Floor, New York, NY 10036 ! Bank of America Merrill Lynch Awards Equity denvatives house of the year ! endif proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. lask Awards 2017 Winner Bank of America Merrill Lynch Equity derivatives house of the year Risk Awards Winner Bank of AMOnal Merrill Lynch Equity derivatives house of the year |
INTESA, NORDEA image014jpg01D2AF762A2ADEAO.jpg; image015jpg01D2AF762A2ADEAO.jpg; image016jpg01D2AF762A2ADEAO.jpg; image017jpg01D2AF762A2ADEAO.jpg; image018jpg01D2AF762A2ADEAO.jpg Importance: High We remain positive on banks that can make acceptable returns in the current environment and are geared into the upside when rates begin to recover... ING, KBC, Intesa, Unicredit, SocGen, Erste, BKIR are all Buy rated. Global Equities Specialist Sales - European Financials MAR disclosure EU BANKS: BIG EQUITY OUTFLOWS BUT REMAIN UPBEAT ON REFLATION TRADE Spec Sales Comment: Big Equity outflows but we see this is a pause not a reversal BofAML latest flow show data this morning shows the largest equity outflows in 40 weeks and first outflows YTD (click here). Our BofAML Bull Bear Indicator is now at 7.1, the highest level since Jul'14 and not far from "sell" signal. So is this just a pause for breath in the reflation trade? BofAML strategists think so. In our updated thoughts this morning we think reflation is real so stay long equities, short rates, selectively long USD (click here). Chart 12: BofAML B B Indicator (scale from 0 to 10) 13mdt Feb.16 lows Today 10 Extreme Extreme Bearish Bullish Source BotA Merniloynch Global Investment Strategy Why do we remain bullish the reflation trade? The main reasons for equity investor concern in recent weeks the gap between hard and soft data, plus the delay in the Trump fiscal package Chart 1: The gap between hard and soft data is a concern to investors Chart 2: Mediocre US Q1 data partly down to seasonal adjustments Residual seasonality in GDP growth from 1985 to 2015 25 2 08 15 06 1 04 05 0 02 -0 5 0 -1 -1 5 -0 2 -2 -0 4 -2 5 01 00 01 02 01104 01 06 0108 01 10 01 12 01 14 01 16 -0 6 -0 8 Surveys Business Cycte Indicators Hard Data -1 Scs,oce SoM Mend Lynch Glcbal Research Bloortf-ri 01 Source Cleveland Federal Reserve GDP Pnvate Investment Government consumptron investment 02 03 04 We continue to believe in the reflation theme because: 1. Strength in the global economy is genuine - European PMIs are at 6 year highs, Chinese and Japanese PMIs continue to improve too. In fact 90 of PMIs globally are above 50 and 60 have increased in the last 3 months. 2. Earnings revisions and Global Wave point to continued upturn - earnings revisions now above 1.0 for the first time since 2011. 3. We expect Trump to deliver on tax, even if it is smaller than hoped for - should such a package be put together it would likely support the Trump trade once again after the failure to reform Obamacare 4. Bond markets are being too sanguine about the likely pace of Fed tightening - the Fed funds curve is once again well below the dot plot. We continue to see upside in yields if and when the market becomes more convinced that the soft data is right. Chart 7: Bond yields have pulled back from FOMC highs 2.7 - 2.5 2.3 2.1 1.9 1.7 1.5 1.3 fAINA CO CO CO CD GO tO CD CO CO CO CO CO N.- N.- UST 10y yield C 9.4. 5, 1 .7 3-3 -81A Source Btoombero Chart 8: As the market refuses to price the dot plot 250- 200 - 150 100 - 50 1 0 Current market pncmg Median dot. Mar-17 SEP BofAML forecast of meetings into tightening cycle 4 8 12 16 20 24 Source SofA !item' Lynch 7,PRearcti Bloomberg European Banks holding up better than US Peers on pull back In Banks, the reoccurring feedback from investors has been that clients have rotated out of US banks and into European banks. This conflicts with our latest Fund Manager Survey which suggested allocation to European Banks fell the most of any sector MoM in the first two weeks of March, however, its true European Banks have quickly reversed the performance gap to US peers. The spread between the SX7E and S5BANKX Index is back to pre-US election levels. What the EU banks bulls are saying: EUR rates are going higher it's just a matter of timing, positive EPS revisions continue, EU is starting to see pockets of volume growth and asset yield recovery, credit spreads have been tightening YTD and attractive valuations of EU banks vs. US peers (EU banks on 12.0x 2017E PIE vs. US Banks on -14x and some EU banks still on a large discount vs 10-year historical median P B valuations). What the EU banks bears are saying: EU macro declining, US lead re-flation trade cooling (tax, deregulation, healthcare headwinds) and toppy multiples high ownership of EU banks going into Q1 results. They believe the pressure will be off Draghi to act on the deposit rate if the macro starts to reverse which may cause people to push back the assumed timing of European rate hikes and tapering. The French election is also a big risk factor which is clearly holding back some global investors from buying into Europe. Rates Update Consensus has started to factor in the higher rate outlook in Europe. The bears are pointing out that these probabilities have fallen a lot this week while the bulls argue it's just a matter of timing. I monitor market expectations for ECB normalisation in rates using the World Interest Rate Probability (WIRP) function on Bloomberg. It's been very volatile recently. I currently see the market is pricing a 16.6 probability of a EUR rate hike before the end of 2017 (row 6, column 2 below). a 32.7 probability in the next 12 months (row 9, column 2) and a 67.6 probability in the next 18 months. Ei Ir.-. Instrument 3 Future Implied Probability Current Implied Probabilities 1) Overview OIS: Eurozone OIS - Deposit F( Dates o Meeting Calculation Meeting Prob Of Hike Prob of Cut 04 27 2017 0.0 2A' 06 08 2017 0.0 3.3 07 20 2017 2.1 3.2 09 07 2017 7.2 3.1 10 26 2017 8.8 3.0 12 14 2017 16.6 2.8 01 25 2018 21.6 2.6 03 08 2018 29.4 2.3 04 26 2018 32.7 2.2 06 14 2018 41.4 1.9 Historical Analysis for Meeting :17 2017 ) Add ikal ted -0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Current Rate -0.40 , 2 rates In Based on rate -0.40 .)-1 '07 2017 -0.5 2.4 3.3 3 2 3.1 3.0 2.7 2.6 2.3 2.2 -0.4 97.6 96.7 94,6 89.7 88.2 80.6 75.8 68.2 65.1 4) Add Remove Series -0.3 -0.2 BPS 0.0 0.0 -0.2 0.0 0.0 -0.3 2.1 0,0 -0.1 7.1 0.1 0.4 8.6 0.2 0.6 15.6 1.0 1.5 19.6 1.9 2.1 25.4 3.7 3.1 27.5 4.8 36 32.5 7.8 5.0. As a reminder our research team estimate that euro area banks could see as much as 26bn in earnings uplift from a return of ECB rates to zero. This would represent a 25 uplift to profits - a big prize when it happens (click here for report). What to buy in banks if you share our view on sustained reflation? We remain positive on banks that can make acceptable returns in the current environment and are geared into the upside when rates begin to recover... ING, KBC, Intesa, Unicredit, SocGen, Erste, BKIR are all Buy rated. Top picks: Buy Soc Gen, PO C55 Still fourth worst performer in the SX7E YTD due to French election overhang. Yet reported a strong set of Q4 results, beating on P L, capital and dividend which comforts our view that the stock is set for re-rating. Continues to tick a number of boxes offering a dividend yield of 5.1 in 2017E, an attractive valuation of 0.79x 2017e TNAV, solid capital position and has strong EPS momentum. Our EPS (2017 and 2018) is 10 above consensus with further upside from CIB, Russia recovery and Corporate Center Stronger capital position allows for growth (organic and bolt-on M A) Buy Intesa, PO C2.80 On NPEs, capital, profitability, operating trends, and cash payouts, Intesa stands above other Italian banks in our view. ISP will pay a dividend (confirmed) equivalent to an 8.0 yield vs. a 4.0 European banks average and on our estimates Italian banks are trading at a PNAV discount to ISP but their profitability is half that of ISP's and their capital is lower ISP retains the lowest (gross net) Italian NPE ratio and in 4Q16 NPE were down yoy by 8 gross 10 net. Shares have suffered from the uncertainty related to a possible tie-up with insurer Generali - still the seventh worst performing bank in the SX7E YTD Also remain very bullish on market exposed Nordic banks This morning we reiterate our preference for Nordic banks (click here for report) with more market exposed revenues and reiterate our Buy ratings on Danske Bank, Nordea, DNB and SEB ahead of Q1 results. We expect to see good fee trading income in Q1 on the back of strong AUM and continued high activity levels. The relative P E premium of Nordic banks vs. the sector is now 7 vs. a long term average of 11 . We also note that Nordic banks are expected to continue to deliver close to 4 better ROTE (2017-19E) and have a lower beta. Chart 1: Danske Bank remains best capital return story (Capital buffers as ) 0 of market cap) 300 200 100 00 208 69 13.8 11.0 DANSKE SHBA 10.8 10.8 10.4 10.3 5.8 6.4 6.1 6.0 4.9 ZIEN SEBA NDA DNB SWEDA Buffer 17E Divi Buyback (not yet executed) Buffer Dii Buyback (not executed) Source. SofA Merrill Lynch Global Research estimates Please let me know if you would like to discuss in more detail or meet any of our analysts on the above reports. Kind Russell Quelch European Financials Specialist Sales Bank of America Merrill Lynch Global Financials Specialist Sales Team: Russell Quelch - European Banks London Juliette Nichols European Insurance, Div Fo, Scott Smith US Financials New York The power of global connectionsTM Bankof America Merrill Lynch This material was prepared by Sales personnel of Bank of America Merrill Lynch and is subject to the terms available at the following link: http: corp.bankofamerica.com businessismbilanding emaildisclaimer emea emea-gmi- disclaimer Disclaimer: https: markets.ml.com disclosures ir?id Knqg3HJgGkM 3d privileged, confidential and or proprietary and subject to important terms and conditions available at http: www.bankofamerica.com emaildisclaimer. If you are not the intended recipient, please delete this message. |
Dershowitz details chat about Israel with president at his estate - The Bo... https: www.bostonglobe.com news politics 2017 04 06 dershowitz-detai... 1 of 8 4 7 2017 11:48 AM Subscribe Starting at 99 cents Members Sign In Breaking: Live: Senate votes to confirm Gorsuch By Annie Linskey GLOBE STAFF APRIL 07, 2017 WASHINGTON For former Harvard Law professor Alan Dershowitz and his wife, their recent dinner at the Mar-a-Lago club in Florida was a chance to dine and catch up with old friends. Then President Trump showed up. Everyone stood up and clapped, recalled Dershowitz, who lives in South Florida during the Massachusetts winters. Toward the end of the evening, Trump stopped by the table for an extended chat, but not about the Trump-branded chocolate cake. The mogul-turned-president wanted to discuss the prospects for Israeli and Palestinian peace with Dershowitz, who is well-known for his hawkish, pro-Israel views. He pulled me aside, Dershowitz recalled. He wanted to talk to me privately about the Middle East. The March 18 encounter provides a window into the free-wheeling and unconventional policy making employed by Trump, who prizes spontaneity. As a business tycoon, he liked to keep an open schedule that allowed for impromptu meetings; it s a style difficult to replicate in the White House but can work among the handpicked people who frequent Mar-a-Lago. 2 of 8 4 7 2017 11:48 AM Dershowitz details chat about Israel with president at his estate - The Bo... https: www.bostonglobe.com news politics 2017 04 06 dershowitz-detai... In this instance, Dershowitz was a guest of Trump s buddy and Mar-a-Lago Comments member Chris Ruddy, the CEO of the conservative news source Newsmax. The former professor soon found himself immersed in a Washington power-player schmooze-fest. The mood at the club was light and fun. Vice President Mike Pence stopped over and complimented Dershowitz on his frequent cable TV appearances. Commerce Secretary Wilber Ross said hi. A singer crooned Don t Cry for Me Argentina. When Trump came over, Dershowitz, a Democrat mostly known for his lefty views, shared his perspective on the National Security Agency, the fate of the Ninth Circuit Court of Appeals, Trump s travel limits on immigrants from majority- Muslim countries, and, most critically, peace between Israel and its Arab neighbors. The Israeli paper Haaretz later reported that Trump asked Dershowitz to contact Prime Minister Benjamin Netanyahu of Israel and convey the president s belief that peace could be achieved now. In his interview with the Globe, Dershowitz wouldn t confirm or deny the account. The atmosphere at Mar-a-Lago raises questions. Critics have pointed to Trump s club as an example of how access to the president can be purchased. The club jacked up its initiation fee to 200,000 from 100,000 after Trump became president. Members have a front row seat to history. Thursday night Chinese President Xi Jinping and his wife dined there as part of a summit with Trump. He also feted Japanese Prime Minister Shinzo Abe at the club . For Dershowitz, it helped greatly that he was at Mar-a-Lago as a guest of Ruddy. Ruddy, it turned out, had seen Trump that day at the golf course and mentioned that Dershowitz and his wife would be among the guests at his table of six. In Ruddy s re-telling, when Dershowitz s name came up that afternoon on the links Trump offered praise for him because he d gone on TV and defended Trump s i i l b hi h i f i i i l h ll d i ll d i Get UNLIMITED access for only 99 per week. 3 of 8 4 7 2017 11:48 AM Dershowitz details chat about Israel with president at his estate - The Bo... https: www.bostonglobe.com news politics 2017 04 06 dershowitz-detai... Dershowitz wouldn t repeat what Trump told him privately but felt comfortable Comments recounting the parts of the their conversation that occurred in front of other dinner guests. Trump clearly had subjects he wanted to talk about. It was his agenda, Dershowitz said. He told me he thought in the Middle East, they are ready for a deal. Trump explained that he d spoken to Palestinian leader Mahmoud Abbas and sensed that he was ready for a peace deal, Dershowitz said. I responded by saying, the Palestinians say that to every new president, Dershowitz said, offering Trump a dose of skepticism. He said Now I think they re really ready, Dershowitz added. I said, You have to test them. ... You have to test them, it s not enough to just hear they re ready. He shook his head in apparent agreement, Dershowitz said. Dershowitz said Trump made it clear he was aware that the former professor is very friendly with Netanyahu. And the Israeli media is reporting that Dershowitz was tapped to be a back channel sorts between Netanyahu and Trump. This chatter prompted some to wonder whether Trump s son-in-law Jared Kushner, who d been tasked to be the point person on a possible peace deal, was on the outs. But Dershowitz said that s not the case. The president said, I know you know Jared from Harvard. Be in touch with him. And Dershowitz added that he doesn t have a role, formal or informal, in working on behalf of the administration to jump start peace talks. This was as a one off, he said. Get UNLIMITED access for only 99 per week. 4 of 8 4 7 2017 11:48 AM Dershowitz details chat about Israel with president at his estate - The Bo... Middle East, ask me. Comments https: www.bostonglobe.com news politics 2017 04 06 dershowitz-detai... Annie Linskey can be reached at annie.linskey globe.com. SHOW 13 COMMENTS Stay updated, right in your news feed. Like 467K Get UNLIMITED access for only 99 per week. Dershowitz details chat about Israel with president at his estate - The Bo... https: www.bostonglobe.com news politics 2017 04 06 dershowitz-detai... 5 of 8 4 7 2017 11:48 AM Comments Big-name, big-money coffee roasters are pouring into Boston and that s made it tough to hire baristas and make a go of the old-fashioned coffee house. MORE... Russia pulled out of an agreement designed to use an exchange of information to minimize the risk of in-flight incidents in the skies above Syria. MORE... The SoWa Open Market vs. South End Open Market feud is over, in part because many people never knew there was a difference. MORE... A truck crashed into an upscale department store in central Stockholm on Friday, killing at least two people. MORE... Hateful acts are woven into the tapestry of everyday life, a new project finds. MORE... Representative Seth Moulton has some choice words for President Donald Trump following the US assault in Syria. MORE... Get UNLIMITED access for only 99 per week. Dershowitz details chat about Israel with president at his estate - The Bo... https: www.bostonglobe.com news politics 2017 04 06 dershowitz-detai... 6 of 8 4 7 2017 11:48 AM Comments do something about it. As men grow older, they tend to let their friendships lapse. But there s still time to MORE... The girl, believed to be 10 to 12 years old, was unable to speak, was wearing no clothes, and was emaciated when she was discovered. MORE... a failure of the system. It s too easy to paint this as a failure of one person. As taxpayers, we shouldn t. It s MORE... In Canada, if you need help, you get it. MORE... Is this the beginning of an ongoing move against the president of Syria, or a one-night demonstration of force? MORE... The Cardinals catcher lost track of a pitch, and appeared to be the last person in the stadium to realize it was on his chest protector. MORE... Get UNLIMITED access for only 99 per week. Dershowitz details chat about Israel with president at his estate - The Bo... https: www.bostonglobe.com news politics 2017 04 06 dershowitz-detai... 7 of 8 4 7 2017 11:48 AM Comments President Trump authorized the strikes against Syria Thursday night, the first direct US strikes against the regime in the country s civil war. MORE... An attorney explained why a settlement paying 90,000 to lawyers, but just 500 to the man who brought the lawsuit, is not unfair. MORE... The nation was splintering, and Boston wasn t immune. But something was happening here. Boston had long treated its ball club as an afterthought, but then on Opening Day 1967: the first glimmer of an implausible dream. MORE... The coverage of the Syrian war is one of the most shameful episodes in history of the American press. MORE... All this wonderful TV is great, but it s wearing me down to a nub. MORE... 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Hess Corp. Inflection point: adding Hess to BofAML s US 1 best ideas list Reiterate Rating: BUY PO: 80.00 USD Price: 49.97 USD Equity 11 April 2017 Unauthorized redistribution of this report is prohibited. This report is intended for jake.byrne baml.com Short interest ratio: catalyst for recovery Over the past six months Hess has been one of the most volatile stocks in the sector, facing headwinds from a significant increase in short interest that has exaggerated volatility. From discussions with investors, the arguments against Hess seem to begin and end with a combination of declining production and an expanding balance sheet all part of the deliberate portfolio choices that favored completing major projects at the expense of short cycle production. We expect this to end in 2Q17 with a rebound in oil and gas production starting in 2H17 and critically, an inflection in free cash flow that we expect will return Hess to free cash flow with the flexibility to re-up investment in the Bakken. We thus would view Hess as a dangerous short for investors seeking to hedge other portfolio risks. Inflection point on multiple levels right around the corner We believe Hess investment case is approaching an inflection point on multiple levels. We expect oil and gas production to trough in 2Q17, with a rebound of 60,000 boepd or 22 , by 4Q17 marking the single biggest sequential change in production of any company in the sector. This is likely to kickstart an extended period of growth in 2018 19 but with the contribution from Guyana driving a step change in Hess growth trajectory through 2025. Near term, we think Hess is also poised for an inflection in free cash flow that is reasonably 1bn annualized, with 700mm irrespective of oil prices. Versus consensus operating cash flow of 1.9bn in 2017, this stands out as the biggest swing in free cash of any company in the sector. Adding Hess to US 1 best ideas list After a year of waiting, we believe the inflection point in Hess investment case is just around the corner, with the broader sector pullback positioning the shares with amongst the highest upside in the sector as implied by our price objectives. At current levels, Hess discounts strip oil prices. Under our base case, which assumes a rebound in oil prices towards 70 from 2020 fair value is reasonably 80 per share. If non-producing asset value from Guyana is included we estimate this would be closer to 90. BofAML s US1 list is a collection of the firm s best investment ideas managed with the goal of providing superior investment performance over the long term. For Hess, we believe the combination of catalysts, short interest and absolute value can drive a period of strong relative outperformance vs peers. For this reason, Hess replaces DVN as the energy stock on BofAML s US 1 list. Estimates (Dec) (US ) 2015A 2016A 2017E 2018E 2019E EPS (3.92) (4.94) (3.75) (1.46) (0.76) GAAP EPS (10.77) (19.92) (3.75) (1.46) (0.76) EPS Change (YoY) NM -26.0 24.1 61.1 47.9 Consensus EPS (Bloomberg) (3.03) (2.09) (0.45) DPS 1.00 1.00 1.00 1.00 1.00 Valuation (Dec) 2015A 2016A 2017E 2018E 2019E P E NM NM NM NM NM GAAP P E NM NM NM NM NM Dividend Yield 2.0 2.0 2.0 2.0 2.0 EV EBITDA 17.2x NM 9.9x 6.4x 5.4x Free Cash Flow Yield -13.2 -8.7 -3.8 -0.3 3.7 For full definitions of iQmethod SM measures, see page 11. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 12 to 14. Analyst Certification on page 10. Price Objective Basis Risk on page 10. 11731481 Timestamp: 11 April 2017 05:30AM EDT Doug Leggate Research Analyst MLPF S 1 713 247 6013 doug.leggate baml.com Kalei Akamine Research Analyst MLPF S 1 713 247 7880 kalei.akamine baml.com John H. Abbott Research Analyst MLPF S 1 713 247 7144 john.h.abbott baml.com Stock Data Price Price Objective Date Established Investment Opinion 52-Week Range Mrkt Val (mn) Shares Out (mn) Average Daily Value (mn) BofAML Ticker Exchange Bloomberg Reuters 49.97 USD 80.00 USD 8-Dec-2016 B-1-7 45.12 USD - 65.56 USD 15,656 USD 313.3 198.56 USD HES NYS HES US HES.N ROE (2017E) -8.6 Net Dbt to Eqty (Dec-2016A) 26.1 iQprofile SM Hess Corp. Company Sector iQmethod SM Bus Performance (US Millions) 2015A 2016A 2017E 2018E 2019E Return on Capital Employed -8.5 -21.0 -3.6 -0.9 0.1 Return on Equity -5.4 -9.0 -8.6 -3.7 -2.1 Operating Margin -1,197.3 -247.2 -25.4 -5.0 0.5 Free Cash Flow (2,061) (1,359) (592) (50) 574 iQmethod SM Quality of Earnings (US Millions) 2015A 2016A 2017E 2018E 2019E Cash Realization Ratio NM NM NM NM NM Asset Replacement Ratio 1.0x 0.6x 0.9x 0.9x 0.9x Tax Rate 18.8 41.0 16.2 21.9 8.4 Net Debt-to-Equity Ratio 19.2 26.1 34.9 40.7 40.5 Interest Cover -10.1x -31.1x -3.8x -1.0x 0.1x Income Statement Data (Dec) (US Millions) 2015A 2016A 2017E 2018E 2019E Sales 286 4,182 4,379 5,704 6,359 Change -98.1 1,363.2 4.7 30.3 11.5 Gross Profit (2,606) 4,182 4,379 5,704 6,359 Change NM NM 4.7 30.3 11.5 EBITDA 1,155 (5,482) 2,005 3,097 3,646 Change -84.3 NM NM 54.5 17.7 Net Interest Other Income (340) (332) (289) (297) (304) Net Income (Adjusted) (1,113) (1,531) (1,174) (456) (246) Change NM -37.6 23.3 61.1 46.0 Free Cash Flow Data (Dec) (US Millions) 2015A 2016A 2017E 2018E 2019E Net Income from Cont Operations (GAAP) (3,056) (6,132) (1,126) (408) (246) Depreciation Amortization 3,955 3,413 2,857 2,962 3,188 Change in Working Capital 80 (47) 0 0 0 Deferred Taxation Charge (1,319) 2,200 (228) (128) (13) Other Adjustments, Net 2,321 1,361 357 323 369 Capital Expenditure (4,042) (2,154) (2,453) (2,798) (2,725) Free Cash Flow -2,061 -1,359 -592 -50 574 Change -98.0 34.1 56.4 91.6 NM Oils Company Description Hess Corp (HES) is a mid-sized oil and gas company with 1.0bn boe of proved reserves at the end of 2015. E P operations are focused in the US onshore, deepwater GOM, North Sea, West Africa oil, and Asian natural gas. Investment Rationale Our house view is that oil should rebound long term to 75 WTI 80 Brent. Investment case anchored by exploration prospects led by Guyana. Added to this, it has a strong balance sheet, low risk production visibility in the Bakken and a stable international base. As such, we view HES' valuation as attractive and maintain our Buy rating. Stock Data Average Daily Volume 3,973,678 Quarterly Earnings Estimates 2016 2017 Q1 -1.72A -1.21E Q2 -1.11A -1.19E Q3 -1.12A -0.72E Q4 -1.01A -0.63E Balance Sheet Data (Dec) (US Millions) 2015A 2016A 2017E 2018E 2019E Cash Equivalents 2,716 2,732 1,974 1,974 1,974 Trade Receivables 847 768 768 768 768 Other Current Assets 841 776 776 776 776 Property, Plant Equipment 26,352 19,941 18,886 18,299 17,412 Other Non-Current Assets 3,439 4,404 4,404 4,404 4,404 Total Assets 34,195 28,621 26,807 26,220 25,334 Short-Term Debt 86 112 112 112 112 Other Current Liabilities 2,542 2,139 2,088 2,036 1,982 Long-Term Debt 6,544 6,694 6,694 7,105 6,844 Other Non-Current Liabilities 4,622 4,085 4,085 4,085 4,085 Total Liabilities 13,794 13,030 12,979 13,338 13,023 Total Equity 20,401 15,591 13,828 12,883 12,311 Total Equity Liabilities 34,195 28,621 26,807 26,220 25,334 For full definitions of iQmethod SM measures, see page 11. 2 Hess Corp. 11 April 2017 Adding Hess to BofAML US1 list Inflection point Over the past six months Hess has proven to be one of the most volatile stocks in the sector, facing extraordinary headwinds from a significant increase in short interest that has exaggerated volatility of what is already one of the more highly levered oil stocks in the sector. From discussions with investors, the arguments against Hess begin and end with a combination of declining production and expanding balance sheet all part of the deliberate portfolio choices that favored completing major projects at the expense of short cycle production. This cycle ends in 2Q17 with an expected rebound in oil and gas production starting in 2H17 and critically, an inflection in free cash flow that by our estimates should return Hess to free cash flow with the flexibility to re-up investment in the Bakken. We thus view Hess as a dangerous short for investors seeking to hedge other portfolio positions. Exhibit 1: Short interest ratio (days to cover) US oils 14.0 12.0 10.0 8.0 6.0 4.0 2.0 Exhibit 2: Hess short interest ratio (mm shares) 35 30 25 20 15 10 5 0.0 DVN APC PE COP NFX XOM XEC EOG MRO OXY PXD WRD RRC COG CVX CHK SWN MRD SM CXO LPI PDCE NBL RSPP OAS APA CLR CRC HES EPE 0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Bloomberg; BofA Merrill Lynch Global Research estimates Source: Bloomberg; BofA Merrill Lynch Global Research estimates In our view, any meaningful reduction in short interest could drive an outsize response to the improving operating outlook that we expect to start in 2H17 and can be summarized as follows: By our estimates, oil and gas production troughs in 2Q17 as Bakken production stabilizes before recovering through year-end. With start-up of the first of two major projects (NMB 1 ) and incremental production in the US GoM, we anticipate growth in oil and gas production of 60,000boepd or 22 between 2Q17 4Q17. Planned increase in Bakken rig count points to an exit rate of 105 110 kboepd up from 90-95 kboepd in 1Q17 for an intra-year growth rate of 16 underpinned by a step up to 6 rigs from 2 at the start of the year. We expect Bakken growth to continue in 2018 and 2019 at 16 yoy with upside from larger completions. Management guidance suggests exit rate production in 2017 of 335,000 boepd; startup of the second of Hess major projects (Stampede) adds 15,000 boepd from 1H18 (est); along with a resumption of growth by resurgent operator Aker BP at Valhall (Hess 64 ) we expect top line growth of 15 in 2018 with a FY contribution and continued Bakken ramp contributing to 10 growth in 2019 including first oil from Guyana. 1 North Malay Basin, adding 20,000 boepd starting in Sep 2017 Hess Corp. 11 April 2017 3 In other words, 2Q17 marks the low point in oil and gas production, with momentum accelerating in 2H17 to kick start a multi-year period of growth. Chart 1: Hess production outlook: inflection point from 2Q17 600 500 400 300 200 100 - 1Q16A 2016E 4Q17E 3Q18E 2Q19E 1Q20E 2020E 4Q21E 3Q22E Guyana Utica NMB Valhall Stampede JDA EG Other GoM Other base Bakken Source: BofA Merrill Lynch Global Research estimates Critically, Hess has multiple levers to pull that reverse production declines as cash becomes available from completion of NMB and Stampede. Planned spending to complete NMB and Stampede is 700mm in 2017; with completion we expect this to drop closer to 200mm in 2018 so that before any contribution from operating cash flow from these projects we expect Hess apples to apples capex to move lower in 2018 driving an inflection in free cash flow. Exhibit 3: Free cash flow turns positive in 2018 6,000 4,000 2,000 - (2,000) (4,000) Exhibit 4: with an accelerating decline in net debt 6,000 5,000 4,000 3,000 2,000 1,000 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x (6,000) 2015A 2016A 2017E 2018E 2019E 2020E 2021E - 2015A 2016A 2017E 2018E 2019E 2020E 2021E 0.0x CFO Capex Free Cash Flow Source: BofA Merrill Lynch Global Research estimates Net Debt Source: BofA Merrill Lynch Global Research estimates Net Debt DACF Our assumptions include a likely project sanction of the first phase early production system at the Liza discovery in 2Q17. However, based on discovered oil to date that we believe now easily exceeds 2bn barrels, we believe Hess is on the cusp of a multi-year period of growth that is material for a company of its size. Critically, we believe most commentators have not yet included the cash flow contribution from Guyana in Hess estimates given visibility that barely looks past 2018. However, with first oil now likely 4 Hess Corp. 11 April 2017 in 2H19, we view final investment decision (FID) and an exploration program that yields one well result every 6-8 weeks as a catalyst to rerate Hess over time. Liza area moving towards 2bn boe Operator Exxon recently confirmed the latest exploration test in Guyana 'Snoek' as the latest discovery in the Liza development area, with 82ft of net pay and in line with pre drill expectations we are led to believe is in the 200-300mm boe range. Recall from our discussions with management, Snoek was characterized as a smaller but distinct target, updip of Liza, but lower risk. The well was drilled in 26 days to a depth of 17,000ft in 5,128ft of water 5 miles south west of Liza 1, as shown in the graphic below; the Stena Carron drill ship has now relocated to the next well test, the 'Liza 4' appraisal, where we anticipate results by end April but with the possibility of a drill stem test in a success case that may push the well result into mid-May. Exhibit 5: Liza targeting Exhibit 6: Exxon operated blocks in Guyana Source: Exxonmobil Source: Exxonmobil Critically, 'Snoek' reinforces management's prior characterization of the Stabroek block as moving towards a 'DHI play' meaning the risk profile of incremental exploration improves - a critical factor for the next well in queue, the Payara 2 appraisal that will also target a deeper test (Pacuma) scaled with a pre drill target of 1bn boe. The next prospect, Liza lookalike named Turbot will likely be spud around mid-year. From our discussions with Hess and the operator we summarize our understanding as follows: Operator XOM had previously framed the discovered potential in the Liza Payara at 1.5bn 2.0bn boe, subject to completion of two planned additional appraisal wells. Quoting EVP Mark Albers and CEO Darren Woods The success at Payara combined with the additional oil pay discovered with Liza-3 brings the total discovered resource on the block to somewhere between 1.4 billion oil equivalent barrels and 2 billion oil equivalent barrels. to clarify, what we have found not potential upside, but what we have found is 1.4 billion to 2 billion BOE. The upside is multi-billion barrel unrisked potential . Hess Corp. 11 April 2017 5 Snoek and with Liza deep previously likely moves recoverable resource closer to the upper end of this range 2bn boe before Liza 4 and Pacuma, providing line of sight for at least a 4 FPSO development starting in 2019. After Liza 4, the Stena Carron drillship will move back to Payara to drill an appraisal well which will also test a deeper prospect Pacuma tail . Where predrill prospect size is scaled at about 1bn boe. The next prospect (Turbot) will then be spud south east of Payara. Note is that if Payara 2 is successful, this would likely add another boat with capacity of 150,000 boepd. The graphics below characterize Hess view of Payara and Snoek. We assume the 1bn boe Pacuma prospect is the light green area below Payara. Exhibit 7: Initial characterization of Payara Exhibit 8: Updated characterization suggests a similar footprint to Liza Source: Hess Source: Hess Again quoting ExxonMobil management: Just as we progressed rapidly at Liza, we'll move quickly to develop Payara if the delineation well is successful. Recall that Hess management has suggested Payara will definitely be commercial . However at this early stage we assume no value for Payara in our assessed value of Hess not least as any attempt at precision is obviously premature. But with discussions with management suggesting scenarios through appraisal where Payara is a lookalike to Liza, we believe a plus three year development scheme is a reasonable basis to frame option value in a success case. Under our 70 Brent base case, the theoretical NPV would be around 10 sh. This is on top of the approximate 12-14 share value we estimate is reasonable for Hess from the existing Liza discovery. Note we continue to assume about 400,000 bpd gross development scenario reviewed again below to reflect the latest project proposal submitted to the Guyana Government which now targets first production in 2H19. Note we assume negligible value for natural gas revenue in this latest iteration, thus the range of 12- 14 for Liza mentioned above and 22- 24 for Liza Payara. The table below assumes gas valued at 1 mmcfe. 6 Hess Corp. 11 April 2017 Table 1: Notional multi-phase development at Guyana: about 22 sh to Hess Gross Barrels (mmboe) Full Project NPV MM Hess 30 Interest NPV NPV net to Hess (mmboe) mm mm sh Liza Early Production System 425 4,258 1,277 3.9 Phase 1 600 4,932 1,480 4.6 Phase 2 600 3,821 1,146 3.5 Liza Total 1,625 13,010 3,903 12.0 Payara (spec) Early Production System 425 3,392 1,018 3.1 Phase 1 600 3,668 1,100 3.4 Phase 2 600 2,682 805 2.5 Payara spec Total 1,625 9,742 2,923 9.0 Guyana Total 3,250 22,753 6,826 21.1 Source: BofA Merrill Lynch Global Research estimates; Hess shares fully dluted 324.2mm shares after prefernce convert Note that at current strip oil prices of 55 Brent, this is closer to 14.4 sh of which Payara is 6 sh or 2.0bn. On a risked basis, we believe this is a reasonable development scenario representative of any incremental discovery that resembles Liza recalling that the partners have identified over 20 additional drilling prospects. On the assumption of a plus three year development scenario after Liza, the potential impact on incremental production and cash flow is significant for Hess while the cumulative impact also becomes significant for XOM. The charts below show our latest assessment of how a compound timeline for a Liza Payara development could look, if Payara as a project does indeed prove to be a look alike to Liza. Exhibit 9: Hess theoretical production profile for Liza Payara Exhibit 10: Hess net production profile (by phase) Source: BofA Merrill Lynch Global Research estimates Source: BofA Merrill Lynch Global Research estimates Critically, Guyana is now being described as a DHI play meaning seismic and core have been sufficiently calibrated as to provide direct hydrocarbon indicators and hence derisking future exploration tests. This appears confirmed again by the latest Snoek success. XOM s development plan calls for an FPSO (floating production and storage offloading vessel) with production capacity of about 150,000 boepd for every 450mm barrels of recoverable reserves, with plateau production extending up to 10 years. We suggest management s commentary supports gross production capacity from current discovered resource of at least 600,000 boepd. Hess Corp. 11 April 2017 7 Impact on cash flow While the impact on production is significant, we suggest the impact on cash flow is transformational for Hess. Referencing the charts below: Under our base case that assumes 70 oil from 2020, we estimate operating cash flow net to Hess would reach over 2.5bn; Net free cash flow peaks at over 2bn with a net cash outflow at any point in the development of 300mm. Chart 2: Hess operating cash flow contribution: Guyana ( 70 base case) 3,500 3,000 2,500 2,000 1,500 1,000 500 Chart 3: Hess free cash flow contribution: Guyana ( 70 base case) 3,000 2,500 2,000 1,500 1,000 500 - - 2017 2022 2027 2032 Liza Early PS Liza Phase1 Liza Phase 2 Payara Early PS Payara Phase1 Payara Phase 2 (500) 2017 2022 2027 2032 Liza Early PS Liza Phase1 Liza Phase 2 Payara Early PS Payara Phase1 Payara Phase 2 Source: BofA Merrill Lynch Global Research Source: BofA Merrill Lynch Global Research While first oil in 2019 is only the early stage of development, it is enough in our view to provide visibility on multiple compression perceived absent from Hess investment case given its focus on short cycle development. However, after the low point in production in 2Q17 we suggest Hess has both short cycle, comprising not only the Bakken but tie back opportunities across established infrastructure in Norway and the US GoM and long cycle in the shape of a transformational opportunity in Guyana, that becomes tangible with a likely FID in 2Q17. Impact on valuation In our view, an imminent inflexion point in free cash flow comes with a step change in value recognition for Hess. Momentum from a 20 jump in production in the six months of the second half of 2017 carries growth through 2018, with Guyana accelerating for a decade from 2019. At our base case we suggest this leaves Hess discounting current strip oil prices at current levels of 50 share. The table below sets our PO at our target mid cycle multiple of 5.5x EV DACF; note this does not include any value for non-producing Guyana resource value that we estimate at 6 share. Table 2: At strip oil prices, Hess looks fairly valued based on a target multiple of 5.5x EV DACF 2015 2016 2017e 2018e 2019e 2020e 2021e Shares Outstanding 284 310 313 313 323 324 324 Market Cap 13,119 13,334 13,415 13,415 13,415 13,415 13,415 Non-producing Guyana NAV - - - - Net Debt 3,914 4,074 5,136 6,224 6,985 7,798 7,866 Preference shares 557 557 557 EV 17,033 17,965 19,108 20,196 20,400 21,213 21,281 DACF 2,321 1,127 1,847 2,378 2,625 3,030 3,795 Forward EV DACF 15.1x 9.7x 8.0x 7.7x 6.7x 5.5x Source: BofA Merrill Lynch Global Research 8 Hess Corp. 11 April 2017 Under our base case, which assumes a rebound in oil prices towards 70 from 2020, we see fair value as reasonably around 80 per share. If non-producing asset value is included (around 3bn or 9 sh), we estimate this would be closer to 90. Table 3: At our base case, we see fair value closer to 80 based on a target multiple of 5.5x EV DACF 2015 2016 2017e 2018e 2019e 2020e 2021e Shares Outstanding 284 310 313 313 323 324 324 Market Cap 22,341 22,684 22,814 22,814 22,814 22,814 22,814 Non-producing Guyana NAV - - - - Net Debt 3,914 4,074 4,832 5,243 4,983 4,441 3,020 Pref 557 557 557 EV 26,255 27,315 28,203 28,614 27,797 27,255 25,834 DACF 2,321 1,127 2,150 3,045 3,602 4,291 5,132 Forward EV DACF 23.3x 12.7x 9.3x 7.9x 6.5x 5.3x Source: BofA Merrill Lynch Global Research BofAML US 1 list The BofAML US1 list is a collection of the firm s best investment ideas managed with the goal of providing superior investment performance over the long term. Since the presidential election, the trump tax rally that has arguably lifted the broader S P500 on the expectation of lower corporate taxes has left most US oils lagging given the absence of any benefit from lower taxes. For Hess, we believe the catalysts are still ahead while the relative performance hurdle associated with the election has passed. For this reason, Hess replaces DVN as our energy stock on the BofAML US1 list. Earnings updates Marking to market for 1Q17 we update earnings as follows: Table 4: HES Earnings Estimates Q1 Q2 Q3 Q4 FY BBG Consensus 2015A (0.98) (0.52) (1.03) (1.40) (3.92) (3.92) 2016E (1.72) (1.11) (1.12) (1.01) (4.94) (4.98) Previous (1.72) (1.11) (1.12) (1.01) (4.94) n a 2017E (1.21) (1.19) (0.72) (0.63) (3.75) (3.03) Previous (1.37) (1.19) (0.72) (0.63) (3.91) n a 2018E (0.40) (0.40) (0.35) (0.30) (1.46) (2.09) Previous (0.40) (0.41) (0.35) (0.31) (1.47) n a Source: BofA Merrill Lynch Global Research Hess Corp. 11 April 2017 9 Price objective basis risk Hess Corp. (HES) Our price objective of 80 share is based on a 5-year outlook which assumes a 5.5x DACF multiple and a commodity deck of 67.50 WTI and 70 Brent to which we add 10 sh for Liza in offshore Guyana. The multiple is based on a finite timeline to delivery which is supported by core NAV. The risks to our price objective are: 1) the oil and gas price environment, (2) slowdowns in development drilling that leave production below expectations, and (3) news flow around HES' exploratory and appraisal drilling activities that could impact the stock. Analyst Certification I, Doug Leggate, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. US - Large Cap Oils Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Anadarko Petroleum Corp. APC APC US Doug Leggate Chevron Corp. CVX CVX US Doug Leggate ConocoPhillips COP COP US Doug Leggate Continental Resources Inc. CLR CLR US Doug Leggate Devon Energy Corp. DVN DVN US Doug Leggate EOG Resources EOG EOG US Doug Leggate Hess Corp. HES HES US Doug Leggate Marathon Oil Corp. MRO MRO US Doug Leggate Marathon Petroleum Company MPC MPC US Doug Leggate Occidental Petroleum Corp. OXY OXY US Doug Leggate Pioneer Natural Resources PXD PXD US Doug Leggate Range Resources Corp RRC RRC US Doug Leggate Tesoro Corp. TSO TSO US Doug Leggate Valero Energy Corp. VLO VLO US Doug Leggate Chesapeake Energy Corp. CHK CHK US Doug Leggate Delek US Holdings, Inc. DK DK US Doug Leggate ExxonMobil Corp. XOM XOM US Doug Leggate HollyFrontier Corp HFC HFC US Doug Leggate Noble Energy NBL NBL US Doug Leggate Phillips 66 PSX PSX US Doug Leggate Apache Corp APA APA US Doug Leggate Cabot Oil Gas Corp. COG COG US Doug Leggate PBF Energy PBF PBF US Doug Leggate Southwestern Energy Corp. SWN SWN US Doug Leggate 10 Hess Corp. 11 April 2017 iQmethod SM Measures Definitions Business Performance Numerator Denominator Return On Capital Employed NOPAT (EBIT Interest Income) (1 - Tax Rate) Goodwill Amortization Total Assets Current Liabilities ST Debt Accumulated Goodwill Amortization Return On Equity Net Income Shareholders Equity Operating Margin Operating Profit Sales Earnings Growth Expected 5-Year CAGR From Latest Actual N A Free Cash Flow Cash Flow From Operations Total Capex N A Quality of Earnings Cash Realization Ratio Cash Flow From Operations Net Income Asset Replacement Ratio Capex Depreciation Tax Rate Tax Charge Pre-Tax Income Net Debt-To-Equity Ratio Net Debt Total Debt, Less Cash Equivalents Total Equity Interest Cover EBIT Interest Expense Valuation Toolkit Price Earnings Ratio Current Share Price Diluted Earnings Per Share (Basis As Specified) Price Book Value Current Share Price Shareholders Equity Current Basic Shares Dividend Yield Annualised Declared Cash Dividend Current Share Price Free Cash Flow Yield Cash Flow From Operations Total Capex Market Cap. Current Share Price Current Basic Shares Enterprise Value Sales EV Current Share Price Current Shares Minority Equity Net Debt Sales Other LT Liabilities EV EBITDA Enterprise Value Basic EBIT Depreciation Amortization iQmethod SM is the set of BofA Merrill Lynch standard measures that serve to maintain global consistency under three broad headings: Business Performance, Quality of Earnings, and validations. The key features of iQmethod are: A consistently structured, detailed, and transparent methodology. Guidelines to maximize the effectiveness of the comparative valuation process, and to identify some common pitfalls. iQdatabase is our real-time global research database that is sourced directly from our equity analysts earnings models and includes forecasted as well as historical data for income statements, balance sheets, and cash flow statements for companies covered by BofA Merrill Lynch. iQprofile SM , iQmethod SM are service marks of Bank of America Corporation.iQdatabase is a registered service mark of Bank of America Corporation. Hess Corp. 11 April 2017 11 Disclosures Important Disclosures HES Price Chart 1-Apr B Leggate PO:US 115 1-May PO:US 120 120 30-May 100 PO:US 128 21-Sep PO:US 135 15-Oct PO:US 130 5-Dec PO:US 105 13-Apr PO:US 100 15-Jun PO:US 105 24-Aug PO:US 85 28-Jan PO:US 80 5-Feb PO:US 75 30-Jun PO:US 85 8-Dec PO:US 80 80 60 30-Jun PO:US 130 21-Jan PO:US 95 40 20 0 1-Jan-15 1-Jan-16 1-Jan-17 HES Review Restricted No Coverage B: Buy, N: Neutral, U: Underperform, PO: Price Objective, NA: No longer valid, NR: No Rating The Investment Opinion System is contained at the end of the report under the heading "Fundamental Equity Opinion Key". Dark grey shading indicates the security is restricted with the opinion suspended. Medium grey shading indicates the security is under review with the opinion withdrawn. Light grey shading indicates the security is not covered. Chart is current as of March 31, 2017 or such later date as indicated. Equity Investment Rating Distribution: Energy Group (as of 31 Mar 2017) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 109 49.77 Buy 84 77.06 Hold 52 23.74 Hold 43 82.69 Sell 58 26.48 Sell 34 58.62 Equity Investment Rating Distribution: Global Group (as of 31 Mar 2017) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 1578 51.33 Buy 979 62.04 Hold 690 22.45 Hold 434 62.90 Sell 806 26.22 Sell 381 47.27 Issuers that were investment banking clients of BofA Merrill Lynch or one of its affiliates within the past 12 months. For purposes of this Investment Rating Distribution, the coverage universe includes only stocks. A stock rated Neutral is included as a Hold, and a stock rated Underperform is included as a Sell. FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. 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Internet e-Commerce 1Q Internet Sector Preview Earnings Preview Equity 06 April 2017 Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com 1Q Preview; Expectations building on a strong 2H Our early sector preview highlights our estimates vs. Street, early 1Q data points, and some opportunities for 1Q results for 30 stocks in our coverage group (more detailed company previews to follow). For large-caps, Street 2017 EPS estimates are down 8 YTD while the average stock price is up 9 YTD; suggesting macro and 2H optimism is driving stocks, which could continue throughout earnings season. 1Q was not without potential pressures, including ramping competition in several sectors and delayed tax refunds. A key theme for the group, in our view, is advertising listing ranking revenue initiatives at eCommerce sites (AMZN, EBAY, EXPE), and we are constructive on all three stocks. Per our Internet sentiment ranking screen (page 7), FB, WIX, TREE have best sentiment while TWTR and TRIP have weakest. A few early checks positive, mixed eCommerce data Our early ad checks suggest robust overall demand, aided by somewhat easy comps vs 1Q 16, with Instagram momentum a standout. eCommerce is more mixed, with some concerns on consumer spending due to delayed tax refunds, but optimism that spending will rebound in March April. In travel, there are modest concerns on pressure on US inbound travel, a bigger negative for Expedia than Priceline. FX spot rates for both the Euro and the Pound have depreciated 1 vs. the US since end of Jan. Many key upcoming events for stocks in 2Q Top events in 2Q include Facebook s F8 developer conference on April 18-19, Google s Marketing Next keynote on 5 23, an AWS event in San Francisco on April 18-19, expected closing Verizon s acquisition of Yahoo, Netflix s release of several key franchise including House of Cards, Orange is the New Black, Sense8, Glow, and Unbreakable Kimmy Schmidt, consumer wide release of Pandora Premium, Expedia s new HomeAway disclosures and, possibly, Amazon s new revenue disclosures. We expect meet beat EPS for several companies We are above the Street on 2017 EPS for 16 of the 25 stocks discussed within and, of those, we are most confident in Facebook Priceline for 1Q upside potential. We expect Facebook to benefit from robust traffic, Instagram momentum, and greater adoption of audience targeting tools. We also think Priceline can beat 1Q given strong booking trends into the quarter and a modest recovery in European travel. We are below the Street on 2017 EPS for AMZN, TRIP, and YHOO. Expedia is a top eComm travel idea for 2Q 3Q on potential for accelerating room nights, HomeAway optimism, and less uncertainty on near-term estimates. GOOG, AMZN ZG interesting 1Q sentiment stocks For large cap s, we believe GOOGL has had high recent interest given controversy around Youtube ad placements. We are not sure if Google will provide clarity on the issue on their call, but we do expect advertisers to return by 3Q and any overhang to be resolved. For Amazon, the company had new revenue disclosures in its 10-K filing, and there is growing optimism on advertising being a positive bottom-line driver. In SMID Internet, Zillow has more controversy going into 1Q as investors are once more concerned about potential regulation by the CFPB limiting the ability of agents and mortgage brokers to co-market on the platform. We remain positive on the stock due to its dominant position in online real estate and our belief that the high ROI of the ad unit (our survey suggested 6x return) will ensure that agents buy Zillow placements regardless of mortgage broker incentives. Additionally, we see earnings upside potential. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 62 to 64. Analyst Certification on page 59. Price Objective Basis Risk on page 53. 11729935 Timestamp: 06 April 2017 04:12AM EDT Americas Internet e-Commerce Justin Post Research Analyst MLPF S 1 415 676 3547 justin.post baml.com Nat Schindler Research Analyst MLPF S 1 415 676 3574 nathaniel.schindler baml.com Ryan Goodman, CFA Research Analyst MLPF S 1 415 676 3560 ryan.c.goodman baml.com Jason Mitchell Research Analyst MLPF S 1 415 676 3534 jason.s.mitchell baml.com Akshay Bhatia Research Analyst MLPF S 1 415 676 3548 akshay.bhatia baml.com Table 1: Key 1Q metrics for Large Cap Internet ( 5bn Market Cap) Company Ticker Key 1Q Metric BofAML Estimate Alphabet GOOGL Website revenue (ex-FX) growth vs 22.3 in 4Q 21.6 Amazon AMZN AWS revenue growth vs. 47 in 4Q 43 y y eBay EBAY US GMV growth trends 3.5 y y Expedia EXPE Room night growth vs. 15 in 4Q 16 Facebook FB Ad revenue growth (ex-FX) vs. 54 reported in 4Q 52 Netflix NFLX 1Q Intl sub guidance 3.9mn Priceline PCLN 1Q room night growth vs. 31 in Q 26 y y Snap SNAP Global DAU's vs. 158mn in 4Q 166mn TripAdvisor TRIP Update on ad spend targets, 2017 guidance 18 S M y y growth Twitter TWTR MAUs and y y trend vs 319mn ( 4 y y) in 4Q 322mn MAUs ( 4 y y) Yahoo YHOO Any update on acquisition timing and ongoing breach investigations N A Zillow ZG Mortgage Revenue 18.1mn Source: BofA Merrill Lynch Global Research estimates Table 2: Key 1Q metrics for Small Cap Internet ( 5bn Market Cap) Company Ticker Key 1Q Metric BofAML Estimate BankRate RATE 1Q revenue 117mn Quotient QUOT 1Q transactions 731mn Care.com CRCM US paying families 266,607 (4 y y) Fitbit FIT 1Q unit sales and gross margin 3mn 39 GoPro GPRO 1Q unit sales and gross margin 800K 35 GrubHub GRUB Gross food sales growth 26 Match.com MTCH Paid Member Growth 17 OnDeck Capital ONDK 1Q origination growth and marketplace take rate 12 3 Pandora P Ad revenue per listening hour growth 10 LendingTree TREE Variable marketing margin growth 29 y y Trivago TRVG Qualified referral growth 56 y y Wayfair W 2Q revenue growth guidance 25 y y Wix WIX Premium subscribers growth 36 Yelp YELP 1Q Local advertising account adds 4k (17 y y) Zynga ZNGA Online Games DAUs 17.9 Source: BofA Merrill Lynch Global Research estimates 2 Internet e-Commerce 06 April 2017 1Q Internet Summary Previews We are publishing updates on 1Q industry data points and write ups on our early outlook and top 1Q earnings focus items for select stocks in our Internet coverage group (more detailed previews with various channel checks for large cap stocks to follow.) Our commentary is designed to highlight 1Q data points, stock trading opportunities and potential issues for 1Q results, and our estimates vs. consensus. For 1Q EPS estimates, we are above the street for well over 50 of our companies under coverage, and only below on QUOT, P, RATE, and TRIP. For large caps, we have highest confidence in EPS upside for Facebook and Priceline. Table 3: 1Q17 BofAML Estimates vs. The Street Large Cap Stocks ( 5bn Market Cap) Ticker 1Q17 Metric BofA ML Street Small Cap Stocks ( 5bn Market Cap) BofA ML vs. Street Ticker 1Q17 Metric BofA ML Street BofA ML vs. Street AMZN Revenue 35,335 35,255 RATE Revenue 117 116 EPS 2.34 2.28 Ahead EPS 0.14 0.15 Below EBAY Revenue 2,210 2,206 CRCM Revenue 43 43 EPS 0.49 0.48 Ahead EPS 0.04 0.02 Ahead EXPE Revenue 2,134 2,140 FIT Revenue 282 278 EPS 0.07 0.06 Ahead EPS ( 0.19) ( 0.19) In-line FB Revenue 7,905 7,798 GRUB Revenue 153 153 EPS 1.14 1.11 Ahead EPS 0.25 0.24 Ahead GOOGL Revenue 20,219 19,891 GPRO Revenue 205 207 EPS 9.53 9.45 Ahead EPS ( 0.39) ( 0.44) Ahead NFLX Revenue 2,710 2,644 TREE Revenue 127 125 EPS 0.45 0.45 In-line EPS 0.93 0.91 Ahead PCLN Revenue 2,415 2,441 MTCH Revenue 293 308 EPS 9.08 8.75 Ahead EPS 0.14 0.13 Ahead SNAP Revenue 163 158 QUOT Revenue 72 72 EPS ( 0.18) ( 0.21) Ahead EPS 0.01 0.03 Below TRIP Revenue 379 377 P Revenue 319 318 EPS 0.23 0.27 Below EPS ( 0.49) ( 0.35) Below TWTR Revenue 535 510 TRVG Revenue 241 241 EPS 0.03 0.01 Ahead EPS 0.02 0.02 In-line YHOO Revenue 821 815 WIX Revenue 91 90 EPS 0.14 0.14 In-line EPS ( 0.05) ( 0.13) Ahead ZG Revenue 239 236 W Revenue 944 933 EPS 0.06 0.05 Ahead EPS ( 0.49) ( 0.60) Ahead YELP Revenue 201 198 EPS 0.18 0.16 Ahead Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 Internet e-Commerce 06 April 2017 3 Our 2017 estimates vs. street Of the 25 Internet stocks listed below in our coverage, we are above the Street on 2017 EPS on 16 stocks and below the street on 9. Table 4: 2017 BAML Estimates vs. The Street Large Cap Stocks ( 5bn Market Cap) Ticker Metric BofA ML Street Small Cap Stocks ( 5bn Market Cap) BofA ML vs. Street Ticker Metric BofA ML Street BofA ML vs. Street AMZN Revenue 164,532 165,158 RATE Revenue 508 505 EBITDA 18,246 19,382 EBITDA 126 126 EPS 10.90 12.60 Below EPS 0.68 0.70 Below EBAY Revenue 9,458 9,398 CRCM Revenue 172 172 EBITDA 3,520 3,494 EBITDA 20 19 EPS 2.03 2.01 Ahead EPS 0.43 0.36 Ahead EXPE Revenue 10,097 10,010 FIT Revenue 1,625 1,580 EBITDA 1,857 1,835 EBITDA ( 156) ( 120) EPS 5.54 5.38 Ahead EPS ( 0.37) ( 0.36) Below FB Revenue 38,546 37,774 GRUB Revenue 650 645 EBITDA 24,358 23,775 EBITDA 184 181 EPS 5.67 5.43 Ahead EPS 1.13 1.10 Ahead GOOGL Revenue 88,636 87,691 GPRO Revenue 1,307 1,266 EBITDA 43,457 43,264 EBITDA 66 48 EPS 41.82 41.12 Ahead EPS 0.09 ( 0.08) Ahead NFLX Revenue 11,627 11,221 TREE Revenue 525 515 EBITDA 1,218 1,053 EBITDA 96 96 EPS 1.44 1.41 Ahead EPS 3.91 4.00 Below PCLN Revenue 12,518 12,447 MTCH Revenue 1,285 1,325 EBITDA 4,784 4,747 EBITDA 462 459 EPS 75.35 74.11 Ahead EPS 0.95 0.88 Ahead SNAP Revenue 1,007 1,034 QUOT Revenue 312 288 EBITDA ( 580) ( 617) EBITDA 44 46 EPS ( 0.59) ( 0.57) Ahead EPS 0.18 0.09 Ahead TRIP Revenue 1,647 1,649 P Revenue 1,629 1,621 EBITDA 346 339 EBITDA ( 17) ( 38) EPS 1.22 1.23 Below EPS ( 0.21) ( 0.49) Ahead TWTR Revenue 2,301 2,352 TRVG Revenue 1,105 1,088 EBITDA 639 564 EBITDA 44 40 EPS 0.33 0.27 Ahead EPS 0.05 0.06 Below YHOO Revenue 3,369 3,574 WIX Revenue 420 416 EBITDA 848 891 EBITDA 74 64 EPS 0.65 0.67 Below EPS 0.31 0.36 Below ZG Revenue 1,062 1,048 W Revenue 4,169 4,237 EBITDA 215 211 EBITDA ( 48) ( 59) EPS 0.48 0.44 Ahead EPS ( 1.55) ( 1.65) Ahead YELP Revenue 895 889 EBITDA 166 161 EPS 0.99 1.04 Below Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 4 Internet e-Commerce 06 April 2017 Stock price performance above estimate revisions Internet sector stocks are up 6 YTD, on average, while EPS estimates for profitable companies in our coverage cluster are down 5 YTD. For large-caps over 5bn in market cap., street 2017 EPS estimates are down 8 YTD while the average stock price is up 9 YTD; suggesting macro expectations and stock rotation are having a larger impact on stock movement than earnings estimates. eCommerce leads the group, up 8 YTD with Travel up 6 and Media behind at 5 . Small Caps are lagging Large caps YTD at 4 vs. 9 . Chart 1: YTD Stock Price Performance vs. YTD 2017 Estimate Revisions By Sector 10 8 6 4 2 0 -2 -4 -6 -8 -10 Internet Group Media eCommerce Travel Large-Cap Small-Cap SP 500 2017 Change in Stock Price YTD Change in Street 2017 Est Source: Excludes companies with negative earnings, Bloomberg, as of 4 4 2017 Nine of the twelve large caps in our group are up YTD and four of these companies have had positive stock returns despite negative EPS estimate revision (AMZN, EXPE, EBAY IAC). TRIP is the worst performing large cap YTD, down 12 . Only FB and NFLX have had positive 2017 EPS estimate revisions, with GOOGL, YHOO and PCLN holding flat. Chart 2: YTD Stock Price Performance vs. YTD 2017 EPS Revisions For Larger-Cap Internet Stocks ( 5bn ) 30 20 10 0 -10 -20 -30 -40 AMZN EBAY EXPE FB GOOGL NFLX PCLN TRIP TWTR YHOO IAC ZG SPX Avg 2017 Change in Stock Price YTD Change in Street 2017 Est Source: Bloomberg consensus estimates, as of 4 4 2017 Internet e-Commerce 06 April 2017 5 Sector Valuations Internet sector trading multiples for EV EBITDA and P E are tracking up slightly YTD, (excluding NFLX). On a y y basis, the group P E is at 24x vs. 22x last year, while the group EV EBITDA is at 14x vs. 13x a year ago. Chart 3: Internet Sector Historical 2-Yr Forward Avg. EV EBITDA 25x 20x 15x 10x 5x 0x Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 Chart 4: Internet Sector Historical 2-Yr Forward Avg. P E 40x 35x 30x 25x 20x 15x 10x 5x 0x Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 Large cap receiving a premium; Small caps at the low-end of historical range Excluding NFLX and YHOO, large cap stocks in the Internet group are trading at 26x 2018 EPS below the small cap group at 28x 2018 EPS, with both Large and Small caps trading slightly above their average for the past 5 years (see chart below). The media sector is trading at a steep discount to travel and eCommerce. The eCommerce sector is currently trading slightly above the midpoint of its five year range at 32x 2018 EPS. AMZN and WIX are well above at 49.5x and 74x respectively while EBAY is trading below at 15x. The Media sector is trading well below the midpoint of its recent range (excluding NFLX), at 25x 2018 EPS. GOOG (18x), FB (21x), and YELP (23x) are below the sector average while TWTR (40x) is above. The Online Travel sector is currently trading slightly above the mid-point of its five year range at 23x but below the internet sector average. TRIP (29x) is trading above the average while EXPE (18x) and PCLN (21x) are below. Chart 5: Historical 2-Year Forward P E Multiple By Sector (ex NFLX) 70x 60x 50x 40x 30x 20x 10x 0x Chart 6: Historical 2-Year Forward P E Multiple (select stocks) 90.0x 80.0x 70.0x 60.0x 50.0x 40.0x 30.0x 20.0x 10.0x 0.0x Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 6 Internet e-Commerce 06 April 2017 Currency still a slight headwind for 1Q results but improving We expect FX to remain a y y headwind for 1Q results; the Euro is down about 6 y y but up 1 from where it was when most Large-cap internet companies reported 4Q results in late January ( 1.06). The GBP at 1.22 is down slightly (1.4 ) over the same period. Our currency strategist is forecasting the Euro to end 2017 at 1.05 and the GBP to end at 1.19. FX pressure will ease after 1Q if rates hold, unless a company has high exposure to Japan. Table 5: Percent change y y Euro GBP Yen Other 4Q15 1Q16 -12.3 -2.0 -4.5 -5.4 -8.1 1.1 -14.4 -11.0 2Q16 2.0 -4.9 9.4 -6.3 3Q16 4Q16 0.3 -1.5 -13.9 -17.4 19.3 15.1 -2.9 0.0 1Q17 -3.5 -14.5 2.5 3.3 2Q17E 3Q17E -5.6 -4.5 -15.4 -9.2 -3.9 -9.9 -0.3 -0.9 4Q17E -1.2 -3.5 -8.1 0.2 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 International revenues a percent of total revenues is highest at PCLN (87 of gross profit), GOOG (53 ), FB (53 ), TRIP (43 ), EBAY (57 ), and EXPE (42 ). Higher operating margins in UK Europe than US and lower Intl. taxes can increase this exposure. Chart 7: Spot Rate Change Y Y (USD vs. FX Spot Rate) 30 20 10 0 -10 -20 -30 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16Dec-16 Jan-17 Feb-17Mar-17 Euro GBP Yen Other Source: Bloomberg; Other Includes the following Asian (KRW, AUD, HKD), Europe (RUB, SEK, CHF), Americas (BRL, MXN, CAD) , as of 4 4 2017 Internet e-Commerce 06 April 2017 7 Sentiment Ranking Update We are updating our sentiment ranking index on 25 stocks in our Internet coverage universe (as of 4 4 17). We have aggregated six different indicators we think are relevant to gauge sentiment and have generated an overall sentiment score for each company. This sentiment analysis is intended to be informative and should not be used to form an investment opinion; for example our model does not factor in valuation or management quality. Of our company coverage universe, we have excluded four game publisher companies as well as two recent IPO s from this analysis as data may not be comparable. Table 6: 1Q16 change in sentiment ranking Ticker Rank Pre 4Q Score Pre4Q FB 1 3 4 4 WIX 2 -1 4 2 TREE 3 -1 8 -1 AMZN 4 5 8 4 NFLX 5 -2 9 -1 GOOGL 6 NA 9 1 PCLN 7 1 9 2 CRCM 8 9 11 3 EXPE 9 5 12 2 IAC 10 5 12 2 RATE 11 -4 13 -2 EBAY 12 4 13 1 ONDK 13 5 14 1 ZG 14 -9 14 -5 YHOO 15 6 14 3 GPRO 16 8 14 5 YELP 17 -7 16 -4 W 18 -5 16 -3 P 19 NA 16 NA GRUB 20 -9 16 -4 MTCH 21 1 17 1 QUOT 22 -10 17 -4 FIT 23 2 19 1 TRIP 24 -1 20 -2 TWTR 25 -5 21 -5 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 Investor sentiment categories We assembled data that measures investor sentiment across six categories. These metrics include latest short interest (as a of float), change in short interest as a of float over the last 90 days, current stock performance over the last 90 days, current average sell side ratings, forward year EPS estimate revisions over last 90 days, and expected FY17 revenue growth. While there are no perfect indicators of average investor sentiment, we believe these metrics provide a helpful framework of investor sentiment in our sector. In our analysis, Facebook, WIX, and LendingTree had the highest sentiment in 1Q, while Fitbit, Trip and Twitter had the lowest sentiment. Care.com had the most improved ranking, moving up 9 points to 8 th , while Quotient had the biggest decline moving down 10 spots in our ranking to 22 nd . Methodology Our methodology consisted of: 1) gathering financial data across six categories that we believe are relevant to measuring investor sentiment, 2) ranking companies on each attribute using a scale of 1 to 29, with 1 highest and 29 the lowest, and 3) ranking the companies based on the avg. score of the six metrics. 8 Internet e-Commerce 06 April 2017 Highest sentiment: FB, WIX, and TREE; Lowest: FIT, TRIP, and TWTR Based on our sentiment ranking index, Facebook, Wix, and LendingTree have top investor sentiment pre 1Q earnings. Facebook moved into first place from fourth due to the lowest short interest as of float, second highest FY17 revenue growth, sixth highest sell side FY16 EPS estimate revisions, and third best stock performance in the last 90 days. Wix came in second place with top stock performance in the last 90 days, top expected FY17 revenue growth and second best sell-side FY16 EPS estimate revision, despite ranking ninth for current sell side ranking and seventh for short interest ratio. LendingTree placed third with best current sell side ranking and best change in short interest ratio. Fitbit had third worst investor sentiment with the worst stock performance in the last 90 days, the worst expected FY17 revenue growth and the second largest change in short interest in the period. TripAdvisor, had the second lowest sentiment with the third worst sell side ranking and fifth worst sell side EPS estimate revision. Twitter, our lowest sentiment stock pre 1Q earnings, had second to worst sell side ranking and expected FY17 revenue growth, along with third to worst sell side estimate revisions and was below average in all of our categories. Score Ranking vs. Investment Rating Our sentiment analysis is independent of our investment rating system, and our investment rating may or may not factor in positive or negative sentiment. This scorecard analysis includes only data currently up to the last 90 days, and our investment rating opinion takes into consideration potential stock price fluctuations, attractiveness for investment relative to other stocks within our Coverage Cluster, business model quality, and valuation. Please see our Fundamental Equity Rating Opinion Key at the end of the report for more details. Table 7: Combined Metric List Company Short Interest float short interest of float Performance 90 days Sell Side Ranking EPS Estimate Revisions Expected FY17 Rev. Growth FB 1 0 21 4.7 4 37 WIX 2 -1 67 4.4 62 43 TREE 23 -20 21 5.0 -6 34 AMZN 1 0 20 4.8 -10 21 NFLX 6 -1 14 4.1 15 27 GOOGL 1 0 6 4.7 0 19 PCLN 3 0 20 4.6 0 16 CRCM 3 0 42 3.5 28 6 EXPE 8 -2 11 4.6 -12 14 IAC 1 0 12 4.4 -5 -1 RATE 2 0 -13 4.2 2 16 EBAY 2 0 14 3.6 -3 5 ONDK 12 3 1 3.3 34 30 ZG 11 -2 -9 3.9 -26 24 YHOO 6 1 19 3.8 0 2 GPRO 36 -3 -4 2.3 74 7 YELP 10 0 -14 3.7 -2 25 W 38 2 17 3.9 -22 25 P 30 2 -7 3.9 2 17 GRUB 18 7 -11 4.1 -5 31 MTCH 27 5 -4 4.2 1 8 QUOT 8 0 -13 4.8 -56 5 FIT 26 -4 -29 3.1 NA -27 TRIP 16 5 -12 2.9 -21 11 TWTR 11 3 -11 2.5 -55 -7 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 Internet e-Commerce 06 April 2017 9 Table 8: Combined metric rankings Company Short Interest float short interest of float Performance 90 days Sell Side Ranking EPS Estimate Revisions Expected FY17 Rev. Growth Average FB 1 8 3 4 6 2 4 WIX 7 6 1 9 2 1 4 TREE 20 1 4 1 17 3 8 AMZN 4 9 5 2 18 10 8 NFLX 10 7 10 13 5 6 9 GOOGL 2 12 13 5 12 11 9 PCLN 8 11 6 7 10 14 9 CRCM 9 14 2 20 4 19 11 EXPE 12 5 12 6 19 15 12 IAC 3 10 11 8 16 23 12 RATE 6 15 23 10 8 13 13 EBAY 5 13 9 19 14 20 13 ONDK 17 21 14 21 3 5 14 ZG 15 4 18 14 22 9 14 YHOO 11 18 7 17 11 22 14 GPRO 24 3 15 25 1 18 14 YELP 14 16 24 18 13 8 16 W 25 19 8 15 21 7 16 P 23 20 17 16 7 12 16 GRUB 19 25 20 12 15 4 16 MTCH 22 24 16 11 9 17 17 QUOT 13 17 22 3 24 21 17 FIT 21 2 25 22 N A 25 19 TRIP 18 23 21 23 20 16 20 TWTR 16 22 19 24 23 24 21 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 10 Internet e-Commerce 06 April 2017 Alphabet (Buy, 1,025 PO) Stock view: Expect solid 1Q revs., but loss of non-GAAP reconciliation a concern New concerns have been raised on the YouTube advertiser pullback, but with the cuts in spending surfacing primarily in the back half of March, we anticipate only modest impact to 1Q revenue, with more significant potential impact to 2Q17 (see Advertiser boycott raising concerns on 1Q 2Q revenues). Looking beyond the YouTube issues, our early 1Q ad checks were mostly positive, with Merkle highlighting modest revenue growth acceleration, better than the 70bps of ex-FX Website revenue deceleration in 1Q17 (vs 4Q16) we ve assumed in our model. Overall, we expect in-line to slightly better 1Q results driven by mobile and PLA strength (and perhaps some maps ads), but see risk of moderate Street estimate cuts for 2Q 3Q revenue on YouTube concerns. For most companies, we would expect management to help clear up the advertiser controversy on the call with some added financial disclosure or guidance, but predicting what Alphabet will say on the topic is more difficult. 1Q results will be the first quarter that Google reports GAAP EPS without a non-GAAP EPS reconciliation. With higher than usual SBC in 1Q due to changes in grant timing, it is possible Google misses Street GAAP EPS. We are leaving our revenue unchanged but lowering GAAP EPS to 7.26 from 7.36 based on higher SBC. Also, unusual charges are more likely to be controversial for Google without a non-GAAP EPS reconciliation. Core margins remain a key focus, as has been the case since 3Q16 when core Google non-GAAP operating margins contracted 95bps y y. We expect core margins to remain down y y driven primarily by segment mix, and our model assumes 2017 core margins are down 50bps in 2017 (to 46.1 ) and another 20bps in 2018 (to 45.9 ). For 1Q17, we assume 45.8 core Google non-GAAP operating margin, up 30bps q q and down 75bps y y. Our recent deep dive analysis suggests segment mix alone drives a natural 220bps margin headwind, which we think can be partially offset with 1) upside in high margin search growth from monetization growth (clicks and pricing); 2) leverage in individual segments from scale; and 3) cost cutting measures across the business (see Digging into the Alphabet revenue mix and margin drivers). We continue to like the stock, but recognize that potential estimate trimming on YouTube concerns, further margin contraction, SBC pressure on GAAP EPS and challenging 2Q17 comps could continue to drag on near-term sentiment. Looking ahead, we are optimistic on 2H17 based on the potential for new ad format ramps, easing comps, and potential YouTube relief (we assume the advertiser boycott eases exiting 2Q). Alphabet trades at 22x GAAP (17x ex-Other Bets, cash), in-line with the S P and in-line to below the 5-year average (23.5x), which we view as attractive. Key theme metric(s) for 1Q: Website growth, core margins We believe the key metrics for the quarter will be ex-FX Website growth and core margins. For ex-FX website growth, we currently model 70bps of deceleration in 1Q17 (vs 4Q16), and we think deceleration could persist through 2Q17, after which the y y growth comps ease considerably. Internet e-Commerce 06 April 2017 11 Chart 8: Google ex-FX Y Y growth trends 30 25 20 28 25 24 24 24 22 22 22 21 18 15 10 5 0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17E 2Q17E 3Q17E 4Q17E Total Google Revenue Y Y (ex-FX) Google Website Y Y (ex-FX) Source: Company reports, BofA Merrill Lynch Global Research For core margins, we assume y y contraction through 3Q17, after which we model a slight uptick in 4Q17. For the year, we assume core Google margins contract 50bps to 46.1 . In terms of blended Alphabet non-GAAP operating margins, we assume 70bps of y y contraction to 40.7 in 2017, but won t be surprised if better cost discipline (particularly in Other Bets) drives more stable y y trends. Table 9: Core Google non-GAAP operating margin forecast 1Q16 2Q16 3Q16 4Q16 1Q17E 2Q17E 3Q17E 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E Core Google non-GAAP operating margin 46.5 47.9 46.5 45.5 45.8 46.5 45.6 46.4 45.6 46.5 45.4 46.3 Y Y Change 1.4 1.6 -1.0 -1.5 -0.7 -1.4 -0.9 0.9 -0.2 -0.1 -0.2 -0.1 Source: Company, BofA Merrill Lynch Global Research Biggest 1Q issues risks: Deceleration in Google Website revenue: There could be modest revenue pressure due to YouTube boycott impact, and or ad shift to Facebook. One SEM suggested a modest uptick in advertising spend on maps, which could be a positive in 2017. TAC to distribution partners: Rising TAC rate (Apple, Samsung) could mitigate potential gross revenue upside in the higher margin mobile search segment. Growth investments could drag on margins: Investments in Google Cloud, hardware, and YouTube could be higher than we expect, which could negatively impact core Google margins and raise concerns on long-term sustainable margin levels. YouTube Display Network commentary: While we do not expect full resolution on the YouTube Display Network issues, management s tone will likely impact expectations for timing of a fix, corresponding costs, magnitude of the boycott losses, and time to recover lost ad spend. Stock comp timing shift could cause some GAAP lumpiness: Shift in timing of annual stock-based comp grants could impact 1Q EPS, but should be offset with lower relative cost in 2H17. Top 1Q data point: Our early 1Q checks (pre quarter end) have been mostly positive, but most checks did not contemplate a potential impact of the YouTube Display Network pullback. ComScore PC click data has suggested Google PC queries are down 3 q q QTD, slightly worse than the 2 q q decline in 1Q16. 12 Internet e-Commerce 06 April 2017 Estimate vs Consensus Our revenue and EBITDA estimates of 20.2bn 9.9bn are slightly above the Street at 19.9bn 9.8bn. Our model assumes currency to be a 2 headwind on y y international revenue in 1Q17 (similar to 4Q16) and a 3 headwind in 2Q17. Our 1Q17 non-GAAP EPS of 9.53 is slightly above consensus at 9.45, and on a GAAP basis, our 1Q estimate for 7.26 is slightly below the Street at 7.42. For 2017, we are above on revenue, EBITDA, and non-GAAP EPS, but slightly below on GAAP EPS. Table 10: Alphabet Estimate Summary 1Q17 2Q17 2017 2018 Revenue BofA ML est. 20,219 21,009 88,636 104,228 Growth Y Y 23 20 21 18 Street 19,891 20,867 87,691 102,632 BofA ML vs Street Above Above Above Above EBITDA BofA ML est. 9,897 10,428 43,457 50,670 Street 9,788 10,384 43,264 50,252 BofA ML vs Street Above Above Above Above EPS BofA ML est. 9.53 10.02 41.82 48.45 Street 9.45 10.09 41.12 48.56 BofA ML vs Street Above Below Above Below GAAP EPS BofA ML est. 7.26 7.75 32.66 37.81 Street 7.42 8.06 33.31 39.16 BofA ML vs Street Below Below Below Below Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 Given the recent YouTube ad network concerns, it s possible stock sees a lift on inline EPS if commentary on content fixes and advertiser pullback is constructive. We are comfortable with our 1,025 price objective, based on 21x core Google GAAP EPS plus cash. Our PO multiple is within the five year range of 12-24x forward P E. Easing comps and potential new ad format ramps (Google s advertiser conference is May 23) could be positive 2H drivers. Internet e-Commerce 06 April 2017 13 Amazon (Buy, 1,100 PO) Stock view: Positive on retail, but street increasingly focused on advertising For Amazon s retail business, sentiment remains positive despite some modest 4Q revenue weakness vs expectations. We expect the retail business to remain strong in 1Q with stable growth as core drivers (Prime, delivery infrastructure advantage) remain intact. The lack of early tax refund support is a potential 1Q risk, but we would expect any delayed spending to bounce back in March or 2Q. Continued store closures by traditional retailers should aid the online shift throughout 2017. Finally, it appears Amazon has become stepped up advertising on its site, with more sponsored listings, which could be a source of revenue upside in 2017. Amazon had new revenue disclosures in its 10-K, and the ad revenue line significant accelerated in 2016. For AWS, we expect some additional q q revenue deceleration and q q declines in margins. We note that AWS growth in 4Q was below our estimates, and the effects of 4Q s late price cuts should drive additional deceleration in 1Q. Microsoft and Google are well capitalized competitors that are significantly increasing cloud investment (see Battle in Seattle for industry update), so the Street sentiment could shift more cautiously on Amazon on a slight miss. Margins continue to be a risk, but top line trends seem to be the biggest driver of sentiment and advertising optimism has grown. Amazon s current investment cycle began in earnest in 3Q 16, and we expect the elevated pace of investment to persist through 3Q 17. Margins may see y y declines given: 1) Ongoing investments in fulfillment center build out (given fulfilled unit growth of 40 in 2016), 2) Digital content and related marketing, 3) Prime benefits (Now and Fresh), 4) Alexa Echo, and 5) India. We think the Street is constructive on these initiatives, and will move past lower y y margins concerns if top line growth is stable in 1Q. Key theme metric(s) for 1Q: AWS growth and 2Q profit outlook We forecast 43 y y AWS growth in 1Q, down from 47 in 4Q, partially due to the lingering effects of price cuts that went into effect on December 1 st . This implies 4 q q growth v. 9 last quarter. Increased investments in logistics fulfilment, AWS, marketing, Prime content and others could set Amazon up for disappointing margin guidance vs. the Street s expectations. However, we think the Street will focus on revenue trends and ultimately view the investments as a long-term positives. Biggest 1Q issues risks: 2Q GAAP operating income outlook given increased investments in logistics, India, Prime Instant Video content, as well as expected AWS deceleration Gross profit growth trends given expense issues and tougher growth comps in 1H17 AWS margin trends given AWS price cuts and aggressive competition International segment performance given investments in India 1Q traffic data points mixed comScore s US data indicates that Amazon PC user growth has been down 2 y y in 1Q through February vs. 4Q at -5 y y. Mobile user growth is up 8 y y vs. up 9 in 4Q. Amazon s total mobile and PC minutes were down 5 y y in 1Q through February vs. up 18 y y in 4Q; mobile minutes were down 7 y y in 1Q vs. 18 y y in 4Q. 1Q items news: Logistics investments: Amazon announced a 1.5bn air hub in Northern Kentucky that will host Amazon s own cargo airline. AWS outage: AWS had a large outage in early March. Investors will likely focus on the competitive implications of the outage. 14 Internet e-Commerce 06 April 2017 Walmart continuing to acquire eCommerce assets and launching free 2-day shipping: Investors will likely focus on Amazon s results relative to Wal-mart. Amazon Business: Amazon Business announced a multi-year agreement with a public sector co-op, worth 500mn year with a 5 year contract and 6 option years (see Now we re in Business: Amazon announces new B2B contract with public sector co-op). Prime Now expansion: Prime Now launched 1-hour delivery in Milwaukee and Boston during the quarter. Amazon also launched the ability for Alexa users to make Prime Now orders. Upcoming 2Q events: AWS Summit SF (April 18-19), new Prime Instant Video content rollout (Manchester by the Sea, Bosch season 3, I Love Dick). Souq.com acquisition: Amazon has an agreement to acquire Souq.com, the leading eCommerce platform in the Middle East. Terms were not disclosed, though press reports indicate that Amazon had bid 650mn for the company before Emaar Malls made a public bid of 800mn. The deal is expected to close in 2017. Physical store rollout: Amazon has launched or planned to open 10 AmazonBooks stores, is beta testing its AmazonGo grocery store concept (though public opening was delayed due to technology issues), and there are press reports that Amazon is testing other grocery store formats as well. Google Cloud Conference: No significant price announcements were made, but Google s conference was much more impressive this year (see What a difference a year makes for Google Cloud). Souq.com brings Amazon into the Middle East Amazon announced that it has an agreement to acquire Souq.com, the leading eCommerce platform in the Middle East. Terms were not disclosed, though press reports indicate that Amazon had bid 650mn for the company before Emaar Malls made a public bid of 800mn. This will represent Amazon s largest deal since the 970mn Twitch acquisition in 2014. Souq.com does not disclose its sales or earnings, making it difficult to assess the acquisition multiple or potential accretion of the deal. An 800mn acquisition implies 0.2 of Amazon s current market cap. Though it is somewhat surprising for Amazon to acquire a company in order to enter a new market, Amazon can leverage logistics, sourcing, customer, and technology investments at Souq.com. The deal is expected to close in 2017. Souq.com offers 8.4mn products across 31 categories, including electronics, health beauty, fashion, home goods, and baby. The site has 45mn monthly visitors and localized operations in Saudi Arabia, UAE, and Egypt and localized sites for the UAE, Egypt, Saudi Arabia, Kuwait, Bahrain, Oman, and Qatar. Euromonitor estimates that Middle East Africa GMV is 9bn market in 2016 though other reports peg the market at 20bn, implying roughly 1-2 eCommerce penetration in the region vs. midteens in Western markets. Press reports last year indicated that Amazon was exploring entering Australia and Singapore in 2017. The Souq.com acquisition may signal a more aggressive global expansion plan. Estimates vs. Consensus: Above Street revenue and EPS We expect 1Q revenue EPS of 35.3bn 2.34 vs. Street at 35.3bn 2.28. Amazon s 1Q revenue guidance is 33.25-35.75 and GAAP operating income of 250-900 (we are at 898mn in operating income). Our 1Q revenue estimate of 35.3bn ( 21 y y vs. 22 in 4Q16) is based on 24 y y unit growth vs. 24 y y in 4Q. For 1Q17, we estimate -19 q q revenue growth vs -19 q q in 1Q last year. We are below the street for 2Q margins. Internet e-Commerce 06 April 2017 15 Table 11: Amazon Estimate Summary 1Q17 2Q17 2017 2018 Revenue BofAML est. 35,335 36,784 164,532 194,826 Growth Y Y 21 21 21 18 Street 35,255 36,815 165,158 199,387 BofAML vs. Street Above Below Below Below EBITDA BofAML est. 4,153 4,626 18,246 22,022 Street 4,085 4,835 19,382 24,850 BofAML vs. Street Above Below Below Below EPS BofAML est. 2.34 2.86 10.90 14.37 Street 2.28 3.30 12.60 18.16 BofAML vs. Street Above Below Below Below Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Our PO of 1,100 is based on our SOP that values AWS at 127bn or 259 per share and the retail business at 413bn or 841 per share. Our 5.5x AWS multiple is a modest premium to the software SaaS comp group at 5.0x on 2018 sales, and 0.9x multiple is a premium to a retail general merchandise comp group at 0.7x. We think the premiums are warranted given share gains and superior growth. Our 1,100 price objective implies 2.8x 2018E Price Sales, a multiple above the high end of Amazon's historical range of 1.0-2.5x. We argue the historical P S multiple should increase given positive 3rd party sales (3P) that is reported on a net basis, a higher AWS revenue contribution, an increasing advertising contribution, and record gross profit margins. 16 Internet e-Commerce 06 April 2017 eBay (Buy, 38 PO) Stock view: Marketplace growth should improve in 2017 eBay s 4Q results showed signs of Marketplace improvement, with improving mobile and C2C trends and a modest pickup in new buyers. Management expects to put marketing dollars behind this trend to drive Marketplace growth momentum in 2017 (guidance calls for 1 point of acceleration in Marketplace volume in 1Q, with 2 points for the full year). Expectations have risen since the start of the year, and we think eBay needs to deliver 1 point acceleration in US GMV growth vs 1Q to maintain confidence in management s execution. There is also significant interest in eBay s first party ad strategy and potential improvement in transaction take rates (at expense of MS O revenues). The potential structured data impact also remains top of mind for investors as structured data will provide the backbone for improving customer search and product experiences. As of 4Q 16, there are 180mn structured data pages v. 100mn pages at the end of 3Q 16. More pages are expected in 2017, which will start to be exposed to core organic traffic. Management appears confident that the impact of structured data would increasingly benefit results and that structured data formats will be much more visible by holiday 2017. Overall, if 1Q results are at above expectations, we think the stock will reflect even more optimism on structured data improvement. For margins, we expect continued pressure in 2017 as the company ramps up marketing spend and increases its AI capabilities. If the company can manage to accelerate top line growth through conversion rate improvements, some of the upside may be invested, limiting 2017 earnings flow through (but benefitting growth in 2018). Therefore, we think customer, transaction and revenue trends most important for 2017, but lack of margin flow through could be sentiment headwind for the stock. Key theme metric(s) for 1Q: Marketplace growth outlook Our model assumes US GMV growth of 3.5 y y, an 80bps q q acceleration off an 80ps easier y y comp, while we anticipate 6.0 y y Intl ex-FX GMV growth. US acceleration (despite a modest Leap Year headwind) is likely needed to maintain increased management confidence. Our model assumes 8.3 take rate, which is up 10bps y y and could be aided by the early transition to 1 st party advertising on the site. eBay s 1Q revenue guide implies 5 y y ex-FX growth at the midpoint, while the 2017 revenue guide calls for 7 ex-FX growth, implying revenue growth acceleration during the year. Chart 9: eBay quarterly GMV and revenue y y growth 10 5 0 -5 -10 -15 -20 1Q15A 2Q15A 3Q15A 4Q15A 1Q16A 2Q16A 3Q16A 4Q16A 1Q17E 2Q17E 3Q17E 4Q17E Revenue Growth GMV Growth Source: BofA Merrill Lynch Global Research estimates, company report Biggest 1Q issues risks: Overall GMV growth remains muted as structured data changes still early, reducing confidence in future improvement. Internet e-Commerce 06 April 2017 17 StubHub trends as StubHub GMV comps are tough in 1H 17 (32 y y growth in 1H 16). Marketing expenses are expected to increase, putting pressure on margins and could raise concerns that GMV growth is being bought . Early 1Q traffic data points mixed comScore s eBay desktop unique visitors decreased 6 on average through February vs. down 2 in 4Q. comScore s total eBay mobile and PC minutes declined 20 y y on average through February in 1Q vs. down 17 y y in 4Q. comScore indicates mobile minutes decreased 38 vs. down 20 in 4Q. Estimates vs. Consensus: Expect modest EPS upside We expect eBay to report broadly in-line revenue EPS estimates of 2.21bn 0.49 vs. the Street at 2.21bn 0.48 (guidance is 2.17bn- 2.21bn and 0.46- 0.48). Our model assumes 11mn shares repurchased in 1Q (about 350mn of repurchase activity). We have adjusted our GAAP EPS for higher amortization of deferred tax asset. Table 12: eBay Earnings Summary 1Q17 2Q17 2017 2018 Revenue BofAML est. 2,210 2,340 9,458 10,062 Growth Y Y 3 5 5 6 Street 2,206 2,315 9,398 9,925 BofAML vs. Street Above Above Above Above EBITDA BofAML est. 855 843 3,520 3,735 Street 841 827 3,494 3,726 BofAML vs. Street Above Above Above Above EPS BofAML est. 0.49 0.48 2.03 2.22 Street 0.48 0.47 2.01 2.21 BofAML vs. Street Above Above Above Above Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Our 38 price objective is based on 17x our 2018E non-GAAP EPS. O ur 17x P E multiple is slightly ahead of the retail comp group average of about 16x, reflecting eBay's potential for a Marketplace growth acceleration (to well above average retail growth) in 2017. With 6-8 growth and an 8 FCF yield, we think eBay remains an interesting value stock for retail investors, although GARP focused Internet investors may prefer stronger growth at Google or Priceline. 18 Internet e-Commerce 06 April 2017 Expedia (Buy, 146 PO) Stock view: 1Q faces tough comps, but should clear way for strength into 18 We think 1Q expectations are somewhat muted as Expedia has highlighted several earnings headwinds in early 2017, including incremental cloud migration spend, higher marketing spend and, recently, potential ADR pressure. 1Q 17 earnings will face the toughest room night growth comps, though Expedia expressed optimism on trends through January on the 4Q call. Comps ease during the rest of the year for Expedia, which we see as a positive set up for the stock. We think Expedia will reiterate its 10- 15 EBITDA growth outlook and .Expedia remains our top 2017 summer (2Q 3Q) travel idea. We currently forecast 20 y y room night growth in 2Q 3Q, though the comp is 1600bps easier vs. 1Q and street growth expectations could be higher. The ongoing benefit of conversion rate improvements, the Easter shift into 2Q (noted as 1 impact in 2Q 16), as well as the benefit of more aggressive marketing spend should aid 2Q growth. Additionally, prior to 1Q 17 earnings, Expedia will begin to disclose HomeAway online bookings and room nights, which we think may drive y y room night growth 200- 300bps higher (we forecast HomeAway room nights up 50 y y in 2017 vs. core OTA room nights up 18 ). We think investors will also view HomeAway disclosure positively if the data indicates that the HomeAway transition remains on track and provide visibility into potential EBITDA acceleration in 2018. STR data suggests hotel fundamentals deteriorated modestly in the US through initial March readings, but improved slightly in Europe through February. However, Expedia s CEO commented in a recent interview with the Financial Times that international tourism to the US (Expedia s key market) has decelerated following the introduction of Trump s travel bans, which may be a downside risk to 1Q bookings and revenues. This mirrors ForwardKeys data from early March that after Trump s executive order, foreign tourism bookings to the US fell, then rebounded when the ban was suspended, but declined again when the ban was re-introduced. A few US hotel operators have indicated little impact from travel bans, so data is mixed. Key theme metric(s) for 1Q: room night growth vs industry and Priceline We expect 1Q organic room night growth to remain steady at 16 y y, though we note that this does not yet include the contribution from HomeAway, which we think should add 200-300bps to y y growth. We expect N. America bookings growth of 12 y y vs. 8 in 4Q, Int l bookings (FX-neut.) of 14 y y. Biggest 1Q issues risks: Room nights may disappoint on tougher 1Q comps, negatively impacting the acceleration thesis Expedia s CEO commented in a recent interview with the Financial Times that international tourism to the US (Expedia s key market) has decelerated following the introduction of Trump s travel bans, which may pressure hotel ADRs and be a downside risk to 1Q bookings Pace of investments, namely cloud IT spend ( 110mn in 2017) and marketing ramp HomeAway EBITDA trends given marketing spend ramp and pressure on subscription revenues. Street has high expectations for the business. Pressure on hotel take rates given agency mix shift and rewards programs Early 1Q RevPAR data decelerates According to STR, 1Q US RevPAR through initial March readings decelerated 30bps to 3.0 y y, and European RevPAR through February accelerated 600bps q q to 3.6 y y Internet e-Commerce 06 April 2017 19 (FX-neutral). The STR data reflects a continued gradual deceleration in US RevPAR growth and a more recovery in European RevPAR growth as the region laps terrorist attacks and geopolitical uncertainty. Table 13: US and European RevPAR Y Y Change US Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar- 17 1Q16 2Q16 3Q16 4Q16 1Q17 Occupancy -0.3 -0.8 -0.4 2.2 -0.5 0.3 -1.0 -0.4 1.6 -0.3 2.5 -0.1 0.5 -0.5 1.6 -0.5 0.7 0.1 0.7 0.5 ADR 2.8 3.6 3.2 2.8 2.4 3.5 3.6 2.5 3.9 1.9 3.4 2.4 3.2 1.7 2.6 3.2 2.9 3.3 2.6 2.5 RevPAR 2.4 2.8 2.7 5.0 1.9 3.8 2.5 2.1 5.6 1.6 5.9 2.3 3.8 1.2 4.2 2.7 3.6 3.4 3.3 3.0 Europe Occupancy 1.4 1.5 0.3 3.5 -0.3 -0.7 -0.4 -1.5 0.8 -0.4 4.2 4.5 5.1 2.9 1.1 0.8 -0.4 2.8 4.0 ADR -4.3 -2.7 2.5 3.2 0.3 -4.5 -0.7 -4.8 -1.8 -8.6 -5.3 -5.0 -2.1 -3.1 -1.5 -0.3 -2.4 -6.3 -2.6 RevPAR -2.9 -1.3 2.8 6.8 -0.1 -5.1 -1.1 -6.2 -1.0 -9.0 -1.3 -0.7 2.9 -3.1 -0.5 0.5 -2.8 -3.7 -0.1 Europe in Euros Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 1Q16 2Q16 3Q16 4Q16 1Q17 Occupancy 1.4 1.5 0.3 3.5 -0.3 -0.7 -0.4 -1.5 0.8 -0.4 4.2 4.5 5.1 2.9 1.1 0.8 -0.4 2.8 4.0 ADR 0.0 -0.2 -1.7 -0.1 -0.9 -4.4 -2.7 -4.6 -1.6 -8.5 -5.4 -1.5 -0.9 0.2 -0.7 -1.8 -3.0 -5.2 -0.4 RevPAR 1.4 1.2 -1.4 3.3 -1.2 -5.0 -3.1 -6.0 -0.9 -8.9 -1.4 2.9 4.2 3.0 0.4 -1.0 -3.3 -2.4 3.6 Source: Smith Travel Research (STR), BofA Merrill Lynch Global Research estimates; Note: March data is month to date Estimates vs. Consensus: In-line 1Q revenue and EPS We expect 1Q revenue EPS of 2.13bn 0.07 vs. the Street at 2.14bn 0.06 driven by 8 core OTA growth, 48 Trivago growth (in USD), 2 Egencia growth, and 16 HomeAway growth. We expect room night growth to remain stable at 16 in 1Q 17 before accelerating on easier comps in 2Q 3Q. Expedia guided 2017 EBITDA growth to 10-15 and our 2017 EBITDA forecast of 1.86bn (15 y y growth) is modestly above the Street at 1.83bn (14 y y growth). Table 14: Expedia Estimate Summary 1Q17 2Q17 2017 2018 2019 Revenue BofAML est. 2,134 2,555 10,097 11,424 12,931 Growth Y Y 12 16 15 13 13 Street 2,140 2,507 10,010 11,266 12,429 BofAML est. vs. Street Below Above Above Above Above EBITDA BofAML est. 182 379 1,857 2,141 2,416 Street 179 367 1,835 2,212 2,628 BofAML est. vs. Street Above Above Above Below Below EPS BofAML est. 0.07 0.99 5.54 6.84 7.71 Street 0.06 0.94 5.38 6.88 8.55 BofAML est. vs. Street Above Above Above Below Below Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Our 146 price objective is based on our sum of the parts (SOP) that assumes 9x 2018E EBITDA for the core OTA business (a discount to Priceline at approx. 15x due to slower organic growth and higher taxes on earnings), 8x 2018E EBITDA for Egencia (we expect single digit growth), 60 ownership of Trivago (using our PO), and 15x 2018 EV EBITDA for HomeAway, plus net cash and long term investments. 20 Internet e-Commerce 06 April 2017 Facebook (Buy, 165 PO) Stock view: Becoming the one-stop social shop We expect Facebook to report upside to Street 1Q revenue (but less in absolute dollars than in 4Q) driven by robust demand, Instagram momentum, and solid underlying user growth and engagement. Early ad checks in the quarter indicate steady advertiser trends, with some elements of seasonality off a stronger 4Q, and strength at Instagram. We expect pricing tailwinds to begin to pick up as we approach ad inventory supply moderation in 2H17, and a flurry of new product introductions could provide additional sources of ad load inventory over time. Overall, we see 1Q as an in-line to slightly better quarter, and are optimistic on the set-up for the remainder of the year for pricing, expense management, user engagement, and new platforms feature ramps. Facebook will be hosting its F8 developer conference before earnings in San Jose on April 18-19. Facebook had another busy quarter of new product launches with a notable trend of Snapchat-like features (Stories, Direct ephemeral messaging) and Video. At this point, we believe the Snap threat is less of a near-term concern. Recent key product feature releases include: Stories for all: On the tail of a successful Instagram Stories launch in 8 16, Facebook rolled out WhatsApp Status (2 17), Messenger Day (3 17), and Facebook Stories (3 17). Direct ephemeral messaging: After introducing ephemeral direct photo video sharing on Instagram in 11 16, Facebook announced a comparable feature with integrated filters masks frames for the core Facebook app in 3 17. Video App for TV: Announced in February, new app for Apple TV, Amazon Fire TV, and Samsung Smart TV to enable FB video viewing on TV. New ad products: Instagram Stories ads (1 17) a positive tailwind to Instagram ad load, while vertical video ads (Facebook 9 16, Instagram 11 16) and Collections (3 17) are likely positive for pricing. While, in many ways, Facebook is duplicating Snapchat s innovation, we are encouraged with the rate of new product introductions and view the Facebook Stories and Direct ephemeral messaging (with filters masks) as positives for user engagement and potential barriers to competitive risk. While management s focus in the near-term will likely be on new feature adoption, we expect Stories ads within 1-2 quarters and the company is already establishing partnerships for branded masks filters (see More Stories in the Snap competitive saga). Over time, we would not be surprised to see filter mask features and ads added to WhatsApp and, possibly, Messenger, which could unlock new monetization potential. On the expense front, we continue to view management s 2017 expense growth forecast (47-57 ) as conservative. History would seem to suggest manage could trim the top of the range on the 2Q earnings call, with more meaningful revisions in 2H17. That said, we won t be surprised if management maintains the outlook on the April call, particularly given the velocity of new feature launches and potential investments in video content. Internet e-Commerce 06 April 2017 21 Chart 10: 2017 expense forecast now reflected in estimates; potential for favorable revisions ahead 75 70 65 60 55 50 45 40 35 30 25 2015A: 51 2016A: 41 2014A: 34 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 2014 2015 2016 2017 Source: Company, BofA Merrill Lynch Global Research Key theme metric(s) for 1Q Underlying MAU and DAU trends are still the key metrics for the stock, in our view. We assume MAUs grow 16 y y to 1.91bn and DAUs 16 to 1.26bn, keeping DAU MAU at a steady 66 . It s possible (but hard to predict) that management offers an update on Instagram users (600mn MAU, 400mn DAU in 4Q), and more specifically, Instagram Stories (150mn DAU in January). On the messaging front, there could be a Messenger user update (1bn as of 7 16), while a WhatsApp update is less likely (1.2bn as of 4Q16). We expect ad impressions to grow 46 y y (49 in 4Q) and ad prices to increase 2 y y (3 in 4Q). Biggest 1Q issues risks: Expense trajectory or lack of an expense guidance change could disappoint: While we continue to anticipate favorable revisions to management s 2017 expense forecast in 2H, near-term adjustments may be less likely given the velocity of new product launches and potential video content investments. 1Q ad revenue deceleration possible: We note that 4Q was particularly strong and it s possible 1Q normalization could result in revenue growth deceleration. Lack of commentary on monetization strategy: While Messenger WhatsApp monetization is likely still a 2018 story, lack of constructive commentary on timing could disappoint. User deceleration always a risk: MAU and DAU growth has surprised to the upside at mid-to-high teens y y growth, and any meaningful slowdown could raise competitive concerns. Top 1Q data point: Instagram reaches 1mn advertisers Mid-quarter data points were somewhat limited in 1Q, though management did give an update on the Instagram monetization efforts. In a March 2017 update, management indicated that Instagram grew to 1mn advertisers, double the number since 9 16, with business profile pages up to 8mn from 5mn in 4Q. Facebook s comparable metrics are 4mn advertisers (as of 9 16) and 65mn business pages (4Q16). For early advertiser checks, general feedback suggested positive trends, but more steady as it goes than absolute blow out. The stronger 4Q was highlighted as a tough 22 Internet e-Commerce 06 April 2017 comp, but overall demand remains robust. Instagram feedback was notably positive, with many suggesting the demand is additive (not reallocation from core Facebook). Estimates vs Consensus Our 1Q17 and 2Q17 revenue and EBITDA estimates are ahead above the Street. We assume 800bps of advertising growth deceleration in 3Q and another 400bps in 4Q, and our 2017 estimates are also slightly above consensus. On that premise, we are comfortable that Street estimates sufficiently reflect potential impact of News Feed ad load deceleration in 2H17. Table 15: Facebook Estimate Summary 1Q17 2Q17 2017 2018 Revenue BofA ML est. 7,905 9,303 38,546 48,882 Growth Y Y 47 45 39 27 Street 7,798 8,993 37,774 48,103 BofA ML vs Street Above Above Above Above EBITDA BofA ML est. 4,886 5,844 24,358 30,905 Street 4,743 5,638 23,775 30,409 BofA ML vs Street Above Above Above Above EPS BofA ML est. 1.14 1.37 5.67 7.01 Street 1.11 1.30 5.43 6.75 BofA ML vs Street Above Above Above Above GAAP EPS BofA ML est. 0.94 1.17 4.86 6.02 Street 0.86 1.06 4.45 5.76 BofA ML vs Street Above Above Above Above Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Our 165 price objective is based on 24x our non-GAAP 2018E EPS and 27x GAAP EPS, multiples equal to about 1x 2018E revenue growth, mostly in-line with its social and online media peers. Facebook is our top large cap idea for positive estimate revision potential in 2017. Internet e-Commerce 06 April 2017 23 GrubHub (Buy, 49 PO) Stock view: Marketing ramp should drive diner growth re-acceleration In recent quarters, GrubHub has been leveraging a series of recent investments, including expanded delivery, more restaurants on the platform, repositioned brand driving more effective advertising, and product optimization, which is driving higher conversion rates. We think GrubHub is well-positioned to continue to leverage these investments to drive growth in 2017 and beyond. GrubHub s delivery business is reaching scale in more markets, and delivered gross food sales run-rate increased from 500mn in 3Q to nearly 600mn in 4Q (20 of 16 food sales). Delivered orders were 40 higher than in 3Q. We think delivery will continue to drive take rate higher and be EBITDA accretive by YE17 as efficiencies are gained. Competition remains a key concern for investors and weighs on sentiment. However, we believe that GrubHub s user base is sticky and its repeat order rate ( 90 ) is defensible. In 2016, as UberEats, Amazon Prime Now, DoorDash, and Postmates invested in expansion, GrubHub s active diner growth and order growth remained solid. Google Trends indicates that over the past 12 months, though competitors have expanded to more cities in the US, GRUB remains the overwhelming leader in the market, with both of its core brands (GrubHub and Seamless) many times the size of any of its competitors. GrubHub 1Q results may also face a modest growth headwind from warmer weather in key markets like NYC and Chicago. For context, in 4Q15, GrubHub called out warmer weather was a 200bps y y order growth drag ( 2mn in revenue, 12.7mn in gross food sales). Warmer weather can impact order volume and new diner growth, though new diners can partially shift to 2Q. We forecast 26 y y gross food sales and 36 y y revenue growth in 1Q 17. We think active diner growth will accelerate in 2017 as the company invests more heavily in marketing and it comps out against its quality over quantity marketing strategy started in 1Q16. Investors, however, should expect that accelerating active diner growth will be counterbalance by lower order frequency as newer diners to the system tend to order less frequently. At the same time, we expect take rate will continue to expand as the delivery business grows. Key theme metric(s) for 1Q: gross food sales growth We forecast gross food sales growth in 1Q of 26 , a modest deceleration from 27 in 4Q (flat with 4Q less the 1 hit from the lack of Leap Day in 1Q17). Though we think there is likely upside to our forecast given a 500bps easier y y comp in 1Q vs. 4Q. We expect 1Q active diner growth of 25 , Grubs per Diner decline of 3 , and average order size growth of 5 . Biggest 1Q issues risks: Despite positive Google Trends data and commentary from management, mounting competition eats away at GRUB s growth and take rate, driving diner acquisition costs higher. Warmer weather during 1Q, particularly in GrubHub s core NYC and Chicago markets, may be a headwind to growth. RDS (restaurant delivery service) investments weigh on earnings at a rate higher than the 3mn in EBITDA drag that we have in our model for 1Q 17. Site and conversion rate improvements turn out to be one-time in nature rather than an ongoing, longer-term focus for management. 24 Internet e-Commerce 06 April 2017 Marketing expense expected to ramp in 2017, which can weigh on earnings, especially if gross food sales comes in weaker than anticipated. Estimates vs. Consensus: Broadly in-line with consensus in 1Q 17 We expect 1Q revenue EPS at 153mn 0.25 vs. the Street at 153mn 0.24 driven by gross food sales growth and an improving take rate. Table 16: GrubHub Estimate Summary 1Q17 2Q17 2017 2018 Revenue BofAML est. 153 159 650 815 Growth Y Y 37 33 32 25 Street 153 158 645 782 BofAML vs. Street Below Above Above Above EBITDA BofAML est. 41 46 184 247 Street 40 46 181 225 BofAML vs. Street Above Below Above Above EPS BofAML est. 0.25 0.29 1.13 1.55 Street 0.24 0.28 1.10 1.37 BofAML vs. Street Above Above Above Above Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Our PO is 49, based on 32x our 2018E P E (vs. high growth internet at 31x). We believe GRUB warrants a premium to eCommerce peers due to the attractive margins of the core business and, relative to the overall small-cap sector, GRUB has more attractive margins and growth potential. Internet e-Commerce 06 April 2017 25 Match.com (Buy, 21 PO) Stock view: Positive on Tinder monetization growth on new products Match has continued to build monetization on Tinder and we expect a more widely released Tinder Boost as well as international marketing spend to have a positive impact in 1Q17 results. The incremental revenue increase combined with Core enhancements should drive ARPU forward, though we are still cautious given Core s declining to flat growth and project 1Q17 at .0.57 (-3 y y). Another issue on the horizon for Match group is the high ownership percentage of IAC. Based on our discussions with management, this is a known issue from both Match and IAC s perspective. The high degree of IAC ownership limits the float and has created a disproportionate short interest on the company to obtain higher exposure to IAC s core (ex-Match) properties. Our conversations suggest we can expect further discussion from management on ways forward in 2017, with the most likely outcome, in our view, a spin off IAC s Match ownership to IAC shareholders. As Tinder expands, one concern we have is that its highly diverse user base could cause an overload of options and limit user s ability to find the type of matches they are looking for. An elite version of the app was recently launched called Select (per TechCrunch), highlighting the company s focus on making sure users are able to find suitable matches in different ways. 1Q17 should see international marketing spend on Tinder begin to pay off. We expect that paid member count (PMC) will continue to trend up driven by Tinder and other recent platforming initiatives helping to increase conversion on Core mobile and other sites like Plenty of Fish (PoF) and Meetic. Key theme metric(s) for 1Q: International PMC growth Key for the quarter will be international PMC growth and we expect international to grow 25 y y to 2.3mn and overall PMC growth to be up 17 y y to 5.9mn as Tinder marketing outside of the US should start paying off. We are still cautious on ARPU and expect modest declines of 3 y y, we believe there is still upside potential here driven by Tinder Boost, released in September 2016 and Core turnaround efforts. Key issues for the call will be PMC growth, Tinder monetization and Core improvements. Biggest 1Q issues risks: Decline in margins due to increased marketing of Tinder and Core improvement Drop in monetization as more consumers switch to mobile from PC. New investment initiatives drive down FY17 earnings projections. Estimates vs. Consensus: Expect lower revenue, slight beat on profit We are modeling rev EBITDA of 293mn 78.5mn below the Street due to impact of Princeton Review sell off but higher on EBITDA vs. the Street s 307mn 77mn estimate. We estimate total PMCs of 5.9mn in 1Q and average revenue per users of 0.527 down 3 y y due to lower monetizing Tinder plans. With the sale of Princeton review closing 3 31 and management moving any income to discontinued operations, we have removed all non-Dating revenue from our model and believe our treatment of these discontinued operations (totally excluded from our estimates) is the reason our estimates are currently below the street. 26 Internet e-Commerce 06 April 2017 Table 17: Match estimate summary 1Q17 2Q17 2017 2018 Revenue BofA ML est. 293 315 1,285 1,484 Growth Y Y 20 20 16 15 Street 308 322 1,325 1,484 BofA ML vs Street Below Below Below Above EBITDA BofA ML est. 79 112 462 562 Street 77 113 459 544 BofA ML vs Street Above Below Above Above EPS BofA ML est. 0.14 0.23 0.95 1.14 Street 0.13 0.21 0.88 1.07 BofA ML vs Street In-Line In-Line Above Above Street EBITDA margins 25 35 35 37 Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Internet e-Commerce 06 April 2017 27 Netflix (Buy, 154 PO) Stock view: Easy comps ahead with more content on the way Heading into 1Q earnings, we expect Netflix to beat subscriber estimates given strong recent content launches, and accelerating subscriber growth in Europe. Key 1Q titles included A Series of Unfortunate Events, 13 Reasons Why, and Marvel s Iron Fist. We see few competitive issues this quarter to impact subscriber growth and we think the release of Marvel s Iron Fist likely helped quarter ending subscribers, despite low metacritic scores. Fans of the Defender series still seem to be watching the show with Parrot Analytics indicating viewership was just below Luke Cage its first week (though viewership dropped by half within the first 10 days). In addition, fan ratings came in at 81 on Rotten Tomatoes despite the poor critic reception. For 2Q, we expect a solid guide as Netflix laps 2Q16 s price increases internationally and in the U.S. This should help churn rates for 2Q especially in Europe where we think the bulk of Netflix subscriber growth will originate for 2017. In addition, Netflix has a stronger slate of titles vs. 1Q including key franchises like House of Cards, Orange is the New Black, Sense8, and other new series. Although competition is increasing in the SVOD space with Amazon, Hulu and other making original content, we still see Netflix as ahead of the competition due to: 1) sheer volume of content production with over 1000 hours in 2016, with strong local market content that can be leveraged globally, 2) competitive price points vs competitors; and 3) the largest volume of 4K content which attracts new TV purchases. 4K TVs could drive upside to estimates in FY17 as Netflix is one of the few services with a library of 4K content. For 1Q contribution margins, we estimate that Netflix will reach a new high at 41.3 U.S. contribution margins somewhat offset by international contribution margins which we expect to close to zero at 1.5 , but still a large improvement over 4Q s 8 loss. We expect Netflix to run its International division at new break even margins through FY17 and begin to gradually lift international margins in 2018. As Netflix reaches Intl profitability, the investor story may focus more on EPS growth in the coming years. Key theme metric(s) for 1Q: Net sub adds internationally and 2Q guide For 1Q we see two critical metrics that we think the Street will focus on; 1) Net Intl. subscriber additions as Netflix laps the launch in 130 countries globally; and 2) 2Q net subscriber guide for Netflix in the U.S. Although 1Q domestic subscriber ads are important, we think the Street would be willing to look past a lower domestic number on stronger international growth. In 2Q Netflix could potentially hit a flat subscriber growth quarter as 2Q is typically seasonally weak, though we note the content slate for 2Q16 has several top franchises with new seasons. Chart 11: Domestic subscribers Chart 12: International subscribers 60,000 50,000 40,000 30,000 20,000 10,000 0 18 16 14 12 10 8 6 4 2 0 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 90 80 70 60 50 40 30 20 10 0 U.S. Subs (000's) Y Y Growth International Subs (000's) Y Y Growth Source: BofA Merrill Lynch Global Research estimates, company report Source: BofA Merrill Lynch Global Research estimates, company repor 28 Internet e-Commerce 06 April 2017 Biggest issues risks: Low reviews scores on Iron Fist effecting fan churn and causing some to question Netflix s ability to continue creating hit series Marketing spend in 1Q to drive subscriber growth Lower than expected contribution margins as Netflix invests in content. Content spending impact on FCF Top 1Q data points: Traffic gains on PC In the U.S., comScore reported quarter to date (Jan. and Feb.) average unique desktop visitors up down 2 y y to 40.5 million compared to 4Q up 22 y y or 47 million, while mobile unique users were flat y y at 29.4mn users vs. up 19 y y in 4Q. We note recent comScore changes heavily impacted the y y comparable data for several companies including Netflix, in addition Comscore Data is PC only which is likely less relevant given that a large portion of Netflix viewing is through connected TVs devices. Estimates vs. Consensus: In-line on revenue, slightly below on EPS Our 1Q rev GAAP EPS estimates of 2.71bn 0.39 are above the Street s estimates of 2.64bn 0.37. We estimate total domestic subs of 51.1 million, domestic DVD subs of 4 million, and international streaming subs of 48.3 million. Netflix a solid line up of popular content in 2Q, especially May where it has Sense8 Season 2, Unbreakable Kimmy Schmidt Season 3, War Machine (Movie), House of Cards Season 5 in May, and a remake of Anne of Green Gables and Orange is the New Black in June which will likely help U.S. domestic subscriber total stay positive in 2Q. In addition, we expect lower y y churn rates to potentially help subscriber growth. Table 18: Netflix estimate summary 1Q17 2Q17 2017 2018 Revenue BofAML est. 2,710 2,854 11,627 13,937 Growth Y Y 38 35 32 20 Street 2,644 2,760 11,221 13,448 BofAML vs. Street Above Above Above Above EBITDA BofAML est. 331 306 1,218 1,758 Street 308 245 1,053 1,710 BofAML vs. Street Above Above Above Above GAAP EPS BofAML est. 0.39 0.30 1.19 2.04 Street 0.37 0.23 1.09 1.98 BofAML vs. Street Above Above Above Above Source: BofA Merrill Lynch Global Research estimates, company report Internet e-Commerce 06 April 2017 29 Pandora (BUY, 9 PO) Stock view: Focus on on-demand product, but questions on growth Pandora s recently launched on-demand subscription product will likely be the focus of 1Q investor call. Although the product is on limited release, we expect investor to focus on initial reception of the product (positive reviews in media) and whether Pandora is capable of growing the subscription base to 10mn over the next several years. Initially Pandora will not likely see an impact on revenue from premium subscriptions as it is giving current Pandora One subscribers a free six month trail of Pandora Premium which may also impact subscription revenue for 1Q. From our initial time with Pandora Premium, we found playlist creation smooth and easy to use with Pandora quickly auto-filling play lists after picking a few songs, but Pandora lacks the curated playlist selection found in Apple music and Spotify and we encountered some missing songs artists from the on-demand platform. The real question will be whether Pandora s platform is 1) good enough to pull exiting ondemand users from other services to Pandora (Pandora indicated roughly 60 of Pandora users are using another on-demand service); 2) can it convince people to upgrade from free Pandora to Pandora Premium; and 3) how will Pandora grow its active listener base from here. Pandora has had a largely stagnate active user base over the last year and we think even with the new on-demand product could face difficulty growing its users, especially as it increases its ad loads in key markets. Key theme metric(s) for 1Q: Ad rate growth and sub metrics Pandora began rolling out Pandora Premium on March 15 th , and we think key questions for the call will be; 1) initial reception of Pandora Premium; 2) when it will be fully available to all users; 3) will Pandora Premium driving increased users; and 4) how have ad load changes be received by free users. Pandora is increasing its ad load per hour to increase its RPM rates, but this also risks alienating its already stagnant to declining user base from the platform. 1Q will be the first measure to see if Pandora is able to increase ad loads while maintaining its user base, the first step in stronger monetization of its differentiated ad-supported radio product. Biggest 1Q issues risks: Investment spending in quarter and outlook for future S M R D spend; Outlook for when Pandora will reach profitability again. Active listener or listening hour declines due competition; Commentary on outlook for Pandora Premium Top 1Q data points: Triton Internet radio data Triton media releases Internet radio metrics which give an initial read into the quarter, but is limited to January data, Triton data shows Avg. Active sessions (analogous to listening hour growth) declined 3 y y which is tracking below our 1 y y listener hour growth est. of 5.58 billion hours. Session starts were up 4 y y above our est. of 1 y y active user growth. We note that Spotify is now tracking more session starts than Pandora implying market share loss to Spotify. Given the leap year, we would expect February to track down Y Y for monthly active listeners and user growth in February. Estimates vs. Consensus: Slightly above on revenue, below on EPS Our rev Non-GAAP EPS est. of 319mn ( 0.49) is slightly above on revenue, but in-line on EPS compared to the Street est. at 318mn ( 0.39). We model total listener hours at 5.58bn and total RPM rates of 52. Our FY16 est. are slightly above on revenue, but well above on EPS as we expect losses this year to improve in 2H16 as Pandora builds up subs, but still see Pandora failing to gain much leverage from increased R D spending and S M spend. We maintain our 9 PO, based on 1x our 2018 revenue estimate, a discount to peers, but justified in our view as Pandora is likely to have a difficult transition year as it builds it on-Demand service. 30 Internet e-Commerce 06 April 2017 Table 19: Pandora estimate summary 1Q17 2Q17 2017 2018 Revenue BofAML est. 319 397 1,629 2,036 Growth Y Y 18 25 Street 318 390 1,621 2,050 BofAML vs. Street Above Above Above Below EBITDA BofAML est. - 73 1 - 17 25 Street - 73 - 16 - 38 79 BofAML vs. Street In-line Above Above Below EPS BofAML est. - 0.49 - 0.04 - 0.21 - 0.19 Street - 0.35 - 0.14 - 0.49 - 0.03 BofAML vs. Street Below Above Above Below Source: BofA Merrill Lynch Global Research estimates, Bloomberg Chart 13: Listening hours and active users trends are essentially flat. 12 10 8 6 4 2 0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17E2Q17E3Q17E4Q17E -2 -4 Listening Hours Y Y Growth Active Listners Y Y Growth Source: BofA Merrill Lynch Global Research estimates, company report Internet e-Commerce 06 April 2017 31 Priceline (Buy, 1,920 PO) Stock view: Expect solid 1Q top-line, but 2Q can be rough for guidance Priceline s metric trends and commentary, along with 1Q booking and room night guidance, indicate that the company continues to capture strong market share growth in the category, with little impact from hotel direct booking initiatives or competitive OTA marketing spend. We expect a strong 1Q, with perhaps a little less upside than usual due to the late 4Q reporting date. Looking forward to 2Q, we have our usual caution on guidance as 2Q is the most backend loaded quarter for bookings and revenues. However, in 2017 the Easter shift is a positive factor and will help 2Q revenues and earnings. We also expect 1Q bookings and room night growth upside to translate into higher 2Q gross profit growth, and management indicated that there is less marketing ROI pressure expected in 1H'17 than in 2H'16. Overall, we expect Priceline s strong business trends to continue, and would use extra conservatism in guidance as a buying opportunity. Given strong execution and higher exposure to more fragmented International markets, Priceline remains our top long-term idea in Online travel. However, on a near-term basis, we think Expedia could see a bigger stock benefit from an acceleration in room night growth over the summer. Key theme metric(s) for 1Q: Room night growth We expect Priceline to report 26 y y room night growth (deceleration v. 31 in 4Q), ahead of the company s outlook of 20-25 hotel room night growth. Priceline has a history of guiding 1Q conservatively, looking at Priceline s historical 1Q results for Bookings, revenue and EPS vs guidance suggests modest upside to our bookings growth forecast of 22 and reported 1Q 17 EPS closer to 9.55 (13 upside vs. the midpoint) vs. our estimate of 9.08 and the Street s estimate 8.75. Table 20: 1Q Bookings Growth, Revenue Growth and EPS Guidance vs. Actuals 1Q13 1Q14 1Q15 1Q16 1Q17 Guidance Actual Upside Guidance Actual Upside Guidance Actual Upside Guidance Actual Upside Guidance Actual Upside Bookings 30-37 36 No 23-33 34 Yes 2-9 12 Yes 12-19 21 Yes 17-22 ?? International Bookings FX-Neutral 35-42 43 Yes 25-35 38 Yes 17-24 29 Yes N A N A N A Revenue 17-24 26 Yes 15-25 26 Yes 4-11 12 Yes 9-16 17 Yes N A EPS 4.90- 5.30 5.76 Yes 6.35- 6.85 7.81 Yes 7.20-7.75 8.12 Yes 9.00-9.60 10.54 Yes 8.25-8.65 ?? Source: BofA Merrill Lynch Global Research estimates, Bloomberg, Priceline Biggest 1Q issues risks: Concerns on threat of increasing marketing competition with Expedia and TripAdvisor Potential pressure on US inbound traffic given the Trump travel ban (unlikely to impact Priceline given high Intl exposure) Marketing deleverage our model assumes 340bps of y y online marketing deleverage in 1Q Pressure on hotel revenue take rates given less hotel participation in commission programs and longer booking windows Early 1Q RevPAR data mixed Priceline s Booking.com has roughly 1.2mn properties on its site ( 611k hotels and 576k vacation rental properties). According to STR, 1Q US RevPAR through initial March readings decelerated 30bps to 3.0 y y, and European RevPAR through February accelerated 600bps q q to 3.6 y y (FX-neutral). The STR data reflects a continued 32 Internet e-Commerce 06 April 2017 gradual deceleration in US RevPAR growth and a positive recovery in European RevPAR growth as the region laps terrorist attacks and geopolitical uncertainty. Table 21: US and European RevPAR Y Y Change US Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar- 17 1Q16 2Q16 3Q16 4Q16 1Q17 Occupancy -0.3 -0.8 -0.4 2.2 -0.5 0.3 -1.0 -0.4 1.6 -0.3 2.5 -0.1 0.5 -0.5 1.6 -0.5 0.7 0.1 0.7 0.5 ADR 2.8 3.6 3.2 2.8 2.4 3.5 3.6 2.5 3.9 1.9 3.4 2.4 3.2 1.7 2.6 3.2 2.9 3.3 2.6 2.5 RevPAR 2.4 2.8 2.7 5.0 1.9 3.8 2.5 2.1 5.6 1.6 5.9 2.3 3.8 1.2 4.2 2.7 3.6 3.4 3.3 3.0 Europe Occupancy 1.4 1.5 0.3 3.5 -0.3 -0.7 -0.4 -1.5 0.8 -0.4 4.2 4.5 5.1 2.9 1.1 0.8 -0.4 2.8 4.0 ADR -4.3 -2.7 2.5 3.2 0.3 -4.5 -0.7 -4.8 -1.8 -8.6 -5.3 -5.0 -2.1 -3.1 -1.5 -0.3 -2.4 -6.3 -2.6 RevPAR -2.9 -1.3 2.8 6.8 -0.1 -5.1 -1.1 -6.2 -1.0 -9.0 -1.3 -0.7 2.9 -3.1 -0.5 0.5 -2.8 -3.7 -0.1 Europe in Euros Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 1Q16 2Q16 3Q16 4Q16 1Q17 Occupancy 1.4 1.5 0.3 3.5 -0.3 -0.7 -0.4 -1.5 0.8 -0.4 4.2 4.5 5.1 2.9 1.1 0.8 -0.4 2.8 4.0 ADR 0.0 -0.2 -1.7 -0.1 -0.9 -4.4 -2.7 -4.6 -1.6 -8.5 -5.4 -1.5 -0.9 0.2 -0.7 -1.8 -3.0 -5.2 -0.4 RevPAR 1.4 1.2 -1.4 3.3 -1.2 -5.0 -3.1 -6.0 -0.9 -8.9 -1.4 2.9 4.2 3.0 0.4 -1.0 -3.3 -2.4 3.6 Source: Smith Travel Research (STR), BofA Merrill Lynch Global Research estimates; Note: March data is month to date Estimates vs. Consensus: We are above the Street on EBITDA EPS in 1Q Our 1Q revenue EPS of 2.4bn 9.08 is broadly in line to slightly above the Street at 2.4bn 8.75. We see upside to the company s 1Q EPS guide of 8.25- 8.65. We estimate 26 y y hotel room night growth, some deceleration from 31 growth v. 4Q (guidance is 20-25 ). Table 22: Priceline Estimate Summary 1Q17 2Q17 2017 2018 2019 Revenue BofAML est. 2,415 3,041 12,518 14,469 16,493 Growth Y Y 12 19 17 16 14 Street 2,441 2,998 12,447 14,323 16,279 BofAML vs. Street Below Above Above Above Above EBITDA BofAML est. 609 988 4,784 5,476 6,207 Street 599 966 4,747 5,515 6,310 BofAML vs. Street Above Above Above Below Below EPS BofAML est. 9.08 15.45 75.35 87.19 100.07 Street 8.75 14.84 74.11 86.36 98.76 BofAML vs. Street Above Above Above Above Above Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Our price objective is 1,920 based on 22x our 2018 adj. EPS estimate. The 22x multiple is towards the upper end of Priceline's historical multiple range of 13-23x and represents a PEG of 1.4x. We think a 22x forward P E multiple is appropriate given midteens EPS growth, strong booking trends, Priceline's leadership position in the global online travel sector, track record of EPS upside, and increased access to the China via the Ctrip investment. Internet e-Commerce 06 April 2017 33 Snap (Neutral, 25 PO) Stock view: Long-term potential, but near-term could be lumpy Snap will report its first earnings as a public company and expectations have a wide range. The 2H16 DAU slowdown has raised concerns in terms of both competitive risk and execution, so user trends could be the most important metric in the quarter. At this point, it s difficult to gauge relative impact of Facebook Instagram competition, Android technical issues, product cycle lumpiness, and seasonality to the recent slowdown. Nonetheless, our sense is that DAU expectations are around 164-166mn, and we d expect variability (higher or lower) to have a meaningful impact on stock sentiment. In terms of the P L, we expect a slight q q decline in revenue per normal seasonality and are modeling down 1 q q (consistent with comments in the prospectus filing). While we can appreciate the momentum of the API roll-out with several new partnerships announced in January, our checks suggest most programs are early stage with limited volume to date. Considering the rest of the P L, we expect a fairly messy quarter between deal costs, the CEO stock award, and a catch-up RSU stock comp expense. As we do not anticipate non-GAAP profitability until 2H19, we expect traditional P L metrics will be less of a focus in the coming quarters. We recently initiated coverage with a Neutral and 25 price target (please see User overhang unlikely to be resolved in a Snap Initiate at Neutral with 25 PO). Social media sector history suggests a wide range of possible outcomes for Snap and, as such, near-term lumpiness in metrics could result in high volatility for the stock. We also note that lock-up overhang could drag on near-term performance into the first lock-up expiration on 7 29. Key theme metric(s) for 1Q: DAUs, ARPU, and competition We believe the key metric for the quarter will be the DAU number, which we model at 166mn (up 8mn q q, 36 y y). We believe DAU headwinds may peak 1H17 as the company is facing an onslaught of competitive products (see More Stories in the Snap competitive saga), technical challenges with Android (from Memories), and seasonality entering the summer. We model ARPU at 1.01 (down 5 q q), with North America ARPU at 2.03 (down 7 q q). We won t be surprised to see upside in ARPU driven by ad load growth and higher user engagement, though competitive pricing could potentially offset. Biggest 1Q issues risks: DAU deceleration on share loss: Anything short of 164mn will likely be met with skepticism as investors extrapolate recent trends in considering competitive resilience vs Instagram, Facebook, and others. Management will likely address the Android technical issues impact on DAUs. Aggressive pricing could drive short term growth but have mixed perception: Twitter noted elevated competition and potentially aggressive pricing surfacing in mid-January, which aligns well with Snap s API update. Lack of visibility into pipeline: While we don t necessarily expect new product announcements, lack of color visibility on the product pipeline could disappoint. Results could leave investors looking for more disclosure: We are not sure what disclosure Snap will provide on results, and important trending info (like average minutes per user) could be lacking. Top 1Q data points: comScore suggests some gains for Instagram While comScore data is not consistent with reported minutes, it is useful for relative comparisons. The data puts Snapchat minutes per user well above Twitter, but still 34 Internet e-Commerce 06 April 2017 trailing Instagram and Facebook. Interestingly, after Snapchat passed Instagram in early 2016 in average minutes per user, Instagram recaptured the lead mid-year and has extended it since. While the cause for the shift is not certain, the trends align with the launch of Instagram Stories (August 2016) as well as some technology challenges on the Snapchat front (Android). Regardless of the near-term lumpiness, we believe overall daily engagement puts Snapchat in a strong position to capture emerging online marketing ad budgets. Table 23: Average minutes per user trend Aug-2016 Sep-2016 Oct-2016 Nov-2016 Dec-2016 Jan-2017 Feb-2017 Snapchat 267 267 272 269 271 254 211 Instagram 292 294 325 337 322 357 318 Facebook 769 766 855 826 781 827 700 Twitter 143 149 139 114 108 128 110 Source: comScore, BofA Merrill Lynch Global Research Chart 14: Instagram vs Snapchat average monthly minutes per visitor 400 350 300 250 200 150 100 2 14 4 14 6 14 8 14 10 14 12 14 2 15 4 15 6 15 8 15 10 15 12 15 2 16 4 16 6 16 8 16 10 16 12 16 2 17 Snapchat Instagram Source: comScore Estimates vs Consensus Our 1Q revenue estimate of 163mn (down 1 q q) is slightly above consensus at 158mn (down 5 ), but we note the range of estimates is considerable ( 130-196mn) and some checks suggest that Snap was aggressive with advertisers in 1Q. For the year, our 1.0bn revenue estimate is mostly in-line with the Street, as is our 2018 estimate at 2.1bn. We do not model positive adjusted EBITDA until 2Q19, and expect investors to focus mostly on user revenue trends. Table 24: Snap Estimate Summary 1Q17 2Q17 2017 2018 2019 Revenue BofA ML est. 163 208 1,007 2,057 3,719 Growth Y Y 320 190 149 104 81 Street 158 206 1,034 2,032 3,303 BofA ML vs Street Above Above Below Above Above EBITDA BofA ML est. - 168 - 158 - 580 - 335 276 Street - 180 - 194 - 617 - 392 80 BofA ML vs Street Above Above Above Above Above EPS BofA ML est. - 0.18 - 0.15 - 0.59 - 0.37 0.12 Street - 0.21 - 0.13 - 0.57 - 0.33 0.00 BofA ML vs Street Above Below Below Below Above Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Internet e-Commerce 06 April 2017 35 Our 25 PO is based on our DCF model as we do not expect the company to be profitable until mid- to late-2019 and any earnings-based valuation exercise would require discounting back future earnings. Our DCF assumes approximately 28bn revenue by 2027 based on 525mn DAUs and 50 in ARPU. Our PO implies 15.5x EV Revenue, above the peer group at 4x, as we believe Snap's early stage of ad monetization and potential future leverage in the business model warrants a premium valuation multiple to the social media group. 36 Internet e-Commerce 06 April 2017 TripAdvisor (Underperform, 40 PO) Stock view: EBITDA under pressure, brand ad spend not in Street estimates yet 2016 was a re-platforming year, and with Instant Book fully rolled out globally, the company aims to re-educate visitors on its booking offering. However, we think most TripAdvisor visitors (399mn average monthly unique visitors in 2017 and 148mn average monthly hotel shoppers) still view the site as a review research portal, and changing customer behavior will be quite difficult, particularly as we do not think TripAdvisor has clarified its value proposition for shoppers. While we think that TripAdvisor s elevated marketing spend in 2017 will drive a rebound in traffic, we anticipate a poor ROI. Marketing expense continues to ramp as Instant Book rolls out, though traffic growth slows, implying more costly traffic acquisition. In 4Q 16, Sales Marketing as a of sales increased to 52.8 vs. 45.6 in 4Q 15, and we think TripAdvisor essentially bought desktop Hotel Shopper traffic, though likely at poor ROI. However, higher marketing spend in 2017 does not yet include potential for a likely return to expensive brand ad campaigns. In our brand ad spend scenario analysis, we expect still more downside to estimates (see Taking a look at TripAdvisor s potential brand ad spend). The company is encouraged by Revenue per Hotel Shopper growth continuing to improve from down 21 y y in 1Q. We expect growth continues its improvement trend in 2017. However, if monetization trends decelerate, earnings downside could be significant. We think it will be difficult for TripAdvisor s Hotel revenue to return to growth next year, let alone double-digit y y growth, given the mobile monetization headwinds. However, if the company invests heavily in traffic acquisition, particularly on higher monetizing desktop, revenue and traffic growth may reaccelerate meaningfully in 2017, though with ongoing pressure on margins. Chart 15: Quarterly revenue and Sales Marketing per Hotel Shopper y y growth Y Y Growth 40 30 20 10 0 -10 -20 -30 Revenue per Hotel Shopper S M per Hotel Shopper Source: BofA Merrill Lynch Global Research estimates, company report Key theme metric(s) for 1Q: Update on ad spend targets, 2017 guidance TRIP s outlook for 2017 is based on prioritizing revenue growth as opposed to profit growth, which implies far lower marketing return expectations. However, TRIP notes this expectation for marketing spend does not include potential for a return to brand marketing, which could be an incremental 50-70mn headwind in 17, in our view. Biggest 1Q issues risks: Marketing spend: TripAdvisor has prioritized revenue growth at the expense of earnings, implying poor marketing ROI. The biggest issue facing TripAdvisor is if it decides to pursue an expensive brand TV marketing campaign which would further drive further earnings downside. Internet e-Commerce 06 April 2017 37 Instant Book impact: The Instant Book transition could impact meta rates and total monetization as more hotel shoppers flow through large OTA partners. Hotel Shopper growth: Given elevated marketing spend, we expect to see a rebound in hotel shopper and hotel revenue growth. 4Q16 hotel shopper growth accelerated from 3 in 2Q-3Q16 to 8 . We expect hotel shopper growth to decelerate slightly to 6 in 1Q17 on a 200bps tougher y y comp. 1Q traffic data points: comScore indicates solid mobile and PC user growth In the US, comScore reported quarter to date through February, average monthly unique visitors of 31mn on PC and 56mn on mobile, up 24 and up 3 y y, respectively. TripAdvisor total minutes in 1Q through February is up 10 , with mobile minutes up 5 and PC minutes up 17 . In our view, TripAdvisor s elevated marketing spend YTD likely targets higher monetizing PC traffic. Estimates vs. Consensus: Broadly in-line on Revenue, below on EBITDA EPS Our 1Q revenue estimate of 379mn is broadly in line with the Street at 377mn. We are more cautious on EBITDA and EPS at 71mn 0.23 vs. the Street at 76mn 0.27. Table 25: TripAdvisor estimate summary 1Q17 2Q17 2017 2018 2019 Revenue BofAML est. 379 432 1,647 1,794 1,936 Growth Y Y 8 10 11 9 8 Street 377 433 1,649 1,852 2,095 BofAML vs. Street Above Below Below Below Below EBITDA BofAML est. 71 88 346 403 471 Street 76 88 339 392 530 BofAML vs. Street Below Above Above Above Below EPS BofAML est. 0.23 0.31 1.22 1.57 1.89 Street 0.27 0.32 1.23 1.48 2.28 BofAML vs. Street Below Below Below Above Below Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 Our price objective of 40 is based on 25x our 2018 non-GAAP EPS estimate. This multiple represents a modest premium to the group for possibly depressed margins and potential for re-accelerating top-line growth. 38 Internet e-Commerce 06 April 2017 Trivago (Buy, 15 PO) Stock view: Advertising continues to drive growth engine Trivago s 4Q revenue and EBITDA results highlight the company s rapid revenue growth and potential for solid profitability. Though there are concerns over the company s large marketing spend (80-85 of revenue), we think the Street will view Trivago s results positively given continued revenue ramp while also achieving profitability. The stock remains highly volatile given the limited float. Commentary during 4Q 16 earnings from Trivago s key customers Expedia and Priceline (as well as from TripAdvisor) indicated that paid traffic has been growing faster than free traffic, and that companies in the sector planned to ramp ad spend to drive continued traffic growth, which is a positive for Trivago. Trivago has best-in-class revenue growth, with 2017 revenue growth expected at 47 (vs. guidance of 45 ), led by 50 qualified referral growth. We also expect Trivago will become more efficient with advertising and start to reap the benefits of past brand advertising, with return on advertising spend (ROAS) improving across regions in 2017, a key driver of modestly improving EBITDA margin from 3.7 in 2016 to 3.9 in 2017. The company remains in growth mode, led by click revenue growth in ROW and Americas regions, as Trivago is driving brand awareness outside its key European foothold through aggressive brand marketing. The company is adding qualified referrals at an accelerating rate as it expands beyond its core Developed Europe markets and penetrates new markets. We think the company has significant runway for growth and can sustain 30 revenue growth through the end of the decade. As the business matures in its new Americas and ROW markets, we expect a better balance between profit and growth. We think EBITDA margins should accelerate as the company leverages 16 and 17 marketing spend, with greater uplift in 18. Key theme metric(s) for 1Q: Qualified referral growth We forecast 56 qualified referral growth in 1Q (920bps deceleration on 730bps tougher y y comp), led by 38 y y growth in Developed Europe, 48 in Americas, and 110 in ROW. We expect continued robust marketing spend will drive user growth. Biggest 1Q issues risks: Weak return on advertising spend (ROAS) may be an earnings headwind. Competition in the company s advertising channels may result in lower ROI trends. The company may also see less efficient advertising in newer, less mature markets. A positive update to 2017 guidance may be expected. Trivago currently expects total revenue growth of 45 and adjusted EBITDA margin is guided to flat to slightly up vs. 2016 s 3.7 . Estimates vs. Consensus: Expect revenue in-line vs. the Street, EBITDA ahead For 1Q, we expect revenue EBITDA of 241mn ( 12mn) vs. the Street at 241mn ( 10mn). We expect 2017 and 2018 revenue and EBITDA to come above the Street and expect there is room for upside to management s 2017 revenue growth and EBITDA margin guidance. Table 26: Trivago Estimate Summary 1Q17 2Q17 2017 2018 2019 Revenue BofAML est. 241 281 1,105 1,498 1,984 Growth Y Y 52 57 47 36 32 Street 241 270 1,088 1,497 2,035 BofAML est. vs. Street Below Above Above Above Below EBITDA BofAML est. 12 6 44 127 262 Street 10 6 40 98 197 BofAML est. vs. Street Above Below Above Above Above EPS Internet e-Commerce 06 April 2017 39 Table 26: Trivago Estimate Summary 1Q17 2Q17 2017 2018 2019 BofAML est. 0.02 0.00 0.05 0.22 0.48 Street 0.02 0.01 0.06 0.15 0.32 BofAML est. vs. Street Above Below Below Above Above Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Our PO of 15 is based on a 3.5x 2018E EV Sales multiple. We note that 3.5x is roughly in line with the lead generation peer group average 2018E EV Sales multiple. We think our EV Sales multiple is warranted as a balance between Trivago's higher growth and lower profitability. Our price objective is supported by our DCF analysis. 40 Internet e-Commerce 06 April 2017 Wayfair (Neutral, 44 PO) Stock view: Timeline on profitability still an issue, but comps ease in 2Q 17 Wayfair s two issues have been deceleration in U.S. revenue growth and negative operating margins as the company continues to aggressively invest in logistics, international expansion, marketing, and new categories. 1Q customer and order growth comps remain tough, which was one of the drivers of revenue growth guidance below expectations. Wayfair also attributed weak guidance to caution on the retail environment and added investment. Growth comps ease in 2Q 3Q, and there is potential for more stable growth in 2Q guidance to drive improving investor sentiment. As for margins, management guided to EBITDA margin of (3.5 )-(3.8 ), a deceleration from (2.8 ) in 1Q 16 due to a lower opex absorption in the quarter on seasonally lower sales. The US is expected to swing back to EBITDA losses in 1Q 17, while Intl losses are expected to remain steady. We forecast EBITDA margin of (2.4 ), with (0.2 ) EBITDA margin in the US and (19.0 ) margin in International. The company continues to expect little to no ad spend leverage given increase International ad spend. Management historically builds conservativism into its guidance and, until last year, had a track record of beating the upper end of its sales outlook by 10 . Recently, revenue has been by a low-single digit percentage. Our above consensus 1Q revenue forecast implies 1 upside to the high end of the guidance range, in line with the trend over the past 3 quarters. We think investors expect sales growth above the guidance range as well. Table 27: Revenue and EBITDA Guidance vs. Actuals 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17E Revenue - High End of Guidance 370,000 390,000 440,000 525,000 665,000 700,000 785,000 850,000 960,000 930,000 Revenue Actual 408,619 424,371 491,752 593,972 739,790 747,348 786,928 861,525 984,559 943,626 Revenue Upside 38,619 34,371 51,752 68,972 74,790 47,348 1,928 11,525 24,559 13,626 Revenue Upside 10 9 12 13 11 7 0 1 3 1 EBITDA - High End of Guidance -4.5 -3.5 -2.5 -0.8 -0.8 -3.0 -3.2 -4.3 -2.8 -3.5 EBITDA - High End of Guidance ( 16,650) ( 13,650) ( 11,000) ( 3,938) ( 4,988) ( 21,000) ( 25,120) ( 36,125) ( 26,400) ( 32,550) EBITDA Actual ( 7,218) ( 12,340) ( 4,972) ( 1,445) 2,828 ( 20,960) ( 24,857) ( 30,849) ( 12,026) ( 22,463) EBITDA Upside 9,432 1,310 6,028 2,493 7,816 40 263 5,276 14,374 10,087 Source: BofA Merrill Lynch Global Research, Wayfair Note: 1Q17E Actuals are current BofA Merrill Lynch forecasts Over the past two quarters, Wayfair has expressed caution on the macro environment, though this proved to be somewhat unwarranted in 4Q. According to February 2017 aggregated BAC credit and debit card data, furniture sales were up 1.3 (down 0.4 on rolling 3-month m m basis), while home goods were down 1.2 y y and flat on a rolling 3 month m m basis. Please see the BofA Merrill Lynch US Economics team's report for additional commentary on broader retail trends and a detailed explanation of the methodology and limitations in connection with BAC data. Williams-Sonoma reported disappointing 4Q earnings (March 15 th report) and provided modest 1Q guidance that the BofA Merrill Lynch Hardline Retail team called a little rich, though it is difficult to tell if weak trends are the result of secular home goods weakness or the disruptive impact of eCommerce players like Wayfair. Key theme metric(s) for 1Q: 2Q revenue guidance on easier y y comps 1Q revenue guidance was a disappointment, though comps ease in 2Q 17, and opportunity for more stable US growth could aid stock sentiment. Customer growth in 2Q has a 400bps easier y y comp vs 1Q17, while order growth has a 1700bps easier y y comp. Overall, revenue growth faces a 1600bps easier y y comp. and would expect guidance anywhere near the Street s 2Q estimate at 25 y y growth to be viewed positively given several quarters of guidance below street estimates. Internet e-Commerce 06 April 2017 41 Biggest 1Q issues risks: Commentary on US customer trends, particularly repeat rates and unit economics (customer acquisition costs). AOV trends given street concerns that some customer metrics are benefitting from purchase of lower value items. Progress with International investments, especially early results from ad spending in UK, Canada, and Germany. 1Q data points indicate mixed traffic trends US data indicates that Wayfair PC minutes growth increased 17 y y in 1Q through February vs. 14 y y growth in 4Q 16. Wayfair mobile minutes have decreased 24 y y through February in 1Q vs. up 3 y y in 4Q 16. US PC user growth decreased 16 y y in 1Q through February, vs. 4Q at -25 y y. Wayfair mobile user growth increased 2 y y in 1Q through February vs. 16 y y in 4Q. Estimates vs. Consensus: Expect revenue and EPS upside vs. the Street For 1Q, we expect revenue EBITDA of 944mn ( 22mn) vs. the Street at 933mn ( 32mn). Total revenue guidance of 905-930mn implies 2-year stacked growth of 97-101 vs. 121 in 2016, which seems conservative. We expect the company s revenue to come in above the high end of the sales outlook as Direct Revenue sales were up 30 quarter to date (through nearly 2 months of 1Q 17). Our 1Q revenue growth forecast is based on 48 y y customer growth (up 9 q q) and 42 order growth (down 10 q q). Wayfair expects EBITDA margin of (3.5 )-(3.8 ) due to a lower opex absorption in the quarter on seasonally lower sales. The company continues to expect little to no ad spend leverage given increase International ad spend. Table 28: Wayfair Estimate Summary 1Q17 2Q17 2017 2018 2019 Revenue BofAML est. 944 980 4,169 5,019 5,872 Growth Y Y 26 25 23 20 17 Street 933 987 4,237 5,258 6,585 BofAML vs. Street Above Below Below Below Below EBITDA BofAML est. - 22 - 19 - 48 10 64 Street - 32 - 20 - 59 23 134 BofAML vs. Street Above Above Above Below Below EPS BofAML est. ( 0.49) ( 0.46) ( 1.55) ( 1.00) ( 0.47) Street ( 0.60) ( 0.45) ( 1.65) ( 0.94) 0.04 BofAML vs. Street Above Below Above Below Below Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4 4 2017 Our PO of 44 is based on 0.7x 2018E EV sales. We continue to focus on EV Sales given Wayfair s lack of profitability due to US fulfilment investment and Intl. expansion. Our 0.7x target multiple is a discount to Wayfair s eCommerce comp group at 1.3x and at a modest discount to a retail peer comp group at 0.8x. We think the multiple is appropriate given strong revenue growth vs. peers, balanced by lower profitability. 42 Internet e-Commerce 06 April 2017 Twitter (Underperform, 14.50) Stock view: Engagement could be improving, but still trailing peers On positive note, DAU growth, tweet impressions, and time spent growth have all been accelerating, and we won t be surprised if most metrics show stable growth in 1Q17 given event activity (political, sports, awards shows) in 1Q. However, the NFL season is over, the election surprise is slowing fading, competitive pressure is rising (particularly Instagram), and new monetization initiatives will take time, so we are more cautious on 2Q. The high level of executive churn also raises an element of strategic uncertainty that could continue to weigh on sentiment. While it s possible Twitter could see moderate residual benefit from recent YouTube Google Display Network boycotts, we continue to believe MAU growth acceleration is key to improving sentiment, and we continue to expect other platforms to grow much faster. The biggest upside driver for 1Q could be conservative guidance, which implied revenues would be down 17 y y at the midpoint in 1Q. Longer-term, our primary concerns are user growth, rising competition in video, and lack of positive advertiser feedback. Despite execution on the live streaming initiative in 2016, MAU impact was underwhelming and we see risk of rising costs and or content loss in 2017. At this point, it s unclear how aggressively management will push live streaming in 2017, and early exploration of potential subscription revenue streams (enhanced Tweetdeck offering beta) could suggest potential strategic shifts. On the advertiser side, we are still hearing limited traction with Twitter s ad platform changes and ROI measurement, and it seems experimental dollars are being moved to Snap. The biggest risk to our Underperform rating, in our view, is the underlying value of the Twitter platform for users and potential Artificial Intelligence (AI) signals. We remain on the sideline for now, with ever-present M A potential providing some element of a floor to the stock. We think 3x 2017 revenues plus cash ( 12 share in total) is a valuation an acquirer could see as very reasonable given stabilizing DAU trends and value of Twitter data. Key theme metric(s) for 1Q: Mgmt focus on engagement, investors on users MAU growth likely remains the primary focus in terms of metrics investors consider. While DAU growth could continue to growth at high single digits, we do not see much upside potential to low single digit MAU growth (we model 322mn, 4 y y), which lags in comparison to Facebook s recent17 y y growth. We expect engagement metrics in general (tweet impressions, DAU growth, time spent) to be solid, though it s possible lack of NFL and fading US election catalysts could have some negative effect. In terms of monetization, our ARPU estimate for 1.67 implies a 14 y y decline, which reflects both weaker Twitter pricing trends and potential competitive pricing pressures. Biggest 1Q issues risks: MAU growth could slip: We model 4 y y MAU growth to 322mn, but fading NFL and election tailwinds could lead to weaker user growth trends in 2Q. Competition could impact pricing: Management noted elevated competition in mid-January (shortly after Snap s ad API update), which may have continued throughout the quarter and impacted pricing more than anticipated. Live streaming pipeline in question: Amazon recently announced a deal with the NFL to steam game content, replacing Twitter. Ad product wind-down could impact revenue: Management indicated that it is reevaluating lower return ad formats, and a decision to wind down certain formats (like direct response, promoted tweets) could further impact 2Q guidance. Internet e-Commerce 06 April 2017 43 Top 1Q data points comScore mobile data indicated US monthly active users were up 2 y y and down 4 q q (down 3mn q q), versus our estimate for 4 y y, 1 q q. Total minutes for 1Q17 (2-mo. data) are tracking down 18 y y, with mobile down 18 and desktop down 23 . Mobile minutes have averaged a 20 y y decline for the last 4 months. Estimates vs Consensus Our 1Q17 rev EPS estimates for 535mn 0.03 are slightly above the Street and above the implied midpoint of management s guidance (based on EBITDA and EBITDA margin outlook). Despite our near-term concerns, we believe the outlook was sufficiently conservative. That said, we see risk to current consensus estimates for the year, and we are below Street revenue at 2.3bn for 2017 vs consensus at 2.35bn, though slightly ahead on EBITDA on more moderate cost assumptions. Our 2017 estimates assume a conservative 4 MAU growth for the year. Table 29: Twitter Estimate Summary 1Q17 2Q17 2017 2018 Revenue BofA ML est. 535 544 2,301 2,339 Growth Y Y -10 -10 -9 2 Street 510 548 2,352 2,496 BofA ML vs Street Above Below Below Below EBITDA BofA ML est. 120 152 639 689 Street 94 135 564 650 BofA ML vs Street Above Above Above Above EPS BofA ML est. 0.03 0.08 0.33 0.34 Street 0.01 0.06 0.27 0.37 BofA ML vs Street Above Above Above Below Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 Our 14.50 price objective is based on 12x our 2018 EBITDA estimate, which reflects a discount to the online media group (13x). We believe the Twitter platform has slowing user and revenue growth and as such, we expect the stock to trade at a sustained discount to online media peers, with potential M A adding some offsetting downside support. 44 Internet e-Commerce 06 April 2017 Yelp (Neutral, 43 PO) Stock view: Likely to be some improvement vs last quarter Yelp is coming off of a quarter with decelerating app unique devices, weak new customer adds, and decelerating sales force growth, and it seems likely that one or two of these metrics will improve. The tone at our recent investor meetings with the CFO seem to suggest that 4Q issues did not signal a break in the model (see On the road with Yelp), and we expect an improvement q q customer adds. We think the company should be able achieve Street 1Q revenue and EBITDA estimates, though we won t be surprised to see the 2Q17 outlook come in slightly below current Street estimates. For the full year outlook, while we believe the implied expense growth in the 2017 outlook is somewhat conservative, management appears focused on investing in the business for now and we think upside is more likely to come in 2Q or 3Q. Overall, we remain somewhat cautious on the stock given potential revenue deceleration due to tough comps and a deceleration in sales force growth. On the cost front, management has been clear in its intention to invest in performance marketing, which could take time to bear fruit. In addition, we believe sales force growth to stabilize increase going forward, which would seem to suggest potential cost headwinds relative to recent quarters. Finally, while we don t have the specific financials, the addition of Nowait ( 40mn acquisition closed 2 28) likely encompasses a moderate bump up in opex with limited revenue to offset. As we look ahead, we are encouraged with the three transitions within company and we will be looking for progress on the following on the call. The first is connections between consumers and businesses on Yelp through clicks, reservation services, ordering, and Request a Quote. The second is a ramp up in performance marketing as users engage in more measurable events. The third is new customer acquisition via alternative channels, including national customers from outside sales alongside selfserve customers via online channels. Key theme metric(s) for 1Q: new account adds, app unique devices growth Given the miss last quarter and pressure on sales force headcount, local advertising accounts will be important gauge of overall execution. Other key metrics include app unique devices growth, which has been decelerating since mid-2015 from 51 y y to 20 in 4Q16. Performance marketing could reverse the trend, but it could take some time. Finally, while management continues to highlight a decoupling of sales force growth and topline trends, investors still pay attention to overall sales force growth, particularly given the three consecutive quarters of deceleration from 44 y y (1Q16) to 11 y y (4Q17). Management has indicated that sales force growth in 2017 should be in the double digits. Table 30: Key 1Q metrics Metrics 4Q16A 1Q17E 2Q17E Claimed Local Business 3,363 3,552 3,727 y y Growth 27 25 24 Local Advertising Accounts 138 142 150 y y Growth 24 17 17 Reviews 121,022 127,135 133,635 y y Growth 27 25 23 Source: BofA Merrill Lynch Global Research, company reports Biggest 1Q issues risks: Local revenue deceleration: We assume 750bps of y y growth deceleration in 1Q17 vs 4Q16. Internet e-Commerce 06 April 2017 45 Metrics could remain under pressure: Investors likely will look for stabilization in key metrics such as app unique devices growth and local ad account growth, but it could take time for incremental marketing and sales investments to bear fruit. Stock comp could create overhang: With Alphabet s decision to only report GAAP profits, Yelp s high stock comp (67 of 2017E EBITDA) could create overhang to the valuation. Leading indicator data points: Salesforce growth decelerating While it possible that Yelp sees improving productivity per salesperson, and the mix shift to national and self-serve reduces reliance on direct sales, the deceleration in salesforce headcount is a negative leading indicator for revenues. Chart 16: Salesforce growth versus local advertising revenue growth 80 70 60 50 40 30 20 10 0 1Q14A 2Q14A 3Q14A 4Q14A 1Q15A 2Q15A 3Q15A 4Q15A 1Q16A 2Q16A 3Q16A 4Q16 1Q17E 2Q17E 3Q17E Salesforce y y Salesforce y y ( 2-qtr shift) Local ad rev y y Source: Company, BofA Merrill Lynch Global Research Accrued sales bonus and commissions tracking lower We note that 4Q accrued bonuses and commissions are down y y and reflect only 0.3 of NTM revenue, which would be the lowest ratio seen in recent years. Even on an absolute basis, the total accrued bonuses and commissions of 3.1mn is the lowest since mid-2013. While this is likely due in part to gains in self-serve and perhaps increased sales focus on National accounts, the change is noteworthy, in our view. Chart 17: Accrued bonuses and commissions as a of NTM revenue 1.2 1.0 0.8 3-year avg: 0.76 0.6 0.4 0.2 0.0 Source: Company, BofA Merrill Lynch Global Research 46 Internet e-Commerce 06 April 2017 In addition, the y y change in commissions expense disclosed in company filings continued a downward trend to negative territory. Over the course of 2016, the number has gone from 5.7mn in 1Q16, to 2.4mn in 2Q16, to 1.4mn in 3Q16, to down 1.7mn in 4Q16. We also consider comScore mobile data, which indicated that US monthly active users were up 2 y y (2-months data) while desktop monthly active users were down 14 y y. This reflects a moderate deceleration in mobile from 4Q ( 4 ) and slightly lower declines in desktop (4Q at -16 ). Total QTD US minutes are down 6 y y for mobile (vs 4 in 4Q), though App minutes were flat, and desktop was up 6 y y (vs 1 in 4Q). The somewhat weaker mobile minutes trend is notable, particularly the lack of growth in Estimates vs Consensus Our revenue and EBITDA estimates are slightly above consensus for both 1Q17 and 2Q17, as well as for 2017 and 2018. We expect local ad revenue to grow 28 y y in 1Q (vs 36 in 4Q) and transaction revenue to grow 17.5 (vs 19 in 4Q). Our 2017 estimates are near the high end of management s 2017 outlook, and we would expect any upside potential to likely surface in the latter half of the year. Table 31: Yelp Estimate Summary 1Q17 2Q17 2017 2018 Revenue BofAML est. 201 218 895 1,082 Growth Y Y 26 26 26 21 Street 198 215 889 1,068 BofAML vs. Street Above Above Above Above EBITDA BofAML est. 31 40 166 221 Street 27 37 161 217 BofAML vs. Street Above Above Above Above EPS BofAML est. 0.18 0.24 0.99 1.28 Street 0.16 0.25 1.04 1.45 BofAML vs. Street Above Below Below Below Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4 4 2017 We are more constructive on the stock given more negative sentiment and recent selloff, but maintain our Neutral rating given the decelerating sales leading indicator metrics and tougher revenue comps. Our 43 price objective is based on 14x 2018E EV EBITDA, slightly above online media comps, which we believe is warranted given the higher margin potential in the model. We believe our multiple balances premium growth vs peers with medium-term concerns on competition and limited GAAP profitability. We believe the slight premium valuation is sustainable if the company can continue to deliver 20 y y topline growth, which would be above the advertising industry. Internet e-Commerce 06 April 2017 47 Zillow (Buy, 42 PO) Stock view: controversy sounding the mortgage business While we still expect Zillow s core business to have a solid quarter on product improvements, the self-serve platform, and its recent Seller Boost product, the controversy surrounding Zillow s mortgage business (which potentially has implications for Zillow s core business and the retail estate industry) has been a key recent driver of the stock. The Consumer Financial Protection Bureau (CFPB) has indicated that it views Zillow s mortgage referral system as potentially violating parts of the Real Estate Settlement Procedures Act (RESPA). RESPA (Real Estate Settlement Procedures Act) is an act designed to product potential homeowners by outlawing kickback and referral fees from real estate services, particularly in relation to mortgage brokers who often receive referrals from real estate agents. Since Zillow s mortgage referrals involve a pre-application and a referral directly to a mortgage agent that than a larger entity like a bank, this could be violating the act. Mortgage brokers often fund some of the real estate agents online advertising expenses and a crackdown on mortgage agents could potentially hurt real estate agents ability to spend dollars on Zillow. For now it is too early to say how this will develop as there are conflicting views for and against this view with the CFPB not releasing an official stance, but we expect this to be a near term overhang on the stock until a clear view of the CFPB s view and intentions unfold. While a contentious issue, mortgage revenue is still only 8 of total revenue and even a cut back would have a minimal impact to overall revenue growth. As for the impact on real estate agent spend on Zillow, we believe at with only roughly 5 penetration into real estate agents online spend Zillow has plenty of room to grow the core business and the high ROI of the ad unit will ensure agents buy placements on Zillow regardless of mortgage broker involvement and continue to like the stock. Key theme metric(s) for 1Q: Mortgage requests and revenue per loan With the controversy surrounding the mortgage business, we think investors will be extra focused on the mortgage unit and focus on the mortgage revenue per loan request and consumer load requests. Zillow will be releasing new metrics this quarter to replace ARPA and premier agent count, but has yet to indicate what those metrics will be. Key topics for the call will likely include: 1) mortgage business outlook; 2) premier agent advertising spend; 3) rentals business; and 4) progress on FY17 goals. Biggest 1Q issues risks: If the CFPB decides Zillow violates RESPA, Zillow could face fines and have to retool its mortgage platform. New metrics for FY17 could give less visibility into the business as a whole. Slower than expected penetration of self-service platform leading to increased S M costs. Potential for a weak 2Q guide if mortgage issues overhang the business as a whole. Top 1Q traffic data points: comScore suggests usage up in 1Q comScore desktop data suggests that unique visitors were down 5 quarter to date (Jan. and Feb.) while usage was up 2 QTD. However, on mobile, comScore data suggests usage is up 14 y y on a bigger unique visitor base to 62mn unique users and usage was up 7 . We note comScore has made several methodology changes which has impacted the consistency of recent months data. Estimates vs. Consensus: We are above the Street Over rev EBITDA estimates of 239mn 40mn is above the Street at 236mn 39mn. We estimate that ARPA will be up 29 y y to 629 and premier agent subscribers will be flat y y at 91.9K. Overall, we estimate 28 y y growth, but note that the mortgage issues could potentially impact revenue. For rentals and other we estimate 32mn in revenue, up 75 y y. 48 Internet e-Commerce 06 April 2017 Table 32: Zillow estimate summary 1Q17 2Q17 2017 2018 Revenue BofAML est. 239 261 1,062 1,307 Growth Y Y 25 23 Street 236 257 1,048 1,258 BofAML vs. Street Above Above Above Above EBITDA BofAML est. 40 51 215 313 Street 39 46 211 298 BofAML vs. Street Above Above Above Above EPS BofAML est. 0.06 0.11 0.48 0.89 Street 0.05 0.07 0.44 0.80 BofAML vs. Street Above Above Above Above Source: BofA Merrill Lynch Global Research estimates Zillow has effectively captured the online U.S. real estate market, allowing them to accelerate monetization and access to a large TAM with 87bn in total real estate commissions paid in 2016 and Zillow powering just 5 of the commissions through its Premier Agent platform. Although there is potential for the mortgage business to create a headwind if the CFPB issued a negative ruling against Zillow, we still like the stock into the quarter, as we prefer business with minimal competition, and believe that the high ROI of the real estate premium platform to real estate agents will ensure agents buy placements on Zillow regardless of mortgage broker involvement. We maintain our 42 PO based on a 6x our 2018E EV Sales and supported by our DCF valuation. Our multiple is roughly in-line for online real estate lead generation sites in other countries operating in developed countries. Internet e-Commerce 06 April 2017 49 Zynga (Underperform, 2.70) Stock view: Live events can improve franchises, but still need new titles Zynga launched Dawn of Titans end of 4Q, and although it progressed into the top 20 grossing games in the U.S. Apple store, it has fallen out of the top 100 at some points during the quarter suggesting that its overall revenue contribution has been fairly low. While this is somewhat disappointing, we think investor expectations for the game are now at reasonable (lower) levels. Instead of big new title launches, Zynga has indicated it is focused on strengthening its current franchises with better engagement and monetization through live events and new features, and progress in this area is key for the 2017 stock outlook. Zynga Poker (up roughly 80 y y YTD) appears to be benefiting from the focus on engagement and live events with much stronger monetization, which could offset declines in other titles. Overall, we think it could be hard to get the Street excited on the stock without a strong future title that could drive more than single digit growth. Key theme metric(s): DAUs, and live events impact on DAU trends After launching 10 new games in 2016, Zynga is focusing more heavily on live events to drive engagement with in franchises rather than launching additional titles. This should, if successful, translate into better DAU metrics as consumer engage with a title more often. With Dawn of Titan likely coming below Street expectations, stronger engagement will be necessarily for Zynga to drive a stronger DAU base. For the quarter, we model 17.9mn online game DAUs for 1Q, down slightly q q, and down 6 y y. Biggest issues risks: Dawn of Titans revenues: Zynga spend several years developing the game and lack of title success could impact sentiment. Expense leverage and cost-cutting benefits do not materialize: Zynga plans to further improve operational efficiency and potentially cut non-profitable franchises, but this may be hard to do without impacting long term growth opportunities. Lack of new releases: Zynga gave no indication of when it will release its next title leaving current franchises to carry revenue and earnings. Top data points: Zynga game bookings tracking in-line to slightly below est. Zynga s largest revenue generating franchises, Zynga Poker was up significantly in 1Q. Zynga Poker appears to be benefiting from live events and is tracking up roughly 89 QTD. Combined slots titles appear a bit more challenged with total revenue down 30 QTD y y, in part due to lower monetization on Wizard of Oz slots which is tracking down in gross gaming rankings. Overall, QTD (January and February) Zynga online game bookings (ex-ad revenue) is tracking up 7 y y vs our 1Q est. of bookings up 9 y y. Chart 18: Zynga Poker y y revenue growth 100 90 80 70 60 50 40 30 20 10 0 Source: Superdata Research, BofA Merrill Lynch Global Research Chart 19: Zynga slots y y revenue growth 60 50 40 30 20 10 0 -10 -20 -30 -40 Source: BofA Merrill Lynch Global Research estimates, company report 50 Internet e-Commerce 06 April 2017 Estimates vs. Consensus: Mostly inline to the Street We are slightly above the street on revenue at 189mn vs. 188mn, but in-line on EBITDA at 20mn. Cost cutting could improve EBITDA and Zynga has restructured some of its workforce and is focusing on driving more engagement with live events in its game franchises. For 2017, we are below the Street on revenue at 779mn vs. 805mn, but above on EBITDA at 101mn vs 99mn. Table 33: Zynga Estimate Summary 1Q17 2Q17 2017 2018 Revenue BofA ML est. 189 196 779 786 Growth Y Y 41 41 5 1 Street BofA ML vs Street 188 Above 200 Below 805 Below 875 Below EBITDA BofA ML est. Street 20 20 20 24 101 99 106 122 BofA ML vs Street Above Below Above Below EPS BofA ML est. 0.01 0.01 0.05 0.06 Street 0.02 0.02 0.07 0.08 BofA ML vs Street Below Below Below Below Source: BofA Merrill Lynch Global Research estimates, company report Zynga is improving profitability while engaging players better with live services but we remain cautious on the company s ability to materially grow its audience and still favor the console gaming group. Zynga should have downside support given roughly 1.50 in cash and assets and strategic franchise value (we estimate Poker Slots generates over 250mn in revenue annually). Our 2.70 PO is based on 11x 2018E EBITDA (which is a premium to the Mobile gaming peer group due to margin expansion potential), plus 1.41 share in cash and assets (building). Internet e-Commerce 06 April 2017 51 Company referenced Ticker Price Alphabet A GOOGL 848.91 Alphabet C GOOG 831.41 Amazon.com AMZN 909.28 Bankrate RATE 9.75 Care.com CRCM 11.68 eBay EBAY 33.81 Expedia EXPE 124.97 Facebook FB 141.85 Fitbit FIT 5.71 GrubHub GRUB 33.27 LendingTree TREE 117.8 Match Group MTCH 16.45 Netflix nflx 143.62 ONDK ONDK 4.62 Pandora P 11.82 priceline.com PCLN 1761.77 Quotient QUOT 9.4 Snap SNAP 20.7 TripAdvisor TRIP 41.76 Trivago TRVG 12.81 Twitter TWTR 14.53 Wayfair W 40.21 Yahoo! YHOO 46.38 Yelp YELP 33.22 Zillow A ZG 33.49 Zillow C Z 33.47 ZYNGA ZNGA 2.78 Source: BofA Merrill Lynch Global Research, Prices as of 5 April 2017 52 Internet e-Commerce 06 April 2017 Price objective basis risk Alphabet (GOOGL GOOG) Our price objective is 1025 1025, representing 17x our core 2018 Google non-GAAP EPS estimate (excluding non-Google losses), plus 118 share in cash, or 21x core Google GAAP EPS plus cash. Alphabet has traded at 12-24x forward P E over the last five years and we think our 17x multiple is reasonable given shareholder friendly actions that include the non-core revenue and operating loss disclosures, and stock buybacks. Downside risks to our PO are: 1) Search revenue growth decelerates faster than anticipated due to market maturity, 2) mobile transition drives negative search behavior changes, 3) revenue growth pressure from competitor initiatives, 4) margins disappoint due to revenue mix and investment initiatives, and 5) negative regulatory changes, including EU antitrust. The stock has been subject to heavy volatility in the past based on revenue growth and margin trends and this volatility could increase if economic conditions deteriorate. Amazon.com (AMZN) Our PO of 1,100 is based on our SOP that values AWS at 127bn or 259 per share and the retail business at 413bn or 841 per share. Our 5.5x AWS multiple is a modest premium to the software SaaS comp group at 5.0x on 2018 sales, and 0.9x multiple is a premium to a retail general merchandise comp group at 0.7x. We think the premiums are warranted given share gains and superior growth. Our 1,100 price objective implies 2.8x 2018E Price Sales, a multiple above the high end of Amazon's historical range of 1.0-2.5x. We argue the historical P S multiple should increase given positive 3rd party sales (3P) that is reported on a net basis, a higher AWS revenue contribution, and record gross profit margins. Downside risks to our price objective are a consumer spending slowdown, rich P E multiple, margin or growth pressure from the digitization of media, more aggressive offline competition, hardware strategy, AWS investments and or price cuts, Prime Instant Video content costs, and decelerating growth. The stock has been subject to heavy volatility in the past, based on margin trends, and this volatility could increase due to economic uncertainty. Bankrate (RATE) Our 13 price objective is based on 9x our 2018E EV EBITDA, a slight discount to the online lead-gen and marketplace peer group average of 11x. We believe it is reasonable for RATE to trade at a slight discount given RATE's recent challenges to both growth and margins and its position as a turnaround in the space. Downside risks to our PO are: 1) limited visibility into intra-quarter trends, 2) stock dependent on economic outlook, 3) card issuer spending is volatile and the turnaround is short lived, 4) slower growth in personal loans than expected, 5) higher than expected marketing spending to drive traffic to Bankrate sites, resulting in lower margins, 6) Google changes have a negative impact on marketing margins and EPS, 7) competition with other consumer finance sites, and 8) a large acquisition. Care.com (CRCM) Our 9 price objective is based on 1.3x 2018E EV Sales or 10x 2018E EV EBITDA, in line with small cap ecommerce and subscription peers. Care.com has category leadership and a large TAM, but we do not believe 7 2-yr expected revenue growth warrants a premium to peers. At the same time, we believe that the Google Capital investment could provide some downside support on take-out potential. Downside risks to our PO are 1) need to add more customers each year to grow given high churn, 2) competition from SitterCity and Homestead, and 3) new care offerings Internet e-Commerce 06 April 2017 53 (mobile apps, premium nanny, date night payment services etc.) may not see much traction, 4) lower conversion rates on mobile, 5) mobile conversions with 30 fee to Apple and Google Play marketplaces could negatively impact margins, and 6) international expansion may not be successful given different demographics. Upside risks to our PO are 1) lower marketing spend resulting in higher margins and better leverage in 2016, 2) revenue upside from cross-selling and word of mouth, 3) increase length of stay for paid subscribers, reducing churn, and 4) traction from new care offerings, Care at Work, and international expansion. eBay (EBAY) Our 38 price objective is based on 17x our 2018E EPS. Our 17x P E multiple is slightly ahead of the retail comp group average of about 16x, reflecting eBay's potential for a Marketplace growth acceleration in 2017. Risks to our price objective are: 1) competition from Amazon and other new Marketplaces in the U.S., competition from Amazon, Alibaba and local incumbents in International markets, and competition from multi-channel retailers that are aggressively investing in the online channel, 2) vulnerability to future Google algorithm changes, 3) decelerating user growth, resulting in eCommerce market share losses, and 4) currency risk including FX volatility impact on cross border trade. The stock has been subject to heavy volatility in the past based on GMV growth and market share trends and this volatility could increase due to economic uncertainty. Expedia (EXPE) Our 146 price objective is based on our sum of the parts (SOP) that assumes 9x 2018E EBITDA for the core OTA business (a discount to Priceline at approx. 15x due to slower organic growth and higher taxes on earnings), 8x 2018E EBITDA for Egencia (we expect single digit growth), 60 ownership of Trivago (using our PO), and HomeAway at 15x 2018 EV EBITDA. Downside risks to our PO are: 1) economic downturn leading to fewer travel bookings, 2) competition for European traffic lowering the company's growth or margin opportunity, 3) hotels favoring lower-cost alternative distribution channels and limiting Expedia's access to inventory, 4) Google and or TripAdvisor disintermediation, and 5) the negative impact of terrorism and disease on global travel trends. Facebook (FB) Our 165 price objective is based on 24x our non-GAAP 2018E EPS and 27x GAAP EPS, multiples equal to about 1x 2018E revenue growth, mostly in-line with its social and online media peers. Risks are: 1) high valuation that discounts strong growth, 2) changes in user engagement impacts optimism on revenue opportunities and compresses the stock multiple, 3) privacy issues or pushback on Facebook's policy changes impact revenue generation, 4) risks to executing Messenger WhatsApp monetization, 5) potential for higher investment to negatively impact margins, and 6) a macroeconomic impact on advertising pricing. Fitbit (FIT) Our 6.50 price objective is based on 0.5x EV S multiple which is below the device manufacturer peer group at 1.8x, but justified in our view given declining revenue and profitability, FCF burn, market saturation, and limited visibility into the next product cycle. Upside risks are: 1) international product launches and expansion, 2) higher-thanexpected ASPs, 3) new product launches domestically, 4) slower-than-expected OpEx ramp, 5) software monetization and 6) corporate wellness program growth. 54 Internet e-Commerce 06 April 2017 Downside risks are: 1) integration risk from smartwatches and other wearables cannibalizing the fitness tracker market, 2) fad risk, as fitness trackers could be simply a fitness fad with consumers, 3) competitive risk from competitors out-innovating, and 4) execution risk on channel build and inventory management. GoPro (GPRO) Our 8 price objective is based on 10x our 2018E EBITDA, in line with the peer average of 10x, which we believe is appropriate given its slightly higher growth and potential for EBITDA margin expansion after restructuring. GoPro is the leading action camera company in the world but has been challenged by execution issues limiting its ability to drive strong product cycles. Downside risks to our PO are: 1) new products fail to resonate with consumers, 2) competitive pressure pushing down ASPs, and 3) failure to meet market demand during holidays. Upside risks to our PO are: 1) better than expected sales on new products, 2) better than expected holiday sales from extra manufacturing capacity, 3) better than expected drone sales, or new product announcements, and 4) new direct sales partnerships internationally GrubHub (GRUB) Our PO is 49, based on 32x our 2018E P E (vs. high growth internet at 31x). We believe GRUB warrants a premium to eCommerce peers due to the attractive margins of the core business and, relative to the overall small-cap sector, GRUB has more attractive margins and growth potential. Downside risks to our PO are: Revenue and sales metrics are trailing KPIs for Diners and Restaurant and the potential for diminishing returns on future restaurant and user additions is a risk. GrubHub has significant room for growth in the US ahead, but will need to invest internationally if domestic growth stalls. LendingTree (TREE) Our 140 price objective represents 14x 2018E EV EBITDA, a premium to the lead generation services and marketplace peer group average of 11x due to market position (category leader in mortgage and personal loans) and faster revenue growth. Risks to achieving our estimates and price objective are: 1) interest rate risks given the demand for leads for mortgage and other loan products, 2) competition with other consumer finance sites and ad networks, 3) potential for search engine disintermediation and traffic competition, 4) potential for recessionary impact on loan products (lower traffic and demand for leads) and credit card markets, 5) premium valuation vs. lead generation and marketplace peers, and 6) acquisition risk. Match Group (MTCH) Our PO is 21 based on 12x our estimated 2018 EBITDA of 562mn and our DCF valuation analysis. The basis for our PO is in-line with the eCommerce group, but a premium to the consumer internet subscription services group due to MTCH's combination of market dominance, profitability, and cash flow. We think fundamentals help MTCH stand out from its ecommerce peer group and MTCH should be seen as a more defensible platform that is unlikely to see disruption in its core markets. Downside risks are: market share losses to an emerging dating business, potential for higher acquisition costs on mobile, lower conversion rates that lead to lower PMC growth, the need to acquire competing sites to maintain growth or market share, and Internet e-Commerce 06 April 2017 55 higher-than-expected International investments. The biggest downside risk is lower revenue if Tinder experiences a decline in popularity or public perception. Netflix, Inc. (NFLX) Our 154 price objective is based on a peak penetration sum-of-the-parts analysis which discounts back future EPS at peak penetration by 10 . At peak penetration, we assume domestic streams peak at 65mn subscribers in five years while the international segment reaches 200mn seven years later. We assume APRU of 9.99 and 40 contribution margins for the domestic business and a 8.50 APRU and 40 contribution margin for the international business. We also assume a 1.50 price increase domestically over six years and a 3.60 price increase internationally over twelve years which will be 75 incremental to operating income. We assume a US tax rate of 40 and an international tax rate of 25 . At peak penetration, we assume a 15x S P average multiple. Downside risks to our price objective are: 1) increasing content costs, 2) potential new competitors in the company's streaming business, 3) execution challenges and competition potentially limiting growth in new markets, 4) U.S. saturation point approaching quicker than expected, and 5) net neutrality repeal causing ISPs to look to recoup higher rents from Netflix's high bandwidth requirements for streaming. Upside risks to our price objective are: 1) content costs rising slower than expected, 2) total subscriber growth is faster than expected, and 3) international expansion into new large markets (e.g. China). OnDeck Capital (ONDK) Our 6 price objective is based on 10x our 2018E EBITDA. This is below the internet ecommerce comparable group (11x) which is justified in our view given OnDeck's double digit revenue growth and potential to expand margins starting in 2018 as it gains scale and operating leverage, but tempered by a slower FY18. Upside risks to our PO are: 1) faster than expected originations growth, 2) signing of new large strategic partners, and 3) lower than expected operating expenses. Downside risks to our PO are: 1) higher than expected loss rates from worsening macro environment, 2) credit market freeze shutting down liquidity access, 3) lower effective yield from competition, and 4) increased marketing spend. Pandora Media, Inc. (P) Our 9 price objective is based on 1x our 2018 revenue estimate, a significant discount to online media and subscription service peers, but justified in our view as the multiple takes into account the company's difficult transition to a subscription on-demand service and lack of near term profitability balanced by the value of its data and user base. Upside risks to our PO are: 1) direct licensing agreements for lower royalty rates, 2) international expansion announcements, 3) ad-load increases in key demos, increasing monetization rates, 4) faster than expected launch of on-demand service, and 5) the company is acquired. Downside risks to our PO are: 1) emerging competition from both other Internet models like Spotify and Apple Music, as well as large, established radio companies like iHeartMedia embracing Internet streaming, 2) slow down in the company's ability to grow monetization, 3) lack of historical or near-term GAAP profitability, and 4) delayed on-demand service launch 56 Internet e-Commerce 06 April 2017 priceline.com (PCLN) Our price objective is 1,920 based on 22x our 2018 adj. EPS estimate. The 22x multiple is towards the upper end of Priceline's historical multiple range of 13-23x and represents a PEG of 1.4x. We think a 22x forward P E multiple is appropriate given midteens EPS growth, strong booking trends, Priceline's leadership position in the global online travel sector, track record of EPS upside, and increased access to the China market via the Ctrip investment. Risks to our PO are 1) a global economic downturn, especially macro-weakness in Europe, leading to fewer travel bookings and pressure on room rates, 2) competition for traffic lowering the company's growth or margin opportunity, 3) hotels favoring their own distribution channels, 4) FX volatility, 5) increased competition from Expedia, TripAdvisor and potentially Google, and 6) the impact of terrorism disease on global travel trends. The stock has been subject to heavy volatility in the past based on travel industry trends and this volatility could increase due to greater economic uncertainty, especially with macro-trends in Europe. Quotient Technology Inc (QUOT) Our 13 price objective is based on a 16x 2018E EBITDA, a premium to eCommerce peers (11x), which we think is justified given stickiness of the Retailer IQ platform and the slightly higher growth of 14 in FY17 vs. eCommerce group at 11 ). Quotient is a lead operator in online couponing, has a strong technological platform, relationships with CPGs and a platform that is slowly spreading across grocers in the U.S. Downside risks are: 1) further delays in point-of-sale system rollout with retailers, 2) loss of major retailers or CPG, 3) higher-than-expected R D and S M costs due to investment, and 4) limited float may contribute to volatility. Upside risks to our analysis are: 1) additional retailers launching on their point-of-sale system, 2) quicker-than-expected transition to digital couponing, 3) new additional digital coupon retail clients (such as Walmart). and 4) targeted couponing lifting average transaction pricing. Snap (SNAP) Our 25 PO is based on our DCF model as we do not expect the company to be profitable until mid- to late-2019 and any earnings-based valuation exercise would require discounting back future earnings. Our DCF assumes approximately 28bn revenue by 2027 based on 525mn DAUs and 50 in ARPU. Our PO implies 15.5x EV Revenue, above the peer group at 4x, as we believe Snap's early stage of ad monetization and potential future leverage in the business model warrants a premium valuation multiple to the social media group. Upside risks to our PO are: 1) greater than expected reacceleration in North America DAU growth, 2) more rapid monetization of existing user base with increased ad load and or new ad formats, and 3) better traction and monetization in International markets. Downside risks to our PO are: 1) further deceleration in user growth that would raise concerns on long-term revenue opportunity, 2) pressure on usage due to competing services, and 3) performance into the first lock-up expiration on 7 29 17. TripAdvisor (TRIP) Our price objective of 40 is based on 25x our 2018 non-GAAP EPS estimate. This multiple represents a modest premium to the group for possibly depressed margins and re-accelerating top-line growth. Downside risks to our price objective are: 1) increasing competition (e.g. Yelp), 2) macroeconomic factors (e.g. recession in Europe) impacting the travel industry, 3) challenges Internet e-Commerce 06 April 2017 57 to the credibility of online reviews, 4) Instant Book transition puts pressure on revenue growth, and 5) mobile monetization headwinds. Upside risks to our price objective are: 1) improved mobile monetization 2) major OTA sign on for instant booking 3) high non-hotel shopper dollar capture and 4) improved global macro environment. Trivago NV (TRVG) Our PO of 15 is based on a 3.5x 2018E EV Sales multiple. We note that 3.5x is roughly in line with the lead generation peer group average 2018E EV Sales multiple. We think our EV Sales multiple is warranted as a balance between Trivago's higher growth and lower profitability. Our price objective is supported by our DCF analysis. Downside risks to our price objective are: 1) Growing competition, 2) Elevated marketing spend, 3) High Customer concentration, 4) Macro and FX risks, and 5) Potential for loss of hotel inventory. Twitter (TWTR) Our 14.5 price objective is based on 12x our 2018 EBITDA estimate, which reflects a discount to the online media group (13x). We believe the Twitter platform has slowing user and revenue growth and as such, we expect the stock to trade at a sustained discount to online media peers, with potential M A adding some offsetting downside support. Downside risks to our PO are: 1) decelerating user growth that may raise concerns on long-term revenue opportunity, 2) pressure on usage due to emergence of competing services, 3) new ad initiatives may not perform well, resulting in lower advertiser demand for Twitter ads, 4) monetization of logged-out users and third party application users are slow to materialize, and 5) on a EV EBITDA basis Twitter is more attractive today than in the past, but stock remains subject to multiple compression. Upside risks to our PO are: 1) User adds could ramp on new product initiatives in the 2H, and accelerating user growth may increase optimism on long-term revenue opportunity, 2) with new demographic targeting initiatives, Twitter is able to capture more TV dollars (vs online ad dollars) that are incremental with video ads, 3) the NFL broadcasts and other video content (live political, entertainment, etc.) could help Twitter grow users meaningfully in the long term, 4) guidance could prove to be conservative, 5) traction from monetization of logged-out users and 6) potential that Twitter could be acquired. Wayfair (W) Our price objective of 44 is based on 0.7x 2018E EV sales. We continue to focus on EV Sales given Wayfair's lack of profitability to date. Our 0.7x target multiple is a discount to W's eCommerce comp group and at a modest discount to W's retail comp group. We think the multiple is appropriate given stronger revenue growth vs. peers, balanced by lower profitability and competitive risks. Downside risks are: 1) GAAP operating losses expected through 2018, making valuation analysis more complex, 2) competition from several well capitalized companies including Amazon, 3) brand complexity (5 brands), 4) category limitations, 5) partner segment revenue headwinds, and 6) execution risk on International expansion. Yahoo! (YHOO) Our price objective of 57 is based on our sum-of-parts valuation assumptions. Our 53 estimated asset value represents 39 share from the remaining Alibaba stake (using 122 Alibaba valuation 10 discount rate, mid-term FCF FY18-25E CAGR of 18 , 4 terminal growth x 384mn shares at 20 discount rate), 6.1 for Yahoo Japan, 0.5 for Excalibur patents, and 6.9 in cash and cash equivalents on Yahoo's balance sheet. We 58 Internet e-Commerce 06 April 2017 assume 4.7 share in value for the core business based Verizon's pending acquisition value of 4.83bn less 300mn for potential revisions. Downside risks to our PO are: 1) Alibaba stock valuation declines, 2) Alibaba valuation discount is higher than expected, 3) Verizon's pending acquisition of Yahoo core assets is delayed challenged, 4) valuation of Yahoo! Japan falls, and 5) valuation of Excalibur patent portfolio falls. Yelp (YELP) Our 43 price objective is based on 14x 2018E EV EBITDA, slightly above online media comps, which we believe is warranted given the higher margin potential in the model. We believe our multiple balances premium growth vs peers with medium-term concerns on competition and limited GAAP profitability. We believe the slight premium valuation is sustainable if the company can continue to deliver 25 y y topline growth with y y margin improvement. Downside risks are Google and Facebook's ambitions to build a review ecosystem to tap into local ad spending, competition from a variety of online and offline locally focused advertising businesses, Google traffic dependency, and advertiser churn. Zillow (ZG Z) Our 42 price objective is based on a 6x our 2018E EV Sales and supported by our DCF valuation. Our multiple is roughly in-line for online real estate lead generation sites in other countries operating in developed countries. In addition, this multiple represents a relative discount given Zillow's higher sales growth and a larger US TAM in comparison to its peers in smaller developed markets like Australia and Japan. We are positive on Zillow's long term opportunity to capture the majority of realtor's dollars moving from offline channels to online marketing channels. Downside risks are: 1) traffic cannibalization between Zillow properties, 2) new lawsuits again Zillow, 3) potential for multiple compression, 4) a U.S. housing market down turn, and 5) lack of profitability support for valuation. Upside risks are: 1) faster than expected growth and S M leverage, 2) Zillow Digg monetization, 3) accelerated grow the in rentals market, and 4) new market expansion. ZYNGA (ZNGA) Our 2.70 PO is now based on 11x 2018E EBITDA (which is a premium to the Mobile gaming peer group due to margin expansion potential), plus 1.41 share in cash and assets (building). Downside risks to our price objective are mobile market share losses, challenges in establishing successful new content given employee departures, and player churn due to greater competition given low barriers to entry. Upside risks are successful new title releases that accelerate growth, or potential acquisition of Zynga for its game portfolio. Analyst Certification We, Justin Post, Jason Mitchell and Nat Schindler, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Internet e-Commerce 06 April 2017 59 Special Disclosures BofA Merrill Lynch is currently acting as financial advisor to eBay Inc in connection with the extension of a dual branded retail credit card with General Electric and committing to purchase the loan portfolio in 2016. Deal announced along with Second Quarter Earnings on July 16, 2014. BofA Merrill Lynch is currently acting as financial advisor to Verizon Communications Inc in connection with its proposed acquisition of Yahoo! Inc's operating business, which was announced on July 25, 2016. The proposed transaction is subject to approval by shareholders of Yahoo! Inc. This research report is not intended to (1) provide voting advice, (2) serve as an endorsement of the proposed transaction, or (3) result in the procurement, withholding or revocation of a proxy. 60 Internet e-Commerce 06 April 2017 US - Internet Coverage Cluster Investment rating BUY NEUTRAL UNDERPERFORM RVW Company BofA Merrill Lynch ticker Bloomberg symbol Analyst Alphabet GOOGL GOOGL US Justin Post Alphabet GOOG GOOG US Justin Post Amazon.com AMZN AMZN US Justin Post Bankrate RATE RATE US Nat Schindler eBay EBAY EBAY US Justin Post Expedia EXPE EXPE US Justin Post Facebook FB FB US Justin Post GrubHub GRUB GRUB US Nat Schindler IAC InterActive IAC IAC US Nat Schindler LendingTree TREE TREE US Nat Schindler Match Group MTCH MTCH US Nat Schindler Netflix, Inc. NFLX NFLX US Nat Schindler OnDeck Capital ONDK ONDK US Nat Schindler priceline.com PCLN PCLN US Justin Post Take-Two Interactive TTWO TTWO US Justin Post Trivago NV TRVG TRVG US Nat Schindler Wix.com WIX WIX US Nat Schindler Yahoo! YHOO YHOO US Justin Post Zillow ZG ZG US Nat Schindler Zillow Z Z US Nat Schindler Activision ATVI ATVI US Justin Post Electronic Arts EA EA US Justin Post Quotient Technology Inc QUOT QUOT US Nat Schindler Snap SNAP SNAP US Justin Post Wayfair W W US Justin Post Yelp YELP YELP US Justin Post Care.com CRCM CRCM US Justin Post Fitbit FIT FIT US Jason Mitchell GoPro GPRO GPRO US Jason Mitchell Pandora Media, Inc. P P US Nat Schindler TripAdvisor TRIP TRIP US Nat Schindler Twitter TWTR TWTR US Justin Post ZYNGA ZNGA ZNGA US Justin Post Chegg CHGG CHGG US Nat Schindler Internet e-Commerce 06 April 2017 61 Disclosures Important Disclosures Equity Investment Rating Distribution: Electronics Group (as of 31 Mar 2017) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 29 59.18 Buy 14 48.28 Hold 5 10.20 Hold 2 40.00 Sell 15 30.61 Sell 5 33.33 Equity Investment Rating Distribution: Media Entertainment Group (as of 31 Mar 2017) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 40 56.34 Buy 21 52.50 Hold 16 22.54 Hold 6 37.50 Sell 15 21.13 Sell 6 40.00 Equity Investment Rating Distribution: Technology Group (as of 31 Mar 2017) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 126 59.43 Buy 70 55.56 Hold 35 16.51 Hold 17 48.57 Sell 51 24.06 Sell 17 33.33 Equity Investment Rating Distribution: Global Group (as of 31 Mar 2017) Coverage Universe Count Percent Inv. Banking Relationships Count Percent Buy 1578 51.33 Buy 979 62.04 Hold 690 22.45 Hold 434 62.90 Sell 806 26.22 Sell 381 47.27 Issuers that were investment banking clients of BofA Merrill Lynch or one of its affiliates within the past 12 months. For purposes of this Investment Rating Distribution, the coverage universe includes only stocks. A stock rated Neutral is included as a Hold, and a stock rated Underperform is included as a Sell. FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst s assessment of a stock s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10 and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster Buy 10 70 Neutral 0 30 Underperform N A 20 Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same higher (dividend considered to be secure), 8 - same lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock s coverage cluster is included in the most recent BofA Merrill Lynch report referencing the stock. Price charts for the securities referenced in this research report are available at http: pricecharts.baml.com, or call 1-800-MERRILL to have them mailed. MLPF S or one of its affiliates acts as a market maker for the equity securities recommended in the report: Alphabet, Amazon.com, Bankrate, Care.com, eBay, Expedia Inc, Facebook, Fitbit, GoPro, GrubHub, LendingTree, Match Group, Netflix, OnDeck Capital, Pandora, priceline.com, Quotient, Snap, TripAdvisor, Trivago, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA. MLPF S or an affiliate was a manager of a public offering of securities of this issuer within the last 12 months: Match Group, priceline.com, Trivago. The issuer is or was, within the last 12 months, an investment banking client of MLPF S and or one or more of its affiliates: Alphabet, Amazon.com, Bankrate, eBay, Expedia Inc, Facebook, Fitbit, LendingTree, Match Group, OnDeck Capital, priceline.com, Trivago, Yahoo!, Zillow. MLPF S or an affiliate has received compensation from the issuer for non-investment banking services or products within the past 12 months: Alphabet, Amazon.com, Bankrate, Care.com, eBay, Expedia Inc, Facebook, Fitbit, GrubHub, LendingTree, Match Group, Netflix, OnDeck Capital, priceline.com, Quotient, Snap, TripAdvisor, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA. The issuer is or was, within the last 12 months, a non-securities business client of MLPF S and or one or more of its affiliates: Alphabet, Amazon.com, Care.com, eBay, Expedia Inc, Facebook, Fitbit, GrubHub, LendingTree, Match Group, Netflix, OnDeck Capital, priceline.com, Quotient, Snap, TripAdvisor, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA. MLPF S or an affiliate has received compensation for investment banking services from this issuer within the past 12 months: Alphabet, Amazon.com, Bankrate, eBay, Expedia Inc, Match Group, priceline.com, Trivago, Yahoo!, Zillow. MLPF S or an affiliate expects to receive or intends to seek compensation for investment banking services from this issuer or an affiliate of the issuer within the next three months: Alphabet, Amazon.com, eBay, Expedia Inc, Facebook, Fitbit, LendingTree, OnDeck Capital, priceline.com, Trivago, Yahoo!. MLPF S together with its affiliates beneficially owns one percent or more of the common stock of this issuer. If this report was issued on or after the 9th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 9th day of a month reflect the ownership position at the end of the second month preceding the date of the report: eBay, Match Group, Pandora, Yahoo!. MLPF S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the issuer on a principal basis: Alphabet, Amazon.com, Bankrate, Care.com, eBay, Expedia Inc, Facebook, Fitbit, GoPro, GrubHub, LendingTree, Match Group, Netflix, OnDeck Capital, Pandora, priceline.com, Quotient, Snap, TripAdvisor, Trivago, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA. The issuer is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF S and or one or more of its affiliates: Alphabet, Amazon.com, Bankrate, Care.com, eBay, Expedia Inc, Facebook, Fitbit, GrubHub, LendingTree, Match Group, Netflix, priceline.com, Quotient, TripAdvisor, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA. BofA Merrill Lynch Research Personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking. 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TED2017: The future you 4 20 17, 12:07 PM TED2017 program Monday, April 24, 10:15AM - 12:00PM PDT TED Fellows Talks, Session 1 Amazing talks and performances from the new class of TED Fellows and returning Senior Fellows. Hosted by Fellows director Tom Rielly. Monday, April 24, 1:15PM - 3:00PM PDT TED Fellows Talks, Session 2 Part 2 of the TED Fellows session, featuring cutting-edge work from TED Fellows and Senior Fellows. Unmissable. Monday, April 24, 5:00PM - 7:00PM PDT Session 1: One Move Ahead Hosted by Chris Anderson Not attending TED2017? Watch Session 1 Opening Event broadcast to cinemas! Find showtimes Huang Yi Choreographer, dancer, inventor As a child, Huang Yi longed for a robot companion. As an adult, he created a robot to dance with: KUKA. Taiwanese dancer, choreographer, inventor, and videographer Huang Yi s pioneering work is steeped in his fascination with the partnership between humans and robots. He interweaves continuous movement with mechanical and multimedia elements to create a form of dance which corresponds with the flow of data, effectively making the performer a dancing instrument. Named by Dance Magazine as one of the 25 to Watch, Huang is one of Asia s most prolific choreographers. Harmoniously weaving together the art of dance and the science of mechanical engineering, HUANG YI KUKA is a poetic work that intertwines modern dance and visual arts with the realm of robotics, revealing humanity through a series of vignettes between live dancers and KUKA, a robot conceptualized and programmed by Huang. Dancing face to face with a robot is like looking at my own face in a mirror...I think I have found the key to spin human emotions into robots, Huang asserts. HUANG YI KUKA is an original production of Huang Yi Studio , developed at 3LD Art Technology Center, in association with Sozo Artists. Commissioned by Quanta Arts Foundation. facebook.com HuangYiStudio Anab Jain Futurist, designer Superflux co-founder and TED Fellow Anab Jain parses uncertainties around our shared futures to create provocative experiences, tools and tactics that we can adopt today. In 2009, Anab Jain co-founded the design firm Superflux with Jon Ardern, inspired by influences as far-flung as avant-garde architecture and Andrei Tarkovsky. The challenges Jain explores are some of the biggest resulting work navigates the entangled wilderness of our technology, politics, culture and environment to imagine new ways of seeing, being and acting. In her work, Jain creates worlds, stories and tools that provoke and inspire us to engage with the precarity of our rapidly changing world. Superflux is building tools, methods and commons that can enable us to mitigate the shock of food insecurity and climate change. Recently they produced a series of civilian drones, and created a vision of a near-future city where these intelligent machines begin to display increasing autonomy with civic society. Among Superflux s previous projects is a headset allowing blind subjects injected with a lightsensitive virus to develop a kind of super-sight sensitive to spectrums that ordinary vision cannot detect. superflux.in anabjain Garry Kasparov https: ted2017.ted.com program Page 1 of 21 TED2017: The future you 4 20 17, 12:07 PM Garry Kasparov Grandmaster, analyst Garry Kasparov is esteemed by many as the greatest chess player of all time. Now he s engaged in a game with far higher stakes: the preservation of democracy. When 22-year-old Garry Kasparov became the world s youngest chess Grand Champion, few could predict his turbulent career in chess or as a dissident. His chessboard wizardry was already the stuff of legend when, in 1997, he made headlines when he lost a rematch to IBM s Deep Blue supercomputer, ushering AI into the public sphere. Kasparov s book Winter Is Coming details the rise of Putin s Russia as well as Kasparov s persecution and self-exile, and it serves chilling warnings of reactionary forces gathering in the West. He is the chair of the Human Rights Foundation, succeeding his predecessor Vaclav Havel. kasparov.com Kasparov63 Laura Galante Cyberspace analyst Laura Galante analyzes how states use cyberspace: a domain where militaries, intelligence services, criminal groups and individuals pursue their interests with far fewer restraints than in the physical world. At FireEye, Galante's teams have profiled advanced cyber threats, investigated network breaches and portrayed the political, military and financial implications of cyber operations. Part of the original Mandiant Intelligence team, Galante has led strategic analysis, developed intelligence capabilities and offerings, and directed publications including APT28: A Window into Russia s State Cyber Espionage; Red Line Drawn: China Recalculates its Use of Cyber Espionage; and Hacking the Street? FIN4 Likely Playing the Market among others. In November 2016 she spoke at the UN Security Council s Arria Formula meeting on cybersecurity and international peace and security. She frequently appears on and provides commentary to: CNN, Bloomberg, NPR, BBC, Fox News, the New York Times, The Financial Times, The Wall Street Journal, Reuters, the Associated Press and other global and industry media. Prior to her work at FireEye and Mandiant, Galante led a contractor team analyzing cyber capability development and military doctrine at the US Department of Defense. She supported the 2010 US-Russia bilateral information security talks. fireeye.com LauraLGalante OK Go Band A wildly creative band of music- and video-makers, OK Go is building a media empire on the back of endless, boundless ingenuity. With a career that includes award-winning videos, New York Times op-eds, a major label split and the establishment of a DIY trans-media mini-empire (Paracadute), collaborations with pioneering dance companies and tech giants, animators and Muppets, and an experiment that aims to encode Hungry Ghosts on actual strands of DNA, OK Go continue to fearlessly dream and build new worlds in a time when creative boundaries have all but dissolved. The band has been honored with a Grammy, three MTV Video Music Awards (one of them from Japan!), a CLIO, three UK Music Video Awards, two Webby Awards (including one for their collaboration with The Muppets and Sesame Street) and a spot in a Guggenheim installation. Their latest video is The One Moment, directed by the band's singer, Damian Kulash Jr. okgo.net okgo Tim Ferriss Human guinea pig, author Tim Ferriss is author of "The 4-Hour Workweek," a self-improvement program of four steps: defining aspirations, managing time, creating automatic income and escaping the trappings of the 9-to-5. Tim Ferris brings an analytical yet accessible approach to the challenges of self-improvement and career advancement through what he calls "lifestyle design." His 2007 book, The 4-Hour Workweek, and his lectures on productivity are stuffed with moving, encouraging anecdotes meaningful day-to-day experience at work, or in life. Word-of-blog chatter in Silicon Valley may have propelled his book to bestselling success, but Ferriss himself takes a fervid stance against the distractions of technology toys that promote unnecessary multitasking. Following the success of his book, Ferriss has become a fulltime angel investor. Titus Kaphar Artist Titus Kaphar's artworks interact with the history of art by appropriating its styles and mediums. As Titus Kaphar says of his work: I ve always been fascinated by history: art history, American history, world history, individual history - - how history is written, recorded, distorted, exploited, reimagined, and understood. In my work I explore the materiality of reconstructive history. I paint and I sculpt, often borrowing from the historical canon, and then alter the work in some way. I cut, crumple, shroud, shred, stitch, tar, twist, bind, erase, break, tear, and turn the paintings and sculptures I create, reconfiguring them into works that nod to hidden narratives and begin to reveal unspoken truths about the nature of history." His latest works are an investigation into the highest and lowest forms of recording history. From monuments to mug shots, this body of work exhibited at Jack Shainman gallery December-January 2017 seeks to collapse the line of American history to inhabit a fixed point in https: ted2017.ted.com program Page 2 of 21 TED2017: The future you 4 20 17, 12:07 PM work exhibited at Jack Shainman gallery December-January 2017 seeks to collapse the line of American history to inhabit a fixed point in the present. Historical portraiture, mug shots, and YouTube stills challenge viewers to consider how we document the past, and what we have erased. Rather than explore guilt or innocence, Kaphar engages the narratives of individuals and how we as a society manage and define them over time. As a whole, this exhibition explores the power of rewritten histories to question the presumption of innocence and the mythology of the heroic. kapharstudio.com Rabbi Lord Jonathan Sacks Religious leader In a world violently polarized by extremists, Rabbi Lord Jonathan Sacks is proposing and advocating solutions to mounting religious intolerance. Rabbi Lord Sacks is one of Judaism s spiritual leaders, and he exercises a primary influence on the thought and philosophy of Jews and people of all faiths worldwide. Since stepping down as Chief Rabbi of the UK and Commonwealth in 2013, Rabbi Lord Sacks has become an increasingly well-known speaker, respected moral voice and writer; his 2015 book is Not in God's Name: Confronting Religious Violence. Granted a seat in the British House of Lords in 2009, Rabbi Lord Sacks is a key Jewish voice for universalism and an embrace of tolerance between religions and cultures. He rejects the politics of anger brought about by the way we have acted as if markets can function without morals, international corporations without social responsibility and economic systems without regard to their effect on the people left stranded by the shifting tide." He also sees, as a key idea for faith in our times, that unity in heaven creates diversity on earth. rabbisacks.org rabbisacks Tuesday, April 25, 8:30AM - 10:15AM PDT Session 2: Our Robotic Overlords Hosted by Chris Anderson and Helen Walters. Marc Raibert Roboticist Marc Raibert is the founder and CEO of robot maker Boston Dynamics. Working with his team at Boston Dynamics, Marc Raibert builds some of the world s most advanced robots, such as BigDog, Atlas, Spot and Handle. These robots are inspired by the remarkable ability of animals to move with agility, dexterity, perception and intelligence. A key ingredient of these robots is their dynamic behavior, which contributes to their lifelike qualities and their effectiveness in the real world. Raibert founded Boston Dynamics as a spinoff from MIT, where he ran the Leg Laboratory, which helped establish the scientific basis for highly dynamic robots. He was a professor of EE CS at MIT and before that associate professor of CS Robotics at Carnegie Mellon University. Raibert is a member of the National Academy of Engineering. bostondynamics.com Noriko Arai AI expert Could an AI pass the entrance exam for the University of Tokyo? Noriko Arai oversees a project that wants to find out. Noriko Arai is the program director of an AI challenge, Todai Robot Project, which asks the question: Can AI get into the University of Tokyo? The project aims to visualize both the possibilities and the limitation of current AI by setting a concrete goal: a software system that can pass university entrance exams. In 2015 and 2016, Todai Robot achieved top 20 percent in the exams, and passed more than 60 percent of the universities in Japan. The inventor of Reading Skill Test, in 2017 Arai conducted a large-scale survey on reading skills of high and junior high school students with Japan's Ministry of Education. The results revealed that more than half of junior high school students fail to comprehend sentences sampled from their textbooks. Arai founded the Research Institute of Science for Education to elucidate why so many students fail to read and how she can support them. nii.ac.jp en faculty society arai noriko researchmap.jp arai noriko english Stuart Russell AI expert Stuart Russell wrote the standard text on AI; now he thinks deeply on AI's future Stuart Russell is a professor (and formerly chair) of Electrical Engineering and Computer Sciences at University of California at Berkeley. His book Artificial Intelligence: A Modern Approach (with Peter Norvig) is the standard text in AI; it has been translated into 13 languages and is used in more than 1,300 universities in 118 countries. His research covers a wide range of topics in artificial intelligence including machine learning, probabilistic reasoning, knowledge representation, planning, real-time decision making, multitarget tracking, computer https: ted2017.ted.com program Page 3 of 21 TED2017: The future you 4 20 17, 12:07 PM machine learning, probabilistic reasoning, knowledge representation, planning, real-time decision making, multitarget tracking, computer vision, computational physiology, global seismic monitoring and philosophical foundations. He also works for the United Nations, developing a new global seismic monitoring system for the nuclear-test-ban treaty. His current concerns include the threat of autonomous weapons and the long-term future of artificial intelligence and its relation to humanity. eecs.berkeley.edu russell Joseph Redmon Computer scientist Joseph Redmon works on the YOLO algorithm, which combines the simple face detection of your phone camera with a cloud-based AI in real time. Computer scientist Joseph Redmon is working on the YOLO (You Only Look Once) algorithm, which has a simple goal: to deliver image recognition and object detection at a speed that would seem science-fictional only a few years ago. The algorithm looks like the simple face detection of a camera app but with the level complexity of systems like Google's Deep Mind Cloud Vision, using Convolutional Deep Neural Networks to crunch object detection in realtime. It's the kind of technology that will be embedded on all smartphones in the next few years. Redmon is also internet-famous for his resume. pjreddie.com pjreddie Tom Gruber AI developer As co-creator of Siri, Tom Gruber helped redefine the role of machine intelligence in our lives and transformed the way we interact with our devices. By connecting humans and machines with AI, designer, inventor and polymath Tom Gruber is opening up new ways to improve our lives and augment human intelligence. Gruber led the team that revolutionized human-machine interaction with Siri, the intelligent personal assistant that can understand your spoken language and help you get things done. Launched in 2010, Siri is now used billions of times a week in more than 30 countries around the world. tomgruber.org Radhika Nagpal Robotics engineer Taking cues from bottom-up biological networks like those of social insects, Radhika Nagpal helped design an unprecedented swarm of ant-like robots. With a swarm of 1,024 robots inspired by the design of ant colonies, Radhika Nagpal and her colleagues at Harvard s SSR research group have redefined expectations for self-organizing robotic systems. Guided by algorithms, Nagpal s shockingly simple robots guide themselves into a variety of shapes beyond. In addition to her work with biologically inspired robots, Nagpal helped create ROOT, a simple robot to teach coding to would-be programmers through a simple user interface suitable for students of all ages. radhikanagpal.org eecs.harvard.edu ssr Tuesday, April 25, 11:00AM - 12:45PM PDT Session 3: The Human Response Hosted by Chris Anderson and Kelly Stoetzel. Rutger Bregman Historian Rutger Bregman is the author of the new "Utopia for Realists." Rutger Bregman is one of Europe s most prominent young thinkers. The 28-year-old historian and author has published four books on history, philosophy and economics. His History of Progress was awarded the Belgian Liberales prize for best nonfiction book of 2013. The Dutch edition of Utopia for Realists became a national bestseller and will be translated in 16 languages this year. Bregman has twice been nominated for the prestigious European Press Prize for his journalism work at The Correspondent. His work has been featured in The Washington Post and The Guardian and on the BBC. rutgerbregman.com rcbregman https: ted2017.ted.com program Page 4 of 21 TED2017: The future you 4 20 17, 12:07 PM Martin Ford Futurist Martin Ford imagines what the accelerating progress in robotics and artificial intelligence may mean for the economy, job market and society of the future. Martin Ford was one of the first analysts to write compellingly about the future of work and economies in the face of the growing automation of everything. He sketches a future that's radically reshaped not just by robots but by the loss of the income-distributing power of human jobs. How will our economic systems need to adapt? He's the author of two books: Rise of the Robots: Technology and the Threat of a Jobless Future (winner of the 2015 Financial Times McKinsey Business Book of the Year Award ) and The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, and he's the founder of a Silicon Valley-based software development firm. He has written about future technology and its implications for the New York Times, Fortune, Forbes, The Atlantic, The Washington Post, Harvard Business Review and The Financial Times. mfordfuture.com MFordFuture Jack Conte Musician, entrepreneur With his membership platform Patreon, YouTube star Jack Conte may have solved a perennial problem of content creators for digital media. As a solo artist and member of folk-rock duo Pomplamoose, Jack Conte garnered millions of views for his offbeat video songs, including his breakout hit Yeah Yeah Yeah and Pedals, a robotic tour-de-force with a set that duplicates the cockpit of the Millennium Falcon. Despite his success, Conte noted the disconnect between page views and revenue, and realized that if you re a widely viewed artist and you aren t making money, that s not your fault payments from patrons to support creatives with ongoing projects. patreon.com jackconte jackconte Sara DeWitt Children s media expert Like Mister Rogers before her, Sara DeWitt strives to make every child feel special by charting the forefront of new digital mediums where kids spend their time. Sara DeWitt s vision seems simple: make each digital interaction an opportunity to learn and delight in new discoveries. How does that vision come to light as kids access technology at younger ages than ever before? Over the past 18 years, DeWitt has worked at the forefront of new platforms in an effort to be everywhere kids are Kids Digital, building award-winning sites, games and apps. As more media outlets try to capture the interest of our youngest audiences, her research on how digital spaces affect skills and social emotional development in kids is more relevant than ever. pbskids.org saradewitt Ray Dalio Hedge fund chair Ray Dalio is the founder, chair and co-chief investment officer of Bridgewater Associates, a global leader in institutional portfolio management and the largest hedge fund in the world. Dalio started Bridgewater out of his two-bedroom apartment in New York City in 1975 and has grown it into the fifth most important private company in the U.S. (according to Fortune magazine). Because of the firm s many industry-changing innovations over its 40-year history, he has been called the Steve Jobs of investing by aiCIO magazine and named one of TIME magazine s "100 Most Influential People." Dalio attributes Bridgewater s success to its unique culture. He describes it as a believability-weighted idea meritocracy in which the people strive for meaningful work and meaningful relationships through radical truth and radical transparency. He has explained this approach in his book Principles, which has been downloaded more than three million times and has produced considerable curiosity and controversy. bridgewater.com principles.com Anthony D. Romero Attorney, public-interest activist Anthony D. Romero is the executive director of the American Civil Liberties Union (ACLU). The ACLU is dedicated to defending liberty and individual freedom in the US Anthony Romero has headed the organization since 2001, focusing on building capacity in order to defend the laws that protect Americans' freedoms. Under Romero's watch, the ACLU launched its national "Keep America Safe and Free" campaign to protect basic freedoms during a time of crisis; launched its unique legal challenge to the patents held by a private company on the human genes associated with breast and ovarian cancer; launched litigation and lobbying efforts to win the freedom to marry for same-sex couples; and filed the first lawsuit against President Trump s Muslim Ban. https: ted2017.ted.com program Page 5 of 21 TED2017: The future you 4 20 17, 12:07 PM aclu.org T. Morgan Dixon Health activist T. Morgan Dixon is the co-founder and CEO of GirlTrek, inspiring nearly 100,000 neighborhood walkers. T. Morgan Dixon co-leads GirlTrek, the largest public health nonprofit for African-American women and girls in the United States. GirlTrek encourages women to use walking as a practical first step to inspire healthy living, families and communities and knits local advocacy together to lead a civil rights-inspired health movement that seeks to eliminate barriers to physical activity, improve access to safe places to walk, protect and reclaim green spaces and improve the walkability and built environments of 50 high-need communities across the United States. Prior to GirlTrek, Dixon was on the front lines of education reform. She served as Director of Leadership Development for one of the largest charter school networks in the country, Achievement First, and directed the start-up of six public schools in New York City for St. Hope and the Urban Assembly, two organizations funded by the Bill Melinda Gates Foundation. As the leader of GirlTrek, Morgan received fellowships from Echoing Green (2013), Ashoka (2014) and The Aspen Institute (2015). girltrek.org GirlTrek Vanessa Garrison Health activist As COO of GirlTrek, Vanessa Garrison encourages African American women and girls to get out and take a walk. Vanessa Garrison is the co-founder and COO of GirlTrek, the largest public health nonprofit for African-American women and girls in the United States. With nearly 100,000 neighborhood walkers, GirlTrek encourages women to use walking as a practical first step to inspire healthy living, families and communities. Working with partners, GirlTrek has developed a world-class training for African-American women to serve as health professionals in the areas of fitness, mental health, nutrition, and environmental stewardship. Prior to GirlTrek, Garrison worked as a Program Coordinator for Our Place DC, a nonprofit organization that provides services to currently and formerly incarcerated women. In her work with GirlTrek, she's received fellowships from Echoing Green and The Aspen Institute and been named Health Hero by Essence Magazine. girltrek.org GirlTrek Tuesday, April 25, 2:15PM - 4:00PM PDT TED en Espa ol: Conexi n y Sentido Hosted by Gerry Garbulsky, TED en Espa ol showcases powerful ideas in Spanish. Join us in the Community Theater. (English translation will be available.) Gabriela Gonz lez Astrophysicist Gabriela Gonz lez is part of the collaboration of more than 1,000 scientists who measured for the first time the gravitational waves that Einstein predicted over 100 years ago. Over 100 years after Albert Einstein predicted gravitational waves merging of two black holes different parts of the world. As LIGO's former spokesperson and the person responsible for the collaboration of 90 international scientific institutions that the project entailed, Argentine astrophysicist Gabriela Gonz lez announced the extraordinary discovery to the world in 2016. A relentless curiosity about the universe led Gonz lez to astrophysics as a teenager. Over the course of her 25-year career, she has advanced the field of gravitational wave detection, working on both improving the sensitivity of interferometers and data analysis. She is the recipient of the E. Bouchet and the Jesse W. Beams awards from the American Physical Society, the B. Rossi prize from the American Astronomical Society, and the 2016 Scientific Discovery Award from the US National Academy of Sciences. She was the first woman to receive a full professorship in the physics department at Louisiana State University. phys.lsu.edu faculty gonzalez Jorge Drexler Musician, poet Jorge Drexler is a musician and the first Uruguayan to win an Oscar. His music plays with genre and influence, combining subtle harmonies and regional styles with electronic effects. Jorge Drexler doesn't lay claim to one identity over another. Born to a German-Jewish exile, Drexler grew up between Uruguay and Israel, traveled widely across Latin America, and eventually settled in Spain. Within his music, you can hear touches of milonga and bossa nova and even Bach, as his lyrics wrangle with notions of nationality and belonging, language, identity and love. Like both of his parents, Drexler started his career as a physician, but at the age of 30, he decided to pursue music full-time. The release of https: ted2017.ted.com program Page 6 of 21 TED2017: The future you 4 20 17, 12:07 PM Like both of his parents, Drexler started his career as a physician, but at the age of 30, he decided to pursue music full-time. The release of his fifth album, Frontera, caught the attention of Brazilian director Walter Salles, who tapped him to write the closing song for the 2004 film Motorcycle Diaries. Titled "Al Otro Lado del R o" (The Other Side of the River), the song won Drexler an Academy Award for Best Original Song and propelled him into the international spotlight. Over the course of his 25-year career, Jorge Drexler has produced 12 albums, received 15 Latin Grammy nomination (with two wins in 2014 Record of the Year and Best Singer-Songwriter Album), four US Grammy nominations, 5 ASCAP Latin Awards, and one Academy Award. He has also collaborated with musicians from Shakira to Mercedes Sosa to Neneh Cherry and Jovanotti. jorgedrexler.com drexlerjorge Jorge Ramos Journalist, news anchor Jorge Ramos is a journalist and a news anchor. His work covers the issues that affect the 55 million Latinos in the United States and immigrants all over the world. Jorge Ramos immigrated to the United States from Mexico City, on a student visa at the age of 24. What started as a street beat for a local Spanish-language broadcast in Los Angeles in the 1980s has evolved into a career of remarkable distinction and credibility. Today, Ramos co-anchors Univision's flagship Spanish-language broadcast, Noticiero Univisi n," writes a nationally syndicated column, hosts the Sunday Morning show "Al Punto" and now, the English language program, "America with Jorge Ramos." He is the winner of eight Emmys and the author of eleven books, including Take a Stand: Lessons from Rebels, 2016; A Country for All: An Immigrant Manifesto; and Dying to Cross: The Worst Immigrant Tragedy in American History. In the absence of political representation in the United States, Jorge Ramos gives a face and voice to the millions of Latinos and immigrants living in the United States. He uses his platform to promote open borders and immigrants' rights and demands accountability from the world leaders he interviews. Nearly 1.9 million viewers tune into his program each night, and in 2015, Time named him one of "The World's 100 Most Influential People." jorgeramos.com jorgeramosnews Isabel Behncke Izquierdo Primatologist Isabel Behncke Izquierdo studies the social behavior of primates and the birth of human cultures. TED Fellow Isabel Behncke Izquierdo writes: I was born and raised in Chile, and was educated in animal behaviour and evolutionary anthropology in Cambridge and Oxford. For my PhD work, I study the social behaviour (and play behaviour in particular) of wild bonobos in DR Congo. Bonobos are, together with chimpanzees, our living closest relatives; however we know very little about them work. In Wamba, a most remote jungle location, I have observed unique aspects of bonobo lives (from imaginary play and laughter to inter-group encounters to accidents and death) that challenge and illuminate our understanding of human evolution. I aim to link the play of adult bonobos to insights on human laughter, joy, creativity and our capacity for wonder and exploration. Tom s Saraceno Artist Tom s Saraceno is an artist who invites us to consider the impossible, like spiders that play music or cities in the sky. Tom s Saraceno s soaring artworks inspire human dreams and point to a world free of our earth-bound afflictions, whether by suspending its viewers in webs high above gallery floors or by casting solar-powered baloons adrift in the stratosphere Part art project and science experiment, his latest work Aerocene bypasses the museum in favor of an unprecedented airborne journey. Using only the heat of the sun and wind for its locomotion, Aerocene not only shattered solar-powered flight records but also invites others to hack its open-source, interactive design and model its flight behavior. tomassaraceno.com tomassaraceno Ingrid Betancourt Writer, peace advocate Ingrid Betancourt was a presidential candidate in Colombia in 2002 when she was kidnapped by guerilla rebels. After six years in captivity and a high-profile rescue, she now writes about what she learned about fear, forgiveness and the divine. In 2002, the Colombian rural guerilla movement known as the FARC (Revolutionary Armed Forces of Colombia) kidnapped Ingrid Betancourt in the middle of her presidential campaign. For the next six years, Betancourt was held hostage in jungle prison camps where she was ravaged by malaria, fleas, hunger, and human cruelty until her high-profile rescue by the Colombian government in 2008. But Betancourt's captivity did not diminish her sensitivity to the world. Since her release, the would-be president has become a memoirist and fiction writer. Her first book, Even Silence Has Its End, which lyrically recounts her six years in the impenetrable jungle, was published in 2010. In 2016, she published a second work Argentina during the Dirty War from 1976 to 1983. Betancourt has received multiple international awards for her commitment to democratic values, freedom and tolerance, including the French National Order of the L gion d Honneur, the Spanish Prince of Asturias Prize of Concord, and the Italian Prize Grinzane Cavour. https: ted2017.ted.com program Page 7 of 21 TED2017: The future you 4 20 17, 12:07 PM She remains a vocal proponent of peace negotiations between the Colombian government and the FARC. Tuesday, April 25, 5:00PM - 7:00PM PDT Session 4: Health, Life, Love Hosted by Chris Anderson, Anna Verghese and Bruno Giussani. Not attending TED2017? Watch Session 4 TED Prize broadcast to cinemas! Find showtimes Serena Williams Athlete With her legendary spirit and unstoppable serve, tennis legend Serena Williams has become one of the world s most enduring athletic superstars. Serena Williams sits at the top of the tennis world; she's won 23 career Grand Slams, which is the most Grand Slam singles titles in history, with her most recent win at the 2017 Australian Open. In some analysts' eyes, she's quite simply the greatest athlete of all time. But Williams has extended her influence far beyond the tennis court. Through her activism, high-profile endorsements, TV and film appearances and writing (including a guide to life written with her sister, Venus), Williams inspires millions of fans worldwide. serenawilliams.com serenawilliams on Instagram Gayle King Journalist Gayle King is a co-host of "CBS This Morning and Editor-at-Large of the award-winning O, the Oprah Magazine. An award-winning journalist who has worked across television, radio and print, Gayle King is a co-host of CBS This Morning and Editorat-Large of O, the Oprah Magazine. King previously hosted The Gayle King Show, a live, weekday television interview program on OWN: The Oprah Winfrey Network. The program, which featured a discussion of a broad variety of topics that include politics, cultural developments, was also broadcast on XM Satellite Radio, where it premiered in 2006. Before moving into print and radio, King worked for 18 years (1982 2000) as a television news anchor for CBS affiliate WFSB-TV in Hartford, Conn., during which period, she also hosted her own syndicated daytime program. Prior to joining WFSB, King worked at several other television stations, including WDAF-TV in Kansas City, Mo. (1978-1981), WJZ-TV in Baltimore, Md. (1976), and WTOP- TV in Washington, D.C. (1975). King has received numerous awards for her extensive work as a journalist. In addition to three Emmys, she was honored in 2008 with the American Women in Radio Television Gracie Award for Outstanding Radio Talk Show and in 2010 with both the Individual Achievement Award for Host-Entertainment Information and the New York Women in Communications' Matrix Award. cbsnews.com cbs-this-morning GayleKing Atul Gawande Surgeon, journalist Surgeon by day and public health journalist by night, Atul Gawande explores how doctors can dramatically improve their practice using something as simple as a checklist. Atul Gawande is author of several best-selling books, including Complications: A Surgeon's Notes on an Imperfect Science, Better: A Surgeon's Notes on Performance, Being Mortal: Medicine and What Matters in the End and The Checklist Manifesto. He is also a surgeon at Brigham and Women s Hospital in Boston, a staff writer for The New Yorker and a professor at Harvard Medical School and the Harvard School of Public Health. He has won the Lewis Thomas Prize for Writing about Science, a MacArthur Fellowship and two National Magazine Awards. In his work in public health, he is Executive Director of Ariadne Labs, a joint center for health systems innovation and chair of Lifebox, a nonprofit organization making surgery safer globally. Photo: Aubrey Calo atulgawande.com ariadnelabs.org Anna Rosling R nnlund Co-founder of Gapminder Anna Rosling R nnlund's personal mission: to make it easy for anyone to understand the world visually. Always with the end consumer at heart, Anna Rosling R nnlund spends her days making sure everything at Gapminder cofounded with Hans and Ola Rosling the world https: ted2017.ted.com program Page 8 of 21 TED2017: The future you 4 20 17, 12:07 PM Passionate about the visual side of data, she invented the project Dollar Street, where she uses photos as data to examine stereotypes about countries, incomes and families around the world gapminder.org The Surprise Guest World figure A world figure whose identity we can't yet reveal. Jon Boogz Movement artist Jon Boogz is a movement artist, choreographer, and director who seeks to push the evolution of what dance can be. As a dancer and creator, Jon Boogz seeks to share with audiences of all backgrounds an appreciation of the melding of art forms while inspiring and bringing awareness to social issues. Boogz recently wrote, choreographed, directed and danced in Color of Reality, a short film in collaboration with visual artist Alexa Meade and fellow dancer Lil Buck. First motivated to dance by the work of Michael Jackson, Boogz has choreographed for icons including Mikhail Baryshnikov, Naomi Campbell, Gloria Estefan; for Pharrell s Adidas Originals campaign to creative direct, choreograph, and perform in Movement Art Is: Standing Rock at ComplexCon; and as creative consultant for ads launching campaigns for Apple and Lexus. Boogz s collaborators include TriBeCa Film Festival, DAIS, Lil Buck, and Flying Lotus; his choreography is used in FOX s So You Think You Can Dance and Cirque du Soleil s MJ ONE; and he was featured at the Geffen Playhouse s Backstage at the Geffen with his dance company Control Freakz, Lil Buck, and spoken-word artist Robin Sanders to honor Morgan Freeman and Jeff Skoll. jonboogz.com jonboogz Lil Buck Dancer, choreographer, educator A viral video star known for his gravity-defying, elegant street dance moves, Lil Buck is a fertile collaborator across disciplines and media. International phenomenon Lil Buck began jookin and Daniel Price. After receiving early hip-hop training from Teran Garry and ballet training on scholarship at the New Ballet Ensemble, he performed and choreographed until relocating to Los Angeles in 2009. Named one of Dance Magazine s "25 to Watch," his collaboration with Spike Jonze and Yo-Yo Ma performing The Swan went viral in 2011. Since then, he has collaborated with a broad spectrum of artists including JR, Damian Woetzel, the New York City Ballet, Madonna, Benjamin Millepied and Spike Lee. Buck is an avid arts education advocate, a recipient of the WSJ Innovator Award and recently launched a capsule collection with Versace. youtube.com user LILBUCKDALEGEND https: twitter.com lilbuckdalegend Raj Panjabi Physician A billion people around the world lack access to health care because they live too far from a clinic. Through Last Mile Health, 2017 TED Prize winner Raj Panjabi aims to extend health services to all Raj Panjabi was nine years old when civil war broke out in his native country of Liberia. His family fled, eventually resettling in High Point, North Carolina. Raj dreamed of going to medical school and, as a student in 2005, he returned to Liberia. He was shocked to find a health care system in total devastation. Only 50 doctors remained to treat a population of four million. With a small team of Liberian civil war survivors, American health workers and 6,000 he'd received as a wedding gift, Panjabi cofounded Last Mile Health in 2007. Initially focused on care for HIV patients, Last Mile Health has grown into a robust organization that partners with the government of Liberia to recruit, train, equip and employ community health care workers who provide a wide range of services to their neighbors in Liberia's most remote regions. In 2016, Last Mile Health workers treated 50,000 patients, including nearly 22,000 cases of malaria, pneumonia and diarrhea in children. While the organization focuses on integrated primary care, its network can be leveraged in a crisis. In the fight against Ebola, Last Mile Health supported government response by training 1,300 health workers in southeastern Liberia. Panjabi is a physician in the Division of Global Health Equity at Harvard Medical School, Brigham and Women's Hospital and an advisor to the Clinton Global Initiative. He was ranked as one of "The World s 50 Greatest Leaders" by Fortune in 2015 and named to TIME's list of the "100 Most Influential People in the World" in 2016. As the winner of the 2017 TED Prize, he has a bold wish to take his work even further. https: ted2017.ted.com program Page 9 of 21 TED2017: The future you 4 20 17, 12:07 PM Wednesday, April 26, 8:30AM - 10:15AM PDT Session 5: Mind, Meaning Hosted by Helen Walters. Michael Patrick Lynch Philosopher Michael Patrick Lynch examines truth, democracy, public discourse and the ethics of technology in the age of big data. Michael Patrick Lynch is a writer and professor of philosophy at the University of Connecticut, where he directs the Humanities Institute. His work concerns truth, democracy, public discourse and the ethics of technology. Lynch is the author or editor of seven books, including The Internet of Us: Knowing More and Understanding Less in the Age of Big Data, In Praise of Reason: Why Rationality Matters for Democracy, Truth as One and Many and the New York Times Sunday Book Review Editor s pick, True to Life. The recipient of the Medal for Research Excellence from the University of Connecticut s College of Liberal Arts and Sciences, he is The Principal Investigator for Humility Conviction in Public Life, a 7 million project aimed at understanding and encouraging meaningful public discourse funded by the John Templeton Foundation and the University of Connecticut. He's a frequent contributor to the New York Times The Stone blog. michael-lynch.philosophy.uconn.edu Dan Ariely Behavioral economist The dismal science of economics is not as firmly grounded in actual behavior as was once supposed. In "Predictably Irrational," Dan Ariely told us why. Dan Ariely is a professor of psychology and behavioral economics at Duke University and a founding member of the Center for Advanced Hindsight. He is the author of the bestsellers Predictably Irrational, The Upside of Irrationality, and The Honest Truth About Dishonesty as well as the TED Book Payoff: The Hidden Logic that Shapes Our Motivations. Through his research and his (often amusing and unorthodox) experiments, he questions the forces that influence human behavior and the irrational ways in which we often all behave. predictablyirrational.com danariely Mariano Sigman Neuroscientist In his provocative, mind-bending book "The Secret Life of the Mind," neurologist Mariano Sigman reveals his life s work exploring the inner workings of the human brain. Mariano Sigman, a physicist by training, is a leading figure in the cognitive neuroscience of learning and decision making. He is the founder of the Integrative Neuroscience Laboratory at the University of Buenos Aires. Sigman was awarded a Human Frontiers Career Development Award, the National Prize of Physics, the Young Investigator Prize of "College de France," the IBM Scalable Data Analytics Award and is a scholar of the James S. McDonnell Foundation. In 2016 he was made a Laureate of the Pontifical Academy of Sciences. In The Secret Life of the Mind, Sigman s ambition is to explain the mind so that we can understand ourselves and others more deeply. He shows how we form ideas during our first days of life, how we give shape to our fundamental decisions, how we dream and imagine, why we feel certain emotions, how the brain transforms and how who we are changes with it. Spanning biology, physics, mathematics, psychology, anthropology, linguistics, philosophy and medicine, as well as gastronomy, magic, music, chess, literature and art, The Secret Life of the Mind revolutionizes how neuroscience serves us in our lives, revealing how the infinity of neurons inside our brains manufacture how we perceive, reason, feel, dream and communicate. neuro.org.ar mariuchu Anika Paulson Student, musician Anika Paulson s love for music permeates her understanding of herself, her surroundings and the mysteries that make up the smallest and biggest parts of life. Whether it s the long trek between high school classes or the exploration of self-identity in college, Anika Paulson s escape is always music. A self-proclaimed nervous Minnesotan, music is the measure of her life s tempo. There s no doubt that whatever Paulson decides to do, she will use the power and metaphor of music to guide her future. After all, according to Paulson, whether it s friendships or string theory, everything is music. Recently, Paulson completed a TED-Ed Club and was one of 20 students selected to speak at TED-Ed Weekend 2016 at TED's headquarters in New York City. annikap Lisa Genova Neuroscientist, novelist Through her fiction, Lisa Genova beckons us into the lives of people with neurological disease, making their worlds real and relatable. https: ted2017.ted.com program Page 10 of 21 TED2017: The future you 4 20 17, 12:07 PM Lisa Genova wields her ability to tell a story and her knowledge of the human brain to talk about medical conditions like Alzheimer s in warmly human terms. Her writing, often focusing on those who are misunderstood, explores the lives of people living with neurological diseases and disorders. A bestselling author, her work has been transformed into an Oscar-winning film, Still Alice, but the real triumph is Genova s ability to help us empathize with a person s journey we otherwise couldn t even begin to understand. Her newest book, Inside the O Briens, is about Huntington s disease. lisagenova.com LisaGenova Robin Hanson Economist, social scientist Does humanity have a future as uploaded minds? In his work, Robin Hanson asks this and other extra-large questions. In his book, The Age of Em: Work, Love and Life When Robots Rule the Earth, Robin Hanson re-imagines humanity's role as our tech becomes smarter. A pioneer in prediction markets, also known as information markets and idea futures, Hanson has been known since the 1980s for taking the very very long view on topics as varied as (a selected list) spatial product competition, health incentive contracts, group insurance, product bans, evolutionary psychology and bioethics of health care, voter information incentives, incentives to fake expertise, Bayesian classification, agreeing to disagree, self-deception in disagreement, probability elicitation, wiretaps, image reconstruction, the history of science prizes, reversible computation, the origin of life, the survival of humanity, very long term economic growth, growth given machine intelligence, and interstellar colonization. Meanwhile, he has developed new technologies for conditional, combinatorial, and intermediated trading, and studied insider trading, manipulation and other foul play. Hanson is associate professor of economics at George Mason University, and a research associate at the Future of Humanity Institute of Oxford University. His next book is The Elephant in the Brain, co-authored with Kevin Simler, due in 2018. overcomingbias.com robinhanson Anil Seth Cognitive scientist How can the "inner universe" of consciousness be explained in terms of mere biology and physics? Cognitive neuroscientist Anil Seth explores the brain basis of consciousness and self. In his groundbreaking research, Anil Seth seeks to understand consciousness in health and in disease. As founding co-director of the University of Sussex s Sackler Centre for Consciousness Science, his research bridges neuroscience, mathematics, artificial intelligence, computer science, psychology, philosophy and psychiatry. He has also worked extensively with playwrights, dancers and other artists to shape a truly humanistic view of consciousness and self. Seth is the editor and co-author of the best-selling 30-Second Brain, a collection of brief and engaging neuroscience vignettes. His forthcoming book The Presence Chamber develops his unique theories of conscious selfhood within the rich historical context of the mind and brain sciences. anilseth.com anilkseth Wednesday, April 26, 11:00AM - 12:45PM PDT Session 6: Planet, Protection Hosted by Chris Anderson. Kristin Poinar Glaciologist Kristin Poinar uses remote sensing and numerical models to study the interaction of meltwater with ice flow, especially on the Greenland Ice Sheet. Hidden under many meters of ice, a pool of meltwater lies under the Greenland Ice Sheet. Kristin Poinar studies how the meltwater forms and flows in this dynamic glacial system. She asks: How did this water get there, and where does it go? How much water is in there? And how is climate change affecting this system? Using data from Operation IceBridge flights and from field instruments, she's building a numerical model of how crevasses form and channel water. In fact, a NASA report released in February 2017 revealed a new pathway her team discovered for meltwater to reach the ocean. Using physically based models to constrain the bounds of what is realistic has shaped Poinar's interest in glaciology. http: science.gsfc.nasa.gov sed bio kristin.poinar crevassse Kate Marvel Climate scientist Climate scientist Kate Marvel looks at the big picture of environmental change. Kate Marvel is a scientist at Columbia University and the NASA Goddard Institute of Space studies. She uses computer models and https: ted2017.ted.com program Page 11 of 21 TED2017: The future you 4 20 17, 12:07 PM Kate Marvel is a scientist at Columbia University and the NASA Goddard Institute of Space studies. She uses computer models and satellite observations to monitor and explain the changes happening around us. Her work has suggested that human activities are already affecting global rainfall and cloud patterns. Marvel is committed to sharing the joy and beauty of science with wider audiences. She has advised journalists, artists and policymakers, written a popular science blog and given frequent public talks. Her writing has appeared in Nautilus Magazine. marvelclimate.com DrKateMarvel Danny Hillis Computer theorist Inventor, scientist, author, engineer surprising results. Danny Hillis is an inventor, scientist, author and engineer. While completing his doctorate at MIT, he pioneered the concept of parallel computers that is now the basis for most supercomputers, as well as the RAID array. He holds over 100 US patents, covering parallel computers, disk arrays, forgery prevention methods and various electronic and mechanical devices, and he has recently been working on problems in medicine as well. He is also the designer of a 10,000-year mechanical clock, and he gave a TED Talk in 1994 that is practically prophetic. Throughout his career, Hillis has worked at places like Disney and now Applied Minds, always looking for the next fascinating problem. appliedminds.com Tim Kruger Geoengineering researcher Tim Kruger researches geoengineering: techniques to counteract climate change by deliberate, large-scale intervention in the earth system, by reflecting sunlight back into space or by reducing the level of carbon dioxide in the atmosphere. While our first priority should be to reduce global carbon emissions, research into geoengineering could prove vital in the fight to protect our planet. At the Oxford Geoengineering Programme, Tim Kruger aims to assess the range of proposed geoengineering techniques to determine which, if any, could be both technically feasible and benign environmentally, socially and ethically. Kruger, an Oxford Martin Fellow, is a co-author of the Oxford Principles, a draft code of conduct for geoengineering. It calls for geoengineering to be regulated as a public good, for public participation in decision-making and for disclosure of research and open publication of results. He is involved in developing a process that uses natural gas to generate electricity in a way that removes carbon dioxide from the atmosphere. geoengineering.ox.ac.uk linkedin.com Daan Roosegaarde Artist With his futuristic artworks, Daan Roosegaarde illuminates the intersection of technology, humanity and our urban environments. Daan Roosegaarde builds jaw-dropping artworks that redefine humanity s relationship to city spaces. Along with his team at Studio Roosegaarde, Roosegaarde is devoted to Landscapes of the Future, city prototypes and urban adornments that fuse aesthetics with sustainability. From Smog Free Project in Beijing an interactive dance floor that generates electricity from dancers, Roosegaarde s designs revolutionize the role of technology in the built environment. studioroosegaarde.net SRoosegaarde Peter Calthorpe Urban designer Through his writing and his realized projects, Peter Calthorpe has spread the vision of New Urbanism, a framework for creating sustainable, human-scaled places. Peter Calthorpe s 30-year design practice is informed by the idea that successful places metropolitan regions environmentally sustainable. In the early 1990s he developed the concept of Transit Oriented Development (described in his book The Next American Metropolis: Ecology, Community and the American Dream) world. His 2010 book is Urbanism in the Age of Climate Change. Calthorpe Associates' work in Europe, Asia and the Middle East has demonstrated that community design with a focus on sustainability and scale can be adapted throughout the globe. His current work throughout China is focused on developing standards and examples of Low Carbon Cities in Beijing, Chongqing, Kunming, Zhuhai, Jinan and other major cities. calthorpe.com David Titley Meteorologist Scientists and retired Navy officer Dr. David Titley asks a big question: Could the US military play a role in combating climate change? https: ted2017.ted.com program Page 12 of 21 TED2017: The future you 4 20 17, 12:07 PM David Titley is a Professor of Practice in Meteorology and a Professor of International Affairs at the Pennsylvania State University. He is the founding director of Penn State s Center for Solutions to Weather and Climate Risk. He served as a naval officer for 32 years and rose to the rank of Rear Admiral. Titley s career included duties as commander of the Naval Meteorology and Oceanography Command; oceanographer and navigator of the Navy; and deputy assistant chief of naval operations for information dominance. He also served as senior military assistant for the director, Office of Net Assessment in the Office of the Secretary of Defense. While serving in the Pentagon, Titley initiated and led the U.S. Navy s Task Force on Climate Change. After retiring from the Navy, Titley served as the Deputy Undersecretary of Commerce for Operations, the chief operating officer position at the National Oceanic and Atmospheric Administration. Titley serves on numerous advisory boards and National Academies of Science committees, including the CNA Military Advisory Board, the Center for Climate and Security and the Science and Security Board of the Bulletin of the Atomic Scientists. Titley is a fellow of the American Meteorological Society. He was awarded an honorary doctorate from the University of Alaska, Fairbanks. solutions2wxrisk.psu.edu dwtitley Ted Halstead Policy entrepreneur, climate expert, author Ted Halstead is breathing new life into US climate policy by mobilizing conservative leaders and CEOs around a breakthrough carbon dividends solution. When not writing or sailing around the world, Ted Halstead launches cutting-edge think tanks. His first, founded when he was 25, introduced new measures of progress and coordinated the Economists Statement on Climate Change, signed by 18 Nobel laureate economists. His second, New America, has become one of the most influential think tanks in Washington. Halstead s newest creation, the Climate Leadership Council, is transforming climate policy and politics by advancing a more effective, popular and equitable climate solution, based on the conservative principles of free markets and limited government. He has published numerous articles in the New York Times, Washington Post, Financial Times, Fortune, Atlantic, National Review, Los Angeles Times and Harvard Business Review. He has also published two books, including The Radical Center: The Future of American Politics (co-authored with Michael Lind). clcouncil.org ImTedHalstead Wednesday, April 26, 5:00PM - 7:00PM PDT Session 7: Connection, Community Hosted by Kelly Stoetzel and Bruno Giussani. Jacob Collier Musician and artist Jacob Collier is a one-man audio-visual viral sensation. In his videos, he sings every part, plays every instrument and visualizes every component with a captivating vision. Jacob Collier is nothing short of prodigious. A two-time Grammy-winning singer, arranger, composer, and multi-instrumentalist, he combines everything from jazz and a cappella to classical and Brazilian music. In 2014, he was discovered by the legendary producer Quincy Jone. Shortly after, Collier began working on his audio-visual live performance vehicle designed and built at MIT. Since his first video in 2011, Collier has amassed more than 250K international followers and 10 million YouTube views, including on his astounding cover of Stevie Wonder's "Don't You Worry 'Bout a Thing." In July 2016, Collier released his chart-topping debut album, In My Room. Most recently, he's been touring the world with his unique one-man show, helping to score the newest Dreamworks film, The Boss Baby, with Hans Zimmer, collaborating on Herbie Hancock's upcoming record and holding masterclasses at universities across the globe. jacobcollier.co.uk JCollierMusic Anna Heringer Architect Anna Heringer s sustainable designs lend breathtaking forms to easily-available local materials while developing the skills and consciousness of their builders. Before she became an architect, a visit to a small village in Bangladesh immediately hooked Anna Heringer on an ancient and yet neglected building material has persisted for thousands of years. Since then, Heringer s love affair with sustainable materials has deepened, resulting in acclaimed projects like woven bamboo hostels in China and the METI Handmade School in Rudrapur, where, along with local workers and schoolchildren, she created a building that drew on locally abundant materials and fostered modern, sustainable building skills in local craftsmen. In the 2014 book, The Future of Architecture, she and her coauthors argue for a future that is low-impact and adaptable. anna-heringer.com AnnaHeringer Grace Kim https: ted2017.ted.com program Page 13 of 21 TED2017: The future you Grace Kim Architect Grace H. Kim is an internationally recognized expert in cohousing Grace H. Kim is an architect and co-founding principal of Schemata Workshop, an award-winning, 16-person architectural practice with a keen focus on building community and social equity. She brings innovative ideas to her projects that merge client goals and sustainability measures Kim is also the founder of Capitol Hill Urban Cohousing, a collaborative residential community that includes her street-level office and a rooftop urban farm. She walks the talk of sustainability and economic resilience into her daily life. schemataworkshop.com GraceKimArch 4 20 17, 12:07 PM Devita Davison Food activist At FoodLab Detroit, Devita Davison supports local entrepreneurs and imagines a new future for food justice. Detroit is a legendary food town, and it's thanks to small, locally owned businesses that range from streetside barbecue tents to neighborhood bakeries, shops and delis business to take their dreams into delicious reality, by connecting them with business advice, help with compliance and licensing, space in professional kitchens, marketing ideas and more. The nonprofit focuses on entrepreneurs and communities who have been traditionally under-resourced, aiming to build power and resilience for people around the city. FoodLab's vision is to cultivate, connect and catalyze, to use food as an economic engine, to form a supportive community of entrepreneurs and to make good food a reality for all Detroiters. On LinkedIn devitadavison Karoliina Korppoo Game designer Inspired by classic city simulation games, Finnish designer Karoliina Korppoo and her fellow game developers at Colossal Order are infusing a venerable gaming genre with fresh perspectives. Developed by gaming upstarts Colossal Order and guided by Korppoo as lead designer, Cities: Skylines has become the gold standard for city simulation games At the core of Colossal Order s rejuvenated game designs is their dedication to creating an accessible experience for all users, whether through ease of use or by allowing users to suggest their own modifications. As a result, Colossal Order doesn t shy away from game projects that touch on the problems of urbanization, gentrification or the possibilities of servicing a city with nothing but gravel roads. colossalorder.fi pelikaroliina Cathy O'Neil Mathematician, data scientist Data skeptic Cathy O Neil uncovers the dark secrets of big data, showing how our "objective" algorithms could in fact reinforce human bias. In 2008, as a hedge-fund quant, mathematician Cathy O Neil saw firsthand how really really bad math could lead to financial disaster. Disillusioned, O Neil became a data scientist and eventually joined Occupy Wall Street s Alternative Banking Group. With her popular blog mathbabe.org, O Neil emerged as an investigative journalist. Her acclaimed book Weapons of Math Destruction details how opaque, black-box algorithms rely on biased historical data to do everything from sentence defendants to hire workers. In 2017, O Neil founded consulting firm ORCAA to audit algorithms for racial, gender and economic inequality. mathbabe.org mathbabedotorg Luma Mufleh Refugee activist Luma Mufleh does something revolutionary: she coaches soccer. A Jordanian immigrant and Muslim of Syrian descent, Mufleh is determined to empower refugee children everywhere. Luma Mufleh works with refugee children from war-torn countries, including Syria, Iraq, Burundi, Afghanistan, Somalia and Sudan. The CEO and Founding Director of Fugees Family, Inc., a nonprofit organization that empowers refugee children to successfully integrate into the United States, Mufleh started as a soccer coach. Her work grew into something much larger, however. Now, she s part principal, part tutor, the head of the first accredited private school dedicated to refugee education in the country, which encompases a summer camp and a college prep program model the United States needs. fugeesfamily.org fugeesfamily https: ted2017.ted.com program David Miliband Refugee advocate Page 14 of 21 TED2017: The future you 4 20 17, 12:07 PM Refugee advocate As president of the International Rescue Committee, David Miliband enlists his expert statesmanship in the fight against the greatest global refugee crisis since World War II. As the son of refugees, David Miliband has first-hand experience with those fleeing conflict and disaster. In 2013, he abandoned a long political career to take the helm of the International Rescue Committee, an NGO committed to emergency and long-term assistance to refugees (and founded at the call of Albert Einstein in 1933). As a former UK Secretary of State for Foreign Affairs, Miliband is no stranger to cross-border politics. He is a leading voice against recent anti-refugee and immigration measures in the US, where the IRC currently runs resettlement programs in 29 cities. rescue.org DMiliband Thursday, April 27, 11:00AM - 12:45PM PDT Session 8: Bugs and Bodies Hosted by Chris Anderson. Robert Sapolsky Neuroscientist, primatologist, writer Robert Sapolsky is one of the leading neuroscientists in the world, studying stress in primates (including humans). We all have some measure of stress, and Robert Sapolsky explores its causes as well as its effects on our bodies (his lab was among the first to document the damage that stress can do to our hippocampus). In his research, he follows a population of wild baboons in Kenya, who experience stress very similarly to the way humans do. By measuring hormone levels and stress-related diseases in each primate, he determines their relative stress, looking for patterns in personality and social behavior that might contribute. These exercises have given Sapolsky amazing insight into all primate social behavior, including our own. He has been called "one of the best scientist-writers of our time" by Oliver Sacks. Sapolsky has produced, in addition to numerous scientific papers, books for broader audiences, including A Primate s Memoir: A Neuroscientist s Unconventional Life Among the Baboons, Why Zebras Don t Get Ulcers: Stress Disease and Coping, and The Trouble with Testosterone. profiles.stanford.edu robert-sapolsky Jun Wang Genomics researcher At his new institute company, iCarbonX, Wang Jun aims to establish a big data platform for genomics. In 1999, Wang Jun founded the Bioinformatics Department of Beijing Genomics Institute (BGI, now known as BGI Shenzhen), one of China s premier research facilities. Until July 2015, Wang led the institution of 5,000 people engaged in studies of genomics and its informatics, including genome assembly, annotation, expression, comparative genomics, molecular evolution, transcriptional regulation, genome variation analysis, database construction as well as methodology development such as the sequence assembler and alignment tools. He also focuses on interpretation of the definition of gene by expression and conservation study. The Pig Genome Project was completed at BGI under his leadership, as well as the chicken genome variation map and the TreeFam in collaboration with the Sanger Institute. Recently, he and his group finished the first Asian diploid genome, the 1000 genome project, and many more projects. In late 2015, Wang founded a new institute company, iCarbonX, aiming to develop an artificial intelligence engine to interpret and mine genomic data and help people better manage their health and defeat disease. Anne Madden Microbial researcher Whether brewing better beer or chronicling the lives of the microbes living in the dust under the couch, Dr. Anne Madden seeks to understand and utilize the microbial world around us. Along with her colleagues in the Laboratory of Rob Dunn at North Carolina State University, Anne Madden studies ways that our dimly understood microbial neighbors can yield surprising discoveries. She s helped create one of the first single-culture sour beers, discovered a new fungus living inside wasp nests and cataloged the astonishing diversity of some of the microscopic and macroscopic life in our homes In addition to her research work at North Carolina State University, Madden is Chief Strategist at the brewing yeast company Lachancea LLC and consults for a variety of industries from bee keeping companies to technology firms. Her work has been featured on numerous media platforms, including National Geographic and Newsweek. anneamadden.com anneamadden David Brenner Radiation scientist https: ted2017.ted.com program Page 15 of 21 TED2017: The future you 4 20 17, 12:07 PM David Brenner sees the good and the bad sides of radiation for health care, and his goal is to optimize radiation for situations where the benefits can be large and the risks small. Radiation is very much a two-edged sword as a cure for many cancers. But radiation used in the wrong way can be harmful. To maximize the benefits of the many different types of radiation, we need to understand exactly how they affect us Brenner directs the Center for Radiological Research at Columbia University Medical Center. He started his career in theoretical physics applying quantum mechanics to radiation therapy. While he has no doubt forgotten everything he knew about quantum mechanics, he has retained his love for applying hard-core physics concepts to solve biological problems. David has designed new patient friendly approaches for prostate cancer radiation therapy that are now in common use worldwide, and he is currently very excited about the prospects of beating pancreatic cancer with new types of radiation. Over the past 6 years, Brenner has also been working towards a safe way to kill drug-resistant bacteria such as MRSA, as well as airborne viruses such as influenza, using a unique type of ultra-violet light. columbia.edu djb3 CRR CUMC Levon Biss Photographer With his "Microsculpture" series, Levon Biss photographs the incredible details of insects. Levon Biss is a British photographer who works across many genres, including reportage, sport and portraiture. His passion for nature and photography have come together to create Microsculpture. For the project, a unique photographic process composites thousands of images using multiple lighting setups to create the final insect portraits. Each specimen was mounted on an adapted microscope stage, allowing close control over the position of the specimen in front of the camera lens. Most insects were photographed in about 30 sections, each section lit differently with strobe lights to accentuate the microsculpture of that particular area of the body. Each insect portrait is created from more than 8,000 separate images. In between his insect projects, Biss continues to photograph humans. levonbiss.com LevonBissPhoto Mehdi Ordikhani-Seyedlar Neuroscientist Mehdi Ordikhani-Seyedlar is a postdoc at Duke, researching brain signals and their usage in brain-machine interfaces. Mehdi Ordikhani-Seyedlar began his research on the neuropharmacology of learning and memory when he was studying veterinary medicine in Tabriz, Iran. Subsequently studying in France and Germany, he researched human visual attention, then started his PhD thesis focusing on decoding electrophysiological features of covert and overt attention in humans. He spent 2014 as a visiting scholar at the Nicolelis Lab at Duke University. With his 2016 PhD from the Technical University of Denmark in hand, Ordikhani-Seyedlar took a postdoctoral position at Duke to develop algorithms to process large-scale neuronal activity and brain-machine interfaces. He hopes to begin May 1. mehdi ordikhani Richard Browning Founder, Gravity Richard Browning is the founder of human propulsion technology startup Gravity, which has invented, built and patented an Iron Man like personal flight system. Richard Browning is an ultra-marathon runner, an ex-Royal Marine reservist, former City commodity trader and a pioneering inventor. He's the founder of Gravity, launched in March 2017 with a dream to reimagine an entirely new form of human flight, leaning on an elegant collaboration of mind and body augmented by leading-edge technology. Gravity has to date been experienced by over a billion people globally with video views alone running at more than 60m within seven days of launch. Browning's vision is to build Gravity into a world-class aeronautical engineering business, challenge perceived boundaries in human aviation, and inspire a generation to dare ask what if gravity.co Elizabeth Blackburn Molecular biologist Elizabeth Blackburn won a Nobel Prize for her pioneering work on telomeres and telomerase, which may play central roles in how we age. Dr. Blackburn is the president of the Salk Institute and a pioneering molecular biologist. She received the Nobel Prize in Physiology or Medicine in 2009 for discovering the molecular nature of telomeres, the ends of chromosomes that serve as protective caps essential for preserving genetic information, and for co-discovering telomerase, an enzyme that maintains telomere ends. Both telomeres and telomerase are thought to play central roles in aging and diseases such as cancer, and her work helped launch entire new fields of research in these areas. In addition to the Nobel Prize, Blackburn has received nearly every major scientific award including the Lasker, Gruber, and Gairdner prizes. She has served as president of the American Association of Cancer Research and the American Society for Cell Biology, and on editorial boards of scientific journals including Cell and Science. She coauthored the best-selling book The Telomere Effect: A Revolutionary Approach to Living Younger, Healthier, Longer. salk.edu https: ted2017.ted.com program Page 16 of 21 TED2017: The future you 4 20 17, 12:07 PM Thursday, April 27, 2:15PM - 4:00PM PDT Session 9: It's Personal Hosted by Kelly Stoetzel and Helen Walters. Helen Pearson Science journalist, editor, author Helen Pearson's book, "The Life Project," tells the extraordinary story of the longest-running study of human development in the world. In March 1946, scientists began tracking almost every British baby born in a single week. What they discovered would change how we are born, grow up, raise children, live and die. Helen Pearson's 2016 book, The Life Project, is the story of this incredible project and the remarkable discoveries that have come from it. It was named best science book of the year by The Observer and was a book of the year for The Economist. As Chief Magazine Editor for the world s leading science journal, Nature, Pearson oversees all its journalism and opinion content. Her own stories have won accolades including the 2010 Wistar Institute Science Journalism Award and two best feature awards from the Association of British Science Writers. nature.com hcpearson Susan Pinker Psychologist, columnist, author Susan Pinker reveals how in-person social interactions are not only necessary for human happiness but also could be a key to health and longevity. In her award-winning book The Sexual Paradox, Susan Pinker argued that biological differences could play an unexpectedly large role in creating the workplace gender gap. With The Village Effect, she tracks another current: how social, face-to-face interactions are critical for the survival of our species, and how technology is isolating us from these life-saving bonds. As she writes: "Neglecting to keep in close contact with people who are important to you is at least as dangerous to your health as a pack- a- day cigarette habit, hypertension or obesity." In addition to her books, Pinker writes Mind and Matter, a column for the Wall Street Journal illuminating surprising advances in human behavior research. Pinker s numerous writings (including her weekly columns "Problem Solving" and "The Business Brain") have appeared in the Guardian, the New York Times and Financial Times, among many others. susanpinker.com Adam Alter Psychologist What makes us incessantly check our phones? Adam Alter dives into the fascinating psychology that drives our tech addictions. Adam Alter's academic research focuses on judgment, decision-making and social psychology, with a particular interest in the sometimes surprising effects of subtle cues in the environment on human cognition and behavior. He is the bestselling author of two books: Irresistible, which considers why so many people today are addicted to so many behaviors, from incessant smart phone and internet use to video game playing and online shopping, and Drunk Tank Pink, which investigates how hidden forces in the world around us shape our thoughts, feelings and behaviors. adamalterauthor.com adamleealter Jeffrey Schnapp Cultural historian As the founder of metaLAB at Harvard, Jeffrey Schnapp thinks deeply on modern media, design, humanities and movement. Jeffrey Schnapp is the founder faculty director of metaLAB (at) Harvard and faculty co-director of the Berkman Klein Center for Internet and Society. Trained as a medievalist, his recent books and work concern the deeply modern, including The Library Beyond the Book, coauthored with Matthew Battles, on scenarios for libraries in the digital age, and FuturPiaggio: Six Italian Lessons on Mobility and Modern Life. His pioneering work in media, design, digital arts and humanities as well as his curatorial practice includes collaborations with the Triennale di Milano, the Cantor Center for the Visual Arts, the Wolfsonian-FIU and the Canadian Center for Architecture. He is CEO and co-founder of Piaggio Fast Forward, developing imaginative solutions to the light mobility and transportation challenges. jeffreyschnapp.com jaytiesse Chuck Nice https: ted2017.ted.com program Page 17 of 21 TED2017: The future you Chuck Nice Comedian, science fan The co-host of Star Talk Radio, Chuck Nice is a radio and TV veteran with a passion for science communication and comedy. Chuck Nice is an 18-year veteran of stand-up comedy with a rich history in television and radio. Currently, he co-hosts StarTalk with Dr. Neil deGrasse Tyson on Nat Geo, and is the host of Playing with Science, a podcast he created under the StarTalk Radio umbrella. In addition, Chuck is the writer and producer of Like A Damn Adult for Newsy. He has also hosted his own shows, Buy It Like a Mega Millionaire and Home Strange Home, on HGTV, and co-hosted ABC s The View. His other familiar works include TRU TV s World s Dum comedy clubs. chucknicecomic.com chucknicecomic 4 20 17, 12:07 PM Guy Winch Psychologist, author Guy Winch asks us to take our emotional health as seriously as we take our physical health heartaches. Guy Winch is a licensed psychologist who works with individuals, couples and families. As an advocate for psychological health, he has spent the last two decades adapting the findings of scientific studies into tools his patients, readers and audience members can use to enhance and maintain their mental health. As an identical twin with a keen eye for any signs of favoritism, he believes we need to practice emotional hygiene with the same diligence with which we practice personal and dental hygiene. His recent book, Emotional First Aid: Healing Rejection, Guilt, Failure, and Other Everyday Hurts, has been translated in 21 languages. He writes the popular "Squeaky Wheel Blog" on PsychologyToday.com, and he is the author of The Squeaky Wheel: Complaining the Right Way to Get Results, Improve Your Relationships and Enhance Self-Esteem. His new book, How to Fix a Broken Heart, will be published by TED Books Simon Schuster in 2017. He has also dabbled in stand-up comedy. guywinch.com Anne Lamott Novelist, essayist With disarming familiarity, Anne Lamott tackles what most don t like to consider. Her honest writing helps us make sense of life s chaos. Anne Lamott hooks into our common experience and guides us to an understanding infused with openness. A Christian, an activist and a former alcoholic, Lamott uses humor to weave through loss, parenthood, faith and the cancer diagnosis given to her best friend, in beloved books like Bird by Bird and Help, Thanks, Wow: The Three Essential Prayers . She says, "Hope begins in the dark ... if you just show up and try to do the right thing, the dawn will come. You wait and watch and work: you don't give up." Her next book, Hallelujah Anyway; Rediscovering Mercy, is set to release in April 2017. annelamott facebook.com AnneLamott Thursday, April 27, 5:00PM - 7:00PM PDT Session 10: Tales of Tomorrow Hosted by Chris Anderson and Juliet Blake. Cynthia Erivo Actor, performer Best known for her role in the Broadway revival of "The Color Purple," Cynthia Erivo is a Tony- and Grammy-winning performer. Cynthia Erivo made her Broadway debut as Celie in The Color Purple a role that earned her Tony and Grammy Awards. Erivo has performed for the annual Kennedy Center Honors and been featured on stage in Sister Act as well as A Midsummer Night s Dream. Most recently, Erivo teamed up with John Legend at the 2017 Grammy Awards to perform the Beach Boys song, God Only Knows. The actress stars with Viola Davis in the upcoming Steve McQueen film Widows, and as Harriet Tubman in the biopic Harriet. facebook.com cynthiaerivo CynthiaEriVo Manoush Zomorodi Tech podcaster Every week on her podcast "Note to Self," Manoush Zomorodi searches for answers to life s digital quandaries. Manoush Zomorodi is the host and managing editor of Note to Self, the tech show about being human, from WNYC Studios. Through experiments and conversations with listeners and experts, she examines the new questions tech has brought into our lives. Topics include information overload, digital clutter, sexting scandals" and the eavesdropping capabilities of our gadgets. https: ted2017.ted.com program Page 18 of 21 TED2017: The future you 4 20 17, 12:07 PM In January 2017, Manoush and Note to Self launched "The Privacy Paradox," a 5-part plan to help people take back control over their digital identity. Tens of thousands of listeners have completed the 5-part plan so far, which Fast Company calls Manoush's "challenge to us to stick up for our internet rights." Her book exploring how boredom can ignite original thinking, Bored and Brilliant: Rediscovering the Lost Art of Spacing Out, comes out in September 2017. wnyc.org shows notetoself manoushz Shah Rukh Khan Actor, producer, activist With a fan following that runs into multi-millions, and 24 million followers on Twitter, Shah Rukh Khan is at forefront of the Indian film industry and continues to rule at the box office in India. One of the world's biggest movie stars, Bollywood star Shah Rukh Khan is also an entrepreneur and inspired philanthropist. He heads the film production company Red Chillies Entertainments, whose Chennai Express was the highest-grossing film of 2013, and his recent film Raees also topped the box office in India. He's also the proud co-owner of two cricket franchises, the Kolkata Knight Riders and the Trinbago Knight Riders. In the fall, he will host TED's brand-new TV series in Hindi for Star Plus, titled TED Talks India: Nayi Soch, which translates to "new thinking." As a philanthropist and spokesperson, Khan stands up for causes ranging from the environment and water-supply issues to rural solar power. Khan's nonprofit Meer Foundation, named for his father, focuses on supporting victims of acid attacks through a 360-degree approach that helps with medical treatment, legal aid, rehabilitation and livelihood support. iamsrk Paul Cantelon Musician and composer Paul Cantelon is a composer of contemporary classical music and resonant, award-winning film scores accordionist. From his debut at the age of 13, at UCLA s Royce Hall, Paul Cantelon commenced a successful career as a concert pianist, until some years later he was abruptly stopped by a life-altering bicycle accident whilst at the Paris Conservatory. Out of this crisis, Cantelon reinvented his musical career, which would come to encompass such extremes from playing with the Red Hot Chili Peppers, to his eventual status as a Bafta-nominated film composer known for such scores as Julian Schnabel s The Diving Bell and the Butterfly and Oliver Stone s W. paulcantelon.com Ashton Applewhite Author, activist Ashton Applewhite asks us to look at ageism experience?) Ashton Applewhite would like us to think differently about growing older. As she writes: "Aging is a natural, lifelong, powerful process that unites us all. So how come so many of us unthinkingly assume that depression, diapers, and dementia lie ahead? Because of ageism the last socially sanctioned prejudice." She's the author of This Chair Rocks: A Manifesto Against Ageism and is the voice of the Yo, Is This Ageist? blog. She is also the author of Cutting Loose: Why Women Who End Their Marriages Do So Well series, Truly Tasteless Jokes. (Who is Blanche Knott?) thischairrocks.com thischairrocks Laolu Senbanjo Artist, musician, lawyer, activist Laolu Senbanjo's motto is: Everything is my canvas. A visual artist, musician, human rights lawyer and activist, Laolu Senbanjo puts his mark on everything from canvas, to shoes, to walls and buildings, to clothing and even the body with his Sacred Art of the Ori. Born and raised in Ilorin, Nigeria, his Yoruba heritage is everpresent in his work, which marries modern detail and ornate style to create a vision of Afrofuturism. His preferred medium is charcoal, "because it s something as natural as life and death," he writes, and he also works in acrylics, inks and even wood. Senbanjo created work for the astonishing "Sorry" video from Beyonc 's Lemonade, and he has worked with Angelique Kidjo, Kenneth Cole, Alicia Keys, Usher and many more. laolu.nyc afromysterics Helen Zaltzman Podcaster Helen Zaltzman makes The Allusionist, a podcast about "small adventures in language." https: ted2017.ted.com program Page 19 of 21 TED2017: The future you 4 20 17, 12:07 PM In 2007, Helen Zaltzman sat down with collaborator Olly Mann in a suburban London living room and launched Answer Me This! (AMT), an infectiously funny podcast based on listener questions. AMT became a sensation and vaulted her to early celebrity in the comedy podcast pantheon Zaltzman podcast, The Allusionist, is a humorous look at linguistics, part of the podcast network Radiotopia. theallusionist.org helenzaltzman David Whyte Poet, author David Whyte writes at the intersection of interior and exterior worlds, bringing new territory into view with his distinctly personal style. A native of Yorkshire, England, David Whyte draws from his diverse background and a deep philosophical curiosity to craft poems that are at once highly relatable, yet altogether new. Whyte explores the human experience, writing about relationships in his poetry as well as his prose. His work spans the worlds of literature, philosophy and organizational leadership, making him a wise voice to listen to in an increasingly complex world. His books include The Sea in You: Twenty Poems of Requited and Unrequited Love; The Three Marriages: Reimagining Work, Self and Relationship; River Flow: New Selected Poems; and Consolations: The Solace, Nourishment and Underlying Meaning of Everyday Words. davidwhyte.com whytedw Friday, April 28, 9:30AM - 12:00PM PDT Session 11: The Future Us Hosted by Chris Anderson, Kelly Stoetzel and Helen Walters. Jim Yong Kim President of the World Bank Group Jim Yong Kim is leading the World Bank Group in the global effort to end extreme poverty and promote shared prosperity. Jim Yong Kim is the 12th president of the World Bank Group. Soon after he assumed his position in July 2012, the organization established two goals to guide its work: to end extreme poverty by 2030; and to boost shared prosperity, focusing on the bottom 40 percent of the population in developing countries. In September 2016, the World Bank Group Board unanimously reappointed Kim to a second five-year term as president. During his first term, the World Bank Group supported the development priorities of countries at levels never seen outside a financial crisis and, with its partners, achieved two successive, record replenishments of the World Bank Group s fund for the poorest. The institution also launched several innovative financial instruments, including facilities to address infrastructure needs, prevent pandemics and help the millions of people forcibly displaced from their homes by climate shocks, conflict, and violence. Kim s career has revolved around health, education and delivering services to the poor. In 1987, Kim co-founded Partners In Health, a nonprofit medical organization that works in poor communities on four continents. He has received a MacArthur genius grant, was recognized as one of America s 25 Best Leaders by U.S. News World Report and was named one of TIME magazine s 100 Most Influential People in the World. worldbank.org JimYongKim Emily Esfahani Smith Author In her book "The Power of Meaning," Emily Esfahani Smith rounds up the latest research generations to argue that the search for meaning is far more fulfilling than the pursuit of personal happiness. Emily Esfahani Smith is the author of The Power of Meaning: Crafting a Life That Matters, a book that explores how we can each find meaning in life. She says: "In recent decades, there's been a rising tide of despair across the world people feeling more depressed and alone, and even ending their lives. To be psychologically and spiritually healthy, we need to believe that our lives are meaningful. We all need to discover ways to feel connected to something larger than ourselves this Smith draws on psychology, philosophy and literature to write about the human experience find grace and meaning in a world that is full of suffering. Her articles "There's More to Life than Being Happy" and "Masters of Love," originally published in The Atlantic, have been read more than 30 million times. Her writing has also appeared in the Wall Street Journal, New York Times and TIME. She is an instructor in positive psychology at the University of Pennsylvania. She is also a columnist for The New Criterion, as well as an editor at the Stanford University's Hoover Institution, where she manages the Ben Franklin Circles project, a collaboration with the 92nd Street Y and Citizen University to build meaning in local communities. emilyesfahanismith.com EmEsfahaniSmith Found Sound Nation https: ted2017.ted.com program Page 20 of 21 TED2017: The future you Found Sound Nation Musical collective Found Sound Nation (FSN) is a collective of artists who use music-making to connect people across cultural divides. FSN believes that collaborative music creation is a deeply effective way to become aware of the beauty, trauma and hidden potential in our communities. Their process gives voice to the underrepresented, unlocks the creative potential of youth and supports movements for social justice. Founded by Christopher Marianetti and Jeremy Thal in 2010, FSN began its work as part of the groundbreaking new music organization, Bang on a Can. Over the years, FSN has led audio production workshops for Cine Institute in Haiti, worked extensively with Carnegie Hall in New York, Indonesia and Mexico, and developed music composition workshops with incarcerated youth in theBronx and Brooklyn. In the field of cultural diplomacy, FSN developed the Dosti Music Project with US Embassies in Pakistan and India to bring together politically divided artists to create and tour original work. Since 2012 FSN has partnered with the US Department of State s Bureau of Educational and Cultural Affairs and Bang on a Can to produce OneBeat, to convene young professional musicians from around the globe each fall to use music as a tool for the betterment of our communities, forming a growing web of interconnected musical change-makers from around the globe. foundsoundnation.org foundsoundnat 4 20 17, 12:07 PM Elon Musk Serial entrepreneur Elon Musk is the CEO and product architect of Tesla Motors and the CEO CTO of Space Exploration Technologies (SpaceX). At SpaceX, Musk oversees the development of rockets and spacecraft for missions to Earth orbit and ultimately to other planets. In 2008, SpaceX s Falcon 9 rocket and Dragon spacecraft won the NASA contract to provide cargo transport to space. In 2012, SpaceX became the first commercial company to dock with the International Space Station and return cargo to Earth with the Dragon. At Tesla, Musk has overseen product development and design from the beginning, including the all-electric Tesla Roadster, Model S and Model X, and the rollout of Supercharger stations to keep the cars juiced up. (Some of the charging stations use solar energy systems from SolarCity, of which Musk is the non-executive chair.) Transitioning to a sustainable energy economy, in which electric vehicles play a pivotal role, has been one of his central interests for almost two decades. He co-founded PayPal and served as the company's chair and CEO. elonmusk.com elonmusk Noah Feldman Constitutional law scholar Noah Feldman studies the intersection of religion, politics and law. Noah Feldman is a professor and writer who tries to figure out how to make the government follow the rules; what the rules are that the government has to follow; and what to do if the rules are being broken. In his work, he asks questions like: How can a 225-year-old constitutional blueprint still work? Can you design a new and better constitution from scratch in places like Iraq and Tunisia? What rights do we have, really? Feldman is the Felix Frankfurter Professor of Law at Harvard Law School and a contributing writer for Bloomberg View. He served as senior constitutional advisor to the Coalition Provisional Authority in Iraq, and advised members of the Iraqi Governing Council on the drafting of the Transitional Administrative Law or interim constitution. He is writing a biography on James Madison, principal author of the Constitution and fourth president of the US; it's forthcoming in 2017. Feldman is the author of six other books: Cool War: The Future of Global Competition (Random House, 2013); Scorpions: The Battles and Triumphs of FDR s Great Supreme Court Justices (Twelve Publishing, 2010); The Fall and Rise of the Islamic State (Princeton University Press, 2008); Divided By God: America's Church-State Problem and What We Should Do About It (Farrar, Straus Giroux 2005); What We Owe Iraq: War and the Ethics of Nation building (Princeton University Press 2004) and After Jihad: America and the Struggle for Islamic Democracy (Farrar, Straus Giroux 2003. He most recently co-authored two textbooks: Constitutional Law, Eighteenth Edition (Foundation Press, 2013) and First Amendment Law, Fifth Edition (Foundation Press, 2013). Julia Sweeney Actor, comedian, playwright Julia Sweeney creates comedic works that tackle deep issues: cancer, family, faith. Julia Sweeney is a writer, director, actress, comedian and monologist. She is known for being a cast member on Saturday Night Live from 1990 to 1995, where she created and popularized the androgynous character, Pat. She is also well known for her comedic and dramatic monologues. God Said Ha! is a monologue about serious illness, her brother's lymphoma and her own cancer, and her family's crazy reactions to this crisis as they soldiered their way through struggle, confusion and death. This play was performed all over the U.S. and on Broadway at the Lyceum Theater. It was made into a film produced by Quentin Tarantino, and the comedy album from the show was nominated for a Grammy. Sweeney's second monologue, In the Family Way, played in theatrical runs in New York and Los Angeles. It was ultimately fashioned into a book, a memoir titled If It's Not One Thing, It's Your Mother. Sweeney's third monologue, Letting Go of God, chronicled her journey from Catholicism to atheism. It was made into a film that played on Showtime. juliasweeney.com JuliaSweeney https: ted2017.ted.com program Page 21 of 21 |
Global Equity Volatility Insights Want a cheap call on EU equity? Monetise correlation through EU bank dispersion we estimate 68 of the 20 June 2017 Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens baml.com US Extract alpha from summer SPX range as policy and positioning collar equities With the Federal Reserve last week appearing more emboldened to normalize monetary policy, risk asset bears have come out in force. While we agree that a changing Fed reaction function is likely not supportive of substantial equity upside, we think the Yellen put still exists, albeit with a lower strike. Hence, we see monetary policy as providing a near-term collar (long put short call) on a US equity market already prone to getting trapped in record-tight trading ranges. Further impetus for a summer rangetrade should come from (i) fiscal policy, as gridlock caps equity upside but policy hope floors the downside, and (ii) positioning, where the risk of continued fragility events (potentially exacerbated by stretched quant fund short vol positioning) meets cashed-up investors still accustomed to buying dips. As a risk-limited range trade, we like buying in-the-money down and out puts on the S P. For example, an SPX Sep 2475 put that knocks out at 2300 (6 OTM) indicatively costs 70bps (spot ref 2451), a 60 discount to the 2475 2300 put spread. Europe Long EU banks dispersion: Buy Dec17 call on a basket, sell worst-of call We recommend positioning for greater dispersion in EU bank sector returns via buying a Dec17 105 call on an equally-weighted basket of Santander, BNP, ING, Intesa and Deutsche Bank, part-financed by selling a worst-of call on the same basket for 1.8 (net) indic., as: 1) improving macro earnings, sensitivity to rates and regulatory headwinds are likely to lead to greater differentiation within banks, 2) the entry point is attractive given historically low implied vol (13 th 8y percentile) and high implied correlation (81 bid vs latest 6M realised correl of 66 ), 3) historical risk-reward at current pricing is attractive (avg. P L of 8.4 when positive vs -1.8 when negative), and 4) the trade can be considered as a cheap call on EU equities as it has a similar payoff profile but with greater benefit relative to its cost. Asia Buy depressed China vs. US risks through corridor variance spreads As global central banks have taken on more hawkish tones, the uncertainty surrounding policy tightening will be more positive for EM volatility than for DM volatility. Additionally, our strategists have a more bearish outlook for the Chinese banking sector (which makes up a majority of the HSCEI index) amid rapidly rising leverage, complex shadow banking, and excessive home price inflation. Since we believe the global synchronized monetary tightening will impact HSCEI volatility more than SPX volatility, we recommend owning HSCEI-SPX 70 110 corridor variance at 5 vol points, a 3 vol point discount to a vanilla variance spread. The entry point is attractive as the HSCEI- SPX 18-month variance swap spread has fallen back to the lower-end of its 5-year trading range, the trade has a positive carry, and it benefits during China risk-off events. Employed by a non-US affiliate of MLPF S and is not registered qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 28 to 29. Analyst Certification on page 27. 11756528 Timestamp: 20 June 2017 01:18AM EDT Equity Derivatives Global Global Equity Derivatives Rsch MLPF S Anshul Gupta Equity-Linked Analyst MLI (UK) Nitin Saksena Equity-Linked Analyst MLPF S William Chan, CFA Equity-Linked Analyst Merrill Lynch (Hong Kong) Abhinandan Deb Equity-Linked Analyst MLI (UK) Benjamin Bowler Equity-Linked Analyst MLPF S benjamin.bowler baml.com Jason Galazidis Equity-Linked Analyst MLI (UK) Clovis Couasnon Equity-Linked Analyst MLI (UK) Chintan Kotecha Equity-Linked Analyst MLPF S Michael Youngworth Equity-Linked Analyst MLPF S Nikolay Angeloff Equity-Linked Analyst MLPF S See Team Page for List of Analysts Table 1: 3M volatility (weekly changes) Implied Realized S P500 9.8 (-0.2) 7.1 (-0.2) ESTX50 13.4 (0.3) 11.5 (0.2) FTSE 10.0 (-0.4) 9.7 (0.2) DAX 12.6 (0.3) 10.7 (0.5) NKY 13.8 (-0.2) 12.3 (-0.2) HSI 12.4 (0.1) 10.1 (0.2) KOSPI 12.2 (0.3) 10.5 (0.1) EEM US 15.6 (0.5) 11.8 (-1.1) TOP40 16.9 (1.2) 11.1 (0.3) RDX 25.9 (0.9) 20.6 (-1.1) IBOV 22.9 (-1.7) 25.5 (-0.7) ISE30 20.2 (0.4) 13.5 (0.1) Source: BofA Merrill Lynch Global Research BofAML GFSI TM X-Asset Risk Landscape Stress now below normal for all asset classes The indicator was little changed last week, finishing at -0.23. Stress is now in benign territory across all five asset classes: Stress in across all asset classes (except equity) declined last week. Notably, rates stress turned negative (benign territory) and stresses across all five asset classes are now negative. Stress in Equity skew rose as ESTX50 and (to a lesser extent) S P500 skew steepened; indeed the gain in ESTX50 skew was the greatest across GFSI subcomponents (Chart 2) and also historically significant (Chart 5). Commodity-related stresses fell the most across asset classes (Chart 3), led by declines in Crude and Gold vol (Chart 2), reversing some of the gains after geopolitical tensions in the Middle East rose in recent weeks. Chart 1: Latest stress across GFSI sub-components 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 GFSI Stress 1.48 1.39 Govt-OIS EUR Basis Swap USDJPY 1.00 0.81 Basis Swap EURUSD Euro member Bond 0.54 Nikkei Skew Red shaded area highlights components in Bearish territory ESTX50 Skew Bond Basis EUR Govt-OIS USD HY Bond Flow Source: BofA Merrill Lynch Global Research. Latest as of 16-Jun-17. Risk Skew Flow Green shaded area highlights components in Bullish territory -1.17 -1.18 -1.24 -1.38 -1.45 CDS Index Skew USD CDS Index Skew EUR USDJPY Skew Bond Basis USD Libor-OIS USD Equity Fund Flow EM SP500 Skew IG Foreign Sovrn Bond Libor-OIS GBP GBPUSD Imp Vol Libor-OIS JPY EURJPY Skew Sub IG Foreign Sovrn Libor-OIS EUR HY Corp CDS USD IG Corp CDS USD IG Corp CDS EUR Comdty Imp Vol Crude Volume Flow HY Corp CDS EUR AUDJPY Skew HSI Imp Vol USDJPY Imp Vol FTSE Imp Vol Money Mkt Flow ESTX50 Imp Vol Comdty Imp Vol Copper SP500 Imp Vol 3Y 5Y Credit Curve EUR Int Rate Imp Vol USD Comdty Imp Vol Gold Nikkei Imp Vol EURUSD Imp Vol Int Rate Imp Vol EUR Chart 2: Change in stress across GFSI sub-components 0.8 Change in GFSI Stress 0.4 0.0 -0.4 -0.8 0.65 ESTX50 Skew 0.21 CDS Index Skew EUR 0.12 0.10 SP500 Skew GBPUSD Imp Vol 0.07 Libor-OIS USD Source: BofA Merrill Lynch Global Research. Latest as of 16-Jun-17. Change vs 1 week prior (9-Jun-17). The GFSI Risk Allocator (using Bull, Bear Neutral weights of 2, 0, 1) suggested a 17.4 overweight position on 16-Jun (vs 13.0 OW as of 9-Jun). The percentages of Bullish, Bearish and Neutral GFSI components (as used in the Risk Allocator) as of 16-Jun were 34.8 , 17.4 and 47.8 respectively. -0.20 -0.23 -0.23 -0.37 -0.38 Govt-OIS USD Govt-OIS EUR ESTX50 Imp Vol Equity Fund Flow EM HY Corp CDS USD Bond Basis USD Sub IG Foreign Sovrn IG Corp CDS USD HSI Imp Vol Nikkei Skew USDJPY Imp Vol Libor-OIS JPY Libor-OIS EUR Money Mkt Flow HY Corp CDS EUR IG Foreign Sovrn Bond HY Bond Flow Libor-OIS GBP SP500 Imp Vol Nikkei Imp Vol IG Corp CDS EUR 3Y 5Y Credit Curve EUR EURJPY Skew FTSE Imp Vol Int Rate Imp Vol USD Comdty Imp Vol Copper Int Rate Imp Vol EUR Euro member Bond EURUSD Imp Vol CDS Index Skew USD Basis Swap EURUSD Basis Swap USDJPY Comdty Imp Vol Gold AUDJPY Skew Comdty Imp Vol Crude USDJPY Skew Bond Basis EUR Volume Flow Risk Skew Flow 2 Global Equity Volatility Insights 20 June 2017 Chart 3: Stress in commodities fell the most last week (driven by a drop in crude oil vol) while stress in equities rose marginally (led by equity skew) 0.2 0.0 -0.2 -0.4 -0.6 -0.8 -1.0 0.04 -0.03 -0.03 -0.08 -0.16 Equities Credit Rates FX Commodities Chart 4: EM and the US are the least stressed GFSI regions globally 0.05 0.00 -0.05 -0.10 -0.15 -0.20 -0.25 -0.30 -0.35 -0.40 0.02 0.02 -0.01 -0.03 EM Europe Japan US Latest stress (16-Jun-17) Change in stress Latest stress (16-Jun-17) Change in stress Source: BofA Merrill Lynch Global Research. 1wk change (9-Jun-17 to 16-Jun-17). Source: BofA Merrill Lynch Global Research. 1wk change (9-Jun-17 to 16-Jun-17). Chart 5: Top 10 movers in stress (1-week abs chg -ile vs history ) -ile of abs chg in stress vs history 100 90 80 70 60 50 92 ESTX50 Skew 83 82 82 81 80 79 79 77 Libor-OIS USD USDJPY Skew Bond Basis EUR Basis Swap EURUSD Comdty Imp Vol Gold Basis Swap USDJPY 67 Source: BofA Merrill Lynch Global Research. -ile of weekly move in stress vs all historical weekly moves (earliest 3-Jan-00). Bar colours represent rise (red) or fall (green) in stress. 1wk change (9-Jun- 17 to 16-Jun-17). AUDJPY Skew Stress fall Stress rise Euro member Bond Spread Comdty Imp Vol Crude Chart 6: Global volatility credit spread stress in the GFSI 0.2 0.0 -0.2 -0.4 -0.6 -0.8 -1.0 -1.2 -1.4 0.01 0.01 HY CDS Latest stress (16-Jun-17) FX Vol IG CDS 0.00 -0.01 -0.02 -0.06 Equity Vol Change in stress Sovrn risk Source: BofA Merrill Lynch Global Research. 1wk change (9-Jun-17 to 16-Jun-17). Rates Vol -0.16 Commodity Vol Global Equity Volatility Insights 20 June 2017 3 Volatility in the US Risk-limited alpha in a collared market: SPX ITM KO puts US equities vulnerable to a summer range-trade The Federal Reserve last week appeared more emboldened to normalize monetary policy, not only raising interest rates by 25bps but also reiterating its intention to hike four more times by the end of 2018 and stating that it expects to begin implementing a balance sheet normalization program this year - all despite recent softness in inflation data. Breakeven rates of inflation narrowed following the Fed communications due to tighter monetary conditions in the face of slowing US economic data, and risk asset bears responded in force, suggesting that Janet Yellen had broken up with investors and that it would be prudent to sell before it s too late . We agree that the changing reaction function of the Fed is likely not supportive of further substantial US equity upside and may be viewed as the Fed now providing a short call option on the S P 500. However, in our view, it is premature to conclude from last week s developments that the Yellen put is dead. We see its strike as declining but would not underestimate Yellen s dovish inclinations in a shock or the capacity for the Fed to still remain credibly on hold as long as the US economy is not running hot . In short, we see monetary policy as now providing a collar (long put short call) on a US equity market that has already shown a propensity over the past year for getting trapped in record tight trading ranges. 1 Other factors may also conspire to create a summer range-trade for US equities, namely (i) fiscal policy, where gridlock likely caps equity upside but lingering policy hope floors the downside, and (ii) positioning, where the risk of continued fragility events (potentially exacerbated by stretched quant fund short vol positioning) meets cashed-up investors still accustomed to buying dips. Tug of war between fragile market stretched positioning and cashed-up dip-buyers As we have noted recently, US equities have displayed a historically unusual tendency to jump rapidly from calm to stress and back ( fragility ), with the recent Tech sell-off and rebound the latest example. For example, in the past year, the S P 500 has seen 5sigma declines (3 in total Brexit, Sep-16, May-17) occur 20x more frequently than over the prior 90 years or so. The increased frequency of these fragility events is in part due to vol failing to remain high post a spike as equity market participants continue to aggressively buy the dip and in the process reset vol lower. Historically low vol alongside consistently upward trending equity markets and low cross asset correlations could be creating stretched positioning across markets. For example, upward trending equities on historically low vol may be pushing CTA equity positioning to near record levels (Chart 7). Risk parity portfolios could be increasing their leverage due to low vol as well as low cross asset correlation (Chart 8). And lastly, inverse VIX ETPs have seen increased open interest as performance has swelled on the back of continued declines in vol and attractive term structure risk premia (Chart 9). Should vol spike again alongside a reversal in equity price momentum and a rise in cross asset correlations, then unwinds from these strategies could exacerbate market fragility. However, this must be weighed against an investor base that has plenty of cash on hand (Chart 10) and their potentially fickle but still-intact tendency to view any equity market dip as an alpha opportunity. 1 For example, the Dow Jones Industrial Average traded in its tightest trading range in over 110 years in Jan-17; this followed a record in the S P 500 ending Sep-16 for the longest stretch of trading within a range of 1.77 since 1928. 4 Global Equity Volatility Insights 20 June 2017 Chart 7: A combination of upward trending global equity markets and very low volatility have conspired to push trend following (CTA) equity positioning to near record levels. Consequently, the beta of CTA strategies to global equities is also at extreme levels Chart 8: Owing to low cross asset vol and strong diversification, the volatility of risk-balanced multi-asset portfolios has fallen to historically low levels. Consequently, leverage levels across multi-asset other portfolios that target fixed vol have likely hit their caps 1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 MSCI World (Ratio of trend strength to volatility) (LHS) BofAML Model CTA Global Equity Allocation (RHS) May-17 20 15 10 5 0 -5 -10 -15 -20 24 20 16 12 8 4 0 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Model Risk Parity Leverage (Vol Target: 10 Max Leverage: 3x) (RHS) Unlevered BofAML Model Risk Parity Volatility (LHS) 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x Source: BofA Merrill Lynch Global Research. Based on daily data form 2-Jan-2015 to 16-Jun-2017. CTA Commodity Trading Advisor It is important to note that not all CTA, risk parity, or vol control strategies operate similarly and there is model risk in estimating the exact size of these trading flows. Source: BofA Merrill Lynch Global Research. Based on daily data from 3-Jan-72 through 16-Jun-17. Equity, fixed income, and commodity components within the hypothetical risk parity investment are represented by the S P500, 10-Year US Treasury Bonds, and the S P GSCI Index, respectively. Risk parity allocations are determined and rebalanced monthly using prior 12-month realized volatility and correlations. Chart 9: The vega outstanding in inverse VIX ETNs has also reached a record high at 125mn vega Chart 10: Global FMS average cash balances ( ) remain elevated, suggesting dry powder for investors still conditioned to buy equity dips VIX ETP open interest ( mn vega) 350 Unlevered long Levered long 300 Inverse Net vega across VIX ETPs 250 200 150 100 50 0 -50 -100 -150 2012 2013 2014 2015 2016 2017 Source: BofA Merrill Lynch Global Research. Daily data from 13-Feb-12 through 16-Jun17. Extract risk-limited alpha from SPX range via cheap in-the-money knockout puts As a risk-limited range trade, we like owning down-and-out puts on SPX that are already in-the-money. For example, the SPX Sep 2475 put with a 2300 knock-out (continuous observation) indicatively costs 70bps (spot ref 2451) and offers a 60 discount to the vanilla 2475 2300 put spread, which is itself historically cheap (Chart 12). If SPX stays above the 2300 barrier at all points in time before expiry, the structure is equivalent to a 2475 put option. If the barrier is instead breached, the maximum loss will be equal to the (low) upfront premium. The 2300 barrier is about 6 out-of-themoney, hence allows for the elusive 5 correction not seen since Brexit (on a closing basis). However, investors can mitigate the risk of breaching the barrier by either moving it farther down (e.g., a 2245 barrier would indicatively raise the cost from 0.7 to 1 ), or by only observing it on a close-to-close basis (in turn sacrificing part of the discount). 6.0 5.5 5.0 4.5 4.0 3.5 Backtest Actual 3.0 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 2400 2200 2000 1800 1600 1400 1200 1000 FMS avg cash balance ( ) S P 500 (RHS) Source: BofA Merrill Lynch Global Fund Manager Survey, Bloomberg. As a reminder, the FMS Cash Rule works as follows: when average cash balance rises above 4.5 a contrarian buy signal is generated for equities. When the cash balance falls below 3.5 a contrarian sell signal is generated. 800 600 Global Equity Volatility Insights 20 June 2017 5 The trade prices attractively today due to exceptionally steep SPX put skew, which is near its highs established since 2004 (Chart 11). With steep SPX put skew, the market is implicitly pricing in a high probability that the option will knock-out during its life, i.e., that relatively large drawdowns are more likely. As detailed above, however, we see many reasons why the most likely near-term scenario for US equities is to remain range-bound. The structure is short 11 delta at inception and has the same vega sensitivity as the equivalent put spread (short 6bps). Chart 11: SPX put skew is near the all-time highs reached since 2002. Steep skew helps cheapen knockout puts as the market is implying a relatively high probability of the barrier being breached Chart 12: The price of SPX put spreads is already near the lows reached since 2002. In particular, the price of a 3m 50d-25d put spread is 1.02 , in the 0.1 st -ile since Nov-02 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 9 8 7 6 5 4 3 2 1 0 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 SPX 3m 90-100 put skew 16-Jun-17 SPX 3m 50d - 25d put spread 16-Jun-17 Source: BofA Merrill Lynch Global Research. Data from Jan-04 to 16-Jun-17. The 90 and 100 strikes are based on the SPX forward. Source: BofA Merrill Lynch Global Research. Data from Nov-02 to 16-Jun-17. 6 Global Equity Volatility Insights 20 June 2017 Notable trends and dislocations (US) The Fed turns more hawkish, though vol remains subdued Last week, unsurprisingly the Fed opted to hike benchmark rates another 25bps. However, the market was more focused on the FOMC s unexpectedly hawkish message, which indicated that it is willing to normalize policy despite weaker-than-desired inflation. Our economists now think the Fed will announce balance sheet normalization in September and will hike rates again in December. A more hawkish Fed could result in higher real rates and a stronger USD, which ultimately should benefit our Growth to Value rotation trade of long XLF calls versus short QQQ calls (see Chart 15). The S P 500 was more-or-less flat week-over-week as it gained only 6bps. The tech selloff continued, however, and the Nasdaq-100 dropped 105bps. Similarly, the Russell 2000 also dropped 105bps. Despite concerns on the Fed, the VIX fell 0.32 vol points to 10.38, and SPX 1m ATM implied vol declined 0.3 vol points to 7.6 . Chart 13: The Nasdaq has set a new record for consecutive days without a 5 peak-to-trough drawdown 160 140 120 100 80 60 40 20 150 136 135 111 104 98 97 95 94 92 86 74 71 67 65 61 56 55 54 53 51 50 50 48 46 46 43 40 38 30 28 21 17 15 11 11 11 11 8 7 5 On June 9, the Nasdaq dropped nearly 2 as investors unwound crowded positions, resulting in a sudden selloff from a period of relative calm. However, despite the volatility among tech names during the first week of June, the Nasdaq (CCMP) has not seen a 5 drawdown from a prior peak (using closing data) in 150 days. This is the longest such streak in the Nasdaq s history. Prior to today, the longest periods of similar calm occurred during July 83 and July 86, when the index did not record a 5 drawdown from a peak in 136 and 135 days respectively. 0 16-Jun-17 14-Jul-86 27-Feb-97 21-Jun-71 22-Nov-93 20-Aug-15 19-Nov-91 3-Nov-16 29-Sep-80 29-Mar-94 5-Feb-99 4-Oct-95 8-Dec-80 14-Apr-87 3-Mar-80 14-Mar-00 22-Jul-99 21-Sep-78 19-Apr-99 28-Jan-00 15-Oct-99 Source: BofA Merrill Lynch Global Research. Data from 1-Feb-71 to 16-Jun-17. Drawdowns measured from prior peaks and using close-to-close data. Chart 14: On 16-Jun, the SPX had its 11 th consecutive session of moves not exceeding 0.5 in either direction on a close-to-close basis. This is the 4 th time this year that such a streak has surpassed 10 days 50 40 30 20 10 0 '64 '65 '52 '17 '59 '62 '63 '67 '95 '51 '53 '66 '68 '72 '93 '16 Max of days without an up or down move 0.5 (LHS) times SPX has gone for 10 days w o a 0.5 move (RHS) Source: BofA Merrill Lynch Global Research, Bloomberg. Data from Jan-1928 to 16-Jun-2017. 10 8 6 4 2 0 Last week the S P 500 recorded its 11 th session without a move larger than 0.5 in either direction. As a result, 10d realized vol stood at 3.31 as of 16-Jun. This is already the fourth time this year that SPX has gone more than 10 consecutive days without a move greater than - 0.5 . This has historically happened only in 64, 65 and 52. The longest such stretch this year lasted 15 consecutive trading sessions and ended on 16-May. For comparison, in 64 SPX had 8 stretches without such a move with the longest stretch spanning 43 days. Global Equity Volatility Insights 20 June 2017 7 Chart 15: Buying an XLF 1m ATM call financed by selling a QQQ 1m call is still an attractive way for investors to rotate out of Growth and into Value 1.3 1.1 0.9 0.7 0.5 2012 2013 2014 2015 2016 2017 of 1m XLF calls one 1m QQQ call buys Current (99th -ile) Average Last week, we highlighted that investors who want to rotate out of Growth strategies into Value strategies should take advantage of elevated tech vol by buying XLF 1m ATM calls financed by selling QQQ 1m ATM calls. After last week s FOMC meeting, the case for such a trade grows even stronger as the market thinks the Fed has become more hawkish, driving up real rates and the USD. Amid this backdrop, one could see outperformance of Value names over Growth names, which tend to have higher amounts of offshore revenues that would come under pressure by a stronger dollar. Additionally, the trade remains attractive at current levels as pricing has only been better 1 of the time in 5 years. Today, 1.03 XLF calls could be bought for each QQQ call sold, whereas over the past 5 years, the average number of XLF calls that could be purchased was only 0.80. Source: BofA Merrill Lynch Global Research. Data from 9-Jun-12 to 16-Jun-17. Table 2: Current S P500 volatility and correlation measures relative to the prior two year of historical daily data 1-week change Over 2-year historical period 16 Jun 17 9 Jun 17 Change Current ranking Minimum 25 Median 75 Maximum 1-month ATM implied volatility 7.6 7.9 -0.3 1.3 7.1 9.8 11.7 14.5 31.8 1-year ATM implied volatility 14.0 14.0 0.0 7.7 13.4 15.3 16.2 17.3 22.5 1-week intraday realized volatility 7.8 7.3 0.5 19.6 5.2 8.3 10.6 14.0 53.7 1-year minus 1-month term structure 6.5 6.1 0.4 99.2 -12.0 2.7 4.4 5.4 7.0 3-month 90 minus 110 skew 8.5 8.3 0.2 16.1 7.1 9.4 11.3 11.8 13.8 1-year top 50 implied correlation 45.44 45.10 0.35 8.1 42.03 49.37 54.22 57.14 65.55 3-month top 50 realized correlation 21.30 24.08 -2.78 16.8 12.57 27.15 37.28 48.45 60.41 VIX 1-month ATMf implied vol 81.9 80.0 1.9 39.9 61.2 78.2 85.0 95.2 162.2 VIX 1-month 110 minus 90 skew 27.1 26.9 0.2 88.6 9.3 18.6 21.5 23.8 30.3 Source: BofA Merrill Lynch Global Research 8 Global Equity Volatility Insights 20 June 2017 Volatility in Europe Buy EU banks dispersion: ( ) basket call, (-) worst-of calls Trade: Long Dec17 105 call on an equally weighted basket of SAN, BNP, ING, ISP DBK , short Dec17 ATM worst-of call on the same basket for 1.8 indic. (correl bid: 81 ). We pick the top 5 stocks with the largest market cap within the SX7E (EU banks sector index) corresponding to 5 different countries We have previously highlighted our preference for vol dispersion trades both in the US and the EU with the most recent recommendation being sector dispersion opportunities within the EU. In a similar vein, we suggest positioning for greater dispersion within EU banks via buying a call on a basket of Santander, BNP Paribas, ING, Intesa and Deutsche Bank part-financed by selling a worst-of call on the same basket as: Improving macro earnings, sensitivity to rates and regulatory headwinds likely to lead to greater differentiation within banks: An improving macro backdrop in Europe ongoing improvement in EPS revisions (see Style Cycle) paint a bullish picture for EU banks as they are seen as leveraged macro plays within the EU. However, we believe there is a potential for greater differentiation within banks as our bank analysts have argued before (here and here) that: (i) some banks stand to benefit more than others based on their earnings power should the uptick in the earnings cycle continue, (ii) banks gearing to interest rate cycles, and therefore likely impact from a more hawkish ECB, varies between different banks and (iii) French and Benelux banks are likely to be most impacted under potential Basel IV regulations. Entry point is attractive given historically low implied vols: The structure benefits from its long vol bias as average 6M implied vol on the basket of 5 European banks is historically low (13 th -ile since Jan-08, Chart 16). High implied correlation beneficial for structure s short correlation bias: Chart 17 shows the average pairwise 6M and 3M realised correlations between the 5 EU banks, which are historically low. Despite this recent drop in realised correlations, implied correlation is priced higher, thus providing an interesting entry point for the (short-correlation) trade. Global Equity Volatility Insights 20 June 2017 9 Chart 16: SAN, BNP, ING, ISP and DBK average 6M ATMf implied vol is trading historically low (13 th percentile since 2008) 100 80 60 40 20 Mar-08 Mar-09 Mar-10 Mar-11 Basket of SAN, BNP, ING, ISP DBK Mar-12 Mar-13 Mar-14 Source: BofA Merrill Lynch Global Research. Data: 2-Jan-08 to 16-Jun-17 13th percentile Mar-15 Mar-16 Mar-17 6M avg realised vol 6M avg implied vol Last IV (16-Jun-17) Chart 17: Despite the recent drop in realized correlation, implied correlation is priced near the high end of the reaiised range for the basket of EU banks 90 80 70 60 50 40 30 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 3M realised correl 6M realised correl Dec17 implied correl Source: BofA Merrill Lynch Global Research. Data: 2-Jan-08 to 16-Jun-17 Attractive risk-reward profile at current pricing: As highlighted in Exhibit 1, historically the trade held to expiry, at current pricing, would have generated an average P L of 8.4 when positive and -1.8 when negative. The risk-reward looks even more attractive in extreme market outcomes as the max P L of the trade which is greater than 75 compares to the max loss of only 5.7 . The trade also provides an effective way to gain long exposure to EU equities with limited risks, as evident from the call-like payoff in Exhibit 1 (vs the ESTX50). It is worth noting that, by construction, the maximum loss of the trade is 6.8 with the most likely loss limited to the upfront premium of 1.8 . We also note that the trade payoff profile is superior to a SX5E Dec17 ATM call when sized such that: (i) the call premium is the same as the upfront premium for the dispersion trade ( 1.8 , blue line), as well as (ii) when the call premium is the same as the theoretical maximum loss for the trade ( 6.8 , orange line). Exhibit 1: Hypothetical back-test of long Dec17 105 call on a basket of SAN, BNP, ING, ISP DBK, short Dec17 ATM worst-of call on the same basket (upfront premium 1.8 ) 80 ESTX50 6M returns Trade P L (long basket call, short worst-of) 80 P L 60 Avg P L when positive: 8.4 Avg P L when negative: -1.8 70 60 40 50 40 20 30 0 -20 20 10 0 SX5E 0.46x Dec17 ATM call -40 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 -10 SX5E 1.7x Dec17 ATM call SX5E returns -20 -60 -40 -20 0 20 40 60 Source: BofA Merrill Lynch Global Research. Data: 3-Jan-00 to 16-Jun-17. Back-testing is hypothetical in nature reflects application of the strategy prior to its introduction. It is not actual performance is not intended to be indicative of future performance. The two call payoff diagrams shown in the chart correspond to SX5E Dec17 3575 strike call sized such that upfront premium 1.8 (0.46x notional, blue line, equal to the upfront premium for the trade) and 6.8 (1.7x notional, orange line, equal to potential max loss of the trade) 10 Global Equity Volatility Insights 20 June 2017 Notable trends and dislocations (Europe) European equities ended the week lower mainly due to a tech-driven sell-off on 12-Jun during which the SX8P (European tech sector) witnessed its largest 1-day decline since the UK s EU referendum. Nevertheless, implied vols across European indices remained mostly unchanged near 2 year lows. European intra-sector correlation continues to decline while inter-sector correl has hit a floor: The average EU intra-sector 3m correlation is near a 10- year low currently. In contrast, the average 3m inter-sector correlation reached a 10-year low in Mar-17 driven by post US election reflation trades but is now rising off its lows likely driven by an unwind of reflation trades. SX7E implied-realised correlation near 5-year highs: SX7E 6m implied correlation fell since Mar-17 but the implied-realised correlation spread remains in the 88 th 5-year percentile driven by even lower realised correlation. ESTX50 3M put skew is near 5 year highs, in stark contrast to SXEP (European Oil Gas equity) put skew which is close to 5 year lows. The overall seasonality in ESTX50 realised volatility since 1987 has been one of relatively lower vol during the summer months vs. autumn. In particular, May stands out as the lowest vol month across most 10 year horizons, and this also appears to be the case so far this year. EU Intra-sector correl continues to decline while inter-sector correl is supported The average European intra-sector 3m correlation is near a 10-year low, partly driven by divergence within the personal household goods, utilities, real-estate, autos and insurance sectors (Chart 18 and Table 3). Interestingly, the average 3m inter-sector correlation reached a 10-year low on 14-Mar-17 (as the 8-Nov-16 US election led to the outperformance of sectors sensitive to inflation) but inter-sector correlation now seems supported likely driven by the unwind of reflation trades (Chart 18). Global Equity Volatility Insights 20 June 2017 11 Chart 18: European intra-sector realised correlation is near a 10-year low, which suggests that we are currently in a stock pickers environment 100 80 60 40 20 0 Jun-07 Feb-08 Oct-08 Average SXXP 3m inter-sector correlation Average SXXP 3m intra-sector correlation 4th 10-yr percentile Jun-09 Feb-10 Oct-10 Jun-11 Feb-12 Source: BofA Merrill Lynch Global Research. 3m correlations calculated using daily returns and assuming current weights. Data from 16-Mar-07 to 16-Jun-17. Average correlation between each of the 19 SXXP sector indices and the other SXXP sector indices. Average of the 19 intra-sector correlations (in Euro) where the 19 sector indices are the indices which make up the SXXP index. Note that the average intra-sector correlation calculated using returns in local currencies is also near a 10-year low (2 nd 10-yr percentile). Oct-12 Jun-13 Feb-14 3rd 10-yr percentile Oct-14 Jun-15 Feb-16 Oct-16 Jun-17 Table 3: Personal household goods, utilities, real-estate, autos and insurance are the top 5 sectors with the lowest 10-yr percentile of intrasector 3m realised correlation Intra-sector 3M correl Sector ticker Sector name Level 10yr -ile SXQP Pers. Hous. Goods 17 0 SX6P Utilities 24 1 SX86P Real estate 40 1 SXAP Autos 41 1 SXIP Insurance 32 1 SXRP Retail 19 4 SXTP Travel 26 5 SXFP Financials 28 5 SX4P Chemicals 28 6 SXNP Industrials 30 7 SXPP Basic res. 50 11 SXDP Health care 24 11 SXMP Media 27 12 SXOP Construction 39 13 SXKP Telcos 32 14 SXEP Oil Gas 42 21 SX7P Banks 47 23 SX3P Food bev 31 25 SX8P Tech 35 35 Source: BofA Merrill Lynch Global Research. 3m correlations calculated using daily Euro returns and current weights. Data from 16-Mar-07 to 16-Jun-17. SX7E implied-realised correlation near 5 year high, driven by stock-level divergence SX7E 6m implied correlation has fallen since Mar-17 but the implied-realised correlation spread remains in the 88 th 5 year percentile (Chart 19). Notably, the low SX7E 6m realised correlation in 2017 was mostly driven by company-specific rather than regionspecific divergence (Chart 20). 12 Global Equity Volatility Insights 20 June 2017 Chart 19: The SX7E 6m implied-realised correlation spread has been high throughout 2017 and remains in the 88 th 5-year percentile 100 80 60 40 20 0 -20 Jun-12 Dec-12 6m implied correlation implied-realised spread Jun-13 Dec-13 Jun-14 Source: BofA Merrill Lynch Global Research. Data: 16-Jan-12 to 16-Jun-17. Implied and realised correlations are calculated using current weights. Dec-14 Jun-15 6m realised correlation Dec-15 55th percentile 8th percentile 88th percentile Jun-16 Dec-16 Chart 20: The decline in SX7E 6M realised correlation appears to be mainly due to company-specific rather than region-specific divergence 90 70 50 30 '12 '13 '14 '15 '16 '17 Spread (rhs) Average inter-regional SX7E 6M realised correlation SX7E 6M realised correl 50 40 30 20 10 Source: BofA Merrill Lynch Global Research. Data: 16-Jan-12 to 16-Jun-17. Calculated based on current weights of French, German, Italian and Spanish banks with enough price history. We construct theoretical portfolios consisting of SX7E names from a given country (France, Germany, Italy and Spain) and compute the average pairwise correlation of their daily returns 0 Chart 21: ESTX50 3M put skew is near 5yr highs, in stark contrast to SXEP (European Oil Gas equity) put skew which is close to 5yr lows 6.5 5.5 4.5 100th percentile ESTX50 put 3M 90-100 ( fwd) put skew has re-steepened to near 5 year highs following the flattening which ensued after the first round of the French presidential elections (23-Apr). The recent ESTX50 skew dynamics are in stark contrast to what has been witnessed in the SXEP (European Oil Gas equity), where the 3M 90-100 volatility spread has been trending lower and is currently near-flattest in 5 years. 3.5 2.5 2nd percentile 1.5 Jun12 Jun13 Jun14 Jun15 Jun16 Jun17 SX5E 3M 90-100 put skew SXEP 3M 90-100 put skew Source: BofA Merrill Lynch Global Research. Data: 16-Jun-12 to 16-Jun-17. Global Equity Volatility Insights 20 June 2017 13 Chart 22: May has typically been the month with the least amount of ESTX50 realised volatility. This has also been true in 2017 thus far 12 '07 to '17 '87 to '97 10 '97 to '07 Overall trend ('87 to '17) 2017 YTD 8 Average ESTX50 realised vol vs. May 6 4 2 0 -2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The overall seasonality in ESTX50 realised volatility since 1987 (ESTX50 inception) has been one of relatively lower vol during the summer months vs. autumn. In particular, May stands out as the lowest vol month across most 10 year horizons, and this also appears to be the case so far this year. We note that Apr- 17 vol stands out mainly due to the 4 ESTX50 move on the Monday following the first round of the French presidential elections. Source: BofA Merrill Lynch Global Research. Data: 1-Jan-87 to 16-Jun-17. Chart 23: ESTX50 1M 100-110 call skew is near-flattest since 2008 12 SX5E 1M 100-110 ( fwd) call skew Current 10 8 ESTX50 short-dated (1M) 100-110 ( fwd) call skew has flattened considerably since pre-French election (23-Apr) levels and currently stands near 9 year lows. Consequently, limited upside structures (e.g., call spreads) price attractively both from an ATMf volatility and skew basis. 6 4 2 0 -2 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Source: BofA Merrill Lynch Global Research. Data: 2-Jan-08 to 16-Jun-17. Table 4: Volatility measures of major equity indices in the EMEA region (data as of 16-Jun-17) 3Mth ATM implied volatility 10D realised volatility 12Mth 3Mth ATM i-vol spread 3Mth 90-110 skew Equity index Weekly Weekly Weekly Weekly Weekly Current change 2Yr percentile Current change 2Yr percentile Current change 2Yr percentile Current change 2Yr percentile return ESTX50 13.4 0.3 2 9.6 2.0 17 3.4 -0.2 99 8.4 0.9 72 -1.2 FTSE 10.0 -0.4 1 8.6 1.1 24 3.6 0.2 100 6.2 0.2 9 -0.8 DAX 12.6 0.3 1 12.7 2.9 29 3.9 -0.2 100 8.5 0.7 67 -0.5 CAC 13.3 0.3 3 10.3 2.0 21 2.6 -0.1 100 8.6 1.2 77 -0.7 SMI 11.4 -0.1 3 12.2 3.3 44 2.4 -0.1 96 6.5 0.1 27 1.3 RDXUSD 25.9 0.9 29 16.2 -1.2 17 0.9 -0.4 58 5.2 0.4 27 -3.7 TOP40 16.9 1.3 17 10.6 0.2 15 1.7 -0.5 47 8.0 0.4 36 -3.0 ISE30 20.2 0.4 6 10.1 -1.4 5 3.1 -0.3 81 6.9 0.1 74 -0.8 Source: BofA Merrill Lynch Global Research 14 Global Equity Volatility Insights 20 June 2017 European volatility: Sector snapshot Table 5: Volatility measures and indicative option prices for major European sector indices (data as of 16-Jun-17) Bearish 3Mth ATMf implied volatility Real vol 3Mth 95 -85 put spread 3Mth 100 -110 call spread 3Mth 90 -110 risk reversal Equity index Current Current Current Current Weekly change 2Yr -ile Current price ( of spot) Weekly change (bps) 2Yr -ile Max payout ratio price ( of spot) Weekly change (bps) 2Yr -ile Max payout ratio price ( of spot) Weekly change (bps) 2Yr -ile Weekly return SX3P (Fd Bv) 10.7 -0.4 2 10.1 0.6 -5 2 16.4 2.1 -8 7 4.8 -0.2 5 80 1.3 SX6P (Utils) 12.2 0.0 4 10.9 0.8 2 4 12.8 2.4 1 5 4.2 -0.3 0 95 -0.1 SX7E (Banks) 22.7 0.3 2 18.6 1.9 2 3 5.4 3.6 2 9 2.8 -0.5 0 52 -3.0 SX7P (Banks) 18.5 -1.2 2 13.1 1.5 -10 3 6.8 3.2 -15 5 3.2 -0.4 10 86 -1.9 SXAP (Auto) 16.7 -1.2 1 11.7 1.3 -12 1 7.8 3.0 -13 1 3.3 -0.4 6 68 -0.7 SXDP (Health) 13.0 -0.8 1 8.7 0.9 -9 2 11.5 2.5 -12 3 4.0 -0.3 4 71 0.0 SXEP (Oil Gas) 15.4 0.0 3 11.8 1.2 0 3 8.5 2.8 2 2 3.6 -0.2 -2 97 -1.3 SXIP (Insur) 14.0 -0.9 1 9.4 1.0 -10 1 10.0 2.7 -11 1 3.7 -0.4 6 83 1.0 SXKP (Telecom) 15.4 0.3 3 11.1 1.1 3 3 8.8 2.8 5 5 3.6 -0.3 -3 83 -1.3 SXNP (Indust) 16.3 0.1 13 10.9 1.2 1 23 8.1 2.8 1 10 3.6 0.0 0 100 -0.3 SXPP (Basic) 23.8 -0.7 3 17.8 2.0 -7 3 5.1 3.5 0 4 2.9 -0.3 -7 53 -4.8 SXQP (Prsnl HH Gds) 10.2 0.0 1 7.2 0.5 -1 2 18.5 2.0 -1 1 4.9 -0.3 1 76 0.3 SXRP (Retail) 13.2 0.4 10 12.8 0.9 8 10 11.3 2.5 14 10 4.0 -0.1 -10 78 -3.3 SXTP (Trvl Lsre) 14.4 0.0 7 11.6 1.0 1 7 9.9 2.7 0 8 3.7 -0.3 1 41 0.5 Source: BofA Merrill Lynch Global Research Real vol EWMA (Exponentially Weighted Moving Average) volatility, which measures historical price volatility but assigns greater importance to recent returns. Sigma(t) 2 0.94 Sigma(t-1) 2 (1-0.94) r(t) 2, where r(t) is the return on day t. Indicative mid prices; strikes as of forward Negative values indicate that the bullish risk reversal takes in a credit. Global Equity Volatility Insights 20 June 2017 15 Volatility in Asia Long HSCEI-SPX volatility spread via corridor variance Global synchronized monetary tightening is positive for EM vol Emerging markets have been the biggest beneficiaries of the central bank-fueled abundance of liquidity. However, we think the tide may be turning as last week, the Fed, ECB, and BOE all delivered policy announcements with hawkish tones. How far they really go to tighten policy when economic data is weakening still remains unknown. However, we think the uncertainty surrounding tightening will be more positive for EM volatility than for DM volatility. Chinese banks: Rapid increase in leverage is a big concern The HSCEI currently has a 70 weight in the financial sector. Recently, BofAML analyst Winnie Wu turned very bearish on the sector as (1) leverage has rapidly increased debt to GDP rose by 18 in 2016 and may go above 300 by 2019, (2) shadow banking has become too big, too complicated, and too levered to easily regulate even at the highest quality bank, China Merchants, off-balance sheet wealth management products (WMP) have grown to 40 the size of on-balance sheet assets from just 18 two years ago, and (3) excessive home price inflation low and middle-income households are late to the party and a correction in prices could have a systemic effect as property assets have been used as collateral in WMPs. SPX: The Fed is now collaring the market Since the global financial crisis the Fed has been well known for providing a put option by its willingness to step in during periods of market stress. However, post the Fed meeting last week, it appears the central bank has decided to cap its monetary support as some FOMC members seem worried that financial conditions are too loose. Effectively, the market is now collared (more so for the SPX compared to EM) as the downside is protected by the Fed put (though with a lower strike price) while the upside is capped by log-jammed fiscal policy and positioning, where the risk of quant funds selling record equity positions meets cashed-up investors still accustomed to buyingthe-dip. The depressed implied China vs. US risks should reverse With the steep drop in global risk premium, the HSCEI-SPX 18-month variance swap spread has fallen back to the lower-end of its 5-year trading range. Since we believe the global synchronized monetary tightening will impact HSCEI volatility more than SPX volatility, we recommend owning HSCEI-SPX 70 110 corridor variance at 5 vol points, a 3 vol point discount to vanilla variance spreads. Investors will be exposed to the realized vol spread between HSCEI and SPX as long as HSCEI stays within 70-110 of its initial level. Pricing of corridor variance is cheaper than vanilla variance as investors can avoid paying for the rich HSCEI convexity below the 70 barrier. The trade has a positive carry and benefits during China risk-off events. Note that the potential HSCEI index enhancement will reduce the financial weightings in HSCEI from 70 to 50 and lower realized volatility by 1.8 vol points. However, the enhancement will be implemented in stages. It will probably start in Dec-17 at the earliest and will not be fully implemented by the end of 2018, in our view. Indicative pricing (As of 19-Jun-17) Buy HSCEI-SPX Dec-18 70 110 corridor variance swap: 5 vol points 16 Global Equity Volatility Insights 20 June 2017 Chart 24: The HSCEI-SPX Dec-18 (18-month) variance swap spread is back to the lower-end of its 5-year trading range 20 18 16 14 12 10 8 6 4 2 0 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Source: BofA Merrill Lynch Global Research Data as of 2-Jan-12 to 16-Jun-17 18-month constant maturity variance swap spread is used as a proxy of Dec18 variance swap spread Sep-15 Jan-16 May-16 Dec18 HSCEI SPX Variance Spread Sep-16 Jan-17 May-17 Chart 25: The long term HSCEI-SPX realized vol spread has been higher than the current implied corridor variance spread (5 ) 98 of the time since 2007 30 25 20 15 10 5 0 Jul-07 Feb-08 Sep-08 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Source: BofA Merrill Lynch Global Research HSCEI - SPX 18-month realized vol Dec18 Variance Implied: 8 Dec18 70 110 Corridor Variance Implied: 5 Data as of 2-Jul-07 to 16-Jun-17 Chart 26: Historical payoff of buying HSCEI-SPX Dec-18 70 110 corridor variance spread; higher payoffs during 2011-2012 and 2015 sell-offs 300,000 250,000 200,000 150,000 100,000 50,000 - -50,000 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Table 6: The HSCEI-SPX Dec-18 70 110 corridor variance trade has a positive carry with realized vol across most tenors higher than the current implied corridor variance swap spread HSCEI SPX Spread 1M realized vol 12.1 4.6 7.5 3M realized vol 13.7 6.8 6.9 6M realized vol 14.0 6.8 7.2 12M realized vol 16.6 9.7 6.9 18M realized vol 20.8 11.99 8.8 HSCEI SPX Dec18 70 110 corridor variance offer: 5.0 Source: BofA Merrill Lynch Global Research HSCEI-SPX Dec18 70 110 corridor historical payoff (10k vega) Source: BofA Merrill Lynch Global Research Data as of 2-Jul-07 to 16-Jun-17 Global Equity Volatility Insights 20 June 2017 17 Notable trends and dislocations (Asia) Most regions in Asia reported modest declines last week, led by Hong Kong s HSCEI, which lost 2.0 week-over-week. Much of the decline came on Thursday following the US Fed s decision to hike rates 25bps. Also in China, the People s Bank of China (PBOC) injected 410bn yuan (about 60bn) into the financial system via reverse-repos, the largest cash boost since January. The central bank said the funds are meant to ease concern amid a seasonal funding squeeze. The biggest contributors to the index s loss were financials names, including China Life Insurance (2628 HK), which fell 5.7 , Ping An Insurance Group Co of China Ltd (2318 HK), which dropped 3.7 , Bank of China Ltd (3988 HK), which declined 1.8 , and China Merchants Bank Co Ltd (3968 HK), which fell 5.7 . We saw a similar decline from Hong Kong s HSI index, which lost 1.6 percent last week. After the HSCEI and HSI, last week s biggest losers were Korea s KOSPI and India s NIFTY, which each returned -0.8 week-over-week. In Japan, the Nikkei fell 0.3 . On Friday, the Bank of Japan (BoJ) left its monetary policy unchanged it will continue to control the yield curve via its negative benchmark rate and its asset purchasing program. The final region to report a loss last week was Taiwan s TWSE, which lost 0.4 . On the other hand, the only region to see a gain last week was Australia, which saw its ASX 200 benchmark increase 1.7 week-over-week. The biggest contributors to the gain were Commonwealth Bank of Australia (CBA AU), which gained 3.4 , Westpac Banking Corp (WBC AU), which increased 1.9 , and CSL Ltd (CSL AU), which added 2.9 . 10 day realized vol picked up in Asia last week, up 2.0 vol points to 9.6 Asian 3m ATM volatility declined on average 0.1 vol point to 12.3 last week, while 10 day realized vol increased on average 2.0 vol points to 9.6 . Notably, the HSI's realized vol increased 5.4 vol points, the biggest increase in the region. On the other hand, the NKY was the only index to see a decline in 10 day realized vol it dropped 4.3 vol points week-over-week to 7.2 . On average, term structures among Asian indices steepened by 0.2 vol points to 4.2 last week. The TWSE 12M-1M term structure steepened the most, increasing 1.0 vol point to 2.9 . On the other hand, Hong Kong s HSI saw the only flattening as its term structure flattened 0.1 vol point to 4.9 . Asian 3M 90-110 skews widened 0.5 vol points on average to 3.8 . Taiwan s TWSE widened the most, increasing 2.3 vol points to -0.2 . Table 7: Volatility measures of major Asian indices (data as of 16-Jun-17) 3Mth ATM Implied Volatility 10D Realized Volatility 12Mth-1Mth ATM Vol Spread 3Mth 90-110 Skew Spread Equity Market Weekly 4Yr Weekly 4Yr Weekly 4Yr Weekly 4Yr Weekly Current change percentile Current change percentile Current change percentile Current change percentile return HSI 12.4 0.2 2.1 10.2 5.4 20.6 4.9 -0.1 97.8 3.3 0.9 41.4 -1.6 HSCEI 15.0 -0.4 0.0 10.7 4.8 7.8 5.4 0.2 98.1 1.4 0.5 36.5 -2.0 NKY 13.8 -0.2 0.1 7.2 -4.3 1.8 5.8 0.5 99.9 5.8 0.0 73.9 -0.3 KOSPI 200 12.2 0.2 19.7 11.1 1.1 53.1 4.0 0.2 77.0 3.8 0.3 43.7 -0.8 ASX 200 11.8 -0.2 17.7 15.7 5.1 77.1 2.7 0.0 59.5 6.4 -0.1 22.5 1.7 NIFTY 10.7 0.2 2.2 4.8 1.0 0.4 4.0 0.0 76.1 5.9 -0.1 64.1 -0.8 TWSE 10.5 -0.6 7.2 7.8 1.0 20.3 2.9 1.0 71.2 -0.2 2.3 3.9 -0.4 Source: BofA Merrill Lynch Global Research 18 Global Equity Volatility Insights 20 June 2017 Chart 27: Both HSCEI and NKY term structures are near record steeps; we favor calendar puts to hedge downside risks 15 10 5 0 -5 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 NKY 3M-12M ATM Vol Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 HSCEI 3M-12M ATM Vol Jan-17 Calendar puts are attractively priced given the steep term structure With the continuous low realized volatility environment, both NKY and HSCEI 3-month minus 12-month term structures steepened to -3.7 vol points, which are near multi-year lows. As our strategists think the Fed now appears concerned about surging asset prices, investors should consider downside hedges. Calendar puts, i.e. buying short-dated ATM puts and selling long-dated OTM puts, are attractively priced given the steep term structure. Currently, we still have an open trade on NKY calendar puts (buy Jul-17 19,500 puts vs sell Dec-17 17,500 puts) to hedge downside risks. Source: BofA Merrill Lynch Global Research Data as of 2-Jan-09 to 16-Jun-17 Chart 28: The Nikkei Topix ratio and its volatility is capped with the BoJ s ongoing yield curve control NKY TPX Price Ratio 12.9 12.7 12.5 12.3 12.1 11.9 11.7 11.5 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 NKY TPX Ratio 10Y JGB Yield -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 1.2 JGB 10-year yield (Inverted) The BoJ s ongoing yield curve control has capped the Nikkei Topix ratio and its volatility Japanese government bond (JGB) yield has been on a downward trend over the last few years and has negatively impacted bank earnings. As the Topix has higher weightings in banks than the Nikkei, the NKY TPX ratio has been grinding higher. However, the NKY TPX ratio appears to have flattened out since the BoJ s commitment to maintain the 10-year JGB yield at around 0 in September 2016. With global central banks increasingly advocating tighter monetary policies, the market may start to speculate BoJ s exit strategy and this may reverse NKY TPX s upward trend. With TPX vol trading below NKY vol, buying TPX calls funded by NKY calls may perform well in such a scenario. Source: BofA Merrill Lynch Global Research Data from 2-Jan-12 to 16-Jun-17 AS51 3M ATM IV over HSCEI is at its 4-year high Table 4 lists Asian index pairs with the highest IV ratio vs their 4-year histories. For instance, the ratio of AS51 3M ATM IV over HSCEI is at its 4-year high. Global Equity Volatility Insights 20 June 2017 19 Chart 29: The ratio of AS51 3M ATM IV over HSCEI is at its 4-yr high (Daily data from 1-Oct-12 through 16-Jun-17) Implied Vol 45 40 35 30 25 20 15 10 5 Jan-13 AS51 3M ATM vol HSCEI ATM vol Vol ratio May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 0.90 0.80 0.70 0.60 0.50 0.40 Ratio Table 8: Index pairs with the highest implied vol ratio vs their histories (data as of 16-Jun-17) Index A Index B A B Implied Ratio 4-yr percentile (Implied vol) (Implied Vol) Vol ratio 3M ATM AS51 (11.8 ) HSCEI (15.0 ) 0.79 100 6M ATM KOSPI2 (13.2 ) HSCEI (17.1 ) 0.77 98 12M ATM KOSPI2 (14.6 ) NIFTY (14.0 ) 1.04 98 3M 25d-Put AS51 (13.8 ) HSCEI (16.3 ) 0.85 99 6M 25d-Put KOSPI2 (14.4 ) HSCEI (18.7 ) 0.77 98 12M 25d-Put KOSPI2 (16.0 ) HSCEI (20.5 ) 0.78 99 3M 25d-Call AS51 (10.9 ) HSCEI (15.0 ) 0.73 99 6M 25d-Call KOSPI2 (12.8 ) NKY (14.4 ) 0.89 98 12M 25d-Call KOSPI2 (14.2 ) NIFTY (12.2 ) 1.16 98 Source: BofA Merrill Lynch Global Research Index universe includes the ASX200, HSCEI, HSI, KOSPI2, NIFTY, NKY, TWSE, SPX and SX5E mid level implied vol Source: BofA Merrill Lynch Global Research 20 Global Equity Volatility Insights 20 June 2017 Summary of Open Trades (19-Jun-17) Price data for open level reflects the price on open date and does not necessarily reflect the price at which the trade could be executed at the date of this report. Our trades are structured to be executed on the open date and are not necessarily appropriate to execute as formulated beyond that date. Table 9: Summary of open trades as of 19-Jun-17 Trade Description Open Date Open Level Long SX5E vs short SPX Dec18 var swap 5-Jul-16 6.1 vols Long NKY vs short SPX Dec18 var swap 5-Jul-16 5.7 vols Long SX5E vs short SPX Dec18 put vs put 5-Jul-16 0.00 Expected Trade Term Dec-18 expiry Rationale Investors should re-assess attractiveness of popular and (typically) technically motivated longerdated RV vol trades, given environment of structurally higher political economic risks and increasingly limited policy options Buy a 1Y ATM worst-of call on SPX TLT 18-Jul-16 0.9 1 year Cheap equity upside in a bond equity melt-up Buy SPX UKX Jun17 ATM outperformance call, conditioned on SPX lower at maturity (qUSD) Buy UKX Jun17 6650 put, sell SPX Jun17 1850 put Buy an SX5E Sep-17 95 put conditional on EUR 10Y CMS 1.1 or 0.3 in Mar-17 17-Oct-16 17-Oct-16 2.0 2.6 Jun-17 expiry Jun-17 expiry Risks of a hard Brexit rising and (weak) currency tailwind likely to prove short-lived; position cheaply for FTSE 100 (UKX) underperformance 14-Nov-16 2.7 Sep-17 expiry Remain long equities and cheapen hedges by conditioning on rates Buy 2823 HK Jun-17 90 110 strangle 21-Nov-16 5.55 Jun-17 expiry China risk premium rising but A-shares vol still at all-time lows Buy ESTX50 Dec17 90 put contingent on EURGBP 0.82 by Jun17 expiry 2-Dec-16 1.63 Dec-17 expiry Buy SPX UKX Jun17 5 outperformance call (qUSD) 2-Dec-16 2.05 Jun-17 expiry Long XLF vs SX7E Jun17 ATM outperf call, contingent on SX7E higher at Jun expiry (qEUR) 2-Dec-16 1.20 Jun-17 expiry Equity-FX correlation is not priced for a spillover of populism into the EU, which could cause EUR to fall against an already weakened GBP as equities fall UKX is heavily exposed to EU (50 revenues) and should underperform SPX if GBP tailwind fades. Volatility correlation suit well for outperformance Cheapen long XLF upside to near 8y lows via selling upside on structurally challenged European banks relatively more bearish outlook for US rates vs EU Buy NKY Jun17 110 Call 02-Dec-16 1.83 Jun-17 expiry USDJPY and NKY the biggest beneficiaries of a Trump win Buy TPINSU Jun17 110-125 Call Spread 02-Dec-16 3.30 Jun-17 expiry Banks and Insurance are the most leveraged sector Buy TPNBNK Jun17 110-125 Call Spread 02-Dec-16 3.20 Jun-17 expiry Banks and Insurance are the most leveraged sector Buy 2823 HK Jun17 90 110 strangle 02-Dec-16 5.90 Jun-17 expiry China risk premium rising but A-shares vol still at all-time lows Buy HSCEI Jun17 105-120 call spread contingent on KRW 1200 02-Dec-16 1.20 Jun-17 expiry Own contrarian EM upside at low cost limited risk Buy NKY-SPX Dec19 70 110 corridor variance 02-Dec-16 1.50 Dec-19 expiry QE uncertainty and USDJPY vol support NKY vs SPX realized vol Buy NKY Jun17-Jun18 18,500 strike FVA 02-Dec-16 21.5 Jun-17 expiry What if QE hits its limit? Long NKY vol outright which is cheap to carry Long Russell 2000 vs. short S P 500 Dec-18 var spread 5-Dec-16 3.9pts Dec-18 expiry With fiscal stimulus and potential tax cuts, small caps revert to old normal generating higher vol on upside and downside relative to large caps Buy 1x Jun17 64 call on Aug17 Brent futures, sell 1x SXEP Jun17 330 call 9-Jan-17 1.00 Jun-17 expiry Vol and price technicals are attractive. BofAML commodity strategists oil target is 70 bbl but this is already priced in SXEP levels according to BofAML Oil Gas equity analysts Buy SPX 6m ATM call contingent on GLD 5 higher in 3m 23-Jan-17 1 Jul-17 expiry Position for a near-term wobble followed by yet another equity melt up Long NKY - SPX Dec-18 corridor var replication 13-Feb-17 4.00 Dec-18 expiry Cheaply access positive carry QE failure hedge Buy NDX Top20 volatility dispersion 27-Feb-17 17.0 Jan-18 expiry Long 1.8x vega on 1y single stock vols of UK Brexit exposed names, Short 1x vega on 1y FTSE index vol 14-Mar-17 32.3vols 14-Mar-18 Position for a pick-up in single stock realised vol on the 10 names (within FTSE s top 30) where post EU referendum realised vol was the highest relative to current 1y ATMf vol. The 10 names are: Barclays, Aviva, Prudential, BT, Glencore, Tesco, CRH, BA, Standard Chartered HSBC. SPX Sep-17 95 puts conditional on the 5yr CMS rate above 2.4 at maturity 14-Mar-17 1 Sep-17, expiry Hedge portfolios against a buy-the-dip failure should a faster rate cycle ultimately jeopardize it Buy Buy-Rated MSCI A-shares stocks hedge with puts 23-Mar-17 1.44 Jun-17 expiry Market may trade on the MSCI inclusion theme; Hedge with 2823 HK Jun17 95 put Buy A-shares with highest MSCI impact hedge with put 23-Mar-17 1.44 Jun-17 expiry Market may trade on the MSCI inclusion theme; Hedge with 2823 HK Jun17 95 put Own Japan stock vol via gamma weighted vol dispersion 10-Apr-17 15.8 Mar18 expiry Historically attractive to own TOPIX Top 10 corridor gamma weighted volatility dispersion Buy CNOOC Jul-17 95 puts vs. sell HSCEI 95 puts 24-Apr-17 0.77 Jul17 expiry Hedge a rollover in China GDP and screen for cyclicals that could face pressure Buy CH Merchant Bk Jul-17 18.5 17 put spread vs 22 call 24-Apr-17 0.10 Jul17 expiry Hedge a rollover in China GDP and screen for cyclicals that could face pressure Buy SX5E Dec17 3800 calls contingent on EURUSD 1.1 at expiry 8-May-17 1.3 Dec17 expiry Benefit from low vol, flat correl, likely hawkish ECB (FX un-hedged) inflows into EU equities Buy 1.5x KOSPI2 285 puts vs. short 1x KRW 1160 call 8-May-17 0.3 Jul17 expiry Leverage inexpensive equity vs. FX vols to own cheap tail protection Buy EEM Aug17 39.5 put and sell EEM Aug17 37 put 15-May-17 1.6 Aug17, expiry Buy inexpensive EM equity puts on near-record performance gap to commodities Buy Dec17 105 call on an equally weighted basket of SX7E, SXAP, SXPP SXEP, sell Dec17 ATM worst-of call on the same 15-May-17 1.6 Dec17 expiry Monetise low vol high implied correl to position for greater sector dispersion in EU: long basket call, short worst-of call Buy NKY Jul-17 19500 puts vs. short Dec-17 17500 puts 15-May-17 0.0 Jul17 expiry Own inexpensive NKY hedges into FOMC; Term structure is too steep is under-pricing risks Short GILD 55- 62.5- 67.5 put spread collar 16-May-17 1.5 Sep-17 expiry Buy out-of-favour and inexpensive biotech upside by levering depressed vol skew Long 1x EEM 3m 97.5 put vs. short 0.09x units each of 3m 97.5 puts on FXI, EWY, EWZ, EPI, EWT, RSX, EZA, and EWW 1.5 0.0 3m Buy EEM puts financed by a basket of EM puts to lever near record low correl Buy Tencent Jul17 250 300 strangle 22-May-17 2.45 Jul-17 expiry Hedge a potential China tech bubble; Tencent potentially volatile after a 45 rally YTD Buy A-shares (2823 HK) Jul17 105 call 22-May-17 1.15 Jul-17 expiry Hedge the upside into MSCI announcement on 20-Jun Buy 1x contract of ESTX50 Jun17 3525, sell 4x contracts of V2X Aug future 22-May-17 1.00 Buy SX5E Dec17 3450-3700 bullish risk reversal vs short IBOXX HY TRS with equal notional sizing 30-May-17 1.17 Jun-17 expiry Dec-17 expiry Fundamental case to be long EU equities remains intact but stretched bullish positioning could lead to near-term consolidation BofAML Equity Credit strategists highlight they favour equities over HY credit as div yields have surpassed HY credit yield equities offer more gearing to rising PMI s, earnings and FCF Global Equity Volatility Insights 20 June 2017 21 Table 9: Summary of open trades as of 19-Jun-17 Trade Description Buy 6m ATM calls on FB, AMZN, NFLX and GOOGL Open Date Open Level 6.9 (FB), 7.2 (AMZN), 30-May-17 9.4 (NFLX), 6.2 (GOOGL) Expected Trade Term 6m Rationale Stock replace FANG stocks Buy a 6m outperformance call on FANG stocks vs. SPX conditional on SPX 30-May-17 3.4 6m Lever extremely depressed FANG volatility and low correlation to buy upside current levels at expiry Buy HSI Sep17 90 put, sell ASX200 Sep-17 90 put 30-May-17 0.15 Sep-17 expiry HSI is unlikely to outperform if AS51 drops more than 10 ; HSI vol below AS51 vol Buy 14-Sep-17 best-of 95 put on NKY KOSPI2 HSI 05-Jun-17 0.80 Sep-17 expiry Buy best-of puts to hedge a reversal in rally with the low vol and correlation environment Buy SPX Top50 volatility dispersion 05-Jun-17 16.6 Jun-18 expiry Position for a potential bubble in Tech Buy XLF 24 call, sell QQQ 139 call 12-Jun-17 0.01 Jul-17 expiry Rotate out of Growth into Value Buy NKY-KOSPI2 Dec-17 90 110 strangle spreads 12-Jun-17 3.50 Dec-17 expiry We think the technically depressed NKY-KOSPI2 volatility spread will normalize Buy NKY Sep17 19000-17500 put spread 12-Jun-17 0.93 Sep-17 expiry NKY put spread may offer even better value in hedging against a "mini TARP moment" Source: BofA Merrill Lynch Global Research. Prices reflective of most recently available data which may be delayed in some cases. Trade Value represents current valuation of trades initiated on the Open Date . 22 Global Equity Volatility Insights 20 June 2017 Summary of Closed Trades (19-Jun-17) Table 10: Summary of closed trades as of 19-Jun-17 Open Open Close Trade Description Date Level Level Close Date Rationale Buy NKY Aug-16 105 -110 call spreads sell 90 puts 11-Jul-16 0.26 1.73 25-Jul-16 Close position as the hurdle to surprise on the upside is high following a 5.8 NKY rally Replace FB long positions via Oct-16 ATM calls 25-Jul-16 5.9 6.1 1-Aug-16 Close position as Facebook rallied on better-than expected Q2 results Replace AMZN long positions via Oct-16 ATM calls 25-Jul-16 5.5 6.3 1-Aug-16 Close position as Amazon rallied on better-than expected Q2 results Buy AAPL Oct-16 ATM protective puts 25-Jul-16 4.6 1.2 1-Aug-16 Remove protection as worries around disappointing Q4 guidance faded post earnings Buy 1.5x 5-Aug-16 2950-3000 strangles by selling 1x 19- Aug-16 2950-3000 strangles 25-Jul-16 0.00 -1.12 5-Aug-16 The BoJ, Fed EU bank stress tests could move mkts sharply in the near term Sell NKY Aug16 15500 puts, Buy Sep16 15500-14500 put spreads 25-Jul-16 0.24 0.28 Aug-16 expiry Sep-16 expiry Unwinding before the Aug16 expiry; The NKY Sep put spread has carried well Buy TLS 25-Aug16 95 puts 18-Jul-16 1.05 2.95 15-Aug-16 Telstra has announced earnings and the stock has corrected 5 over the period Buy Newcrest 25-Aug-16 105 115 call spreads 18-Jul-16 2.64 1.18 15-Aug-16 NCM has stayed unchanged over the period despite better than expected earnings Buy CSL 25-Aug-16 95 puts 18-Jul-16 1.09 1.18 22-Aug-16 CSL fell 5.4 over the period with weak earnings announcement Buy BHP 25-Aug-16 105 115 call spreads 18-Jul-16 2.22 0.77 22-Aug-16 BHP rose 3.6 over the period but the option remains out of the money Buy HSCEI Aug16 9400 call, Short Oct16 10000 call 1-Aug-16 0.00 0.67 22-Aug-16 Close position as the HSCEI rallies 5.2 and we are approaching the Aug16 expiry Buy Tencent (700 HK) Sep16 105 call 15-Aug-16 1.70 2.70 22-Aug-16 Tencent jumped post better than expected earnings Sell 1x SX7E 1M 25d call to fully finance 1.85x SX5E 1M 25d calls 25-Jul-16 0.0 0.0 25-Aug-16 SX7E 1M 25d call SX5E 1M 25d call price ratio is in the 100 th 2-yr percentile Buy CMB (3968 HK) Sep16 105-115 call spread 5-Jul-16 2.32 6.12 30-Aug-16 Close position and BofA ML turned neutral in EM in the short-term Buy ICBC (1398 HK) Sep16 105-115 call spread 5-Jul-16 2.12 9.0 30-Aug-16 Close position and BofA ML turned neutral in EM in the short-term Buy BOC (3988 HK) Sep16 105-115 call spread 5-Jul-16 2.10 6.28 30-Aug-16 Close position and BofA ML turned neutral in EM in the short-term Buy XLF Sep 24 strike call 25-Jul-16 1.4 2.3 6-Sep-16 Buy XLU Sep 51 strike put 25-Jul-16 1.3 2.6 6-Sep-16 Buy a 6M ATM worst-of XLF call, XLU put 25-Jul-16 1.35 3.0 6-Sep-16 Buy 0.85x SX5E Sep16 3000-3100 strangle, sell 1x SX5E Dec16 3000-3100 strangle Close positions from trades that have benefited thus far from the rally in Financials and weakness in Utilities; monetize view that Fed will not hike in September 15-Aug-16 -5.07 -5.73 Sep-16 expiry Take advantage of low near term vol and a steep term structure Long 0.5x V2X Oct16 future, short 0.5x V2X Jan-17 future 11-Jul-16 0.05 vols -0.95 vols 19-Sep-16 Unwind Oct Jan spread and maintain Nov Jan spread given clarity around the Italian referendum date Sell VSTOXX Sep 21 puts 30-Aug-16 1.20 vols 1.77 vols Sep-16 expiry Global macro event risk likely to keep V2X supported going into Sep expiry VIX Sep 17 22 1x2 call ratios (short 2x) 0.75x SPY Sep23 15-Aug-16 210 puts 0.85 0.45 Sep VIX expiry Trade provided hedging benefits during the sudden Sep market shock has expired Buy NKY Oct 95 105 strangle outright 30-Aug-16 2.28 0.44 27-Sep-16 Take a loss post an disappointing market reaction on the BoJ announcement Buy NKY Oct 95 105 strangle daily delta-hedging 30-Aug-16 2.28 0.56 27-Sep-16 Take a loss post an disappointing market reaction on the BoJ announcement Long 3M 25d EFA put vs short 3M 25d UKX put 5-Jul-16 0.00 0.00 3 months Trade expired on 3-Oct Replace T long position via 3M ATM calls 19-Jul-16 2.72 0.04 3 months Replace LOW long position via 3M ATM calls 19-Jul-16 3.90 0.00 3 months Replace RTN long position via 3M ATM calls 19-Jul-16 3.16 0.41 3 months Replace CRM long position via 3M ATM calls 19-Jul-16 4.16 0.19 3 months Replace NEE long position via 3M ATM calls 19-Jul-16 2.32 0.08 3 months Overlay long WBA long position with 3M ATM calls 19-Jul-16 4.04 1.20 3 months Our analysts no longer expect impactful catalysts in the near term; stock replacement strategies proved useful in cushioning downside losses during the abrupt Sep-16 sell-off vs. long equity positions. Buy HKEx (388 HK) 1x2 105 -115 call ratio 15-Aug-16 0.60 0.00 29-Sep-16 HKEx failed to rally above the first call strike and expired worthless Buy NKY Oct16 17500 call, Sell 0.65x NKY Sep 17250 call 8-Aug-16 0.70 0 14-Oct-16 NKY Oct-16 call expired out of the money Close position as the Oct VIX future stayed well-supported as is typically the case in the weeks 1-Aug-16 0.45 0.88 14-Oct-16 Short VIX Oct 15 put vs. long VIX Nov 19 26 call spread leading up to the US presidential election Long 2x SPX Oct31 2125 puts vs. short 1x SPX Mar-17 1975 put 6-Sep-16 0.0 -0.34 14-Oct-16 Provided hedging benefits in the sudden equity shock in early Sep-16; now being unwound to mitigate decay DAX 2.31x Dec16 -1x Dec17 put calendars 30-Aug16 0.00 -2.60 Dec-16 expiry DAX outperformance low short dated DAX vol make put calendars attractive Buy SX5E Dec16 2950 2750 put spread 6-Sep-16 1.48 0.00 Dec-16 expiry A catalyst-strewn fall and a remarkably low volatility summer suggests that there could be headwinds to continued market upside on low volatility Buy 1.5x SX5E Dec16 3100 call, sell 1x SX5E Mar17 3100 24-Oct-16 call for an upfront credit of 56bps -0.56 1.62 Dec-16 expiry Monetise steep SX5E vol curve for tactical EU upside with an upfront credit Buy a 6M ATM worst-of call on XLP GLD 11-Jul-16 1.05 0.0 6 months Buy a 6M ATM worst-of SPX put, GLD call 11-Jul-16 1.60 0.0 6 months Buy GLD 124 130 Dec-16 call spread 8-Nov-16 0.9 0.0 Dec-16 Buy GLD 116 124 130 Dec-16 call spread collar 8-Nov-16 0.65 -7.4 Dec-16 Buy TLT 123 132 137 Dec-16 call spread collar 8-Nov-16 0.67 -5.03 Dec-16 Buy Oct16 110 f calls on VIE FP, AI FP, IBE SQ, STAN LN 18-Jul-16 and MUV2 GY 2.37 3.30 Oct-16 expiry Buy an Oct16 110 F call on an equally weighted basket (quanto EUR) 18-Jul-16 0.81 0.00 Oct-16 expiry Take a loss as safe-haven assets post a weak performance in H2-16 with fears over Trump s surprise victory easing and stock markets rallying Add exposure via inexpensive upside on single names where positioning appears particularly bearish and stocks have underperformed vs. their sectors Buy 0.895x V2X Oct 21 puts, sell 1x VIX Oct 16 puts 19-Sep-16 0.0 1.3 Oct-16 expiry Near term catalysts curve differentials favour tactical long V2X, short VIX puts Sell SX7E Dec16 115 call 6-Sep-16 -0.88 -1.09 24-Oct-16 Close short SX7E call (part of SX5E put spread, short SX7E call trade) to limit potential risk from a Yes in the Italian referendum Global Equity Volatility Insights 20 June 2017 23 Table 10: Summary of closed trades as of 19-Jun-17 Open Open Close Trade Description Date Level Level Close Date Rationale Buy HSI Oct-16 102 call, Sell HSP 105 call 19-Sep-16 0.60 0.00 28-Oct-16 HSP has under-performed HSI by 1.8 but both options expire out-of-the money Short 1x USO 3M 25d put, long 2.1x SXEP 3M 25d call 8-Aug-16 0.00 0.00 4-Nov-16 The number of long SXEP calls per short USO put is historically high. Leverage commodity and equity strategists' views on oil and the Oil Gas sector Sell Dec16 SXDP 635 puts, buy 0.6x Dec16 SX7E 110 calls 7-Nov-16 0.00 1.23 11-Nov-16 Tactical option trade ahead of US elections Long 0.5x V2X Nov16 future, short 0.5x V2X Jan-17 future 11-Jul-16 0.20 vols -1.19 vols Nov-16 expiry Hedge further Brexit fallout, Italian bank referendum risk. Buy NIFTY Nov16 95 105 strangle outright 6-Sep-16 1.63 6.36 21-Nov-16 Close position as NIFTY has fallen 11.4 and we are approaching the expiry Buy H-shares w SZ-A buy HSCEI Dec16 put 22-Aug-16 1.90 8.72 5-Dec-16 Close position as the Shenzhen HK connect has launched on 5-Dec-16 Buy HK small-cap buy HSCEI Dec16 put 22-Aug-16 1.90 6.76 5-Dec-16 Close position as the Shenzhen HK connect has launched on 5-Dec-16 Buy 1.32x EFA US 3M 25d put, sell 1x SX5E 3M 25d put for 22-Aug-16 near 0 upfront premium 0.04 0.00 22-Nov-16 Buy 2.6x SX5E 3M 110 call, sell 1x SX5E 3M 90 put for near 0 upfront premium Own EFA puts vs ESTX50 puts to benefit from any increase in quantitative failure risk in Japan and post-Brexit uncertainty 22-Aug-16 -0.04 0.00 22-Nov-16 Low vol, high skew combo makes ESTX50 levered riskies attractive Sell 1M 95 f SX5E put and buy 1M 105 f SX5E call 31-Oct-16 -0.40 0.00 1-Dec-16 Generate income in range-bound markets, benefiting from high ESTX50 skew Buy KOSPI2 Dec16 95 put, sell KRW 97.4 put 17-Oct-16 0.00 0.00 8-Dec-16 Both legs expire out-of-the money at expiry Buy HSCEI Dec16 95 put, sell 2822 HK 94.8 put 12-Sep-16 0.00 0.00 29-Dec-16 Both legs expire out-of-the money Buy HSCEI Dec-16 105-115 call spread 27-Sep-16 1.82 0.00 29-Dec-16 HSCEI call spread expires out-of-the money Buy CH Banks Dec-16 105-115 call spread 27-Sep-16 2.05 0.00 29-Dec-16 Chinese Banks call spread expires out-of-the money Buy Best-of TWSE,KOSPI2,HSCEI Dec16 95 put 10-Oct-16 0.90 0.00 29-Dec-16 The best performing index (KOSPI2) fell less than 5 over the period Buy HSCEI Dec16 9800 call with a 10600 knock-out 7-Nov-16 1.00 0.00 29-Dec-16 HSCEI knock-out call expires out-of-the money Sell Samsung Jan17 90 put, buy KOSPI2 96 put 17-Oct-16 0.00 0.00 12-Jan-17 Both legs expire out-of-the money. The relative value trade has a zero profit loss Buy an XOP Jan-17 45 call 22-Aug-16 1.4 0.00 20-Jan-17 Call expired out-of-the money at expiry Buy an XLE Jan-17 ATM call with 115 knock-in 22-Aug-16 2.5 0.0 20-Jan-17 Call expires in-the-money but the barrier was not breached at expiry Buy an XLE over SPX Jan-17 ATM outperformance call contingent on SPX up at expiry 22-Aug-16 2.3 3.4 20-Jan-17 Energy equity outperformed the overall equity market while both were up by the time the outperformance call expired Buy XLP Jan-17 52 49 put spread 19-Sep-16 1.4 0.00 Jan-17 expiry Both legs expire out-of-the money Buy a 6M ATM best-of put on SPX TLT 18-Jul-16 0.8 0.00 6 months Put expired out-of-the money as the S P500 ended Buy LLY Jan-17 80 90 1x2 CS 17-Oct-16 1.8 0.00 Jan-17 expiry Both legs expire out-of-the money Buy LLY Jan-17 80 85 CS with 90 KI on upper leg 17-Oct-16 2.4 0.00 Jan-17 expiry Both legs expire out-of-the money Buy ZTS Jan-17 46 50 bullish risk reversal 17-Oct-16 2.6 7.4 Jan-17 expiry Both legs expire in-of-the money Buy ZTS Jan-17 46 50 55 call spread collar 17-Oct-16 1.4 7.4 Jan-17 expiry The 46 call and 50 call expire in-the-money Buy an EWZ Jan-17 40 call 24-Oct-16 3.1 0.00 Jan-17 expiry Call expired out-of-the money at expiry Buy TPINSU 105-120 call spread, short 85 put 14-Nov-16 1.75 4.50 13-Jan-17 Option expired and Topix Insurance rose 9.5 over the period Buy TPNBNK 105-120 call spread, short 85 put 14-Nov-16 1.85 10.60 13-Jan-17 Option expired and Topix Banks rose 15.6 over the period Buy HSBC Jan-17 105 call, Sell HSP 105 call 14-Nov-16 0.52 4.98 26-Jan-17 Option expired; HSBC out-performed HSP on the upside Buy SX5E Dec19 -Dec18 div future spread 4-Oct-16 -7.0 -4.2 6-Feb-17 Close position given sudden SX5E rally and Dec18 div future will lose equity beta Own Nifty Mar17 call to position for budget surprise 23-Jan-17 0.67 2.15 6-Feb-17 Nifty was up 4.9 over the period on the back of a positive budget announcement Buy HSI Feb17 23600 call 9-Jan-17 0.48 1.09 13-Feb-17 Close position. HSI was up 4.9 over the period Buy AMP AU 23-Feb-17 95 puts 30-Jan-17 1.85 0.27 13-Feb-17 Unwind the put option post the earnings result Buy SUN AU 23-Feb-17 95 puts 30-Jan-17 1.39 0.08 13-Feb-17 Unwind the put option post the earnings result Buy 1x V2X Feb17 19 calls, sell 0.85x V2X Mar17 futures 17-Jan-17 -16.1v -14.32v Feb-17 expiry Unwind as the Feb17 call expired Buy CBA AU 23-Feb-17 95 puts 30-Jan-17 0.76 0.00 21-Feb-17 Unwind the put option post the earnings result Overwrite WES AU 23-Feb-17 103 calls 30-Jan-17 -0.87 -1.20 21-Feb-17 Unwind the put option post the earnings result Long V2X Apr future, short V2X May future 9-Jan-17 0.45 4.55 24-Feb-17 The Apr future has already richened significantly vs. the May future. Prefer V2X May long May call spread, short Apr put as a French election hedge instead. Buy 1x ESTX50 Dec17 3250 calls, sell 1.23x EURJPY Dec- 17 115 puts 5-Dec-16 0.00 3.20 24-Feb-17 Unwind ahead of French elections as political uncertainty can weigh on the EUR Buy NKY Dec17 19500 call, short Mar17 18000 call 3-Oct-16 0.58 -1.82 3-Mar-17 Unwind the option before the Mar-17 expiry Buy NKY Mar17-Dec17 17000 strike FVA 3-Oct-16 20.2 21.6 3-Mar-17 Unwind the option before the Mar-17 expiry Buy TPNBNK Mar17 1x1.5 180 170 put ratio 9-Jan-17 0.60 0.00 10-Mar-17 Option expired out-of-the money as the TPNBNK remained range-bounded Buy ESTX50 17-Mar-17 3350-3450 strangle 6-Mar-17 0.80 0.00 17-Mar-17 Expired out-of-the-money Buy Volkswagen 2017 dividend future 17-Jan-17 1.3 2.0 14-Mar-17 Volkswagen announced a dividend of 2.05 on 14-Mar-17 Buy Mar17 UKX 6700 put cont. on GBPUSD 1.20 10-Oct-16 0.81 0.0 17-Mar-17 Buy Mar17 UKX 6700 GBPUSD 1.20 dual digital 10-Oct-16 9.1 0.0 17-Mar-17 UKX rallied making the hedges expire out-of-the-money Mar17 UKX 6700 buy qUSD put, sell 0.9x vanilla put 10-Oct-16 0.44 0.0 17-Mar-17 Buy 6M ATM worst-of XLF call, XLU put 19-Sep-16 1.38 0 17-Mar-17 While XLF has rallied 30 since inception, XLU is higher by 4 and the XLU put is the worst performing option, expiring OTM Buy an SPX Mar-17 97.5 put contingent on USO 105 at 3-Oct-16 expiry 1.08 0 17-Mar-17 The structure offered a deep discount for an SPX hedge and expires OTM as markets have rallied strongly Buy a USO Mar-17 105 call contingent on SPX 97.5 at 3-Oct-16 expiry 1.70 0 17-Mar-17 The trade expires OTM due to the SPX rally and a sell off in oil over the past two weeks Buy a Mar-17 SPX 97.5 , USO 105 dual digital 3-Oct-16 11.80 0 17-Mar-17 The trade expires OTM due to the SPX rally and a sell off in oil over the past two weeks Buy an IWM Mar-17 ATM call conditional on EEM 95 at 14-Nov-17 1.15 0 17-Mar-17 EEM has rallied 15 over the period together with IWM expiry Buy an XLI Mar-17 ATM call conditional on EEM 95 at expiry 14-Nov-17 0.89 0 17-Mar-17 EEM has rallied 15 over the period together with XLI Buy GLD Mar-17 116 call, sell Jun-17 127 call 23-Jan-17 1 0.31 17-Mar-17 While GLD rallied strongly earlier in the life of the trade, it recently retreated at the time of expiry with GLD 87bps above the lower strike, the short call is worth 56bps 24 Global Equity Volatility Insights 20 June 2017 Table 10: Summary of closed trades as of 19-Jun-17 Open Open Close Trade Description Date Level Level Close Date Rationale Long 2x SPX Aug-17 2200 puts, short 1x SPX Aug-17 2350 21-Feb-17 put 0.10 0.01 17-Mar-17 SPX has traded range bound since inception of the trade, still the carry has been minimal, close out or roll the position Own Nifty Mar17 strangle heading into 5 events 23-Jan-17 1.50 3.96 20-Mar-17 Unwind the option post the state election event and Close position Long XLF Jun17 24 call, short SX7E Jun17 120 call 2-Dec-16 0.74 -5.88 27-Mar-17 The call vs call relative value trade is now riskier given the potential reversal in US reflation trades and the potential for European equities to rally in a French election market-favourable outcome. Buy Tencent Mar-17 105 calls 27-Feb-17 1.15 2.31 27-Mar-17 Unwind the position for the Tencent earnings Buy HSCEI Mar17 105 call contingent SPX 2200 24-Oct-16 1.20 0.00 30-Mar-17 Option expired; HSCEI was up 5.1 but the SPX ended above 2200 Buy HSCEI Mar17 9600 put vs short Sep17 8200 put 17-Jan-17 -0.05 -0.78 30-Mar-17 Unwind post Mar-17 expiry; the short Sep17 put helped reduce the hedging cost Buy HSCEI Mar-17 1x1.5 10800-11200 call ratio 21-Feb-17 0.57 0.00 30-Mar-17 Option expired; HSCEI stayed flat and failed to rally above the 10800 call strike Long SX5E Apr17 3300 call, short SX5E Dec17 3450 call 30-Jan-17 -0.60 -0.18 21-Apr-17 Apr17 option expired so we unwind the entire trade as planned Short 1x SX5E May17 3350 calls, long 2x SX5E May17 3450 calls 21-Feb-17 0.00 0.60 24-Apr-17 Unwind before May expiry following the large 4 SX5E move on 24-Apr, given lack of near term catalysts Buy an SPX Apr-17 95 put conditional on US 10Y CMS 14-Nov-16 2.5 at maturity 0.78 0 21-Apr-17 In Nov-16, we recommended remaining long equities with cheap hedges. The hedge expires out of the money, while SPX has returned 8.7 for the period Long SPX Apr17 2300 call, short SPX Dec17 2400 call 30-Jan-17 -0.80 -0.71 21-Apr-17 The reflation trade has slowed down and the market is in a holding pattern. The long Apr-17 call expires in-the-money, and the short Dec-17 call still has time value Long VIX May 16 22 call spread vs. short VIX Apr 13 put 21-Feb-17 0.35 0.75 19-Apr-17 The call spread still has value due to elevated vol and vol-of-vol and we collect the premium on the expired short OTM put Short SPX 21-Apr-17 vs. long 28-Apr-17 2325 straddle pair 6-Mar-17 0.50 1.06 21-Apr-17 The trade benefited from the rise in post-event volatility relative to pre-event volatility Buy SX5E 28-Apr-17 3600 call 3-Apr-17 0.26 0 28-Apr-17 The option expired Buy Unicom Apr17 105-115 call spread 21-Feb-17 1.65 4.25 27-Apr-17 Single stock option expired in-the-money despite a 1.4 decline in the HSCEI Buy Sands China Apr17 105-115 call spread 21-Feb-17 2.00 6.97 27-Apr-17 Single stock option expired in-the-money despite a 1.4 decline in the HSCEI Buy Galaxy Apr17 105-115 call spread 21-Feb-17 2.10 10.0 27-Apr-17 Single stock option expired in-the-money despite a 1.4 decline in the HSCEI Buy SX5E Dec19 2500 put, sell SX5E Dec18 2500 put 27-Sep-16 3.97 1.9 8-May-17 SX5E has rallied 23.3 since we entered the trade and European political risk abated for now Buy KOSPI2 May17 103 calls 13-Mar-17 0.63 5.37 8-May-17 Option expired; KOSPI2 rallied 8.37 over the period Buy KOSPI2 May17 97 103 strangle 13-Mar-17 1.38 5.37 8-May-17 Option expired; KOSPI2 rallied 8.37 over the period Buy NKY Jun17 20750 call, sell 1-1.3x 18750-17750 put ratio 06-Mar-17 0.00 0.00 15-May-17 Closing the trade post French election; option strikes remain far from the spot level Long V2X May 26-32.5 call spread and short Apr 22 put 21-Feb-17 0.20 0.00 19-May-17 Expired Buy 1x contract of SX5E May17 3550 call, sell 5x contracts Expired of V2X May17 16 puts 3-Apr-17 0.0 -1.63 19-May-17 Long GLD May 123 call vs. short May 130 call 21-Feb-17 0.8 0.00 19-May-17 The hedge expired out-of-the-money as S P 500 remained supported Buy 1.5x EFA Jun17 103 call, sell 1x EFA May17 ATM call 6-Mar-17 -0.15 -0.20 19-May-17 EFA rallied strongly leading into the second round of the French elections but subsequently stalled Buy SPX Top50 volatility dispersion 27-Feb-16 14.7 11.5 30-May-17 Expired Long HSI vs. SPX May-17 90 put switch 06-Feb-17 0.07 0.00 29-May-17 Option expired; Both HSI and SPX puts expire out-of-the-money Buy the Nifty May17 95 105 strangle outright 20-Mar-17 1.20 0.00 25-May-17 Option expired; Nifty failed to move more than the straddle huddle (5 ) Long HSBC May-17 65 70 call spread 3-Apr-17 0.95 4.33 29-May-17 Option expired; HSBC is up 6.75 on the back of a strong seasonal rally Buy NKY Jun17 110 Call 02-Dec-16 1.83 0.00 9-Jun-17 Closing the trade on expiry; Japan market rallied but options remain out of the money Buy TPINSU Jun17 110-125 Call Spread 02-Dec-16 3.30 0.00 9-Jun-17 Closing the trade on expiry; Japan market rallied but options remain out of the money Buy TPNBNK Jun17 110-125 Call Spread 02-Dec-16 3.20 0.00 9-Jun-17 Closing the trade on expiry; Japan market rallied but options remain out of the money Buy NKY Jun17-Jun18 18,500 strike FVA 02-Dec-16 21.5 19.1 9-Jun-17 Closing the trade on Jun17 expiry; Global volatility collapsed in 1H2017 Buy an EWZ Jun-17 40 call conditional on SPX 2200 at expiry 24-Oct-16 1.70 0 19-Jun-17 Recent political turmoil in Brazil surrounding Temer's presidency caused a slide in the Brazilian equity market and the BRL Buy SPX Jun17 95 put contingent on US 5Y CMS 2.15 5-Dec-16 1.04 0 19-Jun-17 In Dec-16, we recommended remaining long equities overlayed with cheap hedges. The hedge Buy 1x Jun-17 ATM XLF call, sell 1.8x Jun-17 ATM worst-of calls on XLP and XLU Buy Jun-17 ATM R2K- value outperf call over EEM, contingent on EEM 95 expires out of the money, while SPX has returned 10.2 for the period 5-Dec-16 2.10 -12.90 19-Jun-17 Following the US election and the initial move in rates, XLF rallied and subsequently stalled. In the same period, the defensive sectors played the catch-up trade 5-Dec-16 2.30 0 19-Jun-17 Concerns over US tax reform implementation caused small-caps to underperform relative to other equity markets, including EM Buy QQQ Jun17 132 call , sell XLF Jun17 25 call 20-Mar-17 0.57 4.73 19-Jun-17 The trade captured the recent Tech sector outperformance in a period when Financials lagged driven by lower rates Source: BofA Merrill Lynch Global Research. Prices reflective of most recently available data which may be delayed in some cases. Trade Value represents current valuation of trades initiated on the Open Date . Global Equity Volatility Insights 20 June 2017 25 Volatility in Numbers (16-Jun-17) Table 11: Statistics on implied, realised, skew and term structure for 3-month and 12-month vols (developed markets) 3-month 12-month S P500 ESTX50 FTSE DAX NKY HSI KOSPI S P500 ESTX50 FTSE DAX NKY HSI KOSPI Implied 9.8 13.4 10.0 12.6 13.8 12.4 12.2 14.0 16.8 13.6 16.6 17.2 15.8 14.6 tile (2yr) 1.2 1.6 0.6 0.8 0.4 4.1 19.9 7.7 5.6 9.5 5.5 1.8 6.3 24.9 1Week Change -0.2 0.3 -0.4 0.3 -0.2 0.1 0.3 0.1 0.1 -0.1 0.1 -0.4 0.0 0.1 1Mth Change -0.2 0.0 0.0 -0.4 -0.5 -0.3 -0.2 0.1 0.3 0.6 0.1 0.2 0.2 0.7 Realised 7.0 11.4 9.6 10.7 12.2 10.2 10.7 9.5 13.3 12.2 15.1 19.6 13.5 11.4 tile (2yr) 11.5 15.5 15.6 9.4 0.6 0.8 21.1 0.0 0.0 0.0 0.0 10.8 1.4 20.7 1Week Change -0.2 0.2 0.2 0.4 -0.3 0.1 -0.1 -0.1 -3.2 -0.3 -0.4 -0.2 0.1 -0.1 1Mth Change 0.4 -0.1 0.1 0.1 -0.2 -0.5 0.1 0.0 -3.8 -0.7 -1.0 -0.4 -0.5 0.0 Imp-real spread 2.7 2.0 0.4 1.9 1.6 2.3 1.5 4.5 3.5 1.4 1.5 -2.3 2.3 3.1 Spread tile (2yr) 57.9 55.7 45.1 57.2 67.8 71.3 58.6 91.5 100.0 85.2 99.2 61.6 89.2 70.8 1Week Change -0.1 0.1 -0.5 -0.2 0.0 0.1 0.4 0.1 3.3 0.2 0.4 -0.2 -0.1 0.2 1Mth Change -0.6 0.1 -0.1 -0.5 -0.2 0.2 -0.2 0.2 4.1 1.3 1.2 0.6 0.7 0.7 90-110 skew 8.5 8.4 6.2 8.5 5.8 3.3 3.8 tile (2yr) 16.1 71.8 8.8 66.7 47.9 17.8 14.2 1Week Change 0.2 0.9 0.2 0.7 0.0 0.9 0.8 1Mth Change 0.5 2.4 1.2 1.6 0.2 0.9 0.9 10-day realised 12M - 3M term vol spread S P500 ESTX50 FTSE DAX NKY HSI KOSPI S P500 ESTX50 FTSE DAX NKY HSI KOSPI Current Level 3.2 9.4 8.3 12.1 7.1 9.9 10.6 4.3 3.4 3.6 3.9 3.5 3.4 2.4 tile (2yr) 1.0 16.3 21.7 26.3 0.8 15.5 46.7 99.8 98.9 99.6 99.6 98.9 96.9 79.5 1Week Change -1.5 2.1 1.2 2.5 -4.1 4.6 0.9 0.3 -0.2 0.2 -0.2 -0.2 -0.1 -0.2 1Mth Change -0.4 0.9 0.4 5.2 -5.8 0.1 -6.2 0.3 0.3 0.6 0.5 0.7 0.4 0.9 Cash index Current Level 2,433.15 3,543.88 7,463.54 12,752.73 19,943.26 25,626.49 306.79 1Wk Change 0.06 -1.18 -0.85 -0.49 -0.35 -1.55 -0.84 1Mth Change 1.35 -2.69 -0.78 -0.40 0.12 1.15 2.38 Source: BofA Merrill Lynch Global Research Table 12: Statistics on implied, realised, skew and term structure for 3-month and 12-month vols (emerging markets) 3-month 12-month EEM US IBOV RDXUSD TOP40 EEM US IBOV RDXUSD TOP40 Implied 15.6 22.9 25.9 16.9 19.2 24.3 26.7 18.5 tile (2yr) 5.0 31.7 28.7 15.6 8.9 39.2 26.7 9.2 1Wk Change 0.5 -1.7 0.9 1.2 0.2 -0.2 0.5 0.8 1Mth Change 0.5 1.8 2.6 1.9 1.4 2.0 1.4 0.5 Realised 11.8 25.3 20.5 11.0 17.6 22.5 20.4 14.9 tile (2yr) 0.2 58.8 20.8 3.2 8.5 5.7 0.0 2.8 1Wk Change -1.2 -0.6 -1.1 0.3 -0.2 -0.4 -0.4 0.1 1Mth Change -1.2 6.6 0.0 -0.6 -0.2 1.5 -0.9 -0.2 Imp-real spread 3.8 -2.4 5.4 5.8 1.6 1.9 6.3 3.6 Spread tile (2yr) 85.5 11.7 71.7 95.0 65.5 74.9 99.0 74.9 1Wk Change 1.8 -1.1 2.0 1.0 0.5 0.1 1.0 0.7 1Mth Change 1.7 -4.8 2.7 2.5 1.6 0.5 2.3 0.7 90-110 skew 7.0 5.9 5.2 8.0 tile (2yr) 32.8 68.4 26.2 35.4 1Wk Change 0.7 0.8 0.4 0.4 1Mth Change 0.9 0.4 0.6 1.3 10-day realised 12M - 3M term vol spread EEM US IBOV RDXUSD TOP40 EEM US IBOV RDXUSD TOP40 Current Level 8.1 8.8 17.0 12.2 3.6 1.4 0.9 1.7 tile (2yr) 4.0 0.2 17.8 26.3 97.5 80.5 57.7 46.2 1Wk Change -0.5 -4.3 -2.2 0.8 -0.3 1.5 -0.4 -0.5 1Mth Change -3.9 -8.1 -2.7 5.3 1.0 0.2 -1.2 -1.4 Cash index Current Level 41.22 61,626.41 1,136.99 44,512.15 1Wk Change -0.94 -0.94 -3.70 -2.97 1Mth Change -1.10 -10.28 -11.99 -6.15 Source: BofA Merrill Lynch Global Research 26 Global Equity Volatility Insights 20 June 2017 Options Risk Statement Potential Risk at Expiry Options Limited Duration Risk Unlike owning or shorting a stock, employing any listed options strategy is by definition governed by a finite duration. The most severe risks associated with general options trading are total loss of capital invested and delivery assignment risk, all of which can occur in a short period. Investor suitability The use of standardized options and other related derivatives instruments are considered unsuitable for many investors. Investors considering such strategies are encouraged to become familiar with the "Characteristics and Risks of Standardized Options" (an OCC authored white paper on options risks). U.S. investors should consult with a FINRA Registered Options Principal. For detailed information regarding the risks involved with investing in listed options: http: www.theocc.com about publications character-risks.jsp Analyst Certification I, Benjamin Bowler, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. 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Importance: High Sent from my BlackBerry 10 smartphone. Cc: Ainbanklaw Info; ; Patrick M. Regan; Denyse Sabagh; Michael Baxter; Robert Barnett; Weingarten, Reid; Ellen Kerns; We know of course that Saturdays are reserved for Matthew Horton. On Saturday, July 1, 2017, 12:06:29 PM EDT, wrote: Rich Beckler, Ken Adams, Do you remember when I'd asked you what your daughters did for a living? Especially last night Mr. Beckler, as most Friday nights, no? Yes, they are the new iterations of Ghislaine Maxwell; for you Richard Beckler, this originated from my being a former Stone Ridge classmate of his elder daughter Katie Beckler, and because he was on the Board of Stone Ridge during this period in time when my every family, friend, acquaintance and association was being contacted, bribed in one form or another, and turned against me (see below); as for Ken Adams, it stemmed from my having contacted him for representation in my 2011- filed case against IBM also during this period of time when my every communication were being tracked. You both are interesting; you let us see what's to become of the Scalia 35 (see below; at bottom, Ghislaine Maxwell's Jeffrey Epstein in context.) We start from this following precept: (the repeating 9 11s) 1. "Toward a New World Order" speech by Pres. George H.W. Bush 9 11 (1990) 2. WTC Attack 9 11 (2001) 3. BENGHAZI Attack 9 11 (2012) But you have to remember that H. W. Bush was planted: AUTHOR PETER DALE SCOTT: Sometimes you have little deep events that most people don't even notice. One of those would be the Halloween Massacre. The older people remember the Saturday Night Massacre which happened under Nixon. I'm talking about the Halloween Massacre of October 31, 1975, and probably people watching this show have never heard of it. That was under Ford, and Ford may have condoned it because it was trying to help restore his popularity. He was going way down in the polls. But it was a very important series of events all on the same night. The head of the CIA was fired, William Colby, replaced by a relatively unknown man called George H. W. Bush who then went on to authorize something that Colby had refused to authorize - the Team B report - the Team B to recalculate the Soviet threat and it was pre- determined. They were going to find that it was much bigger than the professionals angled like Raymond inaudible that I mentioned. They said Russia is less of a threat now than it used to be. Well, that was terrible news for the industrial complex so the Team B came in and said oh, no, no, no, it's much more of a threat than it used to be, and that's why we got this huge military build-up. It started actually under Carter but we think of it as the Reagan build-up, and that of course is a major factor in having ended the Soviet Union because the Soviet Union tried to match it with a weaker economy. And that arms race which was not about threats but was about fighting economic war, that was an arms race which you could say that the Soviet Union lost because they couldn't keep it up. Their economy went more and more downhill because they were deflecting resources away from vital domestic functions. But really I'm trying to talk here about the Halloween Massacre... Just the change in the CIA was a major historical event but it wasn't very visible. The second thing that happened was they fired Jim Schlesinger as Secretary of Defense... It was being done by President Ford's Chief of Staff and his assistant who are two names barely known then but quite famous since. Chief of staff was Donald Rumsfeld and the assistant was Dick Cheney. And that was the first real intrusion of the Rumsfeld-Cheney team into American politics. And they became the real heart of what I consider the Deep State in the 1980s when they were planning for Continuity of Government which was a plan for emergency rules like warrantless surveillance and warrantless detention and the militarization of homeland security. All those things were planned all through the '80s - COG planning by Donald Rumsfeld and Dick Cheney. Even when Rumsfeld wasn't in the government, he was authorized by Reagan to do this planning. And why is that important to our history? Because in 2001, these two men were now in the government - Vice President and Secretary of Defense - the two top people in Washington on September the 11th, 2001 when Bush was down in Florida - George W. Bush - and what did they do on that day? They implemented the plans they had been planning for 20 years. Another major event in American history but it's not usually told that way. We implemented - it's in the 9 11 Commission Report that COG plans were implemented on that day. This is a huge change in our country. We now have an ARMY command, NORTHCOM, to take charge of America - North America, the way SOUTHCOM is in charge of South America and CENTCOM is in charge of Central Asia. This used to be illegal... We had the posse comitatus acts which said, yes, if there's a real emergency you could call up the ARMY to deal with the emergency, but you cannot do it on a permanent basis but we now do do it on a permanent basis. We haven't even bothered to repeal the posse comitatus. We are in a state of emergency that was declared on September the 14th, 2001. And it's still enforced. It has to be renewed every year. Obama did it every year just as George Bush renewed it every year. What are the roots of this? Well there are the legitimate roots that go back to fear of an atomic decapitation of the government back in the Truman era, so legitimate COG planning goes back to Truman and Eisenhower, but the illegitimate use of COG to deal with any emergnecy you like, that goes to the Reagan administration and it really goes back to the Halloween Massacre where Rumsfeld and Cheney put their thumbprint on American politics for the first time. https: www.youtube.com watch?v hNqDAYWYFuQ t 2433s This all suggests that the start of the 9 11 agenda pre-dated him as well. I see now that there was a seemingly relevant 1990 event as well. "On September 11, 1970 overtones with the attacks on New York and Washington in 2001 president to try to protect air travelers from extremists who sensed gaping vulnerabilities in security for commercial airliners, issuing a statement listing a string of measures including the introduction of 100 air marshals on U.S. planes. "Most countries, including the United States, found effective means of dealing with piracy on the high seas a century and a half ago," Nixon said. "We can deal effectively with piracy in the skies today." The President had been jolted into action by the simultaneous hijackings of planes in Europe headed to the United States. Jets belonging to TWA, Pan Am and Swissair were seized by the Popular Front for the Liberation of Palestine. The group also attempted to hijack a jet over London belonging to the Israeli airline El Al but was thwarted by security guards on board. The Pan Am seizure ended quickly, but the passengers on the TWA and Swissair jets were diverted to a British air base in Jordan and the drama only ended after days of tense diplomacy, when the hostages were all released in a deal in which the Swiss, German, British and Israeli governments let Palestinian prisoners go." (http: www.cnn.com 2015 07 27 politics terrorism-1970s-richard- nixon index.html) This 9 11 response sounds quite normal of course. But fast forward and the two secret service individuals chosen for an April 2001 interview by a PWC staff member on behalf of what becomthe IBM Center for the Business of Government were (1) Steve Colo who happened to be the head of the division at SAIC that falsely labeled me a threat and added my name to some sort of Do Not Admit list at the end of a 5 month temp assignment in 2005 into early 2006. The consequence of the SAIC designation for me was the following: (I write) "The SAIC designation took advantage of a devilish stratagem in which as a national security employee (having filed out a SF-86 form, governed actually by the GSA - https: www.gsa.gov portal forms download 116390 - for government clearance) working a designated contract in a classified facility, being designated a disturbance dissident threat to operations, makes one, in turn, a threat to national security - with all the surveillance targeting that enables." In essence I was made an enemy of the State and was tracked, my family and friends turned, my opportunities seized to include the opportunity to rear family as demonstrated especially in the 2007 sabotage of my third trimester pregnancy and then the targeting and eventual capture of children I used to babysit - in 2011, they were predominantly tweens - to be used for sexual blackmail and other forms of leverage. The reason for the use of children in this barbaric way was to expend "ops" that were already in effect and had been used to control many of the politicians that have been allowed to rise to the top (see info on the Franklin Scandal for example), and similarly according to the laws of compromise, the following which has been recently developing into highly coordinated murder "ops": (I write) "The progress that was made from the absorbing of my (small) network (and this through sources and methods - money and other pleasureful compensations given to those willing to participate in and or coordinate violence against me and my loved ones to include children leading only to now their enabled targeting and the absorbing of whatever may be their networks - well, you see below (and this only the very tip of the iceberg) how many people they've been able to engulf and what advances have been made by the quite elaborate criminal class employing these tactics; and one also begins to better understand the events surrounding Justice Scalia's passing and what's to come for the 35 guests in Scalia's private party. As for Scalia's passing, it was decidedly suspicious as noted by William Ritchie: (The Washington Post prints) "As a former homicide commander, I am stunned that no autopsy was ordered for Justice Scalia," William 0. Ritchie, former head of criminal investigations for D.C. police, wrote in a post on Facebook on Sunday... Ritchie also raised questions about the marshals' actions: "How can the Marshal say, without a thorough post mortem, that he was not injected with an illegal substance that would simulate a heart attack... Did the US Marshal check for petechial hemorrhage in his eyes or under his lips that would have suggested suffocation? Did the US Marshal smell his breath for any unusual odor that might suggest poisoning? My gut tells me there is something fishy going on in Texas." As for SAIC, the following also pertains: (I write) "If you first see SAIC as what's called a systems integrator (author Tim Shorrock's phrase), and also the formerly married Bud and Sue Horton and their two grown sons Matthew Horton and Ben Lanier as aids of an implementation, you can better see the bigger picture: (1) Sue Horton left IBM in early 2007-ish for an executive position at Tetra Tech which soon entered into joint venture with SAIC (Sue's employer prior to IBM, btw) on an enormous (billion dollar) 2011 Hillary Clinton State Department award (http: www.prnewswire.com ... saic-tetra-tech-joint-venture- a. .); (2) that Bud Horton left IBM in early 2009-ish for an executive position at Accenture which soon thereafter entered into joint venture with SAIC spin-off Leidos, and Cerner, on an enormous (billion dollar) 2015 DoD award (http: www.healthcareitnews.com ... dod-names-ehr-contract-wi...); (3) that the Sue Horton contract was used to grow and fortify the Afghan heroin trade (as well as corrupt law enforcement) although the stated intention was of course the opposite... (" SAIC and Tetra Tech's joint venture, Integrated Justice Systems International, LLC (USD, has been awarded a contract to provide worldwide civilian police and criminal justice assistance to the U.S. Department of State's Bureau of International Narcotics and Law Enforcement Affairs (INL)... specifically to provide INL with program management, criminal justice, and life and mission support to countries emerging from conflict or otherwise facing instability challenges. Under this new contract, IJSI will provide technical assistance, training, logistics and infrastructure services to support the Department of State's efforts to strengthen criminal justice systems in select partner countries.")... yet, just months shy of contract end, the NY Times reported: "Tasked With Combating Opium, Afghan Officials Profit From It:" "Penetrating Every Stage of Afghan Opium Chain, Taliban become a Cartel:" and "Corrupt Combatants Fight for Control of Lucrative Afghan Drug Trade:" see also here an overview of the growth of Afghan opium production from the start of the US occupation (2001) to the present, and especially from contract start (2011) to end (2016): http: www.globalresearch.ca the-spoils-of-war- afghanist... 91; (4) and that the award Bud Horton helped secure just as Sue's contract was coming to an end was not only born from what looks like Franklin Scandal compromises, but it is this contract that seems intent on implementing bioterrorism as the new form of explosive terrorism." (Note that both members of this family were awarded BILLION dollar contracts; that's quite exceptional, no?) As for terrorism as an US industry, it's hardly better seen than through the following which is information of course we all know: We note that in-between Bush 41's 9 11 1990 speech(with Dick Cheney as his Secretary of Defense) and the 9 11 2001 attack on the WTC were little more than Clinton's 8 years in the White House. We look also to The American Deep State by Peter Dale Scott for evidence of ties between the actions of the Clinton administration and (1) the 1993 attack on the WTC and (2) the 1998 attack on the US embassy in Nairobi, Kenya which demonstrate that the Clinton administration in no uncertain terms sponsored terrorism: (Writes Scott) "The homicidal crime suggested by Fenton's meticulous research is one both difficult and painful to contemplate. It has to be considered in the light of the earlier instances of protection we have surveyed: 1. the protection given to Salameh and Abouhalima in the 1990 Kahane murder, leaving them free to participate in the 1993 World Trade Center bombing; 2. the failure for two or three years to process Ali Mohamed's documents seized in 1990, which could have prevented the 1993 World Trade Center bombing; 3. the release of Ali Mohamed from Royal Canadian Mounted Police detention in 1993, leaving him free to participate in the 1998 Nairobi Embassy bombing; 4. the treatment of Ali Mohamed as an "unindicted coconspirator" in the 1993 WTC bombing case and Landmarks case, leaving him free to participate in the 1998 Nairobi Embassy bombing. (pp. 76-77, The American Deep State) Scott had earlier examined these attacks in especial connection to the September 11, 2001 attack on the WTC: (Writes Scott) "For indeed it is certain that on various occasions U.S. agencies have intervened, letting al-Qaeda terrorists proceed with their plots. This alarming statement will be dismissed by some as "conspiracy theory." Yet in this chapter, I will show that this claim doesn't to arise from theory, but from facts that are true, even though they have been systemically suppressed or under-reported in the American mainstream media. I am describing a phenomenon that occurred not just once, but repeatedly, almost predictably. We shall see that, among the al-Qaeda terrorists who were first protected and then continued their activities were the following: 1. Ali Mohamed, identified in the 9 11 Commission Report as the leader of the 1998 Nairobi Embassy bombing; 2. Mohammed Jamal Khalife, Osama bin Laden's close friend and, while in the Philippines, financier of both Ramzi Yousef (principal architect of the first World Trade Center WTC attack) and his uncle Khalid Sheikh Mohammed; 3. Khalid Sheikh Mohammed, identified in the 9 11 Commission Report as "the principal architect of the 9 11 attacks"; 4. Khalid al-Mihdhar and Nawaf al-Hazmi, two of the alleged 9 11 hijackers, whose presence in the United States was concealed from the FBI by CIA officers for months before 9 11. It might sound from these citations that the 9 11 Commission marked a new stage in the U.S. treatment of these terrorists, and that the report now exposed those terrorists who in the past had been protected. On the contrary, a principal purpose of my chapter is to show that 1. one purpose of protecting these individuals had been to protect a valued intelligence connection (the "al-Qaeda connection," if you will); 2. one major intention of the 9 11 Commission Report was to continue protecting this connection; 3. those on the 9 11 Commission staff who were charged with this protection included at least one commission member (Jamie Gorelick), one staff member (Dietrich Snell), and one important witness (Patrick Fitzgerald) who earlier had figured among the terrorists' protectors. In the course of writing this chapter Scott continues , I came to another disturbing conclusion I had not anticipated. This is that a central feature of the protection has been to defend the 9 11 Commission's false picture of al-Qaeda as an example of non-state terrorism, ignoring not just the CIA but also the royal families of Saudi Arabia and Qatar. In reality, as I shall show, royal family protection from Qatar and Saudi Arabia (concealed by the 9 11 Commission) was repeatedly given to key figures like Khalid Sheikh Mohammed, the alleged "principal architect of the 9 11 attacks." The establishment claims that the wars fought by America in Asia since 9 11 have been part of a global "war on terror." But this "war on terror" has been fought in alliance with Saudi Arabia, Qatar, and Pakistan - precisely the principal political and financial backers of the al-Qaedist networks the United States has supposedly been fighting. Meanwhile the most authentic opponents in the region of these Sunni al-Qaedists - the governments of Iraq, Libya, Syria, and Iran - have found themselves overthrown (in the case of Iraq and Libya), subverted with U.S. support (in the case of Syria), or sanctioned and threatened as part of an "axis of evil" (in the case of Iran). We should not forget that, just one day after 9 11, "Rumsfeld was talking about broadening the objectives of our response and 'getting Iraq." (pp. 44-45, The American Deep State) Clinton's daughter is now poised to work global health initiatives which I would suggest is little more than a cover for on-going terrorism "ops". To return to Steve Colo - in the interview he speaks of a partnership between the Secret Service, the FBI, and South Carolina's SLED (State Law Enforcement Division) to open a Computer Crime Center. Bud Horton (mentioned above) (long-affiliated with IT Security; his title at Accenture was Chief technology officer of it's cyber security practice) happened to have just moved to South Carolina from Loudoun County after being implicated in a continuing child sex scandal (see details below). Further, cyber-crime just so happens to be another of the arenas in which our Intelligence Community coordinates with the Russians: "The US cooperates with the FSB and Russia's interior ministry on counter-terrorism, organized crime, bio-terrorism, and cyber-crime." Descent into the Russian Mafia State, by Luke Harding) Most would interpret this quote to suggest that the nations work together to prevent these various threats. The reality is more the opposite; trust me when I say that the US doesn't work "ops" alone - the 2005 London Bombings is one notable example of a instance in which the US coordinated with also British intelligence in the perpetration of an attack.) I just tweeted this morning actually the following in regards to US coordinations with the Russians: "One must know a renowned Rus mafiaso was granted entry https: en.wikipedia.org wiki Vyacheslay lvankov Moving to the United States ... be4 the real story of today's US-Rus relations is slowly known" in response to the following comment turndeaux: Peter Dale Scott, who writes about the Deep State, says Russia issue is "a bona fide security issue, not a diversion". About Bud Horton and the Loudoun County matter - in attempts to make a long story short, the following email chain: On Monday, June 26, 2017 10:57 AM, Sheriff Chapman, Loudoun Count, VA wrote: Did you ever consider that Loudoun was a target? That your community was induced to walk it's own children down the plank as compensation for what Loudoun had done to the young Dima Yakovlev? Because now child exploitation is deeply embedded within your community with your own people (your own police, your own prosecutors, your own public defenders and private attorneys) protecting this very system that will be used to take the futures of your Loudoun children (see more of the details below). Is it possible that that's how this happened, and you saw it not unfolding before your eyes? Or was it simply money and just another good enough justification? Forwarded Message On Monday, June 26, 2017 10:24 AM, Changeis, wrote: You reported in May of 2014 that you hired Bob Richel formerly of the DEA as Vice President of Corporate Development. In an April 2014 interview by the Loudoun County Police (those in the mouth of the lion but not quite aware of it yet but to have foreseen the ways in which the 2008 death of the Russian born 21 month-old Dima Yakovlev (renamed Chase Harrison by his Purcellville, VA adoptive parents) would have been used as "justification" for a (quite profitable) counter-offensive... ) of Henry "Bud" Horton (characterized by Loudoun County as a "victim" of the recent "False statement to Law Enforcement Officer (LEO)" of him sexually exploiting the 15 year-old Anjulee Gunther), Henry "Bud" Horton named Bob Rachel as one of the DEA guys he used to work with. This takes on unusual significance in light of the below, no? (How lovely, by the way, this following information and the ways in which it helps us understand many of the hidden influences: "Halliburton is also involved with the Russian mob. They're got sort of two things going on. One is oil and the other is drug trafficking. Halliburton is a story all by itself." (says Stan Goff, http: narconews.com goffmccormick1.html)) On Saturday, June 24, 2017 2:43 PM, wrote: Mr. Satz, State's Attorney, Broward County, Fl I'm forwarding the below information as it pertains to Mrs. Lesley Simms and more importantly the ones with whom she continues to coordinate. As you may know, she was once close with an individual named Matthew Horton with whom she attended George Mason University, and through Matthew, Ms. Simms became well-acquainted with Matthew's parents Henry "Bud" Horton and Sue Popovich Horton who helped secure her a position at IBM upon her graduation from GMU. Both of these latter individuals (Bud and Sue Horton) were involved in the 2007 murder of my son, and they in collusion with their son Matthew continue in the exploitation of children Anjulee and Xian Gunther. The powers that be intend now for these children to (continue to) follow in the footsteps of Ms. Simms, and to that end, I would advise that you become acquainted with (1) the ways in which Ms. Simms subsidized her law school education and off course (2) her current and related endeavors especially as they relate to drug trafficking and terror financing (see below email to Mr. Martin of the St. Augustine Record). On Friday, June 23, 2017 8:36 AM, wrote: Mr. Martin, St. Augustine Record Quite an interesting article about the litigation between Deputy Banks and Rusty Rogers (see: Deputy Banks' attorney claims FDLE agent's credibility 'destroyed') It must also be explored, of course, that Officers Rodgers was once well respected for his investigation and exposure of a terrorist financing network that permeated the sunny state of Florida - (the NY Times reports) "Agent Rodgers joined the state's elite investigative unit, the Florida Department of Law Enforcement, where he quickly earned agent-of-the-year honors and a meeting with the governor for helping dismantle a terrorist financing network that stretched from Florida to the Middle East" - and that terrorism is very much a well-protected U.S. industry (see below). God forbid some poor should get away with disrupting the delicate state of secreted operations; as you yourself report, "As written in Plaintiff Banks motion: "Defendant Rodgers' false, misleading and inconsistent testimony throughout the discovery process is so pervasive and extreme, and involves so many material issues, it has destroyed Defendant's credibility on all issues..." And here we see the "whole-of-government" attempts to restore balance. As for the second Secret Service agent interviewed by the IBM Center for the Business of Government, his name is Dana Brown. He just so happened to have filled out his career with the Federal Air Marshall Service (October 2003-August 2008 as Director Chief of Staff) followed by the TSA (March 2006-January 2009 as Asst. Administrator-Law Enforcement Integrity Officer) states his Linked In profile. That he worked his way around to that which was largely put in place by the 1970 9 11 mini-event seems to me rather significant although I don't see all the details yet. I also don't yet see exactly who it was that birthed this lengthy 9 11 initiative we're suffering. It seems clear, however, that it was birthed prior to 1970. The initiative has adjusted in some ways over time, but homage to 9 11 remains strong. Certain of the people deeply involved in these manipulations thought it was kismet that an individual well-suited to head the newly ordained Department of Homeland Security (that as we all know was the result of legislation rushed through Congress in the aftermath of the 9 11 (2001) attack) was born on the magical September 11th (this is Jeh Johnson); similarly, it is again being deemed a sign that the new Director of the National Science Foundation (NSF) (chosen and positioned as she was) is first-named France (last name Cordova) and that this name so perfectly relates to US intentions to use the NSF to forward "ops" that will solidify a US-France working relationship in the same way the 2005 London Bombings helped solidify the US-British working relationship. These France going-ons are in higher gear (I've noticed) since Macron was elected but it was prepped for long ago. I was working for IBM under IBM project manager Cathie Skoog at the NSF when my third trimester pregnancy was sabotaged. The story of this sabotage and what followed is (briefly) this: I've long-alleged that John and Avery Gunther (whose children I used to babysit) agreed to a quid pro quo exchange of financial compensation for help destroying my credibility on behalf of IBM against whom I'd filed a 2010 EEOC (Equal Employment Opportunity Commission) charge and a subsequent May 2011 civil suit. Per the May 11, 2011 Complaint, McGuire v. John and Avery Gunther: 3. On April 6, 2011 Mr. and Mrs Gunther, with uncontrolled greed and total disregard for the rights and feelings of Ms. Nadine McGuire as well as those of their children, AFG and XWG, maliciously and with ill-intent, wrongfully completed and executed a Complaint and Motion for Preliminary Injunction requesting formal protection against Ms. Nadine McGuire. 4. Over the course of the previous few months, Mr. and Mrs. Gunther, colluding with persons against whom Ms. Nadine McGuire is currently furthering litigation, including but not limited to plaintiff's mother, Pauline Scala McGuire, and from whom they received and or have been promised to receive monetary incentives, hid their relationships with said individuals, further lied about having those relationships in direct conversation with Ms. Nadine McGuire and Court testimony on May 4, 2011, and wrongfully completed and executed a Complaint and Motion for Preliminary Injunction against Ms. Nadine McGuire in cooperation and collaboration with said persons, resulting in the issuance of a Temporary Restraining Order against Ms. Nadine McGuire issued on April 6, 2011. - Initial Complaint, 5 11 11, McGuire v. John and Avery Gunther, Case No.:2011 CA 003703 B, DC Superior Court, Judge Gregory Jackson presiding In regards to the suit against IBM (McGuire v. IBM, 1:11CV528, US District Court of Virginia), the only suit in which Pauline Scala McGuire was listed as a defendant, the most important claim was one of "assault" that led to the 2007 death of my son. Per the filing: Plaintiff, Grace Nadine McGuire, realleges the allegations of paragraphs 1-65 hereof as if fully set forth within and further alleges: 66. Defendant Palmisano's conduct in ascertaining the drug that was used on the plaintiff to end her pregnancy and take the life of her child on April 22, 2007, constitutes an intentional touching of the plaintiff by defendant Palmisano, and was undertaken deliberately and with actual malice towards the plaintiff and her unborn child. 67. Defendant Skoog, Susan Horton and Scala's conduct in coordinating the circumstances, creating physical proximity and the administering of the drug to the plaintiff that ended her pregnancy and took the life of her child on April 22, 2007 constituted an intentional touching of the plaintiff by said defendants, and was undertaken deliberately and with actual malice towards the plaintiff and her unborn child. ... 69. As the direct and proximate result of defendant Palmisano, Skoog, Susan Horton, and Scala's conduct, the plaintiff suffered a severe placental abruption, which terminated her pregnancy and ended the life of her unborn child, causing the plaintiff to suffer damages including but not limited to the loss of her child, loss of affection, grief, sorrow, extreme mental torment and emotional distress. - Initial Complaint, filed 5 16 11, McGuire v. IBM, et al, Case No.: 1:11CV528, US District Court of Virginia - Eastern Division, Alexandria, Judge Leonie Brinkema presiding This is to say that John and Avery Gunther helped IBM defend against an allegation of murder, and in this way they are accomplices to a cover-up. This is also to say that the characterization provided by John and Avery Gunther in their April 2011 Superior Court filing for a Protection Order against me and their admissions in this filing of having provided derogatory information to various persons and or entities in the DC area to include school administrators, psychologists, and law enforcement, were more to harm me, especially in my chances to hold IBM accountable, than to protect either themselves or children Anjulee and Xian Gunther. I also long-allege that the relationship that developed from this initial quid pro quo led to John and Avery Gunther being similarly compensated for what turned into the sexual exploitation of their two daughters. For more on child sexual exploitation for the sake of personal and professional leverage, see especially the following: Nick Bryant I The Franklin Scandal The Elite's Pedophilia Cover Up, https: www.youtube.com watch?v 68gyGGPjmOo t 978s That the NSF won't acknowledge the abuse, and won't respond even to my FOIA requests, and otherwise has gone to extents to protect Cathie Skoog and her co-conspirators at IBM and otherwise is all that was needed to have adequately turned the organization towards the interests of the Deep State. Now it is simply a matter of the Deep State continuing to put the NSF to use. Jeffrey Epstein in context: (As sent to the Wash Post) I send you this in response to the recent column entitled Believe in the Process by Kenneth Starr. Perhaps rethink any public affiliation with Ken Starr; although his demeanor on paper is undoubtably consoling, it is also a bit intoxifying when it would be best now if we keep our wits about us, no? I say this from the following perspective - Ken Starr of the Starr Report, attorney for (1) Erik Prince of Blackwater and (2) convicted pedophile Jeffrey Epstein in context: The Starr Report buried behind salacious detail of the Lewinsky affair almost nothing of Whitewater, Travelgate, or otherwise what many consider the murder of Vince Foster (Foster, albeit the subject of a different investigation was also under the purview of attorney Starr and formal investigation of the results of Starr's investigation were drowned out by the details of the Lewinsky affair.) This is a bit strange considering the Lewinsky affair was a moral failing and not an actionable criminal one as would have been the others had any proof surfaced. Starr later defended Blackwater against wrongful deaths suit initiated by the families of the 2004 Fallujah Ambush victims - "In October 2006, Blackwater hired one of the nation's heaviest-hitting lawyers to represent it - Kenneth Starr, the independent counsel in the 1999 impeachment of President Bill Clinton over the Monica Lewinsky sex scandal... Starr and his colleagues argued that Blackwater was "constitutionally immune" from such lawsuits and said that if the Fallujah case were allowed to proceed, "Blackwater will suffer irreparable harm." In the eighteen-page petition to the Supreme Court, Blackwater argued that there are no other such lawsuits against private military security companies in state courts "because the comprehensive regulatory scheme enacted by Congress and the President grant military contractors like Blackwater immunity from state-court litigation." (pp. 234-235, Blackwater). (Author Ken Davis writes) "The four men had spent the night before they set off at marine base Camp Fallujah. But the men kept their distance from the leathernecks. Had they spoken to the marines, the Blackwater team might have learned that the Americans were already in the midst of a major offensive meant to assert control over the increasingly restive city, where elements of the radical Islamist movement and remnants of Saddam's army were beginning to aggressively strike back. at the American occupation" (p. 306, The Hidden History of American at War), and perhaps this is the only thing that makes sense of the fact that "Under the terms of its contract, Blackwater was supposed to supply these convoy security missions with two SUVs, each carrying three guards per vehicle; a driver, one man riding shotgun, and a third man in back with a heavy machine gun. Instead, the foursome set out that morning with just two men per car, each vehicle missing their rear gunner. The SUVs were only outfitted with a steel plate as extra armor. And the men had not been given maps." (p. 305). Starr went on to defend Jeffrey Epstein abasing allegations of child sex trafficking - "Along with a dream team of attorneys that included Gerald Lefcourt, Roy Black, and Ken Starr, Alan Dershowitz was successful in getting federal investigators not to charge Epstein with moving his victims across state lines and other associated crimes. The federal non-prosecution agreement Epstein's legal team negotiated with the U.S. Attorney for the Southern District of Florida immunized all named and unnamed "potential co-conspirators" in Epstein's child trafficking network, which includes those who allegedly procured minors for Epstein and also any powerbrokers who may have molested them" (- http: gawker.com flight-logs-put-clinton-dershowitz-on-ped...). Otherwise, Epstein's eventual 18 month sentence by the state of Florida was exceptionally light under the circumstances to include the number of victims who came forward with testimony. This is best understood in the context of children being used as a means to government-sponsored sexual blackmail and other forms of leverage. See here Erik Prince in greater context: (the similarities between him and once (secretly) favored child Bin Laden) The coordinations among global intelligence to make rather than eliminate terror as seen thru "assets" bin Laden (as M. Noriega before him) Erik Prince: About BL: "Some CIA officers will later say that BL serves as a semi-official liaison between the GIP Saudi intell and warlords like Sayyaf." (www.historycommons.org entity.jsp?entity ahmed badeeb 1) About EP: "Handcuffed by politics, the CIA had not been able to cultivate relationships with the key but messy leaders. Fortunately, Blackwater had no such political restrictions." (p. 54, Civilian Warriors by E. Prince) We see also: About BL: "Bin Laden established camps inside Khyber Pakhtunkhwa in Pakistan and trained volunteers from across the Muslim world to fight against the Soviet-backed regime, the Democratic Republic of Afghanistan" (Wikipedia) About EP: "In his autobiography, he states that during the Yugoslav Wars in the early 1990s, he realized the need for private training facilities for special operations... Prince moved to Virginia Beach and personally financed the formation of Blackwater Worldwide in 1997. He bought 6,000 acres (24 km2) of the Great Dismal Swamp of North Carolina and set up a school for special operations" (Wikipedia) Erik Prince is (becoming) no less an Amer. intelligence success story than bin Laden (in support of Terrorism as Geostrategy a New World Order - see below). In short: (we note the repeating 9 11s, every 11 years): "Toward a NWO" speech by Bush 41 - Sept. 11 ('90); The WTC - Sept. 11 ('01); Benghazi - Sept. 11 ('12). (There is rhy. reason also 2 the rise of ISIS.) About training camps: I watched so to speak the creating of little torture pockets around the world as justified by Obama's desire to close Gitmo. The White House reports (2 23 16): "We'll continue to securely and responsibly transfer to other countries the 35 detainees already approved for transfer. This process involves extensive and careful coordination across our federal government to ensure that our national security interests are met when an individual is transferred to another country. We insist, for example, that foreign countries institute strong security measures." But are these not just the seeds of new training camps (growing concentrated and lauded violent temperaments) was that not someone's exact intent? In real-time (and as perpetrated on captured children): 3 19 14, sent to the now defunct FB page of D. Cheney: Dick Cheney, I wonder if it's possible that there is coordination with other countries concerning enhanced interrogation techniques, in the form of training perhaps? Specifically, here in the United States, my sense is that there may be the use of vulnerable populations, with the intension to gain favor with and or intimidate others, especially members of the international community. And: On Saturday, June 21, 2014 6:37 AM, Deputy Lyddy, wrote: Her energy is very weak. She is physically exhausted, VERY sleep deprived, and HUNGRY. These were continuing experimentations in reversed-engineered SERE; the agreed upon techniques, taken from various regions of the world to be distributed to the various regions of the world, had to be deemed not torture and this is where organizations like the APA stepped in, then (during the Bush administration), and afterwards. See here for example: "And I think, you know, what's really important in the debate going forward among psychologists is the extent to which psychologists loaned their names and loaned their credentials and their Ph.D.s to this kind of activity and essentially were used by the Bush administration to provide a kind of "get out of jail free" card for the people who were, you know, doing these interrogations, because the logic, which I think Mark had mentioned, is, you know, this circular logic. So long as there are trained psychologists from the SERE program who are on site at these interrogations who are saying that these detainees can withstand this treatment, are not being harmed psychologically, then it's not torture. So, you know, you've got this sort of inaudible tortured tortured logic, which is the phrase that has come up, but it's this sort of self-justifying loop in which professionals are loaning their credentials to this kind of activity. And you see the same thing in the Office of Legal Counsel, where you have, you know, lawyers loaning their credentials to approving what are clear violations of the Geneva Conventions." (https: www.democracynow.ord 2009 4 21 the story of mitchell lessen associates) |
Weingarten, Reid 7 4 2017 5:57:07 PM jeffrey E. jeevacation gmail.com Re: The new iterations of Ghislaine Maxwell Importance: High Too down...give me another day Sent from my BlackBerry 10 smartphone. On Tue, Jul 4, 2017 at 6:46 PM Weingarten, Reid Number? Sent from my BlackBerry 10 smartphone. Cc: Ainbanklaw Info I; Patrick M. Regan; wrote: Denyse Sabagh; Michael Baxter; Robert Barnett; Weingarten, Reid; Ellen Kerns; We know of course that Saturdays are reserved for Matthew Horton. On Saturday, July 1, 2017, 12:06:29 PM EDT, wrote: Rich Beckler, Ken Adams, Do you remember when I'd asked you what your daughters did for a living? Especially last night Mr. Beckler, as most Friday nights, no? Yes, they are the new iterations of Ghislaine Maxwell; for you Richard Beckler, this originated from my being a former Stone Ridge classmate of his elder daughter Katie Beckler, and because he was on the Board of Stone Ridge during this period in time when my every family, friend, acquaintance and association was being contacted, bribed in one form or another, and turned against me (see below); as for Ken Adams, it stemmed from my having contacted him for representation in my 2011- filed case against IBM also during this period of time when my every communication were being tracked. You both are interesting; you let us see what's to become of the Scalia 35 (see below; at bottom, Ghislaine Maxwell's Jeffrey Epstein in context.) We start from this following precept: (the repeating 9 11s) 1. "Toward a New World Order" speech by Pres. George H.W. Bush 9 11 (1990) 2. WTC Attack 9 11 (2001) 3. BENGHAZI Attack 9 11 (2012) But you have to remember that H. W. Bush was planted: AUTHOR PETER DALE SCOTT: Sometimes you have little deep events that most people don't even notice. One of those would be the Halloween Massacre. The older people remember the Saturday Night Massacre which happened under Nixon. I'm talking about the Halloween Massacre of October 31, 1975, and probably people watching this show have never heard of it. That was under Ford, and Ford may have condoned it because it was trying to help restore his popularity. He was going way down in the polls. But it was a very important series of events all on the same night. The head of the CIA was fired, William Colby, replaced by a relatively unknown man called George H. W. Bush who then went on to authorize something that Colby had refused to authorize - the Team B report - the Team B to recalculate the Soviet threat and it was pre- determined. They were going to find that it was much bigger than the professionals angled like Raymond inaudible that I mentioned. They said Russia is less of a threat now than it used to be. Well, that was terrible news for the industrial complex so the Team B came in and said oh, no, no, no, it's much more of a threat than it used to be, and that's why we got this huge military build-up. It started actually under Carter but we think of it as the Reagan build-up, and that of course is a major factor in having ended the Soviet Union because the Soviet Union tried to match it with a weaker economy. And that arms race which was not about threats but was about fighting economic war, that was an arms race which you could say that the Soviet Union lost because they couldn't keep it up. Their economy went more and more downhill because they were deflecting resources away from vital domestic functions. But really I'm trying to talk here about the Halloween Massacre... Just the change in the CIA was a major historical event but it wasn't very visible. The second thing that happened was they fired Jim Schlesinger as Secretary of Defense... It was being done by President Ford's Chief of Staff and his assistant who are two names barely known then but quite famous since. Chief of staff was Donald Rumsfeld and the assistant was Dick Cheney. And that was the first real intrusion of the Rumsfeld-Cheney team into American politics. And they became the real heart of what I consider the Deep State in the 1980s when they were planning for Continuity of Government which was a plan for emergency rules like warrantless surveillance and warrantless detention and the militarization of homeland security. All those things were planned all through the '80s - COG planning by Donald Rumsfeld and Dick Cheney. Even when Rumsfeld wasn't in the government, he was authorized by Reagan to do this planning. And why is that important to our history? Because in 2001, these two men were now in the government - Vice President and Secretary of Defense - the two top people in Washington on September the 11th, 2001 when Bush was down in Florida - George W. Bush - and what did they do on that day? They implemented the plans they had been planning for 20 years. Another major event in American history but it's not usually told that way. We implemented - it's in the 9 11 Commission Report that COG plans were implemented on that day. This is a huge change in our country. We now have an ARMY command, NORTHCOM, to take charge of America - North America, the way SOUTHCOM is in charge of South America and CENTCOM is in charge of Central Asia. This used to be illegal... We had the posse comitatus acts which said, yes, if there's a real emergency you could call up the ARMY to deal with the emergency, but you cannot do it on a permanent basis but we now do do it on a permanent basis. We haven't even bothered to repeal the posse comitatus. We are in a state of emergency that was declared on September the 14th, 2001. And it's still enforced. It has to be renewed every year. Obama did it every year just as George Bush renewed it every year. What are the roots of this? Well there are the legitimate roots that go back to fear of an atomic decapitation of the government back in the Truman era, so legitimate COG planning goes back to Truman and Eisenhower, but the illegitimate use of COG to deal with any emergnecy you like, that goes to the Reagan administration and it really goes back to the Halloween Massacre where Rumsfeld and Cheney put their thumbprint on American politics for the first time. https: www.youtube.com watch?v hNqDAYWYFuQ t 2433s This all suggests that the start of the 9 11 agenda pre-dated him as well. I see now that there was a seemingly relevant 1990 event as well. "On September 11, 1970 overtones with the attacks on New York and Washington in 2001 president to try to protect air travelers from extremists who sensed gaping vulnerabilities in security for commercial airliners, issuing a statement listing a string of measures including the introduction of 100 air marshals on U.S. planes. "Most countries, including the United States, found effective means of dealing with piracy on the high seas a century and a half ago," Nixon said. "We can - deal effectively with piracy in the skies today." The President had been jolted into action by the simultaneous hijackings of planes in Europe headed to the United States. Jets belonging to TWA, Pan Am and Swissair were seized by the Popular Front for the Liberation of Palestine. The group also attempted to hijack a jet over London belonging to the Israeli airline El Al but was thwarted by security guards on board. The Pan Am seizure ended quickly, but the passengers on the TWA and Swissair jets were diverted to a British air base in Jordan and the drama only ended after days of tense diplomacy, when the hostages were all released in a deal in which the Swiss, German, British and Israeli governments let Palestinian prisoners go." (http: www.cnn.com 2015 07 27 politics terrorism-1970s-richard- nixon index.html) This 9 11 response sounds quite normal of course. But fast forward and the two secret service individuals chosen for an April 2001 interview by a PWC staff member on behalf of what becomthe IBM Center for the Business of Government were (1) Steve Colo who happened to be the head of the division at SAIC that falsely labeled me a threat and added my name to some sort of Do Not Admit list at the end of a 5 month temp assignment in 2005 into early 2006. The consequence of the SAIC designation for me was the following: (I write) "The SAIC designation took advantage of a devilish stratagem in which as a national security employee (having filed out a SF-86 form, governed actually by the GSA - https: www.osa.clov portal forms download 116390 - for government clearance) working a designated contract in a classified facility, being designated a disturbance dissident threat to operations, makes one, in turn, a threat to national security - with all the surveillance targeting that enables." In essence I was made an enemy of the State and was tracked, my family and friends turned, my opportunities seized to include the opportunity to rear family as demonstrated especially in the 2007 sabotage of my third trimester pregnancy and then the targeting and eventual capture of children I used to babysit - in 2011, they were predominantly tweens - to be used for sexual blackmail and other forms of leverage. The reason for the use of children in this barbaric way was to expend "ops" that were already in effect and had been used to control many of the politicians that have been allowed to rise to the top (see info on the Franklin Scandal for example), and similarly according to the laws of compromise, the following which has been recently developing into highly coordinated murder "ops": (I write) "The progress that was made from the absorbing of my (small) network (and this through sources and methods - money and other pleasureful compensations given to those willing to participate in and or coordinate violence against me and my loved ones to include children leading only to now their enabled targeting and the absorbing of whatever may be their networks - well, you see below (and this only the very tip of the iceberg) how many people they've been able to engulf and what advances have been made by the quite elaborate criminal class employing these tactics; and one also begins to better understand the events surrounding Justice Scalia's passing and what's to come for the 35 guests in Scalia's private party. As for Scalia's passing, it was decidedly suspicious as noted by William Ritchie: (The Washington Post prints) "As a former homicide commander, I am stunned that no autopsy was ordered for Justice Scalia," William 0. Ritchie, former head of criminal investigations for D.C. police, wrote in a post on Facebook on Sunday... Ritchie also raised questions about the marshals' actions: "How can the Marshal say, without a thorough post mortem, that he was not injected with an illegal substance that would simulate a heart attack... Did the US Marshal check for petechial hemorrhage in his eyes or under his lips that would have suggested suffocation? Did the US Marshal smell his breath for any unusual odor that might suggest poisoning? My gut tells me there is something fishy going on in Texas." As for SAIC, the following also pertains: (I write) "If you first see SAIC as what's called a systems integrator (author Tim Shorrock's phrase), and also the formerly married Bud and Sue Horton and their two grown sons Matthew Horton and Ben Lanier as aids of an implementation, you can better see the bigger picture: (1) Sue Horton left IBM in early 2007-ish for an executive position at Tetra Tech which soon entered into joint venture with SAIC (Sue's employer prior to IBM, btw) on an enormous (billion dollar) 2011 Hillary Clinton State Department award (http: www.prnewswire.com ... saic-tetra-tech-joint-venture- a...); (2) that Bud Horton left IBM in early 2009-ish for an executive position at Accenture which soon thereafter entered into joint venture with SAIC spin-off Leidos, and Cerner, on an enormous (billion dollar) 2015 DoD award (http: www.healthcareitnews.com ... dod-names-ehr-contract-wi...); (3) that the Sue Horton contract was used to grow and fortify the Afghan heroin trade (as well as corrupt law enforcement) although the stated intention was of course the opposite... (" SAIC and Tetra Tech's joint venture, Integrated Justice Systems International, LLC (USD, has been awarded a contract to provide worldwide civilian police and criminal justice assistance to the U.S. Department of State's Bureau of International Narcotics and Law Enforcement Affairs (INL)... specifically to provide INL with program management, criminal justice, and life and mission support to countries emerging from conflict or otherwise facing instability challenges. Under this new contract, IJSI will provide technical assistance, training, logistics and infrastructure services to support the Department of State's efforts to strengthen criminal justice systems in select partner countries.").., yet, just months shy of contract end, the NY Times reported: "Tasked With Combating Opium, Afghan Officials Profit From It;" "Penetrating Every Stage of Afghan Opium Chain, Taliban become a Cartel;" and "Corrupt Combatants Fight for Control of Lucrative Afghan Drug Trade;" see also here an overview of the growth of Afghan opium production from the start of the US occupation (2001) to the present, and especially from contract start (2011) to end (2016): http: www.olobalresearch.ca the- spoils-of-war-afghanist... 91; (4) and that the award Bud Horton helped secure just as Sue's contract was coming to an end was not only born from what looks like Franklin Scandal compromises, but it is this contract that seems intent on implementing bioterrorism as the new form of explosive terrorism." (Note that both members of this family were awarded BILLION dollar contracts; that's quite exceptional, no?) As for terrorism as an US industry, it's hardly better seen than through the following which is information of course we all know: We note that in-between Bush 41's 9 11 1990 speech(with Dick Cheney as his Secretary of Defense) and the 9 11 2001 attack on the WTC were little more than Clinton's 8 years in the White House. We look also to The American Deep State by Peter Dale Scott for evidence of ties between the actions of the Clinton administration and (1) the 1993 attack on the WTC and (2) the 1998 attack on the US embassy in Nairobi, Kenya which demonstrate that the Clinton administration in no uncertain terms sponsored terrorism: (Writes Scott) "The homicidal crime suggested by Fenton's meticulous research is one both difficult and painful to contemplate. It has to be considered in the light of the earlier instances of protection we have surveyed: 1. the protection given to Salameh and Abouhalima in the 1990 Kahane murder, leaving them free to participate in the 1993 World Trade Center bombing; 2. the failure for two or three years to process Ali Mohamed's documents seized in 1990, which could have prevented the 1993 World Trade Center bombing; 3. the release of Ali Mohamed from Royal Canadian Mounted Police detention in 1993, leaving him free to participate in the 1998 Nairobi Embassy bombing; 4. the treatment of Ali Mohamed as an "unindicted coconspirator" in the 1993 WTC bombing case and Landmarks case, leaving him free to participate in the 1998 Nairobi Embassy bombing. (pp. 76-77, The American Deep State) Scott had earlier examined these attacks in especial connection to the September 11, 2001 attack on the WTC: (Writes Scott) "For indeed it is certain that on various occasions U.S. agencies have intervened, letting al-Qaeda terrorists proceed with their plots. This alarming statement will be dismissed by some as "conspiracy theory." Yet in this chapter, I will show that this claim doesn't to arise from theory, but from facts that are true, even though they have been systemically suppressed or under- reported in the American mainstream media. I am describing a phenomenon that occurred not just once, but repeatedly, almost predictably. We shall see that, among the al-Qaeda terrorists who were first protected and then continued their activities were the following: 1. Ali Mohamed, identified in the 9 11 Commission Report as the leader of the 1998 Nairobi Embassy bombing; 2. Mohammed Jamal Khalife, Osama bin Laden's close friend and, while in the Philippines, financier of both Ramzi Yousef (principal architect of the first World Trade Center WTC attack) and his uncle Khalid Sheikh Mohammed; 3. Khalid Sheikh Mohammed, identified in the 9 11 Commission Report as "the principal architect of the 9 11 attacks"; 4. Khalid al-Mihdhar and Nawaf al-Hazmi, two of the alleged 9 11 hijackers, whose presence in the United States was concealed from the FBI by CIA officers for months before 9 11. It might sound from these citations that the 9 11 Commission marked a new stage in the U.S. treatment of these terrorists, and that the report now exposed those terrorists who in the past had been protected. On the contrary, a principal purpose of my chapter is to show that 1. one purpose of protecting these individuals had been to protect a valued intelligence connection (the "al-Qaeda connection," if you will); 2. one major intention of the 9 11 Commission Report was to continue protecting this connection; 3. those on the 9 11 Commission staff who were charged with this protection included at least one commission member (Jamie Gorelick), one staff member (Dietrich Snell), and one important witness (Patrick Fitzgerald) who earlier had figured among the terrorists' protectors. In the course of writing this chapter Scott continues , I came to another disturbing conclusion I had not anticipated. This is that a central feature of the protection has been to defend the 9 11 Commission's false picture of al-Qaeda as an example of non-state terrorism, ignoring not just the CIA but also the royal families of Saudi Arabia and Qatar. In reality, as I shall show, royal family protection from Qatar and Saudi Arabia (concealed by the 9 11 Commission) was repeatedly given to key figures like Khalid Sheikh Mohammed, the alleged "principal architect of the 9 11 attacks." The establishment claims that the wars fought by America in Asia since 9 11 have been part of a global "war on terror." But this "war on terror" has been fought in alliance with Saudi Arabia, Qatar, and Pakistan - precisely the principal political and financial backers of the al-Qaedist networks the United States has supposedly been fighting. Meanwhile the most authentic opponents in the region of these Sunni al-Qaedists - the governments of Iraq, Libya, Syria, and Iran - have found themselves overthrown (in the case of Iraq and Libya), subverted with U.S. support (in the case of Syria), or sanctioned and threatened as part of an "axis of evil" (in the case of Iran). We should not forget that, just one day after 9 11, "Rumsfeld was talking about broadening the objectives of our response and 'getting Iraq." (pp. 44-45, The American Deep State) Clinton's daughter is now poised to work global health initiatives which I would suggest is little more than a cover for on-going terrorism "ops". To return to Steve Colo - in the interview he speaks of a partnership between the Secret Service, the FBI, and South Carolina's SLED (State Law Enforcement Division) to open a Computer Crime Center. Bud Horton (mentioned above) (long-affiliated with IT Security; his title at Accenture was Chief technology officer of it's cyber security practice) happened to have just moved to South Carolina from Loudoun County after being implicated in a continuing child sex scandal (see details below). Further, cyber-crime just so happens to be another of the arenas in which our Intelligence Community coordinates with the Russians: "The US cooperates with the FSB and Russia's interior ministry on counter-terrorism, organized crime, bio-terrorism, and cyber-crime." Journalist's Descent into the Russian Mafia State, by Luke Harding) Most would interpret this quote to suggest that the nations work together to prevent these various threats. The reality is more the opposite; trust me when I say that the US doesn't work "ops" alone - the 2005 London Bombings is one notable example of a instance in which the US coordinated with also British intelligence in the perpetration of an attack.) I just tweeted this morning actually the following in regards to US coordinations with the Russians: "One must know a renowned Rus mafiaso was granted entry https: en.wikipedia.orcilwiki Vyacheslay Ivankov Movinq to the United States ... be4 the real story of today's US-Rus relations is slowly known" in response to the following comment turndeaux: Peter Dale Scott, who writes about the Deep State, says Russia issue is "a bona fide security issue, not a diversion". About Bud Horton and the Loudoun County matter - in attempts to make a long story short, the following email chain: On Monday, June 26, 2017 10:57 AM, wrote: Sheriff Chapman, Loudoun Count, VA Did you ever consider that Loudoun was a target? That your community was induced to walk it's own children down the plank as compensation for what Loudoun had done to the young Dima Yakovlev? Because now child exploitation is deeply embedded within your community with your own people (your own police, your own prosecutors, your own public defenders and private attorneys) protecting this very system that will be used to take the futures of your Loudoun children (see more of the details below). Is it possible that that's how this happened, and you saw it not unfolding before your eyes? Or was it simply money and just another good enough justification? Forwarded Message On Monday, June 26, 2017 10:24 AM, Changeis, wrote: You reported in May of 2014 that you hired Bob Richel formerly of the DEA as Vice President of Corporate Development. In an April 2014 interview by the Loudoun County Police (those in the mouth of the lion but not quite aware of it yet but to have foreseen the ways in which the 2008 death of the Russian born 21 month-old Dima Yakovlev (renamed Chase Harrison by his Purcellville, VA adoptive parents) would have been used as "justification" for a (quite profitable) counter-offensive... ) of Henry "Bud" Horton (characterized by Loudoun County as a "victim" of the recent "False statement to Law Enforcement Officer (LEO)" of him sexually exploiting the 15 year-old Anjulee Gunther), Henry "Bud" Horton named Bob Rachel as one of the DEA guys he used to work with. This takes on unusual significance in light of the below, no? (How lovely, by the way, this following information and the ways in which it helps us understand many of the hidden influences: "Halliburton is also involved with the Russian mob. They're got sort of two things going on. One is oil and the other is drug trafficking. Halliburton is a story all by itself." (says Stan Goff, http: narconews.com qoffmccormick1.html)) On Saturday, June 24, 2017 2:43 PM, wrote: Mr. Satz, State's Attorney, Broward County, Fl I'm forwarding the below information as it pertains to Mrs. Lesley Simms and more importantly the ones with whom she continues to coordinate. As you may know, she was once close with an individual named Matthew Horton with whom she attended George Mason University, and through Matthew, Ms. Simms became well-acquainted with Matthew's parents Henry "Bud" Horton and Sue Popovich Horton who helped secure her a position at IBM upon her graduation from GMU. Both of these latter individuals (Bud and Sue Horton) were involved in the 2007 murder of my son, and they in collusion with their son Matthew continue in the exploitation of children Anjulee and Xian Gunther. The powers that be intend now for these children to (continue to) follow in the footsteps of Ms. Simms, and to that end, I would advise that you become acquainted with (1) the ways in which Ms. Simms subsidized her law school education and off course (2) her current and related endeavors especially as they relate to drug trafficking and terror financing (see below email to Mr. Martin of the St. Augustine Record). On Friday, June 23, 2017 8:36 AM, Mr. Martin, St. Augustine Record wrote: Quite an interesting article about the litigation between Deputy Banks and Rusty Rogers (see: Deputy Banks' attorney claims FDLE agent's credibility 'destroyed') It must also be explored, of course, that Officers Rodgers was once well respected for his investigation and exposure of a terrorist financing network that permeated the sunny state of Florida - (the NY Times reports) "Agent Rodgers joined the state's elite investigative unit, the Florida Department of Law Enforcement, where he quickly earned agent-of-the-year honors and a meeting with the governor for helping dismantle a terrorist financing network that stretched from Florida to the Middle East" - and that terrorism is very much a well-protected U.S. industry (see below). God forbid some poor should get away with disrupting the delicate state of secreted operations; as you yourself report, "As written in Plaintiff Banks motion: "Defendant Rodgers' false, misleading and inconsistent testimony throughout the discovery process is so pervasive and extreme, and involves so many material issues, it has destroyed Defendant's credibility on all issues..." And here we see the "whole-of-government" attempts to restore balance. As for the second Secret Service agent interviewed by the IBM Center for the Business of Government, his name is Dana Brown. He just so happened to have filled out his career with the Federal Air Marshall Service (October 2003-August 2008 as Director Chief of Staff) followed by the TSA (March 2006-January 2009 as Asst. Administrator-Law Enforcement Integrity Officer) states his Linked In profile. That he worked his way around to that which was largely put in place by the 1970 9 11 mini-event seems to me rather significant although I don't see all the details yet. I also don't yet see exactly who it was that birthed this lengthy 9 11 initiative we're suffering. It seems clear, however, that it was birthed prior to 1970. The initiative has adjusted in some ways over time, but homage to 9 11 remains strong. Certain of the people deeply involved in these manipulations thought it was kismet that an individual well-suited to head the newly ordained Department of Homeland Security (that as we all know was the result of legislation rushed through Congress in the aftermath of the 9 11 (2001) attack) was born on the magical September 11th (this is Jeh Johnson); similarly, it is again being deemed a sign that the new Director of the National Science Foundation (NSF) (chosen and positioned as she was) is first- named France (last name Cordova) and that this name so perfectly relates to US intentions to use the NSF to forward "ops" that will solidify a US-France working relationship in the same way the 2005 London Bombings helped solidify the US-British working relationship. These France going-ons are in higher gear (I've noticed) since Macron was elected but it was prepped for long ago. I was working for IBM under IBM project manager Cathie Skoog at the NSF when my third trimester pregnancy was sabotaged. The story of this sabotage and what followed is (briefly) this: I've long-alleged that John and Avery Gunther (whose children I used to babysit) agreed to a quid pro quo exchange of financial compensation for help destroying my credibility on behalf of IBM against whom I'd filed a 2010 EEOC (Equal Employment Opportunity Commission) charge and a subsequent May 2011 civil suit. Per the May 11, 2011 Complaint, McGuire v. John and Avery Gunther: 3. On April 6, 2011 Mr. and Mrs Gunther, with uncontrolled greed and total disregard for the rights and feelings of Ms. Nadine McGuire as well as those of their children, AFG and XWG, maliciously and with ill-intent, wrongfully completed and executed a Complaint and Motion for Preliminary Injunction requesting formal protection against Ms. Nadine McGuire. 4. Over the course of the previous few months, Mr. and Mrs. Gunther, colluding with persons against whom Ms. Nadine McGuire is currently furthering litigation, including but not limited to plaintiff's mother, Pauline Scala McGuire, and from whom they received and or have been promised to receive monetary incentives, hid their relationships with said individuals, further lied about having those relationships in direct conversation with Ms. Nadine McGuire and Court testimony on May 4, 2011, and wrongfully completed and executed a Complaint and Motion for Preliminary Injunction against Ms. Nadine McGuire in cooperation and collaboration with said persons, resulting in the issuance of a Temporary Restraining Order against Ms. Nadine McGuire issued on April 6, 2011. - Initial Complaint, 5 11 11, McGuire v. John and Avery Gunther, Case No.:2011 CA 003703 B, DC Superior Court, Judge Gregory Jackson presiding In regards to the suit against IBM (McGuire v. IBM, 1:11CV528, US District Court of Virginia), the only suit in which Pauline Scala McGuire was listed as a defendant, the most important claim was one of "assault" that led to the 2007 death of my son. Per the filing: Plaintiff, Grace Nadine McGuire, realleges the allegations of paragraphs 1-65 hereof as if fully set forth within and further alleges: 66. Defendant Palmisano's conduct in ascertaining the drug that was used on the plaintiff to end her pregnancy and take the life of her child on April 22, 2007, constitutes an intentional touching of the plaintiff by defendant Palmisano, and was undertaken deliberately and with actual malice towards the plaintiff and her unborn child. 67. Defendant Skoog, Susan Horton and Scala's conduct in coordinating the circumstances, creating physical proximity and the administering of the drug to the plaintiff that ended her pregnancy and took the life of her child on April 22, 2007 constituted an intentional touching of the plaintiff by said defendants, and was undertaken deliberately and with actual malice towards the plaintiff and her unborn child. ... 69. As the direct and proximate result of defendant Palmisano, Skoog, Susan Horton, and Scala's conduct, the plaintiff suffered a severe placental abruption, which terminated her pregnancy and ended the life of her unborn child, causing the plaintiff to suffer damages including but not limited to the loss of her child, loss of affection, grief, sorrow, extreme mental torment and emotional distress. - Initial Complaint, filed 5 16 11, McGuire v. IBM, et al, Case No.: 1:11CV528, US District Court of Virginia - Eastern Division, Alexandria, Judge Leonie Brinkema presiding This is to say that John and Avery Gunther helped IBM defend against an allegation of murder, and in this way they are accomplices to a cover-up. This is also to say that the characterization provided by John and Avery Gunther in their April 2011 Superior Court filing for a Protection Order against me and their admissions in this filing of having provided derogatory information to various persons and or entities in the DC area to include school administrators, psychologists, and law enforcement, were more to harm me, especially in my chances to hold IBM accountable, than to protect either themselves or children Anjulee and Xian Gunther. I also long-allege that the relationship that developed from this initial quid pro quo led to John and Avery Gunther being similarly compensated for what turned into the sexual exploitation of their two daughters. For more on child sexual exploitation for the sake of personal and professional leverage, see especially the following: Nick Bryant I The Franklin Scandal The Elite's Pedophilia Cover Up, https: www.youtube.com watch?v 68gyGGPjmOo t 978s That the NSF won't acknowledge the abuse, and won't respond even to my FOIA requests, and otherwise has gone to extents to protect Cathie Skoog and her co-conspirators at IBM and otherwise is all that was needed to have adequately turned the organization towards the interests of the Deep State. Now it is simply a matter of the Deep State continuing to put the NSF to use. Jeffrey Epstein in context: (As sent to the Wash Post) I send you this in response to the recent column entitled Believe in the Process by Kenneth Starr. Perhaps rethink any public affiliation with Ken Starr; although his demeanor on paper is undoubtably consoling, it is also a bit intoxifying when it would be best now if we keep our wits about us, no? I say this from the following perspective - Ken Starr of the Starr Report, attorney for (1) Erik Prince of Blackwater and (2) convicted pedophile Jeffrey Epstein in context: The Starr Report buried behind salacious detail of the Lewinsky affair almost nothing of Whitewater, Travelgate, or otherwise what many consider the murder of Vince Foster (Foster, albeit the subject of a different investigation was also under the purview of attorney Starr and formal investigation of the results of Starr's investigation were drowned out by the details of the Lewinsky affair.) This is a bit strange considering the Lewinsky affair was a moral failing and not an actionable criminal one as would have been the others had any proof surfaced. Starr later defended Blackwater against wrongful deaths suit initiated by the families of the 2004 Fallujah Ambush victims - "In October 2006, Blackwater hired one of the nation's heaviest-hitting lawyers to represent it - Kenneth Starr, the independent counsel in the 1999 impeachment of President Bill Clinton over the Monica Lewinsky sex scandal... Starr and his colleagues argued that Blackwater was "constitutionally immune" from such lawsuits and said that if the Fallujah case were allowed to proceed, "Blackwater will suffer irreparable harm." In the eighteen-page petition to the Supreme Court, Blackwater argued that there are no other such lawsuits against private military security companies in state courts "because the comprehensive regulatory scheme enacted by Congress and the President grant military contractors like Blackwater immunity from state-court litigation." (pp. 234-235, Blackwater). (Author Ken Davis writes) "The four men had spent the night before they set off at marine base Camp Fallujah. But the men kept their distance from the leathernecks. Had they spoken to the marines, the Blackwater team might have learned that the Americans were already in the midst of a major offensive meant to assert control over the increasingly restive city, where elements of the radical Islamist movement and remnants of Saddam's army were beginning to aggressively strike back. at the American occupation" (p. 306, The Hidden History of American at War), and perhaps this is the only thing that makes sense of the fact that "Under the terms of its contract, Blackwater was supposed to supply these convoy security missions with two SUVs, each carrying three guards per vehicle; a driver, one man riding shotgun, and a third man in back with a heavy machine gun. Instead, the foursome set out that morning with just two men per car, each vehicle missing their rear gunner. The SUVs were only outfitted with a steel plate as extra armor. And the men had not been given maps." (p. 305). Starr went on to defend Jeffrey Epstein abasing allegations of child sex trafficking - "Along with a dream team of attorneys that included Gerald Lefcourt, Roy Black, and Ken Starr, Alan Dershowitz was successful in getting federal investigators not to charge Epstein with moving his victims across state lines and other associated crimes. The federal non-prosecution agreement Epstein's legal team negotiated with the U.S. Attorney for the Southern District of Florida immunized all named and unnamed "potential co-conspirators" in Epstein's child trafficking network, which includes those who allegedly procured minors for Epstein and also any powerbrokers who may have molested them" (- http: dawker.com flioht-loos-put-clinton-dershowitz-on-ped...). Otherwise, Epstein's eventual 18 month sentence by the state of Florida was exceptionally light under the circumstances to include the number of victims who came forward with testimony. This is best understood in the context of children being used as a means to government-sponsored sexual blackmail and other forms of leverage. See here Erik Prince in greater context: (the similarities between him and once (secretly) favored child Bin Laden) The coordinations among global intelligence to make rather than eliminate terror as seen thru "assets" bin Laden (as M. Noriega before him) Erik Prince: About BL: "Some CIA officers will later say that BL serves as a semi-official liaison between the GIP Saudi intel. and warlords like Sayyaf." (www.historycommons.ord entity.isp?entity ahmed badeeb 1) About EP: "Handcuffed by politics, the CIA had not been able to cultivate relationships with the key but messy leaders. Fortunately, Blackwater had no such political restrictions." (p. 54, Civilian Warriors by E. Prince) We see also: About BL: "Bin Laden established camps inside Khyber Pakhtunkhwa in Pakistan and trained volunteers from across the Muslim world to fight against the Soviet-backed regime, the Democratic Republic of Afghanistan" (Wikipedia) About EP: "In his autobiography, he states that during the Yugoslav Wars in the early 1990s, he realized the need for private training facilities for special operations... Prince moved to Virginia Beach and personally financed the formation of Blackwater Worldwide in 1997. He bought 6,000 acres (24 km2) of the Great Dismal Swamp of North Carolina and set up a school for special operations" (Wikipedia) Erik Prince is (becoming) no less an Amer. intelligence success story than bin Laden (in support of Terrorism as Geostrategy a New World Order - see below). In short: (we note the repeating 9 11s, every 11 years): "Toward a NWO" speech by Bush 41 - Sept. 11 ('90); The WTC - Sept. 11 ('01); Benghazi - Sept. 11 ('12). (There is rhy. reason also 2 the rise of ISIS.) About training camps: I watched so to speak the creating of little torture pockets around the world as justified by Obama's desire to close Gitmo. The White House reports (2 23 16): "We'll continue to securely and responsibly transfer to other countries the 35 detainees already approved for transfer. This process involves extensive and careful coordination across our federal government to ensure that our national security interests are met when an individual is transferred to another country. We insist, for example, that foreign countries institute strong security measures." But are these not just the seeds of new training camps (growing concentrated and lauded violent temperaments) was that not someone's exact intent? In real-time (and as perpetrated on captured children): 3 19 14, sent to the now defunct FB page of D. Cheney: Dick Cheney, I wonder if it's possible that there is coordination with other countries concerning enhanced interrogation techniques, in the form of training perhaps? Specifically, here in the United States, my sense is that there may be the use of vulnerable populations, with the intension to gain favor with and or intimidate others, especially members of the international community. And: On Saturday, June 21, 2014 6:37 AM, wrote: Deputy Lyddy, Her energy is very weak. She is physically exhausted, VERY sleep deprived, and HUNGRY. These were continuing experimentations in reversed-engineered SERE; the agreed upon techniques, taken from various regions of the world to be distributed to the various regions of the world, had to be deemed not torture and this is where organizations like the APA stepped in, then (during the Bush administration), and afterwards. See here for example: "And I think, you know, what's really important in the debate going forward among psychologists is the extent to which psychologists loaned their names and loaned their credentials and their Ph.D.s to this kind of activity and essentially were used by the Bush administration to provide a kind of "get out of jail free" card for the people who were, you know, doing these interrogations, because the logic, which I think Mark had mentioned, is, you know, this circular logic. So long as there are trained psychologists from the SERE program who are on site at these interrogations who are saying that these detainees can withstand this treatment, are not being harmed psychologically, then it's not torture. So, you know, you've got this sort of inaudible tortured tortured logic, which is the phrase that has come up, but it's this sort of self-justifying loop in which professionals are loaning their credentials to this kind of activity. And you see the same thing in the Office of Legal Counsel, where you have, you know, lawyers loaning their credentials to approving what are clear violations of the Geneva Conventions." (https: www.democracynow.orq 2009 4 21 the story of mitchell lessen associates) please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to jeevacation gmail.com, and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved |
Could U.S. case against sex offender Jeffrey Epstein be reopened? http: www.mypalmbeachpost.com news crime 1 of 4 9 27 2017, 12:04 AM 81 SUBSCRIBE as low as 99 LOG IN LOCAL By Jane Musgrave - Palm Beach Post Staff Writer 34 UMA SANGHVI Jeffrey Epstein, the wealthy Palm Beach resident charged with having teenage girls give him sexual massages, pleaded guilty to prostitution solicitation charges in Palm Beach County Circuit Court on June 20, 2008. (Uma Sanghvi The Palm Beach Post) Posted: 8:00 a.m. Saturday, August 26, 2017 WEST PALM BEACH Nearly 10 years after billionaire Jeffrey Epstein signed a plea deal that let him escape federal prosecution on charges of sexually abusing dozens of teenage girls at his Palm Beach mansion, the 64-year-old politically-connected money manager faces the possibility that the agreement could be thrown out. In court papers filed this month, attorneys representing two of the 30 young women prosecutors say Epstein molested lodged their final written pleas aimed at spurring U.S. District Judge Kenneth Marra to force federal officials to reopen their investigation into the sordid case. U.S. government lawyers in September will have another chance to defend themselves against allegations that they violated the federal Crime Victims Rights Act by failing to alert Epstein s victims of the terms of what some describe as a sweetheart deal. Marra could make a decision as early as this fall. The stakes for all crime victims are high, said attorneys Bradley Edwards and Paul Cassell, who filed the rare lawsuit against the federal government on behalf of two Jane Does who were 13 and 14 when they claim Epstein paid them for sex. If Marra dismisses the lawsuit, then the government will never have to give any information in any Could U.S. case against sex offender Jeffrey Epstein be reopened? http: www.mypalmbeachpost.com news crime 2 of 4 9 27 2017, 12:04 AM case to any victim, they wrote, urging him to uphold the provisions of the 13-year-old federal law. At the same time, the stakes are equally high for Epstein, who has ferried President Bill Clinton on his private jet and counts celebrities, such as Britain s Prince Andrew, as friends. Marra has already ruled that if he finds that federal prosecutors violated the act, he will consider throwing out the plea deal that Epstein signed with federal prosecutors in 2007. Miami attorney Roy Black, one of dozens of high-profile lawyers who has represented Epstein, claims that would be manifestly unfair. As part of the unusual non-prosecution agreement, which wasn t shared with victims for nearly a year while and after it was being negotiated, federal prosecutors agreed not to pursue charges that could have sent Epstein to prison for life. In exchange, Epstein in 2008 pleaded guilty in Palm Beach County Circuit Court to two Florida criminal charges one count each of soliciting a minor for prostitution and soliciting prostitution. He served 13 months of an 18-month sentence in a vacant wing of the county stockade a cell he was allowed to leave 16 hours a day, six days a week. Epstein, who now spends most of his time on his private island in the U.S. Virgin Islands, also is required to register as a sex offender for the rest of his life. In addition, as part of the plea deal, he paid roughly 30 women, who were identified by prosecutors as his victims, undisclosed amounts of money to settle civil lawsuits they had filed against him. To throw out the deal after Epstein has been punished would rob him of his constitutional right to due process, Black wrote in court papers. If a defendant lives up to his end of the bargain, the government is bound to perform its promises, he wrote, quoting a prior court decision. However, Edwards and Cassell claim that because federal prosecutors didn t confer with their clients about the plea deal before it was made, they violated the law and that makes the non-prosecution agreement illegal. They cited examples where plea deals have been invalidated after judges later found prosecutors violated the crime victims rights law. In most of the cases they cited, the mistakes were the result of oversights. But Edward and Cassell wrote, The undisputed facts of this case prove that, rather than forthrightly discharging its obligations to numerous child sexual assault victims, the government chose to enter into a secret deal with the man who had victimized them. Federal prosecutors have said they didn t reveal the terms of the non-prosecution agreement because they feared Epstein and his high-powered attorneys were trying to circumvent it. Still, Edwards and Cassell, said there was no justification for the secrecy. The government s conduct here was particularly egregious, because it repeatedly found time to confer with attorneys for Epstein the man who sexually abused the victims, they said of emails and meetings between federal prosecutors, including U.S. Labor Secretary Alex Acosta, who was then U.S. attorney for South Florida. In an affidavit, Edwards said Assistant U.S. Attorney Marie Villafana, who was handling Epstein s case, had numerous chances to tell him and the young women he represented about the non-prosecution agreement. Instead, four months after the agreement was signed in September 2007, federal officials wrote victims letters, assuring them the case was still under investigation. This can be a lengthy process and we request your continued patience while we conduct a thorough investigation, officials wrote in a January 2008 letter to Edwards clients. In court papers, Villafana said she alerted Edwards the day before Epstein was to plead guilty in circuit court, hoping that Edwards, his clients and other alleged victims would attend the hearing. But Edwards said neither he nor the young women had any idea that the plea in state court meant Epstein wouldn t be prosecuted for federal crimes. The victims (and their attorneys) could hardly have expected that the prosecutors and the man who had sexually abused them would be working together to conceal an arrangement that would prevent his prosecution for crimes against them, Edwards and Cassell wrote. While Judge Marra could allow a jury to decide the complex case, prosecutors are asking him to toss the women s lawsuit and end the litigation. Could U.S. case against sex offender Jeffrey Epstein be reopened? http: www.mypalmbeachpost.com news crime 3 of 4 9 27 2017, 12:04 AM Edwards and Cassell instead want him to rule that prosecutors violated the Crime Victims Rights Act. Once that determination is made, Marra could then decide what remedies to impose, the two lawyers argue. Under the act, neither of their clients can seek damages from the government but the attorneys have suggested Marra could order the government to pay the women restitution, impose a monetary sanction and pay their legal fees. Still, Cassell insisted: This isn t about money, it s about justice. Cassell, who is a law professor at the University of Utah, said the case is being watched closely by victims rights advocates along with federal lawmakers who pushed the legislation through Congress and have publicly questioned prosecutors handling of Epstein s case. A decision ordering federal prosecutors to reopen the investigation could establish a national precedent, he said. It will be a big win for the victims, Cassell said. That s the way we look at it. About the Author JANE MUSGRAVE ADVERTISER CONTENT: Rebif How MS Affects the Immune System: A Discussion With a Healthcare Professional Reader Comments 34 Next Up in Local NEW: 3 things to know from Wellington council meeting Tuesday by Kristina Webb, Palm Beach Post Staff Writer Here are three things to know after Tuesday night s Wellington council meeting: 1. The village council held its final vote and approved the coming fiscal year s tax rate, 2.43, and 110 million budget. Though the tax rate is down from this year s 2.44, residents still will see a slight increase in their tax bills because property... BREAKING: 27 years later, arrest in Wellington clown fatal shooting by Hannah Winston, Palm Beach Post Staff Writer For 27 years, investigators thought Sheila Keen had something to do with the clown who drove up to a Could U.S. case against sex offender Jeffrey Epstein be reopened? http: www.mypalmbeachpost.com news crime 4 of 4 9 27 2017, 12:04 AM Wellington home with flowers, balloons and a gun, and killed 40- year-old Marlene Warren. They believed Keen was having an affair with Michael Warren, Marlene s widow. They subpoenaed her thenhusband and mother-in-law.The type of balloons found... Jealous Florida woman stabs boyfriend at block party, police say by Sandra Nortunen, Palm Beach Post Staff Writer A 23-year-old Florida woman upset that her boyfriend was speaking to another woman at a party decided to stab him in the chest, news reports stated. Lashamera Yvette Smith and her boyfriend were out at a bar Friday night before they ended up at a block party during the wee hours of the following day, Volusia County Sheriff s Office investigators... Boca board to buy golf course, re-brand it as Boca National Golf Club by Lulu Ramadan, Palm Beach Post Staff Writer A Boca Raton taxing district has city support for buying a dilapidated golf course for 24 million, with plans to revitalize and re-brand it as Boca National Golf Club. Talk of the Greater Boca Raton Beach and Park District a taxing body independent of the city of Boca Raton buying Ocean Breeze Golf Club, a 27-hole course... Trump and fellow Palm Beacher, friend Robert Kraft at odds over anthem issue by John Bisognano, Palm Beach Post Staff Writer The next time President Donald Trump and fellow part-time Palm Beacher Robert Kraft, owner of the New England Patriots, share a meal at Trump s Winter White House, Mar-a-Lago, there may be some awkward moments. While the two have forged a close friendship over the years, and Kraft has donated 1 million dollars to Trump s inauguration... More Stories Popular in News 1 Clown killing: Wellington woman murdered by clown never caught 2 BREAKING: 27 years later, arrest made in fatal shooting by clown 3 Renovations at three of Boynton Beach's restaurant destinations NEWS MARKETPLACE AFFILIATES ABOUT US TOP 2017 Cox Media Group. By using this website, you accept the terms of our Visitor Agreement and Privacy Policy, and understand your options regarding Ad Choices . Learn about careers at Cox Media Group |
60 Years of Investigative Satire: The Best of Paul Krassner Introduction by Andy Borowitz Blurb by Art Spiegelman Click on this for a High Res Photo. What They Say About the Author Paul s own writing, in particular, seemed daring and adventurous to me; it took big chances and made important arguments in relentlessly funny ways. I felt, down deep, that maybe I had some of that in me, too; that maybe I could be using my skills to better express my beliefs. The Realist was the inspiration that kept pushing me to the next level; there was no way I could continue reading it and remain the same. Paul Krassner Thanks to Paul Krassner for continuing to be the lobster claw in the tuna casserole of modern America. Krassner loves ironies, especially stinging ironies that nettle public figures. He would rather savor a piquant irony about a public figure than eat a bowl of fresh strawberries and ice cream. I told Krassner one time that his writings made me hopeful. He found this an odd compliment to offer a satirist. I explained that he made supposedly serious matters seem ridiculous, and that this inspired many of his readers to decide for themselves what was ridiculous and what was not. Knowing that there were people doing that, better late than never, made me optimistic. Mr. Krassner is an expert at ferreting out hypocrisy and absurdism from the more solemn crannies of American culture. Krassner has the uncanny ability to alter your perceptions permanently. He has lived on the edge so long, he gets his mailed delivered there. Krassner lives in a world where Truth and Satire are swingers, changing partners so often you never know who belongs with whom. Perhaps the satire magazine that most closely resembles Charlie Hebdo in terms of inflammatory imagery was The Realist, created by Paul Krassner Paul taught me that extreme stylistic accuracy could make even the most bizarre comedic concept credible. He is a unique character on the American landscape. A self-described investigative satirist, he straddles the lines between politics, culture, pornography and drugs I have been a fan of his since I was a snot-nosed kid, and his words have been a driving force and influence on my life. If you have read his work before, you know the joys that you are in for. If you haven t, start reading, and consider this your lucky day. For Paul Krassner is an activist, a philosopher, a lunatic and a saint, but most of all he is funny. Many of the pieces in this collection originally appeared in The Realist, High Times, AVN, N.Y. Press, National Lampoon, The Nation, L.A. Times, Whole Earth Review, Huffington Post, Alternet, CounterPunch, and Truthdig. Several pieces have not been published before, but only for this collection. For George Carlin, who continues to serve as a satirical touchstone Hypocrisy is better than having no values at all. MTV actually told us, You can make fun of God because he doesn t exist, but you can t make fun of Jesus because he s God s son. quoted in Satiristas! Other Books by Paul Krassner How a Satirical Editor Became a Yippie Conspirator in Ten Easy Years Best of The Realist Editor The Winner of the Slow Bicycle Race Impolite Interviews Psychedelic Trips For the Mind Editor Magic Mushrooms and Other Highs: From Toad Slime to Ecstasy Editor Murder At the Conspiracy Convention and Other American Absurdities One Hand Jerking Tales of Tongue Fu In Praise of Indecency: Dispatches From the Valley of Porn Who s to Say What s Obscene: Politics, Culture and Comedy in America Today Pot Stories for the Soul: An Updated Edition for a Stoned America Editor Confessions of a Raving, Unconfined Nut: Misadventures in the Counterculture Patty Hearst and the Twinkie Murders: A Tale of Two Trials The Realist Cartoons Editor About the Author Paul Krassner published The Realist (1958-2001), but when People magazine labeled him father of the underground press," he immediately demanded a paternity test. And when Life magazine published a favorable article about him, the FBI sent a poison-pen letter to the editor calling Krassner a raving, unconfined nut. George Carlin responded, The FBI was right. This man is dangerous and funny; and necessary. While abortion was illegal, Krassner ran an underground referral service, and as an antiwar activist, he became a co-founder of the Yippies (Youth International Party). Krassner's one-person show won an award from the L.A. Weekly. He received an ACLU (Upton Sinclair) Award for dedication to freedom of expression. At the Cannabis Cup in Amsterdam, he was inducted into the Counterculture Hall of Fame my ambition, he claims, since I was three years old. He s won awards from Playboy, the Feminist Party Media Workshop, and in 2010 the Oakland branch of the writers organization PEN honored him with their Lifetime Achievement Award. I m very happy to receive this award, he concluded in his acceptance speech, and even happier that it wasn t posthumous." Introduction by Andy Borowitz To come . . . Table of Contents THE EARLY YEARS From Carnegie Hall to MAD Magazine A Child s Primer on Telethons Sex Education For the Modern Catholic Child A Children s Primer on Fighting Communism A Child s Primer on Divorce RELIGION FOR DUMMIES Pope Endorses Condoms I Ran an Underground Abortion Referral Service There Are No Atheists in the White House THE SEX LIFE OF PRESIDENTS OTHERS The Parts Left Out of the Kennedy Book A Sneak Preview of Richard Nixon s Memoir Why I Leaked the Anita Hill Affidavit President Clinton s Private Confession The Autobiography of Monica Lewinsky Sarah Palin s Reality Sitcom SUBCULTURES And Whose Little Monkey Are You? The Mime and the Pacer Johnnie Cochran Meets Dr. Hip Jealousy At the Swingers Convention Life Among the Neo-Pagans Murder At the Conspiracy Convention Swimming in the Dead Pool Trashing the Right to Read Welcome to Camp Mogul HIGHER THAN THOU Checkmating With Pawns Tim Leary, Ram Dass, and Me Remembering Scott Kelman The 20th Anniversary of the Summer of Love POLITICS The Last Election A Letter to Barack Obama Unsafe at Safeway The Yippies and the Occupiers PORN AGAIN Remembering Pubic Hair The Taste of Sperm Eating Shit For Fun and Profit I Fuck Dead People COMEDIANS Remembering Lenny Bruce My Acid Trip With Groucho Marx Remembering George Carlin Roasting With Robin Remembering Dick Gregory The Missing Episode of Seinfeld THE LATER YEARS Are Rape Jokes Funny? Words and Phrases That I ve Coined My Brother s Secret Space Communication Projects The Six Dumbest Decisions of My Life Alternative Facts I Played Thomas Jefferson s Violin THE EARLY YEARS From Carnegie Hall to MAD Magazine I first woke up at the age of six. It began with an itch in my leg. My left leg. But somehow I knew I wasn't supposed to scratch it. Although my eyes were closed, I was standing up. In fact, I was standing on a huge stage. And I was playing the violin. I was in the middle of playing the Vivaldi Concerto in A Minor. I was wearing a Little Lord Fauntleroy suit ruffled white silk shirt with puffy sleeves, black velvet short pants with ivory buttons and matching vest white socks and black patent-leather shoes. My hair was platinum blond and wavy. On this particular Saturday evening January 14, 1939 I was in the process of becoming the youngest concert artist in any field ever to perform at Carnegie Hall. But all I knew was that I was being taunted by an itch. An itch that had become my adversary. I was tempted to stop playing the violin, just for a second, and scratch my leg with the bow, yet I was vaguely aware that this would not be appropriate. I had been well trained. I was a true professional. But that itch kept getting fiercer and fiercer. Then, suddenly, an impulse surfaced from my hidden laboratory of alternative possibilities, and I surrendered to it. Balancing on my left foot, I scratched my left leg with my right foot, without missing a note of the Vivaldi Concerto. Between the impulse and the surrender, there was a choice -I had decided to balance on one foot and it was that simple act of choosing which triggered the precise moment of my awakening to the mystery of consciousness. This is me! The relief of scratching my leg was overshadowed by a surge of energy throughout my body. I was being engulfed by some kind of spiritual orgasm. By a wave of born-again ecstasy with no ideological context. No doctrine to explain the shock of my own existence. No dogma to function as a metaphor for the mystery. Instead, I woke up to the sound of laughter. I had heard that sound before, sweet and comforting, but never like this. Now I could hear a whole symphony of delight and reassurance, like clarinets and guitars harmonizing with saxophones and drums. It was the audience laughing. I opened my eyes. There were rows upon rows of people sitting out there in the dark, and they were all laughing together. They had understood my plight. It was easier for them to identify with the urge to scratch than with a little freak playing the violin. And I could identify with them identifying with me. I knew that laughter felt good, and I was pleased that it made the audience feel good but I hadn't intended to make them laugh. I was merely trying to solve a personal dilemma. So the lesson I woke up to this totally nonverbal, internal buzz would serve as my lifetime filter for perceiving reality and its rules. If you could somehow translate that buzz into words, it would spell out: One person's logic is another person's humor. I finished playing Vivaldi by rote. Then I bowed to the audience and walked off stage. The applause continued, and I was pushed back on stage by my violin teacher, to play an encore, Orientale. I had previously asked him while rehearsing the encore why it wasn't listed on the program since we already knew that I would play it at the concert. But instead of answering my question, he poked me in the chest, verbalizing each poke: Violin up! Violin up! Now, while playing Orientale, I heard the echo of his voice, and I automatically raised my violin higher. Then I popped my ears and the music sounded clearer. I wondered if it sounded clearer to the audience too. They had no idea that their laughter had woken me up. I was overwhelmed by the notion that everybody in the audience had their own individual This-is-me, but maybe some of them were still asleep and didn't know it. How could you tell who was awake and who was asleep? After all, I hadn't known that I was asleep, and look what I accomplished before I woke up. If it hadn't been for that itch, I might still be asleep. There was, of course, an objective, scientific explanation for what happened on the stage of Carnegie Hall. According to a textbook, Physiological Psychology, It is now rather well accepted that 'itch' is a variant of the pain experience and employs the same sensory mechanisms. But for me, something beyond an ordinary itch had occurred that night. It was as though I had been zapped by the god of Absurdity. I didn't even know there was such a concept as absurdity. I simply experienced an overpowering awareness of something when the audience applauded me for doing what I had learned while I was asleep. But it was only when they laughed that we had really connected, and I imprinted on that sound. I wanted to hear it again. I was hooked. And the first laugh was free. A couple of decades later, as if it was inevitable, I sold a few freelance pieces to Mad magazine. But when I suggested a satire on the pros and cons of unions, the editor wasn't interested in even seeing it because the subject was too adult. Since Mad's circulation had already gone over the million mark, publisher Bill Gaines intended to keep aiming the magazine at teenagers. I guess you don't wanna change horses in midstream, I said. Not when the horse has a rocket up its ass, Gaines replied. And that moment served as the conception of an irreverent magazine for grown-ups, The Realist . . . A Child s Primer on Telethons See the tired man. He has been up all night. He is running a telethon. He wants the people to send money. It is for leukemia. That is a disease. Little children like you can catch it. Evil. See the sexy girl. She is a singer. She doesn't know whether the telethon is for leukemia or dystrophy or gonorrhea. Her agent got her the booking. She needs the exposure. Notice her cleavage. See the handsome man. He does know that it's for leukemia. You can tell. He is singing a calypso melody. Listen to the lyrics. Give-your-money, he sings, to-leukemia. Give-your-money, to-leukemia. Listen to the audience applaud. He is very talented. See the sincere politician. He is running for reelection in November. He is against leukemia. He is willing to take an oath against it. That proves he is against it. See the wealthy businessman. He is making a donation. He wants his company's name mentioned. Then we can buy his product. Then he will make profits. Then he can make another donation next year. Splendid. See the little boy. He has leukemia. Too bad for him. The nice lady is holding him up to the TV camera. Aren't you glad it's not you? But wouldn't you like to be on television? Maybe you can fall down a well. See the pretty scoreboard. It tells how much money they get. They want a million dollars. Uncle Sam has many millions of dollars. He cuts medical research funds by more than seven million dollars. Why? He needs the money for more important things. See the mushroom cloud. That costs lots of money. It has loads of particles. They cause leukemia. Money might help to find a cure. That is why we have telethons. See the tired man . . . Sex Education For the Modern Catholic Child This is a diaphragm. Women use it when they don t want to have a baby. That is very immoral. Why, you ask? Because it is artificial, that s why. But never fear. There are other methods to prevent conception. They are very moral. Why, you ask? Because they are natural, that s why. This is big brother s pajama bottoms. He had a nocturnal emission last night. What a shame. It woke him up. But see the semen stain. It has millions of dead sperms. They were killed the natural way. This is his sister s sanitary napkin. It doesn t look very sanitary any more, does it? There is an ovum somewhere in that bloody mess. But it will never be fertilized. It will be flushed down the toilet bowl. That s the natural way, too. This is a baby. It was born dead. Every day in the U.S.A., 136,000 infants are stillborn or die within a month. Now suppose their Mommies and Daddies had interfered artificially with the process of procreation. God s purpose would never have been achieved. Just think what a tragedy that would ve been. But at least some of the dead babies were baptized. That s the natural way. This is a special calendar. It marks off menstrual periods. That s for the rhythm system of not having babies. A husband and his wife are in bed. They start to make love. Then they get out of bed. Because they have to look at the calendar. That s the natural way. This is a husband and wife who don t want to have a baby yet. But the calendar says that the time is fertile. So they stop making love. Because one thing would lead to another. Ask advice columnist Dorothy Dix. She should know. She tried it once with advice columnist Dr. Crane. Just to prove her theory. Later she had to write to his Worry Clinic. She was worried because she missed her period. She missed it very much. This is a husband and wife who do want to have a baby. But the calendar says that the time is sterile. Lucky for them they have a calendar. It saves them from having unnecessary intercourse. Unless they like to gamble on having unwanted babies. That s the natural way. This is a confessional booth. There is a screen in the middle. The person on one side is a priest. The person on the other side is a confessor. He is confessing that he has had evil thoughts. The priest tells him that to have an evil thought is evil. It is just as evil as committing the evil act that the evil thought is about. Priests never have evil thoughts themselves. They don t have to. They have an ample supply of other people s evil thoughts to draw upon. This is the husband and his wife again. The ones who don t want to have a baby yet. Now the calendar says that the time is sterile. How convenient. Now they can make love without stopping. And without worrying. But they re good, consistent Catholics. And so they are worrying. Because they know that evil thoughts are evil. Their evil thought is to have intercourse but to avoid having a baby. They can t be sure they won t have a baby Postscript: I wrote the above piece in 1958 (before the Pill), and it turned out to be theologically correct in 1984, when Pope John Paul II warned that the rhythm method of birth control can be an abuse if the couple is seeking in this way to avoid children for unworthy reasons. A Child s Primer on Fighting Communism Now we are going to have some fun fighting Communism. Let us play a game of Make Believe. Close your eyes and concentrate. We are going to pretend that Red China doesn t exist. They are the Bad Guys. Because they make people slaves. Nationalist China is different. They are the Good Guys. There, hundreds of thousands of little unwanted children are sold. They work in coal mines. Then they are wanted. The older girls work in brothels. How nice to be so wanted. Open your eyes now. Anyone around our base is it. Fidel Castro says Cuba is a socialist state. That proves they are Communists. But we knew it before. You could tell by the way Castro and Khrushchev hugged each other. So we stopped buying sugar from Cuba. Now other countries buy sugar from Cuba. Iran has bought 10,000 tons of sugar from Cuba. Iran gets a lot of economic and military aid from us. So we are helping Cuba anyway. Maybe we should trade tractors for prisoners then. But we will fool them. We will put treads on all the old Edsels that didn t sell. There are Communists in the United States too. They are dangerous. So the Supreme Court says they have to register as foreign agents. Otherwise they have to go to jail. So they register as foreign agents. Then they have to go to jail under the Smith Act. So the Communist Party isn t very much fun to belong to any more. But there s a way to belong without going to jail. You have to join the FBI first. Most of the members do it that way. J. Edgar Hoover is the head of the Communist Party. Why are Communists such a threat to us? Because they advocate the violent overthrow of the government. That is why Governor Rockefeller wrote his name on the bottom of a new law. Now anyone who gets convicted in Federal Court for advocating the violent overthrow of the government will lose his driver s license. That law was passed in April 1961. But on the 4th of July holiday the United States broke all previous traffic accident records. More people got killed in cars than ever before. The roads are still full of dangerous Communist spies. How can we defeat Communism all over the world? By foreign aid. That turns Neutral Guys into Good Guys. Meanwhile there is a great big famine in Red China. So Canada will ship wheat to them. But special machinery is needed for this. It is made in America. And the U.S. Justice Department doesn t allow such sales. Because Bad Guys deserve to starve. Everybody knows that. Especially the Neutral Guys. So Canada shouldn t be mad at us. Didn t President Kennedy plant a tree there? That s personal diplomacy. It has nothing to do with hungry human beings in Red China. The way to avoid feeling guilty about suffering people is just don t recognize them. A Child s Primer on Divorce Oh, look. Mommy and Daddy are having another fight. Is it just an attention-getting device this time? Listen. They are having an adult discussion. They are agreeing on a separation. That means you will come from a broken home. What a shame. Even if they fight all the time they should stay together for your sake. Now you will be insecure. Mommy and Daddy are modern people. They drink Pepsi-Cola. They also have a modern marriage. They left the word obey out of their wedding ceremony. Wasn t that modern? But they didn t leave out the words love and honor. Mommy and Daddy are only modern, not avant-garde. They left till death do us part in the ceremony, too. But they are going to get a divorce anyway. They don t have to obey their marriage vows. Lucky thing they left out that word. What is to be done to keep Mommy and Daddy together? The Ladies Home Journal will help. They have a regular feature in their magazine. It is called Can This Marriage Be Saved? Readers send in Betty Crocker boxtops and try to guess the correct answer. Maybe Mommy and Daddy will go on television. There is a program all about Divorce Court. Dr. Paul Popenoe is the master of ceremonies. He wears glasses. Sometimes while the commercial is on, the actors have reconciliation. It is a real fun show. Mommy and Daddy live in New York State. To get a divorce there, one of them has to commit adultery. Daddy has a tryst with a girl. Mommy raids the joint. She brings along a photographer. Mommy has secretly been having an affair with the photographer. What Daddy doesn t know won t hurt him. He always wanted to be on Page 3 of the Daily News anyhow. Mommy made sure that his undershorts were ironed. Benjamin Brenner lives in Brooklyn. He is a Supreme Court Justice there. He makes decisions. He decided that raiding the joint is illegal from now on. Unless you have a search warrant. Then it s legal, but you have to knock first and say, Benny sent me. This new rule doesn t count for hotel rooms. Then it s okay to raid the joint. So Daddy better get his own apartment. Judge Brenner is really under the thumb of real-estate agents. There is another way. Mommy can go to Reno. She lives there for six weeks. That is called establishing residence. Reno is Keno but Alabama is Clamor. Same-day service. The Chamber of Commerce invites lawyers to practice there. They are promised the run of the divorce mill. More people are traveling to Alabama than ever before. They are called Freedom Riders. Here comes the governor of New York. See him eat the potato knish. He wants to get a divorce. He will establish residence in another state. But then he can t be governor. Instead he will get a divorce in New York. But you know what that means. Dirty, dirty. Some deserving Young Republican girl will get the assignment. This is known as political patronage. The governor has a horny dilemma, though. Either he commits scandal or he commits perjury. Maybe he will propose a new law. RELIGION FOR DUMMIES Pope Endorses Condoms When I was a kid, condoms were called prophylactics, prophylactics were called rubbers, and rubbers were called scumbags. My friends and I would find used scumbags in a vacant lot or in the alley between buildings. Once, while snooping, I found a large package of unused prophylactics in my father s sock drawer. It must have held a dozen. Now there were nine left. Each was tightly rolled, bound by a miniature cigar-like band. I selected one, took the band off, and carefully unrolled it. There was a legend imprinted on the prophylactic: Sold in Drug Stores Only For the Prevention of Disease. What hypocrisy! They were sold for the prevention of pregnancy, which is a condition, not a disease. The irony is that now condoms don t carry that message but they are used for the prevention of disease. Anyway, I tried to re-roll my father s prophylactic and stuff it back into the band, but it was a losing battle, so I decided not to put it back in the package, figuring that my dad wasn t counting his condoms and would never know. As an adolescent, I found that purchasing condoms was a traumatic experience. I would buy other stuff to avoid being embarrassed. I d like a Batman comic book, and this Snickers candy bar, and whispering a pack of Trojans, and a tube of Crest toothpaste, please. But four decades later there were huge billboards, warning: If you can t say no, use condoms. However, an executive of the Gannett Outdoor Advertising Company confirmed that they held off putting up those signs until after a visit by the Pope. Members of the Roman Catholic Church hierarchy have been faced with an interesting dilemma. On the one hand, they are opposed to condoms as an artificial method of birth control. On the other hand, they are aware that condoms can serve as a protection against AIDS. But a group of bishops issued a statement that educational programs which include information about condoms should also stress that they are morally incorrect. That s sort of like in the Watergate scandal when Richard Nixon said, We could get the million dollars but that would be wrong. Coincidentally, in November 2010, while the porn industry in California was being pressured to require all male actors to wear condoms to prevent AIDS, in the Vatican it was revealed that, for the exact same reason, Pope Benedict There can be single justified cases, he rationalized, for example, when a prostitute uses a condom, and this can be a first step toward a moralization, a first act of responsibility in developing anew an awareness of the fact that not everything is permissible and that we cannot do everything we want. However, this is not the best way to overcome the infection of HIV. It is really necessary to humanize sexuality. Daniel Maguire, author of Sacred Rights: The Case for Contraception and Abortion in World Religions, observed that the pope s change in policy represents a significant crack in the dike of Catholic opposition to condom use. The opposition stems from Catholic dogma that sex is for reproduction, and nothing should interfere with that. An issue of The Realist reprinted an article from the London Observer, which began: Three Roman Catholic theologians have expressed the opinion that, in times of revolution and violence, it is lawful for women, particularly for nuns, to take contraceptive pills and precautions against the danger of becoming pregnant through rape. On that same page was our Rumor of the Month: So-called flying saucers are actually diaphragms being dropped by nuns on their way to Heaven. I Ran an Underground Abortion Referral Service When abortion was illegal, women had no choice but to seek out back-alley butchers for what should have been a medical procedure in a sterile environment. If there was a botched surgery and the victim went to a hospital, the police were called and they wouldn t allow the doctor to provide a painkiller until the patient gave them the information they sought. In 1962, there was an article in Look magazine that stated, There is no such thing as a 'good' abortionist. All of them are in business strictly for money. But in an issue of The Realist, I published an anonymous interview with Dr. Robert Spencer, a truly humane abortionist, promising that I would go to prison sooner than reveal his identity. He had served as an Army doctor in World War I, then became a pathologist at a hospital in Ashland, Pennsylvania. He went down into the shafts after a mine accident, and aided miners to obtain Workmen s Compensation for lung disease. At a time when 5,000 women were killed each year by criminal abortionists who charged as much as 1500, his reputation had spread by word-of-mouth, and he was known as The Saint. Patients came to his clinic in Ashland from around the country. I took the five-hour bus trip from New York to Ashland with my gigantic Webcor tape recorder. Dr. Spencer was the cheerful personification of an old-fashioned physician. He wore a red beret and used folksy expressions like by golly. He had been performing abortions for 40 years. He started out charging 5, and never more than 100. He rarely used the word pregnant. Rather, he would say, She was that way, and she came to me for help. Ashland was a small town, and Dr. Spencer's work was not merely tolerated; the community depended on it -the hotel, the restaurant, the dress shop -all thrived on the extra business that came from his out-of-town patients. However, he built facilities at his clinic for African-American patients who weren't allowed to obtain overnight lodgings elsewhere. The walls of his office were decorated with those little wooden signs that tourists like to buy. A sign on the ceiling over his operating table said Keep Calm. Here s an excerpt from our dialogue: Q. Do you have any idea about how many actual abortions you re performed during all these years? A. To be accurate, it s 27,006 Q. Have medical people come to you, who would otherwise shun you? A. Oh, yes, I ve had medical people who bring me their wives, and I ve had quite a few medical people send me patients. Q. But they wouldn t perform the operation themselves? A. No, they d never perform it, and just exactly what their attitude would be, I don t really know. Some of them, I presume, were absolutely against it, because I ve had ministers, and they d bring me their daughters or their nieces. Q. Have police come to you for professional services? A. Oh, yes, I ve had police in here, too. I ve helped them out. I ve helped a hell of a lot police out. I ve helped a lot of FBI men out. They would be here, and they had me a little bit scared Q. What would you say is the most significant lesson you ve learned in all your years as a practicing abortionist? A. You ve got to be careful. That s the most important thing. And you ve got to be cocksure that everything s removed. And even the uterus speaks to you and tells you. I could be blind. You see, this is an operation no eye sees. You go by the sense of feel and touch. The voice of the uterus. But the only thing I can see is hypocrisy, hypocrisy. Everywhere I look is hypocrisy, Because the politicians Even priests came to his clinic with the housekeepers they had impregnated. As if to retroactively approve of such hypocrisy, the Colorado Independent reported in 2013 that A chain of Catholic hospitals has beaten a malpractice lawsuit by saying that fetuses are not equivalent to human lives. Their attorneys argued that in cases of wrongful death, the term person only applies to individuals born alive, and not those who die in utero. After the issue of The Realist featuring that interview with Dr. Spencer was published, I began to get phone calls from scared female voices. They were all in desperate search of a safe abortionist. It was preposterous that they should have to seek out the editor of a satirical magazine, but their quest so far had been futile, and they simply didn't know where else to turn. With Dr. Spencer's permission, I referred them to him. At first there were only a few calls each week, then several every day. I had never intended to become an underground abortion referral service, but it wasn't going to stop just because in the next issue of The Realist I would publish an interview with somebody else. A few years later, state police raided Dr. Spencer's clinic and arrested him. He remained out of jail only by the grace of political pressure from those he'd helped. He was finally forced to retire from his practice, but I continued mine, referring callers to other physicians that he had recommended. Occasionally I would be offered money by a patient, but I never accepted it. And whenever a doctor offered me a kickback, I refused, but I also insisted that he give a discount for the same amount to those patients referred by me. Eventually, I was subpoenaed by district attorneys in two cities to appear before grand juries investigating criminal charges against abortionists. On both occasions I refused to testify, and each time the D.A. tried to frighten me into cooperating with the threat of arrest. In Liberty, New York, my name had been extorted from a patient by threatening her with arrest. The D.A. told me that the doctor had confessed everything and they got it all on tape. He gave me until two o'clock that afternoon to change my mind about testifying, or else the police would come to take me away. I'd better call my lawyer, I told him. I went outside to a public phone booth and called, not a lawyer, but the doctor. That never happened, he said. I returned to the D.A.'s office and told him that my lawyer said to continue being uncooperative. Then I just sat there waiting for the cops. They're on their way, the D.A. kept warning me. But at two o'clock, he simply said, Okay, you can go home now. Bronx District Attorney (later Judge) Burton Roberts took a different approach. In September 1969, he told me that his staff had found an abortionist's financial records, which showed all the money that I had received, but he would grant me immunity from prosecution if I cooperated with the grand jury. He extended his hand as a gesture of trust. That's not true, I said, refusing to shake hands with him. If I had ever accepted any money, I'd have no way of knowing that he was bluffing. The D.A. was angry, but he finally had to let me go. Attorney Gerald Lefcourt (later president of the National Association of Criminal Defense Lawyers) filed a suit on my behalf, challenging the constitutionality of the abortion law. He pointed out that the district attorney had no power to investigate the violation of an unconstitutional law, and therefore he could not force me to testify. In 1970, I became the only plaintiff in the first lawsuit to declare the abortion laws unconstitutional in New York State. Later, various women s groups joined the suit, Lefcourt recalls, and ultimately the New York legislature repealed the criminal sanctions against abortion, prior to the Supreme Court decision in Roe vs. Wade. Dr. Spencer never knew about that. He had died in 1969. The obituary in the New York Times acknowledged the existence of his abortion clinic. The obituary in the local paper in Ashland did not. I continued to carry on my underground abortion referral service. Each time, though, I would flash on the notion that this was my own mother asking for help, and that she was pregnant with me. I would try to identify with the fetus that was going to be aborted even while I was serving as a conduit to the performance of that very abortion. Every day I would think about the possibility of never having existed, and I would only appreciate being alive all the more. Of course, I couldn t possibly have known the difference if my fetus had been aborted. Pretending to be the fetus was just a way of focusing on my role as a referral service. I didn't want it to become so casual that I would grow unaware of the implications. By personalizing it, I had to accept my own responsibility for each fetus whose potential I was helping to disappear. That was about as mystical as I got. Maybe I was simply projecting my own ego. In any case, by the time these women came to me for help, they had already searched their souls and made up their minds. This was not some abstract cause far away -these were real people in real distress There Are No Atheists in the White House It was God who instructed Bill O Reilly to consider every utterance of Happy Holidays to be a verbalization of the war on Christmas. Whenever anybody claims that God talks directly to them, I think they re totally delusional. George W. Bush is no exception. Not only was he told by his senior adviser, Karen Hughes, not to refer to terrorists as folks, but Bush was also being prompted by God Him-Her-or-Itself: God would tell me, George, go and end the tyranny in Iraq. And I did. As if he were merely following divine orders. In July 2003, during a meeting with Palestinian Prime Minister Mahmoud Abbas, Bush told the newly elected leader, God told me to strike at Al-Qaeda and I struck them, and then He instructed me to strike at Saddam, which I did. And now I am determined to solve the problem in the Middle East. If you help me, I will act, and if not, the elections will come and I will have to focus on them. Abu Bakar Bashir, an Islamic cleric and accused terrorist leader, has said that America s aim in attacking Iraq is to attack Islam, so it is justified for Muslims to target America to defend themselves. That s exactly interchangeable with this description of Bush by an unidentified family member, quoted in the Los Angeles Times: George sees the war on terror as a religious war. His view is that they are trying to kill the Christians. And the Christians will strike back with more force and more ferocity than they will ever know. Indeed, General William Boykin, Deputy Undersecretary of Defense for Intelligence, said that George Bush was not elected by a majority of the voters in the United States, he was appointed by God. Discussing the battle against a Muslim warlord in Somalia, Boykin explained, I knew my God was bigger than his. I knew that my God was a real God and his was an idol. Apparently, religious bigotry runs in the family. Bush s father, the former president: I don t know that atheists should be considered citizens, nor should they be considered patriots. This is one nation under God. And before him, there was Ronald Reagan: For the first time ever, everything is in place for the Battle of Armageddon and the Second Coming of Christ. Not to mention Reagan s Secretary of the Interior, James Watt, responsible for national policy on the environment: We don't have to protect the environment In 1966, Lyndon Johnson told the Austrian ambassador that the diety comes and speaks to me about two o clock in the morning when I have to give the word to the boys, and I get the word from God whether to bomb or not. So maybe there s some kind of bipartisan theological tradition going on in the White House. But if these leaders are not delusional, then they re deceptive. And in order to deceive others, one must first deceive oneself until self-deception morphs into virtual reality. In any case, we have our religious fanatics, and they have theirs. In September 2007, on the eve of the sixth anniversary of 9 11, Osama bin Laden warned the American people that they should reject their capitalist way of life and embrace Islam to end the Iraq war, or else his followers would escalate the killing and fighting against you. George Bush once proclaimed, God is not neutral, which is the antithesis of my own spiritual path, my own peculiar relationship with the universe My own belief in a deity disappeared when I was thirteen. I was working early mornings in a candy store across the street from our apartment building. My job was to insert different sections of the newspaper into the main section. On the day after the United States dropped the first atomic bomb on Hiroshima, I would read that headline over and over and over again while I was working. That afternoon, I told God I couldn t believe in him any more because ALLOWED? WHY DO YOU THINK I GAVE HUMANS FREE WILL? Okay, well, I m exercising my free will to believe that you don t exist. ALL RIGHT, PAL, IT S YOUR LOSS! At least we would remain on speaking terms. But I knew it was a game. I enjoyed the paradox of developing a dialogue with a being whose reality now ranked with that of Santa Claus. Our previous relationship had instilled in me a touchstone of objectivity that could still serve to help keep me honest. I realized, though, that whenever I prayed, I was only talking to myself. The only thing I can remember from my entire college education is a definition of philosophy as the rationalization of life. For my term paper, I decided to write a dialogue between Plato and an atheist. On a whim, I looked up Atheism in the Manhattan phone book, and there it was: Atheism, American Association for the Advancement of. I went to their office for background material. The AAAA sponsored the Ism Forum, where anybody could speak about any ism of their choice. I invited a few friends to meet me there. The event was held in a dingy hotel ballroom. There was a small platform with a podium at one end of the room and heavy wooden folding chairs lined around the perimeter. My favorite speaker declared the Eleventh Commandment: Thou shalt not take thyself too goddamned seriously. Taking that as my unspoken theme, I got up and parodied the previous speakers. The folks there were mostly middle-aged and elderly. They seemed to relish the notion of fresh young blood in their movement. However, my companions weren t interested in staying. If I had left with them that evening in 1953, the rest of my life could have taken a totally different path. Instead, I went along with a group to a nearby cafeteria, where I learned about the New York Rationalist Society. A whole new world of disbelief was opening up to me. That Saturday night I went to their meeting. The emcee was a former circus performer who entertained his fellow rationalists by putting four golf balls into his mouth. He also recommended an anti-censorship paper, The Independent. The next week, I went to their office to subscribe and get back issues. I ended up with a part-time job, stuffing envelopes for a dollar an hour. My apprenticeship had begun. The editor, Lyle Stuart, was the most dynamic individual I d ever met. His integrity was such that if he possessed information that he had a vested interest in keeping quiet In the words of the late Jerry Falwell The individual who placed the winning bid of 1800 on eBay for a slab of concrete with a smudge of driveway sealant resembling the face of Jesus. The man who tried to crucify himself after seeing pictures of God on the computer. He took two pieces of wood, nailed them together in the form of a cross and placed it on his living-room floor. He proceeded to hammer one of his hands to the crucifix, using a 14-penny nail. According to a county sheriff spokesperson, When he realized that he was unable to nail his other hand to the board, he called 911. It was unclear whether he was seeking assistance for his injury or help in nailing his other hand. The Sunday School teacher who advised one of his students to write on his penis, What would Jesus do? Presumably, Masturbate was not considered to be the correct answer. And, of course, the anonymous authors of the following quotes from various state constitutions. Arkansas: No person who denies the being of a God shall hold any office. Mississippi: No person who denies the existence of a Supreme Being shall hold any office in this state. North Carolina: The following persons shall be disqualified for office: First, any person who shall deny the being of Almighty God. South Carolina: No person shall be eligible to the office of Governor who denies the existence of the Supreme Being. Tennessee: No person who denies the being of God, or a future state of rewards and punishments, shall hold any office in the civil department of this state. Texas: Nor shall any one be excluded from holding office on account of his religious sentiments, provided he acknowledge the existence of a Supreme Being. Rick Warren, pastor of America s fourth-largest church, told his congregation, I could not vote for an atheist because an atheist says, I don t need God. In 2006, the Secular Coalition of America offered a 1,000 prize to anyone who identified the highest-ranking non-theist public official in the country. Almost 60 members of Congress were nominated, out of which 22 confided that they didn t believe in a Supreme Being, but they wanted their disbelief kept secret. Only Pete Stark admitted that he was a nonbeliever, and in 2007, he became the first member of Congress ever to identify himself publicly as a nonbeliever. In the week following that announcement, he received over 5,000 emails from around the globe, almost all congratulating him for his courage. Like our nation s founders, he stated, I strongly support the separation of church and state. I look forward to working with the Secular Coalition to stop the promotion of narrow religious beliefs in science, marriage contracts, the military and the provision of social services. In 2008, he was elected to his 19th term with 76.5 of the votes. In the 2008 primaries, three presidential wannabes raised their hands during a Republican debate to signify that they didn t believe in evolution, although one of them, Mike Huckabee, admitted, I don t know if the world was created in six days. I wasn t there. He has also said that, If there was ever an occasion for someone to have argued against the death penalty, I think Jesus could have done so on the cross and said, This is an unjust punishment, and I deserve clemency. Such western fundamentalists have been waging a battle against the teaching of meditation in publicly funded schools, as though slow, deep breathing is inextricably connected with the practice of eastern religious disciplines. What s next, forbidding the teaching of empathy because that s what Christians and Jews are supposed to practice? It was a pleasant surprise when Barack Obama acknowledged unbelievers among others in his inauguration speech. However, I don t exempt unbelievers from criticism. I ridicule officially atheist China s leaders for banning Tibet s living Buddhas from reincarnation without permission. According to the order, issued by the State Administration for Religious Affairs, The so-called reincarnated living Buddha without government approval is illegal and invalid. That regulation is aimed at limiting the influence of the Dalai Lama, even though China officially denies the possibility of reincarnation. (I used to believe in reincarnation, but that was in a previous lifetime.) China is a Big-Brother, slave-labor-driven, human-rights-violator, Maoist dictatorship, from which the United States borrows trillions, then proceeds to purchase their poisoned food, leaded Christmas toys, and Made in China American flags. America remains a living paradox, where our citizens are force-fed misinformation and disinformation, so that we can continue to fund incompetent and illegal activities in the U.S. THE SEX LIFE OF PRESIDENTS OTHERS The Parts Left Out of the Kennedy Book An executive in the publishing industry, who obviously must remain anonymous, has made available to The Realist a photostat copy of the original manuscript of William Manchester's book, The Death of a President. Those passages which are printed here were marked for deletion months before Harper Row sold the serialization rights to Look magazine; hence they do not appear even in the so-called complete version published by the German magazine Stern. At the Democratic National Convention in the summer of 1960, Los Angeles was the scene of a political visitation of the alleged sins of the father upon the son. Lyndon Johnson found himself battling for the presidential nomination with a young, handsome, charming and witty adversary, John F. Kennedy. The Texan in his understandable anxiety degenerated to a strange campaign tactic. He attacked his opponent on the grounds that his father, Joseph P. Kennedy, was a Nazi sympathizer during the time he was United States Ambassador to Great Britain, from 1938 to 1940. The senior Kennedy had predicted that Germany would defeat England and he therefore urged President Franklin D. Roosevelt to withhold aid. Now Johnson found himself fighting pragmatism with pragmatism. It did not work; he lost the nomination. Ironically, the vicissitudes of regional bloc voting forced Kennedy into selecting Johnson as his running mate. Jack rationalized the practicality of the situation, but Jackie was constitutionally unable to forgive Johnson. Her attitude toward him always remained one of controlled paroxysm. It was common knowledge in Washington social circles that the Chief Executive was something of a ladies' man. His staff included a Secret Service agent, referred to by the code name Dentist, whose duties virtually centered around escorting him to and from a rendezvous site- either in the District of Columbia or while traveling She was aware of his philandering, but would cover up her dismay by joking, It runs in the family. The story had gotten back to her about the late Marilyn Monroe using the telephone in her Hollywood bathroom to make a long distance call to New York Post film-gossip columnist Sidney Skolsky. Sid, you won't believe this, she had whispered, but the Attorney General of our country is waiting for me in my bed this very minute- I just had to tell you. It is difficult to ascertain where on the continuum of Lyndon Johnson's personality innocent boorishness ends and deliberate sadism begins. To have summoned then-Secretary of the Treasury Douglas Dillon for a conference wherein he, the new president, sat defecating as he spoke, might charitably be an example of the former; but to challenge under the same circumstances Senator J. William Fulbright for his opposition to Administration policy in Vietnam is considered by insiders to be a frightening instance of the latter. The more Jacqueline Kennedy has tried to erase the crudeness of her husband's successor from consciousness, the more it has impinged upon her memories and reinforced her resentment. It's beyond style, she would confide to friends. Jack had style, but this is beyond style. When Arthur Schlesinger, Jr. related to her an incident that he had witnessed firsthand- Mr. Johnson had actually placed his penis over the railing of the yacht, bragging to onlookers, Watch it touch bottom! -Mrs. Kennedy could not help but shiver with disgust. Capitol Hill reporters have observed the logical extension of Mr. Johnson boasting about his six-o'clock-in-the-morning forays with Lady Bird, to his bursts of phallic exhibitionism, whether it be on a boat or at the swimming pool or in the lavatory. Apropos of this tendency, Drew Pearson's assistant, Jack Anderson, has remarked: When Lyndon announces there's going to be a joint session of Congress, everybody cringes. It is true that Mrs. Kennedy withstood the pressures of publicized scandal, ranging from the woman who picketed the White House carrying a blown-up photograph supposedly of Jack Kennedy sneaking away from the home of Jackie's press secretary, Pamela Turnure, to the Blauvelt Family Genealogy which claimed on page 884, under Eleventh Generation, that one Durie Malcolm had married, third, John F. Kennedy, son of Joseph P. Kennedy, one time Ambassador to England. But it was the personal infidelities that gnawed away at her -as indeed they would gnaw away at any wife who has been shaped by this culture- until finally Jackie left in exasperation. Her father-in-law offered her one million dollars to reconcile. She came back, not for the money, but because she sincerely believed that the nation needed Jack Kennedy, and she didn't want to bear the burden of losing enough public favor to forestall his winning the presidency. Consequently she was destined to bear a quite different burden American leaders seem to have a schizophrenic approach toward each other. They want to expose their human frailties at the same time that they do not want to remove them from their pedestals. Bobby Kennedy privately abhors Lyndon Johnson, but publicly calls him great, and I mean that in every sense of the word. Johnson has referred to Bobby as that little shit in private, but continues to laud him for the media. Gore Vidal has no such restraint. On a television program in London, he explained why Jacqueline Kennedy would never relate to Lyndon Johnson. During that tense flight from Dallas to Washington after the assassination, she inadvertently walked in on him as he was standing over the casket of his predecessor and chuckling. This disclosure was the talk of London, but did not reach these shores. Of course, President Johnson is often given to inappropriate response She corroborated Gore Vidal's story, continuing: That man Johnson was crouching over the corpse, no longer chuckling but breathing hard and moving his body rhythmically. At first I thought he must be performing some mysterious symbolic rite he'd learned from Mexicans or Indians as a boy. And then I realized Handwritten marginal notes: 1. Check with Rankin The glaze lifted from Jacqueline Kennedy's eyes. I don't believe that Lyndon Johnson had anything to do with a conspiracy, but I do know this Postscript: The most significant thing about The Parts Left Out of the Kennedy Book was its widespread acceptance One caller claimed that he could determine, by feeding the article into a computer, whether Manchester had written the portions I published. Several individuals queried that final arbiter of truth, the Playboy Adviser. One reader went out and bought the original Death of a President just to see if your parts would fit into the book I also received a call from Ray Marcus, a critic of the Warren Commission Report, who had discovered a chronological flaw in my article. How could William Manchester leave something out of his book that was itself a report of something that he d left out of his book? Marcus deduced that The Realist must have been given the excerpts by a CIA operative in order to discredit valid dissent on the assassination. My favorite response came from Merriman Smith, the syndicated UPI correspondent who always ended White House press conferences with the traditional Thank you, Mr. President. He wrote: One of the filthiest printed attacks ever made on a President of the United States is now for sale on Washington newsstands. The target: President Johnson. This is the May edition of a so-called magazine which says it is entered as second class mail. One newsstand owner says sales of this particular issue have been quite active. This reporter is not embarked here on any defense of Johnson politically or personally, nor, for that matter, is this to suggest the need for greater respect for the presidency. These are matters that have been dealt with extensively in other forums. Certain unadorned facts, however, do stand out in the open circulation, mailing and other forms of distribution of this sort of slime: If a magazine of major national standing tries to use the same sort of language, federal action to stop it would be almost certain. The language referred to is not conventional hell or damn profanity -it is filth attributed to someone of national stature supposedly describing something Johnson allegedly did. The incident, of course, never took place . . . A Sneak Preview of Richard Nixon s Memoir An old friend approached us with a thick sheaf of what was purported to be a photocopy of the autobiographical manuscript on which former President Richard M. Nixon was still at work. Our first reaction was skepticism. While most of the contents dealt predictably with contemporary history as it has already been recorded, there were enough surprises to shock even our own jaded psyche. Just to be sure, we employed the services of a reputable private investigative firm. Their report verified that our source did indeed know an individual inside the San Clemente hideaway. The next step was to hire a professional graphologist, who determined the authenticity of Mr. Nixon s handwritten notes on the typed transcript. Finally, our attorneys assured us that there was no violation of copyright laws involved, because it was unlikely that Nixon had submitted such unfinished material for copyright protection. The book, as yet untitled, is dedicated To Patricia Ryan Nixon, who has been named the most admired women in the country, and deservedly so, for your loyalty has been a continuing inspiration, not only to your husband and family, but to Americans everywhere. Here, then, are several excerpts from this preliminary draft of the memoirs of the only United States president ever to resign from office. Although President Dwight David Eisenhower encouraged me to call him Ike during the years I served as Vice President, it was a superficial form of intimacy. I regretted his failure to share decision-making responsibility with me at the White House. That privilege he reserved for his special assistant, Sherman Adams. When media coverage of a minor scandal in 1958 involving a rug and a vicuna coat pressured him into letting Adams go, Ike at last revealed a facet of his humanity to me. By sheer force of habit, he remarked, I was ready to seek out Sherman s advice on whether or not I should fire him. It was not until 1961, after Ike s farewell address, that he confided in me again, this time about a more momentous occasion. I suppose, he began, my reference to the dangers of the military-industrial complex in my speech came as something of a surprise to you, eh? Well, sir, it did strike me as a rather incongruous position for a renowned Army general to take I had a visitation, he interrupted, while I was in the process of composing my farewell address now this is utterly impossible to describe but I do believe it was some kind of extraterrestrial communication. In English or what? I was dumbfounded. It was in English but also beyond all language. They told me that their associates had been to see Harry Truman when he was president. Now remember Dick, he s the one who ordered the atomic bomb to be dropped on Hiroshima and Nagasaki. And yet these creatures convinced him not to turn Korea into another nuclear holocaust. That s really why he brought back General Douglas MacArthur. Ike stared ahead with a blank expression in his eyes. Sir, are you all right? Yes. Yes. I just don t know if I can articulate this extraterrestrial experience. It was as though my body remained in the chair and my spirit was taken on a journey. All I know is that when I returned, I just had to tell the truth. There was no other choice Ike stopped in mid-sentence. He never mentioned that incident again. Nor did I feel it would be proper for me to broach the subject. I dismissed it from my mind. It would not be until nearly fourteen years later that my visceral understanding of his experience would occur. The year 1974 was so rough on me that for a while I thought I could actually be going insane. I wondered if I was being drugged without my knowledge. I found myself wallowing in paranoid fantasies, and I gave voice to these at press conferences. I expressed the fear that my plane might crash. I resorted to using expressions like They can point a gun at your head. I was practically begging for mercy. When I entered Memorial Hospital Medical Center in Long Beach on October 23 for my phlebitis condition, I brought my own jar of wheat germ, because I was afraid that poison would be put in my food. On October 29, the doctors placed a clamp on a vein in my pelvis in order to prevent the blood clot from moving to my lungs where it could have killed me. It was then that I went into cardiovascular failure. On October 30, Ron Ziegler announced, We almost lost President Nixon yesterday afternoon. This was almost three months after my resignation, and he was still referring to me as President. Poor Ron, I thought to myself. He thinks he s still in Disneyland. For a few hours I was considered to be clinically dead. It was an incredibly ecstatic feeling. I was conscious, but on some other plane of existence, and there was an overwhelming temptation to remain in that blissful limbo. Yet there was also something in me that kept saying Don t give up! It was my survival instinct speaking. But why not give up? What was there left for me? The answer came to me by the same extraterrestrial path it had come to Ike: Tell the truth! That was the turning point of my life. And these memoirs are the tangible result of my transformation. No one shall be spared, least of all myself. Those hairless creatures told me that President John F. Kennedy had also been visited by their kind. His father, old Joe Kennedy, had gotten rich off illegal booze during Prohibition, and you can be certain that the underworld bootleggers he was tied up with were not about to dissolve their silent partnership in this huge liquor industry they had built up, simply because Prohibition had been repealed. Yet there was Joe Kennedy s own son, Jack not to mention his brother Bobby refusing to cooperate any longer in allowing organized crime to have a comeback in Cuba, and furthermore, going after organized crime in this country. At best this was ingratitude; at worst it was treason. But I finally understood the extraterrestrial force that had motivated young Kennedy. And so now I am ready to peel away the final layers of my poker-face mask. For example, I occasionally went too far while wearing my anti-Communist mask. When former Attorney General Nicholas Katzenbach exposed the DuBois Clubs as a Communist front organization, poison-pen letters and threatening telephone calls were received by many of the Boys Clubs from patriotic Americans who were understandably confused by the ostensibly coincidental pronunciations. But in my function as National Board Chairman of the Boys Clubs of America, I charged that the name choice was an almost classic example of Communist deception and duplicity and that the W.E.B. DuBois Clubs are not unaware of the confusion they are causing among our supporters and among many other good citizens. In retrospect, however, I admit that this was a slightly foolish position to espouse. In August of 1945, while I was still serving in the Navy, stationed in Maryland, there was a Committee of 100 seeking according to an advertisement they placed in several California newspapers a candidate for Congress with no previous political experience, to defeat a man who has represented the district in the House for ten years. This was a reference to Jerry Voorhis. I did not see the ad, but destiny acted as though I had answered it, when I was contacted by Murray Chotiner for Herman Perry, vice president of the Bank of America. Perry later became vice president of the Western Tube Corporation, a CIA front located in the Whittier Bank of America building. But now he wanted to know only if I was a Republican and if I was available. My responses were both affirmative. It was Perry who brought me out for an extremely brief meeting with Howard Hughes. Hughes was handsome, dynamic, self-assured. Somehow he had seen the FBI dossier on me, which had apparently been compiled when I applied for a position with the Bureau after graduating law school. Oddly enough, I had never heard back from the FBI directly. Nixon, he addressed me, you have a magnificent political future ahead. You will be able to steer your ship independently. But always keep it in a tiny compartment of your mind that you do not own the ocean. I do. I never saw Howard Hughes face to face again. The seeds of my distrust of the Justice Department were sown in 1948 during the Alger Hiss case. Those people just sat on each other s hands. If not for the work of our House UnAmerican Activities Committee, the prosecution would never have been so successful. I refused to turn over to those bunglers the microfilms we had in evidence. When there was a possibility I might be cited for contempt, I raised the point of what a dangerous precedent could be set, since here I was, a U.S. Congressman, appearing voluntarily before a grand jury. But the truth of the matter was that those microfilms were copies of documents forged on an old Woodstock typewriter that had been specially constructed to resemble to have the same peculiarities as the typewriter that had actually belonged to Alger Hiss s wife, Priscilla. Then Whittaker Chambers hid these old 1938 microfilms inside a pumpkin on his pumpkin farm. The trouble was, the Eastman Kodak people stated that the type of film we used was not manufactured by their company until 1945. To this day, whenever the comic strip Peanuts mentions that bird named Woodstock or the mysterious pumpkin papers, I suspect Charles Schulz is trying to remind me of something. There seems to be a tradition of accusing those who fight Communism of being homosexual. This smear tactic was used against Whittaker Chambers, against Senator Joseph McCarthy and against J. Edgar Hoover. In that vein, gossips used to rant about Hoover and Clyde Tolson double-dating with Charles Bebe Rebozo and myself. Neither Rebozo nor I are gay. We have been very close friends since 1950. What we enjoy most about each other s company is the fact that small talk becomes unnecessary. We are not afraid of silence. But we have never had any kind of sexual relationship. We were introduced by Senator George Smathers, who was infamous for supplying female companions to his fellow legislators. It was Smathers who eventually sent Mary Jo Kopechne to be with Senator Edward Kennedy. Whenever I was in Florida, I would stay with Bebe, and he would occasionally get a couple of beautiful 200-a-night girls. Or as they would be called nowadays, 200-a-night women. But when I bought my own home in Key Biscayne, then his yacht became our rendezvous site. I was certainly not promiscuous, but I had been a virgin until marriage. I proposed to Pat Ryan the very same night I met her. She refused, but I was a determined son-of-a-gun. I even drove her to Los Angeles when she dated other men while I waited in the wings. I finally charmed her with my perseverance and self-effacement. Once I express concern to Bebe that word might get out about my affairs in Key Biscayne. These girls, I pointed out, are likely to brag about going to bed with a United States senator. They re professionals, Bebe reassured me. It s just like your lawyer-client privilege. Stop worrying. One evening in 1949, while I was still serving in Congress, I received an anonymous call at my home. A male voice said three words, Watch Jeane Dixon, and hung up the telephone. A week later, the psychic Jeane Dixon held a press conference. One of the reporters asked her to predict my future. She drew a blank, however, explaining that she needed time to meditate. I believe that in show business parlance this is known as milking the audience. Finally she said it: I predict that one day Richard Nixon will become president of the United States. I could only conclude that the higher source from which she had received her intelligence was not necessarily supernatural. When I lost the presidential election to John F. Kennedy in 1960, Jeane Dixon continued to predict that I would be president. Destiny, she said, cannot be denied. Even after I was defeated in the 1962 California gubernatorial election and announced that I was through with politics, she said, Richard Nixon has not even begun his rise in politics. And then she predicted the assassination of President Kennedy in 1963. After the Watergate affair, she stated: God gave us Richard Nixon to divide us, to test us where our faith is concerned, to see if we could come together. A local paper published her statement ( God gave us Nixon to divide us. Jeane Dixon ) as the caption for a cartoon showing a cloud with the voice of God saying, Don t blame me I voted for McGovern. I had to admit it was funny, even though she had been quoted out of context. Harry Robbins Bob Haldeman came into my life when I was a senator in 1951. He volunteered to work on my vice presidential campaign the next year, but that campaign was not to be for him, so he tried again in 1956, and this time we took him on. He rose to be my chief advance man for the presidential race in 1960. After my defeat, Haldeman remained loyal. He volunteered to help me with my book, Six Crises. I wrote the chapter on the 1960 campaign myself because it was so fresh in my mind. Al Moscow drafted four other chapters with Haldeman this was not ghostwritten material because I rewrote what they presented and Haldeman worked mostly on the Alger Hiss chapter. He was apparently so eager to please, though, that he screwed up on his research. He had it that the FBI found the old Woodstock typewriter. And the book was published that way. Then the facts came out, the trial records and all, and we had to change it for the paperback edition. So now it reads that the FBI was unable to find the typewriter. The truth is, Alger Hiss found it himself. But the FBI had planted this fake Woodstock typewriter. And then the defense presented it in the trial as what they assumed was evidence in their favor. So a least Hiss was found guilty of perjury. That verdict added immeasurably to my political strength. I had the courage of Alger Hiss s conviction and it served as the magic carpet that transported me from the Congress to the Senate to the vice presidency. I would have had the presidency in my pocket if not for Kennedy s performance in the Great Debates but only on television; I fared better on radio. Kennedy s charisma was the variable that none of us had counted on. How strange that the incident from the entire eight years I spent as Vice President that stands out most prominently in my memory occurred not in the White House but in Peru. There was a rioter who spat on me, and it was with great pleasure that I kicked him in the shins. Back in the safety of our hotel that night, I recalled an early formal debate at Whittier College Resolved: that insects are more beneficial than harmful because I had been so intrigued as to how insects did not think, they just acted. Now, having myself acted totally without hesitation, I was able to identify with those insects. As Vice President, I labored diligently behind the scenes to establish Operation 40, by which our CIA covertly trained Cuban intelligence officers in exile. Operation 40 was to serve as our link between the White House and the CIA in April of 1961. My plan was to invade Cuba. Ironically, during the 1960 presidential campaign, Kennedy began advocating my plan. I could not reveal that it was already in effect because Operation 40 was a secret project. Further, I found myself in the schizophrenic position of attacking my own idea whenever Kennedy articulated it, because it violated our treaty commitments. Of all the professional newscasters I have met, Walter Cronkite of CBS was the most charming. He treated me with respect and dignity. After the broadcast interview, we sat in his anteroom and talked informally. I ve always wanted to thank you, he said, for inadvertently bringing me back to sanity that horrible weekend John Kennedy was killed. Oh, really how so? This followed on the heels of the televised shooting of Lee Harvey Oswald by Jack Ruby. A journalist asked for your reaction, and you replied with a slip of the tongue, Two rights don t make a wrong. Before you could correct yourself, I was finally able to break through my depression with a bit of laughter. Yes, those were muddled times. Do you know I forgot where I was the day the assassination took place? I had to tell the FBI I couldn t remember, and it was not until later that I remembered I had been in Dallas, of all places. There was a convention of the American Bottlers of Carbonated Beverages, and I was there representing Pepsi-Cola. But I flew out of there at eleven o clock that morning. Kennedy was shot around one o clock, as I recall. Where were you that day? In my office, Cronkite said. When we got the word from Bethesda that he had passed, I cried openly. And you re supposed to be objective, I teased him. I didn t realize you were that much of a Kennedy supporter. Well, by that time I was crying because it had also come over the wires that Lyndon Johnson was already preparing to be sworn in as the new president. It was encouraging to find that in person this superstar really was just like your favorite uncle. When Robert Kennedy was attorney general in 1962, he was busy checking out the Hiss case for some reason. Of course, he discovered that the FBI never had the Woodstock typewriter. Then, in 1968, when he was running for president, he approached New Orleans District Attorney Jim Garrison to be his attorney general. Garrison had gotten a lot of publicity due to his investigation of the assassination of Bobby s brother. During that campaign, Howard Hughes dispatched Robert Maheu to visit me. Hughes felt strongly that the Vietnam War should continue he had a huge defense contract for helicopters yet at the same time he wanted a halt to underground nuclear testing, presumably because it upset the roulette wheels in his Las Vegas casinos. I mentioned the Bobby Kennedy information to Maheu, and he said, Uh-oh, the boss will have to keep a sharper eye on him. It was poetic irony that while Bobby Kennedy was giving official permission to J. Edgar Hoover to spy on Martin Luther King, I was giving unofficial permission to Hoover to spy on Kennedy. That is to say, Robert Maheu may have been working for Howard Hughes, but he had also continued working for the FBI. So when he referred to the boss, I asked, Which one? Maheu smiled and held up his arms, two fingers from each hand extending up into the air. Both, he said. This was the exact moment I decided to use that gesture for the crowds. Winston Churchill had used the V-sign to signify Victory. Then the antiwar protesters perverted its meaning to signify Defeat. Now I was restoring its original victorious symbolism by co-opting the co-opters. Or so I believed. The problem was that Lyndon Johnson desperately wanted to have the Vietnam War settled before he left office. Whereas, I am ashamed to admit, we were trying to prolong it. Anna Chennault the Dragon Lady, as we called her was our liaison to South Vietnamese government officials. Her task was to dissuade their ambassador to the U.S, Bui Diem, from attending the Paris peace talks. But LBJ got wise to this. I had to call and cajole him personally. He was absolutely furious. He complained bitterly at how shit-kickin pissed off he was. Thieu is our boy, he shouted, and don t you fuckin forget that! On November 1, 1968, only four days before the American election, President Nguyen Van Thieu announced that Saigon was pulling out of the peace talks. The Dragon Lady had obviously convinced his associates that they would obtain a juicier deal under our new administration than under Johnson or his chosen successor, Hubert Humphrey, who would surely have won if the Democrats had ended the war. And so, because it was in the mutual interest of the South Vietnamese and the Republicans to extend the war for several more years, we became the recipients of kickbacks from our own government s aid to the Saigon government. I do not ask for forgiveness. No, rather I must live with the memory of myself as an idealistic adolescent first reading about the Teapot Dome scandal and saying to my mother, while helping her to mash the potatoes, I would like to become an honest lawyer who can t be brought by crooks. But my character had already been set. When I was only five years old, my mother intended to buy me a copy of The Prince and the Pauper, but she asked a bookstore clerk for The Prince, and so of course he gave her Machiavelli s book. Mo mother was a saint. Her little mistake changed my life, and I will always be grateful for what I feel must have been a touch of divine intervention. We created a couple of Frankenstein monsters, and when I say we, I mean the administration and the media in an unintentional collaboration. One such monster was Martha Mitchell. The first time she made one of her famous telephone calls and we saw how the press ate it up, we realized we had a political gold mine. The wife of the attorney general could serve as our mouthpiece for floating various trial balloons. John Mitchell would get thoroughly briefed on whatever the issue was Haiphong Harbor or Senator Fulbright or the need for increased spending and then, without ever letting Martha know that he expected her to give a scoop to some lucky reporter that evening, John would simply smoke his pipe and just happen to engage her in casual conversation about the matter. Martha was much too strong-willed to be instructed to make a call, but she could be counted on to make the call, even if it was three o clock in the morning when the urge hit her. This was a great joke among the reporters. One little news item quoted her latest pronouncement, and after the quote that sentence was completed with, Martha Mitchell confided to the Washington Star yesterday Confided, indeed to a newspaper. But in the process of becoming a public character, she developed many contacts in the media. By the time her husband became my campaign manager, Martha Mitchell was already a household word. We thought she would prove to be a wonderful asset until she started blabbing about Watergate. Another Frankenstein monster we created was Henry Kissinger. I never really wanted him in the first place. He had insulted me publicly when I received the nomination in 68. But I made an agreement with Nelson Rockefeller that if he would actively support me, I would take Kissinger onto the team, and of course I had to keep my word. We all felt somewhat uncomfortable about his German accent. H.R. Haldeman decided that whenever Kissinger made any statement, his picture could be shown on TV but there would be no audio. And the electronic media cooperated. Meanwhile, we built up his image, got him dates with glamorous movie stars Jill St. John, Marlo Thomas, Liv Ullmann until he became known as a harmless, pudgy playboy. Then it was acceptable for his voice to be heard. Henry, I once remarked to him, there s a rumor going around Washington that you re lousy in bed. Mr. President speaking very slowly and distinctly I can only say that . . . power . . . is the ultimate aphrodisiac. And he just kept glaring at me with those worried-looking eyebrows frowning over his spectacles. This was just three days after our destabilization of the Chilean government. Kissinger wanted all the credit, but it was really a team effort. We could not have succeeded, for example, without the invaluable aid of Teamsters Union President Frank Fitzsimmons and his Bob Hope-like timing in manipulating the truckers strike in Chile. It is possible to bring about the collapse of an entire economy by shutting down one integral aspect, especially communications or transportation. Moreover, the Soviet Union was trying to cut off the United States supply of a metal vital to jet engine production, by their support of the Allende government in Chile and also by backing guerrilla actions in Angola. In order to maintain the war in Vietnam, we needed Chilean copper as well as the trace metal. At any rate, we were a smooth, well-oiled team, on the way to winning the whole, beautiful, global game. In 1968, George Wallace ran for president as the candidate of the American Independent Party. This almost lost me the election to Hubert Humphrey. In 1972, Wallace ran for president again. This almost cost him his life. I honestly have no knowledge as to how long Arthur Bremer was in our employ, but I do know that the cover story of his having stalked me before he went after Wallace was fabricated simply to defuse any suspicion that might have pointed to our role in the tragic event. After all, my supposed public mandate that November came from a majority that included twenty million votes that would otherwise have gone to George Wallace. We had not expected him to pose so much of a threat. In fact, we had already taken certain steps to preclude any such possibility. In 1970, immediately after he became governor of Alabama again, the iRS and the Justice Department launched an investigation of Wallace and his brother Gerald for tax evasion and other forms of financial corruption. I don t fault Wallace for family loyalty, by the way. I have carried out similar filial responsibility to my own brother, Donald. This is only natural. In any event, John Mitchell, still attorney general at the time, came to me early in 1971 and said, We ve got to stop George Wallace. He could force the election into the House of Representatives if he runs on a third party ticket again. In May of that year, I was in Mobile and invited Wallace to fly with me on the presidential plane to Birmingham. En route, we shook hands on an agreement. I promised that Mitchell would call off the investigation of Wallace and his brother although their underlings would still be subject to prosecution and the governor in turn promised me that if he ran in 72 it would only be as a Democrat. In August 1971, we discovered that CBS correspondent Daniel Schorr had been asking around about the possibility of such a deal. Haldeman commented, We d better get on his ass fast. Two years later, when Schorr reported that John Dean was afraid of going to prison because he might get raped there, we were able to find out immediately from the FBI that his source was Dean s own attorney, but there was nothing constructive we could do with that information. However, it must be noted for posterity that John Dean was a closet queen supreme. His lovely wife, Maureen, is merely window dressing. Oh, how neatly she rolled up her blond tresses into a perfect bun and sat behind him at the Watergate hearings every day, blatantly projecting a modern-day American Gothic image. I recall how it came out that Dean had taken almost 5,000 from a White House safe for a hurried honeymoon right smack in the middle of the cover-up, He was already disguising his tracks. Their marriage was purely protective coloration. The case of John Dean does raise the question, when is a so-called leak actually convenient propaganda? Maureen Dean was an on airplane flight when she accidentally dropped her purse and spilled a vial of amyl nitrate capsules on the floor. She explained to the man sitting net to her how wonderful these were for enhancing her sex life with John. Is it not possible that this lady was protesting just a mite too much, particularly to someone who would just happen to let the media in on her secret? No wonder G. Gordon Liddy said that John Dean was qualified to sing the title role in Der Rosenkavalier because it is sung by a woman. Liddy once made a remark in German that I asked him to translate for me. He said, John Dean s priorities are all screwed up. He doesn t know whether he wants to go down in history or down on a historian. Young people might use the expression karma returning to describe a deal we made with Jack Anderson, who had himself exposed the corruption of so many others in his syndicated column for the Washington Post. We were tipped off that Anderson was researching the Dragon Lady connection. He had learned that her late husband, General Claire Chennault, who had commended the Flying Tigers in World War II, had in 1946 formed a private commercial airline that later merged with the CIA s Air America. He also learned that our Dragon Lady was currently profiting from a Pepsi-Cola factory I had established in Laos, but which had never spewed forth a single drop of Pepsi. Air America had been shuttling out its actual product: heroin. However, Anderson agreed not to publish this material. In return, we agreed not to publicize the fact that he knew about the Watergate break-in weeks before it occurred. He had warned Lawrence O Brien at Democratic National Committee headquarters, but O Brien remained silent because he assumed that such a scandal would provide ammunition for a Democrat coup in the 72 election. He overestimated public outrage. Anderson held back because he did not wish to endanger his source, one of the burglars, Frank Sturgis, whom he had known for some twenty years. Shortly after my resignation in 1974, I received a long letter from Sturgis. I shall quote here a portion of that correspondence: Now, I m telling you this because I still consider you my Commander in Chief. I realize that the same faction of the CIA that masterminded the assassination of Kennedy was also behind your downfall. They thought JFK was soft on Communism in Cuba, and that you were soft on Communism in China, but that they didn t necessarily have to kill you to get rid of you. While I participated in Operation 40, our job was primarily to infiltrate foreign countries. I was a member of the Assassination Section. Orders would filter down, and our job would be to kill, say, a military official or a politician. Even in those days, unstated policy included domestic as well as foreign enemies. But I had nothing to do with the Kennedy assassination myself. The FBI came to interview me the day after it happened, and I didn t have a thing to tell them, except that I could agree with their speculation that the motive was revenge for the Bay of Pigs failure. There s no doubt in my mind that if you had been elected in 1960, the invasion would have been completely successful. For a while I believed that Bernard Barker was the double agent in Watergate, but I have since come to the conclusion that our leader, James McCord, was guided to do the things he did by certain officials in the CIA. We were definitely set up. They used us to eventually destroy the office of the presidency. You were just as expendable as Kennedy. I shouldn t have been surprised Mr. McCord was our Security Chief. I myself, as an infiltrator of Castro s inner circle, rose to Director of Security for the Cuban Air Force and Director of Intelligence. Who can you trust? Whereas I agree with Frank Sturgis that the Watergate burglars were set up, I question the reason he gives. The CIA was fully aware that relations with the People s Republic of China were bound to open up sooner or later. And of course I wanted to earn credit for that in history. Rather, I am convinced that there was a power struggle within the Agency. The faction to which Sturgis alludes most likely led by CIA s Richard Helms was jealous of the Special Intelligence Unit we had developed inside the White House. Not only was the Watergate break-in deliberately bungled in order to discredit me, but the White House taping system was never part of my domain. I knew it had been installed by the Secret Service, but I lacked access to the tapes and, more important, to any switch that would shut off a recording device. I was a prisoner in the Oval Office. A mobile prisoner, to be sure I could go to the Cabinet Room or the Lincoln Room but it didn t make any difference; there were bugs everywhere. They even bugged my cabin at Camp David. I was under more surveillance than Larry O Brien could ever imagine. If I had the tapes in my possession, don t you think I would have gotten rid of them? Just the way I did with those microfilms in the Hiss case. Everybody was recommending this from John Connally to Chuck Colson but I simply did not have access to the system. I should explain that Bay of Pigs was our code word for the assassination of President Kennedy. When we were attempting to put the brakes on the FBI investigation of Watergate, I told Haldeman to get word to Helms that otherwise, because of E. Howard Hunt s involvement, the whole Bay of Pigs thing would open up. Hunt was the CIA station chief in Mexico when agent Lee Harvey Oswald made contact there in 1963. The whole world already knows what a fiasco the Bay of Pigs operation turned out to be that is, the invasion of Cuba but because Kennedy didn t keep his campaign promise to support the exiles, he then became the prime Bay of Pigs target. Had the Watergate mission not been aborted, Hunt would have continued to simulate documents blaming Kennedy and Ted Sorensen for the murder of Che Guevara, just as he forged those cables blaming Kennedy for the murder of Ngo Dinh Diem. I hasten to add that Hunt was merely clarifying the issues. The Kennedy Administration was responsible. But what we were trying to do was hurt Ted Kennedy s chances if he decided to run. However, that is guilt by relationship, which is wrong and irrelevant. I was convinced that Nelson Rockefeller was behind it all. He had never forgiven me for defeating him for the Republican nomination in 1968. What with that whole 25th Amendment arrangement, I figured their chronological plan was to: 1. Get Spiro Agnew out of office. 2. Replace him with Gerald Ford. 3. Get me out of office. 4. Replace me with Ford. 5. Replace Ford (as vice president) with Rockefeller. 6. Knock off Ford before the election by Squeaky Fromme, Sara Jane Moore, whoever. 7. Replace Ford again with Rockefeller, declare martial law and cancel the election. Alternatively, this could be done by killing Jimmy Carter before the inauguration. Now I realize how na ve I was. Granted, Carter is more progressive than I am after all, politics is the art of finding a balance between the status quo and the force of evolution but it became crystal clear to me that he had made some kind of deal. The intelligence-gathering system knew about G. Harrold Carswell s tragic gay problem. Now, he would have been a fine prospect for blackmail: We have this photo of you and a friend in the men s room, Justice Carswell, but don t worry, we won t leak it. I wonder, if I had been successful in appointing him to the Supreme Court, how would he have voted on the constitutionality of entrapping homosexuals? Anyway, my suspicions were aroused when it did not come out in the media until after the election immediately before Carter s inauguration when it was too late to do us any good that his son Jack had been discharged from the Navy because of marijuana. Our hammer over George McGovern s head in 1972 was that his daughter had been hospitalized for an LSD freakout. We never had to resort to using that particular bit of intelligence, however, despite the fact that it was we who had arranged for her to be dosed in the first place. Woodward and Bernstein were not the only ones with reliable sources. According to one of my contacts in the intelligence community, the Democrats first choice for a presidential candidate in the 1976 elections was a southern governor Askew of Florida but their analysts calculated that Jimmy Carter s resemblance to Howdy Doody would provide a subconscious association in the minds of voters who were weaned on that folksy puppet. What the American public does not realize is the impact of the long-range planning that goes on in think tanks such as Stanford Research, the Rand Corporation and the Hudson Institute. They are already beginning to orchestrate the Bimillennium, the 2000th birthday of Christ. The function of Jimmy Carter with all his religiosity and his talk about not living in sin is to provide an opening wedge for the Christianization of the United States. The arms manufacturers would be well pleased by a repeat performance of the Crusades. After those Korean bribes via Reverend Moon s Unification Church and the brainwashing of the Moonies, they ll finally figure it s time to make Christ an American again. Incidentally, Billy Graham recently tried to convert me, the same way he did with that professional gangster, Mickey Cohen. Think what it would be like, he sad, if you were to go on an evangelistic tour with Eldridge Cleaver and Colonel Sanders. You mean the Kentucky Fried Chicken guy? Yes, he has been born again too. No, thank you, Billy, I seem to have found serenity in my own way. I truly have been able to gain real humility now that Chuck Colson and Susan Atkins are saying the same things about Jesus Christ that they were once saying about myself and Charles Manson, respectively. History is an unending conveyor belt that either perpetuates or corrects the inaccuracies of the past. Therefore, the first thing I wish to point out, concerning that infamous eighteen-and-a-half-minutes gap in the White House tape of June 20, 1972, is that it actually lasted only eighteen-and-a-quarter-minutes. At 10:30 that morning, John Ehrlichman was in my office. We did not discuss Watergate. Before leaving, however, he handed me two sealed envelopes. One contained a gram of cocaine; the other contained a preliminary report on the surveillance of Woodward and Bernstein. This task had been assigned to Tony Ulasewicz immediately after their first story on the break-in was published in the Washington Post. It was strange. Ehrlichman s own first assignment had been to spy on the Nelson Rockefeller people for us during the 1960 campaign, and now he had his own chain of command. I have noticed that Ehrlichman s brow has become more knitted as he has advanced in his career. When he left, I opened the sealed envelope and read the report. It was brief: Bernstein, Carl: Heavy pot smoker. Living apart from his wife. Began affair with Nora Ephron, Esquire columnist, in New York while her husband, Dan Greenburg, book author, was at EST, Erhard Seminar Training. Woodward, Bob: A loner. Clean as a hound s tooth. So far. Then I began to chop the coke, as they say, with a razor blade. When Bob Haldeman entered, we each took a couple of snorts. Haldeman was my Sherman Adams. I had always felt I could depend on him. We were discussing whether my itinerary for an upcoming trip to the West Coast might include Ely, Nevada, which was the birthplace of Mrs. Nixon, That s perfect, Haldeman said. We need anything we can get, PR-wise. But you know something, Bob? It s all image. Well, that is precisely the purpose of public relations. No, I mean my so-called marriage is all image. Pat and I have not, you know, slept together for many years. My God, I was the President of the Unites States, and I couldn t even get laid by my own wife. Sir, you don t really want to talk about this And I ll tell you where it started. During the Cuban Crisis in October 62. Boy, Kennedy sure won a helluva lot of points on that one. And it could ve been me confronting Khrushchev. I mean a real international shootdown, not just waving my finger at him in Safire s goddamn makeshift kitchen. That would have been the logical extension of your Russian trip. I tell you, the unspeakable frustration of not being in a position to negotiate that missile thing. I just couldn t get it up for Pat, plus the pressure of the California campaign was going on then too. And after we lost that election, she started talking about a divorce. We compromised with separate bedrooms. Suddenly I stood up, walked around my desk to where Haldeman was sitting, and I ran my hand back and forth across the top of his crewcut. I am not very physically demonstrative, but I had always wanted to do that. Still, this was almost a spontaneous gesture. You stuck by me, Bob, I said while I rubbing his hair. Finch dropped out, but you . . . And I began weeping uncontrollably. Sir, is there anything I can do? Between sobs I blurted out, Oh, sure I certainly did not intend for this to be taken literally Why don t you try sucking my cock, maybe that ll help. To my utter astonishment, Haldeman unzipped my fly and proceeded with what can only be described as extreme efficiency. The whole thing could not have taken more than five minutes from beginning to end. He must have had some practice during his old prep-school days. Neither of us said a word before, during or after. This misunderstanding was comparable to the time that Jeb Magruder remarked how convenient it would be if we could get rid of Jack Anderson, and G. Gordon Liddy assumed that was a direct order and rushed out to accomplish the act. If Liddy had not blabbed his assignment to an aide in the corridor, Anderson might not be alive today. As for my own motivation, here was an experience not of homosexuality but of power. I realized that if I could order the Pentagon to bomb Cambodia, it was of no great consequence that I was now merely permitting my chief of staff to perform fellatio on me. In fact, I was fully cognizant of what an honor it must have been for him. When the incident was over, I simply returned to my desk, and although the tension of vulnerability was still in the air, we resumed our discussion as if nothing had occurred. Now, I said in a normal tone of voice, what s on the agenda? Sir, Haldeman began, on this Watergate problem, it would be advantageous to us if any similar activity on the part of the Democrats could be leaked to the media. Well, Hoover once told me this was right after we won in 68 he said that within the previous month, LBJ had the FBI put the bug on Agnew and me. Ramsey Clark was attorney general then, but he never authorized it, so that was an illegal wiretap. Perfect. We start with Lyndon Johnson and work our way back. But no, on second thought, the LBJ tap would open up the whole Dragon Lady can of beans. I mean that was the goddamn excuse they had for spying on us. Then Haldeman delivered a resounding pep talk when he lets loose he can be an emotional marvel about the importance of launching a counterattack against our enemies. I must say at this point that Rose Mary Woods deserves a Medal of Honor for the way she was willing to humiliate herself by taking full blame for accidentally erasing those first five minutes rather than stand by while my public image was being destroyed. Moreover, when General Alexander Haig learned from Haldeman s notes that during those additional thirteen-and-a-quarter-minutes there was a discussion of how to deal with Watergate, thereby proving that I was involved in the cover-up only three days after the break-in, Haig attributed the erasure to sinister forces. He said this under oath in Judge John Sirica s courtroom. Now that is loyalty above and beyond the call of duty. In retrospect, I realize that H.R. Haldeman was part of the plot against me all along, always trying to ingratiate himself anything to impress me, when actually he w as trying to hurt my political career. Not that he was against me personally; I was just his particular assignment as part of an overall plan to destroy, in the words of Frank Sturgis, the office of the presidency. Haldeman was a saboteur in the guise of a sycophant. In 1967, when he was a vice president at the J. Walter Thompson advertising agency, he sent me a long memo on how I could use the media in my 68 campaign. I have since learned that during World War II, various corporations Standard Oil, Wrigley Chewing Gum, Paramount Pictures lent their services to the Office of Strategic Services, which later became the CIA. The Thompson Agency supplied Kenneth Hinks to be chief of the OSS planning staff. One of Haldeman s predecessors, Richard de Rochemont, a vice president of J. Walter Thompson, was offered a position with the Secret Intelligence Branch of the OSS. Another Thompson official, Donald Coster, stayed on with the CIA in South Vietnam from 1959 to 1962. That s when Haldeman really latched on to me, in the 62 campaign. And when we lost, it was Haldeman who persuaded me to make a public fool of myself with that godawful You won t have Nixon to kick around any more press conference. It was Haldeman in 1972 who acted as a double agent and conspired with Dick Tuck to have all those Chinese fortune cookies contain the same message: What about the Howard Hughes loan? And it was Haldeman who consciously sabotaged the research on the Hiss chapter in Six Crises. On one occasion I was meeting with a group of blind veterans in the Oval Office. I wanted to display my empathy with them, so I began describing the Presidential Seal, which was woven into the carpet we happened to be standing on. A blind veteran got down on his knees and started feeling that design with his hands. I closed my eyes and proceeded to do the same. It was perhaps the most spontaneous gesture of my life, although I must admit I was grateful to hear the sound of cameras whirring. I was pleased that this scene of my true humanity was being recorded for posterity. But Haldeman ordered an embargo on that photograph, ostensibly to protect the dignity of my image, because the president should never be seen in a kneeling position. Even a year after he resigned, there he was, old faithful Bob Haldeman, backstage with me at the Grand Ole Opry in Nashville. He chided Johnny Cash for that time he refused to sing Welfare Cadillac at the White House, and Cash now replied, Should I do it tonight and dedicate the song to you now that you re on welfare? Haldeman did not appreciate the humor in that. He was too preoccupied with the betrayal of me that he had in mind. He handed me a yellow yo-yo and said, This will really please the crowd. It s an official Roy Acuff model. I put the yo-yo in my pocket. Haldeman did not mention that the string had been loosened at the bottom, so when I was onstage and I flung that yo-yo down, it just stayed there. Once again, Haldeman had transformed the president into an asshole. It was Haldeman who had urged me to Install the White House taping system. It was Haldeman who hired Alexander Butterfield, who testified to the whole world about the tapes, and told the FBI about E. Howard Hunt. Butterfield brought in Al Wong to set up the system and check it every day. And it was Wong who brought James McCord onto the team. It all seems so obvious now. One thing about Gerald Ford, though: He keeps his promises not only to pardon me, but also his promise to fire Alexander Butterfield, even though Ford was actually grateful to him. As for me, I should have listened to L. Patrick Gray when he warned me, People on your staff are trying to mortally wound you. My wife, Pat, has sworn to me that she never told anyone about our marital difficulties, and of course I believe her, so the leak to Woodward and Bernstein could only have come from Haldeman. On top of all his other betrayals, he must have been Deep Throat too. There was one plan of the White House Plumbers that never came to fruition. It involved the theft of Patricia Ellsberg s dental records. This was my own idea not Haldeman s, not Hunt s, not Liddy s they were satisfied with obtaining the records of Daniel Ellsberg s psychiatrist. But I remembered that the first time Alger Hiss confronted Whittaker Chambers, he requested to see his teeth. Hiss explained to me that he suspected Chambers might be someone he had known years before, and he wanted to see his teeth to make sure. Well, that recollection inspired me. We were able to obtain the dental records of Ellsberg s wife, all right, but did not have the opportunity to use them in helping to prove that she was guilty of espionage. I could not imagine exactly how we were going to achieve this but I did know that, whatever, it would be accepted by the public simply because the charge itself was so off the wall. How odd that Whittaker Chambers, the dignified translator of Bambi, had been asked to publicly show his teeth as if he were some kind of stud at a horse show. I have never been able to forget that moment. The paradox of our nation is that we turn our vices into virtues. As the truth about political assassinations from Malcolm X to Mrs. Dorothy Hunt finally begins to emerge, we may truthfully say, Only in America does there exist the freedom to reveal how insidious we have been, and then to continue in our insidious way with an even more determined spirit. I still believe that the United States is the greatest country in the world. It is also the greatest show on earth. I once had a vision of myself leaving Washington the way Jimmy Durante used to end his TV program, standing in a spotlight and bowing gracefully to the audience, then walking back a few steps into another spotlight, bowing again, and so on. Instead, I ended up sounding as helpless as Hal the Computer in the movie 2001, unable to control my own memory banks. My consolation for this personal tragedy is summed up in Jeane Dixon s prediction: Historians yet unborn are going to take the facts, and Richard Nixon will go down as a great President. They re going to find that the price the world is paying for trying to discredit Nixon is going to be that we ll practically lose our freedom. In the meantime, I am, at long last, completely at peace with myself. It has been worth all the struggle. Postscript: After A Sneak Preview of Richard Nixon s Memoirs was published, syndicated columnist Liz Smith who hadn t seen that piece wrote that H.R. Haldeman had been in the Oval Office with Nixon, and that his trousers were down to his ankles. Hoping to smoke out the truth, I retyped one page of the manuscript, inserting a phrase (shown in italics) in this sentence: When the incident was over, I simply returned to my desk, and although the tension of vulnerability was still in the air and my trousers were still around my ankles, we resumed our discussion as if nothing had occurred. I then photocopied the manuscript and sent it to Liz Smith. I had assumed she would check with her source. Instead, she wrote in her column that she had been fooled by me, implying that her source had based that revelation on my article. Somehow my hoax on Liz Smith backfired. I had become a victim of my own satirical prophecy. In his memoirs, I had Nixon insisting that Watergate was a setup to get rid of him as president. A decade later, Nixon himself made that claim in a network television interview. Furthermore, Haldeman in his book, The Ends of Power, would reveal that Nixon used code words when talking about the murder of President Kennedy. Haldeman said that Nixon always referred to the assassination as the Bay of Pigs. And, on May 5, 1977, the Houston Post published a UPI dispatch that stated: Watergate burglar Frank Sturgis said Wednesday that the CIA planned the break-in because high officials felt Richard Nixon was becoming too powerful and was overly interested in the assassination of John Kennedy . . . Several times the President asked CIA director Richard Helms for the files on the Kennedy assassination, but Helms refused to give them to him, refused a direct order from the President, Sturgis said. I believe Nixon would have uncovered the true facts in the assassination of President Kennedy and that would have taken off the heat in Watergate. Because Nixon wanted files, the CIA felt they had to get rid of him. Asked if Nixon ever was in danger, Sturgis replied, Yes, absolutely. Nixon was lucky he wasn t killed assassinated like President Kennedy. One other thing. A Sneak Preview of Richard Nixon s Memoir was originally published in 1976, in which Nixon insisted that Watergate was a set-up to get rid of him as president. About a decade later, Tricky Dick made that exact same claim on a network television interview. Satirical prophecy in action. Why I Leaked the Anita Hill Affidavit I shall identify myself only as a female aide to a Republican senator. It is also relevant that I have long nurtured a keen interest in psycho-history, the process by which a nation s direction is interpreted as an extension of the psychological makeup of those individuals who govern it. Without going into specific detail, let me simply state that on October 5, 1991, I happened to hear part of a conversation among Judge now Supreme Court Justice Clarence Thomas, Senator Orrin Hatch and Senator Alan Simpson. The three were meeting informally one week after the Judiciary Committee voted, first 7-7, then 13-1, to recommend the confirmation of Judge Thomas, and one day after the full Senate indicated that he would be confirmed. The conversation I happened to hear had to do with those charges brought by Anita Hill and ignored by the members of the committee, both Democratic and Republican. At that point in time I still thought this was an appropriate response, because the alternative would have been to hold an executive session, and Judge Thomas would then have had no practical choice but to resort to heavy denial. Now, however, these men were, in a jocular fashion, acknowledging the truth of what would turn out to be Professor Hill s allegations. Senator Simpson was saying, Y know, Clarence, I ve seen some pretty raunchy porno movies in my time, but I never did see one where a lady was having sex with an animal. I ll never forget it, Judge Thomas replied in his riveting sonorous tone. They were in a barn. Except that the inside of the barn was like a theater. Senator Hatch interjected, Summer stock, eh? No pun intended There was a stage at one end, Judge Thomas continued his description, and the stage was facing rows and rows of wooden folding chairs. There were haystacks piled up on the stage, and in front of the haystacks there was a beautiful, buxom, blond woman and a donkey. Well, the woman began disrobing and she started stroking the donkey to arousal. Doesn t sound at all sleazy to me, Senator Simpson said. Actually, it had Beethoven piano sonatas playing in the background, Judge Thomas said. Well, when the woman was fully disrobed and the donkey was fully aroused, they began copulating, right there in front of those haystacks on the stage of that barn. Slow and sensual. Then bumping and grinding away, accompanied by passionate moans and wild braying. You ve never seen a sight like this, I promise. And then the camera panned slowly toward the audience . . . and the audience consisted entirely of donkeys. The Senate office shook with raucous laughter, especially that of Judge Thomas. His booming guffaws rang like huge gongs in a church belfry. And, I must admit, I had to suppress my own laughter. I had been totally caught by surprise, but I appreciated getting the insight. Homo sapiens is, in reality, the only species that has a need for pornography. When the group s laughter finally began to simmer down, Senator Hatch said, I suppose that movie was one of the demands of the animal rights people. That s correct, Senator Simpson added. Saving animals lives is no longer enough. They need culture. I felt like I was imprisoned in the boys locker room, but I was getting ready to force myself to leave anyway, and it would have ended right there for me if the subject matter hadn t returned to Anita Hill. I m glad nobody considered calling her to testify against me, even for a closed-door session, Judge Thomas said. But you fellas will really love this. Anita Hill was a very opinionated young lady. Actually, she and I once had an extremely animated discussion on the decriminalization of abortion. Can you imagine what the Democrats would ve done with that? And that was the precise instant I made the decision to leak Professor Hill s statement to the press. Although I have constantly been sexually hassled, I have never really been harassed in the legal sense of the word. However, I have had an abortion, and I was totally outraged by the blatant hypocrisy I d overheard. I had never leaked a document before, but my anger overshadowed my fear. I chose Nina Totenberg because I had come to trust her reporting about the Supreme Court on National Public Radio. I honestly had no idea what leaking the affidavit would accomplish. I certainly did not envision that it would literally embarrass the Senate into delaying the vote until public hearings were held, though that probably was my secret desire. But Judge Thomas testified under oath that he had never discussed the subject of abortion. However, in response to a question by Senator Hank Brown, Professor Hill testified that she had disagreed with Judge Thomas in a discussion about Roe v. Wade. Unfortunately, then-Senator Joseph Biden quickly interrupted her. That is not the subject of these hearings, he said. Personally, I feel quite disappointed about that particular aspect of the testimony, but I have not the slightest regret over leaking Anita Hill s affidavit, and I would gladly do it all over again. I certainly set a higher moral standard for myself than did the staffer for Senator John Danforth who wrote Judge Thomas s statement that began, Nobody helped me with this. President Clinton s Private Confession The following is a leaked transcript of a closed-door, secretly taped prayer breakfast that Bill Clinton hosted for a group of religious leaders after the impeachment trial failed to remove him from office. Gentlemen Ms. Jones was telling Roseanne about the first time she saw me in that hotel. She was working at the courtesy booth for the governors conference. She described me as funny-looking, the way my hair was styled, being overweight, how my suit was out of fashion and didn t fit. So, she was sitting at the registration desk with her girlfriend, pointing at me and giggling. Somehow, I perceived her through the filter of arrogance that people with power develop, and I assumed that she was giving me a come-hither look. That simple misperception is what triggered this whole long ordeal. I took her willingness for granted. It was different with Monica Lewinsky. I mean to say, she flashed the strap of her thong underwear it made my heart go thump and, you know, I m a prisoner at the White House. I can t go to a motel, but Monica appeared like a gift from Heaven, and I succumbed to temptation. I was fully cognizant that this was a very delicate situation I even asked for permission to kiss her yet I blocked out my foresight. Way back in college, when I tried to avoid military service, I was already thinking ahead to campaigning for president, but now I found myself ignoring the likelihood that Monica would not keep our relationship a secret. I certainly didn t consider the possibility that she would become so seriously involved with me. It was embarrassing to hear the tape that Linda Tripp made, where Monica told her what she had said to me on the Surprisingly, I was not embarrassed about the infamous cigar incident. I felt that it had been an act of restraint from actual intercourse. Kind of tender and playful. Now, if it had been a Cuban cigar, that would have been illegal. But this was not the sort of intimacy that I would have felt comfortable performing with the First Lady. Hillary and I are really close, but as I m sure you understand, no cigar. For her, the most revealing thing in The Starr Report is Monica s fantasy about our Monica and me being together more often when I ll be out of office; where she quotes me as saying, I might be alone in three years. Hillary was furious, not only because it had provided a young intern with false encouragement, but also because it implied that we For me, the most revealing section in that same section of the report is Monica s testimony that I jokingly said, Well, what are we going to do when I m seventy-five and I have to pee twenty-five times a day? True, I did say that, but I really wasn t joking. In fact, it was my fear of old age that kept drawing me to Monica. She was my direct link to youth. So I was being literal about peeing twenty-five times a day when I m seventy-five. Hell, I drink at least eight glasses of water a day now just like I m supposed to, for my health but then I have to pee at least eight times a day. Ironically, the TV commercials warn that if you have to pee eight times in 24 hours, it s a symptom of an overactive bladder. Indeed, irony has permeated this long-running scandal, beginning to end. It was ironic that my sexual appetite helped put me in office the Gennifer Flowers allegation originally placed me in the media spotlight and it was my sexual appetite that almost tossed me out of that same office. And it s ironic that, although Kathleen Willey enjoyed our brief encounter, to prove it we would have had to resort to obtaining testimony from her confidant, the wonderful Linda Tripp. Now, there are things that I ve done as president of which I m truly ashamed. Even before my inauguration, I made it a point to stop in Arkansas to oversee the execution of a mentally retarded prisoner. At his last meal, he said he d wait to have his dessert, a slice of pecan pie, until after the execution that s how much he understood what was going on. I m ashamed of under-protecting the rights of gays and over-protecting children from the Internet. I m ashamed of being against medical marijuana and for requiring a urine test as a prerequisite to obtaining a driver s license. I m ashamed of bombing Iraq, Afghanistan and Sudan. I m ashamed of increasing the military budget and decreasing the welfare budget. I m ashamed of dropping cluster bombs and continuing to plant land mines. But the Republicans didn t dare attack me for any of those positions because they are their positions too. I ll tell you how I survived this past year, how I maintained such high approval ratings, while Newt Gingrich fell by the wayside. How I managed, in short, to remain president. It was partly the state of the economy, and it was partly the state of the culture. Pornography is a twenty-billion-dollars-a-year business in this country. Steven Spielberg told me that s more than Hollywood s entire domestic box-office receipts. Because it s what the American public wants. And the TV networks exploit that dirty little secret. It s why sweeps weeks are always so raunchy. So, then, what I did wasn t considered such a big deal after all. Mainly, though, I have survived because, one sunny afternoon, Monica was positioning herself on the carpet under my desk in the Oval Office while I was on the phone with Benjamin Netanyahu. I was telling him about the time that Monica was performing oral sex on me while Yassir Arafat was waiting in the Rose Garden for our appointment. I didn t tell Netanyahu that she was just about to perform the same act on me while I was on the phone with him. Anyway, at that point, Monica found a big old dusty Mason jar under my desk. There was a label on the side which read, Property of Ronald Reagan. That Mason jar was filled with Teflon, and I have rubbed it on myself every day since. I began my talk this morning with an epiphany, and I d like to end with another. This epiphany also occurred while I was watching television Larry King Live and, once again, Paula Jones was the guest. At one point she said, I ve never voted in my life. And I was astounded. Then she said, I m so apolitical, it s unreal. And I realized what an incredibly great country America really is, that somebody who was just a plain citizen, who was never even interested in politics somebody who had never even voted for a president had nearly succeeded in toppling one. Well, this has been a catharsis for me. I just want to say once more how much I appreciate your presence here. And finally I would like to share with you a little witticism that Hillary came up with last night, an idea for what my epitaph should be: Here lies Bill Clinton, but that depends on what you mean by lies. Isn t she wonderful? Oh, and one more thing. Now listen carefully. I did not have sexual assault with that woman, Ms. Broaddrick. I ll be honest with you, it may have been rough sex, but it was totally consensual. That, I can guarantee. Thank you and God bless you all. The Autobiography of Monica Lewinsky The following is an exclusive excerpt from an autobiography-in-progressy by Monica Lewinsky, titled Going Down in History. The manuscript was leaked to The Realist by, of course, a reliable source. I am not an airhead. I m a victim, partly of my own making. And mostly, I m a political pawn of the spin doctors. There are several books being written about the White House scandal, but only a few individuals know what really happened, and only I know who I really am, which is why I have decided to write this book. I would write it even if I didn t need the money for legal expenses. My life may be ruined at least my reputation will be forever tainted but the truth must be told. I don t like being a one-dimensional symbol. If anybody were to take a free-association test, the psychiatrist would say Monica Lewinsky and the patient would immediately respond Oral sex. Maybe soon my name will be in a crossword puzzle the clue: eight letters across and the correct word will be fellatio. Back home in Brentwood, I ve been listening to talk radio a lot. Ronn Owens on KABC had listeners phone in with nothing but jokes about me for a solid hour. First he warned the audience that if they were easily offended, they should tune out. I have never felt so objectified in my life, and yet, at the same time, I found the program quite riveting. The best call came from a nine-year-old who said, Bill Clinton violated the Eleventh Commandment: Thou shalt not put thy rod in thy staff. The worst call came from a man who asked, What do the Titanic and Monica Lewinsky have in common? The answer was, They both have dead seamen (semen) floating in the hull. And remember that awful piece of gossip the one Lucianne Goldberg initiated in order to get attention from the press for her that I kept a blue dress stained with Clinton s dried ejaculation as a souvenir? Well, Jonathan Brandmeier on KLSX invited listeners to call in and suggest euphemisms for presidential semen. My favorite was Bubba butter. Apparently, my role is to serve as a vehicle for the destruction of taboos. I have also become an automatic comedy reference. So, to Jay Leno, David Letterman and Conan O Brien, I m very useful in punchlines. To Saturday Night Live, I m just a character in their sketches, and never without that beret from my famous hugging-Bill TV footage. But I did think it was hilarious to cast John Goodman in drag as Linda Tripp. That cheered me up. I ve been simultaneously depressed, scared and, strangely enough, exhilarated. As an instant celebrity, I ve learned that everybody always sees everybody else through their own particular filters. Democrats, Republicans, men, women, the other interns all perceive me subjectively. For a manufacturer of novelty items, I was simply a disembodied inspiration for the marketing of Presidential Kneepads. And for Penthouse magazine, I would only be considered their next notorious masturbation enhancer. In the eyes of the media from NBC News to Nightline, from TIME magazine to People, from the New York Times to the National Enquirer, from the Washington Post to Entertainment Tonight I am purely a commodity. Naturally, I believe in the First Amendment, so I m against censorship. All I m saying is that while America is achieving adolescence publicly, the tabloids have won the war. The battleground is like an ongoing contemporary Shakespearean tragicomedy, but there is no script, there is no producer, there is no director. There is only the process of everyone s karma interacting. I recall the words of Terence McKenna when he was a guest lecturer at Lewis Clark. He said, Chaos is the tail that wags the dog. Damage control is the name of the game. It was Dick Morris who advised Clinton to get a dog. Buddy, huh? They should ve named him Photo-Op. It was also Dick Morris who suggested taping that ostensibly candid scene of the First Couple dancing on the beach. And I would bet my entire book advance that both Hillary and Bill knew ahead of time that Dick Morris was going to release a trial balloon that if the rumor about Hillary being a lesbian were true, then it would be perfectly reasonable that her husband would need to seek sexual gratification elsewhere. In fact, the reason I think that Clinton s approval ratings have been so high is because people can identify with him fooling around. I mean, when Jimmy Carter admitted that he had lust in his heart, it was the adultery vote that helped get him elected. And that was only lust in his heart. Bill Clinton is an activist. I ve been reading a book, Spin Cycle by Howard Kurtz, and there s a story in there about that time in 1996 when the president said that he might like to date a shapely, 500-year-old mummy whose remains were on display at the National Geographic Society. Later, chatting after a few cocktails, Press Secretary Mike McCurry told a dozen journalists on the press plane that he could understand Clinton s remark. Compared to that mummy he s been fucking, McCurry chuckled, why not? Poor Hillary. Without bothering to mention that it was off the record, McCurry assumed his joke wouldn t be reported, and it wasn t until that book. Washington is a very cynical place. Everything is stated carefully and deliberately, with the intention that it will be repeated. When McCurry told the Chicago Tribune in an interview that Clinton s relationship with me could turn out to have been complicated, it was no slip of the tongue. He was fully aware that his observation would appear in print. Unlike Richard Nixon, who never dreamed that his words would be published in a book, Abuse of Power: The New Nixon Oval Office Tapes, edited by Stanley Kutner: Bob Haldeman , please get me the names of the Jews, you know, the big Jewish contributors to the Democrats. Could we please investigate some of the cocksuckers? My mom is a member of the Book of the Month Club, and in their brochure they printed it c cks ck rs. Anyhoo, that s how everybody thinks of me now. I m the nation s official c cks ck r laureate. The image of me on my knees giving head to the president has become a cultural icon. The irony is that it never happened. When Wolf Blitzer from CNN asked Clinton at a press conference what he would like to say to me, Clinton smiled and said, That s good, that s good referring sarcastically to the question but it was extremely ironic, because that s exactly what I imagined he did say to me: That s good, that s good. And I replied, I gave you a blow job, but I didn t swallow. He started laughing hysterically, just like that time he did with Boris Yeltsin. Bill liked my sense of humor. That s why we went from flirtation to friendship. However, the reasons I visited the White House thirty-seven times was not for Bill it was to be with Hillary she was the one who desired me physically. The rumor about her being a lesbian was true. And so my relationship with Bill was complicated. He just acted as a middle man for Hillary, and now, by denying an affair with me, he s telling the truth and taking the fall for her. In that sense, he s an incredibly loyal husband. Despite what the public may think, Bill is absolutely devoted to Hillary. Everybody is watching so closely for him to commit the next indiscretion, but it would have to be with somebody he can totally trust, somebody who could suck the leader of the Western World s dick and not confide in a friend, or to somebody who pretended to be a friend. So, for a while, Bill is left with only Buddy s tongue for sexual companionship. At least, Buddy won t lick and tell. And if I know my president, while Buddy is pleasuring him, Clinton will fantasize that it s a female dog. Sarah Palin s Reality Sitcom Referring to the Ronald Reagan presidency, Neal Gabler has written about the triumph of entertainment over political ideology of any sort. And Kurt Andersen labeled Bill Clinton the Entertainer-in-Chief. The voters are the audience, conditioned to fear and superficiality in commercials for erectile dysfunction and political campaigns alike, both having scary side effects. And now the injection of Sarah Palin and her family into the McCain vs. Obama campaign makes one wonder whether the winner of this race will ultimately depend on which candidate presents the better sitcom. It already is a reality show. Do you know what the difference is between a sitcom and a reality show? The laugh track. Otherwise, how would the masses be able to tell whether something is funny or not? Hmmmmm . . . In any case, we re pleased to present the pilot episode of: BRIDGES TO NOWHERE Instrumental rockabilly music accompanies a montage of Sarah Palin in various contexts, as the opening credits are superimposed on these images: In a helicopter, using a machine-gun to shoot a wolf running away in the snow. As a contestant in the Miss Alaska competition. A wedding photo. Burning a pile of books. Jumping high to block a shot in a basketball game. Seated at her desk in the governor s office. At a barbecue with her children. Giving a speech to a large crowd. At the bank, exchanging a wolf s left foreleg for a 150 bounty. Tossing her hat way up in the air and then shooting it down with a rifle. Sarah and Todd are slumped down on the living-room sofa. SARAH: I m exhausted and exhilarated at the same time. I was at the Learning Annex all day, taking that course in How to Be a Vice President. TODD: And I was interviewing potential nannies all day. No one fits the bill yet. But I just keep calling the agency. Maybe I ll try Craigslist. The telephone rings. Todd picks it up. TODD: Hello . . . thanks, I will. Hangs up the phone and clicks on the TV. That was McCain. Looks at TV Guide for the channel number and clicks the TV on. Keith Olbermann is doing a Special Comment about you on MSNBC. OLBERMANN: When John McCain first selected Sarah Palin as his running mate, it seemed to me that it was the best What were you thinking? moment since Hugh Grant got caught getting oral sex from a prostitute in his rental car. I was sure that with Governor Palin as the ambush candidate, Senator McCain would be ridiculed into a severe case of buyer s remorse, his impulsive choice would backfire, and there would then be an epidemic of schaedenfreude among Democats. But I must admit, Ms. Palin, you have, dare I say, a certain Machiavellian charisma, and I was not quite prepared for that. You said that you deliberately tried to make yourself look frumpy, what with those Kawasaki eyeglasses and that chocolate-rust cotton-candy hair-do, sort of like the secretary in a porn movie who takes off her glasses and shakes her hair loose, then she goes ahead and seduces her uptight boss right there on his own black leather executive chair. Or so the comedians tell me, I wouldn t know. But you might as well be the star of a porn movie, because your main qualification to be vice president is that you have a vagina and you are a cunt. Allow me to parse that for you, Sarah. When I say that you were appointed because you have a vagina, there is no way in semantic purgatory that McCain would have chosen a man who had exactly the same political positions and experience as you Todd clicks the TV off. SARAH: I ll tell you something, Todd. I feel like a human dartboard for the media, but I m developing a thick skin. TODD: I know what you mean. I say, Oh, yeah, media? Clutching his crotch Troopergate this! SARAH: And you know what, the campaign spinners who feed the media are just as bad. They re like the airport security people, who have to spend all day looking at a screen in order to focus on potential threats in the shape of a gun or a knife or a hand grenade. Both campaigns Piper is sitting on a rocking chair in her bedroom, with Trig on her lap, holding a bottle to his mouth with one hand, and continually licking her other hand in order to leave a saliva deposit, then smoothing down Trig s hair. PIPER: Come on now, Trig, I want you to drink your moose n banana shake. It tastes so delicious. And it s good for you too, even if the plastic bottle has poison lead in it because it s from China or somewhere. Listen, I m sorry that you were like a circus prop at the convention. People screaming all over the place. But it s lucky they gave you a watchamacallit, a sedative so you could sleep through all that noise. And you didn t even know that you were being passed around like a marijuana joint, huh? It s legal here in Alaska. Did you know that? But it has to be only one ounce or less. And then you have to smoke it in your own house. I m gonna wait till I m thirteen before I try it. Bristol and Levi smoke it when Mommy s out making a speech. If she was here, she d smell it right away, so then they have to go somewhere else. Mommy says, Pot may be part of God s plan, but not in this house. She s always saying that something is part of God s plan, but I don t understand what she means about that. Are hurricanes and train crashes part of God s plan too? Anyhow, you re not supposed to smoke anything when you re pregnant, right? Hey, Trig, you wanna hear what I think would be a nice name for Bristol s baby? Diversion. I didn t think of that by myself. I heard my teacher tell another teacher that Mommy s baby is a diversion. I think it could be for either a boy or a girl. Hey, my tongue is dry. I don t have any watchamacallit, any salvia left. Maybe if I just have a little sip of your moose n banana shake. Drinks from bottle It s really yummy... Track is riding a stationery bike in his room while talking with Willow. TRACK: I m telling you, those Iraq Veterans Against the War were real traitors at the Democratic convention. I learned that they had the nerve to be in full uniform, and they were chanting, My buddy s in the foxhole with a bullet in his head WILLOW: What happened? I was busy taking care of Trig. TRACK: The police and the sheriff s department seized material that could ve been used to barricade roads, and spikes that could disable the delegates buses. They confiscated slingshots and buckets of gray water and urine. It s better to prevent using that stuff before it happens. They busted four people on suspicion of conspiracy to commit a riot, and detained dozens of others. They took boxes of pamphlets on free-speech laws in Minnesota, and booklets on how to protest legally. WILLOW: That doesn t seem right. I was listening to the radio, and a pundint was talking TRACK: You mean pundit WILLOW: TRACK: It s not the same. China is a Commie dictatorship WILLOW: I heard that in St. Paul, even a mime got a permit to speak. And the people who did speak couldn t be heard. I mean, what about the First Amendment? We learned about that in school. TRACK: Yeah, well, it doesn t apply to those anarchists on the opening day, with black cloth covering their faces, a few hundred of them, running around the streets, setting fires, throwing rocks, breaking windows, blocking traffic. It was the duty of the riot squad and the National Guard to stop those actions. Tear gas, pepper spray, rubber bullets, concussion grenades, whatever it took. WILLOW: But what about the peaceful demonstrators? TRACK: There were ten thousand demonstrators who were peaceful, and they were allowed to march against the war. All they had to do was follow the rules. When their permit expired at 5 p.m., they still tried to march to the convention center, but the authorities had already blocked a couple of the bridges that led to the convention center. They blocked em with snowplows and gravel trucks, police barricades and plenty of manpower. I saw the protesters running toward one of those bridges, and they were being chased by police in riot gear and teargas masks, so then the protesters were stuck in the middle. Isn t that great? WILLOW: Ha-ha, the bridges to nowhere. Track and Willow giggle wildly. Y know, I m really gonna miss you when you go to Iraq. TRACK: I m gonna miss you too. Anyway, the thing is, our guys had to be prepared, starting months before the convention, because there s all kinds of front organizations out there that the FBI had to get infiltrated, like the environmentalists and vegetarians who pretend to be just innocent special-interest groups. Same with farmers, attorneys, medics, reporters WILLOW: That s wicked. So tell me, are you nervous about going to Iraq? TRACK: Stops pedaling and pulls up the left leg of his sweatpants, revealing a tattoo of Christ on his calf. Not as long as He s with me, and He will be, every moment, day and night. WILLOW: Bends down and kisses the tattoo I really love Jesus. Whenever I close my eyes and pray, I don t know what God looks like, but I always think of Jesus, because I know what He looks like.... Bristol and Levi are sitting on the living-room sofa, holding hands. He is wearing a T-shirt that says Billabong. BRISTOL: Here it is Friday night, and we can t even go out anywhere, because everybody points at us and stares at us and talks about us. It makes me feel like a real freak. LEVI: How do you think I feel? All I ever wanted to do is play hockey and hang out with the guys and party like mad and get stoned out of my gourd and just chill out. I don t give a shit about politics. If we didn t get drunk and screw in the tent outside that party, I never woulda had to go to that fuckin Republican convention with your parents, who hate my ass off but they pretend we re one big happy family. BRISTOL: Oh, c mon, if my mother gets elected LEVI: You saw my MySpace page. I mean everybody s seen it. I m a fuckin redneck who likes to snowboard and ride dirt bikes. I m too young to get married. I m trapped. I was just minding my own business, and suddenly my whole fuckin life is destroyed. BRISTOL: Look, I don t wanna argue with you any more. Let s just see what s on TV. Levi reaches for the remote control and clicks on the TV. DAVID LETTERMAN: Here s good news, ladies and gentlemen. The Palin family crisis has been solved now, and today the baby is being adopted by Angelina Jolie. LEVI: Boy, I sure wish that was true. I never wanted to have kids. BRISTOL: Please, this is not exactly a picnic for me. Let s just see what else is on. Click! JAY LENO: Governor Palin announced that her seventeen-year-old unmarried daughter is five months pregnant. And you thought John Edwards was in trouble before. Now he s really done it. Click! CONAN O BRIEN: Sarah Palin said, We should never have introduced her to John Edwards. Click! CRAIG FERGUSON: I don t think that a young lady getting pregnant should even be news. Unless John Edwards is the father. Then that is kinda news. Click! BILL MAHER: Palin has five children including an infant that has Downs syndrome. She had it when she was forty-three years old. And it looks a lot like John Edwards. Levi reaches for the remote control and clicks off the TV. LEVI: That s really great, Bristol. John Edwards fucked you and your mother . . . Sarah is sitting at her computer when there is a knock on her office door. SARAH: Come in. Willow opens the door, walks in and sits down. I m just looking over my stump speech here. It keeps changing. WILLOW: Mom, I have to talk to you. SARAH: Yes, dear, what s on your mind? WILLOW: Pausing I m . . . pregnant. SARAH: Very funny. WILLOW: Mom, I m not kidding. SARAH: Willow, you re only fourteen years old! How could you be pregnant? Are you sure? WILLOW: I did the test three different times. They all said Positive. I can feel changes in my body. SARAH: This is horrible. I mean wonderful, of course. God always has a plan. Who s the father? WILLOW: Pausing It s . . . Track. SARAH: What! How can that be? He s your brother! You had sex with your brother?! WILLOW: I still don t understand how I got pregnant. He borrowed a condom from Dad s sock drawer. SARAH: I m shocked beyond belief. When did this happen? WILLOW: Let s see, the first time was SARAH: The first time! Did he force himself on you? WILLOW: Well, not really. It was voluntary. SARAH: Oh my God! What are we gonna do? Oh my God! I m hysterical! Oh my God! Todd is finishing up an interview with a beautiful young woman in his office. He tries unsuccessfully to avert his eyes from her cleavage. TODD: Well, your resume is solid NANNY: Oh, I don t mind at all, Mr. Palin. As a matter of fact, the feeling is mutual. TODD: Please, call me Todd. NANNY: Todd. Such a nice masculine name. Standing When would you like me to start? TODD: I ll have to figure that out with Sarah when she returns. Standing She s meeting with Senator McCain today. NANNY: Slowly moving toward him Then just be sure to call me whenever you know. TODD: Slowly moving toward her All right, I will. NANNY: You have my number. TODD: And you have my number. NANNY: I certainly do. TODD: They are standing just a few inches from each other. The kids are really gonna love you. Gradually they embrace, He moves to kiss her on the cheek. She turns her head so that their lips touch, leading to a passionate kiss. NANNY: Mumbling between kisses I feel like Jude Law s babysitter. TODD: Mumbling between kisses Who s Jude Law? NANNY: Unbuttoning his shirt He s a British actor who made love with his girlfriend Sienna Miller s babysitter on the billiards table. TODD: Unbuttoning her blouse I don t have a billiards table, but I do have a cue-stick. NANNY: Unbuckling his belt Oh, I know you do, I can feel it . . . Sarah is pacing back and forth at her meeting with John McCain. McCAIN: Calm down, Sarah, have a seat, take it easy. SARAH: Sitting down I m still in a state of shock. My heart is beating so fast. I have terminal dry mouth. This is awful. McCAIN: Let s review the situation. Your seventeen-year-old daughter is pregnant. And your nineteen-year-old son is the father. It was consensual sex. Nevertheless, that s statutory rape. I think we have only two options. One, she gets an abortion. SARAH: I m sorry, that s off the table. I mean it s out of the question. McCAIN: Look, I realize that you re against abortion based on your religious principles, even in the case of rape or incest. And in this case it s both. But you re not against abortion if the life of the mother is endangered. That could be our exit strategy. There s a blind doctor in Washington who performs the safest possible abortion, and he wouldn t even know who the patient is. SARAH: Absolutely not. Here s what I thought about on the plane. Of course, we will never identify Track as the father McCAIN: Just because it worked in Bristol s case, that doesn t mean it will also work in Willow s case. I hadn t quite considered an announcement like this as a possible October surprise. I thought we might capture Osama bin Laden. Or that there could be impeachment and conviction of Bush and Cheney, but it would leave Nancy Pelosi as the new president, and we surely don t want that. Maybe Obama would be assassinated, then there would be rioting all over the country, there would be martial law, the election would be canceled, and the Bush administration would remain in power. Or the October surprise could be dropping bombs on Pakistan. Or an air strike on Iran. Even if Israel did that, it would be with U.S. aid and approval. Also, there s a scenario floating around that Joe Biden will drop out of the race in deference to Hillary as Obama s vice-presidential running mate replacing Biden. That would really ruin our chances of winning. PALIN: So tell me what the second option is. McCAIN: That you drop out of the race. It s the honorable thing to do. PALIN: What are you gonna do, kick me off the island? Let s face it, John, if I dropped out, you d lose the election for sure, and you know it. You need to show me off during this campaign. I m your biggest asset. I wanted to go on my own Palin Talk Express tour, but no, your neocon friends McCAIN: If you were to do that, I would release my tape of this whole conversation. So we re just canceling each other out with such tactics. But that s what I like about you. You re such a feisty lady. Y know, Sarah, if we get elected, I was hoping that our little tryst in Washington could happen again, perhaps this time in the Oval Office. PALIN: Thanks but no thanks. McCAIN: I remember you were so pregnant then. PALIN: And I remember exactly what you said. Let me baptize your fetus with some maverick juice. How romantic. But you were lucky I was already pregnant, because it would not have happened otherwise, since, as you know, I m against birth control. Raising children is performing a task that is from God. And I believe that life begins before conception. McCAIN: You and the Bush administration. They also consider birth control to be a form of abortion. The Health and Human Services Department is secretly trying to redefine contraception PALIN: Except for his speechwriters. McCAIN: Oh, you re referring to Matthew Scully and your acceptance speech at the convention. He s great. By the way, he asked me to pass on a line to you for the stump speech when you re talking about Obama: Charlie Manson was a community organizer! PALIN: That will definitely get a good response. We need as many applause lines as we can muster up. Maybe every sentence should get a reaction. Clapping, laughter, cheers. The audiences always get off on that. They feel high and they associate it with us. McCAIN: Fine, at least we re back on the same page again. Now promise that if you do become vice president you won t arrange for me to be killed by the grace of your powerful buddies in Alaska so that you can then become president. PALIN: Okay, I promise not to have you killed The TV set is on, but nobody is watching. A commercial is playing. VOICEOVER BY ALEC BALDWIN: Images of Sarah Palin waving to huge, screaming crowds, signing autographs and being surrounded by paparazzi. She s the biggest celebrity in the world. Video footage of Michael Jackson and Michael Richards are superimposed as if they are in the company of Sarah. But is she ready to lead? John McCain knows full well she isn t. With the energy shortage looming, McCain says no to windmills and solar power. And with the economic crisis already upon us, McCain says he ll cut taxes by lowering payments for Social Security and Medicare. More suffering, increased drilling. That s the real McCain. The face of Joe Biden fills the screen. VOICEOVER BY JOE BIDEN: I m Joe Biden and I approve this message. Let me just add that when one of John McCain s top economic advisers, former Senator Phil Gramm, was quoted that the United States was only in a mental recession and had become a nation of whiners, he unintentionally revealed the massive disconnect between the citizens of this country and their representatives . . . A few minutes later, Biden is still talking, when Nanny walks into the room, cellphone to her ear, and shuts off the TV. NANNY: Yes, hello. Is this the National Enquirer? . . . Oh, good. I d like to speak to a reporter, please . . . Thank you, I ll hold . . . A split screen shows Nanny and the Reporter on split screens. REPORTER: Hello, what can I do for you? NANNY: Yes, hello, I have a story that you might be interested in. I ve been having an affair with, you know, the First Dude, and now it seems that I m pregnant. What would the Enquirer pay for my story? REPORTER: Do you have any proof that he s the father? NANNY: Actually, yes, I do have evidence REPORTER: But then how could you be pregnant? NANNY: He told me that his wife makes tiny pinholes in the reservoir tips of his condoms in Sarah s voice in order to give all those teeny little spermies a fighting chance. REPORTER: Why doesn t he just get a vasectomy? NANNY: Sarah says that would be like cheating God . . . As the closing credits roll by, Britney Spears sings the program s theme song, Oops, I Did It Again. SUBCULTURES And Whose Little Monkey Are You? Sometimes I think I m dreaming when I read the news. But there are places where the inhabitants have never seen a magazine or a newspaper, and it is simply not a part of their psyche to dream about lines of type. In a spurt of generosity, the United States shipped surplus battery-operated TV sets across the sea to one group of islands in the Pacific Ocean, so that those natives could pass directly from a preliterate society to a post-literate society without having to read a single book in the process. They watched in amazement as so-called psychic Uri Geller bent forks on the Merv Griffin show. The strange thing was that even though Geller accomplished this feat by trickery, there were young children back in America who hadn t yet been taught about the self-fulfilling rules of 20th Century physics, and to their parents dismay, they were able to bend various kitchen utensils by means of sheer will power. As more and more deadly conflicts around the world continue to escalate, more and more people are saying, Boy, the shit s really gonna hit the fan now. That phrase, incidentally, did not come into the language until after there was electricity. People say that they are not referring to a lovely Japanese lithograph showing a kimono-clad woman whose long shiny black hair is twisted up into a bun, and who is coquettishly providing her own personal breeze with a colorful rice-paper fan. Then splat! right in her porcelain-like face. So, no, it has to be an electric fan, which revolves so fast it protects you from the shit or spreads it, depending which side you re on or what s a fan for? Meanwhile, even as all that shit is hitting all those fans, the laxative industry continues to blossom. New brand names are constantly competing in the open marketplace. Ex-Lax has even come out with a milder version for women certainly an indication of rampant male chauvinism in their Research Development section. What s the implication of this trend? Do females have different digestive systems than males? Is it perfectly acceptable for macho men to have chocolate-covered sandpaper coursing through their intestinal tracts? And yet credit must also be given to those friendly folks at Ex-Lax. They were the very first sponsor on television to include a sign-language translation of a commercial a long-overdue service for the constipated hearing-impaired. Indeed, this had been an early demand of the Deaf Liberation Front. You ve probably seen their frontline members on the street and in airports, selling little cards with the sign-language alphabet. Some have been getting arrested for being deaf without a license. Naturally, the police recite their Miranda rights, shouting, You have the right to remain silent! Anyway, this particular Ex-Lax commercial features a pleasant, matronly woman reminiscing through her family photo album while a young fellow in the corner of the screen ostensibly translates the message into sign language. Actually, he can say whatever he wants. Nobody monitors his translation. He can indulge in private jokes for all the deaf viewers and only they will know. The matronly woman in the Ex-Lax commercial says: Thank God my family is normal. The young fellow shifts the emphasis slightly in his translation: Thank God her family is normal. She continues: Of course, once in a while somebody in our family will be troubled by irregularity. He translates: No shit. She concludes: So then we do what we ve done in our family for generations we turn to an old friend, Ex-Lax. He translates: Jimmy Hoffa knows too much. And while the hearing-impaired at home giggle at this mistranslation, all over the globe the shit continues to hit the fans. These are rough times, but it s extremely important to develop a sense of optimism. The Bulletin of Atomic Scientists periodically updates a clock on their cover to indicate how close we re moving toward nuclear war. Recently they moved it from four minutes to midnight to three minutes to midnight, with midnight representing total annihilation. I don t know exactly what their time scale is whether one minute represents a month or a year or a decade but, whichever, they re saying that we are all now only three minutes away from the ultimate holocaust. That s the bad news. The good news is that atomic scientists are just as fucked-up as the rest of us. They overeat, they forget to floss, they don t have time for serial orgasms, or they suffer from premature ejaculations, and they set their clocks fifteen minutes ahead so that if they need to mail a letter by six o clock and their clock says it s ten after six, it means they still have five minutes to get to the mailbox. So that clock on the cover of the Bulletin of Atomic Scientists is fifteen minutes fast. We don t have just three minutes till doomsday; we have eighteen minutes. Life remains peaceful on a certain island off the coast of Japan. Here, humans and animals live in peace and harmony. There are monkeys who for eons have subsisted entirely on sweet potatoes. They would pick the sweet potatoes right out of the dirt in which they grow eating them, dirt and all. This is the way they have always done it. But one day, for whatever mysterious reason, an individual young female monkey carried her sweet potato to the shore, washed the dirt off in the ocean and proceeded to eat the sweet potato. Who knows why it was this particular monkey? Any explanation will suffice. Maybe she was an Aries, with a strong pioneer spirit. At any rate, once this monkey broke the ice, other monkeys began to wash the dirt off their sweet potatoes before they ate them. But only the young monkeys. It was not until the 100th young monkey had washed the dirt off a sweet potato in the ocean And then other adult monkeys started to imitate this behavior. Washing the dirt off sweet potatoes even began to occur on adjoining islands, indicating that there was some kind of psychic communication in the air. Now, how can this living New Age parable be applied to human behavior? Well, whatever you do personally to help further the cause of justice and the pursuit of ecstasy, even though you might get discouraged, you must always remember that you might be the one who turns the tide you have to act as though you are the 100th monkey and this gives us reason to hope. That s the good news. The bad news is, those monkeys needed that dirt in their diet for roughage. So now there were all these monkeys on this island who weren t able to shit. But it just so happened that this was one of the islands where we shipped our surplus TV sets. Across the island, monkeys were gathered around those TV sets, all watching a program that was sponsored by Ex-Lax. Moreover, here was that commercial with the sign-language translation. And, fortuitously enough, these monkeys had relatives trained at Stanford University, where they learned how to communicate in sign language, and had been returned to the island to teach others of their species how to sign. That s the good news. The bad news is that this was the Ex-Lax commercial where the brand name of the product was not translated. The message in sign language was Jimmy Hoffa knows too much. These monkeys serving as shock troops of the Deaf Liberation Front took that private joke to be their marching orders. So, even though you may have heard the propaganda that Hoffa was killed because he was prepared to speak out about the alliance between military intelligence and organized crime, the truth is that he was eaten to death by hordes of constipated monkeys. The good news is, they washed the dirt off him first. It is several years later now. Things have returned to normalcy. The monkeys on those islands off the coast of Japan still watch TV, but they no longer wash the dirt off their sweet potatoes, and they are just as regular in their defecation as they used to be. But in America, those children who once bent kitchen utensils to the dismay of their parents have grown up. One such young man now works on the assembly line in a missile factory, and he is able to bend certain working parts out of shape through the use of sheer will power. Soon others will follow suit. Already the intelligence agencies are training their operatives in methods to counteract this kind of psychic sabotage. The Mime and the Pacer I found myself walking around and around in a counter-clockwise circle on the stage of the Wallenboyd Theater in downtown Los Angeles, just as a young man known as the Pacer does for several hours every day, always in the same direction, at the exact same spot in the mididle of the boardwalk in Venice Beach. He is an inspiration to me and I sometimes talk about him in my performances. The boardwalk in Venice is both literally and figuratively on the edge of this country. T-shirts are the hieroglyphics of our time. Here, a grungy wino, who needed a shave long before Don Johnson made stubble fashionable, is wearing a T-shirt that says Yes, I Am a Model. There, a nerdy tourist is trying not to let the pizza drip on his T-shirt that says I Choked Linda Lovelace (the porn star of Deep Throat). The boardwalk resembles one of those double-page-spread montages in a children s book showing many different modes of transportation being used simultaneously. Airplanes fly by, trailing printed messages such as The New Dating Game Wants You, and Scientology, Give Us Our Money Back, while below, roller-skaters and skate-boarders mingle with cops riding bicycles and Hare Krishnas preparing for their annual parade featuring an elephant nourished entirely on trail mix. A lone Jesus freak walks along and yells at them Antichrist! Antichrist! Antichrist! trying to drown out their chant. Repent, Krishna! People are starving in India every day because these foolish Krishnas refuse to eat the cow! Eat the cow and believe in Jesus Christ! Repent, Krishna! You can buy all types of stuff along the boardwalk rainbow sunglasses and fake Rolex watches and falafel-shaped yo-yo s. But, complains a flower vendor who pays 600 a month for a ten-by-two-foot space, rent will be going up to 800 and then to 1200 by summer. Venice will eventually be inhabited by a bunch of wealthy lot owners and a population of slaves who work for them. However, the performers pay no rent, dependent on voluntary donations. There is a poet who speaks professional gibberish; an artist who draws on the ground with colored chalk; a fellow who juggles an electric chainsaw, a bowling ball, and an apple, for which strangers put money in his hat because they re grateful to God that they don t have to do such a bizarre thing to earn a living. There is a woman who plays the violin while standing on her head. And a man who has a table covered with wine glasses of different sizes filled to varying heights with water, and he plays this musical instrument by rubbing his fingers around the tops of those wine glasses. Audiences gather spontaneously to here his rendition of a Mozart sonata or a ragtime melody or the theme from Chariots of Fire. There are breakdancers who bring their own personal linoleum-floor sections, and a jogger who jumps hurdles over the endless row of garbage cans lined along the boardwalk. He has to avoid one garbage can because a homeless person is foraging for lunch. If I had to choose my favorite moment on the boardwalk, it would have to be the time a Rastafarian yogi was standing on the very top of a wooden chair, preparing to jump barefoot onto a pile of freshly broken bottles. This is serious shit, he reminded the large semicircle of onlookers. And then, during the anticipatory silence, along came that Jesus freak. Upon seeing this crowd, he edged his way in. Now the Rastafarian yogi was poised upon that unseen edge between Look before you leap and He who hesitates is lost. Suddenly the Jesus freak called out, Hey, wait, before you commit suicide there, how do you feel about abortion? In front of the Sidewalk Caf on the boardwalk, the Mime, a black man wearing white gloves along with a tuxedo and top hat, just stands still often for hours. He is listening to a stereo headset. One might think he was playing music to counteract the boredom, but it s really a tape loop reminding him, Don t move, stay still, it doesn t matter if your back itches, people are paying you not to scratch . . . Passersby do indeed put cash in the cardboard box at his feet after they have gaped at him long enough to get their money s worth. Standing still is his job. People pay him not to move. When he goes to the Unemployment office, a clerk asks, Did you look for work this week? He answers simply, Yes, I stood on the corner of Hollywood and Vine, and then I stood on the corner of Beverly Boulevard and Sierra Bonita, and then I stood . . . In contrast to the Mime is the Pacer, who intrigues me most. He doesn t call himself the Pacer. He may not even know that others do. But the circle he walks around and around in is his turf. Even an occasional police car respects the force field he creates, and the cops drive around him. Obviously he originally started this strange stint as a matter of choice. I think I ll walk around in circles on the boardwalk today. And the next day. And the next. But somewhere along the way, walking around in circles became a compulsion, and it started doing him. When you play a role long enough, the role can begin to play you if you re not careful. I ve been out at six o clock in the morning and there was the Pacer walking in circles. I ve been out at six o clock in the evening and there was the Pacer walking in circles. He does stop to eat which indicates that at some level he is still acting voluntarily. He walks in a straight line to a greasy-spoon diner nearby on the boardwalk and sits at the counter, but he doe not twirl on his stool, nor stir his coffee, nor roll his eyes. Once he talked about his obsessive activity: I m in control of walking, but out of control too. When I walk I m in a trance. If I slow down at night I see colors. I see millions of faces some with Pilgrim hats, some with cowboy hats modern faces and prehistoric faces. There must be some kind of spiritual path that the sweating, red-faced Pacer keeps treading, even if it s circular It s an absurd age we live in. Future Shock is already an outdated book. Children whose shoes stay on their feet by the grace of Velcro may never experience the thrill of tying their shoelaces in the dark. They have developed a fast-food approach to perceiving time because all they know is digital clocks. Time goes click, click, and if the power goes off they think that 12:00-12:00-12:00 is appliance language for Help! Help! Help! Turn me back to the right time! Help! Help! Help! Kids have lost that certain sense of time in motion, going around and around, eternally. That concept is endangered, just like the whooping crane. But we can all be grateful to the Pacer, for he is the Keeper of the Counter-Clockwise. That is his spiritual calling. But the Pacer doesn t have a cardboard box for people to drop money into he walks around in circles out of the goodness of his heart. The Mime and the Pacer provide a perfect metaphor for the two-party system in America. The Republicans are like the Mime, standing absolutely still while the world passes them by Iran, Iraq, Nicaragua, El Salvador and they get paid for it, just like the Mime. The Democrats are like the Pacer, walking around in circles while the world passes them by Israel, Libya, Cuba, Honduras and they don t get paid for it, just like the Pacer. But recently the Pacer did something that hurled such a comparison right into the metaphor graveyard, along with That s like bringing coals to Newcastle (for Newcastle finally did run out of coal) and Good as gold (since the government now prints money without the benefit of the gold standard). The Pacer had put a cardboard box down on the ground and started walking around it. And now people began giving him money. By the mere presence of that cardboard box, the Pacer had transformed his personal perversion into a marketable talent. Just like so many of us. And I could no longer feel superior to him. He was not just some nut walking in circles. Now he was earning a living. I still do the Pacer in my act, but with increased respect. His job is no less dignified than anything we do, I tell the audience. He works hard all day, and then, just like you and me, he goes home and unwinds. And I proceed to walk around and around in a circle onstage, only now in a clockwise direction. Johnnie Cochran Meets Dr. Hip Tragedy and absurdity were two sides of the same coin: On one side, O.J. Simpson s suicide note with a smiley face in the O of his signature; on the other side, the woman who pinched Simpson lawyer Robert Shapiro s ass because I wanted to be part of history. And somewhere along the ridge of that coin was Simpson himself, walking into the courtroom humming the melody of Touch Me from the Broadway hit Cats and explaining to reporters that he was thinking about his children. That was at Simpson s criminal trial. Shortly before his civil trial began in 1997, I met his lead attorney, Johnnie Cochran. He was the guest of honor and luncheon speaker at a national convention of criminal defense attorneys held in a huge banquet hall at a hotel in Santa Monica. No media people were allowed entry. One of the attendees was Dr. Eugene Schoenfeld, also known as Dr. Hip from his days as a syndicated columnist for the underground press. He now testifies occasionally as an expert witness, and was at this event for that reason. My wife Nancy and I were his guests. Cochran s speech reassured the enthusiastic audience: In the Simpson matter, we just did what you do every day that is, defend their clients by any means necessary and chalk up a bunch of billable hours in the process and he got a standing ovation. In the afterglow of his speech, colleagues came up to Cochran to shake his hand and get in a little banter. One well-wisher shared this joke: If prosecutor Chris Darden spent as much time trying to nail O.J. Simpson as he did trying to nail prosecutor Marcia Clark, he might ve won the case. The other defense attorneys within hearing distance all had a good laugh at that one. Dr. Schoenfeld joined the line of lawyers waiting to have photos taken of themselves standing alongside Cochran. When it was Schoenfeld s turn, Nancy focused her camera. For this particular occasion, Schoenfeld had stashed a hand-printed card underneath the standard, plastic-encased ID lapel card. As in the previous poses, Cochran and Schoenfeld put their arms around each other, although they were looking, not at each other, but straight ahead and smiling at the camera. Thus, Cochran didn t notice how, just before Nancy snapped their picture, Schoenfeld subtly managed to pull away the ID card and reveal the hand-printed card, which declared, in large printed letters, O.J. DID IT! I published that photo on the front cover of The Realist that spring. It was the result of a good old-fashioned guerrilla action. Jealousy At the Swingers Convention The 24th annual Lifestyles Couples Convention has filled three hotels in Palm Springs, California. The Convention Center is connected to one of them, the Wyndham, which surrounds a large outdoor pool and patio populated by couples busy socializing in 116-degree dry heat. Women and men alike are wearing thongs. From afar they appear like so many eyeless smiley faces among the bathing suits. The law that Sonny Bono signed when he was mayor, banning thongs in public, does not apply to this event, or, for that matter, to Cher. The convention is for couples only. Except for me. I ve been hired to perform stand-up comedy at their Friday luncheon, and I m here alone. On the small, propellor plane from Los Angeles to Palm Springs, the right side consists of two-seat rows, occupied entirely by couples on their way to the convention horny with the expectation of getting laid by the spouse of a stranger, perhaps sitting in front of or behind them and the left side of the plane consists of one-seat rows, occupied entirely by me. I m afraid that the plane might tip over upon trying to land. At the Convention Center, even the plastic-encased lapel nametags are coupled off: Ken and Barbie on his, Barbie and Ken on hers. Not all the couples are paired off in real lie, though. One person can simply bring along another known in swinger circles as a ticket for gender balance in order to get into the convention. So everybody has entered two by two, and I feel like a unicorn stowaway on Noah s Ark, surreptitiously balancing on the cusp of love and lust. There are 3,000 participants at this convention, mostly upper-middle-class, in their 30s, 40s and 50s. They consider people in the outside world to be straight, even though one would ordinarily consider them straight. I mean there are suburban soccer moms here, openly celebrating their secret lifestyle at an oasis of supportiveness. There s a man in a suit with a flesh-colored penis necktie, another wearing a T-shirt declaring I m Not Going Bald, I m Getting More Head, and another dressed only in a leather jockstrap, who recognizes me and introduces himself. I d give you my card, he says, but I have no place to keep them. Inside the 100,000 square-foot Convention Center, the Exhibit Hall has been turned into an Adult Marketplace, buzzing with commercial activity. I overhear one shopper s complaint: But we ve already spent 400. There s a multitude of merchandise on display pornographic videos, naughty lingerie, fetish paraphernalia, edible lotions plus booths galore. At the Golden Nipples booth, women are cheerfully having exact duplicates of their nipples created in sterling silver or 14-karat gold, which can be used as pendants, key fobs, money clips or yes, of course nipple covers. At the Penimax booth, an Asian vendor is selling disposable cock rings, which, he promises, will maintain my erection even after I ejaculate. There are several booths dedicated to booking vacations especially designed for swingers, at nude beaches, clothing-optional resorts and ocean cruises. I follow around an elderly woman who is busy picking up brochures at every such booth. It seems incongruous, but I try not to indulge in stereotypes. Finally I engage her in a conversation, and she explains that her boss told her to get as much material as she could, because he owns some property surrounded by government land, and he wants to start a new business. At the Erotic Massage Wear table, a woman uses my arm to demonstrate a device that turns her fingertip into a vibrator, not intended for nose picking. Then she puts Jergen s Lotion on my right hand, dons a pair of Love Mitts made of vinyl with little nubs all over and proceeds to massage my hand while on the VCR there s a tape of a woman wearing Love Mitts and massaging a man s lubricated penis. This is a bizarre mixed-media sensation. Although I don t get a hard-on, the lobes of my brain seem to fuse, and for the next few hours my left hand persists in feeling neglected. Checking out the functional furniture, I merely eavesdrop on a (fully clothed) couple testing out the rocking torso feature on a Love Table, but I actually climb into the Love Swing, assuming a position ordinarily assumed by a woman while the man stands up, crotch to crotch. My body is suspended half upside-down in mid-air with legs spread and feet up in stirrups. I m feeling mighty vulnerable. As I hang there, the inventor hands me my tape recorder, then proceeds to show me how the woman can place the man s penis on her G-spot by moving her legs from a position of being out front like this to being in the fetal position and how the man, instead of just going in and out like that, he can make his penis a joystick, so every step he takes is a movement inside of her, more like a dance step. He guarantees, You ll never use a bed again. Next I inspect the Bungee Sexperience a harness designed by a company that makes bungee cords it bounces in the air, so the rider can enjoy weightless sex in a variety of positions. I ask the woman demonstrating this how many hours a day she bounces up and down. At an event like this, she responds, without missing a bounce, I d say eight to twelve hours. She tells me that her circulation is excellent, and that her 18-year-old son refers to the contraption as a bungee humper. In addition to bouncing, it can also create the illusion of bondage, yet the person can actually be comfortable while restrained. The Auto Erotic Chair, however, provides real bondage. It s equipped with leather restraints and panic snaps for arms and legs, and comes complete with a power box, pneumatically operated anal and vaginal plugs. Our power source unit is designed to stimulate nerve fibers throughout the genital areas by delivering controllable electro-pulse energy through conductive electrodes on our sex toys. Our precision-engineered technology gives you safe and pleasurable electric play. So, for example, in the Electro-Flex Penile Ring Anal Plug Configuration, A single conductor butt plug is used in conjunction with a single conductive cock ring to complete the circuit. With a single conductive cock ring, one side of a double conductive butt plug can be used to stimulate either the prostate or the sphincter. If you d prefer something, well, less electric, there s always the Crystal Wand, a 10-inch-long, S-shaped co-ed tool, hand-carved from pure crystal-clear acrylic, that doubles simultaneously as a G-spot stimulator and prostate massager. I m reminded of a swing party I heard about, one that took place at the Whispers Club in Michigan. Couples removed from the refrigerator 12-inch summer sausages and cucumbers that the hostess had planned to use for food that evening. When she walked into the party room, she couldn t help but notice that although the food was being consumed, it was not exactly in the fashion she had originally envisioned. Instead, the sausages and cucumbers were being utilized as organic sex toys. As I continue to wander around the Adult Marketplace, I realize that the name of the game is penetration. All paths lead to penetration. But I m not referring to penetration of the sexual kind, although that s an implicit goal pick an orifice, any orifice, and there s always a corresponding appendage or gadget that can fulfill its desire for penetration no, I m talking about penetration of the market. There s lots of money to be made here. The persistent question is, how can I penetrate this market? Maybe I could come up with a combination FM radio and vibrating dildo. I m beginning to feel like I m experiencing an alien encounter, only I m the alien here. Nevertheless, I m aware that swingers and comedians do have something in common. We both like to have a good opening line. As a performer, I always try to slant my opening line toward a particular audience. My opening line at the World Hemp Expo was, Last night, for the first time in my life, I used a hemp condom. My opening line at a Skeptics Conference, attended by the Amazing Randi and the Amazing Kreskin, was: The is the first conference I ve been to where there were two people with the same first name of Amazing but the Amazing Randi was born with that name, it s on his birth certificate, whereas the Amazing Kreskin changed his name for showbiz Now I find myself in a lavish hotel suite, trying to crystallize an opening line while contemplating the bald spot on the back of my head, infinitely cloned in the mirrors of the hotel-room bathroom, actually the only place I ever get to see that bald spot as others do. This will be a serious opening line, since I have been told that, in the introduction to my performance, I will be presented with the Lifestyles Freedom Award. I decide that my opening line will then be, I just want to say that freedom of expression existed long before the First Amendment. Though it s not my motivation, I realize that this opening line will undoubtedly please Robert McGinley, the bearded co-founder and president of the Lifestyles Organization. We hate government intervention in our lives, he has assured me. We hate censorship. We re against laws that require helmets for cyclists. It s good that a law was just passed allowing women to breastfeed in public, but we shouldn t need permission from the government to do it. He admits to being libertarian, but not Libertarian Party. He draws his philosophy from Jack London The proper function of man is to live, not to exist and, more specifically, his credo is Adult sexuality is normal. Dr. McGinley (he holds a Ph.D. in counseling psychology) tells me a riddle: What do you call an Italian swinger? I give up. The answer: A swop. At the luncheon, it turns out that I will not be presented with the Freedom Award after all, and I have to come up immediately with a replacement opening line: I m delighted to be at the Lifestyles Convention this is the first convention I ve ever been to that was named after a condom. Indeed, condom consciousness (if not condom use) is present at the convention. In one workshop, The ABC s of Swinging, condom etiquette is described as bringing the right safety equipment, just as you would for scuba diving or parachuting. Another presentation on Safer Sex covers new drug therapies for AIDS, information on other sexually transmitted diseases that are increasing among heterosexuals, and things you should be doing to protect yourself. Originally, herpes had caused a certain panic in swinger circles. Some swing clubs closed, though private parties increased. But, paradoxically enough, with the advent of AIDS, new clubs opened, as if the disease were anti-climactic. Currently, there s a surge of growth in this subculture thanks to the Internet with estimates ranging from 2,000 to three million participants. And, according to Dr. McGinley, There s been very little increase in condom use. It s the woman s choice. Nonetheless, at the Adult Marketplace, a woman in a black lace negligee roams around giving out free samples of condoms. There are also Cr me Cookie Condoms for sale. They appear to be vanilla and chocolate Oreo-style cookies, individually wrapped in cellophane. I ask the vendor whether these are condoms that look like cookies, or cookies that look like condoms. She tells me that they are edible cookies, but each one has a condom inside. They re only a dollar each, she says, adding, as I edge away from her booth, it s a great joke. The Art Gallery at the convention Center, featuring the Lifestyles Convention s 7th annual Sensual Erotic Art Exhibition, almost didn t happen. The state s Department of Alcoholic Beverage Control had tried to prevent it from opening. When their authority was challenged, an ABC representative became an alchemist, transforming logic into absurdity. Legally, he said, you can t even have sex in a hotel room which has a mini-bar. Sure, pal, just try to enforce that one. Two days before the convention, the ACLU obtained a restraining order against ABC s interference with the art exhibit. But ABC didn t just give up and assume the fetal position in a Love Swing. Rather, the agency threatened to revoke the Wyndham Hotel s liquor license if they allowed a special two-hour session, the convention s traditional Evening of Caressive Intimacy, to take place in the Wyndham Ballroom on Friday as scheduled. This popular, closed-door, clothing-optional massage clinic, limited to the first 200 couples who sign up, would include the human car wash, involving, as one veteran swinger portrays it, a lot of naked bodies and some serious rubbing. But the ABC regulations on Attire and Conduct behavior deemed contrary to public welfare and morals, and therefore no on-sale license shall be held at any premises where such conduct or acts are permitted includes this clause as a no-no: To encourage or permit any person on the licensed premises to touch, caress or fondle the breasts, buttocks, anus or genitals of any other person. The Wyndham chickens out, the massage clinic is canceled, the money is refunded, Lifestyles will sue the hotel for breach of contract, and next year s convention will be held in Las Vegas in 1998. A lawyer, standing on the border of cynicism, suggests, Just buy a town in Mexico and buy off all the officials. In the previous year, 1996, the convention was held at the Town Country Hotel in San Diego (for the fourth time), but two ABC officers claimed that they witnessed oral copulation in the convention hall, and the hotel s liquor license was suspended for five days, hence Lifestyle s move to Palm Springs this year. Lately, ABC has been spreading its particular brand of paranoia in Los Angeles, where the agency has raided gay, black and Latino bars in Los Angeles and in Hermosa Beach, where it has imposed restrictions on restaurants, requiring patio patrons to order food with their drinks, and forbidding customers to dance. Proprietors now play less upbeat music so that nobody will be tempted to dance. Those who can t resist are asked to stop. Incidentally, I find out that, instead of giving the Freedom Award to me, convention officials have decided to present ABC with an Anti-Freedom Award, but that notion gets lost somewhere in award limbo, along with my original unspoken opening line. On Friday night, the massage clinic that doesn t take place is followed by the Wild West Casino and Dance. One man comes attired in a sheriff s outfit with a rubber penis drooping almost to the floor. A security guard tells him that he ll have to check it. Fake knives, guns and bullets are acceptable, but not a fake sex organ. Another cowboy, with a real (unloaded) gun, is stopped by a security guard, but he resists, asserting in his best John Wayne manner, This is an 1887 pistol, and I m not about to check it. Several folks leave the dance at midnight to attend an unofficial 3rd annual spanking party. It ends at 3 a.m. with a bout of fist fucking. Dear Abby was right. One thing does lead to another. I ve been sampling many workshops at the Convention Center, and I notice that whenever I sit down on a chair next to a chair with someone else s stuff on it, and the owner of that stuff is sitting on the other side of that chair, they always tap the top of their stuff in a subconscious gesture of territoriality. I also observe that a man with one leg (he walks with crutches) and his wife seem to arrive at every single workshop that I attend. Hmmmmm. I m beginning to get suspicious. Obviously, I ve seen too many spy movies. A cartoon in the 1991 convention program showed two rooms where lectures were being given. The attendees in the room featuring Do It Yourself Porn: Make Your Own XXX Movies were overflowing into the corridor, while the room featuring Socio-Political Ramifications of Current Trends in the Erosion of Civil Liberties was empty, except for the baffled lecturer. It was a nice touch of self-deprecating humor, an exaggeration not too far from reality. At this 97 convention, porn actress Nina Hartley s So You Want to Throw a Party: Recipes for a Successful Orgy attracts ten times more audience than attorney Bob Burke s Sexual Politics: A Behind the Scenes Look. Unfortunately, one workshop, The Undertone of Sexuality in the Star Trek Series, has been canceled due, someone added to the notice, to Federation Regulations and Star Fleet Emergency Order 1007-932. Deborah Warner, in describing her presentation, had written: Paramount and its parent company, Viacom, have a vested interest in presenting the Trek franchise as a family-oriented show. To this end, they overtly depict the characters as asexual. Yet there exists erotic subtext. This has spawned a very large community of fans who create volumes of explicit erotica that is enjoying great popularity in print and an explosion of interest on the Internet. Now, outside the room where her workshop would have been, there is disappointment That theme continues at American Tantra: How to Worship Each Other in Bed, This workshop whose motto, Orgasm long and prosper, paraphrases Star Trek s blessing, Live long and prosper is conducted by Paul Ramana Das and Marilena Silbey. Interspecies intercourse, he muses. This can t be the only planet where love is made. A writer for AVN (Adult Video News) has reviewed their Intimate Secrets of Sex Spirit and confessed, I ve rarely laughed so hard in my life. No shit, this vid earns a pre-nomination for most outrageous sex scene. Paul actually uses Marilena s pussy as an echo chamber! Now, in his regular voice, he is telling our workshop of the need to approach the body, not for sexual release, but for every single inch of this body, the groundwork, the geography of pleasure. Can anybody name one spot on your body that is not capable of receiving pleasure? Nobody can. Later, the entire audience, seated around the perimeter of this extra-large room, is instructed to come stand in the center area and face their partners. I start to slide out, but not inconspicuously enough. Ramana Das, who knows me from a previous incarnation, calls out, There goes Paul Krassner. Are you afraid to participate? I m here as a journalist. Ah, he can t participate because he s a journalist. See how everybody has excuses. Suddenly I m saddled with a dose of New Age guilt, as though I have aborted my inner child. Meanwhile, there s a lovely blonde who doesn t have a partner, and now I m tempted to participate, but some guy who s also without a partner links up with her. Unexpectedly, my guilt changes to jealousy. Just a slight pang of jealousy, mind you, but a terrible taboo in this particular world. Jealousy is an outmoded emotion to be shunned like dandruff. There s even a workshop that advises How to Handle Jealousy and another titled Swing Without Guilt or Jealousy. And so now I not only feel guilty about not participating, I also feel guilty about feeling jealous. I ve committed a swinger crime. I can hear security guards shouting Jealousy alert! Loud sirens go off. Jealousy alert! Now where will I go? I have been reading about tantra in Real Magic by Isaac Bonewits: Energy control is a very important part of the exercises; it is essential, for example, that during Kama-kali the male be able to refrain from ejaculating under the most harrowing circumstances. I decide to drop in on a workshop, How to Prevent Premature Ejaculation, but everybody has already been there, and they all left early. Sorry. I blurted that out before I could stop myself. There are swing clubs all around the country, from Shenanigans in Indiana to Liberated Christians in Arizona ( for Christians seeking liberation from false sexual repression based on mistranslation of scripture who wish to explore responsible non-monogamy and polyfidelity ). Many clubs designate themselves as Equal Opportunity Lifestyle Organizations, where membership is open to all races, and they belong to NASCA (North American Swing Club Association). The Spring 1997 issue of NASCA Inside Report editorializes: There are political attacks on freedom that citizens should be aware of. It is far too easy to lose, through complacency and ignorance, the freedom that we Americans cherish. These attacks include the proposed censorship of the Internet now under review by the U.S. Supreme Court, the recently court-upheld attempts by states to keep harmful literature from the eyes of children by controlling street news racks, the reintroduction in Pennsylvania of legislation to outlaw swing clubs and a similar measure in California. Regarding the latter two, do we smell a conspiracy here? If there is one, it s bi-partisan. In Pennsylvania, Richard Kasunic, a Democratic state senator, failed in his 1996 attempt to outlaw sex clubs. This year, he has reintroduced legislation to outlaw swinger clubs. He states, My bill will outlaw these immoral establishments in every community in Pennsylvania and provide significant penalties for those who choose to continue this offensive practice. The penalty for operating a swing club, even in one s own home: up to two years in jail and 5,000 in fines. For a second conviction: up to seven years and 15,000. For patronizing a swing club: 300 plus court costs. In California, Tim Leslie, a Republican state senator, has introduced a bill which would provide that every building or place which, as a primary activity, accommodates or encourages persons to engage in, or to observe other persons engaging in, sexual conduct including, but not limited to, anal intercourse, oral copulation or vaginal intercourse, is a nuisance and shall be enjoined, abated and prevented, and for which damages may be recovered, whether it is a public or private nuisance. Swinger periodicals range from New Friends to Fuck Thy Neighbor. Patti Thomas, author of Recreational Sex: An Insider s Guide to the Swinging Lifestyle, is editor at Connection, which publishes thirteen titles, including Cocoa n Cr me, catering to interracial swingers (not to be confused with Black n Blue, catering to sadomasochist swingers). Connection is suing the federal government over a bill that Ronald Reagan sent to Congress in 1987, the Child Protection and Obscenity Act, an outgrowth of the Meese Commission on Pornography. The specific statute being challenged known as the record keeping and labeling law, or the ID law was supposed to be aimed at child pornography, but has been applied to adults-only swing publications. It requires anyone placing an explicit photo ad to provide a photo ID, nicknames, maiden names, stage names, professional names and aliases. These records must be available for inspection by the attorney general s office. Connection had attempted to comply with the law by cutting out every explicit photo ad from its magazines and sending them with a letter to those advertisers, explaining the new law and its requirements, asking that they submit the proper ID or send a soft photo that didn t require ID. Out of 500 advertisers, only 26 responded with IDs. Patti Thomas spoke about this in her keynote speech at the Conclave 97 Convention in Chicago: It definitely makes it difficult to produce the magazine our readers and subscribers have come to expect, when you don t have enough so-called legal ads to fill all those pages. And considering that swinging itself is not illegal, why should we have to register our sexual choices with the government just to place a personal ad in a magazine? . . . I ve never really thought of myself as an activist, or as one who was politically involved, but over the last few years I think I ve finally come to realizing that it s going to be necessary to be involved, even if it does mean exposing my lifestyle to those who would repress it. I am fucking sick and tired of do-gooders trying to tell me how I should live my life! In 1995, Connection filed a suit challenging the constitutionality of the law and seeking a permanent injunction. In 1997, the motion was denied. Attorneys filed an appeal and a motion for a temporary injunction relieving Connection from complying with the act during that appeal. The motion was granted. The justice system in this country just makes no sense to me whatsoever, Patti Thomas tells me. As far as I know, once we do present our case to the Court of Appeals, if our decision isn t favorable, we will make every attempt to go to the Supreme Court. Our attorneys are the best First Amendment attorneys anywhere. Our lawsuit has been very costly, as you can imagine, but our company believes very strongly in fighting for our constitutional rights. Our suit was filed not only for the benefit of our company but because we felt that this outrageous law was totally infringing on the civil rights and freedoms of people involved in alternative lifestyles. Obviously, the average person involved in swinging would have no way of combating this law on their own. I ask her whether attempts at repression have resulted in politicizing the swinger community. I m afraid we haven t been very successful, she replies. We try to inform our readers about political issues threatening our lifestyle and attempt to get them involved. Unfortunately, many in the lifestyle either don t believe that the government will actually take away their rights or are too afraid to make a stand. Swingers who have been exposed as active participants in the lifestyle have lost jobs, family, community standing and friends as a result. People I ve personally known who have lost their jobs when their swinging activities were discovered just wouldn t fight back because of the fear of further exposure through the publicity that could have been generated. As a matter of fact, my ex-husband was fired from a management position back in 1980 when someone discovered his photo in one our magazines and brought it to the attention of his superiors. Luckily, he was able to find a position with one of Connection s affiliate companies. So we pretty much remain an underground minority. That point is underscored by a 29-year-old woman at the convention. None of us like publicity, she says. None of us want to be out in the open. The business world is very conservative. She is wearing an American flag bikini, although she has never heard of Abbie Hoffman. She was born the same year that he got arrested for wearing an American flag shirt. Nor did she have any way of knowing that when he wore another American flag shirt on The Merv Griffin Show, his half of the TV screen was blocked out all across America. She was, in short, unaware of the roots of her own, limited freedom. It s Saturday night, and the Carnival Masquerade Ball is being held in the huge Convention Center Ballroom. On the wall behind the stage are gigantic masks. Above the tables are gold and purple balloons, fashioned after either somebody s school colors or a Chinese restaurant s little hot mustard and soy sauce plate. The taped music is loud, and the dancing is raunchy, enhanced by gaudy yellow, blue and red lights. Pheromones are flying, and the costumes are kinky. Costumes, the program states, may be anything of fertile imagination (genital area musts be covered) for an exotic night of adult social fun. Hey, look who s here: Superman. The Phantom of the Opera. The devil. Mickey Mouse and Minnie Mouse (in a see-through top). An executioner. An Arabian potentate. A gold-plated pharaoh. A chicken lady covered with big yellow feathers. A guy in a dog collar being led around on a leash. And the one-legged man, who is wearing a roller skate as his costume. At one point, an announcement is made that the next dance number will be filmed, so anybody who doesn t wish to be recognized should get off the dance floor. About 80 of the dancers leave. Similarly, taking part in the costume-judging means that permission to be photographed is automatically granted, which results in many contestants not making themselves available to be chosen as possible finalists. The Best Male Costume goes to a 75-year-old man dressed as a biker stud. The Best Female Costume goes to his 75-year-old wife, dressed as a biker slut. The Best Couple s Costume goes to a woman with papier mache breasts the size of beach balls and her mate with matching enormous testicles but covered by pillowcases and a sign that warns, Censored by the hotel and ABC. A marriage ceremony is performed onstage. The blissful pair have written their own vows; nothing is mentioned about forsaking all others. The newlyweds, their party and a few other couples are invited to a gathering in the suite of a three-time Emmy Award-winning TV producer and his wife. It turns out to be a tantra-filled wedding night. All the women massage the groom, and all the men massage the bride. One woman, a computer animator who wants to become a sexual surrogate, predicts that, as the millennium comes to an end, tantric men will be popping up everywhere. A retired chairman and CEO of a title and escrow company, who attended another tantra party, tells me, The difference between the tantra party and the party next door is the fact that at the beginning of the wedding tantra party there was a lot of ceremony and shared tantra ritual, but once we had experienced that, it was every person for themselves. It was like the party next door. These were closed parties by invitation only. But you didn t need an invitation for open parties. All you had to do was find them. The Wyndham Hotel is permeated by a sense of uninhibitedness. In the elevator, a beautiful black woman is looking in the full-length mirror and admiring her new Clit Clip non-piercing, adjustable, genital jewelry It s charming, I reply, but what are you gonna do if the metal detector goes off at the airport? I leave them giggling in the elevator as I get off on a floor where I ve heard there would be lots of action. I follow one group, but only the couple in front really knows where they re going. But they happen to be on the way to their own room, and when they get there, they go in, close the door, and we are all left out in the corridor, looking like a perplexed ant farm. Everybody turns around. I am now at the front of the line, so I let them all pass by me as they head in the opposite direction, strolling briskly, except for the one-legged man with the roller skate and crutches, who is gliding gracefully along the carpet. Passersby are asked, in vain, Where s the party? We finally find a room with a porn photo on the door, which is slightly open. Inside, there are around fifty people in semi-darkness. Exhibitionists and voyeurs, together again. Here a blow job, there a copulation, everywhere an undulating juiciness. There is an unspoken homophobia no man is relating sexually to another man but there is lots of lesbian libido. In order to keep a low profile, I have ripped several pages out of my notebook and folded them in half, so that I can take notes unobtrusively. However, a woman with a feather duster asks me to hold on to her panties. She is about to join a threesome on the king-sized bed near the bureau that I m leaning against. I marvel at the choreography of this foursome. But they re playing, and I m working. Their moans become my background music. I wasn t always a wallflower at the orgy. I flash back 30 years to 1967 . . . I was at a Sexual Freedom League couples-only party on New Year s Eve at a large theatrical studio in San Francisco. There were about 150 people dancing in the nude. Behind the closed curtains on the stage there were fifteen small mattresses in constant use by different couples. I remember making love on one of those mattresses with a sweet flower child only fifteen minutes after we d met. It was an exhilarating experience. We were on the front lines of the Sexual Revolution. We had to hold back from screaming out political slogans at our moment of climax. The seeds of contemporary swinging were planted at that party, but who could have known it would blossom into an industry? If it s true that, as Bill Maher once stated so poetically, The real problem with marriage is that it s just very difficult to bump your uglies with the same person every night your whole life, then for some people, swinging is the answer. To them, cheating is not an issue, unfaithfulness is obsolescent, and adultery is merely a concept that deprived former Air Force Lieutenant Kelly Flinn of her opportunity to drop a nuclear bomb. The Lifestyles Convention provides a nurturing environment for these couples the same way a convention of crossword-puzzle enthusiasts or barbed-wire collectors would provide for those folks. Yet, in the case of swingers, one is left with a puzzle. Is impersonal intimacy an oxymoron? I ask that question of psychologist Stella Resnick, sex therapist and author of The Pleasure Zone. Her reply: We can t put a value judgment on this. These are all consenting adults. It doesn t really matter that it s rather impersonal because they are in long-term relationships, so they re getting their intimacy needs met, but not necessarily their needs for excitement in sex, and this is certainly a way to do it. Often they are sexually identified in the sense that they re sexual people, they have strong desires, they re not necessarily into politics or other causes, but this is a good cause being in the body, being healthy and it s a way of relaxing and enjoying their bodies. Whatever turns you on, as long as you re not doing any damage to anybody else and you re taking care of yourself, fine, enjoy. When Tom Arnold was a guest on Late Show, David Letterman pressed him about his friendship with Kathie Lee and Frank Gifford. This was shortly after the Globe had entrapped and videotaped Gifford s extramarital tryst with a flight attendant in a hotel room. Letterman insisted, I don t revel in the miseries of others, but Arnold reminded him of his monologues with jokes about Gifford. Letterman defended himself: It s part of the job. Arnold stammered, searching for just the right words. He finally found them: Frank Gifford took a bullet for a lot of us. And the audience applauded the accuracy of his assessment. Certainly, non-celebrities don t have to worry about supermarket tabloids revealing infidelities to their spouses. Such exposure could never occur with swinging couples, not only because, as a rule, they are honest with each other, but also because they party with each other, so there are no surprises. They are sharing a secret lifestyle, one with an ethic that transcends ordinary romance. Sneaky affairs are for straight people, but swingers can eat their wedding cake and have their fantasies too. Which explains why there have been no hookers hanging around this convention. Life Among the Neo-Pagans In the summer of 1997, I performed at the 17th annual Starwood Neo-Pagan Festival in Sherman, New York Amish country on the border near Ohio and Pennsylvania. This event a female-oriented celebration of the sensual and the spiritual took place on private campgrounds, where clothing was optional. Many women were bare-breasted, and several men and women walked around fully naked, a practice known as the sky clad experience. Instead of camping out, I stayed at a nearby bed-and-breakfast place. Downstairs in the living room, I asked a woman falsely assuming that she was the proprietor where the key would be left if I came back late at night. I don t know, she replied. I m here for the festival. Oh. In what capacity? I m in the craft. Which craft? That s right, she said. She has been a Wiccan for twenty years, but now she complained, Witchcraft has become trendy. I mean, ever since Buffy the Vampire Slayer . . . At the festival, on Merchants Row, there was an inviting banner over one of the booths: Stop by for a Spell. A positive perspective on witchcraft was a theme at this event, along with such workshops as Privacy Rights and Drug Policy, Cultivating Consciousness in Your Child, Live Meditations in Drumming and Dance, The Supreme Court and the Free Exercise of Religion, A Procession to Honor the Earth Goddess, Safer Sex and Dark Ecstasy: The Ritual Use of Pleasure, Pain and Sensory Deprivation as Psychedelic Experience. When I walked on to the outdoor stage, my opening line was I m gonna start with two words that have been thought year after year at these festivals, but which have never actually been uttered out loud, and those two wards are: Nice tits. The audience hesitated a second, because in that context this could be a politically incorrect observation I had deliberately taken that chance but then they laughed and applauded, because they knew it was true. I was invited back to perform at Starwood again in the summer of 1998. The previous month, two Amish men had been arrested for distributing cocaine they bought from a biker gang, the Pagans, one of whose members was a police informer. The two men were from a particularly conservative Amish sect, where not only electricity and tractors were forbidden, but even zippers. Did the sight of those Amish-tempting zippers on the Pagans leather motorcycle jackets serve as a gateway drug to cocaine? Speaking of illegal drugs, at the festival I came across the only individual I ve ever met who had actually hallucinated on toad slime. I pictured him as a young lad with a tadpole in his pocket, and now as a grown man with a frog in his pocket. I also met Reverend Ivan Stang, leader of the infamous Church of the SubGenius. He talked about how to milk the Internet for all it s worth, and get away with murder, before the Conspiracy figures out how to spoil it for us. But Stang was in deep embarrassment mode, since this was only a couple of weeks after the failure of his widely circulated prediction that, on July 5th at 7 a.m., Pleasure Saucers would descend to Earth as part of the great Rupture and take away all those SubGeniuses who had paid 30 for the privilege. The festival climaxed with its traditional 50-foot-diameter, 25-foot-high bonfire, constructed during the week with the aid of a derrick. On Saturday night, several dancers with torches ritualistically teased this pyramid of logs, encircled at a distance by two thousand enthusiasts, although one impatient woman yelled, Just do it! The neo-pagans danced and pranced and cavorted around the bonfire late into the night. My own personal highlight occurred when a beautiful woman named Pearl approached me. She was in the process of transforming her breasts from fetish to functional by nursing a baby that had been conceived there the year before. During that festival, she had walked in on my performance, bare-breasted, at the precise moment that I uttered the words, Nice tits. She assumed that I was referring specifically to her and, I had learned, she was flattered, so now I didn t have the heart to disillusion her. But I did write about it in my High Times column, Brain Damage Control, ending with this sentence: I hope she doesn t read this. Furthermore, at the 20th annual Starwood Festival in 2000, I found myself in front of a microphone on that same stage, and I told that story. Pearl was in the audience, and she was laughing heartily. This time, though, when I said, Nice tits, I added, Okay, now everybody, and the words came booming back at me: NICE TITS! Later, as I was leaving the stage, Pearl called out, Nice dick! I was fully dressed, but it didn t matter. This was a perfect example of tit for tat. Or dick for tit. My old friend Steve Gaskin and I were staying at a bed-and-breakfast house where there were angels all over the place. Stuffed angels, plastic angels, plaster-of-paris angels, embroidered angels, stained-glass angels, papier-mache angels, teddy-bear angels and origami angels. There were angel dolls and angel paintings and angel sculptures and even an angel mobile hanging from the ceiling. In the bathroom, there was an angel tissue-dispenser and an angel night-light. On a table in the hallway, there was a pile of Angels on Earth magazine. On the bureau in my room, there was a copy of Whispers From Heaven, featuring such articles as Feeding Angels, When Angels Kiss and Rescued by Angels: The Amazing Story of a Kidnapping Survivor. Gaskin s room had a door that led to the roof, and the first night we sat out there and smoked a joint. The next day there was a note taped to the door: The roof is to be used only as a fire escape. Please use the patio. The next night we smoked a joint in my room. And the next day there was a No Smoking sign on the inside of my door, and the electric fan was on, aimed toward the now-open window. At breakfast the next morning, I was just about to apologize to the kindly Christian woman whose home this was, explaining that a doctor had recommended marijuana for my arthritis, but she apologized to me because she hadn t told me in advance that smoking wasn t allowed. Some people are allergic to cigarette smoke, she explained, and I almost blurted out, That wasn t tobacco, that was pot. I hope she doesn t read this. Murder At the Conspiracy Convention The history of civilization is the history of warfare between secret societies. In the men s room at the airport, a man standing at the urinal a couple of urinals away from my urinal was urinating without aiming his penis. Both hands were flossing his teeth. A monument to multi-tasking. I ll admit that I occasionally brush my teeth while I m urinating at least that leaves me with one hand free to steer but this guy could possibly be the only human being on earth who pisses and flosses simultaneously. He must have practiced at home before he decided to go public. And of course he was proud of his manual dexterity. Maybe he even has a license plate that says PFLOSS, though other drivers might assume it s his name, not his avocation. In any case, that image immediately replaced my previous visual mantra: seeing one of the kids on a school bus holding up to the window a sign that read HELP US! Now, on Memorial Day weekend, I was catching a flight to San Jose, California. I was headed for Conspiracy Con 2001, a convention featuring the prophets of the sinister. My friend Roy Zimmerman, who writes and sings satirical folk songs in the tradition of Tom Lehrer, has a spoken piece of patter which goes: I just got back from the conspiracy convention. Have you been? It s fun. Seven hundred conspiracy theorists all in one hotel, with the little name tags, Hello, my name is none of your fucking business! Great seminars Triangulation and You, Paranoia for Profit, Victoria s Real Secret Was J. Edgar Hoover. In the lobby, I saw five people get off the elevator what, you think that s a coincidence? There was entertainment, of course a group of horny anti-government folk singers called the Randy Weavers. Zimmerman was surprised to learn that there would actually be an event such as the one that he thought he was making up. Although the real conspiracy convention didn t have the seven hundred attendees he had imagined, there were over 500, including 40 from out of state and 10 from other countries, including Canada, England, Australia, Denmark, Austria and Ireland. Also taking place at the Santa Clara Convention Center that same weekend as Conspiracy Con was the Charismatic Catholic Convention. Dueling religions, together again. The leadoff speaker at Conspiracy Con was Cathy O Brien, who claimed to be a victim of the CIA s MK-Ultra child-sex-slave program, Project Monarch. She was introduced by her husband, Mark Phillips, as the love of my life. Phillips claims that, having worked for the CIA, where he learned hypnosis, and for a Department of Defense subcontractor with exposure to mind-control research, he was able to rescue O Brien, deprogram her and collaborate on their book, Trance Formation of America. There is not one person in this audience, he exhorts, that could not be legally experimented on, killed or financially destroyed. He has the bearing, the cadence and the pompadour of a dramatically pious televangelist. He oozes with practiced integrity. In contrast, Cathy O Brien has the demeanor of a guileless, bleached-blond checkout cashier in a small-town supermarket who sends money every week to her favorite televangelist. She speaks with a certain tremor in her voice. Mind control, she warns, is the most important issue facing humanity today. She reveals her relationship with Gerald Ford, who was very much interested in mind control, so the local Michigan Mafia child pornography ring was actually sanctioned, and they could target children like myself who were so horribly abused that they would be used in child pornography. When my father was caught sending this pornography through the mail, Gerald Ford approached and told him that he could receive immunity from prosecution if he would sell me into the project. My father eagerly agreed. He was so happy that the government actually condoned child abuse that he went on to have five more children to raise for the project, so there were seven of us in all. He was never prosecuted and remains free for reasons of national security. At the age of 13, she met the man who would become my owner Senator Robert Byrd. In Trance Formation, she describes their first meeting: I undressed and climbed into his bed as ordered. I was momentarily relieved to find that his penis was abnormally tiny so small it didn t even hurt! And I could breathe with it in my mouth! Then he began to indulge himself in his brutal perversions, talking on and on about how I was made just for him due to the vast amounts of pain I could withstand. The spankings and police handcuffs I had previously endured were child s play compared to Senator Byrd s near-death tortures. The hundreds of scars on my body still show today. I was one of the only kids in my school who listened to country music. But then, Senator Byrd fancied himself a country music fiddler, and it was my duty to love what he did. I was ordered to listen to country music or no music at all. Music was my psychological avenue for escape, a dissociative tool. CIA operator Merle Haggard, who often used well-documented cryptic language in his songs pertaining to government mind-control slave operations, released songs including Freedom Train and Over the Rainbow. My father told me repeatedly that Merle Haggard was my favorite singer, and his songs reinforced my programming. Of course, Senator Byrd remained my favorite fiddler as ordered. He played train songs like Orange Blossom Special while making train sounds on his fiddle. Sometimes I was his captive audience, bound and gagged, while he played his fiddle. Other times he instructed me to spin round and round like a music box dancer in order to add new dimensions to our sex. These new dimensions included more and more physical pain through kinky torture. It was Senator Byrd who directed her father to send her to Catholic school, and it was Gerald Ford who became my first president. That night, she recalls, I wore my Catholic uniform as instructed and went into a dissociative trance as my father drove me to the local National Guard Armory, where I was prostituted to Ford. He took me into an empty room, pushed me down on the wooden floor as he unzipped his pants and said, Pray on this. Then he brutally, sexually assaulted me. Afterward, my memory was compartmentalized through use of high voltage. I was then carried out to the car where I lay in the back seat, muscles contracted, stunned, in pain, and unable to move. And then there was Dick Cheney, President Ford s chief of staff. After Cathy was hunted down and caught in Cheney s game of human hunting, she stood naked in his hunting-lodge office as he paced around and gave her this choice: I could stuff you and mount you like a jackalope and call you a two-legged deer. Or I could stuff you with this Apparently, Cheney s oversized penis balanced out Senator Byrd s tiny penis Cathy specialized in political figures (although she was also thrust upon by country singers such as CIA operatives Merle Haggard and Kris Kristofferson). With unintentional prophetic irony, Cathy described her 1983 meeting with Ronald Reagan, George Bush and Dick Cheney: Reagan gestured toward Bush and said, This is my vice president. People don t usually know what the role of the vice president is because he s always behind the scenes making sure everything that the president wants done happens the way it s supposed to. He looked at me and said matter-of-factly, I catch the public s attention while the vice president carries out orders. And gives them, added Bush s close friend, Dick Cheney. George Bush, Jr. stood by his father and covered his backside whenever Bush would become incapacitated from drugs or required criminal backup. It appeared that Junior was there to serve both purposes while his father and Cheney enjoyed their work-vacation. Junior had never shown any interest in me sexually. Like his father, he had only shown sexual interest in my daughter Kelly, who had been away with him most of the day. Cathy told the Conspiracy Con audience that, at the age of 19, I worked on a White House Pentagon level during the Reagan Bush years and carried out many criminal covert operations for the CIA. The war on drugs was no more than the CIA eliminating competition worldwide, turning our streets into a bloodbath. I was exposed to many drugs, perversion, sex activity, filmed through a little lens in the ceiling because these criminals do not trust each other, so they blackmail each other. I used cocaine, sometimes heroin, Bush s drug of choice. Of all the drugs I was exposed to there was one that was strictly forbidden, and that was marijuana, because the effects on the brain actually opened those neuron pathways so that any compartmentalization of memory, of any kind of trauma, or so-called secret, actually begins to erode. That s why they don t want to have even medical marijuana. I m not standing here to be pro-marijuana at all, I am here to tell you I am extremely anti-marijuana, but I know why this anti-marijuana campaign is out there, with their efforts to control all of us by making sure that this particular drug is controlled so that no one in any kind of position would have free thought. When Cathy finished her presentation, Mark Phillips returned to the stage. We ask you respectfully, he said, to please allow us to provide you with that is, to sell our book and share it with someone you love. It s a horrible book, probably the most incredible validated story that is going to soon be a major theme in maybe more than one motion picture and a TV documentary series. After all these years, Cathy and I believe that this is our last year. And therein lies a paradox of this convention. All the speakers totally distrust the controlled mainstream media, yet they all sense imminent triumph, believing that they and their messages will soon be vindicated by that very same controlled mainstream media. You want statistics? Here s what the polls show: That 68 of Americans believe President Kennedy was killed as part of a conspiracy. That 51 believe federal officials assassinated JFK. That 40 of Americans think the FBI set the fires at Waco. That more than four in ten Americans think the FBI deliberately withheld evidence in the Oklahoma City bombing case. That 80 of Americans think the government is concealing knowledge of extraterrestrial life. That 75 of Americans believe the war on drugs is a failure. That 47 of people using public toilets flush with their feet. In a book about the National Security Agency, Body of Secrets, James Bamford reveals that, in 1962, U.S. military leaders proposed a plan to commit violent terrorist acts and kill innocent Americans, blaming Cuba in order to create a pretext for invading the island and deposing Fidel Castro. One document prepared and signed by all five Joint Chiefs or Staff, states: We could develop a Communist Cuban terror campaign in the Miami area, in other Florida cities and even in Washington. We could blow up a U.S. ship in Guantanamo Bay and blame Cuba. Casualty lists in U.S. newspapers would cause a helpful wave of indignation. In an interview, Bamford said, What the Joint Chiefs indicated in their plan was, they would have people shot on American streets, bombs blown up, refugee boats sunk on the high seas and all this would be blamed on the Cuban government. I have no problem believing such insidious intentions certainly the U.S. military commanders were capable of such dehumanization and yet I can t accept as truth Cathy O Brien s story. I think it s an elaborate hoax, intertwining celebrity porn with historical context to foster credibility. Example: Noriega had been an intricate part of arming the Nicaraguan contras for Reagan, as well as an international hub in the cocaine operations that funded the black budgets for ultra-secret projects such as Project Monarch. Michael Aquino put a vaginal prod in my hand and ordered me to masturbate myself with it, pushing the button to electrically jolt myself internally upon command. Noriega s eyes were enormous. He paled to a sickly grey, his mouth fell open and he ran out the door while Aquino assured him that he had nowhere to run, nowhere to hide from Reagan s powers. So who is this Aquino guy? According to Cathy, In the early 1980s, my base programming was instilled at Fort Campbell, Kentucky, by U.S. Army Lt. Colonel Michael Aquino. He holds a Top Secret clearance in the Defense Intelligence Agency s Psychological Warfare Division (PSYOP). He is a professed neo-Nazi, the founder of the Himmler-inspired satanic Temple of Set and has been charged with child ritual and sexual abuse at the Presidio Day Care in San Francisco. But like my father, Aquino remains above the law while he continues to traumatize and program CIA-destined young minds in a quest to reportedly create the superior race of Project Monarch mind-controlled slaves. I contacted Aquino, who retired in 1994, and he responded: Not only was I never stationed at Fort Campbell at anytime throughout my entire Army career, but I ve never even visited that particular post, on- or off-duty. I have never had any contact at anytime, anyplace, anywhere with Cathy O Brien. I have never programmed sex slaves for the government or anyone else. I have never participated in any form of child abuse whatever. What does he think her motivation is? I can only assume that O Brien is either a crank or simply an unethical individual who seeks money, notoriety and or publicity by inventing sensationalistic lies. Her book is strewn with sex accusations not just about myself, but concerning a parade of high government officials, celebrities and country music stars. I haven t sued O Brien for libel for the simple reason that her book is clearly in the lunatic fringe, and to take legal notice of it would only give it a dignity it doesn t deserve. I presume that the other public figures libeled by it haven t sued her either for the same reason. I certainly am not going to defend excuse any of the MK-Ultra projects. These were all before my time I was commissioned a 2nd Lieutenant in 1968 and I read about such things in Search for the Manchurian Candidate and Acid Dreams, shaking my head, much the same as you probably did. I can affirm that my work in Army PSYOP was strictly legitimate and in keeping with the Field Manual 33-1 guidelines taught at the Special Warfare Center, Fort Bragg. In a nutshell: techniques for trying to convince an enemy not to fight but to cooperate with you. I originally became interested in it because (a) I believed that the USA was generally on the side of goodness, and (b) winning wars by persuasion rather than bullets and bombs seemed a great idea to me. This may sound like a na ve idealist, but that s the way I looked out at the world in 1968. I asked Aquino, Do you think that Cathy O Brien and Mark Phillips utilized you in their book published in 1995 because the Presidio case would give their accusations a patina of verisimilitude? Well, I think that s obvious, he replied. After the highly publicized and sensationalized attack on my wife and myself at the Presidio, all sorts of nutcases tossed my name around in whatever their fantasy of the moment. The combination As for the Presidio affair, following the publication of the recovered memories of Satanic Ritual Abuse book Michelle Remembers in 1980, the United States and other Anglo-American countries went through a decade of Satanic Ritual Abuse scares and witch-hunts. After the 1984 McMartin Preschool became internationally publicized in one such scare, day-care facilities generally became targets of Satanic Ritual Abuse witch-hunts. The epidemic extended to U.S. military services as well, including fifteen U.S. Army day-care centers and elementary schools by 1987. In late 1986 it was the turn of the Presidio. The San Francisco Police investigated, verified that my wife and I had been three thousand miles away in Washington, D.C. where I was on duty every single day that the alleged victim was at the day-care center September 1st to October 31st, 1986 and closed the case with no charges accordingly. In October 1988, however, I appeared as a panelist on a Geraldo Rivera Halloween Special. Rivera was trying to aggravate and escalate the Satanic Ritual Abuse witch-hunt mania, and I was speaking out against it. The broadcast came to the attention of Senator Jesse Helms who became enraged that a Lt. Colonel in the Army should dare to hold a Satanic religion. As Freedom of information filings later revealed, Helms then secretly contacted his close personal friend, Secretary of the Army John Marsh, and insisted that Marsh devise some way to destroy my career. What was actually taking place: a blatant attempt by Senator Helms, Secretary of the Army Marsh and the Criminal Investigation Division of the Army to discredit an Army officer with a politically incorrect religion. It didn t work. Although I believe that Trance Formation of America is an elaborate hoax and Michael Aquino thinks it s in the lunatic fringe, conspiracy researcher Robert Sterling perceives a more devious motivation. In Apocalypse Culture II, edited by Adam Parfrey, Sterling writes: Effective disinformation is never an absolute lie. The purpose of disinformation is to confuse truth and validity, and to do so, boldfaced les are rarely convincing. Effective disinformation mixes truth and deception to obfuscate the two. The closer the disinformation approaches truth, the more damning it becomes. Then all the disinformation, even the legitimate parts, discredits targeted research and ideas. At the time of the release of Trance Formation, there was a growing awareness in the conspiracy subculture of intelligence agency involvement in satanic ritual abuse. Literature on the subject was reaching a critical mass where it could not be ignored. Would intelligence agencies devote resources to counteract such information? Not only is it possible, it almost certainly has occurred. The CIA, even with an officially acknowledged history of abusing people through mind-control experiments (the most famous being MK-Ultra), certainly has a vested interest in denying such operations exist, especially when the operations are as insidious as sexually abusing children. And supposing that the tales are part of a CIA disinformation campaign, it would make sense that some names on the list would actually include guilty participants. After all, what better place to hide the truth than out in the open, knowing full well it won t be believed? Sterling posted a review of Cathy O Brien s book by Jaye Beldo on his Web site, The Konformist: If you are bored out of your mind with the usual Pamela Anderson Lee power-fuck porn, I suggest grabbing a copy of Trance Formation of America and heading to the nearest bathroom with a jar of Vaseline. Why not infuse life into your worn-out sexual fantasies by envisioning some of the scenes spelled out in Cathy O Brien s supposed expose of the pedophile shenanigans of our Government officials? I mean, how could you not get excited over picturing Hillary Clinton going down on the author s deformed vagina like a starved wolf while Bill walks in on them and casually ignores them? I cannot help but get the impression that Cathy is, at times, really no different from some of the questionable UFO abductees making extravagant claims of being transported to other solar systems and back again. I have little doubt that some of the horrible things she mentions actually happen on a day-to-day basis. Completely denying them would be folly. Mark Phillips was not too thrilled with this review, and he wrote to Beldo: I feel compelled to inform you of the inevitable consequences of your unsolicited written vulgar assaults upon Cathy O Brien, Kelly, myself and the overall integrity of our book. I have placed you on the shortlist of potentially dangerous sexual predators, which is automatically reviewed by interested local law enforcement personal sic (that we are in regular professional communications with) whenever a sexual crime is committed in the area you reside. Until you are apprehended for being a physical threat to yourself and or innocent others, you will remain at large but nevertheless well identified. Stay away from contact with children and out of any county state federal prison system, as within moments from the time you may eventually be arrested for some alledged sic charge of illegal immoral activities, I will be notified and will do all in my power of influence to see that you are legally seperated sic from society until you have had to time necessary to do what you proposed for others less appreciative of your sick review to get a hold of yourself or allow an inmate to take matters into their own hands and change your thoughts towards acceptance of brutal criminal activity. Konformist editor Sterling wrote to Phillips: I harbored no personal animosity to either you or Ms. O Brien, but I had serious questions about the accuracy of what was in your book. Even more disturbing, I had a very bad feeling that, wittingly or not, the claims in Trance Formation could easily be used to manipulate people into a hysterical witch-hunt state, and could be used to smear those who are innocent of charges made by you and Cathy, Brice and others. I felt if people were not careful, they could be whipped into a fascist state of mindlessly agreeing to any charge made by alleged CIA sex slaves to a conspiracy underground version of McCarthyism. The Brice he refers to is Brice Taylor, author of the first competitor of Trance Formation, published in 1999 Thanks for the Memories: The Memoirs of Bob Hope s and Henry Kissinger s Mind-Controlled Slave in which she asserts that Walt Disney raped her on Mr. Toad s Wild Ride; that she had sex with all three Kennedy brothers plus JFK, Jr. when he was 12; and that she has cavorted with public figures ranging from Prince Charles to Alan Greenspan, from Elvis Presley to Neil Diamond, from Johnny Carson to Ed McMahon. Hi-yo! Brice Taylor also claims the existence of a federal program of brainwashing and molesting children with electroshock and dolphins, that she and her 13-year-old daughter had a threesome with Sylvester Stallone, and that he filmed them in Dolphin Porn, videos of dolphins penetrating women in the ocean. And Cathy O Brien declares that Jesuit NASA-based whale and dolphin programming suggests that water is a mirror to other dimensions and is the means by which aliens have mixed with our population. Robert Sterling observes that, After suffering horrible torture and abuse at the hands of countless famous politicians and celebrities, both O Brien and Taylor declare of being spoken to by Jesus Christ, whose glorious powers healed them of all trauma and left them immune to further manipulation. At the time of her memory recovery, Brice was corralled and influenced by Christian fundamentalists, who convinced her that her previous life was the prelude for an afterlife in Hell. It should be obvious that the New World Order sex slave genre is nothing more than thinly veiled porn disguised as parapolitics. Sterling told me that Cathy and Mark s book has sold over 20,000 copies. Their following is heavily right-wing Christians and patriot groups, and if you hang out with either sector you ll eventually hear some pro-Trance-Formation-of-America sentiments. Not surprising part of the book s thesis is that mind control is part of the New World Order plot. The predecessor of this whole non-literary genre was The Control of Candy Jones, published in 1976. Jones was a highly successful model supposedly transformed into a CIA Manchurian Candidate. The book was ghostwritten by her husband, a carnival hypnotist and late-night radio talk-show host Long John Nebel. His friend, stage magician and psychic debunker James The Amazing Randi, told me that Nebel made up the entire book because he needed money. When I mentioned this to Walter Bowart, author of Operation Mind Control, he insisted that Randi himself was an intelligence agent. Amazing, indeed. There s a mini-ballroom at the Convention Center where conspiracy books, audio and videotapes are being sold. A man wearing a space suit is hawking an Alien Abduction Survival Kit. Another vendor is selling aura cameras. And, for some incongruous reason, a woman is coning that is, getting the wax out of a prone client s ears with the aid of a burning candle and a tin pie-pate. At a booth offering Free Electricity for Life, the proprietor is saying, They killed one of my associates. In the auditorium, William Lyne, a researcher on free energy devices for 50 years, tells the audience, I know a man who s in mind control and they ve used it on him and his father they use a virtual reality type of technology that s projected to that person, transmitted to them so that they see images that aren t there, but what they want to do is terrify them and make them think they re seeing these things, except they re intelligent people and they know that they re not real images, they just want to know how they re receiving those images. If they want you to see something, they can transmit it to you. They can do it for a whole area. And the place where this person lives, they re all shutting down at 10 o clock at night. Everybody in that whole part of town are actually going to bed at the same time. It s like they ve got the whole area under control. And it s within eyeshot of Los Alamos Labs. The dirty part of the labs where they do this kind of stuff. I say dirty because there s coerced black projects being done out of there. As for Lyne s own safety in the face of promulgating free energy, he says, I m encouraged lately because there s safety in numbers. Too many people have access to this stuff and are promoting it. Now there have been some real tragedies in the past. People had some of this technology and they disappeared or were squashed. I don t have any fear of the government. I lost my fear a long time ago. They tried to murder me several times, and I said to myself, Well, I might be dead tomorrow and nobody d know why, so I m gonna go out there and tell what I know and I m not afraid, and I think everyone should take the same approach. Jordan Maxwell has been exploring the hidden foundations of religions and secret societies since 1959. At the convention, his presentation is titled Toxic Religion and the Occult Establishment. The same people who gave you the Mafia gave you the Church, he says. The Church is the Mafia. An FBI man called me: We ve been watching you, we follow you wherever you go, we know what you re doing. But you are not a threat. We admire what you re trying to do. But your government does not consider you to be a threat yet but if you get enough people listening to you and they re not just listening but they re actually hearing you then you will be considered a threat and now we ll have to take another look at what you re going to do. But the reason I m calling this an unofficial call is to warn you when you talk about corruption and government, most people in government couldn t care less, they don t care, they re corrupt and they know it and you know it, so what are you gonna do about it? But when you talk about the Church and religious institutions in this country, what you re doing is you are messing with organized crime at its highest level. The highest levels of organized crime in this country are the religious institutions. We re talking about a lot of money. We re talking about the control of men s minds, about the dream of absolute total domination. This makes the Mafia look like child s play. Another speaker, Len Horowitz, author of Emerging Viruses: AIDS and Ebola, explains that Non-lethal warfare is where you don t kill populations like with a bomb or a gunshot, but you make them sick. You make them dependent on pharmaceuticals which are actually a military-pharmaceutical complex run by the same players the global elite and then ultimately these populations become enslaved to the pharmaceuticals and economically debilitated along with their nation states. Now, like the Blues Brothers, he on a mission from God: Bust the Illuminati. Bust the cryptography code. The darkest time in our history is just beginning. Revelation tells you in God s word that you and I should count the number of the Beast 666. The revelations we ve just been given is that wisdom. It takes it out of the realm of foolish conspiracy theory into hard, provable, scientific, statistically significant fact, and God bless you with it at this time. With that blessing, I want to thank you so much for allowing me to be here tonight it was now 12:30 in the afternoon . Thank you. God bless you. Thank you said nine times . Say hallelujah! Praise God! Thank you all. Dr. Horowitz was scheduled to fly to Africa and spread the word. Okay, God, he prayed aloud, if it s not Your will for me to go because apparently I m hearing from all these people that I shouldn t go, I shouldn t go, fear, fear, fear, fear please let me know what You want me to do, and if You have me go, if You choose to have me die if I go, then so be it, but I would prefer to live and carry your work forward, so please direct me. And of course God told him to go. Yet another presenter, William Thomas, author of Chem-Trails: Mystery Lines in the Sky, also revealed a sense of his own martyrdom. He stated that The earth and its inhabitants are being subjected to unprecedented experimentation without our knowledge or permission. Some say the chem-trails are intended to kill us all. Others insist the disorientation and lethargy resulting from chem-trail exposure are intended to make citizens compliant to the New World Order and enslave us all. The most plausible explanation for massive aerial spraying is a planet-wide, high-tech campaign against catastrophic climate change. If true, such a desperate Band-Aid solution disregards fundamental causes of global warming in order to protect powerful financial interests by permitting pollution and profits. This story has cost me a lot And the P.A. system blared forth the sound of Jackson Browne singing, There are lives in the balance . . . If there is a star of this show, it s David Icke (rhymes with bike). Author of And the Truth Shall Set You Free, he s a dynamic performer, somewhat pot-bellied, with longish yellow hair. His presentation is about the secret manipulation of the human race, going back thousands of years, revealing how the same interbreeding bloodlines continue to control positions of power today, and he ardently shares suppressed information on humanity s ancient extraterrestrial origins. Thus he offers an alternative explanation of our existence that transcends creationism and evolution alike. All that, and he puts his underwear on backwards too. With his whimsical British accent, he confides to the audience: A little while ago, I m thinking I ll empty me bladder before I speak, so I m fiddling and I can t make contact, and then I realize I put me underpants on the wrong way around. I didn t know whether I was coming or going. Then he entered specific domains of strangeness: A few years ago, I met a scientist who joined the CIA as a youngster, serving his country. He is a genius in the area of magnetics. When he started to work for the CIA in these secret projects, he realized that they didn t want his knowledge to serve humanity, they wanted to create technology that would help to control the mass of the population, and he rebelled against it and said, I m not doing this any more. He started to tell me a story and, as he did, he was opening his shirt. One day he left home and he started missing time. Doesn t remember anything about it. But he does remember waking up on a medical-type bench, and as he got his faculties back he realized there was something stuck to his chest. As he opened his shirt, I could see like a see-through shampoo sachet on his chest with an orange-gold liquid inside it. And he said that what they d done was manipulate his body to need this drug to survive, and if he doesn t get it, then he starts to die what is apparently a very long and painful death. And this patch He told me about a microchip now so small it can be inserted in a vaccination program through a hypodermic needle. Even those who thought the microchip was coming along as a tagging device have not realized that it s not just about keeping a tag on where people are. It s not actually the signals going from the chip to the computer we should be concerned about, but the signals coming the other way to the chip, because the technology exists, outside the public arena and increasingly in it, which can manipulate human emotion and thought processes externally once one of these guys is inside. If people say no to one thing, say no to the microchip. (In December 2001, Reuters would report that a chip the size of a grain of rice which can be injected into your body and give detailed information to anyone with the right scanning equipment is soon to be available from Applied Digital Solutions. The company has projected a potential market worth 70 billion. Occasionally, Icke throws in a tidbit of comic relief, such as two Martians in a bar: Have you heard the latest about the Earthlings? No, what have they done now? They borrow money that doesn t exist and pay interest on it. Other times, he ll throw in a generally unconsidered theory: JonBenet Ramsey has all the feel of her being a multi-personality, dissociative identity disorder, trauma-based mind-control situation, and involved in satanic ritual abuse. I think there s a massive cover-up there, because if you re going to stop the dominoes falling, you have to stop the first domino falling, and that s what that cover-up to me was all about. But he is most challenging when he discusses interbreeding: Why are three ruling families today obsessed with interbreeding? Why when you follow them back genealogically to the ancient world have they always been obsessed with interbreeding? I found an amazing common theme in the ancient world anywhere on the planet the theme of gods interbreeding with humanity, creating hybrid bloodlines which ended up in positions of power. I talked five hours with a Zulu shaman about extraterrestrial connections to the Illuminati. African history is the same theme, of gods from another world, which have great connections to earth history, interbreeding with humanity, creating bloodlines which have ruled the world all these thousands of years. The royal black bloodline of Africa from the age of tribal days claimed descendants from the same gods that these other crowds do. One of the great themes that comes up in this interbreeding and these ancient accounts is of a serpent race, a race of a reptilian genetic history, which interbred with humans, creating hybrid DNA. I m not just talking about this tiny frequency range we call the world. There are other frequencies as well, in terms of where manipulators of the manipulators actually come from. This force which manipulates through these bloodlines overwhelmingly operates right on the periphery of our physical senses, right on the edge. It can appear that someone s gone from one form to another. This is shape shifting between human and reptilian form. From 1998 onward, I kept meeting people telling the same story, that they have seen people overwhelmingly in positions of power Those who have seen a reptilian-type ethereal figure enveloping and following around humans and locking into them in those lower two chakra points, vortex points, for me, is possession. The more I ve understood this, the more I ve realized just how many people, particularly these bloodlines, are actually controlled by these other-dimensional forces, and while we appear to be seeing a president or a banking leader in a physical form, the actual point of control is beyond that and overshadowing it, and on some occasion people see that overshadowing entity. One wonders whether such a defense The reptile made me do it! will some day be used in a court of law. To understand humanity, Icke continued, you have really got to understand humanists reptilian past, reptilian inherited genetics. One of the most ancient parts of the human brain is known by science as the R complex, for reptilian brain. We get these traits cold-blooded behavior, ritualistic behavior, desire for top-down power over structures. Now, dismiss the reptilian thing let s just think they don t exist I have just described the basic mentality of the Illuminati that allows wars to be created, millions of casualties without any emotional attachment to consequences. Why do people who have more money than they could spend in a thousand lifetimes go on accumulating it? Why do corporations that have enormous power and control over vast areas go on accumulating and seeking more and more power and control? So, then, is this whole reptilian agenda really just a metaphor for the varieties of human cruelty? Or does Icke mean it all literally? Previously, Jordan Maxwell had told the audience, I think the dirtiest, the filthiest, the most licentious people on the face of the earth are the British royalty. They represent in the human race all that is evil and all that is filthy and degenerate. And that s why Princess Diana is dead. That there was a conspiracy behind Diana s death seems to be a given among this crowd: the royal bloodline protected by the paparazzi. Conspiracy researchers often start with a premise who benefits? and work their way backward, molding their perception of reality like Silly Putty in order to culminate with the justification of that premise. Maxwell continued: About ten years ago, a young black man broke into the Queen Mum s bedroom, and one of her servants happened to be walking by and the bedroom door was open a bit, and she saw this young black boy in the queen s bedroom. She quietly went to security which came up and arrested him for breaking into the queen s bedroom, but the queen said he didn t threaten her and he wasn t armed and it was just a childish silly prank, and so she let it slide if he promised not to do that any more. James Bond couldn t break into the queen s bedroom! If there was a young black man in the queen s bedroom in Buckingham Palace, the queen ordered him in like pizza. The Queen Mum with her black boyfriend. Tell me about racism. That anecdote says something about the queen s human nature, but now David Icke added another dimension: Some of the descriptions, like of the British royal family people who claim to have been at the rituals are of a literal shift. They seem to go from one physical state to another, very much in this dimension, which from our perspective of this-world physics is like, what? And then others are describing what appears to be a vibrational thing, where people are looking into another dimension slightly outside of our physical frequency range, the normal one, and suddenly they re seeing another level of the person which appears reptilian. And exactly where the truth is in all that or whether it s a shade of grey and both are true, there s a lot more information that is needed. Going back in African history, this reptilian group actually go back a phenomenal amount of time in relation to this planet, and they claim that it s actually rightfully theirs, and at some point in the ancient past there were some great wars that went on, and in fact they were kicked off, and they re trying to regain control of what they think is rightfully theirs, like being kicked out of a country. Other researchers, concentrating on the reptilian thing for a long time, say that in some way they basically go around to different places, just raping the resources, and then move on. Then there s the one about the fact that in some way a lot of these beings were almost imprisoned, in a vibrational prison, like they can t get out of it by going up because they can t vibrationally get there in their present state of being. And their only way out of that level is to come into a lower level of vibration into this dense physical world, and operate through that. But I understand Cathy saying it s only a mind-control thing. From the gospel according to Cathy O Brien: When Bill and Bob Bennett together sexually assaulted my daughter Kelly and me at the Bohemian Grove in 1986, I had already known Bill Bennett as a mind control programmer for some time. He apparently found perverse pleasure in whipping me. With my wrists bruised and my body stinking with pain, Bennett lit up a cigarette and cryptically asked, Was that your first cum-union with an alien? On another occasion deep underground in NASA s Goddard Space Flight Center mind-control lab near D.C., Bill Bennett began preparing me for the program. NASA uses various CIA designer drugs to chemically alter the brain and create exactly the mindset required at the time. I could barely crawl up onto the cold, metal lab table as the drug took effect in the darkness surrounding me, I could hear Bill Bennett talking. My brother Bob and I work as one unit. We are alien to this dimension two beings from another plane. The high-tech light display swirling around me convinced me I was transforming dimensions with them. A laser of light hit the black wall in front of me, which seemed to explode into a panoramic view of a White House cocktail party as though I had transformed dimensions and stood amongst them. Not recognizing anyone, I frantically asked, Who are these people? They re not people, and this isn t a space ship, Bennett said. As he spoke, the holographic scene changed ever so slightly until the people appeared to be lizard-like aliens. Welcome to the second level of the underground. This level is a mere reflection of the first, an alien dimension. We are from a trans-dimensional plane that spans and encompasses all dimensions. I have taken you through my dimension as a means of establishing stronger holds on your mind than the earth s plane permits. Being alien, I simply make my thoughts your thoughts by projecting them into your mind. My thoughts are your thoughts. If this were so, why did he have to audibly tell me? Aha! A touch of skepticism from Cathy. And yet part of me still hopes that was all true, if only because of Bill Bennett s personal maxim: Hypocrisy is better than having no values at all. How could I distinguish truth from lies if truth was cross-fertilized with greed, the need for attention, false memory, speculation, fantasy, self-delusion and intentional propaganda? I contemplated the implications of something that Michael Aquino had told me: Part of what we learned in PSYOP was that it s not just the propaganda you create that is a factor, but the pre-existing propaganda filters in target audiences brains as well. The key has to be designed to fit the lock, so to speak. And underlying all this is the challenge to the PSYOPerator to extricate himself from his own filters Consequently, propaganda can become a two-way street. For example, Cory Hammond, former president of the American Society of Clinical Hypnosis, has had many clients who, under hypnosis, remember hideous incidents of satanic rituals, infant sacrifice, sadomasochism and coprophilia (get that shit-eating grin off your face). Dr. Hammond believes that three groups working together neo-Nazis, the CIA and NASA have been programming American children for over fifty years to make them part of a Satanic order that will rule the world. Likewise, the war on drugs is filtered through a mass of distortions. In the words of The Economist a venerable British newsweekly that has been a longtime passionate advocate for the legalization of drugs the growing, selling, consuming and outlawing of illegal drugs around the world is a complex mix of economics, politics and world culture. There are silly conspiracies. Some folks believe that the moon landing was faked (those were close-up photos of oatmeal). Others believe that the Woodstock Festival never occurred (it was contrived by the media). Still others believe that Elvis Presley s death was fabricated (he s alive in Las Vegas, working as an Elvis impersonator). And surely there must be others who are convinced that militant vegetarian activists are responsible for Mad Cow disease. Sometimes silly conspiracists get results. In 1995, Indiana transportation officials were forced to alter the maintenance codes marked on the back of highway signs because some state residents were convinced that the markings were coded messages designed to assist invading UN troops. And there are serious conspiracies. Gasoline refiners conspire to limit supply and fix prices. The relationship between doctors and pharmaceutical companies is blatantly conspiratorial. Douglas Valentine wrote in The Phoenix Program (about the CIA s notorious terrorist campaign against Vietnamese villagers) that in 1968 the Army s 111th Military Intelligence Group kept Martin Luther King under 24-hours-a-day surveillance. Its agents were in Memphis on April 4th and reportedly watched and took photos while King s assassin moved into position, took aim, fired, and walked away. World War II was racketed by presidential conspiracies of silence: Franklin D. Roosevelt knew that Japan was going to attack Pearl Harbor; and Harry Truman knew that Japan was about to make peace overtures but he nevertheless ordered that atomic bombs be dropped on Hiroshima and Nagasaki. Domestically, the Aryan Republican Army financed and helped to stage the Oklahoma City bombing, and the Bureau of Alcohol, Tobacco and Firearms knew about it three weeks before it happened. Pokeman has become a target of religious leaders throughout the Arab world who charge that the game promotes theories of evolution, encourages gambling and, at its core, is part of a Jewish conspiracy aimed at turning children away from Islam. To David Icke, Jews are the pawns in an elaborate Rothschild-Illuminati breeding experiment, and they are impregnated with a reptilian genetic code. There s a final panel at Conspiracy Con with questions from the audience. A reporter for Stuff magazine waits his turn on line, then steps up to the microphone and asks, What is the secret to how you ve managed to maintain such healthy heads of hair? The answers: Well, mine s glued. I stopped pulling it out a few years ago. It was the fluoride. Mine is the same color when I purchased it. And, Genetics. A woman who claims to be a victim of mind control asks, How do you function? How do you deal with manipulation in your personal lives, being individuals that are speaking out? Is there any secure communication? Can the whole body be scanned for implants, inside your teeth or your skull? Icke responds: No technology exists in this frequency range more powerful than the human mind in its true power. When disconnected from that, we become open to technical manipulation. Is there any secure communication? I don t give a shit. I say what I think on the Internet. I don t worry about being harmed. If you don t allow the idea of vulnerability into your reality, it cannot manifest. If it s not your reality, you cannot project it. It never occurs to me that these guys can do anything to me. Those that were doing this work in fear of consequences were getting them. I don t know how long they re gonna allow me to do this. They almost wore their bravery like a war medal. Courage is overcoming fear. If you don t have fear you don t need courage because there s no fear to overcome. You just do it, get on with it, do what you believe to be right without the need for courage because there s nothing to overcome. I m doing dangerous things, they say, but I keep on going. I m sure they re gonna do this to me if I keep on. They will get the consequences, and others who are just doing it, won t. And because we create our own reality, what we allow into our field of possibility can manifest. If it doesn t come it, it cannot manifest. I don t worry about defending myself. Suddenly, as if on cue, an agitated man brandishing a pistol stalks out from the backstage area. Shouting, The China card will be played big, he aims his gun at Icke, who sits there calmly while the other panelists all duck under the table. A single shot rings out. Panic fills the air, and screams emanate from the audience. But it s the would-be assassin, not Icke, who is the one that falls to the ground. The panel discussion has ended, and the auditorium is cleared. I show my press credentials to a security guard and he allows me to stay. I can see a doctor hovering over the man, who is bleeding fiercely. When the doctor unbuttons the man s shirt I notice that on his chest, just a couple of inches from the gaping wound, there is a patch with an orange-gold liquid inside it. The doctor pats it gently and says, What the hell is this? The man is able only to whisper, He blew my goddam cover. Then he gasps for breath. The doctor says he s dead, and the security guard tells me I have to leave. I had been looking forward all day to a room-service dinner of Colossal Pacific Coast Prawns simmered in Thai curry sauce with sticky rice and toasted coconut, but now I wasn t hungry. I was too preoccupied with what had transpired that evening. I kept asking myself, Who shot the mad scientist? And why? I felt like a poker player who s been dealt a hand of all blank cards. Finally an epiphany arrived, and I knew exactly what I had to do. I made three phone calls, then went down to the bar to keep an appointment with David Icke that we had arranged early in the day. We selected a corner table, I took out my cellphone, dialed my own number at home, and when the answering machine started, I dialed the code to get my messages and handed the phone to Icke. This is what he heard: Hi, this is Paul, calling myself. I ve already left a message on my wife Nancy s answering machine, asking her to save this tape in case anything happens to me. About the shooting that took place here, I called my contact in the CIA who informed me that it was a Company job. They killed David Icke s friend before he could kill Icke. But why would they be protecting Icke? You d think that they d want him dead because he knows too much. Unless he happens to be one of them and they need him to continue spreading disinformation. So now that this precaution has been taken, I will go and confront Icke. He laughed. Nice try, he said. First of all, don t worry, nothing s going to happen to you. But, by all means, keep that tape as a souvenir. You re right about one thing, though. I am protected by the CIA. Not because I m one of them, but because I m not one of them. If they wanted me dead, they could kill me any time they wanted. But they know I m not spreading disinformation. You have to understand, these guys work strictly on a need-to-know basis. So it s not that I know too much, it s that they don t know enough. Because, if an individual agent knows too much, he may not do what he s been assigned to do. He must have a given order to do something, but if he knows that the end result is that somebody s going to be blown up twelve miles away and all he s supposed to do is deliver an envelope he may start thinking about it. So, various agents read my books and check my Web site and show up wherever I speak. It s a safety valve for them, on how far things are going. Are you saying that the intelligence community has allowed you to function because you know more than any of them? Exactly . . . On my return fight the next morning, I found myself reminiscing about the 1987-88 TV season, when I had been a writer and on-air commentator on The Wilton North Report, a nightly satirical hour on the Fox network that lasted only 21 shows. Critics blamed the hosts, a pair of disc jockeys who were not untalented but who were deliberately chosen for their inoffensiveness. I had previously suggested as host Conan O Brien, a writer on the show who also did the audience warm-ups. No, said the producer, he s not professional enough. Ellen DeGeneres? Too dykey. Chris rock? Too raw. Rosie O Donnell? Who wants to look at her every night? Richard Belzer? Too reptilian. Belzer is a conspiracy researcher as well as a comedian and actor, but little did he ever dream that ultimately he his reptilian self could be the culmination of his own investigation. Now, back home, the marketing of conspiracy was on a roll. Majestic, an interactive computer game revolving around a conspiracy involving corporate intrigue, was available. For 10 a month, tens of thousands of online players would receive screaming phone calls at midnight, faxes, anonymous emails and instant messages from mysterious informers directing them to research strange alien conspiracies and nefarious government activities. Majestic was suspended on September 12, 2001. The invasion of the United States on September 11th was the mother of all conspiracies. Immediately there were those who began spinning scenarios of an inside job, an American version of the Reichstag Fire, carried out in order to justify the rise of a police state in the guise of security procedures. In any case, political opportunism has been providing the same results. That Halloween, I was invited by producer Andy Meisler to be a panelist at the taping of a new TV series, The Conspiracy Zone. Although the plot behind the 9 11 terrorists was certainly a topic of conversation in the Green Room Do you think this is the endgame? On the program, hosted by former Saturday Night Live cast member Kevin Nealon, I mentioned that Kennedy had once been on the Tonight show, telling Johnny Carson that cigarettes kill more people than marijuana, and I speculated that Sirhan Sirhan was a hired gun for the tobacco companies. On a more literal note, I talked about the ballistics Inconsistency; a total of ten bullets was found, though Sirhan s gun could hold only eight. And I discussed the fact that psychiatrist Bernard Diamond described in Psychology Today how, during the trial, post-hypnotic suggestion was used to program Sirhan into climbing the bars of his cell like a monkey. However, in the book RFK Must Die, Robert Kaiser, who was there, wrote: Sirhan had no idea what he was doing up on the top of the bars. When he finally discovered that climbing was not his own idea, but rather Dr. Diamond s, he was struck with the plausibility of the idea that perhaps he had been programmed by some else, in like manner, to kill Kennedy. There were two others on that TV panel, plus a separate segment with a dentist who practices hypnosis. One panelist was Michael Ruppert, a former member of the Los Angeles Police Department, Narcotics Division, who became a prolific conspiracy researcher. Off camera, I asked what the turning point had been for him. He said that it was when his fianc e, a CIA operative, tried to involve him in drug smuggling, and he refused. Ruppert and I were both columnists for High Times then, but, he told me, I don t smoke grass. The other panelist was scheduled to be former Nixon speechwriter and now bespectacled, drone-voiced personality Ben Stein, but he canceled out at the last minute. Ann Coulter, former Justice Department attorney and Senate aide, now a professional reactionary and Stepford pundit, was at the studio for a subsequent taping about secret societies, and she was drafted into taking Stein s place. A frequent guest on talk shows, Coulter is recognizable by her long blond hair, her short black skirt, and her drag-queen aura. When she was a guest on CNBC s The Big Idea, host Donny Deutsch asked her what an ideal country would be like, and she replied that it would be one in which everybody was a Christian. We just want Jews to be perfected, she said. As for Muslims, two days after the terrorist attacks on 9 11, she wrote in National Review Online, We should invade their countries, kill their leaders and convert them to Christianity. But now, the taping of The Conspiracy Zone had to be delayed because she was still in the makeup room. It takes a long time to turn Ben Stein into Ann Coulter, I explained. During a break in the show, I suggested to her that the labels conservative and liberal had become obsolescent, and I asked what she thought might be appropriate substitute labels. Americans and cowards, she said. Yikes, I replied. On another occasion, I got a call from Conspiracy Zone producer Andy Meisler. The show was featuring debates about cover-ups, ranging from Freemasons to bar codes to Hollow Earth. The frightening thing, he observed, is that life is so random. At least there s something comforting about conspiracies. He was calling me for recommendations as to who might be appropriate to appear on programs about the fix behind professional sports and the fix behind the election of George Bush. (The latter topic was discarded after 9 11.) He told me that the show would also deal with unexplained deaths, such as Jimmy Hoffa, Marilyn Monroe and the Kennedys. Oh, that s so last century, I said. Conspiracy research has evolved from Who Killed JFK? to Who Fucked a Lizard From Outer Space? One other thing. My visual mantra of the man who urinated and flossed simultaneously was replaced by a patriotic image of Cathy O Brien: I was ushered away from my classmates, she said, and taken to an office where Michigan State Senator Guy VanderJagt was waiting with soon-to-be-president Gerald Ford. They laughed as he placed a small American flag in my rectum and instructed me to wave it. Like all politicians, though, Ford merely wrapped himself in the American flag. Swimming in the Dead Pool When Ken Kesey s son Jed was killed in an accident A few days later, several of us old friends were sitting around the dining-room table there, and someone mentioned that the Dead Kennedys were on tour. I wonder if Ted Kennedy is gonna go see em, I remarked. Kesey, standing in the kitchen, responded, That s not funny. You re right. I apologize. It s not very abstract right now. It s never abstract. I recalled that little dialogue as I began to explore The Game, now in its 34th year 2004 , the longest-running dead pool in America, currently with 125 players. Before January 1st everyone submits 68 names of people who might die that year. (Dr. Death, co-founder of The Game, liked to work on a legal pad Each participant gets one wild card per year worth five points no matter how old the deceased. Gamesters generally pick one-pointers for their wild card to get four extra points. Last year, most picked Bob Hope. When he died, one Gamester said, My father was shot during World War II. While recuperating in England, Mr. Hope came up to his bedside and stuffed a half-dozen golf balls into his own mouth. It cheered my old man up. Deaths become official when mentioned in the New York Times or any two major newspapers. One player is extremely frustrated, I was told. He has Idi Amin, who is on life support in a Saudi hospital. Now there have been death threats, and armed guards have been posted. Since the listees are all on various rungs on the ladder of celebrityhood, The Game is understandably rife with abstraction. After all, the dead pool has probably been around since the phenomenon of fame itself, write Gelfand and Wilkinson in the book Dead Pool. It has certainly been around as long as gallows humor has. In the heyday of hard-boiled journalism (the Front Page days of the 1930s), reporters who covered a country ravaged by organized crime and engaged in a world war found respite in the dark humor of the dead pool. Even before the Internet, the dead pool was slowly emerging from the shadows of our culture. As with dead pools, ranging from business offices to Howard Stern s radio show, that book is a guide to profiting from money bets. But members of The Game play solely for the fun of it. Whoever has the most points at the end of the year wins One couple, the Moorebids, insist, We play for honor, not bragging rights. It has to do with honoring who you get the hit on. Another player told me, I compare playing The Game to my day job, science. We do a lot of data collection and data analysis; play our hunches. Our reward is not financial, but peer recognition. One selects some names to acknowledge the person. Other names are selected because earning you points is their last opportunity to do something productive and honorable in their otherwise useless life. My most missed hit was Spiggy Nixon s disgraced vice president, Spiro Agnew; I was distressed at missing him. Each Gamester pays 10 to Pontius, official coordinataor and editor, to keep score and report the hits. There are players in over 30 states (23 in New York), plus one each in Quito, Kuwait, England and Australia. You can become a Gamester only by being recommended by another Gamester. They re mostly baby boomers, attracted by a whimsical, informative style of reporting. Forty-nine Gamesters hit Buddy Ebsen. Obituaries mentioned that after ten days of filming The Wizard of Oz, Ebsen fell ill because of the aluminum make-up on his skin, and was replaced as the Tin Man by Jack Haley. (A suspicious player wondered, Did Jack Haley add something to the aluminum make-up at the Wizard set? ) Conversely, there have been solo s on the unexpected demise of Princess Diana and JFK, Jr. A solo I am proud of, one Gamester told me, is the hit on Christian Nelson, who invented the Klondike Bar. Yes, it s sick, another player admitted, but c mon, it s just a game! The Game is a light-hearted way of spitting in death s eye But isn t it somewhat ghoulish? Ghoulish? a participant replied. No more so than fantasy baseball. We can get up in the morning, and either pick up the newspaper or turn on the Internet to see if we scored, every day. It s like baseball stats, you want to move up in the standings of the veterans. The reason we Gamesters play, I would say it s about style. Style involves who you pick. Some concentrate on music, some on politics, some on sports. As for social significance, one player explained that The pastime has been going on for more than four hundred years, so I don t think it s reflective of any given time or society. Every Gamester comes with their own perspective. The Game is irreverent, even a bit shocking, and some take pleasure in that. It s a poke to the ribs that lie beneath stuffed shirts, a tweak of bluenoses. The Game is a competition challenging, engaging and energizing. The Game heightens awareness and helps us to recognize our kinship with those whose deaths we note. The Game is a way of sharing and staying in touch with friends, whether near or far. It gives people a reason to call and correspond. Pontius s predecessor, Ghostwriter, had thanked many folks in his farewell message, including Persephone, who enabled me to say, Yes, when a friend here in Central New York said, Do you know a good adoption lawyer in Arkansas? It was my greatest cameo role, my finest hour as a networker, and I couldn t have done it without The Game and this wise, wonderful woman. The Game s listserv emails are titled It s a Hit! They can be poignant, respectful, even sentimental: July 4th A score of swaying Gamesters were heard singing I Can t Get Enough of Your Love, Babe as each collected a five-note from velvety-voiced singer Barry White . . . Or they can sound like a warhorse race: July 22nd Mosul, Iraq. Qusay and Uday, the brutal and powerful sons of former Iraqi dictator Saddam Hussein, were ambushed by Special Forces and the 101st Airborne that resulted in a deadly four-hour firefight. Enjoying the best day of his career was Tomb Essence who had a 14-point Daily Double . . . But The Game giveth and the Game taketh away: August 21st British and American armed forces in Iraq announced today that they had arrested Ali Hasan al-Majid, aka Chemical Ali. Back in April 2003, the British armed forces announced they had killed him. Tomb Essence celebrated then, but is crying like a baby now. Animals have also been scored, from Morris the Cat to Dolly the cloned sheep to Keiko the killer whale. Choices can get personal, though. A player told me, I purposely Left off a good friend former New York Post editor Jerry Nachman who I knew was dying, and one of our game mates refused to list a friend s famous mother who knew she was dying. Sometimes we just don t want to cash in on our friends pain. How un-American of us. Gamesters have scored on all the Kennedys as well as Lorraine Petersen, the model on the Sunmaid Raisins box. But, under the title It s Not a Hit! came this email: August 9 th The entire Game failed to list dancer and actor Gregory Hines, 57. In The Game s 2001 Hit List, under the subhead Other Notable Deaths That No One Picked, included was Ken Kesey, 11 1201, author, One Flew Over the Cuckoo s Nest. I had a visceral reaction. This was not abstract. I never could decide if leaving Kesey off my list was the right thing to do, one Gamester told me. The Merry Pranksters obviously inspired my non de plume, the Bury Pranksters. Trashing the Right to Read Before Kenneth Foster s death sentence was revoked at the last minute in August 2007, he had read a book, Welcome to the Terrordome, and he wrote a letter to the author, Dave Zirin: I have never had the opportunity to view sports in this way. And as I went through these revelations I began to have epiphanies about the way sports have a similar existence in prison. The similarities shook me. Facing execution, the only thing that I began to get obsessive about was how to get heard and be free, and as the saying goes, you can t serve two gods. Sports, as you know, becomes a way of life. You monitor it, you almost come to breathe it. Sports becomes a way of life in prison, because it becomes a way of survival. For men that don t have family or friends to help them financially, it becomes a way to occupy your time. That s another sad story in itself, but it s the root to many men s obsession with sports. Zirin writes, It didn t matter if he was on death row or Park Avenue, I felt smarter having read his words. But even more satisfying was the thought that thinking about sports took his mind But a form titled Texas Dept. of Criminal Justice, Publication Review was banned from Death Row because It contains material that a reasonable person would construe as written solely for the purpose of communicating information designed to achieve the breakdown of prisons through offender disruption such as strikes or riots. Two pages were specifically mentioned. Page 44 includes a quote from Jackie Robinson s autobiography referring to the blatant racism he suffered early in his rookie season: I felt tortured and I tried to just play ball and ignore the insults but it was really getting to me. For one wild and rage-crazed moment I thought, To hell with Mr. Rickey s noble experiment. To hell with the image of the patient black freak I was supposed to create. I could throw down my bat, stride over to that Phillies dugout, grab one of those white sons of bitches, and smash his teeth in with my despised black fist. Then I could walk away from it all. And page 55 includes a passage about Jack Johnson s defeat of the Great White Hope, Jim Jeffries: Johnson was faster, stronger and smarter than Jeffries. He knocked Jeffries out with ease. After Johnson s victory, there were race riots around the country in Illinois, Missouri, New York, Ohio, Pennsylvania, Colorado, Texas and Washington, D.C. Most of the riots consisted of white lynch mobs attacking blacks, and blacks fighting back. This reaction to a boxing match was one of the most widespread racial uprisings in the U.S. until the 1968 assassination of civil rights leader Dr. Martin Luther King Jr. Zirin points out that There was a time in Texas when it was illegal to teach slaves to read. The fear was that ideas could turn anger often directed inward into action against those with their boots on black necks. It is perhaps the most fitting possible tribute to Jackie Robinson and Jack Johnson that they still strike fear into the hearts of those wearing the boots. In the Dallas County jail, one of the largest in the country, all publications are refused, including daily newspapers such as the Dallas Morning News. They seem to have a rather callous disregard for the Constitution, said Paul Wright, publisher of Seattle-based Prison Legal News, with a circulation of 9,000. He filed a federal lawsuit challenging the ban on First Amendment grounds, and won. His lawyer, Scott Medlock, prisoner rights attorney with the Texas Civil Rights Project, points out that some jails have argued that prisoners can watch TV news in jail, so they don t need access to publications. Prison Legal News is also preparing a lawsuit against the Utah Department of Corrections for a policy that bars all books except those that are shipped directly from Barnes Noble. Generally, prisons require that books be sent directly from the publisher or a major distributor, for security reasons. Otherwise, a spokesperson for one jail explains, There s a possibility something could be in one of the pages that we don t want. There could be little bits of drugs in the pages. We have not yet sued them. Wright told me, since they only sporadically censor us and aren t letting us develop a good fact pattern. A spokesperson for the Los Angeles County Sheriff s Department said that its jails allow inmates to receive books from booksellers after checking to see whether they can be fashioned into a weapon, promote violence or have sexually explicit content. Across the country, only paperbacks are accepted. Hardcovers are rejected because they provide source material for fashioning weapons. When the Supreme Court ruled that law libraries did not have to be provided to prisoners, jails in Montana not only removed the entire contents of the law library, but they also removed the typewriters. Washington State has tried to keep Prison Legal News itself out of prisons. First, the Department of Corrections prohibited inmates from receiving nonprofits. PLN sued and won. Next, the state issued a rule that inmates couldn t receive publications that were paid out of their trust accounts. PLN managed to get that rule overturned too. Then the prisons adopted a policy of not delivering subscription-renewal notices. PLN took that to court and succeeded in getting the policy reversed. PLN has won similar lawsuits or settlements in Alabama, California, Michigan, Nevada and Oregon. While serving five years in a California prison for growing medical marijuana, Todd McCormick contributed a couple of stories This was pure theater of cruelty. Federal correctional facilities do not have a toad problem, and outside accomplices have not been catapulting loads of toads over barbed wire fences to provide the fuel for a prison riot. McCormick wrote to me, Can you believe this shit! I wonder how much we pay the guy girl who actually sits and reads every book that comes in for offending passages. How about you tear out pages 259-261 and re-send this book back with a copy of the rejection and a notation that the offending pages have been removed. Which is exactly what I did. This time, though, my cover letter to the warden was ignored, and the book was returned, stamped Unauthorized. I had called their bluff. Obviously, McCormick was being punished simply because he could be. I then corresponded with several prison correspondents around the country to find out what inmates had not been allowed to read. I wanted to see other examples of arbitrary and frivolous censorship by prison personnel. Here are some results of my informal survey: The Texas Department of Corrections blocked Bo Lozoff s Breaking Out of Jail, a book about teaching meditation to prison inmates. Disallowed: Trainspotting because of its glorification of drug use. Tom Robbins Still Life With Woodpecker because it has a chapter that contains information about bombmaking. An inmate couldn t get nude pictures of his wife sent to him but he could get a subscription to Playboy. The rationale: A wife deserved more respect. They kept out The Anarchists Cookbook. And no kiddie porn, no tales or photos suggesting sex with a guard, no photos showing frontal or rear nudity The Utah prison system banned Rolling Stone as being an anarchist publication. A Revolution in Kindness is banned from the Louisiana State Penitentiary at Angola as a threat to internal security. It was intended for Herman Wallace, who contributed an essay about how he organized a chess tournament on his cellblock as a way of easing tensions and minimizing violence between inmates. Wallace is one of the Angola Three, Black Panthers who have been in solitary confinement for more than three decades trying to improve conditions in the bloodiest prison in America in the early 1970s. All hardback books forbidden, because the covers could be fashioned into weapons. Educational textbooks There s a whole new genre of men s magazines Peace activist William Combs spent eight days in solitary confinement for receiving and sharing with other inmates what federal authorities consider disruptive, if not subversive, political literature. The offending propaganda included commentary by such extremists as Bill Moyers and Ellen Goodman, and included an article published in Reader s Digest. The common thread was that they all questioned the wisdom of government policy. The name of the game is control in the guise of security After Magic Mushrooms and Other Highs was rejected for the second time, I appealed to the Regional Director of the Bureau of Prisons (as instructed by the warden) for an independent review. I also wrote to the ACLU. I heard back from neither. Todd McCormick was released from prison in December 2003. Among so many other things to catch up on, he would finally be able to read what he had written. However, he was discharged to a halfway house, where all his books and magazines were confiscated as paraphernalia. Postscript: Prisoners at a jail in South Carolina are being denied any reading material other than the Bible. In May 2011, the ACLU asked a federal judge to block enforcement of that policy. A staff member at the prison told plaintiff Prison Legal News: Our inmates are only allowed to receive soft back bibles in the mail directly from the publisher. They are not allowed to have magazines, newspapers, or any other type of books. There is no library there, and since 2008, all copies of Prison Legal News that were sent to prisoners have been returned to sender. In July 2017, the national Human Rights Defense Center organization has filed a federal lawsuit against the Kentucky Department of Corrections for violating free speech. It has unconstitutionally blocked the delivery of many books to state prisoners, including the Prisoner Diabetes Handbook, the Merriam-Webster Dictionary of Law, and the Prisoners Self-Help Litigation Manual. Welcome to Camp Mogul My irreverent friend, Khan Manka, Chairman CEO of Manka Brothers Studios, had broken his ankle and was afraid he wouldn t be able to attend the 26th annual gathering of the nation s most powerful executives and their trophy wives in Sun Valley, Idaho. I really wanted to spy on this 2008 summer camp for billionaires, so I suggested that Manka get a wheelchair, then I could serve as his official wheelchair pusher, and he immediately went for the idea. This by-now traditional five-day extravaganza for three hundred guests was hosted by Wall Street investment banker Herbert Allen, President and CEO of Allen Company. There were moguls all over the campground, overflowing with the country s most influential leaders in business, entertainment and media. I could feel myself developing a severe case of imposter syndrome. Saturday was Talent Night, and it was absolutely hysterical. Part-time Sun Valley resident Tom Hanks served as the emcee. Warren Buffett was the opening act, performing a medley of Jimmy Buffett songs, all rendered out of tune. Amazon.com founder Jeff Bezos skillfully juggled five Kindles (wireless electronic books). Edgar Bronfman from Warner Music There had been a lot of drinking in the evening, and it was obviously too much booze that loosened up Fox mogul Rupert Murdoch s tongue. He was shouting at the moon: Who says there are twenty-seven million slaves around the world? And where the fuck can I get one? How would anybody know it s twenty-seven million anyway? Do they have census takers or what? You tell me! I ll decide! Also, a screaming match broke out between Google co-founder Sergei Brin and Google CEO Eric Schmidt, over the infamous cover of the New Yorker, which depicted Barack and Michelle Obama as the new President and First Lady, a terrorist couple doing that fist-bump gesture in the Oval Office. Sergei thought it was a brilliant satirical illustration, but Eric thought it was racist and irresponsible. Last year, the surprise guest was former British Prime Minister Tony Blair. This year, it was Steven Beschloss, the editor of a new magazine, scheduled to be launched in October 2008 and be delivered to 100,000 U.S. households with an average net worth of 25 million. There were piles of preview copies scattered about. While Beschloss was holding court in an outdoor area, annoying mosquitoes kept buzzing around the crowd. Mark Zuckerberg, the founder of Facebook, yelled at him, I guess we ll never hear your readers whining about a mental recession. And those of your subscribers who were in the sub-prime mortgage industry Someone yelled out, Where are you from, In-Your-Facebook? Others drowned out Zuckerberg s apparently serious rant by singing the mogul version of a couple of good old-fashioned camp songs, This Land Is My Land, This Land Is My Land and KumBuyYahoo. I couldn t help but notice that billionaire activist Carl Icahn snapped his fingers as if having an epiphany; a week later he ended up on Yahoo s board of directors. Khan Manka explained that the bigwigs at these events have so-called informal meetings which always take place where a pair of individuals can have their discussions alone without any interruption Back in 1995, he told me, Disney honcho Michael Eisner met with Robert Iger, who was then the head of ABC. And exactly one month later, these two giant companies merged into one media megamonster. Coincidence? I don t think so. Their deal had been sealed when Eisner and Iger exchanged friendship bracelets that they had worked on at Camp Mogul. HIGHER THAN THOU Checkmating With Pawns It was a hot day at the chess tournament in Phoenix, Arizona 103 degrees, to be exact and 14-year-old Nathaniel Dight was elated over his custom-made chess set. Those carved wooden pieces had been weighted precisely for the smooth moves he liked to make. Each one had been lacquered and, for this extreme heat, carefully protected by matte acrylic spray. But before the game could begin, young Nathaniel was ordered to take a urine test. I know why you re doing this, he snarled. It s because I ve won three tournaments in a row, isn t it? No, son, that s just a coincidence. This is a random drug test. I don t do any drugs. I mean like when I get a headache from playing chess too long, I won t even take an aspirin. Look, here s a cup. I need you to go fill it, right now . . . All right, I confess, I made all that up, but consider the implications of something that I haven t made up: America s drug czar, Barry McCaffrey, wrote in an article published in Chess Life magazine: Research proves that mentoring youngsters and teaching them games like chess can build resilience in the face of illegal drug use and other destructive temptations. Drug testing is as appropriate for chess players as for shot-putters, or any other competitors who use their heads as well as their hands. Accompanying the television image of a couple of eggs sizzling in a frying pan, the phrase, This is your brain on drugs has always carried negative connotations, but apparently General McCaffrey has changed his mind about that. He now seems to believe that drugs can actually improve the way your brain functions. There was an infamous chess player named Alexander Alekhine who held the world championship longer than anybody else. His games often had superb surprise endings, known in chess circles as brilliancies. For instance, he would checkmate with a pawn move that no sane and sober mind could ever imagine. However, he was a notorious alcoholic, and McCaffrey is only referring to illegal drugs. Just when I thought I d heard it all from McCaffrey, was the reaction of Allen St. Pierre, executive director of the NORML (National Organization for the Reform of Marijuana Laws) Foundation. Drug testing for chess players? What s next from this overreaching drug czar? Drug testing for tiddlywinks players? How about bingo players? Moreover, McCaffrey s proposal smacks of subliminal racism. Social psychologist Walli Leff tells me, I think most of the movement to involve young people in chess is directed toward the African-American community, and the assumption is, if the kids are black they re going to be drug users. I think white middle-class suburban parents would have a fit if their kids had to take drug tests for their extracurricular activities. Or am I out of it and am I missing a new, white middle-class suburban submissiveness? McCaffrey had been influenced by Chesschild, a group sponsored by the Office of National Drug Control Policy (ONDCP). Chesschild is a substance abuse prevention program conducted in libraries and schools, promoting a combination of drug-free lifestyles and chess. Policy recommendations like this one from ONDCP, said St. Pierre, demonstrate a deep and disturbing pathology that goes well beyond opposing drug-law reform efforts. Maybe the drug-law reformers should follow the example of gay-rights activists by having celebrities come out of the pot-smoking closet. Already, veteran stand-up comic George Carlin in an interview by The Daily Show s Jon Stewart following Carlin s HBO special admitted that he smokes a joint to help him fine-tune his material. One hit is all I need now and it s punch-up time. At the Shadow Convention that took place while the Democrats were in Los Angeles, Bill Maher revealed to the audience, I m not just a pot reformer, I m a user something which ABC forbids him to say on Politically Incorrect then quickly added, Just making a light remark there, federal authorities. Actor and hemp activist Woody Harrelson has stated, I do smoke. Willie Nelson confirmed in his autobiography that he smoked pot in the White House. And on KRLA, radio talk-show host Michael Jackson s program, Michelle Phillips, actress and former member of the Mamas and the Papas, said that she still enjoys smoking marijuana. Just as Ellen DeGeneres appeared on the cover of TIME magazine saying, Yep, I m gay, there might come a day when a presidential candidate will appear on the cover of Newsweek saying, Yep, I m stoned. Isn t that what young pot-smokers need good role models so they won t be ashamed of their private pleasure seeking? Meanwhile, drug czar McCaffrey would continue his crusade, not only against illegal substances, but perhaps also against certain food supplements, such as a popular herbal mixture with a reputation for aiding memory and concentration. Who could ever have dreamed that chess players might get in trouble for using ginkgo biloba as a performance enhancer? Tim Leary, Ram Dass, and Me In 1964, I assigned Robert Anton Wilson to write a front-cover article in The Realist, which he titled Timothy Leary and His Psychological H-Bomb. When that issue was published, Leary invited me to visit the Castalia Foundation, his borrowed estate in Millbrook, New York. The name Castalia came from The Bead Game by Herman Hesse, and indeed, the game metaphor permeated our conversation. Leary talked about the way people are always trying to get you onto their game-boards. He discussed the biochemical process imprinting with the same passion that he claimed he didn t believe anything he was saying, but somehow I managed to believe him when he told me that I had an honest mind. I have to admit, I said, that my ego can t help but respond to your observation. Listen, he assured me, anybody who tells you he s transcended his ego . . . Leary and his research partner, Ram Dass (then Richard Alpert) were about to do a lecture series on the West Coast. At the University of California in Berkeley, there was an official announcement that the distribution only of informative literature (as opposed to persuasive literature) would be permitted on campus, giving rise to the Free Speech Movement, with thousands of students protesting the ban in the face of police billy clubs. Leary argued that such demonstrations played right onto the game boards of the administration and the police alike, and that the students could shake up the establishment much more if they would just stay in their rooms and change their nervous systems. But it wasn't really a case of either-or. You could protest and explore your 13-billion-cell mind simultaneously. I became intrigued by the playful and subtle patterns of awareness that Leary and Alpert manifested. If their brains had been so damaged, as mythologized by mainstream media, how come their perceptions were so sharp? I began to research the LSD phenomenon, and in April 1965 I returned to Millbrook for my first acid experience. Tim Leary was supposed to be my guide, but he had gone off to India. Dick Alpert was supposed to take his place, but he was too involved in getting ready to open at the Village Vanguard as a comedian-philosopher. I chatted with him for a while. He was soaking his body in a bathtub, preparing his psyche for the Vanguard gig. He had taken 300 acid trips, but there I was, a first-timer, standing in the open doorway, reversing roles and comforting him in his anxiety about entering show business. When I told my mother about taking LSD, she was quite concerned. She warned me, It could lead to marijuana. And she was right. It did. After Leary got arrested in Texas for possession of pot, the notoriety of his research in Millbrook spread. Law enforcement in nearby Poughkeepsie, led by Assistant District Attorney G. Gordon Liddy, raided the estate. In the summer of 1966, Leary and his associates ran a two-week seminar on consciousness expansion, culminating in a theatrical production of Hesse's Steppenwolf legend that weaved its way around the Millbrook grounds and buildings. Leary invited Liddy and members of the grand jury that indicted him, but none showed up. Leary told me about prominent people whose lives had been changed by taking LSD: actor Cary Grant, director Otto Preminger, think-tanker Herman Kahn, Alcoholics Anonymous founder Bill Wilson, TIME magazine publishers Henry and Clare Boothe Luce. Of course, it wasn't so difficult to drop out when you had such a stimulating scene to drop into. On the day that he announced the formation of a new religion, the League for Spiritual Discovery (LSD), I signed up as their first heretic. Alpert and I enjoyed what he called upleveling each other with honesty. On one occasion, we were at a party. I was particularly manic and he pointed it out, choosing an eggbeater as his analogy. I appreciated his reflection and calmed down. On stage at the Village Theater, Alpert was sitting in the lotus position on a cushion, talking about his mother dying and how there seemed to be a conspiracy on the part of relatives and hospital personnel alike to deny her the realization of that possibility. He also talked about some fellow in a mental institution who thought he was Jesus Christ. Conversely, I teased him about discussing his mother openly but concealing the fact that the man who thought he was Christ was his brother The essential difference between Tim Leary and G. Gordon Liddy was that Leary wanted people to use LSD as a vehicle for expanding consciousness, whereas Liddy wanted to put LSD on the steering wheel of columnist Jack Anderson s car, thereby making a political assassination look like an automobile accident. But who could have predicted that, sixteen years after the original arrest, Leary would end up traveling around with Liddy in a series of debates? I attended the debate in Berkeley in April 1982. Leary warned the audience that Liddy was a lawyer As long as it's not Doctor Spock, said Liddy. He argued that the rights of the state transcend those of the individual. Not that he was without compassion. I feel sorry, he admitted, for anybody who uses drugs for aphrodisiacal purposes. Gordon doesn't know anything about drugs, countered Leary. It's probably his only weakness. He looked directly at Liddy. It's my duty to turn you on, he said, and I'm gonna do it before these debates are over. Then he made a unique offer: I'll eat a rat if you'll eat a hashish cookie. Liddy turned down the offer But there were rumors that when Leary and Liddy were on tour, the Psychedelic Liberation Front found out their itinerary and began feeding hash brownies to rats and releasing them, one by one, in Liddy's room at the various motels he stayed at, while he was debating, in the hope that nature would sooner or later take its course, and one night Liddy would feel in the mood for a midnight snack, catch the rat that was left in the room, eat it and, by extension, the hash brownie the rat had eaten, and then Liddy would think he got stoned from eating the rat. This would, of course, be right on the borderline on the ethics of dosing. Each tablet of Owsley White Lightning contained 300 micrograms of LSD. I had purchased a large enough supply from Alpert to finance his trip to India. The day before he left to meditate for six months, we sat in a restaurant discussing the concept of choiceless awareness while trying to decide what to order on the menu. In India, he gave his guru three tablets, and apparently nothing happened. Alpert's postcard to me beckoned, Come fuck the universe with me. Instead, I stayed tripping in America, where I kept my entire stash of acid in a bank vault deposit box. Richard Alpert returned as Baba Ram Dass. Eventually, he dropped the Baba. He was now just plain Ram Dass. His father called him Rum Dum. His brother called him Rammed Ass. One afternoon he was visiting me, and I taped our conversation. In 1963, I said, I predicted as a joke that Tiny Tim would get married on the Johnny Carson show, and in 1969 it happened. You and I talked about that, and you called it 'astral humor,' but I never knew exactly what you meant by that phrase. Well, it's like each plane of reality is in a sense a manifestation of a plane prior to it, and you can almost see it like layers, although to think of it in space is a fallacy because it's all the same space, but you could think of it that way. And so there are beings on upper planes who are instruments of the law. I talk about miracles a lot, but I don't live in the world of miracles, because they're not miracles to me. I'm just dealing with the humor of the miracle concept from within the plane where it seems like a miracle, which is merely because of our very narrow concept of how the universe works. Ram Dass knew of my involvement with conspiracy theory. I'm just involved in a much greater conspiracy, he continued. You can't grasp the size of the conspiracy I understand Would you agree with the concept I think that suffering is part of man's condition, and that's what the incarnation is about, and that's what the human plane is. So I asked Ram Dass, If you and I were to exchange philosophies And then his low chuckle of amusement and surprise blossomed into an uproarious belly laugh of delight and triumph as he savored the implications of his own Zen answer. I would find myself playing that segment of the tape with his bell-shaped spasm of laughter over and over again, like a favorite piece of music. Remembering Scott Kelman Scott Kelman had seen me perform stand-up satire at Town Hall in New York in 1962, and again twenty years later at the L.A. Stage Company in Hollywood. He moved to Los Angeles and in 1984 launched an alternative theater in the grungy, old, industrial skid-row area of downtown. He named it the Wallenboyd (at the corner of Wall and Boyd) Theater and invited me to open there as soon as it was completed. In fact, on the first night of my performances, the crew was still banging in the final nails. At the time, I was living in San Francisco, so Scott slept at his office and I stayed at his apartment in Venice Beach. A year later, I moved to an apartment on that same block. Scott became my producer and my close friend. We never had any need for a signed contract. As my producer, he would occasionally give me suggestions and I would follow those that I felt worked for me. He d say in his distinctive gravelly voice (he was addicted to cigarettes), It doesn t matter if you fuck up it s how you recover. That was theatrical advice, but it also applied to life. And it was a two-way street. For Scott, whatever happened in life automatically became grist for his theatrical mill. He was an exemplary explorer. Knowing I was an unbeliever, he once asked me, What do atheists say during sex when they come? Oh, no-God! I responded, interspersing those words with moans and groans. Oh, no-God! Oh, no-God! Oh, no-God! He suggested that I expand that concept into a stage piece, and it evolved into a ten-minute meditation on the relationship between religion and orgasms. Scott conducted theatrical workshops, and one of his students was John Densmore, the former drummer for The Doors. I stumbled into the downtown art scene, Densmore told me, after a big peak in rock n roll. It felt as creative as the 60s. I now get off on the process, and it doesn t matter if it s fifty people at the Wallenboyd or twenty thousand at Madison Square Garden, it s the work that rings my bell. Scott also produced Peter Bergman, of the Firesign Theatre. Scott thought that Peter, Paul and Harry would be a great title for an evening of political satire at the Museum of Contemporary Art. He asked the curator if she knew of an appropriate performer named Harry. She suggested Harry Shearer. Scott asked me about him. He s brilliant, I said, let s do it. And so he produced a completely sold-out series that was extended for two weekends. But if Harry had been named after his other grandfather, there wouldn t have been a Peter, Paul and Harry. Each of us prepared to perform in our own particular way. Peter stared at himself in the mirror and made strange sounds to exercise his vocal cords. Harry sat in a separate room where his makeup woman, who had flown in from Iowa, transformed him into Derek Smalls from the mockumentary Spinal Tap. And I was off hiding behind some boxes, toking away on a joint of the marijuana that served as my creative fuel. Scott was sure that I performed better when I wasn t high, and he was under the impression I was straight when he told me one night, That was the best show you ve ever done. I confessed that I had smoked a giant doobie before I went onstage. The irony was that Scott sold pot to help pay the rent, and that was exactly the stash that got me stoned that night. The 20th Anniversary of the Summer of Love I never went to any of my high school or college reunions, but I couldn't resist attending the twentieth anniversary of the Summer of Love in San Francisco. At noon on the summer solstice of 1987, young and middle-aged hippies One fellow still in civilian clothes explained, I was supposed to be Tarzan, but I had to wash the dishes. Local countercultural fixtures were all there: The Mime Troupe, Rosie Radiator and her fleet of tap dancers, the Automatic Human Juke Box, and a panhandler asking, Can you spare a hundred dollars? The buses now had posters that suggested Shop the Haight. The charm of that entrepreneurial urge was not to be confused with the mission of the Haight-Ashbury Preservation Society, whose targets were symbolized by a walking Big Mac cheeseburger, a prisoner of Thrifty s in chain-store chains, mock pallbearers carrying a casket to mourn the wished-for death of Round Table Pizza, a sign warning Don't Mall the Haight! and somebody in a Merlin the Magician outfit with a placard, You don't need magic to fight the franchising. A lone, sad-faced clown bore a banner with a white dove in a red heart. In Golden Gate Park, an emcee asked the crowd a series of rhetorical questions to rev them up: How many people were here in the sixties? . . . How many are here now? . . . How many don't know? . . . How many don't care? A musician announced, We were told not to have amplifiers, but we decided to break the law today. Hog Farmer Sharon Share-alike offered her roll of hard candy to novelist Herb Gold, which immediately aroused his fear of dosing. He asked, These really are Life Savers, right? The Summer of Love reunion continued at the I-Beam, a disco on Haight Street. On stage, I compared the decades: In the sixties, marijuana was ten dollars an ounce. In the eighties, it's three hundred. In the sixties, teenagers used to hide their pot smoking from their parents. In the eighties, parents have to hide it from their kids. In the sixties, the favorite chemical drug was LSD. In the eighties, it's Ecstasy. In the sixties, Ken Kesey wasn't allowed to donate blood because he had ingested acid. In the eighties, there are those who are afraid to get a blood transfusion because of AIDS. In the sixties, Lenny Bruce got arrested for saying cocksucker on stage. In the eighties, Meryl Streep got an Academy Award for saying it in Sophie's Choice. Now, almost the entire audience at a Grateful Dead concert is younger than the number of years the band has been together When a group of students and other protesters, including Abbie Hoffman and Amy Carter (the president s daughter), won their case against CIA recruiting on campus by using a necessity defense, attorney Leonard Weinglass told me that the turning point for the jury was the testimony of Ralph McGehee, who revealed how he had been recruited right off the football field by the CIA, only to become a star player in their assassination-squad program. Members of the jury would not have voted that way in the sixties because they weren't prepared to believe such testimony as they are in the eighties. In the sixties, we knew that the CIA was smuggling heroin from Southeast Asia. And in the eighties we know that they're smuggling cocaine from Central America. The same planes that fly weapons for the contras to airports in Panama, Honduras and Costa Rica come back to Florida, Louisiana and Arkansas with their cargoes filled to the brim with cocaine, even though the administration is carrying on its anti-drug campaign. The pilots only have to be careful to evade the radar screen. So while Nancy Reagan is saying, Just say no, the CIA is saying, Just fly low. Meanwhile, the quality of co-option had not been strained. The slogan Today is the first day of the rest of your life was used in a TV commercial for Total breakfast cereal. Tampax promoted its tampon as Something over thirty you can trust. Beatles songs were used to sell cars, or, if you preferred to walk, they also sold sneakers. Time magazine was being peddled by the Byrds' version of Pete Seeger's song, Turn, Turn, Turn The Youngbloods once sent a copy of their song Get Together to every member of Congress and the Senate, with a suggestion that it be established as the new national anthem, but who could ever have guessed that it was really destined to become a jingle in a jeans commercial? Or that a Jefferson Airplane song would be used in a bank commercial? Or that Timothy Leary would model a Gap shirt for a full-page ad in Interview, and Ram Dass would peddle a rejuvenating skin cream at a Saks Fifth Avenue counter? People magazine was selling the twentieth anniversary of the Summer of Love with a feature story set off by a double-paged cover with psychedelic artist Peter Max's signature on both pages. In red spray paint, on a brick wall just off Haight Street, standing out among the graffiti like John Hancock's signature on the Declaration of Independence, this message summed it all up: Love Is Revenue. POLITICS The Last Election The Republicans party line that Barack Obama was palling around with terrorists didn t work, although some people believed it because then they wouldn t need a racist reason not to vote for Obama. Next, the campaign acted as though his advocacy of age-appropriate sex education for kindergarteners meant putting condoms on cucumbers. That didn t work, either. Then John McCain tried calling him a socialist. Also didn t work. Ironically, Socialist Party candidate Norman Thomas ran for president six times, and never won, but every one of his platform planks were eventually adopted by Democrats and Republican administrations alike. They just didn t call it socialism. In January 2009, Christian broadcaster Pat Robertson stated that God told him America is headed for veritable socialism as well as an economic rebound under President-elect Obama. What the Lord was saying, he claimed, the people are willing to accept socialism to alleviate their pain. Cast off all the gloom and the doom because things are getting ready to turn around. I say with humility, I hope I ve heard the Lord. I spend time praying and asking him for wisdom, and if there s a mistake, it s not his fault, it s mine. Humility in action. In any case, one of the factors in Obama s win was indeed the confidence-destroying financial crisis, and now he faces a food chain of euphemisms. Hey, is this like the Great Depression? Nah, it s not a depression, it s only a recession. Wait, it s not a recession, it s just an economic downturn. No, it s not an economic downturn, it s a correction. Oops, it s not a correction, it s an adjustment. Hurry, get me a chiropractor. Similarly, there s a food-chain of solutions to the problem. From the Troubled Asset Relief Program to the Bailout Bill to the Rescue Package to the Emergency Economic Stability Act to Alan Greenspan confessing My bad to Free Botox for Everybody. Perhaps the most bizarre byproduct of the campaign began with an anonymous ad on Craigslist, headlined: Need Sarah Palin Lookalike ASAP for Adult Film. The pay would be 3,000 and, it was duly noted, No anal required. This porn flick, it turned out, would be shot by Hustler Video, and no, Tina Fey did not apply for the job. The climactic scene was a threesome with Sarah Palin, Condoleezza Rice and Hillary Clinton. Hillary was played by veteran porn star and sex educator Nina Hartley, who told me that The big hullabaloo over the movie is being generated by feminists from both the pro- and anti-porn sides. They're up in arms that women are being non-consensually satirized by Big Evil Porn, and The Big Bad Larry Flynt. The usual nonsense from the usual suspects. Even some pro-porn feminists are upset at Palin being targeted by porn. They conveniently overlook the fact that most porn satirizes white men in power: politicians, police, professors. Most recent case in point, The Elliot Splizter Story . . . Who s Nailin Paylin was ready for release before the election, as was an issue of the horror comic book Tales From the Crypt, which featured on the cover a painting of Sarah Palin swinging her hockey stick to disperse the Vault-Keeper and other ghoulish characters as she sneeringly asks, Didn t we get rid of you guys in the 50s? However, another publisher was producing a comic-book biography of Palin that wouldn t be released until February 2009, so two endings were prepared. But an edition of South Park Some editors were undecided about whether to publish it. Trudeau encouraged them to choose hope over fear. If I m wrong, he told the Los Angeles Times, it ll be my face that ll be covered with eggs, not theirs. Times editors had decided, in the interest of accuracy, to wait for the election results, and if Obama won, they would publish the strip on Thursday, but then they must have realized it was just a comic strip, not investigative journalism, and they published it on Wednesday after all. Trudeau thought that newspapers should run the strip because polling data gives McCain a 3.7 chance of victory. Indeed, a week after Obama s win, McCain himself admitted to Jay Leno, I can read the polls During the 1968 Democratic convention in Chicago, I was among 15,000 protesters who had gathered in Grant Park for a rally when the police, triggered by the actions of one of their own provocateurs, attacked the demonstrators and sadistically beat as many as they could reach. It seemed impossible that we could ever work within the system. But now, forty years later, there were 200,000 celebrants who had gathered in that same park, giddy with the excitement of Obama s victory. They had worked within the system. During the past four decades, there has been a linear progression from Jimi Hendrix playing The Star-Spangled Banner at Woodstock to Aretha Franklin singing My Country, tis of Thee at the inauguration. Is it possible that this event signified the early tremors of a nonviolent revolution? As the late singer songwriter Harry Chapin once said to me backstage at a benefit: If you don t act like there s hope, there is no hope. And remember, placebos work. My hope is I don t get disappointed. But I did. Meanwhile, the memorabilia business flourishes as millions of voters seek a variety of tangible items to remind them of the part they played in history simply by voting. Mouse pads, baby bibs, aprons, dog jerseys, bobble-heads, niche buttons ( Ventriloquists for Obama ), T-shirts ( Now I Don t Have to Move to Canada ) and, as reported by NPR, Obama condoms. Somebody bid 400 on eBay for the November 5th issue of the New York Times. USA Today printed 500,000 extra copies; the Washington Post printed 350,000 extras. The only thing I saved was a full-page ad by the 99 Cents Only stores, which included a Joe the Plumber Special plunger. There was no limit on how many I could buy. A Letter to Barack Obama October 10, 2010 Dear President Obama, It seems that the theme emanating from the White House is Eat, Pray, Be Disappointed. And yet, whenever I do feel disappointed, I always realize that the alternative was John McCain, with Sarah Palin just one Halloween Boo! away from the presidency, and then I always feel a sense of relief. Actually, you ve kept one big campaign promise Also, during the campaign, you said you believe that the legality of same-sex marriage should be decided by the states, but that you personally think marriage should be between a man and a woman. Which is exactly the position that eventually led to the revocation of Carrie Prejean s Miss USA crown. And another thing. You promised to end the raids on medical marijuana dispensaries, but they haven t stopped. In 2009, Attorney General Eric Holder issued a memo ordering an end to federal raids of medical marijuana dispensaries. In March 2011, there were 28 such raids in a duration of 24 hours. Here s how I understand Washington. America s puritanical political process serves as a buffer between the status quo and the force of evolution. For instance, in order to get Republican votes for the children s healthcare bill, Democrats agreed to fund 28 million to their abstinence-only program. And, during your own campaign, you admitted, in the context of health care reform, that the multinational insurance conglomeration is so firmly entrenched that you would be unable to dispense with it. So there would have to be compromises. Now, what with the compromises made to help passage of Prop. 19, amnesty becomes the single-payer system of marijuana reform, and growing your own pot becomes the public option. Meanwhile, as long as any government can arbitrarily decide which drugs are legal and which drugs are illegal, then anyone serving time for a nonviolent drug offense is a political prisoner. In his new book, Bob Woodward writes about Colin Powell s status as an adviser to you. Referring to his previous book, Plan of Attack, the New York Times then reported that Secretary of State Colin Powell disputed Woodward s account .He said that he had an excellent relationship with Vice President Dick Cheney, and that he did not recall referring to officials at the Pentagon loyal to Cheney as the Gestapo office. Who among us would be unable to recall uttering such an epithet? Powell later apologized for it. He has also changed his mind about gays in the military. In my capacity as a stand-up satirist, I used to conduct an imaginary dialogue with Powell. General Powell, you re the first African-American to be head of the Joint Chiefs of Staff, and you come from the tradition of a military family. So you know that blacks were once segregated in the Army because the other soldiers might feel uncomfortable if blacks slept in the same barracks. And now that s what they say about gays, that other soldiers might feel uncomfortable about gays sleeping in the same barracks. Well, you have to understand, we never told anybody we were black. And, Mr. President, that was the forerunner of the same Don t ask, don t tell policy that you promised to rescind, only you haven t been acting like a Commander-in-Chief. All you have to do is sign such a directive. Those who serve in the military are trained to follow orders. If they can follow orders to kill fellow humans, they can certainly follow orders to treat openly gay service people with total equality. Not only is the current guideline counterproductive, but also this display of trickle-down immorality must, on some level of consciousness, serve as a contributing factor to enabling the anti-gay bullying and torturing of innocent victims. I know, you don t want to take a chance that retracting the policy would interfere with your re-election. You ve made the point that you don t want Mitt Romney to win in 2012 and turn around all the good things you ve accomplished. Incidentally, Romney had wanted to overturn Roe vs. Wade, yet, in 1994, when he was running for the Senate, he came out in favor of choice for women. However, freelance journalist Suzan Mazur revealed that he admitted to Mormon feminist Judith Dushku that the Brethren in Salt Lake City told him he could take a pro-choice position, and that in fact he probably had to in order to win in a liberal state like Massachusetts. Pandering trumps religious belief. Meantime, since gays and lesbians have waited so long for basic fairness, they might as well just wait for the next election. If you win, then would you kindly do immediately what you believe is right, constitutionally and in your heart, and end this injustice? The ultimate irony is that gays in the military are fighting, being maimed and dying unnecessarily, supposedly to protect the freedom their own country is denying them. Paul Krassner Postscript: I sent a copy of the letter to some folks that day. Among the responses, I received a message from a mother: I am trying to explain this to my twelve-year-old son, who wants to know why, if men and women don t share barracks in the military, why gay men and hetero men should share barracks, but then follows with They should all sleep in the same place. And that evening I received this email from a seasoned journalist: I know it's late, but I cannot wait to ask if this letter is a spoof, or you've actually sent it to Obama. If it's a spoof and you've not sent it to him, would you like to? I've got his fax number and he's got a great sense of humor. May I have your permission to send this to him? Absolutely. Two days later, to the dismay of Obama Nor was it a spoof when Attorney General Holder having been pressured by nine former DEA chiefs, plus the president of Mexico Let me state clearly that the Department of Justice strongly opposes Proposition 19. If passed, this legislation will greatly complicate federal drug enforcement efforts to the detriment of our citizens. We will vigorously enforce the law against those individuals and organizations that possess, manufacture or distribute marijuana for recreational use, even if such activities are permitted under state law. In a truly free society, the distinction of whether marijuana is used for medical or recreational purposes would be as irrelevant an excuse for discrimination as whether the sexual preference of gays and lesbians is innate or a matter of choice. And so it came to pass that Barack Obama was re-elected. His opponent, Romney, fell to his knees and pleaded, Oh, dear Lord, you promised that I would win. Why hast thou forsaken me? And the voice of God boomed out, HEY, MITT, LISTEN Unsafe at Safeway It was Steve Allen, and later Lenny Bruce, who said that Comedy is tragedy plus time. But everything is accelerating. Even the rate of acceleration is accelerating. The time between tragedy and comedy gets shorter and shorter. The more horrible the news is, the more victims there are to involuntarily serve as setups for punchlines. Reality has long been nipping at the heels of comedy, and it finally caught up. Example: On the same day that people were being burned alive in the fire at the Branch Davidian headquarters in Waco, Texas, Jay Leno did a joke in his Tonight Show monologue about there being two kinds of cult members there Of course, events like the recent madman massacre outside a Safeway supermarket can be challenging. How could made-up humor possibly top the actual absurdity of mass murderer Jared Loughner asking his MySpace friends not to be mad at him. After all, he was merely planning to indiscriminately kill as many innocent human beings as he could, with democracy itself as collateral damage. The night before Loughner committed his senseless slaughter, he had taken photos of himself posing with his gun while wearing a bright red G-string and displaying his naked ass. Satirist Harry Shearer observed that The nightmare in Tucson is the inevitable result of a society where a mentally confused young man can purchase a red G-string anywhere at any time, and pose with it as he sees fit. Can't we all agree now to lower the temperature on underwear? Speaking of lowering the temperature, in the Pittsburgh Post-Gazette, editorial cartoonist Rob Rogers depicted the U.S. Civil Discourse Gun Shop where a customer is asking the clerk: Do you have anything versatile enough to go from a campaign breakfast to a protest march to a Town Hall meeting? And in the Orlando Sentinal, Dana Summers depicted another gun store featuring semi-automatic 31-clip weapons, where the clerk is explaining to a customer: Say you have thirty-one burglars break into your house. On the Monday following the tragic weekend, Jon Stewart was unable to find anything funny about it. Nor was Stephen Colbert, although he did present a montage of news clips with various explanations of Loughner s behavior, and the final one, from Fox News He is also being described as a left-wing political pothead managed to evoke laughter from the audience. And Rush Limbaugh called him a marijuana junkie. In October 2008, Loughner told an old friend, Bryce Tierney, that he wasn t going to smoke marijuana any more. Tierney never saw him smoke pot again, and was surprised at media reports that Loughner was rejected by the Army in 2009 for failing a drug test: He was clean I saw him after that continuously. He would not do it After he quit, he was just off the wall." But Loughner did not fail a drug test that day at the processing station. Rather, he admitted on an application form that he had smoked marijuana hundreds of times. He didn t know that the military has an official maximum of times you can admit to smoking pot. A journalist I know acknowledges that he tried to join the Air Force at the San Diego recruitment office, but, When the subject of drugs came up, I figured, okay, I have long hair, I look maybe homeless, they're going to know I'm lying if I say I've always been straight. I'll say I've smoked pot seven or eight times Indeed, Chris Hedges wrote on TruthDig: Power does not rest with the electorate. It does not reside with either of the two major political parties. It is not represented by the press. It is not arbitrated by a judiciary that protects us from predators. Power rests with corporations. And corporations gain very lucrative profits from war, even wars we have no chance of winning. All polite appeals to the formal systems of power will not end the wars in Iraq and Afghanistan. We must physically obstruct the war machine or accept a role as its accomplice. When it comes to bloodbaths, the only difference between such invisible corporations and Jared Loughner is that he did it face-to-face. Obviously, Loughner is crazy, but not legally insane, because he knew right from wrong, as indicated by his expectation of life in prison or execution for his unspeakable crime. True, John Hinckley was crazy when he tried to assassinate Ronald Reagan his motivation was to impress actress Jodie Foster so she would go out bowling with him Ironically, Hinckley came out for gun control, and Reagan came out against it. The Yippies and the Occupiers As a co-founder of the Yippies (Youth International Party) known for demonstrating against the Vietnam War at the 1968 Democratic convention in Chicago We had to perform stunts to get media coverage of our cause, so a group of us went to the New York Stock Exchange, upstairs to the balcony, and threw 200 worth of singles onto the floor below, watching the gang of manic brokers suddenly morph from yelling "Pork Bellies" into playing "Diving for Dollars." Then we held a press conference outside, explaining the connection between the capitalist system and the war. Now, a particular placard, Wall Street Is War Street, gives me a sense of continuity. Other anonymous Occupier spokespersons carried posters proclaiming: God Forbid We Have Sex Smoke Pot. They Want Us to Grab Guns Go to War! I am an immigrant. I came here to take your job. But you don t have one. 96,000 for a BA in Hispanic transgender gay lesbian studies and I can t find work! And a woman in a wheelchair: Stand Up For Your Rights! By the sheer power of numbers without the necessity of stunts, the Occupiers have broadened public awareness about the economic injustice perpetuated by corporations without compassion conspiring with government corruption that has resulted in immeasurable suffering. The Yippies were a myth that became a reality. The Occupiers are a reality that became a myth. The spirit of nonviolent revolution is what connects them. NPR waited until eleven days of Occupy Wall Street had passed before reporting its existence. The executive news editor explained that the Occupiers did not involve large numbers of people (actually, there were already several hundred), no prominent people showed up (thus ignoring Michael Moore and Susan Sarandon), the lack of a great disruption (the police pepper-spraying protesters trapped in a cage of orange netting finally met that need), or an especially clear objective (oh, right, like all those flip-floppy pandering politicians whose clear objective is to get elected). The Occupiers appear to be a leaderless community most likely, you can t name a single one; not yet, anyway whereas Abbie Hoffman, Jerry Rubin and I served as spokespeople for the Yippies. We had media contacts and knew how to speak in sound bytes. If we gave good quote, they gave free publicity for upcoming demonstrations. It was mutual manipulation. Sample: A reporter asked me about the 1968 counter-convention we were planning, Will you be staying in tents? I replied, Some of us will be intense. Others will be frivolous. During an interview with Abbie and me for the CBS Evening News, taped at his apartment, Abbie paraphrased Che Guevara and said, I'm prepared to win or die. However, that never got on the air. When the reporter asked me, What do the Yippies actually plan to do in Chicago? I smiled at her and said, You think I'm gonna tell you? That portion of my answer was used to end Walter Cronkite's segment on the Yippies, but my follow-up sentence The Yippies were inspired by the Buddhist monk in Vietnam who set himself on fire in order to call attention to the war. The photo of that incident traveled around the globe, and I wore a lapel button which featured that flaming image. Similarly, in 2010, a street vendor in Tunisia refused to pay a police bribe, then immolated himself, which inspired a revolution there, and next in Egypt, spreading into Arab Spring, which ultimately inspired American Autumn in 2011. Inspired by the Yippies attempt to levitate the Pentagon, pie-thrower Aron Kay wanted to get fellow Occupiers to levitate Wall Street. No interest. Likewise, inspired by the Yippies nomination of an actual pig named Pigasus for president, Michael Dare tried unsuccessfully to persuade fellow protesters at Occupy Seattle to carry out his notion that, If corporations are people, let s run one for president. I offered myself as Secretary of Greed. The evolution of technology has changed the way protests are organized and carried out. The Yippies had to use messy mimeograph machines to print out flyers that had to be stuffed into envelopes, addressed, stamped and mailed. The Internet generally and social media such as Facebook and Twitter have enabled Occupiers to inexpensively reach countless people immediately. When the Yippies were being tear-gassed, and beaten sadistically and indiscriminately, we chanted, The whole world is watching! But now, when a bloodbath was expected to happen if the New York police forced the Occupiers out of the park and then that didn t happen Michael Moore asked a cop, Why don t you think the eviction happened? The reply: Because the mayor s afraid of YouTube. (One month later, Mayor Bloomberg apparently lost that fear; by his order, the eviction happened at 1 a.m. The next afternoon, a protester, before being allowed back in, was overheard remarking, The cops have occupied Zuccotti Park. We're just trying to figure out what their demands are.") Not only what occurred in Chicago in 1968 was officially labeled a police riot by a government-sponsored investigation, but also an undercover police provocateur who was disguised as a local biker and acted as Jerry Rubin s bodyguard would ultimately state that he participated in pulling down the American flag in Grant Park, destroying it, then running up the black flag of the Viet Cong in its place. I joined in the chants and taunts against the police, he said, and provoked them to hitting me with their clubs. They didn t know who I was, but they did know that I had called them names and struck them with one or more weapons. Now, as the Occupy model has spread around the country, police brutality has increased, and it s not surprising that there have been accusations of provocateurs sabotaging the nonviolent principle, not to mention an assistant editor at a conservative magazine who infiltrated a group of protesters in Washington, D.C., later claiming that his purpose was to mock and undermine them in the pages of the American Spectator, and that he helped incite a riot at the National Air and Space Museum, getting pepper-sprayed in the process. Moreover, a document from the Houston FBI revealed their plan to engage in sniper attacks and kill the leadership of the Occupy activists if deemed necessary. The Yippies were essentially countercultural, an amalgam of radicalized stoned hippies and straight political activists. And, although the Occupiers are essentially mainstream, their demonization by right-wing media pundits has been providing a repeat performance of neutralizing a progressive cause. Bill O Reilly called the Occupiers drug-trafficking crackheads and violent America-hating anarchists. Sean Hannity said they sound like skinhead Nazi psychos. Ann Coulter referred to them as mobs of teenage runaways and tattooed, body pierced, sunken-chested 19-year-olds getting in fights with the police for fun. Glenn Beck warned that they will come for you and drag you into the streets and kill you. Andrew Breitbart declared that Occupy Wall Street is a group of public masturbating violent freaks. And Rush Limbaugh labeled them dumbed down and propagandized and asked a rhetorical question reeking with layers of irony: Whatever happened to the 60s PORN AGAIN Remembering Pubic Hair Okay, call me old-fashioned, but I still like pubic hair. Internet porn sites now present several choices Retired porn stars have commented on this phenomenon. Gina Rome, retired after six years, shaved every day. It was part of getting ready for work. When she switched from acting to film editing, she stopped shaving and let her pubic hair grow out. Shaving was work. I don t have to do it any more, so I don t. And Kelly Nichols says, I was a Penthouse model in the early 1980s, and I posed with a full bush. No one in adult entertainment shaved back then. Now everybody does. Although Martha Stewart is back on TV, you can be sure that she ll never give any suggestions on what to do about those big red razor bumps that result from shaving your vagina, so here s a helpful hint I d like to pass along The porn industry has played an important part in shaping pubic styles. Jordan Stein writes in an article titled Has Porn Gone Mainstream?: Consider the near icon status the female porn star has achieved. She is so mainstream that even good girls are imitating her various styles of undress, disappearing hair and all. Porn chic? You bet. However, Julia Baird writes in Celebrity Porn: The idea that the fashion industry can strip, then exhibit women in the name of porn chic, is a bit silly, frankly. But flesh is the new fabric could be the new catch-cry. Americans call their bush George W. It s fashionable Among Hollywood actresses, Gwyneth Paltrow and Kirstie Alley have both admitted favoring Brazilian wax jobs, where most of their pubic hair is removed, leaving a small tuft that remains hidden under a thong bikini. Sara Jessica Parker s character, Carrie Bradshaw, had her pubic hair removed during the third season of Sex In the City. Presumably, it s now in the Smithsonian museum along with Archie Bunker s easy chair and the Fonz s leather jacket. On ABC s Women s Murder Club, a medical examiner directs her gaze to the crotch of a female corpse and says, That s not your mama s bikini wax. On The View, Joy Behar said, No pubic hair creates a wind tunnel. And in a hysterical episode of HBO s dark comedy series, Curb Your Enthusiasm, former Seinfeld producer Larry David performed oral sex on his wife, and in the process he sort of swallowed one of her pubic hairs. The next day, he was still choking on it, like a cat trying to get rid of a hairball. A psychologist at Harvard Medical School and author of Survival of the Prettiest: The Science of Beauty, Nancy Etcoff, writes that There s also an erotic, sexual component to hairlessness because your skin is more sensitive when it s more exposed. Women today are emulating porn stars who have no pubic hair, and I think men like it. My own resistance to the plethora of bald pussies stems from my pre-adolescent days when pubic hair was such a big taboo that I became obsessed with it. In those pre-bikini days, I would go to Coney Island and stroll around the sand, sneaking glances at ladies in the hope of finding a few stray curlicues of forbidden pubic hair peeking out from their various and sun-dried crotches. And if I was able to discover any, why, it felt as though I had experienced a really productive afternoon. Betty Dodson, sex educator and producer of Viva La Vulva, says, I think we have changing ideas about what s public and what s private. And now that nudity is more public Welcome back, good old bush. Hide and seek a friendly clit. Ironically, although Arnold Schwarzenegger was only joking when he announced that he was going to get a Bikini wax, actually Beverly Hills skin care and waxing expert Nance Mitchell has about fifty regular male customers that come for pubic waxing who are not gay and they are not porn stars. Some go totally bare, some just do the shaft and up around the pelvic area. She explains that It depends on what their wives and girlfriends want. Men go along because removing the hair makes the whole package look bigger. Ah, yes, the illusion of size does matter. The Taste of Sperm Online sexology columnist Sandor Gardos was asked, How do I increase the amount of my ejaculate? I ve noticed porn stars seem to ejaculate copious amounts of fluid, and I d like to be able to wow my partner. Dr. Gardos points out that the actors in porn films are professionals. Even they often don t ejaculate that much Well, I m just shocked to realize that somewhere in America there must be a group of scientists in a laboratory who earn their salaries by manufacturing fake semen. Meanwhile, ManNotIncluded.com has become the first cyberspace sperm bank for lesbians and single women who want to become pregnant. They are matched with anonymous donors who have the desired race, eye color, height and weight, then sent instructions on how to inseminate themselves. John Gonzalez, founder of the website, hopes this service will overcome the hurdles presented by bureaucracies and fertility clinics who are prejudiced against same-sex couples. Lesbians hook up with gay men all the time, he says, either friends or guys they ve met through personal ads. We are now simply allowing them to do so safely and without discrimination. On the other hand, in the movie, Sarah Silverman: Jesus Is Magic Furthermore, in Chelsea, Michigan, Book Crafters has refused to print Baboon Dooley, Rock Critic, a collection of John Crawford s comic strip, because his protagonist accidentally drinks from a glass of semen. He spits it out upon learning the content, only to be called a sexist, and challenged: You d expect a woman to drink it, right? However, on CNN, author Hugh Prather was a guest, and the subject was couples. A caller revealed his problem: The trouble is, when I come in her mouth, she can t really swallow it all. The anchor quickly hung up on this premature ejaculation. Cartoonist Mary Lawton depicted a character saying, I just found out that alfalfa sprouts smell like sperm. Does this mean I should practice safe salad? Yet humorist Jacqueline Shtuyote tells me that Sperm is basically tasteless. The truth should be out about this. Men seem to think that their white stuff is a culinary delight, yet I know of no culinary courses extolling the flavor of sperm. And if, as rumored, Jack-in-the-Box cooks occasionally spill their cum on an irritating customer s hamburger, how many of us would be pleased with the added ingredient? Why can t we find something that changes the flavor of cum? Then men could squirt red stuff that is raspberry flavored, or brown stuff that is chocolate flavored. Shy women could finally delight in swallowing their lover s cum. No sperm would ever be spit out again. There could be a pill to make cum taste like fast-food hamburgers. Maybe then we wouldn t mind if we found out that the secret sauce on top of Jack-in-the-Box hamburgers is, after all, sperm. But let s not forget those who don t eat meat. They face an ethical dilemma Finally That s correct, replied the professor. The student asked, Then why doesn t it taste sweet? It doesn t taste sweet, he answered as she realized what her question implied. She blushed, picked up her books and headed for the door, as he continued, because the taste buds for sweetness are on the tip of your tongue and not the back of your throat. Have a good day. Eating Shit for Fun and Profit I am in complete awe of the democracy of the Internet, which presents an infinite menu for individual tastes and ideologies, and in this context, specifically to viewers of online pornography. From golden showers to farm animals, the World Wide Web caters to virtually every imaginable desire. With the privacy provided by a computer screen, you can worship at the fetish of your choice. But, in the process of surfing porn sites for research purposes only, of course I realized that I had never come across a site specializing in coprophagia. It means eating shit. Literally. There s an old saying among nutritionists: You are what you eat. However, comedian Darryl Henriques, playing the role of a New Age swami, says, You are what you don t shit. One of the nastiest things you can say to someone is, Eat shit. A nonfiction book, The Pit, reveals a strange cult in San Francisco where a group of successful businessmen were forced, along with other acts of humiliation, to eat their own shit. Ultimately, they were represented in a lawsuit by flamboyant attorney Melvin Belli. But that was more-or-less involuntary shit eating, and what we re talking about here is the voluntary kind. For many years I heard stories that comic actor Danny Thomas, the star of Make Room for Daddy, was a coprophagiac. I assumed it was just another urban legend until I bumped into an old friend who was now working as a prostitute in Hollywood. Over lunch, she mentioned the names of some of her celebrity clients, including Danny Thomas. She told me how he had hired her to save her solid waste in her panties so that he could rub those panties on his face and gobble up her shit as though it were cotton candy. When he finished, he would wash his hands and face thoroughly then pay her and, as if coming out of a trance, he d say, Where was I? He was trying to distance himself from what he had just done. Instant denial. Since then, I have believed that Danny Thomas s fundraising for Saint Jude s Hospital was really for the purpose of having secret access to their bedpans. Anyway, I googled eating shit. Topping the list was Shit Eating Grins: In Defense of Adam Sandler. But sure enough, I was soon led to hardcore shit-eating sites, which I found totally disgusting, yet absolutely riveting. You may not want to read any further, but we both know you will. There are photos of beautiful women shitting. If you click for a close-up you can spot a yellow kernel of corn in one big brown chunk o shit. Women are spreading shit all over their naked bodies and inside their vaginas. A pair of lovely lesbians are eating handfuls of shit, then tongue kissing each other. Two women are eating the same lengthy turd, starting from opposite ends. A woman, fully dressed, wearing a mini-skirt, is shitting as she walks along the sidewalk. One woman is shitting into another woman s mouth. Mmmm, good to the last dingleberry. Among the shit-eating sites, there are Asian movies. Here s a couple of descriptions: A bunch of kinky Japanese guys find some truly hot looking girls and take them down below the streets of Tokyo into a real sewer full of shit. And Cute Kyoko s diarrhea suddenly acts up again. Her piano teacher becomes a willing student of hot scat games. Lots of shit pours out of her hot ass into his waiting mouth. Then she asks if he would rub it all over her. Sure, why not, he says. If there is one particular image that remains in my mind s eye, it is an innocent-looking, attractive teenager she s over 18, of course and she is cheerfully drinking a shit shake through a straw in an old-fashioned, malted-milk glass. I thought about her father discovering that video in cyberspace, yet he is unable to confront his daughter about it because he would then have to admit what he was doing at that site. I mean, this isn t exactly the type of thing that would be mass emailed by one of those selfless spammers, is it? And even if the father did confess to his daughter, he would undoubtedly hesitate to ask if he could eat her shit, because that could be considered a form of incest, and you have to draw the line somewhere, right? There must be an especially strong bond among coprophagiacs, though, because they have experienced in common a form of liberation from a taboo that can be traced all the way back to infancy, when a parent would cringe and say, Stop! Don t eat that! I said no! Who knows, some day coprophagia might even become a religion? Holy shit! I Fuck Dead People You don t see many porn sites that feature intercourse with corpses, and if you do, how do you know they re really dead? But, say what you will about California Governor Arnold Schwarzenegger, you have to give him credit for signing a bill to forbid necrophilia. Under the new law, sex with a corpse is now a felony punishable by up to eight years in prison. Age is no barrier. The state s first attempt to outlaw necrophilia Necrophiliacs have been getting away with it all this time, but district attorneys will no longer be stymied by the lack of an official ban. According to Tyler Ochoa, a professor at Santa Clara University of Law who has studied California cases involving allegations of necrophilia, Prosecutors didn t have anything to charge these people with other than breaking and entering. But if they worked in a mortuary in the first place, prosecutors couldn t even charge them with that. Whether necrophilia is a victimless crime may still be open to debate. Nevertheless, claiming that the act was consensual will not be considered as a legal defense. It should be noted that the necrophilia community ranges from those who are monogamous and stick with one partner for a lifetime, to those who are promiscuous and hop from casket to casket. According to his own journal entry, Ralph Waldo Emerson, one of the most revered figures in American literary history, was so devastated by the death of his young wife, Ellen, that, shortly after her burial, he went out to the cemetery one night and dug up her corpse, though he didn t mention exactly what he did with it. One of the most popular episodes of the police TV show, Homicide, Life On the Streets, was about the investigation of an old lonely widower, a mortician, who used to party with the corpses, setting them around a table as if they were alive. They investigated him because he shot a neighbor who knew about this practice, and then sat in the garden and waited for the cops. But again, the mortician s relationship with those corpses may have been purely platonic. Let us now eavesdrop on the dialogue of a few participants in an Internet support group, Necrophiliacs Anonymous: Obviously, neither a corpse nor a 4-year-old can provide consent, but if you leave permission in your will for your lonesome spouse or significant other to have one last fling with your mortal coil, shouldn t the state of California respect your wishes? I still think that organ donation is a better cause. It s just that I believe the only offense here is really violation of private property. I wonder if someone gives their partner, in a will, the right to have sex with their body after their death, will it be legal? Or, even without that permission, if you are an only heir of somebody, doesn t it mean their body belongs to you? It sounds gross, but isn t it an issue of private rights in the United States of America, that likes so much the idea of individualism and is ready to exploit people and the environment in the name of that ideal? I never understood why people think that having sex with a dead body is worse than raping a living person. To me, that s the worst kind, and then raping poor helpless animals. I really couldn t care less about my own dead body. Conversely, Sam Kinison, the late evangelist who turned into a comedian, had a great routine about necrophilia: Well, that s it, man The majority of cannibalistic serial killers are motivated by a kind of necrophilia The prosecution in the insanity trial of serial killer Jeffrey Dahmer rested its case. Dahmer has confessed to killing and dismembering 17 young males since 1978. A jury must decide if he will be sent to prison or a mental institution. The final prosecution witness, Dr. Park Dietz, a psychiatrist, testified that Dahmer wore condoms when having sex with his dead victims, showing that he could control his urge to have intercourse with corpses. I smell a public service announcement there: If Jeffrey Dahmer is sane enough to have safe sex, what about you? COMEDIANS Remembering Lenny Bruce August 3rd, 2016 marked the 50th anniversary of groundbreaking comedian Lenny Bruce s death from an overdose of morphine, while his New York obscenity conviction at Caf Au Go Go was still on appeal. On that same day he received a foreclosure notice at his Los Angeles home. But it wasn t a suicide. In the kitchen, a kettle of water was still boiling, and in his office, the electric typewriter was still humming. He had stopped typing in mid-word: Conspiracy to interfere with the 4th Amendment const constitutes what, I wondered. Lenny was a subscriber to my satirical magazine, The Realist, and in 1959 we met for the first time at the funky Hotel America in Times Square. He was amazed that I got away with publishing those profane words for which other periodicals used asterisks or dashes. He had been using euphemisms like frig and asked, Are you telling me this is legal to sell on the newsstands? I replied, The Supreme Court's definition of obscenity is that it has to be material which appeals to your prurient interest. He magically produced an unabridged dictionary from the suitcase on his bed, and looked up the word prurient. He closed the dictionary, clenching his jaw and nodding his head in affirmation of a new discovery. So, he observed, it s against the law to get you horny. When we were about to leave the room, he stood in the doorway. Did you steal anything? he asked furtively. I took my watch out of my pocket since I didn't like to wear it on my wrist, and without saying a word I placed it on the bureau. Lenny laughed one loud staccato Ha and kissed me on the forehead. We developed a friendship integrated with stand-up comedy. In his act Lenny had broken through traditional stereotypical jokes about airplane food, nagging wives, Chinese drivers, annoying mothers-in-law. Instead he weaved his taboo-breaking targets In each succeeding performance, he would sculpt and re-sculpt his concept into a theatrical context, experimenting from show to show like a verbal jazz musician. Audience laughter would sometimes turn into clapping for the creative process itself. Please don't applaud, he d request. It breaks my rhythm. Lenny was writing an autobiography At a certain point he was acting paranoid and demanded that I take a lie-detector test, and I was paranoid enough to take him literally. I couldn't work with him if he didn't trust me. We got into an argument, and I left. He sent a telegram that sounded like we were on the verge of divorce. WHY CAN'T IT BE THE WAY IT USED TO BE? he wrote. I agreed to try again, and in 1962 I flew to Chicago. Lenny was performing at the Gate of Horn, where he was asking the whole audience to take a lie-detector test. Lenny was intrigued by the implications of an item in The Realist, an actual statement by Adolf Eichmann that he would have been not only a scoundrel, but a despicable pig if he hadn't carried out Hitler's orders. Lenny wrote a piece for The Realist, Letter From a Soldier's Wife, namely Mrs. Eichmann pleading for compassion to spare her husband's life. Lenny had been reading a study of anti-Semitism by Jean-Paul Sartre. Now, on stage, giving credit to Thomas Merton's poem about the Holocaust, he requested that all the lights go off except one dim blue spot. Then he began speaking with a German accent: My name is Adolf Eichmann. And the Jews came every day to what they thought would be fun in the showers. People say I should have been hung. Nein. Do you recognize the whore in the middle of you that you would have done the same if you were there yourselves? My defense: I was a soldier. I saw the end of a conscientious day's effort. I watched through the portholes. I saw every Jew burned and turned into soap. Do you people think yourselves better because you burned your enemies at long distance with missiles without ever seeing what you had done to them? Hiroshima auf Wiedersehen. German accent ends. If we would have lost the war, they would have strung Truman up by the balls, Jim. Are you kidding with that? Not what kid told kid told kid. They would just schlep out all those Japanese mutants. Here they did; there they are. And Truman said they'd do it again. That's what they should have the same day as Remember Pearl Harbor. Play them in unison. Lenny was arrested for obscenity that night. One of the items in the Chicago police report complained: Then talking about the war he stated, If we would have lost the war, they would have strung Truman up by the balls. The cops also broke open Lenny's candy bars, looking for drugs. They checked the IDs of audience members, including George Carlin, who told the cops, I don t believe in IDs. Then they arrested him for disorderly conduct, dragged him along by the seat of his pants and hoisted him into the police wagon. What are you doing here? Lenny asked. I didn t want to show them my ID. You schmuck. Lenny was released on bail, but the head of the Vice Squad warned the Gate of Horn manager: If this man ever uses a four-letter word in this club again, I'm going to pinch you and everyone in here. If he ever speaks against religion, I'm going to pinch you and everyone in here. Do you understand? You've had good people here. But he mocks the pope And indeed, the Gate of Horn's liquor license was suspended. There were no previous allegations against the club, and the current charge involved neither violence nor drunken behavior. The only charge pressed by the city prosecutor was Lenny Bruce's allegedly obscene performance. Nobody s prurience was aroused, but that made no difference. After all, there wasn t any law against blasphemy. Chicago is so corrupt, it s thrilling, Lenny said. Chicago had the largest membership in the Roman Catholic Church of any archdiocese in the country. Lenny's jury consisted entirely of Catholics. The judge was Catholic. The prosecutor and his assistant were Catholic. On Ash Wednesday, the judge removed the spot of ash from his forehead and told the bailiff to instruct the others to do likewise. The sight of a judge, two prosecutors and twelve jurors, every one with a spot of ash on their foreheads, would have all the surrealistic flavor of a Lenny Bruce fantasy. Since he often talked on stage about his environment, and since police cars and courtrooms had become his environment, the content of Lenny's performances began to revolve more and more around the inequities of the legal system. In the Halls of Justice, he declared, the only justice is in the halls. But he also said, I love the law. Instead of an unabridged dictionary, he now carried law books in his suitcase. His room was cluttered with tapes and transcripts and photostats and law journals and legal briefs. Once he was teasing his ten-year-old daughter, Kitty, by pretending not to believe what she was telling him. Daddy, she said, you'd believe me if it was on tape. Lenny's jazz jargon was gradually being replaced by legal jargon. He had become intimate not only with the statutes concerning obscenity and narcotics but also with courtroom procedure, and his knowledge would be woven into his performances. But as clubs became increasingly afraid to hire him, he devoted more and more time and energy to the law. In less than two years, Lenny was arrested 15 times. Club owners were afraid to book him. He couldn t get a gig in six months. On a Christmas day, he was alone in his hotel room, and I brought him a 500 bill. With a large safety pin, he attached it to his denim jacket. When he finally got a booking in Monterey, he admitted, I feel like it's taking me away from my work. Lenny lived way up in the hills. His house was protected by barbed wire and a concrete gate, except that it was always open. He had a wall-to-wall one-way mirror in his living room, but when the sun was shining you could see into the room instead of out. He was occasionally hassled by police on his own property. One evening in October 1963, we were talking while he was shaving, when four officers suddenly appeared, loud and obnoxious. He asked them to leave unless they had a search warrant. One of the cops took out his gun. Here's my search warrant, he said. Then Lenny and the cops had a discussion about the law, such as the rules of evidence, and after half an hour they left. Lenny tried to take it all in stride, but the encounter was depressing, and he changed his mind about going out that night. When everything was quiet, we went outside and stood at the edge of his unused swimming pool. Dead leaves floated in the water. Lenny cupped his hands to his mouth. All right, you dogs, he called out. Bark for the rich man! We ordered some pizza, and he played some old tapes, ranging from a faith healer to patriotic World War II songs. Good-bye, Mama, I'm off to Yokohama, the Land of Yama-Yama Back at the Caf Au Go Go arrest in New York, Lenny had told a fantasy tale about Eleanor Roosevelt, quoting her, I've got the nicest tits that have ever been in this White House The top of the police complaint was Eleanor Roosevelt and her display of tits. At the trial, Lenny acted as his own attorney. He had obtained the legislative history of an Albany statute, and he discovered that back in 1931 there was an amendment proposed, which excluded from arrest in an indecent performance: stagehands, spectators, musicians, and Ignoring the mandate of Franklin D. Roosevelt, Lenny observed, is a great deal more offensive than saying Eleanor has lovely nay-nays. On October 13, 1965 (Lenny's 40th birthday), instead of surrendering to the authorities in New York, he filed suit at the U.S. District Court in San Francisco to keep out of prison, and he got himself officially declared a pauper. Two months before his death in 1966, Lenny wrote to me: I'm still working on the bust of the government of New York State. And he included his doodle of Christ nailed to a crucifix, with a speech balloon asking, Where the hell is the ACLU? After he died, at a s ance, his mother brought his old faded denim jacket. That large safety pin was still attached to it. And at the funeral, his sound engineer friend dropped Lenny's microphone into his grave before the dirt was piled on. Lenny's problem had been that he wanted to talk on stage with the same freedom that he had in his living room. That problem doesn t happen to stand-up comedians any more. As for me, I m working on my long awaited (by me) first novel. It s about a contemporary Lenny Bruce-type satirist. Those scenes where my protagonist performs, I ve developed onstage myself, although at times it felt like I was actually channeling Lenny, until the day that he said, C mon, Paul, you know you don't believe in that shit. Well, this ended that wishful-thinking delusion. I told my friend Avery Corman But, you know, I added, it s really hard to write. You have to make everything up. And he said, Hey, listen, you ve been making stuff up all your life. Yeah, but that was journalism. My Acid Trip With Groucho Marx LSD was influencing music, painting, spirituality, and even the stock market. Tim Leary once let me listen in on a call from a Wall Street broker thanking him for turning him onto acid because it gave him the courage to sell short. Leary had a certain sense of pride about the famous folks he and his associates had introduced to the drug. But, he told me, I consider Otto Preminger one of our failures. I first met Preminger in 1960 while I was conducting a panel on censorship for Playboy. He had defied Hollywood's official seal of approval by refusing to change the script of The Moon Is Blue. He wouldn't take out the word virgin. At the end of our interview, he asked, Ven you tronscripe dis, vill you vix op my Henglish? Oh, sure, I replied quickly. Of course. Vy? Vot's drong viz my Henglish? I saw Preminger again in 1967. He was making a movie called Skidoo, starring Jackie Gleason as a retired criminal. Preminger told me he had originally intended that role for Frank Sinatra. Skidoo was pro-acid propaganda thinly disguised as a comedy adventure. However, LSD was not why the FBI was annoyed with the film. Rather, according to Gleason's FBI files, the FBI objected to one scene in the script where a file cabinet is stolen from an FBI building. Gleason was later approved as a special FBI contact in the entertainment business. One of the characters in Skidoo was a Mafia chieftain named God. Screenwriter Bill Cannon had suggested Groucho Marx for the part. Preminger said it wasn't a good idea, but since they were already shooting, and that particular character was needed on the set in three days, Groucho would be playing God after all. During one scene, Preminger was screaming instructions at him. Groucho yelled back, Are you drunk? I had dinner with him that evening. He was concerned about the script of Skidoo because it pretty much advocated LSD, which he had never tried, but he was curious. Moreover, he felt a certain responsibility to his young audience not to steer them wrong. He had read my descriptions of acid trips, so he asked if I could I possibly get him some pure stuff, and would I care to accompany him on a trip? I did not play hard to get. We arranged to ingest those little 300-microgram white tablets one afternoon at the home of an actress in Beverly Hills. Groucho was especially interested in the countercultural aspects of LSD. I mentioned a couple of incidents that particularly tickled him, and his eyes sparkled with delight. One was about how, on Haight Street, runaway youngsters, refugees from their own families, had stood outside a special tourist bus guided by a driver trained in sociological significance The other was about the day that LSD became illegal. In San Francisco, at precisely two o'clock in the afternoon, a cross-fertilization of mass protest and tribal celebration had taken place, as several hundred young people simultaneously swallowed tabs of acid while the police stood by helplessly Internal possession wasn't against the law, I explained to Groucho. And they trusted their friends more than they trusted the government, he said. I like that. We had a period of silence and a period of listening to music. I was accustomed to playing rock n roll while tripping, but the record collection at this house consisted entirely of classical music and Broadway show albums. First, we listened to the Bach Cantata No. 7. I'm supposed to be Jewish, Groucho said, but I was seeing the most beautiful visions of Gothic cathedrals. Do you think Bach knew he was doing that? I don't know. I was seeing beehives and honeycombs myself. Later, we were listening to the score of a musical comedy, Fanny. There was one song called Welcome Home, where the lyrics go something like, Welcome home, says the clock, and the chair says, Welcome home, and so do various other pieces of furniture. Groucho started acting out each line, as though he were actually being greeted by the clock, the chair, and the rest of the furniture. He was like a child, charmed by his own ability to respond to the music that way. There was a bowl of fruit on the dining room table. During a snack, he said, I never thought eating a nice juicy plum would be the biggest thrill of my life. Then we talked about the sexual revolution. Groucho asked, Have you ever laid two ladies together? I told him about the time that I was being interviewed by a couple of students from a Catholic girls' school. Suddenly Sheila, The Realist's Scapegoat, and Marcia, the Shit-On At one point in our conversation, Groucho somehow got into a negative space. He was equally cynical about institutions, such as marriage Eventually, I asked, What gives you hope? He thought for a moment. Then he just said one word: People. I told him about the sketch I had written for Steve Allen, Unsung Heroes of Television, with the man whose job it was on You Bet Your Life to wait for the secret word to be said so that he could drop the duck down, and Groucho told me about one of his favorite contestants on the show. He was an elderly gentleman with white hair, but quite a chipper fellow. I asked him what he did to retain his sunny disposition. 'Well, I'll tell you, Groucho, he says, 'every morning I get up and I make a choice to be happy that day.' Groucho was holding onto his cigar for a long time, but he never smoked it, he only sniffed it occasionally. Everybody has their own Laurel and Hardy, he mused. A miniature Laurel and Hardy, one on each shoulder. Your little Oliver Hardy bawls you out Later, when Groucho started chuckling to himself, I hesitated to interrupt his reverie, but I had to ask, What struck you funny? I was thinking about this movie, Skidoo, he said. I mean some of it is just plain ridiculous. This hippie inmate puts a letter he got, which is soaked in LSD, into the water supply of the prison, and suddenly everybody gets completely reformed. There's a prisoner who says, Oh, gosh, now I don't have to be a rapist any more! But it's also sophisticated in its own way. I like how Jackie Gleason, the character he plays, accepts the fact that he's not the biological father of his daughter. Oh, really? That sounds like the ultimate ego loss. But I'm really getting a big kick out of playing somebody named God like a dirty old man. You wanna know why? Typecasting? No, no Always? If they're not, then it's a misuse of your power to make people laugh. His eyes began to tear. That's funny. I'm not even sad. Then he went to urinate, and when he came back, he said, You know, everybody is waiting for miracles to happen. But the whole human body is a goddamn miracle. He recalled Otto Preminger telling him about his own response to taking LSD and then he mimicked Preminger's accent: I saw tings, bot I did not zee myself. Groucho was looking in a mirror on the dining room wall, and he said, Well, I can see myself, but I still don't understand what the hell I'm doing here . . . A week later, Groucho told me that members of the Hog Farm commune who were extras in the movie had turned him on with marijuana on the set of Skidoo. You know, I said, my mother once warned me that LSD would lead to pot. Well, he said, your mother was right. When Skidoo was released, Tim Leary saw it, and he cheerfully admitted, I was fooled by Otto Preminger. He's much hipper than me. In 1971, during an interview with Flash magazine, Groucho said, I think the only hope this country has is Nixon's assassination. Yet he wasn't subsequently arrested for threatening the life of a president. In view of the indictment against Black Panther David Hilliard for using similar rhetoric, I wrote to the Justice Department to find out the status of their case against Groucho, and received this reply: Dear Mr. Krassner: Responding to your inquiry, the Supreme Court has held that Title 18 U.S.C., Section 871, prohibits only true threats. It is one thing to say that I (or we) will kill Richard Nixon when you are the leader of an organization which advocates killing people and overthrowing the Government; it is quite another to utter the words which are attributed to Mr. Marx, an alleged comedian. It was the opinion of both myself and the United States Attorney in Los Angeles (where Marx's words were alleged to have been uttered) that the latter utterance did not constitute a true threat. Very Truly Yours, James L. Browning, Jr. United States Attorney It would later be revealed that the FBI had published pamphlets in the name of the Black Panthers, advocating the killing of cops, and that an FBI file on Groucho Marx had indeed been started, and he actually was labeled a national security risk. I phoned Groucho to tell him the good news. I deny everything, he said, because I lie about everything. He paused, then added, And everything I deny is a lie. The last time I saw Groucho was in 1976. He was speaking at the Los Angeles Book Fair. He looked frail and unsmiling, but he was alert and irascible as ever. He took questions from the audience. Are you working on a film now? No, I'm answering silly questions. What are your favorite films? Duck Soup. Night at the Opera. What do you think about Richard Nixon? He should be in jail. Is humor an important issue in the presidential campaign? Get your finger out of your mouth. What do you dream about? Not about you. What inspired you to write? A fountain pen. A piece of paper. Then I called out a question: What gives you the most optimism? I expected him to say People again, but this time he said, The world. There was hardly any standing room left in the auditorium, yet one fellow was sitting on the floor rather than take the aisle seat occupied by a large Groucho Marx doll. Remembering George Carlin George Carlin died in June 2008. He was a generous friend. When I performed in Los Angeles, he sent a limousine to pick me up at the airport, and I stayed at his home. And such a sweet man. When I opened for him at the Warner-Grand Theater in San Pedro, we were hanging around in his dressing room, where he was nibbling from a vegetable plate. I watched as he continued to be genuinely gracious with every fan who stopped by. If they wanted his autograph, he would gladly sign his name. If they wanted to be photographed with him, he would assume the pose. If they wanted to have a little chat, he indulged them with congeniality. I said, You really show respect for everybody. Well, he responded, that's just the way I would want to be treated. As a performer, Carlin was uncompromising, knowing that his audience trusted him not to be afraid of offending them. In fact, he was excited by that possibility. The day before one of his live HBO specials, he called and told me to be sure and watch it, because he would devote the first ten minutes of his performance to the subject of abortion. Carlin had long been vocal in support of the right to smoke and ingest various drugs, and he posed this rhetorical question: Why are there no recreational drugs in suppository form? I was pleased to inform him that teenage girls have been experimenting with tampons soaked in vodka, inserting them vaginally or rectally as a way of getting intoxicated without their parents detecting booze on their breath. No matter what else Richard Nixon accomplished in his lifetime, his obituaries always mentioned him as the first American president to resign, and no matter what else George Carlin accomplished in his lifetime, his obits always connected him with the Supreme Court ruling on The Seven Words You Can t Say on Television. When asked in the Green Room at the Warner-Grand Theater by producer Dan Pasley why he didn t include the word nigger in that list, Carlin replied, There s nothing funny about it At a private memorial for family and friends, Carlin's daughter Kelly read from his burial instructions, written on May 1, 1990: Upon my death, I wish to be cremated. The disposition of my ashes (dispersal at sea, on land or in the air) shall be determined by my surviving family (wife and daughter) in accordance with their knowledge of my prejudices and philosophies regarding geography and spirituality. Under no circumstances are my ashes to be retained by anyone or buried in a particular location. The eventual dispersal can be delayed for any reasonable length of time required to reach a decision, but not to exceed one month following my death. I wish no public service of any kind. I wish no religious service of any kind. I prefer a private gathering at my home, attended by friends and family members who shall be determined by my surviving family (wife and daughter). It should be extremely informal, they should play rhythm and blues music, and they should laugh a lot. Vague references to spirituality (secular) will be permitted. Kelly added, There will be no mention of God allowed and No one will be allowed to say that George is now smiling down at us from Heaven above. Carlin once told an audience of children how to be a class clown as a way of attracting attention. I didn t start out with fake heart attacks in the aisle, he explained. Ah, if only that s what he was doing this time. But a reporter did once ask him how he wanted to die. I d like to explode spontaneously in someone s living room, he replied. That, to me, is the way to go out. And, through his CDs, DVDs, books, and online, George Carlin does indeed continue to explode spontaneously in living rooms across the country and around the world. Roasting With Robin The first time I met Robin Williams was in 1976 at the first annual Comedy Competition in San Francisco. He was sweating profusely, his hairy chest and arms showing, and he wore a brown cowboy hat. I was one of the judges. Although I voted for Williams, he came in second. I forget the winner s name, but I recall that the lights went off in the middle of his act, so he took advantage of the accident, and in the darkness he whispered loudly, Okay, now, when the lights go back on, everybody shout out, Surprise! Surprise! The audience laughed and applauded that ad lib. Robin s disappointment was palpable, but his stardom was inevitable. Our paths continued to cross backstage at benefits where we both performed. He was also a reader of The Realist. In 1988, the word got around that I was going to undergo surgery, and he sent me a generous unsolicited check to help. In 1998, Anita Hoffman, Abbie s widow, dying from cancer, decided to take her life on December 27, so as not to spoil Christmas for family and friends who were visiting and bringing all kinds of food. Her appetite was ravenous, and her humor was dark. After devouring a pastrami sandwich, she remarked, I better brush my teeth, I don t want to get gum pockets. She was staying at a house in San Francisco owned by actress Wynona Rider, whose godfather was Timothy Leary. He had been Anita s role model during the final months of his life. You couldn t choose how and when and with whom you were born, he said, but you can take charge of your own death. And that s exactly what she was now doing. Robin Williams learned about Anita s situation from his co-star in Good Will Hunting, Matt Damon, who had been told about it by his girlfriend, Wynona. Robin had never met Anita, but he called and offered to pay a visit, in keeping with his benign case of Patch Adams Syndrome. After all, if Patch could travel to Trinidad to entertain murderers who would be hanged three days later, why shouldn t it be appropriate for Robin to make Anita laugh on Christmas day? She hesitated I ve never really been a fan of his work, she thought but then invited him to visit . And so it came to pass in 2014 that Robin Williams would also commit suicide. In the midst of mass mourning him, Rush Limbaugh explained that Leftists are never happy. And the anti-choice Lifenews claimed that Robin killed himself out of guilt over an abortion his girlfriend had in the 1970s. The last time I saw him was in 1987 on a Saturday evening at the Hollywood Press Club, where we were both participants at a roast for Harlan Ellison, the prolific author of fantasy, science-fiction and speculative-fiction, his work including 1,700 short stories. He also had a reputation for angry ranting with literary style. My wife Nancy said, He has a black belt in Mouth. The roast was supposedly a fundraiser for his defense in a frivolous libel lawsuit. Although the auditorium was filled at 25 a head, the plaintiff, Michael Fleischer, was suing Ellison for a million dollars. In a 1980 issue of Comics Journal, in a review of Fleischer s comic-book-novel, Ellison called him crazy like H.P. Lovecraft and other renowned writers. Ironically, Harlan had intended it to be a compliment. Screenwriter David Gerrold remarked, The fact that Ellison is a self-made man relieves God of a great responsibility. I ve been Harlan s friend for six years. Of course, I ve known him for eighteen years. The moderator of the roast, film critic Digby Diehl, read a telegram from Isaac Asimov, which concluded, Kick him in the balls signed, Frank Sinatra. Onstage, Asimov s fellow science-fiction writer Robert Silverberg announced that Harlan Ellison is so short that he goes up on his girlfriend. Robin and I were sitting next to each other, and we simultaneously crossed that joke off our imaginary lists. There were short-jokes galore. Have a few free samples: Short? I carry a life-sized portrait of Harlan in my wallet. Harlan s parents were normal, but the milkman was a syphilitic dwarf. And the producer of Twilight Zone, Phil de Guere, complained, It took Harlan nine months before he figured out how to shoot himself in the foot at Twilight Zone and get canned. But of all the people I have worked with, Harlan is by far the shortest. Harlan doesn t have a short fuse. He is a short fuse. My own short-joke was, Actually, this isn t a roast. It s more like a microwave. Robin said, Harlan is a tall Paul Williams, a white Paul Simon. I pointed out that Harlan is on the right side of a lot of important fights. He s fought against racism and sexism. That s why this whole panel is white males. A roast by definition overflows with irreverence, insults, and raunchiness. Examples: If it s true that you are what you eat, Harlan would be a vagina. Stan Lee of comic-book infamy said, Harlan is a very difficult person to arouse. Ask any of his former wives. And Robin contributed a metaphorical dick joke: If you re hung like a field mouse, don t stand in the wind. I stated that Harlan is an egomaniac partially because at the moment of sexual climax, he calls out his own name. Robin shouted: Was it good for me? I responded, Harlan has a typewriter with only two letters M and E. And on it he has somehow managed to write 42 books as well as 300 of Steve Allen s songs plus a few of Lyndon LaRouche s speeches. Robert Psycho Block remembered when Harlan was interested in re-writing other people s work. He took me into a nearby drugstore and showed me how he had erased all the M s off all the Murine bottles. I observed that Harlan has always refused to get involved with the drug world as a user. However, he is a dealer. In fact, he was the connection for Kathy Evelyn Smith. A severe groan emanated from the audience, and I realized that I was treating a roaster as a roastee, not an uncommon practice. Robin Williams and Robert DeNiro had been with Smith and John Belushi on the night of Belushi s death. Oh, that s a good one, Robin said with understandable Sarcasm 101. Listen, I replied, if she didn t plea-bargain, you wouldn t be here tonight. Moderator Digby Diehl proceeded to rub salt in Robin s wound that I had unintentionally caused: Robin Williams has been called the king of improv, and he has proven it tonight by interrupting everybody, stepping on their lines, doing schtick. He s been about as annoying he can be. I loved that review, though, said Robin, referring to Diehl s negative critique of Club Paradise. Diehl: I was hoping you hadn t seen it, Robin. It s said of you in Hollywood that you don t read your scripts. Anyway, ladies and gentlemen, I d like to bring you Robin Williams, fresh from Club Paradise, his biggest failure yet. Williams: Thank you, Gary Franklin the movie reviewer Diehl replaced . What can you say about a man who s a TV critic? A man who looks at a good film and letters it like a report card. Is that art? I think not. And I d like to thank Harlan s lawyer for proving, God, is there a reason for law? I think not. And I d like to thank Mr. Krassner for all the Kathy Smith references. That s some funny stuff. Robin confessed, I really don t know Harlan for shit, then described his house. It s like Notre Dame done by Sears. There s Harlan, naked, playing in his toys with a beautiful shiksa goddess jumping up and down saying, I like him. He s smart. Robin morphed into a little boy in the bathroom. I m reading Bradbury, dad. (Roaster Ray Bradbury chortled. Robin suppressed a fake sob.) It s just taken me so far down to be here. I wish I could cry but I don t care. (The audience applauded.) Well, said Diehl, it s been basically a really hostile, ugly night, with a lot of lame jokes and sentimental drivel. But we still have the ritual forgiveness to look forward to. He introduced Harlan Ellison, a man with the milk of human kindness dripping from his fangs. Ha, ha. Very funny, I m sure, Harlan reacted. I had a friend once, but the wheels fell off. Zip friends. Dust is my friend. And what of these fuckers here? Robin Williams can t even get a pair of pants that fits him. There s a reason for that, Harlan. Yeah, sure. It was for you they made up the phrase, Is it in yet? You wanna talk about that, Williams? I ve got four words for you: Club Paradise and The Survivors. Yeah, on a double bill with Man With a Dog Ellison wrote the screenplay . Harlan continued to baste the roasters. As for me, he said, I want to thank my old chum Krassner for being here tonight. I want to commend him on his restraint in the remarks he made. Or perhaps it was only caution on his part because I promised if he fucked around with me, I d let on that he caught his herpes from Nancy Reagan. Digby Diehl concluded, Harlan s only fear is that he ll get in a car accident and have to re-live this event. And in the true tradition of roasting, that tradition being to talk dirty and mention a big name, thank you all for coming. And join us next week when our guest roaster will be Mother Teresa. I blurted out, I fucked her. The audience screamed, hooted, stomped, and Robin jumped out of his chair and ran around in a circle. Then he said, Gandhi is going, Who is this man? He may not get through the gates of heaven for that line. Harlan said, Thank God Krassner got off one good one. I explained, I guess I just fell into the insult mode. Basically, said Robert Silverberg, the roast is a really ugly, repugnant, immature and childish art form. I hate it. And I will only do one if Harlan is the target. And on our way home, Nancy summed up the irony: A compliment was originally perceived as an insult, and consequently we ve had an evening of insults which were really compliments. Remembering Dick Gregory I first met Dick Gregory when he asked me to interview him for The Realist in New York. I saw him again when I was in Chicago. He was performing at the Playboy Club and invited me to his show. Two years previously, Negro comedians performed only in Negro nightclubs, and Gregory was no exception. But one evening the regular white comic at the Playboy Club got sick, and Gregory took his place. It made Time magazine, and he was invited to perform on the Tonight Show, but he declined unless, after doing his stand-up act, he would be asked to sit down and talk with Jack Paar. The gamble worked, and Gregory became an instant celebrity, breaking through the color barrier with humor. Eventually we became friends and fellow demonstrators. Now he was performing at the Playboy Club, not as a substitute comic but as a star attraction. They had to supply me with a jacket, and a tie that was decorated all over with bunny symbols. Gregory was already on stage. How could Columbus discover America, he was asking the audience, when the Indians were already here? In his dressing room between shows, Gregory took out his wallet and showed me a tattered copy of his favorite poem, If, by Rudyard Kipling. I laughed and he looked offended, until I explained that I was laughing because it was also my favorite poem, and the unforgiving minute was my favorite poetic phrase. Gregory visited me on the lower east side of New York. The entire side of one building on that block featured a fading advertisement for a cleanser personified by the Gold Dust Twins, a pair of little Negro boys. It had originally been painted right on the bricks. When he saw it, he said, They ought to take that whole wall and preserve it in a museum somewhere. On a work-vacation in the Florida Keys with Abbie and Anita Hoffman in December in 1967. I followed a neighborhood crow down the road, then continued walking to town by myself to use the telephone. First I called Gregory, since it was his city Chicago that we were planning to invade the presidential convention in the 1968 summer. He told me that he had decided to run for president, and he wanted to know if I thought Bob Dylan would make a good vice president. Oh, sure, but to tell you the truth, I don't think Dylan would ever get involved in electoral politics. Gregory would end up with assassination researcher Mark Lane as his running mate. Next, I called Jerry Rubin in New York to arrange for a meeting when we returned. At our counter-convention we all attended an Unbirthday Party for President Lyndon Johnson at the Coliseum, with Ed Sanders, leader of the Fugs, serving as emcee. The atmosphere was highly emotional. Dick Gregory recited the Preamble to the Declaration of Independence with incredible fervor. Fists were being upraised in the audience as he spoke, and I thrust my own fist into the air for the first time. When my marriage broke up in 1971 I moved to San Francisco and I had my own talk program. Gregory announced on my show that, until the war in Vietnam was over, he was going to stop eating solid foods. I in turn announced that, until the war was over, I was going to eat all of Dick Gregory's meals. Actually, my only real discipline was being silent one day a week. When my young daughter Holly came out to stay with me that summer, she decided to join me on my silent day. We communicated with handwritten notes. Holly wrote, Does laughter count? Since we were making up the rules as we went along, I answered, Yes, but no tickling. Naturally she tried to make me laugh, but I held it in and got a rush. All the energy that normally gets dissipated into the air with laughter seemed to surge through my body instead. I decided to stop laughing altogether, just to see what would happen. The more I didn't laugh, the more I found funny. And, paying closer attention to others, I refined my appreciation of laughter as another whole language that could often be more revealing than words. Sometimes I would get a twinge of guilt if I nearly slipped and laughed, and I remembered what I had always known, that children must be taught to be serious. When I mentioned my laugh-fast to Dick Gregory, still on his food-fast, it didn't sound so far-fetched to him. That's two things people do out of insecurity, he said. Eating and laughing. Well, what would happen to us if everyone in our audiences realized that? Brother, we'd go out of business. I was invited to a Christmas party in 1977 by Hustler publisher Larry Flynt. Gregory was at the party, and Flynt asked each of us to perform, but first he would take the microphone himself. To my surprise-shock that he wanted me to publish his magazine beside The Realist while he traveled around the country to spread his (temporary) born-again Chrisianity. On Thanksgiving Day, Gregory had been arrested in front of the White House for protesting the lack of human rights in South Africa. Larry Flynt had a premonition that there would be an assassination attempt on Gregory. Flynt contacted him a couple of weeks later, and they became friends. Gregory was now staying at Flynt's mansion in Columbus, helping him change to a vegetarian diet. Flynt had already taken off forty pounds. On the day before the Christmas party, Gregory was in the middle of giving himself an enema when Flynt walked in. According to Gregory, Larry said, Let me tell you about this fantastic guy I've got comin' out, and I don't know what I'm gonna do yet but I just wanna talk with him. And I said, Well, who is it? He said, Paul Krassner. And I just fell out, and said, Are you serious? He's one of the hippest minds in the whole world. Then he came back and said, How long you been knowin' him? and I told him, All through the sixties, you know. And I said it was a fantastic idea. For the New Year, Flynt flew Gregory and me to the Bahamas. Gregory was in the kitchen, diligently preparing a health drink for Flynt this must have been the birth of his Bahamian Diet powder - and he was also feeding unfiltered conspiracy theories to his eager student. At midnight, we all went out on the dock and stood in a misty drizzle as Gregory uttered truly eloquent prayers for each of us. When he finished, Flynt s wife Althea whined, like Lucy in the Peanuts strip, My hair's getting all wet. It was her way of saying Amen. On New Year's Day, we were sitting in the sand, just relaxing. Flynt had bought a paperback novel by Gore Vidal in the hotel store, but first he was reading the Sunday New York Times and worrying about the implications of juries with only six members. A moment later he was rubbing suntan lotion on my back. I'll bet Hugh Hefner never did this for you, he said. Larry Flynt had been traveling around a lot, but he happened to be back in L.A. at the same time that my friend LSD guru Ram Dass was visiting, so I had the unique pleasure of introducing them. Larry, Althea, Ram Dass and I went to a health-food restaurant, where we discovered that we shared something in common: we were all practicing celibacy Larry at the suggestion of Dick Gregory, Althea by extension, Ram Dass for spiritual purposes, and me just for the sheer perversity of it. When Larry got shot down south by a racist nut because Hustler had a black naked model, Althea had transformed the Coca-Cola Suite at Emory University Hospital into her office, where she was now studying the slides of the irreverent Jesus and the Adulteress feature. Dick Gregory was there, and he said, This scares me. He was concerned about reaction in the Bible Belt, notwithstanding the fact that Hustler's research department had already made certain that the text followed the Bible. And now Althea was checking for any sexism that might have slipped past the male editors limited consciousness. The spread was already in page forms, but not yet collated into the magazine, and there was still a gnawing dilemma about whether or not to publish it. The marketing people were aghast at the possibility that wholesalers would refuse to distribute an issue of the magazine with such a blatantly blasphemous feature. Althea and I voted to publish. Gregory and editor Bruce David voted not to publish. I m against it, he said, because we're this is an issue that just simply will not be distributed. Faced with this crucial decision, Althea made her choice on the basis of pure whimsicality. She noticed a pair of pigeons on the window ledge. One of them was waddling toward the other. All right, she said, if that dove walks over and pecks the other dove, then we will publish this. The pigeon continued strutting along the window ledge, but it stopped short and didn t peck the other pigeon, so publication of Jesus and the Adulteress was postponed indefinitely. Of course, Dick Gregory continued to spread his diligent activism until he died. He was a loss to me, and to this country, and around the world, but his powerful inspiration remains. The Missing Episode of Seinfeld Jerry Seinfeld is onstage at a comedy club. Jerry: Did God look down at Adam and Eve one day and say, Oops, I forgot something. Let there be erections. So Adam got the first hard-on in history. But God forgot to say when. And that s why men don t always get an erection when they want one. Women don t know it, but sometimes men have to actually pray for a hard-on. Please, God, I ll be sensitive to her needs, I promise, oh God, please, just make it hard . . . Cut to George Costanza, having dinner with his parents. There is no conversation, but George s father is smiling, then chortles out loud. George: What! What! What s so funny? Is it because I m becoming more like you every day? George s father: Should I tell im? I m gonna tell im. George s mother: No, don t tell im. It s private between you and me. It s none of his beeswax. George: C mon, stop teasing me, I wanna know, whatever it is, I wanna know, so c mon, tell me. George s father: Okay, I m gonna tell im. I ve been taking Viagra, George, and it really works. Your mother and I have been making whoopee like it was going out of style. George s mother: Yeah, but it s not me he gets excited over. It s only because of the Viagra. George s father: What difference does it make, George? Listen to this. The pills cost 10 each, but a friend of mine goes to Mexico and he gets me a whole bottle of fifty for 42. George: Gee, that s less than a buck a fuck, isn t it? George s mother: George! You must never say the F-word in this kitchen! To her husband See, I told you, we never should ve told im. Cut to Jerry s apartment. Kramer bursts through the door. Kramer: Jerry! Jerry! I m gonna be rich! I bought a bunch of shares in Pfizer when it was real low, and now they put Viagra on the market and all the doctors are getting writers cramp from writing prescriptions, and the stock is going up and up like it swallowed Viagra! Jerry, I m gonna be able to retire! Jerry: Retire from what? Kramer, you don t do anything now. Kramer: Yes, I do. I scheme. I spend a lot of time scheming, Jerry. But now I ll be able to finance my schemes. I m gonna be able to call my own bluff, every day! If that s not retirement, I don t know what is. Jerry: Anyway, I might get this Stand-up Comedy Award tonight, and I m trying to think of what to say that will sound completely spontaneous. So, Kramer, what s your current scheme? Kramer: Okay, I got this idea because of the insurance companies. Blue Cross will pay for six Viagra pills a month. Well, that s very arbitrary, isn t it? I mean I get six hard-ons in one day. Jerry: That s the national average, you know, six hard-ons a day. Kramer: Jerry, believe me, Kramer don t have average hard-ons. But here s my merchandising plan. It s for one-night stands a combination package of Viagra and RU486, the morning-after pill. It s a natural for the unisex market. Cut to the restaurant. Elaine and George are sitting at the table. Elaine: But, George, that s stealing. George: Yep. And from my own parents. Elaine: You have no scruples. How do you know your father isn t counting the number of times he makes whoopee with your mother? He ll realize that you took some of his Viagra pills when he thinks he has nine more times to go but the bottle has only five pills left? George: You think he keeps a tally sheet? He ll never even suspect. Elaine You re in denial again but you have to give me a couple of pills. I would just love to put a Viagra into Jerry and Kramer s coffee. George: Oh, really? I thought you had scruples, Elaine. Dosing somebody is unethical, especially friends. Elaine: Oh, didn t I tell you? I had my scruples removed with laser surgery. George: Seriously, Elaine, what about all the side effects of Viagra? Elaine: Stop worrying, George. Hurry, let me just have two. Jerry and Kramer will be here any minute. Cut to the Stand-up Comedy Award ceremonies. Jerry, Elaine, George and Kramer have been sitting at a table, drinking coffee. Suddenly the table rises slightly. Jerry: Kramer, stop that, what are you doing? George: Maybe he s holding a one-man s ance. Kramer: I can t get it down! Jerry, I can t get it down! Elaine: Gosh, Kramer, you must have been thinking about sex, huh? Kramer: No, I was thinking about my business plan. That s the only thing that really arouses me. When I m with a babe, I just think about my latest scheme and I get aroused. But I always let the babe take the credit. Courtney Cox is emceeing the event. Now she s announcing the winner. Courtney: And the Best Stand-up Comedy Award goes to . . . Jerry Seinfeld! Jerry walks up to the stage. Courtney and Jerry embrace warmly. She gives him the statuette. As the audience applause subsides, the blood flow to the spongy tissue in Jerry s penis increases. He tries unsuccessfully to hide his erection with the statuette. Jerry: Thank you all so much. Well, as you can see, I m very excited about receiving this reward. I feel all tingly. And I have a headache. I m a little dizzy too. An erection is like a cop. When you want one, it s never there. But when the last thing in the world you want is a hard-on a public hard-on then boing! I m busted, right here on stage, with a spotlight, in front of five hundred strangers. I feel like I have to vomit. I ll try to avoid the first few rows. And everything looks blue. Especially my testicles. Is there a groupie in the house? Well, I m not actually a group. Is there a singly in the house? Who would like to get laid tonight? I ll point the way. So I ve become a human dowsing rod. Now I think I m gonna faint. But even while I m lying unconscious here on the stage Jerry is fainting , my penis will still be a stand-up . . . THE LATER YEARS Are Rape Jokes Funny? Abortion was still illegal in 1970. At the time, as both an underground abortion referral service and a stand-up satirist, I faced an undefined paradox. I wouldn t allow victims to become the target of my humor, yet there was one particular routine I did that called for a rape-in of legislators wives in order to impregnate them so that they would then convince their husbands to decriminalize abortion.. But feminist friends objected. I resisted at first, because it was such a well-intentioned joke. And then I reconsidered. Even in a joke, why should women be assaulted because men made the laws? Legislators' wives were the victims in that joke, but the legislators themselves were the oppressors, and their hypocrisy was really my target. But for me to stop doing that bit of comedy wasn't chickenshit censorship, it was empathetic editing. Now, more than four decades later, rape-joking triggered a widespread controversy when a woman who prefers to remain anonymous went to a comedy club, expecting to be entertained. She chose the Laugh Factory in Hollywood because Dane Cook was on the bill, but he was followed by Daniel Tosh, and she had never heard of him. In an email to her Tumblr blogger friend, she accused Tosh of saying that rape jokes are always funny, how can a rape joke not be funny, rape jokes are hilarious. She was so offended that she felt morally compelled to shout, Actually, rape jokes are never funny! Tosh paused and then seized the opportunity, responding, Wouldn t it be funny if that girl got raped by like five guys? Like right now? What if a bunch of guys just raped her? The audience laughed raucously. After all, isn t anyone who yells at a comedian practically asking to become an immediate target? But this woman was stunned and humiliated, and she left. In the lobby, she demanded to see the manager, who apologized profusely and gave her free tickets for another night In her email, she concluded that, having to basically flee while Tosh was enthusing about how hilarious it would be if I was gang-raped in that small, claustrophobic room was pretty viscerally terrifying and threatening all the same, even if the actual scenario was unlikely to take place. The suggestion of it is violent enough and was meant to put me in my place. She added, Please re-blog and spread the word. And indeed, it went viral. Coincidentally, on the same night that Tosh, in his signature sarcastic approach to reality, provoked the woman, Sarah Silverman was performing at Foxwords Casino, and she touched upon the same taboo subject: We need more rape jokes. We really do. Needless to say, rape, the most heinous crime imaginable, seems it s a comic s dream, though. It s because it seems when you do rape jokes, that the material is so dangerous and edgy, and the truth is, it s like the safest area to talk about in comedy cause who s gonna complain about a rape joke? Rape victims? They don t even report rape. They re just traditionally not complainers. Ironically, in The Aristocrats, a documentary entirely about a classic joke of the same name, Silverman complained (facetiously) that she was once raped by show-biz legend Joe Franklin. Also, her rape tips for men include, "Carry a rape whistle. If you find that you are about to rape someone, blow the whistle until someone comes to stop you." However, another joke of hers goes like this: I was raped by a doctor which is so bittersweet for a Jewish girl. In the magazine Bitch ( Feminist Response to Pop Culture ), an article titled Laughing It Off: What Happens When Women Tell Rape Jokes? by Katherine Leyton stated: Some female comics tell jokes that clearly target rape culture, such as one classic skit by veteran comedian Wanda Sykes, Even as little girls we re taught we have something everybody wants you gotta protect it, you gotta be careful, you gotta cherish it. That s a lot of fucking pressure! I would like a break! You know what would make my life so much easier? Wouldn t it be wonderful if our pussies were detachable? The joke goes on to detail situations where you could leave your detachable pussy at home, mainly to avoid the chance of rape. In the fall of 1981, I booked myself for a cross-country tour, from New York to Chicago, Minneapolis, San Francisco and Los Angeles. While I was in New York, a nun was raped. When I got to Chicago, the rapist was also there. He had given himself up to the police. On stage I explained the true reason why: He heard that the Mafia, in a rush of Christian compassion, put a 25,000 contract out on his life. That part was true. So now I'm asking the Mafia to use their clout to end the war in El Salvador since four nuns were raped and killed there. They must ve heard my request. By the time I got to Los Angeles, the Herald-Examiner was reporting that the Mafia was probably the largest source of arms for the rebels in El Salvador. In the spring of 1982, there was a Radical Humor Festival at New York University. That weekend, the festival sponsored an evening of radical comedy. The next day, my performance was analyzed by an unofficial women's caucus. Robin Tyler ( I am not a lesbian comic Well, I must have been suffering from Delayed Punchline Syndrome, because it wasn't until I was returning on a plane, contemplating the notion that freedom of absurdity transcends gender difference, that I finally did respond, in absentia: Yeah, but you have to understand, some men still feel threatened by turkey basters. The Onion posted a story about a college dorm that was nicknamed The Rape Hall. And an Ironic Times headline stated, Quaaludes Ends Its Relationship With Bill Cosby. Earlier in Amy Schumer s stand-up career, she told this joke: I used to date Hispanic guys, but now I prefer consensual. She has since been accused of racist comedy. I used to do a lot of short dumb joke like that, she responded. I played a dumb white girl onstage. I am evolving as an artist. I am taking responsibility and hope I haven t hurt anyone. I apologize if I did. Indeed, in an episode of Inside Amy Schumer on Comedy Central, a sketch In another sketch, Schumer plays a flirtatious lawyer ironically defending Cosby by bedazzling the judge as well as the jury. In a one-woman show about rape, Asking For It, responding to Daniel Tosh, award-winning British comic Adrienne Truscott performs with her bare vagina uncovering a photo of Bill Cosby. And on Late Night, Seth Myers rhetorically asks, "Why did Bill Cosby cross the road? He answers himself, To avoid a reporter who was asking about sexual assault allegations. At the National Association of Television Program Executives conference, Jay Leno commented on the allegations against Bill Cosby: I don't know why it's so hard to believe women. You to go Saudi Arabia and you need two women to testify against a man. Here you need twenty-five now forty-five . Leno also used one of Justin Bieber s song hits for a punchline, pointing out that Bieber wouldn't want to sing 'I Wanna Be Your Boyfriend' to guys in prison. In a routine about political correctness, George Carlin suggested that a euphemism for a rape victim would be unwilling sperm recipient. On The View, Joy Behar exclaimed that she would vote for a rapist as long as he supported beloved feminist issues like abortion and the free contraception they bicker so much about. On The Daily Show, Jon Stewart aimed his arrow at presidential candidate Donald Trump (who bought 20,000 copies of The Art of the Deal, making it a bestseller). Stewart shouts, There are probably some non-rapists caught up in that tide, whether they re unable to rape for medical reasons, or whether they re just all raped-out. A clip shows Trump reading out loud from a report that 80 of Central American women and girls are raped crossing into the United Sates. CNN s Don Lemon tells Trump, That s about women being raped, it s not about criminals coming across the border or entering the country. Trump: Somebody s doing the raping, Don. Touche!, said Stewart. I believe we have our campaign slogan: Trump 2016 Immediately after The Daily Show came The Nightly Show with Larry Wilmore. He plays the same clip just a slightly bit longer: Trump spouting, Somebody s doing the raping, Don. I mean, you know, somebody s doing the rapiing, You think the women are being raped. Well, who s doing the raping? Wilmore repeats: Who s doing the raping? Okay, who s bringing the chips? Who s bringing the beer? Wait, wait. Who s doing the raping? Oh, okay, sorry about that. I didn t know, I had to ask. I have to tell you, though, as far as campaign slogans go: Donald Trump 2016 And on Bill Maher s Real Time, the reactionary blond witch Ann Coulter defended Trump: These aren t people we have to have here. We already have our own rapists and murderers. We don t need to be bringing in more rapists and murderers. Although Daniel Tosh is a consistently unapologetic performer for the sardonic material he exudes on his Comedy Central series According to Jamie Masada, owner of the Laugh Factory, Tosh asked the audience, What you guys wanna talk about? Someone called out Rape, and a woman in the audience started screaming, No, rape is painful, don t talk about it. Then, says Masada, Daniel came in, and he said, Well, it sounds like she s been raped by five guys something like that. I didn t hear properly. It was a comment it wasn t a joke at the expense of this girl. Masada claims that she sat through the rest of Tosh s performance, which received a standing ovation, before she complained to the manager. Fellow comedians defended Tosh with their own tweets. Dane Cook: If you journey through this life easily offended by other peoples words I think it s best for everyone if you just kill yourself. Doug Stanhope: You re hilarious. If you ever apologize to a heckler again I will rape you. Louis C.K.: Your show makes me laugh every time I watch it. And you have pretty eyes Conversely, in an episode of his TV series, Louie, he reversed such roles. After leaving a bar with an especially aggressive woman, Laurie (played by Melissa Leo), that he had inadvertently met earlier, she performs fellatio on him in her pickup truck, then insists that he in turn perform cunnilingus on her. And he refuses. So, she attacks him physically with unabashed viciousness, mounts him, and he gives in to her demand. In other words, Laurie rapes Louie. No joke. To watch this scene was positively jaw-dropping. It served as a reminder of how often comedians Meanwhile, reacting to the Tosh tirade, Julie Burton, president of the Women s Media Center, stated: If free speech permits a comedian to suggest a woman in his audience should be gang-raped, then it certainly permits us to object, and to ask what message this sends to survivors or to perpetuators. Tosh s comment was just one extreme example of pop culture s dismissive treatment of sexualized violence, which desensitizes audiences to enormous human suffering. Internet outcry is encouraging, but popular media needs to push back too. And the original blogger posted another message: My friend and I wanted to thank everyone for there sic support and for getting this story out there. We just wanted everyone to know what Daniel Tosh had done and if you didn t agree then to stop following him. My friend is surprised to have gotten any form of an apology and doesn t wish to press any further charges against him . What? Press charges? Rape is a crime. Rape jokes aren t. They are the risk of free speech. The blog concluded, She does plan on returning to comedy shows in the future, but to see comedians that she s seen before or to at least look up artists before going to their shows. Wait till she finds out that Dane Cook suggested she kill herself. Now, over forty years since I stopped presenting my concept about a rape-in of legislators wives, I sent the first draft of this piece around to several friends, and I was particularly touched by a response from Emma Cofod, production manager at my then-publisher, Soft Skull Press: Thank you for sharing this! I truly appreciate your thoughts here. I read about this woman's complaint last week, and the whole event turned my stomach. What Tosh did was personally threatening, which is not OK. But even though I fall neatly into the feminist camp, I think your original joke is hilarious within context, and coming from a comedian whose philosophy I identify with. Color me conflicted. I think that kind of conflict is healthy. And then there was Louis C.K. s appearance on The Daily Show. This is what he told Jon Stewart between interruptions: If this controversy about Tosh is like a fight between comedians and bloggers If somebody has the opposite feeling from me, I wanna hear it so I can add to mine. I don t wanna obliterate theirs with mine, that s how I feel. Now, a lot of people don t feel that way. For me, any joke about anything bad is great, that s how I feel. Any joke about rape, a Holocaust, the Mets But this is also about men and women, because a lot of people are trading blogs with each other, couples are fighting about Daniel Tosh and rape jokes The audience laughed and applauded, as they did fifty years ago when Lenny Bruce ended a riff on prejudice: Randy, it won t matter any more even if you are colored and I m Jewish, and even if Fritz is Japanese, and Wong is Greek, because then we re all gonna stick together and beat up the Polacks. My notion of a rape-in of legislators wives in order to impregnate them was no more meant to be taken literally than Louis C.K. s killing the Jews or Lenny s beating up the Polacks. Rape-in was a misunderstood metaphor; a pro-choice parable that unfortunately has become timely again, but now my target has been clarified, though it's still those increasingly incredible sexist legislators. Words and Phrases That I ve Coined I really don t like to boast, but in my lifetime, on half a dozen occasions, I have actually added words and phrases to the language. It s something I always wanted to do. What a thrill it must have been for Dr. Harold Cerumen, who decided that cleaning out earwax should be known as cerumen disimpaction. And veterinarian Alice Neuticle who coined the word neuticles cosmetic testicles for a dog that s been neutered. So I m not asking for credit. Or cash. Since money had been called dough and then morphed into bread, I figured that toast would be the next logical step in that particular linguistic evolution, but my campaign itself became toast, in the sense that toast now means history. Also, I was intrigued by the process of having a body part named after oneself. How proud Casper Bartholin s parents must have been to have a son who christened the source of female lubrication that takes the friction out of intercourse as Bartholin s glands. But my idea of calling those two vertical lines between your nose and your mouth Krassner s crease just never became popular. Here, then, for better or worse, are my contributions to American culture that did manage to catch on, or at least may be on their way. 1. In 1958, pornography was gradually becoming legal, but at that stage of the game, the Supreme Court was unwilling to allow 1st Amendment protection of hard-core porn as opposed, I assumed, to the term I invented, soft-core porn, which was obviously more respectable, though it seemed kind of sneaky, pretending to be squeaky clean. So I decided to satirize the concept with a new feature in The Realist: Soft-Core Porn of the Month. For example, phallic symbolism in newspapers and magazines was a key ingredient of soft-core porn. Sample: A close-up of a stickshift in a 1965 Volkswagen ad was accompanied by the question, Does the stickshift scare your wife? Soft-core porn now refers to limited sexuality, as seen in network TV dramas and hotel-room movies that feature jiggling breasts and buttocks but no genitalia. The way to recognize soft-core porn is that it gives men a soft-on. 2. On the afternoon of December 31, 1967, several activist friends were gathered at Abbie and Anita Hoffman's Lower East Side apartment, smoking Columbian marijuana and planning a counter-convention for the Democratic Party s event the following summer in Chicago. Our fantasy was to counter their convention of death with our festival of life. While the Democrats would present politicians giving speeches at the convention center, we would present rock bands playing in the park. There would be booths with information about drugs and alternatives to the draft. Our mere presence would be our statement. We needed a name, so that reporters could have a who for their journalistic who-what-when-where-and-why lead paragraphs. I felt a brainstorm coming on and went from the living room to the bedroom so that I could concentrate. Our working title was the International Youth Festival. But the initials IYF were a meaningless acronym. I paced back and forth, juggling titles to see if I could come up with words whose initials would make a good acronym. I tried Youth International Festival. YIF. It sounded like KIF. Kids International Festival? Nope, too contrived. Back to YIF. But what could make YIP? Now that would be ideal because then the word Yippie could be derived organically. Of course, Yippie was already a traditional shout of spontaneous joy, but we could be the Yippies! It had exactly the right attitude. Yippies was the most appropriate name to signify the radicalization of hippies. What a perfect media myth that would be the Yippies! And then, working backward, it hit me. Youth International Party! It was a natural. Youth: This was essentially a movement of young people involved in a generational struggle. International: It was happening all over the globe, from Mexico to France, from Germany to Japan. And Party: In both senses of the word. We would be a party and we would have a party. Yippie was only a label to describe a phenomenon that already existed 3. In 1972, I found myself smoking a combination of marijuana and opium with John Lennon and Yoko Ono. Lennon was absentmindedly holding on to the joint, and I asked him, Do the British use that expression, 'Don t bogart that joint,' or is it only an American term 4. Intuitively, I was an advocate of equal rights and opportunities for both genders long before Women s Liberation became a movement. In 1959, I wrote, From a completely idealistic viewpoint, classified ads for jobs should not have separate Male and Female classifications, with exceptions such as a wet-nurse. In 1964, that practice became illegal. Masturbation was a powerful taboo for females, a subdivision of the war on pleasure, while it was somehow expected of males. But if it was okay for guys to jack-off, I wrote in a media fable, Tales of Tongue Fu, in 1974, then it was also okay for girls to jill-off. 5. In 1979, I covered for a weekly alternative paper the trial of ex-cop Dan White for the double execution of San Francisco Mayor George Moscone and Supervisor Harvey Milk, the gay equivalent of Martin Luther King. In a surprise move, homophobic White s defense team presented a bio-chemical explanation of his behavior, blaming it on compulsive gobbling down of sugar-filled junk-food snacks. This was a purely accidental tactic. Dale Metcalf, an attorney, told me how he happened to be playing chess with one of White s attorneys, Steven Scherr. Metcalf had just read Orthomolecular Nutrition by Abram Hoffer. He questioned Scherr about White s diet and learned that, while under stress, White would consume candy bars and soft drinks. Metcalf recommended the book to Scherr, suggesting the author as an expert witness. In his book, Hoffer revealed a personal vendetta against doughnuts, and White had once eaten five doughnuts in a row. During the trial, psychiatrist Martin Blinder testified that, on the night before the murders, while White was getting depressed about the fact he would not be reappointed as supervisor, after having quit , he just sat there in front of the TV set, bingeing on Twinkies. In my notebook, I scribbled Twinkie defense, and wrote about it in my next report. In the wake of the Twinkie defense, a representative of the Continental Baking Company asserted that the notion that overdosing on the cream-filled goodies could lead to murderous behavior was poppycock and crap apparently two of the artificial ingredients in Twinkies, along with sodium pyrophosphate and yellow dye while another spokesperson couldn t believe that a rational jury paid serious attention to that issue. Nevertheless, some jurors did. One remarked after the trial that It sounded like Dan White had hypoglycemia. Later, the San Francisco Chronicle reported: During the trial, no one but well-known satirist Paul Krassner who may have coined the phrase Twinkie defense' played up that angle. His trial stories appeared in the San Francisco Bay Guardian. 6. Twitter is an interesting phenomenon. It s perfect for those folks with a short attention span, and it s scary for paranoids who don t want to be followed. It appeals to minimalists, such as, say, Bob Dylan. I once asked him, How come you re taking Hebrew lessons? He replied, I can t speak it. And when I mentioned the Holocaust, he responded, I resented it. Tweets range from the trivial (David Gregory announcing that he was going to eat a bagel before moderating Meet the Press) to international conflicts (Iranian citizens reporting on the uprising against their repressive government). It occurred to me that there could be classic haiku tweets three lines consisting of 5 syllables, 7 syllables and 5 syllables adding up obviously to no more than 140 characters and so I decided to embed the phrase I coined in the following (also) twaiku: What s worth sharing now? World War Three or stubbed my toe? I have Twitter s Block. My Brother s Secret Space Communication Projects When my brother George and I were kids, I could recite the alphabet backwards, whereas he read the entire dictionary. We both played the violin, and when he was nine and I was six, we performed at Carnegie Hall. (I was the youngest concert artist in any field to perform there.) Our younger sister Marge took piano lessons and became a legendary figure at Boys and Girls High School in Brooklyn, teaching music and running the chorus. Now retired, she and two women Marge was the only one in our family who stuck with classical music. Although I was considered a child prodigy, I merely had a technique for playing the violin, but I had a real passion for making people laugh. I put my violin in the closet when I was twelve, and several years later I used it essentially as a prop when I began performing stand-up comedy. George went to the High School of Music Art, and was offered a four-year scholarship at the Juilliard School s renowned Music Division, but he really preferred Math and Science. He surprised our parents, announcing his decision to be an electrical engineer, but they were supportive. He turned down the scholarship and instead attended CCNY. Because, he says, I thought then that the violin was good for my avocation, not my vocation. With so many brilliant musicians then, you really had to know somebody to get anywhere in that world. It s not like YouTube today. While at CCNY, he played with a square dance group and became Official Fiddler for the New York New Jersey Square Dance Callers Association. He learned that a caller earned twice as much as he did, so he put down his fiddle and took up calling square dances. He was also captain of the varsity boxing team. George went to the University of Michigan for his Master s Degree. Our mother insisted -and to please her- he mailed his laundry home in a light aluminum case she had purchased for that specific purpose. To pay for his tuition, basement apartment and other expenses, he got a teaching fellowship, was a research assistant, sold programs at football games, and bussed tables at a local restaurant, which he quit when the table he cleared was occupied by fellow students. He won the all-campus boxing championship, but had to fight in a heavier weight class since no one else weighed as little as he did. Being a violinist, he said, I was worried about my hands. But my opponent in the semi-final match was an oboe player with a concert scheduled for the next day, and he asked me to take it easy on his mouth. In October 1957, Russia sent Sputnik into space. It was the first orbiting satellite, circling the earth in 96 minutes, and making 1,440 orbits in three months. This astounding technical feat was totally unanticipated by the United States and ignited the era of the space race. At the time, George was working as a civilian scientist for the Army Signal Corps in Fort Monmouth, New Jersey, in charge of the radio relay program. He had been recruited by their senior executive of Research Development, an alumnus of the University of Michigan. A week after Sputnik, George sent a proposal to the Commanding General, urging a space communication program. The response: Do it! So, George recalls, I created the first Space Electronics organization in the country. It was very strange making presentations to generals and top government officials. At age twenty-nine, as head of the Astro-Electronics Division, I had the civilian rank equal to a colonel, but I looked like a young kid. It was embarrassing to take them to lunch and be carded by the waiter. That wasn t his only embarrassment: At the Signal Corps, I accidentally flushed my top secret badge down the toilet. It took a lot of official paperwork and the notation irretrievably lost to finally get a new badge. Also, in 1954, the McCarthy paranoia was paramount. I, and fellow civilians Five months after he had begun as a civilian scientist, George was drafted. In the army, he was assigned to the 82nd Airborne Division at Fort Bragg in North Carolina. He was a leg, though. Instead of jumping out of an airplane, his job was to maintain all radios, phones and electrical equipment. He also started the U.S. Helicopter Square Dance Team to demonstrate the mobility of helicopters. When assigned KP (Kitchen Police), rather than peel potatoes, he scheduled helicopter square dance practice. Eight months after Sputnik, his team began working on the design of the world s first communication satellite, SCORE (Signal Communications Orbit Relay Equipment). There were no reference books, precedents, or Google for information. We were the pioneers. It s interesting that the first known reference to communication satellites was in a 1945 science-fiction story by the British author, Arthur C. Clarke. It took the team only six months to design and build the satellite, which was launched in December 1958 by an Atlas rocket that weighed 9,000 pounds. The satellite payload became famous for the tape-recorded message from President Dwight Eisenhower, who insisted that this project remain top secret, George tells me. He said the launch would be aborted if any word leaked out, because he didn t want a chance of failure to tarnish our image. As it turned out, one of the two tape recorders did fail, but his Christmas message to the world was the very first transmitted message from space. Eisenhower stated: This is the president of the United States speaking. Through the marvels of scientific advance, my voice is coming to you via a satellite circling in outer space. My message is a simple one. Through this unique means, I convey to you and all mankind America s wish for peace on earth and good will toward men everywhere. In 1945, in the wake of World War II, the victors launched Operation Paperclip, recruiting a variety of six hundred scientists from Nazi Germany to work in the United States. President Harry Truman ordered the exclusion of any member of the Nazi Party or an active supporter of Nazi militarism, but the Joint Intelligence Objectives Agency created false employment and political biographies to circumvent Truman s command. Those scientists were then granted security clearance and infiltrated into hospitals, universities, and the aerospace industry, further developing their techniques in propaganda, mind control, and behavior modification. Among them was Wernher von Braun, who had been a member of the Nazi Party and an SS officer who could be linked to the deaths of thousands of concentration camp prisoners. (Fun fact: He married his cousin.) He came to America in 1945 and became a citizen in 1955. He was called the Father of the U.S. space program. In June 1958, by the time those German importees had become entrenched in a slew of American niche communities, I published the first issue of The Realist, including a cartoon that depicted the U.S. Army Guided Missile Research Center with a sign in the window, Help Wanted. A couple of scientists are standing in front of that building, and one is saying to the other, They would have hired me only I don't speak German. Exactly one year later, Wernher von Braun recruited thirteen scientists to work with him on an ultra-top-secret program, Project Horizon, to build a communication station on the moon. Its purpose was a study to determine the feasibility of constructing a scientific military base. I was one of the lucky thirteen, George remembers. In fact, you don t have to be a rocket scientist to be a rocket scientist. Von Braun told me that many of his ideas came from science-fiction magazines. The project was so secret that the thirteen of us could not even tell our bosses Unfortunately, when I left the government after nine years (two in the army), I lost my own security rating and need-to-know, so I had no idea if the station was ever built on the moon, and I no longer got cheap watercress. According to Wikipedia, The permanent outpost was predicted to cost 6 billion and become operational in December 1966. A lunar landing-and-return vehicle would have shuttled up to 16 astronauts at a time to the base and back. Horizon never progressed past the feasibility stage in an official capacity. However, just like George had lied to Judith, he in turn learned in 2014 that he was lied to about the actual purpose of Project Horizon: It was a study to determine the feasibility of constructing a science military based on the Moon. On June 8, 1959, a group of the Army Ballistic Missile Agency (ABMA) produced for the U.S. Department of the Army a report entitled Project Horizon, a U.S. Army Study for the Establishment of a Lunar Military Outpost. The project proposal states the requirements as: The lunar outpost is required to develop and protect potential United States interests on the moon; to develop techniques in moon-based surveillance of the earth and space, in communications relay, and in operations on the surface of the moon; to serve on a base for exploration of the moon, for further exploration into space and for military operations on the moon if required; and to support scientific investigations on the moon. When I had been in the Army, I was assigned to work on top secret military and satellite work, George tells me, the FBI did routine checks. One of our neighbors told Judith that the FBI visited them but were told not to let us know of their inquiries. Apparently, you were on their watch list Meanwhile, I was placed on the FBI s RI (Round-up Index), though I had broken no law. Who knows, maybe it was because I published a cartoon depicting a man sitting at a desk, speaking on the When Life magazine ran a favorable profile of me in 1968, an FBI agent sent a poison-pen letter to the editor: To classify Krassner as some sort of social rebel is far too cute. He's a nut, a raving, unconfined nut. But in 1969, the FBI's previous attempt at mere character assassination escalated to a more literal approach. This was not included in my own Co-Intel-Pro (Counter-Intelligence Program) files but, rather, a separate FBI project calculated to cause rifts between the black and Jewish communities. The FBI had produced a WANTED poster featuring a large swastika. In the four square spaces of the swastika were photos of Yippie founders Abbie Hoffman, Jerry Rubin and me, and SDS (Students for a Democratic Society) leader Mark Rudd. Underneath the swastika was this headline The only solution to Negro problems in America would be the elimination of the Jews. May we suggest the following order of elimination? (After all, we've been this way before.) All Jews connected with the Establishment. All Jews connected with Jews connected with the Establishment. All Jews connected with those immediately above. All Jews except those in the Movement. All Jews in the Movement except those who dye their skins black. All Jews. Look out, Abbie, Jerry, Paul and Mark! (Shades of Wernher von Braun.) It was approved by FBI director J. Edgar Hoover's top two aides: Authority is granted to prepare and distribute on an anonymous basis to selected individuals and organizations in the New Left the leaflet submitted. Assure that all necessary precautions are taken to protect the Bureau as the source of these leaflets. This leaflet suggests facetiously the elimination of these leaders. And, of course, if a black militant obtained that flyer and eliminated one of those New Left leaders who are Jewish, the FBI's bureaucratic ass would be covered: We said it was a facetious suggestion, didn't we? On top of that, my name was on a list of sixty-five radical campus speakers, released by the House Internal Security Committee. The blacklist was published in the New York Times, and picked up by newspapers across the country. It might have been a coincidence, but my campus speaking engagements stopped abruptly. When I was assigned to write a piece for the Los Angeles Times, I titled it I Was a Comedian for the FBI, because I mentioned that I had once recognized a pair of FBI agents taking notes while I was performing at the Community Church in New York. My FBI files later stated that I purported to be humorous about the government. Since when did taxpayers provide the funds to cover the FBI s theater critics squad? The banner headline on the cover of that L.A. Times Sunday Calendar section blared out: Paul Krassner By 1963, George had risen to Chief Scientist, Astro-Electronics Division at the Signal Corps, and McGraw-Hill contacted him, asking if he would write a book. And indeed, he began working on Introduction to Space Communication, which became the world s first book on that subject. The problem was the incredible pace of technology, he says. While I was writing Chapter 5, the nuggets of wisdom in Chapter 2 were becoming obsolete. The last chapter was called Ad Astra (Latin for to the stars ), where I tried to forecast future technology. When the book was published in 1964, most of my future projections were already obsolete. Darwin had no idea about the speed of evolution when applied to technology. By the way, more copies of the book were sold in Russia than in the United States. On George s last active project, he worked with the original seven astronauts. He was program manager at Simmonds Precision, responsible for the design of the fuel gauging system on the command module where the astronauts were housed. In 1972, Apollo 17, the eleventh manned mission, was the sixth and final lunar landing in the Apollo program. We were on an extremely tight schedule, and my team worked nearly eighty hours with virtually no sleep to finish on time. We received a rare commendation and bonus from NASA for superior performance ahead of schedule and below budget. Gordon Cooper As I write this in 2014, George is 85, and if a movie were to be made about him, he d like to be portrayed by Matt Damon. In October 1988, he was diagnosed with advanced prostate cancer and given three years to live, but his daughter Devra, a naturopath, convinced him to meet with a macrobiotic counselor, and overnight he changed his diet and lifestyle. Now it s twenty-six years later. He played tennis until six months ago, when he discontinued after a bad fall, because he was playing too aggressively. Currently, his exercise consists of taking walks and lifting dumbbells, though not simultaneously. He remains active, doing business seminars for adult education, providing legal plans for families, small businesses and employees, and calling square dances. But not for helicopters. Or drones. The Six Dumbest Decisions of My Life I m talking here about seriously dumb decisions, not those minor regrets like that time in 1970 when Esquire magazine assigned me to fly to New Mexico where director Monte Hellman was filming Two-Lane Blacktop, about street-racing. Among the actors was a pair of musicians, James Taylor as a driver, and Dennis Wilson as a mechanic. They both agreed to be interviewed, besides screenwriter Rudy Wurlitzer and others. During a conversation with Taylor about not laughing at jokes, he said, My brother once told me a joke that made me laugh. Wait, don t tell me now, I said. Let s save it for the interview. However, I was supposed to reveal behind the scenes of making the movie, but I learned that there were a couple of violations of law: A few members of the cast had been tripping on magic mushrooms; and a 17-year-old actress, Laurie Bird, who played The Girl, had sex with two members of the crew. Nine years later she would commit suicide. Anyway, I decided not to write the article 1. Early one morning in 1963, at my tiny apartment on the Lower East Side of New York (now the East Village), I was in bed with a young woman I had met at a party, when the phone rang. It was her boyfriend, a lower-echelon Mafioso. He asked if I knew where she was. I told him no, even as she was cuddling next to me. He said he would check his source and call me right back. A few minutes later, he did. You were seen with her last night. You spent the night with her. She didn't come home last night. You punk! He said that he was coming to my office a few blocks away -which is where he thought he was calling me -to talk about it. I told her she'd better leave, and I rushed to the office, but he was already waiting outside the Mad building where MAD magazine was published , peering through the locked outside door into the lobby, expecting the elevator door to open and me to step out and open the door for him. Instead he saw me on the sidewalk coming toward him. What are you doing out here? he said. Well, I came out just a minute ago, but you weren't here. I was calling you up because you didn't come out. Oh -I figured you had the address wrong, so I took a walk around the block. Let's go to your apartment. Don't you want to come up to my office? I said. Let's go to your apartment. You don't expect to find her there? She leaves traces wherever she goes. By the way, do you have a telephone at your apartment? Oh, yeah, well, it happens to be the same number as my office, incidentally. There was a certain tension between us while we were walking to my apartment. Tell me, he said, do you have many friends who smoke Tareyton cigarettes? I suddenly realized what he meant by She leaves traces. At the apartment, she was gone, but the bed was unmade and he couldn't help but notice the semen stain on the sheet. Which, of course, was no proof that it was she who had been there. However, the ashtray was filled with Tareyton cigarette butts. Do you smoke Tareytons? No, I answered, I don't smoke any cigarettes. I guess I caught you with your pants down, didn't I? He picked up the phone and dialed a number. He was calling her mother. I found him, he said. What should I do, throw 'im out the window? I was scared that he might actually do it. He hung up the phone and I didn't know what to expect. I thought, How could a realist have gotten himself into such an unrealistic situation? We proceeded to have a discussion. I got the horns, he yelled. I gotta do something! It ain't manly! Look, restraint itself can be a form of manliness. You know, he said, I could arrange to have you killed while I was having dinner with your mother and father. Well, actually, they're not having too many people over to the house these days. His low chuckle in response to that wisecrack marked a positive turning point in our conversation. He finally forgave me, and we shook hands. Then he borrowed twenty dollars, which we both knew I would never get back, but it was worth not being thrown out the window. I had known he was her boyfriend, and so I vowed never to risk sleeping with a gangster s girlfriend, especially if she smoked cigarettes; 2. In 1979, I covered the trial of Dan White, )who had assassinated two progressive government officials in San Francisco That evening, I was unwinding at home, smoking a joint and preparing to write my final report for the Bay Guardian. My reverie was suddenly interrupted by a phone call from Mike Weiss. We had become friends during the trial, which he had covered for Time and Rolling Stone. He was calling from a phone booth across the street from City Hall. I could hear crowds screaming and sirens wailing behind his voice. He had to yell: There s a riot going on! You should get here right away! Reluctantly, I took a cab. When I arrived at Civic Center, there were a dozen police cars that had been set on fire, which in turn set off their alarms, underscoring the shouts from a mob of 5,000 gay protesters. On the night that Milk was murdered, they had been among the 30,000 who marched silently to City Hall for a candlelight vigil. Now they were in the middle of a post-verdict riot, utterly furious. But where were the cops? They were all fuming inside City Hall I spotted Weiss and a student from his magazine-writng class, Marilee Strong. The three of us circulated through the crowd. Standing in the middle of the intersection, Chronicle columnist Warren Hinckle was talking with a police official, and he beckoned me to join them. I gathered from their conversation that the cops were about to be released from City Hall. Some were already out. One kept banging his baton on the phone booth where Weiss was calling in his story, and he had to wave his press card before the cop would leave. I found Marilee and suggested that we get away from the area. As we walked north on Polk Street, the police were beginning to march slowly in formation not too far behind us. But the instant they were out of view from City Hall, they broke ranks and started running toward us, hitting the metal pole of a bus stop with their billy clubs, making loud, scary clangs. We better run, I told Marilee. Why? They re not gonna hit us. Yes, they are! Run! Hurry! The police had been let out of their cage and they were absolutely enraged. Marilee got away, but I was struck with a nightstick on the outside of my right knee. I fell to the ground. The cop ran off to injure as many other cockroaches in his kitchen as he could. Another cop came charging and he yelled at me, Get up! Get up! I m trying to! He made a threatening gesture with his billy club, and when I tried to protect my head with my arms, he jabbed me viciously on the exposed right side of my ribs. Oh, God, the pain! The cops were running amuck now, in an orgy of indiscriminate sadism, swinging their clubs wildly and screaming, Get the fuck outa here, you fuckin' faggots, you motherfuckin' cocksuckers! I managed to drag myself along the sidewalk. It felt like an electric cattle prod was stuck between my ribs. Marilee drove me to a hospital emergency ward. X-rays indicated that I had a fractured rib and a punctured lung. The City of San Francisco was sued for 4.3 million by a man who had been a peaceful observer at the riot following the verdict. He was walking away from the Civic Center area when a cop yelled, We re gonna kill all you faggots! -and beat him on the head with his nightstick. He was awarded 125,000. I had wanted to sue the city, but an attorney requested 75 for a filing fee, and I didn t have it. I was too foolish not to borrow it, and I decided to forego the lawsuit. I must ve been crazy. 3. In 1985, after living in San Francisco for sixteen years, I moved to a walk street in Venice, a block-and-a-half walk to the beach. I rented a top-floor tiny two-room apartment consisting of a kitchen office where I could see the ocean and a living-room bedroom which came with a convertible sofa. The bathroom had a bathtub shower. One afternoon, I took a bus to Santa Monica to eat at a little soul-food restaurant in a food court and to see a Woody Allen movie. When I returned home, I walked up the steps to the top floor, and when I opened the door to my penthouse apartment, it was filled with smoke. I had stupidly, utterly recklessly, left a candle burning in a glass ashtray on the arm of the sofa. I didn t forget to do that. I chose to leave it that way. The ashtray had broken in half from the heat, and the sofa was burning, although asbestos material had prevented it from being on fire in a way that would spread the flames. I ran down the steps and got the fire extinguisher off the wall in the hall, ran back up and sprayed the sofa. You should be ashamed of yourself, I said to myself. I was grateful that only the sofa had been destroyed. Also, my pride in expanded consciousness had disintegrated. I ve never quite forgiven myself for having endangered the lives and property of the tenants in the other four apartments. I had ignored the concept of cause and effect. My bad. Immensely. 4. On the morning of April 1st, 1995, I flew to San Francisco. I was scheduled to emcee a benefit for Jack Kerouac s daughter, Jan, who had been on dialysis treatment for the last few years. On that sunny afternoon, I was stoned in Washington Square Park, wearing the MAD magazine jacket that my daughter Holly had given me for Christmas. The smiling face of Alfred E. Neuman I was waiting for the arrival of the annual Saint Stupid Day Parade, led this year by Grand Marshal Ken Kesey in an open-topped convertible. The event was sponsored by the First Church of the Last Laugh. Their sound equipment was surrounded by yellow plastic tape warning, Police Line The celebration featured music, comedy and a traditional free brunch, along with such favorite rituals as the Sock Exchange and the Leap of Faith. Kesey was also in town to speak at the benefit, which was held only because Jan happened to be the daughter of a ground-breaking literary celebrity, even though he had abandoned her mother when she was pregnant with Jan. I said to my friend Julius, who drove me there, It s not enough any more just to be a sperm donor. Jan had met her father only twice. The first time, she was nine. The second time, six years later, he sat there, drinking a fifth of whiskey and watching The Beverly Hillbillies. Jan would eventually die of kidney failure at the age of forty-four, never having fulfilled her fantasy of becoming drinking buddies with her father, who died when she was a teenager. Now, backstage, someone I knew handed me a baggie of what I assumed to be marijuana. I thanked her and put it in my pocket. Ah, yes, one of the perks of the benefit biz. Later, as the final members of the audience were straggling out of the theater, I was sitting with Julius in his car in the parking area at Fort Mason Center. He was busy rolling a joint in a cigar-box on the dashboard with the map light on. There was a police car circling around in the distance, but we unwisely ignored it. Suddenly, a moment later, there was a fist knocking heavily on the passenger-side window, and a flashlight shining in my eyes. Shit! Fuck! Caught! We were ordered outside and, with our arms outstretched against the side of the car, with the face of Alfred E. Neuman smiling at the cop and asking, What Because, he explained, I m gonna get very mad if I get stuck, obviously referring to a hypodermic needle. No, I said, there s only a pen in this pocket He found the coiled-up three feet of yellow plastic tape warning Police Line At the Saint Stupid Day Parade. What s it for? To keep people away. But then he found the baggie. And, to my surprise, it contained magic mushrooms. He examined the contents. Then, reeking with sarcasm, he said, So you like mushrooms, huh? Under the circumstances, it was such a ridiculous question that I almost laughed, but I realized that, from his point of view, this was a serious offense. Julius was given a 50 citation for possession of marijuana, but I was arrested on the spot, handcuffed behind my back, and my Miranda rights were read to me. I stood there, heart pounding fast and mouth terminally dry, trying to keep my balance on the cusp of reality and unreality. Fortunately, attorney Doron Weinberg got me off with a 100 fine and nothing on my permanent record. But I finally understood what that cop meant when he snarled, So you like mushrooms, huh? His question was asked with such archetypal hostility that it kept reverberating inside my head. So you like mushrooms, huh? It was not as though I had done anything that might harm another human being. This was simply an authority figure s need to control. But control what? My pleasure? Or was it deeper than that? What was his actual message? Back through eons of ancestors Well, yeah, I thought, now that you mention it, I do. I mean, when you put it like that 5. Once, in the men s room at an airport, I couldn t help but notice a man standing at a urinal a urinals away from the one where I was carefully aiming my stream with my left hand onto the round marzipan-like disinfectant. But he was allowing his penis to aim itself, because he happened to be busy using both hands to floss his teeth. It was a monument to multi-tasking. I m embarrassed to admit that, rather then flossing, I would use a dollar bill to clean between my teeth. Instead, I was actually adding bacteria to my mouth, thereby giving a new, literal meaning to the concept of dirty money. As a result, my teeth were in terrible shape. I had known better. Back in 1971, publisher Stewart Brand had invited Ken Kesey and me to co-edit The Last Supplement to the Whole Earth Catalog. Our managing editor, Hassler (Ron Bevirt s Merry Prankster name), introduced me to the fine art of flossing. I began cleaning between my teeth with dental floss, and then brushing carefully after every meal for the last nine years, he told me. Dental floss is really important because it removes particles of food from between the teeth that can t be dislodged by the brush. It s this crap between the teeth that really causes decay. Although I didn t practice what he preached, I immediately assigned him to write a piece about the process of flossing for The Last Supplement. After all, the Whole Earth Catalog was devoted to informing its readers about a variety of New Age tools. And floss was definitely a useful tool. Floss comes in two thicknesses, Hassler wrote. Thin, called Dental Floss; and thick, called Dental Tape. Recently, I found Dental Floss Unwaxed. All the floss and tape I ve used in the past were waxed. I find that I prefer the waxed because it slips in and out between my teeth cleanly without leaving any of the floss behind, which I find to be a problem with unwaxed floss. I ve realized the importance of my teeth in the service of my habit. Munch, slurp, slobber, drool In 1987, I was a keynote speaker at the annual International Society for Humor Studies conference, held in Tempe, Arizona. I had dinner with a group of five staffers from the Russian humor magazine Krokodil at the Holiday Inn. They all ordered the specialty of the house pork ribs which came with huge bibs. The editor was given a bib with the words Miss America on it. The art director got a bib with a big iconic S for Superman. They were really getting a dose of our culture. As we walked along the salad bar, one of the Russians stopped at the corn chowder and asked me, Is this typical American soup? As the others gathered around, I didn t quite know how to answer. I m sorry, I don t know, I said. I m sure it s typical somewhere in the country. And then I remembered that multi-tasking man at the airport urinal. In America, I told the Russian, corn chowder comes with dental floss that has little pieces of corn embedded in it, so if you get hungry between meals you can floss and have a snack at the same time. A few years before I met my wife, Nancy, she had gone to a dentist who required all new patients to take a two-session course in flossing and oral health. Only when he was satisfied that patients would be capable of caring for their teeth properly would he then make their first cleaning appointment. Nancy learned the technique, and recently a friend named her the Floss Queen. We came across an ad stating that If you follow a vegan diet, you may opt for Eco-Dent s GentleFloss, which uses beeswax instead of animal products. Who knew? The irony behind all this is that Medicare doesn t cover any dental procedures, even though dentists emphasize how bad teeth can cause illness in other, internal parts of the body. For example, a research team from Columbia University s School of Public Health released the results of a three-year study of 420 men and women, concluding that the improvement of gum health can help slow the development of atherosclerosis, the build-up of cholesterol-rich plaque along artery walls, which can lead to heart attacks and strokes. I still regret that I would eat candy without flossing afterward. Especially a Clark Bar, which could cause a cavity and fill it simultaneously. 6. I had taped an interview on an electric recorder-transcriber, plus a battery-operated cassette recorder as a back-up precaution, which turned out to be an absolute necessity when the electric recorder conked out right in the middle. Later on, I bought a new one to replace it, but first I had to get rid of the old one. My desk consisted of a wooden door supported by a couple of two-drawer filing cabinets. I was just too damn lazy to take all the equipment and books off the desk so that I could move the desk toward me and pull up the wire from behind it. So I simply cut the wire with a pair of scissors. Bzzzzzt!!! I was shocked, but not injured. Though the recorder had conked out, I had incredibly left the wire still plugged into a socket on the surge protector. Where the scissors had cut the wire, parts of the metal had melted away just a couple of inches from my hand. I might ve been electrocuted. Yikes! I could ve been killed, and the cause would ve been a simple lack of the practice of mindfulness that I treasure so much. Instead, I had emptied my mind. Oops, wrong discipline. But I was still alive, and I thanked God for that. And then I heard a resplendent voice booming through the clouds: SHUT UP, YOU SUPERSTITIOUS FOOL! Alternative Facts Between the choice of a one-man-one-vote (Supreme Court Justice Antonin Scalia) and fake news of Weapons of Mass Destruction, invasion of Iraq, and horror of ISIS, George Bush was elected president in the year 2000. It was due to the electoral college (a rigged system which originally intended to prevent slaves from voting and evolved to gerrymandering), even though Bush s opponent, Al Gore, won the national popular vote. Hillary Clinton was elected senator that year, and she announced that the first thing she would do was to get rid of the electoral college. A few years later, as a columnist for the New York Press, I sent her a letter asking about the status of that promise. She didn t reply. On November 8, 2016, a crooked businessman, liar extraordinaire, bragging pussy-grabber, make-America-white-again, anti-choice, anti-Semite, false Christian, climate-change hoaxer, Nobamacare, homophobic, apprentice politician, fascist tweets, and Vladimir Putin s useful idiot, namely Donald Trump, who was elected as an insanely narcissistic dictator based on the electoral college, whereas his opponent, Hillary Clinton, won the national popular vote by more than three million individuals. Irony lives. But an incredibly mean monster inadvertently awakened a sleeping population to counteract the essence of evil with love, laughs, and law, fueled by the aid of true news. Incidentally, Putin had 88 journalists murdered. No wonder Trump told him, It s an honor to be with you. Now Putin wanted Obama s new sanctions on Russia to be reprieved. National Security Adviser Michael Flynn had discussed it with the Russian ambassador a month before Trump took office. Although General Flynn joined his campaign and shared criminal secrets, he denied them to the FBI. It was a felony offense. The Justice Department warned Trump that Flynn had misled Mike Pence, and that Flynn could be vulnerable to blackmail. Trump asked Flynn to resign, and yet he offered his job back when he got out of prison. Why? Because Flynn was the scapegoat, taking the fall for the president and vice-president. He preferred a trial with immunity since they knew all. Pence said Flynn lied and that was a lie. If Trump and Pence were both to be kicked out of the White House, the next in line would be the Speaker of the House, Paul Ryan. Steve Bannon described him as a limp-dick motherfucker who was born in a petri dish at the Heritage Foundation. In turn, Trunp s communicator Anthony Scaramucci boasted, I m not Steve Bannon, I m not trying to suck my own cock. Ah, but Bannon said he wanted to destroy Ryan. Hallelujah! Trump once tried to patent You re fired. Professional hater Bannon resigned. Back to running his Breitbart News. He had taken over the original right-wing website, Breitbart.com, after the death of editor Andrew Breitbart, who ironically was adopted and raised as a proud Jew. Orson Bean is my oldest living friend. He became a Christian libertarian conservative, and we ve had an ongoing email dialogue about religion, but he s still a Christian and I m still an atheist. Not a militant atheist, as I used to be, though. I changed when I realized that Martin Luther King was a Christian, yet I was inspired by his actions, and George Lincoln Rockwell, head of the American Nazi Party, was an agnostic, yet I abhorred what he stood for. It no longer mattered to me what anybody s religious belief was, only how they treated others. Either kind or cruel. That simple. I decided to email Orson: If you can arrange for me to interview Andrew Breitbart I Played Thomas Jefferson s Violin At a unique Heroes Convention, I met Lindsay Wagner, star of The Bionic Woman. She was unaware that the CIA served as technical adviser to her series, but she spoke poignantly of the positive influence that her TV alter-ego had on young amputees she visited in hospitals. I also met Tom Laughlin, of Billy Jack movie fame. A couple of years later, he and his wife Delores Taylor invited me to a large dinner party. They were Thomas Jefferson enthusiasts. In their home, there was Thomas Jefferson's furniture, Thomas Jefferson's silverware, Thomas Jefferson's recipes I mentioned playing the violin as a child, and Laughlin invited me to play this one. I hadn't held a violin for twenty-five years, not since I had used it as a prop when I started doing stand-up comedy, and four decades had passed since that concert in Carnegie Hall. It felt like a previous incarnation. But now Billy Jack himself was handing me Thomas Jefferson's violin. How could I resist? I'd like to dedicate this to Thomas Jefferson's slaves, I said. And then I played the only thing I felt competent enough to perform It was a private joke between me and the god of Absurdity. |
education Text Sets BETA PRODUCT Science Connected NAUTIL. US NAUTIL. US TEXT SETS Introducing Nautilus Education The modern world has placed an unprecedented emphasis on science literacy. But most existing science texts do not emphasize literacy, and most literary texts don t have science. This Nautilus Education text set pamphlet is a beta product intended to fill this gap. It contains three groups of articles from the award-winning science magazine, Nautilus, each accompanied by lesson plans and guides for teachers. Key science concepts like genetics and astronomy are explored through narrative story telling and tailor-made artwork, letting science spill over its usual borders, and waking the imagination and interest of the student. This kind of literary science classroom material was designed to helps teachers satisfy the new U.S. common core and next gen standards but have global application. The relevant standards are listed in each lesson plan. Nautilus is looking for partners interested in using and further developing this kind of content. For more information, please write to education nautil.us. Michael Segal Editor-in-Chief About Nautilus Magazine Nautilus is a new kind of science magazine. Each monthly issue tackles a single topic in contemporary science using multiple vantage points, from biology and physics to culture and philosophy. We are science, connected. 2 NAUTIL. US TEXT SETS Contents Physics Biology 4 Astronomy Space Travel 6 Roadmap to Alpha Centauri Pick your favorite travel mode big, small, dark, or twisted BY GEORGE MUSSER 12 Chemistry Fuels 16 You are Made of Waste Searching for the ultimate example of recycling? Look in the mirror BY CURT STAGER 28 Genetics Human Health 30 Their Giant Steps to a Cure Battling a rare form of muscular dystrophy, a family finds an activist leader, and hope BY JUDE ISABELLA 36 An Unlikely Cure Signals Hope for Cancer How exceptional responders are revolutionizing treatment for the deadly disease BY KAT MCGOWAN 22 Frack er Up Natural gas is shaking up the search for green gasoline. BY DAVID BIELLO 3 NAUTILUS EDUCATION BETA PRODUCT Astronomy Space Travel How would we travel nearly five light years? This article explores different engineering solutions to the puzzle of taking a very, very, long trip, intertwining science-fiction goals with real world solutions. Students will explore fanciful applications of Newton s second law, and concepts of momentum, ions, and nuclear fusion. Lesson Plan Review vocabulary words in class. Have students read the article and answer the reading comprehension questions for homework, as well as generate a discussion question of their own. In class, address any conceptual questions that the class might have. Have students write discussion questions on the board, along with the ones suggested in this document. Have students break up into small groups, each of which should address one of the discussion questions. 15 MIN Dedicate the remaining class time to completing one of the activities. 30-45 MIN Teacher s Notes: Roadmap to Alpha Centauri VOCAB WORDS Magnetic field: produced by a magnetic material or a current, a magnetic field will push or pull a moving charge or magnet that comes in contact with it. Ion: an atom in which the number of electrons and protons is unequal thus, the atom is positive or negative. Momentum: the product of the mass and velocity of an object. Recoil: the backward momentum from a fired gun. Plasma: one of the four fundamental states of matter, composed of ions and electrons. Nuclear fusion: when two or more clusters of neutrons and protons collide, forming a new nucleus and releasing energy. READING COMPREHENSION 1. What does AU stand for? 2. How fast is Voyager 1 moving in miles per hour? 3. The engine first strips propellant atoms typically xenon of their outermost electrons. What is the charge of a stripped xenon atom? 4 NAUTIL. US TEXT SETS 4. What concept is at work in the ion drive? (Hint: what is conserved?) 5. What other travel options work on this principle? 6. How much momentum does an electron fired from a gun have? DISCUSSION QUESTIONS 1. Why not take a traditional rocket to Alpha Centauri? 2. Which of the propulsion meturds listed is most likely to succeed? Would any be used together? 3. Would it be worth going if it took generations? 4. How far away is the next-nearest star? ACTIVITIES 1. Research and create a brochure or ad enticing astronauts to make the trip. What would they eat? What psychological qualities would they need? If robots were sent, how would they be fixed? What kind of data could they expect to collect? WHERE THIS FITS IN THE CURRICULUM Structure and Properties of Matter (HS-PS1-8) Develop models to illustrate the changes in the composition of the nucleus of the atom and the energy released during the processes of fission, fusion, and radioactive decay. Forces and Interactions (HS-PS2-1) Analyze data to support the claim that Newton s second law of motion describes the mathematical relationship among the net force on a macroscopic object, its mass, and its acceleration. Forces and Interactions (HS-PS2-2) Use mathematical representations to support the claim that the total momentum of a system of objects is conserved when there is no net force on the system. Engineering Design (HS-ETS1-3) Evaluate a solution to a complex real-world problem based on prioritized criteria and trade-offs that account for a range of constraints, including cost, safety, reliability, and aesthetics, as well as possible social, cultural, and environmental impacts. 2. Propose another method of traveling to Alpha Centauri. ADDITIONAL MULTIMEDIA 1. Voyager 1 Leaves the Solar System (The Guardian) 1 MIN 45 SEC A quick explanation of where Voyager 1 is, and how scientists know its location: http: www. theguardian.com science video 2013 sep 13 voyager-1-leaves-solar-system-video 2. New Mars Rover Powered by Plutonium (Space.com) 2 MIN 30 SEC An introduction to the nuclear battery on board the Mars Curiosity Rover, and the advantages of not using solar power (as with past missions): https: www.youtube.com watch?v 1JOPW8aAcgEt 5 .x MATTER TECHNOLOGY Roadmap to Alpha Centauri Pick your favorite travel mode big, small, light, dark, or twisted BY GEORGE MUSSER VER SINCE THE DAWN of the space age, a quixotic subculture of physicists, engineers, and science-fiction writers have devoted their lunch hours and weekends to drawing up plans for starships, propelled by the imperative for humans to crawl out of our Earthly cradle. For most of that time, they focused on the physics. Can we really fly to the stars? Many initially didn t think so, but now we know it s possible. Today, the question is: Will we? Truth is, we already are flying to the stars, without really meaning to. The twin Voyager space probes launched in 1977 have endured long past their original goal of touring the outer planets and have reached the boundaries of the sun s realm. Voyager 1 is 124 astronomical units (AU) away from the sun that is, 124 times farther out than Earth and clocking 3.6 AU per year. Whether it has already exited the solar system depends on your definition of solar system, but it is certainly way beyond the planets. Its instruments have witnessed the energetic particles and magnetic fields of the sun give way to those of interstellar space finding, among other things, what Ralph McNutt, a Voyager team member and planetary scientist, describes as weird plasma structures begging to be explored. The mysteries encountered by the Voyagers compel scientists to embark on followup missions that venture even deeper into the cosmic woods out to 200 AU and beyond. But what kind of spacecraft can get us there? Going Small: Ion Drives NASA s Dawn probe to the asteroid belt has demonstrated one leading propulsion system: the ion drive. An ion drive is like a gun that fires atoms rather than bullets; the ship moves forward on the recoil. The system includes a tank of propellant, typically xenon, and a power source, such as solar panels or plutonium batteries. The engine first strips propellant atoms of their outermost electrons, giving them a positive electric charge. Then, on the principle that opposites attract, ILLUSTRATION BY CHAD HAGEN 7 NAUTILUS EDUCATION BETA PRODUCT a negatively charged grid draws the atoms toward the back of the ship. They overshoot the grid and stream off into space at speeds 10 times faster than chemical rocket exhaust (and 100 times faster than a bullet). For a post-Voyager probe, ion engines would fire for 15 years or so and hurl the craft to several times the Voyagers speed, so that it could reach a couple of hundred AU before the people who built it died. Star flight enthusiasts are also pondering ion drives for a truly interstellar mission, aiming for Alpha Centauri, the nearest star system some 300,000 AU away. Icarus Interstellar, a nonprofit foundation with a mission to achieve interstellar travel by the end of the century, has dreamed up Project Tin Tin a tiny probe weighing less than 10 kilograms, equipped with a miniaturized high-performance ion drive. The trip would still take tens of thousands of years, but the group sees Tin Tin less as a realistic science mission than as a technology demonstration. Going Light: Solar Sails A solar sail, such as the one used by the Japanese IKAROS probe to Venus, does away with propellant and engines altogether. It exploits the physics of light. Like anything else in motion, a light wave has momentum and pushes on whatever surface it strikes. The force is feeble, but becomes noticeable if you have a large enough surface, a low mass, and a lot of time. Sunlight can accelerate a large sheet of lightweight material, such as Kapton, to an impressive speed. To reach the velocity needed to escape the solar system, the craft would first swoop toward the sun, as close as it dared inside the orbit of Mercury to fill its sails with lusty sunlight. Such sail craft could conceivably make the crossing to Alpha Centauri in a thousand years. Sails are limited in speed by how close they can get to the sun, which, in turn, is limited by the sail material s durability. Gregory Matloff, a City University of New York professor and longtime interstellar travel proponent, says the most promising potential material is graphene ultrathin layers of carbon graphite. A laser or microwave beam could provide an even more muscular push. In the mid-1980s, the doyen of interstellar travel, Robert Forward, suggested piggybacking on an idea popular at the time: solar-power satellites, which would collect solar energy in orbit and beam it down to Earth by means of microwaves. Before commencing operation, an orbital power station could pivot and beam its power up rather than down. A 10-gigawatt station could accelerate an ultralight sail a mere 16 grams to one-fifth the speed of light within a week. Two decades later, we d start seeing live video from Alpha Centauri. This Starwisp scheme has its dubious features it would require an enormous lens, and the sail is so fragile that the beam would be as likely to fry it as to push it but it showed that we could reach the stars within a human lifetime. 8 NAUTIL. US TEXT SETS Going Big: Nuclear Rockets Sails may be able to whisk tiny probes to the stars, but they can t handle a human mission; you d need a microwave beam consuming thousands of times more power than the entire world currently generates. The best-developed scheme for human space travel is nuclear pulse propulsion, which the government-funded Project Orion worked on during the 1950s and 60s. When you first hear about it, the scheme sounds unhinged. Load your starship with 300,000 nuclear bombs, detonate one every three seconds, and ride the blast waves. Though extreme, it works on the same basic principle as any other rocket namely, recoil. Instead of shooting atoms out the back of the rocket, the nuclear-pulse system shoots blobs of plasma, such as fireballs of tungsten. You pack a plug of tungsten along with a nuclear weapon into a metal capsule, fire the capsule out the back of the ship, and set it off a short distance away. In the vacuum of space, the explosion does less damage than you might expect. Vaporized tungsten hurtles toward the ship, rebounds off a thick metal plate at the ship s rear, and shoots into space, while the ship recoils, thereby moving forward. Giant shock absorbers lessen the jolt on the crew quarters. Passengers playing 3-D chess, or doing whatever else interstellar passengers do, would feel rhythmic thuds like kids jumping rope in the apartment upstairs. The ship might reach a tenth the speed of light. If for some reason solar explosion, alien invasion we really had to get off the planet fast and we didn t care about nuking the launch pad, this would be the way to go. We already have everything we need for it. Today the closest technology we have would be nuclear pulse, Matloff says. If anything, most people would be happy to load up all our nukes on a ship and be rid of them. Ideally, the bomb blasts would be replaced with controlled nuclear fusion reactions. That was the approach suggested by Project Daedalus, a 70s-era effort to design a fully equipped robotic interstellar vessel. The biggest problem was that for every ton of payload, the ship would have to carry 100 tons of fuel. Such a behemoth would be the size of a battleship, with a length of 200 meters and a mass of 50,000 tons. It was just a huge, monstrous machine, says Kelvin Long, an English aerospace engineer and co-founder of Project Icarus, a modern effort to update the design. But what s happened since then, of course, is microelectronics, miniaturization of technology, nanotechnology. All these developments have led to a rethinking. Do you really need these massive structures? He says Project Icarus planned to unveil the new design in London in October 2013. Interstellar designers have come up with all sorts of ways to shrink the fuel tank. For instance, the ship could use electric or magnetic fields to scoop up hydrogen gas from interstellar space. The hydrogen would then be fed into a fusion reactor. The faster the ship were to go, the faster it would scoop a virtuous cycle that, if maintained, would propel the ship to nearly the speed of light. Unfortunately, the scooping system would also produce drag forces, slowing the ship, and the headwind of particles would cook the crew with radiation. Also, pure-hydrogen fusion is inefficient. A fusion-powered ship probably couldn t avoid hauling some fuel from 9 NAUTILUS EDUCATION BETA PRODUCT Going Dark: Scavenging Exotic Matter Instead of scavenging hydrogen gas, Jia Liu, a physics graduate student at New York University, has proposed foraging for dark matter, the invisible exotic material that astronomers think makes up the bulk of the galaxy. Particle physicists hypothesize that dark matter consists of a type of particle called the neutralino, which has a useful property: When two neutralinos collide, they annihilate each other in a blaze of gamma rays. Such reactions could drive a ship forward. Like the hydrogen scooper, a dark-matter ship could approach the speed of light. The problem, though, is that dark matter is dark meaning it doesn t respond to electromagnetic forces. Physicists know of no way to collect it, let alone channel it to produce rocket thrust. If engineers somehow overcame these problems and built a near-light-speed ship, not just Alpha Centauri but the entire galaxy would come within range. In the 1960s astronomer Carl Sagan calculated that, if you could attain a modest rate of acceleration about the same rate a sports car uses and maintain it long enough, you d get so close to the speed of light that you d cross the galaxy in just a couple of decades of shipboard time. As a bonus, that rate would provide a comfortable level of artificial gravity. On the downside, hundreds of thousands of years would pass on Earth in the meantime. By the time you got back, your entire civilization might have gone ape. From one perspective, though, this is a good thing. The tricks relativity plays with time would solve the eternal problem of too-slow computers. If you want to do some eons-long calculation, go off and explore some distant star system and the result will be ready for you when you return. The starship crews of the future may not be voyaging for survival, glory, or conquest. They may be solving puzzles. Going Warp: Bending Time and Space With a ship moving at a tenth the speed of light, humans could migrate to the nearest stars within a lifetime, but crossing the galaxy would remain a journey of a million years, and each star system would still be mostly isolated. To create a galactic version of the global village, bound together by planes and phones, you d need to travel faster than light. Contrary to popular belief, Einstein s theory of relativity does not rule that out completely. According to the theory, space and time are elastic; what we perceive as the force of gravity is in fact the warping of space and time. In principle, you could warp space so severely that you d shorten the distance you want to cross, like folding a rug to bring the two sides closer together. If so, you could cross any distance instantaneously. You wouldn t even notice the acceleration, because the field would zero out g-forces inside the ship. The view from the ship windows would be stunning. Stars would change in color and shift toward the axis of motion. It seems almost mean-spirited to point out how far beyond our current technology this idea is. Warp drive would require a type of material that exerts a gravitational push rather than a gravitational pull. Such material contains a negative amount of energy literally less than nothing, as if you had a mass of 50 kilograms. Physicists, inventive types that they are, have imagined ways to create such energy, but even they throw up their hands at the amount of negative energy a starship would need: a few stars worth. What is more, the ship would be impossible to steer, since control signals, which are restricted to the speed of light, wouldn t be fast enough to get from the ship s bridge to the propulsion system located on the vessel s perimeter. (Equipment within the ship, however, would function just fi When it comes to starships, it s best not to get hung up on details. By the time humanity gets to the point it might actually build one, our very notions of travel may well have changed. Do we need to send full humans? asks Long. Maybe we just need to send embryos, or maybe in the future, you could completely download yourself into a computer, and you can remanufacture yourself at the other end through something similar to 3-D printing. Today, a starship seems like the height of futuristic thinking. Future generations might fi it quaint. george musser is a writer on physics and cosmology and author of The Complete Idiot s Guide To String Theory (Alpha, 2008). He was a senior editor at Scientific American for 14 years and has won honors such as the American Institute of Physics Science Writing Award. 10 NAUTILUS EDUCATION BETA PRODUCT Chemistry Fuels The matter in our world is recycled. The pair of articles here explores how elements and atoms wend their way through space and time. Students will explore how chemical reactions usher elements through their journeys. You Are Made of Waste illustrates, in five short vignettes, the lives of the elements that make up our teeth, fi breath, hair, and blood. Frack er Up is an in-depth look at the botched promise of biofuel energy from cars made from renewable plant growth. In the curriculum section of the teacher s notes, you will find information on how these pieces can help fulfill requirements of the Next Generation Science Standards. Specifically, they make for entry points to or a means of reinforcing lessons on photosynthesis, chemical reactions, valence electrons, and energy. But more than that, these lessons will connect to the students daily lives, and spark discussion. Lesson Plan: Ask students to read one or both of the articles for homework. Briefly introduce or review the vocabulary words in class. Assign all or a selection of the reading comprehension questions for the students to complete along with the reading, and ask them to come up with one question for further discussion. (Note that a couple of the questions for each article are redundant.) Start class with students raising any technical questions they might have about the readings. Ask them to contribute their discussion questions, and write these on the board, along with the questions provided in the teacher s notes. Ask the students to break into small groups; assign each group to address a question, and briefly present to the class for further discussion. 30-45 MIN In the following class time (or another class) have the students complete one or more of the activities in the teacher s notes in small groups. 30 MIN Teacher s Notes: You Are Made of Waste VOCAB WORDS Mass: a physical property that describes an object s resistance to force. The mass of an object can be used to calculate its weight: (mass) x (gravitational force) weight. Carbon: an element found in stars, planets, comets, as well as in all known living things. Radioactive decay: the process by which a nucleus ejects alpha particles, particles of ionizing radiation. A nucleus that does this is considered unstable; a substance that contains unstable nuclei is considered radioactive. This process usually only occurs in atoms heavier than iron. 12 NAUTIL. US TEXT SETS Fusion: when two or more nuclei collide, fusing to make a new nucleus and releasing energy. This process usually only occurs in atoms lighter than iron. Chemical bond: an attraction between two or more atoms that allows them to form a substance of definite chemical composition. Breaking these bonds requires energy. Petroleum: a fossil fuel that forms when organisms are crushed under rock and subjected to lots of pressure, and lots of time. Like the organisms it s made of, petroleum consists largely of carbon. 2. How does the story change the way you see yourself? Others? ACTIVITIES 1. Pick an element not discussed in this article. Where else is it found? Where did it come from? 2. Draw a map or annotated illustration of all the places carbon goes in this article. Use outside research to complete a full picture of the carbon cycle. ADDITIONAL MULTIMEDIA READING COMPREHENSION 1. Each of those waste molecules is a carbon atom borne on two atomic wings of oxygen. Write out the chemical equation for the molecule described here. 2. Organic is used in two different ways in this piece. What are the two different definitions? 3. What does it mean for a chemical to be highly reactive? Identify oxygen s location on the periodic table, the group of atoms that it belongs to, and why they are considered highly reactive. 4. Which elements on the periodic table are the least reactive? 5. Fossil-based carbon dioxide molecules that are not soaked up by oceans or stranded in the upper atmosphere are eventually captured by plants, shorn of their oxygen wings, and woven into botanical sugars and starches. What is the process described here? (Hint: it is mentioned by name later in the piece.) Write down the equation for this reaction. 1. Whose air do you share? (It s OK To Be Smart, PBS) 3 MIN 30 SEC A video that explains how we breathe recycled air including molecules of air exhaled by Einstein himself: https: www.youtube.com watch?v BybkIJysAKc 2. We Are Star Stuff segment (Carl Sagan s Cosmos) 8 MIN Carl Sagan explains how the elements of life were born in stars, evolved into simple organisms, then into us: intelligent creatures, capable of exploring the stars we came from: https: www.youtube.com watch?v iE9dEAx5Sgw 3. The Microbes We re Made Of (Smithsonian.com) 2 MIN 30 SEC We re not just made of waste. We re made of trillions of other organisms. This video provides a quick exploration of the microbiome crucial to keeping our bodies working, and what we re doing to kill them: http: www.smithsonianmag. com videos category 3play 1 the-microbes-were-made-of ?no-ist DISCUSSION QUESTIONS 1. Chemophobia is the fear of chemicals. What are some chemophobic practices or products that we engage with? Are there good reasons to be afraid of chemicals? WHERE THIS FITS IN THE CURRICULUM Chemical Reactions (HS-PS1-2) Construct and revise an explanation for the outcome of a simple chemical reaction based on the outermost electron states of atoms, trends in the periodic table, and knowledge of chemical properties. 13 NAUTILUS EDUCATION BETA PRODUCT Matter and its interactions (HS-PS1-1) Use the periodic table as a model to predict the relative properties of elements based on the patterns of electrons in the outermost energy level of atoms. From molecules to organisms: structure and processes (HS-LS1-6) Construct and revise an explanation based on evidence for how carbon, hydrogen, and oxygen from sugar molecules may combine with other elements to form amino acids and or other large carbon-based molecules. Ecosystems: Interactions, energy and dynamics (HS- LS-3) Construct and revise an explanation based on evidence for the cycling of matter and flow of energy in aerobic and anaerobic conditions. Teacher s Notes: Frack er Up VOCAB WORDS Ethanol: also found in beer and wine, it is a kind of biofuel that is sometimes added to gasoline for use in automobiles. Ethanol can be made from corn, potatoes, or green plants. Its chemical formula is CH 3CH 2OH. Biofuel: a fuel made from plants or other organisms, in recent time. Biomass: material from recently living organisms. Organic compound: a molecule containing carbon. Hydrocarbon: Made of just hydrogen and carbon, these are the simplest kind of organic compound. Octane: a highly flammable hydrocarbon, and component of gasoline. Its chemical formula is C 8H 18. Catalyst: a component of a chemical reaction that helps facilitate the reaction, but is not used up. 2. A polymer is a chain of molecules. Identify a kind of polymer in the story, and the monomer that composes it. 3. Plants need carbon dioxide for photosynthesis. What are some of the sources for this carbon dioxide? DISCUSSION QUESTIONS 1. Why is it advantageous for companies to be green? 2. Would you pay more for gas or any other product, say a shirt from a green company? What if some of that company s practices were just as questionable as those of dark companies? 3. How would the world change if gasoline could be made cheaply from natural gas? Should we consider this technology to be progress given that natural gas has it s own environmental consequences. ACTIVITIES 1. Have students construct a timeline of fuel. Ask them to include dates mentioned from the story, and to research and add other relevant information: like the moment in history when organisms die, the life cycle of a tree that contributed the author s container of Primus fuel. 2. Draw a map or annotated illustration of all the places carbon goes in this article. Use outside research to complete a full picture of the carbon cycle. 3. Write a 30-second ad convincing car drivers to pay a premium for green gasoline like Primus . Include fine print side effects, or caveats as you see necessary. READING COMPREHENSION 1. Plant biomass absorbs carbon dioxide as it grows. What is the name of the process by which plants do this? Look up and write down the chemical reaction. ADDITIONAL MULTIMEDIA 1. Algae (The Guardian) An interactive slide show that illustrates how biofuels are made out of algae: 14 NAUTIL. US TEXT SETS http: www.theguardian.com environment interactive 2008 jun 26 algae https: www.youtube.com watch?v BybkIJysAKc 2. Bioprospecting (TED-Ed) 4 MIN An animated video introducing the concept of biofuels, and how they could help reduce reliance on our planet s limited supply of fossil fuels: http: ed.ted.com lessons biofuels-and-bioprospecting-for-beginners-craig-a-kohn 3. The Microbes We re Made Of (Smithsonian.com) 2 MIN 30 SEC We re not just made of waste. We re made of trillions of other organisms. This video provides a quick exploration of the microbiome crucial to keeping our bodies working, and what we re doing to kill them: http: www.smithsonianmag. com videos category 3play 1 the-microbes-were-made-of ?no-ist WHERE THIS FITS IN THE CURRICULUM Matter and energy in organisms and ecosystems (HS-LS1-5) Use a model to illustrate how photosynthesis transforms light energy into stored chemical energy. History of the Earth (HS-ESS1-6) Apply scientific reasoning and evidence from ancient Earth materials, meteorites, and other planetary surfaces to construct an account of Earth s formation and early history. Chemical reactions (HS-PS1-2) Construct and revise an explanation for the outcomes of simple chemical reactions based on the outermost electron state of atoms, trends in the periodic table, and knowledge of the patterns of chemical properties. Ecosystems: Interactions, energy and dynamics (HS- LS-3) Construct and revise an explanation based on evidence for the cycling of matter and flow of energy in aerobic and anaerobic conditions. 15 MATTER ENVIRONMENT You Are Made of Waste Searching for the ultimate example of recycling? Look in the mirror BY CURT STAGER YOU MAY THINK OF YOURSELF as a highly refined and sophisticated creature and you are. But you are also full of discarded, rejected, and recycled atomic elements. Don t worry, though so is almost everyone and everything else. Carbon: Your inky nails Look at one of your fingernails. Carbon makes up half of its mass, and roughly 1 in 8 of those carbon atoms recently emerged from a chimney or a tailpipe. Coal-fired power plants, petroleum-guzzling cars, and kitchen gas stoves release carbon dioxide into the atmosphere. Each of those waste molecules is a carbon atom borne on two atomic wings of oxygen. Fossil-based carbon dioxide molecules that are not soaked up by the oceans or stranded in the upper atmosphere are eventually captured by plants, shorn of their oxygen wings, and woven into botanical sugars and starches. Eventually, some of them end up in bread, sweets, and vegetables, while others help form carbon-rich animal tissues, finding their way into meat and dairy products. Historically, atmospheric carbon dioxide was mainly replenished by volcanoes, forest fires, and biotic respiration. Today, one quarter of atmospheric CO is the result of fossil fuel combustion, whether it rose from smokestacks or was displaced from the oceans. (When fossil-fuel CO dissolves into ocean water, it displaces already-dissolved carbon dioxide derived from natural sources.) And because all of the carbon in your body derives from ingested organic matter, which in turn obtains it from the atmosphere, your fingernails and the rest of the organic matter in your body are built, in part, from emissions. ILLUSTRATIONS BY YUKO SHIMIZU 16 NAUTIL.US I TEXT SE TS 17 NAUTILUS EDUCATION BETA PRODUCT Radioactive Carbon-14: Your pearly whites When you smile, the gleam of your teeth obscures a slight glow from radioactive waste. During the late 1950s and early 1960s, atmospheric testing of thermonuclear weapons scattered so much radioactive carbon-14 into the atmosphere that it contaminated virtually every ecosystem and human. Several thousand unstable radiocarbon atoms explode within and among your cells every second as their unstable nuclei undergo spontaneous radioactive decay. Some are the natural products of cosmic rays that can turn atmospheric nitrogen into carbon-14, while others result from the decay of unstable mineral elements that are found in soil. But many of them represent the echoes of thermonuclear airbursts from the Cold War, finding their way into our water supply and meals. If they happen to disintegrate within your DNA, they can damage your genes. And many of them are bound up in your teeth. Unlike most of the atoms in your body, those embedded in your strong, stable tooth enamel have been with you ever since you ingested them through your umbilical cord and your infant feeding. If you were born during the early 1960s, you have more nuclear waste in your teeth than if you were born later, when soils and oceans had had time to bury radioactive atoms. In fact, forensic scientists use the proportion of bomb carbon in tooth enamel to determine the age of unidentified human remains. 18 NAUTIL. US TEXT SETS Oxygen: Your leafy breath The oxygen in your lungs and bloodstream is a highly reactive waste product generated by vegetation and microbes. Trees, herbs, algae, and blue-green bacteria split oxygen atoms out of water molecules during photosynthesis. They use most of the resultant gas for their own purposes, but thankfully some leaks out to sustain you. In fact it makes up about a fifth of the air you breathe. Your cells harness oxygen to release energy from chemical bonds in the food you consume. Oxygen absorbs electrons released by broken food molecules, which attract hydrogen ions, resulting in a molecular waste of your own making: metabolic water, which comprises one tenth of your body fluids. An average adult carries between 8 and 10 pounds of homemade wastewater within them, and 1 in 10 of your tears are the metabolic by-products of your breathing and eating. NAUTILUS EDUCATION BETA PRODUCT Nitrogen: Your natural curls The next time you brush your hair, think of the nitrogenous waste that helped create it. All of your proteins, including hair keratin, contain formerly airborne nitrogen atoms. But the nitrogen in air is biologically inert. For nitrogen to become a component of your hair, it has to be converted into a more accessible form. Nitrogen-fixing bacteria is one way that can happen. They live among the roots of beans, peas, and other legumes, consuming atmospheric nitrogen and releasing it as ammonia, a kind of microbial manure that fertilizes soil in which plants grow. When you eat a plant, you consume formerly atmospheric nitrogen. Every flash of lightning and every automotive spark plug emits a puff of nitrogen oxide, which can dissolve into raindrops and fall to earth as a form of fertilizer, again finding its way into food webs through plants. But most of the nitrogen in modern foods comes from urea and ammonium nitrate fertilizers artificially fixed by industrial processes. In ages past, the nitrogen in human hair came mainly from bacterial waste and lightning. But today, unless you eat a strictly organic diet, you run your hairbrush through nitrogenous frameworks that are mostly of human origin. NAUTIL. US TEXT SETS Iron: Your ancient blood When you cut yourself, the wreckage of stars spills out. Every atom of iron in your blood, which helps your heart shuttle oxygen from your lungs to your cells, once helped destroy a massive star. The fierce nuclear fusion reactions that set stars ablaze create the atomic elements of life. As the star ages, it fuses progressively larger elements, such as silicon, sulfur, and calcium. Eventually, iron atoms are fused. The problem is that iron fusion consumes as much energy as it produces, so it weakens the star. If the star is big enough, it will collapse in on itself, its outer layers rebounding against the dense inner core, and a supernova explosion will result. The blast sprays out iron at supersonic speeds, filling great swathes of space with debris that can form new solar systems. The iron in your frying pan, house keys, and blood is essentially cosmic shrapnel from the tremendous explosions that ripped through our galaxy billions of years ago. The same blasts also released carbon, nitrogen, oxygen, and other elements of life, which later produced the sun, the Earth, and eventually you. curt stager is an ecologist and climate scientist at Paul Smith s College. He is the author of Deep Future: The Next 100,000 Years of Life On Earth, and also co-hosts a weekly science program on North Country Public Radio. 21 MATTER BIOFUEL Frack er Up Natural gas is shaking up the search for green gasoline BY DAVID BIELLO AM SPEEDING DOWN New Jersey s highways, propelled by gasoline with a dash of ethanol, an alcoholic biofuel brewed from stewed corn kernels. As I drive through the outskirts of the township of Hillsborough, in the center of the state, I see that spring has brought with it a bounty of similar biomass, as the fuel industry likes to call plants. Trees line the road and fresh-cut grass covers the sidewalks as I pull into the business park that is home to Primus Green Energy a company that has been touting a technology to transform such biomass into a green and renewable form of gasoline. But there s a hitch. The boom in hydraulic fracturing, or fracking, a technique in which horizontal drilling and high-pressure jets of water are deployed to release gas trapped in sedimentary shale rock, has made natural gas cheap and plentiful. That s not bad for Primus, whose technology can make gasoline from natural gas, biomass, or even low-grade coal, such as lignite or peat. This versatility makes Primus a potential part of what has been called the olive economy companies that are neither bright green nor darkest black, but combine environmentally-friendlier technologies with older and dirtier ones in order to compete. In fact, Primus may become a leader in advancing this kind of technology. We can be as dark as you want or as green as you want, says geologist, serial entrepreneur, and Primus salesman George Boyajian. In July, President Barack Obama gave a major speech on climate change that described natural gas as a transition fuel towards the even cleaner energy economy of the future. But Primus s trajectory raises the question of whether natural gas is a boost on the road to a genuinely green fuel, or if it is prolonging our addiction to dirty modes of transport, and taking us on a detour from a low-carbon path. At the Primus headquarters, I first meet Primus s chief chemist Howard Fang in front of a prototype of a Primus conversion machine. Fang, who joined the company for what he calls his semi-retirement, is ILLUSTRATION BY PETER MARIA HOEY 23 NAUTILUS EDUCATION BETA PRODUCT avuncular and black-haired. His interests are broad: He spends his spare time writing and reading history, and has authored books on conflict in the Middle East and the role of Christian missionaries in China. A lifetime in fuels chemistry left Fang with one burning question: What is the real solution to the energy crisis? His career at oil companies BP and ExxonMobil, and engine manufacturer Cummins, spanned not just one but two major energy upheavals the oil crisis of the 1970s and then its sequel in the first decade of the 21st century, which is arguably still ongoing. These experiences impressed on Fang the importance of securing the fuel supply in such a way as to avoid despoiling the environment. The solution, says the bespectacled chemist, is naturesourced biomass or natural gas converted effectively to gas or diesel. Primus s original idea was simple: take scrap wood or other biomass, turn it into pellets, and apply pressure and heat (700 degrees Celsius or more) to break it down into hydrogen and carbon monoxide. Then build this composite syngas, shorthand for synthetic gas, back up into whatever hydrocarbon product is desired the molecules of eight carbon and 18 hydrogen atoms known as iso-octane that are a measure of the quality of conventional gasoline, or the longer chains of similar hydrocarbons that comprise diesel or jet fuel. Because plant biomass absorbs carbon dioxide as it grows, the emissions produced by burning the biofuel should balance out overall every molecule of CO2 emitted when the fuel is burned was previously absorbed by the plant that made the fuel. The story of the search for such green fuel is littered with disappointments, however. Major companies brew ethanol in large quantities in the United States. It is routinely added to gasoline (at levels of around 10 percent, on its way to 15 percent) as a way to improve combustion, reduce pollution, and support industrial corn farmers. But most ethanol is still made from the edible kernels of corn plants, instead of the inedible cellulose that was promised in the heady days of the mid-2000s, when Congress passed a spate of laws promoting biofuel production. Since 1978, the ethanol industry has enjoyed subsidies and tax credits to the order of 40 cents per gallon, and now produces an annual dead zone at the mouth of the Mississippi River each summer as a result of fertilizer washing off the endless cornfields of the Midwest. But ethanol is unlikely to ever fully replace conventional fossil fuels, since it is more difficult to transport, produces a fraction of the energy of oil, and would require engines to be refitted or replaced on a massive scale. Hence the interest in drop-in biofuels as a substitute for conventional fuels in existing cars, planes, and trucks. The problem is not one of infrastructure, but chemistry: Companies must find a way to economically imitate and fast-track a process for which time and geology have done most of the work in conventional fossil fuels. The energy in these fuels is the pent-up power of ancient sunlight, which billions of photosynthetic microorganisms soaked up before dying, fossilizing, and turning into the hydrocarbonrich stew we know as petroleum, and from which we refine gas, diesel, and jet fuel, among other products. In theory, then, it should be possible to turn the carbohydrates and other chemicals that store energy for today s living things into the hydrocarbons we rely on for transportation. Potential routes to such green crude include algae, other photosynthetic organisms, and specialty microbes engineered to spit out hydrocarbons. Biofuel company Solazyme has a contract to supply United Airlines with 20 million gallons of algal jet fuel, and teamed up with a green fuel-station network to offer biodiesel in a test run in San Francisco s Bay Area. But it takes a lot of water and a lot of energy to move that water around in order to grow algae in large quantities, and tailor-making microbes is expensive at its current scale. As a result, companies are diversifying. Algal fuel producer Sapphire Energy is now focusing on isolating the genetic traits in the ancestors of all plants that might be usefully incorporated into other crops. Solazyme is making oils and specialty fats to sell at high margins to cosmetics and food companies, as is would-be microbial fuel-maker Amyris. The industry for advanced biofuels is literally in its infancy, concedes Jonathan Wolfson, Solazyme CEO. The allure of Primus s technology is its promise to harness waste wood and other inedible biomass that would otherwise be thrown into landfills, and turn it into a renewable source of gasoline. Its syngas to gasoline plus process consists, essentially, of four 24 NAUTIL. US TEXT SETS We can be as dark as you want or as green as you want, says Boyajian. chemical reactors. One turns the syngas into methanol. The next makes methanol into a molecule known as dimethyl ether, or DME in chemist-speak. In the third reactor, catalysts known as zeolites knit DME into gasoline, in the most expensive and energy-intensive part of the process. The fourth reactor eliminates some of the unwanted byproducts that cause the resulting fuel to congeal at low temperatures. The key is the zeolites, porous minerals made up of aluminum, silicon, and oxygen that allow the desired chemical reactions to take place. Both Primus and a conventional oil refinery employ zeolites to manipulate hydrocarbons. At an oil refinery, these catalysts help crack and sort hydrocarbons broken down from crude oil. At Primus, heat and pressure allow zeolites to build gasoline hydrocarbons from the smaller molecules of syngas. Such catalysts are a bit of a dark art, says Boyajian. He spars with Fang over whether or not the company will one day make their own. Fang does not accept Boyajian s need for secrecy, and would be more than happy to reveal all those dark arts a prospect that makes the affable Boyajian nervous and tightlipped. For now, the fledgling company buys the necessary catalysts off the shelf and must sign agreements not to examine these zeolites too closely. Using different catalysts in the reactors, Fang notes, the company could spit out diesel or jet fuel instead of gasoline. And for every 100 kilograms of syngas, he says, Primus can make 30 kilograms of gasoline or more, using a continuous looping system within the machine that eliminates the need for wasting energy to convert gases to liquids along the way. Little red containers of Fang-made gasoline record its characteristics, scrawled on masking tape affixed to the sides: low vapor pressure, a higher-than-average octane content of around 93, and a favorable absence of sulfur or benzene. Oil prices have been rising over the last month, and are currently at more than 100 per barrel; the company estimates that its gasoline costs as little as that derived from oil at 65 per barrel and could 25 NAUTILUS EDUCATION BETA PRODUCT cost as little as 2 per gallon, or about half the price gas currently goes for at local pumps, to produce at a full-sized facility, even though such an industrial plant would require a lot of capital to build. However, the machine Fang shows me is not running on the biomass that Fang originally tested: wood chips, switchgrass, canary grass, miscanthus. Instead, it churns through natural gas, turning methane into syngas. Making long hydrocarbons from the single carbon in methane molecules is very easy, he assures me. But natural gas is not true green, he concedes. There is no benefit in the reduction of greenhouse gases. Biomass is still true green. Natural gas from the fracking boom has revolutionized the global energy landscape particularly in the United States, the world s biggest producer of shale gas. But it is also controversial. Gas burns cleaner, but it still produces around half the greenhouse emissions of its dirtier cousins like coal, not including the excess methane that leaks from fracking sites and the pipelines that transport the gas. Fracked gas can also contaminate groundwater supplies. And while in 2012 it brought America s carbon footprint down to its lowest level in 20 years, relying on it in the long-term will make it hard to eliminate greenhouse gas emissions, as is required to combat climate change. As the price of natural gas slid in response to the glut of shale gas, Primus changed gears in mid-2012 to move away from biomass and to focus on making syngas from natural gas. This is not a new idea: ExxonMobil built a plant in New Zealand in 1986 to turn natural gas into methanol and then gasoline, but abandoned its efforts when the price of petroleum dropped dramatically in the mid 1990s. Now, though, natural gas is cheap and attractive. Boyajian has a map of all the shale formations in North America tacked to the wall of his office. The world is full of shale, he notes. An earlier version of Primus machine, tuned to process biomass, sits swathed in silvery insulating tape in a locked and darkened lab. Right now it is abandoned, Fang says. The company insists that the statement doesn t apply to Primus s biomass efforts more generally. This is the way to get to biofuels, says Primus CEO Robert Johnsen, of the gas to gasoline process, through a tight smile. Will we be the ones to get there? Maybe. The energy in these fuels is the pent-up power of ancient sunlight, which billions of photosynthetic microorganisms soaked up before dying. 26 NAUTIL. US TEXT SETS Will natural gas be a bridge for Primus to green fuel, or will it be too cheap and attractive to resist as a permanent substitute for biomass? For the moment, the company seems keen to squeeze what it can out of the shale gale. With the help of more than 50 million in Israeli money, Primus is building a demonstration plant the size of a house near its headquarters in New Jersey, due to open this year. The location is off the map even Google won t guide you there, as if it were some secretive skunk works facility, which is how the company likes to think of it. The plant will take natural gas from the local utility, run it through its proprietary set of chemical reactions and, on the far end, out of a spigot, will come gasoline 12.7 gallons per hour at full capacity. The company s first commercial plant, due to start construction next year, will likely be located near a source of natural gas. Scaling up the technology this way will reduce the overhead costs per unit of gasoline that is, the cost of fabricating the reactors and buying the zeolites and feedstocks. Plus, Primus technology may prove economical enough at a scale small to allow its plants to be distributed close to remote natural gas wells or even sources of biomass. It is no coincidence that the company based itself in verdant New Jersey, the Garden State ; proximity to biomass is crucial for producers, because transporting heavy and unwieldy wood or corn stalks across large distances tends makes the end product too costly and undercuts the greenhouse-gas savings that are a large part of its appeal. As I prepare to drive off, Fang carts out one of his collection of red plastic gas cans and dumps a liter or so of Primus-made, natural gas-to-gasoline fuel into my tank. A test car tooled around on it last summer, with no problems. The hope is to be able to charge a premium for the higher-octane premium product. People pay twice as much for organic food, Boyajian says. So why not pay more for green gasoline? My fuel sensor can tell the difference: it registers an anomalously high miles-per-gallon number. Fang gives me two thumbs up as I pull away, watching me drive off on his preferred solution to the energy crisis. It s unclear whether Primus will ever find the occasion to turn back towards biogasoline and whether that s a long-term fix for the world s energy and environmental conundrum. Striving to make cleaner fuel for standard, dirty combustion engines may reinforce drivers loyalty to today s technology. Such lock-in makes a true revolution difficult until some alternative energy source whether batterydriven electric cars or engines modified to burn carbon-neutral, as-yet-unmade biofuels offers the kind of convenience and low cost that justifies replacement. At present, Primus appears set to become part of a sprawling infrastructure that reinforces the incentives to use greenhouse gas-producing, gasoline-like fuels. And for all those concentrated octanes in my tank, I still have to pull into a Shell station to fill up on conventional gasoline, blended with corn ethanol, in order to drive home. david biello is the Environment and Energy Editor for Scientific American. He is currently working on a book about the Anthropocene. 27 NAUTILUS EDUCATION BETA PRODUCT Genetics Human Health Since DNA is often heralded as the code of life, what clues can mutations changes to the DNA sequence tell us about human health and disease? The pair of articles in the Genetics and Human Health module will explore the consequences of mutations in the context of cancer treatment and rare diseases such as muscular dystrophy. Their Giant Steps to a Cure discusses the challenges associated with treating a rare form of muscular dystrophy. An Unlikely Cure Signals Hope for Cancer explores how specific mutations in a patient s cancer can be used to a patient s advantage. Lesson Plan Ask students to read both of the articles for homework. Briefly introduce or review the vocabulary words in class. Assign the questions listed under Reading Comprehension for them to complete along with the reading and ask them to come up with one question for further discussion. Start class by asking students if they have any questions about the readings. Ask them to contribute their discussion questions (in addition to the ones provided under Deep Thinking Discussion questions). Have the class brainstorm and answer both discussion questions. 15 MIN . Next, break the class up into four groups for the Suggested Activity. Assign each group to one protein that is listed in the interactive. 15 MIN . Have each group present their thoughts to the class for further discussion. 15 MIN . Teacher s Notes: Their Giant Steps to a Cure, and An Unlikely Cure Signals Hope for Cancer VOCAB WORDS Muscular dystrophy: a genetic disease marked by progressive weakening of the muscles. Some forms of muscular dystrophy are seen in infancy or childhood. Orphan diseases: diseases that have yet to be adopted by the pharmaceutical industry because there are very few incentives to develop new medications to treat or prevent them. Orphan diseases can be rare or they are common diseases that have been ignored (e.g.: tuberculosis, cholera, typhoid, malaria). Calpainopathy: a rare type of muscular dystrophy characterized by symmetric and progressive weakness of proximal (limb-girdle) muscles. Cancer: A term used to describe disease in which abnormal cells divide without control and are able to invade into other tissues. Cancers are often categorized based on the organ or cell type they originate in. Oncologist: A doctor who specializes in treating patients with cancer. Outlier: An observation that deviates from a majority and can be seen to be a rare event. In the context of this piece, the outliers are patients who respond 28 NAUTIL. US TEXT SETS to therapy when the same therapy has failed other patients. Remission: a decline or disappearance of signs and symptoms of cancer. READING COMPREHENSION 1. Why are orphan diseases underfunded? 2. How does the mutation in calpain 3 cause muscle to fail to grow? 3. What are some reasons pharmaceutical companies would want to develop drugs for orphan diseases? What are some possible reasons they would be against doing so? 4. Statistically speaking, outliers are often ignored. In this story, why is patient number 45 such an interesting case? Why is it generally important to study the outliers of response? 5. Which protein s activity is blocked by everolimus? What is the function of this particular protein? DISCUSSION QUESTIONS 1. In what contexts would it be desirable and undesirable to sequence your genome to see if you are at risk for a disease? What are the benefits and downsides of knowing if you are at risk for a particular disease? 2. In both pieces, mutations are responsible for causing disease. Compare and contrast the ways mutations can lead to muscular dystrophy and cancer. Are the mutations in one case hereditary? Are mutations leading to either disease caused by environmental factors? Are the mutations in either case preventable? If so, how could they be prevented? 3. How should doctors and scientists decide whether to work on a rare condition? ACTIVITIES Some genes are not specific to humans, but rather, are common to myriad species. In a smaller group, you will be assigned to read about one of the proteins listed here: http: nautil.us issue 5 fame genes-that-won-the-fame-game Please answer the following questions when it is your turn to present to the class: 1. What organisms is the gene present in? Were you surprised by the presence of the gene in any of the organisms listed? If so, why? 2. If this protein was mutated, what could the consequences look like? Could it cause a disease? 3. Research and present one other case of an outlier being useful in science or medicine. WHERE THIS FITS IN THE CURRICULUM Structure and Function (HS-LS1-1) A cell contains genetic information in the form of DNA molecules. Genes are regions in the DNA that contain the instructions that code for the formation of proteins, which carry out most of the work of cells. Variation of Traits (HS-LS3-2) Although DNA replication is tightly regulated and remarkably accurate, errors do occur and result in mutations, which are also a source of genetic variation. Mutations can, in turn, cause disease and or affect human health. The pattern of mutations can also predict response to drugs. Inheritance and Variation of Traits - Environmental Factors (HS-LS3-3) Technological advances have influenced the progress of science and science has influenced advances in technology. Technologies have evolved to sequence human genes, which can better inform doctors of their patients health. Likewise, pharmaceutical companies have also created many drugs for the treatment of human disease. 29 BIOLOGY MEDICINE Their Giant Steps to a Cure Battling a rare form of muscular dystrophy, a family finds an activist leader, and hope BY JUDE ISABELLA N 2007, AT HER high school graduation in Quesnel, British Columbia, Ivana Topic stood at the top of the auditorium stairs, her long gown skimming the floor, her dark brown hair spilling over her shoulders. She had on ridiculously high heels. As she eased down the stairs, very slowly, she hung on to her date. She was afraid her knees would collapse, as her muscles were weak for her age. From the audience, Ivana s mother, Marijana, watched her daughter s every step, silently panicking and breaking into a sweat. She knew Ivana could easily tumble down the stairs and break a limb. The year before, Ivana had been diagnosed with muscular dystrophy, an incurable genetic disease characterized by progressive weakening of the muscles. Antonia, Ivana s younger sister by five years, was later diagnosed with the same disease. Around the time of Ivana s graduation, the Topics, an unassuming family originally from Croatia, had begun adjusting their lives as best they could, inquiring about ramps everywhere they went, avoiding walking in snow and sleet. For years, Ivana and Antonia had been subjected to endless medical tests. In 2010, they learned they had a rare form of muscular dystrophy, calpainopathy, which affects about 1 in 200,000 people. The diagnosis meant both would likely be bound to wheelchairs while they were still young women. Today, Ivana is 24. In May, she graduated from college with a bachelor s degree in finance and general business. She still walks up stairs in her house; her bedroom is upstairs. I m definitely a fighter, and will try and walk for as long as I can, she says. When I notice I m falling a lot, when I need help a lot, I will go in a chair. Muscular dystrophy treatment is limited to only palliative medications and therapies. Ivana herself practices yoga. While researchers worldwide are working on lasting cures for muscular dystrophy (funded in part by the famous Jerry Lewis Telethons), rare forms like calpainopathy are orphans, with only a fraction of ILLUSTRATIONS BY ELLEN WEINSTEIN 31 NAUTILUS EDUCATION BETA PRODUCT I m definitely a fighter, and will try and walk for as long as I can. researchers and funds devoted to them. With quiet stoicism, the Topics have accepted that modern medicine may not have a solution for their daughters disease. Still, says Marijana, Without hope, there s no life. Following a current grassroots trend in medicine, many individuals with orphan diseases do not wait for the medical industry to care about them. Facing long odds, they are forced to raise money to find a potential cure themselves. But the Topics live by modest means. Marijana runs a daycare center and her husband and the childrens father, Niko, works for a lumber company. They are in no position to mount a quest. But then there s Michele Wrubel, 49, a stay-at-home parent from Connecticut who has calpainopathy. For years, Wrubel has been a passionate crusader for a cure. Affluent and well connected, she doesn t varnish the truth about what it has taken to make the medical industry pay attention to her. To make a difference in this disease, you need money and meetings, she says. Researchers are not going to study a disease unless there s money behind it to fund the research. For the Topics, Wrubel may be their best hope. THE GLOBAL GENES PROJECT, an advocacy group, estimates 350 million people suffer from orphan diseases worldwide. Most rare diseases are genetic and tend to appear early in life. About 30 percent of children who have them die before reaching their fifth birthday. The rest battle their conditions throughout life, as most orphan diseases have no cure. Out of the 7,000 orphan diseases identified to date, with about 250 new ones added annually, less than 400 can be treated therapeutically. This year the European Commission gave 144 million euros to develop 200 new therapies and the National Institute of Health allocated 3.5 billion to research orphan diseases. Yet some diseases are so rare that they remain stepchildren even among orphans. As a result, they receive little research attention and funding. Neither do they fit the list of billable insurance procedures. There s no standard healthcare path to diagnosis, let alone treatment. Similar to the Topics, many patients go through an ordeal, which Marijana describes as a blur, only to find out that medicine can t help them. Orphan disease organizations, such as the National Organization for Rare Disorders and the Rare Disease Foundation, encourage patients to take matters into their own hands. Families have to advocate, says Isabel Jordan, chair of the Rare Disease Foundation. She encourages patients to form organizations, find new methods of funding, and push for research. Push for research could be Michele Wrubel s calling card. She was diagnosed with muscular dystrophy in her mid-20s. But even though calpainopathy was identified nearly 20 years ago about the same time Wrubel got her initial diagnosis it took almost the entire second half of her life to determine that she was afflicted with calpainopathy. There were no clinical procedures that would lead to a diagnosis. It took a really long time and a very concerted effort, says Wrubel, who walks with canes, submitting to a wheelchair for long trips or when in crowded places. If you don t know what you re looking for, they don t know what to tell you or how to help you, she says. In 2008, gene sequencing came of age, which aided physicians in diagnosing muscular dystrophy subtypes. That year, Wrubel s husband, Lee, who holds a medical degree and a master s in public health from Tufts, an MBA from Columbia University, and is a venture capitalist in the medical field, tracked down a neurologist 32 NAUTIL.US I TEXT SE TS NAUTILUS EDUCATION BETA PRODUCT In the quest for a cure, she says, It s a matter of patients taking charge of their diagnosis. to sequence his wife s genomes. He paid several thousand dollars from his own pocket to learn his wife had calpainopathy. The Topics had no such luxury. But they did have luck. Cornelius Boerkoel, a clinical geneticist at the University of British Columbia, enrolled the Topics in one of his studies, and so they didn t have to pay to have each of the family member s genomes sequenced. The genome tests gave Ivana and Antonia the bad news about calpainopathy. Their younger brother, Mario, is free of the disease. Scientists classify calpainopathy, or calpain, as a limb-girdle muscular dystrophy Type 2a, caused by a mutation in the gene calpain 3, predominantly expressed in skeletal muscle. Those who suffer from Type 2a, such as Wrubel, Ivana, and Antonia, generally exhibit weak hip flexors muscles that lift up the thigh. The weak flexors give them an awkward gait; they swing their legs forward, landing on their toes, and then sometimes on the sides or soles of their feet. Some walk only on the balls of their feet. The upper body muscle weakness creates abnormally prominent shoulder blades. Melissa Spencer from the University of California, Los Angeles, who has studied calpainopathy for 14 years, explains that the disease contains many subtypes. The problem with Type 2a, she says, was a 34 NAUTIL. US TEXT SETS really strange gene mutation that was completely inexplicable. She says it has been a hard disease to study, partially because the implicated protein is unstable and partially because it was a rarity among the orphan diseases. When it comes to funding, calpainopathy has been overshadowed by other forms of muscular dystrophy. Muscle studies have been underfunded forever and certainly a rare disease like 2a especially underfunded, Spencer says. In 2010, Wrubel formed the nonprofit Coalition to Cure Calpain 3. In the quest for a cure, she says, It s a matter of patients taking charge of their diagnosis. She reached out to other sufferers via Facebook, and some donated money. She partnered up with two other nonprofits that had raised funds on their own, both started by those afflicted with Type 2a. So far Wrubel s efforts have gathered close to half a million dollars. With that money, she has funded a project with Louis Kunkel, professor of genetics and pediatrics at Boston Children s Hospital, one of the nation s key muscular dystrophy researchers. Her coalition also organized a conference to bring calpainopathy researchers together, including Spencer. Years earlier, in 2005, Spencer made a significant breakthrough. She discovered that calpainopathy, unlike more common forms of muscular dystrophy, was not a weakening of the muscle but a growth problem muscle forms, but fails to grow because of a missing protein. It is different from other muscular dystrophies in which the lack of the protein complex, dystrophin, damages muscle membranes. With calpainopathy, the muscles lack the growth signal, she says. It s not transmitted properly. That difference makes a drug cure more possible. I think this is going to be the easiest muscular dystrophy to cure, she says. Encouraged by the promise, the Coalition to Cure Calpain 3 gave Spencer s lab a 260,000 grant to investigate how to circumvent the signaling problem and come up with a drug to fix it. But because the United States Food and Drug Administration already has a library of approved compounds that stimulate cell growth in muscle, Spencer s team may arrive at a solution sooner. With the help of the coalition s money, her lab is now plowing through the thousands of existing compounds, choosing those fit for testing. I think it will be five years before we start thinking about clinical trials, Spencer says and then another five years before the drugs can be commercially available, she estimates. Wrubel s coalition intends to get pharmaceutical companies interested, too. Many pharmaceutical companies see treating orphan diseases as a way to increase profits, Wrubel says. Her husband, Lee, adds, The whole model for big pharmaceutical companies going forward is different. There is too little in the big pharmaceutical pipeline, and they re looking to feed that beast as much as possible. A 2012 Thomson Reuters study found that drug companies stand to profit from orphan drugs because, compared to drugs for common afflictions, they often have shorter and less expensive clinical trials, with more success. Spencer says a drug for calpainopathy, for instance, would also be useful for patients with Lou Gehrig s Disease and bed rest patients, as it would help arrest the loss of bone and muscle mass. Wrubel hopes to bring Cydan Development, a venture-capital backed orphan drug developer, to their upcoming fall conference in the Netherlands. As for the Topics, they were excited to learn about Wrubel from Nautilus. Ivana recently connected with Wrubel through Facebook. I only talked with her a little bit, but she seems ambitious and driven, Ivana says. Definitely not someone who is going to sit around and wait for something to happen. Definitely inspiring. And the possibility that something might help in any way is a good thing to hear, for sure. Ivana says she now wants to get involved and advocate for her own disease. I definitely want to do something, she says, and Wrubel s coalition would be a good place to start. jude isabella is a science writer based in Victoria, Brit- ish Columbia. Her new book, Salmon, A Scientific Memoir, will be released next year. 35 BIOLOGY MEDICINE An Unlikely Cure Signals New Hope for Cancer How exceptional responders are revolutionizing treatment for the deadly desease BY KAT MCGOWAN UST LIKE EVERY NEW drug the oncologists at Memorial Sloan-Kettering Cancer Center tested against bladder cancer in the last 20 years, this one didn t seem to be doing any good. Forty-four people in the study were given everolimus in a last-ditch attempt to slow down or stop their advanced cancer. When the researchers analyzed the data, they could see that the drug wasn t slowing or stopping tumor growth. Everolimus seemed to be another bust. Then there was patient number 45. She joined the trial with advanced metastatic cancer. Tumors had invaded deep into her abdomen, clouding her CT scan with solid grey blotches. She was 73 years old. None of the standard bladder cancer drugs were working for her anymore; she had failed treatment, in the dismal lingo of oncologists. She enrolled in the study only because she happened to be a patient at Sloan-Kettering in January 2010. In April 2010, her cancer was gone. This sort of happy surprise is not unheard of in drug studies. Bodies are fluky, each with its own idiosyncratic combination of genetic blueprints and environmental inputs. So sometimes a patient will be cured by a drug that is useless for everyone else. In the past, these spectacular reactions were written off as outlier responses that defied explanation medical mysteries. Doctors just shrugged their shoulders and thanked their lucky stars that even though the study tanked, they did manage to help one person. But this time was different. Clinical oncologist David Solit, director of developmental therapeutics at Sloan-Kettering, saw a new opportunity to explain what happened by sequencing the whole genome of the woman s cancer. Just five years ago, decoding and analyzing all 3 billion bases of the DNA from a tumor would ve been absurdly time-consuming and expensive. Now the sequencing takes as little as a few days. Poring over the outlier patient s genetic code, Solit pinpointed two mutations that made her tumor sensitive to this drug. He found that one of her mutations shows up in about 8 to 10 percent of other bladder cancer patients, meaning that they too might be helped by everolimus. His success has inspired a whole set of ILLUSTRATION BY ELLEN WEINSTEIN 36 NAUTIL. US TEXT SETS programs to study exceptional responders : those rare cancer patients who do well while nobody else does. Cancer is a personal disease, Solit explains. Each tumor constitutes its own world of defective genes and proteins. By studying the genetic quirks of exceptional responders, physicians can systematically identify weaknesses in cancer subtypes and blast them with drugs that target their unique vulnerabilities. It s a testament to how much has been learned about the genome in the past 30 years, Solit says. We ve always wanted to find out why some individuals respond so well. Now we have the capacity. It s going to really change the way we treat patients. UNLIKELY CASES HAVE AN eminent history in medicine. The modern science of the mind owes a lot to the freakish accident suffered by Phineas Gage, a 19th century railroad construction foreman whose job involved packing down explosive powder with a three-and-a-half-foot-long iron tamping rod. On Sept. 13, 1848, the powder exploded in his face, blasting the rod up through his chin and out the back of his head. Against all odds, he survived. But his personality was transformed. The formerly shrewd and patient Gage became obnoxious and unreliable. An observant doctor named John Martyn Harlow who cared for Gage proposed that his personality change was due to the destruction of the frontal lobe of the left side of the brain. Gage s unlikely transformation revealed a universal truth about brains, that particular parts the frontal lobes are required for self-control. The strange case of Phineas Gage is still mentioned in neuroscience textbooks. Rare events can also lead to new cures. As the story goes, English physician Edward Jenner s observations of an 18th century milkmaid who caught cowpox and thereby became immune to smallpox paved the way for the fi vaccines. New ideas for curing HIV are emerging from the famously unlucky lucky case of the Berlin patient. Timothy Ray Brown, who was HIV positive, developed blood cancer leukemia in 2006. His chemotherapy and radiation treatments wiped out the cells of his immune system, where the virus is believed to hide. He then got a bone marrow transplant from one of those rare people with a gene mutation that makes them resistant to HIV. Today, Brown still has no sign of HIV in his body, and his case has inspired a study to genetically engineer HIV-positive patients cells to resist the virus. In the past, cancer researchers weren t able to capitalize on their unexpected outlier successes. Not enough was known about the biology of cancer, and the right tools hadn t been invented. Even if someone had a complete remission, you had no way to figure out why, says James Doroshow, director of the Division of Cancer Treatment and Diagnosis of the National Cancer Institute (NCI). That changed in the 2000s, when it became possible to analyze the genetics of cancer tumors for clues. The first major success came with studies of the drug gefitinib in non-small-cell lung cancer (the most common kind). Gefitinib helped less than 20 percent of the people who took it, but a few outliers had dramatic, rapid recoveries. In 2004, two Harvard groups found that the responders had mutations in the epidermal growth factor receptor (EGFR) gene. EGFR is one of many genes that regulates how cells grow and when they die, and the mutation basically forced it to pump out two or three times as much growth signal as it should, fueling the cancer. Gefitinib dialed down the signal. A clinical trial later proved that the drug keeps tumors at bay for more than nine months in people with certain EGFR mutations. More insights gleaned from extraordinary responders soon followed. One melanoma patient in a study of 22 people taking sorafenib saw his tumor shrink quickly, a response due to a mutation in the gene KIT, which regulates cell growth, division and survival. People with certain kinds of melanoma, such as the type that grows on mucus membranes, now routinely get tested for this mutation. The drug helps about 40 percent of those with the mutation an impressive advance in a cancer that once had no effective treatment. In these studies, investigators had to make educated guesses about where in the genome to look for the culprit mutations. It was the keys-under-the-lamppost phenomenon: They could only examine genes they already suspected were involved in the cancer. But as the speed and efficiency of DNA sequencing skyrocketed, and its price plummeted, it started to look reasonable to sequence the whole tumor genome to cast the widest possible net. By 2010, when the bladder cancer 37 NAUTILUS EDUCATION BETA PRODUCT patient (who doesn t want her name made public) had such a wonderful response to everolimus, the technology was ripe to analyze her entire tumor. The outlier patient had already gone through several rounds of treatment, including surgery at Memorial Sloan-Kettering. That was another stroke of luck because it allowed Solit s group to acquire samples of her tissue to be sequenced. Cancers typically start with mutations that cause cells to divide too much, ignoring normal stop signals and evading quality controls that repair or prevent errors in DNA reproduction. Cancer is a disease of mutations, says Solit. The outlier patient s cancer had accumulated 17,136 mutations, of which 140 seemed most suspect, because they appeared in coding regions of the genome, the segments that include instructions on how to build the proteins that do the work in a cell. Out of those 140, two looked particularly menacing to Solit. In a gene called TSC1, just two of its 8,600 DNA base-pairs were missing, but the error would cause the gene to make a defective version of the protein it was supposed to create. In the gene NF2, an error meant a protein would be built only halfway, unable to do its job. Solit could now see how these mutations were affected by everolimus, a drug typically used to suppress the immune system after organ transplants, and to combat advanced kidney cancer. Everolimus shuts down one crucial link in a chain of interacting proteins called the mTOR pathway that fuels cell growth, division, and survival. The drug inhibits the cells of the immune system from dividing, which they must do in order to attack foreign tissue, and protects transplanted organs. Likewise, it slows down the uncontrolled cell division that happens in cancer. The kicker was that both of the woman s mutations, NF2 and TSC1, affect the mTOR system. It s not surprising, in retrospect, that our patient responded really well to this specific drug, Solit says. She had the mutation that activated the pathway the drug targets. Solit s team analyzed 13 more people from the trial and found different TSC1 mutations in three other people, including two whose tumor shrank a little in response to the drug. (Nobody else had NF2 mutations, which is probably why she alone responded dramatically.) Meanwhile, eight of nine people whose tumors grew during the study did not have the mutation. DOROSHOW OF THE National Cancer Institute says Solit s work turned on the lightbulb. It showed how the analysis of exceptional responders could be made systematic. Inspired by his example, the NCI is now trawling through its own archives, revisiting outlier responses among the roughly 10,000 patients who enrolled in NCI-sponsored clinical trials during the last decade. Picture the long rows of crates in the government warehouse at the end of Raiders of the Lost Ark: There s treasure in there somewhere, if only someone would look. We ought to study these people more, since we have the means now, says Barbara Conley, the associate director of the cancer diagnosis program at NCI, who leads the project. In the few months since the project began, Conley s team have already found about 100 exceptional responders. The next steps are to find out if their tumors were biopsied, if that tissue sample is still sitting in a freezer somewhere, and whether it s in good enough shape to be sequenced. Starting next year, the group will start inviting any scientist who is doing a clinical trial to submit new cases. The NCI project will include whole-genome sequencing (provided they have adequate tissue samples) and repeated reads of the whole exome the 1 percent of human DNA that is translated into exons, the sequences that are used as templates for protein construction. The reason to do both, explains Conley, is that cancer cells, even within a single tumor, often have a hodgepodge of mutations. Re-doing whole exome sequencing dozens of times captures most of the significant genetic variation in one tumor, and it s more practical than trying to sequence the whole genome over and over. Finally, RNA expression will also be analyzed. Evaluating RNA, an intermediary between DNA and proteins, provides a measure of which genes are switched on and how much protein they re producing. Other elite cancer research centers and genomesequencing centers have similar in-house projects. Much like the NCI project, the unusual responder program at the University of Texas, MD Anderson Cancer Center, is beginning by combing through the archives to hunt for outliers of the past. A patient at the clinic who has an unusual response good or bad will also be referred for genome sequencing and other kinds of genetic analysis. 38 NAUTIL. US TEXT SETS Even if each outlier case only applies to 3 or 7 percent of one type of cancer, as more cases are solved, the benefits quickly add up. We re talking about small subsets of patients that together make a radical change, says Funda Meric-Bernstam, chair of the Department of Investigational Cancer Therapeutics at MD Anderson, who leads the unusual responders program. In some cases, existing cancer drugs can simply be repurposed, such as discovering that an immunosuppressant drug works for certain bladder cancers. Or it might mean finding new life for an experimental drug that had been abandoned. If Conley and Doroshow can pinpoint who might be helped by an abandoned drug, a pharmaceutical company might have to do just one or two further studies to get that drug approved for routine use. The future might look something like what s been going on for several years at the Genome Institute of Washington University, where genome sequencing is being used to help people with relapsed cancers and who have run out of options. The project puts insights from studies like Solit s into practice, analyzing a patient s tumor to determine whether currently available drugs might target the troublemaker mutations. Combining whole genome sequencing, exome sequencing, and RNA expression analysis what Washington University professor of genetics and Genome Institute co-director Elaine Mardis calls the Maserati approach the team compares a comprehensive genetic profile against a database of drugs that target specific gene variants, looking for a match. If there is a match, the results can be impressive, as was the case with a young Washington University doctor with leukemia, Lukas Wartman, who had suffered two relapses. In his case, analysis revealed that a gene called FLT3 was expressing more RNA than normal. A drug that inhibits this gene, usually used in kidney cancer, sent his cancer into remission. Washington University now has a special genetic test for patients with his type of leukemia. Just recently, Solit s group solved another exceptional responder mystery a case of ureteral cancer eliminated with a combination of old and new drugs. The old drug is a standard chemotherapy treatment that prevents DNA from unwinding, which it must do in order to duplicate itself during cell division. The new one sensitizes cells to the effects of radiation. This patient turned out to have a mutation in RAD50, involved in repairing broken DNA strands (badly repaired DNA can lead to uncontrolled cancerous growth). Here, too, the outlier finding may lead to a new treatment, since about 4 percent of the other tumors Solit has looked at have mutations that affect part of the RAD50 complex. To look at these individuals cancers can tell us a lot more than just a random case of cancer, says Solit. There s a phenotype a response that gives you information about the genes. Solit is now making a quick, reliable test for the TSC1 mutation to single out people with bladder cancer who might be helped by everolimus, and is planning a new study to test the drug in them. And the original outlier, the woman with bladder cancer? Three years later, she s still on everolimus and still having a complete response, Solit says. She s doing fine. kat mcgowan is a contributing editor at Discover magazine and an independent journalist based in Berkeley, Calif., and New York City. 39 EDUCATION NAUTIL. US |
Game Theory and Morality Moshe Hoffman , Erez Yoeli , and Carlos David Navarrete Introduction Consider the following puzzling aspects of our morality: 1. Many of us share the view that one should not use people, even if it benefits them to be used, as Kant intoned in his second formulation of the categorical imperative: Act in such a way that you treat humanity, whether in your own person or in the person of any other, never merely as a means to an end, but always at the same time as an end (Kant, 1997 ). Consider dwarf tossing, where dwarfs wearing protective padding are thrown for amusement, usually at a party or pub. It is viewed as a violation of dwarfs basic dignity to use them as a means for amusement, even though dwarves willingly engage in the activity for economic gain. Many jurisdictions ban dwarf tossing on the grounds that the activity violates dwarfs basic human rights, and these laws have withstood lawsuits raised by dwarfs suing over the loss of employment (!). 2. Charitable giving is considered virtuous, but little attention is paid to how just the cause or efficient the charity. For example, Jewish and Christian traditions advocate giving 10 of one s income to charity, but make no mention of the importance of evaluating the cause or avoiding wasteful charities. The intuition that giving to charity is a moral good regardless of efficacy results in the persistence of numerous inefficient and corrupt charities. For example, the Wishing Well Foundation has, for nearly a decade, ranked as one of CharityNavigator. M. Hoffman ( ) E. Yoeli Program for Evolutionary Dynamics , Harvard University , One Brattle Square, Suite 6 , Cambridge , MA 02138 , USA e-mail: moshehoffman fas.harvard.edu C.D. Navarrete Department of Psychology, and, the Ecology, Evolutionary Biology and Behavior Program , Michigan State University , East Lansing , MI , USA Springer International Publishing Switzerland 2016 T.K. Shackelford, R.D. Hansen (eds.), The Evolution of Morality, Evolutionary Psychology, DOI 10.1007 978-3-319-19671-8 14 289 290 M. Hoffman et al. com s most inefficient charities. Yet its mission of fulfilling wishes by children with terminal illnesses is identical to that of the more efficient Make-A-Wish Foundation. Worse yet, scams masquerading as charities persist. One man operating as The US Navy Veteran s Association collected over 100 million dollars over 7 years! before anyone bothered to investigate the charity. 3. In every culture and age, injunctions against murder have existed. If there is one thing much of humanity seems to agree on, it s that ending the life of another without just cause which is among the worst of moral violations. Yet cultures don t consider the loss of useful life years in their definition, even though it is relevant to the measure of harm done by the murder. Why is our morality so much more sensitive to whether a life was lost than to how much life was lost? There are numerous other examples of how our moral intuitions appear to be rife with logical inconsistencies. In this chapter, we use game theory to provide insight on a range of moral puzzles similar to the puzzles described above. What Is Game Theory and Why Is It Relevant? In this section , we review the defi nition of a game , and of a Nash equilibrium , then discuss how evolution and learning processes would yield moral intuitions consistent with Nash equilibria . Game theory is a tool for the analysis of social interactions. In a game, the payoff to each player depends on their actions, as well as the actions of others. Consider the Prisoner s Dilemma (Chammah Rapoport, 1965 ; see Fig. 1 ), a model that captures the paradox of cooperation. Each of two players chooses whether to cooperate or to defect. Cooperating reduces a player s payoff by c 0 while increasing the other s payoffs by b c. Players could be vampire bats with the option of sharing blood, or firms with the option of letting each other use their databases, or premed students deciding whether to take the time to help one another to study. The payoffs, b and c , may represent likelihood of surviving and leaving offspring, profits, or chance of getting into a good medical school. Solutions to such games are analyzed using the concept of a Nash equilibrium 1 a specification of each player s action such that no player can increase his payoff by deviating unilaterally. In the Prisoner s Dilemma, the only Nash equilibrium is for neither player to cooperate, since regardless of what the other player does, cooperation reduces one s own payoff. 1 Note that we focus on the concept of Nash equilibrium in this chapter and not evolutionary stable strategy (ESS), a refinement of Nash that might be more familiar to an evolutionary audience. ESS are the Nash equilibria that are most relevant in evolutionary contexts. However, ESS is not well defined in many of our games, so we will focus on the insights garnered from Nash and directly discuss evolutionary dynamics when appropriate. Morality Games 291 Fig. 1 The Prisoner s Dilemma. Player 1 s available strategies (C and D, which stand for cooperate and defect, respectively) are represented as rows . Player 2 s available strategies (also C and D) are represented as columns . Player 1 s payoffs are represented at the intersection of each row and column. For example, if player 1 plays D and player 2 plays C, player 1 s payoff is b. The Nash equilibrium of the game is (D, D). It is indicated with a circle Game theory has traditionally been applied in situations where players are rational decision makers who deliberately maximize their payoffs, such as pricing decisions of firms (Tirole, 1988 ) or bidding in auctions (Milgrom Weber, 1982 ). In these contexts, behavior is expected to be consistent with a Nash equilibrium, otherwise one of the agents who are actively deliberating about what to do would realize she could benefit from deviating from the prescribed strategy. However, game theory also applies to evolutionary and learning processes, where agents do not deliberately choose their behavior in the game, but play according to strategies with which they are born, imitate, or otherwise learn. Agents play a game and then reproduce based on their payoffs, where reproduction represents offspring, imitation, or learning. The new generation then play the game, and so on. In such settings, if a mutant does better (mutation can be genetic or can happen when agents experiment), then she is more likely to reproduce or her behavior imitated or reinforced, causing the behavior to spread. This intuition is formalized using models of evolutionary dynamics (e.g., Nowak, 2006 ). The key result for evolutionary dynamic models is that, except under extreme conditions, behavior converges to Nash equilibria. This result rests on one simple, noncontroversial assumption shared by all evolutionary dynamics: Behaviors that are relatively successful will increase in frequency. Based on this logic, game theory models have been fruitfully applied in biological contexts to explain phenomena such as animal sex ratios (Fisher, 1958 ), territoriality (Smith Price, 1973 ), cooperation (Trivers, 1971 ), sexual displays (Zahavi, 1975 ), and parent offspring conflict (Trivers, 1974 ). More recently, evolutionary dynamic models have been applied in human contexts where conscious deliberation is believed to not play an important role, such as in the adoption of religious rituals (Sosis Alcorta, 2003 ), in the expression and experience of emotion (Frank, 1988 ; Winter, 2014 ), and in the use of indirect speech (Pinker, Nowak, Lee, 2008 ). 292 M. Hoffman et al. Crucially for this chapter, because our behaviors are mediated by moral intuitions and ideologies, if our moral behaviors converge to Nash, so must the intuitions and ideologies that motivate them. The resulting intuitions and ideologies will bear the signature of their game theoretic origins, and this signature will lend clarity on the puzzling, counterintuitive, and otherwise hard-to-explain features of our moral intuitions, as exemplified by our motivating examples. In order for game theory to be relevant to understanding our moral intuitions and ideologies, we need only the following simple assumption: Moral intuitions and ideologies that lead to higher payoffs become more frequent . This assumption can be met if moral intuitions that yield higher payoffs are held more tenaciously, are more likely to be imitated, or are genetically encoded. For example, if every time you transgress by commission you are punished, but every time you transgress by omission you are not, you will start to intuit that commission is worse than omission. Rights and the Hawk Dove Game In this section we will argue that just as the Hawk Dove model explains animal territoriality (Maynard Smith Price, 1973 , to be reviewed shortly ), the Hawk Dove model sheds light onto our sense of rights (Descioli Karpoff, 2014 ; Gintis, 2007 ; Myerson, 2004 ). Let us begin by asking the following question (Myerson, 2004 ): Why does a passenger pay a taxi driver after getting out of the cab in a city where she is visiting for one day, not expecting to return? If the cabby complains to the authorities, the passenger could plausibly claim that she had paid in cash. The answer, of course, is that the cabby would feel that the money the passenger withheld was his that he had a right to be paid for his service and get angry, perhaps making a scene or even starting a fight. Likewise, if the passenger did in fact pay, but the cabby demanded money a second time, the passenger would similarly be infuriated. This example illustrates that people have powerful intuitions regarding rightful ownership. In this section, we explore what the Hawk Dove game can teach us about our sense of property rights. The reader is likely familiar with the Hawk Dove game, a model of disputes over contested resources. In the Hawk Dove game, each player decides whether to fight over a resource or to acquiesce (i.e. play Hawk or Dove). If one fights and the other does not, the fighter gets the resource, worth v . If both fight, each pays a cost c and split the resource. That is, each gets v 2- c. If neither fights, they split the resource and get v 2. As long as v 2 c, then in any stable Nash equilibrium, one player fights and the other acquiesces. That is, if one player expects the other to fight, she is better off acquiescing, and vice versa (see Fig. 2 ). Crucially, it is not just a Nash equilibrium for one player to always play Hawk and the other to always play Dove. It is also an equilibrium for both players to condition whether they play Hawk on an uncorrelated asymmetry a cue or event that Morality Games 293 Fig. 2 The Hawk Dove game. The Nash equilibria of the game are circled does not necessarily affect the payoffs, but does distinguish between the players, such as who arrived at the territory first or who built the object. If one conditions on the event (say, plays Hawk when she arrives first), then it is optimal for the other to condition on the event (to play Dove when the other arrives first). As our reader is likely aware, this was the logic provided by Maynard Smith to explain animal territoriality why animals behave aggressively to defend territory that they have arrived at first, even if incumbency does not provide a defensive advantage and even when facing a more formidable intruder. Over the years, evidence has amassed to support Maynard Smith s explanation, such as experimental manipulation of which animal arrives first (Davies, 1978 ; Sigg Falett, 1985 ). Like other animals, we condition how aggressively we defend a resource on whether we arrive first. Because our behaviors are motivated by beliefs, we are also more likely to believe that the resource is ours when we arrive first. Studies have shown these effects with children s judgments of ownership, in ethnographies of prelegal societies, and in computer games. In one such illustration, DeScioli and Wilson ( 2011 ) had research subjects play a computer game in which they contested a berry patch. Subjects who ended up keeping control of the patch usually arrived first, and this determined the outcome more often than differences in fighting ability in the game. This sense of ownership is codified in our legal systems, as illustrated by the quip possession is 9 10ths of the law, and in a study involving famous legal property cases conducted by Descioli and Karpoff ( 2014 ). In a survey, these researchers asked participants to identify the rightful owner of a lost item, after reading vignettes based on famous property rights legal cases. Participants consistently identified the possessor of the found item as its rightful owner (as the judges had at the time of the case). This sense of ownership is also codified in our philosophical tradition, e.g., in Locke ( 1988 ), who found property rights in initial possession. Note that, as has also been found in animals, possession extends to objects on one s land: In DeScioli and 294 M. Hoffman et al. Karpoff s survey, another dictate of participants (and the judges ) property rights intuitions was who owned the land on which the lost item was found. Also like animals, our sense of property rights is influenced by who created or invested in the resource, another uncorrelated asymmetry. In locales that sometimes grant property rights to squatters individuals who occupy lands others have purchased a key determinant of whether the squatters are granted the land is whether they have invested in it (Cone vs. West Virginia Pulp Paper Co., 1947 ; Neuwirth, 2005 ). Locke also intuited that investment in land is part of what makes it ours: In Second Treatise on Civil Government (1689), Locke wrote, everyman has a property in his person; this nobody has a right to but himself. The labor of his body and the work of his hand, we may say, are properly his. If the Hawk Dove model underlies our sense of property rights, we would expect to see psychological mechanisms that motivate us to feel entitled to an object when we possess it or have invested in it. Here are three such mechanisms, which can be seen by reinterpreting some well-documented biases in the behavioral economics literature. The first such bias is the endowment effect : We value items more if we are in possession of them. The endowment effect has been documented in dozens of experiments, where subjects are randomly given an item (mug, pen, etc.) and subsequently state that they are willing to sell the mug for much more than those who were not given the mug are willing to pay (Kahneman, Knetsch, Thaler, 1990 ). In the behavioral economics literature, the endowment effect has sometimes been explained by loss aversion, which is when we are harmed more by a loss than we benefit from an equivalent gain. However, the source of loss aversion is not questioned or explained. When it is, loss aversion is also readily explained by the Hawk Dove game (Gintis, 2007 ). A second bias that also fits the Hawk Dove model is the IKEA effect : Our valuation of an object is influenced by whether we have developed or built the resource. The IKEA effect has been documented by asking people how much they would pay for items like Lego structures or IKEA furniture after randomly being assigned to build them or receive them pre-built. Subjects are willing to pay more for items they build themselves. A third such bias that fits the Hawk Dove model is the sunk cost fallacy (Mankiw, 2007 ; Thaler, 1980 ), which leads us to throw good money after bad when we invest in ventures simply because we have already put so much effort into them, arguably because our prior efforts lead us to value those ventures more. Possession and past investment are not the only uncorrelated asymmetries that can dictate rights. Rights can be dictated by a history of agreements, as happens when one party sells another deed to a house or car, or, as in our taxicab example, by whether a service was provided. There are also countless examples in which rights were determined by perhaps unfair or arbitrary characteristics such as race and sex: Black Americans were expected to give up their seat for Whites in the Jim Crow South and women to hand over their earnings or property to their husbands throughout the ages. Hawk Dove is not just a post hoc explanation for our sense of rights; it also leads to the following novel insight: We can formally characterize the properties that Morality Games 295 uncorrelated asymmetries must have. This requires a bit more game theory to illustrate; the logic is detailed in the section on categorical distinctions but the implications are straightforward: Uncorrelated asymmetries must be discrete (as in who arrived first or whether someone has African ancestry) and cannot be continuous (who is stronger, whether someone has darker skin). Indeed, we challenge the reader to identify a case where our sense of rights depends on surpassing a threshold in a continuous variable (stronger than? darker than?). More generally, an asymmetry must have the characteristic that, when it occurs, every observer believes it occurred with a sufficiently high probability, where the exact level of confidence is determined by the payoffs of the game. This is true of public, explicit speech and handshakes, but not innuendos or rumors. (Formally, explicit speech and handshakes induce what game theorists term common p-beliefs.) The Hawk Dove explanation of our sense of rights also gives useful clarity on when there will be conflict. Conflict will arise if both players receive opposing signals regarding the uncorrelated asymmetry, such as two individuals each believing they arrived first, or when there are two uncorrelated asymmetries that point in conflicting directions, such as when one person invested more and the other arrived first. The former source of conflict appears to be the case in the Israeli Palestinian conflict. Indeed, both sides pour great resources into demonstrating their early possession, especially Israel, through investments in and public displays of archeology and history. The latter source of conflict appears to be the case in many of the contested legal disputes in the study by DeScioli and Karpoff ( 2014 ) mentioned above. An example is one person finds an object on another s land. Indeed, this turns out to be a source of many legal conflicts over property rights, and a rich legal tradition has developed to assign precedence to one uncorrelated asymmetry over another (Descioli Karpoff, 2014 ). As usual, we see similar behavior in animals in studies that provide empirical support for Maynard Smith s model for animal territoriality: When two animals are each given the impression they arrived first by, for example, clever use of mirrors, a fight ensues (Davies, 1978 ). Authentic Altruism, Motives, and the Envelope Game In this section , we present a simple extension of the Repeated Prisoner s Dilemma to explain why morality depends not just on what people do but also what they think or consider . In the Repeated Prisoner s Dilemma and other models of cooperation, players judge others by their actions whether they cooperate or defect. However, we not only care about whether others cooperate but also about their decision-making process: We place more trust in cooperators who never even considered defecting. To quote Kant, In law a man is guilty when he violates the rights of others. In ethics he is guilty if he only thinks of doing so. The Envelope Game (Fig. 3 ) models why we care about thoughts and considerations and not just actions (Hoffman, Yoeli, Nowak, 2015 ). The Envelope Game 296 M. Hoffman et al. Fig. 3 A single stage of the Envelope Game is a repeated game with two players. In each round, player 1 receives a sealed envelope, which contains a card stating the costs of cooperation (high temptation to defect vs. low temptation to defect). The temptation is assigned randomly and is usually low. Player 1 can choose to look inside the envelope and thus find out the magnitude of the temptation or choose not to look. Then player 1 decides to cooperate or to defect. Subsequently, player 2 can either continue to the next round or end the game. As in the Repeated Prisoner s Dilemma, the interaction repeats with a given likelihood, and if it does, an envelope is stuffed with a new card and presented to player 1, etc. In this model, as long as temptations are rare, large, and harmful to player 2, it is a Nash equilibrium for player 1 to cooperate without looking in the envelope and for player 2 to continue if and only if player 1 has cooperated and not looked. We refer to this as the cooperate without looking (CWOL) equilibrium. 2 This equilibrium emerges in agent-based simulations of evolution and learning processes. 3 Notice that if player 1 could not avoid looking inside the envelope, or player 2 could not observe whether player 1 looked, there would not be a cooperative equilibrium since player 1 would benefit by deviating to defection in the face of large temptations. Not looking permits cooperative equilibria in the face of large temptations. The Envelope Game is meant to capture the essential features of many interesting aspects of our morality, as described next. Authentic Altruism . Many have asked whether doing good is always and exclusively motivated by the prospect of some benefit for ourselves, however subtle (Batson, 2014 ), for example, the conscious anticipation of feeling good (Andreoni, 2 Technically, the conditions under which we expect players to avoid looking and attend to looking are ch a (1 w ) c lp ch (1 p ) and bp d (1 p ) 0), where ch and cl are the magnitudes of the high and low temptations, respectively; p is the likelihood of the low temptation; a (1 w ) is the value of a repeated, cooperative interaction to player 1; and bp d (1 p ) is the expected payoff to player 2 if player 1 only cooperates when the temptation is low. 3 The simulations employ numerical estimation of the replicator dynamics for a limited strategy space: cooperate without looking, cooperate with looking, look and cooperate only when the temptation is low, and always defect for player 1, and end if player 1 looks, end if player 1 defects, and always end for player 2. Morality Games 297 1990 ), avoidance of guilt (Cain, Dana, Newman, 2014 ; Dana, Cain, Dawes, 2006 ; DellaVigna, List, Malmendier, 2012 ), anticipation of reputational benefits or reciprocity (as Plato s Glaucon suggests, when he proffers that even a pious man would do evil if given a ring that makes him invisible; Trivers, 1971 ). At the extreme, this amounts to asking if saintly individuals such as Gandhi or Mother Teresa were motivated thus, or if they were authentic altruists who did good without anticipating any reward and would be altruistic even in the absence of such rewards. Certainly, religions advocate doing good for the right reasons. In the Gospel of Matthew, Chapter 6, Jesus advocates, Be careful not to practice your righteousness in front of others to be seen by them. If you do, you will have no reward from your Father in heaven, after which he adds, But when you give to the needy, do not let your left hand know what your right hand is doing, so that your giving may be in secret. Then your Father, who sees what is done in secret, will reward you. The Envelope Game suggests authentic altruism is indeed possible: By focusing entirely on the benefits to others and ignoring the benefits to themselves, authentic altruists are trusted more, and the benefits from this trust outweigh the risk of, for example, dying a martyr s death. Moreover, this model helps explain why we think so highly of authentic altruists, as compared to others who do good, but with an ulterior motive (consider, as an example, the mockery Sean Penn has faced for showing up at disaster sites such as Haiti and Katrina with a photographer in tow). Principles . Why do we like people who are principled and not those who are strategic ? For example, we trust candidates for political office whose policies are the result of their convictions and are consistent over time and distrust those whose policies are carefully constructed in consultation with their pollsters and who flipflop in response to public opinion (as caricatured by the infamous 2004 Republican presidential campaign television ad showing John Kerry windsurfing and tacking from one direction to another). CWOL offers the following potential explanation. Someone who is strategic considers the costs and benefits to themselves of every decision and will defect when faced with a large temptation, whereas someone who is guided by principles is less sensitive to the costs and benefits are to themselves and thus less likely to defect. Imagine our flip-flopping politician was once against gay marriage but supports it now that it is popular. This indicates the politician is unlikely to fight for the cause if it later becomes unpopular with constituents or risks losing a big donor. Moreover, this model may help explain why ideologues that are wholly devoted to a cause (e.g., Hitler, Martin Luther King, and Gandhi) are able to attract so many followers. Don t Use People . Recall Kant s second formulation of the categorical imperative: Act in such a way that you always treat humanity, whether in your own person or in the person of any other, never simply as a means but always at the same time as an end. In thinking this through, let s again consider dwarf tossing. Many see it as a violation of dwarfs basic dignity to use them as a means for amusement, even though they willingly engage in the activity for economic gain. Our aversion to using people may explain many important aspects of our moral intuitions, such as 298 M. Hoffman et al. why we judge torture as worse than imprisonment or punishment (torture is harming someone as a means to obtaining information) and perhaps one of the (many) reasons we oppose prostitution (prostitution is having sex with someone as a means to obtaining money). The Envelope Game clarifies the function of adhering to this maxim. Whereas those who treat someone well as means to an end would also mistreat them if expedient, those who treat someone well as an end can be trusted not to mistreat them when expedient. Attention to Motives . The previous two applications are examples of a more general phenomenon: that we judge the moral worth of an action based on the motivation of the actor, as argued by deontological ethicists, but contested by consequentialists. The deontological argument is famously invoked by Kant: Action from duty has its moral worth not in the purpose to be attained by it but in the maxim in accordance with which it is decided upon, and therefore does not depend upon the realization of the object of the action but merely upon the principle of volition in accordance with which the action is done without regard for any object of the faculty of desire (Kant, 1997 ). These applications illustrate that we attend to motives because they provide valuable information on whether the actor can be trusted to treat others well even when it is not in her interest. Altruism Without Prospect of Reciprocation . CWOL also helps explain why people cooperate in contexts where there is no possibility of reciprocation, such as in one-shot anonymous laboratory experiments like the dictator game (Fehr Fischbacher, 2003 ), as well as when performing heroic and dangerous acts. Consider soldiers who throw themselves on a grenade to save their compatriots or stories like that of Liviu Librescu, a professor at the University of Virginia and a Holocaust survivor, who saved his students during a school shooting. When he heard the shooter coming toward his classroom, Librescu stood behind the door to his classroom, expecting that when the shooter tried to shoot through the door, it would kill him and his dead body would block the door. Mr. Librescu, clearly, did not expect this act to be reciprocated. Such examples have been used as evidence for group selection (Wilson, 2006 ), but can be explained by individuals not looking at the chance of future reciprocation. Consistent with this interpretation, cooperation during extreme acts of altruism is more likely to be intuitive than deliberative (Rand Epstein, 2014 ), and those who cooperate without considering the prospect of reciprocation are more trusted (Critcher, Inbar, Pizarro, 2013 ). We also predict that people are more likely to cooperate intuitively when they know they are being observed. The Omission Commission Distinction and Higher-Order Beliefs We explain the omission commission distinction and the means by-product distinction by arguing that these moral intuitions evolved in contexts where punishment is coordinated. Then , even when intentions are clear to one witness for omissions and by-products , a witness will think intentions are less clear to the other witnesses . Morality Games 299 Why don t we consider it murder to let someone die that we could have easily saved? For example, we sometimes treat ourselves to a nice meal at a fancy restaurant rather than donating the cost of that meal to a charity that fights deadly diseases. This extreme example illustrates a general phenomenon: that people have a tendency to assess harmful commissions (actions such as killing someone) as worse, or more morally reprehensible, than equally harmful omissions (inactions such as letting someone die). Examples of this distinction abound, in ethics (we assess withholding the truth as less wrong than lying (Spranca, Minsk, Baron, 1991 )), in law (it is legal to turn off a patient s life support and let the patient die, as long as one has the consent of the patient s family; however, it is illegal to assist the patient in committing suicide even with the family s consent), and in international relations. For example, consider the Struma, a boat carrying Jewish refugees fleeing Nazi persecution in 1942. En route to Palestine, the ship s engine failed, and it was towed to a nearby port in Turkey. At the behest of the British authorities then in control of Palestine, passengers were denied permission to disembark and find their way to Palestine by land. For weeks, the ship sat at port. Passengers were brought only minimal supplies, and their requests for safe haven were repeatedly denied by the British and others. Finally, the ship was towed to known hostile waters in the Black Sea, where it was torpedoed by a Russian submarine almost immediately, killing 791 of 792 passengers. Crucially, though, the British did not torpedo the ship themselves or otherwise execute passengers an act of commission that they and their superiors would undoubtedly have found morally reprehensible. Why do we distinguish between transgressions of omission and commission? To address this question, we present a simple game theory model based on the insight by DeScioli, Bruening, and Kurzban ( 2011 ). The intuition can be summarized in four steps: 1. We note that moral condemnation motivates us to punish transgressors. Such punishment is potentially costly, e.g., due to the risk of retaliation. We expect people to learn or evolve to morally condemn only when such costs are worth paying. 2. Moral condemnation can be less costly when others also condemn, perhaps because the risk of retaliation is diffused, because some sanctions do not work unless universally enforced or, worse, because others may sanction individuals they believe wrongly sanctioned. This can be modeled using any game with multiple Nash equilibria, including the Repeated Prisoner s Dilemma and the Side- Taking Game. The Coordination Game is the simplest game with multiple equilibria, so we present this game to convey the basic intuition. In the Coordination Game, there are two players who each simultaneously choose between two actions, say punish and don t punish. The key assumption is that each player prefers to do what she expects the other to do, which can be captured by assuming each receives a if they both punish, d if neither punish, b d if one punishes and the other does not, and c a if one does not punish while the other does (Fig. 4 ). 3. Transgressions of omission that are intended are difficult to distinguish from unintended transgression, as is the case when perpetrators are simply not paying 300 M. Hoffman et al. Fig. 4 The Coordination Game. In our applications, A stands for punish, and B stands for don t punish attention or do not have enough time to react with better judgment (DeScioli et al., 2011 ). Relative to the example of the tennis player with the allergy described above, it is usually hard to distinguish between a competitor who does not notice his opponent orders the dish with the allergen versus one who notices but does not care. In contrast, transgressions of commission must be intended almost by definition. 4. Suppose the witness knows an omission was intentional: In the above example, the tennis player s opponent s allergy is widely known, and the witness saw the player watch his opponent order the offending dish, had time to react, thought about it, but did not to say anything. The witness suspects that others do not know the competitor was aware his opponent ordered the dish, but believes the tennis player should be condemned for purposely withholding information from his competitor. However, since the witness does not wish to be the sole condemner, she is unlikely to condemn. In contrast, when a witness observes a transgression of commission (e.g., the player recommends the dish), the witness is relatively confident that others present interpret the transgression as purposely harmful, since his recommendation reveals that the player was obviously paying attention and therefore intended to harm his opponent. So, if all other individuals present condemn the tennis player when they observe the commission, each does not anticipate being the sole condemner. For the above result to hold, all that is needed is the following: (1) The more the costs of punishment decrease, the more others punish and (2) omissions are usually unintended (Dalkiran, Hoffman, Paturi, Ricketts, Vattani, 2012 ; Hoffman et al., 2015 ). 4 4 In fact, even if one knows that others know that the transgression was intended, omission will still be judged as less wrong, since the transgression still won t create what game theorists call common p-belief, which is required for an event to influence behavior in a game with multiple equilibria. Morality Games 301 This explanation for the omission commission distinction leads to two novel predictions: First, for judgments and emotions not evolved to motivate witnesses to punishment but to, say, motivate witnesses to avoid dangerous partners (such as the emotion of fear; in contrast to anger or moral disgust), the omission commission distinction is expected to be weaker or disappear altogether. Second, for transgressions of omission that, without any private information, can be presumed intentional (such as a mother who allows her child to go hungry or a person who does not give to a charity after being explicitly asked), we would not expect much of an omission commission distinction in moral condemnation. As with the all models discussed in this chapter, the game theoretic explanation for the omission commission distinction does not rest on rational, conscious, strategic calculation. In fact, in this particular case, all reasonable evolutionary dynamic models lead away from punishing omissions. The fact that the above results do not rest on rational, strategic thinking is particularly important in this setting since there is evidence that the distinction between omissions and commissions is not determined deliberately but rather intuitively (Cushman, Young, Hauser, 2006 ) and appears to be evolved (DeScioli et al., 2011 ) and that consciously considering what others believe is an onerous process (Camerer, 2003 ; Epley, Keysar, Van Boven, Gilovich, 2004 ; Hedden Zhang, 2002 ). This same model can explain several other puzzling aspects of our morality. The first is the means by-product distinction. This distinction has been documented in studies that ask respondents to judge the following variants of the classic trolley problem. In the standard trolley switch case (Foot, 1967), a runaway trolley is hurtling toward a group of five people. To prevent their deaths, the trolley must be switched onto a side track where it will kill an innocent bystander. In studies using this case, the vast majority of subjects choose the utilitarian option, judging it permissible to cause the death of one to save five (e.g., Cushman et al., 2006 ; Mikhail, 2007). In the footbridge variant (Thomson, 1976 ), the trolley is hurtling toward the group of five people, but the switch to divert it is inoperable. The only way to save the five is to push a man who is wearing a heavy backpack off a bridge onto the track, thereby slowing the trolley enough so the five can escape, but killing the man. In contrast to the standard switch version, where causing the death of one person is but a by-product of the action necessary to save five, most subjects in the footbridge case find it morally impermissible to force the man with the backpack onto the tracks (Cushman et al., 2006 ; DeScioli, Gilbert, Kurzban, 2012 ) that is, when the man is used as a means to saving the five even though the consequences are the same, and the decision to act was made knowingly and deliberately in both cases. Such effects are found in less contrived situations, as well. Consider the real-life distinction between terrorism, in which civilian casualties are used a means to a political goal, and anticipated collateral damage, which is a by-product of war, even when the same number of civilians are knowingly killed and the same political ends are desired (say increased bargaining power in a subsequent negotiation). The explanation again uses higher-order beliefs and is based on the key insight in DeScioli et al. ( 2011 ) and formalized in Dalkiran et al. ( 2012 ) and Hoffman et al. ( 2015 ): When the harm is done as a by-product, the harm is not usually anticipated. 302 M. Hoffman et al. So even when a witness knows that the perpetrator anticipated the harm, the witness believes other witnesses will not be aware of this and will presume the harm was not anticipated by the perpetrators. For instance, suppose we observe Israel killing civilians as a by-product of a strategic raid on Hamas militants. Even if we knew Israel had intelligence that confirmed the presence of civilians, we might not be sure others were privy to this information. On the other hand, when the harm is done as a means, the harm must be anticipated, since otherwise the perpetrator would have no motive to commit the act. Why would Hamas fire rockets at civilian towns with no military presence if Hamas does not anticipate a chance of civilian casualties? Consequently, it is Nash equilibrium to punish harm done as a means but not harm done as a by-product. Similar arguments can be made for why we find direct physical transgressions worse than indirect ones, a moral distinction relevant to, for instance, the United States current drone policy. Cushman et al. ( 2006 ) found that subjects condemn pushing a man off a bridge (to stop a train heading toward five others) more harshly than flipping a switch that leads the man to fall through a trap door. Pushing the victim with a stick is viewed as intermediate in terms of moral wrongness. Such moral wrongness judgments are consistent with considerations of higher-order beliefs: When a man is physically pushed, any witness knows the pushing was intended, but when a man is pushed with a stick some might not realize this, and even those who realize it might suspect others will not. Even more so when a button is pressed that releases a trap door. It is worth noting that the above argument does not depend on a specific model of punishment, as in DeScioli and Kurzban s ( 2009 ) Side-Taking Game. The above model also makes the two novel predictions enumerated above, but nevertheless captures the same basic insight. It is also worth noting the contrast between the above argument and that of Cushman et al. ( 2006 ) and Greene et al. ( 2009 ), whose models rest on ease of learning or ease of mentally simulating a situation. It is not obvious to us how those models would explain that the omission commission and means by-product distinctions seem to depend on priors or be unique to settings of coordinated punishment. Why Morality Depends on Categorical Distinctions We explain why our moral intuitions depends so much more strongly on whether a transgression occurred than on how much damage was caused. Our argument again uses coordinated punishment and higher-order beliefs : When a categorical distinction is violated, you know others know it was violated , but this is not always true for continuous variables . Consider the longstanding norm against the use of chemical weapons. This norm recently made headlines when Bashar al-Assad was alleged to have used chemical weapons to kill about a thousand Syrian civilians, outraging world leaders who had Morality Games 303 been silent over his use of conventional weapons to kill over 100,000 Syrian civilians. A Reuters Ipsos poll at the time found that only 9 of Americans favored intervention in Syria, but 25 supported intervention if the Syrian government forces used chemical weapons against civilians (Wroughton, 2013 ). In the past, the United States has abided by the norm against the use of chemical weapons even at the expense of American lives: In WWII, Franklin D. Roosevelt chose to eschew chemical weapons in Iwo Jima even though, as his advisors argued at the time, their use would have saved thousands of American lives. It might even have been more humane than the flame-throwers that were ultimately used against the Japanese ( History of Chemical Weapons, 2013). We say that the norm against chemical weapons is a categorical norm because those who abide by it consider whether a transgression was committed (did Assad use chemical weapons?), rather than focusing entirely on how much harm was done (how many civilians did Assad kill?). Other norms are similarly categorical. For instance, in the introduction to this chapter, we noted that across cultures and throughout history, the norm against murder has always been categorical: We consider whether a life was terminated, not the loss of useful life years. Likewise, discrimination (e.g., during Jim Crow) is typically based on categorical definitions of race (the one drop rule ) and not, say, the darkness of skin tone. Human rights are also categorical. A human rights violation occurs if someone is tortured or imprisoned without trial, regardless of whether it was done once or many times and regardless of whether the violation was helpful in, say, gaining crucial information about a dangerous enemy or an upcoming terror attack. We even assign rights in a categorical way to all Homo sapiens and not based on intelligence, sentience, ability to feel pain, etc. Why is it that we attend to such categorical distinctions instead of paying more attention to the underlying continuous variable? We use game theory to explain this phenomenon as follows: Suppose that two players (say, the United States and France) are playing a Coordination Game in which they decide whether to punish Syria, and each wants to sanction only if the other sanctions. We assume the United States does not want to levy sanctions unless it is confident France will as well, which corresponds to an assumption on the payoffs of the game (if we reverse this assumption, it changes one line in the proof, but not the result). We model the underlying measure of harm as a continuous variable (in our example, it is the number of civilians killed). For simplicity, we assume this variable is uniformly distributed, which means Assad is equally likely to kill any number of people. This assumption is, again, not crucial, and we will point out the line in the proof that it affects. Importantly, we assume that players do not directly observe the continuous variable, but instead receive some imperfect signal (e.g., the United States observes the body count by its surveyors). Imagine a norm that dictates that witnesses punish if their estimate of the harm from a transgression is above some threshold (e.g., levy sanctions against Syria if the number of civilians killed is estimated to be greater than 100,000). As it turns out, this is not a Nash equilibrium. To see why, consider what happens when the United States gets a signal right at the threshold. The United States thinks there is a 304 M. Hoffman et al. 50 chance that France s estimates are lower than its own 5 and, thus, that there is a 50 chance that France s estimates are lower than the threshold. This further implies that the United States assesses only a 50 chance that France levies sanctions, so the United States is not sufficiently confident that France will sanction, to make it in the United States s interest to sanction. What we have shown so far is that for a threshold of 100,000, it is in the interest of the United States to deviate from the strategy dictated by the threshold norm when it gets a signal at the threshold. This means that 100,000 is not a viable threshold, and (since 100,000 was chosen arbitrarily) there is no Nash equilibrium in which witnesses punish if their estimate of the harm from a transgression is above some arbitrary threshold. It should be noted that this result only requires that there are sufficiently many possibilities, not that there is in fact a continuum. Neither does it require that the distribution is uniform nor that the Coordination Game is not affected by the behavior of Assad. The only crucial assumptions are that the distribution is not too skewed and that the payoffs are not too dependent on the behavior of Assad (for details, see Dalkiran et al., 2012 ; Hoffman, Yoeli, Dalkiran, 2015 ). What happens if such norms are learned or evolved and subject to selection? Suppose there is a norm to attack whenever more than 100,000 civilians are killed. Players will soon realize that they should not attack unless, say, 100,100 civilians are killed. Then, players will learn not to attack when they estimate 100,200 civilians are killed and so on , indefinitely. Thus, every threshold will eventually unravel, and no one will ever attack. 6 Now let s consider a categorical norm, for example, the use of chemical weapons. We again model this as a random variable, though this time, the random variable can only take on two values (0 and 1), each with some probability. Again, players do not know with certainty whether the transgression occurred, but instead get a noisy signal. In our example, the signal represents France or the United States s assessment of whether Assad used chemical weapons, and there is some likelihood the assessors make mistakes: They might not detect chemical weapons when they had been used or might think they have detected chemical weapons when none had been used. Unlike with the threshold norm, provided the likelihood of a mistaken signal is not too high, there is a Nash equilibrium where both players punish when they receive a signal that the transgression occurred. That is, the United States and France each levy sanctions if their assessors detect chemical weapons. This is because when the United States detects chemical weapons, the United States believes France 5 This is where the assumption of a uniform distribution comes in. Had we instead assumed, for instance, that the continuous variable is normally distributed, then it would not be exactly 50 50 but would deviate slightly depending on the standard deviation and the location of the threshold. Nevertheless, the upcoming logic will still go through for most Coordination Games, i.e. any Coordination Game with risk dominance not too close to .5. 6 As with omission, this follows from iterative elimination of strictly dominated strategies (see Hoffman et al., 2015 , for details). Morality Games 305 likely detected them and will likely levy sanctions. So the United States s best response is to levy sanctions. Similarly, if the United States does not detect chemical weapons, it expects France did not and will not levy sanctions, so the United States is better off not levying them. This result is useful for evaluating whether it is worthwhile to uphold a norm. The Obama administration was harshly criticized for threatening to go to war after the Assad regime used chemical weapons but not earlier, although the regime had already killed tens of thousands of civilians. The model clarifies that Obama s position was not as inconsistent as his critics had charged: The norm against chemical weapons may be worth enforcing since it is sustainable, whereas norms against civilian casualties are harder to sustain and hence might not be worthwhile to enforce. Let s return to some more of our motivating examples. Our model can explain why we define murder categorically: It is not possible to punish differently for different amount of quality life years taken, but it is possible to punish differentially for a life taken. As with omission commission, however, we do expect sadness or grief to depend greatly on life years lost, even if the punishment or moralistic outrage will be less sensitive. This is a prediction of the model that, as far as we know, has yet to be tested. Similarly, the one-drop rule is a categorical norm, so it can be socially enforced in an apartheid society. In contrast, consider a rule that advocates giving up one s seat for someone with lighter skin. Since this is based on a threshold in a continuous variable, while it might be enforceable by a unilateral authority, it cannot be enforced by mob rule. Other forms of discrimination, such as discriminating against the less attractive, or the less tall, or the elderly, all being continuous variables, cannot be socially enforced via coordinated punishment, and hence, we expect such discrimination to be of a different form. In particular, it will not be based not on punishing violators. For example, male CEOs might still prefer young attractive female secretaries, and taller men are more likely to be hired as CEOs, not because of coordinated rewards or punishment but because those who hire the CEOs or secretaries are likely to be satisfying their own preferences or doing what they expect will lead to higher profits. Likewise, the number of victims tortured by a regime or the number of lives saved by torturing is continuous. Thus, a regime cannot be punished by a coordinated attack by other countries or by a coordinated rebellion by its citizens based on the number of people tortured or the paucity of reasons for such torture. But, a regime can be attacked or overthrown depending on whether a physical harm was inflicted on a citizen by the state. Hence, human rights are treated as inalienable, even in the absence of an a priori justification for this nonutilitarian norm. And why are human rights ascribed to all living Homo sapiens ? Perhaps not because of a good logical a priori argument, but simply because violations of human rights are enforceable by coordinated punishment, but no regime can be punished for harming any person of less than a certain degree of consciousness. Finally, here is one last application. The model might also explain why revolutions are often caused by categorical events, such as a new tea tax or a single, widely 306 M. Hoffman et al. publicized self-immolation, and not a breach of a threshold in, say, the quality of life of citizens or the level of corruption. This explanation requires simply that we recognize revolutions as a coordination problem (as argued in Morris Shin, 2002 ; Chwe, 2013 ), where each revolutionary chooses whether to revolt, and each is better off revolting only if sufficiently many others revolt. Quirks of Altruism and the Repeated Prisoner s Dilemma with Incomplete Information The Repeated Prisoner s Dilemma has famously been used as an explanation for the evolution of cooperation among non-kin (Axelrod Hamilton, 1981 ; Dawkins, 2006 ; Pinker, 2003 ; Trivers, 1971 ). In this section , we show how the same basic model can be used to explain many of the quirky features of our pro-social preferences and ideologies . Recall that in the Prisoner s Dilemma, each of two players simultaneously chooses whether to cooperate. Cooperation reduces a player s own payoffs by c 0 while increasing the other s payoffs by b c . The only Nash equilibrium is for neither player to cooperate. In the Repeated Prisoner s Dilemma, the players play a string of Prisoner s Dilemmas. That is, after the players play a Prisoner s Dilemma, they learn what their opponent did and play another Prisoner s Dilemma against the same opponent with probability (and the game ends with probability 1 ). As is well known in the evolutionary literature, there are equilibria in which players end up cooperating, provided c b . In all such equilibria, cooperation is sustained because any defection by one player causes the other player to defect. This is called reciprocity. As the reader is surely familiar, there is ample evidence for the Repeated Prisoner s Dilemma as a basis for cooperation from computer simulations (e.g., Axelrod, 1984 ) and animal behavior (e.g., Wilkinson, 1984 ). The model can be extended to explain contributions to public goods if, after deciding whether to contribute to a public good, players play a Repeated Prisoner s Dilemma (see, e.g., Panchanathan Boyd, 2004 ) (Fig. 5 ). The key to understanding these quirks is that players often have incomplete information. For example: 1. Players do not always observe contributions. It is intuitive that, for cooperation to occur in equilibrium, contributions need to be observed with sufficiently high probability. 2. Others cannot always tell whether a player had an opportunity to contribute. For defection to be penalized, it must be the case that others can tell that a player had the opportunity to cooperate and did not (i.e. the player should not be able to hide the fact that there was an opportunity to cooperate). 3. Sometimes, there are two ways to cooperate, and one has a higher benefit, b . Then, the only way this more effective type of cooperation can be sustained in equilibrium is if others know which cooperative act is more effective. Morality Games 307 Fig. 5 The Repeated Prisoner s Dilemma. Two players play a Prisoner s Dilemma. They each observe the other s action, then, with probability , play another Prisoner s Dilemma against the same opponent, etc. Technically, for the second and third point, what is needed is common knowledge that a player had an opportunity to cooperate or of the more effective means of cooperation. If observers were to know one purposely chose to defect or chose the less cooperative act, but they do not know that others know this, then observers think others will think punishment is not warranted, and observers will not punish. The argument is analogous to the discussion of higher-order beliefs in the omission commission subsection and formalized in Dalkiran et al. ( 2012 ) and Hoffman et al. ( 2015 ). Interpreting the Quirks of Altruism Below we discuss some of the quirky features of altruism identified by economists and psychologists. In each case, we will argue that these features might be puzzling, but not when viewed through the lens of the above model: Insensitivity to Effectiveness . We are surprisingly insensitive to the impact of our charitable contributions. We vote because we want to be a part of the democratic system, or we want to make a difference, despite the fact that our likelihood of swinging an election (even in a swing state) is smaller than our likelihood of being struck by lightning (Gelman, Silver, Edlin, 2012 ). Why is our desire to make a difference or be a part of the system immune to the actual difference we are making? Our charitable contributions or volunteer efforts suffer from the same insensitivity. Why does anyone give money or volunteer time to Habitat for Humanity? The agency flies high earners who have never held a hammer halfway across the world to build houses that would be substantially more cheaply built by local experts funded by the high earners. Experimental evidence demonstrates our insensitivity: Experimental subjects are willing to pay the same amount to save 2000, 20,000, or 200,000 birds (Desvousges et al., 2010 ). Likewise, when donors are told their donations will be matched, tripled, or quadrupled, they donated identical amounts (Karlan List, 2006 ). Why do we give so much, but do not ensure our gifts have a large impact? The explanation follows directly from the above model: It is often the case that observers do not know which acts are effective and which are not and, certainly, this 308 M. Hoffman et al. usually is not commonly known. Thus, they will not reward or punish based on effectiveness, and we ourselves will not attend to effectiveness in equilibrium. This explanation suggests that if we want to increase efficacy of giving, we ought to focus on making sure donors friends and colleagues are aware of the efficacy of different options. In fact, this is perhaps more important than informing the donor of efficacy, since the donor will be motivated to uncover efficacy herself. Magnitude of the Problem . We are surprisingly unaware of and unaffected by the magnitudes of the problems we contribute to solving. How many of those who participated in the recent ALS Ice Bucket Challenge have even the vaguest sense of the number of ALS victims? (Answer: about 1 100th the victims of heart disease.) How much happier would these individuals have been if the number of ALS victims were cut in half? Multiplied by 100? The same questions could be asked about AIDS or cleft lips. If we were actually motivated by our desire to rid the world of such afflictions as we often proclaim, then we would be happier if there were fewer afflicted individuals and less happy if there were more. But we are not even aware of these numbers, let alone affected by them. This suggests an alternative motivation than the one we proclaim. On the other hand, if we give in order to gain social rewards, it does not matter whether the problem is large or small, provided others recognize it as a problem and the social norm is to give. If our learned or evolved preferences were drastically impacted by the magnitude of the crises, we would be sensitive to whether the problem was solved, perhaps motivating us to ensure that others solve it, which we would not get credit for, or perhaps motivating us to devote too much of our resources to solving it, beyond what we would actually get rewarded for. Observability . There is overwhelming evidence that people give more when their gifts are observed. Much of this evidence comes from the lab, where it has been demonstrated a myriad of ways (e.g., Andreoni Petrie, 2004 ; Bolton, Katok, Ockenfels, 2005 ; List, Berrens, Bohara, Kerkvliet, 2004 ). For instance, when participants play a public goods game in the laboratory for money, their contributions are higher when they are warned that one subject will have to announce to the room of other participants how much they contributed (List et al., 2004 ). However, evidence also comes from real-world settings, which find large effects in settings as diverse as blood donation (Lacetera Macis, 2010 ), blackout prevention (Yoeli, Hoffman, Rand, Nowak, 2013 ), and support for national parks (Alpizar, Carlsson, Johansson-Stenman, 2008 ). In Switzerland, voting rates fell in small communities when voters were given the option to vote by mail (Funk, 2006 ), which makes it harder to tell who did not vote, even though it also makes it easier to vote. In fact, our willingness to give more when observed extends to subtle, subconscious cues of being observed: People give twice as much in dictator games when there are markings on the computer screen that vaguely represent eyes (Haley Fessler, 2005 ), and they are more likely to pay for bagels in their office when the payment box has a picture of eyes above it (Bateson, Nettle, Roberts, 2006 ). These results should not surprise anyone who believes our pro-social tendencies are influenced by reputational concerns (though the magnitudes are surprisingly large). Morality Games 309 The effectiveness of subconscious cues of observability points to a primary role for reputations in our learned or evolved proclivities toward pro-social behavior. The large impact of subtle cues of observability, however, calls into question alternative explanations not based on reputations. Explicit Requests . When we are asked directly for donations, we give more than if we are not asked, even though no new information is conveyed by the request. In a study of supermarket shoppers around Christmas time, researchers found that passersby were more likely to give to the Salvation Army if volunteers not only rang their bell but explicitly asked for a donation (Andreoni, Rao, Trachtman, 2011 ). If our motive is to actually do good, or perhaps proximally to feel good by the act of giving, we should not be impacted by an explicit request. However, if we evolved or learned to give in order to gain rewards or avoid punishment as described above, then we ought to be more likely to give when, if we did not give, it would be common knowledge that we had the option to give and chose not to. The explicit request makes the denial common knowledge. It is worth emphasizing that our evolved intuition to respond to explicit asks may be (mis)applied to individual settings that lack social rewards. Imagine you are approached by a Salvation Army volunteer in front of a store in a city where you are visiting for one day only. A literal reading of the model would suggest that you should be no more likely to respond to an explicit request. But it is more realistic to expect that if your pro-social preferences were learned or evolved in repeated interactions then applied to this new setting, you would respond in a way that is not optimal for this particular setting and nonetheless give more when explicitly asked (just as our preferences for sweet and fatty foods, which evolved in an environment where food was scarce, lead us to overeat now that food is abundant). Avoiding Situations in Which We Are Expected to Give . In the same supermarket study, researchers discovered that shoppers were going out of their way to exit the store through a side door, to avoid being asked for a contribution by the Salvation Army volunteers. In another field experiment, those who were warned in advance that a solicitor would come to the door asking for charitable donations were more likely to not be home. The researchers estimated that among those who gave, 50 would have avoided being home if warned in advance of the solicitor s time of arrival (DellaVigna et al., 2012 ). In a laboratory analog, subjects who would have otherwise given money in a 10 dictator game were willing to pay a dollar to keep the remaining nine dollars and prevent the recipient from knowing that a dictator game could have been played (Dana et al. 2006 ). If our motive were to have an impact, we would not pay to avoid putting ourselves in a situation where we could have such an impact. Likewise, if our motive were to feel good by giving, we would not pay to avoid this feeling. In contrast, if we evolved or learned to give in order to gain rewards or avoid punishment, then we would pay to avoid situations where we are expected to give. Again, this would be true even if, in this particular setting, we were unlikely to actually be punished. 310 M. Hoffman et al. Norms . People are typically conditionally cooperative , meaning that they are willing to cooperate more when they believe others contribute more. For example, students asked to donate to a university charity gave 2.3 percentage points more when told that others had given at a rate of 64 than when they were told giving rates were 46 (Frey Meier, 2004 ). Hotel patrons were 26 more likely to reuse their towels when informed most others had done the same (Goldstein, Cialdini, Griskevicius, 2008 ). Households have been shown to meaningfully reduce electricity consumption when told neighbors are consuming less, both in the United States (Ayres, Raseman, Shih, 2012 ) and in India (Sudarshan, 2014 ). Such conditional cooperation is easily explained by the game theory model: When others give, one can infer that one is expected to give and may be socially sanctioned if one does not. Strategic Ignorance . Those at high risk of contracting a sexually transmitted disease (STD) often go untested, presumably because if they knew they had the STD, they would feel morally obliged to refrain from otherwise desirable activity that risks spreading the STD. Why is it more reproachable to knowingly put a sexual partner at risk when one knows one has the STD than to knowingly put a sexual partner at risk by not getting tested? There is evidence that we sometimes pursue strategic ignorance and avoid information about the negative consequences of our decisions to others. When subjects are shown two options, one that is better for themselves but worse for their partners and one that is worse for themselves but better for their partners, many choose the option that is better for their partners. But, when subjects must first press a button (at no cost) to reveal which option is better for their partners, they choose to remain ignorant and simply select the option that is best for themselves (Dana, Weber, Kuang, 2007 ). This quirk of our moral system is again easy to explain with the above model. Typically, information about how one s actions affect others is hard to obtain, so people cannot be blamed for not having such information. When one can get such information easily, others may not know that it is easy to obtain and will not punish anyone who does not have the information. For example, although it is trivially easy to look up charities financial ratings on websites like charitynavigator.org, few people know this and could negatively judge those that donate without first checking such websites. And even when others know that one can get this information easily, they might suspect that others do not know this, and so avoid punishing, since others won t expect punishment. To summarize, strategic ignorance prevents common knowledge of a violation and so is likely to go unpunished. We again emphasize that we will be lenient of strategic ignorance, even when punishment is not literally an option. Norm of Reciprocity . We feel compelled to reciprocate favors, even if we know that the favors were done merely to elicit reciprocation and even if the favor asked in return is larger than the initial one granted (Cialdini 2001). For instance, members of Hare Krishna successfully collect donations by handing out flowers to disembarking passengers at airports, even though passengers want nothing to do with the flowers: They walk just a few feet before discarding them in the nearest bin. Morality Games 311 Psychologists and economists sometimes take this norm as given, without asking where it comes from, and a naive reading of Trivers would lead one to think that we should be sensitive to the magnitude of the initial favor and whether it is manipulative. However, according to the above model, reciprocity is the Nash equilibrium, even if the favors are not evenly matched or manipulative, since, in equilibrium, we are neither sensitive to such quantitative distinctions nor to whether the initial reciprocity was manipulative, unless these facts are commonly known. Self-Image Concerns . People sometimes play mental tricks in order to appear to themselves as pro-social. For example, in an experiment, subjects will voluntarily take on a boring task to save another subject from doing it, but if given the option of privately flipping a coin to determine who gets the task, they often flip and flip, and flip again until the coin assigns the task to the other subject (Batson, Kobrynowicz, Dinnerstein, Kampf, Wilson, 1997 ). Why would we be able to fool ourselves and not, say, recognize that we are gaming the coin flip? Why do we care what we think of ourselves at all? Are there any constraints on how we will deceive ourselves? Such self-image considerations can be explained by noting that our self-image can act as a simple proxy, albeit an imperfect one, for what others think of us, and also that we are more convincing to others when we believe something ourselves (Kurzban, 2012 ; Trivers, 2011 ). This explanation suggests that the ways we deceive ourselves correspond to quirks described throughout this section for example, we will absolve ourselves of remaining strategically ignorant even when it is easy not to, or be convinced that we have done good by voting, even if we cannot swing an election. Framing Effects . Whether we contribute is highly dependent on the details of the experiment, such as the choice set (List, 2007 ) and the labels for the different choices (Ross Ward, 1996 ; Roth, 1995 ). Such findings are often taken as evidence that social preferences cannot be properly measured in the lab (Levitt List, 2007 ). We believe a more fruitful interpretation is simply that the frame influences whether the laboratory experiment turns on our pro-social preferences, perhaps by simulating a situation where cooperation is expected (Levitt List, 2007 ). One-Shot Anonymous Giving : We give in anonymous, one-shot settings, such as dictator games. We also sacrifice for others in the real world when there is no chance of reciprocation: Heroes jump on grenades to save their fellow soldiers or block the door to a classroom with their bodies to prevent a school shooter from entering (Rand Epstein, 2014 ). This is often seen as evidence for a role of group selection (Fehr Fischbacher, 2003 ). However, an alternate explanation is that we do not consider the likelihood of reciprocation (Hoffman et al., 2015 ), as described above. To explain the laboratory evidence, there are two more possibilities. First, subjects may believe there is some chance their identity will be revealed and feel the costs of being revealed as selfish are greater than the gains from the experiment (Delton, Krasnow, Cosmides, Tooby, 2011 ). Second, we again emphasize that learned or evolved preferences and ideologies are expected to be applied even in novel settings to which they are not optimized. 312 M. Hoffman et al. Conclusion In this chapter we have showed that a single approach game theory , with the help of evolution and learning can explain many of our moral intuitions and ideologies. We now discuss two implications . Group Selection . Our chapter relates to the debate on group selection, whereby group level competition and reproduction is supposed to occasionally cause individuals to evolve to sacrifice their own payoffs to benefit the group (e.g., Wilson, 2006 ). One of the primary pieces of evidence cited in support of group selection is the existence of human cooperation and morality (Fehr Fischbacher, 2003 ; Fehr, Fischbacher, G chter, 2002 ; Gintis, Bowles, Boyd, Fehr, 2003 ; Haidt, 2012 ; Wilson, 2010 , 2012 ), in particular: giving in one-shot anonymous laboratory experiments, intuitively sacrificing one s life for the group (jumping on the grenade), and contributions to public goods or charity. However, we have reviewed an alternative explanation for these phenomena that does not rest on group selection. It also yields predictions about these phenomena that group selection does not, such as that people are more likely to cooperate when they are being observed and there is variance in the cost of cooperation. The approach described here also explains other phenomena, such as categorical norms and ineffective altruism. These lead to social welfare losses, which is suboptimal from the group s perspective. The categorical norm against murder, for example, leads to enormous waste when keeping alive, sometimes for years, those who have virtually no chance of a future productive life. Admittedly, despite their inefficiencies, these moral intuitions do not rule out group selection, since group selection can be weak relative to individual selection. But it does provide a powerful argument that group selection is unnecessary for explaining many interesting aspects of human morality. It also suggests that group selection is, indeed, at most, weak. One example that makes this especially clear is discrete norms. Recall that we argued that continuous norms are not sustainable because individuals benefit by deviating around the threshold. Notice that this benefit is small, since the likelihood that signals are right around the threshold is low. Group selection could easily overwhelm the benefit one would get from deviating from this Nash equilibrium, suggesting group selection is weak (i.e. there are few group- level reproductive events, high migration rates, high rates of mutation in the form of experimentation among individuals, etc.). Logical Justification of Moral Intuitions . In each of the applications above, we explained moral intuitions without referring to existing a priori logical justifications by philosophers or others. Our explanation for our sense of rights does not rely on Locke s state of nature. No argument we gave rests on God as an orderly designer, on Platonic ideals, on Kant s concepts of autonomy and humanity, etc. What does this mean for these a priori justifications? It suggests that they are not the source of our morality and are, instead, post hoc justifications of our intuitions (Haidt, 2012 ). To see what we mean, consider the following analogy. One might wonder why we find paintings and sculptures of voluptuous women beautiful. Before the Morality Games 313 development of sexual selection theory, one might have argued that perfect spheres are some kind of Platonic solid, and inherently desirable, or that curvy hips yield golden ratios. But with our current understanding of sexual selection, we recognize that our sense of beauty has evolved and that there is no platonic sense of beauty outside of that shaped by sexual selection. Any argument about perfect spheres is unparsimonious and likely flawed. Without the help of evolution and game theory, did philosophers conjure the moral equivalents of perfect spheres and golden ratios? The state of nature, the orderly designer, Platonic ideals, autonomy, and humanity, etc. perhaps these arguments are also unfounded and unnecessary. References Alpizar, F., Carlsson, F., Johansson-Stenman, O. (2008). 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